宁通信Ｂ(200468)2007年年度报告（英文版）

Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report April 2008 Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Important Notice The Board of Directors, the Supervisory Committee, the directors, supervisors and senior management of the Company hereby confirm that there are no factitious record, misleading statements or material omissions in this report, and collectively and individually accept full responsibility for the truthfulness, accuracy and completeness of the whole contents. Eight directors were present at the board meeting, including Mr. Zheng Jianhua, Ms. Fu Ruolin and Mr. Yang Zhen who respectively authorized Mr. Li Tong, Mr. Zhao Xinping and Mr. Yu Hongliang to attend the meeting and vote on his/her behalf due to official business. The Company’s Legal Representative Mr. Zhao Xinping, General Manager Mr. Sun Liang, and Associate Chief Accountant Mr. Shi Lian hereby confirm that the financial report in this report is truthful and complete. This report is prepared both in Chinese and in English. In case of any inconsistency between the two versions, the Chinese version should prevail. I. Company Profile............................................................................................................. 2 II. Financial & Operating Highlights ................................................................................. 2 III. Changes in Share Capital & Shareholders Introduction............................................ 4 IV. Directors, Supervisors, Senior Management & Employees ...................................... 7 V. Corporate Governance Structure ............................................................................... 11 VI. Highlights of Shareholders’ General Meeting ........................................................... 15 VII. Report of the Board of Directors ................................................................................ 15 VIII. Report of Supervisory Committee.............................................................................. 23 IX. Significant Events ........................................................................................................ 25 X. Financial Report ........................................................................................................... 29 XI. Documents for Inspection........................................................................................... 30 -1- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report I. Company Profile 1. Legal Chinese Name of the Company: 南京普天通信股份有限公司 Legal English Name of the Company: Nanjing Putian Telecommunications Co., Ltd. 2. Legal Representative: Mr. Zhao Xinping 3. Secretary of the Board of Directors: Mr. Zhang Shenwei Mailing Address: No. 1 Putian Road, Qinhuai District Nanjing Telephone: 86-25-52418518-2009 Fax: 86-25-52409954 Email Address: zsw@postel.com.cn Securities Affair Representative: Ms. Xiao Hong Mailing Address: No. 1 Putian Road, Qinhuai District Nanjing Telephone: 86-25-52418518-2072 Facsimile: 86-25-52409954 Email Address: xiaohong@postel.com.cn 4. Registered Address: No. 58 Qinhuai Road, Jiangning Economics and Technology Development Zone, Nanjing, Jiangsu Province PRC Postal Code: 211100 Business Address: No. 1 Putian Road, Qinhuai District Nanjing Postal Code: 210012 Web Site: www.postel.com.cn Email Address: securities@postel.com.cn 5. Appointed Newspaper for Company Information Disclosure: Securities Times & Hong Kong Wen Wei Po Appointed Web Site for Annual Report Publication: www.cninfo.com.cn Annual Report Prepared At: Financial & Securities Department 6. Listing and Trading Place of Company stock: Shenzhen Stock Exchange Stock Abbreviation: NJ TEL Stock Code: 200468 7. Latest Registration Date: 27 June, 2006 Registered At: Jiangsu Administration for Industry and Commerce Legal Person Operating License Qi Gu Su Zong Zi No. 000225 Registration Code: Taxation Registration Code: 320121134878054 Organization Code: 13487805-4 Appointed Public Accounting Firm: Shulun Pan Certified Public Accountants Co., Ltd. Business Address: 61 Nanjing Dong Road, Shanghai II.Financial & Operating Highlights 1. Financial data for 2007(RMB Yuan) Operating profit -96,291,625.38 Gross profit 13,951,785.88 Net profit attributable to the shareholders of the listed company 3,936,869.94 -2- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Net profit attributable to the shareholders of the listed company after deducting non-recurrent profits/losses -107,842,636.46 Net cash generated from operating activities 134,692,646.13 Note I: Details of the deducted non-recurrent profits/losses: Item Amount 1. Profit and loss of non-current assets disposal 105,915,381.82 2. Tax refund and exemption without authorized approval or formal approval document 400,000.00 3. Government subsidy recorded into profit and loss of current period 868,237.00 4. Profit and loss of debt restructure -265,991.35 5. Reverse of beginning balance of welfare payable 1,964,649.15 6. Net amount of other non-operating profit and expenses excluding items above 3,325,783.79 7. Influenced amount of minority interest -92,943.48 8. Influenced amount of income tax -335,610.53 Total 111,779,506.40 Note II: Discrepancy between CAS and IFRS The 2007 annual financial report was not audited under IFRS. 2. Main accounting data and financial indexes for and the recent 3 years(RMB Yuan) (1) Main accounting data 2007 2006 Change(%) 2005 After Before Before adjustment After adjustment After adjustment adjustment adjustment Operating 793,026,577.1 974,329,991.52 1,025,868,770.75 990,564,040.32 -1.64% 762,242,086.63 income 8 Gross profit 13,951,785.88 -1,851,795.04 -2,499,164.41 658.26% 10,729,738.68 10,309,836.54 Net profit attributable to the shareholders 3,936,869.94 4,118,123.31 -24,290,696.88 116.21% 6,303,423.69 6,303,423.69 of the listed company Net profit attributable to the shareholders of the listed -107,842,636.46 -1,847,782.72 -30,256,602.91 -256.43% -49,854,434.00 -49,854,434.00 company after deducting non-recurrent profits/losses Net cash generated from 134,692,646.13 -17,049,329.81 -23,571,497.29 671.11% 31,245,818.00 29,160,975.64 operating activities Change over At year-end 2007 At year-end 2006 At year-end 2005 year-end( %) After Before Before adjustment After adjustment After adjustment adjustment adjustment 1,063,182,169. 1,052,671,421.5 Total assets 1,154,943,713.09 1,132,450,789.10 1,120,584,047.40 3.07% 19 9 Owner’s equity( or 341,275,094.0 320,385,899.25 316,210,729.68 317,139,006.28 1.02% 342,321,932.28 shareholder’s 2 equity) -3- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report (2) Main financial indexes Change 2007 2006 over 2005 2006(%) After Before Before adjustment After adjustment After adjustment adjustment adjustment Basic earnings 0.02 0.02 -0.11 118.18% 0.03 0.03 per share Diluted earnings 0.02 0.02 -0.11 118.18% 0.03 0.03 per share Earnings per share after deducting -0.50 -0.01 -0.14 -257.14% -0.23 -0.23 non-recurrent profits/losses Fully-diluted 1.23% 1.30% -7.66% 8.89% 1.85% 1.84% ROE Weighted 1.23% 1.20% -7.38% 8.61% 1.85% 1.86% average ROE Fully-diluted ROE after deducting -33.66% -0.58% -9.54% -24.12% -14.61% -14.56% non-recurrent profits/losses Weighted average ROE after deducting -33.80% -0.54% -9.19% -24.61% -14.63% -14.70% non-recurrent profits/losses Net cash per share generated 0.63 -0.08 -0.11 672.73% 0.15 0.14 from operating activities Change over At year-end 2007 At year-end 2006 At year-end 2005 year-end 2006(%) After Before Before adjustment After adjustment After adjustment adjustment adjustment Net assets per share attributable to 1.49 1.47 1.48 0.68% 1.59 1.59 shareholders of the listed company III. Changes in Share Capital & Shareholders Introduction 1. Changes in Share Capital (1)Change of the Company’s shares Increase/decre Year-beginning ase During the Year-end Year Number Proportion Number Proportion I. Non-tradable shares 115,000,000 53.49% 115,000,000 53.49% 1.Promoter shares 115,000,000 53.49% 115,000,000 53.49% Including: -4- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report State-owned shares 115,000,000 53.49% 115,000,000 53.49% Domestic legal person shares Foreign legal person shares Other 2.Placement legal person shares 3.Employee’s shares 4.Preference shares and other II. Listed shares 100,000,000 46.51% 100,000,000 46.51% 1.RMB ordinary shares 2.Domestically-listed shares in 100,000,000 46.51% 100,000,000 46.51% foreign currency 3.Overseas listed foreign shares 4.Other III. Total number of shares 215,000,000 100% 215,000,000 100% (2)Share issuing and listing in the last three years The Company did not issue shares in the last three years ended by 2007. 2. Shareholders introduction Total number of shareholders 15305 Top ten shareholders Non-tradable Number of Shareholder’s Type of Proportion in Shareholding shares held by mortgaged or name shareholder share capital the shareholder frozen shares China Potevio State-owned Company 53.49% 115,000,000 115,000,000 0 legal person Limited Overseas natural Chan Keung 0.59% 1,281,700 0 Unknown person Domestic natural Jiang Xiaoming 0.32% 583,800 0 Unknown person Domestic natural Wang Feifei 0.30% 568,008 0 Unknown person Domestic natural Su Quanwo 0.19% 531,286 0 Unknown person Domestic natural Li Meifang 0.19% 530,300 0 Unknown person Overseas natural Shen Guo 0.18% 503,665 0 Unknown person Domestic natural Huang Kuiying 0.16% 422,424 0 Unknown person Domestic natural Chen Chaofan 0.16% 416,979 0 Unknown person Domestic natural Guo Mingbiao 0.15% 390,500 0 Unknown person Top ten shareholders of tradable shares Shareholder’s name Number of tradable shares Share type Chan Keung 1,281,700 B share Jiang Xiaoming 583,800 B share Wang Feifei 568,008 B share Su Quanwo 531,286 B share -5- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Li Meifang 530,300 B share Shen Guo 503,665 B share Huang Kuiying 422,424 B share Chen Chaofan 416,979 B share Guo Mingbiao 390,500 B share KGI Asia Limited 374,383 B share Among the top ten shareholders, China Potevio Company Limited is neither a Specification of related parties related party nor a person acting in concert with the others. It’s unknown by or persons acting in concert the Company whether there are related parties or persons acting in concert among the above-mentioned among the other shareholders. shareholders The Company does not know whether there are related parities or persons acting in concert among the top ten holders of tradable shares. 3. Introduction of the Company’s controlling shareholder and effective controller: Name of the controlling shareholder: China Potevio Company Limited Company type: a company limited by shares Legal representative: Xing Wei Date of corporation: July 23, 2003 Registered capital: RMB 1.9 billion Principal business: to develop, manufacture, sell and provide services for mobile telecommunications system and terminals, Internet communication equipment and terminals, radio and TV equipment and terminals, computers, software, system integration, optical cable, postal equipment and related spare and parts; to contract domestic and overseas projects, to undertaken project planning, designing and inspection; to produce, sell and maintain mechanical and electrical products, mechanical devices, instruments, meters and related spare and parts; to engage in industry investment; to provide technology transfer, consultancy and services; import and export. Name of the Company’s effective controller: China Putian Corporation Company type: state-owned sole enterprise Legal representative: Xing Wei Registered capital: RMB 1093.37 million Date of corporation: 1980 Business scope: to organize its subsidiaries to develop and manufacture various communications equipment such as large-scale digital program-controlled switchboard, GSM and CDMA mobile telecommunication equipment and mobile phone, IP serial products, micro-wave telecommunication equipment, optical telecommunication equipment, optical and electric telecommunication cable, communication power supply, distribution equipment, IC phone, multi-media computer terminal, fax machine, postal mechanic and so on; engage in contract for international and domestic telecommunication project, engage in technical and economic business such as cooperation, technology introduction, import and export of relevant products. The following diagram illustrates the ownership and controlling relationship between the Company and its effective controller: -6- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report State-owned Assets Supervision and Administration Commission of the State Council 100% China Putian Corporation 100% China Potevio Company Limited 53.49% Nanjing Putian Telecommunications Co., Ltd. IV. Directors, Supervisors, Senior Management & Employees 1. Directors, supervisors and senior management (1) Changes of shareholding by the directors, supervisors and senior management and the remuneration of the directors, supervisors and senior management Incentive stock option vested Whether during the reporting period Receive Shareh Shareh Reaso Remunerati Numbe Market Remunera Beginning expiration olding olding n of on received r of Numbe price of tion from a Name Position Sex Age date of date of at at the from the shares r of Exerci stock sharehold office term office term year-be year-en chang Company(in availabl shares se at er or other ginning d e RMB’000) e to be exercis price year-en related-par exercis ed d ties ed Zhao Chairman of Male 41 May 2006 May 2009 0 0 - 0 0 0 0.00 0.00 Yes Xinping the BOD Vice chairman of Sun Liang the BOD, Male 43 May 2006 May 2009 0 0 - 269 0 0 0.00 0.00 No General Manager Zheng Director Male 35 May 2006 May 2009 0 0 - 0 0 0 0.00 0.00 Yes Jianhua Li Tong Director Male 37 May 2006 May 2009 0 0 - 0 0 0 0.00 0.00 Yes Femal Fu Ruolin Director 37 May 2006 May 2009 0 0 - 0 0 0 0.00 0.00 Yes e Yang Independent Male 46 May 2006 May 2009 0 0 - 50 0 0 0.00 0.00 No Zhen Director Yu Independent Male 53 May 2006 May 2009 0 0 - 50 0 0 0.00 0.00 No Hongliang Director Independent Shi Jiguo Male 53 May 2006 May 2009 0 0 - 50 0 0 0.00 0.00 No Director Chairman of Liu the Femal 58 Dec. 2007 May 2009 0 0 - 0 0 0 0.00 0.00 Yes Shuping Supervisory e Committee Xiong Supervisor Male 45 May 2006 May 2009 0 0 - 0 0 0 0.00 0.00 Yes Weihua Shi Supervisor Male 57 May 2006 May 2009 0 0 - 159 0 0 0.00 0.00 No Xinhua Zou Deputy Dengzhon General Male 47 May 2006 May 2009 0 0 - 180 0 0 0.00 0.00 No g Manager Deputy Jiang General Male 45 May 2006 May 2009 0 0 - 157 0 0 0.00 0.00 No Hanbin Manager -7- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Deputy Sun General Male 50 May 2006 May 2009 0 0 - 157 0 0 0.00 0.00 No Qiang Manager Deputy Yuan General Male 44 May 2006 May 2009 0 0 - 174 0 0 0.00 0.00 No Yong Manager Zhang Secretary of Male 32 Nov. 2007 May 2009 0 0 - 79 0 0 0.00 0.00 No Shenwei the BOD Total - - - - - 0 0 - 1,325 0 0 - - - 2、Procedure of decision-making on the annual remuneration of the directors, supervisors and senior management, and the basis on which such decisions are made. Directors and supervisors are not paid remuneration by the Company. Those who concurrently take administrative posts in the Company receive salary according to their administrative posts. Remuneration of members of the senior management is decided by the BOD, who assess the performance of the management and pay remuneration to them pursuant to Remuneration Scheme and Assessment Measures for the Senior Management passed by the board. The Company pay allowance to the independent directors according to the decision of shareholders general meeting. (3) Major work experience of the directors, supervisors and senior management Directors: Mr. Zhao Xinping, aged 41, a postgraduate. He began to work in 1989, and served successively as manager of Investment Management Department, manager of Operation and Finance Department, associate chief accountant(concurrently), assistant to general manager of China Putian Corporation, financial supervisor of China Potevio Company Limited(concurrently), chief accountant of China Putian Corporation during September 1999 - November 2006. He has been serving as secretary of the BOD and manager of Purchase Center of China Potevio Company Limited since March 2006. During March 2006 - May 2006 he served as a member of the Third BOD of the Company. Since May 2006, he has been serving as chairman of the Fourth BOD of the Company. Mr. Sun Liang, aged 43, a university graduate, began to work in 1986, and served successively as assistant to general manager, deputy general manager, and executive deputy general manager of Shanghai Posts and Telecommunications Co., Ltd. during September 1995 - January 2005. He has been serving as general manager of the Company since January 2005, and was a member of the Third BOD during June 2005 to May 2006. Since May 2006, he has been serving as vice chairman of the Fourth BOD. Mr. Zheng Jianhua, aged 35, a university graduate, began to work in 1994, serves as supervisor of President Office of China Putian Corporation since November 2001. He was elected into the Fourth BOD of the Company in May 2006. Mr. Li Tong, aged 37, began to work in 1993, and served successively as the head of Operation Plan Division and vice manager of Enterprise Management Department, deputy supervisor of Enterprise Reorganization Office and vice manager of Enterprise Development Department of China Putian Corporation during September 1999 to November 2005. During November 2005 to November 2007 he served as vice manager of Enterprise Development Department and concurrently supervisor of No. 1 Operation Division under the department of China Potevio Company Limited. Since November 2007 he has been serving as general manager of Nanjing Potevio Telecommunication Technology Industry Park Co., Ltd. He was elected into the Fourth BOD of the Company in May 2006. Ms. Fu Ruolin, aged 37, a postgraduate, began to work in 1992. She successively served as assistant to manager of Financial Department, supervisor of Financial -8- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Management Office and vice manager Financial Department of China Putian Corporation during July 1999 - April 2005. She has been serving as vice manager of Financial Department of China Potevio Company Limited since April 2005. She was elected into the Fourth BOD of the Company in May 2006. Independent Directors: Mr. Yang Zhen, aged 46, Ph.D., began to work in 1983. He serves as president of Nanjing University of Posts & Telecommunications. He used to serve as an independent director in the Third BOD of the Company during June 2003 -May 2006, and was elected into the Fourth BOD of the Company as independent director in May 2006. Mr. Yu Hongliang, aged 53, a university graduate, CPA, began to work in 1971, and now serves as professor in Nanjing Audit University. He used to serve as independent director of the Third BOD of the Company and was elected into the Fourth BOD as independent director in May 2006. Mr. Shi Jiguo, aged 53, a postgraduate, began to work in 1997, serves as dean of Network Center of Xuzhou TV Station. He was elected into the Fourth BOD of the Company as independent director in May 2006. Supervisors Ms. Liu Shuping, aged 58, a college graduate, began to work in 1969. She served successively as Party branch secretary of Standardization Office of Institute of Post and Telecom Industry Standard, vice supervisor of Administration Office, director of Human Resources Department of PTIC, general manager of Human Resources Department of China Putian Corporation. She currently serves as head of Discipline Inspection Group, chairman of labor union, Party branch secretary and chairman of supervisory committee of China Potevio Company Limited. She was elected as chairman of the supervisory Committee of the Company in December 2007. Mr. Xiong Weihua, aged 45, a college graduate, began to work in 1982. He served successively as a supervisor, vice chief and chief of Auditing Office of China Putian Corporation during August 1995 -April 2006, as senior supervisor of Party-mass Relation Department of China Potevio Company Limited since April 2006. He was elected into the Fourth Supervisory Committee of the Company in May 2006. Mr. Shi Xinhua, aged 57, a university graduate, joined the Company in 1994. He served successively as deputy secretary of the Party Committee, an employee supervisor and concurrently chairman of labor union. Since May 2006 he has been serving as supervisor in the Fourth Supervisory Committee and concurrently chairman of labor union of the Company. Senior management: Mr. Sun Liang: see Directors Mr. Zou Dezhong, aged 47, a university graduate, began to work in 1979. He used to hold the post of associate chief engineer, chief engineer of Wireless Department and assistant to general manager of the Company, and has been serving as deputy genera manager of the Company since August 2002. Mr. Jiang Hanbin, aged 45, a university graduate, began to work in 1983. He used to hold the post of manager of Wiring Department and assistant to general manager of the Company and has been serving as deputy general manager of the Company since December 1998. Mr. Sun Qiang, aged 50, a university graduate, began to work in 1978. He used to hold the post of vice secretary of Party Committee, supervisor, and chairman of labor union. He has been serving as deputy general manager of the Company since May 2002. Mr. Yuan Yong, aged 44, began to work in 1984. He used to hold the post of manager of Wireless Department and assistant to general manager of the Company, and -9- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report has been serving as deputy general manager since August 2002. Mr. Zhang Shenwei, aged 32, a university graduate, started to work in 1999. He used to serve as deputy head of Financial and Securities Department of the Company and head of President Office since May 2006. During May 2006 to November 2007 he served as securities affair representative. Since May 2006 he has been serving as secretary of Fourth BOD. Note: Three directors, including Mr. Zhao Xinping, Mr. Zheng Jianhua and Ms. Fu Ruolin, and two supervisors, including Ms. Liu Shuping and Mr. Xiong Weihua, are working for the Company’s shareholder, China Putian Corporation and China Potevio Company Limited. See the introduction of their work experience for details. (4) Appointment and resignation of the directors, supervisors and senior management in the reporting period ① Pursuant to the resolution of the Sixth Meeting of the Fourth BOD on 20 March 2007, Mr. Sun Liang was appointed as general manager of the Company, Mr. Xiao Zhaokai was appointed as secretary of the Fourth BOD. Mr. Zou Dezhong, Mr. Jiang Hanbin, Mr. Sunqiang and Mr. Yuan Yong were appointed as deputy general manager of the Company. Mr. Jiang Haishan, Mr. Liu Chuanxi and Mr. Xiao Zhaokai left the post of deputy general manager. ② Mr. Wang Zhiqi resigned as supervisor and chairman of the supervisory committee due to job transfer in April 2007. ③Mr. Jiang Haishan was elected into the Fourth Supervisory Committee by the 2006 shareholders general meeting on 21 May 2007. On the same day he was elected as chairman of the committee at the Sixth Meeting of the Fourth Supervisory Committee. ④ Mr. Jiang Haishan resigned as supervisor and chairman of the supervisory committee due to job transfer in November 2007. ⑤ Ms. Liu Shuping was elected into the Fourth Supervisory Committee by the Second Extempore Shareholders General Meeting of 2007 on 20 December 2007. And she was elected as chairman of the supervisory committee by the Tenth Meeting of the Fourth Supervisory Committee on 20 December 2007. ⑥ Mr. Zhou Desheng resigned as director due to job transfer in November 2007. ⑦ As approved by the Seventeenth Meeting of the Fourth BOD on 30 November 2007, Mr. Xiao Zhaokai left the post of secretary of the BOD, and Mr. Zhang Shenwei was appointed secretary of the Fourth BOD. 2. Employees of the Company At the end of 2007, the Company had 1,415 employees. A breakdown by job duties of the employees is as follows: Technology 255 Production 443 Sales 346 Services 132 Administration 189 Purchasing and storage 50 A breakdown by educational level is as follows: University degree and above 338 Technical secondary school 102 College 485 High school and below 490 The Company should bear expenses for 531 retired employees. -10- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report V. Corporate Governance Structure 1. Present status of the Company’s governance The Company made unswerving efforts in optimizing legal person governance structure in accordance with the PRC Company Law, Securities Law and relevant requirements of CSRC on corporate governance structure of listed companies. In the reporting period, pursuant to Notice on the Matters concerning Carrying out a Special Campaign to Strengthen the Corporate Governance of Listed Companies issued by CSRC and arrangement of CSRC Jiangsu Office and Shenzhen Stock Exchange, we carried out a special campaign to strengthen corporate governance. We thoroughly examined the actual situation of our corporate governance to find the weakness in legal person governance and internal control system against the Company Law, the Securities Law and relevant laws and rules. We built a special web platform to collect suggestions and questions from the investors. The CSRC Jiangsu Office carried out a field inspected in the Company and proposed ratification suggestions. According to our self-inspection result and suggestions of the office, we worked out specific ratification measures and made practical ratification in the second half of the year, mainly on the following aspects. First, we improved our internal control system. We made necessary revisions to a lot of rules, such as the Articles of Association, Rules on Shareholders General Meeting, Rules on Providing Guaranty, Rules on Information Disclosure according to the latest laws and regulations, and formulated a series of new internal control rules such as Administration of Proceeds, Administration of Secretary of the BOD and Rules on Investment, which improved our internal control mechanism. Second, we improved some weakness in standard operations. According to the suggestions of the CSRC Jiangsu Office, the board of directors organized the directors, supervisors and senior management to study the laws and regulations, and urged them to strictly perform their duties according to the Articles of Association, requiring the special committees subordinate to BOD to work according to the Detailed Work Rules of each committee. And we also standardized the form of Letter of Proxy for directors and supervisors, and the contents of minutes of the meetings, enhancing our level of standard operations. 