闽灿坤Ｂ(200512)2005年年度报告（英文）

TSANN KUEN (CHINA) ENTERPRISE CO., LTD. TSANN KUEN (CHINA) ENTERPRISE CO. LTD 2005 Annual Report (Prepared under International Accounting Standards) 一、 CONTENTS 二、 I. COMPANY PROFILE 三、 II. FINANCIAL AND OPERATIONAL HIGHLIGHTS 1. Realized profit for this year 2. Financial information and index 3. Return on shareholders＇ equity and diluted or weighted EPS 4. Statement of changes in stockholders＇equity for the year ended 31 December 2005 四、 III. CHANGES IN STOCK SHARES AND BRIEF INTRODUCTION ABOUT SHAREHOLDERS 1. Changes of stock shares 2. About issuing and marketing of shares 3. Brief introduction about shareholders 4. Brief introduction about the controlling shareholders 5.Description of the real controlling shareholder 五、 IV. ADVANCED MANAGEMENT PERSONNEL AND EMPLOYEES 1. Directors, supervisors and senior administrative officers 2. Structure of human resource 六、 V. STRUCTURE OF CORPORATE GOVERNANCE 1. Structures of corporate government 2. The independent directors＇ performance of duty 七、 VI. BRIEFING OF THE SHAREHOLDERS＇ GENERAL MEETING 八、 VII. REPORT OF THE BOARD OF DIRECTORS (2)The operational situation during the reported period 3. Investment status 6. The routine work of the Board of Directors IX. THE REPORT OF THE SUPERVISORY COMMITTEE 九、 X. MAJOR EVENTS -1- TSANN KUEN (CHINA) ENTERPRISE CO., LTD. IMPORTANT STATEMENT The Board of Directors of the Corporation guarantees herein that there is no false record, misleading statement or any important omission existing in this report, and that they will bear the individual and joint responsibilities for the truthfulness, accuracy and integrity of the contents presented. None of the directors has ever declared that he (she) is uncertain of or has any objection to the truthfulness, accuracy and integrity of this annual report. Deloitte Touche Tohmatsu CPA has issued for our company a standard unqualified audit report. The chairman of the Board of Directors Mr. Tsai Yuan Song and the accounting manager Mr. Lin Zhi Hong jointly guarantee that the financial statements in this annual report are correct and complete. I. COMPANY PROFILE Company’s name (Chinese) ﹕厦门灿坤实业股份有限公司 Company’s name (English) ﹕TSANN KUEN (CHINA) ENTERPRISE CO.,LTD Company’s name(Abbreviation) ﹕TKC Representative of legal entity ﹕Tsai Yuan Song Board of Director’s secretary ﹕Luo Qing Xing Address for contact ﹕No.88 Xing Long Road, Huli Industry Zone, Xiamen, P.R. China. Telephone ﹕0592-5600887 Fax ﹕0592-5600886 E-mail address ﹕allenlo@tkl.tsannkuen.com Representative of the stock affairs ﹕Mei Mei Sun Address for contact ﹕No.88 Xinglong Road, Huli Industry Zone Xiamen, P.R. China Telephone ﹕0592-5681819 Fax ﹕0592-5600886 E-mail address ﹕mm_sun@tkl.tsannkuen.com Official address of headquarters ﹕Xiamen, P.R. China ﹕No.88 Xinglong Road, Huli Industry Zone Post code ﹕361006 Web Site ： www.tsannkuen.com -2- TSANN KUEN (CHINA) ENTERPRISE CO., LTD. E-mail address ﹕allenlo@tkl.tsannkuen.com Disclosure paper ﹕ShenZhen Home page ﹕www.cninfo.com.cn Prepared place ﹕No.88 Xinglong Road, Huli Industry Zone. Xiamen, P.R. China. Marketing place for TKC’s stock ﹕the Shenzhen Stock Exchange Short name for stock ﹕闽灿坤 B Code of stock ﹕200512 Registered day and place ﹕Jan. 1st, 1988 in Xiamen Business license number ﹕企独闽厦总副字 00233 号 Tax register code ﹕国税外字 35020661202170 Appointed auditor agent ﹕Deloitte Touche Tohmatsu CPA Auditor’s address ﹕No. 222, Yan An Road East, Shanghai, PRC II. FINANCIAL AND OPERATIONAL HIGHLIGHTS 1. Realized profit for this year Unit: RMB’000 Item Content Amount 1 Profit before tax 145,386 2 Net profit (368,008) 3 Net profit after extraordinary income or loss (257,317) 4 Major operating revenue 490,922 5 Other revenue 79,267 6 Profit from operations 185,866 7 Investment income (1,212) 8 Subsidiary income 2,643 9 Non-operating earning (or expenditure) (93,634) 10 Net cash flow from operating activities 73,400 11 Net increases of cash and cash equivalents (131,453) (1). The items and amount of the extraordinary income or loss (RMB’000): Less: (A) Subsidy income (2,643) (B) Reverse of asset impairment 0 (C) Non-operating income (33,916) (D) Non-operating income 127,550 (E) Minority’s extraordinary income 19,969 (F) Income tax effect of Extraordinary items (269) Total 110,691 -3- TSANN KUEN (CHINA) ENTERPRISE CO., LTD. (2). Summary of difference between IAS and PRC GAAP The above financial statement was prepared in conformity with IAS, which is different from that prepared under PRC GAAP. The loss reported under the statutory PRC GAAP for the year ended 31 December 2005 is RMB 365,258thousand Yuan, while the net assets reported thereof is RMB 1,058,784 thousand Yuan﹐These net profit and net assets should be adjusted, as pursuant to IAS, as following: Net Assets 2005’s Net Profit Ended December 31, 2005 RMB’000 RMB’000 Per reporting under PRC GAAP (365,258) 1,058,784 Adjustments to conform to IAS: Adjustment to property, plant and equipment which acquired before 1994 at swap rates (2,223) 10,155 Long-term investment reserves 1,212 1,212 Adjustment of assets revaluation reserves 275 (113) Unrecognized investment loss (2,002) 0 Others (12) 1,901 (368,008) 1,071,939 (120,196) 353,791 Per reporting under IAS (488,204) 1,425,730 2. Financial information and index 2005 Item / year Unit 2005 2004 2003 2004 1 Major operating income RMB’000 5,279,791 5,082,820 4,204,669 103.88% 2 Net profit RMB’000 (488,203) 60,234 126,416 -810.51% 3 Total assets RMB’000 4,521,144 5,230,685 5,061,134 86.44% Stockholder’s equity 4 RMB’000 1,071,939 1,439,947 1,401,410 74.44% (Minority equity excluded) 5 Earning Per Share RMB (0.33) 0.04 0.14 -827.10% 6 EPS (after extraordinary income or loss) RMB (0.23) 0.07 0.12 -330.47% 7 Net asset per B share RMB 0.96 1.42 1.59 67.86% 8 Net asset per B share (adjusted) RMB 0.95 1.41 1.57 67.72% Net cash flow from operating activities 9 RMB (0.03) (0.24) 0.15 11.80% per share Return on share- Diluted -30.87% 2.68% 9.02% -1151.85% -1225.8% 10 holder’s equity (%) Weighted -27.96% 2.72% 9.45% -1028.06% -1026.39% 3. Return on shareholders’ equity and diluted or weighted EPS Return on EPS Profits stockholder’s equity（%） (RMB Yuan) Diluted Weighted Diluted Weighted -4- TSANN KUEN (CHINA) ENTERPRISE CO., LTD. Operating profit 41.18% 37.30% 0.44 0.44 Profit from operation 15.59% 14.12% 0.17 0.17 Net profit -30.87% -27.96% (0.33) (0.33) Net profit (after extraordinary income or -21.58% -19.55% (0.23) (0.23) loss) 4. Statement of changes in stockholders’equity for the year ended 31 December 2005 Unit: RMB’000 Statutory Statutory Share public Share Capital surplus Retained profits Total Premium welfare Reserve reserve 1,011,227 128,655 224,319 49,420 75,746 1,439,947 Balance at 1 January 2005 101,123 (368,008) (266,885) Addition in this period 0 30,337 70,786 101,123 Deduction in this period Balance at 31 December 2005 1,112,350 128,655 193,982 49,420 (363,048) 1,071,939 1) 2005 Net Profit Stock Stock 2) Stock Reasons for Changes Dividends Dividends Dividends III. CHANGES IN STOCK SHARES AND BRIEF INTRODUCTION ABOUT SHAREHOLDERS 1. Changes of stock shares Shares at beginning Increase/decrease (+,-) Shares at ending Item Reserve- Apportioning New Share % Bonus issue converted shares Others Subtotal Share % shares shares Share not in circulation - 1、Founders’ shares 636,797,118 62.97% 44,575,798 19,103,914 63,679,712 700,476,830 62.97% Including: Shares of State Holders Shares of legal person holders within the boundary of China Foreign legal holder’s shares 636,797,118 62.97% 44,575,798 19,103,914 63,679,712 700,476,830 62.97% Others 2.Shares of raising legal persons 3、Shares of the internal staff 4、Preferred shares or others Total shares not in circulation 636,797,118 62.97% 44,575,798 19,103,914 63,679,712 700,476,830 62.97% Shares in circulation 1、Common share in RMB 2.Foreign capital shares on sale within the boundary of China 374,430,225 37.03% 26,210,116 11,232,906 37,443,022 411,873,247 37.03% 3.Foreign capital shares on sale outside the boundary of China 4、Others Total shares in circulation 374,430,225 37.03% 26,210,116 11,232,906 37,443,022 411,873,247 37.03% Total shares 1,011,227,343 100% 70,785,914 30,336,820 101,122,734 1,112,350,077 100% 2. About issuing and marketing of shares At 16 June 2005, the Corporation implemented the profit distribution plan that had been approved by the shareholders’ general meeting. According to the plan, stock dividend was to be distributed on -5- TSANN KUEN (CHINA) ENTERPRISE CO., LTD. the basis of 0.7 shares for every 10 shares held from the capitalization of retained earnings, totaling 70,785,914 shares, and the other 0.3 shares for every 10 shares from the converting discretionary surplus reserves, subtotaling 30,336,820 shares; grand totaling 101,122,734 shares. After the completion of this distribution, the company’s registered capital has been increased from the former 1,011,227,343 shares to the present 1,112,350,077 shares. 3. Brief introduction about shareholders (1)Number of the shareholders: The total number of the company’s shareholders at the end of the reported period is 17,890. (2)Shares held by the top ten stockholders Name of Shareholder Attribute of Shares held at Shares in Shares in stockholder Holding the year end circulation or mortgage or Ratio not in congealment circulation 1 FORDCHEE DEVELOPMENT LIMITED Other 29.19% 324,685,968 324,685,968 None 2 EUPA INDUSTRY Other None CORPORATION LIMITED 29.19% 324,685,805 213,447,878 3 Foreign None FILLMAN INVESTMENTS LIMITED stockholder 14.59% 162,342,984 162,342,984 4 Foreign Unknown TIMMERTON CO INC stockholder 1.30% 14,505,644 0 5 CORE PACIFIC-YAMAICHI Foreign Unknown INTERNATIONAL (H.K.) LIMITED stockholder 1.13% 12,546,126 0 6 MORGAN STANLEY INT’L Foreign Unknown (CHINA)-FIRM stockholder 0.57% 6,380,198 0 7 Foreign Unknown KGI ASIA LIMITED stockholder 0.51% 5,699,570 0 8 Foreign Unknown CSC SECURITIES (HK) LTD. stockholder 0.41% 4,598,087 0 9 Foreign Unknown TSAI SHU HUI stockholder 0.39% 4,294,433 0 10 CHEN YAYA Other 0.26% 2,894,588 0 None Shares held by top ten stockholders No Shares held Types of Shares Name of Shareholder at the year end 1 EUPA INDUSTRY CORPORATION LIMITED 111,237,927 B Shares 2 TIMMERTON CO INC 14,505,644 B Shares 3 CORE PACIFIC-YAMAICHI B Shares INTERNATIONAL (H.K.) LIMITED 12,546,126 4 MORGAN STANLEY INT’L (CHINA)-FIRM 6,380,198 B Shares 5 KGI ASIA LIMITED 5,699,570 B Shares 6 CSC SECURITIES (HK) LTD. 4,598,087 B Shares 7 TSAI SHU HUI 4,294,433 B Shares 8 CHEN YAYA 2,894,588 B Shares 9 HTHK-VALUE PARTNERS INTELLIGENT FD-CHINA B Shares B SH FD 2,857,222 10 LAU MING TO 2,617,304 B Shares Note to the consistent action between the above The top three stockholders are the controlling shareholders stockholders. TSAI SHU HUI is the spouse of Mr. WU TSAN KUN, who is the legal representative of the top three controlling company. TKC has neither knowledge about whether there is any interest-related relations between other shareholders holding circulable shares nor knowledge about whether or not the other shareholders holding circulable shares belong to the consistent action people specified in The Regulations for Information Disclosure on the Change of Shares Held by the Shareholders of the Listed Company. By the date of 31 December 2005, EUPA INDUSTRY CORPORATION LTD holds 324,685,805 shares in all, in which 111,237,927 shares is the circulable ones, and the remaining 213,447,878 shares is the non-circulable ones. -6- TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 4. Brief introduction about the controlling shareholders Legal Business Registered Holder’s name Founding day Mortgage representative scope capital Tsann Kun 1990/01/03 Investment HK$10,000 None FORDCHEE DEVELOPMENT LTD. Wu EUPA INDUSTRY CORPORATION Tsann Kun 1989/07/21 Investment HK$100,000 None LTD. Wu FILLMAN INVESTMENTS LTD. Tsann Kun 1992/07/21 Investment HK$10,000 None Wu Note: The above companies are the subsidiary companies of TKE 5.Description of the real controlling shareholder A. Name of the controlling shareholder﹕TSANN KUEN ENTERPRISE CO. LTD (situated in Taiwan) B. Legal representative ﹕TSANN KUN WU C. Registered day ﹕Nov. 2nd, 1978 D. Major product and services ﹕Processing, manufacturing and sales of small household appliances, their spare parts, and equipments, etc. E. Registered capital ﹕NT$2,212,150,000 F. Equity structure ﹕common stock G. Diagram of the relationship between TKC and the real controlling shareholders ﹕ IV. ADVANCED MANAGEMENT PERSONNEL AND EMPLOYEES 1. Directors, supervisors and senior administrative officers (1) Basic information: -7- TSANN KUEN (CHINA) ENTERPRISE CO., LTD. Reasons Term of 2005.12. Name Position Sex Age 2005.01. for Position 31 Shares 01 Shares Changes Chairman of Mr. Tsai Yuan 2005.5.27- Board of Male 50 0 0 Song 2008.5.26 Directors Mr. Yang Wen 2005.5.27- Director, CEO Male 47 0 0 Fang 2008.5.26 Mr. Zhang Ke 2005.5.27- Director Male 46 0 0 Da 2008.5.26 Mr. Zhuang 2005.5.27- Director Male 52 0 0 Xing 2008.5.26 Mr. Wei Jun Director 2005.5.27- Male 49 0 0 Xian (independent) 2008.5.26 Mr. He Jing Director 2005.5.27- Male 50 0 0 Hua (independent) 2008.5.26 Mr. Xiao Director 2005.5.27- Male 62 0 0 Feng Xiong (independent) 2008.5.26 Mr. Zhou 2005.5.27- Supervisor Male 51 0 0 Zong Geng 2008.5.26 Mr. Diao Wei 2005.5.27- Supervisor Male 52 0 0 Ren 2008.5.26 Mr. Wang Cai 2005.4.1- Supervisor Male 47 0 0 Wang 2008.5.26 Mr. Luo Qing Secretary of Male 52 2003.1.7 - 0 0 Xing the board Senior Mr. Lin Zhi Accounting Male 41 2002.10 -- 0 0 Hong Manager (2)Working status of BOD members and Supervisor in the companies of shareholders Name Name of Shareholder Title Duration Salary or compensation ( Yes or No) TSANN KUEN Mr. Zhuang ENTERPRISE CO., Executive Director 2003.5~ now Yes Xing LTD. TSANN KUEN Mr. Zhang Vice general manager of ENTERPRISE CO., 2004.6~ now Yes Ke Da operation department LTD. (3) Working status of BOD members, supervisors in the companies of shareholders Name Title Major working experiences and other occupations 1.2002.05-Now TSANN KUEN (CHINA) ENTERPEISE CO.LTD Chairman Mr. Tsai 2.1988.01-2002.12 TSANN KUEN (CHINA) ENTERPEISE CO.LTD General Manager Chairman Yuan Song 3.1978-1988.01 TSANN KUEN ENTERPRISE CO. LTD Manager of Manufacturing and R&D 1.2003.05.