宝石Ｂ(000413)2006年年度报告（英文版）

石家庄宝石电子玻璃股份有限公司 SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED Annual Report 2006 Stock code: 000413, 200413 Stock abbreviation: Baoshi A, Baoshi B Date of disclosure:：April 10, 2007 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 1 Important Notes The Board of Directors of the Company hereby guarantees that there are no misstatement, misleading representation or important omissions in this report and shall assume joint and several liability for the authenticity, accuracy and completeness of the contents hereof. Independent director of the Company Zhang Junhao did not attend the board meeting due to business trip. Zhong Xi Certified Public Accountants audited the financial report of the Company for this report period and issued standard unqualified auditor's report. Mr. Shang Jianbin, board chairman of the Company, Mr. Song Hongbo,charge of accounting, and Mr.Zhou Yumao, the person in charge of financial accounting organ represent and warrant the financial report in this annual report is true and complete. Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 Table of Contents Chapter 1 Brief Introduction of the Company Chapter 2 Highlights of Accounting Data and Business Data Chapter 3 Particulars about the Changes of Share Capital and Shareholders Chapter 4 Directors, Supervisors, Senior Executives and Staff Chapter 5 Control Structure of the Company Chapter 6 Brief Introduction of Shareholders’ General Meeting Chapter 7 Report of the Board of Directors Chapter 8 Repot of the Supervisory Committee Chapter 9 Important Events Chapter 10 Financial Reports Chapter 11 List of Documents Available for Inspection 3 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 Chapter 1 Brief Introduction of the Company (I) Statutory name of the Company In Chinese :石家庄宝石电子玻璃股份有限公司 In English : Shijiazhuang Baoshi Electronic Glass Co., Ltd. Abbreviation of English name: SJZBS (II) Legal Representative: Shang Jianben (III) Secretary of the Board of Directors: Fu Yinfang Securities affair representative: Wang Hua Contact address: No.9, Huanghe Road, Shijiazhuang High-tech Industrial Development Area, Shijiazhuang, Hebei Province (Law Securities Dept.) Tel:0311-86917771、86917776 Fax:0311-86917775 E-mail:bsdz@heinfo.net (IV) Registered Address: No.9, Huanghe Road, Shijiazhuang High-tech Industrial Development Area, Shijiazhuang, Hebei Province Office Address: No.9, Huanghe Road, Shijiazhuang High-tech Industrial Development Area, Shijiazhuang, Hebei Province Zip Code: 050035 E-mail: baoshi@mx.hebei.net.cn (V) Newspapers for Information Disclosure: China Securities Daily, Hong Kong Commercial Daily Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn The place for preparing and placing the annual report: Law Securities Dept. of the Company (VI). Stock exchange for listing: Shenzhen Stock Exchange Stock abbreviation: Baoshi A, Baoshi B Stock code: 000413, 200413 (VII) Other Relevant Information 4 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 １Ｄ . The date when and the place where the Company made its first registration: ２ ６ １ ９ ９ ２ ｊ ｚ ecember , Shi ia huang City 2. Registration No. of Legal Entity Business License: 1300001001778 3. Tax Registration No.: 130102104395983 4. The name and office address of the Certified Public Accountants engaged by the Company: Domestic Certified Public Accountants: Zhongxi Certified Public Accountants Co., Ltd. Address: Room 422, Capital Time Piaza, No.88. Changan Street West, Beijing. Overseas Certified Public Accountants: Hongkong H.L.S Certified Public Accountants . Business Address: 17/F, No.1 Xinshen Road, Tongluo Bay, Hongkong P.O Box 1448 Chapter 2 Highlights of Accounting Data and Business Data (I) Main profit indicators of the report year (consolidated financial statement) Item Amount（RMB） Total profit -95,285,182.93 Net profit -77,971,801.20 Net profit after deducting non-recurring -87,312,916.00 gains and losses Profit from key business 17,778,098.43 Profit from other businesses 6,776,146.40 Operating profit -13,954,896.72 Investment income -84,732,237.41 Subsidy income - Net amount of non-operating 3,401,951.20 income/expenditure Net cash flow from operating activities -32,941,408.32 Net increase of cash and cash equivalents -34,713,949.79 Note: Items of non-recurring gains and losses deducted Item Amount（RMB） Disposal of Long-term equity -3,409,356 investment ,fixed assets, Construction-in-process , intangible assets and income form other long-term assets.(less:income) Fund possession cost collected -865,833 5 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 Allowance for reduction of inventory to -5,021,011 market Fixed assets devalue provision -44,915 Total -9,341,115 II. The net profit calculated pursuant to Chinese accounting standards and International Accounting Standards (IAS) and the notes to the net profit difference Unit：RMB’000 2006 Pre-tax profit pursuant to IAS -83,292,924.93 Adjustment items: Disposal of profit of affiliated companies 11,992,258 Pre-tax profit pursuant to Chinese accounting -95,285,182.93 standards and system III Main Accounting Data and Financial Indicators over the Past Three Years as at the End of the Report Period Unit：RMB 2006(Consolidate 2005(Consolidate 2004(Consolidate Item /year d) d) d) Income from key business 60312797.91 78,743,962 112,932,152 Net profit -77971801.20 -363,531,415 28,360,348 Total assets 402812336.84 839,028,088 1,344,608,017 Shareholders’ equity 200203658.09 266,183,201 629,714,616 Earnings per share -0.20 -0.95 0.074 Net assets per share 0.523 0.69 1.64 Net assets per share after 0.496 0.67 1.62 adjustment Net cash flows per share from -0.086 -0.04 -0.17 operating activities Return on net assets (%) -38.95% -136.57% 4.50% Return on equity after deducting -43.61% -138.63% 2.43% non-recurring gains and losses (%) IV Attached Schedule of Profit Statement 6 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 Profit in the Return on net assets (%) Earnings per share (RMB report period Fully diluted Weighted Fully diluted Weighted average average Profit from key business 8.88 7.82 0.05 0.05 Operating profit -6.97 -6.14 -0.04 -0.04 Net profit -38.95 -34.32 -0.20 -0.20 Earnings per share after deducting -43.61 -38.43 -0.23 -0.23 non-recurring gains and losses V. Particulars about Changes of Shareholders’ Equity during the Report Period (Consolidated statement data) Unit:RMB Capital Surplus Statutory Retained profit Total Share capital Items common common public welfare shareholders’ (’0000shares) fund equity reserve reserve Balance at 383,000,000 538,261,486 27,454,788 - -682,533,073 266,183,201 beginning of the period Increase in - 11,992,258 - - - 11,992,258 this period Decrease in - - - - 77,971,801 77,971,801 this period Balance at 383,000,000 550,253,744 27,454,788 - -760,504,874 200,203,658 end of the period Reasons of price change difference of related transaction Operating - s formed - - - loss through asset reorganizat ion 7 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 Chapter 3 Particulars about Changes in Share Capital and Shareholders (I) The changes of share capital of the Company 1. The total number and the structure of the shares of the Company remained unchanged in the report period. 2. The statement of changes of share capital Unit：share Increase/decrease Before the change After the change this time (+ , - ) Consideration for share Proportion Proportion Quantity (%) holding Quantity (%) structure reform or purchase. I. Share with conditional 237925000 62.12% -19375150 218549850 57.06% subscription 1.State-owned shares 230410500 60.16% -18777273 211633227 55.26% 2.Staee-owned legal person 3000000 0.78% -244485 2755515 0.72% shares 3.Other domestic shares Of which：Domestic 4500000 1.17% -366727 4133273 1.08% legal person shares Domestic natural person shares 4.Share held by foreign investors Of which：Foreign legal person shares Foreign natural person shares 5. shares held by senior 14500 0.004% +13335 27835 0.007% executives II. Shares with 145075000 37.88% +19375150 164450150 42.94% unconditional subscription 1.Common shares in RMB 45075000 11.77% +19375150 64450150 16.83% 2.Foreign shares in 100000000 26.11% 0 100000000 26.11% domestic market 3.Foregin shares in overseas market 4.Other 383000000 100% III. Total of capital shares 383000000 100% Note：Shijiazhuang Baoshi Electronic Group Co., Ltd., the controlling shareholder of the Company, advanced consideration of 350,428 shares for other shareholders holding non-negotiable shares as a result of share holding structure reform. It now actually holds 211,282,799 shares of the Company. (II) Particulars about the issuing and listing of shares 8 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 1.The Company did not issue new shares in the previous three years by the end of the report period. 2. In the report period, the Company implemented the plan for share holding structure reform on March 29, 2006. The shareholders holding negotiable A shares obtained 4.3 shares paid by the shareholders holding non-negotiable shares as consideration for every 10 negotiable A shares held so that the Company's negotiable A shares increased. The shares held by senior executives changed because they obtained the consideration paid by the shareholders holding non-negotiable shares and the former independent directors of the Company purchased the Company's stocks on secondary market. (III) Particulars about shareholders 1.Number of shareholders and Particulars shareholders Unit：shares the Company had 31335 registered shareholders in total, Total number of shareholders including 18074 shareholders holding A shares and 13261 shareholders holding B shares. Particulars about the shareholding of the top ten shareholders Nature of Name of shareholder Proportion Quantity of Conditional Pledged or shareholder (full name) (%) shares held shares frozen Shijiazhuang Baoshi State-owned 55.17% 211,282,799 211,282,799 Electronic Group Co., Ltd. shareholder 0 Huang Mushun Foreign shareholder 0.98 % 3,746,120 0 0 GUOTAI JUNAN SECURIES 0 Foreign shareholder 0.68% 2,609,084 0 HONG KONG LIMITED China Electronic Import State-owned 0 0.48% 1,837,010 1,837,010 and Export Corporation shareholder Liu Jianxuan Foreign shareholder 1,095,800 1,095,800 0.29% 0 Shijiazhuang Trust Other 1,000,000 1,000,000 Investment Co. 0.26% 0 State-owned Zhonghua Hebei Company 918,505 918,505 shareholder 0.24% 0 Chen Yongquan Foreign shareholder 885,362 0 0.23% 0 0 Zhu Lei Other 0.22% 860,071 0 0 Xu Hongyan Foreign shareholder 0.19% 727,521 0 Top 10 holders of unconditional shares 9 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 Name of the shareholder Unconditional shares Type of shares Huang Mushun 3,746,120 B GUOTAI JUNAN SECURIES HONG KONG LIMITED 2,609,084 B Liu Jianxuan 1,095,800 B Chen Yongquan 885,362 B Zhu Lei 860,071 A Xu Hongyan 727,521 B Shanghai Yibaohang Trade Co., Ltd. 677,105 A ABN AMRO BANK NV 655,600 B Huang Shuling 570,600 B You Peiyun 555,100 B Notes to the related relationship between the top ten shareholders or their concerted action The relation between the top ten shareholders was unknown. It was unknown whether they are persons taking concerted action specified in Regulations on the Information Disclosure of the Change of Shareholding of Shareholders of Listed Companies. The relation between the top ten shareholders holding unconditional shares was unknown. 10 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 2.Top 10 holders of shares with subscription conditions Shares with Date when trading Newly added No Name of holder conditioned Conditions allowed tradable shares subscription March 29, 2007 19150000 Shijiazhuang Baoshi Electronic 1 Group Co., Ltd. 211282799 March 29,2008 19150000 Note1 March 29,2009 172982799 China Electronic Import and Export 2 Corporation 1837010 March 29,2007 1837010 Shijiazhuang Trust Investment Co., 3 Ltd. 1000000 March 292007 1000000 4 Zhonghua Hebei Company 918505 March 29,2007 918505 Shanghai Zhonghai Exhibition design 5 Co., Ltd. 250000 March 29,2007 250000 Suzhou China Young Travel Co., 6 Ltd. 247000 March 29,2007 247000 Note2 7 Shanghai Huaneng construction 200000 March 29,2007 200000 8 Hubei Julong Investment 200000 March 29,2007 200000 9 China Electric engineering Designing 183701 March 29,2007 183701 10 Shanghai Yunbin Trade Co., Ltd. 150000 March 29,2007 150000 Note 1: The shares shall not be listed, traded or assigned within 12 months from the date of implementation of the plan for share holding structure reform. Upon the expiration of the said commitment period, the proportion of the quantity of original shares traded through stock exchange to the total shares of the Company shall not exceed 5% within 12 months and 10% within 24 months. Note 2: The shares shall not be listed, traded or assigned within 12 months from the implementation day of the plan for share holding structure reform. Note 3: In March 2007, Shijiazhuang Baoshi Electronic Group Co., Ltd. signed the Agreement for Return of Advanced Shares respectively with 21 shareholders holding shares subject to sale restriction including Hebei Guoxin Investment Co., Ltd. in respect of the return of advanced shares. The Company settled the procedure for return of advanced shares on behalf of the Group Company on March 27, 2007. On March 30, 2007, 25,120,286 negotiable shares of the Company subject to sale restriction were unfrozen. 