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ST华发A: 2008年半年度报告（英文版）
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Shenzhen Zhongheng Huafa Co., Ltd.
SEMI-ANNUAL REPORT 2008
Stock Code: 000020, 200020
Short Form of the Stock: ST HUAFA-A, ST HUAFA-B
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Semi-annual Report 2008
Important Notice
The Board of Directors and the Supervisory Committee of Shenzhen Zhongheng Huafa Co., Ltd.
(hereinafter referred to as the Company) and its directors, supervisors and senior executives confirm
that there are no fictitious records, misleading statements or material omissions carried in this report,
and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of
the whole contents. No directors, supervisors or senior executives stated that he (she) couldn’t
ensure the reality, accuracy and completion of the contents of the Interim Report or have objection
to this report.
Independent Directors of the Company Mr. Yan Haizhong and Ms. Song Pingping were absent for
business, and all other directors attended the meeting of the Board.
Mr. Li Zhongqiu, Chairman of Board and General Manager of the Company, Mr. Shi Cheng, Person
in Charge of Accounting Work, and Mr. Zhang Zhiyong, Person in Charge of Accounting Organ
hereby state that: the financial report of the 2008 Semi-annual Report is true and complete.
The Semi-annual financial report of the Company has not been audited.
Board of Directors of
Shenzhen Zhongheng Huafa Co., Ltd.
Contents
Ⅰ. COMPANY PROFILE
Ⅱ. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHARES HELD BY MAIN
SHAREHOLDERS
III. PARTICULARS ABOUT DIRECTORS, SUPERVISORS AND SENIOR EXECUTIVES
Ⅳ. REPORT OF THE BAORD OF DIRECTORS
Ⅴ. SIGNIFICANT EVENTS
Ⅵ. FINANCIAL REPORT (UNAUDITED)
Ⅶ. DOCUMENTS AVAILABLE FOR REFERENCE
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I. Company Profile
1. Name of the Company
In Chinese: 深圳中恒华发股份有限公司
In English: SHENZHEN ZHONGHENG HUAFA CO., LTD.
2. Legal Representative: Li Zhongqiu
3. Secretary of the Board: Shi Cheng
Securities Affairs Representative: Weng Xiaojue
Contact Address: 6/F, East Tower of 411 Bldg, Huafa Building, Huafa Road (N), Futian District,
Shenzhen.
Tel: (86) 83352206
Fax: (86) 755-83323160
E-mail: hwafainvestor@163.com
4. Registered Address: 411 Bldg., Huafa North Road, Futian District, Shenzhen
Office Address: 6/F, East Tower of 411 Bldg., Huafa Road (N), Futian District, Shenzhen.
Post Code: 518031
Company’s Internet Web Site: http://www.hwafa.com
5. Newspapers for Disclosing the Information of the Company:
China Securities, Securities Times and Hong Kong Wen Wei Po
Internet Web Site for Publishing the Semi-Annual Report: http://www.cninfo.com.cn
The Place Where the Semi-Annual Report is Prepared and Placed: OFF. of Board of Directors of
Shenzhen Zhongheng Huafa Co., Ltd.
6. Stock Exchange Listed with: Shenzhen Stock Exchange
Short Form of the Stock: ST HUAFA-A, ST HUAFA- B
Stock Code: 000020, 200020
7. Other Relevant Information of the Company
Initial registered date and place or changed registered date and place:
Registered date: May, 1992
Registered place: 411 Bldg., Huafa North Road, Futian District, Shenzhen
Registered number of enterprise legal person’s business license: 100296
Registered number of tax: 113260
Name and office address of Certified Public Accountants engaged by the Company:
Name: Shinewing Certified Public Accountants
Address: 9/F, Block A, Fu Hua Mansion No.8 Chaoyang Men, Bei da jie, Dong Cheng District,
Beijing, P.R.China
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II. Major financial data and indexes
Unit: RMB
Increase/decrease at the end of this
At the end of At the period-end of last yea report period compared with that at
this report the period-end of last year （％）
period Before Before
After adjustment After adjustment
adjustment adjustment
Total assets 499,276,250.33 373,957,038.94 373,957,038.94 33.51 33.51
Owners’ equity (Shareholders’
239,696,807.32 242,200,200.60 242,200,200.60 -1.03 -1.03
equity)
Net assets per share 0.847 0.855 0.855 -0.94 -0.94
Increase/decrease in this report period
In this report The same period of last year
year-on-year (%)
period
Before Before
(Jan. to Jun.) After adjustment After adjustment
adjustment adjustment
Operating profit -4,320,768.46 -6,374,297.27 -8,082,915.16 34.30 48.19
Total profit -2,503,393.28 -2,275,256.07 -2,275,256.07 -10.03 -10.03
Net profit attributable to the
-2,503,393.28 -2,275,256.07 -2,275,256.07 -10.03 -10.03
shareholders of the company
Net profit attributable to the
shareholders of the company after
-4,320,768.46 -6,374,297.27 -6,374,297.27 34.30 34.30
deducting non-recurring gains and
losses
Basic earnings per share -0.009 -0.008 -0.008 -12.50 -12.50
Diluted earnings per share -0.009 -0.008 -0.008 -12.50 -12.50
Decreased 0.01
Decreased 0.01
Return on equity -1.04% -1.03% -1.03% percentage
percentage points
points
Net cash flow arising from
-26,048,943.94 -10,834,097.67 -140.43
operating activities
Net cash flow arising from per
-0.092 -0.038 -140.43
share operating activities
Note: The adjusted amount of operating profit in last year amounted to RMB 1,708,617.89 was that
the lease income and relevant expense of transferred Huafa Yard were adjusted to non-operating
expense.
Items of non-recurring gains and losses Amount
Donation assets calculated into current gains
——
and losses
Other non-recurring gains and losses 1,817,375.18
Total 1,817,375.18
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CAS IAS
Net profit -2,503,393.28 -2,503,393.28
Net asset 239,696,807.32 239,696,807.32
Return on equity Earnings per share
Item Fully diluted Weighted Basic earnings per Diluted earnings
share
(%) average (%)
(RMB) per share(RMB)
Net profit attributable to the
-1.044 -1.039 -0.009 -0.009
shareholders of the company
Net profit attributable to the
shareholders of the company after
-1.803 -1.793 -0.015 -0.015
deducting non-recurring gains and
losses
II. Change in Share Capital and Particulars about Shares Held by Main
Shareholders
I. Particulars about change in share capital
Before the change Increase/decrease in the change of this time (+, - ) After the change
New Capitalization
Amount Proportion share Bonus of public Others Subtotal Amount Proportion
(RMB) (%) issued shares reserve (%)
I. Restricted
116,516,142 41.15 -26248 -26248 116,489,894 41.14
shares
1. State-owned
shares
2. State-owned
legal person’s
shares
3. Other domestic
116,516,142 41.15 -26248 -26248 116,489,894 41.14
shares
Including:
Domestic legal
116,489,894 41.14 0 0 116,489,894 41.14
person’s shares
Domestic natural
person’s shares
26248 0.01 -26248 -26248 0 0
(shares of senior
executives)
4. Foreign shares
Including:
Foreign legal
person’s shares
Foreign natural
person’s shares
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II. Unrestricted
166,645,085 58.85 26248 26248 166,671,333 58.86
shares
1. RMB Ordinary
64,649,249 22.83 26248 26248 64,675,497 22.84
shares
2. Domestically
listed foreign 101,995,836 36.02 0 0 101,995,836 36.02
shares
3. Overseas listed
foreign shares
4. Others
III. Total shares 283,161,227 100 0 0 283,161,227 100
Note: In accordance with the relevant regulations, directors, supervisor and senior executives of the
listed company could apply to release the sale restriction of shares held by them after leaving the
positions 6 months later. Ended Jan.17, 2008, the original chairman of supervisor committee of the
Company Mr. Ye Daming leaved his position for 6 months long, with the application to China
Securities Regulatory Commission and China Securities Depository and Clearing Corporation
Limited Shenzhen Branch, his held 26,248 shares of the Company have all been released sales
restrictions.
