深赛格Ｂ(200058)2007年年度报告（英文版）

深 圳 赛 格 股 份 有 限 公 司 SSH HEEN NZZH HEEN N SSE EGGC COO..,, L LTTD D.. 二 二○○○ ○七七年 年年年度 度报报告 告 22000077 A ANNN NUUA ALL R REEPPO ORRTT Important Notice The Board of Directors and Supervisory Committee of Shenzhen SEG Co., Ltd. (hereinafter referred to as the Company) and its directors, supervisors and senior executives hereby confirm that there are no any fictitious statements, misleading statements, or important omissions carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. Particulars about the Directors attending the Meeting: All the directors attended the meeting on checking and examining 2007 Annual Report. Chairman of the Board of the Company Mr. Zhang Weimin, Person in charge of Financial Affairs Mr. Li Lifu and Director of Financial Department Mr. Zhang Changhai hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. This report was prepared in both Chinese and English versions. Should there be any difference in interpretation between the two versions, the Chinese version shall prevail. Audited by Beijing Shulun Pan Certified Public Accountants Co., Ltd., the Financial Report of the year 2007 is standard unqualified Auditor’s Report. Date of information disclosure: April 16, 2008 1 CONTENTS Ⅰ. COMPANY PROFILE------------------------------------------------------------------------------------ Ⅱ. SUMMARY OF FINANCIAL HIGHLIGHT AND BUSINESS HIGHLIGHT--------------- Ⅲ. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS--- Ⅳ. PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES-------------------------------------------------------------------------------------------- Ⅴ. ADMINISTRATIVE STRUCTURE-------------------------------------------------------------------- Ⅵ. BRIEF OF THE SHAREHOLDERS’ GENERAL MEETING----------------------------------- Ⅶ. REPORT OF BOARD OF DIRECTORS------------------------------------------------------------- Ⅷ. REPORT OF SUPERVISORY COMMITTEE------------------------------------------------------ Ⅸ. SIGNIFICANT EVENTS--------------------------------------------------------------------------------- Ⅹ. FINANCIAL REPORT------------------------------------------------------------------------------------ Ⅺ. DOCUMENTS AVAILABLE FOR REFERENCE-------------------------------------------------- 2 I Paraphrases Unless carried in the report, the following abbreviations possess the meanings as follows: Color picture tube: color cathode ray tube used for color television Display tube: color cathode ray tube used for computer display Glass shell: glass bulb of vacuum display devices GPS: global positioning system The Company, Company: Shenzhen SEG Co., Ltd. SEG Group: Shenzhen SEG Group Co., Ltd. Guangzhou Fodak: Guangzhou Fodak Enterprise Group Co., Ltd. SEG HITACHI: Shenzhen SEG HITACHI Display Devices Co., Ltd. SEG Zhongdian: Shenzhen SEG Zhongdian Corlor Display Devices Co., Ltd. SEG SAMSUNG: Shenzhen SEG SAMSUNG Glass Co., Ltd. SEG logistics: Shenzhen SEG Store & Transport Co., Ltd. SEG GPS: Shenzhen SEG GPS Scientific Navigations Co., Ltd. SEG Baohua: Shenzhen SEG Baohua Enterprise Development Co., Ltd. SEG Communication: Shenzhen SEG Communication Co., Ltd. Xi’an SEG: Xi’an SEG Electronic Market Co., Ltd. Chongqing SEG: Chongqing SEG Electronic Market Co., Ltd. Suzhou SEG: Suzhou SEG Electronic Market Management Co., Ltd. Shanghai SEG: Shanghai Electronic Market Management Co., Ltd. SEG Network: Shenzhen SEG Network & Information Co., Ltd. Shendasheng: Shenzhen SEG Dasheng Co., Ltd. SHIC: Shenzhen SEG Hi-tech Investment Co., Ltd. SEG Industry: Shenzhen SEG Industry Investment Co., Ltd. SEG Engineering: Shenzhen SEG Engineering Industry Co., Ltd. SEG Zhongdian: Shenzhen SEG Zhongdian Corlor Display Devices Co., Ltd. Longgang SEG: Shenzhen SEG Electronic Market Management Co., Ltd. Yuanzhi Investment: Shenzhen Yuanzhi Investment Co., Ltd. SZGZW: State-owned Assets Supervision and Administration Commission of Shenzhen Municipal Government CSRC: China Securities Regulatory Commission SSAB: Shenzhen Supervision and Administration Bureau of China Securities Regulatory Commission The Articles of Association: The Articles of Association of Shenzhen SEG Co., Ltd. Except for the specific explanations, the monetary amount quoted in the report is RMB. 3 II I. COMPANY PROFILE 1. Legal name of the Company In Chinese: 深圳赛格股份有限公司 In English: SHENZHEN SEG CO., LTD. 2. Legal Representative: Mr. Zhang Weimin 3. Secretary of the Board of Directors: Ms. Zheng Dan Representative of Securities Affairs: Ms. Fan Chonglan Contact Address: 31/F, Tower A, Qunxing Plaza, Huaqiang Road (N), Futian District, Shenzhen Tel: (86)755-8374 7939 Fax: (86)755-8397 5237 E-mail: segcl@segcl.com.cn 4. Registered Address: 31/F, Tower A, Qunxing Plaza, Huaqiang Road (N), Futian District, Shenzhen Office Address: 31/F, Tower A, Qunxing Plaza, Huaqiang Road (N), Futian District, Shenzhen Post code: 518028 Company’s Internet website: http://www.segcl.com.cn E-mail: segcl@segcl.com.cn 5. Newspapers chosen for 2007 disclosing information of the Company: China Securities, Securities Times and Hong Kong Wen Wei Po Internet website designated by CSRC for publishing the Annual Report: http://www.cninfo.com.cn Internet website of the Company: http://www.segcl.com.cn The Place where the Annual Report is prepared and placed: Secretariat of Board of Directors, 31/F, Tower A, Qunxing Plaza, Huaqiang Road (N), Futian District, Shenzhen 6. Stock Exchange listed with: Shenzhen Stock Exchange Short Form of the Stock: A-share *ST SEG Stock Code: 000058 B-share *ST SEG-B 200058 7. Other relevant information of the Company (1)Initial registration date: July 16, 1996 Registration place: 16/F, Baohua Tech. Bldg., Huaqiang Road (N), Futian District, Shenzhen (2)Registration date after change: Jun. 9, 2003 Registration place: 31/F, Tower A, Stars Plaza, Huaqiang North Road, Futian District, Shenzhen (3)Date of changing registration: July 6, 2005 The business scope after changing: Domestic commerce, supply and sales of materials (Monopolized, special-controlled and proprietary goods excluded), start industry (Applied additionally for concrete items), consultancy of economic information, property lease; property broker; and build SEG electronic market (Applied additionally for license on professional market). (4) Registered date of changing registration: Sep.27, 2006 Registered capital changed: RMB 784,799,010 Paid-in capital changed: RMB 784,799,010 (5)Registered number of enterprise legal person’s business license: 4403011014290 (6)Registered number of taxation: State Tax: 440301279253776 Local Tax: 440304279253776 (7)Name and address of Certified Public Accountants engaged by the Company: Domestic: Beijing Shulun Pan Certified Public Accountants Company Limited Address: 13/F, Ai Hua Bldg., Shennan Road (M), Shenzhen 4 II. SUMMARY OF ACCOUNTING HIGHLIGHTS AND BUSINESS HIGHLIGHTS 1. Financial indexes of the Company as of the year 2007 Unit: RMB Items Accounting highlights Operating profit 78,162,565.41 Total profit 81,405,319.49 Net profit 65,923,186.12 Net profit attributable to shareholders of 62,945,577.11 the listed company Net profit attributable to shareholders of the listed company after deducting -20,804,183.30 non-recurring gains and losses Net cash flow arising from operating -79,513,959.58 activities Net increase/decrease in cash and cash 21,508,636.58 equivalents Note: Items of non-recurring gains and losses and the related amounts: Unit: RMB No. I. Items Chapter 2 Amount 1 Gains and losses from the 92,079,142.61 disposal of noncurrent asset 2 Net amount of non-operating 1,746,788.40 income and expense Governmental subsidy calculated 3 149,716.76 into current gains and losses 4 Impact on income tax -10,225,887.36 Total 83,749,760.41 2. Major accounting data and financial indexes over the past three years ended by the report period (1) Main accounting data Unit: RMB, Share Increase/decrease 2007 in this year Items of indexes 2006 2005 compared with last year (%) Before adjustment After adjustment After adjustment Before adjustment After adjustment Operating income 711,080,561.66 1,950,977,572.61 1,950,977,572.61 -63.55 1,842,938,871.71 1,842,938,871.71 Total profit -- 81,405,319.49 -147,864,041.05 -146,902,812.28 -238,640,892.75 -238,283,224.38 Net profit attributable to shareholders of -- 62,945,577.11 -67,169,248.35 -65,672,156.10 -129,130,336.23 -128,756,702.22 the listed company Net profit attributable to shareholders of -20,804,183.30 -73,068,465.10 -71,571,372.85 -70.93 -130,042,528.65 -129,668,894.64 the listed company after 5 deducting non-recurring gains and losses Net cash flow arising from 190,399,922.94 190,399,922.94 operating -79,513,959.58 245,701,320.18 245,701,320.18 -132.36 activities Increase/decrease in this year Increase/decrease in this year compared Dec.31, 2007 Dec.31, 2006 compared with last with last year (%) year (%) Before adjustment After adjustment After adjustment Before adjustment After adjustment Total assets 1,643,575,998.86 3,153,787,837.02 3,138,202,860.85 -47.63 3,458,666,122.04 3,436,788,032.45 Equity attributable to shareholders of listed 1,272,815,600.37 1,220,730,607.17 1,204,293,470.35 5.69 1,278,241,158.94 1,256,675,101.55 company Increase/decrease in this year Increase/decrease in this year compared Dec.31, 2007 Dec.31, 2006 compared with last with last year (%) year (%) Before adjustment After adjustment After adjustment Before adjustment After adjustment Basic earnings per share 0.08 -0.09 -0.08 -194.89 -0.18 -0.18 Diluted earnings per share 0.08 -0.09 -0.08 -194.89 -0.18 -0.18 Basic earnings per share after deducting -0.03 -0.09 -0.09 -69.96 -0.18 -0.18 non-recurring gains and losses Fully diluted return on equity 10.40 4.95 -5.50 -5.45 -10.10 -10.25 (%) Weighted average return on equity -10.45 5.08 -5.40 -5.37 -9.64 -9.77 (%) Fully diluted return on equity after deducting 4.31 non-recurring -1.63 -5.99 -5.94 -10.17 -10.32 gains and losses (%) Weighted average return on equity after deducting 4.17 non-recurring -1.68 -5.88 -5.85 -9.70 -9.84 gains and losses (%) Net cash flow arising from operating -0.10 0.31 0.31 -132.36 0.26 0.26 activities per share Net asset per share attributable to shareholders of listed 1.62 1.56 1.53 5.63 1.76 1.73 company 3. The explanation on the difference in the net profit and net assets as calculated based on domestic and overseas accounting standards and systems respectively Unit: RMB CAS IAS 6 Net profit 62,945,577.11 62,945,577.11 Net asset 1,272,815,600.37 1,272,815,600.37 Explanation on the difference No differences 4. Items measured by adopting fair value Unit: RMB Item Balance at Balance at Change in curent Amount affecting period-beginning period-end period current profit Financial asset 17,382,362.56 8,164,453.46 -9,217,909.10 32,001,591.63 available for sale III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS (I) Particulars about changes in share capital 1. Changes of share structure due to the implementation of listing trade for part of tradable shares with restricted conditions in the report period are as the followings: Statement of Change in Shares Unit: Share Before the change Increase or decrease of this time (+) After the change Capitalizati New shares Bonus on of Proport Amount Proportion Others Subtotal Amount issued shares public ion reserve 411,538,38 41.81 I. Restricted shares 52.44% 0 0 0 -83,396,296 -83,396,296 328,142,084 0 % 1. State-owned shares 0 0.00% 0 0 0 0 0 0 0.00% 2. State-owned legal 237,359,66 25.24 30.24% 0 0 0 -39,239,950 -39,239,950 198,119,716 person’s shares 6 % 3. Other domestic 174,178,71 16.57 22.19% 0 0 0 -44,156,346 -44,156,346 130,022,368 shares 4 % Including: Domestic 174,118,23 16.56 non-state-owned 22.19% 0 0 0 -44,150,000 -44,150,000 129,968,232 2 % legal person’s shares Domestic natural 60,482 0.01% 0 0 0 -6,346 -6,346 54,136 0.01% person’s shares 4. Foreign shares 0 0.00% 0 0 0 0 0 0 0.00% Including: Foreign 0 0.00% 0 0 0 0 0 0 0.00% legal person’s shares Foreign natural 0 0.00% 0 0 0 0 0 0 0.00% person’s shares II. Unrestricted 373,260,63 58.19 47.56% 0 0 0 83,396,296 83,396,296 456,656,926 shares 0 % 1. RMB ordinary 126,799,31 26.78 16.16% 0 0 0 83,396,296 83,396,296 210,195,608 shares 2 % 2.Domestically listed 246,461,31 31.40 31.40% 0 0 0 0 0 246,461,318 foreign shares 8 % 3. Overseas listed 0 0.00% 0 0 0 0 0 0 0.00% foreign shares 4. Others 0 0.00% 0 0 0 0 0 0 0.00% 7 784,799,01 100.00 Ⅲ. Total shares 100.00% 0 0 0 0 0 784,799,010 0 % 2. Statement on changes of restricted shares Restricted Restricted Reason Date for Restricted Restricted shares shares for releasing No. Name of shareholders shares at shares at released increased restricted restricted year-begin year-end this year this year trade trade Restricted shares due Shenzhen SEG Group June 14, 1 237,359,666 39,239,950 0 198,119,716 to Share Co., Ltd. 2007 Merger Reform Restricted Guangzhou Fodak shares due 2 Enterprise Gruop Co., 129,968,232 0 0 129,968,232 to Share --- Ltd. Merger Reform Restricted Shanghai Qile shares due June 14, 3 Economic & Trade Co., 6,000,000 6,000,000 0 0 to Share 2007 Ltd. Merger Reform Restricted Shenzhen Shengyi shares due June 14, 4 Industrial Development 5,000,000 5,000,000 0 0 to Share 2007 Co., Ltd. Merger Reform Restricted Shanghai Taili Science shares due June 14, 5 & Technology 4,000,000 4,000,000 0 0 to Share 2007 Development Co., Ltd. Merger Reform Restricted shares due Shanghai Xinyuan June 14, 6 3,600,000 3,600,000 0 0 to Share Investment Co., Ltd. 2007 Merger Reform Restricted shares due June 14, 7 Yang Bochen 3,300,000 3,300,000 0 0 to Share 2007 Merger Reform Restricted shares due Qinhuangdao Sanyuan June 14, 8 3,100,000 3,100,000 0 0 to Share Co., Ltd. 2007 Merger Reform Restricted shares due June 14, 9 Zhang Jinyuan 3,000,000 3,000,000 0 0 to Share 2007 Merger Reform Restricted Shanghai Wantong shares due June 14, 10 Painting & Chemical 2,450,000 2,450,000 0 0 to Share 2007 Co., Ltd. Merger Reform 11 Wuxi Hongyu 2,000,000 2,000,000 0 0 Restricted June 14, 8 Department Store shares due 2007 to Share Merger Reform Restricted Shanghai Yuanchang shares due June 14, 12 Automobile Spare Parts 1,000,000 1,000,000 0 0 to Share 2007 Co., Ltd. Merger Reform Restricted Shenzhen Baihuiyuan shares due June 14, 13 Housekeeping Services 1,000,000 1,000,000 0 0 to Share 2007 Co., Ltd. Merger Reform Restricted shares due Shanghai Aodun Trade June 14, 14 1,000,000 1,000,000 0 0 to Share Co., Ltd. 2007 Merger Reform Restricted shares due Shunde Fuqiao June 14, 15 1,000,000 1,000,000 0 0 to Share Industrial Co., Ltd. 2007 Merger Reform Restricted shares due Hainan Bonida Trade June 14, 16 700,000 700,000 0 0 to Share Co., Ltd. 2007 Merger Reform Restricted shares due Shanghai Baotian June 14, 17 535,000 535,000 0 0 to Share Industrial Co., Ltd. 2007 Merger Reform Restricted shares due Shanghai Jingying Color June 14, 18 500,000 500,000 0 0 to Share Printing Co., Ltd. 2007 Merger Reform Restricted Hainan Mingxin shares due June 14, 19 Industrial Trade Co., 500,000 500,000 0 0 to Share 2007 Ltd. Merger Reform Restricted shares due Shanghai Qixin Trade June 14, 20 450,000 450,000 0 0 to Share Development Co., Ltd. 2007 Merger Reform Restricted Guangzhou shares due Hengyongyingfeng June 14, 21 400,000 400,000 0 0 to Share Enterprise Development 2007 Merger Co., Ltd. Reform Restricted shares due Shanghai Minxiong June 14, 22 300,000 300,000 0 0 to Share Trade Co., Ltd. 2007 Merger Reform 9 Restricted Shanghai Yiyang shares due June 14, 23 Computer Network 300,000 300,000 0 0 to Share 2007 Technology Co., Ltd. Merger Reform Restricted Hangzhou Guoliang shares due June 14, 24 Economy Information 300,000 300,000 0 0 to Share 2007 Consultation Co., Ltd. Merger Reform Restricted shares due Shanghai Yinghong June 14, 25 250,000 250,000 0 0 to Share Industrial Co., Ltd. 2007 Merger Reform Restricted Shanghai Shenli shares due June 14, 26 Automobile Fittings 250,000 250,000 0 0 to Share 2007 Co., Ltd. Merger Reform Restricted shares due Shanghai Yuanhua June 14, 27 200,000 200,000 0 0 to Share Industrial Co., Ltd. 2007 Merger Reform Restricted Shanghai Lingshen shares due June 14, 28 Municipal Engineering 200,000 200,000 0 0 to Share 2007 Co., Ltd. Merger Reform Restricted shares due Shanghai Dajun Trade June 14, 29 200,000 200,000 0 0 to Share Co., Ltd. 2007 Merger Reform Restricted Shanghai Junyan shares due June 14, 30 Property Broker Co., 200,000 200,000 0 0 to Share 2007 Ltd. Merger Reform Restricted shares due Shanghai Zhongzhou June 14, 31 165,000 165,000 0 0 to Share Trade Co., Ltd. 2007 Merger Reform Restricted Shanghai Ningcheng shares due June 14, 32 Economy and Trade 150,000 150,000 0 0 to Share 2007 Development Co., Ltd. Merger Reform Restricted Shanghai Chenggong shares due June 14, 33 Property Broker Co., 100,000 100,000 0 0 to Share 2007 Ltd. Merger Reform Restricted Shanghai Baoli shares due June 14, 34 Investment Consultance 100,000 100,000 0 0 to Share 2007 Service Co., Ltd. Merger 10 Reform Restricted Shanghai Xinyuan shares due June 14, 35 Industrial Development 100,000 100,000 0 0 to Share 2007 Co., Ltd. Merger Reform Restricted Shanghai Gaosheng shares due June 14, 36 Industrial and Trade 100,000 100,000 0 0 to Share 2007 Co., Ltd. Merger Reform Restricted Shanghai Kexin shares due June 14, 37 Electromechanical 100,000 100,000 0 0 to Share 2007 Equipment Co., Ltd. Merger Reform Restricted shares due Shanghai Left and Right June 14, 38 100,000 100,000 0 0 to Share Printing Co., Ltd. 2007 Merger Reform Restricted Shanghai Sinan shares due Industrial Trade June 14, 39 100,000 100,000 0 0 to Share Cooperation 2007 Merger Corporation Reform Restricted Haerbin Sanhe shares due June 14, 40 Economy Trade Co., 100,000 100,000 0 0 to Share 2007 Ltd. Merger Reform Restricted Heilongjiang Guanghao shares due June 14, 41 Economy Trade Co., 100,000 100,000 0 0 to Share 2007 Ltd. Merger Reform Restricted Shanghai Dianyuan shares due June 14, 42 Garden Sculpture 100,000 100,000 0 0 to Share 2007 Engineering Co., Ltd. Merger Reform Restricted Shanghai Garment shares due June 14, 43 Group, Dunhuang Ties 60,000 60,000 0 0 to Share 2007 Co., Ltd. Merger Reform Restricted Shanghai Haitie shares due June 14, 44 Elevator Sales & 60,000 60,000 0 0 to Share 2007 Installation Co., Ltd. Merger Reform Restricted Hainan Weibang shares due June 14, 45 Investment 50,000 50,000 0 0 to Share 2007 Development Co., Ltd. Merger Reform Shanghai Gaopu Restricted June 14, 46 Scientific Trade Co., 50,000 50,000 0 0 shares due 2007 Ltd. to Share 11 Merger Reform Restricted shares due June 14, 47 Wei Mingfang 50,000 50,000 0 0 to Share 2007 Merger Reform Restricted shares due Changshu Dongxu June 14, 48 50,000 50,000 0 0 to Share Materials Sales Co., Ltd. 2007 Merger Reform Restricted Shanghai Yuewei shares due June 14, 49 Air-conditioning 50,000 50,000 0 0 to Share 2007 Equipments Co., Ltd. Merger Reform Restricted Shanghai Jingyun shares due June 14, 50 Investment Consultance 50,000 50,000 0 0 to Share 2007 Co., Ltd. Merger Reform Restricted Shanghai Chongming shares due June 14, 51 Commercial Investment 50,000 50,000 0 0 to Share 2007 Co., Ltd. Merger Reform Restricted Shanghai Qingpu shares due June 14, 52 Hongfeng Plastic 50,000 50,000 0 0 to Share 2007 Packaging Co., Ltd. Merger Reform Restricted Wuxi Taihu Mine shares due June 14, 53 Electronic Control 50,000 50,000 0 0 to Share 2007 Equipment Plant Merger Reform Restricted Hangzhou Dongfeng shares due June 14, 54 Forging Equipment 50,000 50,000 0 0 to Share 2007 Business Department Merger Reform Restricted shares due Shanghai Xingyun June 14, 55 50,000 50,000 0 0 to Share Shoes Co., Ltd. 2007 Merger Reform Restricted shares due Haerbin Jingdu June 14, 56 50,000 50,000 0 0 to Share Decoration Co., Ltd. 2007 Merger Reform Restricted Changsha Hongkun shares due June 14, 57 Industry and Mine 50,000 50,000 0 0 to Share 2007 Products Co., Ltd. Merger Reform Shanghai Shitao Trade Restricted June 14, 58 50,000 50,000 0 0 Co., Ltd. shares due 2007 12 to Share Merger Reform Restricted Shanghai Yuande shares due June 14, 59 Information Consultance 50,000 50,000 0 0 to Share 2007 Co., Ltd. Merger Reform Restricted Shanghai Furong shares due June 14, 60 Knitting Garment Co., 50,000 50,000 0 0 to Share 2007 Ltd. Merger Reform Restricted Shanghai Hudong shares due Materials Head June 14, 61 50,000 50,000 0 0 to Share Corporation, Jinqiao 2007 Merger Company Reform Restricted shares due Shanghai Manerte Shoes June 14, 62 50,000 50,000 0 0 to Share Corporation 2007 Merger Reform Restricted Shanghai Shenbei shares due June 14, 63 Economy Consultance 50,000 50,000 0 0 to Share 2007 Co., Ltd. Merger Reform Restricted Shanghai Gulan shares due June 14, 64 Business Consulting 30,000 30,000 0 0 to Share 2007 Co., Ltd. Merger Reform Shares held by May 22, 65 Xu Changhui 13,034 3,259 0 9,775 senior 2007 executives Shares held by May 22, 66 Zheng Dan 47,448 11,862 0 35,586 senior 2007 executives Shares held by 0 0 8,775 July 5, 67 Jiang Yigang 8,775 senior 2007 executives Total 411,538,380 83,405,071 8,775 328,142,084 (II)Issuance and listing of shares 1. Issuance over the previous three years at the end the report period: The Company has implemented the Share Merger Reform Scheme with directional capitalization of capital public reserve on June, 2006 which increased the total shares of the Company. It is to say that 4.6445 shares from capitalization of public reserves would be distributed to every 10 shares held by shareholders of tradable A shares, which meant every 10 shares held by shareholders of tradable A shares gained 3.55 consideration shares. The share merger reform of the Company has been approved in the meeting of related 13 shareholders of A shares held on Jun. 5, 2006, and was fulfilled on Jun. 14, 2006. Thus, the shares of the Company increased by 58,653,147. 2. Explanations to the changes of share structure in the report (1) The Company published the Suggestive Notice on Releasing Restricted Sales of Shares With Restricted Conditions During Share Merger Reform of Shenzhen SEG Co., Ltd in Securities Times, China Securities and Hong Kong Wen Wei Po dated June 13, 2007; in accordance with Measures for the Administration of the Share Merger Reform of Listed Companies and the relevant legal commitments by original non-tradable A-share shareholders of the Company in Share Merger Reform Scheme of the Company, 83,389,950 tradable shares with restricted conditions of the Company would belisted for trade, which took 10.6256 percent of total shares of the Company dated June 14, 2007. (2) According to the regulations in Rules on the Management of Shares Held by the Directors, Supervisors and Senior Management Officers of Listed Companies and the Changes Thereof promulgated by CSRC, the shares of the Company held by directors, supervisors and senior management officers were released restricted sales in the proportion of 25 percent of the numbers they held. (3) There exist no inner employees’ shares. (III) About shareholders and actual controller of the Company (ended as of Dec., 31, 2007) 1. Statement of shares held by top ten shareholders Total According to shareholders name list of the Company ended Dec.31, 2007 presented by Shenzhen Branch of China Securities sharehol Depository and Clearing Corporation Limited, total shareholders of the Company amounting to 38,252 including 21,319 A ders shares and 16,933 B shares. Particulars about shares held by the top ten shareholders Shares held at Amount of Share Nature of Amount of shares No. Name period-end restricted shares Proportion shareholder pledged or frozen (Share) held State-owned By the end of the Shenzhen SEG Group Co., legal person’s report period, 1 237,359,666 30.24% share 198,119,716 totally 118,679,833 Ltd. (Restricted shares were listed shares) pledged. By the end of the report period, Domestic legal totally 129,968,232 Guangzhou Fodak Enterprise 129,968,232 16.56% person’s share 129,968,232 shares were 2 Group Co., Ltd. (Restricted pledged and listed shares) 90,728,281 shares were judicially frozen. Domestically 3 Tai Fook Securities Co Ltd 6,989,203 0.89% listed foreign 0 shareholder Domestic legal Shanghai Qile Economic & 6,000,000 person’s share 0 4 Trade Co., Ltd. 0.76% (Restricted listed shares) Sun Hung Kai Investment Domestically 5 Services Ltd. - Custpomers 2,932,693 0.38% listed foreign 0 A/C shareholder Domestically 6 KGI Asia Limited 2,845,370 0.36% listed foreign 0 shareholder Guotai Junan Securities Hong Domestically 7 2,256,800 0.28% listed foreign 0 Kong Ltd. shareholder 8 UBS Warburg Custody PTE 2,140,016 0.27% Domestically 0 14 LTD. Swiss Bank Corporation listed foreign shareholder First Shanghai Securities Domestically 9 2,011,122 0.26% listed foreign 0 Ltd. shareholder Domestically 10 Chen Ji Cheng 1,984,752 0.25% listed foreign 0 shareholder Particulars on shares held by top ten shareholders of unrestricted shares Amount of unrestricted shares Name of shareholder Type of share held 1 Shenzhen SEG Group Co., Ltd. 39,239,950 A share 2 Tai Fook Securities Co Ltd 6,989,203 Domestically listed foreign shareholder Shanghai Qile Economic & Trade Co., 3 6,000,000 A share Ltd. Sun Hung Kai Investment Securities 4 2,932,693 Domestically listed foreign shareholder Ltd-Customers A/C 5 KGI Asia Ltd. 2,845,370 Domestically listed foreign shareholder 6 Guotai Junan Securities Hong Kong Ltd. 2,256,800 Domestically listed foreign shareholder UBS Warburg Custody PTE LTD. Swiss 7 2,140,016 Domestically listed foreign shareholder Bank Corporation 8 First Shanghai Securities Ltd. 2,011,122 Domestically listed foreign shareholder 9 Chen Ji Cheng 1,984,752 Domestically listed foreign shareholder 10 Bu Hao Wen 1,930,000 Domestically listed foreign shareholder 1. Among the top ten shareholders as listed above, there existed no associated relationship between Shenzhen SEG Group Co., Ltd. (hereinafter referred to as SEG Group) and other Explanation of on the above-mentioned shareholders, and they were not consistent actionists according to Management Regulation of associate relationship and accordant Information Disclosure on Change of Shareholding for Listed Companies. It was unknown action relationship among shareholders whether there was affiliated relation or consistent actionist among other shareholders. 2. It was unclear whether there was affiliated relation among the top ten unrestricted shareholders of tradable shares, and the top ten unrestricted shareholders of tradable shares and top ten shareholders, or there were consistent actionists. 2. The first largest shareholder and actual controller of the Company 1) The first largest shareholder of the Company: Shenzhen SEG Group Co., Ltd. Legal representative: Mr. Guo Yonggang Date of foundation: Aug. 23, 1986 Business scope: Production and research of electronic products, electric home appliances, electronic toys, electronic telecom equipments, instrument and meter, motor equipments, computer and its equipments, OA equipments and articles and electronics chemical (the license of production circle conducted additionally); undertake various electronic system project; launch specialized market of electronic communications; manpower training; real estate development (engaging at development in the earth of legally acquiring land use right); real estate broker; cargo agent and logistics & storage; high-floor sightseeing, supporting food and drink, marketplace and exhibition of SEG Plaza; development and maintenance of Internet and information engineering technology; business of import and export. Registered capital: RMB 1,355,420,000 The structure of equity: State-owned Assets Supervision and Administration Commission of Shenzhen Municipal Government invested RMB 630,539,000, taking 46.52%; China Huarong Asset Management Corporation invested RMB 400 million, taking 29.51%; China Orient Asset Management Corporation invested RMB 189,514,700, taking 13.98%. 15 China Great Wall Asset Management Corporation invested RMB 135,366,300, taking 9.99%. STATE-OWNED CHINA HUARONG ASSETS CHINA ORIENT ASSETS CHINA GW ASSETS ASSETS SUPERVISION MANAGEMENT CO., LTD. MANAGEMENT CO., LTD. MANAGEMENT CO., LTD. AND ADMINISTRATION 46.52% 29.51% 13.98% 9.99% SHENZHEN SEG GROUP CO., LTD. 30.24% SHENZHEN SEG CO., LTD. 2) The controlling shareholder of the first largest shareholder The controlling shareholder of the first largest shareholder: State-owned Assets Supervision and Administration Commission of Shenzhen Municipal Government 3. The other legal person’s shareholder of the Company holding over 10% of the total shares Legal person’s shareholder holding over 10% of the total shares: Guangzhou FODAK Group Legal representative: Huang Gaopeng Date of foundation: March 18, 1994 Business scope: domestic trading and material supply and marketing business (except for national special operating and special controlling commodity); transportation of vehicle cargo; polytechnic service business; consultation of technology; commodity information consultation service; interior decoration; landscaping; investment with self-funds; self-support and agency of various commodities; import & export business of technology (does not attach export & export commodity list), except for commodities and technology operated limited by the state or imported or exported prohibited by the state; operation of process materials and business of “process raw materials on clients’ demands, assemble parts for the clients, process according to the clients’ samples and compensation trade”; operation of counter trading and carrying trade. Registered capital: 213,118,000 4. The restricted conditions for sales on original nontradable shareholders in top ten shareholders of the Company 16 Amount of newly added Among of shares that Date when Name of restricted can be listed Restricted conditions for No. shares can be shareholders tradable shares for trade with sales committed listed for trade held the expiration of restriction period Jun.14, 2007 39,239,950 Original non-tradable A Shenzhen SEG shares were not allowed to 1 237,359,666 Jun.14, 2008 39,239,950 Group Co., Ltd. be traded or transferred Jun.14, 2009 158,879,766 within 12 months from the day of implementation of Guangzhou Jan.17, 2008 39,239,950 the Share Merger Reform; 2 Fodak 129,968,232 39,239,950 After the aforementioned Jun.14, 2008 Enterprise Co., time limitation was Ltd. Jun.14, 2009 51,488,332 expired, if shareholders of original non-tradable shares with a stake over 5% were to sell the original non-tradable Shanghai Qile shares through listing in 3 Economic & Trade 6,000,000 Jun.14, 2007 6,000,000 stock exchange, the sales Co., Ltd. volume should be no more than 5% of the total of the Company within 12 month and no more than 10% within 24 months. IV. PARTICULARS ABOUT DIRECTORS, SUPERVISORS AND SENIOR EXECUTIVES AND EMPLOYEES I. Director, supervisor and senior executives (I) Basic information Number of Number Increase shares held of shares Reason for Remuneratio / No. Name Gender Age Office term Title at the held at the changes of n drew from decrease year-begin year-end shares the Company (share) (share) (share) Drew from Zhang the Company Chairman of 1 Weimin Male 56 2007.5.17-2010.5.17 0 0 0 -- amouting to the Board RMB 415,000 Guo Vice Drew from 2 Han Male 42 Ditto Chairman of 0 0 0 -- Guangzhou biao Fodak the Board Director/ Drew from Wang the 3 Male 49 Ditto General 0 0 0 -- Chu Company Manager amouting to 17 RMB 341,000 Zhang Drew from 4 Guangli Male 45 Ditto Director 0 0 0 -- SEG Group u Drew from 5 Ye Jun Male 47 Ditto Director 0 0 0 -- SEG Group Li Femal Drew from 6 61 Ditto Director 0 0 0 -- Guangzhou Caimou e Fodak Drew independent director allowance Su Independent from the 7 Male 53 Ditto 0 0 0 -- Xijia Director Company amounting to RMB 50,000 per year Drew independent director allowance Jia Independent from the 8 Male 61 Ditto 0 0 0 -- Heting Director Company amounting to RMB 50,000 per year Drew independent director +11,700 Purchased allowance Jiang Independent 11,700 from from the 9 Male 48 Ditto 0 (A-shar Yigang Director (A-share) secondary Company e) market amounting to RMB 50,000 per year Xu Chairman of 13,034 13,034 Drew from 10 Changh Male 59 Ditto Supervisory 0 -- (A-share) (A-share) SEG Group ui Committee Drew from 11 Yang Bo Male 36 Ditto Supervisor 0 0 0 -- Guangzhou Fodak Drew from 12 Xu Tao Male 43 Ditto Supervisor 0 0 0 -- SEG Group Drew from Zhang Supervisor the Company 13 Changh Male 49 Ditto (Employee 0 0 0 -- amouting to ai Supervisor) RMB 296,000 Drew from Tian Supervisor 14 Male 41 Ditto 0 0 0 -- the Jiliang (Employee Company 18 Supervisor) amouting to RMB 302,000 Sold out part Deputy senior Drew from executives’ General -11,862 the shares which Zheng Femal 47,448 35,586 Company 15 42 Ditto Manager/Sec (A-shar were released Dan e (A-share) (A-share) amouting to restriction for retary of the e) RMB trade in 363,000 Board secondary market Drew from Deputy the Company 16 Li Lifu Male 52 Ditto General 0 0 0 amouting to Manager RMB 331,000 (II) Particulars about position held by directors or supervisors in Shareholding Company (Shareholding Company of shareholders): ①Vice Chairman of the Board Mr. Guo Hanbiao took the post of Director and concurrently Vice-president of Guangzhou FODAK from Apr., 2003. ②Director Mr. Zhang Guangliu took the post of Deputy General Manager of SEG Group from March, 2003. ③ Director Mr. Ye Jun took the post of Director of Auditing Dept. of SEG Group from April, 2003. ④ Director Ms. Li Caimou took the post of General Manager of Asset Business Center of Guangzhou FODAK from 2003. ⑤ Supervisor Mr. Xu Tao took the post of Director of Human Resource Department of SEG Group from Jul. 2001. ⑥ Chairman of supervisory Committee Mr. Xu Changhui took the Chairman of Labor Union of SEG Group from Oct., 2000. ⑦ Supervisor Mr. Yang Bo took the post of Vice-president of Guangzhou FODAK from Aug., 2003. II. Particulars about main work experience and posts or part-time job of present directors, supervisors and senior executives: 1. Members of the Board of Directors (1) Mr. Zhang Weimin, present chairman of the board of the Company, was born in 1951, bachelor degree and senior economist, he concurrently takes the posts of deputy general manager and concurrently commissary of the Party Committee of Yunan Electronic Industry General Corporation, Chief Economist of SEG Group Co., Ltd and Chairman of SEG Samsung. (2) Mr. Guo Hanbiao, master degree of economics, was born in 1965; he is present in charge of vice chairman of the board of the Company, chairman of the board and vice president of Guangzhou FODAK. He took the turns of director and vice president of Guangzhou Chengqi Group Co., Ltd., director and vice president of Guangzhou Yuetai Group, director of construction office of Guangdong Xintianyuan Technology Group Co., Ltd., director and vice general manager of Guanghzhou South Special Copper Co., Ltd., vice proprietor of Golden Time magazine, vice chief secretary of Young Entrepreneur Association of Guangdong province, standing committee and vice secretary-general of Young League of Guangdong province, trustee of China Young Enterpriser Association, trustee of Private 19 Enterprise Association of Guangdong province and permanent trustee and secretary-general of the Young Scientist Association of Guangdong province. (3) Mr. Wang Chu, bachelor of science and senior economist, was born in 1958. Now he takes the post of director and general manager of the Company and concurrently the chairman of Shenzhen Hitachi and chairman of the board of Shenzhen SEG GPS and Shenzhen SEG Logistics. He took turns of vice general manager of Shenzhen SEG Import and Export Co. and office director and concurrently general manager assistance of SEG Group, and director of SHIC. (4) Mr. Zhang Guangliu, born in 1962, bachelor degree from Jiangxi College of Finance & Ecomics, master degree from Jiangxi University of Finance & Ecomics. Now, he is the director of the Company, vice general manager of SEG Group. He ever took the turns of vice general manager of Jiangxi Pingxiang Store Company, Industrial Products Trade Centre; vice general manager of Zhenhua store of Shenzhen Rainbow Department Store; financial supervisor of Shenzhen Huasheng Industial Co., Ltd., Shenzhen Medicines Corporation and Shenzhen Building Materials Group. (5) Mr. Ye Jun, a senior accountant with bachelor degree of Economics, was born in 1960. He is now in charge of director of financial department of SEG Group; ever took the director assistant, vice director of financial department, and vice director of fund department of SEG Group. (6) Ms. Li Caimou, an engineer with bachelor degree, was born in 1946. She is now in charge of director of the Company, general manager of Guangzhou FODAK Capital Operation Center. She took turns of director of Shenzhen Agricultural Products Co., Ltd. minister of capital operation department of Shenzhen Trading Holding Co., Ltd. and independent director of Shenzhen Agricultural Products Co., Ltd. (7) Mr. Su Xijia, Doctor of Accounting, was born in 1954. At present he takes the post of independent director of the Company and vice professor of Hong Kong City University accounting major. He was ever in charge of instructor of Shanghai Financial and Economic University accounting department and part-time professor of Canada Concordia University. (8) Mr. Jiang Yigang, born in 1959, bachelor degree from Chinese Language department of Shanghai Normal University, master degree from politics and law school of South China Normal University. Now, he is indpenedent director of the Company, lawyer and co-partner of Shenzhen law office of AllBright Law Offices. He ever taught in law School of Shenzhen University from 1985 to 1993; he acquires qualification as a lawyer from 1991 and the qualification period was over 15 years. (9) Mr. Jia Heting, born in 1946. Bachelor degree, graduated from the industrial accouting department of Beijing Economics College. Now, he is the independent director of the Company. He ever worked in research room of Beijing Municipal government; deputy director, director, deputy section chief of production and system deparment of National Physical and Reform Commission, director of Port-of-Entry Office of the People’s Government of Shenzhen Municipality, director of National Physical and Reform Commission, director of State-Owned Assets Supervision And Administration Commission, inspector of State-Owned Assets Supervision and Administration Commission of Shenzhen Municipal Government. And he retired in August 2005. 2. Members of supervisory Committee 20 (1) Mr. Xu Changhui, a senior politic engineer with bachelor degree, was born in 1948. Now he takes the post of Chairman of supervisory Committee of the Company and chairman of Labor Union and concurrently the chairman of supervisory Committee of SEG Samsung. He took the turns of section chief of Party secretariat of Shenzhen Electronics Industry, vice master, master of League and Party Committee office, minister of party & people’s department and secretariat of direct-affiliated Party Committee, vice secretariat of League Party Committee in SEG Group and convener of the supervisory committee of Shenzhen SEG Plaza Investment Development Co., Ltd. and SEG Engineering.. (2) Mr. Xu Tao, male, was born in 1964 with bachelor degree of Engineerinig and senior engineer. Now, he is the Party Commissary, director of Human Resources Department of SEG Group. He ever took the post of vice director of asset department of SEG Group. (3) Mr. Yang Bo, bachelor degree, was born in 1971. He is now in charge of supervisor of the Company and vice president of Guangzhou FODIA. He took the turns of general inspector of financial department of Guangzhou FODIA and Guangdong Fangda Enterprise Group; financial manager of China district of USA solely-invested Hengdeng Electronic (China) Co., Ltd.; master of domestic accounting department, general accountant of domestic accounting department and audit assistance of China CPA the 6th audit department of Hong Kong listed company Dongqiang Electronic Group. (4) Mr. Zhang Changhai, he was born in 1958, senior accountant, doctor graduate. Now, he is supervisor and minister of financial department of the Company; concurrently director of SEG Samsung and director of SEG Hitachi. He ever was teacher in Zhengzhou Institute of Aeronautical Industry Managent and he was deputy general manager of asset management department of Shenzhen SEG Hi-tech Investment Co., Ltd. (5) Mr. Tian Jiliang, an engineer with bachelor degree was born in 1966. He is now a supervisor of the Company (employee’s supervisor) and minister of HR departemnt and concurrently directors of SEG Industrial, SEG Baohua and SEG Communication and chairman of supervisory committee of Longgang SEG. He took the turns of minister assistance of planning department and minister assistance and vice minister of ministry of personnel of the Company. 3. Other senior executives (1) Mr. Wang Chu, general manager, please refers to the above introduction of director. (2) Ms. Zheng Dan, a senior economist with master degree of science, was born in 1965. She is now in charge of secretary of the board and deputy general manager of the Company and concurrently chairman of supervisory committee of SEG Baohua. She took the turns of office director assistant of Preparation Office of Shenzhen SEG Co., Ltd., vice director of Office for Share Merger Reform of Shenzhen Zhongkang Glass Co., Ltd., director of Shenzhen SEG Xinlide Intelligent System Engineering Co., Ltd., vice director and director of administration office, representatives of securities affairs of the board of directors of the Company, the chairman of supervisory committee of SEG GPS and independent director of Shenzhen Hongkai (Group) Co., Ltd. (3) Mr. Li Lifu, a senior accountant with master degree, was born in 1955. At present, he is in charge of director and vice GM of the Company, and concurrently chairman of the board of Shenzhen SEG BaoHua, chairman of the board of Xi’an SEG, chairman of the board of Shenzhen SEG Industrial and SEG Network. He took turns of general inspector of financial affairs and concurrently director of SEG Group, general inspector of financial affairs and 21 director of the Company, and chairman of Xi’An SEG. (III) Annual remuneration 1. The decision-making procedure and basis of the recompense: The Company implemented the position wages system. The annual remuneration for senior executives comprises two parts, namely, the wage (the position wage, floating wage and allowance) and the year-end bonus. The wage was decided by the Board of Directors and pay in monthly based on the position function and the position wage rules of the Company; the year-end bonus was decided by the board of directors based on the accomplishment of annual operation targets and working tasks laid out in the shareholders’ general meeting, which was implemented after approval by the board of directors. According to the Articles of Association of the Company, the shareholders’ general meeting determined the salary of directors and supervisors, but at present the Company had not practiced remuneration system for non-independent directors and supervisors except for independent directors. Non-independent directors only draw their position wage from the Company. 2. Particulars about the annual remuneration of directors, supervisors and senior executives in office There are 15 directors, supervisors and senior executives in office at present. Of them, 6 persons (excluding independent directors): Zhang Weimin, Wang Chu, Zhengdan, Li Lifu, Zhao Changhai and Tian Jiliang drew their annual remuneration from the Company with total amounting to RMB 2,048,000 of annual remuneration. According to resolution of the 7th Shareholders’ General Meeting, independent directors of the Company drew their allowance monthly from the Company in term of the standard of annual allowance of RMB 50,000 (tax included) respectively per year. The Company reimbursed the reasonable charges according to the actual situation; such as fees for trips and fees for food and accommodation when independent directors attended the board of directors, shareholders’ general meeting or fees for exercising their functions and powers in accordance with Articles of Association of the Company. For the details on 2007 annual remunerations of directors, supervisors and senior executive, please refer to the basic information in the first part of the section. IV. Changes in directors, supervisors and senior executives in the report period: 1. Within this report period, In light of the expiration of office term of the 3rd Supervisory Committee of the Company, and in accordanve with the regulations on electing the employee representative supervisor of the Articles of Associations, the Company held the 3rd Employee Representative Conference of Shenzhen SEG Co., Ltd in the big meeting room of the Company on March 20, 2007. The meeting elected Mr. Zhang Changhai and Mr. Tian Jiliang as the employee representative supervisors of the 4th Supervisory Committee of the Company through the secret ballots from all the present representatives with the office term of 3 years, and the beginning date is the same as the other members of the 4th Supervisory Committee elected in the 12th (2006) Shareholders’ General Meeting of the Company. 2. On May 17, 2007, the 12th meeting of Shareholders’ General Meeting (Year 2006) was held and 9 directors who formed the 4th Board of Directors of the Company were as follows: Zhang Weimin, Zhang Guangliu, Wang Chu, Guo Hanbiao, Li Caimou, Su Xijia, Jia Heting and Jiang Yigang, of which Su Xijia, Jia Heting and Jiang Yigang were independent directors and all got the qualifications as independent directors. 