2. Independent directors’ working performance In the reporting period, the independent directors carefully performed their duties and responsibilities granted by the laws and Articles of Association of the Company. They took part in all the board meetings held in the period, actively inquiring the conditions of the Company and carefully considering the proposals at the board meetings. They presented independent opinions on significant issues as required by the laws and rules, and also proposed lots of reasonable advice on the Company’s operation, playing a positive role in promoting the sound and steady development of the Company. In the period they did not raise objections to any proposals of the BOD. (1) Independent directors’ attendance at the board meetings during the reporting period: -11- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Number of Attendance in Attendance by Name Absence board meetings person proxy Yan Zhen 14 14 0 0 Yu Hongliang 14 14 0 0 Shi Jiguo 14 14 0 0 3. The Company’s separation from the controlling shareholder in five aspects (1) Business: The Company operates independently with integrated production, supply and sales systems, not relying on the controlling shareholder. (2) Personnel: The Company owns an independent labor system. All members of the senior management receive remuneration from the Company. None of them took important posts in the controlling shareholder’s company. (3) Assets: The Company’s assets are clearly separated from the controlling shareholder, subject to no impropriation or control by the controlling shareholder. (4) Organization: The Company has a complete and independent internal organization. All of the branches, including the Board of Directors and Supervisory Committee, can perform their duties independently. (5) Finance: The Company has established an independent financial department and accounting system. The controlling shareholder did not interfere the financial activities of the Company. 4. Self-appraisal on internal control system (1) Summary The Company has made continuous efforts to strengthen internal control system construction ever since its IPO in stock market. Particularly in the reporting period, with the special campaign on corporate governance, we conducted a thorough self-check and amendment of internal control rules, which further optimized the internal control system of the Company. At present, a sound internal control system has been established. The Company set a special internal audit department, Audit & Supervision Department, which performs internal audit independently. The department supervises and audits the economic activities, the receipt and payment, the economic efficiency of both the Company and the affiliated enterprises. It supervises the observance of internal rules, promoting the company to operate under standard rules. It makes appraisal on the efficiency, management level and internal control system, and proposes suggestions and measures to help the audited entity to establish and improve management system and enhance operating results. At present, the staff of the department include one manager and three full-time auditors. (2) Control in key areas ① Control on the subsidiaries Proportion of ownership interest of subsidiaries is as follows: -12- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Nanjing Nanfang Telecommunications 97% Company Limited Nanjing Bada Telecommunications Co., Ltd. 3% 60.00% 1% Nanjing Putian Telecommunications Co., Ltd. Nanjing Putian Information Technology Nanjing Putian Telecommunication 99% Company Ltd. 99% Technology Company Ltd. Nanjing Putian Intelligent Building Ltd. 41.3505% 90% Putian Telecommunications (H.K.) Co., Ltd. Beijing Picom Telecommunications 51% Equipment Ltd. Nanjing Putian Hongyan Electric Appliance Nanjing Putian Hongyan Electric 51.2% Company 90% Appliance Department Company Nanjing Putian Network Company Ltd. 92.16% Nanjing Postel Wongzhi No. 7 Branch of Nanjing 67% Telecommunications Co., Ltd. 100% Telecommunication Equipment Factory Nanjing Putian Changle Telecommunications 50.70% Equipment Co., Ltd. The Company applies multi-level management on the subsidiaries. By appointing directors, supervisor and senior management to the BOD and supervisory committee of the subsidiaries, and Company can exert control and supervision on the important operating decisions of the subsidiaries. The functional departments provide professional directions to the subsidiaries. The subsidiaries should abide by the rules and regulations formulated by the Company, implement financial budget and be assessed by the Company. ② Control on related-party transactions. The Company formulated Rules on Related-party Transactions, which specified explicit regulations on the approval and disclosure procedures of related-party transactions. The related-party transactions that meet certain standards should not be executed before approved by the board of directors or shareholders general meeting. Affiliated directors or shareholders should avoid voting when considering the related-party transactions. The independent directors should present independent opinions on the transactions. The Company performs the duty of information disclosure according to the regulation of Shenzhen Stock Exchange, so as to ensure the fairness, justness and openness of the related-party transactions. ③ Control on guaranty providing. The Company formulated Rules on Guaranty Providing according to the requirement of CSRC on listed companies’ guaranty providing, and specified strict regulations on the limits of power and procedure of approval in Articles of Association and Rules on Guaranty Providing, stipulating that all guaranty provided by the Company should be approved by the board of directors, and those exceeding the power of the BOD should be submitted to the shareholders general meeting. In order to further control financial risks, the Company only provided guarantee for the subsidiaries in principle. In the reporting period there were no acts that violated -13- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report the laws, regulations and rules when the Company provided guaranty. ④ Control on use of proceeds. The Company did not refinance in stock market after initial public offerings. In the reporting period, the Company formulated Rules on Proceeds pursuant to the requirement of CSRC and Shenzhen Stock Exchange, which standardized the storage, use, and supervisory of proceeds from share issuing and provided protection for the security and efficient use of the proceeds. ⑤ Control on significant investment. The Company specified the jurisdictions of the board of directors and shareholders general meeting to approve investment in the Articles of Association, and formulated Rules on Investment, which specified detailed regulations on the principle of investment, the procedure of decision-making, the implementation, supervision and risk control on investment. In practice, the Company strictly went through approval procedures in making investment according to relevant requirement of the laws, regulations and Rules on Investment. ⑥Control on information disclosure. The Company formulated Rules on Information Disclosure according to Administrative Measures for the Disclosure of Information of Listed Companies promulgated by CSRC and Rules Governing Listing of Stocks on Shenzhen Stock Exchange, specifying detailed regulations on such matters as the scope and standard of matters to be disclosed, persons to be responsible for the work, and procedure of information disclosure, in order to ensure the information disclosure work to be done smoothly and enhance the transparency of the Company. (3) General appraisal The Company has established a reasonable internal control system according to its characteristics, which can satisfy the need of corporate management, and is effectively implemented in practice. It ensured the healthy operation of production and managerial activities. With the demand of company development and the deepening of the laws and regulations in China, the Company will further improve its internal control system in the future. 5. Opinion of the independent directors on the Company’s self-appraisal on internal control The internal control system currently adopted by the Company is conformity with the requirement of relevant laws, regulations and supervisory departments. The internal control system covers all the links of production and operation. Control on such key areas as subsidiaries, related-party transactions, guaranty providing, material investment and information disclosure is strict, effective, legitimate and reasonable. The self-appraisal report of internal control made the Company tallies with the actual situation of the Company. 6. Opinion of the supervisory committee on the Company’s self-appraisal of internal control The Company has established an internal control system that covers all aspects according to relevant regulations of CSRC and Shenzhen Stock Exchange. The internal control structure is complete. Implementation and supervision of the internal control rules is sufficient and effective. In the reporting period, we did not find any acts of the Company that violated the Guidelines of Shenzhen Stock Exchange for the Internal Control of Listed Companies. The supervisory committee believe that the self-appraisal on internal control reflects the actual situation of the Company’s internal control. 7. Establishment and implementation of appraisal and incentive system for the senior management In the reporting period, the board of directors appraised and rewarded the senior management according to their performance in fulfilling the annual operating goal and -14- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report managerial goal pursuant to the Remuneration Scheme and Measures on Assessment for Senior Management. VI. Highlights of Shareholders’ General Meeting Three shareholders’ general meetings were held in the reporting period. I. On 21 May 2007, the Company held the 2006 Shareholders’ General Meeting. The announcement concerning the resolutions of the meeting was published on Securities Times and Hong Kong Ta Kung Pao on 22 May 2007. II. On 6 September 2007, the Company held the First Extempore Shareholders’ General Meeting of 2007. The announcement concerning the resolutions of the meeting was published on Securities Times and Hong Kong Wen Wei Po on 7 September 2007. III. On 20 December 2007, the Company held the Second Extempore Shareholders’ General Meeting of 2007. The announcement concerning the resolutions of the meeting was published on Securities Times and Hong Kong Wen Wei Po on 21 December 2007. VII.Report of the Board of Directors I. Review of operations during the reporting period 1. Discussion and analysis of the overall operating condition of the Company during the reporting period In the reporting period, we continued to intensify market development, technology innovation and refined management. Meanwhile, we promoted industry restructuring and resource allocation. Seizing the opportunity that the local government was strongly promoting the development of industrial zones, we cooperated with China Potevio to set up a joint venture, Nanjing Potevio Telecommunication Technology Industry Park Co., Ltd., investing with land and building property. We invested in Yulong Biotech, entering the field of biochip test equipment. We promoted cooperation with Germany Mennekes Electrical Products by increasing the capital of our joint venture, building the joint venture into an Asia-pacific production center, laying a foundation for us to keep the leading position in electric industry. We transferred the equity of Nanjing Hongyan by public bidding, preparing to retreat from the civil electric industry. We conducted the work on the reorganization of Nanjing Putian Telecommunication Technology Company Ltd. and New Business Development Department, transferring the business related to intelligent public transportation products from the New Business Department to the company. By making breakthrough in emerging industry and effective capital operation, we improved the industrial pattern of the Company. And by deepening reforms and refined management, the comprehensive competitiveness of the Company was enhanced. Under the efforts of the whole staff, we accomplished the objective set in the budget, realizing revenue of 974 million Yuan and net profit of 3.936 million Yuan. Detailed financial indexes is as follows: -15- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report 2007 2006 Change(Yuan) Change（%） Operating income 974,329,991.52 990,564,040.32 -16,234,048.80 -1.64% Operating profit -96,291,625.38 -4,805,758.72 -91,485,866.66 -1903.67% Net profit attributable 3,936,869.94 -24,290,696.88 28,227,566.82 116.21% to shareholders of the listed company Business income dropped slightly, which was mainly caused by the decrease of sales volume of set-top box and the reduction of selling prices of some telecommunication products. The main reasons of the slump of business profits are: (1) Prices of raw material such as bronze, aluminum and wire cables rose. (2) Market competition was turning white-hot. Telecommunication operators adopted centralized procurement and reverse action, causing the selling prices of our products and profit margin dropped significantly. (3) The year of 2007 is a period of industrial transformation for the Company. According to change of market demand, we decided to retreat from the wireless industry and sold some inventories by way of bidding, which deducted profit for the current period. Growth of net profit mainly came from non-operating income, which was generated from the appreciation of land property evaluation as the Company invested in Nanjing Potevio Telecommunication Technology Industry Park Co., Ltd. with land property in the reporting period. 2. Operating condition of main business (1) Industry and products which account for more than 10 percent of the company’s main business( RMB’000) A breakdown of main business by industry Year-on-year Year-on-year Year-on-year A breakdown by Gross margin increase/decre Revenue Cost increase/decrease increase/decrease industry or product （%） ase of gross of revenue（%） of cost（%） margin（%） Telecommunicati 849,361 760,207 10.50% -2.38% 8.49% -8.97% ons industry Electric 86,975 72,877 16.21% 0.44% 1.13% -0.57% appliances A breakdown of main business by product Distribution frame and related 223,430 176,577 20.97% -11.75% -1.53% -8.20% products PDS and data transmission 458,010 377,130 17.66% 37.53% 45.51% -4.52% products Plugs and receptacles for 86,975 72,877 16.21% 0.44% 1.13% -0.57% civilian use Other 167,920 206,500 -22.97% -40.85% -21.26% -30.59% (2) A breakdown of main business by region( RMB’000) Region Revenue Year-on-year increase/decrease of revenue (%) North China 270,662 22.16% East China 317,117 -4.44% Other regions 348,557 -13.56% 3. Major suppliers and customers In 2007, the Company’s purchase from the top five suppliers amounted to RMB 381.98 million Yuan, accounting for about 41.12 percent of the total purchase, and sales to the -16- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report top five customers amounted to RMB 117.78 million Yuan, accounting for about 12.09 percent of the total revenue. 4. Composition of assets in the reporting period Year-end 2007 Year-end 2006 Change of the Main factors that Proportion Proportion proportion(by cause a material Amount in the total Amount in the total percentage change assets assets points) Total assets 1,154,943,713.09 100.00% 1,120,584,047.40 100.00% 0.00 - Accounts 321,963,622.38 27.88% 369,296,157.25 32.96% -5.08 The company receivable strengthened work on capital backflow and assessment on clearing-up of back payments. The amount of account receivable decreased. Inventories 165,661,233.35 14.34% 198,864,222.64 17.75% -3.40 - Property 5,678,568.25 0.49% 5,923,660.81 0.53% -0.04 - investment Long-term 214,759,591.64 18.59% 18,851,034.25 1.68% 16.91 Investing in share equity Nanjing Putian investment Telecommunication Technology Industry Park Co., Ltd. and Shanghai Yulong Biotech Ltd. Fixed assets 68,049,573.06 5.89% 107,223,287.69 9.57% -3.68 The Company made contribution to the Industry Park Company in land property Construction 6,937,748.78 0.60% 1,586,468.01 0.14% 0.46 - in progress Short-term 404,000,000.00 34.98% 438,900,000.00 39.17% -4.19 - borrowings Long-term 0 0.00% 0 0.00% 0.00 - borrowings Note: In calculating the accounting factors, the Company adopts the historical cost method; in case the determined accounting factor amount can be obtained or reliably calculated, the replacement cost, net realizable value, current value or fair value of the individual accounting factor may be adopted. 5. Changes of expenses in the reporting period 2007 2006 Change(Yuan) Change( Main factors that cause a %) material change Sales expenses 77,386,162.32 67,916,721.48 9,469,440.84 13.94% Sales volume of some subsidiaries was increased. And market development expenses, technology service expenses and transportation costs grew. Administrative 75,917,015.29 78,871,819.33 -2,954,804.04 -3.75% - expenses Financial costs 23,778,972.97 18,750,218.07 5,028,754.90 26.82% Bank-loan interest rates grew was raised. Interest expense increased. Income tax 5,459,666.09 2,828,001.98 2,631,664.11 93.06% Total profit increased. expenses -17- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report 6. Composition of cash flows and material change 2007 2006 Change(Yuan) Change( Main factors that cause a %) material change Cash flows from 134,692,646.13 -23,571,497.29 158,264,143.42 671.42% The Company intensified control operating of cash payment to reduce cash outflow. Capital backflow was activities also strengthened. Account receivable was reduced. Control of inventory purchase was stricter to reduce capital occupation under the condition that regular production would not be affected. Cash flows from -44,803,680.19 -8,834,223.86 -35,969,456.33 -407.16% Constructing fixed assets investment and purchasing land, and activities investing in Shanghai Yulong. Cash flows from -28,302,696.95 3,669,349.23 -31,972,046.18 -871.33% Return of bank loans. financing activities 7. Operating results of main subsidiaries and associated companies in 2007 (1) Operating results of main subsidiaries (Yuan) Equity owned Registered Total assets at Net assets at Total busines Operating Net profit Subsidiary by the Main business capital year-end year-end s income profit /(net loss) Compa ny Nanjing Nanfang Manufacture and Telecommunic 98.24 sales of data 34,205,148 143,666,129.02 47,669,553.38 254,382,339.76 5,934,630.01 4,497,794.05 ations % communication Company equipment Limited Nanjing Putian Manufacture and Intelligent 41.35 sales of 12,000,000 131,117,726.46 46,920,033.72 167,120,572.78 11,378,579.47 9,077,864.19 Building Ltd. % intelligent building system Beijing Picom Network Telecommunic electronic USD ations 51% products, digital 60,485.68 -38,331,816.92 141,196.57 -18,133.59 -18,133.59 500,000 Equipment Ltd. transmission system Nanjing Putian Electric Hongyan appliances, USD Electric 51.2% 58,873,803.82 15,363,160.68 77,400,897.74 -2,261,029.02 -2,205,245.37 telecommunicati 1,930,000 Appliance on parts Company Nanjing Putian manufacture and Network sales of software Company Ltd. of 92.16 telecommunicati 10,000,000 6,463,550.26 4,564,323.72 8,989,652.81 7,058.14 8,174.75 % ons, network and electronic equipment Nanjing Putian Changle Manufacture and Telecommunic sales of 50.7% 10,000,000 41,631,970.80 15,104,445.49 53,640,009.89 3,865,343.95 3,478,510.12 ations telecommunicati Equipment on equipment Co., Ltd. Putian Export and Telecommunic import of ations (H.K.) telecommunicati HKD Co., Ltd. 90% on equipment, 8,851,400.87 -11,169,497.53 38,982,370.70 -2,335,077.48 -2,335,077.48 2,000,000 Hi-tech R & D and transfer, technology trade -18- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Nanjing Postel Design, 90,000,000 Wongzhi production and 67% ($10,900,00 32,174,379.80 40,659,791.37 59,184,996.58 -4,676,544.94 -4,710,059.80 Telecommunic sales of CDMA 0) ations Co., Ltd. cell phone Manufacture and Nanjing Putian sales of Inforamtion 100% electrical and 1,400,000 14,514,758.13 6,982,186.53 3,451,892.98 -1,300,844.55 -1,315,767.69 Technology telecommunicati Company Ltd. on products (2) Associated companies that contributed more than 10 percent of the Company’s net profit.（Yuan） Equity Operating owned by Net assets at Net profit for Company Main business income for the the year-end the year year Company Nanjing 50.00% Plugs and 40,374,640.45 93,387,878.35 4,142,805.62 Mennekes receptacles for Electric industrial use Appliances Ltd. Shanghai 21.00% Development, 67,429,768.74 0.00 -5,563,747.27 Yulong Biotech manufacture and Ltd. sales of bio-tech products Qufu Yulong 21.00% Development, 45,149.363.47 0.00 -3,359,535.18 Biotech Ltd. manufacture and sales of bio-tech products 7. Technology innovation, energy conservation and emission reduction We work hard on technology research, product innovation and market exploration according to the change of market demand, trying to enhance our capacity to survive and the value of brand name. In the reporting period, we won policy support as we passed the high-tech enterprise qualification reexamination of Nanjing city and Jiangsu province. We won approval for six patents for utility model from the state, and we applied for eight patents of technology. A lot of new products such as the environmental monitoring system used in outdoor equipment room were successfully developed, and they received good response from the clients. We adhere to taking a road of resource conservation, trying to move forward toward the recycling economy. In the reporting period, we made marked achievement in resource conservation and emission reduction. By promoting the use of new energy and new technology and implementing technology renovation, we reduced our consumption of water and electricity as well as emission of harmful gas. II. Forecast of future development 1. Operating plan for the new year In the past several years, affected by the transformation of telecommunication operators and the reduction of investment, the domestic communication equipment industry experienced a slowdown in growth. In 2008, with the deepening of the reform in telecommunication system and the acceleration of industry restructuring, communication equipment industry is faced with a good opportunity for development. But meanwhile, competitions will be further intensified. In 2008, we will continue to implement an integrated strategy of promoting both industry development and reform. We have invested in emerging industry and speeded up capital operation, and will regard this as the turning point to promote industry restructuring and resource allocation. We will establish the leading position of premises distribution system, access products, industrial electric, radio-TV related business, video conferencing system and services, gradually building the Company into an investment managerial group. -19- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report According to the trend of customers’ demand, the change of market competition and our superiority in resources, we outlined the program for industrial development. First, laying a solid foundation for industrial development. We should develop processing industry, including mechanical processing and electric processing to maximize our production capacity and solve the employment problem for labor forces. Second, continue to develop our superior industry, i.e., access industry, which concerns distribution products, PDS, wiring access products, industrial electric and optical communication related products. Third, strengthen broadband high-speed data services, developing integration and value-added services centered on video communication and interactive digital TV set, including video conferencing system, Ridio-TV service, Wi-Fi wireless system, video telephone. Fourth, fostering emerging industry. We should develop medical appliance industry that center on bio-information test and analysis, such as bio-test equipment and clinical test center, promoting mutual supplement with manufacturing industry. We should take effective measures in industrial development, not only as a competitor, but aiming to be an industrial leader that is capable of providing professional services for customers, to ensure the sustainable, steady, and sound development of the Company. We will continue to integrate the introduction of new products and independent research, enhancing our capacity in system integration and our ability in industrial operation. We will put more efforts on market extension with our advantage in name brand to boost market share. We will intensify reform and reorganization, gradually changing the Company’s current managerial mode, where divisional system and investment management is interactive, into one where the Company functions as an investment conglomerate that allocates resources reasonably with the tie of investment and pursues reasonable and maximized investment yields. 2. Difficulties and risks in operations While our business is growing, we are faced with some challenges. As our main customers, the telecommunication operators such as China Telecom, China Netcom, China Mobile and China Tietong strengthened public bidding in equipment procurement, the selling price of our products is showing a tendency to decline. We face the pressure from the increase of operating cost with the rising of loan interest rates, raw material price and energy prices. Our cash management will be severely tested by the current tight monetary policy. The intensive implementation of the new accounting standard and Labor Contract Law places in China require us to enhance our ability of management. We will make analysis on the risks in operation and seek solutions to address them, enhancing our all-round competitiveness and ability to survive in the fierce market competition. 3. Fund demand and usage plan According to our operating plan, the need of current capital for 2008 is around RMB 100 million, which will mainly be collected from the Company’s self-owned fund and bank loans. III. Investment in the reporting period 1. Use of proceeds from share issuing The Company did not raise any proceeds by issuing shares in the reporting period or use proceeds raised in previous periods. 