ST赛格B(200058)2008年年度报告（英文版）

深 圳 赛 格 股 份 有 限 公 司 SSH HEEN NZZH HEEN N SSE EGG C COO..,, L LTTD D.. 二 二○○○ ○八八年 年年 度报 年度 报告 告 22000088 A ANNN NUUA ALL R REEPPO ORRTT Important Notice The Board of Directors and Supervisory Committee of Shenzhen SEG Co., Ltd. (hereinafter referred to as the Company) and its Directors, Supervisors and Senior Executives hereby confirm that there are no any fictitious statements, misleading statements, or important omissions carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. Particulars about directors’ attendance of the meeting: Independent Director Jiang Yigang did not attend the meeting due to business, and entrusted Independent Director Yang Rusheng to attend the meeting to vote and express independent opinions. Other directors all attended the meeting for examing the Annual Report 2008. Chairman of the Board of the Company Mr. Zhang Weimin, Person in Charge of Financial Affairs Mr. Li Lifu and Director of Financial Department Mr. Ying Huadong hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. This report was prepared in both Chinese and English versions. Should there be any difference in interpretation between the two versions, the Chinese version shall prevail. Audited by Beijing Shulun Pan Certified Public Accountants Co., Ltd. on the Financial Report for year 2008, standard unqualified Auditor’s Report was issued. Date of information disclosure: April 15, 2009 1 CONTENTS Ⅰ. COMPANY PROFILE------------------------------------------------------------------------------------4 Ⅱ. SUMMARY OF FINANCIAL HIGHLIGHT AND BUSINESS HIGHLIGHT---------------5 Ⅲ. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS---7 Ⅳ. PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES--------------------------------------------------------------------------------------------------12 Ⅴ. ADMINISTRATIVE STRUCTURE--------------------------------------------------------------------18 Ⅵ. BRIEF OF THE SHAREHOLDERS’ GENERAL MEETING-----------------------------------29 Ⅶ. REPORT OF BOARD OF DIRECTORS-------------------------------------------------------------30 Ⅷ. REPORT OF SUPERVISORY COMMITTEE------------------------------------------------------47 Ⅸ. SIGNIFICANT EVENTS---------------------------------------------------------------------------------49 Ⅹ. FINANCIAL REPORT------------------------------------------------------------------------------------ Ⅺ. DOCUMENTS AVAILABLE FOR REFERENCE--------------------------------------------------56 2 Paraphrases Unless carried in the report, the following abbreviations possess the meanings as follows: Color picture tube: color cathode ray tube used for color television Display tube: color cathode ray tube used for computer display Glass shell: glass bulb of vacuum display devices GPS: global positioning system The Company, Company: Shenzhen SEG Co., Ltd. SEG Group: Shenzhen SEG Group Co., LTD. Guangzhou Fodak: Guangzhou Fodak Enterprise Group Co., Ltd. SEG HITACHI: Shenzhen SEG HITACHI Display Devices Co., Ltd. SEG Zhongdian: Shenzhen SEG Zhongdian Corlor Display Devices Co., Ltd. SEG SAMSUNG: Shenzhen SEG SAMSUNG Glass Co., Ltd. SEG Logistics: Shenzhen SEG Store & Transport Co., Ltd. SEG GPS: Shenzhen SEG GPS Scientific Navigations Co., Ltd. SEG Baohua: Shenzhen SEG Baohua Enterprise Development Co., Ltd. SEG Communication: Shenzhen SEG Communication Co., Ltd. Xi’an SEG: Xi’an SEG Electric Market Co., Ltd. Chongqing SEG: Chongqing SEG Electric Market Co., Ltd. Suzhou SEG: Suzhou SEG Electric Market Management Co., Ltd. Shanghai SEG: Shanghai SEG Electron Market Management Co., Ltd. Longgang SEG: Shenzhen SEG Electric Market Management Co., Ltd. SEG Network: Shenzhen SEG Network and Information Co., Ltd. Shendasheng: Shenzhen SEG Dasheng Co., Ltd. SHIC: Shenzhen SEG Hi-tech Investment Co., Ltd. SEG Industry: Shenzhen SEG Industry Investment Co., Ltd. SEG Engineering: Shenzhen SEG Engineering Industry Co., Ltd. Yuanzhi Investment: Shenzhen Yuanzhi Investment Co., Ltd. SZGZW: State-owned Assets Supervision and Administration Commission of Shenzhen Municipal Government CSRC: China Securities Regulatory Commission Shenzhen Securities Regulatory Bureau: Shenzhen Securities Regulatory Bureau of China Securities Regulatory Commission The Articles of Association: The Articles of Association of Shenzhen SEG Co., Ltd. Except for the specific explanations, the monetary amount quoted in the report is RMB. 3 I. COMPANY PROFILE 1. Legal name of the Company In Chinese: 深圳赛格股份有限公司 In English: SHENZHEN SEG CO., LTD. 2. Legal Representative: Zhang Weimin 3. Secretary of the Board of Directors: Zheng Dan Representative of Securities Affairs: Fan Chonglan Contact Address: 31/F, Tower A, Stars Plaza, Huaqiang North Road, Futian District, Shenzhen Tel: (86)755-8374 7939 Fax: (86)755-8397 5237 E-mail: segcl@segcl.com.cn 4. Registered Address: 31/F, Tower A, Stars Plaza, Huaqiang North Road, Futian District, Shenzhen Office Address: 31/F, Tower A, Stars Plaza, Huaqiang North Road, Futian District, Shenzhen Post Code: 518028 Company’s Internet Website: http://www.segcl.com.cn E-mail: segcl@segcl.com.cn 5. Newspapers Chosen for 2008 Disclosing Information of the Company: Securities Times, China Securities Journal and Hong Kong Wen Wei Po Internet Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn (Juchao website) Internet Website of the Company: http://www.segcl.com.cn The Place Where the Annual Report is Prepared and Placed: Secretariat of Board of Directors, 31/F, Tower A, Stars Plaza, Huaqiang North Road, Futian District, Shenzhen 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: A-share ST SEG Stock Code: 000058 B-share ST SEG-B 200058 7. Other Relevant Information of the Company (1)Initial registration date: July 16, 1996 Registration place: 16/F, Baohua Tech. Bldg., Huaqiang North Road, Futian District, Shenzhen (2)Registration date after change: Jun. 9, 2003 Registration place: 31/F, Tower A, Stars Plaza, Huaqiang North Road, Futian District, Shenzhen (3)Date of changing registration: July 6, 2005 The business scope after changing: Domestic commerce, supply and sales of materials (Monopolized, special-controlled and proprietary goods excluded), start industry (Applied additionally for concrete items), consultancy of economic information, property lease; property broker; and build SEG electric market (Applied additionally for license on professional market). (4) Registered date of changing registration: Sep. 27, 2006 Registered capital changed: RMB 784,799,010 Paid-in capital changed: RMB 784,799,010 (5)Registered number of enterprise legal person’s business license: 4403011014290 (6)Registered number of taxation: State Tax: 440301279253776 Local Tax: 440304279253776 (7)Name and address of Certified Public Accountants engaged by the Company: Domestic: Beijing Shulun Pan Certified Public Accountants Company Limited Address: 13/F, Ai Hua Bldg., Shennan (M) Road, Shenzhen 4 II. SUMMARY OF ACCOUNTING HIGHLIGHTS AND BUSINESS HIGHLIGHTS 1. Financial indexes of the Company as of the year 2008 Unit: RMB Items Accounting highlights Operating profit 61,472,065.26 Total profit 66,348,699.03 Net profit 55,481,963.88 Net profit attributable to shareholders of the 48,579,535.53 listed company Net profit attributable to shareholders of the listed company after deducting non-recurring 41,465,271.77 gains and losses Net cash flow arising from operating activities 77,791,043.65 Net increase/decrease in cash and cash 138,868,271.59 equivalents Note: Items of non-recurring gains and losses and the related amounts: Unit: RMB No. Items Amount 1 3,374,096.20 Gains and losses from the disposal of noncurrent asset Reversal of provisions for asset impairment of account 1,823,509.82 2 receivable which is made singly impairment test 3 Governmental subsidy calculated into current gains and 30,000.00 losses Other non-operating income and expense excluded the 1,756,309.35 4 aforementioned business 5 1,175,704.00 Influences on minority shareholders’ gains/losses 6 Impact on income tax -1,045,355.61 Total 7,114,263.76 2. Major accounting data and financial indexes over the past three years ended by the report period (1) Main accounting data Unit: RMB Increase/decrease this year Main accounting data 2008 2007 2006 compared with that last year Operating income -55.28% 1,950,977,572 318,005,263.11 711,080,561.66 .61 Total profit -18.50% 66,348,699.03 81,405,319.49 -146,902,812.28 Net profit attributable to shareholders of -22.82% -65,672,156.1 the listed company 48,579,535.53 62,945,577.11 0 Net profit attributable to shareholders of the listed company after deducting 41,465,271.77 -20,804,183.30 -71,571,372.85 --- non-recurring gains and losses Net cash flow arising from operating 77,791,043.65 -79,513,959.58 --- 245,701,320.18 activities 5 Increase/decrease this year Items Dec. 31, 2008 Dec. 31, 2007 Dec. 31, 2006 compared with that last year Total assets 1,579,346,581.33 1,643,575,998.86 -3.91% 3,138,202,860.85 Equity attributable to shareholders of listed 1,297,772,121.85 1,272,815,600.37 1.96% 1,204,293,470.35 company (2) Main financial indexes Increase/decrease this year Main indexes Dec. 31, 2008 Dec. 31, 2007 Dec. 31, 2006 compared with that last year Basic earnings per share (RMB/Share) 0.062 0.08 -22.50% -0.08 Diluted earnings per share (RMB/Share) -22.50% 0.062 0.08 -0.08 Basic earnings per share after deducting --- non-recurring gains and losses (RMB/Share) 0.053 -0.03 -0.09 Fully diluted return on equity (%) 3.74 4.95 -1.21% -5.45 Weighted average return on equity (%) 3.77 5.08 -1.31% -5.37 Fully diluted return on equity after deducting non-recurring gains and losses (%) 3.20 -1.63 4.83% -5.94 Weighted average return on equity after -5.85 deducting non-recurring gains and losses (%) 3.23 -1.68 4.91% Net cash flow per share arising from --- operating activities (RMB/Share) 0.099 -0.10 0.31 Net asset per share attributable to shareholders of listed company (RMB/Share)） 1.654 1.622 1.97% 1.53 3. The explanation on the difference in the net profit and net assets as calculated based on domestic and overseas accounting standards and systems respectively Unit: RMB CAS IAS Year 2008 Year 2007 Dec. 31, 2008 Dec. 31, 2007 IAS 48,579,535.53 62,945,577.11 1,297,772,121.85 1,272,815,600.37 CAS 48,579,535.53 62,945,577.11 1,297,772,121.85 1,272,815,600.37 Differences --- --- Explanations on No differences differences 4. Item of measurement on fair value Unit: RMB Balance in Balance in Changes in Influenced balance on Item period-begin period-end current period current profit Financial asset 8,164,453.46 3,430,544.62 -4,733,908.84 ---- available for sales 6 III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS (I) Particulars about changes in share capital 1. Changes of share structure due to the implementation of listing for trading of part tradable shares with restricted conditions in the report period are as the followings: Unit: Share Before the change Increase or decrease of this time (+) After the change Conversion New shares Bonus Proporti Amount Proportion of public Others Subtotal Amount issued shares on reserve I. Restricted 328,142,084 41.81% 0 0 0 -117,725,488 -117,725,488 210,416,596 26.81% shares 1. State-owned 0 0.00% 0 0 0 0 0 0 0.00% shares 2. State-owned legal person’s 198,119,716 25.24% 0 0 0 -39,239,950 -39,239,950 158,879,766 20.24% shares 3. Other domestic 129,968,232 16.56% 0 0 0 -78,479,900 -78,479,900 51,488,332 6.56% shares Including: Domestic non-state-owned 129,968,232 16.56% 0 0 0 -78,479,900 -78,479,900 51,488,332 6.56% legal person’s shares Domestic natural 0 0 0 0 0 0 0 0 0 person’s shares 4. Foreign shares 0 0.00% 0 0 0 0 0 0 0.00% Including: Foreign legal 0 0.00% 0 0 0 0 0 0 0.00% person’s shares Foreign natural 0 0.00% 0 0 0 0 0 0 0.00% person’s shares 5. Senior Executives’ 54,136 0.01% 0 0 0 -5,638 -5,638 48,498 0.01% shares II. Unrestricted 456,656,926 58.19% 0 0 0 +117,725,488 +117,725,488 574,382,414 73.19% shares 1. RMB Ordinary 210,195,608 26.78% 0 0 0 +117,725,488 +117,725,488 327,921,096 41.78% shares 2. Domestically listed foreign 246,461,318 31.40% 0 0 0 0 0 246,461,318 31.40% shares 3. Overseas listed 0 0.00% 0 0 0 0 0 0 0.00% foreign shares 4. Others 0 0.00% 0 0 0 0 0 0 0.00% III. Total shares 784,799,010 100.00% 0 0 0 0 0 784,799,010 100.00% 2. Statement on changes of restricted shares Unit: Share Restricted Restricted Restricted Restricted Reason for Date for Name of shares shares No. shares in shares in restricted releasing shareholders released increased year-begin year-end trade restricted trade this year this year Restricted shares due SHENZHEN SEG 1 198,119,716 39,239,950 0 158,879,766 to Share Oct. 23, 2008 GROUP CO., LTD. Merger Reform Restricted GUANGZHOU shares due Jan. 17, 2008 FODAK 2 129,968,232 78,479,900 0 51,488,332 to Share Oct. 23, 2008 ENTERPRISE Merger Dec. 10, 2008 GROUP CO., LTD. Reform 7 Shares held 3 Xu Changhui 9,775 0 3,259 13,034 by Supervisor Shares held 4 Zheng Dan 35,586 8,897 0 26,689 by Senior Executives Shares held 5 Jiang Yigang 8,775 0 0 8,775 by Director Total 328,142,084 117,728,747 3,259 210,146,596 (II) Issuance and listing of shares 1. Issuance over the previous three years at the end the report period: The Company has implemented the Share Merger Reform Scheme with directional capitalization of capital public reserve on June, 2006 which increased the total shares of the Company. It is to say that 4.6445 shares from capitalization of public reserves would be distributed to every 10 shares held by shareholders of tradable A shares, which meant every 10 shares held by shareholders of tradable A shares gained 3.55 consideration shares. The Share Merger Reform of the Company has been approved in meeting of related shareholders of A shares held on Jun. 5, 2006, and was fulfilled on Jun. 14, 2006. Thus, the shares of the Company increased 58,653,147. 2. Explanations to the changes of share structure in the report (1) The Company published the Suggestive Notice on Releasing Restricted Sales of Shares With Restricted Conditions During Share Merger Reform of Shenzhen SEG Co., Ltd in Securities Times, China Securities Journal and Hong Kong Wen Wei Po as well as Juchao Website dated January 16, 2008; in accordance with Measures for the Administration of the Share Merger Reform of Listed Companies and the relevant legal commitments by original non-tradable A-share shareholders of the Company in Share Merger Reform Scheme of the Company, 39,239,950 tradable shares with restricted conditions held by the original non-tradable A-share shareholders of the Company—Guangzhou Fodak would be listed for trade dated June 14, 2007, which took 5 percent of total shares of the Company. After Guangzhou Fodak has accomplished relevant procedure of releasing restriction, the aforementioned shares have been listed for trade on Jan. 17, 2008. 39,239,950 tradable shares with unrestricted conditions were increased at the end of year 2008, thus tradable shares with restricted conditions were accordingly decreased. (2) The Company successively published the Suggestive Notice on Releasing Restricted Sales of Shares With Restricted Conditions During Share Merger Reform of Shenzhen SEG Co., Ltd in Securities Times, China Securities Journal and Hong Kong Wen Wei Po as well as Juchao Website dated Oct. 21, 2008 and Dec. 8, 2008; in accordance with Measures for the Administration of the Share Merger Reform of Listed Companies and the relevant legal commitments by original non-tradable A-share shareholders of the Company in Share Merger Reform Scheme of the Company, 78,479,900 tradable shares with restricted conditions of the Company would be listed for trade dated June 14, 2008, which took 10 percent of total shares of the Company. After original non-tradable A-shareholders SEG Group and Guangzhou Fodak has successively accomplished relevant procedure of releasing restriction, the aforementioned shares have been listed for trade on Oct. 23, 2008 and Dec. 10, 2008. 78,479,900 tradable shares with unrestricted conditions were increased at the end of year 2008, thus tradable shares with restricted conditions were accordingly decreased. (3) According to the regulations in Rules on the Management of Shares Held by the Directors, Supervisors and Senior Management Officers of Listed Companies and the Changes Thereof promulgated by CSRC, Shenzhen Branch of China Securities Depository and Clearing Company Limited released the restrictions in regulated proportion of the restricted shares which were held by the Directors and Senior Executives of the Company in year 2008; at the same time, the orginal Supervisor of the Company Mr. Xu Changhui 8 resigned his post of Supervisor on Aug. 4, 2008 and his holding shares of the Company could not be sold out and purchased-in within 6 months since he left his position. Thus, 3,259 lock-up shares were increased. 3. There exist no inner employees’ shares of the Company (III) Particulars about the shareholders and actual controller of the Company (ended as of Dec. 31, 2008) 1. Statement of shares held by top ten shareholders Unit: Share According to shareholders name list of the Company ended Dec. 31, 2008 presented by Shenzhen Total shareholders Branch of China Securities Depository and Clearing Corporation Limited, total shareholders of the Company amounting to 51,011 including 33,435 A shares and 17,576 B shares. Particulars about shares held by the top ten shareholders Nature of Share Amount of restricted Amount of shares Name Total shares held shareholder Proportion shares held pledged or frozen State-owned SHENZHEN SEG GROUP legal person’s 30.24% 237,359,666 158,879,760 102,929,833 CO., LTD. share GUANGZHOU FODAK Domestic ENTERPRISE GROUP CO., non-state-owned 7.53% 59,064,764 51,488,332 51,488,331 LTD. legal person SHANGHAI QILE Domestic ECONOMIC AND TRADE non-state-owned 0.76% 6,000,000 0 CO., LTD. legal person Foreign natural XU XIN HU 0.73% 5,739,718 0 person Taifook Securities Company Foreign legal 0.69% 5,378,103 0 Limited-Account Client person Domestic natural LIN GUO MING 0.27% 3,350,000 0 person Domestic natural LU SHENG LIN 0.24% 1,859,500 0 person Foreign natural ZHANG AI XIN 0.24% 1,856,329 0 person Domestic Lilian Industrial Development non-state-owned 0.22% 1,729,900 0 (Shenzhen) Co., Ltd. legal person SHANGHAI HONG KONG Foreign legal 0.20% 1,587,163 0 WANGUO SECURITIES person Particulars on shares held by top ten shareholders of unrestricted shares Name of shareholder Amount of unrestricted shares held Type of share SHENZHEN SEG GROUP CO., LTD. 78,479,900 RMB ordinary share GUANGZHOU FODAK ENTERPRISE GROUP 7,576,432 RMB ordinary share CO., LTD. SHANGHAI QILE ECONOMIC AND TRADE 6,000,000 RMB ordinary share CO., LTD. XU XIN HU 5,739,718 Domestically listed foreign shareholder Taifook Securities Company Limited-Account 5,378,103 Domestically listed foreign shareholder Client LIN GUO MING 3,350,000 RMB ordinary share LU SHENG LIN 1,859,500 RMB ordinary share ZHANG AI XIN 1,856,329 Domestically listed foreign shareholder Lilian Industrial Development (Shenzhen) Co., 1,729,900 RMB ordinary share Ltd. SHANGHAI HONG KONG WANGUO 1,587,163 Domestically listed foreign shareholder SECURITIES Explanation of on the There existed no associated relationship between Shenzhen SEG Group Co., Ltd. and other above-mentioned associate shareholders, and they were not consistent actionists according to Management Regulation of relationship and accordant Information Disclosure on Change of Shareholding for Listed Companies. It was unknown whether the action relationship among other shareholders had affiliated relations or belonged to consistent actionist. shareholders 2. The first largest shareholder and actual controller of the Company 1) The first largest shareholder of the Company: Shenzhen SEG Group Co., Ltd. 9 Legal representative: Guo Yonggang Date of foundation: August 23, 1984 Business scope: Production and research of electronic products, electrical home appliances, electronic toys, electronic telecom equipments, instrument and meter, motor equipments, computer and its equipments, OA equipments and articles and electronics chemical (the license of production circle conducted additionally); undertake various electronic system project; launch specialized market of electronic communications; manpower training; real estate development (engaging at development in the earth of legally acquiring land use right); real estate broker; cargo agent and logistics & storage; high-floor sightseeing, supporting food and drink, marketplace and exhibition of SEG Plaza; development and maintenance of internet and information engineering technology; business of import and export. Registered capital: RMB 1,355,420,000 The structure of equity: State-owned Assets Supervision and Administration Commission of Shenzhen Municipal Government invested RMB 630,539,000, taking 46.52%; China Huarong Asset Management Corporation invested RMB 400 million, taking 29.51%; China Orient Asset Management Corporation invested RMB 189,514,700, taking 13.98%; China Great Wall Asset Management Corporation invested RMB 135,366,300, taking 9.99%. STATE-OWNED ASSETS CHINA HUARONG CHINA ORIENT ASSETS CHINA GW ASSETS SUPERVISION AND ASSETS MANAGEMENT CO., MANAGEMENT CO., ADMINISTRATION COMMISSION OF SHENZHEN MANAGEMENT CO., LTD. LTD. MUNICIPAL GOVERNMENT LTD. 46.52% 29.51% 13.98% 9.99% SHENZHEN SEG GROUP CO., LTD. 30.24% SHENZHEN SEG CO., LTD. 2) Pariculars about the controlling shareholder of the first largest shareholder State-owned Assets Supervision and Administration Commission of Shenzhen Municipal Government 3. Introduction to the other legal person’s shareholder of the Company holding over 10% of the total shares Legal person’s shareholder holding over 10% of the total shares: Guangzhou FODAK Group Legal representative: Huang Gaopeng Date of foundation: March 18, 1994 Business scope: domestic trading and material supply and marketing business (except for national special operating and special controlling commodity); transportation of vehicle cargo; polytechnic service business; consultation of technology; commodity information consultation service; interior decoration; landscaping; investment with self-funds; self-support and agency of various commodities; import & export business of technology 10 (does not attach export & export commodity list), except for commodities and technology operated limited by the state or imported or exported prohibited by the state; operation of process materials and business of “process raw materials on clients’ demands, assemble parts for the clients and process according to the clients’ samples”; operation of sales each other and carrying trade. Registered capital: 213,118,000 4. The restricted conditions for trade on original nontradable shareholders in top ten shareholders of the Company Amount of newly added Amont of shares that restricted Date when Name of can be listed Restricted conditions No. tradable shares shares can be shareholders for trade with committed held originally listed for trade the expiration (Share) of restriction period(Share) Jun. 14, 2007 39,239,950 Original non-tradable A shares SHENZHEN SEG 1 237,359,666 Jun. 14, 2008 39,239,950 were not allowed to be traded GROUP CO., LTD. Jun. 14, 2009 158,879,766 or transferred within 12 GUANGZHOU Jun. 14, 2007 39,239,950 months from the day of FODAK Jun. 14, 2008 39,239,950 implementation of the Share 2 129,968,232 Merger Reform; After the ENTERPRISE Jun. 14, 2009 51,488,332 aforementioned time limitation GROUP CO., LTD. was due, expired, if shareholders of original non-tradable shares with a stake over 5% were to sell the SHANGHAI QILE original non-tradable shares 3 ECONOMIC AND 6,000,000 Jun. 14, 2007 6,000,000 through listing in stock TRADE CO., LTD. exchange, the sales volume should be no more than 5% of the total of the Company within 12 month and no more than 10% within 24 months. 