- Now TSANN KUEN ENTERPRISE CO. LTD Managing Director Mr. 2.2001.03-2003.04 TSANN KUEN ENTERPRISE CO. LTD General Manager of Channel Zhuang Director Business Group Xing 3.1998.07-2001.02 TSANN KUEN ENTERPRISE CO. LTD Vice General Manager 1.2003.01-- Now TSANN KUEN (CHINA) ENTERPEISE CO.LTD General Manager Mr. Yang General 2.2000.03-2003.01 TSANN KUEN (CHINA) ENTERPEISE CO.LTD Vice General Manager Wen Fang Manager 3.1998.08-2000.02 SHANGHAI P&C TELCOM ELECTRONICS General Manager 1.2004.06—Now TSANN KUEN ENTERPRISE CO. LTD Vice General Manager of Operation Department 2.2003.09-2004.05 TSANN KUEN ENTERPRISE CO. LTD Vice General Manager of Mr. Zhang European Market Director 3.2001.09-2003.08 TSANN KUEN ENTERPRISE CO. LTD Vice General Manager of TKE Ke Da 4.2001.04-2001.08 TSANN KUEN ENTERPRISE CO. LTD Director of Trade Department 5.1999.01-2001.03 TSANN KUEN ENTERPRISE CO. LTD Manager of Trade Department Mr. Wei Director 1.2005.12-Now AVON CO.LTD. President in Asia Pacific Jun Xian (independent) 2.2003 –2005.12 AVON CO. LTD. Vice President for Strategy -8- TSANN KUEN (CHINA) ENTERPRISE CO., LTD. planning in Asia-Pacific 3.1999.07-2003 P&G CHINA Global Vice President 1.2004.12-Now SIEBEL SYSTEMS INC. Vice President & CEO for China and East-Asia Area Mr. He Director 2.2004.02-2004.11 SOFTWARE CO., LTD. President Jing Hua (independent) 3.2000.01-2002.04 AMERICAN TECHONOLOGY Vice President & CEO for Asia-Pacific and Japan Area 1.2005.08-Now TAMKANG UNIVERSITY,TAIWAN Professor of Industrial Economy Department Mr. Xiao 2.2002.08-2005.07 TAMKANG UNIVERSITY,TAIWAN Dean of Commerce College Director Feng Professor of Industrial Economy (independent) Xiong 3.2001.08-2002.07 TAMKANG UNIVERSITY,TAIWAN Department 4.2001.08-2002.07 CHINA CONSTRUCTION CORPORTION Vice President 5.2000.05-2001.07 UNITED CHINA INVESTMENT CO. President 1.2002.10-Now SINGAPORE HUADIANTONG GROUP Chairman of Board Mr. Zhou Director 2.1999.12-2002.09 SINGAPORE HUADIANTONG GROUP General Manager Zong Geng (independent) Mr. Diao 1998.04-Now CAPITAL INTERNATIONAL HOLDINGS CO., LTD Chief Representative in Supervisor Wei Ren Shanghai Office 1.2005.08-Now TSANN KUEN (CHINA) ENTERPEISE CO.LTD. Vice president of Administrative Department Mr. Wang 2.2004.09—2005.07 TSANN KUEN (CHINA) ENTERPEISE CO.LTD. Senior manager of Supervisor Cai Wang Administrative Department 3.2003.02-2004.08 LIHUI METALS LTD Vice general manager 4.2000.10-2003.01 LIHUI METALS LTD Senior manager 1.2003.01--Now TSANN KUEN (CHINA) ENTERPEISE CO.LTD Secretary of Board Mr. Luo Secretary of 2.2002.10-2003.01 TSANN KUEN (CHINA) ENTERPEISE CO.LTD Senior Financial Manager Qing Xing Board 3.1997.08-2002.09 PACIFIC SECURITIES CO.LTD Vice General Manager 1.2005.03-Now TSANN KUEN (CHINA) ENTERPEISE CO.LTD Senior Accounting Manager Senior Mr. Lin 2.2002.10—2005.02 TSANN KUEN (CHINA) ENTERPEISE CO.LTD Accounting Manager Accounting Zhi Hong 3.2001.10-2002.09 REICHENG OPTICAL CO.LTD Finance Manager Manager 4.2000.08-2001.08 TSANN KUEN (CHINA) ENTERPEISE CO.LTD Vice Accounting Manager (4) Salary in the reported year A. The decision-making procedure of, and the basis for confirmation of, the remuneration to directors, supervisors and senior administrative officials: According to the company’s articles of association, the remuneration paid to the directors and supervisors is decided by the shareholders’ general meeting, while the remuneration paid to other senior administrative officials is decided by the board of directors. All the decisions on the payment to the above personnel are made on the basis of the company’s B. Annual remuneration (salary, bonus, allowance, etc.) to the present directors, supervisors and senior administrative officials﹕ Name Position Annual remuneration (in RMB 10,000) Chairman 6.00 Mr. Tsai Yuan Song of Board of Directors Mr. Yang Wen Fang Director, CEO 39.16 Mr. Zhang Ke Da Director 1.80 Mr. Zhuang Xing Director 3.60 Mr. Wei Jun Xian Director (independent) 12.39 Mr. He Jing Hua Director (independent) 7.50 Mr. Xiao Feng Xiong Director (independent) 7.50 Mr. Zhou Zong Geng Supervisor 6.69 Mr. Diao Wei Ren Supervisor 7.50 Mr. Wang Cai Wang Supervisor 21.25 Mr. Luo Qing Xing Secretary of the board 24.83 Mr. Lin Zhi Hong Senior Accounting Manager 16.74 Total 154.96 Remuneration for independent Tel-communication, traveling, and -9- TSANN KUEN (CHINA) ENTERPRISE CO., LTD. Director hoteling fee for/during the Meeting was paid according to TKC’s regulations Directors or supervisors who None did not apply for remuneration C. All the directors and supervisors receive remuneration from TKC. D. Changes in directors、supervisors and senior administrative officers: Shareholders’ General Meeting held on 27 May 2005 and approved that TKC appointed Mr. Tsai Yuan Song, Mr. Zhuang Xing, Mr. Yang Wen Fang, and Mr. Zhang Ke Da as directors; Mr. Wei Jun Xian , Mr. He Jing Hua ,and Mr. Xiao Feng Xiong as independent directors of its fourth Board of Directors. The former director Mr. Liu Shun Ren and Mr. Zhou Zong Geng submitted their resignation. After this Meeting the Meeting of Board of Directors held and approved Mr. Tsai Yuan Song as Chairman of Board of Directors. During Shareholders’ General Meeting which held on 27 May 2005 approved Mr. Zhou Zong Geng , Mr. Diao Wei Ren , Mr. Yan Liang Ji Mr. Lin Zong Ming would not as next Supervisors. After this Meeting, the second Supervisors Meeting held and approved Mr. Zhou Zong Geng as a convener for next meeting. Former representative, Miss Yu Su Cho, of general meeting of employees submitted her resignation and was approved. The Meeting of general meeting of employees, which held on 1 April 2005, then approved Mr. Wang Cai Wang for such vacancy. The second ad hoc Meeting of Board of Directors held on 26 December 2005, which approved Mr. Yang Wen Fang as general manager for TKC. 2. Structure of human resource Classification of Education level Head count Head count personnel Doctor Salesmen 206 Master 3 Financial Staff 223 Bachelor 523 Technicians 1,639 Academy 904 Administrators 800 Middle academy 878 Workers 22,113 Technical school 4,464 Senior high school 3,940 Middle school 11,429 Elementary school 2,840 Total 24,981 Total 24,981 V. STRUCTURE OF CORPORATE GOVERNANCE 1. Structures of corporate government In accordance with the regulations of The Guiding Opinion Regarding the Establishment of Independent Director System in the Listed Company issued by CSRC and with the need to strengthen the corporation’s management, TKC currently appoints 3 persons as its independent directors, who make up 43 percent of its total directors. - 10 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 2. The independent directors’ performance of duty (1)RESUME OF THE SHAREHOLDERS’ GENERAL MEETING Name Times of Personal Deputized Absence Remark meetings Presence Attendance (Times) (Times) (Times) Mr. Wei Jun Xian 10 9 0 1 Overseas business trip Mr. He Jing Hua 6 6 0 0 Mr. Xiao Feng Xiong 6 5 0 1 Overseas business trip Mr. Zhou Zong Geng 4 4 0 0 Mr. Liu Shun Ren 4 4 0 0 A.TKC held 10 times of BOD meeting in 2005. B.Mr. Wei Jun Xian was on business abroad during the first meeting of Board of Directors and did not attend the meeting. He did not also authorize anyone to deputize . C. Mr. Xiao Feng Xiong was on business abroad during the second ad hoc meeting of Board of Directors and did not attend the meeting. He did not authorize anyone to deputize . Objection proposed by directors against decision of the Company: None VI. BRIEFING OF THE SHAREHOLDERS’ GENERAL MEETING Annual Shareholders’ General Meeting and ad hoc Shareholders’ General Meeting held during this reporting: 1. Annual Shareholders’ General Meeting (1) The 2004’s Shareholders’ General Meeting of TKC was held on May 27th, 2006. (2) On the date of 28 May 2005, TKC published simultaneously an announcement of the Meeting on the newspapers of and . 2. Ad hoc Shareholders’ General Meeting (1) The 1st ad hoc Shareholders’ General Meeting held on 12 May 2006. (2) On the date of 29 December , 2006, TKC published simultaneously an announcement of the Meeting on the newspapers of and . VII. REPORT OF THE BOARD OF DIRECTORS Operational status and business structure during the reported period: In the year 2005, the household appliances industry encountered impacts from both global price trend upward in raw materials and inflation in exchange rate of RMB, either critical factors did corrupt our profit-making organism. We also frustrated from a wholly–completed market which we were inexperienced 3C (computer, consumer electronics, and telecommunication) wholesaling market in PRC. Although we frustrated from past strategy of World Channel, yet this experience let us integrate a healthy corporate structure and a clear vision of World Factory. Our main business operational status is as follows, Gross revenue in year 2005 was summed to RMB 5,896 million which was lesser by 12% than that of last reporting period; among them, revenue in household appliances segment was RMB 5,279 million, 4 % up. Gross revenue in the wholesaling segment decreased by RMB 616 million with declining rate of 62% and major reason was the closedown of 3C wholesaling segment on 1 July 2005. Generally speaking, gross revenue of household appliances segment in the North America and Europe was a tradeoff. Our battlefield would be the North America market and it explained almost 50 %. As a matter of product, gross sale of gourmet cooking was the number one in product mix. But it’s market weakened since 2005. The rising star in 2006 is home comforts. - 11 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. Net realized loss in 2005 was RMB 367 million and operational income from household appliances segment was RMB 123 million with decreasing rate of 73% and the reason of decreasing trend was price upward in international raw material market, inflation in exchange rate of RMB, and major profit producer- Tsann Kuen (Zhangzhou) Enterprise Co., Ltd. which tax exempt decreased by 50% since 2005. Household appliances segment was discontinued on 1 July 2005 and its business activity was terminated. Accordingly, operational loss and disposal loss totals RMB 476 million, of course, operational income was dramatically worse than that of last reporting period.. (2)The operational situation during the reported period A. The major business scope and its operational situation Classifying according to the trade and product Unit:RMB’000 Trade Product Sales Turnover Gross Profit Home comforts 1,375,142 141,984 Gourmet 2,569,859 316,704 cooking Tea/coffee 924,802 53,064 Manufacturing breakfast of household Other 409,988 -19,677 appliances Subtotal 5,279,791 492,074 Domestic Wholesaling 616,245 -117,410 Total 5,896,036 374,664 Related parties transaction 354,861 22,911 B. Classifying according to the geographical location Unit:RMB’000 Trade Area Sales Turnover Gross Profit North America 2,191,697 248,762 Europe 1,247,184 144,107 Manufacturing 1,076,388 (71,900) of household Asia appliances Other 764,523 171,104 Domestic Wholesaling 616,245 -117,410 Total 5,896,036 374,664 C. The products whose sales income exceeded 10% of the major operational income Unit:RMB’000 Type of product Ratio Sales income Cost of sales Gross profit ratio Home comforts 23.32% 1,375,142 1,233,157 10.33% Gourmet cooking 43.59% 2,569,859 2,253,155 12.32% Tea/coffee breakfast 15.69% 924,802 871,739 5.74% Domestic 10.45% 616,245 733,655 -19.05% - 12 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. Wholesaling Total 93.05% 5,486,048 5,091,706 7.19% (3).Chief customers and suppliers A. The sum of purchasing amount from the top five suppliers in 2005 is RMB 9,333,732 thousand Yuan making up23.92% of the company’s total purchasing amount in the year. B. The sum of sales amount to the top five customers in 2005 is RMB 235,519 thousand Yuan making up 33.24% of the company’s total sales amount in the year. (4) Explain the significant changes, if applicable, in assets or period expenses No significant changes in either in assets or period expenses this reporting period . (5) Explain the significant changes in cash flow, cash flow form operating activities, and net profit. Termination of 3C wholesaling segment significantly reduce net loss and it also explain the changes in cash flow and cash flow form operating activities in this reporting period. Cash flow form operating activities was turned from negative in 2004 to positive in 2005. (6). The operational situations and the achievements of the companies which is under TKC’s control or in which TKC holds a share. A. Tsann Kuen China (Shanghai) Enterprise Ltd. (A)Business Range : Manufacturing; (B)Major Products and Services: (C)Production of household appliances、electronic、light industrial products、 modern office equipments and their related modules、various kinds of computers and their related facilities or spare parts. Development of computer software, IC packing and testing. Sale of their own products (the exporting of which will not be restricted by the requirements of license. and quota, or by whether or not being the product of class B). (D). Registered capital : US$ 40,000,000 (E). Assets Scale : RMB 523,550,000 (F). Net profit : RMB –33,670,000 B. Tsann Kuen Xiamen Technology Co., Ltd. (A). Business Range: Manufacturing; (B). Major Products and Services: Producing and marketing network service products like internet server, router and other digital communication devices, network multi-media PC products and their assemblies, related software. Designing, researching, developing and producing sophisticated pressing modules, model normalizers and the like. (C). Registered capital : US$ 20,000,000 (D). Assets Scale : RMB 58,920,000 (E). Net profit : RMB 590,000 C. Tsann Kuen Zhangzhou Enterprise Co. Ltd. (A). Business Range: Manufacturing; (B). Major Products and Services: Development, production and sale of small household electrical appliances, new kind of electronic appliances and parts (such as electrical kits, sensors and sensitive transmitters), light industrial products, modern office supplies; designing and producing the molds related to the above products. (Excluding those products restricted by the government or those whose import or export - 13 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. quota is under license administration. When involved in those projects which need to be examined and approved first, the company carries out its operation and production only within the range and within the valid period set in the license.) (C). Registered capital : US$ 40,000,000 (D). Assets Scale : RMB 3,656,090,000 (E). Net profit : RMB 201,990,000 D. Xiamen Tsann Kuen Dian Tong Electronic Co. Ltd. (A) Business Range: Wholesale trading. (B) Major Products and Services: Wholesaling and its follow-up service of household appliances, computer sets and their attachments, communication materials, motor and electric equipments, office supplies and the related attachments (including kitchen facilities). (For those business items which need to be examined and approved first according to the laws and regulations, the company will carry out its operation only after it has obtained the license) (C). Registered capital : RMB 65,000,000 (D). Assets Scale : RMB 516,020,000 (E). Net profit : RMB -453,160,000 E.Shanghai Tsann Pao Electronics Co., Ltd (A) Business Range: Wholesale trading (B) Major Products and Services: Wholesaling and its follow-up service of household appliances, computer sets and their attachments, communication materials, motor and electric equipments, office supplies and the related attachments (including kitchen facilities). (For those business items which need to be examined and approved first according to the laws and regulations, the company will carry out its operation only after it has obtained the license). (C) Registered capital : RMB 10,000,000 (D) Assets Scale : RMB 134,900,000 (E) Net profit : RMB-147,420,000 F. Chengdu Tsann Kuen Electronics Co., Ltd (A) Business Range: Wholesale trading (B) Major Products and Services: Wholesaling and its follow-up service of household appliances, computer sets and their attachments, communication materials, motor and electric equipments, office supplies and the related attachments (including kitchen facilities). (For those business items which need to be examined and approved first according to the laws and regulations, the company will carry out its operation only after it has obtained the license). (C) Registered capital : RMB 5,000,000 (D) Assets Scale : RMB 