Shenzhen Zhongheng Huafa Co., Ltd.
SEMI-ANNUAL REPORT 2010
Short Form of the Stock: SHEN HUAFA-A SHEN HUAFA-B
Stock Code: 000020, 200020
Semi-Annual Report 2010
Important Notice
The Board of Directors and the Supervisory Committee of Shenzhen Zhongheng Huafa Co., Ltd. (hereinafter referred to as the Company) and its directors, supervisors and senior executives confirm that there are no fictitious records, misleading statements or material omissions carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. No directors, supervisors or senior executives stated that he (she) couldn’t ensure the reality, accuracy and completion of the contents of the Semi-annual Report or have objection to this report.
All the directors attended the meeting of the Board.
Mr. Li Zhongqiu, Chairman of Board and General Manager of the Company, Mr. Jiang Yanjun, Person in Charge of Accounting Works, and Mr. Sun Wei, Person in Charge of Accounting Organ hereby state that: the financial report of the Semi-annual Report 2010 is true and complete.
The Semi-annual Financial Report of the Company has not been audited.
Board of Directors of
Shenzhen Zhongheng Huafa Co., Ltd.
Contents
Ⅰ. COMPANY PROFILE
Ⅱ. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHARES HELD BY MAIN SHAREHOLDERS
III. PARTICULARS ABOUT DIRECTORS, SUPERVISORS AND SENIOR EXECUTIVES Ⅳ. REPORT OF THE BAORD OF DIRECTORS Ⅴ. SIGNIFICANT EVENTS
Ⅵ. FINANCIAL REPORT (UN-AUDITED) Ⅶ. DOCUMENTS AVAILABLE FOR REFERENCE
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Semi-Annual Report 2010
I. Company Profile
(I)Name of the Company
In Chinese: 深圳中恒华发股份有限公司
In English: SHENZHEN ZHONGHENG HUAFA CO., LTD.
(II) Legal Representative: Li Zhongqiu
(III)Secretary of the Board: Li Zhongqiu (Proxy) Securities Affairs Representative: Weng Xiaojue
Contact Address: 6/F, East Tower of 411 Bldg, Huafa Building, Huafa Road (N), Futian District, Shenzhen.
Tel: (86) 83352206 Fax: (86) 755-83323160
E-mail: hwafainvestor@163.com
(IV) Registered Address: 411 Bldg., Huafa North Road, Futian District, Shenzhen
Office Address: 6/F, East Tower of 411 Bldg., Huafa Road (N), Futian District, Shenzhen. Post Code: 518031
Company’s Internet Web Site: http://www.hwafa.com
(V)Newspapers for Disclosing the Information of the Company:
China Securities Journal, Securities Times and Hong Kong Commercial Daily
Internet Web Site for Publishing the Semi-Annual Report: http://www.cninfo.com.cn
The Place Where the Semi-Annual Report is Prepared and Placed: OFF. of Board of Directors of Shenzhen Zhongheng Huafa Co., Ltd.
(VI)Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: SHEN HUAFA-A, SHEN HUAFA- B Stock Code: 000020, 200020
(VII)Other Relevant Information of the Company
Initial registered date and place or changed registered date and place: Registered date: May, 1992
Registered place: 411 Bldg., Huafa North Road, Futian District, Shenzhen
Registered number of enterprise legal person’s business license: 440301501120670 Registered number of tax: 440301618830372
Name and office address of Certified Public Accountants engaged by the Company: Name: Shinewing Certified Public Accountants
Address: 9/F, Block A, Fu Hua Mansion No.8 Chaoyang Men, Bei da jie, Dong Cheng District, Beijing, P.R.China
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Semi-Annual Report 2010
II. Major financial data and indexes
Unit: RMB
Total assets
Owners’ equity attributable to shareholders of listed company Share capital
Net assets per share attributable to shareholders of listed company (RMB/Share)
Total operating income Operating profit Total profit
At the end of this At the period-end report period of last year 817,922,955.67269,339,355.15283,161,227.00
0.951
756,779,839.48251,963,858.81283,161,227.00
0.
Increase/decrease at the end of
this report period compared with that in the year-begin (%)
8.086.900.006.85
This report periodThe same period Increase/decrease in this report (Jan. to Jun.) of last year period year-on-year (%) 366,405,407.8410,001,631.6717,194,750.52
212,122,658.944,488,787.234,359,222.804,359,222.804,488,787.23
0.0150.0151.73
-78,925,182.83
-0.279
72.73122.81294.45298.59126.84306.67306.67
Increased 4.72 percentage
points
——
Net profit attributable to the shareholders of
17,375,496.34
listed company
Net profit attributable to the shareholders of
the company after deducting non-recurring 10,182,377.49gainsandlosses
Basic earnings per share(RMB/Share) 0.061Diluted earnings per share (RMB/Share) Return on equity (%)
Net cash flow arising from operating activities Net cash flow arising from operating activities per share (RMB/Share)
0.0616.45
29,661,871.80
0.105
Items of non-recurring gains and lossesExchange gains and loss of non-monetary assets
Other non-operating income and expenditure except for the aforementioned items
Total
Amount 6,902,326.45 290,792.40 7,193,118.85
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Semi-Annual Report 2010
Net profit Net asset
Return on equity
Earnings per share
Basic earnings per share (RMB)
Diluted earnings per share(RMB)
CAS IAS 17,375,496.34 269,339,355.15
17,375,496.34 269,339,355.15
Item
Net profit attributable to the shareholders of the company Net profit attributable to the shareholders of the company after deducting non-recurring gains and losses
Fully diluted
(%)
6.45
Weighted average (%)
6.67
0.0614 0.0614
3.783.910.0360 0.0360
II. Change in Share Capital and Particulars about Shares Held by Main Shareholders
I. Particulars about change in share capital
In the report period, the share structure of the Company had no changes.
Before the change Amount (Share)
Increase/decrease in the change of this time (+, - )
Subtotal
After the change Amount (Share)
Proportion(%)
41.14
New Capitalization
Proportion Bonus
Othersshare of public
(%) shares
issuedreserve
I. Restricted
116,4,4 41.14
shares 1.
State-owned
shares 2.
State-owned legal person’s shares
3. Other domestic 116,4,4 41.14 shares
116,4,4
116,4,441.14
Including: Domestic
legal
116,4,4 41.14
person’s shares Domestic natural person’s shares
(shares of
116,4,4
41.14
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Semi-Annual Report 2010
senior
executives) 4. Foreign shares
Including: Foreign legal person’s shares Foreign natural
person’s shares II.
Unrestricted 166,671,333 58.86 shares
1. RMB Ordinary ,675,497 22.84 shares 2.
Domestically
101,995,836 36.02
listed foreign shares
3. Overseas listed foreign shares 4. Others
166,671,333 ,675,497
58.8622.84
101,995,83636.02
100
III. Total
283,161,227 100
shares
283,161,227
II. Particulars about shareholders (registered on Jun. 30, 2010)
Total shareholders
Particulars about shares held by the top ten shareholders
Full name of Shareholders
Nature of shareholders
Proportion
Total amount
of shares
of shares held
held
Amount of restricted shares
held
Amount of shares pledged or frozen
32,9
Domestic
Wuhan Zhongheng New Science &
general legal
Technology Industrial Group Co., Ltd.
person Foreign legal
SEG (HONG KONG) CO., LTD.
person
41.14% 116,4,45.85% 16,569,5604.91% 13,900,000
116,4,4 116,4,4
0 0 0 0 0
0 0 0 0 0
GOOD HOPE CORNER INVESTMENTS LTD
Jia Wenjun BINGHUA LIU Liu Liaoyuan
Foreign legal person Domestic natural person Foreign natural
person Domestic natural person
0.41% 1,152,032 0.31% 876,213 0.26% 741,900
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Semi-Annual Report 2010
Zhu Ming Liang Genpei
DBS VICKERS (HONG KONG)
LTD A/C CLIENTS
Luo Ya
Domestic natural person Domestic natural person Foreign legal person Domestic natural person
0.22% 611,348 0.21% 595,305 0.21% 591,150 0.21% 5,800
0 0 0 0
0 0 0 0
Particulars about shares held by the top ten shareholders of unrestricted shares
Name of shareholder SEG (HONG KONG) CO., LTD.
Amount of unrestricted shares held
Type of share Domestically listed foreign
share
Domestically listed foreign
share RMB common share Domestically listed foreign
share
Domestically listed foreign
share
Domestically listed foreign
share
Domestically listed foreign
share
Domestically listed foreign
share Domestically listed foreign
share RMB common share
16,569,560 13,900,000 1,152,032 876,213 741,900 611,348 595,305 591,150 5,800 561,087
GOOD HOPE CORNER INVESTMENTS LTD
Jia Wenjun BINGHUA LIU Liu Liaoyuan Zhu Ming Liang Genpei
DBS VICKERS (HONG KONG) LTD
A/C CLIENTS
Luo Ya Lin Caili
Explanation on associated relationship among the aforesaid shareholders or
consistent action
Note: on Dec. 25th of 2009, comtrolling shareholder Wuhan Zhongheng Technology Industries Group Limited (hereinafter referred to as \"Wuhan Zhongheng Group\") mortgaged all the holding limited current stock of the Company 116,4,4 shares to CITIC Bank Corporation Limited Wuhan Branch, mortgage period lasted from Dec 25th of 2009 to pledge applying thaw. Equity Mortgage registration had been completed in China Securities Depository and Clearing Co., Ltd. Shenzhen Branch. Till the reporting period ended, total 116,4,4 shares Wuhan Hunching Group held in the Company took up 100% equity of the Company, taking up 41.14% of total equity of the Company.
Among the top ten shareholders, Wuhan Zhongheng New Science & Technology Industrial Group Co., Ltd. neither bears associated relationship with other shareholders, nor belongs to the consistent actor that are prescribed in Measures for the Administration of Disclosure of Shareholder Equity Changes of Listed Companies.
The Company neither knew whether there exists associated relationship among the other tradable shareholders, nor they belong to consistent actors that are prescribed in Measures for the Administration of Disclosure of Shareholder Equity Changes of Listed Companies.
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Semi-Annual Report 2010
III. The amount and sale restriction condition of shares held by the top ten restricted shareholders
Name of restricted shareholders
Amount of Amount of Date of being newly added restricted shares listed for shares being Restriction condition
held trade listed for trade
No.
1
Wuhan Zhongheng New Science & Technology Industrial Group Co.,
Ltd.
116,4,4 2010-5-18 0
Promising that the non-tradable shares of the Company held by it will not be listed for trade within 36 months since the date of acquiring circulating right.
Note: regarding total 116,4,4 sahres holding in the Company were in situation of being pledged, till end of reporting period, Wuhan Hunching Group didn’t apply to Shenzhen Stock Exchange for thaw procedure of the above restricted sale shares.
IV.Change of the controlling shareholder of the Company
The controlling shareholder of the Company Wuhan Zhongheng New Science & Technology Industrial Group Co., Ltd., the actural controller is Mr. Li Zhongqiu, and did not change in the report period.
III. Particulars about Directors, Supervisors and Senior Executives
I. Changes in shares held by directors, supervisors, and senior executives
Directors, supervisors, and senior executives of the Company did not hold shares of the Company, and there was no change in holding shares.
II. Changes of the directors, supervisors, and senior executives of the Company in the report period
In middle of Dec. 2009, Mr. Fu Yanhua put forward to resign his posts of Director, Deputy General Manager, and Secretary of the Board of the Company due to adjustment work in Beijing.
In Apr. 2010, with the suggestion from the Nomination Committee of the Board and nomination of the General Manger of the Company, the Board of Director engaged Mr. Jiang Yanjun as the Deputy General Manager of the Company; and then Mr. Jiang Yanjun was supplemented to be the Director of the 6th Board of Directors of the Company.
IV. Report of Board of Directors
I.Overall operation and management of the Company in the report period
Affected by recovery of international economy and further promotion of National home appliances to the countryside policy, order of operation entity of industrial assets of the Company which is Wuhan Hengfa Technology Co., Ltd. significantly increased; at the same time, implementation of asset replacement program led to successful peeling of printed circuit board business. Compared to the same period of last year, it decreased loss from this part and brought about assets replacement
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Semi-Annual Report 2010
income.
The Company received a significant increase in main business operation over the same period of last year. Net profit realized from January to June amounted to RMB 17.38 million, 299% up compared to the same time of last year, mainly resulted from the following aspects:
●Business of whole set of LCD: Wuhan Heng Fat Video Technology Division further enlarged market share of main clients, meanwhile actively explored Haier, Shenzhou and other new clients, thus order number significanty increased; meanwhile in process of manufacture, fined process technology, improved production effiency. Positively promoted supply chain management, explored new suppliers, thus competitiveness of products was enhanced.
●Plastic and styrofoam business: in reporting period, Wuhan Hengfa Technology Division took market as orientation, successfully explored Haier Hefei market; meanwhile optimized products structure, integrated edge power of manufacture and equipment division, persistently caaried out final goal of energy saving, re-organized labor productivity thus effectively improved labor productivity.
II. Analysis on main business achievements and financial condition (I) Scope and operation of main business
The main operation of the Company focuses on products manufacture related to electron, including production and sales of injection pieces, polystyrene and LCD whole set business. The sales of products of the Company focus on the areas of Middle China and Hong Kong. Details could be available in the following statement: Unit: RMB’0000
Product Plastic injection hardware
Income from operations
Cost of operations
Gross profit ratio (%) 9.624.6.85
Increase/decrease Increase/decrease Increase/decrease in income from in cost of in gross profit operations operations ratio
year-on-year (%)year-on-year (%) year-on-year (%)
90.38113.33-6.
Decreased 3
96.91
percentage pointsDecreased 0.17
113.71
percentage points-8.84
Increased 1.92 percentage points
9,810.15 8,865.97
LCD 22,142.27 21,106.73Polystyrene
2,755.85
2,484.40
Increase/decrease in income from
Area Income from operation
operations over last year (%) HongKong 22,142.27Middle China
12,566.00
113.3382.35
(II) General analysis on financial condition
1. Change in main financial index in the report period
Unit: RMB
Amount in the
Amount in the Increase or
Item same period of
period decrease (%)
last year
Operation income
366,405,407.84
212,122,658.94
72.73
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Semi-Annual Report 2010
Operation profit 10,001,631.674,488,787.23 122.81
Net profit attributable to shareholders
17,375,496.34
of the company
Net increase amount of cash and cash
101,408,959.26
equivalents
Item
Total assets
Owners’ equity attributable to parent company
4,359,222.80 298.59 66,637,082.71
52.18
Amount of period-end
817,922,955.67269,339,355.15
Amount of period-begin
756,779,839.48
Increase or decrease (%)
8.08
251,963,858.81 6.90
Reasons for the above changes:
(1) Operating income significantly increased compared to the same period of last year, mainly due to operating income of wholly owned subsidiary of Wuhan Hengfa Technology Co., Ltd. significantly increased.
(2) Main reason for increase of operating profit and et profit attributable to shareholders of the Company:
a. Peeling of circuit board business decreased loss of the Company, and produced income of assets replacement;
b. Net profit of Wuhan Hengfa Technology Company in the first half year dramatically increased. (3) Net increase amount of cash and cash equivalent significantly increased, mainly due to increase of bank loan.
(4) Main reason for increase of total assets compared to the same period of last year: a. Singnificant increase of bank loan;
b. Flourishing production and sales of Wuhan Hengfa Technology increased accounts receivable and inventory goods.
(III)Other operation business of the Company which set significant influence upon net profit of the report period
Gains and losses occurred
Other operation business
(RMB’0000)
Property lease
1526.52
(IV) Investment income received by the Company from single joint stock company in the reporting period
In the report period, there is no investment income received by the Company from single joint stock company, influencing net profit of the Company over 10 %( 10% included)
(V)Problems and difficulties in operation
In reporting period, integrity business of LCD has greater growth over the same period of last year. Due to the market of LCD-the raw material fluctuated greatly, the integrity production correspondingly changed and remained un-steady factor; the business of plastic injection and Styrofoam has growth either, but there remain many steps needing improvement in internal management, especially in the plastic injection business department which has a greater space for fine management and cost reduced.
(VI)Main working plan for the later half year
In second half year, the Company will continuously attach importance to integrity organization business of LCD, strive to remain the same order volume as the one of first half year and put effort
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Semi-Annual Report 2010
in implementation. Business of plastic injection and Styrofoam focus on the management strengthen, strongly bring in ERP management system, perfect the procedure of production business, detail diagnosis should be taken in fine management level for the purpose of improving by special consultancy recruitment on schedule, meanwhile propose strategically plan. Concerning the cost reduction, on one hand put efforts in the supplier exploring, on other hand, promote the energy-saving reform on the equipment steadily; concerning the development & reform of land resource right now, renewal unit of Huafa Mansion still in the application, the development plan in the discussion and Gongming land project will prepare renewal plan in second half year.
III. Investment
(I) Usage of raised proceeds
In the report period, the Company hasn’t raised any fund or fund raised in previous period used lasting to this report period.
(II) Significant investment with non-raised proceeds
In reporting period there was no significant investment with non-raised proceeds.
V. Significant Events
I. Company Gorvernance
According to the related files of China securities regulatory commission，company has established relatively perfect governance structure of corporate governance, and the actual status of the governance can basically comply with relevant regulatory documents, it can better meet the company’s developing needs.
(I)During the reporting period, the company examined and formulated annual information disclosure of major mistakes responsibility system according to the listed companies in 2009 regarding annual report and related work announcement (CSRC announcement no. 34 [2009])and shenzhen bureau ‘s request for information disclosure of listed company annals of major mistakes responsibility system; To further perfect and regulate report and major issues in compiling, review and external information users during the disclosure of management, established the external information users management system.
(II)According to the Securities law of the People's Republic of China and the on-site inspection measures of listed company, shenzhen SRC bureau did the on-site inspection to our company towards corporate governance, the information disclosure, financial management and accounting treatments from March to July 2010, and noticed the inspect condition to the company's board of directors and supervisors, and issued the report of the shenzhen zhongheng huafa industrial Co., ltd., on-site examination opinions of supervision. According to all the problems found out by the expectation, Company made a comprehensively arrangement and analyzed the causes of problems and responsible man, and formulated the self-examination action plan, which is currently implementing now.
(III)According to the demand of announcement of the listed company in shenzhen area about launching comprehensive standard accounting basis of special activitie([2010] No109), which promulgated by Shenzhen SRC , the company insisted the spirit of seeking truth from facts and strict discipline, serious rectification, regulating the operation, and made special activities around the financial control work plan, accounting, financial links and aspects of financial management, and made a thorough and careful work of special self-examination to the finance basic work. Currently, the company is perfecting a series of financial management system and process, regulate internal financial management operation
II. Implementation of profit distribution plan
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Semi-Annual Report 2010
In the report period, the Company has no profit distribution plan, capital reserve transferred into share capital plan or issuing new shares plan which were planned in previous periods and implemented in this report period.
No profit would be distributed and no capital reserve would be transferred to add share capital in the first half year of 2010.
III. Significant lawsuits and arbitrations
The Company signed House Leasing Contract and complementary agreement with Shenzhen
Wanshang Friendship Department Store Co., Ltd. (hereinafter refer to as “Wanshang Friendship”) in the year of 2001, and had agreement of step-up rent. The Company considered that from the view of the actual aim of signing contract and transaction equality, Wanshang Friendship did not strictly implement regulations of House Leasing Contract and did not pay enough rent. In order to protect the interests of listed company and all shareholders, the Company handed in civil indictment to Shenzhen Futian District People’s Court, which sued that Wanshang Friendship did not pay rent as agreement, concerning amount of 17.7466 million yuan. The Court formally received the case of appeal and rejected the appeal from the Company. The Company appealed to Shenzhen
Intermediate People's Court regarding this judgment. And Shenzhen Intermediate People's Court made the second instance trial. Till now, there is no judgment being made.
IV. Security investment
In the report period, the Company hasn’t carried out security investment, nor held equity of other listed company, non-listed financial enterprise or company that planned to be listed.