11 IV. PARTICULARS ABOUT DIRECTORS, SUPERVISORS AND SENIOR EXECUTIVES AND EMPLOYEES I. Director, Supervisor and Senior Executives (I) Basic information Number of Number Remuneratio shares held of shares Increase/ Reason for n drew from No. Name Gender Age Office term Title at the held at the decrease changes of the Company year-begin year-end (share) shares (RMB) (share) (share) Zhang Chairman of 1 Male 57 2007.5.17-2010.5.17 0 0 0 -- 423,900 Weimin the Board Vice Guo 2 Male 43 Ditto Chairman of 0 0 0 -- 0.00 Hanbiao the Board Director/ 3 Wang Chu Male 50 Ditto General 0 0 0 -- 422,900 Manager Zhang 4 Male 46 Ditto Director 0 0 0 -- 0.00 Guangliu 5 Ye Jun Male 48 Ditto Director 0 0 0 -- 0.00 6 Li Caimou Female 62 Ditto Director 0 0 0 -- 0.00 Drew Independent Director allowance Independent 7 Jia Heting Male 62 Ditto 0 0 0 -- from the Director Company amounting to RMB 50,000 per year Drew Independent Director allowance Jiang Independent 11,700 11,700 8 Male 49 Ditto 0 -- from the Yigang Director (A shares) (A shares) Company amounting to RMB 50,000 per year Drew Independent Director allowance Yang Independent from the 9 Male 40 2008.6.30-2010.5.17 0 0 0 -- Rusheng Director Company amounting to RMB 25,000 for six months Chairman of Zhao 10 Male 54 2008.9.11-2010.5.17 Supervisory 0 -- 0.00 Xingxue Committee 11 Xu Haisong Male 45 2008.9.11-2010.5.17 Supervisor 0 0 0 -- 0.00 12 Yang Bo Male 37 2007.5.17-2009.3.18 Supervisor 0 0 0 -- 0.00 Supervisor Zhu 13 Male 47 2008.11.6-2010.5.17 (Employee 0 0 0 -- 45,700 Longqing Supervisor) Supervisor 14 Tian Jiliang Male 42 2007.5.17-2010.5.17 (Employee 0 0 0 -- 271,000 Supervisor) Deputy 15 Li Lifu Male 53 Ditto General 0 0 0 -- 339,500 Manager 16 Zheng Dan Female 43 Ditto Deputy 35,586 35,586 0 -- 338,900 12 General (A shares) (A shares) Manager/Secr etary of the Board Drew Independent Director allowance Independent from the 17 Su Xijia Male 54 2007.5.17-2008.6.30 0 0 0 -- Director Company amounting to RMB 25,000 for six months Xu 18 Male 60 2007.5.17-2008.8.4 Supervisor 13,034 13,034 0 -- 0.00 Changhui 19 Xu Tao Male 44 Ditto Supervisor 0 0 0 -- 0.00 Supervisor Zhang 20 Male 50 2007.5.17-2008.11.3 (Employee 0 0 0 -- 22.84 Changhai Supervisor) Tot 60,320 60,320 0 -- 222.03 al Note: 1. Mr. Su Xijia left off the post of Independent Director of the Company on June 30, 2008, who totally drew allowance of Independent Director RMB 25,000 for 6 months in the report period. 2. Mr. Yang Rusheng was elected as Independent Director of the Company on June 30, 2008, who totally drew allowance of Independent Director RMB 25,000 for 6 months in the report period. 3. Mr. Zhang Changhai resigned the post of Supervisor of the Company on Nov. 3, 2008, who totally drew remmuneration of RMB 228,400 for 10 months in the report period. 4. Mr. Zhu Longqing was elected as Supervisor of the Company on Nov. 6, 2008, who totally drew remmuneration of RMB 45,700 for 2 months in the report period. 5. Mr. Xu Changhui and Mr. Xu Tao resigned the posts of Supervisor of the Company on Aug. 4, 2008. 6. Mr. Yang Bo resigned the post of Supervisor of the Company on Mar. 18, 2008. Details could be found in Notice on Resignation of Supervisors of the Company on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao Website on Mar. 19, 2009. (II) Particulars about position held by Directors or Supervisors in Shareholding Company (Shareholding Company of shareholders): ①Vice Chairman of the Board Mr. Guo Hanbiao takes the post of Director and concurrently Vice-president of Guangzhou FODAK from Apr. 2003. ②Director Mr. Zhang Guangliu takes the post of Deputy General Manager of SEG Group from March 2003. ③ Director Mr. Ye Jun takes the post of Director of Auditing Dept. of SEG Group from April 2003. ④ Director Ms. Li Caimou takes the post of General Manager of Asset Business Center of Guangzhou FODAK from 2003. ⑤Chairman of Supervisory Committee Mr. Zhao Xingxue takes the post of Vice Secretary of Party Committee and Secretary of the Discipline Inspection Commission of SEG Group from Nov. 2006. ⑥Supervisor Mr. Xu Haisong takes the post of Deputy Director of Enterprise Management Department of SEG Group from June 2008. ⑦ Supervisor Mr. Yang Bo takes the post of Vice-president of Guangzhou FODAK from Aug. 2003. 13 II. Particulars about main work experience and posts or part-time job of present Directors, Supervisors and Senior Executives: 1. Members of the Board of Directors (1) Mr. Zhang Weimin, was born in 1951, Bachelor degree and Senior Economist. Now, he is the Chairman of the Board of the Company. He ever took the post of Deputy General Manager and concurrently Commissary of the Party Committee of Yunan Electronic Industry General Corporation, Chief Economist of SEG Group Co., Ltd and Chairman of SEG Samsung. (2) Mr. Guo Hanbiao, Master Degree of Economics, was born in 1965. Now he is Vice Chairman of the Board of the Company, Chairman of the Board and Vice President of Guangzhou FODAK. He took the turns of Director and Vice President of Guangzhou Chengqi Group Co., Ltd., Director and Vice President of Guangzhou Yuetai Group, Director of Construction Office of Guangdong Xintianyuan Technology Group Co., Ltd., Director and Deputy General Manager of Guanghzhou South Special Copper Co., Ltd., Vice Proprietor of Golden Time magazine, Vice Chief Secretary of Young Entrepreneur Association of Guangdong Province, Standing Committee and Vice Secretary-General of Young League of Guangdong Province, Trustee of China Young Enterpriser Association, Trustee of Private Enterprise Association of Guangdong Province and Permanent Trustee and Secretary-General of the Young Scientist Association of Guangdong Province. (3) Mr. Wang Chu, Bachelor of Science and Senior Economist, was born in 1958. Now he takes the post of Director and General Manager of the Company and concurrently the Chairman of Shenzhen Hitachi and Chairman of the Board of Shenzhen SEG GPS and Shenzhen SEG Logistics. He ever took turns of Deputy General Manager of Shenzhen SEG Import and Export Co. and Office Director and concurrently General Manager Assistant of SEG Group, and Director of SHIC. (4) Mr. Zhang Guangliu, was born in 1962, Bachelor Degree from Jiangxi College of Finance & Ecomics, Master Degree from Jiangxi University of Finance & Ecomics. Now, he is the Director of the Company, Deputy General Manager of SEG Group. He ever took the turns of Deputy General Manager of Jiangxi Pingxiang Store Company, Industrial Products Trade Centre; Deputy General Manager of Zhenhua Store of Shenzhen Rainbow Department Store; Financial Supervisor of Shenzhen Huasheng Industial Co., Ltd., Shenzhen Medicines Corporation and Shenzhen Building Materials Group. (5) Mr. Ye Jun, a Senior Accountant with Bachelor Degree of Economics, was born in 1960. He is now the Director of the Company and Minister of Planning and Financing Department of SEG Group. He ever took the Director Assistant, Vice Director of Financial Department, and Vice Director of Fund Department of Shenzhen SEG Group. (6) Ms. Li Caimou, an Engineer with Bachelor Degree, was born in 1946. She is now the Director of the Company, General Manager of Capital Operation Center of Guangzhou FODAK. She ever took turns of Director of Shenzhen Agricultural Products Co., Ltd., Minister of Capital Operation Department of Shenzhen Trading Holding Co., Ltd. and Independent Director of Shenzhen Agricultural Products Co., Ltd. (7) Mr. Jiang Yigang, born in 1959, Bachelor Degree from Chinese Language Department of Shanghai Normal University, Master Degree from Politics and Law School of South China Normal University. Now, he is the Indpenedent Director of the Company, Lawyer and 14 Co-Partner of Shenzhen Law Office of AllBright Law Offices. He ever taught in law School of Shenzhen University from 1985 to 1993; he acquired qualification as a lawyer from 1991 and he has tover 15 years’ qualification period. (8) Mr. Jia Heting, he was born in 1946. Bachelor degree, graduated from the Industrial Accouting Department of Beijing Economics College. Now, he is the Independent Director of the Company. He ever worked in Research Room of Beijing Municipal Government; Deputy Director, Director, Deputy Section Chief of Production and System Deparment of National Physical and Reform Commission, Director of Port-Of-Entry Office of the People’s Government of Shenzhen Municipality, Director of National Physical and Reform Commission, Director of State-Owned Assets Supervision and Administration Commission, Inspector of State-Owned Assets Supervision and Administration Commission of Shenzhen Municipal Government. And he retired in August 2005. (9) Mr. Yang Rusheng, was born in 1968, graduated from Jinan University with the Master degree in Economics Department, Certified Public Accountant, Certified Tax Agents, and Judicial Identifier. Now, he is the Independent Director of the Company; copartner of Wanlong Asia Certified Public Accountants; General Manager of Shenzhen Branch of Zhongjingfa Engineering Cost ManagementConsulting Company Ltd.; Vice-chairman of Shenzhen Certified Public Accountants Association; Director of The Chinese Certified Tax Agents Association. He ever worked in Shenzhen Construction Materials Industrial (Group) Co., Ltd., Shenzhen Yongming Certified Public Accountants, Shenzhen Guangshen Certified Public Accountants, Shenzhen Youxin Certified Public Accountants; and he was ever the Commissary of Ethics Commission of Shenzhen Certified Public Accountants Association and Commissary of Responsibility Appraisal Committee of Certified Public Accountant of Bureau of Finance of Shenzhen Municipality 2. Members of Supervisory Committee (1) Mr. Zhao Xingxue, was born in 1954, Junior College, Economist. Now, he is the Chairman of the Supervisory Committee of the Company, Vice Party Secretary and Secretary of the Discipline Inspection Commission of SEG Group. He was ever the Director of General Office of China Electronic Appliance North of China Company; Secretary and Deputy Director in General Manager Office of China Electronic Industrial Corporation; Secretary in Secretariat and Director in General Manager Office of China Electronics Corporation; Assistant President and Party Commissary of Hainan Huaxin Group; Assitant General Manager and Party Commissary of of China Electronics Lease Co., Ltd.; Deputy General Manager of China Ruilian Electronic Co., Ltd.; Minister of Property Department, Chairman of Labor Union, Secretary of the Discipline Inspection Commission of Shenzhen SEG Co., Ltd. and the Employee Superviosr of the 3rd Supervisory Committee of the Company. (2) Mr. Xu Haisong, was born in 1963, Bachelor of Engineering, Engineer. Now he is the Supervisor of the Company and Vice Minister of Enterprise Plannning Department of SEG Group. He ever was the Cadre of Planning Department, Assistant Manager of Comprehensive Planning Department of Shenzhen Zhongkang Glass Co., Ltd.; Section Chief of Production Management SEG Samsung; Business Assistant of Assets Department and Business Assistant of Enterprise Planning Department of SEG Group (3) Mr. Yang Bo, Bachelor Degree, was born in 1971. He is now the Supervisor of the Company and Vice President of Guangzhou FODAK. He took CFO of Financial Department of Guangzhou FODAK and Guangdong Fangda Enterprise Group; Financial Manager of China District of USA Solely-Invested Hengdeng Electronic (China) Co., Ltd.; Master of 15 Domestic Accounting Department, General Accountant of Domestic Accounting Department and Audit Assistance of China CPA the 6th audit department of Hong Kong listed company Dongqiang Electronic Group. (4) Mr. Zhu Longqing, was born in Sep. 1961, MBA, Accountant. Now, he is the Supervisor(Employee Supervisor) and Minister of Enterprise Plannning Department of the Company; and concurrently took the posts of General Manager of SEG Industry, Chairman of the Supervisory Committee of SEG Logistics, Supervisor of SEG Samsung, Chairman of SEG Communications, General Manager of Changsha Xinxing Development Co., Ltd. He was once the Minister of Financial Department of the Company. (5) Mr. Tian Jiliang, an Engineer with Bachelor Degree, was born in 1966. He is now the Supervisor of The Company (Employee’S Supervisor) and Minister of HR Department and Concurrently Directors of SEG Industrial, SEG Baohua and SEG Communication and Chairman of Supervisory Committee of Longgang SEG. He took the turns of Minister Assistant of Enterprise Planning Department and Minister Assistant and Vice Minister of HR Department of the Company. 3. Other Senior Executives (1) Mr. Wang Chu, General Manager, please refers to the above introduction of Director. (2) Mr. Li Lifu, Male, Senior Accountant with Master Degree, was born in 1955. At present, he is the Deputy GM of the Company, and concurrently Chairman of the Board of Shenzhen SEG BaoHua, Chairman of the Board of Shenzhen SEG Industrial and SEG Network. He took turns of CFO and concurrently Director of SEG Group, CFO and Director of the Company, and Chairman of Xi’An SEG. (3) Ms. Zheng Dan, Female, Senior Economist with Master Degree of Science, was born in 1965. She is now in charge of Secretary of the Board and Deputy General Manager of the Company and Concurrently Chairman of Supervisory Committee of SEG Baohua; she was elected as the Director of SEG Samsung on Dec. 22, 2008. She took the turns of Office Director Assistant of Preparation Office of Shenzhen SEG Co., Ltd., Vice Director of Office For Share Merger Reform of Shenzhen Zhongkang Glass Co., Ltd., Director of Shenzhen SEG Xinlide Intelligent System Engineering Co., Ltd., Vice Director and Director, Representatives of Securities Affairs of the Board of Directors of The Company, The Chairman of Supervisory Committee of SEG GPS and Independent Director of Shenzhen Hongkai (Group) Co., Ltd. (III) Annual remuneration 1. The decision-making procedure and confirmation basis of the remunerations of the Company: The Company implemented the position wages system. The annual remuneration for Senior Executives comprises two parts, namely, the wage (the position wage and allowance) and the year-end bonus. The wage was decided by the Board of Directors and pay in monthly based on the position function and the position wage rules of the Company; the year-end bonus was decided by the Board of Directors based on the accomplishment of annual operation targets and working tasks laid out in the Shareholders’ General Meeting, which was implemented after approval of the Board of Directors. According to the Articles of Association of the Company, the Shareholders’ General Meeting determined the salary of Directors and Supervisors, but at present the Company had not practiced remuneration system for non-independent Directors and Supervisors except for Independent Directors. Non-Independent Directors only draw their position wage from the Company. 2. Particulars about the annual remuneration of Directors, Supervisors and Senior Executives in office: 16 There are 15 Directors, Supervisors and Senior Executives in office at the end of the year. Of them, 6 persons (excluding Independent Directors): Zhang Weimin, Wang Chu, Zhengdan, Li Lifu, Zhu Longqing , Tian Jiliang and Zhang Changhai drew their annual remuneration from the Company with total amounting to RMB 2,220,300 of annual remuneration. According to resolution of the 7th Shareholders’ General Meeting, Independent Directors of the Company drew their allowance in monthly from the Company in term of the standard of annual allowance of RMB 50,000 (tax included) respectively per year. The Company reimbursed the reasonable charges according to the actual situation; such as fees for trips and fees for food and accommodation which Independent Directors attended the Board of Directors, Shareholders’General Meeting or fees for exercising their functions and powers in accordance with Articles of Association of the Company. For the details on 2008 annual remunerations of Directors, Supervisors and Senior Executive, please refer to the basic information of the first part of the section. IV. Changes in Directors, Supervisors and Senior Executives in the report period: 1. Pursuant to the regulations that The term of office of Independent Directors will be the same as that of the other Directors of the listed company. At the expiration of their terms, they may continue to serve if re-elected, but the additional time in office may not exceed six years stated in Establishment of Independent Director Systems by Listed Companies Guiding Opinion promulgated by CSRC, in light of that reappointment of original Independent Director Mr. Su Xijia was expired on June 28, 2008 with the office term of 6 years. With the recommendation of first largest shareholder SEG Group, the 1st Extraordinary Shareholders’ General Meeting 2008 which was held on June 30, 2008 elected Mr. Yang Rusheng as the Independent Director of the 4th Session Board of the Company and his office term went with the residual offer term of the 4th Session Board of the Company. 2. In light of that original Supervisors Mr. Xu Changhui and Mr. Xu Tao resigned theirs posts of Supervisors of the Company on Aug. 4, 2008 due to work change; with the examination of the 2nd Extraordinary Shareholders’ General Meeting held on Sep. 11, 2008, Zhao Xingxue and Xu Haisong were elected as the Supervisors of the 4th Supervisory Committee and their office terms went with the residual offer term of the 4th Session Supervisory Committee of the Company. 3. In light of that original Supervisors Mr. Zhang Changhai resigned his post of Supervisors (Employee Supervisor) of the Company on Nov. 3, 2008 due to work change. The Company held Staff Representative Conference on Nov. 6, 2008, in which Mr. Zhu Longqing was elected as the Employee Supervisor of the 4th Supervisory Committee of the Company with voting in written form, and his office term went with the residual offer term of the 4th Session Supervisory Committee of the Company. V. About employees (number, profession composing, education background and retirees) At the end of the report period, The Company had totally 744 on-the-job employees and 4 retirees. The annuities, hospitalization insurance of the retirees were planed as a whole. The profession composing and education background of the staff are as follows: Profession Production Administrativ Salespersons Technicians composing personnel e personnel Number 174 309 180 81 Senior 3-years Polytechni high Education Doctor Master Bachelor regular c school school background degree degree degree college graduate graduate graduate or lower Number 2 61 288 172 41 180 17 V. ADMINISTRATIVE STRUCTURE I. Administration of the Company In the report period, according to the requirements of laws and regulations of Company Law, Securities Law, and Code of Corporate Governance for Listed Companies, the Articles of Association and other requirements of laws and regulations of administration of the listed companies, the Company consistently perfected its administration structure and standardized the operation In the report period, the Company continued to deeply promote special campaign of corporate governance for listed companies on the base of consolidating the achievement got in 2007. According to the requirements of document [2008] No.27 issued by CSRC and Notice on Deeply Promoting Special Campaign to Strengthen Governance of Listed Companies issued by Shenzhen Securities Regulatory Bureau GSZi[2008] No.62, the Company made specific explanation for the reform listed in administration reform report, and respectively disclosed Reform Report on Special Campaign of Corporate Governance of Shenzhen SEG Co., Ltd. and Self-inspection Report on Large Shareholders and Related Parties Occupying Capital of Shenzhen SEG Co., Ltd. in Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao Internet Website http://www.cninfo.com.cn dated July 22, 2008 and July 30, 2008. Meanwhile, the Company also established Working System of Annual Report for Independent Directors of Shenzhen SEG Co., Ltd. and Working Rules of Annual Report for Audit Committee of the Board of Directors of Shenzhen SEG Co., Ltd., and revised Articles of Association. The Company also further strengthened self-appraisal and inspection work of internal control, increased the force of internal audit work, and promoted the construction of internal control. II. Informal issues of the Company’s administration 1. The controlling shareholders manage the Company according to the Property Right Representatives Report System. The controlling shareholder - SEG Group Co. Ltd. is the state-controlled enterprises in Shenzhen, and Shenzhen State-owned Assets Supervision & Administration Commission is the controlling shareholder of the Company’s controlling shareholder-SEG Group Co. Ltd., which should implement the Property Right Representatives Report System of state-owned assets management according to Shenzhen state-owned assets management measures. 2. In respect of personnel examination, the controlling shareholder – SEG Group made annual operation performance examination for Senior Executives according to the implementation of annual operation target index and other index dispatched by SEG Group. 3. Provide undisclosed information to large shareholders and actual controllers The Company reported undisclosed information to large shareholders and actual controllers according to the Property Right Representatives Report System and the requirements of state statistic department. According to the requirements of state-owned assets supervision department, the situation of reporting monthly financial reports to large shareholders and actual controllers and reporting important issues to large shareholders and actual controllers before public disclosure exists in the Company at present. The Company handed in Report of Listed Company Providing Undisclosed Information to Large Shareholders and Actual Controllers and Commitment Letter to Shenzhen Securities Regulatory Bureau dated October 18, 2007; SEG Group Co. Ltd. certificated Commitment Letter of Enhancing Management over Undisclosed Information to Shenzhen Securities Regulatory Bureau. At the same time, the Company had established and implemented Insiders of Inside Information Record System of Shenzhen SEG Co. Ltd. and Insiders of Inside Information Secret System of Shenzhen SEG Co. Ltd., and would regularly record the report information of undisclosed information to Shenzhen Security Regulatory Bureau each month. The specific information that the Company offers undisclosed information to large shareholders and actual controllers is as follows: 18 The relationship Particulars between the about Parties of Deliver parties of Deliver Proof of delivering discussion No. delivering Information sort date or delivering procedure information of the information period information Board of and listed Directors company Compiled by the investment enterprise of the Company and financial personnel of State Council GZW head office, Document(GZTPJ made statement [2003] No.23 ） and Notice on Relevant Report On Main Controlling consolidated, Matters on approved Shenzhen SEG Financial Index Of shareholder delivered Each Monthly Enterprise by the 1 Group Co., Shenzhen through month Financial Report Board of Ltd. （30.24%） City-Owned Information Compiled and Directors Enterprises System of Reported by GZW State-owned Supervision And Asset Administration Administration Enterprise after the examination of leader of financial department Compiled by the investment enterprise of the Company and financial personnel of State Council GZW head office, Document(GZTPJ State-Owned made statement [2003] No.23 ） Assets and Notice on Relevant Supervision Report On Main consolidated, Matters on approved And Financial Index Of Actual delivered Each Monthly Enterprise by the 2 Administration Shenzhen controller through month Financial Report Board of Commission City-Owned Information Compiled and Directors Of Shenzhen Enterprises System of Reported by GZW Municipal State-owned Supervision And Government Asset Administration Administration Enterprise after the examination of leader of financial department State Council GZW Document(GZTPJ Periodic expense [2003] No.23 ） statement of Notice on Relevant Information Controlling enterprise(including Matters on approved Shenzhen SEG System of shareholder details on sales Each Monthly Enterprise by the 3 Group Co., State-owned expense, month Financial Report Board of Ltd. （30.24%） Asset administration Compiled and Directors Administration expense and Reported by GZW financial expense) Supervision And Administration Enterprise State-Owned Periodic expense Information State Council GZW approved Assets Actual statement of System of Each Document(GZTPJ by the 4 Supervision controller enterprise(including State-owned month [2003] No.23 ） Board of And details on sales Asset Notice on Relevant Directors 19 Administration expense, Administration Matters on Commission administration Monthly Enterprise Of Shenzhen expense and Financial Report Municipal financial expense) Compiled and Government Reported by GZW Supervision And Administration Enterprise Compiled by the investment enterprise of the State Council GZW Company and Document(GZTPJ financial [2003] No.23 ） personnel of head office, Notice on Relevant Controlling Matters on approved Shenzhen SEG Implementation made statement shareholder Each Monthly Enterprise by the 5 Group Co., statement monthly and month Financial Report Board of Ltd. （30.24%） expenses budget consolidated, Compiled and Directors delivered through Reported by GZW Information Supervision And Administration System of State-owned Enterprise Asset Administration Monthly printed, signed, sealed Monthly and delivered; consolidated and quarterly statement(including delivered though balance statement, Notice of Controlling Information approved Shenzhen