2. Significant investment using self-owned fund in the reporting period In the reporting period, the Company established a joint venture with the controlling shareholder, China Potevio Company Limited. The joint venture is named with Nanjing Potevio Telecommunication Technology Industry Park Co., Ltd with a registered capital of -20- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report RMB 337,548,141.29, of which RMB 170,000,000 was contributed by the controlling shareholder in cash and RMB 167,548,141.29 was contributed by the Company in land property and building. The two parties respectively hold 50.36% and 49.64% equity in the joint venture. The business scope of the company includes: land release, property management, service for production and living, industrial investment, investment management, research and sale of telecommunication technology products, system integration, projects (see the Company’s Announcement on Investment and Related-party Transaction published on 18 August 2007). The joint venture is incorporated in December 2007 and will start formal operation from 2008. IV. Day-to-day work of the Board of Directors 1. Meetings and resolutions of the BOD during the reporting period Fourteen meetings were held by the board of directors in the reporting period. (1) The 5th Meeting of the Fourth BOD was held on 25 January 2007, and the announcement concerning the resolutions of the meeting was published on the Securities Times and Ta Kung Pao on 27 January 2007. (2) The 6th Meeting of the Fourth BOD was held on 20 March 2007, and the announcement concerning the resolutions of the meeting was published on the Securities Times and Ta Kung Pao on 22 March 2007. (3) The 7th Meeting of the Fourth BOD was held on 6 April 2007, and the announcement concerning the resolutions of the meeting was published on the Securities Times and Ta Kung Pao on 10 April 2007. (4) The 8th Meeting of the Fourth BOD was held on 23 April 2007, at which the First Quarterly Report of the Company was considered and approved. (5) The 9th Meeting of the Fourth BOD was held on 25 June 2007, at which the proposal of making third-stage reinvestment in Nanjing Mennekes Electric Appliances Ltd. was considered and approved. (6) The 10th Meeting of the Fourth BOD was held on 27 June 2007, and the announcement concerning the resolutions of the meeting was published on the Securities Times and Ta Kung Pao on 28 June 2007. (7) The 11th Meeting of the Fourth BOD was held on 6 August 2007, and the announcement concerning the resolutions of the meeting was published on the Securities Times and Ta Kung Pao on 7 August 2007. (8) The 12th Meeting of the Fourth BOD was held on 17 August 2007, and the announcement concerning the resolutions of the meeting was published on the Securities Times and Ta Kung Pao on 18 August 2007. (9) The 13th Meeting of the Fourth BOD was held on 24 August 2007, and the announcement concerning the resolutions of the meeting was published on the Securities -21- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Times and Wen Wei Po on 28 August 2007. (10) The 14th Meeting of the Fourth BOD was held on 22 October 2007, at which the proposal of transferring the Company’s equity in Nanjing Putian Hongyan Electric Appliance Limited by way of public bidding was considered and approved. (11) The 15th Meeting of the Fourth BOD was held on 25 October 2007, at which the Third Quarterly Report of the Company was considered and approved. (12) The 16th Meeting of the Fourth BOD was held on 30 October 2007, and the announcement concerning the resolutions of the meeting was published on the Securities Times and Wen Wei Po on 31 October 2007. (13) The 17th Meeting of the Fourth BOD was held on 30 November 2007, and the announcement concerning the resolutions of the meeting was published on the Securities Times and Wen Wei Po on 4 November 2007. (14) The 18th Meeting of the Fourth BOD was held on 29 December 2007, at which the resolutions of writing off bad accounts and investing in Shanhai Yulong Biotech Ltd were considered and approved, and the announcement concerning the resolutions of the meeting was published on the Securities Times and Wen Wei Po on 5 January 2008. (2) Implementation of resolutions of shareholders’ general meeting by the board of directors In the reporting period, the board of directors performed the duties within the scope of authority as specified in the Articles of Association. No such affairs happened as that the shareholders general meeting authorize the board of directors to exercise part of functions and powers of the shareholders general meeting, or the board of directors should implement profit distribution plan, and etc. (3) Summary report of the Audit Committee subordinate to the BOD on the performance of their duties In the process of auditing the 2007 annual report, the Audit Committee performed duties in accordance to Notice on Properly Handling the Work Concerning 2007 Annual Report of Listed Companies promulgated by CSRC, fully playing the role of audit and inspection. Before the public accounting firm started the 2007 annual audit work, the Audit Committee consulted with the public accounting firm for the schedule of the audit work. They also examined the 2007 financial statements of the Company and presented opinions in written form, holding that the financial statements basically gave a true view of the financial state as at 31 December 2007 and of the operating result of the year then ended, agreeing to conduct audit on the basis of these statements. In the process of audit, the committee kept contact with the public accountants, urging them twice to complete the audit work on time. After the accountants presented a preliminary audit opinion, the committee examined the financial statements for the second time and presented opinion in writing, holding that the preparation of the financial statements was -22- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report in conformity with the Accounting Standard for Business Enterprises and was truthful, accurate, and complete, giving a fair view of the financial status as at 31 December 2007 as well as the operating result and cash flow of 2007. The Audit Committee voted on the financial statements, agreeing to submit the statements to the board of directors to consider. At the same time, the committee filed to the BOD the report of the conclusion of the audit work conducted by the public accounting firm. In the opinion of the Audit Committee, Shulun Pan Certified Public Accountants Co., Ltd. owns a professional team of auditors and is familiar with the operating conditions of the Company. During the period when they provided audit service for the Company in 2007, they planed and conducted the work reasonably pursuant to the practice standards of independence, objectiveness and fairness, and completed the audit work satisfactorily. (4) Summary report of the Remuneration and Assessment Committee subordinate to the BOD on the performance of their duties The Remuneration and Assessment Committee examined the remuneration of the directors, supervisors and senior management disclosed by the Company and held that the decision-making procedure of the remuneration of the above-mentioned people is in conformity with relevant regulations and the remuneration disclosed in 2007 annual report is truthful and accurate. 5. Profit distribution preplan for 2007 According to Shulun Pan Certified Public Accountants Co., Ltd., the net profit attributable to shareholders of the parent company for 2007 is RMB 3,936,869.94. Plus retained earnings of previous yeas of RMB -81,280,567.73, the distributable profit for 2007 is RMB -77,343,697.79. According to the actual condition of the Company, dividends will not be distributed, and capital reserve will not be transferred to share capital. 5. Other issues In the reporting period, the overseas newspaper engaged by the Company for information disclosure was changed from Ta Kung Pao to Wen Wei Po. The domestic newspaper for information disclosure remained unchanged, which was the Securities Times. VIII. Report of Supervisory Committee 1. Meetings of the Supervisory Committee during the reporting period The Supervisory Committee held seven meetings in the reporting period: (1) On 6 April 2007, the Company held the 4th Meeting of the Fourth Supervisory Committee, at which the following proposals were considered an approved, including the -23- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report 2006 work report of the Supervisory Committee, the 2006 financial report and 2007 budget of the Company, the 2006 profit distribution preplan, the full text and summary of 2006 annual report and the proposal of adjusting members of the supervisory committee. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 10 April 2007. (2) On 23 April 2007， the Company held the 5th Meeting of the Fourth Supervisory Committee, at which the Company’s First Quarterly Report of 2007 was considered and approved . (3) On 21 May 2007, the Company held the 6th Meeting of the Fourth Supervisory Committee, at which Mr. Jiang Haishan was elected as chairman of the Fourth Supervisory Committee. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 22 May 2007. (4) On 24 August 2007, the Company held the 7th Meeting of the Fourth Supervisory Committee, at which the full text and summary of the Company’s 2007 Semi-annual Report was considered and approved. (5) On 25 October 2007, the Company held the 8th Meeting of the Fourth Supervisory Committee, at which the Company’s 2007 Third Quarterly Report was considered and passed. (6) On 30 November 2007, the Company held the 9th Meeting of the Fourth Supervisory Committee, at which the proposal of adjusting members of the supervisory committee was approved. Announcement of the meeting was published on the Securities Times and Wen Wei Po on 4 December 2007. (7) On 20 December 2007 ， the Company held the 10th Meeting of the Fourth Supervisory Committee, at which Ms. Liu Shuping was elected as chairman of the supervisory committee. Announcement of the meeting was published on the Securities Times and Wen Wei Po on 21 December 2007. 2. Independent opinion presented by the Supervisory Committee (1) The Company’s operation according to the laws The Supervisory Committee supervised the procedures and resolutions of shareholders’ general meeting and meetings of the board of directors, the implementation of resolutions of shareholders’ general meeting by the board of directors, and the actions of senior management in performing their duties, as well as the managerial rules formulated by the Company. The Supervisory Committee believe that the Company’s operations were in conformity with the PRC Company Law, Securities Law, Rules Governing Listing of Stocks on Shenzhen Stock Exchange, and the Company’s Articles -24- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report of Association. The Company’s procedures of decision-making is in conformity with the relevant laws, and a sound internal control system has been established by the Company. No acts of the directors and senior management were observed violating the laws, regulations and the Company’s Articles of the Association or contrary to the interest of the Company. (2) The Company’s financial position: The Supervisory Committee examined the accounting rules and financial condition of the Company. We believe that the 2007 Financial Statements give a true view of the Company’s financial position and operating results, and the unqualified opinion and appraisal on relevant issues presented by Shulun Pan Certified Public Accountants Co., Ltd. is objective and fair. (3) The Company’s transactions of buying and selling assets The Company’s transactions of buying and selling assets in the reporting period were executed at fair prices. No insider deals, actions harmful to a part of shareholders’ interest or causing loss of the Company’s assets were found. (4) The Company’s related-party transactions: The Company’s related-party transactions in the reporting due to objective reasons were executed with contracts signed under the rule of fair trade. No actions of harming the interests of the Company were observed. (5) The Company has established an internal control system that covers all aspects according to relevant regulations of CSRC and Shenzhen Stock Exchange. The internal control structure is complete. Implementation and supervision of the internal control rules is sufficient and effective. In the reporting period, we did not find any acts of the Company that violated the Guidelines of Shenzhen Stock Exchange for the Internal Control of Listed Companies. The supervisory committee believe that the self-appraisal on internal control reflects the actual situation of the Company’s internal control. IX. Significant Events 1. Significant lawsuit or arbitration during the reporting period The Company was not involved in any significant lawsuit or arbitration during the reporting period. 2. Issues concerning bankruptcy or reorganization No such issues as bankruptcy or reorganization happened in the reporting period. 3. Shareholding in other listed companies -25- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report The Company did not hold shares of other listed companies in the reporting period. 4. Matters related to purchasing assets, selling assets, acquisition or merging during the reporting period Transaction Assets to be Purchasing Purchasing Net profit Net profit contributed to Whether to be a Pricing Whether the Whether all of party or the purchased date Price contributed to the Company from the related-party Principle ownership the liabilities or ultimate the Company year-beginning to transaction(if it is, of the debts involved controller from the year-end (applicable explain the pricing assets has been purchasing date for a business principle) involved transferred to the combination not under has been year-end(Yuan) common control ) fully transferred Huang Daogen 21% equity 2007.5.31 0 -85,075.03 0 No Negotiated Yes Yes of Qufu price Yulong Biotech Ltdl The above issue will not affect the stability of management or the continuity of business of the Company. In addition, in the reporting period, the board of directors approved the proposals of purchasing the 70% equity of Nanjing Putian Telecommunications Technology Limited, a subsidiary company of Grade 3, and of transferring the 51.2% equity of the subsidiary company Nanjing Putian Hongyan Electric Appliance Company Limited by public bidding. By the end of the reporting period, work concerning the above issues has not been completed, thus exerting no influences on the financial position, operating result and continuity of business for the reporting period. After the implementation of them, Nanjing Putian Telecommunications Technology Limited will become a subsidiary of grade 3 of the Company from grade 2, and Nanjing Putian Hongyan Electric Appliance Company will not be consolidated into the financial statements of the Company. 5. Implementation of stock incentive plan in the reporting period: The Company did not implement a stock incentive plan in the reporting period. 6. Related-party transactions and receivables and payables with the related parties: (1) Related-party transactions that are relevant to day-to-day operations in the reporting period (RMB’000) Selling products to, and providing Purchasing products and receiving services for the related parties services from the related parties Related Party Proportion in the Proportion in the Amount of the t Amount of the same type of same type of ransaction transaction transaction transaction Naning Putian Zhongyou 13,911 1.43% 557 0.06% Telecommunications Co., Ltd. Shanghai Potevio Co., Ltd. 13,711 1.41% 0 0.00% China Potevio Company Limited 28,224 2.90% 0 0.00% Total 55,846 5.73% 557 0.06% Of the above transactions, sales to the controlling shareholder and its subsidiaries amounted to 55,846 thousand Yuan. The above-mentioned transactions were regular purchase and sales executed between the Company and the related parties according to the demand of operation on the basis of equality, mutual benefit and fair trade. These transactions were executed on the principle of market price and did not affect the independence of the Company or cause the Company to rely on the related parties. Such transactions with some of the related parties are estimated to continue in the next year. (2) Receivables and payables with the related parties Balance at year-end(RMB’000) Item Related party Year-end 2007 Year-end 2006 Account Naning Putian Zhongyou 4,911 4,845 receivable： Telecommunications Co., Ltd. -26- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report China Putian Corporation 45 474 Guangxi Putainyoutong 73 111 Telecommunications Equipment Company Ltd. Shanghai Huanying Display Technology 3,955 4,555 Company Ltd. Shanghai Potevio Co., Ltd. 16,476 404 Beijing Great Dragon Information Tech. 35 0 Co. Prepaid Shanghai Huanying Display Technology 600 0 account： Company Ltd. Account China Putian Corporation 0 224 payable： Guangxi Putainyoutong 0 100 Telecommunications Equipment Company Ltd. Nanjing Potevio Telecommunication 10 0 Technology Industry Park Co., Ltd. Other notes China Putian Corporation 0 20,000 receivable: Nanjing Potevio Telecommunication 54,242 0 Technology Industry Park Co., Ltd. (3 Related-party transactions of assets purchasing and selling In the reporting period, there were no related-party transactions of assets purchasing and selling except that the controlling shareholder, China Potevio Company Limited, obtained the right to buy the share ownership of a subsidiary of the Company, Nanjing Putian Hongyan Electric Appliances Company Limited, by way of public bidding (see the announcement published by the Company on 4 December 2007 for details) and such a transaction were not executed by the end of the reporting period. (4) Significant transactions of joint investment with related parties In the reporting period, as approved by the shareholders general meeting, the Company established a joint venture named Nanjing Potevio Telecommunication Technology Industry Park Co., Ltd with the controlling shareholder, China Potevio Company Limited. The joint venture owns a registered capital of RMB 337,548,141.29 Yuan, of which 49.64% equity is owned by the Company. The business scope of the company includes: land release, property management, providing service for production and living, industrial investment, investment management, research and sale of telecommunication products, and system integration. The joint venture was incorporated in December 2007 and reported total assets of 337,357,690.15 Yuan at year-end and net profit 190,451.14 Yuan for 2007. 7. Material contracts (1) During the reporting period the Company did not trust, contract or lease assets to other companies or from other companies. (2) Guarantee providing(Yuan) Guarantee offered by the Company(excluding the guarantee offered to the subsidiaries) Happening Date Guaranty whether Name of the (the date when the Amount of Type of Term of Completed or offered to a related debtor guaranty agreement guaranty guaranty guaranty not party or not was signed) Nanjing Mennekes Electric Appliances 1 June 2007 Ltd.(a 50%- holding 20 May 2007 2,000,000 Joint liabilities No No -1June 2008 joint venture of the Company) Accumulative amount of guaranty during reporting 2,000,000 period -27- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Balance of guarantee at the end of the reporting 2,000,000 period(A) Guaranty offered to the subsidiaries Accumulative amount of guarantee offered to the 52,000,000 subsidiaries during this reporting period Balance of guarantee offered to the subsidiaries at 44,000,000 the end of the reporting period(B) Total amount of guarantee offered by the Company(including guaranty offered to the subsidiaries) Total amount of guarantee(A+B) 46,000,000 Proportion of the total amount of guarantee in net 14.36% assets Including: Amount of guarantee offered to the Company’s shareholders, effective controller and their related 0 parties(C) Amount of guarantee directly or indirectly offered for a debtor whose assets liabilities ratio was 0 above 70%(D) Amount of guarantee exceeding 50% of net 0 assets(E) Total amount of the three types of guarantee 0 above(C+D+E) (3) Entrustment investment The Company made no entrust investment during the reporting period. 8. Commitment of the Company or a shareholder holding over 5 percent of the Company’s share capital During the reporting period, the Company’s shareholders that hold over 5 percent of the Company’s share capital did not made a commitment. 9. Appointment and discharging of a public accounting firm The domestic and overseas public accounting firms appointed by the Company, Shulun Pan Certified Public Accountants Co., Ltd. and Horwath Hong Kong CPA Limited, have provided services for the Company for three consecutive years. The Company paid an audit fee of RMB1.35 million to the two firms in 2007. The travel expenses of the firms are not borne by the Company. 10. Punishment exerted by securities regulatory departments on the Company, the directors, supervisors, senior management and the effective controller In the reporting period, the Company, the directors, supervisors, the senior management and effective controller were not investigated or exerted administrative punishment by CSRC or publicly condemned by Shenzhen Stock Exchange. 11. Reception of visitors and interviews during the reporting period Main topics of discussion Time Place Way Visitor and information provided Main topics of discussion: the operating conditions of Analysts from the Company. In the Onsite 23 May 2007 Morganstanley and Information provided: the Company investigation Threadneedle annual reports and other information that has been publicly disclosed -28- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report X. Financial Report 1. Auditor’s report The Company’s 2007 Financial Statements were audited and issued a report with unqualified opinion by Shulun Pan Certified Public Accountants Co., Ltd.. AUDITORS’ REPORT PCPAR (2008) No. 10958 To all the shareholders of Nanjing Putian Telecommunications Co., Ltd.: We have audited the accompanying financial statements of Nanjing Putian Telecommunications Co., Ltd. (hereinafter referred to as ‘the Company’), which comprise the balance sheet and consolidated balance sheet as of December 31, 2007, the income statement and consolidated income statement, the cash flow statement and consolidated cash flow statement, the statement of changes in owners’ (shareholders’) equity and the consolidated statement of changes in owners’ (shareholders’) equity, for the year then ended, and notes to the financial statements. 1．Management’s responsibility for the financial statements Management is responsible for the preparation of these financial statements in accordance with Accounting Standards for Business Enterprises. This responsibility includes: Designing, implementing and maintaining internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error; Selecting and applying appropriate accounting policies; and Making accounting estimates that are reasonable in the circumstances. 2. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Chinese Certified Public Accountants Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider the internal control relevant to the preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing -29- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report an opinion on the effectiveness of the internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 3. Opinion In our opinion, the financial statements of the Company have been prepared in accordance with Accounting Standards for Business Enterprises and present fairly, in all material respect, the financial position of the Company as of December 31, 2007, the results of its operations and cash flows for the year then ended. Shu Lun Pan Certified Public Accountants Co., Ltd. Certified Public Accountant of China Lu Guohao Chen Li Shanghai, China Date: April 3, 2008 2. Financial statements(attached) 3. Notes to the financial statements (attached) 4. Supplementary information (1) Impairment of assets (2) Adjustment of Income Statement XI. Documents for Inspection 1. Original text of accounting statements signed and sealed by legal person representative, financial controller and accountant officer. 