V. Significant asset purchase, sales and asset restructure
No significant asset purchase, sales and enterprise merger concerning non related transaction happened in this report period, nor did them happened in previous period but lasted to this report period.
VI. Significant related transaction
(I) In order to improve assets quality and profitability, realize industrial assets integration meanwhile remove related transaction events which is that the industry production business of the Company in Wuhan rented plants to controlling shareholder Wuhan Hunching Group for a long time, the Company replaced printed circuit board business, partial Gongming industrial land and partial land assets controlling shareholder Wuhan Hunching Group held in Wuhan. Specific operation is as follows:
1. The Company involved printed circuit board business in wholly owned subsidiary Shenzhen Zhongheng Huafa Technology Co., Ltd.: increase investment in Shenzhen Hunching Haifa Technology Co., Ltd via instrument and equipment and fixed assets of printed circuit board business as well as cash, meanwhile sold inventory of printed circuit board business and transferred management team and staff related to printed circuit board business as well as all the related documents and information (including but not restricted, documents of clients and suppliers, purchase and sales contract, rules and regulation and so on), the registration capital increased to 86.76775 million yan.
2. The Copany and Wuhan Hunching Group increased investment in wholly owned subsidiary Shenzhen Zhongheng Huafa Technology Co., Ltd.: the Company increased 44 million yuan in Wuhan Hengfa Technology Co., Ltd in monetary way with 1:1 rate calculation and got 44% equity of Wuhan Hengfa Technology Co., Ltd after the completion of increase of investment; Wuhan Hunching Group increased investment in Wuhan Hengfa Technology Co., Ltd via land use right of Tunkou District NO.10 and NO. 2 places located in Wuhan Economic and Technological Development Zone with 101.6931 million yuan evaluation value and 1:1 calculation rate, thus got
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Semi-Annual Report 2010
56% equity of Wuhan Hengfa Technology Co., Ltd after the completion of increase of investment. Total increased investment amounted to 145.6931 million yuan, registration capital of Wuhan Hengfa Technology Co., Ltd increased to 181.31 million yuan.
3. Wuhan Hunching Group made a assets replacement between the holding 56% equity of Wuhan Hengfa Technology Co., Ltd amounting to 101693100 yuan and holding 100% equity of Shenzhen Zhongheng Huafa Technology Co., Ltd. held by the Company. The difference will be supplemented with cash.
4. As long as the Company completed the second increased investment in Shenzhen Hunching Haifa Technology Co., Ltd via Gongming Industrial Land, the Company can get about 17.6% equity of Shenzhen Hunching Haifa Technology Co., Ltd after the second increased investment for the second time and paid them to Wuhan Hunching Group. Therefore before the Company paid this equity, the Company should pay 14925350 yuan difference fees to Wuhan Hunching Group. After the Company pays the equity, Wuhan Hunching Group returned 18550000 yuan to the Company with equity transfer fees.
The Board of Directors of the Company held the 3rd temporary meeting of 2009 on Apr 22nd of 2009 and discussed and approved the above assets replacement events; on Apr 29th , the Company signed Contract of Assets Replacement with Wuahan Hunching Group; on Nov 4, the 2009 second temporary meeting of shareholders discussed and approved assets replacement events, Contract of Assets Replacement was into effect. In Dec of 2009, Wuhan Hunching Group transferred Wuhan land and property to wholly owned subsidiary Wuhan Hengfa Technology Co., Ltd., and 100% equity of wholly owned subsidiary Shenzhen Zhongheng Huafa Technology Co., Ltd. to Wuhan Hunching Group; in Mar of 2010, the Company and Wuhan Hunching Group increased investment in Wuhan Hengfa Technology Co., Ltd via land use right and cash, thus got 56% equity of Wuhan Hengfa Technology Co., Ltd after the completion of increase of investment.
On Apr 20th of 2009, Hubei Zhonglian Assets Appraisal Co., Ltd. appraised real estate concerning assets replacement, and issued E-public joint assessment report Zi [2009] No. 024 appraisal report. The property and land respectively were through property transfer procedures on Nov 30th of 2009 and Nov 14th of 2009, and transferred it to Hengfa Technology Company. But in process of striving land ownership certificates, there is need to re-measure the area of transferred land. As result of current measurement technology, precision and measurement different from history, and all along local government occupied partial transferred land for green project and establishment of road and other public facilities, so the real area of transferred land is smaller than agreed area on Contract of Assets Replacment, the Difference is about 3,618.96 square meters, amounting to about 2365200 yuan. For this difference, Wuhan Hunching made a commitment to the Company on Dec 30th of 2009: supplement the difference before Jun 30th of 2010 with cash. Till reporting period-end, related difference had been supplemented.
(II) According to requirements of development of the Company business, the Company will continue to carry out daily related transaction with Wuhan Zhongheng Group as well as its subsidiary Wuhan Hengsheng Photoelectricity Industry Co., Ltd from which raw materials LCD needed in production were purchased in 2010. Proposal on Prediction of Daily Related Transaction in Visual Communication Business for 2010 was examined and approved in Annual Extraordinary Shareholders’ Meeting of 2009 on Jun 29th, 2010, which expected that the Company may purchase LCD about 675000 sets from related parties, with purchasing amount of USD 60990000, and the pricing principle was that transaction price was at least 1% lower than the average market price of that time. Details could be available in the Company’s notice dated Feb. 6, 2010. From January to June of 2010, the Company actually purchased 19 inch LCD with about RMB 70,500,000 from related parties.
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Semi-Annual Report 2010
(III) With the involving of printed circuit board business of the Company into Shenzhen Hunching Haifa Technology Co., Ltd, based on that Shenzhen Hunching Haifa Technology Co., Ltd needed to get previous clients of this business and acceptance of suppliers and acceptance of processing trade qualification license from customs in charge to carry out printed circuit board business, There is a transition phase before transfer operation of the above business. In order to assist Shenzhen Hunching Haifa Technology Co., Ltd to successfully take over printed circuit board business, partial material purchase and products sales of Shenzhen Hunching Haifa Technology Co., Ltd temporarily need to be conducted through channels of the Company. The Company only offers transactional assistance for Shenzhen Hunching Haifa Technology Co., Ltd, doesn’t pay for operating capital in advance, neither brings about any loss, neither take on any purchase or sales deputy responsibility. The rising expense loss during the time will be taken over totally by controlling shareholder Wuhan Hunching Group and Shenzhen Hunching Haifa Technology Co., Ltd. Details can be seen on company report on Feb 6th of 2010. From Jan. to Jun. of 2010, actually the Company purchased goods about RMB 9,550,000 from Shenzhen Zhongheng Huafa Technology Co., Ltd, sold goods about RMB 170,000 and offered comprehensive service about RMB 630,000.
(IV) There was no non-operational current credit and liability and guarantee existed among the Company, controlling subsidiaries and related parties
VII. Significant contracts and their implementations
(I) Besides the aforesaid property leasing contract involved in Item III – Significant lawsuit and arbitration, the Company had no significant transaction, trusteeship, contract and leasing contract occurred in the report period or in the past but lasted to this period.
(II) The Company hasn’t any significant guarantee contract occurred in the report period or occurred in previous period but lasted to the report period.
(III) The Company hasn’t any significant entrusting event of others to manage assets of the Company occurred in the report period or previous period but lasted to the report period; neither has other entrusted financing events.
VIII. Special explanation and independent opinion issued by independent directors on capital occupancy and external guarantee of related parties of the Company
Independent directors made careful inspection on the capital occupancy by largest shareholder and its related parties and external guarantee of the Company, and they held the opinions that: during the report period, the Company hadn’t capital occupancy by controlling shareholder and other related parties; the Company also hadn’t provided guarantees for controlling shareholder, actual controller and other related parties, any non-legal person unit or individual; the Company hadn’t been forcibly supplied guarantees for others by controlling shareholder, actual controller and other related parties; ended as June 30, 2010, the Company hadn’t any current external guarantee or accumulated guarantee matters.
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Semi-Annual Report 2010
IX. Commitments
(I) Commitments that probably have significant influence on operational result and financial status of the Company occurred in the report period or previous period but lasted to the report period made by the Company or shareholders holding over 5% (including 5%) of the Company.
Name of shareholder
Commitment
Performance of commitment
1. On Jun. 5, 2008, with examination and approval from the 3rd temporary meeting of the Board for 2008, the Company took cash RMB 27 million to buy relevant assets
Planning within 1 year concerning production of injection products from Wuhan
after completion of equity
Zhongheng Group, and thus part commitment had been
transaction procedures:
finished;
1.Relevant capital of 2. In the first 10 days of May, 2008, the Company plastic injection business officially started off the significant asset restructure work
will injected into the of purchasing the 70% equities of Wuhan Hengsheng Company;
Photoelectricity Industry Co., Ltd.; engaged financial 2. 70% equity of consultant and law consultant to carry out earnest Hengsheng Photoelectricity
investigation on the restructure assets that may be will be injected into the involved, and negotiated with relevant departments which
Company.
were in charge of this. However, due to that relevant condition was not mature, there were obstacles in material asset restructure and paused the planning in short time.
Wuhan Zhongheng New Science & Technology Industrial Group
Co., Ltd.
(II)Commitments of controlling shareholders made in the share merger reform scheme of the Company
Name of shareholder
Special commitment
Performance of commitment
Commitment has been fulfilled on May 18th of 2010; regarding total holding shares of the Company 116,4,4 shares Wuhan Zhongheng Promised that the holding non-circulating shares were still in pledge, till the New Science & of the Company won’t be traded on the market
Technology period-end of this reporting within 36 months since they acquired listed Industrial Group period, Wuhan Hunching Group trading right. Co., Ltd. didn’t apply lifting procedure over restricted shares to the Shenzhen Stock Exchange.
X. Audit
The financial report of the Company in semi-annual of year 2010 hasn’t been audited. The Company has not engaged any audit organization for 2010 in reporting period.
XI. Other significant events
(I) In the report period, the Company, as well as its directors, supervisors, senior executives, controlling shareholders and actual controllers haven’t received any inspection, administrative penalty, forbiddance to enter securities market and pointed as inappropriate person by CSRC; haven’t received other penalty from administrative departments and public condemn from Shenzhen Stock Exchange.
(II) In the report period, management of investors of the Company was mainly conducted through maintenance of investors management platform and daily telephone inquiries, the Company hasn’t had any reception or research, communication, interview etc. activities from the special objects indicated by Guiding Rules for Fair Information Disclosure of Listed Company.
14
Semi-Annual Report 2010
VI. Financial Report (Un-audited)
BALANCE SHEET
Prepared by Shenzhen Zhongheng Huafa Co., Ltd. June 30, 2010 Unit: RMB
Amount at period-end Amount at year-begin
Item
Merger Parent Company Merger Parent Company Current assets: Monetary funds 128,562,059.1941,844,246.8881,045,080.98 49,500,363.83Settlement provisions Capital lent Transaction finance asset Notes receivable 8,1,918.452,567,614.4016,494,962.28 5,210,693.07Accounts receivable 255,979,933.9434,233,162.63198,525,735.70 1,832,968.Accounts paid in advance 17,303,182.051,392,828.712,540,752.30 984,065.76Insurance receivable Reinsurance receivables Contract reserve of
reinsurance receivable Interest receivable Dividend receivable Other receivables 19,1,547.2381,776,231.5598,540,829.55 130,922,698.28Purchase restituted finance
asset
Inventories 72,172,187.1614,960,445.4046,659,614.06 5,430,049.66Non-current asset due within
one year
Other current assets Total current assets 501,823,828.02176,774,529.57443,806,974.87 381,880,839.24Non-current assets: Granted loans and advances Finance asset available for
sales
Held-to-maturity investment Long-term account
receivable
Long-term equity investment 184,609,820.00 38,915,7.00Investment property 39,205,813.39,205,813.40,432,444.22 40,432,444.22Fixed assets 207,969,6.28121,658,867.62209,483,513.59 126,119,724.23Construction in progress 3,863,446.233,839,714.54813,658.48 7,926.79Engineering material Disposal of fixed asset Productive biological asset Oil and gas asset Intangible assets 57,026,173.068,244,431.8754,779,557.90 6,053,471.83Expense on Research and
Development
Goodwill Long-term expenses to be 2,000,000.002,000,000.002,375,000.00 2,375,000.00apportioned
Deferred income tax asset 6,033,798.446,066,614.5,088,690.42 6,066,614.Other non-current asset Total non-current asset 316,099,127.65365,625,262.56312,972,8.61 220,752,970.96Total assets 817,922,955.67542,399,792.13756,779,839.48 602,633,810.20Current liabilities: 15
Semi-Annual Report 2010
Short-term loans 117,091,620.6612,918,204.6133,442,212.57 23,570,130.56Loan from central bank Absorbing deposit and
interbank deposit
Capital borrowed Transaction financial
liabilities Notes payable 30,6,698.5118,480,655.16 Accounts payable 166,988,515.4630,783,765.4481,546,114.17 50,331,249.99Accounts received in 1,3,902.08778,433.181,762,766.25 1,442,334.29advance
Selling financial asset of
repurchase
Commission charge and
commission payable Wage payable 2,196,752.72545,694.352,047,294.58 526,475.34Taxes payable 1,102,837.292,6,496.108,828,793.97 9,015,502.25Interest payable Dividend payable Other accounts payable 10,710,209.8117,869,175.52132,5,479.98 40,020,152.97Reinsurance payables Insurance contract reserve Security trading of agency Security sales of agency Non-current liabilities due
within 1 year
Other current liabilities Total current liabilities 330,144,536.5365,584,769.20278,753,316.68 124,905,845.40Non-current liabilities: Long-term loans 211,997,600.00211,997,600.00219,621,200.00 219,621,200.00Bonds payable Long-term account payable Special accounts payable Projected liabilities 6,241,463.996,241,463.996,241,463.99 6,241,463.99Deferred income tax
liabilities
Other non-current liabilities 200,000.00200,000.00200,000.00 200,000.00Total non-current liabilities 218,439,063.99218,239,063.99226,062,663.99 226,062,663.99Total liabilities 548,583,600.52284,023,833.19504,815,980.67 350,968,509.39Owner’s equity (or
shareholders’ equity):
Paid-in capital (or share 283,161,227.00283,161,227.00283,161,227.00 283,161,227.00capital)
Capital public reserve 104,073,326.94104,073,326.94104,073,326.94 104,073,326.94Less: Inventory shares Reasonable reserve Surplus public reserve 77,391,593.2577,391,593.2577,391,593.25 77,391,593.25Provision of general risk Retained profit -195,286,792.04-206,250,188.25-212,662,288.38 -212,960,846.38Balance difference of foreign
currency translation
Total owner’s equity 258,375,958.94251,963,858.81 251,665,300.81attributable to parent 269,339,355.15
company
Minority interests Total owner’s equity 269,339,355.15258,375,958.94251,963,858.81 251,665,300.81
16
Semi-Annual Report 2010
Total liabilities and owner’s equity
817,922,955.67542,399,792.13756,779,839.48 602,633,810.20
PROFIT STATEMENT
Prepared by Shenzhen Zhongheng Huafa Co., Ltd. Jan.-Jun., 2010 Unit: RMB
Amount in this period Amount in last period
Item Parent Parent
Merger Merger
Company Company
I. Total operating income 366,405,407.8424,888,551.57212,122,658.94 141,587,417.02Including: Operating income366,405,407.8424,888,551.57212,122,658.94 141,587,417.02Interest income Insurance gained Commission charge and
commission income II. Total operating cost 356,403,776.1725,331,083.61207,633,871.71 136,802,685.47Including: Operating cost 326,247,5.997,495,814.81180,418,375.74 118,371,361.95Interest 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 1,493,633.361,253,188.971,830,716.14 1,650,080.70Sales expenses 1,169,773.97240,907.093,027,035.54 1,796,971.45Administration expenses 16,030,758.409,796,198.4916,821,127.85 9,975,520.04Financial expenses 7,681,282.396,544,974.255,536,616.44 5,008,751.33Losses of devaluation of 3,780,432.06 asset
Add: Changing income of
fair value
Investment income Including: Investment income on affiliated company and joint venture Exchange income Entrusted operating
10,001,631.67-442,532.044,488,787.23 4,784,731.55income
III. Operating profit 7,220,163.577,151,181.45120,8.30 3,634,932.18Add: Non-operating income27,044.72-2,008.72250,453.73 250,453.73Less: Non-operating expense Including: Disposal loss of 17,194,750.526,710,658.134,359,222.80 8,169,210.00non-current asset IV. Total Profit -180,745.82 Less: Income tax expense 17,375,496.346,710,658.134,359,222.80 8,169,210.00V. Net profit 17,375,496.346,710,658.134,359,222.80 8,169,210.00Net profit attributable to
owner’s of parent company Minority shareholders’ gains
and losses
VI. Earnings per share 0.061 0.024 0.015 0.02917
Semi-Annual Report 2010
i. Basic earnings per share ii. Diluted earnings per share VII. Other consolidated income
Total comprehensive income attributable to parent company
Total comprehensive income
attributable to minority
shareholders
0.061 17,375,496.3417,375,496.34
0.024 06,710,658.136,710,658.13
0.015 0.0290.00 0.004,359,222.80 8,169,210.004,359,222.80 8,169,210.00
CASH FLOW STATEMENT
Prepared by Shenzhen Zhongheng Huafa Co., Ltd. Jan.-Jun., 2010 Unit: RMB
Amount in this period Amount in last period
Item
Merger Parent Company Merger Parent Company
I. Cash flows arising from
operating activities:
Cash received from selling 306,901,158.16119,051,361.84131,268,785.30 115,053,063.61commodities and 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
Net increase of insured
savings and investment
Net increase of disposal
of transaction financial assetCash received from interest, commission charge and commission
Net increase of capital
borrowed
Net increase of returned
business capital
Write-back of tax received Other cash received 11,843,581.7733,320,273.7120,902,319.80 65,827,829.48concerning operating activities Subtotal of cash inflow 152,371,635.55152,171,105.10 180,880,3.09arising from operating 318,744,739.93
activities
Cash paid for purchasing 250,172,083.9527,452,062.31132,2,144.14 114,713,508.58commodities and receiving labor service
Net increase of customer
loans and advances
18
Semi-Annual Report 2010
Net increase of deposits
in central bank and interbankCash 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 14,498,567.953,819,860.45
workers Taxes paid 4,696,333.602,261,491.06Other cash paid concerning 19,715,882.6316,737,663.
operating activities
Subtotal of cash outflow 50,271,077.71arising from operating 2,082,868.13
activities
Net cash flows arising from 29,661,871.80102,100,557.84
operating activities
II. Cash flows arising from
investing activities:
Cash received from
recovering investment
Cash received from
investment income
Net cash received from disposal of fixed, intangible and 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 4,297,438.243,204,747.00fixed, intangible and other long-term assets
Cash paid for investment 58,300,000.00 Net increase of
mortgaged loans
Net cash received from
subsidiaries and other units Other cash paid concerning investing activities
Subtotal of cash outflow 4,297,438.2461,504,747.00
from investing activities
Net cash flows arising from -4,297,438.24-61,504,747.00
investing activities
III. Cash flows arising from
financing activities
Cash received from
absorbing investment Including: Cash
13,502,102.92 7,999,606.653,158,433.58 2,605,857.98
81,543,607.29 93,290,043.39231,096,287.93 218,609,016.60-78,925,182.83 -37,728,123.51
2,455,181.70 369,445.56
2,9,313.79 5,354,495.49 61,006,437.35-5,354,495.49 -61,006,437.35
60,636,991.79
19
Semi-Annual Report 2010
received from absorbing minority shareholders’ investment by subsidiaries Cash received from loans 102,001,334.04 Cash received from
issuing bonds
Other cash received concerning financing activities
Subtotal of cash inflow from 102,001,334.04
financing activities
Cash paid for settling debts 18,611,834.0918,611,834.09Cash paid for dividend and 7,344,974.256,208,666.11profit distributing or interest paying
Including: Dividend and profit of minority
shareholder paid by subsidiaries
Other cash paid concerning
financing activities
Subtotal of cash outflow 25,956,808.3424,820,500.20
from financing activities
Net cash flows arising from 76,044,525.70-24,820,500.20
financing activities
IV. Influence on cash and cash equivalents due to fluctuation in exchange rateV. Net increase of cash and 101,408,959.2615,775,310.