SEG profit statement, Reporting Monthly shareholder System of Each by the 6 Group Co., cash flow Statement of State-owned month Board of Ltd. （30.24%） statement, notes to Shenzhen SEG Asset Directors statement Group Co., Ltd. Administration compilation and and directly report on financial report on analysis) internet from July of 2008 Notice on Working Well in Enterprise Overall Budget Management in 2008 and Notice on Working Well in Information Enterprise Overall Controlling approved Shenzhen SEG System of Budget Enterprise overall by the 7 Group Co., shareholder State-owned Each year Management in budget statement Board of Ltd. （30.24%） Asset 2009 issued by Directors Administration State-Owned Assets Supervision And Administration Commission Of Shenzhen Municipal Government Notice on Working Well in Enterprise Overall Budget State-Owned Management in Assets 2008, and Notice Supervision Information on Working Well approved And System of Actual Enterprise overall in Enterprise by the 8 Administration State-owned Each year controller budget statement Overall Budget Board of Commission Asset Management in Directors Of Shenzhen Administration 2009 issued by Municipal State-Owned Government Assets Supervision And Administration Commission Of 20 Shenzhen Municipal Government After the approval from the Company, then delivered in pattern of electronic document occurred by using the Statement Notice on Printing Controlling Electronic version Dealing Enterprise Finance approved Shenzhen SEG shareholder of annual report of Software Accounting by the 9 Group Co., Each year state-owned assets developed by Settlement Board of Ltd. （30.24%） 2007 Beijing Jiuqi Statement 2007 Directors Company , SCQ[2007] No. 72 finally printed, sealed and delivered after examination of State-Owned Assets Supervision And Administration Commission After the approval from the Company, then delivered in pattern of electronic document occurred by State-Owned using the Assets Statement Notice on Printing Supervision Electronic version Dealing Enterprise Finance approved And Actual of annual report of Software Accounting by the 10 Administration Each year controller state-owned assets developed by Settlement Board of Commission 2007 Beijing Jiuqi Statement 2007 Directors Of Shenzhen Company , SCQ[2007] No. 72 Municipal finally printed, Government sealed and delivered after examination of State-Owned Assets Supervision And Administration Commission Notice on Printing Electronic version Software of Controlling Enterprise Finance approved Shenzhen SEG of finance finance shareholder Accounting by the 11 Group Co., accounting accounting Each year Settlement Board of Ltd. （30.24%） settlement settlement Statement 2007 Directors statement 2007 statement 2007 SCQ[2007] No. 72 State-Owned Assets Notice on Printing Supervision Electronic version Software of Enterprise Finance approved And of finance finance Actual Accounting by the 12 Administration accounting accounting Each year controller Settlement Board of Commission settlement settlement Statement 2007 Directors Of Shenzhen statement 2007 statement 2007 SCQ[2007] No. 72 Municipal Government Controlling Statistic statement/ The Statistics Law approved Shenzhen SEG Each shareholder monthly report and Seals of the of the People's by the 13 Group Co., month, annual report of Company Republic of China, Board of Ltd. （30.24%） each year electronic Article 3: State Directors 21 information organs, public industry organizations, enterprises, institutions, and self-employed industrialists and businessmen that are under statistical investigation shall, in accordance with the provisions of this Law and State regulations, provide truthful statistical data. They may not make false entries or conceal statistical data, and they may not refuse to submit statistical reports or report statistical data belatedly. Falsification of or tampering with statistical data shall be prohibited. Autonomous mass organizations at the grass-roots level and citizens shall have the duty to provide truthful information needed for State statistical investigations. Compiled by financial personnel of head office and delivered through In accordance with Controlling Information approved Shenzhen SEG Economy operation the requirement of shareholder System of April, by the 14 Group Co., analysis report in controlling State-owned 2008 Board of Ltd. （30.24%） the first quarter shareholder and Asset Directors actual controllers Administration after the examination of leader of financial department Compiled by the investment State Council GZW enterprise of the Document(GZTPJ Company and [2003] No.23 ） financial Notice on Relevant personnel of Matters on head office, Monthly Enterprise Controlling made statement Financial Report approved Shenzhen SEG Statistic statement shareholder and October, Compiled and by the 15 Group Co., of holding equity consolidated, 2008 Reported by Board of Ltd. （30.24%） of listed company delivered State-Owned Directors through Assets Supervision Information And Administration System of Commission Of State-owned Shenzhen Asset Municipal Administration Government after the 22 examination from relevant leader of the Company Compiled by the investment enterprise of the Company and financial personnel of head office, made statement and In accordance with Controlling consolidated, approved Shenzhen SEG Finance analysis the requirement of shareholder delivered October, by the 16 Group Co., report from Jan. to controlling through 2008 Board of Ltd. （30.24%） Sep. of 2008 shareholder and Information Directors actual controllers System of State-owned Asset Administration after the examination from relevant leader of the Company Compiled by the investment enterprise of the Company and SGZW[2007] No. financial 175 and Notice on personnel of Made Annual Records statement Controlling head office, Report of Assets approved Shenzhen SEG and compiling shareholder made statement August, Depreciation by the 17 Group Co., explanation of and 2008 Reserve 2007 of Board of Ltd. （30.24%） assets depreciation consolidated, Shenzhen SEG Directors reserve delivered Group Co., Ltd. electronic on August 13, document after 2008 examination of all leaders of the Company Compiled according to relevant information of the investment Renovation enterprise of the In accordance with Controlling approved Shenzhen SEG information Company, the requirement of shareholder November, by the 18 Group Co., statement of delivered controlling 2008 Board of Ltd. （30.24%） state-owned assets electronic shareholder and Directors enterprise document after actual controllers examined, signed and sealed by relevant leaders of the Company Compiled by financial personnel of head office, Implementation delivered In accordance with Controlling approved Shenzhen SEG Report of New through the requirement of shareholder April, by the 19 Group Co., Enterprise Information controlling 2008 Board of Ltd. （30.24%） Accounting System of shareholder and Directors Standard State-owned actual controllers Asset Administration after the examination of 23 leader of financial department Compiled by the investment enterprise of the Company and financial Revenue annual personnel of Controlling report of enterprise approved Shenzhen SEG head office, group and members August, GSH[2008] No. by the 20 Group Co., shareholder made statement in 2007 (reflect 2008 682 Board of Ltd. （30.24%） and revenue paid by the Directors consolidated, Company) delivered electronic document after examination of relevant leaders Compiled by the investment enterprise of the Company and financial Budget personnel of In accordance with Controlling implementation head office, approved Shenzhen SEG the requirement of shareholder inspection in the made statement by the 21 Group Co., July, 2008 controlling first half year of and Board of Ltd. （30.24%） shareholder and 2008 and economy consolidated, Directors actual controllers operation analysis delivered after examined, signed and sealed by relevant leaders of the Company III. Performance of independent Directors In the report period, the independent Directors could take their responsibilities, perform their duties faithfully and actively attend the relevant meeting strictly in accordance with the Work Rule of Independent Director; deepen getting know about the production operation situation and the progress of significant events, provided reasonable opinions and suggestion in respective professional angles for operation and development of the Company; issued independent opinions on relevant matters such as re-engaging 2008 auditing organ. The Auditing Committee, Remuneration and Examination Committee convened by independent Directors of the Company and the Development and Strategy Committee attended by all independent Directors both held 2 meetings in the report period; better performed the duties as special committees and provided professional opinions for the decision of Board of Directors. 1. Particulars about independent Directors’ presence at the meetings of Board of Directors: In the report period, the Company totally held 5 spot meetings of the Board of Directors Name of Times that should Times of presence Times of independent have attended this at meetings in entrusted Times of absence Remarks Directors year person presence Su Xijia 1 1 0 0 Dismissed on June 30, 2008 Took the post of independent Yang Rusheng 4 4 0 0 Director from June 30, 2008 Jia Heting 5 4 1 0 Jiang Yigang 5 4 1 0 2. In the report period, independent Directors did not propose any disagreement on issues discussed by the Board of Directors. IV. Particulars about the Company’s “Five Separations” from the first largest shareholder in respect of business, personnel, assets, organization and finance: 24 1. In respect of business, the Company has integrated business system, keeps independence in operating management, confronts with the market independently during operation, and avoids competition with SEG Group in same trade. For the problem that there remained competition in the same trade between the Company and SEG Group indicated in spot inspection by Shenzhen Securities Supervisory Bureau, the Company received written Commitment Letter from SEG Group on Sep.14, 2007 and the content was as follows: our Group has similar business in Shenzhen electron market with Shenzhen SEG Co., Ltd. (Shenzhen SEG), and the business was resulted by history and it has objective market development background. The Group made commitment: For the future, we do not take operation on market which is similar with Shenzhen SEG singly in the same city. The aforesaid matters have been disclosed in Securities Times, China Securities Journal and Hong Kong Wen Wei Po and Juchao Website dated Sep 18th of 2007. 2. In respect of personnel, the Company’s Senior Executives including Chairman, General Manager, Deputy General Manager and Secretary of the Board are full time employers in the Company without taking concurrent position in the first largest shareholder’s company, and receive salary from the Company. The Company has integrated administration system in labor, personnel affairs and salaries, and keeps independence of its personnel. 3. In respect of assets, in the early days of the Company’s establishment, the equity of the eight enterprises striped from SEG Group to the Company have been audited and evaluated by domestic and overseas Certified Public Accountants, and have also been recognized by Shenzhen municipal and national administrative authority of state-owned assets. The controlling shareholders of these eight enterprises were changed from SEG Group to the Company as registered in Administration Bureau of Industrial and Commercial. The Company makes independent registration, establishes independent accounts, and implements business accounting and management independently for the assets so as to keep completeness and independence of these assets. According to the Article No. 5 of Equity Transfer Agreement signed by the Company with SEG Group when the Company was listed, SEG Group agreed to let the Company and its subsidiaries and joint affiliated companies to use the eight trademarks that have been registered in National Trademark Bureau; and SEG Group agreed the Company to use the aforesaid trademarks or similar signs as the Company’s logo during its operation; but the Company needn’t pay any fee to SEG Group for using the aforesaid trademarks or signs. 4. In respect of organization, the Company has set up organization and engaged staff fully in accordance with its own demand of management, and its production management department and administrative department are totally independent from the first largest shareholder. 5. In respect of finance, as a legal person corporation that independently operates management, business accounting and assumes sole responsibility for its profits and losses, the Company has independent financial and auditing department, has established independent business accounting system and financial administration system, opens independent bank account, pays taxes independently according to law, and keeps absolute independence in its financial work. V. Establishment of inner control system of the Company and its improvement (I) Inner control of the Company in the report period According to the requirement of Basic Standard for Enterprise Internal Control together issued by Ministry of Finance and CSRC, Guidelines for Internal Control of Listed Company issued by Shenzhen Stock Exchange and relevant laws, rules and regulations, the Board of Directors, the audit committee and internal audit department made a total inspection of the present internal control and operation, and made self-evaluation of the efficiency of internal control in 2008. Details were as follows: (i)General introduction 25 1. Organization structure of internal control With the together efforts of the Board of Directors, management levels and all employees, the Company had established a set of perfect internal control system, which was systematic and effective from administration level to each workflow. The Board of Directors took charge of the establishment and effective implementation of internal control, the management level took charge of organizing and leading the daily operation and specific implementation of internal control, the audit committee which was set by the Board of Directors would assist to establish and examine the internal control system, audit and supervise significant related transaction. The audit department directly took responsibility for the audit committee, with its principal elected from the Board of Directors, which took charge of appraising the integrality and effectiveness of the internal control of the Company and invested enterprises, and inspected the implementation of internal control. The Supervisory Committee supervised the internal control established and implemented by the Board of Directors. The aforesaid internal control organization defined the work aim and responsibilities of every position, established relevant balance and Supervisory mechanism to ensure every position could fulfill the responsibility in purview. 2. Construction of internal control system The Board of Directors of the Company takes Guidelines for Inner Control of Listed Companies issued by Shenzhen Stock Exchange and Basic Standard for Enterprise Internal Control together issued by five ministries and committees including Ministry of Finance as guidance, combined with the actual situation of the Company, establishes the internal control system covering production operation, financial management, risk control and information disclosure of the Company, guarantees the normal running of the Company’s business, protects the safety and completeness of the Company’s asset. In the report period, in accordance with the work plan on establishing perfect internal control system, the Board of Directors successively established a series internal control systems such as Working System for Annual Report of Independent Directors of Shenzhen SEG Group Co., Ltd. and Working Regulations for Annual Report of Audit Committee of Shenzhen SEG Group Co., Ltd., and revised Articles of Association to further perfect the construction of internal control. 3. The establishment of inspection and supervision department for internal control of the Company The Company set audit department in 2007, equipped professional audit personnel, and established regulation and systems including Internal Audit Regulations of Shenzhen SEG Co., Ltd. and Responsibility of Position in Audit Department of Shenzhen SEG Co., Ltd. In 2008, the Company further perfected internal control system. After nominated by the audit committee, the Board of Directors engaged principal for audit department. With the leadership of Auditing Committee of the Board of Directors, the audit department carried out internal audit and inspection on internal control system; was responsible for establishment and improvement of internal control system; made supervision and inspection on implementation; made inner auditing and supervision on all the economy activities of the Company and its invested enterprise including internal control system, accounting policy, financial status and financial report; performed independently the inner auditing rights; fulfilled internal audit talk system to the department and invested enterprise which had problems in internal control, timely sent reform notice and supervised fulfilling of reform. Due to effective supervisal, the internal control systems of the Company had been performed and implemented strictly and effectively during the operation management of the Company. 4. Arrangement on works of internal control by the Board of Directors (1) Accomplished the economic benefit audit once each year on invested enterprises and economy responsibilities audit on General Managers of part invested enterprises who left their posts; (2) Strengthened work strength on supervising auditing reorganizing reform, and implemented the negotiation mechanism on internal audit; 26 (3) Established the work plan for 2009 inner audit of the Company. (II) Key controlling activities 1. Internal control of controlling subsidiaries of the Company Shenzhen SEG Co., Ltd. 70% 65% 97.7% 91.79% 50% 45% 66.58% 95% Shenzhen SEG Store & Transport Co., Ltd. Shenzhen SEG Electric Market Management Co., Ltd. Chongqing SEG Electric Market Co., Ltd. Co., Ltd. Shenzhen SEG Baohua Elnterprise Deveopm,ent Shenzhen SEG Communication Co., Ltd. Shenzhen SEG Industrial Investment Co., Ltd. Xi’an SEG Electric Market Co., Ltd. Suzhou SEG Electric Market Management The Company conducts management and control over the significant operating activities of its controlling subsidiaries, and entrusts or commends Directors, Supervisors and part Senior Executives for these subsidiaries, in accordance to the Guidance for Internal Control of Listed Company and the internal management system on investment and operation of the Company. During the report period, the Company puts emphasis on inspection in its controlling subsidiaries in aspects of related transaction, significant investment and information reporting for significant proceedings. The audit department of the Company makes quarterly inspection on the progress of the operation plan of all controlling subsidiaries and also makes aperiodic specific audit inspection; also made inspection on establishment, improvement and implementation of internal control system of controlling subsidiaries; the office of the secretary of the Board of the Company was responsible for inspection and supervision of deliver of significant information. It supervises the holding subsidiaries to report the significant information to the person in charge of the Company in time, according to the internal report system for significant information and the internal procedure for examination and approval. Meanwhile, the holding subsidiaries have obligation to report significant proceeding to the board or the shareholders meeting of the Company for examination and approval, and then to disclose the related information, strictly according to the Articles of Associations. 2. The internal control of the related transaction of the Company 27 Strictly being in line with regulations over related parties, content, procedure for examination and approval and information disclosure, which is regulated by Shenzhen Stock Exchange for stock listing such as Listing Rules of the Stock, the Articles of Associations, and the Company conducts related transaction. The price for related transaction is determined on the basis of market fair value and the public bidding price, which follows the transaction principle of equality, open and fair. 3. The internal control of the external guarantee of the Company The internal control for the external guarantee of the Company follows principle of legality, prudence and safety and guarantee risk has been strictly controlled. The Board of Directors of the Company has made strict standardization on examine-and-approve authorization right and procedure for external guarantee in Article of Association of the Company. During the report period, except for the guarantee provided for the holding subsidiary, there is no other external guarantee. As to the guarantee provided for the holding subsidiary, the Company strictly obey and implement the relevant procedure for examine-and-approve and information disclosure according to relevant regulations of the Company. 4. The internal control of use of raised proceeds of the Company The Company establishes Temporary Method for Management of Raised Proceeds of Shenzhen SEG Co., Ltd. In 2008, there was no application of proceeds raised or application of proceeds raised in the previous period but lasting to the report period in the Company. 5. The internal control of significant investment of the Company The significant investment of the Company insists on principle of legality, prudence, safety and efficiency. Investment risk is controlled and attention is paid to return on investment. As to significant investment, only examined and approved by the Strategic Committee of the Board of Directors of the Company, and passed by the Board or shareholders’ meeting, can the investment be carried out. In the Article of Association, it stipulates clear regulation in authorization right hold by the Board for examine-and-approve significant investment. The Company also establishes definite stipulations for examination and decision-making, established Interim Measures on Approval and Administration for Investment Project of Shenzhen SEG Co., Ltd. During the report period, the Company has conducted no significant investment. 6. The internal control of information disclosure of the Company The Company conducts information disclosure, in strict accordance to Principle for Stock Listing set by Shenzhen Stock Exchange, Governing Principle for Listed Company, Guidance for Equal Information Disclosure of Listed Company, the Article of Association and System on Managing Information Disclosure of Shenzhen SEG Co., Ltd and other laws and regulations. Various ways are adopted by the Company to disclose information to its investors timely, fairly and accurately. (III) Problems and reforms According to the requirements of document [2008] No.27 issued by CSRC and Notice on Deeply Promoting Special Administration Activity of Listed Companies issued by Shenzhen Securities Regulatory Bureau (GSZi[2008] No.62), the Company made specific explanation for the reforms listed in administration reform report, and respectively disclosed Reform Report on Special Administration Activity of Shenzhen SEG Co., Ltd. and Self-inspection Report on Capital Occupancy by Large Shareholders and Related Parties of Shenzhen SEG Co., Ltd. in Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao Internet Website http://www.cninfo.com.cn dated July 22, 2008 and July 30, 2008. (IV) General comment After construction and constant consummation for nearly 13 years, the present internal control system of the Company has covered every tach and ground of the Company’s operation, forming the more improved and standardized internal control management system. 