深圳中华自行车(集团)股份有限公司 Shenzhen China Bicycle Company (Holdings) Limited 2011 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 2011 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 2011 Annual Report or have objection for this report. Director Mr. Yao Zhengwang was absent from the board meeting due to go on business outside, but authorized to entrust Director Mr. Zhang Zebin to attend and exert voting rights on behalf. Person in Charge of the Company Mr. Luo Guiyon, 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 2011 Annual Report is true and complete. CONTENTS Section I. Company Profile………………………………………………………... 3 Section II. Main Financial Data and Business Indexes……………………………. 4 Section III. Changes in Share Capital and Particulars about Shareholders………... 6 Section IV. Particulars about Directors, Supervisors and Senior Executives……… 11 Section V. Corporate Governance Structure………………………………………. 16 Section VI. Internal Control……………………………………………………….. 18 Section VII. Brief Introduction to the Shareholders’ General Meeting……………. 23 Section VIII. Report of the Board of Directors………………………………….. 24 Section IX. Report of Supervisory Committee………………………………….. 35 Section X. Significant Events……………………………………………………… 37 Section XI. Financial Report………………………………………………………. 40 40 Section XII. Documents Available for Reference…………………………………. 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 In English: SHENZHEN CHINA BICYCLE COMPANY(HOLDINGS)LIMITED Short form of English Name: CBC II. Legal Representative: Luo Guiyon III. Executor of secretary of the Board: Luo Guiyon 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, Local 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 2011 1. Major profit indexes as of the year 2011 (Unit: RMB) Operating profit -24,930,672.81 Total profit 39,720,901.46 Net profit attributable to the shareholders of the listed 39,720,901.46 company Net profit attributable to the shareholders of the listed -12,879,894.99 company after deducting non-recurring gains and losses Net cash flow arising from operating activities 348,907.64 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 Net gains/losses form disposal of 14,781,833.16 non-current assets fixed assets Debt reorganization plan of Other non-operating income and Sunrise Company was completed, expenditure except for the aforementioned 49,869,741.11 the Company reduced the interest items and liabilities accrued previously in book Other loss/profit qualified definition of Investment income of disposal of 4,560,000.00 other non recurring profit and loss Hunan Guangyang Motorcycle Influenced amount of income tax -16,610,777.82 Total 52,600,796.45 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/decrease in this year 2011 2010 compared with that of last 2009 year (%) Total operating income 321,043,570.34 299,027,279.43 7.36 260,908,108.82 Total profit 39,720,901.46 64,477,414.44 -38.40 -106,160,775.90 Net profit attributable to shareholders of the listed 39,720,901.46 64,477,414.44 -38.40 -105,757,549.50 company Net profit attributable to shareholders of the listed company after deducting -12,879,894.99 -44,590,962.46 -71.12 -115,020,042.60 non-recurring gains and losses Net cash flow arising from 348,907.46 6,495,860.32 -94.63 3,920,586.97 operating activities Increase/decrease at the end of this year compared with At the end of 2011 At the end of 2010 At the end of 2009 that at the end of last year (%) Total assets 135,746,630.93 138,158,078.89 -1.75 169,696,420.47 Owners’ equity attributable to shareholders of the listed -1,682,839,667.48 -1,756,185,442.87 -4.18 -1,861,014,519.67 company Share capital 551,347,947.00 551,347,947.00 0 479,433,003.00 2. Main financial indexes (Unit: RMB) Increase/decrease this year compared 2011 2010 2009 with that last year (%) Basic earnings per share (RMB/Share) 0.0720 0.1169 -38.40 -0.2206 Diluted earnings per share (RMB/Share) 0.0720 0.1169 -38.40 -0.2206 Basic earnings per share calculated based 0.0720 0.1169 -38.40 -0.1925 on latest share capital(RMB/Share) Basic earnings per share after deducting non-recurring gains and losses -0.0234 -0.0809 -71.12 -0.2399 (RMB/Share) Weighted average return on equity (%) 0.00% Weighted average return on equity after deducting non-recurring gains and losses 0.00% (%) Net cash flow arising from operating 0.0006 0.0118 -94.63 0.01 activities per share (RMB/Share) Increase/decrease at the end of this year At the end At the end At the end compared with that at the end of last of 2011 of 2010 of 2009 year (%) Net asset per share attributable to shareholders -3.0522 -3.1853 -4.18 -3.8817 of listed company (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 Bonus Capitalization of Amount Proportion shares Others Subtotal Amount Proportion shares public reserve issued I. Restricted shares 186,725,122 33.87% -77,510,892 -77,510,892 109,214,230 19.81% 1. State-owned shares 0 0.00% 0 0 0 0.00% 2. State-owned legal 16,340,000 2.96% -16,340,000 -16,340,000 0 0.00% person’s shares 3. Other domestic 95,267,002 17.28% -30,168,590 -30,168,590 65,098,412 11.81% shares Including: Domestic non-state-owned legal 88,767,002 16.10% -23,668,590 -23,668,590 65,098,412 11.81% person’s shares Domestic natural 6,500,000 1.18% -6,500,000 -6,500,000 0 0.00% person’s shares 4. Foreign shares 75,106,190 13.62% -31,001,944 -31,001,944 44,104,246 8.00% Including: Foreign 75,106,190 13.62% -31,001,944 -31,001,944 44,104,246 8.00% legal person’s shares Foreign natural 0 0.00% 0 0 0 0.00% person’s shares 5. Senior executives’ 11,930 0.00% -358 -358 11,572 0.00% shares II. Unrestricted shares 364,622,825 66.13% 77,510,892 77,510,892 442,133,717 80.19% 1. RMB Ordinary 116,259,843 21.09% 77,513,517 77,513,517 193,773,360 35.14% shares 2. Domestically listed 248,362,982 45.05% -2,625 -2,625 248,360,357 45.05% foreign shares 3. Overseas listed 0 0.00% 0 0 0 0.00% foreign shares 4. Others 0 0.00% 0 0 0 0.00% III. Total shares 551,347,947 100.00% 0 0 551,347,947 100.00% Statement on changes of restricted shares Unit: Share Increased Restricted Restricted Restricted Date for Name of restricted Reason for shares at shares released shares at releasing the shareholders shares in restriction year-begin in current year year-end restriction current year Restriction commitment of 27,567,397 0 0 27,567,397 2011-9-17 share merger reform Shenzhen Guocheng Restriction Energy Investment commitment of 27,567,397 0 0 27,567,397 2012-3-17 Development Co., share merger Ltd. reform Restriction commitment of 9,963,618 0 0 9,963,618 2013-3-17 share merger reform Restriction Hong Kong commitment of 27,567,397 0 0 27,567,397 2011-3-17 Zhuorun share merger Technology Co., reform Ltd. Restriction 16,536,849 0 0 16,536,849 2012-3-17 commitment of share merger reform Restriction China Bicycle commitment of Company 26,000,000 26,000,000 0 0 2011-3-17 share merger (Holdings) Limited reform Shenzhen Restriction Kangsheng commitment of Investment 11,968,590 11,968,590 0 0 2011-3-17 share merger Development Co., reform Ltd. Restriction Xinliyi Investment commitment of Management Co., 11,200,000 11,200,000 0 0 2011-3-17 share merger Ltd. reform Restriction Airline Trust and commitment of 10,340,000 10,340,000 0 0 2011-3-17 Investment Co., Ltd. share merger reform Restriction China Resources commitment of SZITIC Trust Co., 6,000,000 6,000,000 0 0 2011-3-17 share merger Ltd. reform Restriction Jingchao Investment commitment of 5,001,944 5,001,944 0 0 2011-3-17 Co., Ltd. share merger reform Restriction commitment of Qiu Jiguang 3,500,000 3,500,000 0 0 2011-3-17 share merger reform Restriction commitment of Gao Deming 2,700,000 2,700,000 0 0 2011-3-17 share merger reform Guangzhou Restriction Hengyong Yingfeng commitment of Enterprise 500,000 500,000 0 0 2011-3-17 share merger Development Co., reform Ltd. Restriction commitment of Gao Deping 300,000 300,000 0 0 2011-3-17 share merger reform Total 186,713,192 77,510,534 0 109,202,658 - - Note: Restricted shares of the Company 77,510,534 shares have been un-lock for trading on 28 April 2011, a 14.06% in total share capital of the Company. (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 (I) Changes of share capital: 1. No changes of share capital of the Company in report period. 2. Ended as 31 December 2011, total 38,363 shareholders of the Company with 23,944 of A-stock shareholder and 14,419 of B-stock shareholders. (II) Particulars about shares held by the top ten shareholders (Unit: Share) Amount of Amount of Amount of Proportion shares Nature of Full name of shareholders shares held non-circulating (%) pledged or shareholders at year-end shares held frozen Shenzhen Guocheng Energy Domestic Investment Development Co., 65,098,412 11.81 65,098,412 0 general legal Ltd. person Hong Kong Zhuorun Foreign legal 44,104,246 8.00 44,104,246 30,000,000 Technology Co., Ltd. person Shenzhen Kangsheng Domestic Investment Development Co., 5,972,500 1.08 0 0 general legal Ltd. person Foreign legal Jingchao Investment Co., Ltd. 5,001,944 0.91 0 0 person GUOTAI JUNAN Foreign legal SECURITIES(HONGKONG) 0.79 0 0 4,363,989 person LIMITED Foreign Zeng Yin 3,198,352 0.58 0 0 nature person Airline Trust and Investment State-owned 2,340,000 0.42 0 0 Co., Ltd. legal person Foreign TANG JING YUAN 2,213,175 0.40 0 0 nature person Domestic Shenzhen Fuwandian 2,137,099 0.39 0 0 general legal Investment Co., Ltd. person Domestic Chen Qingtao 2,092,743 0.38 0 0 nature 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. Changes of controlling shareholder and actual controller of the Company in the report period: Controlling shareholder --- Shenzhen Guomin Investment Co., Ltd. of largest shareholder of the Company—Shenzhen Guosheng Energy Investment Development Co., ltd, entered into an equity transfer agreement with Ji Hanfei on 3 January 2011. Guomin Investment transferred 100% equity of Guosheng Energy to Ji Hanfei with consideration of RMB 70 million. Guosheng Energy held 65,098,412 shares of A-stock of the Company, an 11.81% in total share capital of the Company. 2. Introduction of the controlling shareholder or actual controller of the Company (1) Introduction of 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: Ji Hanfei; 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). (2) Profile of actual controller Mr. Ji Hanfei: Mr. Ji Hanfei, Chinese nationality. A legal person, executive director and general manager of Shenzhen Guocheng Energy Investment Development Co., Ltd. Mr. Ji Hanfei has no other enterprise for investment except holding 25% equity of Shenzhen Guomin Investment Development Co., Ltd. 3. The property relationship between the actual controller and the Company was as follows: Ji Han Fei 100% Shenzhen Guocheng Energy Investment Development Co., Ltd. 11.81% Shenzhen China Bicycle Company (Holding) Limited 司 (IV) The top ten circulating shareholders of the Company Amount of circulating Name of shareholders shares held shareholders Types (share) Shenzhen Kangsheng Investment RMB ordinary 5,972,500 Development Co., Ltd. shares RMB ordinary Jingchao Investment Co., Ltd. 5,001,944 shares GUOTAI JUNAN Domestically listed 4,363,989 SECURITIES(HONGKONG) LIMITED foreign shares Domestically listed Zeng Yin 3,198,352 foreign shares RMB ordinary Airline Trust and Investment Co., Ltd. 2,340,000 shares Domestically listed TANG JING YUAN 2,213,175 foreign shares Shenzhen Fuwandian Investment Co., RMB ordinary 2,137,099 Ltd. shares RMB ordinary Chen Qingtao 2,092,743 shares Domestically listed Zhang Huiling 1,901,459 foreign shares RMB ordinary Zeng Wei 1,798,800 shares Section IV. Particulars about Directors, Supervisors, Senior Executives & Employees I. Directors, supervisors and senior executives 1. Changes of shares held by directors, supervisors and senior executives: Shares Shares Begin date of office End date of office held at held at Name Title Sex Age term term year-beg year in -end Luo Chairman of the M 48 2010-8-26 2013-8-25 0 0 Guiyou board Yang Director M 54 2010-8-26 2013-8-25 0 0 Fenbo Director, Li Hai M 42 2010-8-26 2013-8-25 0 0 President Zhang Director, CFO M 45 2010-8-26 2013-8-25 0 0 Zebing Yao Zhengwa Director M 36 2010-8-26 2013-8-25 0 0 ng Kong Na Director F 35 2010-8-26 2013-8-25 0 0 Cao Fang Director M 37 2010-8-26 2013-8-25 0 0 Zhang Independent F 43 2010-8-26 2013-8-25 0 0 Xinmiao director Independent Cui Jun M 47 2010-8-26 2013-8-25 0 0 director Independent Li Bing F 36 2010-8-26 2013-8-25 0 0 director Chen Independent M 43 2010-8-26 2013-8-25 0 0 Shujun director Convener of Xiao Yan board of M 43 2011-06-27 2014-06-26 0 0 supervisors Zheng Zhonghua Supervisor M 49 2011-06-27 2014-06-26 11,930 11,930 n Tao Supervisor M 57 2011-06-27 2014-06-26 3,500 3,500 Hualiang Xia Bofu Vice President M 41 2010-10-26 2013-10-25 0 0 Total - - - - - 15,430 15,430 Note: Shares held by directors, supervisors and senior executives have no changes in 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 Yao Shenzhen Guosheng Energy Investment Since October 2006 Zhengw Supervisor Development Co., Ltd. till recently ang 3. Main work experiences of incumbent 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 the Board 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 Risk Control, as well as director, secretary of the Board and convener of supervisory committee of CBC; now he serves as director 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 CFO 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 subsequently served in strategy and development center as well as item arrangement in Life Insurance Ms. Kong Na, 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. Xiao 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. 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. Tao Hualiang, graduated from Northwestern Polytechnic University, an engineer. He successively served as dispatcher of welding plant of the Company, deputy director of pipe workshop, director of general assembly shop, committee of party committee of Longhua 2# plant, manager assistant of enterprise management department, deputy GM of financial & accounting dept. of bicycle division, deputy director of office and director of comprehensive office of the Group; now he serves as commissioner of the party group, deputy secretary of party committee and person in charge of works for the Group. 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 3,197,900 in 2011. 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 Serial Name Total annual remuneration (RMB ‘0000) 1 Li Hai 81.90 2 Xia Bofu 63.75 3 Zhang Zebing 63.75 4 Yao Zhengwang 58.73 5 Zhang Xinmiao 4.00 6 Cui Jun 4.00 7 Li Bing 4.00 8 Chen Shujun 4.00 9 Zheng Zhonghuan 17.83 10 Tao Hualiang 17.83 3. Remuneration of supervisors who leave office in report period: Serial Name Total annual remuneration (RMB ‘0000) 1 Lan Qihua 0 III. Engagement and office-leaving of directors, supervisors and senior executives in report period: 1. Office leaving of directors, supervisors and senior executives: Name Position served previously Reasons for leaving Yao Zhengwang Secretary of the Board Resignation Lan Qihua Supervisor Retired 2. Particulars about engagement of directors, supervisors and senior managerial: (1) The 4th Meeting (extraordinary) of 8th Session of the Board was held on 13 January 2011. Mr. Yao Zhengwang was engaged as secretary 8th Session of the Board with office term same as 8th Session of the Board. (2) Employees Representative Meeting was held on 7 June 2011 by the Company, Mr. Tao Hualiang was elected as 7th Session of staff representative supervisor with office term of 3 years; on 28 June, the first extraordinary shareholders meeting of 2011 was held by the Company, Mr. Xiao Yan and Mr. Zheng Zhonghuan were elected as supervisor of 7th Session of Supervisory Committee with office term of 3 years. (3) The first meeting of 7th Session of supervisory committee was held on 28 June 2011; Mr. XiaoYan was elected as convener of 7th session of supervisory committee with same office term as 7th session of supervisory committee. (4) Mr. Yao Zhengwang resigned secretary of the Board on 22 November 2011; according to relevant regulations of “listing rules for shares in Shenzhen stock exchange”, Chairman Mr. Luo Guiyou was appointed served as secretary of the board. IV. About staff 1. The Company has totally 84 employees at present, including: (1) Classified according to professional/occupational composition: 8 production personnel; 12 salespersons; 32 technicians; 11 financial personnel and 21 administrative personnel. (2) Classified according to the educational background: master degree or above: 2 persons of Master degree, 24 persons of bachelor degree; 19 persons of junior college graduates. Proportion of the personnel with education background of junior college or above in the whole staff: 53.57%. 2. The Company did not need to bear the expenses of retirees. 3. Other personnel: 43 persons Section V. Corporate Governance Structure I. Corporate Governance 1. Status of 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. During report period, in line with relevant regulations of Company Law, Securities Law, Accounting Law and Article of Association of the Company, the Company formulated the “Management Mechanism of Financial Principal of Shenzhen China Bicycle Company (Holdings) Limited” with purpose of normalized behavior of financial principal, strengthen finance supervision and perfected internal supervision mechanism within the Company, which was deliberated and approved in 4th Meeting (interim) of 8th Session of the Board held on 13 January 2011. Perfected construction of mechanism furtherly and guarantee standardized operation and healthy development of the Company. 