*ST灿坤B(200512)2007年年度报告（英文版）

TSANN KUEN (CHINA) ENTERPRISE CO., LTD. Annual Report 2007 (Prepared under PRC GAAP) CONTENTS I. CompanyProfile---------------------------------------------------------------------------------------------2 II. Summary of Financial Highlights and Business Highlights------------------------------------------3 (I). Realized profit for this year------------------------------------------------------------------------------3 (II). Major accounting information and financial index--------------------------------------------------5 (III). Fully diluted and weighted average return on equity and EPS------------------------------------6 (IV). Statement of changes in shareholders’ equity in the report period-------------------------------6 III. Changes in Share Capital and Particulars about Shareholders--------------------------------------7 (I). Changes of shares-----------------------------------------------------------------------------------------7 (II). About issuing and listingshares------------------------------------------------------------------------7 (III). Brief introduction of shareholders--------------------------------------------------------------------7 (IV). Brief introduction about the controlling shareholders of the Company--------------------------8 (V). Description of the actual controlling shareholder----------------------------------------------------8 IV. Directors, Supervisors, Senior Executives and Employees------------------------------------------9 (I). Directors, Supervisors and Senior Executives---------------------------------------------------------9 (II). Introduction of employees-----------------------------------------------------------------------------13 V. Structure of Corporate Governance--------------------------------------------------------------------13 (I). Corporate governance-----------------------------------------------------------------------------------14 (II). Duty performance of Independent Directors -------------------------------------------------------14 (III). The independence of the Company in business, personnel, assets, organization and finance from the controlling shareholder---------------------------------------------------------------------14 (IV). Establishment and improvement of internal control of the Company--------------------------15 (V). Performance appraisal and incentive mechanism for the Senior Executives-------------------20 VI. Introduction of Shareholders’ General Meeting-----------------------------------------------------21 VII. Report of the Board of Directors---------------------------------------------------------------------21 (I).The Review of operation situation during the report period----------------------------------------21 (II). Outlook of the Company-------------------------------------------------------------------------------27 (III). Development trend of the industry and outlook of the market ----------------------------------27 (IV). Capital expenditure plan------------------------------------------------------------------------------27 (V). The main risk factors of development in the furtre-------------------------------------------------27 (VI).Investmentstatus----------------------------------------------------------------------------------------28 (VII). The routine work of the Board ofDirectors--------------------------------------------------------28 VIII. Report of Supervisory Committee-------------------------------------------------------------------29 (I). Meetings of supervisory committee-------------------------------------------------------------------29 (II). Independent opinions expressed by the Supervisory Committee---------------------------------29 IX. Significant Events----------------------------------------------------------------------------------------30 (I). Significant lawsuits and arbitration (None-----------------------------------------------------------30 (II). Shareholding of other listing companies-------------------------------------------------------------30 (III). Significant purchases or sales of assets and merger in the report period-----------------------30 (IV). Significant related transaction------------------------------------------------------------------------31 (V). Significant guarantee-----------------------------------------------------------------------------------33 (VI). Execution of the committed events by the shareholders holding more than 5% of shares of the Company-------------------34 (VII). Renew Employment of BDO International Certified Public Accountants and it’s remunerations------------------------------------------------------------------------------------------34 (VIII). Explanation on receiving inspection from CSRC of the Company in report period--------35 (IX). Explanation on disobeying related regulations to purchase and sell shares of the Company by the shareholders holding over 5% of shares of the Company-------------------------------35 (X). Particulars about the receiving research and interview--------------------------------------------35 (XI). Other-----------------------------------------------------------------------------------------------------36 X. Financial Report (Attached) ----------------------------------------------------------------------------39 (I). Auditors’ Report-----------------------------------------------------------------------------------------39 (II). Accounting statement----------------------------------------------------------------------------------39 XI. Documents Available for Reference------------------------------------------------------------------39 1 Important Notes: The Board of Directors, Supervisory Committee, Directors, Supervisors and Senior Executives of TSANN KUEN (CHINA) ENTERPRISE CO., LTD. (hereinafter referred to as the Company) warrant that this report does not contain any false or misleading statements or omit any material facts and all information set forth herein are true, accurate and complete. None of the Directors, Supervisors and Senior Executives has ever declared that he (she) was uncertain of or had any objection to the truthfulness, accuracy and integrity of the annual report. All members of the Board of Directors attended the meetings of the Board. BDO International Certified Public Accountants produced a standard unqualified auditors’ report for the Company. Mr. Tsai Yuansong, Chairman of the Board of Directors and Mr. Tsai Qingyu, Accounting Manager jointly guaranteed that the financial statements in this annual report are true and complete. I. Company Profile 1. Name of the Company( Chinese): 厦门灿坤实业股份有限公司 2. Name of the Company (English): TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 3. Company’s Name (Abbreviation): TKC 4. Legal Representative: Tsai Yuansong 5. Secretary of the Board of Directors: Luo Qingxing 6. Contact Address of Secretary of the Board: No.88 Xinglong Road, Huli Industry Zone, Xiamen, P.R. China. 7. Telephone No. of Secretary of the Board: 0592-5600887 8. Fax No. of Secretary of the Board: 0592-5600886 9. E-mail Address of Secretary of the Board: allenlo@tkl.tsannkuen.com 10. Securities Affairs Representative: Sun Meimei 11. Contact Address of Securities Affairs Representative: No.88 Xinglong Road, Huli Industry Zone Xiamen, P.R. China 12. Telephone No. Securities Affairs Representative: 0592-5681819 13. Fax No. Securities Affairs Representative: 0592-5600886 14. E-mail Address of Securities Affairs Representative: mm_sun@tkl.tsannkuen.com 15. Registered Address: Xiamen, P.R. China 16. Office Address: No.88 Xinglong Road, Huli Industry Zone, Xiamen, P.R. China 17. Post Code: 361006 18. Web Site: www.tsannkuen.com 19. E-mail Address of the Company: allenlo@tkl.tsannkuen.com 20. Disclosure Newspaper: Domestic Overseas 21. Website for Disclosing the Annual Report: www.cninfo.com.cn 22. Place where the Annual Report is Prepared and Placed: No.88 Xinglong Road, Huli Industry Zone. Xiamen, P.R. China 23. Stock Exchange Listed with: Shenzhen Stock Exchange 24. Short Form of the stock: *ST Tsann Kuen B 25. Stock Codes: 200512 26. Initial Registration Date and Place: Jan. 1, 1988 in Xiamen 27. Registration Number of Business License: 350200400001420 28. Organization Code: 61200217-0 2 29. Registration number of taxation: NTWZi350206612002170 20. Certified Public Accountants Engaged by the Company: BDO International Certified Public Accountants Co., Ltd. 31. Auditor’s Address: Rm. 2008, East Zone, 1st Floor, 2000 Zhubang, No. 100 Balizhuangxili, Chaoyang District, Beijing, P.R. China II. Summary of Financial Highlights and Business Highlights (I). Realized profit for this year No. Item Amount (Unit: RMB ’000) 1 Operating profit 44,925 2 Total profit 98,203 Net profit attributable to listed companies’ 3 67,120 shareholders Net profit attributable to listed companies’ 4 shareholders after deducting non-recurring 30,839 gains and losses 5 Net cash flow from operating activities 493,184 1. Items of non-recurring gains and losses and amount Items of non-recurring gains and losses Amount (Unit: RMB ’000) Net profit 67,120 Deduct: gains and losses on disposal of 7,107 non c rrent assets Government subsidy measured into current gains 6,199 and losses Net income/expense from other operation 39,786 Subtotal 53,092 Plus: influence on enterprise income tax 1,392 Plus: non-recurring gains and losses attributable 15,419 to minority shareholders Net profit after deducting non-recurring gains and 30,839 losses 3 2. Explanation on difference of net profit under IFRS and PRC GAAP This financial report was prepared under PRC GAAP, which was different from that under IFRS. On Dec. 31, 2007, the net profits attributable to the listed companies’ shareholders in statutory financial report was RMB 67,120,000, while the net assets reported was RMB 303,180,000. These net profit and net assets after deducting the shareholders’ equity should be adjusted, as pursuant to IFRS, as follow: Net profit as of the year Net profit ended Dec. 31, Item 2007 2007 RMB’ 000 RMB’ 000 Net profits attributable to listed companies’ shareholders pursuant to PRC 67,120 303,181 GAAP Adjustment pursuant to IFRS Adjustment of fixed assets purchased (2,223) 5,710 before 1994 under adjustment exchange Adjustment of assets revaluation reserves 272 (2,234) Subtotal (1,951) 3,476 Net profits attributable to listed 65,169 306,657 companies’ shareholders pursuant to IFRS 4 (II). Major accounting information and financial index 2006 2005 2007 Special case/ Year Unit 2007 Before After Before After 2006 Adjustment Adjustment Adjustment Adjustment 1 Operating Income RMB’ 000 4,905,280 6,139,926 6,139,926 5,987,378 5,987,378 (20.11)% 2 Total Profit RMB’ 000 98,203 (1,121,655) (1,118,701) (500,912) (499,700) 108.78% Net profit attributable 3 to listed companies’ RMB’ 000 67,120 (851,087) (825,303) (398,708) (396,770) 108.13% shareholders Net profit attributable to listed companies’ shareholders after 4 deducting RMB’ 000 30,839 (846,016) (820,232) (288,016) (286,078) 103.76% non-recurring gains and losses 5 Total assets RMB’ 000 2,908,175 3,673,291 3,702,727 4,495,747 4,491,142 (21.46)% Shareholders’ equity 6 (except minority RMB’ 000 303,181 203,019 222,128 1,025,333 1,022,290 36.49% shareholders) Net cash flow from 7 operating activities RMB’ 000 493,184 45,433 47,391 81,175 81,175 940.67% Net cash flow per share 8 from operating RMB Yuan 0.4434 0.0408 0.0426 0.0730 0.0730 940.85% activities Net assets per share attributable to listed 9 companies’ RMB Yuan 0.2726 0.1825 0.1997 0.9218 0.9176 36.50% shareholders Net assets per share 10 after adjustment RMB Yuan 0.2716 0.1796 0.1968 0.9203 0.9161 37.99% Basic earnings per 11 share RMB Yuan 0.0603 (0.7651) (0.7419) (0.3584) (0.3567) 108.13% Earnings per share after deducting 12 non-recurring gains RMB Yuan 0.0277 (0.7606) (0.7374) (0.2589) (0.2572) 103.76% and losses Diluted 22.14% (419.21%) (371.54%) (38.89%) (38.87%) 393.68% 13 Return on equity Weighted 25.55% (139.11%) (132.82%) (32.46%) (32.43%) 158.37% 5 (III). Fully diluted and weighted average equity on return and EPS Return on equity（%） EPS( RMB Yuan) Profit in the report period Weighted Fully Weighted Fully diluted average diluted average Net profit attributable to Company’s 22.14% 25.55% 0.0603 0.0603 shareholders of ordinary share Net profit attributable to Company’s shareholders of ordinary share after 10.17% 11.74% 0.0277 0.0277 deducting non-recurring gains and losses (IV). Statement on changes of shareholders’ equity in the report period (Unit: RMB’ 000) Equity attributable to parent company Minority Difference Shareholde shareholder Item Share Capital Surplus from rs’ Retained profit s’ capital reserve reserve foreign equity equity exchange I. Amount at the end of last year 1,112,350 129,608 49,420 (1,088,428) 70 74,781 277,801 (I) Changes of accounting policy 0 58 0 19,051 0 7,647 26,756 (II) Correction in last period 0 0 0 0 0 0 0 II. Amount at the beginning of this year 1,112,350 129,666 49,420 (1,069,377) 70 82,428 304,557 III. Amount of increase/decrease in this year (decrease:“-”) 0 (2,939) (49,420) 133,733 0 8,516 89,890 (I) Net profit in this year 67,120 22,648 89,768 (II) Gains and losses measured into the owner’s equity directly 0 (2,939) 0 17,193 0 (14,132) 122 1.Amount of financial assets after fair values changes 122 122 4. Other (3,061) 17,193 (14,132) 0 (III) Capital invested by owners (IV) Profit distribution of this year 0 0 (V) transfer of owners’ equity 0 0 (49,420) 49,420 0 0 0 1. Capital conversion from capital reserve 2. Capital conversion from surplus reserve 3. Surplus reserve making up the loss (49,420) 49,420 IV. Other (322) 230,208 229,886 V. Amount at the end of this year 1,112,350 126,727 0 (935,644) (252) 321,152 624,333 6 III. Changes in Share Capital and Particulars about Shareholders (I). Changes of shares (Unit: Share) Prior to the change Increase/decrease of this change (+,-) Subsequent to the change Special Case Capitaliz Issuance Other( transfer Bonus ation of Quality Proportion of new into listed Subtotal Quality Proportion Share public share circulation share) reserve I. Unlisted circulation shares 700,476,830 62.97% -700,476,830 -700,476,830 0 0 1. Sponsors’ shares 700,476,830 62.97% -700,476,830 -700,476,830 0 0 Including: Shares held by the state Share held by domestic legal person Share held by foreign legal 700,476,830 62.97% -700,476,830 -700,476,830 0 0 person Other 2.Raised legal person’s shares 3. Employees’ shares 4. Preference shares or others II. Listed circulation shares 411,873,247 37.03% +700,476,830 +700,476,830 1,112,350,077 100% 1. RMB ordinary shares 2. Domestically listed foreign 411,873,247 37.03% +700,476,830 +700,476,830 1,112,350,077 100% shares 3. Overseas listed foreign shares 4. Others III. Total Share 1,112,350,077 100% 0 0 1,112,350,077 100% Note: As examined and approved by China Securities Regulatory Commission (with ZJGSZi [2006] Document No. 266, the Circular on Approval of Non-tradable Foreign Shares for Listing and Trading), the Company’s non-tradable foreign shares amounting to 700,476,830 shares (taking up 62.97% of total share capital) were approved for transferring into tradable B shares on Nov. 29, 2006, and began to list to trade in B share market of Shenzhen Stock Exchange from Nov. 29, 2007. For details, please see the Circular of Non-tradable Foreign Shares for Listing and Trading published in Securities Times, Ta Kung Pao (HK) and http://www.cninfo.com.cn on Nov. 27, 2007. (II). Introduction about issuing and listing of shares: None (III). Brief introduction of shareholders 1. Number of the shareholders: The total number of the Company’s shareholders at the end of the report period was 26,516. 2. Shares held by the top ten shareholders: Quality of Proportion Quality of Attribute of Quality of shares shares No. Name of shareholder shareholder in total held non-tradable pledged or share shares held frozen 1 FORDCHEE DEVELOPMENT LIMITED Foreign legal person 29.19% 324,685,968 0 None EUPA INDUSTRY CORPORATION 2 Foreign legal person 17.87% 198,785,501 0 None LIMITED 3 FILLMAN INVESTMENTS LIMITED Foreign legal person 14.59% 162,342,984 0 None 4 TIMMERTON CO INC Foreign legal person 1.30% 14,505,644 0 Unknown 7 Quality of Proportion Quality of Attribute of Quality of shares shares No. Name of shareholder shareholder in total held non-tradable pledged or share shares held frozen 5 Chen Yonglquan Domestic natural person 0.68% 7,593,956 0 Unknown CORE PACIFIC-YAMAICHI 6 Foreign legal person 0.59% 6,588,697 0 Unknown INTERNATIONAL (H.K.) LIMITED 7 Chen Lijuan Domestic natural person 0.51% 5,669,346 0 Unknown 8 Tsai Shuhui Domestic natural person 0.39% 4,294,433 0 None 9 CSC SECURITIES (HK) LTD. Foreign legal person 0.34% 4,151,165 0 Unknown 10 He Jianxiong Domestic natural person 0.32% 3,531,699 0 Unknown 2. Shares held by top ten tradable shareholders: No Name of shareholder Number of tradable shares held Type of Share 1 FORDCHEE DEVELOPMENT LIMITED 324,685,968 B share 2 EUPA INDUSTRY CORPORATION LIMITED 198,785,501 B share 3 FILLMAN INVESTMENTS LIMITED 162,342,984 B share 4 TIMMERTON CO INC 14,505,644 B share 5 Chen Yongquan 7,593,956 B share 6 CORE PACIFIC-YAMAICHI INTERNATIONAL 6,588,697 B share (H.K.) LIMITED 7 Chen Lijuan 5,669,346 B share 8 Tsai Shuhui 4,294,433 B share 9 CSC SECURITIES (HK) LTD. 4,151,165 B share 10 He Jianxiong 3,531,699 B share Explanation on related The top three shareholders are the controlling shareholders. Tsai Shuhui was the spouse of Mr. Wu Tsann Kun, relationship and who was the legal representative of the top three controlling companies. The Company was not aware that action-in-concert whether there were any related relationships between other shareholders holding tradable shares and whether or among above not the other shareholders holding tradable shares belonged to the action-in-concert people specified in The mentioned shareholders Regulations for Information Disclosure on the Change of Shares Held by the Shareholders of the Listed Companies. (IV). Brief introduction about the controlling shareholders of the Company Legal Registered Name of shareholder Founding day Business scope Pledged Representative capital FORDCHEE DEVELOPMENT LTD Wu Tsann Kun 1990/1/3 Investment HKD10,000 None EUPA INDUSTRY CORPORATION LTD Wu Tsann Kun 1989/7/21 Investment HKD100,000 None FILLMAN INVESTMENTS LTD Wu Tsann Kun 1992/7/21 Investment HKD10,000 None Note: all above mentioned controlling shareholders were TSANN KUEN (Taiwan) ENTERPRISE CO., LTD. (V). Description of the real controlling shareholder 1. Name of the real controlling shareholder: (Taiwan) TSANN KUEN ENTERPRISE CO. LTD 2. Legal representative: Zhuang Xing 3. Foundation day: Nov. 2, 1978 4. Major product and products: Small household appliances and its raw material, manufacturing the equipments, manufacturing and sales, appliances retail in department store 5. Registered capital: NTD 2,466,343,220 6. Equity structure: Ordinary share 7. The property right and controlling relationship between the Company and the actual controller are as follows: 8 16. % .50 25% 12 IV. Directors, Supervisors, Senior Executives and Employees (I). Directors, Supervisors and Senior Executives 1. Basic information 9 Drawing Total payment from Number of Number of Payment Equity the drawn from shareholding shares held shares held Reason for Incentive in Name Position Sex Age Office term the Company companies or at the at the change in the report the report other related year-begin year-end period period parties or not (RMB’ 0000) (Yes / No) Chairman 2005/05/27- Tsai Yuansong of the Female 51 0 0 Naught 6 Naught No 2008/05/26 Board Director/ 2006/12/09- Jian Derong General Female 45 0 0 Naught 27.09 Naught No 2009/12/08 Manager 2005/05/27- Zhuang Xing Director Female 53 0 0 Naught 3.6 Naught Yes 2008/05/26 Independe 2005/05/27- Wei Junxian Female 50 0 0 Naught 10 Naught No nt Director 2008/05/26 Independe 2005/05/27- He Jinghua Female 51 0 0 Naught 10 Naught No nt Director 2008/05/26 Xiao Independe 2005/05/27- Female 62 0 0 Naught 10 Naught No Fengxiong nt Director 2008/05/26 Zhou 2005/05/27- Supervisor Female 52 0 0 Naught 2.4 Naught No Zhonggeng 2008/05/26 2005/0/527- Diao Weiren Supervisor Female 0 0 Naught 10 Naught No 53 2008/05/26 2005/04/01- Wang Caiwang Supervisor Female 47 0 0 Naught 17.87 Naught No 2008/02/29 Secretary 2003/01/07- Luo Qingxing of the Female 53 0 0 Naught 21.38 Naught No now Board Accountin 2007/04/24- Tsai Qingyu Female 37 0 0 Naught 17.55 Naught No g Manager now Total 135.89 2. Status of Directors and Supervisors in employment in the shareholding companies Position in shareholding Drawingpayment or subsidy from the Name Name of shareholding company Office term company shareholding company(Yes/No) Zhuang TSANN KUEN (Taiwan) 2006/06/18 Chairman of the Board Yes Xing ENTERPRISE CO., LTD. -2009/06/16 10 3. Main working experience of present Directors, Supervisors and Senior Executives and their posts in other units except shareholding companies Main working experience of present Directors, Supervisors and Senior Executives and their posts in other Name Position units except shareholding companies Tsai Chairman of 1.2002.05-Now TSANN KUEN (CHINA) ENTERPEISE CO.LTD Chairman of the Board Yuansong the Board 2.1988.01-2002.12 TSANN KUEN (CHINA) ENTERPEISE CO.LTD Director, General Manager 1. 2006.12.09-Now TSANN KUEN (CHINA) ENTERPEISE CO.LTD. General Manager Director, 2. 2002.10-2006.12.08 TSANN KUEN (ZHANGZHOU) ENTERPEISE Vice General Manager Jian General CO.LTD. Derong Manager 3. 1998.01-2006.10 TSANN KUEN JAPAN CORPORATION Director ( Vice General Manager) 1. 2006.06-Now TSANN KUEN (Taiwan) ENTERPRISE CO. LTD Chairman of the Board 2. 2003.05-2006.06 TSANN KUEN (Taiwan) ENTERPRISE CO. LTD Executive Director Zhuang Director 3. 2001.03-2003.04 TSANN KUEN (Taiwan) ENTERPRISE CO. LTD General Manager of Channel Xing Business Group 4. 1998.07-2001.02 TSANN KUEN (Taiwan) ENTERPRISE CO. LTD Vice General Manager 1.2005.12-Now AVON CO.LTD. President in Asia Pacific Wei Independent 2.2003-2005.12 AVON CO. LTD. Vice President for Strategy Junxian Director planning in Asia-Pacific 3.1999.07-2003 P&G CHINA Global Vice President 1. 2006.12.12-Now Kingdee International Software Group Company Executive President Limited 2. 2004.12-2006.02 SIEBEL SYSTEMS INC. Vice President & General Manager He Independent for China and East-Asia Area Jinghua Director 3. 2004.02-2004.11 UFIDA SOFTWARE CO., LTD. President 4. 2000.01-2002.04 AMERICAN TECHONOLOGY Vice President & General Manager for Asia-Pacific and Japan Area 1. 2005.08-Now TAMKANG UNIVERSITY,TAIWAN Professor of Industrial Economy Department 2. 2002.08-2005.07 TAMKANG UNIVERSITY,TAIWAN Dean of Commerce College Xiao Independent 3. 2001.08-2002.07 TAMKANG UNIVERSITY,TAIWAN Professor of Financial Department / Fengxiong Director Professor of Industrial Economy Department 4. 2001.08-2002.07 CHINA CONSTRUCTION CORPORTION Vice Chairman of the Board 5. 2000.05-2001.07 UNITED CHINA INVESTMENT CO. Chairman of the Board Zhou 1.2002.10-Now SINGAPORE HUADIANTONG GROUP Chairman of the Board Supervisor Zhonggeng 2.1999.12-2002.09 SINGAPORE HUADIANTONG GROUP Director, General Manager Diao 1998.04-Now CAPITAL INTERNATIONAL HOLDINGS CO., Chief Representative in Shanghai Supervisor Weiren Ltd. Office 1.2005.08-2007.12.31 TSANN KUEN (CHINA) ENTERPEISE CO.LTD. Vice president of Administrative Department Wang 2.2004.09—2005.08 TSANN KUEN (CHINA) ENTERPEISE CO.LTD. Senior manager of Supervisor Caiwang Administrative Department 3.2003.02-2004.08 LIHUI METALS LTD Vice General Manager 4.2000.10-2003.01 LIHUI METALS LTD Senior manager 1.2003.01--Now TSANN KUEN (CHINA) ENTERPEISE CO.LTD Secretary of the Board Luo Secretary of 2.2002.10-2003.01 TSANN KUEN (CHINA) ENTERPEISE CO.LTD Senior Financial Manager Qiangxing the Board 3.1997.08-2002.09 PACIFIC SECURITIES CO.LTD Vice General Manager 2004.05-now TSANN KUEN (CHINA) ENTERPEISE CO.LTD Manager of Accounting Department 2003.03-2004.05 EXA ENERGY TECHNOLOGY CO., LTD. Cost accounting Administrator 1998.03- 2003.03 Dong yuan Information Dongguan Manager of Accounting Department Dong rong Electronics Co., Ltd Tsai Accounting 1996.05-1998.03 Pou Chen Group Yu Yuan Industrial Limited Deputy Manager of Accounting Qingyu Manager Department 1991.06-1996.05 TECO Electric and Machinery Co., Ltd Cost accounting Administrator 11 4. The annual remuneration of Directors, Supervisors and Senior Executives 01. The decision-making procedure and the confirming remuneration to Directors, Supervisors and Senior Executives: According to the Articles of Association of the Company, the remuneration paid to the Directors and Supervisors were decided by the shareholders’ general meeting, while the remuneration paid to other Senior Executives were decided by the Board of Directors. All the decisions on the payment to above personnel were made in accordance with Personnel Management Regulations of the Company. 02. Annual remuneration (salary, bonus, allowance, etc.) to the present Directors, Supervisors and Senior Executives Annual remuneration Name Position (Unit: RMB’ 0,000) Tsai Yuansong Chairman of the Board 6 Jian Derong Director, General Manager 27.09 Zhuang Xing Director 3.60 Wei Junxian Independent Director 10 He Jinghua Independent Director 10 Xiao Fengxiong Independent Director 10 Zhou Zhonggeng Supervisor 2.40 Diao Weiren Supervisor 10 Wang Caiwang Supervisor 17.87 Luo Qingxing Secretary of the Board 21.38 Tsia Qingyu Accounting Manager 17.55 Total 135.89 Remuneration for Independent Tel-communication, trip, and hotel fee for/during the Meeting was paid according to the Director Company’s regulations Directors or Supervisors who did not apply for remuneration, subsidy None 03. All Directors and Supervisors received the remuneration from the Company. 04. Changes in Directors, Supervisors and Senior Executives: On Dec. 9, 2006, Yang Wenfang, former Director, proposed the resignation to the Board of Directors due to personal career. There was no effect on the normal operation of the Board of Directors due to the resignation of Yang Wenfang; therefore the Company would elect a new Director candidate at proper time. On Mar. 11, 2007, the Company held the 1st Board Meeting of 2007 and selected Mr. Jian Derong, General Manager of the Company, as a Supervisor candidate of the 5th Board of Directors then elected Mr. Jian Derong as Supervisor in by-election through the 1st Temporary Shareholders’ General Meeting on Mar. 29, 2007 Owing to regroupment of organization structure, Lin Zhihong, former Accounting Director, was elected as Senior Manager of General Manager Office from PSO Dept. On Apr. 21, 2007, the Company engaged Mr. Tsai Qingyu as Accounting Director of the Company approved by the resolution of the 2nd Board Meeting of 2007. In view of the personal affairs and health reason, Zhang Keda who was the former Director proposed the resignation to the Board of Directors on Jul. 13, 2007. There was no effect on the normal operation of the Board of Directors due to the resignation of Zhang Dake; therefore the Company would elect a new director candidate at proper time to submit to shareholders’ general meeting. Due to personal reason, Mr. Wang Caiwang who was the former Staff Supervisor proposed the resignation to Supervisory Committee on Dec. 31, 2007. On Mar. 1, 2008, Mr. Tsai Shuren was elected as Staff Representative Supervisor of the 6th Supervisory Committee through the 1st Employee Representative Meeting of 2008. 12 (II). Introduction of employees Education Number of person Classification of person Number of person Doctor 0 Salesmen 279 Master 2 Financial Staff 93 Bachelor 419 Technicians 1,426 Academy 628 Administrators 2,773 Middle academy 359 Workers 11,491 Technical school 1,769 High school 2,064 Middle school 4,966 Elementary school 5,855 Total 16,062 Total 16,062 V. Structure of Corporate Governance (I). Corporate governance In accordance with Company Law, Securities Law and requirement of normative document concerning corporate governance of listed companies, the Company further improved the corporate governance continuously and made great efforts to strengthen the system construction of modern enterprises so as to step up the level of corporate governance. In the report period, in compliance with the requirement and disposition of the Notice of Concerning Matters on Special Campaign to Strengthen the Corporate Governance of Listed Companies from CSRC, the Notice of the Fulfillment of the Special Campaign to Strengthen the Corporate Governance of Listed Companies from Xiamen Securities Regulatory Bureau, the Notice of the Fulfillment of the Special Campaign to Strengthen the Corporate Governance of Listed Companies from Shenzhen Stock Exchange, the Company began to launching the special campaign of corporate governance from Apr. 2007, inspected the structure of corporate governance comprehensively and rectificated against the problems existing in time. The Company also disclosed the Self-inspection Report of the Special Campaign of Corporate Governance, Self-inspection Report and Rectification Plan of Corporate Governance, Rectification Plan of the Special Campaign to Strengthen the Corporate Governance; at the same time, in line with relevant rules from CSRC and Shenzhen Stock Exchange, set down complementally and perfected the Working Rules of Independent Directors, Rules of Procedure of General Manager, Management Rules for Holding Subsidiaries, Management Rules on Internal Control Self-inspection, Rules on Internal Audit of the Company, Management Rules on Information Disclosure, Reporting and Examination Rules on Significant Event, Management Rules on Financial Report, Management Rules on Information Delivering( internal and external), Management Rules on Related Transaction, Management Rules on Budget, Management Rules on Receiving and Disposal of Assets, Management Rules on Fixed Assets, Management Rules on Raised Capital, Management Rules on Loan Fund, Management Rules on Significant Investment, Management Rules on Endorsement in Security, Management Rules on Note, Management Rules on Legal Seal, Management Rules on Position Authorization, Management Rules on Position Agent. The Company established ten cycles including cycle of production, purchasing and payment, sale and payment, financing, human resource, investment, fixed assets, R & D, electronic computer and management, and concurrently built the system of internal control as special case. In view of the present operation of the Board of Directors, and against the fact that none of special committee has been established subordinate to the Board of Directors, the Company 13 disclosed information in Self- inspection Report and Rectification Plan of the Corporate Governance, and Rectification Plan of the Special Campaign to Strengthen the Corporate Governance with the contents, that is, the Board of Directors would establish the special committee after changing the office term for the Board again in 2008 in accordance with rectification plan. Now the Company has revised the Articles of Association with new content of establishing the special committee, then to submit to shareholders’ general meeting for approval. What’s more, the Company has produced the relevant detailed working rules. In the report period, the shareholders’ general meeting, the Board of Directors, Supervisory Committee operated normatively and efficiently to ensure all shareholders to enjoy their legal rights, safeguard the interests of investors and the Company; in aspect of information disclosure, the Company abided by the principle of truth, accuracy, completeness, timely and fair. At the same time, the Company would further improve and perfected the level of corporate governance, strengthened the management on system construction and investors relationship to enhance the Company’s transparency. (II). Duty performance of Independent Directors In the report period, the Independent Directors of the 5th Board of Directors fully implemented their duty to concern the operation of the Company, financial situation and corporate legal person management structure, communicated with auditors and accountants through conversazione to learn the problem existing and situation of the Company, and requested the management staff to rectificate and deal with them in time. The Independent Directors expressed the independent opinions in terms of the Directors and Senior Executives’ appointing and dismissing, the fund operation between the Company and the related parties, external guarantee, related transaction, and played an important role and function to safeguard the legal rights and interests of medium- and small shareholders. 1. Particulars about independent director attending the Board meeting Times of Times of Times of Name of Independent Times of meeting meetings be meetings should be meeting Note Director attended in person attended by attended absent agent Wei Junxian 9 9 0 0 Business trip in foreign He Jinghua 9 8 0 1 country during meeting period Xiao Fengxiaong 9 9 0 0 2. There was no objection proposed by Independent Directors in the report period. (III). The Company was separated from the controlling shareholder in personnel, assets, financing, organization and business 1. In respect of business: The Company was independent from the controlling shareholder gradually in the respect of business, set up the absolute and integrated business system and self-operation capability, which improved the Company to become into an independent corporation facing the market. 2. In respect of personnel: 01. The Company was absolutely independent management in labor, personnel and salary management. The Company’s office place and production and operation place was separated from the controlling shareholder without mix operation. 