26,120,000 (E) Net profit : RMB –4,510,000 G. Tsann Kuen (Zhangzhou) South Port Eletronics Enterprise Co., Ltd. (A) Business Range: Wholesale trading (B) Major Products and Services: Development, production and sale of small household electrical appliances, new kind of electronic appliances and parts (such as electrical kits, sensors and sensitive transmitters), light industrial products, modern office supplies; designing and producing the molds related to the above products. (Excluding those products restricted by the government or those whose import or export quota is under license administration. When involved in those projects which - 14 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. need to be examined and approved first according to the laws and regulations, the company will do its business only after it has obtained the license). (C) Registered capital : USD 20,000,000 (D) Assets Scale : RMB 48,810,000 (E) Net profit : RMB –1,570,000 2. Business Plan in 2006 (1)To analyze advantage and disadvantage in related industry which doing business The rising challenge from competitors in Ning-Bo and Shun-De area, PRC impact our previous advantage and damage to our previous market share, therefore, TKC should introduce more value-added products to market and seek feasible production base for non valued-added product. From strategic planning point of view, we plan to follow the PRC Government’s 11th 5 year Project to benefit from advantage in the Western Strait Economic Zone. We also decide to induce long-term and mid-term capital to support such strategic Project. (2) Business plan in 2006 (A) Sales forecast of TKC group is RMB 6,500 million. (B).Focus of operations: A. Costs leadership, expenses control, profitability reinforcement; B. Construct and roll out ERP system and CRM mechanism; C. Continuously drive the improvement of manufacturing skills to advance efficiency; D. Build up the mechanism of unit functions and integrate them with workflows and standard operations; E. Strengthen ISO quality standards, perfect the workflow of quality management; F. Speed up the development of human resources, cultivate professional talents in all aspects; 3. Investment status (1).Utilization state of raised funds A. Apart from the 40,000,000 shares of outbound funds raised in 1993, TKC has not raised funds since 1994. And there was no case of the utilization of the raised funds being extended till after 1998. B. The plan to issue additional 50 million B-shares and to use the fund raised from that was passed in the 1999’s Meeting of Shareholders, and on July 7, 2000 the application for issuing B-shares was approved by CSRC. After that, the related application documents were sent to CSRC for approval after they had been passed in the shareholders’ meeting held on the date of June 2nd, 2001, but till now no feedback of them has been received. (2).Utilization state of non-raised funds： A. In July of 2002, TKC invested funds in Longhai Developing District of Zhangzhou city to set up a subsidiary company—Tsann Kuen Zhangzhou Enterprise Co. Ltd. in which TKC holds 75 percent of its stockholder’s equity. Major plants and production line were completed. B. In April 2003, TKC invested funds in Huli Industrial Zone of Xiamen city to set up Xiamen Tsann Kuen Dian Tong Electronics Co. Ltd, in which TKC held 65 percent of its stockholder’s equity then. The registered capital for this subsidiary company was RMB 65,000,000, all of which has arrived in position. By the end of the reported period, this company has accumulated loss. TKC and Thermaster Electronic (Xiamen) Ltd., the joint investor, have committed to - 15 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. continuously to provide financial support to keep Xiamen Tsann Kuen Dian Tong Electronics Co. Ltd’s business going, to repay the bank loan, and recognize the investment loss according to their respective ownership. C. Shanghai Tsann Pao Electronics Co., Ltd. (Shanghai Tsann Pao) was established by the Company and Shanghai Huangdu Management Company (Shanghai Huangdu) in December 2002 and obtained its business license on 2 January 2003. TKC owns twenty percent of this company. Since the Company control the majority of the board of directors, and has committed to provide sufficient working capital to finance the operation of Shanghai Tsann Pao Electronics Co., Ltd., the management of the Company regards that the Company has substance control over Shanghai Tsann Pao’s financial policy since the establishment of Shanghai Tsann Pao and operation policy and is able to continue such control. As a result, the Company incorporates Shanghai Tsann Pao into the consolidation financial statements. Until 31 December 2005, Shanghai Tsann Pao was in a stage of accumulated loss, therefore it was discontinued on 1 July 2005. D. Chengdu Tsann Kuen Electronics Co., Ltd was established by TKC and Shanghai Tsann Pao Electronics Co., Ltd in October 2003. The registered capital is RMB 5 million and TKC contributed 50%. By the end of the reported period, this company has accumulated loss. E. TKC and the controlling stockholder, EUPA Industry Corporation Limited, invested jointly to form a new company - Tsann Kuen (Zhangzhou) South Port Electronics Enterprise Co., Ltd. It’s registered capital is RMB 5 million and capital was then fully received. TKC directly owned 75 % shares, indirectly 25%. 6. The routine work of the Board of Directors (1).Important decisions made by the Board of Directors during the reported period A. The first meeting of 2005’s was held on the date of 19 February 2005, and the following bills were passed in the meeting: TKC and the controlling stockholder, EUPA Industry Corporation Limited, invested jointly to form a new company - Tsann Kuen (Zhangzhou) South Port Electronics Enterprise Co., Ltd. B. The second meeting of 2005’s was held on the date of 26 March 2005, and the following bills were passed in the meeting: to establish a fully owned new company- EUPA (Hong Kong) Limited. C. The third meeting of 2005’s was held on the date of 20 April 2005, and the bill passed was released in the newspapers of on 22 April 2005, and on 23 April 2005. F. At 27 April 2005, in the fourth meeting of the year 2005, the following decision was made - the company’s 2005’s first quarter report and its summary. E. At 27 May 2005, in the fifth meeting of the year 2004, and the bill passed was released in the newspapers of and on 28 May 2005. F. In the first ad hoc meeting of 2005 held on 1 July 2005, and the bill passed was released in the newspapers of and on 6 July 2005. G. The sixth meeting of 2005’s was held on the date of 24 August 2005, and the bill passed was released in the newspapers of and on 26 August 2005. H. The seventh meeting of 2005’s was held on the date of 28 October 2005, and the bill - 16 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. passed was released in the newspapers of and on 31 October 2005. I. The eighth meeting of 2005’s was held on the date of 21 November 2005, and the bill passed was released in the newspapers of and on 24 November 2005. J. The second ad hoc meeting of 2005’s was held on the date of 26 December 2005, and the bill passed was released in the newspapers of and on 29 December 2005. (2). The Board of Directors’ execution status to the resolutions of the Shareholders’ General Meeting (including the Board’s implementation to the work authorized by the Shareholders’ General Meeting, the Board’s implementation to the company’s profit distribution plan and to the plan to convert surplus accumulated funds into stock capital during the reported period, and the realization status on the plans to apportion shares or to re-issue new shares, etc.) A. Distribution of the 2004’s yearly profit during the middle phase of 2005: At 16 June 2005, the Corporation implemented the 2004 yearly profit distribution plan that had been approved by the Shareholders’ General Meeting. The profit distribution plan is as the follows: (A).Stock dividend was to be distributed on the basis of 0.7 shares for every 10 shares held from the capitalization of retained earnings, totaling 70,785,914 shares (B). 0.3 shares for every 10 shares from the converting discretionary surplus reserves, totaling 30,336,820 shares; grand totaling 101,122,734 shares. After the completion of this distribution, the company’s registered capital has been increased from the former 1,011,227,243 shares to the present 1,112,350,077 shares. B. No share apportioning or new share re-issuing occurred during the reported period. C. The revision on the corporation’s articles of association Prior amendment of the corporation’s articles was changes in capital, and to fulfill the requirements of The Notice about Protection of Shareholders’ Interests of Social Circulated Shares from CSRC and The revised Listing Rules on December 2004 of Shenzhen Stock Exchange. Accordingly, TKC amended The rules of Shareholders’ General Meeting, The rules of meeting for Supervisors, and The rules of meeting for the Board of Directors to assure there is no dispute among law, regulation, and corporate rules. D. Non- circulable foreign-capital shares to apply for B Shares At 31 October 2005, the top three controlling stockholders - EUPA Industry Corporation Limited, Forchee Development Limited, and Fillman Investments Limited proposed a application to TKC for listing shares. On 21 November 2005, TKC submit an application report of the above three stockholders’ shares for listing via Xiamen foreign investment Bureau to Ministry of Commerce and acquired approval from Ministry of Commerce on 20 December 2005. At 12 January 2006 TKC submit Application report of the above three controlling stockholders’ shares for listing to CSRC, CSRC accepted such application on 23 January and now is under examination. The Company will continue to pay attention to application schedule and subsequent procedures and then disclose the related information on time E. Proposed 2005 profit distribution plan Net loss disclosed in this reporting period, so there is no available earnings to distribute to stockholders. - 17 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. IX. THE REPORT OF THE SUPERVISORY COMMITTEE The Meeting of the Supervisory Committee At 20 April 2005, in the first meeting of the year 2005, the following decision was released in the newspapers of on 22 April 2005, and on 22 April 2005.The decision made is as follows: (1) Working Report of the Supervisors for the year of 2004. (2) Annual Report and Brief report for the year of 2004. (3) Amended The rules of meeting for Supervisors (4) Propose candidates for the next Supervisory Committee and submit of compensation program for Supervisors. On 27 May in the second meeting of the year 2005, the following decision was released in the newspapers of and on 28 May 2005,.The decision made is to elect Mr. Zhou Zong Geng to be a convener for Committee in next year. In 2005 supervisory committee performed the supervisory functions, conducted duties, and their independent opinion is as follows: 1. The Company was operated under the Law: The decision-making process of the Company is lawful. The Company establishes a functional internal control system. No evidence of any managerial irruption on Laws, Regulations, Articles of corporations, and the interest of the Company and stockholders when practices. 2. Examination on corporate financials: reported financial statements were presented fairly, in materially respect, the operational results and financial status. 3. The actual input items of latest fund-raising were performed under the Promissory items。 4. Assets acquisition or disposal transacted in reasonable market price. No case of inside trading has been found which conducted by the company. No relative corruption acts which will do damage to corporate assets or stockholder’s equity. 5. The transactions with the relative parties were carried out fairly, and none of them was found to be harmful to the interest of the corporation and the shareholders. 6. After carrying out examinations to the year 2005’s work of the company’s directors and other senior administrative persons, no case of violation has been found, and all the above-mentioned persons were recognized to be responsible and faithful to their duties in the year 2005. X. MAJOR EVENTS 1. Significant litigation or arbitration: none. 2. Significant purchase or disposal of assets and acquisition or merge On 8 March 2004, the Company received [2005] Di No.102 Notice from Xiamen Municipal Government, which stated that the land in Tsann Kuen Technology Park located at Jinshang Road, Xiamen, will be taken back by the government. The Company arrived at a agreement in respect of the compensation for the withdrew of the land with Xiamen State-owned Land and Buildings Management Bureau on 31 March 2005. Disposal income of the land was RMB 27.41 million. The acquisition gain was recognized in the first quarter of year 2005. Tsann Kuen Xiamen Technology Co., Ltd.(TKK) is the manufacturer of PC products invested by TKC. In 2003, Tsann Kuen Xiamen Technology Co., Ltd. TKK was transformed into the factory of developing and processing modules. Though the land is acquired on 31 March 2005, Tsann Kuen Xiamen Technology Co., Ltd. leased the factory space from Tsann Kuen Zhangzhou Enterprise Co. Ltd. since November 2004. There is no impact on its business continuity and stability of the management. - 18 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. According to “Asset Transfer Agreement” which entered into in Shanghai on 1 July 2005. Major assets of the domestic wholesaling segment were sold to YOLO household appliances Co., Ltd. There is no demand-supply relationship between household appliance segment and wholesaling segment, and those two segments were operated independently, so it is no impact or influence on stability and continuity of TKC management. 