小天鹅Ａ(000418)*ST天鹅2003年年度报告（英文版）

WUXI LITTLE SWAN CO., LTD. 2003 ANNUAL REPORT CONTENTS Ⅰ. Company Profile----------------------------------------------------------------------------- Ⅱ. Summary of Accounting Highlight and Bussiness Highlight ---------------------- Ⅲ. Changes in Share Capital and particulars about Shareholders-------------------- Ⅳ. Directors, Supervisors, Senior Executives and Employees-------------------------- Ⅴ. Administrative Structure------------------------------------------------------------------- Ⅵ. Particulars about Shareholders’ General Meetings---------------------------------- Ⅶ. Report of the Board of Directors--------------------------------------------------------- Ⅷ. Report of the Supervisory Committee--------------------------------------------------- Ⅸ. Significant Events---------------------------------------------------------------------------- Ⅹ. Financial Report----------------------------------------------------------------------------- Ⅺ. Documents Available for Documents---------------------------------------------------- Important Notes The Board of Directors of Wuxi Little Swan Company Limited (hereinafter refereed to as the Company) and all directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. Director Mr. Paul.Wolansky was absent from the Board meeting due to busy business, and entrusted Mr. Zhu Dekun, Chairman of the Board, to attend and vote on his behalf. Mr. Peng Zhouhong was absent from the Board meeting due to work reason. Jiangsu Gongzheng Certified Public Accountants and PricewaterhouseCoopers Certified Public Accountants Co., Ltd. issued the unqualified Auditors’ Report with the emphatic events paragraph for the Company respectively; and the Board of Directors and the Supervisory Committee of the Company made the corresponding explanations in details for the relevant matters, the investors are suggested to notice the content. Mr. Zhu Dekun, Chairman of the Board of the Company, and Mr. Chen Zhimin, Chief Financial Officer hereby confirm that the Financial Report of the Annual Report is true and complete. This report was prepared in both Chinese and English. Should there be any difference in interpretation between the two versions, the Chinese version shall prevail. SECTION I. COMPANY PROFILE 1. Legal Name of the Company: In Chinese: 无锡小天鹅股份有限公司 In English: Wuxi Little Swan Company Limited 2. Legal Representative: Mr. Zhu Dekun 3. Secretary of the Board of Directors: Mr. Qiao Li Contact Address: No. 67, Huiqian Road, Wuxi Jiangsu Post Code: 214035 Tel: (86)510-3704003-2192 Fax: (86)510-3704031 E-mail: qiaol@littleswan.com.cn Securities Affairs Representative: Mr. Chen Weinong Contact Address: No. 67, Huiqian Road, Wuxi Jiangsu Post Code: 214035 Tel: (86)510-3720879 Fax: (86)510-3704031 E-mail: chenwn@littleswan.com.cn 4. Registered Address: No.1 Hanjiang Road, National High-Tech Industrial Development Zone, Wuxi Post Code: 214028 Office Address: No. 67, Huiqian Road, Wuxi Jiangsu Post Code: 214035 International Website of the Company: http://www.littleswan.com E-mail of The Company: Info@littleswan.com.cn 5. Designated Newspaper for Disclosing the China Securities, Securities Times Information of the Company: and Ta Kung Pao Internet Web site for publishing the Annual Report Designated by CSRC: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Securities Department of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: *ST Swan A, *ST Swan B Stock Code: 000418, 200418 7. Other Relevant Information of the Company Registration date after change: Dec. 28, 2000 Registration place after change: Jiangsu Province Administrative Bureau of Industrial and Commerce Registered code of enterprise legal person’s business license: 3200001103331 Registered code of taxation (National Revenue): 320201134792058 Registered code of taxation (Local Tax): 320211704046760 Name and address of Certified Public Accountants engaged by the Company: Domestic: Jiangsu Gongzheng Certified Public Accountants Office address: No. 28, Liangxi Road, Wuxi International: PricewaterhouseCoopers China Certified Public Accountants Office address: 12th Floor, Ruian Plaza, No. 333, Huaihai Middle Road, Shanghai SECTION II. SUMMARY OF ACCOUNTING DATA AND BUSINESS DATA 1. Major accounting data as of year 2003 (Unit: RMB) Items Amount Total profit 62,235,110.63 Net profit 35,990,311.11 Net profit after deducting non-recurring gains and losses 10,454,331.18 Profit from main operations 521,658,476.70 Other operating profit 5,746,973.74 Operating profit 20,611,030.82 Investment income 56,675,673.39 Subsidy income 939,556.00 Net non-operating income/expenses -15,991,149.58 Net cash flow arising from operating activities 191,451,894.82 Net increase in cash and cash equivalent 281,558,637.29 * Items of deducting non-recurring gains and losses and the relevant amounts: Items Amount Subsidy income 939,556.00 All items of non-operating income 3,139,781.32 Income from stock investment 595,579.00 Income from liquidating subsidiaries 14,316,504.61 Income from equity transfer 184,860.97 Penalty within non-operating expenses -309,248.82 Losses from disposal of fixed assets within -3,668,883.90 non-operating expenses Lawsuit losses and other expenditure within -6,652,569.25 non-operating expenses Reversal of bad debts 2,575,200.00 Reversal of reserve for falling price of quality 14,415,200.00 inventories Total 25,535,979.93 2. Difference between Chinese Accounting Standards and International Accounting Standards: (Unit: RMB’0000) CAS IAS Net profit 3,599.03 2,696.20 Explanation Difference in consolidation scope: -251.80 of difference Writing off over-appropriate wage: -651.00 3. Major accounting data and financial indexes over the past three years as ended the report period: (Unit: RMB) 2002 2003 After adjustment Before adjustment 2001 Income from main operations 2,901,320,283.34 2,941,801,551.71 2,755,698,641.53 1,953,492,571.37 Total profit 62,235,110.63 -636,968,930.75 -868,462,491.42 -6,698,279.83 Net profit 35,990,311.11 -564,803,384.45 -418,429,593.89 -57,502,056.93 Total assets 3,079,063,440.49 3,175,780,748.53 3,169,627,550.78 3,114,942,374.52 Shareholders’ equity (excluding minority interests) 1,106,830,465.42 1,088,684,900.87 1,218,424,807.50 1,885,176,795.40 Earnings per share 0.0986 -1.5470 -1.1461 -0.1575 Net assets per share 3.0315 2.9819 3.3372 5.1634 Net assets per share after adjustment 2.9092 2.8511 3.1976 5.0170 Net cash flow per share arising from operating activities 0.5244 0.2371 0.2371 0.2641 Return on equity (%) 3.25 -51.88 -34.34 -3.05 Return on equity after deducting non-recurring gains and losses (%) 0.94 -51.99 -34.44 -2.43 Structure analysis of return on equity and earnings per share Profit in the report period Return on equity (%) Earnings per share (RMB) Fully Weighted Fully Weighted diluted average diluted average Profit from main operations 47.13 47.14 1.4288 1.4288 Operating profit 1.86 1.86 0.0565 0.0565 Net profit 3.25 3.25 0.0986 0.0986 Net profit after deducting non-recurring gains and losses 0.94 0.94 0.0286 0.0286 4. Change in shareholders’ equity in the report period (Unit: RMB) Items Share capital Capital reserve Surplus reserve Retained profit Unconfirmed Total loss on shareholders’ investment equity Amount at the period-begin 365,103,840.00 1,107,230,943.17 514,942,013.92 -522,576,752.65 -246,275,236.94 1,218,424,807.50 Amount after adjustment at the 365,103,840.00 1,107,230,943.17 514,616,932.22 -844,702,753.35 -53,564,061.17 1,088,684,900.87 period-begin Increase in the report period 101,250.00 522,542.00 637,304,102.72 53,564,061.17 691,491,955.89 Decrease in the report period 299,217,841.59 373,509,578.81 618,970.94 673,346,391.34 Amount at the period-end 365,103,840.00 808,114,351.58 141,629,895.41 -208,017,621.57 0.00 1,106,830,465.42 Reasons for changes: 1. Capital reserve (1) Balance at the end of the period decreased by RMB 299,217,841.59 compared with that at the beginning of the period, which was the amount from capital reserve used for losses offset according to the resolutions of Annual Shareholders’ General Meeting 2002. (2) Increase in provision for equity investment in the period amounting to RMB 101,250 was because the forfeited funds paid by Wuxi Little Swan Sutai Washing Mechanism Co., Ltd. were transferred into capital reserve held by the parent company. 2. Surplus reserve (1) The balance of surplus reserve at the period-begin was RMB 514,616,932.22, and decreased by RMB 325,081.70 compared with surplus reserve at the end of report period of 2002 amounting to RMB 514,942,013.92, the reasons are: Wuxi Little Swan Huayin Electronic Appliances Co., Ltd. and Wuxi Little Swan Precision Casting Co., Ltd. adjusted and reduced reserve amounting to RMB 159,089.82 and enterprise development funds amounting to 165,991.88 withdrew in 2002 which the parent company should enjoy amount based on equity proportion according to the resolutions of Board of Director of year 2002. (2) Surplus reserve decreased by RMB 373,509,578.81 in the period, which was the amount from the surplus reserve used for losses offset according to the resolutions of Annual Shareholders’ General Meeting 2002. 3. Retained earnings (1) Retained profit at the end of report period amounted to RMB –844,702,753.35, a discrepancy of RMB 322,126,000.70 compared with retained profit of RMB –522,576,752.65 at the end of report period of year 2002, the situation are as follows: ①Jiangsu Gongzheng Certified Public Accountants Co., Ltd. issued and Auditors’ Report with unable to express opinion for the Company on Apr. 24, 2003, thus, in 2003, the Company conducted the all-around checking for accounts receivable and marketing expenses, and retroactively adjusted the accounting errors in line with the regulations of Accounting Standards for Business Enterprises and Accounting System for Business Enterprises promulgated by the State and restated accounting statement of year 2002. Due to influence of the aforesaid accounting errors, the Company adjusted and increased net profit of year 2002 amounting to RMB 70,229,749.08, and adjusted and decreased retained profit at the year-begin amounting to RMB 176,086,494.60. ②In 2002 and 2003, the business of washing machine, main business of the Company, occurred losses, whereas the Company did not make the corresponding adjustment in pricing way according to the market change, which the Company sold washing machine to Jiangsu Little Swan Marketing Co., Ltd., so Jiangsu Little Swan Marketing Co., Ltd. happened material losses. On Apr. 23, 2004, the Board of Directors of the Company decided that the largest shareholder took on the accumulative losses of net assets of Jiangsu Little Swan Marketing Co., Ltd.. The Company has conducted the correction on the said error when it prepared accounting statement. Due to influence of the aforesaid errors, the Company adjusted and decreased net profit amounting to RMB 216,603,539.64. ③The controlling subsidiaries of the Company, namely Wuxi Little Swan Huayin Electronic Appliances Co., Ltd. and Wuxi Little Swan Precision Casting Co., Ltd. adjusted and reduced reserve and enterprise development funds amounting to 325,081.70 withdrew in 2002 which the parent company should enjoy amount based on equity proportion according to the resolutions of Board of Director of year 2002, and employee’s premium and welfare funds amounting to RMB 9,202.76, and adjusted and increased retained profit at the begin of year 2003 amounting to RMB 334,284.46. (2) Other transferred-ins were RMB 601,313,791.61 with contents as follows: ① In the consolidated accounting statements for year 2002, the provision for bad debts appropriated to the accounts receivable from Wuxi Little Swan Merlonic-Dish-Washer Co., Ltd., the controlling subsidiary of the Company, was RMB 71,413,628.79. Since this company was not listed in the consolidated scope of accounting statements in 2003, the provision for bad debts amounting to RMB 71,413,628.79 counteracted during the consolidation in the last year was adjusted as the retained earnings in the period. ②According to the resolutions of Annual Shareholders’ General Meeting 2002 of the Company, the surplus reserve amounting to RMB 373,509,578.81 and capital reserve amounting to RMB 299,217,841.59, which totally amounted to RMB 672,727,420.40, was used for losses offset. (3) Increase of retained profit was due to net profit of RMB 35,990,311.11 realized in this period. (4) Retained profit as of this period has decreased by RMB 618,970.94, and the reasons are as follows: ①The parent company should hold the amount of RMB 160,933.47 in withdrawal of statutory surplus public reserve and statutory welfare funds of subsidiaries, which were brought into consolidation scope of accounting statement; ②The Company withdrew employees’ rewards and welfare funds amounting to RMB 96,428.94 of subsidiaries, which were brought into consolidation scope of accounting statement; ③The parent company holds the amount of RMB 361,608.53 in withdrawal of reserve and development funds for enterprises of subsidiaries, which were brought into consolidation scope of accounting statement. 4. Unconfirmed loss on investment Unconfirmed losses on investment at the period-begin of RMB –53,564,061.17 was mainly because Wuxi Little Swan-Merlonic-Dishwasher Co., Ltd. was deficit in this report period, and caused the net assets less than naught, while parent company recorded the naught in long-term investment. There was balance between book value of long-term investment of parent company and share held by parent company in the net assets of subsidiaries when the Company consolidated the accounting statement. The Company did not bring Wuxi Little Swan-Merlonic-Dishwasher Co., Ltd. into the consolidated scope of accounting statement at the end of report period, so the Company has no unconfirmed loss on investment. SECTION III. CHANGES IN SHARE CAPITAL AND PATICULARS ABOUT SHAREHOLDERS 1. Change of shares (1) Statement of change in shares Unit: share Increase/decrease of this time (+, - ) Before the After the Items change Rationed Bonus Capitalization of Additional Sub- change Others share shares public reserve issuance total I. Unlisted Shares 1. Sponsors’ shares 109,622,592 109,622,592 Including: Shares held by the state 101,628,864 101,628,864 Shares held by domestic legal person 7,993,728 7,993,728 2. Raised legal person’s shares 56,124,000 56,124,000 Including: Domestic legal person’s shares 56,124,000 56,124,000 Foreign legal person’s shares 0 Total Unlisted shares 165,746,592 165,746,592 II. Listed Shares 1. RMB ordinary shares 72,000,000 72,000,000 (Including: shares held by senior 152,400 152,400 executives) 2. Domestically listed foreign shares 127,357,248 127,357,248 Total Listed shares 199,357,248 199,357,248 III. Total shares 365,103,840 365,103,840 (2) Issuance and listing of shares ① The Company issued neither new shares nor derived securities over the recent three years at the end of the report year. ② In the report period, the total shares and structure of shares remained unchanged. ③ There existed no inner employees’ shares in the Company. 2. About shareholders (1) Ended Dec. 31, 2003, the Company has totally 68,292 shareholders, including 49,225 shareholders of A-share and 19,067 shareholders of B-share. (2) Particulars about shares held by the top ten shareholders Unit: share Increase / Number of Shares held decrease in Proportion Type of share Full name of Shareholders at the Nature of shareholders the report (%) shares pledged/ year-end year frozen Jiangsu Little Swan Group Co., Ltd. 0 101,628,864 27.84 State-owned legal person share Greater China Development Co., Ltd. 0 26,014,349 7.13 B- share B-share in circulating Wuxi Industry Development Fund 0 16,496,640 4.52 State-owned share Wuxi City and Town Industrial United 0 7,993,728 2.19 Legal person share Committee China Southern Securities Co., Ltd. 0 7,570,900 2.07 7,570,900 Legal person share Xi’an Wanguo Real Estate Development 0 4,800,000 1.31 Legal person share Co., Ltd. Shenyang Lianya Industrial Development 0 2,160,000 0.59 Legal person share Co., Ltd. China Construction Bank Dalian Trust 0 1,440,000 0.39 Legal person share Investment Co., Ltd. Beijing Liancheng Investment Consulting 0 1,440,000 0.39 Legal person share Co., Ltd. Li Ming Gong Unknown 1,275,646 B-share in circulating Explanation on associated Among the top ten shareholders as listed above, there exists no associated relationship among the top ten relationship or consistent action. shareholders or consistent action (3) Basic information on the controlling shareholder and actual controller: The controlling shareholder: Jiangsu Little Swan Group Co., Ltd. Legal representative: Mr. Zhu Dekun Date of foundation: Dec. 1995 Registered capital: RMB 197.07 million Business scope: manufacture and sales of electrical home appliances; production of raw material, subsidiary material, equipment, parts and components; consultation of economy and financing, agency service, technical service of electrical home appliances. In the report period, the controlling shareholder remained unchanged, whereas, the matters concerned (Jiangsu Little Swan Group Co., Ltd. respectively transferred 17% and 48% state-owned equity of Jiangsu Little Swan Group Co., Ltd. to Nanjing SWT Group Co., Ltd. and Xi’an Tongyou Science and Technology Investment Co., Ltd., remained 35% state-owned equity.) of the partial state-owned equity transfer of Jiangsu Little Swan Group Co., Ltd., the controlling shareholder of the Company, has been approved by State-owned Assets Supervision and Administration Commission of the State Council dated Jan. 30, 2004, the relevant matters was made with Public Notice on Proceeding of Reorganization on Mar. 10, 2004, and published on Securities Times, China Securities and Ta Kung Pao dated Apr. 11, 2004 and internet web http://www.cninfo.com.cn. (4) Particulars about legal person’s shareholder holding over 10% shares of the Company Legal person’s shareholder: Jiangsu Little Swan Group Co., Ltd. Legal representative: Mr. Zhu Dekun Date of foundation: Dec. 1995 Registered capital: RMB 197.07 million Business scope: manufacture and sales of electrical home appliances; production of raw material, subsidiary material, equipment, parts and components; consultation of economy and financing, agency service, technical service of electrical home appliances. (5) Particulars about shares held by the top ten shareholders of circulation share at the end of report period (Unit: share) Name of shareholder Number of circulation Type share at the year-end GREATER CHINA DEVELOPMENT CO., LTD. 26,014,349 B-share in circulating LI MING GONG 1,275,646 B-share in circulating CHEN SHAO MING 1,036,200 B-share in circulating ZHANG JIE 719,000 B-share in circulating NAM NGAI 711,023 B-share in circulating SHANGHAI (HK) WANGUO SECURITIES 636,986 B-share in circulating HUANG YING HUI 600,000 B-share in circulating LIANG YU TIAN 435,576 B-share in circulating JIANG XU 430,000 B-share in circulating ZHOU YU FANG 399,400 B-share in circulating The Company is unknown whether there exists associated relationship among shareholders of circulation share. SECTION IV. DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES 1. Directors, supervisors and senior executives (1) Basic information Holding shares Holding Reason for Name Title Gender Age Office term at the shares at the change year-begin year-end Jul. 2003- Zhu Dekun Chairman of the Board Male 60 30000 30000 Jul. 2006 Jul. 2003- Ou Shiyu Vice Chairman of the Board Male 59 18000 18000 Jul. 2006 Jul. 2003- Xu Zhonglun Director Male 59 18000 18000 Jul. 2006 Jul. 2003- Paul Wolansky Director Male 49 Jul. 2006 Jul. 2003- Li Guodong Director Male 56 Jul. 2006 Peng Jul. 2003- Director Male 47 Zhouhong Jul. 2006 Jul. 2003- Lv Wei Independent Director Male 40 Jul. 2006 Jul. 2003- Yang Jiaye Independent Director Male 68 Jul. 2006 Jul. 2003- Zhang Aimin Independent Director Male 39 Jul. 2006 Chairman of the Supervisory Jul. 2003- Jiang Lanzhen Female 54 Committee Jul. 2006 Zhang Jul. 2003- Supervisor Male 58 24000 24000 Zhizheng Jul. 2006 Jul. 2003- Ma Jun Supervisor Male 32 Jul. 2006 Jul. 2003- Chai Xinjian General Manager Male 41 Jul. 2006 Jul. 2003- Li Hong Deputy General Manager Male 41 Jul. 2006 Jul. 2003- Mao Zhiliang Deputy General Manager Male 47 Jul. 2006 Secretary of the Board of Jul. 2003- Qiao Li Male 44 Director Jul. 2006 Jul. 2003- Chen Zhimin Chief Financial Officer Male 47 Jul. 2006 (2) Particulars about directors and supervisors holding the post in Shareholding Company Title in Shareholding Name Name of Shareholding Company Office term Company Jiangsu Little Swan Group Co., Ltd. Chairman of the Board and Zhu Dekun Up to May 2004 concurrently President Xu Zhonglun Jiangsu Little Swan Group Co., Ltd. Vice-president Up to May 2004 Ou Shiyu Jiangsu Little Swan Group Co., Ltd. Vice-president Up to May 2004 Paul Wolansky Greater China Development Co., Ltd. General Manager South Securities Co., Ltd. General Manager of Internal Peng Zhouhong Auditing Dept. (3) About remuneration of directors, supervisors and senior executives In the Company’s 1st meeting of the 4th Board of Directors held on July 19, 2003, the annual remuneration of Chairman of the Board and General Manager were determined; the annual remuneration of the other senior executives was determined by Chairman of the Board authorized by the Board of Directors; the allowance of independent director was determined by the Board of Directors. Total annual remuneration RMB 4,870,000 Total annual remuneration of the top three RMB 2,330,000 directors drawing the highest payment Total annual remuneration of the top three senior RMB 1,520,000 executives drawing the highest payment Allowance of independent director RMB 50,000 per person/ year Other treatment of independent directors The Company reimbursed the reasonable charges according to the actual situation, which independent directors attended the meeting of the Board, shareholders’ general meeting or exercise their functions and powers in accordance with Company Law. Name of directors and supervisors receiving no Peng Zhouhong, Paul Wolansky, Li Guodong and Jiang payment or allowance from the Company Lanzhen Payment Number of persons RMB 200,000 ～ RMB 500,000 7 RMB 500,000- RMB 800,0000 2 RMB 800,000- RMB 1,350,000 1 (4) Change of directors, supervisors and senior executives ① Change of directors In Annual Shareholders’ General Meeting 2002 held on July 19, 2003, the members of the Board of Directors was reelected, the Meeting elected Mr. Zhu Dekun, Mr. Ou Shiyu, Mr. Xu Zhonglun, Mr. Li Guodong, Mr. Peng Zhouhong, Mr. Paul Wolansky, Mr. Lv Wei, Mr. Yang Jiaye and Mr. Zhang Aimin were elected as Director of the 4th Board of Directors; of them, Lv Wei, Yang Jiaye and Zhang Aimin are Independent Directors of the Company. In the 1st meeting of the 4th Board of Directors held later, Mr. Zhu Dekun was elected as Chairman of the Board, and Ou Shiyu was elected as Vice Chairman of the Board. ② Change of supervisor In Annual Shareholders’ General Meeting 2002 held on July 19, 2003, the members of the Supervisory Committee was reelected, the Meeting elected Ms. Jiang Lanzhen and Mr. Ma Jun as shareholder representative Supervisor of the 4th Supervisory Committee, Zhang Zhizheng as employee representative Supervisor of the 4th Supervisory Committee. In the 1st meeting of the 4th Supervisory Committee held later, Ms. Jiang Lanzhen was elected Chairman of the 4th Supervisory Committee. ③ Change of senior executives In the 1st meeting of the 4th Board of Directors held on July 19, 2003, Mr. Zhang Mingjie resigned from the post of Chief Financial Officer due to work reason; Mr. Chai Xinjian was engaged as General Manager of the Company with office term of three years; Mr. Qiao Li, Mr. Mao Zhiliang and Mr. Li Hong were engaged as Deputy General Manager of the Company respectively; Mr. Chen Zhimin was engaged as Chief Financial Officer of the Company. Mr. Qiao Li was engaged as Secretary of the Board of the Company. 