东旭光电(000413)宝石Ｂ2004年年度报告（英文版）

Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2004 -1- Important Notes The Board of Directors of the Company hereby guarantees that there are no misstatement, misleading representation or important omissions in this report and shall assume joint and several liability for the authenticity, accuracy and completeness of the contents hereof. The board chairman of the Company Mr. Dong Qingxiang, general manager Mr. Song Hongbo and chief accountant Mr. Zhou Yumao represent and warrant the financial report in this annual report is true and complete. -2- Table of Contents Chapter 1 Brief Introduction of the Company 4 Chapter 2 Highlights of Accounting Data and Business Data 5 Chapter 3 Particulars about the Changes of Share Capital and Shareholders 7 Chapter 4 Directors, Supervisors, Senior Executives and Staff 14 Chapter 5 Control Structure of the Company 24 Chapter 6 Brief Introduction of Shareholders’ General Meeting 26 Chapter 7 Report of the Board of Directors 28 Chapter 8 Repot of the Supervisory Committee 45 Chapter 9 Important Events 47 Chapter 10 Financial Reports 51 Chapter 11 List of Documents Available for Inspection 51 -3- Chapter 1 Brief Introduction of the Company (I) Statutory name of the Company In Chinese :石家庄宝石电子玻璃股份有限公司 In English : Shijiazhuang Baoshi Electronic Glass Co., Ltd. Abbreviation of English name: SJZBS (II) Legal Representative: Dong Qingxiang (III) Secretary of the Board of Directors: Luo Lina Securities affair representative: Wang Hua Contact address: 2 Huaqing Street, Zhongshan East Road, Shijiazhuang, Hebei Province (the Securities Dept. of the Company) Tel: 0311-6044705 Fax: 0311-6041503 E-mail:bsdz@heinfo.net (IV) Registered Address: No.9, Huanghe Road, Shijiazhuang High-tech Industrial Development Area, Shijiazhuang, Hebei Province Office Address: No.9, Huanghe Road, Shijiazhuang High-tech Industrial Development Area, Shijiazhuang, Hebei Province Zip Code: 050035 E-mail: baoshi@mx.hebei.net.cn (V) Newspapers for Information Disclosure: China Securities Daily, Hong Kong Commercial Daily Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn The place for preparing and placing the annual report: Securities Dept. of the Company VI. Stock exchange for listing: Shenzhen Stock Exchange Stock abbreviation: Baoshi A, Baoshi B Stock code: 000413, 200413 (VII) Other Relevant Information -4- 1. The date when and the place where the Company made its first registration: December 26, 1992 Shijiazhuang City 2. Registration No. of Legal Entity Business License: 1300001001778 3. Tax Registration No.: 130102104395983 4. The name and office address of the Certified Public Accountants engaged by the Company: Domestic Certified Public Accountants: Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd. Address: 11/F, Pricewaterhouse Coopers Center ,No.202 HuBin Road, ,Shanghai. Overseas Certified Public Accountants: Pricewaterhouse Coopers China Co., Ltd. Business Address: New York, U.S.A. NY 10185 –1448 P.O Box 1448 Chapter 2 Highlights of Accounting Data and Business Data (I) Main profit indicators of the report year (consolidated financial statement) RMB Total profit 24,487,976 Net profit 28,360,348 Net profit after deducting non-recurring gains and 15,305,528 losses Profit from key business 30,959,519 Profit from other businesses 13,501,624 Operating profit -13,118,851 Investment income 37,125,138 Subsidy income - Net amount of non-operating income/expenditure 481,689 -5- Net cash flow from operating activities -63,863,849 Net increase of cash and cash equivalents 1,629,331 Note: The amount of the items of (RMB) non-recurring gains and losses deducted 1. Disposal of Long-term equity （481,889） investment ,Fund assets, Construction-in-process and income form other long-term assets. 2. Fund possession cost collected （3,791,067） 3. Non-operating expenses 200 4. Writeback of provision for impairment （1,499,456） of assets made in previous years 5. Income tax expenses retum （7,282,608） II. The net profit calculated pursuant to Chinese accounting standards and International Accounting Standards (IAS) and the notes to the net profit difference 2004 RMB'000 Pre-tax profit pursuant to IAS 30,188 Adjustment items: Governmental appropriation of special administration 1,828 fund Pre-tax profit pursuant to Chinese accounting standards 28,360 and system III Main Accounting Data and Financial Indicators over the Past Three Years as at the End of the Report Period Unit:RMB Item /year 2004(consolidated) 2003(consolidated) 2002(consolidated) Income from key business 112,932,152 80,896,915 53,621,716 Net profit 28,360,348 22,070,871 29,198,154 Total assets 1,344,608,017 1,412,218,041 1,505,567,156 Shareholders’ equity 629,714,616 599,526,291 577,455,420 Earnings per share 0.074 0.058 0.076 Net assets per share 1.64 1.57 1.51 Net assets per share after adjustment 1.62 1.54 1.49 Net cash flows per share from operating activities -0.17 -0.45 -0.06 Return on net assets (%) 4.50% 3.68% 5.06% -6- Return on equity after 2.43% 1.37% 5.40% deducting non-recurring gains and losses (%) IV Attached Schedule of Profit Statement Profit in the report period Return on net assets (%) Earnings per share (RMB) Fully diluted Weighted Fully diluted Weighted average average Profit from key business 4.92 5.04 0.08 0.08 Operating profit -2.08 -2.14 -0.03 -0.03 Net profit 4.50 4.50 0.07 0.07 Earnings per share after deducting non-recurring gains 2.43 2.49 0.04 0.04 and losses V. Particulars about Changes of Shareholders’ Equity during the Report Period Unit: RMB Item Share Capital common Surplus Statutory Retained profit Total capital reserve reserve public welfare shareholders’ (’0000share fund equity s) Balance at 38300 536,433,509 27,454,78 - -347,362,006 599,526,291 beginning 8 of the period Increase in - 599,526,291 - - 28,360,348 30,188,325 this period Decrease in - - - - - - this period Balance at 38300 538,261,486 27,454,78 - -319,001,658 629,714,616 end of the 8 period Reasons of - Governmental - - - change appropriation Net profit of special increase administration fund Chapter 3 Particulars about Changes in Share Capital and Shareholders (I) The changes of share capital of the Company The statement of changes of share capital: (in shares) -7- Before the Increase/decrease this time (+ , - ) After the change Share Bonus Capitaliz Issuin Others change allotm shares ation of g ent common additio reserve nal fund shares (Ⅰ) Non-negotiable Shares 233410500 233410500 1.Promoters’ shares: including 230410500 230410500 State-owned shares 3000000 3000000 Domestic corporate shares Foreign corporate shares Others 2. Raised corporate shares 4500000 4500000 3. Staff shares 4. Preferred shares or others 17100 -600 -600 16500 Total non-negotiable shares 237927600 -600 -600 237927000 Ⅱ. Negotiable Shares 1. Domestically listed RMB 45072400 +600 +600 45073000 common shares 2. Domestically listed 100000000 100000000 foreign-capital shares 3. Overseas listed foreign-capital shares 4. Others Total negotiable shares 145072400 +600 +600 145073000 Ⅲ. Total shares 383000000 383000000 II Share issuance and listing 1.The Company did not issue new shares in the previous three years by the end of the report period. 2. In the report period, the frozen shares held by the senior executives of -8- the Company decreased by 600 shares and negotiable A shares increased by 600 shares. Its reason: 1600 shares and 500 shares of the Company respectively held by the original directors of the Company Lu Fengyi and Wang Xi were unfrozen. 1500 shares of the Company bought by the current director of the Company Ye Huifeng in secondary market were frozen. III Particulars about shareholders 1. As of December 31, 2004, the Company had 25130 shareholders of A shares and 16165 shareholders of B shares. 2. The particulars of the shareholding of the top ten shareholders of the Company (As of December 31, 2004) Increase or Number of Number of decrease in shares held Proportion of pledged or Name of shareholder the report at the end of total share frozen Type of share period period capital (%) shares (shares) (shares) (shares) State-owned (1) Shijiazhuang Baoshi Electronic 0 230410500 60.16 0 Group Co., Ltd. shares (2) DAIWA SECS SMBC HONG KONG LTD-CLIEMS 0 6500000 1.70 Unknown B shares (3) China Electronic Import and Export 0 2000000 0.52 Unknown Corporate Corporation shares (4) Zhonghua Hebei Import and Export 0 1000000 0.26 Unknown Corporate Company shares (5) Shijiazhuang Trust Investment Co. 0 1000000 0.26 Unknown Corporate shares -9- (6) Chen Yongquan 345600 885362 0.23 Unknown B shares (7) He Kebing 743437 743437 0.19 Unknown B shares (8) Jiang Fengmei 0 543400 0.14 Unknown B shares (9) Shanghai Yibaohang Trade Co., Ltd. 0 473500 0.12 Unknown A shares (10) Wang Ximing 0 466000 0.12 Unknown B shares Note: (1)Shijiazhuang Baoshi Electronic Group Co., Ltd. (the Group Co.), the shareholder holding over 5% (including 5%) of the total shares of the Company, holds 230.4105 million shares of the Company. Such shares were nor changed or pledged or trusted in the report year. 8965517 shares of the Company held by it that were frozen by Hebei Higher People's Court due to guarantee in August 2003 were unfrozen in August 2004. As of the end of the report period, no shares of the Company held by Baoshi Group Co. were frozen. (2)The related relation between the top ten shareholders is unknown. They are not persons taking concerted action specified in Regulations on the Information Disclosure of the Change of Shareholding of Shareholders of Listed Companies. IV. Change of the controlling shareholder and actual controllers of the Company 1. In the report period, Shijiazhuang Representative Office of China Great Wall Asset Management Co. (hereinafter referred to as - 10 - "Great Wall Asset Management Co."), Shijiazhuang Representative Office of China Orient Asset Management Company (hereinafter referred to as "Orient Asset Management Company"), Shijiazhuang Representative Office of China Huarong Asset Management Company (hereinafter referred to as "Huarong Asset Management Co.") and Shijiazhuang State-owned Assets Administration Committee, the actual controller of Baoshi Group Co., the controlling shareholder of the Company, increased the original share capital of Baoshi Group Co. and established a new company according to the agreement for conversion of debts into shares. The name of the new company is still Shijiazhuang Baoshi Electronic Group Co., Ltd. Great Wall Asset Management Co., Orient Asset Management Company, Shijiazhuang State-owned Assets Administration Committee and Huarong Assets Management Co. respectively hold 48.3%, 27.45%, 17.74% and 6.51% equity of the new company. The registered capital of the new company is RMB 1.389 billion. Its legal representative is Dong Qingxiang. Business scope of the company: Dealing in state-owned capital within authorized scope, color cathode-ray tube series products and supporting electronic components, etc. The new company still holds 230.4105 million state-owned shares of the Company, which account for 60.16% of the total share capital of the Company. The proportion remains unchanged. This matter was announced on China Securities Daily and Hong - 11 - Kong Commercial Daily on June 29, 2004. 