2. No un-revealed information is provided to largest shareholder and actual control non-standard by the Company within report period. II. Particulars about performance of independent directors In the report period, required by relevant laws and regulations, independent directors of the Company earnestly fulfill their responsibility, exercise rights bestowed by the Company cautious, seriously and diligently, took part in work of special committees of the board of directors, meeting of the board of directors and general shareholders’ meeting proactively, and expressed independent and objective opinions on significant events based on their own professional knowledge, which contributed a lot in development of the Company. In 2011, particulars about independent directors attending the Board Meeting are as follows: Name of Attendance by Attendance On-site Entrusted Absence independent communicatio required present presence (times) director n Zhang Xinmiao 5 2 3 0 0 Cui Jun 5 2 3 0 0 Li Bing 5 1 3 1 0 Chen Shujun 5 2 3 0 0 In the report period, independent directors of the Company had no different opinions on various proposals approved by the Board of Directors of the Company or other significant events. III. Separation from the Controlling Company in respect of Business, Personnel, Organization and Finance etc. The Company totally separated its Business, Personnel, Organization and Finance etc. with majority shareholders and related parties, and had independent and complete operation ability. IV. Establishment and implementation of appraisal and incentive mechanism as well as relevant award mechanism by senior managers The Company preliminary formulated a publicly and transparency performance appraisal standards and incentive & restraint mechanism for directors, supervisors and managers. Engagement of senior managers is publicly and transparency with regulations of laws required. On 20 May 2011, the “Interim Measures of Annual Performance Appraisal for Senior Managers of Shenzhen China Bicycle Company (Holdings) Limited” and “Proposal of Award of Management Team for year of 2010 of CBC” were deliberated and approved in 20th Meeting of Shareholder’s Genial Meeting (for year of 2010). Section VI. Internal Control I. Internal control of the Company 1. The organizational structure of the internal control of the Company According to the Corporation Law, the Company establishes the general meeting of stockholders, the board of directors, the board of supervisors, and operating and management team. The board of directors establishes remuneration and assessment committee, and the audit committee; the management of the Company has one office and eight departments, there into, the Group sets up general affairs office, management department, human resource department, financial department and audit department. The secondary company includes Shenzhen Emmelle Industry Co., Ltd. (hereinafter referred to as Emmelle company), Shenzhen An Jule Property Management Co., Ltd. (hereinafter referred to as An Jule company), the four departments of Emmelle company are directly managed by the Group company, including product department, quality control department, sales department, manufacturing department and financial department, An Jule company sets up general manager office, financial department, operating and management department, and three administrative offices for Zhonghua Garden, Shuibei, and Zhonghua industrial park. Shareholders’ General Meeting Supervisory Committee Board of Directors Auditing Committee Remuneration and Evaluation Committee Management Chart of the Group and EMMELLE Management Comprehensive Management H & R Financial Auditing EMMELLE Anjule Co., o f f i c e d i v i s i o n Dept. Dept. C o . , 2. General description of internal control The Company strictly follows the Securities Law, the Corporation Law and the laws and regulations of China Securities Regulatory Commission related to governance of listed companies, constantly improves and standardize the organizational structure of the internal control of the Company, insures the standardized operations of the general meeting of stockholders, the board of directors and the board of supervisors, and maintains the interests for both Company and investor. According to the rules of the basic norms of enterprise internal control, the fundamental systems of internal control of the Company and the internal auditing system, the Company establishes and implements effective internal control, including: (1) Internal environment: According to relevant laws and regulations of the Country and articles of association, the Company establishes normative corporate governance structure and rules of procedure, defines the duty and limits of authority about decision, implementation and supervision, and forms a scientific and effective assignment of responsibility and counterbalance mechanism. (2) Risk assessment: Achieve business compliance, assets security, authenticity and completeness of financial report, and improve business efficiency and promote the enterprise to realize the goal of development strategy. (3) Control activity: Sets up separation control for incompatible positions, formulates authorization and approval control system, accounting system control, property protection control, operation analysis control, performance assessment control, budget control, internal report control, and information system control so as to process internal control to daily financial activity and business operation. (4) Information and communication: Control by confirming information communication channel, completing information transfer procedure, and insuring the operational security of information system. (5) Internal supervision: The audit department of the Company regularly carries out annual operational audit to the secondary companies at the end of each year, inspects the implementation of financial system of the subordinates, the compliance of financial accounting, the security of assets management, management efficiency and business performance, puts forward auditing suggestions, points out the existing problems and risks, and supervise and urge the rectification and reformation. Test and evaluate the implementation of internal control to day-to-day business procedures, supervise and track the implementation of internal control system and relevant procedures, process special audit according to the arrangement of leadership of the Company at any time, and safeguard against the operational risks. 3. Main control activities of the Company (1) The internal control and management to the holding subsidiaries: The subsidiaries include Emmelle company and An Jule company, Emmelle company undertakes the operating activities for main business of Shenzhen China Bicycle Co., Ltd., whose business and personnel is directly managed and controlled by the Group headquarter, An Jule company who undertakes the property management responsibilities for Zhonghua Garden, Shuibei industrial park, and Zhonghua industrial park possesses independent and complete organizational structure for internal control, independent management and independent accounting, independently processes day-to-day business within budget according to authorized power of examination and approval, reports the major items and extra budgetary business to functional departments of the Group and vice president in charge and implements after approved by the president, the general manager and finance manager are appointed by the Group, and other personnel is selected and engaged as needed by An Jule company and reported to the Group. (2) Related transactions: The Company has formulated decision-making system for related transactions and special system for preventing controlling shareholder and related party from using funds, manages related transactions according to relevant rules, and did not have any related transactions with the related party in 2011. (3) External guarantee: The Company has managed guarantee issues in accordance with the provisions of the loan guarantee management system, and did not have any guarantee business in 2011. (4) Utilization management of raised funds: The Company has not raised funds in any way in recent years; the initial funds raised for going public have been used correspondingly and approved according to the limits of authority regulated by the Articles of Association. (5) Management of investments abroad: The Company has taken back investment money of 4.56 million yuan from Hunan Guangyang and has disclosed according to the rules. The Company does not have any investments abroad for the recent years, and the Articles of Association and provisions of approval and expense reimbursement for financial activities have made specific norms for the approval authority of funds utilization. (6) Sales and collection management: The Company sells products by authorizing the dealership, issues authorization certificate of Emmelle dealers to the dealers, and both sides sign the distribution agreement of Emmelle products and define the payment. The Company adopts the marketing principle of payment before delivery for the common medium and small dealers, and the financial department chops and informs the delivery based on the bank payment documentations, meanwhile, gives limits of deferred payment for main dealers in Shandong Henan, Jiangsu and Hebei and support dealers in Shanxi, Xinjiang. The limit of deferred payment slightly differs because of rush and off season, the Company adjusts the limit every year according to the delivery of goods to the dealers, deadline of deferred payment is normally within two weeks, the latest collection date for the dealers shall not be later than the payment date for the OEM factories so as to control the collection risks. The dealers apply for the deferred payment; the Company examines and approves the order one by one based on the approval process; the finance manager of the Group examines and approves the orders within the limit, and only the president of the Group can approve the application for deferred payment beyond the limit. The sales accountant works out the statement and report of deferred payment (delivery) every week and track and hint the due date, and the documents making personnel in sales department takes charge of the overdue receivables. In 2011, all deferred payments have been taken back, and there is no loss on bad debts. (7) Purchase and payment management: the products researched and developed by the Company are produced in subcontracting (OEM operation) way, the Company issues authorization certificate of Emmelle OEM manufacturer, and sign the manufacturing consignment agreement with OEM factory, and define the payment and deadline, the deadline of the payment is always three weeks to one month after delivery. Both sides negotiate and re-sign the agreement for next year at the end of each year. The sales department fills in the payment application form according to the actual shipped quantity and agreed price, the finance department examines and verifies the original payment documents and makes payment by strictly following the approval process. There is no abnormal payment in 2011. (8) Production and quality management: The quality control department of the Company appoints quality inspectors to the OEM factory, who live in the factory and supervise the overall process of producing Emmelle products, take charge of quality inspection and quantity verification, arrange special warehouse to manage Emmelle trademark, regularly submit purchasing, sales and inventory reports to the Company and report quality abnormality at any time. The representative in the OEM factory plays an important role in guaranteeing the quality of the bicycles of our Company. There is no significant quality event in 2011. (9) Asset operation and management: The Company formulates property management manual, the enterprise management department is responsible for the lease of idle plants and dormitories of the Company, and An Jule Company takes charge of the daily management of property. In 2011, the occupancy rate reaches to 99.13%, and rent collection rate is 98.65%, the daily property management is appropriate and effective except special factors. (10)Information disclosure management: The Company formulates management system of information disclosure, management system for inside information and insiders and the accountability system about significant errors in the Company's annual report disclosure, which clears the fixed and temporary disclosures, disclosure contents, verification and disclosure process, inside information and insiders, and the Company strictly carries out above systems according to the supervision rules. 4. The existing problems and reformation plan of internal control of the Company: In 2011, the Company has carefully arranged 46 key business sub-processes of internal control, and identified 237 risk control points, found 39 control defects, the rectification for business risk defects has been almost completed by the end of the year, and the revise for relevant business management system is still in further improvement. 5. Overall assessment of internal control of the Company (1) The current internal control management system meets the demand of laws and regulations and supervisions of the Country. (2) The internal control system is basically complete and effectively executed, and has played a favorable role in management and control to each department, operation process, and sales and collection so as to effectively guarantee the authenticity and completeness of financial information and security of assets and prevent fraud. (3) The internal control system of the Company can effectively assure the sustainable and stable development of the Company’s operation and protect the interests of shareholders. II. The statement of the board of directors about internal control responsibility of the Company The board of directors of the Company thinks that the self-evaluation report of internal control of this year truthfully reflects the facts of internal control, the board of directors shall undertake the responsibility for establishing and completing the internal control system and its effective operation, and is responsible for development and effective implementation of internal control system. The Company shall constantly complete the internal control system, perfect the corporate governance structure, reduce the production and operation risks and promote standard operation level according to the requirements of Basic norms of enterprise internal control and Guidelines of enterprise internal control III. Opinions of independent director on self-evaluation report of internal control The internal control system established is complete and meets the demand of laws and regulations of the Country and requirements of the supervision department, the internal control system has covered each operation link of the Company, all operating activities of the Company are carried out by strictly following relevant systems; the internal control of the Company to management, related transactions, external guarantee, significant investments and information disclosure of the subsidiaries is strict, sufficient and effective and fits the physical truth of the Company so as to ensure the operation and management of the Company on the rails. The self-evaluation report of internal control of the Company can truthfully, objectively and completely reflect the actual situation of current development, operation and supervision about internal control system IV. The establishment and implementation of accountability system about significant errors in the Company's annual report disclosure According to laws, regulations and normative documents of the Corporation Law, the Accounting Law, Information disclosure management methods of listed company, the Company has formulated the accountability system about significant errors in the annual report information disclosure, annual report working system of independent director, working regulation of annual audit of audit committee of the board of directors and registration system for insiders of the Company, strictly specified the principles, contents and processes of information disclosure, increased accountability force to the person in charge of information disclosure for annual report, and improved the authenticity, accuracy, completeness and timeliness of information disclosure. During the reporting period, there was no correction for significant accounting errors or significant information omissions. Section VII. Brief Introduction to the Shareholders’ General Meeting In the report period, the Company held one Annual Shareholders’ General Meeting and one Extraordinary Shareholders’ General Meeting. Basic information is as follows: 1. The 20th Meeting of Shareholders’ General Meeting (year of 2010) was held on 20 May 2011, meeting resolution released on appointed newspapers and media at same day. 2. The First Extraordinary Shareholders’ General Meeting was held on 28 June 2011, meeting resolution released on appointed newspapers and media at same day. Section VIII. Report of the Board of Directors I. Discussion and analysis of whole operation in the report period 1. Overall operation of main business in the report period In 2011, the European and American debt crisis continued to worsen and spread, the international economic situation was complicated and changing, the macroeconomic regulatory measures at home were in rapid succession, prices kept going up resulting in large amount of increase in prices of raw materials, the market competition of whole bicycles and electric bicycles industry became even more violent, and law cases were constantly carries out. Even though the operating environment was harsh, under the correct leadership of the board of directors, the management of the Company united all personnel to work together, kept forging ahead, positively adjusted management tactics, seriously coped with the action at law and push solving for debt problems, and increased the business and annual profits. Operation income RMB 321.0436 million and net profit RMB 39.7209 was realized by the Company for year of 2011. (1) Electric car and bicycle are main business. In 2011, facing the industry dilemma and actual market situation, the Company positively adjusted management tactics in main business and strengthened the development of selling network terminal, researched and developed products by market-oriented strategy and actively pushed the investment in new products, positively advanced the adjustment for new operation mode, adjusted internal management mechanism, popularized the bicycles, and enhanced the quality control and after-sale service so as to realize the stable development of electric bicycle and bicycle and achieve annual sales revenue of 296.007 million yuan. (2) Property lease and property management business: strengthened property lease business, further used the current inventory property, adopted various ways to enlarge the rentable area, increased the rental income, and improved the cash flow and economic benefits so that the income of property management reached 2.459 million yuan and the income of leasing and other business reached 22,577.8 thousand yuan; there was no safety accident after strengthened the property management business, put the safety management in the first place, realized the normalization for safety management of leasing business, arranged safety training to the lessees and provided safety publicity materials. 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 298,465,700, and profit from main operation amounting to RMB 12,092,400. (1) Statement of main operations classified according to products Unit: RMB’0000 Main operations classified according to industries Increase/de Increase/decr Increase/decr crease in Classified according ease in ease in Operating Operating Gross profit gross profit to industries or operating operating cost income cost ratio (%) ratio over products income over over last year last year last year (%) (%) (%) Bicycles manufacture and sales of 29600.67 28205.26 4.71 8.94 8.46 0.42 accessories and fittings Lease Management 245.90 432.07 -75.71 8.18 13.25 -7.86 Main operations classified according to products Electric vehicle 23649.71 22612.08 4.39 6.66 6.27 0.35 Bicycles 5285.93 4945.05 6.45 7.84 6.93 0.79 Others 665.03 648.13 2.54 581.88 523.38 9.14 Lease Management 245.90 432.07 -75.71 8.18 13.25 -7.86 (2)Particulars about main operations classified according to areas Unit: RMB’0000 Increase/decrease in Areas Operating income operating income over last year (%) Shandong 10267.49 2.68 Henan 6438.39 18.62 Jiangsu 4633.84 16.23 Hebei 3100.31 21.85 Shanghai 676.53 42.84 (3)Major suppliers and customers: in the report period, the purchasing amount of top five suppliers amounted to RMB 247,669,100, taking 91.40% of annual purchasing amount; the sales amount to top five suppliers amounted to RMB 251,165,400, taking 78.23% of annual sales amount. 