1 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 (IV). Particulars of the controlling shareholder and actual controllers of the Company 1.The controlling shareholder of the Company is Shijiazhuang Baoshi Electronic Group Co., Ltd. Legal representative: Shang Jianbin. Date of establishment: June 13, 2004. Registered capital: RMB 1.389 billions, Business scope: Dealing in state-owned capital within authorized scope, color cathode-ray tube series products and supporting electronic components, etc. 2.Particulars about the actual controllers of the Company The actual controllers of the Company is China Great Wall Asset Management Co. China Great Wall Asset Management Co. is a solely state-owned financial enterprise with independent corporate capacity. Shijiazhuang Representative Office is the detached organ of the head office. It is mainly engaged in acquisition, management and disposition of the bad assets separated from Hebei Branch of Agricultural Bank of China within authorized scope and financial and securities business approved by finance supervision department. 3.The block diagram of the title and control relationship between the Company and actual controller is as follows: China Great China Orient Shijiazhuang China Huarong Wall Asset Asset State-owned Asset Management Management Assets Management 48.3% 27.45% 17.74% 6.51% Shijiazhuang Baoshi Electronic Group Co., Ld 55.26% Shijiazhuang Baoshi Electronic Glass Co., Ld Chapter 4 Particulars about Directors, Supervisors, Senior Executives and Employees I. Particulars about directors, supervisors and senior executives 1. Basic information Shares The total Shares Date of beginning held at Increase/decre held at Name Title Sex Age the amount of the year-begi and ending year-end ase amount nning remuneration 2 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 received from the Company in the report period (RMB) Shang Board 2006.9-2009.9 0 Male 48 0 0 0 Jianben chairman Song Director, 2006.9-2009.9 102891 Hongbo General Male 52 0 0 0 Manager Zhou Bo Director Male 41 2006.9-2009.9 6800 9724 2924 0 Fu Director, Fema 2006.9-2009.9 48126 Board 39 0 0 0 Yinfang secretary le Yu Independent Male 60 2006.9-2009.9 0 0 0 10000 director Rengang Han Independent Male 42 2006.9-2009.9 0 0 0 10000 director Zhiguo Zhang Independent Male 38 2006.9-2009.9 0 0 0 10000 director Junhao Xie Chairman of 2006.9-2009.9 0 the Mengxio supervisory Male 50 0 0 0 ng committee Fan 2006.9-2009.9 0 Zhenpin Supervisor Male 50 1000 1430 430 g Li 2006.9-2009.9 27842 Supervisor Male 52 2400 3432 1032 Huiming Hao 2006.9-2009.9 22196 Supervisor Male 53 0 0 0 Junzhe Li Hong Supervisor Male 52 2006.9-2009.9 800 1144 344 25584 Lin Male 27 2006.9-2009.9 0 Supervisor 0 0 0 Xiang Wang Supervisor Fema 33 2006.9-2009.9 0 0 0 0 3 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 Zhining le Wang 2006.9-2009.9 37000 Deputy GM Male 44 0 0 0 Xiaohu Yang 2006.9-2009.9 31284 Deputy GM Male 54 0 0 0 Guang Zhang 2006.9-2009.9 32344 Deputy GM Male 55 0 0 0 Wenhai Zhou General 2006.9-2009.9 32760 Male 54 0 0 0 Yumao Accountan The reason for change in the shares of the Company held by directors and supervisors: The Company implemented the plan for share holding structure reform on March 29, 2006. The shareholders holding negotiable A shares obtained 4.3 shares paid by the shareholders holding non-negotiable shares as consideration for every 10 negotiable A shares held. 2. Main work experience of the current directors, supervisors and senior executives over the Past five Years as at the End of the Report Period (1)Shang Jianbin: Board chairman. From March 2001 to October 2005, he served as vice board chairman of Shijiazhuang Oriental Thermal Power Co., Ltd. From October 2005 to June 2006, he served as deputy director of Shijiazhuang State-owned Assets Commission. Since June 2006, he has served as board chairman of Baoshi Group Co. Since September 2006, he has served as board chairman of the Company. (2) Song Hongbo, director and general manager. From 1999 to June 2000, he served as director and general manager assistant of Baoshi Group Co. From June 2000 to June 2004, he served as director and general manager of the Company and concurrently served as director of Baoshi Group Co. Since June 2004, he has served as director and general manager of the Company. (3) Zhou Bo, director. From 1997 to June 2004, he served as director of the Company and concurrently served as director of Baoshi Group Co. and deputy general manager of Shijiazhuang Baoshi Electric Glass Co., Ltd. Since June 2004, he has served as director of the 4 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 Company and concurrently served as director and general manager of Baoshi Group Co. and deputy general manager of Shijiazhuang Baoshi Electric Glass Co., Ltd. （4）Fu Yinfang: Director and board secretary. From 2000 to July 2006, she served as legal adviser and deputy director of Party office. Since August 2006, she has served as director of Law and Securities Dept. of the Company. Since September 2006, she has served as director and board secretary of the Company. （5）Yu Rengang: Independent director. From August 2001 to November 2005, he served as secretary of Party committee and professor of Hebei Economy and Trade University. Since November 2005, he served as professor of Hebei Economy and Trade University. Since September 2006, he has served as independent director of the Company. （6）Han Zhiguo: Independent director. 2000 to September 2003，he served as teacher of Hebei Law College,Sine September ,2003 ， he has served as Lawyer of Zhengchen Law office, Since September , he has served as independent director of the Company. （7）Zhang Junhao: Independent director. Since 2000, he has served as project manager of Hebei Tianhua Certified Public Accountants Co., Ltd. Since September 2006, he has served as independent director of the Company. （8）Xie Mengxiong, supervisor. From 1997, he served as deputy secretary of Party committee of Baoshi Group Co. Since June 2004, he has served as supervisor of the Company and concurrently served as deputy secretary of Party committee of Baoshi Group Co. （9）Fan Zhenping, supervisor. He has served as supervisor of the Company since 1992 and concurrently served as deputy chief of Public Security Division of Baoshi Group Co. since April 1999. (10) Li Huiming, supervisor. Since 1997, he has served as supervisor and chairman of labor union of the Company. （11）Hao Junze: Supervisor. From 2000 to August 2006, he served as deputy director of Audit Dept. of Baoshi Group Co. Since August 2006, he has served as director of Audit Dept. 5 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 of the Company. （12）Li Hong, supervisor. From 1997 to June 2000, he served as supervisor and deputy workshop superintendent of the Company. Since June 2000, he has served as supervisor of the Company and deputy director of Tool and Mould Factory; （13）Lin Xiang: Supervisor. Since 2000, he has worked at China Electronics Import and Export Corporation and served successively as auditor and audit team head of Audit Dept., senior project manager of Investment Management Dept. and fund section chief of Financial Management Dept. and general manager assistant. Since September 2006, he has served as supervisor of the Company. （14）Wang Zhining: Supervisor. In 2002, he served as supervisor of Analysis and Evaluation Dept. of Zhonghua Hebei Company. From 2003 to 2005, he served as supervisor of Accounting Dept. of Zhonghua Hebei Company. Since 2006, he has served as deputy manager of Finance Dept. of Zhonghua Hebei Company. Since September 2006, he has served as supervisor of the Company. （15）Wang Xiaohu: Deputy general manager. From July 1999 to May 2006, he served as deputy factory director of Component Factory of the Company. Since May 2006, he served as director of Component Factory. （16）Yang Guang, deputy general manager. From February 1997 to June 2000, he served as the director of Tool and Mould Factory of the Company. Since June 2000, he has served as deputy general manager of the Company. (17) Zhang Wenhai, deputy general manager. From December 1992 to June 2000, he served as the director of Power Factory of the Company. Since June 2000, he has served as deputy general manager of the Company. (18) Zhou Yumao, chief accountant. From May 1993, he served as deputy director of Management Dept. of Finance Co. of Baoshi Group Co. Since June 2000, he has served as chief accountant of the Company. 3. Posts held at corporate shareholders of the directors, supervisors and senior executives 6 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 Name Unit Title Whether receiving remuneration or subsidy Shang Jianbin Shijiazhuang Baoshi Electric Board chairman Yes Group Co., Ltd Zhou Bo Shijiazhuang Baoshi Electric Director, Yes Group Co., Ltd General Manager Xie Shijiazhuang Baoshi Electric Deputy Yes Mengxiong Group Co., Ltd secretary of Party committee Fan Zhenping Shijiazhuang Baoshi Electric Deputy chief Yes Group Co., Ltd of Public Security Division Lin Xiang General Yes China Electronic Import and Export Co. manager assistant Wang Zhining Deputy Yes Zhonghua Hebei Co manager of Finance Dept 4. Posts held at other units of the directors, supervisors and senior executives Name Unit Title Whether receiving remuneration or subsidy Shang Jianbin Shijiazhuang Baoshi Electric Group Board chairman No Co., Ltd Zhou Bo Shijiazhuang Baoshi Electric Pin Director No Glass Co., Ltd. Yu Rengang Hebei Economy and Trade professor Yes University Han Zhiguo Zhengchen Law office Lawyer Yes Zhang Junhao Hebei Tianhua Certified Public Project Yes Accountants Co., Ltd manager 5. Annual remuneration (1) The procedure of deciding the remuneration and the basis for determining remuneration In the report period, post skill wage system applied to the directors, supervisors and senior executives of the Company. Their remuneration is determined according to the wage management system of the Company. The remuneration of independent directors is 7 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 determined by shareholders' general meeting. (2) The annual remuneration of the current directors, supervisors and senior executives Except that Shang Jianbin,Zhou Bo,Xie Mengxiong,Fan Zhenping,Lin Xiang and Wang Zhining receive remuneration from corporate shareholders, other directors, supervisors and senior executives all receive remuneration from the Company. The annual subsidy of independent directors is RMB 10000 / person. 6. Change of directors, supervisors and senior executives in the report period On September 5, 2006, the Company held 2005 annual shareholders' general meeting. The meeting examined and adopted the Proposal for the Reelection of the Board of Directors and the Supervisory Committee of the Company. Shang Jianbin ,Zhou Bo, Song Hongbo, Fu Yinfang, Yu Rengang, Han Zhiguo,Han Zhiguo and Zhang Junhao were elected as directors of the Company. Yu Rengang, Han Zhiguo and Zhang Junhao were elected as independent directors. Xie Mengxiong, Fan Zhenping,Li Huiming, Hao Junzhe, Li Hong ,Lin Xiang and Wang Zhining were elected as supervisors of the Company. (Refer to the announcement on China Securities Daily, Hong Kong Commercial Daily and www.cninfo.com.cn on September 6, 2006 for details) On September 5, 2006, the Company held the 1st meeting of the fifth board of directors. The meeting elected Shang Jianbin as board chairman of the Company, appointed Mr. Song Hongbo as general manager of the Company, Wang Xiaohu, Yang Guang and Zhang Wenhai as deputy general managers of the Company, Mr. Zhou Yumao as chief accountant of the Company and Fu Yinfang as board secretary of the Company. (Refer to the announcement on China Securities Daily, Hong Kong Commercial Daily and www.cninfo.com.cn on September 6, 2006 for details) II. Particulars about employees As of December 31, 2006, the Company has 1001 staff members in total, including 506 production staff members, 11 sales staff members, 75 technical staff members, 8 financial 8 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 staff members, 49 administrative staff members and 352 other staff members. The personnel with university, college and secondary specialized school education accounted for 43% of the total staff and workers. 