3. Significant transactions with the relative parties: (1). About the details of transactions with the relative parties taking place during the reported period, please refer to the notes to the financial report; (2). All the transactions with the relative parties were done on the basis of signed by XIAMEN TAX BUREAU and the company (3) Transactions are conducted under effective agreement signed. (4) Notes to the necessity and consistency of relative parties transaction : Empower group strength on purchasing for purpose of downing cost, to strengthen market share by means of integrating separate related parties in the world. (5) Joint investment with related parties in the reporting period A. Co-investment investor: Tsann Kuen (Zhangzhou) South Port Electronics Enterprise Co., Ltd. B. Name of investee : Tsann Kuen (Zhangzhou) South Port Electronics Enterprise Co., Ltd. C. Business scope : Development, production and sale of small household electrical appliances, new kind of electronic appliances and parts (such as electrical kits, sensors and sensitive transmitters), light industrial products, modern office supplies; designing and producing the molds related to the above products. (Excluding those products restricted by the government or those whose import or export quota is under license administration. When involved in those projects which need to be examined and approved first according to the laws and regulations, the company will do its business only after it has obtained the license). D. Registered capital : RMB 5 Million E. Asset scale : RMB 48,810,000 F. Net Profit : RMB 1,570,000 4. Significant Guarantee Unit:RMB’0000 tGuarantee on non-related company (subsidiaries company excluded ) Name of Date of Guaranteed Type of Duration Due Related guarantor transaction amount guarantee or not party （date of guarantee signature） (yes or no) Total guarantee occurred during reporting None period Total guarantee at end of reporting period None Guarantee on subsidiaries company Total guarantee occur on holding company 36,777 during reporting period Total guarantee for holding company at end 4,808 of reporting period Total guarantee amount(subsidiaries company included) Total guarantee 4,808 - 19 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. Total guarantee / Total Assets 4.49% Among them Guarantee for other Stockholders of Holding 0 Company or Holding Company Guarantee, directly or indirectly, for 0 Company’s liability which debt ratio is greater than 70% Amount of guarantee exceed net asset by 0 50% Total above three guarantee 0 Independent opinion about significant guarantee of year 2005 from independent directors According to release No. 56 “The notice about the regulations for the funds flowing between related parties and guarantee in the public companies” issued by CSRC in year 2003, as the independent directors of TSANN KUEN (CHINA) ENTERPRISE CO. LTD, we have seriously and thoroughly checked the reason for inability to distribute cash dividend and expressed the independent opinions as follows: Special announcement from independent directors: Up to 31 December 2005, TKC guarantee for Tsann Kuen China (Shanghai) Enterprise Ltd. summed to RMB 48,078,389 and previously guarantee for Xiamen Tsann Kuen Dian Tong Electronic Co. Ltd. totaled RMB 115,044,000 was all cancelled. No more non-related-parties guarantee occurred in this reporting period and there is also no non-related-parties guarantee occurred in all subsidiaries. Independent opinion: Although TKC guaranteed for Tsann Kuen China (Shanghai) Enterprise Ltd. and it’s amount was less than that of 2004 semi-annual by RMB 7,323,611 yet the Management of TKC have always followed requirement of The notice about the regulations for the funds flowing between related parties and guarantee in the public companies issued by CSRC and continue taking action to reduce guarantee amount step by step in order to lower the risk of contingent liability. If new external guarantee might occurred, TKC should strictly abide to requirement of Regarding notes to non-related parties guarantee of listed company regulation, Securities Regulatory release [2005] No.120, from CSRC and China Banking Regulatory Commission to step the necessary application procedures. The Company will focus on feasible planning to protect stockholders’ equity in case of financial difficulty in Tsann Kuen China (Shanghai) Enterprise Ltd. would occur. Any material information which impact financial structure will be disclosed on time to protect the minority interests of shareholders. Independent Directors: Wei Jun Xian, He Jing Hua, Zhou Zong Geng April 4th, 2006 5. During the reported period, none of the shareholders who held more than 5% of the company’s total shares revealed without authorization any information on any of the designated newspapers or on inter-net. - 20 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 6. During the reported period, there was no change in TKC’s appointing Deloitte Touche Tohmatsu CPA to be its auditor, and the fees for it this year was RMB 2.25 million. The CPA is changed from Miss Yu Dong Fang to Miss Zhu Li Ya because of the regulations for rotation of CPAs of auditing business. FINANCIAL REPORTS (See the attachments) 1.DTT’s audit report; 2.Financial statements: (1).Consolidated balance sheet; (2).Consolidated income statement; (3).Consolidated cash flow statement; XI. MEMO 1.The Financial statements with signatures and seals of the legal representative, the CFO and other chief accountants. 2.The audit report proper with the seals of the public accounting firm and with the personal signatures and seals of its CPAs. 3.All the company’s documents proper and announcement originals that were publicly disclosed during the reported period on the newspapers nominated by CSRC. 4.The Corporation’s Articles of Association. 5.The above-mentioned documents are stored in the office of the Board of Directors. (Signed by:) Tsai Yuan Song The chairman of the Board of Directors of TSANN KUEN (CHINA) ENTERPRISE CO., LTD. on May. 8th, 2006 - 21 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. TSANN KUEN (CHINA) ENTERPRISE CO., LTD. Auditors’ Report and Financial Statements for the year ended 31 December 2005 (Prepared under International Financial Reporting Standards) Registered Office: 88 Xinlong Road, HuLi Industry Zone Xiamen China - 22 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. AUDITORS' REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 CONTENTS PAGE(S) AUDITORS’ REPORT 1 CONSOLIDATED INCOME STATEMENT 2 CONSOLIDATED BALANCE SHEET 3 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 4 CONSOLIDATED CASH FLOW STATEMENT 5-6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7 – 42 - DTT(A)(06)I0063 AUDITORS’ REPORT TO THE SHAREHOLDERS OF TSANN KUEN (CHINA) ENTERPRISE CO., LTD. We have audited the accompanying consolidated balance sheet of the Tsann Kuen (China) Enterprise Co., Ltd. and its subsidiaries (collectively referred to as the "Group") as of 31 December 2005 and the related consolidated statements of income, changes in equity and cash flows for the year then ended. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements give a true and fair view of the financial position of the Group as of 31 December 2005 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Deloitte Touche Tohmatsu CPA Ltd. Shanghai, China 8 May 2006 -1- TSANN KUEN (CHINA) ENTERPRISE CO., LTD. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 NOTES 2005 2004 RMB’000 RMB’000 (Restated) Continuing operations Revenue 6 5,279,791 5,082,820 Cost of sales (4,788,869) _________ (4,246,838) ________ Gross profit 490,922 835,982 Other operating income 8 98,913 68,807 Selling and distribution expenses (259,755) (316,777) Administrative expenses (144,214) (121,588) Interest income 5,084 2,902 Finance costs 9 (45,564) _________ (13,073) ________ Profit before tax 145,386 456,253 Income tax expense 10 (30,751) _________ 2,783 ________ Profit for the year from continuing operations 114,635 459,036 Discontinued operation Loss for the year from discontinued operation 11 (602,839) _________ (398,803) ________ (Loss) profit for the year 7 (488,204) _________ 60,233 ________ Attributable to: Equity holders of the parent (368,008) 38,621 Minority interests (120,196) _________ 21,612 ________ (Loss) profit for the year 12 (488,204) _________ 60,233 ________ RMB RMB Basic earnings (losses) per share From continuing and discontinued operations 14 (33) cents _________ 4 cents ________ From continuing operations 7 cents _________ 33 cents ________ See accompanying notes to the financial statements. -2- TSANN KUEN (CHINA) ENTERPRISE CO., LTD. CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2005 NOTES 2005 2004 RMB’000 RMB’000 (Restated) ASSETS Non-current assets Property, plant and equipment 15 1,434,728 1,581,578 Goodwill 16 6,668 6,668 Prepaid operating rental – non-current 17 19,687 75,914 Other investments 19 71 _________ 71 ________ 1,461,154 _________ 1,664,231 ________ Current assets Inventories 20 1,347,983 1,409,892 Trade and other receivables 21 860,330 1,406,433 Prepaid operating rental – current 17 554 1,803 Amounts due from related companies 30(c) 448,380 199,771 Restricted deposits 26,067 41,383 Derivative financial instruments 25 957 - Bank balances and cash 375,719 _________ 507,172 ________ 3,059,990 _________ 3,566,454 ________ Total assets 4,521,144 _________ 5,230,685 ________ EQUITY AND LIABILITIES Capital and reserves Share capital 22 1,112,350 1,011,227 Other reserves 23 322,637 352,974 (Accumulated losses) retained profits (363,048) _________ 75,746 ________ Equity attributable to equity holders of the parent 1,071,939 1,439,947 Minority interests 353,791 _________ 248,718 ________ Total equity 1,425,730 _________ 1,688,665 ________ Current liabilities Trade and other payables 26 1,306,139 1,669,167 Long-term bank loans-due within one year 24 - 50,000 Amounts due to related companies 30(c) 439,914 493,898 Income tax liabilities 1,704 2,075 Short-term bank loans 24 1,346,688 1,326,880 Derivative financial instruments 25 969 _________ ________- 3,095,414 _________ 3,542,020 ________ Total equity and liabilities 4,521,144 _________ 5,230,685 ________ See accompanying notes to the financial statements. -3- TSANN KUEN (CHINA) ENTERPRISE CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2005 Other reserves (note 23) Retained Attributable Statutory Discretionary Statutory profits to equity Share Share surplus surplus public Translation (Accumulated holders of Minority capital premium reserve reserve welfare reserve reserve Sub-total losses) the parent Interest Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 YEAR ENDED 31 DECEMBER 2004 Balance at 1 January 2004 879,328 128,655 124,438 90,694 47,553 84 391,424 130,658 1,401,410 189,560 1,590,970 Change of functional currency used by a subsidiary - - - - - (84) (84) - (84) - (84) Capitalisation 131,899 - - (43,967) - - (43,967) (87,932) - - - Capital contribution from minority shareholders of subsidiaries - - - - - - - - - 37,546 37,546 Profit for the year - - - - - - - 38,621 38,621 21,612 60,233 Appropriations ________- _______- 3,734 _______ ______- 1,867 ______ ____- 5,601 _______ (5,601) ________ _________- __________- __________- Balance at 31 December 2004 1,011,227 ________ 128,655 _______ 128,172 _______ 46,727 ______ 49,420 ______ ____- 352,974 _______ 75,746 ________ 1,439,947 _________ 248,718 __________ 1,688,665 __________ YEAR ENDED 31 DECEMBER 2005 Balance at 1 January 2005 1,011,227 128,655 128,172 46,727 49,420 - 352,974 75,746 1,439,947 248,718 1,688,665 Capitalisation 101,123 - - (30,337) - - (30,337) (70,786) - - - Capital contribution from minority shareholders of subsidiaries - - - - - - - - - 12,059 12,059 Loss for the year - - - - - - - (368,008) (368,008) (120,196) (488,204) Reclassification (note18(1)) ________- _______- _______- ______- ______- ____- _______- ________- _________- 213,210 __________ 213,210 __________ Balance at 31 December 2005 1,112,350 ________ 128,655 _______ 128,172 _______ 16,390 ______ 49,420 ______ ____- 322,637 _______ (363,048) ________ 1,071,939 _________ 353,791 __________ 1,425,730 __________ See accompanying notes to the financial statements. -4- TSANN KUEN (CHINA) ENTERPRISE CO., LTD. CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 Notes 2005 2004 RMB’000 RMB’000 OPERATING ACTIVITIES (Loss)Profit for the year (488,204) 60,233 Adjustments for: Interest income (5,599) (3,686) Finance costs 9 67,125 50,394 Income tax expense 10 31,144 2,783 Depreciation of property, plant and equipment 355,223 311,096 Impairment loss reversed on property, plant and equipment (620) (10) Impairment loss provided on property, plant and equipment - 4,064 Loss(gain) on disposals of property, plant and equipment 31,529 23,404 Amortisation of prepaid operating rental 969 1,906 Amortisation of goodwill - 1,212 Effect of foreign exchange rate changes _________- (84) ________ Operating cash flows before movements in working capital (8,433) 451,312 Decrease (increase) in inventories 61,909 (86,646) Decrease (increase) in trade and other receivables 587,030 (162,385) (Increase) decrease in amounts due from related companies (52,490) 32,803 Decrease in trade and other payables (429,116) (396,165) Decrease in amounts due to related companies (53,984) _________ (66,466) ________ Cash generated by operations 104,916 (227,547) Income taxes paid (31,515) _________ (15,651) ________ NET CASH FROM (USED IN) OPERATING ACTIVITIES 73,401 _________ (243,198) ________ INVESTING ACTIVITIES Interest received 5,599 3,686 Proceeds on disposals of property, plant and equipment 147,880 7,317 Purchases of property, plant and equipment (303,841) (316,125) Receipt of loan due from related companies 17,091 - Payment on behalf of related companies (213,211) _________ ________- NET CASH USED IN INVESTING ACTIVITIES (346,482) _________ (305,122) ________ (Continued) -5- TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 2005 2004 RMB’000 RMB’000 FINANCING ACTIVITIES Cash received from minority shareholders 12,059 37,546 Interest paid on bank loans (68,766) (50,394) Repayments of bank loans (2,024,951) (2,087,233) New bank loans raised 2,257,970 2,588,021 Decrease in restricted deposit 15,316 8,277 Repayment of long-term loan (50,000) _________ (23,414) ________ NET CASH (USED IN) FROM FINANCING ACTIVITIES 141,628 _________ 472,803 ________ NET DECREASE IN CASH AND CASH EQUIVALENTS (131,453) (75,517) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 507,172 _________ 582,689 ________ CASH AND CASH EQUIVALENTS AT END OF YEAR 375,719 _________ 507,172 ________ ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash 375,719 _________ 507,172 ________ See accompanying notes to the financial statements. -6- TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 1. GENERAL Tsann Kuen (China) Enterprise Co., Ltd. (“the Company”) was established in the People’s Republic of China (“the PRC”) in 1988 under the name of Tsann Kuen China (Xiamen) Ltd. as a wholly owned foreign investment enterprise. On 16 February 1993, with the approval of the Ministry of Foreign Trade and Economic Co-operation, the Company was reorganised into a joint stock company limited by shares and was renamed as Tsann Kuen (China) Enterprise Co., Ltd. In June 1993, the Company issued 40,000,000 new shares pursuant to an international placing and public offer and these new shares (“B shares”) were then listed on the Shenzhen Stock Exchange on 30 June 1993. The ultimate holding company is Tsann Kuen Enterprise Ltd., a company incorporated in Taiwan. The Company and its subsidiaries are hereinafter collectively referred to as the Group. 2. Adoption of new and revised International Financial Reporting Standards In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (the IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for accounting periods beginning on 1 January 2005. The adoption of these new and revised Standards has resulted in a change in the presentation of consolidated income statement, consolidated balance sheet and consolidated statement of changes in equity. In particular, the presentation of minority interests and discontinued operations have been changed. In addition, the adoption of the new and revised Standards has resulted in changes to the Group’s accounting policy in relation to goodwill under IFRS 3. The impact of these changes in accounting policies is discussed in detail later in this note. At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue but not yet effective: IAS 1 (Amendment) Capital Disclosures1 IAS 19 (Amendment) Actuarial Gains and Losses, Group Plans and Disclosures2 IAS 21 (Amendment) Net Investment in a Foreign Operation2 IAS 39 (Amendment) Cash Flow Hedge Accounting of Forecast IntragroupTransactions2 IAS 39 (Amendment) The Fair Value Option2 IAS 39 and IFRS 4 (Amendments) Financial Guarantee Contracts2 IFRS 6 Exploration for and Evaluation of Mineral Resources2 IFRS 7 Financial Instruments: Disclosures1 IFRIC 4 Determining whether an Arrangement contains a Lease2 IFRIC 5 Right to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds2 IFRIC 6 Liabilities Arising form Participating in a Specific Market-Waste Electrical and Electronics Equipment3 IFRIC 7 Applying the Restatement Approach Under IAS 29 Financial Reporting in Hyper Inflationary Economics4 -7- TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 2. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS - CONTINUED IFRIC 8 Scope of IFRS 25 IFRIC 9 Reassessment of Embedded Derivatives6 1 Effective for annual periods beginning on of after 1 January 2007 2 Effective for annual periods beginning on of after 1 January 2006 3 Effective for annual periods beginning on of after 1 December 2005 4 Effective for annual periods beginning on of after 1 March 2006 5 Effective for annual periods beginning on of after 1 May 2006 6 Effective for annual periods beginning on of after 1 June 2006 The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group. Goodwill IFRS 3 has been adopted for business combinations for which the agreement date is on or after 31 March 2004. The option of limited retrospective application of the Standard has not been taken up, thus avoiding the need to restate past business combinations. The Company had no acquisitions during the 2004 accounting year. After initial recognition, IFRS 3 requires goodwill acquired in a business combination to be carried at cost less any accumulated impairment losses. Under IAS 36 Impairment of Assets (as revised in 2004), impairment reviews are required annually, or more frequently if there are indications that goodwill might be impaired. IFRS 3 prohibits the amortisation of goodwill. Previously, under IAS 22, the Company carried goodwill in its balance sheet at cost less accumulated amortisation and accumulated impairment losses. Amortisation was charged over the estimated useful life of the goodwill, subject to the rebuttable presumption that the maximum useful life of goodwill was 20 years. In accordance with the transitional rules of IFRS 3, the Company has applied the revised accounting policy for goodwill prospectively from the beginning of its first annual period beginning on or after 31 March 2004, i.e. 1 January 2005, to goodwill acquired in business combinations for which the agreement date was before 31 March 2004. Therefore, from 1 January 2005, the Company has discontinued amortising such goodwill and has tested the goodwill for impairment in accordance with IAS 36. At 1 January 2005, the carrying amount of amortisation accumulated before that date of RMB5,456,000 has been eliminated, with a corresponding decrease in goodwill(see note16). Because the revised accounting policy has been applied prospectively, the change has had no impact on amounts reported for 2004 or prior periods. No amortisation has been charged in 2005. The charge in 2004 was RMB1,212,000. -8- TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 3. PRESENTATION OF FINANCIAL STATEMENTS The Company and its subsidiaries maintain their accounting records and prepare their statutory financial statements in accordance with accounting standards and regulations of the People's Republic of China that are applicable to the Company and its subsidiaries. These consolidated financial statements (“IFRS financial statements”) have been prepared in accordance with International Financial Reporting Standards (“IFRSs”). The basis of accounting under IFRSs differs in certain respects from that used in the preparation of the Company and its subsidiaries’ statutory financial statements. In preparing these IFRS financial statements, appropriate adjustments, which are not taken up in the accounting records of the Company and its subsidiaries, have been made to the Company and its subsidiaries’ statutory financial statements. These financial statements are presented in Renminbi (“RMB”) since that is the currency in which the majority of the Group’s transactions are denominated. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared under the historical cost basis except for certain financial instruments which are measured at fair values. The principal accounting policies adopted are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Minority interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Minority interests consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. -9- TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Goodwill Goodwill arising on an acquisition of a subsidiary, for which the agreement date is before 31 March 2004 represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of the relevant subsidiary at the date of acquisition. For previously capitalised goodwill arising on acquisitions after 1 January 2001 but before 31 March 2004, the Group has discontinued amortisation from 1 January 2005 onwards, and such goodwill is tested for impairment annually, and whenever there is an indication that the cash generating unit to which the goodwill relates may be impaired (see the accounting policy below). For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and sales related taxes. Sales of goods are recognised when goods are delivered and title has passed. Services income is recognised when services are rendered. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The Group as lessor Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. - 10 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued The Group as lessee Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. Foreign currencies The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in RMB, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the beginning of the month in which the transaction occurs. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations (including comparatives) are expressed in RMB using exchange rates prevailing on the balance sheet date. Income and expense items (including comparatives) are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised in profit or loss in the period in which the foreign operation is disposed of. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. - 11 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Subsidy income Subsidy income is recognised when the Group’s rights to receive is established. Retirement benefit costs The employees of the Group are members of state-managed retirement benefit schemes, under which the Group’s obligations are equivalent to those arising in a defined contribution retirement benefit plan. Payments made to state-managed retirement benefit schemes are charged as expenses as they fall due. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. - 12 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Company’s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Depreciation is charged so as to write off the cost of assets, other than land and properties under construction, over their estimated useful lives, and after taking into account their estimated residual value, using the straight-line method. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. Prepaid operating rental of tangible and intangible assets excluding goodwill Prepaid operating rental represents interests in land use right which is initially measured at purchase cost and is amortised on a straight-line basis over the period of the relevant lease. Internally-generated intangible - research and development expenditure Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated intangible assets arising from the Group is recognized only if all of the following conditions are met: An assets is created that can be identified (such as software and new process); It is probable that the assets created will generate future economic benefits; and The development cost of the assets can be measured reliably Internally-generated intangible assets are amortized on a straight-line basis over their useful lives. Where no internally-generated intangible assets can be recognized, development expenditure is charged to profit or loss of tangible and intangible excluding goodwill in the period in which it is incurred. - 13 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average or standard cost method. Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution. Financial instruments Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group has become a party to the contractual provision of the instrument. Trade and other receivables (including amounts due from related companies) Trade and other receivables (including amounts due from related companies) are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. - 14 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Investments Investments are recognised and derecognised on a trade date basis where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus directly attributable transaction costs. For available-for-sale investments that do not have a quoted market price in an active market and whose fair value cannot be measured reliably, they are measured at cost less impairment losses at each balance sheet date. An impairment loss is recognised in net profit or loss and will not reverse in subsequent periods. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Financial liabilities and equity Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below. Bank borrowings Interest-bearing bank loans and overdrafts are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the Group’s accounting policy for borrowing costs (see above). Trade and other payables (including amounts due to related companies) Trade payables and other payables (including amounts due to related companies) are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. - 15 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Derivative financial instruments The Group’s activities expose it primarily to the financial risks of changes in foreign exchange rates. The use of financial derivatives is governed by the Group’s policies approved by the board of directors, which provide written principles on the use of financial derivatives consistent with the Group’s risk management strategy. The Group does not use derivative financial instruments for speculative purposes. Derivative financial instruments are initially measured at fair value on the contract date, and are remeasured to fair value at subsequent reporting dates. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in profit or loss as they arise. Provisions Provisions are recognised when the Company has a present obligation as a result of a past event, and it is probable that the Company will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material. Impairment Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. 5 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCE OF ESTIMATION UNCERTAINTY In the process of applying the Group's accounting policies, which are described in Note 4, management has made the following estimates that may have material effect on the amounts recognised within the next financial year. - 16 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCE OF ESTIMATION UNCERTAINTY - continued Inventories Note 4 describes that inventories are stated at the lower of cost and net realisable value. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads. Net realisation value is the estimated selling price in the ordinary course of business, less the estimated costs of selling expenses. The Group does not have a general policy on inventory based on aging given the nature of inventories that are not subject to frequent wear and tear and frequent technological changes. However, due to majority of working capital is devoted to inventories, operational procedures have been in place to monitor this risk. Procedurewise, the sales and marketing managers review the inventory aging listing on a periodical basis to identify aged inventories. This involves comparison of carrying value of the aged inventory items with the respective net realisable value. The purpose is to ascertain whether allowance is required to be made in the consolidated financial statements for any obsolete and slow-moving items. In addition, physical count on all inventories are carried out on a periodical basis in order to determine whether an allowance is needed in respect of any obsolete and defective inventories identified. In this regard, the directors of the Company are satisfied that the risk is minimal and adequate allowance for obsolete and slow-moving inventories has been made in the consolidated financial statements. Trade and other receivables Note 4 describe that trade and other receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit and loss when there is objective evidence that the receivables are not recoverable. In making the judgment, management considered detailed procedures have been in place to monitor this risk as a significant proportion of the Group's working capital is devoted to trade and receivables. In determining whether allowance for bad and doubtful debts is required, the Group takes into consideration the aging status and the likelihood of collection. Specific provision is only made for trade receivables that are unlikely to be collected. In this regard, the directors of the Company are satisfied that this risk is minimal and adequate allowance for doubtful debts has been made in the consolidated financial statements in light of the historical records of the Group. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. The carrying amount of goodwill at the balance sheet date was approximately RMB6,668,000. Details of the impairment loss calculation are provided in note 16. - 17 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 6. REVENUE An analysis of the Group’s revenue for the year, for both continuing and discontinued operations, is as follows: 2005 2004 RMB’000 RMB’000 Continuing operations Manufacturing 5,279,791 5,082,820 Discontinued operation Retailing 616,245 __________ 1,609,416 _________ 5,896,036 __________ 6,692,236 _________ 7. BUSINESS AND GEOGRAPHICAL SEGMENTS Business segments For management purposes, the Group was organised into two operating divisions-retailing and manufacturing, which are the basis that the Group reports its primary segment information. Principal activities are as follows: Manufacturing - Manufacture and distribution of household electronic appliances. Retailing - Wholesale and retail of consumable electronic appliances, computers and communication equipments. The retailing operation was discontinued with effect from 10 July 2005. 