One of the 2007 Annual General Meeting Documents

Annual Work Report of the Company’s Board of Directors for 2007

Dear Shareholders:

In 2007, the company focused tightly on the central work and target tasks of “one expansion, three innovations, and one harmony,” placing emphasis on profitability and cost management. It proactively adapted to market development trends, worked diligently to mitigate the adverse impacts of rising raw-material prices and intensifying market competition, vigorously expanded both domestic and international markets, comprehensively implemented quality-improvement initiatives, and further enhanced its foundational management capabilities and core competitiveness. In 2007, the company achieved operating revenue of RMB 165,396 million, up 2.27% year on year; total profit of RMB 15,037 million, down 4.53% year on year; and net profit of RMB 14,222 million, down 1.94% year on year.

I. Review of the Company’s Operating Performance

1. Overview of the Company’s Overall Operating Performance for the Reporting Year

(1) Principal Business

In 2007, the company vigorously promoted new energy-efficient and environmentally friendly products, thereby increasing its market share in industrial refrigeration and the deep processing of agricultural products, and gradually shifted its business model from product sales to turnkey project delivery. That year, the company undertook and installed nearly 120 turnkey projects, doubling the number from the previous year. The first phase of the Xinghai Bay seawater-source heat pump project was successfully completed, with all technical parameters meeting design specifications and demonstrating excellent operational performance. Construction on the Xiaopingdao seawater-source heat pump project also officially commenced within the year.

In 2007, the company focused on the R&D of 29 new products, including single-unit two-stage screw compressor units, marine modular air-conditioning units, and a new series of variable-speed screw units.

In 2007, the company prioritized the planning and implementation of a number of technological upgrading projects, including a complete set of refrigeration processes and storage equipment for the deep processing of agricultural products, a large-scale screw compressor project dedicated to the petrochemical industry, a heat pump project, and the relocation and expansion plan for the foundry.

In 2007, the company obtained U.S. ASME certification, thereby securing a passport to enter international markets in Europe and North America for its BingShan products.

In 2007, the company launched a quality improvement initiative involving all employees and covering every stage of the production process, thereby strengthening foundational management and achieving steady progress in quality performance. At the same time, the company implemented an integrated planning system that combines quarterly, monthly, and ten-day plans, which accelerated the production pace and enhanced overall production management capabilities. Leveraging the ten-day plan as the primary vehicle, the company further consolidated and deepened its lean manufacturing practices.

In 2007, in the face of persistently high raw-material prices, the company proactively implemented a range of measures to tap into cost-reduction potential across multiple channels, achieving significant results. By fully leveraging the overall resource advantages of the Bingshan Group and adopting joint procurement for bulk materials, the company effectively controlled purchasing costs.

(2) Sino-foreign joint ventures

At the end of 2007, the total assets of the company’s Sino-foreign joint ventures amounted to RMB 540,346 million, representing a year-on-year increase of 18.24%; net assets totaled RMB 234,675 million, up 16.64% from the previous year.

In 2007, the company’s group of Sino-foreign joint ventures recorded sales revenue of RMB 668.233 million, up 8.64% year on year, with export sales revenue totaling RMB 164.912 million, essentially unchanged from the previous year. The company also reported investment income from its Sino-foreign joint ventures of RMB 93.88 million, a decrease of 3.84% year on year.

During the reporting period, there were three Sino-foreign joint ventures whose investment income accounted for more than 10% of the company’s net profit: Dalian Sanyo Compressor Co., Ltd., Dalian Sanyo Air Conditioning Co., Ltd., and Dalian Sanyo Cold Chain Co., Ltd.

During the reporting period, among the company’s Sino-foreign joint ventures, nine recorded main-business revenue exceeding RMB 100 million, with five exceeding RMB 500 million and four exceeding RMB 1 billion; five reported net profits exceeding RMB 10 million, including two with net profits exceeding RMB 50 million.

In 2007, Dalian Sanyo Compressor Co., Ltd. intensified its market development efforts by focusing on new product technologies, innovative designs, and distinctive features. Through a series of initiatives—including holding distributor conferences, organizing product promotion events, and establishing additional sales offices—the company made significant progress in both geographic market expansion and diversification into new industry sectors. During the year, the company successfully developed several new models of scroll compressors and acquired a range of new production equipment, further boosting its scroll compressor production capacity.