32% of the staff had professional technical titles. The number of the retired staff whose retirement pension is paid by the Company is 296. Chapter 5 Corporate Administration Structure I. Particulars about corporate administration In the report period, in order to further improve corporate governance structure, the Company revised rules and regulations including the Articles of Association of the Company, Rules of Procedure of Shareholders' General Meeting, Rules of Procedure of the Board of Directors and Rules of Procedure of the Supervisory Committee, constantly improved corporate governance structure, perfected and improved all management regulations on corporate governance in accordance with newly revised the Company Law and the Securities Law, the Circular of Printing and Issuing Guidelines for the Articles of Association of Listed Companies (Revised in 2006) issued by China Securities Regulatory Commission and relevant laws and regulations including Stock Listing Rules of Shenzhen Stock Exchange and Rules on Shareholders' General Meeting of Listed Companies and in the light of the actual conditions of the Company in the report period. Shareholders' general meeting, the board of directors, the supervisory committee and the management formed standardized and scientific operation decision mechanism. As a result, the standardized operation of the Company was further improved. There was no material difference between the actual status of corporate governance and the requirements of CSRC. II. Particulars about duty performance of independent directors The number of independent directors in the board of directors of the Company is 3. The proportion of the number of independent directors to total number of board members meets 9 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 the requirements of Independent Director System of Listed Companies. In the report period， three independent directors of the Company seriously and independently performed their duties according to relevant provisions of the Articles of Association of the Company, attended board meetings on time, investigated the proposals examined at meetings and seriously expressed their own opinions. They expressed independent opinions on important events including important asset sales and related transactions and gave play to their due function. In the report period，independent directors of the Company did not make objection to the matters examined at all previous board meetings of the Company. Attendance at board meetings by independent directors: Name of The supposed times Attendance Attendance Absence independent of attendance this in person through agent Remarks (times) director year (times) (times) On Yu Rengang 6 5 1 0 bussiness Han Zhiguo 6 6 0 0 On Zhang Junhao 6 5 0 1 bussiness III. The Company has made efforts to realize separation from its controlling shareholder in respect of business, personnel, assets, organs and finance according to relevant requirements of CSRC. The Company and the controlling shareholder respectively have independent and complete business and the ability of independent operation. 1. Business: The Company is independent of its controlling shareholder, owns independent and complete production, sales and finance system and independently conducts operation management activities within statutory business scope. 2. Personnel: The Company is completely independent in respect of labor, personnel and wage management. The general manager, deputy general managers and other senior executives of the Company all received remuneration from the Company, who did not held any position at any corporate shareholder. 10 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 3. Assets: The property right relationship between the Company and the controlling shareholder is clear and the Company owns independent production system and supporting facilities. 4. Organ: In accordance with relevant laws and regulations including the Company Law and the Securities Law, the Company established organs including shareholders' general meeting, the board of directors and the supervisory committee, formulated basic work regulations including Rules of Procedure of Shareholders' General Meeting of the Company, Rules of Procedure of the Board of Directors and Rules of Procedure of the Supervisory Committee, established and perfected decision making system. The controlling shareholder of the Company participated in the Company's decision making according to legal procedure and did not affect the independence of the Company's operation management. The Company did not work side by side with its controlling shareholder. 5. Finance: The Company has established independent finance department, independent accounting system and financial management system and opened independent bank accounts. It independently pays tax according to law. The accounting personnel do not hold concurrent posts at the controlling shareholder. The Company will continue to make improvement in above aspects according to relevant requirements in the future. Chapter 6 Brief Introduction to Shareholders' General Meeting In the report period，the Company held three shareholders' general meeting and one relevant shareholders' meeting. Relevant particulars are as follows: The Company held the relevant shareholders' meeting in the meeting room of the office building of the Company at 2:00 p.m. of March 6, 2006. The announcement of relevant resolutions was published on China Securities Daily, Hong Kong Commercial Daily and www.cninfo.com.cn on March 7, 2006. 11 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 The Company held the 2006 shareholders' meeting in the meeting room of the office building of the Company at 9:00 a.m. of September 5, 2006. The announcement of relevant resolutions was published on China Securities Daily, Hong Kong Commercial Daily and www.cninfo.com.cn on September 6, 2006. The Company held the first provisional shareholders' general meeting in 2006 in the meeting room of its office building at 9:00 a.m. of October 24, 2006. The announcement of relevant resolutions was published on China Securities Daily, Hong Kong Commercial Daily and www.cninfo.com.cn on October 25, 2006. The Company held the second provisional shareholders' general meeting of the Company in 2006 in the meeting room of its office building at 9:00 a.m. of December 28, 2006. The announcement of relevant resolutions was published on China Securities Daily, Hong Kong Commercial Daily and www.cninfo.com.cn on December 29, 2006. Chapter 7 Report of the Board of Directors I. Operating status of the Company 1. The scope of main operation and its operating status The Company is engaged in the electronic parts and components industry, mainly in the manufacturing and sales of electronic vacuum glass devices and supporting electronic parts and components, export of the self-produced products of the Company and the import of mechanical equipment, parts and components, raw and auxiliary materials needed by the Company. In the report period, the progress of industrial upgrading concerning replacement of traditional CRT TV by flat television gradually accelerated. The market competition of color TV industry was fierce. The price of CRT products continued to be on low level. The price of 12 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 raw materials and energy was kept on a high level. The Company faced great challenges. Facing unfavorable situation, the Company, on the one hand, strengthened technical renovation and innovation, constantly introduced new products according to market change to meet market demand, paid special attention to cost control, further lowered product cost through energy saving and consumption reduction and made efforts to guarantee the market share of products. On the other hand, the Company swapped out the equity of SBEG through implementation of asset reorganization to pay off debts of big amount so as to cut off loss source, reduce loss, improve financial condition and optimize asset structure. Through the above main measures, the Company ensured normal proceeding of production and operation. In the report period, the output of pins, anode caps and L-35 glass tubes was 152.62 million, 17.76 million and 5689 tons respectively. The sales volume of pins, anode caps and L-35 glass tubes was 155.09 million, 17.65 million and 5559 tons respectively. In the report period, income from main operation, Profit of main operation ,Investment Income , from main operation of the Company were RMB 60.3128 million, RMB 17.7781 million, RMB –84.7322,RMB-77.9718 million respectively. The gross profit rate and market share of its products were 30.65% and 30% respectively. II.The Company's main operation and its operating status (1). Table of the status of main operation in terms of business line and product(unit:RMB’0000) Rate of Increase/decrease Increase or In terms of Increase/decrease Income from profit from of income from decrease of rate of Cost of main of cost of main business line main main main operation profit from main operation operation over the operation operation over the previous operation over the previous year (%) (%) year (%) previous year (%) Kinescope parts 5803.16 3717.81 35.93% -7.64% -10.99% -2.41% and components for color TV （2）Table of the status of main operation in terms of area (unit:RMB’0000) Increase or Rate of decrease of rate profit Increase/decrease of Income from Increase/decrease of cost of profit from Cost of main from income from main main of main operation over main operation operation main operation over the operation the previous year (%) over the operation previous year (%) previous year (%) (%) North 6031.28 4182.45 30.65% -23.41% -26.40% -2.82% China 13 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 3. Main suppliers and customers The total amount of purchase from the top five suppliers accounted for 62.22% of the total purchase amount of the year. The total amount of sales to the top five customers accounted for 69.15% % of the total sales amount of the year. 4. In the report period, Assets structure and expenses charge（Unit：RMB） Item 2006 2005 Increase or decrease（%） Accounts receivable 38,727,924.63 16,780,477 130.79 Long-term equity 0 405,270,483 -100 investment Construction-in-process 82,570.83 361,464 -77.16 Operating expenses 424,185.90 1,866,276 -77.27 Administration expenses 30,507,237.84 53,438,124 -42.91 Financial expenses 7,577,717.81 16,249,332 -53.37 Investment income -84,732,237.41 -410,936,211 79.38 Reason for change: (1) Accounts receivable increased due to large amount of arrears for goods owed by SBEG, an affiliated company of the Company; (2) Long-term equity investment decreased due to sale of an affiliated company to the controlling company through asset reorganization; (3) Operating expenses decreased because L-35 glass tube project of the Company completed renovation and started production in November and the amount of corresponding operating expenses incurred by it was small; (4) Administrative expenses decreased due to provision of big amount for bad debts in 2005; (5) Financial expenses decreased because fund possession cost for the period from January to June only was collected from the controlling company and that for the period from July to the settlement day was exempted after asset reorganization; (6) Investment income changed mainly due to the decrease of negative investment income in the report year. An affiliated company suffered continuous operating loss. Provision of big amount for impairment of assets was made in 2005 so that the amount of investment loss in 2005 was big; 14 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 5.Cash flow from operating activities in the report period: Item 2006 2005 Increase/decrease （%） Net cash flow from operating activities -32,941,408.32 -15,428,855 -113.51 Net cash flow from investing activities -1,772,541.47 37,284,474 -104.75 Net cash flow from financing activities 0 0 0 Reason for change: (1) Net cash flows from operating activities decreased due to the Company's payment of energy and power cost; (2) Net cash flows from investing activities decreased mainly due to continuous investment in the renovation of Phase-II Glass Tube Project. 6. The overhaul of the furnace of L-35 glass tube production line of the Company The L-35 glass tube production line of the Company suspended production due to furnace overhaul and technical renovation on October 9, 2005. During the period of production suspense, the Company raised funds of RMB 12 million by itself and renovated the furnace by using internationally advanced pure oxygen furnace combustion technology. On the one hand, the problem of blockage of high-lead furnace regenerative chamber has been thoroughly settled. On the other hand, the useful life of furnace can be effectively prolonged and the renovated furnace is characterized by energy saving, environmental protection and high efficiency. According to the market condition of high-lead glass tube, the Company decided to put renovated L-35 glass tube production line into operation in the report period. The furnace ignition of this production line succeeded on November 18, 2006. It was put into trial production at the beginning of December. This production line will annually produce L-35 glass tubes of over 4500 tons after it is put into production. Meanwhile, the quality of products will be apparently enhanced. The products not only can meet the demands of domestic market but also are expected to enter international market. 