深康佳Ｂ(200016)2008年年度报告（英文版）

Annual Report 2008 KONKA GROUP CO., LTD. Annual Report 2008 Chairman of the Board: Hou Songrong April 2009 1 Annual Report 2008 Content Section Ⅰ. Important Notice Section Ⅱ. Company Profile Section Ⅲ. Accounting Data and Business Highlights Section Ⅳ. Changes in Share Capital and Particulars about Shareholders Section Ⅴ. Particulars about Directors, Supervisors, Senior Management Staffs and Employees Section Ⅵ. Corporate Governance Structure Section Ⅶ. Particulars about Shareholders’ General Meeting Section Ⅷ. Report of the Board of Directors Section Ⅸ. Report of the Supervisory Committee Section Ⅹ. Significant Events Section Ⅺ. Financial Report Section Ⅻ. Documents for Reference 2 Annual Report 2008 Section Ⅰ. Important Notice The Board of Directors, the Supervisory Committee, as well as directors, supervisors and senior management staffs of Konka Group 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. The Annual Report 2008 and its Summary has been examined and approved by the 6th Board of Directors at the 23rd session. By reviewing at the 11th session of the 6th Supervisory Committee, it believed that the Annual Report 2008 and the Summary are in compliance with the content and format stipulated by CSRC and Stock Exchange, in which the information contained can reflect the Company’s business management and financial status for the year 2008 in true, accurate and complete. None of director, supervisor or senior management staff stated that he (she) could not ensure the correctness, accuracy and completeness of the contents of the Annual Report or have objection for this report. A standard Auditor’s Report with unqualified opinion was produced by BDO. Guangdon Dahua Delu CPA, LLP. Mr. Hou Songrong, Chairman of the Board, Mr. Yang Guobin, Chief Financial Officer, and Ruan Renzong, person in charge of the accounting affairs hereby confirm that the Financial Report enclosed in this Annual Report 2008 is true and complete. This report was prepared in both Chinese and English. Should there be any difference in interpretation between the two versions, the Chinese version shall prevail. 3 Annual Report 2008 Section Ⅱ. Company Profile 1. Legal Name in Chinese: 康佳集团股份有限公司 Abbr. in Chinese: 康佳集团 Legal Name in English: KONKA GROUP CO.，LTD. Abbr. in English: KONKA GROUP 2. Registered (office) address: Overseas Chinese Town, Nanshan District, Shenzhen Post Code: 518053 Internet website: http://www.konka.com E-mail: szkonka@konka.com 3. Legal Representative : Chairman of the Board Mr. Hou Songrong 4. Secretary to the Board: Mr. Xiao Qing Securities Affairs Representative: Mr. Wu Yongjun Contact address: Secretariat of the Board of Directors, Konka Group Co., Ltd., Overseas Chinese Town, Nanshan District, Shenzhen Contact Telephone Number: 0755-26608866 Fax: 0755-26600082 E-mail: szkonka@konka.com 5. Newspaper designated by the Company for information disclosure: Securities Times, etc. International Internet Website appointed by CSRC: http://www.cninfo.com.cn Place where the Annual Report is prepared: Secretariat of the Board of Directors 6. Exchange where the stock of the Company is listed: Shenzhen Stock Exchange Stock Abbr.: Shen Konka A, Shen Konka B Stock Code: 000016, 200016 7. Initial registration date: 1 Oct. 1980 Place: Shenzhen 8. Registration number of corporate business license: 440301501121863 9. Tax registration number: 440301618815578 10. Certified Public Accountants engaged by the Company Name: BDO. Guangdon Dahua Delu CPA, LLP (original name: Shenzhen Dahua Tiancheng Certified Public Accountants) Address: 11/F, Block B, Union Square, 5022 Binhe Av., Futian District, Shenzhen, Guangdong 4 Annual Report 2008 Section Ⅲ. Accounting Data and Business HighlightsI. Major accounting data as of the year 2008 (I) Major accounting date Unit: RMB Yuan Items Amount Operating profit 265,873,912.89 Total profit 280,845,894.52 Net profit attributable to shareholders of the Company 250,817,154.35 Net profit attributable to shareholders of the Company after deducting 254,938,313.48 extraordinary gains and losses Net cash flows arising from operating activities 362,642,078.29 Major accounting data Unit: RMB Yuan Increase/decreas 2008 2007 e year-on-year 2006 (%) After the After the Before the After the Before the adjustment adjustment adjustment adjustment adjustment 12,169,078,369. 12,656,150,985.5 Operating income 12,205,292,227.57 12,169,078,369.50 0.30 12,730,978,380.57 50 5 Total profit 280,845,894.52 247,898,784.83 256,450,384.55 9.51 116,097,240.59 116,097,240.59 Net profit attributable to 250,817,154.35 209,198,469.00 207,091,715.42 21.11 102,638,435.58 96,774,909.50 shareholders of listed company Net profit attributable to shareholders of listed company after 254,938,313.48 209,964,108.93 217,833,696.81 17.03 104,777,537.60 98,914,011.52 deducting extraordinary Gain and Loss Net cash flow arising from operation 362,642,078.29 301,215,498.85 35,139,498.85 932.01 180,581,832.52 180,581,832.52 activities Increase/decreas 31 December 2008 31 December 2007 e year-on-year 31 December 2006 (%) After the After the Before the After the Before the adjustment adjustment adjustment adjustment adjustment 10,599,949,691. Total assets 10,517,285,515.63 9,277,974,998.92 -0.78 9,952,185,214.15 10,019,526,991.31 10 Owners’ equity 3,541,109,135.1 (shareholders’ 3,775,042,931.48 3,547,827,071.63 6.61 3,301,759,715.43 3,369,057,575.42 5 equity) Share capital 1,203,972,704.00 601,986,352.00 601,986,352.00 100.00 601,986,352.00 601,986,352.00 3.2 Major financial indexes Unit: RMB Yuan Increase/decrease 2008 2007 2006 year-on-year (%) Before the After the After the Before the After the adjustment adjustment adjustment adjustment adjustment Basic EPS (RMB/share) 0.2083 0.174 0.1720 21.10 0.085 0.080 Diluted EPS (RMB/share) 0.2083 0.174 0.1720 21.10 0.085 0.080 Basic EPS after deducting extraordinary gain and loss 0.2117 0.174 0.1809 17.03 0.087 0.082 (RMB/share) Fully diluted return on net 6.64% 5.90% 5.85% 0.79 3.11% 2.87% assets (%) Weighted average return on 6.84% 6.05% 6.00% 0.84 3.16% 2.92% net assets (%) Fully diluted return on net 6.75% 5.92% 6.15% 0.60 3.17% 2.94% assets after deducting 5 Annual Report 2008 extraordinary gain and loss (%) Weighted average return on net assets after deducting 6.95% 6.07% 6.31% 0.64 3.19% 2.98% extraordinary gain and loss (%) Net cash flow per share arising from operation 0.301 0.25 0.06 401.67 0.15 0.15 activities (RMB/share) Increase/decrease 31 December 2008 31 December 2007 31 December 2006 year-on-year (%) Before the After the After the Before the After the adjustment adjustment adjustment adjustment adjustment Net assets per share attributable to 3.135 2.947 2.941 6.60 2.742 2.798 shareholders of listed company (RMB/share) Note: In accordance with the resolutions of the Annual Shareholders’ General Meeting 2007, the Company implemented the plan on transferring capital reserve into stock in June 2008, namely, based on total stock capital of 601,986,352 shares as at the end of 2007, transferring capital reserve into stock at the rate of 10 for 10 to all the shareholders. After transfer, total share capital of the Company had increased to 1,203,972,704 shares. In the above table, date such as basic EPS, diluted EPS, basic EPS after deducting extraordinary gains and losses, net cash flow per share arising from operation activities and net assets per share attributable to shareholders of listed company have been adjusted accordingly in the light of total share capital after transfer. II. Items of extraordinary gains and losses and amount involved (Unit: RMB Yuan) Items of extraordinary gains and losses Amount Profit and loss from disposal of non-current assets 2,459,884.77 Governmental grants counted into the current profit and loss, except for the one closely related with the normal operation of the company and gained 9,944,243.96 constantly at a fixed amount or quantity according to certain standard based on state policies Profit or loss from change in fair value by holding tradable financial assets and liabilities, and investment income from disposal of tradable financial -18,295,684.10 assets and liabilities as well as salable financial assets, excluding the effective hedging businesses related with the normal operations of the company Other non-operating income and expenses besides the above items 5,363,152.68 Amount affected by income tax -3,486,638.48 Amount affected by minority interest -106,117.96 Total -4,121,159.13 III. Changes in shareholders’ equity in the reporting period (Unit: RMB Yuan) Items Opening amount Increase in 2008 Decrease in 2008 Closing amount Share capital 601,986,352.00 601,986,352.00 - 1,203,972,704.00 Capital reserve 1,876,606,062.32 - 620,467,767.11 1,256,138,295.21 Surplus reserve 781,670,420.36 23,226,113.46 - 804,896,533.82 Including: statutory - - - - welfare fund Retained profit 273,047,084.22 227,591,040.89 - 500,638,125.11 Currency translation 7,799,216.25 1,598,057.09 - 9,397,273.34 difference Accumulated losses of subsidiaries that the Company - - - - did not make up Shareholders’ equity 3,541,109,135.15 233,933,796.33 - 3,775,042,931.48 attributable to parent company Minority interest 238,161,627.35 - 13,731,360.28 224,430,267.07 Total shareholders’ equity 3,779,270,762.50 220,202,436.05 - 3,999,473,198.55 6 Annual Report 2008 Section Ⅳ. Changes in Share Capital and Particulars about Shareholders I. Change in shares (I) In accordance with the resolutions of the Annual Shareholders’ General Meeting 2007, the Company implemented the plan on transferring capital reserve into stock in June 2008, namely, based on total stock capital of 601,986,352 shares as at the end of 2007, transferring capital reserve into stock at the rate of 10 for 10 to all the shareholders. After transfer, total share capital of the Company had increased to 1,203,972,704 shares. (II) In the reporting period, change in shares of the Company as below: Unit: share Prior to the change Increase/decrease (+,-) Subsequent to the change Issuance Capitalization Number Ratio of new Bonus of capital Other Subtotal Number Ratio share reserve I. Shares subject to trading moratorium 118,902,545 19.75% - - 99,193,445 -19,707,816 79,485,629 198,388,174 16.48% 1. Shares held by state - - - - - - - - - 2. Shares held by state-owned corporations 52,392,592 8.70% - - 99,190,970 46,798,378 145,989,348 198,381,940 16.48% 3. Shares held by other domestic investors 43,549,038 7.23% - - 2,475 -43,545,279 -43,542,804 6,234 0.00% Including: Shares held by domestic corporations 43,546,563 7.23% - - 0 -43,546,563 -43,546,563 0 0.00% Shares held by domestic natural person (shares held 2,475 0.00% - - 2,475 1,284 3,759 6,234 0.00% by senior management staffs) II. Shares held by foreign investors 22,960,915 3.81% - - 0 -22,960,915 -22,960,915 0 0.00% Including: Shares held by foreign corporations 22,960,915 3.81% - - 0 -22,960,915 -22,960,915 0 0.00% Shares held by foreig natural person - - - - - - - - - II. Shares not subject t trading moratorium 483,083,807 80.25% - - 502,792,907 19,707,816 522,500,723 1,005,584,530 83.52% 1. RMB ordinary shares (A-share) 280,245,905 46.55% - - 299,955,005 19,707,816 319,662,821 599,908,726 49.83% 2. Domestically listed foreign shares (B-share) 202,837,902 33.69% - - 202,837,902 0 202,837,902 405,675,804 33.69% 3. Overseas listed foreign shares - - - - - - - - - 4. Others - - - - - - - - - III. Total number of shares 601,986,352 100.00% - - 601,986,352 0 601,986,352 1,203,972,704 100 (III) Change in shares subject to trading moratorium Unit: Share Name of shareholder Number of shares Number of shares Increased Number of shares Reason Date of subject to released from number of shares subject to releasing trading trading subject to trading trading moratorium at moratorium in trading moratorium at moratorium year-begin current year moratorium in year-end current year OVERSEAS CHINESE TOWN Commitment made in the 52,392,592 0 145,989,348 198,381,940 - GROUP CORPORATION share merger reform ANHUI TIANDA ENTERPRISE Commitment in the 43,546,563 43,546,563 0 0 - (GROUP) CO., LTD. share merger reform TIG Holdings Limited Commitment in the 22,960,915 22,960,915 0 0 15 May 2008 share merger reform Shares held by senior Shares held by senior 2,475 0 3,759 6,234 - management staffs management staffs Total 118,902,545 66,507,478 145,993,107 198,388,174 - - Note: In accordance with the resolutions of the Annual Shareholders’ General Meeting 2007, the Company implemented the plan on transferring capital reserve into stock in June 2008, namely, based on total stock capital of 601,986,352 shares as at the end of 2007, transferring capital reserve into stock at the rate of 10 for 10 to all the shareholders. After transfer, the share subject to trading moratorium 7 Annual Report 2008 had increased. 2. In accordance with received by the Company on 23 Nov. 2007 from China International Economic and Trade Arbitration Commission and Reconciliation Agreement entered into between OCT Group Corporation and Anhui Tianda Enterprise Group Co., Ltd., the Equity Transfer Agreement of Konka Group Co., Ltd. entered into between OCT Group Corporation and Anhui Tianda Enterprise Group Co., Ltd. on 28 Aug. 2004 was released, as a result, Anhui Tianda Enterprise Group Co., Ltd. returned 43,546,563 shares of the Company that were recorded under its name to OCT Group Corporation. As confirmed by China Securities Depository and Clearing Corporation Limited Shenzhen Branch on 24 Jan. 2008, the transfer procedure that Anhui Tianda Enterprise Group Co., Ltd. returned 43,546,563 shares of the Company that were recorded under its name to OCT Group Corporation has been completed. 3. In accordance with commitments made by OCT Group Corporation in the Document on Share Merger Reform of Konka Group Co., Ltd., OCT Group Corporation (original nontradable shareholders of the Company) would advance 35% of consideration that need to be executed on behalf of TIG Holdings Limited (the former name as THOMSON INVESTMENTS GROUP LIMITED, original nontradable shareholders of the Company), totaling 3,251,815 shares, accounting for 0.54% of total share capital of the Company. In line with the Agreement on Repaying Advance Shares signed between the OCT Group Corporation and TIG Holdings Limited, TIG Holdings Limited had returned such consideration shares to OCT Group Corporation on 18 Apr. 2008. 4. The Company’s shares subject to trading moratorium held by TIG Holdings Limited, the original shareholders holding shares subject to trading moratorium, has been released from trading moratorium. II. Issuing and listing of the shares (I) During the past three years up to the end of reporting period, the Company did not issue any securities. (II) Apart form 6,234 shares held by senior management staffs of the Company, there are no nontradable inner employee shares. III. About shareholders (I) Time when the shares subject to trading moratorium can be listed for trade on the market Additional number of Balance of Balance of number of shares not shares that can be number of subject to trading moratorium Date listed for trade after shares subject Remark expiration of trading to trading moratorium moratorium 30 Mar. 2009 120,397,270 77,984,670 1,125,988,034 30 Mar. 2010 77,984,670 0 1,203,972,704 Note: 1. The Company’s shares subject to trading moratorium held by TIG Holdings Limited, the original shareholders holding shares subject to trading moratorium, has been released from trading moratorium. 2. In accordance with commitments made by OCT Group Corporation，original nontradable shareholders of the Company in the Share Merger Reform, the shares subject to trading moratorium held by OCT Group Corporation can be listed for trade or transferred since 30 Mar. 2008. However, OCT Group Corporation, as at the disclosure date of this annual report, failed to apply to Shenzhen Stock Exchange for any matter that the trading moratorium is released. 3. Number of shares subject to trading moratorium in the table exclude such shares subject to trading moratorium held by senior management staffs. (II) As at the end of reporting period, shares held by the top ten shareholders and the top ten shareholders subject to trading moratorium: The number of shares held by the top ten shareholders subject to trading moratorium and trading moratorium Unit: share Name of shareholder Number of Actual number of Time that Additional number of Trading No. subject to trading shares subject shares subject to can be shares that can be moratorium moratorium to trading trading moratorium listed listed for trade 8 Annual Report 2008 moratorium that can be applied for trade for circulation 2009-3-30 120,397,270 1 OCT Group Corporation 198,381,940 198,381,940 Note 2010-3-30 77,984,670 Note: 1. Overseas Chinese Town Group Corporation, the original nontradable shareholder of the Company, promised not to trade or transfer the nontradable shares of the Company within 24 months since the day such shares were authorized with listing and circulation rights on the market of A-share. After the expiration of the aforesaid commitment, the number of nontradable shares of the Company sold by OCT Group Corporation through listing at the Stock Exchange shall not exceed 5 percent of the Company’s total shares within 12 months, and not exceed 10 percent within 24 months. 2. In accordance with commitments made by OCT Group Corporation，original nontradable shareholders of the Company in the Share Merger Reform, the shares subject to trading moratorium held by OCT Group Corporation can be listed for trade or transferred since 30 Mar. 2008. However, OCT Group Corporation, as at 29 Apr. 2009, failed to apply to Shenzhen Stock Exchange for any matter that the trading moratorium is released. 3. In the above table, the shares subject to trading moratorium held by senior management staffs failed to be considered. (III) Shares held by the top ten shareholders and the top ten shareholders subject to trading moratorium Unit: Share Total number of shareholders 113,544 Shares held by the top ten shareholders Total number Number of shares Nature of Proportion of Number of shares Name of shareholder of shares subject to shareholder shares held pledged or frozen held moratorium State-owned OCT Group corporation 16.68 200,792,011 198,381,940 0 corporation Foreign GAO-LING FUND,L.P. 4.83 58,097,079 0 Unknown corporation GUOTAI JUNAN SECURITIES(HONGKONG) Foreign 2.32 27,876,300 0 Unknown LIMITED corporation SBCI FINANCE ASIA LTD A/C SBC HONG Foreign 2.15 25,865,179 0 Unknown KONG corporation Foreign TIG HOLDINGS LIMITED 1.77 21,330,045 0 Unknown corporation Foreign NOMURA SECURITIES CO.LTD 1.12 13,500,000 0 Unknown corporation Foreign natural NAM NGAI 0.84 10,112,183 0 Unknown person Orient Securities － Agricultural Domestic Bank of China － Dongfanghong 3 Set non-state-owned 0.76 9,198,332 0 Unknown Asset Management Plan corporation LGT BANK IN LIECHTENSTEIN Foreign 0.63 7,591,700 0 Unknown AKTIENGESELLSCHAFT corporation Shanghai Pudong Development Bank－ Domestic Jiashi Excellent Enterprise Stock non-state-owned 0.51 6,195,994 0 Unknown Open-end Securities Investment Fund corporation Particulars about shares held by the top ten shareholders not subject to moratorium Name of shareholders Numbers of shares not subject Type of shares to moratorium held GAO-LING FUND,L.P. 58,097,079 Domestically listed foreign share GUOTAI JUNAN SECURITIES(HONGKONG) LIMITED 27,876,300 Domestically listed foreign share SBCI FINANCE ASIA LTD A/C SBC HONG KONG 25,865,179 Domestically listed foreign share TIG HOLDINGS LIMITED 21,330,045 RMB common share NOMURA SECURITIES CO.LTD 13,500,000 Domestically listed foreign share NAM NGAI 10,112,183 Domestically listed foreign share 9 Annual Report 2008 Orient Securities － Agricultural Bank of China － 9,198,332 RMB common share Dongfanghong 3 Set Asset Management Plan LGT BANK IN LIECHTENSTEIN AKTIENGESELLSCHAFT 7,591,700 Domestically listed foreign share Shanghai Pudong Development Bank－Jiashi Excellent Enterprise Stock Open-end Securities Investment 6,195,994 RMB common share Fund Orient Securities－BOC－Dongfanghong 3 Set Asset 5,500,050 RMB common share Management Plan There was no associated relationship between the first principal shareholder (OCT Group Corporation) and other shareholders, and Explanation on associated relationship among the OCT Group Corporation did not join in any consistent actions. top ten shareholders or acting-in-concert Whether there is any associated relationship or acting-in-concert among other shareholders. (IV) Shareholders holding over 5% of total shares Registered Type of Nature of the Legal Date of Name capital Main operations shares held business representative foundation (RMB’0000) Development and operation of real estate and hotels; Wholly operation of tourism and Overseas Chinese Town State-owned state-owned Ren Kelei Nov. 1985 RMB200,000 relevant cultural industries; Group Corporation corporation company manufacture of electronics and supporting packing products. IV. About the controlling shareholder and actual controller (I) The first principal shareholder and actual controller In the reporting period, the first principal shareholder and actual controller remained unchanged, both being Overseas Chinese Town Group Corporation, whose shares of the Company had not been pledged, entrusted or frozen. Overseas Chinese Town Group Corporation is a large-scale state-owned enterprise, which was founded on Nov. 11, 1985 after the approval of the State Council and belongs to one of the central enterprises of State-owned Assets Supervision and Administration Commission of the State Council. Its legal representative is Mr. Ren Kelei. Overseas Chinese Town Group Corporation has a registered capital of RMB 2 billion, as well as total assets about 30 billion, and the core businesses cover the tourism, real estate, hotels and telecommunication. (II) The property rights and control relationship between the actual controller and the Company SASAC of the State Council 100% OCT Group Corporation 16.68 (A shares) Konka Group Co., Ltd. (III) About corporate shareholder holding over 10% equities of the Company (including 10%) Apart from OCT Group Corporation, the controlling shareholder of the Company, there is no other shareholder holding over 10% equities of the Company (including 10%) Section Ⅴ. Particulars about Directors, Supervisors, Senior Management Staffs and Employees I. About directors, supervisors and senior management staffs (I) General information Name Office title Sex Age Term of office Remarks 10 Annual Report 2008 Hou Songrong Chairman of the Board Male 40 Aug. 2007 ~ Aug.2010 Su Zheng Director Male 52 May 2008 ~ Aug.2010 Wang Xiaowen Director Female 39 May 2008 ~ Aug.2010 Huo Jun Director Female 42 Aug. 2007 ~ Aug.2010 Feng Yutao Independent Director Male 41 Aug. 2007 ~ Aug.2010 Yang Haiying Independent Director Female 41 Aug. 2007 ~ Aug.2010 Zhang Zhong Independent Director Male 40 Aug. 2007 ~ Aug.2010 Chairman of the Board of Dong Yaping Male 55 May 2008 ~ Aug.2010 Supervisors Wen Tongyun Supervisor Female 41 Aug. 2007 ~ Aug.2010 Worker Ye Xiangyang Supervisor Male 40 Aug. 2007 ~ Aug.2010 representative Chen Yuehua President Male 45 Feb. 2009 ~ Feb.2011 Cheng Dahou Vice President Male 46 Feb. 2009 ~ Feb.2011 Yang Guobin CFO Male 40 Feb. 2009 ~ Feb.2011 Wang Youlai Vice President Male 47 Feb. 2009 ~ Feb.2011 He Jianjun Vice President Male 39 Feb. 2009 ~ Feb.2011 Xiao Qing Secretary to the Board Male 39 Aug. 2007~ Aug.2010 Note: By considering and deciding at the 21st meeting of the 6th Board of Directors held on 16 Feb. 2009, the Company changed the senior management staffs. 1. As advised by Mr. Hou Songrong, the Chairman of the Board, he no longer acted as president concurrently, moreover, the daily operation and management of the Company was assigned to a full-time president. At the same time, he propose Mr. Chen Yuehua to take the post of President. In accordance with the suggestion of Mr. Hou Songrong, the Board of Director, by reviewing and nominating officially by the Nomination Committee of the Board, agreed to appoint Mr. Chen Yuehua as President of the Company. 2. Mr. Yang Guobin was reengaged as CFO of the Company, and Mr. Cheng Dahou, Mr. Wang Youlai and Mr. He Jianjun were reengaged as Vice President of the Company respectively. Of which, the situation that the directors or the supervisors take the position in shareholding units Name of Term of Whether remuneration and allowance Name Office title held in the shareholding units shareholding unit office are received from the Company or not Standing committee of Party Committee, Vice OCT Group President, Chairman of the Board of Dong Yaping - No Corporation Supervisors in Shenzhen Overseas Chinese Town Holding Company Standing committee of Party Committee, OCT Group Deputy Secretary of Party Committee, Su Zheng - No Corporation Secretary of Inspecting Discipline Commission Standing committee of Party Committee, OCT Group Chairman of the Board and Secretary of Wang Xiaowen - No Corporation Party Committee Overseas Chinese Town Hotel Group Co., Ltd. OCT Group Hou Songrong Standing committee of Party Committee - Yes Corporation (II) Shares of the Company held by the directors, supervisors and senior management staffs 1. In the reporting period, the Company’s directors and supervisors did not hold the shares of the Company, and the shares held by them remained unchanged. 2. In the reporting period, the Company implemented the plan on transferring capital reserve into stock at the rate of 10 for 10 to all the shareholders, accordingly, number of shares held by Mr. Wang Youlai, Vice President of the Company, had increased. Except for this, other senior management staffs did not hold the shares of the Company, and the shares held by them remained unchanged. Additional number Decreased number Number of Number of shares Name Office title of shares in the of shares in the shares at the Reason for change at the year-begin reporting period reporting period year-end The Company implemented the Wang Youlai Vice President 3,300 3,300 0 6,600 plan on transferring capital reserve into stock 3. In the reporting period, the Company’s directors, supervisors and senior management staffs did 11 Annual Report 2008 not hold stock options of the Company or restricted shares entitled. (III) Major work experience of directors, supervisors and senior management staffs and particulars about the post held in other units except for shareholding unit 1. Director Mr. Hou Songrong, Chairman of the Board, CEO and Secretary of the CPC, was born in 1968 with the Han nationality; he got master of economics, economic manager. He successfully took the posts of Factory Director of Shenzhen Zhongqiao Industrial Co., Ltd., Business Manager of Investment and Development Dept. in Overseas Chinese Town Group Corporation, Deputy General Manager and General Manager of Shenzhen Overseas Chinese Town Xingqiao Industrial Corporation, and Vice-president, standing Vice-president, Vice Secretary of the CPC and President in Konka Group Co., Ltd. Now he serves as Standing committee of Party Committee in Overseas Chinese Town Group Corporation and as Chairman of the Board in Konka Group Co., Ltd. Mr. Su Zheng, Director of the Company, was born in 1956 with the Han nationality; he is senior engineer. He have served successively as Vice Chairman of the Board and as Secretary to the CPC in Aerospace Science & Industry Shenzhen (Group) Co., Ltd., as Deputy Secretary to the CPC in 999 Group Corporation (Shenzhen Southern Pharmaceutical Factory), as Deputy Secretary to the CPC in China Resources Medications Group Limited. Now he occupies the posts of Standing committee of Party Committee, Deputy Secretary to the CPC, as well as Secretary of Inspecting Discipline Commission in Overseas Chinese Town Group Corporation. Ms. Wang Xiaowen, Director of the Company, was born in 1969 with the Han nationality; she filled successively the post of Director and Chief Financial Officer of Shenzhen Overseas Chinese Town Industry Development Co, Ltd., of Chief Executive Officer, Chief Financial Officer and Assistant President in Overseas Chinese Town Group Corporation. Now she serves as Standing committee of Party Committee in Overseas Chinese Town Group Corporation, as well as Chairman of the Board and Secretary to the CPC in OCT Hotel Group Co., Ltd. Ms. Huojun, Director of the Company, was born in 1966 with the Han nationality; she got MBA of KELLOGG Management School of Northwest University in America. She used to work in such investment bank or fund management corporation as CLSA (Asia) of France, BNP Paribas Peregrine Securities Ltd, Merilyn Securities, Banque Nationale de Paris, and Da Cheng Fund Management Co., Ltd. for a long tem. Now she is the copartner of PreIPO Capital Limited. 2. Independent Director Mr. Feng Yutao, Independent Director of the Company, was born in 1967 with the Han nationality, he graduated from Duke University with doctor of electronics engineering. He ever took senior management in C-Cube Microsystems, LSI Logic Inc. and Zoran Corporation. Now he acts as Vice President of Ambarella Inc., and General Manager of Ambarella Inc., China. Ms. Yang Hanying, Independent Director of the Company, was born in 1967 with the Han nationality, and she graduated from the department of accounting of Shanghai Maritime University, being a senior accountant. She used to work in Waterway Bureau of Guangzhou as Accountant, and in China Shipping Container Lines Co., Ltd. as senior accountant. Now she serves as Senior Accountant in Hamburg Fritz und Mark Certified Public Accountants. Mr. Zhang Zhong, Independent Director of the Company, was born in 1968 with the Han nationality. He gained Master of Law from Renmin University of China, being a lawyer. He ever took the post of lawyer in Beijing Zhengpingdeng Law Firm, Lawyer and Copartner of Beijing Zhonglun Jintong Law Firm and of Beijing Zhonglun W&D Law Firm. Now he acts as Lawyer and Copartner of Beijing Zhonglun Jintong Law Firm. 3. Supervisor Mr. Dong Yaping, Chairman of the Board of Supervisors, was born in 1953 with the Han nationality, being Senior political officer. He has successively held the posts of Division Chief of Department of Foreign Affairs Financial Supervision under the Ministry of Supervision, of Division Chief of Department of Personnel Supervision of Overseas Chinese Affairs Office of The State Council, of Deputy Secretary of the CPC and Secretary of Inspecting Discipline Commission of Overseas Chinese Town Economic Development Corporation. Now he acts as Standing committee of Party Committee, Vice President, as well as Chairman of the Board of Supervisors in Shenzhen Overseas Chinese Town Holding Company. Ms. Wen Tongyun, Supervisor of the Company, was born in 1967 with the Han nationality. She graduated from department of foreign language of Shenzhen University. She ever took the posts of Assistant General Manager of China Rural Development Trust Investment Corporation Shenzhen Branch Company, of Shenzhen Foreign Investment Fund and Senior Consultant of New Smart Energy Group Limited, China Area. Now she acts as Investment Manager in PreIPO Capital Limited. 12 Annual Report 2008 Mr. Ye Xiangyang, Supervisor with work representative of the Company, was born in 1968 with the Han nationality. He obtained Master Degree. He ever took the posts of Deputy Director and Director of Enterprise Management Department in Konka Group. Now he acts as Chief Officer of Auditing and Legal Affair Center in Konka Group. 4. Senior Management Staffs Mr. Chen Yuehua, President of the Company, was born in 1963 with the Han nationality; he got bachelor degree, being Senior Engineer. He successfully took the posts of Designer and Business Manager in Technology Development Center of Konka Group Co., Ltd., of General Manager of Development Center, of General Manager of President's Office, of General Manager of Dongguan Konka Electronics Co., Ltd. and of Deputy General Manager of Multimedia Division and concurrently General Manager of Development Center of Konka Group Co., Ltd., as well as Vice President of Konka Group Co., Ltd. Mr. Cheng Dahou, Vice President of the Company, was born in 1962 with the Han nationality; he obtained bachelor degree, being senior engineer. He served successfully as Deputy General Manager of Overseas Chinese Town Property Management Limited, Director of Customer Service Center in Overseas Chinese Town Real Estate Co., Ltd., Chief Officer of HR in Overseas Chinese Town Group Corporation, as well as Chairman of the Board in Overseas Chinese Town Xinqiao Industrial Development Co., Ltd.. Mr. Yang Guobin, Chief Financial Officer of the Company, was born in 1969 with the Han nationality; he gained bachelor degree, being CPA. He successfully took the posts of Vice CFO of Financial Dept. in Overseas Chinese Town Group Corporation. Mr. Wang Youlai, Vice President of the Company, was born in 1961 with the Han nationality; Graduate Student, being Engineer. He successfully held the posts of Business Manager of Quality Dept. in Konka Group Co., Ltd., Assistant General Manager of Konka Group Co., Ltd. Mr. He Jianjun, Vice President of the Company, was born in 1969 with the Han nationality; he obtained bachelor degree; being Economist. He has served successfully as Deputy Director of Secretariat of the Board, Deputy Chief Officer and Chief Officer of Strategic Development Dept. and Secretary to the Board in Kokan Group. Mr. Xiao Qing: Secretary of the Board; was born in 1969 with the Han nationality; he got bachelor degree, being Economist. He used to be General Manager at the Central Office of City Credit Cooperation in Ya’an District of Sichuan, and Senior Vice President of Top Group, as well as Chief Officer of the Investment Development Center in Konka Group Co., Ltd.. II. Remunerations as of the year 2008 (I) The Company did not pay directors (excluding independent directors) or supervisors any remunerations or subsidies. The total remunerations paid to the top three directors that enjoyed the highest amounts totaled RMB 285,600, i.e. the total remunerations for the three independent directors. Subsidies for each independent director of the Company were RMB 80,000 for every year (tax excluded). Other treatment for independent directors: travel expense when they went to attend the Board meetings or Shareholders’ General Meetings and the expenses when they were performing their duties as stipulated in the relevant regulations and the Articles of Association and other relevant systems, all these could be reported for deletion. (II) The Board of Directors determined the remuneration of senior management staffs, and referred to the following factors: ① scope of jobs and responsibility shouldered; ② actual profit of the Company; ③ market remuneration level in the same industry and same area. (III) Change in shares held by directors, supervisors and senior management staffs and their remunerations Total remuneration before tax received from the Company in the Number of Number of reporting period (RMB 10 Thousand) Name shares held at share held Reasons for change Wage, allowance and the part of year-begin at year-end social insurance undertaken by Reward Total the Company Hou Songrong 0 0 - 45.64 20.47 66.11 Su Zheng 0 0 - 0 0 0 Wang Xiaowen 0 0 - 0 0 0 Huo Jun 0 0 - 0 0 0 Feng Yutao 0 0 - 9.52 0.00 9.52 Yang Haiying 0 0 - 9.52 0.00 9.52 Zhang Zhong 0 0 - 9.52 0.00 9.52 Dong Yaping 0 0 - 0 0 0 Wen Tongyun 0 0 - 0 0 0 13 Annual Report 2008 Ye Xiangyang 0 0 - 26.08 18.83 44.91 Chen Yuehua 0 0 - 29.44 19.89 49.33 Cheng Dahou 0 0 - 29.44 19.89 49.33 Yang Guobin 0 0 - 29.44 19.89 49.33 Capitalization of Wang Youlai 3,300 6,600 29.44 19.89 49.33 capital reserve He Jianjun 0 0 - 29.44 19.89 49.33 Xiao Qing 0 0 - 29.44 19.89 49.33 Total 3,300 6,600 - 276.92 158.61 435.53 (IV) Directors and supervisors receiving no remuneration from the Company Name of directors and supervisors Whether they draw remuneration or subsidy from shareholding receiving no remuneration from the units or the other related units or not Company Dong Yaping, Su Zheng, Wang Xiaowen, All of them draw the remuneration form shareholding units that Hou Songrong they occupied the posts Huo Jun and Wen Tongyun Drawing no remuneration or subsidy from shareholding units (V) Presences at the Board meeting by the directors Whether Attending the attending the Due Presence Entrusted Name of the meeting by Absence meeting in Position presence in person presence directors communication (times) person in (times) (times) (times) (times) successive two times or not Chairman of 15 2 13 0 0 No Hou Songrong the Board Su Zheng Director 10 1 9 0 0 No Wang Xiaowen Director 10 0 7 0 3 Yes Huo Jun Director 15 2 13 0 0 No Independent 15 2 13 0 0 No Feng Yutao Director Independent 15 2 13 0 0 No Yang Haiying Director Independent 15 2 13 0 0 No Zhang Zhong Director Note: 1. Mr. Su Zheng and Ms. Wang Xiaowen are newly elected as directors of the Company on 26 May 2008. Between 26 May 2008 and 31 Dec. 2008, the Company held 10 meetings of the Board in total, i.e. from the 11th meeting of the 6th Board of Directors to 20th meeting of the 6th Board of Directors, including one on-site meeting and 9 meetings by communication. 2. Ms. Wang Xiaowen, Director of the Company, failed to attend the Board meeting twice in succession for any reason, but she seriously reviewed the information of the Board meeting before the two meetings and gave verbal assent to the proposals of such board meetings. When the Company held the 14th meeting of the 6th Board of Directors, Ms. Wang Xiaowen was traveling abroad for important business, difficult to contact with her for inconvenient communication, therefore, Ms. Wang failed to attend such 14th meeting in person or by means of fax. When the Company held the 15th meeting of the 6th Board of Directors, Ms. Wang Xiaowen was in hospital because of illness, difficult to attend such 15th meeting by means of fax. As a result, she failed to attend the board meetings in person twice in succession. Meetings of the Board held during the year 2008 (times) 15 Of which: site meetings (times) 2 Meetings held by communication (times) 13 Meetings held by both spot and communication (times) 0 III. In the reporting period, the Company elected and changes directors, supervisors and senior management staffs (I) In the reporting period, the Company changed the members of the Board of Directors 1. Mr. Ye Shiqu and Mr. Liu Peng who nominated by Anhui Tianda Enterprise (Group) Co., Ltd. resigned from the post of director of the Company on 27 Mar. 2008 because Anhui Tianda Enterprise (Group) Co., Ltd. no longer holds the equity of the Company. 2. At the Annual Shareholders’ General Meeting 2007, Mr. Su Zheng and Ms. Wang Xiaowen were newly th elected as Director of the 6 Board of Directors. 14 Annual Report 2008 (II) In the reporting period, the Company changed members of the Board of Supervisors 1. Mr. Zhang Jianhuai who nominated by Anhui Tianda Enterprise (Group) Co., Ltd. resigned from the post of supervisor of the Company on 27 Mar. 2008 because Anhui Tianda Enterprise (Group) Co., Ltd. no longer holds the equity of the Company. 2. At the Annual Shareholders’ General Meeting 2007, Mr. Dong Yaping was newly elected as supervisor th of the 6 Board of Supervisors. (III) In the reporting period, the Company changed senior management staffs th The 6 Board of Directors decided to appoint Mr. Cheng Dahou as Vice President of the Company at th the 14 meeting, and to lever Mr. Huang Zhongtian out of his job as Vice President. st th (IV) By considering and deciding at the 21 meeting of the 6 Board of Directors held on 16 Feb. 2009, the Company decided to change senior management staffs: 1. As advised by Mr. Hou Songrong, the Chairman of the Board and concurrently CEO, he no longer acted as president concurrently, moreover, the daily operation and management of the Company was assigned to a full-time president. At the same time, he propose Mr. Chen Yuehua to take the post of President. In accordance with the suggestion of Mr. Hou Songrong, the Board of Director, by reviewing and nominating officially by the Nomination Committee of the Board, agreed to appoint Mr. Chen Yuehua as President of the Company. 2. Mr. Yang Guobin was reengaged as CFO of the Company, and Mr. Cheng Dahou, Mr. Wang Youlai and Mr. He Jianjun were reengaged as Vice President of the Company respectively. IV. Instruction of Employees of the Company as of the end of the report period Mudan Konka Anhui Shenzhen Selling Shannxi Anhui Chongqing Dongguan Boluo Changshou Chongqing Unit River Mould Electrical Total headquarter branch Konka Konka Konka Konka Konka Konka Qingjia Konka Plastic Appliane Number 2684 4485 483 872 2804 292 2470 1324 782 564 128 329 17217 Among which, the structure of staff in Shenzhen headquarter: Classification Production Salesperson Technical Financial Administrative Retired workers Higher than Doctor Master Bachelor staff staff staff staff requiring to undergraduate bear the cost by the Company Number 795 383 656 126 540 184 1147 15 164 968 Ratio 29.62% 14.27% 24.44% 4.69% 20.12% 6.86% 42.73% 0.56% 6.11% 36.07% Section Ⅵ. Corporate Governance Ⅰ. Corporate Governance In the reporting period, in accordance with Company Law, Securities Law, Code of Corporate Governance for Listed Companies, Share Listing Rules of Shenzhen Stock Exchange and relevant regulations of CSRC, the Company revised in time the rules and regulations such as its Articles of Association, Rules for Independent Directors, Specific Rules of Implementation for Financial Audit Committee of the Board of Directors, continuously improved the corporate governance structure and further standardized the operation, so as to perfect the corporate governance. By the end of the reporting period, the actual situation of the Company’s corporate governance had been basically in line with the regulatory documents concerning the corporate governance of listed companies issued by CSRC. 1. About shareholders and Shareholders’ General Meeting The Company organized and convened the Shareholders’ General Meeting in strict accordance with Rules of Procedure for Shareholders’ General Meeting and other regulations, which made sure that all the shareholders, especially the minority shareholders, enjoyed fair treatment and were able to fully execute their rights. 2. About the Company and controlling shareholder Enjoying independent businesses and the ability to run its own businesses, the Company was independent from its controlling shareholder in terms of businesses, personnel, assets, organization and financial affairs. The Company’s Board of Directors, Supervisory Committee and other internal organs worked independently. And the controlling shareholder was able to regulate its behaviors, without going beyond the Shareholders’ General Meeting and directly or indirectly interfering in the Company’s decision-making and operating activities. 3. About directors and Board of Directors The Company elected its directors in strict accordance with the prescribed procedure in the Articles of Association; Currently, the Company had three independent directors, with the number of directors 15 Annual Report 2008 and the personnel composition of the Board in line with relevant laws and regulations, as well as the Articles of Association. According to Rules of Procedure for Board of Directors, Rules for Independent Directors and other regulations, all the directors of the Company carried out their work by attending the board meetings and the Shareholders’ General Meeting on time, readily receiving the relevant trainings and studying relevant laws and regulations. 4. About supervisors and Supervisory Committee The Company engaged its supervisors in strict accordance with Company Law, Articles of Association and other laws and regulations, with the personnel number and composition of the Supervisory Committee in line with the relevant laws and regulations. According to the Rules of Procedure for Supervisory Committee and other regulations, the Supervisory Committee conscientiously performed its duties by conducting effective supervision and expressing independent opinions on the Company’s significant events, related transaction, financial status, duty fulfillment of the directors and other senior management personnel, etc.. 5. About performance appraisal and incentive and disciplinary mechanism The performance appraisal standards, as well as the incentive and disciplinary mechanism for the Company’s senior management personnel had been established and continuously improved. And the Company engaged its senior management in an open and transparent way, which was in line with relevant laws and regulations. 