In 2007, Dalian Sanyo Air-Conditioning Co., Ltd. launched a new DC inverter air-conditioning product using R-410A refrigerant, taking the lead in promoting energy-efficient air-conditioning products in the information technology market. The product obtained U.S. UL certification and was successfully exported to the United States and Canada. Throughout the year, total export volume of all models increased by 25.4% compared with the previous year, delivering strong export performance.

In 2007, Dalian Sanyo Cold Chain Co., Ltd. steadfastly implemented a marketing strategy aimed at increasing its share of high-quality customers, allocating sales resources primarily to the top 100 chain retailers in the industry. The company actively adopted and promoted cutting-edge, energy-efficient, and environmentally friendly new products, successfully securing 100% of METRO GROUP’s business in China for that year—the world’s third-largest supermarket chain—and maintaining its leading position in sales within the industry. Through capital increases and capacity expansion, the company further refined its future business strategy, positioning supermarket, convenience store, and commercial kitchen equipment as the core pillars of its growth while deepening its expansion into the beverage display cabinet and biomedical equipment sectors.

In 2007, Dalian Sanyo Refrigeration Co., Ltd. launched a range of new products—including high-efficiency variable-frequency screw chillers, solar-powered dual-effect lithium bromide absorption chiller–heater units, GHP hot-water extraction units, and combined heat–power–cooling systems—focusing on market trends and demands such as energy conservation and emission reduction and clean energy, thereby accelerating its transformation into a comprehensive, specialized manufacturer of central air-conditioning systems.

2. Analysis of the Company’s Principal Business

(1) Product and Geographical Segments of the Principal Business

The company’s principal business revenue is entirely derived from refrigeration and air-conditioning products.

The company’s products are manufactured in Dalian and Wuhan and sold nationwide, with no significant regional concentration. Overseas sales account for approximately 8% of the company’s main business revenue during the same period.

(2) Information on Major Suppliers and Major Customers

The company’s total procurement from its top five suppliers amounted to RMB 311.94 million, accounting for 25.03% of the annual total procurement.

The combined sales to the company’s top five customers totaled RMB 259.02 million, representing 15.66% of the company’s total sales.

3. Company Financial Condition

(1) Asset Composition (Unit: RMB 10,000)

Explanation:

① The increase in accounts receivable is primarily attributable to the rise in accounts receivable that have not yet matured.

② The increase in inventory is primarily attributable to the rise in sales contracts, which has led to corresponding increases in raw materials and work-in-progress.

③ The increase in long-term equity investments primarily reflects the Company’s additional investments in Dalian Sanyo Cold Chain Co., Ltd., Dayang Showa Automotive Air Conditioning (Dalian) Co., Ltd., and Dalian Sanyo Air-Conditioning Equipment Co., Ltd.

④ The increase in fixed assets is primarily attributable to the acquisition of additional buildings and structures resulting from the relocation and renovation of subsidiaries.

⑤ The decrease in construction-in-progress is mainly attributable to the fact that most of the relocation and renovation projects of subsidiaries have now been put into operation.

⑥ The increase in short-term borrowings is primarily attributable to the need for additional working capital to support large-scale turnkey engineering projects undertaken by the parent company and its subsidiaries.

(2) Expenses and Income Tax Situation (Unit: RMB 10,000)

Explanation:

① The increase in financial expenses is primarily attributable to a rise in short-term borrowings, coupled with a decline in interest income.

② The decrease in income tax is primarily attributable to a reduction in deferred income tax expense for the current year.

(3) Composition of Cash Flows (Unit: RMB 10,000)

Explanation:

① The net cash flow from operating activities decreased, primarily due to increased expenditures on the purchase of goods and payment of labor costs and other related expenses.

② The net cash flow from investing activities decreased, primarily due to the Company’s additional investment in its joint venture.

③ The net cash flow from financing activities increased, primarily due to an increase in bank borrowings by the parent company and its subsidiaries.

4. Operating Conditions and Performance of Major Holding Companies and Equity-Participated Companies

(1) Major Holding Companies

① Dalian Bingshan Group Refrigeration and Air-Conditioning Installation Company

The Company holds 100% equity in this entity. The registered capital of the company is RMB 20.04 million, and its principal business is the installation and commissioning of complete sets of refrigeration equipment. In 2007, its total assets amounted to RMB 52.16 million, its net assets were RMB 22.07 million, it recorded sales revenue of RMB 80.75 million, and its net profit was RMB 1.32 million.

② Dalian Bingshan Group Sales Co., Ltd.