II. Particulars about shareholders (registered on Jun.30, 2008)
Total shareholders 24,265
Particulars about shares held by the top ten shareholders
Proportion Amount of Amount of
Nature of Total amount
Full name of Shareholders shareholders of shares of shares held restricted shares shares pledged
held held or frozen
Domestic
Wuhan Zhongheng New Science & non-state-owned
41.14% 116,489,894 116,489,894 0
Technology Industrial Group Co., Ltd. legal person
shares
SEG (HONG KONG) CO., LTD. Foreign legal 5.85% 16,569,560 0 Unknown
person
GOOD HOPE CORNER
INVESTMENTS LTD Foreign legal 4.91% 13,900,000 0 Unknown
person
Domestic
HE HUAN HAO 0.47% 1,322,981 0 Unknown
natural person
REN JUN DEVELOPMENT CO., Foreign legal
0.42% 1,200,000 0 Unknown
LTD. person
Domestic
WANG ZHI HAI 0.39% 1,106,369 0 Unknown
natural person
Foreign natural
BINGHUA LIU 0.31% 876,213 0 Unknown
person
Domestic
WU WEI MIN 0.31% 870,500 0 Unknown
natural person
Foreign natural
LUO YA 0.27% 756,620 0 Unknown
person
Foreign natural
LIU LIAO YUAN 0.26% 734,200 0 Unknown
person
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Particulars about shares held by the top ten shareholders of unrestricted shares
Name of shareholder Amount of unrestricted shares held Type of share
Domestically listed foreign
SEG (HONG KONG) CO., LTD. 16,569,560 share
GOOD HOPE CORNER INVESTMENTS Domestically listed foreign
13,900,000
LTD share
HE HUAN HAO 1,322,981 RMB common share
Domestically listed foreign
REN JUN DEVELOPMENT CO., LTD. 1,200,000
share
WANG ZHI HAI 1,106,369 RMB common share
Domestically listed foreign
BINGHUA LIU 876,213
share
WU WEI MIN 870,500 RMB common share
Domestically listed foreign
LUO YA 756,620
share
Domestically listed foreign
LIU LIAO YYUAN 734,200
share
SHEN LING 722,585 RMB common share
Among the top ten shareholders, Wuhan Zhongheng New Science &
Technology Industrial Group Co., Ltd. neither bears associated relationship
with other shareholders, nor belongs to the consistent actor that are
prescribed in Measures for the Administration of Disclosure of Shareholder
Explanation on associated relationship among
the aforesaid shareholders or consistent action Equity Changes of Listed Companies.
The Company neither knew whether there exists associated relationship
among the other shareholders, nor they belong to consistent actors that are
prescribed in Measures for the Administration of Disclosure of Shareholder
Equity Changes of Listed Companies.
III. The amount and sale restriction condition of shares held by the top ten restricted shareholders
Amount of
Name of restricted Amount of Date of being listed for newly added
No. shareholders restricted shares transactions shares being Restriction condition
held listed for
transactions
Promising that the
non-tradable shares
Wuhan Zhongheng of the Company held
New Science & by it will not be
1 Technology 116,489,894 May 18, 2010 0 listed for transaction
Industrial Group within 36 months
Co., Ltd. since the date of
acquiring circulating
right.
4. Change of the controlling shareholder of the Company
The controlling shareholder of the Company Wuhan Zhongheng New Science & Technology
Industrial Group Co., Ltd.(Hereinafter refers to Wuhan Zhongheng Group), the actural controller is
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Mr. Li Zhongqiu, and did not change in the report period.
III. Particulars about Directors, Supervisors and Senior Executives
I. Changes in shares held by directors, supervisors, and senior executives
Directors, supervisors, and senior executives of the Company did not hold the shares of the
Company.
II. Changes of the directors, supervisors, and senior executives of the Company in the report period.
In June, 2008, with the elections in the 3rd extraordinary meeting of the board of directors of the
Company in 2008 and 2007 Annual Shareholders’ General Meeting, Mr. Li Ding’an was
supplemented to be the Independent Director of the 6th board of the directors of the Company.
Details could be available in the public notices dated Jun 7th and 28th of 2008.
IV. Report of Board of Directors
I. Operation and management of the Company in the report period
In the first half year of 2008, the operation of main business was similar with that of the same
period of last year, with the loss of RMB 2.5 million, including:
·Baolilong business created net profit RMB 1,460,000 for the Company due to in midseason of
production and sale;
·Shenzhen plastic injection business lost RMB 1,830,000 in the report period due to lack of steady
order source; Wuhan injection molding business which was purchased from holding sharedholders
in June gained profit RMB 730,000, which relaxed the effect of operation loss in Shenzhen plastic
injection business;
·For developing LCD entire machine business, it was mainly focused on the large order from
customer such as Foxcon, which raised operating income greatly. However, due to the great
increasing orders, capacity was insufficient and cost for human resources was rising, thus effect of
scale did not appear. A loss of RMB 0.2 million was made in the report period;
·The operation of printed circuit business was in serious condition, faced many difficulties, there
were problems such as low efficiency, high cost and weak management, old equipment, and
reconstruction of factory, improving management needing input and time, therefore, it lost RMB 6.5
million, increased about 3 million year-on-year, which surpassed the expectation;
·While the operation of the main profit source of the Company—property lease was steady, leasing
rate reached 98.74%, leasing income was RMB 17.38 million, leasing profit was RMB 14.25
million, and recovery rate was about 99%.
II. Analysis on main business operation and financial condition
(I) Scope and operation of main business
The main operation of the Company focuses on the industry of electronic products, including the
production and sales of circuit boards and plastic injection hardware and LCD whole machine
business. The sales of products of the Company focus on the area of South China, Southwest and
Hong Kong. Details could be available in the following statement:
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Unit: RMB
Gross Increase/decrease Increase/decrease Increase/decrease
Income from
Cost of profit in income from in cost of in gross profit
Industry operations
operations ratio operations over operations over ratio over the last
(%) the last year (%) the last year (%) year (%)
Plastic
Decreased 14.44
injection 3,221,357.57 3,976,683.25 -23.45 -11.61 2.83
hardware percentage points
Decreased 9.08
Circuit boards 20,710,905.92 25,272,028.80 -22.02 -31.97 -22.89
percentage points
Increased 2.54
LCD 28,592,565.52 27,844,240.90 2.62 124.52 121.98
percentage points
Decreased 3.90
Total 52,524,829.01 57,092,952.95 -8.7 12.17 16.07
percentage points
Increase/decrease in income from operations
Area Income from operation
over the last year (%)
South China 17,837,721.21 -48.16%
Southwest 8,592,193.69 31.99%
Hong Kong 26,094,914.11 215.69%
(II) Simple analysis on finanical condition
1. Changes of main financial index of the Company in the report period
Unit: RMB
Amount in the
Amount in the Increase or
Item same period of last
period decrease (%)
year
Operation income 72,721,200.02 67,894,925.19 7.11
Operation profit -4,320,768.46 -8,082,915.16 48.19
Net profit attributable to
-2,503,393.28 -2,275,256.07 -10.03
shareholders of the Company
Net increase amount of cash and
29,543,782.07 -8,965,980.93 229.51
cahs equivalents
Amount in the
Amount in the Increase or
Item same period of last
period decrease (%)
year
Total assets 499,276,250.33 373,957,038.94 33.51
Equity attributable to owners of
239,696,807.32 242,200,200.60 -1.03
parent company’
The analysis on reasons of changes in main financial index of the Company in the report period:
(1) The main reason for great increase in operation income year-on-year: ①the order of LCD in the
period increased year-on-year, and the income of LCD greatly increased; ②operation profit of
Baolilong business was RMB 1,458,496.45, while there was no this business in the same period of
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last year; ③Wuhan Zhongheng plastic injection business produced profit RMB 731,723.26; ④due
to the service life of Huafa Building prolonged to 20 years, the depreciation policy changed from
Oct.1, 2007, and depreciation life prolonged according the prolonging of service life, therefore,
depreciation decreased RMB 2,854,848.04 year-on-year; ⑤ due to increased cost, the loss
proportion of plastic injection business and circuit business further extended year-on-year.
(2) The main reason for decrease of net profit owning to shareholders year-on-year: ①due to cost
of materials and manpower constantly rose and operation cost also increased, gross profit rate of
plastic injection hardware process and printing circuit business were both negative; ②Wuhan
Zhongheng Group donated assets to the Company last year, which formed profit RMB 3,660,621.21,
while there was no this income this year.