3. Change on formation of asset and expenses of the Company in the report period. Unit: RMB 2011 2010 Increase/ decrease Proportion Proportion ratio in proportion Amount in total Amount in total in total asset (%) asset(%) asset(%) Monetary fund 24,546,601.39 18.08 17,756,773.58 12.85 5.23 Account 3,869,919.58 2.85 1,732,822.98 1.25 1.60 receivable Other account 25,193,546.89 18.56 18,085,772.89 13.09 5.47 receivable Inventory 14,310,428.28 10.54 21,692,678.29 15.70 -5.16 Long-term equity 2,619,840.50 1.93 2,619,840.50 1.90 0.03 investment Investment real 22,763,296.78 16.77 26,434,648.24 19.13 -2.36 estate Net values of 15,262,689.21 11.24 21,547,992.74 15.60 -4.36 fixed asset 359,993,573.2 384,217,648.0 Short-term loan 265.20 278.10 -12.90 9 9 Other account 394,804,850.7 165,837,025.4 290.84 120.03 170.81 payable 8 0 Long-term loans 452,026,831.8 706,645,180.8 due within one 332.99 511.48 -178.49 8 6 year 2011 2010 +/- (%) Operating expense 7,297,537.55 7,394,867.85 -1.32 Administrative 21,836,655.24 23,792,819.05 -8.22 expense Financial expense 23,619,043.30 64,515,016.00 -63.39 Income tax 0.00 0.00 0.00 Note: Financial expenses decrease 63.39% over same period of last year, mainly because: interest debt are reduce due to debt composition last year, the interest expense correspondingly decreased; and RMB has an obvious appreciation in this year, which generate a major exchange income in book for foreign debt of the Company. 4. Changes on cash flow of the Company Unit: RMB Increase/de Increase/decreas crease Items 2011 2010 e amount proportion (%) Net cash flow arising from 348,907.64 6,495,860.32 -6,146,952.68 -94.63% operating activities Net cash flow arising from 6,440,920.17 -3,471,511.81 9,912,431.98 - investing activities Net cash flow arising from 0.00 -7,500,000.00 7,500,000.00 - financing activities Note: (1) Cash in-flow and out-flow arising from operating activities show a balance in this report period. (2) Net cash flow arising from investing activities in this period increased RMB 9.9124 million over same period of last year, mainly because disposal of equity of Huannan Guangnan Motorcycle and real estate outside the City in this period while RMB 3.4 million was paid for power equipment in CB Industry Park last same period. (3) Net cash flow arising from financing activities in this period amounting to 00.00, while RMB 14 million paid for debt compromise at same period of last year and RMB 6.5 million loans received by EMMELLE, subordinate of the Company. 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 2011 amounted to RMB 33,699,800 and the net profit in 20101 amounted to RMB777, 800. (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 2011 amounted to RMB 1,233,800 and the net profit in 2011 amounted to RMB -3,858,300. (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 has entered into electric bicycle operation field since 2002. After the rapid expansion, the electric bicycle industry has stagnated since 2007. In 2011, strengthening management in rare earth industry and battery industry resulted in short supply for motor battery of the main parts so that the production of electric bicycle was subject to certain restrictions, and the uncertainty of the new standards and its practicing time for electric bicycle industry had a negative impact on the sales of electric bicycle. At the same time, the prices of raw material substantially kept going up at home and abroad which cause the production cost and application cost of electric bicycle rise high so as to influence the tendency of market demand and even the development potential of the whole electric bicycle industry and make the industry competition more violent. 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, striving to realize a substantive improvement of debts restructure of CBC; (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, and thus improve overall operation earnings of the Company; (4) Reinforced team construction, integrity human resources and activated personnel’s enthusiasm. 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 above said issues, on one hand, the Company striving to exploit main business, guarantee sustainable steady development of main business, especially in aspect of the production and sales of electric bicycle and high end bicycles; 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 2011 Financial Report with the disclaimer of opinion. 2. Explanations of the Board of Directors about 2011 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 2011 Auditor’s Report offered by Shenzhen Pengcheng Certified Public Accountants Co., Ltd. Due to that the debt reorganization work of the Company had not been completely finished in 2011, 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: (1) 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 amount to RMB 181,975,338.48, and principal of loans which haven’t been replied totaled to RMB 226,142,959.88, 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 10 financial organizations stop calculating the interest of the Company for 3 years since January 1st of 2002 and at the same time, exempt all the interest payable of the Company (including penalty interest and compound interest) occurred before December 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 January 1st of 2002 to December 31st of 2004. The exempt term was due on December 31st of 2004. The Company held it was not necessary 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 January 1st of 2002 to December 31st of 2004 was not accrued. Besides, the financial debt of the Company was formed in history which had occurred for a long time and the amount of period–end had not changed for years. Body qualification of some creditors had been transferred and the particular personnel for handling had also changed, so the creditors needed time to check clearly the amount of creditor and debt of both involved parties and that was why some creditors had not replied the letters to confirm. The Company would continuously advance the account-check work with the relevant creditors of financial debt, trying as soon as possible to check clearly the interest on principal of the financial debt. Once progress is made, relevant information would be disclosed according to relevant regulation. (2) 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 119,102,157.65. Till the day of auditing report, no reply has been received, so it was impossible for the CPAs to confirm the influence on financial statement of the Company. Due to the Company’s tax payable was formed in the past, which had a long time, there was no newly-increased tax payable in the report period, forming reasons were complex, personnel of specific affairs had changed, and tax department needed time to check clear the debts rights and amounts of both sides, therefore, we are not able to receive confirmation letter from tax department. According to the regulations in Administration of Tax Collection regulated by the State, it is possible to repay the penalties and overdue fine. The Company will continue to follow up the work of checking account of tax department, check clear the amount of tax payable as soon as possible, and will disclose information according to the requirements of relevant regulations if there is some progress. (3) 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. (4) Matters on sustainable operations: Shenzhen Pengcheng Certified Public Accountants thought that, the Company’ asset could seriously not offset the debt; the measures on the reconciliation procedure of the bankruptcy to settle the debts had no material progress and could not be able to get adequate and proper audit evidence to confirm it could effectively improve the continuous operations of the Company; thus, we could not judge whether the financial report 2011 prepared by the Company based on imagined continuous operations was proper. Measures from the Company and largest creditor are as followed: Since March 2002, the promotion on debt restructuring by the former largest creditor of the Company-China Huarong Asset Management Corporation acquired breakthrough development. Relevant department such as China Banking Regulatory Commission approved that all the interests of the financial debts the Company owed ended December 31st, 2004 were exempted and stopped interest calculation. The Company and International Finance Corporation signed Reconciled Agreement on March 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 December 30, 2006, China Huarong Asset Management Corporation transferred its creditor right to Shenzhen Guosheng Energy Investment Development Co., Ltd.( Guosheng Energy Company for short), relevant debt restructure work have been in promotion by Guosheng Energy Company recently and obtained certain progress. Due to the change of largest shareholder of the Company and the implementation of new Bankruptcy Law, Guosheng Energy Company applied to the Shenzhen Intermediate People’s Court in January 2010 for restructuring the Company according to the regulation of Bankruptcy Law, with the purpose of recovering and improving the ability of sustainable operations of the Company. 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 Guosheng Energy Investment and Development Co., Ltd raised up. Besides, Guosheng Energy Company agreed to stop accounting RMB 33.6249 million of loan interests in 2011. This item of interests won’t be received in future years. Previously, Guosheng Energy Company agrees to stop calculating loan interest from 2007 to 2010. In March 2012, Guosheng Energy Company reply a letter to state that agrees to stop calculating loan interest for year of 2012 (approximately as RMB 33 million), the interest will no received in later years. In promoting the work of debt restructure, the Company realized a stable development and profits continuity in main business. The short-term pressure of payment have been released, the ability of sustainable operations got a certain improvement. Board of the Company considered that: as the debt and assets restructure of the Company continuously made progress, the operation environment, operation status and sustainable operation ability would be improved in future. V. Routine Works of Board of Directors (I) Routine works of the Board: Board of Directors of the Company held 5 meetings in total during the report period, and particulars about meetings as follows: 1. On 13 January 2011, the Company held the 4th meeting (interim) of 8th session of the board by means of communication voting. Resolutions were published on appointed newspapers and media. 2. On 25 April 2011, the Company held the 5th meeting of 8th session of the board by means of on-site voting. Resolutions were published on appointed newspapers and media. 3. On 10 June 2011, the Company held the 6th meeting (interim) of 8th session of the board by means of communication voting. Resolutions were published on appointed newspapers and media. 4. On 17 August 2011, the Company held the 7th meeting of 8th session of the board by means of on-site voting. Resolutions were published on appointed newspapers and media. 5. On 24 October 2011, the Company held the 8th meeting (interim) of 8th session of the board by means of communication voting. Resolutions were published on appointed newspapers and media. (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. Performance of the special committee of the board: 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 2011, and the operation achievement and cash flow of the Company in 2011. It is agreed to take these financial statements as basis to carry out the financial audit work of 2011. 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 2011 Annual Report and its Summary, which made it available for the Company to disclose the 2011 Annual Report in time. 4. 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 IV. of this report is real and accurate. VI. Implementation of management of inside information and insiders To guarantee fairness and justice of the information disclosure of the Company, reinforced supervision on privately information, the “Registration System of Insiders” was formulated by the Company in line with relevant laws, regulations and requirement of “Management System of Information Disclosure”. Relevant regulations of inside information, registration filing for insiders, confidential, punishment and accountability were well-defined in the System. No regulatory and administrative penalty from supervision department in report period. VII. Profit distribution preplan or preplan of capitalization 1. As audited by Shenzhen Pengcheng Certified Public Accountants, the profit of the Company amounted to RMB 39.7209 million in 2011. 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 attributable Amount of cash shareholders of listed to shareholders of listed bonus company in consolidated company in consolidated (tax included) statement of bonus year statement 2010 0.00 64,477,414.44 0.00% 2009 0.00 -105,757,549.50 0.00% 2008 0.00 -44,893,006.40 0.00% VIII. Working plan and implementation program for establishing a complete the internal control system To carry out the Basic norms of enterprise internal control (Accounting No.[2008] 7) and Guidelines for enterprise internal control (Accounting No. [2010] 11) published jointly by five ministries and commissions, including Ministry of Finance, Auditing Administration, China Insurance Regulatory Commission, China Banking Regulatory Commission and China Security Regulatory Commission, further strengthen and standardize the internal control of the Company, improve the corporate governance and risk control capability and promote long-term and sustainable development, the Company has developed internal control according to the requirements of notification about completing standard pilot project of internal control for listed companies in Shenzhen (SSRB No.[2011] 31) of Shenzhen Securities Regulatory Bureau, the internal control conditions of the Company in 2011 are as follows: 1. The Company has established a special working group of internal control. At the end of March, 2011, the Company has established a leading group for standard implementation of internal control with three administrative levels; appointed chairman of the board, Mr. Luo Guiyou as the group leader, formulated work responsibilities, divided the work by the post, and developed relevant prophase work, and arranged personnel to take part in the training class for developing internal control of listed companies at the same time. In the first half year of 2011, the Company has arranged personnel to take part in the training class for developing internal control and special training for internal control consultant organized by the supervision department, strengthened the study and publicity of theoretical knowledge and ideology for internal control development. 2. Formulate the work program of standard implementation for internal control. The Company convoked the fifth meeting of the eighth board of directors on 25th, Apr., 2011 and passed the work program of standard implementation for internal control of Shenzhen China Bicycle (Group) Co., Ltd. and disclosed. 3. Work out the development plan of internal control of the Company. Complete the process arrangement of main business and recognize and evaluate the risks before the end of July, 2011; confirm the rectification and reformation program of internal control defects before the end of Aug., 2011; complete the rectification and reformation for internal control defects before the end of Dec., 2011; finish checking the rectification and reformation effects before Dec., 2011. 4. Complete the work plan of self-evaluation of internal control. Seek, rectify and reform the defects of internal control, constantly replenish and perfect internal control system, finish the formulation of work plan for self-evaluation of internal control before 31st, Dec., 2011, arrange and implement the self-evaluation before disclosure of 2011 annual report, and disclose the self-evaluation report of annual internal control. IX. Other items (I) The statement of independent director to accumulative and current external guarantee According to the provision of notice about standardizing the fund transfer between listed companies and related parties and external guarantee of list companies of No. [2003]56 document issued by China Securities Regulatory Commission, and as the independent director of Shenzhen China Bicycle (Group) Co., Ltd., according to special explanation about funds occupation of controlling shareholders and related parties of Shenzhen China Bicycle (Group) Co., Ltd. of Pengcheng No. [2012] 0390 issued by Shenzhen Pengcheng Certified Public Accountants Co., Ltd. and other related data, the accumulative and current external guarantee and illegal guarantee of the Company have been checked, and the explanation of related conditions are as follows: During the reporting period, the Company has not provided guarantee or illegal guarantee for the controlling shareholders or it subordinate enterprises. The guarantee and illegal guarantee provided from 1996 to 1999 belong to problems left over by history, as most part of them can not be repaid by the secured party, the Company has disposed most of the guarantee as estimated liabilities, and the estimated liabilities amount was 179,088,442.92 yuan at the end of last year. During the reporting period, Shenzhen Intermediate People’s Court has ruled that Guangdong Sunrise Holdings Co., Ltd. has completed its reforming plan (common creditor's rights is 30.05%), the Company shall charge off the estimated liabilities of Sunrise Company in the same proportion, the amount was 12,875,490.00 yuan, the estimated liabilities amount of the Company was 166,212,952.92 yuan in the end of 2011 after charging off. (II) Other significant events in report period: 1. Change of actual controller: on Jan. 3 of 2011, Shenzhen Guomin Investment Development Co., Ltd which is controlling shareholder of our major shareholder Shenzhen Guosheng Energy Investment Development Co., Ltd, signed equity transfer agreement, Guomin Investment transferred 100% equity of Guosheng Energy to Mr. Ji Hanfei with price of RMB 70 million. Thus legal representative of Guosheng Energy became Mr. Ji Hanfei instead of Mr. Shang Shijun. This equity transfer belonged to change of actual controller of the Company. In accordance with rules of Administration Method of Purchase of Listed Companies, on Apr. 11 of 2011, we fulfilled disclosure of Detailed Report of Changes in Equity and Simplified Report of Changes in Equity. 2. Creditor’ right transfer: previous creditor Guangdong Shengrun Group Co., Ltd entrusted Shenzhen Run Eastern Auction Co., Ltd to auction RMB 232,801,657.06 of creditor’s right of the Company during bankruptcy and restructure period. On Dec. 13 of 2010 Shenzhen Dongtaixing Technology Co., Ltd bid the above creditor’ right legally; on Jan. 27 of 2011 Shenzhen Medium People’s Court issued civil ruling letter (2010) SZFMQZZi No. 5-12, confirmed barging of buyer Shenzhen Dongtaixing Technology Co., Ltd over the above creditor’ right of Shengrun Company. This transfer didn’t take impact on finance of the Company presently. 