粤照明Ｂ(200541)2007年年度报告（英文版）

FOSHAN ELECTRICAL AND LIGHTING CO., LTD. Annual Report of Fiscal Year 2007 Tips: The Company Board of Directors, Board of Supervisors, as well as the directors, supervisors and senior management staff guarantee hereby that there in not any untrue recordation, misdirection or critical pretermission in the information recorded herein in this Report, and they would undertake all the individual and joint responsibilities if any for the factuality, exactness and completeness of the contents. None director, supervisor or senior management staff is unable to guarantee demur at the factuality, exactness or completeness of the contents in this Report. The accounting data and financial statements contained in this Report are with the audit carried out by GP Certified Public Accountants taking the precedence, and are prepared in both Chinese and English languages. In case of ambiguous meaning, the Chinese version shall take the priority. GP Certified Public Accountants have released Audit Report for this Company without qualification of the opinion. Company President Zhong Xincai, concurrently the person in charge of accounting affairs, and Financial Department Manager Wang Shuqiong declare herein: to guarantee the factuality and completeness of the Financial Statements in this Annual Report. Table of contents I. Brief introduction of the Company…………………………………….……..… 2 II. Abstracts of accounting data and business data………………….. …………3 III. Change of capital stock and shareholder status……………………. …….….7 IV. Directors, Supervisors, Senior Management Staff and Employees………. 12 V. Organizational Structure of Company…………………………….. …………. 17 VI. Brief Introduction of General Meeting of Shareholders………….…….….... 23 VII. Director’s Report ………………………………………………..……………..….. 24 VIII. Statement of Board of Supervisors……………………………. ……………... 34 IX. Significant Events…………………………………………….….. .. ..…...……..35 X. Financial Report………………………………………..….. .. ..….. .. ..….…….43 XI. File directory for Checkups……..……………………………….. .. .. ..……… 98 1 I. Brief introduction of the Company 1. Legal Company Name in Chinese: Foshan Electrical and Lighting Co., Ltd. Abbreviation: Foshan Lighting Legal Company Name in English: FOSHAN ELECTRICAL AND LIGHTING CO., LTD. Abbreviation: FSL 2. Legal Representative: Zhong Xincai 3. Secretary of Board of Directors: Lin Yihui Address: 15 Fenjiang North Road, Chancheng District, Foshan City Telephone No: (0757) 82966098 82810239 Facsimile No: (0757) 82816276 E-mail: gzfsligh@pub.foshan.gd.cn 4. Registered and Office Address: 15 Fenjiang North Road, Chancheng District, Foshan City, Guangdong Province Post Code: 528000 Website: www.Chinafsl.Com E-mail: gzfsligh@pub.foshan.gd.cn 5. Newspaper options for publishing Company information: China Securities Journal, Securities Times, Takungpao Website appointed by China Securities Regulatory Commission for publishing Annual Report: http://www.cninfo.com.cn Place for preparation of Annual Report: Secretariat of Board of Directors in Office Building of the Company, located at 15 Fenjiang North Road, Chancheng District, Foshan City 6. Listing Stock Exchange: Shenzhen Stock Exchange Abbreviation of Stock: Foshan Lighting (A-share) Yue Zhao Ming (B-share) Stock Code: 000541 (A-share) 200541 (B-share) 7. Other related information: Initial registration date and place of company: This Company was initially registered on October 20, 1992 at Guangdong Provincial Administration of Industry and Commerce Legal Person Business License No: 002889 Tax Registration No: YUE WAI ZI 440601190352575 Organization Code: 19035257-5 Names and office places of public accounting firms invited by the Company: Domestic: GP Certified Public Accountants ADD: 10/F,Guangdong Holdings Tower, 555 DongFeng Road East, Guangzhou Tel: (020)83859808 Fax: (020)83800977 2 II. Abstracts of Accounting Data and Business Data 1. Main accounting data and business data of this fiscal year Unit: (RMB) Yuan Increase / Fiscal Year Fiscal Year 2006 decrease Fiscal Year 2005 2007 than last year (%) After Before After Before adjustme After adjustment adjustment adjustment adjustment nt Operating 1,496,072,679.54 1,252,922,658.57 1,252,922,658.57 19.41% 1,226,661,936.29 1,226,661,936.29 income Gross profit 501,490,465.82 287,623,305.38 320,987,592.71 56.23% 267,300,109.00 267,300,109.00 Net profit attributable to shareholders 423,797,425.54 236,580,991.56 266,574,081.57 58.98% 266,075,920.45 266,075,920.45 of Listed Company Net profit attributable to shareholders of Listed Company 122,819,196.84 167,724,672.44 171,405,584.67 -28.35% 255,988,523.17 255,988,523.17 after deduction of non-current profit and loss Net cash flows from operating 51,724,518.71 374,404,198.59 374,404,198.59 -86.18% 267,644,531.59 267,644,531.59 activities Increase / decrease By the end of by the Fiscal Year By the end of Fiscal Year 2006 By the end of Fiscal Year 2005 end of 2007 this year than last year (%) After Before After Before adjustme After adjustment adjustment adjustment adjustment nt Total assets 3,392,985,767.27 2,658,609,463.35 2,698,088,324.66 25.76% 2,563,697,231.55 2,563,697,231.55 Owner's equity (or 2,987,253,110.11 2,366,561,851.03 2,405,611,096.67 24.18% 2,304,699,122.97 2,304,699,122.97 stockholder's equity) 3 2. Main accounting data and finance indicators in recent three years by the end of fiscal year of this Statement (consolidated amount) Unit: (RMB) Yuan Increase / Fiscal decrease Year Fiscal Year 2006 Fiscal Year 2005 than last 2007 year (%) Before After After Before After adjustment adjustment adjustment adjustment adjustment Basic earnings per 0.91 0.51 0.57 59.65% 0.61 0.61 share Diluted earnings per 0.91 0.51 0.57 59.65% 0.61 0.61 share Basic earnings per share after deduction 0.25 0.36 0.37 -32.43% 0.58 0.58 of non-current profit and loss Fully diluted earning 14.19% 10.00% 11.08% 3.11% 11.54% 11.54% rate on net assets Weighed mean earning 16.86% 10.23% 11.37% 5.49% 9.69% 9.69% rate on net assets Fully diluted earning rate on net assets after deduction of 4.11% 7.09% 7.13% -3.02% 11.11% 11.11% non-current profit and loss Weighed mean earning rate on net assets after deduction of 4.89% 7.26% 7.31% -2.42% 9.25% 9.25% non-current profit and loss Net cash flows per share from operating 0.11 1.04 1.04 -89.42% 0.75 0.75 activities Increase / By the decrease end of By the end of Fiscal by the end By the end of Fiscal Fiscal Year 2006 of this year Year 2005 Year than last 2007 year (%) Before After After Before After adjustment adjustment adjustment adjustment adjustment net assets per share attributable to 6.41 6.60 6.71 -4.47% 6.43 6.43 shareholders of Listed Company Note: Deducted items of non-current profit and loss and corresponding amounts (after deduction of income tax effect): 4 Items Amount 1. Profits and losses from disposal of non-current assets -1,522,501.82 2. Tax return and tax reduction that exceeded mandate of examination - and approval or without formal approval document 3. Government subsidies recorded into current profit and loss - 4. Capital occupied from non-financial enterprise recorded into current profit and loss 1,326,300.07 5. Profits and losses from exchange of non-monetary assets - 6. Profits and losses from trust investment - 7. Provisions for impairment of assets due to irresistible force factor - 8. Profits and losses from debt restructuring - 9. Expense of enterprise restructuring - 10. Income from stock and fund investment 349,302,379.82 11. Net amount of non-operating income and expense except the aforesaid items 7,698,176.45 12. Subtotal（11＝1+2+3+4+5+6+7＋8＋9＋10+11+12） 356,804,354.52 13. Impact on enterprise income tax (“-” means decrease of income tax) 53,520,653.18 14. Impact on minority interests 2,305,472.64 15. Net non-recurring gains and losses attributable to common shareholders of the Company（11＝13-14-15） 300,978,228.70 Items measured in fair values Effect amount Beginning Ending Change in Item description upon current balance balance current period profit Tradable financial 122,489,317.74 107,217,672.71 -15,271,645.03 350,302,379.82 assets Salable financial 0.00 511,206,158.54 511,206,158.54 0.00 assets Total 122,489,317.74 618,423,831.25 495,934,513.51 350,302,379.82 5 3. Profit data calculated per China Securities Regulatory Commission document Rules for Information Disclosures by Companies That Offer Securities Publicly (No.9) is shown in following table: Fiscal Year 2007 Fiscal Year 2006 Return on Equity Earnings per Return on Equity Earnings per Current profit (%) Share (Yuan) (%) Share (Yuan) Fully Weighed Fully Weighed Fully Weighed Fully Weighed diluted mean diluted mean diluted mean diluted mean Operating profit 16.58 18.93 1.06 1.06 13.39 13.16 0.69 0.69 Net profit attributable to common 14.19 16.19 0.91 0.91 11.08 10.89 0.57 0.57 shareholders of the company Net profit after deducting non-recurring gain and loss attributable 4.11 4.69 0.26 0.26 7.13 7.00 0.37 0.37 to common shareholders of the company 4. Current change of stockholder's equity Unit: RMB Yuan Item Capital Capital Surplus undistribute Cash Total stock surplus reserves d profits dividends amount of scheduled for shareholder distribution s’ equity Beginning 358,448,2 1,207,091,4 487,386,623. 352,684,773.5 amount 59.00 40.53 63 1 179,224,129. 2,431,892,357 50 .36 Increase in 229,534,23 20,940,704.3 423,797,425.5 this period 107,534,4 9.40 9 4 260,018,367. 766,044,570.9 78.00 25 6 Decrease in this 200,164,833.8 179,224,129. 179,472,739.3 period 9 50 4 Ending 465,982,7 1,436,625,6 508,327,328. 576,317,365.1 amount 37.00 79.93 02 6 260,018,367. 3,018,464,188 25 .98 Change Transferrin reasons Change in Profit Profit Profit g into share — fair value distribution distribution distribution capital 6 III. Change of capital stock and shareholder status 1. Change of capital stock (1) Change Record of Company Stock Unit: Share Before this change Increase / decrease in this change (+,-) After this change Issu ance Share Gift Ratio of turned from Ratio Quantity sha Others Subtotal Quantity (%) new accumulati (%) re shar on fund es I. Stock with limited 83,431,027 23.28 25,029,308 -11,161,984 13,867,324 97,298,351 20.88 sales condition 1. State-owned shares 2. State-owned legal person’ shares 3. Other shares held with domestic 12,684,396 3.54 3,805,319 -11,228,884 -7,423,565 5,260,831 1.13 fund Of which: shares held by non 11,987,635 3.34 3,596,291 -11,156,831 -7,560,540 4,427,095 0.95 state-owned legal persons Shares held by domestic natural 696,761 0.19 209,028 -72,053 136,975 833,736 0.18 persons 4. Shares held by foreign 70,746,631 19.74 21,223,989 66,900 21,290,889 92,037,520 19.75 investment Of which: Shares held by Overseas 67,999,688 18.97 20,399,906 20,399,906 88,399,594 18.97 legal person Shares held by overseas natural 2,746,943 0.77 824,083 66,900 890,983 3,637,926 0.78 persons II. Stock with limited 275,017,232 76.72 82,505,170 11,161,984 93,667,154 368,684,386 79.12 sales condition 1. TMB ordinary 195,264,175 54.47 58,579,253 11,228,884 69,808,137 265,072,312 56.88 stock 2. Foreign-funded shares listed 79,753,057 22.25 23,925,917 -66,900 23,859,017 103,612,074 22.24 domestically 3. Foreign-funded shares listed overseas 4. Others 100.0 III. Total of shares 358,448,259 100.00 107,534,478 0 107,534,478 465,982,737 0 7 Change Record of Stock with Limited Conditions Unit: Share Quantity at Decrease of Increase of Quantity at Reas Date for beginning shares with shares with Shareholder Name en of fiscal on for removal of of fiscal limited limited year limit sales limit year conditions conditions Stock OSRAM PROSPERITY 48,284,134 14,485,240 62,769,374 refor April 25, 2011 Holding Company Limited m Stock Prosperity Lamps & 37,637,966 17,922,412 5,914,666 25,630,220 refor April 25, 2008 Components Limited m Guangzhou Prosperity Stock Lamps & Components 7,497,641 7,497,641 0 refor April 25, 2007 Trade Co., Ltd. m Stock Foshan Government 1,361,250 1,335,325 25,925 refor April 25, 2007 Service Station m Stock Foshan Fengxin Industrial 1,237,500 1,231,064 6,436 refor April 25, 2007 Corporation m Stock Nanhai Wuzhuang Color 1,237,500 1,213,364 24,136 refor April 25, 2007 Glazed Tile Factory m Stock Foshan Financial 1,113,750 1,107,315 6,435 refor April 25, 2007 Development Corporation m Stock Foshan Jinge Building 990,000 937,652 52,348 refor April 25, 2007 m Foshan Electrical and Stock Lighting Co., Ltd. Labor 987,500 987,500 0 refor April 25, 2007 Union Committee m Stock Foshan Industry & Economy 928,125 902,638 25,487 refor April 25, 2007 Development Corp m 151 legal person units including Foshan agency of Stock Trust Company of 3,297,175 989,152 4,286,327 refor April 25, 2007 Guangdong Provincial m Branch of Agricultural Bank of China Share s held by Natural persons including Senio 641,335 192,401 833,736 - Zhong Xincai r Mana ging Staff 105,213,87 Total 33,134,911 21,581,459 93,660,424 - - 6 8 (2) Listing status of issuance of stocks All Previous Issuance and Listing Status (RMB / ten thousand shares) Trading Stock Issuing Issuing Quantity Listing Year volume on Shareholding equity category date price issued date listing 1993 Issuance of 93.10 10.23 1930 93.11.23 1930 7,717.0 A-share 3858.5 A-share gift (5 gift shares 11,575.5 1994 94.04 — 94.5.11 965 shares per 10 (with gift share) shares) 1815.3036 A-share (3 rationed 13,390.8036 rationed 95.01 8.00 95.2.22 481.1946 shares per (with rationed shares) shares 10 shares) 18,390.8036 1995 Issuance of H.K 5.61 95.07 5000 95.8.8 5000 (after issuance of B-share (RMB6.02) B-share) Listing of 18,390.8036 employee 92.08 4.00 1157 95.9.29 1157 (After Listing of shares employee shares) A / B-share accumulatio n fund 27,586.2054 9195.4018 1996 turning to 96.09 — 96.9.20 5278.3 (after turning to (10 to add 5) increase increase) subscribed capital 1997 A / B-share — — — — — 27,586.2054 1998 A / B-share — — — — — 27,586.2054 1999 A / B-share — — — — — 27,586.2054 Listing of 27,586.2054 rationed 95.01 8.00 31.9554 2000.4.14 31.9554 (including listing of shares rationed shares) A / B-share 30,344.8259 2758.6205 2000 capital 2000.06 — 2000.6.23 2758.6205 (after capital (10 to add 1) conversion conversion) A-share 35,844.8259 additional 2000.12 12.65 5500 2000.12.23 5500 (after additional issuance issuance) 2001 A / B-share — — — — — 35,844.8259 2002 A / B-share — — — — — 35,844.8259 2003 A / B-share — — — — — 35,844.8259 2004 A / B-share — — — — — 35,844.8259 2005 A / B-share — — — — — 35,844.8259 2006 A / B-share — — — — — 35,844.8259 A / B-share 107,534,477 2007 capital 2007.06 — (Every 10 to 2007.6.8 107,534,477 465,982,736 conversion turn 3) 9 2. Introduction of Shareholders (1) List of shareholding status of the First 10 Shareholders and the First 10 Shareholders of shares without limited conditions (By December 31, 2007) Unit of share quantity: share Total number of 118,195 shareholder Shareholding status of the first 10 shareholders Quantity held of Quantity of Sharehol Category of Total of shares with shares in Name of Shareholder ding shareholders shares held limited pledge or ratio conditions on-hold OSRAM PROSPERITY Overseas legal 13.47% 62,769,374 62,769,374 0 Holding Company Limited person Prosperity Lamps & Overseas legal 10.50% 48,929,356 25,630,220 0 Components Limited person Guangzhou Prosperity Domestic none Lamps & Components state-owned 1.85% 8,629,784 0 0 Trade Co., Ltd. legal person EAST ASIA SECURITIES Overseas legal 0.97% 4,536,705 0 Unknown COMPANY LIMITED person China Merchant Securities Overseas legal Unknown 0.94% 4,391,017 0 (HK) Co., Ltd. person DBS VICKERS (HONG Overseas legal Unknown 0.92% 4,303,450 0 KONG) LTD A/C CLIENTS person Overseas Zhuang Jianyi 0.78% 3,637,926 3,637,926 0 natural person Domestic Unknown Ma Haizhong 0.47% 2,195,436 0 natural person Foshan Electrical and Domestic none Unknown Lighting Co., Ltd. Labor state-owned 0.46% 2,141,370 0 Union Committee legal person Industrial and Commercial Unknown Domestic none Bank of China-Rongtong state-owned 0.44% 2,033,265 0 Securities SZSE 100 Index legal person Investment Fund Shareholding status of the first 10 shareholders of shares without limited conditions Share quantity held without Name of Shareholder Stock category limited conditions Prosperity Lamps & Components 23,299,136 A-share Limited Guangzhou Prosperity Lamps & 8,629,784 A-share Components Trade Co., Ltd. EAST ASIA SECURITIES COMPANY 4,536,705 B-share LIMITED China Merchant Securities (HK) Co., 4,391,017 B-share Ltd. DBS VICKERS (HONG KONG) LTD A/C 4,303,450 B-share CLIENTS Ma Haizhong 2,195,436 A-share Foshan Electrical and Lighting Co., Ltd. 2,141,370 A-share Labor Union Committee Industrial and Commercial Bank of China-Rongtong Securities SZSE 100 2,033,265 A-share Index Investment Fund Foshan Chanchang Lamps & 1,658,733 A-share Components Limited Industrial and Commercial Bank of China-Jiashi SHSE-SZSE300 Security 1,558,048 A-share Investment Fund 10 Out of the first 10 shareholders of the Company, OSRAM PROSPERITY Holding Company Limited, Prosperity Lamps & Components Limited and Zhuang Jianyi have affiliation relationship, but OSRAM PROSPERITY Holding Notes of affiliations or Company Limited is not one of the persons in concerted actions with Prosperity concerted actions of the Lamps & Components Limited or Zhuang Jianyi. There is no clarification in aforementioned regard to whether affiliations exist between other shareholders of the first 10 shareholders shareholders of the Company and the first 10 shareholders of shares without limited conditions, or whether they form relationships of persons in concerted actions as stipulated in The Administrative Measures for the Disclosure of Information of Listed Companies. (2) Details of Controlling Shareholders The First Principal shareholder of the Company is OSRAM PROSPERITY Holding Company Limited, which was established in Hong Kong in June 2004, with registered capital of HKD500000, when it had no substantial operations; currently 13.47% of shares of the Company are held by this company. The second biggest shareholder of the Company is Prosperity Lamps & Components Limited, which was established in Hong Kong in 1978, with registered capital of HKD2 million, and Legal Representative being Zhuang Jianyi, major business scope covering sales and exportation of lighting products, import and export trade; currently 10.5% of shares of the Company are held by this company. (3) Block diagram of property right and control relationship between the Company and Actual Controllers OSRAM Germany Prosperity Lamps & Components Co., Ltd. 60.14% 39.86% OSRAM PROSPERITY Holding Company Limited 13.47% Foshan Electrical and Lighting Co., Ltd. 11 IV. Directors, Supervisors, Senior Management Staff and Employees (I) Details of directors, supervisors and senior management staff 1. Background Shares held (share) Total amount of Is it remuneratio withdrawn n withdrawn at Gender At the Reason for from shareholder Age At the End Name Position Tenure Beginning of fiscal change Company in ’s office or of fiscal year current other year period (ten affiliated thousand corps? Yuan) Turning to June 2007 to increase Zhong Xincai President M 64 309,050 401,765 65 Nay June 2010 subscribed capital Turning to Vice June 2007 to 2,708,813 3,637,926(B increase Zhuang Jianyi M 55 — Yeah President June 2010 (B-share) -share) subscribed capital Executive Turning to Director June 2007 to increase Liu Xingming M 45 140,500 160,800 43 Nay General June 2010 subscribed Manager capital Martin June 2007 to Director M 44 — — — — Yeah Goetzeler June 2010 Francis Michael June 2007 to Director M 59 — — — — Yeah Piscitelli June 2010 June 2007 to Ye Zaiyou Director M 51 — — — — Yeah June 2010 Independent June 2007 to Liang Zhen M 69 — — — — Nay Director June 2010 Independent June 2007 to Wu Jianhong F 61 — — — — Nay Director June 2010 Independent June 2007 to Zhang Haixia F 33 — — — — Nay Director June 2010 Chairman of Secondary Huang Board of June 2007 to M 56 54,600 53,235 Market 16 Nay Guanxiong Supervisor June 2010 Transaction s Secondary June 2007 to Li Jianwu Supervisor M 36 29,400 28,665 Market 11 Nay June 2010 Transaction Secondary June 2007 to Jiao Zhigang Supervisor M 35 14,929 9,229 Market 10 Nay June 2010 Transaction June 2007 to Chen Guanbiao Supervisor M 58 — — — — Yeah June 2010 June 2007 to Shen Weiqiang Supervisor M 56 — — — — Yeah June 2010 Deputy Secondary June 2007 to Ou Muben General M 58 113,300 110,468 Market 27 Nay June 2010 Manager Transaction Turning to Deputy June 2007 to increase Guo Jieming General M 58 83,436 101,467 27 Nay June 2010 subscribed Manager capital Deputy June 2007 to Cai Jiantai General M 44 — — — 27 Nay June 2010 Manager Secretary of Secondary June 2007 to Lin Yihui Board of M 53 54,170 52,815 Market 21 Nay June 2010 Directors Transaction Financial Secondary June 2007 to Wang Shuqiong Department F 45 63,060 61,483 Market 27 Nay June 2010 Manager Transaction Total: — — — — 3,571,258 4,620,853 — 274 — 12 Director Ye Zaiyou is the President of Nanhai Wuzhuang Color Glazed Tile Factory, the Organizer Shareholder of this Company, and currently a civil enterprise. 2. Main work experiences and positioning status of incumbent directors, supervisors and senior management staff (1) Work experiences of directors Zhong Xincai: M, born in Nanjing, Jiangsu Province, 64 years old, of technical secondary school education, who is currently President of the Company. In 1964 he was assigned to this Company after his graduation from Nanjing Wireless Industrial School and has been working here in this Company ever since. Successively since 1979 he was positioned as chief of workshop, production and technical section chief, deputy factory director, and then the factory director; in 1985 he was appointed Manager of this Company; since 1992, he was appointed successively President of this Company, General Manager, Sectary of the Party Committee. He has been engaged in production work of electric light source for over 40 years, and he maintains rich professional knowledge in electric light source as well enterprise management experience. He has been honorably awarded advanced worker by Ministry of Light Industry, nationwide and provincial excellent enterpriser; provincial and municipal Party Representative, and the Deputy to the Eighth and the Ninth People's Congresses. Zhuang Jianyi: M, born in Chaoyang, Guangdong, 55 years old, bachelor degree holder, master in business administration, Vice President of this Company. Currently he is President of Prosperity Lamps & Components Limited (HK). He has been dealing with production, trade and operation of electric light source devices for over 30 years. He is one of the largest shareholders of this Company, Foshan honorary citizen. Since 1995 he was elected director and Vice President of this Company. Liu Xingming: M, born in Xinhui, Guangdong, 45 years old, bachelor degree holder, engineer, and currently executive director and General Manager of this Company. He joined this Company in 1983, and has since appointed chief of workshop, assistant to general manager. Since 1997 till 2005 he was Deputy General Manager of this Company. Starting December 2005 he has been General Manager of this Company. Since 1995 he has been elected director of this Company. Martin Goetzeler: German, 44 years old, bachelor degree holder, currently Administration President of OSRAM.1984 – 1995 he worked for Siemens, and he joined OSRAM in 1999, where he was successively appointed OSRAM Italy Chief Executive Treasurer, OSRAM UK Chief Executive Operating Officer, and the Chief Executive Treasurer of US OSRAM Sylvania Inc. Since May 1, 2005 he has been Chief Executive Officer of OSRAM. Francis Michael Piscitelli: M, American, born on October 19, 1948, Executive Vice President / General Manager of OSRAM Asia-Pacific Co., Ltd., member of IESNA. In the past over 30 years, he has been in charge of the sales, marketing, plant management, routine operation management and senior management for OSRAM operations in North America, Latin America and Asia. During the last 11 years before he was transferred to work in Asia in 2006, he had been Senior Sales Vice President for OSRAM Lighting Operation in North America. 