Annual Work Report of the Company’s Board of Directors for 2008

Dear Shareholders:

In 2008, the company proactively addressed numerous adverse factors and severe market challenges by placing profitability at the core of its operations. It intensified new-product development, leveraged its inherent strengths, promptly adjusted and transformed its marketing strategies, appropriately revised product pricing, strengthened management, tapped internal cost-saving potential, and comprehensively enhanced operational efficiency and quality, thereby ensuring the achievement of its financial performance targets. In 2008, the company recorded operating revenue of RMB 151.344 million, representing 94.6% of the 2008 annual business plan target of RMB 160.000 million—a year-on-year decrease of 8.5%; total profit reached RMB 13.645 million, or 101.1% of the 2008 annual business plan target of RMB 13.500 million, yet still down 9.3% 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 2008, the company implemented an “effective sales” incentive policy to ensure high-quality marketing; at the same time, it adopted a dual-pronged strategy of “visiting existing customers and attracting new ones,” coupled with demand-driven sales approaches, to refine and specialize its market engagement, proactively meet diverse customer needs, and swiftly and comprehensively launch a new series of energy-efficient, environmentally friendly screw compressors. This effort helped consolidate and enhance the company’s market share in sectors such as industrial refrigeration and deep processing of agricultural products.

In 2008, the company leveraged its ten-day production planning system to vigorously implement lean manufacturing management, thereby enhancing the scientific rigor, consistency, and timeliness of production planning, reducing error rates, strengthening quality and schedule control for turnkey projects, and minimizing work-in-process capital.

In 2008, the company focused on the R&D of 41 new products, including a new series of screw compressors, vacuum freeze-drying equipment, and precision air-conditioning units for computer rooms.

(2) Sino-foreign joint ventures

At the end of 2008, the company’s total assets in its group of Sino-foreign joint ventures accounted for under the equity method amounted to RMB 577,925 million, up 6.95% year on year; net assets totaled RMB 259,109 million, representing a year-on-year increase of 10.41%.

In 2008, the Company accounted for its portfolio of Sino-foreign joint ventures using the equity method, reporting sales revenue of RMB 675,261 million, up 1.05% year on year; the Company recognized investment income of RMB 80.92 million, down 13.80% 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 equity-method investments in Chinese–foreign joint ventures, nine reported main-business revenue exceeding RMB 100 million, with three of these exceeding RMB 1 billion; five reported net profit exceeding RMB 10 million, including one that exceeded RMB 50 million.

In 2008, Dalian Sanyo Compressor Co., Ltd. completed the design and development of 58 new compressor models. By integrating international marketing channels and intensifying efforts to develop relationships with major global air-conditioning manufacturers, sales of the B- and C-series scroll compressors in the European market increased by 34% and 62%, respectively.

In 2008, Dalian Sanyo Air-Conditioning Co., Ltd. maintained stable sales in the international market thanks to its high-efficiency, energy-saving products, achieving export revenues that exceeded the annual target by 23%. Furthermore, the company increased its investment in Shenyang Sanyo Air-Conditioning Co., Ltd., thereby gaining controlling interest in the latter.

In 2008, Dalian Sanyo Cold Chain Co., Ltd. officially commissioned the production lines for biomedical equipment and air coolers at its Third Factory. This capital increase and expansion further refined the company’s future business strategy, which is to build on its core businesses in supermarket and convenience-store equipment as well as commercial kitchen appliances, while deepening its footprint in the beverage display cabinet and biomedical equipment sectors.

In 2008, Dalian Sanyo Refrigeration Co., Ltd. focused on market trends and demands related to energy conservation, emission reduction, and clean energy, and developed a number of new products, including a new variable-frequency screw chiller. As a result, the company’s export volume increased substantially, expanding its market presence from solely Japan to Europe.

2. Analysis of the Company’s Principal Business

(1) Product and Geographical Segments of the Principal Business

All of the company’s main business revenue is derived from refrigeration and air-conditioning products.

The company’s products are manufactured in Dalian and Wuhan and sold throughout China. Overseas sales account for approximately 8% of the company’s main business revenue during the same period.

For details on the industry and geographic distribution of the company’s principal business revenue, please refer to Notes 5-30 and 5-43 to the financial statements.

(2) Information on Major Suppliers and Major Customers

The company’s total procurement from its top five suppliers amounted to RMB 167.72 million, accounting for 14.21% of the annual total procurement.