2. Particulars about the actual controllers of the Company （1） China Great Wall Asset Management Co. China Great Wall Asset Management Co. is a solely state-owned financial enterprise with independent corporate capacity. Shijiazhuang Representative Office is the detached organ of the head office. It is mainly engaged in acquisition, management and disposition of the bad assets separated from Hebei Branch of Agricultural Bank of China within authorized scope and financial and securities business approved by finance supervision department. （2） China Orient Asset Management Company China Orient Asset Management Company is a solely state-owned financial enterprise with independent corporate capacity. Shijiazhuang Representative Office is the detached organ of the head office. It is mainly engaged in acquisition, management and disposition of the bad assets separated from Hebei Branch of Bank of China within authorized scope and financial and securities business approved by finance supervision department. （3） China Huarong Asset Management Company China Huarong Asset Management Company is a solely state-owned financial enterprise with independent corporate capacity. Shijiazhuang Representative Office is the detached organ of the head - 12 - office. It is mainly engaged in acquisition, management and disposition of the bad assets separated from Hebei Branch of Industrial and Commercial Bank of China within authorized scope and financial and securities business approved by finance supervision department. (4) Shijiazhuang State-owned Assets Administration Committee 3.The block diagram of the title and control relationship between the Company and actual controller is as follows: China Great China Orient Shijiazhuang China Huarong Wall Asset Asset State-owned Asset 48.3% 27.45% 17.74% 6.51% Shijiazhuang Baoshi Electronic Group Co., 60.16% Shijiazhuang Baoshi Electronic Glass Co., V.Particulars about the shareholding of the top 10 shareholders at the end of the report period Name of shareholders Quantity of shares held at the Type of shares held end of year ① DAIWA SECS SMBC HONG KONG B shares 6500000 LTD-CLIENTS ② Chen Yongquan B shares 885362 ③ He Kebing B shares 743437 ④ Jiang Fengmei B shares 543400 ⑤ Shanghai Yibohang Trade Co., Ltd A shares 473500 - 13 - ⑥ Wang Ximing B shares 466000 ⑦ Wu Sumei B shares 404200 ⑧ Zhong Peijin B shares 379900 ⑨ Chen Qianfen B shares 355401 ⑩ Li Yunchao B shares 344783 The relation between the top ten shareholders holding negotiable shares of the Company is unknown. Among the top ten shareholders, there is no related relation between promoting shareholders. The Company does not know whether there is related relation between the shareholders holding negotiable shares. Chapter 4 Particulars about Directors, Supervisors, Senior Executives and Employees I. Particulars about directors, supervisors and senior executives 1. Basic information (1) Directors Number Number of of shares Increase or shares Reason for Name Sex Age Term of office held at decrease in held at change beginni the year the end ng of of year year Dong 2003.6-2006.6 Male 66 2000 2000 0 Qingxiang - 14 - Song Hongbo Male 50 2003.6-2006.6 0 0 0 Zhou Bo Male 39 2003.6-2006.6 6800 6800 0 Ye Huifeng 2003.6-2006.6 Bought in Fema 45 0 1500 1500 secondary le market Hu Shouling Male 69 2003.6-2006.6 0 0 0 (independent director) Ma Chao Male 39 2003.6-2006.6 0 0 0 (independent director) Zhang Hao Male 60 2003.6-2006.6 0 0 0 (independent director) (2) Supervisors Number Number of of shares Increase or shares Reason for Name Sex Age Term of office held at decrease in held at change beginni the year the end ng of of year year Xie 2004.6-2006.6 Male 48 0 0 0 Mengxiong Fan Zhenping Male 48 2003.6-2006.6 1000 1000 0 Li Huiming Male 50 2003.6-2006.6 2400 2400 0 Zhang Fema 2003.6-2006.6 54 0 0 0 Yanqiao le Li Hong Male 50 2003.6-2006.6 800 800 0 Yao Junting Male 35 2003.6-2006.6 0 0 0 Zheng Male 38 2004.6-2006.6 0 0 0 Dezhan - 15 - (3) Senior executives Number Number of of shares Increase or shares Reason for Name Sex Age Term of office held at decrease in held at change beginni the year the end ng of of year year Gao Dacai Fema 2003.6-2006.6 59 0 0 0 le Yang Guang Male 52 2003.6-2006.6 0 0 0 Zhang 2003.6-2006.6 Male 53 0 0 0 Wenhai Zhou Yumao Male 52 2003.6-2006.6 0 0 0 Luo Lina Fema 2003.6-2006.6 49 0 0 0 le 2. The positions held by the directors and supervisors of the Company at the shareholder companies: Name Company Position Dong Shijiazhuang Baoshi Electronic Group Co., Board chairman Qingxiang Ltd. Zhou Bo Shijiazhuang Baoshi Electronic Group Co., Director & general manager Ltd. Ye Huifeng Shijiazhuang Baoshi Electronic Group Co., director of Production and Ltd. Operation Dept Xie Mengxiong Shijiazhuang Baoshi Electronic Group Co., Deputy secretary of Party Ltd. committee Fan Zhenping Shijiazhuang Baoshi Electronic Group Co., Deputy director of Public Ltd. Security Section Yao Junting China Electronic Import and Export Deputy GM of Finance Corporation Management Dept. Zheng Dezhan Zhonghua Hebei Import and Export Co. Manager of Audit Dept. 3. Main work experience of the current directors, supervisors and senior executives - 16 - (1) Dong Qingxiang, chairman of the board of directors. From 1994 to 2000, he served as board chairman and general manager of the Company and concurrently served as board chairman and general manager of Baoshi Group Co. From 2000, he served as board chairman of the Company and concurrently served as board chairman and general manager of Baoshi Group Co. He now serves as board chairman of the Company and concurrently serves as board chairman of Baoshi Group Co. (2) Song Hongbo, director and general manager. From 1999 to June 2000, he served as director and general manager assistant of Baoshi Group Co. From June 2000 to June 2004, he served as director and general manager of the Company and concurrently served as director of Baoshi Group Co. Since June 2004, he has served as director and general manager of the Company. (3) Zhou Bo, director. From 1997 to June 2004, he served as director of the Company and concurrently served as director of Baoshi Group Co. and deputy general manager of Shijiazhuang Baoshi Electric Glass Co., Ltd. Since June 2004, he has served as director of the Company and concurrently served as director and general manager of Baoshi Group Co. and deputy general manager of Shijiazhuang Baoshi Electric Glass Co., Ltd. (4) Ye Huifen, director. From 1997 to June 2000, she served as - 17 - supervisor and deputy director of Production and Operation Dept. of Baoshi Group Co. From June 2000 to December 2001, she served as director of the Company and concurrently served as deputy director of Production and Operation Dept. of Baoshi Group Co. Since December 2001, she has served as director of the Company and concurrently served as director of Production and Operation Dept. of Baoshi Group Co. (5) Hu Shouling, independent director. From 1988 to 1998, he served as director of Accounting Department of Shijiazhuang Railway College. From 1998, he served as chief accountant of Shijiazhuang Jihong Certified Public Accountants. Since June 2002, he has served as independent director of the Company. (6) Ma Chao, independent director. From March 1999 to March 2002, he served as full-time lawyer of Hebei Sanhe Law Office. Since March 2002, he has served as partner and lawyer of Hebei Shijunan Law Office. Since June 2002, he has served as independent director of the Company. (7) Zhang Hao, independent director. From 1989 to 2000, he served as deputy director general of State-owned Bureau of Hebei Province. In 2000, he retired. Since June 2003, he has served as independent director of the Company. (8) Xie Mengxiong, supervisor. From 1997, he served as deputy - 18 - secretary of Party committee of Baoshi Group Co. Since June 2004, he has served as supervisor of the Company and concurrently served as deputy secretary of Party committee of Baoshi Group Co. (9) Fan Zhenping, supervisor. He has served as supervisor of the Company since 1992 and concurrently served as deputy chief of Public Security Division of Baoshi Group Co. since April 1999. (10) Li Huiming, supervisor. Since 1997, he has served as supervisor and chairman of labor union of the Company. (11) Zhang Yanqiao, supervisor. From 1997 to June 2000, she served as Accounting Dept. of Finance Co. of Baoshi Group Co. Since June 2000, she has served as supervisor and director of Audit Dept. of the Company; (12) Li Hong, supervisor. From 1997 to June 2000, he served as supervisor and deputy workshop superintendent of the Company. Since June 2000, he has served as supervisor of the Company and deputy director of Tool and Mould Factory; (13) Yao Junting, supervisor. Since 1997, he has served as supervisor of the Company and concurrently served as deputy general manager of Financial Management Dept. of China Electronic Import and Export Corporation. (14) Zheng Dezhan, supervisor. From July 1990 to March 2003, he served as deputy manager of Financial Dept. of Zhonghua Hebei Import - 19 - and Export Company. From March 2003, he served as manager of Audit Dept. of Zhonghua Hebei Import and Export Company. Since June 2004, he has served as supervisor of the Company. (15) Gao Dacai, deputy general manager. From March 2000 to June 2000, she served as the director of Component Factory of the Company. From June 2000 to June 2003, she served as director and deputy general manager of the Company. Since June 2003, she has served as deputy general manager of the Company. (16) Yang Guang, deputy general manager. From February 1997 to June 2000, he served as the director of Tool and Mould Factory of the Company. Since June 2000, he has served as deputy general manager of the Company. (17) Zhang Wenhai, deputy general manager. From December 1992 to June 2000, he served as the director of Power Factory of the Company. Since June 2000, he has served as deputy general manager of the Company. (18) Zhou Yumao, chief accountant. From May 1993, he served as deputy director of Management Dept. of Finance Co. of Baoshi Group Co. Since June 2000, he has served as chief accountant of the Company. (19) Luo Lina, the secretary to the board of directors. From November 1992 to June 2000, he served as section chief and securities affair representative of Securities Dept. of the Company. From June - 20 - 2000 to June 2003, she served as director and the secretary to the board of directors of the Company. Since June 2003, she has served as the board secretary of the Company. 4. The main job experience of current directors, supervisors and senior executives and the posts or concurrent posts held by them at the units other than corporate shareholders (1) Dong Qingxiang serves as the chairman of the board of directors of Shijiazhuang Baoshi Electric Glass Co., Ltd.; (2) Zhou Bo serves as deputy general manager of Shijiazhuang Baoshi Electric Glass Co., Ltd.; (3) Hu Shouling serves as chief accountant of Hebei Jihong Certified Public Accountants; (4) Mao Chao serves as partner and lawyer of Hebei Shijunan Law Office. 