6. About the stakeholders The Company fully respected and protected the legal interests of the stakeholders, and tried to achieve a balance among the society, the shareholders, the Company, the employees and other stakeholders, so as to jointly promote the sustained and sound development of the Company. 7. About information disclosure and transparency As appointed by the Company, Board Secretary was in charge of the Company’s information disclosure, the management of the relationship with investors and the reception of visiting shareholders; Meanwhile, with Securities Times and other newspapers as the newspapers for its information disclosure and http://www.cninfo.com.cn as the website for its information disclosure, the Company disclosed relevant information in a factual, accurate and timely way in strict accordance to relevant laws and regulations, making sure that all the shareholders were equal in terms of information acquisition. Due to an excellent job in terms of promoting the standardized operation of the listed company, complying with the requirements of the regulatory authorities, managing the relationship with investors, disclosing relevant information, etc., Mr. Xiao Qing, the Company’s Board Secretary, was honored as “Gold-medal Board Secretary” in the fourth and fifth award ceremonies conducted by New Wealth Magazine, and “Board Secretary Vigorously Promoting Standardization of Listed Company Governance in 2008” by CSRC Shenzhen Bureau. Ⅱ. Special campaign of corporate governance (Ⅰ) Particulars about special campaign of corporate governance in 2008 According to the Circular of CSRC on Relevant Matters Concerning Special Campaign to Strengthen the Corporate Governance of Listed Companies (ZJGS Zi (2007) No. 28), as well as the Circular of CSRC Shenzhen Bureau on Special Campaign to Strengthen the Corporate Governance of Listed Companies in Shenzhen and other regulatory documents, the Company actively carried out the special campaign for corporate governance in 2007 and conducted systematic rectification of the problems found. In late May, 2007, the Company issued the Self-inspection of Konka Group Co., Ltd. on Special Campaign to Strengthen Corporate Governance of Listed Company, as well as the Self-inspection Report and Rectification Plan of Konka Group Co., Ltd.; In Oct. 2007, the Rectification Report Concerning Corporate Governance was issued. The aforesaid reports were all reviewed and approved at the Company’s board meeting and the Supervisory Committee meeting. At the same time, they got the approval of CSRC Shenzhen Bureau and Shenzhen Stock Exchange and were published. After the successful accomplishment of the special campaign on corporate governance for listed companies in 2007, the Company, according to the requirements of CSRC and Shenzhen Stock Exchange, consolidated the achievements of the Company’s special campaign for corporate governance in 2007, and continued to advance the campaign and conduct self-supervision and rectification on the deficiencies of the Company’s corporate governance. In accordance with the plan, the Company conscientiously implemented and successfully accomplished the rectification. Meanwhile, in compliance with the Public Notice of CSRC (【2008】No. 27), the Circular of CSRC Shenzhen Bureau on further Promoting Special Campaign of Corporate Governance and other regulatory documents, the Company issued the Report on Progress of Corporate Governance Rectification, specifying the progress of the rectification items in the Rectification Report Concerning Corporate Governance. And the Report on 16 Annual Report 2008 th Progress of Corporate Governance Rectification were reviewed and approved at the 12 meeting of the th 6 Board of Directors, and were published on 19 Jul. 2008. (Ⅱ) Other activities concerning the improvement of corporate governance In 2008, according to the requirements of the securities regulatory authorities, the Company revised its rules and regualtions such as the Articles of Association, the Rules for Independent Directors, and the Rules of Procedure for Financial Audit Committee of the Board. 1. The Company’s Articles of Association was amended, with the amended version making clear the proportion of cash dividends. According to the Decisions of CSRC on Amending Some Provisions on Cash Dividends by Listed Companies, the Company made clear the specific proportion of its cash dividends in the new version of the Articles of Association: On the premise that the Company’s cash flows are able to satisfy the needs of its normal operation and long-term development, the profits which the Company has accumulatively distributed in cash in the recent three years shall not be less than 30% of the average annual distributable profits realized in the recent three years; The specific proportion of cash dividends distributed shall be put forward by the Company’s Board of Directors in accordance with relevant regulations of CSRC and the Company’s actual operation, and determined by the Shareholders’ General Meeting upon deliberation. 2. The work process for the Financial Audit Committee of the Board concerning annual reports was formulated. In order to make clearer the responsibilities of the Financial Audit Committee of the Board in the preparation and disclosure of the Company’s annual reports and give full play to the supervisory role of the Committee, the Company amended, according to the Circular on 2007 Annual Reports of Listed Companies and Relevant Matters and other law and regulatory documents, the Specific Rules of Implementation for Financial Audit Committee of the Board based on the Company’s actual situation, and thus established the work process for the Committee concerning annual reports. And the said th th Specific Rules of Implementation were approved at the 7 meeting of the 6 Board of Directors and were later published. 3. The rules for independent directors concerning annual reports were established. In order to make clearer the responsibilities of the independent directors in the preparation and disclosure of the Company’s annual reports and give full play to their supervisory role, the Company amended, according to the Circular on 2007 Annual Reports of Listed Companies and Relevant Matters and other law and regulatory documents, the Rules for Independent Directors based on the Company’s actual situation, and thus established the rules for independent directors concerning annual reports. And the said Rules for Independent Directors were approved at the Company’s board meeting and the Shareholders’ General Meeting, and were later published. (Ⅲ) Irregular situations in the corporate governance of the Company 1. Irregular situations in the corporate governance of the Company th th As approved at the 14 meeting of the 6 Board of the Company on 27 Aug. 2008, the Company started to provide undisclosed information (including the production and investment plans and financial budgets) for the major shareholder from 1 Sept. 2008. 2. Information provided for the major shareholder and the frequency (1) Monthly financial data; (2) Monthly operation analysis. 3. Reasons for the said irregular situation in the corporate governance of the Company According to the requirements of the major shareholder, the Company provided the monthly financial data and other undisclosed information for the major shareholder. 4. Influence on the Company’s independence Upon the Company’s self-examination, it was found that the Company’s provision of relevant information for its major shareholder was in strict compliance with the Circular on Strengthening Supervision on Supplying Undisclosed Information to Controlling Shareholders and Actual Controllers of Listed Companies, the Supplementary Circular on Strengthening Supervision on the Supply of Undisclosed Information to Controlling Shareholders and Actual Controllers of Listed Companies and Other Irregular Situations Concerning Corporate Governance, and other relevant regulatory documents; that the necessary procedure was strictly followed; and that the major shareholder did not abuse the control right by letting out the undisclosed information and conducting insider dealings, which thus had no impact on the Company’s influence. Ⅲ. Duty fulfillment of independent directors In the reporting period, the independent directors of the Company faithfully executed the 17 Annual Report 2008 responsibilities and obligations endowed by relevant laws and regulations and the Company’s Articles of Association, carefully examined the proposals and significant matters reviewed by the Board of Directors, and expressed their independent opinions on relevant matters, who played an active role in the Company’s decision-making, promoted the standardized operation and scientific decision-making, gave full play to the due role of the independent directors, and protected the interests of the Company as a whole, as well as the legal rights and interests of the minority shareholders. In the reporting period, there existed no objections raised by the independent directors to any relevant matter of the Company. Duty fulfillment of independent directors in 2008 Name of Times of board Present in Presence by Times of independent meetings that Remarks person (times) proxy (times) absence directors should be attended Feng Yutao 15 15 0 0 Yang Haiying 15 15 0 0 Zhang Zhong 15 15 0 0 2. Particulars about the objections raised by independent directors to relevant matters of the Company In the reporting period, the independent directors did not raise any objection to the proposals of the Board and other relevant matters of the Company. Ⅳ. Independence from controlling shareholder in terms of five aspects The Company was independent from its controlling shareholder in terms of businesses, personnel, assets, organization and financial affairs, with independent and complete businesses and the ability to run its own businesses. (Ⅰ) In terms of businesses: The Company’s businesses were independent from those of the controlling shareholder and its subordinate companies, with independent and complete systems of supply, production and marketing. And the Company conducted business activities independently from the shareholder or any other related parties. (Ⅱ) In terms of personnel: The Company was completely independent in terms of its personnel and the salary for the personnel. All working in and receiving salaries from the Company, the senior management personnel did not take any position in or get paid by the controlling shareholder and its subordinate companies. (Ⅲ) In terms of assets: The Company possessed production and operation sites independent from its controlling shareholder, an independent and complete asset structure, and independent production systems, auxiliary production systems, supporting facilities, housing ownership and other assets, as well as independent purchasing and marketing systems. (Ⅳ) In terms of organization: The Company established a sound organizational structure, which operated independently with no subordinate relationship with the controlling shareholder and its functional departments. (Ⅴ) In terms of financial affairs: The Company had its own financial accounting department with an independent accounting system and financial management system, which enabled the Company to make its own financial decisions. Meanwhile, the Company had its own bank account and paid the taxes independently. Ⅴ. Performance appraisal and incentive mechanism of senior management personnel In order for the Company’s senior management personnel to better perform their responsibilities and have a clear idea about their rights and duties, the Company actively developed and improved the performance appraisal standards and the incentive & disciplinary mechanism for its senior management personnel characteristic of fairness, transparency and high-efficiency. The Company conducted, on a yearly basis, appraisals on the duty performance and business objective accomplishment of its senior management; and it adopted the combination of salaries and perks as the main incentives. And such an appraisal was conducted by the Board of Directors and supervised by the Supervisory Committee. Ⅵ. Self-evaluation report on internal control According to the Circular of Shenzhen Stock Exchange on 2008 Annual Reports of Listed Companies, the Guidelines for Internal Control of Listed Companies, the Articles of Association, etc., the Company’s internal audit department conducted a thorough and close examination on the Company’s internal control in 2008. After that, the Board of Directors further reviewed the Company’s rules and regulations, and got a deeper understanding of the Company’s efforts in 2008 to strengthen its internal control, so as to give an accurate assessment. 18 Annual Report 2008 (Ⅰ) Summary of the Company’s internal control in 2008 1. Organizational structure of the Company’s internal control In accordance with the requirements of relevant laws, regulations and regulatory authorities, the Company established an organizational structure in line with its business scale and the operation need; Meanwhile, according to the principle of separating the interlinked duties, the Company properly designed the layout of departments and positions and scientifically allocate powers and responsibilities, which resulted in the formation of an internal control system characteristic of each performing his own functions and taking his own responsibilities, as well as mutual cooperation and restriction. The organizational structure of the Company’s internal control consisted of the Shareholders’ General Meeting, the Board of Directors, the Supervisory Committee and the management, functioning well respectively as the power organ, the decision-making organ, the supervisory organ and the execution organ. The Board of Directors and the Supervisory Committee were responsible to the Shareholders’ General Meeting, and the management to the Board of Directors. As a result, a relationship was formed among the Shareholders’ General Meeting, the Board of Directors and the Supervisory Committee with such characteristics of clear powers and responsibilities for each, checks and balances, and mutual coordination and complement. (1) The Shareholders’ General Meeting exercised the supreme power in the Company. It made sure the equal treatment towards all the shareholders (especially the minority ones), as well as all the shareholders’ being able to fully execute their rights. (2) The Board of Directors exercised the decision-making power in operation and was responsible for the establishment and supervision of the Company’s internal control system. It put forward and improved the strategies and plans concerning internal control and supervised the relevant execution. (3) The Supervisory Committee exercised the supervisory power and was responsible to the Shareholders’ General Meeting. It conducted supervisions and checks on the behaviors of the directors and the management, as well as the financial affairs of the Company, and reported to the Shareholders’ General Meeting. (4) The four special committees subordinate to the Board (the Strategy Committee, the Nomination Committee, the Financial Audit Committee and the Remuneration & Appraisal Committee) functioned according to their own responsibilities. (5) The management exercised the execution power. It was engaged by and responsible to the Board. And its main responsibilities were to execute the decisions made by the Board and other routine operation and management of the Company. (6) The functional departments were responsible for drafting, improving and executing the internal control system relating to their own departments. (7) The internal audit organ was responsible for the audit and checks of the execution of the Company’s internal control. 2. Establishment and improvement of the Company’s internal control system In compliance with the principles of being scientific, standardization, transparency, clear powers and responsibilities for each, a reasonable structure, and the powers with corresponding responsibilities, the internal operation and management organization was established on the basis of the Company’s actual situation. Meanwhile, a complete set of rules and regulations and corresponding operation flows covering all aspects of the Company’s management were formulated on the principles of creating positions according to the operation needs, allocating personnel according to the position needs, making available the relevant regulations and working according to the regulations, which greatly promoted the Company’s standardized operation and laid a foundation for the Company’s sustainable development. The Company successively established and improved the internal management systems covering the investments, financing, securities affairs, operation, financial auditing, human resources, administrative affairs, legal affairs, etc., corresponding to the requirements of CSRC and Shenzhen Stock Exchange for listed companies to establish rules concerning information disclosure, management of the relationship with investors, capital raising and using, internal control, etc.. 3. Internal audit department Subordinate to the Board, the Financial Audit Committee was the supervisory organ of the Company’s internal control. Meanwhile, the Company established its own internal audit department, which was responsible to the Financial Audit Committee. Professional personnel were engaged by the internal audit department to conduct the internal audit of the Company. According to the responsibilities of the Financial Audit Committee of the Board, as well as the 19 Annual Report 2008 Guidelines of Shenzhen Stock Exchange for Internal Control of Listed Companies, the internal audit was effectively conducted with the objectives of strengthening the internal control, preventing risks and improving efficiency. The internal audit department and the Financial Audit Committee, timely spotted the deficiencies and weakness of the Company’s internal control through checks and supervisions, carefully analyzed the problems found and the causes of the problems, accordingly put forward the rectification plans and supervised the execution of the plans, so as to strengthen the Company’s management and further prevent operation and financial risks. 4. Major activities conducted by the Company for establishing and improving its internal control in 2008, as well as the relevant achievements (1) Established and improved the various internal control systems In 2008, in accordance with the Share Listing Rules of Shenzhen Stock Exchange, the Guideline of Shenzhen Stock Exchange for Internal Control of Listed Companies and other regulatory documents, the Company greatly improved its corporate governance. Based on the need of the Company’s business development, the various internal control systems were gradually perfected, including the financial management, human resources management, investment management, etc.. And these adjustments and improvements were effectively executed, which ensured the safety and completeness of the Company’s assets, as well as the factuality, accuracy and completeness of its financial data. (2) Carried forward the special campaign concerning corporate governance of listed companies In 2008, in strict accordance with the Public Notice of CSRC (【2008】No.27), the Circular of CSRC Shenzhen Bureau on Further Promoting the Special Campaign of Corporate Governance, as well as Company Law, Securities Law, administrative regulations, ministerial rules and other relevant laws and regulations, the Company examined the rectification progress concerning the special campaign of corporate governance. And it was found that the Company had, according to the rectification plan, successfully addressed the problems found in the self-examination and accomplished the rectification. (3) Formulated the policy of cash dividends According to the Decisions of CSRC on Amending Some Provisions on Cash Dividends by Listed Companies, the Company revised its Articles of Association and made clear the Company’s policy of cash dividends. (4) Formulated the rules for independent directors concerning annual reports, as well as the rules of procedure for the Financial Audit Committee According to the requirements of CSRC and Shenzhen Stock Exchange to further specify the responsibilities of independent directors and give full play to the supervisory role of the financial audit committees, the Company revised its Rules for Independent Directors and the Specific Rules of Implementation for Financial Audit Committee of the Board, and thus improved the rules for independent directors concerning annual reports, as well as the rules of procedure for the Financial Audit Committee. (Ⅱ) Key control activities 1. Control structure of holding subsidiaries and proportion of shares held Registered capital (Unit: Proportion of shares held Full name of controlling subsidiary companies ten thousand) Direct Indirect Dong Guan KONKA Electronic Co., Ltd. RMB20,000 100% — An Hui KONKA Electronic Co., Ltd. RMB14,000 78% — Mudanjiang KONKA Industrial Co., Ltd. RMB6,000 60% — Shenzhen Konka Electronic Co., Ltd. RMB830 51% — Chong Qing KONKA Electronic Co., Ltd. RMB4,500 60% — Shenzhen Konka Visual Information System Engineering Co., Ltd. RMB1,500 60% — Chong Qing Konka Automobile Co., Ltd. RMB3,000 57% — KONKA AMERICA,INC. USD100 100% — Shenzhen KONKA Telecommunications Technology Co., Ltd. RMB12,000 75% 25% Shenzhen Shushida Electronic Co., Ltd. RMB4,200 75% 25% Hong Kong Konka Limited HKD50 99% 1% Anhui Konka Electric Appliance Co., Ltd RMB7,819 92.97% 4.48% 20 Annual Report 2008 Shenzhen Konka Injected Plastic Manufactory Co., Ltd. RMB950 49% 51% Chong Qing KONKA Electronic Co., Ltd. RMB1,500 --- 40% Shan Xi KONKA Electronic Co., Ltd. RMB6,950 45% 15% Shenzhen Konka Communication Network Co., Ltd. RMB3,000 75% 25% Shen Zhen Konka Electronics Technology Co., Ltd. RMB6,500 75% 25% Dong Guan Konka Packaging Co., Ltd. RMB1,000 — 100% Dong Guan Konka Plastic Mould Co., Ltd. RMB1,000 — 100% Hong Din Investment Development Limited HKD50 — 100% Hong Din International Trade Limited HKD50 — 100% Chang Shu KONKA Electronic Co., Ltd. RMB2,465 — 60% Boluo Konka Printed Co., Ltd. RMB4,000 — 51% Shenzhen Konka Precision Mould Co., Ltd. RMB1,450 — 51% Boluo Konka Precision Technology Co., Ltd. RMB1,500 — 100% Konka (Nanhai) Development Center RMB50 100% --- Konka (Europe ) Co., Ltd EUR2.5 100% --- Kunshan KONKA Electronic Co., Ltd. RMB35,000 100% --- 2. Internal control on holding subsidiaries The Company established the control system of its holding subsidiaries and appointed directors and management personnel to those subsidiaries with their powers and responsibilities clearly specified; Also, the Company adopted strict approving and authorizing systems concerning the financial affairs and operation of its holding subsidiaries; Meanwhile, the holding subsidiaries developed the significant event reporting system, reporting in time to the Company’s relevant people-in-charge concerning their significant operational and financial affairs, and reporting their significant events to the Company’s Board or Shareholders’ General Meeting for review. Besides, the Company regularly convened meetings of operational analysis to discuss the execution of operation plans by its holding subsidiaries, and set up a system for the performance appraisal of those subsidiaries. The management control and financial supervision on the subsidiaries was strengthened by the implementation of various management and control systems on the subsidiaries. Meanwhile, the standardized operation of the subsidiaries was ensured through the execution of various rules and regulations. 3. Internal control concerning the Company’s related transactions The Company had formulated the Rules for Managing Related Transactions, which specified the principles for the Company’s related transactions, related parties and relationship, the decision-making procedure for related transactions, the disclosure procedure for related transactions, etc.. And the Company closely followed the rules and ensured the timeliness and regularity of the decision-making procedure of related transactions. 4. Internal control concerning the Company’s provision of external guarantees The Company established and improved the Rules for Managing External Guarantees, which specified the basic principles for the company’s provision of external guarantees, responsibilities allocation, guarantee evaluation, approving and authorizing procedure, control on guarantee execution, guarantee supervision and checks, etc.. In the reporting period, there existed no provision of guarantees by the Company to the principle shareholder or any external parties. 5. Internal control concerning the Company’s raise and use of funds The Company established and improved the Management Rules for Funds Raising, which specified the placement, use, management, information disclosure and supervision of the raised funds. In the reporting period, the Company conducted no fund-raising. 6. Internal control concerning the Company’s major investments The Company formulated the Rules for Investment Management, which mainly specified the responsibilities allocation, authorization and approval, investment feasibility studies, evaluation 21 Annual Report 2008 and decision-making, execution and sale of the Company’s major investments. 7. Information disclosure In according to the Guideline for Fair Information Disclosure of Listed Companies and the Management Measures for Information Disclosure of Listed Companies, the Company conducted reception of and communication with the investors, which ensured the fairness of information disclosure. The people with reporting obligations reported in time the relevant information to the Company’s Board and Board Secretary, who analyzed the internal important information reported. Where the obligation of information disclosure should be executed according to regulations, Board Secretary reported in time to the Board and urged the Board to implement the relevant procedure of information disclosure. The Rules for Managing Information Disclosure were established and improved by the Company, which specified the basic principles of information disclosure, as well as the obligors of information disclosure and their responsibilities. And a thorough and effective control was conducted on the Company’s information disclosure to ensure that the Company disclosed its relevant information in a timely, accurate, complete and fair manner. Compared with relevant regulations of the Guideline of Shenzhen Stock Exchange for Internal Control of Listed Companies, the Company was able to conduct a strict, thorough and effective internal control on its holding subsidiaries, related transactions, external guarantees, raise and use of funds, significant investments, information disclosure, etc., with no violations against the said Guideline and the Company’s rules for internal control. (Ⅲ) Self-evaluation on the Company’s internal control system In strict compliance with the requirements of standardization operation for listed companies, the Company actively promoted the innovations in the modern enterprise management system and paid much attention to the development of its internal control system. Through constant adjustments and optimization, the Company’s internal control systems were greatly improved to cover all the Company’s business divisions, subsidiaries and businesses. Meanwhile, the internal control systems were effectively implemented in the Company’s decision-making, execution, supervision and feedback. At the same time, the internal management and control system, the approving procedures and the approving powers covering all the operation links were established and improved, which ensured a rational layout of the Company’s organs, posts, powers and responsibilities, as well as the clear powers and responsibilities, checks and balances, mutual supervision among different organs and posts. Currently, the Company’s Shareholders’ General Meeting, Board of Directors, Supervisory Committee and management enjoyed clear powers and responsibilities, as well as a standardized operation; And the Company disclosed its relevant information on the principles of factuality, accuracy, completeness, timeliness and fairness; Also, the Company’s risk control system worked effectively, which ensured the healthy operation of all the Company’s business activities. To sum up, according to Company Law, Code of Corporate Governance for Listed Companies, Guideline for Internal Control of Listed Companies and other laws and regulations, the Company established and put into operation an effective internal control in terms of all major aspects, which complied with relevant requirements of CSRC and Shenzhen Stock Exchange. And the internal control system was proved to be able to reasonably ensure the realization of the Company’s strategic objectives, objectives concerning the efficiency and outcome of operation and management, objectives of factual and complete financial reports and relevant information, and objectives of the safety of the Company’s assets. (Ⅳ) Problems found in key control activities, as well as the rectification plans By 31 Dec. 2008, through the Company’s self-evaluation and rectification, the Company’s internal control system was basically in a sound position, with no deficiencies or abnormalities found affecting significantly the Company’s governance, operational management and development. In order to ensure a thorough implementation of the Basic Standards for Enterprise Internal Control and further strengthen the Company’s internal control system and the relevant supervisory system, the Company kept adjusting its internal control system and operation process, improving the deficiencies and optimizing the internal control on the basis of compliance with relevant laws and regulations. (Ⅴ) Evaluation by supervisory authorities and an independent third party on the Company’s internal control 1. In 2008, the Company received no punishments from CSRC and Shenzhen Stock Exchange in terms of its internal control. 2. The registered accountants for the Company’s annual audit expressed no disagreement on the effectiveness of the Company’s internal control. (Ⅵ) Opinions by Supervisory Committee and independent directors on the Company’s self evaluation 22 Annual Report 2008 of its internal control 1. Opinions by Supervisory Committee on the Company’s self evaluation of its internal control Upon examination, the Company’s Supervisory Committee was of the opinion that the Company’s existing internal control system was in a sound position and effectively executed, which was in line with the requirements of CSRC, Shenzhen Stock Exchange and other securities regulatory authorities; that the Company’s self-evaluation report on its internal control factually and objectively presented the establishment and execution of the internal control systems. 2. Opinions by independent directors on the Company’s self evaluation of its internal control Upon examination, the Company’s independent directors (Mr. Feng Yutao, Ms. Yang Haiying and Mr. Zhang Zhong) was of the opinion that the Company’s 2008 Self-evaluation Report on Internal Control presented the actual situation of the Company’s internal control development and operation in a thorough, objective and factual manner, and that the Company’s 2008 Self-evaluation Report on Internal Control was thus agreed to. Section Ⅶ. Shareholders’ General Meeting In the reporting period, the Company convened one annual shareholders’ general meeting and two provisional shareholders’ general meeting. Ⅰ. The 2007 Annual Shareholders’ General Meeting of Konka Group Co., Ltd. was convened at the Central st Meeting Room on the 1 floor of the office building of Konka Group in Shenzhen Overseas Chinese Town at 9:30 a.m. on 26 May 2008 (Monday). st Ⅱ. The 1 Provisional Shareholders’ General Meeting in 2008 of Konka Group Co., Ltd. was convened st at the Central Meeting Room on the 1 floor of the office building of Konka Group in Shenzhen Overseas Chinese Town at 9:30 a.m. on 11 Jul. 2008 (Friday). nd Ⅲ. The 2 Provisional Shareholders’ General Meeting in 2008 of Konka Group Co., Ltd. was convened st at the Central Meeting Room on the 1 floor of the office building of Konka Group in Shenzhen Overseas Chinese Town at 9:30 a.m. on 18 Dec. 2008 (Thursday). The resolutions made at the said three meetings were published on China Securities Journal, Securities Times, Shanghai Securities News and Ta Kung Pao (HK), as well as the international website http://www.cninfo.com.cn respectively on 27 May 2008, 12 Jul. 2008 and 19 Dec. 2008. Section Ⅷ. Report of Board of Directors Ⅰ. Main operation condition of the Company in the reporting period (Ⅰ) General business performance in 2008 In 2008, on the basis of the three major projects of fine products, quality and innovation, the Company continued to strengthen its value operation strategy, seized the opportunities brought by the Olympic Games, and further strengthened the technological innovation to advance along with the times, which resulted in a steady business growth of the Company. 1. About the business performance: (1) With the negative impacts of the natural disasters, the global financial crisis and other factors, the Company achieved, in 2008, a sales revenue of RMB 12,205 million, with a small increase over last year. The severe snow storm before the Spring Festival of 2008 made it almost impossible for the Company’s products to reach the affected areas or to go out of the production bases, which brought adverse influence on the Company’s sales in the Spring Festival; Meanwhile, the Sichuan Earthquake led to a halt of the Company’s business in the disaster area, which significantly affected the Company’s sales in May. It was estimated that the snow storm and the earthquake caused a decrease of the Company’s sales revenue reaching about RMB 600 million, as well as a decrease of the gross profit approximately amounting to RMB 120 million. Besides, in the second half of 2008, the globally-felt financial crisis also created difficulties to the Company’s overseas business. The upgraded consumption of color TV products and the opportunities brought by the Beijing Olympic Games served as the main contributors to the Company’s growth of sales revenue. The color TV industry was experiencing a revolutionary transformation, with an accelerated replacement of flat-panel TVs by the traditional picture-tube TVs. And it was expected that the proceeding of the consumption upgrade of color TV products would increase the market capacity in value terms, which would serve as the main driving force for the sales growth in the color TV industry. At the same time, the Company made full use of the enormous opportunities brought by the Olympic Games in terms of products, technologies, marketing, and service and so on, with the considerable sales increase of the color TV products during the Games as a desirable outcome. To sum up, the aforesaid factors helped the Company achieve a small year-on-year increase of its sales revenue despite the negative influence from the natural disasters, the global financial crisis and other adverse conditions. 23 Annual Report 2008 (2) Due to the considerable sales growth of high-end products and the significant results of the efforts in reducing expenditures and improving efficiency, the Company achieved, in 2008, a net profit of RMB 251 million, with a year-on-year increase of 21.11%, which marked the significant increase of gross profit for three consecutive years. In the reporting period, the Company adopted the high-end marketing going with the brand promotion, and further optimized its product structure. As a result, the Company successfully increased the market shares of its products with high added value, expanded the space for it to increase product prices and strengthened the brand visibility and profitability of its products. Meanwhile, the Company further strengthened its efforts to reduce expenditures and increasing efficiency, improved the supervision and management, and ensured the effective, orderly and vigorous proceeding of expenditure reduction and efficiency improvement, which was awarded with a significantly favorable outcome. As a result of all these efforts, the Company achieved a year-on-year increase of21.11% of the net profit attributable to the owners of the parent company in the reporting period. (3) The net inventory decreased by 12.30% over last year, which marked the decrease of the net inventory for a third consecutive year. As proved, the Company was in a healthy and safe operation. The Company further strengthened the inventory management, accelerated the turnover of flat-panel TV products, and effectively reduced the inventory, which further improved the turnover efficiency of the inventory. By the end of 2008, the inventory decreased by 12.30% compared to that at the end of 2007, with the decrease of 17.38% at the end of 2007 compared to that at the end of 2006, which marked the inventory decrease for a third consecutive years. As proved, the Company was operating healthily and safely. (4) The Company enjoyed a sound financial position and a smooth capital turnover. In the reporting period, the net cash flows arising from the Company’s operating activities increased by 932.01% over last year. At the end of the reporting period, the Company held the monetary capital amounting to RMB845 million; the value of the banker’s acceptance bills discountable on demand reaching RMB 2.6 billion; and the cash and cash equivalents available for spending reaching RMB3445 million. As could be seen, the Company enjoyed good cash flows. In the year 2008, the Company’s asset-liability ratio stood at 61.97%, decreasing by 2.37% over last year. As proved, the Company enjoyed a sound financial position and a smooth capital turnover. (5) The Company also enjoyed a fast increase of the quantity and quality of patents applied. In 2008, the number of the patents applied by the Company amounted to 639, with a year-on-year increase of 30%. Among them, the number of the applied patents for invention and utility models took up 80% of the total number applied, which ranked among the top of the enterprises in the same line. As could be seen from above, the Company enjoyed a fast increase of the quantity and quality of patents applied. 2. About the performance in the market: (1) According to the statistics from Beijing Zhongyikang Times Market Research Co., Ltd., the Company had the largest share in the color TV market at the end of 2008; Meanwhile, the market share and the sales of CRT TVs both ranked the first in the industry, with the Company’s largest market share reaching 23.34%, which was 7% ahead of the competitor with the second largest market share; The market share of flat-panel TVs was also increasing, with the market rank rising to No.2 at the end of 2008 from No.5. (2) With the rapidly decreased sales of cell phones of many brands and the accelerated reshuffle of the downstream industry, the Company enjoyed a sound business basis, which ensured the healthy and stable development of its cell-phone business and made it a top brand in the cell phone industry. (3) The Company’s white goods successfully entered the chain store sector in the urban market, with a considerable increase of the supermarket coverage and the market shares. In 2008, the Company’s brand climbed to No. 4 in the supermarket sector, with its rural market coverage rising to 84%. 3. About the project of fine products In terms of color TVs: In Mar. 2008, the Company introduced the i-sport 08 series of sport high-definition LCD TVs, with the best picture quality and functions in the world, which later became the dedicated TV products for the National Swimming Center (the “Water Cube”). In Sept., the i-sport 68 series of LCD TVs with the globally thinnest monitor (3.5 cm) were introduced, which won the Gold Prize for Innovative Design in IFA in Germany, as well as the Prize for Innovative Design of China Consumer Electronics and other honors. With the high-quality products ranging from the 08 series to the 68 series, the Company was able to maintain its leading position in the high-end market of sport high-definition LCD TVs. In terms of cell phones: The Company kept a leading position in the market of double-SIM-card and double-standby market. And the 5610 Cell Phone won the China Red Star Design Award. 24 Annual Report 2008 In terms of white goods: With the “energy-saving” notion as the promotion core, top energy-saving refrigerators with the daily power consumption below 0.4 kilowatt-hour were introduced. Among them, the daily power consumption of the two-door refrigerator BCD181 was only 0.27 kilowatt-hour, and that of the three-door refrigerator BCD-232 only 0.37 kilowatt-hour, both of which reached the most advanced level in the industry. 4. About the marketing during the Olympic Games In 2008, with the sport high-definition LCD TVs as the leading products, the Company conducted a successful marketing campaign during the Olympic Games. As one of the sponsors, the Company, joining hands with the National Swimming Center and the Samaranch Foundation, conducted the public welfare event of “Dream Realized in 2008” in April. Later in June of the same year, the Signing Promotion of “Olympic Champions City Tour” was started, covering the Company’s 34 controlled companies and 72 cities in China. 109 of such promotions were held, involving over 1 million consumers, which effectively promoted the sales. 5. About the key projects (1) The Project of Kunshan LCD Modules witnessed a smooth start. In 2008, the Company successfully finished the purchase of the land for factory building of the Project, the purchase, debugging and examination of the Dongguan testing line, and the trial production of the LCD module products. It was expected that in 2009, the Company would be able to finish the investment for the relevant devices and equipments of 4 module production lines, and 2 production lines of complete machines. (2) The Konka R&D Building Project entered the construction phase in a smooth manner. By the end of 2008, the Company had finished all the construction drawing of the building, the basic pit support and most of the earthwork. And the construction is currently proceeding in a rapid and orderly manner. (3) The Company won the tender of the Project of “Promoting Application of Electric Appliances in the Countryside”. Meanwhile, the Company also won tenders concerning its color TV, cell phone, refrigerator and washing machine businesses. At the same time, the Company also won the tenders in some provinces during the national tender of the circulation enterprises, which laid a foundation for the market exploration. 