2. About employees Type Total number Proportions (%) Production personnel 638 47.79 Salespersons 3 0.22 Technician 124 9.29 Financial personnel 12 0.90 Administrative personnel 21 1.57 Service personnel 50 3.75 Retirees 370 27.72 *Others 117 8.76 Total 1335 47.79 Among them, 14 persons hold master degree or over; 65 persons hold bachelor degree, 90 persons hold associate degree, 92 persons graduated from secondary specialized school, 71 persons graduated from secondary technical school, 342 persons graduated from senior high school; 291 persons graduated from junior high school or below. The Company needs to bear the expenses of 370 retirees. * Note: Other personnel include post-waiting personnel, early retirement personnel and change-job personnel, etc. SECTION VI. ADMINISTRATIVE STRUCTURE I. Company structure In the report period, to operate normatively in further step, according to the requirements of the Company Law, and relevant laws and regulations, the Company improved the standard level of scientific entrepreneur management. Concerning the management by CSRC due to capital operation breaching of regulations from 1996 to 1999, the whole staff on the decision-making level and on the management level introspected themselves, summed up the experience, drew lessons, strengthened learning and implemented strictly administration rules of listed companies, intensified preventing operating risks, operated normatively and reinforced the intention of being responsible for the shareholders; in the operation of the Company this year, the Company standardized the conducts of the Company according to the relevant laws and rules of company administration, strictly implemented the Administration Rules for Listed Companies and protected the interest of middle and small shareholders in real earnest. The actual administration of the Company attained to requirements of normative documents about administration of listed companies promulgated by CSRC. 1. About shareholders and Shareholders’ General Meeting: the Company can ensure the equal status of all shareholders, especially the middle and small shareholders, guarantee that all shareholders execute their rights fully; the Company has set up procedure rules of Shareholders’ General Meeting and convened and held Shareholders’ General Meeting strictly according to the requirements of normative opinions of Shareholders’ General Meeting and executed voting rights of shareholders; 2. About Directors and the Board: the Company elected Directors Strictly according to the Director Election and Engagement proceedings regulated by the Articles of the Association, and the numbers and personnel composition of the Board accorded with the requirements of laws and regulations. Every director attended the Board meeting and Shareholders’ General Meeting seriously and responsibly, attended actively the relevant training actively, familiarized the relevant laws and regulations, and comprehended the rights, duties, and responsibilities of directors; the Company had 3 independent directors. 3. About supervisors and the Supervisory Committee: the numbers and personnel composition of the Supervisory Committee of the Company accorded with the requirements of laws and regulations; the Supervisory Committee of the Company set up procedure rules of the Supervisory Committee; the supervisors of the Company fulfilled their duties, in the spirit of being responsible for the shareholders, and conducted the finance of the Company and regularity and lawfulness 4. The related transaction of the Company was standardized strictly. 5. About the relationship between the controlling shareholder and listed company: the conducts of controlling shareholders were normative and did not interfere the decision and operating activities of listed companies directly and indirectly surpassing the Shareholders’ General Meeting; the Company and controlling shareholder has managed “three separation” and “five independence” in personnel, assets, finance, organization and business; the Board, the Supervisory Committee and internal organizations can operate independently. 6. About Achievements Assessment and Encouragement Binding Mechanism: the Company has established open, transparent achievements assessment and encouragement binding mechanism on directors, supervisors and senior executives; the engagement of senior executives was open, transparent, compiled with regulations of laws and regulations. 7. About relevant interest party: the Company can respect and protect the legal rights and interests of the bank and other creditors, employees and consumers other relevant interest parties to boost the sustainable and healthy development of the Company together. 8. About information disclosure and transparency: the Company designated securities department to be responsible for the information disclosure and reception the visit and consult of Shareholders; strictly according to the regulations of laws, regulations and the Articles of the Association the Company disclosed the relevant information in true, correct, complete and timely manner to ensure the equal chance for all shareholders to acquire information; the Company can disclosed the details of principal shareholders’ equity and change of share equity. II. Performance of the Independent Directors According to Guidelines Opinion on Establishing Independent Director System in Listed Companies, at the Shareholders’ General Meeting held on Jul. 19, 2003, the Company elected 3 independent directors, which accounted for 1/3 on the expiration and election of the Board. For one year, independent directors attended the Board of the Company, fulfilled the duties of independent directors seriously, and protected the middle and small shareholders’ rights and interests obviously in the supervision on principal shareholders and related transactions of the Company. The independent directors have conducted examination and have issued opinion of independent directors on such significant events as Related Transactions in 2003 and Report to All Shareholders on Issue Concerned About Equity of the Company’s Controlling Shareholder Purchased by Nanjing SVT Group Co., Ltd. etc.. III. Particulars about the Company’s “Five Separations” from the first largest Shareholder in Respect of Business, Personnel, Assets, Organization and Finance (I) In respect of business, the Company owned independent and integrated business system and operation capacity; was completely separate from the controlling shareholder in business. Meanwhile, due to difference of market subdivision, there existed no competition in same trade between the Company and subsidiaries and the controlling shareholders and subsidiaries. (2) In respect of personnel, the Company has established independent management system of labor, personnel and salary, and set up independent labor and personnel function department; there existed no mixed operation and management between the Company and the controlling shareholder. Chairman of Board of the Company Zhu Dekun, concurrently took the position of Chairman of the Jiangsu Little Swan Group Co., Ltd.. General Manager, Deputy General Manger, Chief Financial Supervisor, and Secretary of the Board other senior executives didn’t take any posts in Shareholders’ Company except the post of Director. (3) In respect of assets, there was the clear property right relationship between the Company and the controlling shareholder. (4) In respect of organization, the Company has set up the organization in line with independent, integrated and scientific, owned good operation mechanism and operation efficiency; the establishment and operation of legal person administrative structure were implemented strictly according to Articles of Association, and its production management department and administrative department were absolutely independent from the controlling shareholder. The Company established the organization in conform to demand of the Company’s development. (5) In respect of finance: the Company owned independent financial department, established independent accounting system and financial management system, opened independent bank account, paid tax in line with laws. According to the Articles of Association and relevant regulations the Company made out financial decisions independently and the use of capital was not interfered by Jiangsu Little Swan Group Co., Ltd.. IV. Performance valuation and encouragement mechanism for senior executives The selection, evaluation and encouragement of the Company were implemented according to the relevant regulations of the Company Law, the Articles of the Association and Working Rules of Nomination and Salary Evaluation. The Company established comprehensive management system based on KPI, decided the remuneration standard according to year-end checking result, closely linked remuneration level with the performance achievements of the Company, effectively improved responsibility and work enthusiasm of the whole management personnel. SECTION VI. BRIEF INTRODUCTION TO SHAREHOLDERS’ GENERAL MEETING I. Notification, Convening and Holding of 2002 Annual Shareholders’ General Meeting The Board of Directors of the Company sent out notification of holding the 2002 Annual Shareholders’ General Meeting on Jun. 9, 2003, which was published Securities Times, Securities Times and Hong Kong Ta Kung Pao of that day; published public notice on changing the convening time of holding 2002 Annual Shareholders’ General Meeting on Securities Times and Hong Kong Ta Kung Pao on Jun. 20, 2003. The 2002 Annual Shareholders’ General Meeting was held in 301 meeting room of the Company, No.67, Huiqian Road, Wuxi City at 9:00 am on Jul. 19, 2003. 9 shareholders (including shareholders’ proxies) attended the meeting, representing 164,630,481 shares (including 26,014,349 B shares), taking 45.09% of the total shares with voting right amounting to 365,103.840 shares II. The resolutions of the meeting and the disclosure 1. Examined and approved Annual Report 2002 of the Company and its summary; 2. Examined and approved Work Report of the Board 2002; 3. Examined and approved Work Report of the Supervisory Committee 2002; 4. Examined and approved Financial Settlement Report 2002; 5. Examined and approved Proposal on Making up Losses and Profit Distribution; 6. Examined and approved Proposal on all Related Transactions of the year 2003 item by item; 7. Examined and approved Proposal on Amending the Articles of the Association; 8. The 4th Board was elected; 9. Ms. Jiang Lanzhen and Mr. Ma Jun were elected as the shareholders’ representative supervisor of the 4th Board; 10. Examined and approved Proposal on Engaging 2003 Overseas Auditor and 2003 Domestic Auditor of the Company; 11. Examined and approved Proposal on Dish-washer Company’ s Entering Clearing Procedure. The public notice on resolutions of 2002 Shareholders’ General Meeting was published on China Securities, Securities Times and Ta Kung Pao dated Jul. 22, 2003. III. Election and change of directors and supervisors of the Company On Jul. 19, 2003, 2002 Annual Shareholders’ General Meeting of the Company elected the 4th Board and 4th Supervisor of Shareholder’s Representative. Mr. Zhu Dekun, Mr. Ou Shiyu, Mr. Xu Zhonglun. Mr. Li Guodong, Mr. Peng Zhouhong, Mr. Paul Wolansky, Mr. Lv Wei, Mr. Yang Jiaye, and Mr. Zhang Aimin were elected as Director of the 4th Board, including Mr. Lv Wei, Mr. Yang Jiaye and Mr. Zhang Aimin as independent directors. Ms. Jiang Lanzhen and Mr. Ma Jun were elected as 4th Shareholder’s Representative Supervisor. SECTION VIII. REPORT OF THE BOARD OF DIRECTORS 1. Operation of the Company (1) Industry and status The Company is mainly engaged in the production and sales of white household electric appliance and accessories and fittings and has a famous brand of China “Little Swan”. In 2003, evaluated by the authorities, the brand value was RMB 6875 million. In 2003, the Company sold totally 2601109 sets of washing machines and 240058 sets of refrigerators. (2) Scope of core business and operation The core business of the Company is production and sales of household electric appliance and accessories and fittings etc. and technology service. In 2003, the income from core business was RMB 29,011,320,300 and the profit from core business was RMB 521.6585 million. a. Statement of main operations classified according to industries (RMB’0000) Industries Income from main Cost of main Gross profit ratio (%) operations operations Manufacture of daily 255,302.18 209,163.26 18.07 electric appliances Manufacture of 15,288.54 11,303.85 26.06 casting Other industries 19,541.31 16,303.03 16.57 b. Statement of main operations classified according to products (RMB’0000) Industries or products Income from main Cost of main operations Gross profit ratio (%) operations Washers 185,282.32 147,274.54 20.51 Air-conditioners 34,192.98 32,012.03 6.38 Refrigerators 26,676.42 21,603.92 19.01 Electric engines 13,804.99 10,927.93 20.84 Casting 15,288.54 11,303.85 26.06 Dryers 2,779.24 2,569.80 7.54 Dish-washers 970.10 909.17 6.28 Water heaters 1,470.50 1,366.31 7.09 Induction cookers 3,326.23 2,800.64 15.80 Microcomputer controllers 1,143.83 1,016.45 11.14 Dryers 604.40 626.86 -3.72 c. Statement of main operations classified according to areas (RMB’0000) Areas Income from main operations Inland of China 254,999.25 Overseas 35,132.78 Total 290,132.03 (3) Operationd of main wholly owned affiliated enterprises and holding subsidiaries Wuxi Little Swan Precision Casting Co., Ltd., which is a holding subsidiary of the Company, a limited company, is mainly engaged in the production and sales of iron precision casting products represented by cold compressors and iron precision casting used in cars with registered capital amounting to RMB 30 million. This company realized sales income of RMB 152,885,400 and created profits of RMB 17,737,300 in 2003 with total assets amounting to RMB 239.8226 million. Wuxi Feilin Electronic Co., Ltd., which is a holding subsidiary of the Company, a limited company, is mainly engaged in the development of software products and development and production of new electronic components etc. with registered capital amounting to USD 1.80 million. This company realized sales income of RMB 65,310,800 and created profits of RMB 1,928,600 in 2003 with total assets amounting to RMB 139.3885 million. Jiangsu Little Swan Sanjiang Electric Appliance Co., Ltd., which is a holding subsidiary of the Company, a limited company, is mainly engaged in the sales of hardware, alternating current and accessories of household appliances etc.. This company realized sales income of RMB 150,802,400 and created profits of RMB 12,627,300 in 2003 with total assets amounting to RMB 166.8037 million. Wuxi Little Swan Huayin Electric Appliance Co., Ltd., which is a holding subsidiary of the Company, a Sino-foreign joint venture, is mainly engaged in the production and sales of electric engines with registered capital amounting to RMB 49.6734. This company realized sales income of RMB 109,123,100 and created profits of RMB 5,570,500 in 2003 with total assets amounting to RMB 112.1139 million. Jiangsu Little Swan Sales Co., Ltd., which is a holding subsidiary of the Company, a limited company, is mainly engaged in the sales of hardware, alternating current and accessories of household appliances. This company realized sales income of RMB 2,142,001,100 and incurred a loss of RMB- 128,252,400 in 2003 with total assets amounting to RMB 529.8458 million. Wuxi Little Swan Export and Import Co., Ltd., which is a holding subsidiary of the Company, a limited company, is mainly engaged in the sales of household appliances for export etc. with registered capital amounting to RMB 30 million. This company realized sales income of RMB 385,365,600 and created profits of RMB 3,837,400 in 2003 with total assets amounting to RMB 239.8226 million. (4) Main suppliers and customers Unit: RMB’0000 Total amount of purchase 62,385.46 Proportion in the total 32.21% of the top five suppliers amount of purchase Total amount of sales of the 18,081.57 Proportion in the total 6.23% top five sales customers amount of sales 2. Financial status The change of main financial indexes and reason in the report period: (1) The change of main financial indexes in the report period: Unit: RMB’0000 Items In 2003 In 2002 Total assets 307,906.34 317,578.07 Long-term liabilities 106.81 106.81 Shareholders’ equity 110,683.05 108,868.49 Profit from core business 52,165.85 59,126.96 Net profit 3,599.03 -56,480.34 Net increase of cash and cash equivalents 28,155.86 7,741.28 (2) Reason of decrease of profit from core business and net profit 1) When the Company responded to the changes of domestic market actively, the Company has got new achievements in international cooperation and made essential progress in the cooperation of the multinational corporation. 2) The Company actively formed and implemented “Achievements Promotion” Plan with the main content “Increasing Revenue, Saving Expenses, Getting Profits from Losses”. The company implemented financial budget and settlement system seriously and controlled effectively the expenses. 3) The Company implemented strictly the rules of administration of listed companies, reinforced preventing operating risks, and standardized operation. Encountered with the weakness of the Company in management and control, the Company engaged specialists to revise and consummate the internal control system with respect to the situation of the Company, implemented timely, got obvious effects, which helped operating achievements to rise in the adjustment. 4) The Company organize the specialized staff to implemented the check work of current account between the marketing company and the clients, check work of inventory account and strict control on sales expenses, which standardized the operation of the Company in further step. b. Changes in accounting policies and accounting estimates or correction to material accounting errors: (1) According to the resolutions of 17th meeting of the 3rd Board of Directors of the Company, the Company changed the accounting estimate to the withdrawal proportion of reserve for bad debts of accounts receivable since Jan. 1, 2003. The withdrawal proportion of reserve for bad debts of accounts receivable with aging of 2 to 3 years was changed as 25% from 20%; The withdrawal proportion of reserve for bad debts of accounts receivable with aging of 3 to 5 years was changed as 60% from 40%. The change of the aforesaid accounting estimate adopted future applicable method. The above change on accounting estimate affected the net profit of this year, with a decrease of RMB 1,896,700. (2) In the Auditor’s Report on Apr. 24, 2003, Jiangsu Gongzheng Certified Public Accountants was unable to form an opinion on 2002 annual financial reports of the Company. In 2003, the Company conducted investigation on the accounts receivable and marketing expenses and retroactive adjustment on the accounting errors according to the regulations of enterprise accounting principles promulgated by the state and enterprise accounting system, and compiled 2002 financial reports again. Due to the effects of the above accounting errors, the Company adjusted 2002 net profit with an increase of RMB 70,229,700, and retained profit in 2002 year-begin with a decrease of RMB 176,086,500. (3) The business of the Company’s core product washing machine suffered loss in 2002 and 2003. However, the Company didn’t adjust correspondingly the pricing method of selling washing machines of Jiangsu Little Swan Marketing Co., Ltd., the holding subsidiary of the Company in the consolidated statements, according to the market changes, so Jiangsu Little Swan Marketing Co., Ltd. suffered great loss. On Apr. 23, 2004, the Board of the Company resolved that the principal shareholder bore the negative of accumulated net assets of Jiangsu Little Swan Marketing Co., Ltd.. In compiling accounting statements this time, the Company corrected the accounting error. Due to the effects of the accounting errors, the Company adjusted 2002 net profit with a decrease of RMB 216,603,500. The above changes on accounting estimate and correction on accounting errors were verified and confirmed by Jiangsu Gongzheng Certified Public Accountants. The above changes on accounting estimate and correction on accounting errors were appropriate. The independent directors of the Company believed that the above changes on accounting estimate and correction on accounting errors were appropriate. The Supervisory Committee agreed with the explanation of the Board on the above matters. 