5. Annual remuneration (1) The procedure of deciding the remuneration and the basis for determining remuneration In the report period, post skill wage system applied to the directors, supervisors and senior executives of the Company. Their remuneration is determined according to the wage management system of the Company. The remuneration of independent directors is determined by shareholders' general meeting. - 21 - (2) The annual remuneration of the current directors, supervisors and senior executives In the report period, the total annual remuneration of the directors, supervisors and senior executives of the Company was RMB 335348. Annual remuneration of RMB 20,000 - RMB 30,000: 1 person. Annual remuneration of RMB 30,000-RMB 40,000: 6 persons; Annual remuneration of over RMB 40,000: 2 persons. The total remuneration of the top three directors receiving the remuneration of the highest amount was RMB 41513. The total remuneration of top three senior executives receiving the remuneration of the highest amount was RMB 121203. The directors and supervisors not receiving remuneration from the Company include Dong Qingxiang, Zhou Bo, Ye Huifeng, Xie Mengxiong, Fan Zhenping, Yao Junting and Zheng Dezhan. Except that director Zhou Bo received remuneration from the associated company of the Company, all other above-mentioned personnel received remuneration from corporate shareholders. The annual subsidy of independent directors is RMB 10000 / person. 6. Change of directors, supervisors and senior executives in the report period (1) In the report period, as examined and adopted by 2003 annual - 22 - shareholders' general meeting of the Company, the original directors of the Company Mr. Gao Tiezhan and Mr. Wang Rongxian resigned from directorship of the fourth board of directors of the Company due to retirement. Mr. Li Zhenzhong, the former supervisor of the Company, resigned from the supervisorship of the fourth supervisory committee of the Company due to retirement. Mr. Zhang Zhanshuan, the former supervisor of the Company, resigned from the supervisorship of the fourth supervisory committee of the Company due to work change. Mr. Xie Mengxiong and Mr. Zheng Dezhan were elected as the supervisors of the fourth supervisory committee of the Company. (2) In the report period, the 7th meeting of the fourth board of directors of the Company examined and approved Mr. Gao Yanxiong's resignation from the position of deputy general manager of the Company due to work change. II. Particulars about employees As of December 31, 2004, the Company has 1065 staff members in total, including 506 production staff members, 11 sales staff members, 85 technical staff members, 20 financial staff members, 91 administrative staff members and 352 other staff members. The personnel with university, college and secondary specialized school education accounted for 37% of the total staff and workers. 25.22% of the staff had professional technical titles. The number of the retired staff - 23 - whose retirement pension is paid by the Company is 280. Chapter 5 Corporate Administration Structure I. Particulars about corporate administration In the report period, the Company amended the Articles of Association of the Company and added relevant articles according to the requirements of the Circular on Certain Issues Relating to Standardization of Fund Transfer Between Listed Companies and Their Related Parties and Guarantees Provided by Listed Companies issued CSRC and State-owned Assets Supervision and Administration Commission of the State Council, revised and perfected Rules of Procedure of the Board of Directors according to relevant regulations of CSRC on independent directors. In order to implement Nine National Regulations, the Company revised and perfected Regulations on Management of Relationship with Investors and Regulations on Management of Information Disclosure according to relevant regulations and requirements of CSRC and Shenzhen Stock Exchange. The establishment and perfection of rules and regulations has laid foundation for the Company's standardized operation. In work practice, the Company made efforts to implement rules and regulations to further enhance the level of its standardized operation. II. Particulars about duty performance of independent directors - 24 - In the report period，3 independent directors of the Company seriously and independently performed their duties according to relevant provisions of the Articles of Association of the Company, attended all board meetings on time, investigated the proposals examined at meetings and seriously expressed their own opinions. They expressed independent opinions on important events including related transactions and gave play to their due function. In the report period，independent directors of the Company did not make objection to the matters examined at all previous board meetings of the Company. Attendance at board meetings by independent directors: The Attendance Name of supposed Attendance through Absence independent times of in person Remarks agent (times) director attendance (times) (times) this year Hu Shouling 6 6 0 0 Ma Chao 6 6 0 0 Zhang Hao 6 6 0 0 III. The Company has made efforts to realize separation from its controlling shareholder in respect of business, personnel, assets, organs and finance according to relevant requirements of CSRC. At present, the Company's assets are complete and independent and its management organs are perfect. The Company is independent in respect of labor, - 25 - personnel and wage management, has established sound and independent regulations on financial management and financial accounting system and has independent business and ability of production and operation. The Company will continue to make improvement in above aspects according to relevant requirements in the future. The Company will also actively explore and establish the performance appraisal standards and procedures as well as stimulation and restriction mechanism applicable to directors, supervisors and managers. Chapter 6 Brief Introduction to Shareholders' General Meeting I. Notice, convening and holding of shareholders' general meetings The Company held 2003 annual shareholders' general meeting in the report period. On May 21, 2004, the Company published the announcement of holding 2003 annual shareholders' general meeting of the Company on June 22, 2004 on China Securities Daily and Hong Kong Commercial Daily. The Company held 2003 annual shareholders' general meeting of the Company in the meeting room of the office building of the Company at 9:00 a.m. of June 22, 2004. II. Resolutions adopted by shareholders' general meetings, the - 26 - information disclosure newspapers for publishing resolutions and the date of disclosure 2003 annual shareholders' general meeting of the Company examined and passed the following resolutions: 1. The work report of the board of directors of the Company for 2003; 2. 2003 annual report of the Company and its summary; 3. The work report of the supervisory committee of the Company for 2003; 4. The final accounting report of the Company for 2003; 5. The profit distribution preplan of the Company for 2003; 6. The Proposal for Amending the Articles of Association of the Company; 7. The Proposal for Changing Directors and Supervisors of the Company; 8. The Proposal for Renewing the Engagement of Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd. and Pricewaterhouse Coopers China Co., Ltd. Respectively as Domestic and Overseas Financial Audit Intermediary for the Company for 2004; 9. The Proposal for the Signing of the Agreements by the Company, Shijiazhuang Baoshi Color Bulb Co., Ltd., Shijiazhuang Representative - 27 - Office of China Orient Asset Management Company and Shijiazhuang Baoshi Electronic Group Co., Ltd. in Respect of the Transfer of Debts of RMB 110,302,337.76 and RMB 214,235,310.28; The announcement of the resolutions of this meeting was published on China Securities Daily and Hong Kong Commercial Daily on June 23, 2004. III. Particulars about the election and replacement of directors and supervisors 2003 annual shareholders' general meeting of the Company examined and adopted the Proposal for Changing Directors and Supervisors of the Company. The meeting approved the resignation of Mr. Gao Tiezhan and Mr. Wang Rongxian from directorship of the fourth board of directors of the Company due to retirement, the resignation of Li Zhengzhong from the supervisorship of the fourth supervisory committee of the Company due to retirement, the resignation of Zhang Zhanshuan from the supervisorship of the fourth supervisory committee of the Company due to work change, and elected Xie Mengxiong Mr. Zheng Dezhan as the supervisors of the fourth supervisory committee of the Company. Chapter 7 Report of the Board of Directors I. Operating status of the Company 1. The scope of main operation and its operating status - 28 - The Company is engaged in the electronic parts and components industry, mainly in the manufacturing and sales of electronic vacuum glass devices and supporting electronic parts and components, export of the self-produced products of the Company and the import of mechanical equipment, parts and components, raw and auxiliary materials needed by the Company. 2004 is a year when the Company made arduous efforts. Under the influence of factors including short supply of energy, continuous rise in price of raw materials and continuous decline of product price, the Company faced highly grim production and operation situation. Facing the fact, the board of directors and management of the Company firmly established scientific development values, deepened reform, strengthened management, made scientific decisions, tackled difficult problems through joint efforts, resolutely implemented the Company's development strategy and satisfactorily fulfilled all targets and tasks of the Company. In the report period, the output of pins, anode caps and L-35 glass tubes was 122.1645 million, 31.5174 million and 4142.77 tons respectively. The sales volume of pins, anode caps and L-35 glass tubes was 119.3762 million, 36.9078 million and 4098.51 tons respectively. In the report period, income from main operation, cost of main operation and profit from main operation of the Company were RMB 112.9322 - 29 - million, RMB 80.8124 million and RMB 30.9595 million respectively. The gross profit rate and market share of its products were 28.44% and 30% respectively. 2. The operating status and earnings of the controlled subsidiaries of the Company With registered capital of RMB 540.68 million, Shijiazhuang Baoshi Color Glass Bulb Co., Ltd. (SBCB) is a controlled subsidiary of the Company. The Company owns 81.26% equity of SBCB. Shijiazhuang Baoshi Electric Glass Co., Ltd. ("SBEG") established by SBCB, Nippon Electric Glass Co., Ltd. and Nissho Iwai Corporation is mainly engaged in production, processing and sales of glass bulb for color kinescope and display. SBCB owns 49% equity of SBEG. In 2004, SBEG produced 8.3986 million color screens (21") and 15.5516 million color cones (21") and sold 8.1199 million color screens (21") and 15.0752 million color cones (21"). The output-sales ratio was 96.68% and 96.94% respectively. In the report period, SBEG earned the sales income of RMB 1106.36 million and net profit of RMB 60.71 million. The Company realized investment income of RMB 37.1251 million. 