13 Ye Zaiyou: M, born in Nanhai, Guangdong, 51 years old, junior middle school in educational background, director of this Company from the first to the fifth session of the General Meeting, and currently the President of Nanhai Wuzhuang Global Ceramic Factory, organizing corporate shareholder of shares of this Company. Liang Zhen (Independent Director): M, born in Yangjiang, Guangdong, 69 years old, college degree, senior engineer. Since 1955 she worked in the office of Guangdong Yangjiang County Party Commity, and went to college at South China Agricultural College since 1957; successively after 1960 she worked at Ministry of Light Industry, General Association of Light Industry, State Bureau of Light Idustry, and China Association of Lighting Industry, where she is currently the executive director. She has been working for over forty years for industrial guiding, and has ever experienced in electric light source industry. She has been Independent director of this Company from the third to the fifth session of the General Meeting. Wu Jianhong (Independent Director): F, born in Nanjing, Jiangsu, in December 1946, CCP member, of college degree, senior accountant (economic engineer), China certified public accountant, member of Jiangsu Provincial Commission for Appraising Senior Accountants. He graduated in August, 1965 from Finance and Accounting Department of Jiangsu Provincial Business College (now the Commercial College of Yangzhou University); between 1965 and 1978 he was the account of Nanjing Municipal Coal Building And Installation Engineering Company; from 1978 to 1992 he was successively Deputy Section Chief, Section Chief and Deputy Director General of Finance & Accounting Section of Jiangdu Provincial Commerce Department; since 1992 till 1994, he was Deputy General Manager of Jiangdu Provincial Commerce Development Corporation; from 1994 to December 2001 he was Section Director of Finance & Accounting Section of Jiangsu Provincial Trade Department; in January 2002 he retired. Currently he is President of Jiangsu Provincial Business Accountancy Institute, and member of Jiangsu Provincial Commission for Appraising Senior Accountants. He has been Independent director of this Company from the third to the fifth session of the General Meeting. Zhang Haixia (Independent Director): F, 33 years old, bachelor in economic constitution, lawyer. In December 1998 through February 2000, she worked at Grandall Legal Group (Shenzhen) Office; from February 2000 to October 2001 she worked at Southwest Securities Shenzhen Investment & Banking Department; from October 2001 to May 2004 she was Legal Affair Department Manager of Shenzhen Enterprising Investment Co., Ltd.; since May 2004 she works at Shenzhen Xintong Law Firm. She is Independent Director of the fifth session of the General Meeting. (2) Work background of supervisors Huang Guanxiong: M, born in October 1951 in Foshan, junior middle school, Chairman of Board of Directors of this Company. In 1969 he was transferred down to the countryside to work and live there till 1972 when he was drawn back to Guangdong Provincial Shitou Sugar Cane Chemical Works to work till 1977 when he was transferred to Foshan Municipal Coal Corp. In 1979 he was transferred to Foshan Electrical and Lighting Co., Ltd. In 1983 he was appointed workshop director, and since 1993 he has been Wuzhuang Electric Bulb Factory Director. Since July 2002 he has been Deputy 14 Secretary of Party Committee of the Company. Li Jianwu: M, born in November 1971, graduate of technical secondary school, Supervisor of this Company. In 1993 he graduated from Nanjing Wireless Industrial School, and that year he entered Foshan Electrical and Lighting Co., Ltd. to work until now, and successfully he has ever been workshop director of the Company’s In-process Bulb Workshop, Polishing Workshop and Br-Wu Lamp Workshop. In 1995, he was certified electric light source assistant engineer, and in February 2003 he was elected 12th session deputy to the people's congress of Foshan City. Jiao Zhigang: M, born in Shenqiu, Henan Province, in May 1972, bachelor, currently Supervisor of this Company. His administrative post is for management of the Company storage, motorcade and logistics including domestic distribution. He graduated in July 1994 from South China University of Technology, and in the same year he entered Foshan Electrical and Lighting Co., Ltd. to work until now. Chen Guanbiao: M, native Hong Kong, 58 years old, college degree holder, currently Supervisor of this Company. Since 1975 he was Manager of Hong Kong Silvery International Co., Ltd.; starting 1997 he was Director of Griffin Services Ltd. (British Virgin Kilo Service Co., Ltd.). since 2003 he was General Manager of Hong Kong OSRAM PROSPERITY Holding Company Limited, and currently General Manager of Lucky Light Electric Appliances Limited. He is Supervisor of the third session of Board of Supervisors of this Company, and the Director of the Director of the fourth session of Board of Directors. Shen Weiqiang: M, born in Baoan, Guangdong Province, 56 years old, bachelor degree holder, graduated from The Hong Kong Polytechnic University, currently Supervisor of this Company. He is now the Director and General Manager of Hong Kong Fortune Industrial Co., Ltd. He has been engaged in international trade of electrical appliances for over ten years, and he maintains good relationship with large foreign companies in electric light source and electrical appliances. He has ever been working in large Hong Kong financial organizations, and he maintains rich eaperience in enterprise management, project financing, and investment planning. He has ever been elected Director of the Board of Directors of this Company of the second and the third seccsion of the General Meeting. (3) Background of Senior Management Staff Ou Muben: M, born in Nanhai, Guangdong Province, 58 years old, graduate of senior middle school, Deputy General Manager of this Company. He joined in this factory in 1969, and has ever been workshop director, and production section chief. In 1991 he was appointed Deputy General Manager of this Company, and he has been Director of the first through third session of the Board of Directors of this Company. Guo Jieming: M, born in July 1949 in Yiyang, Hunan Province, college degree holder, engineer, Deputy General Manager of this Company. Since 1980 he was successively technician, workshop director and deputy factory director of Yiyang Instrument Factory; since 1985 he was successively Yiyang Electric Bulb Factory Research Institute superintendent, development department chief, deputy factory director, and Yiyang Municipal political consultative conference commissioner, and is honorably 15 awarded Special Allowance issued by the State Council; since 1996 he has been workshop director and person in charge of Equipment Section of this Company. Cai Jiantai: M, born in April 1963, business administration bachelor. Deputy General Manager of this Company. In 1985 through 1988 he worked in All-China Federation of Taiwan Compatriots; in 1989 through 1991 he was project manager of China International Center For Economic And Technical Exchanges; in 1992 through 1994 he was Manager of Beijing Kelong Application Technology Corp; in 1995 through 1996 he went to study at China Europe International Business School (CEIBS); in January 1997 through May 2006 he worked in OSRAM Lighting (China) Limited, during which he was successively OSRAM (China) northern market sales manager, nationwide sales manager, and nationwide sales director. Through all these years, he has been working for sales at OSRAM (China) Limited, and he has excellent achievement in market development strategy, sales skill and sales management. Lin Yihui: M, born in Jiexi, Guangdong Province, in November 1954, currently the Secretary of Board of Directors, postgraduate in economy, Member of Communist Party of China. From December 1970 to 1986 he was soldier in active service, where he successively served at the grass roots and offices. In 1986 through September 2000 he worked in Foshan International Trust Investment Company, where he had ever been section chief, and then deputy general manager, and for years he was in charge of the company’s securities operation, presiding sales on commission and listing recommendation of stocks of multiple companies, and he had ever been Director of the first and the second session of General Meeting of Foshan Electrical and Lighting Co., Ltd. Since October 2000 he has been working in this Company. Wang Shuqiong: F, born in Qinghai in April 1962, a graduate of technical secondary school, currently Financial Department Manager. She worked in July 1982 in Qinghai Bulb Factory, and then in December 1988 she was transferred to Qinghai Xining Financial Bureau. In April 1993 she joined Foshan Electrical and Lighting Co., Ltd. and worked herein until now. 3. Annual remuneration (1) The remuneration to the Company directors, directors and senior management staff is per scheme decided by the Board of Directors, where the specific amount is decided in accordance with specific post, position, and the personal achievement. Total amount of remuneration per year for current directors, directors and senior management staff is RMB2.74 million. (2) For current Independent DirectorLiang Zhen, Wu Jianhong and Zhang Haixia, the Company did not issue any allowance or other remuneration, except for settlement of their travel and accommodation charges every time when they attended meetings of the Board of Directors. (3) None of Vice President Zhuang Jianyi, Director Martin Goetzeler, Francis Michael Piscitelli, Ye Zaiyou or Supervisors Chen Guanbiao, Shen Weiqiang withdrew remuneration or allowances from this Company. Ye Zaiyou, Zhuang Jianyi, Chen Guanbiao and Shen Weiqiang withdrew their remuneration from Shareholder units respectively, while Martin Goetzeler and Francis Michael Piscitelli withdrew remunerations 16 from affiliated units, and other directors or supervisors did not withdraw remunerations from either shareholder unit or other affiliated units, but just did at their respective working unit. (4) Newly recruitment and resignation of directors, supervisors or senior management staff during current period. In current period, the tenure of Company directors and supervisors is finished, and the company fulfilled normal election at expiration of office terms and recruitment of senior management staff. (II) Background of Employees Employees and professional structure: employees in active service are 8951, of which 8286 are production staff, 151 are sales staff, 436 are technical staff, with 32 being financial staff, 46 being administration staff. 778 are of or above technical secondary school or college level in education. Retired employees have been arranged to communities for socialized management. V. Organizational Structure of Company 1. Company organizational status During the report period, the Company has followed strictly the requirements of Company Law, Securities Law, Code of Corporate Governance for Listed Companies in China, RULES GOVERNING LISTING OF STOCKS ON SHENZHEN STOCK EXCHANGE, as well as related laws and regulations of China Securities Regulatory Commission, with uninterrupted maintenance and perfection of the organizational structure of the Company, international management and control systems being set up and perfected. In addition, by the turning-point of the Company’s organizational activities, the organizational activities have been carried out deeply, with problems found timely corrected, and the operation has been further regulated, with organizational level improved. By the end of the report period, the actual situation of the organization of the Company has been compliant with the regulatory documents published by China Securities Regulatory Commission in regard to the organization of listed companies. (1) Shareholders and General Meeting: the Company has prepared Articles of Association and Rules of Procedure of General Meeting, which ensure the lawful rights and interests and the equality in standing of all shareholders, especially those medium and small sized shareholders; General Meeting is ensure to be noticed and convened strictly per regulations stipulated on General Meeting, with shareholders well ensured of the voting right, in addition to presence of attorneys. (2) Controlling shareholders and listed company: the Company’s largest shareholder is OSRAM PROSPERITY Holding Company Limited, whose activities have never been out of the regulation of General Meeting or Board of Directors for any direct or indirect interference of the Company’s decision or production and operation activities; independent operations have been maintained in the Company’ Board of Directors, Board 17 of Supervisors and internal organizations, with staff, assets, business, financial affairs and organizational affairs all separated from the largest shareholders. (3) Directors and Board of Directors: procedures for nomination of director candidates and the selection and hiring are compliant with the provisions of Articles of Association ; the number of directors of Board of Directors and their qualifications are compliant with requirements of laws and regulations, with individual directors carrying their responsibilities honestly, sincerely and diligently; the Company has prepared Rules of Procedure of Board of Directors, ensuring effective operation and scientific decision of Board of Directors. During the report period the Company has set three Independent Directors, which is one third of the number of Board of Directors as required. (4) Supervisors and Board of Supervisors: the Company has prepared Rules of Procedure of Board of Supervisors, with personnel and structure of Board of Supervisors compliant with requirements of laws and regulations, with individual supervisors carrying their responsibilities properly, functioning for supervision and checking independently by the spirit to be responsible for shareholders. (5) Performance appraisal and encouraging & restricting mechanism: recruitment of managing staff in the company is open and transparent, in compliance with provisions of laws and regulations; open and transparent mechanism for performance appraisal and encouragement and restriction has been set up in the Company, in an attempt to attract talents, and maintain stability of the managing staff. (6) Interest-relating parties: the company maintains relationships to supplement each other for joint promotion and development with all the interest relating parties such as creditors, employees, consumers and suppliers, and it can sufficiently respect and maintain the lawful rights and interests of the interest relating parties, and actively cooperate with the interest relating parties, for joint promotion and maintenance of the sustainable and healthy development of the company. (7) Information disclosure and transparency: dedicated persons are appointed in charge of information disclosure, and persons appointed for reception of shareholders visit and enquiry; related information has been disclosed strictly in accordance with laws and regulations in respect of the factuality, accuracy, completeness and timeliness, ensuring shareholders to gain information at equal opportunities. 2. Independent Directors’ performance Since the three Independent Directors, i.e. Liang Zhen, Wu Jianhong and Zhang Haixia were positioned; they have been carrying out their duties sincerely as Independent Directors. This session of Board of Directors in this fiscal year has organized 6 meetings, at which Liang Zhen, Wu Jianhong and Zhang Haixia attended the meetings on time, with themselves well prepared every time as they were noticed for study of problems. During meeting time they sufficiently offered their personal comments, for solid maintenance of the overall interest of the Company. 18 Independent Director Records of attendance to meetings of Board of Directors Times due to Personal Entrusted Independent Absence attend Board of Attendance Attendance Remarks Director Name (times) Directors (times) (times) Liang Zhen 6 6 0 0 Wu Jianhong 6 6 0 0 Zhang Haixia 6 6 0 0 3. Relationships between the Company and large shareholders The Company maintained strict separation from the largest shareholder OSRAM PROSPERITY Holding Company Limited in business, personnel, assets, organization, and financial affairs, with the Company having its independent and complete business and self ability for business operation. In business operation the Company maintains complete channels for supply and sales; in personnel it has own recruitment arrangement, with the largest shareholder having none arranged working in this Company; in assets it maintains complete and clarified corporate property; in organization it is independent, for the Company is a complete juridical person; in finance the Company has its own accounts, for independent operation and it keeps separate accounts. 4. Company internal control and self appraisal (1) Overview of the Company internal control During the report period, according to related provisions in China Securities Regulatory Commission document Notice on the Matters concerning Carrying out a Special Campaign to Strengthen the Corporate Governance of Listed Companies (Z J G S Z[2007] No.28) and Guidelines of Shenzhen Stock Exchange for the Internal Control of Listed Companies (hereinafter referred to as Internal Control Guidelines), the Company has in combination with the “special activities for listed companied” taken up internal checkups and improving activities, so as to tamp the internal control system as the key point for the Company. Comprehensive implementation of the internal control system and effective supervision is conducted in the Company. ① On August 24, 2007, at third meeting of the Company’s fifth Board of Directors, a series of company management systems were passed, e.g. Internal Audit Procedure, Information Disclosure Control Procedure, Affiliated Transaction Control Procedure, Securities Investment Control Procedure, Work Procedure of Independent Directors, and Work Procedure of General Manager, which, together with other management procedures of the Company, for a complete and rigorous internal control system, with Articles of Corporation as the general principles, and with Internal Control Procedure as the essentials, and with Company Environment Control Procedure, Business Control Procedure, Accounting System Control Procedure, Information System Control Procedure, Information Transmitting Control Procedure, and Internal Audit Control Procedure as the basis. ② Based on the appraisal from investors and the public, especially the site inspection result from the special activities for improvement of companies taken by Guangdong Regulatory Bureau of China Securities Regulatory Commission, and through monographic study, the Company put forward countermeasures for comprehensive improvement of the Company covering internal controls, with subsequent implementation of the measures for improvement (see details in the Bulletin dated July 26, 2007). ③ A leading group has been organized for the special activities and internal controls, with President as the group leader, and the Company General Manager, Independent Directors, Chairman of Board of Supervisors, Secretary of Board of Directors, Financial Department Manager and Human Resource Manager as group members, for organization and implementation of the various arrangements for internal control of the Company according to provisions of the special activities and Internal Control Procedure. Company Board of Supervisors and Independent Directors carry out their respective duties, to conduct supervision over internal control activities of the Company. During the report period, the internal control activities of the Company and all the systems set up in the Company for internal control prove to be compliant with the requirements of related state laws and regulations as well as those of the regulatory 19 administrations, which ensure normal management of operation of the Company, and are of rationality, completeness and effectiveness. (2) Major activities of internal controls of the Company ① Table of control structure and shareholding proportion of the Company in subsidiaries General Meeting Audit Committee Board of Supervisors Salary & Checkup Board of Committee Directors Strategy & Development Secretary of Board of Directors Nomination Committee General Manager Engineering Sales Dept. Purchasing Production Human Resource Technical QC Dept. Management Financial Auditing Enterprise Export Office Dept. Dept. Dept. Dept. Dept. Dept. Dept Dept. Dept. 70% 75% 70% 90% 100% Foshan Chanchang Foshan Taimei FSL Times Foshan Gaoming Foshan Chan Electric Appliance Times Lamps Lamps and Sheng Electronic Fuwan Landscape (Gaoming) Co., and Lanterns Lanterns Co., Ballast Co., Ltd. Ltd. Ltd. Co., Ltd. Resort Co., Ltd. ② Internal control for controlled subsidiaries Based on provisions in Internal Control Procedure of the Company, management is conducted on controlled subsidiaries, with functional departments providing professional direction, supervision and support to corresponding departments of the subsidiaries. The Company, by means of accreditation of directors, supervisors and important senior management staff to subsidiaries, carries out supervision of individual controlled subsidiaries for them to set up their corresponding management plans, and risk control procedures, with requiring individual controlled subsidiaries to set up reporting system and order of consideration of critical affairs, in addition to periodic obtaining and analysis on monthly reports of individual controlled subsidiaries and other means for implementation of management of individual controlled subsidiaries, ensuring management control of management and operation. With comparison with related provisions of Shenzhen Stock Exchange Internal Control Guidelines, the Company proves maintaining strict, sufficient, effective 20 management control of its controlled subsidiaries, without any violation of the Internal Control Guidelines or the Company’s Internal Control Procedure. ③ Internal Control of Affiliated transaction The Company has prepared Fair Decision Procedure for Affiliated Transactions, where detailed provisions are set forth in regard to Company’s affiliated transaction principles, affiliated persons and affiliation relationships, affiliated transaction, decision procedure for affiliated transaction, and disclosure of affiliated transaction, for affiliated transaction encountered by the Company to be implemented strictly in accordance with provisions in Fair Decision Procedure for Affiliated Transactions. With comparison with related provisions of Shenzhen Stock Exchange Internal Control Guidelines, the Company proves maintaining strict, sufficient, effective internal control of affiliated transactions, without any violation of the Internal Control Guidelines or the Company’s Fair Decision Procedure for Affiliated Transactions. ④ Internal Control of external warranty In the Articles of Association the Company has been clarified provisions for external warranty in regard to the basic principles, applying and approving procedures, and information disclosure. During the report period, has had no external warranty. With comparison with related provisions of Shenzhen Stock Exchange Internal Control Guidelines, Guidelines, the Company proves maintaining strict, sufficient, effective internal control of external warranty, without any violation of the Internal Control Guidelines. ⑤ Internal control of use of fund raised The Company has prepared Control Procedure for Raised Fund, where provisions are set forth per requirements of China Securities Regulatory Commission in regard to the storage, use and supervision of raised fund. During the report period, there has not been any newly raised fund in the Company, nor any raised fund postponed down from previous periods. With comparison with related provisions of Shenzhen Stock Exchange Internal Control Guidelines, Guidelines, the Company proves maintaining strict, sufficient, effective internal control of raised fund with Control Procedure for Raised Fund. ⑥ Internal control of critical investment The Company has prepared Control Procedure for Investment, where clarified provisions are set forth on investment in regard to the basic principles, power of examination and approval, order of consideration, study and appraisal on investment affairs, as well as the tracking of investment plans and ascertaining of responsibilities. With comparison with related provisions of Shenzhen Stock Exchange Internal Control Guidelines, the Company proves maintaining strict, sufficient, effective internal control of investment, without any violation against the Internal Control Guidelines, Articles of Association, or Control Procedure for Investment. ⑦ Internal control of Company information disclosure The Company has prepared and perfected Control Procedure for Disclosure of Information and Control Procedure for Reception and Promotion, where fully effective control is set forth in regard to disclosure of Company’s open information and communication of critical internal information. Scope and content range for critical information are clarified. Corresponding control procedures are prepared concerning methods, contents and time limits for communication between internal departments of the Company. Responsibilities for Company information disclosure has been refined to individual persons, ensuring persons in charge of information disclosure properly informed all information timely, accurately, completely and fairly. With comparison with related provisions of Shenzhen Stock Exchange Internal Control Guidelines, the Company proves maintaining strict, sufficient, effective internal control of information disclosure. During the report period, there has not been any violation against the Internal Control Guidelines, Control Procedure for Disclosure of Information, or Control Procedure for Reception and Promotion. 21 (3) Problems found in Internal Control of the Company and countermeasure plan The Company lies in an industry of fierce competition. Currently the production and business operation need quickened development, which puts forth new thesis for comprehensive and scientific management. What the Company is going to face are both opportunities and challenges. Therefore, it is critically important to strengthen the Company’s juridical person management and internal control. The Company will strictly obey related provisions stipulated by China Securities Regulatory Commission, and the requirements of Shenzhen Stock Exchange Internal Control Guidelines, and will follow the Company’ Internal Control Procedure, to enhance training and education of directors, supervisors, senior management staff and employees on the one hand, and continuously enhance internal control of the Company, for sustainable and standardized operation, for further perfection of the control structure, to improve the Company standing in normalized control. (4) General comment on internal control of the Company The Company has followed following principles for internal control: ① Internal Control has covered all the internal economic operations, all departments and all posts, in addition, aiming at the key points in handling of operations, Internal Control is implemented into all the aspects in decision making, implementation, supervision and feedback; ② Internal Control is compliant with state laws and regulations, and practical situation of the Company, for all employees are required to follow for implementation, without department or individual exceeding the power of Internal Control; ③ Internal Control ensures rational allocation and assignment of Company offices, posts and responsibilities. Incompatible posts are definitely separated, for clarification and inter-restriction, inter-supervision in responsibility and power of different offices and posts; ④ In preparation of Internal Control, compromised consideration is given to cost and efficiency, with rational control cost for optimum effect of control. Basic principles of Internal Control are followed. On the basis of practical situation of the Company, Internal Control procedures are set up covering all sections of operating activities for their normal, protecting company assets safe and complete. Essentially following goals are achieved through Internal Control of the Company: ① Already set up and perfected juridical person control structure and internal organization structure compliant with requirements of modern management, forming scientific decision-making mechanism, implementing mechanism and supervising mechanism, ensuring the realization of the management goals of management control; ② Already set up and perfected effective risk control system, ensuring healthy conduction of all the business operation activities; ③ Loopholes blocked with hidden troubles eliminated, to prevent and timely find errors or frauds for proper correction, protecting Company property safe and complete; ④ Accounting procedure normalized, ensuring accounting data true and complete, improving quality of accounting information; ⑤ Ensuring information disclosure truly, accurately, completely and fairly; ⑥ Ensuring the implementation of state laws and regulation as well as Internal Control Procedure of the Company. With comparison with related provisions of Shenzhen Stock Exchange Internal Control Guidelines, the Company proves maintaining strict, sufficient, effective internal control of internal environment, setting of goals, identification of items, risk assessment, risk countermeasures, control activities, information and communication, inspection and supervision, with generally compliant with related requirements of China Securities Regulatory Commission, and Shenzhen Stock Exchange. (5). Comments of Board of Supervisors on Self Appraisal of Internal Control of the Company Based on related provisions in Shenzhen Stock Exchange Internal Control Guidelines, 22 and Notice on Preparation of Annual Report of Listed Companies in Fiscal Years 2007, the Board of Supervisors of the Company hereby releases following comments on Self Appraisal of Internal Control of the Company: ① The Company has, per related provisions of China Securities Regulatory Commission and Shenzhen Stock Exchange, followed the basic principles of Internal Control, and set up and perfected, per their practical situation, internal control procedures covering all sections of the Company, ensuring normal conduction of business operation, protecting the Company assets safe and complete. ② The Company maintains complete organization for Internal Control, with internal auditing department and personnel completely allocated, ensuring key activities for internal control in the Company for proper implementation and sufficient and effective supervision. ③ In Fiscal Year 2007, the Company has not encountered any violation against Shenzhen Stock Exchange Internal Control Guidelines, or Internal Control Procedure of the Company. From all the aforementioned, the Board of Supervisors believes that, the Self Appraisal of Internal Control of the Company is comprehensive, true and accurate, reflecting the practical situation of Internal Control of the Company. (6). Comments of Independent Director on Self Appraisal of Internal Control of the Company During the report period, the Company Board of Directors revised, reviewed and passed a series of internal control procedures including Control Procedure of Affiliated Transaction, Internal Audit Procedure and Control Procedure for Disclosure of Information. Currently the Internal Control Procedures are relatively sound and perfect, forming a complete and rigorous system of Internal Control. The aforementioned procedures for Internal Control are compliant with state laws and regulations as well as the requirements of regulatory departments. Key activities for Internal Control are carried out per the Company Internal Control Procedures, and the Company proves maintaining strict, sufficient, effective internal control of subsidiaries, affiliated transaction, external warranty, use of raised fund, critical investment, and information disclosure, ensuring normal conduction of business management and operation, with rationality, completeness and effectiveness. Self Appraisal of Internal Control of the Company is consistent with the practical situation of the Internal Control in the Company. 