6. About the development of new businesses: (1) The sales of LED products surpassed the RMB 100 million mark. With the fierce competition in the industry and the rising cost of raw materials, the Company still hit a record high in terms of the LED sales. Furthermore, the Company’s notability and leading position in the LED industry were further strengthened through the key projects such as the Project of Morgan Plaza in Beijing Olympic Village and the Wangfujing Project, which laid a solid foundation for the proceeding of the Company’s LED strategies. (2) The sales in the Company’s digital network business also surpassed the RMB 100 million mark, registering the best performance in the history of the said business. In terms of the digital network business, the sales revenue and profit both experienced a considerable increase due to the implementation of a series of measures such as optimizing the organizational structure, smoothing the internal operation flow, implementing internal incentives, strengthening the market promotion, strengthening the talent introduction, etc.. (Ⅱ) Main work conducted in the reporting period 1. Value operation strategy as a magic key to deal with market competition The year 2008 saw the significant achievement arising from the implementation of the value operation strategy in the Company. With the adverse operation environment at home and abroad, as well as the harsh natural environment, the Company seized in time the opportunities brought by the consumption upgrade of household electric appliances and the Beijing Olympic Games, thoroughly implemented the value operation strategy and introduced to the market a series of fine-quality and innovative machines. In dealing with the market competition, the Company focused on the optimal product structure, the scientific management of the supply chain, the effective promotion strategy and excellent customer service, which produced a desirable outcome. In terms of its flat-panel products, the Company introduced to the market, in Mar. 2008, the first sport high-definition LCD TV (i-sport 08 collectable edition), with many of its technical indexes better than those in the main high-end market. It carried the exclusive “double 120Hz+FHD” technological platform, as well as the first use of traceless plastic injecting techniques. The frame of the TV machine was made of the high-rigidity aerospace materials, with the thinnest rim (1.5 inches) in the industry. It marked an innovation breakthrough in the industrial design, with its exterior, techniques, functions and picture quality representing the best in the industry. In Sept. 2008, the Company introduced to the market the thinnest (3.5 cm) LCD TV in the world—the 25 Annual Report 2008 i-sport 68 series. The series adopted the top components (such as the integrated low-power-consumption IC and the ultra-thin LCD screen) and the most advanced technologies (such as the mosaic prefixed assembly techniques, and the new heat-dissipation technique of high and low holes), which realized the integration of the circuit board, the power source and the complete machine. And this new TV product marked a breakthrough of the design bottleneck in the flat panel industry, and thus won a varieties of honors such as the Gold Prize for Innovative Design in IFA in Germany, the Top Ten Flat-panel TVs in China and the Prize for Innovative Design of China Consumer Electronics. With high-quality products ranging from the 08 series to the 68 series, the Company maintained a leading position in the high-end market of sport high-definition LCD TVs. In terms of the color kinescope products, the Company successively introduced the new products of 808 series, 827 series, 828 series, Classic 898 and so on, which promoted the replacement of old products by new ones in the CRT TV business, as well as the constant increase of the relevant sales. And the sales of those new products contributed over 20% to the total sales. Among them, the Olympic Fine Product Series 808 was the “star” product of the best market performance, with sales of 200,000 sets, sales revenue reaching RMB 270 million and a gross profit exceeding 100 million. In terms of the cell phone products, the Company achieved a leading position in the market of double-SIM-card and double-standby cell phones by developing the full cell phone series of D260, D6670, E303, C602 and so on. Meanwhile, the Company’s two cell phone varieties of 5610, EC006 won the China Red Star Design Prize, with A3, D680 winning the Innovative Design Gold Award 2008 (Kapok Prize). In terms of white goods, the Company accurately analyzed the energy-saving trend in the market, set the high-end three-door refrigerators as the promotion core, and introduced the top energy-saving refrigerators with a daily power consumption below 0.4 kilowatt-hour, which greatly promoted the sales increase of the super-efficient products, soft freezing products and other middle-and-high-end white goods. Due to the guidance of the value operation strategy, the Company developed a group of fine product varieties with great competitiveness, which ensured the steady growth of the Company’s sales and profits in the adverse operation environment. According to the statistics from Beijing Zhongyikang Times Market Research Co., Ltd., the Company has climbed from No.5 at the beginning of 2008 to No.2 at present in terms of the market share in the flat-panel industry. What’s more, the Company has taken up a share of 14.8% in the 42-inch flat-panel TV market, with a larger share of 20.93% in the 47-inch flat-panel TV market. 2. Olympic marketing achieved complete success Year 2008 is Olympic year for China, market competition was unprecedented fierce. The Company formulated a set scheme on Olympic marketing with target, and carefully disposed relevant extension activities. At the year-begin, based on development and recognition of “Sport high-definition LCD”, the Company took leading in release technology of “Double 120Hz+FHD”, which was focused by industry and media, and lay sound foundation on publicity of Olympic marketing. In Apr., the Company confirmed new model of Olympic marketing “Products+ Public Welfare” by the method of developing core products i-sport08 for collection, supporting National Aquatic Center, cooperated to sponsor public welfare activity “Dream realized in 2008” with Samaranch Foundation, donated television to remote regions, selected “Angle of Hope” and development of “One Hundred Percentage Care and Love Activity” Since Jun. 2008, the Company introduced Olympic Champion, that was the direct Olympic element, in sales promotion activity, started up three phases “Olympic champion in Urban”, which was large-scale sales promotion activities with signature of champions, and push the marketing to upsurge. The Company totally invited more than 20 Olympic champions to develop large-scale sales promotion activities with signatures respectively before Olympic games, on national day and in Nov. 2008, involving 34 branches and 72 cities, 109 scenes, influencing more than 1 million person, and promote sale amount being 500 million, which greatly promoted sales of products and brand publicity. According to research result from All View Consulting Ltd, Konka Sport high-definition was mentioned mostly in brand publicity. Olympic marketing of Konka won prize of TOP10 Marketing Innovation Enterprise of China in 2008, Prize of “Excellent marketing of China” awarded by Hong Kong Enterprise Management Association and “Marketing Innovation Prize” awarded by China Marketing. 3. Domestic sales of color television In respect of marketing of color television, the Company deepened sport high-definition strategy, successively launched medium ended 60 series, Olympic masterpiece 08 series and Super slim after Olympic 68 series, promoted competitive power by a large margin in flat-panel filed, and realized 26 Annual Report 2008 further optimization of product structure. The Company also pushed project of “pushing flat-panel products to the rural market”, supported by which the Company rebuilt rural market and further optimized channel network in rural regions. The Company enhanced management of branches, improved capacity of self operation and faithfully improved operating quality. In respect of research & development and manufacturing of color television: the Company focused on diversity masterpieces, achieved breakthrough in design with low cost, ID innovational design and application of new technology, new material and new technics. The Company has successfully completed task of exploitation of 327 patterns of color television for domestic and overseas sales. As for reduction of cost, the Company implemented in purchase, design, replacement of raw material and production, continuously and further adopted tendering and biding system, and guaranteed overall accomplishment of all targets of cost reducing. 4. In respect of mobile phone The Company established operating system with low cost and expense, which promoted operating efficiency and capacity of risk prevention. As for domestic sales, the Company has completed transformation of business operation model, and created new model of TV shopping sales. As for oversea sales, the Company strengthened construction of foreign sales projects and programming capacity of mobile phone, and sales amount of C602 pattern for foreign market achieved 200,000 sets within 3 months, which was historical record for foreign sales of single units. In new business, the Company innovated and explored additional business, greatly improve engineering and sales of main board, and made new business became important point of growth in communication science and technology. 5. In respect of white electrical business The Company enhanced system establishment of white electrical business, promoted integration, accuracy and foresight of programming on white electrical business, actively programmed and perfected production line of medium and small pattern. The Company promoted channel coverage of white electrical products, realized important breakthrough in key regions and cities and extended channel of supermarket in uraban. As at the end of 2008, white electrical products of the Company has listed in 602 markets in urban, 7385 third or fourth market and traditional customers, amounting to 8000 distributors, and enhanced increased of sales of white electrical products. 6. Export sales business of color television In 2008, overseas business was uncertain. Influenced by appreciation of RMB and rise of cost of raw rd materials, gross profit on sales declined rapidly in the first half year of 2008. At the end of 3 quarter, orders decreased by a large margin with breakout of global financial crisis. Under this condition, the Company strengthened to exploited other new market except Europe and America, strictly implement reduction of cost and expense, and launched new competitive patterns with low cost, meanwhile, strictly controlled risk and risks of inventories and accounts receivable controlled well. 7. Other work developed in the report period In 2008, the Company also developed the following work: Firstly, technical research acquired plentiful and substantial achievements. The Company has accomplished research & development of IPTV set top box and realized sales of products. Meanwhile, the Company acquired a series of achievements in research & development of LCOS, IPv6 and IP module for network television. Secondly, research on investments has acquired active progress. With a view to long-term development, the Company researched and discussed industrial programming and distribution, and generated clear, definite and complete idea on diversification development. After adequate investigation and approval from the Board of Directors, the Company started LCD module project in Kungshan. Thirdly, talent development system was further perfected. In 2008, the Company carried forward pyramid talent cultivation structure which was classified and space supplementary, and formally developed LDP Project, which supply human resource reserves for business development strategy, propelled delicacy management and realized target on control of labor expense better. Fourthly, customer service management system of call center has been switched over. Successful switching of this system indicated that service information system has been put into use roundly. Call center of the Company, which is the largest call platform in domestic industry, is able to supply turnkey solution service for 24 hours with high quality and efficiency. Fifthly, the Company actively participated relief of earthquake and disaster and rebuild. The Board of Directors approved charitable donation of RMB 5 million to disaster area. The Company successively mobilized employees and raised charitable fund more than RMB 1 million, collected and donated RMB 120,000 special party membership dues. The Company also donated 770 tents and condoled with family dependents of some employees from disaster area. Moreover, the Company has set up Konka Hope Fund, 27 Annual Report 2008 developed activities of angle and realization of dreams with China Youth Development Foundation, donated money and good & materials for emergent succor of the front earthquake relief and subsidized students, arranged hope angle from disaster area to visit Beijing Olympic venue and experienced Olympic games. Meanwhile, the Company normally and orderly pushed works in operation management, financial management, auditing management, informatization, discipline inspection and supervision. With effective advance of the above work, the Company successively won a series of prized, such as rd “National Business Management Innovation Prize” in the 3 Communication Conference on Innovational Achievements of National Business Enterprise, mini668 artistic television won “RedDot Design Award” in 2008, marketing extending plan on Konka sports high definition televisions has won National Business Enterprise Marketing Innovation Award 2008 and so on. II. Composition of operating income and profit (I) Business classified according to industry, product and region 1. Main business classified according to industry and product Unit: RMB’0000 Main business classified according to industry Increase/decrease of Increase/decrease of Increase/decrease Operating Operating Operating profit operating profit Industries or products operating income than of operating cost income cost ratio (%) ratio than last year last year (%) than last year (%) (%) Multi-media(Domestic） 836,512.8 668,952.2 20.0 3.7 3.8 0.0 White electrical and others 170,525.2 131,061.8 23.1 101.1 64.9 16.9 Communication 126,192.0 110,780.1 12.2 -21.3 -15.0 -6.5 Multi-media(overseas） 72,147.8 67,691.6 6.2 -41.9 -40.6 -2.1 Total 1,205,377.8 978,485.7 18.8 -0.1 0.4 -0.4 Main business classified according to product Color television(Domestic） 836,512.8 668,952.2 20.0 3.7 3.8 0.0 White electrical and others 170,525.2 131,061.8 23.1 101.1 64.9 16.9 Mobile phone 126,192.0 110,780.1 12.2 -21.3 -15.0 -6.5 Color television(overseas） 72,147.8 67,691.6 6.2 -41.9 -40.6 -2.1 Total 1,205,377.8 978,485.7 18.8 -0.1 0.4 -0.4 2. Main business classified according to region Unit: RMB’0000 Increase/decrease than last year Region Operating income (%) Domestic 1,225,898.58 13.73 Overseas 304,859.03 33.31 Offsetting each other among segments -325,379.81 - in each area Total 1,205,377.80 -0.09 III. Analysis on financial indices of the Company (I) Comparison analysis on the major financial indicators 1. Main financial indices in the report period Unit: RMB’000 Items At the end of Year 2008 At the end of Year 2007 Increase/decrease (%) Total Assets 10,517,285.52 10,599,949.69 -0.78 Net accounts receivable 1,326,261.32 1,040,182.92 27.50 Net inventories 2,573,776.87 2,934,629.18 -12.30 Net long-term investment 21,610.34 51,645.23 -58.16 Net fixed assets 1,344,177.90 1,286,740.99 4.46 Long-term liabilities 44,141.44 33,610.03 31.33 Short-term Loan 1,346,375.61 1,275,584.10 5.38 Shareholders’ equity 3,999,473.20 3,779,270.76 5.83 Items 2008 2007 Increase/decrease (%) Operating profit 265,873.91 255,504.81 4.06 Net profit 250,817.15 207,091.72 21.11 Sales expense 1,520,386.79 1,592,452.28 -4.53 Financial expense 1,318.51 15,050.94 -91.24 28 Annual Report 2008 Administrative expense 432,537.98 418,146.61 3.44 Income tax 22,521.42 44,526.24 -49.42 2. Explanation and analysis on main changes of items: (1) Inventories in this period decreased 12.30% year-on-year, mainly because the Company continued to adopt effective measures to strengthen inventory management, accelerated turnover of inventories and controlled scale of inventories. (2) Long-term investment decreased 58.16 year-on-year, which was mainly because the Company sold holding equity of Guangzhou Huadu Huamei Industrial Co., Ltd, settled book value of long-term equity investment and confirmed gains and losses from share transfer. (3) Financial expense in this period decreased 91.24%, mainly because balance between recording foreign exchange rate of NDF business and exchange rate at the period-end offset gains and losses from exchange. (4) Long-term liabilities in this period increased 31.33% year-on-year, mainly because government subsidies received in this period amortized and recorded into deferred non-operating income. (5) Income tax decreased 49.42% year-on-year, mainly because income tax was offset by increase of deferred income tax assets confirmed in this period, which was due to increase of income tax rate executed in Shenzhen from 2009 to 2012 compared with 2008. (II) Analysis on composition of assets 1. Composition of assets in the report period At the end of Items At the end of 2008 Increase/decrease (%) 2007 Net accounts receivable/total assets 12.61% 9.81% 2.80 Transaction financial assets 0.00% 0.22% -0.22 Net inventories/total assets 24.47% 27.69% -3.22 Net long-term investment/total assets 0.21% 0.49% -0.28 Net fixed assets/total assets 12.78% 12.03 0.75 Long-term Loan/total assets 0.00% 0 0.00 Short-term Loan/total assets 12.80% 12.09% 0.71 Shareholders’ equity/total assets 38.03% 35.65% 2.38 2. Measurement attribute of main assets of the Company Other main assets of the Company adopted historical cost method except that financial assets available for sale adopted fair value measure. (III) Analysis on cash flow indices 1. Cash flow indices Unit: RMB’000 Items 2008 2007 Increase/decrease (%) Net increase in cash and cash equivalents 92,468.45 74,318.59 24.42 Cash flow arising from operating activities 362,642.08 35,139.50 932.01 Cash flow arising from investing activities -58,138.61 -160,924.07 63.87 Cash flow arising from financing activities -203,287.72 203,593.45 -199.85 2. Comparison between cash flow arising form operation activities and net profit Unit: RMB’000 Cash flow arising from operation Net profit Cash flow arising from operation activities activities /net profit 362,642.08 258,324.47 1.40 3. Explanation and analysis on mains changes of main items Cash flows from operating activities in this period increased 932.01% than last period, mainly because the Company paid notes receivable due to its mature and discount increased. Cash flows from investment activities in this period increased 63.87% than last period, mainly due to callback of long-term equity investment fund for Longfeng Jianzhi Real Estate Co., Ltd. Of Huadu, Guangzhou and funds from customer for comfortable housing “Konka Yuan”. Cash flows from financing activities in this period decreased 199.85%, mainly because of repayment of foreign currency borrowings for NDF business. V. Principal holding company and joint stock company (I) Operation and performance of principal shareholding company and joint stock company 1. Shenzhen Konka Communications Technology Co., Ltd 29 Annual Report 2008 With its 100% equity directly and indirectly held by the Company and registered capital of RMB 120 million, Shenzhen Konka Communications Technology Co., Ltd, engaged in the business of developing, producing and selling digital mobile communication equipment and mobile phone products. At the end of the report period, the Company’s total assets were RMB840,711,361.50 and net assets were RMB2,597,810.15, the sales income in 2008 was RMB1,303,623,623.76, operating profit was RMB 37,674,778.16 and net profit was RMB34,354,948.06. 2. Dongguan KONKA Electronics Co., Ltd. With its 100% equity held directly and indirectly by the Company and registered capital of RMB 200 million, Dongguan KONKA is engaged in production and operation of color TV. At the end of the report period, the Company’s total assets were RMB375,119,358.57 and the net assets were RMB155,145,955.31, the sales income in 2008 was RMB 151,634,631.12, profit from sales income was RMB5,606,546.94 and net profit was RMB3,813,442.35. 3. Shanxi KONKA Electronics Co., Ltd. With its 60% equity held directly and indirectly by the Company and registered capital of RMB 69.5 million, Shanxi KONKA is engaged in production and operation of color TV. At the end of the report period, the Company’s total assets were RMB 129,963,170.44and the net assets were RMB106,798,728.36, the sales income in 2008 was RMB 146,122,365.36, profit from sales income was RMB 1,042,179.23 and net profit was RMB1,514,621.24 4. Anhui KONKA Electronics Co., Ltd. With its 78% equity held by the Company and registered capital of RMB 140 million, Anhui KONKA is engaged in production and operation of color TV. At the end of the report period, the Company’s total assets were RMB350,346,812.92 and the net assets were RMB226,376,793.21, the sales income in 2008 was RMB448,588,895.28, profit from sales income was RMB6,686,566.48and net profit was RMB 7,263,565.10. (II) Special purpose entity controlled by the Company In the report period, there was no special purpose entity controlled by the Company. V. Principal suppliers and customers In the report period, the total purchase amount from the top five suppliers was RMB 1,953,983,359.00, accounting for 18.63% of the Company’s total purchase amount. The total sales revenue from the top five distributors was RMB 2,271,344.88, accounting for 18.66% of the Company’s total sales amount. VI. Risks in the operation and countermeasure 2009 will be an uncertain year, and operation of the Company will have the following risks: (I) Global financial crisis will further diffuse, which will cause recession of global economy and decline of consumption demand, and economy will be worsen. (II) With background of global financial crisis, economy growth of China will slower, consumption demand declined and uncertain factors increased. (III) Increasing capacitance of domestic household electrical appliance market will be slowed and risk of price competition will increase; meanwhile, competition of flat-panel industry will be fiercer due to large-margin drop of material price as LCD and contradiction of supply and demand will be largened. (IV) Products structure of color TV changed continuously, and flat-panel era is coming. Television with color picture tube is important resource of net profit of domestic brand, but market quota shrunk continuously. Market quota of LCD TV increased continuously, but profit capacity of LCD TV in domestic brand is low. However, the Company will envisage risks caused by economic crisis, will adjust business model, organization structure, sales strategy, enhance internal management, and make effort to promote comprehensive ability in the ruthless market environment. Details for countermeasures are as follows: (I) Insist on value operation strategy, product innovation, create different masterpieces, and realize enlargement of market quota and increase of additional value of products with different products. (II) Promote operating efficiency, accelerate turnover of inventories and accounts receivable. (III) Improve competition advantage of products by integration of upstream and downstream business, improve competitive power and accelerate update and transformation by integration of module and machine. (IV) Enhance exploitation of rural market, pay more attention on development of products suitable for rural market, shape advantage of different low ended products in rural area, guarantee advantage of cost of different products and improve competitive power of products for rural area. 30 Annual Report 2008 (V) Adopted strict measure to economize cost, reduce expense, promote competitive power in respect of research & development, purchase, manufacture and sales & marketing and so on. VII. Operation plan in the new year (I) Analysis on operation environment and operating method in 2009 1. Operation environment As a whole, 2009 is an uncertain year, which faced challenge and opportunity. In respect of challenge: Firstly, global financial crisis will further diffuse, which will cause recession of global economy and decline of consumption demand, and economy will be worsen. Secondly, with background of global financial crisis, economy growth of China will slower, consumption demand declined and uncertain factors increased. Thirdly, increasing capacitance of domestic household electrical appliance market will be slowed and risk of price competition will increase; meanwhile, competition of flat-panel industry will be fiercer due to large-margin drop of material price as LCD and contradiction of supply and demand will be largened. Fourthly, products structure of color TV changed continuously, and flat-panel era is coming. Television with color picture tube is important resource of net profit of domestic brand, but market quota shrunk continuously. Market quota of LCD TV increased continuously, but profit capacity of LCD TV in domestic brand is low. In respect of opportunity: Firstly, overall scale of color TV industry will keep increase. China Market Monitor Co., Ltd forecasts that sale amount of color television in 2009 will increase by 1.8%. Color television industry is till a market whose total sales amount will keep increase on condition that other industries fell off. Secondly, potential of rural market is large. Owing to little influence of financial crisis on rural market, television with color picture tube have space of development; flat-panel will increase market quota with rapid drop of price; policy of pushing household electrical appliance to the rural market will further promote consumption of household electrical appliance in rural market. Thirdly, domestic brand has competitive advantage gradually. In color television market, domestic brand has absolute advantage, and policy of pushing household electrical appliance to the rural market will enlarge this advantage. In LCD television market, competitive advantage of foreign brand in domestic market has been cut down, domestic brand has comparative advantage without competent owing to slip of global market sales and large-margin drop of price of LCD caused by financial crisis. 2. Operation method of 2009 Continuing to persisting in and deepening value operation stratagem, based on the three projects of masterpiece, quality and innovation, effectively push combination of difference and low cost, emphasize to promote speed and efficiency, strictly control operating risk, further advance and enhance technical innovation, be firm in confidence, face under pressure to solve the problem and make effort to create new advantage of value operation. (II) Principal work in 2009 Based on acceleration of routine operation management as annual plan and scheme, the Company will do well in following eight work: 1. Deepen push value operation and create diversity advantages In 2009, the Company will insist on value operation strategy, product innovation, create different masterpieces, and enhance additional value of products, which is long-term persistent competitive strategy of the Company not changed, and also basic countermeasure to current economy. (1) Masterpiece project In respect of flat-panel television, the Company will actively optimize sales structure of flat-panel products, and guarantee new products list and sell as scheduled with principle of “distribution effective products with effective price”. As for high ended products, the Company will develop high ended different products as 240Hz and back light LCD, develop network television basing on demand of consumption, continue to lead trend of high ended flat-panel products, and support with brand; as for medium and low ended products, the Company will actively optimize distribution of production lines, enhance competitive power of high ended flat-panel market in rural market, and make effort to enlarge market quota. In respect of color television, the Company will implement programming on super low ended products, continue to reduce model, improve efficiency of single products and competitive power of products, keep urban market and exploit rural market, carry out sales management, keep sales scale and ensure maximums profit. 31 Annual Report 2008 In respect of mobile phone, the Company will insist on programming, research & development, operating of masterpieces and innovation of mode, ensure success rate of pattern of masterpieces, promote overall benefit by masterpieces. In respect of white electrical products, the Company will insist on core of “energy saving products”, develop masterpieces of refrigerator and washing machine, do well in extending of planning, production and sales of star products like peak energy-saving refrigerator with three doors and super energy-saving refrigerator and so on. (2) Innovation project The Company will enhance design innovation of ID, organically combine self design with cooperative design, struggle for leading development trend. The Company will also strengthen exploitation and application of diverse functions, especially development trend of track digital television, wireless high definition video transmission, network television, LED back light, actively accelerate application of new materials and technics in products, and ensure key products like LED back light television list in market as scheduled. (3) Quality project With basis of keeping current quality management, the Company will promote connotation of quality management, emphasize comprehensive quality of products, service and cost, faithfully promote quality in overall progress, quality of staff and enterprise. The Company will continue to carry out principle of “determined account, determined counting measure and determined rules”, especially prevention. 2. Supplement and perfect super low ended production lines, establish stable market scale The Company will make effort to innovate design with low cost, further select with basis of general, pattern and standard design, enlarge reuse rate of module after selection, push application of replacement of component and new technology, and ensure the lowest cost from headstream of the design. Meanwhile, the Company will meet demand of customers with low revenue with diverse products with low cost, and pertain to the national “Comfortable Housing Project ”. 3. Effectively enlarge exploitation of rural market In 2009, the Company will pay more attention to rural market with large potential, and will enlarge exploitation. Firstly, the Company will manufacture products according to demand of rural market, especially products qualified with policy of pushing household electrical appliance to the rural market. All production lines, no matter what is color television, refrigerator or mobile phone, will emphasize products for rural market as key work, establish diversity advantage of rural low ended products, ensure advantage of cost in diverse products and improve competitive power of products in rural market, which is base of exploitation of rural market. Secondly, the Company will catch advantage chance of development of policy of pushing household electrical appliance to the rural market, combined deepening project of pushing flat-plat products to the rural market and traditional advantage of white electrical appliance and shaped complete promotion sales system. As for different operating policy of phone mobile, the Company will make use of traditional advantage, national chain and operator, and perfect rural system with support policy of the state. Thirdly, the Company will enhance reconstruction of stores in county, publicity of flat-panel products and pattern, ensure advantage position of brand in progress of large-margin increase of flat panel market. The Company will further enhance systematizational management and supervision, emphasize establishment and promotion of core stores, and create core customers of flat-panel in rural market. 4. Acceleration project and benefit from speed Color television market has entered in ear of flat-panel in 2008. The most obvious character of lat-panel products are high price of products and raw materials, but price drop are fast and risk is large. Especially with exploitation of rural market, inventories increased, and risk is larger on the condition that management efficiency of rural network marketing is low. Mobile phone is a market that never stop cheapening. Therefore, the Company will enhance improvement of turnover of inventories. Meanwhile, aiming at uncertainty of economic environment of 2009, the Company will pay attention to risk of accounts receivable. Promotion of turnover of inventories is the core in operation of the Company in 2009. 5. To make every endeavor to reduce cost and expenses In 2009, the Company must adopt strict measure to reduce cost and expenses, which is the key measure to promote competitive power and confront crisis. As for engineering: in respect of research & development, the Company will reduce cost in view of 32 Annual Report 2008 pattern, structure, hardware and software; in respect of purchase, the Company will push invitation biding, replacement of component, advising supplier to reduce cost; in respect of manufacturing, the Company will continue to enhance “refined and benefit production” and improve productive efficiency; meanwhile, the Company will learn from upstream manufacturer, strengthen share and communication of experience, and continuously reduce cost. As for marketing: on one hand, the Company will economize expense and promote efficiency, and control expenses; on the other hand, the Company will optimize operating sales, input limited resource to effective environment and reduce input without efficiency. 6. Faithfully strengthen CPC construction and effectively accelerate development of talent In 2009, the Company will further strengthen leading of CPC, promote importance of exemplar of party member and cadres. Based on achievement of 2008, the Company will strengthen important role in party commission, stabilization of situation and talent development, especially development of talent, which is the key work in 2009. The Company will accelerate training and introduce comprehensive and professional talent with high political consciousness, overall consciousness, excellent capacity of business, consciousness of innovation and learning ability. Firstly, will discover talent, check the amount of backbones and talent in important position periodically, and train the talent with LDP and MDP projects. Secondly, the Company will establish more systemizing and normative mechanisms on cadre promotion, training and elimination. The Company will appoint with high standard, strictly appraise and strengthen training and elimination, which will ensure cadre team develop soundly. Thirdly, focus on cultivation of talent, which will ensure effect of cultivation of important talent. Fourthly, the Company will supplement and introduce scarce talent to enlarge talent team of the Company. 7. Accelerate construction of key projects Project of Kunshan Konka: Kunshan LCD module project, as an important project in integration of flat-panel industry chain, will actively influence cost control, responsible speed and grasp the power of speech. On one hand, the Company arranged construction as scheduled and make effort to construction of hardware environment; on the other side, the Company will focus on cultivation of staff, establishment of system procedure and technical reserves, which will lay the foundation of software in successful input production of Kunshan Base; meanwhile, the Company will enhance communication with local government, arranger and construction party, trace the project, control risks, prepare for production, and make sure successful production and operation at the end of 2009. Konka Digital Development & Research Centre Building project: the Company will implement requirements of safety, quality, cost and schedule in the progress of construction, struggle for roof-sealing as scheduled. 8. reform is the invariable theme to deal with market changes In 2009, systems and structure will be more optimized, and organization of the Company will be more innovative and active. In view of current situation, the Company focus on reform on channel and supply chain system in flat-panel era reform on management system of white electrical business to meet opportunity and requirement of new development, reform on mobile phone to confront operator, MTK Mobile Phone and channel innovation, reform on incentive mechanism to meet complicated competition, and demand for reform on other management and procedure. 9. Seek appropriate chance to realize stable and sound extending of industrial capital The Company will accord to base on self strength, actively seek chance to realize stable and sound extending, adjustment and optimization of industry and region distribution with capital operating method as acquisition and merger and holding shares, therefore, to promote comprehensive competitive power, realize stable and sound increase of overall scale and benefit, and also lay the foundation for future durative and stable development of the Company. 10. Continually push sound development of all business As for manufacture of color television, the Company will continue to push “three projects”, with basis of safety production and stable promotion of quality, focus on execute reduction of cost and expense, accelerate delivery period of flat-panel, accomplish project on construction of LCD module as scheduled, and adjust operating strategy. Meanwhile, will continuously improve competitive power of products on base of stable talent team for research & development. As for sales and marketing of multi-media, the Company will focus on “Economization of expense and increase of efficiency, optimization of structure and exploitation market in county”, meanwhile, ensure normal operation of two production lines for black electrical and white electrical products. The Company will implement four operating factors “Cost, Speed, Structure and Innovation”, insist on operation and promotion sales with low cost, speed being the first, optimize products structure, 33 Annual Report 2008 channel structure and organization structure, reform and innovate, continuously improve system ability and prevention of risk of multi-media business. As for mobile phone business, the Company will insist on principle of stable, healthy and durative operation, profit-oriented being first, strengthen control on risks, expense and cost, promote benefit capacity of communication science and technology, and keep stable and sound development. As for white electrical business, the Company will catch up opportunity of policy of “pushing household electrical appliance to the rural market”, especially opportunity of relax from pressure of inventories, accelerate development. With precondition of guarantee products quality, economize energy as the core, reduce cost, develop masterpiece, optimize production lines and increase market share, meanwhile, continuously promote establishment of internal management and procedure system and lay stabilized foundation for development of white electrical business. As for overseas business, with the precondition of control risks, the Company will balance sales amount and profit, promote sales of LCD television, struggle for exploitation of new market, enlarge sales brand amount, deepen localized operation, reduce cost and expense by large-margin, and guarantee sound development. As for video business, the Company will enhance cooperation with customers of traveling, advertisement and entertainment industry, and extended influence in industry. The Company will insist on creating masterpieces with low cost, built up position of pioneer in industry. Meanwhile, the Company need accelerate research of feasibility of LED lighting, upstream chips and encapsulate field, establish LED chain from epitaxial slice, chips, encapsulate to application of module. As for digital network business, the Company will base upon self research, control products quality, support Affairs Department with domestic sales market and gain extra profit with foreign market, centralize resources to establish core base with principle of “more investment on key market”. As for living electrical appliances business, the Company will actively introduce backbone talent and enhance professional competence. The Company will also set up marketing network, strengthen research & development of products, accelerate products innovation, and create masterpiece. The Company will properly push strategic cooperation of capital, set up production and supply base and ensure rapid development of living electrical appliances. Otherwise, the Company will push various work such as operating management, financial management, investment development, human resource, auditing and legal affairs, information construction, CPC construction and construction of enterprise culture, and roundly accelerate rapid, stable and sound development of the Company. VIII. Demand for funds, source of funds and usage plan and of the Company in the future In order to realize operation target of 2009, expected capital demand of the Company is RMB 695 million. For details are as follows: (I) Capital demand and usage plan No. Investment project Planned investment amount (RMB’0000) Fixed capital investment of white household electric appliance digital 1 10,507.90 television, and relevant industry Investment on Konka Digital Development & Research Centre Building in 2 10,994.00 2009 3 Investment on Kongka Kunshan LCD module project in 2009 48,039.85 (II) Source of capital The Company will enhance fund management, adopt active and effective measures to call back the fund, flexibly and reasonably make use of all credit loan policies, improve available capital scale; strengthen capital budget, make both ends meet, guarantee adequate capital supply and support stable and sound development of production and operation of the Company. IX. Investment of the Company (I) In the report period, investment of the Company are as follows: Items 2008 2007 Change amount Change range (%) Short-term investment 0 0 0 0 Sub-total 0 0 0 0 Long-term investment (1) Investment on stocks 21,610,338.75 51,645,230.53 -30,034,891.78 -58.16% (2) Investment on bonds 0 0 0 0.00% (3) Other investment 0 0 0 0.00% 34 Annual Report 2008 Total 21,610,338.75 51,645,230.53 -30,034,891.78 -58.16% Proportion of equity No. Full name of invested company Main business scope in the invested company Production and sales of LCM LCD 1 Kunshan Konka Electronics Co., Ltd 100% module Mainly engage in processing and 2 Anhui Konka Electronics Co., Ltd 78% sales of color television (II) In the report period, the Company had no proceeds raised or significant investments. (III) Significant projects invested with non-raised capital 1. Owing to executing plan of technology innovation, promoting capability of products development, base research and talent cultivation and support of the government, the Company owned the use right of land with S-NS07-05-12-03 at preferential price with 9633 ㎡ located in South District, Science and Technology Park ,Shenzhen City, which was used to built Konka Digital Development & Research Centre Building. The Company will invest no more than RMB 567 million to the project and the construction area was about 80000 ㎡. At present, the project has begun formally. 