3. Particular about reorganization application of the Company from second largest creditor of the Company and withdrawal of an application from the Court: second largest creditor of the Company Shenzhen Dongtaixing Technology Co., Ltd applied bankruptcy reorganization of the Company to Shenzhen Intermediate People’s Court legally in March 2011. The application was not accepted by Shenzhen Intermediate People’s Court due to hindrance of materials of resolution plan, recognized by application and taxation bureau, concerning taxation creditors. In October 2011, the Company received notice from case filing chamber from Shenzhen Intermediate with followed items informed: concerning the reorganization application from Shenzhen Dongtaixing Technology Co., Ltd, in line with “approval regulations for filing of bankruptcy case”, the application consider as withdrawal of an application due to no requirement filing material submitted and no supplementation and correction overdue. 4. Free of interest calculation: On 7 June 2011, the Company received Reply to Letter about Applying for Stopping Calculating 2011 Annual Debt Interest of the Company from major shareholder and largest creditor namely Shenzhen Guosheng Energy Investment Development Co., Ltd (hereinafter referred to as Guosheng Energy): Guosheng Energy agreed to dismiss 2011 annual interests on RMB 9,124,638.59 and USD 62,829,259.02 of debts held from the Company. Interests which were stopped to be calculated above won’t be charged again. The stopping-calculation of interests on debts could put a positive impact on sustainable operation of the Company. Stopped-calculated interests amounted to about RMB 34 million. The Company will deal this account in accordance with relevant accounting policy and relevant rules, and include them in capital reserve, which will not affect gains and losses of the Company. Section IX. 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 2011. 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 5 meetings. 1. Proposal of “Annual Report of 2010” and others are deliberated and approved in 10th Meeting of 6th Session of Supervisory Committee held on 25 April 2011; 2. “Proposal of expiration of 6th Session of Supervisory Committee and candidate election for 7th Session of Supervisory Committee” was deliberated and approved in 11th Meeting of 6th Session of Supervisory Committee held on 10 June 2011; 3. Mr. Xiao Yan elected as convener of 7th session of supervisory committee on 1st meeting of 7th session of supervisory committee held on 28 June 2011; 4. The “Semi-annual Report of 2011” was deliberated and approved in 2nd Meeting of 7th Session of Supervisory Committee held on 17 August 2011; 5. The “Third Quarterly Report of 2011” was deliberated and approved in 3rd Meeting of 7th Session of Supervisory Committee held on 24 October 2011. II. Opinions on relevant issues in 2011 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 2011, 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 2011 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. 7. Opinions on self-assessment of internal control: Pursuit to relevant regulations of CSRC and Shenzhen Stock Exchange, in line with basic principle of internal control, the Company continuous to established and perfected internal control by self actual condition, guarantee normal operation of business activities of the Company and safety and integrity of Company’s assets. No violation of “Guideline of Internal Control for Listed Company”, issued by Shenzhen Stock Exchange, occurred in year of 2011. Self-assessment presents a full, real and accuracy situation of the Company in aspect of internal control. 8. 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 2011. 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. 9. Supervision of implementation of registration mechanism for insider: In report period, after carefully approval of the establishment of “management mechanism of insiders” and execution of registration mechanism for insiders, the supervisory committee takes opinions as: in line with relevant regulations, the Company formulated a “management mechanism of insiders”, strictly implemented information submission and registration procedures; executed management of inside information rigorously, keep insiders from violating regulations for inside dealing by abuse the right to know and inside information leakage, protected majority investors’ legal interest. Section X. 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 VII 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 Note V(7) and (9) 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 and related parties found in the Notes VI 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) Disclosure Actual date Comp date and of lete Guarantee Name of the number of Actual Guarant happening Guarantee Imple for related Company related line of Guarantee type ee limit (Date of term menta party (Yes guaranteed notices of credit signing tion or not) guarantee agreement) or not amount Guangdong Sunrise Joint 1996.07.26 1,960.00 1996-07-26 1,960.00 4 months No No Group Co., Ltd. responsibility Guangdong Sunrise Joint 1999.09.30 477.28 1999-09-30 477.29 12 months No No Group Co., Ltd. responsibility Guangdong Sunrise Joint 1998.04.30 182.00 1998-04-30 182.00 11 months No No Group Co., Ltd. responsibility Guangdong Sunrise Joint 1997.07.30 175.00 1997-07-30 175.00 7 months No No Group Co., Ltd. responsibility Guangdong Sunrise Joint 1997.06.04 210.00 1997-06-04 210.00 8 months No No Group Co., Ltd. responsibility Gintian Industry Joint 1998.10.30 5,000.00 1998-10-30 5,000.00 6 months No No (Group) Co., Ltd. responsibility Shenzhen Tianma Joint 1994.09.30 800.00 1994-09-30 800.00 12 months No No Cosmetics Co., Ltd. responsibility Total external guarantee amount approved in Total actual external guarantee amount approved in 0.00 0.00 reporting period(A1) reporting period(A2) Total external guarantee amount approved at the end Total actual balance of external guarantee amount 0.00 8,804.29 of reporting period(A3) approved at the end of reporting period(A4) Guarantee of the Company for the controlling subsidiaries Disclosure date and Actual date Complete Guarantee Name of the number of of happening Guarantee Actual line Guarantee Guarantee Implemen for related Company related (Date of limit of credit type term tation or party (Yes guaranteed notices of signing not or no) guarantee agreement) amount Shandong Joint Huajiaming 1997.09.03 8.31 1997-09-03 8.31 responsibil 4 months No No Economic and ity Trade Co., Ltd. Zoria Pte Ltd 1996.03.25 7,808.70 1996-03-25 7,808.70 Joint 9 months No No responsibil ity Total guarantee amount for subsidiaries approved in Total actual guarantee amount for subsidiaries 0.00 0.00 reporting period(B1) approved in reporting period(B2) Total actual balance of guarantee amount for Total guarantee amount for subsidiaries approved at 0.00 subsidiaries approved at the end of reporting 7,817.01 the end of reporting period(B3) period(B4) Total guarantee of the Company(Total the former two items)) Total guarantee amount actually occurred in Total guarantee limit approved in period (A1+B1) 0.00 0.00 period (A2+B2) Total guarantee limit approved at period-end Total guarantee amount actually occurred at 0.00 16,621.30 (A3+B3) period-end (A4+B4) Proportion of the total actual guarantee amount (A4+B4)in net assets of the Company -9.88% Including: Line of credit for shareholders, actual controller and its related parties (C) 0.00 The debts guarantee amount provided for the guaranteed parties whose assets-liability ratio exceed 70% directly or 16,621.30 indirectly(D) Proportion of total line of credit in net assets of the Company exceed 50%(E) 0.00 Total amount of the aforesaid three guarantees(C+D+E) 16,621.30 Explanations on possibly bearing joint and several liquidating responsibilities for undue guarantees Naught 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 2011, 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 Main content of talk and Reception place Reception way Person receipted date information provided Office of the Phone Shareholders of Progress of debt restructure 2011 Company communication circulating shares of the Company Section XI. Financial Report (see attachment) Shenzhen China Bicycle Company (Holdings) Limited 2011 Financial Statement Auditors’ Report Content Content Pages I. Auditor’s Report 3-4 II. Audited Financial Statements Consolidation and Balance Sheet of Parent 5-9 Company Consolidation and Profit Statement of Parent 9-10 Company Consolidation and Cash Flow Statement of 11-13 Parent Company Consolidation and Changes of Shareholders' 14-21 Equity of Parent Company III. Notes to Financial Statement 22-73 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 [2012] No.0131 To shareholders of Shenzhen China Bicycle Company (Holdings) Limited: We accepted a commission of auditing the accompanying financial statements of Shenzhen China Bicycle Company (Holdings) Limited (“CBC” or “the Company”), including balance sheet as of 31st December 2011 of consolidated and parent company, profit statement of parent company 2011 and related consolidated profit statement, consolidated cash flow statement and parent company’s cash flow statement, consolidated statement on changes of shareholders’ equity and parent company’s statement on changes of shareholders’ equity and other explanatory notes. I. Management's responsibility for the financial statements Management of Shenzhen China Bicycle Company (Holdings) Limited is responsible for the preparation of these financial statements in a fair presentation. This responsibility includes: (1) preparing financial statements in accordance with the Accounting Standards for Business Enterprises; (2) designing, performing and maintaining internal control related to the preparation and fair presentation of the financial statements that are free from material misstatements, whether due to frauds or errors II. Auditor's responsibility Our responsibility is to express an audit opinion on the financial statement based on auditing regulated in Auditing Rules for Chinese CPA. However, concerning the items described in “III. Disclaimer of Opinion Items”, we obtained no auditing evidence, totally and appropriated, for expressing the audit opinions. III. Disclaimer of Opinion Items 1. During the audit, we have specially implemented the audit procedures such as visit for inspection and inquiry, focusing on the financial debts of CBC which have expired for long time till the end of Dec 31st of 2011. Until the audit report day, the replied letters told that a balance in interest of RMB 156,065,116.2 has been omitted by CBC; besides, some letters were replied to show interest on borrowing principal converting to RMB 346,367,189.44. As to the aforesaid omitted interest balance, the Company provided explanation in Note 10.4 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 2011, in want of verification that whether the unpaid tax, tariff bond and penalty balance was totaling up to RMB 119,102,157.65 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. 38 3. In the process of audit, the information of credit card which we received from the account bank of the Company is not able to be checked whether contingency such as related guarantee information accord with disclosure, for it did not be annually inspected and credit card system did not upgrade related information. Therefore, we implement substitutive audit procedure of field checking the related courts to the claims of the Company caused by external guarantee and overdue loan. However, related courts all only make some oral explanations or provide some information which could only be used as reference. Otherwise, we are not able to implement other efficient audit procedure, so that we are not able to judge the integrity of the contingency and the lawsuits disclosed in Note 7 of the Company and possible effects of the issues on the Company’s financial report. 4. Refer to statement in Note 10, until Dec. 31, 2011, total asset of Shenzhen China Bicycle Company (Holdings) Limited was RMB 135,746,630.93; total liability was RMB 1,818,586,298.41; net asset was RMB -1,682,839,667.48 with debts beyond assets. Net profit earned for 2011 amounting to RMB 39,720,901.46 mainly generated from, that debt restructuring plan of Guangdong Sunrise Holdings Co., Ltd., a second largest creditor of the Company, was completed ruling from Shenzhen Intermediate People’s Court, the debt accrued in previously and accrued liability, as an unpaid account, reckoned into non-operation income; and disposal income from auction of real estate located in Huaqiang South by the Court. Though CBC disclosed improving methods in Note 10.3 of financial statement, however, the second largest creditor Shenzhen Dongtaixing Technology Co., Ltd. applied to Shenzhen Intermediate People’s Court for restructure of CBC according to Bankruptcy Law in March 2011. Due to the un-completed filing materials required for submitted on time and other reasons, the application was withdrawal notify by Shenzhen Intermediate People’s Court in October 2011, 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 2011 of China Bicycle that prepared under the sustainable hypothesis, we fail to judge. IV. Declaimer of Opinion Concerning the importance of presentation in “III. Disclaimer of Opinion Items”, we obtained no auditing evidence, totally and appropriated, for expressing the audit opinions. Thus, we express no auditing opinion on financial statement under the name of Shenzhen China Bicycle Company (Holdings) Limited. Shenzhen Pengcheng Certified Public Chinese CPA Accountants Shenzhen P. R. C April 2012 Lv Yali Chinese CPA Yang Shengqiao 39 Shenzhen China Bicycle Company (Holdings) Limited Financial Statement Consolidated Balance Sheet 2011-12-31 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 24,546,601.39 17,756,773.58 Settlement provisions - Capital lent - Transaction finance asset - Notes receivable V.2 1,000,000.00 2,619,699.00 Accounts receivable V.3 3,869,919.58 1,732,822.98 Accounts paid in advance V.4 1,588,743.08 213,423.41 Insurance receivable - Reinsurance receivables - Contract reserve of - reinsurance receivable Interest receivable - Dividend receivable - Other receivables V.5 25,193,546.89 18,085,772.89 Purchase restituted finance asset Inventories V.6 14,310,428.28 21,692,678.29 Non-current asset due within - one year Other current assets - - Total current assets 70,509,239.22 62,101,170.15 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 22,763,296.78 26,434,648.24 Fixed assets: V.9 15,262,689.21 21,547,992.74 Construction in progress - Engineering material - Disposal of fixed asset - Productive biological asset - Oil and gas asset - Intangible assets V.10 24,591,565.22 25,454,427.26 Expense on Research and - Development Goodwill - - Long-term expenses to be - - apportioned Deferred income tax asset - - Other non-current asset - - Total non-current asset 65,237,391.71 76,056,908.74 Total assets 135,746,630.93 138,158,078.89 40 Consolidated Balance Sheet (Contd) 2011-12-31 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.12 359,993,573.29 384,217,648.09 Loan from central bank - Absorbing deposit and interbank - deposit Capital borrowed - Transaction financial liabilities - Notes payable - Accounts payable V.13 116,792,484.21 125,628,122.72 Accounts received in advance V.14 15,817,538.51 16,661,602.20 Selling financial asset of repurchase - Commission charge and - commission payable Wage payable V.15 4,093,942.70 3,802,240.39 Taxes payable V.16 98,407,104.67 98,218,863.73 Interest payable V.17 207,999,625.50 213,488,233.36 Dividend payable - Other accounts payable V.18 394,804,850.78 165,837,025.40 Reinsurance payables - Insurance contract reserve - Security trading of agency - Security sales of agency - Non-current liabilities due within 1 452,026,831.88 706,645,180.86 year V.19 Other current liabilities V.20 2,437,393.95 756,162.09 Total current liabilities 1,652,373,345.49 1,715,255,078.84 Non-current liabilities: - Long-term loans - Bonds payable - Long-term account payable - Special accounts payable - Accrual liabilities V.21 166,212,952.92 179,088,442.92 Deferred income tax liabilities - Other non-current liabilities - Total non-current liabilities 166,212,952.92 179,088,442.92 Total liabilities 1,818,586,298.41 1,894,343,521.76 Shareholders’ equity): Paid-in capital (or share capital) V.22 551,347,947.00 551,347,947.00 Capital public reserve V.23 460,757,567.84 427,132,693.91 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 -2,727,618,409.33 -2,767,339,310.79 Balance difference of foreign - currency translation Total shareholders’ equity attributable to -1,682,839,667.48 -1,756,185,442.87 parent company Minority interests - Total shareholders’ equity -1,682,839,667.48 -1,756,185,442.87 Total liabilities and shareholders’ equity 135,746,630.93 138,158,078.89 41 Balance Sheet of Parent Company 2011-12-31 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Item Notes Amount at period-end Amount at year-begin Current assets: Monetary funds 561,283.08 498,624.71 Transaction finance asset - Notes receivable - Accounts receivable XI.1 1,014,896.60 1,384,353.23 Accounts paid in advance - Interest receivable - Dividend receivable - Other receivables XI.2 46,917,137.01 30,529,810.28 Inventories 9,943,662.01 14,965,196.51 Non-current asset due within one year - Other current assets - Total current assets 58,436,978.70 47,377,984.73 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 22,763,296.78 26,434,648.24 Fixed assets: 14,905,640.82 21,221,962.11 Construction in progress - Engineering material - Disposal of fixed asset - Productive biological asset - Oil and gas asset - Intangible assets 24,591,565.22 25,454,427.26 Expense on Research and Development - Goodwill - Long-term expenses to be apportioned - Deferred income tax asset - Other non-current asset - Total non-current asset 64,880,343.32 75,730,878.11 Total assets 123,317,322.02 123,108,862.84 42 Balance Sheet of Parent Company (Contd) 2011-12-31 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 321,902,898.37 332,017,261.07 Transaction financial liabilities - Notes payable - Accounts payable 126,706,858.84 148,454,726.88 Accounts received in advance 10,664,592.85 10,664,592.85 Wage payable 2,418,776.27 2,372,320.02 Taxes payable 95,009,521.54 95,784,336.55 Interest payable 207,999,625.50 213,488,233.36 Dividend payable - Other accounts payable 351,172,801.22 120,844,911.76 Non-current liabilities due within 1 year 452,026,831.88 706,645,180.86 Other current liabilities 2,320,660.19 726,612.09 Total current liabilities 1,570,222,566.66 1,630,998,175.44 Non-current liabilities: Long-term loans - Bonds payable - Long-term account payable - Special accounts payable - Accrual liabilities 166,212,952.92 179,088,442.92 Deferred income tax liabilities - Other non-current liabilities - Total non-current liabilities 166,212,952.92 179,088,442.92 Total liabilities 1,736,435,519.58 1,810,086,618.36 Owner’s equity (or shareholders’ equity): Paid-in capital (or share capital) 551,347,947.00 551,347,947.00 Capital public reserve 460,757,567.84 427,132,693.91 Less: Inventory shares - Reasonable reserve - Surplus public reserve 32,673,227.01 32,673,227.01 Provision of general risk - Retained profit -2,657,896,939.41 -2,698,131,623.44 Total owner’s equity(or shareholders’ equity) attributable to parent company -1,613,118,197.56 -1,686,977,755.52 Total liabilities and owner’s equity(or shareholders’ equity) 123,317,322.02 123,108,862.84 43 Consolidated Profit Statement Year of 2011 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 321,043,570.34 299,027,279.43 Including: Operating income V.26 321,043,570.34 299,027,279.43 Interest income - Insurance gained - Commission charge and commission income - II. Total operating cost 350,534,243.15 374,381,117.43 