3. On May 17, 2007, the 12th meeting of Shareholders’ General Meeting (Year 2006) was held and 3 supervisors who formed the 4th Supervisory Committee of the Company were as follows: Xu Changhui, Xu Tao and Yangbo. V. About employees (number, profession composing, education background and retirees) At the end of the report period, the Company had totally 822 on-the-job employees and 36 22 retirees. The annuities, hospitalization insurance of the retirees were planed as a whole. The profession composing and education background of the staff are as follows: Profession Production Administrative Salespersons Technicians personnel composing personnel Number 253 260 204 105 Senior 3-years Polytechnic high Education Bachelor regular background Doctor Master school school degree college graduate graduate graduate or lower Number 6 62 251 254 89 160 V. ADMINISTRATIVE STRUCTURE I. Administration of the Company In the report period, according to the requirements of laws and regulations of Company Law, Securities Law, and Code of Corporate Governance for Listed Companies, the Articles of Association and other requirements of laws and regulations of administration of the listed companies, the Company consistently perfected its administration structure and standardized the operation. The specific explanation of the administration of the company in the report period is as follows: (I) Summary on field inspection of the Company by Shenzhen Security Regulatory Office From Mar.6, 2007 to Jun.21, 2007, Shenzhen Security Regulatory Office made field inspection of the Company, the main inspection content included completely inspection of the administration of the company, information disclosure, accounting operation, financial management and so on, and against the problems existed, Shenzhen Security Regulatory Office put forward requirement of alteration to the existent problems. Withal, Board of directors, supervisory committee, and management paid high attention to it, formulated and fulfilled the alteration measure carefully, discussed and passed Alteration Scenario to Shenzhen Security Regulatory Inspection Problems For Shenzhen SEG Co., Ltd. after the 1st meeting of the Forth Board of Directors of the Company, and disclosed the information in China Securities, Securities Times, Wen Wei Po and Juchao Internet Website http://www.cninfo.com.cn dated August 24, 2007. The Company put in Summary Report Of Alteration To Shenzhen Security Regulatory Inspection Problems For Shenzhen SEG Co., Ltd. to Shenzhen Security Regulatory Office on Sep.30, 2007, and will summarize and report the alteration. The main problems existing and alteration measures in this inspection: 1. Lack of independence Notice pointes out: the largest shareholder Shenzhen SEG SEG Co., Ltd. implements the Property Right Representatives System to the management of your company, which influences the dependence of the Company in information distribution, checking of human resource, important investment and decision-making of important events. It represents specifically as follows: (1) In respect of information distribution, your company must distribute all kinds of financial statements to SEG Group every month or quarter; report the financial budget of the next year to SEG Group every Nov.; the ministry of audit in SEG Group audits the economic 23 benefits of your company and send the audit report at the beginning of every year. Alteration measures: the Company has established and implemented related insiders secret system and supervision department record system. (2) In respect of checking of human resource, SEG Group checks the annual business achievement of top management personnel in your company according to the completion of the ordered target of annual business planning and other targets. Alteration measures: the Company has established Remuneration and Appraisal Committee and made the working principles for Remuneration and Appraisal Committee. The checking on business achievements of the top management personnel of the Company was authorized by the board of directors and checked by Remuneration and Appraisal Committee of the board of directors. (3) In respect of important investment and decision-making of important events, the important investment items of your company and subsidiary companies must be examined and approved by SEG. Group. Alteration measures: the Company has established and implemented related insiders secret system and supervision department record system. II. Problems existing in three meetings’ operation (1) The content of Power of Attorney of shareholders in shareholders meeting is not sufficient. Alteration measures: the Company has requested the present attorneys of shareholders to offer the complete Power of Attorney listed clearly the indication of approving, opposing or waiver to every deliberated item. At the same time, the office of Board of Directors Secretary in the Company should fulfill the auditing duty of the Power of Attorney carefully according to the regulations of the Articles of Association. (2)The time of the board of directors meeting is not informed timely. Alteration measures: the Company will send out meeting notice on schedule strictly according to the regulations of the Articles of Association and Board of Directors Rules of Procedure. (3) Strategy Committee, Remuneration Committee and other special committees do not exert their functions. Alteration measures: i) The Company held the 12th (2006) Shareholders Meeting on May.17, 2007 and has given birth to the forth Board of Directors by voting, the Company reconfirmed the members and related personnel in charge of the three special committees-Corporate Strategy Committee, Audit Committee and Remuneration and Appraisal Committee on the 1st meeting of the 4th Board of Directors, and made detail work rules of the three special committees to ensure their formal operation. ii) In the report period, the three special committees have held related specialized committee meetings as scheduled strictly according to the related regulations of the Articles of Association, and the special committees have offered specialized opinion from each point of view, which have improved decision-making efficiency of the Board and exerted their functions. And the Company will disclose the related meetings and working of the special committees in the report this year. 2. Main problems existing in information disclosure (1) Not fully disclose different opinions of director Alteration measures: i) Board of directors will carefully study the laws and regulations of Rules Governing Listing Of Stock On Shenzhen Stock Exchange and establishing regulations of periodic report, and intensify the information disclosure. The Company has established Measures of Information Disclosure for Shenzhen SEG Co. Ltd. on Jun.30, 2007 which has made clear the items such as the content, process, personnel in charge and punishment of information disclosure. ii) Board of directors will carefully fulfill the duty of timely inform the decision of board of directors, and ensure the reality, accuracy and completion of information disclosure. Completely avoid happening of events of this kind. 24 (2) Not disclose the working of special committees Alteration measures: The Company has fully disclosed the meetings and working of the special committees in the report this year. (3) Falseness and omissions existing in information disclosure of currency capital Alteration measures: i) The Company will strictly request subsidiary company timely report related investment, financing and other important financial events and exactly disclose information in accordance with the related regulations Rules Governing Listing of Stock on Shenzhen Stock Exchange, Measures of Information Disclosure for the Company and System of Report Important Events Information for the Company. ii) Intensify headquarter auditing to the subsidiary companies, timely find out the financial problems existing in the business process in subsidiary companies, and promote them operate formally. 3. Problems existing in accounting treatment and financial management. (1) Defects existed in financial management in subsidiary companies. Capitals of the Company were deposited and withdrew personally. Inspection showed that the subsidiary company SEG logistics opened bank accounts of RMB and HK dollars with the name of Zhao Guanying to deposit and withdraw capitals, which not only disobeyed related system of financial management, but also disobeyed Article 172 in the Company Law – “No company assets may be deposited into any individual's account. ” Alteration measures: i) In terms of the problem of SEG logistics’ capitals being deposited and withdrew personally, headquarter of the Company has met the manager of SEG logistics and financial personnel, held several meetings on alteration, and requested SEG logistics to immediately establish and perfect specific financial management system and put the alteration personnel and measures into effect. ii) SEG logistics has perfected related financial management system, cancelled the bank account of RMN and HK dollars with the name of individual, and will deposit the capital into the company’s bank account. iii) The company will intensify auditing the subsidiary companies, timely find out the financial problems existing in the business operation in subsidiary companies, and promote them to operate formally. (2) Cash management in some subsidiary companies is weak. Inspection showed that the subsidiary companies Shenzhen SEG Store & Transport Co. Ltd., Shenzhen Fubao SEG Co. Ltd. and Shenzhen SEG (HK) Store & Transport Co. Ltd. did not establish Cash Inspection System. The inspection also showed that large amount of loan lists of the staffers setting off stored cash existed in the strongbox, and the check list of stored cash did not put copy into file. Alteration measures: i) To the problem of weak cash management in some subsidiary companies, headquarter has checked further, and will establish alteration measures with the principals of related companies, request the related companies to immediately establish and perfect periodic cash check system, and regulate that there should be two or more persons every time checking cash, that is besides cashier, there should be person specially make the cash inspection; meanwhile, record the cash checking and put copy into file, ensuring the completion of the original materials; the loan that staffers borrow should be record into account timely, which can not offset the stored cash. ii) Till now, the problems existing in cash checking, timely recording staffers’ loan into account have been corrected. iii) The Company will intensify auditing the subsidiary companies, timely find out the financial problems existing in the business process in subsidiary companies, and promote them to operate formally. (3) Specific subsidiary company lack management of fixed assets. Inspection showed that the subsidiary company Shenzhen SEG Communication Co. Ltd. did not establish 25 management system of fixed assets, directly calculated into cost after purchasing computer equipments, did not perform approval procedure before disposal of transportation facilities, and accounting treatment directly offset original value of fixed assets. Alteration measures: i) Request SEG Communication to make relevant accounting adjustment to the paid computer equipment, supply the procedure of the disposed transportation facilities according to the management of fixed assets, and related accounting treatment should be switched back before completing the procedure. At the same time, request the company to learn a lesson, establish and perfect financial system, update accounting software, improve the making of accountants, and completely avoid the events of this kind happening again. ii) SEG Communication has altered according to the requirement of the Company promptly. iii) The Company will intensify auditing the subsidiary companies, timely find out the financial problems existing in the business process in subsidiary companies, and promote them operate formally. (4) Part of the income and cost did not follow the matching principle. Inspection showed that the subsidiary company Xi’an SEG Electronic Market Co. Ltd. did not confirm relevant gains and losses according to the accrual basis and matching principle in 2004 and 2005, existing phenomenon of confirming cost over years; the subsidiary company Shenzhen SEG Network and Information Co. Ltd. existing phenomenon of confirming expense over years. Alteration measures: i) To the problem of part of the income and cost not following the matching principle in specific subsidiary company; the Company has request the manager and financial person in charge in the related subsidiary company to alter in limited time. To the problem of income over periods, request the subsidiary company to make relevant financial adjustment according to financial system. ii) Asking the affiliated enterprises to learn a lesson, intensify studying, improve the level of financial management, and completely avoid the events of this kind happening. At present, related companies have made adjustment to the said problems. iii) The Company will intensify further auditing to the subsidiary companies, timely find out the financial problems existing in the business process in subsidiary companies, and promote them to operate formally. (5) Income confirming lacks persistence in some subsidiary companies. Inspection showed that the subsidiary companies Shenzhen SEG Store & Transport Co. Ltd. and Shenzhen SEG (HK) Store & Transport Co. Ltd. have business superposition, the information of all the business is managed by a set of logistic management system, and in financial division, the income and cost of each company changed a lot over the last year, which did not follow the persistence principle. Alteration measures: To the problem of income confirming lacking persistence in some subsidiary companies, the management and related functional department in the Company have discussed with general manager and financial principal of SEG logistics, and requested the related subsidiary companies to appoint personnel in charge of alteration to make alteration promptly. To the problem of income confirming lacking persistence, must make alteration according to the regulations of financial system. At the same time, the Company will intensify headquarter auditing to the subsidiary companies, timely find out the financial problems existing in the business process in subsidiary companies, and promote them to operate formally. Besides, the headquarter of the Company has informed all the subsidiary companies of the field inspection by Shenzhen Securities Regulatory Office to all the subsidiary companies, and requested all the companies to carefully study, understand and implement the alteration requirement, make effort in improving the level of financial management, and avoid the events of this kind happening again. 4. Internal auditing did not accord with related regulations. Inspection showed that your 26 company has not established independent internal audit department, the internal auditing is made by financial department, the internal auditing personnel are the undersecretary and cashier in the financial department, and report of the internal auditing is issued by general manager, which did not accord with related regulations of the Articles of Association and Internal Auditing System of the Company. Alteration measures: the Company has established Audit Department which is formed by specialized personnel passed after discussing in 2007 the 3rd Temporary Meeting of the 4th Board of Directors on Jun.21, 2007. At present, related audit system and audit work flow have been altered and completed, and internal auditing has operated formally with the leadship of Audit Committee of the Board of Directors. (II) Summary on special activities of company administration According to the requirements of Notice on Issues Concerning Campaign to Strengthen Governance of Listed Companies promulgated by CSRS ZJGSZ[2007] No.28 and Note on Issues Concerning Implement Campaign to Strengthen Governance of Listed Companies in Shenzhen promulgated by Shenzhen Securities Regulation Office, the Company makes self-inspection of the administration strictly in accordance with related laws and administrative rules of the Company Law and the Security Law, and internal rules and regulations of the Articles of Association with the principle of being practical and realistic, and start up the administration in special operation on Mar.26, 2007. After half year of inspecting, public commenting, altering and improving, the Company has completed administration in special operation. On May 23, the Company issued a bulletin, which publicized the telephone number and E-mail specially established for special activities of company administration to offer a convenient way for the investors putting forward their opinion and suggestion to the problems existing in administration. At the same time, the Company publicized a set of administration system such as the Articles of Associations in the column Special Activities of Company Administration in Shenzhen Security Exchange Market official web site to receive public comments. On Aug.24, the 1st Meeting of the 4th Board of Directors discussed and passed Self-inspection Report and Reorganizing Plan Regarding the Special Activities to Enhance Company Administration in Shenzhen SEG Co. Ltd. and Self-inspection issues Regarding the Special Activities to Enhance Company Administration in Shenzhen SEG Co. Ltd., and disclosed information by the company appointed media, and reported to Shenzhen Security Office and Shenzhen Security Exchange Market. On Sep.26, 2007, the Company held a communication meeting on Quanjing internet web site （http://www.p5w.net. Board Chairman, General Manager, Vice General Manager, Secretary of Board of Directors, principals of main departments and representatives of majority shareholders were presented in this communication meeting. The meeting discussed the current situation, optimal measures of company administration and other problems with the investors, seriously answered the questions put forward by public. During two hours, questions put forward by over 70 investors were answered totally in the meeting. After the three periods working, the Company disclosed Reorganizing Report Regarding the Special Activities to Enhance Company Administration in Shenzhen SEG Co. Ltd., and made a summary report of the special activities to all the investors. Related information of the special activities has publicized in China Securities, Securities Times, Wen Wei Po and Juchao Website (http://www.cninfo.com.cn) on May 23, 2007, Aug.24, 2007, Sep.25, 2007 and Oct.31, 2007. (III) Informal issues of company administration 1. Majority shareholders manage the Company according to the Property Right Representatives System. The majority shareholder SEG Group Co. Ltd. is the 27 state-controlled enterprises in Shenzhen, and Shenzhen State-owned Assets Supervision and Administration Commission is the majority shareholder of the company majority shareholder SEG Group Co. Ltd., which should implement the Property Right Representatives System of state-owned assets management according to Shenzhen state-owned assets management measures. 2. Offer unopened information to large shareholders and actual controllers The Company report unopened information according to the Property Right Representatives System and the requirements of sate statistic department. According to the requirements of state-owned assets supervision department, the situation of reporting monthly financial reports to majority shareholders and actual controllers and reporting important issues to majority shareholders and actual controllers before public disclosure exists at present. The Company put in Report of Listed Company Offering Unopened Information to Large Shareholders and Actual Controllers and Commitment Letter on Oct.18, 2007; SEG Group Co. Ltd. certificated Enhance the Management of Unopened information Commitment Letter. At the same time, the Company has established and implemented Insiders of Inside Information Record System of Shenzhen SEG Co. Ltd. and Insiders of Inside Information Secret System of Shenzhen SEG Co. Ltd., and will regularly record the report information of unopened information to Shenzhen Security Regulatory Office each month. The specific information that the Company offers unopened information to large shareholders and actual controllers is as follows: The relationship between the Parties of Deliver parties of Deliver Proof of delivering No. delivering Information sort date or delivering procedure information information period information and listed company Compiled by the investment enterprise of the Company and financial State Council personnel of GZW head office, Document(GZTPJ made [2003] No.23 ） statement and Notice on Relevant Report On Main Controlling consolidated, Matters on Shenzhen SEG Financial Index of shareholder delivered Each Monthly Enterprise 1 Group Co., Shenzhen through month Financial Report Ltd.. （30.24%） City-Owned information Compiled and Enterprises system of Reported by GZW state-owned Supervision And asset Administration administration Enterprise after the examination of leader of financial department State-Owned Compiled by State Council Assets Report On Main the investment GZW Supervision Financial Index Of enterprise of Document(GZTPJ Actual Each 2 And Shenzhen the Company [2003] No.23 ） controller month Administration City-Owned and financial Notice on Relevant Commission Enterprises personnel of Matters on Of Shenzhen head office, Monthly Enterprise 28 Municipal made Financial Report Government statement and Compiled and consolidated, Reported by GZW delivered Supervision And through Administration information Enterprise system of state-owned asset administration after the examination of leader of financial department Periodic expense statement of Information Controlling enterprise(including Relevant Shenzhen SEG system of details on sales Each regulations on 3 Group Co., shareholder state-owned expense, month state-owned assets Ltd.. （30.24%） asset administration administration administration expense and financial expense) State-Owned Periodic expense Assets statement of Supervision Information enterprise(including Relevant And system of Actual details on sales Each regulations on 4 Administration state-owned controller expense, month state-owned assets Commission asset administration administration Of Shenzhen administration expense and Municipal financial expense) Government Monthly print, signature and Monthly seals, then consolidated delivered; in statement(including addition, Controlling balance statement, Relevant Shenzhen SEG delivered shareholder profit statement, Each regulations on 5 Group Co., quarterly cash flow statement, month state-owned assets Ltd. （30.24%） through the notes to statement administration information compilation and system of report on financial state-owned analysis) asset administration Monthly print, signature and Monthly State-Owned seals, then consolidated Assets delivered; in statement(including Supervision addition, Relevant balance statement, And delivered regulations on Actual profit statement, Each 6 Administration quarterly state-owned controller cash flow statement, month Commission through the assets notes to statement Of Shenzhen information administration compilation and Municipal system of report on financial Government state-owned analysis) asset administration Shenzhen SEG Controlling Enterprise overall Information Notice on 7 Each year Group Co., shareholder budget system of Management of 29 Ltd. （30.24%） statement(including state-owned 2007 Enterprise 24 statements on asset Overall Budget enterprise overall administration Administration, budget) Notice on report on compiling and reporting the 2007 first-round budget draft and the requirements on compiling and reporting the second-round budget draft Notice On Management Of 2007 Enterprise State-Owned Overall Budget Assets Administration, Enterprise overall Supervision Information Notice On Report budget And system of On Compiling And Actual statement(including 8 Administration state-owned Each year Reporting The controller 24 statements on Commission asset 2007 First-Round enterprise overall Of Shenzhen administration Budget Draft And budget) Municipal The Requirements Government On Compiling And Reporting The Second-Round Budget Draft Implementation statement on Information Shenzhen SEG Controlling budget(including 24 system of shareholder Each SGZW [2007] 9 Group Co., statements on state-owned quarter No.219 Ltd. （30.24%） implementation of asset enterprise overall administration budget) State-Owned Assets Implementation Supervision statement on Information And budget(including 24 system of Actual Each SGZW [2007] 10 Administration statements on state-owned controller quarter No.219 Commission implementation of asset Of Shenzhen enterprise overall administration Municipal budget) Government With the approval of the Company, firstly delivered with electronic In accordance with documents Shenzhen SEG Controlling the made from 11 Group Co., shareholder Annual Report Each year requirementof enterprise Ltd. （30.24%） controlling statement shareholder handling software developed by Beijing Jiuqi Company, then delivered with 30 printed copy and seals after the examination of GZW With the approval of the Company, firstly delivered with electronic State-Owned documents Assets made from Supervision enterprise In accordance with And statement Actual the requirement of 12 Administration Annual Report handling Each year controller controlling Commission software shareholder Of Shenzhen developed by Municipal Beijing Jiuqi Government Company, then delivered with printed copy and seals after the examination of GZW Series of diagrams by Controlling the controlling In accordance with Shenzhen SEG shareholder Statement on shareholder, Each the requirementof 13 Group Co., management delivered with month controlling Ltd. （30.24%） E-mail after shareholder the approval from the Company The diagram is designed by GZW, Controlling Registration In accordance with Shenzhen SEG delivered with shareholder statement on the requirement of 14 Group Co., the seal of the Aperiodic changing controlling Ltd. （30.24%） Company after state-owned assets shareholder the approval from leaders group Delivered after the approval from minster of financial Controlling In accordance with Shenzhen SEG Other temporary department or shareholder the requirement of 15 Group Co., documents or leaders of the Aperiodic controlling Ltd. （30.24%） statements Company shareholder regarding the sensitivity of the information Controlling Statistics The Statistics Law Shenzhen SEG Each shareholder report/monthly Seal of the of the People's 16 Group Co., month, report and annual Company Republic of China, Ltd. （30.24%） each year report Article 3: State 31 organs, public organizations, enterprises, institutions, and self-employed industrialists and businessmen that are under statistical investigation shall, in accordance with the provisions of this Law and State regulations, provide truthful statistical data. They may not make false entries or conceal statistical data, and they may not refuse to submit statistical reports or report statistical data belatedly. Falsification of or tampering with statistical data shall be prohibited. Autonomous mass organizations at the grass-roots level and citizens shall have the duty to provide truthful information needed for State statistical investigations. Controlling Relevant document Shenzhen SEG shareholder Monthly report on Each on project 17 Group Co., E-mail project progress month management of Ltd. （30.24%） SEG Group 3. In the aspect of personnel assessment, for the existed problems and the measures for improvement and reform of the Company, please see the contents in I. Administration of the Company. II. Performance of Independent Directors: In the report period, the independent directors could take their responsibilities, perform their duties faithfully and attend the relevant meeting actively strictly in accordance with the Work Rule of Independent Director; deepen getting know about the production operation situation and the progress of significant events, provided reasonable opinions and suggestion in respective professional angles on operation and development of the Company; issued independent opinions on relevant matters such as re-engaging 2007 auditing organ, related transaction, engagement of senior executive and sales of significant asset. The Auditing Commission, Remuneration and Assessment Committee convened by independent directors of the Company and the Development and Strategy Committee attended by all independent directors both held 2 meetings in the report period; better performed the duties of special 32 committee and provided professional opinions for the decision of board of directors. 1. Particulars about independent directors’ presenting the meetings of Board of Directors: In the report period, the Company totally held 7 spot meetings of the board of directors Times that Times of Name of Times of should have presence at Times of independent entrusted attended this meetings in absence directors presence year person Su Xijia 7 5 2 0 Jia Heting 7 7 0 0 Jiang Yigang 7 7 0 0 2. Objection on matters from independent director (1)On May 30, 2007, the 2nd extraordinary meeting 2007 of the 4th board of directors of the Company was held, in which independent director Jia Heting voted waiver on Self-inspection Report and Reorganizing Plan Regarding the Special Activities to Enhance Company Administration of Shenzhen SEG Co., Ltd (hereinafter refers to Report); and the reason for waiver was that for the problem on “whether existing the same trade competition among the Company and controlling shareholder, or its controlling other associated units” concerned in the Report, independent director Jia Heting regarded that the business of communications electronic market engaged by SEG Group and the business of communications electronic market engaged by listed company had different operations, but essentially belongs to electronic market business and thus remains certain completion of the same trade. I (2) On June 28, 2007, the 4th extraordinary meeting 2007 of the 4th board of directors of the Company was held in communication, in which independent director Jiang Yigang voted waiver on Measures for the Information Disclosure of Shenzhen SEG Co., Ltd; and the reasons for waiver was that “If objection is not supplied in regulated date, it should be regarded as no comment” should be deleted in Article 40 and item 4 of Article 44 on Measures for the Information Disclosure. II (3) On July 23, 2007, the 5th extraordinary meeting 2007 of the 4th board of directors of the Company was held in communication, in which independent director Su Xijia voted against on the proposal on Lend RMB 6.08 Million To Shenzhen SEG Hitachi Color Display Co., Ltd.; and the reasons was that: i. The loan has higher risk and the possibilities of taking back is low and not advantageous to the Company; ii, Other shareholder did not shoulder loan on the settlement plan, all the loan was born by the Company and it went against the principle of fairness. III. Particulars about the Company’s “Five Separations” from the first largest shareholder in respect of business, personnel, assets, organization and finance: 1. In respect of business, the Company has integrated business system, keeps independence in operating management, confronts with the market independently during operation, and avoids competition with SEG Group in same trade. For the problem that there remained competition in the same trade between the Company and SEG Group indicated in spot inspection by Shenzhen Securities Supervisory Bureau, the Company received written Commitment Letter from SEG Group on Sep.14, 2009 and the content was as follows: the company of the group has similar business in Shenzhen electronic market with Shenzhen SEG Co., Ltd. (Shenzhen SEG), and the business was resulted by history and it has objective market development background. The company of the group made commitment: For the future, we do not take operation on market which is similar with Shenzhen SEG singly in the same city. The aforesaid matters have been disclosed in Securities Times, China Securities and Hong Kong Wen Wei Po and Juchao Website. 2. In respect of personnel, the Company’s senior executives including general manager, deputy general manager and secretary of the board are full time employers in the Company without taking concurrent position in the first largest shareholder’s company, and receive 33 salary from the Company. The Company has integrated administration system of labor, personnel affairs and salaries, and keeps independence of its personnel. 3. In respect of assets, in the early days of the Company’s establishment, the equity of the eight enterprises striped from SEG Group to the Company have been audited and evaluated by domestic and overseas Certified Public Accountants, and have also been recognized by Shenzhen municipal and national administrative authority of state-owned assets. The controlling shareholder of these eight enterprises was changed from SEG Group to the Company as registered in Administration Bureau of Industrial and Commercial. The Company makes independent registration, establishes independent accounts, and implements business accounting and management independently for the assets so as to keep completeness and independence of these assets. According to the Article No. 5 of Equity Transfer Agreement signed by the Company with SEG Group when the Company was listed, SEG Group agreed to let the Company and its subsidiaries and joint affiliated companies to use the eight trademarks that have been registered in National Trademark Bureau; and SEG Group agreed the Company to use the aforesaid trademarks or similar signs as the Company’s logo during its operation; but the Company need not pay any fee to SEG Group for using the aforesaid trademarks or signs. 4. In respect of organization, the Company has set up organization and engaged staff fully in accordance with its own demand of management, and its production management department and administrative department are totally independent from the first largest shareholder. 5. In respect of finance, as a legal person corporation that independently operates management, business accounting and assumes sole responsibility for its profits and losses, the Company has independent financial and auditing department, has established independent business accounting system and financial administration system, has independent bank account, pays taxes according to law, and keeps absolute independence in its financial work. IV. Establishment of inner control system of the Company and its improvement (I) Inner control of the Company in the report period 1. The board of directors of the Company takes Guide for Inner Control of Listed Companies as guidance, combined with the actual situation of the Company, establishes series inner control system including production operation, financial management and information disclosure of the Company, guarantees the normal running of the Company’s business, protects the safety and completeness of the Company’s asset. In the report period, in accordance with the work plan on establishing perfect inner control system, the board of directors successively establish the series inner control systems such as Rules on the Management of Shares Held by the Directors, Supervisors and Senior Management Officers of Listed Companies and the Changes Thereof of Shenzhen SEG Co., Ltd., Work Rules for Remuneration and Assessment Committee of Board of Directors of Shenzhen SEG Co., Ltd., Work Rules for Auditing Commission of Board of Directors of Shenzhen SEG Co., Ltd., Work Rules for Development and Strategy Committee of Board of Directors of Shenzhen SEG Co., Ltd., Work System on Reception and Promotion of Shenzhen SEG Co., Ltd., Record System on Insider Dealer of Shenzhen SEG Co., Ltd., Secret System on Privately Information Insider of Shenzhen SEG Co., Ltd., Inner Auditing Rules of Shenzhen SEG Co., Ltd and Responsibilities of Auditing Department of Shenzhen SEG Co., Ltd.; and revise and perfect the systems such as Measures for the Information Disclosure of Shenzhen SEG Co., Ltd and Work Rules for Remuneration and Assessment Committee of Board of Directors of Shenzhen SEG Co., Ltd which further strengthen the inner control construction of the Company. 2. The establishment of inspection and supervision department on inner control of the Company In the report period, the Company further perfect the inner control system of the Company, 34 with the examination of board meeting of the Company held in June 21, 2007 which established the auditing department, regulations and systems such as Inner Auditing Rules of Shenzhen SEG Co., Ltd and Responsibilities of Auditing Department of Shenzhen SEG Co., Ltd were approved in the boarding meeting held on Sep.30, 2007. The auditing department has professional 2 auditing personnel of which the minister of auditing department was nominated by the Auditing Commission of the board of directors and engaged by the board of directors of the Company in March 2008. With the leadership of Auditing Commission of the board of directors, auditing department is responsible for the inter audit and checking works, supervise and inspect the establishment, consummation and implementation of inner control system of the Company; take inner auditing and supervision on all the economy activities of the Company and its invested enterprise including inner control system, accounting policy, financial status and financial report, perform independently the inner auditing. The inner control systems of the Company had been strictly performed and effectively implemented during the operation management of the Company. 3. Arrangement on works of inner control by the board of directors (1)Established inner control system and work flow, regulate the work behaviors of inner audit; In year 2007, with the approval of board of directors of the Company, the Company successively established Inner Auditing Rules of Shenzhen SEG Co., Ltd; and examined and approved Responsibilities of Auditing Department of Shenzhen SEG Co., Ltd. At the same time, the Company established inner audit work flows, including: Work Flow on Spot Inner Audit, Work Flow on Submitting and Issuing Inner Audit Report, Work Flow on File Management of Inner Audit and Work Flow on External Audit and Tendering and Bidding. The establishments of inner audit system and work flow of the Company regulated the work behaviors of inner audit and made the inner audit works had regulations to take. (2) Accomplished the economy benefit audit once each year on investment enterprise and economy responsibilities audit on leaving its post for general manager of part investment enterprise; (3 Strengthened work strength on supervising auditing reorganizing reform, and implemented the negotiation mechanism on inner audit; (4) Established the work plan for 2008 inner audit of the Company. 4. Perfection on the inner control system relevant to financial accounting. In financial calculation, the Company has established perfect financial calculation system, and according to the regulations of Accounting Standards and other financial system issued by financial department, with the precondition of following related national laws and rules, the Company has established enterprise financial system which is suitable for the Company, including Interim Regulations For Financial Management in Shenzhen SEG Co. Ltd., Interim Regulations For Fund Approval and Expense Approval in Shenzhen SEG Co. Ltd., Interim Regulations For Accounts Receivable Management in Shenzhen SEG Co. Ltd., Interim Regulations For Inventory Management in Shenzhen SEG Co. Ltd., and Interim Regulations For Fixed Assets Management in Shenzhen SEG Co. Ltd.. At the same time, the Company has also received audit supervisory including annual audit by certified public accountants and internal audit institutions, and inspected the establishing and implementing of the financial calculation and internal control system at fixed period. (II) Key controlling activities 1. Internal control on controlling subsidiaries of the Company Diagram for Organization Structure and Proportion of Shares Held for Controlling Subsidiary, Shenzhen SEG Co., Ltd. 35 Shareholders’ General Meeting Supervisory Commmittee Audit Commission Board of Directors Management Group of Compensation and Secretary of Board Special Committee the Company Assessment Committee of Directors Development Strategy Department Planning Financial Department Committee Property Operation Dept. HR Dept. Office Market Operation Dept. SEG Electric Market Filiale of Shenzhen SEG Co., Controlling Subsidiary 95% 70% 50% 45% 52.41% 66.58% 97.7% 91.79% 65% Shenzhen SEG Network and Information Co., Ltd. Suzhou SEG Electric Market Management Co., Ltd. Shenzhen SEG Store & Transport Co., Ltd. ShenzhenSEGElectricMarketManagementCo.,Ltd. Xi’an SEG Electric Market Co., Ltd. Chongqing SEG Electric Market Co., Ltd. Shenzhen SEG Baohua Elnterprise Deveopm,ent Co., Shenzhen SEG Communication Co., Ltd. Shenzhen SEG Industrial Investment Co., Ltd. 40% ShenzhenBao’anSEGElectricMarketCo.,Ltd. The Company conducts management and control over the significant operating activities of its exclusively-owned subsidiary and holding subsidiary, and entrusts or commends directors, supervisors and part senior executives for these subsidiaries, in accordance to the Guidance for Internal Control of Listed Company and the internal management system on investment and operation. During the report period, the Company puts emphasis on control in related transaction, significant investment and information disclosure of its exclusively-owned subsidiary and holding subsidiary. The audit department of the Company makes quarterly inspection on the progress of the operation plan of all holding subsidiaries and also makes aperiodic specific audit inspection; the secretary of the board of the Company is responsible for inspection and supervision of the healthiness of the internal control system of the holding subsidiaries. It supervises the holding subsidiaries to report the significant information to the person in charge of the Company in time, according to the internal report system for significant information and the internal procedure for examination and approval. Meanwhile, the holding subsidiaries have obligation to report significant proceeding to the board or the 36 shareholders meeting of the Company for examination and approval, and then to disclose the related information, strictly according to the Articles of Associations. 2. The internal control of the related transaction of the Company Strictly being in line with regulations in related parties, content, procedure for examination and approval and information disclosure, which is regulated by Shenzhen Stock Exchange for stock listing such as Listing Rules of the Stock, the Articles of Association, the Company conducts related transaction. The price for related transaction is determined on the basis of market fair value and the public bidding price, which follows the transaction principle of equal, open and fair. 3. The internal control of the external guarantee of the Company The internal control for the external guarantee of the Company follows principle of legality, prudence and safety and guarantee risk has been strictly controlled. The board of directors of the Company has made strict standardization on examine-and-approve authorization right and procedure for external guarantee in Articles of Association of the Company. During the report period, except for the guarantee provided for the holding subsidiary, there is no other external guarantee. As to the guarantee provided for the holding subsidiary, the Company strictly obey and implement the relevant procedure for examine-and-approve and information disclosure according to relevant regulations of the Company. 4. The internal control of use of raised proceeds of the Company The Company establishes Temporary Method for Management of Raised Proceeds of Shenzhen SEG Co., Ltd. In 2007, there was no application of proceeds raised or application of proceeds raised in the previous period but lasting to the report period in the Company. 5. The internal control of significant investment of the Company The significant investment of the Company insists of principle of legality, prudence, safety and efficiency. Investment risk is controlled and attention is paid to return on investment. As to significant investment, only examined and approved by the Strategic Committee of the board of directors of the Company, and passed by the board or shareholders’ meeting, can the investment be carried out. In the Article of Association, it stipulates clear regulation in authorization right hold by the board for examine-and-approve significant investment. The Company also establishes definite stipulations for examination and decision-making, established Interim Measures for Investment Project Approval and Administration of Shenzhen SEG Co., Ltd. During the report period, the Company has conducted no significant investment. 6. The internal control of information disclosure of the Company The Company conducts information disclosure, in strict accordance to Principle for Stock Listing set by Shenzhen Stock Exchange, Governing Principle for Listed Company, Guidance for Equal Information Disclosure of Listed Company, the Articles of Association and System on Managing Information Disclosure of Shenzhen SEG Co., Ltd and other laws and regulations. Various ways are adopted by the Company to disclose information to its investors timely, fairly and accurately. (III) Problems and changes The details are available in“(I) Particulars about the spot inspection of the Company made by Shenzhen Securities Regulatory Bureau”, “(II) Particulars about the special activity of administration of the Company” and “(III) Informal issues of company administration” in “I. Administration of the Company” in this chapter. During the report period, the Company has not received public criticize from the CSEC and Shenzhen Stock Exchange. (IV) General comment The present internal control system of the Company has covered every tach and ground of the Company’s operation, forming the more comparative and standardized inner control management system. With this internal control system, the management on operation of the Company is guaranteed with order and operation with high efficiency. At the same time, the 37 already existed or might-be errors occurred in the Company’s operation could be well prevented, found and corrected in time. It effectively maintains the safety and completeness of the Company’s assets and protects the shareholders’ equity. The execution of the internal control system is well. (V) Opinions issued by the Supervisory Committee on the self-estimation of the internal control of the Company According to the relevant regulation of Guidance for Internal Control of Listed Company and Notice on 2007 Annual Report of Listed Company, the Supervisory Committee of the Company makes the following opinions on the self-estimation of the internal control of the Company: In the report period, the Company continuously establishes and perfects its internal control system, which guarantees an efficient and sequent carrying out of the company’s operation, maintains the safety and completeness of the Company’s assets and assures the full implementation of the development strategic and the operation plan of the Company, according to the relevant regulation stipulated by the CSRC and Shenzhen Stock Exchange, and to the basic principle of internal control as well as its actual condition. The organ for internal control of the Company is complete and so is the internal audit department and its related personnel, which provides effectiveness for the execution and supervision of the internal control of the Company. During the report period, no violation of Guidance for Internal Control of Listed Company promulgated by Shenzhen Stock Exchange has happened. (VI) Opinions issued by the independent directors on the self-estimation of the internal control of the Company On the basis of independence, being the independent directors of the Company, we made careful inspection on the internal control of the Company and we hold that: in the report period, according to the demand in Guidance for Internal Control of Listed Company promulgated by Shenzhen Stock Exchange and combining with the problems found by CSRC in the special activity of administration of the Company and the inspection made by Shenzhen Stock Exchange, the Company timely emends and perfects a series of management system and internal management procedure of the Company, and makes change in all the problems found in the inspection and self-check. The present internal control system of the Company has been almost healthier, and the internal control system of the Company has been formed, featuring with the basic system for administration of the Company, business control system, accounting system control system, information system control system and internal audit control system. This internal control system can be adapted to the demands for operation management and development of company, can provide reliable assurance for working out real, accurate and complete financial statement, also can provide reliable assurance for the healthy running of the various business of the Company, and the implementation of the related national laws and regulations. V. Valuation and incentive mechanism and relevant encouragement system adopted by the Company to the senior executives In the report period, after the spot checking on reorganization reform and the self-inspection reorganization regarding the administration of special activities of the Company by Shenzhen Supervision and Administration Bureau, the Company has established established Remuneration and Appraisal Committee of the board of directors and made the working principles for Remuneration and Appraisal Committee. The checking on business achievements of the top management personnel of the Company was authorized by the board of directors and checked by Remuneration and Appraisal Committee of the board of directors. During the report period, the incentive mechanism for the senior executives of the Company has not been established and encouragement has not been made. In the proper time, the Company will establish relevant incentive and restriction mechanism and choose chances 38 to implement. Chapter 3 VI. BRIEFINGS ON THE SHAREHOLDERS’ GENERAL MEETING In the report period, the Company held four shareholders’ general meetings, namely, the 1st Provisional Shareholders’ General Meeting of 2007, the 12th Shareholders’ General Meeting (the Annual Shareholders’ General Meeting 2006), the 2nd Provisional Shareholders’ General Meeting of 2007, and the 3rd Provisional Shareholders’ General Meeting of 2007. I. The Company published the Public Notice on Holding the 1st Provisional Shareholders’ General Meeting of 2007 of Shenzhen SEG Co., Ltd. on China Securities, Securities Times, and Hong Kong Wen Wei Po dated Mar 1st of 2007. The Shareholders’ General Meeting was held at the general meeting room on 31/F of the Company, Tower A, Qunxing Plaza, Huaqiang Road (N), Shenzhen at 10:30 am on Mar 19th of 2007. The public notice of the resolution of the aforesaid shareholders’ general meeting has been published on China Securities, Securities Times, Hong Kong Wen Wei Po and Juchao Website dated Mar 20th of 2007. II. The Company published the Public Notice on Holding the 12th Shareholders’ General Meeting (the Annual Shareholders’ General Meeting 2006) of Shenzhen SEG Co., Ltd. on China Securities, Securities Times, and Hong Kong Wen Wei Po dated Apr 26th of 2007. The Shareholders’ General Meeting was held at the general meeting room on 31/F of the Company, Tower A, Qunxing Plaza, Huaqiang Road (N), Shenzhen at 10:30 am on May 17th of 2007. The public notice of the resolution of the aforesaid shareholders’ general meeting has been published on China Securities, Securities Times, Hong Kong Wen Wei Po and Juchao Website dated May 19th of 2007. III. The Company published the Public Notice on Holding the 2nd Provisional Shareholders’ General Meeting of 2007 of Shenzhen SEG Co., Ltd. on China Securities, Securities Times, and Hong Kong Wen Wei Po dated Oct 8th of 2007; on Oct 17th of 2007, notice on Canceling the Proposal of the 2nd Provisional Shareholders’ General Meeting of 2007 of Shenzhen SEG Co., Ltd and Increasing Provisional Resolutions was published in the aforesaid medias; on Oct 19th of 2007, Notice on Proposal of Adding Provisional Resolutions to the 2nd Provisional Shareholders’ General Meeting of 2007 of Shenzhen SEG Co., Ltd was published in the aforesaid medias; The provisional shareholders’ general meeting was held at the general meeting room on 31/F of the Company, Tower A, Qunxing Plaza, Huaqiang Road (N), Shenzhen at 10:30 am on Nov 2nd of 2007. The public notice of the resolution of the aforesaid meeting has been published on China Securities, Securities Times, Hong Kong Wen Wei Po and Juchao Website dated Nov 3rd of 2007. IV. The Company published the Public Notice on Holding the 3rd Provisional Shareholders’ General Meeting of 2007 of Shenzhen SEG Co., Ltd. on China Securities, Securities Times, and Hong Kong Wen Wei Po dated Nov 23rd of 2007; on Dec 11th of 2007, notice on Adding Provisional Resolutions to the 3rd Provisional Shareholders’ General Meeting of 2007 of Shenzhen SEG Co., Ltd was published in the aforesaid medias; on Dec 19th of 2007, Clue Notice on Holding the 3rd Provisional Shareholders’ General Meeting of 2007 of Shenzhen SEG Co., Ltd was published in the aforesaid medias; The provisional shareholders’ general meeting was held at the general meeting room on 31/F of the Company, Tower A, Qunxing Plaza, Huaqiang Road (N), Shenzhen at 10:30 am on Dec 21st of 2007. The public notice of the resolution of the aforesaid meeting has been published on China Securities, Securities Times, Hong Kong Wen Wei Po and Juchao Website dated Dec 22nd of 2007. Chapter 4 Chapter 5 VII. REPORT OF BOARD OF DIRECTORS I. Discussion and analysis on the operation (I) Review on the operation of the Company in the report period 39 1. The operation of the Company During the report period, the Company has totally realized sales income of RMB 711,080,000, with 63% down compared to that of the same period of last year; RMB 81,410,000 for total profit and the same item made at the same period of last year is RMB -146,900,000; RMB 65,920,000 for net profit and the same item made at the same period of last year is RMB -151,630,000. The main reasons accounting for the turn over are listed as follows: (1) the Company successfully transferred 73.24% equity of SEG Zhongdian, which brought income of RMB 60,080,000 from this equity transfer; (2) the Company sold the equity of Shenzhen SEG Dasheng Co., Ltd held by them, which realized invest income of RMB 32,000,000; (3) the electronic market of the Company continuously presents growth, with its scale enlarging and operating efficiency increasing. 