2. In order to promote competitive power in LCD television field and enhance benefit capacity of LCD television, the Company decided to invest LCD module in Kunshan with investment amounting to RMB 886 million. On one hand, the Company will construction strictly as scheduled, make effort to construction of hardware environment; on the other hand, the Company focuses on cultivation of personnel, establishment of rules procedure and technical reserves, which will lay the foundation of software in successful input production of Kunshan Base; meanwhile, the Company will enhance communication with local government, arranger and construction party, trace the project, control risks, prepare for production, and make sure successful production and operation at the end of 2009. X. Routine work of the Board of Directors (I) Meetings and resolutions of the Board in the report period th th During the report period, the Board of the Company held 15 meetings in total, i.e. the 6 to 20 th meeting of the 6 Board, with details of the meetings, resolutions, and public notice are as follows: th th 1. The 6 meeting of the 6 Board of Konka Group Co., Ltd was held through fax on Jan. 28, 2008 (Monday). th th 2. The 7 meeting of the 6 Board of Konka Group Co., Ltd was held on Apr. 3, 2008 (Thursday). th th 3. The 8 meeting of the 6 Board of Konka Group Co., Ltd was held through fax on Apr. 24, 2008 (Thursday), which deliberated and approved the First Quarterly Report 2008. th th 4. The 9 meeting of the 6 Board of Konka Group Co., Ltd was held through fax on May 4, 2008(Sunday). th th 5. The 11 meeting of the 6 Board of Konka Group Co., Ltd was held through fax on Jun. 24, 2008(Tuesday). th th 6. The 12 meeting of the 6 Board of Konka Group Co., Ltd was held through fax on Jul. 17, 2008(Thursday). th th 7. The 13 meeting of the 6 Board of Konka Group Co., Ltd was held through fax on Aug. 21, 2008(Thursday), which deliberated and approved the Semi-Annual Report 2008. th th 8. The 14 meeting of the 6 Board of Konka Group Co., Ltd was held at the meeting room of Inter-Continental Shenzhen Hotel on Aug. 27, 2008 (Wednesday). th th 9. The 15 meeting of the 6 Board of Konka Group Co., Ltd was held through fax on Sep. 5, 2008 (Friday). th th 10. The 16 meeting of the 6 Board of Konka Group Co., Ltd was held through fax on Oct. 27, 2008(Monday), which deliberated and approved the Third Quarterly Report 2008. th th 11. The 18 meeting of the 6 Board of Konka Group Co., Ltd was held through fax on Nov. 27, 2008(Thursday). The resolutions of the Board meetings above were published on the newspapers designated by CSRC: China Securities Journal, Securities Times, Shanghai Securities News and Hong Kong Ta Kung Pao as well as the designated internet website www.cninfo.com.cn respectively on Jan. 29, 2008, Apr. 8, 2008, Apr. 22, 2008, May 6, 2008, Jun. 26, 2008, Jul. 19, 2008, Aug. 23, 2008, Aug. 29, 2008, Sep. 9, 2008, Oct. 29, 2008, Nov. 29, 2008. (II) Implementation of the resolutions of the Shareholders’ General Meeting by the Board The Board of Directors had dutifully implemented the resolutions of the three Shareholders’ General Meetings in 2008: 1. Revised the Article of Association, System of Independent Directors. 2. According to resolution of the Shareholders’ General Meeting, the Company has converted the capital 35 Annual Report 2008 reserve to share capital: based on the total capital of 601,986,352 shares at that time, the Company converted 10 shares for every 10 shares with capital surplus to all shareholders. After the conversion, total share capital increased by 601,986,352 shares. 3. Implemented application for comprehensive credit line of Bank of China 4. According to resolution of the Shareholders’ General Meeting, the Company supplemented some Directors and Supervisors. 5. Engagement of BDO. Guangdong Dahua Delu CPA, LLP. as the audit institution for the audit of Annual Report 2008 of the Company. XI. Summary report on the performance of the Audit Committee subject to the Board of Directors The Financial Audit Committee under the Board of the Company was composed of two Independent Directors, and the post of Chairman was held by Ms. Yang Haiying, an Independent Director with specialty in accounting. The Financial Audit Committee under the Board of the Company has fulfilled the following duties based on the principle of diligence and responsibility and according to relevant laws and regulations of CSRC and Shenzhen Stock Exchange, as well as relevant provisions in Work Rules for the Financial Audit Committee under the Board and System of Independent Directors: (I) It has fulfilled the following duties during the preparation of Annual Report 2007: 1. Reviewed and approved the arrangement for 2007 annual auditing of the Company; 2. Issued Audit Opinion of the Financial Audit Committee on Financial Accounting Statements Prepared by the Company before CPAs’ entry of Audit; 3. Communicated and exchanged ideas with the CPAs responsible for annual auditing on the problems occurring during the auditing; 4. Issued Audit Opinion on Financial Accounting Statements of the Company after CPAs Issued the Preliminary Audit Opinion; 5. Issued Summary Report on Annual Auditing by BDO. Guangdon Dahua Delu CPA, LLP; 6. Submitted the decision on the resolution of the annual financial statement of the Company to the Board 7. Submitted the decision on the resolution of engagement of the CPAs in 2008 to the Board (II) In 2008, according to the authorization of the Board of Directors, the Financial Audit Committee accepted the report on the work of the Company’s Internal Auditing Department and carried out management over the Internal Auditing Department of the Company and its work. (III) Reviewed the First Quarterly Report 2008, Semi-Annual Report 2008, and the Third Quarterly Report 2008, and had no objection to the aforesaid financial statements. (IV) Proposed to engage BDO. Guangdong Dahua Delu CPA, LLP. as the audit institution for annual financial statement auditing 2008 of the Company after investigation. (V) During the preparation of the Company, it mainly fulfilled the following duties: 1. Before the CPAs started the annual auditing, the Financial Audit Committee communicated with the CPAs responsible for the annual auditing face to face, and discussed about the personnel component of the auditing group, the plan of auditing and the focus of the annual auditing. 2. It deliberated the Financial Accounting Statements prepared by the Company before the CPAs’ entry of Auditing, and issued the Audit Opinion of the Financial Audit Committee on Financial Accounting Statements Prepared by the Company before CPAs’ entry of Audit, with details as follows: (1) We agreed to submit the Financial Statements to the CPAs for auditing. (2) The intermediary institution for annual auditing engaged by the Company should carry out the audit work stringently according to the requirement of Professional Code of China’s CPA in the process of auditing, and duly communicate with the committee if significant problems were discovered. 3. It reviewed the Financial Statement 2008 prepared by the Company before the CPAs’ entry of Auditing, the Arrangement for Annual Auditing 2008 of Konka Group Co., Ltd, and approved the arrangement for the auditing of annual report. 4. The Financial Audit Committee communicated with the internal auditing department on the internal auditing. 5. During the auditing of the annual financial report, the Committee twice sent letters to urge the CPAs responsible for annual auditing to complete the auditing as scheduled. 6. It deliberated the Financial Accounting Statements of the Company after the CPAs issued the preliminary audit opinion, and issued the Audit Opinion on Financial Accounting Statements of the Company after CPAs Issued the Preliminary Audit Opinion, with details as follows: The Committee kept in touch with the CPAs when the Financial Statements 2008 of the Company were audited. 36 Annual Report 2008 We inquired the management of the Company about the events concerned by the audit institution and again reviewed the Financial Statements of the Company as soon as the intermediary institution formed the preliminary opinion. The annual audit institution of the Company gave an explanation to us on the problems which were discovered during auditing and the events, which needed adjusting, and the Company conducted corresponding adjustment based on the opinion of the annual audit institution. We didn’t have objection to the Financial Accounting Statements 2008 of the Company audited preliminarily by BDO. Guangdong Dahua Delu CPA, LLP.. 7. It deliberated the Financial Statements 2008 after the auditing by annual audit institution, and issued the resolution of the Financial Accounting Statements 2008 of the Company, with details as follows: After careful checking by members of the Financial Audit Committee, we have no objection to the standard unqualified Auditors’ Report 2008 of the Company issued by BDO. Guangdong Dahua Delu CPA, LLP.. 8. It issued the Summery Report on the Annual Auditing 2008 by BDO. Guangdong Dahua Delu CPA, LLP.. According to the requirement of relevant documents like Work Rules for the Financial Audit Committee under the Board, it summarizes the annual auditing 2008 of the Company by the CPAs as follows: (1) General information The CPAs communicated with Independent Directors, the Committee and the Management Team of the Company before the auditing, and signed the audit engagement with the Company with full understanding of the Company’s internal control. Besides, the general schedule for auditing of the Company’s Financial Statements 2008 was made and the time for issuance of the report was set. (2) Confirmation of the general audit plan Before the formal entry of the CPAs’ auditing, the CPA firm and Independent Directors, the Committee as well as the Management Team of the Company drew out the plan for the Company’s annual auditing 2008 through consultation with each other. In our opinion, the plan was detailed and the responsibility of each person was specified, which made sufficient preparation for the annual auditing. (3) Communication during the auditing During the auditing, the person in charge of projects from the CPAs maintained sufficient and continuous communication with members of the Financial Audit Committee, so that the CPAs responsible for the annual auditing had more mature judgment for the issuance of fair auditing conclusion. (4) Reply to the supervision letter and inquiry During the auditing, the Committee fully communicated and exchanged opinions with the CPAs on the problems occurring during the auditing, and sent the Supervision Letter of Urging the CPAs to Submit the Auditor’s Report on Time, to urge the CPAs responsible for annual auditing to speed up the pace and improve the efficiency so as to accomplish the auditor’s report as scheduled; The CPAs gave positive response to the supervision letters and the inquiry. (5) Accomplishment of auditing on schedule In our opinion, the CPAs responsible for annual auditing conducted auditing stringently according to provisions in China's Independent Auditing Standards and issued the auditor’s report based on the results of auditing. Its arrangement of work was reasonable, its practice was standard, and its auditing was comprehensive. 9. It issued the resolution of engagement of CPAs in 2009, with details as follows: The Company is formulating the Special System for engagement of CPAs according to the requirement of the securities regulatory department. As the System still needs approval from the Board meeting and Shareholders’ General Meeting, the Committee suggests that the Board shall not make any decisions on the engagement of the auditing institution responsible for financial statement auditing in 2009 at the moment, and the engagement of the auditing institution responsible for financial statement auditing in 2009 shall be carried out based on the provisions in the System, after the Board’s approval of the System. XII. Summary report on the performance of the Remuneration Committee subject to the Board of Directors The Remuneration and Appraisal Committee under the Board of Directors was composed of three Directors, two Independent Directors and one Non-Independent Director. Mr. Feng Yutao, the Independent Director, held the post of Chairman. Within the report period, the Remuneration and Appraisal Committee examined the remuneration of Directors, Supervisors and Senior Management Staff, and expressed opinions as follows: (I) The Remuneration and Appraisal Committee has drawn the Administrative Method for Business Performance Appraisal and Incentive of Senior Management Staff and submitted it to the Board for approval. (II) The Remuneration and Appraisal Committee expressed its opinions on the remuneration of Directors, 37 Annual Report 2008 Supervisors and Senior Management Staff, which was disclosed in the Annual Report 2008, as follows: 1. The remuneration of Directors, Supervisors and Senior Management Staff of the Company disclosed in the Annual Report 2008 was in line with the actual situation. 2. The disclosed remuneration of the Company’s Directors, Supervisors and Senior Management Staff was line with the remuneration management system of the Company, and no breach of the remuneration management system occurred in the Company. 3. The Remuneration and Appraisal Committee would continuously promote the improvement of the Company’s internal incentive and restrain mechanism, gradually establish an incentive system of short-term and long-term, promote the close combination of the management team with the profit of the Company as well as its shareholders. XIII. Annual distribution preplan or preplan of turning capital reserve into share capital (I) Annual distribution preplan In 2008, the net profit belonging to shareholders of the parent company after auditing was RMB 250,289,213.62. Based on the actual status and the requirement for long-term development of the Company, the Board of Directors decided the annual profit distribution plan 2008 after serious deliberation rd th at the 23 meeting of the 6 Board of Directors, with details as follows: 1. Based on the net profit in 2008, the Company withdrew RMB 23,173,319.38, i.e. 10% of statutory surplus. 2. The profit distribution plan: based on the Company’s total share capital of 1,203,972,704 shares as of Dec.31, 2008, the Company distributed cash dividends RMB 0.5 (tax included) to every 10 shares. The distributed profits aggregated RMB 60,198,635.2 and the retained profit was carried forward next year for distribution. The plan needs approval from Shareholders’ General Meeting. (II) Opinion of Independent Directors Mr. Feng Yutao, Ms. Yang Haiying and Mr. Zhang Zhong, the Independent Directors of the Company, believed that the profit distribution preplan of the Company was line with the actual situation of the Company, and the cash dividends in the recent three years surpassed 30% of the Company’s distributable profits in the recent three years. There was no violation of relevant provisions in the Company Law and the Article of Association, nor any damage to the interest of shareholders, which was good for the normal operation and healthy development of the Company. (III) Cash dividends in the previous three years Net profit belonging to owners Percentage that cash dividends take up in Amount of cash of the parents company in net profit belonging to owners of the dividends (tax consolidated financial parents company in consolidated financial included) statement statement 2007 0 207,091,715.42 0 2006 60,198,635.20 96,774,909.50 62.20% 2005 0 28,834,780.98 0 XIV. Special explanation on capital transaction with affiliated parties and external guarantees HDZS Zi No. [2009]260 To the Board of Directors of Konka Group Co., Ltd, Entrusted by the Company, we have audited financial statements of Konka Group Co., Ltd (herein after refer to as “the Company”) as of 31 Dec. 2008 in accordance with Professional Code of China's CPA, which comprise the consolidated balance sheet and balance sheet, the consolidated income statement and income statement 2008, the consolidated statement of changes in equity and statement of changes in equity, the consolidated cash flow statement and cash flow statement, and issued audit report with standard unqualified opinion with HDGS ZI [2009] No. 29 on 28 Apr. 2009. As CPA for audit of financial statement 2008 of the Company, we issued specific explanation on Summary Statements on Capital Occupation by Controlling Shareholders and Other Related Parties in 2008 (hereinafter refer to as “Summary Statement”) prepared by the Company in accordance with Circular on Certain Issues regarding Regulating Capital Flow between Listed Companies and Related Parties and Outward Guarantee Provided by Listed Company (ZJF [2003] No. 56), which was issues by China Securities Regulatory Commission. It is the responsibility of the Company to faithfully prepare, disclose the Summary Statement and guarantee its authenticity, legitimacy and integrity. We have checked materials in summary statement against rechecked accounting data and relevant content of financial statements as of 31 Dec. 2008, and there are no difference in significant aspects. We never executed extra audit procedure on 38 Annual Report 2008 materials carried in Summary Statement except audit procedure relating to related transaction in financial statements of the Company as of 31 Dec. 2008. There was a series of related transitions and cash flows between the Company and OCT Group Corporation-the principal shareholder of the Company, related parties and affiliated companies in 2008. The above transactions and cash flows formed related accounts receivable and payable as of 31 Dec. 2008. In order to reflected essential of transactions, the Company consolidated capital flows of related parties into Summary Statement. The specific explanation is issued by us according to requirements of CSRC and its agency and Shenzhen Stock Exchange, and it is will not use for any other purpose. It is nothing to do with CPA and accounting firm who conducted audit for results caused by improper use. Attachment I: Konka Group Co., Ltd Summary Statement on Capital Occupation by Controlling Shareholders and Other Related Parties in 2008 BDO. Guangdon Dahua Delu CPA, LLP. CPA China Shenzhen CPA 28 Apr. 2009 39 Attachment I Konka Group Co., Ltd Summary Statement on Capital Occupation by Controlling Shareholders and Ot Accumulative Interest of Relationship between Accounting Balance at the amount in 2008 occupied Category Name of occupied parties occupied parties and subject period-end of 2008 (excluding capital in the Company interest) 2008 Subsidiary of the first Account Shenzhen OCT East Co., Ltd 230.75 619.42 - principal shareholder receivable Chengdu Tianfu OCT Subsidiary of the first Account - 2,046.00 - Development Co., Ltd principal shareholder receivable Beijing Century OCT Subsidiary of the first Account - 125.00 - Industrial Co., Ltd principal shareholder receivable Shenzhen OCT Real Estate Co., Subsidiary of the first Other accounts 128.89 1.44 - Ltd principal shareholder receivable Shenzhen OCT Property Subsidiary of the first Other accounts 7.74 3.38 - Controlling Management Co., Ltd principal shareholder receivable shareholder, actual Shenzhen OCT Water and Subsidiary of the first Other accounts controller and its 365.54 1,000.34 - affiliated Electricity Co., Ltd principal shareholder receivable enterprises Subsidiary of the first Other accounts Shenzhen OCT East Co., Ltd 4,230.00 - - principal shareholder receivable Shanghai Huali Packing Co., Subsidiary of the first Account (123.99) (2,652.80) Ltd principal shareholder receivable Shenzhen Huali Packing & Subsidiary of the first Account (353.27) (789.43) Trading Co., Ltd principal shareholder receivable Subsidiary of the first Account Anhui Huali Packaging Co., Ltd - (4,419.18) principal shareholder receivable Shenzhen Huayou Packing Co., Subsidiary of the first Account - (1,562.62) Ltd principal shareholder receivable Subtotal – – – 4,485.67 (5,628.45) - Related natural person and cooperation controlled by them Subtotal Subsidiaries and affiliated enterprise of the Company Subtotal Shenzhen Konka Energy Account Affiliated company 113.00 4.03 - Other related Technology Co., Ltd. receivable parties and Longfeng Jianzhi Real Estate Other accounts Affiliated company 3.19 - - affiliated Co., Ltd. Of Huadu, Guangzhou receivable enterprises Shenzhen Dekon Electronics Account Affiliated company (910.64) (4,670.50) - Co., Ltd receivable Subtotal – – – (794.45) (4,666.47) - Total – – – 3,691.22 (10,294.91) - 40 康佳集团股份有限公司 2008 年年度报告 (II) The special explanation and independent opinions given by Independent Directors on external guarantees of the Company and its implementation of Notice of CSRC Concerning Some Issues on Regulating the Funds between Listed Companies and Associated Parties and Listed Companies’ Provision of Guaranty to Other Parties (ZJH 2003 No. 56 Document) According to the requirements of Notice of CSRC Concerning Some Issues on Regulating the Funds between Listed Companies and Associated Parties and Listed Companies’ Provision of Guaranty to Other Parties (ZJH [2003] No. 56 Document), we, as the Independent Directors of KONKA GROUP CO., LTD (hereinafter refer to as “the Company”), examined capital transaction with affiliated parties as well as external guarantees provided by the Company, and carefully read the Auditors’ Report 2008 and the Special Statement on Fund Appropriation by the Controlling Shareholder and Affiliated Parties of KONKA GROUP CO., LTD, which were issued by BDO. Guangdong Dahua Delu CPA, LLP.. The independent opinions were expressed as follows: 1. As of Dec. 31, 2008, large shareholders of the Company did not appropriate capital of the Company; it was normal for the business transaction when such affiliated parties of large shareholders as Shenzhen Overseas Chinese Town Real Estate Co., Ltd, Shenzhen Overseas Chinese Town Property Management Co., Ltd and Shenzhen Overseas Chinese Town Water and Electricity Co., Ltd appropriated capital of the Company due to collecting deposits and other timing difference. 2. The Company had routine affiliated transactions of packing materials for color TV with such subsidiaries indirectly controlled by the Company’s large shareholders as Shanghai Huali Packing Co., Ltd, Shenzhen Huali Packing & Trading Co., Ltd, Anhui Huili Packing Co., Ltd, and Shenzhen Huayou Packing Co., Ltd. The affiliated transactions had been submitted to and approved by the Board meeting, with relevant information disclosed. The affiliated companies of the Company had affiliated transactions of video wall with the controlling subsidiaries of the Company’s large shareholders such as Shenzhen OCT East Co., Ltd and Chengdu Tianfu OCT Industrial Development Co., Ltd. As for the affiliated transactions above, the Company conducted settlements with the affiliated parties at regular intervals according to the agreement in contracts, and the Company had no non-business capital transaction. 3. In 2008, the Company did not have any non-business capital transaction with large its shareholders and their affiliated parties. 4. As of Dec. 31, 2008, the Company operated normatively and had no external guarantee. To sum up, we believed that there was no breach of the regulation of ZJF [2003] No. 56 in the Company. Independent Director: Feng Yutao, Yang Haiying and Zhang Zhong XV. Explanation on adjustment in accounting items I. Shenzhen Financial Ombudsman's Office of Ministry of Finance examined quality of accounting information of 2007 in Jul. 2008, in light of the examination conclusion and treatment decision, the Company has made correction on the accounting errors for the year of 2007 as presented in the conclusions, and conducted accounting treatment for the significant accounting errors with Retrospective Restatement method when preparing the comparative statements for the year of 2008. The detailed information and influences concerning significant accounting errors are as follows: (I) With a view to avoiding the risk of fluctuation in exchange, the Company handled NDF portfolio business in the bank in 2007, which was pledge of fixed deposit and acquired loans of USD. In 2007, the Company recognized and measured the business in accordance with requirements in Accounting Standards for Business Enterprise No. 24-Hedging, and considered that the event does not confirm Article 16 of Accounting Standards for Business Enterprise No. 24-Hedging, Article 2 of Application Guideline and (V) Article 25 of Accounting Standards of PRC. In this year, the Company adjusted to confirm and measure in accordance with Accounting Standards for Business Enterprise No.22-Recognition and Measurement of Financial Instruments and restated financial statement 2007 with retrospective and restatement method. Due to influence of the error, increased monetary capital on 31 Dec. 2007 RMB 1,032,235,139.55, transaction financial assets increased RMB 22,840,195.08, notes receivable increased RMB 263,937,600.00, interest receivable increased RMB 12,477,951.79, arbitraged items decreased RMB 1,222,806.47, arbitrage instruments decreased RMB 8,293,387.77, short-term borrowings decreased RMB 1,259,269,907.72, transaction financial liabilities increased RMB 40,089,820.00, interest payable increased RMB 22,356,752.51, capital reserves decreased RMB 8,293,397.77, financial expense decreased RMB 25,801,224.64 and income from change of fair value decreased RMB 17,249,624.92. Due to the above events, net profit in 2007 increased RMB 8,551,599.72 and retained profit increased RMB 8,551,599.72. (II) At the end of 2007, the subsidiaries of the Company-Shenzhen Konka Information Network Co., 41 康佳集团股份有限公司 2008 年年度报告 Ltd. and Shenzhen Konka Household Appliances Co., Ltd. had negative net assets, which caused the Company to undercount the assets depreciation reserves by RMB 33,232,484.69. According to examination conclusions, the Company fails to withdraw the assets deprecation reserves in accordance with the regulations as specified in the Accounting Standard for Business Enterprises No.8--Assets Depreciation. Affected by it, when prepared financial statements for the year of 2008, the Company has adjusted the comparative data of parent company for the year of 2007, increased long-term equity investment depreciation reserves by RMB 33,232,484.69 and reduced the retained profits by RMB 33,232,484.69. II. In the year of 2007, the Company made the retrospective adjustment on the long-term equity investment of subsidiary companies in accordance with Accounting Standards for Business Enterprises. Initial investment costs for Dongguan Kaonka Electronic Co., Ltd. are overstated RMB 12,982,156.25, initial investment costs for Shenzhen Konka Household Appliances Co., Ltd understated RMB 1,074,221.97, initial investment cost for Chongqing Qingjia Electronic Co., Ltd overstated RMB 3,000,000.00, initial investment cost for KONKA AMERICA, INC and Konka (Pacific) Electronic Co., Ltd has been canceled overstated RMB 17,706,170.72, which caused retained profit of parent company at the period-begin overstating RMB 32,614,105.00. When prepared financial statement 2008, the Company adjusted comparative data of parent company, long-term equity investment decreased RMB 32,614,105.00 and undistributed profit decreased RMB 32,614,105.00. III. Influenced by the timing difference of final settlement of business income tax, for the Company, the difference between the income tax payable after the final settlement of business income tax and the carrying amount of current income tax was RMB -3,682,204.87 in the year of 2006, and the difference between the income tax payable after the final settlement of business income tax and the carrying amount of current income tax was RMB 10,658,353.30 for the year of 2007. In order to make the final settlement of business income tax payable identical with the carrying amount of income tax, the Company has made the retroactive adjustment for the financial statements for the year of 2007 to increase the tax payable-business income tax expenses by RMB 6,976,148.43, and increase the income tax expenses for the year of 2007 by RMB 10,658,353.30. The aforementioned events has influenced the net profit to decreased RMB 10,658,353.30, tax payable indecreased RMB 6,976,148.43, income tax expenses increased RMB 10,658,353.30, and undistributed profit decreased RMB 6,976,148.43 for the year of 2007. IV. In accordance with the regulations as specified in Accounting Standard for Business Enterprises No.38-Initial Implementation of Accounting Standards for Enterprises, the land tenancy that has been recorded in construction work in progress and fixed assets prior to the initial implementation date, eligible for the standard of intangible assets shall be recognized as the intangible assets, and shall be reclassified on the initial implementation date. The segments ascribing to the land tenancy shall be separated from the accounting values, be taken as the recognized costs of land tenancy, and be treated subject to the regulations of intangible assets standards. According to the above regulations, the Company has made adjustment for the land tenancy calculated subject to the fixed assets, and made restatement for the financial statements for the year of 2007. Under influence of the said reclassification, the intangible assets have been increased by RMB 16,070,982.37, fixed assets have been reduced by RMB 16,070,982.37 and construction in progress decreased RMB 16,888,006.69. Influences of aforesaid adjustment on the Comparative Financial Statements 2007 of parent company are as follows: Items After adjustment Before adjustment Adjusted amount Monetary fund 1,408,031,605.07 556,082,988.52 851,948,616.55 Transaction financial assets 22,840,195.08 --- 22,840,195.08 Notes receivable 2,795,341,615.11 2,531,404,015.11 263,937,600.00 Interest receivable 10,408,705.86 --- 10,408,705.86 Arbitrage project --- 1,268,883.47 (1,268,883.47) Arbitrage tool --- 6,945,398.81 (6,945,398.81) Long-term equity investment 758,072,537.19 823,919,126.88 (65,846,589.69) Construction in progress 39,443,796.12 56,331,802.81 (16,888,006.69) Intangible assets 20,731,159.66 3,843,152.97 16,888,006.69 42 康佳集团股份有限公司 2008 年年度报告 Short-term loans 1,084,909,105.72 --- 1,084,909,105.72 Transaction financial liabilities 34,738,640.00 --- 34,738,640.00 Tax payable 42,471,363.43 35,495,215.00 6,976,148.43 Interest payable 18,806,676.01 --- 18,806,676.01 Capital surplus 1,869,357,278.29 1,876,302,677.10 (6,945,398.81) Financial expenses 3,429,346.76 24,739,603.97 (21,310,257.21) Gains and losses from change of fair value (11,898,444.92) --- (11,898,444.92) Income tax expense 25,989,601.39 15,331,248.09 10,658,353.30 Net profit 238,115,008.75 239,361,549.76 (1,246,541.01) Undistributed profits 379,887,701.30 443,298,627.13 (63,410,925.83) Influences of aforesaid adjustment on the Consolidate Financial Statements 2007 of parent company are as follows: Items After adjustment Before adjustment Adjusted amount Monetary fund 1,784,793,554.02 752,558,414.47 1,032,235,139.55 Transaction financial assets 22,840,195.08 --- 22,840,195.08 Notes receivable 2,916,377,359.85 2,652,439,759.85 263,937,600.00 Interest receivable 12,477,951.79 --- 12,477,951.79 Arbitrage project --- 1,222,806.47 (1,222,806.47) Arbitrage tool --- 8,293,387.77 (8,293,387.77) Fixed assets 1,275,584,101.48 1,291,655,083.85 (16,070,982.37) Construction in progress 45,048,689.75 61,936,696.44 (16,888,006.69) Intangible assets 80,732,491.66 47,773,502.60 32,958,989.06 Short-term loans 1,281,269,907.72 22,000,000.00 1,259,269,907.72 Transaction financial liabilities 40,089,820.00 --- 40,089,820.00 Tax payable 16,023,708.56 9,047,560.13 6,976,148.43 Interest payable 22,422,410.53 65,658.02 22,356,752.51 Capital surplus 1,876,606,062.32 1,884,899,450.09 (8,293,387.77) Financial expenses 15,050,936.06 40,852,160.70 (25,801,224.64) Gains and losses from change of fair value (17,249,624.92) --- (17,249,624.92) Income tax expense 44,526,238.06 33,867,884.76 10,658,353.30 Net profit 211,924,146.49 214,030,900.07 (2,106,753.58) Undistributed profits 273,047,084.22 271,471,632.93 1,575,451.29 XVI. Fair Value Measurements (I) Rules for internal control relevant to fair value (I) Internal control rules concerning fair value The Company defined the scope of application of the fair value measurement, conducted confirmed measurement on the businesses relating to fair value measurement, strictly implemented the decision-making and approving procedures concerning the purchase and sale of the projects relating 43 康佳集团股份有限公司 2008 年年度报告 to fair value measurement, made clear the purchasing and holding purposes, and disclosed the relevant information according to the share listing rules. In terms of the institution, the Company strengthened its supervision on the management, so as to prevent the use of fair value to manipulate the Company’s financial information. At the same time, the Company strengthened its efforts in providing relevant trainings to its financial personnel and punishing those violating the relevant laws and regulations. (II) Items relevant to fair value measurement Unit: (RMB) Yuan Profits and Change of fair Withdrawal losses due to value of Amount at the Amount at the Items change of fair cumulatively devaluation period-begin period-end value in the accounted in the period into equity period Financial assets: Including: 1. The financial assets measured by fair value, whose variations are 22,840,195.08 (22,840,195.08) 0.00 0.00 accounted into the current profits and losses Including ：Ramified 22,840,195.08 (22,840,195.08) 0.00 0.00 financial assets 2. Financial assets 21,021,141.77 (22,576,240.34) (1,555,098.57) 0.00 (1,555,098.57) available for sale Sub-total of Financial 43,861,336.85 (45,416,435.42) (1,555,098.57) 0.00 (1,555,098.57) Assets Financial Liabilities 40,089,820.00 (27,607,939.84) 0.00 0.00 12,481,880.16 Investment Real Estate 0.00 0.00 0.00 0.00 0.00 Capitalized biological 0.00 0.00 0.00 0.00 0.00 assets Others 0.00 0.00 0.00 0.00 0.00 Total 83,951,156.85 (73,024,375.26) (1,555,098.57) 0.00 10,926,781.59 (III) Particulars about financial assets and liabilities of foreign exchange held by the Company XVII. Other events (I) In the report period, the Company continued to designate Securities Times as the newspaper for information disclosure without any change. (II) The Company continued to engage BDO. Guangdon Dahua Delu CPA, LLP.to take charge of the Company’s annual auditing 2008. Section IX. Report of the Supervisory Committee I. Particulars about the work of the Supervisory Committee th th During the report period, the 6 Supervisory Committee of the Company held 7 meetings: the 4 to th th 10 meeting of the 6 Supervisory Committee, with details of the meetings and the resolutions as follows: th th (I) The 4 meeting of the 6 Supervisory Committee of the Company was held at the meeting room in the office building of KONKA GROUP, Shenzhen OCT, on Apr. 3, 2008 (Thursday), which deliberated and approved the Annual Report 2007 and its Summery, as well as the Self-Appraisal Report on Internal Control. th th (II) The 5 meeting of the 6 Supervisory Committee of the Company was held through fax on Apr. 24, 2008 (Thursday), which deliberated and approved the First Quarterly Report 2008 of KONKA GROUP CO., LTD. th th (III) The 6 meeting of the 6 Supervisory Committee of the Company was held through fax on May 4, 2008 (Sunday), which deliberated and approved the Report on the Work of the Supervisory Committee 2007 and the Proposal on Increasing Some Supervisors. th th (IV) The 7 meeting of the 6 Supervisory Committee of the Company was held through fax on May 26, th 2008 (Monday), which elected Mr. Dong Yaping as Chairman of the 6 Supervisory Committee of the Company. th th (V) The 8 meeting of the 6 Supervisory Committee of the Company was held through fax on Jul. 17, 2008 (Thursday), which deliberated and approved the Self-Check Report on Capital Appropriation by Large Shareholders and their Affiliated Parties. 44 康佳集团股份有限公司 2008 年年度报告 th th (VI) The 9 meeting of the 6 Supervisory Committee of the Company was held through fax on Aug. 21, 2008 (Thursday), which deliberated and approved the Semi-Annual Report 2008 of KONKA GROUP CO., LTD and its Summery. th th (VII) The 10 meeting of the 6 Supervisory Committee of the Company was held through fax on Oct. 27, 2008 (Monday), which deliberated and approved the Third Quarterly Report 2008 of KONKA GROUP CO., LTD. Resolutions of the aforesaid meetings of the Supervisory Committee were published on the newspapers designated by CSRC: China Securities Journal, Securities Times, Shanghai Securities News and Hong Kong Ta Kung Pao, as well as the designated internet website www.cninfo.com.cn respectively on Apr. 8, 2008, Apr. 28, 2008, May 6, 2008, May 28, 2008, Aug. 2, 2008, Aug. 23, 2008, Oct. 29, 2008. II. Independent opinions of the Supervisory Committee In 2008, the Supervisory Committee seriously fulfilled its duties authorized by Shareholders’ General Meeting with responsible attitude towards shareholders and according to provisions in the Company Law, Securities Law and the Article of Association. Members of the Supervisory Committee attended the Board meetings and conducted supervision and examination on the voting procedures of significant decision-makings and resolutions, as well as the operation of the Company according to laws. (I) The operation of the Company according to laws After understanding the situation through supervision, the Supervisory Committee believed that the Company had followed the requirement of special campaign released by CSRC and Shenzhen Stock Exchange, to establish sound internal control system covering every section of the Company based on the actual situation of the Company, ensuring the normal business operation, as well as sound and completeness of assets of the Company. The internal control organization of the Company was complete and its operation was effective, ensuring the standard operation of the Company according to laws. Directors of the Company attended the meetings of the Board and Shareholders’ General Meetings with serious and responsible attitude, and fulfilled various resolutions based on the resolutions of Shareholders’ General Meetings. As Directors were familiar with relevant laws and regulations, as well as the rights, duties and responsibility of Directors, they performed their duties carefully. During their tenure of office, Directors and Senior Executives of the Company implemented the Articles of Associations and the spirits of Shareholders’ General Meetings. There was no breach of laws, regulations, and laws of association or behavior damaging the interest of the Company. (II) Inspection of the Company’s financial status The Annual Financial Report 2008 of the Company was audited by BDO. Guangdong Dahua Delu CPA, LLP. and a standard unqualified Auditor’s Report was issued. The report had truly reflected the actual financial status and operation achievements of the Company. (III) Utilization of raised proceeds of the Company The Company did not raise proceeds in the recent three years. The latest raised proceeds of the Company were actually invested those promised projects. (IV) Acquisition and disposal of assets by the Company In the report period, the transaction price of acquisition and disposal of assets by the Company was reasonable and no insider trading was found. The interests of small, middle and large shareholders were fairly treated and no loss of the Company's assets was found. (V) Opinion on affiliated opinions 1. The Company involved in routine affiliated transactions with the subsidiaries of its controlling shareholders, including paying property management fee, water and electricity expenses and purchase of goods, which were all fair transactions at normal market price, thus they did not harm the interests of the Company and other shareholders of the Company. 2. In the report period, based on its actual demand of production and operation, the Company had routine affiliated transactions of packing materials for color TV with such subsidiaries indirectly controlled by the Company’s large shareholders as Shanghai Huali Packing Co., Ltd, Shenzhen Huali Packing & Trading Co., Ltd, Anhui Huili Packing Co., Ltd, and Shenzhen Huayou Packing Co., Ltd. The affiliated transactions had been submitted to and approved by the Board meeting, with relevant information disclosed. The affiliated companies of the Company had affiliated transactions of video wall with the controlling subsidiaries of the Company’s large shareholders such as Shenzhen OCT East Co., Ltd and Chengdu Tianfu OCT Industrial Development Co., Ltd. The transaction between the Company and the aforesaid affiliated parties were carried out on the basis of equality and consultation, without damaging the interest of the Company and all shareholders. 3. In the report period, the Company was not involved in joint external investment with affiliated 45 康佳集团股份有限公司 2008 年年度报告 parties. (VI) Self-Appraisal Report on Internal Control The Company has established and improved various internal control systems according to the relevant provisions of CSRC and Shenzhen Stock Exchange and based on its actual situation, to ensure normative and orderly operation of various activities in the Company; the current internal control of the Company is basically in line with the relevant requirements of the corporate governance structure, and the internal control system was relatively sound and feasible. After various systems have been established, they were effectively implemented and had relatively good supervision over as well as good guidance to standard operation of the Company. There was no obvious weak section or significant defect in the internal control system of the Company. In the report period, no breach of Guidelines for Internal Control of Shenzhen Stock Exchange or internal control system of the Company occurred in the Company. We believed that the current internal control system of the Company was in line with the requirements of securities regulatory authorities such as CSRC and Shenzhen Stock Exchange. The internal control system was sound and implemented effectively. The Self-Appraisal Report on Internal Control 2008 of the Company reflected the establishment and implementation of the Company’s internal control truly and objectively. Section X. Significant Events I. Significant lawsuits and arbitration In 2008, the Company had no significant lawsuits or arbitrations. II. Significant acquisitions and mergers The Company was not involved in any significant acquisition or merger in 2008. III. Particulars about securities investment (I) Particulars about equity of other listed companies held by the Company Amount of Proportion Gains and Change in Book value at Financial Short form of initial in the equity losses in owners’ Source of Stock code the end of accounting stock investment of the said the report equity in the shares period subject (RMB) company period report period Financial Subscription 000002 Vanke 2,311,748.07 0.00％ 756,649.50 0.00 -1,357,870.46 available of new stock for sale Financial Subscription 600891 ST CHURIN 9,000,000.00 3.84％ 9,000,000.00 0.00 0 available of corporate for sale shares Total - 11,311,748.07 - 9,756,649.50 0.00 -1,357,870.46 - - Note: 1. The form was about the equity of other listed companies held by the Company, which was calculated belonging to long-term equity investment and financial assets available for sale. 2. Gains and losses in the report period refer to the influence on the consolidated net profit in the report period caused by this investment. (II) Particulars about purchase and sale of equity of other listed companies Amount of shares Amount of shares Amount of shares Amount of Amount of used Name of stock at the bought in the sold in the report shares at the Investment income capital period-begin report period period period-end Hefei Urban 0 2,500 2,500 0 39,000 28,157.62 Construction Nanyang 0 3,000 3,000 0 45,360 38,136.00 Western Mining 85,000 0 85,000 0 0 1,307,281.05 CITIC 30,766 0 30,766 0 0 6,196.16 Securities Bank of Beijing 82,000 0 82,000 0 0 176,800.77 Construction 1,258,000 0 1,258,000 0 0 844,675.34 Bank China Oilfield 53,000 0 53,000 0 0 734,812.02 Service China Shenhua 192,000 0 192,000 0 0 1,235,154.03 China Petroleum 488,000 0 488,000 0 0 423,442.22 46 康佳集团股份有限公司 2008 年年度报告 CPIC 6,000 0 6,000 0 0 41,795.13 Sanlian 111,540 0 111,540 0 0 618,581.93 Commercial Co. IV. Significant affiliated transactions (I) In 2008, the Company had some affiliated transactions with the subsidiaries of the controlling shareholder (Overseas Chinese Town Group Company), including paying property management fee, water and electricity expenses, land use fee and purchase of goods, etc, all of which were fair transactions at normal market prices. These transactions did not harm the interest of the Company or other shareholders of the Company. For details, please refer to “(4) Transactions with affiliated companies” and “(5) Current with affiliated companies” in the “Note 10 to the accounting statements” in the financial report. (II) Routine affiliated transactions in the report period are as follows: Unit: RMB (Yuan) Further Proportion Type of classification in the same affiliated according to Affiliated person Total type of transaction product transaction or labor service Anhui Huali Packing Co., 37,770,736.55 0.52% Ltd Shenzhen Huali Packing & Purchase of 6,747,272.28 0.09% Raw materials Trading Co., Ltd raw 80,547,214.01 for color TV Shenzhen Huayou Packing materials 13,355,685.20 0.18% Co., Ltd Shanghai Huali Packing Co., 22,673,519.98 0.31% Ltd Notes: Proportion in the same type of transaction refers to the proportion in raw materials for TV use. 1. The Company has published the Forecasting Public Notice on Routine Affiliated Transaction (public notice No. 2008-08) on Securities Times, Shanghai Securities News, China Securities Journal and Hong Kong Ta Kung Pao as well as the Internet website designated by CSRC http://www.cninfo.com.cn on Apr. 8, 2008. In the report period, the basis for pricing, transaction price, transaction amount and settlement methods of raw packaging material purchased by the Company from Shanghai Huali Packing Co., Ltd. Shenzhen Huali Packing & Trading Co., Ltd, Anhui Huali Packing Co., Ltd and Shenzhen Huayou Packing Co., Ltd were basically in accordance with the forecast. 