28 With this internal control system, the management on operation of the Company is guaranteed with order and operation with high efficiency. At the same time, the already existed or might-be errors occurred in the Company’s operation could be well prevented, found and corrected in time. It effectively maintains the safety and completeness of the Company’s assets and protects the shareholders’ equity. The execution of the internal control system is well. (V) Opinions issued by the Supervisory Committee on the self-estimation of the internal control of the Company According to the relevant regulation of Guidance for Internal Control of Listed Company and notice on 2008 Annual Report of Listed Company released by Shenzhen Stock Exchange, the Supervisory Committee of the Company makes the following opinions on the self-estimation of the internal control of the Company: In the report period, the Company continuously establishes and perfects its internal control system, which guarantees an efficient and sequent operation, maintains the safety and completeness of the Company’s assets and assures the full implementation of the development strategy and the operation plan of the Company, according to the relevant regulation stipulated by the CSRC and Shenzhen Stock Exchange, and to the basic principle of internal control as well as its actual condition. The organ for internal control of the Company is complete and so are the internal audit department and its related personnel, which provide effectiveness for the execution and supervision of the internal control of the Company. During the report period, no violation of Guidance for Internal Control of Listed Company promulgated by Shenzhen Stock Exchange has happened. (VI) Opinions issued by the independent Directors on the self-estimation of the internal control of the Company On the basis of independence, being the independent Directors of the Company, we made careful inspection on the internal control of the Company and we hold that: in the report period, according to the demand in Guidance for Internal Control of Listed Company and Notice on 2008 Annual Report of Listed Company promulgated by Shenzhen Stock Exchange, and combining with the problems found by CSRC in the special activity of administration of the Company and the inspection made by Shenzhen Stock Exchange, the Company timely emends and perfects a series of management system and procedure of the Company, and makes change in all the problems found in the inspection and self-check. The present internal control system of the Company has been almost healthier, and the internal control system of the Company has been formed, featuring with the basic system for administration of the Company, business control system, control system on investment and project management, accounting system control system, information system control system and internal audit control system. This internal control system can be adapted to the demands for operation management and development of the Company, can provide reliable assurance for working out real, accurate and complete financial statement, also can provide reliable assurance for the healthy running of the various business of the Company, and the implementation of the related national laws and regulations. VI. Appraisal and incentive mechanism and relevant encouragement system adopted by the Company for the Senior Executives The operation performance appraisal of Senior Executives should be authorized by the Board of Directors according to relevant regulations, and was appraised by remuneration and examination committee of the Board of Directors. In the report period, the incentive mechanism and relevant encouragement system for Senior Executives had not been established. The Company would establish relevant incentive and restriction mechanism and implement in appropriate time 29 VI. BRIEF OF THE SHAREHOLDERS’ GENERAL MEETING In the report period, the Company held three Shareholders’ General Meetings, which were the 13th Shareholders’ General Meeting 2007, the 1st Extraordinary Shareholders’ General Meeting 2008 and the 2nd Extraordinary Shareholders’ General Meeting 2008. I. The Company published the Public Notice on Holding the 13th Shareholders’ General Meeting of 2007 of Shenzhen SEG Co., Ltd. on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao Website dated April 16, 2008. The Shareholders’ General Meeting was held at the meeting room of the Company, 31/F, Tower A, Stars Plaza Building, North Huaqiang Road, Shenzhen at 10:30 am on May 9, 2008. The public notice of the resolution of the aforesaid Shareholders’ General Meeting has been published on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao Website dated May 10, 2008. II. The Company published the Public Notice on Holding the 1st Extraordinary Shareholders’ General Meeting of 2008 of Shenzhen SEG Co., Ltd. on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao Website dated June 13, 2008. The Shareholders’ General Meeting was held at the meeting room of the Company, 31/F, Tower A, Stars Plaza Building, North Huaqiang Road, Shenzhen at 10:30 am on June 30, 2008. The public notice of the resolution of the aforesaid Shareholders’ General Meeting has been published on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao Website dated July 1, 2008. III. The Company published the Public Notice on Holding the 2nd Extraordinary Shareholders’ General Meeting of 2008 of Shenzhen SEG Co., Ltd. on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao Website dated August 27, 2008. The Shareholders’ General Meeting was held at the meeting room of the Company, 31/F, Tower A, Stars Plaza Building, North Huaqiang Road, Shenzhen at 10:30 am on September 11, 2008. The public notice of the resolution of the aforesaid Shareholders’ General Meeting has been published on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao Website dated September 12, 2008. 30 VII. REPORT OF BOARD OF DIRECTORS I. Discussion and analysis on the operation (I) Review on the operation of the Company in the report period 1. The overall operation of the Company The national general economy still kept a comparatively rapid growth in 2008. However, due to the expansion of the international financial crisis which then spread rapidly to entity economy, the global economy stepped into recession. Influenced by this recession, our national economy also distinctly slowed down its growth step. Moreover, export-oriented enterprises along coastal areas especially pearl river delta region were faced with the facts that orders reduced sharply, inventory increased, profit decreased, capital shortage and even bankrupt. In the report period, overcoming various difficulties in external economic environment, the Company realized operation income of RMB 318.01 million, with 55.28% down over the same period of last year; RMB 66.35 million for total profit, with 18.50% down over the same period of last year; RMB 55.48 million for net profit, with 15.84% down over the same period of last year; and RMB 48.58 million for net profit attributable to parent company, with 22.82% down over the same period of last year. After deducting the non-current gains and losses, the Company received net profit of RMB 41.5 million for this year, while RMB -20.8 million for the same period of last year. The followings accounted for the significant changes in main operation indexes over year 2007: (1) At the end of 2007, the Company sold equity of SEG Zhongdian, thus the profit statements of SEG Zhongdian and SEG Hitachi which was indirectly controlled by the Company were not recorded into the consolidated profit statement of 2008 of the Company. Therefore, income from color tube business was not included in the operation income of 2008, which caused a great drop in operation income over the same period of last year; (2) The total profit for 2007 covered income from equity transfer of SEG Zhongdian and selling shares of Shendasheng, while there was no such non-recurring income item in total profit for 2008; (3) In 2008, due to that SEG Samsung which absorbed share participation from the Company realized in turning profits from losses, and electron business which was the main operation market of the Company enjoyed steadily-increased profit growth, the Company had a great growth in oeprational profit over the same period of last year. In 2008, in order to further consolidate and strengthen the main business-electron market, the Company reinforced adjustment in industry structure, continuously shrank businesses which had not so strong connection with the main business, centralized strength and resource to give support for core business. In 2008, continuously firmly holding the themes as Innovation and Development, the Company not only poured efforts in figuring brand, strengthening management and practicing internal power, but also carried out key works such as management innovation, operation pattern innovation and building virtual market, and the initial results had been obtained. With over one year’s efforts, the financial condition and asset quality of the Company got substantial improvement, and capital power distinctly got strengthened, laying steady foundation for strategic expansion and sustainable development in future. 2. Main business and operation in the report period The Company was mainly engaged in electron specialty market, modern integrated logistics and service business with foreign transportation, free trade warehouse, agency sales and property leasing as representatives, scientific development and production and operation of communication products with global positioning system (GPS) and digital trunking communication system as representatives. In aspect of main business-operation of electron market: In the report period, SEG electron market, under the direct operation of the Company, remained stable development. Leasing rate for market shops kept over 98%. 31 In 2008, as new markets of the same category successively set up around the region, competition structure in Shenzhen Huaqiangbei electron market received a huge change, the expansion competition was more furious; meanwhile, international financial crisis caused comparatively great impact on operation of the electron market of the Company. In front of the griming economy, the Company fully played brand advantage as SEG Electron Market; through conforming market resources, it carried out overall value-adding service, injected innovation into management and operation pattern, totally accomplished the operation target for 2008, and further consolidated leading role of SEG electron market in the industry. In March of 2008, the Company was awarded as China Five-star Market for Electron Products authenticated by China Electronic Chamber of Commerce, being one of three China Five-star Market for Electron Products across the nation. In the report period, operation income of RMB 93.72 million was realized by the headquarter electron market; RMB 44.47 million for met profit, 5.75% up compared to that of the same period of last year. In the report period, except Suzhou SEG, the other electron markets invested by the Company all received growth in profit more or less. (1) Formation of operation income and operation profit classified according to industries: Unit: RMB’0000 Increase or Increase or Increase or operation operation decrease rate of decrease rate of decrease rate of Industries Profit ratio% income cost operating operation cost operation profit income（%） （%） （%） Business of electron market 1 21,182.62 10,473.63 50.56% -0.43% 8.09% -3.90% operation and properties leasing Business of foreign 2 7,371.49 5,993.60 18.69% -2.39% 0.62% -2.43% transportation and bonded storage Manufacture of products of 3 telecommunication 3,246.42 2,508.23 22.74% -15.25% -15.36% -0.10% s and revenue from network business (2) Formation of operation income and operation profit classified according to sales areas: Operating income Areas Year 2008 Increase/decrease （Unit: RMB’0000） over the same period of last year (%) Shenzhen 27，423.21 -32.53 Xi’an 2,054.78 7.15 Suzhou 1,501.27 31.47 Chongqing 821.26 -0.45 Overseas 0 -- Total 31,800.52 -55.28 Note: Due to the Company transferred equity of SEG Zhongdian, the main business of the Company did not include color tube any more, therefore, the operating income of Shenzhen area and overseas sales income greatly decreased compared with the same period of last year. 32 (3) Sales revenue, sales cost and gross profit ratio of major products taking up 10% or above of total operation profit: Unit: RMB Major products taking over 10% of the total amount of revenue Operation income Operation profit Profit ratio% from main operations or profit from main operations Business of electron market 21,182.62 10,473.63 operation and properties leasing 50.56% (4) Main suppliers and customers Unit: RMB Top five suppliers Top five customers Supplier Purchasing amount Customers Sales amount Ricoh Transport China Petroleum & Chemical 7,820,164.00 (Shenzhen)Storage Co., 11,989,514.29 Corporation Ltd. Radio Frequency System Hon Hai Precision International Trade(Shanghai) 3,867,620.14 8,699,898.77 Industry Co., LTD Co., Ltd. China National Petroleum Marketing Company Limited, 1,192,327.81 Shenzhen Metro Co., Ltd. 8,321,973.46 Kaiguang Station Nippon Express Global Xingfufeng Repair Factory 1,150,457.00 Logistics (Shenzhen) Co., 8,313,280.00 Ltd. Wuhan Metro Group Co., Jiaozuo Railways Cable Plant 342,783.40 8,239,704.62 Ltd. Subtotal 14,373,352.39 Subtotal 45,564,371.14 Percentage taking in the total Percentage taking in the 10.11％ 14.33％ amount of annual purchase total amount of sales 3. Analysis to the financial status of the Company in the report period In the report period, the main business of the Company turned to be electron market and property leasing from the original color tube business. The operation was stable and financial status was in a well condition. Unit: RMB Change Items Dec. 31, 2008 Dec. 31, 2007 scope Reasons for change （%） This item decreased due to that the Total assets 1,579,346,581.33 1,643,575,998.86 -3.91 Company returned bank loans and made cash bonus for shareholders this year. The Company received amount for Monetary assets 404,242,883.22 261,303,787.50 50.70 transferring equity of SEG Zhongdian in this period. Accounts receivable 37,054,146.68 216,587,489.28 -79.49 The same reason as above Price of Shendasheng shares held by the Financial assets 3,430,544.62 8,164,453.46 -57.98 Company dropped, which then caused available for sale decrease in this item. Head of the Company returned bank Short-term loans 1,750,000.00 96,750,000.00 -98.19 loans this year, which then also caused decrease in this item. The Company promptly handed in the Tax payable 10,550,796.11 19,577,993.58 -46.11 tax payable for last period in this report period, which caused decrease in this 33 item. This item increased due to that the Undistributed profit Company realized profit in this report 59,356,134.45 35,146,212.59 68.88 period. Equity attributable This item increased due to that the owners of parent 1,297,772,121.85 1,272,815,600.37 1.96 Company realized profit in this report company period. Change Items Jan-Dec of 2008 Jan-Dec of 2007 scope Reasons for change （%） Compared to the same period of last year, due to that the Company sold equity of SEG Zhongdian, income from Operation income 318,005,263.11 711,080,561.66 -55.28 color tube business was not included in the main operation income, which caused a great drop in operation income. Operation cost 189,754,698.25 656,430,051.68 -71.09 The same reason as above Note: Compared with that of last year, due to the Company transferred equity of Operation expense 5,510,224.10 36,603,298.26 -84.95 SEG Zhongdian, this item would not be included into consolidating scope in profit statement in the report period. Administration expense 57,521,314.30 224,485,236.19 -74.38 The same reason as above Reasons for decrease: ① The same reason as above; ② the Company Financial expense 2,024,559.17 44,846,180.49 -95.49 returned all bank loans in the report period, which decreased interest expenditure, and took part assets as fixed deposit to increase interest income. Reasons for decrease: ① In the same period of last year, the Company made accrual for devaluation losses for color tube equipments and relevant assets, Assets impairment loss -2,775,188.24 197,001,664.35 --- while there was no such situation in this report period; ②The Company received arrearage from Shendasheng, and then turned back bad debt loss, which also caused decrease in this item. In the same period of last year, the Company increased investment return by transferring equity of SEG Zhongdian Investment return 9,244,069.20 539,760,989.61 -98.29 and selling shares of Shendasheng, while there was no such situation in this report period, so the item decreased. Decrease in investment return caused Operation profit 61,472,065.26 78,162,565.41 -21.35 decrease in this item in the report period. Total profit 66,348,699.03 81,405,319.49 -18.50 The same reason as above Net profit 55,481,963.88 65,923,186.12 -15.84 The same reason as above Net profit attributable to owners of parent 48,579,535.53 62,945,577.11 -22.82 The same reason as above company Change Other index Jan-Dec of 2008 Jan-Dec of 2007 Reasons for change scope Decrease The Company successfully transferred 4.68 equity of SEG Zhongdian and returned Asset liability ratio 15.99% 20.67% percentage part short-term loans in this year, which points made a great decrease in liability ratio. After the Company successfully transferred equity of SEG Zhongdian in Current ratio 1.923 1.547 0.376 this year, decrease scope of current liability was larger than that of current asset. Quick ratio 1.900 1.531 0.369 The same reason as above Increase After the Company successfully The ratio of 84.01 79.33 4.68 transferred equity of SEG Zhongdian in shareholders’ equity percentage this year, assets and liabilities all greatlt 34 points decreased, and shareholders’ equity increased due to that profit was made. Turnover days for 143 144 -1 account receivable Turnover days for Caused by the great drop in operation 10 50 -40 inventory cost. (1) Analysis to the main formation of the assets of the Company Unit: RMB Dec.31, 2008 Dec.31, 2007 Increase/decrease Items Proportion Proportion in proportion of Amount in total Amount in total total asset assets assets Total asset 1,579,346,581.33 100.00% 1,643,575,998.86 100.00% 0.00% Monetary fund 404,242,883.22 25.60% 261,303,787.50 15.90% 9.70% Account receivable 37,054,146.68 2.35% 216,587,489.28 13.18% -10.83% Long-term equity 558,731,067.54 35.38% 549,113,821.63 33.41% 1.97% investment Investment real 458,389,203.22 29.02% 472,395,598.33 28.74% 0.28% estate Fixed assets 58,590,599.71 3.71% 70,599,740.28 4.30% -0.59% Accounts received 115,518,738.97 7.31% 102,596,820.45 6.24% 1.07% in advance Other account 83,079,536.95 5.26% 84,558,498.67 5.14% 0.12% payable Capital public 351,257,039.42 22.24% 355,198,960.77 21.61% 0.63% reserve Equity attributable to owners of parent 1,297,772,121.85 82.17% 1,272,815,600.37 77.44% 4.73% company Minority 29,033,408.85 1.84% 30,958,932.54 1.88% -0.04% shareholders’ equity (2) In the report period, the changes in financial data, such as the operating expense, administrative expense, financial expense, and income tax, etc. Unit: RMB Increase/decrease Item 2008 2007 Reasons for changes (%) Compared to the same period of last year, due to that the Company sold equity of SEG Zhongdian, color tube Operation cost 189,754,698.25 656,430,051.68 -71.09 business was not included in the main operation, which caused a great drop in operation cost. Note: Compared with that of last year, due to the Company transferred equity of SEG Zhongdian, this item Operation expense 5,510,224.10 36,603,298.26 -84.95 would not be included into consolidating scope in profit statement in the report period. Administration expense 57,521,314.30 224,485,236.19 -74.38 The same reason as above Reasons for decrease: ①The Financial expense 2,024,559.17 44,846,180.49 -95.49 same reason as above; ②the 35 Company returned all bank loans in the report period, which decreased interest expenditure, and took part assets as fixed deposit to increase interest income. Reasons for decrease: ①In the same period of last year, the Company made accrual for devaluation losses for color tube equipments and relevant assets, while there Assets impairment loss -2,775,188.24 197,001,664.35 --- was no such situation in this report period; ② The Company received arrearage from Shendasheng, and then turned back bad debt loss, which also caused decrease in this item. Due to transferring equity of SEGZhongdian and selling shares of Shendasheng, the tax payable increased, Income tax therefore, though income tax rate in the report period was much, it was still less than 10,866,735.15 15,482,133.37 -29.81% that of last year. (3) Changes in the financial data related to cash flow of the Company during the report period Unit: RMB Items Year 2008 Year 2007 Increase in Structure Structure Structure Amount Amount comparison comparison comparison Cash inflow arising from 441,102,049.48 100.00% 1,003,825,288.66 100.00% --- operation Including: cash received from selling commodities 405,862,543.01 92.01% 933,862,543.01 93.03% and providing labor -1.02 services Cash outflow arising from 363,311,005.83 100.00% 1,083,339,248.24 100.00% --- operation Including: cash paid for purchasing commodities 142,503,499.05 39.22% 792,223,382.86 73.13% and accepting labor -33.91% services Net cash flow arising 77,791,043.65 -79,513,959.58 from operating activities Net cash flow arising 183,902,067.43 224,001,011.42 from investment activities Net cash flow arising -122,759,569.09 -122,795,232.02 from financing activities 4. Operation and achievement of the major subsidiaries and share-holding companies. Controlling companies: (1)SEG Logistics, whose 95% equity is held by the Company, is mainly engaged in the business of foreign transportation and bonded storage etc., with registered capital of RMB 66 million and total asset RMB 101.47 million. In the report term, this company realized 36 operation income amounting to RMB 73.71 million with a decrease rate of 3% over the same period of last year; RMB 6.89 million has been realized for total profit, with an increase rate of 31% over the same period of last year. Reason for the great increase in profit was mainly that the company respectively transferred non-transactional properties in Shenzhen and Hongkong, increasing profit of RMB 1.53 million. (2) SEG Baohua, whose 66.58% equity is held by the Company, is mainly engaged in the operation and management of properties, with the registered capital of RMB 30,808,800 and total asset of RMB 99.96 million. In the report term, this company realized operation income amounting to RMB 44.04 million with an increase rate of 12% over the same period of last year; RMB 13.48 million has been realized for total profit, with an increase rate of 15% over the same period of last year. (3) Xi’an SEG, whose 65% equity is held by the Company, is mainly engaged in the operation and management of professional electron market, with the registered capital of RMB 3 million and total asset RMB 17.69 million. In the report period, this company realized operation income amounting to RMB 20.55 million with an increase rate of 7.2% over the same period of last year; RMB 3.73 million has been realized for total profit, with an increase rate of 34% over the same period of last year. (4) Chongqing SEG, whose 50% equity is held by the Company, is mainly engaged in the operation and management of professional electron market, with the registered capital of RMB 3 million and total asset RMB 8.07 million. In the report period, this company realized operation income amounting to RMB 8.21 million, with a decrease rate of 0.5% over the same period of last year; RMB 1.33 million has been realized for total profit, with an increase rate of 92.7% over the same period of last year. (5) Longgang SEG, whose 70% equity is held by the Company, is mainly engaged in the operation and management of professional electron market, with the registered capital of RMB 3 million and total asset RMB 23.98 million. In the report period, this company realized operation income amounting to RMB 21.24 million, with a decrease rate of 12% over the same period of last year; RMB 2.53 million has been realized for total profit, with an increase rate of 10.6% over the same period of last year. (6) Suzhou SEG, whose 45% equity is held by the Company, is mainly engaged in the operation and management of professional electron market, with the registered capital of RMB 3 million and total asset RMB 23.72 million. In the report period, this company realized operation income amounting to RMB 10.51 million, with a decrease rate of 8% over the same period of last year; RMB 2.43 million has been realized for total profit, with a decrease rate of 36.5% over the same period of last year. (7) SEG Communications, whose 97.7% equity is held by the Company, is mainly engaged in design, production and installation of communications products, with the registered capital of RMB 30 million and total asset RMB 47.42 million. In the report period, this company realized operation income amounting to RMB 19.93 million; RMB -1.2 million has been realized for total profit, and RMB -2.74 million for the same period of last year. Share-holding companies (8) SEG Samsung, share-holding company of the Company, whose 23.39% equity is held by the Company, is mainly engaged in production and sales of CPT glass shell, with the registered capital of RMB 785.97 million and total assets of RMB 3,316,710,000. Since the competitors successively retreated from CRT industry in 2008, and promotion of the industry brought by Beijing Olympic Games, the market has great demand. In 2008, the company almost realized full load operation and created the highest sales income in history. However, as the international financial crisis gradually expanded to entity economy at the year end, global demand was weak, which brought serious impact on export business of the company of December of 2008. In order to adjust operation strategy and stock structure, the company stopped part production lines for maintenance step by step. 37 In the report period, the company totally yielded with 20.67 million screens, 13% up over the same period of last year; sold 20.47 million ones, 12% up over the same period of last year, so the ratio of production to sales reached at 99%; yielded with 15.84 million pricks, 5% up over the same period of last year; sold 15.46 million ones, almost the same as the same period of last year, so the ratio of production to sales reached at 98%; this company realized sales income amounting to RMB 2,272,910,000, with an increase rate of 25% over the same period of last year; RMB 20.73 million has been realized for net profit and RMB -192.01 million for the same period of last year. The Company consolidated equity of RMB 4.85 million. (9) SEG GPS, share-holding company of the Company, whose 35% equity is held by the Company, is mainly engaged in production of GPS products of SEG and service business of its operating network, with the registered capital of RMB 60 million and total assets of RMB 219.66 million. In the report period, the company totally produced 98,395 sets GPS products, 16% up over the same period of last year; sold 99,725 ones, 29% up over the same period of last year. The company realized sales income of RMB 208.7 million, up 5% over the same period of last year; RMB 10.59 million for net profit, 64.23% down over the same period of last year, the main reason for drop was: firstly, influenced by international financial crisis, integrity decline happened to products sale; secondly, the company increased input in propaganda in the report period; thirdly, the newly-established filiale was still in cultivation, so it was predicted to make profit in later times. The Company consolidated equity of RMB 3.71 million. (10) Shanghai SEG, share-holding company of the Company, whose 35% equity is held by the Company, is mainly engaged in the operation and management of professional electron market, with the registered capital of RMB 5 million and total asset RMB 48.9 million. In the report period, this company realized operation income amounting to RMB 36.73 million, with an increase rate of 7.9% over the same period of last year; RMB 7.5 million has been realized for net profit, with an increase rate of 56.36% over the same period of last year. The Company consolidated equity of RMB 2.63 million. 