15 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 7. The operating status and earnings of the controlled subsidiaries of the Company With registered capital of RMB 540.68 million, Shijiazhuang Baoshi Color Glass Bulb Co., Ltd. (SBCB) is a controlled subsidiary of the Company. The Company owns 81.26% equity of SBCB. Shijiazhuang Baoshi Electric Glass Co., Ltd. ("SBEG") established by SBCB, Nippon Electric Glass Co., Ltd. and Nissho Iwai Corporation is mainly engaged in production, processing and sales of glass bulb for color kinescope and display. SBCB owns 49% equity of SBEG. In April 2006, the Japanese joint venturer of SBEG assigned 51% equity of SBEG to Shijiazhuang Construction Investment Co., Ltd. On December 29, 2006, SBCB set off its debts to Baoshi Group Co. with 49% equity of SBEG held by it and claims of RMB 30.48 million on SBEG. SBCB no longer held any equity of SBEG. Due to fierce market competition and low price of glass bulb products, SBEG faced grim situation of production and operation and still suffered big amount of loss in the report period. In the report period, SBCB obtained investment income of RMB -84.7320 million. II.Financial status of the Company in the report period Items Ending balance Beginning balance Increase or decrease (%) Total assets 402,812,336.84 839,028,088 -51.99 Shareholders' equity 200,203,658.09 266,183,201 -24.79 Profit from key business 17,778,098.43 21,024,620 -15.44 Total profit -95,285,182.93 -442,995,546 78.49 Net increase of cash and cash -34,713,949.79 21,855,619 -258.83 equivalents Main reason for change: 1. Total assets decreased due to sale of 49% equity of SBEG owned by the Company to Baoshi Group Co. to set off debts of the same amount through reorganization; 2. Shareholders' equity decreased due to the Company's operating loss; 16 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 3. Profit from main operation decreased because L - 35 glass tube project of the Company was in the stage of renovation and had no normal production and operation in the period from January to October; 4. Total loss decreased due to big amount of loss after provision of big amount for impairment in 2005; 5. Net increase in cash and cash equivalents decreased due to big investment of the Company in energy and power for production. III. Possible accounting policies, change of accounting estimate and their influence on the Company's financial position and operating results after implementation of new accounting standards for business enterprises: (I) Analysis of difference between shareholders' equity calculated according to the prevailing accounting standards and that calculated according to new standards on January 1, 2007 from which new accounting standards are implemented: According to Cai Kuai (2006) No. 3 Circular of Printing and Issuing 38 Concrete Standards including No. 1 Accounting Standard for Business Enterprises - Inventories issued by Ministry of Finance on February 15, 2006, the Company should implement new Accounting Standards for Business Enterprises from January 1, 2007. The difference between accounting items pursuant to current accounting standards and new accounting standards on January 1, 2007, i.e., the day of first implementation, confirmed by the Company according to new accounting standards promulgated by Ministry of Finance is as follows: 1. Income tax In accordance with current accounting standards, the Company formulated accounting policies and made provision for bad debts in respect of accounts receivable and provision for impairment of fixed assets according to such accounting policies. New accounting standards will form the difference between book value of assets and tax base of assets (the former is less than the latter), generated deferred income tax assets and increased retained earnings as at January 1, 2007 by RMB 27,963,102. Owner's equity belonging to the parent company 17 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 increased by RMB 27,196,490 and the owner's equity belonging to minority shareholders increased by RMB 766,611. 2. Minority interests Minority interests of RMB 9,208,551 of subsidiaries in the consolidated statements as at December 31, 2006 prepared by the Company according to current accounting standards will be accounted for as shareholders' equity according to new accounting standards. As a result, shareholders' equity as at January 1, 2007 will increase by RMB 9,208,551. In addition, as the equity belonging to minority shareholders in the deferred income tax assets generated by subsidiaries' provision for bad debts is RMB 766,611, minority interests pursuant to new accounting standards will be RMB 9,975,162. (II) Possible accounting policies, change of accounting estimate and their influence on the Company's financial position and operating results after implementation of new accounting standards for business enterprises: According to the Company's strategic goals and business plan for the next year, the possible change of accounting policies and accounting estimate after implementation of new accounting standards and its influence on the Company's financial position and operating results are mainly as follows: 1. In accordance with the prevailing accounting policies, the Company shall account for equity investment in subsidiaries on equity basis. In accordance with No.2 Accounting Standard for Business Enterprises -- Long-term Investment, the Company shall change to account for such investment on cost basis. Thus, the influence of operating profit and loss of subsidiaries on the Company's investment income for current period will decrease but this matter will not affect the Company's consolidated statements. 2. According to No. 18 Accounting Standard for Business Enterprises - Income Tax, the Company will change tax payable method under current policies to accounting method of tax payment influence for balance sheet, which will affect the Company's income tax expenses for current period and thus affect its profit and shareholders' equity. 18 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 3. According to new No. 9 Accounting Standard for Business Enterprises - Remuneration of Staff and Workers, the Company shall confirm remuneration of staff and workers payable according to actual situation and plan for welfare of staff and workers. Administrative expenses will be adjusted according to the difference between this amount and the welfare expenses payable originally transferred to remuneration of staff and workers payable and the Company's profit and shareholders' equity will thus be affected. (III) The said difference and influence may be adjusted according to the further explanation of new accounting standards by the Ministry of Finance. IV. Investment of the Company in the report period 1. Investment projects utilizing raised funds The Company did not raise funds in the report period. The funds raised previously were not carried forward into the report period for utilization. 2. Important projects utilizing non-raised funds in the report period There were no important investment projects utilizing non-raised funds in the report period. V. Forecast of the Company's future development 1. Forecast of the Company's future development Color TV market demand is expected to keep steady growth in the next several years. Though the dominant position of CRT television has been unceasingly weakened by flat television, CRT television will occupy half of the huge market of 200 million television sets in the world. Despite rapid growth of flat television demand of developed countries and regions such as North America, Europe, Japan and Korea, the consumption of many developing countries and regions including China is not on the same level. The CRT TV demand of developing countries and countries to be developed will grow steadily in the next period of time. In China, the price of CRT television is more attractive. Besides, the base number of CRT television is big in China and its technological system is complete. Therefore, the speed of replacement of CRT television by flat television is apparently slower than that in the world. CRT television is still competitive. The Company's leading products are electronic components supporting traditional color television. The Company has strong market competitiveness in the industry at home and abroad in respect of technology, scale and product quality. 2. Business plan for the new year The industry upgrading occurred in color TV industry made the Company face big 19 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 opportunities and great challenges. The key work in the new year is to realize the Company's sustainable development. (1) To give full play to the advantage of solid technical force and superior equipment, constantly reduce cost and develop domestic and foreign market based on continuing technical upgrading of existing competitive products, quicken new product development, innovate strategy, design product structure adjustment and create return to the greatest extent. (2) To further strengthen internal management, take establishing "resource-saving enterprise" as an objective, seek improvement of operating results through innovation of management mode and focus on effectively controlling stock and recovering payment for goods. (3) To continue to plan the Company's subsequent asset reorganization, enhance its quality as soon as possible and ensure sustainable development. VI.Routine work of the board of directors 1. Board meetings and resolutions in the report period In the report period, the Company held 10 board of director. Relevant particulars are as follows: (1)The 15th meeting of the fourth board of directors of the Company was held on June 28, 2006. The announcement of relevant resolutions was published on China Securities Daily, Hong Kong Commercial Daily and www.cninfo.com.cn June 29, 2006. (2)The 16th meeting of the fourth board of directors of the Company was held on August 2, 2006. The announcement of relevant resolutions was published on China Securities Daily, Hong Kong Commercial Daily and www.cninfo.com.cn August 3, 2006. （3）On August 22, 2006, the fourth board of directors of the Company held the 17th meeting. The meeting examined and adopted the proposal concerning the Company's decision 20 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 to sell six houses located at Wuning Road, Putuo District, Shanghai (with total book value of RMB 3.6 million) provided by Tianjin Jinjing Glass Bulb Co., Ltd. to pay debts in kind at market price. Relevant resolution has been submitted Shenzhen Stock Exchange for record. （4）(2)The 18th meeting of the fourth board of directors of the Company was held on Auguwt 24, 2006. The announcement of relevant resolutions was published on China Securities Daily, Hong Kong Commercial Daily and www.cninfo.com.cn August 25, 2006. (5)The 1st meeting of the fifth board of directors of the Company was held on September 5, 2006. The announcement of relevant resolutions was published on China Securities Daily, Hong Kong Commercial Daily and www.cninfo.com.cn September 6, 2006. (6)The 2nd meeting of the fifth board of directors of the Company was held on September 21, 2006. The announcement of relevant resolutions was published on China Securities Daily, Hong Kong Commercial Daily and www.cninfo.com.cn September 22, 2006. (7)The 3rd meeting of the fifth board of directors of the Company was held on September 29, 2006. The announcement of relevant resolutions was published on China Securities Daily, Hong Kong Commercial Daily and www.cninfo.com.cn September 30, 2006. （8）The 4th meeting of the fifth board of directors of the Company was held on October 13, 2006. The announcement of relevant resolutions was published on China Securities Daily, Hong Kong Commercial Daily and www.cninfo.com.cn October 14, 2006. （9）The 5th meeting of the fifth board of directors of the Company was held on September 5, 2006.The meeting examined and adopted quarterly Report for the Third Quarter of 2006. （10）The 6th meeting of the fifth board of directors of the Company was held on December 12, 2006. The announcement of relevant resolutions was published on China Securities Daily, Hong Kong Commercial Daily and www.cninfo.com.cn October 13, 2006. 2. Implementation by the board of directors of the resolutions of the shareholders' general meeting The board of directors duly implemented all resolutions of the shareholders' general meeting in the report period. 