2. Original text of Auditor’s Report signed and sealed by Certified Public Accountant with the public accounting firm’s seal on. 3. Original texts of all the files and announcements published on the newspapers appointed by China Securities Regulatory Commission during the reporting period. -30- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Board of Directors Nanjing Putian Telecommunications Co., Ltd. 8 April 2008 -31- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Balance Sheet Company name: Nanjing Putian Telecommunications Co., Ltd. 31 December 2007 Unit: CNY At the end of the current period At the beginning of the current period Item Consolidated Parent Company Consolidated Parent Company Current asset: Monetary fund 287,726,540.06 199,852,279.50 264,226,520.21 193,648,876.09 Settlement provision Outgoing call loan Trading financial assets Notes receivable 9,520,075.20 1,303,420.50 28,809,138.40 25,540,283.76 Account receivable 321,963,622.38 215,208,638.19 369,296,157.25 247,749,067.93 Prepaid fund 8,013,943.63 5,005,433.36 40,671,239.64 17,217,743.13 Insurance receivable Reinsurance receivable Provisions of Reinsurance contracts receivable Interest receivable Dividends receivable 1,562,824.17 1,562,824.17 1,244,968.88 5,149,071.05 Other account receivable 54,056,194.10 49,647,188.72 52,590,073.91 102,617,599.04 Repurchasing of financial assets Inventories 165,661,233.35 65,792,748.95 198,864,222.64 90,166,269.11 Non-current asset due in year Other current asset Total of current asset 848,504,432.89 538,372,533.39 955,702,320.93 682,088,910.11 Non-current assets Loans and payment on other’s behalf disbursed Disposable financial asset Expired investment in possess Long-term receivable Long-term share equity 214,759,591.64 335,677,647.38 18,851,034.25 141,234,360.55 investment Property investment 5,678,568.25 5,923,660.81 Fixed assets 68,049,573.06 43,901,944.96 107,223,287.69 75,488,912.25 Construction in progress 6,937,748.78 270,490.00 1,586,468.01 1,437,012.01 Engineering material Fixed asset disposal Production physical assets Gas & petrol Intangible assets 11,010,544.08 3,614,811.83 30,811,417.76 27,834,809.51 R&D expense Goodwill Long-term deferred 3,254.39 485,857.95 expenses Differed income tax asset Other non-current asset Total of non-current assets 306,439,280.20 383,464,894.17 164,881,726.47 245,995,094.32 Total of assets 1,154,943,713.09 921,837,427.56 1,120,584,047.40 928,084,004.43 Legal person representative：Zhao Xinping Financial controller: Sun Liang Accountant officer: Shi Lian -32- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Balance Sheet (continued) Company name: Nanjing Putian Telecommunications Co., Ltd. 31 December 2007 Unit: CNY At the end of the current period At the beginning of the current period Item Consolidated Parent Company Consolidated Parent Company Current liabilities Short-term borrowings 404,000,000.00 280,000,000.00 438,900,000.00 288,000,000.00 Loan from Central Bank Deposit received and hold for others Call loan received Trade off financial liabilities Notes payable 80,000,000.00 3,220,570.00 120,000,000.00 Accounts payable 254,366,894.39 76,056,245.87 223,833,399.31 69,057,326.53 Advances from customers 32,990,187.59 3,801,729.22 11,549,131.11 2,677,071.29 Selling of repurchased financial assets Fees and commissions receivable Employees benefits payable 14,749,924.40 4,119,207.68 15,639,969.07 3,823,508.69 Tax payable -6,010,483.82 1,216,760.08 -16,596,563.83 740,155.81 Interest payable Dividends payable Other payables 71,950,839.60 155,861,697.96 31,623,555.17 57,237,095.22 Reinsurance fee payable Insurance contract provision Entrusted trading of securities Entrusted selling of securities Non-current liability due in year 35,000,000.00 35,000,000.00 Other current liability Total of current liability 772,047,362.16 601,055,640.81 743,170,060.83 576,535,157.54 Non-current liabilities Long-term borrowings Bond payable Long-term payables 80,118.00 80,118.00 80,118.00 80,118.00 Special payable Expected liabilities Differed income tax liability Other non-recurring liabilities 1,350,000.00 1,350,000.00 Total of non-current liabilities 1,430,118.00 1,430,118.00 80,118.00 80,118.00 Total of liability 773,477,480.16 602,485,758.81 743,250,178.83 576,615,275.54 Owners’ equity (or shareholders’ equity) Paid-in capital (or share capital) 215,000,000.00 215,000,000.00 215,000,000.00 215,000,000.00 Capital reserves 183,465,955.00 172,417,299.81 183,455,041.20 172,417,299.81 Less: Treasury stocks Surplus reserves 589,559.77 589,559.76 589,559.77 589,559.76 Common risk provision Undistributed profit -77,343,697.79 -68,655,190.82 -81,280,567.73 -36,538,130.68 Difference of foreign currency -1,325,917.73 -625,026.96 translation Total of equity attributable to owners of 320,385,899.25 319,351,668.75 317,139,006.28 351,468,728.89 the parent company Minor shareholders’ equity 61,080,333.68 60,194,862.29 Total of owners’ equity 381,466,232.93 319,351,668.75 377,333,868.57 351,468,728.89 Total of liabilities and owners’ equity 1,154,943,713.09 921,837,427.56 1,120,584,047.40 928,084,004.43 Legal person representative：Zhao Xinping Financial controller: Sun Liang Accountant officer: Shi Lian -33- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Income Statement Company name: Nanjing Putian Telecommunications Co., Ltd. January to December 2007 Unit: CNY Current Period Same Period of Last Year Item Consolidated Parent Company Consolidated Parent Company I. Total operating income 974,329,991.52 454,716,324.58 990,564,040.32 587,743,450.85 Incl. operating income 974,329,991.52 454,716,324.58 990,564,040.32 587,743,450.85 Interest income Insurance fee earned Fee and commission received II. Total operating cost 1,071,491,808.71 599,863,235.50 997,478,991.40 594,503,723.79 Incl. operating cost 870,379,291.03 450,451,688.92 806,251,107.98 493,991,240.33 Interest expense Fee and commission paid Insurance discharge payment Net claim amount paid Net insurance policy reserves provided Insurance policy dividend paid Reinsurance expenses Taxes and surcharges on 2,561,403.21 -331,896.49 2,505,071.58 344,873.40 operations Sales expense 77,386,162.32 34,567,392.27 67,916,721.48 33,160,160.76 Administrative expense 75,917,015.29 44,350,267.55 78,871,819.33 44,553,068.61 Financial expenses 23,778,972.97 22,242,903.86 18,750,218.07 15,446,946.67 Impairment loss on assets 21,468,963.89 48,582,879.39 23,184,052.96 7,007,434.02 Plus: Gains from change of fair value (“-“ for loss) Investment income (“-“ for loss) 870,191.81 3,735,790.06 2,109,192.36 2,560,145.97 Incl. Investment gains from affiliates Gains from currency exchange (“-“ for loss) III. Operational profit (“-“ for loss) -96,291,625.38 -141,411,120.86 -4,805,758.72 -4,200,126.97 Plus: Non-operating income 111,740,037.14 110,196,903.20 4,059,315.48 2,048,764.62 Less: Non-operating expenses 1,496,625.88 902,842.48 1,752,721.17 741,712.10 Incl. Loss from disposal of non-current assets IV. Gross profit (“-“ for loss) 13,951,785.88 -32,117,060.14 -2,499,164.41 -2,893,074.45 Less: Income tax expenses 5,459,666.09 2,828,001.98 V. Net profit (“-“ for net loss) 8,492,119.79 -32,117,060.14 -5,327,166.39 -2,893,074.45 Net profit attributable to the 3,936,869.94 -24,290,696.88 owners of parent company Minor shareholders’ equity 4,555,249.85 18,963,530.49 VI. Earnings per share: (I) Basic earnings per share 0.02 -0.11 (II) Diluted earnings per share 0.02 -0.11 Legal person representative：Zhao Xinping Financial controller: Sun Liang Accountant officer: Shi Lian -34- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Cash Flow Statement Company name: Nanjing Putian Telecommunications Co., Ltd. January to December 2007 Unit: CNY Current Period Same Period of Last Year Item Consolidated Parent Company Consolidated Parent Company I. Net cash flow from operating activities Cash received from sales of 1,280,792,191.94 639,972,966.55 1,081,528,578.14 579,963,398.64 products and providing of services Net increase of customer deposits and capital kept for brother company Net increase of loans from central bank Net increase of inter-bank loans from other financial bodies Cash received against original insurance contract Net cash received from reinsurance business Net increase of client deposit and investment Net increase of trade financial asset disposal Cash received as interest, processing fee and commission Net increase of inter-bank fund received Net increase of repurchasing business Tax returned 1,104,075.98 855,608.14 Other cash received from operating 37,758,012.97 36,977,842.95 1,106,792.59 activities Sub-total of cash inflow from 1,319,654,280.89 676,950,809.50 1,083,490,978.87 579,963,398.64 operating activities Cash paid for purchasing of 986,972,624.47 524,793,695.11 934,760,849.16 525,326,285.39 merchandise and services Net increase of client trade and advance Net increase of savings in central bank and brother company Cash paid for original contract claim Cash paid for interest, processing fee and commission Cash paid for policy dividend Cash paid to staffs or paid for staffs 85,190,503.03 47,714,915.92 84,066,490.86 48,458,016.09 Taxes paid 36,824,171.47 13,034,369.27 32,809,476.26 14,018,487.57 Cash paid for other operating 75,974,335.79 44,044,285.64 55,425,659.88 35,379,640.49 activities Sub-total of cash outflow from 1,184,961,634.76 629,587,265.94 1,107,062,476.16 623,182,429.54 operating activities Net Cash flow from 134,692,646.13 47,363,543.56 -23,571,497.29 -43,219,030.90 operating activities II. Cash flow from investing activities Cash received from investment 1,050,000.00 1,145,500.00 retrieving Cash received as investment gains 1,249,700.78 8,019,401.20 38,545.35 2,077,495.44 Net cash retrieved from disposal of fixed assets, intangible assets, and 478,821.37 232,910.80 2,396,943.10 1,726,011.00 other long-term assets Net cash received from disposal of subsidiaries or other operational units Cash received from other investing -35- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report activities Sub-total of cash inflow from 1,728,522.15 8,252,312.00 3,485,488.45 4,949,006.44 investing activities Cash paid for construction of fixed assets, intangible assets and other 23,829,485.40 10,958,941.60 12,319,712.31 10,736,216.21 long-term assets Cash paid as investment 22,702,716.94 21,202,716.94 Net increase of loan against pledge Net cash received from subsidiaries and other operational units Cash paid for other investing activities Sub-total of cash outflow from 46,532,202.34 32,161,658.54 12,319,712.31 10,736,216.21 investing activities Net cash flow from investing -44,803,680.19 -23,909,346.54 -8,834,223.86 -5,787,209.77 activities III. Cash flow from financing activities Cash received as investment Incl. Cash received as investment from minor shareholders Cash received as loans 482,000,000.00 430,000,000.00 463,800,000.00 428,000,000.00 Cash received from bond placing Other financing-related cash 92,759,884.26 145,815,886.22 20,664,248.29 52,714,728.63 received Subtotal of cash inflow from 574,759,884.26 575,815,886.22 484,464,248.29 480,714,728.63 financing activities Cash to repay debts 551,900,000.00 513,000,000.00 454,900,000.00 417,000,000.00 Cash paid as dividend, profit or 31,162,581.21 25,275,637.55 24,912,711.19 22,454,732.13 interests Incl. Dividend and profit paid by 3,333,283.89 561,420.80 subsidiaries to minor shareholders Cash paid for other financing 20,000,000.00 20,000,000.00 982,187.87 activities Subtotal of cash outflow due to 603,062,581.21 558,275,637.55 480,794,899.06 439,454,732.13 financing activities Net cash flow from financing -28,302,696.95 17,540,248.67 3,669,349.23 41,259,996.50 activities IV. Influence of exchange rate alternation on cash and cash -917,840.79 -843,203.93 -49,273.24 equivalents V. Net increase of cash and cash 60,668,428.20 40,151,241.76 -28,785,645.16 -7,746,244.17 equivalents Plus: Balance of cash and cash 157,058,111.86 89,701,037.74 185,843,757.02 97,447,281.91 equivalents at the beginning of term VI. Balance of cash and cash 217,726,540.06 129,852,279.50 157,058,111.86 89,701,037.74 equivalents at the end of term Legal person representative：Zhao Xinping Financial controller: Sun Liang Accountant officer: Shi Lian -36- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Statement of Changes in Owners' Equity(consolidated) Company name: Nanjing Putian Telecommunications Co., Ltd. 31 December 2007 Current period Equity attributable to shareholders of the parent company Equity attributable to s Paid-in Minor Paid-in Item capital Less: General Undistrib sharehol Total capital Less: (or share Capital Treasury Surplus risk uted ders' owners' (or share Capital Treasury capital) reserves stocks reserves provision profit Other equity equity capital) reserves stocks I. Opening balance brought 215,000, 189,178, 26,943,4 -83,098, -31,812, 60,194,8 376,405, 215,000, 189,177, forward 000.00 025.20 83.15 223.47 555.20 62.29 591.97 000.00 844.67 Plus: Adjustments for -5,722,9 -26,353, 1,817,65 31,187,5 928,276. -5,722,9 changes in accounting policy 84.00 923.38 5.74 28.24 60 84.00 Adjustments for correction of accounting errors in previous period II. Beginning balance of 215,000, 183,455, 589,559. -81,280, -625,026 60,194,8 377,333, 215,000, 183,454, current year 000.00 041.20 77 567.73 .96 62.29 868.57 000.00 860.67 III. Adjustments for current 10,913.8 3,936,86 -700,890 885,471. 4,132,36 180.53 year 0 9.94 .77 39 4.36 3,936,86 4,555,24 8,492,11 1. Net Profit 9.94 9.85 9.79 2. Gain and loss directly 10,913.8 -700,890 -689,976 180.53 recognized in owners' equity 0 .77 .97 1) Adjustments for changes in fair value of available-for-sale financial assets 2) Adjustments for changes in owners' equity of invested unit under equity method 3) Adjustments on income tax recognized in owners' equity items 10,913.8 -700,890 -689,976 4) Others 180.53 0 .77 .97 10,913.8 3,936,86 -700,890 4,555,24 7,802,14 Sub-total of 1 and 2 180.53 0 9.94 .77 9.85 2.82 3. Capital contributed or -336,494 -336,494 reduced by owners .57 .57 1) Capital contributed by -336,494 -336,494 owners .57 .57 2) Amount of share payment recognized in owners' equity 3) Others -37- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report -3,333,2 -3,333,2 4. Distributed profit 83.89 83.89 1) Extract for surplus reserves 2) General risk provision 3) Distributable profit to -3,333,2 -3,333,2 investors (or shareholders) 83.89 83.89 4) Others 5. Internal transfer of owners' equity 1) Capital reserves transferring to paid-in capital (or share capital) 2) Surplus reserve transferring to paid-in capital (or share capital) 3) Surplus reserves offsetting loss 4) Others IV. Ending balance carried 215,000, 183,465, 589,559. -77,343, -1,325,9 61,080,3 381,466, 215,000, 183,455, forward 000.00 955.00 77 697.79 17.73 33.68 232.93 000.00 041.20 Legal person representative：Zhao Xinping Financial controller: Sun Liang -38- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Statement of Changes in Owners' Equity (parent company) Company name: Nanjing Putian Telecommunications Co., Ltd. 31 December 2007 Current period Equity attributable to shareholders of the parent company Equity attributable to s Paid-in Minor Paid-in Item capital Less: General Undistrib sharehol Total capital Less: (or share Capital Treasury Surplus risk uted ders' owners' (or share Capital Treasury capital) reserves stocks reserves provision profit Other equity equity capital) reserves stocks I. Opening balance brought 215,000, 189,178, 589,559. -86,314, 318,452, 215,000, 189,177, forward 000.00 025.20 76 665.54 919.42 000.00 844.67 Plus: Adjustments for -16,760, 49,776,5 33,015,8 -16,760, changes in accounting policy 725.39 34.86 09.47 725.39 Adjustments for correction of accounting errors in previous period - II. Beginning balance of 215,000, 172,417, 589,559. -36,538, 351,468, 215,000, 172,417, current year 000.00 299.81 - 76 130.68 728.89 000.00 119.28 III. Adjustments for current -32,117,0 -32,117,0 year - - - - 60.14 60.14 - 180.53 -32,117,0 -32,117,0 1. Net Profit 60.14 60.14 2. Gain and loss directly recognized in owners' equity - - - - - - - 180.53 1) Adjustments for changes in fair value of available-for-sale financial assets - 2) Adjustments for changes in owners' equity of invested unit under equity method - 3) Adjustments on income tax recognized in owners' equity items - 4) Others - 180.53 -32,117,0 -32,117,0 Sub-total of 1 and 2 - - - - 60.14 60.14 - 180.53 3. Capital contributed or reduced by owners - - - - - - - - 1) Capital contributed by owners - 2) Amount of share payment recognized in owners' equity - 3) Others - -39- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report 4. Distributed profit - - - - - - - - 1) Extract for surplus reserves - 2) General risk provision 3) Distributable profit to investors (or shareholders) - 4) Others - 5. Internal transfer of owners' equity - - - - - - - - 1) Capital reserves transferring to paid-in capital (or share capital) - 2) Surplus reserve transferring to paid-in capital (or share capital) - 3) Surplus reserves offsetting loss - 4) Others - IV. Ending balance carried 215,000, 172,417, 589,559. -68,655, 319,351, 215,000, 172,417, forward 000.00 299.81 - 76 190.82 668.75 000.00 299.81 Legal person representative：Zhao Xinping Financial controller: Sun Liang -40- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. NOTES TO THE FINANCIAL STATEMENTS 1. Corporate information Nanjing Putian Telecommunications Co., Ltd. (hereafter refers to ‘the Company’) is the original Nanjing Telecommunication Facility Factory, and was established as joint stock limited company by raising money approved with TGS (1997) No. 28 issued by National Economic Institutional Reform Commission on March 21, 1997. The Company is mainly engaged in telecom equipment manufacture industry and was listed in Shenzhen Stock Exchange on May 22, 1997. As of December 31, 207, the capital of the Company is CNY 215,000,000.00. The business scope of the Company is data telecom product, wires telecom product, wireless telecom product, distribution and allocation of layout of telecom product, research, manufacture of media computer and digital television, vehicle electronics and other related product and software, sales of self-produced products and provide the related after-sales service, and telecom information net project, buildings intelligentized project, design of computer information systematic project, construction and system combination and related consultancy service. 2 Principal accounting policies, estimates and errors of previous period 2.1 Statement of complying with Accounting Standards for Business Enterprises The financial statements prepared by the Company meet the requirements of the enterprise accounting standards, and exactly and completely reflect the financial status, operation result, change in owners’ equity and cash flow, etc of the Company. 2.2 Basis for the preparation On the basis of continuity and obeying substance of transactions and events, the Company makes accounting comfirmation and measurement in accordance with ‘the Accounting Standard of P.R.C for Business Enterprise—Basic Standard’ and other accounting standards, and the financial statements are prepared on this basis. The beginning balance of balance sheet and the income statement during the comparable period are prepared in accordance with ZJF [2006] No. 36 document and the stipulation of ZJKJZ [2007] No.10 document, and with the retroactive adjustment principle, the items, stipulated in the articles 5 to 19 of the No. 38 Enterprises Accounting Standard - First Implementation of Enterprise Accounting Standards and the ‘Accounting Standards for Business Enterprises Explanation Notice No. 1’, have been adjusted. 2.3 Fiscal year The fiscal year of the Company is the solar calendar year, which is from January 1 to December 31. -41- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report 2.4 Recording currency Recording currency is CNY. 2.5 Calculation natures and statement items with the changes of calculation natures in the report period In calculating the accounting factors, the Company adopts the historical cost method; in case the determined accounting factor amount can be obtained or reliably calculated, the replacement cost, net realizable value, current value or fair value of the individual accounting factor may be adopted. 2.6 Confirmation standard for cash equivalent In preparing the cash flow statement, the cash equivalents of the Company include the investments with short period (it usually expires within three months from the purchase date), high liquidity, easy conversion to certain amount of cash and little risk of value change. 2.7 Transactions of foreign currencies Foreign currency transactions are converted into CNY for recording purpose at the exchange rate on the first day of the period when the transaction occurs. Adjustments are made to foreign currency accounts in accordance with the exchange rate prevailing on the balance sheet date. Value of non currency item recorded at fair value by foreign currency is adjusted in accordance with the exchange rate prevailing on fair value confirm date. Conversion differences arising from those specific borrowings are to be capitalized as part of the cost of the construction in progress in the period before the fixed assets being acquired and constructed have not yet reached working condition for its intended use. Conversion differences arising from other accounts or from exchange with different currencies are charged to financial expenses. 2.8 Conversion of financial statements in foreign currency In balance sheet, assets and liabilities items are converted into CNY at the the exchange rate prevailing on the consolidated balance sheet date. Owner’s equity items (excluding Undistributed profit item) are converted into CNY at the exchange rate when the transaction occurs. In income statement, revenue and expenses items are recorded by the proper method and the approximate rate when the transaction accurs. Translation difference occurred for above reason is disclosed in the consolidated balance sheet as a separate item. 2.9 Financial assets or financial liabilities (a) Classification of financial assets or financial liabilities Based on the purpose of obtaining the financial assets and assuming the liabilities, financial assets or financial liabilities may be classified into: the financial assets or financial liabilities that are calculated in the fair values and whose changes are accrued to current profit and loss, including the trading -42- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report financial assets or financial liabilities; the held-to-maturity investments; receivables; available-for-sale financial assets; and other financial liabilities, etc. (b) Confirmation and measurement of financial assets or financial liabilities (1) The financial assets or financial liabilities that are calculated in the fair values and whose changes are accrued to current profit and loss The fair values (excluding cash dividends that have been declared but have not been distributed and bond interests that have exceeded the expiry dates but have not been drawn) are deemed as the initial confirmation amount on acquisition. Relevant transaction expenses are charged to profit and loss of the period. The interests or cash dividends obtained during the holding period are recognized as investment income. Change of fair values is charged to profit and loss of the period at the year end. Difference between the fair value and initial book value is recognized as investment income upon disposal. Adjustment is made to gain or loss from changes in fair values. (2) Held-to-maturity investments The sum of fair values (excluding bond interests that have exceeded the expiry dates and have not been drawn) and relevant transaction expenses are deemed as the initial confirmation amount. During the holding period, interest income is recognized as investment income based on the amortized cost and actual interest rate (if the difference between the actual interest rate and the nominal interest rate is tiny, calculation is based on the nominal interest rate). The actual interest rates are determined upon acquisition and remain unchanged during the expected holding period or a shorter period applicable. Difference between the amount received and book value of the investment is charged to profit and loss of the period upon disposal. (3) Receivables: For the receivables from sales of goods or rendering of services and other debt instruments of other corporations except for those quoted in active market held by the Company, including: accounts receivable, notes receivable, advances to suppliers, other receivables, etc, the prices specified in the contracts or agreements with the purchasers are deemed as the initial confirmation amount. For the receivables with financing characters, their present values are deemed as the initial confirmation amount. Difference between the amount received and book value of the receivables is charged to profit or loss of the period upon recovery or disposal. (4) Available-for-sale financial assets The sum of fair values (excluding cash dividends that have been declared but have not been distributed and bond interests that have exceeded the expiry -43- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report dates but have not been drawn) and relevant transaction expenses is deemed as the initial confirmation amount. The interests and cash dividends generated during the holding period are accrued to investment income. At year end, available-for-sale financial assets are calculated in the fair values and the changes in fair values are accrued to the capital reserves (other capital reserves). Difference between the amount received and the book value of the financial assets is recognized as investment gain or loss upon disposal. At the same time, the accumulated changes in fair value previously recognized in the owners’ equity are transferred into investment gain or loss. (5) Other financial liabilities The sum of fair values and relevant transaction expenses is deemed as the initial confirmation amount. The subsequent calculation adopts the amortized cost method. (c) Confirmation and measurement of transform of financial assets The Company should terminate recognizing these financial assets when the transform occurs and almost all risk and return of the financial assets ownership have been transferred to the transferee; The Company should not terminate recognizing this financial assets if almost all risk and return of the financial assets ownership have been remained. Essence is more important than form when judging whether the transform meets the requirements of the financial assets termination recognition conditions mentioned above. The Company divides the transform of financial assets into entire transfer and partial transfer. If the transfer of an entire financial asset satisfies the conditions for stopping recognition, the difference between the amounts of the following two items shall be recorded in the profit and loss of the current period: (1) The book value of the transferred financial asset; (2) The sum of consideration received from the transfer, and the accumulative amount of the changes in the fair values originally recorded in the owners' equities (in the case that the financial asset involved in the transfer is an available-for-sale financial asset). For partial transfers of financial assets that meet the recognition conditions of termination in recognition, the book value of the whole financial assets are spitted into the terminated portion and the exterminated portion according to their respective relative fair values (under this situation, the retained service assets are deemed as a part of the exterminated financial assets), and the difference between the following two items shall be recorded in the profit and loss of the current period: (1) Book value of the terminated portion (2) The sum of the consideration of the terminated portion and the accumulated changes in fair value previously recognized in the owners’ equity related to the terminated portion (in the case that the assets transferred are available-for-sale -44- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report financial assets) For transfers of financial assets that do not meet the conditions of termination in recognition, the financial assets remain recognition and the consideration received is recognized as financial liabilities. (d) Confirmation of fair values of main financial assets and financial liabilities For the active financial assets or financial liabilities in the market, the Company will use the quotations as their fair values. (e) Impairment loss on financial assets (1) Impairment of available-for-sale financial assets: If at the year end the fair values of the available-for-sale financial assets decline significantly, or the trend of the decline is expected to be non-temporary after consideration of all relevant factors, the assets are deemed impaired and impairment loss is recognized together with the amount transferred from the accumulated decreases in fair values previously recognized in the owners’ equity. (2) Impairment of held-to-maturity financial assets: The treatment of impairment loss on held-to-maturity investments is in line with the impairment loss of the receivables. 