2. Main business and operation in the report period The Company is mainly engaged in the business of scientific research, production and operation of hi-tech electronic and information products including CPT, electronic system engineering, network engineering and communications etc., operation of industry of information service, operation management of electronic market, bonded storage and foreign transportation etc.. In respect of CPT business, because of the general decline in the whole industry, SEG HITACHI, the indirectly-holding company of the Company stopped working on Jul 17th of 2007. In order to cut down the biggest loss origin, the Company successfully transferred 73.24% equity of SEG Zhongdian in the report period. That was to say, the Company indirectly transferred the equity of SEG HITACHI, which made it available for the Company to turn loss into gain in 2007. On Nov 21st of 2007, with examination and approval from the board of directors of the Company, the Company and Yuanzhi Company signed contract for equity transfer of SEG Zhongdian. The Company transferred 73.24% equity of SEG Zhongdian to Yuanzhi Investment with transaction amount of RMB 384,510,000 and the procedure for transferring the ownership of the equity has been finished dated Dec 24th of 2007. This transfer brought income of RMB 60,080,000 to the Company, and also helped the Company to adjust and optimize its industry structure. In respect of operation of electronic market, the business in SEG electronic market, directly operated by the Company, always keeps steady growth in the report period. The average occupancy of various market shops kept as high level as 93% above. Through integrating the market resources, innovating in the operating pattern, strengthening the management and improving the service level, the Company further consolidates the leading position of SEG electron market in the industry. In March 2008, the Company acquired the title of “China Five Star Grade Market of Electronic Products” from the authentication which was organized by China Electronic Chamber of Commerce and became the one of three China Five Star Grade Market of Electronic Products nationalwide. In the report period, the subsidiary of electronic market accomplished sales revenue of RMB 92.91 million, with an increase rate of 4% compared to that of last year in the same period; realized total profit RMB 48.29 million, increasing by 10% compared to that of last year in the same period. (1) Formation of revenue from operations and profit from operations classified according to industries: Unit: RMB Revenue from Profit from Gross profit Industries operations operations ratio (%) 1 Manufacture of CPT 392,158,768.17 -540,057.68 -0.14 Business of electronic market 2 operation and properties leasing 205,099,079.62 83,116,431.29 40.53 Business of foreign transportation 3 and bonded storage 75,516,923.03 5,258,077.44 6.96 4 Manufacture of products of 38,305,790.84 -9,671,885.64 -25.25 40 telecommunications and revenue from network business Total 711,080,561.66 78,162,565.41 10.99 (2) Formation of revenue from operations and profit from operations classified according to sales areas: Unit: RMB Revenue from Sales area of products Profit from operations Gross profit ratio (%) operations 1 Domestic 445,277,058.72 107,299,325.94 24.10 2 Overseas 265,803,502.94 -29,136,760.53 -10.96 Total 711,080,561.66 78,162,565.41 10.99 (3) Sales revenue, sales cost and gross profit ratio of major product taking up 10% or above of total profit from main operations: Unit: RMB Major products taking over 10% of the total Gross Revenue from Profit from amount of revenue from main operations or profit profit operations operations from main operations ratio (%) Business of electronic market operation and properties leasing 205,099,079.62 83,116,431.29 40.53 (4) Main suppliers and customers Unit: RMB Top five suppliers Top five customers Name of supplier Purchasing amount Name of supplier Sales amount Hhenen Ancai Hi-tech Co.,Ltd. 68,514,804.63 TCL Electronics (HK) Ltd 62,169,045.12 |Shenzhen Churui Investment 46,349,424.64 FEI Logistics Ltd.(HONG 55,578,693.45 Co.,Ltd. KONG) Shenzhen Wokewei Electronics Co., 30,838,507.25 41,961,223.26 Konka Group Co., Ltd. Ltd. Shanghai Asahi Electronic Glass 29,330,937.05 Hitachi High Technologies 30,494,558.72 Co., Ltd. Hong Kong Ltd. Henan Anfei Electronic Glass 13,457,314.69 29,330,460.90 PT. Hartono Iatana Teknologi Co.,Ltd. Subtotal 188,490,988.26 Subtotal 219,533,981.45 Percentage taking of the total 23.79％ Percentage taking of the total 30.87％ amount of annual purchase amount of sales 3. Analysis to the financial status of the Company in the report period. During the report period, because the Company successfully transferred the equity of SEG Zhongdian, which, though, brought a sharp cut to the asset scale of the Company, the profit is increasing, the quality of assets is rising and the financial status is improving in a large extent. Unit: RMB Change Items Dec. 31,2007 Dec. 31,2006 scope Reasons for change （%） After the Company successfully transferred the equity of SEG Zhongdian in Total assets 1,643,575,998.86 3,138,202,860.85 -47.63% this year, it is not demanded to consolidate the assets of SEG Zhongdian, which cut down a lot in this item. Monetary assets 261,303,787.50 336,328,630.67 -22.31% The same reason as above 41 Bills receivable --- 110,022,805.14 -100.00% The same reason as above Accounts receivable 216,587,489.28 351,871,777.92 -38.45% The same reason as above Accounts paid in advance 8,430,446.55 31,032,769.56 -72.83% The same reason as above Other accounts receivable 21,199,857.81 59,396,304.50 -64.31% The same reason as above Inventory 5,382,388.76 176,437,562.63 -96.95% The same reason as above In this report period, the Financial assets available for Company sold part stocks of 8,164,453.46 17,382,362.56 -53.03% sale Shendasheng, which brought decrease in this item. In this year, the losses of SEG Samsung shareholded by the Long-term equity investment 549,113,821.63 600,599,380.21 -8.57 Company brought decrease in this item. After the Company successfully transferred the equity of SEG Zhongdian in Fixed assets 70,599,740.28 870,492,679.22 -91.89% this year, it is not demanded to consolidate the assets of SEG Zhongdian, which cut down a lot in this item. Construction in process 500,100.00 20,479,085.46 -97.56% The same reason as above Intangible assets 682,809.63 51,466,519.03 -98.67% The same reason as above After the Company successfully transferred the equity of SEG Zhongdian in this year, it is not demanded to consolidate the liability of SEG Short-term loans 96,750,000.00 434,750,000.00 -77.75% Zhongdian, which cut down a lot in this item; the head office of the Company has paid back part loans, which also cut down in this item. After the Company successfully transferred the equity of SEG Zhongdian in Bills payable --- 319,309,107.23 -100.00% this year, it is not demanded to consolidate the liability of SEG Zhongdian, which cut down a lot in this item After the Company successfully transferred the equity of SEG Zhongdian in Accounts payable 23,936,694.40 451,437,072.45 -94.70% this year, it is not demanded to consolidate the liability of SEG Zhongdian, which cut down a lot in this item Wages payable 7,483,430.20 38,773,253.16 -80.70% The same reason as above The increase in the profit of the Company in this report period Tax payable 19,577,993.58 3,750,038.23 422.07% results in an increase in income tax payable. After the Company successfully transferred the equity of SEG Zhongdian in Other accounts payable 84,558,498.67 157,167,688.85 -46.20% this year, it is not demanded to consolidate the liability of SEG Zhongdian, which cut down a lot in this item Noncurrent liability due --- 18,750,000.00 -100.00% The same reason as above within one year Short-term loans --- 81,600,000.00 -100.00% The same reason as above The realized profit of the Shareholders’ equity 1,272,815,600.37 1,204,293,470.35 5.69% Company in this period results attributable to parent company in an increase in this item. Minor shareholders’ equity 30,958,932.54 299,261,945.70 -89.65% After the Company 42 successfully transferred the equity of SEG Zhongdian in this year, this item decreased sharply. Change Items Jan-Dec of 2007 Jan-Dec of 2006 scope Reasons for change （%） In the report period, due to that the CPT business has received measurement for decreasing Operation income 711,080,561.66 1,950,977,572.61 -63.55% and stopping production, the operation income declined sharply. In the report period, due to that the CPT business has received Operation cost 656,430,051.68 1,839,763,414.59 -64.32% measurement for decreasing and stopping production, the operation cost declined sharply. The decrease in sales amount Operation expense 36,603,298.26 58,817,765.78 -37.77% directly results in a decrease in this item. Expense for equity transferring has been increased because of the equity transfer of SEG Administration expense 224,485,236.19 152,483,552.35 47.22% Zhongdian, SEG Network’s compensation expense for employees in enterprise system reform. Calculate impairment losses to Assets impairment loss 197,001,664.35 12,906,723.71 1426.35% CPT equipment and relevant assets. The successful equity transfer of SEG Zhongdian brings Investment income 539,760,989.61 22,191,917.32 2332.24% increase in this item and so does selling Shendasheng Stock. The successful equity transfer of SEG Zhongdian and selling Operation profit 78,162,565.41 -146,119,788.17 --- Shendasheng Stock bring an increase in this item. Total profit 81,405,319.49 -146,902,812.28 --- The same reason as above Net profit 65,923,186.12 -151,634,197.69 --- The same reason as above Net profit attributable to 62,945,577.11 -65,672,156.10 --- The same reason as above owners of parent company Change Other index Jan-Dec of 2007 Jan-Dec of 2006 scope Reasons for change （%） The successful equity transfer Decrease of SEG Zhongdian and 31.42 returning back part of Asset liability ratio 20.67% 52.09% percentage short-term loan result in a sharp point decline in assets and liabilities ratio. After the successful equity transfer of SEG Zhongdian, the Current ratio 1.547 0.687 0.860 decrease scope of circulating liability is larger than that of circulating assets. Quick ratio 1.531 0.574 0.957 The same reason as above The successful equity transfer Increase of SEG Zhongdian result in a The ratio of shareholders’ 31.42 sharp decline in assets and 79.33 47.91 equity percentage liabilities, while the point shareholders’ equity increases a lot due to the profit. Account receivable turnover Sharp decline in operation 144 6 +138 days income results in this. 43 Sharp decline in operation cost Inventory turnover days 50 12 +38 results in this. (1) Analysis to the main formation of the assets of the Company (Unit: RMB) Dec.31, 2007 Dec.31, 2006 Increase/decrease Items Proportion Proportion in proportion of Amount in total Amount in total total asset assets assets Total assets 1,643,575,998.86 100.00% 3,138,202,860.85 100.00% 0.00% Monetary fund 261,303,787.50 15.90% 336,328,630.67 10.72% 5.18% Account receivable 216,587,489.28 13.18% 351,871,777.92 11.21% 1.97% Long-term equity 549,113,821.63 33.41% 600,599,380.21 19.14% 14.27% investment Investment real 472,395,598.33 28.74% 487,443,269.72 15.53% 13.21% estate Fixed assets 70,599,740.28 4.30% 870,492,679.22 27.74% -23.44% Accounts received 102,596,820.45 6.24% 124,445,946.83 3.97% 2.27% in advance Equity attributable to holders of parent 1,272,815,600.37 77.44% 1,204,293,470.35 38.38% 39.07% company Minor shareholders’ 30,958,932.54 1.88% 299,261,945.70 9.54% -7.65% equity (2) In the report period, the changes in the financial data, such as the operating expense, administrative expense financial expense, and income tax, etc. Unit: RMB Increase/decrease Item 2007 2006 Reasons for changes (%) In the report period, due to that the CPT business has received measurement for Operation cost 656,430,051.68 1,839,763,414.59 -64.32% decreasing and stopping production, the operation cost declined sharply. The decrease in sales Operation expense 36,603,298.26 58,817,765.78 -37.77% amount directly results in a decrease in this item. Expense for equity transferring has been increased because of the equity transfer of SEG Administration expense 224,485,236.19 152,483,552.35 47.22% Zhongdian, SEG Network’s compensation expense for employees in enterprise system reform. Calculate impairment Assets impairment loss 197,001,664.35 12,906,723.71 1426.35% losses to CPT equipment and relevant assets. The successful equity transfer of SEG Zhongdian brings an Investment income 539,760,989.61 22,191,917.32 2332.24% increase in this item and so does selling Shendasheng Stock. Increase in income tax accompanies with an Income tax 15,482,133.37 4,731,385.41 227.22% increase in profit of the Company 44 (3) Changes in the financial data related to cash flow of the Company during the report period Unit: RMB 2007 2006 Increase in Items Structure Structure Structure Amount Amount comparison comparison comparison Cash flow-in arising 1,003,825,288.66 100.00% 2,383,371,338.93 100.00% --- from operation Including: cash received from selling commodities and 933,862,543.01 93.03% 2,217,273,290.54 93.03% --- providing labor services Cash flow-out arising 1,083,339,248.24 100.00% 2,137,670,018.75 100.00% --- from operation Including: cash paid for purchasing commodities and 792,223,382.86 73.13% 1,861,701,208.94 87.09% -13.96% accepting labor services Net cash flow arising from operating -79,513,959.58 245,701,320.18 activities Net cash flow arising from investment 224,001,011.42 -43,173,135.38 activities Net cash flow arising from financing -122,795,232.02 -348,758,936.64 activities 4. Operation and achievement of the major subsidiaries and share-holding companies SEG Logistics, whose 95% equity is held by the Company, is mainly engaged in the business of foreign transportation and bonded storage etc. with registered capital of RMB 66 million and total asset RMB 116.4 million. In the report term, because of the increase in expense for oil, insurance, tyre and road toll and bridge toll, the operating cost of the Company is increasing greatly. Meanwhile, with the depreciation of Hong Kong dollar, the losses in exchange rate for the operation of the Company is also increasing. In the report period, this company realized income from main operation amounting to RMB 75.52 million with a decrease rate of 6% over the same period of last year; RMB 5.2 million has been realized for total profit with a decrease rate of 48% over the same period of last year. SEG Baohua, whose 66.58% equity is held by the Company, is mainly engaged in the operation and management of properties with the registered capital of RMB 30,808,800 and total assets RMB 86,040,000. In the report period, the Company unceasingly improved its management level, through research on leasing condition of office buildings; the Company makes it well known of the tendency of the rent in market, which enables its property, Baohua Building, to enjoy the active role in leasing. In the report period, the total profit of this company has stepped into a historic new level by rent adjustment. Besides, this company continuously improves its management level, making it impossible for secret transaction between the old and the new lessee. This assures 100% rent rate in a whole year for this building. In the report period, this company realized income from main operation amounting to RMB 39.25 million with an increase rate of 20% over the same period of last year; RMB 45 11.72 million has been realized for total profit, with an increase rate of 38% over the same period of last year. Xi’an SEG, whose 65% equity is held by the Company, is mainly engaged in the operation and management of professional electronic market with the registered capital of RMB 3 million and total assets RMB 14.66 million. In the report period, this company realized income from main operation amounting to RMB 19.18 million with an increase rate of 14% over the same period of last year; RMB 2.78 million has been realized for total profit, with an increase rate of 101% over the same period of last year. Chongqing SEG, whose equity of 50% is held by the Company, is mainly engaged in the operation and management of professional electronic market with the registered capital of RMB 3 million and total assets RMB 8.31 million. In the report period, this company realized income from main operation amounting to RMB 8.25 million with an increase rate of 9% over the same period of last year; RMB 0.69 million has been realized for total profit, with a decrease rate of 14% over the same period of last year. Longgang SEG, whose equity of 70% is held by the Company, is mainly engaged in the operation and management of electronic market with the registered capital of RMB 3 million and total assets RMB 26.84 million. In the report period, this company realized income from main operation amounting to RMB 24.10 million; RMB 2.51 million has been realized for total profit. Suzhou SEG, whose equity of 45% is held by the Company, is mainly engaged in the operation and management of electronic market with the registered capital of RMB 3 million and total assets RMB 20.14 million. In the report period, this company realized income from main operation amounting to RMB 11.42 million; RMB 3.83 million has been realized for total profit. SEG Communications, whose 97.7% equity is held by the Company, is mainly engaged in the design, production and installation of communications products with the registered capital of RMB 30 million and total assets RMB 35.63 million. In the report period, this company realized income from main operation amounting to RMB 23.06 million, with an increase rate of 436% over the same period of last year. Shenzhen SEG Network and Information Co., Ltd., whose 52.41% equity is held by the Company, is mainly engaged in the technology development of computer information, network system, network service and service of E-commerce etc. with the registered capital of RMB 20 million and total assets of RMB 16.43 million. In the report period, this company realized income from main operation amounting to RMB 15.24 million with an increase rate of 2% over the same period of last year; RMB -8.64 million has been realized for total profit. Mainly due to the non-recurring losses brought by the calculation for depreciation reserve for long-term equity investment. SEG Samsung, whose 26.69% equity is held by the Company, is mainly engaged in the production and sales of glass shell of CPT with the registered capital of RMB 785.97 million and total assets of RMB 3,435,190,000. During the report period, totally 18.24 million products of glass shell screen have been made, with a decrease rate of 10.88% over that of the same period of last year; totally 15.06 million products of glass shell prick have been made, with a decrease rate of 10.49% over that of the same period of last year; totally 18.26 million products of glass shell screen have been sold, with a decrease rate of 5.19% over that of the same period of last year; totally 15.49 million products of glass shell prick have been 46 sold, with a decrease rate of 6.3% over that of the same period of last year. In this year, this company realized sales income of RMB 181,654,330,000, with RMB -192,006,900 for the net profit. The gross profit rate for this year is 14.17%, with a decrease of 4.01 percentage point over that of the same period of last year. The main reasons accounting for the decrease in production cost are: the general decline in price of products, increase in price of heavy oil and raw materials. The equity consolidation of the Company is RMB -50,200,000. SEG GPS, whose 35% equity is held by the Company, is mainly engaged in production of GPS products of SEG and service business of its operating network with the registered capital of RMB 60 million and total assets of RMB 209.29 million. In 2007, the general business of the GPS Company keeps tendency to develop comparatively fast. The newly increased customers accessing network has received an increase rate of 23% over that of the same period of last year. The extension of value-added business has enjoyed a surprising jump, with 8 times increase in the sales of this business. During the report period, this company totally produces 87,186 set of GPS products with an increase rate of 19% over that of the same period of last year. Totally 82,159 set of GPS products have been sold out, with an increase rate of 18% over that of the same period of last year. The company realized sales income amounting to RMB 197,880,000 with an increase rate of 35% over the same period last year; RMB 37,090,000 million has been realized for total profit, with an increase rate of 52% over the same period of last year. Shanghai SEG, whose 35% equity is held by the Company, is mainly engaged in the operation and management of professional electronic market with the registered capital of RMB 5 million and total assets RMB 46.71 million. In the report period, this company realized operation income amounting to RMB 34.04 million and total profit amounting to RMB 7.30 million. 5. Particulars about body with special aim controlled by the Company There is no any body with special aim controlled by the Company. II. Prospect for the future development of the Company With withdraw of the CPT industry and withdraw of part investment enterprise for reform, the asset structure of the Company receives better optimization. Its profit-making ability is going to be promoted step by step and the electronic business has already become the core main business of the Company. In 2008, the Company will do careful research in the development of SEG electronic market, enhancing the operation pattern of the electronic market greatly and innovating in the profit-making pattern. These are done to strive for improving the asset quality and return level rapidly, then to realize the spanning development. (I) The development tendency for industry of electronic market Electronic market is the platform for transaction of electronic products. The domestic electronic market is mainly classified into three types at present: 1. Electronic component market; 2. IT market; 3. Communication market. Providing platform for quicker meet between the electronic products made by the various domestic and overseas enterprises and those final consumers, Electronic market plays important role in circulation for electronic products, for it creates condition for the direct meet between the suppliers and customers and for field transaction. The present operating pattern of electronic market is in line with the domestic economic development level and meets the demand presented by the market. Therefore, in long term, electronic market will enjoy a comparative fast growth and a comparative strong vital force. At the same time, with the development of market economy and continuous fineness of social division, the electronic market developed in the tendency 47 of the senior sales centre of product differences, service humanity, transaction electronics, modern chains operation with the integrations of shopping, leisure, business tals, convention, experience, after services and business consultance. (II) Challenges and opportunities faced by SEG electronic market 1. Challenges faced by SEG electronic market (1) The abnormal furious competition in the industry In recent years, the competition in electronic market industry presents abnormal furious. Due to the successive extending of electronic market, the leasing rent price of Shenzhen North Huaqiang Business Circle where the Company is located has already presented trend for decline. Besides, the growing up of other electronic markets such as Huaqiang Electronic World, Duhui 100, New Asia, and Saibo in North Huaqiang, as well as the rapid extension of the enterprises featuring with chain operation in business of appliances such as Gome and Suning, add more tension to the competition of electronic market in Shenzhen North Huaqiang Business Circle which furthue enlargened the electronic market competition of Shenzhen Huaqiangbei Business Circle and heated up to certain degree. (2) Special market (mall) presents challenge to the traditional operation pattern existed in the present electronic market with its new operation pattern With development in computer products, particularly the digital products, the appliances market, supermarket with general merchandises, furnishing market and some other special market receive good operation achievement by controlling purchasing channel and quality of goods, strengthening management over operation platform, optimizing environment of operation platform, control the operation patterns such as dealing, cashier and settlment. This is going to be the development tendency for the modern malls. While due to the historical reason, the present electronic market has always been adopting the operation pattern of “fair market” where spot deal for electronic components and electronic products happens. Under the new tendency, this operation pattern has showed a series of disadvantages, such as lagging development, no sense for brand cultivation and slow increase in income. 2. Opportunities faced by SEG electronic market 1) SEG electronic market owns a comparative advantage in scale of electronic components market with 20 years development and wins its name in Pearl River delta and Yangtze River delta in which there were high demands in electronic components. The Company would further consolidate the scale advantage in this two regions keep the leading position in the industry of electronic components throught establishing electronic transation platform, and innovating new operation pattern and profit-gaining pattern. 2) IT market is now at the period of type-switching. With the growth in the whole industry, it is necessary to upgrade retail pattern. The Company will hold this opportunity to upgrade the sales pattern, taking a leading role. And it will establish threshold in this industry and realize its leading role in this industry. 3) In respect of communication market, since Shenzhen is the place where the digital products like domestic-made mobile telephone is produced and concentrated, the Company can fully take the advanced resources of Shenzhen in digital products like mobile products, geto hold of this chance to exploit the retail market of digital products, such as domestic-made mobile telephone and so on with the brand rallying strength of SEG electronic market. (III) The development strategic of the Company The development strategy for the following 3 years of the Company: through patterns of innovations extenstion, operation and profit-gaining, further strength the competiton advantage and leading position of SEG Eelctronics in the electronic market; throught the combination with market place and virtual market place to build the No. 1 market in China’s 48 professional electronic market. At the same time, the Company will fully use the capital market to realize the optimization of resources and exert improving the asset quality and earnings strength of the Company rapidly. (IV) The new projects that the Company plans to invest and the application plan of fund On the basis of unceasingly promoting the present operation management and profit-making levels of SEG electronic market, the Company will actively grope for new extension pattern, operation pattern and profit-making pattern; quicken its step to promote the external extension of SEG electronic market; try hard to improve the profit-gaining level of business in electronic market. It is planed to take part of the income obtaining from the equity transfer of SEG Zhongdian to invest in the following new projects: 1. Investing in new SEG electronic market (1) RMB 80 million is planed to be poured to build a SEG electronic market (exclusively-owned) in the northeast of China, with groping for the commercial pattern combined by electronic market development and commercial house property operation. (2) RMB 20 million is planed to be poured to build four SEG electronic markets in Beijing, Nanjing, Zhengzhou and Wuhan, by means of joint venture holding or exclusive holding and through the commercial pattern of property leasing. When the aforesaid investment plans are accomplished, the network layout for the electronic markets in national-wide will get a further perfection. 2. Building “IT-MALL” After the Company has completed aforesaid investment projects, it will invest another 80 million in establishing 20 IT-MALLs in Shenzhen, Guangzhou, Xi’an, Shanghai, Suzhou and etc. 3. Developing “Virtual Electronicic Product Exchange” The Company plans to furtherly invest 20 million in develop virtual transaction plarform on the basis of the existing SEG electronic market chain network, backed by the physical market to actively explore E-biz, integrating the market resources through E-biz, so as to form a firm combination of visible and invisible market in SEG and achieve co-development. The aforesaid proceedings have already get examination and approval from the 11th provisional meeting of the 4th board of directors and the 3rd provisional shareholders general meeting of 2007, and have been disclosed on Securities Times, China Securities and Hong Kong Wen Wei Po and Juchao Information Website respectively on Dec 4th of 2007 and Dec 22nd of 2007. Before these projects start implement, the Company will, according to the related stipulation of laws and bylaws and the Articles of Association, carry out relevant project review and approval procedures and undertake the responsibility of information disclosure. II. Investment of the Company During the report period, there is no newly-increased expenditure in investment. The net long-term investment amount has decreased RMB 52.37 million compared to that of last year, with a decrease scope of 8.72%. The main reason is the losses made by SEG Samsung which absorbs shares from the Company. (I) Application of the proceeds being raised through share offering in the report period In the report period, the Company raised no proceeds through share offering and there existed no such situation that the application of proceeds being raised through share offering before the report period continued to the report period. (II) In the report period, the Company has no material projects invested with proceeds not raised through share offering III. According to the Notice on Publishing Accounting Standard for Enterprise No.1-Inventory and the other 38 Detailed Principle (CK2008No.3) progulmated by the 49 Ministry of Finance, the Company carries out the new Accounting Standard for Enterprise from Jan 1st of 2007. Retroactive adjustment has been made to items in financial statement according to No.5-No.19 regulated by Accounting Standard for Enterprise No.38-Initial Execution of Accounting Standard for Enterprise and relevant content in Explanation No.1 of Accounting Standard for Enterprise. 1. Balance of long-term equity investment formed by enterprise merger under the same control: On Jan 1st of 2007, as to the balance of long-term equity investment formed by enterprise merger under the same control, the unamortized long-term equity investment balance should be off set, meanwhile, the retained earnings should be adjusted, which results in a decrease of RMB30, 710,586.54 in owner’s equity. 2. Financial asset available for sale: On Jan 1st of 2007, the Company measured the financial asset available for sale by means of fair value, and adjusted the retained earnings with the balance between its fair value and book value, which resulted in an increase of RMB4, 891,969.66 in owner’s equity, among which RMB 4,881,076.41 is attributable to the owners’ equity of the parent company and RMB 10,893.25 to minor shareholders’ equity. 3. Income tax: on Jan 1st of 2007, as to the temporary balance coming from the difference between the book value of assets and liabilities and the taxing basis, deferred income tax assets of deferred income tax liabilities should be confirmed according to the relevant condition. Meanwhile, the amount influenced should be adjusted to retained earnings, which results in an increase of RMB 8,533,721.52 in owner’s equity, among which RMB 8,451,849.47 is attributable to the owners’ equity of the parent company and RMB 81,872.05 to minor shareholders’ equity. 4. Long-term equity investment calculated by equity method: SEG Samsung, the subsidiary of the Company and calculated by equity method implemented the accounting standard for enterprise which was promulgated by the Ministry of Finance in 2006 and made retroactive adjustment to the deferred income tax. Correspondingly, the Company should adjust the long-term equity investment and the undistributed profit of RMB 943,779.10. The above items have the following influences to the statement: Unit: RMB Items 1 2 3 4 Influence received by capital 4,148,914.95 reserve Influence received by the retained -30,710,586.54 728,906.20 8,451,849.47 943,779.10 earnings at the beginning of 2007 Including: Influence received by the undistributed profit at the -30,710,586.54 728,906.20 5,596,004.41 943,779.10 beginning of 2007 Influence received by the net profit of this year IV. Routine work of the board of directors (I) Meetings and resolutions of the board of directors In the report period, the board of the Company totally held 15 meetings of the board of directors, 8 of which were held by way of communication, with the following resolutions formed: 1. The 13th meeting of the 3rd Board of Directors of the Company was held on Apr 13th of 2007. The resolution and relevant notice have been published on China Securities, Securities Times and Hong Kong Wen Wei Po dated Apr 26th of 2007. 50 2. The 1st provisional meeting of the 4th Board of Directors of the Company was held on May 17th of 2007. The resolution notice of the Board has been published on China Securities, Securities Times and Hong Kong Wen Wei Po and Juchao Website dated May 19th of 2007. 3. The 2nd provisional meeting of the 4th Board of Directors of the Company was held on May 30th of 2007. The following proceeding has been examined and approved in this meeting: the Self-inspection Report and Change Plan on the Special Activity of the Administration of Shenzhen SEG Co., Ltd. 4. The 3rd provisional meeting of the 4th Board of Directors of the Company was held on Jun 21st of 2007. The resolution notice of the Board has been published on China Securities, Securities Times and Hong Kong Wen Wei Po and Juchao Website dated Jun 25th of 2007. 5. The 4th provisional meeting of the 4th Board of Directors of the Company was held on Jun 28th of 2007 by way of communication. The resolution notice of the Board has been published on China Securities, Securities Times and Hong Kong Wen Wei Po and Juchao Website dated Jul 3rd of 2007. 6. The 5th provisional meeting of the 4th Board of Directors of the Company was held on Jul 23rd of 2007 by way of communication. The resolution notice of the Board has been published on China Securities, Securities Times and Hong Kong Wen Wei Po and Juchao Website dated Jul 26th of 2007. 7. The 6th provisional meeting of the 4th Board of Directors of the Company was held on Aug 3rd of 2007. The resolution notice of the Board has been published on China Securities, Securities Times and Hong Kong Wen Wei Po and Juchao Website dated Aug 7th of 2007. 8. The 1st meeting of the 4th Board of Directors of the Company was held on Aug 21st of 2007. The resolution notice of the Board has been published on China Securities, Securities Times and Hong Kong Wen Wei Po and Juchao Website dated Aug 24th of 2007. 9. The 7th provisional meeting of the 4th Board of Directors of the Company was held on Sep 27th of 2007 by way of communication. The resolution notice of the Board has been published on China Securities, Securities Times and Hong Kong Wen Wei Po and Juchao Website dated Oct 8th of 2007. 10. The 8th provisional meeting of the 4th Board of Directors of the Company was held on Sep 30th of 2007 by way of communication. The resolution notice of the Board has been published on China Securities, Securities Times and Hong Kong Wen Wei Po and Juchao Website dated Oct 10th of 2007. 11. The provisional meeting of the 4th Board of Directors of the Company was held on Oct 24th of 2007 by way of communication. The proposal on the 3rd Quarterly Report has been examined and approved in this meeting. This has been disclosed on China Securities, Securities Times and Hong Kong Wen Wei Po and Juchao Wwebsite dated Oct 26th of 2007. 12. The 9th provisional meeting of the 4th Board of Directors of the Company was held on Nov 6th of 2007 by way of communication. The resolution notice of the Board has been published on China Securities, Securities Times and Hong Kong Wen Wei Po and Juchao Website dated Nov 9th of 2007. 13. The 10th provisional meeting of the 4th Board of Directors of the Company was held on Nov 21st of 2007. The resolution notice of the Board has been published on China Securities, Securities Times and Hong Kong Wen Wei Po and Juchao Website dated Nov 23rd of 2007. 14. The 11th provisional meeting of the 4th Board of Directors of the Company was held on Nov 30th of 2007 by way of communication. The resolution notice of the Board has been published on China Securities, Securities Times and Hong Kong Wen Wei Po and Juchao Website dated Dec 4th of 2007. 15. The 12th provisional meeting of the 4th Board of Directors of the Company was held on Dec 10th of 2007 by way of communication. The resolution notice of the Board has been published on China Securities, Securities Times and Hong Kong Wen Wei Po and Juchao Website dated Dec 11th of 2007. 51 (II) Implementation of the board of directors on resolutions of the shareholders’ general meeting In the report period, the board of the Company could implement all resolutions of the shareholders’ general meeting and authorization of the shareholders’ general meeting according to laws in an honest and responsible way. 1. In the report period, the board of the Company could implement all resolutions of the 1st Provisional Shareholders’ General Meeting of the Company of 2007, the 12th (Annual 2006) Shareholders’ General Meeting, the 2nd and the 3rd Provisional Shareholders’ General Meetings of the Company of 2007and authorization of the Shareholders’ General Meeting according to laws in an honest and responsible way. 2. During the report period, the board of directors implemented the sale of significant assets according to the authorization of shareholders general meeting. It transferred 73.24% equity of SEG Zhongdian to Yuanzhi Investment with RMB 384.51 million, and accomplished the register change in the Industry and Commercial Bureau dated Dec 24th of 2007. 3. According to the proposal examined and approved in the 3rd Provisional Shareholders General Meeting of 2007 on application plan of the amount (RMB 384.51 million) coming from equity transfer of SEG Zhongdian, RMB 200 million will be used for development of the electronic market, and the rest RMB 184.51 million will used to pay back the loans from bank. On Dec 25th of 2007, the Company received the initial payment of RMB 200 million from Yuanzhi Investment for the equity transfer, and on Dec 27th of 2007, the Company took RMB 184.51 million from this payment for paying back the loans from bank. The relevant proceeding has been published dated Dec 29th of 2007. (III) The duty performance of the Audit Committee set by the board of directors During the report period, the Company stipulates Working Principles of the Audit Committee of Shenzhen SEG Co., Ltd and Working Principles on the Annual Report of the Audit Committee of Shenzhen SEG Co., Ltd. according to the requirements of the above stipulations, the Audit Committee performs its duty earnestly, making supervision and inspection on the halthiness of the internal control of the Company, and full examination work in the audit for the annual financial audit. 1. The examine opinion presented by the Audit Committee on the 2007 Financial Report of the Company. In the report period, according to the regulations by CSRC, the Audit Committee made examination on the annual financial report and presented examine opinion for twice. Before the entrance of the certified public accountant, the Audit Committee examined the unaudit financial statement and issued the first written opinion, in which it is believed that: according to the relevant demand of the new accounting standard and combining the actual condition of the Company, the Company made reasonable accounting policy and appropriate accounting estimation; the financial accounting statements formed by the Company can truthfully reflect the financial status of the Company ended on Dec 31st of 2007 and the operation achievement and cash flow of 2007. And they agree to use this financial statement as the basis to carry out the audit work for 2007. After the certified public accountant has finished the initial audit paper, the Audit Committee read this paper in time and negotiated with the certified public accountant. On the important issues referred by the annual financial report of the Company, there is no dispute between the Audit Committee and the certified public accountant. The annual financial report of the Company is in strict line with regulation of Accounting Standard for Enterprise and other relevant laws. The Audit Committee agrees to take this financial report as the basis to make the 2007 Annual Report and its Summary. 2. Supervision and urge over the audit work of the certified public accountant Co., Ltd Due to that the Company has not engaged an overseas audit organization in 2007, negotiation with the domestic audit organization is enough for the arrangement of the annual 52 audit of the Company. With negotiation with the audit organization for the Company of 2007-Beijing Lixin Certified Public Accountant Co., Ltd., the Company made audit arrangement for the annual audit in december of 2007 and reported the schedule to the Audit Committee. After negotiation with the audit organization, the Audit Committee holds that the Company made preparation in advance combining the actual situation and made an adequate arrangement for the annual audit. The Audit Committee agreed the annual audit plan which was made by the audit organization. After the entrance of the audit organization for audit working, the Audit Committee negotiated with the person in charge of the main project and the certified public accountant and relevant personnel. Getting well known of the audit working progress and issues that the accountants focused, the Audit Committee made feedback to the relevant departments of the Company. The Audit Committee has issued letter of supervision and urge to the audit organization on the progress of the annual report auditing work respectively in February and March of 2008. 