2005 Total for Manufacturing Retailing Eliminations operations RMB’000 RMB’000 RMB’000 RMB’000 REVENUE External sales 5,279,791 616,245 - 5,896,036 Inter-segment sales _________ _________- 5,355 ________ _________- (5,355) Total revenue 5,285,146 616,245 (5,355) 5,896,036 _________ _________ ________ _________ _________ _________ ________ _________ RESULT Segment result 185,866 _________ _________ (581,400) ________- _________ (395,534) Interest income 5,599 Finance cost (67,125) _________ Loss before tax (457,060) Income tax expense (31,144) _________ - 18 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. Loss for the year (488,204) _________ 7 BUSINESS AND GEOGRAPHICAL SEGMENTS - continued OTHER INFORMATION Total for Manufacturing Retailing operations RMB’000 RMB’000 RMB’000 Capital expenditure addition 348,074 23,508 371,582 Depreciation and amortisation 336,940 19,252 356,192 Impairment loss reversed in profit or loss - (620) (620) 2004 Total for Manufacturing Retailing Eliminations operations RMB’000 RMB’000 RMB’000 RMB’000 REVENUE External sales 5,082,820 1,609,416 - 6,692,236 Inter-segment sales 23,385 _________- _________ (23,385) _________- ________ Total revenue 5,106,205 1,609,416 (23,385) 6,692,236 _________ _________ ________ _________ _________ _________ ________ _________ RESULT Segment result 466,424 _________ _________ (362,266) ________- _________ 104,158 Interest income 3,686 Finance costs (50,394) _________ Profit before tax 57,450 Income tax expense 2,783 _________ Profit for the year 60,233 _________ OTHER INFORMATION Total for Manufacturing Retailing operations RMB’000 RMB’000 RMB’000 Capital expenditure addition 260,716 55,409 316,125 Depreciation and amortisation 296,365 17,849 314,214 Impairment loss recognized in profit or loss (10) 4,064 4,054 - 19 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 7 BUSINESS AND GEOGRAPHICAL SEGMENTS - continued BALANCE SHEET 2005 2004 Assets Liabilities Assets Liabilities RMB’000 RMB’000 RMB’000 RMB’000 Manufacturing 4,283,433 2,059,276 4,221,010 2,123,546 Retailing 237,711 _________ 1,036,138 _________ 1,009,675 _________ 1,418,474 ________ 4,521,144 _________ 3,095,414 _________ 5,230,685 _________ 3,542,020 ________ The Group’s secondary basis of segmentation is by geographical market. An analysis of Group’s revenue and result by geographical market is as follows: Revenue by geographical market Manufacturing Retailing Total 2005 2004 2005 2004 2005 2004 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 North America 2,191,697 2,331,109 - - 2,191,697 2,331,109 PRC Mainland 42,445 25,295 616,245 1,609,416 658,690 1,634,711 Europe 1,247,184 1,134,872 - - 1,247,184 1,134,872 Japan 714,876 490,922 - - 714,876 490,922 Taiwan 91,862 200,784 - - 91,862 200,784 South America 273,531 166,002 - - 273,531 166,002 Others 718,196 _________ __________ 733,836 _________- _________- _________ 718,196 _________ 733,836 5,279,791 _________ __________ 5,082,820 _________ 616,245 _________ 1,609,416 _________ 5,896,036 _________ 6,692,236 The assets, including additions thereto during the year, are located in the PRC. 8. OTHER OPERATING INCOME (EXPENSES) Continuing operations Discontinued operation Total 2005 2004 2005 2004 2005 2004 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Income from sales of materials 74,694 73,188 - - 74,694 73,188 Rental income (expense) (1,325) (1,936) 9,432 9,303 8,107 7,367 Call centre fee - 6,621 - - - 6,621 Management income 384 399 - - 384 399 Subsidy income 2,643 60 - - 2,643 60 (Loss) profit on disposal of property, plant and equipment 23,548 (1,421) - (21,983) 23,548 (23,404) Impairment loss reversed - - 620 - 620 - Others (1,031) _________ __________ (8,104) _________ (8,102) _________ 4,071 _________ (9,133) _________ (4,033) 98,913 _________ __________ 68,807 _________ 1,950 _________ (8,609) _________ 100,863 _________ 60,198 - 20 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 9. FINANCE COST Continuing operations Discontinued operation Total 2005 2004 2005 2004 2005 2004 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Interest on bank loans 45,552 13,073 21,561 37,321 67,113 50,394 Less: amounts included in the cost qualifying assets- _________- _________- _________- _________- _________- __________ 45,552 13,073 21,561 37,321 67,113 50,394 Loss arising on derivatives not qualify for hedge accounting 12 _________- _________- _________- _________ __________ 12 _________- 45,564 _________ __________ 13,073 _________ 21,561 _________ 37,321 _________ 67,125 _________ 50,394 10. INCOME TAX EXPENSE Continuing operations Discontinued operation Total 2005 2004 2005 2004 2005 2004 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 PRC income tax for the year 30,604 2,959 393 - 30,997 2,959 (Over) under provision of PRC tax expenses in prior year 147 _________ __________ (5,742) _________- _________- _________ 147 _________ (5,742) 30,751 _________ __________ (2,783) _________ 393 _________- _________ 31,144 _________ (2,783) The Company is a production enterprise located in Xiamen Economic Special Zone and its income tax rate is 15%. According to the “Detailed Rules and Regulations for Implementation of the Income Tax Law of the People’s Republic of China Concerning Enterprises with Foreign Investment and Foreign Enterprises”, an export oriented enterprise established with foreign investment which, on the expiry of the period of reduction of or exemption from enterprise income tax as stipulated in the tax law, has an export value for the year amounting to 70% or more of the value of its product output for that year may pay enterprise income tax at 50% of the prevailing rate pursuant to the provisions of the tax law. However, an export oriented enterprise located in economic zones which pays enterprise income tax at 15% will be levied on income tax at 10%. In current year, the Company has provided income tax at 15% as the Company’s export sales was less than 70%. - 21 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 10. INCOME TAX EXPENSE - CONTINUED Tsann Kuen China (Shanghai) Enterprise Ltd. (“TKS”), a subsidiary of the Company, is an export oriented enterprise located in Shanghai, which is entitled to income tax exemption for two years commencing from the first profitable year and a reduction in the applicable tax rate for the next three years. Year 2005 is the sixth year after its first profitable year with the applicable tax rate of 24%. No provision for current taxation has been made for TKS as it has a tax loss for the year. Tsann Kuen (China) Technology Co., Ltd. (“TKK”), a subsidiary of the Company, is a production enterprise located in Xiamen, which is entitled to income tax exemption for two years commencing from the first profitable year and a reduction in the applicable tax rate for the next three years. No current taxation provision has been made for TKK as it has not yet started its first profit-making year. Tsann Kuen (Zhangzhou) Enterprise Co., Ltd. (“TKL”), a subsidiary of the Company, is a production enterprise located in Zhangzhou, which is entitled to income tax exemption for two years commencing from the first profitable year and a reduction in the applicable tax rate for the next three years. Year 2005 is the first year that TKL enjoys the 50% relief with the applicable tax rate of 12%. Tsann Kuen (Zhangzhou) South Port Electronics Enterprise Co., Ltd. (“TKN”), a subsidiary of the Company, is a production enterprise located in Zhangzhou, which is entitled to income tax exemption for two years commencing from the first profitable year and reduction in the applicable tax rate for the next three years. The applicable income tax rate is 24%. Year 2005 is the first year that TKN enjoys tax exemption. No provision for current taxation has been made for Xiamen Tsann Kuen Dian Tong Electronics Co., Ltd., Shanghai Tsann Pao Electronics Co., Ltd., Fuzhou Tsann Kuen Electronics Co., Ltd., Nanjing Tsann Kuen Electronics Co., Ltd., Beijing Tsann Kuen Electronics Co., Ltd., Shanghai Tsann Hung Electronics Co., Ltd., Chengdu Tsann Kuen Electronics Co., Ltd., Wuhan Tsann Kuen Electronics Co., Ltd., Shengyang Tsann Kuen Electronics Co., Ltd., Hebei Shijiazhuang Tsann Kuen Electronics Co., Ltd., Tianjing Tsann Pao Electronics Co., Ltd., Kunming Tsann Kuen Electronics Co., Ltd., Zhenzhou Tsann Kuen Electronics Co., Ltd., Shijiazhuang Tsann Kuen Electronics Co., Ltd., Xuzhou Tsann Kuen Electronics Co., Ltd. and T.K. Merchandising Service Co., Ltd, subsidiaries of the Company, as they have tax losses for the year. Eupa (Hong Kong) Limited, a subsidiary of the Company, is registered in Hong Kong with the applicable income tax rate of 17.5%. No provision for current taxation has been made as it has tax losses for the year. - 22 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 10. INCOME TAX EXPENSE - CONTINUED The charge (credit) for the year can be reconciled to the accounting profit as follows: 2005 2004 RMB’000 % RMB’000 % Profit before tax Continuing operation 145,386 456,253 Discontinued operation (602,446) _______ (398,803) _______ (457,060) 57,450 _______ _______ Tax at the PRC tax rate of 15% (2004: 10%) (68,559) 15.0 5,745 10.0 Tax effect of expenses that are not deductible in determining taxable profit (22,376) 4.9 277 0.5 Tax effect of income that are not taxable in determining taxable profit - - (235) (0.4) (Over) under prior year income tax 147 - (5,742) (10.0) Effect of tax holiday enjoyed by subsidiaries (7,651) 1.7 (45,003) (78.3) Tax loss of subsidiaries not recognised 129,583 ______ (28.4) _____ 42,175 _______ 73.4 ____ Tax expense and effective tax rate for the year 31,144 ______ (6.8) _____ (2,783) _______ (4.8) ____ No deferred tax asset has been recognised in respect of the tax losses of the subsidiaries amounting to RMB1,195,571,000 (2004: RMB707,270,000) in the consolidated financial statements due to the unpredictability of future profit streams. The unrecognised tax losses will be expired in following period: RMB’000 Expired in 2006 28,090 Expired in 2007 70,150 Expired in 2008 150,380 Expired in 2009 421,750 Expired in 2010 525,201 __________ 1,195,571 __________ There were no other significant temporary difference at the balances sheet date - 23 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 11. DISCONTINUED OPERATION On 1 July 2005, the Group entered into a sale agreement to dispose of certain operating assets (including inventories and property, plant and equipment) of the retailing business to Shanghai Yongle Electronics Retail Co.,Ltd.(“Yongle”). On 10 July 2005, all the stores related to retailing business were closed and the Group ceased the retailing business. The disposal of certain operating assets to Yongle was completed on 11 July 2005 while the remaining operating assets were mostly disposed of by 31 December 2005. The loss for the year from the discontinued operation is analysed as follows: Year ended Year ended 31/12/2005 31/12/2004 RMB'000 RMB'000 Loss of retailing operation for the period from 1 January 2005 to 10 July 2005 206,905 398,803 Loss on disposal of retailing business (including loss on disposal of property, plant and equipment of RMB 58,422,000 and loss on disposal of inventories of RMB 101,305,000) 395,934 ___________ ___________- 602,839 ___________ 398,803 ___________ The results of the retailing operation for the period from 1 January 2005 to 10 July 2005 are as follows: Period ended Year ended 11/7/2005 31/12/2004 RMB'000 RMB'000 Revenue 580,176 1,609,416 Cost of sales (597,313) (1,538,040) Other operating income (expenses) 1,950 (8,609) Distribution costs (131,983) (314,042) Administrative expenses (38,296) (110,991) Interest income 515 784 Finance costs (21,561) ___________ (37,321) ___________ Loss before tax (206,512) (398,803) Income tax expense (393) ___________ ___________- Loss for the year (206,905) ___________ (398,803) ___________ From the period from 11 July 2005 to 31 December 2005, the revenue generated from the sales of inventories to Yongle and other customers are approximately RMB27,393,000 and RMB8,676,000 respectively. During the year, the retailing business paid approximately RMB76,975,000 (2004: paid approximately RMB335,392,000) in respect of operating activities, contributed approximately RMB26,502,000 (2004: paid approximately RMB73,373,000) to the Group’s net investing cash flows and paid approximately RMB26,186,000 (2004: contributed approximately RMB493,010,000) in respect of financing activities. - 24 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 12. (LOSS) PROFIT FOR THE YEAR (Loss) profit for the year has been arrived at after charging (crediting): Continuing operations Discontinued operation Total 2005 2004 2005 2004 2005 2004 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Net foreign exchange losses (gain) 6,124 ________ (6,834) _______ _______- _______- 6,124 _______ (6,834) _______ Employee benefits expense 463,818 ________ 377,048 _______ 40,375 _______ 88,049 _______ 504,193 _______ 465,097 _______ Research and development costs ________ 60,364 52,370 _______ _______- _______- 60,364 _______ 52,370 _______ Depreciation of property, plant, equipment 335,971 293,247 19,252 17,849 355,223 311,096 Amortisation - goodwill (included in administrative expenses) - 1,212 - - - 1,212 - Prepaid operating lease rental (include in administrative expenses)969 1,906 - - 969 1,906 Impairment loss reversed recognised (included in cost of sales) - (10) (620) - (620) (10) Impairment loss provided - ________ _______- _______- 4,064 _______ _______- 4,064 _______ Total depreciation and amortization expenses 336,940 _______ ________ 296,355 18,632 _______ 21,913 _______ 355,572 _______ 318,268 _______ 13. DIVIDENDS On 21 June 2005, there was a bonus issue of 10 bonus shares for every 100 shares held from the capitalisation of retained earnings and discretionary surplus reserve. In respect of current year, no dividends are declared due to the loss incurred for the year. - 25 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 14. EARNINGS (LOSSES) PER SHARE From continuing and discontinued operations The calculation of the basic earnings (loss) per share attributable to the ordinary equity holders of the parent entity is based on the following data: Earnings (Loss) 2005 2004 RMB’000 RMB’000 Earnings (Loss) for the purposes of basic earnings per share profit (losses) for the year attributable to equity holders of the parent (368,008) ________ 38,621 _______ Number of shares 2005 2004 Number of ordinary shares for the purposes of basic earnings (loss) per share 1,112,350,077 ____________ 1,112,350,077 ____________ The denominators for the purposes of calculating basic earnings (loss) per share have been adjusted to reflect the capitalization issue in June 2005. The number of ordinary shares for 2004 has been adjusted as a result of this year’s capitalization issues. From continuing operations The calculation of the basic earnings per share from continuing operations attributable to the equity holders of the parent entity is based on the following data: Earnings figures are calculated as follows 2005 2004 RMB’000 RMB’000 Net (loss) profit for the year attributable to equity holders (368,008) 38,621 Less: Loss for the year from discontinued operation (602,839) (398,803) Add: Minority interests on the discontinued operation (158,607) ________ (74,738) _______ Earnings for the purpose of basic earnings per share from continuing operations 76,224 ________ 362,686 _______ The denominator used are the same as those detailed above for basic earnings per share. - 26 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 14. EARNINGS(LOSSES) PER SHARE - continued From discontinued operation Basic loss per share for the discontinued operation is 40 cents per share (2004: 29 cents per share), based on the loss for the year from the discontinued operation of RMB444,232,000 (2004: RMB324,065,000) and the denominators detailed above for basic earnings per share. There is no material impact on earnings (loss) per share resulted from the change in accounting policy as set out in note 2. 