3. Investment (1) Application of raised proceeds The proceeds raised through A share offering in 1997 has been used up legally, which was stated in the report of the Board of Directors in 2001. At present, the Company has no any new raised proceeds. (2) Application of proceeds not raised through share offering The Company built “ Little Swan Export Products Processing Base” in Wuxi Export Processing Zone, which produced novel washing machine exported. The registered capital of the program amounted to RMB 28 mil, of which Wuxi Little Swan Co., Ltd. invested RMB 27.72 million in cash, taking 99% share equity; Wuxi Feilin Electronic co., Ltd. invested RMB 280,000 in cash, taking 1% share equity. Note: At the 10th meeting of the 4th Board held of the Company on Apr. 15, 2004, proposal on adjusting the investment proportion in Little Swan Export Products Processing Base program. The adjustment was: Wuxi Little Swan Co., Ltd. invested RMB 26.60 million in cash, taking 95% share equity; Wuxi Feilin Electronic co., Ltd. invested RMB 1.4 million, taking 5% share equity; the other matters remained. The Company was involved in setting up Wuxi Little Swan Mobile Communication Co., Ltd. with registered capital RMB 10 mil, of which Jiangsu Little Swan Group Co., Ltd. invested RMB 7.5 million, taking 75%of the registered capital; Wuxi Little Swan Co., Ltd. invested RMB 2.5 million, taking 25% of the registered capital. The controlling subsidiary of the Company, Jiangsu Little Swan Sanjiang Electric Appliance Co., Ltd., and Japan Fujitsu Limited invested together to set up Jiangsu Futianjiang Electronics and Electric Appliance Co., Ltd.. The operational scope of the company was: Produce novel electronic components and frequency conversion engine. The registered capital was USD 6.3 million, of which both parties accounting for 50% share equity. Jiangsu Little Swan Sanjiang Electric Appliance Co., Ltd. invested land using right, factory, equipment and cash in RMB, totally amounted to USD 3.15 million; Fujitsu invested equipment and exchange in USD, totally amounting to USD 3.15 million. 4. Important influence of change of operating environment, macro-policies and regulations on the Company In 2003, the competition in the industry of household electric appliance was much more intensified, which required higher emergency abilities of the Company; The increase of price of raw materials resulted in the increase of cost of products, which required higher internal management 5. In the 3rd quarter of 2003, the Company estimated the operating achievements of the Company were made up the deficits and got surpluses in 2003. 6. Jiangsu Gongzheng Certified Public Accountants has audited the accounting statements of the Company in 2003 and has issued the auditors’ report with emphatic issues. Now the emphatic issues in the auditors’ report are explained as follows: In the auditors’ report issued on Apr. 24, 2003, Jiangsu Gongzheng Certified Public Accountants was unable to form an opinion to the accounting statements of the Company in 2002, which was mainly because that the Company implemented sales integration at the beginning of 2002 and did not provide enough reliable evidences such as relevant accounting records and accounting information. Therefore, certified public accountant was unable to implement necessary substituted auditing procedures so as to confirm accuracy and completeness of accounts receivable and suitability of appropriation of provision for bad debts of the Company on Dec. 31, 2002. Besides, in 2002, the Company found that the Company had less appropriated sales expense amounting to RMB 12,539.36 in 2001 and before 2001 and conducted retroactive adjustment to the said sales expense as material accounting errors. Since the accounting record and accounting information of the Company was not enough, the certified public accountant was unable to confirm the accuracy and completeness of this adjustment amount. In 2003, the Company established special office to clear the accounts receivable, uniformly set up checking plans, input large quantities of personnel to all over the country, conducted complete clearing and checking to accounts receivable and sales expense and prepared the accounting statements for year 2002 again according to Accounting Standards for Business Enterprises and Accounting System for Business Enterprises promulgated by the State. The accounting statements for 2002 prepared again have been audited by Jiangsu Gongzheng Certified Public Accountants according to the requirements of Independent Auditing Standards of Chinese CPA. The certified public accountant considered that the accounting statements for 2002 prepared again by the Company were in compliance with the regulations of Accounting Standards for Business Enterprises and Accounting System for Business Enterprises promulgated by the State and reflected the financial position as of Dec. 31, 2002 and operating results and cash flows for 2002 of the Company in all material aspects. The independent directors of the Company considered: The auditors’ report with emphatic issues issued by Jiangsu Gongzheng Certified Public Accountants on the accounting statements of the Company for 2003 was proper. The current Supervisory Committee agreed the explanation of the Board of Directors on the said issues. 7. Business development plan of the new year In 2004, on the basis of last year’s getting profit from loss, the Company made efforts to promote operating achievements in further step and worked out all-round achievements promotion plan with the main measures as follows: (1) Diversifying the management, narrowing the cost accounting unit, reducing administration expenses, overhead expenses and costs, and Optimizing the supply channel and decreasing purchasing costs; (2) Grasping the cooperation chance with big international companies, strengthening the research on the product technology basis, realizing the internationalization of product development; (3) Consummating the internal supervision and urge mechanism of the Company; the independent internal auditing department will operate formally on Jan. 1, 2004; (4) Strictly implementing the financial judgment system, financial budgeting and settlement system and internal control standard (5) To fully enhance the quality management level with “6a”as the surveyor’s pole (6) To set up achievements evaluation system of staff, consummate encouragement mechanism and promote the cohesion of the staff. 8. Routine work of the Board of Directors (1) Meetings and resolutions of the Board of Directors in the report period In the report period, the Board of Directors of the Company totally held 11 meetings with details as follows: 1) The 16th Meeting of the 3rd Board of Directors of the Company was held on Jan. 28, 2003 by means of communications with the passed resolutions as follows: A. Proposal on Changing Partial Senior Executives of the Company Mr. Wang Xianping and Mr. Rao Zhongliang put forward their respective resignations from the post of General Manager Assistant and Chief Financial Officer of the Company respectively due to changes in work. The Board agreed Mr. Qiao Li and Mr. Zhang Mingjie to take the position of Deputy General Manager and Chief Financial Officer of the Company respectively. B. Proposal on Changing Secretary of the Board of the Company Mr. Wang Xianping put forward the resignation from the position of Secretary of the Board of the Company due to changes in work. The Board agreed Mr. Qiao Li to take the position of Secretary of the Board of the Company. 2) The 17th Meeting of the 3rd Board of Directors of the Company was held in Wuxi on Apr. 24, 2003. The Meeting was presided over Mr. Zhu Dekun, Chairman of the Board. 14 directors should be present and actually 10 of them attended the Meeting, of which 1 director attended the Meeting by means of telephone meeting while another three directors authorized other directors to exercise the voting right on their behalf. The following resolutions have been passed after serious discussion by the present directors: A. Work Report of General Manager 2002 B. Financial Settlement Report 2002 C. Losses Offset and Profit Distribution Plan 2002 D. Proposal on Modifying Appropriating Proportion of Provision for Bad Debts from Accounts Receivable E. Work Report of the Board of Directors 2002 F. Annual Report and its Summary 2002 G. Proposal on Related Transactions 2003 H. Proposal on Business Retirement for Wuxi Aerxi Plastic Products Co., Ltd. at its Expiration I. Proposal on Business Retirement for Wuxi ASP Electronic Co., Ltd. and Investing Wuxi Feiling Electronics Co., Ltd. J. Proposal on Engaging Auditors of the Company for 2003 Continuing to engage Jiangsu Gongzheng Certified Public Accountants and PricewaterhouseCoopers Certified Public Accountants as domestic and oversea auditors of the Company in 2003. K. The 1st Quarterly Report of the Company in 2003 L. Proposal on Implementing Special Treatment for Stock Transaction 3) The 18th Meeting of the 3rd Board of Directors of the Company was held on Jun. 18, 2003 by means of communications and the following resolutions have been passed: A. Proposal on Election for Members in the Board at its Expiration B. Proposal on Amending the Articles of Association of the Company C. Proposal on Holding Annual Shareholders’ General Meeting 2002 4) The 19th Meeting of the 3rd Board of Directors of the Company was held on Jun. 24, 2003 by means of communications, where stop of joint-stock contract on Wuxi Little Swan-Merlonic Dish-washer Co., Ltd. between Protecno SA and the Company was considered and passed. Wuxi Little Swan-Merlonic Dish-washer Co., Ltd. entered into clearing procedures. 5) The 1st Meeting of the 4th Board of Directors of the Company was held in Wuxi on July 19, 2003. The Meeting was presided over by Mr. Zhu Dekun. 9 directors should be present and actually 7 of them attended the Meeting. Director Mr. Lv Wei and Mr. Paul Wolansky did not attend the Meeting due to work reason. The following proposals have been passed and formed respectively after serious discussions by the present directors: A. Electing Mr. Zhu Dekun as Chairman of the Board and Mr. Ou Shiyu as Vice-chairman of the Board B. Engaging Mr. Chai Xinjian as General Manager with office term of three years; engaging Mr. Qiao Li, Mr. Mao Zhiliang and Mr. Li Hong as Deputy General Manager and engaging Mr. Chen Zhimin as Chief Financial Officer of the Company C. Engaging Mr. Qiao Li as Secretary of the Board of the Company D. Proposal on Annual Salary of Chairman of the Board and Allowances of Independent Directors 2003, which should be submitted to the next shareholders’ general meeting for approval E. Proposal on Annual Salary General Manager and Senior Executives of the Company 6) The 2nd Meeting of the 4th Board of Directors of the Company was held in Conference Room No. 208, Wuxi Little Swan Company Limited, on Aug. 26, 2003. The Meeting was presided over by Mr. Zhu Dekun, Chairman of the Board. 9 directors should be present and actually 6 of them attended the Meeting. The other 3 directors authorized other representatives to exercise the voting right on their behalf. Semi-annual Report and its Summary 2003 was considered and passed at the Meeting. 7) The 3rd Meeting of the 4th Board of Directors of the Company was held on Sept. 28, 2003 by means of communications, where proposal on stopping sales business of air-conditioners in Jiangsu Little Swan Sales Co., Ltd. was considered and passed. In order to reinforce the benefits of market share, emphasize on developing the core business of the Company, timely adjust sales structure of products, adapt to the changed environment in the market competition and ensure the profitability capability of the Company, the Company would stop the sales business of air-conditioners in sales system of Jiangsu Little Swan Sales Co., Ltd. and it was predicted that the decrease in annual operating income was within 10%. The Board authorized Mr. Zhu Dekun to deal with the issue relevant to stopping sales business of air-conditioners in Jiangsu Little Swan Sales Co., Ltd. with full authority and required Jiangsu Little Swan Sales Co., Ltd. to settle the relationships with all parties well after negotiated in a friendly way with such companies as Wuxi Little Swan Household Appliances Co., Ltd. etc. based on the principle of being beneficial for sustainable and stable development in sales business of products and under the premise of fairness, justness, reasonability and legality and not damaging the interests of both parties. 8) The 4th Meeting of the 4th Board of Directors of the Company was held on Oct. 10 by means of communications, where proposal on self-inspection report on capital current and external guarantees between the Company and its related parties was considered and passed. The Meeting agreed the relevant self-inspection report made by the Management of the Company after self-inspecting the capital current, capital occupation and external guarantees between the Company and its related parties ended Aug. 28, 2003 according to the requirements in Supplemental Circular on Standardizing Listed Companies’ Capital Current with Related Parties, External Guarantees and Other Several Problems released by CSRC Nanjing Station Office with NZJGSZ [2003] No. 253 Document and the spirits in Circular on Standardizing Listed Companies’ Capital Current with Related Parties, External Guarantees and Other Several Problems released by Securities Regulatory Commission with ZJF (2003) No. 56 Document. 9) The 5th Meeting of the 4th Board of Directors of the Company was held on Oct. 27, 2003 by means of communications and the following topics for discussion have been considered and passed at the Meeting: A. The 3rd Quarterly Report 2003 of the Company 10) The 6th Meeting of the 4th Board of Directors of the Company was held in Conference Room No. 208 of the Company on Nov. 11, 2003 and the following proposals have been considered and passed at the Meeting: A. Proposal on Project of Investing and Constructing “Processing base for export products” B. Proposal on Proposal on Investing and Jointly Constructing Wuxi Little Swan Mobile Communication Co., Ltd. C. Proposal on Jointly Investing and Establishing Jiangsu Futianjiang Electric Appliances Co., Ltd. by Jiangsu Little Swan Sanjiang Electric Appliances Manufacturing Co., Ltd., a controlling subsidiary, and Fujitsu Limited D. Proposal on Issues Relevant to Stopping Sales Business of Air-conditioners 11) The 7th Meeting of the 4th Board of Directors of the Company was held on Dec. 18, 2003 by means of communications and the proposals have been passed at the Meeting: Considering and passing Proposal on Canceling Losses from Bad Debts in Partial Accounts Receivable. According to the requirements in Tax Bureau, the Company engaged Wuxi Municipal Dagong Registered Tax Agents Co., Ltd. to cancel those accounts receivable in compliance with cancellation condition for bad debts in 2003 with reserve for bad debts. The detailed amount was to be confirmed after the auditing. (2) Implementation of the Board of Directors on the resolutions of Shareholders’ General Meeting In the report period, the Board of Directors of the Company has seriously implemented all resolutions of the Shareholders’ General Meeting and has timely accomplished all tasks from the Shareholders’ General Meeting. Of which, for the plan on losses offset and profit distribution 2002 considered and passed in Annual Shareholders’ General Meeting 2002, since the certified public accountants of the Company issued auditors’ report unable to form an opinion to financial report of the Company for 2002, the losses for 2002 could not confirmed in 2003 and the Company could not make relevant financial disposal. The detail plan on losses offset was to be confirmed by the next meeting of the Board and was to be implemented subject to approval of Shareholders’ General Meeting. 9. Profit distribution preplan 2003 Since the profit available for distribution was still in negative after losses offset in 2003, neither profit distribution nor capitalization of reserve into share capital would be conducted in 2003. 10. In the report period, the newspapers designated by the Company for information disclosure were China Securities, Securities Times and Ta Kung Pao. SECTION VIII. REPORT OF THE SUPERVISORY COMMITTEE I. Holding of the Meeting of the Supervisory Committee In the report period, the Company totally held three meetings of the Supervisory Committee 1. The 8th Meeting of the 3rd Supervisory Committee of the Company was held in Wuxi on Apr. 24, 2003, where Work Report of the Supervisory Committee 2002 was considered and passed and all proposals passed at the 17th Meeting of the 3rd Board of Directors of the Company were seriously considered. At the same time, the Supervisory Committee expressed opinion on the Company’s related transactions planned to be implemented. For details, please refer to China Securities, Securities Times and Ta Kung Pao dated Apr. 24, 2003. 2. The 9th Meeting of the 3rd Supervisory Committee of the Company was held by means of signed voting on Jun. 18, 2003, where Proposal on Election for Members in the Supervisory Committee at its Expiration was considered and passed. For details, please refer to China Securities, Securities Times and Ta Kung Pao dated Jun. 19, 2003. 3. The 1st Meeting of the 4th Supervisory Committee of the Company was held in Wuxi on July 19, 2003, where Ms. Jiang Lanzhen was elected as Chairman of the Supervisory Committee and at the same time all proposals passed at the 1st Meeting of the 4th Board of Directors were considered seriously. For details, please refer to China Securities, Securities Times and Ta Kung Pao dated July 22, 2003. II. Opinions of the Supervisory Committee In the report period, according to the provisions in Company Law of the P.R.C. and the Articles of Association of the Company, all members in the Supervisory Committee of the Company have implemented their supervision duties and functions devotedly in the operating activities of the Company and have formed the following opinions through a series of supervision and examination activities: 1. Operation of the Company: The Board of Directors of the Company has seriously implemented the resolutions passed by the Shareholders’ General Meeting with the decision-making procedures fully in compliance with the state laws and regulations and the Articles of Association of the Company. The Management of the Company has seriously implemented all resolutions of the Board of Directors and has established improved internal control system. The Company’s directors and managers cleaved to their positions while implementing their duties, not disobeying the laws and regulations and the Articles of Association or damaging the interests of the Company. 2. Finance of the Company: The auditing opinion in 2003 issued by certified public accounts was objective and true. The Company’s financial report has reflected the financial position and operating results of the Company in an objective and true way. 3. All transactions of the Company’s related enterprises were conducted according to ordinary and fair commercial clauses. In 2003, the Company has never damaged the interests of the listed company in the related transactions. 4. For the auditors’ report with emphatic issues issued by Jiangsu Gongzheng Certified Public Accountants on accounting statements of the Company in 2003, the current Supervisory Committee agreed the explanation of the Board of Directors on the said issues. SECTION IX. SIGNIFICANT EVENTS I. The Company has no significant lawsuits and arbitrations in the report period. II. The Company has no purchase and sale of assets, absorption and merge in the report period. III. For the details of significant related transactions, please refer to the financial report. IV. The Company has significant contracts that are necessary to be disclosed in the report period. 1. The Company has no significant entrusted, contracted and leased assets in the report period. 