cash equivalents
Add: Balance of cash and 27,153,099.9326,068,936.24cash equivalents at the period -begin
VI. Balance of cash and cash 128,562,059.1941,844,246.88
equivalents at the period -end
253,481,853.33
253,481,853.33
253,481,853.33 253,481,853.3397,459,600.00 97,459,600.00
5,027,225.33 5,027,225.33
102,486,825.33 102,486,825.33150,995,028.00 150,995,028.00-78,266.97 -78,266.9766,637,082.71 52,182,200.1724,314,654.56 23,236,402.7790,951,737.27 75,418,602.9420
Semi-Annual Report 2010
CONSOLIDATED STATEMENT ON CHANGES OF OWNERS’ EQUITY
Prepared by Shenzhen Zhongheng Huafa Co., Ltd. Semi-Annual of 2010 Unit: RMB
Amount in this report period
Owners' equity attributable to the parent company
Items
Paid-up capital (Share capital)
I. Balance at
the end of last 283,161,227.00104,073,326.94 year Add: Changes of
accounting policy Error
correction of the last period Others II. Balance at the beginning of this year III. Increase/ Decrease in this year (Decrease is listed with'\"-\")
17,375,496.34
17,375,496.34
4,154,592.65283,161,227.00104,073,326.94 77,391,593.25
-212,662,288.38
251,963,858.81283,161,227.00 104,073,326.94
77,391,593.25
-216,816,881.03
247,809,266.16
77,391,593.25
-212,662,288.38
251,963,858.81283,161,227.00 104,073,326.94
77,391,593.25
-216,816,881.03
247,809,266.16 Capital
Treasury
reserves
Stock
reserve
reserves
provision
Less:
Reasonable Surplus
risk
Retained profitOthers
General
Minority’s Total owners’ equity
equity
Paid-up capital (Share capital)
Capital
Treasury
reserves
Stock
reserve
reserves
provision
Amount in last year
Owners' equity attributable to the parent company
Less:
Reasonable
Surplus
risk
Retained profitOthers
General
Minority’s Total owners’ equity
equity
4,154,592.65 21
Semi-Annual Report 2010
(I) Net profit (II)Other consolidated income Subtotal of
17,375,496.34
(I)and (II) (III) Owners' devoted and
decreased capital 1. Owners'
devoted capital 2. Amount calculated into
owners' equity paid in shares
3. Others (IV) Profit
distribution 1. Withdrawal of surplus reserves 2. Withdrawal of general risk provisions 3. Distribution for owners (shareholders)
4. Others
17,375,496.34
4,154,592.65
17,375,496.34
17,375,496.34
4,154,592.65 4,154,592.65 4,154,592.65 22
Semi-Annual Report 2010
(V) Carrying forward
internal owners' equity 1. Capital reserves conversed to capital (share capital) 2. Surplus reserves conversed to capital (share capital)
3. Remedying loss with surplus reserve
4. Others (VI)Reasonable
reserve 1．Withdrewal
this period 2．Usage this
period IV. Balance at the end of the report period
283,161,227.00104,073,326.94 77,391,593.25
-195,286,792.04
269,339,355.15283,161,227.00 104,073,326.9477,391,593.25
-212,662,288.38
251,963,858.81
23
Semi-Annual Report 2010
STATEMENT ON CHANGES OF OWNERS' EQUITY OF PARENT COMPANY
Prepared by Shenzhen Zhongheng Huafa Co., Ltd. Semi-Annual of 2010 Unit: RMB
Amount in this report period
Less:
Item
Paid-up capital (Share capital)
Capital
Treasury
reserves
Stock
I. Balance at the end of 283,161,227.00 104,073,326.94 last year
Add: Changes of
accounting policy Error correction of the last
period
Others
77,391,593.25
-212,960,846.38251,665,300.81
283,161,227.00104,073,326.94
77,391,593.25
-211,803,175.34 252,822,971.85 reserve
reserves
reserve
Reasonable
Surplus
risk
Retained profit
equity
(Share capital)
reserves
Stock
General
Total owners’
Paid-up capital
Capital
Treasury
reserve
reserves
reserve
Less:
Reasonable
Surplus
risk
Retained profit
equity
Amount in last year
General
Total owners’
II. Balance at the 283,161,227.00 104,073,326.94 beginning of this year III. Increase/ Decrease in this year (Decrease is 6,710,658.13listed with'\"-\") (I) Net profit (II)Other consolidated
income
Subtotal of (I)and (II) (III) Owners' devoted and
decreased capital
1. Owners' devoted capital
6,710,658.13
6,710,658.13
-1,157,671.04 -1,157,671.04
6,710,658.13
6,710,658.13
-1,157,671.04 -1,157,671.04 6,710,658.13
-1,157,671.04 -1,157,671.04 77,391,593.25
-212,960,846.38251,665,300.81
283,161,227.00104,073,326.94
77,391,593.25
-211,803,175.34 252,822,971.85 24
Semi-Annual Report 2010
2. Amount calculated into owners' equity paid in shares 3. Others
(IV) Profit distribution 1. Withdrawal of surplus
reserves
2．Withdraw of general
risk provision
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 reserves 4. Others
(VI)Reasonable reserve
1．Withdrawal this period 2．Usage this period IV. Balance at the end of
283,161,227.00 104,073,326.94 the report period
77,391,593.25-206,250,188.25258,375,958.94283,161,227.00104,073,326.9477,391,593.25-212,960,846.38 251,665,300.81 25
Semi-Annual Report 2010
Annotations to the Accounting Statements:
1. Company Profile
Shenzhen Zhongheng Huafa Co., Ltd. (“the Company” for short, but “the Company (or ‘the Group’)” when including subsidiaries), previously known as Shenzhen Zhongheng Huafa Co., Ltd. (renamed as set out herein in this term), is a Sino-foreign joint venture jointly invested and incorporated by such three legal persons as Shenzhen Electronics Group Co., Ltd. (“SEG” for short), China Zhenhua Electronics Group Co., Ltd. (“Zhenhua Group” for short) and Luks Industrial (Group) Limited (“Luks Group” for short) on 08 December 1981. In 1991, the Company was reorganized as a company of limited liabilities by stocks (registered number of the License for a Corporation Legal Person: Q.G.Y.S.Z.Z.No. 100296 and is changed as 440301501120670 in this term) and made its IPO in the same year, issuing 53,130,000 shares of RMB common stock with par value 1 Yuan per share, including 29,630,000 shares of A shares and 23,500,000 shares of B shares. In 1992, the Company launched it’s A shares and B shares in Shenzhen Stock Exchange, 53,130,000 shares were tradable and 159,203,000 shares remaining unlisted.
In November 1996, Luks Group assigned 12% of its shares in the Company, totaling 25,500,000 shares, to SEG through agreement, which was approved in the reply of Shenzhen Stock Regulatory Office and ceded on 05 March 1997. After such assignment, Luks Group held 25,796,663 shares of the Company, accounting for 12.16% of the total shares capital, and SEG held 25,500,000 shares of the Company, accounting for 12% of the total shares capital.
In December 1997, the Company conducted shares allotment program, issuing extra 63,699,5 shares to all shareholders by the ratio of 10:3 against the total 212,332,9 shares before the allotment, among which, 30,777,997 shares were alloted to domestic corporate shareholders and 3,600,000 shares were subscribed, with the remaining 27,177,997 shares assigned to public shareholders on paid basis, 15,388,998 shares were allotted to foreign corporate shareholders and 1,800,000 shares were subscribed with 13,588,998 shares abandoned, and also 9,777,900 shares allotted to public shareholders and 7,755,000 shares to domestic-listed foreign shareholders.
In January 1998, the Company carried out the capital reserve-to-capital program for year 1996, i.e. based on the total 212,332,9 shares ended 1996, 2 shares will be increased to per 10 shares for all shareholders, and based on the total 240,701,488 shares ended 1997 after allotation, 1.7 shares will be increased to each 10 shares for all shareholders.
On 05 January 2001, upon ratification, the increased shares of the Company, totaling 6,394,438 shares, went public in Shenzhen Stock Exchange.
On 29 May 2001, upon the approval of CSRC, the non-listed foreign capital totaling 62,462,914 shares of the Company were transferred as listed circulating stock, marking the irculation of entire foreign capital.
On 30 November 2001 and 07 December 2001, Luks Group reduced the B-share of the Company, totaling 14,158,000 shares and 14,159,000 shares respectively. As of 17 December 2001, SEG had aggregately reduced B-share of the Company totaling
26
Semi-Annual Report 2010
14,487,400 shares, accounting for 5.12% of total shares capital of the Company.
On 06 June 2005, the Company bulletined that original shareholder SEG and China Zhenhua Group assigned the state-owned corporate capital they held in the Company totaling 124,920,000 shares to Wuhan Zhongheng New Tech Industry Group Co., Ltd. (“Wuhan Zhongheng” for short), which was ratified by the State-owned Assets Committee, the State Ministry of Commerce and CSRC with relevant assignment procedures completed on 11 April 2007.
On 13 November 2006, the Board of Shareholders of the Company passed the Share Merger Reform Program of Shenzhen Zhongheng Huafa Co., Ltd. In line the program, Wuhan Zhongheng carried out assets reorganization to the Company, including bestowing assets and integrating industries covered by the Company, also paying 1.5 shares as consideration for per 10 shares to all A-share shareholders enrolled as at the equity registration day for the program, totaling 8,435,934 shares which may be tradable since the first business day after the implementation of the program. On May 18, 2007, the Company accomplished the implementation of consideration of shares in the share merger reform scheme. As of August 2007, the Company had completed the share merger reform program with ceding procedures for bestowed assets completed.
As ending at 31 December 2009, the aggregate shares of the Company are 283.16 million shares, among which, restricted shares total to 116,4,4 shares, accounting for 41.14% of total shares, and unrestricted shares total to 166,671,333 shares, accounting for 58.86% of total shares. Among the unrestricted shares, there are ,675,497A shares and 101,995,836 B shares, accounting for 22.84% and 36.02% of total shares respectively. The business scope: manufacturing & operating each kind of color TV, LCD monitor, LCD screen (subject to branch offices), hi-fi equipment, digital watch, TV game player and computer as well as auxiliary circuit boards, precise injection moulding ware, light packing materials (manufacturing & operting in Wuhan), hardware (including molds), electroplate and solder stick, real estate development and operation (ref. S.F.D.C.No. 7226760), property management. Establish affiliatd companies in Wuhan and Jilin, branch offices in each capital city (excluding Lhasa) and cities directly under jurisdiction of the Central Government.
Its major business is manufacturing and sales of circult board, processing of precise injection moulding ware, hardware (including molds); property lease and processing and sales of LCD displayer and color TV. The Company is registered at Block 411, Huafabei Road, Futian District, Shenzhen Cty; legal representative is Li Zhongqiu.
The parent company of the Company is Wuhan Zhongheng, and the shareholders meeting is its angecy of power, which execuates the decision right on material matter such as operation guildlines, funding, investment and profit distribution. Board of directors shall answer for shareholders meeting, which implements operation and decision right of the company according to laws; Managers take charge for organizing and executing the decisions made in shareholders meeting and board of directors meeting, as well as presiding the production and operation management work of the company. The functional
27
Semi-Annual Report 2010
management departments include Enterprise Planning Department, Financial Department, Comperhensive Management Department, Business Center, Video Business Department, Circuit Panel Business Department, Plastic Injection Business Department, Auditing Department, Office of Borad of Directors etc., the branches include Wuhan branch etc., and subsidiaries mainly include Shenzhen Huafa Property Lease Management Co., Ltd., Shenzhen Zhongheng Huafa Property Management Co., Ltd.,(Huafa Proporty for short) Wuhan Hengfa Scientific and Technology Co., Ltd.(Hafa Scientific& Technology for short) etc.
II. Basis of Preparation of Financial Statements
This preparation of the Financial Statements is based on the continual operation of the Company, according to the actual transaction and event, pursuant to the Corporate Accounting Principles and relevant rules, and grounded on the accounting polies and estimations stated in Note IV Important accounting policy & estimation and method for preparation of consolidated financial statements.
III. Statement regarding Following Business Accounting Standards
The Financial Statement prepared by the Group complies with the requirements of Business Accounting Standards, and reflect such information regarding enterprise financial situation, operation result and cash flows, etc. on the factual and complete basis.
IV. Important accounting policy & estimation, and method for preparation of consolidated financial statements 1. Accounting period
The Company’s accounting period is in from 1 January to 31 December in Gregorian calendar.
2. Bookkeeping standard currency
The RMB is taken as the bookkeeping standard currency. 3. Bookkeeping basis and pricing principle
The accrual basis is taken as the Group’s bookkeeping basis, and the historic cost the pricing principle besides the tradable financial assets and assets available for sale measured on the fair value. 4. Cash and cash equivalents
The cash in the Group’s cash flow statement is storage cash and deposits available for payment anytime. The cash equivalents in the cash flow statement are the investment of 3-month-blow holding period, strong mobility, easy change into the cash of the known sum and slight risk of the value change.
5. Foreign currency business and conversion of financial statements in foreign currency (1) As for the Group’s foreign currency transaction, the sum in foreign currency is converted into the one in RMB on the fixed exchange rate. On the balance sheet day, the monetary item in foreign currency is converted into the one in RMB on the current rate on the balance sheet day, and the difference arising is reckoned into the current loss/gain besides the one on the capitalization principled, of the specific foreign currency borrowing for the construction and production of the assets qualified for capitalization. As for the non-monetary item in foreign currency and on the fair value measurement, it is converted into the one in RMB on the current rate on the day of fair value recognition, and the difference arising is directly reckoned into the current loss/gain as the fair value change.
28
Semi-Annual Report 2010
As for the non-monetary item in foreign currency and on historic cost measurement, is still converted on the current exchange rate on the day of the actual transaction, without the change in its sum in RMB.
(2) Conversion of financial statement in foreign currency
The assets/liabilities items in the balance sheet in the foreign currency are converted on the current exchange rate on the balance sheet day; owners’ equity items besides the “undistributed profit” are converted on the current exchange rate on the actual business day; income/expense items in the profit statement are converted on the current exchange rate on the actual transaction day. The differences arising from the above conversions of the financial statement in foreign currency is specifically listed in owners’ equity items. The foreign currency cash flow is converted on the current rate on the actual cash flow day. The cash sum influenced by the fluctuation of the exchange rate, is listed specifically in the cash flow statement.
6. Financial assets and liabilities (1) Financial assets
The Group’s owned financial assets are divided on the investment purpose and the economic nature into the four categories as ones measured on the fair value and with its change reckoned into the current loss/gain, the long-term investment, loan & account receivable, and the tradable ones
1) As for the financial assets on fair value measurement and with its change reckoned into the current loss/gain, they are ones mainly for short-term sales and listed as the tradable financial assets in the balance sheet.
2) As for the long-term investment, it is non- derivative financial assets of fixed due date, of fixed or certain recoverable, and of the management’s identified intention for and capability of holding due.
3) As for the loan and the account receivable, they are the non-derivative financial assets of no quotation in the active market, but of a fixed or certain recoverable.
4) The financial assets available for sale, consist of the non-derivative ones designated as available for sale and other ones undivided
The financial assets are recognized initially on the fair value. As for the ones on fair value measurement and with its change reckoned into the current loss/gain, the actual relevant transaction expense is directly reckoned into the current loss/gain; relevant transaction expenses of other financial assets are reckoned into the initial recognition. The termination of the financial assets recognition is available as the contract right for the taking the cash flow of certain financial asset is terminated, or nearly all risks and compensation in the ownership of the financial asset has been transferred into the transfer-in party.
As for the financial assets on fair value measurement and with its change reckoned the current loss/gain, and the financial assets available for sale, are on fair value follow-up measurement; the loan & the account receivable, and the long-term investment are measured on the actual rate and listed on diluted cost.
The fair value change of the financial assets on fair value measurement and with its change reckoned into the current loss/gain, is reckoned into the loss/gain of the fair value change. The interest or cash dividend obtained during holding the investment are recognized as the investment return; upon the disposal, the difference between its fair value and initial bookkept sum is recognized as investment loss/gain, and meanwhile the adjustment is made on the fair value change.
The fair value change of financial assets available for sale is reckoned into the
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shareholders’ equity, and the interests measured on the actual interest in holding is reckoned into the investment return. The cash dividends from investment of the stock instrument available for sale is reckoned into investment return when the invested unit announces to issue dividends; upon disposal, the difference between the price and the book value minus the accumulative sum of fair value change directly reckoned into shareholders’ equity previously, are reckoned into the investment loss/gain.
Besides the financial assets on the fair value measurement and with its change reckoned into the current loss/gain, the check is taken on the book value of the other financial assets on the balance sheet day, and if there is any objective evidence for the actual impairment of certain financial asset, the provision for the impairment is accrued. If there is a large or not temporary decrease in the fair value of financial assets available for sale, the accumulative loss from the fair value fall-down and previously and directly reckoned into the shareholders’ equity is reckoned into the impairment loss. As for the investment of liabilities available for sale with its impairment loss recognized, in case the fair value rises which objectively relates with matters incurred after confirming original impairment loss preceding current term, the originally recognized impairment loss is transferred back and reckoned into the current loss/gain. As for the investment of stock instrument available for sale with its impairment loss recognized, in case the fair value rises which objectively relates with matters incurred after confirming original impairment loss preceding current term, the originally recognized impairment loss is transferred back and reckoned into shareholders’ equity. As for the actual impairment loss in the investment of the stock instrument with no quotation in the active market and no reliable measurement on its fair value, it may not be transferred back. (2) Financial Liabilities
In the initial recognition, the financial liabilities are divided into financial liabilities on the fair value measurement and with their change reckoned into the current loss/gain, and other financial liabilities. As for the financial liabilities on the fair value measurement and with their change reckoned into the current loss/gain, they consist of the tradable liabilities and ones on fair value measurement in the initial recognition and with their change reckoned into the current loss/gain; the follow-up measurement is taken on them on the fair value; and the profit or loss from the fair value change and the relevant dividend and the interest, are reckoned into the current loss/gain.
The follow-up measurement is taken on other financial liabilities on the actual rate and the diluted cost.
(3) Method for the recognition of fair value of financial assets/liabilities
a) As the financial instrument is in the active market, the quotation in the active market is used for the recognition of its fair value. In the active market, as for the financial assets held or the financial liabilities to be assumed, the current offering price is taken as the fair value of the corresponding assets or liabilities; as for the financial assets to be purchased in or the financial liabilities assumed, the current asking price is taken as the fair value of the corresponding assets or liabilities. As for the financial assets or liabilities, of no current offering price and no asking price, if there is no significant change in the economic environment after the latest transaction day, the market quotation of the latest transaction is recognized as the fair value of the financial assets or liabilities.
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b) As the financial instrument is not in the active market, the fair value is recognized on the evaluation technology. The evaluation method consists of the reference to the price in the market transaction between the parties familiar to the situations and voluntary in the transaction, the reference to the current fair value of other substantially same financial assets, the conversion of the cash flow, the stock pricing model. 7. Provision for bad debts of account receivable
The following cases are taken as the principle of the recognition of the loss of the bad debts of the account receivable: due to the cancellation, bankruptcy, insolvency, sever deficiency in the cash flow, and the incidence of the fatal natural disaster, the institutional debtor stops and is unable to pay off the debts in the expectable future; the institutional debtor has not fulfilled its debts payoff over 5 years; other solid evidence show no chance or little chance of recovery. The account receivable is listed on the actual rate and on the diluted cost minus the provision for bad debts.
As for the possible impairment of bad debts, it is checked in balance-out method, and at the Period-end, the provision for bad debts is accrued by the combination of aging analysis and individual identification and reckoned into the current loss/gain. As for the account receivable of the solid evidence to the no chance of the recovery, it is taken as the loss of bad debts after the approval in the regulatory process, for balancing out the provision for bad debts.