02. There was no situation that the controlling shareholder intervened in the personnel’ engagement and demission of the Company. 14 3. In respect of assets: The Company was separated from the controlling shareholder in assets, which has independent and complete production system, auxiliary production system, supplying and marketing system and complementary facilities and has intangible assets such as independent ownership of industrial property, trademark and non-patent technology etc. 4. In respect of financing: 01. The Company has independent financial department and accounting department, established a set of independent and complete accounting system and financial management system. 02. The Company independently made financial decision; there was no situation that the controlling shareholder intervened in the use of the Company’s capital. 03. The Company opened independent bank accounts, there existed no situation that the Company save the funds into the bank accounts of the principal shareholder or financial company controlled by other related parties or accounts of settlement center. 04. The Company paid the tax according to law. (IV). Establishment and improvement of internal control of the Company In accordance with requirements of the notice of Guidelines for Contents and Formats for Information Disclosure by Companies That Offer Securities to Public (No.2) (revised in 2007), the Notice of the fulfillment of the Annual Report 2007 of Listed Companies, the Company inspected the validity of internal control by itself and produced the self-evaluation of internal control as follow: Part I. Summary In accordance with the requirement of Company Law, Securities Law, Share Listing Rules of Shenzhen Stock Exchange, Guidelines on Internal Control of Listed Companies of Shenzhen Stock Exchange, in order to strengthen the internal control of the Company, improve the normative operation and healthy development, protect the legal rights for investors, the Company attached importance to the construction of internal control mechanism and internal control system since its foundation, produced more normative legal person management structure and formed the scientific decision-making, execution, and supervisory mechanism. Currently, the Company set down and perfected all kinds of internal control rules, established ten cycles including cycle of production, purchasing and payment, sale and payment, financing, human resource, investment, fixed assets, R & D, electronic computer and management, and concurrently built the system of internal control as special case. Besides, in line with the requirement of the Company actual development, securities regulatory commission and Shenzhen Stock Exchange, the Company built and perfected the Articles of Association, Rules of Procedure of the Board of Directors, Rules of Procedures of Supervisory Committee, Rules of Procedures of Independent Directors, Management Rules on Information Disclosure, Conduct Standards of Investors Relationship Management Personnel, Management Rules on Investors Relationship, Reporting and Examination Rules on Significant Event, Management Rules on Raised Capital, Management Rules on Financial Report, Management Rules on Information Delivering( internal and external), Management Rules on Related Transaction, Management Rules on Budget, Management Rules on Receiving and Disposal of Assets, Management Rules on Fixed Assets, Management Rules on Loan Fund, Management Rules on Significant Investment, Management Rules on Endorsement in Security, Management Rules on Notes, Management Rules on Legal Seal, Management Rules on Position Authorization, Management Rules on Position Agent, Management Rules on Internal Control Self-inspection, Rules on Internal Audit of the Company, Management Rules for Holding Subsidiaries etc management rules and internal control rules so as to built a sound, perfect, 15 effective internal control system. All above mentioned rules were implemented effectively, operated the function of supervision, control and guide for the Company’s operation. Given the importance of the internal control system of the Company, in 2004 the Company designedly established an Internal Auditing Department (Auditing Department) with the responsibility of supervision and inspection. Since the establishment of this department, the Company continuously complemented and enriched every internal control system as well as learnt the laws and rules and the leading regulations of overseas and domestic industries attributed to the same field to develop the Company with the principles of risk management and avoiding cheating. Since 2007, while perfecting the internal control system, the Auditing Department has carried out many campaigns on checking with large coverage, including routine check and inspection on projects, having the source control and inspection. Further, the Auditing Department drew out the annual audit plan based on the result of risk assessment and made monthly, quarterly and yearly checking projects legally, which played a favorable role on risk management and avoiding cheating. In the report period, the Auditing Department issued 47 routine audit reports and numbers of audit reports on projects required by Directors, Supervisors and the Senior Management Staff, including finance, the problems related to and reflected from the production, sales and purchase, which provides a preferred foundation on the decision made by Directors, Supervisors and the Senior Management Staff and brought obvious effect on the operation of the Company. So far, the Auditing Department was divided into 3 groups: development and purchase, manufacturing and sales, reorganization as to cultivate the personnel’s profession in their own field, supporting flexibility on deploying based on the demand of the subsequent tasks. The staffing equipments need an experienced section supervisor with the business specialty in biological tube and production and sales, 9 underlings with the specialty in manpower development, biological tube, production and sales layout, finance and electronic computer, which could satisfied the comprehensiveness of internal control. 16 Section II Significant Control Activity 1. Chart on the control structure and the proportion of held share of the holding subsidiaries TSANN KUEN (CHINA) ENTERPRISE CO., LTD 75% Tsann Kuen Zhangzhou Enterprise Co. Ltd.(TKL) 75% Tsann Kuen Xiamen Technology Co., Ltd 62.5% Tsann Kuen China (Shanghai) Enterprise 100% Eupa (Hong Kong) Corporation Ltd. (EUPA-HK) 75% Tsann Kuen (Zhangzhou) South Port 65% Xiamen Tsann Kuen Dian Tong Electronic 100% Tsann Kuen (Zhangzhou) Vocational 2. Management of the holding subsidiary of the Company In order to standardize the relation with the holding subsidiary, reinforce the support, guidance and management to the holding subsidiary, boost the holding subsidiary to operate following the system of the modern enterprises, further perfect the legal person governance structure, fulfill the operation policy of the Company roundly, safeguard the interest of the shareholders and improve the investment efficiency, on Apr., 2007 the Board of Directors approved and implemented the proposal of Management Rules for holding subsidiary. (1) Established the internal control system for every holding subsidiary, supervised the corresponding business plan and risk management procedure which were established by every holding subsidiary. (2) Established the performance appraised system to every holding subsidiary. 17 (3) Every holding subsidiary established reporting system and deliberation procedure on significant events, duly reported the significant business events, significant financial events and the information affected the shares of the Company and the transaction price of derivative products to the principal of all department of the Company, and strictly followed the authorized rules to make the significant events examined and approved by the Board of Directors of the Company or Shareholders’ General Meeting. (4) Termly received and analyzed the quarterly (monthly) report of the holding subsidiaries, including report on business, production and sales volume statement, balance sheet, profit-and-loss report, cash flow statement and the statements on offering capital and guarantee for others. (5) The holding subsidiaries executed necessary self-inspection on internal control due to their business character. 3. Internal control on related transactions The Company conducted the management for related transaction of the Company, strictly following the management regulation of related transaction mentioned in Guidelines for the Internal Control of Listed Company and Share Listing Rules issued by Shenzhen Stock Exchange as well as the Article of Association and the Management Measure of Related Transaction made by the Company. The Article of Association prescribed that with the purview authorized in Shareholders’ General Meeting, the Board of Directors could decide the events about related transaction of the Company, confirm the decision about related transaction and request to establish the strict review and decision procedure. Management Measure for Related Transaction made by the Company has showed clearly the related parties of the related transactions, related relationship and the conditions of the related transactions, the decision procedure of the related transactions and the disclosure of the related transactions. In the report period, the related transaction followed the principles of good faith, equity, free will, fairness and publicity, did not harm the interest of the Company and shareholders. Moreover, the Company fulfilled the review procedure and withdrawal on voting according to the related laws, administrative regulation, departmental regulation and Share Listing Rules. The related principals fulfilled the obligation of examining & approving and reporting to the related transaction when the Company and its subsidiaries were conducting transactions. 4. Internal control on external guarantee According to Guidelines of Shenzhen Stock Exchange for the Internal Control of Listed Company and Circular of China Securities Regulatory Commission and China Banking Regulatory Commission on Regulating the External Guaranties Provided by Listed Companies, the Company drew out Management Measure for Endorsement in Security and continuously perfected the internal articles. The management measure specifically prescribed the authorization and procedure for examining and approving external guarantee from Shareholders’ General Meeting and the Board of Directors. The management and control on the limitation and information disclosure of endorsement in security were implemented in line with the laws and rules. Meanwhile, the finance and credit of the guaranteed parties were assessed in the round, which effectively controlled the financial and credit risk caused by the endorsement in security to the Company. 5. Internal control on usage of raised proceeds Based on Shenzhen Stock Exchange, Share Listing Rules, the Company amended Management Measure for Raised Proceeds, specifically prescribing such definitions as storage, examination and approval, usage, change and supervision of capital. Management Measure of the Company prescribed that: the Company conducted special account deposit system for the raised proceeds to ensure the safety and appropriation of raised proceeds, and deposited the sum of raised proceeds to the special account of bank duly and inextenso. The Company utilized the raised proceeds according to the usage plan and schedule of the raised proceeds committed in prospectus and the Finance Examination and Approval System of the Company. In case of changing the purpose of using raised proceeds, the Board of Directors should submit it to Shareholders’ General Meeting for examination and approval first. The disclosure of the usage of raised proceeds should be published in annual report and semi-annual report so that the shareholders could supervise the capital usage and schedule. 18 6. Internal control on significant investments According to Share Listing Rules, Guidelines for the Internal Control of Listed Company, the Company drew out Management Measure for Significant Investment, which prescribed specifically the definition, procedure, authorized quota, arrangement, contract requirement and information disclosure of the significant investment. The Article of Association also defined the authorization and procedure for examining and approving significant investment in Shareholders’ General Meeting and the Board of Directors. In view of Guidelines of Shenzhen Stock Exchange for the Internal Control of Listed Company, the internal control on investments was implemented strictly, fully and effectively by the Company, which did not disobey Guidelines for the Internal Control of Listed Company, Share Listing Rules and Management Measure for Significant Investment. 7. Internal control on information disclosure The Company established such a series of efficient and strict information management system as Reporting, Examining and Approving System on Significant Events, Management Measure for Financial Report and Management Measure for Information Disclosure, strengthened the management of information business, safeguarded the veracity and secrecy of information, avoiding the information being betrayed before disclosure and spurring Directors, Supervisors and the Senior Management Staff to fulfill the duties devotedly and diligently, which assured the information disclosing truly, exactly, duly and fairly. According to Guidelines of Shenzhen Stock Exchange for Fair Information Disclosure of Listed Companies and Guidelines of Shenzhen Stock Exchange, the Company carried out such activities for investor relations as external reception and communication to safeguard the fairness of information disclosure. The principal in charge of reporting could duly report the related information to the Board of Directors and the Corporate Secretary. The Corporate Secretary should analyze and judge the significant internal information, also report the information which needed disclosing to the Board of Directors and remind the Board of Directors to fulfill the corresponding procedures and disclose the information. Section III Problems and Rectification Plan In the report period, the Company was bending itself to the establishment of in internal control system. As a result, in the premise of obeying the laws and rules, the Company constantly leant and used the bylaws the overseas and domestic advanced industries for reference to perfect the internal control system of the Company, which brought specific efficiency. However, with the changes of the inside and outside environments, there were some problems to be improved existing in internal control system of the Company: 1. With the ceaseless perfection of the internal and external laws, the adjustment to the change of the business environment of the Company, part of the existing contents about internal control system the Company differed from the actual business status of the Company. The Company would ceaselessly conduct the comprehensive verification to the existing bylaw and the internal control system, further amending and perfecting those falling short of the related regulation and actuality. 2. Given the large organizational size of the Company and the complicated vertical integration of production function, part of the systems couldn’t be implemented drastically or not so well in spite of the sound written system, which would be advocated by the staff conception. The chief manager mightily required to fulfill the implementation of the regulations of the Company by making rewards and punishment standard, which would be made close tracks for to put into effect. 3. Establishment of long-effect mechanism on internal control: The internal control should be closely correlated with the daily management, being part of the daily business management. The establishment of long-term management institute by the company would help carry out the related work on internal control for the subsequent jobs, forming the reporting program and daily supervision means. The strengthening of knowledge on efficiency of internal control could improve the operation result of the internal control in the Company. Therefore, the Company further capitalized the favorable resources to work out the long-term management on internal control. 4. The Company failed to be punished publicly by CSRC and Shenzhen Stock Exchange on the internal control problem of the Company. 19 Section IV General Assessment To sum up, the Company established perfect internal control structure and operated canonically according to Company Law, Guidelines for the Internal Control of Listed Companies, Share Listing Rules. Especially through the special campaign for strengthening the corporate governance held by CSRC, we discovered many problems and improved them, which made the responsibilities for Shareholders’ General Meeting, the Board of Directors, Supervisory Committee and the Managers of the Company specific, operating regularly. The information of the Company was disclosed betimes, fairly, well and truly. Meanwhile, the Company would further improve the corporate governance level, strengthen the perfection of the systems’ establishment and the investor relation management, and magnify the diaphaneity of the Company for the subsequent jobs. Opinion of the Independent Directors: According to Shenzhen Stock Exchange, Circular on Properly Handling the 2007 Annual Reports of Listed Companies and Related Work, as the Independent Directors of Tsann Kuen (China) Enterprise Co. Ltd (the Company for short hereafter), we had carefully reviewed the content of Report on Self-evaluation of Internal Control of the Company in 2007. After communicating with the managements and the related management departments of the Company and referring to the management system of the Company, we expressed the following opinions with the independent judgment: 1. The internal control system of the Company complied with the related national rules and the requirement from Securities Regulatory Department, meeting the demand for the actual situation of production operation of the Company. 2. The measure of the internal control system of the Company played an important role to the every process and tache of the corporation management. 3. Report on Self-evaluation of Internal Control of the Company in 2007 had reflected the actual situation of the internal control of the Company relatively objectively, concluded the internal control of the Company relatively roundly, and reinforce the effort on the internal control relatively specifically. 4. Report on Self-evaluation of Internal Control of the Company in 2007 was in line with the actual situation of the internal control of the Company. Independent Directors: Wei Junxian, He Jinghua, Xiao Fengxiong Mar. 29, 2008 Opinion of the Supervisory Committee: 1. According to the regulation issued by CSRC and Shenzhen Stock Exchange and the specific position of the Company, the Company made and improved the internal control system which covered the whole production operation process, as to ensure the work followed the rules and form a canonical management system. The internal control system existing in the Company could help the production operation of the Company run normally. 2. The Company had set up and perfected the legal person governance institution and the internal institution and organization which met the demand for modern management. The establishment of decision-making mechanism, executive mechanism and the supervision mechanism for major campaigns of the internal control of the Company ensured the business activities of the Company could run canonically. 3. In the report period, the Company did not offend the Guidelines of Shenzhen Securities Exchange for Internal Control of Listed Companies or the internal control system of the Company. To sum up, in the opinion of the Supervisory Committee, Report on Self-evaluation of Internal Control of the Company in 2007 could reflect the actual situation of the internal control of the Company relatively roundly and objectively, also could discover the existing problems and come up with the rectification plan. Therefore, the report won recognition from us. (V) The performance evaluation and mechanism of inspiritment and restriction of the Senior Management Staff The Company assessed the performance of the Senior Management Staff according to the relevant guideline and standard, of which the results were recorded into personal file and combined with personal treatment and 20 position. VI. Brief for Shareholders’ General Meeting Particulars about the Annual Shareholders’ General Meetings and Extraordinary Shareholders’ General Meeting held in the report period: (I) Annual Shareholders’ General Meetings: 1. Annual Shareholders’ General Meeting of the Company 2006 was held on May 26, 2007. 2. The public notices of the resolutions in this meeting were published in Securities Times and Hong Kong Ta Kung Pao on May 29, 2007. (II) Extraordinary Shareholders’ General Meeting: 1. The 1st meeting of Extraordinary Shareholders’ General Meeting of the Company 2007 was held on Mar. 29, 2007, and the public notices of the resolutions in this meeting were published in Securities Times and Hong Kong Ta Kung Pao on Mar. 30, 2007. 2. The 2nd meeting of Extraordinary Shareholders’ General Meeting of the Company 2007 was held on Jun. 16, 2007, and the public notices of the resolutions in this meeting were published in Securities Times and Hong Kong Ta Kung Pao on Jun. 19, 2007. 3. The 3rd meeting of Extraordinary Shareholders’ General Meeting of the Company 2007 was held on Aug. 18, 2007, and the public notices of the resolutions in this meeting were published in Securities Times and Hong Kong Ta Kung Pao on Aug. 21, 2007. VII Report of the Board of Directors (I) Operation retrospect of the Company in the report period The Company realized the revenue of RMB 4905 million, decreasing 20.11% (deducting 9.55% caused by the decrease of the income of the melting plant compared to the same period of last year) over the corresponding period of last year, which was due to the sales income of aluminum and ingot from the melting plant by the end of 2006 of RMB 750 million, the management and control on the net profit from order and the elimination of the sales of low-gross-profit products. The operating cost was RMB 4520 million, decreasing 31.39% over the corresponding period of last year (deducting 20.15% caused by the decrease of the income of the melting plant compared to the same period of last year), which was due to the readjustment at a high price of the raw material to avoid the constant increase of the manufacturing cost, the considerable decrease of the operating cost and the enhancement of the allover profitability of the products through the optimization on production operation and the decrease of the sales of low-gross-profit products. The net profit of RMB 67 million in 2007 was recorded by the Company, turning the loss-making to profits in contrast to the corresponding period of last year. The debt ratio was reduced from 91.77% at the end of 2006 to 78.53% at the end of 2007. In 2007, the Company perfected the internal management mechanism and the comparative advantage, reinforced the cooperation in production and marketing, shortened the delivery of the raw material, reduced the inventories, activated the capital operation, improved the reform on the operating mode and management mechanism. Moreover, the Company conducted the management and control on the net profit from order in the process of enlarging market, as to improve the quality of the products and its delivery and realized the fast increase of efficiency and the optimization of the financial structure. Besides reformation of the aforesaid operation model and management mechanism, meanwhile, with the principle of “with the core of development, the means of innovational technics and making-procedure, enhance the added value of the products and strengthen the life and competition of the products”, the Company adhered to play the important role of “science and technology are the first productive force”, pay attention to rely the 21 advancement of technology and reinforce the basic research and the research on new technology to boost the innovation of main technology and system integration. 1) Continue to develop and innovate with the devotion on technology development Owing to the ongoing research and development of the products, the number of the patent techniques increased to 74 in 2007 from 45 in 2006, representing an increase of 64.44%. The fierce competition of the small appliance market safeguarded the operation of the Company. 2) Develop such high-tech product field as appliances of new energy, efficiency and environment protection The Company entered the high-tech product field, took active part in enlarging market with the concept of Human-Orientation and Technology Innovation, as to ser up an organization on development and sales, reinforce the development on strategic product. Meanwhile, the Company maintained the continuous and fast development by quickening the development pace of automatic coffee maker, gas mosquito killer, green energy product and china, porcelain enamel, craftwork and environment protection products instead of PTFE, as well as new technology. 1. The major business scope and its operational situation A. Classifying according to the trade and product Unit: RMB’000 Trade Product Main business Main business income profit Home assistant 1,740,592 63,597 Small home Gourmet cooking 2,298,604 227,483 appliances making Tea/coffee 684,132 36,627 Other 62,933 2,676 Total 4,786,261 330,383 B. Classifying according to the geographical location Unit: RMB’000 Area Main business income Main business profit North America 2,372,787 227,344 Europe 1,039,370 57,165 Other 1,374,104 45,874 Total 4,786,261 330,383 C. The products whose sales income exceeded 10% of the major operational income Unit: RMB’000 Product Ratio Main business Cost of sales Gross profit ratio income Home assistant 36.37% 1,740,592 1,676,995 3.65% Gourmet cooking 48.03% 2,298,604 2,071,121 9.90% Tea/coffee 14.29% 684,132 647,505 5.35% Total 98.69% 4,723,328 4,395,621 6.94% 2. Chief customers and suppliers A. The sum of purchasing amount from the top five suppliers in 2006 is RMB 692,494,000, taking up 25.51% of the company’s total purchasing amount in the year. B. The sum of sales amount to the top five customers in 2006 is RMB 2,063,133,000, taking up 43.11% of the company’s total sales amount in the year. 22 3. During the report period, the assets and expense have the change by a big margin compared with the same period of the last year. Unit: RMB’000 At the At the end of end of Increase/ Item 2007 2006 decrease Main Reason for changes (RMB’00 (RMB’00 (%) 0) 0) Trading Influence on Long-term foreign exchange was measured financial assets 23,028 0.00 0 into Trading financial assets, after implementing New Accounting Standard in 2007 Notes receivable The notes of selling flotsam amounting to RMB 27.8 4,080 68,661 (94.06%) million and selling fixed assets amounting to RMB 38 million expired after selling material stuff Division. Account In 2007, the Company began to control the credit line to receivable 544,576 864,431 (37.00%) clients so as to strengthen management of account receivable efficiently. Advance to The account in advance amounting to RMB 27.8 million supplier to Zhangzhou Xinge for goods and account in advance 25,351 66,363 (61.80%) amounting to RMB 6.5 million to Zhangzhou Development Co., Ltd for workshop rent were settled this year. Other account The subsidiaries Xiamen Diantong settled and verified receivable 26,438 55,648 (52.49%) bad debt amounting to RMB 119 million arising from preparation as bad debts in total amount. Inventory Due to sell the aluminium melting factory and improved 590,419 919,356 (35.78%) the operating efficiency through enhancing the material management. Financial assets The sellable equity instrument was that the Company available for sale rechecked the share equity held of Shanhai Jiubai Co., Ltd on first exercise date, which didn’t have the control, 250 101 148.65% joint control or significant effect on Shanhai Jiubai Co., Ltd. Therefore that was attributable to financial assets available for sale. The difference between the fair value and book value measured into the public reserve. Held-to-maturity The Company purchased the foreign exchange investment 0.00 781 (100.00%) financing product from bank, the transaction finished in May, 2006. Long-term The material Division sold in 2006, in which fixed account assets was sold with price RMB 62 million. The receivable & 48,423 0 Company took the payment from processing charge Deferred monthly from Zhangzhou Xige. As at Dec. 31, 2007, the proceeds Company has received RMB 13.58 million through this way. Investment real 38,903 0.00 SHANGHAI factory building for rent estate Construction in 25,681 70,281 (63.46%) The construction in progress was transferred to fixed progress assets after been finished and approved Short-term 298,448 1,189,150 (74.90%) Compensated the borrowings and part of them borrowings transferred to long-term borrowings Notes payable 208,214 413,742 (49.68%) Added the payment by L/C Advances from 12,830 75,330 (82.97%) On Dec. 31, 2006, the note amounting to RMB 62 customers million expired opened from Zhangzhou Xinge Non-current 100,000 The long-term borrowings within one year measured liabilities due into this subject. 23 within one year Deferred income The temporary difference arising from the fair value tax liabilities 5,797 13 45904.63% changes of additional trading financial assets was RMB 5.75 million in the report period. Minority In the report period, the Company injected additional shareholders’ 321,152 82,428 289.61% capital. equity Operating The Company had disposal on the unprofessional 4,905,280 6,139,926 (20.11%) Income aluminium melting factory which was in loss, separated from low-gross-benefit product industry and controlled 4,519,939 6,588,240 (31.39%) the net prodfit. Sales expense 1) Reformed and mergered the organization of electronic appliance, enhanced the products’ research 154,704 335,277 (53.86%) and design deeply and extensively to reduce the sales expense. 2) Sold the aluminium melting factory also reduced the sales expense. Financial 1) Interests payment was decreased by RMB 15.44 Expense million because of compensating the borrowings 58,019 83,037 (30.13%) compared with the same period of last year. 2) Exchange interests increased by RMB 9.82 million compared with the same period of last year Asset Because the Company carried out activities to control impairment loss net profit, reinforce the management of account overdue receivables and material control, so that the inventory falling price loss decreased by RMB 38.89 million 32,443 144,507 (77.55%) compared with same period of last year., asset impairment loss decreased by RMB 52.59 million compared with same period of last year, bad debt loss decreased by RMB 21.21 million compared with same period of last year. Gains and losses Influence on Long-term foreign exchange was measured of fair value 23,028 0.00 into Trading financial assets, after implementing New Accounting Standard in 2007 Income except 57,863 18,293 216.30% The proceeds from dealing with non-current assets and business logout the subsidiary company. Expense except 1) The amount of donation and expense decreased by business RMB 2.59 million compared with the same period of 4,585 13,052 (64.87%) last year 2) The loss on disposal of retail industry was RMB 4.88 million in 2006, there was no similar situation in 2007. Expense of 8,435 (30,702) (127.47%) Re-evaluated according the new accounting standards. income tax Net cash flow Because the Company reduced the inventory through from operation 493,184 47,391 940.67% coordinating the producing and sales, enhanced the activities management of account overdue receivables in the report period. Net cash flow The capital expense decreased by RMB140 million from investment (8,864) (139,795) (93.66%) compared with the same period of last year. activities Net cash flow 1) The amount of compensating the short-term from raised borrowings was RMB 623 million in this period, the capital activities (451,441) 76415 (690.77%) short-term borrowings increased by RMB 133 million at the same period of last year. 2) The controlling shareholders added capital RMB230 million. The Company executed guide and system of Accounting Standards for Business Enterprise from 1 Jan. 24 2007. According to Accounting Standard for Business Enterprises No. 38 - First adoption of Accounting Standards for Business Enterprises and Notice of Carrying out Finance & Accounting Information Disclosure related to the New Accounting Standard, with Document No. ZJF [2006] No.136 issued by China Securities Regulatory Commission and combined with advantages of itself, the Company calculated financial assets available for sale, trading financial assets and investment property based on fair value. 4. The operational situations and the achievements of the companies which are under TKC’s control or in which TKC holds a share. 