2. Significant guarantee: Unit: RMB’0000 Guarantee Illegal Date of happening Complete Name of the Amount of Guarantee for related guarantee (date of signing Guarantee term Implementation Company guaranteed guarantee type party (yes (yes or agreement) or not or no) no) Wuxi Little Swan Joint Nov. 19, 2003- Presision Casting Nov. 19, 2003 500.00 liabilities No Yes No Nov. 17, 2004 Co., Ltd guarantee Wuxi Little Swan Joint Nov. 21, 2003- Presision Casting Nov. 21, 2003 350.00 liabilities No Yes No Oct. 21, 2004 Co., Ltd guarantee Wuxi Little Swan Joint Mar. 17, 2003- Presision Casting Mar. 17, 2003 2,000.00 liabilities No Yes No Mar. 16, 2004 Co., Ltd guarantee Wuxi Little Swan Joint Apr. 14, 2003- Presision Casting Apr. 14, 2003 300.00 liabilities No Yes No Apr. 13, 2004 Co., Ltd guarantee Wuxi Little Swan Joint Aug. 18, 2003- Presision Casting Aug. 18, 2003 300.00 liabilities No Yes No Aug. 10, 2004 Co., Ltd guarantee Wuxi Little Swan Joint Nov. 11, 2003- Presision Casting Nov. 11, 2003 200.00 liabilities No Yes No May 10, 2004 Co., Ltd guarantee Wuxi Little Swan Joint Mar. 10, 2003- Fuji Clenaing Mar. 10, 2003 250.00 liabilities No Yes Yes Mar. 7, 2004 Equipment Co., Ltd guarantee Wuxi Little Swan Joint Jan. 24, 2003- Fuji Clenaing Jan. 24, 2003 150.00 liabilities No Yes Yes Jan. 23, 2004 Equipment Co., Ltd guarantee Wuxi Little Swan Fuji Clenaing Joint Dec. 15, 2003- Equipment Co., Ltd. Dec. 15, 2003 700.00 liabilities No Yes Yes Mar. 25, 2004 guarantee Wuxi Little Swan Fuji Clenaing Joint Dec. 15, 2003- Equipment Co., Ltd. Dec. 15, 2003 680.00 liabilities No Yes Yes Mar. 25, 2004 guarantee Wuxi Little Swan Fuji Clenaing Joint Oct. 27, 2003- Equipment Co., Ltd. Oct. 24, 2003 100.00 liabilities No Yes Yes Oct. 25, 2004 guarantee Wuxi Little Swan Fuji Clenaing Joint Aug. 1, 2003- Equipment Co., Ltd. Aug. 1, 2003 420.00 liabilities No Yes Yes July 25, 2004 guarantee Wuxi Little Swan Fuji Clenaing Joint May 13, 2003- Equipment Co., Ltd. May 13, 2003 450.00 liabilities No Yes Yes May 13, 2004 guarantee Wuxi Little Swan Feiling Electronics Joint Sep. 5, 2003- Co., Ltd Sep. 5, 2003 400.00 liabilities No Yes Yes Aug. 27, 2004 guarantee Wuxi Little Swan Feiling Electronics Joint Sep. 5, 2003- Co., Ltd Sep. 5, 2003 500.00 liabilities No Yes Yes July 30, 2004 guarantee Wuxi Little Swan Feiling Electronics Joint Sep. 5, 2003- Co., Ltd Sep. 5, 2003 300.00 liabilities No Yes Yes June 25, 2004 guarantee Wuxi Little Swan Feiling Electronics Joint Oct. 24, 2003- Co., Ltd Oct. 24, 2003 200.00 liabilities No Yes Yes May 28, 2004 guarantee Wuxi Little Swan Feiling Electronics Joint Dec. 19, 2003- Co., Ltd Dec. 19, 2003 500.00 liabilities No Yes Yes Dec. 18, 2004 guarantee Wuxi Little Swan Feiling Electronics Joint Dec. 4, 2003- Co., Ltd Dec. 4, 2003 500.00 liabilities No Yes Yes Dec. 3, 2004 guarantee Wuxi Little Swan Feiling Electronics Joint Aug. 14, 2003- Co., Ltd Aug. 14, 2003 1,000.00 liabilities No Yes Yes Aug. 10, 2004 guarantee Wuxi Little Swan Feiling Electronics Joint Sep. 3, 2003- Co., Ltd. Sep. 30, 2003 500.00 liabilities No Yes Yes Mar. 30, 2004 guarantee Wuxi Little Swan Feiling Electronics Joint Aug. 12, 2003- Co., Ltd. Aug. 12, 2003 500.00 liabilities No Yes Yes Jan. 16, 2004 guarantee Wuxi Little Swan Feiling Electronics Joint Aug. 24, 2003- Co., Ltd. Aug. 24, 2003 256.85 liabilities No Yes Yes Feb. 24, 2004 guarantee Wuxi Little Swan Feiling Electronics Joint July 29, 2003- Co., Ltd. July 29, 2003 150.00 liabilities No Yes Yes Jan. 29, 2004 guarantee Wuxi Little Swan Feiling Electronics Joint Nov. 24, 2003- Co., Ltd. Nov. 24, 2003 350.00 liabilities No Yes Yes Apr. 24, 2004 guarantee Wuxi Little Swan Feiling Electronics Joint Dec. 17, 2003- Co., Ltd. Dec. 17, 2003 350.00 liabilities No Yes Yes May 17, 2004 guarantee Wuxi Little Swan Import and Export Joint Sep. 18, 2003- Co., Ltd. Sep. 18, 2003 400.00 liabilities No Yes Yes July 20, 2004 guarantee Wuxi Little Swan Import and Export Joint Nov. 7, 2003- Co., Ltd. Nov. 7, 2003 1,000.00 liabilities No Yes Yes Aug. 20, 2004 guarantee Wuxi Little Swan Import and Export Joint Oct. 27, 2003- Co., Ltd. Oct. 27, 2003 1,000.00 liabilities No Yes Yes Jan. 15, 2004 guarantee Wuxi Little Swan Import and Export Joint Apr. 20, 2003- Co., Ltd. Apr. 20, 2003 389.00 liabilities No Yes Yes Apr. 20, 2004 guarantee Wuxi Little Swan Import and Export Joint Oct. 16, 2003- Co., Ltd. Oct. 16, 2003 1,000.00 liabilities No Yes Yes Oct. 27, 2004 guarantee Wuxi Little Swan Import and Export Joint Sep. 29, 2003- Co., Ltd. Sep. 29, 2003 500.00 liabilities No Yes Yes Mar. 29, 2004 guarantee Wuxi Little Swan Import and Export Joint Sep. 25, 2003- Co., Ltd. Sep. 25, 2003 2,000.00 liabilities No Yes Yes Mar. 19, 2004 guarantee Wuxi Little Swan Import and Export Joint Dec. 5, 2003- Co., Ltd. Dec. 5, 2003 1,000.00 liabilities No Yes Yes June 5, 2004 guarantee Wuxi Little Swan Import and Export Joint Oct. 27, 2003- Co., Ltd. Oct. 27, 2003 500.00 liabilities No Yes Yes Mar. 27, 2004 guarantee Wuxi Little Swan Schulthess Joint Dec. 23, 2003- Washing-maching Dec. 23, 2003 500.00 liabilities No Yes Yes Apr. 28, 2004 Co., Ltd guarantee Wuxi Little Swan Schulthess Joint June 5, 2003- Washing-maching June 5, 2003 700.00 liabilities No Yes Yes May 28, 2004 Co., Ltd guarantee Wuxi Little Swan Schulthess Joint Nov. 12, 2003- Washing-maching Nov. 12, 2003 980.00 liabilities No Yes Yes Oct. 25, 2004 Co., Ltd guarantee Wuxi Little Swan Schulthess Joint Aug. 15, 2003- Washing-maching Aug. 15, 2003 500.00 liabilities No Yes Yes Aug. 13, 2004 Co., Ltd guarantee Wuxi Little Swan Schulthess Joint June 30, 2003- Washing-maching June 30, 2003 500.00 liabilities No Yes Yes Apr. 28, 2004 Co., Ltd guarantee Wuxi Little Swan Schulthess Joint June 10, 2003- Washing-maching June 10, 2003 500.00 liabilities No Yes Yes Mar. 10, 2004 Co., Ltd guarantee Wuxi Little Swan Schulthess Joint Nov. 25, 2003- Washing-maching Nov. 25, 2003 400.00 liabilities No Yes Yes Aug. 12, 2004 Co., Ltd guarantee Wuxi Little Swan Schulthess Joint Apr. 7, 2002- Washing-maching Apr. 7, 2002 400.00 liabilities No Yes Yes Apr. 7, 2004 Co., Ltd guarantee Wuxi Little Swan Schulthess Joint Apr. 10, 2003- Washing-maching Apr. 10, 2003 400.00 liabilities No Yes Yes Apr. 10, 2004 Co., Ltd guarantee Wuxi Little Swan Jiangbo Model Joint Mar. 10, 2003- Presision Mar. 10, 2003 300.00 liabilities No Yes No Mar. 9, 2004 Manufacture Co., guarantee Ltd. Wuxi Little Swan Jiangbo Model Joint May 26, 2003- Presision May 26, 2003 100.00 liabilities No Yes No May 25, 2004 Manufacture Co., guarantee Ltd. Wuxi Little Swan Huayin Electric Joint Dec. 9, 2003- Appliances Co., Ltd. Dec. 9, 2003 300.00 liabilities No Yes No Dec. 9, 2004 guarantee Wuxi Lifanda Electric Appliances Joint June 30, 2003- Co., Ltd. June 30, 2003 100.00 liabilities No Yes Yes June 29, 2004 guarantee Wuxi Lifanda Electric Appliances Joint June 30, 2003- Co., Ltd. June 30, 2003 250.00 liabilities No Yes Yes June 29, 2004 guarantee Wuxi Little Swan Marketing Co., Ltd. Joint Sep. 25, 2003- Sep. 25, 2003 1,000.00 liabilities No Yes Yes Mar. 25, 2004 guarantee Wuxi Little Swan Marketing Co. Joint Sep. 18, 2003- Sep. 18, 2003 600.00 liabilities No Yes Yes Mar. 18, 2004 guarantee Wuxi Little Swan Marketing Co., Ltd. Joint Oct. 28, 2003- Oct. 28, 2003 600.00 liabilities No Yes Yes Apr. 28, 2004 guarantee Wuxi Little Swan Marketing Co., Ltd. Joint Oct. 23, 2003- Oct. 23, 2003 800.00 liabilities No Yes Yes Apr. 23, 2004 guarantee Wuxi Little Swan Marketing Co., Ltd. Joint July 21, 2003- July 21, 2003 1,000.00 liabilities No Yes Yes Jan. 21, 2004 guarantee Wuxi Little Swan Marketing Co., Ltd. Joint July 30, 2003- July 30, 2003 1,200.00 liabilities No Yes Yes Jan. 30, 2004 guarantee Joint Wuxi Limin Nov. 1, 1993- Nov. 1, 1993 700.00 liabilities Yes No No Porcelain Factory June 30, 1998 guarantee Jiangsu Little Swan Group Co., Ltd Joint Dec. 17, 2003- Dec. 17, 2003 5,000.00 liabilities No Yes Yes June 17, 2004 guarantee Jiangsu Little Swan Group Co., Ltd Joint Dec. 17, 2003- Sep. 9, 2003 5,000.00 liabilities No Yes Yes June 17, 2004 guarantee Jiangsu Little Swan Group Co., Ltd Joint Dec. 19, 2003- Dec. 19, 2003 8,000.00 liabilities No Yes Yes June 8, 2004 guarantee Jiangsu Little Swan Group Co., Ltd. Joint Dec. 16, 2003- Dec. 16, 2003 500.00 liabilities No Yes Yes Oct. 21, 2004 guarantee Jiangsu Little Swan Group Co., Ltd. Joint Dec. 23, 2003- Dec. 23, 2003 480.00 liabilities No Yes Yes Oct. 21, 2004 guarantee Jiangsu Little Swan Group Co., Ltd. Joint Dec. 12, 2003- Dec. 12, 2003 4,000.00 liabilities No Yes Yes Apr. 28, 2004 guarantee Joint Jiangsu Little Swan Sep. 25, 2003 liabilities Group Co., Ltd. Sep. 25, 2003- 662.40 guarantee No Yes Yes Sep. 25, 2004 (USD 0.8 million) Total amount of guarantee 64818.25 Total balance of guarantee 55168.25 Including: total balance of related guarantee 54468.25 Total amount of guarantee the listed company provided for its share-controlling subsidiaries 40125.85 Total amount of guarantee breaking regulations 50818.25 Proportion of total amount of guarantee in net assets of the Company 49.84 3. The Company has no entrusted financing in the report period. V. The Company or the shareholders holding more than 5% equity have no committed events in the report period. VI. Engagement of Certified Public Accountants of the Company: Annual Shareholders’ General Meeting 2002 held on July 19, 2003 approved to reengage Jiangsu Gongzheng Certified Public Accountants Co., Ltd. as the domestic auditor of the Company and PricewaterhouseCoopers (China) Co., Ltd. as the international auditor of the Company. The total audit expense in 2003 was RMB 2.2 million. The Company has engaged Jiangsu Gongzheng Certified Public Accountants Co., Ltd. as the domestic auditor of the Company since 1993 and engaged PricewaterhouseCoopers (China) Co., Ltd. as the international auditor of the Company since 1996. VII. Punishment of the Company, the Board of Directors and directors The Company, the Board of Directors and directors have not been checked, given punishment and public criticism by CSRC and publicly condemned by Stock Exchange. VIII. Other significant events: 1. Change of directors Annual Shareholders’ General Meeting 2002 held on July 19, 2003 held an election at expiration of office terms of the members of the Board of Directors. For the details, please refer to China Securities, Securities Times and Ta Kung Pao dated July 22, 2003. 2. Amendment of Articles of Association of the Company: Annual Shareholders’ General Meeting 2002 held on July 19, 2003 examined and approved the proposal on amendment of Articles of Association of the Company; amended Article 19 of the original Articles of Association “The Company establishes the Board of Directors. The Board of Directors is composed of 14 directors. The Board of Directors is responsible for and report work to the Shareholders’ General Meeting.” into “The Company establishes the Board of Directors. The Board of Directors is composed of 9 directors. The Board of Directors is responsible for and report work to the Shareholders’ General Meeting.” 3. Special explanation of certified public accountants on capital occupied by the related parties of Little Swan Company Special Explanation on Capital Occupied by the Controlling Shareholder and Other Related Parties of Wuxi Little Swan Company Limited in 2003 To all shareholders of Wuxi Little Swan Company Limited: Accepting the commission, we have audited the accounting statements of Wuxi Little Swan Company Limited (Hereinafter referred to as Little Swan Company) in 2003. Special explanation on capital occupied by the controlling shareholder and other related parties of Little Swan Company in 2003 can be used in supplemental analysis. However, it is not a part of the accounting statements but supplemental information provided according to the provisions in Circular on Standardizing Listed Companies’ Capital Current with Related Parties, External Guarantees and Other Several Problems released by CSRC with ZJF [2003] No. 56 Document. The Capital current between Little Swan Company and its controlling shareholder and other related parties in 2003 was as follows: I. The Capital current between Little Swan Company and its controlling shareholder and other related parties was as follows: 1. Jiangsu Little Swan Group Co., Ltd. Jiangsu Little Swan Group Co., Ltd. (hereinafter referred to as Little Swan Group) was the controlling shareholder of Little Swan Company. The material purchase and agent expense of Little Swan Company and Little Swan Group was accounted in accounts receivable. The balance at year-beginning in accounts receivable was RMB 16,241,032; credit amount was payment for materials amounting to RMB 53,924,692 and agent expense amounting to RMB 2,435,500; debit amount was payment for goods amounting to RMB 72,594,486; the balance at year-end was RMB 6,738. The lease expense and other current between Little Swan Company and Little Swan Group were accounted in other receivables. In other receivables, balance at year-beginning was RMB 27,052,345; debit amount was lease expense receivable amounting to RMB 1,208,181 and current accounts amounting to RMB 2,700,841; credit amount was receiving lease expense and current accounts amounting to RMB 14,154,247; balance at year-end was RMB 16,807,120. Little Swan Group occupied the capital of Little Swan Company amounting to RMB 21,758,700 on average per month. 2. Jiangsu Little Swan Sales Co., Ltd. Jiangsu Little Swan Sales Co., Ltd. (hereinafter referred to as Sales Company) was the controlling subsidiary of Little Swan Company. The sales business of washers and materials between Little Swan Company and Sales Company was accounted in accounts receivable. In accounts receivable, balance at year-beginning was RMB 205,999,249; debit amount was payment for goods sales and etc. amounting to RMB 1,641,996,402; credit amount was payment for goods received amounting to RMB 1,402,061,887 and purchase amounting to RMB 25,484,293; balance at year-end was RMB 420,449,471. Sales Company occupied the capital of Little Swan Company amounting to RMB 369,665,497 on average per month. 3. Little Swan (Jingzhou) Sanjin Electric Appliances Co., Ltd. Little Swan (Jingzhou) Sanjin Electric Appliances Co., Ltd. was an associated company of Little Swan Group. The purchase and sales business of double-vat washers between Little Swan Company and Jingzhou Sanjin was accounted in accounts payable. In accounts payable, balance at year-beginning was RMB 32,697,492; credit amount was purchase of double-vat washer amounting to RMB 157,696,859; debit amount was payment for goods amounting to RMB 152,831,298; balance at year-end was RMB 37,563,053. Little Swan Company occupied the capital of Jingzhou Sanjin amounting to RMB 38,526,046 on average per month. 4. Wuxi Little Swan Tian’ai Electric Appliances Co., Ltd. Wuxi Little Swan Tian’ai Electric Appliances Co., Ltd. (hereinafter referred to as Tian’ai Electric Appliances) was the controlling subsidiary of Little Swan Company. The current account between Little Swan Company and Tian’ai Electric Appliances was accounted in accounts payable. In accounts payable, balance at year-beginning was RMB-23,045,046; amount in the period was RMB-129,150; balance at year-end was RMB-23,174,196. Tian’ai Electric Appliances occupied the capital of Little Swan Company amounting to RMB 22,682,806 on average per month. 5. Wuxi Little Swan Ceramic Co., Ltd. Wuxi Little Swan Ceramic Co., Ltd. (hereinafter referred to as Little Swan Ceramic) was the controlling subsidiary of Little Swan Company. The settlement of water and power expense between Little Swan Company and Little Swan Ceramic was accounted in other receivables. In other receivables, balance at year-beginning was RMB 12,167,844; debit amount was distributed water and power expense amounting to RMB 2,086,596; credit amount was account of water and power expense withdrawn amounting to RMB 2,000,000; balance at year-end was RMB 12,254,440. Little Swan Ceramic occupied the capital of Little Swan Company amounting to RMB 13,997,968 on average per month. 6. Wuhan Little Swan Washer Co., Ltd. Wuhan Little Swan Washer Co., Ltd. (hereinafter referred to as Wuhan Little Swan) was the controlling subsidiary of Little Swan Group. The purchase and sales business between Little Swan Company and Wuhan Little Swan was accounted in accounts payable. In accounts payable, balance at year-beginning was RMB-1,065,919; credit amount was purchase of double-vat washer amounting to RMB 82,166,555; debit amount was payment for goods amounting to RMB 99,648,026; balance at year-end was RMB-18,547,390. Little Swan Company occupied the capital of Little Swan Company amounting to RMB 7,980,630 on average per month. 7. Wuxi Little Swan ASP Electronic Co., Ltd. Wuxi Little Swan ASP Electronic Co., Ltd. (hereinafter referred to as ASP Electronic) was the controlling subsidiary of Little Swan Company. After its expiration for operation and being cleared, Wuxi Feiling Electronic Co., Ltd. (hereinafter referred to as Feiling Electronic, the controlling subsidiary of Little Swan Company) was set up. The material purchase and settlement of water and power expense etc. between Little Swan Company and ASP Electronic was accounted in accounts payable. In accounts payable, balance at year-beginning was RMB 38,763,882; credit amount was purchase of computer boards amounting to RMB 63,775,764 and Feiling Electronic transferred in amounting to RMB 29,785,280; debit amount was payment for goods amounting to RMB 83,396,590, distributed water and power expense amounting to RMB 672,482; dividends receivable from ASP Electronic amounting to RMB 5,986,704 and clearing account receivable from ASP Electronic amounting to RMB 42,269,150; balance at year-end was RMB 0.00. Little Swan Company occupied the capital of ASP Electronic amounting to RMB 2,290,512 on average per month. 8. Wuxi Feiling Electronic Co., Ltd. The material purchase and settlement of water and power expense between Little Swan Company and Feiling Electronic was accounted in accounts payable. In accounts payable, balance at year-beginning was RMB 0.00; credit amount was purchase of computer boards amounting to RMB 48,647,090 and security withdrawn amounting to RMB 15,000,000; debit amount was water and power expense distributed amounting to RMB 440,985, property lease expense amounting to RMB 568,490, balance of ASP Electronic transferred in amounting to RMB 29,785,280 and payment for goods amounting to RMB 37,065,253; balance at year-end was RMB-4,212,918. Feiling Electronic occupied the capital of Little Swan Company amounting to RMB 2,115,938 on average monthly. 9. Wuxi Little Swan Dryer Co., Ltd. Wuxi Little Swan Dryer Co., Ltd. (hereinafter referred to as Dryer Company) was an associated company of Little Swan Group. The purchase and sales business of washers’ components and accessories between Little Swan Company and Dryer Company was accounted in accounts payable. In accounts payable, balance at year-beginning was RMB-11,772,984; credit amount was purchase of materials amounting to RMB 2,591,313; debit amount was payment and account transfer amounting to RMB 2,185,633; balance at year-end was RMB-11,367,304. Dryer Company occupied the capital of Little Swan Company amounting to RMB 11,606,129 on average per month. 10. Wuxi Little Swan Central Air-conditioner Co., Ltd. Wuxi Little Swan Central-conditioner Co., Ltd. (hereinafter referrer to as Central Air-conditioner) was an associated company of Little Swan Group. The settlement of lease and water and power expense between Little Swan Company and Central Air-conditioner was accounted in other receivables. In other receivables, balance at year-beginning was RMB 361,264; debit amount was water and power expense distributed amounting to RMB 575,877 and lease account receivable amounting to RMB 1,049,103; credit amount was accounts receivable amounting to RMB 1,310,219; balance at year-end was RMB 676,025. Central Air-conditioner occupied the capital of Little Swan Company amounting to RMB 455,690 on average per month. 11. Wuxi Little Swan Jiangbo Mould Precision Machine Manufacturing Co., Ltd. Wuxi Little Swan Jiangbo Mould Precision Machine Manufacturing Co., Ltd. (hereinafter referred to as Jiangbo Mould) was the controlling subsidiary of Little Swan Company. The purchase business of mould between Little Swan Company and Jianbo Mould was accounted in other receivables. In other receivables, balance at year-beginning was RMB-6,790,372; debit amount was payment for moulds amounting to RMB 14,500,430; credit amount was purchase of moulds amounting to RMB 12,151,000; balance at year-end was RMB-4,440,942. Little Swan Company occupied the capital of Jiangbo Mould amounting to RMB 5,480,233 on average per month. 12. Wuxi Little Swan Huayin Electric Appliances Co., Ltd. Wuxi Little Swan Huayin Electric Appliances Co., Ltd. (hereinafter referred to as Huayin Electric Appliances) was the controlling subsidiary of Little Swan Company. The purchase business of electric engines between Little Swan Company and Huayin Electric Appliances was accounted in accounts payable. In accounts payable, balance at year-beginning was RMB 16,964,665; credit amount was purchase of electric engines was RMB 62,789,480; debit amount was payment amounting to RMB 76,175,585 and dividends receivable amounting to RMB 3,486,856; balance at year-end was RMB 91,704. Little Swan Company occupied the capital of Huayin Electric Appliances amounting to RMB 17,681,618 on average per month. 13. Jiangsu Little Swan Sanjiang Electric Appliances Co., Ltd. Jiangsu Little Swan Sanjiang Electric Appliances Co., Ltd. (hereinafter referred to as Sanjiang Electric Appliances) was the controlling subsidiary of Little Swan Company. The purchase business of electric engines between Little Swan Company and Sanjiang Electric Appliances was accounted in accounts payable. In accounts payable, balance at year-beginning was RMB-6,252,070; credit amount was purchase of electric engines amounting to RMB 33,207,646; debit amount was payment amounting to RMB 36,841,824 and dividends receivable amounting to RMB 5,510,703; balance at year-end was RMB-15,396,951. Sanjiang Electric Appliances occupied the capital of Little Swan Company amounting to RMB 18,061,850 on average per month. 14. Wuxi Little Swan Import and Export Co., Ltd. Wuxi Little Swan Import and Export Co., Ltd. (hereinafter referred to as Import and Export Company) was the controlling subsidiary of Little Swan Company. The purchase and sales of washers and components and accessories and processing business were accounted in accounts receivable between Little Swan Company and Import and Export Company. In accounts receivable, balance at year-beginning was RMB 53,984,596; debit amount was such other accounts as sales of washers amounting to RMB 139,678,350, sales of components and accessories amounting to RMB 18,135,032 and processing expense amounting to RMB 7,761,400; credit amount was purchase of components and accessories amounting to RMB 58,971,611 and payment for goods received amounting to RMB 97,951,446; balance at year-end was RMB 62,636,321. Import and Export Company occupied the capital of Little Swan Company amounting to RMB 83,855,483 on average per month. 15. Wuxi Little Swan Fuji Clear Equipments Co., Ltd. Wuxi Little Swan Fuji Clear Equipments Co., Ltd. (hereinafter referred to as Fuji Clear) was the controlling subsidiary of Little Swan Company. The water and power expense and capital current between Little Swan Company and Fuji Clear was accounted in other receivables. In other receivables, balance at year-beginning was RMB 1,267,300; debit amount was capital borrowed temporarily amounting to RMB 14,200,000 and water and power expense distributed amounting to RMB 244,080; credit amount was accounts received amounting to RMB 11,502,100; balance at year-end was RMB 4,209,280. Fuji Clear occupied the capital of Little Swan Company amounting to RMB 2,264,783 on average per month. 16. Wuxi Little Swan Sutai Clearing Machine Co., Ltd. Wuxi Little Swan Sutai Clearing Machine Co., Ltd. (hereinafter referred to as Sutai Clearing) was the controlling subsidiary of Little Swan Company. The water and power expense and capital current between Little Swan Company and Sutai Clearing was accounted in other receivables. In other receivables, balance at year-beginning was RMB 1,729,904; debit amount was capital borrowed temporarily amounting to RMB 51,000,000, water and power expense distributed amounting to RMB 663,948; credit amount was accounts received amounting to RMB 51,000,000; balance at year-end was RMB 2,393,852. Sutai Clearing occupied the capital of Little Swan Company amounting to RMB 3,154,168 on average per month. 