Including: Operating cost V.26 297,448,254.06 280,127,985.48 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.27 603,970.92 311,455.58 Sales expenses V.28 7,297,537.55 7,394,867.85 Administration expenses V.29 21,836,655.24 23,792,819.05 Financial expenses V.30 23,619,043.30 64,515,016.00 Losses of devaluation of asset V.31 -271,217.92 -1,761,026.53 Add: Changing income of fair value (Loss is listed with “-”) - Investment income (Loss is listed with “-”) 4,560,000.00 - Including: Investment income on affiliated company and joint venture - Exchange income (Loss is listed with “-”) III. Operating profit (Loss is listed with “-”) -24,930,672.81 -75,353,838.00 Add: Non-operating income V.32 64,921,817.27 139,887,804.23 Less: Non-operating expense V.33 270,243.00 56,551.79 Including: Disposal loss of non-current asset - IV. Total Profit (Loss is listed with “-”) 39,720,901.46 64,477,414.44 Less: Income tax - V. Net profit (Net loss is listed with “-”) 39,720,901.46 64,477,414.44 Net profit attributable to shareholders of parent company 39,720,901.46 64,477,414.44 Minority shareholders’ gains and losses VI. Earnings per share i. Basic earnings per share V.34 0.072 0.1169 ii. Diluted earnings per share V.34 0.072 0.1169 VII. Other consolidated income - VIII. Total consolidated income 39,720,901.46 64,477,414.44 Total consolidated income attributable to owners of parent company 39,720,901.46 64,477,414.44 Total consolidated income attributable to minority shareholders - - 44 Profit Statement of Parent Company Year of 2011 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 28,577,538.32 28,532,157.84 Less: Operating cost XI.4 13,822,797.20 16,520,738.87 Business taxes and surtax - Sales expenses - Administration expenses 19,353,562.21 21,709,094.88 Financial expenses 26,267,688.54 66,242,149.40 Losses of devaluation of asset -1,926,719.39 -2,197,612.45 Add: Changing income of fair value(Loss is listed with “-”) - Investment income (Loss is listed with “-”) 4,560,000.00 - Including: Investment income on affiliated company and joint venture - II. Operating profit (Loss is listed with “-”) -24,379,790.24 -73,742,212.86 Add: Non-operating income 64,884,717.27 139,881,904.23 Less: Non-operating expense 270,243.00 19,066.69 Including: Disposal loss of non-current asset - III. Total Profit (Loss is listed with “-”) 40,234,684.03 66,120,624.68 Less: Income tax - IV. Net profit (Net loss is listed with “-”) 40,234,684.03 66,120,624.68 Legal representative: _____________ Person in charge of accounting works: _____________ Person in charge of accounting organ: _____________ Consolidated Cash Flow Statement Year of 2011 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 192,678,564.98 178,552,968.97 providing labor services Net increase of customer deposit and interbank deposit - Net increase of loan from central bank - Net increase of capital borrowed from other financial institution - Cash received from original insurance contract fee - Net cash received from reinsurance business - Insured savings and net increase of investment - Net increase of disposal of transaction financial asset - Cash received from interest, commission charge and commission - Net increase of capital borrowed - Net increase of returned business capital - Write-back of tax received 254,666.00 Other cash received concerning operating activities V. 35(1) 27,021,621.81 22,290,096.28 45 Subtotal of cash inflow arising from operating 219,700,186.79 201,097,731.25 activities Cash paid for purchasing commodities and receiving 178,176,217.18 156,229,830.72 labor service Net increase of customer loans and advances - Net increase of deposits in central bank and interbank - Cash paid for original insurance contract compensation - Cash paid for interest, commission charge and commission - Cash paid for bonus of guarantee slip - Cash paid to/for staff and workers 14,107,936.61 15,747,757.29 Taxes paid 8,623,563.12 4,849,679.50 Other cash paid concerning operating activities V. 35(2) 18,443,562.24 17,774,603.42 Subtotal of cash outflow arising from operating activities 219,351,279.15 194,601,870.93 Net cash flows arising from operating activities 348,907.64 6,495,860.32 II. Cash flows arising from investing activities: Cash received from recovering investment 4,560,000.00 - Cash received from investment income - - Net cash received from disposal of fixed, intangible and other long-term assets 2,017,500.00 - Net cash received from disposal of subsidiaries and other units - Other cash received concerning investing activities - Subtotal of cash inflow from investing activities 6,577,500.00 - Cash paid for purchasing fixed, intangible and other 136,579.83 3,471,511.81 long-term assets Cash paid for investment - Net increase of mortgaged loans - Net cash received from subsidiaries and other units - Other cash paid concerning investing activities - Subtotal of cash outflow from investing activities 136,579.83 3,471,511.81 Net cash flows arising from investing activities 6,440,920.17 -3,471,511.81 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 activities V. 35(3) 6,500,000.00 Subtotal of cash inflow from financing activities 6,500,000.00 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 activities 14,000,000.00 Net cash flows arising from financing activities -7,500,000.00 IV. Influence on cash due to fluctuation in exchange rate - V. Net increase of cash and cash equivalents 6,789,827.81 -4,475,651.49 Add: Balance of cash and cash equivalents at the 17,756,773.58 22,232,425.07 period -begin VI. Balance of cash and cash equivalents at the period 24,546,601.39 17,756,773.58 -end 46 Cash Flow Statement of Parent Company Year of 2011 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 9,450.00 - Write-back of tax received 254,666.00 Other cash received concerning operating activities 22,442,656.09 38,601,004.58 Subtotal of cash inflow arising from operating activities 22,452,106.09 38,855,670.58 Cash paid for purchasing commodities and receiving labor service 160,000.00 - Cash paid to/for staff and workers 6,510,771.79 1,646,015.22 Taxes paid 4,668,195.69 2,716,046.50 Other cash paid concerning operating activities 11,026,378.53 16,909,478.19 Subtotal of cash outflow arising from operating activities 22,365,346.01 21,271,539.91 Net cash flows arising from operating activities 86,760.08 17,584,130.67 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 24,101.71 3,450,627.02 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 24,101.71 3,450,627.02 Net cash flows arising from investing activities -24,101.71 -3,450,627.02 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 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 62,658.37 133,503.65 47 Add: Balance of cash and cash equivalents at the period -begin 498,624.71 365,121.06 VI. Balance of cash and cash equivalents at the period–end 561,283.08 498,624.71 48 Consolidated Statement on Changes of Shareholders' Equity Year of 2011 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 Less: Reasona Minority’s Total owners’ Paid-up capital Capital Surplus General risk equity equity Treasury ble Retained profit Others (Share capital) reserves reserves provision Stock reserve 427,132,693.9 -2,767,339,310. -1,756,185,442. I. Balance at the end of the last year 551,347,947.00 32,673,227.01 1 - - - 79 - - 87 Add: Changes of accounting policy - - - - - - - - - - Error correction of the last period - - - - - - - - - - Others - - - - - - - - - - 427,132,693.9 -2,767,339,310. -1,756,185,442. II. Balance at the beginning of this year 551,347,947.00 32,673,227.01 1 - - - 79 - - 87 III. Increase/ Decrease in this year 33,624,873.93 39,720,901.46 73,345,775.39 (Decrease is listed with “-”) (I) Net profit 39,720,901.46 39,720,901.46 (II) Other consolidated income Subtotal of (I) and (II) 39,720,901.46 (III) Owners’ devoted and decreased 33,624,873.93 33,624,873.93 capital 1. Owners’ devoted capital 2. Amount calculated into owners’ equity paid in shares 3. Others 33,624,873.93 33,624,873.93 (IV) Profit distribution 1. Withdrawal of surplus reserves - - - - - - - - - - 2. Withdrawal of general risk provisions - - - - - - - - - - 3. Distribution for owners (shareholders) - - - - - - - - - - 4. Others - - - - - - - - - - (V) Carrying forward internal owners’ equity - - - - - - - 1. Capital reserves conversed to capital (share capital) - - - - - - - 2. Surplus reserves conversed to capital (share capital) - - - - - - - - - - 3. Remedying loss with surplus reserve - - - - - - - - - - 4. Others - - - - - - - - - - (VI) Reasonable reserve - - - - - - - - - - 49 Amount in this report period Owners’ equity attributable to the parent company Items Less: Reasona Minority’s Total owners’ Paid-up capital Capital Surplus General risk equity equity Treasury ble Retained profit Others (Share capital) reserves reserves provision Stock reserve 1. Withdrawal in the report period - - - - - - - - - - 2. Usage in the report period - - - - - - - - - - (VII) Other - - - - - - - - - - 460,757,567.8 -2,727,618,409. -1,682,839,667. IV. Balance at end of the period 551,347,947.00 32,673,227.01 4 33 48 50 Consolidated Statement on Changes of Shareholders' Equity Year of 2011 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Amount in same period of last year Owners’ equity attributable to the parent company Items Less: Reason Minority’s Total owners’ Paid-up capital Capital Surplus General risk equity equity Treasury able Retained profit Others (Share capital) reserves reserves provision Stock reserve 458,695,975.5 -2,831,816,725. I. Balance at the end of the last year 479,433,003.00 5 - - 32,673,227.01 - 23 - - -1,861,014,519.67 Add: Changes of accounting policy - - - - - - - - - - Error correction of the last period - - - - - - - - - - Others - - - - - - - - - - 458,695,975.5 -2,831,816,725. II. Balance at the beginning of this year 479,433,003.00 5 - - 32,673,227.01 - 23 - - -1,861,014,519.67 III. Increase/ Decrease in this year -31,563,281.6 71,914,944.00 64,477,414.44 104,829,076.80 (Decrease is listed with “-”) 4 - - - - - - (I) Net profit - - - - - - 64,477,414.44 - - 64,477,414.44 (II) Other consolidated income - - - - - - - - - - Subtotal of (I) and (II) - - - - - - 64,477,414.44 - - 64,477,414.44 (III) Owners’ devoted and decreased 40,351,662.36 40,351,662.36 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 owners’ -71,914,944.0 71,914,944.00 equity 0 - - - - - - - - 1. Capital reserves conversed to capital -71,914,944.0 71,914,944.00 (share capital) 0 - - - - - - - - 2. Surplus reserves conversed to capital (share capital) - - - - - - - - - - 3. Remedying loss with surplus reserve - - - - - - - - - - 51 Amount in same period of last year Owners’ equity attributable to the parent company Items Less: Reason Minority’s Total owners’ Paid-up capital Capital Surplus General risk equity equity Treasury able Retained profit Others (Share capital) reserves reserves provision Stock reserve 4. Others - - - - - - - - - - (VI) Reasonable reserve - - - - - - - - - - 1. Withdrawal in the report period - - - - - - - - - - 2. Usage in the report period - - - - - - - - - - (VII) Other - - - - - - - - - - 427,132,693.9 -2,767,339,310. IV. Balance at end of the period 551,347,947.00 32,673,227.01 -1,756,185,442.87 1 - - - 79 - - Legal representative: _____________ Person in charge of accounting works: _____________ Person in charge of accounting organ: ___ 52 Statement on Changes of Shareholders’ Equity of Parent Company Year of 2011 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Amount in this report period Items Paid-up capital Less: Treasury Reasonable General risk Total owners’ Capital reserves Surplus reserves Retained profit (Share capital) Stock reserve provision equity -2,698,131,623. -1,686,977,755. I. Balance at the end of the last year 551,347,947.00 427,132,693.91 32,673,227.01 - - - 44 52 Add: Changes of accounting policy - - - - - - - - Error correction of the last period - - - - - - - - Others - - - - - - - - -2,698,131,623. -1,686,977,755. II. Balance at the beginning of this year 551,347,947.00 427,132,693.91 32,673,227.01 - - - 44 52 III. Increase/ Decrease in this year 33,624,873.93 - 40,234,684.03 73,859,557.96 (Decrease is listed with “-”) (I) Net profit 40,234,684.03 40,234,684.03 (II) Other consolidated income Subtotal of (I) and (II) - 40,234,684.03 40,234,684.03 (III) Owners’ devoted and decreased 33,624,873.93 33,624,873.93 capital 1. Owners’ devoted capital 2. Amount calculated into owners’ equity paid in shares 3. Others 33,624,873.93 33,624,873.93 (IV) Profit distribution 1. Withdrawal of surplus reserves 2. Withdrawal of general risk provisions 3. Distribution for owners (shareholders) 4. Others (V) Carrying forward internal owners’ equity 1. Capital reserves conversed to capital (share capital) 2. Surplus reserves conversed to capital (share capital) 3. Remedying loss with profit surplus 4. Others (VI) Reasonable reserve 1. Withdrawal in the report period 2. Usage in the report period (VII) Other IV. Balance at period end 551,347,947.00 460,757,567.84 32,673,227.01 -2,657,896,939. -1,613,118,197. 53 Amount in this report period Items Paid-up capital Less: Treasury Reasonable General risk Total owners’ Capital reserves Surplus reserves Retained profit (Share capital) Stock reserve provision equity 41 56 Legal representative: _____________ Person in charge of accounting works: _____________ Person in charge of accounting organ: _____________ 54 Statement on Changes of Shareholders’ Equity of Parent Company Year of 2011 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Currency: CNY Amount in same period of last year Item Paid-up capital Less: Treasury Reasonable General risk Total owners’ Capital reserves Surplus reserves Retained profit (Share capital) Stock reserve provision equity -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 - - 32,673,227.01 - 12 56 Add: Changes of accounting policy - - - - - - - - Error correction of the last period - - - - - - - - Others - - - - - - - - -2,764,252,248. -1,793,450,042. II. Balance at the beginning of this year 479,433,003.00 458,695,975.55 - - 32,673,227.01 - 12 56 III. Increase/ Decrease in this year (Decrease is listed with “-”) 71,914,944.00 -31,563,281.64 - - - - 66,120,624.68 106,472,287.04 (I) Net profit - - - - - - 66,120,624.68 66,120,624.68 (II) Other consolidated income - - - - - - - - Subtotal of (I) and (II) - - - - - - 66,120,624.68 66,120,624.68 (III) Owners’ devoted and decreased capital - 40,351,662.36 - - - - - 40,351,662.36 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 owners’ equity 71,914,944.00 -71,914,944.00 - - - - - - 1. Capital reserves conversed to capital (share capital) 71,914,944.00 -71,914,944.00 - - - - - - 2. Surplus reserves conversed to capital (share capital) - - - - - - - - 3. Remedying loss with profit surplus - - - - - - - - 4. Others - - - - - - - - (VI) Reasonable reserve - - - - - - - - 55 Amount in same period of last year Item Paid-up capital Less: Treasury Reasonable General risk Total owners’ Capital reserves Surplus reserves Retained profit (Share capital) Stock reserve provision equity 1. Withdrawal in the report period - - - - - - - - 2. Usage in the report period - - - - - - - - (VII) Other - - - - - - - - -2,698,131,623. -1,686,977,755. IV. Balance at period end 551,347,947.00 427,132,693.91 32,673,227.01 - - - 44 52 Legal representative: _____________ Person in charge of accounting works: _____________ Person in charge of accounting organ: _____________ 56 Shenzhen China Bicycle Company (Holdings) Limited Notes to Financial Statement Year of 2011 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 10th meeting of the 8th Session of the Board held on 19 April 2012. 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 2011, total assets of the Company amounting to RMB 135,746,630.93, the liability were RMB 1,818,586,298.41 in total, net assets amounting to RMB -1,682,839,667.48which 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 2011 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 and fully reflects such related information as financial status as of 31 December 2011, operation achievement and cash flows of the Company and parent company for 2011. 57 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. 58 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. Foreign 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 and the original standards currency shall be recorded into the profits and losses at the current period as the changes of the fair value. 59 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 assets 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 Assets 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 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: 60 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 An impairment test shall be made on the financial Withdrawal method on single significant amount and assets with significant single amounts. The with bad debt provision accrued for single item impairment-related losses shall be recognized to prepare the provisions for bad debts according to the 61 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 owns 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 receivable Accrued ratio for other account Age (%) 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: 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. 62 12. Long-term equity investment Determination of investment cost A. Recognized investment cost by followed for the long-term equity investment formed 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 equity 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 face 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 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, taxes 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 equity 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. e. Long-term equity investment obtained through debt reorganization, recognized investment cost based on fair value and relevant taxes. (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 can’t co-control nor has no material influence on the unit and there is no quotation on the market or the fair value is reliable. The long-term equity 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 equity 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 long-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 63 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 loss. 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 profits 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 influence on the invested unit Co-control refers to a contract-based joint control over a certain economic 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 estate 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 statues that predicted. (3) Cost of investment real estate obtained from other means, recognized cost according to relevant accounting standards. 