3. Working summary on the 2007 annual audit conducted by Beijing Lixin Certified Public Accountant Co., Ltd issued by the Audit Committee The year 2007 is the first year when the new accountaning standard is implemented. Besides, because the Company sold the significant assets, the Company turns to make profit from the original situation-loss, which helps the Company to eliminate the risk of being unlisted. To audit the annual financial condition of the Company timely, accurately, truthfully and completely, the Certified Public Accountants Co., Ltd. has already made prior period investigation and arranged pre-audit in December of 2007. And according to request of the accounting standard, it made technological preparation for adjustment for the various accounting items in advance, successfully accomplished the preparation work for transferring to the new accounting standard, also provided guarantee for the right-time and truth of the 2007 performance prediction of the Company. During the annual audit, with negotiation with the certified public accountant and examination on the initial annual audit report presented by the Certified Public Accountants Co., Ltd, the Audit Committee holds that: the present certified public accountant can perform their duty in strict line with the audit regulations and laws; can pay attention to get known of the Company and its operating environment, the establishment, completeness and implementation of its internal control system; the accountants own strong awareness of risk and they can accomplish the audit work in time according to the time schedule for this audit. The Audit Committee holds that: the present certified public accountants well finished the audit work on the 2007 finaicial report of the Company and issued the true, objective and fair audit report, keeping their independence and prudence. 4. Proposal on renewal of engaging Beijing Shulum Pan Certified Public Accountants Co., Ltd as the external audit organization for the Company in 2008 In according to the various years auditing on the Company by the present CPAs and with acquaintance of the present Certified Public Accountants Co., Ltd and talk with the person in charge of certified public accountant and main projects, the Audit Committee believes that: the Certified Public Accountants Co., Ltd possesses the professional audit team and strong technic support and the business ability to shoulder audit work for listed company. The Audit Committee has no objection on renewal of engaging Beijing Shulum Pan Certified Public Accountants Co., Ltd as the external audit organization for the Company in 2008. 5. In the report period, the Audit Committee set by the board of directors held two meeting, the details were as follows: 1) On August 13, 2007, the first working meeting in 2007 was held, 2007 semi-annual financial report of the Company was discussed. 2) On December 27, 2007, the second working meeting in 2007 was held, matters on auditing 2007 annual report of the Company was discussed. (IV) The duty performance of the Remuneration and Examination Committee set by the 53 board of directors In the report period, the Company stipulated Working Principle for the Remuneration and Examination Committee of Shenzhen SEG Co., Ltd. Opinions on the disclosed remuneration of the directors, supervisors and senior executives of the Company issued by the Remuneration and Examination Committee after examination: the following personnel only get remuneration according to the administrative level of their position in the Company: Zhang Weiming, chairman of the Board; Wang Chu, director and general manager; Li Lifu, vice general manager; Zheng Dan, vice general manager and secretary of the Board; Zhang Changhai and Tian Jiliang, supervisors. The independent directors, Su Xijia, Jia Heting and Jiang Yigang receive allowance for independent directors from the Company. The other directors and supervisors don’t receive remuneration from the Company. During the report period, the Remuneration and Examination Committee set by the board of directors totally held two meetings, with details as follows: 1. The 1st Working Meeting of 2007 was held on Dec 21st of 2007, in which the particulars about the remuneration of the executives of the Company has been reported by the Human Resource Department of the Company. 2. The 2nd Working Meeting of 2007 was held on Dec 27th of 2007. The suggestion presented by the independent director Jia Heting on encouraging the personnel who made outstanding contribution to the successful sale of the significant assets of the Company was discussed in this meeting. Every member agreed the aforesaid suggesstion and agreed to hand in to the Board for examination and approval. (V) The duty performance of the Development and Strategic Committee set by the board of directors In the report period, the Company stipulated Working Principle for the Development and Strategic Committee of Shenzhen SEG Co., Ltd, and emended the principle in time, increasing to 7 members in this Committee from the original 5 members. During the report period, the Development and Strategic Committee set by the board of directors totally held two meetings, with details as follows: 1. The 1st Working Meeting of 2007 was held on Sep 4th of 2007. The main proceedings discussed in this meeting were: (1) hearing report from the executives on the current operating condition; (2) research and discusstion on the future developing trend of the Company. 2. The 2nd Working Meeting of 2007 was held on Dec 21st of 2007. The main proceedings discussed in this meeting were: (1) report on the equity transfer of SEG Zhongdian; (2) research and discusstion on the future developing direction of the Company after the equity transfer of SEG Zhongdian. V. The preplan on profit distribution and converting capital reserve into share capital Since January 1st, 2007, the Company has commenced implementing Chinese Accounting Standards for Enterprise 2006. According to the new Accounting Standard, the cost method is adopted in calculating the investment in subsiary company. Therefore, there would be obvious difference between the profit of parent company and the consolidated profit, whereas according to the stipulation of the Company Law, the parent company should be the main body when distributing the profit and drawing reserve. In 2007, the distribution of profit, bonus and dividend is based on the retained profit of the Parent Company. There is no difference between the net profit after tax stated in financial report prepared according to the domestic accounting standard by the Company and that stated in the financial report prepared accounding to the overseas accounting standard by the same. Audited by Beijing Shulum Pan Certified Public Accountants Co., Ltd., according to Chinese Accounting Standards, the Parent Company’s net profit was RMB 27,137,924.01 in 2007, and the withdrawal of statutory suplus public reserve was 10%, which means RMB 54 2,713,792.40. With the undistributed profits in year-begin amounting to RMB 9,048,724.89, so the available distributed profit to shareholders is RMB33, 472,856.50. The company, on the radix of total share of 784,799,010 on Dec. 31, 2007, planed to give all shareholders RMB 0.25(including tax) per 10 shares. Bonus of RMB 19,619,975.25 should be distributed, and the remaining undistributed bonus will be transferred into the next financial year. The Company will not transfer and add share of capital reserve. The aforesaid preplan need be submitted to the 2007 Annual Shareholders’ General Meeting for examination and approval before implementation. The company has not made any plan on adding shares transferred from capital reserve. IV. Other events need to be disclosed (I) Special explanation on fund occupied by controlling shareholders and other related parties by Certified Public Accountant: please refer to the special audit report attached back for details. (II) Special explanation and independent opinions of independent directors on the Company’s accumulated and current external guarantees According to the requirements in Notification on Standardizing Listed Companies’ External Guarantees (ZJF【2005】No. 120) promulgated by CSRC, we have inspected the Company’s external guarantees in a serious and responsible attitude with details explained as follows: According to the requirements of Regulations such as No. 120 Notification and Articles of Association etc., the Company regulated the external guarantee and controlled the risks in external guarantee. In the report period, the external guarantee of the Company were all for the controlling subsidiary of the Company, and have been examined and approved by the board of directors of the Company. Thereinto the guarantee for SEG Communications that belonged to the debt guarantee provided for the guarantee of which the assets-liability ratio exceeded 70%; the guarantee was on providing pledge guarantee for “Subway Project” of Shenzhen SEG Communications Co., Ltd from the Company, and it has already been examined and approved by the shareholders’ general meeting of the Company. At the end of 2007, all projects related to guarantee has passed the final check by Shenzhen Subway Co., and the qualification was estimated to be given within 2008. At that time, the related guarantee offered by the Company will be canceled automatically. All the decision-making procedures of guarantees were in accordance with Articles of Association, and were reasonable, lawful and fair; the Company timely implemented obligation of information disclosure. (III) The newspapers for information disclosure in 2007 designated by the Company are China Securities, Securities Times and Hong Kong Wen Wei Po. I VIII. REPORT OF SUPERVISORY COMMITTEE I. Work of the Supervisory Committee According to relevant regulations of Company Law and Articles of Association of the Company, the Supervisory Committee of the Company patiently performed its duties. In the report period, the Supervisory Committee of the Company totally held three meetings, attended every meeting of the Board as a nonvoting delegate, participated in the discussion of significant decision-making events of the Company and examined the periodical reports of the Company. In the report period, the meetings of the Supervisory Committee are as follows: (I) The 8th meeting of the 3rd Supervisory Committee of the Company was held on Apr.23, 2007. The meeting formed the following resolutions: i. Examined and approved Work Report 2006 of the Supervisory Committee of the Company; ii. Examined and Approved Financial Settlement Report 2006 of the Company; iii. Examined and approved Financial Budget Report 2007 of the Company; iv. Agreed with the Board of Directors on the Profit Distribution Plan 2006 and Preplan on Conversion of Capital Public Reserve into Share 55 Equity of the Company; v. Agreed with the Board of Directors on Proposal on Withdrawal of Provision for the Devaluation of Assets 2006; vi. Agreed the Proposal of the Board of Directors on Not Switching Back of Depreciation Provision of SH3 Line of Shenzhen SEG HITACHI Display Devices Co., Ltd.; vii. Examined and approved Annual Report 2006 and Summary of the Company, and made exam suggestions for Annual Report 2006 and Summary of the Company; viii. Supervisory Committee agreed with the Board of Directors on the 2007 Preplan on Estimation of Routine Operating Related Transaction of the Company; ix. Examined and approved The First Quarterly Report 2007 of the Company, and made exam suggestions for The First Quarterly Report 2007. The public notice of resolution of the board meeting has been disclosed on China Securities, Securities Times, Hong Kong Wen Wei Po and http://www.cninfo.com.cn dated Apr.26, 2007. 2. The 2006 1st extraordinary meeting of the 3rd Supervisory Committee was held on May 17, 2007, and the meeting formed the following resolutions: Supervisor Mr. Xu Changhui was elected as the Chairman of the 4th Supervisory Committee of the Company in this meeting; The public notice of resolution of the board meeting has been disclosed on China Securities, Securities Times, Hong Kong Wen Wei Po and http://www.cninfo.com.cn dated May 19, 2007. 3. The 2006 1st meeting of the 4th Supervisory Committee was held on Aug. 21, 2007, and the meeting formed the following resolutions: i. Examined and approved Semi-Annual Report 2007 and Summary of the Company, and made examing suggestions for Semi-Annual Report 2007 and Summary of the Company; ii. Examined and approved Self Inspection Report and Change Plan of Governance Campaign for Shenzhen SEG Co , and the supervisory committee thought this exactly reflected the governance of the Company; iii. Examined and approved Change Plan on Inspection Problems by Shenzhen Stock Exchange of SEG. The public notice of resolution of the board meeting has been disclosed on China Securities, Securities Times, Hong Kong Wen Wei Po and http://www.cninfo.com.cn dated Aug. 24, 2007. 4. The 2nd extraordinary meeting of the 4th Supervisory Committee of the Company was held in a communication way on Oct.24, 2007. The meeting examined and approved The Third Quarterly Report 2007 of the Company, and The Third Quarterly Report 2007 of the Company has been disclosed on China Securities, Securities Times, Hong Kong Wen Wei Po and http://www.cninfo.com.cn dated Oct. 26, 2007. In the report period, supervisory committee of the Company attended all site directors’ meeting and they knew all voting matters. II. Independent opinion on the operation of the Company in 2007 issued by the Supervisory Committee 1. Operation of the Company according to Law According to relevant regulations of national laws, regulations and Articles of Association, the Company has established and improved the legal administrative structure, established a fairly perfect internal control system, and well kept away risks of operation and finance; the Company’s decision-making procedures were legitimate. In the report period, the Board of Directors and management team of the Company seriously performed each resolution of the Shareholders’ General Meeting, and in a diligent and conscientious manner, they didn’t violate laws, regulations and Articles of Association or damage the Company’s interests when performing their duties. 2. Inspection on the finance of the Company The Supervisory Committee made serious and careful inspection on the Company’s financial system and financial status, and believed the 2007 Financial Report could truly reflect the Company’s financial status and operation performance. Beijing Shulun Pan Certified Public Accountants Co., Ltd. audited 2007 Financial Report of the Company according to Independent Auditing Standards of Chinese Certified Public Accountant and issued standard unqualified Auditor’s Reports respectively which truly 56 reflected the Company’s financial status and operation performance. 3. In the report period, there has no use of raised capital. 4. Purchase or sales of assets of the Company In the report period, the Company had no purchase of assets. In the report period, the Company successfully completed the sales of significant asset on 73.24 percent equity of SEG Zhongdian held by the Company. The trade price of the assets sold by the Company was reasonable, no inside trading was discovered, and the transactions hadn’t damaged the rights and interests of shareholders or resulted in the losses of assets of the Company. 5. Related transactions of the Company The correlative transactions interfered in 2007 of the Company were all in accordance with the principle of equity and fairness as verified by the Supervisory Committee. No inside trading was discovered, and the transactions hadn’t damaged the interests of the Company as well as rights and interests of other shareholders or resulted in the losses of assets of the Company. IX. SIGNIFICANT EVENTS I. Significant lawsuits and arbitrations 1. Lawsuits on guarantee for expired loan amounting to RMB 10,000,000 of Shendasheng from Shenzhen Development Bank disclosed in the 2006 Annual Report, has no new progress until the disclosed date of this report, except for the returned RMB 1,650,932.32. The Company continues asking for the remaining loan from Shendasheng and its guaranteed enterprise Guangzhou Bo Capital Collecting Investment Co. Ltd legally through Guangdong Haifeng County Court. 2. Particulars about lawsuits on guarantee for expired loan amounting to RMB 8,900,000 of Shendasheng from Guangdong Development Bank disclosed in the 2006 Report: this case has been ended. In the later period of September in 2007, Guangdong Province Shenzhen Futian District People’s Court has informed us that the accounts have been obtained by auction of 16J of Building A of Modern Window Building, No.110 of Building B, 22L of Building B, Building Group 4B56, and Building Group 4B57. With the final verification, the Court decided to transfer amount RMB 2,513,674.92 to the Company as the last executive amount among this RMB 8,900,000 case. The above money has been transferred into our account on Oct. 16th, 2007. At the same time, all loan of this case has been got. Shenzhen Futian Court has given the Case Ending Notice on Oct. 23rd, 2007. Influence to the Company: Because of the above returned loan, the Company would transfer it provided bad debt reserve amounting to RMB 1,890,204.06, and the profit of this year correspondently increased RMB 1,890,204.06. The Company has disclosed these on China Securities, Securities Times, Hong Kong Wen Wei Po and http://www.cninfo.com.cn dated Oct. 25, 2007. 3. The Company indicts defendant Shenzhen SEG Commercial Michine Co., Ltd (hereinafterreferred to as Commercial Machine Co., Ltd) and Li Zhongda about the loan and guarantee contract dissension case. Shenzhen Futian District People’s Court held a court in August of 2007. After cognizance, the Court had presented the Civil Verdict of Shenzhen Futian Court [(2007) SHEN FA MIN CHU ER CHU ZI No.1735]. The judgment is that the defendant Commercial Machine Co., Ltd is obliged to return the loan RMB 467,152 and its interest to the Company within 10 days since from the valid verdict day. The defendant Commercial Machine Co., Ltd is demanded to return the loan RMB 1,500,000 and interest to the Company on Dec. 30, 2007. The defendant Li Zhongda is bond to take the related return responsibility for the above loan with the defendant Commercial Machine Co., Ltd within the range of bearing responsibility, Li Zhongda has right to require compensation from Commercial Machine Co., Ltd. At the end of disclosing date, two defendants has sent appealing statement to Shenzhen Futian Court, and Shenzhen Futian Court will chose date to exam this case. 57 4. Prosecutor Zhao Shishun appealed “Equity infringement case of equity transfer” disclosed in the 2006 Report [Case No.:（2006）SHEN FA MIN CHU ER CHU ZI No.1625] involves target of RMB 4.33 million. On Feb.5, 2007, the court judge the Company to give the prosecutor RMB 2.16 million (interest not included) and case accepting and hearing expense RMB 27,882, and turned down other appealing requests. This has disclosed these on China Securities, Securities Times, Hong Kong Wen Wei Po and http://www.cninfo.com.cn dated March 9.2007. The Company did not agree with the judgment and appealed on March 16, 2007. Shenzhen Intermediate No. 2 Court had second instance to hold a court on Aug.2, 2007. Until the disclosure date of this report, the Company has not received judging result. 5. On April 30, 2007, the Company received “Equity infringement case of equity transfer” [Case No.:（2007）SHEN FA MIN CHU ER CHU ZI No.962] which involves RMB 0.48 million target appealed by Zhu Xiaoliang. This case is the same matter of the above case, and Zhu Xiaoliang is the other aliening shareholder. According to regulation No.136 (VI) of PRC Civil Procedure Law, the court judged ending appeal of this case. 6. Common pleas about the case of the SEG Hitachi---an indirectly controlled 54.93% shares holding company of the Company have been received respectively dated Aug.27, Aug.29, Sep. 6, Sep. 10, Sep. 26, Oct. 31 and Dec. 11 in 2007 by the Company, and information has been timely disclosed. Because the Company has successfully transferred its owning 73.24% equities of SEG Zhongdian which is the controlling shareholder of SEG Hitachi, the common plea of SEG HITACHI will not have any impact on the Company thus. II. Bankruptcy and reorganization of the Company in the report period There was no bankruptcy and reorganization of the Company in the report period. III. Equity of other listed companies held i. Equity of other listed companies held Unit: RMB Changes on Proportion in Book value Gains and Financial Short form of the Initial investment owners’ Shares Stock code equity of the at losses in report Calculation stock amount equity in the Source Company period-end period Item report period Financial Origin legal assets 600778 Friendship Group 90,405.00 0.0352% 644,453.46 --- 469,178.46 person available for share sales Financial Origin legal 7,520,000.0 5,100,000.0 assets 000007 ST Dasheng 1,000,000.00 0.54% --- person 0 0 available for share sales Origin legal 502,683,78 -55,441,833. Long term 000068 SEG Samusung 225,279,600.16 26.69% -55,441,833.47 person 5.16 47 investment share 510,848,23 -49,872,655. Total 226,370,005.16 - -55,441,833.47 - - 8.62 01 ii. Buying and selling of other listed companies’ share The Company has 7,131,968 shares ST Dasheng（Stock code: 00007. Because of the sale limitation period had been reached, these stocks can be got rid of the limitation on Aug. 14, 2007 and be circulated into the market. Examined and approved by the directors’ meeting, the Company sold these circulation obtained legal stocks continuously through Shenzhen Stock Exchange. At the end of the report period, 6,131,968 shares have been sold in total, which achieved RMB 32 million investment income for the Company. Unit: RMB Buy in/sell out share Occurred Initial share Share amount Share name amount during the Used capital investment amount at the end report period income 58 Buy in -- -- -- -- -- -- Sell Out ST Dasheng 7,131,968 6,131,968 1,000,000 0 32,001,591.63 IV. Assets selling, absorbing and consolidating matters of the Company in the report period In the report period, the Company transferred it owning 73.24% SEG Zhongdian equities to Yuanzhi Investment Co. as to RMB 384.51 million, which realized adjusting and optimizing of industry structure and entirely cut the loss source for the Company. The implementation details of this large asset selling matter are as follows: On Nov. 21, 2007, with the approval of Letter No. 347［2007］of State-Owned Assets Supervision and Administration by Shenzhen Government State-Owned Assets Supervision and Administration and examination and pass from the 10th extraordinary meeting of the 4th board of directors’ meeting, the Company signed the Agreement on Transferring Equity of Shenzhen SEG Zhongdian Color Display Device Co., Ltd. between Shenzhen SEG Co., Ltd. and Shenzhen Zhiyuan Investment Co. Ltd.(hereafter for short: Equity Transfer Agreement) On Dec 10, 2007, the Company got notice (CSRC’s No.[2007] ) which has no objection after examination for its 73.24% owning SEG Zhongdian’s equity from CSRC. On Dec. 21, 2007, the 3rd extraordinary shareholders’ meeting of the Company examined and passed four proposals, including the Proposal on Transferring the 73.24% Owning Equities of SEG Zhongdian Color Display Device Co., Ltd. and Agreement on Transferring Equity of Shenzhen SEG Zhongdian Color Display Device Co., Ltd. between Shenzhen SEG Co., Ltd. and Shenzhen Zhiyuan Investment Co. Ltd. and etc. On Dec.24, 2007, Reply of the No. 3871 [2007] Shenzhen Trading Industry Bureau, agreed that the Company transferred its 73.24% equities of Shenzhen SEG Zhongdian Color Display Device Co., Ltd. On Dec. 24, 2007, SEG Zhongdian finished industry and commerce change registration at Shenzhen Administration of Industry and Commerce and got company operation license after the change on Dec. 25. On Dec. 25, 2007, Zhiyuan Investment put the initial RMB 0.2 Billion of the transferring equity into the appointed account of the Company according to the regulation of Equity Transfer Agreement. On Dec. 27, 2007, the Company paid bank the bank loan of RMB 192 million in advance. And the paid back loan includes sales amount of 73.24％ equity RMB 184.51million to the bank, as well as the self owned capital of RMB 7.49 million. And these have been known by the public on Dec. 29, 2007. On Feb. 26, the company had received SEG Zhongdian’s transferring remaining RMB 184.51 million from Zhiyuan Investment Co. At that time, the Company had got all equity transferring money for this huge asset selling. The Company employed Beijing Jindu Certified Public Accountants Co. Ltd to make legal suggestions on implementation result for the above huge assets selling by Beijing Jindu Certified Public Accountants Co. Ltd. At the same time, all huge assets selling matters has been implemented and finished. The above matters have been disclosed timely on China Securities, Securities Times, Hong Kong Wen Wei Po and http://www.cninfo.com.cn . Influence of this huge assets selling to the Company 1. The Company realized industry structure adjusting and finally made up the deficits and got surpluses. SEG Group lost operation as well as competition ability because of the heavy debt burden of SEG Hitachi indirectly controlled by SEG Zhongdian , and couldn’t get successive loan from banks. Until Oct. 31, 2007, bank loan (payable interest included) of SEG Hitachi was about RMB 290 million, and account payable was RMB 414 million. Debt of SEG Hitachi owed to the bank (interest included) is about RMB 290 million, and account payable is about RMB 59 414 million. SEG Hitachi has received 5 lawsuits from 2 banks and 16 lawsuits from 15 suppliers. The huge assets selling can bring RMB 60,080,000. After finishing the equity transfer, the Company will not consolidate SEG Zhongdian and its subsidiary SEG Hitach’s financial report since December 31, 2007, and will entirely get rid of the largest loss source of the Company to end up losses. The Company will make use of the selling fund to adjust existing industry and related business, and will focus on developing relatively competitive business to make profit. And the sales will have a series of active impact on its main business, asset quality and profit making ability. 2. Business stress of the Company will have a change As one of the early-listed companies in Shenzhen, the Company directly administrates Shenzhen SEG Electronic Market which has its leading role in the field, and owns the earliest-established domestic professional electronic accessory market as well as strong influence. In order to solidify SEG Electronic Market’s key place in Shenzhen and Huaqiang Commercial District, expand national market share, enlarge market scale and increase the business structure proportion of main business, the Company will invest RMB 0.1 billion to build five new SEG Electronic Markets in the Northern, Northeast and Center part of China to realize chain operation and national radiation of electronic market The Company invested RMB 80million, explode channel operation, build 20 IT-MAILLs in Shenzhen, Guangzhou, Xi’an, Shanghai, Suzhou and other places, construct SEG Electronic Markets’ unified logistics center, sales center, settlement center to make SEG Electronic Market into terminal consuming market. The invested RMB 20million will be used to develop “Suppositional Electronic Products Trading Market” and build suppositional trading stage, thus combining the visible and invisible markets tightly and developing them together. 3. Avoiding risks of ending listing disposal Because all exam and approval as well as related procedures of the huge asset selling was finished before Dec. 31, 2007, SEG Group will have RMB 384.51 million cash flow, which brings interest of assets selling RMB 60.08 million amounting to 73.80％ of the total profit in 2007. This will not cancel the disadvantage of its operation, but realized profit making for the Company this year to avoid the listing suspending. Net profit of the Whether Loss Related Whether the selling asset the and transaction or involved made to the involved income Explanatio creditor’s Company from not（If Yes, asset Transaction party Sold asset Selling date Selling price made n pricing right and the beginning explain the property by the principle debt has of this year to pricing has been selling( been the selling principle） transferre RMB) transferred date(RMB) d 73.24％ equities of 60,077, Negotiating Yuanzhi Investment Dec.24,2007 RMB384.51million 487,699,795.21 No Yes Yes SEG Zhongdian 550.98 price V. Equity encouragement plan In the report period, the Company didn’t take any encouragement plan. VI. Significant related transactions (I) Related transactions concerning current operations with the Company in the report period SEG-Hitachi purchased glass shells from SEG Samsung. SEG-Hitachi: a subsidiary indirectly controlled by the Company with the shareholding of 54.93%, registered capital of USD 113 million and the legal representative is Wang Chu. The company is mainly engaged in design, production and sales of 21” and 34” color picture tube. SEG Samsung: The company is a share company of the Company by 26.69%. It is listed with Shenzhen Stock Exchange, with a registered capital of RMB 785.97 million and the legal representative is Hu Jianping. The company is mainly engaged in production and sales 60 of glass shells of color picture tube. Details of purchasing from related parties in this year and last year are as follows: Unit: RMB Name of related party 2007 2006 Cha Shenzhen SEG Samsung Co.,Ltd. 3,688,162.20 57,294,124.32 Pricing policy: Making transaction to the market price. 2. Lease ① Leasing expense Unit: RMB Name of related party 2007 2006 Shenzhen SEG Group Co.,Ltd. 420,000.00 420,000.00 The Company rented the 8th floor warehouse with 809.26 meter square of SEG Group’s SEG Square according to the Property Leasing Contract with SEG Group to pay for the rent. 3. Labor offering Unit: RMB Name of related party 2007 2006 Shenzhen SEG Group Co.,Ltd. 25,000.00 － (II) In the report period, the Company had no related transaction of transfer of asset and equity. (III) In the report period, there was no related transaction in which the Company made external investment along with related parties. (IV) Issues concerning credit, liabilities and guarantees with the related parties 1. Credit and liability relations with related parties Statement on fund occupancy of contolling shareholders and other related parties of the Company in 2007. Unit: RMB Wheth er belong ing to The illegal relationship Occurr Occurr Balance Balanc Withdra Occupat Way fund Nature between the Items of ed ed Name of the at e at wal of ion way of occupa of related auditor’s amoun amoun related parties period-be period bad debt and repa tion occupat parties and report t of t of gin -end reserve reason ying forbid ion listed debtor lender den by company No.56 docum ent or not A B C D E F G H I J K L Operati Shenzhen SEG Controlling 25000. 25000. Labor Account --- --- ---- ---- No on Group Co., Ltd. shareholder 00 00 expense receivabl occupat 61 e ion Shenzhen SEG Other Operati Guarant Property Subsidiary of account 27,465 on 27,465.40 --- ---- ---- ee ---- No Management Co., shareholders receivabl .40 occupat money Ltd. e ion Shenzhen SEG Other Operati Orient Industrial Affiliated account 443,910.0 443,91 90,000.0 on ---- ---- Loan No Development Co., company receivabl 0 0.00 0 occupat Ltd. e ion 471,375.4 25000. 496,37 Total ---- 90000.00 ---- ---- ---- 0 00 5.40 Other balance of account receivable of SEG Group and its subsidiaries by the Company were the leasing guarantee fund when leasing the property of SEG Group by the Market Department of the Company. 2. Related guarantees Concerning the guarantee issues between the Company and related parties, please refer to the item of 4. Significant guarantees of (III) Important contracts and implementation in this section for details. (IV) Important contracts and implementation 1. Important custody, contract and leasing: In the report period, the Company had no significant custody, contract or leasing. 2．In the report period, the Company didn’t entrust any other person to manage cash assets. 3. Significant guarantees: (1) In the report period, no non-related external guarantees (barring guarantees for controlling subsidiaries) occurred to the Company, and ended the report period, the balance of the external guarantee (barring guarantees for controlling subsidiaries) of the Company was zero. (2) Ended the report period, totaling one external guarantee amounting to RMB 85,000,000 provided by the controlling subsidiaries of the Company had not been fulfilled, all of which were the investment enterprises’ guarantees for the Company. Decision-m Amount Type of Accomplished Warrantor Warrantee Guarantee term aking (RMB’0000) guarantee or not procedure SEG Hitachi Approved Joint SEG Storage The Nov.1,2007—May by the RMB8,500 responsibilit Not yet and Company 1,2008 Board of y Transportation Directors （3）Ended the report period, totaling 3 external guarantees amounting to RMB 16,071,700 for the controlling subsidiaries of the Company had not been fulfilled, Amount Type of Decision-making Accomplished No. Warrantee Guarantee term (RMB’0000) guarantee procedure or not SEG Storage Approved by the Joint 1 and RMB 1,000 Nov.21,2007—Nov.20,2008 Shareholders’ Not yet responsibility Transport meeting ation SEG Communi July 1,2003—Final checking Joint 2 RMB 527.17 Ditto Not yet cation and accepting of the project responsibility (Note 1) SEG Jan. 19,2005—Final checking Joint 3 Communi RMB 80 Ditto Not yet and accepting of the project responsibility cation 62 (Note 2) Note 1: It is the Company’s performance letter of guarantee for subway project of SEG Communication. Note 2: It is the Company’s performance letter of guarantee for subway project of SEG Communication. External guarantees of the Company (excluding guarantees for controlling subsidiaries) Complete Date of happening Implementatio Guarantee for Name of (Date of signing Amount of Guarantee Guarantee n or not guarantee agreement) guarantee type term Complete related party (Yes or not) Implementatio n or not Naught Total amount of guarantees in the report period 0.00 Total balance of guarantees at report period-end（A） 0.00 Guarantees for controlling subsidiaries Total amount of guarantees for controlling 1000 subsidiaries in the report period. Total balance of guarantees for controlling 1,607.17 subsidiaries at report period-end（B） Total amount of guarantees of the Company (including guarantees for controlling subsidiaries) Total amount of guarantees（A+B） 1,607.17 Proportion of total guarantees to net assets 1.26% Including: Amount for shareholders, actual controller and other 0 related parties（C） Liability guarantee direct or indirect for guarantees 607.17 which assets liability rate exceeding 70%（D） Amount of total guarantee exceeding 50% of net 0 assets（E） Total of the aforementioned three items*（C+D+E） 607.17 V. Commitments made by shareholder holding more than 5% in the report period or lasting into the report period 1. Article 5 of the Equity Transfer Agreement which the Company had signed with SEG Group at the time of the Company’s listing stipulated: SEG Group permits the Company, as well as subsidiaries of the Company and affiliated companies to use the 8 registered trademarks that SEG Group has presently registered at the State Trademark Office; it also permits the Company to take the aforesaid trademarks and symbols that are similar to these marks as the symbol of the Company, as well as to use the aforesaid symbols or symbols that are similar to these symbols during the operation process; the Company doesn’t have to pay SEG Group any fee for the use of the aforesaid trademarks or symbols. In the report period, this commitment was still executed according to the agreement. 2. According to Guiding Opinion on Share Merger Reform of Listed Companies co-promulgated by State Council and other four ministries and commissions, Measures for the Administration of the Share Merger Reform of Listed Companies issued by China Securities Regulatory Commission and other relative law and regulations, the Company has implemented Share Merger Reform. Shareholders of Non-tradable A-shares Committed in Prospectus of Share Merger Reform of Shenzhen SEG Co., Ltd: Shareholders of non-tradable A shares make relative legal commitments in accordance with Measures for the Administration of the Share Merger Reform of Listed Companies and implement the commitments. The commitments are: not trading or transferring shares within 12 months from the day of implementation of the reform; after the aforementioned time limitation was due, expired, if shareholders of original non-tradable shares with a stake over 5% were to sell the original non-tradable shares through listing in stock exchange, the sales volume should be no more than 5% of the total of the Company within 12 month and no more than 10% within 24 months. In the report period, the first majority shareholder SEG Group with owning 30.24％ shares and other below 5% shares owning non circulation shareholders made related sales releasing 63 limitation procedure in the restricted time at Shenzhen branch of China Stock Registration and Settlement Co. Ltd. The actual circulated A-share this time was 83,389,950 shares which occupys 10.6256% of the total shares of the Company, and the limitation leasing date was on June 14, 2007. The second majority shareholder Guangzhou Fuda with 16.56％ of its shares didn’t make any sales limitation leasing procedure. Non circulated A-share shareholders all conformed to related regulations of equity change. 3. According to the pointed problem of “Your company’s existing same industry competition in the electronic maket business with SEG Group”, the Company received SEG Group’s ‘Consent Letter’ on Sep. 14, 2007, with the content as follows: Our company’s familiar business in electronic market of Shenzhen with Shenzhen SEG Group Co. Ltd. occurred on the basis of historic reasons and had objective market developing background. Our Group promised that we will not have business singlely in the same city with Shenzhen SEG. The matter has been disclosed on China Securities, Securities Times, Hong Kong Wen Wei Po and http://www.cninfo.com.cn dated on Sep. 18, 2007. VI. Engagement of certified public accountants The 12th Shareholder’s General Meeting 2006 was held on Mar.17, 2007 and examined and approved the resolution of re-engaging Beijing Shulun Pan Certified public accountants Co., Ltd. as the domestic auditing institution of the Company in 2006 and paying it with the auditing fee of RMB 0.45 million (the Company did not pay for business trip expenses and accommodation fees during the auditing period.), and re-engaging ShineWing (Hong Kong) Certified Public Accountants Co., Ltd. as the overseas auditing institution of the Company in 2007 and paying it with the auditing fee of RMB 0.36 million (the Company did not pay for business trip expenses and accommodation fees during the auditing period.). By the end of 2007, Beijing Shulun Pan Certified public accountants Co., Ltd. had provided auditing services of 6 successive years for the Company. According to regulations of Notice of China Securities Regulatory Commission on the Relevant Issue about the Auditing of the Companies That Issue the Domestically Listed B-shares in Foreign Currencies (ZHENJIANKUAIJIZI [2007] No. 30), the 2nd Extraordinary Shareholder’s General Meeting 2007 held on Nov.2, 2007 examined and approved the resolution of not engaging ShineWing (Hong Kong) Certified Public Accountants Co., Ltd. as the overseas auditing institution of the Company in 2007. VII. In the report period, the Company, the Board of Directors and directors and supervisors of the Company had not been inspected by China Securities Regulatory Commission, nor had they received any administrative penalty, circulating notice of criticism from CSRC or public blame from the Shenzhen Stock Exchange. In the report period, the Company received site inspection by Shenzhen Security Bureau of CSRC, and details of change can be seen in the content of “Administration of the Company”. VIII. In the report period, the Company, in strict accordance with relevant regulations of the Guidance for Fair Information Disclosure of Listed Companies of Shenzhen Stock Exchange, followed the “open, fair and just” principle and received investor consultative calls. In the report period, there was no investigation, communication, interview or other activities accepted by the Company or the Company inviting any specific objects for these activities. During the process of receiving the investors and their consultative calls, the Company mainly introduced the company information, without disclosing or revealing any non-public significant information of the Company privately, in advance, selectively or solely to specific objects, ensured the fairness of information disclosure. Table for investigation, communication, interview or other activities Discussion Reception date Reception Received Way of Reception staff issue and place person reception offered information Dec. 21,2007 Working place Qu Yongxiang Talk Secretary of Getting to 64 of the from Ping An the board of know the basic Company Security directors of the Company Shenzhen SEG Co., Ltd. Auditor’s Report Jing Xin Shen Zi [2008] No. 629 Beijing Shu Lun Pan CPA CO., Ltd. Address: 3th/F Beijing Tower, No.10 East Changan Avenue, Beijing, China Postcode: 100006 Telephone: 86-10-65263615 65263616 Fax: 86-10-65130555 65 Shenzhen SEG Co., Ltd. Auditor’s Report and Financial Statements for the Period from January 1st, 2007 to December 31st, 2007 Content I. Disclaimer II. Auditor’s Report III. Financial Statements and Notes 1. Balance Sheet and Consolidated Balance Sheet 2. Profit Statement and Consolidated Profit Statement 3. Cash Flow Statement and Consolidated Cash Flow Statement 4. Consolidated Statement on Changes of Owners' Equity (Shareholders' Equity) 5. Notes to Financial Statements VI. Qualification Certification of Accounting Firm 66 Disclaimer The Auditor’s Report Jing Xin Shen Zi [2008] No. 629 is issued for the use by the client and the third parties as named thereby in accordance with the audit purposes as stated in the Engagement Letter of this Report. The CPA and the accounting firm to which she belongs shall not be held liable for any consequence whatsoever caused by the improper use of the Report by the client and any third party. BEIJING SHU LUN PAN CPA CO., LTD. April 11th, 2008 67 Auditor’s Report Jing Xin Shen Zi [2008] No. 629 To all shareholders of Shenzhen SEG Co., Ltd. We have audited the financial statements of the Shenzhen SEG Co., Ltd. (hereinafter referred to as Shensaige or “the Company”) attached below, including the Balance Sheet dated December 31st, 2007, the Profit Statement, the Cash Flow Statement and the Consolidated Statement on Changes of Owners' Equity (Shareholders' Equity) of the year 2007 and the Notes to the Financial Statements. I. Responsibilities of the management for the financial statements In accordance with the Accounting Standard for Business Enterprises, the preparation of financial statements is the responsibility of the management of the Company. Such responsibility includes: a. to design, implement and maintain the internal control related to the preparation of the financial statements so that such financial statements can be free of material misstatements resulted from fraud and malpractice or mistakes and errors; b. to select and use appropriate accounting policies; and c. to make reasonable accounting estimates. II. CPA’s responsibility Our responsibility is to express an opinion on these financial statements on the basis of the implementation of auditing work. We have conducted our audit in accordance with the provisions in the Auditing Standards for Chinese Certified Public Accountants. The Auditing Standards for Chinese Certified Public Accountants require that we, observing the professional ethics and regulations, plan and perform the audit to obtain reasonable assurance about whether these financial statements are free of misstatements. The audit involves the implementation of an audit procedure to obtain the auditing evidences supporting the amounts in the financial statement and relevant disclosure. The selection of auditing procedure depends on the judgment of the CPA, including the estimation to the risks on material misstatement in the financial statements resulted from fraud and malpractice or mistakes and errors. We took into account the internal control related to the preparation of the financial statements so as to design appropriate auditing procedure when making risk assessment. However, we are not intended to express an opinion on the effectiveness of such internal control. The audit also comprises assessing the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the management, as well as evaluating the overall presentation of financial statements. We believe that we have obtained sufficient and appropriate auditing evidences to provide a reasonable basis for the issuance of auditing opinion. III. Auditor’s opinions In our opinion, the financial statements of the Company are prepared in accordance with the provisions in the Accounting Standard for Business Enterprises and present fairly, in all material respects, the financial position of the Company as of December 31st, 2007 , and the results of its operations and its cash flows for the years then ended. BEIJING SHU LUN PAN CPA CO., LTD. Certified Public Accountant: (Beijing, China) Certified Public Accountant: April 11th, 2008 68 Balance Sheet Table Kuai Qi No. 01 st Prepared by: Shenzhen SEG Co., Ltd. December 31 , 2007 Unit: RMB Yuan Amount at the end of the year Amount at the beginning of the year Assets No. Parent company Consolidated Parent company Consolidated amount amount Current assets: 1 Monetary funds 2 159,993,220.40 261,303,787.50 61,977,815.22 336,328,630.67 Transaction finance asset 3 0.00 0.00 0.00 0.00 Notes receivable 4 0.00 0.00 0.00 110,022,805.14 Accounts receivable 5 184,510,000.00 216,587,489.28 0.00 351,871,777.92 Advances 6 100,000.00 8,430,446.55 152,560.00 31,032,769.56 Interest receivable 7 0.00 0.00 0.00 0.00 Dividend receivable 8 11,796,925.50 6,306,315.45 5,496,925.50 6,315.45 Other receivable 9 7,725,223.49 21,199,857.81 22,995,684.51 59,396,304.50 Inventories 10 0.00 5,382,388.76 0.00 176,437,562.63 Non-current asset due within one 11 0.00 0.00 0.00 0.00 year Other current assets 12 0.00 0.00 0.00 0.00 Total current assets 13 364,125,369.39 519,210,285.35 90,622,985.23 1,065,096,165.87 Non-current assets: 14 0.00 0.00 0.00 0.00 Salable finance asset 15 7,520,000.00 8,164,453.46 17,259,362.56 17,382,362.56 Held-to-maturity securities 16 0.00 0.00 0.00 0.00 Long-term accounts receivable 17 0.00 0.00 0.00 0.00 Long-term equity investment 18 700,491,175.65 549,113,821.63 1,102,026,192.65 600,599,380.21 Investment property 19 368,823,840.43 472,395,598.33 379,425,271.50 487,443,269.72 Fixed assets 20 26,105,955.70 70,599,740.28 29,145,248.31 870,492,679.22 Construction in progress 21 482,300.00 500,100.00 382,700.00 20,479,085.46 Engineering material 22 0.00 0.00 0.00 0.00 Disposal of fixed assets 23 0.00 0.00 0.00 0.00 Consumable biological assets 24 0.00 0.00 0.00 0.00 Oil and gas assets 25 0.00 0.00 0.00 0.00 Intangible assets 26 371,899.14 682,809.63 465,975.10 51,466,519.03 Expense on research and 27 0.00 0.00 0.00 0.00 development Goodwill 28 0.00 0.00 0.00 0.00 Long-term expenses to be 29 394,368.75 13,058,834.99 600,013.75 15,953,537.16 apportioned Deferred incomes tax assets 30 6,438,420.60 9,850,355.19 6,304,995.58 9,289,861.62 Other non-current assets 31 0.00 0.00 0.00 0.00 Total non-current assets 32 1,110,627,960.27 1,124,365,713.51 1,535,609,759.45 2,073,106,694.98 Total assets 33 1,474,753,329.66 1,643,575,998.86 1,626,232,744.68 3,138,202,860.85 Legal Representative: Zhang Weimin Person-in-charge of Accounting Affairs: Li Lifu Chief of Accounting Organ: Zhang Changhai 69 