17. Wuxi Little Swan-Merlonic Dish-washer Co., Ltd. Wuxi Little Swan-Merlonic Dish-washer Co., Ltd. (hereinafter referred to as Dish-washer Company) was the controlling subsidiary of Little Swan Company. The current between Little Swan Company and Dish-washer Company was accounted in other receivables. In other receivables, balance at year-beginning was RMB 93,562,826; debit amount was loans and interests refunded instead amounting to RMB 128,880,000, accounts borrowed temporarily amounting to RMB 12,500,000 and sales of materials amounting to RMB 82,167; credit amount was accounts borrowed temporarily and received amounting to RMB 12,500,000 and transferred materials for canceling out liabilities amounting to RMB 126,403,430; balance at year-end was RMB 96,121,563. Dish-washer Company occupied the capital of Little Swan Company amounting to RMB 139,140,128 on average per month. 18. Wuxi Little Swan Property Construction Development Co., Ltd. Wuxi Little Swan Property Construction Development Co., Ltd. (hereinafter referred to as Property Development Company) is the share-controlling subsidiary of Little Swan Company. The current account between Little Swan Company and Property Development Company is settled in other accounts receivable. The balance at year-beginning of other accounts receivable is RMB 10,084,661, the occurred amount in debit is commodity sale of RMB 1,591,071, advance current account is RMB 5,141,296, the occurred amount in creditor is commodity purchase of RMB 2,735,221, project expense payable is RMB 1,751,381, current transfer account is RMB 10,156,506 and the balance at year-end is RMB 2,173,920. The average capital of Little Swan Company occupied by Property Development Company per month is RMB 10,407,436. 19. BSW Household Appliances Co., Ltd. BSW Household Appliances Co., Ltd. (hereinafter referred to as BSW) is the affiliated company of Little Swan Company. The current account between Little Swan Company and BSW is settled in other accounts receivable. The balance at year-beginning of other accounts receivable is RMB 23,358,828, the occurred amount in debit is Chinese wage receivable of RMB 1,200,000 and the balance at year-end is RMB 24,558,828. The average capital of Little Swan Company occupied by BSW per month is RMB 23,408,828. 20. Wuxi Lifanda Appliances Co., Ltd. Wuxi Lifanda Appliances Co., Ltd. (hereinafter referred to as Lifanda) is the affiliated company of Little Swan Company. The current account between Little Swan Company and Lifanda is settled in other accounts receivable. The balance at year-beginning of other accounts receivable is RMB 4,745,072, the occurred amount in debit is dividend receivable of RMB 1,588,918, and the balance at year-end is RMB 6,333,990. The average capital of Little Swan Company occupied by Lifanda per month is RMB 4,811,277. 21. Wuxi Little Swan Sale Co., Ltd. Wuxi Little Swan Sale Co., Ltd. (hereinafter referred to as Sale Company) is the share-controlling subsidiary of Little Swan Company. The current account between Little Swan Company and Sale Company is settled in other accounts receivable. The balance at year-beginning of other accounts receivable is RMB 2,593,526, the occurred amount in credit is received account and other of RMB 2,214,622 and the balance at year-end is RMB 378,904. The average capital of Little Swan Company occupied by Sale Company per month is RMB 1,258,117. 22. Wuxi Little Swan Refrigeration Appliances Co., Ltd. Wuxi Little Swan Refrigeration Appliances Co., Ltd. (hereinafter referred to as Refrigeration Appliances) is the share-controlling subsidiary of Little Swan Company. The current account between Little Swan Company and Refrigeration Appliances is settled in other accounts receivable. The balance at year-beginning of other accounts receivable is RMB 32,352,241, the occurred amount in debit is temporary borrowings of RMB 19,000,000, the occurred amount in credit is callback of borrowings of RMB 7,000,000 and the balance at year-end is RMB 44,352,241. The average capital of Little Swan Company occupied by Refrigeration Appliances per month is RMB 37,852,242. 23. Wuxi Little Swan Hubin Washing Co., Ltd. Wuxi Little Swan Hubin Washing Co., Ltd. (hereinafter referred to as Hubin Washing) is the share-controlling subsidiary of Little Swan Company. The current account between Little Swan Company and Hubin Washing is settled in other accounts receivable. The balance at year-beginning of other accounts receivable is RMB 1,840,000, the occurred amount in credit is current account transferred into Wuxi Little Swan Washing Investment Management Co., Ltd. (hereinafter referred to as Washing Investment, the share-controlling subsidiary of Little Swan Company) of RMB 1,840,000 and the balance at year-end is 0. The average capital of Little Swan Company occupied by Hubin Washing per month is RMB 1,150,000. 24. Wuxi Little Swan Washing Investment Management Co., Ltd. The current account between Little Swan Company and Washing Investment is settled in other accounts receivable. The balance at year-beginning of other accounts receivable is RMB 30,905, the current occurred amount in debit is balance transfer-in of Hubin Washing of RMB 1,840,000 and the balance at year-end is RMB 1,870,905. The average capital of Little Swan Company occupied by Washing Investment per month is RMB 720,905. 25. TOSHIBA Washing-machine (Wuxi) Co., Ltd. TOSHIBA Washing-machine (Wuxi) Co., Ltd. (hereinafter referred to as TOSHIBA Washing-machine Company) is the affiliated company of Little Swan Company. The current account between Little Swan Company and TOSHIBA Washing-machine Company is settled in other accounts receivable. The balance at year-beginning of other accounts receivable is 0, the current occurred amount in debit is lease expense of RMB 121,380, water and electronic expense of RMB 111,118 and sale of Washing-machine of RMB 13,038,452, the occurred amount in credit is received payment for goods of RMB 10,889,555 and the balance at year-end is RMB 2,381,395. The average capital of Little Swan Company occupied by Washing-machine Company per month is RMB 1,168,474. 26. Haikou Little Swan Trade Co., Ltd. Haikou Little Swan Trade Co., Ltd. (hereinafter referred to as Haikou Little Swan) is the wholly-owned subsidiary of Little Swan Group. The current account between Little Swan Company and Haikou Little Swan is settled in other accounts receivable. The balance at year-beginning of other accounts receivable is RMB 3,643,155, there is no occurred amount in the period and the balance at year-end is RMB 3,643,155. The average capital of Little Swan Company occupied by Haikou Little Swan per month is RMB 3,643,155. 27. Wuxi Little Swan Presision Casting Co., Ltd. Wuxi Little Swan Presision Casting Co., Ltd. (hereinafter referred to as Presision Casting) is the share-controlling subsidiary of Little Swan Company. The current account between Little Swan Company and Presision Casting is settled in other accounts receivable. The balance at year-beginning of other accounts receivable is RMB 858,351, the current occurred amount in debit is dividend receivable of RMB 4,342,398 and the balance at year-end is RMB 5,200,749. The average capital of Little Swan Company occupied by Presision Casting per month is RMB 1,039,285. 28. Wuxi Little Swan Advertisement Company Wuxi Little Swan Advertisement Company (hereinafter referred to as Advertisement Company) is the wholly-owned subsidiary of Little Swan Company. The current account between Little Swan Company and Presision Casting is settled in other accounts receivable. The balance at year-beginning of other accounts receivable is RMB -2,025,094, there is no occurred amount in the period and the balance at year-end is RMB -2,025,094. The average capital of Advertisement Company occupied by Little Swan Company per month is RMB 2,025,094. 29. Wuxi Little Swan Transportation Co., Ltd. Wuxi Little Swan Transportation Co., Ltd. (hereinafter referred to as Transportation Company) is the share-controlling subsidiary of Little Swan Company. The current account between Little Swan Company and Transportation Company is settled in other accounts receivable. The balance at year-beginning of other accounts receivable is RMB -169,260, the current occurred amount is transportation expense of RMB 274,905 and the balance at year-end is RMB 105,645. The average capital of Transportation Company occupied by Little Swan Company per month is RMB 157,806. 30. Wuxi Aerxi Plastic Products Co., Ltd, Wuxi Aerxi Plastic Products Co., Ltd, (hereinafter referred to as Aerxi Company) is the share-controlling subsidiary of Little Swan Company. The current account between Little Swan Company and Aerxi Company is settled in other accounts receivable. The balance at year-beginning of other accounts receivable is RMB 577,335, the occurred amount in debit is liquidation receivable from Aerxi Company, lease expense and income from material sale of RMB 1,901,850, the occurred amount in credit is received account of RMB 2,479,185 the balance at year-end is 0. The average capital of Aerxi Company occupied by Little Swan Company per month is RMB 519,307. 31. Little Swan Palaima Industrial Co., Ltd. Little Swan Palaima Industrial Co., Ltd. (hereinafter referred to as Palaima) is the wholly-owned subsidiary of Little Swan Company. The current account between Little Swan Company and Palaima is settled in other accounts receivable. The balance at year-beginning of other accounts receivable is RMB 5,847,410, there is no occurred amount in the period and the balance at year-end is RMB 5,847,410. The average capital of Little Swan Company occupied by Palaima per month is RMB 5,847,410. 32. Midaqi Little Swan Industrial Co., Ltd. Midaqi Little Swan Industrial Co., Ltd. (hereinafter referred to as Midaqi) is the wholly-owned subsidiary of Little Swan Company. The current account between Little Swan Company and Midaqi is settled in other accounts receivable. The balance at year-beginning of other accounts receivable is RMB 3,672,371, there is no occurred amount in the period and the balance at year-end is RMB 3,672,371. The average capital of Little Swan Company occupied by Midaqi per month is RMB 3,672,371. II. Particulars about the current capital between the marketing company and the controlling shareholder and other related parties were as follows: 1. Jiangsu Little Swan Group Co., Ltd. The transactions between the marketing company and Jiangsu Little Swan Group Co., Ltd were accounted in other accounts receivable. The balance in the beginning of the year of other accounts receivable was RMB 30,000. The debit amount RMB 20,309,255 was mainly used for current payment. The credit amount was RMB 20,422,393 received. The balance in the year-end was RMB -83,138. The marketing company occupied RMB 503,928 of Little Swan Group on average monthly. 2. Wuxi Little Swan Dry cleaning Machine Co., Ltd. The transactions between the marketing company and Dry Cleaning Machine Company were accounted in accounts payable. The balance in the beginning of the year of accounts payable was RMB 2, 396,416 and the debit amount included purchasing dry cleaning machines and accessories RMB15, 290,085 and current amount received in place RMB 14,000,000 and others RMB 121,302. The debit amount included separation of sales RMB 12,534,729 and payment for the commodities RMB 15,800,00 and others RMB 534,236. The balance in the year- end was RMB 2,938,838. The marketing company occupied RMB 2,426,120 of Dry Cleaning Machine Company on average monthly. 3. Wuxi Little Swan Kitchen Co., Ltd. Wuxi Little Swan Kitchen Co., Ltd.(hereinafter referred to as “Kitchen Company”)was holding subsidiary of Little Swan Group. The transactions between the marketing company and Kitchen Company were accounted in accounts payable. The balance in the beginning of the year of accounts payable was RMB- 6,514,909 and the credit amount for receiving capital in place was RMB 12,000,000 and third party transferred-in was RMB 17,400,178 and payment for purchasing commodities was RMB 7,835,305. The debit amount for sale was RMB 11,222,530 and for payment etc. was RMB 19,707,503. The balance in the year- end was RMB -209.459. Kitchen Company occupied RMB 8,640,057 of the marketing company on average monthly. 4. Wuxi Little Household Electrical Appliance Co., Ltd. Wuxi Little Household Electrical Appliance Co., Ltd.(hereinafter referred to as “Household Electrical Appliance”)was affiliated company of Little Swan Group. The transactions between Household Electrical Appliance and Little Swan Group were accounted in accounts payable. The balance in the beginning of the year of accounts payable was RMB- 27,899,839 and the credit amount for purchasing commodities was RMB 175,674,626 and received payment for commodities was RMB 135,700,000 and transfer of accounts paid in advance etc. was RMB 13,300.881. The debit amount included separation of sale RMB 13,410,899 and accounts receivable for discounts of air-conditioner RMB 43,599,777 and payment for commodities etc. RMB 241,862,709. The balance in the year- end was RMB -2,097,717. Household Electrical Appliance occupied RMB 20,321,184 of the marketing company on average monthly. 5. Wuxi Little Swan Central Air-conditioner Co., Ltd. The transactions between the marketing company and Central Air-conditioner were accounted in accounts receivable. The balance in the beginning of the year of accounts receivable was RMB -2,391,280 and the debt amount included separation of sales RMB 13,763,170 and accounts receivable for discounts of air-conditions RMB 14,004,531 and other payment etc. RMB 5,100,265. The credit amount included purchasing commodities RMB 6,465,469 and current payment received in place RMB 11,000,000. The balance in the year- end was RMB 13,011,217. The marketing company occupied RMB 1,376,680 of Central Air-conditioner on average monthly. 6. Wuxi (Jinzhou) Electrical Appliance Co., Ltd. Wuxi (Jinzhou) Electrical Appliance Co., Ltd.(hereinafter referred to as “Jinzhou Electrical Appliance”) was the holding subsidiary of Little Swan Group. The transactions between the marketing company and Jinzhou Electrical Appliance were accounted in accounts payable. The balance in the beginning of the year of accounts payable was RMB 204,098. The credit amount RMB 98,113,520 was mainly used for purchasing. The debit amount RMB 1,464,380 was mainly for sale and others amounts RMB 93,805,344 was mainly used for paying for the commodities. The balance in the year-end was RMB 3,047,894. The marketing company occupied RMB 9,000,290 of Jinzhou Electrical Appliance on average monthly. III. Particulars about current capital between Wuxi Little Swan Export and Import Co., Ltd., and the controlling shareholders and other related parties were as follows: 1. Jiangsu Little Swan Group Co., Ltd. The transactions of Export and Import Company and Little Swan Group were accounted in accounts receivable. The balance in the year begin of accounts receivable was RMB -284,534 and the debit amount for acting export included RMB 20,692,751 and the payment for current use RMB 16,022,134. The credit amount was RMB 30, 199, 680 received. The balance in the year-end was RMB 6,230,671. Little Swan Group occupied RMB 2,402,523 of Export and Import Company on average monthly. 2. Wuxi Little Swan Central Air-conditioner Co., Ltd. The transactions of Export and Import Company and Central Air-conditioner were accounted in accounts receivable. The balance in the year begin of accounts receivable was RMB 1,438,646. The debit amount for acting export was RMB 8,501,924 and credit amount was RMB 8,865,657 received. The balance in the year-end was RMB 1,074,913. Central Air-conditioner occupied RMB 1,317,617 of Export and Import Company on average monthly. 3. Wuxi Little Swan Kitchen Co., Ltd. The transactions of Export and Import Company and Kitchen Company were accounted in accounts payable. The balance in the year-begin of accounts payable was RMB 0. The credit amount for purchasing kitchen utensils was RMB 4,132,640 and debit amount includes payment for commodities RMB 1,863,440 and payment receivable for acting importing materials etc. RMB 895,850. The balance in the year-end was RMB 1,373,350. Export and Import Company occupied RMB 4,757 of Kitchen Company on average monthly. 4. Wuhan Little Swan Washing Machine Co., Ltd. The transactions of Export and Import Company and Wuhan Little Swan were accounted in accounts payable. The balance in the year-begin of accounts payable was RMB 86,776. The credit amount for purchasing washing machines was RMB 3,842,196 and debit amount includes payment for commodities and transportation RMB 2,591,732. The balance in the year-end was RMB 1,337,240. Export and Import Company occupied RMB 663,175 of Wuhan Little Swan on average monthly. 5. Little Swan (Jinzhou) Electrical Appliance Co., Ltd. The transactions of Export and Import Company and Jinzhou Electrical Appliance were accounted in accounts payable. The balance in the year-begin of accounts payable was RMB 778,740. The credit amount for purchasing frozen tanks was RMB 8,487,294 and debit amount includes payment for commodities RMB 7,356,926. The balance in the year-end was RMB 1,909,108. Export and Import Company occupied RMB 985,116 of Jinzhou Electrical Appliance on average monthly. 6. Little Swan (Jinzhou) Sanjin Electrical Appliance The transactions of Export and Import Company and Jinzhou Sanjin were accounted in accounts payable. The balance in the year-begin of accounts payable was RMB 3,540,648. The credit amount for purchasing washing machine was RMB 14,049,461 and debit amount includes payment for commodities, and for transportation in place RMB 165,663,541. The balance in the year-end was RMB 926,568. Export and Import Company occupied RMB 3,151,437 of Jinzhou Sanjinon average monthly. 7. Wuxi Little Swan Household Electrical Appliance The transactions of Export and Import Company and Household Electrical Appliance were accounted in accounts payable. The balance in the year-begin of accounts payable was RMB 0. The credit amount included for purchasing air-conditioners RMB 38,410,084 and for current payment RMB 5,000,000 received. The debit amount includes payment for commodities and payment for transportation paid in place totally RMB 33, 575,305 and current payment RMB 5,000,000. The balance in the year-end was RMB 4,834,779. Export and Import Company occupied RMB 3,961,360 of Household Electrical Appliance on average monthly. IV. Particulars about the current capital between Wuxi Little Swan Real Estate Construction Development Co., Ltd. and Controlling Shareholders and other related parties were as follows: 1. Wuxi Little Swan Household Electrical Appliance The rent account between Real Estate Development Company and Household Appliance was accounted in the accounts receivable. The balance of accounts receivable was RMB 0 and the debit amount for rents receivable was RMB 2,953,336 and the credit amount for rents received was RMB 2,953,336 and the balance in the year-end was RMB 0. Household Appliance occupied RMB 246,111 of Real Estate Development Company on average monthly. 2. Jiangsu Little Swan Group The current transactions between Real Estate Development Company and Household Appliance were accounted in others payable. The balance of others payable in the year beginning was RMB -637 and the debit amount was RMB 11,633,703 and the credit amount RMB 12,736,141 was mainly current capital and the balance in the year-end was RMB –1,103,075. Little Swan Group occupied RMB 2,507,201 of Real Estate Development Company on average monthly V. Particulars about the current capital between Jiangsu Little Swan Sanjiang Electrical Appliance co., Ltd. and controlling shareholders and other related parties were as follows: 1. Jiangsu Little Swan Group The current capital between Sanjiang Electrical Appliance and Little Swan Group was accounted in the accounts receivable. The balance in the year beginning of accounts receivable was RMB 18,490,774 and the debit amount includes payments received RMB 9,857,141 and third party transfer RMB 9,247,501. The balance in the year-end was RMB –613,868. Little Swan Group occupied RMB 10,307,938 of Sanjiang Electrical Appliance on average monthly. 2. Wuhan Little Swan Washing Machine Co., Ltd. The transactions between Sanjiang Electrical Appliance and Wuhan Little Swan were accounted in accounts receivable. The balance in the year beginning of accounts receivable was RMB 3,750,963 and the debit amount was for purchasing electrical engines RMB 18,794,063 and the credit amount was for payment received etc. RMB 12,509,243. The balance in the year-end was RMB 10,035,783. Wuhan Little Swan occupied RMB 8,385,233 of Sanjiang Electrical Appliance on average monthly. 3. Little Swan (Jingzhou) Sanjin Electrical Appliance Co., Ltd. The transactions between Sanjiang Electrical Appliance and Jinzhou Sanjin were accounted in accounts receivable. The balance in the year beginning of accounts receivable was RMB 3,722,593 and the debit amount was for selling electrical engines RMB 31,635,603 and the credit amount included payment received RMB 23,514,493 and transfer RMB 3,000,000. The balance in the year-end was RMB 8,843,703. Jinzhou Sanjin occupied RMB 9,730,033 of Sanjiang Electrical Appliance on average monthly. 4. Wuxi Little Swan Central Air-Conditioner Co., Ltd. The transactions between Sanjiang Electrical Appliance and Central Air-Conditioner were accounted in accounts receivable. The balance in the year beginning of accounts receivable was RMB 566,521 and the debit amount was for selling electrical engines RMB 1,589,170 and the credit amount was payment received RMB 1,121,000. The balance in the year-end was RMB 1,034,691. Central Air-Conditioner occupied RMB 719,522 of Sanjiang Electrical Appliance on average monthly. VI. Particulars about current capital between Wuxi Little Swan Sutai Washing Machinery Co., Ltd. and controlling shareholders and other related parties were as follows: The transactions between Sutai Washing and Kitchen were accounted in accounts receivable. The balance in the year beginning of accounts receivable was RMB 0 and the debit amount was for selling washing machinery RMB 92,491 and for current payment RMB 3,000,000 and the credit amount included payment received RMB 56,223 and current payment RMB 3,000,000. The balance in the year-end was RMB 36,268. Kitchen occupied RMB 15,319 of Sutai Washing on average monthly. VII. Particulars about current capital between Wuxi Little Swan Huaying Electrical Appliance Co., Ltd. and controlling shareholders and other related parties were as follows: 1. Wuxi Little Swan Central Air-conditioner Co., Ltd. The transactions between Wuxi Little Swan Central Air-conditioner Co., Ltd. and Huaying Electrical Appliance were accounted in accounts receivable. The balance in the year beginning of accounts receivable was RMB 344,804 and the debit amount was for selling electrical engines RMB 2,173,612 and the credit amount was payment received RMB 1,873.360. The balance in the year-end was RMB 645,056. Central Air-Conditioner occupied RMB 492,777 of Huaying Electrical Appliance on average monthly. 