3. Main suppliers and customers The total amount of purchase from the top five suppliers accounted for 82.97% of the total purchase amount of the year. The total amount of - 30 - sales to the top five customers accounted for 91.04% of the total sales amount of the year. 4. Problems and difficulties occurred in operation and their solutions Under the influence of the continuous rise in price of raw materials, energy and power and the continuous decline of selling price of products, the profit margin of the Company's products has been greatly reduced in recent years. Facing market change, the Company made great efforts to strengthen management, paid special attention to technical renovation, tapped potential, reduced consumption, increased variety, enhanced speed and efficiency, minimized the influence brought by the above unfavorable factors and obtained certain result in the report period. (1) In the report period, the Component Factory of the Company valued technical renovation, made good use of existing production lines and public facilities, newly increased annual production capacity of 2.5 million sets of key part of back projection gun, independently developed processing appliances and auxiliaries and moulds to make them have the capacity for coining of 10 million pins. In order to improve product quality, it made efforts to implement technological innovation projects, organized the tackling of key technical problems and optimized production process in production practice so as to raise the comprehensive qualification rate of anode cap products from 93% to - 31 - 98%. Under the circumstance of continuous rise in price of raw materials, it tried to lower product cost by taking the measures including purchasing raw materials according to strict standards and actively promoting the localization of raw material manufacturing and thus further enhanced its market competitiveness. At present, the output and sales volume of pins and anode caps of the Company have exceeded 150 million. The Company has steadily ranked the first among enterprises in the same industry in China for years. (2) To deal with the problem of complicated production process and high degree of difficulty of lead glass tube, the Glass Tube Factory of the Company actively tackled key technical problems, improved production process, stabilized and enhanced product quality, further met market demands and fulfilled the target of developing markets and increasing market share. (3) SBEG strengthened technological innovation and renovation according to the overall requirements of multi variety, high quality, low cost and high efficiency and completed the overhaul and renovation of cone furnace and the technical renovation of cone production line so as to enhance its production capacity and ability to provide auxiliary items. In order to lower product cost, it actively carried out the "competition of qualified budget" and the campaign of "improvement proposal" and obtained remarkable result of energy saving and consumption reduction. - 32 - In order to optimize product structure, it introduced and increased 6 new planarized products of the size of over 29", raised the proportion of large-size (over 29") planarized products to above 55% and thus enhanced its market competitiveness and the profitability of products. II.Investment of the Company in the report period 1. Investment projects utilizing raised funds The Company did not raise funds in the report period. The funds raised previously were not carried forward into the report period for utilization. 2. Important projects utilizing non-raised funds in the report period There were no important investment projects utilizing non-raised funds in the report period. III. Financial status of the Company in the report period Item 2004(RMB) 2003 (RMB) Increase/d ecrease (%) Total assets 1,344,608,017 1,412,218,041 -4.79 Shareholders' 629,714,616 599,526,291 5.04 equity Profit from key 30,959,519 22,218,606 39.34 business Total profit 24,487,976 25,976,164 -5.73 Net profit 28,360,348 22,070,871 28.50 Net increase of 1,629,331 -51,892,951 103.14 cash and cash equivalents Main reason for change: 1. Total assets decreased due to repayment of the accounts payable - 33 - to Baoshi Group Co.; 2. Shareholders' equity increased due to the increase of net profit; 3. Profit from main operation increased due to the increase of income from main operation after L-35 lead glass tube project of the Company was put into production; 4. Total profit decreased due to the rise of transportation and warehousing cost and the fund possession cost payable to Baoshi Group Co. and reduction of the gross profit of the Company's sales of energy and power; 5. Net profit increased due to the reassessment of loss coverage for previous years by the municipal tax bureau and writeoff of the provision for income tax payable for 2001 to 2003; 6. Net increase of cash and cash equivalents increased due to the decrease of the repayment of the accounts payable to Baoshi Group Co. in cash. IV. The influence of the change of production environment and macro-economic policies, laws and regulations on the Company Pursuant to the approval of Hebei Science and Technology Department with JKG (2004) No.10 Document, the Company was continued to be certified as a high-tech enterprise. The tubes for glass bulb of colour kinescope of the Company were certified as high-tech products. The valid term is from January 1, 2004 to December 31, 2005. - 34 - According to relevant national policy, the income tax rate of 15% will continue to apply to the Company during this period. V. Business development plan for the next year The Company's main products are electronic components for traditional CRT color TV. With the rapid development of high-definition and flat panel TV, the gradual shrinkage of CRT color TV market has become the general trend. However, after technical upgrading, innovation and development toward flat panel, CRT color TV can still respond to the impact of flat panel TV and extend its life cycle. Its market space in the next several years is still big. In the future, the Company will seize this strategic opportunity, speed up adjustment and development, make look-ahead plans and scientific decisions and develop in the market with fierce competition. In the new year, the Company will continue to deepen enterprise reform, strengthen basic management and systems implementation, tap potential and cut consumption, broaden sources of income and reduce expenditure, enhance efficiency, seize opportunities, boldly make innovation, further develop international market, enhance the ability of earning foreign exchange through export and quicken the promotion of product structure adjustment and upgrading to enhance its core competitiveness and reserved force for future development. The Company will focus on doing the following work well: - 35 - 1. To conduct integration and innovation and greatly develop pin and anode cap products. The Component Factory of the Company will make use its technical advantage, strengthen product development, continue to develop marketable products, proceed with technological innovation and renovation, lower rate of defect, make all-out efforts to properly implement expansion and renovation projects, enlarge scale, enhance production capacity, reduce cost, enlarge market share with high quality, low price and excellent services, give play to scale efficiency, stabilize core customers, increase new users, actively develop international market and avoid operation risks. 2. Glass Tube Factory will continue to conduct strict management, solve quality problems, lower rate of defect, improve product quality, make product qualification rate reach a new level, enhance production efficiency to the greatest extent and make more profits for the Company. 3. SBEG will continue to persist in technical renovation and technological innovation, tap production potential to the greatest extent, make more efforts to tackle key technical problems, lower rate of defect and enhance the comprehensive non-defective rate of products of large glass screen (over 25") and improve efficiency and results under the guide of the conception of "quality first" and "win with low cost". Meanwhile, SBEG will also study product upgrading as soon as possible, make glass bulb develop toward the direction of light weight, flat panel - 36 - and environmental protection through the application of new technologies, make initial-stage technological preparation for the model change of 16:9 glass bulb products and better fulfill the target of differentiation. 4. The Company will make all-out efforts to develop high-tech new products and new projects and create new channels for profit growth. 5. The Company will continue to deepen reform, further establish and improve operation, stimulation and restriction mechanism, give full play to and arouse employees' initiative, enhance work efficiency and its comprehensive competitiveness. VI. Routine Work of the Board of Directors 1. Board meetings and resolutions in the report period (1) The 5th meeting of the fourth board of directors of the Company was held on April 21, 2004. The meeting examined and adopted the following: 1) The work report of the board of directors of the Company for 2003; 2) 2003 annual report of the Company and its summary; 3) The final accounting report of the Company for 2003; 4) The profit distribution preplan of the Company for 2003; 5) The report of the general manager of the Company on provision for impairment of assets for 2003; - 37 - 6) The Proposal for Renewing the Engagement of Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd. and Pricewaterhouse Coopers China Co., Ltd. Respectively as Domestic and Overseas Financial Audit Intermediaries for the Company for 2004; 7) The proposal for separate announcement of the holding of 2003 annual shareholders' general meeting of the Company. (2) The 6th meeting of the fourth board of directors of the Company was held on April 27, 2004. The meeting examined and adopted the report of the Company for the first quarter of 2004. (3) The 7th meeting of the fourth board of directors of the Company was held on May 20, 2004. The meeting examined and adopted the following: 1) The Proposal for Changing Directors and Supervisors of the Company; 2) The application of Mr. Gao Yanxiong for resignation from the position of deputy general manager of the Company due to work change; 3) Relevant matters concerning the holding of 2003 annual shareholders' general meeting; (4) On August 18, 2004, the fourth board of directors of the Company held the 8th meeting. The meeting examined and adopted the agreement signed by Shijiazhuang Baoshi Electronic Group Co., Ltd., the controlling shareholder of the Company, Shijiazhuang Baoshi Color - 38 - Bulb Co., Ltd., a controlled subsidiary of the Company and Shijiazhuang Representative Office of China Orient Asset Management Company, in respect of the transfer of loan interest of RMB 42765274.43. (5) The 9th meeting of the fourth board of directors of the Company was held on August 23, 2004. The meeting examined and adopted the following: 1) 2004 Semiannual Report of the Company and its summary; 2) The newly revised Rules of Procedure of the Board of Directors. (6) The 10th meeting of the fourth board of directors of the Company was held on October 25, 2004. The meeting examined and adopted the report of the Company for the third quarter of 2004. 