The Company holds a 90% equity interest in the entity. The entity has a registered capital of RMB 18 million and primarily engages in the sales of products manufactured by subsidiaries of Dalian BingShan Group. In 2007, its total assets amounted to RMB 33.89 million, its net assets stood at RMB 21.82 million, it recorded sales revenue of RMB 33.26 million, and its net profit was RMB 480,000.

③ Dalian Bingshan Air-Conditioning Equipment Co., Ltd.

Our company holds a 70% equity stake in the entity. The company’s registered capital is JPY 700 million, and its primary business involves the manufacture and sale of air-conditioning terminal equipment, such as fan coil units and air handling units. In 2007, its total assets amounted to JPY 136.68 million, net assets stood at JPY 70.22 million, sales revenue reached JPY 132.12 million, and net profit was JPY 3.28 million.

④ Dalian Bingshan Lingse Quick-Freezing Equipment Co., Ltd.

The Company holds a 70% equity interest in the entity. The company has a registered capital of USD 1 million and primarily manufactures various types of quick-freezing equipment. In 2007, its total assets amounted to RMB 26.99 million, its net assets stood at RMB 7.62 million, it recorded sales revenue of RMB 29.82 million, and its net profit was RMB 0.38 million.

⑤ Dalian Bingshan Metal Processing Co., Ltd.

The Company holds a 64.3% equity interest in the entity. The entity’s registered capital is USD 2.35 million, and it primarily engages in the production of sheet metal and stamped parts as supporting operations for the Company and for established joint ventures. In 2007, its total assets amounted to RMB 32.53 million, with net assets of RMB 20.56 million; it recorded sales revenue of RMB 30.05 million and a net loss of RMB 2.22 million. The primary reason for the loss was the impact of the entity’s relocation and renovation on its normal production and operations for the year.

⑥ Dalian Bingshan Jiade Automation Co., Ltd.

The Company holds a 60% equity interest in the entity. The company has a registered capital of GBP 210,000 and is primarily engaged in automatic control for the refrigeration and related industries. In 2007, its total assets amounted to RMB 9.78 million, with net assets of RMB 5.06 million; it recorded sales revenue of RMB 16.31 million and a net profit of RMB 1.78 million.

⑦ Wuhan New World Refrigeration Industry Co., Ltd.

The Company holds a 51% equity interest in the entity. The entity has a registered capital of RMB 30 million and primarily manufactures and sells screw-type refrigeration compressors. In 2007, its total assets amounted to RMB 342.04 million, its net assets stood at RMB 95.91 million, it recorded sales revenue of RMB 266.48 million, and its net profit reached RMB 29.72 million.

(2) Major Equity-Linked Companies

II. Company Investment Situation

1. During the reporting period, the Company did not raise any new funds, nor did it continue to utilize funds raised prior to the reporting period.

2. Explanation of Non-Fundraising Investment Projects

During the reporting period, the Company made an additional investment in Dalian Sanyo Air-Conditioner Co., Ltd. using its own funds, in accordance with its original equity stake. The Company holds a 40% equity interest in the company and is required to make an additional investment of JPY 1.254 billion.

During the reporting period, the Company made an additional investment in Dalian Sanyo Cold Chain Co., Ltd. using its own funds, in accordance with the original equity shareholding ratio. The Company holds a 40% equity interest in the company and is required to make an additional investment of JPY 588 million.

During the reporting period, the Company established Dalian Daleng Metal Technology Co., Ltd. using its own funds. The company is a wholly owned subsidiary of the Company, with a registered capital of RMB 20 million, and its business scope includes the production and machining of mechanical equipment castings and various pipe fittings.

III. Daily Operations of the Board of Directors

1. Meetings of the Board of Directors and Resolutions Adopted During the Reporting Period

(1) The 10th Meeting of the 4th Board of Directors

The Company’s Fourth Board of Directors held its tenth meeting on April 24, 2007, in the Company’s Eighth-Floor Conference Room. The announcement of the resolutions passed at this board meeting was published in the China Securities Journal and the Wenhui Daily on April 26, 2007.

(2) The 11th Meeting of the 4th Board of Directors

On June 29, 2007, the Fourth Board of Directors of the Company convened its eleventh meeting in the Company’s Eighth-Floor Conference Room. At this meeting, the Board reviewed and approved the self-assessment report on the special corporate governance initiative and the corresponding rectification plan.