2. Wuxi Little Swan Household Electrical Appliance Co., Ltd. The transactions between Household Electrical Appliance and Huaying Electrical Appliance were accounted in accounts receivable. The balance in the year beginning of accounts receivable was RMB 217,011 and the debit amount was for selling electrical engines RMB 3,255,397 and the credit amount was payment received RMB 2,908,520. The balance in the year-end was RMB 563,888. Household Electrical Appliance occupied RMB 792,944 of Huaying Electrical Appliance on average monthly. 3. Wuxi Little Swan Export and Import Co., Ltd. The transactions between Export and Import Company and Huaying Electrical Appliance were accounted in accounts receivable. The balance in the year beginning of accounts receivable was RMB 1,446,869 and the debit amount was for selling electrical engines RMB 17,323,030 and the credit amount was payment received RMB 17,013,404. The balance in the year-end was RMB 1,756,495. Household Electrical Appliance occupied RMB 2,315,225 of Huaying Electrical Appliance on average monthly. VIII. Particulars about current capital between Wuxi Feiling Electronics Co., Ltd. and controlling shareholders and other related parties were as follows: 1. Wuxi Little Swan Household Electrical Appliance The transactions between Feiling Electronics and Household Appliance were accounted in accounts receivable. The balance in the year beginning of accounts receivable was RMB 0 and the debit amount included the balance of accounts receivable of Jiake Electronics transferred in amounting to RMB 3,689,904 and the amount for selling electronic control components RMB 454,667 and the credit amount was mainly payment received RMB 4,471,498. The balance in the year-end was RMB –326,927. Household Electrical Appliance occupied RMB 446,408 of Feiling Electronics on average monthly. 2. Wuxi Little Swan Central Air-conditioner Co., Ltd. The transactions between Feiling Electronics and Central Air-conditioner were accounted in accounts receivable. The balance in the year beginning of accounts receivable was RMB 0 and the debit amount was RMB 959,735 including the balance of accounts receivable of Jiake Electronics transferred-in and the amount for selling electronic control components and the credit amount was mainly payment received RMB 573,900. The balance in the year-end was RMB 385,835. Central Air-conditioner occupied RMB 157,690 of Feiling Electronics on average monthly. IX. Current of funds between Wuxi Little Swan Advertisement Company and the controlling shareholder and other related parties: The current between Wuxu Little Swan Advertisement Company (“Advertisement Company”) and the Company was settled in other receivables. The balance of other receivables at the year-begin was RMB 129,482; there was no occurred amount in this period; the balance at the year-end was RMB 129,482. Jiangsu Little Swan Group Co., Ltd. averagely occupied the funds of Advertisement Company amounting to RMB 129,482 per month. After auditing, we considered that there existed the aforesaid current of funds, advertisement and aid expenses paid in advance and debts repaid between Little Swan Company and the controlling company and other related parties, except for the aforesaid situations, we found that Little Swan Company did not pay such period expenses as wages, welfare and insurance etc. for the controlling shareholders and other related parties, and did not provide commission loans for the related parties by the bank and non-finance institution, and did not entrust the controlling shareholder and other related parties to conduct investment activities, and did not invoice the trade acceptance draft without veritable trading background for the controlling shareholder and other related parties. The said explanation just provided to Little Swan Company’s Board of Directors and Shareholders’ General Meeting and China Securities Regulatory Commission. The result that the Company did not be used properly is independent of certified public accountant and Certified Public Accountants executing the said auditing. Jiangsu Gongzheng Certified Public Accountants Co., Ltd. Apr. 23, 2004 4. Opinion issued by Independent Directors on the Company’s external guarantees Opinion of Independent Directors on External Guarantees In accordance with the regulations of “the Content and Format of Annual Report of the No. 2 of the Guide Line on Contents and Format of Information Disclosure of Listed Companies Publicly Issuing Securities” and the requirements of “Notification on Standardizing Funds Current between Listed Companies and the Related Parties and Several Problem of External Guarantee Provided by Listed Companies”, as independent directors of the Company, we checked and supervised the external guarantees of the Company during the report period, and now we issue independent opinion on special explanation of the external guarantee events: According to the auditing result of 2003 annual financial report and inquiry conclusion on guarantee events form the relevant personnel, ended the end of 2003, the Company’s accumulative amount of external guarantees was RMB 551.6825 million, of which, the amount of illegal guarantees was RMB 508.1825 million, the most of the amounts belonged to the problem left over by history. Of which, the subsidiary of Wuxi Little Swan Co., Ltd. provided a guarantee amounting to RMB 229.8 million to Jiangsu Little Swan Group Co., Ltd., the controlling shareholder of the Company; and Wuxi Little Swan Co., Ltd. provided a guarantee amounting to RMB 7 million to Wuxi Limin Porcelain Plant, the non-controlling shareholder of the Company; the Company has repaid the loans in advance in April 2004 or relieved the guarantee. Except for this, for the illegal guarantees provided by the Company to the subsidiaries, the Company is adopting the active and effective measures to reduce year after year based on 30% range on the illegal guarantees in accordance with the requirements of document [2003] No. 56 promulgated by CSRC in order to safeguard the interests of the Company and the shareholders. Independent Director: Yang Jiaye, Lv Wei, Zhang Aimin Apr. 23, 2004 SECTION X. FINANCIAL REPORT Attachment SECTION XI. DOCUMENTS FOR REFERENCE 1. Annual report carried with the signature of Chairman of the Board; 2. Accounting statements carried with the signature and seal of legal representative, chief financial supervisor and person in charge of accounting; 3. Originals of auditor’s report carried with seal of Certified Public Accountants as well as signature and seal of certified public accountants. 4. Originals of all documents and manuscripts of public notice disclosed on China Securities, Securities Times, Wen Wei Po and Ta Kung Pao. Board of Directors of Wuxi Little Swan Company Limited Apr. 27, 2004 WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES (Incorporated in the People’s Republic of China) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 TOGETHER WITH AUDITORS' REPORT The reader is advised that this report has been prepared originally in Chinese. In the event of a conflict between this report and the original Chinese version or difference in interpretation between the versions of the report, the Chinese language report shall prevail. Mailing address: 12th Floor, Shui On Plaza 333 Huai Hai Zhong Lu Shanghi 200021 People's Republic of China Telephone +86 (21) 6386 3388 Facsimile +86 (21) 6386 3300 AUDITORS’ REPORT To the Shareholders of Wuxi Little Swan Company Limited We have audited the accompanying consolidated balance sheet of Wuxi Little Swan Company Limited (“the Company”) and its subsidiaries (“the Group”) as of 31 December 2003 and 31 December 2002 and the related consolidated statements of income, changes in shareholders’ equity and cash flow for the year then ended. These consolidated financial statements set out are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audits in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion. In our opinion, the accompanying consolidated financial statements mentioned above present fairly in all material respects, the financial position of the Group as of 31 December 2003 and 31 December 2002 and of the results of its operations and cash flows of the Group for the year then ended in accordance with International Financial Reporting Standards. Otherwise, we draw attention to the readers that as we mentioned in the auditors’ report on 24 April 2003, owing to the incompleteness of the Group’s accounting records and lack of enough reliable evidence to support the accuracy and completeness of the balance of account receivable and advance from client and the properness of the bad debt provision provided as of 31 December 2002 and 2001, and also we were unable to assess the accuracy and completeness of the retrospective adjustment of selling expense of 2001 and 2000 and we did not express an audit opinion on those consolidated financial statements of 2002 and 2001. As disclosed in Note 26, in 2003, the Group reconciled the balance of account receivables with customers, checked the accuracy and completeness of the selling expenses. As a result, the Group retrospectively adjusted certain figures and restated the consolidated financial statements of 2002 accordingly. We tested the restated consolidated financial statements and noted it provided a reasonable basis for us to express audit opinion on the accompanying restated consolidated financial statements of 2002. This paragraph has no impact on the auditors’ opinion we expressed this year. PricewaterhouseCoopers China Limited Shanghai, the People’s Republic of China 23 April 2004 WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in Renminbi (“RMB”) thousands, except for profit/(loss) per share) 2003 2002 (Restated Note 26) Sales, net 1,22 2,901,200 2,996,469 Cost of sales (2,283,487) (2,395,109) Gross profit 617,713 601,360 Distribution costs (390,638) (584,670) Administrative expenses (114,826) (186,072) Provision for bad and doubtful debts 3 (12,252) (306,530) Provision for inventory obsolescence 3 (38,466) (103,045) Impairment provision for property, plant and equipment 3 - (41,872) Other operating expenses, net (36,795) (38,542) Gain on sale of discontinuing operation 2 6,413 - Profit/(loss) from operations 3 31,149 (659,371) Finance costs, net 4 (23,770) (38,304) Share of results of associates 12 46,957 22,155 Profit/(loss) before tax 54,336 (675,520) Income tax expense 6 (15,807) (14,441) Group profit/(loss) before minority interests 38,529 (689,961) Minority interests 20 (11,567) 7,259 Net profit/(loss) 26,962 (682,702) Profit/(loss) per share – Basic 7 RMB 0.07 RMB (1.87) – Diluted 7 Not applicable Not applicable -2 - The accompanying accounting policies and notes form an integral part of these consolidated financial statements. WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands) Dec 31, 2002 (Restated, Notes Dec 31, 2003 Note 26) ASSETS Non-current assets Leasehold land 9 66,511 42,592 Property, plant and equipment 10 675,903 727,299 Intangible assets 11 16,269 21,476 Investments in associates 12 194,050 164,416 Available-for-sale investments 13 47,924 50,336 1,000,657 1,006,119 Current assets Inventories 14 362,298 628,033 Receivables, advance to suppliers and other current assets 15 735,055 900,144 Cash and cash equivalents 16 954,190 694,953 2,051,543 2,223,130 Total assets 3,052,200 3,229,249 SHAREHOLDERS’ EQUITY Share capital 19 365,104 365,104 Reserves 19 718,139 700,086 1,083,243 1,065,190 Minority interests 20 76,834 79,819 LIABILITIES Current liabilities Trade and other payables 17 1,226,607 1,428,352 Current tax liabilities 29,826 (40,402) Borrowings 18 635,690 696,290 Total liabilities 1,892,123 2,084,240 Total equity and liabilities 3,052,200 3,299,249 -3 - The accompanying accounting policies and notes form an integral part of these consolidated financial statements. WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands) Reserves Statutory Discretionary Statutory Accumulated Share Capital common common public losses/ capital surplus reserve reserve welfare retained Total funds funds funds earnings Note 19(a) Note 19(b) Note 19(c) Note 19(d) Note 19(e) Note 19(f) (Restated) Balance at 1 January 2002 -As previously reported 365,104 1,087,895 210,837 204,224 110,818 (79,684) 1,899,194 -Cumulative effects of prior year adjustments (Note 26) - - - - - (146,191) (146,191) -As restated 365,104 1,087,895 210,837 204,224 110,818 (225,875) 1,753,003 Dividend relating to 2001(Note 8) - - - - - (5,111) (5,111) Net profit -As previously reported - - - - - (872,212) (872,212) -Cumulative effects of prior year adjustments (Note 26) - - - - - 189,510 189,510 -As restated - - - - - (682,702) (682,702) Appropriations for the year -As previously reported - - 7,729 - 209 (7,938) - -As restated - - 7,729 - 209 (7,938) - Balance at 1 January 2003 -As previously reported 365,104 1,087,895 218,566 204,224 111,027 (964,945) 1,021,871 -Cumulative effects of prior year adjustments (Note 26) - - - - - 43,319 43,319 -As restated 365,104 1,087,895 218,566 204,224 111,027 (921,626) 1,065,190 -Termination of subsidiaries (Note 2) - - (5,939) - (2,970) - (8,909) -Net profit for the year - - - - - 26,962 26,962 -Reserve to offset loss(Note 19(f)) - (299,218) (169,285) (204,224) - 672,727 - -Appropriations for the year - - (669) - (356) 1,025 - Balance at 31 December 2003 365,104 788,677 42,673 - 107,701 (220,912) 1,083,243 -4 - The accompanying accounting policies and notes form an integral part of these consolidated financial statements. -5 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands) 2002 (Restated, 2003 Note 26) Cash flows from operating activities Cash generated from operations 21 517,424 265,760 Interest paid (40,263) (52,199) Tax paid (77,387) (89,507) Net cash from operating activities 399,774 124,054 Cash flows from investing activities Purchase of property, plant, equipment, intangible assets and lease hold improvement (82,369) (69,739) Acquisition of available-for-sale investments and Investments in associates 12 (5,604) - Receipts of dividend from associates 12 19,603 1,499 Interest received 16,073 13,543 Disposal of available-for-sale investments and Investments in associates 2,644 3,000 Disposal of property, plant and equipment 10 21,601 313 Disposal of subsidiary, net of cash disposed 2 4,483 - Net cash used in investing activities (23,569) (51,384) Cash flows from financing activities Proceeds from borrowings (956,090) (1,056,600) Repayments of borrowings 895,490 1,143,990 Dividends paid to group shareholders (8,993) (149,509) Dividends paid to minority interests 20 (7,678) (6,921) Increase in minority interest 20 7,303 9,262 Net cash from (used in) financing activities (69,968) (59,778) Net increase in cash and cash equivalents 306,237 12,892 Cash and cash equivalents at the beginning of year 626,453 613,561 Cash and cash equivalents at the end of year 16 932,690 626,453 The accompanying accounting policies and notes form an integral part of these consolidated financial statements. -6 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) GENERAL INFORMATION Wuxi Little Swan Company Limited (referred to as the “Company”) was formerly a state-collectively-owned enterprise founded in 1958 in Jiangsu Province of the People’s Republic of China (“PRC”). It was reorganized into a joint stock limited liability company in 1993 and registered in Wuxi, Jiangsu. The registered office of the Company is No.1 Hanjiang Road, National Hi-tech Industrial Development Zone, Jiangsu Province. The Company and its subsidiaries are collectively referred to as the “Group”. Since 2002 the principle activities of the Group are manufacture and sale of washing machines, sale of air conditioners, refrigerators and other household appliances produced by the subsidiaries of Jiangsu Little Swan Group. Approved by the directors on the sixth meeting of the fourth board dated 11 November 2003, the Group stopped the business of selling air-conditioner (note 22(ii)). The Group’s operating assets are primarily located in the PRC. The directors of the Company confirm Jiangsu Little Swan Group (referred to as the “Holding Company”), a stated-owned enterprise incorporated in the PRC, as its holding company. The Company’s domestic Renminbi ordinary shares (“A share”) and domestic listed foreign investment shares (“B share”) are listed on the Shenzhen Stock Exchange. -7 - The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below: A Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as published by the International Accounting Standards Board. These consolidated financial statements have been prepared under the historical cost conversion with the exception of fair value measurement of certain financial assets and liabilities and provision of impairment for assets. This basis of accounting differs from that used in the Group’s statutory accounts (“Statutory Accounts”) which are prepared in accordance with PRC Accounting Standards for Business Enterprises and the Accounting System for Business Enterprises. The adjustments made to conform Statutory Accounts of the group to IFRS are shown in Supplementary Information. The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current event and actions, actual results could differ from those estimates. B Group accounting (i) Subsidiaries Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up or liabilities undertaken at the date of acquisition plus cost directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of net assets of the subsidiary acquired is recorded as goodwill. Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated; unrealized losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the Group. The results of operations and net assets of certain subsidiary companies are not material to those of the Group, hence, they have been excluded from consolidation. Investments in subsidiaries that are excluded from consolidated financial statements are accounted for by the equity method. B Group accounting (continued) -8 - (ii) Associates Investments in associates are accounted for by the equity method of accounting. Associates are entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognize further losses, unless the Group has incurred obligations or made payments on behalf of the associates. C Foreign currency Items included in the consolidated financial statements of the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to the Group. The consolidated financial statements are presented in RMB, which is the measurement currency of the Group. Transactions in other currencies are translated into RMB at the exchange rates prevailing at the dates of transactions. Monetary assets and liabilities denominated in other currencies at the consolidated balance sheet date are re-translated at the exchange rates prevailing at that date. Non-monetary assets and liabilities in other currencies are translated at historical rates. Exchange differences arising from changes in exchange rates subsequent to the transaction dates are included in consolidated income statement. D Leasehold land Leasehold land represents land use fees prepaid for long leasehold land and is classified as operating leases. The prepaid lease payments are amortized over the 50 years lease periods on a straight-line basis. E Property, plant and equipment and depreciation Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment loss. The initial cost of an asset comprises its purchase price, construction cost and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Depreciation is calculated using the straight-line method to write off the cost, after taken into account the estimated residual value of 3%-10%, of each asset over its expected useful life. The expected useful lives are as follows: Buildings 30-40 years Plant and machinery 5-18 years Equipment and motor vehicles 5-12 years The useful lives of assets and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefit from items of property, plant and equipment. E Property, plant and equipment and depreciation (continued) -9 - Expenditure incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance and overhaul costs, is recognized as an expense in the year in which it is incurred. In situations where it is probable that an expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset beyond its originally assessed standard of performance, the expenditure is capitalized as an additional cost of the asset. When assets are sold or retired, their costs and accumulated depreciation and accumulated impairment losses are eliminated from the accounts and any gain or loss resulting from their disposal is included in the consolidated income statement. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. F Construction-in-progress Construction-in-progress represents buildings and plant under construction and machinery and equipment under installation and testing, and is stated at cost. This includes cost of construction, plant and equipment and other direct costs plus borrowing costs which include interest charges and exchange differences arising from foreign currency borrowings used to finance these projects during the construction period, to the extent these are regarded as an adjustment to interest costs. Construction-in-progress is not depreciated until such time as the assets are completed and ready for their intended use. G Intangible assets Intangible assets are measured initially at cost. Intangible assets are recognized only if it is probable that the future economic benefits that are attributable to the assets will flow to the Group; and the cost of the asset can be measured reliably. After initial recognition, intangible assets are measured at cost less accumulated amortization and any accumulated impairment losses. Intangible assets are amortized on a straight-line basis over the best estimate of their useful lives. The amortization period and the amortization method are reviewed periodically to ensure that the method and period of amortization are consistent with the expected pattern of economic benefits from intangible assets. Expenditure for research is recognised as an expense when incurred. H Impairment of long term assets Property, plant and equipment and other non-current assets, including intangible assets, investments in associates and available-for-sale investments are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. The net selling price means the amount acquired under the fair transactions. The value in use means the carrying value of the cash flow in when disposing the assets at the end of usage. H Impairment of long term assets (Continued) For the purposes of assessing impairment, assets are grouped at the lowest level for which there -10 - are separately identifiable cash flows. I Investments The Group classified its investments in debt and equity securities into the following categories: trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets; for the purpose of these financial statements short term is defined as 3 months. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date which are classified as current assets; during the period the Group did not hold any investments in this category. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; and are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading and available-for-sale investments are subsequently carried at fair value. For the available-for-sale investments that have a quoted market price in an active market, the fair value is based on quoted bid prices; for available-for-sale investments that does not have a quoted market price, but the fair value can be reliably determined, the fair value is constructed on the basis of the market price of the similar financial instrument or derived from cash flow models; for available-for-sale investments that the fair value can not be reliably determined, are carried at cost less accumulated impairment loss. Held-to-maturity investments are carried at amortised cost using the effective yield method. Realised and unrealised gains and losses arising from changes in the fair value of trading and available-for-sale investments are included in the consolidated income statement in the period in which they arise. J Inventories Inventories are stated at the lower of cost and net realisable value. Cost, calculated on the weighted average basis, comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. K Trade receivables -11 - Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is an objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. L Cash and cash equivalents For the purposes of the cash flow statement, cash represents cash on hand and deposits with banks, which can be withdrawn on demand. Cash equivalents represent short-term, highly liquid investments, which are readily convertible into known amounts of cash with original maturity period of three months or less and are subject to an insignificant risk of change in value. M Borrowings and borrowing costs Borrowings are initially recognized at the proceeds received, net of transaction costs incurred. They are subsequently stated at amortised costs using the effective yield method; any difference between net proceeds and redemption value is recognized in the consolidated income statement over the period of the borrowings. Borrowing costs include interest charges and other costs incurred in connection with arranging borrowings and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Borrowing costs are expensed as incurred, except when they are directly attributable to the acquisition, construction of property, plant and equipment that necessarily takes a substantial period of time to get ready for its intended use in which case they are capitalized as part of the cost of that asset. Capitalization of borrowing costs commences when expenditures for the asset and borrowing costs are being incurred and the activities to prepare the asset for its intended use are in progress. Borrowing costs are capitalized at the weighted average cost of the related borrowings until the asset is ready for its intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded. N Deferred income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. O Pension scheme Pursuant to the PRC laws and regulations, contributions to the basic old age insurance -12 - for the Group’s local staff are made monthly to a government agency based on certain percentage of the standard salary set by the provincial government. The government agency is responsible for the pension liabilities relating to such staff on their retirement. The Group accounts for these defined contributions on an accrual basis. The Group has no obligation for the payment of pension benefits beyond the contribution described above. P Provisions A provision is recognized when, and only when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation. When a provision is no longer probable that an outflow of resources embodying economic benefit will be required to settle the obligation, the provision will be reversed. Q Revenue recognition Revenue comprises the invoiced value for the sales of goods net off rebates and discounts, and after eliminating sales within the Group. Provided it is probable that the economic benefits associated with a transaction will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognized on the following basis: (1) Sales of goods Revenue is recognized when the significant risks and rewards of ownership of goods have been transferred to the buyer. (2) Interest income Interest income is recognized on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity. (3) Dividend income Dividend income is recognized when the right to receive payment is established. R Dividends Dividends are recorded in the Group’s consolidated financial statements as liability in the period in which they are approved by the Group’s shareholders. S Segment Business segments provide products or services that are subject to risks and returns that are different from those of other business segments. Geographical segments -13 - provide products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments. The Group conduct the business within one business segment and the Group also operates within one geographical segment because its revenue is primarily generated in the PRC and its assets are located in the PRC. T Subsequent events Post year-end events that provide additional information about the Group’s position at the balance sheet date or those that indicate the going concern assumption is not appropriate (adjusting events), are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes when material. V Fundamental errors On rare occasions, an error has such a significant effect on the financial statements of one or more prior periods that those financial statements can no longer be considered to have been reliable at the date of their issue. These errors are referred to as fundamental errors. The correction of fundamental errors that relate to prior periods requires the restatement of the comparative information or the presentation of additional pro forma information. -14 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) FINANCIAL RISK MANAGEMENT (1) Financial risk factors and financial risk management The Group activities expose it to a variety of financial risks, including credit risk, liquidity risk, interest rate risk and foreign exchange risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. (i) Credit risks The Group has no significant concentration of credit risk with any single counter party or group counter parties. The Group has policies in place to ensure that sales of products are made to customers with an appropriate credit history. The Group has policies that deposits are put in reputable banks. (ii) Liquidity risks Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. (iii) Interest rate risk The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group has no significant interest-bearing assets. The Group policy is to maintain all its borrowings in fixed rate instruments. (iv) Foreign exchange risk The Group has no significant foreign exchange risk due to limited foreign currency transactions. -15 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) FINANCIAL RISK MANAGEMENT (continued) (2) Estimation of fair value (1) Cash and cash equivalent The carrying amount of cash and cash equivalents approximates their fair value due to these financial instruments either carry a current rate of interest or have a short period of time between the origination of the cash deposits and their expected maturity. (2) Trade and other receivables and payables The carrying amount of trade and other receivables and payables, which are all subject to normal trade credit terms, approximates their fair value. (3) Due from and due to related parties The carrying amount of due from and due to related parties, which are all subject to normal trade credit terms, approximates their fair value. (4) Borrowings As of 31 December 2003, the carrying amount of borrowings approximates their fair value as these borrowings bear quoted market interest rates. (5) Available-for-sale investments The carrying amount of available-for-sale investments cannot be reliably estimated and disclosed because these investments do not have quoted market prices in an active market and other methods reasonably estimating fair value for these investments are not available. -16 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 1998 Sales, net The Group’s revenue is mainly from sale of washing machines, air conditioners, refrigerators and other household appliances in the People’s Republic of China. 2003 2002 (Restated) Sales of washing machine 1,752,289 1,741,476 Sales of air conditioner 261,123 573,971 Sales of refrigerator 257,179 203,290 Sales of spare parts 642,736 486,476 2,913,327 3,005,213 Less: surtaxes (12,127) (8,744) 2,901,200 2,996,469 -17 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 3 Discontinuing operation (1) On 31 August 2003, the company’s subsidiary Wuxi ALC Plastic Co., Ltd was announced to terminate operation. As at 31 August 2003, the termination results, cash flows and net assets were as follows: 8 months to 12 months 31 August to 31 Dec 2003 2002 Sales - 3,660 Operating cost - (3,275) Loss from operations - 385 Administrative expenses - (848) Finance cost - 11 Loss before tax - (452) Tax - (26) Loss after tax - (478) Operating cash flows - (166) Investing cash flows - - Financing cash flows - 11 Total cash flows - (155) 31 August 12 December 2003 2002 Property, plant and equipment 1,323 1,323 Current assets 5,376 5,376 Total assets 6,699 6,699 Total liabilities (2,264) (2,264) Net assets 4,435 4,435 -18 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) -19 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 2 Discontinuing operation (continued) The loss on disposal was determined as follows: Net assets sold 4,435 Equity interest held by the company 50% Net assets held by the company 2,218 Disposal income (1,069) Net loss on disposal 1,149 Net cash inflow on sale 1,069 -20 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 2 Discontinuing operation (continued) (2) On 19 December 2003, the company publicly announced to terminate the operation of Wuxi ASP Electronics Co., Ltd. As at 19 December 2003, the termination results, cash flows and net assets were as follows: 12 months 12 months to 19 Dec to 31 Dec 2003 2002 Sales 94,037 140,551 Operating cost (72,172) (107,040) Profit from operations 21,865 33,511 Administrative expenses (6,049) (12,427) Finance cost (1,940) (4,633) Profit before tax 13,876 16,451 Tax (3,451) (5,534) Profit after tax 10,425 10,917 Operating cash flows (4,662) 7,303 Investing cash flows - - Financing cash flows (1,940) (4,633) Total cash flows (6,602) 2,670 19 December 31 December 2003 2002 Property, plant and equipment 26,225 36,656 Current assets 115,240 116,178 Total assets 141,465 152,834 Total liabilities (94,709) (108,461) Net assets 46,756 44,373 -21 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) -22 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 2 Discontinuing operation (continued) The gain on disposal was determined as follows: Net assets sold 46,756 Equity interest held by the company 74.42% Net assets held by the company 34,796 Disposal income (42,358) Net gain on disposal (7,562) Net cash inflow on sale Gain/(loss) on disposal 3,414 -23 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 4 Profit/(loss) before tax from operations The following items have been included in arriving at profit/(loss) before tax: 2003 2002 (Restated) Depreciation on property, plant and equipment (Note 10) 82,653 76,304 Impairment of property, plant and equipment (Note 10) - 41,872 Loss on disposal of property, plant and equipment 5,223 12,688 Amortization of leasehold land (note 9) 1,345 1,208 Amortization of intangible assets (note 11) 2,908 2,576 Research and development expenditure 2,756 4,269 Available-for-sale investment – loss on sale - 2,737 Inventory: Costs of inventories recognized as expense 1,132,414 1,283,734 Provision for inventory obsolescence 38,466 103,045 Receivables – provision for bad and doubtful debts 12,252 306,530 Provision on available-for-sale investments 1,702 10,422 Subsidy income (2,462) (3,200) Staff costs (Note 5) 106,191 115,323 5 Finance costs, net 2003 2002 (Restated) Interest expense 40,263 52,199 Interest income (16,073) (13,543) 24,190 38,656 Net foreign exchange gain (420) (352) 23,770 38,304 6 Staff costs 2003 2002 (Restated) Wages and salaries 74,068 73,917 Other welfare 32,123 41,406 106,191 115,323 -24 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) The average number of full time employees in 2003 was 3,277 (2002: 3,636). 7 Income tax expense (i) Details of enterprise income tax (“EIT”) charged were as follows: 2003 2002 (Restated) Current income tax expense 12,483 13,985 Share of tax of associates (Note 12) 3,324 456 15,807 14,441 (ii) The reconciliation of the statutory tax rate to the effective tax rate was as follows: 2003 2002 (Restated) Profit/loss before tax 54,336 (675,520) Tax at applicable tax rate of 15% (2002: 33%) 8,150 (222,922) Effect of lower tax rates applicable to certain subsidiaries (1,045) (4,468) Effect of higher tax rates applicable to certain subsidiaries 6,061 - Effect of losses from the Company and certain subsidiaries 2,135 241,831 Effect of the income released from tax 506 - Tax charge 15,807 14,441 As a high technology companies registered in Wuxi National High-Tech Industrial Development Zone, Jiangsu Province, the company received the approval from local authorities for a preferential tax rate of 15%, according to the relative regulation published by the State Administration of Taxation. -25 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 6 Income tax expense (continued) (v) As of 31 December 2003, the company did not recognize the debt items of deferred tax because of the high uncertainty that there will be enough taxable profit to reverse these deferred assets. As of 31 December 2003, the significant debt items of unrecognized deferred tax were as follows: 2003 2002 Impairment of property, plant and equipment 6,281 13,818 Provision for inventory obsolescence 5,679 41,346 Provision for bad and doubtful debts 70,782 151,677 Prepaid expenses and the others 3,063 6,176 Total 85,805 213,017 1 Profit/(loss) per share Basic profit/(loss) per share is calculated by dividing the net profit/(loss) attributable to shareholders by the weighted average number of ordinary shares in issue during the year. 2003 2002 (Restated) Net profit/(loss) 26,962 (682,702) Weighted average number of ordinary shares in issue (in thousands) 365,104 365,104 Basic gain/(loss) per share 0.07 (1.87) The diluted profit/(loss) per share was not calculated, because no potential dilutive shares existed during the year. 8 Dividend Proposed by the board of directors on the meeting dated 23 April 2004, the company will pass dividend of year 2003. There is no dividend allocated in respect of 2002. -26 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 9 Leasehold land 2003 2002 (Restated) Opening net book amount 42,592 49,573 Additions 17,889 - Transfer-out to construction in progress - (14,098) Transfer-in from intangible assets (Note 11) 7,375 8,325 Amortization charge (Note 3) (1,345) (1,208) Closing net book amount 66,511 42,592 At 31 December Cost 73,314 48,050 Accumulated amortization (6,803) (5,458) Net book amount 66,511 42,592 Leasehold land represented the land use fee prepaid for long lease land where the Company and its subsidiaries’ certain plants are situated. Since all land in the PRC is owned by the state or is subject to collective ownership, the risks and rewards of the parcel of land remain with the state or collective. As a result, such lease payments are accounted for under operating leases and are charged to the income statement on a straight-line basis over the lease period of 50 years. -27 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 10 Property, plant and equipment Plant and Vehicles Construction Buildings machinery and in progress Total equipment Year ended 31 December 2002 (Restated) Opening net book amount 237,612 431,577 17,024 91,126 777,339 Additions 1,238 22,977 3,755 39,069 67,039 Transfer-in from leasehold land (Note 9) - - - 14,098 14,098 Reclassification 37,466 61,651 3,653 (102,770) - Disposals (164) (2,590) (4,099) (6,148) (13,001) Accumulated impairment provision (Note 3) - (40,067) - (1,805) (41,872) Depreciation charge (Note 3) (10,134) (62,735) (3,435) - (76,304) Closing net book amount 266,018 410,813 16,898 33,570 727,299 At 31 December 2002 (Restated) Cost 304,230 706,701 31,715 35,375 1,078,021 Accumulated depreciation (38,212) (255,821) (14,817) - (308,850) Accumulated Impairment provision - (40,067) - (1,805) (41,872) Net book amount 266,018 410,813 16,898 33,570 727,299 Year ended 31 December 2003 Opening net book amount 266,018 410,813 16,898 33,570 727,299 Additions 21,420 20,345 3,057 16,512 61,334 Transfer in of discontinuing operation Fixed assets 25,661 11,530 535 - 37,726 Reclassification 645 13,276 18 (13,939) - Disposals (16,859) (4,442) (2,147) (3,376) (26,824) Disposals of discontinuing operation Fixed assets (Note 2) (26,476) (13,833) (670) - (40,979) Depreciation charge (Note 3) (11,929) (67,076) (3,648) - (82,653) Closing net book amount 258,480 370,613 14,043 32,767 675,903 At 31 December 2003 Cost 308,621 733,577 32,508 34,572 1,109,278 Accumulated depreciation (50,141) (322,897) (18,465) - (391,503) Accumulated Impairment provision - (40,067) - (1,805) (41,872) Net book amount 258,480 370,613 14,043 32,767 675,903 For the year ended 31 December 2003, no borrowing costs were capitalized in the construction in progress (2002: nil). -28 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 11 Intangible assets 2003 2002 (Restated) Opening net book amount 21,476 29,677 Additions 5,076 2,700 Transfer-in from leasehold land (Note 9) (7,375) (8,325) Amortization charge (Note 3) (2,908) (2,576) Closing net book amount 16,269 21,476 At 31 December Cost 52,342 54,641 Accumulated amortization (36,073) (33,165) Net book amount 16,269 21,476 Intangible assets is mainly acquired technology know how. 12 Investments in associates 2003 2002 (Restated) Opening net book amount 164,416 144,216 Additions 5,604 - Share of results before tax 46,957 22,155 Share of tax (Note 6) (3,324) (456) Dividend received (19,603) (1,499) Closing net book amount 194,050 164,416 -29 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 12 Investments in associates (continued) The principal associates, all of which are unlisted entities incorporated in the PRC, are as follows: Group’s Registered Country of equity capital Name of subsidiaries incorporation interest (in thousands) Principal activities Wuxi Lifanda Electric Manufacture and sale Appliances Co., Ltd. PRC 42.46% USD 2,500 of electrical appliances BSW Household Appliances PRC 40% USD 29,275 Manufacture and sale Co., Ltd. (“BSW of household Household”) appliances Wuxi Matsushita Refrigeration PRC 19% JPY 4,800,000 Manufacture and sale Co., Ltd. (a) of refrigerator and its accessory Wuxi Matsushita Refrigeration PRC 19% JPY 2,980,000 Manufacture and sale Compressor Co., Ltd. of compressor of refrigerator and its accessory GuangZhou Antaida Material PRC 20% RMB 10,000 Provision of Logistic Distribution Co., Ltd. services Toshiba washing machine PRC 25% USD 375 Manufacture and sale Wuxi Co., Ltd. of washing machine Little Swan Mobile PRC 25% RMB 2,500 Manufacture and sale communication Co., Ltd. of mobile telephone (a) As the Group actually has significant influence to Wuxi Matsushita Refrigeration Co., Ltd. and Wuxi Matsushita Refrigeration Compressor Co., Ltd., the group considers these two companies as the associates of the Group. 13 Available-for-sale investments 2003 2002 (Restated) Unlisted shares, at cost 59,524 63,284 Less: Provision for impairment in value (20,418) (18,716) 39,106 44,568 Other investments 8,818 5,768 47,924 50,336 The above investments are stated at costs deducted impairment provision, which approximate to their fair values. -30 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 14 Inventories 2003 2002 (Restated) Raw materials 124,308 155,661 Work in progress 24,736 20,622 Finished goods 251,112 577,042 400,156 753,325 Less: provision for inventory obsolescence (37,858) (125,292) 362,298 628,033 15 Receivables, advance to suppliers and other current assets 2003 2002 (Restated) Trade receivables 793,523 778,909 Other receivables 144,268 254,970 Less: provision for bad and doubtful debts (471,878) (459,626) 465,913 574,253 Notes receivable 96,142 154,752 Advances to suppliers 62,639 84,404 Amounts due from fellow subsidiaries (Note 22(iii)) 16,230 41,693 Amounts due from associates (Note 22(iii)) 33,023 28,100 Amounts due from holding company (Note 22(iii)) 50,032 13,571 Amounts due from unconsolidated subsidiaries (Note 22(iii)) 11,076 3,371 735,055 900,144 -31 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 16 Cash and cash equivalents 2003 2002 (Restated) Cash at bank and in hand 327,037 222,840 Time deposits in banks 627,153 472,113 954,190 694,953 Less: Restricted Cash (Note 18) (21,500) (68,500) 932,690 626,453 The effective interest rates on time deposits range from 0.01% to 4.5% (2002: 1.58% to 5.20%) per annum. 