(3) The reason forgreat increase of net increase amount of cash and cash equivalents was the
increase of short-term loan.
2. In the report period, the profit composition, main business and its structure as well as
profit-earning ability haven’t had any significant changes.
(III) Other operating business of the Company that had significant influences on net profit in the
report period
Other operation Profit and loss (RMB’0000)
Property leasing 1425.01
Property management 35.97
Equipment leasing 35.09
Selling material 10.30
(IV) There’s no yield of single share holding company that had over 10%(contains 10%) influences
on net profit of the Company in the report period.
(V) Problems and difficulties in the operation
For the equipment of printed circuit board business is worn and aging, capital should be input for
reconstruction and updating. The aging of waste water emission pipe influenced quality of disposal
of waste water. All-round reconstruction should be made to the original equipment for waste water
disposal and new waster water conduit was laid during the report period. The Company introduced
new waste water disposal technique, and adopted several reform measures to ensure steady
emission of waste water, trying to solve the environment-pretection problems fundamentally.
(VI) Key work plan in the second half year
Due to great fluctuation of LCD marketing in the first half year, considering operation risk, the
scope of LCD business was not suitable to extend, and the operation plan of the Company in 2008
was revised. The Company expected to realize business income RMB 206 million and business cost
about RMB 171 million.
Whereas the origin fixed assets investment of printing circuit business remained RMB 60 million to
gradually be amortized and depreciated, with great operation pressure, The key work in the second
half year will focus on how to efficiently improve operation benefit, make all efforts to improve
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present operation conditon of printing circuit business, focusing on strong point and avoiding the
weak point. firstly grasp quality management of production system, settled quality trouble of each
tache and procedure, strictly conformed to standard procedure, actually improve production quality,
and establish a base for market exploration; secondly develop high quality customer group, grasp
development of market business, try to introduce new order and make efforts to reduce operation
risk brought by single collection of customer group.
III. Investment
(I) Usage of raised fund
In the report period, the Company hasn’t raised any fund or fund raised in previous period used
lasting to the report period.
(II) Investment with significant non-raised fund
The Company hasn’t had any investment with non-raised fund in the report period.
V. Significant events
I. Administration of the Company
In the report period, the Company continues to perfect legal person administration structure,
electing and increasing independent directors majored in accounting and officially engaging
secretary of the Board, in accordance to Company Law, Securities Law, relevant regulation of
CSRC and demands of Listing Rules for Stock in Shenzhen Stock Exchange; internal control
system is basically implemented effectively, new management systems for subsidiaries in series of
finance, human resources and document are released, which ensures standardized operation of the
Company. The legal person administration of the Company is in line with relevant document of
CSRC.
According to the No.27 (2008) notice of CSRC and No. 62 (2008) notice on Doing Well in Further
Promoting Special Administration Activity of Listed Company released by Shenzhen Securities
Regulatory Bureau, the Board of the Company made examination on the reform of the proceedings
listed in the reform report as of Jun 30th of 2008, item by item. Then, the Board advanced the next
reform plan for promoting administration; meanwhile, following the spirit of (SSBH No. 118 (2008))
document of CSRC on Strengthening Persistent Supervision to Avoid Rebound of Capital
Occupancy, the Board also made self-inspection on capital current between controlling shareholders
and related parties. It then got to know that no controlling shareholders and related parties occupied
capital of the Company or capital was occupied indirectly by forbidden related transaction.
II. Implementation of profit distribution plan
In the report period, the Company has no profit distribution plan, capital reserve transferred into
share capital plan or issuing new shares plan which were planned in previous periods and
implemented in this report period.
The Company has not drew preplan of profit distribution and capital reserve transferred into share
capital in this half year, which also meant that no profit would be distributed and capital reserve
would be transferred to add share capital in the first half year of 2008.
III. Significant lawsuits and arbitrations
In the report period, the Company hasn’t any significant lawsuit or arbitration.
IV. Security investment
In the report period, the Company hasn’t carried on security investment, nor held equity of other
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listed company, non-listed financial enterprise or company that planned to be listed.
V. Significant asset purchase, sales and asset restructure
No significant asset purchase, sales and enterprise merger concerning non related transaction
happened in this report period, nor did them happened in previous period but lasted to this report
period.
VI. Significant related transaction
1. With consideration that the business of the Company and its controlling shareholder- Wuhan
Zhongheng Group is positioned in the middle or even lower stage in the industry chain of LCD, in
order to promote the Company to develop rapidly in LCD field, the Company continued to carry out
daily related transaction with Wuhan Zhongheng Group as well as its subsidiary Wuhan Hengsheng
Photoelectricity Industry Co., Ltd. in 2008, purchasing LCD, raw material needed for production.
Proposal on Prediction of Daily Related Transaction in Visual Communication Business for 2008
has been examined and approved in the 4th temporary shareholders’ meeting of 2007 on Jan 3rd of
2008. The pricing principle was that transaction price was at least 1% lower than the average
market price of that time. Details could be available in the Company’s notice dated Dec 15th of 2007.
Due to that price for LCD was rising continuously from January to April in 2008 and the demand
was much, raw material supply of the aforesaid related parties was insufficient, so LC products
were worked out in comparative shortage, which was hard to fulfill the order demand of the
Company. Therefore, till Jun 30th of 2008, the Company has not purchased raw material from the
related parties.
2. On Jun 5th of 2008, the Board held the 3rd temporary meeting for 2008 in which resolution on
related transaction that Purchasing Relevant Assets for Plastic Injection Business from Controlling
Shareholders was examined and approved. It was agreed that the Company took cash to purchase
the relevant assets for plastic injection business from its controlling shareholder-Wuhan Zhongheng
Group. Hubei Zhonglian Assets Estimation Co., Ltd. issued Asset Estimation Report (EZLPBZ
st
No.054 (2008)), taking Mar 31 of 2008 as basis day of estimation. The estimated net value for the
transacted assets amounted RMB 27,201,600. With negotiation between the Company and Wuhan
Zhongheng Group, the general price for the objected assets amounted to RMB 27million.
After this purchase, due to that Wuhan Zhongheng Group had not transferred the relevant
land-using right and workshop to the Company, the Company had to use the land-using right and
workshop by leasing and accept relevant comprehensive service provided by Wuhan Zhongheng
Group; besides, due to that the Company still hadn’t got qualification attestation as supplier from
main customers of plastic injection business, and qualification license from superintended customs
for processing trade, so a transition period did exist for this asset transfer. In order to ensure normal
operation and production of plastic injection business, the Company entrusted Wuhan Zhongheng
Group to operate and manage the relevant assets for plastic injection business during the transition
period. The entrusted operation term started from the date of asset transfer to Dec 31st of 2008. If
the Company acquired qualification attestation as supplier from main customers of plastic injection
business, and qualification license from superintended customs for processing trade in advance
during the entrusted operation term, then the entrusted operation term should end; if it didn’t
required the aforesaid license in that term, then the Board of the Company would decide whether to
postpone the entrusted operation term according to situation. For the aforesaid entrusted operation
was just arrangement in transition period for asset transfer, Wuhan Zhongheng Group agreed to take
no fee for this trusteeship from the Company. For details, please refer to the Company’s notice
th
dated Jun 7 of 2008.
th
On Jun 5 of 2008, Agree of Asset Transfer, Agreement on Comprehensive Service, and Agreement
on Entrusted Operation were reached between the Company and Wuhan Zhongheng Group; the two
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parties accomplished procedure for hand-over-and-take-over of the aforesaid assets according to
regulation of the agreements dated Jun 12th of 2008. This asset brought net profit of RMB 0.73
million to the Company in June.