21 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 VII. Profit distribution preplan As audited by Zhongxi Certified Public Accountants Co., Ltd., the net profit of the Company for 2006 was RMB-77，971，801.20 .The board of directors of the Company has decided neither to distribute profit nor capitalize any capital surplus for the report year. This preplan is to be submitted to 2006 annual shareholders' general meeting for examination. The independent directors of the Company expressed independent opinions on the above profit distribution preplan of the Company and held the opinion that such preplan complied with the Company's status quo and relevant accounting regulations and did not harm shareholders' equity. VIII. Miscellaneous The newspapers selected by the Company for information disclosure remained China Securities Daily and Hong Kong Commercial Daily ,No change in the report period. IX. Indepency Opinion According to the Circular on Certain Issues Relating to Standardization of Fund Transfer Between Listed Companies and Their Related Parties and Guarantees Provided by Listed Companies (ZJF (2003) No. 56 Document), we carefully examined and verified the status of the fund transfer between Shijiazhuang Baoshi Electronic Glass Co., Ltd. and its related parties and the guarantee provided by the Company. In our opinion: 1. The fund transfer between Shijiazhuang Baoshi Electronic Glass Co., Ltd. and its controlling shareholder and other related parties occurred in 2005 was fund transfer formed during normal operation; 2.Since its listing, Shijiazhuang Baoshi Electronic Glass Co., Ltd. has strictly abided by the provisions of the Company Law, the Securities Law, Listing Rules and ZJF (2003) No. 56 Document and has not provided guarantee to its controlling shareholder and other related parties, any unincorporate entity or individual. The amount of external guarantee provided by the Company on accumulative basis and in current period was zero. 22 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 As of the end of the report period, the accumulative amount of the Company's external guarantee was RMB 18.8 million. The Company did not provide guarantee to the controlling shareholder and the subsidiaries of the controlling shareholder. Chapter 8 Report of the Supervisory Committee I. The meetings of the supervisory committee In the report period, the supervisory committee held 7 meetings in total. The particulars of the meetings are as follows: 1. The fourth supervisory committee of the Company held the 8th meeting on June 19, 2006. This meeting did not make any resolution. The supervisors present at the meeting listened to the report of chief accountant Zhou Yumao and board secretary Luo Lina on working progress of 2006 annual report and suggested the board of directors and the management of the Company to communicate with and consult auditing bodies as soon as possible and ensure the completion of disclosure of 2005 annual report before June 30, 2006. 2. The 9th meeting of the Fourth supervisory committee of the Company was held on June 28, 2006. The meeting examined and adopted the following: (1) 2005 work report of the supervisory committee of the Company; (2) 2005 annual report of the Company; (3) Final accounting report of the Company for 2005; （4）Report for the First Quarter of 2006 3. The 10th meeting of the Fourth supervisory committee of the Company was held on August 24, 2006. The meeting examined and adopted 2006 semiannual report of the Company. 23 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 4.On September 5, 2006, the fifth supervisory committee of the Company held the first meeting. The meeting elected Xie Mengxiong as chairman of the fifth supervisory committee of the Company. 5. The 2th meeting of the Fifth supervisory committee of the Company was held on October 13, 2006. The meeting examined and adopted the following: (1) The meeting examined and adopted the proposal concerning the material assets disposal and related transactions of the Company; (2) The meeting examined and adopted the Equity Assignment Agreement to be signed by SBCB with Baoshi Group Co., Debt Transfer Agreement to be signed by the Company with SBCB and Baoshi Group Co. and Report on Material Assets Disposal and Related Transactions (Draft). 6. On October 26, 2006, the fifth supervisory committee of the Company held the third meeting. The meeting examined and adopted the Company's report for the third quarter of 2006. 7. November 13,2006, The fifth supervisory committee of the Company held the 4th meeting and conveyed the Circular of Conducting Self Inspection of Companies issued by Hebei Securities Regulatory Bureau. No resolution was made at the meeting. II. The independent opinions of the supervisory committee of the Company (1) The operation of the Company according to law In 2006, the Company was able to operate in accordance with relevant laws and regulations of the state, the Articles of Association of the Company and the resolutions of shareholders' general meeting. Its decision making procedure was legal. The Company established corresponding internal control system while gradually perfecting its corporate administration structure. No act of the directors and managers of the Company was found to violate the laws, regulations and the Articles of Association or harm the Company's interests when they performed their duties. （2）The 2006 financial reports of the Company truly reflected the financial status and 24 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 operating results of the Company. Zhongxi Certified Public Accountants Co., Ltd. issued auditor's report with highlighted points. （3）. The Company did not raise funds in the report period. （4）. The Company neither acquired nor disposed of assets in the report period. In the report period, the Company transferred the debts payable by the Company to Baoshi Group to SBCB, a controlled subsidiary of the Company. Meanwhile, SBCB assigned 49% equity of SBEG held by it to Baoshi Group to set off the debts owed to Baoshi Group. After examining relevant agreements, documents and data, the supervisory committee of the Company held the opinion that the assignment of 49% equity to SBEG to Baoshi Group contributed to avoiding bigger loss incurred to the Company and reducing interest expenses of fund possession cost of big amount annually payable by the Company to Baoshi Group. The price of this transaction was based on the appraised value of 49% equity of SBEG provided by an appraisal agency with qualification for securities business after appraisal and determined after reduction of audited loss generated by the subject matter of assignment in the period from the base day of appraisal to the audit day of equity delivery. The transaction price was determined in a fair and reasonable way. A board meeting of the Company examined and adopted the said proposal. Related directors performed the duty of absence during vote according to law. The examination procedure of this transaction was legal and valid. The implementation of this transaction will not harm the interests of the Company and all shareholders. （5）. The related transactions were fair and did not harm the interests of the Company. Chapter 9 Important Events 25 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 I. Material lawsuits and arbitration The Company was not involved in any material lawsuit or arbitration in the report period. II. The Company neither acquired nor disposed of assets nor was involved in any merger by absorption in the report period. III. Material related transactions 1. The related transactions in respect of purchase and sales of commodities and provision of labor service Related Contents of Transaction Pricin Mod Proportio Influence parties transactions amount g e of n of the on the profit (RMB) princip settl same kind of the le eme of Company nt transactio n Baoshi Group Sales of 1,680,059 Agreed Curre 2.79% Profit Co. finished price ncy increase (controlling products shareholder) Sales of 25,254,159 Agreed Curre 16.97 Profit power price ncy increase Sales of 23,705,437 Agreed Curre 39.30% Profit finished price ncy increase SBEG products (Controlled by Sales of 123,474,250 Agreed Curre 82.97 Profit the same power price ncy parent increase company) Provisio 10,095,557 Agreed Curre 73.58% Profit n of labor price ncy increase service Note：49% equity of SBEG held by SBCB has been assigned to Baoshi Group Co. Equity settlement day is December 29, 2006. Relevant procedure has been settled. As the products of the Company and the above related parties have upstream-and-downstream relationship and their production is in the same place, the occurrence of the above related transactions is necessary and normal. If product structure and production site do not change, the above related transactions will continue 26 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 to occur. 2. The Company was not involved in related transactions caused by assignment of assets and equity in the report period. In the report period, the Company transferred the debts payable by the Company to Baoshi Group to SBCB, a controlled subsidiary of the Company. Meanwhile, SBCB assigned 49% equity of SBEG held by it to Baoshi Group to set off the debts owed to Baoshi Group. This plan for asset reorganization was approved by CSRC. On December 28, 2006, the second provisional shareholders' general meeting of the Company in 2006 examined and adopted the Company's plan for asset reorganization. The settlement day of SBEG's equity is December 29, 2006. (Refer to the announcement of the Company and Report of Shijiazhuang Baoshi Electronic Glass Co., Ltd. on Material Assets Disposal and Related Transaction published on China Securities Daily, Hong Kong Commercial Daily and www.cninfo.com.cn on October 14, 2006 and December 29, 2006 for details). 3. The Company was not involved in related transactions caused by external investment with related parties in the report period. 4. The credit (debt) relationship between the Company and related parties Related party Amount Reason of formation Influence on the Company (RMB’0000) Baoshi Group Share of energy and power on the Co. Operating debts same production site -16,419,949 (controlling shareholder) SBEG Share of energy and power on the (Controlled by Operating debts same production site 97,154,997 the same parent company) Note：49% equity of SBEG held by SBCB has been assigned to Baoshi Group Co. Equity settlement day is December 29, 2006. Relevant procedure has been settled. III. Important contracts and their performance 1. The Company did not hold in trust or contract for or lease the assets of other 27 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 companies nor did other companies hold in trust, contract for or lease the assets of the Company in the report period. 2.External guarantee On September 18, 2006, the Company provided guarantee, together with Shijiazhuang Baoshi Electronic Group Co., Ltd., for the application of Shijiazhuang Construction Investment Co., Ltd. for loan of RMB 70 million) with some land and houses (with appraised value of RMB 30.3018 million) (The valid guarantee value for the Company is RMB 18.80 million). The guarantee period is one year. The type of guarantee is mortgage guarantee. 3.The Company did not entrust others to management its cash assets in the report IV. The commitments made by the Company and shareholders holding over 5% of the total shares of the Company in the report period. 1. The Company published the announcement of the resolutions of the 9th meeting of the third Board of Directors on China Securities Daily and Hong Kong Commercial Daily on November 7, 2001. The Board of Directors of the Company and Baoshi Group Co. has reached agreement on the competition between the Company and Baoshi Group Co. in the same industry arising from the project of renovating and constructing L-35 glass tube production line and will properly solve this issue by the means of asset exchange or other means. At present, this matter is in active discussion. 2. The Company published the announcement of the resolutions of the 11th meeting of the third board of directors on China Securities Daily and Hong Kong Commercial Daily on December 14, 2001. As of October 31, 2001, SBEG borrowed funds of RMB 0.26 billion from SBCB to develop color bulb project. It plans to fully repay the loan in the next two years. The Company will urge both parties to implement the plan. At the end of the report period, the balance of funds borrowed by SBEG from SBCB was RMB 30.4812 million, 28 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 which was transferred to Baoshi Group on December 29, 2006 to set off the debts owed by SBCB to Baoshi Group. V. The engagement of certified public accountants and the payment of remuneration 1. Engagement of certified public accountants 2005 annual shareholders' general meeting of the Company examined and adopted the proposal for not continuing the engagement of Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd. and Pricewaterhouse Coopers China Co., Ltd. as the financial audit bodies of the Company inside and outside China in 2006. The second provisional shareholders' general meeting of the Company in 2006 examined and adopted the proposal for engaging Zhongxi Certified Public Accountants Co., Ltd. and H.L.S CPAs as the financial audit bodies of the Company inside and outside China in 2006. 