5. There is no any body with special aim controlled by the Company. (II) Prospect on future development of the Company As the CPT glass shell industry and part non-major-operated investment enterprises retreated, the assets structure and industry structure of the Company got forwardly optimized; its profit-making ability would be gradually advanced; resource advantage would continuously centralize around its advantageous industry---chain operation of electron market which had already became the core main business of the Company. In 2009, the Company was going to implement strategic upgrade for SEG electron market. Meanwhile, the Company would completely take use of capital market to realize optimized collocation for resources, aiming to further improve assets quality and profit-making ability. 1. Developing tendency of electron market industry Electron market industry is now in the stage of innovation and upgrade, its developing tendency is mainly reflected in the following aspects: (1)The operation idea for electron market gradually turned to integrated service operation in circulating area for electron information products from the original one-tenement operation. (2)Service focus of electron market turned to be customer-orientation from the original shop leaser-orientation. The market launcher assorted with manufacturers and franchisers as the primary responsible person, carried out marketing activity together, figured market brand, improved loyalty of customers and promoted sales; (3)Some advanced commercial measures such as e commerce, emporium planning and direct sales were rapidly changing the traditional operation pattern for electron market-leasing 38 operation. (4)In order to realize prominent development of market, the Company made choice on shop leasers, strengthened information management, emphasized on honest construction, and paid more attention to market demand and developing prediction for products, technics and products, strengthened communication and direction for shop leasers, especially strengthened direct cooperation with the upper manufacturer, and totally brought channel into play. (5)In view of method for operating market, it was more distinct to reform market operation through modern commercial idea and methods. It required more in scale and hardware for monomer market; in view of external characters for future development of market, as market economy continuously developed and social division got unceasingly detailed, electron market would step forward to be a modern senior mall featuring with integrity of diversified products, humanity service, e transaction, shopping, leisure, business negotiation, demonstration, experience, after service and business information consultation. 2. Challenge and opportunity faced by the Company in its future development, and strategy for future development (1) Challenge faced by the Company in future development ①Furious competition in electron market industry Due to the influence brought by traditional operation pattern in electron market industry, homogenization between the competitor enterprises was serious; besides, influenced by the 2008 international financial crisis, electron market received an unprecedented challenge in making profit. Taking Shenzhen Market as example, because of the comparatively low demand for access to traditional electron market, this kind of markets could be found everywhere in Shenzhen. As lots of competitors continuously access to this industry, the original customer resources were continuously partitioned. Moreover, under the present economic situation, consumption market had slowed down step in growth. Due to the aforesaid unfavorable factors, some electron markets, with no brand support, low level management, and shortage of core competition ability, lowed down rent for survival, which then caused price war in part region in electron market industry. ② Diversification of sale channel for electronic products presented challenge to the tradition operation pattern for electron market As sale channel for electronic products developed in direction of diversification, the entire traditional electron market industry received challenge successively, and sales proportion of traditional electron market was continuously partitioned. (2) Opportunity for future development Many disadvantages existed in commercial pattern of traditional electron market. With impact and influence from new commercial pattern, it was unavoidable to advance the traditional commercial pattern for electron market. This advance of commercial pattern would bring new development opportunity for the Company’s main business---electron market. This opportunity mainly reflected in the following aspects: ① With 20 years development, SEG electron market enjoyed competition advantage among the industry in aspect of market management, market operation scale and market brand popularity. Firmly grasping the historical opportunity of industry upgrade, the Company completely took the advanced experience and marketing method of new commercial mall as reference; through constructing e-commerce transaction platform, the Company made innovation in operation and profit-making pattern; took the lead in upgrading commercial pattern of electron market, established industry threshold for the new commercial pattern, realized jumping growth in main business and kept leading position in this industry. ② Startup of domestic demand policy presented by our government aiming to the international financial crisis, offered commercial opportunity for the Company to expand 39 chain operation of electron market business across the nation. ③ International financial crisis brought opportunity for development of net trade through e-commerce. ④ With influence from international financial crisis, physical assets (especially commercial property) received a great drop. While the present asset-liability ratio of the Company was low, uncommon opportunity was provided for the Company to expand with low cost. (3) Development strategy of the Company Development strategy of the Company for the following 3 years: through injecting innovation into pattern of expansion, operation and profit-making, the Company took the leading role in making revolution upgrade in commercial pattern, and realized jumping growth in main business and profit-making level; fully took advantage of capital, industry information and channel, to build SEG Electron Market to be the top one brand among China’s professional electron markets. Meanwhile, the Company would fully take use of capital market to realize optimized collocation for resources, strengthening of main business, and then further improvement of asset quality and profit-making level of the Company. (4) Operation plan for the new coming year ① The Company will continue to actively and stably expand chain operation of electron market business, promoting strategic expansion of electron market. ② The Company will continue to reinforce adjustment in present industry, and make strategic adjustment in organization and capital structure. Since the aforesaid adjustments finished, the Company will form an operation management pattern with chain operation of electron market as main business, and meanwhile runs investment and management of commercial property and property right. ③ The Company will carry out experimental unit and promotion work for new operation pattern of electron market, and starts to implement the strategic upgrade in SEG electron market industry. ④ Investment and construction for Changsha SEG electron market should be focused. ⑤ The Company will continue to strengthen construction and promotion of brand of SEG Electron Market. ⑥ The Company will continue to promote construction of net trade platform of SEG Electron Market. ⑦ The Company will accomplish equity transfer works relevant to enterprises invested by the Company disclosed in 2008. ⑧ The Company will actively seek for strategic cooperation with foreign and domestic famous enterprises, to realize complementary strengths and manage to develop new point for making profit. 3. New projects the Company planned to invest and application plan of proceeds In 2009, the Company would continue to implement the application plan of proceeds obtained from transferring 73.24% equity of SEG Zhongdian. No. Projects/purpose Proceeds planned to input 1 Invest to build new SEG electron market RMB 100 million 2 Construct IT-MALL RMB 80 million 3 Dummy market for electron products trade RMB 20 million Total RMB 200 million 40 Note: (1) The aforesaid proceeds application plan was disclosed on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao website dated Dec 4th of 2007. (2) In the 24th Extraordinary Meeting of the 4th Board of Directors dated Feb 26th of 2009, the investment plan was examined and approved, that: the Company would take RMB 69 million to purchase 46% equity of Changsha Xinxing Development Co., Ltd. for establishing Changsha SEG Electron Market. This investment was part of the proceeds application plan for Invest to Build New SEG Electron Market. (3) As for the part proceeds which had not been input according to the application plan, the Company would made prompt investment according to maturity degree of investment condition for the projects, and would promptly implement relevant examine-and-approve procedure and information disclosure. 4. Risks and countermeasures faced by the Company (1) Main risks faced by the Company: ①In front of international financial crisis and economy recession, the main business of the Company would possibly face risk of decline. ②Due to the negative influence brought by decline in traditional display industry, SEG Samsung, the Company’s share participation company, faced uncertainties in operation, which also yielded uncertainties to the Company. (2) Countermeasures: ①The Company continued to strengthen innovation in patterns of expansion, operation and profit-making. ②The Company further strengthened training for person with ability, carried out net and solid training, and continuously cultivated persons and management team which were able to fulfill the Company’s demand for strategic expansion and upgrade. ③The Company actively carried out management innovation and value-adding service for electron market, and built platform for customer information management. ④The Company continued to strengthen management, promoted cost project, increased income and reduced expenditure. ⑤Taking full use of the favor policy of appliance-to-country promulgated by the state to respond to the financial crisis and stimulate domestic demand, the Company actively brought use of shareholders from both China and South Korea into play, made research as quickly as possible and promptly promoted equipment and technology reform, argumentation of new products, and adjustment in products structure and industry structure for SEG Samsung. III. Investment of the Company In the report period, the Company had not newly increased investment expenditure. Until Dec 31st of 2008, the net long-term investment amounted to RMB 558.73 million, RMB 9.62 million increased compared to that of the end of last year, with the increase rate of 1.75%. The main reason for the increase was that SEG Samsung, SEG GPS and Shanghai SEG which absorbed share participation from the Company all realized profit in this year. 1. Application of the raised proceeds in the report period In the report period, the Company raised no proceeds and there existed no such situation that the application of proceeds raised through share offering before the report period continued to the report period. 2. The Company had no significant projects invested with non-raised proceeds in the report period. In the 3rd Extraordinary Shareholders’ Meeting for 2007, the proposal on application plan of the account received from transferring 73.24% equity of SEG Zhongdian by the Company 41 was examined and approved. And the relevant information was disclosed on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao website dated Dec 22nd of 2007. However, due to that condition for investing relevant projects was not matured yet, in order to prevent investment risk, the Company had not implemented the aforesaid investment plan during the report period. III Particulars about items measured by fair value, and about holding financial assets or liabilities in foreign currency 1. The financial assets available for sales held by the Company were mainly legal person shares of listed company. For these assets, the Company all confirmed their fair value according to the closing price as of the last day of 2008. Price change from the year-begin to year-end of 2008 was calculated into equity of the Company, having no influence on current profit of the Company. Unit: RMB’0000 Amount Amount at Current gains Accumulative fair Depreciation at Item period-begi and losses due to value change withdrawn this period period-e (1) n change of fair calculated to equity (4) (5) nd (2) value (3) (6) Financial assets Including: 1.financial assets which was measured by fair value and whose change was calculated to current gains and losses(note) Including: derivative financial assets 2. Financial assets 816.45 -473.39 161.73 343.05 available for sale Subtotal of financial 816.45 -473.39 161.73 343.05 assets Financial liability Real estate investment Productive biological assets Others Total 816.45 -473.39 161.73 343.05 Note: Derivative financial assets were included. 2. The Company held no financial assets or liabilities in foreign currency IV. Routine work of the Board of Directors (I) Meetings and resolutions of the Board of Directors In the report period, the Board of the Company totally held 13 meetings of the Board of Directors, 8 of which were held by way of communication, with the following resolutions formed: 1. The 13th Extraordinary Meeting of the 4th Board of Directors of the Company was held by way of communication on Feb 20th of 2008. Proposal on Equity Transfer of Shenzhen SEG Network Information Co., Ltd. through Share Merger Reform was examined and approved in this meeting. The resolution and relevant notice has been published on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao information website dated Feb 22nd of 2008. 42 2. The 14th Extraordinary Meeting of the 4th Board of Directors of the Company was held by way of communication on Mar 4th of 2008. Proposal on Engagement for Minister of the Audit Department of Shenzhen SEG Co., Ltd. was examined and approved in this meeting. The resolution and relevant notice has been published on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao information website dated Mar 6th of 2008. 3. The 15th Extraordinary Meeting of the 4th Board of Directors of the Company was held by way of communication on Mar 19th of 2008. Proposal on Working System for Independent Directors of Shenzhen SEG Co., Ltd. was examined and approved in this meeting. The resolution and relevant notice has been published on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao information website dated Mar 21st of 2008. 4. The 2nd meeting of the 4th Board of Directors of the Company was held on Apr 11th of 2008. The resolution and relevant notice has been published on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao information website dated Apr 16th of 2008. 5. The 16th Extraordinary Meeting of the 4th Board of Directors of the Company was held by way of communication on Apr 24th of 2008. The 1st Quarterly Report of Shenzhen SEG Co., Ltd. was examined and approved in this meeting. 6. The 17th Extraordinary Meeting of the 4th Board of Directors of the Company was held by way of communication on Jun 10th of 2008. Proposal on Election of Independent Directors and Proposal on Holding the 1st Extraordinary Shareholders’ General Meeting for 2008 of the Company were examined and approved in this meeting. 7. The 18th Extraordinary Meeting of the 4th Board of Directors of the Company was held by way of communication on Jul 19th of 2008. Proposal on Change for Recommending Institution for Share Merger Reform was examined and approved in this meeting. 8. The 19th Extraordinary Meeting of the 4th Board of Directors of the Company was held by way of communication on Jul 21st of 2008. Report on Reform on Campaign of Special Corporate Governance of Shenzhen SEG Co., Ltd. was examined and approved in this meeting. 9. The 20th Extraordinary Meeting of the 4th Board of Directors of the Company was held by way of communication on Jul 28th of 2008. Report on Capital Occupation of Largest Shareholders and Related Parties of Shenzhen SEG Co., Ltd. was examined and approved in this meeting. 10. The 3rd meeting of the 4th Board of Directors of the Company was held on Aug 1st of 2008. The resolution and relevant notice has been published on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao information website dated Aug 5th of 2008. 11. The 21st Extraordinary Meeting of the 4th Board of Directors of the Company was held on Aug 18th of 2008. The resolution and relevant notice has been published on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao information website dated Aug 20th of 2008. 12. The 4th meeting of the 4th Board of Directors of the Company was held on Oct 22nd of 2008. The resolution and relevant notice has been published on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao information website dated Oct 24th of 2008. 13. The 22nd Extraordinary Meeting of the 4th Board of Directors of the Company was held on Dec 9th of 2008. The resolution and relevant notice has been published on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao information website dated Dec 12th of 2008. (II)Implementation of resolutions of the Shareholders’ General Meeting by the Board of Directors In the report period, the Board of the Company could implement all resolutions of 43 Shareholders’ General Meeting and authorizations of Shareholders’ General Meeting according to laws in an honest and responsible way. 1. In the report period, the Board of the Company implemented various resolutions examined and approved in the 13th (Annual 2007) Shareholders’ General Meeting, the 1st Extraordinary Shareholders’ General Meeting of the Company of 2008 and the 2nd Extraordinary Shareholders’ General Meeting of the Company of 2008; and all authorizations of Shareholders’ General Meeting in an honest and responsible way. 2. According to authorization from Shareholders’ General Meeting of the Company, the Board implemented and accomplished 2007 Profit Distribution Plan of the Company in the report period. According to the audit made by Beijing Shu Lun Pan CPAs Co., Ltd. according to CAS, the parent company realized net profit of RMB 27,137,924.01 for 2007. The statutory surplus reserve RMB 2,713,792.40 was withdrawn, 10% of the aforesaid net profit. Plus the undistributed profit as of year-begin RMB 9,048,724.89, the profit available for distribution to shareholders for this time was RMB 33,472,856.50. Taking the total shares 784,799,010 as of Dec 31st of 2007 as the radix, the Company sent dividends RMB 0.25 (tax included) for every 10 shares to its shareholders, so dividends RMB 19,619,975.25 was expected to send, and the remaining undistributed profit would be transferred to the next accounting year. (III) The duty performance of the Audit Committee set by the Board of Directors During the report period, with the requirements of Working Principles of the Audit Committee of Shenzhen SEG Co., Ltd and Working Principles on the Annual Report of the Audit Committee of Shenzhen SEG Co., Ltd., the Audit Committee performed its duty earnestly, making supervision and inspection on the halthiness of the internal control of the Company, and full examination work in the audit for the annual financial audit. 1. The examine opinion presented by the Audit Committee on the 2008 Financial Report of the Company. In the report period, according to the regulations by CSRC, the Audit Committee made examination on the annual financial report and presented examine opinion for twice. (1) Before the entrance of the certified public accountant, the Audit Committee examined the unaudit financial statement and issued the first written opinion, in which it is believed that: according to the relevant demand of the new accounting standard and combining the actual condition of the Company, the Company made reasonable accounting policy and appropriate accounting estimation; the financial accounting statements formed by the Company can truthfully reflect the financial status of the Company ended on Dec. 31st, 2008 and the operation achievement and cash flow of 2008. And they agree to use this financial statement as the basis to carry out the audit work for 2008. (2) After the certified public accountant has finished the initial audit paper, the Audit Committee read this paper in time and negotiated with the certified public accountant. On the important issues referred by the 2008 Annual Financial Report of the Company, there are no disputes between the Audit Committee and the certified public accountant. The annual financial report of the Company is in strict line with regulation of Accounting Standard for Enterprise and other relevant laws. The Audit Committee agrees to take this financial report as the basis to make the 2008 Annual Report and its Summary. 