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, reckoned 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 financial 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 years of Yearly depreciation rate Categories Scrap value rate (%) depreciation(years) (%) Housing buildings 20 10 4.5 Machines and equipment 10 10 9 Office equipment 5 10 18 64 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 than 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 are the book value of the long-term accounts payable, their difference is being regarded as financing 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 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: 65 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 have 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. Accrued Liabilities A. The duty or the duty relevant with the matter shall be confirmed as the accrued liability, 66 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 accrued liabilities, which are expected to be compensated by the third party, and when the compensation amount can be received only once it is basically 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; 67 2/ the taxable income used for deductible temporary differences are 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 are unlikely to be reversed in the foreseeable future. 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 finial statement No other preparation for accounting policies, accounting estimation and finial 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, 17% Value added tax maintenance, making repairs and supplying 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 3% Educational surtax payable Business income tax * Taxable income 24% *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 2011 was actually 24%. 68 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 Cons Balance of Amount for loss of current period olida other items offsetting the shared by minor propo Propo ted Busi Actual amount actually gain and loss of shareholders and offset Registra rtion rtion repor Minor ness Registered Business subscribed at forming the minor with parent company Full name Type tion of of t shareholders natur capital scope the end of net shareholders in owner’s equity exceeds place shares voting state ’ equity e period investment the minor the shares owned by held power ment in the shareholders’ minor shareholders in or subsidiaries equity the subsidiary at the not beginning of period Shenzhen Anjule Wholly-o Self-owned Shenzhe Prop RMB 2 RMB2,000,00. Realty wned realty - 100% 100% Yes - - - n erty million 00 Manageme subsidiary management nt Co., Ltd. China Bicycle Wholly-o Trade and Hong Bicy HK$ 0.02 (Internatio wned manufacturin HKD20,000.00 - 100% 100% Yes - - - Kong cle million nal) Co., subsidiary g Ltd. China Bicycle Controllin Bicycle and Hong Bicy HK$ 5 HKD5,000,000 - (Hong g parts - 99% 99% Yes - - Kong cle million .00 Kong) Co., subsidiary distribution Ltd. Shenzhen Controllin Bicycle and Emmelle Shenzhe Bicy RMB 2 RMB1,400,000 g parts - 70% 70% Yes - Industry n cle million .00 subsidiary distribution Co., Ltd. (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. 69 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 control rights held. 7. No reverse purchase occurred in the period. 8. No absorption merger occurred in the period. V. Notes to Items in Consolidated Financial Statements 1. Monetary fund Unit: RMB Currency: CNY Items Amount at the end of period Amount at the beginning of period Amount in Amount in Conversi Amount in Conversion foreign foreign Amount in RMB on rate RMB rate currencies currencies Cash: RMB 69,024.09 1.00 69,024.09 164,956.42 1.00 164,956.42 HK Dollar 1,894.27 0.8107 1,535.68 1,894.30 - 1,773.76 US Dollar 1.25 6.3009 7.88 1.25 - 9.13 Subtotal 70,567.65 - - 166,739.31 Bank deposit: RMB 23,876,073.90 1.00 23,876,073.90 16,611,335.30 1.00 16,611,335.30 HK Dollar 740,051.61 0.8107 599,959.84 773,490.97 0.85 658,186.67 US Dollar 46,927.13 6.83 320,512.30 Subtotal 24,476,033.74 17,590,034.27 Total 24,546,601.39 17,756,773.58 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 bill 1,000,000.00 2,619,699.00 (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 of five top clients at the end of period: Unit: RMB Currency: CNY Drawn by Date of drawl Expire date Amount Remark Jinan YUSIGN Sales Co., Ltd. 2011-07-25 2012-01-25 5,200,000.00 Jinan YUSIGN Sales Co., Ltd. 2011-07-21 2012-01-21 3,200,000.00 Jinan YUSIGN Sales Co., Ltd. 2011-11-30 2012-05-29 3,000,000.00 Henan Daming Electric Bicycle Sales Co., Ltd. 2011-09-22 2012-03-22 2,913,781.50 Jinan YUSIGN Sales Co., Ltd. 2011-09-01 2012-03-01 2,430,000.00 Total 16,743,781.50 70 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 Proportion Proportion Amount Amount (%) (%) Account receivable with single major amount but withdrawal bed debt provision - - - - for single item Account receivable withdrawal bad debt 1,040,566,658.76 100.00% 1,036,696,739.18 99.63% provision by age combination Account receivable with single minor amount but withdrawal bed debt provision for single item Total 1,040,566,658.76 100.00% 1,036,696,739.18 99.63% Unit: RMB Currency: CNY 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 provision for single - - - - item Account receivable withdrawal bad debt 1,038,181,894.70 100.00 1,036,449,071.72 99.83 provision by age combination Account receivable with single minor amount but withdrawal bed debt provision for single - - - - item Total 1,038,181,894.70 100.00 1,036,449,071.72 99.83 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 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 Ratio Ratio Amount provision Amount provision (%) (%) Within 3,728,460.55 0.36% 11,185.38 1,035,032.17 0.10 - 1year 1-2 151,262.72 0.01% 453.79 98,211.62 0.01 - years 2-3 1,841.00 0.00% 5.52 years Over 1,036,685,094.49 99.63% 1,036,685,094.49 1,037,048,650.91 99.89 1,036,449,071.72 3years Total 100.00% 1,038,181,894.70 100.00 1,036,449,071.72 71 Amount at period-end Amount at period-begin Book balance Book balance 1,040,566,658.76 1,036,696,739.18 (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 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 gross Name with the Amount Period accounts receivable (%) company Total of top 5 customers of Non-affiliated accounts receivable customers 535,330,991.79 Over 3 years 51.45 (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 1,398,866.67 88.05% 23,547.00 11.03 1-2 years 75,961.88 35.59 2-3 years 189,876.41 11.95% 113,914.53 53.38 Total 1,588,743.08 100.00% 213,423.41 100.00 (2) The advance payment in the report period doesn’t involve with the shareholder units holding 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 provision for single item - - Other account receivable withdrawal bad debt provision by age combination 558,308,659.77 100.00% 533,115,112.88 95.49% Other account receivable with single minor amount but withdrawal bed debt provision for single item Total 558,308,659.77 100.00% 533,115,112.88 95.49% 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 provision for single item - - - - 72 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 provision for single item - - Total 558,537,283.06 100.00% 540,451,510.17 96.76 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 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 Book balance Book balance Age Bad debt Bad debt Amount Proportio Amount Proportio provision provision n (%) n (%) Within 1year 25,077,859.27 4.49% 75,226.82 4,709,642.47 0.84 6,375.74 1-2years 146,244.00 0.03% 438.73 4,545,244.91 0.81 135.73 2-3years 45,244.91 0.01% 135.73 2,258.00 - - Over 3years 533,039,311.58 95.47% 533,039,311.59 549,280,137.68 98.35 540,444,998.69 Total 558,308,659.77 100.00 533,115,112.88 558,537,283.06 100.00 540,451,510.17 (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 holding 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 Relationship among the Name with the Amount Period gross accounts company receivable - others (%) Total of top 5 customers of other Non-affiliated 357,001,411.68 Over 3 years 63.94 accounts receivable customers (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 41,891,048.28 35,572,510.46 6,318,537.82 54,845,278.28 43,902,968.40 10,942,309.88 Raw materials Low value and easily 432,240.25 0.00 432,240.25 1,456,362.06 1,152,485.26 303,876.80 worn-out articles Merchandise 21,279,324.73 13,719,674.52 7,559,650.21 26,448,790.52 16,002,298.91 10,446,491.61 inventory 73 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 63,602,613.26 49,292,184.98 14,310,428.28 82,750,430.86 61,057,752.57 21,692,678.29 Total (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 Raw materials 43,902,968.40 4,169,828.88 - 12,500,286.82 35,572,510.46 Low value and easily worn-out 1,152,485.26 - - 1,152,485.26 0.00 articles Merchandise 16,002,298.91 - - 2,282,624.39 13,719,674.52 inventory Total 61,057,752.57 - - 15,935,396.47 49,292,184.98 (3) Inventory depreciation reserve Evidence for withdrawal Reason for carry-back of Proportion of carry-back amount in the Items of inventory inventory depreciation current period among the closing depreciation reserve reserve in the current period balance of the inventory Net realizable value is Raw materials below the cost. - - Merchandise Net realizable value is inventory below the cost. - - Low value and Net realizable value is easily worn-out - - below the cost. articles A. Evidence for determine 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. execute 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. 74 7. Long-term equity investment Unit: RMB Currency: CNY Interpretation to Proportion Proportion discrepancy depreciation Cash Initial of shares of voting between the depreciation reserve Accounting Opening Increase or Closing dividend Invested unit investment held in power in proportion of reserve at the withdrawn at method balance decrease balance for this cost invested invested shares and voting end of period the current period units (%) units (%) power in invested period units Hunan Guangnan Cost 5,679,300.00 5,679,300.00 -5,679,300.00 0 5.50 5.50 - - - Motorcycle method Co., Ltd. Shenzhen Jinhuan Equity 14,883,560.00 14,883,560.00 - 14,883,560.00 38.00 38.00 - 12,263,719.50 - - Printing Co., method Ltd. * Total 20,562,860.00 20,562,860.00 -5,679,300.00 14,883,560.00 - - - 12,263,719.50 - - 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. In October 2011, 5.5% equity of Hunan Guangyang Motocycle Co., Ltd. Held by the Company was transferred to Changzhou Guangyang Company, original equity investment (RMB 5.68 million) was accrual impairment provision (RMB 5.68) totally in book of the Company due to long-term insolvency of Hunan Guangyang. Equity transfer amount RMB 4.56 million was received by the Company in reprot period. 75 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 103,437,415.08 3,671,351.46 107,108,766.54 and accumulated amortization 1. Houses and buildings 103,437,415.08 3,671,351.46 107,108,766.54 2. Land use right - III. Total net book value of 26,434,648.24 - - 22,763,296.78 investment real estate 1. Houses and buildings 26,434,648.24 - - 22,763,296.78 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 26,434,648.24 - - 22,763,296.78 real estate 1. Houses and buildings 26,434,648.24 - - 22,763,296.78 2. Land use right - - - - (1) The depreciation amount actually accrued in the period amounting to RMB 3,671,351.46. (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 116,647,611.13 136,579.83 6,931,311.82 109,852,879.14 Including: Houses and 109,055,011.26 0.00 6,000,431.82 buildings 103,054,579.44 Machinery and equipment 4,242,098.00 0.00 0.00 4,242,098.00 Means of transport 923,478.06 0.00 0.00 923,478.06 Other equipment 2,427,023.81 136,579.83 930,880.00 1,632,723.64 Newly Accrued this added period II. Total accumulated 92,707,944.16 depreciation - 4,829,783.62 5,339,212.08 92,198,515.70 Including: Houses and 89,636,132.88 4,241,232.46 4,606,007.08 buildings - 89,271,358.26 Machinery and equipment 621,162.98 - 328,688.88 0.00 76 949,851.86 Means of transport 688,922.72 45,302.04 0.00 - 734,224.76 Other equipment 1,761,725.58 214,560.24 733,205.00 - 1,243,080.82 III. Total net book value of 23,939,666.97 fixed assets 17,654,363.44 Including: Houses and 19,418,878.38 buildings 13,783,221.18 Machinery and equipment 3,620,935.02 3,292,246.14 Means of transport 234,555.34 189,253.30 Other equipment 665,298.23 389,642.82 IV. Total depreciation 2,391,674.23 2,391,674.23 reserve Including: Houses and 1,580,000.00 1,580,000.00 buildings Machinery and equipment 426,800.00 426,800.00 Means of transport - - Other equipment 384,874.23 384,874.23 V. Total book value of fixed 21,547,992.74 assets 15,262,689.21 Including: Houses and 17,838,878.38 buildings 12,203,221.18 Machinery and equipment 3,194,135.02 2,865,446.14 Means of transport 234,555.34 189,253.30 Other equipment 280,424.00 4,768.59 Depreciation amount in this period was RMB 4,829,783.62. (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 34,505,947.26 29,631,982.21 0.00 4,873,965.05 - buildings Machinery and 252,098.00 156,651.74 0.00 95,446.27 - equipment 34,758,045.26 29,788,633.94 0.00 4,969,411.32 Total (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: 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 77 Reason for failing to Estimated time for handling the Items handle the certificate of certificate of title title 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 No. 7 Guang’ancheng, West Section, Guohuo Formalities not Unpredictable Road, Taijiang District, Fuzhou completed (6) Assets with limited ownership 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 lands located at Yousong Village, Longhua Town, Bao’an District and buildings on the land. 10. Intangible assets (1) Intangible assets Unit: RMB Currency: CNY Opening book Increase in the Decrease in the Closing book Items balance current period current period balance I. Original book value Total 43,143,099.08 - - 43,143,099.08 Land use right 43,143,099.08 - - 43,143,099.08 II. Total accumulated 17,688,671.82 862,862.04 18,551,533.86 amortization Land use right 17,688,671.82 862,862.04 18,551,533.86 III. Total net book value of 25,454,427.26 - - 24,591,565.22 intangible assets Land use right 25,454,427.26 - - 24,591,565.22 78 Opening book Increase in the Decrease in the Closing book Items balance current period current period balance IV. Total depreciation reserve - - - 0.00 Land use right - - - 0.00 Total book value of intangible 25,454,427.26 - - 24,591,565.22 assets Land use right 25,454,427.26 - - 24,591,565.22 (1) The land use right is the 127,333m2 land located at Yousong Village, Longhua Town, Bao’an District, and the service life is from July 1, 1990 to 30 June 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 Opening book Increase in the Decrease in the current period Closing book Items balance current period Carry-back Trans-sale balance I. Reserve for bad and doubtful 1,576,900,581.89 1,655,501.47 6,096,548.27 2,647,683.03 1,569,811,852.06 account II. Inventory depreciation reserve 61,057,752.57 4,169,828.88 15,935,396.47 49,292,184.98 III. Depreciation reserve of - salable financial assets IV. Depreciation reserve of - held-to-maturity investment V. Depreciation reserve of 17,943,019.50 5,679,300.00 12,263,719.50 long-term equity investment VI. Depreciation reserve of - investment real estate VII. Depreciation reserve of fixed 2,391,674.23 2,391,674.23 assets VIII. Depreciation reserve of - engineering materials IX. Depreciation reserve of - engineering under construction X. Depreciation reserve of - - - - - productive biological assets Including: 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 1,658,293,028.19 5,825,330.35 6,096,548.27 24,262,379.50 1,633,759,430.77 Trans-sale of bad debt provision refers to the part amount receivable from Guangtie Medial Court; the trans-sale amount for depreciation provision of inventory resulted by the sales realized; impairment provision of long-term equity investment refers to the disposal of investment of Hunan Guangyang Motorcycle. 12. Short-term loan (1) Classification of short –term loan: Unit: RMB Currency: CNY Items Amount at the end of period Amount at the beginning of period Loan on security 226,490,599.93 243,928,066.33 Credit loan 133,502,973.36 140,289,581.76 Total 359,993,573.29 384,217,648.09 (2) Short-term loan at term but not repaid: Unit: RMB Currency: CNY 79 Reason for not Estimated date Borrower Amount Purpose repayment of repayment Loan for China Import and Export Bank 114,558,000.00 production Capital shortage Unpredictable of China turnover Loan for China Cinda Assets Management 56,694,478.75 production Capital shortage Unpredictable Company turnover Loan for Head Office of China Merchants 38,090,674.92 production Capital shortage Unpredictable Bank turnover Loan for Oriental Assets Management 88,677,806.82 production Capital shortage Unpredictable Company turnover Loan for Huizhou Oriental United 34,586,143.16 production Capital shortage Unpredictable Industry Co., Ltd. turnover Loan for China Merchants Bank, Luohu 16,988,945.10 production Capital shortage Unpredictable Sub branch turnover Loan for China Everbright Bank 9,777,524.54 production Capital shortage Unpredictable turnover Loan for China Construction Bank, 620,000.00 production Capital shortage Unpredictable Sichuan Mianyang Sub branch turnover Total 359,993,573.29 The abovementioned loans have been over due for many years. 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 10,937,978.14 12,901,430.02 1-2 years 168,382.59 163,405.06 2-3 years 122,501.80 Over 3 years 105,686,123.48 112,440,785.84 Total 116,792,484.21 125,628,122.72 (1) Accounts payable of over 1 year is mainly because that the Company is insolvent and has delayed the repayment for many years. (2)The accounts payable in the report period don’t involve with the shareholder units holding 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 5,005,965.77 5,910,048.99 1-2 years 60,019.53 86,960.36 2-3 years 86,960.36 - Over 3 years 10,664,592.85 10,664,592.85 Total 15,817,538.51 16,661,602.20 (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 holding over 5% (including 5%) voting power of the Company. 80 15. Wages payable Unit: RMB Currency: CNY Opening book Increase in the Decrease in the Closing book Items balance current period current period balance I. Salary, bonus, allowance, and subsidy 2,251,298.50 11,910,554.71 11,684,637.77 2,477,215.44 II. Employee benefit 25,906.94 465,896.34 491,803.28 0.00 III. Social insurance - 960,969.32 960,969.32 0.00 IV. Public accumulation fund for housing construction 60,000.00 694,589.16 754,589.16 0.00 V. Dismiss welfare 38,565.69 0.00 0.00 38,565.69 VI. Trade union outlays and personnel education outlay 1,426,469.26 198,986.31 47,294.00 1,578,161.57 VII. Others - 0.00 0.00 0.00 Total 3,802,240.39 14,230,995.84 13,939,293.53 4,093,942.70 (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 198,986.31; and the compensation for cancellation of labor relationship is RMB00.00. 