5. Implementation of checking and encouraging mechanism for senior management staff during the report period During the report period, per provisions of Foshan Electrical and Lighting Co., Ltd. Executive Plan for Encouraging Fund for Medium and Senior Management Staff as reviewed and passed by the General Meeting, the Company Board of Directors Salary & Checkup Committee carried out assessment on business performance of this fiscal year, with withdrawal of RMB10 million as Encourage Fund, which shall be allotted to medium and senior management staff as well as technical backbones per individual assessment, while the Company shall lock up stocks purchased with the assigned Encourage Fund. VI. Brief Introduction of General Meeting of Shareholders During the report period, on February 13, 2007 the first interim General Meeting was held. On May 23, 2007, General Meeting of Fiscal Year 2006 was held. Resolutions from both the interim General Meeting and General Meeting of Fiscal Year 2006 were respectively published on China Securities Journal, Securities Times and Hong Kong Takungpao respectively dated February 14, 2007 and May 24, 2007. 23 VII. Director’s Report (I) Production and business operation 1. Review on company operation during report period. (1) General status: During the report period, there has been fierce competition home and abroad in the industry of electric light source, with rise in price of the various raw materials as well as the appreciation trend of RMB. The Company Board of Directors set foothold on long-term development, with responsible spirit for shareholders, excavated internal advantages and strengthened control, with expansion of production scale, reform in marketing and sales concept, as well as perfection of outline of industrial base. These powerful measures taken resulted continuously rapid development of production and business of the Company, with market competitiveness continuously improved, and the Company still achieved satisfactory economic effect. All through fiscal year 2007, gross output of bulbs is 1 billion pieces, as y/y increase of 11%; Prime operating revenue is 14.96hundred million Yuan, as y/y increase of19.41%; export for earning foreign currency achieves ten thousand USD, as y/y increase of25.14%; total profit is5.01hundred million Yuan, as y/y increase of74.96%; net profit is4.24hundred million Yuan, as y/y increase of78.90%; achieved after-tax EPS of0.91Yuan. (2) Major advantages and difficulties existing with the Company and the stability of profitability: ① Advantages This Company is the leader in the industry domestically, and it maintains outstanding comprehensive capability, especially the advantages in fund, talents, management and technologies. It has complete series of power-saving products of electric light source, where it maintains strong core competitiveness. In Fiscal Year 2007, the Company enhanced investment to production bases, which not only improved enterprise capacity in production, but also prepared conditions for the Company to achieve its strategic goal for another upgrading. ② Difficulties Since exported products of electric light source are restricted with international environmental protection and the RMB appreciation, unordered competition in domestic market has been fiercer, with electric light source product profit rate decreased. Rise in prices of the main raw materials and fuel oil as well as labor cost has formed certain 24 pressure upon prime operations of the Company. ③ Stability of profitability Although the pressure in front of the enterprise in development is increasing, electric light source industry still maintains great potential as daily consumables, for the progress in China’s economy and society, and the improvement of citizen living conditions, in addition to state policy support to energy-saving products. Therefore, future business and profitability of the enterprise is wide and potential. (3) Major suppliers and customers: Total amount for purchase from top 5 suppliers: 1.39 hundred million Yuan, which is 17.83% of the total purchase amount; Total amount of sales to top 5 customers: 2.86 hundred million Yuan, which is 19.59% of the total sales. (4) There is no critical change in y/y ratio of company assets components. (5) Some change happened in main financial data, which is mainly great increase in securities investment, covering 60% of the net profit of the Company, but one-off income. (6) Cash flow structure has no critical change from the previous year, without critical discrepancy from net profit during the report period. (7) Operation performance and achievements of major holding companies and equity participation companies Regarding the operation performance and achievements of major holding companies and equity participation companies, Foshan Chanchang Lighting Appliances Co., Ltd. is a Sino-foreign joint venture among equity participation companies of this Company, where this Company holds 40% of the equity. Registered capital of this company is USD1.8 million, with mainly producing Br-Wu lamps and other special light sources and fittings. Foshan Lighting Modern Lamps Co., Ltd. was set up in fall of 2004, with registered capital of RMB5.00 million, in which 4.50 million were offered by this Company, as 90% of the shareholding equity. This company mainly produces and sells lighting products and fittings. Foshan Chan Sheng Electronic Ballast Co., Ltd. is a Sino-foreign joint venture, established in 2003, with registered capital of RMB1.00 million, where this Company holds 75% of the shareholding equity. Major products of this company are ballasts, electronic transformers. Foshan Chanchang Electric Appliances (Gaoming) Co., Ltd. is a Sino-foreign joint venture, which was established in October 2005, with registered capital of RMB60000000, where this Company holds 70% of the shareholding equity. Major products of this company are products of electric light source, lamps and related fittings. Foshan Lighting Times Lamps Co., Ltd. is Sino-foreign joint venture, established in December 2005, with registered capital of RMB 500000, where this Company holds 70% of the shareholding equity. Major business of this company is R&D, production and sales 25 of lamps, household appliances and fittings, and other products of electric light source. Foshan Gaoming Fuwan Landscape Resort Co., Ltd. was set up in December 2006, with registered capital of RMB4.80 million, where this Company holds 100% of the shareholding equity. Business scope of this company covers hotel and travel service. All the aforementioned six companies are in normal operation and production, in regulated form, with prospective potential. In addition, equity participation enterprises of this Company successively cover China Everbright Bank, Bank of Communications, Foshan Fo-Chen Highway, Shenzhen Liangke Corp, Guangzhou Pearl River Assets Management Co., Ltd., where the proportion of equity participation is relative small. These enterprises are under regulated management, with business in rapid progress, and perfect return of economic effect. 2. Future expectations (1) Possible influence of industrial trend and market competitiveness ① Current domestic market of electric light source is in fiercer competition, which let to great increase in operating expenses for enterprises of electric light source, while average profit rate in the industry is gradually decreased. However, electric light source industry still maintains great potential as daily consumables, for the progress in China’s economy and society, and the improvement of citizen living conditions, in addition to state policy support to energy-saving products, future business and profitability of the enterprise is wide and potential. The Company shall make good use of its leadership in the industry and the brand advantage as “Light King of China” for integration of industrial resources and enhancement of the expansion of prime operations to exert scale advantage. At the same time, internal control is strengthened to lower cost expenses and to improve profitability. ② In allusion to market restriction for environmental protection and the RMB appreciation strike upon small and medium enterprises, which is a preferential opportunities for large enterprise to exert strong advantages, active actions will be taken to take part in international market competition, in an attempt to set up national brand of solid recognition, and to consolidate existing market share base, with endeavor to expand shares in export market, and drive the enterprise into wider space for development. (2) Work Plan in Fiscal Year 2008 In 2008 the Company will continue to maintain fast speed in development and at the same time internal control will be further strengthened, strategic allocation rationally readjusted for comprehensive improvement of the core competence of the enterprise, for stable achieving strategic goals of the enterprise. With maintaining leading position in domestic industry of electric light source, exportation business will be further expanded. Main consideration of the Company in 2008: 26 ① Endeavor made for accurate control, as tamp for management foundation, with uninterrupted improvement of enterprise management mode, and to improve overall operation effect of the Company. ② Stress paid upon construction project of Gaoming production base, so as to realize strategic balance in production bases, for expansion of productive capacity, and improvement of market reaction and market share of products. ③ Maintain and exert comprehensive scale advantages, to consolidate internal resources of the enterprise, and to strengthen sharing of resources, so as to lower operating cost and to improve profitability. ④ Further adjustment of product mix, with effort to development and production of energy-saving products as well as high value attached products such as Metal Halide Lamp, LED, light, energy-saving light, and automobile Metal Halide Lamp, so as to improve profitability of products. ⑤ Emphasis placed on brand advantage, for improvement of brand inspiration recognition for enhancement of healthy and rapid development. ⑥ Uninterrupted development of market potential for expansion of sales space home and abroad ⑦ Keep on perfecting juridical person control structure, and regulation of enterprise operations, for uninterrupted management level, so as to ensure reliable interest and benefit for the numerous investors and other interest related parties. (3) Risk factors unfavorable for future development strategy and realization of business goals as well as the countermeasures taken: When preparing prospect for future development and business plans for the coming fiscal year, hypothesis taken for basis is including: state laws, regulations and related industrial policies will be free of critical changes; no great changes happen in steady development of the national economy; no great changes happen in market environment of the industry where this Company is; no force majeure or unexpected factors which might cause serious unfavorable affection upon the operation of this Company or lead to serious loss of company properties. Main risks the Company is going to face in the future are including: ① Market risk Current domestic market of electric light source is in fiercer competition, which let to great increase in operating expenses for enterprises of electric light source, while average profit rate in the industry is gradually decreased. For this reason, further actions will be taken in the Company to strengthen internal control for lowering cost expenses, and enhancement of the expansion of prime operations to exert scale advantage. At the same 27 time, internal control is strengthened to lower cost expenses and to improve profitability, with endeavor made to develop secondary and third markets, to dilute operation risks, and to expand living and development space. ② Investment risk In 2008, the Company shall keep on fast speed in development and therefore the fund input will be further increased, so, further actions will be taken in the Company for enhancement of decision making management in control of investment, and to set up risk early warning mechanism, for enhanced investigation before hand, supervision in process and assessment after hand, so as to dilute investment risks, ensuring lawful rights and interests of the numerous shareholders. ③ Product quality risk In the Company, advanced technology and equipments leading in the world are adopted, with technology mature, and processes rational. Ever since, great attention has been paid to product quality, and now state-level test and inspection center is available inside the Company. The product quality standard taken by the Company is equal or higher than national or international standards. However, since products of electric light source are low priced and consumable, there is high requirement in environmental protection. Therefore, the Company is dedicated to keep strict implementation of quality control, and to perfect its quality management system, so as to ensure consistency of product quality to standards, keeping on the good fame of this Company in the market. 3. Major business in industry and production classification Prime operation in industry classification Operating Operating Operating Profit Classification Operating income Cost Rate in industry or operating income Operating Cost Profit change change change in product Rate (%) vs. last vs. last vs. last year (%) year (%) year (%) Lighting and 1,461,097,115.67 1,158,494,725.99 20.71% 18.83% 25.58% -17.07% Lamps Prime operation in product classification Operating Operating Operating Profit Classification Operating income Cost Rate in industry or operating income Operating Cost Profit change change change in product Rate (%) vs. last vs. last vs. last year (%) year (%) year (%) Lighting 1,461,097,115.67 1,158,494,725.99 20.71% 18.83% 25.58% -17.07% and Lamps Gross profit rate in this period is 20.71% %, while the gross profit rate last year was 24.97% %, and the decrease in gross profit rate in this period than the last years is 17.07%. The main reason lies in the rise of prices of raw materials and fuel market. 4. Major business in region classification 28 Operating income change vs. last Region operating income year (%) Domestic sales 908,419,034.85 18.37% Foreign trade 552,678,080.82 19.59% 29 (II) Investment of the Company 1. Fund raised During the report period, there has not been fund raising, nor any raised fund postponed down from previous periods. 2. Investment status of critical project with non-raised funds in report period During the report period, in accordance with the five projects as reviewed and approved by General Meeting that in three through five years, RMB600 million should be spend as internal fund, efforts have been made for their implementation, i.e. the investment to Metal Halide Lamp, the investment to expansion of production of energy-saving lamps, automobile lamps, and fluorescent light are being organized for implementation as scheduled, with some of the projects having been put into production, and satisfactory economic benefit obtained. (III) Routine work of Board of Directors 1. Meetings and resolutions made thereof by Board of Directors during the report period. Totally six meetings were held by Board of Directors. Details of the meetings and resolutions were respectively published on China Securities Journal, Securities Times and Hong Kong Takungpao respectively. Following are dates of the six meetings of Board of Directors and dates of information disclosure: (1) January 25, 2007: 17th Meeting of the Fourth Session of Board of Directors, and the meeting disclosing time is January 27, 2007. (2) March 27, 2007: 18th Meeting of the Fourth Session of Board of Directors, and the meeting disclosing time is March 29, 2007. (3) April 26, 2007: 19th Meeting of the Fourth Session of Board of Directors, and the meeting disclosing time is April 30, 2007. (4) May 23, 2007: First Meeting of the Fifth Board of Directors, and the resolution was disclosed on May 24th, 2007. (5) August 24, 2007: Third Meeting of the Fifth Board of Directors, and the resolution was disclosed on August 28th ,2007. (6) October 26, 2007: Fourth Meeting of the Fifth Board of Directors, and the resolution was disclosed on October 30th ,2007. 2. Implementation by Board of Directors of resolutions made in General Meeting: Board of Directors has carefully implemented the resolutions from General Meetings. The 7 resolutions passed on Annual Meeting of Shareholders of Fiscal Year 2006 (including Profit Distribution Plan) have been carried out completely. Also the implementation scheme authorized for Board of Directors to assign Encourage Fund to medium and senior management staff has been organized for implementation. (IV) Audit Committee fulfillment of duties 1. Work statement of Audit Committee of Board of Directors The Company Board of Directors Audit Committee is composed of 2 Independent Directors and 2 directors, of whom the Chair Person is assigned to an Independent Director of professional accounting qualification. Based on the related provisions of China Securities Regulatory Commission and Shenzhen Stock Exchange, as well as the detailed rules for implementation for The Company Board of Directors Audit Committee, the Company Board of Directors Audit Committee has carried out following jobs in principle of piousness: 1) Carefully read over the Company audit plan for fiscal year 2007 and related reference and, after negotiation with certified public accountants from GP Certified Public Accountants Co., Ltd. who are in charge of the annual audit of this Company, agenda for the audit for fiscal year 2007 has been finalized; 2) Before presence of the certified public accountants for the annual audit, they had read through initial 30 accounting statements and given their written review comments; 3) After presence of the certified public accountants for the annual audit, Board of Directors Audit Committee maintained communication and intercommunication with the certified public accountants for the annual audit in regard to problems found out during the audit and the time schedule for submission of the audit report; 4) After the certified public accountants for the annual audit issued their primary comments on the audit, Board of Directors Audit Committee read over another time the financial and accounting statements for fiscal year 2007 and offered their written review comments; 5) After certified public accountants from GP Certified Public Accountants Co., Ltd. had respectively released their annual audit reports for fiscal year 2007 respectively per international accounting standard and domestic accounting standard, Board of Directors Audit Committee held a meeting, and made summarization of the audit carried out by certified public accountants from GP Certified Public Accountants Co., Ltd. and KPMG, with resolution made in regard to the Company’s accounting statements and made voting on proposals for invitation of auditors for the next fiscal year. 2. Board of Directors Audit Committee review comments, summarization of annual audit and related resolutions 1) Review comments of Audit Committee on financial and accounting statements submitted by the Company before presence of the certified public accountants for the annual audit We have reviewed the financial statements submitted on January 10, 2008 including the Balance Sheet dated December 31st, 2007, Profit Statement for Fiscal Year 2007, Shareholders Equity Change Statement and Statement of Cash Flow, in addition to part of attachments to the financial statements. Special attention has been paid to the factuality, completeness of the accounting data, according to the 38 specific criteria including the newly issued Accounting Standard for Business Enterprises as well as corporate financial system rules, in addition to whether the financial statements was strictly in compliance with the newly issued Accounting Standard for Business Enterprises as well as corporate financial system rules. By questioning the Company’s related financial personnel and management staff, and checking up meeting minutes of meetings of shareholders, Board of Supervisors, Board of Directors and related meetings of committees, as well as related account books, records and slips, and the implementation of analyzing procedures upon critical financial data, we believe that: all transactions of the Company have been recorded. All transactions are true, with complete information, and proper selection of accounting policy, and rational accounting estimation, without findings of any critical errors, missing; no findings for large shareholders to occupy fund of the Company; no findings irregular external warranty of the Company or abnormal affiliated transaction. Since the time of review of the financial statements is some far from the date of the Audit Report and the issuing date of the financial statements, it is recommended for the Company Financial Department to take careful consideration of the items after the date of Balance Sheet in strict compliance with the newly issued Accounting Standard for Business Enterprises, so as to ensure the financial statements of fairness, factuality, and completeness. 2) Review comments of Audit Committee on financial and accounting statements of the Company after release of the primary audit comments from certified public accounts for the annual audit We have reviewed the financial statements after the primary audit comments from certified public accounts for the annual audit as submitted by the Financial Department on March 12, 2008, including the Balance Sheet dated December 31st, 2007, Profit Statement for Fiscal Year 2007, Shareholders Equity Change Statement and Statement of Cash Flow, as well as the attachments to the financial statements. Special attention has been paid to the factuality, completeness of the accounting data, according to the 38 specific criteria including the newly issued Accounting Standard for Business Enterprises as well as corporate financial system rules, in addition to whether the financial statements was strictly in compliance with the newly issued Accounting Standard for Business Enterprises as well as corporate financial system rules. Through communication with the certified public accounts for the annual audit in regard to their primary audit comments, and after additional review of related accounting books and records, we believe that: our last review comments should be remaining, and that the Company has handled the items after the date of Balance Sheet in strict compliance with the newly issued Accounting Standard for Business Enterprises, for the Company’s financial 31 statements have already bee prepared in accordance with the newly issued Accounting Standard for Business Enterprises as well as corporate financial system rules. In all the critical aspects, they have fairly reflected the financial situation of the Company on the date of December 31st, 2007, as well as the business performance and cash flow in Fiscal Year 2007. 3) On 2007 Annual Summary Report of CPAs of Guangdong Zhengzhong Zhujiang CPA Firm by Board of Auditors We have examined the 2007 Annual Audit Work Planning delivered us on December 31, 2008, by Finance Division of your company, and have had communicated on January 1, 2008, with CPAs in Guangdong Zhengzhong Zhujiang CPA Firm, of above mentioned work planning. We all agree that the Proposal is prepared well in detail and all liabilities upon each responsible person respectively, which can be taken as a sound guarantee for smooth implementation of adult in 2007. There are 15 CPAs in above mentioned two firms (including project director), they came to the site on January 14, 2008, to carry out auditing in accordance with the arrangement and all on-the-scene auditing to each company within the scope of being merged were finished on February 24, 2008. And the director carried out a full communication with the members of Audit Committee and the company of consolidated financial statement, adjusted items, application of accounting policies and imperfect points, so as that each party has a better understating on the company’s operating conditions, financial treatment conditions, application and implementation of accounting regulation in the newly founded corporate and so on. All of which ensure that the conclusions of the CPAs fair and the judgment is accurate. During the field audit, each member paid close attention any possible issues and conduct frequently communications with CPAs by phone or meeting with each other, of the issues mainly as follows: 1. Whether all transactions are recoded, true, or documents are completed? 2. Whether financial statements are carried out in accordance with the Regulation on New Corporate Accounting and relevant provisions issued by securities regulatory and company's financial system? 3. Whether financial sector conducted under relevant laws and regulations, other external requirements, as well as management policies, instructions, and other internal requirements required? 4. Whether there is an internal accounting control system or the system is whole? 5. Whether the various divisions of corporate support CPAs to gain sufficient and appropriate evidences? Above all mentioned above, the annual CPAs give a positive affirmation, and March 20, 2008, delivered a standardized Audit Report in which there is a unqualified opinion of conclusion. In our view, the annual CPAs have finished the auditing independently strictly under provisions in Regulation on China’s Certificated Public Accountant, after enough time audit. For the auditing work, the staffing is reasonable and they are competent and the audit statement they finished can be a fully reflection of actual financial situation on December 31, 2007, and 2007 annual results of operations and cash flow of the corporate. 4) Resolution of Board of Auditors on 2008 Annual Audit and Audit Agency Foshan Electrical and Lighting Co., Ltd., Board of Auditors held March 20, 2008 at AM 9:30 at the Conference Room on floor 5 of factory office building. The participant number that should attend the meeting is four, and actually attended number is 3. Francis Michael Piscitelli asked for a leave for business travel. On the meeting, by voting, members of the Audit Committee agreed motions as follows: 1. 