(3) The 12th Meeting of the 4th Board of Directors

On August 17, 2007, the Fourth Session of the Company’s Board of Directors held its twelfth meeting in the Company’s Sixth-Floor Conference Room. The announcement of the resolutions adopted at this board meeting was published in the China Securities Journal and the Wenhui Daily on August 21, 2007.

(4) The 13th Meeting of the 4th Board of Directors

On October 25, 2007, the Fourth Board of Directors of the Company convened its 13th meeting in the Company’s Sixth-Floor Conference Room. The announcement of the resolutions adopted at this board meeting was published in the China Securities Journal and the Wenhui Daily on October 27, 2007.

(5) The 14th Meeting of the 4th Board of Directors

On November 15, 2007, the Fourth Board of Directors of the Company convened its 14th meeting by fax. At this meeting, the report on the capital contribution for the establishment of Dalian Daleng Metal Technology Co., Ltd. was reviewed and approved.

2. Implementation of Resolutions Adopted by the Shareholders’ Meeting by the Board of Directors

The Company’s Board of Directors has effectively implemented all resolutions passed at the 2006 Annual General Meeting.

The Company’s 2006 dividend distribution plan was fully implemented by the Board of Directors in July 2007.

3. Summary Report on the Performance of Duties by the Audit Committee of the Board of Directors

The Audit Committee under the Company’s Board of Directors performs its duties in accordance with the Company’s Implementing Rules for the Board of Directors’ Audit Committee, overseeing the Company’s internal audit system and its implementation, reviewing the Company’s financial information and disclosures, and evaluating the work of external auditing firms.

During the Company’s 2007 audit, the Audit Committee engaged in proactive communication with and effectively supervised the auditing firm, Dalian Hualian Certified Public Accountants. Prior to the auditors’ on-site engagement, the Committee held discussions with the engagement partner of the auditing firm regarding the audit plan, schedule, and key considerations during the audit period, and reached a consensus on these matters. Throughout the audit process, the Committee kept abreast of progress and repeatedly urged the auditing firm to carry out the audit work in a timely manner while maintaining high quality and meeting all required standards. Upon completion of the audit, the Committee conducted a thorough review of the Company’s annual financial statements and annual report, concluding that the financial statements are comprehensive and accurate, that the financial information disclosed to external parties is objective and truthful, and that it faithfully reflects the Company’s annual financial condition.

The Audit Committee is of the view that Dalian Hualian Certified Public Accountants, in providing audit services for the Company for the year 2007, has steadfastly adhered to the professional standards of independence, objectivity, and impartiality; conducted the audit in strict accordance with the new accounting standards; developed a rigorous and well-structured audit plan; ensured adequate staffing; proactively communicated with the Audit Committee and the independent directors; exercised due diligence and conscientiousness; and thereby successfully completed the Company’s 2007 audit. Accordingly, the Audit Committee recommends that the Company re-engage Dalian Hualian Certified Public Accountants as its auditor for the year 2008.

4. Summary Report on the Performance of the Board of Directors’ Compensation and Assessment Committee

The Compensation and Assessment Committee under the Company’s Board of Directors has performed its duties in accordance with the Company’s Implementing Rules for the Board of Directors’ Compensation and Assessment Committee, reviewing the annual compensation of the Company’s directors, supervisors, and senior management. The Committee concludes that the decision-making procedures and remuneration standards for the aforementioned personnel are in compliance with applicable laws and regulations as well as the Company’s internal policies, and that the compensation information disclosed in the Company’s 2007 Annual Report is true and accurate.

IV. 2007 Business Plan

2008 Corporate Business Plan Targets:

Sales revenue: RMB 160,000 million;

Total profit: RMB 135 million.

1. Against the backdrop of global competition, we must closely align our efforts with market development trends and capital allocation priorities, vigorously expand both domestic and international markets, and ensure the achievement of our annual business objectives. We will continue to leverage the Iceberg Group’s overall strengths and its joint sales advantages, while continuously refining and innovating our marketing service mechanisms and management models.

2. Closely align with the company’s overarching strategy of developing cold, thermal, ecological, and environmentally friendly products; accelerate product portfolio optimization, technological upgrading, and joint-venture collaborations; and continuously advance toward greater environmental protection, energy efficiency, and safety. At the same time, expedite the adoption and dissemination of new technologies and processes, strive to stay ahead of competitors, and secure a proactive market position.

3. Closely focus on management innovation and ensure rigorous implementation; continue to strengthen the company’s foundational management functions, refine all management systems, and further intensify efforts to reduce costs.

The above report is submitted for your review.

May 20, 2008