2. Payment of remuneration The Company paid remuneration of RMB 0.48 million in total to Zhongxi Certified Public Accountants Co., Ltd. and H.L.S Certified Public Accountants Co., Ltd.. in the report period. The traveling expenses were borne by the audit bodies themselves. 3. Zhongxi Certified Public Accountants Co., Ltd. and H.L.S Certified Public Accountants Co., Ltd. had provided audit services to the Company for 1 consecutive years. VI. Other important events In April 2006, Nippon Electric Glass Co., Ltd. and Sojitz Kabushiki Kaisha, the Japanese shareholders that originally established SBEG with SBCB, a controlled subsidiary of the Company, assigned 51% equity of SBEG held by them to Shijiazhuang Construction Investment Co., Ltd. under Shijiazhuang State-owned Assets Commission due to strategic adjustment of production and operation and product structure. Relevant procedure has been settled. VII. On May 31, 2006, the directors, supervisors and senior executives of the Company were publicly condemned by Shenzhen Stock Exchange and investigated by CSRC due to failure to disclose 2005 annual report of the Company within statutory time limit. On January 4, 2007, the Company received the written decision of CSRC on administrative penalty 29 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 (Zheng Jian Fa Zi (2006) No. 37). In the opinion of CSRC, the Company failed to publicly disclose 2005 annual report before April 30, 2006, which violated the provisions of Article 66 of the Securities Law and constituted "the failure to disclose information according to relevant regulations" as described in paragraph 1 of Article 193 of the Securities Law. CSRC decided to give a warning to the Company and Dong Qingxiang, the person directly in charge. VIII. The Company's share holding structure reform The Company's plan for share holding structure reform was voted through by relevant shareholders' meeting on March 6, 2006. The implementation of share holding structure reform was completed on March 29, 2006. The Company's shareholders holding non-negotiable shares will abide by laws, rules and regulations and fulfill statutory commitments. In addition to statutory minimum commitment, the controlling shareholder of the Company Baoshi Group Co. made the following special commitments: (1) Commitment concerning selling price If non-negotiable shares held by it are sold through Shenzhen Stock Exchange within 36 months from the date of obtaining the right of negotiation, the selling price shall not be lower than RMB 2.5 per share (In case of dividend distribution, bonus share distribution and capital surplus capitalization, such price shall be treated on ex-right and ex-dividend basis). If the price of the shares sold through securities exchange within the said term is lower than RMB 2.5 per share, the proceeds of selling shares shall belong to the Company. (2) To advance the consideration to be paid by shareholders holding non-negotiable shares who have not explicitly agreed to the plan In order to smoothly carry out this share holding structure reform, Baoshi Group Co. promised to advance the consideration to be paid by the shareholders holding non-negotiable shares who had not explicitly agreed to the plan as of the stock right registration date for the implementation of this plan for share holding structure reform for the obtainment of the right of listing and negotiation of the non-negotiable shares held by such shareholders. 30 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 In the report period, Baoshi Group Co., the controlling shareholder of the Company, and other shareholders holding shares subject to sale restriction strictly fulfilled their commitments made in the Company's plan for share holding structure reform. IX.The Company's acceptance of investigation and research and interview In the report period, the Company did not accept investigation and research or interview. The Company answered the questions of personal investors strictly according to the Guidelines of Shenzhen Stock Exchange for Fair Information Disclosure of Listed Companies and in the light of the principle of openness, impartiality and fairness. It did not separately disclose its non-public important information to specific objects in private, in advance or on selection basis and guaranteed the fairness of information disclosure. Chapter 10 Financial Report . Auditor's report (attached hereinafter) INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED 石家莊寶石電子玻璃股份有限公司 (Incorporated in the People’s Republic of China with limited liability) ｊ We have audited the accompanying consolidated financial statements of Shi iazhuang Baoshi Electronic Glass Company Limited (the “ Company” ) and its subsidiary (the “ Group ” ), which comprise of the consolidated balance sheet as at December 31, 2006, the consolidated income ｑ statement, consolidated statement of changes in e uity and consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. ’ S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS MANAGEMENT Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from ； material misstatement, whether due to fraud or error selecting and applying appropriate ； accounting policies and making accounting estimates that are reasonable in the circumstances. ’ S RESPONSIBILITY AUDITOR Our responsibility to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with our agreed terms of engagement and for no other purposes. We do not assume responsibility towards or accept liability to any person for the contents of this 31 Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2006 report We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. OPINION In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of December 31, 2006, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Morison Heng Chartered Accountants Certified Public Accountants Hong Kong: April 9, 2007 32 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2006 Notes 2006 2005 RMB’000 RMB’000 Turnover 6 60,313 78,744 Cost of sales (42,534) (56,826) Gross profit 17,779 21,918 Other revenue 6 10,297 18,634 Selling and marketing expenses (424) (2,760) Administrative expenses (30,507) (53,438) Other operating expenses (119) (163) Loss from operations 7 (2,974) (15,809) Interest income 1,418 3,298 Finance costs - net 9 (8,996) (19,547) Gain on disposal of an associate 11,992 - Share of result of an associate after income tax 16 (84,732 ) (410,93 ) 6 Loss before taxation (83,292) (442,994) Income tax 11 - - Loss for the year (83,292) (442,99 ) 4 Attributable to: Equity holders of the parent (68,226) (363,53 ) 1 Minority interests (15,066 ) (79,463 ) 2 Net loss for the year (83,292) (442,99 ) 4 Earnings per share Basic per share 12 RMB(0.1 ) RMB(0.9 ) 8 5 3 CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2006 Notes 2006 2005 RMB’000 RMB’000 ASSETS Non-currents assets Property, plant and equipment 13 155,020 158,881 Land use right 14 13,137 13,470 Intangible assets 15 8 - Investment in an associate 16 - 415,431 Deferred assets 17 7,723 7,712 175,888 595,494 Current assets Inventories 18 24,469 32,158 Trade and other receivables 19 32,214 46,937 Amount due from an associate 16 - 56,544 Amounts due from related parties 21 109,972 13,401 Other long-term assets receivables within one year 22 58,000 58,000 Bank balances and cash 23 1,781 36,495 226,436 243,535 402,324 839,029 Total assets 4 CONSOLIDATED BALANCE SHEET － CONTINUED AT DECEMBER 31, 2006 Notes 2006 2005 RMB’000 RMB’000 EQUITY AND LIABILITIES Capital and reserves Share capital 27 383,000 383,000 Reserves 28 569,399 569,399 Accumulated losses (754,123) (685,897) Equity attributable to equity holders of the parent 198,276 266,502 Minority interests 11,455 19,875 Total equity 209,731 286,377 Current liabilities Trade and other payables 24 94,367 104,611 Amounts due to related parties 21 - 869 Amount due to the holding company 20 16,420 362,728 Current income tax liabilities (1,662) (1,662) Borrowings 25 5,381 5,404 Other long-term liabilities due within one year 26 78,087 80,702 Total liabilities 192,593 552,652 402,324 839,029 Total equity and liabilities Approved by the Board of Directors on April 9, 2007 DIRECTOR DIRECTOR 5 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2006 Attr Capital Statutory Statutory to Share accumulation accumulated welfare Accumulated ho capital funds fund fund losses the RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RM Balance at January 1, 2005 383,000 507,500 41,265 20,634 (322,36 ) 247 6 Net loss for the year - - - - (363,531) ( Balance at January 1, 2006 383,000 507,500 41,265 20,634 (685,897) ( Increase in minority interests arising from the disposal of an associate - - - - - Net loss for the year - - - - (68,226) Balance at December 31, 2006 383,000 519,492 41,265 20,634 (754,123) ( 6 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2006 2006 2005 RMB’000 RMB’000 Cash flows from operating activities Loss before taxation (83,292 ) (442,99 ) 4 Adjustments for: Depreciation of property, plant and equipment 14,465 18,078 Amortization of land use right 333 333 (Gain)/Loss on disposal of property, plant and equipment (3,999 ) 22 Loss on written off of property, plant and equipment 5,659 - Reversal of impairment loss (69 ) - Interest expenses 11,631 21,444 Interest income (866 ) (2,572 ) Share of result of an associate 72,740 410,936 Operating profit before working capital changes 16,602 5,247 Increase in trade and other receivables (45,868 ) (12,416) Decrease in inventories 7,689 18,975 Increase/(Decrease) in trade and other payable 849 (27,234) Net cash used in operating activities (20,728 ) (15,428) Investing activities Purchase of property, plant and equipment (19,235) (3,442) Proceeds on disposal of property, plant and equipment 7,040 134 Loan repayment from an associate - 20,321 Purchase of intangible assets (8) - Interest received from an associate 866 2,572 Decrease in restricted and pledged bank deposits - 51 Dividend received - 17,699 Net cash (used in)/from investing activities (11,337) 37,335 Financing activities Net cash from financing activities - - Net (decrease)/increase in cash and cash equivalents (32,065) 21,907 Cash and cash equivalents at the beginning of the year 36,495 14,588 Effect on foreign exchange rate change (2,649) - Cash and cash equivalents at the end of the year 1,781 36,495 Analysis of cash and cash equivalents at the end of the year 7 Bank balances and cash 1,781 36,495 8 GENERAL INFORMATION Shijiazhuang Baoshi Electronic Glass Company Limited (the “Company”) was incorporated on December 26, 1992 in Shijiazhuang, Hebei Province, the People’s Republic of China (“PRC”) as a joint stock limited company. The address of the Company’s registered office is No.9 Yellow River Road, High-technological development zone, Shijiazhuang. The principal activities of the Company and its subsidiary and its associate (collectively known as the “Group”), were the manufacture and sale of black and white television bulbs (“BW Bulbs”) and black and white television cathode ray tubes (“BW CRTs”). In June 1997, the Company suspended production of its primary products due to a significant adverse change in market demand for black and white television sets. On March 30, 2000, the shareholders approved and authorized the sale of all plant and machinery relating to production of BW Bulbs and BW CRTs together with part of the associated liabilities to the holding company, Shijiazhuang Baoshi Electronic Group Company Limited, in exchange for certain assets and liabilities of a division of the holding company with the principal activities of manufacturing colour television tube components. The Company’s principal activities therefore are the manufacture and sale of components for colour television cathode ray tubes. SIGNIFICANT ACCOUNTING POLICIES Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). This basis of accounting differs from that used in the statutory financial statements of the Group which are prepared in accordance with generally accepted accounting principles and relevant financial regulations applicable to enterprises in the PRC ("PRC GAAP"). The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4. Adoption of new and revised standards In the current year, the Group has adopted all of the new and revised standards and interpretations issue by the International Accounting Standards Board (the “IASB”) and the International Financial Reporting Interpretations Committee (the “IFRIC”) of the IASB that are relevant to its operations and effective for annual reporting periods beginning on January 1, 2006. The adoption of these new and review standards and interpretations had no material effect on how the results for the current or prior years have been prepared and presented. 