The combined sales to the company’s top five customers totaled RMB 209.51 million, accounting for 13.84% 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 retention money for turnkey engineering projects that has not yet become due.

② The increase in inventory is primarily attributable to the postponement of contract performance, which has led to a rise in finished goods on hand.

③ The decrease in construction-in-progress is primarily attributable to the fact that most of the relocation and renovation projects of subsidiaries have now been put into operation.

④ The increase in short-term borrowings is primarily attributable to the need for additional working capital to support large turnkey engineering projects undertaken by the parent company and its subsidiaries.

⑤ The decrease in long-term borrowings is primarily due to the reclassification, in accordance with regulations, of bank loans maturing within one year into long-term liabilities due within one year.

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

Explanation:

① The increase in administrative expenses is primarily attributable to the 2007 first-time adoption of the Enterprise Accounting Standards, which resulted in a reduction of RMB 8.8 million in accrued employee benefit expenses being charged directly to administrative expenses.

② The increase in financial expenses is primarily attributable to a rise in short-term borrowings compared with the previous year.

③ The reduction in income tax is mainly attributable to the application of a uniform income tax rate, eliminating the need for additional taxation on investment income.

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

Explanation:

① The net cash flow from operating activities increased, primarily due to strong collections from sales and an increase in the utilization of bank acceptance bills for settling accounts payable.

② The net cash flow from investing activities increased, primarily due to cash received from investment income.

③ The net cash flow from financing activities decreased, primarily because the net amount of loan repayments this year was lower than that in the previous year.

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

Our company holds 100% equity in this entity. The company’s registered capital is RMB 20.04 million, and its principal business is the installation and commissioning of complete sets of refrigeration equipment. In 2008, its total assets amounted to RMB 58.48 million, its net assets were RMB 22.36 million, it recorded sales revenue of RMB 95.74 million, and its net profit was RMB 290,000.

② Dalian Bingshan Group Sales Co., Ltd.

Our company holds a 90% equity stake in the entity. The company’s registered capital is RMB 18 million, and its primary business is the sales of products manufactured by subsidiaries of the Dalian BingShan Group. In 2008, its total assets amounted to RMB 38.89 million, its net assets stood at RMB 22.45 million, it recorded sales revenue of RMB 37.26 million, and its net profit was RMB 0.63 million.

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

Our company holds a 70% equity stake in the entity. The company has a registered capital of JPY 700 million and primarily engages in the manufacture and sale of air-conditioning terminal equipment, including fan coil units and air handling units. In 2008, its total assets amounted to JPY 126.07 million, total net assets to JPY 68.04 million, sales revenue reached JPY 131.70 million, and net profit was JPY 4.85 million.

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

Our company holds a 70% equity stake in the enterprise. The company’s registered capital is USD 1 million, and it primarily manufactures a wide range of quick-freezing equipment. In 2008, its total assets amounted to RMB 30.28 million, with net assets of RMB 8.64 million; it recorded sales revenue of RMB 29.11 million and a net profit of RMB 0.43 million.

⑤ Dalian Bingshan Metal Processing Co., Ltd.

Our company holds a 64.25% equity stake in this entity. The company’s registered capital is USD 2.35 million, and it primarily engages in the production of sheet metal and stamped parts as supporting components for our established joint venture and for our own operations. In 2008, its total assets amounted to RMB 29.14 million, with net assets of RMB 18.83 million; it recorded sales revenue of RMB 30.03 million and a net loss of RMB 1.73 million. The primary reason for the loss was the impact of the company’s relocation and renovation project on its normal production and business operations that year.

⑥ Dalian Bingshan JiaDe Automation Co., Ltd.

Our company holds a 60% equity stake in the entity. The company’s registered capital is GBP 210,000, and its primary business is automatic control for the refrigeration and related industries. In 2008, its total assets amounted to RMB 9.86 million, with net assets of RMB 6.92 million; it recorded sales revenue of RMB 20.97 million and a net profit of RMB 3.37 million.

⑦ Wuhan New World Refrigeration Industry Co., Ltd.

Our company holds a 51% equity stake in the entity. The company’s registered capital is RMB 30 million, and it primarily manufactures and sells screw-type refrigeration compressors. In 2008, its total assets amounted to RMB 365.18 million, with net assets of RMB 94.88 million; it recorded sales revenue of RMB 300.72 million and a net profit of RMB 19.04 million.