The sign account receivable above 0.5 million is taken as the substantive account receivable; as there is objective evidence to the no chance of the recovery in the original terms of the account receivable, the impairment test is taken individually on the difference of the future cash flow below its book value, and the provision for the bad debts is accrued.
As for the single account receivable not substantive, it and the account receivable of the single test but no impairment are divided into several portfolios on the same credit risk character, and the provision proportion of bad debts in the Period is recognized on the actual loss rate of the previous same or similar account receivable portfolios of similar credit risk characters and in combination with the current situations, and then the provision is accrued on the proportion. As for the account receivable of the solid evidence of no or little chance of the recovery, it is grouped into the specific asset portfolio and the provision is accrued totally.
Proportion of provision for bad debts of account receivables grouped on aging
Within 1-year 2 – 3-year 3-year above
0% 10% 30%
Aging Proportion of provision 1—2-year 5%
Proportion of provision for bad debts of other account receivables grouped on aging Within 1-year
0%
Aging Proportion of provision 1—2-year 5%
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Aging Proportion of provision 2 – 3-year 3-year above
10% 30%
8. Inventories Inventories of the Group includes raw materials, packing materials, low-value consuming product, product in progress, goods in stock, and self-manufactured semi-finished product etc..The perpetual inventory system is applied to inventories. Purchasing are priced at the actual cost, receiving and selling raw materials are calculated by first-in first-out method. Low-value consuming goods and packing materials are amortized by one-off write-off method.
At the year end, the inventories at term end shall be priced at the lower one between cost and net realizable value, the provisions for inventories depreciation shall be drawn against the predicted uncollectible cost caused by inventories damage, part or entire out-of-fashion or selling price lower than cost. The provisions depreciation of finished products and large bulk of raw materials shall be drawn against the excess part between the cost of single inventory item and its net realizable value. The provisions depreciation of the other raw and auxiliary materials with various kinds and low unit price shall be drawn as per category.
For such stocked goods directly for sales as products in stocks, products in progress and materials for sales, their net realizable value shall be recognized after deducting the estimated sales expenses and relevant taxes from estimated sales price of such inventories. For stocked materials for production use, their net realizable value shall be recognized after deducting estimated cost occurring at completion, sales expenses and relevant tax from estimated sales price of products to be manufactured; for inventories holding for executing sales contract or labor contract, its net realizable value shall be calculated based on the price set out in relevant contracts.
Long-term equity investment mainly includes the equity investment held by the Group that may produce control, joint control or significant influence over invested entity, or the equity investment that does not have control, joint control or significant influence on the invested entity, and has no offer in active market and its fair value cannot be reliably measured.
Joint control refers to the control over an economic activity in accordance with contracts and agreements. The confirm basis for joint control is any joint enterprise cannot control separately over the producing and operation activities of the joint enterprise; and the decision involved in the basic operating activities of the joint enterprise needs to gain consensus of each party.
Significant influences refer to the power to participate in making decision on the financial and operation policies of the invested company, but not to control or do joint control together with other parties over the formulation of these policies. The confirm basis of significant influences is when the Group directly or through its subsidiaries owns more than 20% (including) but less 50% of shares with voting rights of invested company, unless there is obvious evidence showing in this kind of situation, it cannot participate in the making decision on the financial and operation policies of the invested company, and not forming significant influences.
If the long-term equity investment is acquired via business merger under the same control, it shall, on the day of merger, regard the share of the carrying amount of the owner's equity of the merged enterprise as the initial cost of the long-term equity investment. As for the long-term equity investment acquired via business merge under different control, the merger cost shall be, shall be the fair values, on the merger (acquiring) date, of the assets
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given, the liabilities incurred or assumed, and the equity securities issued by the acquirer, in exchange for the control of the merged (acquired) enterprise, which will be, on the merger (acquiring) date, further regarded as the initial investment cost of long-term equity investment.
Apart from the aforesaid long-term equity investment acquired through business merger, those long-term equity investment, if acquiring through paying cash, shall consider its purchasing price actually paid as the initial investment cost, which includes expenses, taxes and other necessary expenditure directly related to the acquiring of the long-term equity investment; if acquired by issuing equity securities, shall consider the fair value of issuing equity securities as the initial investment cost; if invested by investors, shall consider the value agreed in the investment contract or agreement as the initial investment cost; if acquiring from debt reorganization or non-monetary assets exchange, shall confirm the initial investment cost according to the regulation of relevant accounting rule.
The investment of the Group to its subsidiaries shall be calculated through cost method and shall be adjusted through equity method in the Financial Statement; the investment to its associated companies shall be calculated through equity method; For the long-term equity investment without any control, joint control or serious influence for which there is no offer in the active market and of which the fair value cannot be reliably measured, the Group adopts cost method to calculate it; For the long-term equity investment without any control, joint control or serious influence for which there is offer in the active market and of which the fair value can be reliably measured, the Group shall calculate it under the entry of “Financial Assets for Sales”.
The price of a long-term equity investment measured by employing the cost method shall be included at its initial investment cost. When calculated by equity method, the loss or profits of current period shall be the attributable or shareable the net profits or losses of the invested entity in current year. The investing enterprise shall, on the ground of the fair value of all identifiable assets of the invested entity when it obtains the investment, according to the accounting policies and period of the Group, offset the loss or profits from internal transaction with joint enterprise, and calculate the part belonging to the investing enterprise based on the shares holding ration, recognize the attributable share of the net profits and losses of the invested entity after it adjusts the net profits of the invested entity.
As for the long-term stock investment of no common control over or significant influence on the invested organization any longer due to the investment decrease, and of no quotation in the active market and no reliable measurement on its fair value, it is changed to be on cost check; as for the long-term stock investment of common control over the invested organization due to the investment addition, it is also changed to be on cost check; as for the long-term stock investment of the exertion of the common control over or the significant influence on the invested organization but of no control due to the investment addition, or of no control over the invested organization any longer but the exertion of the common control or the significant influence on the invested organization due to the investment disposal, it is changed to be on equity check.
As for the long-term stock investment disposed, the difference between its book value and the price actually obtained, is reckoned into the current loss/gain. As for the long-term
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stock investment reckoned into the owners’ equity due to the change in owners’ equity besides the net loss/gain of the invested organization, its original part reckoned into the owners’ equity is transferred into the current investment return on corresponding proportion in disposal of the investment. 10. Investment property
The investment property consists of the land use right leased, the land use right held and to be transferred after appreciation, and house building leased.
The cost of the investment property is taken as its book value. The cost of investment property purchased includes purchasing payment, relevant taxes and other expenditures which may be directly ascribed to such assets; the cost of investment property self-built consists of all actual necessary expenditure of the assets construction before up to expectant availability.
The follow-up measurement on cost is taken on the investment property; the depreciation is accrued or diluted on its estimative service life and the net remnant rate and in the average year method. The estimative service life, net remnant rate and depreciation (dilution) rate are as follows:
Net estimative
Type Depreciation year(year)
remnant rate Land use right House building
50 5—50
10% 10%
Annual depreciation rate
1.80% 1.80% --18.00%
In case the property of investment is taken for self-use, such property shall be recorded as fixed assets or intangible assets since the date of taking. If the self-use property is taken for rent or capital appreciating, such fixed assets or intangible assets shall be recorded as property of investment since the date of taking. For such recording, the book value before it shall be taken as the recording value after that.
As the investment property is disposed, or is permanently withdrawn from use and estimated unable to obtain the economic profit from its disposal, the termination of the recognition of the investment property is available. The sum of the disposal income from sale, transfer, discarding or break deducting its book value and relevant tax, is reckoned into the current loss/gain. 11. Capital assets
The capital assets are ones of all the following characters, namely the tangible assets of 1-year-above service life, of RMB 2,000-above unit value and held for the goods production, labor supply, lease, or operation & management.
Capital assets include houses & buildings, machinery equipment, mold equipment, transport equipment, apparatus equipment, tooling equipment and office equipment. Fixed assets shall be measured at their cost, among which, the cost of a purchased fixed asset includes the purchase price, VAT, import duties and relevant taxes as well as other disbursements that bring the fixed asset to the expected conditions for use and that may be attributed to the fixed asset; the cost of self-constructed fixed assets shall be formed by the necessary disbursements incurred for bringing the asset to the expected conditions for use. The cost put into fixed assets by the investor shall be determined according to the value as stipulated in the investment contract or agreement, with the exception of those of unfair value as is stipulated in the contract or agreement. The costs of fixed assets acquired through financial leasing shall be determined at an amount equal to the fair value of the leased asset or the present value of the minimum lease payments, whichever is lower.
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The subsequent disbursement relevant to fixed assets mainly composes of repair expense, renovation expense etc., where the expenses meet the condition to be recognized as fixed assets, it shall be accrued into cost of fixed assets; for the substituted part, its book value shall be terminating from recognition; where it does not meet the condition to be recognized as fixed assets, it shall be accrued into current loss and profit at occurring.
Besides the capital assets of the sufficient depreciation accrual but in the continual use, and the land specifically booked, the depreciation of all other capital assets is accrued. The depreciations are accrued in the average year method, and are respectively reckoned into relevant assets cost or current expense according to their purpose. The depreciation year, net estimative remnant rate, annual depreciation rate in different categories are as follows:
Serial No.
Type
Depreciation year (year)Estimative remnant rate (%)
Annual depreciation
rate (%)
1.80-4.50% 9.00% 30.00% 18.00% 18.00% 18.00% 18.00%
1 House building 20—50-year 10% 2 Machine equipment 10-year 3 Mold equipment 3-year
Transportation
4
equipment
10% 10%
5-year 10%
10% 10% 10%
5 Device equipment 5-year 6 Tool equipment 5-year 7 Office appliance 5-year
At the Year-end, the check is taken on the estimative service of , net estimative remnant of and the depreciation method for the capital assets, and the change is dealt with as the one in the accounting estimation.
As the capital assets cannot generate the economic interest by the disposal, or expectantly by use or disposal, the termination of the recognition is available. 12. Project under construction
The project under construction is on the actual cost measurement. The self-operating project shall be measured in line with direct materials, direct salary and direct construction expenses, etc. The out-contracted project shall be measured in line with project price payable, etc. Equipment installation project shall determine its cost as per the occurring disbursements as equipment value, installation charge and project trial running, etc. The cost of project in progress also includes borrowing costs to be capitalized and exchange loss and profit.
From the day of the project under construction up to the expectant availability, the capital assets are transferred and settled on the estimative value according to the project budget, construction price or the actual project cost, and the depreciation is accrued on the next day, and the inconsistency of the original value is adjusted upon the project final account. 13. Borrowing Costs
The borrowing costs shall include interest on borrowings, amortization of discounts or premiums on borrowings, ancillary expenses, and exchange balance on foreign currency borrowings. The borrowing costs incurred to an enterprise that can be directly attributable to the acquisition and construction or production of assets eligible for capitalization, shall be capitalized after the asset disbursements have already incurred, the borrowing costs have already incurred, and the acquisition and construction or production activities which are necessary to prepare the asset for its intended use or sale have already started; When the qualified asset under acquisition and construction or production is ready for the intended use or sale, the capitalization of the borrowing costs shall be ceased. The
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remaining borrowing costs shall be recognized as expenses.
As for specifically borrowed loans, the to-be-capitalized amount of interests shall be determined in light of the actual cost incurred of the specially borrowed loan at the present period minus the income of interests earned on the unused borrowing loans as a deposit in the bank or as a temporary investment. As for the general borrowing, it calculate and determine the to-be-capitalized amount of interests on the general borrowing by multiplying the weighted average asset disbursement of the part of the accumulative asset disbursements minus the general borrowing by the capitalization rate of the general borrowing used.
Asset qualified for the capitalization conditions refers to the fixed assets, property of investment and inventory which must spend long term (usually above 1 year) to purchase, build or produce before reaching expected service or sales status.
Where the acquisition or construction of assets that meet the capitalization conditions is interrupted abnormally for more than 3 consecutive months, such borrowing costs shall be suspended capitalizing till the acquisition or construction of the asset restarts. 14. Intangible Assets
The major intangible assets of the Group include land-use right, patented technologies and non-patented technologies, etc., and shall be measured according to the actual cost when acquired. The acquired intangible assets shall be recorded as per actual price and relevant other disbursements. The intangible assets invested by investors shall be priced as per the value agreed in investment contract or agreement, with the exception of those of unfair value as is stipulated in such contract or agreement.
The land-use right shall be averagely amortized based on its useful years since the beginning date of use; the patented technologies, non-patented technologies and other intangible assets will be averagely amortized by installments depending the shortest one among predicted service years, benefiting years set out in the contract and legal effective years. The amortized amount shall be accrued into relevant assets cost and current loss and profit as per their beneficiary objects.
The Group shall, at the end of each year, check the service life and the amortization method of intangible assets with limited service life and adjust where appropriate. It shall also check the service life of intangible assets with uncertain service life during each accounting period, where there are evidences to prove the intangible assets have limited service life, it shall be estimated of its service life, and be amortized within such estimated life.
15. Research & Development
The expenditures for its internal research and development projects of the Company shall be classified into research expenditures and development expenditures depending on the project property and the degree of uncertainty of the intangible assets finally brought out. The research disbursements for the internal research and development project shall be recorded in the profits and losses of the current period; its development disbursements may be recognized as intangible asset if meeting the following conditions simultaneously: (1) In respect of the technology, it is feasible to finish the intangible asset for use or sale; (2) It is intended to finish and use or sell the intangible asset;
(3) There is a potential market for the products manufactured by applying this intangible asset or that there is a potential market for the intangible asset itself;
(4) With the support of sufficient technologies, financial resources and other resources, it is able to finish the development of the intangible asset, and it is able to use or sell the intangible asset; and
(5) The disbursements attributable to the development of the intangible asset can be reliably measured. The development disbursement not meeting the above conditions will
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be accrued into current loss and profit at occurring. The development disbursement accrued into loss and profit in previous term will not be recognized as assets as term thereafter. The development disbursement capitalized will be presented as “Development Disbursement” in the Balance Sheet and then be brought forward to intangible assets since such project has reached the expected service status. 16. Non-financial Asset Impairment
The Group has, on each reporting day of Balance Sheet, checked the long-term equity investment, fixed assets, project in progress and intangible assets, etc.. In case of any of the following circumstances, possible impairment has occurred to assets. We will conduct impairment test at each year end over good will and those intangible assets without fixed beneficiary term. If difficult to test the recoverable amount of a single asset item, the test may be applied to the asset group or combined asset group containing such asset. After an impairment test to an asset, if the book value of such asset exceeds its recoverable amount, the positive difference shall be recognized as impairment loss. The impairment loss of above assets shall not be reversed in later accounting period after being recognized. The recoverable amount shall be determined according to the net amount of the fair value of an asset minus the disposal expenses, and the current value of the expected future cash flow of the asset, whichever is higher.
The following circumstances may constitute a sign of possible asset impairment:
(1) The current market price of an asset declines drastically, and the price drop is obviously higher than the expected drop over time or due to the normal use;
(2) The economic, technological or legal environment in which the enterprise conducts its business operations, or the market where an asset is situated has or will have any significant change in the current period or in the near future, and thus has or will have an adverse impact on the enterprise;
(3) The market interest rate or any other market investment return rate has risen in the current period, and the enterprise' calculation of capitalization rate of the current value of the expected future cash flow of the asset is affected and thus leads to a big fall in the recoverable amount of asset;
(4) Any evidence shows that an asset has become obsolete or it has been damaged substantially;
(5) An asset has been or will be left unused, or the use of an asset has been or will be terminated, or an asset has been or will be disposed of ahead of schedule;
(6) Any evidence in the internal report of the enterprise shows that the economic performances of an asset has been or will be lower than the expected performances, for example, the net cash flow created by an asset or business profit (or loss) realized (incurred) an asset is lower (higher) than the excepted amount, etc.; and
(7) Other evidence that indicates that asset impairment has probably occurred. 17. Good Will
Good will refers to the positive difference between the equity investment cost or business merger cost under different control and the fair value of the identifiable net assets of the invested unit or the acquire which the Company is entitled to or obtains through business merger on the obtaining date or acquiring date.
The good will in relation to its subsidiaries is separately presented in the consolidated financial statement, while that in relation to the associated enterprises and joint enterprises are included in the book value of long-term equity investment. 18. Long-term Un-amortized Expenses
Long-term deferred expenses of the Group refers to the expenses that have been expended, and shall be amortized during current period and each period afterwards with amortizing term beyond 1 year (excluding 1 year). Those expenses shall be amortized evenly in its
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benefited periods. Where the long-term deferred expenses will not benefit the later accounting period, the remaining amount to-be-mortised shall be recorded into the loss or profits of current period.
19. Wages and Salaries of Employees
During the accounting periods of the employees' rendering services to the Company, the Company shall recognize the payable salaries and wages as liabilities, which shall, according to beneficiaries of the services offered by employee, be accrued into relevant asset cost and expense. The compensations for the cancellation of the labor relationship with an employee will be accrued into current loss and profit.
The employees' wages and salaries include: the employees' wages, bonuses, allowances and subsidies, welfare expenses, social insurance expenses, housing accumulation funds, operating funds for labor unions and the operating funds for the education of employees and other relevant disbursements for obtaining employees' services.
If the Group cancels the labor relationship with any employee prior to the expiration of the relevant labor contract or brings forward any compensation proposal for the purpose of encouraging the employee to accept a layoff, where the Group has formulated a formal plan on the cancellation of labor relationship or has brought forward a proposal on voluntary layoff and will execute it soon, and at the same time, the Group is unable to unilaterally withdraw the plan on the cancellation of labor relationship or the layoff proposal, the Group shall recognize the expected liabilities incurred due to the compensation for the cancellation of the labor relationship with the employee, and shall simultaneously record them into the profit or loss for the current period.
As for the internal retirement plan, it will be treated complying with the same principles as the layoff. The Group shall, in line with the regulations of such plan, recognize the salary and social insurance premium to be paid to such retired employees during the date of terminating service and their normal retirement date as predictable liabilities when it meets to the conditions, then accrue it into loss or profit of current term. 20. Stock Payments
Share-based payments refer to a transaction in which an enterprise grants equity instruments or undertakes equity-instrument-based liabilities in return for services from employee or other parties. The share-based payments shall consist of equity-settled share-based payments and cash-settled share-based payments.
The equity-settled share-based payment in return for employee services shall be measured at the fair value of the equity instruments granted to the employees. As to a equity-settled share-based payment in return for employee services, if the right cannot be exercised until the vesting period comes to an end or until the prescribed performance conditions are met, then on each balance sheet date within the vesting period, the services obtained in the current period shall, based on the best estimate of the number of vested equity instruments, be included in the relevant costs or expenses using straight-line method ,and the capital reserves shall be increased accordingly.
A cash-settled share-based payment shall be measured in accordance with the fair value of liability calculated and confirmed based on the shares or other equity instruments undertaken by the Company; If the right may be exercised immediately after the grant, the fair value of the liability undertaken by the Company shall, on the date of the grant, be
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included in the relevant costs or expenses, and the liabilities shall be increased accordingly; If the right may not be exercised until the vesting period comes to an end or until the specified performance conditions are met, on each balance sheet date within the vesting period, the services obtained in the current period shall, based on the best estimate of the information about the exercisable right, be included in the relevant costs or expenses and the corresponding liabilities at the fair value of the liability undertaken by the Company. On each balance sheet date and on each account date prior to the settlement of the relevant liabilities, the fair value of the liabilities is measured again and with its change reckoned into the current loss/gain. 21. Equity Instrument
Equity Instruments refer to the contract which may proves holding all remain equity of the Company after deducting all liabilities. During business combination, the transactional expenses for issuing the equity instrument by combining party offset the premium revenue of equity instruments, if it is not enough to offset, reduce the reserve profits. Other equity instruments, the consideration received at issuing will increase shareholder’s equity after deducting transactional expenses. The consideration and transactional expenses paid for purchasing back the equity instruments will decrease shareholder’s equity. It will not recognize profits and losses when issuing, purchasing back, selling or writing off the equity instruments.