01. Tsann Kuen China (Shanghai) Enterprise Ltd. A. Business Type: Manufacturing; B. Major Products and Services: Production of household appliances, electronic, light industry products, modern office equipments and their related modules, various kinds of computers and their related facilities or spare parts. Development of computer software, IC packing and testing; sale of their own products (the exporting of which will not be restricted by the requirements of license and quota; referred permitted business operated by license.) C. Registered Capital: USD 40 millions D. Assets Scale: RMB 122.45 millions E. Net Assets: RMB 112.01 millions F. Net Profit: RMB -18.57 millions G. The influence of net profit exceeded 10%: H. Main business income: RMB 135.75 millions I. Main business Cost: RMB 131.19 millions 02. Tsann Kuen Xiamen Technology Co., Ltd. A. Business Type: Manufacturing; B. Major Products and Services: Producing and marketing network service products like internet server, router and other digital communication devices, network multi-media PC products and their assemblies, related software. Designing, researching, developing and producing sophisticated pressing modules, model normalizers and the like. Engaged in manufacturing and marketing various kinds of computers and peripheral equipments & parts. Engaged in inorganic non-metallic materials and products (Quartz glass and artificial crystal), glasses, pottery & ceramics, high-class fire proof materials used in fiberglass furnace, further processing technology of flat glasses and manufacturing equipment. C. Registered capital: USD 20millions D. Assets Scale: RMB 65.35 millions E. Net Assets: RMB 38.06 millions F. Net Profit: RMB 0.69 millions 03. Tsann Kuen Zhangzhou Enterprise Co. Ltd. A. Business Type: Manufacturing; B. Major Products and Services: Development, production and sale of small household electrical appliances, new kind of electronic appliances and parts (such as electrical kits, sensors and sensitive transmitters), light industrial products, modern office supplies; designing and producing the molds related to the above products. Processing and manufacturing nonferrous metal composed materials, new-typed alloy materials, marketing self-made products and semi-manufactured products, processing supplied materials and processing with supplied materials or given samples & assembling supplied components. (Excluding those products restricted by the government or those whose import or export quota is under license administration. When involved in those projects which need to be examined and approved first, the company carries out its operation and production only within the range and within the valid period set in the license.) C. Registered capital: USD 160 millions D. Assets Scale: RMB 3,363.47 millions E. Net Assets: RMB 1,104.98 millions F. Net Profit: RMB 64.73 millions G. The influence of net profit exceeded 10%: H. Main business income: RMB 4,596.73 millions I. Main business Cost: RMB 4,257.36 millions 25 04. Xiamen Tsann Kuen Dian Tong Electronic Co. Ltd. A. Business Type: Wholesale trading. B. Major Products and Services: Wholesaling and its follow-up service of household appliances, computer sets and their attachments, communication materials, motor and electric equipments, office supplies and the related attachments (including kitchen facilities). (For those business items which need to be examined and approved first according to the laws and regulations, the company will carry out its operation only after it has obtained the license) C. Registered capital: RMB 0 D. Assets Scale: RMB 0 E. Net Assets: RMB 0 F. Net profit: RMB 34.27 millions G. The influence of net profit exceeded 10%: Main business income: RMB 0 Main business Cost: RMB 0 H. Situation of subsidiary company: Xiamen Tsann Kuen Dian Tong Electronic Co. Ltd was closed on 1 Jul. 2005. Liquidation Announcement was published in Xiamen Daily on 16 Nov. 2007 and liquidation was declared to over at the Shareholding’s Meeting on 25 Dec. 2007. Notice of State Tax, Notice of Local Tax and Cancellation Notice in Industry and Commerce Administration respectively on 7 January, 15 January and 21 January 2007. The Company shall bear the residual assets and residual liabilities, and there are no influence in general production & operation and achievements. I. Operation achievements have a big change compared with the same period of the last year: Subsidiary retail company has been terminated in 2005, credit and debt transferred to Xiamen Tsann Kuen Dian Tong Electronic Co. Ltd, and the term was over one year. According to the precise principle, the successive credit calculated to bad debt reserve according to the accounting calculation of bad debt reserve. Owing to it’s not definite whether the successive debt shall be paid or not, the debt didn't process in the last year. Liquidation Announcement of Xiamen Tsann Kuen Dian Tong Electronic Co. Ltd was published in Xiamen Daily on 16 Nov. 2007, which declared that no creditor or debtor identified the credit and debt until the liquidation was over, and debt transferred to liquidation benefit. 05. Tsann Kuen (Zhangzhou) South Port Eletronics Enterprise Co., Ltd. A. Business Type: Manufacturing B. Major Products and Services: Development, production and sale of small household electrical appliances, new kind of electronic appliances and parts (such as electrical kits, sensors and sensitive transmitters), light industrial products, modern office supplies; designing and producing the molds related to the above products. (Excluding those products restricted by the government or those whose import or export quota is under license administration. When involved in those projects which need to be examined and approved first according to the laws and regulations, the company will do its business only after it has obtained the license). C. Registered capital: RMB 5 millions D. Assets Scale: RMB 39.06 millions E. Net Assets: RMB 8.52 millions F. Net profit: RMB 5.63 millions 06. Tsann Kuen (Zhangzhou) Vocational Technical Institute A. Business Type: non - governmental nonprofit units B. Business Scope: Secondary Vocational Education C. Registered capital: RMB 500,000 D. Assets Scale: RMB 3.06 millions E. Net Assets: RMB -0.09 millions F. Net profit: RMB 0.32 millions 07. Eupa (Hong Kong) Corporation Ltd. A. Business type: Trade B. Main product and service: trade order, agent stocking, research and development of small household appliance, investment, market investigation 26 C. Registered capital: USD 2.9 millions D. Assets Scale: RMB 6.15 millions E. Net Assets: RMB 5.53 millions F. Net profit: RMB 0.42 millions (II) Outlook of the Company 1. The Company reformed in operation system and strategy of manufacturing and marketing in 2007, and adopted three centers for strategy: (1) To devote mind to main operation: The Company would change the production department without good benefit into production subcontracted in order to further reduce the cost and deal with the departments and assets without cost-benefit. (2) To advance operation and management The Company would strengthen management team and the integration with production, marketing and Research &Development, shorten development time to advance quality and delivery date of products; in aspect of marketing, the Company would establish relationship of strategic partner with customers and share international raw materials and risk of fluctuation of exchange rate. (3) Strength risk controlling: Optimize procedures of finance and accounting; control and manage net profit efficiently; ensure timely feedback of operation status by new ERP system. 2. Summing up Report of 2007, the Company pulled through the crisis and promoted the profitability. In the future, the Company would persist in the above strategic aim, guide with principle of benefit, lead innovation of technology and product, accelerate global manufacturing, prompt marketing capacity, persist in self-management, strengthen the integration with production, marketing and Research &Development, strength the inner control system and form leading advantage of research &development design and cost of marketing system. It forecasted that the goal of operation income was USD 700 million in 2008 (III) Development trend of the industry and outlook of the market A. Scalization and Series of Intelligent small green environment protect ional house appliance Along with the environment standard of international market was trending strictly, the country adopted a series of energy efficiency standards and popularized the products of saving energy through a series of important measures of price reform, tax system etc. The producer was not only be saving energy and environmental protection in raw materials, but also in research and development of technology, which optimize the industry chain. B. High-ended vision of Small house appliance It is obviously that price is open and profit is low in middle-low class products of small house appliance. More enterprises will realize profit with high technology and middle-low quantity. C. Influence of external environment Owing to appreciation of RMB and price raise of the raw materials, profit of the small house appliance decreased. Saving cost of products was the primary factors to occupied market. Execution of R European RoHS and China RoHS adopted new demand on deign and manufacturing of Small house appliance In general, the small house appliance in future should keep its advantages of intelligence, safety, multifunction, saving energy and environmental protection, which was easy controlled. (IV) Capital Expenditure Plan According to the development strategy, the Company will dive into high-technology field such as new energy, high efficiency and environmental protection house appliance. It forecasted the fund needed for improvement of production capacity of the aforesaid filed is RMB 50 million in 2008. (V)The main risk factors of development in the future A. Pressure from continuous raise of price of raw materials The international market of steel was flourishing, and the international price of steel was higher than that of our country. The raw materials and carriage would be the important factors which influenced the international steel market. Owing to lower the risk of price raise of raw materials, the Company optimized 27 purchase contract, established facility factories to perfect supply chain management, strengthen strategic relationship of partner with the main resource supplier, reduced cost, strengthen the research and development of the products, optimized marketing structure and promoted profit and low the influence of price raise to the production cost. B. Export pressure and risk of foreign exchange from RMB appreciation The foreign exchange rate of RMB and USD on 31 Dec. 2007 was 7.3046, 6.9% up compared with that of 31 Dec. 2006. Owing to RMB appreciation and fluctuation of exchange, the export profit and house appliance decreased in 2008. With strategic conception of globalization, the Company improved quality of the products, washed out the products with low profit, developed new products, optimized product structure according to different market and different market and improved odditional value of the products. As for the risk of exchange, the Company will lower the risk by methods of forward foreign exchange and import bill advance, share the appreciation risk of the supplier. (VI) Investment of the Company 1. Particulars of raised funds usage in the report period 01. Apart from the 40,000,000 shares of outbound funds raised in 1993, TKC has not raised funds since 1994. And there was no case of the utilization of the raised funds being extended till after 1998. 02. The plan to issue additional 50 million B-shares and to use the fund raised from that was passed in the 1999’s Meeting of Shareholders, and on July 7, 2000 the application for issuing B-shares was approved by CSRC. After that, the related application documents were sent to CSRC for approval after they had been passed in the shareholders’ meeting held on the date of June 2nd, 2001, but till now no feedback of them has been received. 2. Utilization state of non-raised funds in the report period In order to improve the financial structure of the important shareholding subsidiary --- Zhangzhou Tsann Kuen; decrease liability proportion and ensure the stable & lasting development of Zhangzhou Tsann Kuens’ later operation. The 1st Special Shareholders’ Meeting was held on 29 Mar. 2007 and the 2nd Special Shareholders’ Meeting was held on 16 Jun. 2007, on which considered and approved the proposal of the Company and three legal person shareholders of Zhangzhou Tsann Kuen (the Company and holding shareholders of the Company) increased funds for USD 120,000,000 to Zhangzhou Tsann Kuen by former shareholding proportion. Including the Company increased fund USD 90,000,000 and the increased fund of Zhangzhou Tsann Kuen was available on 25 Dec. 2007. (VII) The routine work of the Board of Directors 1. Resolutions of the meeting of the Board of the Director in the report period: 01. The 1st meeting of the Board of the Directors was held on 11 Mar. 2007, and the resolution of the meeting was published in Securities Times and Ta Kung Pao (HK) of 13 Mar. 2007. 02. The 2nd meeting of the Board of the Directors was held on 21 Apr. 2007, and the resolution of the meeting was published in Securities Times and Ta Kung Pao (HK) of 25 Apr. 2007. 03. The 3rd meeting of the Board of the Directors was held on 26 May 2007, and the resolution of the meeting was published in Securities Times and Ta Kung Pao (HK) of 29 May 2007. 04. The 1st special meeting of the Board of the Directors was held on 31 May 2007, and the resolution of the meeting was published in Securities Times and Ta Kung Pao (HK) of 25 Apr. 2007. 05. The 4th meeting of the Board of the Directors was held on 26 May 2007, and the resolution of the meeting was published in Securities Times and Ta Kung Pao (HK) of 29 May 2007. 06. The 2nd special meeting of the Board of the Directors was held on 24 Jul. 2007, and the resolution of the meeting was published in Securities Times and Ta Kung Pao (HK) of 24 Jul. 2007. 07. The 5th meeting of the Board of the Directors was held on 11 Aug. 2007, and the resolution of the meeting was published in Securities Times and Ta Kung Pao (HK) of 11 Aug. 2007. 08. The 3rd special meeting of the Board of the Directors was held on 23 Aug. 2007, and the resolution of the meeting was published in Securities Times and Ta Kung Pao (HK) of 24 Aug. 2007. 09. The 6th meeting of the Board of the Directors was held on 27 Oct. 2007, and the resolution of the meeting was published in Securities Times and Ta Kung Pao (HK) of 30 Oct. 2007. 28 2. Particular of fulfillment on resolutions of Shareholders’ Annual Meeting by the Board of Directors 01. The Company was in loss of the year 2006, and there was no profit distribution. In the report period, there was no share placement and new share issuing. 02. Revised Article of the Association: On revised Article of the Association of last year, the Company changed overseas information disclosure newspaper in October 2006. The Company ensured that the content corresponds with laws, regulations and articles, and it was finished in accordance with regulations 03. Loss retrieval On 26 May 2007, the Company held Shareholders’ General Meeting 2006, on which considered and approved the retrieval plan on the Company loss 2006, provided in the 2nd meeting of Board of Directors 2007. According to the resolution of Shareholders’ Annual Meeting, the Company has fulfilled the loss retrieval plan. 04. Increased fund to Tsann Kuen Zhangzhou Enterprise Co. Ltd which was under TKC’s control The 1st Special Shareholders’ Meeting was held on 29 Mar. 2007 and the 2nd Special Shareholders’ Meeting was held on 16 Jun. 2007, on which considered and approved the proposal of the Company and three legal person shareholders of Zhangzhou Tsann Kuen (the Company and holding shareholders of the Company) increased funds for USD 120,000,000 to Zhangzhou Tsann Kuen by former shareholding proportion. Including the Company increased fund USD 90,000,000 and the increased fund of Zhangzhou Tsann Kuen was available on 25 Dec. 2007. 3. There was no Audit Committee or Remuneration and Examination & Verification Committee under the Board of Directors; According to the arrange of Notice on Carrying out a Special Campaign to Strengthen Corporate Governance, the Board of Directors shall establish Audit Committee or Remuneration and Examination & Verification Committee after new election of the Board of Directors of 2008. 4. The Company fulfilled the profit but there was no cash profit distribution plan advanced in the report period The reason that the Company fulfilled the profit but there was no cash profit distribution plan advanced in the report period is loss of the company in the last two years. At the beginning of the report, the loss retrieval amount was RMB -1,019，956，358.57, and the fulfilled profit of 2007 was used to retrieval the loss in former years. Ⅷ Report of Supervisory Meeting (I) Particular of Supervisory Meeting 1. The 1st Meeting of Supervisory 2007 held on 21 Apr. 2007, on which considered and approved the following resolutions: Proposal 1: Considered and approved work report of supervisory meeting 2006; Proposal 2: Considered and approved annual report 2006 and summary of the annual report 2006; Proposal 3: Considered and approved the 1st quarter report 2007 and summary of quarter report; Proposal 4: Considered and approved correction on finance statement 2005. 2. The 2nd Meeting of Supervisory 2007 held on 1 Aug. 2007, on which considered and approved the following resolutions: Proposal 1: Considered and approved mid-term report 2006 and summary of mid-term report 2007. 3. The 3rd Meeting of Supervisory Committee 2007 was held on 23 Oct. 2007, on which considered and approved the following resolutions: Proposal 1: Considered and approved the 3rd quarter report 2007 and summary of quarter report; (II) Independent opinion issued by Supervisory Board After monitoring and considering on the whole operation 2006, the Supervisory Board issued independent opinion as follows: 01. Operation particulars of the Company in accordance with laws: the deciding procedure accords with laws. 29 The Company has set up prefect internal controlling system, and Directors, GMs of the Company have violated neither law, regulation, article of the associations nor company benefit, when they execute task of the Company; 02. Particulars of financial checking of the Company: the financial report of the Company actually reflects the financial status and operation results of the Company; 03. The Company have not raised fund from capital market since the first listing in 1993; 04. Prices of assets purchase and assets sale transaction in the Company are reasonable. There are neither exist low-down transactions nor damage part shareholders’ equity & assets of the Company; 05. The associated transactions of the Company are fair, which can not damage the benefits of the Company and shareholders. IX. Significant Events (I) Significant litigation or arbitration There was no significant or arbitration in the report period (II) Shareholding of other listing companies Unit: RMB Change of Investment Book Profit & owner’ s Subject of Securities Name of amount at Proportion of Value at loss in Resource equity in Accounting code securities the shareholding the end of the report of share the report calculation beginning report period period Salable fi Legal Shanghai 600838 30,700 0.01 250,387.2 0 149,688.00 nance am person Jiubai ount shareholder (III) Significant purchase or disposal of assets and acquisition or merge during the reported period On Dec.31, 2006, the company’s controlling subsidiary, Zhangzhou Tsann Kuen Enterprise Co. Ltd. implemented the policies of focusing on operation and concentrate on main business, while improve the financial cash flow situation and lower the proportion of liabilities. It signed Operating Assets Purchase Agreement by dealing Aluminum Smelting Factory with Shanghai Sigma Metals Inc. the transaction was based on fair value and did not impair interests of minority shareholders; the transferee of this transaction, Shanghai Sigma Metals Inc. did not have any associated relationship with the Company. The original Time and mode Net book Evaluation Transaction Bargainer Locus Book of acquisition value(Yuan) value(Yuan) price(Yuan) value(Yuan) Zhangzhou Longchi Economic Tsann Kuen Development Purchase since 48,050,379 36,932,624 41,750,605 100,000,000 Enterprise Co. Zone, Zhangzhou, 2003 Ltd. Fujian In this transaction, the company not only sold the operating assets but also transferred the business opportunities to Shanghai Sigma Metals Inc.. Shanghai Sigma Metals Inc. would be the main supplier of the aluminum raw materials which the Company purchase from; the purchasing price is based on the contractual price and discount that both tkl and shanghai sigma agreed. Refer to the evaluate value of Evaluation Report and in accordance with experience of both parties, the transacted operating assets would decide the transaction price In accordance with the Operating Assets Purchase Agreement, Shanghai Sigma paid RMB 38,000,000 at the 1st period and the rest RMB 62,000,000 would be reduced from molten aluminum processing expenses that Tsann Kuen assigned Sigma to produce every month. In the report period, owing to activation of real estate, the Company sold the high appreciated property. This transaction was based on fair value and did not impair interests of minority shareholders; the transferee of this transaction did not have any associated relationship with the Company. 30 Transferee Property to be sold Transaction Transaction Net profit Accrued Wheth Explanation of price Whether Whether the Date Price contribute profit/loss of er the principle the related liabilities or d to the transaction Associ related debt have been listed ated property transferred or not company transac right has from 1 tion or been Jan. 2006 not transferr to ed or not transactio n date Xiamen Municipal Land and Workshop 31 Mar. 2005 No Price negotiated with Yes Completed to Land & Resources of Tsann Kuen Xiamen Municipal transfer by 31 Mar. and Housing Science and 13,642.42 2,741.84 2,741.84 Government 2007 Administrative technology park Bureau SIGMA Fixed assets of 31 Dec. 2006 No The transaction target was Yes Property controlling operation assets, and the transaction was company-Zhangzho transaction price completed on 5 u Tsann Kuen consulted the evaluation Feb. 2007 1,000.00 -85.67 -85.67 Aluminum Melting value in evaluation Report, Factory (Note 1) and settled transaction price according to experience of both Parties Ni Yilian 9F, Information 20 Jun. 2007 No based on fair value Yes No 440.76 375.82 375.82 Building Lin Changmu 58# Village & 25 May 2007 No based on fair value Yes Completed to Garage 163.79 89.40 89.40 transfer by 31 Sep. 2007 Zhang Zuhui and Room 601, From 16 May No based on fair value Yes Completed to other 2 persons Kaicheng Garden to 13 Aug. 544.90 156.94 156.94 transfer by 31 Aug. and other 4 suites 2007 2007 Zhang Duzhi and Room 604/606, 29 Dec. 2007 No based on fair value NO. Fund was received 214.16 108.95 other person Kaicheng Garden in Jan. 2007 Fu Linjin and other Five suites in Beijing 21 Dec. 2007 No based on fair value No. 532.22 152.78 4 persons Jingbao Garden (IV) Significant transactions with the relative parties 1. About the details of transactions with the relative parties taking place during the reported period please refer to the notes to the financial report. 2. All the transactions with the relative parties were done on the basis of The Pricing Agreement forPreordain Purchases between the Related Parties signed by National Tax Bureau and the Company 3. Transactions are conducted under effective agreement signed. 4. Notes to the necessity and consistency of relative parties’ transaction: Empower group strength on purchasing for purpose of downing cost, to strengthen market share by means of integrating separate related parties in the world. 5. Joint investment with related parties in the report period. In order to improve the financial structure of the controlling company, Zhangzhou Tsann Kuen and lower the proportion of liabilities so as to ensure the follow-on operation get steady and continuous development; former investing shareholders would raise funds USD 120,000,000 to Zhangzhou Tsann Kuen in accordance with the former shareholding proportion. The Company raised funds of USD 90,000,000 in accordance with the shareholding proportion. The content was as follows: 31 Former equity structure Raised funds Equity structure after raising funds Amount of Registered Amount in Investee Investor investment Proportion Amount of Proportion capital capital party (registered of raise of (share reserves capital) investment USD’000 investment capital) USD’0000 USD’0000 USD’0000 Tsann Kuen(China) Enterprise Co., Ltd.-the listed 3,000 75% 9,000 75% 12,000 75% company Hongkong EUPA Industrial Co., Ltd-controlling 400 10% 1,200 10% 1,600 10% shareholder of the listed company Zhangzh Hong Kong Ford Chee ou Tsann Development Co., 400 10% 1,200 10% 1,600 10% Kuen Ltd-controlling shareholder of Enterpris the listed company e Co., Hong Kong Fill Man Ltd. Investment Co., 200 5% 600 5% 800 5% Ltd-controlling shareholder of the listed company Total 4,000 100% 12,000 100% 16,000 100% Details were published on Notice of Associated Transaction Investment in Securities Times and Hong Kong Ta Kung Pao dated 13 Mar. 2007 and 2 Jun. 2007. The increased fund of the Company and holding shareholders of the Company was available on 25 Dec. 2007. 32 (V) Significant guarantee External guarantee of the Company（excluding the guarantee for subsidiaries） Name of guarantor Date of transaction Amount for Type of Duration of Executed or For the related party or (date of signature) guarantee guarantee guarantee not not Total guarantee amount in the report period 0 Total guarantee balance at the end of the 0 report period Guarantee for the subsidiaries of the Company Total guarantee amount for the subsidiaries in 127,124 the report period Total guarantee balance for the subsidiaries at 46,743 the end of the report period Total guarantee amount of the Company（including the guarantee for the subsidiaries） Total guarantee amount 46,743 The proportion of the total guarantee amount 154.18% in the net asset of the Company Including: Guarantee amount offered to shareholders, 0 actual controllers and related parties Guarantee amount for debt offered to the guarantee party whose asset-liability ratio 0 was over 70% directly or indirectly Part of the amount of the total guarantee over 31,584 50% Total guarantee for the above 31,584 Independent opinion about significant guarantee of year 2007 from independent directors According to Notice of CSRC Concerning Some Issue on Regulating the Funds Between Listed Companies and Associated Parties and Listed Companies’ Provision of Guaranty to Other Parties (ZJF「2006」 No.56), Circular of CSRC and CBRC on Regulating the External Guaranties Provided by Listed Companies(ZJF「2005」No.120) and “Explanation of CSRC on Execution Concerning ZJF (2005)No.120 Text (SSBH「2006」No.25). As the independent directors of TSANN KUEN (XIAMEN) ENTERPRISE CO. LTD, we have seriously and thoroughly checked situation of external guarantee and expressed the independent opinions on the related issues as follows: Special announcement from independent directors: In 2007, the listed company guaranteed RMB 1,271,240,000 to holding subsidiary company namely Zhangzhou Tsann Kuen Enterprise Co., Ltd with guarantee balance of RMB 467,430,000, Zhangzhou Tsann Kuen Enterprise Co., Ltd guaranteed RMB 100 million to listed company, which was counteracted at the end of the year. In the report period, the Company and the holding subsidiary company had no guarantee to outside parties. Opinion from Independent Directors: Although the Company supplied guarantee to absolute holding subsidiary company, and the holding subsidiary company supplied guarantee to listed company. The listed company and the holding subsidiary company should abide by Notice of CSRC Concerning Some Issue on Regulating the Funds Between Listed Companies and Associated Parties and Listed Companies’ Provision of Guaranty to Other Parties (ZJF「2006」 No.56) which required the guaranteed parties continue to adopt practical and efficient measures to gradually decrease the guarantee amount and the contingent liabilities risk. If the guarantee to outside parties happened later, the Company and the holding subsidiary company should strictly abide by Circular of CSRC and CBRC on Regulating the External Guaranties Provided by Listed Companies(ZJF「2005」No.120) and “Explanation of CSRC on Execution Concerning ZJF (2005)No.120 Text (SSBH「2006」No.25) and implement necessary procedures. The Company and the holding subsidiary company who supplied the guarantee would focus on feasible planning to protect shareholders’ equity in case of financial difficulty occurred. Any material information which impact financial structure will be disclosed on time to protect the 33 minority interests of shareholders. Independent Directors: Wei Junxian, He Jinghua, Xiao Fengxiong Mar. 15, 2008 (VI) Execution of the committed events by the shareholders holding more than 5% of shares of the Company In May. 2007, EUPA INDUSTRY CORPORATION LIMITED (EUPA), the shareholder of the Company, gradually decreased part of the held shares of the Company, and the gain on disposal of shares mentioned in Simple Equity Changes Report respectively disclosed on Oct. 10, 2007 and Dec. 6, 2007 would be used to support the working capital of the Company. Owing to the business main body of the Company transferring to Zhangzhou Tsann Kuen Enterprise Co., Ltd, the subsidiary of the Company, part of the capital on disposal of shares of EUPA was used to support the working capital of Zhangzhou Tsann Kuen. According to the resolutions on increasing capital of Zhangzhou Tsann Kuen decided by the Company and three major corporate shareholders in Jun. 2007, EUPA should increase capital of USD 12 million as the sum on disposal of shares for increase capital was settle off in Jun. 2007. Based on the business demand of Zhangzhou Tsann Kuen, the loan of USD 25 million from EUPA, borrowing through external debt, was received. By the application of the Company, on Jan. 16, 2008, State Administration of Foreign Exchange authorized the Company could borrow the summation of the accumulated medium-term and long-term external debts and the short-term debts which did not exceed USD 60 million. On Feb. 23, 2008, the Company held the 1st Extraordinary Shareholders’ Meeting of the Company 2008, in which agreed the Company borrowed USD 60 million from EUPA and other two shareholders. By Feb. 2008, EUPA had lent USD 8 million to the Company. By Mar., 2008, EUPA had lent USD 25 million to the Company. EUPA would continue to use the gain on disposal on shares to support the working capital of the Company or Zhangzhou Tsann Kuen in view of EUPA’s commitment. (VII) Proposal on engaging Reanda Certified Public Accountants and the remunerations Engaging Reanda Certified Public Accountants The Company engaged Reanda Certified Public Accountants which qualify for related business in securities and futures to audit the accounting statements and supply other related consultant services. The engagement period was one year. Reanda Certified Public Accountants had served for the Company for 2 years. 