深圳中华自行车(集团)股份有限公司 2010 ANNUAL REPORT IMPORTANT NOTICES: Directors, supervisors and senior executives of the Shenzhen China Bicycle Company (Holdings) Limited (hereinafter referred to as the Company) hereby confirm that there are no any important omissions, fictitious statements or serious misleading information carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. Shenzhen Pengcheng Certified Public Accountants issued auditor’s report with disclaimer of opinions for the 2010 Financial Report of the Company. The Board of Directors of the Company made specific explanations on the relevant matters; the Supervisory Committee of the Company expressed definite opinions on the specific explanations by the Board of Directors. The investors are suggested to read for details. No director, supervisor and senior executives stated that they couldn’t ensure the correctness, accuracy and completeness of the contents of 2010 Annual Report or have objection for this report. Director Mr. Liu Linfeng was absent from the board meeting due to go on business outside, but authorized to entrust Director Mr. Yang Fenbo to attend and exert voting rights on behalf; Independent Director Ms. Zhang Xinmiao was absent from the board meeting due to other works, but authorized to entrust Independent Director Mr. Shao Liangzhi to attend and exert voting rights on behalf. Chairman and Person in Charge of the Company Mr. Luo Guiyong, Person in Charge of Accounting Works Mr. Zhang Zebing and Person in Charge of Accounting Organ Mr. Sun Longlong hereby confirm that the Financial Report of 2010 Annual Report is true and complete. Section I. Company Profile I. Legal Name of the Company in Chinese: 深圳中华自行车(集团)股份有限公司 In English: SHENZHEN CHINA BICYCLE COMPANY (HOLDINGS) LIMITED Short form of English Name: CBC II. Legal Representative: Luo Guiyong III. Secretary of the Board of Directors: Yao Zhengwang Securities Representative: Cui Hongxia Tel: (86) 755 –28181666 Contact Address: Zhonghua Industrial Park, Yousong Industrial Zone, Longhua, Shenzhen, Guangdong Province, China Fax: (86) 755 –28181009 E-mail: dmc@szcbc.com IV. Registered Address and Office Address: No. 3008, Buxin Road, Shenzhen, Guangdong Province, PRC Post Code: 518019 Office Address: Zhonghua Industrial Park, Yousong Industrial Zone, Longhua, Shenzhen, Guangdong Province, China Post Code: 518131 The Company’s Internet Website: www.cbc.com.cn E-mail: cbc@szcbc.com V. Newspapers Chosen for Disclosing the Information: Securities Times and Hong Kong Commercial Daily Internet Website Designated for Publishing the Annual Report: www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Secretariat of the Board of Directors VI. Stock Exchange Listed with, Short Form of the Stock and Stock Code: Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: *ST ZHONGHUA – A, *ST ZHONGHUA – B Stock Code: 000017 for A-share, 200017 for B-share VII. Other Information about the Company 1. Initial registered date: Aug. 24, 1984 2. Initial registered place: Buxin Road, Shenzhen 3. Registration number for business license of legal person of corporation: 440301501122085 4. Registration number of tax: State Revenue SHEN ZI No. 440301618830452, Land Tax SHEN ZI No. 440303618830452 5. Name and office address of the Certified Public Accountants engaged by the Company: Shenzhen Pengcheng Certified Public Accountants Co., Ltd. Office Address: 7/F, A Building, Union Square, No. 5022, Binghe Road, Futian District, Shenzhen, China Section II. Summary of Accounting Highlight and Business Highlight I. Major profit indexes as of the year 2010 1. Major profit indexes as of the year 2010 (Unit: RMB) Operating profit -75,353,838.00 Total profit 64,477,414.44 Net profit attributable to the shareholders of the listed 64,477,414.44 company Net profit attributable to the shareholders of the listed -44,590,962.46 company after deducting non-recurring gains and losses Net cash flow arising from operating activities 6,495,860.32 2. Items of non-recurring gains and losses (Unit: RMB) Notes Items of non-recurring gains and losses Amount (If applicable) Gains and losses from the disposal of -1,479.48 Loss form disposal of fixed assets non-current assets Earnings from free of interests of Gains and losses caused by debts restructuring 138,684,786.64 Zhengda Guoli and debt composition of Chengxingtai Other non-operating income and expenditure 1,147,945.28 except for the aforementioned items Influenced amount of income tax -30,762,875.54 Total 109,068,376.90 II. Major accounting data and financial indexes over the recent three year at the end of report year 1. Main accounting data Unit: RMB Increase/decr ease in this year 2010 2009 2008 compared with that of last year (%) After Before After adjustment adjustment adjustment Total operating income 299,027,279.43 260,908,108.82 14.61 274,202,840.48 274,202,840.48 Total profit 64,477,414.44 -106,160,775.90 -160.74 -44,489,780.00 -44,489,780.00 Net profit attributable to 64,477,414.44 -105,757,549.50 -160.97 -44,893,006.40 -44,893,006.40 shareholders of the listed company Net profit attributable to shareholders of the listed company after -44,590,962.46 -115,020,042.60 -61.23 -60,660,142.06 -60,660,142.06 deducting non-recurring gains and losses Net cash flow arising from 6,495,860.32 3,920,586.97 65.69 -14,392,427.25 -14,392,427.25 operating activities At the end of 2010 At the end of 2009 Increase/decr At the end of 2008 ease at the end of this year compared with that at the end of last year (%) After Before adjustment After adjustment adjustment Total assets 138,158,078.89 169,696,420.47 -18.59 190,897,705.53 190,897,705.53 Owners’ equity attributable to -1,756,185,442.87 -1,861,014,519.67 -5.63 -1,803,059,381.39 -1,803,059,381.39 shareholders of the listed company Share capital 551,347,947.00 479,433,003.00 15.00 479,433,003.00 479,433,003.00 2. Main financial indexes (Unit: RMB) Increase/decrea se this year 2010 2009 compared with 2008 that last year (%) After Before After adjustment adjustment adjustment Basic earnings per share 0.1169 -0.2206 -152.99 -0.0936 -0.0936 (RMB/Share) Diluted earnings per share 0.1169 -0.2206 -152.99 -0.0936 -0.0936 (RMB/Share) Basic earnings per share calculated based on latest share 0.1169 -0.1925 -160.73 - - capital(RMB/Share) Basic earnings per share after deducting non-recurring gains -0.0809 -0.2399 -66.28 -0.1265 -0.1265 and losses (RMB/Share) Weighted average return on 0.00% 0.00% 0.00% equity (%) Weighted average return on equity after deducting 0.00% 0.00% 0.00% non-recurring gains and losses (%) Net cash flow arising from operating activities per share 0.0118 0.01 18.00 -0.03 -0.03 (RMB/Share) Increase/decrea se at the end of At the end of this year At the end of 2009 At the end of 2008 2010 compared with that at the end of last year (%) After Before After adjustment adjustment adjustment Net asset per share attributable to shareholders of listed company -3.1853 -3.8817 -17.94 -3.7608 -3.7608 (RMB/Share) 3. There was no different between domestic accounting rules and foreign accounting rules. Section III. Changes in Share Capital & Particulars about Shareholders I. Particulars about change in share capital (I) Change in share capital Unit: Share Before the change Increase/decrease of this time (+, - ) After the change New Bo share Capitalizati Proportio nus Proportio Amount s on of public Others Subtotal Amount n sha n issue reserve res d I. Restricted shares 186,713,192 38.94% 42,672 -30,742 11,930 186,725,122 33.87% 1. State-owned 0 0.00% 0 0.00% shares 2. State-owned legal 16,340,000 3.41% 0 0 16,340,000 2.96% person’s shares 3. Other domestic 95,267,002 19.87% 0 0 95,267,002 17.28% shares Including: Domestic non-state-owned 95,267,002 19.87% -6,500,000 -6,500,000 88,767,002 16.10% legal person’s shares Domestic natural 0 0.00% 6,500,000 6,500,000 6,500,000 1.18% person’s shares 4. Foreign shares 75,106,190 15.67% 75,106,190 13.62% Including: Foreign 75,106,190 15.67% 75,106,190 13.62% legal person’s shares Foreign natural 0 0.00% 0 0.00% person’s shares 5. Senior executives’ 0 0.00% 42,672 -30,742 11,930 11,930 0.00% shares II. Unrestricted 292,719,811 61.06% 71,872,272 30,742 71,903,014 364,622,825 66.13% shares 1. RMB Ordinary 76,669,125 15.99% 39,477,101 113,617 39,590,718 116,259,843 21.09% shares 2. Domestically 215,967,811 45.05% 32,395,171 32,395,171 248,362,982 45.05% listed foreign shares 3. Overseas listed 0 0.00% 0 0.00% foreign shares 4. Others 82,875 0.02% -82,875 -82,875 0 0.00% III. Total shares 479,433,003 100.00% 71,914,944 71,914,944 551,347,947 100.00% Statement on changes of restricted shares Unit: Share Restr Incre icted ased share restri s Restricted cted Restricted relea Date for releasing Name of shareholders shares at share shares at Reason for restriction sed the restriction year-begin s in year-end in curre curre nt nt year year Shenzhen Guocheng Energy Restriction Investment Development 27,567,397 0 0 27,567,397 commitment of share 2011-3-17 Co., Ltd. merger reform Restriction 27,567,397 0 0 27,567,397 commitment of share 2012-3-17 merger reform Restriction 9,963,618 0 0 9,963,618 commitment of share 2013-3-17 merger reform Restriction 27,567,397 0 0 27,567,397 commitment of share 2011-3-17 Hong Kong Zhuorun merger reform Technology Co., Ltd. Restriction 16,536,849 0 0 16,536,849 commitment of share 2012-3-17 merger reform Restriction China Bicycle Company (Holdings) Limited 26,000,000 0 0 26,000,000 commitment of share 2011-3-17 merger reform Shenzhen Kangsheng Restriction Investment Development 11,968,590 0 0 11,968,590 commitment of share 2011-3-17 Co., Ltd. merger reform Restriction Xinliyi Investment 11,200,000 0 0 11,200,000 commitment of share 2011-3-17 Management Co., Ltd. merger reform Restriction Airline Trust and Investment 10,340,000 0 0 10,340,000 commitment of share 2011-3-17 Co., Ltd. merger reform Restriction China Resources SZITIC 6,000,000 0 0 6,000,000 commitment of share 2011-3-17 Trust Co., Ltd. merger reform Restriction Jingchao Investment Co., 5,001,944 0 0 5,001,944 commitment of share 2011-3-17 Ltd. merger reform Restriction Qiu Jiguang 3,500,000 0 0 3,500,000 commitment of share 2011-3-17 merger reform Restriction Gao Deping 2,700,000 0 0 2,700,000 commitment of share 2011-3-17 merger reform Guangzhou Hengyong Restriction Yingfeng Enterprise 500,000 0 0 500,000 commitment of share 2011-3-17 Development Co., Ltd. merger reform Restriction Gao Deping 300,000 0 0 300,000 commitment of share 2011-3-17 merger reform Total 186,713,192 0 0 186,713,192 - - (II) Issuance and listing of the share: 1. The Company has not issued new shares and derivative securities over the recent three years ended the report period. 2. The Company issued 5.3 million inner employee’s shares which had been listed totally at the issuance price of RMB 3.75 per share dated Dec. 28, 1991. (II) About shareholders at the end of report period 1. Change on share capital in reporting period: the Company transferred capital reserve into increased share capital and split share structure reform on Mar. 18 of 2010. Share capital increased by 71,914,944 shares, from previous 479,433,003 shares to current 551,347,947 shares. 2. Ended Dec. 31, 2010, the Company had 35,180 shareholders in total, including 20567 shareholders of A stock and 14613 shareholders of B stock. (II) Particulars about shares held by the top ten shareholders (Unit: Share) Amount of Amount of Amount of Proport non-circulat shares Nature of Full name of shareholders shares held ion (%) ing shares pledged or shareholders in year-end held frozen Domestic Shenzhen Guocheng Energy Investment 65,098,412 11.81 65,098,412 0 non-state-owned Development Co., Ltd. legal person Hong Kong Zhuorun Technology Co., Foreign legal 44,104,246 8.00 44,104,246 30,000,000 Ltd. person China Bicycle Company (Holdings) Foreign legal 26,000,000 4.72 26,000,000 26,000,000 Limited person Domestic Shenzhen Kangsheng Investment 11,968,590 2.17 11,968,590 0 non-state-owned Development Co., Ltd. legal person Domestic Xinliyi Investment Management Co., 11,200,000 2.03 11,200,000 0 non-state-owned Ltd. legal person State-owned Airline Trust and Investment Co., Ltd. 10,340,000 1.88 10,340,000 0 legal person GUOTAI JUNAN Foreign legal 7,676,911 1.39 0 0 SECURITIES(HONGKONG) LIMITED person State-owned China Resources SZITIC Trust Co., Ltd. 6,000,000 1.09 6,000,000 0 legal person Foreign legal Jingchao Investment Co., Ltd. 5,001,944 0.91 5,001,944 0 person Foreign legal BOCI SECURITIES LIMITED 4,569,196 0.83 0 0 person Note: Among the top ten shareholders the Company was unaware of whether there existed associated relationship or whether there existed consistent actionist regulated in the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies; among the other circulating shareholders, the Company was unaware of whether there existed associated relationship or whether there existed consistent actionist regulated in the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies (III) Introduction of the controlling shareholder or actual controller of the Company 1. The controlling shareholder and the actual controller of the Company remained unchanged in the report period. 2. Introduction of the controlling shareholder or actual controller of the Company (1) Introduction to controlling shareholders: Shenzhen Guocheng Energy Investment Development Co., Ltd. Address: 501C Pacific Commercial Town of New Asia, No. 8 Zhonghang Road, Futian District, Shenzhen; Legal representative: Shang Shijun; Registration capital: RMB 70 million; Operation scope: Establishing industry (additional application for specific items); domestic commerce, industry of supply and distribution of materials (excluded commodities which were monopolized, under special control and sold exclusively). The controlling shareholder of Shenzhen Guocheng Energy Investment Development Co., Ltd was Shenzhen Guomin Investment Development Co., Ltd with holding 100% shares. (2) Introduction to actual controller: Shenzhen Guomin Investment Development Co., Ltd. Controlling shareholder: Zhang Yanfen with holding 44% shares, Ji Hanfei with holding 20% shares, Huang Yinquan with holding 36% shares. Address: Pacific Commercial Town of New Asia, Junction between Zhenzhong Road and Zhonghang Road, Futian District, Shenzhen; Legal representative: Zhang Yanfen; Registration capital: RMB 250 million; Operation scope: Establishing industry (additional application for specific items); domestic commerce, industry of supply and distribution of materials (excluded commodities which were monopolized, under special control and sold exclusively); supply and distribution of automobiles (excluded cars); and open and manage E-Town of New Asia. Main business: Commerce, operation and management of real-estate, and industry investment. 3. The property relationship between the actual controller and the Company was as follows: Z h a n g Ya n f e n Ji Hanfei Huang Yinquan 44% 20% 36% 100% Shenzhen Guomin Investment Development Co., Ltd. 100% Shenzhen Guocheng Energy Investment Development Co., Ltd. 11.81% Shenzhen China Bicycle Company (Holding) Limited (IV) The top ten circulating shareholders of the Company. Amount of circulating Name of shareholders shares held Types shareholders (share) Domestically listed GUOTAI JUNAN SECURITIES(HONGKONG) LIMITED 7,676,911 foreign shares Domestically listed BOCI SECURITIES LIMITED 4,569,196 foreign shares Domestically listed TANG JING YUAN 2,213,175 foreign shares Domestically listed Shifu Securities Co., Ltd 2,199,990 foreign shares Domestically listed Zhang Huiling 2,036,165 foreign shares Domestically listed Lin Shaowei 2,018,600 foreign shares Domestically listed Zeng Yin 1,791,552 foreign shares Domestically listed Gao Lingyun 1,567,800 foreign shares Domestically listed Xu Wanqi 1,478,787 foreign shares Domestically listed Li Jinling 1,453,062 foreign shares Section IV. Particulars about Directors, Supervisors, Senior Executives & Employees I. Directors, supervisors and senior executives 1. Basis information: Shares Shares Reason Begin date of office End date of office held at held at Name Title Sex Age for term term year-be year change gin -end Chairman Luo of the Male 48 2010-8-26 2013-8-25 0 0 Guiyou board Yang Director Male 54 2010-8-26 2013-8-25 0 0 - Fenbo Director, Li Hai Male 42 2010-8-26 2013-8-25 0 0 President Director, Zhang financial Male 44 2010-8-26 2013-8-25 0 0 - Zebing controller Yao Director, Zhengwa Secretary Male 36 2010-8-26 2013-8-25 0 0 ng of the board Fema Kong Na Director 35 2010-8-26 2013-8-25 0 0 - le Cao Fang Director Male 37 2010-8-26 2013-8-25 0 0 - Zhang Independen Fema 43 2010-8-26 2013-8-25 0 0 - Xinmiao t director le Independen Cui Jun Male 47 2010-8-26 2013-8-25 0 0 - t director Independen Fema Li Bing 36 2010-8-26 2013-8-25 0 0 - t director le Chen Independen Male 43 2010-8-26 2013-8-25 0 0 - Shujun t director Convener Xiao Yan of board of Male 43 2010-8-26 2011-06-26 0 0 - supervisors Lan Supervisor Male 61 2008-06-27 2011-06-26 0 0 - Qihua Zheng Zhonghua Supervisor Male 49 2008-06-27 2011-06-26 10,500 11,930 - n Vice Xia Bofu Male 40 2010-10-26 2013-10-25 0 0 - President Chairman Wu Jun of the Male 54 2009-08-13 2010-03-31 0 0 - board Chairman Li Gang of the Male 52 2010-03-31 2010-08-26 0 0 - board Independen Li Chun Male 54 2007-07-31 2010-03-31 0 0 - t director Shao Independen Male 47 2007-07-31 2010-08-26 0 0 - Liangzhi t director Wei Independen Male 40 2007-07-31 2010-05-31 0 0 - Chuanyi t director Jiang General Male 42 2007-07-31 2010-08-26 0 0 - Houjin manager Wang Financial Male 39 2009-08-13 2010-08-26 0 0 - Cheng controller Total - - - - - 10,500 11,930 - Note: In the report period, the on-job supervisor Zheng Zhonghuan holds 10,500 A-shares of the Company by purchasing from the secondary market. Reason for change was that: in 2010 the Company implemented shares reform and lifting of restriction on sales, and there was no share of the Company held by other directors, supervisors, and senior executives in the report period. 2. Particulars about directors or supervisors holding the position in Shareholding Company Title in Shareholdi Name Name of Shareholding Company Office term ng Company Administration Center of Shenzhen National Vice From Apr. of 2010 Xiao People Investment Co., Ltd General till now Yan Manager 3. Main work experiences of directors, supervisors and senior executives Mr. Luo Guiyou, born in 1963, graduated from Fudan University as a bachelor majoring in history. Once he took posts of clerk and deputy director of Social Science Academy, office director as well as manager of personnel department and manager of training department in Ping’an Life Insurance Guangxi Branch. And he took charge of District Manager, manager of marketing department and associate of general manager of the 3rd business district of Ping’an Life Insurance Guangxi Branch, as well as deputy general manager of Ping’an Life Insurance Hainan Branch. Since Mar. of 2007, he worked in Life Insurance Holding Co., Ltd, and successively took posts of general manager of headquarter of personal insurance business, temporary committee of operation and management commission, associate of general manager of headquarter and committee of marketing management commission. From Mar. of 2010 to Oct. of 2010, he was committee of marketing management commission in planning team in Guangdong Branch of Life Insurance Holding Co., Ltd and charger of planning team of Guangdong Branch; now he takes charge of chairman of directors and legal representative of the Company. Mr. Yang Fenbo, born in 1957, China senior economist with master degree of MBA and engineer, held the position of minister of development department, concurrently minister of science and technology department, assistant general manager, assistant to chairman, deputy chief engineer and chief engineer at Shenzhen Lionda Group; took the chairman and concurrently general manager of Guangdong Sunrise Holding Co., Ltd.; now, he is the chairman of Shenzhen Liona Group Co., Ltd. Mr. Li Hai, born in 1969, graduated from Economic department of Shenzhen University in major of accounting; he took the turns of deputy manager of finance department, chief supervisor associate of finance department, secretary of the Board and vice president, etc. of the Company, and now is in charge of director and vice president of the Company. Mr. Yao Zhengwang, born in 1975, with bachelor degree of law, successively took the post of Supervisor of Supervision Office, Deputy Manager of Sales Department, and Deputy Manager of Legal Affairs Department of Shenzhen Guomin Investment Development Co. Ltd. and deputy general manager of Administration Center of Compliant Wind Sensor Control. Now he is in charge of director and secretary of the board of the Company. Mr. Zhang Zebing, born in 1966, master of economy major, non-professional membership of China Certified Accountants Association and accountant. He once taught in school of supply and sales Jiangsu Xuzhou, and took posts of deputy director of accounting and finance department of South Oil Group and settlement center of accounting and finance department in headquarter of China Ping’an Insurance Company, ministry of finance department in Shenzhen Changyuan New Material Co., Ltd, manager of accounting and finance department in Xinhua Life Insurance Company Branch and senior manager of accounting and finance department in Hua’an Property Insurance Company. Since Aug. of 2004, he acted as charger of finance department of planning team in Xinhua Insurance Holding Company, associate of general manager of finance department in Sunshine Insurance Group Company, general manager of Audit & Supervision Department in Life Insurance Holding Co., Ltd. and now he is director and financial controller of the Company. Mr. Cao Fang, born in 1974, master degree. Once he was teacher and party branch secretary of education group of Hunan Changsha Changjun middle school, manager of team training of Ping’an Life Insurance in Hunan and business department, item manager of reform and development center of Ping’an Insurance Group, associate of Manager of marketing and supervision department of Ping’an Life Insurance in Hunan and associate of general manager of Ping’an Life Insurance branch in Guilin Center. Since May of 2007, he took post of item manager of marketing and management department in headquarter of Life Insurance, associate of general manager of marketing and management headquarter as well as general manager of market and business department. From Mar. of 2010 to Oct. of 2010, he acted as member of planning team of Life Insurance Branch in Guangdong. And now he takes charge in strategy and development center as well as item arrangement in Life Insurance. Ms. Kongna, born in 1976, master degree. She once acted as manager of business department in China Life Insurance Company Branch in Shenyang, general manager of Liaoning Ruifude Insurance Holding Co., Ltd and associates of general manager respectively of planning team and management department of motor insurance in Yong’an Property Insurance Holding Co., Ltd. From Sep. of 2005 to Apr. of 2010, he took post of Assistant Chief Executive in Ruifude Health Insurance Holding Co., Ltd. From Apr. of 2010 till now, he is in charge of associate of president in Yingkong Holding Co., Ltd. Ms. Zhang Xinmiao, born in 1968, with bachelor degree, successively engaged legal affairs in the First Engineering Bureau of Water Resources & Electric Power Department, Shenzhen Jinhu Law Firm, and Guangdong Guanghe Law Firm. She obtained certification of lawyer issued by Ministry of Justice of People’s Republic of China in 1994. From 1999 till 2008, she took the post of partnership lawyer of Guangdong Chuangji Law Firm, and from 2008 till now, he has been the lawyer of Guangdong Shenzhen Jinniu Certified Public Accountants Co., Ltd. Mr. Cui Jun, born in1964, party member of CPC, doctor of engineering, master of law and a first-grade lawyer. Once he took posts of director of the 5th session of nationwide lawyers association, director of the 8th session of Guangdong lawyer association, vice president of the 5th and the 6th session of Shenzhen lawyers association, committee of international business commission of nationwide lawyers association, deputy director of law business of intellectual property commission of Guangdong lawyers association and director of civil law business commission of Guangdong lawyers association. And now he is director of Guangdong Xingchen Law Firm, member of the CPPCC Shenzhen Committee, director of the 9th session of Guangdong lawyers association, director of culture construction committee of Guangdong lawyers association, committee of law business of intellectual property commission of nationwide lawyers association, executive vice president of Shenzhen Patent Commission, vice president of Shenzhen promotion commission of creative design and intellectual property, mediation expert of mediation center of China International economy and trade arbitration commission branch in south China and arbitrator of Shenzhen arbitration commission. Mr. Chen Shujun, born in1968, master of the Chinese University of Hong Kong, majoring in business administration of finance. And he is senior accountant, China Certified Accountant, Chinese Certified Tax Agent, judicial authenticator and the first batch of senior member of Shenzhen accountant institute. He once took post of auditor and manager of Guangzhou CPAs. From 1998 till now he acted as executive partner of Shenzhen Guangzhou-Shenzhen CPAs, legal representative of Guangdong Guangzhou-Shenzhen Justice and Accounting judgment institution. And now he is in charge of director of Guangdong Certified Accountants Association and expert of purchase center of Shenzhen Government. Ms. Li Bing, born in 1975, bachelor of law major and lawyer. From Jul. of 1998 to Jan. of 2002 she taught in Guizhou University; from Jan. of 2002 to Jan. of 2006 she acted as lawyer in Guangdong Yunsheng Law Firm; from Jan. of 2006 till now, she had been in charge of lawyer of Beijing Deheng Law Firm Branch in Shenzhen. Mr. Su Yan, born in Sep. of 1968, bachelor of Hunan finance Academy, majoring in Economy. He once held an office in China Agriculture Bank Branch in Hunan Yiyang, marketing and management, human resource management, supervision and audit and group training in China Ping’an Life Insurance Company Branch in Guangxi, as well as manager of Business department. And he took posts of general manager in Xinhua Life Insurance Branch in Guangxi and Liuzhou center of branch, manager of personnel in branch and general manager in branch of Yulin center. He took charge in manager of advanced office of planning and supervision in marketing management department in Life Insurance headquarter, and associate of general manager in Life Insurance Branch in Henan. From Apr. of 2010 till now, he acted as deputy general manager of business management department in Shenzhen Nation People Investment and Development Co., Ltd. Mr. Lan Qihua, graduated from three-years regular college, has ever worked in the army, and taken the post of director; successively took the post of Deputy Director of Supervision Office, Director of Party Office and concurrent Secretary of Party Committee of Lionda Group Corporation, General Manager and concurrent Secretary of Party Branch of Shenzhen Papermaking Company. He successively took posts of supervisor and Chairman of the Trade Union of the Company; and now he is supervisor of the Company. Mr. Zheng Zhonghuan, engineer with bachelor degree, successively took the post in Shenzhen Light Texile Industry Company and Shenzhen Light Industry Company; since Oct. 1985, entered Shenzhen China Bicycle (Group) Holdings Co. Ltd. and successively took the post of Deputy Manager, Manager of Planning Department and Manager of Material Department; now is director and Manager of Manufacture Department of the Company. Mr. Xia Bofu, graduated from the Central Party School with bachelor degree of law. He successively took the post of Manager of Business Department of Shenzhen Jiabeinianhua Industry Co. Ltd., Office Director of Shenzhen Lionda Technology Co. Ltd. and Chairman of the Board of Shenzhen Taiyang PCCP Co. Ltd. Since Oct. 2007, he has taken the post of Vice Present of the Company. II. Particulars about the annual salary of directors, supervisors and senior executives Referring to the standard of the same industry and local salary situation, the Company decided the annual salary of the above personnel integrated the operating achievements of the Company. The total annual remunerations of present directors, supervisors and senior executives received from the Company were RMB 3,437,700 in 2010. 1. The Company has 4 independent directors and paid the allowance of independent director of RMB 40,000 respectively. The Company reimbursed the expenses for business trips according to the actual situation, which independent directors attended the Board meeting and shareholders’ general meeting. 