2. Supervision and urge over the audit work of the certified public accountant Co., Ltd With negotiation with the audit organization for the Company of 2008--- Beijing Shulun Pan Certified Public Accountants Co., Ltd., the Company made audit arrangement for the annual audit in December of 2008 and reported the schedule to the Audit Committee. After negotiation with the audit organization, the Audit Committee holds that the Company made preparation in advance combining the actual situation and made an adequate arrangement for 44 the annual audit. The Audit Committee agreed the annual audit plan which was made by the audit organization. After the entrance of the audit organization for audit working, the Audit Committee negotiated with the person in charge of the main project and the certified public accountant and relevant personnel. Geeting well known of the audit working progress and issues that the accountants focused, the Audit Committee made feedback to the relevant departments of the Company. The Audit Committee has issued letter of supervision and urge to the audit organization on the progress of the annual report auditing work respectively in February and March of 2009. 3. Working summary on the 2008 annual audit conducted by Beijing Shulun Pan Certified Public Accountants Co., Ltd. issued by the Audit Committee In order to audit the annual financial condition of the Company timely, accurately, truthfully and completely, the Certified Public Accountants Co., Ltd has already made prior period investigation and arranged pre-audit in November of 2008. And according to request of the Accounting Standards for Enterprise, it made technological preparation for adjustment for the various accounting items in advance. During the annual audit, with negotiation with the certified public accountant and examination on the initial annual audit report presented by the Certified Public Accountants Co., Ltd, the Audit Committee holds that: the present certified public accountant can perform their duty in strict line with the audit regulations and laws; can pay attention to get known of the Company and its operating environment, the establishment, completeness and implementation of its internal control system; the accountants own strong awareness of risk and they can accomplish the audit work in time according to the time schedule for this audit. The Audit Committee holds that: the present certified public accountants well finished the audit works on the 2008 Finaicial Report of the Company and issued the true, objective and fair audit report, keeping their independence and prudence. 4. Proposal on changing to engage Shulun Pan Certified Public Accountants Co., Ltd. as the external audit organization for the accounting statements of the Company in 2009. In according to the investigation on the Certified Public Accountants with the qualification of Securities by the Audit Committee of the Company, and combined with the audit works on the Company by the Certified Public Accountants engaged in previous years, the Company suggested to engage Shulun Pan Certified Public Accountants Co., Ltd. as the audit organization for the Company in 2009 with the audite expense was RMB 450,000(including travel and accommodation expenses audited for the companies in other areas). In order to comply with the demands of the development of the industry, and make national accounting firm much bigger and stronger, Beijing Shulun Pan Certified Public Accountants Co., Ltd. engaged by the Company took reorganization and merger with Shulun Pan Certified Public Accountants Co., Ltd. At present, Beijing Shulun Pan Certified Public Accountants Co., Ltd. sent Letters on Relevant Matters in Divisions of Beijing Shulun Pan Certified Public Accountants Co., Ltd. to the Company, in which stated that the whole capital investors of Beijing Shulun Pan Certified Public Accountants Co., Ltd.(hereinafter refers to as Beijing Shulun Pan) singned Agreement on Dividing Beijing Office of Shulun Pan Certified Public Accountants, the capital investors which have retreated from Beijing Shulun Pan and the business they had taken were merged and shifted to Shulun Pan Certified Public Accountants Co., Ltd. (hereinafter refers to as Shulun Pan). All the employees in Shenzhen Office of Beijing Shulun Pan were transferred to Shenzhen Office of Shulun Pan in batches before April 30, 2009. The aforementioned reorganization and merger belonged to resource restructurings inside system of Shulun Pan Certified Public Accountants Co., Ltd. In light of that, the Audit Committee of the Board of the Company proposed to change to engage Shulun Pan Certified Public Accountants Co., Ltd. as the external audit organization 45 for the Company in 2009. 5. In the report period, the Audit Committee set by the Board of Directors held two meeting, the details were as follows: 1) On March 24, 2008, the First Working Meeting in 2008 was held, 2008 Annual Financial Report of the Company was discussed. 2) On November 12, 2008, the Second Working Meeting in 2008 was held, Matters on Auditing 2008 Annual Report of the Company was discussed. (IV) The duty performance of the Remuneration and Examination Committee set by the Board of Directors In the report period, the Company stipulated Working Principle for the Remuneration and Examination Committee of Shenzhen SEG Co., Ltd. Opinions on the disclosed remuneration of the Directors, Supervisors and Senior Executives of the Company issued by the Remuneration and Examination Committee after examination: the following personnel only get remuneration according to the administrative level of their position in the Company: Zhang Weiming, Chairman of the Board; Wang Chu, Director and General Manager; Li Lifu, Deputy General Manager; Zheng Dan, Deputy General Manager and Secretary of the Board; Zhang Changhai and Tian Jiliang, Supervisors. The original Independent Directors Su Xijia, present Independent Directors Jia Heting and Jiang Yigang and Yang Rusheng receive allowance for independent Directors from the Company. The other Directors and Supervisors don’t receive remunerationS from the Company. During the report period, the Remuneration and Examination Committee set by the Board of Directors totally held two meetings, with details as follows: Remuneration and Examination Committee held the 1st Working Meeting of 2008 on August 2, 2008 and held the 2nd Working Meeting of 2008 on Dec. 30, 2008, in which the Proposal presented by the Independent Director Jia Heting on encouraging the relevant personnel of the Company with special awards was discussed and approved and agreed to hand in to the Board of Directors for examination and approval. (V) The duty performance of the Development and Strategic Committee set by the Board of Directors In the report period, the Company stipulated Working Principle for the Development and Strategic Committee of Shenzhen SEG Co., Ltd, increasing to 9 members in this Committee from the original 7 members. During the report period, the Development and Strategic Committee set by the Board of Directors totally held two meetings, with details as follows: 1. The 1st Working Meeting of 2008 was held on August 2, 2008. The main proceedings discussed in this meeting were: (1) hearing report from the management team on the current operating condition; (2) current development of the business of Electron Market. 2. The 2nd Working Meeting of 2008 was held on Sep. 19, 2008. The main proceedings discussed in this meeting were: (1) hearing report from the management team on the current operating condition; (2) research and discusstion on the future development of the Company. V. The preplan on profit distribution Since Jan. 1, 2007, the Company began to adopt Accounting Standard for Business Enterprises 2006. In according to the regulations of Accounting Standard for Business Enterprises 2006, the Company adopted cost method to calculate the investment of subsidiaries, there were bigger differences between the profit and consolidated profit of the parent company. Pursuant to provisions of Company Law and Articles of Association, the profit distribution was conducted with taking parent company as the mainbody; the profit distribution for year 2008 of the Company was taken based on the profit available for distribution of the parent company. 46 In the report year, there were no differences between the net profit after tax in Financial Report compiled based on Domestic Accounting Standards and the net profit after tax in Financial Report compiled based on International Accounting Standards. Audited by Beijing Shulun Pan Certified Public Accountants Co., Ltd., according to Chinese Accounting Systems, the parent company realized net profit attributable to the listed company was was RMB 44,188,648.51 in 2008, and the accrual of statutory suplus public reserve was 10% in the report year, namely RMB 4,418,864.85; plus the undistributed profits in year-begin amounting to RMB 33,472,856.50, and deducted the 2007 cash dividends distribtuted in year 2008 amounting to RMB 19,619,975.25, so the profit available for distribution to shareholders was RMB 53,622,664.91. The Company, on the radix of total share of 784,799,010 on Dec. 31, 2008, planed to send dividend RMB 0.20(including tax) per 10 shares to all shareholders. Dividends of RMB 15,695,980.20 should be distributed, and the remaining undistributed profits will be transferred into the next financial year. The Company has no scheme of converting capital public reserve into share capitals. The aforesaid preplan need be submitted to the 2008 Annual Shareholders’ General Meeting for examination and approval before implementation. Particulars about the cash dividend of the Company in previous three years Net profit Ratio of net profit Ratio of net Net profit attributable to attributable to Amount of cash profit attributable to owners of parent owners of parent Year bonus attributable to owners of parent company in company in (tax included) owners of company consolidated consolidated parent company statement statement 2007 19,619,975.25 27,137,924.01 62,945,577.11 72.29% 31.17% 2006 --- 29,465,457.34 -65,672,156.10 --- --- 2005 --- 8,418,220.00 -128,756,702.22 --- --- VI. Other events need to be disclosed (I) Special explanation on fund occupied by controlling shareholders and other related parties by Certified Public Accountant: please refer to the special audit report attached back for details. (II) Special explanation and independent opinions of independent Directors on the Company’s accumulated and current external guarantees According to the requirements in Notification on Standardizing Listed Companies’ External Guarantees (ZJF【2005】No. 120) promulgated by CSRC, we have inspected the Company’s external guarantees of year 2008 in a serious and responsible attitude with details explained as follows: According to the requirements of Regulations such as No. 120 Notification and Articles of Association etc., the Company regulated the external guarantee and controlled the risks in external guarantee. Ended Dec. 31, 2008, the Company did not have external guarantee. In the beginning of the report period, the external guarantee of the Company were all for the controlling subsidiary of the Company, and have been examined and approved by the Board of Directors of the Company. Thereinto the guarantee for SEG Communications that belonged to the debt guarantee provided for the guarantee of which the assets-liability ratio exceeded 70%; the guarantee was on providing pledge guarantee for “Subway Project” of Shenzhen SEG Communications Co., Ltd from the Company, and it has already been examined and approved by the Shareholders’ General Meeting of the Company. In Oct. 2008, all projects related to guarantee has passed the final check by Shenzhen Subway Co., Ltd. and the Acceptance Certificate was obtained. The related guarantee offered by the Company has been terminated automatically in Oct. 2008. 47 The decision-making procedures and terminations of all the guarantees of the Company were in accordance with Articles of Association; and the Company has implemented obligation of information disclosure timely. (III) The newspapers for information disclosure in 2008 designated by the Company are Securities Times, China Securities Journal and Hong Kong Wen Wei Po; internet website designated by CSRC for the information disclosure was Juchao website (http://www.cninfo.com.cn). 48 VIII. REPORT OF SUPERVISORY COMMITTEE I. Work of the Supervisory Committee According to relevant regulations of Company Law and Articles of Association of the Company, the Supervisory Committee of the Company patiently performed its duties. In the report period, the Supervisory Committee of the Company totally held 5 meetings, attended every meeting of the Board as a nonvoting delegate, participated in the discussion of significant decision-making events of the Company and examined the periodical reports of the Company. In the report period, the meetings of the Supervisory Committee are as follows: (I) The 2nd meeting of the 4th Supervisory Committee of the Company was held on April 11, 2008. The meeting formed the following resolutions: 1. Examined and approved Work Report 2007 of the Supervisory Committee of the Company; 2. Examined and Approved Proposal on Superaddition of Budget in 2007; 3. Examined and approved Financial Settlement Report 2007 of the Company; 4. Agreed with the Board of Directors on the Financial Budget Report 2008 of the Company; 5. Agreed with the Board of Directors on the Profit Distribution Plan 2007 and Preplan on Conversion of Capital Public Reserve into Share Equity of the Company; 6. Agreed with the Board of Directors on Withdrawing and Reduce each Assets Depreciation Reserve in 2007; 7. Agreed with the Board of Directors on Changes of Consolidation Statement Range in 2007; 8. Agreed with the Board of Directors on Adjusting Balance Sheet Items at the Beginning of 2007; 9. Examined and approved Annual Report 2007 and Summary of the Company; 10. Examined and approved Opinions of Supervisory Committee on Self-Appraisal of Internal Control. The public notice of resolution of the board meeting was disclosed on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and http://www.cninfo.com.cn dated April 16, 2008. (II) The 4th extraordinary meeting of the 4th Supervisory Committee was held on April 24, 2008 by communications, which discussed and approved the First Quarterly Report 2008, and expressed auditing opinions on the first quarterly report of 2008. (III) The 5th extraordinary meeting of the 4th Supervisory Committee was held on August 15, 2008, which discussed and approved Semi-annual Report 2008 and Summary, and expressed auditing opinions on Semi-annual Report 2008 and Summary. (IV) The 3rd meeting of the 4th Supervisory Committee was held on September 11, 2008, which formed following resolutions: elected Supervisor Zhao Xingxue as Chairman of the 4th Supervisory Committee. The public notice of the resolution was disclosed on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and http://www.cninfo.com.cn dated September 12, 2008. (V) The 4th meeting of the 4th Supervisory Committee was held on October 22, 2008, which discussed and approved the Third Quarterly Report 2008, and expressed auditing opinions on the Third Quarterly Report 2008. In the report period, the Supervisors attended the spot meeting of the Board of Directors, and knew all voting matters reached by communications. II. Independent opinion on the operation of the Company in 2008 issued by the Supervisory Committee: (I)Operation of the Company according to Law According to relevant regulations of national laws, regulations and Articles of Association, the Company has established and improved the legal administrative structure, established a fairly perfect internal control system, and well kept away risks of operation and finance; the Company’s decision-making procedures were legitimate. In the report period, the Board of Directors and management team of the Company seriously performed each resolution of the Shareholders’ General Meeting, and in a diligent and conscientious manner, they didn’t violate laws, regulations and Articles of Association or damage the Company’s interests when performing their duties. 49 (II)Inspection on the finance of the Company The Supervisory Committee made serious and careful inspection on the Company’s financial system and financial status, and believed the 2008 Financial Report could truly reflect the Company’s financial status and operation performance. Beijing Shulun Pan Certified Public Accountants Co., Ltd. audited 2008 Financial Report of the Company according to Independent Auditing Standards of Chinese Certified Public Accountant and issued auditor’s report with standard unqualified opinion which truly reflected the Company’s financial status and operation performance. (III)In the report period, there was no use of raised capital. (IV) Purchase or sales of assets of the Company The Company had not purchased assets in the report period. Details of assets sales in the report period could be found in Section IX Significant Events. The behaviors of assets sales all fulfilled the approval procedure with fair price and there was no behaviors hurting interests of the Company and shareholders. (V) Related transactions of the Company The related transactions interfered in 2008 of the Company were all done in accordance with the principle of equity and fairness as verified by the Supervisory Committee. No inside trading was discovered, and the transactions hadn’t damaged the interests of the Company as well as rights and interests of other shareholders or resulted in the losses of assets of the Company. 50 IX. SIGNIFICANT EVENTS I. Significant lawsuits and arbitrations 1. As the information the Company disclosed in 2007 Annual Report, that the Company indicts defendant Shenzhen SEG Commercial Machine Co., Ltd (here referred to as Commercial Machine Co., Ltd) and Li Zhongda about the loan and guarantee contract dissension case, on Oct. 11th of 2007, the Company received the first trial Civil Court Verdict over the loans dispute document of Commercial Machine Co., Ltd. (No. 1735 Civil Verdict of Shenzhen Futian Court Civil 2 initial letter (2007)). The Company won the lawsuit. Because of the other party’s appeal, the second court session opened in the afternoon of March 10th of 2008. On April 15th 2008, The Company received the second trial Civil Court Verdict of the loans dispute document of Commercial Machine Co., Ltd. (No. 266 Civil Verdict of Shenzhen Futian Court Civil 2 final letter (2008)). Because the other party withdrew the appeal, the original decision became effective. On Jun. 4th of 2008, the Company officially entrusted King&Wood Lawyer Firm to carry out the matters concerned, and the Company handed application to Futian District People's Court for compulsive execution. The court accepts our application, to decide to set a case and to execute on Jun. 5th of 2008 [Case No.:（2008）No.2706 of Shenzhen Futian Civil Court execution letter]. According to our application, the object executed is RMB 2,819,996.61, including the principal RMB 1,967,152, the interest RMB 733,233.39, and the overdue interest RMB 104, 864.72. The opposite party should bear RMB 14,746.50, which is the expense for the first trial. At present, the compulsory implementation was as follows: on February 17, 2009, the Company received the account of RMB 609,693.29 through China Everbright Bank from Shenzhen Futian District People's Court, which was the account the defendant SEG Commercial Machine Co., Ltd and Li Zhongda owned to the Company. After the Company received the account, the account receivable from SEG Commercial Machine Co., Ltd and Li Zhongda owned to the Company was reduced. The Company would continue to call back the left account from SEG Commercial Machine Co., Ltd and Li Zhongda through Shenzhen Futian District People's Court according to the law. 2. The case that prosecutor Zhao Shishun appealed Equity Infringement Case of Equity Transfer disclosed in the 2007 Annual Report [Case No.: (2006) No.1625 of Shenzhen Futian Civil Court 2 initial letter], the object involved amounted to RMB 4.33 million. On Feb.5, 2007, the court judged the Company to pay back the prosecutor with RMB 2.16 million (interest not included) and case accepting and hearing expense RMB 27,882, and turned down other appealing requests. This has been disclosed on China Securities Journal, Securities Times, Hong Kong Wen Wei Po and http://www.cninfo.com.cn dated March 9.2007. The involved two parties in this case all appealed after the judgment. Shenzhen Intermediate Civil Court had second instance to hold a court on Aug. 2, 2007. Until the disclosure date of this report, the Company has not received judging result from the court. 3. On April 30, 2007, the Company received Equity Infringement Case of Equity Transfer [Case No. :( 2007) No.962 of Shenzhen Futian Civil Court 2 initial letter] which involved RMB 0.48 million target appealed by Zhu Xiaoliang. The relevant matter was disclosed by the Company in its 2007 Annual Report. The Company received the first instance Civil Verdict from Futian District People’s Court on October 31, 2007, which declared that this case was pertinent to the above case. But the first instance of the case of Zhao Shishun has not gone into effect, because the Shenzhen Intermediate Civil Court has not made the second judgment for the appeal of involved two parties yet. The court made the judgment that this case was in suspension, and the judgment will be recovered voluntarily after the judgment of the second instance occurred. Until the disclosure date of this report, the judgment has not been recovered for this case. 4. Concerning the event that the loan guarantee of RMB 10 million of Shendasheng in 51 Shenzhen Development Bank provided by the Company which was disclosed in Annual report 2007, the Company, Shendasheng and Guangzhou Borong Investment Co., Ltd. reached an agreement and signed Implementing Reconciliation Agreement with the conciliation of the court on Oct. 13, 2008. Details could be found in Notice on Progress of Significant Lawsuit of Shenzhen SEG Co., Ltd. on Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao Website dated Nov. 7, 2008. Till Dec. 31, 2008, Shendasheng owed RMB 2,377,649.56, and other accounts had returned according to Implementing Reconciliation Agreement. For this account, withdrew RMB 475,529.91 as bad debt reserve according to the account age. II. Bankruptcy and reorganization of the Company in the report period There was no bankruptcy and reorganization of the Company in the report period. III. Equity of other listed companies held (I) Equity of other listed companies held Unit: RMB Proportion Gains and Changes on Financial Short form of Initial investment in equity Book value at Shares Stock code losses in owners’ equity in calculation the stock amount of the period-end source report period the report period item Company Financial Origin 600778 Friendship 90,405.00 0.0352% 190,544.62 --- -302,212.51 assets legal Group available for person’s sales share Financial Origin 000007 1,000,000.00 0.54% 3,240,000.00 --- -4,280,000.00 assets legal ST Dasheng available for person’s sales share Origin 000068 225,279,600.15 23.45% 507,558,807.03 4,861,662.53 4,861,662.53 Long term legal SEG Samsung investment person’s share Total 226,370,005.15 - 510,989,351.65 4,861,662.53 279,450.02 - (II) Buying and selling other listed companies’ share □Applicable √ Inapplicable (III) Equity of non-listed financial enterprise and listed companies planning to be listed in Stcock Exchange √ Applicable □ Inapplicable Unit: RMB Proportion Changes on Initial Gains and Financial Name of Held in equity Book value at owners’ Shares investment losses in calculation company amount of the period-end equity in the source amount report period item Company report period Long-term Start to set 21,000,000 SEG GPS 23,170,900.00 35% 43,332,929.26 3,704,848.75 3,704,848.75 equity and shares investment purchase 21,000,000 Total 23,170,900.00 35% 43,332,929.26 3,704,848.75 3,704,848.75 shares IV. Purchase, sale of assets and assets restructure of the Company in the report period 1. In the report period, there was no purchase of assets and assets restructure. 