3. There is no non-operation credit and liability current and guarantee existed between the Company,
controlling subsidiaries and related parties
VII. Significant contracts and their implementations
(I)It was planned in the share merger reform of the Company that: the controlling
shareholder-Wuhan Zhongheng Group made consideration arrangement with the commitment that it
restructured the Company’s assets and delivered shares to the shareholders holding circulating
shares of the Company; the main content of asset restructure was Wuhan Zhongheng Group donated
relevant asset concerning Baolilong and entire machine assemble business to the Company,
meanwhile, made business conformity to the Company. According to the commitment of Wuhan
Zhongheng Group, relevant asset concerning Baolilong business had been already transferred to the
Company in August of 2007. The Company decided to set Wuhan Branch to operate and manage
these assets. However, due to the complicated procedure for transacting operation license, Wuhan
Branch was not founded in August of 2007 as scheduled. Besides, those long-term cooperated
clients in business concerning relevant assets of Baolilong would have a qualification attestation
lasting for 3 months. Taking consideration of the special situation happened during the transition
period for this assets transfer, the Company entrusted Wuhan Zhongheng Group to operate and
manage the relevant assets concerning Baolilong business from Aug 1st of 2007 to Jun 30th of 2008,
to assure a lasting asset operation and realization of a smooth transition of operation. The net value
of the assets operated by entrustment amounted to RMB 15,893,600. Because the aforesaid
entrustment operation was just an arrangement in the transition period, Wuhan Zhongheng Group
agreed to take no fee for this trusteeship from the Company.
th
Till Jun 30 of 2008, those long-term cooperated clients in business concerning relevant assets of
Baolilong have finished qualification attestation as supplier; Wuhan Branch also accomplished its
industrial and commercial registration procedure dated Dec 27th of 2007; business operation for the
donated assets has successfully experienced the transition, thus, the Company has officially took
charge in operating and managing relevant assets of Baolilong Business from Jul 1st of 2008. After
the entrusted operation term of Baolilong business, the Company engaged agency to carry out
special audit according to Agreement on Entrusted Operation reached by the two involved parties.
ShineWing Certified Public Accountant issued special audit report (XYZH/2008SZATS001) with
standard unqualified opinion. During the entrusted operation period (from Aug 1st of 2007 to Jun
30th of 2008), the aforesaid assets brought accumulative net profit of RMB 1.55 million
(II)In 2001, the Company signed House Leasing Contract with Shenzhen Wanshang Friendship
st th
Department Store Co., Ltd. and China Resource Vanguard Co., Ltd. to lease the 1 to 4 floor of
Huafa Building. The total area leased was 22,241.7square meters and the leasing term was 10 years.
Marketplace-Vanguard Department Store was set there. During the report period, the contract was
implemented well.
(III) The Company hasn’t any significant guarantee contract occurred in the report period or
occurred in previous period but lasted to the report period.
(IV) The Company hasn’t any significant entrusting event of others to manage assets of the
Company occurred in the report period or previous period but lasted to the report period; neither has
other entrusted financing events.
VIII. Special explanation and independent opinion issued by independent directors on capital
occupancy and external guarantee of related parties of the Company
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Independent directors made careful inspection on the external guarantee, capital occupancy of
controlling shareholders and other related parties and they held that: till report period end, the
Company hadn’t provided capital to related parties out of line; also hadn’t provided guarantee to
large shareholders and their related parties, any non-legal person corperation or individual and
provided no external guarantee.
IX. Commitments
(I)Commitments that probably have significant influence on operational result and financial status
of the Company occurred in the report period or previous period but lasted to the report period
made by the Company or shareholders holding over 5% (including 5%) of the Company.
Name of shareholder Commitment Performance of commitment
1. Wuhan Zhongheng Group didn’t finish the assets
injection within the commitment term;
2. On Jun 5th of 2008, with examination and approval from
the 3rd temporary meeting of the Board for 2008, the
Company took cash RMB 27 million buying relevant
assets concerning production of injection products from
Wuhan Zhongheng Group, and thus part commitment had
Plan to transfer the relevant been finished;
assets concerning plastic 3. In the 1st 10 days of May, 2008, the Company officially
injection business and the started off the significant asset restructure work of
Wuhan Zhongheng
New Science & 70% equities of Wuhan purchasing the 70% equities of Wuhan Hengsheng
Hengsheng Photoelectricity Photoelectricity Industry Co., Ltd.; engaged financial
Technology
Industry Co., Ltd. held by consultant and law consultant to carry out earnest
Industrial Group
it to the Company, within a investigation on the restructure assets that may be
Co., Ltd.
year after the completion of involved, and negotiated with relevant departments which
equity transfer registration were in charge of this. However, due to that relevant
for this purchase. condition was not mature, there were obstacles in material
asset restructure and paused the planning in short-time. At
the same time, seeing from the analysis to periodic
changes of production industry of LCD, it is estimated that
there would be in low tide in the second half of this year,
the time for purchasing Wuhan Hengsheng
Photoelectricity Industry Co., Ltd. by the Company needs
to be done further market analysis and research.
(II)Commitments of controlling shareholders made in the share merger reform scheme of the
Company
Name of shareholder Special commitment Performance of commitment
Wuhan Zhongheng Promised that the holding non-circulating shares
New Science & of the Company won’t be traded on the market Being performed
Technology Industrial within 36 months since they acquired listed
Group Co., Ltd. trading right.
X. Audit
The financial report of the Company in half year of 2008 hasn’t been audited. Examined and
approved in the 2007 Shareholders’ General Meeting, the Company continues to engage ShineWing
Certified Public Accountant as the audit organization for 2008.
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XI. Other significant events
(I) In the report period, the Company, as well as its directors, supervisors, senior executives,
controlling shareholders and actual controllers haven’t received any inspection, administrative
penalty, forbiddance to enter securities market and pointed as inappropriate person by CSRC;
received other penalty from administrative departments and public condemn from Shenzhen Stock
Exchange.
(II) In the report period, the Company hasn’t had any reception or research, communication,
interview etc. activities from the special objects indicated by Guiding Rules for Fair Information
Disclosure of Listed Company.
(III) In the report period, the Company and its staffs actively joined fighting against earthquake and
rescue activity for Wenchuan Heavy Earthquake. RMB 771,506 has been totally collected from the
Company and the Company offered our efforts for social commonweal.