2.10 Recognition standard and provision method of provision for bad and doubtful debts of accounts receivable If there is objective evidence at the year end to indicate that impairment exists in accounts receivable, their carrying amount should be decreasingly recorded as recoverable amount. The decreased amount should be recognized as impairment loss of assets and be recorded into profit and loss of the current period. Recoverable amount is recognized through discounting its future cash flow (excluding credit loss that has not occurred) at original actual rate with consideration of the value of related guarantee (deducting estimated disposal expenses and etc.). Original actual rate is actual rate calculated when recognizing the accounts receivable at first. Since there is tiny difference between estimated future cash flow and present value of short-term accounts receivable, the estimated future cash flow will not be discounted when recognizing related impairment loss. Conduct impairment testing separately on accounts receivable with relatively higher individual price at the end of the period. If there is objective evidence to indicate that impairment exists, recognize impairment loss and provide for bad and doubtful debts in accordance with the difference between its future cash flow and carrying amount. Individual material receivables are the first five largest receivables. For individual receivables not material, the Company categorizes them together with the receivables tested unimpaired into groups using aging of the accounts as a similar risk factor, and assigns a certain percentage of the end of the period balance of the receivable groups (individual impairment test may be carried out) to determine the impairment loss and provide for bad debts. Except the receivables provided impairment loss separately, the Company set the provision rate in accordance with the actual loss percentage of the same or -45- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report similar credit risk group by aging divided in the previous years and the real circs as follows: Aging of Appropriation proportion Appropriation proportion accounts (telecommunication (non-telecommunication receivable products) products) Within 2 years --- --- 2 to 3 years 10.00% 20.00% 3 to 4 years 30.00% 50.00% 4 to 5 years 40.00% 80.00 5 to 6 years 80.00% 100.00% More than 6 100.00% 100.00% years 2.11 Inventory: (a) Inventory classification Raw materials, finished goods, turn-over materials, goods in process, and materials for manufacturing consignment etc. (b) Calculation of issued inventory (1) The inventory is calculated using weighted average method when issued. (2) Amortization of turn-over materials: For low cost and short lived articles, use step-amortization method； For package materials, use lump-sum amortization method. (c) System of stock inventories Perpetual inventory system. (d) Recording method of provision for inventory devaluation At the end of the year, after overall check of the inventory, draw or adjust provision for inventory devaluation according to the lower of the cost of inventory and net realizable values of inventory. In normal operation process, net realizable values of commodities inventories for direct sales including finished goods, commodities and materials for sales are determined by the estimated selling prices minus the estimated selling expenses and relevant taxes and fees; In normal operation process, net realizable values of materials that need further processing are determined by the estimated selling prices of the finished goods minus estimated cost to completion, estimated selling expenses and relevant taxes. For the inventory held to implement sales contract or work contract, its net realizable value is calculated on the basis of contract price. For the balance of inventory beyond the amount of the sales contract, its net realizable value is calculated on the basis of general selling price. When the factors that influence the decreased bookkeeping of inventory value have disappeared, switch back from the provision for inventory devaluation amount that previously appropriated and the amount that switched back is charged to profit and loss of current period. -46- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report 2.12 Classification and measurement of investment real estate Investment real estate is defined as the real estate with the purpose to earn rentals or capital appreciation or both, including rented land use rights, land use rights which are held and prepared for transfer after appreciation and rented buildings. The Company adopts the cost model to value investment real estate. For investment real estate for lease accounted for under the cost model, the same depreciation policies as those of the Company’s fixed assets are adopted. For land use right for lease, the same amortization policies as those of the intangibles are adopted. 2.12 Fixed assets, depreciation and provision for impairment loss (a) Recognition standard of fixed assets: Fixed assets are tangible assets that are held for use in the production or supply of services, for rent to others, or for administrative purposes; they have useful lives over one fiscal year. And they shall be recognized only when both of the following conditions are satisfied: (1) It is probable that economic benefits associated with the assets will flow to the enterprise; and (2) The cost of the fixed assets can be measured reliably. (b) Classification of fixed assets: The Company’s fixed assets are classified as buildings and constructions, machinery equipment, transportation equipment and electronic and other equipment. (c) Initial measurement of fixed assets Fixed assets are recorded at the actual cost on acquisition. The cost of fixed assets purchased includes purchase price, related tax, transportation expenses, loading and uploading expenses, installment expenses and specialist service expenses attributable to the assets that arise before the assets are completed and put into use. Where payment for the purchase price of a fixed asset is deferred beyond normal credit terms, such that the arrangement is in substance of a financing nature, the cost of the fixed asset shall be determined based on the present value of the purchase price. The cost of a self-constructed fixed asset comprises those expenditures necessarily incurred for bringing the asset to working condition for its intended use. For fixed assets formed through the debtor’s paying for debt in debt restructure, recognize their recording value as fair value of the fixed assets, and record the difference between the carrying amounts of debt restructure and the fixed assets used for paying debt into profit and loss of the current period. In the circumstance that the non monetary assets exchange has commercial nature and fair value of surrendered or received assets can be measured -47- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report reliably, recording value of received assets should be recognized as fair value of surrendered assets unless there is clear evidence to indicate that fair value of received assets is more reliable; for non monetary assets exchange which doesn’t meet the requirement of premise mentioned above, cost of received assets should be recognized as carrying amount and related tax expenses payable of surrendered assets and should not be recognized as profit and loss. Recording value of fixed assets obtained by absorbing and consolidated by enterprise under the same control should be recognized as carrying amount of the consolidated party; recording value of fixed assets obtained by absorbing and consolidated by enterprise under different control should be recognized as fair value. Recording value of financing leasehold should be recognized as the lower of the fair value of leasing assets and present value of lowest leasing payment when leasing occurs whichever is lower. (d) Depreciation method Depreciation of fixed assets is provided for on a straight-line basis. The depreciation rate is recognized in accordance with category, estimated useful life and estimated residual rate of fixed assets. Fixed assets renovations expenses that meet the criteria of capitalization are depreciated on an individual basis over the interval of two renovations or remaining useful life of the fixed assets, whichever is shorter. Depreciation of financial lease assets is provided for during the remaining useful life if the Company is certain to obtain the ownership of the assets after the leasehold period is over; Depreciation of financial lease assets is provided for during the leasehold period or remaining useful life whichever is shorter if the Company is not certain to obtain the ownership of the assets after the leasehold period is over. Depreciation of improvement on financial lease assets that can be capitalized is provided for on a straight-line basis during the interval between the two improvements, remaining leasehold period or remaining useful life whichever is shortest. Estimated useful life and annual depreciation rate of fixed assets by categories are as follows: Estimated Annual useful life Estimated net depreciation Category (year) residual rate (%) rate(%) Buildings and constructions 15-35 3 2.77-6.47 Machinery equipment 10-15 3 6.47-9.70 Transportation equipment 6-8 3 12.13-16.17 Electronic and other equipment 4-11 3 8.82-24.25 2.14 Calculation method of construction in progress (a) Classification of construction in progress -48- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report The Construction in progress will be calculated based on the classification of proposed projects. (b) Transfer time of construction in progress to fixed assets For the construction in progress, all expenses occurred before it is ready for the use will be recorded as the book values as the fixed assets. In case the construction in progress has been ready for use but the final accounts for completion have not been settled, from the date when such projects has been ready for use, the Company will evaluate the values and determine the costs based on the project budgets, prices or actual costs of projects, etc and the depreciation amount will also be withdrawn; when the final accounts for completion are settled, the Company will adjust the originally evaluated values subject to the actual costs, but will not adjust the withdrawn depreciation amount 2.15 Intangible assets (a) Calculation method of intangible assets The intangible assets are recorded at actual cost upon acquisition. Cost of purchased intangible assets comprises the purchase price, relevant taxes and surcharges and other expenses directly attributable to bringing the assets to intended usage. For those whose deferred paid price exceeds normal credit condition and that substantively have financing character, the cost is confirmed on the basis of present value of purchasing price. The book values of intangible assets to be obtained by the absorption merger from the enterprises which are under the same control will be determined based on the book values of merging party; the book values of intangible assets to be obtained by the absorption merger from the enterprises which are not under the same control will be determined based on their fair values. (b) Usage life and amortization of intangible assets (1) Estimation of useful life for intangible assets with finite useful life： Item Estimated useful life Proof Land use right 50 years Land use right certificate period Software 5-10 years Update cycle Exclusive technology 10 years Exclusive certificate period At the end of each year, the Company will recheck the usage life of intangible assets with the limited usage life and amortization method will be rechecked. According to the re-check, the useful life and amortization method of the intangible assets at the end of the year are not different from those estimated before. (2) Amortization of intangible assets In case their usage life is limited, the intangible assets are amortized evenly over the period in which they produce economic profit for the Company; in case it is impossible to evaluate the usage life when the intangible assets bring -49- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report the benefits to enterprises, it will be deemed that the usage life of such intangible assets is uncertain and amortization is not applicable. (c) The confirmation and calculation of internal R&D expenses The expenses in the developing stage of internal research and development programs can be recognized as intangible assets when satisfying the following conditions: (1) Completing the intangible assets to make them useful or to sell them is technically feasible; (2) Have intention of completing the intangible assets to use or sell; (3) The manners in that the intangible assets produce economic interest can prove that the products produced with the intangible assets have market or the intangible assets themselves have market. For the intangible assets for internal use, verify their feasibility; (4) Have essential technique, financial resources and other resources to support completing the development of intangible assets, and have ability to use or sell the intangible assets; (5) The expenses that belong to development phase of the intangible assets can be calculated reliably. 2.16 Amortization method and period of long-term deferred expenses Long-term deferred expenses are amortized evenly over the beneficial period. Among which: Leasehold improvement for operation on leased property is amortized evenly over the remaining leasing period or the remaining useful life whichever is shorter. 2.17 Impairment on other main assets except for inventories, investment properties and financial assets (a) Long-term equity investment In case the cost method is used to calculate the long-term equity investments which are not quoted in the active market or whose fair values cannot be reliably calculated, the depreciation loss will be determined based on the difference between the book values and present values determined by the discounting of future cash flow in line with the current market return rate of similar financial assets. For other long-term equity investments, in case the calculation results of receivable amounts indicate that the receivable amount of this long-term equity investment is lower than their book values, the difference will be confirmed as the asset depreciation losses. Once the depreciation loss of long-term equity investment is confirmed, it will not be reversed. (b) Long-term non-financial assets such as fixed assets, construction in progress, intangible assets and goodwill etc For long-term non-financial assets such as fixed assets, construction in -50- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report progress, intangible assets, etc, the Company assesses whether signs of possible impairment exist at end of each year. Impairment tests are performed on goodwill arises from business combinations and intangibles with uncertain useful life regardless of whether signs of possible impairment exist. For assets with signs of impairment, recoverable amounts are estimated. Recoverable amounts are determined by the higher of the fair value of the assets after netting off costs of disposal and the current value of projected future cash flows generated by the assets. When the recoverable amount of an asset is lower than the book value of the asset, the book value of the asset is reduced to its recoverable amount. The amount reduced is recognized as impairment loss on assets in the current profit and loss statement, and provision for impairment loss on assets is recorded at the same time. Future depreciation or amortization of assets is adjusted after recognition of impairment loss so that the adjusted book value of the assets (less estimated residual value) is amortized systematically over their remaining useful life. Impairment loss on long-term non-financial assets such as fixed assets, construction in progress, intangibles, etc shall not be reversed once recognized. When there are signs of possible impairment on assets, the Company estimates the recoverable amount of the assets on an individual basis. 2.18 Long-term equity investment (a) Initial Calculation (1) Long-term equity investment formed from enterprises merger In case the long-term equity investment are made to obtain the equities of the enterprises under the same control and the Company pays the cash, transfers the non-cash assets or bears the liabilities as the consideration for the merger, the book value share on the merging date to obtain the owners’ equities of the merging party will be deemed as the initial investment cost of long-term equity investment. The difference between the initial investment cost of long-term equity investment and paid cash, transferred non-cash assets and book values of liabilities will be supplemented by the capital reserve; in case the capital reserve is not enough, the remaining gains will be adjusted. All direct expenses related to the enterprise merger, including the auditing expenses, evaluation expenses, legal service expense, etc, will be accrued to the current profit and loss. In case the long-term equity investment are made to obtain the equities of the merging enterprises which are not under the same control, the consolidation cost determined according to ‘Accounting Standard for Business Enterprises No. 20 – Business Combinations’ on the purchase date will be deemed as the initial investment cost. (2) Other types of long-term equity investment -51- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report In case the long-term equity investment is made by cash payment, the actual payment amount will be deemed as the initial investment cost. In case the long-term equity investment is made by issuing the equity securities, the fair values of issued equity securities will be deemed as the initial investment cost. For the long-term equity investment made by the investors, the values agreed in the investment contracts or agreements (deducting the cash dividends or profits that have been declared but have not been dismissed) will be deemed as the initial investment cost, except that the contracts or agreements provide that the values are not fair. In case the long-term equity investment is made by exchanging the non-currency assets, and this exchange has the commercial substance and the fair values of exchanged assets can be reliably calculated, the fair values of assets surrendered will be deemed as the initial investment cost, unless there is conclusive evidence that the fair values of assets received are more reliable; for exchange of non-currency assets that do not satisfy the above conditions, the sum of book value of assets surrendered and relevant taxes payable will be deemed as the initial investment cost. In case the long-term equity investment is made by the mode of liability restructure, the fair values of the obtained equities will be deemed as the initial investment cost. (b) Judgment criteria of joint control and significant influence in the invested companies If, in accordance with provisions in the contracts, the Company enjoys joint control over certain economic activities only when taking part in significant financial and operational decisions with investors in need of share of control who unanimously agree, the Company is deemed to enjoy joint control with other parties over the invested companies. If the Company is authorized to take part in decision making with regard to the financial and operational policies, but is unable to control or control jointly with other parties over the invested company, the Company is deemed to be able to exercise significant influence over the invested companies. (c) Subsequent measurement and income recognition When the Company is able to exercise significant influence or joint control, the difference of cost of initial investment in excess of the proportion of the fair value of the net identifiable assets in the invested companies is not adjusted against the initial cost of long-term equity investment. The difference of cost of initial investment in short of the proportion of the fair value of the net identifiable assets in the invested companies is charged into the current profit and loss statement. . The Company’s long-term equity investments in subsidiaries are accounted for by the cost method and adjusted according to the equity method when preparing consolidated financial statements. For joint ventures, proportional -52- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report consolidation method is not applicable. When the Company has neither joint control nor significant influence in the invested companies, there is no quotation available on the active market, and the fair value of the investment cannot be reliably measured, the long-term equity investment is accounted for under the cost method. When the Company has joint control or significant influence over the invested companies, the long-term equity investment is accounted for under the equity method. Investment income recognized under the cost method is limited to the proportion of the accumulated profit of the invested companies after the investment. Any excess of profit or cash dividend received over the above amount is recognized as withdrawals of initial investments. Recognition of share of losses of the invested companies under the equity method is treated in the following steps: First, reduce the book value of the long-term equity investment. Second, when the book value is insufficient to cover the share of losses, investment losses are recognized up to a limit of book values of other long-term equity which form net investment in substance by reducing the book value of long term receivables, etc. Finally, after all the above treatments, if the Company is still responsible for any additional liabilities in accordance with the provisions stipulated in the investment contracts or agreements, estimated liabilities are recognized and charged into current investment loss according to the liabilities estimated. If the invested company achieve profit in subsequent periods, the treatment is in the reversed steps described above after deduction of any unrecognized investment losses, i.e., reduce book value of estimated liabilities recognized, restore book values of other long-term equity which form net investment in substance, and in long-term equity investment, and recognize investment income at the same time. Treatment of other equity changes except for net profit or loss in the invested companies: For other equity changes except for net profit or loss in the invested companies, if the proportion of investments remain unchanged, the Company calculates the proportion it shall enjoy or bear and adjust book value of long-term equity investment, and increase or decrease capital reserves – other capital reserves at the same time. 2.19 Capitalization of borrowing expenses (a) Confirmation principle of capitalization of borrowing expenses In case the borrowing expenses occurring in the Company may directly be attributable to the construction and productions of assets complying with the capitalization conditions, they will be capitalized and accrued to the relevant capital costs; other borrowing expenses will be confirmed as the expenses based on the actual amount at the time of occurrence and accrued to the current profit and loss. The assets complying with the capitalization conditions mean the assets such as fixed assets, investment real estates and inventory, etc that need a long -53- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report time of construction and production activities before they are ready for use or for sales. The borrowing expenses begin to be capitalized under the following circumstances: (1) The asset payment have been made which include the payment such as the paid cashes, transferred non-currency assets or borne liabilities with the interests to construct or produce the assets complying with the capitalization conditions; (2) The borrowing expenses have occurred; (3) The necessary construction or production activities to make the assets ready for use or sales have been launched. In case during the construction or production period the assets complying with the capitalization conditions are abnormally suspended and the suspension period exceeds 3 months continuously, the capitalization of borrowing expenses will also be suspended. The capitalization of borrowing expenses for the assets that have been constructed or produced and are ready for use or sales will be stopped. When parts of the purchased assets or assets whose production satisfies the capitalization conditions are completed respectively and can be used individually, the capitalization of the borrowing expenses of these parts will be stopped. (b) Capitalization period of borrowing expenses The capitalization period means the period from the moment that the borrowing expenses start to be capitalized to the moment that the capitalization is stopped, which does not include the period that the capitalization of borrowing expenses is suspended. (c) Calculation method about capitalization amount of borrowing expenses The interest expenses for special loans (after the deduction of interest income generated by the unused loan capitals or the investment return obtained from the temporary investments) and auxiliary expenses will be capitalized before the assets complying with the capitalization conditions are ready for the expected use or sales. The interest amount of general loans to be capitalized will be determined by multiplying the weighted average amount of the asset payment by which the accumulated assets exceed the special loans with the capitalization rate of general loans. The capitalization rate will be determined based on the weighted average interest rate of general loans. In case the loans have the discounts or premiums, the Company will adjust the interest amount in each period based on the amortized discount and premium amount in each accounting period in accordance with the actual interest rate method. 2.20 Recognition of Income -54- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report (a) Sale of goods: Revenue from the sale of goods is recognized when the enterprise has transferred to the buyer the significant risks and rewards of ownership of the goods; the enterprise retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; it is probable that the economic benefits associated with the transaction will flow to the enterprise; and the relevant amount of revenue and costs can be measured reliably. (b) Rendering of service In case on the preparation date of balance sheet the results about service transaction can be reliably evaluated, the labor income will be confirmed by the completion percentage method. The completed percentage of service transactions is determined by the measurement of finished work. In case the service transaction results on the preparation date of balance sheet cannot be reliably evaluated, they will be determined in the following methods: (1) In case the service costs that have occurred can be compensated, the service income will be confirmed based on such service costs and the same amounts will be settled as the service costs. (2) In case the service costs that have occurred cannot be compensated, such service costs will be accrued to the current profit and loss and will not be confirmed as the service costs. (c) Use right of transferred assets In case the economic benefits related to the transaction will probably flow into the enterprise and the income amounts can be reliably calculated, the Company will determine the income amount about use right of transferred assets by the following means: (1) The interest income amount will be calculated and determined based on the use time of currency capital from the Company by others and actual interest rate. (2) The income amount of use expenses will be calculated and determined subject to the charging time and method agreed in the relevant contracts and agreements. (3) Rental income from lease of properties a. Lease contracts, agreements or other notice of settlement ratified by leaseholder b. Have executed liabilities as stipulated in the contract, issued rental invoices and the proceeds have been or will be received with certainty c. Cost can be reliably measured 2.21 Confirmation of deferred income tax assets Using the profit before income tax which is used to offset the variance of temporary difference as a limit to confirm the deferred tax assets that produced by the variance of temporary differences which can be offset. -55- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report 2.22 Reasons for the changes in range of consolidation In 2006, the joint venture Nanjing Mennekes Electric Appliances Ltd. was consolidated by percentage method. In 2007 in according to ‘Accounting Standard for Business Enterprises No. 33-consolidated Financial Statements’, this company was not in the range of the consolidation. 