2007 Annual Financial Report and Accounting Report; 32 2. Summary Report on 2007 Annual Auditing Conducted by Guangdong Zhengzhong Zhujiang CPA Firm; 3. Guangdong Zhengzhong Zhujiang CPA Firm are two professional financial auditing organs that have over a decade experiences in this field, and during the work, each of auditors practiced well and were diligent and responsible for the works. So it is proposed to continue to recruit the firm to be the auditing organ for 2008 annual financial audit of our corporate. The above motion shall be delivered company's board of directors for review and approval. (5) On Emolument of Board of Directors and Duties of Examination Commission Board of Directors and Remuneration Committee comprise 4 directors, of which 2 are independent directors, and Mr. Liang Zhen, an independent doctor takes office as a convener. During the reporting period, the Board of Directors and Evaluation Commission have examined each director, supervisor, and high-grade manager, in accordance with 2007 annual major financial indicators and operational objectives completed, the work scope and duties divided for directors, supervisors and high-grade managers respectively, completed conditions of indicators in examination system of working performance, and express their views as follows: Company's Board of Directors and Evaluation Commission remuneration and Evaluation Commission consider that the remuneration of directors, supervisor and high-grade mangers disclosed in 2007 Annual Report is carried out under principles provided in Regulation on Emolument; advanced incentive funds under relevant provisions in Equity Stake Incentive System for Medium and High-grade Management Staff and Its Implementation, and Enforcement Regulation on Equity Stake Incentive System. All motivating measures conducted by the corporate are reasonable and are advantageous for interests of management staff, corporate and shareholders. (6) 2007 Annual Profit Distribution Plan The minimum net profit realized by the Company in 2007 was RMB 418,814,087.85, after appropriating 5% of net profit amounting to RMB 20,940,704.39 as arbitrary reserve, and the profits available for distribution to shareholders this year is RMB 533,986,397.20 (including retained profit of last year amounting to RMB 136,113,013.74). Based on total share capital of 465,982,737 shares as at the end of 2007, the Board of Directors of the Company will distribute dividend of RMB 5.85 (tax included, Dividends for B shares shall be paid after being converted into HK dollar) in cash for every 10 shares to all shareholders of A and B shares. The total dividend actually will be RMB 272,599,901.15, and the rest profit of RMB 261,386,496.05 will be carried down the next year for distribution. Meanwhile, based on total share capital of 465,982,737 shares as at the end of 2007, the Board of Directors of the Company shall transfer capital reserve into share capital at the rate of 5 shares for every 10 shares to all shareholders of A and B shares. After transfer, the share capital of the Company shall be decreased to RMB1,203,634,311.43 from RMB 1,436,625,679.93, while the total share capital shall be increased to 698,974,105.50 shares from 465,982,737 shares. The cash bonus paid to shareholders of B share shall be converted into HK dollars by the middle rate between RMB and HKD declared by the Bank of China on the first business day after the resolution of the Shareholders’ General Meeting. 33 The above draft distribution plan shall be implemented under the condition that it is examined and passed at the Shareholders’ General Meeting. (7) Other Matters Related to Report 1. China Securities News, the Securities Times (for A-shares, in Chinese language) and the Hong Kong’s Ta Kung Pao (for B shares, in English language) are selected to be the medium to disclose information, and it would be not changed within the reporting period. 2. Special statement and views of independent directors on company's guarantees for the external parties After auditing, it is found t hat this company has no any guarantee for shareholders of listed company, shareholder’s holding subsidiary, shareholder’s subsidiary, other related parties upon which the company holds share over 50 percent, or individual or unit. VIII. Report of Board of Supervisors 1. Working Conditions of Board of Supervision during reporting period During reporting period Board of Supervisors shall holds meetings three times and Chairman of the Supervisory Board shall participate in the management team meeting, major decision-making of the company, monitor and approve each meeting and procedures of General Assembly. Meeting of Board of Supervisors is specified as follows: (1). Mach 17, 2007, notice in writing all supervisors via manually delivery or fax to attend the 7th Conference of the 4th Board of Supervisors at Administrative Conference Hall of the company. The number of supervisors that should attend the meeting is 5 members, and actually participants are 5 members, which are under relevant provisions in Act of Company enacted by the state, as well as the By-law of company. The meeting was presided over by the Chairman Huang Guangxiong, and resolutions are adopted as follows ① Deliberated and adopted 2006 Annual Report of Board of Supervisors; ② Reviewed and adopted 2006 Annual Report and its Summary, including both in Chinese language and in English language; ③ Deliberated and adopted 2006 Annual Financial Statement, Profit Distribution; ④ Deliberated and adopted the motion on the candidates of general election for the fifth board of directors and board of supervisors. (2) May 23, 2007, at Conference Room, Floor 3, Foshan Hotel, the 1st Conference of the 5th Board of Supervisors was held, all five members attended and Huang Guanxiong was selected to be Chairman of Board of Supervisors. (3) August 24, 2007, at Conference Room, Floor 5, Administrative Building of the company, the 2nd Conference of the 5th Board of Supervisors was held, five supervisors are required to be attended the meeting and the actual participants were four members, supervisor Shen Weiqiang asked for a leave for business travel. The holding of meeting is under relevant provisions in Act of Company enacted by the state, as well as the 34 company’s By-law. The resolutions are adopted as follows: ① Full text of Report for the first half 2007 and its summary (in both Chinese language and English language); ② Agreed the bill not to distribute profit, nor accumulation fund turn adding. ③ Modified Rules of Procedure on Board of Supervisors 2. Independent Opinions of Board of Supervisors on the Following Matters: (1) Operation Situation of Company. The company has operated its business strictly under all kinds of provisions of regulations, codes, acts and requirements issued by securities regulator and have established full management system as a listed company. All major decision-making related to capital use, investment projects and management are based on advanced investigation and are discussed and approved by board of directors, a reasonable and rational decision-making process. All major decision-making are taken advices from independent directors ahead of time to ensure correct and effective. So the company has gained a good economic effect. And the Board of Directors finds not any unlawful act or breach of regulations, codes, acts or the By-law of the company and harm the company. The president, managers of the company observe discipline and abide by the law, are honest and clean in performing one's official duties, work hard, and blaze new trails in a pioneering spirit, and are active to devote themselves to the development of the company and have contributed much to the company. (2) Check company's financial situation. Board of Supervisors considers that Audit Report finished by Guangdong Zhengzhong Zhujiang CPA Firm can present really the financial conditions of the company and its operation fruits. (3) Investment of the Recent Fund Raised. In the second half of 2000 the company raised fund of 667 million yuan for A-share issuing, up till now, the investment to the nine projects disclosed in the Prospectus (excluding liquid capital) are all under the Prospectus, without any difference, and all fund raised have been fully used, and which has produced good economic benefits. (4) During the reporting period, the company did not carry out any acquisition, sales of assets; related party transaction price are fair and reasonable, no any harm to the company of its interests. (5) Guangdong Zhengzhong Zhujiang CPA Firm have given an unqualified opinion in the Audit Report. IX. Significant Events 1. During the reporting period, there is no significant litigation and arbitration matters occurred. 2. During the reporting period, there is no merger, acquisitions or sale of assets and the kind. 3. Affiliated transactions: Affiliated Transactions in Day-to-day Operations Unit: RMB Yuan 35 Provide related party products and Provide related party products and labor services. labor services. Related Parties Transaction Ratio in similar Transaction Ratio in similar volume transaction volume transaction Prosperity Lamps and 80,531,722.80 5.74% 8,646,114.68 0.94% Components Co., Ltd. Prosperity (Hangzhou) Lighting 4,792,597.53 0.30% - - Appliance Co., Ltd. Prosperity Electrical (China) Co., 6,367,522.21 0.45% 2,588,743.50 0.29% Ltd. Prosperity (Nanjing) Lighting 165,480.00 0.00% - - Components Co., Ltd. OSRAM (China) Lighting Co., 60，025，684.97 4.27% 21,760.10 0.00% Ltd. Hangzhou Times Lighting - - 9,500.00 0.00% Appliance Co., Ltd. Prosperity (Xinxiang) - - 752,000.00 0.08% Electro-optic Machinery Co., Ltd. Total 151,883,007.51 10.76% 12,018,118.28 1.30% ● The company paid Prosperity Lighting Equipment 857,535.88 Yuan of import agency cost, which accounts for 3% total purchase price of equipment; ● All those above transaction prices are made according to market price, justice and fair; ● Company’s affiliated transactions are normal business activities which are based on a consideration of long-term development of the company, and are necessary; ● All affiliated transactions would make no impact on the company's independence. Debts and Creditor's Rights Affiliated Provide funds to the affiliated party Provide funds to the affiliated party Related Parties Amount Balance Amount Balance Prosperity Lamps and 11,000,000.00 Components Co., Ltd. Total 11,000,000.00 4. On Major Contracts: There is no trusteeship, contracting or leasing other company assets, nor being trusted, contracted or leased of company’s assets, nor guarantees for any other party or individual, nor commissioned cash asset management. 5. During the reporting period, there is no any matter of commitment arising from the company’s shareholders or holders of the other company which share is held by the company over 5% ( including 5%), which may make compact on the operation results and financial conditions of the company. 36 6. During the reporting period, there is no any change of appointed CPAs from both domestic and overseas, and the entrusted accounting firms is Guangdong Zhengzhong Zhujiang CPA Firm for continues 14 years, The payment for the accounting firms that is paid by the company is 400,000 Yuan. 7. No director, supervisor, high-grade management staff, shareholder, or actual controller of the company was checked, inspected, punished, or criticized publicly, or by China Securities Regulatory Commission, or condemned by the Stock Exchange during the reporting period. 8. During the reporting period, there is no event occurred, as specified in Clause 67 in Stock Act, and Clause 17 in the Implementing Rules on Information Disclose of Listed Company ( trial version ), or any major event adjusted by board of directors. 9. Portfolio Investment during the Reporting Period During the reporting period, the company carried out short-term securities investment to enhance self-owned funds benefit, and by the end of this reporting period, the balance of the investment in securities is107,217,672.72Yuan, and profit and loss on investment in securities is329,548,994.44Yuan, and the profit and loss of changes of the fair value is20,753,385.38Yuan. Proportion Type of total of Securiti Short form of Initial investment Book value in securities Gains/losses in No. Holding number secur es code securities amount (Yuan) period-end in the report period ities period-end (%) Other securities investment held at the 0.00 - 0.00 0.00% 0.00 period-end Jinshun 1 Fund 260104 Domestic 5,000,000.00 1,856,556 8,989,443.38 8.38% 3,989,443.38 Demand Jomsjim 2 Fund 162605 5,000,000.00 4,047,829 6,484,622.30 6.05% 1,484,622.30 Dingyi 3 Fund 310358 SYWG Paris 10,000,000.00 23,315,404 23,851,658.29 22.25% 13,851,658.29 National Development Investment 4 Fund 121005 20,000,000.00 33,221,181 53,383,116.30 49.79% 33,383,116.30 Corporation, Ruiyin New Power Boshi 5 Fund 050009 10,000,000.00 10,003,125 11,120,474.06 10.37% 1,120,474.06 Xinxing Jiaoyin 6 Fund 519694 3,100,000.00 3,091,286 3,388,358.39 3.16% 288,358.39 Lanchou Profits and losses from securities - - - - 329,548,994.44 investment sold during the report period Total 53,100,000.00 - 107,217,672.72 100% 383,666,667.16 37 10. Holding Other Company’s Share Conditions during the Reporting Period Proportion of Profit and loss Changes of Initial Securities Securities short the End book during ownership rights investment Code name company's value reporting during reporting amount shares period period Bank of 601328 61,781,202.00 0.02% 511,206,158.54 449,424,956.54 Communications Total 61,781,202.00 511,206,158.54 449,424,956.54 During the report period, the Company held merely 32,727,667 shares subject to trading moratorium of Bank of Communications (stock code: 601328) , no more any other. 11. Share Holding of Non-listed Company or the Company Planned to Be Listed during the Reporting period Changes of Proportion Profit and Initial Number ownership Share Name of Objective in the End book loss during Accountin investment of share rights sourc Company company's value reporting g courses amount holding during es shares period reporting period Guangdong Long-term Less than Development Bank, 500,000.00 229,792 500,000.00 500,000.00 0.00 investmen 5% Foshan Branch t 30,828,816.0 China Everbright Bank 24,176,768 0.29% 30,828,816.00 30,828,816.00 0.00 0 31,328,816.0 Total 24,406,560 - -- 69,223,326.04 31,328,816.00 0.00 - -- - -- 0 38 12. Research, Communication and Interview Receiving during reporting period as follows: Reception Reception Major contents and information Date Reception Object Location way provided Field The Company basic condition and 2007.4.6 research Manager of Fullgoal Fund Company development planning and study Field The Company basic condition and 2007.4.6 research Manger of E Fund Company development planning and study Field The Reporter of Securities Market Company basic condition and 2007.4.6 research Company Weekly development planning and study Field The Professor of Guotai Junan Company basic condition and 2007.4.6 research Company Securities development planning and study Field The Professor HSBC Assets Company basic condition and 2007.4.12 research Company Management Co. development planning and study Field The Professor of China Merchants Company basic condition and 2007.5.9 research Company Fund development planning and study Field The Company basic condition and 2007.6.27 research Professor of CITIC Securities Company development planning and study Field The Professor of China International Company basic condition and 2007.6.27 research Company Fund Management Co., Ltd development planning and study Field The The Government of Singapore Company basic condition and 2007.8.24 research Company Investment Corporation Pte Ltd, development planning and study Field The Deutsche Börse AG, Asian Company basic condition and 2007.8.24 research Company Corporation development planning and study Field The Company basic condition and 2007.8.30 research Guodu Securities Co., Ltd. Company development planning and study Field The PING AN SECURITIES Company basic condition and 2007.10.31 research Company COMPANY LTD. development planning and study Field The Company basic condition and 2007.11.9 research PICC. Asset Management Company development planning and study 2007.11.30 The Field Xingyang Investment Company basic condition and 39 Company research Consultants Ltd. development planning and study Field The Huaxia Fund Management Co., Company basic condition and 2007.12.22 research Company Ltd. development planning and study 40 Report Review GCPA-0800020019-2008 All shareholders of Foshan Electrical and Lighting Co., Ltd.: We have audited the financial statement of Foshan Electrical and Lighting Ltd. (hereafter referred to as Foshan Lighting ) attached, including balance sheet and consolidated balance sheet on December 31,2007, profit distribution sheet of 2007 and 2007 annual consolidated profit sheet, 2007 cash flow statement and consolidated cash flow, as well as foot-notes to financial statement. 1. Liabilities of Managers for Financial Statements It is the liabilities for Foshan Lighting to make Financial Statements in accordance with the Codes on Public Accountants and Account Regulations on Construction Enterprise. And the liabilities herein mentioned include： （1） Conducting an internal control to design, implementation and maintenance of the Financial Statements so as to ensure there is no key error in such documents and no practice favoritism and commit irregularities； （2） Selecting and adopting fitting regulations of account；（3） Making reasonable estimation of account. 2. Liabilities of CPA As a CPA, we shall undertake the relevant liabilities to carry out the auditing upon your financial statements in accordance with the Regulations on CPA of China enacted by the state, under which we are required, subject to relevant provisions with respect to ethics of profession, to carry out our works to check whether there is key error in your Financial Statements. To complete the auditing, we shall make use of some reasonable auditing procedure so as to gain the relevant amounts in the Financial Statements and any other auditing documents disclosed. But which auditing procedure we shall select is to depend on the judgment of CPA and evaluation on possible key error or possible self-seeking misconducts is also depending on the judgment of CPA. For risk evaluation, we shall design our auditing procedure based on the consideration with the internal control of financial statements, but this is meant not to that we shall air any of our opinion upon the validity of the internal control. Moreover, our adulating work also include an evaluation on how accounting policies are used by the management, and whether they are reasonable and appropriate, besides the general list of the financial statements. We believe that our auditing is fair and the evidence is sufficient and appropriate, which can lay a pretty sound foundation for further conclusion of auditing. 41 3. Conclusion of Auditing We believe that the Financial Statements of Foshan Lighting is composed under relevant provisions in the Company’s Accounting Standards and the Codes on Accounting, Which is an actual representation of financial status of the Center on the 31st day of December 2007, 2007 annual operation status and cash flow conditions and consolidated cash flow conditions in 2007. Guangdong Zhengzhong Zhujiang CPA Firm China's CPA: Jiang Hongfeng China's CPA: Hong Wenwei Guangzhou, China April 17, 2008 42 X. Financial Report 1. Company Profile Company History Foshan Electrical & Lighting Co., Ltd. (hereinafter referred to as “the Company”), a joint-stock limited company jointly founded by Foshan Electrical and Lighting Company, Nanhai Wuzhuang Color Glazed Brick Field, and Foshan Poyang Printing Industrial Co. on Oct. 20, 1992 by raising funds under the approval of YGS (1992) No. 63 Document issued by the Joint Examination Group for Experimental Enterprises in Stock System of Guangdong Province and the Economic System Reform Commission of Guangdong Province, is an enterprise with its shares held by both the corporate and the natural persons. As approved by China Securities Regulatory Commission with Document (1993) No. 33, the Company publicly issued 19.3 million shares of social public shares (A shares) to the public in Oct., 1993, and was listed in Shenzhen Stock Exchange for trade on Nov. 23, 1993. The Company was approved to issue 50,000,000 B shares on Jul. 23, 1995. And, as approved to change into a foreign-invested stock limited company on Aug. 26, 1996 by (1996) WJMZEHZ No. 466 Document issued by the Ministry of Foreign Trade and Economic Cooperation of the People’s Republic of China. On Dec. 11, 2000, as approved by China Securities Regulatory Commission with ZJGS Zi [2000] No. 175 Document, the Company additionally issued 55,000,000 A shares. At the 2006 General Assembly, it was agreed by all shareholders to add 3 shares to each 10 shares. Now the registered capital of the company has reached RMB 465,982,736.00. And the corporate business license registration number is QGYZZ No. 002889. Legal representative: Zhong Xincai Address: No. 15, Fenjiang North Road, Foshan, Guangdong Province Business scope of the Company: Research, development and production of electro-optical source products, electro-optical source equipment and electro-optical accessories, sales of such products made by it on both the domestic and overseas markets, and the relevant engineering consultation service. The main products of the Company include all kinds of electro-optical source products. Basic Structure of Organ of Company General Assembly is the highest authority of the company and Board of Directorsis an executive organ to carry out the provisions formulated by the General Assembly, and the GM is responsible for day-to-day operation and management, Board of Director is an internal supervising organ of the company. Up till the end of the reporting period, the company owns 6 holding companies Chanchang Lighting Components Co., Ltd., Foshan Chansheng Electronic Ballast Co., Ltd. , FSL Modern Lamps and Lanterns Co., Ltd., Foshan Chanchang Electric Appliance (Gaoming) Co., Ltd. , Foshan Taimei Times Lamps and Lanterns Co., Ltd. and Foshan Gaoming Fuwan Landscape Resort Co., Ltd.. 43 Financial Report Approval and Submission Financial Report is approved and delivered by Board of Directors on April 17, 2008. 2. Statement of Compliance with Corporate Accounting Standards Preparation of the company's financial statements comply with the requirements of Accounting Standard for Business Enterprises, which is true, complete reflection of the company's financial conditions and results of operations and cash flow, and other relevant information. 3. Base of Financial Statement Preparation Based on continuing operations of business and measurement for actual transactions, the financial statements are prepared. The company before December 31, 2006, implements the former accounting standards and Enterprise Accounting Act, since January 1, 2007 the company implement the new Accounting Act enacted by the Ministry of Finance on February 15, 2006. In the preparation of the company financial statements, the company confirms the opening balance of balance sheet on January 1, 2007, under the Notice on the Improvement of the Information Disclosure Related to the New Accounting Guidelines and System by Those Listed Companies and Companies Which Plan to Make Initial Public Offering of Stocks and to Be Listed (SS-136-2006),and China Securities Regulatory Commission, Compilation Rules for Information Disclosures by Companies That Offer Securities to the Public (No. 7): Preparation and Fincianl and Accounting Information Disclose during Transition Period of Old and New Accounting Acts (SFC-10-2007 ). In accordance with relevant provisions in the No.38 of Company Accounting Regulation, retroactive adjustment is used for financial statement in 2007. The major changes of accounting policies are listed below: 4. Methods of preparing company’s principal accounting policies and their changes, and consolidated financial statements Fiscal Year A fiscal year is accounted from January 1 to December 31. Reporting currency RMB is taken as reporting currency of the Company. Accounting Principle Accrual basis is taken as accounting system base, and debit and credit double entry bookkeeping technique for accounting. Accounting Method for Foreign Currency Company day-to-day accounting operations for foreign currency non-monetary items is taken the medium price issued on the first day of the month on the foreign exchange market as a standard, being accounted on the basis of exchanged standard money. At end of each month, adjust the pecuniary resources and items with respect to money debtor and creditor account on the balance sheet under the price of that day on the foreign exchange 44 market. The market benchmark rate on the same day when business is conducted is adopted for the exchange rate of foreign currency. As for any project involved in foreign currency, the balance of the foreign currency is exchanged to RMB in accordance with the market benchmark rate at the end of the year. The balance between the exchanged RMB amount at the end of the year and the original carrying amount, which is related to the fix assets construction or purchase, shall be capitalized, and which is related to production and operation shall be counted into financial costs. Determination standard of cash and cash equivalents Cash equivalents refer to a kind of investment that has a short duration of repayment (within 3 months), mobility and low risk of price change, and is easy to be changed into a certain known amount of cash. Financial Instruments Financial Assets Classification, Recognition and Measurement —— Four sorts are divided by the company in the initial recognition: transaction financial assets, loan and receivables, available-for-sale financial assets, and held-to-maturity investments. Carry out and evaluation at each end of term. For initial recognition of financial assets, fair value is adopted. As for transaction financial assets, related transaction costs are included in the current profit and loss. For other types of financial assets, related transaction costs are included in the initial amount identified. —— Transaction Financial Assets. Including the assets that the company intends to sell in the near future at the fair value as a short-term profit gaining model, and its extended financial portfolio of assets, and derivative financial assets (designated as effective hedging tool for derivatives, financial guarantee contracts are derivatives, and not in an active market in the Price and its fair value can not be reliably measured linked to the interests of investment tools and are subject to the delivery settled equity instruments except derivatives.) Transaction financial assets are accounted at the fair value after trading and the profit or loss arising from change of faire value is accounted in the current profit and loss. —— Loan and Receivables: The company would take those assets that have not return from the active market, fixed return amount or determined non-derivative financial assets to be loan and receivables, Which is measured in accordance with real interest rate after amortized cost. Any gaining or loss after termination or when value