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VI. Financial Report (Un-audited)
BALANCE SHEET
(June 30, 2008)
Prepared by Shenzhen Zhongheng Huafa Co., Ltd. Unit: RMB
Amount at
Amount at period-begin
Item Notes period-end
Merger Parent Company Merger Parent Company
Current assets:
Monetary funds VII.1 47,852,005.32 47,507,160.30
18,308,223.25 17,175,103.18
Notes receivable VII.2 6,484,238.60 6,484,238.60
3,949,751.05 3,949,751.05
Accounts receivable VII.3 86,690,357.84 86,661,860.84
57,501,749.38 57,474,744.38
Accounts in advance VII.4 7,843,122.24 7,843,122.24
2,469,127.52 2,469,127.52
Other receivables VII.5 19,830,353.67 21,779,287.18
17,885,097.37 20,338,083.04
Inventories VII.6 76,785,550.83 76,785,550.83
32,595,773.55 32,595,773.55
Non-current asset due
within one year
Other current assets 65,779.88 65,779.88
Total current assets 245,551,408.38 247,126,999.87
132,709,722.12 134,002,582.72
Non-current assets:
Long-term equity
investment
Investment property VII.7 44,377,643.80 44,377,643.80
45,819,394.37 45,819,394.37
Fixed assets: VII.8 201,232,172.38 201,174,549.23
187,238,973.29 187,148,677.44
Construction in progress VII.9 742,993.72 742,993.72
1,036,612.52 1,036,612.52
Engineering material VII.10 311,291.00 311,291.00
Disposal of fixed asset
Intangible assets VII.11 6,359,953.76 6,359,953.76
6,451,549.35 6,451,549.35
Expense on Research and
Development
Goodwill
Long-term expenses to be
apportioned
Deferred income tax asset VII.12 700,787.29
700,787.29
Other non-current asset
Total non-current asset 253,724,841.95 252,966,431.51 241,247,316.82 240,456,233.68
Total assets 499,276,250.33 500,093,431.38 373,957,038.94 374,458,816.40
Current liabilities:
Short-term loans VII.13 119,183,965.04 119,183,965.04 60,400,000.00 60,400,000.00
Notes payable VII.14 7,549,329.03 7,549,329.03 2,812,914.35 2,812,914.35
Accounts payable VII.15 56,734,054.45 56,624,205.35 42,777,941.82 42,668,092.72
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Accounts received in
VII.16 2,846,615.00 2,843,126.00 666,261.81 655,415.81
advance
Wage payable VII.17 1,039,053.07 987,415.72 1,028,977.77 974,636.79
Taxes payable VII.18 -622,496.23 -677,799.44 1,870,755.16 1,836,152.65
Other accounts payable VII.19 72,648,922.65 73,686,382.36 22,199,987.43 22,911,403.48
Long-term liabilities due
within 1 year
Other current liabilities
Total current liabilities 259,379,443.01 260,196,624.06 131,756,838.34 132,258,615.80
Non-current liabilities:
Long-term loans
Bonds payable
Long-term account
payable
Special accounts payable
Projected liabilities
Deferred income tax
liabilities
Other non-current
VII.20 200,000.00 200,000.00
liabilities
Total non-current liabilities 200,000.00 200,000.00
Total liabilities 259,579,443.01 260,396,624.06 131,756,838.34 132,258,615.80
Owner’s equity (or
shareholders’ equity):
Paid-in capital (or share
VII.21 283,161,227.00 283,161,227.00 283,161,227.00 283,161,227.00
capital)
Capital public reserve VII.22 106,032,173.92 106,032,173.92 106,032,173.92 106,032,173.92
Less: Inventory shares
Surplus public reserve VII23 77,391,593.25 77,391,593.25 77,391,593.25 77,391,593.25
Retained profit VII.24 -226,888,186.85 -226,888,186.85 -224,384,793.57 -224,384,793.57
Balance difference of
foreign currency translation
Total owner’s equity
attributable to parent 239,696,807.32 239,696,807.32 242,200,200.60 242,200,200.60
company
Minority interests
Total owner’s equity 239,696,807.32 239,696,807.32 242,200,200.60 242,200,200.60
Total liabilities and owner’s
499,276,250.33 500,093,431.38 373,957,038.94 374,458,816.40
equity
Principal of the Company: Li Zhongqiu Person in charge of accounting works: Shi Cheng
Person in charge of accounting institutes: Zhang Zhiyong
PROFIT STATEMENT
(Jan.-Jun., 2008)
Prepared by Shenzhen Zhongheng Huafa Co., Ltd. Unit: RMB
This period Same period of last year
Items Notes
Merger Parent Company Merger Parent Company
I. Total operating income 72,721,200.02 71,708,604.02 66,041,479.19 65,033,839.19
Including: Operating income VII.25 72,721,200.02 71,708,604.02 66,041,479.19 65,033,839.19
II. Total operating cost 79,232,188.19 78,219,940.09 74,124,394.35 73,116,754.35
Including: Operating cost VII.25 61,521,143.96 60,921,341.49 58,917,566.09 58,337,715.92
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Operating tax and extras VII.26 1,014,361.45 961,706.47 980,165.08 927,799.00
Sales expenses 2,211,264.49 2,211,264.49 1,746,199.80 1,746,199.80
Administration expenses 11,037,561.09 10,677,864.88 10,456,267.74 10,077,194.27
Financial expenses VII.27 2,968,516.75 2,968,422.31 2,024,195.64 2,027,845.36
Losses of devaluation of asset VII.28 479,340.45 479,340.45
Add: Changing income of fair
value
Investment income
Including: Investment income on
affiliated company and joint
venture
Entrusted operating gains VII.29 2,190,219.71 2,190,219.71
III. Operating profit -4,320,768.46 -4,321,116.36 -8,082,915.16 -8,082,915.16
Add: Non-operating income VII.30 2,703,449.75 2,703,449.75 5,957,955.60 5,957,955.60
Less: Non-operating expense VII.31 886,074.57 885,726.67 150,296.51 150,296.51
Including: Disposal loss of
non-current asset
IV. Total Profit -2,503,393.28 -2,503,393.28 -2,275,256.07 -2,275,256.07
Less: Income tax
V. Net profit -2,503,393.28 -2,503,393.28 -2,275,256.07 -2,275,256.07
Net profit attributable to
-2,503,393.28 -2,503,393.28 -2,275,256.07 -2,275,256.07
owner’s equity of parent company
Minority shareholders’ gains
and losses
VI. Earnings per share
i. Basic earnings per share -0.009 -0.009 -0.008 -0.008
ii. Diluted earnings per share -0.009 -0.009 -0.008 -0.008
Principal of the Company: Li Zhongqiu Person in charge of accounting works: Shi Cheng
Person in charge of accounting institutes: Zhang Zhiyong
CASH FLOW STATEMENT
(Jan.-Jun., 2008)
Prepared by Shenzhen Zhongheng Huafa Co., Ltd. Unit: RMB
This period Same period of last year
Item Notes
Merger Parent Company Merger Parent Company
I. Cash flows arising from
operating activities:
Cash received from selling
commodities and providing labor 66,992,386.24 65,988,639.24 121,190,176.89 120,331,755.89
services
Write-back of tax received
Other cash received
5,994,252.05 5,987,500.39 9,460,931.76 9,340,408.76
concerning operating activities
Subtotal of cash inflow
72,986,638.29 71,976,139.63 130,651,108.65 129,672,164.65
arising from operating activities
Cash paid for purchasing
73,831,893.59 73,831,893.59 110,721,321.70 110,721,321.70
commodities and receiving labor
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service
Cash paid to/for staff and
12,393,419.24 11,992,088.25 15,857,957.33 15,495,755.78
workers
Taxes paid 4,207,727.14 4,163,613.94 2,474,437.54 2,396,913.68
Other cash paid concerning
VII.32 8,602,542.26 7,249,212.74 12,431,489.75 11,489,037.18
operating activities
Subtotal of cash outflow
99,035,582.23 97,236,808.52 141,485,206.32 140,103,028.34
arising from operating activities
Net cash flows arising from
-26,048,943.94 -25,260,668.89 -10,834,097.67 -10,430,863.69
operating activities
II. Cash flows arising from
investing activities:
Cash received from
recovering investment
Cash received from
investment income
Net cash received from
disposal of fixed, intangible and 135,000.00 135,000.00
other long-term assets
Net cash received from
disposal of subsidiaries and other
units
Other cash received
concerning investing activities
Subtotal of cash inflow
135,000.00 135,000.00
from investing activities
Cash paid for purchasing
fixed, intangible and other 453,571.40 453,571.40 3,250,796.40 3,250,496.40
long-term assets
Cash paid for investment
Net cash received from
subsidiaries and other units
Other cash paid concerning
investing activities
Subtotal of cash outflow
453,571.40 453,571.40 3,250,796.40 3,250,496.40
from investing activities
Net cash flows arising from
-318,571.40 -318,571.40 -3,250,796.40 -3,250,496.40
investing activities
III. Cash flows arising from
financing activities
Cash received from
absorbing investment
Including: Cash received
from absorbing minority
shareholders’ investment by
subsidiaries
Cash received from loans 88,783,965.04 88,783,965.04 10,000,000.00 10,000,000.00
Cash received from issuing
bonds
Other cash received
concerning financing activities
Subtotal of cash inflow
88,783,965.04 88,783,965.04 10,000,000.00 10,000,000.00
from financing activities
Cash paid for settling debts 30,000,000.00 30,000,000.00 2,500,000.00 2,500,000.00
Cash paid for dividend and
2,291,092.20 2,291,092.20 2,381,086.86 2,381,086.86
profit distributing or interest
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paying
Including: Dividend and
profit of minority shareholder
paid by subsidiaries
Other cash paid concerning