2. Particulars about the annual salary of directors, supervisors and senior executives Order Name Total annual remuneration (RMB ‘0000) 1 Li Hai 74.87 2 Xia Bofu 69.15 3 Yao Zhengwang 18.56 4 Zhang Zebing 18.56 5 Zhang Miaomiao 8.00 6 Cui Jun 4.00 7 Li Bing 4.00 8 Chen Shuhua 4.00 9 Lan Qihua 15.64 10 Zheng Zhonghuan 12.86 3. Remuneration of 3 independent directors and 2 directors who leaved their posts in reporting period: Order Name Total annual remuneration (RMB ‘0000) 1 Li Chun 4.00 2 Shao Liangzhi 4.00 3 Wei Chuanyi 4.00 4 Jiang Houjin 52.04 5 Wang Cheng 50.09 III. Particulars about post-leaving and engaged directors, supervisors and senior managerial personnel: 1. Particulars about post-leaving of directors, supervisors and senior managerial personnel: Name Original duty Reason for post-leaving Li Chun Independent director Resignation Shao Liangzhi Independent director Resignation Wei Chuanyi Independent director Resignation Wu Jun Chairman of the boards Resignation Li Gang Chairman of the boards Resignation Yao Zhengwang Convener of the board of supervisors Resignation Jiang Houjin Director, President Resignation Wang Cheng Director, Financial Controller Resignation Li Hai Vice President, Secretary of the Boards Resignation 2. Particulars about engagement of directors, supervisors and senior managerial personnel (1) Mr. Ligang and Mr. cui Jun were respectively elected to be director and independent director of the 7th session of board of directors with tenure contemporaneous with this term of the boards at the 2nd extraordinary shareholders’ general meeting held on Mar. 31 of 2010. The 19th meeting of the 7th session of board of directors elected Mr. Ligang to be new chairman of the 7th session of board of directors held at the same time. (2) Ms. Kong Na and Ms. Li Bing were elected to be director and independent director of the 7th session of board of directors with tenure contemporaneous with this term of the boards at the 19th meeting (2009 annual) shareholders general meeting held on May 31 of 2010. (3) Mr. Su Yan was elected to be supervisor of the 6th session of the board of supervisors with tenure contemporaneous with the term of the board of supervisors at 2010 the 3rd extraordinary shareholders’ general meeting held on Aug. 26 of 2010. The board of directors was changed at the end of its office term. And the members of the 8th session of the board of directors were elected with 3 years of office term. (4) X was elected to be the new convener of the 6th session of the board of supervisors at the 8th meeting of the 6th session of the board of directors held on Aug. 26 of 2010. (5) Mr. Li Hai and Mr. Zhang Zebing were respectively elected to be president and financial controller of the Company with 3 years of office term at the 1st meeting of the 8th session of the board of directors held on Aug. 26 of 2010. And Mr. Yao Zhengwang was appointed to be duty agent for secretary of the boards with 3 years of office term. (6) Mr. Xia Bofu was elected to be vice president of the Company at the 3rd meeting of the 8th session of the boards held on Oct. 26 of 2010 with 3 years of office term. (7) Mr. Yao Zhengwang was elected to be the secretary of the 8th session of the board of directors at the 4th meeting (interim) of the 8th session of the board of directors held on Jan. 13 of 2011 with the same office term with the 8th session of the boards. IV. About staff 1. The Company has totally 84 employees at present, including: (1) Classified according to professional/occupational composition: 24 production personnel; 12 salespersons; 16 technicians; 11 financial personnel and 21 administrative personnel. (2) Classified according to the educational background: master degree or above: 2 persons of Master degree, 22 persons of bachelor degree; 20 persons of junior college graduates. Proportion of the personnel with education background of junior college or above in the whole staff: 23.8%. 2. The Company did not need to bear the expenses of retirees. Section V. Corporate Governance Structure I. Corporate Governance During the report period, the Company strictly compared its actual conditions with regulations of Company Law, Securities Law, and Code of Corporate Governance for Listed Companies and relevant laws and rules and regulatory documents, constantly perfected its legal person administration structure and strived to establish modern enterprise system. Convening, holding and operating of shareholders’ general meetings, Board meetings and meetings of Supervisory Committee were all in strict accordance with relevant regulations of Articles of Association, etc., safeguarding the integrated interest of the Company. Realities of legal person administration structure were in line with provisions of regulatory documents with respect to administration of listed companies issued by CSRC. (I) Establishment of Internal Control System In reporting period, the Company complied with the spirit of the Notice to Implementing Special Activities for Basic Work of Normalized Financial Accounting Comprehensively and Deeply in Listed Companies of Shenzhen, combined the Notice to Self-Check on Establishment and Implementation of Long-term Mechanism for Preventing Capital Occupation, self-checked construction of internal control of the Company, and comprehensively carded various systems. We revised the articles of association such as internal control system, made special rules on preventing large shareholders from capital occupation; restrained behaviors that controlling shareholders make use of related transaction to hurt interests of the Company thus secured independence of the Company. The Company built the Special System That Shenzhen China Bicycle (Group) Co., Ltd Prevents Controlling Shareholders and Related Parties from Capital Occupation and revised internal control system, enhanced audit of financial activities and rules for expenses write-off, monetary capital and notes management, thus further constructed and perfected long-term mechanism for capital occupation prevention. (II) Implementation of special administration campaign during the report period In reporting period, the Company actively conducted special activities for basic work of financial accounting in accordance with the Notice to Special Activities for Basic Work of Normalizing Financial Accounting Comprehensively and Deeply in Listed Companies of Shenzhen. We carefully took motivation, self-check and rectification on basic normalization of financial accounting. On Apr. 20, the Company formulated the specific Working Norms for special activities. In accordance with the Report of Usual Problems in Basic Work of Financial Accounting of Listed Companies in Shenzhen, we took self-check on management and implementation of accounting personnel and whether problems existed in formulation and implementation of financial accounting administration, existed in usage and management of financial information system, existed in aspect of normalization of basic work of accounting. According to significant changes on external environment and business situation of the Company we found in current financial accounting management, the Company revised relevant terms of administration system of financial accounting such as the Rules for Financial Activities Audit and Expenses Write-off, the Monetary Capital and Notes Management System, the Position System of Financial Personnel, the System for Compiling of Main Accounting Policy, Accounting Estimation and Financial Report, the Administration System of Loan Guarantee, the Accounting Computerization Management, Administration Norms for Accounting Files, Administration System of Property Analysis and the Interim Measures for Budget Management. Aimed at problems found during self-check, the Company carefully revised the above in accordance with requirements of supervision department, submitted the Rectification Report. Owing to this time of special activity, the basic work of financial accounting was further improved. Knowledge on corporate internal control was boosted thus promoted further healthy and stable development of corporate business. (III) In reporting period, the Company never offered non-public information for large shareholders and actual controllers. And no other non-standard governance showed either. II. Particulars about duty performance of independent directors In the report period, independent directors of the Company could all earnestly take their responsibility, actively took part in work of special committees of the board of directors, meeting of the board of directors and general shareholders’ meeting, and expressed independent opinions on significant events. In special governance campaign and spot inspection of Shenzhen Securities Regulatory Bureau, they also made independent and objective judgment with their professional knowledge, and made active contribution for the development of the Company. In 2009, particulars about independent directors attending the Board Meeting are as follows: Attending the Due Presenc Absen meeting in way Entruste Name of the Presenc e in ce Positions of d directors e person (times communication presence (times) (times) ) (times) Independent Li Chun 2 1 1 0 0 director Independent Shao Liangzhi 8 3 3 2 0 director Independent Zhang Xinmiao 11 6 4 1 0 director Independent Wei Chuanyi 7 4 3 0 0 director Independent Cui Jun 9 5 3 1 0 director Independent Li Bing 4 3 1 0 0 director Independent Chen Shujun 3 2 1 0 0 director In the report period, independent directors of the Company had no different opinions on various proposals approved by the Board of Directors of the Company or other significant events. III. Separation from the Controlling Company in respect of Business, Personnel, Organization and Finance etc. The Company totally separated its Business, Personnel, Organization and Finance etc. with majority shareholders and related parties, and had independent and complete operation ability. IV. Establishment and perfection of internal control system According to regulations of Basic Standard for Enterprise Internal Control issued by Ministry of Finance and Shenzhen Stock Exchange and Guidelines for the Internal Control of Listed Companies issued by Shenzhen Stock Exchange, the Company established Self-estimation Report of Internal Control of the Company (2010) (Details could be found in Juchao Website.) Independent directors expressed opinions on Self-estimation Report of Internal Control of the Company as follows: in 2010, according to the requirements of Guidelines for the Internal Control of Listed Companies issued by Shenzhen Stock Exchange,, combined with problems found in special governance campaign by CSRC, the company timely revised and perfected internal control system, and made a total reform of the problems found in inspection and self-inspection. The self-estimation report of internal control could truly, objectively and integrally reflect the implementation and effect of internal control system. The supervisory committee expressed opinions on Self-estimation Report of Internal Control of the Company as follows: according to relevant regulations of CSRC and Shenzhen Stock Exchange, following basic principle of internal control, combined with self actual conditions, the Company constantly established and perfected internal control system, ensured the normal operation of the Company, and safeguarded the assets’ safety and integrality. In 2010, there was no behavior violating Guidelines for the Internal Control of Listed Companies. The self-estimation of internal control comprehensively, truly and exactly reflected the actual conditions of internal control of the Company. V. Establishment and Implementation of Performance Evaluation and Encouragement Mechanism and Relevant Rewarding System for Senior Executives The Company firstly has established open and transparent performance evaluation criteria and encouragement and restriction mechanism for directors, supervisors and managers. The engagement of the managers conformed to the regulations of laws with openness and transparency. Section VI. Brief Introduction to the Shareholders’ General Meeting In the report period, the Company held Annual Shareholders’ General Meeting and two Extraordinary Shareholders’ General Meeting. Basic information is as follows: 1. On Feb. 5 of 2010, the Company held 2010 the 1st extraordinary shareholders’ general meeting which was published at the day on disclosure press the Company appointed. 2. On Mar. 31 of 2010, the Company held 2010 the 2nd extraordinary shareholders’ general meeting which was published at the day on disclosure press the Company appointed. 3. On May 31 of 2010, the Company held the 19th (2009 annual) shareholders’ general meeting which was published at the day on disclosure press the Company appointed. 4. On Aug. 26 of 2010, the Company held 2010 the 3rd extraordinary shareholders’ general meeting which was published at the day on disclosure press the Company appointed. 5. On Oct. 8 of 2010, the Company held 2010 the 4th extraordinary shareholders’ general meeting which was published at the day on disclosure press the Company appointed. Section VII. Report of the Board of Directors I. Discussion and analysis of whole operation in the report period 1. Overall operation of main business in the report period As for domestic and global economic environment, 2010 was the most complicated year. Global financial crisis didn’t die away. Competition in market of bicycle and electric bicycles became more intensified. Burden of historic left debt was heavy for the Company. What’s more, the lawsuits came constantly. Faced with such a situation, under leadership of operators and guidance of correct decisions made by the board of directors, all the staffs actively promoted main business of electric bicycle and bicycle, regulated operation institution, integrated human resource, dealt with lawsuit, boost debts restructure and progress of reform of the shareholder structure. In reporting period, basically the Company completed production and operation target the board of directors required, accomplished implementation of reform of shareholders structure. The A stock of the Company got resumption of trading on Mar. 18 of 2010. The Company and Shenzhen Chengxingtai Investment Co., Ltd became reconciled, thus the Company obtained reconcile earnings and turned loss into profit in 2010. From Jan. to Dec. of 2010, the Company realized operating income RMB 299.0273 million in whole year and net profit RMB 64.4774 million. (1) Main business of electric vehicle and bicycle. In 2010, in order to suit the change of market environment, the Company promoted propagandism of big brand and products in main operated business thus improved brand influence; regulated operation strategy and actively explored new market; combined actual market situation in eastern China and actively promoted new operation mode; conducted R&D combining market and vigorously promoted release of new products; strengthened quality management of products and after-service, boost service awareness and operation strategy, thus kept stable development of business of bicycle and electric bicycle. RMB 271.7271 million was achieved in business of bicycle in the whole year. (2) Property lease and property management business. We fully used current inventory property, applied varieties of means for enlarging lease areas, completed lease of plants and open ground, increased lease income, improved cash flow and economic earnings of the Company, realized RMB 2.273 million of property management revenue and RMB 25.0272 million of other business income. At the same time, we enhanced business of property management, conducted normalization of safe management of lease business, organized safety training on renters and sent safety propaganda materials, and got no accidents in whole year. 2. Analysis on main business and operation of the Company The Company is mainly engaged in the production and sales of bicycles, electric bicycles and accessories and fittings. In the report period, the Company realized revenue from main operation amounting to RMB 274,000,100, and profit from main operation amounting to RMB 10,127,000. (1) Statement of main operations classified according to products Unit: RMB’0000 Main operations classified according to industries Increase/d Increase/dec Increase/dec ecrease in Classified rease in rease in Operating operating according to Operating Operating operating operating profit ratio profit industries or income cost income over cost over (%) ratio over products last year last year last year (%) (%) (%) Bicycles manufacture and 27172.71 26005.78 4.29 9.41 10.14 -12.82 sales of accessories and fittings Lease Management 227.30 381.53 -67.85 5.36 12.05 17.32 Main operations classified according to products Electric vehicle 22173.43 21277.42 4.04 10.68 11.93 -21.09 Bicycles 4901.75 4624.39 5.66 2.48 0.85 36.67 Lease Management 227.30 381.53 -67.85 5.36 12.05 17.32 (2)Particulars about main operations classified according to areas Unit: RMB’0000 Increase/decrease in Areas Operating income operating income over last year (%) Shandong 9999.36 33.44 Henan 5427.77 18.15 Jiangsu 3986.94 13.33 Hebei 2544.19 8.51 Sichuan 547.46 1.83 (3)Major suppliers and customers In the report period, the purchasing amount of top five suppliers amounted to RMB 236,243,700, taking 92.2% of annual purchasing amount; the sales amount to top five suppliers amounted to RMB 225,057,300, taking 75.26% of annual sales amount. 3. Change on formation of asset and expenses of the Company in the report period. Unit: RMB 2010 2009 Increase/ decrease Proportion Proportion ratio in proportion Amount in total Amount in total in total asset (%) asset(%) asset(%) Monetary fund 17756773.58 12.85 22,232,425.07 13.10% -1.90 Account 1732822.98 1.25 413,823.13 0.24% receivable 414.32 Inventory 21692678.29 15.70 32,564,369.59 19.19% -18.18 Long-term equity 2619840.50 1.90 2,619,840.50 1.54% investment 22.83 Net values of 21547992.74 15.60 23,932,824.06 14.10% fixed asset 10.59 384217648.09 2780.96 395,326,572.8 232.96% Short-term loan 2 1093.74 Long-term loans 706645180.86 511.48 870,518,082.1 512.99% -0.29 due within one 4 year 2010 2009 Increase/decrease (%) Operating expense 7394867.85 6,481,033.36 14.10 Administrative 23792819.05 25,405,353.86 -6.35 expense Financial expense 64515016.00 93,466,133.09 -30.97 Income tax 0 0.00 0.00 Note: (1) Operating expenses of this period increased by 14.1% compared to the same period of last year, mainly due to that operating income increased thus operating expenses increased correspondingly. (2) Financial expense of this period decreased by 30.97% compared to the same period of last year mainly due to that the first half year obvious RMB appreciation led to large foreign exchange gains, and free of interest of Zhengda Guoli as well as debt composition of Chengxingtai. 4. Changes on cash flow of the Company Increase/de Increase/decrea crease Items 2010 2009 se amount proportion (%) Net cash flow arising from 6,495,860.32 3,920,586.97 2,575,273.35 65.69 operating activities Net cash flow arising from -3,471,511.81 8,225,238.57 -11,696,750.38 -142.21 investing activities Net cash flow arising from -7,500,000.00 --- -7,500,000.00 --- financing activities Note: (1) Net cash flow arising from operating activities of this period increased RMB 2575300 compared to the same period of last year mainly due to that operation account drawn in the report period increased about RMB 2.5753 million in the report period. (2) Net cash flow arising from investing activities of this period decreased RMB 11696800 compared to the same period of last year mainly due to the difference between the RMB 8 million of investment project disposal account on Jiangxi Lihua which was taken back and the RMB 3.4 million paid for purchasing electricity equipments from China Industry Park in the report period. (3) Net amount of cash flow arising from financing activities in this reporting period decreased RMB 7.5 million, mainly due to that we paid RMB 14 million reconcile account for debts and loan RMB 6.5 million to subsidiary Amini. 5. The operation and analysis to the operation and achievements of the main holding company and shareholding companies of the Company (1) Shenzhen Emmelle Industry Co., Ltd.: Its registered capital is RMB 2 million, with its main business scope in establishing industry. The asset scale of the Company at year-end of 2010 amounted to RMB 2, 9354300 and the net profit in 2010 amounted to RMB-1281900. (2) Shenzhen Anjule Property Management Co., Ltd.: Its registered capital is RMB 2 million, with its main business scope in property management. The asset scale of the Company at year-end of 2010 amounted to RMB 2331100 and the net profit in 2010 amounted to RMB -2012300. (3) China Bicycles (Hong Kong) Co., Ltd.: Its registered capital is HKD 5 million and its place of registration is Hong Kong, with its main business scope in bicycle trading. The Company hasn’t any trading business in recent years. II. Prospect for the future development of the Company 1. The development trend in the industry of the Company and the market competitive pattern the Company faces The Company set foot in industry of electric bicycle since 2002. In 2007, the competition in industry of electric bicycle and bicycle present more fury, while the uncertainty brought by the new standard for industry of electric bicycle and the releasing time brings negative influence to sale of electric bicycle. The industry starts to walk into the step of standardized riffle. At the same time, the lasting sharp rise in prices for raw material results in rise in cost for manufacture and use electric bicycle. Particularly the sharp price rise in consume fittings such as battery seriously affect the market demand trend, even the develop potential of the whole industry of electric bicycle. 2. The challenges for future and operation plan of the Company for the next year (1) Continuously actively coordinate shareholders and the board of directors to vigorously conduct debts restructure, strive a substantive improvement of debts restructure of Shenzhonghua; (2) Complete establishment of internal control system, improve operation efficiency and performance; (3) Ensure stable growth in main business, strengthen property lease and assets management, thus improve overall operation earnings of the Company; (4) Integrate human resources, realize rationalization and optimization of human resource grouping. 3. The unfavorable risk factors for the development of the Company (1) The global financial crisis fiercely clashed domestic consumption market; lots of export-based manufacturing enterprises of the Company transferred to domestic market, bicycle and electric vehicle market took price as main competition method. All these factors led a complicated market environment. (2) Huge debt approximately approaching to RMB 2 billion is still the biggest problem for the Company. Due to that the debts have been made for a long time, situation is complicated, and creditors are various, it is rather difficult to deal with the debts. Faced with the aforesaid problems, on one hand, the Company tries to expand its products sales, especially in the production and sales of electric bicycles with high additional values; on the other hand, the Company actively promotes the integrated restructuring of the Company, including the debts restructuring. III. Investment of the Company During the report period, the Company has not raised proceeds and significant investment. IV. Auditor’s opinion and accounting policy 1. Auditor’s opinion offered by Shenzhen Pengcheng Certified Public Accountants Co., Ltd.: Shenzhen Pengcheng Certified Public Accountants Co., Ltd. offered 2010 Financial Report with the disclaimer of opinion. 2. Explanations of the Board of Directors about 2010 Financial Report of the Company with the disclaimer of opinions issued by Shenzhen Pengcheng Certified Public Accountants Co., Ltd.: The Board of Directors agreed the 2010 Auditor’s Report offered by Shenzhen Pengcheng Certified Public Accountants Co., Ltd. Due to that the debt restructuring work of the Company had not been completely finished in 2010, so risk of bearing huge debt still remained with many significant uncertainties. The CPAs was not able to offer opinion on the financial debt, tax payable, contingent proceedings, lawsuits and sustainable operation. In light of that, the Board of the Company made the following explanations: i. Financial debt Shenzhen Pengcheng CPAs held that: the letters replied from the financial creditors for the inquiry showed that the Company missed to record an interest balance totaling to RMB 324,879,558.04, and some letters were replied without confirmation on interest for the principal of loans totaling to RMB 111,584,308.44. So it was not available to confirm influence on financial statement by financial debt. The Company provided explanation in Note 10 for details of interest confirmation balance: when some creditors implemented the document ((2004) No.6) released by China Committee on Bank Supervision, they had different understanding on this document with the Company. The document noticed that: Bank of China and other 11 financial organizations stop calculating the interest of the Company for 3 years since Jan 1st of 2002 and at the same time, exempt all the interest payable of the Company (including penalty interest and compound interest) occurred before Dec 31st of 2001. Some assets management companies and banks considered that the Company was expected to return the interest exempted and stop-calculated, and some assets management companies had not confirmed the proceeding of interest calculation. The Company had transferred all the interest of loans payable owed before Dec 31st of 2001, RMB 357,993,665.24, (including penalty interest and compound interest) to capital public reserve. Interest was stopped with calculation from Jan 1st of 2002 to Dec 31st of 2004. The exempt term was due on Dec 31st of 2004. The Company held it was not necessary for him to return the interest exempted and stop-calculated, so when the term was due, the Company started to withdraw interest according to normal loan for those interests which needed to be returned. The stop-calculated interest and compound interest from Jan 1st of 2002 to Dec 31st of 2004 was not accrued. The company began to accrued interest till the interest-ceasing period ended. Besides, the financial debt of the Company was formed in history which had occurred for a long time and the amount of period–end had not changed for years. Body qualification of some creditors had been transferred and the particular personnel for handling had also changed, so the creditors needed time to check clearly the amount of creditor and debt of both involved parties and that was why some creditors had not replied the letters to confirm. The Company would continuously advance the account-check work with the relevant creditors of financial debt, trying as soon as possible to check clearly the interest on principal of the financial debt. Once progress is made, relevant information would be disclosed according to relevant regulation. ii. Issues on tax payable Shenzhen Pengcheng Certified Public Accountants Co., Ltd. thought that: in the audit process, the CPAs implemented audit procedures including inspection and inquiry, inquiring book tax amount payable, custom guarantee and penalty balance totaling to RMB 119,902,328.56. Until the audit report day, no reply has been received, so it was impossible for us to confirm the influence on financial statement of the Company. Due to the Company’s tax payable was formed in the past, which had a long time, forming reasons were complex, personnel of specific affairs had changed, and tax department needed time to check clear the debts rights and amounts of both sides, therefore, we are not able to receive confirmation letter from tax department. According to the regulations in Administration of Tax Collection regulated by the State, it is possible to repay the penalties and overdue fine. The Company will continue to follow up the work of checking account of tax department, check clear the amount of tax payable as soon as possible, and will disclose information according to the requirements of relevant regulations if there is some progress. iii. Contingent events and lawsuits Shenzhen Pengcheng Certified Public Accountants believed that: card information for loans of the Company was not accordant because of system updating and other seasons; during the auditing, the CPAs made field verification in relevant courts involved in lawsuits for external guarantee and overdue loans of the Company as substitute audit procedure, while no confirmation document had been obtained from the relevant courts. Besides, due to that it was hard to implement other effective audit procedures, it was unable for us to judge whether the Company had disclosed complete contingent events and lawsuits, and impacts on its financial statement. The historically formed loan and guarantee lawsuit had existed rather long time; in the report period, there was no newly-added undisclosed guarantee events and lawsuits; part courts in charge of those lawsuits changed, and specific responsible people also altered; the court needs time to check details and amount of the case, so the court didn’t write back for confirmation. The Company will continue follow up the check work by certified public accountants with related courts, and checks clear the contingent events and lawsuits as soon as possible. If there is any progress, information disclosure will be made according to requirements of relevant regulations. iv. Matters on sustainable operations Shenzhen Pengcheng Certified Public Accountants thought that, the Company’ asset could seriously not offset the debt; and could not be able to get adequate and proper audit evidence to confirm it could effectively improve the continuous operations of the Company; thus, we could not judge whether the financial report 2010 prepared by the Company based on imagined continuous operations was proper. Thus the Company and its largest creditor took the following measurements: Since March 2003, the promotion on debt restructuring by the former largest creditor of the Company-China Huarong Asset Management Corporation acquired a certain development, China Banking Regulatory Commission and relevant departments approved to exempt and stop all the interests of the financial debts the Company owed ended Dec.31, 2004. The Company and International Finance Corporation signed Reconciled Agreement on Mar 29th of 2007, in which it was agreed to settle all the credits and liabilities between the two parties with USD equivalent to RMB 2 million. The liabilities amount was consisted of principal approximately amounting to USD 3.87 million and an accrued interest approximately amounting to RMB 42.78 million. On Oct. 15 of 2010, the Company signed the Debts Reconcile Term with Shenzhen Chengxingtai Investment Co., Ltd which agreed the Company should pay the compensation to Chengxingtai Company with RMB 14 million thus settled up all the creditor’s right and debts (about RMB 150 million). The above RMB 14 million has been settled up on Nov. 30 of 2010 totally. On Dec. 30, 2006, China Huarong Asset Management Corporation transferred its creditor right to Shenzhen Guocheng Energy Investment Development Co., Ltd (hereinafter Guocheng Energy Company for short). Guocheng Energy Company now was actively promoting the restructuring works on relevant debts and got certain development. Regarding the largest shareholder and creditor had changed and new bankruptcy law was conducted, in Jan of 2010 Guocheng Energy Company applied to Shenzhen Intermediate People’s Court for restructuring of the Company according to the regulations of Bankruptcy Law, with goal of resuming sustainable operating ability through restructuring. On Dec. 28 of 2010, Shenzhen Intermediate People’s Court believed that applicants didn’t submit materials such as solution plan both parties accepted which was formed from settlement of tax income and creditor’s right with tax department, and then ruled that they didn’t accept application of bankruptcy restructure Shenzhen Guochen Energy Investment and Development Co., Ltd raised up. Besides, Guochen Energy Company agreed to stop accounting RMB 40.35 million of loan interests in 2010. This item of interests won’t be received in future years. Along with the promotion of debt restructuring the main business of the Company also realized stable development and continuously profited. Pressure of short-term payment of the Company had largely decreased; constant operation ability got a certain improvement. The Board of Directors of the Company thought that with constant development of the implementation of debt and assets restructuring, the operating environment, operating situation and constant operating ability of the Company would be improved further. V. Routine Works of Board of Directors (I) Board of Directors of the Company held 11 meetings in total during the report period, and particulars about meetings and resolutions are as follows: 1. On Jan. 19 of 2010, the Company held the 17th meeting (interim) of the 7th session of the board of directors in communication way. Relevant decisions were published on information disclosure press the Company appointed. 