The distribution (excluding dividend) to the party who owns the equity instrument by the Company shall decrease shareholder’s equity. The Company does not recognize the change of fair value of equity instruments. 22. Estimative Liabilities
In case all the obligations in relation to such contingent items as external guarantee, pending lawsuit or arbitration, product quality guarantee, staff cutback plan, loss contract, restructuring obligation and fixed assets discarding obligation, etc. comply with the following conditions simultaneously, the Group will recognize them as liabilities. Such obligations are constant burdened by the Group; the execution of such obligations will possibly result in the out-flowing of economic benefit from the Group; the amount of such obligations can be reliably measured.
The predictable liabilities shall be initially measured as per the best estimated amount to be paid for executing relevant instant obligations in combination with such factors as risk, uncertainty and time value of money regarding contingent issues. If the time value of money exerts serious effect, the best estimated amount shall be determined through discounting relevant cash outflows in the future. On the date of Balance Sheet, the Company shall double check the book value of predictable liabilities and make adjustment to it so as to reflect the best estimated amount at present. 23. Principles on Income Recognition
The business revenues of the Group are mainly composed of revenues from sales of goods revenues from providing service and revenue from alienating the right to use assets, its recognizing principles are as follows:
(1) When the Group has transferred the significant risks and rewards of ownership of the goods to the buyer; the Group retains neither continuous management right that usually keeps relation with the ownership nor effective control over the sold goods; The relevant
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Semi-Annual Report 2010
amount of revenue can be measured in a reliable way; The relevant economic benefits may flow into the enterprise; The relevant costs incurred or to be incurred can be measured in a reliable way, it may recognize the realization of revenue.
(2) When total revenue and total cost from labor service can be measured in a reliable way; the relevant economic benefits are likely to flow into the enterprise; the schedule of completion under the transaction can be confirmed in a reliable way; it may recognize the realization of revenue from labor service. On the date of Balance Sheet, where the result of a transaction concerning the providing of labor service can be measured in a reliably way, it shall recognize relevant revenue according to the schedule of completion; where the result of a transaction concerning the providing of labor service cannot be measured in a reliably way and the cost of labor services incurred is expected to be compensated, the revenue from the providing of labor services shall be recognized in accordance with the amount of the cost of labor services incurred, and the cost of labor services shall be carried forward at the same amount; where the result of a transaction concerning the providing of labor service cannot be measured in a reliably way and the cost of labor services incurred is not expected to compensate, the cost incurred should be included in the current profits and losses, and no revenue from the providing of labor services may be recognized.
(3) The revenue from alienating of right to use assets may be recognized on the condition that the relevant economic benefits are likely to flow into the Company and the amount of revenues can be measured in a reliable way. 24. Government Grants
The government grant may be recognized on the condition that the Group complies with the conditions for the government grant and that the Group can receive the government grant. If a government grant is a monetary asset, it shall be measured on the basis of the amount received, or that receivable if such grant is appropriated as fixed quota standard. If a government grant is a non-monetary asset, it shall be measured at its fair value or at its nominal amount (1 Yuan if its fair value cannot be obtained reliably.
A government grant pertinent to assets shall be recognized as deferred income, equally distributed within the useful lives of the relevant assets, and included in the current profits and losses. The government grant pertinent to incomes, if used for compensating the related future expenses or losses of the Company, shall be recognized as deferred income and shall include in the current profits and losses during the period when the relevant expenses are recognized; or if used for compensating the related expenses or losses incurred to the Company, shall be directly included in the current profits and losses. 25. Deferred Income Tax Assets & Deferred Income Tax Liabilities
The deferred income tax assets and deferred income tax liabilities shall be priced at the difference (temporary difference) between the tax base of assets and liabilities and their book value. For any deductible loss or tax deduction that can be carried forward to the next year, the corresponding deferred income tax asset shall be determined to the extent that the amount of future taxable income to be offset by the deductible loss or tax deduction to be likely obtained. On the balance sheet date, the deferred income assets and deferred income tax liabilities shall be measured at the tax rate applicable to the period during which the assets are expected to be recovered or the liabilities are expected to be settled.
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Semi-Annual Report 2010
The Company shall recognize the deferred income tax assets arising from a deductible temporary difference to the extent of the amount of the taxable income which it is most likely to obtain and which can be deducted from the deductible temporary difference. For the determined deferred income tax assets, if it is unlikely to obtain sufficient taxable income to offset against the benefit of the deferred income tax asset, the carrying amount of the deferred income tax assets shall be written down. Any such write-down should be subsequently reversed where it becomes probable that sufficient taxable income will be available. 26. Lease
The Group classifies a lease as a financing lease and an operating lease on the lease beginning date.
Financing lease refers to a lease that has transferred in substance all the risks and rewards related to the ownership of an asset. On the lease beginning date, the Group as lessee shall record the lower one of the fair value of the leased asset and the present value of the minimum lease payments on the lease beginning date as the entering value in an account, recognize the amount of the minimum lease payments as the entering value in an account of long-term account payable, and treat the balance between the recorded amount of the leased asset and the long-term account payable as unrecognized financing charges.
Operating lease refers to a lease other than a financing lease. Where the Group is lessee, the rents shall be recorded in the relevant asset costs or the profits and losses of the current period by using the straight-line method over each period of the lease term. Where the Group is lesser, the rents shall be recorded in the profits and losses of the current period by using the straight-line method over each period of the lease term. 27. Accounting Check on Income Tax
The Group adopts balance sheet debt method to calculate the income tax. Income tax expenses include income tax of current period and deferred income tax. Except for the income taxes of the current period and deferred income tax related to the transactions or events directly relevant to the shareholder's rights and interests shall be recorded into the shareholder’s rights and interests, and adjust the carrying amount of goodwill based on the deferred income tax due to enterprise combination, all other current period and deferred income tax expenses or profit shall be recorded into the profits and losses of current period.
Income tax of current period refers to the amount payable to tax department calculated by the Group according to regulation of tax agency aiming at the transaction and matter occurred in current period, also called income tax payable; deferred income tax refers to the balance between the due amount of deferred income tax assets and deferred income tax liabilities at the end of year recognized according to the liabilities method of Balance Sheet and the amount originally recognized. 28. Segment information
The operation segment is recognized on the basis of the internal organization structure, management requirement, and internal report system, and the report segment is recognized on the basis of the operation segment. The operation segment is the component up to the following conditions: the component can generate the income, and expense in the daily activities; its operation result can be assessed by the Company’s management regularly for
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Semi-Annual Report 2010
the decision on the allocation of the resources to it and the appraisal of its performance; the relevant accounting information as its financial status, operation result and cash flow, can be obtained by the Company.
The business segment is the component distinguishable and able to provide single product or a group of relevant products or labor service, and responsible for the risk and compensation different from other components. The geography segment is the component distinguishable and able to provide products or labor service under certain economic environment, and responsible for the risk and compensation different in other economic environment.
The transfer price between segments are recognized with reference to the market price, and the common expenses besides the part impossible to distributed rationally, are distributed on the income proportion between different segments. 29. Operation terminated
Operation terminated is the component disposed or grouped as held for sale, and distinguishable in operation and preparation of the financial statement, and is disposed as a whole or in part on the Group’s plan.
The Group’s component is grouped as held for sale, if up to the all the following conditions: the resolution has been made on the disposal of the component by the Group; and the irrevocable transfer agreement is signed between the Group and the transferring party, and the transfer is to be accomplished within a year. 30. Determination of Fair Value of Financial Instruments
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. Where there is no active market for a financial instrument, the Company shall adopt value appraisal techniques to determine its fair value. The value appraisal techniques mainly include the prices adopted by the parties, who are familiar with the condition, in the latest market transaction upon their own free will, the current fair value obtained by referring to other financial instruments of the same essential nature, the cash flow capitalization method and the option pricing model, etc.. If adopting value appraisal techniques, one shall adopt, if possible, all the market parameters and avoid adopting those parameters that relate to the Company.
31. Business Combinations
Business combinations refer to a transaction or event bringing together two or more separate enterprises into one reporting entity. The Group confirms the acquired assets and liabilities due to business combinations on the combining date or purchasing date. Combining date refers to the date on which the combining party actually obtains control on the combined or purchased party.
In a 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. The additional paid-in capital shall be adjusted according to 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; if the additional paid-in capital is not sufficient to be offset, the retained earnings shall be adjusted.
In a 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. The acquirer shall recognize the positive balance between the combination costs and the
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Semi-Annual Report 2010
fair value of the identifiable net assets it obtains from the acquiree as good will; if the combination costs are 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 after re-examination.
32. Preparation of Consolidated Financial Statement (1) Principles of Recognition of Scope for Consolidation
The Group incorporates those subsidiaries actually controlled and objects with special purpose into the scope of the Consolidated Financial Statement.
(2) Account Method Adopted in the Consolidated Accounting Statement
The Group has prepared for the Consolidated Financial Statement in line with the Business Accounting Standards No.33- Consolidated Financial Statement and its relevant regulations, with all key internal trades and transactions within the scope of consolidation offset. Among the shareholders equity of subsidiaries, the part that does not belong to the parent company shall be presented under shareholders equity as minority interest in the consolidated financial statement.
Where the accounting policy or accounting period adopted by subsidiaries and the Company is inconsistent, it shall make necessary adjustment on subsidiaries’ financial statements according to the accounting policy or accounting period adopted by the Company when prepare consolidated financial statement.
As to the subsidiary acquired through business combination not under the same control, when prepare consolidated financial statement, it shall make adjustment on individual financial statement based on the fair value of the net assets recognized on the purchasing day; As to the subsidiary acquired through business combination under the same control, it will be regarded existing since the begin of the year of the current period of combination, and its assets, liabilities, operating results and cash flows will be included into the consolidated financial statement based on its original carrying value since the begin of the year of the current period of combination.
V. Change in accounting policy & estimation, and correction for previous error 1. Change in accounting policy and influence: nil 2. Change in accounting estimation and influence: nil 3. Correction for previous error and influence: nil VI. Tax
Main tax and tax rate applicable to Group as follows: 1. Corporate income tax
The previous corporate income tax applicable to the Company and the subsidiary – Huafa Lease, is 15%. Pursuant to The rate applicable to Wuhan Branch, Huafa Lease – the subsidiary and Hengfa Science and Technology Company, is 25%. 2. Value-added tax The value-added tax is applicable to the Group’s goods sales income, among which, the output rate of domestic-sales goods is 17%. As the input value-added tax paid for the raw materials purchase, can deduct the output tax, the rate is 17%, among which, the rebate is applicable to the input tax paid for the export goods. Taxable value-added tax is the balance of the current output tax deducting the current input tax. 3. Operation income The operation income is applicable to the Group’s lease income, and the applicable rate is 43 Semi-Annual Report 2010 5%. 4. Extra charges of, city planning tax and educational expenses The taxable circulating tax is taken as the taxation basis of the city planning tax, with 1% applicable rate; the taxable circulating tax is taken as the taxation basis of all extra charges of the city planning tax and the educational expenses of the Company’s subsidiaries as Huafa Lease Company, Huafa Property Company, with the applicable rates respectively 1% and 3%, and in the same way the respective applicable rates for the subsidiary – Hengfa Science and Technology respectively are 7% and 3%. 5. Housing property tax The 70% of the previous value of the housing property is taken as the taxation basis, with the 1.2% tax rate. VII. Business Merger and Consolidated Financial Statement (I) Subsidiaries Other project amount for net investment to subsidiaries actually Company Name Company Registered type Address Business Nature Registered Capital Business Scope Invested capital at period-end Subsidiaries obtained from other way Property Huafa Property Lease Company Limited Liability Shenzhen Property Management RMB1 million leasing and management of self-owned property Property Huafa Property Company leasing and Limited Liability Shenzhen Property Management RMB1 million management of self-owned property production Hengfa Scientific and Technology Limited Liability Wuhan Production and Sale RMB181,3,100 and sale of packing material and plastic products etc. RMB181,3,100 -RMB1 million -RMB0.6 million - 44 Semi-Annual Report 2010 Continued Balance of Minority interest Voting Right percentage Statements are consolidated or not Equity of minor shareholders used for offsetting minority interest gains and losses owners’ equity of parent company for deducting loss in Period diluted by minority shareholders of subsidiary above share enjoyed in owners’ equity at Period-beginning Subsidiaries obtained from other way Huafa Property Lease Company Huafa Property Company Hengfa Scientific and Technology 100% 100% Yes -- -100% 100% Yes -- -60% 60% Yes -- - Company Name Holding Percentage 45 Semi-Annual Report 2010 Notes to Major Items in the Consolidated Financial Statement Unless stated otherwise, among the financial data disclosing bellowed, “period-begin” refers to 31 December 2009, “period-end” refers to 30 June 2010, “this period” refers to 1 January 2010 to 30 June 2010, “last period” refers to 1 January 2009 to 30 June 2009, RMB is the currency unit used in this report. 1. Monetary fund Item Original currency Cash in Treasury RMB HKD USD Bank deposit RMB HKD USD Other currency fund RMB HKD USD Total 3,186,288.00 63,039,749.32 1 6.83 21,762,347.04 128,562,059.1963,039,749.32 52,930,385.35 -140,790.00 52,930,385.350.88 -6.83 961,595.70 81,045,080.98 84,802,096.36 53,1,981.05 29,748,761.10 69,314.45 2,002,307.56 1 0.88 6.83 29,748,761.10 61,058.38 13,675,760.63 23,841,671.15 69,314.45400,405.76 211,136.50 60,773.93 1,422.45 1 0.88 6.83 211,136.50 53,535.15 9,711.07 43,485,580.11 453,543.3960,773.931,422.45 Exchange rate 274,382.72 Converted into RMB Exchange rate Converted into RMB 516,7.61 2010.06.30 2009.12.31 Original currency 1.00 453,543.390.88 53,535.156.83 9,711.07 26,636,310.32 1.00 23,841,671.150.88 61,058.386.83 2,733,580.79 （1）amount at period-end increase RMB47,516,978.21compraed with that of period-begin, mainly due to the increase of bank loan in this period. （2）balance of other monetary fund at period-end mainly was the note payable and margin of short-term loans. 2. Notes receivable 1. Type of note receivable Type of Notes 2010.06.30 2009.12.31 Bank acceptance bill 7,406,346.31Commercial acceptance bill 46 12,704,598.813,790,363.4716,494,962.28 758,572.14 Total 8,1,918.45 Semi-Annual Report 2010 3. Accounts receivable (1) Classification of Risk of Accounts Receivable 2010.06.30 Item That with large amount in single item That in group with larger risk after grouping as per credit risk features though single item sum is small That without large amount in other single item Total 12,856,536.572,975,031.19 4.85%100.00% 376,575.66 4.19%8,995,097.25 100.00% 4,763,458.70 1.80% 4,651,429.94 51.71% Book balance Amount Proportion247,355,035.92 93.35% Provision for bad debt Amount Proportion3,967,091.65 44.10% Continue 2009.12.31 Item That with large amount in single item That in group with larger risk after grouping as per credit risk features though single item sum is small That without large amount in other single item Total 6,784,092.79207,520,832.95 3.27%100.00% 376,575.66 4.19%8,995,097.25 100.00% 4,763,458.70 2.30% 4,651,429.94 51.71% Book balance Amount Proportion195,973,281.46 94.44% Provision for bad debt Amount Proportion3,967,091.65 44.10% 1）account receivable with major amount individually at period-end, or with minor amount but perform impairment test separately Bad debt amount 0.00 2,320.40 0.00 Accrual proportion 0.00%0.00%0.00% Name of the company HORACE INDUSTRIAL LTD. Qingdao Haier Component Purchase Co., Ltd. Hefei Haier Logistic Co., Ltd. Guanjie Display Technology (Wuhan)Co., Ltd. Book balance 161,904,255.5146,693,949.529,2,279.258,965,760.21 0.00 0.00% 47 Semi-Annual Report 2010 Name of the company Wuhan Yintai Technology Weiguan Technology (Shenzhen) Co., Ltd. Shenzhen Boteman Bowling Club Co. ,Ltd. Hefei Haier Estern China Packing Co., Ltd. Wuhan Branch TCL (Huizhou) Co., Ltd. Shenzhen Baoluda Electronic Technology Co., Ltd. Shanxi Linghua Electronic Co., Ltd. Shen Dajiang Electronic Development Co., Ltd. Guangzhou Fanyu Hongtu Computer Equipment Co., Ltd. Book balance 3,607,066.343,344,915.972,555,374.752,199,014.951,916,677.911,407,339.511,010,3.70747,476.10716,650.40 Bad debt amount 0.00 0.00 2,555,374.75 Accrual proportion 0.00%0.00%100.00% 0.00 0.00% 1,190,653.90 62.12% 0.00 0.00%62,322.99 6.17% 14,518.44 1.94%80,037.40 11.17% 61,863.77 8.68% 0.00 0.00 0.00%0.00% LIM-TECCO.,LTD. 712,661.59Chengdu Xuguang Technology Co., Ltd. Shenzhen Gengchuang Electronic Co., Ltd. Wuhan Kingbull Economy Developmetn Co., Ltd. Total 665,291.01509,124.09506,809.11247,355,035.92 0.00 0.00% 3,967,091.65 2）account receivable with minor single amount but with greater risk after classified into same group with similar credit risk features Item Bad debt provision -2,167.81229,5.67685,711.91254,190.913,479,794.4,651,429.94 Bad debt provision -2,167.81229,5.67685,711.91254,190.913,479,794. 