2. Business transactions between the Company and the above affiliated enterprises were carried out based on the general market operation rules and the principle of fairness and justice. The Company treated such enterprises as equally as other transaction enterprises, and there was no damage to interests of the Company and all of its shareholders. 3. Affiliated transactions of the Company with the above affiliated parties occurred in daily operation of the Company. They were carried out based on the principle of public bidding, and were necessary. The Company would continue the cooperation of fairness and mutual benefits with them, given the operation and development of the Company was stable. The aforesaid affiliated transactions were beneficial for maintaining the long-term cooperation between the Company and affiliated parties as well as promoting development of the Company’s production and operation. (III) Guarantees between the Company and the affiliated parties In the report period, no guarantee occurred between the Company and the affiliated parties. (IV) Joint external investment between the Company and the affiliated parties In the report period, the Company did not involve in joint external investment with affiliated parties. V. Significant contracts and their fulfillment (I) In the report period, the Company had no significant trusteeship, contract or lease of assets of other companies, nor did any other companies have trusteeship, contract or lease of assets of the Company. (II) Significant guarantee In the report period, no significant guarantee occurred in the Company. (III) In the report period, the Company had no trust financing. 47 康佳集团股份有限公司 2008 年年度报告 (IV) In the report period, the Company had no other significant contract. VI. Commitment (I) When the Company launched share merger reform in 2006, OCT Group Corporation, a shareholder of the Company, made commitment as follows: Fulfillment of Name of shareholder Particular events in commitment Note commitment (1) To promise that non-tradable shares of Konka Group held by it will Up to now, there not get listed or transferred within 24 months since the day it acquires is no the right of listing and trading in A share market. shares subject OCT Group (2) At the expiration of the aforesaid period, original non-tradable to Corporation shares of Konka Group traded through listing at Stock Exchange will not moratorium exceed 5% of total shares of Konka Group within 12 months and not exceed listed or 10% within 24 months. Transferred. (II) There are no other commitments disclosed on designed newspapers and website by the Company or shareholders with more than 5% shares. VII. CPA firm and its remuneration nd With deliberation and approval of the 2 Extraordinary Shareholders' General Meeting 2008, the Company engaged BDO. Guangdon Dahua Delu CPA, LLP.to take charge of annual auditing of the Company’s financial statement 2008. So far, this firm has provided audit services for the Company for 7 consecutive years. In 2008, the financial audit fee that the Company paid to the CPA firm was RMB 730,000 for A shares domestic auditing. VIII. Particulars about reception of visit and investigation of the Company in the report period In the report period, the Company provided materials, which had been disclosed, to the visitors, in accordance with provisions in Guidelines of Fair Information Disclosure for Companies Listed on the Shenzhen Stock Exchange, Administrative Methods for Information Disclosure of Konka Group Co., Ltd and Investor Relations Management System of Konka Group Co., Ltd. Besides, the Company provided objective, true, accurate and complete information for visitors, which reflected actual operation and management; meanwhile, no significant non-public information was disclosed or leaked out. In the report period, reception of visit & investigation are as follows: Content of discussion and materials Time Place Method Visitor provided Status quo of production and operation, Meeting room of the Guosen Securities Co., Ltd, E Fund products structure, Research & Feb. 26, 2008 Field research Company Management Co., Ltd Development of new products and outlook of the Company Core competitive power, development Meeting room of the Mar. 3, 2008 Field research Deutsche Bank strategy, market prospect of new Company products and progress of relevant work Meeting room of the China Jianyin Investment Mar. 6, 2008 Field research Company profile and industry status Company Securities Co., Ltd Development trend of industry and Meeting room of the Mar. 12, 2008 Field research China Galaxy Securities Co., Ltd status of the Company in the industry, Company development strategy of the Company Relevant policies and regulations of Meeting room of the Shenyin & Wanguo Securities Co., this industry, particulars about Mar. 20, 2008 Field research Company Ltd subsidiaries and development strategy of the Company Institution such as China Explanatory Southern Fund Management, Annual Report 2008, development Conference on Rongtong Fund Management and Apr. 9, 2008 Novotal Bauhinia Hotel strategy of the Company and outlook of Outstanding securities dealer such as CITIC the Company Achievement Securities, Guotai Junan Securities and so on competitive power, prospect of new Meeting room of the Apr. 10, 2008 Field research Guotai Junan Securities Co., Ltd products and planning of products Company structure development strategy and particulars Meeting room of the Apr. 28, 2008 Field research UBS SDIC Fund Management Co., Ltd about internal administration of the Company Company Development strategy in the future, Meeting room of the Status quo, development trend of color May15, 2008 Field research Changjiang Securities Co., Ltd Company TV and mobile phone industry and development concept of the Company 48 康佳集团股份有限公司 2008 年年度报告 Status quo, development trend of color TV and mobile phone industry and Meeting room of the China Jianyin Investment Jun. 19, 2008 Field research development concept of the Company; Company Securities Co., Ltd particulars about internal administration of the Company Development trend of the industry, the Meeting room of the Jul. 15, 2008 Field research Orient Securities Company’s status in the industry and Company the Company development strategy Core competitiveness and development Meeting room of the strategy of the Company, market Aug. 12, 2008 Field research Guangzhou Securities Company prospect of new products and progress of relevant work Status quo of production and operation, products structure, research and Meeting room of the United Securities, Orient Aug. 21, 2008 Field research development of new products and the Company Securities and SYWG BNP Paribas future development prospect of the Company Dealers such as Galaxy Securities, Orient Securities, Conference room of Industrial Securities etc. and The Company’s investment in LCM LCD Sep. 10, 2008 InterContinental Field research organizations such as Jingshun module project Shenzhen Changcheng, Rongtong funds, Great wall fund etc. The Company’s future development Meeting room of the CCB Principal Assets, CJIS Sep. 17, 2008 Field research strategy and relevant information on Company Securities internal management The Company’s future development strategy, status quo, development Meeting room of the Sep. 24, 2008 Field research Bohai Securities trend of color TV and mobile phone Company industry as well as development concept of the Company Status quo, development trend of color TV and mobile phone industry, Meeting room of the Sep. 24, 2008 Field research Harvest funds development concept of the Company, as Company well as relevant information on internal management Status quo of production and operation of the Company, particulars about Meeting room of the Telephone Oct. 28, 2008 Industrial Securities product structure, research and Company conference development of new products, as well as competitiveness of LCD TVs Market prospect of new products, core Meeting room of the Telephone Oct. 28, 2008 CITIC Securities competitiveness of the Company, and Company conference development strategy of the Company The Company’s investment in LCM LCD Meeting room of the module project, basic information Nov. 7, 2008 Field research Harvest funds Company about operation of the Company, and the Company’s status in the industry Construction of projects in High-tech Meeting room of the Industrial Park, development trend of Nov. 11, 2008 Field research China Merchants Securities Company the industry, and the Company’s status in the industry Basic information of the Company, Meeting room of the Nov. 11, 2008 Field research Nikko Asset Management Competitive edge of color TV and Company development strategy of the Company Meeting room of the Development strategy of the Company and Dec. 17, 2008 Field research Northeast Securities Company prospect of the Company’s development Development trend of color TV industry Meeting room of the Dec. 25, 2008 Field research Rongtong Fund Management and competitiveness of the Company’s Company products Particulars about development of color Meeting room of the Dec. 29, 2008 Field research Yinhua Fund TV industry and competition strategy of Company the Company IX. Particulars about purchase and sale of the Company’s shares by Directors, Supervisors and Senior Management Staff as well as the shareholders with more than 5% shares In the report period, Directors, Supervisors and Senior Management Staff as well as the shareholders with more than 5% shares of the Company did no purchase or sell shares of the Company against the laws and regulations. 49 康佳集团股份有限公司 2008 年年度报告 X. Other significant events (Ⅰ) In the reporting period, none of the directors, supervisors, senior management staffs and actual controllers of the Company are punished by securities regulatory authorities. (Ⅱ) With “Forecast Public Notice on Daily Related Transactions”, please refer to the public notice disclosed in China Securities Journal, Shanghai Securities News, Securities Times and Ta Kung Pao, as well as www.cninfo.com.cn on 8 Apr. 2008 (public notice No. 2008-08). (Ⅲ) As for “Suggestive Public Notice on Listing of Shares Subject to Trading Moratorium”, please refer to the public notice disclosed in China Securities Journal, Shanghai Securities News, Securities Times and Ta Kung Pao, as well as www.cninfo.com.cn on 14 May 2008 (public notice No. 2008-20). (Ⅳ) With regard to “Public Notice on Implementation of Transferring Capital Reserve into Stock for the Year 2007”, please refer to the public notice disclosed in China Securities Journal, Shanghai Securities News, Securities Times and Ta Kung Pao, as well as www.cninfo.com.cn on 28 May 2008 (public notice No. 2008-23). (Ⅴ) Concerning “Report on Corporate Governance Rectification”, please refer to the public notice disclosed in China Securities Journal, Shanghai Securities News, Securities Times and Ta Kung Pao, as well as www.cninfo.com.cn on 19 Jul. 2008 (public notice No. 2008-28). (Ⅵ) About “Self-examination Report on Problem concerning Capital Occupation by the Principal Shareholders and Other Related Parties”, please refer to the public notice disclosed in China Securities Journal, Shanghai Securities News, Securities Times and Ta Kung Pao, as well as www.cninfo.com.cn on 2 Aug. 2008. (Ⅶ) With “Public Notice on Outward Investment”, please refer to the public notice disclosed in China Securities Journal, Shanghai Securities News, Securities Times and Ta Kung Pao, as well as www.cninfo.com.cn on 29 Aug. 2008 (public notice No. 2008-33). Section XI. Financial Report I. Audit Report Auditors’ Report HDGS Zi [2009] No. 29 To all shareholders of Konka Group Co., Ltd. We have audited the accompanying financial statements of Konka Group Co., Ltd. (“The Company”), which comprise the balance sheet and consolidated balance sheet as at 31 December 2008 and the income statement and consolidated income statement, cash flow statement and consolidated cash flow statement and Statement of Changes in Shareholder's Equity for the year then end, 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. Auditing 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 50 康佳集团股份有限公司 2008 年年度报告 fairly, in all material respects, the financial position of Shenzhen International Enterprise Co., Ltd as at December 31, 2008, and the results of its operations and its cash flows for the year then ended. BDO. Guangdon Dahua Delu CPA, LLP Certified Public Accountant of China CPA Certified Public Accountant of China CPA China · Shenzhen th 28 April 2009 II. Financial Report (Attachment) Section Ⅻ. Documents for Reference (I) Accounting statements carried with the signatures and seals of legal representative, CFO and person in charge of accounting. (2) Originals of domestic and auditor’s report carried with the seal of Certified Public Accountants, the signature and seal of certified public accountants. (3) Originals of all documents and manuscripts of public notices disclosed on the newspapers designated by CSRC in the report period. (4) Other relevant materials. Board of Directors of Konka Group Co., Ltd. 30 April 2009 51 康佳集团股份有限公司 2008 年年度报告 Konka Group Co., Ltd. Auditors’ Report Year 2008 Contents Page __________________________ __________________ I. Auditors’ Report II. Audited Financial Statement 1. Consolidated Balance Sheet 2. Consolidated Income Statement 3. Consolidated Statement of Change in Shareholders’ Equity 4. Consolidated Cash Flow Statement 5. Balance Sheet 6. Income Statement 7. Statement of Change in Shareholders’ Equity 8. Cash Flow Statement 9. Notes to the Financial Statement 52 康佳集团股份有限公司 2008 年年度报告 Balance Sheet Prepared by Konka Group Co., Ltd. 31 Dec. 2008 Unit: RMB Yuan Closing balance Opening balance Items Consolidation Parent company Consolidation Parent company Current assets: Monetary funds 2,066,252,494.08 1,475,666,531.16 1,784,793,554.02 1,408,031,605.07 Settlement fund reserve Dismantle fund Transaction financial 22,840,195.08 22,840,195.08 asset Notes receivable 2,602,862,135.40 2,490,683,124.51 2,916,377,359.85 2,795,341,615.11 Account receivable 1,326,261,316.54 1,047,632,207.37 1,040,182,919.53 1,784,148,943.42 Account paid in advance 258,992,334.73 202,116,433.21 151,396,359.00 47,409,754.29 Premium receivables Receivables from reinsurers Reinsurance contract reserve receivables Interest receivable 19,905,867.09 17,616,624.79 12,477,951.79 10,408,705.86 Dividend receivable Other account receivable 81,299,762.88 1,069,914,747.28 132,318,283.67 117,507,972.15 Financial assets purchased under agreements to resell Inventories 2,573,776,867.13 1,914,848,396.91 2,934,629,182.87 2,199,304,824.83 Non-current assets due within 1 year Other current assets Total current assets 8,929,350,777.85 8,218,478,065.23 8,995,015,805.81 8,384,993,615.81 Non-current assets: Loans and advance Available for sale 9,756,649.50 9,756,649.50 60,721,570.37 60,721,570.37 financial assets Held to maturity investments Long-term account receivable Long-term equity 21,610,338.75 1,149,511,669.87 51,645,230.53 832,856,526.10 investment Investing property Fixed asset 1,344,177,898.16 417,114,182.46 1,275,584,101.48 357,402,241.11 Project in construction 27,331,613.11 17,412,689.40 45,048,689.75 39,443,796.12 Engineering material Fixed asset disposal Bearer biological asset Oil assets Intangible assets 69,223,899.60 19,277,794.23 80,732,491.66 20,731,159.66 Development expense Goodwill 3,943,671.53 3,943,671.53 Long-term expense to be 19,897,124.12 5,970,948.27 23,849,638.87 4,577,085.48 apportioned Deferred tax assets 91,993,543.01 91,053,354.87 63,408,491.10 60,533,425.93 Other non-current assets Total of non-current 1,587,934,737.78 1,710,097,288.60 1,604,933,885.29 1,376,265,804.77 assets Total assets 10,517,285,515.63 9,928,575,353.83 10,599,949,691.10 9,761,259,420.58 Legal representative: Hou Songrong; CFO Yang Guobin; person in charge of the accounting affairs: Ruan Renzong 53 康佳集团股份有限公司 2008 年年度报告 Balance Sheet (Con.) Prepared by Konka Group Co., Ltd. 31 Dec. 2008 Unit: RMB Yuan Closing balance Opening balance Items Consolidation Parent company Consolidation Parent company Current liabilities: Short-term loans 1,346,375,610.78 1,094,765,111.29 1,281,269,907.72 1,084,909,105.72 Loans from central bank Deposits received and hold for others Placements From Banks Other Financial Institutions Transaction financial 12,481,880.16 10,623,434.10 40,089,820.00 34,738,640.00 liabilities Notes payable 2,637,681,947.36 2,441,813,730.21 3,415,401,298.67 3,205,824,129.42 Account payable 1,571,761,341.98 1,640,897,495.08 995,897,141.52 1,058,762,163.66 Account received in advance 179,376,510.50 110,769,256.44 223,289,431.96 152,867,288.98 Financial assets sold under agreements to repurchase Handling charges and commission payable Employee’s compensation 168,838,494.96 81,507,222.39 162,790,579.83 78,569,552.49 payable Tax payable 14,263,975.12 27,855,510.51 16,023,708.56 42,471,363.43 Interest payable 8,247,223.62 5,511,794.93 22,422,410.53 18,806,676.01 Dividend payable 7,108,659.46 3,336,538.97 Other account payable 527,535,236.31 628,707,957.85 626,548,059.95 421,386,925.01 Due to reinsurers Insurance contract reserve Customer deposits Amount payables under security underwriting Non-current liabilities due within 1 year Other current liabilities Total current liabilities 6,473,670,880.25 6,042,451,512.80 6,787,068,897.71 6,098,335,844.72 Non-current liabilities: Long-term borrowings Bonds payable Long-term payables Specific purpose account payables Deferred income 43,578,369.62 39,442,369.62 29,826,225.37 26,238,018.39 Provisions for contingent liabilities Deferred tax liabilities 563,067.21 3,783,805.52 3,783,805.52 Other non-current liabilities Total non-current liabilities 44,141,436.83 39,442,369.62 33,610,030.89 30,021,823.91 Total liabilities 6,517,812,317.08 6,081,893,882.42 6,820,678,928.60 6,128,357,668.63 Owner’s equity (or shareholders’ equity) Paid-in capital (or share 1,203,972,704.00 1,203,972,704.00 601,986,352.00 601,986,352.00 capital) Capital surplus 1,256,138,295.21 1,248,889,511.18 1,876,606,062.32 1,869,357,278.29 Less: Treasury Stock Reserved fund 804,896,533.82 804,896,533.82 781,670,420.36 781,670,420.36 General risk provision Retained earnings 500,638,125.11 588,922,722.41 273,047,084.22 379,887,701.30 Foreign exchange difference 9,397,273.34 7,799,216.25 Total owners' equity 3,775,042,931.48 3,846,681,471.41 3,541,109,135.15 3,632,901,751.95 attributable to holding company Minority interest 224,430,267.07 238,161,627.35 Total owner’s equity 3,999,473,198.55 3,846,681,471,41 3,779,270,762.50 3,632,901,751.95 Total liabilities and owner’s 10,517,285,515.63 9,928,575,353.83 10,599,949,691.10 9,761,259,420.58 equity Legal representative: Hou Songrong; CFO Yang Guobin; person in charge of the accounting affairs: Ruan Renzong 54 康佳集团股份有限公司 2008 年年度报告 Income Statement Prepared by Konka Group Co., Ltd. Jan.- Dec. 2008 Unit: RMB Yuan Amount in 2008 Amount in 2007 Items Consolidation Parent company Consolidation Parent company I. Total sales 12,205,292,227.57 10,404,759,255.68 12,169,078,369.50 10,136,442,833.46 Including: Sales 12,205,292,227.57 10,404,759,255.68 12,169,078,369.50 10,136,442,833.46 Interests income Premium income Handling charges and commission income II. Total cost of sales 11,923,227,894.81 10,210,565,592.50 11,904,966,339.71 9,875,633,052.82 Including: Cost of sales 9,883,102,555.52 8,578,370,891.22 9,804,186,357.31 8,349,432,840.50 Interests expenses Service charge and commission income Cash surrender value Claim expenses-net Provision for insurance contract reserves-net Insurance policy dividend paid Reinsurance expense Business taxes and surcharges 4,170,880.39 2,014,068.88 3,166,505.49 1,552,583.44 Distribution expenses 1,520,386,793.94 1,298,039,993.30 1,592,452,280.71 1,247,295,867.22 Administrative expenses 432,537,982.69 278,393,120.10 418,146,607.17 219,553,979.30 Financial costs 1,318,507.81 -5,457,859.940 15,050,936.06 3,429,346.76 Impairment loss 81,711,174.46 59,205,378.94 71,963,652.97 54,368,435.60 Add: gain/(loss) from change in fair value (“-” means -12,481,880.16 -10,623,434.10 -17,249,624.92 -11,898,444.92 loss) Gain/(loss) from investment -3,708,539.71 47,416,697.46 8,642,402.90 14,823,529.04 (“-” means loss) Including: income form investment on affiliated -690,035.55 -621,235.60 489,704.91 enterprise and jointly enterprise Foreign exchange difference (“-” means loss) III. Business profit (“-” 265,873,912.89 230,986,926.54 255,504,807.77 263,734,864.76 means loss) Add: non-business income 27,884,850.52 20,426,770.27 12,004,715.77 6,263,555.79 Less: non-business expense 12,912,868.89 5,765,589.53 11,059,138.99 5,893,810.41 Including: loss from 6,652,412.36 786,967.07 4,022,131.66 844,077.27 non-current asset disposal IV. Total profit (“-” means 280,845,894.52 245,648,107.28 256,450,384.55 264,104,610.14 loss) Less: Tax expense 22,521,423.18 13,386,972.71 44,526,238.06 25,989,601.39 V. Net profit (“-” means 258,324,471.34 232,261,134.57 211,924,146.49 238,115,008.75 loss) -Attributable to parent 250,817,154.35 232,261,134.57 207,091,715.42 238,115,008.75 company -Minority interest 7,507,316.99 4,832,431.07 VI. Earnings per share (I) Basic earnings per share 0.2083 0.1925 0.1720 0.1978 (II) Diluted earnings per 0.2083 0.1925 0.1720 0.1978 share Legal representative: Hou Songrong; CFO Yang Guobin; person in charge of the accounting affairs: Ruan Renzong 55 康佳集团股份有限公司 2008 年年度报告 Cash Flow Statement Prepared by Konka Group Co., Ltd. Jan.- Dec. 2008 Unit: RMB Yuan Amount in 2008 Amount in 2007 Items Consolidation Parent company Consolidation Parent company I. Cash flows from operating activities Cash received from sales of goods or rending of 13,416,342,914.29 11,822,441,609.73 13,386,374,956.57 11,512,110,206.85 services Net increase of deposits received and held for others Net increase of loans from central bank Net increase of inter-bank loans from other financial assets Cash received against original insurance contract Net Cash received from reinsurance Net increase of client deposit and investment Net increase of disposal of tradable financial assets Cash received as Interests, fees and commissions received Net increase of inter-bank fund received Cash received under repurchasing, net Tax returned 77,849,353.60 335,272.97 78,634,125.53 27,721,677.97 Other cash received from operating activities 103,203,885.47 77,403,447.32 140,214,264.67 77,887,505.21 Sub-total of cash inflow from operating 13,597,396,153.36 11,900,180,330.02 13,605,223,346.77 11,617,719,390.03 activities Cash paid for goods and services 10,236,431,232.19 9,296,806,289.76 10,775,320,718.69 9,702,479,354.42 Net increase of loans and advances Net increase of deposit in central bank, banks and other financial institutions Cash paid for original contract claim Cash paid for interests, fees and commission Cash paid for policy dividend Cash paid to and for employees 850,940,738.59 476,441,125.65 756,984,289.09 401,269,729.66 Cash paid for all types of taxes 1,025,589,614.95 830,230,406.87 875,665,140.84 646,240,176.22 Other cash paid relating to operating 1,121,792,489.34 942,562,270.19 1,162,113,699.30 811,530,696.60 activities Sub-total of cash outflows 13,234,754,075.07 11,546,040,092.47 13,570,083,847.92 11,561,519,956.90 Net cash outflow in operating activities 362,642,078.29 354,140,237.55 35,139,498.85 56,199,433.13 II. Cash Flows from Investing Activities Cash received from return of investments 47,065,893.48 32,897,970.86 30,977,811.00 40,732,161.47 Cash received from investment income 5,460,641.00 50,832,140.42 8,773,933.59 23,722,175.72 Net cash received from disposal of fixed assets, 40,466,824.25 40,215,771.28 4,327,896.35 514,979.70 intangible assets and other long-term assets Net cash received from disposal of subsidiaries 24,150.00 24,150.00 and other operating units Other cash received relating to investing 29,198,806.33 29,032,353.91 2,056,103,685.21 2,056,103,685.21 activities Sub-total of cash inflows of investing 122,216,315.06 153,002,386.47 2,100,183,326.15 2,121,073,002.10 activities Cash paid for acquisition of fixed assets, 160,001,413.50 18,619,141.20 167,387,122.20 22,231,204.08 intangible assets and other long-term assets Cash paid for acquisition of investments 84,360.00 350,584,360.00 37,714,728.60 136,726,211.10 Net increase of pledge loans Net cash paid for acquisition of subsidiaries and other operating units Other cash paid relating to investing 20,269,150.00 22,547,102.10 2,056,005,544.03 2,056,005,544.03 activities Sub-total of cash outflows of investing 180,354,923.50 391,750,603.30 2,261,107,394.83 2,214,962,959.21 activities Net cash inflow from investing activities -58,138,608.44 -238,748,216.83 -160,924,068.68 -93,889,957.11 III. Cash Flows from Financing Activities: Cash received from investment Including: Cash received from minority shareholders of subsidiaries Cash received from borrowings 2,449,996,862.25 2,160,291,902.78 1,320,311,139.55 1,118,024,616.55 56 康佳集团股份有限公司 2008 年年度报告 Cash received from bonds issuing Cash received relating to financing activities 1,036,141,024.71 855,513,489.19 Sub-total of cash inflows of financing 3,486,137,886.96 3,015,805,391.97 1,320,311,139.55 1,118,024,616.55 activities Cash paid for repayments of borrowings 2,375,918,008.59 2,138,083,790.03 15,000,000.00 Cash paid for dividends, profit distribution or 108,561,447.16 88,329,554.34 69,482,554.53 61,625,830.95 interest Including: dividends or profits paid to minority shareholders by subsidiaries Other cash paid relating to financing 1,204,946,154.12 1,100,051,307.54 1,032,235,139.55 851,948,616.55 activities Sub-total of cash outflows of financing 3,689,425,609.87 3,326,464,651.91 1,116,717,694.08 913,574,447.50 activities Net cash inflow from financing activities -203,287,722.91 -310,659,259.94 203,593,445.47 204,450,169.05 IV. Effect of foreign exchange rate changes -8,747,294.35 -2,184,250.16 -3,490,286.99 2,652,570.55 V. Net decrease in cash and cash equivalents 92,468,452.59 -197,451,489.38 74,318,588.65 169,412,215.62 Add : Opening amount of cash and cash 752,558,414.47 556,082,988.52 678,239,825.82 386,670,772.90 equivalents VI. Closing balance of cash and cash equivalents 845,026,867.06 358,631,499.14 752,558,414.47 556,082,988.52 Legal representative: Hou Songrong; CFO Yang Guobin; person in charge of the accounting affairs: Ruan Renzong 57 Consolidated Statement of Change in Shareholders’ Equity Prepared by Konka Group Co., Ltd. Year 2008 Amount in 2008 Owners’ equity attributable to parent company Items Less: Paid-in capital (share General Risk Capital reserve Treasury Surplus reserve Retained earnings capital) provision stock I. Balance at 31 December, 2007 601,986,352.00 1,884,899,450.09 - 781,670,420.36 271,471,632.93 Plus: Change in accounting policies - - - - - Correction of errors in previous - -8,293,387.77 - - 1,575,451.29 period Other II. Balance at 1 January, 2008 601,986,352.00 1,876,606,062.32 - 781,670,420.36 273,047,084.22 III. Increase/ decrease during the 601,986,352.00 -620,467,767.11 - 23,226,113.46 227,591,040.89 financial year (“-”for loss) (I) Net profit - - - - 250,817,154.35 (II) Gain and loss recognized directly - -18,481,415.11 - - - in equity 1. Net changes in fair value of - - - - - available-for-sale financial assets 2. Effects on changes in equity of - - - - - invested companies under equity method 3. Effects on income tax related with - - - - - items recorded into owners’ equity 4. Other - -18,481,415.11 - - - Subtotal of (I)and (II) - -18,481,415.11 - - 250,817,154.35 (III) Contributions and decrease of - - - - - capital 1. Contributions by shareholders - - - - - 2. Equity settled share-based payment - - - - - 3. Others - - - - - (IV) Profit distribution - - - - - 1. Surplus reserve accrued - - - - - 2. General risk provision accrued 3. Distribution to shareholders - - - - - 4. Others - - - - - (V) Transfer within shareholders' 601,986,352.00 (601,986,352.00) - 23,226,113.46 -23,226,113.46 equity 1. Capital reserve transferred to 601,986,352.00 (601,986,352.00) - 23,226,113.46 -23,226,113.46 capital (share capital) 2. Surplus reserve transferred to - - - - - capital (share capital) 3. Surplus reserve offsetting losses - - - - - 4. Others - - - - - IV. Balance at 31 December, 2008 1,203,972,704.00 1,256,138,295.21 - 804,896,533.82 500,638,125.11 Legal representative: Hou Songrong; CFO Yang Guobin; person in charge of the accounting affairs: Rua 3 Consolidated Statement of Change in Shareholders’ Equity Prepared by Konka Group Co., Ltd. Year 2008 Amount in 2007 Owners’ equity attributable to parent company Items Less: General Risk Paid-in capital (share capital) Capital reserve Surplus reserve Retained earnings Treasury stock provision I. Balance at 31 December, 2007 601,986,352.00 1,859,368,726.07 - 774,853,299.30 136,146,766. Plus: Change in accounting policies - - - 6,817,121.06 (13,219,053.2 Correction of errors in previous - - - - 3,682,204. period Other II. Balance at 1 January, 2008 601,986,352.00 1,859,368,726.07 - 781,670,420.36 126,609,918. III. Increase/ decrease during the - 17,237,336.25 - - 146,437,165. financial year (“-”for loss) (I) Net profit - - - - 207,091,715. (II) Gain and loss recognized directly in - 17,237,336.25 - - equity 1. Net changes in fair value of - 17,237,336.25 - - available-for-sale financial assets 2. Effects on changes in equity of - - - - invested companies under equity method 3. Effects on income tax related with - - - - items recorded into owners’ equity 4. Other - - - Subtotal of (I)and (II) - 17,237,336.25 - - 207,091,715. (III) Contributions and decrease of - - - - capital 1. Contributions by shareholders - - - - 2. Equity settled share-based payment - - - - 3. Others - - - - (IV) Profit distribution - - - - (60,654,549.7 1. Surplus reserve accrued - - - 2. General risk provision accrued 3. Distribution to shareholders - - - - (60,198,635.2 4. Others - - - - (455,914.5 (V) Transfer within shareholders' equity - - - - 1. Capital reserve transferred to - - - - capital (share capital) 2. Surplus reserve transferred to - - - - capital (share capital) 3. Surplus reserve offsetting losses - - - - 4. Others - - - - IV. Balance at 31 December, 2008 601,986,352.00 1,876,606,062.32 - 781,670,420.36 273,047,084. Legal representative: Hou Songrong; CFO Yang Guobin; person in charge of the accounting affairs: Rua 4 Statement of Change in Shareholders’ Equity of Parent Company Prepared by Konka Group Co., Ltd. Year 2008 Amount in 2008 Owners’ equity attributable to parent company Items Less: General Risk Paid-in capital (share capital) Capital reserve Surplus reserve Retained earnings Othe Treasury stock provision I. Balance at 31 December, 2007 601,986,352.00 1,876,302,677.10 - 781,670,420.36 443,298,627.13 Plus: Change in accounting policies - - Correction of errors in previous period - -6,945,398.81 - - -63,410,925.83 Other II. Balance at 1 January, 2008 601,986,352.00 1,869,357,278.29 - 781,670,420.36 379,887,701.30 III. Increase/ decrease during the financial 601,986,352.00 (620,467,767.11) - 23,226,113.46 209,035,021.11 year (“-”for loss) (I) Net profit - - - - 232,261,134.57 (II) Gain and loss recognized directly in - (18,481,415.11) - - - equity 1. Net changes in fair value of - -18,481,415.11 - - - available-for-sale financial assets 2. Effects on changes in equity of invested - - - - - companies under equity method 3. Effects on income tax related with items - - - - - recorded into owners’ equity 4. Other - - - - Subtotal of (I)and (II) - (18,481,415.11) - - 232,261,134.57 (III) Contributions and decrease of capital - - - - - 1. Contributions by shareholders - - - - - 2. Equity settled share-based payment - - - - - 3. Others - - - - - (IV) Profit distribution - - - 23,226,113.46 -23,226,113.46 1. Surplus reserve accrued - - - 23,226,113.46 -23,226,113.46 2. General risk provision accrued 3. Distribution to shareholders - - - - - 4. Others - - - - - (V) Transfer within shareholders' equity 601,986,352.00 (601,986,352.00) - - - 1. Capital reserve transferred to capital 601,986,352.00 (601,986,352.00) - - - (share capital) 2. Surplus reserve transferred to capital - - - - - (share capital) 3. Surplus reserve offsetting losses - - - - - 4. Others - - - - - IV. Balance at 31 December, 2008 1,203,972,704.00 1,248,889,511.18 - 804,896,533.82 588,922,722.41 Legal representative: Hou Songrong; CFO Yang Guobin; person in charge of the accounting affairs: Rua 5 Statement of Change in Shareholders’ Equity of Parent Company Prepared by Konka Group Co., Ltd. Year 2008 Amount in 2007 Owners’ equity attributable to parent company Items Less: Paid-in capital (share General Risk Capital reserve Treasury Surplus reserve Retai capital) provision stock I. Balance at 31 December, 2007 601,986,352.00 1,865,454,242.75 - 774,853,299.30 172 Plus: Change in accounting policies - (13,334,300.71) - 6,817,121.06 91, Correction of errors in previous period - - - - (62, Other II. Balance at 1 January, 2008 601,986,352.00 1,852,119,942.04 - 781,670,420.36 201 III. Increase/ decrease during the financial year (“-”for loss) - 17,237,336.25 - - 177 (I) Net profit - - - - 238 (II) Gain and loss recognized directly in equity - 17,237,336.25 - - 1. Net changes in fair value of available-for-sale financial assets - 17,237,336.25 - - 2. Effects on changes in equity of invested companies under equity method - - - - 3. Effects on income tax related with items recorded into owners’ equity - - - - 4. Other - - - Subtotal of (I)and (II) - 17,237,336.25 - - 238 (III) Contributions and decrease of capital - - - - 1. Contributions by shareholders - - - - 2. Equity settled share-based payment - - - - 3. Others - - - - (IV) Profit distribution - - - - (60, 1. Surplus reserve accrued - - - 2. General risk provision accrued 3. Distribution to shareholders - - - - (60, 4. Others - - - - (V) Transfer within shareholders' equity - - - - 1. Capital reserve transferred to capital (share capital) - - - - 2. Surplus reserve transferred to capital (share capital) - - - - 3. Surplus reserve offsetting losses - - - - 4. Others - - - - IV. Balance at 31 December, 2008 601,986,352.00 1,869,357,278.29 - 781,670,420.36 379 Legal representative: Hou Songrong; CFO Yang Guobin; person in charge of the accounting affairs: Rua 6 康佳集团股份有限公司 2008 年年度报告 Konka Group Co., Ltd. Notes to Financial Statements FY 2008 Unless otherwise specified, the currency in this note is in RMB Note 1. Company Profile Upon approval of People’s Government of Shenzhen Municipality, Konka Group Co., Ltd. (hereinafter referred to as “the Company”) was reorganized from the former Shenzhen Konka Electronic Co., Ltd. to an incorporated company in August 1991. Upon approval of the Special Economic Zone Branch of the People's Bank of China, the Company has issued ordinary shares (A share and B share) and gone public at Shenzhen Stock Exchange. On August 29, 1995, the Company, with its name changed into “Konka Group Co., Ltd.”, obtained the QGYSZ No. 440301501121863 Business License for Enterprise’s Legal Person, with its main business falling into electronic industry. On November 27, 1991, upon approval of the SRYFZ [1991] No. 102 document as issued by the Special Economic Zone Branch of the People's Bank of China, Shenzhen Konka Electronic Co., Ltd., during December 8—December 31, 1991, has issued 128,869,000 ordinary shares (A share) in RMB Yuan, with a par value of RMB￥1.00 per share, of which the original assets were translated into 98,719,000 state-owned corporate shares, 30,150,000 new shares were issued, including 26,500,000 circulating shares issued to the public and 3,650,000 staff shares issued to the staff. On January 29, 1992, upon approval of the SRYFZ [1991] No. 102 document as issued by the Special Economic Zone Branch of the People's Bank of China, Shenzhen Konka Electronic Co., Ltd., during December 20, 1991— January 31, 1992, has issued overseas RMB 58,372,300special shares (B), with a par value of RMB￥1.00 per share, of which the former foreign-invested founder, Hong Kong Ganghua Electronic Group Co., Ltd. holds 48,372,300 shares translated into the foreign legal person’s shares, and 10,000,000 B shares are issued additionally. On April 10, 1993, the Proposal on Profit Distribution and Dividend Payout 1992 was adopted at the second session of general meeting of the Company, upon approval of the SZBF [1993] No. 2 document as issued by Shenzhen Portfolio Management Office, As of April 30, 1993, the Company implemented the profit distribution plan for the year of 1992: presented all shareholders the shares based on RMB￥0.90 in cash plus 3.5 bonus shares for every 10 shares. There was a total equity of 187,473,150 shares after shares were presented. As of April 18, 1994, the third session of general meeting of the Company passed the Proposal on Profit Distribution and Dividend Payout 1993. Upon approval of the SZBF [1994] No. 115 document as issued by Shenzhen Portfolio Management Office, the Company, as of June 10, 1994, implemented the profit distribution plan for the year of 1993: presented all shareholders the shares based on RMB ￥1.10 in cash plus 5 bonus shares for every 10 shares. (Including 4.4 profit bonus shares and 0.6 equity share translated from capital reserve). There was a total equity of 281,209,724 shares after shares were presented and equities were translated from capital reserve. As of June 2, 19994, in accordance with the regulations concerning that “staff share could go public and be transferred six month after listing”, as jointly promulgated by the State Commission for Restructuring and the Economic System Securities Commission of the State Council, as agreed by Shenzhen Portfolio Management Office and Shenzhen Stock Exchange, the staff shares of the Company was listed and negotiated on June 6, 1994. As of October 8, 1994, the Proposal on Negotiable Bonus Share of B-Share Corporate Shareholders 1992 was adopted at the interim general metering 1994 of the Company, upon approval of SZBF[1994] No. 224 document as issued by Shenzhen Portfolio Management Office, The bonus shares of 16,930,305 for the year of 1992 were granted to the foreign-invested corporate shares, and negotiated at B-share market on October 26, 1994. As of February 6, 1996, the Proposal on Shares Allotment Modes 1996 was adopted at the interim general metering 1996 of the Company, upon approval of ZJPSZ [1996] No. 16 document and SZBF[1996] No. 6 document as issued by China National Securities Supervision and Management Committee, on July 16, 1996 and October 29, 1996, all shareholders were respectively allotted shares in proportion of 3:10 at RMB￥6.28/A-share, and HK$5.85/B-share. Corporate shareholders took their respective shares as bases to subscribe the allocable shares in full amount. The total equity was 365,572,641 shares after this shares allotment. As of January 25, 1998, the Proposal on Shares Allotment 1998 was adopted at the interim general metering 1998 of the Company, upon agreement of ZZBZ[1998] No. 29 document as issued by Shenzhen 3 康佳集团股份有限公司 2008 年年度报告 Portfolio Management Office, and upon approval of ZJSZ[1998] No. 64 document as issued by China National Securities Supervision and Management Committee, on July 15, 1998, A-negotiable shares were allotted in proportion of 3:10 at RMB￥10.50/A-share; Due to the reasons attributable to continuously weakening price of B-share secondary market price (lower than share allotment price), etc., B-share negotiation and allotment plan was canceled, and the corporate shareholders of the Company waived this preemptive right. The total equity was 389,383,603 shares after this shares allotment. As of June 30, 1999, the Proposal on Profit Distribution and Capital Reserve Translated into Equity 1992 was adopted at the eighth session of the general meeting of the Company. On August 20, 1999, the profit distribution for the year of 1998 was carried out: all shareholders were presented cash at RMB￥3.00 for every 10 shares, plus 2 shares for every 10 shares translated from capital reserves. The total equity was 467,260,323 shares after translated from capital reserves. As of June 30, 1999, the Plan on A-Share Issue for Capital Increase was adopted at the eighth session of the general meeting of the Company, upon approval of ZJFXZ[1999] No.140 document as issued by China National Securities Supervision and Management Committee, on November 1, 1999, A-shares of 80,000,000 were additionally issued to the public at RMB ￥ 15.50/share. The total equity was 547,260,323 shares after this additional issue. As of May 30, 2000, the Plan on Profit Distribution and Dividend Payout 1999 was adopted at the ninth session of the general meeting of the Company. On July 25, 2000, the profit distribution for the year of 1999 was carried out: all shareholders were presented cash at RMB￥4.00 for every 10 shares, plus 1 bonus shares for every 10 shares. The total equity was 601,986,352 shares after this shares allotment. The Company convened the seventh meeting of the six session of board, approving and adopting the following resolutions: With the total equity of 601,986,352 shares for the year ended on December 31, 2007 as the base, the equities translated from capital reserves are transferred to all shareholders at RMB￥1.00 per share translated from capital reserve. And the said resolution was adopted by the general meeting 2007 convened on May 26, 2008. The Company, in June 2008, implemented the capital reserves translated into equities and went through the formality of transfer at China Securities Depository and Clearing Corporation Limited. On December 16, 2008, upon approval of SMGZF [2008] No. 2662 document as issued by Shenzhen Bureau of Trade and Industry, the Company was agreed to increase equities, and went through the registration of changes at the administration for industry and commerce on April 10, 2009. Approved business scope: Engage in design and production operations for TV, panel TV, radio, stereo, digital-sound playing equipment, CD player, VCD player, DVD player, displayer, refrigerator, electronic dictionary, video recorder, digital record player, air conditioner, telephone set, fax machine, bleeper, pager switching system, interphone, facilities for simultaneous interpretation, computer, electronic watch, fire-control/burglar-alarm system, module, injection mould, copier, rubber products, washing machine, ice locker, computer peripheral equipment, digital modems, new-model display device, High Definition TV (HDTV), mobile phone, set-top box, IPTV product, auto electronic products, intelligent traffic system and components and various packing materials in connection with the products mentioned above, provide the relevant technical consulting service, after-sales paid service, as well as the relevant software development, and engage in wholesales, retails, import/export and relevant supporting services (the commodities involved in quota permit management and specified special management shall be subject to the relevant national regulations). Note 2. Preparation Basis of Financial Statements and Declaration of Following Business Accounting Standards On the going-concern basis, the Company performs the recognition and metering in light of actual transactions and events, according to the Accounting Standards for Business Enterprises-Basic Standards and the regulations of other accounting standards, and prepares the financial statements hereon. The estimates and assumptions are required to prepare the financial statements in conformity with the requirement of China accounting standards, because such estimates and assumptions will influence the disclosure of assets, liability and contingent liability on the date of financial statements, as well as the earnings and expenses during the statements period. The financial statements prepared by the Company conform to the requirements of business accounting standards, and truly and integrally reflect information about financial status, business results, cash flow, etc. of the Company. Note 3 Business Mergers and Consolidated Financial Statements 1． Wholly-owned Subsidiaries 4 康佳集团股份有限公司 2008 年年度报告 Net Investment Balance for Ending Actual Registration Registered Subsidiary Voting Right Name of Wholly-owned Subsidiary Business Nature Investment Holding Proportion Place Capital Materially Proportion Amount Constituted Subsidiary established by Direct Indirect non-business merger. Dongguan Konka Electronic Co., TV, audio and video RMB200,000,000 Dongguan RMB274,780,000 RMB274,780,000 100% — 100% Ltd. products, etc. Anhui Konka Electronic Co., Ltd. (hereinafter referred to as Anhui Color TV RMB140,000,000 RMB122,780,000 RMB122,780,000 78% — 78% “ Anhui Konka ”) Mudanjiang Konka Industry Mudanjiang Color television RMB60,000,000 RMB36,000,000 RMB36,000,000 60% — 60% Co., Ltd. Shenzhen Konka Household Shenzhen Electron device RMB8,300,000 RMB10,730,000 RMB10,730,000 51% — 51% Appliances Co., Ltd. Chongqing Konka Electronic Chongqing Color TV RMB45,000,000 RMB27,000,000 RMB27,000,000 60% — 60% Co., Ltd. Shenzhen Konka Video&Communication Systems Engineering Co., Ltd Development and sales Shenzhen RMB15,000,000 RMB9,000,000 RMB9,000,000 60% — 60% (hereinafter referred to as for business TV “ Konka Video&Communication ”) Development and sales Chongqing Konka Electronic Chongqing for auto electronic RMB30,000,000 RMB17,100,000 RMB17,100,000 57% — 57% Co., Ltd. products Sales of electronic KONKA AMERICA,INC. U．