2. In the report period, the Board of Directors discussed and approved the following matters of selling assets: (1) Selling 52.41% equity of SEG Network On February 20, 2008, the Board of Directors discussed and approved that Company 52 transferred 52.41% equity of SEG Network (target equity) (Details could be found in Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao Website on February 22, 2008). This equity transfer took the date of September 30, 2007 as evaluation benchmark date; after evaluated by Shenzhen Tianjian Sindh Certified Public Accountants, the evaluation price of SEG Network on evaluation benchmark date was RMB 12,122,300, and relevant evaluation price of target equity was RMB 6,353,297.43; and transferred equity by means of public listing. After the transferring procedure of public listing by Shenzhen Property Trading Center, the transferring target - 52.41% equity of SEG Network was gained by 13 persons including Ge Gangcheng. The transferring account of RMB 6,353,300 was totally received by the Company on November 18, 2008. SEG network completed the industry and changes registration procedure of industry and commerce on October 31, 2008. SEG Network, after transfer, did not have relations on equity, credit or liability with the Company. The influence on profit of the Company caused by the transfer: it would increase profit of RMB 840,000 in the consolidation statement of 2008; whereas the undistributed profit in the past years of SEG Network was loss, and there was no cash dividend, the transfer would decrease profit of the parent company RMB 4,128,700 in 2008. Details of the aforesaid matters were published in Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao Website on November 19, 2008. Net profit of Whether the selling Related Whether the asset made to transaction or Explanatio the Gains and involved the Company involved losses made by not（If Yes, n rice creditor’s Transaction party Sold asset Selling date Selling price from the asset the explain the making right and beginning of property selling(RMB) price making principle debt has this year to the has been principle） been selling transferred transferred date(RMB) Increase profit of RMB Not less 13 natural persons 52.41% equity of 840,000 in the than net including Ge Shenzhen SEG Network October 31, 2008 6,353,300 556,000 No Yes Yes consolidation asset after Gangcheng Co., Ltd. statement of evaluation 2008 (2) Selling 97.70% equity of SEG Communication On October 22 of 2008, the 4th meeting of the 4th Board of Directors discussed and approved Proposal on Transferring 97.70% Equity of Shenzhen SEG Communication Co., Ltd., and agreed that the Company transferred equity by mean of public listing in Shenzhen Property Trading Center, and 2.30% equity of SEG Communication held by SEG Industry whose 91.79% shares were held by the Company was together transferred by public listing, with transferring price not less than net assets of SEG Communication RMB 16,507,300 after evaluation (evaluation benchmark date was September 30, 2008). Till the date of disclosing the report, 100% equity of SEG Communication was transferred by public bidding in Shenzhen Property Trading Center on March 13, 2009, and finally was purchased by Shenzhen HYT Science & Technology Co., Ltd. with the price of RMB 40 million. They signed relevant Property Trading Contract on March 19, 2009, and the transferring account was paid to the Company on March 26, 2009. Relevant details could be found in Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao Website on March 17, March 25 and March 28 of 2009. Till the date of disclosing the report, the transferring procedure of SEG Communication was in progress. (3) Selling 22.5% equity of SEG GPS On December 9, 2008, the 22nd extraordinary meeting of the 4th Board of Directors discussed and approved Proposal on Reducing 22.5% Equity Holding of Shenzhen SEG GPS Co., Ltd., and agreed the Company to transfer 22.5% equity of SEG GPS held by the Company by 53 public listing in Shenzhen Property Trading Center, with transferring price not less than net asset of SEG GPS after evaluation (evaluation benchmark date was October 31, 2008). Relevant details could be found in resolution Notice of the 22nd Extraordinary Meeting of the 4th Board of Directors of Shenzhen SEG Co., Ltd. in Securities Times, China Securities Journal, Hong Kong Wen Wei Po and Juchao Website on December 12, 2008. Till the date of disclosing the report, the aforesaid equity transferring was in progress. V. Stock incentive plan In the report period, the Company didn’t take any stock incentive plan. VI. Significant related transactions (I) Related transactions concerning current operations of the Company in the report period 1. Lease ○1 Leasing expense Unit: RMB Name of related party 2008 2007 Shenzhen SEG Group Co., Ltd. 480,000.00 480,000.00 th The Company rented the 8 floor warehouse of SEG Square, 809.26 square meters, from SEG Group, and paid rent fee according to the Property Leasing Contract reached with SEG Group. 2. Labor offering Unit: RMB Name of related party 2008 2007 Shenzhen SEG Group Co., Ltd. ---- 25,000.00 (II) In the report period, the Company had no related transaction of transfer of asset and equity. (III) In the report period, there was no related transaction in which the Company made external investment along with related parties. (IV) Issues concerning credit, liabilities and guarantees with the related parties 1. Credit and liability relations with related parties: In the report period, no controlling shareholders and other related parties of the Company occupied capital for non-operation use Statement on fund occupancy of contolling shareholders and other related parties of the Company in 2008. Unit: RMB Wheth er belong ing to The illegal relationshi Occurre Name of Occurre Way fund Nature p between Items of Balance at d Withdrawal Occupation the d Balance at of occupa of the related accounting period-be amount of bad debt way and related amount period-end repa tion occupat parties statement gin of reserve reason parties of lender ying forbid ion and listed debtor den by company No.56 docum ent or not 54 A B C D E F G H I J K L Shenzhe Controllin Operati n SEG g Labor on Account 25,000.00 ---- 25,000.00 ---- ---- ---- No Group sharehold expense occupat receivable Co., Ltd. er ion Shenzhe n SEG Subsidiar Operati Other Property y of Guarantee on account 27,465.40 --- 5,865.40 21,600.00 ---- ---- No Manage sharehold money occupat receivable ment ers ion Co., Ltd. Shenzhe n SEG Orient Operati Other Industria Affiliated on account 443,910.00 ---- ---- 443,910.00 90,000.00 Loan No l company occupat receivable Develop ion ment Co., Ltd. Shenzhe Controllin Operati Other n SEG g Labor on account 80,000.00 ---- ---- 80,000.00 ---- ---- No Group sharehold expense occupat receivable Co., Ltd. er ion Shenzhe n SEG Subsidiar Other Property y of 827,852.4 account 827,852.40 0 Manage sharehold receivable ment ers Co., Ltd. 1,404,227.8 827,852.4 Total 0 0 30,865.40 545,510.00 90,000.00 ---- ---- ---- Other balance of account receivable from SEG Group and its subsidiaries by the Company were the leasing guarantee fund when leasing the property of SEG Group by the SEG Electron Market whose operations is directly controlled by the Company. 2. Related guarantees In the report period, the Company had no related guarantee. IV. Important contracts and implementation (I)Important custody, contract and leasing: In the report period, the Company had no significant custody, contract or leasing. (II)In the report period, the Company didn’t entrust other person to manage cash assets. (III)Significant guarantees: In the report period, no non-related external guarantees (barring guarantees for controlling subsidiaries) occurred to the Company, and ended the report period, the balance of the external guarantee (including guarantees for controlling subsidiaries) of the Company was zero. Amount Type of Decision-making Accomplished or No. Warrantor Guarantee term (RMB’0000) guarantee procedure not Approved by the SEG Joint 1 RMB1,000 2007.11.21—2008.11.20 Shareholders’ Yes Logistics responsibility General Meeting SEG Approved by the Joint 2 Communic RMB527.17 2003.7.1—2008.10 Shareholders’ Yes responsibility ation [note] General Meeting SEG Approved by the Joint 3 Communic RMB80 2005.1.19—2008.10 Shareholders’ Yes responsibility ation [note] General Meeting 55 [Note] The subway project had passed the final check of Shenzhen Metro Co., Ltd. and received certificate for standard-reaching. External guarantees of the Company (excluding guarantees for controlling subsidiaries) Name of Date of happening Complete Guarantee for the Amount of Guarantee Guarantee (Date of signing Implementatio related party (Yes Company guarantee type term agreement) n or not or not) guaranteed Naught Total amount of guarantees in the report 0.00 period Total balance of guarantees at report 0.00 period-end（A） Guarantees for controlling subsidiaries Total amount of guarantees for controlling 0 subsidiaries in the report period. Total balance of guarantees for controlling 0 subsidiaries at report period-end（B） Total amount of guarantees of the Company (including guarantees for controlling subsidiaries) Total amount of guarantees（A+B） 0 Proportion of total guarantees to net assets 0% Including: Amount for shareholders, actual controller 0 and other related parties（C） Liability guarantee direct or indirect for guarantees which assets liability rate 0 exceeding 70%（D） Amount of total guarantee exceeding 50% of 0 net assets（E） Total of the aforementioned three items* 0 （C+D+E） V. Commitments made by shareholder holding more than 5% in the report period or lasting into the report period (I)Article 5 of the Equity Transfer Agreement which the Company had signed with SEG Group at the time of the Company’s listing stipulated: SEG Group permits the Company, as well as subsidiaries of the Company and affiliated companies to use the 8 registered trademarks that SEG Group has presently registered at the State Trademark Office; it also permits the Company to take the aforesaid trademarks and symbols that are similar to these marks as the symbol of the Company, as well as to use the aforesaid symbols or symbols that are similar to these symbols during the operation process; the Company doesn’t have to pay SEG Group any fee for the use of the aforesaid trademarks or symbols. In the report period, this commitment was still executed according to the agreement. (II)According to Guiding Opinion on Share Merger Reform of Listed Companies co-promulgated by State Council and other four Ministries and Commissions, Measures for the Administration of the Share Merger Reform of Listed Companies issued by China Securities Regulatory Commission and other relative law and regulations, the Company has implemented Share Merger Reform in 2006. Shareholders of non-tradable A-shares committed in Prospectus of Share Merger Reform of Shenzhen SEG Co., Ltd.: Shareholders of non-tradable A shares make relative legal commitments in accordance with Measures for the Administration of the Share Merger Reform of Listed Companies and implement the commitments. The commitments are: not trading or transferring shares within 12 months from the day of implementation of the reform; after the aforementioned time limitation was 56 due, expired, if shareholders of original non-tradable shares with a stake over 5% were to sell the original non-tradable shares through listing in stock exchange, the sales volume should be no more than 5% of the total of the Company within 12 month and no more than 10% within 24 months. In the report period, the original shareholders holding more than 5% non-tradable A shares of the Company all observed the above commitments. (III)As for the problem of “Your Company had the same industry competition in electronic market business with SEG Group” pointed by Shenzhen Securities Regulatory Bureau in 2007 when the bureau made spot inspection in the Company, details are available in Chapter V. Administration Structure-Particulars about the Company’s Five Separations from the first largest shareholder in respect of business, personnel, assets, organization and finance. In the report period, controlling shareholders observed the aforesaid commitment. VI. Engagement of CPAs The 13th Shareholder’s General Meeting 2007 was held on May 9, 2008, and the following decisions got examined and approved in this meeting: the resolution of re-engaging Beijing Shulun Pan Certified Public Accountants Co., Ltd. as the domestic auditing institution of the Company for 2008, and paying it with the auditing fee of RMB 0.45 million (the Company did not pay for business trip expenses and accommodation fees during the auditing period.), VII. In the report period, the Company, the Board of Directors and Directors, Supervisors and Senior Executives of the Company had not been inspected by China Securities Regulatory Commission, nor had they received any administrative penalty, circulating notice of criticism from CSRC or public condemnation from Shenzhen Stock Exchange. VIII. In the report period, the Company, in strict accordance with relevant regulations of the Guidance for Fair Information Disclosure of Listed Companies of Shenzhen Stock Exchange, followed the “open, fair and just” principle and received investor consultative calls. In the report period, there was no investigation, communication, interview or other activities accepted by the Company or the Company inviting any specific objects for these activities. When taking calls from investors for consultation, the Company mainly introduced the Company’s information, without disclosing or revealing any non-public significant information of the Company privately, in advance, selectively or solely to specific objects, which ensured fairness for information disclosure. 57 Shenzhen SEG Co., Ltd. Auditor’ s Report File No. 912 [2009], BEIJING SHU LUN PAN CPA CO., LTD. BEIJING SHU LUN PAN CPA CO., LTD. Address: 3th/F Beijing Tower, No.10 East Changan Avenue, Beijing, China Postcode: 100006S Telephone: 86-10-65263615 65263616 Fax: 86-10-65130555 58 Shenzhen SEG Co., Ltd From January 1, 2008 to December 31, 2008 Auditor’s Report and Financial Statements Contents I. Auditor’ s Report II. The Financial Statements of Shenzhen SEG Co. Ltd and Notes to the Financial Statements 1. The balance statement and the consolidated balance statement 2. The profit statement and the consolidated profit statement 3. The cash flow statement and the consolidated cash flow statement 4. The statement on changes of owners’ equity and the consolidated statement on changes of owners’ equity 5.Notes to the Financial Statements 59 Auditor’ s Report File No. 912[2009], BEIJING SHU LUN PAN CPA CO., LTD. To all shareholders of Shenzhen SEG Co., Ltd. We have audited the financial statements of Shenzhen SEG Co., Ltd (hereinafter referred to as the Company) as attached below, including the Balance Sheet and the Consolidated Balance Sheet as of Dec. 31, 2008, the Profit Statement, the Consolidated Profit Statement, the Cash Flow Statement, the Consolidated Cash Flow Statement, the Statement on Changes of Owners’ Equity, and the Consolidated Statement on Changes of Owners’ Equity of the year 2008, and the Notes to the Financial Statements. I. Responsibilities of the management for the financial statements In accordance with the Accounting Standard for Business Enterprises, the management of the Company is responsible for preparing the financial statements. Such responsibility includes: a. to design, implement and maintain the internal control related to the preparation of the financial statements so that such financial statements can be free of material misstatements resulted from fraud and malpractice or mistakes and errors; b. to select and use appropriate accounting policies; and c. to make Reasonable accounting estimates. II. CPA’s responsibility Our responsibility is to express an opinion on these financial statements on the basis of the implementation of auditing work. We have conducted our audit in accordance with the provisions in the Auditing Standards for Chinese Certified Public Accountants. The Auditing Standards for Chinese Certified Public Accountants require that we, observing the professional ethics and regulations, plan and perform the audit to obtain Reasonable assurance about whether these financial statements are free of misstatements. The audit involves the implementation of an audit procedure to obtain the auditing evidences supporting the amounts in the financial statements and relevant disclosure. The selection of auditing procedures depends on the judgment of the CPA, including the estimation to the risks on material misstatement in the financial statements resulted from fraud and malpractice or mistakes and errors. We took into account the internal control related to the preparation of the financial statements so as to design appropriate auditing procedure when making risk assessment. However, we are not intended to express an opinion on the effectiveness of such internal control. The audit also comprises assessing the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the management, as well as evaluating the overall presentation of financial statements. We believe that we have obtained sufficient and appropriate auditing evidences to provide a reasonable basis for the issuance of auditing opinion. III. Auditor’s opinions In our opinion, the financial statements of the Company are prepared in accordance with the provisions in the Accounting Standard for Business Enterprises and present fairly, in all material respects, the financial position of the Company as of December 31st, 2008, and the results of its operations and its cash flows for the whole year. BEIJING SHU LUN PAN CPA CO., LTD. Certified Public Accountant: (Beijing, China) Certified Public Accountant: April 13, 2009 60 Balance Sheet Prepared by Shenzhen SEG Co., Ltd As of Dec. 31, 2008 Line Year-beginning Liabilities and owners' equity (or shareholder Assets Notes VII Ending amount No. amount equity) Current assets: Current liabilities: Monetary fund 1 298,174,785.87 159,993,220.40 Short-term loans Transaction monetary assets 2 Transaction monetary liabilities Notes receivable 3 Notes payable Accounts receivable 4 ⅰ 114,405.00 184,510,000.00 Accounts payable Advances 5 103,686.00 100,000.00 Advances from customers Interest receivable 6 Wages payable Dividends receivable 7 9,003,495.72 11,796,925.50 Taxes payable Other receivables 8 ⅱ 5,126,240.74 7,725,223.49 Interest payable Inventory 9 Dividends payable Non-current assets due within one year 10 Other payables Other current assets 11 Non-current liabilities due within one year Total current assets 12 312,522,613.33 364,125,369.39 Other current liabilities Non-current assets: Total current liabilities Financial assets available for sale 13 3,240,000.00 7,520,000.00 Non-current liabilities: Held-to-maturity investment 14 Long-term loans Long-term accounts receivable 15 Bonds payable Long-term equity investment 16 ⅲ 699,626,421.58 700,491,175.65 Long-term accounts payable Investment real estate 17 359,248,359.77 368,823,840.43 Special accounts payable Fixed assets 18 24,141,470.09 26,105,955.70 Estimated liabilities Construction in progress 19 144,020.90 482,300.00 Deferred income tax liabilities Engineering materials 20 Other non-current liabilities Liquidation of fixed assets 21 Total non-current liabilities Consumable biological assets 22 Total liabilities Gas assets 23 Owners' equity (or shareholders' equity): Intangible assets 24 603,250.98 371,899.14 Paid-up capital (or share capital) Development expenses 25 Capital public reserve Goodwill 26 Less: Treasury shares Long-term expenses to be apportioned 27 289,203.75 394,368.75 Surplus public reserve Deferred income tax assets 28 6,417,052.39 6,438,420.60 Retained profits Other non-current assets 29 Total owners' equity (or shareholders' equity) Total non-current assets 30 1,093,709,779.46 1,110,627,960.27 Total liabilities and owners' equity (or Total assets 31 1,406,232,392.79 1,474,753,329.66 shareholders' equity) Legal representative: Responsible person of accounting work: Responsible person of the a 61 Profit Statement For the year 2008 Prepared by Shenzhen SEG Co., Ltd Notes Amount of the current Item Line No. VII year Ⅰ. Operating income 1 iv 102,031,101.84 Less: Operating cost 2 iv 45,577,023.64 Operating tax and extras 3 6,029,116.65 Sale expenses 4 Management expenses 5 25,943,193.16 Financial expenses 6 1,621,598.57 Loss from asset impairment 7 -2,803,720.87 Plus: Income from change of sound value (Loss is marked with "-") 8 Investment income (Loss is marked with "-") 9 V 22,748,283.61 Including: Income from investment in joint ventures and associated 10 enterprises Ⅱ. Operating profit (Loss is marked with "-") 11 48,412,174.30 Plus: Non-operating income 12 13,413.79 Less: Non-operating expenses 13 22,936.91 Including: Loss from disposal of non-current assets 14 Ⅲ. Total profit (Loss is marked with "-") 15 48,402,651.18 Less: Income tax 16 4,214,002.67 Ⅳ. Net profit (Net loss is marked with "-") 17 44,188,648.51 Ⅴ. Earnings per share 18 ⅰ. Basic earnings per share 19 ⅱ. Diluted earnings per share 20 Legal representative: Responsible person of accounting work: Responsible person of the acco 62 Cash Flow Statement Prepared by Shenzhen SEG Co., Ltd For the year 2008 Item Line No. Amount of the current Ⅰ. Cash flow from operating activities: 1 Cash received from sales and service 2 119,172, Tax refunds 3 Other cash received concerning operating activities 4 8,008, Subtotal of cash inflow from operating activities 5 127,180, Cash paid for goods and service 6 18,751, Cash paid to and on behalf of employees 7 23,703, Taxes paid 8 23,805, Other cash paid concerning operating activities 9 25,027, Subtotal of cash outflow for operating activities 10 91,287, Net cash flow from operating activities 11 35,892, Ⅱ. Cash flow from investment activities 12 Cash received from disposal of investments 13 184,510, Cash from investment income 14 21,845, Net cash from disposal of fixed assets, intangible assets, and other long-term assets 15 Net cash from disposal of subsidiaries and other operating units 16 6,680, Other cash received concerning investment activities 17 Subtotal of cash flow from investment activities 18 213,036, Cash paid for purchase and construction of fixed assets, intangible assets, and other long-term assets 19 1,779, Cash paid for investment 20 Net cash paid for acquisition of subsidiaries and other operating units 21 Other cash paid concerning investment activities 22 Subtotal of cash outflow for investment activities 23 1,779, Net cash flow from investment activities 24 211,256, Ⅲ. Cash flow from financing activities: 25 Cash received from attraction of investments 26 Cash received from gaining of loans 27 60,000, Other cash received concerning financing activities 28 Subtotal of cash inflow from financing activities 29 60,000, Cash paid for debts 30 145,000, Cash paid for distribution of dividends and profits, and repayment of interest 31 23,967, Other cash paid concerning financing activities 32 Subtotal of cash outflow for financing activities 33 168,967, Net cash flow from financing activities 34 -108,967, Ⅳ. Influence of exchange rate fluctuation on cash and cash equivalents 35 Ⅴ. Net increase of cash and cash equivalents 36 138,181, Plus: Year-beginning balance of cash and cash equivalents 37 159,993, Ⅵ. Year-end balance of cash and cash equivalents 38 298,174, Legal representative Responsible person of accounting work Responsible person of the accounting in 63 Statement of Changes on Owners' Equity Prepared by Shenzhen SEG Co., Ltd For the year 2008 Amount of the current year Line Item Paid-up capital Less: Paid-up capital No. Capital public Surplus public Total owners' Capital public (or share Treasury Retained profits (or share reserve reserve equity reserve capital) shares capital) I. Ending amount of the previous year 1 784,799,010.00 351,280,859.22 98,493,970.82 33,472,856.50 1,268,046,696.54 784,799,010.00 344,037,728.0 Plus: Change of accounting policies 2 674,768.1 Correction of errors in the previous period 3 II. Year-beginning balance 4 784,799,010.00 351,280,859.22 98,493,970.82 33,472,856.50 1,268,046,696.54 784,799,010.00 344,712,496.2 III. Increase and decrease of the year (Decrease is 5 -3,683,040.53 3,518,197.79 20,484,024.57 20,319,181.83 6,568,362.9 marked with "-") i. Net profit 6 43,622,197.61 43,622,197.61 ii. Gains and losses directly recorded into 7 -3,683,040.53 -3,683,040.53 6,568,362.9 owners' equity 1.Net change of sound value of financial assets 8 -3,683,040.53 -3,683,040.53 783,680.0 available for sale 2.Influence of changes of other owners' equity of invested companies by 9 equity method 3.Influence of income tax related to items recorded 10 into owners' equity 4.Others 11 5,784,682.9 Subtotal of the above-mentioned amounts 12 -3,683,040.53 43,622,197.61 39,939,157.08 6,568,362.9 in items ⅰ and ⅱ. iii. Capital invested and decreased by owners 13 1.Capital invested by owners 14 2.Amount of share-based payment recorded into 15 owners' equity 3.Others 16 iv. Profit distribution 17 3,518,197.79 -23,138,173.04 -19,619,975.25 1..Accrual of surplus public reserve 18 3,518,197.79 -3,518,197.79 2．Amount distributed to owners (or shareholders) 19 -19,619,975.25 -19,619,975.25 3．