2. On Mar. 12 of 2010, the Company held the 18th meeting (interim) of the 7th session of the board of directors in communication way. Relevant decisions were published on information disclosure press the Company appointed. 3. On Mar. 31 of 2010, the Company held the 19th meeting (interim) of the 7th session of the board of directors in communication way. Relevant decisions were published on information disclosure press the Company appointed. 4. On Apr. 2 of 2010, the Company held the 20th meeting (interim) of the 7th session of the board of directors in communication way. Relevant decisions were published on information disclosure press the Company appointed. 5. On Apr. 25 of 2010, the Company held the 21st meeting (interim) of the 7th session of the board of directors in communication way. Relevant decisions were published on information disclosure press the Company appointed. 6. On May 10 of 2010, the Company held the 22nd meeting (interim) of the 7th session of the board of directors in communication way. Relevant decisions were published on information disclosure press the Company appointed. 7. On May 28 of 2010, the Company held the 23rd meeting (interim) of the 7th session of the board of directors in communication way. The meeting reviewed and passed the Self-Check Report of Basic Work of Financial Accounting of Shenzhen China Bicycle (Group) Holding Co., Ltd. 8. On Aug. 9 of 2010, the Company held the 24th meeting (interim) of the 7th session of the board of directors in communication way. Relevant decisions were published on information disclosure press the Company appointed. 9. On Aug. 26 of 2010, the Company held the 1st meeting (interim) of the 8th session of the board of directors in communication way. Relevant decisions were published on information disclosure press the Company appointed. 10. On Sep. 15 of 2010, the Company held the 2nd meeting (interim) of the 8th session of the board of directors in communication way. Relevant decisions were published on information disclosure press the Company appointed. 11. On Oct. 26 of 2010, the Company held the 3rd meeting (interim) of the 8th session of the board of directors in communication way. Relevant decisions were published on information disclosure press the Company appointed. (II) Implementation of resolutions of Shareholders’ General Meeting by the board of directors: 1. The Board of Directors strictly implemented all resolutions of Shareholders’ General Meeting in the report period with no material warps or errors. 2. In the report period, the Company had no profit distribution plan, plan of converting public reserve into share capital, rights offering as well as additionally equity offerings. 3. Duty performance of the special committee of the board of directors: The Audit Committee of the Board consists of 3 directors, 2 of which are independent directors and independent director takes the post of convener. In the report period, according to regulations of Working Rules of Audit Committee of the Board and Working Procedure of Audit Committee for Annual Report, the Committee periodically checked the internal audit report, financial statement and internal control system of the Company, and earnestly performed its obligation. In the report period, with professional knowledge and experience, the members of the Committee examined the annual financial statement prepared by the Company. According to relevant regulations and demands of CSRC, the Audit Committee presented two examination opinions for the annual financial statement. Before the certified public accountants enter for annual audit, the Audit Committee issued the first written opinion on the un-audited financial statements: according to the 38 detailed principles of Accounting Standard for Enterprise-Basic Standard, Accounting Standard for Enterprise No.1-Inventory and the relevant regulation in the Company’s financial system, the Audit Committee takes close eye on the reality and completeness of the financial statements, and on the preparation of the statements whether they were prepared in strict accordance to the new Accounting Standard for Enterprise and relevant regulation in the Company’s financial system. With inquiry and analysis on the financial files, the Audit Committee holds that: the Company stipulated its rational accounting policy and adequate accounting estimation, according to the relevant request of the new Accounting Standard for Enterprise and taking the actual status of the Company into consideration; the transaction records were real and complete; and the financial accounting statements prepared by the Company really reflected the financial status of the Company till Dec 31st of 2010, and the operation achievement and cash flow of the Company in 2010. It is agreed to take these financial statements as basis to carry out the financial audit work of 2010. After the CPA issued the initial audit opinion, the Audit Committee read the first audit report in time and negotiated with the CPA. The Audit Committee and the CPA had no disputation on the important issues concerned by the annual financial report of the Company. The financial report of the Company complies with the Accounting Standard for Enterprise and regulations of relevant laws. The Audit Committee agreed to take these financial statements as basis to prepare the 2010 Annual Report and its Summary, which made it available for the Company to disclose the 2010 Annual Report in time. 4. Duty performance of the Remuneration and Examination Committee of the Board: During the report period, the Remuneration and Examination Committee of the Board examined the remuneration policy and scheme of the directors and senior executives of the Company. It is believed that the remuneration of the directors, supervisors and senior executives of the Company disclosed in the V. of this report is real and accurate. VI. Profit distribution preplan or preplan of capitalization 1. As audited by Shenzhen Pengcheng Certified Public Accountants, the losses of the Company amounted to RMB 64,477,400 in 2010. The Company has neither dividend distribution nor share capital conversion from capital public reserve. 2. Particulars about the cash bonus of the Company in previous three years Unit: RMB Net profit attributable to Ratio of net profit Amount of cash bonus shareholders of listed attributable to shareholders (tax included) company in consolidated of listed company in statement of bonus year consolidated statement 2009 0.00 -105,757,549.50 0.00% 2008 0.00 -44,893,006.40 0.00% 2007 0.00 63,036,241.24 0.00% VII. Other issues (I) Explanation on the external guarantees of the Company, accumulative total and the current ones, issued by the independent directors: According to the regulations of the notice (CSRCF [2003] No.56) on Standardize Fund Exchange Between Listed Companies and Related Parties and on Problem of External Guarantee of Listed Companies, as the independent directors of Shenzhen China Bicycle Company (Holdings) Limited, we made inspection on the accumulative and current external guarantees of the Company and also on the guarantee getting out of line, together according to the document (SPSZSZ[2009] No.205) issued by Shenzhen Pengcheng CPAs on Special Explanation on Fund Occupancy and Guarantee Getting out of Line of the Controlling Shareholders and Other Related Parties of Shenzhen China Bicycle Company (Holdings) Limited and relevant data. Here comes the detail information: During the report period, no guarantee or guarantee out of line has been provided by the Company for its controlling shareholders and the enterprises where they take posts. The guarantees or guarantees out of line provided by the Company for its controlling shareholders and the enterprises where they take posts were those happened from year 1996 to year 1999, belonging to the events left in history. Due to that most units receiving guarantee are not able to repay, the Company treated most guarantees as projected liabilities which amounted to RMB 179,088,442.92. (II) Other significant events in reporting period 1. On Mar. 18 of 2010, plan for reform of shareholders structure has been implemented. A stock of the Company got resumption of trading, thus eliminated obstacle in process of debts restructure. 2. On Jan. 14 of 2010, largest shareholder of the Company Shenzhen Guochen Energy Investment and Development Co., Ltd submitted application to Shenzhen Intermediate People’s Court for restructure of the Company according to the Bankruptcy Law, aiming at resuming constant operation of the Company through the restructure. On Dec. 28 of 2010, Shenzhen Intermediate People’s Court believed that applicants didn’t submit materials such as solution plan both parties accepted which was formed from settlement of tax income and creditor’s right with tax department, and then ruled that they didn’t accept application of bankruptcy restructure on the Company which Shenzhen Guochen Energy Investment and Development Co., Ltd raised up. 3. On May 31 of 2010, largest shareholder and largest creditor of the Company Shenzhen Guochen Energy Investment and Development Co., Ltd signed the Debts Transfer Term with Shenzhen Zhengda Guoli Investment Co., Ltd, and then transferred the term worth USD 21.9683 million amounting to RMB 150 million to Shenzhen Zhengda Guoli Investment Co., Ltd. After the transfer, Shenzhen Guoshen Energy Investment and Development Co., Ltd held creditor’s right of the Company RMB 19.3 million and USD 62.8293 million. And it was still the largest creditor of the Company. At the same time, Shenzhen Guoshen Energy Investment and Development Co., Ltd made commitment that transfer of partial creditor wouldn’t affect restructure of the Company. 4. On Jun. 10 of 2010, we received the Reply to Letter of Applying for Stopping Calculation of 2010 Annual Debts Interests of the Company issued by the largest shareholder and largest creditor Shenzhen Guoshen Energy Investment and Development: agreed to stop calculating creditor’s right of the Company RMB 9,124,618.59 and USD creditor’s right (before May 31 of 2010 USD 84,797,624.57 and since Jun. 1 of 2010 USD 62,829,259.02) 2010 annual interest in whole-year. The above interests which were stopped calculating won’t be withdrawn in future years. The calculation-stop of debts interests played an active role in keeping sustainable operation of the Company. 5. On Sep. 8 of 2010, the Company received the Letter of Debts Transfer and Debts Reconcile from the new creditor Shenzhen Chengxingtai Investment Co., Ltd. From this letter, we leaned about that Shenzhen Zhengda Guoli Investment Co., Ltd transferred USD 21,968,365.55 of creditor’s right (amounting about RMB 150 million) held from the Company to Shenzhen Chengxingtai Investment Co., Ltd. and both parties had signed the Term of Creditor’s Right Transfer on Sep. 2 of 2010. After negotiation, the Company signed the Intention Letter of Debts Reconcile with Shenzhen Chengxingtai Investment Co., Ltd on Sep. 14. On Oct. 8 of 2010, the 4th extraordinary shareholders’ general meeting reviewed and passed the Proposal of Debts Reconcile Agreed by the Company and Shenzhen Chengxingtai Investment Co., Ltd. The Company signed the Term of Debts Reconcile with Chengxingtai Company on Oct. 15 of 2010 which agreed that: the Company should pay for the compensation to Chengxingtai Company with RMB 14 million, thus settled up all the debts and creditor’s rights of both parties (about RMB 150 million). Section VIII. Report of Supervisory Committee In the spirit of being responsible to shareholders and strictly according to regulations in PRC Company Law, Securities Law and Articles of Association of the Company, the Supervisory Committee has dutifully performed its obligations endowed by relevant laws and legislations, carried out work positively and hard, and safeguarded the legal rights and interests of the Company and shareholders in 2010. It has also put forward its opinions and suggestions promptly towards significant decisions made for productions, management and investment, and supervised the behaviors of directors and senior executives in terms of implementation of their obligations. I. Work of the Supervisory Committee in the report period In the report period, the Supervisory Committee of the Company held altogether 2 meetings. 1. On Apr. 25 of 2010, the Company held the 5th meeting of the 6th session of the board of supervisors. Relevant decisions were published on information disclosure press the Company appointed on Apr. 27. 2. On Aug. 4 of 2010, the Company held the 6th meeting of the 6th session of the board of supervisors. Relevant decisions were published on information disclosure press the Company appointed on Aug. 5. 3. On Aug. 9 of 2010 the 7th meeting of the 6th session of board of supervisors was held which reviewed and passed the 2010 Semi-Annual Report. 4. On Aug. 26 of 2010, the Company held the 8th meeting of the 6th session of the board of supervisors. Relevant decisions were published on information disclosure press the Company appointed on Aug. 27. 5. On Oct. 26 of 2010, the Company held the 9th meeting of the 6th session of the board of supervisors. Relevant decisions were published on information disclosure press the Company appointed on Oct. 28. II. Opinions on relevant issues in 2010 expressed by the Supervisory Committee 1. Operation according to law: In accordance with relevant national laws and regulations, the Supervisory Committee has carried out supervision work on the holding procedures of Shareholders’ General Meetings and Board meetings, resolution, implementation of resolutions of Shareholders’ General Meetings by the Board of Directors, performance of duties of senior executives as well as the Company’s administration system etc.; it believes that, in 2010, the Board of Directors strictly complied with PRC Company Law, Securities Law, Rules for Stock Listing, Articles of Association and other relevant regulations and systems, operated in a standardized manner, worked conscientiously, conducted business and made decisions in a scientific and reasonable way, and further improved internal administration and internal control system; the directors and managers haven’t violated any laws, regulations, the Articles of Association or done harm to the interests of the Company and shareholders when performing duties. 2. Financial Inspection In the report period, Shenzhen Pengcheng Certified Public Accountants issued auditor’s report with disclaimer of opinion for the Financial Statement 2010 of the Company. The Financial Report of the Company objectively and truly reflected the financial status and operation achievements of the Company this year. 3. Use of raised funds: The Company has not raised funds in the report period. 4. Purchases and sales of assets: In the report period, the Company has no initiative to purchases assets: they thought the sales of assets conformed to the laws and regulations and relevant provisions of the Company. 5. Opinions towards related transactions Related transactions conducted by the Company are fair and square, and haven’t done harm to the interests of the Listed Company, and there was no insider dealing. 6. Implementation on resolution of shareholders’ general meeting by the Board Supervisors of the Company attended shareholders’ general meeting and presented each meeting of the Board without voting rights. The Supervisory of the Company supervised implementation on resolution of shareholders’ general meeting, and it thought that the Board earnestly implemented the various resolutions of shareholders’ general meeting. III. Opinion issued by the Board on the auditor’s report with disclaimer of opinion issued by Shenzhen Pengcheng Certified Public Accountants Shenzhen Pengcheng CPAs issued the audit report with disclaimer of opinion for 2010. The Board had made special explanation on the events concerned by the report. The Supervisory Committee believed that: the audit report issued by Shenzhen Pengcheng CPAs truthfully reflected the financial condition and operation achievement of the Company; the explanation presented by the Board of the Company on the events concerned by the audit opinion complied with the actual condition of the Company. The Supervisory Committee would actively cooperate with the Board to carry out its works, supervise and urge the Board to intensify power in debt restructure and try to improve the persistent operating ability of the Company. Section IX. Significant Events I. Material lawsuits and arbitrations in the report period: The details about the material lawsuits or arbitrations that occurred in the previous years are in the Notes 12 of the Financial Statement. II. Purchases and sales of assets of the Company in the report period The Company had no active purchase of assets in the report period. And the sales of assets are in item 30 of Notes 5 of the Financial Statement. III. Significant related transactions in the report period In the report period, there was no new significant related transaction; details about the significant related transactions that occurred in the previous years are in the Notes X of Financial Statement. IV. Significant Contracts and Implementation of Contracts 1. In the report period, the Company had not entrusted, contracted or leased the assets of other companies, nor had other companies entrusted, contracted or leased the assets of listed companies. 2. In the report period, the Company had not entrusted financing events. 3. In the report period, the Company did not have the situations of guarantees on controlling subsidiary, the guaranteed occurred in previous years were as follows: Unit: RMB’0000 Particulars about the external guarantee of the Company (Barring the guarantee for the controlling subsidiaries) Com Guarante plete e for Date of happening Amount Guaran Name of the Company Impl related (Date of signing of Guarantee type tee guaranteed emen party agreement) guarantee term tation (Yes or or no) not 4 Guangdong Sunrise Group Co., Joint months 1996-07-26 2,800.00 No No Ltd. responsibility 月 Guangdong Sunrise Group Co., Joint 12 1999-09-30 681.83 No No Ltd. responsibility months Guangdong Sunrise Group Co., Joint 11 1998-04-30 260.00 No No Ltd. responsibility months Guangdong Sunrise Group Co., Joint 7 1997-07-30 250.00 No No Ltd. responsibility months Guangdong Sunrise Group Co., Joint 8 1997-06-04 300.00 No No Ltd. responsibility months Gintian Industry (Group) Co., Joint 6 1998-10-30 5,000.00 No No Ltd. responsibility months Shenzhen Tianma Cosmetics Joint 12 1994-09-30 800.00 No No Co., Ltd. responsibility months Total amount of guarantee in the report period 0.00 Total balance of guarantee at the end of the report period 10,091.83 Guarantee of the Company for the controlling subsidiaries Total amount of guarantee for controlling subsidiaries during the report 0.00 period Total balance of guarantee for controlling subsidiaries at the end of the 7,817.01 report period Total amount of guarantee of the Company (including guarantee for controlling subsidiaries) Total amount of guarantees 17,908.84 Ratio of total guarantee to net assets of the Company -9.62% Including: Amount of guarantee for shareholders, actual controller and its related 0.00 parties The debts guarantee amount provided for the guarantee of which the 17,908.84 assets-liability ratio exceeded 70% directly or indirectly Proportion of total amount of guarantee in net assets of the Company exceeded 50% 0.00 Total amount of the aforesaid three guarantees 17,908.84 Explanations on possibly bearing joint and several responsibilities for undue Naught guarantees Note: Guangdong Sunrise Group Co., Ltd. was the shareholder of the Company, its equity was auctioned by the court and now it is not the shareholder of the Company. V. Commitments of the Company and the shareholders holding more than 5% equity in the report period or lasting to the report period The Company or the shareholders holding more than 5% equity had no commitments made in the report period or made in previous period but carried forward to the report period that were likely to produce significant influence on the operation achievements and financial status of the Company. VI. Engagement and Disengagement of Certified Public Accountants of the Company In the report period, the Company engaged Shenzhen Pengcheng Certified Public Accountants as the auditing organ in this year with term of one year. In 2010, the Company paid auditing fee amounting to RMB 0.5 million to Shenzhen Pengcheng Certified Public Accountants. VII. Particulars about punishment received by the Company, the Board of Directors of the Company and the directors from supervisory department In the report period, the Company, the Board of Directors of the Company and the directors have not been inspected, given administrative punishment or public criticism by CSRC, or publicly condemned by Shenzhen Stock Exchange. VIII. Particulars about the Company’s Reception of Investigation and Interview In accordance with the requirements of Guidance for Fair Information Disclosure for Listed Companies of Shenzhen Stock Exchange, the Company earnestly implements the System of Reception and Popularization. The Company and relevant personnel in charge of information disclosure strictly follow the principle of fair information disclosure. Situation that different treaty policy is implemented, information is disclosed for appointed person or non-public significant information is disclosed or leaked out has never happened. Reception Reception Reception Person Main content of talk and information date place way receipted provided Phone Shareholders Progress of the share merger reform and Office of the 2010 communicat of circulating the debt restructure project of the Company ion shares Company Section X. Financial Report (see attachment) Section XI. Documents Available For Reference I. Accounting statements carrying the personal signatures and seals of legal representative, person in charge of the accounting affairs and person in charge of the accounting department. II. Original of Auditors’ Report carrying the seal of the Certified Public Accountants as well as personal signatures and seals of certified public accountants. III. Originals of all documents and public notices disclosed publicly on the newspapers as designated by China Securities Regulatory Commission in the report period. IV. English version of the 2010 Annual Report. The Board of Directors of Shenzhen China Bicycle Company (Holdings) Limited April 27, 2011 Shenzhen China Bicycle Company (Holdings) Limited 2010 Financial Report Auditors’ Report Content Content Pages I. Auditor’s Report 1-2 II. Audited Financial Statements Consolidation and Balance Sheet of Parent 3-6 Company Consolidation and Profit Statement of Parent 7-8 Company Consolidation and Cash Flow Statement of 9-10 Parent Company Consolidation and Changes of Shareholders' 11-14 Equity of Parent Company III. Notes to Financial Statement 15- Shenzhen Pengcheng CPA Co., Ltd. Tel:(0755)8373 2888 7/F, Tower A, Union Square, No. 5022, Binhe Avenue, Futian District, Fax:((0755)8223 7549 Shenzhen, China Auditors’ Report Shenzhen Pengcheng GSZi [2011] No.0125 To the shareholders of Shenzhen China Bicycle Company (Holdings) Limited, We have audited the accompanying financial statements of Shenzhen China Bicycle Company (Holdings) Limited (“the Company”), including consolidated balance sheet of the Company and parent company of 31 December 2010, and consolidated profit statement of the Company and parent company, and consolidated statement on changes of shareholders’ equity of the Company and parent company, and consolidated cash flow statement of the Company and parent company for the year ended, and notes to the financial statements for the year ended. I. Management's responsibility for the financial statements It is the responsibility for the management of the Company to prepare financial statements according to the stipulations of the business accounting rules. This responsibility includes: (1) devising, implementing and maintaining internal control related to the preparation of the financial statements so as to ensure that the financial statements do not contain major errors caused by fraudulence or mistake; (2) choosing and adopting appropriate accounting policies; and (3) making reasonable accounting estimations. II. Proceedings which result in disclaimer of opinion 1. During the audit, we have specially implemented the audit procedures such as visit for inspection and inquiry, focusing on the financial debts of Shenzhen China Bicycle Company (Holdings) Limited which have expired for long time till the end of Dec 31st of 2010. Until the audit report day, the replied letters told that a balance in interest of RMB 324,879,558.04 has been omitted by Shenzhen China Bicycle Company (Holdings) Limited; besides, some letters were replied to show interest on borrowing principal converting to RMB 111,584,308.44. As to the aforesaid omitted interest balance, the Company provided explanation in Note 10.2 that when implementing the document (YJBT (2004) No.6) released by China Committee on Bank Supervision for offering a reference of the loan interest restructure of Shenzhen China Bicycle Company (Holdings) Limited, the Company and some creditors had different understanding on this document, which brought the aforesaid omission. Since the accounts had not been adjusted, we are not able to ensure the influence of this balance to the financial statements of the Company. 2. During the audit, we have specially implemented the audit procedures such as visit for inspection and inquiry, focusing on the tax payable of Shenzhen China Bicycle Company (Holdings) Limited which have expired for long time till the end of Dec 31st of 2010, in want of verification that whether the unpaid tax, tariff bond and penalty balance was totaling up to RMB 119,902,328.56 as the Company’s book said. While until the audit report day, nothing got replied. Thus, it was impossible for us to ensure the influence on the financial statements of the Company brought by the uncertainty. 3. In the process of audit, the information of credit card which we received from the account bank of the Company is not able to be checked whether contingency such as related guarantee information accord with disclosure, for it did not be annually inspected and credit card system did 1 not upgrade related information. Therefore, we implement substitutive audit procedure of field checking the related courts to the claims of the Company caused by external guarantee and overdue loan. However, related courts all only make some oral explanations or provide some information which could only be used as reference. Otherwise, we are not able to implement other efficient audit procedure, so that we are not able to judge the integrity of the contingency disclosed in Note 11 and the lawsuits disclosed in Note 12 of the Company and possible effects of the issues on the Company’s financial report. 