34 (VIII) Explanation on the inquisitions for the Company from CSRC in the report period. On Apr. 26, 2007, the Company received the notice for investigation (XSCT Zi No. 0710) from CSRC, in which announced CSRC had decided to investigate the Company because the Company was a suspect of disobeying securities rules according to the related regulations of Securities Law of People’s Republic of China. Please refer to Bulletin on Investigation for the Company from CSRC published in Securities Times and Hong Kong Ta Kung Pao on Apr. 27, 2007. The investigation has finished, the Company would disclose relevant information according to rules as soon as the treatment result decided by CSRC was come out. (IX) Explanation on disobeying related regulations to purchase and sell shares of the Company by the shareholders holding over 5% of shares of the Company On Nov. 21, 2007, according to the disclosed plan on reducing held shares (of which details were mentioned in Reminder Announcement on Shareholders Reduce Held Shares published in Securities Times and Hong Kong Ta Kung Pao on Oct. 10, 2007) the shareholder of the Company EUPA INDUSTRY CORPORATION LIMITED made a mistake in the process of reducing the held shares of the Company by pressing Buy instead of Sell, which caused to purchase 16,400 shares of the Company with purchasing price of HKD 2.54 per share. The gain on disposal of purchased shares would belong to the Company. (Please refer to Bulletin on Holding Shareholder Purchase Shares of the Company by Mistakes published in Securities Times and Hong Kong Ta Kung Pao on Nov. 24, 2007. The shareholders hadn’t disposed the shares. (X) Investigation and visit acceptance of the Company in the report period. In the report period, according to Guidelines on Fair Information Disclosure of Listed Companies, the Company and the persons charged with the information disclosure strictly followed the principle of fair information disclosure, didn’t conduct treatment difference policy, neither did they disclose important information of the Company which didn’t publish to any particular object privately by choice in the process of investigation and visit acceptance. The details were describes as follows: Reception Reception Reception Reception Major discussion content and the information time place way object provided by the Company Jul. 4 telephone Mr. Sun Q: Is it true for 2900 times of growth this year in Interim Report as outside information states? A: Please read the explanation on Quarterly Report of the Company disclosed on Apr. 26 and notice the investment risk. Jul. 5 telephone Mr. Luo Q: why is the Company out of condition while the overall kitchen household appliance production industry is well? A: Products of the Company major in export and domestic sales occupied little. The Company lost in the previous two years and affected by price rise of raw material and appreciation of RMB. The Company is in tough period and investors shall pay attention to investment risk. Jul. 5 telephone Mr. Sun Q: Earnings per share in the interim 2007 reached RMB 0.06 in report produced by a journalist in Beijing on Securities Times dated Jul. 4, is it true? A: Please read Interim Achievement Announce disclosed by the Company on Apr. 26. the detailed data are not confirmed yet, the Company would make Achievement Amendment Announce in case of large fluctuation. The public notices issued by the Company officially shall be regarded as standard. Jul. 5 telephone Ms. Liu Q: As the first half year passed, would the original surplus stay still in the Interim Report? Would there be amendment? Is the data known? A: Please read Interim Achievement Announce disclosed by the Company on Apr. 26. The detailed 35 Reception Reception Reception Reception Major discussion content and the information time place way object provided by the Company data is not confirmed yet, the Company would make Achievement Amendment Announce in case of large fluctuation. The public notices issued by the Company officially shall be regarded as standard. Jul. 9 telephone Mr. Chen Q: Is there plan of financial examination amendment? Is the Company in normal operation? Is it sensible for adding investment? A: The Company would make Achievement Amendment Announce in case of large fluctuation. The Company is in normal operation and ask investors to pay attention to investment risk. Jul. 19 Zhangzhou Discussio Mr. Zhao Operation status quo of the Company, strategic Tsann n and visit from Bond development, spot visit. Kuen Assets Company Manageme nt (Hong Kong) Co., Ltd. Aug. 3 telephone Mr. Zhang Q: what about the achievement of Interim Report? Can I visit the Company and understand status quo of the Company? A: The Company in the period of making Interim Report is sensitive. It is suggested that take a visit after disclosure of Interim Report. As for achievement, please refer to content of disclosed notice. Aug. 18 Zhangzhou Discussio Mr. Zhang Participating in the 3rd Extraordinary Shareholders’ Tsann n and visit Meeting, taking a spot visit after meeting. As the Kuen Company was in a loss in previous two years, risk Company consciousness was emphasized. Sep. 27 telephone Mr. Wang Q: What about data in the 3rd quarter and operation of the Company? Why is the stock price stagnant? A: This quarter has not finished yet. The Company would make Achievement Amendment Announce in case of large fluctuation. The Company is in normal operation. Stock price is a market behavior and please notice investment risk. (XI) Others According to Circular of CSRC on Issuing the No.7 Questions and Responses of Information Disclosure Standards of Public Companies ------ Compilation and Disclosure of the Comparative Financial Accounting Information during the Transition Period between the New and Old Accounting Standards (KJ Zi [2007] No. 10), the reconciliation statement of difference between New and Old Accounting Standard was made. 1. Adjustment process on comparing income statements Through analyzing the influence on income statement at the same period of last year by Accounting Standard for Business Enterprises No.38 – First time adoption of Accounting Standard for Business Enterprises Article Five to Article Nineteen, the identification form for adjustment on Income Statement for 2006 was made with details as follows: 36 Items Before adjustment After adjustment Sales 6,139,303,987.74 6,139,925,844.41 104,733,170.45 Administrative expense 105,847,996.19 Financial expense 83,041,525.51 83,036,635.38 Gain from investment (5,304,004.27) (4,091,591.49) Tax expense 0.00 (30,351,990.13) Net profit attributable to holding company (851,086,871.21) (825,302,803.72) Minority interest (270,567,879.65) (263,045,971.69) 2. Reconciliation Statement on difference between the net profit simulated the execution of New Accounting Standard in 2006 and the net profit disclosed in Annual Report 2006 Suppose to compare the initial execution of New Accounting Standard Article One to Article Thirty-seven at the period-beginning and analyze the significant discrepancy between the net profit simulated the execution of New Accounting Standard and the net profit existing in Old Accounting Standard, which were listed in the reconciliation statement on difference of the net profit. The reconciliation statement on difference of the net profit for 2006 was described as follows: Items Amount Net profit in 2006 (original accounting standards) (851,086,871.21) Total amount effected by retroactive adjustment items 33,305,975.45 Including: Amortization of long-term equity investment difference under some controlled enterprise consolidation 1,212,412.78 Effect on including Tsann Kuen Profession and Technology College in consolidation scope (260,882.20) Effect on re-recognition of deferred income tax 30,351,990.13 Effect on transferred in unrecognition of investment loss which recognized at the beginning of period 2,002,454.74 Less :retroactive adjustment to minority interest 7,521,907.96 Net profit in 2006 (new accounting standard) (825,302,803.72) Assume that the company will fully implement the referenced accounting standard Total effect by other items 26,701,248.88 Including: the transfer from debts that not require to pay to non-operating income 26,701,248.88 Income tax expenses —— Simulated net profit in 2006 (798,601,554.84) 2. The shareholders’ equity listed by Accounting System was modulated to that listed by Accounting Standard for Business Enterprises, including: 37 Adjustment on shareholders’ equity on Jan. 1, 2006 Item Before adjustment After adjustment Share capital 1,112,350,077.00 1,112,350,077.00 Capital reserve 102,906,369.16 102,941,947.32 Reserved capital 193,982,930.41 193,982,930.41 Foreign exchange difference 0.00 0.00 Retained profit (381,903,901.98) (388,636,485.26) Unconfirmed investment loss (2,002,454.74) 0.00 Subtotal of shareholders’ equity attributed to parent company 1,025,333,019.85 1,020,638,469.47 Minority interest 342,641,222.59 342,766,322.38 Total 1,367,974,242.44 1,363,404,791.85 Adjustment on shareholders’ equity on Dec. 31, 2006 Item Before adjustment After adjustment Share capital 1,112,350,077.00 1,112,350,077.00 Capital reserve 129,607,618.04 129,665,017.38 Reserved capital 49,420,175.68 49,420,175.68 Foreign exchange difference 69,646.03 69,646.03 Retained profit (1,088,428,018.46) (1,069,376,534.25) Subtotal of shareholders’ equity attributed to parent company 203,019,498.29 222,128,381.84 Minority interest 74,781,317.86 82,428,325.61 Total 277,800,816.15 304,556,707.45 38 X. Financial statements (accompanying) (I) Auditors’ Report (II) Financial Statement 1. Balance Sheet 2. Income and Profit Appropriation Statements 3. Cash Flow Statement 4. Statement of Change in Owners’ Equity 5. Notes to the Financial Statements XI. List of Documents Available for Inspection (I). The financial statements bearing the seal and signature of the Company's legal representative, financial supervisor and the person in charge of the accounting organ. (II). Original the auditor's report bearing the seal of the certified public accountants and the signature of C.P.A. (III). Original of all the Company's documents and the original manuscripts of announcements publicly disclosed on the newspapers designated by China Securities Regulatory Commission in the report period. (IV). The Article of Association (V). Location of documents: in the secretariat of the Board Board of Directors of TSANN KUEN (CHINA) ENTERPRISE CO., LTD Chairman of the Board: Cai Yuansong Mar. 29, 2008 39 Auditors' Report REANDA SHEN ZI [2008] No.1058 To the Shareholders of Tsann Kuen (China) Enterprise Co., Ltd. We have audited the accompanying financial statements of Tsann Kuen (China) Enterprise Co., Ltd. and its subsidiaries (“the Group”), which comprise the consolidated balance sheet as at December 31, 2007, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility for the Financial Statements The Company’s management is responsible for the preparation of these financial statements in accordance with the Enterprises Accounting Standards of China. This responsibility includes: (1) 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; (2) selecting and applying appropriate accounting policies; (3) making accounting estimates that are reasonable in the circumstances. 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 the Chinese Certified Public Accountants' Auditing Standards. These 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 amount 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, the auditor considers internal control relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and reasonableness of accounting estimates made by 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. 40 Opinion In our opinion, the financial statements have been prepared in accordance with the requirements of the Enterprises Accounting Standards promulgated by the People’s Republic of China, and present fairly, in all material respects, the financial position of the Group as at December 31, 2007, and the results of its operations and its cash flows for the year then ended. Reanda Certified Public Accountants Co., Ltd. Certified Public Accountant：Lin Wan Qiang Beijing, China Certified Public Accountant:Rong Xue Mei March 29, 2008 41 Tsann Kuen (China) Enterprise Co., Ltd Balance Sheet (Audited) As at Dec. 31, 2007 Unit: RMB Yuan 2007-12-31 2006-12-31 Assets Notes Consolidation Parent Company Consolidation Parent Company Current Assets: Monetary Funds VII、1 534,372,308.53 3,722,741.66 368,633,361.27 93,612,924.07 Tradable financial assets VII、2 23,027,900.00 Notes receivables VII、3 4,079,513.79 68,660,692.56 300,000.00 Account receivables VII、4 544,576,211.91 1,506,738.07 864,431,417.08 33,728,964.67 Advances to suppliers VII、5 25,351,206.51 224,990.92 66,362,844.14 269,843.14 Interest receivables Dividends receivable Other receivables VII、6 26,437,847.73 5,317,960.10 55,648,338.05 111,066,055.97 Inventories VII、7 590,418,844.42 1,944,901.69 919,356,327.05 10,837,875.53 Non-current assets due within one year Other current assets Total current assets 1,748,263,832.89 12,717,332.44 2,343,092,980.15 249,815,663.38 Non-current assets: Available-for-sale financial assets VII、8 250,387.20 250,387.20 100,699.20 100,699.20 Held-to-maturity investments VII、9 780,870.00 Long-term account receivables VII、10 48,423,277.60 Long-term equity investments VII、11 40,000.00 1,241,305,427.93 40,000.00 560,620,391.02 Investment properties VII、12 38,903,259.18 61,802,384.26 Fixed assets VII、13 987,472,865.85 44,930,291.78 1,226,520,038.99 166,598,505.27 Construction in progress VII、14 25,681,366.95 668,101.76 70,281,062.93 1,836,501.76 Construction materials Liquidation of fixed assets Production biology assets Oil and gas assets Intangible assets VII、15 28,959,042.71 17,806,724.11 30,413,667.33 23,851,464.04 Development expenses Goodwill Long-term deferred assets VII、16 1,106,304.88 184,158.19 295,154.47 244,706.37 Deferred income tax assets VII、17 29,075,079.69 31,202,818.88 Other non-current assets Total non-current assets 1,159,911,584.06 1,366,947,475.23 1,359,634,311.80 753,252,267.66 Total assets 2,908,175,416.95 1,379,664,807.67 3,702,727,291.95 1,003,067,931.04 42 Tsann Kuen (China) Enterprise Co., Ltd Balance Sheet (Audited) (Con.) As at Dec. 31, 2007 Unit: RMB Yuan 2007-12-31 2006-12-31 Liabilities and Shareholders' equity Note Consolidation Parent Company Consolidation Parent Company Current liabilities: Short-term loans VII、20 298,447,793.84 1,189,150,315.20 276,278,300.00 Tradable financial liabilities Notes payables VII、21 208,213,645.04 413,741,856.99 356,612.83 Account payables VII、22 1,015,910,774.84 1,858,895.35 1,175,507,788.56 917,169.58 Advances from customers VII、23 12,829,641.81 1,732,158.90 75,330,477.63 Payroll payables VII、24 55,159,209.28 659,338.19 53,915,924.59 3,896,108.41 Tax payable VII、25 75,560,687.14 82,051,719.46 81,820,525.73 81,271,039.59 Interest payables Dividend payables Other account payables VII、26 351,954,805.23 685,302,920.31 308,691,095.94 32,922,923.99 Non-current liabilities due within one year VII、27 100,000,000.00 Other current liabilities Total current liabilities 2,118,076,557.18 771,605,032.21 3,298,157,984.64 395,642,154.40 Non-current liabilities: Long-term borrowings VII、28 111,546,000.00 100,000,000.00 Bond payable Long-term account payable Special accounts payable Deferred incomes VII、29 48,423,277.60 Accrued liabilities Deferred income tax liabilities VII、30 5,796,518.70 39,543.70 12,599.86 12,599.86 Other non-current liabilities Total non-current liabilities 165,765,796.30 39,543.70 100,012,599.86 12,599.86 Total liabilities 2,283,842,353.48 771,644,575.91 3,398,170,584.50 395,654,754.26 Shareholders' equity: Share capital VII、31 1,112,350,077.00 1,112,350,077.00 1,112,350,077.00 1,112,350,077.00 Capital reserve VII、32 126,726,569.01 123,665,324.90 129,665,017.38 123,542,580.74 Less: inventory shares Surplus reserve VII、33 49,420,175.68 49,420,175.68 Retained earnings VII、34 (935,643,358.89) (627,995,170.14) (1,069,376,534.25) (677,899,656.64) Exchange difference of foreign currency (252,565.30) 69,646.03 financial statements translation Equity attributable to the holders of 303,180,721.82 608,020,231.76 222,128,381.84 607,413,176.78 parent company Minority interests 321,152,341.65 82,428,325.61 Total shareholders’ equity 624,333,063.47 608,020,231.76 304,556,707.45 607,413,176.78 Total liabilities and shareholders’ equity 2,908,175,416.95 1,379,664,807.67 3,702,727,291.95 1,003,067,931.04 43 Tsann Kuen (China) Enterprise Co., Ltd Income Statement (Audited) For the year ended Dec. 31, 2007 Unit: RMB Yuan 2007 2006 Item Note parent parent consolidation consolidation company company 1. Total operating income VII、35 4,905,280,098.87 79,906,446.75 6,139,925,844.41 120,134,652.18 Less: Operating cost VII、35 4,519,939,158.30 80,029,428.46 6,588,240,196.85 109,408,525.37 Business taxes and surtax VII、36 5,941,958.19 3,127,445.39 3,982,371.73 2,978,012.91 Selling expenses 154,703,616.04 335,276,983.38 773,713.57 Administrative expenses 112,190,734.84 4,033,947.87 104,733,170.45 58,060,403.20 Financial costs VII、37 58,019,181.22 4,155,592.77 83,036,635.38 13,210,702.46 Impairment loss of assets VII、38 32,442,668.95 (187,313.47) 144,507,481.03 12,336,714.54 Add: gains from the fair value changes (The loss is VII、39 23,027,900.00 listed beginning with “-“) Investment income (The loss is listed beginning VII、40 (145,427.25) (185,048.02) (4,091,591.49) 17,674,330.33 with “-“) Including: the investment income from associated and joint ventures enterprises II. Operating profit 44,925,254.08 (11,437,702.29) (1,123,942,585.90) (58,959,089.54) Add: non-operating income VII、41 57,862,795.35 12,514,986.02 18,293,489.88 1,694,561.19 Less: non-operating expense VII、42 4,585,439.79 592,972.91 13,051,669.52 32,591.63 Including: loss from disposal of non-current assets 2,496,385.60 3,568,539.39 III. Total profits (The loss is listed beginning with 98,202,609.64 484,310.82 (1,118,700,765.54) (57,297,119.98) “-“) Less: income tax expense VII、43 8,434,786.45 (30,351,990.13) IV. Net profits (the net loss is listed beginning 89,767,823.19 484,310.82 (1,088,348,775.41) (57,297,119.98) with “-”) Net profits attributable to equity holders of the 67,119,750.63 484,310.82 (825,302,803.72) (57,297,119.98) parent company Minority interests 22,648,072.56 (263,045,971.69) V. Earnings per share 1. Basic earnings per share 0.0603 (0.7419) 2. Diluted earnings per share 0.0603 (0.7419) 44 Tsann Kuen (China) Enterprise Co., Ltd Cash Flow Statement (Audited) For the year ended Dec. 31, 2007 Unit: RMB Yuan 2007 2006 Items Note consolidation parent company consolidation parent company I. Cash flows from operating activities: Cash received from sales of goods or rendering of 5,230,967,440.49 92,401,405.30 6,016,112,454.77 78,988,435.51 services Tax refund 105,291,606.29 172,979,356.68 2,052,906.98 Cash received related to other operating activities VII、44 29,688,529.75 259,273,635.13 401,930,388.12 219,972,435.55 Subtotal of cash inflow from operating activities 5,365,947,576.53 351,675,040.43 6,591,022,199.57 301,013,778.04 Cash paid for sales of goods and received services 3,988,211,322.19 31,744,981.07 5,431,128,551.57 55,164,391.97 Cash paid to and on behalf of employees 458,669,263.70 16,868,775.33 513,385,159.39 29,627,982.31 Tax payments 48,111,109.74 3,987,135.36 57,009,001.98 17,333,068.68 Cash paid to other operating activities VII、45 377,771,883.92 4,111,846.94 542,108,485.37 195,063,307.49 Subtotal of Cash outflow from operating activities 4,872,763,579.55 56,712,738.70 6,543,631,198.31 297,188,750.45 Net cash flow arising from operating activities 493,183,996.98 294,962,301.73 47,391,001.26 3,825,027.59 II. Cash flow from investment activities: Cash received from investments 88,726.88 381,182.17 37,661.90 37,661.90 Cash dividends received from investment 39,620.77 Net cash received from disposal of fixed assets, 83,534,523.30 159,219,843.79 31,214,014.00 100,033,217.10 intangible assets and other long-term assets Net cash received from disposal of subsidiaries an other business units Cash received related to other investing activities Subtotal of cash inflow from investing activities 83,662,870.95 159,601,025.96 31,251,675.90 100,070,879.00 Cash paid to acquire and construct fixed assets, 92,526,704.92 404,507.96 170,244,897.08 3,963,263.42 intangible assets and other long-term assets Cash paid to acquire investments 680,685,036.91 802,148.19 3,187,500.00 Net cash paid to acquire subsidiaries and other business units Cash paid related to other investing activities Subtotal of Cash outflow from investing activities 92,526,704.92 681,089,544.87 171,047,045.27 7,150,763.42 Net cash flow arising from investing activities (8,863,833.97) (521,488,518.91) (139,795,369.37) 92,920,115.58 III. Cash flow from financing activities: Cash received from investments 230,208,000.00 1,059,293.45 Including: subsidiaries received cash investment from 230,208,000.00 1,059,293.45 minority shareholders Cash received from loans 569,489,150.83 2,570,796,480.60 648,466,162.04 Cash reveived from issuance of securities Cash received related to other financing activities 418,828,000.00 Subtotal of cash inflow from financing activities 799,697,150.83 418,828,000.00 2,571,855,774.05 648,466,162.04 Repayment of loans or debts 1,192,088,589.54 276,278,300.00 2,424,344,858.96 702,398,879.17 Cash paid for dividends, profits, or interests 59,049,574.02 5,777,324.60 71,095,805.95 16,706,191.79 Including: subsidiaries paid to minority shareholders with cash dividends and profits Cash paid related to other financing activities Subtotal of cash outflow from financing activities 1,251,138,163.56 282,055,624.60 2,495,440,664.91 719,105,070.96 Net cash flow arising from finacing activities (451,441,012.73) 136,772,375.40 76,415,109.14 (70,638,908.92) IV. Effects on cash and cash equivalents for the change (7,593,177.87) (136,340.63) (17,163,439.50) (144,670.89) of foreign exchange rates V. Net increase in cash and cash equivalents 25,285,972.41 (89,890,182.41) (33,152,698.47) 25,961,563.36 Add: beginning balance of cash and cash 368,633,361.27 93,612,924.07 401,786,059.74 67,651,360.71 equivalents VI .Ending balance of cash and cash equivalents VII、47 393,919,333.68 3,722,741.66 368,633,361.27 93,612,924.07 45 Tsann Kuen (China) Enterprise Co., Ltd Cash Flow Statement (Audited) (Con.) For the year ended Dec. 31, 2007 Unit: RMB Yuan 2007 2006 Items Note parent consolidation parent company consolidation company 1.Adjusting net profits to cash flows from operating activities Net Profits 89,767,823.19 484,310.82 (1,088,348,775.41) (57,297,119.98) Add: impairment loss provision for assets 32,442,668.95 (187,313.47) 144,507,481.03 12,336,714.54 Depreciation of fixed assets,gas and oil 309,909,798.99 42,559,613.77 339,686,781.96 79,818,537.15 and production biology assets Amortization of intangible assets 2,254,624.62 1,022,770.78 1,884,458.88 1,022,770.80 Amortization of long-term deffered 213,009.59 60,548.18 718,851.62 101,387.08 assets and long-term assets Loss on disposal of fixed assets,intangible assets and (8,156,484.63) (5,638,266.76) 2,607,070.08 (806,345.92) other long-term assets(gain is listed beginning with"-") Loss from scrap fixed assets(gain is listed beginning 864,779.55 1,174,702.78 with"-") Loss of fair value changes(gain is listed beginning (23,027,900.00) 0.00 0.00 0.00 with"-") Financial expenses (profit is listed beginning with"-") 51,928,958.60 4,388,551.79 77,192,269.70 13,933,960.31 Loss from investment(profit is listed beginning 145,427.25 185,048.02 4,091,591.49 (17,674,330.33) with"-") Decrease of deferred income tax assets (increase is 2,127,739.19 (30,351,990.13) listed beginning with"-") Increase of deferred income tax liabilities (decrease is 5,756,975.00 listed beginning with"-") Decrease of inventories (increase is listed beginning 364,618,517.14 9,100,693.51 357,267,666.53 14,970,444.74 with"-") Decrease of operating accounts receviable (increase is 323,234,614.89 107,157,255.13 148,859,761.30 332,453,404.96 listed beginning with"-") Increase of operating accounts payable (decrease is (657,099,155.23) 135,829,089.96 90,473,129.67 (375,034,395.76) listed beginning with"-") Others (gains from physical count of fixed assets at the (1,797,400.12) (2,371,998.24) year end) Net cash flow from operating activites 493,183,996.98 294,962,301.73 47,391,001.26 3,825,027.59 2.Significant investing and financing activites that do not involve in cash Transfer of debt into capital Convertible company bond due within on year Finance leased fixed assets 3.Changes in cash and cash equivalents Ending balance of cash 393,919,333.68 3,722,741.66 368,633,361.27 93,612,924.07 Less: Beginning balance of cash 368,633,361.27 93,612,924.07 401,786,059.74 67,651,360.71 Add: ending balance of cash equivalents Less: Beginning balance of cash Net increase in cash and cash equivalents 25,285,972.41 (89,890,182.41) (33,152,698.47) 25,961,563.36 46 Consolidated Statement of Changes in Equity For the year ended December 31, 2007 Equity attributable to the holders of parent company Items minus: Share capital Capital reserve Inventory Capital surplus Retained earnin shares I. Balance at the end of previous year 1,112,350,077.00 129,607,618.04 49,420,175.68 (1,088,428,018. plus(I) Changes of accounting policies 57,399.34 19,051,484 (II) Correction of errors in prior years II. Balance at the beginning of the year 1,112,350,077.00 129,665,017.38 49,420,175.68 (1,069,376,534. III. Changes in equity in the year (the decrease is listed (2,938,448.37) (49,420,175.68) 133,733,175 beginning with “-”) (I)Net profit for the year 67,119,750 (II)Gain and loss directly accrued to equity (2,938,448.37) 17,193,249 1. Net amount of fair value changes of available-for-sale financial 122,744.16 assets 2. Net amount of fair value changes in cash flow arbitrage tools 3. Income tax effect accrued to equity items 4. Others (3,061,192.53) 17,193,249 (III) Capital investment by the shareholders 1.Capital investment by shareholders in the year 2. Repurchase of shares at stock in the year 3．Amount calculated into equity paid in shares (IV)Profit distribution in the year 1. Distribution to shareholders 2. Withdrawal of surplus reserve (V) Internal settlement and transfer of shareholders' equity (49,420,175.68) 49,420,175 1. Transfer of capital reserve to capital 2. Transfer of surplus reserve to capital 3. Surplus reserve makes up for the loss (49,420,175.68) 49,420,175 4. Others IV. Balance at the end of this period 1,112,350,077.00 126,726,569.01 (935,643,358. 47 47 Consolidated Statement of Changes in Equity Statement of Changes in Equity (2006) shareholders' equity belongs to parent company Items minus: Invetory Share capital Capital reserve Capital surplus Retained Earning shares I. Balance at the end of previous year 1,112,350,077.00 102,906,369.16 193,982,930.41 (381,903,901.98 plus(I): changes of accounting policies 35,578.16 (6,732,583.28 (II)Correction of errors in prior years II. Balance at the beginning of the year 1,112,350,077.00 102,941,947.32 193,982,930.41 (388,636,485.26 III. Changes in equity in the year (the decrease is listed beginning with “-”) 26,723,070.06 (144,562,754.73) (680,740,048.99 (I)Net profit for the year (825,302,803.72 (II)Gain and loss directly accrued to equity 26,723,070.06 1. Net amount of fair value changes of available-for-sale financial assets 21,821.18 2. Net amount of fair value changes in cash flow arbitrage tools 3. Income tax effect accrued to equity items 4. Others 26,701,248.88 (III) Capital investment by the shareholders 1.Capital investment by shareholders in the year 2. Repurchase of shares at stock in the year 3. Amount calculated into equity paid in shares (IV)Profit distribution in the year 1. Distribution to shareholders 2. Withdrawal of surplus reserve (V) Internal settlement and transfer of shareholders’equity (144,562,754.73) 144,562,754.7 1. Transfer of capital reserve to capital 2. Transfer of surplus reserve to capital 3. Surplus reserve makes up for the loss (144,562,754.73) 144,562,754.7 4. Others IV. Balance at the end of this period 1,112,350,077.00 129,665,017.38 49,420,175.68 (1,069,376,534.25 48 Consolidated Statement of Changes in Equity for Parent Company For the year ended December 31, 2007 minus:Invento Items Share capital Capital reserve Ca ryshares I. Balance at the end of previous year 1,112,350,077.00 129,607,618.04 4 plus(I): changes of accounting policies (6,065,037.30) (II)Correction of errors in prior years II. Balance at the beginning of the year 1,112,350,077.00 123,542,580.74 4 III. Changes in equity in the year (the decrease is listed beginning with “-”) 122,744.16 (49 (I)Net profit for the year (II)Gain and loss directly accrued to equity 122,744.16 1. Net amount of fair value changes of available-for-sale financial assets 122,744.16 2. Net amount of fair value changes in cash flow arbitrage tools 3. Income tax effect accrued to equity items 4. Others (III) Capital investment by the shareholders 1.Capital investment by shareholders in the year 2. Repurchase of shares at stock in the year 3．Amount calculated into equity paid in shares (IV)Profit distribution in the year 1. Distribution to shareholders 2. Withdrawal of surplus reserve (V) Internal settlement and transfer of shareholders' equity (49 1. Transfer of capital reserve to capital 2. Transfer of surplus reserve to capital 3. Surplus reserve makes up for the loss (49 4. Others IV. Balance at the end of this period 1,112,350,077.00 123,665,324.90 49 Consolidated Statement of Changes in Equity for Parent Company For the year ended December 31, 2006 minus: Items Share capital Capital reserve Inventory shares I. Balance at the end of previous year 1,112,350,077.00 102,906,369.16 plus(I): changes of accounting policies (3,025,665.95) (II)Correction of errors in prior years II. Balance at the beginning of the year 1,112,350,077.00 99,880,703.21 III. Changes in equity in the year (the decrease is listed beginning with “-”) 23,661,877.53 (I)Net profit for the year (II)Gain and loss directly accrued to equity 23,661,877.53 1. Net amount of fair value changes of available-for-sale financial assets 21,821.18 2. Net amount of fair value changes in cash flow arbitrage tools 3. Income tax effect accrued to equity items 4. Others 23,640,056.35 (III) Capital investment by the shareholders 1.Capital investment by shareholders in the year 2. Repurchase of shares at stock in the year 3．Amount calculated into equity paid in shares (IV)Profit distribution in the year 1. Distribution to shareholders 2. Withdrawal of surplus reserve (V) Internal settlement and transfer of shareholders’equity 1. Transfer of capital reserve to capital 2. Transfer of surplus reserve to capital 3. Surplus reserve makes up for the loss 4. Others IV. Balance at the end of this period 1,112,350,077.00 123,542,580.74 50 Tsann Kuen (China) Enterprise Co., Ltd Notes to Financial Statements For the year of 2007 （All amounts are expressed in RMB yuan unless otherwise stated） I. General Tsann Kuen (China) Enterprise Co., Ltd. (“the Company or TKC”) was established in the People’s Republic of China (“the PRC”) in 1988 under the name of Tsann Kuen China (Xiamen) Ltd. as a wholly owned foreign investment enterprise. On 16 February 1993, with the approval of the Ministry of Foreign Trade and Economic Co-operation, the Company was reorganized into a joint stock company limited by shares and was renamed as Tsann Kuen (China) Enterprise Co., Ltd. In June 1993, the Company issued 40,000,000 new shares pursuant to an international placing and public offer and these new shares (“B shares”) were then listed on the Shenzhen Stock Exchange on 30 June 1993. On December 6, 2006, the Group received [2006] No.266 file 《关于核准厦门灿坤实业股份有限公司 非上市外资股上市流通的通知》from China Securities Regulatory Commission. China Securities Regulatory Commission agreed 700,476,830 unlisted shares (62.97% paid in capital of the Group) hold by three shareholders, EUPA (Hong Kong) Limited, Fordchee Development Limited and Fillman Investment Limited to transfer into B shares. One year after November 29, 2006 these B shares could be listed on Shenzhen Stock Exchange. The ultimate holding company is Tsann Kuen Enterprise Ltd., a company incorporated in Taiwan. The Company and its subsidiaries are hereinafter collectively referred to as the Group. II. Basis for preparation The Company and its subsidiaries maintain their accounting records and prepare their statutory financial statements in accordance with the Enterprise Accounting Standards issued by the Ministry of Finance in February 2006 which became effective from January 1, 2007. The financial statements are prepared base on the assumption of going concern, actual transactions and items, latest Enterprise Accounting Standards, Zheng Jian Fa [2006] No. 136 Notice on the Improvement in Disclosing the Accounting Information related to the New Accounting Standards, Zheng Jian Kuai Ji Zi [2007] No. 10 Disclosure of Accounting Information for public stock company No. 7 Questionnaires - Preparation and Disclosure of Comparable Accounting Information in the Transition Period of New and Old Accounting Standards which issued by China Securities Regulatory Commission etc related regulation, and mentioned in notes IV – the significant accounting policies and accounting estimates. 