17 Trade and other payables 2003 2002 (Restated) Trade payables 561,598 654,145 Advances from customers 206,943 338,347 Notes payable 264,812 216,247 Other payables 139,242 148,297 Amounts due to fellow subsidiaries (Note 22(iii)) 51,728 54,020 Amounts due to unconsolidated subsidiaries (Note 22(iii)) - 7,986 Dividend payable 2,284 9,310 1,226,607 1,428,352 18 Borrowings 2003 2002 (Restated) Short-term bank borrowings 635,690 696,290 Short-term bank borrowings of RMB 21,500,000 is secured by time deposit (2002: RMB 68,500,000, Note 16); RMB 407,000,000 is guaranteed by the Holding Company (2002: nil). The remaining is unsecured. It bears interest at rates ranging from 4.78% to 6.05% (2002: 4.54% to 6.90%) per annum. The carrying amounts of short-term bank borrowings approximate to their fair value. -32 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) -33 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 19 Share capital and reserves (a) Share capital As of 31 December 2003, the outstanding share capital represented state-owned shares, legal person shares, A shares and B shares. The B shares rank pari passu in all respects with the state-owned shares and A shares except that state-owned shares and A shares can only be owned and traded by investors in the PRC. The total registered number of ordinary shares is 365,103,840 shares (2002: 365,103,840 shares) with a par value of RMB 1 per share. All shares are issued and fully paid. The issued shares (in thousands) may be analyzed as the following: 2003 2002 (Restated) Unlisted State-owned shares 101,629 101,629 Domestic legal person shares 64,118 64,118 165,747 165,747 Listed B shares 127,357 127,357 A shares 72,000 72,000 199,357 199,357 365,104 365,104 (c) Capital surplus In accordance with relevant regulations of the PRC and the articles of association of the Company, the followings shall be recorded as capital reserve: (i) share premium; (ii) donations; (iii) appreciation arising from revaluation of assets; and (iv) other items in accordance with the articles of association and relevant regulations in the PRC. Capital reserve may be utilized to offset prior years’ losses or for issuance of bonus shares. Share premium represents net assets acquired from promoters in excess of par value of the state-owned shares and the legal person shares issued, and proceeds from the issuance of A shares and B shares in excess of their par value, net of underwriting commissions and professional fees. -34 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 19 Share capital and reserves (continued) (d) Statutory common reserve funds In accordance with the Company Law and the Company’s articles of association, the Company and its subsidiaries shall appropriate 10 percent of their annual statutory net profit (after offsetting any prior years’ losses) to the statutory surplus reserve account individually. When the balance of such reserve fund reaches 50 percent of each entity’s share capital, any further appropriation is optional. The statutory common reserve funds can be utilized to offset prior years’ losses or to increase capital after properly approved. However, except for offset prior years’ losses, such statutory common reserve funds must be maintained at a minimum of 25 percent of share capital after such usage. Appropriation to such reserve is not recognized for the net statutory loss of the Company for the year ended 31 December 2002. The company fully reversed the statutory common reserve funds appropriated in 2002 after correcting the material accounting fault and adjusting the losses for the year ended 31 December 2002 retrospectively. (e) Discretionary common reserve funds In accordance with the Company Law and the Company’s articles of association, appropriations to the discretionary common reserve funds are recommended by the Company and its subsidiaries’ board of directors and approved by the shareholders. This fund can only be used, upon approval by the relevant authorities, to offset accumulated losses or to increase capital. The company and its subsidiaries have allocated none of net profit to the discretionary common reserve funds for the years ended 31 December 2003 and 2002. (f) Statutory public welfare reserve funds In accordance with the Company Law and the Company’s articles of association, the Company and its subsidiaries are also required to appropriate 5 percent to 10 percent of their annual statutory net profit (after offsetting any prior years’ losses) to a statutory public welfare fund to be utilized for employees’ common welfare. -35 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 19 Share capital and reserves (continued) (g) Accumulated losses The distribution of dividends is made in accordance with the Company's articles of association and the recommendation of the Board of Directors and also need the approval by shareholders in general meetings. Pursuant to the Notice [1995] 31 issued by Ministry of Finance on 24 August, 1995, the amount of profit available for distribution to the shareholders will be determined based on the lower of unappropriated profit in the financial statements determined in accordance with (i) PRC accounting standards and regulations, and (ii) IFRS. Approved by the directors on the seventeenth meeting of the third board dated 24 April 2003, the Company offset the accumulated losses of RMB672,727,420 against the statutory common reserve funds of RMB169,284,971, discretionary common reserve funds of RMB204,224,608 and capital surplus of RMB299,217,841 respectively. As of 31 December 2003, the Group’s accumulated losses amounted to RMB 220,912,000 approximately (2002: RMB 921,626,000 approximately, note 26). 20 Minority interests 2003 2002 (Restated) At 1 January 79,819 84,737 Acquisition 7,303 9,262 Share of net (loss) profit of subsidiaries 11,567 (7,259) Dividend paid (7,678) (6,921) Disposal (14,177) - At 31 December 76,834 79,819 . -36 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 21 Cash generated from operations 2003 2002 (Restated) Net profit/(loss) 26,962 (682,702) Adjustments for: Minority interests (Note 20) 11,567 (7,259) Income tax expense (Note 6) 15,807 14,441 Depreciation (Note 10) 82,653 76,304 Amortization of intangible assets (Note 11) 2,908 2,576 Amortization of leasehold land (Note 9) 1,345 1,208 Provision for bad and doubtful debts 12,252 306,530 Provision for inventory obsolescence 38,466 103,045 Provision for available-for-sale investments 1,702 10,422 Loss on sale of property, plant and equipment 5,223 12,688 Gain on disposal of discontinuing operation (Note 2) (6,413) - Impairment charge for property, plant and equipment - 41,872 (Note 10) Finance costs, net (Note 4) 24,190 38,656 Available-for-sale investments – loss on sale - 2,737 Share of results before tax of associates (Note 12) (46,957) (22,155) Changes in working capital: - trade and other receivables 198,136 (110,008) - inventories 227,269 (199,074) - payables (77,686) 676,479 Cash generated from operations 517,424 265,760 22 Related party transactions and balances Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. -37 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 22 Related party transactions and balances (continued) (i) The principal related parties are as follows: Name of related parties Relationship with the Company Jiangsu Little Swan Group Holding company Wuxi Lifanda Electric Appliances Co., Ltd. Associate BSW Household Appliances Co,. Ltd. Associate Wuxi Matsushita Refrigeration Co., Ltd. Associate Wuxi Matsushita Refrigeration Compressor Co., Ltd. Associate Toshiba Washing Machine Wuxi Co., Ltd Associate Wuxi Little Swan Kitchen and Toilet Appliances Co., Ltd. Controlled by the same holding company Wuxi Little Swan Dryer Co., Ltd. Controlled by the same holding company Wuxi Little Swan Central Air-conditioner Co., Ltd. Controlled by the same holding company Wuxi Little Swan Polka Air-conditioner Co., Ltd. Controlled by the same holding company Wuxi Littile Swan Construction Material Co., Ltd. Controlled by the same holding company Wuxi Little Swan Household Appliances Co., Ltd. Controlled by the same holding company Wuxi Little Swan Tai Hotpot King Restaurant Controlled by the same holding company Haikou Little Swan Trading Co., Ltd Controlled by the same holding company Little Swan (Jingzhou) Sanjing Electric Appliances Co., Ltd. Controlled by the same holding company Little Swan (Jingzhou) Electric Appliances Co., Ltd. Controlled by the same holding company Wuxi China East Construction Material Mall Controlled by the same holding company Wuxi Little Swan Jiangbo Mould Manufacturing Co., Ltd. Unconsolidated subsidiary Wuxi Little Swan Washing Investment Management Co., Ltd. Unconsolidated subsidiary Wuxi Little Swan Transportation Co., Ltd. Unconsolidated subsidiary Wuxi Little Swan Hubin Washer Co., Ltd. Unconsolidated subsidiary -38 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 22 Related party transactions and balances (continued) (xxi) Related party transactions (a) Purchases of goods 2003 2002 (Restated) Purchases of goods from holding company 3,056 111,221 Purchases of goods from associates - Wuxi Matsushita Refrigeration Co., Ltd. - 2,537 Purchases of goods from fellow subsidiaries - Wuxi Little Swan Household Appliance Co., Ltd 354,648 - - Wuxi Little Swan Construction Material Co., Ltd. 2,215 - - Wuxi Little Swan Polka Air-conditioner Co., Ltd. - 588,364 - Wuxi Little Swan (Jingzhou) Sanjin Electric Appliances Co., Ltd 146,408 129,318 - Wuxi Little Swan Central Air-conditioner Co., Ltd. 17,464 67,959 - Wuxi Little Swan Dryer Co., Ltd. 30,378 37,926 - Wuxi Little Swan Kitchen and Toilet Appliances Co., Ltd. 40,768 17,895 - Little Swan (Jingzhou) Electric Appliances Co., Ltd. 101,908 4,422 693,789 845,884 Purchases of goods from unconsolidated subsidiaries - Wuxi Little Swan Mould Manufacturing Co., Ltd. 28,445 11,398 Total purchases from related parties 725,290 971,040 -39 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 22 Related party transactions and balances (continued) (xxii) Related party transactions (continued) (b) Sales of goods 2003 2002 (Restated) Sales of goods to holding company 17,686 92,296 Sales of goods to associates - Wuxi Matsushita Refrigeration Compressor Co., Ltd. 16,897 10,264 - BSW Household Appliances Co., Ltd. - 4,180 - Toshiba Washing Machine Wuxi Co., Ltd. 11,146 - 28,043 14,444 Sales of goods to fellow subsidiaries - Wuxi Little Swan Household Appliances Co., Ltd. 2,782 - - Wuxi Little Swan Polka Air-conditioner Co., Ltd. - 11,089 - Wuxi Little Swan Central Air-conditioner Co., Ltd. 1,858 10,101 - Little Swan (Jingzhou) Sanjin Electric Appliances Co., Ltd. - 8,534 4,640 29,724 Sales of goods to unconsolidated subsidiaries - Wuxi Little Swan Washing Investment Management - 490 Co., Ltd. Total sales of goods to related parties 50,369 136,954 (c) Interest paid to holding company 2003 2002 (Restated) Interest paid to holding company - 8,613 (d) Directors’ remuneration In 2003 the total remuneration of the directors was RMB1,350,000 (2002: RMB1,350,000). -40 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 22 Related party transactions and balances (continued) (i) Related party transactions (continued) (e) Losses from abnormal selling price burdened by related parties Approved by the directors on the sixth meeting of the fourth board dated 11 November 2003, Jiangsu Little Swan Marketing and Sales Co., Ltd. terminated the business of selling air-conditioner. The losses incurred from sales discount in January 2003 to 9 August 2003 were all burdened by the three subsidiaries: Wuxi Little Swan Polka Air-conditioner Co., Ltd., Wuxi Little Swan Central Air-conditioner Co., Ltd. And Wuxi Little Swan household Appliances Co., Ltd., the subsidiaries issue sales return invoice according to the certification of tax bureau, and Jiangsu Little Swan Marketing and Sales Co., Ltd. reverse cost of sales according to the invoice, total amounting to RMB 49,234,000. (ii) Related party balances 2003 2002 (Restated) Amounts due from holding company 50,032 13,571 Amounts due from associates (Note 15) - BSW Household Appliances Co., Ltd. 25,799 23,465 - Wuxi Matsushita Refrigeration Compressor Co., Ltd. 3,837 3,412 - Wuxi Lifanda Electric Appliances Co., Ltd 1,006 1,006 - Wuxi Matsushita Refrigeration Co., Ltd. - 217 - Toshiba Washing Machine Wuxi Co., Ltd. 2,381 - 33,023 28,100 Amounts due from fellow subsidiaries (Note 15) - Wuxi Little Swan Polka Air-conditioner Co., Ltd. - 28,180 - Wuxi Little Swan Dryer Co., Ltd. 174 9,733 - Ha-ikou Little Swan Trading Co., Ltd - 3,643 - Wuxi Little Swan Tai Hotpot King Restaurant - 137 - Wuxi Little Swan Central Air-conditioner Co., Ltd. 16,056 - 16,230 41,693 Amounts due from unconsolidated subsidiaries (Note 15) -41 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) - Wuxi Little Swan Hubin Washer Co., Ltd. 5 1,871 - Wuxi Little Swan washing Investment Management Co., Lt - 1,500 - Wuxi Little Swan Mould Manufacturing Co., Ltd. 11,071 - 11,076 3,371 22 Related party transactions and balances (continued) (ii) Related party balances (continued) 2003 2002 (Restated) Amounts due to fellow subsidiaries (Note 17) - Wuxi Little Swan Dryer Co., Ltd. 2,939 - - Wuxi Little Swan Household Appliances Co., Ltd. 2,038 - - Little Swan (Jingzhou) Sanjing Electric Appliances Co., Ltd. 29,473 32,516 - Wuxi Little Swan Kitchen and Toilet Appliances Co., Ltd. 11,508 18,843 - Wuxi Little Swan Central Air-conditioner Co., Ltd. - 1,979 - Little Swan (Jingzhou) Electric Appliances Co., Ltd. 5,152 682 - Wuxi Little Swan Polka Air-conditioner Co., Ltd. 618 - 51,728 54,020 Amounts due to unconsolidated subsidiaries (Note 17) - Wuxi Little Swan Mould Manufacturing Co., Ltd. - 7,157 - Wuxi Little Swan Transportation Co., Ltd. - 829 - 7,986 -42 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 23 Post balance sheet event On 15 April 2004, the Company signed a joint venture contract with Wuxi Guolian Development (Group) Co., Ltd., to set up Wuxi Little Swan Dishwasher Co., Ltd., the Company contributes RMB 29,890,000, representing 49% of the registered capital and Wuxi Guolian Development (Group) Co., Ltd. contributes RMB 31,110,000, representing 51% of the registered capital. The joint venture company is engaged in the production and sales of dishwashers, washing machines, other household equipments and related parts. -43 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 24 Principal subsidiaries Particulars of the Company’s subsidiaries, all of which were established and operate in the PRC, are as follows: Equity Interest Registered held by the Capital Name of subsidiary company ‘000 Principal activities Wuxi ALC Plastic Co., Ltd. (a) 50% USD 560 Manufacture and sale of light diffusers and plastic products Wuxi ASP Electronics Co., Ltd. (a) 74.42% USD 2,150 Manufacture and sale of computer control components for washing machine Wuxi Feiling Electronics Co., Ltd. (a) 51% USD 918 Manufacture and sale of computer control components for washing machine Wuxi Little Swan Advertising Company 100% RMB 1,000 Advertising Wuxi Little Swan Property 92.1% RMB 20,966 Property construction Construction and Development Co., Ltd. Wuxi Little Swan Sales Company (b) 95% RMB 10,000 Sale of electrical appliances, motor vehicles and spare parts Wuxi Little Swan Import and Export 75% RMB 30,000 Import & Export activities Company Jiangsu Little Swan San Jiang Electrical 51% RMB 14,800 Manufacture and sale of electrical appliances Appliances Manufactory Company Wuxi Little Swan Maloni Dishwasher 75% USD12,000 Manufacture and sale of dishwashers Co., Ltd. (c) Wuxi Huayin Electric Appliances Co., Ltd. 75% USD6,000 Manufacture and sale of electric engines for household appliances and digital engines Wuxi Little Swan Sutai Washing Machine 75% USD6,000 Manufacture and sale of commercial Co., Ltd. washing machine, dryer and spare parts Little Swan Freezer Co., Ltd. (b) 75% RMB 20,000 Sale of refrigerator and other freezer equipment Wuxi Little Swan TianAi Electrical 90%RMB 5,000 Sale of washing machine and drying machine Appliances Co., Ltd. (b) Wuxi Little Swan High-Grade Casting 75% USD5,800 Manufacture and sale of high-grade casting of Co., Ltd. compressor that its basic line is refrigerator and air-condition Wuxi Little Swan Pottery Co., Ltd. 90% RMB 3,000 Manufacture, process and sale of tube and shell of pottery electric power and electronic and its accessory. Process of metal Wuxi Little Swan - Fuji Cleaning 75% USD4,000 Manufacture and sale of dryer equipment and Equipment Co., Ltd. spare parts Jiangsu Little Swan Marketing and 52.5% RMB19,500 Sale of electrical appliances Sales Co., Ltd. (d) -44 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 24 Principal subsidiaries (continued) ( ) Approved by the directors on the seventeenth meeting of the third board dated 24 April 2003, Wuxi ALC plastic Co., Ltd., one of the Company’s subsidiary, declared to liquidate as it’s operation period was expired. Wuxi ASP Electronics Co., Ltd., one of the company’s subsidiary, declared to liquidate as its operation period was expired. On the meanwhile, a new company, Wuxi Feiling Electronics Co., Ltd. (“Wuxi Feiling”) was set up. The principle activities of Wuxi Feling are software development, manufacture and sale of electronic equipment. The total investment of Wuxi Feiling is USD2,500,000, and the registered capital is USD1,800,000 (the Company invested USD918,000, 51% share). ( ) Approved by the directors on the fourteenth meeting of the third board dated 16 August 2002, Wuxi Little Swan Sales Company, Little Swan Freezer Co., Ltd. and Wuxi Little Swan TianAi Electrical Appliances Co., Ltd. declared to liquidate. As of 31 Dec 2003, the total assets and total liabilities of these three subsidiaries is approximate RMB 5,721,000 and RMB 77,949,000 respectively. There’s no sales income in year 2003 and the total operating expense is approximate RMB 703,000, which caused the total loss before tax amounted RMB 703,000 approximately. The total cash-out form operating activities in year 2003 is approximate RMB 1,176,000. Till 23 April 2004, the liquidation process was not finished. ( ) Approved by the directors on the nineteenth meeting of the third board dated 24 June 2003, Wuxi Little Swan Maloni Dishwasher Co., Ltd. Declared to liquidated. As at December 31, 2003, the total asset of the company is about RMB 153,655,000, total liability about RMB 265,426,000. In year 2003, the total sales of the company is about RMB 2,433,000, sales expense is about RMB 26,511,000, and the net loss before tax is about RMB 39,508,000. Net cash out-flow generated from operation is about RMB 10,520,000, net cash out-flow of investment activity is about RMB 3,191,000. Till 23 April 2004, the liquidation process has finished. ( ) Approved by the directors on the sixth meeting of the fourth board dated 11 November 2003, Jiangsu Little Swan Marketing and Sales Co., Ltd. terminated its selling business of air-conditions. In year 2003, sales income of air-conditions business was about RMB 261,123,000 (2002: RMB 573,971,000), cost of sales was about RMB 240,452,000 (2002: RMB 504,920,000), selling expense was about RMB 26,851,000 (2002: 134,074,000), and net loss before tax was about RMB 6,180,000 (2002: RMB 65,023,000) 25 Contingent liabilities The Group has no significant contingent liabilities as of 31 December 2003. -45 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 26 Prior year adjustments In May 2003, the Group reconciled the balance of account receivable with the customer and adjusted the ending balance of account receivable, bad-debt provision, current tax liabilities, account payable, advance from client, inventory, and other liabilities as at 2001 and 2002 retrospectively. Due to these adjustments, the accumulated losses as of 1 January 2003 and 2002 were increased by approximately RMB 43,319,000 and RMB 102,297,000 respectively. In year 2003, the Group checked the selling expense of year 2002, year 2001 and previous years, and retrospectively adjusted the selling expense of year 2002, year 2001 and previous years according to the result. Due to these adjustments, the accumulated losses as of 1 January 2002 were increased by approximately RMB 43,894,000. The Group restated the comparative figures of 2002. 27 Segment reporting The Group conducts its business within one business segment – the business of manufacturing and sale of washing machines, air conditioners, refrigerators and other household appliances in the PRC. The Group has prepared any segment income statement during the year ended 31 December 2003. The Group also operates within one geographical segment because its revenues are primarily generated in the PRC and its assets are located in the PRC. Accordingly, no geographical segment data is presented. 28 Approval of financial statements The consolidated financial statements were approved for issuance by the board of directors of the Company on 23 April 2004. -46 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 and 2002 (All amounts in RMB thousands unless otherwise stated) SUPPLEMENTARY INFORMATION THE ADJUSTMENT MADE TO CONFORM ACCOUNTS PREPARED UNDER PRC ACCOUNTING REGULATIONS (“PRC GAAP”) TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) AND OTHER ADJUSTMENTS. Net profit/(loss) Shareholders’ equity 2003 2002 2003 2002 (Restated) (Restated) Under PRC GAAP - As current year reported 35,990 (418,430) 1,106,830 1,218,425 - Prior year’s retrospective adjustment - (146,373) - (129,740) - Restated 35,990 (564,803) 1,106,830 1,088,685 Adjustments to conform with IFRS - Unrealised loss on consolidation of subsidiaries - (53,564) - - - Consolidation scope difference (2,518) (44,044) (29,200) (35,618) - Reverse/(accrual) for salary (6,510) (20,291) 17,031 23,541 - Negative goodwill on certain subsidiaries - - (11,418) (11,418) Under IFRS 26,962 (682,702) 1,083,243 1,065,190 -47 -