financing activities
Subtotal of cash outflow
32,291,092.20 32,291,092.20 4,881,086.86 4,881,086.86
from financing activities
Net cash flows arising from
56,492,872.84 56,492,872.84 5,118,913.14 5,118,913.14
financing activities
IV. Influence on cash due to
-581,575.43 -581,575.43
fluctuation in exchange rate
V. Net increase of cash and cash
29,543,782.07 30,332,057.12 -8,965,980.93 -8,562,446.95
equivalents
Add: Balance of cash and
cash equivalents at the period 18,308,223.25 17,175,103.18 19,610,336.01 17,579,528.19
-begin
VI. Balance of cash and cash
47,852,005.32 47,507,160.30 10,644,355.08 9,017,081.24
equivalents at the period–end
Principal of the Company: Li Zhongqiu Person in charge of accounting works: Shi Cheng
Person in charge of accounting institutes: Zhang Zhiyong
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STATEMENT ON CHANGES OF OWNERS’ EQUITY
(June 30, 2008)
Prepared by Shenzhen Zhongheng Huafa Co., Ltd. Unit: RMB
Amount in this year Amount in last year
Owners’ equity attributable to the parent company 归属于母公司所有者权益
Minor Less: Minori
Paid-up Less: Gener Paid-up Gener
Items ity Total owners’ Trea Ot ty Total owners’
capital Capital Treasu Surplus al risk Retained capital Capital Surplus al risk Retained
Others interes equity sury her interes equity
(Share reserves ry reserves provis profit (Share reserves reserves provisi profit
t Stoc s t
capital) Stock ion capital) on
k
I. Balance at the end of the
283,161,227.00 106,032,173.92 77,391,593.25 -224,384,793.57 242,200,200.60 283,161,227.00 106,032,173.92 77,391,593.25 -242,742,157.64 223,842,836.53
last year
Add: Changes of
-3,708,556.90 -3,708,556.90
accounting policy
Error correction of the last
period
II. Balance at the beginning
283,161,227.00 106,032,173.92 0.00 77,391,593.25 0.00 -224,384,793.57 0.00 0.00 242,200,200.60 283,161,227.00 106,032,173.92 0.00 77,391,593.25 0.00 -246,450,714.54 220,134,279.63
of this year
III. Increase/ Decrease in
this year (Decrease is listed 0.00 0.00 0.00 0.00 0.00 -2,503,393.28 0.00 0.00 -2,503,393.28 0.00 0.00 0.00 0.00 0.00 22,065,920.97 22,065,920.97
with'"-")
(I) Net profit -2,503,393.28 -2,503,393.28 22,065,920.97 22,065,920.97
(II) Profits and losses
calculating into owners'
equity
1. Net changing amount of
fair value of financial assets
available for sale
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2. Effect of changes of
other owners' equity of
invested units under equity
method
3. Effect of income tax
related to owners' equity
4. Others
Subtotal of (I)and (II) -2,503,393.28 -2,503,393.28 22,065,920.97 22,065,920.97
(III) Owners' devotion and
decreased capital
1. Owners' devotion capital
2. Amount calculated into
owners' equity paid in
shares
3. Others
(IV) Profit distribution
1. Withdrawal of surplus
reserves
2. Withdrawal of general
risk provisions
3.Distribution for owners
(shareholders)
4.Others
(V) Carrying forward
internal owners' equity
1.Capital reserves
conversed to capital (share
capital)
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2. Surplus reserves
conversed to capital (share
capital)
3.Remedying loss with
profit surplus
4.Others
IV. Balance at the end of
283,161,227.00 106,032,173.92 0.00 77,391,593.25 0.00 -226,888,186.85 239,696,807.32 283,161,227.00 106,032,173.92 0.00 77,391,593.25 0.00 -224,384,793.57 242,200,200.60
this report period
Principal of the Company: Li Zhongqiu Person in charge of accounting works: Shi Cheng Person in charge of accounting institutes: Zhang Zhiyong
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Annotations to the Accounting Statement
1. Company Profile
Shenzhen Zhongheng Hwafa Co., Ltd. (“the Company” for short), previously known
as Shenzhen Zhongheng Huafa Co., Ltd. (renamed as set out herein in this term), is a
Sino-foreign joint venture jointly invested and incorporated by such three legal
persons as Shenzhen Electronics Group Co., Ltd. (“SEG” for short), China Zhenhua
Electronics Group Co., Ltd. (“Zhenhua Group” for short) and Luks Industrial (Group)
Limited (“Luks Group” for short) on 08 December 1981. In 1991, the Company was
reorganized as a company of limited liabilities by stocks (registered number of the
License for a Corporation Legal Person: Q.G.Y.S.Z.Z.No. 100296 and is changed as
440301501120670 in this term) and made its IPO in the same year, issuing 53,130,000
shares of RMB common stock with par value 1 Yuan per share, including 29,630,000
shares of A shares and 23,500,000 shares of B shares. In 1992, the Company launched
it’s A shares and B shares in Shenzhen Stock Exchange, 53,130,000 shares were
tradable and 159,203,000 shares remaining unlisted.
In November 1996, Luks Group assigned 12% of its shares in the Company, totaling
25,500,000 shares, to SEG through agreement, which was approved in the reply of
Shenzhen Stock Regulatory Office and ceded on 05 March 1997. After such
assignment, Luks Group held 25,796,663 shares of the Company, accounting for
12.16% of the total shares capital, and SEG held 25,500,000 shares of the Company,
accounting for 12% of the total shares capital.
In December 1997, the Company conducted shares allotment program, issuing extra
63,699,895 shares to all shareholders by the ratio of 10:3 against the total 212,332,989
shares before the allotment, among which, 30,777,997 shares were alloted to domestic
corporate shareholders and 3,600,000 shares were subscribed, with the remaining
27,177,997 shares assigned to public shareholders on paid basis, 15,388,998 shares
were allotted to foreign corporate shareholders and 1,800,000 shares were subscribed
with 13,588,998 shares abandoned, and also 9,777,900 shares allotted to public
shareholders and 7,755,000 shares to domestic-listed foreign shareholders.
In January 1998, the Company carried out the capital reserve-to-capital program for
year 1996, i.e. based on the total 212,332,989 shares ended 1996, 2 shares will be
increased to per 10 shares for all shareholders, and based on the total 240,701,488
shares ended 1997 after allotation, 1.764 shares will be increased to each 10 shares for
all shareholders.
On 05 January 2001, upon ratification, the increased shares of the Company, totaling
6,394,438 shares, went public in Shenzhen Stock Exchange.
On 29 May 2001, upon the approval of CSRC, the non-listed foreign capital totaling
62,462,914 shares of the Company were transferred as listed circulating stock,
marking the irculation of entire foreign capital.
On 30 November 2001 and 07 December 2001, Luks Group reduced the B-share of
the Company, totaling 14,158,000 shares and 14,159,000 shares respectively. As of 17
December 2001, SEG had aggregately reduced B-share of the Company totaling
14,487,400 shares, accounting for 5.12% of total shares capital of the Company.
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Ended as 31 Dec. 2006, the aggregate shares of the Company are 28,316,000 shares,
158,240,000 shares were listed including 56,240,000 A-shares and 102,000,000
B-shares.
On 06 June 2005, the Company bulletined that original shareholder SEG and Zhenhua
Group assigned the state-owned corporate capital they held in the Company totaling
124,920,000 shares to Wuhan Zhongheng New Tech Industry Group Co., Ltd.
(“Wuhan Zhongheng” for short), which was ratified by the State-owned Assets
Committee, the State Ministry of Commerce and CSRC with relevant assignment
procedures completed on 11 April 2007.
On 13 November 2006, the Board of Shareholders of the Company passed the Share
Merger Reform Program of Shenzhen Zhongheng Huafa Co., Ltd. In line the program,
Wuhan Zhongheng carried out assets reorganization to the Company, including
bestowing assets and integrating industries covered by the Company, also paying 1.5
shares as consideration for per 10 shares to all A-share shareholders enrolled as at the
equity registration day for the program, totaling 8,435,934 shares which may be
tradable since the first business day after the implementation of the program. On May
18, 2007, the Company accomplished the implementation of consideration of shares
in the share merger reform scheme. As of August 2007, the Company had completed
the share merger reform program with ceding procedures for bestowed assets
completed.
As of 30 June 2008, the aggregate shares of the Company are 28,316,000 shares,
among which, restricted shares total to 116,516,142 shares, accounting for 41.15% of
total shares, and unrestricted shares total to 166,645,085 shares, accounting for
58.85% of total shares. Among the unrestricted shares, there are 64,649,249 A shares
and 101,995,836 B shares, accounting for 22.83% and 36.02% of total shares
respectively.