2010.06.30 2009.12.31 Amount - 3,530.78 229,5.67 769,383.15 265,997.01 3,494,983.09 proportion -0.07%4.82%16.15%5.58%73.38% Amount -3,530.78229,5.67769,383.15265,997.013,494,983.094,763,458.70 proportion - 0.07% 4.82% 16.15% 5.58% 73.38% Within 1 year 1-2 years 2-3 years 3-4 years 4-5 years Over 5 years Total 4,763,458.70 100.00%100.00% 4,651,429.94 (1)Arrearage of the shareholder companies which hold over 5% (including 5%) of the company’s voting share is in the balance at the end of the term. (2)Particular about top 5 account receivables 48 Semi-Annual Report 2010 Relationship Name of the company with the Company HORACE INDUSTRIAL LTD. Qingdao Haier Component Purchase Co., Ltd. Hefei Haier Logistic Co., Ltd. Guanjie Display Technology (Wuhan)Co., Ltd. Wuhan Yintai Technology Total Major client 161,904,255.51Major client Major client Major client 46,693,949.529,2,279.258,965,760.21Amount Age Proportion in total account receivable Within 1year 61.10%Within 1year Within 1year Within 1year 17.62%3.73%3.38% Major client 3,607,066.34 - 231,063,310.83 Within 1year 1.36% - 87.20% 4、Account paid in advance （1） Age of account paid in advance Items 2010.06.30 2009.12.31 Amount Proportion 99.71%0.29%100.00% Amount Proportion Within one year 1－2 years 17,253,181.51 50,000.5417,303,182.05 2,167,980.00 85.33%372,772.30 14.67%2,540,752.30 100.00% Total （2） Major companies of account paid in advance Relationship with Name of the company the Company Guanjie Display Technology(Wuhan) CO., Ltd. Chimei InnoLux Corporation InnoLux Corporation Qunkang Technology (Shenzhen) CO., Ltd. Shenzhen Gaolinda Plastic Electronic Co., Ltd. Total Supplier 10,211,952.00 Within 1 year Amount Age Reasons for unsettlement Purchase Supplier 2,622,720.00Supplier 703,490.00 Within 1 year Purchase Within 1 year Purchase Supplier 495,768.90Supplier - 440,037.0014,473,967.90 Within 1 year Purchase Within 1 year - Purchase - The total amount of arrearage of the top 5 companies in debt in balance at the end of the term is RMB 14,473,967.90, accounting for 83.65% of account paid in advance. (3) No arrearage of the shareholder companies which hold over 5% (include 5%) of the company’s voting share is in the balance of account paid in advance at period-end. (4)There is no foreign currency balance in account paid in advance. 5. Other account receivable (1) Risk classification of other account receivable 2010.06.30 Item That with large amount in single item Book balance Provision for bad debt Amount Proportion16,883,350.53 49 Amount Proportion5,008,767.57 63.31% 61.28% Semi-Annual Report 2010 That in group with larger risk after grouping as per credit risk features though single item sum is small That without large amount in other single item Total 8,368,728.0127,552,573.50 30.37%100.00% 601,763.74 77.61%7,911,026.27 100.00% 2,300,494.96 8.35% 2,300,494.96 29.08% Continue 2009.12.31 Item That with large amount in single item That in group with larger risk after grouping as per credit risk features though single item sum is small That without large amount in other single item 6,683,167.75 6.28%100.00% 601,763.74 7.61% 2,300,494.96 2.16% 2,300,494.96 29.08% Book balance Provision for bad debt Amount Proportion97,468,193.11 91.56% Amount Proportion5,008,767.57 63.31% Total 106,451,855.827,911,026.27 100.00% 1）At period-end, the other account receivable with large amount in single item, or with minor amount but perform impairment test separately Bad debt amount 619,802.34 Accrual proportion Reasons for Name of the company Shenzhen Wanshang Friendship Department Store Co., Ltd. Shenzhen Boteman Bowling Club Co., Ltd. HORACE INDUSTRIAL LTD. Wuhan Guanfan Enginerring Limited Liability Co., ZHAO BAO MIN Traffic accident compensation receivable Total Book balance 7,344,035.98 accrual Difference of 8.44% current checking Over 5 years of account age 4,037,215.422,5,942.001,123,840.32926,531.00555,785.8116,883,350.53 3,833,179.42 0.000.000.00555,785.815,008,767.57 94.95% 0.00% N/A 0.00% N/A 0.00% N/A 100.00% Over 5 years of account age - - 2）other account receivable with minor single amount but with greater risk after classified into same group with similar credit risk features 50 Semi-Annual Report 2010 2010.06.30 2009.12.31 Items Amount Bad debt provision Within 1 year - - Amount Bad debt provision -51,595.15 --192,7.942,056,109.872,300,494.96 - -2.24% - - 8.38% .38% 51,595.15 --192,7.942,056,109.87 - 1-2 years 2-3 years 3-4 years 4-5 years Over 5 years 51,595.15 - - 192,7.94 2,056,109.87 2.24% --8.38%.38% 51,595.15 --192,7.942,056,109.872,300,494.96 Total 2,300,494.96 100.00%100.00% 2,300,494.96 (2) Other account receivable at period-end decrease RMB 74,4,994.47 over that of period-begin, a 69.95% down. Mainly due to the other account receivable of Wuhan Zhongheng—controlling shareholder, decrease RMB 75,380,243.70. (3) Arrearage of the shareholder companies which hold over 5% (including 5%) of the company’s voting share is in the balance at the end of the term: Naught (4)Top 5 companies of other account receivable Relationship Name of the company with the Company Shenzhen Wanshang Friendship Department Store Co., Ltd. Shenzhen Boteman Bowling Club Co., Ltd. HK HORACE INDUSTRIAL LTD. Wuhan Guanfan Enginerring Limited Liability Co., ZHAO BAO MING Total Lessees Lessees Supplier Supplier Lessees - Proportion in total Amount Age other account receivable Natural and content 7,344,035.984,037,215.422,5,942.001,123,840.32926,531.0016,327,5.72 Over 5 years Over 5 years Within 1 year Within 1 year Within 1 year - 26.65% Rent 14.65% Rent CompensationPay-in account Rent 10.51% 4.08% 3.36% 59.26% (5) Account receivable from related parties: Naught 6. Inventory (1)Classification of inventory 51 Semi-Annual Report 2010 2010.06.30 Item Raw Materials Products under production Stocked Goods Low-value consuming products Self-made semi-finished product Processed Materials upon entrustment Total 78,967,137.47 6,794,950.31 72,172,187.16 22,848,521.39948,242.303,598,060.72Book balance 51,572,313.06 2,979,459.78193,307.73179,248.20Depreciation provision 3,442,934.60 19,869,061.61754,934.573,418,812.5248,129,378.46Book value Continue 2009.12.31 Item Raw Materials Products under production Stocked Goods Low-value consuming products Self-made semi-finished product Processed Materials upon entrustment Total Book balance 28,8,033.80 58,880.0415,979,634.791,006,659.443,603,017.82136,906.4249,674,132.31 Depreciation provision 406,433.34 -2,260,033.57168,803.14179,248.20 -3,014,518.25 28,482,600.46 58,880.0413,719,601.22837,856.303,423,769.62136,906.4246,659,614.06Book value (2) Provision for Depreciation of Inventories Decrease in this period Switch back Other transferring-out Item Raw Materials Products under production Stocked Goods Low-value consuming Amount at period-begin Increase in this period Amount at period-end 406,433.34 3,036,501.26 3,442,934.60 2,260,033.57 719,426.21168,803.14 24,504.59 2,979,459.78 193,307.73 52 Semi-Annual Report 2010 Item products Self-made semi-finished product Processed Materials upon entrustment Total Amount at period-begin Increase in this period Decrease in this period Switch back Other transferring-out Amount at period-end 179,248.20 179,248.20 3,014,518.25 3,780,432.060.000.00 6,794,950.31 1）the withdrawal method for provision of inventory depreciation see in 8 of Note IV. 2）the withdrawal amount RMB 3,780,432.06 for provision of inventory depreciation was mainly caused by the depreciation of partially materials. The accumulated withdrawal amount this period occupied 8.06% of inventory balance at period-end. (3)Withdrawal for provision of inventory depreciation Proportion of Reasons for Items Withdrawal basis switch-back this period Lower one between the book Raw Materials Products under production Stocked Goods Low-value consuming products Self-made semi-finished product value and net realizable value Lower one between the book value and net realizable value Lower one between the book value and net realizable value Lower one between the book value and net realizable value Lower one between the book value and net realizable value switch-back amount this period in inventory balance at period-end (4)Balance of inventory at period-end excluding the amount capitalizing from loan expenses. 53 Semi-Annual Report 2010 (5) Balance of inventory at period-end has excluding the amount being mortgage or frozen. 7. Investment real estate (1) Investment real estate based on cost Item 2009．12．31 Original value houses & buildings Land-use right 67,007,470.7267,007,470.72 40,432,444.2240,432,444.22 40,432,444.2240,432,444.22 107,439,914.94107,439,914.94 1,226,630.581,226,630.58 Increase in this period Decrease in this period 107,439,914.94 107,439,914.94 68,234,101.30 68,234,101.30 39,205,813. 39,205,813. 39,205,813. 39,205,813. 2010．06．30 Accumulated Depreciation & Amortization houses & buildings Land-use right Net book value houses & buildings Land-use right Impairment provision houses & buildings Land-use right Book value houses & buildings Land-use right (2)The abovementioned investment real estate has been mortgage to China Construction Bank Shangbu Sub-branch for bank loans. 8. Fixed assets (1) Details of fixed assets Increase in this Item Original price Houses and buildings Machinery equipments Transport instruments Office equipment Apparatus 4,580,516.59 8,929,8.73 12,825,6.68 119,999.96 125,359.79 1,095,031.67 4,700,516.55 9,055,258.52 13,920,678.35 63,708,803.63 2,539,776.02 66,248,579.65 207,478,138.60 207,478,138.60 Amount at period-begin 310,382,347.05 period 4,583,491.98 Decrease in this period 842.74 Amount at period-end 314,9,996.29 54 Semi-Annual Report 2010 Instrument Mould Accumulated Depreciation Houses and buildings Machinery equipments Transport instruments Office equipment Apparatus Instrument Mould Net book value Houses and buildings Machinery equipments Transport instruments Office equipment Apparatus Instrument Mould Impairment provision Houses and buildings -Machinery equipments Transport instruments Office equipment Apparatus Instrument Mould 5,220.00 973,496.73 - - - 5,220.00 973,496.73 - - - 30,3.99 30,3.99 - 1,009,360.72 1,009,360.72 1,936,133.45 2,142,326.03 2,262,056.88 1,8,594.88 2,322,823.54 2,039,019.40 2,213,250.30 3,140,658.20 1,900,066.30 2,461,465.20 34,069,924.51 33,636,066.07 166,111,015.02 163,588,731.54 210,492,874.31 208,979,257.00 2,4,383.14 6,787,572.70 10,563,5.80 1,362,307.13 7,525,617.27 17,114.01 54,435.52 216,430.35 218,730.78 94,396.41 758.47 - 2,661,497.15 6,842,008.22 10,780,020.15 1,580,279.44 7,620,013.68 29,638,879.12 2,973,634.47 32,612,513.59 41,367,123.58 2,522,283.49 43,8,407.07 99,8,472.74 6,097,025.02 758.47 105,985,739.29 3,010,902.01 9,848,440.81 470,286.47 233,038.07 842.74 - 3,480,345.74 10,081,478.88 55 Semi-Annual Report 2010 Book value Houses and buildings Machinery equipments Transport instruments Office equipment Apparatus Instrument 1,930,913.45 1,168,829.30 2,262,056.88 1,8,594.88 2,033,799.40 1,239,753.57 3,140,658.20 1,900,066.30 34,039,280.52 33,605,422.08 166,111,015.02 163,588,731.54 209,483,513.59 207,969,6.28 9. Construction in progress (1)Details of construction in progress 2010．06．30 2009．12．31 Projects Book balance Environmental protection project Renovation construction project Plate casting machine construction Depreciation provision -Book value Book balance -Depreciation provision - Book value 324,650.50 324,650.50- 1,353,559.07 - 1,353,559.07 634,356.00- 634,356.00 56,570.79 - 56,570.79 56,570.79 - 56,570.79 Hengfa assets relocation and installation Construction of Gongming Electronic 2,104,934.18 - 2,104,934.18 99,000.00 Town Line construction 23,731.69 -23731.69 23,731.69813,658.48 - 23,731.69- 813,658.48 - 99,000.00 - - - - Total 3,863,446.23 -3,863,446.23 56 Semi-Annual Report 2010 (2)Change of major construction in progress Decrease this period Transferred into fixed asset Environmental protection project Renovation construction project 634,356.00Plate casting machine construction Hengfa assets relocation and installation Construction of Gongming Electronic Town Line construction Total 99,000.0023,731.69813,658.48 3,049,787.752,005,934.18 56,570.79 719,203.07-324,650.50 Other decrease 324,650.502010．06．30 Projects 2009．12．31 Increase this period 1,353,559.07 56,570.79 2,104,934.18 23,731.69 3,863,446.23 (3)The construction in progress of the Company has the capital from self-fund-raised. There are no amounts of interest capitalizing in expenses for construction in progress this period. (4)The balance at year-begin of construction in progress increase RMB 3,049,787.75 over that of period-begin, up 274.82%. Mainly due to the increased invested capital for construction of Gongming Electronic Town of the Company. 10. Intangible assets Item 2009．12．31 Original Value Land use right Non-patent technology Accumulated Amortization Land use right Non-patent technology Net book value Land use right Non-patent technology Impairment Provision 458,573.95112,714.5154,779,557.9054,729,252.41 50,305.49 0.00 487,482.6627,169.982,246,615.162,150,785.1495,830.02 0.00 0.00 946,056.610.00 139,884.49 57,026,173.060.00 56,880,037.550.00 146,135.510.00 0.00 571,288.46 514,652. 1,085,941.10 55,350,846.3655,187,826.36163,020.00 Increase In this period 2,761,267.802,638,267.80123,000.00 Decrease in this period 2010．06．30 58,112,114.160.00 57,826,094.160.00 286,020.00 57 Semi-Annual Report 2010 Item 2009．12．31 Land use right Non-patent technology Book Value Land use right Non-patent technology 0.000.00 54,779,557.9054,729,252.41 50,305.49 Increase In this period 0.000.00 2,246,615.162,150,785.1495,830.02 Decrease in this period 2010．06．30 0.00 0.000.00 0.000.00 57,026,173.060.00 56,880,037.550.00 146,135.51 （1）Among the accumulated amortization increased in this period, RMB 514,652. was amortized in this period. （2）The intangible assts increased in this period was the account paid for Gongming land. 11. Long-term expense to be amortized Other Increase In this Item 2009.12.31 year Amortized this year decrease in this year Financial consultancy of 2,375,000.00Construction Bank of China Total 2,375,000.00 375,000.00 - 2,000,000.00 375,000.00 - 2,000,000.002010.06.30 (1)The long-term amortized expense refers to the financial consultancy that engaged with Construction Bank of China with total amount of RMB3 million. Service term is from 19 March 2009 to 18 March 2013. 12. Deferred income tax assets and deferred income tax liabilities (1) Deferred income tax assets and deferred income tax liabilities that have been recognized Deferred income tax assets formed by provision for devaluation of bad debts 3,025,9.22 3,025,9.22 Items 2010.06.30 2009.12.31 Deferred income tax assets formed by provision for devaluation of inventory Deferred income tax assets formed by provision for devaluation of fixed-asset Deferred income tax assets formed by projected liabilities Total deferred income tax assets 1,373,122.086,033,798.44 1,373,122.085,088,690.42 7,0.08 7,0.08 1,627,137.06 682,029.04 58 Semi-Annual Report 2010 (2) Details of deferred income tax assets without recognition Items 2010.06.30 2009.12.31 Note Provision for bad debt impairment 3,153,172.51Provision for fixed Assets Impairment 973,496.73 Deductible losses 213,985.72Total 4,340,654.96 973,496.73213,985.724,340,654.96 3,153,172.51 (3)Deductible losses of deferred income tax assets without recognition will due in the following years Items 2010.06.30 2009.12.31 Note 2013 3,458.002014 210,527.72Total 213,985.72 3,458.00210,527.72213,985.72 (4)Items of provisional differences of deferred income tax assets recognized at period-end Items Provision for bad debt impairment Provision for inventories impairment Provision for fixed Assets Impairment Projected liabilities Total 2010.06.30 13,752,951.016,794,950.3135,863.996,241,463.9926,825,229.30 2009.12.31 13,752,951.013,014,518.2535,863.996,241,463.9923,044,797.24 13. Details of provision for impairment loss on assets Decreased this period Switch-back Other transfer-out 16,906,123.522010．06．30 Items 2009．12．31 Increased this period Bad debt provision Provision for inventories 16,906,123.52 depreciation 3,014,518.25 3,780,432.06Provision for fixed Assets Impairment 6,794,950.31 1,009,360.72 1,009,360.72 24,710,434.55 Total 20,930,002.49 59 Semi-Annual Report 2010 14. Short-tem loans (1)Classification of short-tem loans types 2010．06．30 2009．12．31 Mortgage loans Margin loans -117,091,620.66 Total 117,091,620.66 -33,442,212.5733,442,212.57 (2) The amount at period-end increase RMB 83,9,408.09 over that of period-begin, a 150.13% up. Mainly due to the margin loans of Hengfa Scientific and Technology Company increased in this period. (3)Till the end of 30 June 2010, the Company has no short-tem loans due without paying. 15. Note payable (1)Classification of note payable Type Bank Acceptance bill Total 2010．06．30 2009．12．31 30,6,698.5130,6,698.51 18,480,655.1618,480,655.16 16. Account payable (1)Account payable Item Total Including: Over 1year 2010．06．30 2009．12．31 166,988,515.4610,356,727.74 81,546,114.1710,869,353.19 (2)Amount at period-end increase RMB 95,442,401.29 compared with that of period-begin, with an increase rate of 117.04%. Mainly due to the account payable of Hengfa Scientific and Technology Company increased this period. 17. Account received in advance (1)Account received in advance Items Total Including: Over 1year 2010．06．30 2009．12．31 1,3,902.08 1,762,766.251,008,509.90 (2)Account to the shareholders holding more than 5% (5% included) voting right shares of the Company did not exist in the balance of accounts received in advance. 60 Semi-Annual Report 2010 18. Wages payable Item 2009．12．31 Increment This Decrement This Period Salary, bonus, allowance & subsidies Staff Welfare Treatment Fund Social Insurance Premium Including: medical insurance premium Basic retirement insurance premium Unemployment Insurance Premium Industrial Injury Insurance Premium Maternity Insurance Premium Labor Union fund & staff educational fund Total 498,363.74 32,049.37 530,413.11 -17,276.57 17,276.57 - -16,447.77 16,447.77 - -43,651.83 43,651.83 - -5,093.82 369,302.16 447,363.50 -83,155.16 -549,441.95 549,441.95 - 4,840.00-5,093.82 12,168.00 17,008.00 - 1,549,184.66 Period 1,749,494.77 2010．06．30 13,458,230.30 13,257,920.19 996,120.28 1,074,181.62 -83,155.16 2,047,294.58 14,498,567.95 14,349,109.81 2,196,752.72 19. Tax payable Items 2010．06．30 2009．12．31 3,574,940.00879,174.433,903,004.72-20,357.55 357.24 626,732.67 444,954.1520,681.12 27,522.06 8,257.20 20,810.015,229.858,828,793.97 VAT -1,083,005.29Business Tax Enterprise Income Tax Personal Income Tax Urban Maintenance & Construction Tax Property Tax Educational Surcharge Price adjustment funds Stamp tax 736,117.707,362.20 22,850.75 Total 1,102,837.29 Amount at period-end decrease RMB 7,725,956.68 compared with that of period-begin, with a decrease rate of 87.51%. Main reason due to the major amount of input invoice of VAT received in this period and taxable amount. 61 Semi-Annual Report 2010 20. Other account payable (1)Other account payable Item Total Including: Over 1year Amount at period-end 15,144,497.669,226,137.22 Amount at period-begin 132,5,479.9,726,137.22 (2)Amount at period-end decrease RMB117, 500,982.32 compared with that of period-begin, with a decrease rate of 88.58%. Main reason was that Wuhan Zhongheng increase capital into Hengfa Scientific Technology Company by house, buildings and land-use right, the relevant procedure have been completed and caused by transferring of other account receivable. (3) Account payable to the shareholders holding more than 5% (5% included) voting right shares of the Company Name of the company Wuhan Zhongheng Total (4)Other account payable with major amount in period-end Name of the company Shenzhen Wanshangyouyi Department Store CO., Ltd. Construction Bank of China Shangbu Sub-branch 1,000,000.00 Amount 3,477,008.00 Age Over 5 years Within 2 years Service charge Natural or content Margins Amount at period-end Amount at period-begin 95,387,959.6995,387,959.69 Total 4,477,008.00 21. Long-term loans (1)Classification of long-term loans Types Mortgage loans Total 2010.06.30 211,997,600.00211,997,600.00 2009.12.31 219,621,200.00219,621,200.00 62 Semi-Annual Report 2010 (2)On 12 March 2009, the Company signed a Loan Contract of Jie 2009 Shang 0181008R with Construction Bank of China Shangbu Sub-branch for obtaining RMB 230 million loans. Term of the loans is 7 years namely from 12 March 2009 to 11 March 2016, floating rate will be adopt for this loan, 20th of every month was the interest settlement date that listed in the contract. According to the contract, RMB140 million have been obtained on 12 March 2009 by property mortgage of the 2nd, 3rd and 4th floor of Huafa Mansion (Number of property certificate: SFDC No. 3000522977, 3000522975 and 3000522976); RMB 90 million loans on 3 April 2009 by property mortgage of the 1st, 5th and 6th floor of Huafa Mansion (Number of property certificate: SFDC No. 3000503696, 3000503720 and 3000511945). Among which RMB 140 million was constant amortization mortgage, RMB 90 million was monthly interest payment for principal payment while expire. (3)Top 5 long-term loans in period-end Amount at period-end Company Date of loans Date of expire currency Rate (%) Amount in foreign currency Amount in local currency Amount at period-begin Amount Amount in in local foreign currencycurrency Construction Bank Of China Shangbu Sub-branch Construction Bank Of China Shangbu Sub-branch Total 12 March 11 March RMB 5.94% 2009 2016 -121,997,600.00 - - 12 March 2009 11 March 2016 RMB 5.94%- 90,000,000.00 - - 211,997,600.00 22. Projected liabilities Increased this period Carry-over this period Items 2009．