Balance Sheet (Continued) Table Kuai Qi No. 01 (Continued) st Prepared by: Shenzhen SEG Co., Ltd. December 31 , 2007 Unit: RMB Yuan Amount at the end of the year Amount at the beginning of the year Liabilities and shareholders’ equity Line No. Consolidated Parent company amount Parent company Consolidated amount Current liabilities: 34 Short-term loans 35 85,000,000.00 96,750,000.00 155,000,000.00 434,750,000.00 Transaction financial liabilities 36 0.00 0.00 0.00 0.00 Notes payable 37 0.00 0.00 0.00 319,309,107.23 Accounts payable 38 1,451,360.74 23,936,694.40 1,297,617.56 451,437,072.45 Advance receipts 39 64,808,484.62 102,596,820.45 64,026,222.92 124,445,946.83 Wage payable 40 1,654,066.50 7,483,430.20 1,388,813.22 38,773,253.16 Taxes payable 41 14,327,231.88 19,577,993.58 7,592,553.83 3,750,038.23 Interest payable 42 0.00 0.00 0.00 0.00 Dividend payable 43 271,003.29 893,780.69 288,923.29 866,724.05 Other accounts payable 44 35,599,014.78 84,558,498.67 60,841,029.44 157,167,688.85 Long-term liabilities due within one 45 0.00 0.00 18,000,000.00 18,750,000.00 year Other current liabilities 46 0.00 0.00 0.00 0.00 Total current liabilities 47 203,111,161.81 335,797,217.99 308,435,160.26 1,549,249,830.80 Non-current liabilities: 48 0.00 0.00 0.00 0.00 Long-term loans 49 0.00 0.00 80,000,000.00 81,600,000.00 Bonds payable 50 0.00 0.00 0.00 0.00 Long-term accounts payable 51 0.00 0.00 0.00 0.00 Special accounts payable 52 0.00 0.00 0.00 0.00 Predicted liabilities 53 2,728,268.64 3,038,218.64 2,728,268.64 3,038,218.64 Deferred income tax liabilities 54 867,202.67 966,029.32 728,906.20 759,395.36 Other non-current liabilities 55 0.00 0.00 0.00 0.00 Total non-current liabilities 56 3,595,471.31 4,004,247.96 83,457,174.84 85,397,614.00 Total liabilities 57 206,706,633.12 339,801,465.95 391,892,335.10 1,634,647,444.80 Shareholders’ equity: 58 0.00 0.00 0.00 0.00 Share capital 59 784,799,010.00 784,799,010.00 784,799,010.00 784,799,010.00 Capital public reserve 60 351,280,859.22 355,198,960.77 344,712,496.27 348,186,643.03 Less: treasury stock 61 0.00 0.00 0.00 0.00 Surplus public reserve 62 98,493,970.82 110,434,502.35 95,780,178.42 107,720,709.95 Provision of general risk 63 0.00 0.00 0.00 0.00 Retained profit 64 33,472,856.50 23,205,681.06 9,048,724.89 -37,026,103.65 Balance difference of foreign 65 0.00 -822,553.81 0.00 613,211.02 currency translation Total owner’s equity attributable 66 1,268,046,696.54 1,272,815,600.37 1,234,340,409.58 1,204,293,470.35 to parent company Minority interests 67 0.00 30,958,932.54 0.00 299,261,945.70 Total shareholders’ equity 68 1,268,046,696.54 1,303,774,532.91 1,234,340,409.58 1,503,555,416.05 Total liabilities and shareholders’ 69 1,474,753,329.66 1,643,575,998.86 1,626,232,744.68 3,138,202,860.85 equity Legal Representative: Zhang Weimin Person-in-charge of Accounting Affairs: Li Lifu Chief of Accounting Organ: Zhang Changhai 70 Profit Statement and Statement of Profit Distribution Table Kuai Qi No. 02 Prepared by: Shenzhen SEG Co., Ltd. 2007 Unit: RMB Yuan Amount of this year Amount of last year Item No. Parent company Consolidated Parent company Consolidated amount amount I. Operating income 1 102,143,739.39 711,080,561.66 96,334,946.38 1,950,977,572.61 Less: operating cost 2 43,595,553.14 656,430,051.68 45,101,429.33 1,839,763,414.59 Operating tax and extras 3 6,002,163.12 13,312,554.89 4,154,671.96 10,855,004.07 Sales expenses 4 0.00 36,603,298.26 0.00 58,817,765.78 Administration expenses 5 22,487,225.10 224,485,236.19 18,298,768.70 152,483,552.35 Financial expenses 6 19,110,886.00 44,846,180.49 22,472,306.90 44,462,817.60 Losses of devaluation of assets 7 1,889,500.14 197,001,664.35 0.00 12,906,723.71 Add: income from changing sound value 8 0.00 0.00 0.00 0.00 Investment income 9 29,017,219.93 539,760,989.61 25,861,395.72 22,191,917.32 Including: investment income from 10 0.00 0.00 0.00 0.00 affiliated company and joint venture II. Operating profits 11 38,075,631.82 78,162,565.41 32,169,165.21 -146,119,788.17 Add: non-operating revenue 12 122,970.44 3,499,598.74 617,704.22 2,204,431.45 Less: non-operating expenses 13 62,064.42 256,844.66 2,759,068.61 2,987,455.56 Including: disposal loss of non-current asset 14 0.00 17,000.00 0.00 0.00 III. Total profits 15 38,136,537.84 81,405,319.49 30,027,800.82 -146,902,812.28 Less: income tax 16 10,998,613.83 15,482,133.37 562,343.48 4,731,385.41 IV. Net profits 17 27,137,924.01 65,923,186.12 29,465,457.34 -151,634,197.69 Net profits attributable to owner’s equity of 18 27,137,924.01 62,945,577.11 29,465,457.34 -65,672,156.10 parent company Minority shareholders’ gain and loss 19 0.00 2,977,609.01 0.00 -85,962,041.59 V. Earnings per share: 20 0.00 0.00 0.00 0.00 1) Basic earnings per share 21 0.00 0.00 0.00 0.00 2) Diluted earnings per share 22 0.00 0.00 0.00 0.00 VI. Net profits attributable to owner’s 23 27,137,924.01 62,945,577.11 29,465,457.34 -65,672,156.10 equity of parent company Add: retained profits at the beginning of the 24 9,048,724.89 -37,026,103.65 -19,411,318.57 29,651,466.33 year Amount of surplus reserve transferred in 25 0.00 0.00 0.00 0.00 VII. Distributable profits 26 36,186,648.90 25,919,473.46 10,054,138.77 -36,020,689.77 Less: Public reserve accrued 27 2,713,792.40 2,713,792.40 1,005,413.88 1,005,413.88 Public Welfare fund accrued 28 0.00 0.00 0.00 0.00 Employee benefits and bonuses accrued 29 0.00 0.00 0.00 0.00 VIII. Profits distributable to shareholders 30 33,472,856.50 23,205,681.06 9,048,724.89 -37,026,103.65 Less: preferred stock dividends payable 31 0.00 0.00 0.00 0.00 Other surplus reserve accrued 32 0.00 0.00 0.00 0.00 Common share dividends payable 33 0.00 0.00 0.00 0.00 Conversion of common share dividends 34 0.00 0.00 0.00 0.00 into capital IX. Retained profits 35 33,472,856.50 23,205,681.06 9,048,724.89 -37,026,103.65 71 Legal Representative: Zhang Weimin Person-in-charge of Accounting Affairs: Li Lifu Chief of Accounting Organ: Zhang Changhai Cash Flow Statement Table Kuai Qi No. 03 Prepared by: Shenzhen SEG Co., Ltd. 2007 Unit: RMB Yuan Amount of the this year Amount of the last year Line Statement Item No. Consolidated Consolidated Parent company Parent company amount amount I. Cash flow arising from operating 1 activities Cash received from selling commodities 2 109,316,385.14 933,862,543.01 89,179,481.10 2,217,273,290.54 and providing labor services Write-back of tax received 3 0.00 29,065,875.22 0.00 58,717,214.10 Other cash received from concerning 4 4,853,047.09 40,896,870.43 67,061,614.01 107,380,834.29 operating activities Subtotal of cash inflow 5 114,169,432.23 1,003,825,288.66 156,241,095.11 2,383,371,338.93 Cash paid for purchasing commodities 6 21,584,456.87 792,223,382.86 31,262,918.39 1,861,701,208.94 and receiving labor services Cash paid to/for staff and workers 7 16,026,719.12 120,746,997.99 18,334,882.36 156,632,907.25 Taxes paid 8 11,604,233.45 33,524,317.68 2,837,341.35 30,972,767.46 Other cash paid concerning operating 9 27,436,654.93 136,844,549.71 22,022,982.72 88,363,135.10 activities Subtotal of cash outflow 10 76,652,064.37 1,083,339,248.24 74,458,124.82 2,137,670,018.75 Net Cash flow arising from operating 11 37,517,367.86 -79,513,959.58 81,782,970.29 245,701,320.18 activities II. Cash flow arising from investing 12 0.00 0.00 0.00 0.00 activities Cash received from recovering 13 243,289,634.21 243,289,634.21 0.00 4,341,683.15 investment Cash received from investment income 14 5,016,785.40 5,027,900.40 8,889,032.04 515,104.36 Net cash received from disposal of fixed, 15 6,010.00 1,082,403.97 0.00 0.00 intangible and other long-term assets Net cash received from disposal of 16 0.00 -2,385,643.81 0.00 0.00 subsidiaries and other business units Other cash received concerning investing 17 0.00 0.00 0.00 199,608.01 activities Subtotal of cash inflow 18 248,312,429.61 247,014,294.77 8,889,032.04 5,056,395.52 Cash paid for purchasing fixed, intangible 19 173,125.00 20,785,022.35 759,758.91 48,229,530.90 and other long-term assets Cash paid for investment 20 0.00 0.00 1,350,000.00 0.00 Net cash received from subsidiaries and 21 0.00 0.00 0.00 0.00 other business units Other cash paid concerning investing 22 0.00 2,228,261.00 0.00 0.00 activities Subtotal of cash outflow 23 173,125.00 23,013,283.35 2,109,758.91 48,229,530.90 Net cash flow arising from investing 24 248,139,304.61 224,001,011.42 6,779,273.13 -43,173,135.38 72 activities III. Cash flow arising from financing 25 0.00 0.00 0.00 0.00 activities Cash received from absorbing investment 26 0.00 0.00 0.00 1,650,000.00 Including: cash received from absorbing minority shareholders’ investment by 27 0.00 0.00 0.00 0.00 subsidiaries Cash received from loans 28 253,000,000.00 283,000,000.00 255,000,000.00 549,000,000.00 Cash received from issuing bonds 29 0.00 0.00 0.00 0.00 Other cash received concerning financing 30 0.00 349,657,159.69 0.00 83,745,620.63 activities Subtotal of cash inflow 31 253,000,000.00 632,657,159.69 255,000,000.00 634,395,620.63 Cash paid for settling debts 32 421,006,664.25 721,372,049.75 345,785,078.41 843,925,418.41 Including: dividend and profit of minority 33 0.00 0.00 0.00 41,601,909.11 shareholder paid by subsidiaries Cash paid for dividend and profit 34 19,634,996.28 33,176,200.56 22,251,730.09 41,601,909.11 distributing or interest paying Other cash paid concerning financing 35 0.00 904,141.40 0.00 97,627,229.75 activities Subtotal of cash outflow 36 440,641,660.53 755,452,391.71 368,036,808.50 983,154,557.27 Net cash flow arising from financing 37 -187,641,660.53 -122,795,232.02 -113,036,808.50 -348,758,936.64 activities IV. Influence on cash or cash equivalents 38 393.24 -183,183.24 -20,438.71 -7,123,130.10 due to fluctuation in exchange rate V. Net increase of cash and cash 39 98,015,405.18 21,508,636.58 -24,495,003.79 -153,353,881.94 equivalents Add: balance of cash and cash 40 61,977,815.22 239,795,150.92 86,472,819.01 393,149,032.86 equivalents at the period-beginning VI: Balance of cash and cash equivalents 41 159,993,220.40 261,303,787.50 61,977,815.22 239,795,150.92 at the period-end Legal Representative: Zhang Weimin Person-in-charge of Accounting Affairs: Li Lifu Chief of Accounting Organ: Zhang Changhai 73 Consolidated Statement on Changes of Owners' Equity (Shareholders' Equity) Amount of this year Owners’ equity attributable to parent company Owners’ equity attr Item Total Minority Paid-up Less: Provision owner’s Capital Less: Capital public Surplus public Retained interests Paid-up capital capital (share treasury of general Others equity public treasury reserve reserve profits (share capital) capital) stock risk reserve stock I. Balance at 784,799,010. 299,169,18 1,519,899, 393,732, 1 the end of last 344,037,728.08 106,715,296.07 -15,434,638.00 613,211.02 726,145,863.00 00 0.40 787.57 377.19 9 year Add: changes -16,344,37 of accounting 4,148,914.95 1,005,413.88 -21,591,465.65 92,765.30 1.52 policy Error correction of last period II. Balance of 784,799,010. 299,261,94 1,503,555, 393,732, 1 the beginning 348,186,643.03 107,720,709.95 -37,026,103.65 613,211.02 726,145,863.00 00 5.70 416.05 377.19 9 of this year III. -1,435,764. -268,303,0 -199,780,8 -45,545,7 1 Increase/decre 7,012,317.74 2,713,792.40 60,231,784.71 58,653,147.00 83 13.16 83.14 34.16 8 ase in this year 2,977,609. 65,923,186 a. Net profit 62,945,577.11 01 .12 b. Profits and losses -1,435,764. 5,859,841. 13,107,4 calculating 7,012,317.74 283,288.72 83 63 12.84 into owners’ equity 1. Net changing amount of fair 1,375,764. 4,148,91 value of 1,227,634.81 148,129.28 09 4.95 financial assets available for sales 2. Effect of changes of other owners’ 11,083,3 equity of 26.94 invested units under equity method 3. Effect of income tax related to owners’ equity 74 -1,435,764. 4,484,077. -2,124,82 4. Others 5,784,682.93 135,159.44 83 54 9.05 Subtotal of a. -1,435,764. 3,260,897. 71,783,027 13,107,4 7,012,317.74 62,945,577.11 and b. above 83 73 .75 12.84 c. Owners’ devotion and -270,534,2 -270,534,2 decreased 80.80 80.80 capital 1. Owners’ -118,568,8 -118,568,8 devotion 29.51 29.51 capital 2. Amount calculated into owners’ equity paid in shares -151,965,4 -151,965,4 3. Others 51.29 51.29 d. Profit -1,029,630. -1,029,630. 1 2,713,792.40 -2,713,792.40 distribution 09 09 8 1. Withdrawal 1 of surplus 2,713,792.40 -2,713,792.40 8 reserves 2. Distribution -1,029,630. -1,029,630. for owners (or 09 09 shareholders) 3. Others e. Carrying forward -58,653,1 58,653,147.00 internal 47.00 owners’ equity 1. Capital reserves -58,653,1 58,653,147.00 conversed to 47.00 capital 2. Surplus reserve conversed to capital 3. Remedying losses with profit surplus 4. Others IV. Balance at 784,799,010. -822,553.8 30,958,932 1,303,774, 348,186, 1 the end of this 355,198,960.77 110,434,502.35 23,205,681.06 784,799,010.00 00 1 .54 532.91 643.03 0 year Legal Representative: Zhang Weimin Person-in-charge of Accounting Affairs: Li Lifu Chief of Accounting Organ: Zhang Changhai The Notes constitute an integral part of the Financial Statements. 75 Shenzhen SEG Co., Ltd. Notes to Financial Statements for the Year 2007 I.COMPANY PROFILE Shenzhen SEG Co., Ltd. (hereinafter referred to as the “Company” or "the Company") was incorporated on July 16th, 1996 through public offering by Shenzhen SEG Group Co., Ltd. as the sole initiator upon the approval of relevant authorties of Shenzhen Municipality and the State in accordance with relevant provisions in the Company Law of the People’s Republic of China. The Company received a Business License for Enterprise Legal Person Shen Si Zi No. N16886 with a registration number of 4403011014290. And upon the approval of the securities administration departments of Shenzhen municipality and the State, the Company’s B share and A share started to be listed and traded on Shenzhen Stock Exchange respectively in July and December, 1996. On Juue 7th, 2006, a resolution was adopted at the general meeting of shareholders on the share merger reform of the Company. According to the plan on the fixed conversion capital public reserve into increase of capital share, the Company distributed such converted and increased capital share to the tradable A share shareholders. Such shareholders obtained 4.6445 shares of converted and increased capital share for each 10 shares, which totaled 40,233,322 shares of converted and increased capital share. As a result, relevant non-tradable A shares were also authorized to be listed and circulated. Among the converted and increased capital share obtained by the tradable A share shareholders, 6,997,054 shares were received due to the company's share capital expansion and the rest of 33,236,268 shares were the consideration paid to the tradable A share shareholders by non-tradable A share shareholders under fixed arrangements. Up to June 14th, 2006, the total capital share of the company amounts to 784,799,010 shares, including 411,538,380 restricted shares, accounting for 52.44% of the total, and 373,260,630 unrestricted shares, accounting for 47.56% of the total. Business Scope: Domestic commerce, goods supply and sale, excluding commodities under special operation, control and sale, engaging in other industries as may be applied for with specific projects, and economic information consultancy, property lease; property broker; and build SEG electronic market (Applied additionally for license on professional market). Location of Registration: 31/F, Tower A, Qunxing Plaza, Huaqiang Road (N), Futian District, Shenzhen Form of Incorporation: Company limited by share Address of Headquarters: 31/F, Tower A, Qunxing Plaza, Huaqiang Road (N), Futian District, Shenzhen Name of Parent Company: Shenzhen SEG Co., Ltd. Name of Supreme Group Parent Company: Shenzhen SEG Group Co., Ltd. Finanical Statement Pulication Approver: Board of directors Financial Statement Publication and Approval Date: April 11th, 2008 II.MAIN ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND ERRORS IN THE LAST PERIOD 1. Statement on compliance to ASBE The financial statements prepared by the Company comply with the requirements of the Accounting Standard for Business Enterprises and trufully and completely reflect relevant information on the financial position, operating results, changes of shareholders’ equity and cash flows of the Company. 2. Preparation basis The Company conducts confirmation and measurement on the basis of going-concern principle, according 76 to the transactions and matters that have actually occurred and in accordance with the Accounting Standard for Business Enterprises - Basic Standard and other provisions in the Accounting Standard for Business Enterprises and prepares the financial statements on such basis. The amounts at the beginning of the year in the Balance Sheet and the Profit Statement of the comparable accounting period were prepared upon the completion of the adjustments of the items subject to restrospective adjustments in accordance with the provisions in Articles 5-19 of the Accounting Standard for Business Enterprises No. 38 - First time adoption of Accounting Standards for Business Enterprises and the Interpretation No. 1 of the Accounting Standard for Buisness Enterprises according to the principle of retrospective adjustment and in accordance with the provisions in the documents of Zheng Jian Fa [2006] No. 136 and Zheng Jian Hui Ji Zi [2007] No. 10. 3. Accounting period A fiscal year lasts from January 1st to December 31st of the Gregorian Calendar. 4. Recording currency Renminbi is the recording currency of the financial statements of the Company. 5. Statement items whose measurement attributes have been changed in the current year and the measurement attributes adopted in the current year Generally the Company adopts the historical cost method in the measurement of the items in the accounting statements. Where the amount of some particular accounting elements in question can be obtained and measured reliably, such accounting elements will be measured according to replacement cost, realizable value, current value and fair value. Measurement Attributes of Current Value and Fair Value 1) Current Value In the case of the measurement with current value, assets are measured according to the discount amount of the net future cash inflow generated from the continuous use and final disposal thereof while liabilities are measured according to the discount amount of the net future cash outflow to be repaid within the anticipated period. The items measured according to the current value in the financial statements of the Company in the current year include: The term of the anticipated future cash flow of relevant assets of the disclosing company and the method to determine the discount rate. 2) Fair Value In the case of the measurement with fair value, both assets and liabilities are measured according to the amounts determined when two parties are familiar with the market conditions make assets exchange or debt repayment in a fair transaction. The items measured according to the fair value in the financial statements of the Company in the current year include: Approach, method and basis of the obtainment and/or determination of the fair value of relevant assets oshould be obtained by the disclosing company. Where relevant value estimation models are used to determine the fair value, the method of the selection of relevant parameters in the model should be explained. Items in the financial statements in which the measurement attributes are subject to change in the current year No change has occurred to the measurement attributes to the items in the financial statements. Adopted measurement attributes of the statement items whose measurement attributes have been changed in the current year Historical cost. In the case of the measurement according to historical cost, assets are measured according to the amounts of the cash or cash equivalents paid at the time of purchase or the fair value of the 77 consideration paid at the time of the purchase of such assets. Liabilities are measured in accordance with the proceeds or the amount of the assets actually received at the time of the performance of current obligations, or the amount of the contracts at the time of the performance of current obligations, or the anticipated amount of the cash or cash equivalents to be paid in the repayment of debts in daily operation. All the items in the financial statements of the Company in the current year should be measured according to the historical cost method other than those measured by replacement cost, net realizable value, current value and fair value. 6. Standards for the determination of cash equivalents In the preparation of the cash flow statements, the investments that meet the four conditions of shorter term (to be mature within 3 months from the date of purchase), strong liquidity, easiness in converting into known cash, very small risk of value fluctuation were defined as cash equivalents. 7. Accounting method of foreign currency businesses The foreign currency businesses are recorded into the accounts after relevant amounts are translated into RMB according to the current exchange rate at the date of transaction as the exchange rate for translation. The balance of the monetary items in foreign currency is adjusted with relevant amounts translated into RMB according to the current exchange rate on the balance sheet date. The non-monetary items in foreigh currency measured by the fair value are adjusted with relevant amounts translated into RMB according to the current exchange rate on the fair value determination date. With respect to the the year-end translation difference in the special foreign currency loan account, where the amounts can be attributed to the purchase, construction or production of the assets that meet the conditions for capitalization, such amounts shall be capitalized according to relevant regulations and recorded as the costs of relevant assets. The rest of the translation difference in foreign currency accounts should all be recorded as financial costs. The translation difference formed from the translation between different currencies should be recorded as financial costs. 8. Translation method of financial statements in foreign currency The assets and liabilities items in the balance sheet are translated according to the current exchange rate on the balance sheet date. The owners’ equity items other than “retained profits” should be translated according to the current exchange rate at the time when incurred. The income and expense items in the profit statement should be translated according to the current exchange rate on the date of transaction. The translation difference in the financial statements in foreign currency incurred in the translation according to the above method should be listed separately under the owners’ equity items in the balance sheet. 9. Accounting methods of financial assets and liabilities Classification of financial assets and liabilities According to the purposes of the obtainment and holding of financial assets and the assumption of financial debts, the management classifies them as follows: financial assets and liabilities measured according to fair value whose changes should be recorded as current (i.e. current period) gains and losses, including transaction monetary assets or liabilities and the financial assets (and liabilities that can be directly assigned as those measured according to fair value and whose changes should be recorded as current gains and losses), held-to-maturity securities, loans and accounts receivable, salable financial assets , and other financial liabilities. Methods for the confirmation and measurement of financial assets and liabilities 1) Financial assets and liabilities measured according to fair value and whose changes are recorded as current gains and losses The fair value (with the cash dividends declared but not yet distributed or the bond dividends not yet received with the interest payment period expired deducted) should be taken as the initial confirmation amount at the time of obtainment. Relevant transaction expenses should be recorded as current period gains and losses. The interests and cash dividends obtained at the time of holding should be confirmed as investment income. The changes of fair value should be recorded as current gains and 78 losses at the end of the year. At the time of disposal, the difference between the fair value and the initial recorded amount in the account should be confirmed as investment income and the gains and losses from changing fair value should be adjusted at the same time. 2) Held-to-maturity securities At the time of obtainment the sum of the fair value (with the bond interests not yet received with the term of interest payment expired deducted) and relevant transaction expenses should be taken as the initial confirmation amount. During the time of holding, the interests income should be calculated and confirmed in accordance with the amortized cost and the actual interest rates (and where the actual interest rates only have slight differences with the denomination interest rate) and recorded as investment income. The actual interest rate should be determined and set at the time of obtainment and remain unchanged within the anticipated existence period or a shorter period applicable. At the time of disposal, the difference between the obtained price money and the book value of such investment should be recorded as investment income. If the Company sells or reclassifies prior to the date of maturity a larger amount of held-to-maturity securities (the management of the Company has the right to determine the standard of the “larger amount”. The “larger amount” means a larger proportion to the total amount before the sale or reclassification of such securities), the Company should reclassify the rest of such securities as salable financial assets and should not classify any financial assets as held-to-maturiy securities within the current accounting period or the following two entire accounting years except the following circumstances: that the date of sale or reclassification is closer to the date of maturity or redemption (for example, within three months prior to such date), that the changes in interest rates on the market have no noticeable impact on the fair value of such securities, that the remainder of such securities are sold or reclassied after all the initial principals are virtually gained by means of installment repayment or earlier repayment as agreed in relevant contracts, and that such sale or reclassification is caused by a singular event that can not be controlled or reasonably anticipated by the enterprise and will not repeat in anticipation. 3) Accounts receivable and loans For the accounts receivable formed from the commodities sold or labor services provided by the Company and those of other enterprises held by the company other than the priced debt tools on active markets, including accounts receivable, notes receivable, advances, other accounts receivable, long-term accounts receivable, the price money (marked price) in contracts or agreements of the purchaser should be taken as the amount of initial confirmation. For those of a financing nature, the current value should be taken as the amount of initial confirmation. At the time of collection or disposal, the difference between the obtained price money and the book value of such accounts receivable should be recorded as current gains and losses. 4) Salable financial assets The sum of the fair value (with the cash dividends declared but not yet distributed or the bond dividends not yet received with the interest payment period expired deducted) and relevant transaction expenses should be taken as the initial confirmation amount at the time of obtainment. The interests or cash dividends obtained during the time of holding should be confirmed as investment income. Such assets should be measured according to fair value at the end of the year and the changes of fair value should be recorded as capital public reserve (other capital public reserve). At the time of disposal, the difference between the price money obtained and the book value of such financial assets should be recorded as investment gains and losses. At the same time, the amount of the disposed part of the assets originally recorded in the accumulative amount of the changes in the fair value of owners’ equity should be transferred and recorded as investment gains and losses. 5) Other financial liabilities 79 The sum of the fair value of such assets and relevant transaction expenses should be taken as initial confirmation amount. The amortized cost should be adopted in the following measurement. Confirmation basis and measurement method of financial assets transfer In the case of the transfer of the financial assets of the Company, if almost all the risks and returns in the ownership rights of the financial assets are transferred to the assignee, the confirmation of such financial assets should be terminated, and if almost all the risks and returns in the ownership rights of such financial assets are retained, the confirmation of such financial assets should not be terminated. In the judgment whether a financial assets transfer meets the above conditions to terminate its confirmation, the principle of attaching more importance to substance than form should be adopted. The Company divides financial assets transfer into complete and partial transfer of financial assets. Where the complete transfer of financial assets meets the conditions of confirmation, the difference of the following two amounts should be recorded as current gains and losses. 1) The book value of the transferred financial assets; 2) The sum of the consideration received due to transfer and the accumulated amount of the changes in fair value originally recorded in owners’ equity (involving the situation when the transferred financial assets are the salable financial assets ). Where the partial transfer of financial assets meets the conditions to terminate the confirmation, the book value of the entire transferred financial assets should be allocated between the part with its confirmation terminated and the part with its confirmation not yet terminated (under such case the retained service assets should be deemed as part of the financial assets with its confirmation not yet terminated) in proportion to their respective fair value and the difference of the following two amounts should be recorded in the current gains and losses: 1) Book value of the part with its confirmation terminated; 2) The sum of the consideration of the part with its confirmation terminated and the part of the accumulated amount of the changes in fair value originally recorded in owners’ equity corresponding to the part with its confirmation terminated (involving the situation when the transferred financial assets are the salable financial assets). Where the financial assets transfer does not meet the conditions to terminate confirmation, the confirmation of such financial assets should be continued. The received consideration should be confirmed as a financial liability. Methods for the determination of the fair value of financial assets and liabilities The prices on the active market should be referred to with respect to both the financial assets and liabilities of the Company measured by fair value. Exchange rate risk of financial tools The Company does not have any financial tool involving the assumption of exchange rate fluctuation risks. Impairment provisions of financial assets 1) Impairment provisions of salable financial assets: If the fair value of the salable financial assets sees a large decrease at the end of the year or it is anticipated that such decrease tendency is not provisional upon the comprehensive analysis of various relevant factors, then it can be determined that impairment occurred to such assets. All the accumulative losses formed from the decrease of the fair value originally directly recorded as owners’ equity should be transferred out and relevant impairment loss confirmed. 2) Impairment provision of held-to-maturity secutities The measurement of the impairment loss of held-to-maturity secutities should be processed with reference to the method for the measurement of the impairment loss of accounts receivable. 80 10. Confirmation standards and accrual method of bad debt provisions for accounts receivable At the end of the year, if there are objective evidences proving that the accounts receivable suffer impairment, the book value of such accounts receivable should be reduced to and recorded according to the recoverable amount, the reduced amount should be confirmed as assets impairment loss and recorded as current gains and losses. The recoverable amount should be determined by the discount of the future cash flow of such assets (excluding the credit loss not yet incurred) according to the original actual interest rate with the value of relevant collateral taken into consideration (with the anticipated disposal expenses and other expenses deducted from such value). The original actual interest rate refers to the actual interest rate calculated and determined at the time of the initial confirmation of such accounts receivable. If the difference is rather small between the anticipated future cash flow of short-term accounts receivable and their current value, such anticipated future cash flow should not be discounted into cash in the confirmation of relevant impairment loss. At the end of the year, impairment test should be conducted individually on accounts receivable of large amount. If there are objective evidences proving that such accounts receivable suffer impairment, impairment losses should be confirmed and bad debt provision accrued, according to the difference of the current value of their future cash flow lower than their book value. The material individual amounts of the accounts receivable refer to the five largest balances of the accounts receivable. The accounts receivable that are not of material individual amounts should be divided into several combinations according to account age together with the accounts receivable that have not suffered impairment after individual testing, as the accounts receivable having similar credit risk characteristics. Then the impairment loss should be calculated and determined and the bad debt provision accrued according to certain proportions of the balances of these accounts receivable combinations at the end of the year (the impairment test of these may be conducted separately). Except for the accounts receivable with impairment provisions accrued separately, the Company determines the following proportions for the accrual of bad debt provisions with the current conditions taken into account and on the basis of the actual loss rate of the combinations of similar credit risk characteristics that are divided by the account age segments, contain accounts receivable, and are similar or identical to those in the previous years: Account age of accounts receivable Proportions of accrual Within one year (including one year) 0% Over one year to two years (including two years) 5% Over two years to three years (including three years) 10% Over three years 20% 11. Accounting method of inventory Classification of inventory Inventory is classified as follows: goods on route, raw materials, circulating materials, in-stock goods, goods in process, delivered goods, consigned processing materials and consumable biological assets. Pricing method of delivered inventory 1) The pricing of the inventory should be made according to the weighted average method at the time of delivery. 2) Amortization method of circulating materials For low value consumables, one-off amortization method should be adopted. For packaging materials, one-off amortization method should be adopted. Inventory taking system The perpetual inventory method is adopted in the stock inventory. Accrual method of inventory decline provision After a complete counting and examination of the inventory at the end of the year, the inventory 81 decline provision should be accrued or adjusted according to the lower of the inventory cost and net realizable value. The net realizable value of the goods inventory directly for sale such as finished products, goods and materials for sale should be determined in regular production and operation according to the amount of the estimated sale price of such inventory minus estimated sale expenses and relevant taxes. That of the material inventory to be processed should be determined in regular production and operation according to the estimated sale price of the finished products produced minus estimated sale expenses and relevant taxes. That of the inventory held for the performance of sale or service contracts should be calculated on the basis of the contract price. Where the quantity of the inventory is more than the quantity ordered in the sale contract, the net realizable value of the surplus of such inventory should be calculated on the basis of the general sale price. At the end of the year, inventory decline provision should be accrued according to individual inventory item. However, that of the inventory of large quantity and low unit price should be accrued according to the types of the inventory. For the inventory involving the product series produced and sold in the same region, having identical or similar final use or purpose, and being difficult to be separated from other items for measurement, relevant inventory decline provision should be accrued in a combined manner. Where the factors previously causing the recording of the reduction of inventory value stop to exist, the reduced amount should be restored and transferred back from the amount of the originally accrued inventory decline provision. The transferred amount should be recorded as current gains and losses. 12. Type and measurement mode of investment property Investment property refers to the property held for earning rental or increasing the value of capital, including the right to use of the rented land, the right to use of the land held for transfer after the value increases, and the rented building. The investment property presently held by the Company should be measured in a cost mode. The depreciation policy of the assets for rent - a type of investment property measured according to the cost mode should be the same as that of the fixed assets of the Company. The amortization policy of the rented land use right should be the same as that of intangible assets. Where there are indications of impairment, the recoverable amount of these should be estimated. If the recoverable amount is lower than the book value, the corresponding impairment loss should be confirmed. 13. Pricing of fixed assets and its depreciation method Conditions on confirmation of fixed assets Fixed assets refer to the tangible assets held for the purpose of the manufacture of commodities, provision of labor services, lease or operation and management with a term of use exceeding one year. The confirmation of fixed assets can be made only when all the following conditions are satisfied: 1) Where the economic interests related to such fixed assets are likely to flow into the company; 2) Where the cost of such fixed assets can be measured reliably. Classification of fixed assets The fixed assets can be classified into: houses and buildings, machinery and equipment, transportation equipment, electronic equipment and other equipment. Initial measurement of fixed assets The initial measurement of fixed assets should be conducted according to the actual cost at the time of obtainment. The cost of the fixed assets purchased from outside should be determined according to purchase price, relevant taxes and the traffic expenses, handling expenses, installation expenses and the service fees of special personnel attributable to such assets and incurred before the fixed assets reach the desired usable status. Where the price money of the purchased fixed assets is paid on a deferred basis within a term exceeding regular credit conditions and actually of a financing nature, the cost of the fixed assets should be determined on the basis of the current value of the price money in purchase. The cost of the self-built fixed assets should be composed of the necessary construction 82 expenditure incurred before the assets reach the desired usable status. The recorded value in the account of the fixed assets obtained from debtors for the repayment of debts in debt restructuring should be determined on the basis of the fair value of the fixed assets. The difference between the book value of debt restructuring and the fair value of the fixed assets used for the repayment of debts should be recorded as current gains and losses. Under the premises that the non-monetary assets exchange is of commercial nature and that the fair value of the assets received and given out in the exchange can be measured reliably, the recorded value of the received fixed assets in the account should be determined on the basis of the fair value of the assets given out, unless there are definite evidence proving that the fair value of the received assets is more reliable. For the non-monetary assets exchange that do not meet the above premises, the book value of the received assets and relevant taxes payable should be taken as the cost of the fixed assets and no gains and losses should be confirmed. The recorded amount of the discard expenses of the fixed assets in the account should be calculated and determined according to the current value. The recorded value in the account of the fixed assets obtained by the merger of the enterprises under the control of the same entity should be determined according to the book value of the merged party. The recorded value in the account of the fixed assets obtained by the merger of the enterprises under the control of different entities should be determined according to the fair value. The recorded value of the fixed assets obtained by financing lease in the account should be the lower of the fair value of the leased assets on the lease date and the current value of the minimum lease payments. Accrual method of fix assets depreciation The fixed assets depreciation should be accrued according to the straight line method and the depreciation rate should be determined according to the type of fixed assets, anticipated service life and anticipated net residual value rate. The depreciation of the fixed assets decoration expenses that meets the conditions for capitalization should be accrued separately according to the straight line method during the shorter one of the time between two decoration periods and the remaining service life of the fixed assets. For the fixed assets leased by financing lease, if it can be reasonably determined that the ownership right of the leased assets will be obtained upon the expiration of the lease term, depreciation should be accrued within the remaining service life of the leased assets; and if it cannot be reasonably so determined, depreciation should be accrued during the shorter one of the lease term and the remaining service life of the leased assets. The decoration expenses of the fixed assets leased by financing lease that comply with the conditions of capitalization should be averaged and amortized according to the shortest one of the time between two decorations, the remaining part of the lease term and the remaining service life of the fixed assets. The anticipated service life and annual depreciation rate of various fixed assets are as follows: Estimated Anticipated net Annual Type of fixed assets service life residual value rate depreciation rate Houses and buildings 20-40 years 5% 4.75-2.375% Machinery and equipment 5-10 years 5% 19.00-9.00% Electronic equipment 5-10 years 5% 19.00-9.00% Fixed assets obtained by financing lease 5-10 years 5% 19.00-9.00% Means of transportation 5-10 years 5% 19.00-9.00% Other equipment 10 5% 9.50% 14. Accounting method of construction in progress Type of construction in progress The accounting of construction in progress should be made according to the classification of the projects determined in project establishment. 83 Standards and time points for the construction in progress being carried forward to fixed assets All the expenditure incurred to the construction in progress before such assets reach the anticipated usable status should be taken as the recorded value of such fixed assets in the account. Where the construction in progress in the fixed assets has reached the anticipated usable status and relevant completion final settlement has not yet been completed, such construction in progress should be transferred into fixed assets on the basis of estimated value, according to the construction budget, construction cost or actual engineering cost, and from the date when such construction in progress reaches the anticipated usable status with the fixed assets depreciation accrued according to the fixed assets depreciation policy of the Company. Upon the completion of the completion final settlement, the original estimated value should be adjusted according to the actual cost but the depreciation value originally accrued will not be adjusted. 15. Accounting method of intangible assets Pricing method of intangible assets The intangible assets will be recorded in the account according to the actual cost at the time of obtainment. The cost of the intangible assets purchased from outside includes purchase price money, relevant taxes and other expenses incurred due to putting such assets to the anticipated use that can be directly attributed to such assets. Where the price money of the purchased intangible assets is paid on a deferred basis within a term exceeding regular credit conditions and actually of a financing nature, the cost of the intangible assets should be determined on the basis of the current value of the price money in purchase. The recorded value in the account of the intangible assets obtained from debtors for the repayment of debts in debt restructuring should be determined on the basis of the fair value of the intangible assets. The difference between the book value of debt restructuring and the fair value of the intangible assets used for the repayment of debts should be recorded as current gains and losses. Under the premises that the non-monetary assets exchange is of commercial nature and that the fair value of the assets received and given out in the exchange can be measured reliably, the recorded value in the account of the intangible assets received in non-monetary assets exchange should be determined on the basis of the fair value of the assets given out, unless there are definite evidence proving that the fair value of the received assets is more reliable. For the non-monetary assets exchange that do not meet the above premises, the book value of the received assets and relevant taxes payable should be taken as the cost of the intangible assets and no gains and losses should be confirmed. The recorded value in the account of the intangible assets obtained by the merger of the enterprises under the control of the same entity should be determined according to the book value of the merged party. The recorded value in the account of the intangible assets obtained by the merger of the enterprises under the control of different entities should be determined according to the fair value. Service life and amortization of intangible assets 1) The conditions on the estimation of the service life of the intangible assets with limited service life. Land use right: averaged and amortized according to a term of 50 years. Municipal accessory facilities: averaged and amortized according to a term of 10 years after the start of use. Patent right: averaged and amortized according to a term of 10 years after the start of use. LAN firewall series: amortized according to a term of 5 years after the start of use. Gateway multimedia decompression device: amortized according to a term of 5 years after the start of use. Non-patent technology: amortized according to a term of 7-10 years after the start of use. At the end of each year, the service life and amortization method of the intangible assets with limited service life should be reviewed. Upon such review it was found that there was no difference between the service life and 84 amortization method of the intangible assets at the end of the current year and the estimations of the previous periods. 