4. Refer to Note 10, until Dec. 31, 2010, total asset of Shenzhen China Bicycle Company (Holdings) Limited was RMB 138,158,078.89; total debt was RMB 1,894,343,521.76; net asset was RMB -1,756,185,442.87 with debts beyond assets. Net profit earned for 2010 amounting to RMB 64,477,414.44 by means of debt restructuring. For all, Shenzhen China Bicycle Company (Holdings) Limited disclosed improving methods in Note 10.3 of financial statement, especially the largest shareholder and creditor Shenzhen Guocheng Energy Investment Development Co., Ltd. applied to Shenzhen Intermediate People’s Court for restructuring according to Bankruptcy Law in Jan. of 2010. In December 2010, the Shenzhen Intermediate People’s Court dismiss the application, that we obtained no complete-ness and properly auditing evidence to guarantee whether it can improved the sustainable operational ability for China Bicycle. Therefore, concerning the appropriate-ness of the financial statement 2010 of China Bicycle that prepared under the sustainable hypothesis, we fail to judge. III. Auditing Opinion Due to that the aforesaid events could possibly occur very significant and aboard influences, we could not issue auditor’ opinion on the financial statement of the Company. Shenzhen Pengcheng Certified Public China Certified Accountants Accountant Shenzhen P.R.C. 25 April 2011 Wei Changying China Certified Accountant Lv Yali 2 Shenzhen China Bicycle Company (Holdings) Limited 2010 Financial Report Consolidated Balance Sheet 2010-12-31 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Items Notes Amount at period-end Amount at year-begin Current assets: Monetary funds V.1 17,756,773.58 22,232,425.07 Settlement provisions - - Capital lent - - Transaction finance asset - - Notes receivable V.2 2,619,699.00 5,800,000.00 Accounts receivable V.3 1,732,822.98 413,823.13 Accounts paid in advance V.4 213,423.41 195,298.09 Insurance receivable - - Reinsurance receivables - - Contract reserve of - - reinsurance receivable Interest receivable - - Dividend receivable - - Other receivables V.5 18,085,772.89 24,221,035.93 Purchase restituted finance - asset Inventories V.6 21,692,678.29 32,564,369.59 Non-current asset due within - - one year Other current assets - - Total current assets 62,101,170.15 85,426,951.81 Non-current assets: Granted loans and advances - - Finance asset available for - - sales Held-to-maturity securities - - Long-term account receivable - - Long-term equity investment V.7 2,619,840.50 2,619,840.50 Investment property V.8 26,434,648.24 31,399,514.80 Fixed assets: V.9 21,547,992.74 23,932,824.06 Construction in progress - - Engineering material - - Disposal of fixed asset - - Productive biological asset - - Oil and gas asset - - Intangible assets V.10 25,454,427.26 26,317,289.30 Expense on Research and - - Development Goodwill - - Long-term expenses to be - - apportioned Deferred income tax asset - - Other non-current asset - - Total non-current asset 76,056,908.74 84,269,468.66 Total assets 138,158,078.89 169,696,420.47 Legal representative: _____________ Person in charge of accounting works: _____________ Person in charge of accounting organ: _____________ 3 Consolidated Balance Sheet (Con.) 2010-12-31 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Items Notes Amount at period-end Amount at year-begin Current liabilities: Short-term loans V.12 384,217,648.09 395,326,572.82 Loan from central bank - - Absorbing deposit and - - interbank deposit Capital borrowed - - Transaction financial - - liabilities Notes payable - - Accounts payable V.13 125,628,122.72 125,874,371.36 Accounts received in advance V.14 16,661,602.20 23,083,981.59 Selling financial asset of - - repurchase Commission charge and - - commission payable Wage payable V.15 3,802,240.39 5,268,781.80 Taxes payable V.16 98,218,863.73 96,149,009.88 Interest payable V.17 213,488,233.36 165,838,645.23 Dividend payable - - Other accounts payable V.18 165,837,025.40 168,836,440.31 Reinsurance payables - - Insurance contract reserve - - Security trading of agency - - Security sales of agency - - Non-current liabilities due 706,645,180.86 870,518,082.14 within 1 year V.19 Other current liabilities V.20 756,162.09 726,612.09 Total current liabilities 1,715,255,078.84 1,851,622,497.22 Non-current liabilities: - Long-term loans - - Bonds payable - - Long-term account payable - - Special accounts payable - - Projected liabilities V.21 179,088,442.92 179,088,442.92 Deferred income tax liabilities - - Other non-current liabilities - - Total non-current liabilities 179,088,442.92 179,088,442.92 Total liabilities 1,894,343,521.76 2,030,710,940.14 Shareholders’ equity): Paid-in capital (or share 551,347,947.00 479,433,003.00 capital) V.22 Capital public reserve V.23 427,132,693.91 458,695,975.55 Less: Inventory shares - - Reasonable reserve - - Surplus public reserve V.24 32,673,227.01 32,673,227.01 Provision of general risk - - Retained profit V.25 -2,767,339,310.79 -2,831,816,725.23 Balance difference of foreign - - currency translation Total shareholders’ equity -1,756,185,442.87 -1,861,014,519.67 attributable to parent company Minority interests - - Total shareholders’ equity -1,756,185,442.87 -1,861,014,519.67 4 Total liabilities and shareholders’ 138,158,078.89 169,696,420.47 equity Legal representative: _____________ Person in charge of accounting works: _____________ Person in charge of accounting organ: _____________ 5 Balance Sheet of Parent Company 2010-12-31 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Assets Notes Amount at period-end Amount at year-begin Current assets: Monetary funds 498,624.71 365,121.06 Transaction finance asset - - Notes receivable - - Accounts receivable XI.1 1,384,353.23 4,840,655.31 Accounts paid in advance - - Interest receivable - - Dividend receivable - - Other receivables XI.2 30,529,810.28 44,469,377.15 Inventories 14,965,196.51 20,240,562.11 Non-current asset due within - - one year Other current assets - - Total current assets 47,377,984.73 69,915,715.63 Non-current assets: Finance asset available for - - sales Held-to-maturity securities - - Long-term account receivable - - Long-term equity investment XI.3 2,619,840.50 2,619,840.50 Investment property 26,434,648.24 31,399,514.80 Fixed assets: 21,221,962.11 23,131,963.21 Construction in progress - - Engineering material - - Disposal of fixed asset - - Productive biological asset - - Oil and gas asset - - Intangible assets 25,454,427.26 26,317,289.30 Expense on Research and - - Development Goodwill - - Long-term expenses to be - - apportioned Deferred income tax asset - - Other non-current asset - - Total non-current asset 75,730,878.11 83,468,607.81 Total assets 123,108,862.84 153,384,323.44 Legal representative: _____________ Person in charge of accounting works: _____________ Person in charge of accounting organ: _____________ 6 Balance Sheet of Parent Company (Con.) 2010-12-31 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Items Notes Amount at period-end Amount at year-begin Current liabilities: Short-term loans 332,017,261.07 338,507,120.98 Transaction financial liabilities - - Notes payable - - Accounts payable 148,454,726.88 155,610,619.08 Accounts received in advance 10,664,592.85 10,664,592.85 Wage payable 2,372,320.02 4,099,102.35 Taxes payable 95,784,336.55 94,821,236.83 Interest payable 213,488,233.36 165,838,645.23 Dividend payable - - Other accounts payable 120,844,911.76 126,959,911.53 Non-current liabilities due within 1 706,645,180.86 year 870,518,082.14 Other current liabilities 726,612.09 726,612.09 Total current liabilities 1,630,998,175.44 1,767,745,923.08 Non-current liabilities: Long-term loans - - Bonds payable - - Long-term account payable - - Special accounts payable - - Projected liabilities 179,088,442.92 179,088,442.92 Deferred income tax liabilities - - Other non-current liabilities - - Total non-current liabilities 179,088,442.92 179,088,442.92 Total liabilities 1,810,086,618.36 1,946,834,366.00 Owner’s equity (or shareholders’ equity): - Paid-in capital (or share capital) 551,347,947.00 479,433,003.00 Capital public reserve 427,132,693.91 458,695,975.55 Less: Inventory shares - - Reasonable reserve - - Surplus public reserve 32,673,227.01 32,673,227.01 Provision of general risk - - Retained profit -2,698,131,623.44 -2,764,252,248.12 Total owner’s equity(or shareholders’ -1,686,977,755.52 equity) attributable to parent company -1,793,450,042.56 Total liabilities and owner’s equity(or 123,108,862.84 shareholders’ equity) 153,384,323.44 Legal representative: _____________ Person in charge of accounting works: _____________ Person in charge of accounting organ: _____________ Consolidated Profit Statement Year of 2010 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Amount in this Amount in last Items Notes period period I. Total operating income 299,027,279.43 260,908,108.82 Including: Operating income V.26 299,027,279.43 260,908,108.82 Interest income - - Insurance gained - - 7 Commission charge and commission income - - II. Total operating cost 374,381,117.43 378,647,001.09 Including: Operating cost V.26 280,127,985.48 248,699,643.75 Interest expense - - Commission charge and commission expense - - Cash surrender value - - Net amount of expense of compensation - - Net amount of withdrawal of insurance contract reserve - - Bonus expense of guarantee slip - - Reinsurance expense - - Operating tax and extras V.27 311,455.58 164,314.97 Sales expenses V.28 7,394,867.85 6,481,033.36 Administration expenses V.29 23,792,819.05 25,405,353.86 Financial expenses V.30 64,515,016.00 93,466,133.10 Losses of devaluation of asset V.31 -1,761,026.53 4,430,522.05 Add: Changing income of fair value (Loss is listed with “-”) - - Investment income (Loss is listed with “-”) - - Including: Investment income on affiliated company and joint venture - - Exchange income (Loss is listed with “-”) III. Operating profit (Loss is listed with “-”) -75,353,838.00 -117,738,892.27 Add: Non-operating income V.32 139,887,804.23 12,729,475.16 Less: Non-operating expense V.33 56,551.79 1,151,358.79 Including: Disposal loss of non-current asset - - IV. Total Profit (Loss is listed with “-”) 64,477,414.44 -106,160,775.90 Less: Income tax - - V. Net profit (Net loss is listed with “-”) 64,477,414.44 -106,160,775.90 Net profit attributable to shareholders of parent company 64,477,414.44 -105,757,549.50 Minority shareholders’ gains and losses -403,226.40 VI. Earnings per share - i. Basic earnings per share V.34 0.1169 -0.2206 ii. Diluted earnings per share V.34 0.1169 -0.2206 VII. Other consolidated income - - VIII. Total consolidated income 64,477,414.44 -106,160,775.90 Total consolidated income attributable to owners of parent company 64,477,414.44 -105,757,549.50 Total consolidated income attributable to minority shareholders - -403,226.40 Legal representative: _____________ Person in charge of accounting works: _____________ Person in charge of accounting organ: _____________ Profit Statement of Parent Company 2010 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Items Notes Amount in this period Amount in last period I. Operating income XI.4 28,532,157.84 17,485,643.49 Less: Operating cost XI.4 16,520,738.87 11,699,612.00 Business taxes and surtax - - Sales expenses - 262,795.77 Administration expenses 21,709,094.88 21,178,901.29 Financial expenses 66,242,149.40 94,449,263.86 8 Losses of devaluation of asset -2,197,612.45 4,430,522.05 Add: Changing income of fair value(Loss is listed with “-”) - - Investment income (Loss is listed with “-”) XI.5 - - Including: Investment income on affiliated company and joint venture - - II. Operating profit (Loss is listed with “-”) -73,742,212.86 -114,535,451.48 Add: Non-operating income 139,881,904.23 12,702,225.16 Less: Non-operating expense 19,066.69 1,150,488.79 Including: Disposal loss of non-current asset - - III. Total Profit (Loss is listed with “-”) 66,120,624.68 -102,983,715.11 Less: Income tax - - IV. Net profit (Net loss is listed with “-”) 66,120,624.68 -102,983,715.11 Legal representative: _____________ Person in charge of accounting works: _____________ Person in charge of accounting organ: _____________ Consolidated Cash Flow Statement Year of 2010 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Amount in this Amount in last Items Notes period period I. Cash flows arising from operating activities: Cash received from selling commodities and 178,552,968.97 providing labor services 155,845,542.24 Net increase of customer deposit and interbank deposit - - Net increase of loan from central bank - - Net increase of capital borrowed from other financial institution - - Cash received from original insurance contract fee - - Net cash received from reinsurance business - - Insured savings and net increase of investment - - Net increase of disposal of transaction financial asset - - Cash received from interest, commission charge and commission - - Net increase of capital borrowed - - Net increase of returned business capital - - Write-back of tax received 254,666.00 - Other cash received concerning operating 22,290,096.28 activities V 35.(1) 20,368,255.24 Subtotal of cash inflow arising from 201,097,731.25 operating activities 176,213,797.48 Cash paid for purchasing commodities and 156,229,830.72 receiving labor service 139,060,216.75 Net increase of customer loans and advances - - 9 Net increase of deposits in central bank and interbank - - Cash paid for original insurance contract compensation - - Cash paid for interest, commission charge and commission - - Cash paid for bonus of guarantee slip - - Cash paid to/for staff and workers 15,747,757.29 14,641,347.69 Taxes paid 4,849,679.50 4,478,878.32 Other cash paid concerning operating 17,774,603.42 activities V 35.(2) 14,112,767.75 Subtotal of cash outflow arising from operating activities 194,601,870.93 172,293,210.51 Net cash flows arising from operating activities 6,495,860.32 3,920,586.97 II. Cash flows arising from investing activities: - Cash received from recovering investment - 8,000,000.00 Cash received from investment income - - Net cash received from disposal of fixed, intangible and other long-term assets - 550,000.00 Net cash received from disposal of subsidiaries and other units - - Other cash received concerning investing activities - - Subtotal of cash inflow from investing activities - 8,550,000.00 Cash paid for purchasing fixed, intangible 3,471,511.81 and other long-term assets 324,761.43 Cash paid for investment - - Net increase of mortgaged loans - - Net cash received from subsidiaries and other units - - Other cash paid concerning investing activities - - Subtotal of cash outflow from investing 3,471,511.81 activities 324,761.43 Net cash flows arising from investing -3,471,511.81 activities 8,225,238.57 III. Cash flows arising from financing activities - - Cash received from absorbing investment - - Including: Cash received from absorbing minority shareholders’ investment by subsidiaries - - Cash received from loans - - Cash received from issuing bonds - - Other cash received concerning financing 6,500,000.00 activities V35.(3) - Subtotal of cash inflow from financing 6,500,000.00 activities - Cash paid for settling debts 14,000,000.00 - Cash paid for dividend and profit distributing or interest paying - - Including: Dividend and profit of minority shareholder paid by subsidiaries - - Other cash paid concerning financing activities - - Subtotal of cash outflow from financing 14,000,000.00 activities - 10 Net cash flows arising from financing -7,500,000.00 activities - IV. Influence on cash due to fluctuation in - exchange rate - V. Net increase of cash and cash equivalents -4,475,651.49 12,145,825.54 Add: Balance of cash and cash equivalents at 22,232,425.07 the period -begin 10,086,599.53 VI. Balance of cash and cash equivalents at the 17,756,773.58 period -end 22,232,425.07 Legal representative: _____________ Person in charge of accounting works: _____________ Person in charge of accounting organ: _____________ Cash Flow Statement of Parent Company Year of 2010 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Amount in this Amount in last Items Notes period period I. Cash flows arising from operating activities: Cash received from selling commodities and providing labor services - 700.00 Write-back of tax received 254,666.00 - Other cash received concerning operating activities 38,601,004.58 18,087,589.94 Subtotal of cash inflow arising from operating activities 38,855,670.58 18,088,289.94 Cash paid for purchasing commodities and receiving labor service - - Cash paid to/for staff and workers 1,646,015.22 1,572,561.53 Taxes paid 2,716,046.50 2,806,433.30 Other cash paid concerning operating activities 16,909,478.19 13,743,287.94 Subtotal of cash outflow arising from operating activities 21,271,539.91 18,122,282.77 Net cash flows arising from operating activities 17,584,130.67 -33,992.83 II. Cash flows arising from investing activities: Cash received from recovering investment - - Cash received from investment income - - Net cash received from disposal of fixed, intangible and other long-term assets - - Net cash received from disposal of subsidiaries and other units - - Other cash received concerning investing activities - - Subtotal of cash inflow from investing activities - - Cash paid for purchasing fixed, intangible and other long-term assets 3,450,627.02 18,330.62 Cash paid for investment - - Net cash paid for subsidiaries and other units - - Other cash paid concerning investing activities - - Subtotal of cash outflow from investing activities 3,450,627.02 18,330.62 Net cash flows arising from investing activities -3,450,627.02 -18,330.62 III. Cash flows arising from financing activities - - Cash received from absorbing investment - - Cash received from loans - - Other cash received concerning financing activities - - Subtotal of cash inflow from financing activities - - Cash paid for settling debts 14,000,000.00 - Cash paid for dividend and profit distributing or - - 11 interest paying Other cash paid concerning financing activities - - Subtotal of cash outflow from financing activities 14,000,000.00 - Net cash flows arising from financing activities -14,000,000.00 - IV. Influence on cash due to fluctuation in exchange rate - - V. Net increase of cash and cash equivalents 133,503.65 -52,323.45 Add: Balance of cash and cash equivalents at the period -begin 365,121.06 417,444.51 VI. Balance of cash and cash equivalents at the period–end 498,624.71 365,121.06 Legal representative: _____________ Person in charge of accounting works: _____________ Person in charge of accounting organ: _____________ 12 Consolidated Statement on Changes of Shareholders' Equity 2010 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Amount in this report period Owners’ equity attributable to the parent company Items Paid-up Less: Reason General Minority’s Total owners’ Capital Surplus Retained Other equity equity capital (Share Treasury able risk reserves reserves profit s capital) Stock reserve provision I. Balance at the end of the last 479,433,003. 458,695,975 32,673,227. -2,831,816,7 -1,861,014,51 year 00 .55 - - 01 - 25.23 - - 9.67 Add: Changes of accounting policy - - - - - - - - - - Error correction of the last period - - - - - - - - - - Others - - - - - - - - - - II. Balance at the beginning of 479,433,003. 458,695,975 32,673,227. -2,831,816,7 -1,861,014,51 this year 00 .55 - - 01 - 25.23 - - 9.67 III. Increase/ Decrease in this year 71,914,944.0 -31,563,281 64,477,414.4 104,829,076. (Decrease is listed with “-”) 0 .64 - - - - 4 - - 80 64,477,414.4 64,477,414.4 (I) Net profit - - - - - 4 - - 4 (II) Other consolidated income - - - - - - - - 64,477,414.4 64,477,414.4 Subtotal of (I) and (II) - - - - - 4 - - 4 (III) Owners’ devoted and 40,351,662. 40,351,662.3 decreased capital - 36 - - - - - - - 6 1. Owners’ devoted capital - - - - - - - - - 2. Amount calculated into owners’ equity paid in shares - - - - - - - - - 40,351,662. 40,351,662.3 3. Others - 36 - - - - - - - 6 (IV) Profit distribution - - - - - - - - - - 1. Withdrawal of surplus reserves - - - - - - - - - - 2. Withdrawal of general risk provisions - - - - - - - - - - 13 Consolidated Statement on Changes of Shareholders' Equity 2010 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Amount in this report period Owners’ equity attributable to the parent company Items Paid-up Less: Reason General Minority’s Total owners’ Capital Surplus Retained Other equity equity capital (Share Treasury able risk reserves reserves profit s capital) Stock reserve provision 3. Distribution for owners (shareholders) - - - - - - - - - - 4. Others - - - - - - - - - - (V) Carrying forward internal 71,914,944.0 -71,914,944 owners’ equity 0 .00 - - - - - - - - 1. Capital reserves conversed to 71,914,944.0 -71,914,944 capital (share capital) 0 .00 - - - - - - - - 2. Surplus reserves conversed to capital (share capital) - - - - - - - - - - 3. Remedying loss with surplus reserve - - - - - - - - - - 4. Others - - - - - - - - - - (VI) Reasonable reserve - - - - - - - - - - 1. Withdrawal in the report period - - - - - - - - - - 2. Usage in the report period - - - - - - - - - - (VII) Other - - - - - - - - - - 551,347,947. 427,132,693 I 32,673,227. -2,767,339,3 -1,756,185,44 V. Balance at end of the period 00 .91 - - 01 - 10.79 - - 2.87 Legal representative: _____________ Person in charge of accounting works: _____________ Person in charge of accounting organ: _____________ 14 Consolidated Statement on Changes of Shareholders’ Equity 2010 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Amout in the same period of last year Owners’ equity attributable to the parent company Items Paid-up Less: Reason General Minority’s Total owners’ Capital Surplus Retained equity equity capital (Share Treasury able risk Others reserves reserves profit capital) Stock reserve provision I. Balance at the end of the last 479,433,003. 410,893,564 32,673,22 -2,726,059,17 -1,802,656,15 year 00 .33 - - 7.01 - 5.73 - 403,226.40 4.99 Add: Changes of accounting policy - - - - - - - - - - Error correction of the last period - - - - - - - - - - Others - - - - - - - - - - II. Balance at the beginning of 479,433,003. 410,893,564 32,673,22 -2,726,059,17 -1,802,656,15 this year 00 .33 - - 7.01 - 5.73 - 403,226.40 4.99 III. Increase/ Decrease in this year 47,802,411. -105,757,549. -58,358,364.6 (Decrease is listed with “-”) - 22 - - - - 50 - -403,226.40 8 -105,757,549. -106,160,775. (I) Net profit - - - - - - 50 - -403,226.40 90 (II) Other consolidated income - - - - - - - - - - -105,757,549. -106,160,775. Subtotal of (I) and (II) - - - - - - 50 - -403,226.40 90 (III) Owners’ devoted and 47,802,411. 47,802,411.22 decreased capital - 22 - - - - - - - 1. Owners’ devoted capital - - - - - - - - - - 2. Amount calculated into - - owners’ equity paid in shares - - - - - - - - 47,802,411. 3. Others 47,802,411.22 - 22 - - - - - - - (IV) Profit distribution - - - - - - - - - - 1. Withdrawal of surplus reserves - - - - - - - - - - 2. Withdrawal of general risk provisions - - - - - - - - - - 3. Distribution for owners (shareholders) - - - - - - - - - - 15 Consolidated Statement on Changes of Shareholders’ Equity 2010 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Amout in the same period of last year Owners’ equity attributable to the parent company Items Paid-up Less: Reason General Minority’s Total owners’ Capital Surplus Retained equity equity capital (Share Treasury able risk Others reserves reserves profit capital) Stock reserve provision 4. Others - - - - - - - - - - ( V) Carrying forward internal owners’ equity - - - - - - - - - - 1. Capital reserves conversed to capital (share capital) - - - - - - - - - - 2. Surplus reserves conversed to capital (share capital) - - - - - - - - - - 3. Remedying loss with surplus reserve - - - - - - - - - - 4. Others - - - - - - - - - - (VI) Reasonable reserve - - - - - - - - - - 1. Withdrawal in the report period - - - - - - - - - - 2. Usage in the report period - - - - - - - - - - (VII) Other - - - - - - - - - - I 479,433,003. 458,695,975 32,673,22 -2,831,816,72 -1,861,014,51 V. Balance at end of the period 00 .55 - - 7.01 - 5.23 - - 9.67 Legal representative: _____________ Person in charge of accounting works: _____________ Person in charge of accounting organ: _____________ 16 Statement on Changes of Shareholders’ Equity of Parent Company 2010 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Amount in this report period Less: Items Paid-up capital Capital Reasonable Surplus General risk Total owners’ Treasury Retained profit (Share capital) reserves reserve reserves provision equity Stock 32,673,227.0 -2,764,252,248. -1,793,450,042. I. Balance at the end of the last year 479,433,003.00 458,695,975.55 - - - 1 12 56 Add: Changes of accounting policy - - - - - - - - Error correction of the last period - - - - - - - - Others - - - - - - - - II. Balance at the beginning of this 32,673,227.0 -2,764,252,248. -1,793,450,042. year 479,433,003.00 458,695,975.55 - - 1 - 12 56 III. Increase/ Decrease in this year 71,914,944.00 -31,563,281.64 - - - - 66,120,624.68 106,472,287.04 (Decrease is listed with “-”) (I) Net profit - - - - - - 66,120,624.68 66,120,624.68 (II) Other consolidated income - - - - - - 0.00 Subtotal of (I) and (II) - - - - - - 66,120,624.68 66,120,624.68 (III) Owners’ devoted and 40,351,662.36 40,351,662.36 decreased capital - - - - - - 1. Owners’ devoted capital - - - - - - - - 2. Amount calculated into owners’ - equity paid in shares - - - - - - - 3. Others - 40,351,662.36 - - - - - 40,351,662.36 (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 71,914,944.00 -71,914,944.00 owners’ equity - - - - - - 17 Statement on Changes of Shareholders’ Equity of Parent Company 2010 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Amount in this report period Less: Items Paid-up capital Capital Reasonable Surplus General risk Total owners’ Treasury Retained profit (Share capital) reserves reserve reserves provision equity Stock 1. Capital reserves conversed to 71,914,944.00 -71,914,944.00 - capital (share capital) - - - - - 2. Surplus reserves conversed to - - - - - - - capital (share capital) - 3. Remedying loss with profit surplus - - - - - - - - 4. Others - - - - - - - - (VI) Reasonable reserve - - - - - - - - 1. Withdrawal in the report period - - - - - - - - 2. Usage in the report period - - - - - - - - (VII) Other - - - - - - - - 32,673,227.0 -2,698,131,623. -1,686,977,755. IV. Balance at period end 551,347,947.00 427,132,693.91 - - - 1 44 52 Legal representative: _____________ Person in charge of accounting works: _____________ Person in charge of accounting organ: _____________ Statement on Changes of Shareholders’ Equity of Parent Company 2010 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Amount in last report period Paid-up General Items Capital Less: Treasury Reasonable Surplus Retained Total owners’ capital (Share risk reserves Stock reserve reserves profit equity capital) provision 479,433,003.0 410,893,564.3 -2,661,268,53 -1,738,268,738.6 I. Balance at the end of the last year - - 32,673,227.01 - 0 3 3.01 7 Add: Changes of accounting policy - - - - - Error correction of the last period - - - - - 18 Statement on Changes of Shareholders’ Equity of Parent Company 2010 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Amount in last report period Paid-up General Items Capital Less: Treasury Reasonable Surplus Retained Total owners’ capital (Share risk reserves Stock reserve reserves profit equity capital) provision Others - - - - - II. Balance at the beginning of this 479,433,003.0 410,893,564.3 -2,661,268,53 -1,738,268,738.6 year 0 3 - - 32,673,227.01 - 3.01 7 III. Increase/ Decrease in this year -102,983,715. -55,181,303.89 (Decrease is listed with “-”) - 47,802,411.22 - - - - 11 -102,983,715. (I) Net profit -102,983,715.11 - - - - 11 (II) Other consolidated income - - - - -102,983,715. Subtotal of (I) and (II) - -102,983,715.11 - - - - - 11 (III) Owners’ devoted and decreased capital - 47,802,411.22 - - - - - 47,802,411.22 1. Owners’ devoted capital - - - - 2. Amount calculated into owners’ equity paid in shares - - - - 3. Others - 47,802,411.22 - - 47,802,411.22 (IV) Profit distribution - - - - - - - - 1. Withdrawal of surplus reserves - - - - - 2. Withdrawal of general risk provisions - - - - - 3. Distribution for owners (shareholders) - - - - - 4. Others - - - - - (V) Carrying forward internal owners’ equity - - - - - - - - 1. Capital reserves conversed to capital (share capital) - - - - - 2. Surplus reserves conversed to - - - - - 19 Statement on Changes of Shareholders’ Equity of Parent Company 2010 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Amount in last report period Paid-up General Items Capital Less: Treasury Reasonable Surplus Retained Total owners’ capital (Share risk reserves Stock reserve reserves profit equity capital) provision capital (share capital) 3. Remedying loss with profit surplus - - - - - 4. Others - - - - - (VI) Reasonable reserve - - - - - - - - 1. Withdrawal in the report period - - - - - 2. Usage in the report period - - - - - (VII) Other - - - - - 479,433,003.0 458,695,975.5 -2,764,252,24 -1,793,450,042.5 IV. Balance at period-end 0 5 - - 32,673,227.01 - 8.12 6 Legal representative: _____________ Person in charge of accounting works: _____________ Person in charge of accounting organ: _____________ 20 Shenzhen China Bicycle Company (Holdings) Limited Notes to Financial Statement FY2010 I. Company Profile 1. Company History According to the Approval Document SFBF (1991) No. 888 issued by the People’s Government of Shenzhen, Shenzhen China Bicycle Company (Holdings) Limited (hereinafter referred to as the Company) was reincorporated as the company limited by shares in November 1991. On 28 December 1991, upon the Approval Document SRYFZ(1991) No. 119 issued by Shenzhen Special Economic Zone Branch of the People’s Bank of China, the Company got listed on Shenzhen Stock Exchange. The Company reserves the business license for the enterprise legal person (QGYSZFZ No.101165) [the registered number has been altered as 440301501122085] with the registered capital of RMB551, 347,947.00. 2. Business Scope and Operation The Company belongs to the machinery manufacture industry and mainly engages in the production and assembly of various bicycles and spare parts, components, parts, mechanical product, sport machinery, fine chemicals, carbon fiber composites material, household electrical appliance and affiliated components (products management by license excluded). The Company is specialized in making the middle-top rank bicycles, the main brands are EMMELLE and CHIMO, and various electrical bicycles. The majority of its products were previously exported, however, the sales volume sharply declined in recent years because of the antidumping litigation. Hence, the Company commences on the debt reorganization and makes greater efforts to develop and research the new products, and creates a range of electrical bicycles to occupy the domestic market. 