12．31 Pending action Product warranty 4,117,293.572,124,170.42 2010．06．304,117,293.572,124,170.42 Total 6,241,463.99 6,241,463.99 (1)Details of projected liabilities see Note IX. 63 Semi-Annual Report 2010 23. Deferred income Items 2010．06．30 2009．12．30 Subsidies from Wuhan Financial Department for earthquake relief equipment Total 200,000.00 200,000.00 200,000.00 200,000.00 24. Share capital (RMB1.00 per share in value) Shareholder Name/Type 2010.06.30 Restricted Shares State-owned Shares State-owned Corporate Shares 2009.12.31 --116,4,4116,4,4 -- --116,4,4 - Other Domestic Shares 116,4,4 Including: Domestic corporate shar Domestic natural person shareForeign Shares Including: Foreign corporate shares Foreign natural person shares Total Restricted Shares --116,4,4 - --116,4,4 -,675,497101,995,836 --166,671,333283,161,227 Unrestricted Shares RMB Common Shares ,675,497Foreign Shares Listed Domestically Foreign Shares Listed Overseas Others Total Unrestricted Shares 101,995,836 --166,671,333 Total Shares 283,161,227 25. Capital reserves Item 2009．12．30 Shares Premium Other Capital Reserves 96,501,903.027,571,423.92 Increment this period --- Decrement this period - - - 2010．06．30 96,501,903.027,571,423.92104,073,326.94 Total 104,073,326.94 Semi-Annual Report 2010 26. Surplus reserve Item 2009．12．30 Statutory Surplus 21,322,617.25 Reserves Arbitrary Surplus 56,068,976.00 Reserves Total 77,391,593.25 Increment this period ---Decrement this period - - - 21,322,617.2556,068,976.0077,391,593.252010．06．30 (1) According to the Company Law of P. R.C, the Article of Association and the resolution of Board, the Company withdrawal statutory surplus reserves based on the 10% of the amount after remedying previously deficit with annual net profit and stop withdrawal ling while the accumulated statutory surplus reserve occupied over 50% of the share capital. The approval statutory surplus reserves can be used for deficit remedy or increasing the share capital. Except for deficit remedy, the balance after share capital increasing shall not less than the 25% of share capital before increasing. (2) Retained profit withdrawal or distribution Amount at last period-end Add: adjustment amount of retained profit at period-begin -Including: Changes in accounting policies Mistakes in last period rectified Change of consolidated scope under same control Other adjustment factors Add: net profit attributable to shareholders of parent company in this period Less: Drawing statutory surplus reserves Drawing arbitrary surplus reserves Drawing general risk provision Dividend for ordinary shares payable ----------------212,662,288.38 - Item amount Proportion of Amount at this period-begin -212,662,288.38 17,375,496.34 ---- 65 Semi-Annual Report 2010 Item amount Proportion of withdrawal or distribution Dividend for ordinary shares transferred to share capital Amount at period-end this period --195,286,792.04 -- 27. Business revenues & business cost Industries or products Business Revenues Jan. to Jun., 2010 Business Cost Gross profit Business Revenues Jan. to Jun., 2009 Business Cost Gross profit Main business according to products Plastic injection ware LCD 221,422,722.87 211,067,288.24Styrofoam Property leasing Property management PCB Total 27,558,453.28 24,843,971.70 10,355,434.632,714,481.5816,857,116.48788,661.00 103,794,691.5329,598,133.9221,032,780.74822,237.005,345,495.71 40,157,511.85 212,122,658.94 98,761,372.59 5,033,318.9427,251,795.85 2,346,338.071,958,095.71 19,074,685.03 822,237.00 98,101,549.40 88,659,731.24 9,441,818.16 51,529,320.04 45,025,714.73 6,503,605.31 18,534,021.29 1,676,904.81788,661.00 7,421,396.86 -2,075,901.15180,418,375.74 31,704,283.20 366,405,407.84 326,247,5.99 (1)Business revenue this period increase RMB 154,282,748.90compared with that of last period, with a 72.73% increase rate. Main reasons were that the business revenue increase by the business of display from Hengfa Scientific and Technology increased caused corresponding increase of business cost. 28. Business tax & extras Item Business Tax Urban Maintenance & Construction Tax Educational Surcharge Property Tax Jan. to Jun., 2010 Jan. to Jun., 2009 Taxable basis 971,277.939,712.7829,138.34181,778.52 1,335,122.7681,601.3831,985.50205,906.50 5% 1%, 7% 3% 0.12% 66 Semi-Annual Report 2010 Item Land use tax development charge Price adjustment fund Other Total Jan. to Jun., 2010 Jan. to Jun., 2009 Taxable basis 155,516.669,790.42 170,100.00 0.1% 0.1% - Local educational 136,418.71 -1,493,633.36 1,830,716.14 - 29. Financial expenses Item Interest Expenditures Less: interest income Add: Exchange loss Add: Other expenses Total Jan. to Jun., 2010 7,344,974.25258,678.457,681,282.39 Jan. to Jun., 2009 5,045,225.3394,039.875,536,616.44 45,917.23 68,875.85123,546.92 466,227.09 （1）RMB 2,144,665.95 was increase this period compared with that of last period, with a 38.74% increase rate. Mainly due to the increase of bank loans which results in the increase of interest expenses in this period. 30. Assets impairment loss Item Bad debt provision Provision for inventory depreciation Impairment provision for fixed assets Total 3,780,432.063,780,432.06 Jan. to Jun., 2010 Jan. to Jun., 2009 31. Non-operating income (1)Details of non-operating income Item Income from disposal of non-current assets Including: Income from disposal of fixed assets Gains/losses from transaction of non-monetary assets Subsidy from government 67 Jan. to Jun., 2010 Jan. to Jun., 2009 6,902,326.45 Semi-Annual Report 2010 Item Income on disposal Breach of faith income Compensation from quality warranty Other Total Jan. to Jun., 2010 317,837.12 7,220,163.57 Jan. to Jun., 2009 114,934.005,955.30 120,8.30 (1)Gains/losses from transaction of non-monetary assets were the equity exchange of Hengfa Scientific and Technology with Shenzhen Huafa Scientific and Technology Co., Ltd. in 2010. The added value of RMB 6,902,326.45 reckoned into non-operating revenue. Details of exchanges see in the Annual Report of 2009. 32. Non-operating expenses Item Losses from disposal of non-current assets Including: Losses from disposal of fixed assets Forfeit expenses External donation Inventory shortage losses Compensation from lawsuit Other Total 27,044.7227,044.72 240,136.94250，453.7310,316.79 Jan. to Jun., 2010 Jan. to Jun., 2009 33．calculation procedure of basic earnings per share and diluted earnings per share Item Code Amount in this period Net profit attributable to shareholders of the parent Company Non-recurring gains/losses attributable to parent Company Net profit attributable to shareholders of the parent Company after deducting non-recurring gains and losses Total shares in year-begin 4 283,161,227.00 - 283,161,227.00 -3=1-2 10,182,377.49 4,488,787.23 1 17,375,496.34 Amount in last period 4,359,222.80 2 7,193,118.85 -129,5.43 Amount of shares increase from public 5 68 Semi-Annual Report 2010 Item Code Amount in this period reserve capitalizing or share dividend distribution（Ⅰ） Amount of shares increase from newly issuing shares or shares transfer from 6 debt（Ⅱ） Accumulated months from next month of share increased（Ⅱ） to year-end Shares decreased by repurchasing Accumulated months from next month of share decreased to year-end Reducing shares Amount of months in report period 7 8 - - --- -Amount in last period 9 - -10 11 - 6 -12 Weighted average of common shares 12=4+5+6×7÷11 issuing outside Basic earnings per share (Ⅰ) Basic earnings per share (Ⅱ) Interest of common shares with diluted potential that have been recognized as 15 expense Transferring expense Rate of income tax Weighted average of common shares increased by warrants, stock option 18 and convertible bonds etc. Diluted earnings per share (Ⅰ) Diluted earnings per share (Ⅱ) 19=[1+(15-16)×(1-17)]÷(12+18) 19=[3+(15-16)×(1-17)]÷(12+18) 16 17 -8×9÷11-10 13=1÷12 14=3÷12 283,161,227.00 283,161,227.00 0.0614 0.0360 0.01580.0158 - - - - -- - - 0.0614 0.0360 0.01580.0158 34. Items of cash flow statement (1) Cash flow statement annotation Item 1．Reconciliation of net profit to cash flows from operating activities: Net Profit Add: Provision for impairment of assets 2010.06.30 17,375,496.34 4,359,222.83,780,432.06 2009.6.30 69 Semi-Annual Report 2010 Item Depreciation of fixed assets, oil assets and productive biological assets Amortization of intangible assets Amortization of long-term prepayments Losses on disposal of fixed assets, intangible assets and other long-term assets (income is listed with “- ”) Losses on scrapping of fixed assets(income is listed with “- ”) Losses on fair value change(income is listed with “- ”) Financial expenses(income is listed with “- ”) Investment losses(income is listed with “- ”) Decrease in deferred income tax assets (increase is listed with “-”) Increase in deferred income tax liabilities (decrease is listed with “- ”) Decrease in inventories(increase is listed with “-”) Decrease in operating receivables(increase is listed with “-”) Increase in operating payables(decrease is listed with “- ”) Others Net cash flows from operating activities 7,344,974.25 5,027,225.33 -29,293,005.16 -61,359,958.61-87,355,780.17 -160,223,983.1110,914,222.67 124,540,418.2 29,661,871.80 -78,925,182.832010.06.30 2009.6.30 6,097,025.02 8,485,301.54514,652. 146,590.97283,854.15 VIII. Related party relationship and transactions 1. Parent company (1) General information of parent company Parent Company Wuhan Zhongheng Group Type of the Company Registration place Legal representative Nature of business Final controller Organization code 711954601 Company of Wuhan Li Zhongqiu Manufacture Li Zhongqiu limited liability and sale (2) Registered capital of the parent company and its change Parent Company Amount at year-begin Wuhan Zhongheng Group 138,000,000.00 Increment this year -Decrement this year - Amount at year-end 138,000,000.00 70 Semi-Annual Report 2010 (3) Shares held by the parent company and its change Amount of share held Parent Company Amount at year-end Amount at year-begin Proportion of share held proportion at proportion at year-end year-begin Proportion of voting rightproportion at year-end proportion at year-begin Wuhan Zhongheng Group 116,4,4 116,4,4 41.14% 41.14% 41.14% 41.14% (4) Nature of the related parties without controlling relationship and other related parties Type of association-relation Other enterprises under control of the same parent company Wuhan Hengsheng Photo electricity Industry Co., Ltd. Shenzhen Zhongheng Huafa Scientific and Technology Co., Ltd. Wuhan Xindongfang Real Estate Development Co., Ltd. Wuhan Zhongheng Property Management Co., Ltd. Wuhan Guanggu Display System Co., Ltd. 75510305-9 None 75180426-1 None 68536237-X Sales of commodities and leasing 74476047-5 None 731086-5 Purchase of LCD Name of related party Organization code Main transaction 2. Related party transaction (1) Purchased commodities from related party Jan. to Jun., 2010 Percentage points in the same Amount transaction in current period (%) 70,502,675.07 9,545,922.14 80,048,597.21 Jan. to Jun., 2009 Percentage points in the same transaction Amount in current period (%)） Name of related party Wuhan Hengsheng Photo electricity Industry Co., Ltd. Shenzhen Zhongheng Huafa Scientific and Technology Co., Ltd. Total 21.79% 56,565,948.32 47.13% 2.95% - - 24.74% 56,565,948.32 47.13% 71 Semi-Annual Report 2010 (2) Commodities selling to related parties Jan. to Jun., 2010 Percentage points in the same Amount transaction in current period (%) 174,720.86 174,720.86 Jan. to Jun., 2009 Percentage points in the same Amount transaction in current period (%)） Name of related party Shenzhen Zhongheng Huafa Scientific and Technology Co., Ltd. Total 0.05% - - 0.05% - - (3)Comprehensive service offered to related parties Jan. to Jun., 2010 Percentage points in the same Amount transaction in current period (%) 627,611.05 627,611.05 Jan. to Jun., 2009 Percentage points in the same Amount transaction in current period (%)） Name of related party Shenzhen Zhongheng Huafa Scientific and Technology Co., Ltd. Total 3.39% - - 3.39% - - (4) Loans from related parties offered to subsidiaries Name of related party Jan. to Jun., 2010 Percentage points in transaction of Amount the same period (%) Jan. to Jun., 2009 Percentage points in transaction of Amount the same period (%) Wuhan Zhongheng Total 18,000,000.0018,000,000.00 100.00% - - 100.00% - - (5)Funds paid to related parties Name of related party Jan. to Jun., 2010 Percentage points in the same Amount transaction in current period (%) 2,274,398.93 2,274,398.93 Jan. to Jun., 2009 Percentage points in the same Amount transaction in current period (%)） Wuhan Hengsheng Photo electricity Industry Co., Ltd. Total 0.90% 34,956,697.71 80.20% 0.90% 34,956,697.71 80.20% 72 Semi-Annual Report 2010 IX. Contingent events 1. Contingent liability formed by pending action or arbitration (1) Dispute case that Shanxi Linghua Electronics Co., Ltd sued Company for undertaking contract Dispute case that Shanxi Linghua Electronics Co., Ltd. (hereafter referred as “Shanxi Linghua”) sued Company for undertaking contract (No. 2441Civil Secondary First Shen Fu Court 2007): Shanxi Linghua sued the Company for the compensation for its loss caused by the printed circuit boards (PBC) of latent quality problems sold to it in the period from 30 May 2006 to 9 May 2007, with the object of action of RMB 3,100,773.20. The Company received the summons on the case from the People’s Court of Futian District on 14 January 2008; Court of First Instance started the first hearing on Mar 6th of 2008. The Company prosecuted the countercharge to the action on 12 November 2007, and sued the Shanxi Liinghua in arrears with loans from the Company and relevant interest, with the object of action of RMB 1,054,290.19. Court of First Instance started the first hearing on Mar 6th of 2008. On 25 July 2009, the People’s Court of Futian District of Shenzhen Municipality made judgment on the above cases (No. 2441Civil Secondary First Shen Fu Court 2007): the Company might pay to Shanxi Hualing the liquidated damages of RMB 1,797,975.48, and Shanxi Hualing to the Company the remanent loans of RMB 869,458.96 and the interest loss, within10 days from the judgment validity day. The Company appealed against the judgment to the People’s Intermediate Court of Shenzhen Municipality on 31 August 2009; People’s Intermediate Court of Shenzhen Municipality made civil decision (No. 2227 Civil Secondary Final Shen Intermediate Court (2009)) on the case on 22 March 2010, with the reason that the previous judgment was of the unclear identification on and insufficient evidence to the major facts in the case, and repealed the No. 2441 Civil Judgment (Civil Secondary First Shen Fu Court) of the People’s Court of Futian District of Shenzhen Municipality (2007) and remanded to the People’s Court of Futian District of Shenzhen Municipality. Pursuant to (2) Dispute case that Company sued Shenzhen Wanshang Youyi Department Co., Ltd. for undertaking contract. Dispute case (No. 2336 Court Civil Third First Shen Fu Court) that Company sued Shenzhen Wanshang Youyi Department Co., Ltd. (hereafter referred as “Wanshang Department”) for undertaking contract: in May 2009, the Company prosecuted the lawsuit against the Wanshang Department for the payment of the undercharged rental of RMB 34,381,679.31 ending at 7 May 2009 and the liquidated damages of RMB 10,000,000, and the revocation of contracts and relevant amended agreements as regards the lease of Huafa Building signed with Wanshang Department; the People’s Court of Futian District of Shenzhen Municipality registered and handled the case on 13 July 2009; in September 2009, for the convenience to solve the dispute in other ways, the Company applied for 73 Semi-Annual Report 2010 recalling and got the approval from the court; in November 2009, the Company prosecuted the lawsuit on the case to the People’s Court of Futian District of Shenzhen Municipality again, for the payment of the undercharged rental of RMB 17,746,563.78 (from February 2007 to September 2009), and the court registered the case formally and made a judgment of refusal the lawsuit from the Company. The Company appealed against the judgment to the People’s Intermediate Court of Shenzhen Municipality, and the latter made the court of the second instance in session but has not made the judgment yet now. Upon the first of the above case, Wanshang Department prosecuted the countercharge as filing the answer against the Company’s under-delivery of the shop of 121.2 square meters related in the lease contract and for the economic loss caused, with the object of action RMB 6,466,020.00. On 1 December 2009, People’s Court of Futian District of Shenzhen Municipality made the judgment (No. 2336 Court Civil Third First Shen Fu Court) on the case: the Company might deliver the shop of 121.1 square meters to Wanshang Department and pay for the economic loss of RMB 3,605,613.86. The Company appealed against the judgment to the People’s Intermediate Court of Shenzhen Municipality in January 2010. The People’s Intermediate Court of Shenzhen Municipality tried the case in session in May 2010, and has not made the final judgment as ending at the day of the approved presentation of the Financial Report. According to the judgment of the People’s Court of Futian District of Shenzhen Municipality of the first instance, the Company recognized the damages of RMB 3,605,613.86 in the first instance as the estimative liability last year, and did not increase or decrease the relevant liability in the Period. (3) Shenzhen Baoluda Electronics Technology Company sued the Shenzhen Baoluda Electronics Technology Co., Ltd.to People’s Court of Baoan District of Shenzhen Municipality for the refund of the lease deposits, payment for processing expenses, and return of the equipment, with the object of action of RMB 1,590,262.51. On 26 July 2010, the Company prosecuted the countercharge to the People’s Court of Baoan District of Shenzhen Municipality against Shenzhen Baoluda Electronics Technology Co., Ltd. in arrears with the house rental, water & electricity, pollutant charges and relevant interest, with the oject of the contercharge of RMB 4,318,133.32. The People’s Court of Baoan District of Shenzhen Municipality has accepted the countercharge but not tried the case in session yet now. 2. The Company produced and processed the video communication products and maintained them three years for free according to the contract signed with the client. According to the actual maintenance in 2009, the estimative maintenance expenditure to be actual in the free maintenance period is RMB 2,124,170.42 and was recognized as the estimative liability in last year. 3. Besides the above contingent events, as ending at 30 June 2010, there was no incidence of other new significant contingent events. X. Commitment events As ending at 30 June 2010, there were no significant commitment events necessary for disclosure. XI. Events after Balance Sheet Day 1. As for the labor dispute case that the Company’s former staff as Zhou Changqing, Li Weidong, Zhang Yuan, Zhou Moufeng, Ge Hongshui, and Qiu Weilin sued against the Company in arrears with their wages, rewards, overtime payment, reserve and holiday 74 Semi-Annual Report 2010 payment, the estimative liability recognized in the last year was RMB 147,632.11. The case was concluded and the judgment executed in this July, with the sum of RMB 121,650.02 executed. 2. Besides the above event after the balance day, as ending at the day of the approved presentation of the Financial Report, there was no incidence of other significant events after the balance sheet day. XII. Other important events 1. Stock replacement between Company and Wuhan Zhongheng On 29 April 2009, the Company signed the (1) Major contents in 1) The Company and Wuhan Zhongheng jointly add the investment into Hengfa Science and Technology Company – the wholly-owned subsidiary: the Company’s additional investment of RMB 44 million in currency with obtaining the 44% shareholding of the after- addition total in Hengfa Science and Technology; Wuhan Zhongheng additional investment of the use right of and the buildings on No. 10 Land and No. 2 Land of RMB 101.6931 million total appraisal value in Dunkou Subdistrict, Wuhan Economic and Technologic Development District with obtaining the 44% shareholding of the after- addition total in Hengfa Science and Technology. The total of the additional investment was RMB 145.6931 million and the registered capital of Hengfa Science and Technology increased to RMB 181.31 million. 