The business scope: manufacturing & operating each kind of color TV, LCD monitor,
LCD screen (subject to branch offices), hi-fi equipment, digital watch, TV game
player and computer as well as auxiliary circuit boards, precise injection moulding
ware, light packing materials (manufacturing & operting in Wuhan), hardware
(including molds), electroplate and solder stick, real estate development and operation
(ref. S.F.D.C.No. 7226760), property management. Establish affiliatd companies in
Wuhan and Jilin, branch offices in each capital city (excluding Lhasa) and cities
directly under jurisdiction of the Central Government.
Its major business is manufacturing and sales of circult board, processing of precise
injection moulding ware, hardware (including molds); property lease and processing
and sales of LCD displayer and color TV. The Company is registered at Block 411,
Huafabei Road, Futian District, Shenzhen Cty; legal representative is Li Zhongqiu.
The Company sets up the Board of Directors which functions at implementing
management and control to the key decisions and daily work of the Company.
II. Basis of Preparation of Financial Statements
This Financial Statement is prepared on the basis of continual operation of the
Company.
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The Company previously prepared for Financial Statement in compliance with the
enterprise accounting standards and Business Accounting System (jointly referred to as
“Original Accounting Standards & System” hereinafter) promulgated prior to 2006.
Since 01 January 2007, the Company has executed the business accounting standards
(referred to as “Business Accounting Standards” hereinafter) enacted by the State
Ministry of Finance in 2006. The Financial Statement set out for 2007 is the first to be
prepared in line with the Business Accounting Standards.
III. Declaration for abiding by the Accounting Standards for Business
Enterprises
The financial statement of this company is in conformity with the Accounting
Standards for Business Enterprises, and discloses true and complete information about
the company’s financial state, operating achievements and cash flow etc.
IV. Major accounting policies and preparing approaches for accounting
estimation and consolidated financial statement.
1. Fiscal year
The fiscal year is from Gregorian calendar January 1st to December 31st.
2. Recording Currency
RMB is the recording currency.
3. Recording basis and accounting measurement
The company adopts accrual system as the basis for accounting confirmation,
measurement and reporting, and for debit-credit bookkeeping approach.
The company generally applies historical cost in measuring accounting elements, for
replacement cost, net realizable value, present value and fair value in measurement,
the confirmed accounting elements shall be guaranteed to be obtainable and shall be
measured reliably.
4. Foreign currency transaction
The transactions in foreign currencies of the Company are recorded after translating
into RMB at fixed exchange rate, and at the reporting day of Balance Sheet, the
monetary assets and debts in foreign currencies are translated at the prevailing market
exchange rate announced by China People’s Bank in the same day. As for the
exchange loss and profit occurred, if related to acquisition of fixed assets and prior to
reaching the preset service status, shall be accured into the acquiring cost of such
fixed assets, if irrelevant with acquisition of fixed assets and during construction, shall
be accrued into long-term expenses to be apportioned, or be accrued into financial
expenses that term if during production and operation. Those no-monetary assets
measured by fair value are translated into RMB at the instant exchange rate of the
recognizing day of fair value, with translation different occurred accured into loss and
profit in current term as change of fair value.
The cash flows in foreign currencies and that of overseas subsidiaries are translated at
the instant exchange rate on the occurring day of cash flows, with sum affected by
exchange rate separately presented in the Cash Flow Statement.
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5. Confirmation standard of Cash & Cash Equivalents
The cash referred to in the Cash Flow Statement of the Company means stocked cash
and deposit available for payment at any time. The cash equivalents therein refer to
investment with short maturity term (generally due within 3 months since purchasing
day), strong fluidity, small risk in value variation and easy to converted into cash of
predictable sum.
6. Receivables, Provisions for Bad Debts
Rreceivables include account receivable and other receivables, etc..
For receivables occurred to the Company through sales of goods or providing services
to others, the fair value of price set out in the contract or agreement with the
purchasers shall be deemed as initial recognized amount. Receivables will be
processed by actual interest method and through deducting the bad debts from
amortized cost.
Such receivables of the Company, if any exceeding 500,000 Yuan, are deemed as key
item. If there is any objective evidence showing that the Company is predicted
impossible to recover all receivables as originally agreed, an impairment test shall be
conducted separately against the less part between its present value of the future cash
flows than its book value so as to draw provisions for bad debts.
Any single item of receivables, if involving large sum, shall be divided into several
groups as per their credit risk features together with those tested unimpaired
receivables, which shall then, based on the actual loss rate of receivables group with
same or similar type and credit risk features in previous years and in combination with
present situation, fix the provision percentage to be drawn for bad debts for each
group in current term so as to determine the privisions drawable this term.
In the table below is the percentage of provisions drawn for bad debts of moneys
receivable:
Account Age Percent Drawn
Within 1 Year 0
1-2 Year (s) 5%
2-3 Years 10%
Over 3 years 30%
7. Inventories
(1) Inventories are divided in such types as raw materials, packing materials,
low-value consuming product, product finishing and goods in stock, etc..
(2) Pricing method of acquiring and delivery of inventories: the perpetual inventory
system is applied to inventories. Purchasing and stocking are priced at the actual cost,
receiving and selling raw materials are calculated by first-in first-out method, and
sales of finished products are calculated by weighted average method.
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(3) Low-value consuming goods and packing materials are amortized by one-off
write-off method and recorded into relevant cost and expenses.
(4) Inventories pricing principles at term end and recognition standards for provisions
for inventories depreciation and its drawing method: the inventories at term end shall
be priced at the lower one between cost and net realizable value; at term end, based on
the full checking of inventories, the provisions for inventories depreciaton shall be
drawn against the predicted uncollectible cost caused by inventories damage, part or
entire out-of-fashion or selling price lower than cost. The provisions depreciation of
finished products and large bulk of raw materials shall be drawn against the excess
prat between the cost of single inventory item and its net realizable value. The
provisions depreciation of the other raw and auxiliary materials with various kinds
and low unit price shall be drawn as per category.
(5) Recognition of Net Realizable Value: for such stocked goods directly for sales as
finished products, finishing products and materials for sales, their net realizable value
shall be recognized after deducting the estimated sales expenses and relevant taxes
from estimated sales price of such inventories. For stocked materials for production
use, their net realizable value shall be recognized after deducting estimated cost
ocucring at completion, sales expenses and relevant tax from estimated sales price of
products to be manufactured; for inventories holding for executing sales contract or
labor contract, its net realizable value shall be calculated based on the price set out in
relevant contracts.
8. Long-term Equity Investment
(1) Pricing of Long-term Equity Investment
If the long-term equity investment is acquired via business merger under the same
control, it shall, on the day of merger, regard the share of the carrying amount of the
owner's equity of the merged enterprise as the initial cost of the long-term equity
investment. As for the long-term equity investment acquired via business meger under
different control, the merger cost shall be, shall be the fair values, on the merger
(acquiring) date, of the assets given, the liabilities incurred or assumed, and the equity
securities issued by the acquirer, in exchange for the control of the merged (acquired)
enterprise, which will be, on the merger (acquiring) date, further regarded as the
initial investment cost of long-term equity investment.
Apart from the aforesaid long-term equity investment acquired through business
merger, those long-term equity investment, if acquiring through paying cash,
providing non-monetary assets or issuing equity stock, shall consider its fair value as
the initial investment cost; if acquired from debt reorganization, shall consider the fair
value of equity converted from creditor’s right as the initial investment cost of the
debetee; if invested by investors, shall consider the value agreed in the investment
contract or agreement as the initial investment cost, with the exception of those of
unfair value as is stipulated in such contract or agreement. If the initial cost of the
long-term equity investment is more than the fair value of the identifiable net assets
the investor obtains from the invested unit, the initial cost may not be adjusted; if on
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the contrary, the difference between them shall be included in the current profits and
losses and the cost of the long-term equity investment shall be adjusted
simultaneously.
(2) Calculation of Long-term Equity Investment
The investment of the Company to its subsidiaries refers to the equity investment in
which the Company has actual control right to its subsidiaries. Such investment is
calculated through cost method and shall be adjusted through equity method in the
Financial Statement.
The investment to the joint companies of the Company refers to the contractually
agreed sharing of control over an economic activity, which does not exist unless the
investing parties of the economic activity reach a consensus on sharing the control
power over the relevant important financial and operating decisions. The company
adopts equity method to calculate investment to joint enterprise.