3. Approval Issuer and Date for Financial Statement The financial statement was deliberated and approved in the 5th meeting of the 7th Board Meeting held on 25 April 2011. II. Main Accounting Policy, Accounting Estimate and Errors 1. Compilation Basis of Financial Statement The financial statement has been prepared under the Accounting Standard for Enterprise—Basic issued on 15 February 2006 together with “Item 38”-Details of Accounting Standard, and Application Guide of Accounting Standard for Enterprise issued subsequently, the Accounting Standard for Enterprise—Explanation and other relevant regulations(together short for “Accounting Standard for Enterprise”), and the regulation of Rules of Preparation on Information Disclosures for Enterprise with Shares Listing No. 15- General Provision of Financial Report (Revised 2010) from CSRC. Ended as 31 December 2010, total assets of the Company amounting to RMB 138,158,078.89, the liability were RMB 1,894,343,521.76 in total, net assets amounting to RMB -1,756,185,442.87 which seriously insolvency. Management of the Company adopts the measures listed in Note 10.3 carried in this report, along with the continuously development for debt and assets restructuring, the business environment, business status and sustainable ability in business achieved a further improvement, the financial statement 2010 prepared based on the sustainable business was appropriated. 2. Announcement for Following the Enterprise Accounting Standards The financial statement complied by the Company pursuant to the foresaid compilation basis truly 21 and fully reflects such related information as financial status as of 31 December 2010, operation achievement and cash flows of the Company and parent company for 2010. 3. Accounting Period The company adopts Gregorian calendar, namely each 1 January to 31 December should be one fiscal year. 4. Standard Accounting Currency The Company adopts Renminbi as the standard accounting currency. 5. Accounting Treatment Method for Business Combinations under the Same Control and not under the Same Control (1) The business combination under the same control:The assets and liabilities that the combining party obtains in a business combination shall be measured on the basis of their carrying amount in the combined party on the combining date. As for the balance between the carrying amount of the net assets obtained by the combining party and the carrying amount of the consideration paid by it (or the total par value of the shares issued), the additional paid-in capital shall be adjusted. If the additional paid-in capital is not sufficient to be offset, the retained earnings shall be adjusted. The direct cost for the business combination of the combining party shall, including the expenses for audit, assessment and legal services, be recorded into the profits and losses at the current period. Where a relationship between a parent company and a subsidiary company is formed due to a business combination, the parent company shall, on the combining date, prepare a consolidated balance sheet, a profit statement and a cash flow statement. In the consolidated balance sheet, the assets and liabilities of the combined party shall be measured pursuant to their carrying amount. If it is necessary to make an adjustment according to the present Standard because the accounting policy adopted by the combined party is different from that adopted by the combining party, the assets and liabilities of the combined party (parties) shall be measured on the basis of the post-adjustment carrying amount. The consolidated profit statement shall include the incomes, expenses and profits of the combining party incurred from the beginning of the current period to the combining date. The net profits of the combined party which has been realized prior to the combination shall be reflected through an item separately presented in the profit statement. The consolidated cash flow statement shall include the cash flow of the parties to the combination from the beginning of the current period to the combining date. (2) Business Combination Not under the Same Control: The combination costs shall be the fair values, on the acquisition date, of the assets paid, the liabilities incurred or assumed and the equity securities issued by the acquirer in exchange for the control on the acquiree, as well as all relevant direct costs incurred to the acquirer for the business combination shall also be recorded into the cost of business combination. The acquirer shall, on the acquisition date, measure the assets given and liabilities incurred or assumed by an enterprise for a business combination in light of their fair values, and shall record the balances between them and their carrying amounts into the profits and losses at the current period. The acquirer shall recognize the positive balance between the combination costs and the fair value of the identifiable net assets it obtains from the acquiree as business reputation. The acquirer shall reexamine the measurement of the fair values of the identifiable assets, liabilities and contingent liabilities it obtains from the acquiree as well as the combination costs, If, after the reexamination, the combination costs are still less than the fair value of the identifiable net assets it obtains from the acquiree, it shall record the balance into the profits and losses of the current period. Where a relationship between a parent company and a subsidiary company is formed due to a business combination, the parent company shall prepare a combined balance sheet on the acquisition date, which shall present the identifiable assets, liabilities and contingent liabilities acquired in the combination at their fair values. 22 6. Compilation of Consolidated Financial Statements (1) A. The scope for the consolidated financial statements shall be confirmed based on the principle of control. The consolidated financial statements shall be compiled based on the financial statements of the Company and all related subsidiaries incorporated into the scope of consolidated financial statements. The long-term equity investment to the subsidiary shall be adjusted according to the equity method, and then all related investments and transaction between the Company and related subsidiaries in the scope of the consolidated financial statement are offset, besides, the minority interest income and rights are consolidated. B. In case of any inconsistency of the accounting policy between the subsidiary and the head office, the accounting policy adopted by the head office shall prevail. C. The consolidation for the subsidiary acquiring from the enterprise acquisition under the same control shall be deemed that such consolidation has been occurred at the early stage of the current period, which assets, liabilities, operation achievement and cash flow shall be incorporated into the consolidated financial statement. D. As for the consolidation under the same control, the net profits and loss suffered by the reorganized party shall be recorded as the on-recurring profit and loss and independently itemized in the financial statements. E. As for the reorganization of non-enterprise consolidation under the same controller, the reference profit statement shall be compiled from the beginning of the consolidation period in case that total assets at the end of previous fiscal year, or the operating income or the total profit of the reorganized party for the previous fiscal year reaches or exceeds 20% of the reorganizing party before the reorganization. F. As for the subsidiary acquiring from the enterprise acquisition not under the same control, it requires adjusting some financial statements based on the fair value of the identified net assets on the acquisition day when compiling the consolidated financial statements. (2) Concerning the equity of same subsidiary buy than sell or sale than buy in successively two fiscal years, relevant accounting treatment should be disclosed. 7. Confirmation Standard for Cash and Cash Equivalent Cash refers to in-stock cash and bank savings which are available for payment whenever needed. Cash equivalent refers to the investment held by the Company with short term(due within three months since the date of purchased generally), strong liquidity and low risk of value fluctuation that is easy to be converted into cash of known amount. 8. Foreign Currency Transactions and Foreign Currency Statement Translation A. Foregn currency transactions The occurred foreign currency transactions should be converted into Renminbi with taking spot exchange rate at the transaction date as the exchange rate. The approximate spot exchange rate refers to the exchange rate at the beginning of current month. The Company shall, on the balance sheet date, treat the foreign currency monetary items and foreign currency non-monetary items in accordance with the following provisions: a. The foreign currency monetary items shall be translated at the spot exchange rate on the balance sheet date. The balance of exchange arising from the difference between the spot exchange rate on the balance sheet date and the spot exchange rate at the time of initial recognition or prior to the balance sheet date shall be recorded into the profits and losses at the current period. b. The foreign currency non-monetary items measured at the historical cost shall still be translated at the spot exchange rate on the transaction date, of which the amount of functional currency shall not be changed. c. The foreign currency non-monetary items measured at the fair value shall be translated at the spot exchange rate on the day for the confirmation of the fair value, the balance between the Renminbi 23 and the original standards currency shall be recorded into the profits and losses at the current period as the changes of the fair value. B. Translation of foreign currency financial statements When translating the financial statements on the overseas businesses, the Company shall comply with the following provisions: a. The asset and liability items in the balance sheets shall be translated at a spot exchange rate on the balance sheet date. Among the owner's equity items, except the ones as "undistributed profits", others shall be translated at the spot exchange rate at the time when they are incurred. b. The income and expense items in the profit statements shall be translated at the spot exchange rate of the transaction date, or at a spot exchange rate which is determined through a systematic and reasonable method and is approximate to the spot exchange rate of the transaction date. The balance arisen from the translation of foreign currency financial statements in compliance with the aforesaid Items (a) and (b) shall be presented separately under the owner's equity item of the balance sheets. 9. Financial Instruments A. Classification of the financial instruments The financial assets covers the financial assets measured at the fair value and its changes was recorded into the profits and losses at the current period (including the tradable financial assets and its changes recording into the profits and losses at the current period), held-to-maturity investment, loan and account receivables, saleable financial assets. B. Measurement of Financial Instruments a. The financial assets shall be measured at the fair value at the time of initially reorganization. The relevant expenses for the financial assets measured at the fair value and its changes recording into the profits and losses at the current period shall be directly recorded into the profits and losses at the current period; and the relevant expenses for other financial assets shall be recorded into the initially confirmed amount. b. The enterprise made 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: 1) 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; 2) 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. C. Confirmation of financial assets’ fair value a. As for the financial assets for which there is an active market, the quoted prices in the active market shall be used to determine the fair values thereof; b. Where there is no active market for financial assets, the Company adopts value appraisal techniques to determine its fair value. The result obtained by adopting value appraisal techniques shall be able to reflect the transaction prices that may be adopted in fair dealings on the value appraisal day. D. Transfer of financial assets If the Company has transferred all or part of the risks and rewards related to the ownership of the financial asset to the transferee, these financial assets shall be stopped recognizing, where if it retained nearly all of the risks and rewards related to the ownership of the financial asset, it shall not stop recognizing these financial assets. E. Impairment of financial assets The Company carries out an inspection, on the balance sheet day, on the carrying amount of the financial assets other than those measured at their fair values and of which the variation is recorded into the profits and losses of the current period. Where there is any objective evidence proving that 24 such financial asset has been impaired, an impairment provision shall be made. The objective evidences that can prove the impairment of a financial asset shall include: a. A serious financial difficulty occurs to the issuer or debtor; b. The debtor breaches any of the contractual stipulations, for example, fails to pay or delays the payment of interests or the principal, etc.; c. The Company makes any concession to the debtor which is in financial difficulties due to economic or legal factors, etc.; d. The debtor will probably become bankrupt or carry out other financial reorganizations; e. The financial asset can no longer continue to be traded in the active market due to serious financial difficulties of the issuer; f. Any seriously disadvantageous change has occurred to technical, market, economic or legal environment, etc. wherein the debtor operates its business, which makes the investor of an equity instrument unable to take back its investment; g. It is impossible to identify whether the cash flow of a certain asset within a certain combination of financial assets has decreased or not. But after making an overall appraisal according to the public data available, it is found that the predicted future cash flow of the said combination of financial assets has indeed decreased since it was initially recognized and such decrease can be measured, ; h. Where the fair value of the equity instrument investment drops significantly or not contemporarily; and i. Other objective evidences showing the impairment of the financial asset. F. Measurement of impairment of financial assets a. The impairment test is not required for the financial assets measured at the fair value and its changes recording into the profits and losses of current period; b. Measurement of the impairment of held-to-maturity investment: the impairment provision shall be made according to the balance that the future cash flow shall be lower than the ending book value; c. Confirmation standards and provisions for bad debt of accounts receivables: An impairment test shall be made on the financial assets with significant single amounts. If any objective evidence shows that the accounts receivable has been impaired, the impairment-related losses shall be recognized to prepare the provisions for bad debts according to the balance between the future present value and the book value. With regard to the financial assets with insignificant single amounts, if any objective evidence shows that the accounts receivable suffers no impairment, the account age analysis method shall be adopted, and withdraw and confirm the impairment loss according to the account age and specified ratio; With regard to the financial assets with insignificant single amounts, an independent impairment test may be carried out, or they may be included in a combination of financial assets with similar credit risk features so as to carry out an impairment-related test. As for the account receivable without any impairment, after the independent impairment test, the impairment loss shall be made according to the account age and the ratio as stipulated. d. Judgment of impairment of saleable financial assets: Provided that the fair value of saleable financial asset has great depreciation, or takes into any related factors account, it shows that such depreciation is permanent, it shall be recognized the impairment. 10. Account Receivable (1) Confirmation and Method for Provisions for Bad Debts of Single Significant Amount Standards for the determination on account receivable with single significant amount based on business scale, Determine basis or amount standards for Single business nature and settlement status of the clients: Significant Amount The account receivable over RMB 5 million(including RMB 5 million) at period-end 25 An impairment test shall be made on the financial assets with significant single amounts. The Withdawal method on single significant amount and impairment-related losses shall be recognized to with bad bedt provision accrued for single item prepare the provisions for bad debts according to the balance between the future present value and the book value. (2) Bad debt provision for account receivable withdrawal by combination: Basis for combination determine: characteristic of credit risk Item Accrued method Age analysis method: determined the impairment losses Age group—account receivable with same book age and bad debt provision accrued by age and regulated ownes similar characteristic in credit risk withdrawal proportion of the account receivable Adopt age analysis method for bad debt provision withdrawal in combination: Accrued ratio for account Accrued ratio for other Age receivable(%) account receivable(%) Within I year (1 year included) 0.3 0.3 1-2 years 0.3 0.3 2-3 years 0.3 0.3 Over 3 years 100 100 (3) Account receivable with minor single amount but with withdrawal bad debt provision for single item: Reasons of withdrawal bad debt Clearly evidence shows that the account hard to recover provision for single item Withdrawal method for bad debt Recognized impairment loss and accrued the bad debt provision according to provision the balance between future cash flow on account receivable and its book value 11. Inventory (1) Classification of inventory The inventory of the Company refers to such seven classifications as the raw materials, product in process, goods on hand, wrappage, low value consumables, materials for consigned processing and goods sold. (2)Valuing of the delivered inventory The Company adopts the historical cost for obtaining or the planned cost to value the inventory according to its actual situation, and weighted average method for the issued inventory. (3) Confirmation of net realizable value for the inventory and provision for inventory impairment The net realizable value for the inventory refers to, in the course of general operation, the estimated amount with deducting the estimated cost, estimated sales expense and related taxes from the estimated sales price. Provision for inventory impairment: Based on making an overall check of the inventory at the middle and end of the year, the Company measures the whole or partial out-of-dated inventory or the inventory with extremely lower price according to the cost or the net realizable value, whichever is lower; and withdraws the impairment provisions for the single inventory according to the balance between the net realizable value and the cost and recorded into the profits and losses of current period. In addition to the holding purpose and the price and cost fluctuation as of the balance sheet date, the Company shall take into the future event account when confirming the net realizable value. (4)Rake inventory In addition to the periodic inventory system for the products, the Company adopts the perpetual inventory system for other inventories. (5) Amortization method for the low-value consumables and wrappage Low-value consumables 26 The Company adopts one-off amortization method to amortize the low-value consumables Wrappage The Company adopts one-off amortization method to amortize the wrappage at the time of receipt. 12. Long-term equity investment Determination of investment cost A. Recognized investment cost by followed for the long-term equity investment fromed by enterprise merger: a.Merger of the units controlled by the same entity is effected through payment in cash, non-cash asset transfer or debt transfer. On the date of the merger, the book value of the equities of the units merged is made the initial investment costs of the long-term equipty investment. The capital surplus is adjusted on the basis of the difference between the initial costs of long-term equity investment, payment in cash, non-cash assets transferred and the debts. In case the capital surplus is not enough for deducting, the retained earnings will be adjusted. In case the units being merged through issuing equity securities, the book value of equity of units being merged is made the initial costs of long-term equity investment on the date of merger. The total face value of the securities issued is regarded as equity capital. The capital surplus is adjusted on the basis of the difference between the initial costs of long-term equity investment and the facel value of the securities issued. In case the capital surplus is not enough for deducting, the retained earnings will be adjusted. b. In case of merger that is not effected under the same controlling entity, the merger costs determined by the following regulations is made the initial investment costs: ①In case the merger is effected through one-time swap, the merger cost is the the assets, debts or equity securities paid by the purchaser on the date of merger. ②In case of a merger effected through a series of transactions, the merger cost is the total of all the separate transactions. ③The related costs incurred by the purchaser for the merger is all charged to the current gains and losses. ④In case the merger contract or agreement have any regulation that may influence the cost of merger in the future, or it is predicted on the purchasing date that the merger costs will definitely be influenced in the future, the influence is charged to the merger costs. B.Beside the long-term equity investment produced by merger, the long-term equity investment produced through other means shall be determined of its initial costs according to the following regulations: a.The initial investment costs of the long-term equity investment produced through payment in cash is determined on the basis of the actual payment for the purchase. The initial investment cost includes the immediately related expenses, taxe or other costs necessary for the long-term equity investment. b.In case of long-term equity investment produced through issuing equity securities, the fair value of the equity securities is initial investment cost. c.In case of input as long-term equity investment by investors, the value agreed upon in the investment contract or agreement is the initial investment cost; but, except the case that the value is not fair in the contract or agreement. d.In case of long-term equity investment produced through commercially-natured non-monetary assets transactions, the fair value of the incoming long-term equipty investment and the related taxes is the initial investment cost. In case of long-term equity investment produced through non-commercially-natured non-monetary assets transactions, the book value of the outgoing assets and the related taxes is the initial investment cost. (2)Subsequent reckoning as well as profits and loss determination method A.Costing method is applied for the long-term equity investment in case the company has a control over the invested unit, or, the company cann’t co-control or has no material influence on the unit and there is no quotation on the market or the fair value is reliable. 27 The long-term equipty investment accounted by cost method is priced on the basis of the initial investment cost. When adding or withdrawing the investment, the cost of the long-term equity investment is adjusted. B.Equity method is applied for the case the company can co-control or has material influence on the invested unit. In case the initial investment cost of the long-term equity investment is greater than fair value of the net descinible assets that should be enjoyed from the invested unit at the time of investment, the initial investment cost of the long-term equipty investment is not to be adjusted. In case the initial investment cost of the long-term equity investment is less than fair value of the net descinible assets that should be enjoyed from the invested unit at the time of investment, the difference should be charged to the profits or loss of the term, and at the same time, the cost of long-term equity investment should be adjusted. After the company obtains a long-term equity investment, the investment profits or losses shall be determined, and the book value of the lont-term equity investment shall be adjusted, according to the sharable net profits or losses created at the invested unit. The book value of the long-term equity investment shall be reduced according to the sharable profits or cash interests published by the invested unit. In case the net losses of the invested unit is confirmed by the company, the book value of the long-term equity investment and other long-term interests of the invested company can be reduced not beyond the limit of 0, except the case where the company undertakes additional responsibilities for loos. In case the invested unit reaps profits thereafter. When determining the entitled share of the net profits or loss of the invested unit, the net profits or loss of the invested unit is adjusted on the basis of the fair discernible value of various assets of the invested unit. If the accounting policies and term of the invested unit is not the same as those of the investing unit, those of the investing units prevail, on the basis of which, the financial statements of the invested unit are adjusted and the investment profts or losses are determined. C.For the long-term equity investment, the difference between the book value and actually obtained payment shall be charged to the profits and loss of the term. (3)The basis for the co-control over and material imfluence on the invested unit Co-control refers to a contract-based joint control over a certain ecomomic activity, which is valid only when unanimously agreed upon by the investors with control right to the important financial and operation decisions for the activity. Material influence refers to having right to take part in, but cannot control or co-control, the financial or operation decision making processes in an enterprise. (4)Depreciation test method and depreciation allowance The long-term equity investment shall be checked on the date of the balance sheet to determine if the long-term equity investment has suffered any depreciation. If there is sign of depreciation for worsening operation of the company, then estimates shall be made of the recoverable amount. If the estimate indicates that the recoverable amount for the long-term equity investment is lower than the book value, then the book value is reduced to the recoverable amount, where the reduction amount is charged to asset depreciation loss, the profits or losses of the term, and the corresponding long-term investment depreciation allowance. Once the long-term investment depreciation loss is determined, it will not be transferred back in the subsequent period of time. 13.Investment real estate investment real estate refers to the real properties for the purpose of rental or value increase or both. 1. Investment real estate is measured according to the initial cost. (1) Cost of investment real estae from purchasing, including the price of purchase, relevant taxes and other expenditures attributable to this assets. (2) Cost of investment real estate from self-construction, consist of the necessary expenditures that occurred before the useful statuse that predicted. (3) Cost of investment real estae obtained from other meas, recognized cost according to relevant accounting standards. 28 2. Follow-up measurement The follow-up expenses that are related to investment real estate, if the economic interests related to the assets are is likely to inflow cost and its costs can be reliably measured, shall be included in the cost of investment real estate; or else, reconkoned into current gains and losses while occurred. The Company adopts cost model to have follow-up measurements on the investment real estate at balance sheet date. 3. Depreciation and impairment provision Found in the “Execution of depreciation and impairment provision for fixed assets” under Note(9) carried in this report. 14.Fixed assets (1) Fixed assets confirmation conditions Fixed assets refer to the tangible assets for production of products, provision of labor, lease or operation, and with a service life in excess of 1 finanical year. The fixed assets shall be evaluated initially at the actual costs. Fixed assets’ related financial benefits shall flow into the enterprise and their value can be measured. (2) Depreciation methods for various fixed assets Categories years of scrap value rate(%) yearly depreciation depreciation(years) rate(%) Housing buildings 20 10 4.5 Machines and equipment 10 10 9 Office equipment 5 10 18 Electronic equipment 5 10 18 Transportation equipment 5 10 18 Other equipment 5 10 18 (3) Depreciation test method and depreciation allowance method for fixed assets It is necessary to judge if the fixed assets have had any depreciation on the date of the balance sheet. If their market value goes down steadily, or technologically old or damaged, or laying idle for long time, the recoverable amount of the fixed assets shall be estimated. If the recoverable amount is lower thant their book value, then the book value of the fixed assets shall be reduced to the recoverable amount. The reduction shall be charged to asset depreciation allowance and the loss and profits of the term. When the depreciation of the fixed assets is confirmed, it will not be transferred back in the subsequent time. (4) Determination and evaluation method for fixed assets financed by leasing If all the risks and remunerations related to a certain fixed asset financed by leasing have been materially transferred, the company will regard it as a case of fixed asset financed by leasing. For the assets financed by leasing, the book value of the assets financed by leasing shall be the fair value of the assets on the date of leasing or the lowest price for leasing, whichever is lower, plus the initial costs of the leasing project. The lowest leasing fees is the book value of the long-term accounts payable, their difference is being regarded as fiancing costs. The unconfirmed financing costs are amortized in the leasing term with the actual interest rate method. The depreciation and depreciation rate shall be determined on the basis of the leasing term and the estimated scrap value. 