is reduced or when amortizing, is accounted in the current gains and losses. —— Available-for-sale Financial Assets: The company’s such assets refer to non-derivative financial assets that are designated in the beginning to confirm available-for-sale financial assets, in addition to loans and receivables and held-to-maturity investment, and other non-derivative financial assets out of financial transactions assets, which is follow up measured at fair value of the profits or losses arising from fair value change, and is directly accounted into the owner's equity, until the termination of such financial assets being confirmed, or is accounted into current gains and losses when fair value is reduced. As the change of holding wills or holding capacity, air value could not be no longer calculated reliably, or the holding time has exceeded two entire fiscal years and fair value calculation becomes reasonable, such assets are measured by the company based on amortized cost. The book value of such financial assets is taken as amortized cost. Related gains or losses of such financial assets that are originally calculated into directly owners' interests are treated as the following two models: ① For the financial assets that have a fixed maturity date, actual rate amortization method is adopted for the rest period and is accounted into the current gains and losses. For the difference between amortization costs and amount at the date of maturity, actual rate amortization method is adopted to account into current gains and losses. If occurring a value reducing in the following up later years, roll out related gains and losses of the 45 owners’ interests and directly included in the current profits and losses. ② As for the financial assets that have no fixed deadline, take those as the owner's equity until the financial assets in the subsequent accounting period or termination of impairment occurred during the confirmation transferred, included in current profit and loss. —— Held-to-maturity Investments: The company divides the non-derivative financial assets that the management has a clear intention and has ability to hold to maturity, and has a fixed maturity date, and has a fixed return amount, to be held-to-maturity investments. For such assets, maturity investments in real interest rates, while sharing the cost to conduct a follow-up measurement, the termination of confirmed or amortization, impairment in the profits or losses, gains and losses included in the current period. held-to-maturity investment of the sale or re - Categories amount, so that the remaining part of the investment is still as held-to-maturity investment is not appropriate, the rest of the investment will be re-classified as available-for-sale financial assets, and to re-classification of the fair value of the carry-over, and in this fiscal year and after two full fiscal years, no longer the financial assets classified as held-to-maturity investments. in the weight classification, the remaining part of the investment cost more than its share of the difference between the fair values and included all the rights until the termination of financial assets available for sale to confirm or to the impairment occurred, included in current profit and loss. Classification, Recognition and Measurement of Financial Liabilities — For initial recognition of financial liabilities, the company divides it into two categories as follows: Transaction financial liabilities, and other financial liabilities. The former of which is included in the fair value and related costs are included in the current gains and losses; and the later of which of related costs are included in initial recognition amount. — Trading Financial Liabilities: Which refers to financial liabilities and financial liabilities and derivative financial liabilities that the company for the repurchase fair value in the recent period for short-term profit gaining, model portfolio management tool (designated as effective hedging tool for derivatives, financial guarantee contracts are derivatives, and not in an active market in the Price and its fair value can not be reliably measured linked to the interests of investment tools and are subject to the delivery settled equity instruments except derivatives.) which are included in the current gains and losses based on the change of fair value — Other Financial Liabilities: Effective interest method and amortized cost are adopted for other financial liabilities; gains and losses generated from follow-up measurement of termination confirmation and amortization are included in current gains and losses. Confirmation of Fair Value of the Equity Instruments — For financial instruments existed in active market, which fair value is determined according to market price; for the financial instruments existed in non-active market, estimation is adopted to determine its faire value. And the estimation include current transaction of each party in the familiar markets and essential the same other faire values of financial instruments and currency flow analysis and black-Scholes option pricing model. Impairment Test of financial assets and declining-balance method —The company checks book value of trading financial assets on the date balance sheet is made, as for the financial assets that have objective evidences to show the financial assets impairment occurred, aforesaid difference against the impairment provision. ——Measurement of financial assets impairment measured on basis of amortized cost 46 If there is objective evidence to show that financial assets based on amortized cost are reducing, reduce book value of such assets to foreseen future the present value of cash flow (excluding the future credit losses), the amount accounted is the loss amount of assets, which are included in current gains and losses. Impairment test is adopted for the major assets separately. For non-big amount of financial assets individual or a combination of impairment testing, does not exist have been identified by The value of objective evidence of the amount of individual assets, again with similar credit risk characteristics of financial assets constitute a combination of impairment testing, has been the basis of a single Provision for impairment of financial assets in the portfolio will no longer be tested for impairment. in the follow-up period and, if objective evidence shows that the value of financial assets has been restored, and with the objective to confirm the loss in respect of matters occurring after the original recognized impairment losses should be reversed, the gains and losses included in the current period. after it back The book value should not exceed Provision for impairment assuming no circumstances under which financial assets in the back, I share the cost. measured by share of the financial costs more than the actual loss of assets, and reduces related provision for impairment has been prepared. ——Available-for-sale Financial Assets If there is objective evidence to show that available-for-sale financial assets are reducing, even if the termination of such financial assets has not reached, the cumulative decline in a loss for owners directly included in the current gains and losses. The cumulative decline loss is the initial cost of such assets, deducted the amount of recovery and amortization, fair value when impairment occurs and net value of the original in the profit or loss. Standards an Provisions on Receivables Bad Debts — Bad debts are confirmed based on the following principles: — Uncollectable claim in the event that debtor’s bankruptcy after legal proceedings; — Debtor’s death that causes debt rights failure; — Debtor dose not fulfill obligations for three years and there is conclusive evidence to show that the recovery of claims is impossible, it may be listed to be bad debt after being approved by board of directors. — Allowance method is adopted for bad debts, and the provisions are as follows: — If at the end of term there is objective evidence to show receivables impairment, reduce its book value to future cash flows, and the amount is recognized as an asset impairment losses, included in the current gains and losses. The future present value of cash flow forecasted is determined on the basis of the original effective interest rate discounted (excluding credit losses that have not yet occurred), in addition to values of related guaranty. The original effective interest rate is the rate that is determined in the initial recognition of the receivable. As for short-term receivables there is small difference between forecasted future cash flow and present value, so there is no forecasted future cash flow discounted. — Impairment test separately to the receivable that has significant amount is required. If there is objective evidence to sow impairment of its occurrence, confirm its impairment loss and bad debts in accordance with its book value balance that is lower than future present value of cash flow. The significant amount refers to receivable balance that ranks the top five or accounting for 10 percent receivables in total. — If there is objective evidence to show impairment of a single non-major receivable, carry out impairment test and confirm impairment loss and provision for bad debt. For other individual non-significant amount of 47 receivables, confirm its impairment loss and drawing bad debts provision on the basis of actual loss ratio of accordance receivables of prior year, and 6% present end balance of receivables (excluding consolidated financial statements of the exchanges between enterprises of internal funds.) Accounting Method of Inventory Inventory Category: Raw materials, products in processing, commissioned processing materials or finished products or semi-finished and consumables. For Accounting of Inventory: raw materials and finished products at actual cost, and weighted average method are adopted for receiving and delivery. Inventory system: a perpetual inventory system is adopted. Inventory Decline and Provision：In accordance with the individual inventory items to be lower than the net value of the difference between the cost of carrying inventory provision for decline in value. Finished products and materials for the sale can be used directly in the sale of the stock to the stock estimated selling price minus the estimated cost of sales and related taxes and fees after the amount of its net realizable value; need to go through the processing of materials inventory, production of finished products to the estimated selling price less the completion of the estimated cost will be , it is estimated that the cost of sales and related taxes and fees after the amount of its net realizable value. Accounting Method on Long-term Investment Long-term equity investment valuation —Long-term equity investment arising from corporate merger —As for the merger of the same type, the initial investment cost is taken according to the book value of long-term cost, and related cists directly are included the current gains and losses. —As for the merger of non-same type, the merger costs for the purchase of the company in order to obtain control of the other party to pay the assets or liabilities and commitments issue of the rights and interests of the fair value of securities for the conduct of a corporate merger. Directly related to the costs included in cost of the investment. Contract or the merger agreement may affect the future costs of the merger agreement to purchase, if the estimate of future issues is likely to occur and the impact of the merger costs can be a reliable measurement of the amount of the company shall be included in its cost of the investment. —Long-term equity investment based on currency payment. Take actual purchase price as the initial costs that include directly related costs with respect to long-term equity gaining, taxes and other necessary expenses. —Long-term equity investments based on issuance of equity securities. Take faire value of equity securities issued as initial investment cost. —Long-term equity investments invested by investors. Take value provided in the contract as initial investment cost, but except the value that is not fair. —Long-term equity investment based on non-monetary assets exchange (commercial-type exchange). Take fair value of such investment and related taxes as investment costs. 48 —Long-term equity investment gained from debt restructuring. Creditor has the rights to share faire value of such share of the debtor's investment. Follow-up measurement and revenue recognition on long-term equity investment —Absorption costing method is adopted for the long-term equity investment that the company is able to control, and the investment that can not be controlled by the company, and major investment that there is no return from the market and it is impossible to measure its faire value. The cash dividends or net profit distribution declared by the invested organ is included in the current profit, but is limited to accumulative net profit distribution, the long-term investment that can be controlled by the company, and fair value can not be reliably measured by the cost of long-term equity investment method. declared to be distributed by the investment of cash dividends or profits recognized as current investment income, but only Investment units to be accepted after the total investment in the net profits of the quota. —Corporation's investment units have joint control or significant influence of the long-term equity investment by the equity method. Long-term equity investment than the initial investment cost of investment to be enjoyed by the investment unit fair value of identifiable net assets share, not adjusted long-term equity investment in the initial investment cost long-term equity investment is less than the initial investment cost of investment to be enjoyed by the investment unit fair value of identifiable net assets share, and its variance included in the current loss, while the long-term equity investment costs. confirmed by the investment units in a net loss to long-term equity investments and the book value of investments was essentially a unit of the long-term interests of net investment is reduced to zero. limit (the company has to bear the additional losses with the exception of obligations). confirmation should be Investment units to be the share of net profit or loss when the investment was to achieve the investment units to the fair value of identifiable assets based on the investment unit's net profit was adjusted for confirmation - Company to be invested units with a common control or significant impact on the long-term equity investment by the equity method. long-term equity investment than the initial investment cost of investment to be enjoyed by the investment unit fair value of identifiable net assets share, and not the long-term equity investment of the initial investment cost, long-term equity investment is less than the initial investment cost of investment to be enjoyed by the investment unit fair value of identifiable net assets share, and its variance included in the current loss, while the long-term equity investment costs. confirmed by the investment units in a net loss to long-term equity investments and the book value of investments was essentially a unit of the long-term interests of net investment is reduced to zero. limit (the company has to bear the additional losses with the exception of obligations). should have been recognized in the investment unit share of the net profit or loss, investment to be made of the investment units to the fair value of identifiable assets based on the investment unit's net profit was adjusted for confirmation. Impairment of long-term Investment —At the end of reporting period, the company shall check each item of the long-term investments. If the recoverable amount of the assets are less than book value as market price declines or the company invested runs business weak, and it is impossible to be recovered within the future period forecasted, take the difference of long-term investment of book value as the impairment provision. The recoverable amount in accordance with the fair value of assets minus the net cost of disposal of assets and expected future cash flows are the two values identified between higher. a long-term investment impairment losses recognized, and in the subsequent accounting period may not be back - Company in the end of the reporting period on the long-term investment itemized check, if the market value continued to decline due to investments or units operating conditions worsening reasons for its recoverable amount lower than the book value, and this could reduce the value of the estimated future period not restored, the recoverable amount will be lower than the long-term investment in the difference between the book value as a long-term investment for impairment. Recoverable according to the 49 amount of the fair value of assets minus the net cost of disposal of assets and expected future cash flows between the present values of the higher determined. long-term investment impairment losses recognized, and in the subsequent accounting period shall not be reversed. Fixed Asset Valuation and Depreciation Methods Fixed asset criteria: company’s fixed assets are defined as the tangible assets for production and services, lease or management, which has more than one year of life-span for use, and has a higher unit value. Classification of fixed assets: buildings, machinery and equipment, transport equipment and other equipment. Fixed asset valuation and depreciation methods: Fixed assets at actual cost and straight-line method are adopted in accordance with the estimated economic life of fixed assets and the projected net residuals depreciation rate. Various estimated economic life of fixed assets and depreciation rates are as follows: Categories Serviceable life Depreciation rate Residuals rate Housing and Building 3—25 31.67%-4.75% 5% Machinery and equipments 2—8 47.50%-11.88% 5% Transport equipment 5—10 19%-9.50% 5% Other equipment 2—8 47.50%-11.88% 5% Fixed assets impairment provisions: The company shall carry out check to each fixed asset at the end of term. If the recoverable value is less than book value because of market price decline, aged technologies, damage or long-time idle, the difference is adopted for its impairment provisions, which can not be returned as of being confirmed. Recoverable amount in accordance with the fair value of assets minus the net cost of disposal of assets and expected future cash flows of the present value identified between higher. future cash flows of assets is the value of assets in accordance with the sustainable use of process and the final disposal of produced by the estimated future cash flows, select appropriate discount rate for its discount rate after the to be determined. fixed assets for impairment: in the end of the reporting period on fixed assets itemized check, because if the market value continued to decline, or technological obsolescence, damage and long-term idle, and other factors, led to the recoverable amount of fixed assets below their book value, according to the difference Provision for impairment of fixed assets, an impairment loss of fixed assets identified, and in the subsequent accounting period shall not be reversed. recoverable amount in accordance with the fair value of assets minus the net cost of disposal of assets and expected future cash flows between the present values of the higher determined. future cash flows of assets is the value of assets in accordance with the sustainable use of process and the final disposal of produced by the estimated future cash flows, select appropriate discount rate for its discount After the amount to be determined. Accounting Methods for Construction-in-progress Actual cost is take as a base for construction-in-progress. And it is transferred to be fixed assets when it reaches usable statue estimated at the provisionally estimated price. After final accounts of project, adjust book value according to actual cost. Purchase or construction of the production line with the conditions of capital assets specialized lending or borrowing of the general occupation of the borrower and the borrower interest in supporting specific borrowing costs in the purchase or construction of the production line with the conditions of capital assets can be used or can be scheduled for sale by the state before can be included in the amount of capital assets cost was included in the current loss. construction - in-progress at actual cost, and can be used to target by state temporarily transferred to the fixed assets valuation in the accounts for completion, according to the actual cost of adjusting the book value of fixed assets. acquisition or construction or the production of capital 50 assets and the conditions of the specialized lending or borrowing of the general occupation of the borrower and the borrower interest in supporting specific borrowing costs in the purchase or construction of the production line with the conditions of capital assets can be used or can be scheduled for sale Before the state can be on the amount of capital assets included in the cost was included in the current loss. Impairment Provisions for Construction-in-progress: The company shall carry out a comprehensive check to construction-in-progress at the end of each term. As for the project-in-progress that has been stopped for a long time and can not be continued restarting in the future 3 years, and there is no a certain value whatever in economic benefits or technical performance, or there is obvious evidence that may show the construction-in-progress impairment occurred, the impairment provision is based on the difference that thee recoverable amount less than book value. Once impairment loss of construction-in-progress is confirmed, it can not be reversed. Valuation of Intangible Assets and Amortization Method Valuation of intangible assets —Cost of purchased intangible assets is accounted on the basis of actual expenditure of such assets when reaching its expected usage. —Expenditure in internal research and development phase. It would be valued into the current gains and losses when it occurs. As for the expenditure that may meet the conditions of capitalization, it shall be considered to be intangible asset cost. —Intangible assets invested by investors. It would be valued under relevant provisions in the contract, but except those that are unfair. —Intangible assets accepted from debtor's non-cash assets or that replacement of receivable claims shall be valued in accordance with the fair value. —Intangible assets in non-monetary transaction shall be valued in accordance with its fair value and its related tax costs. Amortization of intangible assets: As for intangible assets that have the limited life-span, straight-line amortization within its life-span is adopted. As for intangible assets that are impossible to be estimated for their future economic interests to the company, it is considered to be intangible assets that have unpredictable life-span, upon which amortization is not carried out. As for the intangible assets, land use, the life-span is 50 years for average amortization. Impairment Provisions for intangible assets: It is required to conduct a comprehensive check to such intangible assets at the end of term. For the intangible assets that have already been replaced by new technology and its ability to create benefits for the company suffered a great impact, or a significant decline of market price and impossible to be covered within its remained life-span, or the duration is out of protection by law, yet a certain utility value remained, or there is obvious evidence that may show the construction-in-progress impairment occurred, the impairment provision is based on the difference that thee recoverable amount less than book value. Once impairment loss of construction-in-progress is confirmed, it can not be reversed. Accounting Methods on Long-term Deferred Expenses Straight-line amortization is allocated for long-term amortization. 