2.23 Accounting policies, accounting evaluation changes and correction of accounting errors and relative effects Since January 1, 2007, the Company has implemented the enterprise accounting standard systems and guidelines issued by the nation. In accordance with the principle stipulated in the articles 5 to 19 of No. 38 Enterprises Accounting Standard - First Implementation of Enterprise Accounting Standards and the "Accounting Standards for Business Enterprises Explanation Notice No. 1", the items of the statements have been adjusted. As accounting policy changes mentioned above, relative effects on statements are as follows: Debt difference Assumed the full Non-reversed on the Difference on investment amount of the extracted surplus adjustment recorded in the unconfirmed reserves of the Item of the Total capital reserves investment loss subsidiaries in equity of subsidiaries by the consolidated investment*3 *1 Company*2 statements*4 Effect on capital -5,722,984.00 -5,722,984.00 reserves Effect on beginning balance of retained 5,722,984.00 -31,187,528.23 928,276.59 -24,536,267.64 earnings of 2007 Including: effect on beginning balance of 5,722,984.00 -31,187,528.23 928,276.59 26,353,923.38 1,817,655.74 undistributed profit of 2007 *1、In previous years, the debt difference of equity investment of Nanjing Postel Wongzhi Telecommunications Co., Ltd. was recorded in capital reserves, in according to the new policies the beginning balance of undistributed profit was retroactively raised by 5,722,984.00 and reduced the capital reserves by 5,722,984.00. *2、In according to the new policies, the Company assumes the full amount of the unconfirmed investment loss from subsidiaries and the beginning balance of undistributed profit was retroactively reduced by 31,187,528.23. *3、In according to the new policies, due to the unamortized debt difference of equity investment from the purchase of subsidiaries under not same control, the beginning balance of undistributed profit was retroactively increased by 965,982.99. The unamortized credit difference of equity investment from the purchase of subsidiaries under not same control will provided the impairment loss on goodwill and the beginning balance of undistributed profit was retroactively reduced by 37,706.40. *4、The reversed amount of surplus reverses belong to the parent company in previous years doesn’t need to be reversed, the surplus reverses was reduced by 26,353,923.38 and increased the beginning balance of undistributed profit by 6,353,923.38. 3. Taxation 3.1 Turnover tax and others -56- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report a) Turnover tax Item Type of tax Tax rate Products sales income VAT 17% Material transferred income VAT 17% Leasing income Business Tax 5% Installation and processiong service Business Tax 3%-5% income b) City Maintenance & Construction Tax The City Maintenance & Construction Tax is recognized and paid as 7% of the turnover tax, and the foreign invested enterprise affiliated to the Company is exempt for the City Maintenance & Construction Tax according to rules. c) Education Tax The Education tax is recognized and paid as 3% of the turnover tax, and the foreign invested enterprise affiliated to the Company is exempt for the Education Tax. 3.2 Income Tax Notes 2006 2007 Enterprise 15% 15% Nanjing Nanfang Telecommunications Company Limited （1） 15% 15% Nanjing Bada Telecommunications Co., Ltd. 33% 33% Nanjing Putian Inforamtion Technology Company Ltd. 33% 33% Nanjing Putian Intelligent Building Ltd. （1） 15% 15% 17.5 Putian Telecommunications (Hong Kong) Co., Ltd. （2） % 17.5% 25.5 Beijing Picom Telecommunications Equipment Ltd. （3） 25.5%% Nanjing Putian Hongyan Electric Appliance Company （4） 24% 24% Nanjing Putian Network Company Ltd. 33% 33% Nanjing Postel Wongzhi Telecommunications Co., Ltd. （4） 24% 24% Nanjing Putian Changle Telecommunications Equipment Co., Ltd. 33% 33% Nanjing Telecommunication Facility Factory Seventh Branch 33% 33% Nanjing Putian Hongyan Electric Appliance Marketplace Company 33% 33% Nanjing Putian Telecommunication Technology Co., Ltd. 33% 33% (1) Nanjing Nanfang Telecommunications Company Limited, Nanjing Putian Intelligent Building Ltd. and the Company is the high-technique enterprise, which is located in Jiangning national new and high technique development area established with the approval by National Scientific Technique Commission. In accordance with relevant rules, Nanjing Nanfang Telecommunications Company Limited, Nanjing Putian Intelligent Building Ltd. and the Company is subject to taxation at a rate of 15% of the standard Enterprise Income Tax rate. (2) Putian Telecommunications (Hong Kong) Co., Ltd. was established in Hong Kong on December 1,2000, and is subject to the Enterprise Income Tax at a rate of 17.5% according to relevant rules in Hong Kong. (3) In accordance with the ‘Approval of the Preferential Enterprise Income Tax for Beijing Picom Telecommunications Equipment Ltd. as the Productive Foreign Invested Enterprise’ (JGSXWSM [2002] No. 1002) issued by National Tax -57- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Bureau Xicheng District, Beijing, Beijing Picom Telecommunications Equipment Ltd. was subject to the taxation at a rate of 24% from Year 2001. The enterprise was exempt for the Enterprise Income Tax for Year 2001 and Year 2002 and was subject to the taxation at a rate of 50% of the standard Enterprise Income Tax rate for the following two years. The enterprise was exempt for the local income tax from 2001 to 2005 and was subject to the taxation at a rate of 50% of the standard local income tax rate for the period from 2006 to 2010. (4) Nanjing Putian Hongyan Electric Appliance Company, Nanjing Postel Wongzhi Telecommunications Co., Ltd. is the productive foreign invested enterprise established in the old city zone of city with the economy and technique development area. Thus, Nanjing Putian Hongyan Electric Appliance Company、 Nanjing Postel Wongzhi Telecommunications Co., Ltd. is subject to the Enterprise Income Tax at rate of 24% in accordance with relevant rules. 4. Enterprise consolidation and the consolidated financial statements The Company adopts the Accounting Policies for Business Enterprises No.33 – Consolidated Financial Statements issued in February 2006. All subsidiaries under the Company’s control are included in the scope of consolidation. The consolidated financial statements are prepared by the parent company based on the individual financial statements of the parent company as well as the subsidiaries included in the scope of consolidation, with reference made to other relevant information and after adjustment to the investments in subsidiaries under equity method. During consolidation, internal equity investments and subsidiaries’ owner’s equity, internal investment income and subsidiaries’ profit distribution, internal transactions, internal debts and credits are eliminated. Subsidiaries adopt the same accounting policy with the parent company. Figures in this section are in CNY ’0000 unless otherwise stated. -58- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report 4.1 Subsidiaries acquired not through enterprise consolidation Actual Percentage Registered investment from directly h Name of investor Business scope capital parent company Nanjing Nanfang Telecommunications Company Limited Manufacture and service of data communication products 3,420.50 3,317.89 Nanjing Bada Telecommunications Co., Ltd. Manufacture of cassette communication equipment 1130.14 678.07 Communication equipment, net equipment, electronic products, data communication products, electronic machinery and equipment products, research, producing, sales, installation and repair of fitted software, telecommunication information net project, buildings intelligentize project, design of computer information system project, construction and Nanjing Putian Inforamtion Technology system combination, consultancy; Maintenance of communication Company Ltd. equipment; property management 1,400.00 1,386.00 Manufacture and sales of buildings intelligentize product, construction Nanjing Putian Intelligent Building Ltd. and system combination 1,200.00 496.21 4 Putian Telecommunications (Hong Kong) Import & export transaction of telecommunication product, research of Co., Ltd. high-tech technique and technique transit, technique trade HKD 200 HKD 180 Beijing Picom Telecommunications Manufacture and sales of net electronic product, data transmit Equipment Ltd. equipment and etc. USD 50 USD 25.5 Nanjing Putian Hongyan Electric Manufacture and sales of electrician appliance, communication applied Appliance Company equipment, plastic product and applied service of related product USD 193 USD 98.82 Telecommunication; Research, manufacture and repair of software and net electronic equipment, sales of electronic computer system Nanjing Putian Network Company Ltd. combination 1,000.00 921.60 Nanjing Postel Wongzhi R&D, manufacture of CDMA mobile product, sales of self-produced Telecommunications Co., Ltd. product and offer related service USD 1,090 USD 730.30 Nanjing Putian Changle Telecommunications Equipment Co., Outside allocation equipment, computer room network engine trunk Ltd. equipment, manufacture and sales of communication electronic product 1000.00 507.00 Nanjing Telecommunication Facility Electronic component, wiring, processing of communication equipment Factory Seventh Branch accessory 60.00 0.00 Hardware, electrical wire and cable, plastic product, electronic appliance, Nanjing Hongyan Electronic Appliance low-pressure equipment and component, sales of communication Marketplace Co., Ltd. equipment 134.08 0.00 Allocation of station record and other electronic appliance; electronic Nanjing Putian Telecommunication product, R&D of communication product, sales and technical service; Technology Co., Ltd. Design, construction, maintenance and system combination of network 475.00 0.00 -59- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Notes 1: The registered capital of Nanjing Putian Intelligent Building Ltd. (hereafter refer to as ‘Building company’) is CNY 12,000,000, and the equity proportion of the Company is 41.3505%., Building company is within the consolidated scope because the Company’s voting authority among the Board of Directors is over a half and the Company has actual control over the building company 4.2 Changes in the scope of consolidation during the year One enterprise was excluded from consolidation for the following reasons: The registered capital of Nanjing Mennekes Electric Appliances Ltd. is USD 4,200,000 and the business scope is industrial pin, socket, produce and sales of related appliances. The Company’s investment is USE 2,100,000 and the investment proportion is 50%. In accordance with the rules of Nanjing Mennekes Electric Appliances Ltd., the Company and the joint venture of German Mennekes Electric Appliances Ltd. control Nanjing Mennekes Electric Appliances Ltd. together, thus the enterprise is under the consolidation by percentage method in 2006. The consolidation financial statements of the Company in 2007 are prepared by ‘Accounting Regulation for Business Enterprise No. 33 -Consolidated financial statement’, thus Nanjing Mennekes Electric Appliances Ltd. is excluded from the consolidated scope. Main description of financial statements of Nanjing Mennekes Electric Appliances Ltd.as of December 31, 2006 is as follows: Total assets Net asset Sales Net profit 61,882,133.98 33,802,159.65 70,609,460.86 3,669,323.55 4.3 Minority shareholders’ equity and interest Other increases/decreases Purchase of Increases/decreases minority Opening of minority Profit shareholders’ Ending Item balance shareholders’ equity distribution equity balance (1)Nanjing Bada Telecommunications Co., Ltd. 4,497,807.14 90,079.11 4,587,886.25 (2) Nanjing Putian Telecommunication Technology Co., Ltd. 22,471.73 -22,471.73 --- (3)Nanjing Putian Intelligent Building Ltd. 24,107,799.76 5,402,575.56 -1,759,485.00 27,750,890.32 (4)Nanjing Hongyan Electronic Appliance Marketplace Co., Ltd. 423,492.30 -290,851.33 132,640.97 (5)Nanjing Putian Hongyan Electric Appliance Company 8,825,853.36 -1,076,159.74 -317,200.00 7,432,493.62 (6)Nanjing Putian Network Company Ltd. 357,202.08 640.90 -45,643.24 312,199.74 (7)Nanjing Postel Wongzhi Telecommunications Co., Ltd. 14,972,050.89 -1,554,319.74 13,417,731.15 (8)Nanjing Putian Changle Telecommunications Equipment Co., Ltd. 6,988,185.03 1,714,905.49 -1,256,598.89 7,446,491.63 Total 60,194,862.29 4,555,249.85 -3,333,283.89 -336,494.57 61,080,333.68 5 Notes to the main items of financial statements (Monetary unit is CNY and the amount is the ending balance unless otherwise stated.) 5.1 Cash and cash equivalents As of December 31, 2007 As of December 31, 2006 Item Non-CNY Exchang Non-CNY Exchan CNY amount CNY amount amount e rate amount ge rate Cash on hand 53,422.12 212,025.96 CNY 53,422.12 212,025.96 214,286,889.3 150,932,041.7 Cash in bank 2 9 -60- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report 198,952,895.1 131,471,586.9 CNY 1 0 1,707,507. 2,355,401.4 USD 7.3046 12,472,657.68 7.8087 18,392,623.45 28 7 Hong Kong Dollar 256,686.19 0.93638 240,355.81 311,001.41 1.00467 312,453.79 EUR 245,428.03 10.6669 2,617,956.25 73,576.94 10.2665 755,377.65 Pound 207.43 14.5807 3,024.47 Other monetary 113,082,452.4 73,386,228.62 funds 6 113,082,452.4 CNY 73,386,228.62 6 287,726,540.0 264,226,520.2 Total 6 1 Classification of other monetary funds Item of other monetary funds as of December 31, Amount 2007 Deposit for investment Security deposit for credit letter 2,371,671.32 Security deposit for bank acceptance bills* 70,000,000.00 Other security deposit 1,014,557.30 Total 73,386,228.62 *Deducted in the cash flow statement. 5.2 Notes receivable Category As of December 31, As of December 2007 31, 2006 Bank acceptance bills 8,260,976.02 5,487,380.36 Commercial acceptance bills 1,259,099.18 23,321,758.04 Total 9,520,075.20 28,809,138.40 Endorsed and undue notes receivable Drawer Date of Due date Amount Remark draft Suzhou Science & Technology Town Co., 2007.7.9 2008.1.9 200,000.00 Ltd. Suzhou Science & Technology Town Co., 2007.7.9 2008.1.9 100,000.00 Ltd. Suzhou Science & Technology Town Co., 2007.7.9 2008.1.9 100,000.00 Ltd. Xuzhou Liangyu Technology Co., Ltd. 2007.7.30 2008.1.29 50,000.00 Beijing Da Zhong Electronics Co., Ltd. 2007.7.25 2008.1.25 75,000.00 Qinghuangdao Branch Shangqiu Baifeng Vehicle Co., Ltd. 2007.8.24 2008.2.24 200,000.00 China Petroleum & Chemical Corporation 2007.8.7 2008.1.24 150,000.00 Zhongyuan Oil Field branch Hangzhou Huachao Baozhuang Co., Ltd. 2007.7.6 2008.1.6 100,000.00 China Netcom (Group) Company Limited 2007.7.22 2008.1.22 46,824.00 Tianjin Branch Henan Star Hi-Tech Co., Ltd. 2007.9.29 2008.3.29 500,000.00 Henan Kaiyuan Air Separation Group Co., 2007.8.28 2008.2.28 70,000.00 Ltd. Hefei Carbon Co., Ltd. 2007.9.21 2008.3.21 29,965.08 Anhui Jiexun Optoelectronic Co., Ltd. 2007.9.14 2008.3.14 47,400.00 Anhui Jiexun Optoelectronic Co., Ltd. 2007.9.5 2008.3.5 59,000.00 China Petroleum & Chemical Corporation 2007.8.7 2008.1.24 150,000.00 Zhongyuan Oil Field branch Tianjin Fushida Bicycle Co., Ltd. 2007.8.22 2008.2.22 50,000.00 -61- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Anqing Sanyou Electronics Co., Ltd. 2007.10.1 2008.4.16 106,000.00 6 China Netcom (Group) Company Limited 2007.9.22 2008.3.22 134,940.00 Tianjin Branch Jiangsu Oil Exploration Corporation Of 2007.7.17 2008.1.16 100,000.00 Sinopec Suzhou Xinye Weaving Co., Ltd. 2007.8.27 2008.2.27 200,000.00 Shaoxing Smile Embroider Co., Ltd. 2007.8.24 2008.2.24 50,000.00 Shenzhen Popular Industry Co., Ltd. 2007.11.28 2008.2.26 400,000.00 Henan Fangfu Corporation Group Co., Ltd. 2007.10.2 2008.4.25 100,000.00 5 Zhejiang Hongda Plastic Co., Ltd. 2007.7.5 2008.1..5 971,200.00 Bengbu Wantong Machinery And Equipment 2007.7.13 2008.1.13 100,000.00 Pipeline Fittings Co., Ltd. Liaocheng Huarui Electric Co., Ltd. 2007.7.27 2008.1.27 157,606.00 Anqing Changlong Hardware Electric 2007.8.13 2008.2.13 406,000.00 Appliance Co., Ltd. Anqing Sanyou Electronics Co., Ltd. 2007.8.16 2007.2.16 110,000.00 Jincheng Diamond Tools Co., Ltd. 2007.7.23 2008.1.18 50,000.00 Chongqing Changan Automobile Company 2007.9.14 2008.3.4 300,000.00 Limited Anqing Changlong Hardware Electric 2007.9.19 2008.3.19 250,000.00 Appliance Co., Ltd. Xuzhou Yongle Household Appliance Co., 2007.7.30 2008.1.29 21,787.83 Ltd. Sanweifang Qiyuan Hongsheng Economic & 2007.9.14 2008.3.14 50,000.00 Trade Co., Ltd. Anhui Huaihua Group Co., Ltd. 2007.7.20 2008.1.20 120,000.00 Anqing Sanyou Electronics Co., Ltd. 2007.9.28 2008.3.28 93,500.00 Henan Kaiyuan Air Separation Group Co., 2007.8.28 2008.2.28 70,000.00 Ltd. Hefei Carbon Co., Ltd. 2007.9.21 2008.3.21 29,965.08 Anhui Jiexun Optoelectronic Co., Ltd. 2007.9.5 2008.3.5 59,000.00 Anhui Jiexun Optoelectronic Co., Ltd. 2007.9.14 2008.3.14 47,400.00 Anqing Sanyou Electronics Co., Ltd. 2007.10.1 2008.4.16 106,000.00 6 Anqing Changlong Hardware Electric 2007.10.2 2008.4.24 300,000.00 Appliance Co., Ltd. 4 Anqing Sanyou Electronics Co., Ltd. 2007.11.21 2008.5.21 200,000.00 Anqing Changlong Hardware Electric 2007.11.26 2008.5.26 300,000.00 Appliance Co., Ltd. Anhui Jiexun Optoelectronic Co., Ltd. 2007.9.20 2008.3.20 42,600.00 Zhejiang Huangyan Sanye Group Co., Ltd. 2007.9.26 2008.3.26 150,000.00 Anqing Sanyou Electronics Co., Ltd. 2007.11.21 2008.5.21 177,000.00 Dongfeng Automobile Co., Ltd. 2007.10.1 2008.4.18 340,000.00 9 Chongqing Sifang Automobile Trade Co., 2007.10.11 2008.4.11 500,000.00 Ltd. Hefei Guangtai Industry & Trade Co., Ltd. 2007.10.2 2008.4.24 100,000.00 4 Total 8,071,187.9 9 5.3 Accounts receivable a) Accounts receivable constitution Item As of December 31, 2007 As of December 31, 2006 -62- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Provision Provision Book balance Percentage proportion Provision Book balance Percentage proportion Provision 1. Amount with significant individual amount and has been provided for bad and doubtful debts --- --- --- --- --- --- --- --- 2.other accounts classified as seeming credit risk in accordance with aging 350,834,990.82 100.00% 8.23% 28,871,368.44 394,066,307.07 100.00% 6.29% 24,770,149.82 Among which: within 1year 270,672,037.05 77.15% 0.30% 820,754.94 307,224,718.98 77.96% 0.61% 1,885,121.42 1-2 years 38,562,968.58 10.99% 8.47% 3,264,693.64 43,484,008.28 11.03% 2.36% 1,027,481.01 2-3 years 20,627,414.91 5.88% 37.04% 7,639,594.58 16,610,063.43 4.22% 29.06% 4,826,539.13 3-4 years 6,241,050.78 1.78% 60.09% 3,750,199.47 15,051,355.36 3.82% 54.14% 8,148,434.89 4-5 years 4,579,506.57 1.31% 84.09% 3,851,022.79 10,560,997.60 2.68% 74.11% 7,826,396.79 Over 5 years 10,152,012.93 2.89% 94.02% 9,545,103.02 1,135,163.42 0.29% 93.04% 1,056,176.58 350,834,990.8 28,871,368.4 394,066,307.0 Total 2 100.00% 4 7 100.00% 24,770,149.82 b) Accounts receivable with significant individual amount Rank of Amount significant individual Provision amount proportion Reason No. 1 16,476,044.29 0.00% Low possibility of bad and doubtful debts No. 2 9,482,061.06 0.00% Low possibility of bad and doubtful debts No. 3 6,083,382.50 0.00% Low possibility of bad and doubtful debts No. 4 5,556,000.00 0.00% Low possibility of bad and doubtful debts No. 5 4,911,046.70 0.00% Low possibility of bad and doubtful debts c) Account receivable actually offset in current year Accounts receivable actually offset in current year amounts to 3,390,844.44. d) There is no accounts receivable due from shareholder who has more than 5% (including 5 %) voting shares of the Company as of 31 December 2007. e) Top 5 debtors of accounts receivable Amount Aging Percentag Rank of debtor e No. 1 16,476,044.29 Within 1 year 4.70% No. 2 9,482,061.06 Within 1 year 2.70% No. 3 6,083,382.50 Within 1 year 1.74% No. 4 5,556,000.00 Within 1 year 1.58% No 5 4,911,046.70 Within 1 year 1.40% f) Accounts receivable with related parties accounts for 7.27% of total amount of this item. 5.4 Advances to suppliers a) Analysis of aging As of December 31, 2007 As of December 31, 2006 Aging Proportion of Proportion of Amount Amount total amount total amount Within 1 year 7,841,945.31 97.85% 27,548,999.77 67.74% 1 to 2 years 169,748.32 2.12% 13,122,239.87 32.26% 2 to 3 years 2,250.00 0.03% 0.00 0.00% Total 8,013,943.63 100.00% 40,671,239.64 100.00% b) Among the ending balance, there is no amount due from shareholders that -63- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report hold more than 5% (including 5%) shares of the Company. 5.5 Dividends receivable Item Amount Nature and content Dividends receivable with aging within one year Nanjing Mennekes Electric Appliances Ltd. 1,562,824.17 5.6 Other receivables a) Other receivables constitution As of December 31, 2007 As of December 31, 2006 Item Provision Provision Book balance Percentage proportion Provision Book balance Percentage proportion Provision 1. Amount with significant individual amount and has been provided for bad and doubtful debts --- --- --- --- --- --- --- --- 2. other accounts classified as seeming credit risk in accordance with aging 60,136,552.93 100.00% 10.11% 6,080,358.83 57,195,912.40 100.00% 8.05% 4,605,838.49 Among which: within 1 year 35,769,963.98 59.49% 0.54% 193,046.10 31,351,942.16 54.82% 0.69% 215,679.94 1-2 years 2,434,364.40 4.05% 4.38% 106,542.43 19,634,977.76 34.33% 2.01% 395,217.50 2-3 years 17,550,391.14 29.18% 13.32% 2,338,317.67 1,699,748.91 2.97% 26.25% 446,236.83 3-4 years 1,602,256.93 2.66% 53.05% 850,074.12 2,306,049.78 4.03% 63.28% 1,459,274.46 4-5 years 591,551.40 0.98% 71.18% 421,041.12 166,498.70 0.29% 81.39% 135,517.40 Over 5 years 2,188,025.08 3.64% 99.24% 2,171,337.39 2,036,695.09 3.56% 95.94% 1,953,912.36 Total 60,136,552.93 100.00% 6,080,358.83 57,195,912.40 100.00% 4,605,838.49 b) Other receivables with significant individual amount Rank of significant Amount Provision individual amount proportion Reason 10% Estimated possibility of bed debt No. 1 10,361,249.00 Low possibility of bad and doubtful No. 2 6,500,000.00 0.00% debts Low possibility of bad and doubtful No. 3 5,000,000.00 0.00% debts 10% Estimated possibility of bed debt No. 4 4,815,430.55 No. 5 4,500,000.00 0.00% Low possibility of bad and doubtful debts c) Other receivables actual written off in current year Other receivables actual written off in current year amounted to 892,703.11. There is no other receivable due from shareholder who has more than 5% (including 5 %) voting shares of the Company as of 31 December 2007. d) Top 5 of ending balance of other receivables Rank of debtor Nature or content Amount Aging Percentage No. 1 Payment for equity 2 to 3 years 17.23% -64- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report transfer 10,361,249.00 Temporary payment Within 1 year No. 2 6,500,000.00 10.81% Temporary payment Within 1 year No. 3 5,000,000.00 8.31% Temporary payment 2 to 3 years No. 4 4,815,430.55 8.01% Temporary payment 1 to 2 years No. 5 4,500,000.00 7.48% e) As of December 31, 2007 other receivables due from related parties accounted for 0.00 ％ of total amount of this item. 5.7 Inventories and provision for inventory devaluation As of December 31, 2007 As of December 31, 2006 Item Provision for Provision for Amount Amount devaluation devaluation Raw 30,131,401.31 6,322,693.53 40,957,558.39 6,282,881.27 materials Goods in 23,464,841.84 10,404,064.58 25,673,938.51 10,901,316.77 process Finished 139,649,219.22 10,857,470.91 152,728,069.04 3,311,145.26 goods Total 193,245,462.37 27,584,229.02 219,359,565.94 20,495,343.30 a) Provision for inventory devaluation As of Decreases As of Item December 31, Provided Written December Returned 2006 off 31, 2007 1、Raw materials 1,423,570.23 1,383,757.9 6,282,881.27 6,322,693.53 7 2 、 Goods in 0.00 497,252.19 10,404,064.5 10,901,316.77 process 8 3、Finished goods 8,842,038.94 1,295,713.2 10,857,470.9 3,311,145.26 9 1 Total 20,495,343.30 10,265,609.17 3,176,723.4 27,584,229.0 5 2 5.8 Long-term equity investment As of December 31, 2007 As of December 31, 2006 Provision for Provision for Amount Amount diminution in value diminution in value 214,759,591.64 0.00 18,851,034.25 0.00 a) Information of invested unit Voting right proportion Share of the holding Company percentage among Total ending of the invested balance of net Total sales of Net profit of Name of invested unit Registry Business nature Company units assets current year current year 1. Joint venture 1 、 Nanjing Nanjing Manufacture and 50.00％ 50.00% 40,374,640.45 93,387,878.35 4,142,805.62 Mennekes Electric sales of Appliances Ltd. industrial plugs and sockets 2 、 Danyang Putian Danyang Manufacture and 50.00％ 50.00% 3,000,000.00 0.00 0.00 -65- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Building Digital sales of digital Cable Co., Ltd. cables 2. Affiliated venture 1 、 Nanjing Putian Nanjing Manufacture and 40.00％ 40.00％ 2,130,247.41 4,204,541.31 314,498.47 Datang Information sales of and Electric telecommunication Company Ltd. products 2、Nanjing Zhongyou Nanjing Manufacture and 30.00％ 30.00％ 670,974.72 16,272,108.54 120,806.92 Telecommunication sales of Co., Ltd. telecommunication products 3 、 Nanjing Potevio Nanjing Land leasing and 49.64％ 49.64％ 337,357,690.15 0.00 -190,451.14 Telecommunication management of Technology Industry the industry park Park Co., Ltd. 4、Shanghai Yulong Shanghai Development, 21.00％ 21.00％ 67,429,768.74 0.00 -5,563,747.27 Biotech Ltd. manufacture and sales of bio-tech products 5 、 Qufu Yulong Qufu Development, 21.00％ 21.00％ 45,149.363.47 0.00 -3,359,535.18 Bio-Tech Co., Ltd. manufacture and sales of bio-tech products b) Long-term equity investment with cost method Increases As of As of and December 31, December 31, decreases of Provision for 2006 2007 Name of invested unit Initial amount current year diminution in value Nanjing Yuhua Electroplating Factory 420,915.00 420,915.00 0.00 420,915.00 0.00 Hangzhou Hongyan Electric Appliance Group Co., Ltd. 321,038.00 321,038.00 0.00 321,038.00 0.00 Nanjing Putian Telecommunication Industry Co., Ltd. 181,701.84 181,701.84 0.00 181,701.84 0.00 Total 923,654.84 923,654.84 0.00 923,654.84 0.00 c) Long-term equity investment with equity method As of Increases and decreases of current year As of December December 31, Among which: received 31, 2007 2006 Total Name of invested unit Initial amoun cash dividends 1. Joint venture 1 、 Nanjing Mennekes Electric Appliances Ltd. 15,037,508.00 16,901,079.83 3,286,240.40 1,562,824.17 20,187,320.23 2 、 Danyang Putian Building Digital Cable Co., Ltd. 1,500,000.00 0.00 1,500,000.00 0.00 1,500,000.00 2. Affiliated venture 1、Nanjing Putian Datang Information and Electric Company Ltd. 600,000.00 726,299.58 125,799.39 0.00 852,098.97 2 、 Nanjing Zhongyou Telecommunication Co., Ltd. 300,000.00 300,000.00 -98,707.58 0.00 201,292.42 3 、 Nanjing Potevio Telecommunication Technology Industry Park Co., Ltd. 167,548,141.29 0.00 167,453,607.41 0.00 167,453,607.41 4 、 Shanghai Yulong Biotech Ltd. 23,310,000.00 0.00 14,160,251.44 0.00 14,160,251.44 5、Qufu Yulong Bio-Tech Co., Ltd. 0.00 0.00 9,481,366.33 0.00 9,481,366.33 Total 208,295,649.29 17,927,379.41 195,908,557.39 1,562,824.17 213,835,936.80 d) Ending balance of equity investment has increased by 195,908,557.39 compared with the beginning balance, with increasing rate of 1039.25％. The primary reason leads to the change is: In 2007, the Company invested Nanjing Potevio Telecommunication Technology Industry Park Co., Ltd. by house property and land use right, the percentage of investment is 49.64% and amounted to 167,548,141.29. -66- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report 5.9 Investment real estate Increases Decreases Real estate As of for self-use Investment real As of Depreciation Item December 31, or estatetransferred December 31, and Disposal 2006 transferred into real estate 2007 amortization from for self-use inventory 1、 Total original value 10,032,416.92 10,032,416.92 1、Land use right rented out 3,642,147.50 3,642,147.50 2、Land use right held and ready to transfer after appreciation 3、Constructions rented out 6,390,269.42 6,390,269.42 4、Temporarily idle 2、 Total depreciation provided 2,266,338.11 245,092.56 2,511,430.67 or accumulated amortization 1、Land use right rented out 443,196.13 79,973.76 523,169.89 2、 Land use right held and ready to transfer after appreciation 3、Constructions rented out 1,823,141.98 165,118.80 1,988,260.78 3、 Accumulated provision for 1,842,418.00 1,842,418.00 impairment loss on investment real estate 1．