51 51 The 2006 annual financial statements were originally prepared in accordance with the old Enterprise Accounting Standards and Enterprise Accounting Systems and relevant supplementary regulations. According to articles 5 to 19 of No. 38 Enterprises Accounting Standard - First Implementation of Enterprise Accounting Standards, and No. 1 Interpretation of Enterprises Accounting Standard which interprets the impacts of comparable income statement and balance sheet, the Company complied with retroactive adjustment principle, and adjusted data into comparable income statement and balance sheet. III. Declaration of Compliance with the Enterprise Accounting Standards The Company’s financial statements prepared meet the requirements of the Enterprise Accounting Standards, fairly and completely present the financial position, operation result and cash flow, and other relevant information of the company. IV. Summary of Significant accounting policies and accounting estimates and m ethods of consolidation (1) Accounting Year The company employs a period of calendar days from January 1 to December 31 each year as accounting year. (2) Reporting currency The Company’s reporting currency is Renminbi (“RMB”). (3) Measurement characters The Company commonly measures accounting factors by historical cost method; if the determined accounting factor amount can be obtained or reliably measured, then replacement cost, net realizable value, net value and fair value method may be employed for some individual accounting factors. A. By using historical cost method, assets are accounted for on the basis of cash or cash equivalents paid, or fair value of the considerations paid when are acquired. The liabilities are accounted for on the basis of amount actually received or asset amount for performing current obligations, or contract amount for performing the current obligations, or expected cash or cash equivalent amount paid to repay the debts in daily activities. B. There is no change in measure characters of financial statement items during the report period. (4) Standard of cash equivalents In preparing cash flow statement, cash equivalents of the company include investment with short term (it usually expires within three months from the purchase date), highly liquidity, easy to convert into known 52 amount of cash, and low-risk of changes in value. Equity investment shall not deem as cash equivalents. (5) Foreign currency transactions Foreign currency (currency other than the reporting currency) transactions are translated into reporting currency at spot exchange rates prevailing on the day in which the transactions take place. Monetary assets and liabilities denominated in such currencies are translated at the rates prevailing on the balance sheet date. The exchange gains and losses arising on the exchange are included in profit and loss for the year. (6) Translation of financial statement denominated in foreign currency Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are restated into the reporting currency using the spot exchange rates at that date. Among the equity items, all items are translated into reporting currency at spot exchange rates on the occurrence date except the item of retained earnings. Income Statement items are translated into reporting currency at average spot exchange rate on the occurrence date. The exchange difference from translation of financial statements denominated in foreign currency is included in the equity and presented individually. (7) Financial assets and financial liabilities A. Classification Financial assets and liabilities include financial assets at fair value through profit and loss; held-to-maturity investments; loans and receivables; available-for-sale financial assets; and other financial liabilities. B. Initial recognition and subsequent measurement (a) Financial assets and financial liabilities are measured initially with fair value (deducted with any declared but not paid out cash dividends and declared due bond interests but not paid) when are acquired. Related transaction fees are accounted for profit and loss in current period. Interests received and cash dividends received during the period held are recognized as investment income. At balance sheet date, the changes of fair value are accounted for profit and loss in current period. (b) Held-to-maturity investments are measured initially with fair value (deducted with any declared but not paid cash dividends and declared due bond interests but not paid) and transaction fees when are acquired. Interests are measured at actual interest rate during the period held and recognized as investment income. (c) Receivable Receivables are measured initially with the price in a purchase contract or an agreement. (d) Available-for-sale financial assets are measured initially with fair value (deducted with any declared but not paid cash dividends and declared but not paid due bond interests) and transaction fees when are acquired. Interest received and cash dividends received during the period held are recognized as investment income. Any changes of fair value of available-for-sale financial assets at the end of period are accounted for capital reserve 53 (other capital reserve). (e) Other financial liabilities are measured initially with fair value and transaction fees when are acquired. The subsequent calculations employ amortized cost method. C. Derecognition and measurement of financial assets The Company shall derecognize financial assets when all the risks and rewards have been transferred to other party; if not, the Company shall recognize the financial assets. The company adopts substance over form method while making judgment if the derecognition of financial assets meet the requirement of accounting principles. The company differentiates the transfer of financial assets into entire transfer and the partial transfer of financial asset. When derecogniziton condition of entire transferred assets has been satisfied, the differences between the amounts of following two items shall be accounted for profits and losses of current period. (a)The book value of transferred financial assets; (b)The sum of consideration received from the transfer, and the accumulative amount of the changes of the fair value originally recorded in the shareholders’ equities (in the event that the financial asset involved in the transfer is a financial asset available-for-sale) If the transfer of partial financial assets satisfies the conditions of derecognition, the entire book value of the transferred financial asset shall, between the portion whose derecognition and the recognized portion (under such circumstance, the service asset retained shall be deemed as a portion of financial asset whose derecognition), be apportioned according to their respective relative fair value, and the difference between the amounts of the following two items shall be accounted for the profits and losses of the current period . (a)The portion book value derecognized; (b)The sum of consideration of the portion whose derecognition and the portion of accumulative amount of the changes in the fair value originally recorded in the shareholders’ equity which is corresponding to the portion whose derecognized ( in the event that the financial assets involved in the transfer is a financial assets available-for-sale). If the Company fails to satisfy the conditions of derecognition for transferred financial assets, it shall continue to recognize the entire financial assets to be transferred and shall recognize the consideration it receives as a financial liability. D. Fair values of financial assets and financial Liabilities For active financial assets or financial liabilities in the market, the quotations shall be used for the determination of their fair values; for inactive financial instruments, the Company shall employ evaluation techniques to determine their fair values. Valuation techniques include using recent market transactions between knowledgeable, willing parties, reference to the current fair value of another instrument that is 54 substantially the same, discounted cash flow analysis and option pricing models. E. Impairment of financial assets The Company assesses the financial assets that carry at fair value, and those financial assets which changes of fair value are recognized in profit and loss accounts at the balance sheet date. If there is objective evidence that the one or several financial assets are impaired, the Company shall determine the amount of any impairment loss. (a)Accounts receivable At the end of the period, if there is objective evidence that the accounts receivable have been impaired, the impairment loss shall be recognized based on the differences between book values and present value of future cash flows. At the end of the period, impairment test shall be made on individual accounts receivable with significant amounts. If there is objective evidence that they have been impaired, bad debt loss shall be recognized and provision for bad debts shall be made base on the differences between book values and the present value of future cash flows. For those individual accounts receivable with not significant amounts at the end of the period, along with those accounts receivable that have been tested individually but not impaired, the Company classifies them in line with similar credit risk characteristics into several groups, and make a specific percentage of bad debts provision on the accounts receivable balances at balance sheet date. The percentage reflects the actual impairment loss, that is, the amount of which book values of each group are over their present value of future cash flows. On the basis of the actual loss rate of receivable accounts, with same or similar credit risk characteristics of accounts receivable package in previous year, the Company also considers current situation and determine the percentage of bad debt provision. Here is the Company’s bad debts provision policy: Age Percentage 1-90 days 0% 91-180 days 10% 181-270 days 30% 271-360 days 50% Over 360 days 100% 55 The accounts receivable meeting the following criteria are recognized as bad debts: *The debtor is deceased or has been declared bankrupt and the debts remain not collectible after considering the assets of the bankrupt or the estate of the deceased debtor; *Debts that are long overdue and there is evidence indicating that the debts are not collectible or the possibility of collecting is remote. Upon the approval of board of directors, the accounts receivables are written off as bad debts by meeting the above-mentioned conditions. (b) Held-to-maturity investment The measurement of impairment loss of held-to-maturity investment, please refer to impairment loss treatment of accounts receivable. (c) Available-for-sale financial assets If there is objective evidence that available-for-sale financial assets have significant depreciated, or after considering various relevant factors, this downward tendency is deemed as not temporary, the impairment loss shall be recognized based on the difference between the present value of future cash flows. In case of impairment loss of available-for-sale financial assets recognized, it can not be written back. （8) Inventory A. Inventories category: materials in transit, raw materials, work-in-process, finished goods, and low-value consumable supplies. B. Inventories stock physical count system: perpetual inventory method C. Valuation methods of inventories：Inventories are calculated at actual costs when acquire. The issue of inventories is calculated by standard cost. The cost differences are amortized at ending period, and adjust standard cost to actual cost. D. low-value consumable products amortization method The low–value consumable supplies are amortized at one time. E. Impairment loss of inventories For inventories at balance sheet date, the evaluation criteria should base on the lower value between costs and net values that can be converted into cash. When net values that can be converted into cash are lower than costs, provision for impairment loss of inventories shall be made. For large quantity and low-unit-price inventories, provision for impairment loss of inventories shall be made based on the category of inventories; 56 for those inventories that relate to product series which production and sale are in same areas, have same or similar final usages or purposes, and are hard to separate calculation from other items, their impairment loss provision shall be consolidated. The net value that can be converted into cash is referred to the value after estimated the selling price subtracting the estimated finished cost and estimated selling expenses and related tax and fees in normal operating process. (9) Long-term Equity Investment (1)Long-term equity investment is measured at initial investment cost after obtained. (a) Long-term equity investment caused by the enterprise merger Long-term equity investment obtained through business combinations: for obtaining subsidiary under common control, the consideration cost can be cash payment, non-monetary assets transfer or taking over the subsidiary’s liability. Under this situation, the initial investment cost is carrying amount of shareholder’s equity of the subsidiary on the merger date. The difference between the carrying amount of the net assets obtained and initial investment cost of long-term equity investment shall be adjusted to capital reserve. If the capital reserve is not sufficient to absorb the difference, any excess shall be adjusted against retained earnings. In the case of company issues equity securities as the consideration, the initial investment cost is carrying amount of shareholder’s equity of the subsidiary on the merger date. If the book value amount of the issued shares is deemed as the capital, the difference between the carrying amount of the issued shares and initial investment cost of long-term equity investment shall be adjusted to capital reserve. If the capital reserve is not sufficient to absorb the difference, any excess shall be adjusted against retained earnings All direct expenses related to the merger, including the auditor fee, evaluation expense, legal service expense, etc will be accrued to the current profit and loss. (b) For obtaining subsidiary not under common control, the cost of long-term equity investment is fair value of assets paid or liabilities undertaken by the Company. Where the cost of a business combination exceeds the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference shall be recognized as goodwill, goodwill shall be measured at cost less accumulated impairment losses. Where the cost of combination is less than the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, after reassessment, the difference shall be recognized in profit or loss for the current period. (2)Other types of long-term equity investment (a) Long-term equity investment, which is acquired by cash consideration, the actual cash payment amount will be deemed as the initial investment cost. The initial investment cost includes the direct expenses related to the long-term equity investment, taxes and other necessary expenses. (b) Long-term equity investment, which is acquired by equity securities, the fair value of the issued equity will be deemed as the initial investment cost. 57 (c) For the long-term equity investment made by the investors, the values agreed in the investment contracts or agreements will be deemed as the initial investment cost, except that the contracts or agreements provide that the values are not fair. (d) Long-term equity investment is acquired by exchange of non-monetary assets, if this transaction has commercial substance or the fair values of exchange assets can be reliably measured, the fair values of these assets and relevant taxes will be deemed as the initial investment cost; the difference between the fair values of the assets and book values will be accrued to the current profit and loss; if the non-currency asset exchange does not satisfy these two conditions mention above, the book values of the assets and relevant taxes will be deemed as the initial investment cost. (e) Long-term equity investment, which is acquired by the mode of liability restructure, the fair values of the obtained equities will be deemed as the initial investment cost; the difference between the initial investment cost and book values of credit will be accrued to the current profit and loss. 2. Subsequent Measurement The cost method is employed to calculate the long-term equity investment of subsidiaries and will be adjusted in accordance with the equity method in the preparation of the consolidated financial statements. The Company uses cost method for the following conditions: a long-term equity investment where the investing enterprise can exercise control over the investee, or the investing enterprise does not have joint control or significant influence over the investee, the investment is not quoted in an active market and its fair value can’t be reliably measured. When an investing enterprise can exercise joint control or significant influence over the investee, a long-term equity investment cost shall be treated as a recovery of initial investment cost. (1) When using cost method, cash dividends or profit distributions declared by the investee shall be recognized as investment income in the current period. However, investment income recognized by the investing enterprise shall be limited to the amount distributed to it out of accumulated net profits of the investee arising after the investment was made. Any cash dividends or distributions received in excess of this amount shall be treated as a recovery of initial investment cost. (2) When using equity method, after the investing enterprise has acquired a long-term equity investment, it shall recognize its share of net profits or losses made by the investee as investment income or losses, and adjust the carrying amount of the investment accordingly. The carrying amount of the investment shall be reduced by the portion of any profit distributions or cash dividends declared by the investee that is attributed to the investing enterprise. (3) Provision for long-term equity investment impairment loss 58 Company should have impairment test for any long-term equity investment on very balance sheet date. When the estimated value in use is less than its book value, it will be treated as impairment loss. And this loss should be transferred into current profit and loss account; meanwhile, the company should set up provision for the long-term equity investment impairment loss. To any long-term equity investments, which are measured by cost method, there is no price or its fair value can not be measured reliably, the impairment loss of these investments should be the difference between the book value and the present value of the future cash flow calculated by using current market rate of similar financial asset. For other long-term equity investment, if the calculation of its money return in future declared that the money return is less than its book value, the difference will be treated as impairment loss. The long-term equity investment impairment loss can not be reversed. (10) Investment property Investment property is held to earn rentals or for capital appreciation or for both. Investment property includes leased or ready to transfer after capital appreciation land use rights and leased buildings. Property investment is measured by cost model. （11）Fixed asset and depreciation method A. Recognition of fixed assets Fixed assets are tangible assets that are held for use in production or supply of goods or services, for rental to others, or for administrative purpose, and have useful lives more than one accounting year. Fixed assets shall be recognized if they meet the following conditions: (a) The economic benefits related to fixed asset probably flows to the enterprise; (b) The cost of fixed asset may be reliably measured. B. Measurement of fixed assets Fixed assets shall be initially measured at cost. The cost of fixed asset comprises purchase price, relate tax or duties, and any directly attributable cost of bringing the asset to working condition for its intended use, such as delivery cost, insurance etc. C. The category and depreciation method of fixed assets Straight-line method is in used to calculate the depreciation of fixed assets (including finance leased fixed assets). The estimated useful lives, expected residual value and annual depreciation rate of various types fixed assets are listed as follows: 59 Category Estimated useful lives (years) Annual depreciation rate Residual value(%) Buildings and structures 20 4.50% 10% Machineries 11-18 5.56%-9.09% 0% Furnitures and equipments, electronic device and modules 6 16.67% 0% Vehicles 6 16.67% 0% Maintenance expense of leased fixed assets the shorter lease term and beneficial lives 0% D. At each of balance sheet date, the Company shall review fixed assets’ useful lives, expected residual values and depreciation method, and adjusted if necessary. For the standard of impairment loss of fixed assets, please refer to Notes 16 – impairment assets. (12) Construction in progress Construction in progress shall be measured base on the classification of proposed projects. Construction in progress is transferred to fixed assets when the project is substantially ready for its intended use. Borrowing costs relating to construction in progress are measured according to borrowing costs measurement method. At the end of period, the Company shall make judgment if any provision of impairment loss is necessary. If the project has been stopped for a long time and will not be constructed within three years; or the construct project is far behind current capacity or technology, and will bring significant uncertainty of economic benefits; or evidences have been obtained for the impairment of construct project, then the impairment loss for such construction in progress shall be made base on the differences between recoverable amounts and book values. Once impairment loss is made, it can not be reversed. (13) Intangible Assets A. Recognition of intangible assets Intangible assets are identifiable non-monetary assets without physical substance, but held or controlled by the entity. Intangible assets are recognized only when the following conditions are met: (a) It is probably that the expect future economic benefits that are attributable the assets to will flow to the entity; and (b) The cost of intangible asset can be measured reliably. B. Intangible assets are recognized initially at cost. C. Useful lives and amortization of intangible assets 60 The amortization of an intangible asset with finite useful lives shall be allocated on a systematic and rational basis over its useful lives. An intangible asset with infinite useful lives, no amortization shall be made. At the end of each year, the entity will review useful lives of intangible assets with finite useful lives and amortization method. In case the useful lives and amortization method are different from the previous estimations, the entity may change as necessary. D. The entity treats impairment of intangible asset according to the accounting policy of impairment of assets. Once the impairment loss is made, it can not be reversed. (14) Development expenses Internal organizational development costs are included development cost and research expense. Research expenses are expenses for the entity obtaining knowledgeable new science and technology in order to have creative and exploiting research activities. The research activities are mainly for obtaining related information, and there is quite uncertainty if the research activities will turn into development, and further turn into intangible assets. Development costs are costs for materials, devices and products before commercial production or usage, and plan or design which applying research results or other knowledge, and materials, devices and productions having great substance improvement. Relatively to research phase, research activities have been completed in development phase, and create basic conditions for a new product or new technology in some degrees. Internal organizational research expenses are accounted for as profit and loss in current period; development costs which are recognized as intangible assets shall satisfy the following conditions: A. It is technical feasible for use or sales upon the completion of the intangible assets; B. It is intended for use or sales upon the completion of the intangible assets; C. The expect future economic benefits that are attributable the intangible assets will flow to the entity; D. The entity should have enough technology, financial and other resources to support the completion of development, and have ability to use or sale the intangible assets. E. The cost of intangible asset can be measured reliably. (15) Long-term deferred expenses The preliminary setting-up expenses shall account for profit and loss on the month when the entity starts operation. Those fixed asset maintenance expenses shall amortize averagely during the intervals of maintenance period; and other long-term deferred assets are amortized averagely during the beneficial period. 61 (16) Impairment of assets A. Recognition of impairment of assets Impairment loss of assets refer to its recoverable amount is lower than its carrying book value of assets. At the end of period, the entity shall make judgment if there is indication of probable impairment of assets. When the recoverable amount is lower than the carrying book value, then the entity shall make provision of impairment loss of assets. Once the impairment loss is recognized, it can not be reversed. Assets may be impaired when the following indication exists: a. During the period, an asset’s market valve has declined significantly more than would be expected as a result of the passage of time or normal use. b. Significant changes with adverse effect on the entity have taken place during the period, or will take place in near future, in the technology, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated. c. Market interest rate or other market rates on investment return have been increased during the period, and those increases are likely to affect the discount rate that are used in calculation of present value of future cash flows, resulting material decrease of recoverable amount of assets. d. There is indication that an asset is obsolete, outdated or physically damaged. e. There is indication that an asset is idle, and the entity plans to discontinue the usage of an asset, or plans to disposal of an asset before the previous expected date. f. Information of internal report of the entity indicates that the economic performance of an asset is lower than expectation, net cash flow the asset created or realized operating profits (or losses) are far below (or higher) than expected amount. g. Other indication that an asset may be impaired. C. Measurement of impairment of assets At the end of period, the entity should check the carrying amounts of fixed assets, construction in process, intangible assets and goodwill and make judgment if any indication of impairment loss for those assets exists. Goodwill and intangible assets with infinite useful lives, the entity shall make impairment test each year whether there are signs of possible impairment. If there is objective indication that the asset is impaired, recoverable amount of the asset shall be estimated. The recoverable amount should base on the higher value between fair value less disposal expense and present value of estimated future cash flow. When the recoverable amount of the asset is less than its carrying amount, the differences are recognized as impairment loss and accounted for profit and loss in current period. Once the impairment loss is recognized, it can not be reversed in subsequent years. When the entity performs impairment test for goodwill and impairment test of relative asset group (will be mentioned as followed), the goodwill reflected in the consolidated financial statement shall not include the 62 goodwill of subsidiary attributable to minority interests; However, for relative group asset, the goodwill attributable to minority interests shall be included, and the entity shall adjust the book values of the asset group, and compare the adjusted value with its receivable amounts, then to determine whether the asset group (including the goodwill ) is impaired. If aforesaid asset group is impaired, the entity will deduct the share of minority interests proportionately from the loss, and then determine the impaired loss of goodwill attributable to parent company. If there is objective evidence that an individual asset is impaired, recoverable amount shall be estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the entity shall determine the recoverable amount of the asset group to which the individual asset belongs. The entity determines asset group base on the cash flow which generate from the asset group is independent with other asset or other asset group. Meanwhile, the entity should consider the method of administration, production and operation activities, and held-for-use assets or disposal decision. Once the asset group is determined, it shall keep consistence in each accounting period. The recoverable amount of an asset group is measured by the higher value between fair value less disposal expense and present value of estimated future cash flow. When the recoverable amount of an asset group or an asset combination is less than its carrying value, the differences are recognized as impairment loss. (17) Capitalization of borrowing costs A. Recognition of capitalization of borrowing costs Borrowing costs that are direct attributable to construction, purchase and production of assets and comply with capitalization conditions, shall be capitalized and accounted for as costs of assets; otherwise, borrowing costs shall be recognized as expenses when incurred and accounted for current profit and loss in current period. Assets which comply with the capitalization conditions refer those assets such as fixed assets, investment properties and inventories etc that require a long time of construction and production activities before being intended for use or for sales. The capitalization of borrowing costs shall satisfy the following conditions: (a) The capital expenditures have been incurred; and, (b) The borrowing costs have been incurred; and, (c) Activities relating to acquisition, construction or production that are necessary to make the assets being intended for use or sales have been launched. Capitalization of borrowing costs shall be suspended during periods in which acquisition, construction or production of assets is interrupted abnormally, and is interrupted for a continuous period of three months. 63 Capitalization of borrowing costs also shall be suspended when the acquisition, construction or production of assets are prepared for intended use or sales. B. Capitalization period Borrowing costs that incur for acquisition, construction or production of assets, and are satisfied with the aforesaid capitalization conditions, are recognized as cost of assets before those assets are intended for use or sales. Any borrowing costs incurred after assets that are intended for use or sales, and are recognized as financial costs of current period. C. Measurement of capitalized borrowing costs During the capitalization period, the amount of interest to be capitalized for each accounting period shall be determined as following: - for a specific purpose borrowing, the amount of interest to be capitalized shall be the actual interest expenses incurred for the period less temporary deposit interests or investment income; - Where funds are borrowed under general purpose, the entity shall determine the amount of interest to be capitalized by applying capitalization rate to weighted average of the excess amount between cumulative expenditures on the asset and the amount of specific-purpose borrowings. The capitalization rate shall be weighted average of the interest rates applicable to the general-purpose borrowings. (18) Accrued liabilities A. Recognition of accrued liabilities The obligations related to contingent item that meet the following conditions shall be confirmed as the liabilities: (a) This obligation is the current obligation of the company; and, (b)The performance of this obligation will probably cause economic benefits flow out of the company; and, (c) The amount of this obligation can be reliably measured. Loss contracts and restructuring obligations of the company meet the above conditions, they shall be recognized as accrued liabilities. B. Optimum evaluation of accrued liabilities If the necessary payments have scopes, the optimum evaluation shall be determined based on the average amount between the upper and lower limit amount of scope ; if the necessary payments do not have such scopes, then the optimum evaluation shall be determined in the following method: (a) If the contingent event is involved in an individual project, the optimum evaluation amount will be determined base on the most possible amount; (b)If the contingent event is involved in some projects, the optimum evaluation amount shall be determined base on possible amount and occurrence probability. In case of all or part of payments about the confirmed 64 liquidation liabilities are expected to be compensated by the third parties or other parties, and the compensation amounts are surely received, then such amounts shall be separately recognized. The confirmed compensation amounts shall not exceed book values of confirmed liabilities. (19) Revenue recognition A. Sale of goods Revenue from the sale of goods shall be recognized when all the all of the following conditions are satisfied: a. the entity has transferred the significant risks and rewards of ownership of goods to the buyer; b. the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over goods sold; c. the amount of revenue can be measured reliably; d. the associated costs incurred or to be incurred can be measured reliably. B. Rendering of services The entity recognize revenue from rendering of service when come out of rendering of service can be measured reliably at balance sheet date, and adopt percentage of completion method in recognition of revenue. When the outcome of rendering of service can not be measured reliably at balance sheet date, revenue shall be recognized to the extent of costs incurred that are expected to be recoverable. C. Transfer of asset use right When the economic benefits related to the transaction are probably will flow into enterprise and the amounts can be reliably measured, the entity shall recognize them as income from the transfer of asset use right under following situations: (a) The amount of interest income is determined by the capital usage period and actual interest rate. (b) The amount of royalties is determined by the period and method of charging as stipulated in the relevant contract or agreement. (20) Government grants Government grants shall be recognized at fair value on the conditions that the entity can receive the grant and comply with the condition attached to the grant. For government grant related to income, if the grant is a compensation for related expenses or losses to be incurred in subsequent periods, the grant shall be recognized as deferred income, and recognized in profit and loss over the periods in which the related cost are recognized. A government grant related to an asset shall be recognized as deferred income, and evenly amortized to profit and loss over the useful lives of the related asset. 65 (21) Lease Leases are included finance lease and operating lease. Finance lease is a lease that transfers all the relative risks and rewards of ownership of an asset in substance. Operating lease is a lease rather than finance lease. When the entity is a lessee, rental expenses from operating lease are amortized at the period of lease term by straight-line method. When the entity is a lessor, rental incomes from operating lease are amortized at the period of lease term by straight-line method. (22) Income taxes The company uses deferred income tax liability method in calculation of income taxes. A. Deferred income tax assets Deferred income tax assets shall be recognized for deductible temporary differences to the extent that is probable that tax profits will be available against which the deductible temporary differences can be utilized, unless the deferred tax assets due to initial recognition of assets or liabilities from some special transactions. B. Deferred income tax liabilities Deferred tax liabilities shall be recognized for all taxable temporary differences, except to the extent that the deferred tax liabilities arise from: (a) the initial recognition of goodwill; (b) the transaction is not a business combination, at the time of the transaction, it affects neither accounting profit nor taxable profit (or deductible loss). (c) for temporary differences associated with investment in subsidiaries, associates, and interests in jointly controlled enterprises, the investing enterprise is able to control the timing of the reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future. C. Income taxes measurement Income taxes include income taxes for the current period and deferred income taxes. Current and deferred income tax shall be recognized as income tax expenses or income that included in the profit and loss accounts, except that (a) income tax arising from a business combination; (b) income tax arising from a transaction or an event which is recognized directly in shareholder’s equity. 