(2) Major Equity-Linked Companies

II. Company Investment Situation

1. During the reporting period, the Company did not raise any new capital, nor did it carry over the use of previously raised funds into the reporting period.

2. Explanation of Non-Fundraising Investment Projects

During the reporting period, the Company made an additional investment of RMB 24,478,593 in Shenyang Sanyo Air Conditioning Co., Ltd. using its own funds, resulting in the Company ultimately holding a 10% equity interest in the company.

III. Daily Operations of the Board of Directors

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

(1) The 15th Meeting of the 4th Board of Directors

On April 23, 2008, the Fourth Session of the Company’s Board of Directors held its fifteenth meeting in the Company’s Eighth-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 April 25, 2008.

(2) The 16th Meeting of the 4th Board of Directors

On July 18, 2008, the Fourth Session of the Company’s Board of Directors convened its Sixteenth Meeting by facsimile. At this meeting, the Board reviewed and approved the Explanation on the Rectification Status of Matters Listed in the Special Rectification Report on Corporate Governance.

(3) The 17th Meeting of the 4th Board of Directors

On August 20, 2008, the Fourth Session of the Company’s Board of Directors held its Seventeenth Meeting in the Company’s Sixth-Floor Conference Room. The announcement of the resolutions adopted at this meeting was published in the China Securities Journal and the Wenhui Daily on August 22, 2008.

(4) The 18th Meeting of the 4th Board of Directors

On October 23, 2008, the Fourth Session of the Company’s Board of Directors convened its eighteenth meeting by facsimile. At this meeting, the Company’s Third-Quarter 2008 Quarterly Report 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 2007 Annual General Meeting.

The Company’s 2007 dividend distribution plan was fully implemented by the Board of Directors in July 2008.

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 and the Audit Committee’s Annual Report Work Procedures, 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.

The Audit Committee has made a reasoned assessment of the company’s change of accounting firm during the annual report audit period, concluding that the reasons for the change are well-founded and that the change was carried out in accordance with applicable laws and regulations.

During the Company’s 2008 audit, the Audit Committee maintained active communication and effective coordination with the auditing firm, Zhongzhun Certified Public Accountants. Prior to the auditors’ on-site engagement, the Committee discussed and reached consensus with the engagement partner of the auditing firm on matters such as the audit plan, schedule, and key issues to be addressed during the audit. Throughout the audit process, the Committee kept abreast of progress and repeatedly urged the auditing firm to carry out the audit 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 these disclosures faithfully reflect the Company’s annual financial condition.

The Audit Committee is of the view that, in providing audit services for the Company for the year 2008, Zhongzhun Certified Public Accountants adhered to the professional standards of independence, objectivity, and impartiality; conducted the audit in strict accordance with the new accounting standards; demonstrated meticulous planning and adequate staffing; proactively communicated with the Audit Committee and the independent directors; exercised due diligence and responsibility; and thereby successfully completed the Company’s 2008 audit. Accordingly, the Committee recommends that the Company re-engage Zhongzhun Certified Public Accountants as its auditor for the year 2009.

4. Summary Report on the Performance of the Board’s 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 individuals 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 2008 Annual Report is true and accurate.

IV. 2009 Business Plan

2009 Corporate Business Plan Targets:

Sales revenue: RMB 135,000 million;

Total profit: RMB 150 million.

1. We must fully anticipate the severity of both the domestic and international economic environment, further strengthen our capacity for independent innovation and market adaptability, stay firmly focused on the overarching strategic direction of cold, heat, ecological, and environmentally friendly products, vigorously expand into both domestic and international markets, aggressively promote group-wide joint sales initiatives, and make every effort to ensure the achievement of our annual business objectives.

2. Center on performance, rigorously uphold quality, and drive new breakthroughs in corporate management innovation. Strengthen cash-flow management, with particular emphasis on effective control of accounts receivable and inventory capital, and strictly manage bank loans. Enhance cost management by comprehensively engaging all employees in cost-reduction initiatives across all functions and throughout the entire value chain. Strengthen quality management by comprehensively reinforcing quality oversight at every stage, including procurement, outsourcing, design, manufacturing, and installation.

3. Taking the restructuring initiated by the major shareholder as an opportunity, proactively advance institutional reforms in the company’s human resources, employment practices, and compensation systems.

Please review the above report.

May 20, 2009