S．A USD1,000,000 USD1,000,000 USD1,000,000 100% — 100% products Shenzhen Konka 100% Mobile communication Telecommunications Technology Shenzhen RMB120,000,000 RMB120,000,000 RMB120,000,000 75% 25% products Co., Ltd. Shenzhen Shushida Electronic Film & TV products and 100% Shenzhen RMB42,000,000 RMB42,000,000 RMB42,000,000 75% 25% Co., Ltd. relevant fittings Import & export of 100% electromechanical Hongkong Konka Co., Ltd. Hongkong HKD500,000 HKD500,000 HKD500,000 99% 1% and electronic products Production and sales Anhui Konka Household of refrigerator and Anhui RMB78,190,000 RMB80,870,000 RMB80,870,000 92.97% 4.48% 97.45% Appliances Co., Ltd.(Note 1) other electric appliances Shenzhen Konka Plastic 100% Shenzhen Plastic manufacture RMB9,500,000 RMB9,500,000 RMB9,500,000 49% 51% Manufacture Co., Ltd. Chongqing Konka Electronic Electronic tuner and 40% Chongqing RMB15,000,000 RMB6,000,000 RMB6,000,000 --- 40% Co., Ltd.** high frequency head Shaanxi Konka Electronic Co., 60% Shaanxi Color television RMB69,500,000 RMB55,290,000 RMB55,290,000 45% 15% Ltd. Production and sales 100% Shenzhen Konka Information Shenzhen of digital network RMB30,000,000 RMB30,000,000 RMB30,000,000 75% 25% Network Co., Ltd. products Shenzhen Electron Fittings 100% Technical Technology Co., Ltd. Shenzhen RMB65,000,000 RMB65,000,000 RMB65,000,000 75% 25% development of ED (Note 2) 5 康佳集团股份有限公司 2008 年年度报告 Net Investment Regist Ending Actual Balance for Voting Registered Name of Wholly-owned Subsidiary ration Business Nature Investment Subsidiary Holding Ratio Right Capital Place Amount Materially Ratio Constituted Dongguan Konka Packing Material Donggu RMB10,000,00 RMB10,000,00 RMB10,000,00 Plastic products — 100% 100% Co., Ltd. an 0 0 0 Dongguan Konka Tooling and Donggu Module and rubber RMB10,000,00 RMB10,000,00 RMB10,000,00 — 100%% 100%% Moulding Co., Ltd. an products 0 0 0 Konka Household Appliances Hongko Share control Investment&Development Co,Ltd. HKD500,000 HKD500,000 HKD500,000 — 100% 100% ng takeover *** Konka Household Appliances Hongko International International Trading Co., HKD500,000 HKD500,000 HKD500,000 — 100% 100% ng trading Ltd.*** Production and Changshu Konka Electronic Co., Changs sales of RMB24,650,00 RMB14,790,00 RMB14,790,00 — 60% 60% Ltd.*** hu electronic 0 0 0 products Production and Boluo Konka Printed Board Co., Guangd sales of RMB40,000,00 RMB20,400,00 RMB20,400,00 — 51% 51% Ltd. *** ong electronic 0 0 0 products Shenzhen Konka Precision Mold Shenzh All classes of RMB14,500,00 RMB7,395,000 RMB7,395,000 — 51% 51% Manufacturing Co.,Ltd.*** en modules 0 Production and Boluo Konka Precision Technology sales of RMB15,000,00 RMB1,1250,00 RMB1,1250,00 Boluo 100% 100% Co.,Ltd.(Note 3) electronic 0 0 0 products R&D of panel display Konka (Nanhai) Development Center Nanhai technology, RMB500,000 RMB500,000 RMB500,000 100% --- 100% production development, etc. Research, design, Kunsha RMB350,000,0 RMB350,000,0 RMB350,000,0 Kunshan Konka Electronic Co., Ltd and production of 100% --- 100% n 00 00 00 LCM and panel TV * In November 2008, the Company invested RMB￥500,000 in setting up the Konka (Nanhai) Development Center, with a proportion of subscribed capital of 100%. On September 2008, the Company invested RMB￥350,000,000 in setting up Kunshan Konka Electronic Co., Ltd., engaging in the research, design and production of LCM, panel TV and relevant components. **：Since the Company has the actual right of control over such companies, they have been incorporated into the consolidated range of the financial statements. ***： Such companies are controlled by the Company directly or indirectly, and ultimately incorporated into the consolidated range of the financial statements of the Company. 2. Information about Affiliated Company Registration Legal Registered Actual :Name of Company Holding Main Business Place Representative Capital Investment Proportion Amount Production and Shenzhen Dekon Electronics sales of Co.,LTD Shenzhen Qiu Weimin RMB10,000,000 RMB3,000,000 30% electronic products Operation of new Shenzhen Konka Energy Technology Co., Ltd Shenzhen Dong Yaping RMB20,000,000 RMB3,000,000 30% mobile energy products, etc. Manufacturing Chongqing Jingkang Plastic and processing Product Co., Ltd. Chongqing Wang Xiaoyong RMB15,000,000 RMB3,750,000 15% of module products Shenzhen Julong Shenzhen Yu Zhonghou RMB10,000,000 RMB2,000,000 20% R&D, manufacture 6 康佳集团股份有限公司 2008 年年度报告 OptoElectronics Co.,Ltd and sales of panel optical display device, etc. Technical development, Shanlian Information Technology Project Co.,Ltd Beijing Huo Zhiqiang RMB52,000,000 RMB5,000,000 9.61525% transfer, consultation, service, etc. Electronic technology Shnezhen Zhongcailian development, Technology Co.,Ltd * Shenzhen Fan Wenjian RMB10,000,000 RMB1,000,000 10% economic information consultation 3. Information about Minority Interests: Name of Subsidiary Minority Interests Mudanjiang Konka Industry Co., Ltd. 32,637,277.89 Shaanxi Konka Electronic Co., Ltd. 42,719,491.34 Anhui Konka Electronic Co., Ltd. 49,802,894.51 Shenzhen Konka Household -6,918,857.18 Appliances Co., Ltd. Chongqing Konka Electronic Co., 16,926,438.95 Ltd. Boluo Konka Printed Board Co., 23,535,275.84 Ltd. Chongqing Konka Automotive -3,546,962.00 Electrenic Co., Ltd. Shenzhen Konka Precision Mold 29,459,054.44 Manufacturing Co., Ltd. Anhui Konka Household Appliances 3,728,094.59 Co., Ltd. Shenzhen Konka Video & 4,709,119.6400 Communication Engineering Co., Ltd Changshu Konka Electronic Co., 13,413,128.4300 Ltd. Shaanxi Qingjia Electronic Co., 17,965,310.62 Ltd. Total 224,430,267.07 Note 4 Preparation Methods of Significant Accounting Policies, Accounting Estimate and Consolidated Financial Statements (1) The Company shall implement the Accounting Standards for Business Enterprises and the relevant regulations of the Ministry of Finance. (2) Fiscal year: The fiscal year of the Company shall run from January 1 to December 31 of each calendar year. (3) Functional currency: The company chooses RMB as its functional currency. (4) Book-keeping basis and valuation principle: The Company shall adopt the accrual system as the base of bookkeeping basis, and use the real cost as the pricing basis in general except the pricing principle especially stated in the notes. The assets shall enter into the account book on the actual cost basis at the time of acquisition. In case of subsequent assets depreciation, the corresponding assets deprecation preparation shall be withdrawn. (5) Accounting method of foreign currency operation and foreign currency translation method of financial statements: 7 康佳集团股份有限公司 2008 年年度报告 When initial recognition is made for foreign transaction, the amount in foreign currency shall be translated into the amount in recording currency at the spot exchange rate on the date when transaction occurs. On the balance sheet date, the monetary items in foreign currency shall be translated at the spot exchange rate on the balance sheet date. The balance of exchange caused by the difference between the spot exchange rate on the balance sheet and that initially recognized or that on previous balance sheet date shall be included in the current profits and losses. The non-monetary items measured on the historical cost basis shall be translated at the spot exchange rate on the date when transaction occurs, remaining its amount in recording currency unchanged. (6) Criteria for fixing cash and cash equivalents: The cash of the Company shall refer to cash in treasury, deposit and cash equivalents available for payment at any time; cash equivalents shall refer to the short-term and strong-liquidity investment, easily convertible to known amounts of cash, and subject to an insignificant risk of change in value; the cash equivalents of the Company include the investment that falls dues or is convertible within 3 months or less. (7) Tradable financial assets: Tradable financial assets shall be classified as the financial assets for transaction and the financial assets measured via fair value as specified, with alteration included in the current profits and losses. Tradable financial assets shall be taken as the amount initially recognized based on the fair value at the time of acquisition, and the transaction costs concerned are included in the current profits and losses when incurred. On the balance sheet date, the tradable financial assets are subsequently measured at its fair value, the contingent transaction costs available to dispose the financial assets will not be deducted, and the change in fair values of tradable assets shall be included in the current profits and losses. (8) Receivables and bad debt reserves calculating Receivables shall refer to accounts receivables and accounts receivable other. The Company initially confirms the accounts receivables based on the fair values when assets shall be obtained. With the method of actual interest rate, the receivables shall be subsequently measured based on the amortized cost. The Company shall calculate the contingent bad debt losses using the allowance method. The Company shall perform depreciation test for the account receivable with significant single and insignificant of single amount. The depreciation test shall be separately performed for the significant account receivable of single amount to determine the impairment loss and withdraw bad debt reserves based on the difference between the cash value and carrying amount of future cash flows. As regards the insignificant account receivables of single amount and the significant account receivables of single amount that depreciation does not incur after separate test, the bad debt reserves shall be withdrawn in the following proportions: Age Withdrawal Proportion Within one year (incl. one year) 2% One to two years (incl. two years) 5% Two to three years (incl. three years) 20% Above three years 50% The Company shall implement the criteria to determine bad debts: where the accounts can not be recovered after the use of bankruptcy assets or legacies for satisfaction due to cancellation, bankruptcy or death of the debtor; where the distinct characteristics shows the accounts can not be recovered due to the failure of the debtor to fulfill the obligations of debt service when overdue. The accounts receivable that unable to be recovered as shown by the well-established evidence shall be determined as the bad debt losses to offset the bad debt reserves that have been withdrawn. (9) Inventories: The inventories of the Company shall be classified as four kinds: raw materials, products in process, finished products, low-value consumables. The Company adopts the perpetual inventory for the inventory system, the inventories shall be priced at the actual cost when being purchased and warehoused, and priced with the weighted average method when being delivered; the low-value consumables shall be priced with the one-off amortization when 8 康佳集团股份有限公司 2008 年年度报告 being claimed. The packing materials shall be included in production cost in one shot when being claimed. In the end of year, when the costs are predicated to be unrecoverable due to inventory damage, all or partial obsolescence, or sales prices lower than costs, etc. based on the wall-to-wall inventory, the inventory falling price reserves are withdrawn and determined based on the difference between the cost of an single inventory item and its net realizable value at the time of withdrawal. (10) Long-term equity investment: As regards the business merger under the same control, it shall, on the date of merger, treat the share of the carrying amount of the owner's equity of the merged enterprise as the initial cost of the long-term equity investment. The difference between the initial cost of the long-term equity investment and the payment in cash, non-cash assets transferred as well as the carrying amount of the debts borne by the merging party shall offset against the share premium of capital reserve. If the capital reserve is insufficient, the retained earnings shall be adjusted. The relevant expenses directly arising from business merger shall be included in the current profits and losses. As regards the long-term equity investment formed by the business merger under different control, the merging cost shall be the fair value of paid assets, incurred or borne liabilities and issued equity securities to obtain the right of control over acquiree. The relevant expenses directly arising from business merger shall be included in the current profits and losses. The Company is able to implement the controlled long-term equity investment in invested units, and the long-term equity investment that has no common control or significant influence on invested entity, and has no offer in the active market, and its fair value cannot be reliably measured shall be calculated on the cost basis. The long-term equity investment that the Company has common or significant influence on invested entity shall be calculated with equity method. The Company shall confirm the net losses of the invested enterprise until the carrying amount of the long-term equity investment and other long-term rights and interests which substantially form the net investment made to the invested entity are reduced to zero, unless the Company is obligated to bear extra losses. If the initial investment cost of long-term equity investment is more than the share of the fair value of the invested entity's identifiable net assets for the investment the Company is entitled to, the initial cost of the long-term equity investment may not be adjusted; otherwise, the difference shall be included in the current profits and losses, and the cost of long-term equity investment shall be adjusted in the meantime. The Company shall, on the ground of the fair value of all identifiable assets of the invested entity when it obtains the investment, recognize the share of the net profits and losses of the invested entity the Company is entitled to after it adjusts the net profits of the invested entity. At the end of period, the long-term investments are checked item by item. If the invested entity’s recoverable amount is lower than the carrying amount of investment arising from continuous market price drop or deteriorated operation status of the invested entity and other reasons, the depreciation preparation can be individual withdrawn based on the difference between recoverable amount and carrying amount. The recoverable amount shall be determined in light of the net amount of the fair value of the assets minus the disposal expenses and the current value of the expected future cash flow of the assets, whichever is greater. Once recognized, the assets impairment loss must not be carried out during the accounting period. (11) Held-to-maturity investment: The held-to-maturity investment shall be initially measured based on the fair value at the time of acquisition, and the transaction expenses concerned shall be included in the initially recognized amount. The subsequent measurement shall be performed with the effective interest method at amortized cost. At end of period, the current value of current value shall be discounted and calculated based on the effective interest rate of financial assets. If the current value of current value is less than the carrying amount of financial assets shall be deducted to the current value of current value (excluding the expected credit loss that hasn’t occurred yet), the deducted amount shall be recognized as assets impairment loss and included in the current profits and losses. When the held-to-maturity investment value has been recovered as shown by objective evidences, and the held-to-maturity investment is objectively associated with the events after such loss is recognized, the previously recognized impairment loss will be carried back and included in current profits and losses. (12) Available-for-sale financial assets: The Company shall initially measure the financial assets on offer at its fair value at the time of 9 康佳集团股份有限公司 2008 年年度报告 acquisition, and the transaction expenses concerned shall be included in the amount initially recognized. As regards the available-for-sale financial assets that have offer in active market and whose fair value can be measured continuously and reliably, subsequent measurement can be made with fair value; as regards the equity instrument investment that have no offer in active market and whose fair value cannot be reliably measured, and the derivative financial assets that are associated with the said equity instrument and must be settled by delivery of the said equity instrument, the subsequent measurement can be made on cost basis. The gains or losses formed by adjustment in fair value of available-for-sale financial assets, other than the exchange difference between impairment loss and monetary financial assets in foreign currency, shall be directly included in the owner’s equity, and be transferred out and included in the current profits and losses when the recognition for financial assets is terminated. Where an equity instrument investment for which there is no quoted price in the active market and whose fair value cannot be reliably measured, or a derivative financial asset which is connected with the equity instrument and which must be settled by delivering the equity instrument, suffers from any impairment, the difference between the carrying amount of the equity instrument investment or the derivative financial asset and the current value of the future cash flow of similar financial assets capitalized according to the returns ratio of the market at the same time shall be recognized as impairment-related losses and be included in the profits and losses of the current period. Once being recognized, the impairment losses will not be transferred out during the accounting period. Where available-for-sale financial assets are impaired, the accumulative losses arising from the decrease of the fair value of the owner’s equity which was directly included shall be transferred out and included in the profits and losses of the current period. As regards the available-for-sale debt instruments whose impairment-related losses have been recognized, if, within the accounting period thereafter, the fair value has risen and are objectively related to the subsequent events that occur after the originally impairment-related losses were recognized, the originally recognized impairment-related losses shall be carried back and be included in the profits and losses of the current period. The impairment-related losses incurred to available-for-sale equity instrument investment shall not be carried back through profits and losses. (13) Fixed assets and accumulated depreciation: a. The Company will confirm the assets held for commodity production, rendering of service, lease or operation management, with useful lives in excess of one fiscal year as the fixed assets. b. Fixed assets shall be initially measured on cost basis. Disposal expenses shall be expected for the fixed assets to be disposed which is expected to generate relatively great expenses, and the current value thereof shall be included in the cost of fixed assets. Where the payment of purchase price for fixed assets is delayed beyond the normal credit conditions, which is of financing nature materially, the cost of fixed assets shall be determined on the basis of the current value of the purchase price. The difference between the actual payment and the current value of the purchase price shall be included in current profits and losses, unless it shall be capitalized in accordance with regulations. c. Depreciation of fixed assets shall be calculated with the straight-line method, and the salvage value (10% of original value) shall be deducted based on the original value of various fixed assets and estimated useful lives, with classified depreciation rate as follows: Assets Classifications Useful lives Annual Depreciation Building construction 40 years 2.25% Machinery equipment 10 years 9% Electronic equipment 5 years 18% Transportation means 5 years 18% Other equipment 5 years 18% At the end of period, the useful lives and net salvage rate shall be inspected item by item. In case of discrepancy with original estimate, the adjustment shall be made. Where the recoverable amounts 10 康佳集团股份有限公司 2008 年年度报告 of fixed assets are caused to be lower than the carrying amount arising from continuous market price drop, lag in technology, or obsolescence, damage and long-term idling of equipment, etc., the recoverable account shall be expected based on the single asset or asset group, and the deprecation reserves shall be withdrawn based on the difference between the recoverable amount and carrying amount. Once recognized, the impairment losses shall not be carried back in the following accounting period. Where the fixed assets are under disposal status, and fail to generate economic benefit upon use or disposal, the withdrawal of depreciation shall be suspended, and net salvage value shall be adjusted simultaneously. (14) Construction work in progress: The engineering cost of construction work in progress shall be calculated and reflected based on the direct building and installing cost, interest expenditure of borrowings and exchange profit and loss incurred for construction work. The interest borne by the relevant construction works have been capitalized in the current year. When the fixed assets purchased and built reach the expected working condition, the construction work in progress can be transformed into the fixed assets. At the end of period, construction work in progress shall be inspected in a comprehensive way. Depreciation reserves shall be withdrawn and included in the current profits and losses based on the difference between the recoverable amount of the said construction work and the carrying amount thereof. Once recognized, the assets depreciation shall not be carried back in the subsequent accounting periods. (15) Borrowings and borrowing costs The borrowings shall enter into the account on the cost basis as the time of initial acquisition, and shall be measured on the basis of amortized cost with the effective interest rate after acquisition. The borrowing costs shall be allowed to be capitalized when satisfying the conditions that assets disbursement has incurred, borrowing costs has incurred, and acquisition and construction as necessary to enable the assets to reach the expected serviceable condition has started. Apart from this, the borrowings costs shall be recognized as the costs of the current period. As for specifically borrowed loans for the acquisition and construction or production of assets eligible for capitalization, the to-be-capitalized amount of interests shall be determined in light of the actual cost incurred of the specially borrowed loan at the present period minus the income of interests earned on the unused borrowing loans as a deposit in the bank or as a temporary investment. Where a general borrowing is used for the acquisition and construction or production of assets eligible for capitalization, the enterprise shall calculate and determine the to-be-capitalized amount of interests on the general borrowings by multiplying the weighted average asset disbursement of the part of the accumulative asset disbursements minus the general borrowing by the capitalization rate of the general borrowing used. The capitalization rate shall be calculated and determined in light of the weighted average interest rate of the general borrowing. Till the end of period, product of the weighted average of accumulative disbursement of acquisition and construction of assets eligible for capitalization and capitalization rate shall not exceed the actual interest incurred. (16) Intangible assets and R&D costs: The intangible assets shall enter into the account based on the actual paid amount or recognized value. Where the payment of purchase price for fixed assets is delayed beyond the normal credit conditions, which is of financing nature materially, the cost of intangible assets shall be determined on the basis of the current value of the purchase price. The difference between the actual payment and the current value of the purchase price shall be included in the current profits and losses, unless it shall be capitalized in accordance with regulations. As regards intangible asset with limited useful lives, the amount of its cost minus expected salvage value shall be amortized with the straight-line method within the expected useful lives. The useful lives of intangible assets shall be judged as per the following procedures: a. As regards the intangible asset derived from contractual right or other legal rights, its useful lives shall not exceed the period of contractual right or other legal rights. b．Where, as evidence shown, an enterprise does not have to pay a large amount of costs for renewal when the contractual right or other legal rights expire, the renewal period shall be included in the useful lives. Where the useful lives is not stipulated in the contract or laws, the Company shall take all factors as a whole to determine the period during which the intangible asset can bring economic benefits to the enterprise. Where the Company still fails to reasonably determine the period during which the intangible asset can bring economic benefits to the enterprise according to the procedures mentioned above, the tangible asset shall be taken as the intangible asset with uncertain useful lives. The intangible assets with 11 康佳集团股份有限公司 2008 年年度报告 the uncertain useful lives shall not be amortized. Prior to commercial production or utilization, the expenditure available to produce the new or materially improved materials, devices, products, etc. by means of a certain plan or design to which research findings or other knowledge shall be taken as the expenditure at the development stage. Other expenditures shall be determined as expenses, except the development-stage expenditures satisfying the following conditions confirmed as intangible assets: a. Fulfill the intangible asset to enable it to be used or sold, with feasibility in technology; b. Have the intention of fulfilling the intangible asset for use or sale; c. The usefulness of methods for intangible assets to generate economic benefits shall be proved, including being able to prove that there is a potential market for the products manufactured by applying the intangible assets or there is a potential market for the intangible assets itself or the intangible assets will be used internally; d. It is able to finish the development of the intangible assets, and able to use or sell the intangible assets, with the support of sufficient technologies, financial resources and other resources; and e. The expenditures for development of this intangible asset can be measured reliably. The development-stage expenditure shall be included in the current expense when incurred. At the end of period, the intangible assets shall be inspected item by time. For the intangible asset that has been replaced by other new technologies to bring economic benefits to the enterprise, thereby resulting in more adverse influence, the intangible asset that can not be recovered arising from the market price slump within the remaining amortization period, the recoverable amount shall be expected on an single basis, and the depreciation reserves shall be withdrawn based on the difference between the intangible asset and the accounting value. Once recognized, the assets depreciation loss shall not be carried back in the subsequent accounting periods. (17) Goodwill At the time of business merger under different control, the difference between the paid combined costs and fair value of identifiable net assets acquired from the acquiree during business merger shall be recognized as goodwill. The Company, at the end of period, will prorate goodwill to the relevant asset groups for depreciation test. The depreciation reserve withdrawn shall be included in the current profits and losses. Once withdrawn, the depreciation reserves shall not be carried back in the subsequent accounting periods. (18) Long-term deferred expenses The long-term deferred expenses shall be amortized using the straight-line method, with amortization period for long-term deferred expenses determined subject to the benefit period. (19) Financial liabilities The Company divides financial liabilities into: the financial liabilities measured by fair value with changes included in the current profits and losses, and other financial liabilities. The financial liabilities measured by fair value with changes included in the current profits and losses shall cover the tradable financial liabilities and the financial liabilities measured by fair value, with changes included in the current profits and losses as specified. As regards the financial liabilities with the active market, the fair value shall be determined based on the quoted price in the active market; as regards the financial liabilities without the active market, the Company shall adopt the fair value using estimation technology. (20) Income recognition: Income from commodities sales: The significant risks and rewards of ownership of the commodities have been transferred to the buyer by the enterprise; the enterprise retains neither continuous management right that usually keeps relation with the ownership nor effective control over the sold commodities; The relevant amount of revenue can be measured in a reliable way; The relevant economic benefits may flow into the enterprise; and The relevant costs incurred or to be incurred can be measured in a reliable way. The Company shall ascertain the revenue incurred by selling commodities in accordance with the received or receivable price stipulated in the contract or agreement signed between the Company and the buyer, unless the received or receivable amount as stipulated in the contract or agreement is unfair. If the collection of the price as stipulated in the contract or agreement is delayed and if it has the financing nature, the revenue incurred by selling commodities shall be ascertained in accordance with the fair value of the receivable price as stipulated in the contract or agreement. The difference between the price stipulated in the contract or agreement and its fair value shall be amortized within the period of the contract or agreement employing the real interest method and shall be included in 12 康佳集团股份有限公司 2008 年年度报告 the current profits and losses. Revenue from providing labor services: The amount of revenue can be measured in a reliable way; The relevant economic benefits are likely to flow into the enterprise; The schedule of completion under the transaction can be confirmed in a reliable way; and the costs incurred or to be incurred in the transaction can be measured in a reliable way. If, at the end of period (year), an enterprise can, reliably estimate the outcome of a transaction concerning the labor services it provides, it shall recognize the revenue from providing services employing the percentage-of-completion method. The Company shall ascertain the schedule of completion under the transaction concerning the providing of labor services employing the measurement of the work completed (The proportion of the labor services provided against the total labor services to be provided; and the proportion of the costs incurred against the estimated total costs). (21) Government grants: No government grants may be recognized unless the following conditions are met simultaneously as follows: a. The enterprise can meet the conditions for the government subsidies; b. The enterprise can obtain the government subsidies. Where a government grant is a monetary asset, it shall be measured in the light of the received or receivable amount. Where a government grant is a non-monetary asset, it shall be measured at its fair value. If its fair value cannot be obtained in a reliable way, it shall be measured at its nominal amount. The government subsidies for the Company consist of the government subsidies pertinent to assets and government subsidies pertinent to income. The government subsidies pertinent to assets mean the government assets that are obtained by the enterprise used for purchase or construction, or forming the long-term assets by other ways. The government subsidies pertinent to assets shall be recognized as deferred income, equally distributed within the useful lives of the relevant assets, and included in the current profits and losses. But the government subsidies measured at their nominal amounts shall be directly included in the current profits and losses. The government subsidies pertinent to income refer to all the government subsides except those pertinent to assets. The government subsidies pertinent to incomes shall be treated respectively in accordance with the circumstances as follows: a. Those subsidies used for compensating the related future expenses or losses of the enterprise shall be recognized as deferred income and shall be included in the current profits and losses during the period when the relevant expenses are recognized; or b. Those subsidies used for compensating the related expenses or losses incurred to the enterprise shall be directly included in the current profits and losses. Where it is necessary to refund any government grant which has been recognized, it shall be treated respectively in accordance with the circumstances as follows: a. If there is the deferred income concerned, the book balance of the deferred income shall be offset against, but the excessive part shall be included in the current profits and losses; and b. If there is no deferred income concerned, it shall be directly included in the current profits and losses. (22) Employee Compensation: During each accounting period, the enterprise shall recognize the compensation payable as liabilities, which shall be respectively recorded as the product or service costs, current expenses or costs of fixed assets or intangible assets subject to the beneficiaries. According to the relevant regulations, the Company shall, based on a certain proportion of the monthly wages, withdraw insurance premium and accumulation fund, and pay the same to the authority of labor and social security on a monthly basis. The expenditures concerned shall be recorded into the current costs or expenses. (23) Recognition of estimated liabilities The Company shall recognize the obligation that simultaneously meets the following conditions and relates to the contingent events as the liabilities: that obligation is a current obligation of the enterprise; It is likely to cause any economic benefit to flow out of the enterprise as a result of performance of the obligation; the amount of the obligation can be measured in a reliable way. Where an executory contract turns to be a loss contract, the obligations generated from the loss contract which meets the aforesaid conditions shall be recognized as estimated liabilities. Where the other obligations untaken by the Company (e.g. excess loss, restructuring obligations, discard expenses, etc.) meet the aforesaid conditions shall be recognized as estimated liabilities. 