66 (23) Basis of Consolidation The consolidated financial statements prepared are in accordance with the No. 33 Enterprise Accounting Standards – Consolidated Financial Statement issued in February, 2006. The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (“its subsidiaries”) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. On acquisition, the assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess (deficiency) of the cost of acquisition over (below) the fair values of the identifiable net assets acquired is recognized as goodwill (negative goodwill). The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognized. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group. All significant intercompany transaction and balances between group enterprises are eliminated on consolidation. (24) Changes in accounting policies, accounting estimates Since January 1, 2007, the Company has implemented new enterprise accounting standards systems and guidelines promulgated by the People’s Republic of China. In accordance with the No 38 Enterprise Accounting Standard –First implementation of Enterprise Accounting, No 1 Interpretation of Enterprise Accounting Standard, Zheng Jian Fa [2006] 136 Notice on improvement in disclosing the accounting information relating to New Accounting Standards, and the circular on issuing No 7 Question and responses of information Disclosure standard of Public companies-Completion and Disclosure of the comparative Financial accounting information during the transition period between New and Old account standards and adjusted retroactively the financial statement during the comparative period, of which (1) Long-term equity investment difference According to New Enterprise Accounting Standard, for under same control enterprise consolidation, the Company shall recognize long-term investment initially at cost on the proportionate share of investees’ book values of equity. The difference between initial cost of long-term equity investment and the book values of cash, transferable non-monetary assets and liabilities shall recognize as capital surplus; if capital surplus is not enough for deduction, then adjust retained earnings accordingly. For under not the same control enterprise consolidation, and has significant control over investee unit, the purchaser shall recognized the difference between initial cost 67 and the proportionate share of fair value of identified net assets as profit and loss in current period. The Company adjusted retroactively for book value of equity investment difference as at December 31, 2006 under the same control enterprise consolidation. Amount of RMB4,243,444.72 unamortized difference balance decreased retained earnings. The difference resulted in the decrease of shareholders’ equity. (2) Available-for-sale financial assets Under New Enterprise Accounting Standards, available-for-sale assets are initially measured at its fair value and transaction costs when acquire. The interest or cash dividends received are recognized as investment income. The changes of fair value are recognized at capital surplus (other capital surplus) at the end of period. The Company adjusted retroactively for long-term equity investments which have no significant influence, or control. Amount of RMB69,999.20 fair value changes at the end of period are recognized at capital surplus. The adjustment resulted in the increase of shareholders’’ equity. (3) Income tax Under new Enterprise Accounting Standards, the Company recognized negative temporary difference between the book value of assets and taxable assets as deferred income tax assets, and the positive temporary difference between the book values of assets and taxable assets as deferred income tax liabilities. On January 1, 2007, the Company increased retained earnings from deferred income tax assets for RMB 31,202,818,88, in which amount of RMB23,490,590.58 is attributable to parent company and minority interest for RMB 7,712,228.30. The temporary difference which is due from available-for-sale financial assets is recognized as deferred income tax liability, and decreased capital surplus for RMB12,599.86, resulting in the decrease of shareholder equity that is attributable to parent company. (4) Retroactive adjustment for long-term equity investment in subsidiaries In accordance with the Cai Kuai [2007] No. 14 notice about printing and issuing of No. 1 Interpretation of Enterprise Accounting Standards issued by the Ministry of Finance, on the first implementation date, the parent company should retroactively adjust long-term equity investment in subsidiaries that have been held by itself before such date and it is deemed that this subsidiary has employed the cost method. After the implementation of new accounting standards, the company shall recognize declared distributable cash dividends or distributable proportionate net profits as investment income. The above accounting policy change has no effect on consolidated net assets. (5) Scope of consolidation Under new Enterprise Accounting Standards, parent company shall consolidate all its controlled subsidiaries, in whatever small scale or special operating business nature. 68 The Company includes Tasnn Kuen (Zhangzhou) Co., Ltd which is not included consolidation scope in 2006, and decreased retained earnings for RMB260,882.20 on January 1, 2007, in which amount of 195,661.65 is attributable to parent company, and minority interests for RMB65,220.55. V. Taxation (1) Value-add-tax (VAT) VAT is levied at 17% for domestic sales, and shall remit to tax authority by deducting them from the VAT which has paid on eligible purchases. (2) Business tax Business tax is based at 5% on business turnovers. (3) Income tax The Company is a production enterprise which located at Xiamen Economic Zone, and subject to enterprise income tax rate at 15%. The Company is also a export production enterprise which located at Xiamen Economic Zone, according to relative regulations regarding to encouraging Taiwanese investment in Xiamen by of The Government of Xiamen, and approval of preference tax for Tsann Kuen (China) Enterprise Co., Ltd issued by Xiamen Tax authority on August 25, 1988 , the Company is exempted from income tax from the first to the fourth accounting period, and is levied at 7.5% from the sixth to the ninth accounting period since the Company is profitable. According to State Income Tax Rules and Regulations relating to foreign investment enterprises or foreign-owned enterprise, the Company is able to levied at 10% subject to the aforesaid preferential tax period is mature, and export sales reach to 70% of production value in current year. Accounting period Tax preference Actual effective tax rate 1992 - 1995 Tax exempt 0% 1996 - 2000 Half-tax rate exempt 7.5% 2001 - 2004 levied at 10% 10% 2005 - 2007 15% The Company’s subsidiary Tsann Kuen China (Shanghai) Enterprise Co., Ltd is a production enterprise which is located at Jiading Shanghai, and enterprise income tax is levied at 24% of taxable income. According to Income tax rules and regulations for foreign investment enterprises and foreign-owned enterprises, the Company is exempted from income tax from the first to the second accounting period, and is levied at 12% from the third to the fifth accounting period since the Company is profitable. The Company’s first profitable year is in the year of 2000, and the actual effective income tax rate is as followed: 69 Accounting period Tax preference Actual effective tax rate 2000 – 2001 Tax exempt 0% 2002 - 2004 Half-tax exempt 12% 2005 – 2007 24% The Company’s subsidiary Tsann Kuen China Technology Co., Ltd is a production enterprise which is located at Xiamen Economic Zone, the enterprise income tax is levied at 15% of taxable income. According to Income tax rules and regulations for Foreign investment enterprises and foreign-owned enterprises, the Company is exempted from income tax from the first to the second accounting period, and is levied at 7.5% from the third to the fifth accounting period since the Company is profitable. The Company is not profitable year until December 31, 2007. The Company’s subsidiary Stan Keen (Zhengzhou) Enterprise Co., Ltd is a production enterprise which is located at Zhengzhou Fujian, the enterprise income tax is levied at 24% of taxable income. According to Income tax rules and regulations for Foreign investment enterprises and foreign-owned enterprises, the Company is exempted from income tax from the first to the second accounting period, and is levied at 12% from the third to the fifth accounting period since the Company is profitable. The Company’s first profitable year is in the year of 2003, and the actual effective income tax rate is as followed: Accounting period Tax preference Actual effective tax rate 2003 - 2004 Tax exempt 0% 2005 - 2007 Half-tax exempt 12% The Company’s subsidiary Tsann Kuen (Zhangzhou) South Port Electronics Enterprise Co., Ltd is a production enterprise which is located at Zhangzhou Fujian, the enterprise income tax is levied at 24% of taxable income. According to Income tax rules and regulations for foreign investment enterprises and foreign-owned enterprises, the Company is exempted from income tax from the first to the second accounting period, and is levied at 12% from the third to the fifth accounting period since the Company is profitable. The Company’s first profitable year is in the year of 2005, and the actual effective income tax rate is as followed: Accounting period Tax preference Actual effective tax rate 2005 -2006 Tax exempt 0% 2007 - 2009 Half-tax exempt 12% The Company’s subsidiary EUPA (Hong Kong) Co., Ltd is registered in Hongkong Special Administrative Zone, and income tax rate is 17.5%. Other subsidiaries of the Company’s income tax rate are 33%. 70 4．City and construction maintenance tax City and construction maintenance tax is levied at 1%-7% on actual paid VAT and business tax. 5．Education fee Additional education fee is levied at 3% on actual paid VAT and business tax. VI. Subsidiary, joint venture and affiliated enterprises * The monetary unit is ten thousand unless otherwise stated. A、Subsidiaries Actual Holding Economic Consoli Registration Registered Voting rights Company name investment proportion Business nature substance or dation location capital proportion amount type (Y/N) Manufacture and sales of small home electronic appliance, electronic Tsann Kuen (Shanghai) Limited Shanghai USD4,000 USD2,500 62.5% 62.5% device, light-industrial product, and Yes Enterprise Ltd (TKS) company modern furnitures and relative modules Design and production of precision Tsann Kuen (China) Technology Limited Xiamen USD2,000 USD1,378.83 75% 75% modules, research and development Yes Co., Ltd. (TKK) company of precision modules Development, production and sales Tsann Kuen (Zhangzhou) of small home electronic appliance, Limited Enterprise Co., Ltd. (TKL) (Note Zhangzhou USD16,000 USD12,000 75% 75% new style of electronic device, Yes company 1) light-industrial product, and modern furnitures and relative modules Development and production of Tsann Kuen (Zhangzhou) South small home electronic appliance, new Limited Port Electronics Enterprise Co., Zhangzhou RMB500 RMB375 75% 75% style of electronic device, Yes company Ltd. (TKN) light-industrial product, and modern furnitures Trading, purchase, small home Limited Eupa (Hong Kong) Limited Hongkong USD290 USD90 100% 100% appliance research, investment, Yes company market research Tsann Kuen (Zhangzhou) Not-for-p Profession and Technology Zhangzhou RMB50 RMB50 100% 100% Profession education rofit Yes College （Note 2） company Note 1: According to document no Minwaijingmaozi[2007]112 issued by Foreign Trading Economic and Co-operation Bureau of Fujian province, [2007]205 Approval of capital increment of Tsann Kuen (Zhangzhou) 71 Enterprise Co., Ltd. , Minutes of board and shareholder meeting, and regulation of revised contracts chapters, total investment increased from USD1.2 billions to USD3 billions, and registered capital increased from 40 millions to 160 millions, and shareholders distributed their capitals totaling USD9 millions base on their original proportion of shares. Note 2: Tsann Kuen (Zhangzhou) Profession and Technology College is contributed wholly by Tsann Kuen (Zhangzhou) Enterprise Co., Ltd. for RMB500 thousands by cash. Tsann Kuen (Zhangzhou) Profession and Technology College is a non-for-profit company, and the Company can not obtain profits from the operation of the College. It is not included in the financial statements consolidation scope in 2006. Under new Enterprise Accounting Standards, the College is included in the financial statement consolidation scope, and the Company adjusts relative data at the beginning of the year of 2007. B. Withdrawal of registration of subsidiaries during report period Company name Direct holding Indirect holding Withdrawal date proportion proportion Tsann Kuen (Xiamen) Diantong Co., Ltd (“Xiamen 65% December 2007 Diantong”) Tsann Kuen (Fuzhou) Electronic Co., Ltd 100% December 2007 Tsann Kuen (Nanjing) Electronic Co., Ltd 100% December 2007 Tsann Kuen (Xiamen) Diantong Co., Ltd, Tsann Kuen (Fuzhou) Electronic Co., Ltd and Tsann Kuen (Nanjing) Electronic Co., Ltd has been completed company liquidation, and withdrew of industrial and commercial registration, and tax registration during the reporting period, and are not included in the financial statements consolidation scope, however, the incomes and expenses, and profits are included in consolidated income statement before liquidation. C. There is no subsidiary obtained by under same control consolidation enterprise. D. There is no joint-venture enterprise or associate enterprise. 72 VII、Main items of consolidated financial statements （1） Monetary Funds 1.1. Monetary fund Items 2007.12.31 2006.12.31 Original Equivalent to R Original Equivalent to Exchange rate Exchange rate Currency MB Currency RMB Cash on hand 1,028,158.18 1,658,640.93 Including： —— —— 507,345.61 —— —— 609,037.92 RMB HKD 1,296.05 0.9364 1,213.62 19,767.30 1.0047 19,860.21 USD 31,118.94 7.3046 227,311.41 97,003.78 7.8087 757,473.42 JPY 176,185.00 0.06406 11,286.41 1,930,336.00 0.0656 126,630.04 EUR 26,343.28 10.6669 281,001.13 14,185.88 10.2665 145,639.34 Bank Deposit 211,417,417.23 345,158,626.82 Including： —— —— 83,202,412.99 —— —— 131,953,593.02 RMB HKD 5,363,995.55 0.9364 5,022,845.43 24,667.03 1.0047 24,782.97 USD 15,845,889.68 7.3046 115,747,885.76 22,698,320.76 7.8087 177,244,377.32 JPY 98,656,586.57 0.06406 6,319,940.94 547,636,606.00 0.0656 35,924,961.35 EUR 105,403.83 10.6669 1,124,332.11 1,062.89 10.2665 10,912.16 Other monetary fund 321,926,733.12 21,816,093.52 Including： —— —— 147,425,992.77 —— —— 21,816,093.52 RMB HKD 15,000.00 0.9364 14,046.00 —— —— —— USD 23,387,277.52 7.3046 170,834,707.37 —— —— —— EUR 342,366.29 10.6669 3,651,986.98 —— —— —— Total —— —— 534,372,308.53 —— —— 368,633,361.27 1.2. Other monetary fund including bank acceptance notes, commercial acceptance notes and deposits for issuance of letter of credit. 1.3. The ending balance of monetary funds is increased of 45% compared with last year, it is mainly due to the collection of account receivables on time in the year and the Company’ s subsidiaries received capital increments from minority shareholders. 73 (2) Tradable financial assets 2007.12.31 2006.12.31 Items Cost Changes in fair value Fair value Cost Changes in fair value Fair value Derivative —— 23,027,900.00 23,027,900.00 —— —— —— financial assets Other —— —— —— —— —— —— Total —— 23,027,900.00 23,027,900.00 —— —— —— The Derivative financial assets refer to unsettled Non-deliverable forward contracts between TKL and Bank of China, China Construction Bank and China Merchants Bank for principal amounts of USD 198 million. At the end of report period, the Company evaluated these assets base on future settlement exchange rates which are listed by banks. These assets were recognized as financial assets as their changes of fair value were more than zero. (3) Notes receivable Items 2007.12.31 2006.12.31 Bank acceptance notes - no pledge 4,079,513.79 30,660,692.56 Commercial acceptance notes - no pledge —— 38,000,000.00 Total 4,079,513.79 68,660,692.56 The ending balance of note receivables are decreased of 94% compared with last year, it is mainly due to the notes from Shanghai Xinge Co., Ltd in last year were accepted in the year. (4) Accounts receivable 4.1 Accounts Receivable 2007.12.31 2006.12.31 Items Balance Proportion Bad debt Net value Balance Proportion Bad debt Net value provision provision Individual transaction with significant amount 202,156,611.19 33.93% 2,698,827.28 199,457,783.91 301,963,742.70 33.02% 3,413,964.25 298,549,778.45 Individual transaction with not so significant amount but significant recoverable risk 115,025.06 0.02% 115,025.06 —— —— —— —— —— Other transaction with no significant amount 401,297,138.18 66.05% 56,178,710.18 345,118,428.00 612,574,760.26 66.98% 46,693,121.63 565,881,638.63 Total 603,568,774.43 100.00% 58,992,562.52 544,576,211.91 914,538,502.96 100.00% 50,107,085.88 864,431,417.08 74 4.2 Age analysis 2007.12.31 2006.12.31 Age Balance Proportion Bad debts Net value Balance Proportion Bad debts Net value provision provision Within 1 year 548,598,796.51 90.89% 12,095,904.05 536,502,892.46 871,744,509.90 95.32% 9,056,397.15 862,688,112.75 1-2 years 54,680,498.08 9.06% 46,607,178.63 8,073,319.45 32,085,273.78 3.51% 32,068,250.28 17,023.50 2-3 years 174,454.78 0.03% 174,454.78 —— 10,708,719.28 1.17% 8,982,438.45 1,726,280.83 Above 3 years 115,025.06 0.02% 115,025.06 —— —— —— —— —— Total 603,568,774.43 100.00% 58,992,562.52 544,576,211.91 914,538,502.96 100.00% 50,107,085.88 864,431,417.08 4.3.The Company write off third parties accounts receivable for 2,650,759.84, the details are as followed: Name of debtor Written-off Nature Reason Whether is Amount related party or not Salton Inc. 1,739,054.06 Sales Balance,aged,unrecoverable No Ningbo Haishu Hongqiao Trading Co., Ltd 宁波海曙鸿桥贸易有限 公司 290,831.68 Sales Balance,aged,unrecoverable No Zhengzhou Hongyuan Trading Co., Ltd 郑州鸿远经贸有限公司 169,142.22 Sales Balance,aged,unrecoverable No Hangzhou Guohao Trading Co.,Ltd 杭州国浩贸易有限公司 162,182.31 Sales Balance,aged,unrecoverable No Shanghai Yuanchao Electronic Appliance Co., Ltd 上海远超电 器有限公司 143,109.63 Sales Balance,aged,unrecoverable No 4.4 The Amounts due from shareholder who owns 5% or more than 5% of voting rights as followed: Name of shareholder 2007.12.31 2006.12.31 Tsann Kuen (China) Enterprise Co., Ltd 24,748,124.18 43,167,367.25 75 4.5. Total amount of top five account receivables is 300,698,403.77, representing 49.82% of account receivables balance. 2007.12.31 2006.12.31 Age Amount Proportion Amount Proportion Within 1 year 299,985,642.76 99.76% 499,200,720.59 100.00% 1-2 years 712,761.01 0.24% —— —— Total 300,698,403.77 100.00% 499,200,720.59 100.00% 4.6.Other explanation: ①Individual transaction with significant amount: Individual amount which represents more than 10 %( includes 10%) of ending balance of account receivable shall be treated as Individual transaction with significant amount. ② Individual transaction with not so significant amount but significant recoverable risk which represents any individual transaction with no so significant amount, but the age is more than 3 years, those transaction are treated as Individual transaction with not so significant amount but significant recoverable risk. ③Other transactions with no significant amount represent any transaction except set forth in ①、②. (5) Advance to suppliers 5.1. Age analysis Age 2007.12.31 Proportion 2006.12.31 proportion Within 1 year 25,275,510.79 99.70% 61,331,425.38 92.42% 1-2 years 75,695.72 0.30% 5,000,000.00 7.53% 2-3 years —— —— 31,418.76 0.05% Total 25,351,206.51 100.00% 66,362,844.14 100.00% (2) The advances to suppliers which age is over one year are mainly advances for the purchase of material. (3) The ending balance is decreased of 61.80% compared with last year, it is mainly due to partial advances for material and factory rentals are settled. (4) Total amount of top five advances to suppliers is 19,051,179.48, representing 75.15% of the balance of advances to suppliers. (5) Up to 31 December 2007, there is no amount due from shareholders who owns 5% or over 5% of voting shares. 76 (6) Other receivable 6.1. Other receivables 2007.12.31 2006.12.31 Items Balance proportion Bad debt Net value Balance proportion Bad debt Net value provision provision Individual transaction with significant amount 22,533,004.97 76.69% —— 22,533,004.97 156,724,265.23 88.55% 119,779,991.34 36,944,273.89 Individual transaction with not so significant amount but significant recoverable risk —— —— —— —— —— —— —— —— Other transaction with no significant amount 6,849,156.25 23.31% 2,944,313.49 3,904,842.76 20,263,488.39 11.45% 1,559,424.23 18,704,064.16 Total 29,382,161.22 100.00% 2,944,313.49 26,437,847.73 176,987,753.62 100.00% 121,339,415.57 55,648,338.05 6.2. Breakdown of individual account receivables with significant amount Name of Debtor Balance Age Proportion Content State tax authority of Zhangzhou city Export tax refund 19,228,988.93 2 Months —— receivable Dongdu Customs of People’s Republic of China 3,304,016.04 2 Months —— Deposit Total 22,533,004.97 6.3. Age analysis 2007.12.31 2006.12.31 Age Balance proportion Bad debt provision Net value Balance proportion Bad debt provision Net value Within 1 year 25,552,665.07 86.97% 387,049.58 25,165,615.49 39,730,412.12 22.45% 209,328.82 39,521,083.30 1-2 years 3,369,756.77 11.47% 2,125,713.50 1,244,043.27 11,657,618.13 6.59% 1,306,655.41 10,350,962.72 2-3 years 459,739.38 1.56% 431,550.41 28,188.97 125,599,723.37 70.96% 119,823,431.34 5,776,292.03 Total 29,382,161.22 100.00% 2,944,313.49 26,437,847.73 176,987,753.62 100.00% 121,339,415.57 55,648,338.05 77 6.4 .The ending balance is decreased of 83.40% compared with last year, it is mainly due to the written of bad debts provision for the subsidiary Xiamen Diantong for 119,461,731.39 which made in prior years. 6.5 The breakdowns of written off other receivables of 119,461,731.39, which original other receivables for Xiamen Diantong: Name of Debtors Written-off Nature Reason Whether is amount related party or not Lejin Electronic (China) Co., Ltd 乐 金电子(中国）有限公司 12,079,583.31 Sales Aged, unrecoverable No Shanghai Songlian Communication Co., Ltd 上海松联通讯有限公司 8,292,374.92 Sales Aged, unrecoverable No Tsinghua Tongfang Co., Ltd 清华同 方股份有限公司 3,857,834.11 Sales Aged, unrecoverable No Shanghai Mingdu Computer Co., Ltd 上海明度电脑有限公司 3,637,277.32 Sales Aged, unrecoverable No Dongguan Skyworth Television 东 莞市创维电视机厂 3,404,806.64 Sales Aged, unrecoverable No Hefei rongshida Wash Machine Co., Ltd 合肥荣事达洗衣机公司 3,297,891.77 Sales Aged, unrecoverable No Zhangzhou Zhongsheng Electronic Appliance Co., Ltd 漳州市忠盛电器 公司 2,972,213.87 Sales Aged, unrecoverable No Sony (China) Co., Ltd 索尼(中国)有 限公司 2,923,056.00 Sales Aged, unrecoverable No Haicheng (Shanghai) Co., Ltd 海成 （上海）有限公司 2,858,516.80 Sales Aged, unrecoverable No 6.6 There is no amount due from shareholders who owns 5% or over 5% of voting shares until December 31, 2007. 78 6.7 The total amount of top five other receivables is 26,392,739.88, representing 89.83% of other receivables balance. The details are as followed: Nature or Name of Debtors Balance Age Proportion Content Export tax refund State Tax Authority of Zhangzhou city 19,228,988.93 receivable Within 1 year 72.86% Dongdu Customs of People’s republic of China 3,304,016.04 Deposits Within 1 year 12.52% Receivable for transferred Ni Yi Lian 倪义莲 2,750,000.00 Property Within 1 year 10.42% Zhongzhou Longchi reusable Material Co., Ltd 漳州市龙池物资再生利用有限 公司 660,234.91 Current transaction Within 1 year 2.50% Departments’ Yu Hong Zhen 余洪珍 449,500.00 petty cash Within 1 year 1.70% Total 26,392,739.88 100.00% 6.8. Other explanation: ①Individual transaction with significant amount: Individual amount which represents more than 10 %( includes 10%) of ending balance of account receivable shall be treated as Individual transaction with significant amount. ② Individual transaction with not so significant amount but significant recoverable risk which represents any individual transaction with no so significant amount, but the age is more than 3 years, those transaction are treated as Individual transaction with not so significant amount but significant recoverable risk. ③Other transactions with no significant amount represent any transaction except set forth in ①、②. (7) Inventory 7.1. Inventories 2007.12.31 2006.12.31 Items Balance Impairment loss Net value Balance Impairment loss Net value provision provision Raw material 231,284,305.21 13,199,679.57 218,084,625.64 438,711,644.19 23,135,740.42 415,575,903.77 Working in 153,566,031.87 6,751,835.44 146,814,196.43 process 297,076,312.99 21,328,866.26 275,747,446.73 Finished 158,056,069.46 4,479,303.13 153,576,766.33 goods 234,891,102.48 15,647,245.97 219,243,856.51 Material-in- 71,943,256.02 —— 71,943,256.02 8,789,120.04 —— 8,789,120.04 transit Total 614,849,662.56 24,430,818.14 590,418,844.42 979,468,179.70 60,111,852.65 919,356,327.05 79 7.2. Impairment loss provision for inventories Items 2006.12.31 Increment Reversal Write off 2007.12.31 Raw material 23,135,740.42 8,478,876.91 —— 18,414,937.76 13,199,679.57 Working in process 21,328,866.26 4,879,966.13 —— 19,456,996.95 6,751,835.44 Finished goods 15,647,245.97 3,814,531.44 —— 14,982,474.28 4,479,303.13 Total 60,111,852.65 17,173,374.48 —— 52,854,408.99 24,430,818.14 7.3 The total procurement amount of top five suppliers is 692,494,012.88, representing 25.51% of total balance. 7.4. The ending balance is decreased of 37.22% compared with last year, it is mainly due to the sales of Aluminum-melting plant and control of inventory level. 7.5. The impairment loss provision for inventories is made base on the difference of the lower net recoverable value into cash and book value on December 31, 2007. Net recoverable value into cash refers estimated sale price less estimated selling expense and related taxes expense. The decrease of impairment loss of inventories is due to low balance of inventories at report date. (8) Available- to- sale financial asset Item 2007.12.31 2006.12.31 Available-for-sale investment 250,387.20 100,699.20 Available-for-sale investment was recognized at the difference of fair value changes on the first date of implementation of new Enterprise Accounting Standards, for uncontrolled, or having no significant influence long-term equity investment. (9) Held-to-maturity investment Item 2007.12.31 2006.12.31 Other investment —— 780,870.00 Total —— 780,870.00 Other investment includes the purchase of “Wan Hui Tong” (万汇通), a foreign exchange finance product which purchased from Societe Generale Bank. Total investment cost is USD100,000 for a period from May 24, 2006 to May 28, 2007, and annual yield rate is 5%. 80 (10) Long-term account receivable Items 2007.12.31 2006.12.31 Installment account receivable from 48,423,277.60 —— transfer of assets Total 48,423,277.60 —— Installment account receivable refers to the receivable for transfer of operating assets and business opportunities to ShangHai XinGe Nonferrous Metals Co.,Ltd. 上海新格有色金属有限公司 Please refer notes XI.4 for details. (11) Long-term equity investment 11.1. Long-term equity investment and impairment loss provision 2007.12.31 2006.12.31 Impairment Impairment Item loss loss Investment cost provision Book value Investment cost provision Book value Measured by cost method 40,000.00 —— 40,000.00 40,000.00 —— 40,000.00 Total 40,000.00 —— 40,000.00 40,000.00 —— 40,000.00 11.2. Long-term equity investment measured by cost method Initial Investee Investment 2006.12.31 Increment Decrement 2007.12.31 cost Xiamen Foreign Investment Enterprise Association 厦门市 40,000.00 40,000.00 —— —— 40,000.00 外商投资企业协会 Total 40,000.00 40,000.00 —— —— 40,000.00 81 (12) Investment Property 12.1. Subsequent measurement by cost model Items 2006.12.31 Increment Decrement 2007.12.31 Cost: Buildings and structures —— 65,694,635.34 —— 65,694,635.34 Land use right —— —— —— —— Subtotal —— 65,694,635.34 —— 65,694,635.34 Accumulated depreciation and accumulated amortization: Buildings and structures —— 26,791,376.16 —— 26,791,376.16 Land use right —— —— —— —— Subtotal —— 26,791,376.16 —— 26,791,376.16 Accumulated impairment loss provision: Buildings and structures —— —— —— —— Land use right —— —— —— —— Subtotal —— —— —— —— Book value: Buildings and structures —— 38,903,259.18 —— 38,903,259.18 Land use right —— —— —— —— Total —— 38,903,259.18 —— 38,903,259.18 12.2 There is no impairment loss provision for property investment upon the Company’s management review. (13) Fixed assets and accumulated depreciation 13.1. Fixed assets and accumulated depreciation Items 2006.12.31 Increment Decrement 2007.12.31 Cost: Buildings and structures 211,091,545.62 11,060,795.99 72,003,046.66 150,149,294.95 Machineries 869,779,388.40 65,805,609.95 31,743,617.55 903,841,380.80 Furniture and equipments, Electronic devices, Modules 2,033,836,792.56 67,634,081.46 110,413,181.21 1,991,057,692.81 Vehicles 76,248,588.21 1,150,028.45 15,710,876.72 61,687,739.94 Capitalized maintenance 46,710,825.30 11,950,340.17 1,813,891.63 56,847,273.84 82 expenses for Fixed asset Subtotal 3,237,667,140.09 157,600,856.02 231,684,613.77 3,163,583,382.34 Items 2006.12.31 Increment Decrement 2007.12.31 Accumulated depreciation: Buildings and structures 79,635,801.09 10,231,234.62 30,163,658.77 59,703,376.94 Machineries 373,023,436.33 74,799,401.15 5,000,059.73 442,822,777.75 Furniture and equipments, Electronic devices, Modules 1,387,793,620.50 210,412,891.76 36,217,259.80 1,561,989,252.46 Vehicles 44,572,597.72 7,155,438.07 5,627,767.61 46,100,268.18 Capitalized maintenance expenses for Fixed asset 6,055,487.40 4,874,710.40 167,426.75 10,762,771.05 Subtotal 1,891,080,943.04 307,473,676.00 77,176,172.66 2,121,378,446.38 Net value: Buildings and structures 131,455,744.53 —— —— 90,445,918.01 Machineries 496,755,952.07 —— —— 461,018,603.05 Furniture and equipments, Electronic devices, Modules 646,043,172.06 —— —— 429,068,440.35 Vehicles 31,675,990.49 —— —— 15,587,471.76 Capitalized maintenance expenses for Fixed asset 40,655,337.90 —— —— 46,084,502.79 Subtotal 1,346,586,197.05 —— —— 1,042,204,935.96 Impairment loss provision: Buildings and structures —— —— —— —— Machineries 5,123,295.52 97,752.77 496,163.36 4,724,884.93 Furniture and equipments, Electronic devices, Modules 114,123,193.11 1,561,760.83 66,507,197.17 49,177,756.77 Vehicles 12,806.41 9,758.98 —— 22,565.39 Capitalized maintenance expenses for Fixed asset 806,863.02 —— —— 806,863.02 Subtotal 120,066,158.06 1,669,272.58 67,003,360.53 54,732,070.11 Net value 1,226,520,038.99 —— —— 987,472,865.85 13.2 The decrease of fixed asset impairment loss provision is mainly due to the disposal of assets of TKK. The amount of fixed assets that are transferred from Construction in progress in the year is 148,046,355.22. 83 13.3 Details of idle assets： Reason for no Accumulated Impairment loss Estimated date Items Cost Net value impairment loss depreciation Provision for usage provision Buildings and structures 33,828,585.45 15,617,952.94 —— 18,210,632.51 No impairment June 2008 Machineries 13,349,719.13 5,171,424.27 —— 8,178,294.86 No impairment August2008 Furniture and equipments, June 2008 Electronic devices, Modules 113,965,176.54 68,585,709.86 36,092,990.15 9,286,476.53 Subtotal 161,143,481.12 89,375,087.07 36,092,990.15 35,675,403.90 13.4 Details of purpose to dispose fixed assets: Accumulate Impairment Predicted disposal Items Cost Net value depreciation Loss provision date Buildings and structures 10,181,363.51 5,204,036.16 —— 4,977,327.35 Year 2008 13.5. The Company has no finance leased fixed asset. 13.6. The Company has no operating lease out fixed asset. 13.7. Fixed assets which have not completed the process of property right certificate Accumulated Items Cost depreciation Impairment Loss provision Net Value Reason Buildings and structures 16,420,132.94 6,087,703.98 —— 10,332,428.96 13.8 Details of pledged fixed assets： Accumulated Impairment Loss Items Cost Net Value Reason depreciation provision Buildings and structures 92,029,781.77 32,531,612.45 —— 59,498,169.32 Pledged for loans Pledged for trade finances、discounted Machineries 207,798,908.68 83,474,873.27 2,705,129.56 121,618,905.85 commercial acceptance notes Pledged for trade finances、discounted Modules 528,244,769.42 348,925,016.89 26,999,490.84 152,320,261.69 commercial acceptance notes Total 828,073,459.87 464,931,502.61 29,704,620.40 333,437,336.86 84 (14) Construction in progress 14.1 Construction in progress 2007.12.31 2006.12.31 Project name Impairment loss Impairment loss Book value Net value Book value Net value provision provision Device Installation 7,637,893.03 —— 7,637,893.03 42,572,905.36 —— 42,572,905.36 Module-in-process 15,693,480.08 678,896.16 15,014,583.92 15,575,884.08 —— 15,575,884.08 Decoration 3,028,890.00 —— 3,028,890.00 12,132,273.49 —— 12,132,273.49 Total 26,360,263.11 678,896.16 25,681,366.95 70,281,062.93 —— 70,281,062.93 14.2 Details Project input Transferred to Capital Project name Budget 2006.12.31 Increment Decrement 2007.12.31 over its budget fixed assets resource (%) Own Device Installation 76,448,541.33 42,572,905.36 68,810,648.30 102,114,884.02 1,630,776.61 7,637,893.03 capital 90.01% Own Module-in-process 47,959,674.11 15,575,884.08 32,266,193.71 32,148,597.71 —— 15,693,480.08 capital 67.28% Own Decoration 7,708,380.00 12,132,273.49 4,679,490.00 13,782,873.49 —— 3,028,890.00 capital 60.71% Total 132,116,595.44 70,281,062.93 105,756,332.01 148,046,355.22 1,630,776.61 26,360,263.11 14.3 There is no interest capitalization in construction in progress until December 31, 2007. 