2) Basis for the judgment of the intangible assets with indeterminate service life. There are no intangible assets with indeterminate service life in the Company. 3) Amortization of intangible assets The intangible assets with limited service life should be amortized according to the straight line method within the period that such assets bring economic benefits to the enterprise. Where the period cannot be anticipated in which such intangible assets bring economic interests to the enterprise, such intangible assets should be deemed as having indeterminate service life and no amortization will be made. The cost of the intangible assets formed through internal R&D activities includes: the cost of materials and labor consumed in the development of such intangible assets, registration fee, the amortization of other patent rights and franchises used in the development process and the interests expenses that meet the conditions of capitalization, and other direct expenses incurred due to putting such intangible assets into the anticipated use. The internal R&D expenses should be accumulated in the item of “R&D expenditure” at the time of incurrence. At the end of the year, the amount of such expenditure should be transferred into “administration expenses” after expensing. Where the intangible assets have been formed and put into the anticipated use, such expenditure should be transferred into “intangible assets”. Standards for the division of the expenditures in the research stage and the development stage of the research and development project The expenditure in the development stage of the research and development project can be confirmed as intangible assets only when all the following conditions are met: 1) The completion of such intangible assets makes it usable or its sale technically feasible. 2) There is an intention to complete such intangible assets and use or sell it. 3) The way that the intangible assets generate economic interests can prove that the product using such intangible assets or the intangible assets itself have market. If the intangible assets are to be used internally, its usefulness should be proved. 4) The Company has sufficient technical and financial resources and other resources to support the completion of the development of such intangible assets and the capacities to use or sell such intangible assets. 5) The expenditure attributed to the development stage of such intangible assets can be reliably measured. 16. Amortization method and term of long-term expenses to be apportioned The long-term expenses to be apportioned should be averaged and amortized in the benefit period. Among these: The rental paid in advance for operating leased fixed assets should be averaged and amortized in accordance with the term provided in the lease contract or other reasonable ways (this needs to be explained with the special conditions of the Company taken into account). The expenditure on the improvement of operating leased fixed assets should be averaged and amortized according to the shorter one of the remaining part of the lease term and the remaining service life. 17. Impairment of main assets other than inventory, investment property and financial assets Long-term equity investment For the long-term equity investment that does not have price quotations on active market, whose fair value cannot be reliably measured, and the accounting of which is conducted with cost method, its impairment loss is determined by the difference between its book value and the current value determined through discounting the future cash flow according to the current market return rate of similar financial assets. 85 If the measurement results of the recoverable amount of other long-term equity investments indicate that such recoverable amount is lower than the book value of such investments, then the difference between the two should be confirmed as impairment loss. Once the impairment loss of long term equity investment is confirmed, such loss will not be switched back. Long-term non-financial assets such as fixed assets, construction in progress, intangible asset and goodwill The Company judges at the end of the year whether there are indications of possible impairment of relevant long-term non-financial assets such as fixed assets, construction in progress and intangible assets. Impairment tests will be conducted each year on the goodwill formed through merger of enterprises and the intangible assets with indeterminate service life whether there are indications of impairment or not. Where there are indications of impairment on some assets, the recoverable amount of such assets should be estimated. The recoverable amount may be determined according to the higher one of the net value of the fair value of the assets minus the disposal expenses and the current value of the anticipated future cash flow of the assets. Where the recoverable amount of the assets is lower than its book value, the book value of such assets may be reduced and recorded as the recoverable amount. The reduced amount should be confirmed as assets impairment loss and recorded as current gains and losses. At the same time, the corresponding assets impairment provision should be accrued. After the confirmation of assets impairment loss, corresponding adjustments should be made in the future periods on the depreciation or amortized expenses of the impaired assets so that the adjusted book value of such assets (with the anticipated net residual value deducted) can be amortized systematically within the remaining service life. The impairment loss of long-term non-financial assets such as fixed assets, construction in progress and intangible assets should not be transferred back in the later accounting period once confirmed. Where there are indications that impairment may occur to one item of assets, the enterprise should estimate its recoverable value on the basis of single assets items. Where it is difficult for the enterprise to estimate the recoverable amounts of single assets items, the recoverable amount of the assets group to which such assets belong should be determined. 18. Basis for the identification of an assets group is whether the main cash inflow generated from the assets group is independent of the cash inflow of other assets or assets groups The basis for the identification of an assets group is whether the main cash inflow generated from the assets group is independent of the cash inflow of other assets or assets groups. At the same time, the manner of the production and operation activities of the management of the Company and the manner of decision making on the continuous use or disposal of the assets should be considered in the identification of an assets group. Where the recoverable amount of an assets group is lower than its book value, relevant impairment loss should be confirmed. The recoverable amount of an assets group may be determined according to the higher one of the net value of the fair value of the assets group minus the disposal expenses and the current value of the anticipated future cash flow of such assets group. The goodwill reflected in the consolidated financial statements does not include the goodwill of the subsidiaries belonging to minority shareholders. However, when impairment test is conducted on relevant assets group, the goodwill attributable to minority shareholders should be included, the book value of such assets group should be adjusted, and then the adjusted book value of the assets group and its recoverable amount should be compared. If impairment has occurred to the above assets group, the goodwill impairment loss attributable to the parent company should be confirmed after the share of the loss in proportion to the equity of minority shareholders is deducted. Once an assets group is determined, generally no adjustment is made to it, unless there are clear evidences indicating such assets group truly needs adjustment. 86 19. Accounting of long-term equity investment Initial measurement 1) Long-term equity investment formed from enterprise merger In the merger of the enterprises under the control of the same entity, if the Company pays cash, transfers non-monetary assets or bears debts, and issues equity securities, as the consideration of the merger, the book value of the share of the owners’ equity obtained from the merged party on the date of merger should be taken as initial investment cost of the long-term equity investment. The difference between the initial investment cost of the long-term equity investment and the merger consideration paid should be adjusted with the capital reserve. Where the capital reserve is not sufficient for offsetting such difference, the retained income should be adjusted for the offsetting. Various directly related expenses occurred in the merger include the audit expenses, evaluation expenses, legal service fees paid for the merger should be recorded as current gains and losses at the time of incurrence. For the merger of the enterprises not under the control of the same entity, the Company should determine the merger cost on the date of purchase in accordance with the Accounting Standard for Business Enterprises No. 20 - Business Combinations and take it as the initial investment cost of long-term equity investment. 2) Long-term equity investment obtained from other ways The purchase price money actually paid should be taken as the initial investment cost of the long-term equity investment obtained by paying cash. The fair value of the issued equity securities should be taken as the initial investment cost of the long-term equity investment obtained from issuing equity securities. The value agreed in investment contracts or agreements (with the cash dividends declared but not yet distributed or profits deducted) of the long-term equity investment given by the investors should be taken as initial investment cost, unless the value agreed in investment contracts or agreements is not fair value. Under the premises that the non-monetary assets exchange is of commercial nature and that the fair value of the assets received and given out in the exchange can be measured reliably, the initial investment cost of the long-term equity investment received in non-monetary assets exchange should be determined on the basis of the fair value of the assets given out, unless there are definite evidences that the fair value of the received assets is more reliable. For the non-monetary assets exchange that do not meet the above premises, the book value of the received assets and relevant taxes payable should be taken as the cost of the long-term equity investment. The initial investment cost of the long-term equity investment obtained through debt restructuring should be determined according to its fair value. Basis that the invested organizations are under common control or significant influence The common control over a certain economic activity as agreed in a contract exists only with the unanimous agreement of the investors who need to share the controlling powers in the important financial and operation decisions related to such economic activity and such investors should be deemed as exercising joint control with other parities over the invested organization. If an investor has the power to participate in the decision making of the financial and operation matters of an enterprise but cannot solely control or jointly control with other parties the formation of such policies, then such investor should be deemed as being able to exercising significant influence over the invested organizations. Subsequent measurement and income confirmation When the Company can exercise significant influence on or joint control over the invested organizations, if the initial investment cost is larger than the investment, the Company should enjoy the difference with the due share of the fair value of the discernible net assets of the invested organizations and the initial investment cost of the long-term equity investment should not be adjusted, if the initial investment cost is smaller than the investment, the Company should enjoy the difference with the due share of the fair value of the discernible net assets of 87 the invested organizations and such difference should be recorded as current gains and losses. The accounting of the long-term equity investment of the Company into the subsidiaries should be done according to the cost method. Such investment should be adjusted according to the equity method in the preparation of consolidated financial statements. The accounting of the long-term equity investment that does not involve the joint control over or significant influence on the invested organizations, that does not have quoted prices on active market, and whose fair value cannot be reliably measured should be done according to the cost method. The accounting of the long-term equity investment that involves the joint control over or significant influence on the invested organizations should be done according to the equity method. The confirmation of investment income by the Company under the cost method should only be limited to the distributed amount of the accumulative net profits generated after the invested organizations have received investments. The part exceeding the above amounts in the obtained profits or cash dividends should be taken as the recovery of initial investment cost. Where the Company confirms the due share of the losses incurred by the invested organizations under the equity method, the following sequence should be followed: First, the book value of the long-term equity investment should be offset. Secondly, if the book value of the long-term equity investment is not sufficient for the offsetting, the investment loss should continue to be confirmed within the limit of the book value of other long-term equity that practically constitutes net investments into the invested organization and the book values of long-term accounts receivable and others should be offset. Finally, if the enterprise still bears additional obligations as agreed in the investment contract or agreement after the above processing, liabilities should be confirmed according to the anticipated obligations to be borne and recorded as current investment loss. Where the invested organizations realize profits in the later periods, the Company should make accounting treatment in the reversed sequence against the above after deducting the shared loss not yet confirmed, reduce the book balance of the confirmed anticipated liabilities, restore other long-term equity that practically constitutes net investments into the invested organizations and the book value of the long-term equity investment, and confirm investment income at the same time. In the accounting treatment of the changes in owners' equity other than net gains and losses of the invested organizations, the book value of the long-term equity investment should be adjusted and the capital public reserve (other capital public reserve) added or decreased with respect to the part of the changes in owners’ equity other than net gains and losses of the invested organizations that the Company should enjoy or bear according to the proportion of shareholding under the circumstance that the proportions of shareholding remain unchanged. 20. Capitalization of borrowing costs Confirmation principle of borrowing costs capitalization Where the borrowing costs incurred by the Company can be directly attributable to the purchase, building or production of the assets that meet the conditions of capitalization, such assets should be capitalized and recorded as relevant assets cost. Other borrowing costs should be confirmed as expenses according to the incurred amount at the time of incurrence and recorded as current gains and losses. The assets that meet the conditions of capitalization refer to the assets such as fixed assets, investment property and inventory that can reach the anticipated usable or salable status only after a considerable time of purchase, building or production activities. The borrowing costs may be capitalized when all of the following conditions are met: 1) The assets expenditure has already incurred, including that incurred in the form of cash payment, non-monetary assets transfer or bearing of debts with interests for the purchase, building or production of the assets that meet the conditions of capitalization. 2) The borrowing costs have already been incurred. 88 3) The construction or production activities necessary for putting the assets into a usable or salable status have already started. Where abnormal discontinuation has occurred in the purchase, building or production of the assets that meet the conditions of capitalization and the time of discontinuation exceeds three months consecutively, the capitalization of the borrowing costs should be suspended. Where the purchase, building or production of the assets that meet the conditions of capitalization has put such assets into the anticipated usable or salable status, the capitalization of the borrowing costs should be stopped. Where part of the projects in the purchase, building or production of the assets that meet the conditions of capitalization have been completed and reached the anticipated usable or salable status, the capitalization of the borrowing costs of such part of the assets should be stopped. Capitalization term of borrowing costs The capitalization term refers to the period between the start time point and the end time port of the capitalization of the borrowing costs, excluding the period in which the capitalization is suspended. Calculation method of the amount of borrowing costs capitalization The interest expenses of special loans (with the interest income of the unused borrowed funds deposited in the bank or the investment income obtained from temporary investment deducted) and relevant auxiliary expenses should be capitalized before the assets that meet the conditions of capitalization, purchased, built or produced with such loans, reach the anticipated usable or salable status. The amount of the interests of common loans that should be capitalized should be calculated and determined by the weighted average of the accumulative parts of the assets expenditure exceeding special loans multiplied by the capitalization rate of common loans. The capitalization rate should be determined according to the weighted average interest rate of common loans. Where the loans involve discount or premium, the amount of discount or premium to be amortized in each accounting period should be determined in accordance with the actual interest rate method and the amount of interests of each period should also be adjusted. 21. Share payment Types of share payment The payment of employees’ shares settled with equity should be recorded as costs and expenses and capital public reserve (other capital public reserves) according to the fair value of the equity instruments on the grant date (the method of the determination of the grant date should be specifically set) and the subsequent changes of the fair value will not be confirmed. No adjustments will be made to the confirmed costs and expenses and total owners' equity after the option becomes exercisable. The share capital and share capital premium should be confirmed according to the conditions of the exercise of the options and the capital public reserve confirmed during the vesting period (other capital public reserve) should be carried forward. Among these: For the share payment in exchange for the employees' services, relevant assets costs and the current expenses should be recorded on each balance sheet date within the vesting period, on the basis of the best estimation of the number of exercisable equity instruments and according to the fair value of the equity instruments on the grant date and as capital public reserve (other capital public reserve). The share payment in exchange for the service of other parties should be measured according to the fair value of the service exchanged from other parties. If such fair value cannot be measured reliably but the fair value of the equity instruments can be measured reliably, then the above share payment should be measured according to the fair value of the equity instruments on the date of service obtainment and recorded as relevant assets cost or expense and as other capital public reserve in the capital public reserve. For the share payment involving employees settled in cash, measurement should be made once again on the fair value of the equity instruments on each balance sheet date to determine costs 89 and expenses and wage payable. On each balance sheet date within the vesting period, measurement should be made according to the fair value of the liabilities borne as calculated and determined on the basis of the share or other equity instruments and on the basis of the best estimation of the number of exercisable equity instruments. The results should be recorded as relevant assets costs or expenses and as wage payable. No cost expenses will be confirmed after the option becomes exercisable. The fair value of the wage payable should be re-measured and the changes of such fair value should be recorded as gains and losses from changes of fair value. Determination method of fair value Where the equity instruments such as granted option have active market, the fair value of such instruments should be determined according to the quoted prices on the active market. Where the equity instruments such as granted option do not have active market, the fair value of such instruments should be determined according to the Black-Scholes Option Pricing Model. At least the following factors should be considered in the selection of the option pricing model: a. exercise price of option, b. validity of option, c. current price of share subject matter, d. anticipated fluctuation rate of share price, e. anticipated dividend of share, f. risk-free rate of interest within the validity of option, and g. share payment in graded vesting. Basis for the determination of the best estimation of the exercisable equity instruments On each balance sheet date in the vesting period, the Company should make the best estimation on the basis of the latest subsequent information on the changes of the number of the employees with exercisable option and adjust the number of the exercisable equity instruments. On the vesting date, the ultimate number of the anticipated exercisable equity instruments should be consistent with the actual quantity of the exercisable options. The accumulative amount of the cost expenses to be confirmed in the current period should be calculated on the basis of the fair value of the above equity instruments and the anticipated exercisable equity instruments. Such amount deducted by the accumulative confirmed amount in the last period should be taken as the amount of cost expenses to be confirmed in the current period. 22. Principle of the confirmation of income Sale of commodities The realization of the income from the sale of commoditites should be confirmed when the Company has already transferred the main risks and consideration in the ownership right of the commoditites to the purchaser, the Company has not retained any further management right connected to the ownership right nor implement effective control over the sold commodities, the amount of the revenue can be reliably measured, relevant economic interests are likely to flow into the enterprise, and relevant costs incurred or to be incurred can be measured reliably. Provision of labor services Where the results of the labor services provided on the balance sheet date can be estimated reliably, the income from the provision of labor services should be confirmed with the percentage of completion method. The completion progress of the labor services provision should be determined on the basis of the measurement results of the completed work (or the proportion of the provided labor services to the total volume of the labor services to be provided or the proportion of the cost incurred to the total cost). The total amount of the income from provision of labor services should be determined according to the price money received or receivable of relevant contract or agreement, unless the price money received or receivable of relevant contract or agreement is unfair. The labor services income of the current period should be confirmed on the balance sheet date according to the resulted amount of the total amount of income from provision of labor services times the completion percentage and deducted by the accumulative amount of the confirmed income from provision of labor services in previous accounting periods. At the same time, the labor cost of the current period should be carried forward according to the estimated total cost of the provision of labor services times the completion percentage and deducted by the accumulative amount of the confirmed labor cost in previous accounting periods. 90 Where the results of the provision of labor services on the balance sheet date cannot be estimated reliably, such results should be processed respectively according to the following conditions: 1) Where it is estimated that the labor services cost incurred can be met, the income from provision of labor services is recognized according to the amount of the labor services cost incurred and the same amount should be transferred into labor cost. 2) Where it is estimated that the labor services cost incurred cannot be met, the labor services cost incurred will be recorded as current gains and losses and no income is confirmed. Transfer of right to use of assets Where the economic benefits related to the transaction are likely to flow into the enterprise and the amount of the income can be reliably measured, the amount of the income from the transfer of right to use of assets can be determined respectively according to the following conditions: 1) The amount of interest income should be determined according to the time and actual interest rate of other people using the monetary fund of the enterprise. 2) The amount of the income from use fee should be determined in accordance with the time and method of charges as agreed in relevant contract or agreement. 3) Income from property renting. a. Having lease contract, agreement or other settlement notice as recognized by the lessee. b. Having performed the obligations provided in the contract, issued lease invoice and received the price money or been assured that the price money will be received. c. Where the cost of rented development products can be measured reliably; 23. Basis for the confirmation of deferred incomes tax assets The Company confirms the deferred incomes tax assets generated from deductible temporary difference. 24. Reasons of changes occurred to the consolidation scope of the consolidated statements Elimination of the subsidiary Shenzhen Weizhibang Technology Development Co., Ltd.: Shenzhen SEG Network & Information Co., Ltd. (hereinafter referred to as “SEG Network”), a subsidiary of the Company, acquired on March 28th, 2006 40% of the equity of Shenzhen Weizhibang Technology Development Co., Ltd. Up to December 31st, 2007, Shenzhen Weizhibang Technology Development Co., Ltd. was already liquidated. From December 31st, 2007, the Company eliminated Shenzhen Weizhibang Technology Development Co., Ltd. from the consolidation scope. Elimination of the subsidiary Shenzhen SEG Zhongdian Color Display Devices Co., Ltd.: The Company transferred the held 73.24% equity of Shenzhen SEG Zhongdian Color Display Devices Co., Ltd. to Shenzhen Yuanzhi Investment Co., Ltd. at the price of RMB38,451. Shenzheng Yuanzhi Investment Co., Ltd. transferred RMB200 million down payment of the equity transfer into the designated account of the Company on December 25th, 2007 in accordance with the provisions of the Equity Transfer Agreement. The Company received the rest of the payment for the equity transfer of RMB184.51 million paid by Shenzhen Yuanzhi Investment Co., Ltd. on February 26th, 2008. Up to that moment, the Company received all the payment for the equity transfer. From December 31st, 2007, the Company eliminated Shenzhen SEG Zhongdian Color Display Devices Co., Ltd. from the consolidation scope. Shenzhen SEG Hitachi Color Display Devices Co., Ltd. was a company indirectly controlled by the Company. As the Company transferred 73.24% of the equity of Shenzhen SEG Zhongdian Color Display Devices Co., Ltd., the Company eliminated Shenzhen SEG Zhongdian Color Display Devices Co., Ltd. from the consolidation scope from December 31st, 2007. Therefore, Shenzhen SEG Hitachi Color Display Devices Co., Ltd., a subsidiary of Shenzhen SEG Zhongdian Color Display Devices Co., Ltd., was also eliminated from the consolidation scope. The amounts in the financial statements of the above subsidiaries from the beginning of the year to the date of disposal are as follows: 91 1) Shenzhen Weizhibang Technology Development Co., Ltd. Balance sheet item 2007-6-30 2007-1-1 Assets 184,840.99 9,132,583.29 Liabilities 1,039,967.38 1,204,861.11 Owners’ equity -855,126.39 7,927,722.18 Profit statement item January-June, 2007 Operating income 129,169.23 Costs and expenses 788,909.42 Net profit -659,740.19 2) Shenzhen SEG Zhongdian Color Display Devices Co., Ltd. Balance sheet item 2007-12-31 2007-1-1 Assets 772,166,372.36 1,700,053,243.85 Liabilities 669,122,423.45 1,109,761,875.57 Minority interests 25,760,987.23 147,209,045.74 Owners’ equity 77,282,961.68 443,082,322.54 Profit statement item 2007 Operating income 392,158,768.17 Costs and expenses 879,858,563.38 Net profit -487,699,795.21 25. Changes of main accounting policies and estimates and corrections of significant account errors in the current year and relevant influence In accordance with the Document Cai Kuai [2006] No. 3 of the Ministry of Finance, the Notice on Printing and Distributing 38 Specific Standards including the Accounting Standard for Business Enterprises No. 1 - Inventories, the Company started to implement the new Accounting Standards of Business Enterprise from January 1st, 2007 and made retrospective adjustments to the financial statement items in accordance with Articles 5-19 as provided in the Accounting Standard for Business Enterprises No. 38 - First time adoption of Accounting Standards for Business Enterprises and the Interpretation No. 1 to the ASBE. Long-term equity investment difference formed from the merger of enterprises under the same control entity On January 1st, 2007, the equity investment difference not yet amortized in the long-term equity investment generated from the merger of enterprises under the control of the same entity was offset in full with the retained income adjusted correspondingly, which resulted in the reduction of owners’ equity by RMB30,710,586.54. Salable financial assets On January 1st, 2007, the Company measured the salable financial assets according to fair value and transferred the difference between the book value and the fair value into capital public reserve after the adjustment to retained income, which resulted in the increase of owners’ equity by RMB4,891,969.66, including RMB4,881,076.41 attributable to the owners’ equity of the parent company and RMB10,893.25 attributable to minority interests. Income taxes 92 On January 1st, 2007, the temporary differences generated from the different book values and taxation bases of assets and liabilities were confirmed as deferred incomes tax assets or deferred incomes tax liabilities according to relevant conditions and the amount of the influence was adjusted as retained earnings, which resulted in the increase of owners’ equity by RMB8,533,721.52, including RMB8,451,849.47 attributable to the owners’ equity of the parent company and RMB81,872.05 attributable to minority interests. Long-term equity investment the accounting of which was conducted with the equity method Shenzhen SEG Samsung Glass Co., Ltd., a subsidiary of the Company, the accounting of which was conducted with the equity method, implemented the accounting standards of business enterprise promulgated by the Ministry of Finance in 2006 and conducted the retrospective adjustment of deferred income tax. The Company correspondingly adjusted the long-term equity investment and retained profits by RMB943,779.10. The influence of the above items to the financial statements is as follows: Item 1 2 3 4 Influence to capital public reserve 4,148,914.95 Influence to retained income in 2007 -30,710,586.54 728,906.20 8,451,849.47 943,779.10 Including: influence to retained profits at the beginning -30,710,586.54 728,906.20 7,446,435.59 943,779.10 of 2007 Influence to the net profits of the current year III.TAX ITEMS 1. Main tax types and tax rates imposed on the Company Tax type Tax rate Remarks Value-added tax 17% Business tax 3%, 5% Enterprise income tax 10%, 15%, 17.5%, 33% City maintenance and construction tax 1%, 7% Education surtax 3% The enterprise income tax rate applicable to the Xi’an SEG Electronics Market Co., Ltd., a subsidiary of the Company, was 33% and that of city maintenance and construction tax was 7%. The enterprise income tax rate applicable to the Chongqing SEG Electronics Market Co., Ltd., a subsidiary of the Company, was 15% and that of city maintenance and construction tax was 7%. The enterprise income tax of the Suzhou SEG Electronics Market Co., Ltd., a subsidiary of the Company, was determined and collected according to the income. Such tax was determined and collected according to 10% of the taxable income and the applicable rate of the city maintenance and construction tax was 7%. The enterprise income tax rate of the SEG (Hong Kong) Storage and Transportation Co., Ltd., a subsidiary indirectly controlled by the Company, was 17.5%. Except for the above companies, the income tax rate applicable to all the rest companies was 15% and the city maintenance and construction tax rate was 1%. 2. Tax deduction and exemption None. 93 IV.ENTERPRISE MERGER AND CONSOLIDATED FINANCIAL STATEMENTS The Accounting Standard for Business Enterprises No. 33 - Consolidated financial statements promulgated in February 2006 should apply with respect to the consolidated financial statements. All the subsidiaries controlled by the Company and also the special purpose entities under the Company’s control should both be included in the consolidation scope. The consolidated financial statements were based on the particular financial statements of the parent company and the subsidiaries included in the consolidation scope and prepared by the parent company with other relevant materials as the bases and the long-term equity investments in subsidiaries adjusted according to the equity method. In the consolidation, the internal equity investment and the owners’ equity of subsidiaries, the internal investment earnings and the profit distribution of subsidiaries, internal transaction items and internal creditor's rights and liabilities were offset. The accounting policies adopted by subsidiaries were kept consistent with the parent company. Unless particularly noted, the unit of the amounts in the data listed in this section is RMB Yuan. 1. Subsidiaries acquired through the merger of enterprises under the control of the same entity Registered Actual Percentage Percentage Balance of the Percentage Full name of capital investment of of total of votes Registration Nature of net actual of total votes invested Business scope the Company shares held within location business (RMB10,0 investment in held by the organization at the end of by the consolidati 00) subsidiaries Company the year Company on scope Shenzhen SEG Baohua Enterprise Property lease and Shenzhen 3,080.88 20,512,499.04 66.58% 66.58% 66.58% Development Co., management Ltd. Shenzhen SEG Foreign Storage and Shenzhen 6,600 transportation and 65,729,070.00 99.59% 99.59% 99.59% Transportation Co., bond warehousing Ltd. Investment in Shenzhen SEG industry and Industrial Investment Shenzhen 2,550 23,780,000.00 91.79% 91.79% 91.79% domestic Co., Ltd. commerce Shenzhen SEG Communication Communication Co., Shenzhen 3,000 equipment 29,943,351.00 99.81% 99.81% 99.81% Ltd. manufacture Network system Shenzhen SEG development and Network & Shenzhen 2,000 maintenance, 10,482,000.00 52.41% 52.41% 52.41% Information Co., Ltd. electronic product purchase and sale Basis for the judgment of the “merger of enterprises under the control of the same entity” The basis for the judgment of the “merger of enterprises under the control of the same entity” is determined according to the Accounting Standard for Business Enterprises No. 20 - Business Combinations and the Document Cai Kuai Bian [2007] No. 5 of the Ministry of Finance as follows: Where the enterprises participating in the merger are ultimately controlled by the same entity or entities both before and after the merger and such control is not temporary, such merger is the merger of enterprises under the control of the same entity. The same entity refers to the investor having ultimate control over the enterprises participating in the merger both before and after the merger. Under general circumstances, the merger of enterprises under the control of the same entity refers to the merger between the enterprises inside the same enterprise group. Generally no merger other than the above case is considered as the merger of enterprises under the control of the same entity. Actual controller of the control of the same entity 94 The actual controller of the control of the same entity of the subsidiaries acquired through the above merger of enterprises under the control of the same entity is Shenzhen SEG Group Co., Ltd. 2. Subsidiaries acquired through the merger of enterprises not under the control of the same entity None. 3. Subsidiaries not acquired through enterprise merger Registered Actual Percentage Percentage Balance of the Percentage of Full name of capital investment of of total of total Nature of net actual votes within invested Business scope the Company shares held votes held business (RMB10,00 investment in consolidation organization at the end of by the by the 0) subsidiaries scope the year Company Company Domestic Xi’an SEG commerce, Electronics 300 materials and 1,950,000.00 1,950,000.00 65.00% 65.00% 65.00% Market Co., goods supply Ltd. and distribution Domestic Chongqing SEG commerce, Electronics 300 materials and 1,500,000.00 1,500,000.00 50.00% 50.00% 50.00% Market Co., goods supply Ltd. and distribution Shenzhen SEG Domestic Electronics commerce, Market 300 materials and 2,100,000.00 2,100,000.00 70.00% 70.00% 70.00% Management goods supply Co., Ltd. and distribution Domestic Suzhou SEG commerce, Electronics 300 materials and 1,350,000.00 1,350,000.00 45.00% 45.00% 45.00% Market Co., goods supply Ltd. and distribution 4. Subsidiaries included in consolidation scope of which the parent company only possesses half or less than half of all the votes and relevant reasons of inclusion None. 5. Invested organizations of which the parent company possesses over half of all the votes, yet failing to control, and relevant reasons None. 6. Changes to the scope of consolidated statements in the current year Net profit from the Total share holding Net assets at the end Remark Name of subsidiary beginning of the period to percentage of the period s the date of disposal Shenzhen Weizhibang Technology 40% -855,126.39 -659,740.19 Development Co., Ltd. Shenzhen SEG Zhongdian Color Display 73.24% 103,043,948.91 -487,699,795.21 Devices Co., Ltd. Three companies were eliminated from the consolidation scope in the current year. The reasons are: 1) Elimination of the subsidiary Shenzhen Weizhibang Technology Development Co., Ltd.: 95 Shenzhen SEG Network & Information Co., Ltd. (hereinafter referred to as “SEG Network”), a subsidiary of the Company, acquired on March 28th, 2006 40% of the equity of the Shenzhen Weizhibang Technology Development Co., Ltd. Up to December 31st, 2007, Shenzhen Weizhibang Technology Development Co., Ltd. has been liquidated. From December 31st, 2007, the Company eliminated Shenzhen Weizhibang Technology Development Co., Ltd. from the consolidation scope. 2) Elimination of the subsidiary Shenzhen SEG Zhongdian Color Display Devices Co., Ltd.: The Company transferred the held 73.24% equity of Shenzhen SEG Zhongdian Color Display Devices Co., Ltd. to the Shenzhen Yuanzhi Investment Co., Ltd. at the price of RMB38,451. Shenzhen Yuanzhi Investment Co., Ltd. transferred RMB200 million down payment of the equity transfer into the designated account of the Company on December 25th, 2007 in accordance with the provisions of the Equity Transfer Agreement. The Company received the rest of the payment for the equity transfer of RMB184.51 million paid by Shenzhen Yuanzhi Investment Co., Ltd. on February 26th, 2008. Up to that moment, the Company received all the payment for the equity transfer. From December 31st, 2007, the Company eliminated Shenzhen SEG Zhongdian Color Display Devices Co., Ltd. from the consolidation scope. Therefore, Shenzhen SEG Hitachi Color Display Devices Co., Ltd., a subsidiary of Shenzhen SEG Zhongdian Color Display Devices Co., Ltd., was also eliminated from the consolidation scope. 3) Shenzhen SEG Hitachi Color Display Devices Co., Ltd. was a company indirectly controlled by the Company. As the Company transferred 73.24% of the equity of Shenzhen SEG Zhongdian Color Display Devices Co., Ltd., the Company eliminated Shenzhen SEG Hitachi Color Display Devices Co., Ltd., the subsidiary of Shenzhen SEG Zhongdian Color Display Devices Co., Ltd., from the consolidation scope from December 31st, 2007. Conditions of the companies excluded from the consolidation scope within the report period Original total share Net assets on the Net assets at the end Name of subsidiary sold Remarks holding percentage date of sale of the year Shenzhen Weizhibang Technology 40% -855,126.39 -855,126.39 Development Co., Ltd. Shenzhen SEG Zhongdian Color Display 73.24% 103,043,948.91 103,043,948.91 Devices Co., Ltd. 7. Conditions in which the capacities of the subsidiaries to transfer funds were strictly restricted There were no conditions in which the capacities of the subsidiaries to transfer funds were strictly restricted in the report period. 8. Business nature and activities of the special purpose entities included into the consolidation scope as subsidiaries There were no special purpose entities whose subsidiaries were included in the consolidation scope and that were no longer included into the consolidation scope themselves. 9. Conditions of the special purpose entities that were not included in the consolidation scope and would no longer be included in the consolidation scope There were no special purpose entities that were not included in the consolidation scope and would no longer be included in the consolidation scope within the report period. 10. Equity and gains and losses of minority shareholders Increase and decrease Other increases and Amount at the of gains and losses of decreases Amount at the end Item beginning of the minority shareholders of the year year (detailed description) in the current year Shenzhen SEG Zhongdian Color 118,568,829.51 118,568,829.51 - Display Devices Co., Ltd. 96 Shenzhen SEG Hitachi Color 147,209,045.74 147,209,045.74 - Display Devices Co., Ltd. Shenzhen Weizhibang Technology 4,756,405.56 4,756,405.56 - Development Co., Ltd. Xi’an SEG Electronics Market Co., -331,563.22 640,365.18 308,801.96 Ltd. Chongqing SEG Electronics Market 1,619,390.57 295,115.18 1,914,505.75 Co., Ltd. Shenzhen SEG Electronics Market 753,082.36 540,992.68 1,294,075.04 Management Co., Ltd. Suzhou SEG Electronics Market 286,437.51 1,867,267.11 2,153,704.62 Co., Ltd. Shenzhen SEG Baohua Enterprise 15,987,246.90 3,253,520.48 881,500.81 18,359,266.57 Development Co., Ltd. Shenzhen SEG Storage and 360,739.20 17,457.18 378,196.38 Transportation Co., Ltd. Shenzhen SEG Industrial 1,353,046.40 181,240.87 1,534,287.27 Investment Co., Ltd. Shenzhen SEG Communication 11,273.76 -1,603.36 9,670.40 Co., Ltd. Shenzhen SEG Network & 8,688,011.41 -3,816,746.30 -135,159.44 5,006,424.55 Information Co., Ltd. Total 299,261,945.70 2,977,609.02 271,280,622.18 30,958,932.54 ============= ================ ================== ============= Notes: The reduction of the minority interests of Shenzhen SEG Zhongdian Color Display Devices Co., Ltd. and Shenzhen SEG Hitachi Color Display Devices Co., Ltd. was caused by the fact that the two companies were no longer included in the consolidation because of equity transfer. The reduction of the minority interests of Shenzhen Weizhibang Technology Development Co., Ltd. was caused by the fact that the company had been liquidated and thus not included in the consolidation. The reduction of the minority interests of Shenzhen SEG Baohua Enterprise Development Co., Ltd. was caused by the fact that the amount of the distributed dividends was larger than the amount of the changes of the fair value of the salable financial assets. V.NOTES ON THE MAIN ITEMS OF THE CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise specified, the unit for the following amounts is RMB Yuan and the amounts refer to the year-end amounts unless specified as year-beginning amounts) 1. Monetary fund Year-end amount Year-beginning amount Item Amount in foreign Discount Amount in Amount in Discoun Amount in currency rate RMB foreign currency t rate RMB Cash RMB 425,810.63 351,893.11 351,893.11 HK$ 198,150.10 0.94 185,546.28 598,668.96 1.0047 601,537.25 US$ 14,770.53 7.30 107,889.74 17,682.15 7.8087 138,377.13 JPY 211.00 0.06 13.52 914,509.78 0.0656 60,170.12 Bank deposit 97 RMB 214,181,763.64 301,925,767.33 301,925,767.33 HK$ 2,860,042.23 0.94 2,678,143.54 5,834,056.97 1.0047 5,857,660.02 US$ 49,554.13 7.30 361,971.88 3,379,407.41 7.8087 26,359,469.59 JPY 15,662,695.00 0.0656 1,033,737.87 Other monetary fund RMB 43,362,648.27 18.25 18.25 US$ Total 261,303,787.50 336,328,630.67 =========== =========== Including: HK$ 2,874,812.76 0.94 2,863,689.82 6,432,725.93 6,459,197.27 US$ 64,324.66 7.30 469,861.62 3,397,089.56 26,497,846.72 JPY 211.00 0.06 13.52 16,577,204.78 1,093,907.99 Classification of other monetary fund Other monetary fund at the end of the year Amount Cash for investment 43,289,634.21 Margin for L/C issuing Margin for bankers’ acceptance bills 23,756.95 Other margins 49,257.11 Total 43,362,648.27 ================== The year-end amount of the monetary fund is reduced by RMB 75,024,843.17, a decrease of 22.31% from the year-beginning amount. The cause of the change is mainly the equity transfer of the subsidiary SEG Zhongdian during the period, excluding SEG Zhongdian and SEG Hitachi from the consolidation scope. 2. Notes receivable Category Year-end amount Year-beginning amount Bankers' acceptance 0.00 110,022,805.14 Commercial acceptance Total 0.00 110,022,805.14 ================ ================ The year-end amount of the notes receivable is reduced by RMB 110,022,805.14, a decrease of 100% from the year-beginning amount. The cause of the change is the equity transfer of the subsidiary SEG Zhongdian during the period, excluding SEG Zhongdian and SEG Hitachi from the consolidation scope. 3. Accounts receivable Composition of accounts receivable Year-end amount Year-beginning amount Item Percentage Percentage of Percentage Percentag Bad debt Book Bad debt Book balance in the total bad debt in the total e of bad provision balance provision amount provision amount debt 98 provision 1. Accounts with significant individual 5,490,725. amount and accrued 3,490,725.63 1.53% 100% 3,490,725.63 63 1.49% 5,490,725.63 as separate bad debt provision 2. Accounts with insignificant individual amount 7,401,326. 