2. Implementation by the board of directors of the resolutions of the shareholders' general meeting The board of directors duly implemented all resolutions of the shareholders' general meeting in the report period. VII. Profit distribution preplan As audited by Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd., the net profit of the Company for 2004 was RMB 28,360,348. As the cash flow from operating activities of the Company is negative and the Company still has uncovered losses of RMB 319,001,658, the board of directors of the Company has decided neither to distribute profit nor capitalize any capital surplus for the report year. - 39 - The net profit of the Company for 2004 will be used to make up the losses of the Company for previous years according to relevant accounting regulations. This preplan is to be submitted to 2004 annual shareholders' general meeting for examination. The independent directors of the Company expressed independent opinions on the above profit distribution preplan of the Company and held the opinion that such preplan complied with the Company's status quo and relevant accounting regulations and did not harm shareholders' equity. VIII. Miscellaneous The newspapers selected by the Company for information disclosure remained China Securities Daily and Hong Kong Commercial Daily ,No change in the report period. IX. Special audit statement of certified public accountants on fund occupation by the controlling shareholder and other related parties of the Company To the Board of Directors of Shijiazhuang Baoshi Electronic Glass Co., Ltd.: We accepted entrustment and audited the balance sheet of Shijiazhuang Baoshi Electronic Glass Co., Ltd. ("the Company") and the consolidated balance sheet of the Company and its subsidiaries ("the Group") as at December 31, 2004 and the profit statement of the - 40 - Company and the consolidated profit statement of the Group, the profit distribution statement of the Company and the consolidated profit distribution statement, the cash flow statement of the Company and the consolidated cash flow statement of the Group for the year then ended pursuant to the independent audit standards of Chinese C.P.A. and issued Pricewaterhouse Coopers Zhongtian (2005) No. 59 unqualified auditor's report on April 18, 2005. As required by the Circular on Certain Issues Relating to Standardization of Fund Transfer Between Listed Companies and Their Related Parties and Guarantees Provided by Listed Companies ( ZJF (2003) No. 56 Document) issued by China Securities Regulatory Commission and State-owned Assets Supervision and Administration Commission of the State Council, the Company prepared the hereinafter attached statement of fund occupation by the controlling shareholder and other related parties of the Company as of December 31, 2004 (hereinafter referred to as "the Statement"). It is the responsibility of the Company to prepare the Statement according to facts, disclose it to the public and ensure its truthfulness, lawfulness and completeness. We checked the information in the Statement against the accounting information rechecked by us when auditing the financial report of the Company for 2004 and relevant content of audited financial report and found no discrepancy in all - 41 - material aspects. Except the audit procedure implemented in the audit of the financial statements of the Company for 2004 in respect of related transactions, we did not implement additional audit procedure to the data in the Statement. For better understanding the fund occupation by the controlling shareholder and other related parties of the Company, the hereinafter attached Statement shall be read together with the audited consolidated financial statements. This letter shall only be used by the Company for disclosing the status of fund occupation by the controlling shareholder and other related parties, which shall not be used for any other purpose. Appendix:Occupation of the Company's Funds by the Controlling Shareholder and Other Related Parties of Shijiazhuang Baoshi Electronic Glass Co., Ltd. Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd. C.P.A.: Wang Xiao C.P.A.: Zhang Ying April 18, 2005 - 42 - Status of fund occupation Name of related party Relation Transaction amount in t report period Ultimate Shijiazhuang Baoshi Electronic Group controlling 16 Co., Ltd. company Operating fund transfer Shijiazhuang Baoshi Electric Pin Glass Affiliated （182,3 Co., Ltd. company Ultimate Shijiazhuang Baoshi Electronic Group Paid fund possession controlling Fund possession cost paid Co., Ltd. （22,0 company Interest income collected Shijiazhuang Baoshi Electric Pin Glass Affiliated Interest income colle Co., Ltd. company 3 Return loan capital collected Shijiazhuang Baoshi Electric Pin Glass Affiliated 43 Co., Ltd. company Interest of debt transfer share Ultimate Shijiazhuang Baoshi Electronic Group Transferred in controllin controlling （42,7 Co., Ltd. company company Fund transfer, etc. Ultimate Shijiazhuang Baoshi Electronic Group controlling 86 Co., Ltd. company Shijiazhuang Baoshi Electronic Group Ultimate Total Co., Ltd. controlling company Shijiazhuang Baoshi Electric Pin Glass Affiliated Total Co., Ltd. company - 43 - Note Operating fund transfer is mainly the income from the sales of raw materials and power and provision payment of assets use charge. This Statement was examined and adopted of board of directors of the Company on April 14, 2005. Persons in charge of the Company: Dong Qingxiang Controller of accounts: Song Hongbo Person in ch - 44 - X.The special statement and independent opinions of the independent directors of the Company on the guarantee provided by the Company on accumulative basis and in current period According to the Circular on Certain Issues Relating to Standardization of Fund Transfer Between Listed Companies and Their Related Parties and Guarantees Provided by Listed Companies (ZJF (2003) No. 56 Document), we carefully examined and verified the status of the fund transfer between Shijiazhuang Baoshi Electronic Glass Co., Ltd. and its related parties and the guarantee provided by the Company. In our opinion: 1. The fund transfer between Shijiazhuang Baoshi Electronic Glass Co., Ltd. and its controlling shareholder and other related parties occurred in 2004 was fund transfer formed during normal operation; 2.Since its listing, Shijiazhuang Baoshi Electronic Glass Co., Ltd. has strictly abided by the provisions of the Company Law, the Securities Law, Listing Rules and ZJF (2003) No. 56 Document and has not provided guarantee to its controlling shareholder and other related parties, any unincorporate entity or individual. The amount of external guarantee provided by the Company on accumulative basis and in current period was zero. Chapter 8 Report of the Supervisory Committee I. The meetings of the supervisory committee In the report period, the supervisory committee held three meetings in total. The particulars of the meetings are as follows: 1. The Third meeting of the Fourth supervisory committee of the Company was held on April 21, 2004. The meeting examined and adopted the following: - 45 - (1) 2003 work report of the supervisory committee of the Company; (2) 2003 annual report of the Company; (3) Final accounting report of the Company for 2003. 2. The 4th meeting of the fourth supervisory committee of the Company in 2004 was held on June 22, 2004. The meeting examined and adopted the following resolutions: Li Zhenzhong, the former convener of the supervisory committee of the Company resigned from supervisorship of the supervisory committee due to retirement and his resignation has been approved by 2003 annual shareholders' general meeting of the Company. Newly elected supervisor Xie Mengxiong was elected as the convener of the fourth supervisory committee of the Company. 3. The 5th meeting of the fourth supervisory committee of the Company was held on August 23, 2004. The meeting examined and adopted 2004 semiannual report of the Company. Audit opinions: Standard unqualified audit opinions. II. The independent opinions of the supervisory committee of the Company (1) The operation of the Company according to law In 2004, the Company was able to operate in accordance with relevant laws and regulations of the state, the Articles of Association of the Company and the resolutions of shareholders' general meeting. Its decision making procedure was legal. The Company established corresponding internal control system while gradually perfecting its corporate administration structure. No act of the directors and managers of the Company was found to violate the laws, regulations and the Articles of Association or harm the Company's interests when they performed their duties. - 46 - （2）The 2004 financial reports of the Company truly reflected the financial status and operating results of the Company. The standard unqualified auditors' report issued by Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd. was objective and fair. （3）. The Company did not raise funds in the report period. （4）. The Company neither acquired nor disposed of assets in the report period. （5）. The related transactions were fair and did not harm the interests of the Company. Chapter 9 Important Events I. Material lawsuits and arbitration The Company was not involved in any material lawsuit or arbitration in the report period. II. The Company neither acquired nor disposed of assets nor was involved in any merger by absorption in the report period. III. Material related transactions 1. The related transactions in respect of purchase and sales of commodities and provision of labor service Related Contents of Transaction Pricing Mode Proporti Influence parties transactions amount principle of on of the on the (RMB) settle same profit of the ment kind of Company transacti on Baoshi Sales of 11,720,582 Agreed Curren 10.38% Group Co. finished price cy Profit products increase (controlling Sales of 15,392,926 Agreed Curren 10.71% Profit shareholder) power price cy increase Sales of raw 767,749 Agreed Curren 13.49% Profit materials price cy increase - 47 - Pin Co. Sales of Agreed Curren Profit (Affiliated finished 19,597,949 price cy 17.35% increase company ). products Sales of 125,157,331 Agreed Curren 87.11% Profit power price cy increase Provision of 22,512,395 Agreed Curren 62.55% Profit labor price cy increase service As the products of the Company and the above related parties have upstream-and-downstream relationship and their production is in the same place, the occurrence of the above related transactions is necessary and normal. If product structure and production site do not change, the above related transactions will continue to occur. 2. The Company was not involved in related transactions caused by assignment of assets and equity in the report period. 3. The Company was not involved in related transactions caused by external investment with related parties in the report period. 4. The credit (debt) relationship between the Company and related parties Related party Amount (RMB Reason of formation Influence on the Company million) Baoshi Group (399.11) Transfer of debts Baoshi Group Co. did not set Co. time limit for the repayment (controlling of this debt and provided shareholder) fund support to the Company. The Company paid reasonable fund possession cost to Baoshi Group Co. SBEG 50.80 According to the SBCB collected reasonable (affiliated agreement between fund occupation fee from company) SBCB and SBEG, SBEG. The development of SBEG borrowed the color bulb project by SBEG money from SBCB to increased the investment develop the project of income of the Company. color bulb. 5. Other important related transactions 1. Baoshi Group Co., the controlling shareholder of the Company, SBCB, a controlled subsidiary of the Company, and Orient Asset Management Company entered into an agreement on August 17, 2004: - 48 - According to Baoshi Group Co.'s demand of conversion of debts into shares, the parties to the agreement agreed to transfer to Baoshi Group Co. the loan interest of RMB 42765274.43 owed by SBCB to Orient Asset Management Company. The principal of the debt has been transferred to Baoshi Group Co. for assumption according to the agreement signed by three parties on May 29, 2003. This agreement is a related transaction and will be submitted to the next shareholders' general meeting for examination and adoption. This agreement was examined and adopted at the 8th meeting of the fourth board of directors of the Company. III. Important contracts and their performance 1. The Company did not hold in trust or contract for or lease the assets of other companies nor did other companies hold in trust, contract for or lease the assets of the Company in the report period. 