13 康佳集团股份有限公司 2008 年年度报告 (24) Income tax: The Company shall recognize the accrued income tax of the current period and prior periods as a liability, and shall recognize the part of the income tax already paid minus the payable amount as an asset. Except for the deferred income tax liabilities arising from the following transactions, The Company shall recognize the deferred income tax liabilities arising from all taxable temporary differences: a. The initial recognition of business reputation; b. The initial recognition of assets or liabilities arising from the following transactions which are simultaneously featured by the following: a) The transaction is not business merger; b) At the time of transaction, the accounting profits will not be affected, nor will the taxable amount (or the deductible loss) be affected. The Company shall recognize the deferred income tax liabilities arising from a deductible temporary difference to the extent of the amount of the taxable income which it is most likely to obtain and which can be deducted from the deductible temporary difference. However, the deferred income tax assets, which are arising from the initial recognition of assets or liabilities during a transaction which is simultaneously featured by the following, shall not be recognized: a. This transaction is not business merger; and b. At the time of transaction, the accounting profits will not be affected, nor will the taxable amount (or the deductible loss) be affected. On the balance sheet date, where there is any exact evidence showing that it is likely to acquire sufficient amount of taxable income tax in a future period to offset against the deductible temporary difference, the deferred income tax assets unrecognized in prior periods shall be recognized. On the balance sheet day, the current income tax liabilities (or assets) incurred in the current period or prior periods shall be measured in light of the expected payable (refundable) amount of income taxes according to the tax law. The deferred income tax assets and deferred income tax liabilities shall be measured at the tax rate applicable to the period during which the assets are expected to be recovered or the liabilities are expected to be settled. In case the applicable tax rate changes, the deferred income tax assets and deferred income tax liabilities which have been recognized shall be re-measured, excluding the deferred income tax assets and deferred income tax liabilities arising from any transaction or event directly recognized as the owners' right. The income taxes of the current period and deferred income tax of The Company shall be treated as income tax expenses or incomes, and shall be recorded into the current profits and losses, excluding the income taxes incurred under the following circumstances: a. The business merger; and b. The transactions or events directly recognized as the owner's rights and interests. The income taxes of the current period and deferred income tax related to the transactions or events directly recorded in the owner's rights and interests shall be recorded into the owner's rights and interests. (25) Consolidated Financial Statement: Where the Company can exercise control over all subsidiaries, they shall be incorporated into the consolidated range. Where the accounting policies adopted by the subsidiaries are in conflict with those of the parent company, the adjustment shall be made in accordance with the accounting policies of the parent company for consolidation. As regards the subsidiaries to be acquired upon business merger under the same control, the revenues, expenses, profits and cash flows of the subsidiaries from the beginning of the current merging period to the end of report period shall be included in the consolidated profit statement and the consolidated cash flow statement. As regards the subsidiaries to be acquired upon business merger under different control, the revenues, expenses, profits and cash flows of the subsidiaries from the merging date to the end of report period shall be included in the consolidated profit statement and the consolidated cash flow statement. Where the current loss borne by the minority shareholders of the subsidiaries exceeds the shares enjoyed by the minority shareholders in the owner’s equity of the subsidiaries, the balances thereof shall be respectively treated in the following circumstances: a. Where the articles of associations or agreement stipulate that the minority shareholders are obligated to undertake and are able to make up for the loss, the said balance shall be used 14 康佳集团股份有限公司 2008 年年度报告 to offset the minority equity; b. Where the articles of associations or agreement do not stipulate that the minority shareholders are obligated to undertake the loss, the said balance shall be used to offset the owner’s equity of the parent company. Before the profits of the subsidiaries in the subsequent periods have offset the loss undertaken by the owner’s equity and belonging to the minority shareholders of the parent company, they shall attribute to the owner’s equity of the parent company. (26) Earnings per share： Basic earnings per share The Company shall calculate the basic earnings per share by dividing the net profits of the current period, which are attributable to the shareholders of ordinary shares, by the weighted average number of ordinary shares issued to the public. The weighted average number of ordinary shares issued to the public shall be calculated according to the following formulas: The weighted average number of ordinary shares issued to the public = the number of ordinary shares issued to the public at the beginning of the period + the number of shares newly issued in the current period × the lapsed time after issuance ÷ the time during the reporting period － the number of ordinary shares repurchased in the current period × the lapsed time after repurchase ÷ the time during the reporting period Diluted earnings per share If the Company has any diluted potential ordinary shares, it shall respectively adjust the net profits of the current period, which are attributable to the shareholder of ordinary shares, and the weighted average number of ordinary shares issued to the public, and then calculates the diluted earnings per share on the adjusted results. To calculate the diluted earnings per share, the Company shall, according to the following items, adjust the net profits of the current period which are attributable to the shareholders of ordinary shares, and take the influence of the relevant income tax into consideration: a. The interests of the diluted potential ordinary shares which have been recognized as expenses in the current period; b. The gains or expenses to be brought about or to be incurred from the translation of the diluted potential ordinary shares When calculating the diluted earnings per share, the weighted average number of the ordinary shares issued to the public in the current period shall be the sum of the weighted average number of ordinary shares in calculating the basic earnings per share and the weighted average number of increased ordinary shares on supposing that the diluted potential ordinary shares convert into ordinary shares already issued. When calculating the weighted average number of increased ordinary shares resulted from that the diluted potential ordinary shares convert into ordinary shares already issued, the diluted potential ordinary shares issued in prior periods shall be supposed to be converted at the beginning of the current period. The diluted potential ordinary shares issued in the current period shall be supposed to be converted on the date of issuance. In case the exercise prices of the share warrants and share options are lower than the average market price of the ordinary shares of the current period, the dilution shall be taken into consideration. The dilution shall be taken into consideration when an enterprise promises that the price for the repurchase of its shares provided in the contract is higher than the average market price of the current period. The diluted potential ordinary shares shall be charged to the diluted earnings per share based on the extent of dilution according to the sequential order from the big to the small, until the diluted earnings per share to be the minimum. Recalculation If the number of ordinary shares issued to the public or of potential ordinary shares is increased because of the distribution of stocks or dividends, the increase of capital converted by accumulation fund or share split-up, or is reduced because of reverse split-up, but causing no affect on the amount of the owner's equities, an enterprise shall recalculate the earnings per share in each presentation period in accordance with the number of post-adjustment shares. In case the aforesaid changes occur during the period from the balance sheet date to the date on which the financial reports are authorized for issue, the earnings per share in each presentation period shall be recalculated in the light of the number of post-modulation shares. In case any of the profits and losses of any previous year are retroactively modulated or restated in the light of the Accounting Standards for Enterprises No. 28 - Changes of Accounting Policies, 15 康佳集团股份有限公司 2008 年年度报告 Estimates and Corrections of Errors, the earnings per share during the period of presentation shall be recalculated. (27) Segment reporting: The Company shall determine report segments based on the business segments or regional segments. The business segment means the dividable component available to provide a single or a group of products or labor services. This component has undertaken the risks and compensations different from those of other components. The regional segment means the dividable component available to provide the products or labor service within a given economic environment. This component has undertaken the risks and compensations different from those of other components that provide products and labor services within the other economic environments. Where most incomes of business segment or regional segment belong to foreign transactions and satisfy one of the following conditions, the incomes shall be recognized as those of report segment. a. Segment income accounts for 10% or more of the total incomes. b. The absolute amount of segment profits (losses) accounts for 10% or more of absolute amounts of total segment profit amount or total segment loss amount, whichever is greater. c. The segment asset of this segment accounts for 10% or more of the total amount of all segment assets. The Company shall determine the major report form or secondary report form based on the different risks and compensations to disclose the segment information. Note 5 Significant Accounting Error Corrections at Early Stages 1. In July 2008, Shenzhen Financial Supervision Office of Ministry of Finance inspected the accounting information quality of the Company for the year of 2007, and issued the CZSJ [2008] No. 31 Administrative Penalty Decision based on the conclusions. In light of the examination conclusion and treatment decision, the Company has made correction on the accounting errors for the year of 2007 as presented in the conclusions, and conducted accounting treatment for the significant accounting errors by means of Retrospective Restatement when preparing the comparative statements for the year of 2008. The detailed information and influences concerning significant accounting errors are as follows: 1) With a view to avoiding the risk of fluctuation in exchange, the Company went through the formalities of pledging fixed deposit to secure the NDF portfolio business of US dollars loan at the bank in the year of 2007. In consideration of not-well understanding about the new standards, the Company carried out the recognition and measurement against the said business in accordance with the Accounting Standard for Business Enterprises No. 24-Hedging in the year of 2007. According to the conclusions, the said event does not conform to the regulations as specified in Article 16 of Accounting Standard for Business Enterprises No. 24-Hedging, Article 2 of Application Guidelines, and the (Fifth) Paragraph of Article 26 of Accounting Law of the People’s Republic of China. As adjusted by the Company, the business in the current year has been recognized and measured in accordance with the Accounting Standard for Business Enterprises No. 22-Recognition and Measurement of Financial Instrument and the restatements have been made for the financial statements for the year of 2007 by means of Retrospective Restatement. Influenced by the said incorrect understanding on the new accounting standard, by the year ended on December 31, 2007, the monetary funds are increased by RMB￥1,032,235,139.55, the interests receivable are increased by RMB￥12,477,951.79, the arbitraged items are reduced by RMB ￥1,222,806.47, the arbitrage instruments are reduced by RMB￥8,293,387.77, the short-term loans are increased by RMB ￥ 1,259,269,907.72, the tradable financial liabilities are increased by RMB ￥40,089,820.00, the interests payable are increased by RMB￥22,356,752.51, the capital reserves are reduced by RMB￥8,293,387.77, the financial costs are reduced by RMB￥25,801,224.64, the earnings from changes in fair value are reduced by RMB￥-17,249,624.92. The aforementioned events have exerted its influence on the net profits for the year of 2007, amounting to RMB￥8,551,599.72 and the undistributed profits, amounting to RMB￥8,551,599.72. 2) In the year of 2007, the Company made the retroactive adjustment in the long-term equity investment costs for the subsidiaries in accordance with the Accounting Standards for Enterprises. As shown in the conclusions, the initial investment costs of Dongguan Konka Electronic Co., Ltd. were overcounted by RMB￥12,982,156.25, and the initial investment cost of Shenzhen Konka Household Appliances Co., Ltd. were undercounted by RMB￥1,074,221.97, which has caused the parent company to overcount the beginning retained earnings by RMB￥11,907,934.28. Under the influence of retroactive investment, 16 康佳集团股份有限公司 2008 年年度报告 when preparing the financial statements for the year of 2008, the Company has adjusted the comparative data of the parent company for the year of 2007, reduced the long-term investment by RMB￥11,907,934.28 and increased the undistributed by RMB￥11,907,934.28. 3) In the end of 2007, the subsidiaries of the Company-Shenzhen Konka Information Network Co., Ltd. and Shenzhen Konka Household Appliances Co., Ltd. had negative net assets, which caused the Company to undercount the assets depreciation reserves by RMB￥33,232,484.69. According to the conclusions, the Company fails to withdraw the assets deprecation reserves in accordance with the regulations as specified in the Accounting Standard for Business Enterprises No.8--Assets Depreciation. Affected by it, in preparing the financial statements for the year of 2008, the Company has adjusted for the comparative data of the parent company for the year of 2007, increased the long-term equity investment depreciation reserves by RMB ￥ 33,232,484.69 and reduced the undistributed profits by RMB ￥33,232,484.69. 2. In the year of 2007, the Company, in accordance with the Accounting Standards for Enterprises, made the retroactive adjustment on the long-term equity investment for the subsidiaries. Against the fact that the investment costs for Chongqing Qingjia Electronic Co., Ltd. are overcounted by RMB ￥3,000,000.00, and the investment costs for KONKA AMERICA, INC. Konka (Pacific) Electronic Co., Ltd. are overcuonted by RMB￥17,706,170.72, the Company, when preparing the financial statements for the year of 2008, has made the adjustment for the comparative data of the parent company for the year of 2007, reduced the long-term equity investment by RMB￥20,706,170.72 and increased the undistributed profits by RMB￥20,706,170.72. 3. Influenced by the timing difference of final settlement of business income tax, for the Company, the difference between the income tax payable after the final settlement of business income tax and the carrying amount of current income tax was RMB￥-3,682,204.87 in the year of 2006, and the difference between the income tax payable after the final settlement of business income tax and the carrying amount of current income tax was RMB￥10,658,353.30 for the year of 2007. In order to make the final settlement of business income tax payable identical with the carrying amount of income tax, the Company has made the retroactive adjustment for the financial statements for the year of 2007 to increase the tax payable-business income tax expenses by RMB￥6,976,148.43, and increase the income tax expenses for the year of 2007 by RMB 10,658,353.30. The aforementioned events has influenced the net profit amounting to RMB￥10,658,353.30, the tax payable amounting to RMB￥6,976,148.43, the income tax expenses amounting to RMB ￥ 10,658,353.30, and the undistributed profit amounting to RMB ￥6,976,148.43 for the year of 2007. 4. In accordance with the regulations as specified in the Business Standard for Enterprises No.38-Initial Implementation of Accounting Standards for Enterprises, the land tenancy that has been recorded in construction work in progress and fixed assets prior to the initial implementation date, eligible for the standard of intangible assets shall be recognized as the intangible assets, and shall be reclassified on the initial implementation date. The segments ascribing to the land tenancy shall be separated from the accounting values, be taken as the recognized costs of land tenancy, and be treated subject to the regulations of intangible assets standards. According to the above regulations, the Company has made adjustment for the land tenancy calculated subject to the fixed assets, and made restatement for the financial statements for the year of 2007. Under influence of the said reclassification, the intangible assets have been increased by RMB￥16,070,982.37, and the fixed assets have been reduced by RMB￥16,070,982.37. The influences of aforesaid adjustment on the Comparative Financial Statements 2007 of the parent company of the Company are as follows Items Adjusted Unadjusted Adjustment Monetary fund 1,408,031,605.07 556,082,988.52 851,948,616.55 Tradable Financial Assets 22,840,195.08 --- 22,840,195.08 Notes receivable 2,795,341,615.11 2,531,404,015.11 263,937,600.00 Interest receivable 10,408,705.86 --- 10,408,705.86 Arbitrage project --- 1,268,883.47 (1,268,883.47) Arbitrage tool --- 6,945,398.81 (6,945,398.81) Long-term equity investment 758,072,537.19 823,919,126.88 (65,846,589.69) Short-term loans 1,084,909,105.72 --- 1,084,909,105.72 Transaction financial liabilities 34,738,640.00 --- 34,738,640.00 17 康佳集团股份有限公司 2008 年年度报告 Tax payable 42,471,363.43 35,495,215.00 6,976,148.43 Interest payable 18,806,676.01 --- 18,806,676.01 Capital surplus 1,869,357,278.29 1,876,302,677.10 (6,945,398.81) Financial expenses 3,429,346.76 24,739,603.97 (21,310,257.21) Sound value flexible loss and profit (11,898,444.92) --- (11,898,444.92) Income tax expense 25,989,601.39 15,331,248.09 10,658,353.30 Net profit 238,115,008.75 239,361,549.76 (1,246,541.01) Undistributed profits 379,887,701.30 443,298,627.13 (63,410,925.83) The influences of the above adjustment on the Consolidated Financial Statements of the Company for the year of 2007 are as follows: Report Item Adjusted Unadjusted Adjustment Monetary fund 1,784,793,554.02 752,558,414.47 1,032,235,139.55 Tradeable Financial Assets 22,840,195.08 --- 22,840,195.08 Notes receivable 2,916,377,359.85 2,652,439,759.85 263,937,600.00 Interest receivable 12,477,951.79 --- 12,477,951.79 Arbitrage project --- 1,222,806.47 (1,222,806.47) Arbitrage tool --- 8,293,387.77 (8,293,387.77) Fixed assets 1,275,584,101.48 1,291,655,083.85 (16,070,982.37) Intangible assets 80,732,491.66 47,773,502.60 32,958,989.06 Short-term loans 1,281,269,907.72 22,000,000.00 1,259,269,907.72 Transaction financial 40,089,820.00 --- 40,089,820.00 liabilities Tax payable 16,023,708.56 9,047,560.13 6,976,148.43 Interest payable 22,422,410.53 65,658.02 22,356,752.51 Capital surplus 1,876,606,062.32 1,884,899,450.09 (8,293,387.77) Financial expenses 15,050,936.06 40,852,160.70 (25,801,224.64) Sound value flexible loss and (17,249,624.92) --- (17,249,624.92) profit Income tax expense 44,526,238.06 33,867,884.76 10,658,353.30 Net profit 211,924,146.49 214,030,900.07 (2,106,753.58) Undistributed profits 273,047,084.22 271,471,632.93 1,575,451.29 Note 6. Tax (1) The main tax categories and tax rates applicable to the company are as follows: Tax Item Tax Base Tax Rate Value-added tax Income from commodity sales 17% Income from general labor Business tax service and income from 5% immoverable property Urban maintenance Paid VAT and business tax Subject to the tax regulations of the place and construction where each tax unit is located tax Paid VAT and business tax Subject to the tax regulations of the place Educational Surtax where each tax unit is located In the year of 2008, 18% for the companies incorporated in Shenzhen; 25% for the Corporate income Income tax payable companies incorporated in other places; tax 17.5% for the companies incorporated in Hong Kong. (2) Tax preference and approved document *According to the Interim Measures for the Administration of Collection of Business Income Tax for Trans-regional Business Operations, where a resident enterprise sets up a business institution or establishment without the qualification of legal person across the regions within the territory of China, this resident enterprise shall be a consolidated taxpayer enterprise, and shall be governed by the administrative measures for enterprise income tax, namely “uniform calculation, 18 康佳集团股份有限公司 2008 年年度报告 level-by-level administration, pre-payment in place, consolidated settlement, and transfer to treasury”. These measures shall be implemented as from the date of January 1, 2008. In accordance with the measures mentioned above, the sales branches of the Company in all parts of the country shall, as from the date of January 1, 2008, prepay the business income tax, and the Company shall make the uniform settlement in the yearend. On December 16, 2008, the wholly-owned subsidiary of the Company-Shenzhen Konka Telecommunications Technology Co., Ltd. obtained the Certificate of High-Tech Enterprise jointly issued by Shenzhen Bureau of Science Technology & Information, Shenzhen Financial Bureau, Shenzhen Municipal State Taxation Bureau, and Shenzhen Municipal Local Taxation Bureau, valid for three years. In light of the relevant tax regulations, Shenzhen Konka Telecommunications Technology Co., Ltd. would be entitled to the relevant preferential policies concerning the hi-tech enterprise for three years in succession, and be levied the business income tax at the preferential tariff of 15%. On April 21, 2009, the reduction and exemption that Shenzhen Konka Telecommunications Technology Co., Ltd. is levied the business income at the reduced rate of 15% has been kept on records by Nanshan Local Taxation, Shenzhen. Note 7. Items Notes to Major Financial Statements (the data mentioned below shall be referred to as consolidated data unless otherwise specified) Note 1. Monetary Funds Category Currency Original Translated Ending Beginning Currency Amount Exchange Rate Cash RMB 10,028.46 1.00 10,028.46 9,687.06 HKD 366.67 0.88 323.29 180.64 USD 6.53 6.83 44.60 289.40 EUR --- 9.66 --- 92.52 Sub-total 10,396.35 10,249.62 Bank deposit RMB 730,184,096.80 1.00 730,184,096.80 353,554,252.93 HKD 18,782,416.22 0.88 16,580,634.12 10,470,145.70 USD 12,919,282.50 6.83 88,294,678.57 377,765,401.64 GBP 1.32 9.86 13.01 19.16 CAD 310,491.74 5.60 1,740,032.23 8,208,567.32 JPY 6,572,519.00 0.08 497,062.47 1,896,299.49 EUR 74,163.27 9.66 716,353.76 653,478.61 Subtotal 838,012,870.96 752,548,164.85 Other monetary fund RMB 1,228,229,226.77 1.00 1,228,229,226.77 1,032,235,139.55 Subtotal 1,228,229,226.77 1,032,235,139.55 Total 2,066,252,494.08 1,784,793,554.02 * As compared with the beginning balance of monetary funds, the ending balance of the monetary funds is increased by RMB￥281,458,940.06, up 15.77%, mainly attributable to ① increase in sales amount; ② the sale refunds of available-for-sale financial assets in the current period ③ increase in bill receivable discounted; ④ increase in the current borrowings. **The ending balances of other monetary funds amounting to RMB￥1，221,225,627.02 shall be pledged to secure NDF US dollars loan, and RMB￥7,003,599.75 shall be taken as the guarantee fund of bank’s acceptance bill. ******The cash as listed in the Statements of Cash Flow shall include: December 31, 2008 Item Amount Monetary fund 2,066,252,494.08 Less：Restricted hypothecated deposit 1,221,225,627.02 19 康佳集团股份有限公司 2008 年年度报告 Cash balance for the year ended on December 31, 2008 845,026,867.06 Add：Cash balance for the year of December 31, 2007 752,558,414.47 Net increase cash equivalents 92,468,452.59 Note 2 Notes Receivable Category Ending Beginning Letter of credit --- 9,019,114.31 Banker’s acceptance bill 2,600,112,135.40 2,870,853,069.49 Commercial Acceptance Bill 2,750,000.00 36,505,176.05 Total 2,602,862,135.40 2,916,377,359.85 *The bill balance in the ending bills receivable in pledge shall be RMB￥1,476,011,710.60, of which RMB￥1,475,422,249.65 shall be pledged to secure the line of credit of Bank of China. **As compared with beginning balance of bills receivable, the ending balance in bills receivable is reduced by RMB￥313,515,224.45, down 10.75%, mainly attributable to increase in current funds to satisfy the needs of day-to-day operations for cash. The bill receivable discounted is increased in the current period. Note 3 Accounts Receivable (1) The consolidated data of accounts receivable is listed as follows: a. The risk-based portfolio analysis is made on the ending balance of accounts receivable as follows: Ending Beginning Proportion to Bad Debt Proportion to Category Amount Amount Bad Debt Reserve Total Amount Reserve Total Amount RMB % RMB RMB % RMB I. Single amounts 438,800,687.41 28.76 8,776,013.75 167,558,979.26 13.70 3,351,179.59 significant II. The portfolio with insignificant single amount has a greater risk 169,741,255.65 11.13 159,610,940.00 162,298,959.60 13.27 157,842,894.18 after combined on the credit risk basis III Other insignificant 916,499,935.74 60.11 30,393,608.51 893,133,049.27 73.03 21,613,994.83 Total 1,525,041,878.80 100 198,780,562.26 1,222,990,988.13 100 182,808,068.60 Total amount of top 5 409,470,498.40 26.85 8,189,409.97 167,558,979.26 13.70 3,351,179.59 Account receivable amount occupied by affiliated parties 19,859,002.24 1.30 396,374.24 3,437,512.00 0.28 --- * Recognition basis of accounts receivable with significant individual amount: the account receivable with ending balance greater than RMB￥20,000,000. ** The recognition basis of the account receivables with insignificant single amount but with a greater risk after portfolio on the credit risk basis: the account receivable with the age of three or more. *** In the ending balance of account receivable, there is no account that the Company owes to the shareholders who hold the shares of 5% or more ; **** As compared with the beginning balance of accounts receivable, the ending balance is increased by RMB￥302,050,890.67, up 24.70%, mainly attributable to increase in customer payment for goods; *****Due to litigation, bankruptcy and other reasons, it is hard to collect the payment from some customers, thereby the Company has withdrawn the special bad debt reserves based on 100% of account receivable. ****** As regards accounts receivable, the information about top 5 is as follows: Proportion of Category Amount Withdrawing Bad Reason Debt Reserves Nanjing Purchasing Center, Suning Age within one year Appliance Co., Ltd. 134,170,374.67 2% Age within one year Beijig Pangushi Investment Co., 103,357,300.00 2% 20 康佳集团股份有限公司 2008 年年度报告 Ltd. Gansu Gome Logistics Co., Ltd. Age within one year 84,635,754.26 2% Shanghai Darunfa Co., Ltd. Age within one year 45,511,967.36 2% Age within one year Nanning Gome Logistics Co., Ltd. 41,795,102.11 2% Total 409,470,498.40 b. The ending balance of account receivable is analyzed on the age basis: Ending Beginning Proportion Proportion to Age Amount Bad Debt Reserve Amount to Total Bad Debt Reserve Total Amount Amount RMB % RMB RMB % RMB Within one year 1,310,854,747.33 85.96 29,894,646.94 1,010,854,314.47 82.65 20,217,086.29 From one year or more 17,648,012.57 1.16 2,843,936.34 34,796,364.56 2.85 1,739,818.23 to two years or less From two years or more 26,797,863.25 1.75 6,431,038.98 15,041,349.50 1.23 3,008,269.90 to three years or less Three years or more 169,741,255.65 11.13 159,610,940.00 162,298,959.60 13.27 157,842,894.18 Total 1,525,041,878.80 100 198,780,562.26 1,222,990,988.13 100 182,808,068.60 (2) Accounts receivables of companies are listed as follows: a. The ending balance of accounts receivable is analyzed based on the risk portfolio: Ending Beginning Proportion to Bad Debt Proportion to Category Amount Amount Bad Debt Reserve Total Amount Reserve Total Amount RMB % RMB RMB % RMB I. Single amount 481,797,364.65 39.41 6,235,264.51 910,826,741.61 46.76 1,521,085.71 significant II. The portfolio with insignificant single amount has a greater risk after 163,149,481.88 13.35 152,427,748.12 154,702,785.84 7.94 146,417,594.37 combined on the credit risk basis III. Others insignificant 577,364,766.21 47.24 16,016,392.74 882,524,301.31 45.30 15,966,205.26 Total 1,222,311,612.74 100 174,679,405.37 1,948,053,828.76 100 163,904,885.34 Total amount of top 5 436,699,982.50 35.73 6,122,263.97 834,772,456.07 42.85 --- Account receivable amount occupied by affiliated 191,264,046.41 15.65 396,374.24 1,080,685,275.82 55.48 --- parties ****** As regards accounts receivable, the information about top 5 is as follows: Proportion of Withdrawing Category Amount Reason Bad Debt Reserves Hongkong Konka Co.Ltd. 130,586,784.10 --- Associated Transfers Age within one year Suning Appliance Co.Ltd. 134,170,374.67 2% 41,795,102.11 Age within one year Beijig Pangushi Investment Co.Ltd. 2% 84,635,754.26 Age within one year Gansu Gome Logistics Co., Ltd. 2% 21 康佳集团股份有限公司 2008 年年度报告 45,511,967.36 Age within one year Shanghai Darunfa Co., Ltd. 2% Tatal 436,699,982.50 b. The ending balance of account receivable is analyzed on the age basis: Ending Beginning Proportion to Proportion to Bad Debt Age Amount Bad Debt Reserve Amount Total Amount Total Amount Reserve RMB % RMB RMB % RMB Within one Year 1,031,908,073.16 84.42 17,233,996.34 1,751,825,578.22 89.93 13,562,806.05 From one year or more to 2,887,670.86 0.24 144,383.54 27,284,796.70 1.40 1,076,351.32 two years or less From two years or more 24,366,386.84 1.99 4,873,277.37 14,240,668.00 0.73 2,848,133.60 to three years or less Three years or more 163,149,481.88 13.35 152,427,748.12 154,702,785.84 7.94 146,417,594.37 Total 1,222,311,612.74 100 174,679,405.37 1,948,053,828.76 100 163,904,885.34 Note 4 Advance Payment Ending Beginning Proportion to Total Proportion to Total Age Amount Amount Amount Amount RMB % RMB % Within one year 241,568,633.96 93.27 133,028,794.54 87.87 From one year or more to two 545,713.77 0.21 12,054,951.47 7.96 years or less From two years or more to three 11,879,806.39 4.59 3,500,091.02 2.31 years or less Three years or more 4,998,180.61 1.93 2,812,521.97 1.86 Total 258,992,334.73 100 151,396,359.00 100 As compared with the previous period, the advance payment in the current period is increased by RMB ￥107,595,975.73, up 71.07%, mainly attributable to the bigger increase in project funds prepaid by the subsidiaries. Note 5 Other Accounts Receivable (1) The consolidated data of other accounts receivables is listed as follows: a. The e+nding balance of other accounts receivable is analyzed on the portfolio risk: Ending Beginning Proportion to Bad Debt Proportion to Bad Debt Category Amount Amount Total Amount Reserve Total Amount Reserve RMB % RMB RMB % RMB I. Single amount significant --- --- --- 82,259,363.87 55.74 --- II. The portfolio with insignificant single amount has a greater risk 18,140,475.47 19.47 9,367,264.16 32,849,354.23 22.26 13,017,086.73 after combined on the credit risk basis III. Others insignificant 75,034,212.62 80.53 2,507,661.05 32,456,195.57 22.00 2,229,543.27 Total 93,174,688.09 100 11,874,925.21 147,564,913.67 100 15,246,630.00 Total amount of top 5 23,959,812.64 25.71 360,037.79 91,845,257.80 62.24 191,717.88 Account receivable amount occupied 3,388,543.73 3.64 1,359,305.46 47,273,217.94 32.04 --- 22 康佳集团股份有限公司 2008 年年度报告 by affiliated parties ******As regards other accounts receivable, information about top 5 is as follows:： Proportion of Withdrawing Category Amount Reason Bad Debt Reserves Shenzhen Chiyuan Industrial 2% Age within one year Co., Ltd. 8,762,955.44 Shenzhen Shangyongtong --- Recoverable, bad debt reserve not Investment Delelopment Co., withdrawn Ltd. 5,957,923.38 2% Age within one year Galaxy International Plaza 3,734,391.00 2% Age within one year Kongzhan Electron Co., Ltd. 2,834,777.82 2% Age within one year Sanqing Real Estate Co.,Ltd 2,669,765.00 Total 23,959,812.64 As regards the accounts receivable with the significant single amount, the portfolio is recognized based on the account receivable with the ending balance greater than RMB￥10,000,000. As regards the account receivable that has the insignificant single amount but has a greater risk after portfolio, the portfolio is recognized based on the account receivable with the age of three years or more. 1. In the other accounts receivable, there is no account that the Company owes to the shareholders who hold the shares of 5% or more . b. The ending balance of other accounts receivable is analyzed on the age basis. Ending Beginning Proportion to Proportion to Age Amount Bad Debt Reserve Amount Bad Debt Reserve Total Amount Total Amount RMB % RMB RMB % RMB Within one year 72.87 55.13 67,899,080.81 1,410,568.36 81,349,412.89 1,626,988.26 From one year or more to 2.36 4.21 two years or less 2,199,749.19 110,016.16 6,214,026.17 310,701.31 From two years or more 5.30 0.99 to three years or less 4,935,382.62 987,076.53 1,459,268.51 291,853.70 Three years or more 18,140,475.47 19.47 9,367,264.16 58,542,206.10 39.67 13,017,086.73 Total 100．00 100.00 93,174,688.09 11,874,925.21 147,564,913.67 15,246,630.00 (2) As regards other accounts receivable, information of companies are listed as follows: a. The ending balance of other accounts receivable is analyzed on the risk portfolio basis: Ending Beginning Proportion to Bad Debt Proportion to Category Amount Amount Bad Debt Reserve Total Amount Reserve Total Amount RMB % RMB RMB % RMB I. Single amount significant 982,718,174.28 90.94 --- 82,259,363.87 62.65 --- II. The portfolio with insignificant single amount has a greater risk after 20,926,212.94 1.94 8,888,078.42 31,797,590.31 24.22 12,074,001.20 combined on the credit risk basis III. Others insignificant 76,962,545.98 7.12 2,004,107.50 17,239,429.56 13.13 1,714,410.39 Total 1,080,806,933.20 100 10,892,185.92 131,296,383.74 100 13,788,411.59 Total amount of top 5 799,080,346.45 73.93 --- 91,845,257.80 69.95 --- 23 康佳集团股份有限公司 2008 年年度报告 Account receivable amount occupied by affiliated 1,011,800,981.34 93.62 1,359,305.46 4,973,217.94 3.79 --- parties Information about the accounts receivable with significant single amount is as follows: Proportion of Withdrawing Category Amount Reason Bad Debt Reserves Video & Communication Systems --- 372,132,173.00 Associated party Engineering Co., Ltd Shenzhen Konka --- Associated party Telecommunications Technology 110,426,697.56 Co., Ltd. Dongguan Konka Electronic Co., --- Associated party 144,284,365.82 Ltd. Dongguan Konka Moulding Co., --- Associated party 124,314,490.07 Ltd. Shenzhen Konka Household --- Associated party 47,922,620.00 Appliances Co., Ltd. 799,080,346.45 Total b. The ending balance of other accounts receivable is analyzed on the age basis: Ending Beginning Proportion Proportion Age Amount to Total Bad Debt Reserve Amount to Total Bad Debt Reserve Amount Amount RMB % RMB RMB % RMB Within one year 295,400,583.13 27.34 1,137,215.39 69,837,608.64 53.19 1,396,752.17 From one year or more 187,434,930.02 17.34 43,072.15 3,173,389.14 2.41 158,669.46 to two years or less From two years or more 294,862,327.54 27.28 823,819.94 794,943.78 0.61 158,988.76 to three years or less Three years or more 303,109,092.51 28.04 8,888,078.44 57,490,442.18 43.79 12,074,001.20 Total 1,080,806,933.20 100.00 10,892,185.92 131,296,383.74 100.00 13,788,411.59 Note 6 Inventory and Inventory Falling Price Reserves （1） Details are listed as below: Ending Beginning Category Book Balance Carrying Value Book Balance Carrying Value Goods on hand Goods 1,834,413,311.73 1,552,673,168.57 1,984,947,069.08 1,740,796,577.43 on hand Raw materials 940,850,881.06 869,479,520.77 1,087,324,103.02 1,043,546,307.15 Turnover materials 10,641,253.45 10,450,515.63 5,090,415.95 5,090,415.95 Goods in transit 2,667,697.02 2,667,697.02 --- --- Goods in process 143,669,397.22 138,505,965.14 149,702,989.50 145,195,882.34 Goods in process Total 2,932,242,540.48 2,573,776,867.13 3,227,064,577.55 2,934,629,182.87 (2) Inventory falling price reserves Inventory Current Increase Current Decrease Beginning Ending Falling Price in Current Period in Current Period 24 康佳集团股份有限公司 2008 年年度报告 Reserves Carry-back amount Amount transferred Total because of out due to other picking up of reasons assets value Goods on hand 244,150,491.65 37,720,433.95 --- 130,782.44 130,782.44 281,740,143.16 Raw materials 43,777,795.87 27,691,518.00 --- 97,953.58 97,953.58 71,371,360.29 Turnover --- 190,737.82 --- --- --- 190,737.82 materials Goods in 4,507,107.16 656,324.92 --- --- --- 5,163,432.08 process Total 292,435,394.68 66,259,014.69 --- 228,736.02 228,736.02 358,465,673.35 Note 9 Available-for-sale Financial Assets Item Ending Beginning 1.Available-for-sale bonds --- --- 2.Available-for-sale equity --- --- instrument 3.Stock investment 9,756,649.50 60,721,570.37 Total 9,756,649.50 60,721,570.37 * In the end of period, the Company has held *ST Qiulin share and Vanke share, and the measurement change in ending fair value has been recorded in the capital reserves. * As compared with the beginning balance, the ending balance is reduced by RMB￥50,964,920.87, down 83.93%, mainly attributable to the current sale of available-for-sale financial assets in the current period. Note 10 Long-term Equity Investments (1) Details about long-term equity investment are listed as below: Ending Beginning Item Depreciation Depreciation Book Balance Carrying Value Book Balance Carrying Value Reserve Reserve Long-term equity investment Including: investment for affiliated 23,010,338.75 1,400,000.00 21,610,338.75 23,700,374.30 1,400,000.00 22,300,374.30 companies Other equity investment --- --- --- 27,969,778.02 2,796,977.80 25,172,800.22 Other long-term --- --- --- 4,172,056.01 --- 4,172,056.01 investment Total 23,010,338.75 1,400,000.00 21,610,338.75 55,842,208.33 4,196,977.80 51,645,230.53 a. Investment for affiliated companies I．Equity investment calculated using equity method Equity investment calculated using equity method Initial Increase Increased/decreased Accumulative Beginning Ending Name of Invested Entity Proportion Investment (decrease) Amount of Current Increased/decreased Balance Balance Cost Investment Equity Amount of Equity Shenzhen Konka Energy 30% 5,983,965.19 3,663,052.53 --- (13,324.45) (2,334,237.11) 3,649,728.08 Technology Co., Ltd Shenzhen Dekon 30% 3,000,000.00 7,137,424.83 --- --- 4,137,424.83 7,137,424.83 Electronics Co., Ltd Chongqing Jingkang 31.25% 3,750,000.00 3,014,896.94 --- (676,711.10) (1,411,814.16) 2,338,185.84 Plastic Product Co., Ltd. Shenzhen Julong 20% 2,000,000.00 2,000,000.00 --- --- --- 2,000,000.00 Optoelectronics Co., Ltd 25 康佳集团股份有限公司 2008 年年度报告 Total 14,733,965.19 15,815,374.30 --- (690,035.55) 391,373.56 15,125,338.75 II．Equity investment calculated at cost basis Proportion in Initial Beginning Current Current Name of Invested Entity Ending Balance Invested Entity Investment Cost Balance Increase Decrease Shenzhen Make-plan Investment 1% 485,000.00 485,000.00 --- --- 485,000.00 Development Co. , Ltd. Feihong Electronics Co. , Ltd. 8.33% 1,300,000.00 1,300,000.00 --- --- 1,300,000.00 Shenzhen Association of Enterprises with Foreign --- 100,000.00 100,000.00 --- --- 100,000.00 Investment Shanlian Information Technology 9.61525% 5,000,000.00 5,000,000.00 --- --- 5,000,000.00 Project Co., Ltd Shnezhen Zhongcailian 10% 1,000,000.00 1,000,000.00 --- --- 1,000,000.00 Technology Co., Ltd * Total 7,885,000.00 7,885,000.00 --- --- 7,885,000.00 b. Other equity investment Initial Increased Accumulative Name of Invested Beginning Increase/decrease Proportion Investment (reduced) Increased/decreased Ending Balance Entity Balance Amount of Equity Cost Investment Amount of Equity *Guangzhou Huadou Longfeng Jianzhi 50% 27,969,778.02 27,969,778.02 27,969,778.02 --- --- --- Real Estate Co., Ltd. * In the year of 2006, the Company transferred its equity of Guangzhou Huadou Longfeng Jianzhi Real Estate Co., Ltd. at the price of RMB￥28,000,000 to Aohong Holding Co., Ltd. and Shenzhen Aohua Investment Management Co., Ltd. In the current period, the formalities concerning the transfer and received the transfer payment Company has been handled. c. Information about the change in depreciation reserve Current Current Name of Invested Entity Beginning Ending Increase Write-off Feihong Electronics Co. , Ltd. 1,300,000.00 --- --- 1,300,000.00 Shenzhen Association of Enterprises with Foreign 100,000.00 --- --- 100,000.00 Investment Guangzhou Huadou Longfeng Jianzhi 2,796,977.80 --- 2,796,977.80 --- Real Estate Co., Ltd. Total 4,196,977.80 --- 2,796,977.80 1,400,000.00 d. Other long-term investment Increase in Decrease in Invested Entity Beginning Ending Balance Current Year Current Year Jingyuan Building 4,172,056.01 --- 4,172,056.01 --- Sub-total 4,172,056.01 --- 4,172,056.01 --- *Basis 26 康佳集团股份有限公司 2008 年年度报告 (2) As regards long-term investment company, the details are listed as below: Ending Beginning Item Depreciation Depreciation Book Balance Carrying Value Book Balance Carrying Value Reserve Reserve Long-term equity investment Including: Investment for 1,174,259,154.56 33,232,484.69 1,141,026,669.87 828,259,154.56 33,232,484.69 795,026,669.87 subsidiaries investment for 9,885,000.00 1,400,000.00 8,485,000.00 9,885,000.00 1,400,000.00 8,485,000.00 affiliated companies Other equity --- --- --- 27,969,778.02 2,796,977.80 25,172,800.22 investment Other long-term --- --- --- 4,172,056.01 --- 4,172,056.01 investment Total 1,184,144,154.56 34,632,484.69 1,149,511,669.87 870,285,988.59 37,429,462.49 832,856,526.10 a. Investment for subsidiaries Proportion in Initial Beginning Current Name of Invested Entity Current Increase Ending Balance Invested Entity Investment Cost Balance Decrease Dongguan Konka Electronic Co., 100% 274,783,988.91 274,783,988.91 --- --- 274,783,988.91 Ltd. 100% 781,828.61 781,828.61 --- --- 781,828.61 Hong Kong Konka Co., Ltd. Shenzhen Konka Household 51% 10,732,484.69 10,732,484.69 --- --- 10,732,484.69 Appliances Co., Ltd. Shenzhen Shushida Electronic 75% 31,500,000.00 31,500,000.00 --- --- 31,500,000.00 Co., Ltd. Shenzhen Konka Telecommunications Technology 75% 90,000,000.00 90,000,000.00 --- --- 90,000,000.00 Co., Ltd. Anhui Konka Electronic Co., 78% 122,780,937.98 122,780,937.98 --- --- 122,780,937.98 Ltd. Chongqing Qingjia Electronic 30% 4,500,000.00 4,500,000.00 --- 4,500,000.00 --- Co., Ltd. Mudanjiang Konka Industry 60% 36,000,000.00 36,000,000.00 --- --- 36,000,000.00 Co., Ltd. Chongqi Konka Electronic Co., 60% 27,000,000.00 27,000,000.00 --- --- 27,000,000.00 Ltd. Shenzhen Konka Plastic 49% 4,655,000.00 4,655,000.00 --- --- 4,655,000.00 Manufacture Co., Ltd. Shaanxi Konka Electronic Co., 45% 44,869,809.80 44,869,809.80 --- --- 44,869,809.80 Ltd. Shenzhen Konka Video & Communication Engineering Co., 60% 9,000,000.00 9,000,000.00 --- --- 9,000,000.00 Ltd Shenzhen Konka Information 75% 22,500,000.00 22,500,000.00 --- --- 22,500,000.00 Network Co., Ltd. Chongqing Konka Automotive 57% 17,100,000.00 17,100,000.00 --- --- 17,100,000.00 Electronic Co., Ltd. 100% 8,062,500.00 8,062,500.00 --- --- 8,062,500.00 KONKA AMERICA, INC. Anhui Konka Household 92.97% 74,981,122.07 74,981,122.07 --- --- 74,981,122.07 Appliances Co., Ltd. Shenzhen Electron Fittings Technology Co., Ltd. 75% 48,750,000.00 48,750,000.00 --- --- 48,750,000.00 Konka (Europe) Electronic Co., 100% 261,482.50 261,482.50 --- --- 261,482.50 Ltd. Konka (Nanhai) Development 100% 500,000.00 --- 500,000.00 --- 500,000.00 Center Kunshan Konka Electronic Co., 100% 350,000,000.00 --- 350,000,000.00 --- 350,000,000.00 Ltd. 3 康佳集团股份有限公司 2008 年年度报告 Total 1,178,759,154.56 828,259,154.56 350,500,000.00 4,500,000.00 1,174,259,154.56 b. Investment for affiliated enterprises I．