7,767,481.79 3.40% 100% 7,767,481.79 2.01% 7,401,326.83 and accrued as 83 separate bad debt provision 3. Other accounts classified as 356,018,58 featuring similar 217,295,433.41 95.07% 707,944.13 3.95 96.51% 4,146,806.03 credit risk as per their duration, Including: Less than 346,387,12 209,179,182.80 — — — 2,834,105.73 1 year 9.80 4,802,277. Over 1–2 years 6,638,073.72 5% 331,903.70 57 5% 240,113.88 Over 2–3 years 481,571.03 10% 48,157.10 311,882.38 10% 31,188.24 4,517,294. Over 3 years 996,605.86 20% 327,883.33 20 20% 1,041,398.18 11,966,151.5 368,910,63 Total 228,553,640.83 5 6.41 17,038,858.49 ========== ======== =========== =========== = === Accounts receivable with significant individual amount Percentage of Ranking of significant individual accounts Amount Reason provision No. 1: TETRA Project for Lianhua Power Bad debt due to long duration of the 1,330,000.00 100.00% Station accounts Bad debt due to long duration of the No. 2: Shuangxionghui Company 2,160,725.63 100.00% accounts Among the year-end accounts receivable, no accounts are receivable from corporate shareholders that hold over 5% (including 5%) of the voting shares of the Company. Top five accounts among year-end accounts receivable Percentage in the total Ranking of debtors Amount Duration of the accounts accounts receivable No. 1: Shenzhen Yuanzhi Investment Co., Ltd. 184,510,000.00 Less than 1 year 80.73% No. 2: Shenzhen ZTE Kangxun Telecom Co., Ltd. 4,253,939.92 Over 1 year 1.86% No. 3: Wuhan Subway Group Co., Ltd. 3,823,920.00 Less than 1 year 1.67% No. 4: Shenzhen Uni-top Industry Co., Ltd. 3,175,035.36 Less than 1 year 1.39% No. 5: Shenzhen Branch of Bax Global (Guangzhou) 2,098,058.63 Less than 1 year 0.92% Co., Ltd The year-end amount of accounts receivable is reduced by RMB 140,356,995.58, a decrease of 38.05% from the year-beginning amount. The cause of the change is mainly the equity transfer of the subsidiary SEG Zhongdian during the period, excluding SEG Zhongdian and SEG Hitachi from the consolidation scope. The year-end amount of equity transfer receivable from Shenzhen Yuanzhi Investment Co., Ltd is RMB 184,510,000.00, which has been received totally on Feb 26, 2008. 99 4. Advances Analysis on the duration of accounts Year-end amount Year-beginning amount Duration of accounts Percentage in the total Percentage in the total Amount Amount amount amount Less than 1 year 8,384,827.02 99.46% 23,766,385.17 76.58% 1–2 years — 0.00% 4,481,826.87 14.44% 2–3 years 624.00 0.01% 2,675,181.44 8.62% Over 3 years 44,995.53 0.53% 109,376.08 0.35% Total 8,430,446.55 100.00% 31,032,769.56 100.00% ============= ============= =============== ============= Year-end advances of relatively large amount Item Amount Nature or content Tonmac International Electronics (Suzhou) Co., Ltd 5,126,666.67 Rent Among the year-end advances, no advances are receivable from corporate shareholders that hold over 5% (including 5%) of the voting shares of the Company. The year-end amount of advances is reduced by RMB 22,602,323.01, a decrease of 72.83% from the year-beginning amount. The cause of the change is mainly the equity transfer of the subsidiary SEG Zhongdian during the period, excluding SEG Zhongdian and SEG Hitachi from the consolidation scope. 5. Dividends receivable Item Amount Nature and content Dividends receivable with the duration of less than 1 year 6,300,000.00 Dividends receivable with the duration of over 1 year 6,315.45 Total 6,306,315.45 ============== The dividends receivable are mainly cash dividends in 2007, RMB 6,300,000.00, from the invested company—Shenzhen SEG GPS Scientific Navigations Co., Ltd. , which are calculated as per the equity. 6. Other accounts receivable Composition of other accounts receivable Year-end amount Year-beginning amount Item Percentage Percentage Percentage Percentage Bad debt Bad debt Book balance in the total of bad debt Book balance in the total of bad debt provision provision amount provision amount provision 1. Accounts with significant individual amount and accrued 22,147,391.97 35.94% 100% 22,147,391.97 22,147,391.97 21.69% 100% 22,147,391.97 as separate bad debt provision 2. Accounts with insignificant individual amount 12,756,502.58 20.70% 100% 12,756,502.58 13,344,350.74 13.07% 100% 13,344,350.74 and accrued as separate bad debt provision 100 3. Other accounts classified as featuring 26,722,458.63 43.36% 5,522,600.82 66,630,203.75 65.24% 7,233,899.25 similar credit risk as per their duration, Including: Less than 9,997,582.31 — — 43,227,087.65 — 679.46 1 year Over 1–2 years 1,448,498.30 5% 142,716.00 2,571,430.79 5% 168,822.28 Over 2–3 years 1,967,368.61 10% 187,558.98 11,982,711.01 10% 2,291,497.14 Over 3 years 13,309,009.41 20% 5,192,325.84 8,848,974.30 20% 4,772,900.37 Total 61,626,353.18 100.00% 40,426,495.37 102,121,946.46 100.00% 42,725,641.96 =========== =========== ======= =========== ======= ========== = Among the other year-end accounts receivable, no accounts are receivable from corporate shareholders that hold over 5% (including 5%) of voting shares of the Company. Top five accounts among other year-end accounts receivables Duration of Percentage in the total Ranking of debtors Nature or content Amount accounts other accounts receivable Yangjiang Yuntong Grease Co., Ltd. Debt transfer 8,530,276.35 Over 3 years 13.84% Shenzhen SEG Dasheng Co., Ltd. Loan security 6,495,198.67 Over 3 years 10.54% Shenzhen Lianjing Trade Co., Ltd. Debt transfer 5,697,287.51 Over 3 years 9.24% Shenzhen Top Industry Co., Ltd. Debt transfer 3,281,387.96 Over 3 years 5.32% Incomings and Shenzhen SEG Business Machines Co., Ltd 2,815,532.68 Over 3 years 4.57% outgoings The year-end amount of other accounts receivable is reduced by RMB 40,495,593.28, a decrease of 39.63% from the year-beginning amount. The cause of the change is mainly the equity transfer of the subsidiary SEG Zhongdian during the period, excluding SEG Zhongdian and SEG Hitachi from the consolidation scope. 7. Inventories and provisions for inventory price drop Year-end amount Year-beginning amount Item Provisions for Provisions for inventory Book balance Book balance inventory price drop price drop Raw materials 2,728,853.55 2,507,551.53 111,617,539.77 30,350,375.95 Low-cost consumables 200,554.83 — 17,524,130.95 17,065,524.00 Goods in production 4,396,200.03 — 16,011,435.14 Finished products (Inventories) 1,350,677.64 786,345.76 79,381,182.56 707,711.18 Others 26,885.34 Total 8,676,286.05 3,293,897.29 224,561,173.76 48,123,611.13 ============== ================ ============== ================ Provisions for inventory price drop Decrease of the year Year-beginning Provision of the Item Write Year-end book balance book balance year Write off back 1. Raw materials 30,350,375.95 886,637.11 28,729,461.53 2,507,551.53 2. Low-cost consumables 17,065,524.00 17,065,524.00 — 3. Goods in production — 4. Finished products (Inventories) 707,711.18 78,634.58 786,345.76 101 5 Others Total 48,123,611.13 965,271.69 45,794,985.53 3,293,897.29 ============= ============= ======== ============= ============== Provisions are made for inventory price drop according to the difference between the cost and the net realizable value of the year-end inventories. The basis for deciding the net realizable value is: Through inventory counting, the part of cost unrecoverable due to damage, total or partial obsolescence, or a lower sales price than the cost is estimated, and provisions are made for the price drop of the inventories. The year-end amount of inventories is reduced by RMB 215,884,887.71, a decrease of 96.14% from the year-beginning amount. The cause of the change is mainly the equity transfer of the subsidiary SEG Zhongdian during the period, excluding SEG Zhongdian and SEG Hitachi from the consolidation scope. 8. Financial assets available for sale Item Year-end fair value Year-beginning fair value 1. Bonds available for sale 2. Equity instruments available for sale 8,164,453.46 17,382,362.56 Including: Restricted shares available for sale Non-restricted shares available for sale 8,164,453.46 17,382,362.56 3. Others Total 8,164,453.46 17,382,362.56 ================ ================= The year-end amount of financial assets available for sale is reduced by RMB 9,217,909.10, a decrease of 53.03% from the year-beginning amount. The cause of the change is the sale of some shares of SEG Dasheng in this period. 9. Long-term equity investment Year-end amount Year-beginning amount Name of invested companies Impairment Impairment Book balance Book balance provision provision Shenzhen SEG Samsung Glass Co., Ltd. 502,683,785.16 558,125,618.63 Nanjing Gaosha Co., Ltd. 280,000.00 280,000.00 Shenzhen Yesky Photo-electricity Co., Ltd. 105,000.00 105,000.00 105,000.00 105,000.00 Anshan Yibai Co., Ltd. 15,000.00 15,000.00 Shenzhen SEG GPS Scientific Navigations Co., Ltd. 39,628,080.51 35,259,884.36 — Shenzhen SEG Telecom Equipment Co., Ltd. 3,679,217.22 3,679,217.22 3,679,217.22 3,679,217.22 Shanghai SEG Electronic Market Co., Ltd. 5,189,456.25 4,933,022.30 — Shenzhen SEG Marketing Co., Ltd. . 1,900,000.00 682,202.50 1,900,000.00 682,202.50 Shenzhen SEG Bonded Trade Co., Ltd. 267,100.00 — Shenzhen SEG Orient Industrial Development Co., Ltd. 99,702.21 144,752.10 — Suzhou SEG Electronic Market Co., Ltd. 356,205.32 — 102 Shenzhen SEG Benkai Financial System Engineering Co., Ltd. Total 553,580,241.35 4,466,419.72 605,065,799.93 4,466,419.72 ================ ============== ============== =========== Main information about the invested companies Voting Name of the Total operating Place of Nature of Shareholding ratio in the Total year-end Net profits of invested income of the registration business radio invested net assets the year company year company Shenzhen SEG CPT and glass Samsung Glass Shenzhen shell production 26.76% 26.76% 1,880,559,416.41 1,835,024,211.49 -192,006,949.32 Co., Ltd. and operation Shenzhen SEG GPS Scientific Shenzhen GPS equipment 35% 35% 112,490,634.52 164,411,957.35 29,590,047.11 Navigations Co., Ltd. Shenzhen SEG Domestic trade, Marketing Co., Shenzhen material supply 17.14% 17.14% Ltd. and marketing Shanghai SEG Domestic trade, Electronic Market Shanghai material supply 35% 35% 14,833,852.69 34,042,214.00 4,797,910.53 Co., Ltd. and marketing Long-term equity investment calculated as per cost Change in Year-beginnin Initial investment Year-end Impairment Name of the invested company g book amount of the book balance provision balance year Shenzhen SEG Marketing Co., Ltd. 1,900,000.00 1,900,000.00 — 1,900,000.00 682,202.50 Shenzhen SEG Telecom Equipment Co., Ltd. 3,679,217.22 3,679,217.22 — 3,679,217.22 3,679,217.22 Shenzhen SEG Benkai Financial System 765,000.00 — — — — Engineering Co., Ltd. Nanjing Commercial Building Co., Ltd. 280,000.00 280,000.00 — 280,000.00 — Anshan Yibai Co., Ltd.. 15,000.00 15,000.00 — 15,000.00 — Shenzhen Yesky Photo-electricity Co., Ltd. 105,000.00 105,000.00 — 105,000.00 105,000.00 Total 6,744,217.22 5,979,217.22 — 5,979,217.22 4,466,419.72 ========== =========== ========= =========== ============ Long-term equity investment calculated as per equity Change in equity of the year Year-beginning Name of the invested company Initial amount Including the dividend Year-end balance balance Total in cash Shenzhen SEG Orient Industrial 400,000.00 144,752.10 -45,049.89 99,702.21 Development Co., Ltd. Shenzhen SEG Samsung Glass 224,709,600.15 558,125,618.63 -55,441,833.47 4,195,178.72 502,683,785.16 Co., Ltd. Shenzhen SEG GPS Scientific 23,170,900.00 35,616,089.68 4,011,990.83 6,300,000.00 39,628,080.51 Navigations Co., Ltd. Shanghai SEG Electronic Market 1,750,000.00 4,933,022.30 256,433.95 1,422,834.74 5,189,456.25 Co., Ltd. Total 250,030,500.15 598,819,482.71 -51,218,458.58 11,918,013.46 547,601,024.13 103 ============ ============ ============= =============== ============= Impairment provision for long-term equity investment Year-beginning Increase of Decrease of Year-end Reason for the Name of the invested company amount the year the year amount provision Business licence Shenzhen SEG Telecom Equipment Co., Ltd. 3,679,217.22 3,679,217.22 revoked Shenzhen SEG Marketing Co., Ltd. 682,202.50 682,202.50 Operating losses Shenzhen Yesky Photo-electricity Co., Ltd. 105,000.00 105,000.00 Operating losses Total 4,466,419.72 4,466,419.72 ============ ========= ========= =========== The year-end amount of long-term equity investment is reduced by RMB 51,485,558.58, a decrease of 8.51% from the year-beginning amount. The main cause of the change is the loss of a major invested company, Shenzhen SEG Samsung Glass Co., Ltd. during the period. 10. Investment property Increase of the year Decrease of the year Year-beginning Private real Investment Year-end item estate or property changed balance Purchase Disposal balance inventory to private real transfer estate Total of original price 589,834,998.77 3,550,248.32 — 3,550,248.32 — 589,834,998.77 1. Land use right rented 15,212,100.84 15,212,100.84 2. Land use right held for — transfer after value increase 3. Buildings rented 574,622,897.93 3,550,248.32 3,550,248.32 574,622,897.93 4. Temporarily idle Ⅱ. Accumulated depreciation or 99,274,095.93 12,001,703.07 3,102,772.20 — 114,321,767.32 accumulated amortization 56,803.88 in total 1. Land use right rented 2,550,400.16 251,198.68 2,801,598.84 2. Land use right held for — transfer after value increase 3. buildings rented 96,723,695.77 11,750,504.39 3,102,772.20 111,520,168.48 56,803.88 Ⅲ. Total accumulated impairment provision for 3,117,633.12 3,117,633.12 investment property 1. Land use right rented 3,117,633.12 3,117,633.12 2. Land use right held for transfer after value increase 3. Buildings rented 4. Temporarily idle Ⅳ. Total book value of 487,443,269.72 -8,451,454.75 -3,102,772.20 3,493,444.44 472,395,598.33 investment property 1. Land use right rented 9,544,067.56 -251,198.68 9,292,868.88 2. Land use right held for transfer after value increase 3. Buildings rented 477,899,202.16 -8,200,256.07 -3,102,772.20 3,493,444.44 463,102,729.45 4. Temporarily idle 104 The year-end amount of investment property is reduced by RMB 15,047,671.39, a decrease of 3.09% from the year-beginning amount. The cause of the change is that the accumulated amortization of investment property is accrued in this period. 11. Original price and accumulated depreciation of fixed assets Original price of fixed assets Year-beginning original Year-end Category Increase of the year Decrease of the year price original price Houses and 527,239,120.33 3,550,248.32 465,021,219.14 buildings 65,768,149.51 Machinery 1,618,215,641.26 3,500.00 1,583,850,252.06 equipment 34,368,889.20 Electronic 118,776,469.85 1,212,609.27 103,298,699.73 equipment 16,690,379.39 Transportation 61,817,010.75 5,679,196.82 21,118,428.44 equipment 46,377,779.13 Others 30,803,962.24 377,815.04 24,974,586.05 6,207,191.23 169,412,388.4 Total 2,356,852,204.43 10,823,369.45 2,198,263,185.42 6 ========== ================== =============== ================== == Wherein, no projects in construction are recorded as fixed assets this year. Among the houses and buildings, there had been 3 rooms of Bagualing Apartment, 95 square meters, not granted a property ownership certificate by Dec 31, 2007. Accumulated depreciation Year-beginning Increase of Provision of the Decrease of the Year-end Category amount the year year year amount Houses and 203,691,782.40 3,748,558.61 180,274,756.74 27,165,584.27 buildings Machinery 896,898,944.41 2,288,334.18 874,933,386.79 24,253,891.80 equipment Electronic 71,746,633.97 2,974,520.85 62,126,832.21 12,594,322.61 equipment Transportation 38,156,972.39 4,795,969.85 15,896,374.40 27,056,567.84 equipment Others 14,423,866.32 612,903.97 12,641,588.52 2,395,181.77 Total 1,224,918,199.49 14,420,287.46 1,145,872,938.66 93,465,548.29 =============== ============== =========== ========== ============= = == == Impairment provision for fixed assets Reason Year-beginning Increase of Decrease of the Year-end Category for amount the year year amount provision Houses and 3,229,324.15 94,225.83 3,135,098.32 buildings Machinery 256,000,000.00 256,000,000.00 — equipment Electronic 1,981,969.34 1,981,969.34 105 equipment Transportation 51,775.31 51,775.31 equipment Others 178,256.92 178,256.92 Total 261,441,325.72 256,094,225.83 5,347,099.89 ========= =============== ============== ============ = Note: The cause for the decrease of the year-end impairment provision for fixed assets is that the equity of SEG Zhongdian and SEG Hitachi has been transferred. Book value of fixed assets Year-beginning Increase of the Decrease of the Category Year-end amount amount year year Houses and buildings 320,318,013.78 35,467,466.92 Machinery equipment 465,316,696.85 10,114,997.40 Electronic equipment 45,047,866.54 2,114,087.44 Transportation 23,608,263.05 19,269,435.98 equipment Others 16,201,839.00 3,633,752.54 Total 870,492,679.22 70,599,740.28 ================ ============ ============ ================ Fixed assets for mortgage and loan security Accumulated Category Original book value Net book value depreciation 14/F, Block A, Modern Window Building 14,654,773.35 1,633,592.84 13,021,180.51 12A, Block A, Modern Window Building 2,732,895.15 336,134.47 2,396,760.68 12B, Block A, Modern Window Building 1,969,473.03 1,585,657.52 383,815.51 16C, Block A, Modern Window Building 1,329,041.34 114,195.67 1,214,845.67 17A, Block A, Modern Window Building 2,745,228.40 306,084.83 2,439,143.57 17B, Block A, Modern Window Building 1,911,583.51 213,008.25 1,698,575.26 17C, Block A, Modern Window Building 1,376,628.25 153,380.95 1,223,247.30 Electronic equipment 3,140,434.29 3,056,692.29 83,742.00 1/F, SEG Storage and Transportation Building 4,641,978.22 1,035,741.39 3,606,236.83 2/F, SEG Storage and Transportation Building 4,641,978.22 1,035,741.39 3,606,236.83 11/F, SEG Storage and Transportation Building 4,641,978.22 1,035,741.39 3,606,236.83 Total 43,785,991.98 10,505,970.99 33,280,020.99 =============== =============== =============== (1) The Company gained a loan of up to RMB 85 million from Hongli Branch of China Everbright Bank on Nov 1, 2007, guaranteed by its subsidiaries SEG Hitachi and SEG Storage and Transportation, and with the mortgage of the whole 14th floor and 12A, 12B, 16C, 17A, 17B, 17C of Block A of Modern Window Building at Huaqiang Road (N) (the original value of the assets is RMB 26,719,623.03, and the current value is RMB 22,377,568.5). The Company signed the Loan Contract with the bank on Nov 1, 2007 and gained the loan of RMB 85 million, with the term from Nov 1, 2007 to May 1, 2008. The Company had gained the loan of RMB 85 million by Dec 31, 2007. The loan was repaid in Jan 2008. (2) The Company provided guarantee for its subsidiary SEG Storage and Transportation to gain a short-term loan of RMB 10 million from Shenzhen Branch of Bank of China, with the term from Nov 21, 2007 to Nov 20, 2008. The mortgage for the loan is the 1st, 2nd and 106 11th floors of SEG Storage and Transportation Building in Futian Free Trade Zone of Fubao SEG. (3) The Company’s subsidiary SEG Communication gained a loan of RMB 1,750,000.00 from Shenzhen Branch of China CITIC Bank with electronic equipment as the mortgage. The year-end amount of fixed assets is reduced by RMB 2,187,439,815.97, a decrease of 92.81% from the year-beginning amount. The cause of the change is that the equity of SEG Zhongdian and SEG Hitachi has been transferred in this period. The year-end amount of accumulated depreciation is reduced by RMB 1,131,452,651.20, a decrease of 92.37% from the year-beginning amount. The cause of the change is mainly the equity transfer of SEG Zhongdian in this period, excluding SEG Zhongdian and SEG Hitachi from the consolidation scope. 12. Projects in Construction Decrease of the year Percentage of Capital project Budget Year-beginning Increase of Year-end Project name Changed to investment in amount amount the year Other amount source fixed assets budget amount Comprehensiv Self- — — 174,014.74 17,800.00 — e building 156,214.74 prepared Equipment 19,566,385.4 Self- 3,061.71 19,566,385.46 — 63.91% improvement 6 prepared Self- Fibre — — — — prepared Self- Network 49.80 382,700.00 99,600.00 482,300.00 76.85% prepared IM communicatio — 530,000.00 338,000.00 530,000.00 — 338,000.00 — ns platform 19,566,385.4 Total 20,479,085.46 611,614.74 686,214.74 838,100.00 6 ============ ========= ======= ========= ======= Impairment provision for projects in construction Year-beginning Increase of the Decrease of the Year-end Reason for Project name amount year year amount provision IM communications platform 338,000.00 338,000.00 Total 338,000.00 338,000.00 ========== =========== =========== =========== The year-end amount of projects in construction is reduced by RMB 19,640,985.46, a decrease of 95.91% from the year-beginning amount. The cause of the change is mainly the equity transfer of SEG Zhongdian in this period, excluding SEG Zhongdian and SEG Hitachi from the consolidation scope. 13. Intangible Assets Original price of intangible assets Year-beginning Increase of the Decrease of the Year-end original Item Original Price year year price Municipal supporting 0.00 facilities fund 8,311,669.00 8,311,669.00 107 Non-patent technology 14,611,258.00 14,611,258.00 0.00 Non-patent technology 12,350,000.00 12,350,000.00 0.00 Non-patent technology 47,629,566.02 47,629,566.02 0.00 Patent right 7,079,375.00 7,079,375.00 0.00 Others 2,118,597.50 100,480.00 523,577.50 1,695,500.00 Others—IM communications platform, 500,000.00 500,000.00 etc. Total 92,100,465.52 600,480.00 90,505,445.52 2,195,500.00 ============= =========== ============== ============= Wherein: No intangible assets are used as mortgage or loan security at the end of the year. Accumulated amortization Year-beginning Amortization of Decrease of the Year-end Item amount the year year amount Municipal supporting facilities 2,048,726.50 2,048,726.50 — fund Non-patent technology 5,565,502.88 5,565,502.88 — Non-patent technology 5,145,833.03 51,675.11 5,197,508.14 — Non-patent technology 25,771,345.90 25,771,345.90 — Patent right 851,875.00 851,875.00 — Others 1,250,663.18 285,604.69 523,577.50 1,012,690.37 Others—IM communications 74,999.97 74,999.97 platform, etc Total 40,633,946.49 412,279.77 39,958,535.92 1,087,690.34 ============== ========== ============= ============ Impairment provision for intangible assets Year-beginning Increase of the Decrease of the Year-end Reason for Project name amount year year (Note) amount provision Others—IM communications platform 425,000.03 425,000.03 Total 425,000.03 425,000.03 ========== ============ ============ ========== Note: The cause of the decrease of the impairment provision for intangible assets this year is that the Phase 1 Project of IM Information Platform has been completed and accepted. Bad debt provisions are made at the end of the period because the product is considered not satisfying the market development according to its application, market response and relevant policies of the country. Book value of intangible assets Year-beginning Increase of the Decrease of the Year-end Remaining Project name amount year year amount amortization term Municipal supporting facilities 6,262,942.50 6,262,942.50 — fund Non-patent technology 9,045,755.12 9,045,755.12 — Non-patent technology 7,204,166.97 7,204,166.97 — Non-patent technology 21,858,220.12 21,858,220.12 — Patent right 6,227,500.00 6,227,500.00 — Others 867,934.32 100,480.00 285,604.69 682,809.63 Others—IM communications 500,000.00 500,000.00 — platform, etc. 108 Total 51,466,519.03 600,480.00 51,384,189.40 682,809.63 ============ ============ ============ ======== The year-end amount of intangible assets is reduced by RMB 50,783,709.40, a decrease of 98.67% from the year-beginning amount. The cause of the change is mainly the equity transfer of SEG Zhongdian in this period, excluding SEG Zhongdian and SEG Hitachi from the consolidation scope. 14. Long-term expenses to be apportioned Original Remaining Year-beginning Increase of Amortization Accumulated Year-end Item amount amortization amount the year of the year amortization amount incurred term Decoration fee 2,465,678.43 1,372,571.28 846,275.45 506,126.80 752,958.5 1,712,719.93 Insurance premium 1,051,650.00 499,533.75 — 105,165.00 657,281.25 394,368.75 for house mortgage Improvement of 1,091,850.00 486,025.78 218,769.96 824,594.18 267,255.82 rented fixed assets Expense on equipment 1,602,792.88 — 1,602,792.88 — — improvement Improvement of fire-fighting 724,189.50 694,220.20 — 144,837.96 174,807.26 549,382.24 equipment Network cabling 4,793,064.73 2,251,305.52 — 1,433,494.19 3,975,253.40 817,811.33 Special installation 707,600.00 677,736.67 — 141,519.96 171,383.29 536,216.71 fee Decoration fee for 99,900.00 93,271.67 — 19,980.00 26,608.33 73,291.67 office areas Fire liability 15,000.00 10,000.00 — 10,000.00 15,000.00 — insurance Land price for Block B and market 3,915,606.00 351,530.32 2,228,261.00 1,001,439.79 2,337,254.47 1,578,351.53 supporting fee Other long-term expenses to be 11,010,584.79 7,914,549.09 2,722,706.07 3,507,818.15 3,881,147.78 7,129,437.01 apportioned total 25,875,123.45 15,953,537.16 5,797,242.52 8,691,944.69 12,816,288.46 13,058,834.99 ========== =========== ======== ======== =========== ======== The year-end amount of long-term expenses to be apportioned is reduced by RMB 2,894,702.17, a decrease of 18.14% from the year-beginning amount. The cause of the change is mainly the equity transfer of SEG Zhongdian in this period, excluding SEG Zhongdian and SEG Hitachi from the consolidation scope. 15. Asset impairment provision Year-beginning Provision of Decrease of the period Period-end Item book balance the period Write back Write off book balance I. Bad debt provision 51,737,796.23 2,668,086.01 2,000,462.72 12,772.60 52,392,646.92 II. Provision for inventory price drop 48,123,611.13 965,271.69 45,794,985.53 3,293,897.29 III. Impairment provision for financial assets available for sale IV. Impairment provision for held-to-maturity securities V. Impairment provision for long-term 4,466,419.72 4,466,419.72 equity investment VI. Impairment provision for investment 3,117,633.12 3,117,633.12 109 property VII. Impairment provision for fixed assets 261,441,325.72 256,094,225.83 5,347,099.89 VIII. Impairment provision for engineering materials IX. Impairment provision for projects in 338,000.00 338,000.00 construction X. Impairment provision for consumable biological assets Including: Impairment provision for mature consumable biological assets XI Impairment provision for oil and gas assets XII. Impairment provision for intangible 425,000.03 425,000.03 assets XIII. Goodwill impairment provision XIV. Others Total 368,886,785.92 4,396,357.73 2,000,462.72 301,901,983.96 69,380,696.97 =============== =========== ========== ========== =========== 16. Deferred income tax assets and liabilities Recognized income tax assets Item Year-end amount Year-beginning amount From bad debt 7,477,911.96 7,554,610.16 From inventory price drop 494,084.59 494,084.59 From impairment of long-term equity 1,301,932.09 783,690.32 investment From impairment of fixed assets 56,373.95 56,373.95 From impairment of investment property 456,302.60 401,102.60 From intangible assets 63,750.00 Total 9,850,355.19 9,289,861.62 ================= =============== Recognized deferred income tax liabilities Item Year-end amount Year-beginning amount From bad debt 15,719.38 15,719.38 From financial assets available for sale 950,309.94 743,675.98 (Difference between fair value and book value) Total 966,029.32 759,395.36 =============== ================= 17. Short-term loan Short-term loan Loan type Year-end amount Year-beginning amount Credit loan 40,000,000.00 Mortgage loan 96,750,000.00 58,000,000.00 Secured loan 336,750,000.00 Total 96,750,000.00 434,750,000.00 ============== =============== 110 The year-end amount of short-term loans is reduced by RMB 338,000,000.00, a decrease of 77.75% from the year-beginning amount. The cause of the change is mainly the equity transfer of SEG Zhongdian in this period, excluding SEG Zhongdian and SEG Hitachi from the consolidation scope, and the loan repayment of the Company. 18. Notes payable Amount to be mature in the next Category Year-end amount Year-beginning amount accounting period Bankers’ acceptance bills 0.00 319,309,107.23 Commercial acceptance bills Total 0.00 319,309,107.23 ============ =============== The year-end amount of notes payable is reduced by RMB 319,309,107.23, a decrease of 100.00% from the year-beginning amount. The cause of the change is that the equity of SEG Zhongdian and SEG Hitachi has been transferred during this period. 19. Accounts payable Year-end amount Year-beginning amount Less than 1 year 19,174,454.06 439,473,440.17 Over 1-2 years 4,122,465.88 2,934,537.24 Over 2-3 years 175,786.00 7,725,793.14 Over 3 years 463,988.46 1,303,301.90 Total 23,936,694.40 451,437,072.45 ================ ================= Among the year-end balance, no accounts are payable to shareholders that hold over 5% (including 5%) of the voting shares of the Company. Among the year-end balance, no accounts are payable to affiliated companies. The year-end amount of accounts payable is reduced by RMB 427,500,378.05, a decrease of 94.70% from the year-beginning amount. The cause of the change is mainly the equity transfer of SEG Zhongdian in this period, excluding SEG Zhongdian and SEG Hitachi from the consolidation scope. 20. Advances Year-end amount Year-beginning amount Less than 1 year 102,389,732.48 122,307,990.20 Over 1-2 years 186,687.97 2,117,556.63 Over 2-3 years — 20,400.00 Over 3 years 20,400.00 Total 102,596,820.45 124,445,946.83 =============== ================= Among the year-end balance, no accounts are payable to shareholders that hold over 5% (including 5%) of the voting shares of the Company. Among the year-end balance, no accounts are payable to affiliated companies. 111 21. Wages payable Wages payable Year-beginning Payment of the Item Increase of the year Year-end amount amount year I. Wage, bonus, allowance, and subsidy 36,123,539.75 34,521,785.30 68,878,140.51 1,767,184.54 II. Benefits of employees 1,180,005.36 2,914,736.23 3,612,461.85 482,279.74 III. Social insurance premiums 2,206.46 5,442,665.69 4,978,807.20 466,064.95 IV. Housing fund — 67,056.00 67,056.00 — V. Labour union expenditure 787,459.02 934,078.62 863,322.61 858,215.03 VI. Non-monetary benefits — VII. Compensation due to termination 3,195,943.37 4,300.00 3,191,643.37 of labour contract VIII. Others 680,042.57 895,860.40 857,860.40 718,042.57 Including, share-based payment in cash Total 38,773,253.16 47,972,125.61 79,261,948.57 7,483,430.20 ============= ============= ============= ============= The year-end amount of wages payable is reduced by RMB 31,289,822.96, a decrease of 80.70% from the year-beginning amount. The cause of the change is mainly the equity transfer of SEG Zhongdian in this period, excluding SEG Zhongdian and SEG Hitachi from the consolidation scope. 22. Taxes payable Statutory tax rate Tax category Year-end amount Year-beginning amount enforced this year Operating tax 1,576,682.00 1,733,848.21 3%, 5% Value added tax 3,506,281.64 -4,172,038.02 17% Enterprise income tax 13,880,000.25 2,490,951.27 10%, 15%, 17.5%, 33% Stamp tax 48,187.70 Housing property tax 300,203.78 1,023,099.20 Urban maintenance and construction tax 13,106.55 336,896.88 1%, 7% Educational surtax 185,000.77 3% Withholding and paying of individual income tax 255,783.89 388,702.67 Authorized tax collection -171,568.28 1,900,390.32 Stamp tax and water fund 32,502.98 Total 19,577,993.58 3,750,038.23 ============== =============== The year-end amount of taxes payable is reduced by RMB 15,827,955.35, a decrease of 422.07% from the year-beginning amount. The main cause is that the Company has transferred the equity of SEG Zhongdian and sold that of SEG Dasheng in the year, and has to pay enterprise income tax for the income from equity transfer and sale. 23. Dividends payable Investor name/Category Year-end amount of dividend arrears Reason Shenzhen SEG Computer Company 60,390.00 Unpaid Yinchuan General Electric Appliance Company 82,890.00 Unpaid Nanjing Commercial Building Co., Ltd. 39,600.00 Unpaid Others 710,900.69 Unpaid 112 Total 893,780.69 ================= 24. Other accounts payable Item Year-end amount Year-beginning amount Less than 1 year 78,800,549.75 131,173,442.89 Over 1-2 years 907,381.06 5,152,527.10 Over 2-3 years 1,101,535.53 16,212,766.66 Over 3 years 3,749,032.33 4,628,952.20 Total 84,558,498.67 157,167,688.85 ================ ================= Including: Accrued expenses 3,019,387.78 39,401,885.60 Among the year-end balance, no accounts are payable to shareholders that hold over 5% (including 5%) of the voting shares of the Company. Among the year-end balance, no accounts are payable to affiliated companies. Notes on other significant accounts payables: Other accounts payable are mainly the security deposits of lessees. The year-end amount of other accounts payable is reduced by RMB 72,609,190.18, a decrease of 46.20% from the year-beginning amount. The cause of the change is mainly the equity transfer of SEG Zhongdian in this period, excluding SEG Zhongdian and SEG Hitachi from the consolidation scope. 25. Long-term liabilities due within one year Item Year-end amount Year-beginning amount Long-term loans 0.00 18,750,000.00 Bonds payable Long-term accounts payable Total 0.00 18,750,000.00 =============== ============= Long-term loans due within one year Conditions of Year-end Year-beginning Reason for not paying Lender Currency loan amount amount when the loan is due Shenzhen Futian Sub-branch of RMB Mortgage loan 18,750,000.00 Agricultural Bank of China Total 18,750,000.00 ====== =========== The year-end amount of long-term loans due within one year is reduced by RMB 18,750,000.00, a decrease of 100% from the year-beginning amount. The cause of the change is that they are all repaid in this period. 26. Long-term loans Lender Currency Conditions of loan Year-end amount Year-beginning amount Shenzhen Futian Sub-branch of RMB Mortgage loan 0.00 81,600,000.00 Agricultural Bank of China 113 Total 0.00 81,600,000.00 ============== ============== Note: The year-end amount of long-term loans is reduced by RMB 81,600,000.00, a decrease of 100% from the year-beginning amount. The cause of the change is that they are all repaid in this period. 27. Predicted liabilities Including: Expected Year-end Year-beginning Change of the Item indemnity recognized Cause amount amount year this year Unsettled 2,728,268.64 2,728,268.64 Unsettled lawsuit lawsuit Quality guarantee deposit Product quality 309,950.00 309,950.00 of Shenzhen Subway guarantee Project Total 3,038,218.64 3,038,218.64 ========== ============ 28. Share capital Year-beginning amount Increase/Decrease of the year Year-end amount Item Capitalization Percentage New share Bonus Proportion Amount of public Others Subtotal Amount (%) offering share (%) reserve 1. Restricted shares (1) State-held shares (2) Shares held by state-owned legal 237,359,666.00 30.24 237,359,666.00 30.24 persons (3) Other shares held by domestic capital Including: Shares held by domestic 174,118,232.00 22.19 174,118,232.00 22.19 non-state-owned legal persons Shares held by domestic natural 60,482.00 0.01 60,482.00 0.01 persons (4) Shares held by foreign capital Including: Shares held by foreign legal persons Shares held by foreign natural persons Total of restricted 411,538,380.00 52.44 411,538,380.00 52.44 shares 2. Non-restricted shares (1) RMB 126,799,312.00 16.16 126,799,312.00 16.16 common shares 114 (A Share) (2) Domestically listed foreign shares (B Share) (3) Overseas listed foreign 246,461,318.00 31.40 246,461,318.00 31.40 shares (H Share) (4) Others Total of non-restricted 373,260,630.00 47.56 373,260,630.00 47.56 shares 3. Shares in total 784,799,010.00 100 784,799,010.00 100 The aforementioned capital has been audited in Xinde Audit Report No. 018 (2006) by Shenzhen Tianjian Xinde Certified Public Accountants. 29. Capital public reserve Year-beginning Year-beginning Amount of Increase of Decrease of Year-end Item amount before the amount after the change the year the year amount change change Share premium 319,545,171.33 319,545,171.33 — 5,784,682.93 325,329,854.26 Other capital public reserve 24,492,556.75 28,641,471.70 — 4,148,914.95 1,227,634.81 29,869,106.51 Including: Transfer from original 24,492,556.75 — 24,492,556.75 — — system 24,492,556.75 Change of fair value of financial assets available — 4,148,914.95 — 4,148,914.95 1,227,634.81 5,376,549.76 for sales Total 344,037,728.08 4,148,914.95 348,186,643.03 7,012,317.74 355,198,960.77 =============== ========= =============== ========== ========= =========== Note: For details about the change of the year-beginning amount, please refer to 25 "Changes of main accounting policies and estimates and corrections of significant account errors in the current year and relevant influence" in section II of the Notes. The main cause for the increase of the year is that stock broker commissions unpaid in prior years are transferred to share premiums. 30. Surplus public reserve Year-beginning Year-beginning Amount of Increase of the Decrease of Year-end Item amount before the amount after the change year the year amount change change Statutory surplus 106,715,296.07 1,005,413.88 107,720,709.95 2,713,792.40 110,434,502.35 reserve Free surplus reserve Reserve fund Enterprise development fund Total 106,715,296.07 1,005,413.88 107,720,709.95 2,713,792.40 110,434,502.35 ============== ========== ============= ========= ========= =========== 115 Note: For specific information about the change of the year-beginning amount, please refer to 25 "Changes of main accounting policies and estimates and corrections of significant account errors in the current year and relevant influence" in section II of the Notes. 31. Retained profits Item Amount Accrual/Distribution Rate Year-beginning amount of Retained Profit -15,434,638.00 Change: Retained Profits at the Beginning of the year ("+" for Increase and "-" for -21,591,465.65 Decrease) After the Change: Retained Profits at the Beginning of the year -37,026,103.65 Plus: Net Profits of the year 62,945,577.11 Other Ingoing Less: Accrual of Statutory Surplus Reserve 2,713,792.40 10% Accrual of Bonus and Welfare Reserve Accrual of Reserve Fund Accrual of Enterprise Development Fund Profits Returned to Investment Preferred Share Dividends Payable Accrual of Free Surplus Reserve Ordinary Share Dividends Payable Ordinary Share Dividends Converted to Share Capital Retained Profit at the End of the year 23,205,681.06 Note: For specific information about the change of the year-beginning amount, please refer to (xxv)"Changes in main accounting policies and estimates, correction of significant accounting errors, and their impact" in section II of the Notes. 32. Operating income and cost Amount incurred in the year Amount incurred in previous year Item Other Other Main business Subtotal Main business Subtotal business business Operating income 701,946,302.91 9,134,258.75 711,080,561.66 1,908,244,984.04 42,732,588.57 1,950,977,572.61 Operating cost 650,445,417.40 5,984,634.28 656,430,051.68 1,823,489,160.32 16,274,254.27 1,839,763,414.59 Gross profit 51,500,885.51 3,149,624.47 54,650,509.98 84,755,823.72 26,458,334.30 111,214,158.02 Main operating income and cost listed according to business categories Main operating income Main operating cost Item Amount incurred Amount incurred in Amount incurred in Amount incurred in in the year previous year the year previous year (1) Industry 394,590,086.04 1,669,357,848.51 476,678,795.26 1,676,741,646.80 (2) Commerce (3) Real estate (4) Service industry 307,356,216.87 238,887,135.53 173,766,622.14 146,747,513.52 Subtotal 701,946,302.91 1,908,244,984.04 650,445,417.40 1,823,489,160.32 ============== =============== ============== ============== Offset among different business branches of the company Total 701,946,302.91 1,908,244,984.04 650,445,417.40 1,823,489,160.32 116 ================ ================= ================ ================= Main operating income and cost listed according to different regions Main operating income Main operating cost Item Amount incurred Amount incurred in Amount incurred Amount incurred in in the year previous year in the year previous year China 436,142,799.97 853,385,636.87 355,505,153.93 770,262,005.60 Overseas 265,803,502.94 1,054,859,347.17 294,940,263.47 1,053,227,154.72 Subtotal 701,946,302.91 1,908,244,984.44 650,445,417.40 1,823,489,160.32 ============== ================ ============== ================ Offset among different business branches of the company Total 701,946,302.91 1,908,244,984.44 650,445,417.40 1,823,489,160.32 ============== ================ ============== ================ The operating income of this year is reduced by RMB 1,239,897,010.95, a decrease of 63.55% from last year. The cause of the change is mainly the slump of the entire industry, with the operating income of the Company's subsidiaries SEG Zhongdian and SEG Hitachi greatly reduced in the period. 33. Operating tax and extras Item Taxation standards Amount incurred in the year Operating tax 11,931,982.53 Urban construction tax 329,210.54 Consumption tax — Resources tax — Educational surtax 371,481.61 Others 679,880.21 Total 13,312,554.89 =============== 34. Financial expenses Item Amount incurred in the year Amount incurred in previous year RMB RMB Interest payment 39,554,346.13 41,395,275.06 Less: Interest income 3,687,710.91 6,222,559.63 Loss on exchange 7,470,635.66 8,018,704.81 Less: Profit on exchange 1,363,925.20 895,574.71 Others 2,872,834.81 2,166,972.07 Total 44,846,180.49 44,462,817.60 ================ ================ 35. Loss from asset impairment Amount incurred in the Amount incurred in Item year previous year 1. Loss from bad debt -2,974,537.45 -7,016,350.85 117 2. Loss from inventory price drop 30,026,702.16 16,854,140.88 3. Loss from impairment of financial assets available for sale 4. Loss from impairment of held-to-maturity securities 5. Loss from impairment of long-term equity investment 3,454,945.10 6. Loss from impairment of investment property 7. Loss from impairment of fixed assets 123,545,190.83 -48,699.44 8. Loss from impairment of engineering materials 9. Loss from impairment of projects in construction 11,019,134.69 10. Loss from impairment of consumable biological assets 11. Loss from impairment of oil and gas assets 12. Loss from impairment of intangible assets 31,930,229.02 3,117,633.12 13. Loss from goodwill impairment 14. Others Total 197,001,664.35 12,906,723.71 ================= =============== 36. Investment income Name of project/ invested company Amount incurred in the year Amount incurred in previous year I. Income from financial assets 32,001,591.63 1,533,102.55 II. Income from equity investment 507,759,397.98 20,658,814.76 (I) Recognition as per cost 82,496.94 249,850.10 (II) Recognition as per equity -40,100,445.15 20,408,964.67 (III) Income from investment disposal 547,777,346.19 Total 539,760,989.61 22,191,917.32 ================ ================ The investment income of this year increases by RMB 517,569,072.29, a growth of 2,332.24%. The cause is that the Company gained an investment income of RMB 60,077,550.98 by disposing its subsidiary SEG Zhongdian in the period. According to Accounting Standard for Business Enterprises, in disposal of a subsidiary in the current period, the income, cost and profit from the beginning of the year to the disposal date should be consolidated. The net profit of SEG Zhongdian from the beginning of the year to the disposal date is RMB -487,699,795.21. After the aforesaid items are consolidated, the Company increases its investment disposal income by RMB 487,699,795.21 to offset the impact on the Company’s retained profits by the consolidation of the income, cost, and profit of SEG Zhongdian. 37. Non-operating income Item Amount incurred in the year Amount incurred in previous year 1. Total disposal profit of non-current assets 1,036,293.97 Including: Disposal profit of fixed assets 1,036,293.97 Disposal profit of intangible assets 2. Transfer profit of non-monetary assets 3. Profit from debt restructuring 15,752.74 4. Government subsidies 150,000.00 1,050,000.00 5. Inventory surplus 6. Others 2,297,552.03 1,154,431.45 Total 3,499,598.74 2,204,431.45 ================ =============== 118 The non-operating income of this year increases by RMB 1,295,167.29, a growth of 58.75% over the previous year. The main cause is that the Company’s subsidiary SEG Zhongdian gained a disposal profit of fixed assets, RMB 249,041.80, and the subsidiary Shenzhen SEG Electronics Market Management Co., Ltd. disposed its investment property and gained a disposal profit of fixed assets, RMB 787,252.17 in the period. 38. Non-operating expenses Item Amount incurred in the year Amount incurred in previous year 1. Total disposal loss of non-current assets 76,916.54 485,394.39 Including: Disposal loss of fixed assets 76,916.54 485,394.39 Disposal loss of intangible assets 2. Transfer loss of non-monetary assets 110.14 3. Loss on debt restructuring 4. Charitable donation expenses 20,000.00 5. Extraordinary loss 69,481.04 6. Inventory loss 7. Others 90,336.94 2,502,061.17 Total 256,844.66 2,987,455.56 ================= ============== 39. Income tax Item Amount incurred in the year Amount incurred in previous year Income tax of the year 16,664,526.47 4,749,012.02 Deferred income tax -1,182,393.10 -17,626.61 Total 15,482,133.37 4,731,385.41 ================= ============== 40. Government subsidies Subsidy category and amount Amount incurred in Category of government subsidies Amount incurred in the year Note previous year 1. Others 150,000.00 1,050,000.00 Total 150,000.00 1,050,000.00 ============ ============= The subsidy is granted to SEG Communication as Sci-Tech R&D Allowance of the year 2005 by Shenzhen Science and Technology Bureau through the budget of the Finance Bureau according to the No. 364 File of Shenzhen Science & Information (2006). 