2) The Company made the first additional investment via the capital assets and cash in PCB business into Huafa Science and Technology Company, with the after-addition registered capital and actually received capital of Huafa Science and Technology Company RMB 8,676,775.00. 3) The second additional investment was made into Huafa Science and Technology Company via the use right of land (Shenzhen Housing Property Certificate No. 7226760 and No. 7226763, Land Parcel No.“A627-005” and No.“A627-007”, total area of 48,161.6 square meters)(hereafter referred as “Gongming Industrial Land”) of RMB 18.55 million (appraisal value as the actual value including re-grant premium of RMB 7.7 million) in Huafa Road, Gongming Town, Baoan District, Shenzhen. Meanwhile, the Company ensured that the Gongming Industrial Land was transformed into Huafa Science and Technology Company in the second additional investment. 4) Huafa Science and Technology Company continuously implemented the agreement of inventory purchase signed with the Company to purchase from the Company the inventory of the PCB. Wuhan Zhongheng evaluated its after-addition 56% shareholding in Hengfa Science and Technology Company (hereafter referred as “input asset”) as RMB 101.6931 and went on the stock replacement with the Company’s 100% shareholding in Huafa Science and Technology Company (hereafter referred as “output asset”), with the difference made up by cash. 6) Within 90 days upon the agreement validity, the Company delivers 100% shareholding in Huafa Science and Technology Company to Wuhan Zhongheng, and Wuhan Zhongheng delivers 56% shareholding in Hengfa Science and Technology Company; as only after the completion of second additional investment into Huafa Science and Technology Company, the Company can obtain the after-the-second-addition 17.6% shareholding in Huafa Science and Technology Company and deliver to Wuhan Zhongheng; and therefore, 75 Semi-Annual Report 2010 before the delivery of the stock, the Company may pay Wuahn Zhongeng the difference of RMB 14.92535 million, and after the delivery, Wuhan Zhongheng returns the stock transfer payment of RMB 18.55 million. 7) Within 30 business days after the agreement validity, Wuhan Zhongheng pays to the Company RMB 2 million in cash as the prepayment of the stock transfer. 8) It is recognized by the agreement two parties that after delivering the input asset to the Company on the contract agreement, Wuhan Zhongheng is regarded as of the full fulfillment of the contract duty of consideration value payment in the stock transfer; and that after delivering the output asset to Wuhan Zhongheng, the Company is regarded as of the full fulfillment of the contract duty of consideration value payment in the stock transfer. Besides the above consideration value, any party under the contract has no right or right claim for the payment of consideration value to the counterparty. 9) 10) Pricing policy and basis in the (2) As ending at the day of the approved presentation of the Financial Report, the accomplishment of the replacement of the relevant assets are as follows: 1) On 20 April 2009, Hubei Zhonglian Asset Appraisal Co., Ltd. appraised the housing property related in the asset replacement, and presented the appraisal report No. 024 E Zhonglian Appraisal Report [2009]. The housing property and land went through the account transfer procedures respectively on 30 December 2009 and on 14 December 2009, and were input into the Hengfa Science and Technology Company. As the input-land area needs new measurement in the progress of the handling the ownership certificate of the relevant input-land, and the actual transfer area of the land use right is less than the area stipulated in the The Company made the additional investment into Huafa Science and Technology Company via the cash of RMB 55million, capital assets of RMB 31,567,750.00 as 76 Semi-Annual Report 2010 machinery equipment of the PCB, total of RMB 86,567,750.00. The registered capital after the change was RMB 86,767,750.00. Xinyong Zhonghe CPAs verified the additional investment, and presented the No. XYZH/2008SZATS038 Assets Verification Report on 8 April 2009. 3) Huafa Science and Technology Company applied for the shareholder change to Administration of Market Supervision and Regulation of Shenzhen Municipality on 21 December 2009, with the shareholder changed from the Company to Wuhan Zhongheng, which was approved on 22 December 2009. 4) On 11 March 2010, Wuhan Zhonghan made the additional investment into Hengfa Science and Technology Company via the use right of and the buildings on No. 10 Land and No. 2 Land in Dunkou Subdistrict, Wuhan Economic and Technologic Development District, and the Companny made the additional investment via the currency; Wuhan Jingkai CPAs Co., Ltd. presented the No. [2010]0119 Verification Report, with the registered capital and actually received capital both RMB 181,3,100, among that, Wuhan Zhongheng of 56% shareholding, and the Company of 44% shareholding. After the accomplishment of the additional investment, Hengfa Science and Technology Company applied for the corporate type and the institutional shareholder change to Caidin Branch of Administration of Industry and Commerce of Wuhan Municipality, and received the corporation change notice and the after-change corporate institutional license from the Caidian Branch. The Company owned the 100% after-change shareholding in Hengfa Science and Technology Company. (3) Accounting dealing related with stock replacement The input asset in the transaction is 56% shareholding Wuhan Zhongheng in Hengfa Science and Technology Company and the output asset is 100% shareholding by the Companny in Huafa Science and Technology Company. The stock replacement has been accomplished on 25 March 2010. Pursuant to the relevant requirements in the corporate accounting principles, the loss/gain from the non-monetary exchange related in the stock replacement, may not be recognized until the accomplishment of the stock replacement, and was recognized as about RMB 6.9 million on 25 March 2010. XIII. Notes to the main items of financial statement of parent company 1. Accounts receivable (1) Account receivable classified according to risk 2010.06.30 Item That with large amount in single item That in group with larger risk after grouping as per credit risk features though single item sum is small That without large amount in other single item Total 77 Book balance Amount Proportion Provision for bad debts Amount Proportion 21,668,256.084,478,915.8314,241,170.3540,388,342.26 53.65%11.09%35.26%100.00% 1409396.50 6.50%4,366,887.07 97.50%378,6.06 6,155,179.63 2.66%15.24% Semi-Annual Report 2010 Continue 2009.12.31 Item That with large amount in single item That in group with larger risk after grouping as per credit risk features though single item sum is small That without large amount in other single item 4,701,174.08 2.40%100.00% 376,575.66 Total 195,988,148.27 8.01% 4,478,915.83 2.29% 4,366,887.07 97.50% Book balance Amount Proportion Provision for bad debts Amount Proportion 186,808,058.3695.31%1,411,716.90 0.76% 3.14%6,155,179.63 1）Account receivable with major amount at period-end, or with minor amount but perform impairment test separately Accrual proportion Name of the company Wuhan Hengfa Scientific and Technology Co,, Ltd. TCL(Huizhou) Co., Ltd. Shenzhen Baoluda Electronic Technology Co., Ltd. Weiguan Technology(Shenzhen) CO., Ltd. Shanxi Linghua Electronic Co., Ltd. HORACE INDUSTRIAL LTD. Shenzhen Dajiang Electronic Developmetn Co., Ltd. Guangzhou Fanyu Hongtu Computer Equipment Co., Ltd. Book balance 9,710,760.101,916,677.911,407,339.513,344,915.971,010,3.70926,969.70747,476.10716,650.40 Bad debt amount 0.00 0.00% 1,190,653.90 62.12% 0.00 0.00%0.00 62,322.99 0 0.00%6.17%0.00% 14,518.44 1.94%80,037.40 11.17% 61,863.77 8.68% 0.00 0.00 1,409,396.5 - 0.00%0.00% LIM-TECCO.,LTD. 712,661.59Chengdu Xuguang Technology Co., Ltd. Shenzhen Gengchuang Electronic Co., Ltd. Total 665,291.01509,124.0921,668,256.08 2）Account receivable with minor single amount but with greater risk after classified into same group with similar credit risk features 78 Semi-Annual Report 2010 2010.06.30 2009.12.31 Items Amount Proportion Bad debt provision Within 1year 1-2years 2-3 years 3-4 years 4-5 years Over 5 years Total - -3,530.78 0.08%231,020.67 5.16%769,383.15 17.18%265,954.01 5.94%3,209,027.22 71.%4,478,915.83 100.00% -2,167.81231,020.67685,711.91254,147.913,193,838.774,366,887.07 -3,530.78231,020.67769,383.15265,954.013,209,027.224,478,915.83 - -Amount Proportion Bad debt provision 0.08% 2,167.815.16% 231,020.6717.18% 685,711.915.94% 254,147.9171.% 3,193,838.77100.00% 4,366,887.07 (2) There is no arrearage of the shareholder companies which hold over 5% (including 5%) voting right share of the company in the balance at the end of the term of accounts receivable. (3)Top 5 companies in account receivable Proportion in total account receivable Name of the company Relationship with the Company Amount Age Wuhan Hengfa Scientific and Technology Co., Ltd. Weiguan Scientific and Technology (Shenzhen) Co., Ltd. TCL (Huizhou) Co., Ltd. Shenzhen Baoluda Electronic Technology Co., Ltd. Shanxi Linghua Electronic Co., Ltd. Total Major client Major client Major client Major client Related party 9,710,760.10Within 1 year 23.78% 3,344,915.971,916,677.911,407,339.511,010,3.70 Within 2 years Within 5 years Within 2 years Within 4years 8.19%4.69% 3.45%2.47% 42.59% 174,356,4.45 (4)Balance of foreign currency in account receivable Amount at period-end Original currency Exchange rate Converted into RMB 926,969.70 Amount at period-begin Original currency 16,187,868.22 Exchange rate Converted into RMB 110,534,639.52 Foreign currency USD 135,720.30Total 6.83 926,969.706.83 110,534,639.52 79 Semi-Annual Report 2010 2. Other account receivable (1)Other account receivable classified according to risk 2010.06.30 Item That with large amount in single item That in group with larger risk after grouping as per credit risk features though single item sum is small That without large amount in other single item Total 14,320,934.1193,932,562.08 15.25%100.00% 5,146,038.44 28.98%12,156,330.53 12.94% 2,001,524.52 2.13% 2,001,524.52 100.00% Book balance Amount Proportion Provision for bad debts Amount Proportion 77,610,103.4582.62%9,567,326.72 6.75% Continue 2009.12.31 Item That with large amount in single item That in group with larger risk after grouping as per credit risk features though single item sum is small That without large amount in other single item Total 5,809,563.143,079,028.81 4.06%100.00% 587,479.29 12,156,330.53 10.11%8.50% 2,001,524.52 1.40% 2,001,524.52 100.00% Book balance Amount Proportion Provision for bad debts Amount Proportion 135,267,940.4094.54%9,567,326.72 7.07% 1）other account receivable with major single amount at period-end, or with minor amount but performed impairment test separately Name of the company Shenzhen Wanshangyouyi Departmetn Store Co., Ltd. Shenzhen Boteman Bowling Club Co. ,Ltd. Compensation of traffic accident Huafa Leasing Company Book balance 7,344,035.984,037,215.42555,785.814,558,559.15 Bad debt amount 619,802.343,833,179.42555,785.814,558,559.15 Accrual proportion 8.44% 94.95% 100.00% 100.00% Reasons for accrual Difference of current checking Over 5 years account age Over 5 years account age Over 5 years account age 80 Semi-Annual Report 2010 Name of the company HORACE INDUSTRIAL LTD. ZHAO BAO MIN Wuhan Hengfa Scientific and Technology Co., Ltd. Total Book balance 2,5,942.00926,531.0057,292,034.0977,610,103.45 Bad debt amount 0.000.000.00 9,567,326.72 - Accrual proportion Reasons for accrual 0.00% N/A 0.00% N/A 0.00% N/A - 2）other account receivable with minor single amount but with greater risk after classified into same group with similar credit risk features 2010．06．30 2009．12．30 Bad debt Bad debt Amount ProportionAmount Proportion provision provision - 51,595.15 - - 192,7.94 -2.58% --9.63%87.79%100.00% -51,595.15 --192,7.941,757,139.432,001,524.52 -51,595.15 --192,7.941,757,139.432,001,524.52 - 2.58% - - 9.63% 87.79% -51,595.15 --192,7.941,757,139.43 Item Within 1 year 1-2 years 2-3 years 3-4 years 4-5 years Over 5 1,757,139.43 years Total 2,001,524.52 100.00% 2,001,524.52 (2)Top 5 companies of other account receivable Relationship with the Company Proportion in total other account receivable Name of the company Wuhan Hengfa Scientific and Technology Co., Ltd. Shenzhen wanshangyouyi Department Store Co., Ltd. Huafa Leasing Company Shenzhen Boteman Bowling Club Co., Ltd. HORACE INDUSTRIAL LTD. Total Amount Age Natural and content Subsidiary 57,292,034.09Lessees Subsidiary Lessees supplier - 7,344,035.984,558,559.154,037,215.422,5,942.0076,127,786. Within 1 year Over 5 years Within 1 year Over 5 years Within 1 year - Borrowing 60.99% and loans 7.82% 4.85% 4.30% Rent Rent Rent 3.08% Compensation 81.04% 81 Semi-Annual Report 2010 3. Long-term equity investment (1)Classification of long-term equity investment Item 2010．06．30 2009．12．31 185,209,820.00 39,515,7.00 Long-term equity investment measured on cost long-term equity investment Total Less: Impairment provision of 185,209,820.0039,515,7.00600,000.0038,915,7.00 long-term equity investment 600,000.00Value of long-term equity investment 184,609,820.00 (2)Long-term equity investment calculated on cost and on equity Proportion Invested company of shares held Calculated on cost Huafa Leasing Company Huafa Property Company Hengfa Scientific and Technology Total 60% 60%100% 100%100% 100% Proportion of voting right Increased in this period 600,0001,000,00037,915,739,515,7 --145,694,031145,694,031 2009．12．30 Decreased in this period - - - 2010．06．30 600,0001,000,000183,609,820 - 185,209,820 (3)Depreciation provision for long-term equity investment Increased in this period --Decreased in this period - Invested company Huafa Leasing Company 2009．12．31 600,000.00 2010．12．31 600,000.00 Total 600,000.00- 600,000.00 82 Semi-Annual Report 2010 4. Operating revenue and operating cost Items Plastic injection ware PCB LCD Materials selling Property leasing Property management Foam business Jan.-Jun. 2010 Operating revenue Operating cost 5,565,869.28 18,534,021.29 5,818,910.00 1,676,904.81 Gross profit Operating revenue Jan.-Jun. 2009 Operating cost Gross profit 51,529,320.04 45,025,714.73 6,503,605.31 5,345,495.71 7,421,396.86 -2,075,901.15 103,794,691.53 98,761,372.59 5,033,318.94 -253,040.72 0.00 16,857,116.48 21,032,780.74 1,958,095.71 19,074,685.03 788,661.00 822,237.00 822,237.00 29,598,133.92 27,251,795.85 2,346,338.07 24,888,551.57 7,495,814.81 16,604,075.76 212,122,658.94 180,418,375.74 31,704,283.20 5. Supplementary information of cash flow statement of parent company Items 1．Reconciliation of net profit to cash flows from operating activities: Net profit Add: Provision for impairment of assets Depreciation of fixed assets, oil assets and productive biological assets Amortization of intangible assets Amortization of long-term prepayments Losses on disposal of fixed assets, intangible assets and other long-term assets (income is listed with “- ”) Losses on scrapping of fixed assets(income is listed with “- ”) Losses on fair value change(income is listed with “- ”) Financial expenses(income is listed with “- ”) Investment losses(income is listed with “- ”) Decrease in deferred income tax assets (increase is listed with “-”) Increase in deferred income tax liabilities (decrease is listed with “- ”) Decrease in inventories(increase is listed with “-”) Decrease in operating receivables(increase is listed with “-”) Increase in operating payables(decrease is listed with “- ”) Others Net cash flows from operating activities Jan.-Jun. 2010 6,710,658.13 Jan.-Jun. 2009 4,359,222.8 1,836,447.66 8,485,301.5442,696.27 146,590.97 2,008.72 6,208,666.11 5,027,225.33 -16,714,252.65 -61,359,958.61139,302,015.88 -160,223,983.10-35,287,682.28 124,0,418.20 102,100,557.84 -78,925,182.83 83 Semi-Annual Report 2010 XIV. Supplementary information 1. Statement of non-recurring gains/losses this period Item Gains and loss from disposal of non-current assets Ultra vires approval, or none formal approval documents, or accidental tax return and relief Government subsidy recorded into the current gains and losses Capital occupation received from non- financial enterprises and recorded into the current gains and losses The investment cost of subsidiaries, affiliated enterprise and combined enterprise obtained by the enterprise is less than the obtained investment, then gains resulting from recognizable fair value of net asset of investee units should be enjoyed Profit and loss on exchange of non-monetary assets Profit and loss on entrusted investment or manage asset Assets devalue provisions withdrawn for force majeure, such as natural disaster Gains and losses from debt restructuring Enterprise restructuring expense Profit and loss exceeding fair value, resulting from unfair transactions Net profit and loss of the current period from the beginning of the subsidiary to combination date, resulting from enterprise combination under the common control Profit and loss on predicted liabilities unrelated to main business of the Company Held transaction financial asset, gains/losses of changes of fair values from transaction financial liabilities, and investment gains from disposal of transaction financial asset, transaction financial liabilities and financial asset available for sales, exclude the effective hedging business relevant with normal operations of the Company Reversal of provisions for asset impairment of account receivable which is made singly impairment test Gains/losses obtained from external entrusted loan Losses/gains from the change of fair values of investing property of subsequent measurement adopted by method of fair value Influences on current losses/gains for one adjustment of current losses/gains in accordance with the requirements of laws and regulations such taxation and accountings. Amount at this period Amount at last period - -- -- -- - - - 6,902,326.45 2,975,082.95 ------- - 347,534.20 -- - 84 Semi-Annual Report 2010 Item Income of trustee fee from entrusted operation Net amount of other non-operating income and expense except the above items Other losses/gains items conforming the definitions of non-recurring gains/losses Subtotal Impact on income tax Influenced amount of minority shareholders’ equity(after tax) Total Amount at this period Amount at last period - 290,792.40 -4,135,3.87 - 7,193,118.85 -812,747.72 -240,032.54 - 7,193,118.85 -572,715.18 2. Return on equity and earnings per share Earnings per share Basic earnings per share 6.67% 0.0614 Diluted earnings per share 0.0614 Profit in the report period weighted average of return on equity Net profit attributable to shareholders of parent company Net profit attributable to shareholders of parent company after deducting non-recurring gains and losses 3.71%0.0360 0.0360 3. Calculation procedure for return on equity Amount in this Item Code period Net profit attributable to shareholders of the parent Company Non-recurring gains/losses attributable to parent Company Net profit attributable to shareholders of 2 1 Amount last period 17,375,496.34 4,154,592.65 7,193,118.85 -572,715.18 the parent Company after deducting =31-2 10,182,377.49 4,727,307.83non-recurring gains and losses Net assets attributable to shareholders of the parent Company 4 269,339,355.15 6.45% 3.78% 251,963,858.81 1.65%1.88% Fully diluted return on equity（Ⅰ） 5=1÷4 Fully diluted return on equity（Ⅱ） 6=3÷4 85 Semi-Annual Report 2010 Amount in this Item Code period Net assets at year-begin attributable to shareholders of the parent Company Net assets increased by new shares issuing or convertible bonds that 8 -attributable to shareholder of the parent company Amount of months from next month of increase of net assets attributable to shareholders of parent company to year-end of this period Net assets decreased by repurchased or cash bonus etc. that attributable to 10 -shareholders of parent company Amount of months from next month of decrease of net assets attributable to shareholders of parent company to year-end of this period Amount of months in report period 12 6 12 11 -9 -Amount last period 7 251,963,858.81 247,809,266.16 Weighted average of net assets attributable to shareholders of the parent 13=7+1÷(2)+8×9 company Weighted average of return on equity（Ⅰ） Weighted average of return on equity（Ⅱ） 15=3÷13 14=1÷13 ÷12-10×11÷12 6.67% 1.66% 260,651,606.98 249,886,562.49 3.91% 1.% 86 Semi-Annual Report 2010 VII. Documents Available for Reference I. Semi Annual Report with the signature of Chairman of the Board. II. Accounting statements with the signatures and seals of legal representative, principal of the Company, principal in charge of accounting affairs and director of accounting department. III. Original of all documents disclosed on China Securities Journal, Securities Times and Hong Kong Commercial Daily in the report period. IV. Articles of Association of the Company. V. Other relevant materials. Note: This Report is prepared respectively both in Chinese and English. Should be there any difference in interpretation of these two versions, the Chinese version shall prevail. Board of the Directors of Shenzhen Zhongheng Huafa Co., Ltd. August 26, 2010 Chairman of the Company (Signature) ___ Li Zhongqiu ____ 87
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