2. The Company did not provide guarantee to others in the report period. 3.The Company did not entrust others to management its cash assets in the report IV. The commitments made by the Company and shareholders holding over 5% of the total shares of the Company in the report period. 1.The Company published the announcement of the resolutions of the 9th meeting of the third Board of Directors on China Securities Daily and Hong Kong Commercial Daily on November 7, 2001. The Board of Directors of the Company and Baoshi Group Co. has reached agreement on the competition between the Company and Baoshi Group Co. in the same industry arising from the project of renovating and constructing L-35 glass tube production line and will properly solve this issue by the means of asset exchange or other means. At - 49 - present, this matter is in active discussion. 2. The Company published the announcement of the resolutions of the 11th meeting of the third board of directors on China Securities Daily and Hong Kong Commercial Daily on December 14, 2001. As of October 31, 2001, SBEG borrowed funds of RMB 0.26 billion from SBCB to develop color bulb project. It plans to fully repay the loan in the next two years. The Company will urge both parties to implement the plan. In the report period, SBEG repaid RMB 43.32 million according to plan. At the end of the report period, the balance of the funds borrowed by SBEG from SBCB was RMB 50.80 million. V. The engagement of certified public accountants and the payment of remuneration 1. Engagement of certified public accountants 2003 annual shareholders' general meeting of the Company examined and adopted the proposal for continuing the engagement of Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd. and Pricewaterhouse Coopers China Co., Ltd. as the auditing organ of the Company inside and outside China in 2004. 2. Payment of remuneration The Company paid remuneration of RMB 1.5 million in total to Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd. and Pricewaterhouse Coopers China Co., Ltd. in the report period. The traveling expenses were borne by the audit bodies themselves. 3. Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd. and Pricewaterhouse Coopers China Co., Ltd. had provided audit services to the Company for 10 consecutive years. VI. In the report period, the Company, its board of directors and its directors were not investigated by CSRC, administratively punished or - 50 - publicly criticized by CSRC or publicly condemned by stock exchange. Chapter 10 Financial Report I. Auditor's report (attached hereinafter) II. Financial statements (attached hereinafter) III. Notes to financial statements (attached hereinafter) Chapter 11 List of Documents Available for Inspection 1. Financial statements bearing the seal and signature of the Company's legal representative, financial controller and the person in charge of accounting organ. 2. The original of the auditors' report bearing the seal of the certified public accountants and the seal and signature of C.P.A. 3. The original of all Company's documents and the original manuscripts of announcements publicly disclosed on China Securities Daily and Hong Kong Commercial Daily in the report period. Chairman of the board of directors: Dong Qingxiang Shijiazhuang Baoshi Electronic Glass Co., Ltd. April 18, 2005 - 51 - SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED (Incorporated in the People’s Republic of China with limited liability) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 - 52 - Pricewaterhourse Coopers Center 11th Floor 202 Hu Bin Road Shanghai 200021 People’s Republic of China Telephone: +86 (21) 6123 8888 Facsimile: +86 (21) 6123 8800 Report of the Auditors TO THE SHAREHOLDERS OF SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED We have audited the accompanying consolidated balance sheet of Shijiazhuang Baoshi Electronic Glass Company Limited (the Company) and its subsidiary (the Group) as of December 31, 2004 and the related consolidated income and cash flows statements for the year then ended. These consolidated financial statements set out on pages 2 to 23 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 audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of 31 December 2004, and the consolidated results of its operations and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers China Limited Shanghai, People’s Republic of China 18 April 2005 53 SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 2004 2003 Notes Sales 1 112,932 80,897 Cost of sales (80,812) (57,949)   Gross profit 32,120 22,948 Other operating income 13,984 18,648 Distribution costs (3,786) (1,850) Administrative expenses (35,805) (34,271) Other operating expenses - (505)   Profit from operations 2 6,513 4,970 Finance costs - net 3 (19,150) (16,993) Share of result of associate before tax 10 37,125 37,999   Profit before tax 24,488 25,976 Income tax benefit /(expense) 5 7,283 (162)   Profit from ordinary activities after tax 31,771 25,814 Extraordinary item 6 1,828 -   Group profit before minority interest 33,599 25,814 Minority interest 21 (3,411) (3,743)   Net profit 30,188 22,071   Earnings per share (Rmb Yuan per share) -basic 7 Rmb 0.08 Rmb0.06   -54- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 31 December 31 December 2004 2003 Notes ASSETS Non-current assets Property, plant and equipment 8 173,674 189,770 Land use right 9 13,803 14,135 Investment in associate 10 864,387 869,217 Deferred asset 11 7,712 5,737   1,059,576 1,078,859   Current assets Inventories 12 51,133 51,718 Receivables and prepayments 13 86,802 126,041 Amount due from associate 10 53,495 65,333 Amounts due from related parties 15 11,187 7,960 Other long-term assets receivable within one year 16 58,000 58,000 Cash and cash equivalents 24,415 24,255   285,032 333,307   Total assets 1,344,608 1,412,166   EQUITY AND LIABILITIES Shareholders’ equity Ordinary shares 20 383,000 383,000 Reserves 22 569,399 569,399 Accumulated losses (322,366) (352,554)   630,033 599,845   Minority interest 21 99,338 95,927   Current liabilities Trade and other payables 17 123,983 180,960 Amount due to related parties 15 2,596 2,387 Amount due to the holding company 14 398,795 437,221 Current tax liabilities 1,459 7,422 Short-term borrowings 18 5,404 5,404 Other long-term liabilities due within one year 19 83,000 83,000   Total liabilities 615,237 716,394   Total equity and liabilities 1,344,608 1,412,166   These financial statements have been approved by the Board of Directors on 17 April 2005. -55- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) Capital Statutory Statutory Share accumulation accumulated welfare Capital fund fund fund Balance at 1 January 2003 383,000 507,500 41,265 20,634 Profit for the year - - - - Minority share in profit of subsidiary - - - - (Note 21)      Balance at 31 December 2003 383,000 507,500 41,265 20,634      Balance at 1 January 2004 383,000 507,500 41,265 20,634 Profit for the year - - - - Minority share in profit of subsidiary - - - - (Note 21)      Balance at 31 December 2004 383,000 507,500 41,265 20,634      - 56 - SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 2004 2003 Notes Cash flows from operating activities Cash used in operations 23 (49,561) (157,567) Tax paid (14,303) (13,921)   Net cash used in operating activities (63,864) (171,488)   Cash flows from investing activities Purchase of property, plant and equipment (5,595) (2,876) Proceeds from sales of property, plant and equipment 1,613 134 Loan repayments received from SBEG 43,321 97,320 Interest received from SBEGs 4,520 6,613 Dividends received 21,634 18,405   Net cash from investing activities 65,493 119,596   Increase/(Decrease) in cash and cash equivalents 1,629 (51,892) Cash and cash equivalents at beginning of the year 12,959 64,851   Cash and cash equivalents at end of the year 14,588 12,959   2004 2003 Cash and cash equivalents in balance sheet 24,415 24,255 Less: Restricted cash at bank (9,827) (11,296)   Cash and cash equivalents in cash flow statement 14,588 12,959   Restricted cash at bank is the deposit of bank accepted notes payable. - 57 - SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED ACCOUNTING POLICY FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 1 GENERAL INFORMATION THE COMPANY The Company, Shijiazhuang Baoshi Electronic Glass Company Limited, was incorporated on 26 December 1992 in Shijiazhuang, Hebei Province, the People’s Republic of China (the “PRC”) as a joint stock limited company. The address of the Company’s registered office is No.9 Yellow River Road, High-technological development zone, Shijiazhuang. The principal activities of the Company and its subsidiaries and associates (collectively known as the “Group” ), were the manufacture and sale of black and white television bulbs (“BW Bulbs”) and black and white television cathode ray tubes (“BW CRTs”). In June 1997, the Company suspended production of its primary products due to a significant adverse change in market demand for black and white television sets. On 30 March 2000, the shareholders approved and authorised the sale of all plant and machinery relating to production of BW Bulbs and BW CRTs together with part of the associated liabilities to the holding company, Shijiazhuang Baoshi Electronic Group Company Limited, in exchange for certain assets and liabilities of a division of the holding company with the principal activities of manufacturing colour television tube components. The Company’s principal activities therefore become the manufacture and sale of components for colour television cathode ray tubes. Approved in 2002 annual shareholders’ meeting, business scope of the Company expended to exportation of self-produced finished goods and importation of production-needed equipments, spare parts and row materials in addition to the original business areas. THE SUBSIDIARY AND THE ASSOCIATED UNERTAKINGS At 31 December 2004, the Company had the following interests in a subsidiary and an associate. Attributable Year of equity Principal Name incorporation interest activities Subsidiary Shijiazhuang Baoshi Colour 1994 81.26% Investment holding Bulb Company Limited (“SBCB”) of SBEG Associate Manufacture and Shijiazhuang Baoshi Electric 1997 39.82% sale of colourGlass Company Limited (“SBEG”) television bulbs On 3 July 1997, SBEG was established as a Sino-foreign investment enterprise between SBCB, Nippon Electric Glass Co., Ltd. and Nissho Iwai Corporation. SBCB holds 49% equity interests of SBEG. -58- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED ACCOUNTING POLICY FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 2 BASIS OF PREPARATION The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, including International Accounting Standards and interpretations issued by the International Accounting Standards Board. The consolidated financial statements have been prepared under the historical cost convention. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of 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 ultimately may differ from those estimates. As at 31 December 2004 the accumulated losses of the Company is Rmb319,001,658; current liabilities exceed current assets by Rmb330,523,772. The major current liabilities represent other payable to the ultimate holding company with the amount of Rmb399,109,726. The continuation of the business of the Company largely depends on continuing financial support from the ultimate holding company. The the ultimate holding company has confirmed its intention to provide continuing financial support to the Company. The directors believe that the Company will continue as a going concern and consequently have prepared the financial statements on the going concern basis. 3 GROUP REPORTING (1) 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. The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group controls another entity. 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, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group. (2) Associates 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. Investments in associates are accounted for by the equity method of accounting. Under this method the company’s share of the post-acquisition profits or losses of associates is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised 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 to recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates. -59- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED ACCOUNTING POLICY FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 4 FOREIGN CURRENCY TRANSLATION (1) Measurement currency Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (“the measurement currency”).The consolidated financial statements are presented in Renminbi, which is the measurement currency of the parent. (2) Transactions and balances Foreign currency transactions are translated into the measurement currency using the exchange rates publicized by People’s Bank of China prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement. 5 PROPERTY, PLANT AND EQUIPMENT All property, plant and equipment is stated at historical cost less depreciation Depreciation is calculated on the straight-line method to write off the cost or revalued amount of each asset to their residual values over their estimated useful lives as follows: Years Buildings 20-21 Plant and machinery 11-12 Motor vehicles 11-12 Office equipment 11-12 Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised, during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. 6 LAND USE RIGHT Land use rights are stated at cost less amortisation. Amortisation is provided to write off the cost of land use rights over the approved use period of 50 years on a straight-line basis. -60- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED ACCOUNTING POLICY FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 7 IMPAIRMENT OF LONG LIVED ASSETS Property, plant and equipment and other non-current assets, including intangible assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised 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. 8 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. 9 INVENTORIES Inventories comprise raw materials, work in progress, finished goods, spare parts and low cost consumables for use in the production process. Inventories are stated at the lower of cost or net realisable value. Cost is determined using weighted average basis. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. 10 TRADE RECEIVABLES 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. -61- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED ACCOUNTING POLICY FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 11 CASH AND CASH EQUIVALENTS Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. 12 SHARE CAPAITAL Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared. 13 BORROWINGS Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings. 14 TAXATION PRC income taxes are provided for based on the estimated assessable profits and tax rates applicable to the Company and other companies comprising the Group. 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. Tax rates enacted or substantively enacted by the balance sheet date are used to determine deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. 15 EMPLOYEE BENEFITS The Group participates in a government defined contribution retirement pension scheme to which it is required to pay monthly retirement contributions at the rate of 20% (2003: 20%) of the wages of existing employees. Under the scheme, retirement benefits of existing and retired employees are provided by the government - managed pension fund and the Group has no further obligations beyond the monthly contributions. The Group’s contributions are charged to income statement in the period to which they relate. -62- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED ACCOUNTING POLICY FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 16 REVENUE RECOGNITION Revenue comprises the invoiced value for the sale of goods and services net of value-added tax, rebates and discounts, and after eliminating sales within the Group. Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Revenue from rendering of services is based on the stage of completion determined by reference to services performed to date as a percentage of total services to be performed. Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. 17 FINANCIAL INSTRUMENTS Financial assets and financial liabilities carried on the balance sheet include cash and bank balances, trade receivables, trade payables and borrowings. 18 FINANCIAL RISK The Group’s activities expose it to a variety of financial risks, including: (1) Foreign exchange risk Most of the transactions of the Group were settled in Renminbi. In the opinion of the directors, the Group do not have significant foreign currency exposure. (2) Interest rate risk The interest rates and terms of repayment of borrowings are disclosed in Note 18. Other financial assets and liabilities do not have material interest rate risk. (3) Credit risk At 31 December 2004, the trade receivables of the Group were spread among a number of customers in the PRC. Details of amounts due from the holding company and related companies are included in Note 14 and Note 15. The other financial assets of the Group do not represent a concentration of risk. 19 FAIR VALUE ESTIMATION The Group’s investments in associated undertakings are investments in unlisted companies. As there is no market value available, their fair values are based on directors’ best estimate of their net assets, profit generating ability and other circumstances as considered appropriate. The fair values of cash and bank, trade receivables and payables, amounts due from and to related companies, and borrowings are not materially different from their carrying amounts. -63- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 1 SALES 2004 2003 Salesofcomponents 64,908 51,318 Sales of glass tube 48,024 29,579   112,932 80,897   2 OPERATING ITEMS The following items have been included in arriving at operating profit: 2004 2003 Depreciation on property, plant and equipment (Note 8) 20,358 20,851 Impairment of property, plant and equipment (Note 8) (204) (125) Loss/(Profit) on disposal of property, plant and equipment (included in “Other operating income/(expenses)”, Note 23) (482) 109 Amortisation of: - land use rights (included in “Administrative expenses”; Note 9) 332 296 Trade receivables – impairment charge for bad and doubtful debts (included in “Administrative expenses”) (595) (1,464) Provision for inventory obsolescence (included in “Administrative expenses”) (700) 940 Costs of inventories recognised as expense (included in ‘Cost of Sales’) 41,098 38,917 Staff costs (Note 4) 27,052 22,562 3 FINANCE COSTS - NET 2004 2003 Interest expense on borrowings 22,808 27,270 Interest income (4,082) (11,262) Net foreign exchange transaction losses - 949 Others 424 36   Finance costs, net 19,150 16,993   -64- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 4 STAFF COSTS 2004 2003 Wages and salaries 14,810 13,337 Retirement benefits 4,261 3,952 Others 7,981 5,273   27,052 22,562   Average number of full time people employed by the Group during the year 1,179 1,212   5 INCOME TAX EXPENSE 2004 2003 Current tax (7,283) 162   Taxable income is calculated based on total revenue less deductible cost of goods sold, expenses and other non-operating gains (losses) under the existing tax regulations. As the Group was qualified as a high-technological enterprise and was established in a high-technological development zone, the prevailing enterprise income tax rate is 15%. (2003:15%) As of 31 December 2004 and 31 December 2003, there was no material deferred tax asset and liability was included in the consolidated financial statements. Tax Bureau of Shijiazhuang, recalculated the amount of utilizable tax loss carry forward for Year 1999 to Year 2003 in July, 2004. According to the recalculated amount, taxable income for Year 1999 to Year 2003 is zero after utilizing tax loss carry forward. From Year 2001 to Year 2003, the group had accrued Rmb 7,283 thousand income tax, which has been waived by Tax Bureau of Shijiazhuang in July, 2004. Based on this fact, the Group reversed the remaining income tax balance of Rmb 5,620 thousand and income tax payment from Year 2001 to Year 2003 of Rmb 1,662 thousand. The income tax benefit of the Group is Rmb 7,283 thousand in 2004. 6 EXTRAORDINARY ITEMS 2004 2003 Government special fund 1,828 -   -65- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 7 EARNINGS PER SHARE Basic earnings per share is calculated by dividing the net profit for the year by the number of shares in issue during the year: 2004 2003 Net profit for the year 30,188 22,071 Less: Extraordinary items (Note 6) (1,828) -   Net profit before extraordinary items 28,360 22,071   Number of shares in issue 383,000 383,000 Earning per share including extraordinary items (Rmb Yuan) Rmb 0.08 Rmb0.06 Earnings per share excluding extraordinary items (Rmb Yuan) Rmb 0.07 Rmb0.06   No diluted earning per share was presented as there were no dilutive potential ordinary shares issued/outstanding during the year. -66- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 8 PROPERTY, PLANT AND EQUIPMENT Plant and Motor Office Buildings machinery vehicles equipment CIP Total Year ended 31 December 2003 Opening net book amount 119,750 39,372 1,037 1,357 57,073 218,589 Additions - 2,463 - 14 208 2,685 CIP transfer to fixed assets 10,078 36,550 - - (46,628) - CIP transfer to others - - - - (10,515) (10,515) Disposals - (263) - - - (263) Impairment reversal (note 2) - 125 - - - 125 Depreciation charge (note 2) (8,443) (10,724) (624) (1,060) - (20,851) 138 271 0 88 846 0 1 661 0 2 431 0 138 0 231 347 Closing net book amount 121,385 67,523 413 311 138 189,770 At 31 December 2003 Cost 185,892 162,423 3,173 5,013 138 356,639 Accumulated depreciation (64,507) (94,900) (2,760) (4,702) - (166,869) Net book amount 121,385 67,523 413 311 138 189,770 Year ended 31 December 2004 Opening net book amount 121,385 67,523 413 311 138 189,770 Additions 1,111 2,434 300 280 1,064 5,189 CIP transfer to fixed assets 619 154 - - (773) - Disposals (967) (2) (146) (16) - (1,131) Impairment reversal (note 2) - 204 - - - 204 Depreciation charge (note 2) (7,965) (12,235) (133) (25) - (20,358) Closing net book amount 114,183 58,078 434 550 429 173,674 At 31 December 2004 Cost 186,236 165,960 2,993 5,060 429 360,678 Accumulated depreciation (72,053) (107,882) (2,559) (4,510) - (187,004) Net book amount 114,183 58,078 434 550 429 173,674 -67- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 9 LAND USE RIGHT 31 December 31 December 2004 2003 Opening net book amount 14,135 14,431 Less: Amortisation charge (note 2) (332) (296)   Closing net book amount 13,803 14,135   Cost 15,997 15,997 Accumulated amortisation (2,194) (1,862)   Net book amount 13,803 14,135   10 INVESTMENT IN ASSOCIATES 31 December 31 December 2004 2003 Share of net assets of SBEG 833,906 818,415 Amount due from SBEG 83,976 116,135   917,882 934,550 Less: Amount due from SBEG within one year (53,495) (65,333)   864,387 869,217   Amount due from SBEG is unsecured, of which Rmb50,802 thousand is the loan to SBEG (2003: Rmb 94,122 thousand) and bears interest at 5.76% in the year ended 2004. (2003: 5.76%). 