119 41. Notes on cash flow statement Other cash received concerning operating activities Item Amount incurred in the year Allowance from the Finance Bureau 150,000.00 Current accounts 37,716,474.20 Penalty received 121,935.36 Non-operating income 1,093,279.77 Interest 1,815,181.10 Total 40,896,870.43 ================ Other cash paid concerning operating activities Item Amount incurred in the year Cash expenses 78,362,733.60 Current accounts 58,470,146.21 Non-operating expenses 11,669.90 Total 136,844,549.71 =============== Other cash paid concerning investment activities Item Amount incurred in the year Payment of land price of Block B of Baohua 2,228,261.00 Building and associated fees Total 2,228,261.00 =============== Other cash received concerning financing activities Item Amount incurred in the year Interest 187,881.09 Capital contributed by Shenzhen Yuanzhi Investment 269,990,778.44 Co., Ltd. to SEG Hitachi Withdrawal of security deposit 79,478,500.16 Total 349,657,159.69 =============== Shenzhen Yuanzhi Investment Co., Ltd. lent to SEG Hitachi a sum not over RMB 850 million according to Reply Letter on Equity Purchase and Debt Restructuring of SEG Zhongdian and SEG Hitachi, No. 347 File of Shenzhen SASAC (2007) by Shenzhen State-owned Asset Supervision and Administration Commission. SEG Group used the sum as the cost to dispose all assets and liabilities of SEG Hitachi except the land and property of 130,000 square meters in the plant area. SEG Hitachi received RMB 120 269,990,778.44 of the above-mentioned account in the year. Other cash paid concerning financing activities Item Amount incurred in the year Commitment fee of loans 460,000.00 Others 444,141.40 Total 904,141.40 =============== Supplementary information to cash flow statement Item Amount incurred in the year Net profits 62,945,577.11 Plus: Asset impairment provision 184,094,940.64 Depreciation of fixed assets, oil & gas assets and consumable biological assets 14,420,287.46 Amortization of intangible assets 412,279.77 Amortization of long-term expenses to be apportioned 8,691,944.69 Loss on disposal of fixed assets, intangible assets, and other long-term assets (Profit 959,377.43 will be marked with "-") Loss on discard of fixed asset (Profit will be marked with "-") Loss on change of fair value (Profit will be marked with "-") Financial expenses (Profit will be marked with "-") 39,554,346.13 Loss on investment (Profit will be marked with "-") -52,061,194.40 Decrease of deferred income tax assets (Profit will be marked with "-") -560,493.57 Increase of deferred income tax liabilities (Decrease will be marked with "-") 206,633.96 Decrease of inventories (Increase will be marked with "-") 215,884,887.71 Decrease of operating accounts receivable (Increase will be marked with "-") 313,469,717.01 Increase of operating accounts payable (Decrease will be marked with "-") -867,532,263.52 Others Net cash flow from operating activities -79,513,959.58 VI.NOTES ON MAIN ITEMS IN THE FINANCIAL STATEMENTS OF THE PARENT COMPANY (Unless otherwise specified, the unit for the following amounts is RMB Yuan and the amounts refer to the year-end numbers unless specified as year-beginning numbers) 1. Accounts receivable The composition of accounts receivable Year-end number Year-beginning number Items Percentage in Percentage Percentage Percentage of Book Bad debt Book Bad debt the total of bad debt in the total bad debt Balance provision Balance provision amount provision amount provision 1. Accounts with significant individual amount and withheld as separate bad debt provision 121 2. Accounts with non-significant individual amount 5,777,171.79 3.04% 100.00% 5,777,171.79 5,777,171.79 100.00% 100.00% 5,777,171.79 and withheld as separate bad debt provision 3. Other accounts classified as featuring similar 184,510,000.00 96.96% credit risk as per their duration Among which: Less than one 184,510,000.00 year 1-2 years 2-3 years Over 3 years Total 190,287,171.79 5,777,171.79 5,777,171.79 5,777,171.79 ====== ========== ======== ========= Year-end accounts receivable for corporate shareholders without more than 5% (included) of the voting shares of the company. The amount in the year-end accounts receivable is relatively large Year-end number Ranking of debtors Duration of the Percentage in the total amount Amount accounts of accounts receivable No. 1: Shenzhen Yuanzhi Investment Co. Ltd 184,510,000.00 Less than one year 96.96% No. 2: Li Zhenhua Trade Loan and withholdings on VAT 5,503,030.33 Over 3 years 2.89% The year-end accounts receivable increase by RMB184, 510, 000.00 compared with those at the beginning of the year, an increase of 3193.78%. The reason for the change is that the 73.24% equities held of Shenzhen SEG Zhongdian Color Display Devices Co., Ltd were transferred to Shenzhen Yuanzhi Investment Co., Ltd for RMB384,510,000. This company received the balance of RMB 184,510,000 for this equity transfer from Yuanzhi Investment Co., Ltd on February 26, 2008 in accordance with the stipulations in Equity Transfer Agreement. 2. Other accounts receivable The composition of other accounts receivable Year-end number Year-beginning number Project Percentage Percentage Percentage Percentage Bad debt Bad debt Book Balance in the total of bad debt Book Balance in the total of bad debt provision provision amount provision amount provision 1. Accounts with significant individual amount and 22,147,391.97 52% 100% 22,147,391.97 22,147,391.97 45% 100% 22,147,391.97 withheld as separate bad debt provision 2. Accounts with non-significant individual 8,591,345.12 20% 100% 8,591,345.12 9,190,505.18 15% 100% 9,190,505.18 amount and withheld as separate bad debt provision 122 3. Other accounts classified as featuring 11,779,078.59 28% 4,053,855.1 24,560,879.41 45% 1,565,194.9 similar credit risk as per their duration Among which: Less than one 1,104,579.84 3% 0% — 10,799,396.93 19% 0% — year Over 1-2 years 138,772.14 0.5% 5% 6,938.61 666,737.79 2% 5% 33,336.89 Over 2-3 years 602,288.25 1.5% 10% 60,228.83 10,870,909.23 20% 10% 1,087,090.923 Over 3 years 9,933,438.36 23% 20% 3,986,687.66 2,223,835.46 4% 20% 444,767.09 Total 42,517,815.68 100% — 34,792,592.19 55,898,776.56 100% — 32,903,092.05 ======== ====== ======== ========== ========= =========== =========== ========= Other accounts receivable with a significant amount in an individual account Percentage of Ranking of major individual accounts Amount Reason provision No.1: Yangjiang Yuntong Grease Co., Ltd 8,530,276.35 100% Bad debt due to long duration of the accounts No. 2: Shenzhen Lianjing Trade 5,697,287.51 100% Bad debt due to long duration of the accounts No. 3: Shenzhen Top Industry Co., Ltd. 3,281,387.96 100% Bad debt due to long duration of the accounts No. 4: Shenzhen Shoujia Industry Co., Ltd. 1,611,184.04 100% Bad debt due to long duration of the accounts No. 4: Shenzhen Jimeng Industry Co., Ltd. 1,358,912.37 100% Bad debt due to long duration of the accounts Accounts in other year-end accounts receivable for corporate shareholders without more than 5% (included) of the voting shares of the company. Top 5 accounts in terms of receivable amounts in other year-end accounts receivable Percentage in the total Nature or Duration of Ranking of debtors Amount amount of other accounts Content the accounts receivable No.1: Yangjiang Yuntong Grease Co., Ltd Debt transfer 8,530,276.35 Over 3 years 20% No. 2: Shenzhen SEG Dasheng Co., Ltd Loan security 6,495,198.67 Over 3 years 15% No. 2: Shenzhen Lianjing Trade Co., Ltd Debt transfer 5,697,287.51 Over 3 years 13% No.4: Shenzhen Top Industry Co., Ltd Debt transfer 3,281,387.96 Over 3 years 8% No. 5: Shenzhen SEG Business Machines Co., Ltd Current accounts 2,815,532.68 Over 3 years 6% Other year-end accounts receivable decrease by RMB13,380,960.88 compared with those at the start of the year. The reason for this is that SEG Dasheng repaid a part of the arrears and part of the current accounts is collected from the subsidiaries. 3. Long-term equity investment Year-end number Year-beginning number Name of the invested company Depreciation Book Balance Book Balance Depreciation reserve reserve Shenzhen SEG Baohua Electronics Co., Ltd 20,512,499.04 20,512,499.04 123 Shenzhen SEG Storage and Transportation Co., Ltd 62,700,000.00 62,700,000.00 Shenzhen SEG Communication Co., Ltd 28,060,000.00 28,060,000.00 Shenzhen SEG Marketing Co., Ltd 1,900,000.00 682,202.50 1,900,000.00 682,202.50 Shenzhen SEG Industrial Investment Co., Ltd 23,780,000.00 23,780,000.00 Shenzhen SEG Orient Industrial Co., Ltd 99,702.21 144,752.10 Shenzhen SEG Samsung Glass Co., Ltd 501,921,640.14 557,363,473.63 Shenzhen SEG Telecom Equipment Co., Ltd 2,979,217.22 2,979,217.22 2,979,217.22 2,979,217.22 Shenzhen SEG Zhongdian Color Display Device Co., Ltd 350,316,558.40 Shenzhen SEG GPS Scientific Navigations Co., Ltd 39,628,080.51 35,616,089.68 Shanghai SEG Electronic Market Co., Ltd 5,189,456.25 4,933,022.30 Shenzhen SEG Network & Information Co., Ltd 10,482,000.00 10,482,000.00 Chongqing SEG Electronic Market Co., Ltd 1,500,000.00 1,500,000.00 Shenzhen SEG Electronics Market Management Co., Ltd 2,100,000.00 2,100,000.00 Suzhou SEG Electronic Market Co., Ltd 1,350,000.00 1,350,000.00 Xi’an SEG Electronic Market Co., Ltd 1,950,000.00 1,950,000.00 Shenzhen SEG Benkai Financial System Engineering Co., Ltd Shenzhen Jiamei Scientific Instrument Co., Ltd Total 704,152,595.37 3,661,419.72 1,105,687,612.37 3,661,419.72 =========== ========= ============ ============== About the invested companies Name of the Share ratio Voting ratio in Place of Total year-end Total operating Net profit this invested Business type held by this the invested registration net assets income this year year company company company Shenzhen SEG Property leasing and Baohua Shenzhen property 66.58 66.58 54,934,968.81 39,248,956.40 9,735,249.78 Electronics Co., management Ltd Shenzhen SEG Overseas Storage and Shenzhen transportation and 99.59 99.59 91,530,655.00 75,516,923.03 4,475,207.59 Transportation bonded storage Co., Ltd Shenzhen SEG Investment in Industrial industrial and Shenzhen 91.79 91.79 18,688,030.16 762,586.80 2,207,562.42 Investment Co., commercial Ltd businesses, Shenzhen SEG Manufacturing of Communication Shenzhen telecommunication 99.81 99.81 5,121,219.77 23,061,936.09 -849,103.97 Co., Ltd equipments Shenzhen SEG Net work Network & development and Shenzhen 52.41 52.41 10,519,908.70 15,243,854.75 -8,020,059.47 Information maintenance; Co., Ltd trading of electronic 124 products Shenzhen SEG Domestic trade;, Orient Industrial Shenzhen material supply and 20.00 20.00 Co., Ltd marketing Xi’an SEG Domestic trade; Electronic Xi’an material supply and 65.00 65.00 882,291.32 19,177,240.68 1,829,614.81 Market Co., Ltd marketing Chongqing SEG Domestic trade; Electronic Chongqing material supply and 50.00 50.00 3,829,011.49 8,250,000.00 590,230.35 Market Co., Ltd marketing Shenzhen SEG Electronics Domestic trade; Market Shenzhen material supply and 70.00 70.00 4,313,583.47 24,097,037.59 1,803,308.93 Management marketing Co., Ltd Domestic trade; Suzhou SEG business, material Electronic Suzhou 45.00 45.00 3,915,826.58 11,419,518.76 3,395,031.11 supply and Market Co., Ltd marketing Shenzhen SEG Development of Benkai Financial financial systems System Shenzhen and computer 51.00 51.00 Engineering Co., software; trade of Ltd such products0} Shenzhen SEG Manufacturing of Telecom Shenzhen electronic products 99.17 99.17 Equipment Co., and instruments Ltd Shenzhen Jiamei Manufacturing of Scientific Shenzhen scientific 100.00 100.00 Instrument Co., instruments Ltd Shenzhen SEG Domestic trade; Marketing Co., Shenzhen material supply and 17.14 17.14 Ltd marketing Shenzhen SEG Manufacturing of Samsung Glass Shenzhen color picture tubes 26.69 26.69 1,880,559,416.41 1,835,024,211.49 -192,006,949.32 Co., Ltd and glass shells Shenzhen SEG GPS Scientific Navigation Shenzhen 35 35 112,490,634.52 164,411,957.35 29,590,047.11 Navigations Co., equipment Ltd Shanghai SEG Domestic trade; Electronic Shanghai material supply and 35 35 14,833,852.69 34,042,214.00 4,797,910.53 Market Co., Ltd marketing Long-term equity investment calculated as per cost Year-beginning Change in investment Year-end book Depreciation Name of the invested company Initial amount book balance amount this year balance reserve Shenzhen SEG Marketing Co., Ltd 1,900,000.00 1,900,000.00 — 1,900,000.00 682,202.50 Shenzhen SEG Baohua Electronics 18,742,808.93 20,512,499.04 — 20,512,499.04 Co., Ltd Shenzhen SEG Storage and 62,700,000.00 62,700,000.00 62,700,000.00 125 Transportation Co., Ltd Shenzhen SEG Communication Co., 28,060,000.00 28,060,000.00 — 28,060,000.00 Ltd Shenzhen SEG Industrial Investment 23,780,000.00 23,780,000.00 — 23,780,000.00 Co., Ltd Shenzhen SEG Telecom Equipment 6,942,530.00 2,979,217.22 — 2,979,217.22 2,979,217.22 Co., Ltd Shenzhen SEG Zhongdian Color 350,316,558.40 350,316,558.40 -350,316,558.40 Display Device Co., Ltd Shenzhen SEG Network & 10,482,000.00 10,482,000.00 — 10,482,000.00 Information Co., Ltd Chongqing SEG Electronic Market 1,500,000.00 1,500,000.00 — 1,500,000.00 Co., Ltd Shenzhen SEG Electronics Market 2,100,000.00 2,100,000.00 — 2,100,000.00 Management Co., Ltd Suzhou SEG Electronic Market Co., 1,350,000.00 1,350,000.00 — 1,350,000.00 Ltd Xi’an SEG Electronic Market Co., Ltd 1,950,000.00 1,950,000.00 — 1,950,000.00 Shenzhen SEG Benkai Financial 765,000.00 System Engineering Co., Ltd Total 514,223,648.97 507,630,274.66 -350,316,558.40 157,313,716.26 3,661,419.72 =========== ============ =============== =========== ========== Long-term equity investment calculated as per equity Equity change amount this year Year-beginning Year-end Name of the invested company Initial amount balance Among which the balance Total bonus in cash I. Affiliated Companies Shenzhen SEG Orient Industrial Co., 400,000.00 144,752.10 -45,049.89 99,702.21 Ltd Shenzhen SEG Samsung Glass Co., 224,709,600.15 557,363,473.63 -55,441,833.49 4,195,178.72 501,921,640.14 Ltd Shenzhen SEG GPS Scientific 23,170,900.00 35,616,089.68 4,011,990.83 6,300,000.00 39,628,080.51 Navigations Co., Ltd Shanghai SEG Electronic Market Co., 1,750,000.00 4,933,022.30 256,433.95 1,422,834.74 5,189,456.25 Ltd Total 250,030,500.15 598,057,337.71 -51,218,458.60 11,918,013.46 546,838,879.11 ============ =========== ============= ============= ========= Depreciation reserve for long-term equity investment Year-beginning This year This year Reason for the Name of the invested company Year-end number number increased by decreased by provision 126 The business Shenzhen SEG Telecom Equipment 2,979,217.22 2,979,217.22 license has been Co., Ltd revoked Shenzhen SEG Marketing Co., Ltd 682,202.50 682,202.50 Business loss Total 3,661,419.72 3,661,419.72 ============ ========== ======== ============ The year-end amount for long-term equity investment decreased by RMB401,535,017.00 compared with the year-beginning amount, a decrease of 36.32%. The reason for the change is that the 73.24% equities held in Shenzhen SEG Zhongdian Color Display Devices Co., Ltd were transferred to Shenzhen Yuanzhi Investment Co., Ltd for RMB384 510, 000. Yuanzhi Investment has remitted the first payment in this equity transfer, that is, RMB 200, 000, 000 into the designated account of this company on December 25, 2007 in accordance with the stipulations in Equity Transfer Agreement and this company received the balance for this equity transfer, that is RMB 184, 510,000 from Yuanzhi Investment Co., Ltd on February 26, 2008.So far, this company has received all payments for this equity transfer. Other explanations for the long-term equity investment: As per related stipulations in the Accounting Standard for Business Enterprises No. 1 - Inventories, for the long-term equity investment held in its subsidiaries prior to the first execution day, the enterprise shall review and adjust it on the first execution day, assuming that the subsidiary has conducted the accounting as per cost from the very beginning. In accordance with this stipulation, review and adjustment are conducted on the long-term equity investment of the parent company this year. 4. Operating revenue and operating cost Amount this year Amount last year Item Other Other Main business Total Main business Total business operations Operating revenue 102,143,739.39 102,143,739.39 96,334,946.38 96,334,946.38 Operating cost 43,595,553.14 43,595,553.14 45,101,429.33 45,101,429.33 Gross profit 58,548,186.25 58,548,186.25 51,233,517.05 51,233,517.05 Main operating revenue and main operating cost listed as per business type Main operating revenue Main operating cost Project Amount this year Amount last year Amount this year Amount last year (1) Industry (2) trade (3) Real estate (4)Service industry 102,143,739.39 96,334,946.38 43,595,553.14 45,101,429.33 Total 102,143,739.39 96,334,946.38 43,595,553.14 45,101,429.33 Counteracted among various operations in the company Total 102,143,739.39 96,334,946.38 43,595,553.14 45,101,429.33 127 5. Investment Income Name of the project or invested company Amount this year Amount last year I. Investment income for financial assets 32,001,591.63 II. Investment income for equity investment 2,984,371.70 25,861,395.72 (I) Calculated and confirmed as per cost 2,122,631.84 (II) Calculated and confirmed as per equity -33,331,701.76 25,196,884.48 (III) Income from disposal of investment 34,193,441.62 664,511.24 Total 29,017,219.93 25,861,395.72 No significant limits on the remittance of investment income in this company The amount of investment income this year increases by RMB3,155,824.21 compared with that of last year, increasing by 12.20%. The reasons for this are as follows: (1) The investment income for financial assets is the income gained by selling the stocks of Shenzhen SEG Dasheng Co., Ltd. (2) The reason that the investment income is confirmed to be negative as per the method of equity is mainly due to the loss of Shenzhen SEG Samsung Glass Co., Ltd invested by this company. (3) The income from disposal refers to the transfer of the 73.24% equities held of Shenzhen SEG Zhongdian Color Display Devices Co., Ltd to Shenzhen Yuanzhi Investment Co., Ltd for RMB384,510,000. VII.RELATIONSHIPS BETWEEN RELATED PARTIES AND THEIR TRANSACTIONS 1. Conditions of the related parties having controlling relationship Related parties having controlling relationship The related party controlling the Company Relationship Registered Main Nature of business Legal Organization Name of company with the address business nature representative code Company Electronics Shenzhen SEG Group Shenzhen City Shareholder State-owned Guo Yonggang 19218093-0 products The parent company holds 30.24% of the Company’s shares and 30.24% of its voting rights. The actual controlling party of the Company is Shenzhen SEG Group. The related parties controlled by the Company See note IV for details. Registered capital of the related parties having controlling relationship and relevant changes (unit: RMB Yuan): Increase during the Decrease during the Name of company Year-beginning amount Year-end amount year year Shenzhen SEG Group 1,355,420,000.00 1,355,420,000.00 Number of shares held by the related parties having controlling relationship and relevant changes (unit: RMB Yuan): Beginning amount Increase during the year Decrease during the year Ending amount Name of company Amount % Amount % Amount % Amount % Shenzhen SEG Group 237,359,666.00 30.24 237,359,666.00 30.24 128 Conditions of the related parties not having controlling relationship Name of company Relationship with the Company Guangzhou Fodak Group Co., Ltd. The second largest shareholder Shenzhen SEG SAMSUNG Co., Ltd. Joint company Shenzhen SEG Orient Industrial Development Co., Ltd. Joint company Shenzhen SEG Square Investment & Development Co., Ltd. Subsidiary of shareholders Shenzhen SEG Group Financial Company Subsidiary of shareholders Shenzhen SEG Software Technologies Co., Ltd. Subsidiary of shareholders Shenzhen SEG Property Development Co., Ltd. Subsidiary of shareholders SEG (HONGKONG) Company Limited Subsidiary of shareholders 2. Transactions of related parties Procurement The following are the details of the procurement made by the Company from the related parties this year and last year: Name of the related party Year 2007 Year 2006 Shenzhen SEG Samsung Co., Ltd. 3,688,162.20 57,294,124.32 Pricing policy: Transactions are conducted in accordance with the market price. Lease 1) Payment of rent Name of the related party Year 2007 Year 2006 Shenzhen SEG Group 420,000.00 420,000.00 The Company leases an area of 809.26 square meters located at the eighth floor of SEG Square owned by SEG Group as the warehouse and pays the amount of rent set out in the Property Lease Contract concluded with Shenzhen SEG Group. Labor provided Name of the related party Year 2007 Year 2006 Shenzhen SEG Group 25,000.00 — 3. Balance of accounts receivable and accounts payable of related parties Amount Dec. 31, 2007 Dec. 31, 2006 Item RMB RMB Accounts receivable Shenzhen SEG Group 25,000.00 Other receivables Shenzhen SEG Property Management Co., Ltd. 27,465.40 27,465.40 Shenzhen SEG Orient Industrial Development Co., Ltd. 443,910.00 443,910.00 Shenzhen SEG Group 80,000.00 70,000.00 Other payables Shenzhen SEG Property Management Co., Ltd. 827,852.40 827,852.40 129 VIII.CONTINGENCY ITEMS 1. Contingent liabilities as a result of unsettled litigation or arbitration The Company provided Shenzhen SEG Dasheng Co., Ltd. (hereinafter referred to as SEG Dasheng) with a guarantee for the loan amounting to RMB10 million borrowed by SEG Dasheng from Shenzhen Development Bank Futian Branch, which expired on Mar. 25, 2004. Guangzhou Broad Investment Co., Ltd. (hereinafter referred to as Guangzhou Broad) provided a counter-guarantee for the Company. Upon the maturity of the loan, the Company undertook its guarantee liability by paying the principal and interest of the loan and litigation legal costs amounting to RMB10.1942 million. The Company brought a lawsuit before Shenzhen Intermediate People’s Court in August 2004. At the end of August 2004, the Court, in accordance with the preservation application of the Company, sealed up 4,020.6226 legal shares of Shendasheng, which were held by Guangzhou Broad and mortgaged to the Bank of Communications Shenzhen Branch Caitian Sub-branch. In November 2004, after intermediation by the Court, the Company reached a settlement with SEG Dasheng and Guangzhou Broad, whereby SEG Dasheng and Guangzhou Broad should repay the said amount and the interest thus accrued in installment before May 25, 2005. Because SEG Dasheng failed to perform in accordance with the settlement, the Company applied to Shenzhen Intermediate People’s Court in January 2005 for enforcement. By Dec. 31, 2007, among the other receivables of the Company, an amount of RMB6,495,198.67 was still owed by Shendasheng, for which an amount of RMB2 million was withheld as the special provision for bad debts and an amount of RMB1,299,039.73 was withheld as the provision for bad debts calculated by the age of accounts receivable. Legal efforts are still being made to recover the rest of the arrearage from Shendasheng and its guaranty company Guangzhou Broad Investment Co., Ltd. through the People’s Court of Haifeng County, Guangdong Province. The Company provided another guarantee by offering as security its CD amounting to HK$ 10 million for a loan of RMB10 million to SEG Dasheng from Guangdong Development Bank Luohu Branch. SEG Dasheng put as security its corporate shares of the listed company and its property rights of the fifth floor, Block 2, SEG Industry Building (i.e. five flats of the Modern Window Building) to provide a counter guarantee for the Company. The said security has been disposed by the bank to recover the loan of RMB10 million. Repayment for the above debts was enforced by the court and the related lawsuit has concluded by now. Shenzhen SEG Industrial Investment Co., Ltd. (an investment company, hereinafter referred to as SEG Industrial), of which 91.79% of its shares are held by the Company, received an amount of RMB2 million remitted by the People’s Court of Wujiaqu Cultivate District of Xinjiang Production and Construction Corps by T/T on May 17, 2007 for the enforcement of the lawsuit initiated by SEG Industrial against Shuangxionghui Industrial Co., Ltd. The Company received the civil judgment ordered by the People’s Court of Futian District, Shenzhen City, Guangdong Province for the lawsuit initiated by Zhao Shishun against the Company for the stock transfer agreement disputes. Grounds for the action: Zhao Shishun acquired the equity of Shenzhen SEG Business Machines Co., Ltd., a former subsidiary of the Company, from the auction at Shenzhen International Hi-Tech Property Exchange Center. However, after making full payment for the transaction, the plaintiff (Zhao Shishun) found inconsistencies in the actual and claimed assets of the third party, Shenzhen SEG Business Machines Co., Ltd., and failed to reach an agreement with the defendant (the Company) for disposal of some debts. According to the civil judgment of the first instance, the Company was to pay Zhao Shishun RMB2,164,432.98 and with the respective interest due. The Company appealed the judgment to Shenzhen Intermediate People’s Court on Mar. 16, 2007, who held a court trial for the second instance on Aug. 2, 2007. The Company has not received any judgment as of Dec. 31, 2007. On Apr. 30, 2007, the Company was sued by Zhu Xiaoliang for the stock transfer tort disputes with the object of the lawsuit amounting to RMB480 thousand. The ground of this lawsuit was the same as that of the lawsuit initiated by Zhao Shishun. Zhu Xiaoliang is another transferee of the same transaction. Trial for this lawsuit started on Aug. 3, 2007. The Company has not received any judgment as of Dec. 31, 2007. 130 Due to the proceedings mentioned above, the Company withheld an amount of RMB2,728,268.64 as the predicted liabilities (including the interest) for the related stock transfer agreement disputes. On Jun. 25, 2007, the court trial for the lawsuit filed by the Company against Shenzhen SEG Business Machines Co., Ltd. (defendant 1) and Li Zhongda (defendant 2) for the loan disputes, with the object of the lawsuit amounting to RMB2.84 million, started on Aug. 3, 2007. At present, the lawsuit is in process. 2. Contingent liabilities as a result of the loan guarantees provided by the company for the related parties and other companies as of Dec. 31, 2007 Impacts on the Company’s Guaranteed company Guaranteed amount Debt maturity finance Related party: Shenzhen SEG Storage and Transportation Co., Ltd. RMB10 million Shenzhen SEG Communication Co., Ltd. RMB6.0717 million Total RMB16.0717 million ============== Note: The Company provided joint responsibility guarantees for the loans of its holding subsidiary Shenzhen SEG Storage and Transportation Co., Ltd., covering an amount of RMB10 million. The Company provided project performance guarantees for its holding subsidiary Shenzhen SEG Communication Co., Ltd., covering an amount of RMB6.0717 million. 3. Other contingent liabilities None. IX.COMMITMENTS None. X.MATTERS OCCURRING AFTER THE ISSUE OF THE BALANCE SHEET 1. Profit distribution plan of the company after the issue of the balance sheet The profit distribution plan proposed to the shareholders’ meeting at the 4th session of the 2nd board of directors’ meeting on Apr. 11, 2008 by the Company: The parent company realized the net profit of RMB27,137,924.01, of which 10% (i.e. RMB2,713,792.40) is to be withdrawn as the statutory reserve. The total number of the Company’s shares on Dec. 31, 2007 was 784,799,010. Cash dividends of RMB0.25 (pre-tax) are to be paid for every 10 shares. Thus, the total amount of the cash dividends to be paid will be RMB19,619,975.25 (pre-tax). This proposal will be discussed at the Company’s shareholders’ meeting. 2. Major litigations, arbitration and commitments occurring after the issue of the balance sheet None. 3. Major changes in asset prices, tax policies and foreign exchange rates occurring after the issue of the balance sheet None. 131 4. Significant losses in assets caused by natural disasters occurring after the issue of the balance sheet None. 5. ) Issuance of stocks and bonds and other large liabilities after the issue of the balance sheet None. 6. Capital public reserves conversed to capital after the issue of the balance sheet None. 7. Big Losses after the issue of the balance sheet None. 8. Business combinations or disposal of subsidiaries after the issue of the balance sheet The interim meeting of the 4th session of the board of directors meeting of the Company was convened on Feb. 20, 2008, at which the Proposal for Reform and Share Transfer of Shenzhen SEG Network & Information Co., Ltd. was passed. The Company plans to reform Shenzhen SEG Network & Information Co., Ltd. (hereinafter referred to as SEG Network) by transferring 52.41% of the state-owned shares of SEG Network held by the Company. Upon completion of the share transfer, the Company will hold no shares of SEG Network. The share transfer is a publicly listed transaction and the transferee is still unknown. The transaction is going through relevant procedures in accordance with the regulations on transfer of state-owned shares. 9. Important Adjustment of business strategies to be implemented within one year after the issue of the balance sheet None. 10. Debt Restructurings involving large amounts to be implemented within one year after the issue of the balance sheet None. XI.OTHER MATTERS 1. Matters Related to equity On Jan. 11, 2008, the Company received a notice from the Intermediate People’s Court of Yangjiang City, Guangdong Province. The civil ruling (YZFZ Zi No. 131-11 [2005]) ordered by the court for the lawsuit concerning the controversy over the sales contract between Shenzhen South Fulin Industry Co., Ltd. (the execution applicant) and Guangzhou Fodak Group Co., Ltd. (the executed party and the second largest shareholder of the Company) has taken effect. The following are the contents of the notice of disposal and freeze of the concerned equity: Relieve the freeze of 39,239,951 shares of the restricted stock of *ST SEG (stock code: 000058) held by the executed party Guangzhou Fodak Group Co., Ltd. Extend the freeze of the 90,728,281 shares of the restricted stock of *ST SEG (stock code: 000058) held by the executed party Guangzhou Fodak Group Co., Ltd., along with, the respective bonus shares (the converted share capital and distributed shares included) The freeze period has been extended for another six months running from Jan. 4, 2008 to Jul. 3, 2008. The stocks mentioned above cannot be traded, transferred or disposed in any other way during the freeze period. 132 2. Lease Operating lease Lowest leasing rent for major operation lease: Remaining leasehold Lowest leasing payment Less than 1 year 26,407,107.56 Over 1 - 2 years 22,680,269.71 Over 2 - 3 years 23,836,686.08 Over 3 years 48,167,647.82 Total 121,091,711.17 =============== 3. Overdue loans As of Dec. 31, 2007, among the short-term loans (loans to other entities) to the holding subsidiary of the Company, an amount of RMB1.75 million is overdue. 4. Lawsuits related to former subsidiary Shenzhen SEG Hitachi Color Display Devices Co., Ltd. As of Apr. 2, 2008, Shenzhen SEG Hitachi Color Display Devices Co., Ltd. (hereinafter referred to as SEG Hitachi) was involved in 24 lawsuits with an amount of RMB481.4990 million. In three of the suits the full amounts of RMB177.77 million were recovered by the related plaintiffs from SEG Hitachi. And the respective suits have since been dropped. The following are details of the lawsuits: Litigation Court No. Plaintiff court and legal Amount of the object trial Pre-trial preservation Trial result Remarks writ service (thousand) starting of assets time time Objection to Anyang Anyang Froze the loans jurisdiction was 1 Xinyi Glass Intermediate 1989 amounting to overruled by Anyang Products Court RMB19.89 million Intermediate Court. Company Oct. 8, 2006 SEG Hitachi appealed to Henan Supreme. Judgment: SEG Hitachi shall pay Shenzhen Futian District 16 automobiles, and the RMB3.72 million, and an amount 2 Hongyang Court 372 Aug. 7, flat of 09J, Block A, of RMB22,000 for litigation costs Company Jul. 6, 2007 2007 Modern Window and preservation charges within 10 Building days after the judgement. Overdue payment will incur double interest. Judgment: SEG Hitachi shall pay Zhuhai Futian District RMB2.45 million, and an amount 3 Caizhu Court 245 Aug. 7, Another 16 of RMB16,000 for litigation costs Company Jul. 06, 2007 2007 automobiles and preservation charges within 10 days after the judgment. Overdue payment will incur double interest. Judgment on Aug. 13, 2007: SEG Hitachi shall pay RMB115,830 The basement and and the interest for overdue Kunshan Futian District Aug. 13, first floor of Block C, payment, an amount of around 4 Rainbow Court 11 2007 Building 2, Great Wall RMB1,300 for litigation costs, and Company Jul. 17, 2007 Building an amount of around RMB1,100 for preservation charges within 10 days after the judgment. Overdue payment will incur double interest. Anyang The land and buildings Application for 5 Ancai Intermediate 8524 Aug. 15, on the premise of challenge to trial Hi-Tech Court 2007 SEG Hitachi’s plant jurisdiction was sent on Jul. 9, 2007 Jul. 11, 2007. The flat and the land use rights of No. 1108, Anyang Block C, Building 2, Application for Ancai Intermediate Great Wall Building challenge to trial 6 Hi-Tech Court 5554 07.08.15 (high-rise residential jurisdiction was sent on Jul. 9, 2007 building), ten flats in Jul. 12, 2007. Modern Window Building, and 32 automobiles. 133 Judgment on Oct. 18: an amount of RMB1.1236 million shall be paid for the goods to the plaintiff Dongguan Futian District Aug. 23, within 10 days as of the effective 7 Huatong Court 112 2007 date of the judgment. The other Company Jul. 29, 2007 claims of the plaintiff are overruled. The litigation fees amounting to RMB7400 shall be borne by SEG Hitachi. Judgment on Sep. 27: an amount of RMB988,700 for the goods to Dongguan Futian District Aug. 29, the plaintiff within 10 days as of 8 Fuji Court 98 2007 the effective date of the judgment. Jul. 30, 2007 The litigation fees amounting to RMB6800 shall be borne by SEG Hitachi. Litigation court Amount of Court No. Plaintiff and legal writ the object trial Pre-trial preservation of Trial result Remarks service time (thousand starting assets yuan) time The buildings on the Shenzhen premise of SEG Xianyang Intermediate Sep. 12, Hitachi’s plant, five Court trial has started but no 9 Pianzhuan Court 1465 2007 flats in Xuehong judgment has been received yet. Company Jul. 20, 2007 Garden, and flats in Modern Window Building. Judgment on Sep. 13, 2007: SEG Hitachi shall pay an amount of RMB2.5588 million for the goods. Shanghai Futian District Sep. 13, An amount of RMB15,000 for the 10 Xinzhi Court 290 2007 interest of overdue payment and Aug. 8, 2007 the litigation fees, and an amount of RMB15,500 for the preservation charges shall be borne by SEG Hitachi. Arbitration award on Oct. 8, 2007: Arbitration an amount of RMB112,200 shall 11 Simingcheng Committee 11.2 Sep. 21, be paid for the goods. An amount Aug. 23, 2007 2007 of RMB1,000 for the arbitration fees shall be borne by SEG Hitachi. Shenzhen Judgment on Dec. 21, 2007: the China Intermediate Sep. 26, Sealed up four plaintiff China Merchants Bank, 12 Merchants Court 2011 2007 production lines. Shenzhen Shenfangdasha Bank Aug. 10, 2007 Sub-branch is permitted to withdraw its lawsuit. In-court settlement on Sep. 27: the settlement agreement shall be The debts totaled Shenzhen submitted to the court on Oct. 25. RMB2.20 million has Power Futian District Sep. 27, Confirmation by the court on Oct. been repaid by SEG 13 Supply Court 401 2007 15, 2007: waiver of the penalty for Hitachi, and the Bureau Sep. 3, 2007 breach of contract is agreed. The remaining amount of litigation fees amounting to the debts is RMB1.81 RMB9800 shall be borne by SEG million. Hitachi. Judgment on Sep. 27: an amount of RMB954,100 shall be paid for Beijing Futian District the goods to the plaintiff within 10 14 Chemical Court 95 Sep. 27, days as of the effective date of the Works Sep. 3, 2007 2007 judgment. The other claims of the plaintiff are rejected. The litigation fees amounting to RMB6600 shall be borne by SEG Hitachi. Judgment on Nov. 12: Pay an amount of RMB7.2514 million for Nanjing Futian District the goods and the related interest 15 Halftone Court 725 Oct. 18, to the plaintiff within 10 days as of Works Sep. 25, 2007 2007 the effective date of the judgment. The litigation fees amounting to RMB31,300 shall be borne by SEG Hitachi. Judgment on Dec. 20: an amount Shenzhen of RMB21,045,200 for the goods Dalian Intermediate Oct. 24, to the plaintiff within 10 days as of 16 Daxian Court 2105 2007 the effective date of the judgment. Aug. 27, 2007 The litigation fees amounting to RMB147 thousand shall be borne by SEG Hitachi. 134 Sealed up four production lines, the The writ issued by the Shenzhen buildings on the court for withdrawal of Shenzhen Intermediate Oct. 29, premise of the plant, 10 Court trial is started but no the lawsuit and 17 Commercial Court 13806 2007 flats in Modern judgment is received. relieving of the sealing Bank Jul. 20, 2007 Window Building, and up order was received the shares of SEG on Feb. 28, 2008. Hitachi held by the Company. Sealed up four production lines, the Judgment on Feb. 26, 2008: Pay buildings on the an amount of RMB36.8401 premise of the plant, 10 million for the goods and the Shenzhen flats in Modern related interest to the plaintiff Shanghai Intermediate Nov. 9, Window Building, and within 10 days as of the effective 18 Solectron Court 3691 2007 the shares of SEG date of the judgment. The Aug. 30, 2007 Hitachi held by the litigation fees amounting to Company. Five flats in RMB233.4 thousand and the Great Wall Building, preservation charges amounting to and six flats in RMB5000 shall be borne by the Lianhuayicun defendant. community. Judgment on Nov. 12, 2007: an York amount of RMB146,800 shall be (Shanghai) Futian District Nov. 19, paid for the goods to the plaintiff 19 Freezing Court 14.7 2007 within 10 days as of the effective Equipment Oct. 31, 2007 date of the judgment, as well as Co., Ltd. the interest and litigation fees thus incurred. South Futian District Sealed up a building 20 Logistics Court 650 Nov. 26, (SFD Zi No. Court trial has started but no Company Oct. 23, 2007 2007 3000486428) of the judgment has been received Yet. plant of SEG Hitachi. Chengdu Shenzhen Electronic Intermediate Dec. 12, Court trial has started but no 21 Glass Co., Court 3913 2007 judgment has been received yet. Ltd. Oct. 25, 2007 (Ancheng) Application for Chengdu Longquan challenge to trial 22 Hongbo People’s Court 43 Jan. 16, jurisdiction was sent on Industrial in Chengdu 2008 Dec. 25, and the Co., Ltd. Dec. 21, 2007 lawsuit was referred to Futian Court. Sealed up four production lines, the China Shenzhen buildings on the Judgment on Jan. 9, 2008: the The judgment for Everbright Intermediate Jan. 28, premise of the plant, 10 plaintiff China Everbright Bank withdrawal of the 23 Bank Court 1960 2008 flats in Modern Shenzhen Branch has been lawsuit was received on Shenzhen Dec. 07, 2007 Window Building, and allowed to withdraw its lawsuit. Jan. 21, 2008. Branch the shares of SEG Hitachi held by the Company. Judgment on Feb. 1, 2008: The plaintiff shall pay an amount of Beijing RMB637,100 for the goods within 24 Asani Glass Futian Court District 64 Feb. 1, 10 days as of the effective date of Electronics Dec. 26, 2007 2008 the judgment. The interest and the Co., Ltd. litigation fees thus incurred of RMB5100 shall be borne by the defendant. Total amount of the lawsuits 48,149.90 5. The Company obtains a loan credit line up to rmb150 million from China CITIC Bank by offering the second floor of the SEG plaza building as security to the bank. XII.NON-RECURRING GAINS AND LOSSES IN CURRENT YEAR (“+” FOR GAINS AND “-” FOR LOSSES) Item Amount (I) Gains and losses of non-current asset disposal 92,079,142.61 (II) Tax refund, reduction or exemption upon approval exceeding authorized limits or without formal documents (III) Government subsidies included in current gains and losses 149,716.76 135 (IV) Fund appropriation charges for non-financial entities included in current gains and losses (V) Gains and losses from the negative difference between the merger costs and the fair value of the identifiable net assets of the enterprise being merged (VI)Gains and losses from exchange of non-monetary assets (VII) Gains and losses from entrusted investment (VIII) Provision for assets impairment withheld for Force Majeure (IX) Gains and losses from debt restructurings (X) Expenditures for corporate restructuring, such as expenses for relocation of employees and for integration (XI) Gains and losses from unfairly priced transactions in which the transaction value exceeds its fair value (XII) Net current gains and losses of the subsidiaries in the period from the beginning to the date of the merger under the same control (XIII) Gains and losses from predicted liabilities outside the main business of the Company (XIV) Net value of other non-operating incomes and expenses except the items mentioned above 1,746,788.40 (XV) Other non-recurring gains and losses recognized by China Securities Regulatory Commission (XVI) Amount affected by income tax -10,225,887.36 Total 83,749,760.41 ================ XIII.RETURN ON EQUITY AND EARNINGS PER SHARE Return on equity Earnings per share Profit in report period Basic earnings Diluted earnings Fully diluted Weighted average per share per share Net profit attributable to common shareholders of the Company 4.95 5.06 0.0802 0.0802 Net profit attributable to common shareholders of the Company after deducting the non-recurring losses and gains -1.63 -1.67 -0.0265 -0.0265 1. Calculation Method The data mentioned above is from calculation based on the following formulas: Fully diluted return on equity (ROE) Fully diluted ROE = P ÷ E Here, P is the net profit attributable to common shareholders of the Company or the net profit attributable to common shareholders of the Company after deducting non-recurring gains and losses; E is the year-end net assets attributable to common shareholders of the Company. The “net profit attributable to common shareholders of the Company” does not include the amount of the minority shareholders’ gains and losses. Calculation of the “net profit attributable to common shareholders of the Company after deducting non-recurring gains and losses” is based on the consolidated net profit after deducting the minority shareholders’ gains and losses, with the deduction of the non-recurring gains and losses of the parent company (including the amount affected by income tax) and the deduction of the share of the subsidiaries’ non-recurring gains and losses (including the amount affected by income tax) attributable to the common shareholders of the parent company. The “year-end net assets attributable to common shareholders of the Company” does not include the amount of the minority interest. Weighted average ROE Weighted average ROE = P/(E0 + NP ÷ 2 + Ei × Mi ÷ M0 – Ej × Mj ÷ M0 ± Ek × Mk ÷ M0) Here, P refers to the net profit attributable to common shareholders of the Company or the net profit attributable to common shareholders of the Company after deducting non-recurring gains and losses. NP refers to the net profit attributable to common shareholders of the Company. EO refers to the year-beginning net assets attributable to common shareholders of the Company. Ei refers to the net assets increased because of issuance of new stocks or conversion of debts into stocks in the report period and attributable to common shareholders of the Company. Ej refers to the net assets decreased because of 136 repurchase or distribution of cash dividends in the report period and attributable to common shareholders of the Company. MO refers to the number of the months in the report period. Mi refers to the number of the months in the period from the month following the one when net assets increase to the year-end month of the report period. Mj refers to the number of the months in the period from the month following the one when net assets decrease to the year-end month of the report period. Ek refers to increases or decreases of net assets caused by other transactions or events. Mk refers to the number of the months in the period from the month following the one when net assets increase or decrease to the year-end month of the report period. Basic earnings per share Basic earnings per share = P ÷ S S = S0 + S1 + Si × Mi ÷ M0 – Sj × Mj ÷ M0 - Sk Here, P refers to the net profit attributable to common shareholders of the Company or the net profit attributable to common shareholders of the Company after deducting non-recurring gains and losses. S refers to the weighted average of the common shares issued. SO refers to the total number of the shares at the year-beginning. S1 refers to the number of shares increased because of capitalization of public reserve or distribution of dividends in the report period. Si refers to number of shares increased because of issuance of new stocks or conversion of debts into stocks in the report period. Sj refers to the number of shares decreased because of repurchase in the report period. Sk refers to the number of shares shrunk in the report period. MO refers to the number of the months in the report period. Mi refers to the number of the months in the period from the month following the one when the number of shares increases to the year-end month of the report period. Mj refers to the number of the months in the period from the month following the one when the number of shares decreases to the year-end month of the report period. Diluted earnings per share Diluted earnings per share = [P + (Interests of the diluted latent common shares determined to be expenses – Conversion expenses) × (1 – Income tax rate)]/(S0 + S1 + Si × Mi ÷ M0 – Sj × Mj ÷ M0 – Sk + Weighted average of increased common shares attributed to share warrants, share options and convertible bonds) Here, P refers to the net profit attributable to common shareholders of the Company or the net profit attributable to common shareholders of the Company after deducting non-recurring gains and losses. When calculating the diluted earnings per share, the Company has considered the influence of all diluted latent common shares, so the diluted earnings per share is set at the minimum value. 2. There is no latent common share that cannot be diluted in the current year but may likely be diluted in future periods. 3. There is no significant change in the number of common shares issued or latent common shares of the Company during the period, from the balance sheet date to the date when the financial reports were approved to be issued. XIV.SUPPLEMENTARY INFORMATION 1. Adjustments on differences of consolidated net profit The Company has prepared the adjusted profit statement of the same period of last year and the year-beginning balance sheet of 2007 in accordance with relevant provisions of the Questions and Answers on Standards of the Information Disclosure for Companies Publicly Issuing Securities (No. 7) – Preparation and Disclosure of Comparative Financial Accounting Information During the Transition Period of New and Old Accounting Standards (hereinafter referred to as FAQ for No. 7 Standards). The following are the retroactive adjustments to the profit statement of the same period of last year: Item Amount Net profit in 2006 (former accounting standard) -67,169,248.35 Total amount affected by retroactive adjustments Including: 1 Amount affected by deferred income tax 18,542.48 137 2 Retroactive adjustments to equity gains of SEG Samsung 907,006.78 3 Negative goodwill recorded in profit from acquisition of Weizhibang 230,258.21 4 Others 341,284.78 Net profit in 2006 (new accounting standard) -65,672,156.10 Reference for the assumption of fully implementing the new accounting standard Total amount affected by other items Including: 1 Amount affected by benefits payable 108,039.74 2 3 Net profit in 2006 based on full simulation of new accounting standard -65,564,116.36 2. Adjustments on difference of consolidated shareholders’ equity at the year-beginning of 2007 The following are the adjustments on the year-beginning owners’ equity made by the Company according to the provisions of Accounting Standard for Business Enterprises No. 38 - First time adoption of Accounting Standards for Business Enterprises and Explanations for Accounting Standard for Business Enterprises No.1 (CK No. 14 [2007]), as well as the corrected items, affected amounts and the causes for such adjustments: 138 Disclosure of adjusted statement on difference of shareholders’ equity by new and old accounting standards Amount disclosed in Amount disclosed in No. Items annual report 2007 annual report 2006 Difference Cause Shareholders’ equity as at Dec. 31, 2006 1,220,730,607.17 1,220,730,607.17 (original accounting standard) 1 Difference of long-term equity investment -30,710,586.54 -30,710,586.54 Including: difference of long-term equity investment incurred in business mergers -30,710,586.54 -30,710,586.54 under the same control Credit balance of other long-term equity investment calculated with the equity method Investment properties to be measured in the 2 fair value pattern Depreciation of pervious years to be 3 withheld for the predicted asset disposal expenses Employment termination compensations 4 meeting the requirements for recognizing predicted liabilities 5 Share-based payment Restructuring obligations meeting the 6 requirements for recognizing predicted liabilities 7 Business mergers Including: book value of the goodwill of enterprises involved in business mergers under the same control Devaluation of goodwill withheld according to the new accounting standard Financial assets measured by fair value and 8 with changes included in the current gains 4,891,969.66 4,891,969.66 and losses, and those available for sales Financial liabilities measured by fair value 9 and with changes included in the current gains and losses Equity increased in split-up of financial 10 tools 11 financial }Derivatives 12 Income tax