9 2. SIGNIFICANT ACCOUNTING POLICIES – (continued) Adoption of new and revised standards – (continued) At the date of authorisation of these consolidated financial statements, the following standards and interpretations were in issue but not yet effective: IFRS 7 Financial Instruments Disclosures Effective for annual periods beginning on or after January 1, 2007 IFRIC 8 Scope of IFRS 2 Effective for annual periods beginning on or after May 1, 2006 IFRIC 10 Interim Financial Reporting and Effective for annual periods beginning on Impairment or after November 1, 2006 The management anticipates that the adoption of these standards and interpretations in future periods will have no material financial impact on the consolidated financial statements of the Group. Basis of preparation The consolidated financial statements are prepared under the historical cost basis, except for the revaluation of certain available-for-sale investments and investment properties. The principal accounting policies are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities (including special purpose entities) controlled by the Company (its subsidiary). 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 their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. 10 2. SIGNIFICANT ACCOUNTING POLICIES – (continued) Basis of consolidation – (continued) 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. Business combinations Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss. The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. 11 2. SIGNIFICANT ACCOUNTING POLICIES – (continued) Investments in an associate An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, or when the investment is designated as at fair value through profit or loss upon initial recognition or is classified as held for trading, in which case it is accounted for under IAS 39 Financial Instruments: Recognition and Measurement. Under the equity method, investment in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the profit or loss and of changes in equity of the associate, less any identified impairment loss. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interest that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognizing its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate. Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate. 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. 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. 2. SIGNIFICANT ACCOUNTING POLICIES – (continued) Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any 12 incentive received from the lessor) are charged to the income statement on a straight-line basis over the lease periods . 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 Renminbi, 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 on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations (including comparatives) are expressed in Renminbi 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 and 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 capitalization. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. 13 2. SIGNIFICANT ACCOUNTING POLICIES – (continued) Employee benefits The Group has to make defined contributions to the staff retirement scheme managed by the local government in accordance with its rules and regulations. Contributions to the retirement scheme are charged to the income statements as and when incurred. Taxation PRC income taxes are provided for based on the estimated assessable profits and the applicable tax rates for the Company and other companies comprising the Group. Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred taxation is provided on temporary differences arising on investments in subsidiary and an associate, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Property, plant and equipment Buildings are depreciated over the unexpired periods of the leases or their expected useful lives to the Group, whichever is shorter, on a straight-line basis, while other property, plant and equipment are depreciated at rates sufficient to write off their cost less residual value, if any, and accumulated impairment losses over their estimate useful lives on a straight-line method at the following rates per annum: Types Terms Buildings 20 – 21 years Plants and machinery 11 – 12 years Motor vehicles 11 – 12 years Office equipment 11 – 12 years The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement. 14 2. SIGNIFICANT ACCOUNTING POLICIES – (continued) Land use rights Land use rights are lump sum upfront payments to acquire long-term interest in lessee-occupied properties. Lease premium for land relating to buildings of the Group are stated at cost and are amortised over the year of the lease on the straight-line basis to the profit and loss account. Land use right relating to investment properties and properties developed for sale are not amortised and included as part of the cost of such properties. Construction in progress Construction in progress represents properties under construction and plant and equipment under installation or testing, is stated at cost, which includes the costs of construction, the costs of buildings, machinery and equipment and interest charges arising from borrowings used to finance these assets during the year of construction or installation and testing. When the assets concerned are brought into use, the costs are transferred to property, plant and equipment and depreciated in accordance with the policy as stated above. Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labor costs and those overheads that have been incurred in bringing the inventories to their present locations and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated costs of completion and costs necessary to make the sale. Trade receivables and other receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables and other receivables is established when there is an objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. 15 2. SIGNIFICANT ACCOUNTING POLICIES – (continued) Intangible assets Intangible assets acquired separately are reported at cost less accumulated amortisation and accumulated impairment losses. Amortisation is charged on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis Impairment of tangible and intangible assets 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 costs 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, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimated or 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, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Segment reporting Business segments provide products or services that are subject to risks and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments. 16 2. SIGNIFICANT ACCOUNTING POLICIES – (continued) Share capital Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared. Related parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. 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. Trade payables Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Provision Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group 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. Financial liabilities Interest-bearing bank loans and overdrafts are initially measured at fair value, and 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 cost. 17 FINANCIAL RISK MANAGEMENTS a) Financial risk factors The Group’s activities expose it to a variety of financial risks, including: Foreign exchange risk Most of the transactions of the Group were settled in Renminbi. In the opinion of the directors, the Group does not have significant foreign currency exposure. Credit risk The Group has no significant concentrations of credit risk. It has policies in place to ensure that sales of products are made to customers with an appropriate credit history. At December 31, 2006, the trade receivables of the Group were spread among a number of customers in the PRC. Details of amount due from the holding company and related companies are included in Note 20 and Note 21. The other financial assets of the Group do not represent a concentration of risk. Interest rate risk The interest rates and terms of repayment of borrowings are disclosed in Note 25. Other financial assets and liabilities do not have material interest rate risk. Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities. The Group aims to maintain flexibility in funding by keeping committed credit lines available. b) Fair value estimation The fair values of cash and bank, trade receivables and payables, amounts due from and to related companies, and borrowings are not materially different from their carrying amounts. 18 CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. a) Useful lives of property, plant and equipment The Group’s management determines the estimated useful lives for its property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. It could change significantly as a result of technical innovations and competitor actions in response to severe industry cycles. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or will write-off or write-down technically obsolete or non-strategic assets that have been abandoned or sold. b) Impairment of receivables The Group’s management determines the provision for impairment of trade and other receivables. This estimate is based on the credit history of its customers and the current market condition. Management reassesses the provision on each of the balance sheet date. c) Current taxation and deferred taxation The Group is subject to taxation in the PRC. Significant judgment is required in determining the amount of the provision for taxation and the timing of payment of the related taxations. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the income tax and deferred tax provisions in the periods in which such determination are made. 19 BUSINESS AND GEOGRAPHICAL SEGMENTS The Group conducts its business within one business segment – the business of production and sales of components for colour television cathode ray tubes in PRC. No segment statement of income has been prepared by the Group for the year ended December 31, 2006. The Group also mainly operates within one geographical segment because its revenue is primarily generated in the PRC and its assets are located in the PRC. Accordingly, no geographical segment data is presented. TURNOVER AND REVENUE The Group is engaged in the manufacturing and sale of components for colour television cathode ray tubes. Revenue recognised during the year is as follows: 2006 2005 RMB’000 RMB’000 Turnover Sales of components 58,032 62,831 Sales of glass tubes 2,281 15,913 60,313 78,744 Other revenue Sales of raw material 687 1,164 Sales of energy 2,478 9,225 Sales of inventory held for debtors - (9) Service of labour 33 5,475 Gain on disposal of property, plant and equipment 3,522 120 Others 3, 2,659 577 10,297 18,634 Total revenue 70,610 97,378 20 LOSS FROM OPERATIONS Loss from operations had been arrived at after charging: 2006 2005 RMB’000 RMB’000 Depreciation and amortization: - amortisation of land use right (Note 13) 333 333 - depreciation of property, plant and equipment (Note 14) 18,078 14,465 Total depreciation and amortisation expenses 14,789 18,411 Trade receivables: - impairment charge for bad and doubtful debts 323 9,819 Provision for inventory obsolescence 7,773 7,219 Cost of inventories recognised as expenses 41,824 29,726 Staff costs (Note 8) 11,997 27,402 STAFF COSTS 2006 2005 RMB’000 RMB’000 Wages and salaries 11,740 15,601 Retirement benefits 257 3,948 Others - 7,853 11,997 27,402 Average number of persons employed by the Group during the year 649 1,128 The Group participates in a government defined contribution retirement scheme. The Group contributed to the scheme at 20% (2005:20%) of the salaries for permanent employees, up to a maximum fixed monetary amount, as stipulated by the municipal government. Under the scheme, retirement benefits of existing and retired employees are guaranteed by the government Unified Retirement Fund and the Group has no further obligations beyond the annual contribution. It is the intention of the Board of Directors to continue making such payments in the future. The contributions to this retirement scheme are charged to income statement in the year which they relate. 