14.4 The ending balance is decreased for 62.49% compared to last year, it is mainly due to the transfer of work in construction to fixed assets. 14.5 Impairment loss provision for Construction in progress Title 2006.12.31 Increment Decrement 2007.12.31 Module in process —— 678,896.16 —— 678,896.16 85 (15) Intangible asset and Accumulated amortization 15.1. Intangible Assets 2007.12.31 2006.12.31 Items Book value Impairment loss Net value Book value Impairment loss Net value provision provision Information system software 6,641,214.01 —— 6,641,214.01 7,439,713.53 —— 7,439,713.53 Land use right 22,317,828.70 —— 22,317,828.70 22,973,953.80 —— 22,973,953.80 Total 28,959,042.71 —— 28,959,042.71 30,413,667.33 —— 30,413,667.33 15.2. Accumulated amortization Residual Transfer Accumulated Acquired Items Cost 2006.12.31 Transfer in Amortization 2007.10.31 lives for out Amortization by amortization Information system software 10,575,101.19 7,439,713.53 800,000.00 1,598,499.52 —— 6,641,214.01 3,933,887.18 1-6 years Purchase Land use right 29,560,727.51 22,973,953.80 —— 656,125.10 —— 22,317,828.70 7,242,898.81 34-51 years Purchase Total 40,135,828.70 30,413,667.33 800,000.00 2,254,624.62 —— 28,959,042.71 11,176,785.99 15.3. There is no impairment loss provision for intangible assets upon the Company’s management review. 15.4.Details of pledged intangible assets: Impairment Accumulated Item Cost Loss Net value Reason amortization provision Pledged for Land use right 10,000,086.00 2,648,171.24 —— 7,351,914.76 loan Total 10,000,086.00 2,648,171.24 —— 7,351,914.76 86 (16) Long-term deferred expense Residual Original Accumulated Items 2006.12.31 Increment Amortization 2007.12.31 period for Price amortization amortization Electricity capacity increment 4,185,976.69 42,615.07 —— 42,615.07 —— 4,185,976.69 Telecommunication project 662,600.00 212,858.23 —— 28,700.04 184,158.19 478,441.81 24 months Other 651,669.45 39,681.17 —— 39,681.17 —— 651,669.45 SUN computer servicer 500,000.00 —— 500,000.00 58,333.31 441,666.69 58,333.31 53 months Internet HTMLcharges 524,160.00 —— 524,160.00 43,680.00 480,480.00 43,680.00 55 months Total 6,524,406.14 295,154.47 1,024,160.00 213,009.59 1,106,304.88 5,418,101.26 (17) Deferred income tax assets 17.1 Recognition of deferred income tax assets Type 2007.12.31 2006.12.31 Deductible temporary difference raised from impairment loss provision 263,923.13 4,512,765.70 Deductible temporary difference raised from make-up for losses 28,811,156.56 26,690,053.18 Total 29,075,079.69 31,202,818.88 The Company’s subsidiaries TKL, TKN, Eupa (Hongkong) Co., Ltd will probably use the recognized deferred income tax assets in future period for deducting taxable income. 17.2 Unrecognization of deferred income tax assets Type 2007.12.31 Deductible temporary difference raised from impairment loss provision 32,741,926.88 Deductible temporary difference raised from make-up for losses 77,888,268.90 Total 110,630,195.78 The Company and other subsidiaries except TKL, TKN and Eupa (Hongkong) Co., Ltd do not have enough reversal amount of income tax payable to offset the deducted timing difference, so the Company unrecognized the relative deferred income tax liabilities. 87 (18) Impairment provision for assets Decrement Items 2006.12.31 Increment 2007.12.31 Reversal Wirtten-offl Bad debts provision 171,446,501.45 12,921,125.73 —— 122,430,751.17 61,936,876.01 Inventories impairment loss provision 60,111,852.65 17,173,374.48 —— 52,854,408.99 24,430,818.14 Fixed asset impairment loss provision 120,066,158.06 1,669,272.58 —— 67,003,360.53 54,732,070.11 Construction in progress impairment loss provision —— 678,896.16 —— —— 678,896.16 Total 351,624,512.16 32,442,668.95 —— 242,288,520.69 141,778,660.42 (19) Restricted assets Items 2006.12.31 Increment Decrement 2007.12.31 Pledged assets: Buildings and structures —— 59,498,169.32 —— 59,498,169.32 Machineries —— 121,618,905.85 —— 121,618,905.85 Modules —— 152,320,261.69 —— 152,320,261.69 Land use right —— 7,351,914.76 —— 7,351,914.76 Total —— 340,789,251.62 —— 340,789,251.62 The reason for restricted assets: the Company used its land use right (50,000.43 square meters, which book value of 7,351,914.76) and buildings (the cost is 39,125,595.96, accumulated depreciation 19,432,942.86, and net value of 19,692,653.10) located in no.88 Xinglong road, as pledges, to borrow 75,000,000 from China Construction Bank for TKL. The highest guarantee amount for the borrowing is 100,000,000, and the guarantee will expire on July 31, 2008. The Company used its buildings (book value 28,397,989.82 and 9,317,795.99, accumulated depreciation 9,630,564.68 and 235,542.51, net value 18,767,425.14 and 9,082,253.48), as pledges, to obtain trade finance facilities from China Construction Bank for TKL. The highest guarantee amount for the borrowing is 118,000,000, and the guarantee will expire on January 27, 2008. The Company used its buildings (book value is 15,188,400.00, accumulated depreciation 3,232,562.40 and net value 11,955,837.60), as a pledge, to borrow 50,000,000 from Agriculture Bank of China, Xiamen branch for TKL. The highest guarantee amount for the borrowing is 50,000,000, and the guarantee will expire on January 19, 2008. TKL used its machineries and modules (book value 736,043,678.10, accumulated depreciation 432,399,890.16, impairment loss provision 29,704,620.40, and net value 273,939,167.54), as pledges, to obtain trade finance facilities from Societe Generale Bank. The highest guarantee amount for the borrowing is 94,960,000, and the guarantee will expire on September 4, 2008. 88 (20) Short-term loan 20.1 Type Type 2007.12.31 2006.12.31 Credit bank loan —— 936,298,115.20 Guaranteed bank loan 173,447,793.84 252,852,200.00 Pledge bank loan 125,000,000.00 —— Total 298,447,793.84 1,189,150,315.20 20.2 Up to 31 Dec 2007, there is matured loan which remains unpaid. 20.3 The ending balance is decreased of 74.90% compared with last year, it is mainly due to repayment of short-term loans, and the loan from The Bank of East Asia transferred to long-term borrowings. 20.4 Guaranteed bank loans are included TKL borrowings from HSBC, Xiamen branch for USD20,000,000 which is guaranteed by a standby letter of guarantee for amount of USD20,000,000 issued by HSBC, Taiwan; and TKL borrowing USD22,500,000 from Bank of China, and trade finance facilities for USD 664,758.35 which is guaranteed by the Company, Wu Chan Kuen, and Cai Yuan Song. 20.5 Pledged bank loan: the Company used its buildings as pledges to borrow 75,000,000 from Bank of Construction, Xiamen branch and 50,000,000 from Agriculture Bank of China. Please refer to notes VII.19 for pledge details. (21) Notes payable Items 2007.12.31 2006.12.31 Bank acceptance notes 133,157,437.91 212,299,154.78 Trade acceptance notes 75,056,207.13 201,442,702.21 Total 208,213,645.04 413,741,856.99 21.1. The ending balance of note payable shall be due in from January to April 2008. 21.2. The ending balance is decreased of 49.68% compared with last year, it is mainly due to the Company introduces the letter of credit as a payment method. 21.3 There is no amount due to shareholders who own 5% or more than 5% voting rights until December 31, 2007. 89 (22) Accounts payable 22.1. Age Age 2007.12.31 2006.12.31 Within 1 year 1,009,535,555.08 1,171,141,861.79 Above 1 year 6,375,219.76 4,365,926.77 Total 1,015,910,774.84 1,175,507,788.56 The accounts payable, which age is more than one year represents 0.63% of the total ending balance. The unpaid reason is due to the settlement with suppliers not on time. 22.2. The amount due to shareholders who own 5% or more than 5% voting right is as followed: Name of Shareholders Balance Period proportion Reason Tsann Kuen Industry Co.,Ltd 97,917,949.73 Within 1 year 9.64% Purchase 22.3. Please refer to note IX for the amount due to related parties. (23) Advanced from customers 23.1. Age Age 2007.12.31 2006.12.31 Within 1 year 12,829,641.81 75,330,477.63 23.2. There is no amount due to shareholders who own 5% or more than 5% voting rights until December 31, 2007. (24) Payroll payable Items 2006.12.31 Increment Pay out 2007.12.31 Salary, bonus and allowance 39,671,264.14 396,596,332.86 394,321,457.11 41,946,139.89 Employee welfare 466,159.75 28,514,396.13 28,980,555.88 —— Social insurance 8,332,668.90 23,343,094.86 25,334,050.75 6,341,713.01 Including：Medical insurance 209,065.50 3,641,599.68 3,521,189.52 329,475.66 Basic retirement insurance 7,700,742.00 15,361,774.80 17,798,171.55 5,264,345.25 Annuity fee —— 460,402.43 460,402.43 —— Unemployment insurance 422,861.40 2,510,467.25 2,241,912.45 691,416.20 Injury insurance —— 361,437.70 304,961.80 56,475.90 Pregnancy insurance —— 1,007,413.00 1,007,413.00 —— Housing accumulation fund 5,435,651.80 5,876,468.11 4,458,163.53 6,853,956.38 Labour union fee and employee education fee —— 240,474.94 240,474.94 —— Redemption for termination of labor contract —— 3,559,582.81 3,559,582.81 —— Others 10,180.00 156,190.00 148,970.00 17,400.00 Including：share payment by cash —— —— —— —— Total 53,915,924.59 458,286,539.71 457,043,255.02 55,159,209.28 There is no any delay payroll payment in report period. 90 (25) Tax payable Types 2007.12.31 2006.12.31 Business Tax 6,590,657.35 6,188,741.23 Enterprise Income Tax -4,631,523.70 -8,468,300.86 VAT 48,803,684.07 56,920,786.36 Personal Income Tax 601,733.26 285,820.64 Education fee 77,514.33 90,123.19 Withholding Income Tax 632,945.96 —— Others 23,485,675.87 26,803,355.17 Total 75,560,687.14 81,820,525.73 (26) Other account payables 26.1. Age Age 2007.12.31 2006.12.31 Within 1 year 302,540,475.15 284,171,806.74 Above 1 year 49,414,330.08 24,519,289.20 Total 351,954,805.23 308,691,095.94 The other payables, which age is more than one year represents 14.04% of the total ending balance, it is mainly due to unsettlement on time with Tsann Kuen Enterprise Co., Ltd. 26.2. Accrued expense at ending balance is 68,236,376.26, representing 19.39% of total ending balance, the details is as followed: Items 2007.12.31 2006.12.31 Reason Imports and Exports charges 6,455,747.39 7,978,081.80 Accrued expenses Water and Electricities 337,830.48 1,719,728.60 Accrued expenses Interest 2,418,798.58 3,274,291.56 Accrued expenses Professional charges —— 1,236,128.02 Accrued expenses Postage 458,961.69 327,912.62 Accrued expenses Meals 653,519.60 3,083,385.00 Accrued expenses Insurance 28,131.9 8,568,382.70 Accrued expenses Year-end bonus —— 509,650.65 Accrued expenses Commission 5,481,266.21 6,412,534.14 Accrued expenses Claim expenses for Refund of goods 24,739,726.46 54,432,501.80 Accrued expenses Accumulation funds —— 318,604.00 Accrued expenses Factory rental 21,108,507.95 —— Accrued expenses Other incidental expenses 6,553,886.00 4,785,585.52 Accrued expenses Total 68,236,376.26 92,646,786.41 Accrued expenses 91 26.3 . The amount due to shareholders who own 5% or more than 5% voting rights until December 31, 2007 is as followed: Name of shareholders Amount Age Proportion to other payables Reason Tsann Kuen Enterprise Co., Ltd. 81,989,597.03 1-2 years 23.30% Not settle on time EUPA(HONGKONG) Co.,Ltd 146,092,000.00 1 year 41.51% Loan Total 228,081,597.03 26.4. The amount due to related parties please refers to note IX. (27)Non-current asset due within one year 27.1. Type Items 2007.12.31 2006.12.31 Long-term loan due within 1 year 100,000,000.00 —— 27.2. There is no matured loan until December 31, 2007. (28) Long-term Borrowings 28.1. Type Type 2007.12.31 2006.12.31 Guaranteed loan 111,546,000.00 100,000,000.00 Total 111,546,000.00 100,000,000.00 28.2. List of creditors 2007.12.31 Loan Creditor Principal Interest Total Annual interest rate Term condition payable Bank loan The Bank of East Asia, 38,500,000.00 —— 38,500,000.00 Bank of China announced the norm Guaranteed Xiamen branch interest rate reduced by 10% 2007.1.25－2010.1.8 loan The Bank of East Asia, Xiamen branch BEA 73,046,000.00 —— 73,046,000.00 3- month’s LIBOR+0.6% 2007.2.9-2010.1.15 Guaranteed Bank(Xiamen loan Total 111,546,000.00 —— 111,546,000.00 28.3. The loans are guaranteed by the irrevocable standby letter of guarantee issued by The Bank of East Asia, Macau branch, which applied by Tsann Kuen Enterprise Co., Ltd, the beneficiary is The Bank of East Asia, Xiamen branch, and with condition of the guarantee amount shall not lower than loan amount. 92 28.4. The borrowing for USD5, 000,000 is from the Bank of East Asia, Xiamen branch, and Company shall repay principal for RMB38, 500, 000 in agreement with contract when the loan matures, and the designated interest rate is 10% below the normal interest rate announced by the People’s Bank of China. 28.5. The borrowing for USD10, 000,000 is from the Bank of East Asia, Xiamen branch, and the designated interest rate is 0.6% above LIBOR 3M. (29)Deferred Income Item 2007.12.31 2006.12.31 Deferred Income 48,423,277.60 —— The deferred income refers to the unrealized contract between TKL and Shanghai Xinge Nonferrous Metal Co., Ltd(上海新格有色金属有限公司) which TKL transferred its assets and business opportunities to Shanghai Xinge Nonferrous Metal Co.,Ltd. Please refer to note XI (4) for details. (30) Deferred Income Tax Liabilities Deferred income tax liabilities 2007.12.31 2006.12.31 Temporary difference incurred by the changes in fair 5,756,975.00 —— value for tradable financial assets Temporary difference incurred by available-for-sale 39,543.70 12,599.86 financial assets Total 5,796,518.70 12,599.86 93 (31)Share Capital Items 2006.12.31 Bonus shares Transfer reserve Issuance of new Others Subtotal 2007.12.31 into shares shares (1)Unlisted shares Including: shares held by 700,476,830.00 —— —— —— -700,476,830.00 -700,476,830.00 —— initiator Including: shares held by —— —— —— —— —— —— —— states Shares held by state-owned —— —— —— —— —— —— —— legal persons Shares held by overseas legal 700,476,830.00 —— —— —— -700,476,830.00 -700,476,830.00 —— persons Others —— —— —— —— —— —— —— Total unlisted shares 700,476,830.00 —— —— —— -700,476,830.00 -700,476,830.00 —— Items 2006.12.31 Bonus shares Transfer reserve Issuance of new Others Subtotal 2007.12.31 into shares shares (2)Listed shares RMB ordinary shares —— —— —— —— —— —— —— Domestically listed foreign 411,873,247.00 1,112,350,077.00 —— —— —— 700,476,830.00 700,476,830.00 shares Overseas listed foreign shares —— —— —— —— —— —— —— Other —— —— —— —— —— —— —— Total listed shares 411,873,247.00 —— —— —— 700,476,830.00 700,476,830.00 1,112,350,077.00 Total shares 1,112,350,077.00 —— —— —— —— —— 1,112,350,077.00 31.1. The aforesaid listed shares are listed with face value RMB1 each. There is no change of total shares during the report period. 31.2 Upon the approval of Commerce Bureau of the People’s Republic of China document no. [2005]3107 pursuant to Agreement of Tsann Kuen (China) Enterprise Co., Ltd placing public offer, On December 6, 2006, the Group received [2006] No.266 file 《关于核准厦门灿坤实业股份有限公司非上市 外资股上市流通的通知》from China Securities Regulatory Commission. China Securities Regulatory Commission agreed 700,476,830 unlisted shares (62.97% paid in capital of the Group) hold by three shareholders, Eupa (Hong Kong) Limited, Fordchee (Hong Kong) Limited and Hong Kong Fillman 94 Investment Limited to transfer into B shares. One year after November 29, 2006 these B shares could be listed on Shenzhen Stock Exchange. (32)Capital Reserves Items 2006.12.31 Increment Decrement 2007.12.31 Share premium 62,019,360.00 —— —— 62,019,360.00 Other capital reserves 67,645,657.38 122,744.16 3,061,192.53 64,707,209.01 Total 129,665,017.38 122,744.16 3,061,192.53 126,726,569.01 32.1. The increment in capital reserve is due to the changes in fair value of available-for-sale financial assets for the year. 32.2. The decrement in capital reserve is due to dissolution of subsidiary Xiamen Diantong. (33) Surplus Reserves Items 2006.12.31 Increment Decrement 2007.12.31 Statutory surplus reserve 49,420,175.68 —— 49,420,175.68 —— Total 49,420,175.68 —— 49,420,175.68 —— According to the scheme of make up for losses of year 2006, the company used statutory surplus reserves to offset the losses 49,420,175.68 in 2006.The decrement in surplus reserve in the year, is related to this losses. The scheme passed on shareholders meeting of year 2006 which held on May 26, 2007. (34) Retained Earnings Items 2007.12.31 2006.12.31 Balance at the beginning of the year of 2007 -1,069,376,534.25 -388,636,485.26 Add：Consolidated net profit 67,119,750.63 -825,302,803.72 Other transfer-in 66,613,424.73 144,562,754.73 Less：Withdrawal of statuary surplus reserve —— —— Withdrawal of employees’ reward and welfare fund —— —— Withdrawal of reserve fund —— —— Withdrawal of Enterprise development fund —— —— Reimbursement of investment —— —— Less: dividends payable for preference shares —— —— Withdrawal of surplus reserves —— —— Dividends payable for ordinary shares —— —— Dividends for ordinary shares transfer into capital —— —— Balance at the end of the year of 2007 -935,643,358.89 -1,069,376,534.25 95 Under the implementation of new Enterprise Accounting Standards, total amount of 19,051,484.21 has been adjusted for retained earning at beginning balance. Please refer notes IV (24) for details. Other transfer-in includes: According to the scheme of make up for losses of year 2006, the company used surplus reserves to offset losses for 49,420,175.68. The excess losses which recognized in years have been transferred out for 17,193,249.05 due to the dissolution of subsidiaries. (35) Operating Revenues and Operating Costs 35.1 List by items 2007 2006 Items Operating Revenue Operating Cost Operating Profit Operating Revenue Operating Cost Operating Profit Income from main operation 4,786,260,605.41 4,455,877,220.95 330,383,384.46 6,040,886,725.67 6,577,211,382.56 -536,324,656.89 Other operation 119,019,493.46 64,061,937.35 54,957,556.11 99,039,118.74 11,028,814.29 88,010,304.45 Total 4,905,280,098.87 4,519,939,158.30 385,340,940.57 6,139,925,844.41 6,588,240,196.85 -448,314,352.44 The gross profits for last year is -8.88%, and the current year’s gross profit is 6.90%.the main reasons are: In the year 2006, influences by appreciation of international raw materials, and unmatch research and development activities with production and sale, and not effective management result in low effective and efficient factory operation, and lots of waste materials. In 2007, the Company proceeded a serial of reorganization policies. It includes transfer of the Aluminum-melting Plant ( operating income in 2006 is 7.5 billions, net profits is -2.4billions ), enhancement on research and development activities for home electronic appliances, and improve quality, optimization of techniques and production flows, improvement of ratio of qualified product, and decrease of waste of raw materials. 35.2. Segment report from main operation incomes, main operation costs and gross profits 2007 2006 Segment Operating Operating Operating Gross profit Operating Income Gross profit Income Cost Cost Catering and Cooking 2,298,604,398.26 2,071,121,019.03 227,483,379.23 2,503,292,412.00 2,586,921,002.00 -83,628,590.00 Home best help 1,740,592,046.12 1,676,994,927.38 63,597,118.74 1,827,582,011.00 1,957,917,024.00 -130,335,013.00 Tea/Coffee 684,131,897.98 647,504,589.25 36,627,308.73 747,602,915.00 824,758,392.00 -77,155,477.00 Other 62,932,263.05 60,256,685.29 2,675,577.76 962,409,387.67 1,207,614,964.56 -245,205,576.89 Total 4,786,260,605.41 4,455,877,220.95 330,383,384.46 6,040,886,725.67 6,577,211,382.56 -536,324,656.89 96 35.3 Geographical Segment report： 2007 2006 Items Operating Operating Operating Operating Gross profit Gross profit Income Cost Income Cost America 2,372,786,566.32 2,145,442,289.24 227,344,277.08 2,522,694,997.18 2,686,841,084.17 -164,146,086.99 Europe 1,039,369,563.74 982,204,237.73 57,165,326.01 1,476,926,309.70 1,700,984,642.88 -224,058,333.18 Other 1,374,104,475.35 1,328,230,693.98 45,873,781.37 2,041,265,418.79 2,189,385,655.51 -148,120,236.72 Total 4,786,260,605.41 4,455,877,220.95 330,383,384.46 6,040,886,725.67 6,577,211,382.56 -536,324,656.89 35.4 Operating revenues from top five clients 2007 2006 Item Proportion to total Proportion to total Sales Sales sales sales Total sales from top five clients 2,063,133,850.08 43.11% 2,466,322,095.39 40.83% 35.5. Segment report of other operation incomes, other operation costs: 2007 2006 Items other operation income other operation cost other operation income other operation cost Material sales 49,310,557.98 52,596,691.5 —— —— Leftover material 53,448,985.91 —— 94,075,232.16 sales 9,642,705.13 Rental income 7,778,138.41 3,955,104.05 1,426,655.91 647,294.40 Education income 2,704,797.66 2,968,193.72 621,856.67 —— Consultant fee 3,555,572.31 3,386,259.34 502,442.40 —— Other 2,221,441.19 1,155,688.74 2,412,931.60 738,814.76 Total 119,019,493.46 64,061,937.35 99,039,118.74 11,028,814.29 (36) Business tax and surtax Items 2007 2006 Business tax 3,563,737.76 3,866,380.32 Education fee 2,371,459.16 115,991.41 Others 6,761.27 —— Total 5,941,958.19 3,982,371.73 The accounting principle for tax calculation refers to note V. 97 (37) Finance Costs Items 2007 2006 Interest expense 58,194,081.04 73,634,505.00 Less: Interest Income 5,481,423.10 3,506,731.32 Exchange gain (or loss) -6,265,122.44 3,557,764.70 Bank charges 11,571,645.72 9,351,097.00 Total 58,019,181.22 83,036,635.38 (38) Impairment loss of Assets Items 2007 2006 Bad debts 12,921,125.73 34,189,154.38 Inventories impairment loss 17,173,374.48 56,059,600.48 Fixed assets impairment loss 1,669,272.58 54,258,726.17 Construction in progress impairment loss 678,896.16 —— Total 32,442,668.95 144,507,481.03 (39) Gain from changes in fair values Item 2007 2006 Tradable financial assets 23,027,900.00 —— Including: Derivative financial assets 23,027,900.00 —— (40) Investment income Items 2007 2006 Losses from disposal of investment in subsidiaries -185,048.02 -4,091,591.49 Gains from held-to-maturity investment 39,620.77 —— Total -145,427.25 -4,091,591.49 98 (41) Non-operating income 41.1.Details of Non-operating income Items 2007 2006 Gains from disposal of non-current assets 10,652,870.23 961,469.31 Including: Gains from disposal of fixed assets 10,652,870.23 961,469.31 Income from fines 71,344.00 1,606,258.78 Income from indemnities 1,704,982.09 1,331,981.54 Government grants 6,199,439.52 2,910,779.43 Gains from physical count of inventories 1,797,400.12 2,371,998.24 Liquidation income 35,836,426.80 6,807,157.24 Others 1,600,332.59 2,303,845.34 Total 57,862,795.35 18,293,489.88 41.2. Government Grants Types 2007 2006 Origin of company Documents Rewards from advanced enterprise for —— 1,160,000.00 Economic and Trade Commission of Zhangjingmayunxing[2006]164,271 good electricity management Fujian Province Minjingmaoyunxing[2006]445,645,797 Export rewards 1,197,718.00 1,184,447.00 Finance Bureau of Fujian Province Pursuant to rewards for advocation of important export enterprises in 2006 Encouragement funds for technique 1,525,000.00 —— Zhangjingmaofazhan[2006]263 Finance Bureau of Longhai City innovation program Export insurance subsidy 1,216,441.00 —— Finance Bureau of Fujian Province Minwaijingmaojicai[2007]11 Subsidy for difference of income tax Finance section, Development Memorandum regarding to TsannKuen rate 2,080,280.52 —— Committee of Longchi,Zhangzhou Group investment in Zhangzhou Report from proposed technology Technology Accounting Center of Zhangzhou City 120,000.00 —— projects of Zhangzhou city Subsidy for sewage control online Accounting Center of Zhangzhou City program 60,000.00 —— Zhanghuankong(2006)35 Others —— 566,332.43 Accounting Center of Zhangzhou City Mincaiwai[2007]72 Total 6,199,439.52 2,910,779.43 99 (42) Non-operating expenses Items 2007 2006 Loss on disposal of non-current assets 2,496,385.60 3,568,539.39 Include: Loss on disposal of fixed assets 2,496,385.60 3,568,539.39 Losses on scraped fixed assets 864,779.55 1,174,702.78 Fines 174,330.03 8,672.64 Donation 77,000.00 2,665,000.00 Losses on liquidation of retail sales —— 4,876,557.89 Other 972,944.61 758,196.82 Total 4,585,439.79 13,051,669.52 (43)Income tax expense Items 2007 2006 Income tax expense for the year 550,072.26 —— Deferred Income tax expense 7,884,714.19 -30,351,990.13 Total 8,434,786.45 -30,351,990.13 (44) Cash received relating to other operating activities Items 2007 2006 Deposit 2,859,592.68 —— Rental income 7,778,138.41 1,910,675.67 Interests income 5,481,423.10 3,506,731.32 Income from indemnity and fines 1,776,326.00 2,938,240.32 Government grants 6,199,439.52 2,910,779.43 Current funds 4,241,800.00 389,290,587.65 Other 1,351,810.04 1,373,373.73 Total 29,688,529.75 401,930,388.12 100 (45) Cash paid relating to other operating activities Items 2007 2006 Paid for technical knowledge support 61,328,437.01 116,139,051.13 Paid for bank charges 11,571,645.72 9,355,987.13 Paid for procurement and sales agencies 41,173,759.97 40,122,013.2 Paid for selling expenses and other 122,993,736.34 373,817,761.27 overhead expenses Paid for security deposit for notes 140,452,974.85 —— Penalties and donation 251,330.03 2,673,672.64 Total 377,771,883.92 542,108,485.37 (46) Supplemental information for cash flow statement Items 2007 2006 1.Adusting net profit to cash flow from operating activities： Net profit 89,767,823.19 -1,088,348,775.41 Add: Impairment loss provision of assets 32,442,668.95 144,507,481.03 Depreciation of fixed assets、oil and gas assets and production biological assets 309,909,798.99 339,686,781.96 Amortization of intangible assets 2,254,624.62 1,884,458.88 Amortization of Long-term deferred expenses and long-term assets 213,009.59 718,851.62 Loss on disposal of fixed assets、intangible assets and other long-term deferred assets（Loss/Gain +/－） -8,156,484.63 2,607,070.08 Loss from written off assets（Loss/Gain +/－） 864,779.55 1,174,702.78 Loss of fair value fluctuation on assets（Loss/Gain +/－） -23,027,900.00 - Financial cost（Loss/Gain +/－） 51,928,958.60 77,192,269.70 Loss on investment（Loss/Gain +/－） 145,427.25 4,091,591.49 Decrease of deferred income tax assets（Decrease/Increase +/-） 2,127,739.19 -30,351,990.13 Decrease of deferred income tax liabilities(Increase/Decrease +/-) 5,756,975.00 Decrease of inventories（Decrease/Increase +/-） 364,618,517.14 357,267,666.53 Decrease of operating receivables (Decrease/Increase +/-) 323,234,614.89 148,859,761.30 101 Items 2007 2006 Increase of operating payables(Increase/Decrease +/-) -657,099,155.23 90,473,129.67 Others(Gains from physical count on fixed assets) -1,797,400.12 -2,371,998.24 Net cash flows arising from operating activities 493,183,996.98 47,391,001.26 2.Significant investment and financing activities that without cash flows： Debts transfer to capital Convertible corporate bond due within 1 year Finance leased fixed assets 3.Net increase (decrease) of cash and cash equivalents Ending balance of cash 393,919,333.68 368,633,361.27 Less: Beginning balance of cash 368,633,361.27 401,786,059.74 Add : Ending balance of cash equivalents Less: Beginning balance of cash equivalents Net increase of cash and cash equivalents 25,285,972.41 -33,152,698.47 (47) Cash and cash equivalents Items 2007.12.31 2006.12.31 1、Cash Including: Cash on hand 1,028,158.18 1,658,640.93 unrestricted bank deposit 211,417,417.23 345,158,626.82 unrestricted other monetary funds 181,473,758.27 21,816,093.52 Deposit in central bank —— —— Placement in other banks or financial institutions —— —— Due to other banks or financial institutions —— 2、Cash equivalents —— —— Including: Bond investment within three month —— —— 3、Ending balance of cash and cash equivalents 393,919,333.68 368,633,361.27 102 VIII、Notes to financial statements for parent company (1) Accounts Receivable 1.1 Details of accounts receivable 2007.12.31 2006.12.31 Item Balance Proportion(%) Balance Proportion(%) Balance Proportion(%) Individual transaction with 1,340,059.60 88.94% —— 1,340,059.60 65,525,691.67 83.85% 44,415,769.41 21,109,922.26 significant amount Individual transaction with not so significant amount —— —— —— —— —— —— —— —— but significant recoverable risk Other transaction with no significant 166,678.47 11.06% —— 166,678.47 12,619,042.41 16.15% —— 12,619,042.41 amount Total 1,506,738.07 100.00% —— 1,506,738.07 78,144,734.08 100.00% 44,415,769.41 33,728,964.67 1.2. Age analysis 2007.12.31 2006.12.31 Age Balance Proportion Bad debt Net value Balance Proportion Bad debt Net value provision provision Within 1 year 1,506,738.07 100.00% —— 1,506,738.07 32,765,500.00 41.93% —— 32,765,500.00 1-2 years —— —— —— —— 963,464.67 1.23% —— 963,464.67 2-3 years —— —— —— —— 44,415,769.41 56.84% 44,415,769.41 —— Total 1,506,738.07 100.00% —— 1,506,738.07 78,144,734.08 100.00% 44,415,769.41 33,728,964.67 103 1.3. The written off of accounts receivable in 2007 is 44,415,769.41, which are bad debts provision made in prior years. The details are shown as followed: Whether is related Name of debtor Written-off amount Nature Reason party or not Tsann Kuen (Xiamen) 44,415,769.41 Sales The company had been Yes Dian Tong Co., Ltd dissolution （1） The amount due from shareholders who own 5% or more than 5% voting rights is as followed: Name of shareholders 2007.12.31 2006.12.31 Tsann Kuen Enterprise Co., Ltd —— 963,464.67 （2） The total amount of top five account receivables is 1,506,738.07, representing 100% of total account receivables. 2007.12.31 2006.12.31 Age Balance Proportion Balance Proportion Within 1 year 1,506,738.07 100.00% 32,765,500.00 41.93% 1-2 years —— —— 963,464.67 1.23% 2-3 years —— —— 44,415,769.41 56.84% Total 1,506,738.07 100.00% 78,144,734.08 100.00% 104 (2)Other accounts receivable 2.1. Details of other accounts receivable 2007.12.31 2006.12.31 Items Bad debts Bad debts Balance Proportion Net value Balance Proportion Net value provision provision Individual transaction —— —— —— —— 459,888,798.82 98.49% 355,815,086.12 104,073,712.70 with significant amount Individual transaction with not so significant —— —— —— —— —— —— —— —— amount but significant recoverable risk Other transaction with 5,472,616.59 100.00% 154,656.49 5,317,960.10 7,044,872.24 1.51% 52,528.97 6,992,343.27 no significant amount Total 5,472,616.59 100.00% 154,656.49 5,317,960.10 466,933,671.06 100.00% 355,867,615.09 111,066,055.97 2.2. Age analysis 2007.12.31 2006.12.31 Age Balance Proportion Bad debt Net value Balance Proportion Bad debt Net value provision provision Within 1 year 5,410,268.72 99.89% 92,308.62 5,317,960.10 466,881,142.09 99.99% 355,815,086.12 111,066,055.97 1-2 years 9,818.90 0.02% 9,818.90 —— —— —— —— —— 2-3 years —— —— —— —— 52,528.97 0.01% 52,528.97 —— Above 3 years 52,528.97 0.09% 52,528.97 —— —— —— —— —— Total 355,867,615.09 111,066,055.97 5,472,616.59 100.00% 154,656.49 5,317,960.10 466,933,671.06 100.00% 2.3. The written of other account receivables in 2007 is 361,766,057.61 which are bad debts provision made in prior years. The details are shown as followed： Whether is related party Name of debtor Cancelled amount Nature Reason or not Tsann Kuen (Xiamen) 361,766,057.61 Current account The company had been Yes Diantong Co., Ltd dissolution 2.4. There is no amount due from shareholders who own 5% or more than 5% voting rights until December 31, 2007. 105 2.5. The total amount of top five other account receivable is 4,743,662.88, representing 86.68% of total other account receivables, the details are shown as followed: Name of debtors Amount Nature or content Age Proportion Receivable for Ni Yi lian 倪义莲 2,750,000.00 property transferred Within 1 year 50.25% Current TKN 1,516,293.03 account Within 1 year 27.71% Jiangsu Suwei Legal Firm 江苏苏唯 Legal fee paid in 衡律师事务所 200,000.00 advance Within 1 year 3.65% Current Tsann Kuen Profess Technology College 162,539.14 account Within 1 year 2.97% Cai Ming Jin 蔡明金 114,830.71 Borrowings Within 1 year 2.10% Total 4,743,662.88 86.68% (3)Long-term Equity Investment 3.1. Long-term equity investment and provision for impairment loss 2007.12.31 2006.12.31 Items Provision for Provision for Investment amount Book value Investment amount Book value impairment loss impairment loss Cost Method Investment in subsidiary 1,241,265,427.93 —— 1,241,265,427.93 602,830,391.02 42,250,000.00 560,580,391.02 Other equity investment 40,000.00 —— 40,000.00 40,000.00 —— 40,000.00 Total 1,241,305,427.93 —— 1,241,305,427.93 602,870,391.02 42,250,000.00 560,620,391.02 106 3.2. Long-term equity investment measured by cost method Investees Initial investment 2006.12.31 Increment Decrement 2007.12.31 TKS 194,545,872.18 194,545,872.18 —— —— 194,545,872.18 TKK 114,027,006.17 114,027,006.17 —— —— 114,027,006.17 TKL 921,914,701.56 248,257,510.54 673,657,191.02 921,914,701.56 Tsann Kuen (Xiamen) 42,250,000.00 42,250,000.00 —— 42,250,000.00 —— Diantong Co., Ltd TKN 3,750,000.00 3,750,000.00 —— —— 3,750,000.00 EUPA Honkong Co., Ltd 7,027,848.02 2.13 7,027,845.89 7,027,848.02 Xiamen foreign investment 40,000.00 40,000.00 —— —— 40,000.00 enterprises association Total 1,283,555,427.93 602,870,391.02 680,685,036.91 42,250,000.00 1,241,305,427.93 3.3 Impairment loss provision of long-term investment Item 2006.12.31 Increment Decrement 2007.12.31 Reason Tsann Kuen (Xiamen) Net assets are less Diantong Co., Ltd 42,250,000.00 —— 42,250,000.00 —— than 0 Total 42,250,000.00 —— 42,250,000.00 —— The decrement in impairment loss provision for long-term investment is due to dissolution of subsidiary Tsann Kuen (Xiamen) Diantong Co., Ltd in current year. (4) Other account payable 4.1. Age Age 2007.12.31 2006.12.31 Within 1 year 684,797,692.55 32,632,625.87 Above 1 year 505,227.76 290,298.12 Total 685,302,920.31 32,922,923.99 4.2.The ending balance is 19.82 times of its beginning balance, the main reason of increment is due to the Company borrowed money from its subsidiary TKL and increase of disbursement fees. The details of borrowing are shown in note XIII(2). 