15. Project under Construction A. Calculation Method of Project under Construction The project under construction includes the preparation before execution, construction engineering, installation work, technical modification work and big repair work during the execution, etc. It can be calculated upon the sub-project according to the expenditure actually incurred and transferred into the fixed asset when the project reaches the scheduled usable status. The borrowing cost (including loan interest, amortization of premium and exchange loss or gain, etc) relevant with the project under construction can be counted into the cost of the engineering before the relevant engineering reaches the scheduled usable status; while it can be counted into the financial expense of the current period after the relevant engineering reaches the scheduled usable status. B. Depreciation Reserves of Project under Construction The project under construction shall be fully inspected on the date of Balance Sheet to judge whether there is depreciation probably incurring on it. If so, (1) the project under construction shall be stopped for a long time and shall not be re-started within three years upon prediction; (2) If the project under construction is out of date in its performance and technology, and the economic benefit has great uncertainty, it can recover its amount upon estimation. According to the calculation result of recoverable amount, if the recoverable amount of the project under construction is lower than the carrying value, then the carrying value of the project under construction shall be decreased to the recoverable amount. The decreased amount is defined as the loss on asset depreciation and counted into the loss or gain of the current period. Meanwhile, corresponding depreciation reserves for the project 29 under construction shall be accrued. The depreciation loss of the project under construction shall not be transferred back during the future accounting year once its confirmation. 16. Borrowing Costs A. The borrowing costs incurred, which can directly belong to the purchase and production of assets in accordance with the capitalization can be capitalized and counted into relevant capital cost; and the other borrowing costs can be counted into the loss or gain of the current period according to the incurred amount. And the borrowing costs can be capitalized if meeting the following conditions: a. The asset expenditure has been incurred, which includes the paid cash used to purchase or produce the assets in accordance with the capitalization conditions, and the expenditure incurred during transferring the non-cash assets or bearing the debt with interest; b. The borrowing costs has been incurred; c. The purchase or production activities have been started, which are necessary to make the assets reach the scheduled usable or vendible status. B. The borrowing costs stop the capitalization when the purchased or produced assets in accordance with the capitalization reach the scheduled usable or vendible status. And the borrowing costs incurred after the assets in accordance with the capitalization conditions reach the scheduled usable or vendible status, are confirmed to be the expenditures according to the incurred amount and counted into the loss or gain of the current period. 17. Intangible Assets (1) The intangible assets refer to the identifiable and non-currency assets without physical form owned or controlled by the enterprise, including the patents and land tenure, etc. (2) The intangible assets are valuated according to the actual costs during the acquirement. (3) The intangible assets, of which the service life has been defined, can be amortized with straight-line method during the period since the usable time, and counted into the loss or gain of the current period; the intangible assets, of which the service life has been not defined, are not amortized. The company shall check the service life and amortization method of the intangible assets at the end of the year. If the service life and amortization are not the same as before, then they shall be changed. (4) Depreciation Reserves of Intangible Assets At the end of the period, check each kind of intangible assets, which can be predicted to bring the future economic benefits to the company, one of the following circumstances shall exist: (1) A certain intangible asset has been replaced by other new technology, which makes the ability to create the economic benefits for the company greatly influenced; (2) The market price of a certain intangible asset greatly decreases at the current period and shall not restore within the residual amortization period upon prediction; (3) A certain intangible asset has surpassed the limit of legal protection, but it remains part of use value. It can recover the amount upon estimation. According to the calculation result of recoverable amount, if the recoverable amount is lower than the carrying value, then the carrying value of intangible asset shall be decreased to the recoverable amount. The decreased amount is defined as the loss on asset depreciation and counted into the loss or gain of the current period. Meanwhile, corresponding depreciation reserves shall be accrued; (4) For a certain intangible asset, which has incurred the depreciation reserves upon enough evidence, and if the recoverable amount is lower than the carrying value upon estimation, the balance between them shall be accrued for depreciation reserves of intangible assets. The depreciation loss of intangible assets shall not be transferred back during the future accounting year once its confirmation. 18. Long-term Deferred Expenses A. Long-term deferred expenses refer to the various expenses with the allocated time limit for the current period and future each period over one year. B. Long-term deferred expenses are valuated according to the actual cost during the acquirement. The promotion expense is counted into the loss or gain of the current period when the incurrence; the decoration expense of the operating leased fixed assets is amortized on average during the lease period; and other long-term deferred expenses are amortized on average during the profitable period. For the long-term deferred expenses which cannot bring predicated economic benefits during the accounting period, the company shall transfer the all amortized values without amortization into the loss or gain of the current period. 19. Estimated Liabilities A. The duty or the duty relevant with the matter shall be confirmed as the estimated liability, complying with the following conditions: the duty is the current duty assumed by the company; the performance of the duty may cause the economic benefit flows out of the enterprise; the amount of the duty can be reliably counted; B. For all or part expenditures required for the payment of the estimated liabilities, which are expected to be compensated by the third party, and when the compensation amount can be received only once it is basically 30 defined, then the asset can be singly confirmed. Meanwhile, the compensation amount confirmed for the asset through the single calculation shall not surpass the corresponding carrying amount. 20. Revenue A. Revenue of commodity sales The enterprise has transferred the main risk and remuneration on the ownership of the commodities to the buyer; the enterprise doesn’t reserve the continuous management right in connection with the ownership and executes effective control on the sold commodities. The revenue amount can be reliably counted; relevant economic interest may flow out of the enterprise; and the relevant incurred cost or cost to be incurred can be reliably counted. B. Revenue from labor service For the labor service which starts and ends within the same accounting year, the revenue shall be confirmed when it ends; if the labor service which starts and ends not in the same accounting year, the relevant revenue shall be confirmed according to the percentage of the completion under the condition that the result to provide labor trade can be reliably estimated. C. Revenue from abalienating the right to use assets The revenue from abalienating the right to use assets includes interest revenue and operating cost revenue. The former is calculated and defined according to the time when others use the monetary fund of the company and the actual interest rate; while the latter is calculated and defined according to the charging time and method negotiated according to the relevant contract or agreement. 21. Government Grants Government grants include financial allocation, financial discount, tax rebate and free assignment of non-currency assets. The government grants received by the company and relevant with the assets are confirmed as the deferred income, which is counted into the loss or gain of each period within the service life of the asset since it reaches the scheduled usable stats. And the deferred income balance shall be transferred into the loss or gain of asset disposal of the current period if it is sold, transferred, rejected or destroyed before the service life ends. The government grants received relevant with the income and used to compensate the relevant cost or loss afterwards are confirmed as the deferred income, which shall be counted into the loss or gain of the current period when confirming the relevant costs; and those used to compensate the incurred relevant cost or loss shall be directly counted into the loss or gain of the current period. 22. Deferred tax assets / deferred income tax liabilities A.The confirmation of deferred income tax assets a.Our company is likely to take the deductible temporary differences taxable income used to be deducted as the limit, confirming the deferred tax asset is produced by the deductible temporary differences. However, when the transactions possess the following characteristics at the same time, the deferred tax asset produced due to the initial confirmation of assets or liabilities are not confirmed: 1/ the transaction is not a corporate combination; 2/ Transactions affect neither the accounting profit nor taxable income (or deductible loss). b.Our company , subsidiaries , affiliated companies and joint venture companies invest the related deductible temporary differences, while meeting the following conditions, confirming the corresponding deferred income tax assets: 1/ the temporary differences in the foreseeable future is likely to be reversed; 2/ the taxable income used for deductible temporary differences is likely to be gained in the future. c.Our company offsets the deductible losses and tax credits which can be carried forward for future years, taking the future taxable income which can be used to deduct the deductible losses and tax credits as the limit, and confirming the corresponding deferred income tax assets. B.The confirmation of deferred income tax liabilities Besides the following deferred income tax liabilities, our company confirms all deferred income tax liabilities produced by the taxable temporary differences: a.The initial confirmation of creditworthiness; b.The assets or liabilities which meets the following characteristics of the transactions generated is confirmed: 1/ the transaction is not a corporate combination; 2/ Transactions affect neither the accounting profit nor taxable income (or deductible loss). c.Our company , subsidiaries , affiliated companies and joint venture companies invest the related deductible temporary differences, while meeting the following conditions: 1/ Investment companies can control the timing of the reversal of temporary differences; 2/ the temporary differences is unlikely to be reversed in the foreseeable future. 31 23.the main accounting policies, changes of accounting estimates No changes on accounting policies and estimation in the period. 24. prior period correction of accounting errors No accounting error correction is available during the period of this report 25. Other preparation method on main accounting policies, accounting estimation and fiannial statement No other preparation for a accounting policies, accounting estimation and fiannial statement of the Company. III. Taxes 1. Mai tax category and tax rate Tax category Tax calculation evidence Tax rate Sales income, and income from processing, Value added tax maintenance, making repairs and supplying 17% replacements, and labor service Sales tax Taxable labor income 5% tax for maintaining and Amount of value-added tax and sales tax 1%, 7% building cities payable Amount of value-added tax and sales tax Educational surtax 3% payable Business income tax * Taxable income 22% *According to the Notification on Implementing Transitional Preferable Policy about Business Income Tax [GF (2007) No. 39] issued by the State Council on Dec. 26, 2007, the preferential policy about business income tax enjoyed by enterprises according to original tax laws, administrative rules, and documents with effect of administrative force shall be transited according to the following measures: Since Jan. 1, 2008, original enterprises enjoying low tax preferential policy shall be gradually transited to legal tax rate within 5 years after the execution of new tax law. Where, enterprises enjoying business income tax 15% shall execute the tax rate 18%, 20%, 22%, 24%, and 25% respectively in 2008, 2009, 2010, 2011, and 2012. Therefore, the business income tax executed by the enterprise in 2010 was actually 22%. 32 IV. Business Combination and Consolidated Financial Statements 1. Subsidiaries (1) Subsidiaries obtained by means of establishment or investment, etc. Unit: RMB Balance after that the loss of current period shared by minor Amount sharehold Balance for ers and of other offsetting offset items the gain with Actual amount actually proporti Proporti Consolida Busine Register Minor and loss parent Registrat Business subscribed at forming on of on of ted report Full name Type ss ed sharehold of minor company ion place scope the end of the net shares voting statement nature capital ers’ equity sharehold owner’s period investme held power or not ers in the equity nt in the minor exceeds subsidiar sharehold the shares ies ers’ equity owned by minor sharehold ers in the subsidiar y at the beginning of period Shenzhen Self-owned Anjule Sole Shenzhe RMB 2 realty RMB2,000,00 Realty subsidiar Realty - 100% 100% Yes - - - n million manageme .00 Manageme y nt nt Co., Ltd. China Sole HK$ Trade and Bicycle Hong Bicycl HKD20,000.0 subsidiar 0.02 manufactur - 100% 100% Yes - - - (Internatio Kong e 0 y million ing nal) Co., 33 Ltd. China Controlli Bicycle Bicycle ng Hong Bicycl HK$ 5 HKD5,000,00 - (Hong and parts - 99% 99% Yes - - subsidiar Kong e million 0.00 Kong) Co., distribution y Ltd. Shenzhen Controlli Bicycle Emmelle ng Shenzhe Bicycl RMB 2 RMB1,400,00 and parts - 70% 70% Yes - Industry subsidiar n e million 0.00 distribution Co., Ltd. y 34 (2) The Company has no subsidiary obtained from combination with enterprises under the same control. (3)The Company has no subsidiary obtained from combination with enterprises not under the same control. 2. No business entity of control right formed by special purpose subject or by means of trusted business or leasing etc. 3. No changes in the consolidation scope in the period. 4. No enterprise mergered under same control occurred in the period. 5. No enterprise mergered under different control occurred in the period. 6. No subsidiary losses in period by means of equity for sale without contol rights held. 7. No reverse purchase occurred in the period. 8. No obsorbtion emerger occurred in the period. V. Notes to Items in Consolidated Financial Statements 1. Monetary fund Unit: RMB Currency: CNY Amount at the end of period Amount at the beginning of period Amount in Amount in Items Conversion Amount in Conversion Amount in foreign foreign rate RMB rate RMB currencies currencies Cash: RMB 164,956.42 1.00 164,956.42 122,959.64 1.00 122,959.64 HK Dollar 1,894.30 - 1,773.76 - - - US - - - Dollar 1.25 - 9.13 Subtotal - - 166,739.31 - - 122,959.64 Bank deposit: RMB 16,611,335.30 1.00 16,611,335.30 21,070,648.57 1.00 21,070,648.57 HK Dollar 773,490.97 0.85 658,186.67 815,810.20 0.88 718,304.56 US Dollar 46,927.13 6.83 320,512.30 46,927.13 6.83 320,512.30 Subtotal 17,590,034.27 22,109,465.43 Total 17,756,773.58 22,232,425.07 2. Notes receivable (1) Classification of notes receivable Unit: RMB Currency: CNY Category Amount at the end of period Amount at the beginning of period Bank acceptance 2,619,699.00 5,800,000.00 (2) Notes receivable without hypothecation of the Company at the end of period (3) Notes with endorsement provided to other party but not post-dated of the Company at the end of period: Unit: RMB Currency: CNY Drawn by Date of drawal Expire date Amount Remark Jinan YUSIGN Sales Co., Ltd. 2010-10-09 2011-04-09 6,217,759.00 Jinan YUSIGN Sales Co., Ltd. 2010-07-27 2011-01-27 5,778,101.00 Jinan YUSIGN Sales Co., Ltd. 2010-11-02 2011-04-28 4,000,000.00 Jinan YUSIGN Sales Co., Ltd. 2010-09-25 2011-03-25 3,433,808.50 35 Jinan YUSIGN Sales Co., Ltd. 2010-08-31 2011-02-28 3,092,163.00 22,521,831.50 3. Accounts receivable (1) Exposure of accounts receivable by category: Unit: RMB Currency: CNY Amount at the end of period Book balance Bad debt provision Category Proporti Proporti Amount Amount on(%) on(%) Account receivable with single major amount but - - - - withdrawal bed debt provisio for single item Account receivable withdrawal bad debt provision by age 1,038,181,894. 1,036,449,071. combination 70 100.00 72 99.83 Account receivable with single minor amount but withdrawal bed debt provisio for single item - - - - Total 1,038,181,894. 1,036,449,071. 70 100.00 72 99.83 Amount at the beginning of period Book balance Bad debt provision Category Proporti Proporti Amount Amount on(%) on(%) Account receivable with single major amount and - - - - withdrawal bed debt provisio for single item Account receivable withdrawal bad debt provision by age combination 1,038,871,405.58 100.00 1,038,457,582.45 99.96 Account receivable with single minor amount but withdrawal bed debt provisio for single item - - - - Total 1,038,871,405.58 100.00 1,038,457,582.45 99.96 Interpretation to the category of accounts receivable: According to the business scale, business nature, and customers’ settlement, etc., the account receivable with single big amount is determined to be RMB 5 million. The account receivable with single big amount has no depreciation reserve, and the reserve for bad and doubtful account is withdrawn with age analysis method. (2) In combination, account receivable withdrawal bed debt procision by age analysis method: Unit: RMB Currency: CNY Amount at period-end Amount at period-begin Book balance Book balance Age Bad debt Bad debt Amount Ratio(%) Amount Ratio(% provision provision ) Within 1year 1,035,032.17 0.10 - 267,076.23 0.03 - 1-2 years 98,211.62 0.01 - 146,746.90 0.01 - Over 3years 1,037,048,650. 1,036,449,071.7 91 99.89 2 1,038,457,582.45 99.96 1,038,457,582.45 Total 1,038,181,894. 1,036,449,071.7 70 100.00 2 1,038,871,405.58 100.00 1,038,457,582.45 (3) No account receivable actually cancelled after verification in the report period. (4) The accounts receivable at the end of the report period don’t involve with the shareholder units hodling over 5% (including 5%) voting power of the Company. (5) Top 5 units with an amount of account receivable: 36 Unit: RMB Currency: CNY Relationship Proportion among the Name with the Amount Period gross accounts receivable company (%) Total of top 5 customers of Non-affiliated Over 3 accounts receivable customers 535,330,991.79 years 51.56 (6) No account receivable involving with affiliated parties in the report period. (7) No account receivable with confirmation terminated at the end of the report period. 4. Advance payment (1) Listing of advance payment by age Unit: RMB Currency: CNY Amount at the end of period Amount at the beginning of period Age Amount Proportion(%) Amount Proportion(%) Within 1 year 23,547.00 11.03 81,383.55 41.67 1-2 years 75,961.88 35.59 113,914.54 58.33 2-3 years 113,914.53 53.38 - - Total 213,423.41 100.00 195,298.09 100.00 (2) The advance payment in the report period doesn’t involve with the shareholder units hodling over 5% (including 5%) voting power of the Company. 5. Other accounts receivable (1) Exposure of other accounts receivable by category: Unit: RMB Currency: CNY Amount at the end of period Book balance Bad debt provision Category Amount Proporti Amount Proporti on(%) on(%) Other account receivable with single major amount and - - withdrawal bed debt provisio for single item - - Other account receivable withdrawal bad debt provision by age combination 558,537,283.06 100.00 540,451,510.17 96.76 Other account receivable with single minor amount but - - withdrawal bed debt provisio for single item - - Total 558,537,283.06 100.00% 540,451,510.17 96.76 Amount at the beginning of period Book balance Bad debt provision Category Amount Proporti Amount Proporti on(%) on(%) Other account receivable with single major amount and withdrawal bed debt provisio for single item - - - - Other account receivable withdrawal bad debt provision by age combination 565,349,065.19 100.00 541,128,029.26 95.72 Other account receivable with single minor amount but withdrawal bed debt provisio for single item - - - - Total 565,349,065.19 100.00 541,128,029.26 95.72 Interpretation to the category of other accounts receivable: According to the business scale, business nature, and customers’ settlement, etc., the other account receivable with single big amount is determined to be RMB 5 million. The other account receivable with single big amount has no 37 depreciation reserve, and the reserve for bad and doubtful account is withdrawn with age analysis method. (2) In combination, other account receivable withdrawal bed debt procision by age analysis method: Unit: RMB Currency: CNY Amount at period-end Amount at period-begin Book balance Book balance Age Bad debt Bad debt Amount Proportion(% Amount Proportion(% provision provision ) ) Within 1year 4,709,642.47 0.84 6,375.74 6,524,227.33 1.15 39,741.46 1-2year s 4,545,244.91 0.81 135.73 11,188.00 0.01 11,154.44 2-3year s 2,258.00 - - 2,437,743.66 0.43 2,404,042.83 Over 549,280,137.6 540,444,998.6 556,375,906.2 538,673,090.5 3years 8 98.35 9 0 98.41 3 Total 558,537,283.0 540,451,510.1 565,349,065.1 541,128,029.2 6 100.00 7 9 100.00 6 (3) No other account receivable actually cancelled after verification in the report period. (4) The other accounts receivable at the end of the report period don’t involve with the shareholder units hodling over 5% (including 5%) voting power of the Company. (5) Top 5 units with an amount of other account receivable: Unit: RMB Currency: CNY Proportion among Relationship the gross accounts Name with the Amount Period receivable - others company (%) Total of top 5 customers of other Non-affiliated Over 3 accounts receivable customers 357,001,411.68 years 63.92 (6)No other account receivable involving with affiliated parties in the report period. (7)No other account receivable-others with confirmation terminated at the end of the report period. 6. Inventory (1) Inventory classification Unit: RMB Currency: CNY Amount at the end of period Amount at the beginning of period Items Book balance Depreciation Book value Book balance Depreciation Book value reserve reserve Raw materials 54,845,278.28 43,902,968.40 10,942,309.88 226,932,646.24 206,024,947.71 20,907,698.53 Low value and easily wornoyut articles 1,456,362.06 1,152,485.26 303,876.80 1,446,868.54 1,315,419.73 131,448.81 Merchandise inventory 26,448,790.52 16,002,298.91 10,446,491.61 32,378,964.93 20,853,742.68 11,525,222.25 Total 82,750,430.86 61,057,752.57 21,692,678.29 260,758,479.71 228,194,110.12 32,564,369.59 (2) Inventory depreciation reserve Unit: RMB Currency: CNY Amount decrease in the current period Inventory Opening book Closing book withdrawn in the category balance Carry-back Trans-sale balance current period 43,902,968.40 Raw materials 206,024,947.71 - - 162,121,979.31 38 Low value and 1,152,485.26 easily wornoyut articles 1,315,419.73 - - 162,934.47 Merchandise 16,002,298.91 inventory 20,853,742.68 - - 4,851,443.77 Total 228,194,110.12 - - 167,136,357.55 61,057,752.57 (3) Inventory depreciation reserve Items Evidence for withdrawal Reason for carry-back of Proportion of carry-back amount in the of inventory inventory depreciation current period among the closing depreciation reserve reserve in the current period balance of the inventory Raw materials Net realizable value is - - below the cost. Merchandise Net realizable value is - - inventory below the cost. Low value and Net realizable value is - - easily wornoyut below the cost. articles A. Evidence for determing the net realizable value of the abovementioned inventory: raw materials execute the average unit price of such materials purchased; the materials to be reported discarded after quality guarantee period, out-of-dated, and not suitable for transformation, etc. execut the recoverable amount; finished products execute the recent unit sales price of such products minus the direct expense and taxes possibly required for realization. B. The trans-sale of raw materials and merchandise inventory in the current period is for that the abovementioned merchandise has been sold. 39 7. Long-term equity investment Unit: RMB Currency: CNY Interpretation depreci to discrepancy ation Proportion Cash Proportion ofbetween the depreciation reserve Accounti Initial Increase of shares dividen Opening Closing voting powerproportion of reserve at withdr Invested unit ng investment or held in d for balance balance in invested shares and the end of awn at method cost decrease invested this units (%) voting power period the units (%) period in invested current units period Hunan Guangnan Cost 5,679,300.0 Motorcycle Co., Ltd. method 5,679,300.00 5,679,300.00 - 5,679,300.00 5.50 5.50 - 0 - - Shenzhen Jinhuan Equity 14,883,560.0 14,883,560.0 14,883,560.0 12,263,719. Printing Co., Ltd. method 0 0 - 0 38.00 38.00 - 50 - - 20,562,860.0 20,562,860.0 20,562,860.0 17,943,019. Total 0 0 - 0 - - - 50 - - The industrial and commercial registration information of Shenzhen Jinhuan Printing Co., Ltd. has been cancelled as displayed. Hong Kong Dahuan Bicycle Co., Ltd., one of the original shareholders of the company, holds the company’s shares under our entrustment, and the actual holder is our company. 40 8. Investment real estate Unit: RMB Currency: CNY Opening book Increase in the Decrease in the Closing book Items balance current period current period balance I. Total original book value 129,872,063.32 - - 129,872,063.32 1. Houses and buildings 129,872,063.32 - - 129,872,063.32 2. Land use right - - - - II. Total accumulated depreciation and accumulated amortization 98,472,548.52 4,964,866.56 - 103,437,415.08 1. Houses and buildings 98,472,548.52 4,964,866.56 - 103,437,415.08 2. Land use right - - - - III. Total net book value of investment real estate 31,399,514.80 - - 26,434,648.24 1. Houses and buildings 31,399,514.80 - - 26,434,648.24 2. Land use right - - - - IV. Total depreciation reserve of investment real estate - - - - 1. Houses and buildings - - - - 2. Land use right - - - - V. Total book value of investment real estate 31,399,514.80 - - 26,434,648.24 1. Houses and buildings 31,399,514.80 - - 26,434,648.24 2. Land use right - - - - (1) The depreciation amount actually accrued in the period amounting to RMB 4,964,866.56. (2) The limit of the ownership for abovementioned investment real estate found in Note9(6). 