Land use right rented out 2． Land use right held and ready to transfer after appreciation 3．Constructions rented out 1,842,418.00 1,842,418.00 4．Temporarily idle 4、 Total book value of 5,923,660.81 -245,092.56 5,678,568.25 investment real estate 1．Land use right rented out 3,198,951.37 -79,973.76 3,118,977.61 2． Land use right held and ready to transfer after appreciation 3．Constructions rented out 2,724,709.44 -165,118.80 2,559,590.64 4．Temporarily idle 5.10 Original cost of fixed assets and accumulated depreciation a) Original cost of fixed assets As of As of December 31, December 31, Category 2006 Increases Decreases 2007 Buildings and 104,646,509.7 53,763,452.8 constructions 1 2,009,190.98 52,892,247.83 6 Machinery 74,857,356.6 equipment 74,775,699.51 1,015,134.06 933,476.89 8 Transportation 10,775,729.4 equipment 11,340,148.32 1,062,994.10 1,627,412.95 7 Electronic 50,194,767.64 1,717,030.95 2,300,026.75 49,611,771.84 equipment 240,957,125.1 189,008,310. Total 5,804,350.09 57,753,164.42 8 85 Among which: 1) Transferred from CIP: 3,530,600.37. 2) Pledged: 0.00. b) Accumulated depreciation As of As of December December 31, Category 31, 2006 Increases Decreases 2007 Buildings and 25,719,041.6 constructions 44,828,079.96 4,038,382.20 8 23,147,420.48 Machinery equipment 41,386,356.67 8,195,771.05 561,311.58 49,020,816.14 Transportation equipment 7,106,023.42 972,530.43 1,122,000.99 6,956,552.86 -67- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Electronic equipment 38,461,617.06 1,852,257.74 1,771,881.82 38,541,992.98 15,058,941.4 29,174,236.0 117,666,782.4 Total 131,782,077.11 2 7 6 c) Provision for impairment loss on fixed assets As of As of December Decreas December Reason for Category 31, 2006 Increases es 31, 2007 provision Buildings and Left unused constructions 539,124.00 0.00 0.00 539,124.00 Machinery Stopped equipment 0.00 746,565.99 0.00 746,565.99 using Transportation equipment 0.00 0.00 0.00 0.00 Electronic 1,412,636.3 2,006,265. Stopped equipment 8 597,502.22 3,873.26 34 using 1,951,760.3 1,344,068.2 3,291,955. Total 3,873.26 8 1 33 Notes: In 2007, reason for decrease of provision for impairment loss on fixed assets is selling. d) Book value of fixed assets As of As of December December 31, Category 31, 2006 Increases Decreases 2007 Buildings and 59,279,305.7 2,009,190. 31,211,588. 30,076,908.3 constructions 5 98 35 8 Machinery equipment 33,389,342.8 1,015,134. 9,314,502.3 25,089,974.5 4 06 5 5 Transportation equipment 1,062,994. 1,477,942.3 4,234,124.90 10 9 3,819,176.61 Electronic equipment 10,320,514.2 1,717,030. 2,974,031.6 0 95 3 9,063,513.52 107,223,287. 5,804,350. 44,978,064. Total 68,049,573.06 69 09 72 e) Fixed assets not in use Temporarily idle. Accumulate Accumulated Net book Estimated time to put Category Original cost d depreciation value into use in normal depreciation operation Machinery equipment 1,956,456.23 1,209,890.24 746,565.99 0.00 Electronic equipment 1,431,119.40 833,617.18 597,502.22 0.00 Total 1,344,068.2 3,387,575.63 2,043,507.42 1 0.00 f) Fixed assets with no property right certificate Accumulated Reason for no property Category Original cost Net book value depreciation right certificate Buildings and constructions 12,191,531.61 5,869,490.22 6,322,041.39 No land certificate. 5.11 Construction in progress -68- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Decreases As of As of Proportion of Transfer Fund Name of project Budget December Increases Other December project input into fixed resources 31, 2006 decreases 31, 2007 in budget assets Software project 42,000.00 0.00 42,000.00 0.00 0.00 Self funds Capital construction 3,372,600.3 installation program 1,395,012.01 2,352,152.80 7 104,074.44 270,490,00 Self funds Newly built 120,000,00 6,633,802.7 workshop program 0 33,456.00 8 0.00 0.00 6,667,258.78 Self funds 5.56% Changle simplified workshop program 116,000.00 0.00 116,000.00 0.00 0.00 Self funds 8,985,955.5 3,530,600.3 6,937,748.7 Total 1,586,468.01 8 7 104,074.44 8 5.12 Intangible assets a) Original cost of intangible assets As of As of Item December 31, Increases Decreases December 2006 31, 2007 Land use 35,721,781.8 15,354,780. 42,825,669. right 8 10 11 8,250,892.87 Exclusive 0.00 - technology 5,775,000.00 5,775,000.00 610,908.00 - Software 6,580,952.60 7,191,860.60 15,965,688. 42,825,669. Total 48,077,734.4 10 11 21,217,753.4 8 7 b) Accumulated amortization As of As of Item December 31, Amortization Decreases December 31, 2006 2007 Land use 9,205,349. right 9,146,431.01 849,858.38 36 790,940.03 Exclusive - technology 2,853,041.58 577,500.00 3,430,541.58 - Software 5,266,844.13 718,883.65 5,985,727.78 2,146,242.0 9,205,349. 10,207,209.39 Total 17,266,316.72 3 36 c) Book value of intangible assets As of Increases Decreases As of Remained December 31, December amortizatio Item 2006 31, 2007 n period (year) 26,575,350.87 15,354,780. 34,470,178. 7,459,952.8 9-49 Land use right 10 13 4 Exclusive 2,921,958.42 0.00 577,500.00 2,344,458.4 4 technology 2 1,314,108.47 610,908.00 718,883.65 1,206,132.8 1-9 Software 2 Total 30,811,417.76 15,965,688. 35,766,561. 11,010,544.0 10 78 8 -69- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report 5.13 Long-term deferred expenses As of Original As of Accumulate Decemb Remained occurred December Increase d er 31, amortization Item amount 31, 2006 s Amortization amortization 2007 period Decoration expenses 666,648.52 391,256.95 0.00 388,002.56 663,394.13 3,254.39 One month Installation fee of telephones 473,005.00 94,601.00 0.00 94,601.00 473,005.00 0.00 Total 1,139,653.5 1,136,399.1 2 485,857.95 0.00 482,603.56 3 3,254.39 5.14 Short-term borrowings Short-term borrowings As of December As of December Category 31, 2007 31, 2006 Pledged borrowings 0.00 0.00 Mortgage borrowings 0.00 70,000,000.00 Guaranteed borrowings 324,000,000.00 288,900,000.00 Discount of bank and commercial acceptance bills 80,000,000.00 80,000,000.00 Total 404,000,000.00 438,900,000.00 5.15 Notes payable As of December 31, As of December 31, Category 2007 2006 Bank acceptance 0.00 3,220,570.00 bills 5.16 Accounts payable As of December 31, As of December 31, 2006 2007 254,366,894.39 223,833,399.31 a) There is no shareholders’ amount with more than 5% (including 5%) voting shares of the Company of accounts payable.。 b) The ending balance of related parties amounted to10,400.00. For particulars see Note 7. 5.17 Advances from customers As of December 31, As of December 31, 2006 2007 32,990,187.59 11,549,131.11 1、There is no shareholders’ amount with more than 5% (including 5%) voting shares of the Company of accounts payable. 2、There is no ending balance of related party. 5.18 Employee benefits payable Employee benefits payable -70- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Item As of Increases Paid during As of December 31, current year December 31, 2006 2007 1. Salary, bonus, 17,100.85 54,222,993.04 54,231,872.17 8,221.72 allowance and subsidy 2. Welfare expenses for 1,964,649.15 2,552,692.10 4,517,341.25 0.00 staff 3. Social insurance fees 2,994.00 19,633,432.39 19,636,426.39 0.00 4. Housing fund 3,992.00 5,172,351.87 5,176,343.87 0.00 5. Trade union expenses 2,914,534.82 2,312,292.94 1,207,931.76 4,018,896.00 and staff education expenses 6. Non-monetary welfare 0.00 0.00 0.00 0.00 7. Compensation for the 0.00 21,360.00 21,360.00 0.00 cancellation of work relationship 8. Housing subsidy 10,736,698.25 385,336.02 399,227.59 10,722,806.68 Among which: Shares paid 0.00 0.00 0.00 0.00 in cash Total 15,639,969.07 84,300,458.36 85,190,503.03 14,749,924.40 5.19 Taxes and surcharges payable Item As of As of Legal tax rate December 31, December 31, executed in the 2007 2006 current year VAT -10,447,546.0 -19,668,588.8 17% 9 8 Consumption tax 0.00 0.00 Business tax 151,793.93 78,258.72 3%-5% City maintenance & construction 463,310.58 106,024.95 7% tax Enterprise income tax 3,316,757.40 2,109,030.21 Individual income tax 187,360.96 176,277.89 Land VAT 0.00 0.00 Real estate tax 578.90 578.90 Stamp duty 2,192.10 830.75 Education surcharge 315,068.40 560,055.07 3% Embankment expenses 0.00 40,968.56 17% Total -6,010,483.82 -16,596,563.8 3 5.20 Other payables As of As of December Item December 31, 31, 2006 2007 71,950,839.60 31,623,555.17 Among which: Advanced 1,614,800.00 987,500.00 expenses a) There is no shareholders’ amount with more than 5% (including 5%) voting shares of the Company of accounts payable.。 b) Ending balance of related parties amounted to 54,241,475.91. For particulars see Note 7. c) Larger amounts are: Name of enterprise Amount Nature or Remark content Nanjing Potevio Temporary loan Telecommunication Technology 54,241,475.91 -71- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Industry Park Co., Ltd. Shanghai Linyan Deposit Telecommunication Technology Co., Ltd. 2,871,525.15 d) Advanced expenses categorized by expense type Expense type As of December 31, Reason for ending balance 2007 Three guarantees 1,614,800.00 Three guarantees expenses compensation 5.21 Long-term payables As of December 31, As of December 31, Category Prompt 2007 2006 Working fund 80,118.00 80,118.00 5.22 Share capital As of December 31, 2006 Increases(+) or decreases(-) in current year As of December 31, 2007 Shares Proportion transferred Proportio Item Issuance of Gift Other Subtot Amount from public Amount ％ new shares share s al n％ reserve fund 1．Unlisted shares 115,000,000.00 53.49 115,000,000. 53.49 00 （ 1 ） Promotion 115,000,000.00 53.49 115,000,000. 53.49 shares 00 Among which: State-holding shares Among which: State-owned shares State-owned legal 115,000,000.00 53.49 115,000,000. 53.49 entity shares 00 Domestic legal entity shares Foreign legal entity shares Natural person’s shares （ 2 ） Recruitment legal entity shares （ 3 ） Internal staff shares （ 4 ） Preferred shares or ohers Among which:Transferred shares Total of unlisted 115,000,000.00 53.49 115,000,000. 53.49 shares 00 2. Listed shares (1) CNY ordinary shares (2) Domestically 100,000,000.00 46.51 100,000,000. 46.51 listed foreign 00 shares (3) Overseas listed foreign shares (4) Others Total of listed 100,000,000.00 46.51 100,000,000. 46.51 shares 00 3．Total shares 215,000,000.00 100.00 215,000,000. 100.00 00 -72- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report 5.23 Capital reserves Item Unadjusted as Adjusted Adjusted as of Increases*2 As of of December amount*1 December 31, December 31, 31, 2006 2006 2007 Share capital 140,480,996.0 140,491,909.8 premium 0 140,480,996.00 10,913.80 0 Other capital reserves 48,697,029.20 -5,722,984.00 42,974,045.20 42,974,045.20 Total 189,178,025.2 183,465,955.0 0 -5,722,984.00 183,455,041.20 10,913.80 0 Note to the increases of capital reserves: *1 In according to the items stipulated in the articles of No. 38 Enterprises Accounting Standard - First Implementation of Enterprise Accounting Standards and the ‘Accounting Standards for Business Enterprises Explanation Notice No. 1’, the financial statements was retroactively adjusted, which reduced the capital reserves by -5,722,984.00. Particulars see Note 2.22. *2 Capital reserves increased due to purchase minority shareholders' equity. 5.24 Surplus reserves Item Unadjusted Adjusted Adjusted as of Increase Decrease As of as of amount December 31, s s December December 31, 2006 31, 2007 2006 Statutory Surplus 26,943,483.1 -26,353,923.3 Reserves 5 8 589,559.77 589,559.77 In according to the items stipulated in the articles of No. 38 Enterprises Accounting Standard - First Implementation of Enterprise Accounting Standards and the ‘Accounting Standards for Business Enterprises Explanation Notice No. 1’, the financial statements was retroactively adjusted, which reduced surplus reserves by 26,943,483.15, Particulars see Note 2.22. 5.25 Undistributed profit Item Amount Proportion of extract and distribution Unadjusted undistributed profit at the -83,098,223.4 beginning of period 7 Adjustment of undistributed profit at the 1,817,655.74 beginning of period（increases+, decreases-） Adjusted undistributed profit at the beginning -81,280,567.7 of period 3 Plus：Net profit of current year 3,936,869.94 Other transferred in 0.00 Minus：Extract for statutory surplus reserves 0.00 Extract for staff welfare fund 0.00 Extract for reserve fund 0.00 Extract for enterprise development fund 0.00 Profit return for investment 0.00 Dividends payable to preferred shares 0.00 -73- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Extract for discretionary surplus reserves 0.00 Dividends payable to ordinary shares 0.00 Dividends for ordinary shares transferred 0.00 into capitals Undistributed profit at the ending of period -77,343,697.7 9 Adjustment of undistributed profit at the beginning of period is 1,817,655.74. Among which: In according to the items stipulated in the articles of No. 38 Enterprises Accounting Standard - First Implementation of Enterprise Accounting Standards and the ‘Accounting Standards for Business Enterprises Explanation Notice No. 1’, the financial statements was retroactively adjusted, which effect the beginning balance of undistributed profit by 1,817,655.74, Particulars see Note 2.22; 5.26 Operating revenue and operating cost Current year Previous year Item Other Main operation Other operation Subtotal Main operation operation Subtotal Operating 936,335,907.1 956,667,274.5 990,564,040.3 revenue 0 37,994,084.42 974,329,991.52 9 33,896,765.73 2 Operating 833,084,347.2 772,804,779.7 806,251,107.9 cost 1 37,294,943.82 870,379,291.03 2 33,446,328.26 8 Operating 103,251,559.8 183,862,494.8 184,312,932.3 profit 9 699,140.60 103,950,700.49 7 450,437.47 4 a) Sales and costs of sales of listed in accordance with operation categories Sales Costs of sales Item Current year Previous year Current year Previous year Communication products 948,684,702.46 845,644,221.19 853,934,283.61 692,667,447.63 Electronic equipment 187,031,015.92 302,013,223.86 179,283,860.72 276,776,177.75 Others 5,857,629.19 15,446,346.49 5,103,643.35 9,797,671.29 Subtotal 1,141,573,347.57 1,163,103,791.54 1,038,321,787.68 979,241,296.67 Deduction between business -205,237,440.47 -206,436,516.95 -205,237,440.47 -206,436,516.95 sections of the Company Total 936,335,907.10 956,667,274.59 833,084,347.21 772,804,779.72 b) The Company’s total sales to top 5 clients amount to 117,781,151.88 and account for 12.09% of total operating revenue of current year. 5.27 Taxes and surcharges on operations Item Current year Previous year Business tax 888,736.07 842,504.03 City maintenance & construction 1,290,888.79 834,046.25 tax Education surcharge 381,778.35 824,831.30 Others 0.00 3,690.00 Total 2,561,403.21 2,505,071.58 5.28 Impairment loss on assets Item Current year Previous year -74- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report 1、Bad debt loss 9,859,286.51 13,115,131.49 2 、 Impairment loss on 10,265,609.17 10,068,921.47 inventory 3 、 Impairment loss on fixed 1,344,068.21 0.00 assets Total 21,468,963.89 23,184,052.96 5.29 Investment income Item or name of invested Current year Previous year unit Financial instrument investment income 0.00 0.00 Equity investment income 870,191.81 2,109,192.36 Cost method valuation recognition 4,731.90 38,545.35 Equity method valuation recognition 865,459.91 1,308,647.01 Disposal investment income 0.00 762,000.00 Total 870,191.81 2,109,192.36 No significant restrictions on investment income. 5.30 Financial expenses Category Current year Previous year Interest expenses 27,829,297.32 24,605,540.39 Less: Interest income 4,764,931.93 6,569,917.34 Exchange loss 351,348.98 287,777.74 Others 363,258.60 426,817.28 Total 23,778,972.97 18,750,218.07 5.31 Non-operating profit Item Current year Previous year 1、Total income from disposal 106,243,956.29 218,474.18 of non-current assets Including: Income from 106,243,956.29 218,474.18 disposal of fixed assets 2 、 Income from debt 22,100.00 0.00 restructure 3、Subsidy from government 868,237.00 855,608.14 4、Indemnity income 2,306,281.59 52,677.00 5 、 Compensation from 0.00 1,700,000.00 moving 6、Compensation income 0.00 580,000.00 7、Gain or loss from the short 1,385,118.60 0.00 of investment cost compared to the appropriate realizable fair value of net assets of the invested unit -75- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report 8、Others 914,343.66 652,556.16 Total 111,740,037.14 4,059,315.48 Non-operating profit of current year increased by 116,303,930.66 as compared with previous year. The increase rate is 2865.11%. Main reason for such increase is: the Company used real estate and land to invest in Nanjing Potevio Telecommunication Technology Industry Park Co., Ltd. this year. The investment proportion is 49.64%. the non-operating profit arises because the fair value of real estate and land is larger than the book value. 5.32 Non-operating expenses Item Current year Previous year 1．Total loss for disposal of 328,574.47 -1,120,140.00 non-current assets Including: Loss for disposal 328,574.47 -1,120,140.00 of fixed assets 2．Loss from debt restructure 288,091.35 0.00 3．Beneficent donation 20,100.00 2,800.00 4 ． Loss for inventory 5,396.42 155,183.09 shortage 5. Fine expenses 72,363.06 244,369.03 6. Default penalty expenses 0.00 1,650,164.00 7.Various fund expenses 1,725.00 203,201.89 8. Others 780,375.58 617,143.16 Total 1,496,625.88 1,752,721.17 5.33 Income tax expenses Item Current year Previous year Income tax expenses of current 5,459,666.09 2,828,001.98 year Deferred income tax expenses 0.00 0.00 Total 5,459,666.09 2,828,001.98 5.34 Government subsidies Sort and amount of government subsidies Current Previous Sort year year Remark Drawback of VAT 868,237.0 855,608.14 Subsidiary company Nanjing 0 Telecommunication Facility Factory Seventh Branch is welfare enterprise, enjoy VAT refund. 5.35 Notes to cash flow statement a) Other cash receipts related to operating activities Item Current year Insurance indemnity income 2,043,614.65 -76- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Repayment of temporary payment 30,674,569.45 Interest income 4,764,931.93 Other 274,896.94 Total 37,758,012.97 b) Other cash payment related to operating activities Item Current year Various expenses 39,253,322.04 Temporary payment 34,500,000.00 Others 2,201,013.75 Total 75,954,335.79 c) Other cash receipts related to financing activities Item Current year Development fund received from the government 1,350,000.00 Temporary loan to Putian Technology Park 54,241,475.91 Net value of non cash equivalent monetary fund 37,168,408.35 Total 92,759,884.26 d) Other cash payment related to financing activities Item Current year Repayment of borrowing from China Putian Corporation 20,000,000.00 e) Supplementary information Item Current year Net profit 8,492,119.79 Plus: Provision for asset impairment 21,468,963.89 Depreciation of fixed assets, depletion of oil and natural gas assets and depreciation of bearer biological assets 15,304,033.98 Amortization of intangible assets 2,146,242.03 Amortization of long-term deferred expenses 482,603.56 Loss from disposals of fixed assets, intangible assets and other long-term assets (deduct: increase) -105,915,355.57 Loss on disposal of fixed assets (deduct: increase) -26.25 Loss from changes in fair values (deduct: increase) 0.00 Financial expenses (deduct: increase) 28,747,138.11 Investment loss (deduct: increase) -870,191.81 Decreases in deferred income tax assets (deduct: increase) 0.00 Increases in deferred income tax liabilities (deduct: decrease) 0.00 Decreases in inventories (deduct: increase) 22,608,477.03 Decreases in operating receivables (deduct: increase) 185,845,043.21 Increases in operating payables (deduct: decrease) -43,616,401.84 Others 0.00 -77- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Net cash flows from operating activities 134,692,646.13 6 Notes to the main items of accounting statement of parent company (Amounts are expressed in CNY unless stated, and the ending balance is expressed unless stated as beginning balance.) 6.1 Accounts receivable A. Accounts receivable constitution As of December 31, 2007 As of January 1, 2007 Provision Provision Item Book balance Percentage proportion Provision Book balance Percentage proportion Provision 1. Amount with significant individual amount and has been provided for bad and doubtful debts --- --- --- --- --- --- --- --- 2.other accounts classified as seeming credit risk in accordance 11,580,855.0 10,679,785.1 with aging 226,789,493.27 100.00% 5.11% 8 258,428,853.10 100.00% 4.13% 7 Among which: within 1year 178,122,281.87 78.54% 0.00% --- 206,507,502.80 79.91% 0.91% 1,885,121.41 1-2 years 25,279,548.79 11.15% 4.21% 1,065,226.15 27,676,417.69 10.71% 1.38% 382,685.00 2-3 years 13,801,698.79 6.09% 28.33% 3,910,082.40 11,327,922.47 4.38% 21.31% 2,413,764.00 3-4 years 3,906,697.66 1.72% 46.65% 1,822,462.26 8,270,819.44 3.20% 42.58% 3,521,691.95 4-5 years 2,822,443.96 1.24% 77.46% 2,186,145.18 4,101,104.89 1.59% 48.92% 2,006,423.84 Over 5 years 2,856,822.20 1.26% 90.90% 2,596,939.09 545,085.81 0.21% 86.24% 470,098.97 Total 226,789,493.27 100.00% 11,580,855.08 258,428,853.10 100.00% 10,679,785.17 B. Accounts receivable with significant individual amount Rank of Provision significant proportio individual amount Amount n Reason 16,476,044.2 Low possibility of bad and doubtful No. 1 9 0.00% debts Low possibility of bad and doubtful No. 2 9,482,061.06 0.00% debts Low possibility of bad and doubtful No. 3 6,083,382.50 0.00% debts Low possibility of bad and doubtful No. 4 4,911,046.70 0.00% debts Low possibility of bad and doubtful No. 5 4,410,562.80 0.00% debts C. Account receivable actually offset in current year Accounts receivable actually offset in current year amounts to 55,700.00 D. There is no accounts receivable due from shareholder who has more than 5% (including 5 %) voting shares of the Company as of 31 December 2007. E. Top 5 debtors of accounts receivable As of December 31, 2007 Rank of debtor Amount Aging Percentage -78- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report No. 1 16,476,044.29 Within 1 year 7.26% No. 2 9,482,061.06 Within 1 year 4.18% No. 3 6,083,382.50 Within 1 year 2.68% No. 4 4,911,046.70 Within 1 year 2.17% No 5 4,410,562.80 Within 1 year 1.94% Total 41,363,097.35 F. Accounts receivable with related parties accounts for 11.24% of total amount of this item. 6.2 Other receivables A. Other receivables constitution As of December 31, 2007 As of January 1, 2007 Provision Provision Item Book balance Percentage proportion Provision Book balance Percentage proportion Provision 1. Amount with significant individual amount and 29,590,792.71 27.08% 100.00% 29,590,792.71 41,193,771.62 33.66% 42.02% 17,309,314.16 has been provided for bad and doubtful debts 2. other accounts classified as seeming credit 79,661,058.79 72.92% 37.68% 30,013,870.07 81,178,996.63 66.34% 3.01% 2,445,855.05 risk in accordance with aging Among which: 47,110,974.61 43.13% 43.53% 20,507,987.58 43,202,617.84 35.30% 0.00% 0.00 within 1 year 1-2 years 12,346,256.55 11.30% 40.22% 4,965,496.84 33,941,068.41 27.74% 0.30% 101,000.00 2-3 years 16,958,962.55 15.52% 11.71% 1,985,896.26 1,605,616.59 1.31% 5.91% 94,925.29 3-4 years 815,840.00 0.75% 30.00% 244,752.00 226,500.00 0.19% 70.86% 160,500.00 4-5 years 241,000.00 0.22% 57.43% 138,400.00 166,498.70 0.14% 81.39% 135,517.40 Over 5 years 2,188,025.08 2.00% 99.24% 2,171,337.39 2,036,695.09 1.66% 95.94% 1,953,912.36 Total 109,251,851.50 100.00% 54.56% 59,604,662.78 122,372,768.25 100.00% 16.14% 19,755,169.21 B. Other receivables with significant individual amount Rank of significant Provision individual amount Amount proportion Reason No. 1 29,590,792.71 100% Low possibility of recovery Low possibility of bad and No. 2 15,599,562.72 0% doubtful debts No. 3 10,361,249.00 10% Uncertainty of recovery Low possibility of bad and No. 4 6,500,000.00 0% doubtful debts Low possibility of bad and No. 5 5,000,000.00 0% doubtful debts C. There is no accounts receivable due from shareholder who has more than 5% (including 5 %) voting shares of the Company as of 31 December 2007. D. Top 5 of ending balance of other