16. Taxes payable Unit: RMB Currency: CNY Items Amount at the end of period Amount at the beginning of period VAT 56,549,886.85 56,554,659.77 Sales tax 445,392.77 440,900.28 Business income tax 33,753,125.02 33,753,125.02 Individual income tax 72,539.08 -21,156.15 Tax for maintaining and building 160,272.72 141,302.23 cities Housing property tax 7,303,655.67 7,303,655.67 Others 122,232.56 46,376.91 Total 98,407,104.67 98,218,863.73 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 207,999,625.50 213,488,233.36 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 9,063,330.27 11,730,547.74 1-2 years 10,682,662.94 2,468,597.75 2-3 years 2,344,854.69 572,084.12 81 Over 3 years 372,714,002.88 151,065,795.79 Total 394,804,850.78 165,837,025.40 (2) Loan without interest RMB 6.5 million payable to shareholder Guosheng Energy Co., Ltd., a unit holding over 5% (including 5%) voting power of the Company. (3) Major amount accounts payable of over 1 year is 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 loans due within one 452,026,831.88 706,645,180.86 year (2) Top five long-term loans due within 1 year Unit: RMB Currency: CNY Amount at the end of period Borrower Currency Amount in foreign Amount in RMB currencies Shenzhen Guosheng Energy Investment USD 62,829,259.02 395,880,878.11 and Development Co., Ltd. Shenzhen Guosheng Energy Investment RMB - 19,300,058.59 and Development Co., Ltd. China Cinda Assets Management Co., Ltd. USD 2,157,395.94 13,593,536.05 Great Wall Assets Management Co., Ltd. USD 2,000,000.00 12,601,800.00 Xie Linging USD 500,000.00 3,150,450.00 Total 444,526,722.75 (3) Overdue loans among the long-term loans coming due within 1 year Unit: RMB Currency: CNY Borrowers Amount Term overdue Guosheng Energy Investment Co., 415,180,936.70 Overdue for multiple years China Cinda Assets Management 13,593,536.05 Overdue for multiple years Co., China Great Wall Assets 12,602,050.00 Overdue for multiple years Management Co., Xie Lingling 6,150,200.00 Overdue for multiple years China Oriental Assets Management 3,000,000.00 Overdue for multiple years Co., Shenzhen Lionda Group Co., Ltd. 1,500,109.13 Overdue for multiple years Total 452,026,831.88 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 1,726,900.26 45,668.40 Total 2,437,393.95 756,162.09 82 21. Accrued 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 Zoria Pte LTD 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 42,918,300.00 - 12,875,490.00 30,042,810.00 Group Co., Ltd. Loan guarantee for Shenzhen Tianma 8,000,000.00 - - 8,000,000.00 Cosmetics Co., Ltd. Loan guarantee for Shandong Huajiaming 83,142.92 - - 83,142.92 Economic Trading Co., Ltd. Total 179,088,442.92 - 12,875,490.00- 166,212,952.92 Explanation of decrease in the current period: Pursuit to Bankruptcy Law, Shenzhen Intermediate People’s Court rulling reorganization for Guangdong Sunrise Holdings Co., Ltd.[(2010) Shenzhen Intermediate Law Civil Qi Reorganization Zi. No. 5-2”Civil Order”] in May 2010, teh “Reorganizaiton Plan of Guangdong Sunrise Holdings Co., Ltd.” Was approved in October 2010, teh [(2010) Shenzhen Intermediate Law Civil Qi Reorganization Zi. No. 5-5”Civil Order”] was terminated and entered into period of reorganizaiton plan. In April 2011, reorganization plan of Sunrise Company was rulled completed by Shenzhen Intermediate [(2010) Shenzhen Intermediate Law Civil Qi Reorganization Zi. No. 5-16”Civil Order”] . According to the statement carried in reorganizaiton plan of Sunrise Company, page 12, which approved by Shenzhen Intermediate “......based on the above said discount method for calculation, ordinary creditor should earned 27.89% liquidation rate in case of share settlement, 2.16% liquidation rate obtained plus monetary liquidation and ordinary creditor obtained 30.05% liquidation rate in totall......”. In this report period, liquidated obtained by creditors in part of the accurel liability, which withdrwal due to jointly loan guarantee undertake from Guangdong Sunrise Holdings CO., Ltd., has been wirtten-off. The abovementioned guarantee for other companies have been in serious insolvency or gone bankrupt. 83 22. Share capital Unit: RMB Currency: CNY Amount at the beginning of Increase/ decrease (+, -) Amount at the end of period period Items Shares New Shares Proportion transferred Proportion Amount shares presente Others Subtotal Amount (%) for public (%) issued d reserve I. Circulating shares with limited -77,510,892.00 -77,510,892.00 109,214,230.00 19.81% sales conditions 186,725,122,00 33.87 - - 1. Shares held by state-owned legal -16,340,000.00 -16,340,000.00 0.00% person 16,340,000.00 2.96 - - 2.Shares held by domestic corporate -23,668,590.00 -23,668,590.00 65,098,412.00 11.81% sponsors 88,767,002.00 16.10 - 3. Shares held by domestic natural -6,500,000.00 -6,500,000.00 0.00% person sponsors 6,500,000.00 1.18 - - -31,001,944.00 -31,001,944.00 44,104,246.00 8.00% 4. Shares held by overseas corporate 75,106,190.00 13.62 - - 5. Shares held by senior executives -358.00 -358.00 11,572.00 0.0021% 11,930.00 0.01 II. Circulating shares without limited 77,510,892.00 77,510,892.00 442,133,717.00 80.19% sales conditions 364,622,825.00 66.13 - - 1. Common RMB shares listed at 77,513,517.00 77,513,517.00 193,773,360.00 35.14% home (A-share) 116,259,843.00 21.08 - - 2. Foreign-funded shares listed at -2,625.00 -2,625.00 248,360,357.00 45.05% home (B-share) 248,362,982.00 45.05 - - 0.00 0.00 551,347,947.00 100.00% Total 551,347,947.00 100.00 - - Changes in this period mainly due to the restricted shares of share merger reform have un-lock for trading in this period. 84 23. Capital reserve Unit: RMB Currency: CNY Amount at the Increase in the Decrease in the Amount at the end of Items beginning of period current period current period period Capital premium - - - - Other capital reserve 427,132,693.91 33,624,873.93 460,757,567.84 Including: Benefit from 423,124,068.94 33,624,873.93 456,748,942.87 liability recombination Accounts unnecessary to pay 690,624.97 0.00 690,624.97 price difference of affiliated 3,318,000.00 0.00 3,318,000.00 transactions Total 427,132,693.91 33,624,873.93 460,757,567.84 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 33,624,873.93 in 2011, which will be charged into the capital reserve as capital investment. 24. Surplus reserve Unit: RMB Currency: CNY Amount at the Increase in the current Decrease in the Amount at the end of Items beginning of period period current period period Statutory surplus 32,673,227.01 - - 32,673,227.01 reserve 25. Retained profit Unit: RMB Currency: CNY Proportion of Items Amount withdrawal or distribution Undistributed profit of the previous year before adjustment -2,767,339,310.79 - Total undistributed profit at the beginning of year adjusted (+, - -) - Undistributed profit at the beginning of year after adjustment -2,767,339,310.79 - Add: Net profit classed under the parent company in the - current period 39,716,821.46 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 -2,727,622,489.33 - 26. Business income and business cost (1) Business income and business cost Unit: RMB Currency: CNY Amount incurred in the current Items Amount incurred in the last period period Major business income 298,465,730.36 274,000,080.33 Other business income 22,577,839.98 25,027,199.10 Business cost 297,448,254.06 280,127,985.48 (2) Major businesses (by industry) Unit: RMB Currency: CNY 85 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 296,006,720.56 282,052,578.77 271,727,101.17 260,057,821.52 distribution Lease management 2,459,009.80 4,320,717.13 2,272,979.16 3,815,279.81 Total 298,465,730.36 286,373,295.90 274,000,080.33 263,873,101.33 (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 236,496,027.77 226,119,813.08 221,509,693.52 212,377,298.84 OEM Bicycle 52,742,757.72 49,331,916.01 48,922,678.62 46,044,796.38 CBC motor vehicle 1,076.92 1,009.04 224,576.06 396,858.20 CBC Bicycle 116,491.48 118,576.45 94,835.90 199,131.28 Others 6,650,366.67 6,481,264.19 975,317.07 1,039,736.82 Lease management 2,459,009.80 4,320,717.13 2,272,979.16 3,815,279.81 Total 298,465,730.36 286,373,295.90 274,000,080.33 263,873,101.33 (4) Business income of the Company’s top five customers in 2011 Unit: RMB Currency: CNY Proportion among the Company’s Customer name Business income total business income Customer 1 102,674,852.11 31.98% Customer 2 64,383,854.73 20.05% Customer 3 46,338,356.82 14.43% Customer 4 31,003,052.71 9.66% Customer 5 6,765,314.43 2.11% Total 251,165,430.80 78.23% 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 122,950.51 113,648.98 5% Tax for maintaining and building cities 287,638.23 114,865.88 7% Educational surtax 193,382.18 82,940.72 3% Total 603,970.92 311,455.58 - 86 28. Sales expenses Unit: RMB Currency: CNY Amount incurred in the current Amount incurred in the last period Items period Remuneration for staff 4,633,393.71 3,727,910.51 AD charge 285,456.00 1,476,632.56 Business travel 510,002.40 557,156.10 Transportation and loading charge 275,208.26 329,680.00 Sales charge 142,911.30 150,685.92 Exhibition charge 142,980.00 139,976.60 Vehicle transport 135,553.80 132,979.50 Entertainment charge 60,644.00 86,462.00 Communication charge 73,635.42 76,729.90 Market promotion 300,000.00 60,400.00 Other 737,752.66 656,254.76 Total 7,297,537.55 7,394,867.85 29. Management expenses Unit: RMB Currency: CNY Amount incurred in the current Amount incurred in the last period Items period Salary 7,297,489.22 6,534,907.23 Charge of depreciation amortized 5,688,356.86 6,405,494.37 Maintenance charge 256,743.20 2,114,662.10 Taxes 1,926,995.45 1,829,076.74 Consultant lawyers charge 278,500.00 1,186,600.00 Entertainment charge 1,046,061.96 897,921.28 Auditing charge 754,053.50 674,254.65 Vehicle transport 623,743.38 649,604.04 Office charge 496,372.86 538,296.50 Charges for staff on vocation 508,729.23 485,082.16 Charge for Board of the Meeting 811,255.11 483,600.40 Utilities 12,350.65 320,068.46 Social insurance 241,248.94 309,862.40 Business travel charge 172,259.76 299,992.95 Consultancy charge 339,700.00 222,450.00 welfare 232,414.06 201,419.29 leasing charge 200,000.00 Charge for share listing 596,423.50 177,576.04 Communication charge 153,740.83 146,870.93 Compensation for dismiss 37,300.00 Housing public reserve 409,394.80 Other -9,178.07 77,779.51 Total 21,836,655.24 23,792,819.05 30. Financial expenses Unit: RMB Currency: CNY Amount incurred in the current Amount incurred in the last period Items period Interest expenditure 62,931,696.95 94,020,835.02 Less: interest income 89,639.63 78,334.37 Gains/losses from exchange -39,266,007.07 -29,464,021.40 Other 42,993.05 36,536.75 Total 64,515,016.00 23,619,043.30 31. Asset depreciation loss 87 Unit: RMB Currency: CNY Amount incurred in the current Items Amount incurred in the last period period I. Loss from doubtful accounts -4,441,046.80 -2,067,826.53 II. Loss from inventory 4,169,828.88 - depreciation 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 -271,217.92 -1,761,026.53 32. Non-operating income Unit: RMB Currency: CNY Items Amount incurred in the current Amount incurred in the last period period Total amount obtained from disposing noncurrent assets 14,979,508.16 - Including: Benefit from disposal of fixed assets 14,979,508.16 - Benefit from disposal of intangible assets - Benefit from debt recombination 138,684,786.64 Others 49,942,309.11 1,203,017.59 Total 64,921,817.27 139,887,804.23 Non-operation income—mainly because debt restruring of Guangdong Sunrise Holdings Co., Ltd., second largest creditor of the Company, was completed ruling by Shenzhen Intermediate People’s Court in this year; debt withdrawal previously from book RMB 34,894,917.23 and accrued liability RMB 12,875,490.00, as an unpaid account, transferred into non-operation income and income from auction for 10 trademark pattern RMB 1,830,000.00 in this year, more details found in Note 10.1 33. Non-operating expenditure Unit: RMB Currency: CNY Amount incurred in the current Items Amount incurred in the last period period Total loss from disposal of 1,479.48 non-current assets Including: Loss from disposal of 197,675.00 1,479.48 fixed assets 88 Loss from disposal of intangible - assets Others 72,568.00 55,072.31 Total 270,243.00 56,551.79 34. Calculation process of basic earning per share and diluted earning per share (eps) Unit: RMB Currency: CNY Amount incurred Amount Calculation Items in the current incurred in the process period last period Net profit classed under the Company’s common shareholders P0 64,477,414.44 39,720,901.45 Non-frequent gain and loss classed under the Company’s 52,600,796.45 F 109,068,376.90 common shareholders Net profit classed under the Company’s common shareholders P0'=P0-F -44,590,962.46 after deduction of non-frequent gain and loss -12,879,895.00 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 common shares, P1=P0+V 39,720,901.45 64,477,414.44 and making adjustments according to Enterprise Accounting Standards and related regulations Influences of diluted items on the net profit classed under the Company’s common shareholders after deduction of V' - non-frequent gains and losses Net profit classed under the Company’s common shareholders, considering the influences of diluting potential common shares, P1'=P0'+V' -44,590,962.46 and making adjustments according to Enterprise Accounting -12,879,895.00 Standards and related regulations Total shares at the beginning of period S0 551,347,947.00 479,433,003.00 Shares increased for increase of shares transferred from public S1 71,914,944.00 reserve or for share dividend distribution in the report period 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 9 increase to the end of report period Accumulated number of months from the next month of share Mj - decrease to the end of report period S=S0+S1+ Si×Mi Weighted average number of common shares issued externally 551,347,947.00 551,347,947.00 ÷M0–Sj×Mj÷ M0-Sk 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 X2=S+X1 551,347,947.00 551,347,947.00 calculated Including: Weighted average number of common shares - increased from transfer of convertible corporate bonds Weighted average number of common shares increased from - equity warrant/ stock equity implementation right Weighted average number of common shares increased from - 89 Amount incurred Amount Calculation Items in the current incurred in the process period last period buyback promise implementation Basic eps classed under the Company’s common shareholders EPS0=P0÷S 0.0720 0.1169 Basic eps classed under the Company’s common shareholders EPS0'=P0'÷S -0.0809 after deduction of non-frequent gains and losses -0.0234 Diluted eps classed under the Company’s common EPS1=P1÷X2 0.1169 shareholders 0.0720 Diluted eps classed under the Company’s common EPS1'=P1'÷X2 -0.0809 shareholders after deduction of non-frequent gains and losses -0.0234 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 current period Amount incurred in the last period Rent, electric rate and water rate 22,673,502.55 17,628,981.38 Allocated claims from Qingchi 1,090,944.00 Parts disposal money 62,500.00 Other current accounts 4,348,119.26 3,507,670.90 Total 27,021,621.81 22,290,096.28 (2)Other cash paid related with business activities Unit: RMB Currency: CNY Amount incurred in the Items Amount incurred in the last period current period Advertising propagation and promotion, and 1,247,668.23 1,787,801.37 brand maintenance expenses Other expenses in sales section 1,764,205.00 1,511,282.46 Water and electricity expense 5,176,121.00 3,876,102.31 Property repair, equipment maintenance and 461,885.52 1,800,000.00 repair fees Listing fee, board of directors’ expense, and expenses for office work, business traveling, 3,968,211.06 3,193,862.14 communication, and social intercourse Consulting auditing fee 1,368,200.00 1,183,304.65 Other fees in management section 41,967.72 600,000.00 Other current accounts 4,415,303.71 3,822,250.49 Total 18,443,562.24 17,774,603.42 (3) Cash received from other financing activities Unit: RMB Currency: CNY Amount incurred in the Items Amount incurred in the last period current period Loan from Shenzhen Guosheng Energy 6,500,000.00 Investment Development Co., ltd. 36. Supplementary data of cash flow statement (1)Supplementary data of cash flow statement Unit: RMB Currency: CNY Amount of the Amount of last Supplementary data current period period 1.Cash flow for business activities transferred from net profit: Net profit 39,720,901.45 64,477,414.44 Add: Asset depreciation reserve -271,217.92 -1,761,026.53 Fixed asset depreciation, oil-gas asset depletion, and productive 8,501,135.08 10,512,930.21 90 Amount of the Amount of last Supplementary data current period period biological asset depreciation 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 -14,781,833.16 1,479.48 long-term assets (filled with “-” for benefit) Loss from fixed assets reported discarded (filled with “-” for benefit) - Loss from change of fair value (filled with “-” for benefit) - Finical cost (filled with “-” for benefit) 23,665,689.88 64,369,590.56 Investment loss (filled with “-” for benefit)) -4,560,000.00 - Decrease of deferred income tax asset (filled with “-” for increase) - Increase of deferred income tax liability (filled with “-” for decrease) - Decrease of inventory (filled with “-” for increase) 35,083,214.07 10,871,691.30 Decrease of operating items receivable (filled with “-” for increase) 1,267,177.57 -17,890,583.71 Increase of operating items payable (filled with “-” for decrease) -41,368,614.14 -124,948,497.47 Others -47,770,407.23 - Net cash flow from business activities 348,907.64 6,495,860.32 2.Important investment and financing activities not involving with cash income and expenditure Capital transferred from liability - Convertible 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 24,546,601.39 Less: Opening balance of cash 17,756,773.58 22,232,425.07 Add: Closing balance of cash equivalent - Less: Opening balance of cash equivalent - Net increase of cash and cash equivalent -4,475,651.49 6,789,827.81 (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 24,546,601.39 Including: Cash on hand 70,567.65 166,739.31 Bank deposit available for payment anytime 24,476,033.74 17,590,034.27 Other monetary fund available for payment anytime - - Due from China Central Bank for payment - - Due from banks - - Call loans to banks - - II. Cash equivalent - - Including: Bond investment coming due within 3 - - months III. Closing balance of cash and cash equivalent 17,756,773.58 24,546,601.39 VI. Affiliated Parties and Affiliated Transactions 1. Shareholders controlled by the enterprise Unit: RMB Currency: CNY controllin Affiliate Legal Register Proporti Proporti ultimat Enterpr Registrat Business Organizat g d representat ed on of on of e ise type ion place nature ion code sharehold relations ive capital shares voting controll 91 er hip held in power er of the in the the enterpri enterpri enterpri se (%) se (%) se Limited Industry, liability domestic Shenzhen compan commerce, Guosheng y materials Energy Controlli (solely supply and Investmen ng funded sale t and sharehol Shenzhe Ji by the Ji Hanfei (excluding 7000 11.81 11.81 77411579-2 Developm der n Hanfei corpora specially ent Co., te) run, Ltd. controlled and sold merchandi ses) On 3 January 2011, controlling shareholder of largest shareholder and creditor of the Company—Shenzhen Guosheng Energy Investment Development Co., ltd.(“Guosheng Energy”), Shenzhen National Investment Co., Ltd. (“National Investment”) entered into an equity transfer agreement with Ji Hanfei. National Investment transferred 100% equity of Guosheng Energy to Ji Hanfei with consideration of RMB 70 million, and changes of industry and commerce has completed. The above said equity transfer changes the actual controller of the Company. After changes 65,098,412 shares of A-stock were indirectly held by Ji Hanfei, an 11.81% in total share capital of the Company. 2. Detailed information about the Company’s subsidiaries is as shown in 1 of Annotation IV of the report. 92 3. Joint management and joint-ownership enterprises of the Company Unit: RMB Currency: CNY Proporti Proporti on of Increas on of Depreciatio Accounti Initial voting Investe Opening e/ Closing shares in n reserve at ng investment power in d unit balance decreas balance the the end of method cost the e invested period invested unit (%) unit (%) Shenzh en Jinhuan Equity 14,883,560. 