9. Fixed assets (1) Fixed assets Unit: RMB Currency: CNY Items Opening book Increase in the current period Decrease in the Closing book balance current period balance I. Total original book value 113,323,144.38 3,471,511.81 147,045.06 116,647,611.13 Where: Houses and buildings 109,055,011.26 - - 109,055,011.26 Machinery and equipment 842,098.00 3,400,000.00 - 4,242,098.00 Means of transport 923,478.06 - - 923,478.06 Other equipment 2,502,557.06 71,511.81 147,045.06 2,427,023.81 Accrued this Newly added period II. Total accumulated depreciation 87,305,446.09 - 5,548,063.65 145,565.58 92,707,944.16 Where: Houses and buildings 84,785,342.10 - 4,850,790.78 - 89,636,132.88 41 Items Opening book Increase in the current period Decrease in the Closing book balance current period balance Machinery and equipment 288,274.10 - 332,888.88 - 621,162.98 Means of transport 643,620.68 - 45,302.04 - 688,922.72 Other equipment 1,588,209.21 - 319,081.95 145,565.58 1,761,725.58 III. Total net book value of - fixed assets 26,017,698.29 - 23,939,666.97 - Where: Houses and buildings 24,269,669.16 - 19,418,878.38 - Machinery and equipment 553,823.90 - 3,620,935.02 - Means of transport 279,857.38 - 234,555.34 - Other equipment 914,347.85 - 665,298.23 306,800.00 IV. Total depreciation reserve 2,084,874.23 - 2,391,674.23 - Where: Houses and buildings 1,580,000.00 - 1,580,000.00 306,800.00 Machinery and equipment 120,000.00 - 426,800.00 Means of transport - - - - - Other equipment 384,874.23 - 384,874.23 V. Total book value of fixed - assets 23,932,824.06 - 21,547,992.74 - Where: Houses and buildings 22,689,669.16 - 17,838,878.38 - Machinery and equipment 433,823.90 - 3,194,135.02 - Means of transport 279,857.38 - 234,555.34 - Other equipment 529,473.62 - 280,424.00 Depreciation amount in this period was RMB 5,548,063.65. (2) Fixed assets left idle temporarily at the end of period Unit: RMB Currency: CNY Original book Accumulated Depreciation Items Net book value Remark value depreciation reserve Houses and buildings 34,505,947.26 28,079,214.58 - 6,426,732.68 Machinery and equipment 252,098.00 133,962.92 - 118,135.08 Total 34,758,045.26 28,213,177.50 - 6,544,867.76 (3) No fixed assets rent by means of financing lease at the end of period. (4) No fixed assets held for sale at the end of period. (5) No fixed assets without handling certificate of title at the end of period. Among the Company’s houses and buildings, except for Zhonghua Garden (originally worthy of RMB 7,226,043.16) with certificate of title handled, others have not had the ownership certificate handled. Details are: 42 Reason for failing to Estimated time for handling the Items handle the certificate of certificate of title title Employees’ dining hall (building 10 in Formalities not Unpredictable Shuibei Factory Area) completed Ice room of dining hall (building 11 in Formalities not Unpredictable Shuibei Factory Area) completed Employees’ residence (1)(building 8 in Formalities not Unpredictable Shuibei Factory Area) completed Employees’ residence (2) (building 9 in Formalities not Unpredictable Shuibei Factory Area) completed Employees’ residence (3) (building 14 in Formalities not Unpredictable Shuibei Factory Area) completed Employees’ residence (4) (building 19 in Beili Formalities not Unpredictable Garden) completed Formalities not Factory building 1 Unpredictable completed Formalities not Factory building 2 Unpredictable completed Formalities not Factory building 3 Unpredictable completed Formalities not Factory building 4 Unpredictable completed Formalities not Factory building 5 Unpredictable completed Formalities not Administration building Unpredictable completed Formalities not Complex building Unpredictable completed Formalities not Residence building 1 Unpredictable completed Formalities not Residence building 2 Unpredictable completed Formalities not Residence building 3 Unpredictable completed Formalities not Residence building 4 Unpredictable completed Formalities not Residence building 5 Unpredictable completed 7 Guang’ancheng, West Section, Guohuo Formalities not Unpredictable Road, Taijiang District, Fuzhou completed No. 2, A, 54 Liuquan Road, Zhangdian Formalities not Unpredictable District, Zibo completed Saige Garden, Huaqiang South Road, Formalities not Unpredictable Shenzhen completed (6) Assets with limited ownership 1) The Company has provided guarantee for the subsidiary Hong Kong Zhonghua for the loan of USD7.5 million from China Merchants Bank. Hong Kong Zhonghua failed to pay the debt on schedule, and China Merchants Bank brought a suit against the subsidiary to Shenzhen Intermediate People’s Court. This court sealed up the Company’s 127,333m2 land located at Yousong Village, Longhua Town, Bao’an District and buildings on the land. 2) The Company owed the imprest money for L/C USD500,000 and related interest, and was sued to Shenzhen Luohu People’s Court. The court plans to auction the Company’s real estate at Saige Garden, Huaqiang South Road, Shenzhen for repayment of debt. 10. Intangible assets (1) Intangible assets Unit: RMB Currency: CNY 43 Items Opening book Increase in the Decrease in the Closing book balance current period current period balance I. Original book valueTotal 43,143,099.08 - - 43,143,099.08 Land use right 43,143,099.08 - - 43,143,099.08 II. Total accumulated - amortization 16,825,809.78 862,862.04 17,688,671.82 Land use right 16,825,809.78 862,862.04 - 17,688,671.82 III. Total net book value of - - intangible assets 26,317,289.30 25,454,427.26 Land use right 26,317,289.30 - - 25,454,427.26 IV. Total depreciation reserve - - - - Land use right - - - - Total book value of intangible - - assets 26,317,289.30 25,454,427.26 Land use right 26,317,289.30 - - 25,454,427.26 (1) The land use right is the 127,333m2 land located at Yousong Village, Longhua Town, Baoan District, and the service life is from July 1, 1990 to June 30, 2040. The limitation on the ownership is as shown in the annotation 9(6). (2) Amount amortized in the current period is RMB 862,862.04. 11. Details of asset depreciation reserve Unit: RMB Currency: CNY Increase in Decrease in the current period Opening book Closing book Items the current Carry-back Trans-sale balance balance period I. Reserve for bad and 1,576,900,581.89 doubtful account 1,579,585,611.71 129,785.92 2,197,612.45 617,203.29 II. Inventory - - 61,057,752.57 depreciation reserve 228,194,110.12 167,136,357.55 III. Depreciation - - - - - reserve of salable financial assets IV. Depreciation - - - - - reserve of held-to-maturity investment V. Depreciation - - - reserve of long-term equity investment 17,943,019.50 17,943,019.50 VI. Depreciation - - - reserve of investment real estate - - VII. Depreciation 306,800.00 - - reserve of fixed assets 2,084,874.23 2,391,674.23 VIII. Depreciation - - - - - reserve of engineering materials IX. Depreciation - - - - - reserve of engineering under construction X. Depreciation - - - - - reserve of productive biological assets 44 Increase in Decrease in the current period Opening book Closing book Items the current Carry-back Trans-sale balance balance period Where:Depreciation - - - - - reserve of mature productive biological assets XI. Depreciation - - - - - reserve of oil-gas assets XII. Depreciation - - - - - reserve of intangible assets XIII. Depreciation - - - - - reserve of business credit XIV. Others - - - - - Total 1,827,807,615.56 436,585.92 2,197,612.45 167,753,560.84 1,658,293,028.19 The trans-sale of the bad debt provision refers to the bankcrapcy liquidation received from Shenzhen Qingchi Bicycle Co., Ltd.; the carry-back amount refers to the off-set the withdrawal impairment losses with account receivable; the trans-sale amount for depreciation provision of inventory resulted by the sales realized. 12. Short loan (1) Classification of short loan: Unit: RMB Currency: CNY Items Amount at the end of period Amount at the beginning of period Loan on security 243,928,066.33 250,703,094.15 Credit loan 140,289,581.76 144,623,478.67 Total 384,217,648.09 395,326,572.82 (2) Short loan at term but not repaid: Unit: RMB Currency: CNY Reason for not Estimated date Borrower Amount Purpose repayment of repayment Loan for China Import and Export Bank production Capital shortage Unpredictable of China 114,558,000.00 turnover Loan for China Cinda Assets production Capital shortage Unpredictable Management Company 59,589,983.09 turnover Loan for Head Office of China production Capital shortage Unpredictable Merchants Bank 52,200,387.02 turnover Loan for Dongfu Assets Management production Capital shortage Unpredictable Company 48,546,608.56 turnover Loan for Oriental Assets Management production Capital shortage Unpredictable Company 44,420,940.00 turnover Loan for Huizhou Oriental United production Capital shortage Unpredictable Industry Co., Ltd. 36,148,240.78 turnover China Merchants Bank, Luohu Loan for Capital shortage Unpredictable Subbranch 17,856,605.68 production 45 turnover Loan for production Capital shortage Unpredictable China Everbright Bank 10,276,882.96 turnover Loan for China Construction Bank, production Capital shortage Unpredictable Sichuan Mianyang Subbranch 620,000.00 turnover Total 384,217,648.09 The abovementioned loans have been over due for many years. 46 13. Accounts payable (1) Age of accounts payable Unit: RMB Currency: CNY Items Amount at the end of period Amount at the beginning of period Within 1 year 12,901,430.02 14,648,872.39 1-2 years 163,405.06 122,501.80 2-3 years 122,501.80 - Over 3 years 112,440,785.84 111,102,997.17 Total 125,628,122.72 125,874,371.36 (1) Accounts payable of over 1 year are mainly because that the Company is insolvent and has delayed the replayment for many years. (2)The accounts payable in the report period don’t involve with the shareholder units hodling over 5% (including 5%) voting power of the Company. 14. Account received in advance (1) Age of account received in advance: Unit: RMB Currency: CNY Items Amount at the end of period Amount at the beginning of period Within 1 year 5,910,048.99 12,419,388.74 1-2 years 86,960.36 - 2-3 years - - Over 3 years 10,664,592.85 10,664,592.85 Total 16,661,602.20 23,083,981.59 (1) Big-amount items received in advance with an age of over 1 year are mainly formed accumulatively in historical business communication. (2) The items received in advance in the report period don’t involve with the shareholder units hodling over 5% (including 5%) voting power of the Company. 15. Wages payable Unit: RMB Currency: CNY Items Opening book Increase in the Decrease in the Closing book balance current period current period balance I. Salary, bonus, allowance, and subsidy 2,035,917.78 12,967,740.47 12,752,359.75 2,251,298.50 II. Employee benefit 25,906.94 191,565.30 191,565.30 25,906.94 III. Social insurance - 846,135.02 846,135.02 - IV. Public accumulation fund for housing construction - 60,000.00 - 60,000.00 V. Dismiss welfare 1,874,703.51 37,300.00 1,873,437.82 38,565.69 VI. Trade union outlays and personnel education outlay 1,332,253.57 178,475.09 84,259.40 1,426,469.26 VII. Others - - - - Total 5,268,781.80 14,281,215.88 15,747,757.29 3,802,240.39 (1) No remuneration in arrear among the employees’ remuneration payable. (2) The trade union outlays and personnel education outlay in the current year is RMB 178,475.09; and the compensation for cancellation of labor relationship is RMB 37,300.00. 16. Taxes payable Unit: RMB Currency: CNY Items Amount at the end of period Amount at the beginning of period VAT 56,554,659.77 54,717,084.10 Sales tax 440,900.28 399,742.32 Business income tax 33,753,125.02 33,750,963.42 47 Items Amount at the end of period Amount at the beginning of period Individual income tax -21,156.15 -21,156.15 Tax for maintaining and building cities 141,302.23 -30,700.27 Housing property tax 7,303,655.67 7,305,817.27 Others 46,376.91 27,259.19 Total 98,218,863.73 96,149,009.88 The Company has owed taxes for long time, and there is the probability to make supplementary payment of forfeit money and late fee. 17. Interest payable Unit: RMB Currency: CNY Items Amount at the end of period Amount at the beginning of period Loan interest 213,488,233.36 165,838,645.23 18. Other account payable (1) Age of other accounts payable: Unit: RMB Currency: CNY Items Amount at the end of period Amount at the beginning of period Within 1 year 11,730,547.74 13,449,141.79 1-2 years 2,468,597.75 2,069,975.95 2-3 years 572,084.12 1,996,635.22 Over 3 years 151,065,795.79 151,320,687.35 Total 165,837,025.40 168,836,440.31 (2) The accounts payable-others in the report period don’t involve with the shareholder units hodling over 5% (including 5%) voting power of the Company. (3) Bit-amount accounts payable of over 1 year are accounts unable to pay by the Company. 19. Non-current liability due within one year (1) Unit: RMB Currency: CNY Items Amount at the end of period Amount at the beginning of period Long-term credit loans due within 870,518,082.14 one year 706,645,180.86 (2) Top five long-term loans due within 1 year Unit: RMB Currency: CNY Amount at the end of period Borrower Curency Amount in foreign Amount in RMB currencies Shenzhen Guosheng Energy Investment and Development Co., Ltd. USD 62,829,259.02 416,099,333.67 Guangdong Shengrun Group Co., Ltd. RMB - 232,901,143.41 Shenzhen Guosheng Energy Investment and Development Co., Ltd. RMB - 19,300,058.59 China Cinda Assets Management Co., Ltd. USD 2,157,395.94 14,287,786.06 Great Wall Assets Management Co., Ltd. USD 2,000,000.00 13,245,400.00 48 Amount at the end of period Borrower Curency Amount in foreign Amount in RMB currencies Total 695,833,721.73 (3) Overdue loans among the long-term loans coming due within 1 year Unit: RMB Currency: CNY Borrowers Amount Term exceeded Overdue for multiple years Guosheng Energy Investment Co., 435,399,392.26 Overdue for multiple years Guangdong Shengrun Group 232,901,143.41 Overdue for multiple years China Cinda Assets Management Co., 14,287,786.06 Overdue for multiple years China Great Wall Assets Management Co., 13,245,650.00 逾期多年 Xie Lingling 6,311,100.00 逾期多年 China Oriental Assets Management Co., 3,000,000.00 逾期多年 Shenzhen Lionda Group Co., Ltd. 1,500,109.13 706,645,180.86 Total 20. Other current liabilities Unit: RMB Currency: CNY Items Closing book balance Opening book balance Rent 521,639.87 521,639.87 Decoration fee 188,853.82 188,853.82 Others 45,668.40 16,118.40 Total 756,162.09 726,612.09 21. Estimated liabilities Unit: RMB Currency: CNY Amount at the Increase in Decrease in the Amount at the Items beginning of the current current period end of period period period Loan guarantee for ZoriaPteLTd 78,087,000.00 - - 78,087,000.00 Loan guarantee for Jintian Industry (Group) - - 50,000,000.00 50,000,000.00 Co., Ltd. Loan guarantee for Guangdong Shengrun - Group Co., Ltd. 42,918,300.00 - 42,918,300.00 Loan guarantee for Shenzhen Tianma - - Cosmetics Co., Ltd. 8,000,000.00 8,000,000.00 Loan guarantee for Shandong Huajiaming - - Economic Trading Co., Ltd. 83,142.92 83,142.92 Total 179,088,442.92 - - 179,088,442.92 In 2010, Guangdong Shengrun Group Co., Ltd. exercising bankruptcy restructuring. Till en dof 31 December 2010 the company still in process of restructuring stage. The abovementioned guarantee for other companies have been in serious insolvency or gone bankrupt. 49 22. Share capital Unit: RMB Currency: CNY Amount at the beginning of Amount at the end of period Increase/ decrease (+, -) period Items Shares Proporti New shares Shares Proportion( Amount transferred for Others Subtotal Amount on(%) issued presented %) public reserve I. Circulating shares with 186,838,739.0 186,713,192.00 38.94 - - 42,672.00 -30,742.00 11,930.00 33.87 limited sales conditions 0 1. Shares held by state-owned 16,340,000.00 3.41 - - - 16,340,000.00 2.96 legal person (A-share) 2.Shares held by domestic -6,500,000. 95,267,002.00 19.87 - - -6,500,000.00 88,767,002.00 16.10 corporate sponsors(A-share) 00 3. Shares held by domestic 6,500,000.0 natural person sponsors - - - - - 6,500,000.00 6,500,000.00 1.18 0 (A-share) 4. Shares held by overseas 75,106,190.00 15.66 - - - - - 75,106,190.00 13.62 corporates(B-share) 5. Shares held by senior 42,672.00 -30,742.00 11,930.00 11,930.00 0.01 executives (A-share) II. Circulating shares without 71,903,014.0 364,622,825.0 292,719,811.00 61.06 - - 71,872,272.00 30,742.00 66.13 limited sales conditions 0 0 1. Common RMB shares listed 39,590,718.0 116,259,843.0 76,669,125.00 15.99 - - 39,477,101.00 113,617.00 21.08 at home (A-share) 0 0 2. Foreign-funded shares listed 32,395,171.0 248,362,982.0 215,967,811.00 45.05 - - 32,395,171.00 - 45.05 at home (B-share) 0 0 3. Shares held by senior 82,875.00 0.02 - - - -82,875.00 -82,875.00 - - executives (A-share) 71,914,944.0 551,347,947.0 Total 479,433,003.00 100.00 - - 71,914,944.00 100.00 0 0 Changes of the abovementioned amount mainly becaused: the proposal of share capital increased from capital reserve orientation and share-tanding reform was approved by the Shareholders’ General Meeting on 1 Februray 2007. the plan also obtained the approve from Ministry of Finance People’s Republic of China, SZP[2007] No. 1343 and approved from Shenzhen Bureau of Trad and Indusrty, SMGZF[2007] No. 2257—Approval of the Increased of Total Share Capital of Shenzhen China Bicycle Holdings Co., Ltd. Being consented, the plan was implemented on 18 March 2010. Total share capital of the Company turns from 479,433,000 shares to 551,347,900 shares, the A-shaer resumed for listing. The share capital of RMB 71,914,944.00 increaed have been verified by Shenzhen Pengcheng CPA Co., Ltd. with Verification Report of SPSYZ[2010] No. 356. Registration changes for Industy and Commerce have been done dated 16 March 2011. 50 51 23. Capital reserve Unit: RMB Currency: CNY Items Amount at the Increase in the Decrease in the Amount at the end beginning of period current period current period of period Capital premium - - - - Other capital reserve 458,695,975.55 40,351,662.36 71,914,944.00 427,132,693.91 Where:Benefit from liability 454,687,350.58 423,124,068.94 recombination 40,351,662.36 71,914,944.00 Accounts unnecessary to 690,624.97 - - 690,624.97 pay price difference of affiliated 3,318,000.00 - - 3,318,000.00 transactions Total 458,695,975.55 40,351,662.36 71,914,944.00 427,132,693.91 Interpretation of capital reserve: The amount increased in the period refers to that according to the Notification on Getting Done with the Annual Report of Enterprises Executing Accounting Rules in 2008 [CKH (2008) No. 60] of the Ministry of Finance, the Company’s holding shareholder Shenzhen Guosheng Energy Investment and Development Co., Ltd. exempted the Company’s loan interest RMB 40,351,662.36 in 2010, which will be charged into the capital reserve as capital investment. The amount decreased in the period refers to share capital converted from share-trading reform implemented. 24. Surplus reserve Unit: RMB Currency: CNY Items Amount at the Increase in the current Decrease in the Amount at the end of beginning of period period current period period Legal surplus reserve 32,673,227.01 - - 32,673,227.01 25. Retained profit Unit: RMB Currency: CNY Items Amount Proportion of withdrawal or distribution Undistributed profit of the previous year before adjustment -2,831,816,725.23 Total undistributed profit at the beginning of year adjusted (+, -) - Undistributed profit at the beginning of year after adjustment -2,831,816,725.23 Add: Net profit classed under the parent company in the current period 64,477,414.44 Less: Withdrawal of legal surplus reserve - 10% Withdrawal of free surplus reserve - Withdrawal of general risk reserve - Common stock dividend payable - Common stock dividend transferred into share capital - Undistributed profit at the end of period -2,767,339,310.79 - 26. Business income and business cost (1) Business income and business cost Unit: RMB Currency: CNY Items Amount incurred in the current Amount incurred in the last period period Major business income 274,000,080.33 250,514,769.94 Other business income 25,027,199.10 10,393,338.88 Business cost 280,127,985.48 248,699,643.75 (2) Major businesses (by industry) Unit: RMB Currency: CNY 52 Amount incurred in the current period Amount incurred in the last period Product name Business income Business cost Business income Business cost Bicycle and parts distribution 271,727,101.17 260,057,821.52 248,357,399.41 236,123,723.38 Lease management 2,272,979.16 3,815,279.81 2,157,370.53 3,405,100.30 Total 274,000,080.33 263,873,101.33 250,514,769.94 239,528,823.68 (3)Major businesses (by variety) Unit: RMB Currency: CNY Amount incurred in the current period Amount incurred in the last period Product name Business income Business cost Business income Business cost OEM motor vehicle 221,509,693.52 212,377,298.84 198,949,497.55 188,026,049.40 OEM Bicycle 48,922,678.62 46,044,796.38 47,587,484.63 45,589,280.50 CBC motor vehicle 224,576.06 396,858.20 1,397,440.99 2,061,588.24 CBC Bicycle 94,835.90 199,131.28 246,066.63 263,884.87 Others 975,317.07 1,039,736.82 176,909.61 182,920.37 Lease management 2,272,979.16 3,815,279.81 2,157,370.53 3,405,100.30 Total 274,000,080.33 263,873,101.33 250,514,769.94 239,528,823.68 (4) Business income of the Company’s top five customers Unit: RMB Currency: CNY Customer name Business income Proportion among the Company’s total business income Customer 1 99,993,634.44 33.44 Customer 2 54,277,707.69 18.15 Customer 3 39,869,412.39 13.33 Customer 4 25,441,937.88 8.51 Customer 5 5,474,574.36 1.83 Total 225,057,266.76 75.26 27. Business tax and surcharge Unit: RMB Currency: CNY Amount incurred in the Amount incurred in the Items Collection standard current period last period Sales tax 113,648.98 107,868.53 5% Tax for maintaining and building cities 114,865.88 13,860.70 1%,7% Educational surtax 82,940.72 42,585.75 3% Total 311,455.58 164,314.97 - 53 28. Sales expenses Unit: RMB Currency: CNY Amount incurred in the current Amount incurred in the last period Items period Remuneration for staff 3,727,910.51 3,323,898.63 AD charge 1,476,632.56 641,540.00 Business travel 557,156.10 532,121.60 Transportation and loading charge 329,680.00 127,857.71 Sales charge 150,685.92 285,649.02 Exhibition charge 139,976.60 128,827.40 Vehicle transport 132,979.50 91,652.48 Entertainment charge 86,462.00 138,309.00 Communication charge 76,729.90 86,376.48 Market promotion 60,400.00 382,948.00 Other 656,254.76 741,853.04 Total 7,394,867.85 6,481,033.36 29. Management expenses Unit: RMB Currency: CNY Amount incurred in the current Amount incurred in the last period Items period Salary 6,534,907.23 8,879,886.86 Charge of depreciation amortized 6,405,494.37 4,959,559.65 Maintainance charge 2,114,662.10 336,964.47 Taxes 1,829,076.74 2,008,430.90 Consultant lawyers charge 1,186,600.00 340,198.37 Entertainment charge 897,921.28 888,637.34 Auditing charge 674,254.65 500,000.00 Vehicle transport 649,604.04 589,359.94 Office charge 538,296.50 523,036.57 Charges for staff on vocation 485,082.16 538,155.39 Charge for Board of the Meeting 483,600.40 413,677.80 Utilities 320,068.46 1,004,188.94 Social insurance 309,862.40 362,845.70 Business travel charge 299,992.95 413,232.10 Consultancy charge 222,450.00 17,230.00 welfare 201,419.29 288,553.40 leasing charge 200,000.00 250,000.00 Charge for share listing 177,576.04 141,639.48 Communication charge 146,870.93 174,222.34 Compensation for dismiss 37,300.00 2,280,621.02 Other 77,779.51 494,913.59 Total 23,792,819.05 25,405,353.86 30. Fianncial expenses Unit: RMB Currency: CNY Amount incurred in the current Amount incurred in the last period Items period Interest expenditure 94,020,835.02 95,486,572.31 Less: interest income 78,334.37 83,629.13 54 Gains/losses from exchange -29,464,021.40 -1,968,173.73 Other 36,536.75 31,363.66 Total 64,515,016.00 93,466,133.10 31. Asset depreciation loss Unit: RMB Currency: CNY Items Amount incurred in the current Amount incurred in the last period period I. Loss from doubtful accounts -2,067,826.53 1,450,617.56 II. Loss from inventory depreciation - 2,979,904.49 III. Depreciation loss of salable - - financial assets IV. Depreciation loss of - - held-to-maturity investment V. Depreciation loss of long-term - equity investment - VI. Depreciation loss of investment - - real estate VII. Depreciation loss of fixed 306,800.00 - assets VIII. Depreciation loss of - - engineering materials IX. Depreciation loss of engineering - - under construction X. Depreciation loss of productive - - biological assets XI. Depreciation loss of oil-gas - - assets XII. Depreciation loss of intangible - - assets XIII. Depreciation loss of business - - credit XIV. Others - - Total -1,761,026.53 4,430,522.05 32. Non-operating income Unit: RMB Currency: CNY Items Amount incurred in the Amount incurred in the current period last period Total amount obtained from disposing noncurrent assets - 5,457,626.30 Where: Benefit from disposal of fixed assets - 5,457,626.30 Benefit from disposal of intangible assets - - Benefit from liability recombination 138,684,786.64 - Others 1,203,017.59 7,271,848.86 Total 139,887,804.23 12,729,475.16 The non0operating income obtained in the period mainly from the debt reconstructuring, found more details in Note 10.1 33. Non-operating expenditure Unit: RMB Currency: CNY Items Amount incurred in the Amount incurred in the current period last period Total loss from disposal of noncurrent assets 1,479.48 966,300.00 55 Where: Loss from disposal of fixed assets 1,479.48 966,300.00 Loss from disposal of intangible assets - - Others 55,072.31 185,058.79 Total 56,551.79 1,151,358.79 34. Calculation process of basic earning per share and diluted earning per share (eps) Unit: RMB Currency: CNY Amount Amount incurred in incurred in the Items Calculation the current last period process period -105,757,549.5 Net profit classed under the Company’s common shareholders P0 64,477,414.44 0 Non-frequent gain and loss classed under the Company’s 109,068,376.9 F common shareholders 0 9,262,493.10 Net profit classed under the Company’s common shareholders -44,590,962.4 -115,020,042.6 P0'=P0-F after deduction of non-frequent gain and loss 6 0 Influences of diluted items on the net profit classed under the V Company’s common shareholders - - Net profit classed under the Company’s common shareholders, considering the influences of diluting potential P1=P0+V common shares, and making adjustments according to -105,757,549.5 Enterprise Accounting Standards and related regulations 64,477,414.44 0 Influences of diluted items on the net profit classed under the Company’s common shareholders after deducation of V' non-frequent gains and losses - - Net profit classed under the Company’s common shareholders, considering the influences of diluting potential P1'=P0'+V' common shares, and making adjustments according to -44,590,962.4 -115,020,042.6 Enterprise Accounting Standards and related regulations 6 0 479,433,003.0 Total shares at the beginning of period S0 0 479,433,003.00 Shares increased for increase of shares transferred from public reserve or for share dividend distribution in the report S1 period 71,914,944.00 - Shares increased for issuance of new shares or shares Si transferred from liabilities in report period - - Shares decreased for buyback, etc. in report period Sj - - Shares shortened in report period Sk - - Number of months in report period M0 12 12 Accumulated number of months from the next month of share Mi increase to the end of report period 9 - Accumulated number of months from the next month of share Mj decrease to the end of report period - - S=S0 + S1 + Weighted average number of common shares issued Si×Mi externally ÷M0–Sj×Mj÷M 551,347,947.0 0-Sk 0 479,433,003.00 Add: Weighted average number of common shares increased in condition that the diluted potential common shares are X1 supposed transferred into issued common shares - - Weighted average number of common shares with diluted eps 551,347,947.0 X2=S+X1 calculated 0 479,433,003.00 Where: Weighted average number of common shares increased from transfer of conversible corporate bonds - - 56 Amount Amount incurred in incurred in the Items Calculation the current last period process period Weighted average number of common shares increased from equity warrant/ stock equity implementation right - - Weighted average number of common shares increased from buyback promise implementation - - Basic eps classed under the Company’s common shareholders EPS0=P0÷S 0.1169 -0.2206 Basic eps classed under the Company’s common shareholders EPS0'=P0'÷S after deducation of non-frequent gains and losses -0.0809 -0.2399 Diluted eps classed under the Company’s common EPS1=P1÷X2 shareholders 0.1169 -0.2206 Diluted eps classed under the Company’s common EPS1'=P1'÷X2 shareholders after deducation of non-frequent gains and losses -0.0809 -0.2399 35. Notes to items in cash flow statement (1) Other cash received related with business activities Unit: RMB Currency: CNY Items Amount incurred in the Amount incurred in the last current period period Rent, electric rate and water rate 17,628,981.38 9,650,000.00 Allocated claims from Qingchi 1,090,944.00 - Parts disposal money 62,500.00 6,500,000.00 Other current accounts 3,507,670.90 4,218,255.24 Total 22,290,096.28 20,368,255.24 (2)Other cash paid related with business activities Unit: RMB Currency: CNY Items Amount incurred in the Amount incurred in the last current period period Advertising propagation and promotion, and 1,787,801.37 1,260,000.00 brand maintainance expenses 1,511,282.46 1,670,000.00 Other expenses in sales section 3,876,102.31 2,300,000.00 Water and electricity expense Property repair, equipment maintenance and 1,800,000.00 1,100,000.00 repair fees Listing fee, board of directors’ expense, and expenses for office work, business traveling, 3,193,862.14 3,160,000.00 communication, and social intercourse 1,183,304.65 1,740,000.00 Consulting auditing fee 600,000.00 700,000.00 Other fees in management section 3,822,250.50 2,182,767.75 Other current accounts 57 Items Amount incurred in the Amount incurred in the last current period period Total 17,774,603.43 14,112,767.75 (3) Cash received from other financing activities Unit: RMB Currency: CNY Items Amount incurred in the Amount incurred in the last current period period Loan from Shenzhen Guosheng Energy 6,500,000.00 - Investmetn Development Co., ltd. 58 36. Supplementary data of cash flow statement (1)Supplementary data of cash flow statement Unit: RMB Currency: CNY Supplementary data Amount of the Amount of last current period period 1.Cash flow for business activities transferred from net profit: Net profit 64,477,414.44 -106,160,775.90 Add: Asset depreciation reserve -1,761,026.53 4,430,522.05 Fixed asset depreciation, oil-gas asset depletion, and productive biological asset depreciation 10,512,930.21 6,805,739.26 Amortization of intangible assets 862,862.04 862,862.04 Amortization of long-term fees to be apportioned - - Loss from disposal of fixed assets, intangible assets and other long-term assets (filled with “-” for benefit) 1,479.48 -4,491,326.30 Loss from fixed assets reported discarded (filled with “-” for benefit) - - Loss from change of fair value (filled with “-” for benefit) - - Fincial cost (filled with “-” for benefit) 64,369,590.56 93,466,133.10 Investment loss (filled with “-” for benefit)) - - Decrease of deferred income tax asset (filled with “-” for increase) - - Increase of deferred income tax liability (filled with “-” fordecrease) - - Decrease of inventory (filled with “-” for increase) 10,871,691.30 3,632,974.34 Decrease of operating items receivable (filled with “-” for increase) -17,890,583.71 -19,094,626.44 Increase of operating items payable (filled with “-” for decrease) -124,948,497.47 24,469,084.82 Others - - Net cash flow from business activities 6,495,860.32 3,920,586.97 2.Important investment and financing activities not involving with cash income and expenditure Capital transferred from liability - - Conversible corporate bonds coming due within one year - - Fixed assets rented by financing - - 3.Net change of cash and cash equivalent: - - Closing balance of cash 17,756,773.58 22,232,425.07 Less: Opening balance of cash 22,232,425.07 10,086,599.53 Add: Closing balance of cash equivalent - - Less: Opening balance of cash equivalent - - Net increase of cash and cash equivalent -4,475,651.49 12,145,825.54 (2) Composition of cash and cash equivalent Unit: RMB Currency: CNY Amount at the end of Amount at the beginning Items period of period I. Cash 17,756,773.58 22,232,425.07 Where: Cash on hand 166,739.31 122,959.64 Bank deposit available for payment anytime 17,590,034.27 22,109,465.43 Other monteray fund available for payment - - anytime Due from China Central Bank for payment - - Due from banks - - Call loans to banks - - II. Cash equivalent - - Where: Bond investment coming due within 3 months - - III. Closing balance of cash and cash equivalent 17,756,773.58 22,232,425.07 59 VI. Affiliated Parties and Affiliated Transactions 1. Shareholders controlled by the enterprise Unit: RMB Currency: CNY Proportion Proportion of voting of shares ultimate controlling Affiliated Enterprise Registration Legal Registered power in Organization Business nature held in the controller of shareholder relationship type place representative capital the code enterprise the enterprise enterprise (%) (%) Industry, domestic Limited Shenzhen commerce, Shenzhen liability Guosheng materials supply National company Energy Controlling and sale Investment (solely Shenzhen Shang Shijun 7000 11.81 11.81 77411579-2 Investment and shareholder (excluding and funded by Development specially run, Development the Co., Ltd. controlled and Co., Ltd. corporate) sold merchandises) 2. Detailed information about the Company’s subsidiaries is as shown in 1 of Annotation IV of the report. 