31 December 31 December 2004 2003 At beginning of the year 818,415 798,821 Decrease in investment (21,634) (18,405) Share of result of SBEG 37,125 37,999   At end of the year 833,906 818,415   11 DEFERRED ASSETS 31 December 31 December 2004 2003 At beginning of the year 5,737 - Current year addition 1,975 5,737   At end of the year 7,712 5,737   -68- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 12 INVENTORIES 31 December 31 December 2004 2003 At net realisable value – Raw materials and low cost consumables 21,892 11,782 Work in progress 5,545 5,381 Finished goods 22,858 31,548 Spare parts 838 3,007   51,133 51,718   Provisions have been made based on the difference between cost of individual items and its net realisable value. 13 RECEIVABLES AND PREPAYMENTS 31 December 31 December 2004 2003 Trade receivables 46,591 40,658 Less : Provision for impairment of receivables (9,711) (10,184)   Trade receivables - net 36,880 30,474 Notes receivable 47,490 24,898 Prepayments 1,013 3,003 Other receivables 1,384 67,639 Prepaid expenses 35 27   86,802 126,041   14 AMOUNTS DUE FROM / DUE TO THE HOLDING COMPANY Amount due from / due to the holding company are unsecured and have no fixed terms of repayment. The related interest is calculated at a rate equivalent to the interest rates of the short-term bank loans. 15 AMOUNTS DUE FROM / DUE TO RELATED PARTIES These are amounts due from/due to subsidiaries of the holding company. The balances are unsecured, no interest free and have no fixed terms of repayment. 16 OTHER LONG-TERM ASSETS RECEIVABLE WITHIN ONE YEAR Other long-term assets receivable within one year represents the amount receivable under a foreign currency swap transaction entered into by SBCB in 1993. This amount was due to be received in November 1998 (see Note 19). -69- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 17 TRADE AND OTHER PAYEBLES 31 December 31 December 2004 2003 Accrued interest 37,265 79,313 Trade payables 24,527 30,662 Payables to contractors 11,661 12,066 Accrued utility expenses 4,051 7,860 Notes payable 15,981 24,128 Advances from customers 1,701 1,310 Staff welfare funds 2,028 2,794 Staff welfare 18,888 17,170 Audit fee payable 800 1,500 Others 7,081 4,157   123,983 180,960   18 BORROWINGS 31 December 31 December 2004 2003 Due to other lenders - Short-term borrowings 5,404 5,404   Borrowings due to other lenders were overdue as at 31 December 2004. Up till 31 December 2004, extensions had still not been formally granted by lenders. The Company’s Board of Directors had obtained the confirmation from the lenders that no additional interest will be charged on these overdue borrowings. The details of the borrowings are listed below: 31 December 2004 Lender Principal Period Interest rate Hebei Finance Bureau 404 1995.6.1-1995.11.30 7.2% Financing Bureau of Shijiazhuang 1995.3.1-1997.3.1 12.8% Finance Bureau 5,000  5,404  Short-term borrowings included borrowings dominated in foreign currency amounting to US$48,795, with the Rmb equivalent of 403,892. -70- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 19 OTHER LONG-TERM LIABILITIES DUE WITHIN ONE YEAR Other long-term liabilities due within one year represent US$10,000,000 payable under a foreign currency swap transaction entered into by SBCB in 1993. This amount was payable in November 1998 (see Note 16). The Company is still in a process of negotiating the settlement of this swap transaction. 20 SHARE CAPITAL The par value of the shares of the Company is Rmb 1 Yuan each. 31 December 31 December 2004 2003 Category of shares: Unlisted shares State 230,411 230,411 Legal persons 7,500 7,500   237,911 237,911   Listed shares A shares 45,089 45,089 B shares 100,000 100,000   Total listed shares 145,089 145,089   Total shares 383,000 383,000   21 MINORITY INTEREST 31 December 31 December 2004 2003 At beginning of the year 95,927 92,184 Share of net profit of subsidiary 3,411 3,743   At end of the year 99,338 95,927   -71- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 22 RESERVES 31 December 31 December 2004 2003 Reserve 569,399 569,399   (i) Capital accumulation fund Transactions of the following nature are recorded in the Capital accumulation fund: (a) share premium arising from the issue of shares at a price in excess of their par value; (b) donations received; (c) surplus arising from the revaluation of assets; (d) any other items required by PRC regulations to be so treated. Amounts in the Capital accumulation fund can be utilised to offset prior years' losses or for issue of bonus shares. (ii) Statutory accumulation and welfare funds The PRC Company Law requires a company to appropriate ten percent of its profit after taxation for the year computed in accordance with PRC accounting regulations (after offsetting any prior years' losses) to the Statutory accumulation fund. When the balance of such fund reaches 50 percent of the company's share capital, any further appropriation is optional. The Statutory accumulation fund can be utilised to offset prior years' losses or for issuance of bonus shares. However, the fund shall be maintained at a minimum amount equivalent to 25 percent of share capital after any such issuance. The PRC Company Law also requires a company to appropriate between five percent and ten percent of profit after taxation for the year to the Statutory welfare fund computed in accordance with PRC accounting regulations. The fund shall be utilised for the collective benefits of the workforce, including the provision of staff quarters or housing. No other distribution shall be made from the fund other than upon liquidation of the company. The Statutory accumulation and welfare funds represent amounts appropriated in accordance with the PRC accounting regulations in previous years. -72- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 23 CASH USED IN OPERATIONS Reconciliation of profit before tax and extraordinary items to cash used in operations: 2004 2003 Net profit 30,188 22,071 Adjustments for: Minority interest (Note 21) 3,411 3,743 Extraordinary item (Note 6) (1,828) - Income tax expense (Note 5) (7,283) 162   Profit before tax and extraordinary items 24,488 25,976   Adjustments for: Depreciation (Note 8) 20,358 20,851 Impairment charge (Note 8) (204) (125) Amortisation of land use rights (Note 9) 332 296 Profit on disposal of property, plant and equipment (Note 2) (482) 109 Interest expense (Note 3) 22,808 27,270 Interest income (3,791) (11,262) Exchange loss (Note 3) - 949 Share of result of associate (Note 10) (37,125) (37,999) Changes in working capital - trade and other receivables (36,377) (137,331) -inventories 585 (29,321) - trade and other payables (40,153) (16,980)   Cash used in operations (49,561) (157,567)   -73- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 24 RELATED PARTY TRANSACTIONS The ultimate parent of the Group is Shijiazhuang Baoshi Electronic Group Company Limited(“The holding company”), a company incorporated in the People’s Republic of China. The associate of the Group is Shijiazhuang Baoshi Electric Glass Company Limited (“SBEG”), a company incorporated in the People’s Republic of China. In addition to the related party balances and transactions described elsewhere in this report, the following significant transactions were carried out with related parties: Related party transactions were carried out on commercial terms and conditions and at market prices. (i) Sale of goods and services 2004 2003 Sale of goods to: The holding company 12,488 11,377 SBEG 20,960 27,543   33,448 38,920   Services and energy rendered to: The holding company 16,829 19,879 SBEG 159,533 137,692   176,362 157,571   Rental for assets leased to: SBEG 1,906 1,906   (ii) Purchase of goods and labor services 2004 2003 Raw material purchased from the holding company 4,769 - Labor service provided by the holding company 4,684 -   9,453 -   -74- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are shown in Rmb thousands unless otherwise stated) 24 RELATED PARTY TRANSACTIONS (Continued) (iii) Interest earned 2004 2003 Interest earned from the holding company (a) - 3,287 Interest charged from the holding company (a) (22,091) (11,986) Interest earned from SBEG (b) 3,791 6,613   (18,300) (2,086)   (a) The Group charges interests on the amount due from the holding company, and is charged interests on the amount due to the holding company. The related interest is calculated at a rate equivalent to the interest rates of the short-term bank loans and the average monthly outstanding balance with the holding company. (b) The Group charges interests on the loan to SBEG, which recorded in amount due from SBEG with the balance is Rmb 50,802 thousand at 31 December 2004. The related interest rate was 5.76% in the year ended 31 December 2004. (2003: 5.76%). (iv) Rental for asset 2004 2003 The holding company 3,348 3,242   (v) Other transactions with the holding company 2004 Loans interests transferred to the holding company (note) (42,765) Cash paid to the holding company 124,432 Payable from SBEG transfer to the holding company 9,326 Cash received from the holding company for utility expense and labor service (15,602) Other cash received from the holding company (18,554) Wages paid by the holding company (9,968) Accounts payable from third party transferred to the holding company (1,680) Others (1,188) Note: In accordance with the agreements reached on 17 August 2004 amongst the SBCB, the holding company and China Orient Assets Administration Company, Rmb42,765 thousand of accrued interests were transferred to the holding company to increase the paid in capital from China Orient Assets Administration Company to the holding company. -75- APPENDIX SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED RECONCILIATION OF GROUP NET PROFIT BETWEEN PRC REPORTING AND IFRS REPORTING FOR THE YEAR ENDED 31 DECEMBER 2004 All amounts are shown in Rmb thousands unless otherwise stated) 2004 2003 As reported in the consolidated financial statements prepared in accordance with PRC requirements 28,360 22,071   Adjustments for: Government special fund 1,828 -   As stated in the consolidated financial statements prepared in accordance with IFRS 30,188 22,071   -76-