Equity investment calculated using equity method Initial Increased Increased/decreased Accumulative Beginning Ending Name of Invested Entity Proportion Investment (reduced) Amount of Current Increased/decreased Balance Balance Cost Investment Equity Amount of Equity Shenzhen Julong 20% 2,000,000.00 2,000,000.00 --- --- --- 2,000,000.00 Optoelectronics Co., Ltd II． Equity investment calculated at cost basis. Proportion in Initial Beginning Current Name of Invested Entity Current Increase Ending Balance Invested Entity Investment Cost Balance Decrease Shenzhen Make-plan Investment 1% 485,000.00 485,000.00 --- --- 485,000.00 Development Co. , Ltd. Feihong Electronics Co. , Ltd. 8.33% 1,300,000.00 1,300,000.00 --- --- 1,300,000.00 Shenzhen Association of Enterprises with Foreign --- 100,000.00 100,000.00 --- --- 100,000.00 Investment. Shanlian Information Technology 9.62% 5,000,000.00 5,000,000.00 --- --- 5,000,000.00 Project Co., Ltd Shnezhen Zhongcailian 10% 1,000,000.00 1,000,000.00 --- --- 1,000,000.00 Technology Co., Ltd * Total 7,885,000.00 7,885,000.00 --- --- 7,885,000.00 b. Other equity investment Initial Increased Accumulative Name of Invested Beginning Increase/decrease Proportion Investment (reduced) Increased/decreased Ending Balance Entity Balance Amount of Equity Cost Investment Amount of Equity Guangzhou Huadou Longfeng Jianzhi 50% 27,969,778.02 27,969,778.02 27,969,778.02 --- --- --- Real Estate Co., Ltd. c. Information about the change in depreciation reserve Current Current Name of Invested Entity Beginning Ending Increase Write-off Feihong Electronics Co. , Ltd. 1,300,000.00 --- --- 1,300,000.00 Shenzhen Association of Enterprises with 100,000.00 --- --- 100,000.00 Foreign Investment. Guangzhou Huadou Longfeng Jianzhi Real Estate 2,796,977.80 --- 2,796,977.80 --- Co., Ltd. Shenzhen Konka Information Network Co., Ltd. 10,732,484.69 --- --- 10,732,484.69 Shenzhen Konka Household Appliances Co., Ltd. 22,500,000.00 --- --- 22,500,000.00 Total 37,429,462.49 --- 2,796,977.80 34,632,484.69 d. Other long-term investment Current Increase Current Decrease Invested Entity Beginning Ending Balance Jingyuan Building 4,172,056.01 --- 4,172,056.01 --- Sub-total 4,172,056.01 --- 4,172,056.01 --- 4 康佳集团股份有限公司 2008 年年度报告 Note 11. Fixed Assets and Accumulated Depreciation Original Value of Beginning Balance Current Increase Current Decrease Ending Balance Fixed Assets House and Building 938,947,860.93 141,940,016.97 2,111,845.34 1,078,776,032.56 Machinery 1,078,272,406.59 33,720,243.74 41,140,902.86 1,070,851,747.47 equipment Electronic 304,810,059.70 18,827,689.83 20,735,962.49 302,901,787.04 equipment Transportation 64,460,959.39 5,878,261.52 9,371,627.97 60,967,592.94 equipment Other equipment 186,392,537.48 10,130,714.80 7,034,195.94 189,489,056.35 Total 2,572,883,824.09 210,496,926.86 80,394,534.60 2,702,986,216.35 Accumulated Beginning Balance Current Increase Current Decrease Ending Balance Depreciation House and Building 212,432,506.78 25,338,388.04 157,281.71 237,613,613.11 Machinery equipment 677,595,303.24 60,786,603.70 39,706,960.45 698,674,946.49 Electronic equipment 221,262,736.64 22,338,676.34 11,747,209.00 231,854,203.97 Transportation 41,968,649.61 6,326,778.39 8,209,204.73 40,086,223.28 equipment Other equipment 135,754,492.25 12,840,206.35 6,301,401.35 142,293,297.25 Total 1,289,013,688.52 127,630,652.82 66,122,057.24 1,350,522,284.10 Depreciation Reserve Beginning Balance Current Increase Current Decrease Ending Balance House and Building 1,247,805.91 --- --- 1,247,805.91 Machinery equipment 4,270,167.58 --- --- 4,270,167.58 Electronic equipment 554,364.05 --- --- 554,364.05 Transportation 863,868.59 --- --- 863,868.59 equipment Other equipment 1,349,827.96 --- --- 1,349,827.96 Total 8,286,034.09 --- --- 8,286,034.09 Carrying Value Beginning Balance Ending Balance House and Building 725,267,548.24 839,914,613.54 Machinery equipment 396,406,935.77 367,906,633.40 Electronic equipment 82,992,959.01 70,493,219.02 Transportation 21,628,441.19 20,017,501.07 equipment Other equipment 49,288,217.27 45,845,931.13 Total 1,275,584,101.48 1,344,177,898.16 *Construction work in progress amounting to RMB￥67,922,627.54 is transferred to the increased amount of fixed assets in the current period. **The original value amounting to RMB ￥ 283,352,726.15 and the net value amounting to RMB ￥230,306,230.14 in the ending amount of fixed assets has been mortgaged to secure the bank loan or been pledged to secure the credit line of the Company. Note 12.Construction Work in Progress 5 康佳集团股份有限公司 2008 年年度报告 Name of Project Budget Beginning Current Increase Current Amount Current Amount of Ending Amounting Amount Balance Amount Transferred to Other Decreases Source Fixed Assets 11,092,094.57 9,603,594.57 1,488,500.00 Self-raised HDMI Cable --- --- Presale flat 5,659,337.52 5,410,538.49 296,553.03 Self-raised panel 5,289,400 47,754.00 --- maintenance cable 23,467,627.73 42,538,700.85 2,620,319.88 Self-raised HDMI cable 17,697,600 21,691,393.00 --- worship project Guankang 178,190.00 --- 15,247,772.83 Self-raised LCM15-32 15,070,550.83 --- “module test 567,000,000 wire” Purification 4,633,855.93 9,930,363.17 7,703,413.63 192,800.00 6,668,005.47 Self-raised project for Guankang LCM test wire Purchase of SMT 17,584.00 2,998,251.90 2,666,380.00 349,455.90 Self-raised equipment as an 16,790,000 --- agent 消 防 水 池 Fire --- 659,406.00 --- 659,406.00 Self-raised --- reservoir Ankang 1,600.00 1,600.00 Self-raised Appointed Personnel --- --- --- Dormitory Building Total 45,048,689.75 50,399,318.90 67,922,627.54 193,768.00 27,331,613.11 Note 13 Intangible Assets Beginning Current Current Item Ending Balance Balance Increase Decrease I. Total original price 116,645,957.26 948,490.51 5,185,738.51 112,408,709.26 1. Land tenancy 76,408,883.13 --- 5,185,738.51 71,223,144.62 2. Foreign trademark 2,782,039.61 255,260.00 --- 3,037,299.61 registration expenses 3. Patent and know-how 31,229,035.46 479,508.28 --- 31,708,543.74 4. Others 6,225,999.06 213,722.23 --- 6,439,721.29 II. Accumulated amortization 33,012,382.99 7,854,943.33 583,599.27 40,283,727.05 amount 1. Land tenancy 10,769,908.90 1,884,631.58 583,599.27 12,070,941.21 2. Foreign trademark 2,173,727.48 200,976.92 --- 2,374,704.40 registration expenses 3. Patent and know-how 17,458,801.89 4,522,340.32 --- 21,981,142.21 4、Other 2,609,944.72 1,246,994.51 --- 3,856,939.23 III. Accumulated total amount of intangible assets 2,901,082.61 --- --- 2,901,082.61 depreciation reserve 1. Land tenancy --- --- --- --- 2. Foreign trademark --- --- --- --- registration expenses 3. Patent and know-how 2,901,082.61 --- --- 2,901,082.61 4、Other --- --- --- --- IV. Total carrying value of 80,732,491.66 69,223,899.60 intangible assets 65,638,974.23 59,152,203.41 1. Land tenancy 6 康佳集团股份有限公司 2008 年年度报告 2. Foreign trademark 608,312.13 662,595.21 registration expenses 10,869,150.96 6,826,318.92 3. Patent and know-how 3,616,054.34 2,582,782.06 4、Other ** Of the ending amount of intangible assets, RMB￥11,340,692.89 has been mortgaged to secure the bank loan. Note 14.Goodwill Goodwill Beginning Carrying Current Current Ending Carrying Item Source Value Increase Decrease Value Acquisition of equity of 3,943,671.53 --- --- 3,943,671.53 subsidiaries Total 3,943,671.53 --- --- 3,943,671.53 Note 15.Long-term Deferred Expenses Category Beginning Balance Current Increase Current Ending Balance Amortization Decoration 6,780,000.07 4,511,340.32 3,078,548.03 8,212,792.36 Shoppe 2,275,320.73 470,730.00 1,877,818.21 868,232.52 Software license 2,369,963.72 57,200.00 642,157.40 1,785,006.32 Other 4,851,328.51 5,049,117.98 7,915,383.08 1,985,063.41 Development 817,475.30 platform expenses 6,890,267.24 2,168,612.47 5,539,130.07 Module expenses 682,758.60 98,324.34 179,972.11 601,110.83 Model machine 0.00 1,743,543.70 837,755.09 905,788.61 Total 12,747,731.64 23,849,638.87 16,326,636.59 19,897,124.12 Note 16.Assets from Deferred Income Tax Item Ending Beginning z Bad debt reserve for 35,245,682.20 20,867,189.56 accounts receivable 2. Bad debt reserve for other accounts 2,186,070.69 --- receivable 3. Inventory falling 53,809,700.41 41,200,967.67 price reserves 4. Tradable financial 311,019.71 --- assets 5.Long-term equity 280,000.00 1,340,333.87 investment 6.Others 161,070.00 --- Total 91,993,543.01 63,408,491.10 Note 17.Assets Depreciation Reserve Current Beginning Item Withdrawn Current Decrease Ending Balance Balance Amount Carryback Write-off 1、Bad debt reserve 198,054,698.60 15,452,159.77 2,851,370.90 --- 210,655,487.47 2 、 Inventory falling 292,435,394.68 66,259,014.69 --- 228,736.02 358,465,673.35 price reserves 3、Depreciation Reserve 4,196,977.80 --- --- 2,796,977.80 1,400,000.00 long-term equity 7 康佳集团股份有限公司 2008 年年度报告 investment reduction reserve 4. Fixed assets 8,286,034.09 --- --- --- 8,286,034.09 depreciation reserves 5. Intangible assets 2,901,082.61 --- --- --- 2,901,082.61 depreciation reserve Total 505,874,187.78 81,711,174.46 2,851,370.90 3,025,713.82 581,708,277.52 Note 18.Short-term Loan Type Ending Beginning Credit loan --- --- Mortgage loan* 11,500,000.00 22,000,000.00 Secured loan 1,197,352,457.29 1,259,269,907.72 Mortgaged loan 137,523,153.49 --- Total 1,346,375,610.78 1,281,269,907.72 Note 19. Bills Payable Category Amount Amount Due Within One Year Letter of credit Banker’s acceptance bill 2,637,681,947.36 2,637,681,947.36 Commercial Acceptance Bill Total 2,637,681,947.36 2,637,681,947.36 There is no account that the Company owes to the shareholders who hold the shares of 5% or more Note 20 Accounts Payable Ending Beginning Age Proportion to Proportion to Amount Amount Total Amount Total Amount RMB % RMB % Within one year 1,514,983,692.13 96.39 792,746,958.59 79.60 From one year or more to two years or less 1,957,755.70 0.12 119,745,116.60 12.02 From two years or more to three years or less 14,876,183.29 0.95 34,429,950.43 3.46 Three years or more 39,943,710.86 2.54 48,975,115.90 4.92 Total 1,571,761,341.98 995,897,141.52 100.00 100.00 There is no account that the company owes to the shareholders who hold 5% or more of voting right. Note 21. Advance Receipts In the ending balance amounting to RMB￥179,376,510.50, there is no account that the Company owes to the shareholders (holding 5% or more). As compared with the beginning balance of advance receipts, the ending balance of advance receipts is reduced by RMB￥43,912,921.46, down 19.67%, mainly attributable to reduce in advance receipts arising from the current-year delivery settlement of beginning accounts receivable. Note 22. Staff Remuneration Payables Current Amount Items Beginning Balance Current Payment Ending Balance Incurred I. Wages, bonuses, 125,691,597.19 739,778,507.37 734,572,081.37 130,898,023.19 allowances and subsidies 8 康佳集团股份有限公司 2008 年年度报告 II. Welfare expenses for 8,835,387.21 50,251,906.68 50,662,677.69 8,424,616.20 staffs III. Social insurances 16,860,679.74 106,801,377.13 106,715,675.10 16,946,381.77 IV. Housing accumulation 1,176,999.39 4,954,332.73 4,660,103.90 1,471,228.22 fund Ⅴ . Staff education expenses and labor union 7,986,144.26 10,519,871.98 11,864,951.89 6,641,064.35 expenses Ⅵ. Non-monetary welfares --- --- --- --- Ⅶ .Compensations for the cancellation of the labor 292,800.00 12,277,761.54 11,355,353.74 1,215,207.80 relationship Ⅷ.Others 1,946,972.04 13,948,023.73 12,653,022.34 3,241,973.43 Including: share-based --- --- --- --- payment settled in cash Total 162,790,579.83 938,531,781.16 932,483,866.03 168,838,494.96 z The ending balance of staff welfare expenses shall be the staff welfare and bonus funds withdrawn by the foreign-invested enterprises based on 5% of after-tax profits. z Note 23. Tax Payable Tax Ending Beginning Value added tax payable (4,626,297.30) (21,074,351.68) Sales tax 587,222.55 4,188,251.14 City maintenance and 314,342.02 188,474.56 construction tax Corporate income tax 16,615,583.47 27,593,756.63 Individual income tax 521,258.50 4,833,428.17 Educational Surtax 151,855.59 40,234.03 Other categories of tax 700,010.29 253,915.71 Total 14,263,975.12 16,023,708.56 Note 24.Other Accounts Payable Ending Beginning Age Amount Proportion in Amount Proportion in Total Amount Total Amount RMB % RMB % Within one year 484,899,369.33 91.92 535,095,938.80 85.40 From one year or more to 16,383,775.50 3.11 62,847,219.43 10.03 two years or less From two years or more to 6,771,149.02 1.28 14,192,128.27 2.27 three years or less Three years or more 19,480,942.46 3.69 14,412,773.45 2.30 Total 527,535,236.31 100.00% 626,548,059.95 100.00 Note 25. Deferred Incomes Beginning Category Ending Balance Balance Government’ grant for pure flat color TV R&D 2,932,899.19 3,292,899.19 project Government’ grant for LCD TV hi-tech 581,583.33 997,000.00 industrialization demonstration project 9 康佳集团股份有限公司 2008 年年度报告 Aid funds for key project of “Konka Logistics Information System” enterprise 689,200.00 400,000.00 informatization The fifth batch of industrial technical 1,000,000.00 --- research and development Foundation for scientific and technological 36,000.00 88,206.98 innovation Government’s grant for industrialization project of conditional-access-separation 7,150,000.00 9,000,000.00 digital television receiver Government’s grant for industrialization project of LCOS digital projector and LCOS 478,333.33 700,000.00 projector Special technical transformation funds for 4,826,300.00 6,451,300.00 treasury bond Financial funds of financial bureau for technical innovation project- electrojet 3,000,000.00 3,000,000.00 control system Project funds for supply chain management 1,500,000.00 1,500,000.00 information system IPV6 HDTV payment of infrastructure office of 3,050,720.44 2,396,819.20 financial bureau HDTV production line construction 1,600,000.00 2,000,000.00 Industrialization project of auto motor fuel 883,333.33 --- electroject control system Industry funds for flat plate display 2008 7,000,000.00 --- Digital TV patent pool- technical service 1,000,000.00 --- platform for digital audio/video generality R&D and industrialization for digital products 2,000,000.00 --- to support network Innovative capability project of technical 3,850,000.00 --- center Research funds 1,000,000.00 --- IPv6-based multi-mode hand-hold and 1,000,000.00 --- on-vehicle multimedia terminal Total 43,578,369.62 29,826,225.37 Note 26.Deferred Income Tax Liabilities Item Ending Beginning Change in fair value of --- 3,783,805.52 available-for-sale financial assets Others 563,067.21 --- Total 563,067.21 3,783,805.52 Note 27. Equities Current Increase (Decrease) Ration Capital Item Beginning Presented Addit Ending ed Reserves Shares ional Others Subtotal Shares Transferre Amount Issue Amount d to Shares I. Circulating I. Uncirculated shares shares with limited sales conditions 99,190,970. 46,798,378. 145,989,348 1. Founder’s shares 52,392,592.00 --- --- --- 198,381,940.00 00 00 .00 10 康佳集团股份有限公司 2008 年年度报告 Including: shares held by 99,190,970. 46,798,378. 145,989,348 52,392,592.00 --- --- --- 198,381,940.00 the state 00 00 .00 (66,506,194 (66,503,719 2. Non-founder’s shares 66,509,953.00 --- --- 2,475.00 6,234.00 .00) .00) Including: shares held by (43,546,563 (43,546,563 43,546,563.00 --- --- --- --- --- domestic corporation .00) .00) Shares held by foreign (22,960,915 (22,960,915 22,960,915.00 --- --- --- --- --- corporation .00) .00) Shares held by domestic 2,475.00 --- --- 2,475.00 --- 1,284.00 3,759.00 6,234.00 natural person 99,193,445. (19,707,816 79,485,629. Uncirculated shares total 118,902, 545.00 --- --- --- 198,388,174.00 00 .00) 00 II. Circulated II. Circulated shares without limited sales conditions 1. RMB ordinary shares 299,955,005 19,707,816. 319,662,821 listed within the 280,245,905.00 --- --- --- 599,908,726.00 territory .00 00 .00 2. Foreign-capital shares 202,837,902 202,837,902 202,837,902.00 --- --- --- --- 405,675,804.00 within the territory .00 .00 502,792,907 19,707,816. 522,500,723 Circulated shares total 483,083,807.00 --- --- --- 1,005,584,530.00 .00 00 .00 601,986,352 601,986,352 III. Total shares 601,986,352.00 --- --- --- --- 1,203,972,704.00 .00 .00 *The beginning equities have been verified by FYBZ [2000] No. B020 Capital Verification Report as made by Shenzhen Zhongtian Certified Public Accounts Co., Ltd. **The Company convened the seventh meeting of the six session of board, approving and adopting the following resolutions: With the total equity of 601,986,352 shares for the year ended on December 31, 2007 as the base, the equities translated from capital reserves are transferred to all shareholders at RMB￥1.00 per share translated from capital reserve. And the said resolution was adopted by the general meeting 2007 convened on May 26, 2008. The Company, in June 2008, implemented the capital reserves translated into equities and went through the formality of transfer at China Securities Depository and Clearing Corporation Limited. On December 16, 2008, upon approval of SMGZF[2008] No. 2662 document as issued by Shenzhen Bureau of Trade and Industry, the Company was agreed to increase equities, after which the increased equity has been verified and recognized by HDYZ[2009] No. 28 Capital Verification Report as made by Guandong Dahuadelu Certified Public Accountants Co., Ltd., and the formality for registration of changes were gone through at the administration for industry and commerce on April 10, 2009. Note 28. Capital Reserves Current Item Beginning Current Decrease Ending Increase Capital stock premium 1,812,471,052.00 --- 601,986,352.00 1,210,484,700.00 Other capital reserve 64,135,010.32 --- 18,481,415.11 45,653,595.21 Total 1,876,606,062.32 --- 620,467,767.11 1,256,138,295.21 * For the main reasons of decrease in the capital reserves of the Company, please see Note 27. Note 29. Surplus Reserves Current Current Item Beginning Ending Increase Decrease Legal surplus 527,608,154.79 23,173,319.38 --- 550,781,474.17 Free surplus 254,062,265.57 --- --- 254,062,265.57 reserves Total 781,670,420.36 23,173,319.38 --- 804,843,739.74 Note 30. Retained Earnings 11 康佳集团股份有限公司 2008 年年度报告 Item Current Previous Beginning undistributed profit 273,047,084.22 126,609,918.56 Add: net profits ascribed to the 250,817,154.35 207,091,715.42 shareholders of parent company Add: Withdrawal of statutory surplus 23,226,113.46 --- reserve Withdrawal of staff welfares and bonus --- 455,914.56 funds Cash dividends --- 60,198,635.20 Ending undistributed profits 500,638,125.11 273,047,084.22 Note 31. Business Incomes and Costs (1) The details about business incomes and are listed as follows: Current Previous Item Business Incomes Business Costs Business Incomes Business Costs 1．Main business 12,053,777,961.07 9,784,857,255.39 12,064,636,273.80 9,743,937,332.52 incomes 2．Other business 151,514,266.50 98,245,300.13 104,442,095.70 60,249,024.79 incomes Total 12,205,292,227.57 9,883,102,555.52 12,169,078,369.50 9,804,186,357.31 (2)The proportion of total sales revenues of top 5 customers of the Company in the total sales revenues are listed as below: Current Previous Total amount of sales revenue top 5 1,207,196,090.63 2,271,344,890.88 Proportion in sales revenues 10.02% 18.83% (3) Segment table of main business: Current Previous Business Item Main business Main business Categories Main business costs Main business costs incomes Main business incomes Main business cost income cost Color TV business 9,086,606,394.25 7,366,438,167.83 9,613,960,868.34 7,646,229,399.76 Cell phone business 1,261,919,603.31 1,107,801,233.12 1,602,803,486.87 1,303,005,276.31 Other businesses 1,705,251,963.51 1,310,617,854.44 847,871,918.59 794,702,656.45 Total 12,053,777,961.07 9,784,857,255.39 12,064,636,273.80 9,743,937,332.52 (4) Regional segments table of main business: Current Previous Regions Main business Main business Main business Main business incomes costs incomes costs Domestic sales 12,258,985,776.13 10,118,807,103.77 10,778,767,660.44 8,549,810,201.24 Overseas sales 3,048,590,309.79 2,941,045,798.35 2,286,824,485.76 2,195,083,003.68 Subtotal 15,307,576,085.92 13,059,852,902.12 13,065,592,146.20 10,744,893,204.92 12 康佳集团股份有限公司 2008 年年度报告 Mutual offsetting among segments of (3,253,798,124.85) (3,274,995,646.73) (1,000,955,872.40) (1,000,955,872.40) the Company in all regions Total 12,053,777,961.07 9,784,857,255.39 12,064,636,273.80 9,743,937,332.52 As compared with that in the previous period, the main business incomes in the current period is reduced by RMB￥10,858,312.73, down 0.09%, mainly attributable to the decrease in color TV export sales revenues (5) Other business items： Current Previous Other Business Other Other Other Other business Categories business Profit business business Profits incomes costs incomes costs Material transfer 104,134,014.70 81,282,718.83 22,851,295.87 75,472,203.90 52,215,072.65 23,257,131.25 Incomes from wastes sales 13,613,608.81 2,874,285.30 10,739,323.51 18,912,872.51 2,508,297.41 16,404,575.10 Others 33,766,642.99 14,088,296.00 19,678,346.99 10,057,019.29 5,525,654.73 4,531,364.56 Total 151,514,266.50 98,245,300.13 53,268,966.37 104,442,095.70 60,249,024.79 44,193,070.91 The details about business incomes and costs are listed as follows: (1) Business incomes and costs are listed as follows： Current Previous Item Business incomes Business costs Business incomes Business costs 1 ． Main business 10,078,496,651.42 8,282,408,864.09 9,844,288,505.64 8,096,289,046.63 incomes 2．Other business incomes 326,262,604.26 295,962,027.13 292,154,327.82 253,143,793.87 Total 10,404,759,255.68 8,578,370,891.22 10,136,442,833.46 8,349,432,840.50 (2) The proportion of total sales revenues of top 5 customers of the Company in the total sales revenues are listed as below: Current Previous Total amount of sales revenue top 1,764,765,774.51 2,271,344,890.88 5 Proportion in sales revenues 17.51% 23.07% (3) Segment table of main business： Current Previous Item Categories of Main Business Main business Main business Main business Main business incomes costs incomes costs Color TV business 9,030,330,575.15 7,373,083,725.43 9,844,288,505.64 8,096,289,046.63 Cell phone business --- --- --- --- Other businesses 1,048,166,076.27 909,325,138.66 --- --- Total 10,078,496,651.42 8,282,408,864.09 9,844,288,505.64 8,096,289,046.63 (4) Regional segments table of main business: Regions Current Previous 13 康佳集团股份有限公司 2008 年年度报告 Main business Main business Main business costs Main business costs incomes incomes Domestic sales 9,397,419,981.42 7,582,920,658.16 8,843,332,633.24 7,085,618,160.42 Overseas sales 681,076,670.00 699,488,205.93 1,000,955,872.40 1,010,670,886.21 Total 10,078,496,651.42 8,282,408,864.09 9,844,288,505.64 8,096,289,046.63 (5) Other Business items： Current Previous Other Business Other Other Other business Other business Categories business Profit business 利润 incomes incomes costs costs Material 297,363,797.75 294,198,107.72 3,165,690.03 272,769,139.53 252,664,309.01 20,104,830.52 transfer Incomes from 9,735,324.48 --- 9,735,324.48 11,515,265.26 22,852.08 11,492,413.18 wastes sales Others 19,163,482.03 1,763,919.41 17,399,562.62 7,869,923.03 456,632.78 7,413,290.25 Total 326,262,604.26 295,962,027.13 30,300,577.13 292,154,327.82 253,143,793.87 39,010,533.95 Note 32.Financial Costs Item Current Previous Interest expenditure 100,413,819.57 47,613,499.17 Less: interest income 53,130,967.13 17,124,933.56 Exchange loss 62,681,018.26 10,420,796.26 Less: exchange earnings 134,898,737.45 43,536,425.63 Others 26,253,374.56 17,677,999.82 Total 1,318,507.81 15,050,936.06 As compared with that in the previous period, the financial expenses in the current period is reduced by RMB￥39,533,652.89, down 195.07%, mainly attributable to the increase in discount interest caused by the increase in current interest, and the increase in exchange loss influenced by RMB appreciation. Note 33.Assets Depreciation Loss Items Current Previous I. Bad debt loss 15,452,159.77 37,733,336.79 II. Loss on inventory evaluation 66,259,014.69 34,230,316.18 Total 81,711,174.46 71,963,652.97 Note 34. Earnings on Investment Category Current Previous Earnings from equity investment 5,430,444.17 8,773,933.59 Net increase/decrease amount of owner’s equity of invested (690,035.55) (621,235.60) companies adjusted in the yearend Transfer earnings of equity 2,795,299.78 489,704.91 investment NDF close out earnings (11,244,248.11) --- Others --- --- 14 康佳集团股份有限公司 2008 年年度报告 Total (3,708,539.71) 8,642,402.90 Details about investment earnings are listed as below: Category Current Previous Earnings from equity investment 5,430,444.17 8,773,933.59 Net increased/decreased amount of owner’s equity of invested company adjusted in the --- --- yearend Investment earnings obtained by 42,321,199.15 5,559,890.54 subsidiaries NDF close out earnings (8,384,596.11) --- Transfer earnings of equity investment 8,049,650.25 489,704.91 Total 47,416,697.46 14,823,529.04 Note 35. Non-business Revenues and Expenditures 1. Non-business Revenues Item Current Previous 1.Total gains on non-current assets disposal 6,316,997.35 1,282,944.23 Including: gains on fixed assets disposal 4,035,136.59 1,282,944.23 Gains on intangible assets disposal 2,281,860.76 --- Government’s grants 9,944,243.96 3,157,255.00 Fixed assets inventory surplus 434,697.41 1,000.00 Net incomes from penalty 3,660,523.07 2,930,031.36 Accounts payable carried over due to inability to make payment 3,502,833.13 906,840.74 Others 4,025,555.60 3,726,644.44 Total 27,884,850.52 12,004,715.77 As compared with that in the previous period, the non-business income in the current period is increased by RMB￥15,880,134.75, up 132.28%, mainly attributable to the bigger increase in government’s grants and penalty incomes. * Details about grants incomes are listed as below: Items Year of 2008 Government grant for pure flat color TV R&D project 360,000.00 415,416.66 Government grant for industrialization project of conditional-access-separation digital television 1,850,000.00 receiver Government’s grant for industrialization project 221,666.67 of LCOS digital projector and LCOS projector Special technical transformation funds for 1,625,000.00 treasury bond IPV6 HDTV payment of infrastructure office of 2,346,098.77 financial bureau Industrialization project of auto motor fuel 116,666.67 electroject control system 专项奖励Special bonus 100,000.00 Project grant for tackle of hard-nut problems in 108,000.00 science and technology and industrialization 15 康佳集团股份有限公司 2008 年年度报告 project of Jiangbei Commission for Science and Technology Technological R&D funds 2008 of Chongqing 200,000.00 Financial Bureau for industrialization Settlement funds of Chongqing Financial Bureau for product development of electromechanical and 400,000.00 hi-tech export during and prior to 2006 Aid funds of Jiangbei Commission for Science and 5,000.00 Technology for independent innovation Aid funds for technical reform of foreign trade 19,600.00 export 2008 Aid funds of Chongqing Financial Bureau for 1,300.00 technical reform and development project Incentive funds of enterprises 24,002.19 Shaanxi electronic development funds 400,000.00 Grants for science and technology 450,000.00 Grants based on 50% of tenure tax actually paid 1,204,493.00 Total 9,944,243.96 2. Non-business Expenditures Item Current Previous 1. Total non-current disposal losses 6,652,412.36 4,022,131.66 Including: fixed assets disposal losses 6,652,412.36 4,022,131.66 Intangible assets disposal losses --- --- Fixed assets inventory shortages 3,980.00 Donation expenditures 4,065,370.15 1,098,515.76 Fine expenditures 1,048,636.70 1,094,129.73 Penalties 300,000.00 Abnormal losses 369,907.62 Dismissal subsidies 2,740,763.40 Others 846,449.68 1,729,710.82 Total 12,912,868.89 11,059,138.99 As compared with the previous period, the non-business expenditure in the current period is increased by RMB ￥ 1,853,729.90, up 16.76%, mainly attributable to bigger increase in expenditures for non-current assets disposal and donations. Note 36. Income taxes (1) Components of income tax expenses Item Current Previous Current income tax expenses 50,795,455.38 40,592,952.00 Deferred income expenses (28,274,032.20) 3,933,286.06 Refund of income tax 22,521,423.18 44,526,238.06 Total 50,795,455.38 40,592,952.00 16 康佳集团股份有限公司 2008 年年度报告 Note 37. Other Cashes Relating to Operating Activities Item Current Previous Other received cashes relating to operating activities Temporarily received maintenance funds 1,400,417.24 2,076,930.98 Interest incomes from bank deposit 6,938,047.93 5,823,279.06 Advance and deposit 9,625,302.10 11,431,853.86 Incomes from fine and penalty 791,107.19 1,298,465.01 Repayment for personal loan 9,523,712.99 3,969,774.39 Grants incomes 19,726,028.35 5,540,000.00 Throw-away incomes 2,599,747.45 12,708,357.96 Financial assets inflow 52,599,522.22 97,365,603.41 US dollars translated into HK dollars 103,203,885.47 140,214,264.67 Collection of NDF earnings expires in 1,400,417.24 2,076,930.98 2009 Others 6,938,047.93 5,823,279.06 Subtotal 9,625,302.10 11,431,853.86 Other paid cashes relating to operating activities Cashes paid for management expenses 181,667,280.04 162,863,280.22 Cashes paid for business expenses 743,208,043.76 733,309,001.23 Expenditures of deposit, guaranty funds 29,559,396.80 14,197,437.33 and maintenance funds Staff reserve funds 28,399,977.58 18,730,554.07 Reimbursed expenses 4,065,370.15 --- Penalty expenditures 78,733,071.35 48,394,706.96 Interests 300,000.00 448,220.19 Donation expenditures 26,253,374.56 23,460,434.77 Others 29,605,975.10 160,710,064.53 Subtotal 1,121,792,489.34 1,162,113,699.30 Note 39. Cash and Cash Equivalent Current Previous Items I．Cash 845,026,867.06 752,558,414.47 10,396.35 10,249.62 Including：Cash in treasury 845,016,470.71 752,548,164.85 Bank deposits available for payment at any time --- --- Other monetary funds available for payment at any time --- --- Deposits in a central bank available for payment --- --- Deposits in other banks --- --- Inter-bank offered account --- --- II. Cash equivalents --- --- Including: Bond investment due within three months III. Ending balance of cash and cash equivalent 845,026,867.06 752,558,414.47 17 康佳集团股份有限公司 2008 年年度报告 Note 7.Government Grants Category of Government’s Grants Amount to be Deferred I. Government’s grant relating to assets Government’s grant for pure flat color TV R&D 2,932,899.19 project Government’s grant for LCD TV Hi-tech 581,583.33 industrialization demonstration project Aid funds for key project of “Konka Logistics 689,200.00 Information System” enterprise informatization Funds for tackle of hard-nut problems in science 36,000.00 and technology Government’s grant for industrialization project of conditional-access-separation digital 7,150,000.00 television receiver Government’s grant for industrialization project 478,333.33 of LCOS digital projector and LCOS projector Special technical transformation funds for 4,826,300.00 treasury bond Financial funds of financial bureau for technical 3,000,000.00 innovation project- electrojet control system Project funds for supply chain management 1,500,000.00 information system IPV6 HDTV payment of infrastructure office of 3,050,720.44 financial bureau HDTV production line construction 1,600,000.00 Industrialization project of auto motor fuel 883,333.33 electroject control system The fifth batch of industrial technical research 1,000,000.00 and development Industry funds for flat plate display 2008 7,000,000.00 Digital TV patent pool- technical service platform 1,000,000.00 for digital audio/video generality R&D and industrialization for digital products to 2,000,000.00 support network Innovative capability project of technical center 3,850,000.00 Research funds 1,000,000.00 IPv6-based multi-mode hand-hold and on-vehicle 1,000,000.00 multimedia terminal Total 43,578,369.62 Note 9. Supplementary of Cash Flow Statements Supplementary Current Previous 1. Reconciliation of net profit to cash 301,215,49 flows from operating activities: 8.85 Net profits 258,324,471.34 211,924,146.49 Add: assets depreciation reserves 81,711,174.46 71,963,652.97 Depreciation of fixed assets, depletion of oil gas assets and depreciation of 102,179,511.43 131,962,802.82 productive biological assets 18 康佳集团股份有限公司 2008 年年度报告 Amortization of intangible assets 7,612,625.27 6,421,028.65 Amortization of long-term deferred 8,858,922.85 7,152,601.57 expenses Disposal of fixed assets, intangible 2,326,767.51 2,739,187.43 assets and other long term assets Losses on retirement of fixed assets 1,946,047.69 --- Losses on fair value change 12,481,880.16 17,249,624.92 Financial costs 20,351,662.68 (22,310,937.65) Investment losses 3,708,539.71 (8,642,402.90) Decrease in deferred income tax assets (28,274,032.20) 3,933,286.06 Increase in deferred income tax --- --- liabilities Decrease of inventory 294,822,037.07 585,811,827.49 Decrease of operating receivables (62,914,815.42) (24,234,671.15) Increase of operation payable (340,492,714.26) (948,830,647.85) Others --- --- 362,642,078.29 35,139,498.85 2. Significant investment and financing activities not concerned with receipts and 9 disbursements Liabilities transferred to capitals --- Convertible bonds due within one year --- Fixed assets under financing lease --- 3. Net change in cash and cash equivalents Ending cash balance 845,026,867.06 752,558,414.47 Less：Beginning cash balance 752,558,414.47 678,239,825.82 Add：Ending balance of cash equivalents --- --- Less ： Beginning balance of cash --- --- equivalents Net increment of cash and cash 92,468,452.59 74,318,588.65 equivalents Note 10. Affiliated Party Relationships and Transactions Thereamong (1) Information about the parent company of the Company is as follows Registered Name of Parent Company Registratio Nature of the Capital Holding Voting and Organization Code n Place Business Proport Right ion Proportion Overseas Chinese Town Shenzhen, Ownership by 2,000,000,000. 16.68％ 16.68 Group Company Guangdong the entire 00 ％ (190346175) people (2) For information about the subsidiary companies, affiliated enterprises and joint ventures of the Company, please see Note 3. (3) Information about the other affiliated parties of the Company is as follows: 19 康佳集团股份有限公司 2008 年年度报告 Name of Company and Organization Code Relations with the Company Shenzhen Overseas Chinese Town Real Estate Co., Ltd. Subsidiary company of the first major shareholder Shenzhen Overseas Chinese Town Realty Management Co., Subsidiary company of the first major shareholder Ltd. Shenzhen Special Economic Zone Overseas Chinese Town Subsidiary company of the first major shareholder Hydropower Company Shanghai Huali Packaging Co., Ltd. Subsidiary company of the first major shareholder Shenzhen Huali Packing & Trading Co., Ltd Subsidiary company of the first major shareholder Anhui Huali Packaging Co., Ltd. Subsidiary company of the first major shareholder Shanghai Overseas Chinese Town Investment Development Subsidiary company of the first major shareholder Co., Ltd. Chengdou Tianfu Overseas Chinese Town Industry Co., Ltd. Subsidiary company of the first major shareholder Shenzhen East Overseas Chinese Town Co., Ltd. Subsidiary company of the first major shareholder “Grandson company” of the first major shareholder Shenzhen Huayou Packaging Co., Ltd. Shenzhen Konka Energy Technology Co., Ltd Affiliated company Shenzhen Dekon Electronics Co., Ltd. Affiliated company Guangzhou City Huadou Longfeng Jianzhi Real Estate Co., Affiliated company Ltd. (4) Transactions among affiliated companies Current Previous Name of Company Item Amount Proportion Amount Proportion Pricing in Total Pricing in Total Policy Parallel Policy Parallel Transactio Transaction ns s Shenzhen Dekon Electronics Procurement of --- Market 44,871,754.44 0.62% 65,221,019.22 1.16% Co., Ltd goods price Shanghai Huali Packaging Procurement of Market Market 22,673,519.98 0.31% 13,031,734.94 0.23% Co., Ltd. goods price price Shenzhen Huali Packing & Procurement of Market Market 6,747,272.28 0.09% 19,086,428.68 0.34% Trading Co., Ltd goods price price Anhui Huali Packaging Co., Procurement of Market Market 37,770,736.55 0.52% 36,115,610.26 0.64% Ltd. goods price price Shenzhen Huayou Packaging Procurement of Market --- 13,355,685.20 0.18% --- --- Co., Ltd. goods price Overseas Chinese Town Group Royalty payment --- --- 437,152.20 100% 334,983.80 100% Company Overseas Chinese Town Group Assigning or --- Evaluated --- --- 2,160,000.00 20% Company assigned equity price Shanghai Overseas Chinese Assigning or --- Evaluated Town Investment Development assigned equity --- --- 4,320,000.00 40% price Co., Ltd. Chengdou Tianfu Overseas Assigning or --- Evaluated Chinese Town Industry Co., assigned equity --- --- 4,320,000.00 40% price Ltd. Shenzhen East Overseas Purchase of --- Market --- --- 42,300,000.00 100% Chinese Town Co., Ltd. real estate price Shenzhen East Overseas Sales of goods Market --- 5,294,188.03 0.04% --- --- Chinese Town Co., Ltd. price Chengdou Tianfu Overseas Sales of goods Market --- Chinese Town Industry Co., 17,487,179.49 0.14% price --- --- Ltd. Beijing Century Overseas Sales of goods Market --- Chinese Town Industry Co., 1,068,376.07 0.01% price --- --- Ltd. (5) Current accounts among affiliated companies 20 康佳集团股份有限公司 2008 年年度报告 Current Items Name of Affiliated Company Economic Ending Beginning Contents Account Shenzhen East Overseas Payments for 6,269,712.00 2,307,512.00 receivable Chinese Town Co., Ltd. goods Chengdou Tianfu Overseas Payments for Chinese Town Industry Co., 12,674,000.00 --- goods Ltd. Beijing Century Overseas Payments for Chinese Town Industry Co., 875,000.00 --- goods Ltd. Shenzhen Konka Energy Current 40,290.24 1,130,000.00 Technology Co., Ltd accounts Subtotal 19,859,002.24 3,437,512.00 Accounts Shenzhen Overseas Chinese receivable-othe Deposit 1,303,396.86 1,288,948.86 Town Real Estate Co., Ltd. rs Shenzhen Overseas Chinese Town Realty Management Co., Deposit 77,402.65 77,402.65 Ltd. Shenzhen Special Economic Prepayment for Zone Overseas Chinese Town water/electric 2,007,744.22 3,655,396.35 Hydropower Company ity rate Guangzhou City Huadou Current Longfeng Jianzhi Real --- 31,900.00 accounts Estate Co., Ltd. East Overseas Chinese Town House purchase --- 42,300,000.00 Co., Ltd. funds Subtotal 3,388,543.73 47,353,647.86 Accounts payable Shenzhen Dekon Electronics Payments for 3,311,410.85 9,106,408.21 Co., Ltd goods Shanghai Huali Packaging Payments for 1,644,331.44 1,239,864.95 Co., Ltd. goods Shenzhen Huali Packing & Payments for 1,646,697.78 3,532,700.55 Trading Co., Ltd goods Shenzhen Huayou Packaging Payments for 2,608,821.88 --- Co., Ltd. goods Subtotal 9,211,261.95 13,878,973.71 Note 11. Unadjusted Events in Events after the Balance Sheet Date As of March 27, 2009, the Indemnification Agreement for Old Ankang Factory Demolition and Investment was made by and between the Administration of Chuzhou Economic and Technical Development (hereinafter referred to as Party A) and the subsidiary of the Company-Anhui Konka (hereinafter referred to Party 2 B). As stipulated in the Agreement, the Party B’s factory of 54,620.4 m located in No. 42 Langya Ancient Path is required to be demolished, Party A shall grant Party B RMB￥80,000,000 as economic compensation for demolished land, buildings, equipment, technical innovation, etc. The demolished work commenced on April 1, 2009, and all compensations shall be paid prior to June 30, 2010. As at the report date, the demolition work has been carried out under the agreement and the compensation payment amounting to RMB￥10,000,000 has been received. Note 12. Other Significant Events 1. As of November 25, 2007, the Ceiling Amount of Mortgage Contract numbered 2007 CZYDIZ No. 066, was entered into by the holding subsidiary of the Company-Anhui Konka and Chuzhou Branch of Bank of China. As stipulated, the land tenancy (CGY (2006) No. 00451 Land Certificate and CGY(2007) No.00476 2 Land Certificate) of the Company’s land of 93,946m located in the east side of Nanqiao South Road, 21 康佳集团股份有限公司 2008 年年度报告 Chuzhou Development Zone, at original carrying value of RMB￥6,530,000 and net carrying value of RMB ￥5,221,600; and the Company’s house property right (Chu 2000 Zi No. 01194 Property Right Certificate, Chu 2002 Zi No. 02068 Property Right Certificate, Chu 2007 Zi No. 00357 Property Right Certificate) of the old factory, buildings A, B, D, E, substation, and warehouse F located in the east side of Nanqiao South Road, Chuzhou Development Zone, at original carrying value of RMB￥59,170,000 and net carrying value of RMB￥46,385,800 shall be jointly mortgaged and evaluated as RMB￥38,050,000 to secure the loan amounting to RMB￥38,000,000 including the principal of RMB￥22,000,000 extended by Chuzhou Branch, Bank of China to Anhui Konka valid from November 20, 2007 to November 20, 2010, and the principal prior to November 9, 2007. 2. As of July 8, 2007, Konka Group Co., Ltd. and Shenzhen Branch of China Construction Bank entered into the Comprehensive Financing Line Contract numbered “Loan 2008 No. Zong 0228007R”, stipulating that the loan amount valid from July 10, 2008 to July 9, 2009 shall not exceed the total amount of RMB￥300,000,000. As of September 5, 2008, the Comprehensive Credit Contract numbered “SFHQCZZ No. 20080301001” was made by the Company and Shenzhen Overseas Chinese Town Subbranch of Shenzhen Development Bank, stipulating that the loan amount valid from 2008 to 2009 shall not exceed the total line of RMB ￥500,000,000. As of July 28, 2008, Konka Group Co., Ltd., Shenzhen Konka Communication Technology Co., Ltd. and Shenzhen Branch of Bank of China entered into the Credit Line Agreement numbered “2008 ZZYEX No. 000160”, stipulating that the loan amount valid from July 28, 2008 to July 31, 2010 shall not exceed the comprehensive credit line of RMB￥3,500,000,000. According to the Agreement, Konka Group Co., Ltd. shall be the accredited party, and Shenzhen Konka Communication Technology Co., Ltd. shall be the authorized withdrawer. As of July 28, 2008, the Ceiling Amount Pledge Contract numbered ZZYSDE No. 000018, 000019, 0060 and 000021 was made by the Company, the holding subsidiary-Dongguan Konka Electronic Co., Ltd., Shenzhen Konka Communication Technology Co., Ltd. and Shenzhen Branch of Bank of China. As stipulated, the bank’s acceptance bill of not less than RMB￥1,000,000,000, the margin account with A/C No. 82100364308401001, the packing materials workshop of Dongguan Konka Electronic Co., Ltd. with the assessed value of RMB ￥10,435,200.00, No. 2 workshop of Dongguan Konka Electronic Co., Ltd. with the assessed value of RMB ￥33,455,200.00, the Phase II workshop of Dongguan Konka Electronic Co., Ltd. with the assessed value of RMB￥187,061,600.00, and the margin account of Shenzhen Konka Communication Technology Co., Ltd. with A/C No. 820100666008401001 shall be pledged by Dongguan Konka Electronic Co., Ltd. and Shenzhen Konka Communication Technology Co., Ltd. to secure all liabilities incurred under the Credit Line Agreement. As of August 29, 2008, the Comprehensive Credit Extension Contract numbered “JYC4 C433302008000000300” was made by and between Konka Group Co., Ltd. and Shenzhen Overseas Chinese Branch of Bank of Communications, stimulating that the credit extension valid from August 7, 2008 to August 7, 2009 shall have a total credit line of RMB￥200,000,000 (The loan line of RMB liquid fund shall be RMB ￥ 15,000,000 only, and the line of bank’s acceptance bill amounting to RMB ￥100,000,000 only shall be opened, the import letter of credit amounting to RMB￥200,000,000 only shall be opened.) 3. As of December 19, 2007, the Design, Manufacture and Erection Contract for the Beijing Pangu Large-scale Outdoors Full-Color LED Display Screen (Turn-key Project) (hereinafter referred to as the “Contract Agreement”) was made by and between the subsidiary of Company-Shenzhen Konka Video & Communication Systems Engineering Co., Ltd., (hereinafter referred to as Shenzhen Konka Video & Communication) and Beijing Pangu Investment Co., Ltd. (hereinafter referred to as the “Pangu Company”), stipulating that the total project period shall be 120 days, the contracted budget price of total engineering payment shall be RMB￥103,357,500. The project implemented by Shenzhen Konka Video & Communication shall cover all design, material procurement, manufacture, installation and debugging. Meanwhile, both parties have entered into the Supplementary Agreement concerning the payment time and payment mode. As agreed, Beijing Pangu, prior to March 30, 2009, shall pay the total construction cost amounting to RMB￥103,357,500 in a lump sum to Shenzhen Konka Video & Communication. 2 With six apartments of 3,707.70m at unit price of RMB 27,874.14 Yuan /m2 and a total price of RMB 103,357,500 of “Beijing Mogan 7 Star Plaza” in pledge, Pangu Company and Konka Video & Communication entered into the Advance Sale for Beijing Commercial Building (hereinafter referred to as the “Advance Sale Contract”) numbered [Y581462], [Y581455], [Y581458], [Y581459], [Y581460] and [Y581461], and the receipt with equivalent purchase price shall be issued. Such receipt shall not be deemed as the corresponding payment for apartment that has been actually paid by Konka Video & Communication. Only when Konka Video & Communication has completed the turn-key project and delivered it to Pangu Company 22 康佳集团股份有限公司 2008 年年度报告 for use can Konka Video & Communication be deemed to have fulfilled all payment obligations under the Advance Sale Contract. As at the audit report date, Konka Video & Communication has not completed the project as stipulated in the Contract Agreement nor received the accounts receivable under the Contract Agreement. Note 13. Non-recurring Gains and Losses Character and content Amount in 2008 Amount in 2007 1. Profit and loss from disposal of non-current assets (1) Income from disposal of long-term assets Of which: Income from disposal of fixed assets 4,035,136.59 1,282,944.23 Income from disposal of intangible assets 2,281,860.76 --- Income from equity transfer 2,795,299.78 489,704.91 Subtotal 9,112,297.13 1,772,649.14 (2) Loss on disposal of long-term assets Of which: Loss on disposal of fixed assets 6,652,412.36 4,022,131.66 Loss on disposal of intangible assets --- --- Loss on equity transfer --- --- Subtotal 6,652,412.36 4,022,131.66 Net profit and loss from disposal of 2,459,884.77 (2,249,482.52) non-current assets 2. Governmental grants counted into the current profit 9,944,243.96 3,157,255.00 and loss 3. Profit and loss from change in fair value arising (12,481,880.16) (17,249,624.92) from transaction financial assets 4. Investment income from sale of financial assets 5,430,444.17 8,773,933.59 available for sale 5. Income from sale of transaction financial assets (11,244,248.11) --- (NDF delivery） 6. Other non-operating income and expenses besides the above items (1) Non-operating income 11,623,609.21 7,564,516.54 (2) Less: Non-operating expense 6,260,456.53 7,037,007.23 Net non-operating income and expense 5,363,152.68 527,509.31 Total of extraordinary gain and loss before deducting (528,402.69) (7,040,409.54) income tax Less: amount influenced by income tax 3,486,638.48 1,444,247.98 Total of extraordinary gain and loss after (4,015,041.17) (8,484,657.52) deducting income tax Less: amount influenced by minority interest 106,117.96 2,257,323.87 Total of extraordinary gain and loss after (4,121,159.13) (10,741,981.39) deducting income tax Note 14. Net Assets Income Ratio 23 康佳集团股份有限公司 2008 年年度报告 Net Assets Income Ratio Profits during Report Period All-round Dilution Weighted Average Current Previous Current Previous Net profits ascribed to ordinary 6.64% 5.85% 6.84% 6.00% shareholders of the Company Net profits ascribed to ordinary shareholders of the Company after 6.75% 6.15% 6.95% 6.31% deduction of non-recurring profits and losses Note 15.Earnings per Share Earnings Per Share Basic earnings per Diluted earnings per Profits during Report Period share share Current Previous Current Previous Net profits ascribed to ordinary shareholders of 0.2083 0.1720 0.2083 0.1720 the Company Net profits ascribed to ordinary shareholders of the Company after deduction of non-recurring 0.2117 0.1809 0.2117 0.1809 profits and losses Items Year of 2007 Year of 2006 Calculation of basic earnings per share and diluted earnings per share (I) Numerators Net profit after tax 250,817,154.35 207,091,715.42 Adjustment: influences of dividend on preferred --- --- stock and other instruments Profits and losses ascribed to ordinary shareholders of the parent company in the 250,817,154.35 207,091,715.42 calculation of earnings per share Adjustment： Dividend and interest related to potential --- --- diluted ordinary shares Change in earnings or expenses due to translation of potential diluted ordinary --- --- shares Profits and losses ascribed to ordinary shareholders of the parent company in the 250,817,154.35 207,091,715.42 calculation of earnings per share (II) Denominators Weighted average of ordinary shares issued in 1,203,972,704.0 1,203,972,704. the current period in the calculation of basic 0 00 earnings per share Add: Weighted average at the time of all potential diluted ordinary shares translated --- --- into ordinary shares 24 康佳集团股份有限公司 2008 年年度报告 Weighted average of ordinary shares issued in 1,203,972,704.0 1,203,972,704. the current period in the calculation of 0 00 earnings per share (III) Earnings per share Basic earnings per share Net profits ascribed to ordinary shareholders 0.2083 0.1720 of the Company Net profits ascribed to ordinary shareholders of the Company after deduction of 0.2117 0.1809 non-recurring profits and losses Diluted earnings per share Net profits ascribed to ordinary shareholders 0.2083 0.1720 of the Company Net profits ascribed to ordinary shareholders of the Company after deduction of 0.2117 0.1809 non-recurring profits and losses Note 20. Approval for Financial Statements As of April 28, 2009, the Financial Statements of the Company were approved by the board of the Company. 25