receivables Nature or Rank of debtor description Amount Aging Percentage -79- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Current account with No. 1 subsidiaries 29,590,792.71 Within 2 years 27.08% Current account with No. 2 subsidiaries 15,599,562.72 Within 2 years 14.28% Payment for No. 3 equity transfer 10,361,249.00 2-3 years 9.48% Temporary No. 4 payment 6,500,000.00 Within 1 years 5.95% Temporary No. 5 payment 5,000,000.00 Within 1 years 4.58% 6.3 Long-term equity investment As of December 31, 2007 As of January 1, 2007 Provision for Provision for diminution in diminution in Book balance value Book balance value Long-term equity investment 335,677,647.38 141,234,360.55 A. Information of invested unit Voting right proportion Share of the holding Company percentage among Total ending Name of invested of the invested balance of net Total turnover Net profit of unit Registry Business nature Company units assets of current year current year 1. Joint venture Manufacture, sales andppppp Nanjing Mennekes etc. of plug and Electric Appliances receptacle used Ltd. Nanjing for industry 50.00％ 50.00% 40,374,640.45 93,387,878.35 4,142,805.62 2. Affiliated venture 1 、 Nanjing Putian Manufacture, Datang Information sales and etc. of and Electric communication Company Ltd. Nanjing products 40.00％ 40.00％ 2,130,247.41 4,204,541.31 314,498.47 Manufacture, 2、Nanjing Zhongyou sales and etc. of Telecommunication communication Co., Ltd. Nanjing products 30.00％ 30.00％ 670,974.72 16,272,108.54 120,806.92 3 、 Nanjing Potevio Land leasing, Telecommunication management Technology Industry and etc. of Park Co., Ltd. Nanjing industry park 49.64％ 49.64％ 337,357,690.15 --- -190,451.14 Development, manufacture, 4、Shanghai Yulong sales and etc. of Biotech Ltd. Shanghai bio-tech products 21.00％ 21.00％ 67,429,768.74 --- -5,563,747.27 Development, manufacture, 5 、 Qufu Yulong sales and etc. of Bio-Tech Co., Ltd. Qufu bio-tech products 21.00％ 21.00％ 45,149.363.47 --- -3,359,535.18 B. Long-term equity investment with cost method (Under control) Increases and Provision for Beginning book decreases of Ending book diminution in Name of invested unit Initial amount balance current year balance value Nanfang Telecommunications Company Limited 33,175,148.00 33,175,148.00 33,175,148.00 -80- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Putian Telecommunications (Hong Kong) Co., Ltd. 1,910,520.00 1,910,520.00 1,910,520.00 Nanjing Putian Hongyan Electric Appliance Company 10,114,581.00 10,114,581.00 10,114,581.00 Nanjing Bada Telecommunications Co., Ltd. 5,610,000.00 5,610,000.00 5,610,000.00 Nanjing Putian Inforamtion Technology Company Ltd. 13,860,000.00 13,860,000.00 13,860,000.00 Nanjing Putian Intelligent Building Ltd. 3,320,003.46 3,320,003.46 3,320,003.46 Beijing Picom Telecommunications Equipment Ltd. 1,854,910.00 1,854,910.00 1,854,910.00 Nanjing Putian Network Company Ltd. 9,146,455.12 9,111,725.68 34,729.44 9,146,455.12 Nanjing Postel Wongzhi Telecommunications Co., Ltd. 40,997,683.00 40,997,683.00 40,997,683.00 Nanjing Putian Changle Telecommunications Equipment Co., Ltd. 2,610,457.00 2,610,457.00 2,610,457.00 Total 122,599,757.58 122,565,028.14 34,729.44 122,599,757.58 C. Long-term equity investment with cost method (without same controlling relationship or significant influence) Increases and Provision for Beginning book decreases of Ending book diminution in Name of invested unit Initial amount balance current year balance value Nanjing Yuhua Electroplating Factory 420,915.00 420,915.00 --- --- 420,915.00 Hangzhou Hongyan Electric Appliance Group Co., Ltd. 321,038.00 321,038.00 --- --- 321,038.00 Total 741,953.00 741,953.00 --- --- 741,953.00 D. Long-term equity investment with equity method Increases and decreases of current year Name of invested Among which: unit As of January received dividends As of December Initial amount 1, 2007 Total in cash 31, 2007 1. Joint venture 1 、 Nanjing Mennekes Electric Appliances Ltd. 15,037,508.00 16,901,079.83 3,286,240.40 1,562,824.17 20,187,320.23 2. Affiliated venture 1、Nanjing Putian Datang Information and Electric Company Ltd. 600,000.00 726,299.58 125,799.39 --- 852,098.97 2 、 Nanjing Zhongyou Telecommunicati on Co., Ltd. 300,000.00 300,000.00 -98,707.58 --- 201,292.42 3 、 Nanjing Potevio Telecommunicati on Technology Industry Park 167,453,607.4 Co., Ltd. 167,548,141.29 --- 1 --- 167,453,607.41 4 、 Shanghai Yulong Biotech Ltd. 23,310,000.00 --- 14,160,251.44 --- 14,160,251.44 -81- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report 5 、 Qufu Yulong Bio-Tech Co., Ltd. --- --- 9,481,366.33 --- 9,481,366.33 194,408,557.3 Total 206,795,649.29 17,927,379.41 9 1,562,824.17 212,335,936.80 E. Ending balance of equity investment has increased by 194,443,286.83 compared with the beginning balance, with increasing rate of 137.67%. The primary reason leads to the change is: property investments were made to Nanjing Potevio Telecommunication Technology Industry Park Co., Ltd. by buildings and land, invested167,548,141.29,resulting with a 49.64% ownership. 6.4 Operating revenue and operating cost Current year Previous year Other Item Main operation Other operation Subtotal Main operation operation Subtotal Operating 437,439,306.4 26,553,872.7 587,743,450.8 revenue 0 17,277,018.18 454,716,324.58 561,189,578.13 2 5 Operating 432,563,278.1 24,847,974.1 493,991,240.3 cost 9 17,888,410.73 450,451,688.92 469,143,266.16 7 3 Operating profit 4,876,028.21 -611,392.55 4,264,635.66 92,046,311.97 1,705,898.55 93,752,210.52 A. Sales and costs of sales of listed in accordance with operation categories Sales Costs of sales Item Current year Previous year Current year Previous year Communication products 369,048,837.78 423,385,778.94 359,662,502.01 341,924,916.51 Electronic equipment 68,390,468.62 137,803,799.19 72,900,776.18 127,218,349.65 Total 437,439,306.40 561,189,578.13 432,563,278.19 469,143,266.16 B. The Company’s total sales to top 5 clients amounts to 117,781,151.88, accounts for 25.90% of total operating revenue of current year. 6.5 Investment income Item or name of invested unit Current yea Previous yea Financial instrument investment income --- --- Equity investment income Cost method valuation recognition 4,731.90 912.75 Equity method valuation recognition 3,731,058.16 1,797,233.22 Disposal investment income --- 762,000.00 Total 3,735,790.06 2,560,145.97 No significant restrictions on investment income. 7. Related parties and related parties transaction 7.1 Related parties with controlling relationship a) Related parties controlling the Company Name of enterprise Registry Main business Relationship Business Representativ nature e China Potevio No. 2 Tudi 2 Communication system and terminal, Parent National Xie Wei Company Limited Road, Zhongguan Telecommunication equipment and terminal, company owned village economy broadcast TV system and terminal, computer and zone, Haidian software, system combination, photoelectric cable; district, Beijing development, produce, sales and service of post specific equipment and related component; domestic and overseas project and bidding agency; project construction contract, project program, design and supervise; manufacture, sales and repair of electronic machinery, machinery equipment, appliance and accessory; industry investment; technique transmit, consultancy, -82- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report service; import & export business China Putian No. 2 Jiangtai Manufacture and sales of communication Controlling National Xie Wei Corporation Road, Chaoyang equipment shareholders owned district, Beijing of partent company The holding percentage and voting proportion of the parent company is 53.49% and 53.49% respectively. The final controller of the Company is China Putian Corporation. As for the details of related parties controlled by the Company, please refer to Notes 4. b) Registered capital and its changes of related parties with controlling relationship (Unit: 0’000) Opening Increas Decrease Ending Name of enterprise balance es s balance China Potevio Company Limited 190,000 --- --- 190,000 China Putian Corporation 308,694 --- --- 308,694 Nanjing Nanfang Telecommunications Company Limited 3,420.5 --- --- 3,420.5 Nanjing Bada Telecommunications Co., Ltd. 1,130.14 --- --- 1,130.14 Nanjing Putian Inforamtion Technology Company Ltd. 1,400 --- --- 1,400 Nanjing Putian Intelligent Building Ltd. 1,200 --- --- 1,200 Putian Telecommunications (Hong Kong) Co., Ltd. HKD 200 --- --- HKD 200 Beijing Picom Telecommunications Equipment Ltd. USD 50 --- --- USD 50 Nanjing Putian Hongyan Electric Appliance Company USD 193 --- --- USD 193 Nanjing Postel Wongzhi Telecommunications Co., Ltd. USD 1,090 --- --- USD 1,090 Nanjing Putian Changle Telecommunications Equipment Co., Ltd. 500 500 --- 1,000 Nanjing Putian Network Company Ltd. 1,000 --- --- 1,000 Nanjing Telecommunication Facility Factory Seventh Branch 60 --- --- 60 Nanjing Hongyan Electronic Appliance Marketplace Co., Ltd. 134.1 --- --- 134.1 Nanjing Putian Telecommunication Technology Co., Ltd. 475 --- --- 475 C) Equity and its changes of related parties with controlling relationship (Unit: 0’000) Opening balance Increases Decreases Ending balance Amoun Name of enterprise Amount % t % Amount % Amount % China Potevio Company Limited 11,500.00 53.50 --- --- - --- 11,500.00 53.50 Nanjing Nanfang Telecommunications Company Limited 3,359.60 98.24 --- --- --- --- 3,359.60 98.24 Nanjing Bada Telecommunications Co., Ltd. 678.00 60.00 --- --- --- --- 678.00 60.00 Nanjing Putian Inforamtion 100.0 100.0 Technology Company Ltd. 1,400.00 0 --- --- --- --- 1,400.00 0 Nanjing Putian Intelligent Building Ltd. 496.20 41.35 --- --- --- --- 496.20 41.35 Putian Telecommunications HKD 180.00 90.00 --- --- --- --- HKD 90.00 -83- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report (Hong Kong) Co., Ltd. 180.00 Beijing Picom Telecommunications Equipment USD Ltd. USD 25.50 51.00 --- --- --- --- 25.50 51.00 Nanjing Putian Hongyan Electric USD Appliance Company USD 98.82 51.20 --- --- --- --- 98.82 51.20 Nanjing Postel Wongzhi USD Telecommunications Co., Ltd. USD 730.30 67.00 --- --- --- --- 730.30 67.00 Nanjing Putian Changle Telecommunications Equipment Co., Ltd. 253.50 50.70 253.50 --- --- --- 506.00 50.70 Nanjing Putian Network Company Ltd. 911.60 91.16 10.00 1.00 --- --- 921.60 92.16 Nanjing Telecommunication Facility Factory Seventh Branch 30.42 50.70 --- --- --- --- 30.42 50.70 Nanjing Hongyan Electronic Appliance Marketplace Co., Ltd. 108.60 81.00 12.07 9.00 --- --- 120.67 90.00 Nanjing Putian Telecommunication Technology Co., Ltd. 470.25 97.26 --- --- --- --- 470.25 97.26 d) Related parties without controlling relationship Relationship with the Name of enterprise Company Nanjing Zhongyou Telecommunication Co., Ltd. Joint venture Nanjing Putian Datang Information and Electric Company Ltd. Joint venture Nanjing Potevio Telecommunication Technology Industry Park Co., Ltd. Joint venture Controlled by the Guangxi Putainyoutong Telecommunications Equipment same parent Company Ltd. company Controlled by the same parent Shanghai Huanying Display Technology Company Ltd. company Controlled by the same parent Shanghai Potevio Co., Ltd. company Controlled by the same parent Beijing Great Dragon Information Tech. Co. company 7.2 Related party transaction a) The internal transactions among subsidiaries with controlling relationship and has been consolidated into the consolidated financial statements of the Company, as well as the transactions between parent company and subsidiary has been eliminated. b) Price principle of transaction between related parties: Market price. c) Purchase from related parties Transaction scale Current year Previous year Percentage of yearly Percentage of yearly (simultaneous) (simultaneous) homogeneous Amount homogeneous Name of enterprise Amount (0’000) transaction (%) (0’000) transaction (%) -84- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report China Putian Corporation --- --- 19.2 0.02 Nanjing Putian Datang Information and Electric Company Ltd. --- --- 10.8 0.01 Guangxi Putainyoutong Telecommunications Equipment Company Ltd. --- --- 8.5 0.01 Nanjing Zhongyou Telecommunication Co., Ltd. 55.74 0.06 899.8 0.93 Total 55.74 0.06 938.3 0.97 d) Sales to related parties Transaction scale Current year Previous year Percentage of Percentage of yearly yearly (simultaneous) (simultaneous) homogeneous Amount homogeneous Name of enterprise Amount (0’000) transaction (%) (0’000) transaction (%) Naning Putian Zhongyou Telecommunications Co., Ltd. 1,391.08 1.43 899.1 0.90 China Putian Corporation --- --- 40.5 0.04 Guangxi Putainyoutong Telecommunications Equipment Company Ltd. --- --- 9.7 0.01 Shanghai Potevio Co., Ltd. 1,371.09 1.41 --- --- China Potevio Company Limited 2,822.40 2.90 --- --- Total 5,584.57 5.73 949.3 0.96 e) Ending balance of current account Percentage on the total ending balance of account Ending balance receivables (0’000) (payables) Item Related party 2007 2006 2007 2006 Accounts Naning Putian Zhongyou receivable Telecommunications Co., Ltd. 491.10 484.5 1.40 1.2 China Putian Corporation 4.52 47.4 0.01 0.1 Guangxi Putainyoutong Telecommunications Equipment Company Ltd. 7.30 11.1 0.02 0.02 Shanghai Huanying Display Technology Company Ltd. 395.46 455.5 1.13 1.1 Shanghai Potevio Co., Ltd. 1,647.60 40.4 4.70 0.1 Beijing Great Dragon Information Tech. Co. 3.53 --- 0.01 --- Advances Shanghai Huanying Display Technology to suppliers Company Ltd. 60.00 --- 7.49 --- Account payables China Putian Corporation --- 22.4 --- 0.1 Nanjing Putian Datang Information and Electric Company Ltd. --- 3.4 --- 0.01 -85- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Guangxi Putainyoutong Telecommunications Equipment Company Ltd. --- 10 --- 0.04 Nanjing Potevio Telecommunication Technology Industry Park Co., Ltd. 1.04 --- --- --- Other payables China Putian Corporation --- 2000 --- 59.1 Nanjing Potevio Telecommunication Technology Industry Park Co., Ltd. 5,424.15 --- 75.39 --- f) Others China Putian Corporation assured guarantee for the short-term loan of CNY 280,000,000 to the Company. As for the details of guarantee for related party, please refer to Notes 8. 9 Commitment 9.1 Investment contracts already signed with third parties, not yet executed or fully executed and related capital expenditures Nanjing Putian Intelligent Building Ltd.,subsidiary, of the Company, purchased land use right of land which covers an area of 40 mu (Chinese unit of area)（in accordance with actual measurement）from Nanjing Economic & Technological Development Area Management Committee for manufacture base constructions with total payment for land amounting to CNY 4,400,000 (actual payment for land should be calculated in accordance with actually measured dimension), total payment for land has been paid by Year 2007; the Company committed to put into operation after completing first term of base project development within 18 months from the starting date, the remaining project should be completed within 2 years upon signing the Agreement (signed on October 13, 2006) and be put into operation, total project construction dimension is 21400 square meters, among which, dimension of first term construction should be no less than 11400 square meters and the Company committed total project investment should be no less than CNY 120,000,000. 9.6 Other significant financial commitments The Company drew bank acceptance amounting to CNY 80,000,000 with deposit amounting to CNY 70,000,000, the bank acceptance has been discounted by its subsidiaries, Nanjing Bada Telecommunications Co., Ltd. and Nanjing Postel Wongzhi Telecommunications Co., Ltd. and transferred into short-term borrowings when consolidating the Financial Statements. 10 Post-balance sheet events In accordance with the 19th Resolution of the 4th Conference of Board of Directors on April 3, 2008, dividends will not be distributed; capital reserve will not be transferred to paid-in capital. This pre-distribution proposal remains to be approved by shareholders. 11 Other events Foreign currency translation Exchange difference recorded into profit and loss of current period is CNY 351,348.98. 12 Non-recurring profit and loss of current year (Profit: +, loss: -) Item Amount -86- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report 1. Profit and loss of non-current assets disposal 105,915,381.82 2. Tax refund and exemption without authorized approval or formal approval document 400,000.00 3. Government subsidy recorded into profit and loss of current period 868,237.00 4. Profit and loss of debt restructure -265,991.35 5. Reverse of beginning balance of welfare payable 1,964,649.15 6. Net amount of other non-operating profit and expenses excluding items above 3,325,783.79 7. Influenced amount of minority interest -92,943.48 8. Influenced amount of income tax -335,610.53 Total 111,779,506.40 13. Return on net asset and earnings per share Return on equity Earnings per share (CNY) Fully diluted Basic Diluted return on Weighted earnings per earnings per Profit of the reporting period equity average share share Net profit attributable to ordinary shareholders of the Company 1.23% 1.23% 0.02 0.02 Net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss -33.66% -33.80% -0.50 -0.50 13.1 Calculation process The above data is calculated using the following formulae: Fully diluted return on equity Fully diluted return on equity = P/E Where: P is net profit attributable to ordinary shareholders of the Company or net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss; E is the year end equity attributable to ordinary shareholders of the Company. Net profit attributable to ordinary shareholders of the Company does not include the amount of gain or loss of minority shareholders. For net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss, non-recurring gain or loss of parent company (after taking into consideration the income tax effects) and the proportion of non-recurring gain or loss (after taking into consideration the income tax effects) of all subsidiaries owned by ordinary shareholders of parent company are deducted on the basis of consolidated net profit after deducting gain or loss of minority shareholders. The year end equity attributable to ordinary shareholders of the Company does not include equity of minority shareholders. Weighted average return on equity Weighted average return on equity = P/(E0+NP/2+Ei*Mi/M0–Ej*Mj/M0+-Ek*Mk/M0) Where: P is net profit attributable to ordinary shareholders of the Company or net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss; E0 is the year beginning equity attributable to ordinary shareholders of the Company; Ei is increased equity attributable to ordinary shareholders of the Company which arises from new issuance of shares or conversion of debt instruments to stocks in the reporting period; Ej is -87- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report reduced equity attributable to ordinary shareholders of the Company due to stock repurchase or cash dividend in the reporting period; M0 is the number of months of the reporting period; Mi is the number of months from the next month that equity is increased to the year end of the reporting period; Mj is the number of months from the next month that equity is decreased to the year end of the reporting period; Ek is the change of equity resulting from other transactions or events; Mk is the number of months from the next month that other change of equity occurs to the year end of the reporting period. Basic earnings per share Basic earnings per share = P/S S = S0+S1+Si*Mi/M0-Sj*Mj/M0-Sk Where: P is net profit attributable to ordinary shareholders of the Company or net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss; S is weighted average number of ordinary shares outstanding; S0 is the total number of shares at the beginning of the year; S1 is the number of increased shares as a result of capitalization of reserves or scrip dividend during the reporting period; Si is the number of increased shares as a result of new issuance of shares or conversion of debt instruments to stocks during the reporting period; Sj is the number of reduced shares as a result of stock repurchase; Sk is the number of consolidated shares in the reporting period; M0 is the number of months of the reporting period; Mi is the number of months from the next month that the number of shares is increased to the year end of the reporting period; Mj is the number of months from the next month that the number of shares is decreased to the year end of the reporting period. Diluted earnings per share Diluted earnings per share = [P+(any recognized interest related to dilutive potential ordinary shares-conversion expenses)*(1-income tax rate)]/(S0+S1+Si*Mi/M0-Sj*Mj/M0-Sk +weighted average number of increased ordinary shares arising from warrants, stock options and convertible debts) Where: P is net profit attributable to ordinary shareholders of the Company or net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss. In calculating the diluted earnings per share, the Company has taken into consideration the effects of all dilutive potential ordinary shares, until the diluted earnings per share reach the lowest amount. 14 Supplementary information 14.1 Adjustment for consolidated net profit difference of Year 2006 The Company prepared adjusted Income Statements of same period of previous year and Balance Sheet as of January 1, 2007 in accordance with relevant stipulations of ‘Question and answer No.7 on stipulation of information disclosure over public issue securities-Prepare and disclosure on contrastive financial accounting information between the old and new accounting policy ’ (hereafter refers to ‘Question and answer on No.7 stipulation’), retroactive adjustment of Income Statements of same period of previous year is listed as follows: Item Amount Net profit of Year 2006 (original accounting standard) 4,118,123.31 Total influenced amount of retroactive adjusted items -28,408,820.19 Among which: 1. Unconfirmed investment loss should be -28,217,758.53 wholly undertook by the Company -88- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report 2. Retroactive adjustment of equity investment -118,561.68 difference 3. Consolidated units decreased due to cancellation of -72,499.98 percentage method. This unit provided bonus and welfare for employees in 2006 and effected the net income. Net profit of Year 2006 (new accounting standard) -24,290,696.88 Reference information of assumed full-scope implementation of new accounting standard Total influenced amount of other items --- Net profit of full-scope analog of new accounting standard of Year 2006 -24,290,696.88 14.2 Adjustment for beginning balance of consolidated equity difference of Year 2007 The Company adjusted beginning balance of owners’ equity and modified certain items in accordance with ‘Accounting Standard for Business Enterprise No. 38—Initial Implementation of Accounting Standard for Business Enterprise’ and ‘Explanation for Accounting Standard for Business Enterprise No. 1’ (CK (2007) No. 14), the adjusting process, modified items, influenced amount and reason are listed as follows: Contrastive disclosure for adjustment for equity difference between original and new accounting standard Number Item Year 2007 Year 2006 Difference Reason Equity as of December 31, 316,210,729.68 316,210,729.68 2006 (original accounting standard) 1 Long-term equity investment 965,982.99 965,982.99 difference Among which: long-term equity investment difference arising from consolidating enterprises under same control Other credit difference of 965,982.99 965,982.99 long-term equity investment adopting equity method 2 Investment real estate assumed to be measured adopting fair value mode 3 Under-provided depreciation of previous year arising from estimated assets redundancy expenses 4 Dismiss compensation complied with estimated liabilities recognition terms 5 Share payment 6 Restructure obligation complied with estimated liabilities recognition terms -89- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report 7 Enterprise consolidation -37,706.40 -37,706.40 Among which: Carrying amount of consolidated goodwill of enterprises under same control Provision for impairment of -37,706.40 -37,706.40 goodwill in accordance with new accounting standard 8 Financial assets measured by fair value with its changes recorded into profit and loss of current period and financial assets available for sale 9 Financial liabilities measured by fair value with its changes recorded into profit and loss of current period 10 Increased equity arising from financial instruments split 11 Derivative financial instruments 12 Income tax 13 Minority interest 60,194,862.29 60,194,862.29 14 Specific retroactive adjustment for Share B, Share H and etc. of listed companies 15 Others 0.01 0.00 0.01 Difference occurred due to cancel the percentage method Equity as of January 1, 377,333,868.57 377,333,868.56 2007 (new accounting standard) 14.3 Approval issuance of Financial Statements This Financial Statements has been approved to issue by Board of Directors of the Company on April 3, 2008. Nanjing Putian Telecommunications Co., Ltd. April 3, 2008 -90- Nanjing Putian Telecommunications Co., Ltd. 2007 Annual Report Supplementary information (1) Impairment of assets (CNY) Withdrawal in Decrease in the current period Book value at Book value at Item the current year-beginning Write-back Write-off year-end period 1. Provision for bad debts 29,375,988.31 12,203,301.75 2,344,015.24 4,283,547.55 34,951,727.27 2. Provision for inventory devaluation 20,495,343.30 10,265,609.17 3,176,723.45 27,584,229.02 3. Provision for impairment loss on disposable financial assets 4. Provision for Impairment loss on held-to-maturity financial assets 5. Provision for impairment loss on long-term investment on equity 6. Provision for impairment loss on property investment 1,842,418.00 1,842,418.00 7. Provision for impairment loss on fixed assets 1,951,760.38 1,344,068.21 3,873.26 3,291,955.33 8. Provision for impairment loss on engineering material 9. Provision for impairment loss on construction in progress 10. Provision for impairment loss on production physical assets Including: Provision for depreciation of mature production physical assets 11. Provision for impairment loss on gas and petrol 12. Provision for impairment loss on intangible assets 13. Provision for impairment loss on goodwill 14. Other Total 53,665,509.99 23,812,979.13 2,344,015.24 7,464,144.26 67,670,329.62 (2) Adjustment of Income Statement (1 January —31 December 2006) Unit: CNY Item Before adjustment After adjustment Operating cost 832,867,127.09 806,251,107.98 Sales expense 71,836,015.98 67,916,721.48 Administrative expense 104,100,502.97 78,871,819.33 Gains from change of fair value Investment income 537,151.08 2,109,192.36 Income tax expenses 3,284,309.69 2,828,001.98 Net profit 4,118,123.31 -24,290,696.88 -91-