The investment to the associated companies of the Company refers to the equity
investment in which the Company exerts serious influence. It is calculated through
equity method.
For the long-term equity investment without any serious influence for which there is
no offer in the active market and of which the fair value cannot be reliably measured,
the Company adopts cost method to calculate it. For the long-term equity investment
without any serious influence for which there is offer in the active market and of
which the fair value can be reliably measured, the Company presents it under the
entry of “Financial Assets for Sales” and measures it through fair value with relevant
changing accrued into shareholders’ equity.
9. Property of Investment
(1) Type of property of investment: 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; the right to use any building which has already been rented.
(2) Pricing of property of investment: property of investment is priced as per its cost.
The cost of purchased property of investment includes purchasing payment, relevant
taxes and other expenditures which may be directly ascribed to such assets. The cost
of building such property of investment is composed of all necessary expenditures
occurred prior to that such property has reached the projected service status.
The Company adopts cost mode to follow measurement of property of investment, for
which, depreciation or amortization will be drawn aiming to the building and land-use
right against the predictable service life and net salvage value. The following shows
the net salvage value and annual depreciation (amortization) rate:
Depreciation Term Annual Depreciation
Type Salvage Rate
(Year) Rate (%)
Land-use Right 50 10% 1.80%
Houses & Buildings 5--50 10% 1.80%--18.00%
(3) Conversion and Disposal of Property of Investment
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In case the property of investment is taken for self-use, such property shall be
recorded as fixed assets or intangible assets since the date of taking. If the self-use
property is taken for rent or capital appreciating, such fixed assets or intangible assets
shall be recorded as property of investment since the date of taking. For such reording,
the book value before it shall be taken as the recording value after that.
If the property of investment is disposed of, or if it withdraws permanently from use
and if no economic benefit will be obtained from the disposal, the recognition of it as
property of investment shall be terminated. Such revenues of disposal of the property
of investment as sales, transfer, discard, or being damaged or destroyed, after
deducting the book value of such property as well as the relevant taxes, shall be
accrued into the current profits and losses.
10. Fix-assets’ price evaluation and depreciation approach
(1) The criteria for defining fix-assets: Tangible assets with comparatively high unit
value and over 1 year of service circle for producing products, providing services,
leasing or operating and managing.
(2) Categories of fix-assets: Houses and buildings, machines, transportation devices,
and other devices.
(3) Fix-assets price evaluation: Apply using cost as book value entering into the
account. Using cost includes purchase price, import tariffs, transportation and
insurance fee, and necessary expenses for preparing the fix-assets for expected usage
state.
(4) Fix-assets depreciation adopts approach of lines for calculation and is withdrawn
averagely within the estimated economic service circle by deducting the net residual
value (10% of the original value) from the original value of various kinds of fix-assets.
Improvement expense of operating rented fix-assets through leasing shall be
withdrawn for depreciation by the shorter of the remained leasing period and
remaining service period of the rented estate; the decoration expense of fix-assets
shall be withdrawn for depreciation by the shorter of interval period between two
decorations and the remaining service period of the fix-assets.
(5) Confirming the classified depreciation rate as following:
Service
Assets category Annual depreciation rate
period
House and buildings 20-50years 1.80-4.50%
General devices 10years 9.00%
Special devices 5years 18.00%
Transportation instrument 5years 18.00%
Other devices 3-5years 18.00-30.00%
(6) Withdrawal of provision for fix-assets depreciation refers to relevant accounting
policies of assets depreciation. The depreciation loss, once confirmed, can not be
recovered during later accounting periods.
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11. Project under construction
Project under construction is calculated by actual cost of the project and is changed
into fix-assets after reaching its expected usage state. Project that reaching the
expected usage state but has not carried out the completion settlement, shall be
accounted with estimation price which is subject to adjustment after completing check
and finishing completion settlement procedures.
The withdrawal of provision for assets depreciation of project in construction refers to
relevant accounting policies. Depreciation loss, once confirmed, shall not be
recovered during later accounting periods.
12. Borrowing expenses
Borrowing expenses refer to interest or other cost incurred by the company’s
borrowing including loan interest, amortization of discount or premium, auxiliary
expense and exchange loss cause by foreign currency borrowing.
The borrowings of the company that could be attributed to purchasing and
constructing or producing assets and that meet the requirements of capitalization, shall
be capitalized and be accounted for relevant assets cost; other borrowing expenses
shall be recognized for expenses when the borrowing is conducted and be accounted
for profit and loss of that period.
Capitalization of assets that meet the requirement of capitalization shall be terminated
in case the purchasing and constructing or producing process is terminated
abnormally and the termination lasts for over 3 months (including 3 months).
Borrowing expense during the termination shall be recognized for expense and be
accounted for profit and loss of the period, until the purchasing and constructing or
producing process being restarted; if the termination is a necessary procedure for
leading the purchasing and constructing or producing assets that meet the requirement
of capitalization to the expected using or selling state, the capitalization of borrowing
expense shall be continued.
13. Intangible assets
(1) The confirming standard for intangible assets is: Non-monetary assets hold or
controlled by the company and with no recognizable material form.
(2)Intangible assets price evaluation: Intangible assets obtained by purchasing or by
legal application shall be accounted with actual spending amount. Intangible assets
transferred from investment, shall be accounted by value stipulated in the contract or
confirmed by evaluation. For intangible assets developed by the company, all
expenses during the developing process shall be accounted as expenses for the profit
and loss; expenses during the developing process that meet the following terms shall
be capitalized.
①With technical feasibility to make the intangible assets into usable or sellable
assets.
② With purpose to complete the intangible assets and use it or sell it.
③ the intangible assets could generate economic profits.
④ With sufficient technical and financial support and other resource support to
complete its development, and being able to use or sell the intangible assets.
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⑤Expenses related with and during the intangible assets development process could
be calculated and measured reliably.
Price the assets by the lower of the book value or the collectible amount at the end of
the period.
(3) Amortization approach of the intangible assets: intangible assets with limited
service circle could be amortized appropriately and be accounted for profit and loss
within the service circle commencing from when the assets are usable. The
amortization approach shall reflect the expected realizing approach of the assets’
relevant economic profit. In case of being unable to determine the expected realizing
approach in a reliable way, approach of lines shall be applied in amortization.
Intangible assets with undefined service circle shall not be amortized.
(4) Withdrawal of provision for intangible assets impairment refers to relevant
accounting policies of assets impairment. The impairment loss, once confirmed, shall
not be recovered during later accounting periods.
14. Long-term deferred expenses.
Long-term deferred expenses refer to expenses already incurred by the company and
with over 1 year limitation of amortization by this period or later periods, including
improvement expenses of fix-assets rented through operating leasing, etc.
Long-term deferred expenses are accounted by actual expenses and shall be amortized
averagely during the expected profit period.
15. Assets Impairment
At the end of the period, the company would conduct checks on long-term investment
on shares, fixed-assets, project in construction, intangible assets and brand goodwill to
determine whether there is sign for impairment. Brand goodwill formed by enterprise
consolidation and intangible assets with indefinite service circle shall undergone
impairment test every year regardless whether there is impairment sign.
If there is sign for impairment, estimate the collectible amount which shall be
determined by the higher of the net value by deducting the handling expense from the
fair value of the assets and the estimated future cash flow. When the assets’
collectible amount is lower than the book value, the book value shall be written down
to collectible value. The decreased amount shall be recognized to be loss and be
accounted for profit and loss of that period. Assets impairment of Long-term
investment on shares, investment real-estate measured by cost mode, fixed-assets,
intangible assets and brand goodwill, once confirmed, can not be recovered during
later accounting periods.
16. Payable compensation for employees
Compensation for employees refers to all forms of remuneration and other relevant
expenses to compensate for employees’ services. Remuneration includes salary,
bonus, subsidy and allowance, employee’s welfare, social insurance, housing fund,
work union fee, employees’ education fee, non-monetary welfare, compensation for
terminating labor relations etc. During the employees’ service accounting period, the
company recognizes the payable compensation for employees as debt. Except
compensation for terminating labor relations, the company accounts the debt for
corresponding expenses or assets according to the beneficiary. According to relevant
regulations, the company withdraws insurance fee with a certain rate based upon the
total salary within the range of regulation, and pa