15. PROPERTY, PLANT AND EQUIPMENT Machinery Furniture and Motor and office Leasehold Construction Buildings equipment vehicles equipment Moulds improvement in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 COST At 1 January 2004 267,300 653,556 51,391 147,005 1,698,495 34,555 120,705 2,973,007 Additions 3,353 56,530 8,588 81,388 53,575 27,540 85,151 316,125 Transfers 3,003 35,929 - - 73,741 18,183 (130,856) - Disposals (637) _______ (10,178) _______ (1,770) ______ (10,426) _______ (33,755) ________ (17,857) _______ _______- (74,623) _________ At 1 January 2005 273,019 735,837 58,209 217,967 1,792,056 62,421 75,000 3,214,509 Additions 4,100 49,407 12,177 30,857 155,979 9,959 109,103 371,582 Transfers 7,303 22,365 - - 71,089 3,246 (104,003) - Disposals (64,701) _______ (7,360) _______ (2,908) ______ (74,700) _______ (4,193) ________ (47,905) _______ (13,117) _______ (214,884) _________ At 31 December 2005 219,721 _______ 800,249 _______ 67,478 ______ 174,124 _______ 2,014,931 ________ 27,721 _______ 66,983 _______ 3,371,207 _________ ACCUMULATED DEPRECIATION AND IMPAIRMENT At 1 January 2004 69,166 213,256 25,938 62,112 990,796 415 - 1,361,683 Charge for the year 13,373 55,511 7,080 24,349 202,927 7,856 - 311,096 Impairment loss - (10) - 859 - 3,205 - 4,054 Eliminated on disposals (160) _______ (6,051) _______ (1,077) ______ (5,038) _______ (29,625) ________ (1,951) _______ _______- (43,902) _________ At 1 January 2005 82,379 262,706 31,941 82,282 1,164,098 9,525 - 1,632,931 Charge for the year 11,104 62,837 8,118 29,543 236,313 7,308 - 355,223 Impairment loss recognised/ reversed in the income statement - 44 - 1,734 - (2,398) - (620) Eliminated on disposal (11,262) _______ (2,750) _______ (984) ______ (20,442) _______ (4,891) ________ (10,726) _______ _______- (51,055) _________ At 31 December 2005 82,221 _______ 322,837 _______ 39,075 ______ 93,117 _______ 1,395,520 ________ 3,709 _______ _______- 1,936,479 _________ CARRYING AMOUNT At 31 December 2005 137,500 477,412 28,403 81,007 619,411 24,012 66,983 1,434,728 _______ _______ ______ _______ ________ _______ _______ _________ At 31 December 2004 190,640 473,131 26,268 135,685 627,958 52,896 75,000 1,581,578 _______ _______ ______ _______ ________ _______ _______ _________ The following rates are used for the depreciation of property, plant and equipment: Buildings 4.5% Machinery and equipment 6%-9% Motor vehicles 18% Furniture and office equipment 18% Moulds 18% Leasehold improvement the shorter of the estimated useful life and the leasing period - 27 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 15. PROPERTY, PLANT AND EQUIPMENT- CONTINUED During the period, the Group carried out a review of the recoverable amount of its property plant and equipment, having regard to its ongoing programme of modernisation and the introduction of new product lines. The review led to the recognition of an impairment loss of RMB1,778,000 and the reversal of an impairment loss of RMB 2,398,000. The reversed impairment loss is related to the disposed leasehold improvement of the retailing business that has been reversed in profit or loss. The recoverable amount of the relevant assets has been determined on the basis of their value in use. In addition, following the revisions to IAS 16 Property, Plant and Equipment in 2003, that are effective for the current accounting period, the Group has reviewed the residual values used for the purposes of depreciation calculations in the light of the amended definition of residual value in the revised Standard. The review did not highlight any requirement for an adjustment to the residual values used in the current or prior periods. In line with the new requirements, these residual values will be reviewed and updated annually in the future. 16. GOODWILL RMB’000 COST At 1 January and 31 December 2004 12,124 Elimination of amortization accumulated prior to the adoption of IFRS 3 (See Note 2) (5,456) ________ At 31 December 2005 6,668 ________ AMORTISATION At 1 January 2004 4,244 Charge for the year 1,212 ________ At 31 December 2004 5,456 ________ Elimination of amortization accumulated prior to the adoption of IFRS 3 (See Note 2) (5,456) ________ At 31 December 2005 ________- CARRYING AMOUNT At 31 December 2004 and 31 December 2005 6,668 ________ - 28 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 16. GOODWILL - CONTINUED The Group’s goodwill is allocated to Tsann Kuen China (Shanghai) Enterprise Limited. The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the cash generating units are determined from value in use calculations. The value in use calculation uses cash flow projections based on financial budgets approved by management covering a period of 5 years and discount rate of 10.78%. Cash flows projected beyond a 5 year period are extrapolated using a steady 7% growth rate. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the cash generating units. The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. 17. PREPAID OPERATING RENTAL RMB’000 COST At 1 January 2004 and at 1 January 2005 89,699 Disposals (62,439) ________ At 31 December 2005 27,260 ________ AMORTISATION At 1 January 2005 11,982 Charge for the year 969 Disposals (5,932) ________ At 31 December 2005 7,019 ________ CARRYING AMOUNT At 31 December 2005 20,241 ________ At 31 December 2004 77,717 ________ Within the carrying amount at 31 December 2005, RMB19,687,000 (2004: RMB75,914,000) to be amortised over one year is shown as non-current assets, RMB554,000 (2004: RMB1,803,000) to be amortised within one year is shown as current assets. Prepaid operating rental is amortised on a straight-line basis over relevant lease period, which is from 42 years to 70 years. The remaining amortisation period of these prepaid operating lease rental is from 36 to 53 years. As at 31 December 2005, the Group has not yet obtained the land use right certificate with carrying amount of RMB2,565,000 (2004: RMB2,636,000). - 29 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 18. SUBSIDIARIES Details of the Company’s subsidiaries at 31 December 2005 are as follows: Place and date Proportion of Proportion of Name of subsidiary of establishment ownership interest voting power held Principal activity Direct Indirect Tsann Kuen China (Shanghai) Shanghai, PRC 62.5% - 62.5% Production and sale of Enterprise Ltd. ("TKS") 17 August 1993 household appliance. Tsann Kuen (China) Xiamen, PRC 75% - 75% Production and sale of digital Technology Co., Ltd. (“TKK”) 4 August 2000 telecom equipment. Tsann Kuen (Zhangzhou) Zhangzhou, PRC 75% - 75% Production and sale of Enterprise Co., Ltd. ("TKL") 26 July 2004 household appliance. Tsann Kuen (Zhangzhou) South Zhangzhou, PRC 75% (Note 3) - 75% Production and sale of Port Electronics Enterprise 4 February 2005 household appliance. Co., Ltd. (“TKN”) Xiamen Tsann Kuen Xiamen, PRC 65%(Note 1) - 65% Retail of consumable Dian Tong Electronics 28 March 2004 electronic appliances, Co., Ltd.(“TKDT”) computers and communication equipments.(note 4) Shanghai Tsann Pao Shanghai, PRC 20% (Note 2) 100% Retail of consumable electronic Electronics Co., Ltd. 2 January 2004 (Note 2) appliances, computers and communication equipments.(note 4) Nanjing Tsann Kuen Nanjing, PRC - 100% 100% Retail of consumable Electronics Co., Ltd. 21 November 2004 electronic appliances, computers and communication equipments.(note 4) Beijing Tsann Kuen Beijing, PRC - 100% 100% Retail of consumable Electronics Co., Ltd. 5 September 2004 electronic appliances, computers and communication equipments.(note 4) Fuzhou Tsann Kuen Fuzhou, PRC - 100% 100% Retail of consumable Electronics Co., Ltd. 27 October 2004 electronic appliances, computers and communication equipments.(note 4) Shanghai Tsann Hung Shanghai, PRC - 100% 100% Retail of consumable Electronics Co., Ltd. 21 July 2004 electronic appliances, computers and communication equipments.(note 4) Chengdu Tsann Kuen Chengdu, PRC 50% 50% 100% Retail of consumable Electronics Co., Ltd. 13 October 2004 electronic appliances, computers and communication equipments.(note 4) Wuhan Tsann Kuen Wuhan, PRC - 100% 100% Retail of consumable Electronics Co., Ltd. 8 December 2004 electronic appliances, computers and communication equipments.(note 4) - 30 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 18. SUBSIDIARIES - CONTINUED Place and date Proportion of Proportion of Name of subsidiary of establishment ownership interest voting power held Principal activity Direct Indirect Shenyang Tsann Kuen Shenyang, PRC - 100% 100% Retail of consumable Electronics Co., Ltd. 18 November 2004 electronic appliances, computers and communication equipments.(note 4) Hebei Shijiazhuang Shijiazhuang, PRC - 100% 100% Retail of consumable Tsann Kuen 23 December 2004 electronic appliances, computers and communication equipments.(note 4) Tianjing Tsann Pao Tianjing, PRC - 100% 100% Retail of consumable Electronics Co., Ltd. 17 December 2004 electronic appliances, computers and communication equipments.(note 4) Kunming Tsann Kuen Kunming, PRC - 100% 100% Retail of consumable Electronics Co., Ltd. 25 December 2003 electronic appliances, computers and communication equipments.(note 4) Eupa (Hong Kong) Limited Hong Kong, PRC 100% - 100% Trade 28 April 2005 Note 1: Thermaster Electronic (Xiamen) Ltd. (“TEX”) is the minority shareholder of TKDT and is also a company in which the Company’s directors have controlling interests. According to an agreement between the Company and TEX, TEX undertook to absorb all its share of losses of TKDT, even the amount exceeded its contributed capital. Consequently, all losses of TKDT was shared between the Group and TEX according to their respective shareholdings. In 2005, the operating assets of TKDT was disposed and its entire business was discontinued, the directors have demanded settlement from TEX and TEX agreed to settle in respect of its share of TKDT’s losses exceeded its capital contribution . Accordingly, the corresponding amount of approximately RMB 213,210,000 was reclassified from minority interest into other receivables. Note 2: Shanghai Tsann Pao Electronics Co., Ltd. (“Shanghai Tsann Pao”) was established by the Company and Shanghai Huangdu Management Company (“Shanghai Huangdu”) in December 2002 and obtained its business licence on 2 January 2003. The Company holds 20% of registered capital of Shanghai Tsann Pao. Since the Company controls the majority of the board of directors, and has committed to provide sufficient working capital to finance the operation of Shanghai Tsann Pao, the management of the Company is of the view that the Company has substance control over Shanghai Tsann Pao’s financial policy and operation policy since the establishment of Shanghai Tsann Pao and is able to continue such control. As a result, the Company incorporates Shanghai Tsann Pao into the consolidation financial statements. - 31 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 18. SUBSIDIARIES - CONTINUED Note 2-Continued: At 31 December 2005, Shanghai Tsann Pao was in an accumulated loss position. The Company has committed to provide financial supports to the subsidiary to enable it to carry out business plan. However, the minority investor of Shanghai Tsann Pao does not express that it has the responsibility and intention to financially support Shanghai Tsann Pao and takes up the operation loss beyond its contributed capital. As a result, the Company takes all the operation loss beyond the contributed capital of Shanghai Tsann Pao. Note 3: TKN was established by the Company and Eupa Hong Kong Industry Limited, in which the Company’s directors have controlled interests. Note 4: As disclosed in Note 11, the Group has disposed all its fixed assets and inventory of retail business and has ceased all these companies’ operations. 19. OTHER INVESTMENTS 2005 and 2004 RMB’000 Available-for-sale investments: Unlisted shares 71 _______ The fair value of unquoted entity shares above can not be reliably determined as these equity shares do not have quoted market prices in an active market nor are other methods of reasonably estimating the fair values readily available. Accordingly, these investments are not re-measured to their fair value. 20. INVENTORIES 2005 2004 RMB’000 RMB’000 Raw materials 463,518 636,098 Work-in-progress 695,710 442,248 Finished goods 198,008 78,202 Merchandise _________5 286,288 ________ 1,357,241 1,442,836 Less: Write-down of inventories 9,258 _________ 32,944 ________ Net Book Value 1,347,983 _________ 1,409,892 ________ The Group recognised a write-down of inventories amounted to RMB974,500 (2004: RMB16,506,700) in the current year. - 32 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 21. OTHER FINANCIAL ASSETS Trade and other receivables 2005 2004 RMB’000 RMB’000 Accounts receivable from sales of goods 677,559 550,692 Notes receivable 4,125 5,135 Other receivable 109,857 287,599 Prepayments 58,974 544,136 Other prepaid expenses 9,815 _________ 18,871 ________ 860,330 _________ 1,406,433 ________ The average credit period taken on sale of goods is 46 days. An allowance has been made for estimated irrecoverable amounts from the sale of goods of RMB15 million (2004: RMB9 million). This allowance has been determined by reference to past default experience. The directors consider that the carrying amount of trade and other receivables and amounts due from related companies approximates to their fair value. Bank balances and cash comprise cash held by Group and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates to their fair value. Credit risk The Group’s principal financial assets are bank balance and cash, trade and other receivables and amounts due from related companies, which represent the Group’s maximum exposure to credit risk in relation to financial assets. The credit risk of amounts due from related companies is limited because the amounts are guaranteed by the major shareholder of the ultimate holding company. The credit risk on liquid funds and derivative financial instrument is limited because the counterparties are state-owned banks in the PRC. The Group’s credit risk is primarily attributable to its trade and other receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows. For the year 2004 and 2005, net sales to the Group’s five largest customers accounted for approximately 33.24% and 39.95%, respectively, of the Group’s total revenue. Net sales to the Group’s largest customer, Salton Inc., accounted for 19.84% and 20.41% of the Group’s total revenue for 2004 and 2005, respectively. - 33 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 21. OTHER FINANCIAL ASSETS - CONTINUED Foreign exchange risk The Company and its subsidiaries, TKL and TKS, are export-oriented enterprises with the United States as their largest market. Changes in international exchange rates, the rate for United States dollars in particular, will have an impact on the revenue of the Group. In addition, the Group acquire its equipment from overseas and the purchase price is denominated in foreign currency. 