51 As for the long-term prepaid item that can not benefit future accounting, transfer all their remained value to the current gains and losses. Capitalized Accounting Method on Borrowing Capitalized the borrowing that meet the following conditions：Expenditure to acquire (including expenditure for the acquisition or construction or production line with the conditions of the capital assets to pay cash, or transfer of non-cash assets to bring in the form of interest-bearing debt expenditures) that has occurred; borrowing costs has occurred; and for assets intended use or sale of the state may be necessary for the acquisition or construction or production activities have already begun. Capitalized amount of borrowing interest: For purchase or construction of the production line with the conditions of capital assets and borrow specialized loan borrowers or occupier of the general interest in the borrower, in the purchase or construction of the production line with the conditions of capital assets can be used or can be scheduled Before the state sales, according to the following methods of determining the amount of capital: the capitalization of interest on the amount of the borrower: purchase or construction of the production line with the conditions of capital assets and borrow specialized loan borrowers or occupier of the general interest in the borrower, in the acquisition or construction or production comply with the conditions of the capital assets can be used or can be scheduled for sale before the state, according to the following methods of determining the amount of capital: — Or borrowing that is for acquisition or construction of the production line with the conditions of capital assets and borrow specialized lending, specialized lending to the current actual interest costs, net borrowing will be used has yet to deposit funds in bank interest income or the temporary investment income defined as the amount of capital should be the cost - or for the acquisition or construction of the production line with the conditions of capital assets and borrow specialized lending, specialized lending to the current actual interest costs, less will be the borrower of funds not yet spent Interest income deposited in the bank or temporary investments of the amount of investment income should be defined as the cost of capital. —Or for the acquisition or construction of the production line with the conditions of capital assets and occupy the general borrowing, the company According to the cumulative capital expenditure over specific borrowing part of the capital expenditure multiplied by the weighted average number of borrowers generally occupied by the capitalization rate to calculate the borrower determine general should be the capital of the amount of interest. Capitalization rate borrowers under the general calculation of the weighted average interest rate determined. Suspension of capitalization: In the event the capital assets acquired or constructed in the course of production is interrupted for over a continue three months, it is required to suspend capitalization of borrowing such borrowing. And during the interruption the borrowing is recognized as costs, reckoned in the current gains and losses till restarting of production. If the interruption is for purchased or produced in line with the conditions of the capital assets or sale of state can be the necessary procedures, or capitalization of borrowing costs, it is required to keep capitalization process of such borrowing. Employee Emolument Employee Emolument include various forms of compensation, salaries, bonuses, allowances, subsidies and trade unions benefit costs, employee benefits , medical insurance for employees, aged insurance, unemployment insurance, work-related injury insurance, maternity insurance, and other social insurance and housing accumulation fund, etc., in the accounting period. In the labor contract expires before the lifting of the trade unions and labor relations, or to encourage the workers to accept cuts to voluntary compensation 52 recommendation (to dissolve labor relations plan or proposed cuts to be implemented, and the enterprises can not unilaterally withdraw), the companies confirmed The resulting projected liabilities, included in expense in the current period. Revenue Recognition Principle Company has products, commodities, the main ownership of the risks and rewards transfer to the buyer, the company no longer the products, commodities, the right to continue to manage the implementation and practical control of the related revenue has been received or receivable has been made effective documentation, and with sales of the product, commodity-related costs can be measured reliably, recognized the achievement of sales revenue. Work completion percentage is adopted for income by providing labor services in the following conditions: If the income amount can be reckoned clearly； if transaction related economic interests can be flown in; If transaction completion in progress can be determined reliably. In the event that costs in transaction process or in the future can be measured reliably；and if results of transactions of labor service providing can no be measured reliably and labor costs occurred can be compensated, revenue is recognized according to labor costs already occurred. If labor cost occurred can not be fully compensated, the amount recognized for labor cost is base on the amount that can be recognized. In the event that no labor cost can be compensated fully, no revenue is recognized. Revenue gained by providing others company's assets may be recognized if it meets the conditions as follows: income related to transaction can be flown into the company; the amount of revenue can be measured reliably. As for the revenue gained by providing company’s assets shall be reckoned under relevant provisions in contract. Government Subvention Government subvention shall be confirmed under conditions as follows：Meeting the requirements for receiving that government subsidy. In case of government subsidies of monetary assets, value it in according to the amount received or receivable. As for government subsidies of non-monetary assets, value it based on fair value. If faire value is unavailable, according to nominal amount. Government subsidies related to assets shall be recognized as deferred income, which shall be averagely distributed within the life-span of such assets, and are reckoned into current gains and losses. Government subsidies related to income for compensate later related costs or loss shall be recognized as deferred income and shall be reckoned, after during related cost recognizing, into current gains and losses. Accounting Methods on Income Tax Balance sheet debt accounting is adopted for income tax. On the date that the balance sheet is made, the company recognizes, according to results of deductible temporary differences and income tax rate, deferred income tax assets and corresponding deferred income tax income, and deferred income tax liabilities and its corresponding deferred income tax expense. Profit Distribution Method Under the corporate by-law, corporate profits distribution shall be carried out in order as follows: 53 —Make up losses in the previous year; —Extracting 10 percent statutory provident funds and the extraction can not be continued no longer when accumulated amount reaches 50% registered capital; —Extraction of optional accumulation fund can be carried out as of being approved by General Assembly; —The remained profit can be distributed as of being approved by General Assembly; Preparation Method for Consolidated Financial Statements Company takes all subsidiaries and branches into the consolidated range. The consolidated financial statements include the financial statements of parent company and individual financial statements of each subsidiary and other relevant information. Any investment and internal exchange among parent company and its subsidiaries, affiliates, shall be consolidated one by one, after all internal transaction are neutralized. In the event accounting policies adopted in the subsidiaries are different from the parent companies, merging shall be carried out under the accounting policies of the parent company after adjustment which shall under the standard of the parent company. Changes of Accounting Policies The company before December 31, 2006, implements the former accounting standards and Enterprise Accounting Act, since January 1, 2007 the company implement the new Accounting Act enacted by the Ministry of Finance on February 15, 2006. In the preparation of the company financial statements, the company confirms the opening balance of balance sheet on January 1, 2007, under the Notice on the Improvement of the Information Disclosure Related to the New Accounting Guidelines and System by Those Listed Companies and Companies Which Plan to Make Initial Public Offering of Stocks and to Be Listed (SS-136-2006),and China Securities Regulatory Commission, Compilation Rules for Information Disclosures by Companies That Offer Securities to the Public (No. 7): Preparation and Fincianl and Accounting Information Disclose during Transition Period of Old and New Accounting Acts (SFC-10-2007 ). In accordance with relevant provisions in the No.38 of Company Accounting Regulation, retroactive adjustment is used for financial statement in 2008. The major changes of accounting policies are listed below: —Parent company The original parent company of subjects in short-term investments in the stock accounting and fund investments classified as trading of financial assets, its former accounting method used by the lower of cost and market value changes for the measurement at fair value and changes included in its current profit and loss. That change in accounting policy retroactive adjustment of the results for the parent company by the parent company in the short-term investments accounting subjects shares and fund investments classified as trading of financial assets, its former accounting method used by the lower of cost and market value changes for at fair Value Measurement and changes included in its current profit and loss. change in the accounting policy retroactive adjustment of the results for the parent company by January 1, 2007 retained earnings 32,314,063.48 yuan, by the parent company for the year 2006 net profit 32,314,063.48 yuan. since ending retirement proceeds 32,314,063.48 yuan, by the parent company for the year 2006 net profit 32,314,063.48 yuan. since ended December 31, 2005 related transactions of financial assets has been on the decline in fair value Provision for losses, the change in accounting policy for the parent company in 2006 a few did not have an impact early. Former parent company income tax accounting method used to cope with the tax changes in accordance with 54 Accounting Standards for Business Enterprises No. 18 - income tax provisions adopted balance sheet debt accounting method, the change in accounting policy retroactive adjustment of the results for the parent company by 2007 January 1 retained earnings 6,386,891.10 yuan, the parent company to reduce 2006 net profit 3,476,867.81 yuan, the parent company transferred by the beginning of 2006 retained earnings 9,863,758.91 yuan. retained earnings 6,386,891.10 yuan, the parent company to reduce 2006 net profit 3,476,867.81 yuan, stressed by the parent company in early 2006 retained earnings 9,863,758.91 yuan. According to relevant provisions in Accounting Standard for Business Enterprises No. 1, issued by the Ministry of Finance, the parent company, for the first time, has previously held by the subsidiary of long-term equity investment is regarded as the subsidiary is the first since the introduction of cost accounting method, In the first implementation date for retroactive adjustment. parent company of the original confirmed by the equity method loss adjustment and equity investment for a retroactive adjustment, including: reduction of the parent company profit and loss adjustment project on January 1, 2007 retained earnings 4,668,647.22, lowered The 2006 net profit 3,79,641.84 yuan, a reduction in early 2006 retained earnings 4,289,005.38 yuan; parent company's equity investment projects to reduce retained earnings 4,668,647.22 respectively, a reduction in 2006 net profit 379,641.84 yuan, a reduction in early 2006 retained earnings 4,289,005.38 element; stake in the parent company to reduce investment projects were on January 1, 2007 long-term equity investment and capital surplus 4514.43 yuan, January 1, 2006 long-term equity investment and capital surplus 3,875.51 yuan. Comparison of the parent company 2007 annual financial statements of the related projects have been adjusted according to the figures from January to December /, the change in accounting policy, the increases 28,457,553.83 yuan net profit for 2006, the increases in early 2006 retained earnings 5,574,753.53 yuan, which retained profits tune by the 5,359,078.97 yuan, reserve increases the 215,674.56 yuan. respectively, and reduction of the parent company 2007 annual comparison of the financial statements of the related projects have been adjusted according to the figures from January to December, January 1, 2006 long-term equity investment and capital surplus 3,875.51 yuan. —Consolidated Financial Statements Stock accounted for the short-term investments and capital investment are classified to be trading financial assets, the accounting method is changed form the former method based on comparison between costs and market price to fair value measurement reckoned into current gains and losses. The results of change of accounting policy on January 1, 2007 retained earnings 32,734,153.02 yuan, annual increases in 2006 net profit 32,734,153.02 yuan related transactions of financial assets at fair value provision has been a decline in preparation for the change in accounting policy is the beginning of 2006 did not have an impact. Corporate income tax revenue to meet the original use of accounting change in accordance with "Accounting Standards for Business Enterprises No. 18 - income tax" provisions adopted balance sheet debt accounting method, the change in accounting policy for the retroactive adjustment by the results of the firm's January 1, 2007 reducing the 2006 annual net profit 3,632,986.04 yuan, the increases in early 2006 retained earnings 9,948,078.66 yuan. Comparing related items in the 2007 annual financial statements (consolidated statements), the adjusted numerals has been listed into the statements. As the accounting policy changed, the net profit in 2007 has been adjusted to 29,101,166.98 yuan, and retained earnings in early 2006 has been adjusted to 9,948,078.66 yuan, the inappropriate profit adjusted to be 9,732,404.10 yuan, and the surplus reserves is adjusted to be 215,674.56 yuan. 55 —In addition, under relevant provisions in Corporate Accounting Regulations: Presentation of Financial Statements, the company carried out an re-classification for short-term investments, payablewelfarisms, other contributions, fixed assets, withholding expenses, other profits and other business management costs, etc., after an analysis, into trading financial assets, payable employee wages, due taxes, intangible assets and other payments, operating income, operating costs and asset impairment losses and so on. 5. Major Taxes VAT VAT of ales is 17% total sales income, according to the reference input tax deduction to allow deductions for the payment of the difference between the company export approval of the taxation departments since January 1, 2002 under the policy of tax exemption, crediting and return Business Income Tax The company was approved to be a high-tech company by the Office of Science and Technology of Guangdong Province in 2001, and under relevant provisions issued by local Guangdong Government (Yuefu letter N0.410-2001), the company is under preferential income tax policy, so the taxable Income tax rate shall be 15 per cent income. The subsidiaries of the company including Foshan Chanchang Electric Appliance (Gaoming) Co., Ltd., Foshan Lighting Times Ltd., Foshan Chansheng Electronic Ballast Co., Ltd., are all foreign invested companies, so they are under preferential policy of income tax, of which, Foshan Chanchang Electric Appliance (Gaoming) Co., Ltd. Gained no profit in 2007, Foshan Taimei Times Lamps and Lanterns Co., Ltd. and Foshan Chansheng Electronic Ballast Co., Ltd.was free of income tax for the first year; Foshan Chansheng Electronic Ballast., since 2004, paid no income tax and a half in 2007. 56 6. Subsidiaries —Subsidiaries controlled since December 31, 2007 listed as follows: Invested amount Invested Registered Capital Founding Place of by the company Rights Corporate (ten thousand date registration ( ten thousand owned representati Company name yuan) yuan ) Foshan Chanchang Lighting 1989 Foshan USD180 USD72 40% Zhong Xinc Components Co., Ltd. Foshan Chansheng Electronic Ballast 2003 Foshan RMB100 RMB75 75% Zhong Xinc Co., Ltd. Foshan Modern Lighting Co., Ltd. 2004 Foshan RMB500 RMB450 90% Qu Muben Foshan Chanchang 2005 RMB6000 RMB4200 70% Foshan Zhong Xinc Electric Appliance 57 (Gaoming) Co., Ltd. Foshan Taimei Times Lamps and Lanterns Co., Ltd. 2005 Foshan RMB50 RMB35 70% Qu Muben Foshan Gaoming Fuwan Landscape Resort Co., Ltd. 2006 RMB480 RMB480 100% Foshan Zhong Xinc —Foshan Chanchang Lighting Components Co., Ltd. was founded in 1989, and the company holds 40% of its sh agreement between the company and Foshan Chanchang, the company owns the rights of essential holding. So financial statements. In accordance with the resolutions of board of directors of Foshan Chanchang, the company and the benefits gained this year shall be distributed on the basis of ratio of contributions; — Foshan Chanchang Electric Appliance (Gaoming) Co., Ltd. Is a sino-foreign joint ventures invested by the Components Co., Ltd, approved by Foreign Trade and Economic Cooperation Bureau of Gaoming District, Fosha And the company holds 70% shares and it has been taken to be consolidated financial statements since its fou business since 2006. 58 —Foshan Taimei Times Lamps and Lanterns Co., Ltd. (the former name of FSL Times Lamps and Lanterns Co company and Rebecca North American Investment Inc, a sino-foreign joint ventures, approved by Foreign Trade Gaoming District, Foshan (No. 97-2005) on December 5, 2005, obtained its business license. And the compan taken to be consolidated financial statements since its founding. The company started running business since 200 —Foshan Gaoming Fuwan Landscape Resort Co., Ltd. was invested by the company and it was founded on Nove license, And the company holds 70% shares and it has been taken to be consolidated financial statements sinc running business since December 20, 2006. —Minority Equity and Profit and Loss of Holding Subsidiaries 2007 Company Name Minority equity Minority profit and Minority loss Foshan Chanchang Lighting Components Co., Ltd. 9,640,347.81 2,785,579.40 6 Foshan Chansheng Electronic Ballast Co., Ltd. 1,234,782.78 713,635.61 FSL Modern Lamps and Lanterns Co., Ltd. 622,848.98 3,783.79 Foshan Chanchang Electric Appliance ( Gaoming) Co., Ltd. 17,927,338.35 -48,090.80 17 Foshan Taimei Times Lamps and Lanterns Co., Ltd. 1,785,760.95 1,723,520.02 Foshan Gaoming Fuwan Landscape Resort Co., Ltd.. - - Total 31,211,078.87 5,178,428.02 26 7. Notes for Major Items of Consolidated Financial Statements 1. Monetary Funds 59 End Amount Ope Item Original currency The Original currency amount Exchange rate Equivalent of RMB amount E Cash 39,574.38 Bank deposits —RMB Account 1,044,819,785.45 —Dollar Account USD6,504,882.01 7.3046 47,515,561.12 USD2,896,108.28 －Euro Account EUR524,014.63 10.6669 5,589,611.66 Other currency funds 113,852.50 Total 1,098,078,385.11 —All bank deposits are in the name of the company or the subsidiaries which are within the scope of consolidated —Other currency funds are deposited in the company's Securities Division as investment. 2. Trading Financial Assets Item End Amount Stock Investment - Fund Investment 107,217,672.71 Total 107,217,672.71 —Ending the investments of the Fund is as follows: 60 Item proportion of investment Investment costs End market price Less than 5% Fund 53,100,000.00 107,217,6 Total 53,100,000.00 107,217,6 3. Notes receivable Item End Amount Bank acceptance bill 34,960,577.14 Trade acceptance draft - Total 34,960,577.14 —Up till December 31, 2007, there are no trade acceptance receivable, undue bills discounted. —Closing balance of notes receivable is added to 23,645,622.74 yuan. Comparing the beginning balance the rate is mostly generated by the growth of product sales volume. —There is no payment of a shareholder who holds over 5% (including 5%) of the company shares in closing bala 61 4. Accounts Receivable Ending amount Proportion of Items Aging Provision for Amount Proportion (%) Amount P bad debts withdrawal Receivables of significant Within 1 year 76,547,074.24 33.70% 6% 39,058,779.56 amounts 4,592,824.45 Receivables of insignificant amounts but whose combinations according to Within 1 year - - - 6% - characteristics of credit risks are of bigger risks Within 1 year 145,898,818.05 64.24% 8,774,534.60 6% 80,541,547.13 1-2 years 1,754,382.41 0.77% 72,381.42 6% 6,171,180.55 Other insignificant receivables 2-3 years 2,634,168.17 1.16% 158,050.09 6% 932,280.52 Above 3 299,168.86 0.13% 17,950.13 6% 700,259.54 years Total 227,133,611.73 100.00% 13,615,740.69 127,404,047.30 - The total amount of arrearages of the first five units in the closing balance of receivables is 76,547,074.24 accounts receivable balance. - The closing balance of accounts receivable increased by 99,729,564.43 Yuan over the opening balance with mainly caused increase of unsettled payment within the closing credit period as the sales of the company increas -See Note 9 for dues from shareholders holding more than 5% (including 5%) of the company’s stock in the closin 62 5. Prepayments Ending amount Be Aging Amount Proportion (%) Amount Within 1 year 6,227,415.52 47.83 16,265,33 1-2 years 328,418.19 2.52 2-3 years - 8,670,32 Above 3 years 6,464,958.00 49.65 Total 13,020,791.71 100.00 24,935,66 -Amount of Items with an age of more than 3 years in the closing balance of prepayments is 6,464,958.00 Yuan. T by the company according to contracts for long-term supply to obtain price preference from suppliers. -There is no prepayment to shareholders holding more than 5% (including 5%) of the company’s stock in the clos 6. Other Accounts Receivable Ending amount Beginning amount Items Aging Provision for Proportion of Amount Proportion (%) Amount Proporti bad debts withdrawal Other receivables of significant amounts Within 1 37,870,304.33 84.47% 2,272,218.26 6% 36,997,051.80 year Other receivables of insignificant amounts but whose combinations Within 1 according to - - - 6% - year characteristics of credit risks are of bigger risks Other insignificant Within 1 5,531,860.30 12.34% 316,761.05 6% 2,439,406.33 other receivables year 1-2 years 327,743.62 0.73% 19,664.62 6% 356,293.34 63 2-3 years 277,977.70 0.62% 16,678.66 6% 1,107,250.00 Above 3 823,194.83 1.84% 49,391.69 6% 451,845.41 years Total 44,831,080.78 100.00% 2,674,714.28 41,351,846.88 1 - The total amount of arrearages of the first five units in the closing balance of other receivables is 37,870,304.3 other accounts receivable balance. -There is no due from shareholders holding more than 5% (including 5%) of the company’s stock in the closing ba 7. Inventory Ending amount Beginning amoun Items Provision for obsolete Amount Amount stocks Raw material 59,327,200.23 - 42,0 Good in process 54,076,660.34 - 49,5 Outside processing materials 25,233,538.16 - 17,9 Finished goods 108,722,778.44 - 71,8 Self-manufactured semi-finished products - 39,48 34,883,234.41 Low value consumables - 1,118,484.78 1,56 Total 283,361,896.36 - 222,39 -As of December 31, 2007, there is no withdrawal of inventory falling price reserves for the company’s inventory. 64 8. Financial Assets Available for Sale Decrease for Beginning Increase for the current Investment Investee the current Ending amount amount period proportion period Bank of Communications - 511,206,158.54 - 511,206,158.54 Below 5% Total - 511,206,158.54 - 511,206,158.54 -On May 25, 2007, Bank of Communications was listed at the Shanghai Securities Exchange. Shares worth 32,7 Bank of Communications are restricted tradable shares. The trade period is one year and expires on Decemb 511,206,158.54 Yuan; change of the fair value is 449,424,956.54 Yuan. After recording the deferred income tax liabili relevant regulations, the company included the difference of 337,068,717.40 Yuan into capital reserves. 9. Long-term Investment Beginning amount E Increase for the current Decrease for the current Items Depreciation Amount period period reserve Stock investment 73,631,202.00 5,850,000.00 - 61,781,202.00 Other long-term investments 70,223,326.04 - - 1,000,000.00 6 Total 143,854,528.04 5,850,000.00 - 62,781,202.00 8 65 Details of various types of long-term equity investments are as follows: —Stock investment Percentage of the Share Amount of Investees Share amount investee’s Closing m character investment registered capital Shenzhen Zhonghao Corporation (Group) Co., Ltd. 650,000 Below 5% 5,850,000.00 share Chengdu Hongbo Corporation Industrial Co., Ltd. 5,000,000 6.94% 6,000,000.00 share Total 11,850,000.00 - Shenzhen Zhonghao (Group) Co., Ltd is insolvent, so the total depreciation reserve is withdrawn from this investment -Decrease for the current period is formed due to transfer of the shares of Bank of Communications in posse available for sale. -Other equity investments Percentage of the Term of Beginning Increase for the current Investees investee’s registered investment amount period /decrease capital Foshan branch of Guangdong Development 500,000.00 Below 5% - Bank Foshan Fochen Road Development Company 15,175,627.38 7.66% -1,000,000.00 Limited China Everbright Bank 30,828,816.00 0.29% - Guangzhou Zhujiang Asset Management Company 10,000,000.00 15.38% - Limited Shenzhen Liangke Venture 50 years 13,718,882.66 18.50% - Capital Company Limited Total 70,223,326.04 7.66% -1,000,000.00 - Revenue of the investee Foshan Fochen Road Development Company Limited has been included into the 66 system of Foshan city. The company used this investment balance as the right of earnings to be amortized ove time. 1,000,000.00 Yuan of investment cost was amortized over the current period. 10. Fixed Assets and Accumulated Depreciation Increase for the current Decrease for the curr Items Beginning amount period period Original value of fixed assets Buildings 387,965,579.76 115,718,400.96 896,87 Machinery equipments 957,097,889.04 95,776,701.19 71,931,87 Transport equipment 12,919,206.93 740,473.54 373,15 Other equipment 8,129,034.35 9,095,881.18 978,13 Total 1,366,111,710.08 221,331,456.87 74,180,04 Accumulated depreciation: Buildings 159,138,305.78 22,319,579.94 490,78 Machinery 502,218,106.07 106,700,298.96 70,223,96 Transport equipment 7,161,196.50 1,243,685.12 316,67 Other equipment 5,830,757.51 1,730,783.72 503,56 Total 674,348,365.86 131,994,347.74 71,534,98 Net value 691,763,344.22 - Increase for the current period of fixed assets is mainly caused by buildings purchased by the company and completion of installation and debugging of equipment including T5, T8 and production line of halogen lights w 67 —Condition of fixed asset depreciation reserves is as follows: Increase for the current Fixed assets Beginning amount Current write-of period Buildings - - - Machinery equipments 2,046,755.03 - 3,1 Transport equipments - - Total 2,046,755.03 - 3,1 - The company carried out calculation and withdrawal of fixed asset depreciation reserves for some machin technological requirement and may cause losses in the previous year. The company disposed unusable fixed as Yuan of depreciation reserve withdrawn for these fixed assets. 68 11. Projects Under Construction Amount of fixed assets transferred Projects Beginning amount Current increase Other decrease during the current period 13,355,227.44 25,359,854.70 26,222,672.80 T4,T8,halogen light production line 53,380.00 21,605,422.14 13,168,802.14 T5 Fluorescent light production line Staff dormitory and power project of the 22,127,432.26 12,372,403.02 27,666,050.59 Fugang Industrial Park Bulb-blowing machines and feeder machines of Fugang Industrial Park of 2,255,462.77 101,134.85 1,415,797.62 Gaoming District Gas holder station of the Fugang Lighting 2,871,650.86 53,863.00 2,925,513.86 Industrial Park Energy-saving lamp factory buildings of the 12,427,317.08 2,502.10 12,429,819.18 Fugang Lighting Industrial Park Glass factory buildings 8 and 9 of the 16,163,377.09 70,920.20 16,234,297.29 Fugang Lighting Industrial Park Standard workshop A of the Fugang Lighting 13,000,613.37 12,060.00 13,012,673.37 Industrial Park Semi-finished product workshop of the 4,236,957.97 20,258.00 4,257,215.97 Fugang Lighting Industrial Park Lamp workshop of the Fugang Lighting 10,902,556.91 1,237,779.74 12,140,336.65 Industrial Park 69 Amount of fixed assets transferred Projects Beginning amount Current increase Other decrease during the current period 8# furnace of the Fugang Lighting Industrial Park 15,160,031.48 14,533,589.04 12,567,188.78 Blending center of the Fugang Lighting Industrial Park 3,304,580.92 330,282.20 3,634,863.12 Fugang Lighting Industrial Park 79,276,878.97 105,956.08 18,455,545.06 34,355,644. Fugang Restaurant and its supporting facilities - 9,044,403.52 7,313,503.72 79,800. Semi-finished lamp workshop, standard workshop 9,711,758.18 2,832,023.68 12,543,781.86 Others 16,792,059.80 30,512,960.80 25,134,494.34 2,973,189.6 Total 221,639,285.10 118,195,413.07 209,122,556.35 37,408,634.0 - “Other decreases” of projects under construction during the current period are mainly due to transfer of land w right to intangible assets. -None of the items of projects under construction has any interest to be capitalized and exchange gain or loss. -As of December 31, 2007, the company never had the need to calculate and withdraw the depreciation reserve f 12. Intangible Assets Amount Amount Original Beginning Current Items transferred out for amortized for the Ending a amount amount increase the current period current period Land 163,532,830.5 114,533,050.9 32,219,993.27 - 2,831,437.86 143,921 70 use right Patent 200,000.00 143,333.22 - - 20,000.04 123, right Total 163,732,830.5 144,044 114,676,384.08 32,219,993.27 - 2,851,437.90 0 -As of December 31, 2007, the company never had the need to calculate and withdraw the depreciation reserve f 71 13. Long-term Deferred and Unpaid Expenses Increase for Amount Original Beginning T Items the current amortized for the Ending amount amount amount a period current period Rent 4,167,435.60 1,150.177.34 - 796,585.92 353,591.42 6 Others 169,704.20 - 169,704.20 40,764.22 128,939.98 1 Total 4,337,139.80 1,150.177.34 169,704.20 837,350.14 482,531.40 14. Deferred Income Tax Assets and Deferred Income Tax Liabilities Items Ending amount Beginning a Deferred income tax assets - Deferred income tax liabilities 101,817,363.93 - The company calculates deferred income tax assets and deferred income tax liabilities according Standards for Enterprises-Income Tax and based on temporary differences. 