60 3. Joint management and joint-ownership enterprises of the Company Unit: RMB Currency: CNY Proportion of Proportion of Depreciation Accounting Initial Increase/ voting power in Invested unit Opening balance Closing balance shares in the reserve at the method investment cost decrease the invested unit invested unit (%) end of period (%) Shenzhen Jinhuan Printing Equity method 14,883,560.00 14,883,560.00 - 14,883,560.00 38.00 38.00 12,263,719.50 Co., Ltd. * The industrial and commercial registration information of Shenzhen Jinhuan Printing Co., Ltd. has been cancelled as displayed. Hong Kong Dahuan Bicycle Co., Ltd., one of the original shareholders of the company, holds the company’s shares under our entrustment, and the actual holder is our company. 61 4. Accounts receivable/ accounts payable and exemption items of affiliated parties (1) Current accounts Unit: RMB Currency: CNY Items Affiliated parties Amount at the end of Amount at the period beginning of period Other accounts Shenzhen Jinhuan Printing Board Co., payable Ltd. 2,616,430.50 2,616,430.50 Long-term liability coming due within 1 Shenzhen Guosheng Energy year Investment and Development Co., Ltd. 435,399,392.26 598,315,198.66 Shenzhen Guosheng Energy Interest in red Investment and Development Co., Ltd. 2,948,836.74 2,161,259.22 Other account payable Shenzhen Guosheng Energy * Investment and Development Co., Ltd. 6,500,000.00 - In the report period, subordinate subsidiary of the Company-Shenzhen Emmelle Industry Co., Ltd. financing RMB 6.5 million from Shenzhen Guosheng Energy Investment and Development Co., Ltd. 62 (2) Exempted items Unit: RMB Currency: CNY Items Affiliated parties Amount incurred in the Amount incrrued in last current period period Shenzhen Guosheng Energy Financial cost Investment and Development Co., Ltd. 40,351,662.36 47,802,411.22 According to the Notification on Getting Done with the Annual Report of Enterprises Executing Accounting Rules in 2008 [CKH (2008) No. 60] of the Ministry of Finance, the Company’s holding shareholder Shenzhen Guosheng Energy Investment and Development Co., Ltd. exempted the Company’s loan interest RMB 40,351,662.36 in 2010, which will be charged into the capital reserve as capital investment. VII. Contingent Items 1. Contingent liabilities formed from pending lawsuit and arbitration, and financial influences (1) As of Dec. 31, 2010, the Company had been prosecuted by 17 financial instutions, involving total loan principal and interest of RMB 425,460,600, USD76,852,000 and HKD 8,261,600. The abovementioned lawsuits have mostly been resulted in the Company’s failure or been mediated. After lawsuits, partial debtors have transferred the creditor’s right, and the principals involved in the cases are changed accordingly. (2) As of Dec. 31, 2010, the Company had been prosecuted by 34 goods suppliers, involving total loan principal and interest of RMB 61,200,000, HKD24,530,000 and USD3,260,000. The abovementioned lawsuits have mostly been resulted in the Company’s failure or been mediated. 2. Contingent liabilities formed from providing liability guaranty for other units, and financial influences Influences on the Company’s financial state, Items Amount involved business result and cash Nature flow in the current period and future periods Loan guarantee for Guangdong Shengrun RMB36,100,000.00 (1) Guaranty Group Co., Ltd. USD1,000,000.00 Loan guaranty for Gintian Industry (Group) RMB50,000,000.00 (2) Guaranty Co., Ltd. Loan guaranty for Shenzhen Tianma RMB8,000,000.00 (3) Guaranty Cosmetics Co., Ltd. ZoriaPteLtdc USD10,000,000.00 (4) Guaranty Shandong Huajiaming Economic Trade Co., RMB83,142.92 (5) Guaranty Ltd. RMB94,183,142.92 Total USD11,000,000.00 (1) The company estimated the loss based on 100% guaranteed amount. The Company is in the execution period of bankcrptcy restructuring. (2) The company is a listed company limited, and has been in serious insolvency. The loss is estimated as per 100% guaranteed amount. (3) The company has gone bankrupt. The loss is estimated as per 100% guaranteed amount. (4) The company has been in serious solvency, and is being liquidated. The loss is estimated as per 100% guaranteed amount. (5)The company has been in serious solvency. The loss is estimated as per 100% guaranteed amount. VIII. Promised Items The Company had no important promised items in the report period. IX.Afterward Items of Balance Sheet 1. Change of the actual controller On 3 January 2011, largest shareholder and creditors of the Company-Shenzhen Guosheng Energy Investment Development Co., Ltd.(“Guosheng Energy” for short), controlling shareholder—Shenzhen Guomin Investment Co., Ltd. (‘Guomin Investment” for short) entered into the Agreement of Equity Transfer with Ji Hanfei. Guomin Investment transfer 100% equity of Guosheng Energy to Ji Hanfei with price of RMB 70 million, industry and commerce changes have been finished. the transfer changes the actual controller of the Company. Ji Hanfei held 63 65,098,412 shares of the Company with A-stock, account 11.81 percent in total share capital of the Company after changes. 2. Application for bankruptcy restructuring and debt transfer of Shengrun On 23 March 2011, the Notice of Debt Transfer was received by the Company from Guangdong Shengrun Group Holding Co., Ltd.(‘Guangdong Shengrun” for short), creditor of the Company. Guangdong Shengrun has credit of RMB 232,801,657.06 for the Company. During the bankcruptcy restructuring of Guangdong Shengrun, manager of the Guangdong Shengrun entrused Shenzhen Rundongfang Auction Co., Ltd. for auction on the debt. On 13 December 2010, the Shenzhen Dongtaixing Technology Co., Ltd. (“Dongtaixing” for short) was bidding the debt in accordance with the law. On 27 January 2011, Shenzhen Intermediate People’s Court judged thecivil ruling of (2010) SZFMQCZZ No. 5-12, the bidding was deal for the debt of Guangdong Shengrun to Dongxingtai. On 30 March 2011, the one piece of Notification from creditor of the Company-Dongtaixing was received by the Company: for the case of no application for bankruptcy restructuring from Shenzhen Guosheng Energy Investmetn Co., Ltd.-largest shareholder of the Company judged from Shenzhen Intermediate People’s Court, the documents were delivered by Dongtaixing on 17 March 2011, as second creditor, for application of bankcrptcy restructuring for ShenChina in accordance with the law. Currently, Dongtaixing prepared for the hearing procedures. 3. Auction for the proprietary of trademark The auction notification was received by the Company on 1 March 2011 from Shenzhen Intermediate People’s Court (“Shenzhen Intermediate” for short). Concerning the guarantee loans between the Luohu Sub-branch of China Merchans Bank and the Company and Guangdong Shengrun Gourp Co., Ltd., the Shenzhen Intermediate entrust Shenzhen Huirong Auction Co., Ltd. for bidding the 10 proprietary of trandmarks owned by the Company. On 14 March 2011, the purchaser-Shenzhen Guosheng Energy Investment Development Co., Ltd. ownes the abovementioned proprietary. On 31 March 2011, Shenzhen Intermediate judged that the abovementioned trademark proprietary was transferred to Shenzhen Guosheng Energy Investment Development Co., Ltd.—the purchaser. X .Other important items 1. Material debt restructuring of 2010 (1) On 31 May 2010, largest shareholder of the Company, Shenzhen Guosheng Energy Investment Co., Ltd.(“Guosheng Energy”for short) entered into the Assignment of Obligatory Right with Shenzhen Zhengda Guoli Investment Co., Ltd.(“ZHengda Guoli” for short). Obligatory right RMB 150 million of the Company held by Guosheng Energy was transferred to Zhengda Guoli with price of RMB 9 million. (2) On 2 September 2010, Zhengda Guoli entered into the Assignment of Obligatory Right with Shenzhen Chengxingtai Investment Co., Ltd.(‘Chengxingtai” for short). Obiligatory right RMB 150 million of the Company held by Zhengda Guoli was transferred to Chengxingtai with price of RMB 11 million. (3) On 15 October 2010, ShenChina and Chengxingtai ageeds the Debt Settlement Agreement, ShenChina paid all debt of Chengxingtai (including loans, interest and other relatd expense) amounting to RMB 14 million. The abovementioned amount have been paid by the Company before 30 November 2010 in three phases. The material debt restructing generated income of RMB138,684,786.64. Among which, RMB 3,032,735.29 of the intereset income in debt period was relief by Zhengda Guoli; the debt settlement income betweent the Company and Chengxingtai amounting to RMB135,652,051.35. The abovementioned restructuring income were reckoned into gains/losses of 2010 due to the transaction parties have no related relationship. 2. Financial debt reconstructing In accordance with YJBT [2004] No.6 Document issued by the Office of China Banking Regulatory Commission on Jan. 7th, 2004, the Bank of China, totally 11 financial institutes agreed to stop calculating the interests as of Jan. 1st, 2002 for three years, and exempt all and any interests paypable prior to Dec. 31st, 2001, including the default interests and compound interests. The Company will transfer all the interests payable (including the default interests and compound interests) of RMB 357,993,665.24 prior to Dec. 31st, 2001 to “public accumulated capital”, and the interests will be not calculated temporarily from Jan. 1st, 2002 to Dec. 31st, 2004. This term of interests exemption shall be valid before Dec. 31st, 2004. In 2005, China Huarong Asset Management Corporation Shenzhen Office, China Orient Asset Management Corp. Shenzhen Office, China Cinda Asset Management Corporation Shenzhen Office and China Great Wall Asset Management Corporation Shenzhen Office will continuous to stop calculating the interests of 2005 loans. Whereas the term of “Stop Calculating Inerests” may cause discrepancy and General Terms on the Loan did not 64 interprate its meaning either, China Huarong Asset Management Corporation Shenzhen Office, China Orient Asset Management Corp. Shenzhen Office, China Cinda Asset Management Corporation Shenzhen Office and China Great Wall Asset Management Corporation Shenzhen Office all agree not to claim the Company to repay all the interests stopped calculating herein. However, Shenzhen Development Bank requied the Company to repay all the interests and compound interests which was stopped calculating from Jan.1st, 2002 to Dec.31, 2004. The Company argued that the interests which were stopped calculating shall not be repaid; therefore, after the period during which the interests is stopped calculating, the interests to be repaid shall be calculated as the normal loans, but not the interests and compound interests stopped calculating from Jan.1st, 2002 to Dec. 31, 2004. As of Dec. 31st, 2010, the sum of interests confirmed by creditor bank is RMB324,879,558.04 more than the interests payable of book value, and some institutes have no reply to the confirmation of debts. In such a case, the Company thought that we cannot decide if this part of interests can be withdrawn or repaid, thus no any financial adjustment is done till now. 2 .Instructions to Continous Operation As of Dec.31st, 2010, China Bicycle Company Limited has a gross asset of RMB 138,158,078.89, the total debt of RMB1,894,343,521.76, with its net asset up to RMB-1,756,185,442.87, in the state of insolvency, which thus may cause this Company liquidate its assests and pay off the debts in the normal operations. In such a case, this Company and its largets creditor will take the following measures: Since March 2003 when China Huarong Asset Management Corporation, the former largest creditor of this Company, launched the debt reconstructing and made the progress to a certain extent, China Banking Regulatory Commission and the relevant authorities approved on the exemption and stop calculating all the interests of financial debts incurred as of Dec. 31st, 2004. Whereas the Company signed Settlement Agreement with International Finance Corportation on March 29th, 2007, it is hereby agreed to settle all and any creditor’s rights and debts incurred therefore by an equivolant US dollars for RMB 2 million, with the prinical of debts approx. USD 3.87 million and the interests payable of approx. RMB 42.78 million. On 15 October 2010, the Company entered into the Debt Settlement Agreement with Shenzhen Chengxingtai Investment Co., Ltd. for RMB 14 million payment as compensation to Chengxingtai Co., from the Company for settled the all debt and liabilities of two parties(approximately RMB 150 million). The RMB 14 million have been paid on 30 Nov. 2010 in full. China Huarong Asset Management Corporation, on Dec. 30th, 2006, transferred its creditor’s rights to Shenzhen Guocheng Engergy Investment & Development Corporation (hereinafter referred to as “Guocheng Energy Corporation”) which is now performing actively the matters concerning debt reconstructing and has made the progress to a certain extent. Whereas the largest shareholder and creditor of this Company have changed, in January 2010, in accordance with newly-issued Law of the People's Republic of China on Enterprise Bankruptcy, Guocheng Energy Corporation consequently claims and applys for new reconstructing of this Company to Shenzhen Intermediate People's Court, with a view to recover and improve the ongoing operations. On 28 Dec. 2010, Shenzhen Intermediate People’s Court considered that the applicant provided no materials that recognized by two parties with taxation dept. from tax and debt. According to the regulation of Clause VIII, Rule 1 of Clause XII under Law of the People's Republic of China on Enterprise Bankruptcy, the court judged no application of the bankruptcy restructuring on the Company from Shenzhen Guosheng Energy Investment Developemt Co., Ltd. In addition, Guosheng Energy suspended for calculation the loan interest of 2010 amounting to RMB 40.3517 million, the interest shall not be recoved in subsequent years. The main business of this Company may develop stably and realize benefits continuously while launching the debt reconstructing. In a short term, it reduced the paying pressure greatly, and ability to continous operations has been improved to a certain degree. The Board of the Directors thought that along with the continuous progress of the Company debts and asset reconstructing, the operating environment, business situation and ability to continuous operations will be bound to further improvement. XI. Note of main item of financial statement of parent company 1. Receivable account (1) Disclosued by category Unit: RMB Currency: CNY Category Amount at the end of period 65 Book balance Bad debt provision Proporti Proporti Amount Amount on(%) on(%) Account receivable with single major amount but - - - - withdrawal bed debt provision for single item Account receivable withdrawal bad debt provision by age 1,034,374,248. 1,032,989,895. combination 98 100.00 75 99.87 Account receivable with single minor amount but withdrawal bed debt provision for single item - - - - Total 1,034,374,248. 1,032,989,895. 98 100.00 75 99.87 Amount at the beginning of period Book balance Bad debt provision Category Proporti Proporti Amount Amount on(%) on(%) Account receivable with single major amount but - - - - withdrawal bed debt provision for single item Account receivable withdrawal bad debt provision by age combination 1,039,759,756.78 100.00 1,034,919,101.47 99.53 Account receivable with single minor amount but - - - - withdrawal bed debt provision for single item Total 1,039,759,756.78 100.00 1,034,919,101.47 99.53 About the categories of the accounts receivable: Based on the size, business nature and customer settlement condition of the company, the company decides that RMB 5 million of accounts receivable is important single sum of payment. For an account receivable without depreciation at the end of the period, the bad debt allowance is accrued on the basis of account aging analysis method. (2) In combination, account receivable withdrawal bed debt provision by age analysis method: Unit: RMB Currency: CNY Amount at period-end Amount at period-begin Book balance Book balance Age Bad debt Bad debt Amount Ratio (%) Amount Ratio provision provision (%) Within 1year 77,227.48 0.01 - 3,329,011.81 0.32 - 1-2 years - - - 496,746.90 0.05 - Over 3years 1,034,297,021. 1,032,989,895.7 50 99.99 5 1,035,933,998.07 99.63 1,034,919,101.47 Total 1,034,374,248. 1,032,989,895.7 98 100.00 5 1,039,759,756.78 100.00 1,034,919,101.47 (3) No account receivable actually cancelled after verification in the report period. (4) The accounts receivable at the end of the report period don’t involve with the shareholder unit’s holding over 5% (including 5%) voting power of the Company. (5) Top 5 units with an amount of account receivable: Unit: RMB Currency: CNY Relationship Proportion among the Name with the Amount Period gross accounts receivable - company others (%) Total of top 5 customers of Non-affiliated Over 3 other accounts receivable customers 535,330,991.79 years 51.75 (6)No other account receivable involving with affiliated parties in the report period. (7)No other account receivable-others with confirmation terminated at the end of the report period. 66 2. Other receivables (1) disclosed by categories Unit: RMB Currency: CNY End of period Book balance Provision for bad debts Category Amount Proporti Amount Proporti on on Other account receivable with single major amount and - - withdrawal bed debt provision for single item - - Other account receivable withdrawal bad debt provision by age combination 557,411,339.53 100.00 526,881,529.25 94.52 Other account receivable with single minor amount but withdrawal bed debt provision for single item - - - - Total 557,411,339.53 100.00 526,881,529.25 94.52 Beginning of period Book balance Provision for bad debts Category Amount Proporti Amount Proporti on on Other account receivable with single major amount and withdrawal bed debt provision for single item - - - - Other account receivable withdrawal bad debt provision by age combination 571,859,828.13 100.00 527,390,450.98 92.22 Other account receivable with single minor amount but withdrawal bed debt provision for single item - - - - Total 571,859,828.13 100.00 527,390,450.98 92.22 Interpretation to the category of accounts receivable-others: According to the business scale, business nature, and customers’ settlement, etc., the account receivable-other with single big amount is determined to be RMB 5 million. The account receivable-other with single big amount has no depreciation reserve, and the reserve for bad and doubtful account is withdrawn with age analysis method. (2) In combination, other account receivable withdrawal bed debt provision by age analysis method: Unit: RMB Currency: CNY Amount at period-end Amount at period-begin Age Book balance Bad debt Book balance Bad debt Amount Proportion provision Amount Proportion provision Within 1year 2,092,207.67 0.38 6,276.62 6,376,468.21 1.12 2,929.40 1-2 years 4,545,244.91 0.82 135.73 - - - 2-3 years - - - - - - Over 3years 550,773,886.95 98.80 526,875,116.90 565,483,359.92 98.88 527,387,521.58 Total 557,411,339.53 100.00 526,881,529.25 571,859,828.13 100.00 527,390,450.98 (3) No account receivable actually cancelled after verification in the report period. (4) The accounts receivable at the end of the report period don’t involve with the shareholder units hodling over 5% (including 5%) voting power of the Company. (5) Top 5 units with an amount of other account receivable: Unit: RMB Currency: CNY Relationship Proportion among Name with the Amount Period the total other company accounts receivable 67 - others (%) Total of top 5 customers of other Non-affiliated Over 3 accounts receivable customers 357,001,411.68 years 64.05 (6)No other account receivable involving with affiliated parties in the report period. (7)No other account receivable-others with confirmation terminated at the end of the report period. 68 3. Long-term equity investment Unit: RMB Currency: CNY Expla natio n on discr epanc y betw een share Provi Perc propo sion Shar enta rtion for Exam e ge of in (asset inatio prop votin Cas Initial inves Depre ) n and Openin Increases a Closing ortio g h Invested c invest ted ciation depre calcul g balan nd decrease balanc n in right divi ompany ment comp reserv ciatio ating ce s e inve s in den cost any e n of metho sted inves d and curre d com ted perce nt pany com ntage perio pany of d votin g rights in inves ted comp any Shenzhen EMMELL Cost E Industry metho 1,400, 1,400,0 1,400,0 1,400, Co.Ltd d 000.00 00.00 - 00.00 70% 70% - 000.00 - - Shenzhen Anju property Cost manageme metho 2,000, 2,000,0 2,000,0 100 100 2,000, nt co.,ltd d 000.00 00.00 - 00.00 % % - 000.00 - - China Bicycle(H Cost ong Kong) metho 5,350, 5,350,0 5,350,0 5,350, Co.,Ltd d 000.00 00.00 - 00.00 99% 99% - 000.00 - - China Bicycle(In Cost ternational metho 18,727 18,727. 18,727. 100 100 18,727 ) Co.,Ltd d .60 60 - 60 % % - .60 - - Hunan Guangnan Cost Motorcycl metho 5,679, 5,679,3 5,679,3 5.50 5.50 5,679, e Co.,Ltd d 300.00 00.00 - 00.00 % % - 300.00 - - Shenzhen Equit Jinhuan y 14,883 12,263 Printing metho ,560.0 14,883, 14,883, 38.0 38.0 ,719.5 Co.,Ltd d 0 560.00 - 560.00 0% 0% - 0 - - 29,331 29,331, 29,331, 26,711 -- - Total ,587.6 587.60 - 587.60 -- -- - ,747.1 - 69 0 0 70 4. Operating revenue and operating costs (1) Operating revenue and operating costs Unit: RMB Currency: CNY Item Amount incurred of current period Amount incurred of last period Income from main business 363,669.25 2,528,791.93 Income from other business 28,168,488.59 14,956,851.56 Operating cost 16,520,738.87 11,699,612.00 (2) Main business (by industy ) Unit: RMB Currency: CNY Amount incurred of current period Amount incurred of last period Products Business income Business cost Business income Business cost Sales of bicycle and spare parts 363,669.25 363,669.25 2,528,791.93 2,528,791.93 (3) Main business (by category ) Unit: RMB Currency: CNY Amount incurred of current period Amount incurred of last period Products Business income Business cost Business income Business cost CBC electric 254,102.56 254,102.56 1,307,803.93 1,307,803.93 CBC bicycle 109,566.69 109,566.69 1,220,988.00 1,220,988.00 Total 363,669.25 363,669.25 2,528,791.93 2,528,791.93 5. Supplemental Information of cash flow statement Unit: RMB Currency: CNY Supplemental Information Amount of this per Amount of last per iod iod 1. Reconciliation of net profit/(loss) to cash flows from operating activities: Net profit 66,120,624.68 -102,983,715.11 plus: provision for assets -2,197,612.45 4,430,522.05 Depreciation of fixed assets, oil/gas asset depletion and depreciation of productive biological assets 10,325,494.68 6,641,391.45 Amortization of intangible assets 862,862.04 862,862.04 Amortization of long-term prepaid expenses - - Loss on disposal of fixed assets, intangible assets and others (ded uct: gains) - -4,491,326.30 Losses on disposal of fixed assets (deduct: gains) - - Losses on the changes in fair value (deduct :gains) - - - Financial expenses (deduct :gains) - 66,237,810.49 94,449,263.86 Losses arising from investments(deduct: gains) - - - Decrease of deferred income tax assets (deduct : increase) - - Increase of deferred income tax liabilities (deduct : decrease) - - - Decrease in inventories(deduct: increase) 5,275,365.60 6,682,348.83 71 Supplemental Information Amount of this per Amount of last per iod iod Decrease in operating payables (deduct: increase) 15,999,407.38 8,015,477.05 Increase in operating payables (deduct: decrease) -145,039,821.75 -13,640,816.70 Others - - Net cash flows from operating activities 17,584,130.67 -33,992.83 2. Investing and financing activities that do not concerning cash receipts and payment: Conversion of debt into capital - - Reclassification of convertible bonds expiring within one year as current liability - - Financial leasing of fixed assets - - 3. Net change of cash and cash equivalents: Closing balance of cash 498,624.71 365,121.06 Minus: opening balance of cash 365,121.06 417,444.51 Plus: closing balance of cash equivalents - - Minus: opening balance of cash equivalents - - Net increase of cash and cash equivalents 133,503.65 -52,323.45 XII. Supplement information 1. List of non-recurring profit and loss Unit: RMB Currency: CNY Item Amount of this year Explanation Net income on Loss and profit on disposal of non-current assets disposal of fixed -1,479.48 assets Tax return or exemption from override approval or with no - official approval document - The amount of the government subsidies which are included in the current profits( which is related to - enterprise business, except for government subsidies according to national stand quota or quantum) - Paid or received payment for use of state funds recorded in current profit and Losss - Profits and losses arising from business combination when the combined cost is less than the recognized fair value of net assets of the merged company - Loss and profit of exchange of non-monetary assets - Loss and profit by entrusting others to invest and manage the asset - Allotted asset depreciation reserves incurred by occasional cause such as natural calamities - Gains and losses from debt restructuring Zhengda Guoli relief the interest and Chengxingtai 138,684,786.64 settlement the debt Expense for enterprise reconstruction, employee arrangement and other integration costs - Profit and loss from transactions with obvious unfair - 72 Item Amount of this year Explanation transaction price Subsidiaries' year-to-date net profit/loss arising from business combination of entities controlled by a same company - Profits contributed by the sold assets to the listed company from The beginning of the year To the sale date - Except for effective hedging business related to normal business, held-for-trading financial asset, profit and losses on the changes in fair value generated by transaction financial liabilities, investment income achieved by disposing transaction financial assets, transaction financial liabilities and hold-to-sale financial assets - Reversals of depreciation reserves of receivables done depreciation test solely - Loss and profit achieved by entrusting loans - Profit and loss on the changes in fair value of invested real estate after being subsequently measured with fair value mode - According to laws and regulations of tax and accounting, impact of One-off adjustment of current loss and profit on current loss and profit - Trustee fee income generated from entrusted operation - Other non-operating income and expenses 1,147,945.28 Other loss/profit generated by definition of other non recurring profit and loss - Amount influenced by income tax -30,762,875.54 Amount influenced by few shareholders’ equity(after-tax) - Total 109,068,376.90 2. Net assets income rate and earnings per share Earnings per share Profit during the period of Average weight net asset report income rate (%) Basic earnings per Dilute earnings per share share Net income attributed to shareholders - 0.1169 0.1169 Net income attributed to shareholders after deducting net profit of recurring loss and profit - -0.0809 -0.0809 3. Reason and explanation of unusual circumstance of items of financial statement of the company Unit: RMB Currency: CNY Proportion of Change of change in the amount at the beginning of Items beginning of Explanation period and at period and at the the end of end of period period mainly due to the changes of settlement for sale Note recerivable -3,180,301.00 -54.83% business Inventory -10,871,691.30 -33.38% mainly due to the inventory reduced Exchange profit was produced from RMB Financial expense -28,951,117.10 -30.97% appreciation Asset depreciation -139.75% Reduced the impairment provision that withdrawal 73 loss -6,191,548.58 Nonbusiness income 127,158,329.07 998.93% Income from debt settlement with Chengxingtai Nonbusiness expenditure -1,094,807.00 -95.09% Losses from disposal of fixed assts occurred last year Legal representative: Date: Principal in charge of accounting: Date: Principal of accounting organ: Date: 74