21 FINANCE COSTS - NET 2006 2005 RMB’000 RMB’000 Interest expenses on borrowings 11,631 21,444 Foreign exchange gain, net (2,635 ) (2,297 ) Others - 400 Finance cost - net 8,996 19,547 DIRECTORS’ REMUNERATION Particulars of the emoluments of the directors for the year were as follows: 2006 2005 RMB’000 RMB’000 Fees 166 121 INCOME TAX 2006 2005 RMB’000 RMB’000 Current tax: - Domestic - - Taxable income is calculated based on total revenue less deductible cost of goods sold, expenses and other operating gains/(losses) under the existing tax regulations. As the Group was qualified as a high-technological enterprise and was established in a high-technological development zone, the prevailing enterprise income tax rate is 33% (2005: 15%). No deferred tax asset has been recognised in the consolidated financial statements as it is uncertain such an asset will crystallize in the foreseeable future (2005: Nil). 22 EARNINGS PER SHARE 2006 2005 RMB RMB Basic earnings per share RMB(0.1 ) RMB(0.9 ) 8 5 The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows: 2006 2005 RMB’000 RMB’000 Loss for the year attributable to equity holders of the parent (68,226) (363,531) Earnings used in the calculation of basic earnings per share (68,226) (363,531) 2006 2005 RMB’000 RMB’000 Number of ordinary shares for the purpose of basic earnings per share (all measures) 383,000 383,000 23 PROPERTY, PLANT AND EQUIPMENT Plant and Motor Offic Buildings machinery vehicles equipm RMB’000 RMB’000 RMB’000 RMB’0 COST At January 1, 2005 186,236 165,960 2,993 5,060 Additions 146 1,037 365 1,648 CIP transfer fixed assets 126 30 - - At January 1, 2006 186,508 167,027 3,358 6,708 Additions 143 1,018 240 58 CIP transfer fixed assets - 12,597 - - Write off - (432 ) - (515 Disposal (3,727 ) - - - At December 31, 2006 182,924 180,210 3,598 6,251 24 13. PROPERTY, PLANT AND EQUIPMENT – (continued) Plant and Motor Offic Buildings machinery vehicles equipm RMB’000 RMB’000 RMB’000 RMB’0 ACCUMULATED DEPRECIATION AND IMPAIRMENT At January 1, 2005 72,053 107,882 2,559 4,510 Charge for the year 8,571 9,300 102 105 At January 1, 2006 80,624 117,182 2,661 4,615 Charge for the year 8,671 5,393 121 280 Reversal of impairment loss - - - (69 Eliminated on write off - (311 ) - (435 Eliminated on disposals (686 ) - - - At December 31, 2006 88,609 122,264 2,782 4,391 NET BOOK VALUE At December 31, 2006 94,315 57,946 816 1,860 At December 31, 2005 105,884 49,845 697 2,093 25 13. PROPERTY, PLANT AND EQUIPMENT – (continued) The following useful lives are used in the calculation of depreciation: Buildings 20 – 21 years Plants and machinery 11 – 12 years Motor vehicles 11 – 12 years Office equipment 11 – 12 years LAND USE RIGHT RMB’000 COST At January 1, 2005 and at January 1, 2006 15,997 Additions - At December 31, 2006 15,997 ACCUMULATED AMORTISATION At January 1, 2005 2,194 Charge for the year 333 At January 1, 2006 2,527 Charge for the year 333 At December 31, 2006 2,860 NET BOOK VALUE At December 31, 2006 13,137 At December 31, 2005 13,470 26 INTANGIBLE ASSETS RMB’000 COST Additions and at December 31, 2006 8 NET BOOK VALUE At December 31, 2006 8 The intangible assets included above have finite useful lives, over which the assets are amortised. ` In the opinion of Company’s directors, no amortization has been charged for the year since the intangible assets were acquired in December 2006. INTEREST IN AN ASSOCIATE 2006 2005 RMB’000 RMB’000 Share of net assets of an associate - 405,271 Amount due from an associate - 66,704 - 471,975 Less: Amount due within one year - (56,544 ) - 415,431 Summarised financial information in respect of the Group’s associate is set out as below: 2006 2005 RMB’000 RMB’000 Total assets 1,235,1 1,518,2 82 99 Total liabilities (570,72 ) (691,21 ) 4 6 Net assets 664,458 827,083 Group’s share of associate’s net assets - 329,323 2006 2005 RMB’000 RMB’000 Total revenue 524,113 776,708 Total loss for the year (172,923) (838,645) Share of associate’s loss for the year (84,732 ) (410,93 ) 27 6 28 16. INTEREST IN AN ASSOCIATE – (continued) During the year, the Group has disposed the associate the ultimate holding company for a consideration of RMB 369,345,079. DEFERRED ASSETS 2006 2005 RMB’000 RMB’000 At beginning of the year 7,712 7,712 Foreign currency exchange difference 11 - At end of the year 7,723 7,712 INVENTORIES 2006 2005 RMB’000 RMB’000 Raw materials and low cost consumables 10,191 9,026 Work in progress 2,155 4,876 Finished goods 12,123 16,897 Spare parts - 1,359 24,469 32,158 29 TRADE AND OTHER RECEIVABLE 2006 2005 RMB’000 RMB’000 Trade receivables 44,941 46,897 Less: Provision for doubtful debts (31,787 ) (31,464 ) Trade receivables, net 13,154 15,433 Notes receivables 5,264 28,466 Prepayments 6,753 1,658 Other receivables 7,037 1,363 Prepaid expenses 6 17 32,214 46,937 Movement in the provision for doubtful debts: 2006 2005 RMB’000 RMB’000 At beginning of year 31,464 23,990 Increase in provision recognised in profit or loss 323 7,474 At end of year 31,787 31,464 AMOUNT DUE TO THE HOLDING COMPANY The amount due is unsecured, and have no fixed terms of repayments. The related interest is calculated at a rate equivalent to the interest rates of the shore-term bank. AMOUNTS DUE FROM/DUE TO RELATED PARITES These are amounts due from/to subsidiaries of the holding company. The balances are unsecured, interest free and have no fixed terms of repayment. OTHER LONG-TERM ASSETS RECEIVABLES WITHIN ONE YEAR Other long-term assets receivables within one year represent the amount receivable under a foreign currency transaction entered into by the subsidiary. 30 CASH AND CASH EQUIVALENTS For the purposes of the consolidated cash flow statements, cash and cash equivalents include bank balances and cash. Cash and cash equivalents at the end of the financial year as shown in the consolidated cash flow statement can be reconciled to the related items in the consolidated balance sheet as follows: 2006 2005 RMB’000 RMB’000 Cash and cash equivalents: Bank balances and cash 1,781 36,495 TRADE AND OTHER PAYABLES 2006 2005 RMB’000 RMB’000 Accrued interest 38,700 37,982 Trade payables 23,110 13,234 Payables to contractors 26,971 11,259 Accrued utility expenses - 3,343 Notes payable 90 5,011 Advances from customers 1,264 1,712 Staff welfare funds 4,242 3,765 Staff welfare - 19,068 Other taxes (1,049) 2,327 Others 1,039 6,910 94,367 104,611 Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. The directors consider that the carrying amount of trade payables approximates their fair value. 31 BORROWINGS 2006 2005 RMB’000 RMB’000 Short-term borrowings 5,381 5,404 Short-term borrowings comprise balances in the amounts of RMB 5,000 thousands and USD 48,795 (or RMB 404 thousands) due to the Financing Bureau of Shijiazhuang Finance Bureau and Hebei Finance Bureau, respectively. These amounts bear interests of 12.8% and 7.2%. The principles are overdue as of December 31, 2006 and extensions to renewal have not been formally granted by the lenders although penalty will not be assessed. OTHER LONG-TERM LIABILITIES DUE WITHIN ONE YEAR In 1993, the subsidiary entered into a foreign currency swap transaction with a third party where US$10,000,000 was exchanged in for RMB58,000,000 using the then exchange rate. The balances are non-interest bearing and the contract expired in November 1998 where the parties were to return the principle, in their original currencies, to the counter-party. As of December 31, 2006, SBCB is still in the process of settling these amounts. SHARE CAPITAL Registered, issued and fully paid ordinary shares of RMB1 each: 2006 2005 RMB’000 RMB’000 Listed: A shares 64,457 45,089 B shares 100,000 100,000 Total listed shares 164,457 145,089 Unlisted: State 211,283 230,411 Senior management 21 - Legal person shares 7,239 7,500 218,543 237,911 At the end of the year 383,000 383,000 32 27. SHARE CAPITAL – (continued) Number of Share shares Capital ’000 RMB’000 Fully paid ordinary shares: At beginning of year and at end of year 383,000 383,000 RESERVES 2006 2005 RMB’000 RMB’000 Capital accumulation fund 507,500 507,500 Statutory accumulated fund 41,265 41,265 Statutory welfare fund 20,634 20,634 569,399 569,399 Capital accumulation fund Transactions of the following nature are recorded in the capital accumulation fund: - share premium arising from the issue of shares at a price in excess of their par value; - donations received; - surpluses arising from the revaluation of assets; and - any other items required by the PRC regulations to be so treated. Amounts in the capital accumulation fund can be utilized to offset prior years’ losses or for issue of bonus shares. 33 28. RESERVES – (continued) Statutory accumulated and welfare funds The PRC Company Law requires a company to appropriate 10 percent of its profit after taxation for the year computed in accordance with PRC accounting regulations (after offsetting any prior years’ losses) to the Statutory accumulated fund. When the balance of sun fund reaches 50 percent of the company’s share capital, any further appropriation is optional. The Statutory accumulated fund can be utilized to offset prior year’s losses or for issuance of bonus shares. However, the fund shall be maintained at a minimum amount equivalent to 25 percent of share capital after any such issuance. The PRC Company Law also requires a company to appropriate between 5 percent and 10 percent of profit after taxation for the year to the Statutory welfare fund computed in accordance with PRC accounting regulations. The fund shall be utilized for the collective benefits of the workforce, including the provision of staff quarters or housing. No other distribution shall be made from the fund other than upon liquidation of the company. The Statutory accumulated and welfare funds represent amounts appropriated in accordance with the PRC accounting regulations in previous years. 34 RELATED PARTY TRANSACTIONS The ultimate parent of the Group is Shijiazhuang Baoshi Electronic Group Company Limited (“The holding company”), a company incorporated in the People’s Republic of China. In addition to the related party balances and transactions described elsewhere in this report, the following significant transactions were carried out with related parties: Related party transactions were carried out on commercial terms and conditions and at market prices. a) Sales of goods and services 2006 2005 RMB’000 RMB’000 Sale of goods and raw material to: The holding company 1,680 25,124 An associate 23,705 18,119 25,385 43,243 Services and energy rendered to: The holding company 25,649 26,483 An associate 133,570 165,114 159,219 191,597 Rental for assets leased to: An associate 1,906 1,906 b) Purchase of goods and labour services 2006 2005 RMB’000 RMB’000 Raw material purchased from the holding company - 1,409 Labour service provided by the holding company 911 3,487 911 4,896 35 29. RELATED PARTY TRANSACTIONS – (continued) c) Interest earned 2006 2005 RMB’000 RMB’000 Interest charged by the holding company (i) (10,167 ) (20,727 ) Interest earned by an associate 866 2,249 (9,301 ) (18,478 ) i. The Group charges interests on the amount due from the holding company, and is charged for interests on the amount due to the holding company. The related interest is calculated at a rate equivalent to the interest rates of the short-term bank loans and the average monthly outstanding balance with the holding company. d) Rental for asset 2006 2005 RMB’000 RMB’000 The holding company 2,601 2,601 BANKING FACILITIES As at December 31, 2006, the Group pledged the land and buildings located in PRC for banking facilities of RMB18 million granted to 石家莊市建設投資有限公司 for loans. 36 SUBSIDIARY As at December 31, 2006, the Company directly owned equity investments in the following subsidiary: Place of Registered Percentage of Name of company incorporation capital equity interest held Principal activities RMB’000 % Shijiazhuang Baoshi Colour PRC 540,682 81.26 Investment holding Bulb Company Limited (“SBCB”) REPORTING CURRENCY The Group’s consolidated financial statements are expressed in Renminbi. APPROVAL OF FINANCIAL STATEMENTS The consolidated financial statements were approved by the Board of Directors and authorised for issue on April 9, 2007. 37 SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2006 The impact of IFRS adjustments on the PRC statutory financial statements is as follows: Net loss for Net assets the year ended as at December 31, 2006 December 31, 2006 RMB’ 000 RMB’000 As report under PRC statutory financial statements (95,28 ) 402,81 4 2 IFRS adjustments: Gain on disposal of an associate 11,992 - Reclassification of other payables to amounts due from related companies - 488 As restated after IFRS adjustments (83,292) 402,324 Chapter 11 List of Documents Available for Inspection 1. Financial statements bearing the seal and signature of the Company's legal representative, financial controller and the person in charge of accounting organ. 2. The original of the auditors' report bearing the seal of the certified public accountants and the seal and signature of C.P.A. 3. The original of all Company's documents and the original manuscripts of announcements publicly disclosed on China Securities Daily and Hong Kong Commercial Daily in the report period. Chairman of the board of directors: Shang Jian Bin Shijiazhuang Baoshi Electronic Glass Co., Ltd. April 10,2007 38