107 (5) Operating income and operating cost 5.1 Operating income and operating cost 2007 2006 Items Operating income Operating cost Gross profit Operating income Operating cost Gross profit Main business 13,322,730.82 15,029,609.98 -1,706,879.16 26,935,718.32 40,156,605.26 -13,220,886.94 Other operation 66,583,715.93 64,999,818.48 1,583,897.45 93,198,933.86 69,251,920.11 23,947,013.75 Total 79,906,446.75 80,029,428.46 -122,981.71 120,134,652.18 109,408,525.37 10,726,126.81 5.2. Sales from top five clients 2007 2006 Clients Sales Proportion Sales Proporion Total sales from top five clients 13,322,730.82 100% 26,935,718.32 100% 5.3. Other operating income and other operating cost lsited by category： 2007 2006 Items Other operation Income Other operation Costs Other operation Income Other operation Costs Leftover material Sales 250,062.06 —— 455,934.32 —— Rental Income 39,019,922.47 38,994,455.07 58,837,502.05 68,831,878.68 Consulting Fee 27,313,731.40 26,005,363.41 33,203,794.54 —— Others —— —— 701,702.95 420,041.43 Total 66,583,715.93 64,999,818.48 93,198,933.86 69,251,920.11 (6) Business tax and surtax Items 2007 2006 Business tax 3,096,480.58 2,891,274.67 Education fee 30,964.81 86,738.24 Total 3,127,445.39 2,978,012.91 (7) Investment Income Item 2007 2006T Gains/losses from disposal of investment in subsidiaries -185,048.02 17,674,330.33 Total -185,048.02 17,674,330.33 108 (8) Supplemental information for cash flow statement of parent company Items 2007 2006 1.Adusting net profit to cash flow from operating activities： Net profit 484,310.82 -57,297,119.98 Add: Impairment loss provision of assets -187,313.47 12,336,714.54 Depreciation of fixed assets、oil and gas assets and consumable biological assets 42,559,613.77 79,818,537.15 Amortization of intangible assets 1,022,770.78 1,022,770.80 Amortization of Long-term deferred expenses and long-term assets 60,548.18 101,387.08 Loss on disposal of fixed assets、intangible assets and other long-term deferred assets（Loss/Gain +/－） -5,638,266.76 -806,345.92 Loss from written off assets（Loss/Gain +/－） Loss of fair value fluctuation on assets（Loss/Gain +/－） Financial cost（Loss/Gain +/－） 4,388,551.79 13,933,960.31 Loss on investment（Loss/Gain +/－） 185,048.02 -17,674,330.33 Decrease of deferred income tax assets（Decrease/Increase +/-） Decrease of deferred income tax liabilities(Increase/Decrease +/-) Decrease of inventories（Decrease/Increase +/-） 9,100,693.51 14,970,444.74 Decrease of operating receivables (Decrease/Increase +/-) 107,157,255.13 332,453,404.96 Increase of operating payables(Increase/Decrease +/-) 135,829,089.96 -375,034,395.76 Others(Gains from physical count of fixed assets) Net cash flows arising from operating activities 294,962,301.73 3,825,027.59 2.Significant investment and financing activities that without cash flows： Liability transfer to capital Convertible corporate bond due within 1 year Finance leased fixed assets .Net increase (decrease) of cash and cash equivalents Closing balance of cash 3,722,741.66 93,612,924.07 Less: Beginning balance of cash 93,612,924.07 67,651,360.71 Add : Closing balance of cash equivalents Less: Beginning balance of cash equivalents Net increase of cash and cash equivalents -89,890,182.41 25,961,563.36 109 IX. Related party and related party transactions (1) Confirmation related parties The Company has control, jointly control or significant influence on the other party, or is under same party’s control, jointly control or significant influence with other company, is deemed as related parties. (2) The relationship of related parties 2.1 Related party with controllable relationship Legal Registered Main Registration Relationship with Business Related Party representati ADD Business number the Company nature ve Tsann Kuen 北市商一字第 Controlled party Corp. ZhuangXing Taiwan Manufacture Enterprise Co.,Ltd 00408469-10 Information of other subsidiaries are shown in note XI 2.2. The registered capital and changes the related parties with controllable relationship (NT＄) Related Party 2006.12.31 Increment Decrement 2007.12.31 Tsann Kuen Enterprise Co.,Ltd 2,466,343,220 —— —— 2,466,343,220 2.3. Changes in share capitals and particulars about related party with controllable relationship Related Party 2006.12.31 Proportion Increment Decrement 2007.12.31 Proportion Tsann Kuen Enterprise Co.,Ltd 692,882,863 62.29 16,397 111,215,679 581,683,581 52.29 Tsann Kuen Enterpise Co., Ltd holds the Company’s shares by holding the Company’s subsidiaries of EUPA (Hongkong) Industry Co., Ltd, Fordchee (Hongkong) CO., Ltd and Hongkong Fillman investment Co., Ltd 2.4. The related party with uncontrollable relationship Related Party Organisation Code Relationship EUPA (Hongkong) Co., Ltd 12959659-000-07-6 Shareholder Tsann Kuen(USA) Co., Ltd Under the same control of the holding company Tsann Kuen(Japan) Co., Ltd 0105-01-021064 Under the same control of the holding company Tsann Kuen (Hongkong) Co.,Ltd 11911137-000-05-07-3 Key management and closed family members’ direct control company Xiamen Shengming Electronic Co., Ltd 61201968-5 Key management and closed family members’ direct control company 厦门升明电子有限公司 110 (3) Related party transactions 3.1 Sales of accessories and finished products 2007 2006 Related Party Proportion to Proportion to similar Amount Amount similar transaction transaction Tsann Kuen(Japan) Co., Ltd 221,302,078.99 4.57 342,510,816.09 5.51 Tsann Kuen Enterprise Co.,Ltd 120,329,439.65 2.48 92,795,972.29 1.49 Xiamen Shengming Electronic Co., Ltd 42,577.51 —— 90,494.29 —— Total 341,674,096.15 7.05 435,397,282.67 7.00 The price of transaction between the Company and related parties is based on the price in contract signed by both parties. 3.2 Purchase of raw materials, spare parts and machine accessories 2007 2006 Related Party Proportion to Proportion to similar Amount Amount similar transaction transaction Tsann Kuen Enterprise Co.,Ltd 270,950,133.27 9.53 321,494,373.22 7.04 Xiamen Shengming Electronic Co., Ltd 96,668,577.92 3.40 112,105,400.21 2.46 Tsann Kuen(Japan) Co., Ltd 41,369,607.07 1.46 —— —— Total 408,988,318.26 14.39 433,599,773.43 9.50 The Company and its subsidiaries purchase raw materials, spare parts and machine accessories from related parties based on cost except Xiamen Shengming Electronic Co., Ltd. The Company purchases raw materials, spare parts and machine accessories Xiamen Shengming Electronic Co., Ltd at contract price signed by both parties. 3.3 Purchase of modules and machineries 2007 2006 Related Party Proportion to Proportion to similar Amount Amount similar transaction transaction Tsann Kuen Enterprise Co.,Ltd 7,511,265.19 3.66 71,275,607.61 29.26 Tsann Kuen (USA) Co., Ltd —— —— 24,857.44 —— Total 7,511,265.19 3.66 71,300,465.05 29.26 The Company purchases asset from related parties at its book value. 111 3.4.Internal borrowings 2007 2006 Proportion Proportion to Proportion to Proportion to Interest Related Party Amount to similar Balance similar Amount similar Balance similar rate (%) transaction transaction% transaction transaction% Borrowing Tsann Kuen (Hongkong) —— —— —— —— -84,695,259.98 3.89 —— —— —— Co., Ltd EUPA (Hongkong) 146,092,000.00 12.80% 146,092,000.00 32.86 —— —— —— —— 0.5 Co.,Ltd Total 146,092,000.00 12.80% 146,092,000.00 32.86 -84,695,259.98 3.89 —— —— 3.5. Other transactions 2007 2006 Proportion to Related party Content Proportion to Amount similar Amount similar transaction% transaction% Payment Tsann Kuen Enterprise Co.,Ltd Technical knowledge support fee 61,328,437.01 100.00 134,537,968.55 100.00 Pay for sales agency in Hong Kong area Tsann Kuen (Hongkong) Co., Ltd (note 2) 1,800,459.44 9.48 2,033,714.15 25.62 Pay for after sales service in America Tsann Kuen (USA) Co., Ltd area(note3) 4,615,173.26 17.54 5,903,585.56 74.38 Tsann Kuen Enterprise Co.,Ltd Pay for procurement agencies (note 4) 17,192,586.32 90.52 28,113,496.21 100.00 Relative to product quality expenses Tsann Kuen (Japan) Co., Ltd （note 5） 12,633,853.04 48.00 12,069,305.33 100.00 Tsann Kuen Enterprise Co.,Ltd Pay for consulting fees (note6) 4,931,687.91 14.97 —— —— Total 102,502,196.98 182,658,069.80 Income Xiamen Shengming Electronic Co., Ltd Consulting fees（note 7） 3,555,572.31 10.80 502,442.40 100.00 Total 3,555,572.31 10.80 502,442.40 100.00 112 Note 1: The Company and its subsidiaries measure technical knowledge support fees base on proportionate monthly excess accumulated sales of net amount of licensed products. Note 2: The Company and its subsidiaries entrust related parties as sales agencies, and require them as representors of the Company and its subsidiaries when sign contracts with clients, and collect sale receivables. Since the Company and its subsidiaries bear all the risks of these sales contracts, therefore, they recognize those sales as sales incomes in their books. Agency fees (including service charges) recognize base on 107% on the actual selling expenses incurred by the agencies. Note 3: Tsann Kuen (USA) Co., Ltd provides after sales services in America area for the Company and its subsidiaries’ sales in American area, the company and its subsidiaries pay for those after sales service base on 102% of the actual expense incurred. Note 4: The Company and its subsidiaries entrust Tsann Kuen Enterprise Co., Ltd to purchase raw material, modules and machineries. The procurement agency fees (including service charges) are calculated base on 110% of the actual procurement expense incurred by the agencies. Note 5: It refers to relative product quality expenses for those sales from TKL to TKJ. Note 6: Tsann Kuen Enterprise Co., Ltd provided professional consultant service for the company and its subsidiaries related to the worldwide procurement activities. The company and its subsidiaries pay for the consultant fees base on 105% of the actual related expenses incurred. Note 7: The Company assists Xiamen Shengming Electronic Co., Ltd for its management, the consulting fees from Xiamen Shengming Electronic Co., Ltd are calculated base on 105% of actual expenses incurred from the assistance of management. Note 8: The Company signed contract with State tax authorities of Xiamen city, Zhangzhou city, Shanghai city, regarding the above-mentioned prcing arrangement for technical knowledge, sales agencies fee, and after sales service fees and procurement agencies fees. 113 (4) The balance of payables and receivables among related parties. 2007.12.31 2006.12.31 Related party Amount Proportion Amount Proportion Account receivables TKJ 82,088,215.58 13.60% 88,301,454.44 9.66% Xiamen Shengming Electronic Co., Ltd 19,611.98 0.00% 27,118.77 0.00% Tsann Kuen Enterprise Co.,Ltd 24,748,124.18 4.10% 43,167,367.25 4.72% Total 106,855,951.74 17.70% 131,495,940.46 14.38% 2007.12.31 2006.12.31 Related party Amount Proportion Amount Proportion Account payables Xiamen Shengming Electronic Co., Ltd 288,127.87 0.03% 6,102,717.79 0.52% Tsann Kuen Enterprise Co.,Ltd 97,917,949.73 9.64% 104,183,291.60 8.86% TKJ 41,369,607.07 4.07% —— —— Total 139,575,684.67 13.74% 110,286,009.39 9.38% Other payables TKU 1,279,924.37 0.36% 1,157,734.37 0.37% TKJ 12,657,297.45 3.60% 9,704,023.71 3.14% TKH —— —— 50,243.44 0.02% Xiamen Shengming Electronic Co., Ltd 104,941.52 0.03% 547.70 0.00% EUPA (Hongkong) Co., Ltd 146,092,000.00 41.51% —— —— Tsann Kuen Enterprise Co.,Ltd 81,989,597.03 23.30% 174,168,469.49 56.42% Total 242,123,760.37 68.80% 185,081,018.71 59.95% Advance to suppliers: TKU —— —— 2,544,358.85 3.83% Xiamen Shengming Electronic Co., Ltd 16,355,988.15 64.52% —— —— Tsann Kuen Enterprise Co.,Ltd 3,581,017.04 14.12% —— —— Total 19,937,005.19 78.64% 2,544,358.85 3.83% Advance from customers: Xiamen Shengming Electronic Co., Ltd 74,304.83 0.58% —— —— Total 74,304.83 0.58% —— —— 114 X. Contingency Up to 31 December 2007, there is no significant contingency event that needs to be disclosed. XI. Commitment (1)Capital Commitment 2007.12.31 2006.12.31 Items RMB’000 RMB’000 Contract signed but no recognized in financial statements － Commitment for purchase and construction of assets —— 19,778 (2)Leased commitment Up to balance sheet date, the irrevocable operating lease contracts signed with third parties as followed: 2007.12.31 2006.12.31 Items RMB’000 RMB’000 Minimum lease payment of irrevocable operating leases House lease 1st year after balance sheet date 40,000 29,983 2nd year after balance sheet date 40,000 32,982 3rd year after balance sheet date 40,000 36,280 Years after 1,680,000 1,473,201 Total 1,800,000 1,572,446 (3)The Company’s subsidiary TKL signed agreements pursuant to Co-operation frame agreement and Products Supplies agreement with Xiamen Zhijiang Galvanothermy Components Co., Ltd. The content of agreements is as followed: TKL promises Xiamen Zhijiang to purchase electrothermal tubes from Xiamen Zhijiang every year with total amount not less than 90,000,000 (not including tax) effective in five years from the date of product supplies agreement signed except production capacity have changed, contract breach by Xiamen Jiangzhi or unresistable/uncontroable events. Xiamen Jiangzhi agrees to pay 18,230,000 in order to obtain the five-year purchase orders. Amont the amount of 18,230,000, about 30% (that is 5,470,000 ) shall pay within seven working days from the date the agreement signed; the rest of 70% (that is 12,760,000) shall be deducted from monthly procurement amount; each year, if the actual procurement amount is between 99,000,000 and 81,000,000, then an amount of 3,646,000 shall be deducted from all payables (excluding tax) in the year; if the actual procurement amount is over 99,000,000, the excess amount shall be calculated at 8.5% as marginal profit rate in the first year to third year; the excess amount shall be calculated at 7.5%. From the fourth year to the fifth year, If the actual procurement amount is below 81,000,000, then the below amount shall be calculated at the same method as above-mentioned, and the Company shall pay 50% of those amount to Xiamen Zhijiang 115 by telegraphic in that month. On December 5, 2007, TKL received the 5,470,000 and accounted for as advance from Xiamen Zhijiang. The Company’s subsidiary TKL signed agreements pursuant to Co-operation frame agreement and Transfer of Operating Assets and Products Supplies agreement with ShangHai XinGe Nonferrous Metals Co.,Ltd 上海新格有色金属有限公司(“Shanghai Xinge”). The content of the agreements are shown as followed: TKL transfers its operating assets and business opportunities to Shaghai Xinge with total transaction amount of 100,000,000. Shanghai Xinge shall be TKL’s main aluminum material supplier, and adjust settlement price below some amount or rate as negotiated by both parties for each ton. According to the transfer of operating assets agreement, Shanghai Xinge shall pay 38,000,000 to TKL as its initial payment, and the rest of 62,000,000 shall be deducted from the charges of aluminum material work in process by monthly. TKL promises Shanghai Xinge to purchase aluminum material very year effective in three years from the date of the agreements signed, with purchase quantities shall not less than 70% of the company’s total demands. After three years, if TKL’s purchase orders are no enough to deduct the balance of the transaction, then TKL shall agree to extent the agreement until the balance can be offset fully. If TKL terminates responsibility by itself, the Shanghao Xinge will not need to pay the rest of outstanding balance. If Shanghai Xinge terminates its responsibility, then Shanghai Xinge shall have to pay off the rest of outstanding balance at one time. Until December 31, 2007, there is outstanding balance for 48,423,277.60, and accounting for as long-term receivable and deferred income. XII. Non-adjusting events after balance sheet date (1) State Foreign Exchange Administration Bureau has approved that the company can have a foreign debt limit as USD60,000,000, which including accumulated short and long term foreign borrowings upon the Company’s application. According to the notice from State Foreign Exchange Administration Bureau, Xiamen branch, the company plans to borrow for not over USD60 millions from its majority shareholders EUPA (Hongkong) Co., Ltd and EUPA (Hongkong) Industry Co., Ltd、Fordchee (Hongkong) Development Co., Ltd, Hongkong Fillman Investment Co., Ltd and other foreign companies. The borrowing interest rate: fixed interest rate 0.5%, repay principal and interest upon the loan is mature; term of the borrowing: one year each term since the approval on the shareholders meeting, from the date when the company accounts for the borrowing. The loan may extend as necessary upon relevant approval process. According to the first temporary shareholders meeting and resolution voted in the meeting, the company obtained borrowings for USD 8,000,000 on 25 Feb 2008, and USD 12,000,000 on 18 March 2008, and USD5,000,000 on 25 March 2008 from EUPA (Hongkong) Industry Co., Ltd The transactions mentioned in above are related parties transactions. (2)The subsidiary EUPA (Hongkong) Co., Ltd signed temporary property purchase contract with EUPA (Hongkong) Industry Co., Ltd on 31 Jan 2008 due to business expansion. The purchase is included a factory 116 (including building and facilities) located on 14th floor , ChaiWan Central Industry Building, ChaiWan, Hong Kong, and an No. 13 underground parking space. According to evaluation price and fair value in market in the evaluation report signed by Hong Kong LCH (Asia-Pacific) Surveyor limited, the companies agreed with the transaction price as HKD 4,200,000; while the net book value of the assets is HKD 2,280,866, evaluation price is HKD 4,350,000. Upon the completion of transfer of property’s ownership title, EUPA (Hongkong) Co., Ltd will pay in full amount to EUPA (Hongkong) Industry Co., Ltd at one time. The transaction mentioned in above is a related party transaction. Up to 29 March 2008, there is no other non-adjusting event after balance sheet date needs to be disclosed. XIII. Other significant events １.The details of guarantee during report period for the Company and its subsidiaries (all amounts are stated in ten thousand RMB) Transaction Guaranteed Guaranteed Type of Grantee. Bank date(date of Term Range amount balance guarantee agreement signed) Within two years Guarantee for The Agriculture Bank of effective from TKL 2007-7-19 5,000 5,000 implicative Short-term loan China(Xiamen) assuming the responsibility liabilities Guarantee for Within two years Short-term loan, The Construction Bank TKL 2007-8-10 50,714 13,405 implicative effective from bank acceptance, of China(Xiamen) responsibility assuming the liabilities trade financing Guarantee for Within two years Bank of Short-term loan, TKL 2007-8-15 25,119 12,378 implicative effective from China(Zhangzhou) trade financing responsibility assuming the liabilities Guarantee for Within two years Short-term loan, TKL Bank of China(Xiamen) 2007-8-13 8,241 0 implicative effective from trade financing responsibility assuming the liabilities Guarantee for Within two years Bangkok Bank Public TKL 2007-8-29 10,151 1,454 implicative effective from trade financing Company Ltd(Xiamen) responsibility assuming the liabilities Guarantee for Within two years trade financing, Societe TKL 2007-9-4 3,125 3,125 implicative effective from Discount of trade Generale(Zhangzhou) responsibility assuming the liabilities acceptance Guarantee for Within two years The Construction Bank TKL 2007-11-14 14,774 11,380 implicative effective from trade financing of China(Zhangzhou) responsibility assuming the liabilities Total amount the company guarantee its subsidiaries during the reporting period 117,124 Total balance the company guarantee its subsidiaries at the end of the period 46,743 Guarantee for Within two years TKC Bank of China(Xiamen) 2007-5-30 10,000 0 implicative effective from Short-term loan responsibility assuming the liabilities Total amount subsidiaries guarantee the company during the reporting period 10,000 Total balance subsidiaries guarantee the company at the end of the period 0 117 2. According to the seventh minutes of Board meeting of TKL in 2007, TKL lent RMB4.2 billions to the Company for one year. The other three shareholders of TKL agreed in the agreement by a letter of support. The Company obtained a document no. Xiamenhui [2008]15 Notice of Quantum of foreign borrowings of Tsann Kuen (China) Co., Ltd on January 24, 2008, in relation to approval of the quantum of the Company’s foreign borrowings can not be exceeded USD60 millions. The Company obtained borrowings from Eupa Hongkong Co., Ltd for USD8 millions and 12 millions and 5 millions respectively on February 26, 2008 and March 18, 2008, and 25 March and repaid for the borrowings from TKL. 3. The Company’s subsidiary Xiamen Diantong advertised on Xiamen Daily newspaper on November 16, 2007 regarding public notice of liquidation. Xiamen Diantong had completed company liquidation process on December 25, 2007, and obtained withdrawal of state tax registration, local tax registration and commercial and industrial registration on January 7, 2008, January 15, 2008 and January 21, 2008 respectively. Xiamen Diantong was registered on March 28, 2008, and the business scope is sales of home appliance, communication device, computer and parts. Xiamen Diantong had incurred losses since its registration. The Company and Xiamen Shengming Electronic Co., Ltd (also one of the investors of Xiamen Diantong, and related party of the Company) had promised to provide financial supports for Xiamen Diantong’s continuous operation, and afforded the excess losses proportionately base on shares. Among of the losses, Xiamen Shengming Electronic Co., Ltd have afforded the amount of RMB213,210,773.61, and completed the payment in March 2006. The amount net asset of Xiamen Diantong is RMB-434,500,569.71, and the Company is attributable to excess losses for an amount of 439,762,886.58. Under new Enterprise Accounting Standards, the excess losses that the Company recognized in prior years and should afford shall adjust retroactively by cost method. Due to Xiamen Diantong had incurred accumulated great losses, the probable for recoverability is little, the Company made impairment provision base on conservative consideration accordingly. The Company’s accounting policy requires the Company make no bad debts provision for related party accounts receivable, however, considering Xiamen Diantong had been incurred excess losses since its registration and implementation of new Enterprises Accounting Standards, the Company applied retroactively adjustment, made bad debt provision for accounts receivable for Xiamen Diantong for RMB400,227,144.04 and impairment loss provision for long-term equity for RMB42,250,000.00. Xiamen Diantong and other business retailing subsidiaries ceased its business since in 2005, and other business retailing subsidiaries had been almost completed company liquidation in 2006. Xiamen Diantong based on conservative principle, and made full bad debt provision on book values for account receivables. 118 Since Xiamen Diantong was uncertain about if the debts on books required pay, Xiamen Diantong recognized those debts in book as non-operating income. Xiamen Diantong advertised liquidation notice on Xiamen Daily newspaper on November 16, 2007, and no creditor appeared until the completion of company liquidation. XIV. Net profit after deduction of the non-recurring profit and loss According to Article No. 1 Question and responses on information Disclosure standard for public companies - non-recurring profit and loss (2007 version), the net profits after deduction of non-recurring profit and loss are as followed: Items Amount Net Profits 67,119,750.63 Less: Profits from disposal of non-current assets 7,106,657.06 Government grants 6,199,439.52 Net profits from other non-operating activities 39,786,210.96 Subtotal 53,092,307.54 Add: Amount influenced by income tax 1,392,264.16 Add: Non-recurring profit attributable to minority interest 15,418,810.63 Net profits after deduction of non-recurring profit and loss 30,838,517.88 XV.Yield Rate of Net Assets and Earnings Per Share Yield Rate of Net Assets Earning Per Share(Yuan/share) Profit in the report period Diluted Weighted Basic earning Full dilution earning per average per share share Net profit attributable to ordinary shareholders 67,119,750.63 22.14 25.55 0.06 0.06 Net profit attributable to the ordinary shareholders after deduction of non-recurring profit and losses 30,838,517.88 10.17 11.74 0.03 0.03 119 Calculation： 1、Basic Earning Per Share: After deducted from Items Calculation Amount non-recurring profit or loss Net current year’s profit attributable to ordinary shareholders P 67,119,750.63 30,838,517.88 Total shares at beginning of the period S0 1,112,350,077 1,112,350,077 Incremental amount for the year Si —— —— the number of months from the next month to the end of the report period for increase of shares Mi —— —— the number of months during the report period M0 12 12 weighted average ordinary shares issued out S=S0＋Si×Mi÷M0 1,112,350,077 1,112,350,077 Basic Earning Per Shares P÷S 0.06 0.03 2、Diluted Earning Per Shares After deducted from Items Calculation Amount non-recurring profit or loss Net current year’s profit attributable to ordinary shareholders P 67,119,750.63 30,838,517.88 Dividend and interest related to potential dilution in ordinary shares A1 —— —— Income or expense occurred by potential dilution in ordinary shares A2 —— —— Total shares at beginning of the period S0 1,112,350,077 1,112,350,077 Incremental amount for the year Si —— —— the number of months from the next month to the end of the report period for increase of shares Mi —— —— the number of months during the report period M0 12 12 weighted average ordinary shares issued out S=S0＋Si×Mi÷M0 1,112,350,077 1,112,350,077 weighted average of ordinary shares transferred from potential diluted ordinary shares X —— —— Diluted Earning Per Share (P＋A1±A2)÷(S＋X) 0.06 0.03 120 XVI. Supplementary Information According to the circular on issuing No 7 Question and responses of information Disclosure standard of Public companies-Completion and Disclosure of the comparative Financial accounting information during the transition period between New and Old account standards, the Company prepared adjusted difference table for new and old Enterprise Accounting Standards. (1). Procedures for adjustment of comparative income statement By analysis of article 5 to 19 of No 38 of Enterprise Accounting Standards – First implementation of Enterprise Accounting Standards, the Company prepared the following table: A Adjusted items for income statement in 2006 Items Before adjustment After adjustment Operating income 6,139,303,987.74 6,139,925,844.41 Administration expense 105,847,996.19 104,733,170.45 Financial cost 83,041,525.51 83,036,635.38 Investment income -5,304,004.27 -4,091,591.49 Income tax expense —— -30,351,990.13 Net profit attributable to parent company -851,086,871.21 -825,302,803.72 Minority interest -270,567,879.65 -263,045,971.69 (2) Net profit in simulating the implementation of new accounting standards in 2006 and the difference adjustment statement of net profit disclosed in the 2006 annual report In assuming of the implementation of new Enterprise Accounting Standards at the beginning of comparative period, and in analysis and simulating the implementation of new accounting standards, the net profits exist significant difference by compared with old enterprise accounting standards. Here is the adjustment as followed: 121 2006 Annual Difference Adjustment for Net Profit Items Amount Net profit in 2006 (original accounting standards) -851,086,871.21 Total amount effected by retroactive adjustment items 33,305,975.45 Including: Amortization of long-term equity investment difference under some controlled enterprise consolidation 1,212,412.78 Effect on including Tsann Kuen Profession and Technology College in consolidation scope -260,882.20 Effect on re-recognition of deferred income tax 30,351,990.13 Effect on transferred in unrecognition of investment loss which recognized at the beginning of period 2,002,454.74 Less :retroactive adjustment to minority interest 7,521,907.96 Net profit in 2006 (new accounting standard) -825,302,803.72 Assume that the company will fully implement the referenced accounting standard Total effect by other items 26,701,248.88 Including: the transfer from debts that not require to pay to non-operating income 26,701,248.88 Income tax expenses —— Simulated net profit in 2006 -798,601,554.84 (3) The shareholder equities reported in accordance with the original accounting systems are adjusted to the new enterprise accounting standard 3.1.Adjustment of shareholder equities on January 1, 2006 Items Before adjustment After adjustment Shares capital 1,112,350,077.00 1,112,350,077.00 Capital reserve 102,906,369.16 102,941,947.32 Surplus reserve 193,982,930.41 193,982,930.41 Exchange difference of foreign currency financial statements —— —— Undistributed profit -381,903,901.98 -388,636,485.26 Unrecognized investment loss -2,002,454.74 —— Subtotal of shareholders’ equity attribute to parent company 1,025,333,019.85 1,020,638,469.47 Minority interest 342,641,222.59 342,766,322.38 122 Total 1,367,974,242.44 1,363,404,791.85 3.2 Adjustment of shareholder equities on December 31, 2006 Items Before adjustment After adjustment Shares capital 1,112,350,077.00 1,112,350,077.00 Capital reserve 129,607,618.04 129,665,017.38 Surplus reserve 49,420,175.68 49,420,175.68 Exchange difference of foreign currency financial statements 69,646.03 69,646.03 Undistributed profit -1,088,428,018.46 -1,069,376,534.25 Subtotal of shareholders’ equity attribute to parent company 203,019,498.29 222,128,381.84 Minority interest 74,781,317.86 82,428,325.61 Total 277,800,816.15 304,556,707.45 XVII. The corresponding disclosure of changes in Shareholder’s equity under new and old accounting standard. The amounts to be The amounts to be Items Difference reason disclosed in 2007 disclosed in 2006 shareholder equities on December 31, 2006(original accounting standard) 203,019,498.29 203,019,498.29 Difference on long-term equity investment -4,243,444.72 -4,243,444.72 Including: Difference on long-term equity investment occurred by consolidation under same control -4,243,444.72 -4,243,444.72 Difference on borrowing for long-term equity investment measured by equity method investment property measured by fair value Share payment Consolidation Including: Book value of goodwill after consolidation under same control Goodwill impairment loss provision under 123 new accounting standards The amounts to be The amounts to be Items Difference reason disclosed in 2007 disclosed in 2006 Financial assets at fair value through 69,999.20 69,999.20 After verification, the company has P&L ,and available-for-sale financial confirmed that it does not have assets control 、jointly control or substantially influences share in Shanghai Jiubai Enterprise Co.,Ltd 上 海九百股份有限公司,therefore, the shares would be treated as available-for-sale financial assets, the difference between fair value and its book value shall be treated into capital reserve, the treatment will impact the beginning balance of shareholders’ equity attribute to parent company at an amount of 69,999.20 . Financial liabilities at fair value through P&L Derivative financial instruments Income tax 23,477,990.72 23,477,990.72 After verification, the company and its subsidiaries confirmed over again that deductible temporary difference and tax payable temporary difference have raised income tax assets 31,202,818.88, and income tax liabilities 12,599.86 . The adjustment will impact the beginning balance of shareholders’ equity attribute to parent company at an amount of 23,477,990.72 . Minority interest 82,428,325.61 74,781,317.86 7,647,007.75 After verification, because of the adjustment of income tax and the company decided to include Tsann Kuen Profession and Technology College into its consolidation, the company will increase 7,647,007.75 124 Yuan attribution to Minority interest. The amounts to be The amounts to be Items Difference reason disclosed in 2007 disclosed in 2006 Social retroactive adjustment for companies listed in B shares or H shares Others -195,661.65 -195,661.65 After verification, the company confirms that it will consolidate the investment amount 500,000 which invested in Tsann Kuen Profession and Technology College in 2006 by subsidiary TKL into the company’s consolidated financial statement. It will result in 260,882.20 losses in current year’s P&L, and impact the beginning balance of shareholders’ equity attribute to parent company at an amount of -195,661.65 Yuan. Shareholders’ equity on 1 Jan 2007(New 304,556,707.45 273,557,371.43 30,999,336.02 Summarize above adjustment. The accounting standards) total shareholder’s equity will increase 30,999,336.02 Yuan. XVIII. Approval of financial statements This financial statements are approved and authorized for issuance by the Board of Directors on March 29, 2008. Director Dirctor 125