22. SHARE CAPITAL 2005 2004 RMB’000 RMB’000 Registered, issued and fully paid: Legal person shares of RMB1 each 811,715 737,923 B shares of RMB1 each 300,635 _________ 273,304 ________ 1,112,350 _________ 1,011,227 ________ Balance at 1 January 1,011,227 879,328 Capitalisation issue (note 13) 101,123 _________ 131,899 ________ Balance at 31 December 1,112,350 _________ 1,011,227 ________ All the shares rank pari passu with each other in all respects except that the B shares are listed on the Shenzhen Stock Exchange. 23. OTHER RESERVES (a) Other reserves of the Group include statutory surplus reserve, discretionary surplus reserve and statutory public welfare reserve, which form part of shareholders’ equity. Statutory surplus reserve / Discretionary surplus reserve In accordance with relevant PRC laws and regulations and the Company’s Articles of Association, the Company is required to appropriate 10% of its profit after taxation reported in its PRC statutory financial statements to the statutory surplus fund. Allocation to a discretionary surplus reserve shall be approved by the shareholders in general meeting. The appropriation of statutory surplus reserve may cease to apply if the balance of the statutory surplus reserve has reached 50% of the Company’s registered capital. Surplus reserve can be used to make up losses or for conversion into share capital. The Company may, upon the approval by a resolution of shareholders’ general meeting, convert its surplus reserves into share capital by issuing new shares to existing shareholders in proportion to their original shareholding or by increasing the nominal value of each share. However, when converting the Company’s statutory surplus reserve into share capital, the amount of such fund remaining unconverted must not be less than 25% of the registered capital. - 34 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 23. OTHER RESERVES - CONTINUED (a) Other reserves of the Group include statutory surplus reserve, discretionary surplus reserve and statutory public welfare reserve, which form part of shareholders’ equity. Statutory public welfare reserve In accordance with relevant PRC laws and regulations and the Company’s Articles of Association, the Company is required to appropriate 5% to 10% of the profit after tax as reported in its PRC statutory financial statements to the statutory public welfare reserve. The statutory public welfare fund shall only apply to collective welfare of staff and workers and welfare facilities as a property of the Company. In accordance with a rule CaiQi[2006] No.67 issued by Ministry of Finance on 15 March 2006, public welfare reserve shall be transferred to discretionary surplus reserve. (b) Basis for profit distribution In accordance with the Company’s Articles of Association, profit available for distribution to shareholders should be based on the lower of the amount determined under PRC GAAP and the amount determined under IFRS after deduction of the current year’s appropriation to the statutory reserves. The accumulate loss carried forward as at 31 December 2005 was approximately RMB363,048,000. 24. BANK LOANS 2005 2004 RMB’000 RMB’000 Secured loans 249,989 41,000 Unsecured loans 1,096,699 _________ 1,335,880 ________ Total 1,346,688 _________ 1,376,880 ________ The borrowings are repayable as follows: On demand or within one year 1,346,688 1,376,880 In the second year _________- ________- 1,346,688 1,376,880 Less: Amount due for settlement within 12 months (shown under current liabilities) (1,346,688) _________ (1,376,880) ________ Amount due for settlement after 12 months _________- ________- - 35 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 24. BANK LOANS - CONTINUED At 31 December 2005, the loans carry fixed interest rates ranging from 2.88% to 6.37% (2004: 1.62% to 6.37%) per annum. At 31 December 2005, approximately RMB23,000,000 (2004: 41,000,000) of short-term bank loans are secured on bank deposits of RMB24,210,600 of the Group (2004: RMB41,383,000), approximately RMB138,266,000 of short-term loans are secured on the notes receivable (2004: Nil) issued by the Company and its subsidiaries within the Group, approximately RMB860,000 of short-term loans are secured on the notes receivables (2004: Nil) issued by the third parties and approximately RMB87,863,000 (2004: Nil) of short-term loans are secured on the unsettled letter of credit. The directors consider the carrying amount of the bank loans approximates to their fair value. Analysis of borrowings by currency: 2005 2004 RMB’000 RMB’000 Renminbi 551,126 649,726 US Dollar 764,696 690,030 EUR 28,739 - Yen 2,127 - HK Dollar _________- 37,124 ________ 1,346,688 _________ 1,376,880 ________ 25. DERIVATIVE FINANCIAL INSTRUMENTS 2005 2004 Assets Liabilities Assets Liabilities RMB'000 RMB'000 RMB'000 RMB'000 Forward foreign exchange contracts - current 957 __________ (969) _________ ________- ________- At the balance sheet date, the notional amount of outstanding forward foreign exchange contracts to which the Group is committed are as follows: - 36 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 25. DERIVATIVE FINANCIAL INSTRUMENTS - CONTINUED 2005 Notional amount Maturity date Exchange rates USD RMB / USD 2,000,000.00 15 February 2006 8.0068 2,000,000.00 15 March 2006 7.9809 2,000,000.00 17 April 2006 7.9521 2,000,000.00 15 May 2006 7.9280 2,000,000.00 15 June 2006 7.9029 2,000,000.00 17 July 2006 7.8748 3,000,000.00 9 February 2006 8.0138 3,000,000.00 9 March 2006 7.9804 3,000,000.00 10 April 2006 7.9480 3,000,000.00 9 May 2006 7.9196 JPY 300,000,000.00 17 April 2006 0.068232 At 31 December 2005, the fair value of the Group’s currency derivatives is estimated to be approximately RMB12,000 (2004: Nil). These amounts are based on valuation provided by financial institutions for equivalent instruments at the balance sheet date, comprising RMB957,000 assets (2004: Nil) and RMB969,000 liabilities (2004: Nil). Amount of RMB724,400 (2004: Nil) has been transferred to the income statement in respect of contracts matured during the year. Changes in the fair value of non-hedging currency derivatives amounting to RMB12,000 have been charged to income in the year (2004: nil). 26. OTHER FINANCIAL LIABILITIES 2005 2004 RMB’000 RMB’000 Trade creditors 764,729 1,170,281 Notes payable 271,991 286,512 Other payable 110,172 112,480 Advance from customers 5,059 9,736 Other tax payable 80,857 20,297 Accruals 73,331 _________ 69,861 ________ 1,306,139 _________ 1,669,167 ________ Trade and other payables comprise amounts outstanding for trade purchase and ongoing costs. The directors consider that the carrying amount of trade and other payables and amounts due to related companies approximates to their fair value. - 37 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 27. CAPITAL COMMITMENTS 2005 2004 RMB’000 RMB’000 Commitments for the acquisition of property, plant and equipment 73,619 _________ 37,707 ________ 28. OPERATING LEASE COMMITMENTS The Group as lessee 2005 2004 RMB’000 RMB’000 Minimum lease payments under operating leases recognised in income for the year 74,290 _________ 151,106 ________ At the balance sheet date, the Group had outstanding commitments under non-cancellable operating leases, which fall due as follows: 2005 2004 RMB’000 RMB’000 Within one year 42,334 128,686 In the second to fifth years inclusive 137,225 506,292 After five years 1,440,868 __________ 1,366,195 _________ 1,620,427 __________ 2,001,173 _________ Operating lease payments represent rental payable by the Group for certain of its plant and stores. 29. RETIREMENT BENEFIT PLANS The employees of the Group are members of a state-managed retirement benefit plan operated by the local government. The Group is required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit plan is to make the specified contributions. The total expense recognised in the income statement is RMB16.3 million (2004: RMB17.7 million) represents contributions payable to these plans by the Group at rates specified in the rules of the plans. As at 31 December 2005, no contributions due in respect of the current reporting period had not been paid over to the schemes (2004: Nil). - 38 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 30. RELATED PARTY TRANSACTIONS The ultimate holding company of the Company is Tsann Kuen Enterprise Ltd. ("TKE"), a company incorporated in Taiwan. Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below. (a) In addition to those transaction disclosed in note 18 during the year, the Group entered into the following transactions with its related companies. 2005 2004 RMB’000 RMB’000 Transactions Sales of raw materials and finished goods - Ultimate holding company 91,872 200,784 - Fellow subsidiaries 271,547 227,771 - Companies in which the Company’s directors have controlling interests 33 __________ 35 _________ 363,452 __________ 428,590 _________ Purchases of raw materials and finished goods - Ultimate holding company 411,400 431,766 - Fellow subsidiaries - 6,441 - Companies in which the Company’s directors have controlling interests 92,377 __________ 86,620 _________ 503,777 __________ 524,827 _________ Sales of property - Ultimate holding company 176 __________ _________- Purchases of mould and machinery - Ultimate holding company 85,452 __________ 82,563 _________ - 39 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 30. RELATED PARTY TRANSACTIONS - continued (a) In addition to those transaction disclosed in note 18 during the year, the Group entered into the following transactions with its related companies - continued 2005 2004 RMB’000 RMB’000 Other services fees paid Technology and know-how usage fee - Ultimate holding company 143,034 191,245 Sales commissions - Companies in which the Company’s directors have controlling interests 1,842 6,680 After service fee - Fellow subsidiaries 6,884 6,077 Purchase commissions - Ultimate holding company 27,932 8,348 - Companies in which the Company's directors have controlled interests 7 - Rental fee - Companies in which the Company's directors have controlled interests 387 - Warranty expenses - Fellow Subsidiaries 13,225 __________ 10,377 _________ 193,311 __________ 222,727 _________ Other services rendered Management income - Companies in which the Company’s directors have controlling interests 384 399 Call center fee - Ultimate holding company __________- 6,621 _________ 384 __________ 7,020 _________ (b) Compensation of key management personnel The remuneration of directors and other members of key management during the year was as follows: 2005 2004 RMB’000 RMB’000 Salaries 1,481 __________ 1,119 _________ - 40 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 30. RELATED PARTY TRANSACTIONS - continued (c) Amounts due from/to related companies Accounts 2005 2004 RMB’000 RMB’000 Amounts due from related companies - Ultimate holding company 45,011 37,331 - Fellow subsidiaries 102,329 57,486 - Companies in which the Company’s directors have controlling interest 301,040 __________ 104,954 _________ 448,380 __________ 199,771 _________ Amounts due to related companies - Ultimate holding company 369,687 403,905 - Fellow subsidiaries 4,919 16,631 - Companies in which the Company’s directors have controlling interest 65,308 72,722 - Shareholders __________- 640 _________ 439,914 __________ 493,898 _________ Except for the amount due from TEX as disclosed in note 18 which will be settled before 31 December 2006, other amounts due from/to related companies were unsecured, interest free and repayable on demand. (d) Guarantee As at 31 December 2005, the Company guaranteed RMB30,000,000 for TKS (2004: RMB222,279,500 for TKS and TKDT ) , subsidiary of the Group. 31. OTHER IMPORTANT ITEMS Up to 8 May 2006, the Company has not completed the preparation of the plan of share structure reform. 32. RESTATEMENT Certain receivables from related companies of approximately RMB62,819,000 offsetted against accounts payable and amounts due to related companies as at 31 December 2004 have been restated because the offset requirements under IAS 32 are not satisfied. 33. APPROVAL OF FINANCIAL STATEMENTS The financial statements were approved by the Board of Directors and authorised for issue on 8 May 2006. - 41 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 34. LANGUAGE The Chinese text of the financial statements is a translated version for reference only. The English text of the financial statements will prevail over the Chinese text. * * * * * - 42 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. SUPPLEMENTAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2005 SUMMARY OF DIFFERENCES BETWEEN IFRS AND PRC GAAP These financial statements are prepared in conformity with IFRS which are different from its statutory financial statements which are prepared in accordance with PRC GAAP. The statutory financial statements for the year ended 31 December 2005 reported loss for the year as RMB365,258,000 and net assets as RMB1,058,784,000. The principal IFRS adjustments made for profit after taxation and net assets are as follows: Profit for the year Net assets RMB’000 RMB’000 As reported under PRC GAAP (365,258) 1,058,784 Adjustments to conform to IFRS: Adjustment to record property, plant and equipment acquired before 1994 at swap rates (2,223) 10,155 Elimination of revaluation reserves 275 (113) Reverse goodwill amortisation 1,212 1,212 Unrecognized investment losses (2,002) - Others (12) __________ 1,901 _________ Sub-total (368,008) 1,071,939 Minority interests (120,196) __________ 353,791 _________ As reported under IFRS (488,204) __________ 1,425,730 _________ - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 2005 2004 RMB’000 RMB’000 (Company) (Company) Revenue 24,274 312,060 Cost of sales (90,400) __________ (258,956) _________ Gross profit (loss) (66,126) 53,104 Other operating income 70,692 67,325 Gain (loss) from subsidiaries (307,312) 8,165 Selling and distribution expenses (523) (20,071) Administrative expenses (52,814) __________ (76,244) _________ Profit from operations (356,083) 32,279 Interest income 6,500 12,276 Finance costs (18,312) __________ (13,201) _________ Profit (loss) before tax (367,895) 31,354 Income tax expense (147) __________ 2,662 _________ Net profit (loss) for the year (368,042) __________ 34,016 _________ - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. BALANCE SHEET AS AT 31 DECEMBER 2005 2005 2004 RMB’000 RMB’000 (Company) (Company) ASSETS Non-current assets Property, plant and equipment 376,527 516,140 Goodwill 6,668 6,668 Prepaid operating rental-non current 17,190 77,591 Investments in subsidiaries 224,867 548,657 Other investments 71 __________ 71 _________ 625,323 __________ 1,149,127 _________ Current assets Inventories 26,419 87,057 Trade and other receivables 1,031,324 291,423 Prepaid operating rental – current 486 1,734 Amounts due from related companies 278,822 514,740 Trustee loan - 345,000 Restricted deposits 26,067 - Bank balances and cash 41,584 __________ 154,305 _________ 1,404,702 __________ 1,394,259 _________ Total assets 2,030,025 __________ 2,543,386 _________ EQUITY AND LIABILITIES Capital and reserves Share capital 1,112,350 1,011,227 Other reserves 322,637 347,379 Retained profits (350,017) __________ 90,085 _________ 1,084,970 __________ 1,448,691 _________ Current liabilities Trade and other payables 128,645 286,026 Amounts due to related companies - 235,138 Income tax liabilities 399,497 140,524 Short-term bank loans 416,913 __________ 433,007 _________ 945,055 __________ 1,094,695 _________ Total equity and liabilities 2,030,025 __________ 2,543,386 _________ -