15. Accounts Payable - The closing balance of accounts payable is 124,861,341.59 Yuan. The amount of items with an age of more than is mainly resulted from the uncertainty as to whether some payments for materials shall be made. - See Note 9 for dues from shareholders holding more than 5% (including 5%) of the company’s stock in the closi 16. Deposits Received - The closing balance of deposits received is 9,085,272.37 Yuan. The amount of items with an age of more than 1 formed mainly due to that the company adopted the mode of sale of receiving payment first and making delivery customers in time after settlement of accounts. - There is no deposit received from shareholders holding more than 5% (including 5%) of the company’s stoc received. 72 17. Emoluments Payable to Staff Increase for the Expense paid for the Items Beginning amount current period current period Salary, bonus and allowance 7,812,963.37 183,751,507.14 182,795,669.14 Welfare expense 17,468,477.09 2,287,185.48 19,755,662.57 Equities incentive 60,358,422.56 10,000,000.00 672,545.03 Labor union expenditure - 668,807.61 668,807.61 Social insurance charges 7,966,543.82 8,083,585.47 14,039,909.48 Total 93,606,406.84 204,791,085.70 217,932,593.83 -The company has no default on emoluments payable to staff. 18. Taxes Payable Taxes Ending amount Beginning amount Enterprise income tax 26,500,254.20 18,095,187.12 Value-added tax 2,406,937.96 3,851,253.74 Other taxes 3,715,371.98 3,177,550.70 Total 32,622,564.14 25,123,991.56 19. Other Payables -The closing balance of other payables is 25,220,137.55 Yuan. The amount of items with an age of more than 3 y mainly the security deposit paid by suppliers. - There is no item payable to shareholders holding more than 5% (including 5%) of the company’s stock in the clo 73 20. Capital Stock Beginning amount Increase/decrease for the current period Increase from Items Restriction on conversion of Amount Proportion % the listing of Subtota accumulated tradable shares funds Ⅰ.Restricted share 1. shares held by domestic legal persons 42,990,750 11.99% 3,596,291 -42,159,946 -38,563,6 2. Shares held by foreign legal persons 85,922,100 23.97% 20,399,906 -17,922,412 2,477,4 Shares held by domestic natural persons - - 209,028 624,708 833,7 Sum of restricted shares 128,912,850 35.96% 24,205,225 -59,457,650 -35,252,4 Ⅱ. Non-restricted share 1. RMB common shares 147,035,409 41.02% 58,579,253 59,457,650 118,036,9 2. Domestic listed foreign shares 82,500,000 23.02% 24,750,000 - 24,750,0 Sum of non-restricted shares 229,535,409 64.04% 83,329,253 59,457,650 142,786,9 Ⅲ.Sum of shares 358,448,259 100.00% 107,534,478 - 107,534,4 - The 2006 shareholders conference passed with a resolution that capital reserves shall be converted to capital s 358,448,259 and by the proportion of 3 shares added for every 10 shares. 74 21. Capital Reserves Decrease fo Items Beginning amount Increase for the current period current pe Stock premium 1,199,683,038.53 - 107,534, Stock right investment reserves 4,514.43 - Change of the fair value 337,068,717.40 Other capital reserves 7,403,887.57 - Total 1,207,091,440.53 337,068,717.40 107,534, - Decrease of stock premium for the current period is caused by the conversion of 107,534,478.00 Yuan of capital the 2006 shareholders conference. -Increase of the change of the fair value is formed due to the inclusion of the change of the fair value of the fin company, shares of the Bank of Communications, to this account after the deduction of the income tax. 22. Surplus Reserves Increase for the current Decrease for the cu Items Beginning amount period period Legal earned surplus reserve 371,440,759.66 - Free surplus reserve 115,945,863.97 20,940,704.39 Total 487,386,623.63 20,940,704.39 - Increase of surplus reserves for the current period is formed due to the company’s intention to withdraw free s profit of 418,814,087.85 Yuan of 2007; the company’s balance of legal earned surplus reserve has reached 50% o and withdrawal is made for the current period. 75 23. Undistributed Profits Items Amount for the current period Amount for the previous period Net profit 423,797,425.54 266,574,081.57 Plus: undistributed profit at the beginning of the year 352,684,773.51 275,046,862.27 Less: withdrawn legal earned surplus reserve - - Withdrawn legal earned surplus reserve 20,940,704.39 13,296,523.42 Withdrawn free surplus reserve 179,224,129.50 175,639,646.91 Cash dividends or earnings payable 576,317,365.16 352,747,836.63 Undistributed profit 272,599,901.15 179,224,129.50 Dividend payable in cash for the year 2006 was formed in accordance with the resolutions of the Shareholders’ Gene distributed dividend of RMB 5.00 (tax included) in cash for every 10 shares to all shareholders based on the total share capit 31 Dec. 2006, totaling cash of RMB 179,224,129.50. In accordance with the draft proposal on profit distribution for 2007 which was passed at the Board meeting on 17 Apr. 200 dividend of RMB 5.85 (tax included) in cash for every 10 shares based on the total share capital amounting to 465,982,737 sh 272,599,901.15 (tax included). The said draft proposal on profit distribution would be submitted to the Shareholders’ General 24. Operating Revenue and Costs -Classification of operating revenue and costs is as follows: Amount for the current period Amoun Items Revenue Costs Revenue Primary business 1,461,097,115.67 1,158,494,725.99 1,229,57 Other business 34,975,563.87 31,034,327.62 23,34 76 Total 1,496,072,679.54 1,189,529,053.61 1,252,92 - The total amount of sales revenue from the first five customers of the company is 297,153,319.12 Yuan during th % of the total sales revenue of the company. - Breakdown of the revenue of the primary business is as follows: Sub-items Amount for the current period A Domestic sales 908,419,034.85 Export sales 552,678,080.82 Total 1,461,097,115.67 - Revenue from other business increased by 11,630,686.56Yuan compared with the amount for the previous perio This is mainly caused by the increase in sales revenue of materials during the current period. 25. Tax and Associate Charge Items Amount for the current period A Urban maintenance and construction tax 6,586,331.21 Surcharges for education 2,823,912.14 Sales tax 822,985.43 Total 10,233,228.78 26, Operating Expenses 26. Operating expenses increased by 26,607,702.85 Yuan compared with the amount for the previous period wit is mainly caused by the substantial increase in marketing expenses including the transport charges, advertising cost of labor as the company expands the sales market. 77 27. Financial Expenses Items Amount for the current period Am Interest expense Less: interest return 6,918,791.31 Exchange loss 8,720,438.48 Less: exchange gain - Others 1,331,641.99 Total 3,133,289.16 - Financial expenses increased by 5,951,543.47 Yuan compare with the amount for the previous period with a r mainly caused by the increase in foreign exchange losses of the current period. 28. Asset Impairment Losses Items Amount for the current period Am Loss on bad debts 7,213,722.54 Loss on inventory valuation - Loss on investment depreciation - Loss on impairment of fixed assets - Loss on impairment of construction in progress - Loss on impairment of other intangible assets - Loss on impairment of other assets - Total 7,213,722.54 78 29. Profits and Losses on the Changes in Fair Value Items Amount for the current period A Income on changes of fair value of transaction monetary assets 20,753,385.38 30. Investment Income Items Amount for the current period A Return on stock and capital investment 328,548,994.44 Return on bond investment - Profits distributed from affiliated or joint venture corporations 2,000,000.00 Amortized investment cost of Foshan Road Development Company Limited -1,000,000.00 Total 329,548,994.44 - Investment income increased by 256,538,619.04 Yuan compared with the amount for the previous period with a mainly caused by the substantial increase in income obtained from stock investment and capital investment made 31. Non-business Income Items Amount for the current period Government allowance - Payables that need not be paid 7,987,055.15 Net income on disposal of fixed assets 208,107.85 Others 148,923.74 Total 8,344,086.74 -Non-business income increased by 7,699,412.12 Yuan compared with the amount for the previous period with a is mainly caused by the disposal of payables that need not be paid during the current period. 79 32. Non-business Expenditure Items Amount for the current period Am Loss on disposal of fixed assets 1,730,609.67 Others 437,802.44 Total 2,168,412.11 33. Income Tax Expense Items Amount for the current period Am Income tax payable for the current period 76,938,913.50 Deferred income tax income -4,424,301.24 Income tax expense for the current period 72,514,612.26 34, Earnings Per Share Items Amount for the current period Basic earnings per share 0.91 Diluted earnings per share 0.91 - The above earnings per share are calculated according to the Rules for the Compilation of Information Discl Securities to the Public No.9-Computation and Disclosure of Rate of Return on Common Stockholders’ Equity (rev of the computation process. - 35. Cash Receipts from Other Business Activities Cash receipts from other business activities in 2007 are Yuan. Main items are as follows: Items Amount 80 Interest return Security deposit 36. Cash Payments for Other Business Activities Cash payments for other business activities in 2007 are Yuan. Main items are as follows: Items Transport charges Advertising and general publicity expense Sales commission Testing expense 37. Additional Information on the Cash Flow Statement Additional information 2007 1. reconciliation from net income to cash flow from operations: Net profits 428,975,8 Plus: assets depreciation reserve 7,213,7 Depreciation of fixed assets 131,994,3 Amortization of intangible assets 2,851,4 Amortization of long-term prepaid expenses 837,3 Loss on disposal of fixed assets, intangible assets and other long-term 1,522,5 assets (less: income) Loss on retirement of fixed assets 81 Additional information 2007 Loss on changes of fair value -20,753,3 Financial expense 8,720,4 Investment loss (less: income) -329,548,9 Deferred tax credit (less: debit items) -4,424,3 Decrease in inventories (less: increase) -60,966,0 Decrease in operating receivables (less: increase) -128,956,1 Increase in operating payables (less: decrease) 14,257,7 Others Net cash flows from operating activities 51,724,5 2. Net increase in cash and cash equivalents: Closing cash balance 1,098,078,3 Less: opening cash balance 986,916,3 Closing balance of cash equivalents Less: opening balance of cash equivalents Net increase in cash and cash equivalents 111,162,0 82 Ⅷ. Notes to Main Items of the Financial Statement of the Parent Company 1. Accounts Receivable Ending amount Beginning Items Aging Proportion Provision for Amount Proportion (%) of Amount bad debts withdrawal Receivables of significant amounts Within 1 year 76,547,074.24 34.50% 4,592,824.45 6% 39,058,779.5 Receivables of insignificant amounts but whose combinations Within 1 year - - - 6% according to characteristics of credit risks are of bigger risks Within 1 year 141,409,754.68 63.73% 8,356,208.99 6% 82,634,489.1 1-2 years 982,543.16 0.44% 58,952.59 6% 3,473,371.2 Other insignificant receivables 2,634,168.17 2-3 years 1.19% 158,050.09 6% 932,280.5 299,168.86 Above 3 years 0.13% 17,950.13 6% 700,259.5 Total 221,872,709.11 100.00% 13,183,986.25 126,799,180.0 - The total amount of arrearages of the first five units in the closing balance of receivables is 76,547,074.24 receivable balance. - The closing balance of accounts receivable increased by 95,073,529.09 Yuan over the opening balance with mainly caused increase of unsettled payment within the closing credit period as the sales of the company increas - See Note 9 for dues from shareholders holding more than 5% (including 5%) of the company’s stock in the closi 83 2. Other Accounts Receivable Ending amount Beginning am Items Aging Provision Provision for Amount Proportion (%) for bad Amount bad debts debts Other receivables of Within 1 59,143,770.49 77.80% 2,190,000.00 6% 78,888,402.0 significant amounts year 1-2 years 7,011,478.64 9.22% - 6% 3,992,852.8 Other receivables of insignificant amounts but whose combinations Within 1 - - - 6% according to year characteristics of credit risks are of bigger risks Within 1 8,439,758.14 11.10% 373,410.94 6% 2,545,773.6 year Other insignificant other 1-2 years 327,743.62 0.43% 19,664.62 6% 356,293.3 receivables 2-3 years 277,977.70 0.37% 16,678.66 6% 1,107,250.0 Above 3 823,194.83 1.08% 49,391.69 6% 451,845.4 years Total 76,023,923.42 100.00% 2,649,145.91 87,342,417.2 - The total amount of arrearages of the first five units in the closing balance of other receivables is 66,155,249.13 the other accounts receivable balance. -There is no due from shareholders holding more than 5% (including 5%) of the company’s stock in the closing ba 3. Long-term Investment Beginning amount Ending Increase for the current Decrease for the current Items Depreciation Amount period period Amo reserve Stock investment 73,631,202.00 5,850,000.00 - 61,781,202.00 84 Other equity 125,953,715.88 investment - - 1,000,000.00 Total 199,584,917.88 5,850,000.00 - 62,781,202.00 —Stock investment Percentage of the Share Amount o Investees Share amount investee’s registered character investment capital Shenzhen Zhonghao (Group) Corporation 650,000 Below 5% 5,850,000.00 Company Limited share Chengdou Hongbo Industrial Corporation 5,000,000 6.94% 6,000,000.00 Company Limited share Total 11,850,000.00 —Other equity investments Percentage of the Term of Increase/decr Investees Beginning amount investee’s registered investment for the peri capital Foshan branch of Guangdong Development Bank 500,000.00 Below 5% 15,175,627.3 Foshan Fochen Road Development Company Limited 8 7.66% -1,000,0 China Everbright Bank 30,828,816.00 0.29% Guangzhou Zhujiang Asset Management Company Limited 10,000,000.00 15.38% Shenzhen Liangke Venture Capital Company Limited 50 Years 13,718,882.66 18.50% Foshan Chanchang Lighting Components Co., Ltd. 3,330,389.84 40% Foshan Chansheng Electronic Ballast Co., Ltd. 10 Years 750,000.00 75% FSL Modern Lamps and Lanterns Co., Ltd. 4,500,000.00 90% Foshan Chanchang Electric Appliance (Gaoming) Co., Ltd. 42,000,000.00 70% 85 Percentage of the Term of Increase/decr Investees Beginning amount investee’s registered investment for the peri capital Foshan Taimei Times Lamps and Lanterns Co., Ltd. 350,000.00 70% Foshan Gaoming Fuwan Landscape Resort Co., Ltd. 4,800,000.00 100% Total 125,953,715.88 -1,000,0 4. Investment Income Items Amount for the current period Return on stock investment 322,232,337.89 Profits distributed from affiliated or joint venture corporations 2,745,829.48 Amortized investment cost of Foshan Road Development Company Limited -1,000,000.00 Total 323,978,167.37 - Investment income increased by 251,410,672.68 Yuan compared with the amount for the previous period with a mainly caused by the substantial increase in income obtained from stock investment and capital investment made Ⅸ.Related Parties and Related Party Transactions Related Party Relationships —Information about related parties with controlling relationships with the company ——Related parties with controlling relationships with the company are as follows: 86 Relationship Enterprises Registered address Primary business compa Production of Bromine tungsten lamp, special Foshan Chanchang Joint No. 15, Fenjiangbei light source products and accessory lighting Lighting Components corporation Road, Foshan City devices, domestic and overseas sale of Co., Ltd. facto contro products Production and operation of electronic ballasts, Foshan Chansheng No. 15, Fenjiangbei electronic transformers and electronic flip Subsid Electronic Ballast Co., Ltd. Road, Foshan City operators. Development, production and sale of lamps, FSL Modern Lamps and No. 15, Fenjiangbei household electrical appliances and their Subsid Lanterns Co., Ltd. Road, Foshan City accessories and other light source products. Foshan Chanchang Cangjiang Industrial Production and operation of lamps, electric light Electric Appliance Park, Gaoming source products and their accessories, relevant Subsid (Gaoming) Co., Ltd. District, Foshan City installation and consulting services Foshan Taimei Times Cangjiang Industrial Development, production and sale of lamps, Lamps and Lanterns Co., Park, Gaoming household electrical appliances and their Subsid Ltd. District, Foshan City accessories and other light source products Side of the Foshan Gaoming Fuwan Hengjiang Reservoir, Organizing (tourism, catering, saunas, games, Landscape Resort Co., Hefu Road, Hecheng retail sale of wines and drinks, water sports and Subsid Ltd. Street, Gaoming chess and card games) District, Foshan City ——Registered capital of related parties with controlling relationships with the company and its change Enterprises Beginning amount Increase for the period Foshan Chanchang Lighting Components Co., Ltd. USD1,800,000.00 - Foshan Chansheng Electronic Ballast Company Limited RMB1,000,000.00 - FSL Modern Lamps and Lanterns Co., Ltd. RMB 5,000,000.00 - Foshan Chanchang Electric Appliance (Gaoming) Co., Ltd. RMB60,000,000.00 - Foshan Taimei Times Lamps and Lanterns Co., Ltd. RMB500,000.00 - Foshan Gaoming Fuwan Landscape Resort Co., Ltd. RMB4,800,000.00 - ——Stock or equity held by related parties with controlling relationship the company and its change 87 Increase for Decreas Enterprises Beginning amount Proportion the current curren period Foshan Chanchang Lighting Components Co., USD720,000.00 40% - Ltd. Foshan Chansheng Electronic Ballast Company RMB750,000.00 75% - Limited FSL Modern Lamps and Lanterns Co., Ltd. RMB4,500,000.00 90% - Foshan Chanchang Electric Appliance RMB42,000,000.00 70% - (Gaoming) Co., Ltd. Foshan Taimei Times Lamps and Lanterns Co., RMB350,000.00 70% - Ltd. Foshan Gaoming Fuwan Landscape Resort RMB4,800,000.00 100% - Co., Ltd. —Related parties without controlling relationship with the company Related parties Relationship with the company Prosperity (Hangzhou) Lighting and Electrical Co., Ltd. Controlled by the Vice Presiden Hangzhou Times Lighting and Electrical Co., Ltd. Controlled by the Vice Presiden Prosperity Electrical (China) Co., Ltd. Controlled by the Vice Presiden Prosperity Lamps Components Co., Ltd. Controlled by the Vice Presiden Prosperity (Nanjing) Lighting and Electrical Co., Ltd. Controlled by the Vice Presiden Prosperity (Xinxiang) Electro-Optical Machinery Co., Ltd. Controlled by the Vice Presiden OSRAM (China) Lighting Co., Ltd. Influenced by the Vice Presiden Related Transactions —Purchase of raw materials Enterprises Amount for the current period Amount for the 88 Amount Percentage of the Amount purchase for the current Prosperity Lamps Components Co., Ltd. 8,646,114.68 1.10% 11,848,749.42 Prosperity Electrical (China) Co., Ltd. 2,588,743.50 0.33% 904,509.74 Prosperity (Nanjing) Lighting and Electrical Co., Ltd. - - 5,133,556.41 OSRAM (China) Lighting Co., Ltd. 21,760.10 - 67,461.66 Prosperity (Xinxiang) Electro-Optical Machinery Co., Ltd. - - 18,880.85 Prosperity (Foshan) Machinery Equipment Co., Ltd. - - 226,501.56 Hangzhou Times Lighting and Electrical Co., Ltd. 9,500.00 - - Total 11,266,118.20 1.43% 18,199,659.64 —Sale of products Amount for the current period Amount for the Enterprises Percentage of the sales for Amount Amount the current period Prosperity Lamps Components Co., Ltd. 80,531,722.80 5.74% 45,417,090.60 Prosperity (Hangzhou) Lighting and Electrical Co., Ltd. 4,259,598.08 0.30% 2,246,980.04 Hangzhou Times Lighting and Electrical Co., Ltd. - - 285,512.82 Prosperity Electrical (China) Co., Ltd. 6,367,522.21 0.45% 3,712,655.82 89 Prosperity (Nanjing) Lighting and Electrical Co., Ltd. 23,829.06 0.00% 1,371,972.78 OSRAM (China) Lighting Co., Ltd. 60,025,684.97 4.27% 55,897,113.44 108,931,325.5 Total 151,208,357.11 10.76% 0 —Sale of materials Amount for the current period Amo Enterprises Percentage of the sales Amount Amount for the current period Prosperity (Nanjing) Lighting and Electrical Co., Ltd. 141,650.94 0.18% - Prosperity (Hangzhou) Lighting and Electrical Co., Ltd. 532,999.45 0.69% - Total 674,650.39 0.87% - 90 —Purchase of fixed assets Amount for the current period Amount for Enterprises Percentage of the Amount purchase for the current Amount period Prosperity (Xinxiang) Electro-Optical Machinery Co., 0.70% Ltd. 752,000.00 1,220,500.00 Prosperity (Foshan) Machinery Equipment Co., Ltd. - - 382,174.00 Prosperity (Nanjing) Lighting and Electrical Co., Ltd. - - Prosperity (Hangzhou) Lighting and Electrical Co., Ltd. - - 9,000,000.00 Total 752,000.00 0.70% 10,602,674.00 —Payment of commission charges to equipment import agents Amount for the current period Amount for the p Enterprises Percentage of cost of relevant Amount Amount equipment Prosperity Lamps Components Co., Ltd. 857,535.88 3% 751,352.03 —Payment of sales commissions The company signed the product sales commission agreement with Prosperity Lamps Components Co., Lt According to the general practice of international market trade, the company pays product sales commission to Ltd.according to a certain percentage (between 5% and 10%) of the actual amount of goods purchased from the 2006 and 2007 are 3,666,228.70 Yuan and 4,914,491.53 Yuan respectively. －Capital transaction The subsidiary holding 40% of the company’s stock Foshan Chanchang Lighting Components Co., Ltd.provid company Prosperity Lamps Components Co., Ltd.. This loan was recalled in full in September 2007. 91 —Balance of receivables and payables of related parties Related parties Ending amount Beginning amount Receivables Prosperity (Hangzhou) Lighting and Electrical Co., Ltd. 1,375,132.19 2,167,564.24 Hangzhou Times Lighting and Electrical Co., Ltd. 9,500.00 - Prosperity Electrical (China) Co., Ltd. 689,336.36 1,884,857.22 Prosperity (Nanjing) Lighting and Electrical Co., Ltd. 10,700.00 44,977.50 OSRAM (China) Lighting Co., Ltd. 7,448,561.24 20,858,688.83 Prosperity Lamps Components Co., Ltd. 12,150,009.15 28,353,338.14 Total 22,509,948.49 52,482,716.38 Payables Prosperity Lamps Components Co., Ltd. 2,305,908.70 63,156.70 Prepayments Prosperity (Xinxiang) Electro-Optical Machinery Co., Ltd. 233,840.00 628,000.00 Ⅹ. Important Contracts and Matters About Equities Incentive Fund On May 16, 2002, the 2001 shareholders conference passed the resolution of establishing the middle and senior management personnel equities incentive system. The resolution specifies 6% of the annual return on equity as the criteria for evaluation. When the annual return on equity reaches 6%, the equities incentive fund will be drawn according to 5% of the net profit. Percentage of incentive fund withdrawn will be increased simultaneously with the increase of return on equity. The resolution will be implemented from the financial year of 2001. Component of the combined profits of the year the equities incentive fund withdrawn is 1,000 Yuan. Ⅺ. Contingencies The board of directors considers that the company has no important contingency needing to be disclosed as of December 31, 2007. Ⅻ. Commitments According to the equipment purchase and construction contracts, the company shall 7.5409 million Yuan for relevant 92 items in 2008. ⅩⅢ. Events After the Balance Sheet Date In accordance with the draft proposal on transferring capital reserve into shares and profit distribution for 2007 which was passed at the Board meeting on 17 Apr. 2008, the Company would plan to transfer capital reserve into shares at the rate of 5 for 10 and distribute dividend of RMB 5.85 (tax included) in cash for every 10 shares based on the total share capital amounting to 465,982,737 shares as at 31 Dec. 2007 after it appropriated 5% of net profit after tax as of the year 2007, namely RMB 418,814,087.85, as arbitrary capital reserve. 232,991,368 shares were transferred and RMB 272,599,901.15 was distributed in cash. The said draft proposal would be implemented after examination and approval by the Shareholders’ General Meeting. Ended 31 Dec. 2007, fair value of tradable financial assets was RMB 107,217,672.71, fair value of available for sale financial assets was RMB 511,206,158.54, resulting in that net assets of the Company increased by RMB 377,656,971.93 (deducting income tax payable) due to change in fair value of relevant financial assets. Suffering influence due to fluctuation of securities market, as calculated based on closing price as at 16 Apr. 2008, fair value of the aforesaid tradable financial assets was RMB 78,899,419.56, fair value of the aforesaid available for sale financial assets was RMB 321,385,689.94. Net assets after deducting influence on income tax payable was RMB -163,604,041.31 in total. ⅩⅣ. Supplementary Information 1. Non-recurring Profit and Loss The company collects and calculates non-recurring profit and loss items of the consolidated financial statement according to relevant regulations of the Answers & Questions on Regulations on Information Disclosure by Companies That Offer Securities to the Public of the China Securities Regulatory Commission No.1 –Non-recurring Profit and Loss (revised in 2007). Amount for the current Amount for the previous Items period period Profits and losses on the disposal of illiquid assets -1,522,501.82 -1,022,987.03 Government subsidies counted in the current profit and loss - 500,000.00 Return on stock and capital investment 349,302,379.82 104,679,846.48 Fund usages charges paid by non-financial enterprises counted in the current profit and loss 1,326,300.07 1,098,056.77 Net amount of other non-operating incomes and expenses except the above items 7,698,176.45 7,752,475.83 Subtotal 356,804,354.52 113,007,392.05 -:Enterprise income tax influence number (decreases expressed with “-”) 53,520,653.18 16,951,108.81 Minority shareholders loss and income influence number 2,305,472.64 887,786.34 Net amount of non-recurring profit and loss belonging to common stockholders of the company 300,978,228.70 95,168,496.90 2. Return on Equity and Earnings Per Share of Consolidated Financial Statements The company calculates the return on equity and earnings per share of consolidated financial statements within the report period according to the requirements of the Rules for the Compilation of Information Disclosures by the Companies That Offer Securities to the Public No.9-Computation and Disclosure of Return on Equity (revised in 2007) complied by the China Securities Regulatory Commission. 