14,883,560. 14,883,560. 12,263,719. Printing method - 38.00 38.00 Co., 00 00 00 50 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. 4. Related transactions (1) Auction of exclusive right to use trademark Auction Notification was received by the Company 1 March 2011 from Shenhzen Intermediate People’s Court (“Shenzhen Intermediate”). Concerning the loan guarantee between the Luohu Branch of China Merchants Bank and the Company as well as Guangdong Sunrise Holdings Co., Ltd., Shenzhen Intermediate entrust Shenzhen Huirong Auction Co., Ltd. to put 10 exclusive right of trademark using owned by the Company up for auction. The above said exclusive right of trademark used was auction off on 14 March 2011 with buyer of Shenzhen Guosheng Energy Investment Development Co., Ltd. The above said exclusive right to use trademark was transferred to Shenzhen Guosheng Energy Investment Development Co., Ltd, ruled by Shenzhen Intermediate dated 31 March 2011. (2) Interest exemption Unit: RMB Currency: CNY Items Affiliated parties Amount in this period Amount in last period Shenzhen Guosheng Energy Financial expenses 33,624,873.93 40,351,662.36 Investment and Development Co., Ltd. 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 33,624,873.93 in 2011, which will be charged into the capital reserve as capital investment. 93 5. Accounts receivable/ accounts payable of affiliated parties Unit: RMB Currency: CNY Amount at the end of Amount at the beginning of Item Affiliated parties period period Shenzhen Jinhuan Printing Board Other accounts payable 2,616,430.50 2,616,430.50 Co., Ltd. Long-term liability Shenzhen Guosheng Energy coming due within 1 Investment and Development Co., 415,180,936.70 435,399,392.26 year Ltd. Shenzhen Guosheng Energy Interest in red Investment and Development Co., 3,736,414.26 2,948,836.74 Ltd. Shenzhen Guosheng Energy Other account payable Investment and Development Co., 6,500,000.00 6,500,000.00 * Ltd. VII. Contingent Items 1. Contingent liabilities formed from pending lawsuit and arbitration, and financial influences (1) As of Dec. 31, 2011, the Company had been prosecuted by 17 financial organs, involving total loan principal and interest of RMB 411.6367 million, USD76.9355 million and HKD 8.2616 million. 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, 2011, the Company had been prosecuted by 34 goods suppliers, involving total amount of RMB 71.1824 million, HKD24.534 million and USD 2.8006 million. 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 RMB25,270,000.00 (1) Guaranty Group Co., Ltd. USD700,000.00 Loan guaranty for Gintian Industry RMB50,000,000.00 (2) Guaranty (Group) 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 RMB83,142.92 (5) Guaranty Co., Ltd. RMB83,353,142.92 Total USD10,700,000.00 (1) In April 2011, reorganization plan of Sunrise Company was rulled completed by Shenzhen Intermediate [(2010) Shenzhen Intermediate Law Civil Qi Reorganization Zi. No. 5-16”Civil Order”] . According to the statement carried in reorganizaiton plan of Sunrise Company, page 12, which approved by Shenzhen Intermediate “......based on the above said discount method for calculation, ordinary creditor should earned 27.89% liquidation rate in case of share settlement, 2.16% liquidation rate obtained plus monetary liquidation and ordinary creditor obtained 30.05% liquidation rate in totall......”. According to the reorganization plan, 30% of the predicted losses in guarantee amount for Sunrise was withtten off. 70% of teh guarantee amount at period-end was accured for losses. 94 (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. Commitment Items The Company had no important committment items in the report period. IX.Events occurring after the Balance Sheet date Agrees to stop calculating interest for year of 2012 from Guosheng Energy Company The “Reply of ‘application of stop calculating debt interest for year of 2012’” was received by the Compay from largest shareholder and largest creditor of the Company Shenzhen Guosheng Energy Investment Development Co., Ltd. (“Guosheng Energy”) dated 9 March 2012:”Guosheng Energy” agrees to discharge of an interest for whole year of 2012 on creditor’s right of RMB 9,124,638.59 and USD 62,829,259.02 of the Company, and the above said interest should not be recover in later years. The interest stop calculating amounting as RMB 33 million. The un-calculted interest is reckoned into capital reserve in line with relevant accounting rules and regulations without influence of gains/losses on the Company. X .Other important items 1. Completion of bankruptcy reorganization plan of Guangdong Sunrise Holdings Co., Ltd.(“Sunrise Company”), the second largest creditor of the Company Pursuit to Bankruptcy Law, Shenzhen Intermediate People’s Court rulling reorganization for Guangdong Sunrise Holdings Co., Ltd.[(2010) Shenzhen Intermediate Law Civil Qi Reorganization Zi. No. 5-2”Civil Order”] in May 2010, teh “Reorganizaiton Plan of Guangdong Sunrise Holdings Co., Ltd.” Was approved in October 2010, the [(2010) Shenzhen Intermediate Law Civil Qi Reorganization Zi. No. 5-5”Civil Order”] was terminated and entered into period of reorganizaiton plan. In April 2011, reorganization plan of Sunrise Company was rulled completed by Shenzhen Intermediate [(2010) Shenzhen Intermediate Law Civil Qi Reorganization Zi. No. 5-16”Civil Order”] . The “Notice of Equity Transfer” was received by the Company dated 23 March 2011 from creditor of the Company Sunrise Company. During bankruptcy reorganization, creditor right RMB 232,801,657.06 of the Company was auctioned by Shenzhen Oriental Auction Co., Ltd., entrusted from Sunrise Company. On 13 December 2010, Shenzhen Dongtaixing Technology Co., Ltd. (“Dongtaixing”) wins the above said auction legally. Shenzhen Intermediate People’s Court ruled out the (2011) Shenzhen Intermediate Law Civil Qi Reorganization Zi No. 5-12 Civil Order for confirmed the above said auction dated 27 January 2011. Therefore, interest payable to Sunrise in book RMB 34.7954 million was reckoned into non-operation income as unpaid account by the Company. According to the statement carried in reorganizaiton plan of Sunrise Company, page 12, which approved by Shenzhen Intermediate “......based on the above said discount method for calculation, ordinary creditor should earned 27.89% liquidation rate in case of share settlement, 2.16% liquidation rate obtained plus monetary liquidation and ordinary creditor obtained 30.05% liquidation rate in totall......”. In this report period, RMB 12.88 million liquidated obtained by creditors in part of the accurel liability RMB 42.92 million, which withdrwal due to jointly loan guarantee undertake from Sunrise Company, has reckoned into non-operation income. 95 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 payable 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 interest’s 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 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. The Company takes opinions as teh un-calculated interest are not return, therefor, when teh un-calculated period expired, payable interest should calculate on normal lans, and the intestest and compound interest stop calculated from 1 Janury 2002 to 31 December 2004 are not accured. Ended as 31 December 2011, recoginzed by creditor bank, interst amount has RMB 181,975,338.48 over that of payable interest in book, and still have some institution reply no confirmed owe interest. Concerning the condition, the interest abve said, the Company cannot be identified whether accural or return, than without fiancnial adjsutment occurred. 3 .Instructions to Continuous Operation As of Dec.31st, 2011, the Company has a total asset of RMB 135,742,550.93, the total debt of RMB1,818,586,298.41, with its net asset up to RMB-1,682,843,747.48, in the state of seriously insolvency, which thus may cause this Company liquidate its assets and pay off the debts in the normal operations. In such a case, this Company and its largest 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 Corporation on March 29th, 2007, it is hereby agreed to settle all and any creditor’s rights and debts incurred therefore by an equivalent US dollars for RMB 2 million, with the principal 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 96 Chengxingtai Investment Co., Ltd. for RMB 14 million payments 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 Energy 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 applies 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 Development Co., Ltd. On 17 March 2011, Shenzhen Dongtaixing Technology Co., ltd., second largest creditor of the Company, applying for bankruptcy reorganization of the Company to Shenzhen Intermediate People’s Court legally. The application was not accepted by Shenzhen Intermediate People’s Court due to hindrance of materials of resolution plan, recognized by application and taxation bureau, concerning taxation credits. Furthermore, payable owe interest from 2007- 2011 was stop calculated by Guosheng Energy, largest shareholder and creditor of the Company. The company delivery a reply in March 2012 for agrees to stop calculating owes interest (approximately RMB 33 million) for year of 2012 continuously, the un-calculated interest should not return in later 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 continuous 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) Disclosed by category Unit: RMB Currency: CNY Amount at the end of period Book balance Bad debt provision Category Proportion Proportion Amount Amount (%) (%) Account receivable with single major amount - - - but withdrawal bed debt provision for single item Account receivable withdrawal bad debt 1,034,297,021. 1,033,282,124. provision by age combination 50 100.00% 90 99.90% Account receivable with single minor amount but withdrawal bed debt provision for single item 1,034,297,021. 1,033,282,124. Total 50 100.00% 90 99.90% 97 Amount at the beginning of period Book balance Bad debt provision Category Proportion Proportion Amount Amount (%) (%) Account receivable with single major amount but withdrawal bed debt provision for single - - - - item Account receivable withdrawal bad debt provision by age combination 1,034,374,248.98 100.00 1,032,989,895.75 99.87 Account receivable with single minor amount but withdrawal bed debt provision for single item - - - - Total 1,034,374,248.98 100.00 1,032,989,895.75 99.87 Explanation of 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 Age Book balance Bad debt Book balance Bad debt Amount Ratio (%) provision Amount Ratio (%) provision Within 1year 77,227.48 0.01 - 1-2 years - - - Over 3years 1,034,297,021.50 100.00% 1,033,282,124.90 1,034,297,021.50 99.99 1,032,989,895.75 Total 100.00% 1,034,374,248.98 100.00 1,032,989,895.75 1,034,297,021.50 1,033,282,124.90 (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 gross Name with the Amount Period accounts receivable - others company (%) Total of top 5 customers of Non-affiliated Over 3 53.04 other accounts receivable customers 548,585,403.18 years (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. 2. Other receivables (1) Disclosed by categories Unit: RMB Currency: CNY Amount at period-end 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 565,275,037.27 100.00% 91.70% provision by age combination 98 518,357,900.26 Other account receivable with single minor amount but withdrawal bed debt provision for single item Total 565,275,037.27 100.00% 91.70% 518,357,900.26 Unit: RMB Currency: CNY Amount at period-begin 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 557,411,339.53 100.00 526,881,529.25 94.52 provision by age combination 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 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 Book balance Book balance Age Bad debt Bad debt Amount Proportio Amount Proportio provision provision n (%) n (%) Within 36,632,067.72 6.48% 74,688.47 2,092,207.67 0.38 6,276.62 1year 1-2 years 431,331.22 0.08% 432.43 4,545,244.91 0.82 135.73 2-3 years 45,244.91 0.01% 135.73 - - - Over 528,166,393.42 93.44% 518,282,643.62 550,773,886.95 98.80 526,875,116.90 3years Total 100.00% 557,411,339.53 100.00 526,881,529.25 565,275,037.27 518,357,900.26 (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 holding 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 total other Name with the Amount Period accounts receivable company - others (%) Total of top 5 customers of other Non-affiliated Over 3 357,001,411.68 63.16 accounts receivable customers years (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. 99 3. Long-term equity investment Unit: RMB Currency: CNY Expla nation on discre pancy betwe en Perce share ntage Provis Share propor Exami of ion for propo tion in nation votin (asset) rtion invest Cas and Initial g Depreci deprec Invested com Opening Increases and Closing in ed h calcula investm rights ation iation pany balance decreases balance inves compa divi ting ent cost in reserve of ted ny and dend metho invest curren comp percen d ed t any tage comp period of any voting rights in invest ed compa ny Shenzhen EMMELLE Cost 1,400,0 1,400,00 1,400,00 1,400,0 Industry meth Co.,Ltd od 00.00 0.00 - 0.00 70% 70% - 00.00 - - Shenzhen Anju property Cost 2,000,0 2,000,00 2,000,00 2,000,0 managemen meth t Co.,Ltd od 00.00 0.00 - 0.00 100% 100% - 00.00 - - China Bicycle(Ho Cost 5,350,0 5,350,00 5,350,00 5,350,0 ng Kong) meth Co.,Ltd od 00.00 0.00 - 0.00 99% 99% - 00.00 - - China Bicycle(Inte Cost 18,727. 18,727.6 18,727.6 18,727. rnational) meth Co.,Ltd od 60 0 - 0 100% 100% - 60 - - Hunan Guangnan Cost 5,679,3 5,679,30 -5,679,300.0 5.50 5.50 Motorcycl meth e Co.,Ltd od 00.00 0.00 0- % % - - - Shenzhen Equit Jinhuan y 14,883, 14,883,5 14,883,5 38.00 38.00 12,263, Printing meth Co.,Ltd od 560.00 60.00 - 60.00 % % - 719.50 - - 29,331, 29,331,5 -5,679,300.0 23,652,2 21,032, -- - Total 587.60 87.60 0- 87.60 -- -- - 447.10 - 100 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 2,913,427.30 363,669.25 Income from other business 25,664,111.02 28,168,488.59 Operating cost 13,822,797.20 16,520,738.87 (2) Main business (by industry) 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 2,913,427.30 2,827,957.15 363,669.25 363,669.25 spare parts (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 CBC bicycle 135,649.58 135,649.58 109,566.69 109,566.69 OEM bicycle 2,777,777.72 2,692,307.57 Total 2,913,427.30 2,827,957.15 363,669.25 363,669.25 5. Supplemental Information of cash flow statement Unit: RMB Currency: CNY Amount of this p Amount of last p Supplemental Information eriod eriod 1. Reconciliation of net profit/(loss) to cash flows from operating activities: Net profit 66,120,624.68 40,234,684.03 plus: provision for assets -2,197,612.45 -1,926,719.39 Depreciation of fixed assets, oil/gas asset depletion and depreciation of 10,325,494.68 productive biological assets 8,419,674.72 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 (deduct - : gains) -14,781,833.16 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 26,259,541.82 1 Amount of this p Amount of last p Supplemental Information eriod eriod Losses arising from investments(deduct: gains) - - -4,560,000.00 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 32,722,498.56 Decrease in operating payables (deduct: increase) 15,999,407.38 -4,000,102.22 Increase in operating payables (deduct: decrease) -145,039,821.75 -35,373,439.09 Others - -47,770,407.23 Net cash flows from operating activities 17,584,130.67 86,760.08 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 Minus: opening balance of cash 365,121.06 Plus: closing balance of cash equivalents - - Minus: opening balance of cash equivalents - - Net increase of cash and cash equivalents 133,503.65 XII. Supplement information 1. List of non-recurring profit and loss Unit: RMB Currency: CNY Item Amount of this year Explanation Net income on disposal of Loss and profit on disposal of non-current assets 14,781,833.16 fixed 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 Loss 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 2 Item Amount of this year Explanation Expense for enterprise reconstruction, employee - arrangement and other integration costs Profit and loss from transactions with obvious unfair - 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 - Debt reorganization plan of Sunrise Company was completed, the Company Other non-operating income and expenses 49,869,741.11 reduced the interest and liabilities accrued previously in book Investment income of Other loss/profit qualified definition of other non recurring disposal of Hunan profit and loss 4,560,000.00 - Guangyang Motorcycle Amount influenced by income tax -16,610,777.82 Amount influenced by few shareholders’ equity(after-tax) Total 52,600,796.45 2. Return on Equity and earnings per share Earnings per share Average weight ROE Profit during the period of report Basic earnings per Dilute earnings per (%) share share Net income attributed to shareholders - 0.0720 0.0720 Net income attributed to shareholders after deducting net profit of recurring - -0.0234 -0.0234 loss and profit 3. Reason and explanation of unusual circumstance of items of financial statement of the company Unit: RMB Currency: CNY Change of Proportion of Items Explanation amount at the change in the 3 beginning of beginning of period and at the period and at end of period the end of period Emmelle, subsidiary of the Company, expanded its Monetary capital 38.24% sales and realization of disposal of assets of the 6,789,827.81 Company Note receivable -61.83% Note receivable decreased -1,619,699.00 Net account 123.33% Emmelle enlarge its sales receivable 2,137,096.60 Account paid in 644.41% Business growth in Emmelle advance 1,375,319.67 Other account Amount of auction of real estate in Huangqiang 39.28% receivable 7,103,694.00 South by the Court has not been funded Disposal of inventory and increasing accrual of Net inventory -34.03% -7,382,250.01 depreciation provision Creditor’s right of Sunrise Company was transferred Other account 138.07% to Dongtaixing, accounting item adjusted payable 228,967,825.38 correspondingly for calculation Non-current Creditor’s right of Sunrise Company was transferred liability due -36.03% to Dongtaixing, accounting item adjusted -254,618,348.98 within one year correspondingly for calculation Relevant taxes of real estate in Huangqiang South Other current 222.34% auctioned by Jieyang Rongcheng Court has been liability 1,681,231.86 accrued Gains/losses from exchange show less than last year, Financial expense -63.39% -40,895,972.69 and debt with interest calculated reduced Asset depreciation -84.60% Withdrawal of depreciation provision increased loss 1,489,808.61 Investment Investment income of disposal of Hunan Guangyang income 4,560,000.00 Motorcycle Co., Ltd. In this year, debt reorganization plan of Sunrise Company was completed ruled by the Court, the debt and liability accrued previously has been adjusted for Non-operation -53.59% reduced; non-operation income from auction of real income -74,965,986.96 estate in Huaqiang South by the Court; income from debt reorganization in last year amount to RMB 139 million Legal representative: Date: Principal in charge of accounting: Date: Principal of accounting organ: Date: 4 Section XII. 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 2011 Annual Report. Board of Directors of Shenzhen China Bicycle Company (Holdings) Limited April 21, 2012 5