93 Return on equity (％) Earnings per share (Yuan) Items Basic earnings per Diluted earnings Fully diluted Weighted mean share per share Net profit belonging to common stockholders of the 14.19 16.86 0.91 0.91 company 2007 Net profit belonging to common stockholders of the 4.11 4.89 0.26 0.26 company after deduction of non-recurring profit and loss Net profit belonging to common stockholders of the 11.08 11.37 0.57 0.57 company 2006 Net profit belonging to common stockholders of the company after deduction of 7.13 7.31 0.37 0.37 non-recurring profit and loss Formulas for computing various indexes are as follows: (1) Fully diluted return on equity =P÷E Of which: P is the net profit belonging to common stockholders of the company or the net profit belonging to common stockholders of the company after deduction of non-recurring profit and loss；E is the closing net assets belonging to common stockholders of the company. (2) Weighted average yield of net assets =P/(E0＋NP÷2＋Ei×Mi÷M0－Ej×Mj÷M0±Ek×Mk÷M0) Of which: P is the net profit belonging to common stockholders of the company or net profit belonging to common stockholders of the company after deduction of non-recurring profit and loss；NP is the net profit belonging to common stockholders of the company; E0 is the opening net assets belonging to common shareholders of the company; Ei is the net assets newly added due to issuance of new shares or debt-to-equity swap during the report period and belonging to common shareholders of the company; Ej is the net assets decreased due to counter-purchase or cash bonus and belonging to common shareholders of the company; M0 is the number of months of the report period; Mi is the number of months from the month following the increase of net assets to the end of the report period; Mj is the number of months from the month following the decrease of net assets to the end of the report period; Ek is the change in net assets caused by other transactions or events; Mk is the number of months from the month following the change of net assets to the end of the report period. (3)Basic earnings per share=P÷S S= S0＋S1＋Si×Mi÷M0－Sj×Mj÷M0－Sk Of which: P is the net profit belonging to common stockholders of the company or net profit belonging to common stockholders of the company after deduction of non-recurring profit and loss; S is the weighted mean of the outstanding stock; S0 is the sum of shares at the beginning of the period; S1 is the number of shares increased due to conversion of accumulation funds to capital stock or distribution of stock dividends during the report period; Si is the number of shares increased due to issuance of new shares or debt-to-equity swap during the report period; Sj is the number of shares decreased due to counter-purchase during the report period; Sk is the number of shares reduced within the report period; M0 is the number of months of the report period; Mi is the number of months from the month following the increase of net assets to the end of the report period; Mj is the number of months from the month following the decrease of net assets to the end of the report period. 94 According to the resolution of the 2006 shareholders conference, the company will add 107,534,477 shares of capital stock based on the total stock issue of 358,448,259 on December 31, 2006 and by the proportion of 3 shares added for every 10 shares. Increase of the capital stock will not affect the total amount of owner’s equities. Both the denominators for earnings per share in 2006 and 2007 are: S=465,982,737 shares (4)Diluted earnings per share=[P+( Diluted potential common stock dividends confirmed as expenses －conversion charge)×(1-income tax rate)]/(S0 ＋S1＋Si×Mi÷M0－Sj×Mj÷M0—Sk+ weighted mean of common stock increased by subscription warrants, stock options and convertible bonds ) Of which: P is the net profit belonging to common stockholders of the company or the net profit belonging to common stockholders of the company after deduction of non-recurring profit and loss. The company has no diluted potential ordinary share. 3. Assets Depreciation Reserve Decrease for the current Increase for Beginning period Ending Items the current amount Reversed Other amount period amount decreases Provision for bad debts 10,112,845.27 7,213,722.54 - 1,036,112.84 16,290,454.97 Provision for obsolete stocks - - - - - Long-term investment depreciation reserve 5, 850,000.00 - - - 5, 850,000.00 Provision for fixed assets depreciation 2,046,000.00 - - 3,106.25 2,043,648.78 Provision for impairment of construction in progress - - - - - Provision for intangible assets depreciation - - - - - Total 12,158,845.27 7,213,722.54 - 1,039,219.09 18,334,103.75 4. Shareholders’Equity on December 31, 2006 Reconciliation Sheet Items Consolidated Owners’ equity on December 31, 2006 (original accounting standard) 2,366,561,851.03 Plus: total influence of backdated adjustment 65,330,506.33 Of which: adjusted deferred income tax assets belong to the owners’ equityof the parent company 6,315,092.62 Tradable financial assets 32,734,153.02 Return on investment in subsidiaries included in the scope of the consolidated financial statement 26,281,260.69 Minority equity 2,431,892,357.36 Owners’ equity on December 31, 2006 (new accounting standard) 2,366,561,851.03 The company implemented the accounting standard for enterprises for the first time on January 1, 2007 and revealed the consolidated shareholders’ equity on January 1, 2007 after the backdated adjustment according to the accounting standard for enterprises in the old and new accounting standard- consolidated shareholders’ equity reconciliation 95 sheet of the 2006 annual report. When formulating this financial statement, the company rechecked the shareholders’ equity reconciliation sheet of the first day of implementation according to the Explanation of the Accounting Standard for Enterprises No.1, so there is no need for revision. 96 5. Net Profit of 2006 Reconciliation Sheet Items Ⅰ. Net profit belonging to owners of the parent company in 2006 (original accounting standard) Plus: total influence of backdated adjustment Of which: tradable financial assets Income tax expense Return on investment in subsidiaries included in the scope of the consolidated financial statement Ⅱ. Net profit belonging to owners of the parent company in 2006 (new accounting standard) Plus: profits and losses of minority shareholders shown in the original financial statement Tradable financial assets Income tax expense Return on investment in subsidiaries included in the scope of the consolidated financial statement Impact of backdated adjustment on profits and losses of minority shareholders Ⅲ. Net profit of 2006 (new accounting standard) Reference information for the presumption that the new accounting standard has been fully implemented Plus: total influence of other important items Ⅳ. Simulated net profit of 2006 According to the requirements of the Rules for the Compilation of Information Disclosures by the Companies No.7-Compliation and Disclosure of Comparable Financial and Accounting Information During the Transition to China Securities Regulatory Commission, the company simulated the consolidated net profit of 2006 based on t the accounting standard for enterprises have been fully implemented from January 1, 2006. There is no signific consolidated net profit and the abovementioned consolidated net profit presented according to the new accountin 97 Ⅺ . File directory for Checkups Investors and relevant departments can refer to the following materials at the board secretariat of th 1. Accounting statements bearing the signature and seal of the legal representative, person in cha charge of the accounting organ. 2. Original copies of audit reports bearing the seal of the accounting firm and the signature and sea 3. Original copies of all the documents of the company and original manuscripts of pronou newspapers specified by the China Securities Regulatory Commission within the report period. 4. Original copy of the 2007 report bearing the autograph of the board chairman. 98 Balance Sheet Formulated by: Foshan Electrical & Lighting Co., Ltd. December 31, 2007 Unit (RMB) Yuan Ending amount Beginning amount Items Consolidated Parent company Consolidated Liquid assets Monetary capital 1,098,078,385.11 1,062,083,375.17 986,916,3 Excess reserve Loans to other banks Tradable financial assets 107,217,672.71 107,217,672.71 122,489,3 Notes receivable 34,960,577.14 34,294,577.14 11,314,9 Accounts payable 213,517,871.04 208,688,722.86 119,766,6 Prepayments 13,020,791.71 11,790,143.02 25,027,2 Premiums receivable Reinsurance premiums receivable Receivable reinsurance contract reserves Interest receivable Other receivables 42,156,366.86 73,374,777.51 38,876,4 Buying back the sale of financial assets Inventory 283,361,896.36 255,738,274.14 222,395,8 Illiquid assets expiring within one year Other liquid assets Total liquid assets 1,792,313,560.93 1,753,187,542.55 1,526,786,7 99 Illiquid assets: Loans and advances Financial assets available for sale 511,206,158.54 511,206,158.54 Held-to-maturity investment Long-term receivables Long-term equity investment 75,223,326.04 130,953,715.88 138,004,5 Investment real estate Fixed assets 776,411,743.09 714,640,187.56 689,716,5 Construction in progress 93,303,507.82 87,331,604.75 221,639,2 Construction materials Disposal of fixed assets Productive biological assets Hydrocarbon assets Intangible assets 144,044,939.45 139,055,092.26 114,676,3 Development expenditure Trade credit Long-term deferred expenses 482,531.40 353,591.42 1,150,1 Deferred income tax assets 6,114,5 Other illiquid assets Total illiquid assets 1,600,672,206.34 1,583,540,350.41 1,171,301,5 Total assets 3,392,985,767.27 3,336,727,892.96 2,698,088,3 Current liabilities: Short-term loans 100 Loans from the central bank Deposit taking and due from banks Borrowed inter-bank funds Tradable financial liabilities Notes payable Accounts payable 124,861,341.59 110,434,047.28 115,843,9 Advance receipts 9,085,272.37 6,148,992.46 7,150,8 Financial assets sold for repurchase Handling charges and commissions payable Emolument payable to the staff 80,464,898.71 76,873,567.03 93,606,4 Taxable payable 32,622,564.14 33,824,980.32 25,123,9 Interest payable Other payables 25,220,137.55 29,899,366.38 24,020,7 Reinsurance premiums payable Insurance contract reserves Money received for acting trading of securities Money paid for acting underwriting of securities Non-current liabilities due within one year Other current liabilities Total current liabilities 272,254,214.36 257,180,953.47 265,745,9 Non-current liabilities Long-term loans Bonds payable 101 Long-term payables Special payables 450,000.00 450,000.00 450,0 Accrued liabilities Deferred income tax liabilities 101,817,363.93 101,848,619.78 Other non-current liabilities Total non-current liabilities 102,267,363.93 102,298,619.78 450,0 Total liabilities 374,521,578.29 359,479,573.25 266,195,9 Owners’ equity (or shareholders’ equity) Paid-up capital (or stock) 465,982,737.00 465,982,737.00 358,448,2 Capital reserves 1,436,625,679.93 1,436,621,165.50 1,207,091,4 Less: treasury stock Surplus reserves 508,327,328.02 508,327,328.02 487,386,6 Provision for general risks Undistributed profits 576,317,365.16 566,317,089.19 352,684,7 Translation reserve Total equity belonging to owners of 2,987,253,110.11 2,977,248,319.71 2,405,611,0 the parent company Minority equity 31,211,078.87 26,281,2 Total owners’ equity 3,018,464,188.98 2,977,248,319.71 2,431,892,3 Total liabilities and owners’ equity 3,392,985,767.27 3,336,727,892.96 2,698,088,3 Person in charge of the company: Person in charge of accounting: Person in charge of the accounting organ: 102 Profits and Statement of Profit Distributio Formulated by: Foshan Electrical & Lighting Co., Ltd. Jan.-Dec.2007 Unit (RMB) Yuan Current period Same period o Items Consolidated Parent company Consolida Ⅰ. Gross revenue 1,496,072,679.54 1,505,611,725.80 1,252,9 Of which: operating income 1,496,072,679.54 1,505,611,725.80 1,252,9 Interest income Earned premium Handing charges and commissions earned Ⅱ. Total operating cost 1,350,949,759.34 1,367,876,034.75 1,037,2 Of which: operating cost 1,189,529,053.61 1,226,832,190.64 937,5 Interest expense Expenditure on handling charges and commissions Cash surrender value Net amount of claims Net amount withdrawn from the insurance contract reserve Expenditure on policy dividends Reinsurance premium Sales tax and extra charges 10,233,228.78 9,113,048.12 9,8 Marketing cost 57,230,907.87 47,508,332.10 30,6 Overhead cost 83,609,557.38 73,985,537.59 74,1 Financial cost 3,133,289.16 3,530,172.97 -2,8 Loss from assets depreciation 7,213,722.54 6,906,753.33 -12,1 103 Plus: Gains from fair value changes (losses 20,753,385.38 21,803,609.23 33,3 expressed with “-“) Return on investment (losses expressed with “-“) 329,548,994.44 323,978,167.37 73,0 Of which: return on investment in affiliated enterprises and joint enterprises Exchange gains (losses expressed with “-“) Ⅲ. Operating profit (losses expressed with “-“) 495,425,300.02 483,517,467.65 322,0 Plus: non-operating revenue 8,344,086.74 8,339,260.24 6 Less: non-operating expense 2,278,920.94 2,270,439.41 1,7 Of which: loss on disposal of illiquid assets Ⅳ. Total profits (total losses expressed with “-“) 501,490,465.82 489,586,288.48 320,9 Less: Income tax expense 72,514,612.26 70,772,200.63 53,1 Ⅴ.Net profits (Net losses expressed with “-“) 428,975,853.56 418,814,087.85 267,8 Net profits belonging to owners of the parent 423,797,425.54 418,814,087.85 266,5 company Minority interest 5,178,428.02 1,3 Ⅵ. Earnings per share (Ⅰ)Basic earnings per share 0.91 0.90 (Ⅱ)Diluted earnings per share 0.91 0.90 Person in charge of the company: Person in charge of accounting: Person in charge of the accounting organ: 104 Funds Flow Statement Formulated by: Foshan Electrical & Lighting Co., Ltd. Jan.-Dec.2007 Unit (RMB) Yuan Current period Sa Items Consolidated Parent company Co Ⅰ.Cash flows from operating activities: Cash received from sale of commodities and 1,538,837,092.40 1,493,995,993.30 1 rendering of service Net increase of deposits from customers and dues from banks Net increase of loans from the central bank Net increase of funds borrowed from other financial institutions Cash received from premium of original insurance contracts Net cash received from reinsurance business Net increase of savings of policy holders and investment fund Net increase of disposal of tradable financial assets Cash received from interest, handling charges and commissions Net increase of borrowed inter-bank funds Net increase of buy-back funds Tax refunds received 11,817,937.03 11,814,866.35 Other cash received relating to operating activities 14,442,812.09 16,365,074.41 Subtotal of cash inflows from operating activities 1,565,097,841.52 1,522,175,934.06 1 Cash paid for purchase of commodities and reception 1,094,499,914.94 1,036,018,893.68 of service Net increase of customer lending and advances 105 Net increase of funds deposited in the central bank and amount due from banks Cash for paying claims of the original insurance contract Cash for paying interest, handling charges and commissions Cash for paying policy dividends Cash paid to and for employees 209,722,922.07 193,733,416.65 Various taxes paid 142,212,820.34 125,073,219.46 Payment of cash relating to operating activities 66,937,665.46 82,608,016.02 Subtotal of cash outflows from operating activities 1,513,373,322.81 1,437,433,545.81 1 Net cash flows from operating activities 51,724,518.71 84,742,388.25 Ⅱ. Cash flows from investment activities: Cash received from disposal of investments 1,037,223,024.36 1,034,443,555.59 Investment income 330,548,994.44 324,978,167.37 Net cash received from disposal of fixed assets, -19,000.00 intangible assets and other long-term assets Net cash received from disposal of subsidiary or other operating business units Other cash received relating to investment activities Subtotal of cash inflows from investment activities 1,367,772,018.80 1,359,402,722.96 Cash paid to acquire fixed assets, intangible assets 139,571,596.17 131,981,422.29 and other long-term assets Cash paid for investment 987,423,583.49 987,423,583.49 Net increase of pledged loans Net cash paid by subsidiaries and other operating units Payment of cash relating to other investment 693,989.07 106 activities Subtotal of cash outflows from investment activities 1,127,689,168.73 1,119,405,005.78 Net cash flows from investment activities 240,082,850.07 239,997,717.18 Ⅲ.Cash flows from financing activities Cash received from capital contribution Of which: cash received from capital contribution to subsidiaries by minority shareholders Cash received from borrowings Cash received from issuance of bonds Other cash received relating to financing activities Subtotal of cash flows from financing activities Cash repayments of amounts borrowed Cash paid interest expenses and distribution of 171,924,909.98 171,676,300.15 dividends or profit Of which: stock dividends and profits paid to 248,609.83 minority shareholders by subsidiaries. Payment of cash relating to other financing activities Subtotal of cash outflows from financing activities 171,924,909.98 171,676,300.15 Net cash flows from financing activities -171,924,909.98 -171,676,300.15 Ⅳ. Effect of foreign exchanges on cash and cash -8,720,438.48 -8,693,821.01 equivalents Ⅴ. Net increase of cash and cash equivalents 111,162,020.32 144,369,984.27 Plus: beginning balance of cash and cash equivalents 986,916,364.79 917,713,390.90 Ⅵ.Closing balance of cash and cash equivalents 1,098,078,385.11 1,062,083,375.17 Person in charge of the company: Person in charge of accounting: Person in charge of the accounting organ: 107 Supplementary Schedule to the Cash Flo Formulated by: Foshan Electrical & Lighting Co., Ltd. Jan.-Dec.2007 Unit (RMB) Yuan Additional information 2007 2006 1. reconciliation from net income to cash flow from operations: Net profits 428,975,853.56 267,886,251.40 Plus: assets depreciation reserve 7,213,722.54 -12,176,080.76 Depreciation of fixed assets 131,994,347.74 120,142,795.39 Amortization of intangible assets 2,851,437.90 2,220,691.56 Amortization of long-term prepaid expenses 837,350.14 796,585.92 Loss on disposal of fixed assets, intangible assets and other long-term 1,522,501.82 1,022,987.03 assets (less: income) Loss on retirement of fixed assets Loss on changes of fair value -20,753,385.38 -33,364,287.33 Financial expense 8,720,438.48 3,995,370.66 Investment loss (less: income) -329,548,994.44 -73,010,375.40 Deferred tax credit (less: debit items) -4,424,301.24 3,842,873.55 Decrease in inventories (less: increase) -60,966,076.30 -23,858,285.12 Decrease in operating receivables (less: increase) -128,956,155.96 59,992,837.34 Increase in operating payables (less: decrease) 14,257,779.85 56,912,834.35 Others - - Net cash flows from operating activities 51,724,518.71 374,404,198.59 108 Additional information 2007 2006 2. Net increase in cash and cash equivalents: Closing cash balance 1,098,078,385.11 986,916,364.79 Less: opening cash balance 986,916,364.79 928,100,663.58 Closing balance of cash equivalents - - Less: opening balance of cash equivalents - - Net increase in cash and cash equivalents 111,162,020.32 58,815,701.21 Person in charge of the company: Person in charge of accounting: Person in charge of the accounting organ: 109 Statement of Changes in Owners’ Equi Formulated by: Foshan Electrical & Lighting Co., Ltd. Dec.31 2007 Yuan Amount for the current period Equities belonging to owners of the parent company Equities belonging to own Items Provi Minority Total owners’ Less sion interest equities Paid-up : Paid-up Less: Surplus for Undistributed Othe Capital capital(or Capital reserves treas capital(or treasur reserves gene risks rs reserves stock) ury stock) y stock ral stock risks Ⅰ.Balance at the end of the 358,448,259.00 1,207,091,440.53 487,386,623.63 352,684,773.51 26,281,260.69 2,431,892,357.36 358,448,259.00 1,207,061,980.15 previous year Plus: changes of accounting 0.00 policies Correction of errors of the previous period Ⅱ. Balance at the beginning 358,448,259.00 1,207,091,440.53 487,386,623.63 352,684,773.51 26,281,260.69 2,431,892,357.36 358,448,259.00 1,207,061,980.15 of the year Ⅲ. Changes in amount this year (decreases expressed 107,534,478.00 229,534,239.40 20,940,704.39 223,632,591.65 4,929,818.18 586,571,831.62 29,460.38 with “-”) (Ⅰ)Net profit 423,797,425.54 5,178,428.02 428,975,853.56 (Ⅱ) Gains and losses directly recorded in owners’ 337,068,717.40 337,068,717.40 29,460.38 equities 1． Net change in the fair value of financial assets 449,424,956.54 449,424,956.54 available for sale 2. Influence of the equity of other owners of the invested 638.92 equity under the equity method 3. Influence of income tax relating to owners’ equities -112,356,239.14 -112,356,239.14 reckoned in 4．Others 28,821.46 Subtotal of the above (Ⅰ) 337,068,717.40 423,797,425.54 5,178,428.02 766,044,570.96 29,460.38 and (Ⅱ) 110 (Ⅲ)Owners’ investment and capital reduction 1.Capital invested by owners 2. Amount of share-based payment recorded in owners equities 3. Others -200,164,833.8 (Ⅳ)Profit distribution 20,940,704.39 -248,609.84 -179,472,739.34 9 1．Withdrawal of surplus 20,940,704.39 -20,940,704.39 reserves 2. Withdrawal of provision -179,224,129.5 -248,609.84 -179,472,739.34 for general risks 0 3. Distribution to owners (shareholders) 4．Others (Ⅴ)Internal carry-over of 107,534,478.00 -107,534,478.00 owners’ equities 1. Conversion of capital surplus to capital (or capital 107,534,478.00 -107,534,478.00 stock) 2. Conversion of surplus reserves to capital (or capital stock) 3. Makeup of losses using surplus reserves 4. Others Ⅳ. Balance at the end of the 465,982,737.00 1,436,625,679.93 508,327,328.02 576,317,365.16 31,211,078.87 3,018,464,188.98 358,448,259.00 1,207,091,440.53 current period Person in charge of the company: Person in charge of accounting: Person in charge of the accounting organ: 111 Statement of Provision for Impairment of A (Consolidated Accounting Statemen Formulated by: Foshan Electrical & Lighting Co., Ltd. Dec.31 2007 Unit (RMB) Yuan Book balance at the Amount calculated Decrease for the cu Items beginning of the and withdrawn for year the current period Reversed amount Ⅰ.Bad debts reserves 10,112,845.27 7,213,722.54 Ⅱ.Provision for obsolete stocks Ⅲ.Provision for depreciation of financial assets available for sale Ⅳ .Held-to-maturity investment depreciation reserves Ⅴ .Long-term equity investment depreciation 5,850,000.00 reserves Ⅵ .Investment real estate depreciation reserves Ⅶ.Fixed assets depreciation reserves 2,046,755.03 Ⅷ .Construction materials depreciation reserves Ⅸ.Provision for impairment of construction in progress Ⅹ .Productive biological assets depreciation reserves Of which: mature productive biological assets depreciation reserves Ⅹ Ⅰ .Hydrocarbon assets depreciation reserves ⅩⅡ.Intangible assets depreciation reserves ⅩⅢ.Goodwill impairment reserves ⅩⅣ.Others 112 Total 18,009,600.30 7,213,722.54 Person in charge of the company: Person in charge of accounting: Person in charge of the accounting organ: Statement of Provision for Impairment of A (Parent Company) Formulated by: Foshan Electrical & Lighting Co., Ltd. Dec.31 2007 Unit (RMB) Yuan Decrease for the current period Beginning Increase for the Amount reversed Items Decrease due to balance current period due to recovery of other factors the value of assets Ⅰ. Total provision for bad debts 9,833,279.19 6,906,753.33 - 906,900.36 Of which: receivables 7,385,940.13 6,704,946.48 - 906,900.36 Other receivables 2,447,339.06 201,806.85 - - Ⅱ.Total short-term investment depreciation reserves - - - - Of which: stock investment - - - - Bond investment - - - - Ⅲ.Total provision for obsolete stocks - - - - Of which: Commodity stocks - - 113 Raw materials - - - - Ⅳ .Total long-term investment depreciation reserves 5,850,000.00 - - - Of which: long-term equity investment 5,850,000.00 - - - Long-term investment on bonds - - - - Ⅴ. Total provision for fixed assets depreciation 2,046,755.03 - - 3,106.25 Of which: buildings - - - - Machinery equipment 2,046,755.03 - - 3,106.25 Ⅵ. Provision for depreciation of intangible assets - - - - Of which: patent right - - - - Trademark right - - - - Ⅶ. Provision for impairment of construction in progress - - - - Ⅷ.Entrusted loans reserves - - - - Person in charge of the company: Person in charge of accounting: Person in charge of the accounting organ: 114 Statement of Changes in Owners’ (Sharehold (Consolidated Accounting Statement Formulated by: Foshan Electrical & Lighting Co., Ltd. Dec.31 2007 Unit (RMB) Yuan Amount for the current period Equities belonging to owners of the parent company Items Undistributed Capital stock Capital reserves Surplus reserves profits Ⅰ.Balance at the end of the previous 358,448,259.00 485,685,008.26 year 1,207,091,440.53 315,337,143.24 Plus: changes of accounting policies - - 1,638,552.25 36,149,431.06 Correction of errors of the previous period - - - - Ⅱ. Balance at the beginning of the year 358,448,259.00 1,207,091,440.53 487,323,560.51 351,486,574.30 Ⅲ . Changes in amount this year (decreases expressed with “-”) (Ⅰ)Net profit - - - 423,797,425.54 (Ⅱ) Gains and losses directly recorded in owners’ equities - 337,068,717.40 - - 1 ． Net change in the fair value of financial assets available for sale - 449,424,956.54 - 2. Influence of the equity of other owners of the invested equity under the equity - - - - method 3. Influence of income tax relating to items recorded in owners’ equities - -112,356,239.14 - - 4．Others - - - Subtotal of the above (Ⅰ) and (Ⅱ) - 337,068,717.40 - 423,797,425.54 115 ( Ⅲ )Owners’ investment and capital reduction - - - - 1.Capital invested by owners - - 2. Amount of share-based payment recorded in owners’ equities - - - - 3. Others - - - - (Ⅳ)Profit distribution - - 20,940,704.39 -200,164,833.89 1．Withdrawal of surplus reserves - - 20,940,704.39 -20,940,704.39 3. Distribution to owners (shareholders) - - - -179,224,129.50 3. Others - - - - (Ⅴ)Internal carry-over of owners’ equities 107,534,478.00 -107,534,478.00 - - 1. Conversion of capital surplus to capital 107,534,478.00 (or capital stock) -107,534,478.00 - - 2. Conversion of surplus reserves to capital (or capital stock) - - - - 3. Makeup of losses with surplus reserves - - - - 4. Others - - - - Ⅳ. Balance at the end of the current 465,982,737.00 508,264,264.90 575,119,165.95 period 1,436,625,679.93 Person in charge of the company: Person in charge of accounting: Person in charge of the accounting organ: 116 Statement of Changes in Owners’ (Shareholders (Consolidated Accounting Statement Formulated by: Foshan Electrical & Lighting Co., Ltd. Dec.31 2007 Unit: (RMB) Yuan Amount for the same period of the prev Equities belonging to owners of the parent company Items Undistributed Capital stock Capital reserves Surplus reserves profits Ⅰ.Balance at the end of the previous year 358,448,259.00 1,207,061,980.15 473,811,362.53 265,377,521 Plus: changes of accounting policies - - 215,674.56 8,471,141 Correction of errors of the previous period - - - Ⅱ. Balance at the beginning of the year 358,448,259.00 1,207,061,980.15 474,027,037.09 273,848,663 Ⅲ . Changes in amount this year (decreases expressed with “-”) (Ⅰ)Net profit - - - 266,574,081 (Ⅱ) Gains and losses directly recorded in owners’ equities - 28,821.46 - 1． Net change in the fair value of financial assets available for sale - - - 2. Influence of the equity of other owners of the invested equity under the equity - - - method 3. Influence of income tax relating to items recorded in owners’ equities - - - 4．Others - 28,821.46 - Subtotal of the above (Ⅰ) and (Ⅱ) - 28,821.46 - 266,574,081 ( Ⅲ )Owners’ investment and capital reduction - 638.92 - 1.Capital invested by owners - 638.92 - 117 2. Amount of share-based payment recorded in owners’ equities - - - 3. Others - - - (Ⅳ)Profit distribution - - 13,296,523.42 -188,936,170 1．Withdrawal of surplus reserves - - 13,296,523.42 -13,296,523 3. Distribution to owners (shareholders) - - - -175,639,646 3. Others - - - (Ⅴ)Internal carry-over of owners’ equities - - - 1. Conversion of capital surplus to capital (or capital stock) - - - 2. Conversion of surplus reserves to capital (or capital stock) - - - 3. Makeup of losses with surplus reserves - - - 4. Others - - - Ⅳ. Balance at the end of the current period 358,448,259.00 1,207,091,440.53 487,323,560.51 351,486,574 Person in charge of the company: Person in charge of accounting: Person in charge of the accounting organ: 118 119