Others 20 v Internal carrying forward of owners' equity 21 1.Capital public reserve transferred to increase capital (or share 22 capital) 2.Surplus public reserve transferred to increase 23 capital (or share capital) 3.Surplus public reserve compensating losses 24 4.Others 25 IV. Ending amount 26 784,799,010.00 347,597,818.69 102,012,168.61 53,956,881.07 1,288,365,878.37 784,799,010.00 351,280,859.2 Legal representative Responsible person of accounting work Responsible person of the accounting institution (Acc 64 Consolidated Balance Sheet Prepared by Shenzhen SEG Co., Ltd As of Dec. 31, 2008 Assets Line Notes Ending balance Year-beginning Liabilities and owners' equity ( or shareholders' equity) No. Ⅵ balance Current assets Current liabilities: Monetary fund 1 i 404,242,883.22 261,303,787.50 Short-term loans Deposit reservation for balance 2 Loans from the Central Bank Deposits attracted and accounts due to banks and other Loans to banks and other financial institutions 3 institutions Transaction monetary assets 4 Loans from banks and other financial institutions Notes receivable 5 Transaction monetary liabilities Accounts receivable 6 ii 37,054,146.68 216,587,489.28 Notes payable Advances 7 iii 17,057,981.59 8,430,446.55 Accounts payable Premiums receivable 8 Advances from customers Reinsurance accounts receivable 9 Financial assets sold for repurchase Reinsurance deposit receivable 10 Commssions payable Interest receivable 11 Wages payable Dividends receivable 12 iv 6,306,315.45 Taxes payable Other receivables 13 v 15,254,619.90 21,199,857.81 Interest payable Redemptory financial assets for sale 14 Dividends payable Inventory 15 vi 5,516,156.86 5,382,388.76 Other payables Non-current assets due within one year 16 Reinsurance accounts payable Other current assets 17 Insurance deposit Total current assets 18 479,125,788.25 519,210,285.35 Acting trading securities Acting underwriting securities Non-current assets Non-current liabilities due within one year Loans and advances 19 Other current liabilities Financial assets available for sale 20 vii 3,430,544.62 8,164,453.46 Total current liabilities Held-to-maturity investment 21 Non-current liabilities: Long-term accounts receivable 22 Long-term loans Long-term equity investment 23 viii 558,731,067.54 549,113,821.63 Bonds payable Investment real estate 24 ix 458,389,203.22 472,395,598.33 Long-term accounts payable Fixed assets 25 x 58,590,599.71 70,599,740.28 Special accounts payable Construction in progress 26 xi 944,020.90 500,100.00 Estimated liabilities Engineering materials 27 Deferred income tax liabilities Liquidation of fixed assets 28 Other non-current liabilities Consumable biological assets 29 Total non-current liabilities Gas assets 30 Total liabilities Intangible assets 31 xii 696,404.07 682,809.63 Owners' equity (or shareholders' equity): Development expenses 32 Paid-up capital (or share capital) Goodwill 33 Capital public reserve Long-term expenses to be apportioned 34 xiii 10,446,371.09 13,058,834.99 Less: Treasury shares Deferred income tax assets 35 xiv 8,992,581.93 9,850,355.19 Surplus public reserve Other non-current assets 36 General risk provision Toal non-current assets 37 1,100,220,793.08 1,124,365,713.51 Retained profits Translation difference of financial statements in foreign currency Total owners' equity attributable to the parent company Minority shareholders' equity Total owners' equity Total assets 38 1,579,346,581.33 1,643,575,998.86 Total liabilities and owners' equity Legal representative Responsible person of accounting work Responsible person of the acco 65 Consolidated Profit Statement Consolidated financial sta Prepared by Shenzhen SEG Co., Ltd For the year 2008 Item Line No. Notes VI Amount of the current I. Total operating income 1 318,005, Including: Operating income 2 VI (xxviii) 318,005, Interest income 3 Earned premium 4 Commissions income 5 II. Total operating cost 6 265,777, Including: Operating cost 7 VI (xxviii) 189,754, Interest expense 8 Commissions expense 9 Surrender value 10 Net compensation pay-outs 11 Net insurance deposit accrued 12 Insurance dividends 13 Reinsurance expenses 14 Operating tax and extras 15 VI (xxix) 13,741, Sales expenses 16 5,510, Management expenses 17 57,521, Financial expenses 18 VI (xxx) 2,024, Loss from asset impairment 19 VI (xxxi) -2,775, Plus: Income from change of sound value (Loss is markd with "-") 20 Investment income (Loss is marked with "-") 21 VI (xxxii) 9,244, Including: Income from investment in joint ventures and associated enterprises 22 Income from exchange (Loss is marked with "-") 23 III. Operating profit (Loss is marked with "-") 24 61,472, Plus: Non-operating income 25 VI (xxxiii) 6,702, Less: Non-operating expenses 26 VI (xxxiv) 1,826, Including: Loss from disposal of non-current assets 27 IV. Total profit (Total loss is marked with "-") 28 66,348, Less: Income tax 29 VI (xxxv) 10,866, V. Net profit (Net loss is marked with "-") 30 55,481, Including: Net profit of the purchased party realized before the merger 31 Net profit attributable to owners of the parent company 32 48,579, Gains and losses of minority shareholders 33 6,902, VI. Earnings per share 34 ⅰ. Basic earnings per share 35 xiii ⅱ. Diluted earnings per share 36 xiii Legal representative Responsible person of accounting work Responsible person of the accountin 66 Consolidated Cash Flow Statement Consolidated financial statements Table 03 Prepared by Shenzhen SEG Co., Ltd For the year 2008 Unit: RMB yuan Item Line Notes VI Amount of the current Amount of the No. year previous year I. Cash flow from operating activities 1 Cash received from sales and service 2 405,071,098.05 933,862,543.01 Net increase of customers' deposits and accounts due to banks and other financial institutions 3 Net increase of loans from the Central Bank 4 Net increase of loans from other financial institutions 5 Cash received from premiums of original insurance contracts 6 Net cash received from reinsurance business 7 Net increase of deposit of the insured and investment 8 Net increase from disposal of transaction monetary assets 9 Cash received from interest and commissions 10 Net increase of loans from banks and other financial institutions 11 Net increase of redemption capital 12 Tax refunds 13 1,494.70 29,065,875.22 Other cash received concerning operating activities 14 VI (xxxvi) 36,029,456.73 40,896,870.43 Subtotal of cash inflow from operating activities 15 441,102,049.48 1,003,825,288.66 Cash paid for goods and service 16 142,503,499.05 792,223,382.86 Net increase of loans and advances 17 Net increase of accounts due from the Central Bank and other financial institutions 18 Cash paid for compensation pay-outs of original insurance contracts 19 Cash paid for interest and commissions 20 Cash paid for insurance dividends 21 Cash paid to and on behalf of employees 22 48,996,496.53 120,746,997.99 Taxes paid 23 45,205,243.07 33,524,317.68 Other cash paid concerning operating activities 24 VI (xxxvi) 126,605,767.18 136,844,549.71 Subtotal of cash outflow for operating activities 25 363,311,005.83 1,083,339,248.24 Net cash flow from operating activities 26 77,791,043.65 -79,513,959.58 II. Cash flow from investment activities 27 Cash received from disposal of investments 28 184,510,000.00 243,289,634.21 Cash received from investment income 29 7,790,594.64 5,027,900.40 Net cash from disposal of fixed assets, intangible assets, and other long-term assets 30 3,606,571.99 1,082,403.97 Net cash received from disposal of subsidiaries and other operating units 31 -4,884,846.65 -2,385,643.81 Other cash received concerning investment activities 32 Subtotal of cash inflow from investment activities 33 191,022,319.98 247,014,294.77 Cash paid for purchase and construction of fixed assets, intangible assets, and other long-term assets 34 7,120,252.55 20,785,022.35 Cash paid for investment 35 Net increase of mortgage loans 36 Net cash for acquisition of subsidiaries and other operating units 37 Other cash paid concerning investment activities 38 2,228,261.00 Subtotal of cash outflow for investment activities 39 7,120,252.55 23,013,283.35 Net cash flow from investment activities 40 183,902,067.43 224,001,011.42 III. Cash flow from financing activities: 41 Cash received from attraction of investment 42 Including: Cash received by subsidiaries from investment of minority shareholders 43 Cash received from gaining of loans 44 60,000,000.00 283,000,000.00 Cash received from issuing of bonds 45 Other cash received concerning financing activities 46 349,657,159.69 Subtotal of cash inflow from financing activities 47 60,000,000.00 632,657,159.69 Cash paid for debts 48 155,000,000.00 721,372,049.75 Cash paid for distribution of dividends and profits, and repayment of interest 49 27,659,569.09 33,176,200.56 Including: Dividends and profits paid by subsidiaries to minority shareholders 50 Other cash paid concerning financing activities 51 VI (xxxvi) 100,000.00 904,141.40 Subtotal of cash outflow for financing activities 52 182,759,569.09 755,452,391.71 Net cash flow from financing activities 53 -122,759,569.09 -122,795,232.02 IV. Influence of exchange rate fluctuation on cash and cash equivalents 54 -65,270.40 -183,183.24 V. Net increase of cash and cash equivalents 55 138,868,271.59 21,508,636.58 Plus: Year-beginning balance of cash and cash equivalents 56 VI (xxxvi) 261,303,787.50 239,795,150.92 VI. Year-end balance of cash and cash equivalents 57 400,172,059.09 261,303,787.50 Legal representative Responsible person of accounting work Responsible person of the accounting institution (Accountant in charge) 67 Consolidated Statement of Changes on Owners' Equity Prepared by Shenzhen SEG Co., Ltd For the year 2008 Amount of the current year Line Owners' equity attributable to the parent company Owners' equity attributab Item Minority No. Paid-up capital Less: General shareholders' Total owners' equity Paid-up capital Less: Capital public Surplus public Capital public Surplus p (or share Treasur risk Retained profits Others equity (or share treasury reserve reserve reserve reserv capital) y shares provision capital) shares I. Year-end balance of the 784,799,010.00 355,198,960.77 110,434,502.35 23,205,681.06 -822,553.81 30,958,932.54 1,303,774,532.91 784,799,010.00 344,037,728.08 106,715 previous year 1 Plus: Change of 4,148,914.95 1,005 accounting policies 2 Correnction of errors of the previous period 3 II. Year-beginning balance 784,799,010.00 355,198,960.77 110,434,502.35 23,205,681.06 -822,553.81 30,958,932.54 1,303,774,532.91 784,799,010.00 348,186,643.03 107,720 of the current year 4 III. Increase and decrease of the current year -3,941,921.35 4,418,864.85 24,209,921.86 269,656.12 -1,925,523.69 23,030,997.79 7,012,317.74 2,713 (Decrease is marked with "-") 5 i. Net profit 6 48,579,535.53 6,902,428.35 55,481,963.88 ii. Gains and losses directly recorded into -3,941,921.35 269,656.12 -129,945.88 -3,802,211.11 7,012,317.74 owners' equity 7 1. Net change of sound value of financial assets -3,683,040.53 -3,683,040.53 1,227,634.81 available for sale 8 2. Influence of change of other owners' equity by -258,880.82 -129,945.88 -388,826.70 equity method 9 3. Influence of income tax related to items recorded into owners' equity 10 4. Others 11 269,656.12 269,656.12 5,784,682.93 Subtotal of the above-mentioned -3,941,921.35 48,579,535.53 269,656.12 6,772,482.47 51,679,752.77 7,012,317.74 amounts in itemsⅰ and ⅱ 12 iii. Capital invested and -5,006,424.55 -5,006,424.55 decreased by owners 13 1. Capital invested by -5,006,424.55 -5,006,424.55 owners 14 2. Amount of share-based payment recorded into owners' equity 15 3. Others 16 iv. Profit distribution 17 4,418,864.85 -24,369,613.67 -3,691,581.61 -23,642,330.43 2,713 1 ． Accrual of surplus 4,418,864.85 -4,418,864.85 2,713 public reserve 18 2． Accrual of general risk provision 19 3．Distribution to owners -19,619,975.25 -3,691,581.61 -23,311,556.86 (or shareholders) 20 4．Others 21 -330,773.57 -330,773.57 v. Internal carrying forward of owners' equity 22 1. Capital public reserve transferred to increase capital (or share capital) 23 2. Surplus public reserve transferred to increase capital (share capital) 24 3. Surplus public reserve compensating losses 25 4. Others 26 IV. Year-end balance of 784,799,010.00 351,257,039.42 114,853,367.20 47,415,602.92 -552,897.69 29,033,408.85 1,326,805,530.70 784,799,010.00 355,198,960.77 110,434 the current year 27 Legal representative Responsible person of accounting work Responsible pe 68 Shenzhen SEG Co., Ltd. Notes to Financial Statements for the Year 2008 Unit: RMB yuan I Company Profile Shenzhen SEG Co., Ltd. (hereinafter referred to as the “Company” or "the Company") was incorporated on July 16th, 1996 through public offering with Shenzhen SEG Group Co., Ltd. as the sole initiator upon the approval of relevant authorities of Shenzhen Municipality and the State in accordance with relevant provisions in the Company Law of the People’s Republic of China. The Company received a Business License for Enterprise Legal Person Shen Si Zi No. N16886 with the registration number of 4403011014290. Upon the approval of the securities administration departments of Shenzhen municipality and the State, the Company’s B share and A share started to be listed and traded on Shenzhen Stock Exchange respectively in July and December, 1996. The Company deals with the leasing industry and the business service industry. On June 7th, 2006, a resolution was adopted at the general meeting of shareholders on the share merger reform of the Company. According to the plan on the fixed conversion of capital public reserve into increase of capital share, the Company distributed such converted and increased capital share to the tradable A share shareholders. Such shareholders obtained 4.6445 shares of converted and increased capital share for each 10 shares, which totaled 40,233,322 shares of converted and increased capital share. As a result, relevant non-tradable A shares were also authorized to be listed and circulated. Among the converted and increased capital share obtained by the tradable A share shareholders, 6,997,054 shares were received due to the company's share capital expansion and the rest of 33,236,268 shares were the consideration paid to the tradable A share shareholders by non-tradable A share shareholders under fixed arrangements. Up to June 14th, 2006, the total capital share of the Company had amounted to 784,799,010 shares, including 411,538,380 restricted shares, accounting for 52.44% of the total, and 373,260,630 unrestricted shares, accounting for 47.56% of the total. Up to Dec 31, 2008, the Company had issued a total capital of 784,799,010 shares, and the Company’s registered capital amounted to RMB 784,799,010. Business Scope: Domestic commerce, goods supply and sale, (excluding commodities under special operation, control and sale), engaging in other industries as may be applied for with specific projects, and economic information consultancy, property lease, estate agency, and SEG electronic special market operation (the license for the special market shall be applied for specially). Location of Registration: 31/F, Tower A, Qunxing Plaza, Huaqiang Road (N), Futian District, Shenzhen Form of Incorporation: Company limited Address of Headquarters: 31/F, Tower A, Qunxing Plaza, Huaqiang Road (N), Futian District, Shenzhen Name of Parent Company: Shenzhen SEG Co., Ltd. Name of Supreme Group Parent Company: Shenzhen SEG Group Co., Ltd. Financial Statement Publication Approver: Board of directors Financial Statement Publication and Approval Date: April 13, 2009 II Preparation Basis of the Financial Statements and Statement for Obeying Accounting Standards for Business Enterprises The Company conducts confirmation and measurement on the basis of going-concern principle, according to the transactions and matters that have actually occurred and in accordance with the Accounting Standard for Business Enterprises - Basic Standard and other provisions in the Accounting Standard for Business Enterprises and prepares the financial statements on such basis. The financial statements prepared by the Company comply with the requirements of the Accounting Standard for Business Enterprises and truly and completely reflect relevant information on the financial performance, operation results, and cash flows of the Company. 69 III Main Accounting Polices, Accounting Estimates and Errors in the Early Period (I) Accounting period A fiscal year lasts from January 1st to December 31st of the Gregorian Calendar. (II) Recording currency Renminbi is the recording currency of the financial statements of the Company. Hong Kong dollar, the currency of the main economic environment where the overseas subsidiary operates, is the recording currency of the overseas subsidiary, which should be translated into Renminbi when the financial statements are prepared. (III) Measurement attributes Generally, the Company adopts the historical cost method in the measurement of the items in the financial statements. If the amount of the determined accounting elements can be acquired and be measured reliably, certain accounting elements will be measured by replacement cost, net realizable value, current value, and sound value. No change has occurred to the measurement attributes to the items in the financial statements. (IV) Standards for the determination of cash equivalents In the preparation of the cash flow statements, the investments that meet the four conditions of shorter term (to be mature within 3 months from the date of purchase), strong liquidity, easiness in converting into known cash, very small risk of value fluctuation are defined as cash equivalents. (V) Accounting method of foreign currency businesses The foreign currency businesses are recorded into the accounts after relevant amounts are converted into RMB by taking the current exchange rate at the date of transaction as the exchange rate for translation. The balance of the monetary items in foreign currency is translated according to the current exchange rate on the balance sheet date while the translation difference caused are all recorded into current gains and losses, except the translation difference from the special foreign currency loans relevant with the assets whose purchase and construction meet the conditions for capitalization, which are dealt with according to the principles for capitalization of loan expenses. The non-monetary items in foreign currency measured by the historical cost method are translated according to the current exchange rate on the transaction date and the amount in the recording currency is not changed. The non-monetary items in foreign currency measured by sound value are translated according to the current exchange rate on the determination date of sound value while the translation difference caused is recorded into current gains and losses or into capital public reserve. (VI) Translation method of financial statements in foreign currency The assets and liabilities items in the balance sheet are translated according to the current exchange rate on the balance sheet date. The owners’ equity items other than “retained profits” are translated according 70 to the current exchange rate at the time when the items occurred. The income and expense items in the profit statement are translated according to an exchange rate near to the current exchange rate on the transaction date, which is determined based on a systematic and reasonable method. The translation difference in the financial statements in foreign currency caused by the above-mentioned methods is listed separately under the owners’ equity items in the balance sheet. When the overseas operation is disposed, the translation difference in the financial statements in foreign currency related to the overseas operation, which is listed under the owners’ equity items in the balance sheet, is transferred from the owners’ equity items to current gains and losses from disposal. When the overseas operation is partly disposed, the translation difference in the financial statements in foreign currency is calculated according to the proportion of the disposal, which is transferred to current gains and losses from disposal. (VII) Accounting methods of financial assets and liabilities 1. Classification of financial assets and liabilities According to the purposes of the acquisition and the holding of financial assets and the assumption of financial liabilities, the management classify them as follows: financial assets or liabilities measured by sound value, whose change is recorded into current gains and losses, including transaction monetary assets or liabilities; held-to-maturity investment; accounts receivable; financial assets available for sale; other financial liabilities; etc. 2. Methods for the confirmation and measurement of financial assets and liabilities (1) Financial liabilities measured by sound value and with changes included in the current gains and losses The sound value (with the cash dividends declared but not yet distributed or the bond dividends not yet received with the interest payment period expired deducted) should be taken as the initial confirmation amount at the time of obtainment. Relevant transaction expenses should be recorded as current gains and losses. The interests and cash dividends obtained at the time of holding should be confirmed as investment income. The changes of sound value should be recorded as current gains and losses at the end of the year. At the time of disposal, the difference between the sound value and the initial recorded amount in the account should be confirmed as investment income and the gains and losses from changing sound value should be adjusted at the same time. (2) Held-to-maturity securities At the time of obtainment the sum of the sound value (with the bond interests not yet received with the term of interest payment expired deducted) and relevant transaction expenses should be taken as the initial confirmation amount. During the time of holding, the interests income should be calculated and confirmed in accordance with the amortized cost and the actual interest rates (and where the actual interest rates only have slight differences with the denomination interest rate) and recorded as investment income. The actual interest rate should be determined and set at the time of obtainment and remain unchanged within the anticipated existence period or a shorter period applicable. At the time of disposal, the difference between the obtained price money and the book value of such investment should be recorded as investment income. (3) Accounts receivable For the accounts receivable formed from the commodities sold or labor services provided by the Company and those of other enterprises held by the Company other than the priced debt tools on active markets, including accounts receivable, notes receivable, advances, other accounts receivable, and long-term accounts receivable, the price money in contracts or agreements of the purchaser should be taken as the amount of initial confirmation. For those of a financing nature, the current value should be 71 taken as the amount of initial confirmation. At the time of collection or disposal, the difference between the obtained price money and the book value of such accounts receivable should be recorded as current gains and losses. (4) Salable finance asset The sum of the sound value (with the cash dividends declared but not yet distributed or the bond dividends not yet received with the interest payment period expired deducted) and relevant transaction expenses should be taken as the initial confirmation amount at the time of obtainment. The interests or cash dividends obtained during the time of holding should be confirmed as investment income. Such assets should be measured according to sound value at the end of the year and the changes of sound value should be recorded as capital public reserve (other capital public reserve). At the time of disposal, the difference between the price money obtained and the book value of such financial assets should be recorded as investment gains and losses. At the same time, the amount of the disposed part of the assets originally recorded in the accumulative amount of the changes in the sound value of owners’ equity should be transferred and recorded as investment gains and losses. (5) Other financial liabilities The sum of the sound value of such assets and relevant transaction expenses should be taken as initial confirmation amount. The amortized cost should be adopted in the following measurement. 3. Confirmation basis and measurement method of financial assets transfer In the case of the transfer of the financial assets of the Company, if almost all the risks and returns in the ownership rights of the financial assets are transferred to the assignee, the confirmation of such financial assets should be terminated, and if almost all the risks and returns in the ownership rights of such financial assets are retained, the confirmation of such financial assets should not be terminated. In the judgment whether a financial assets transfer meets the preceding conditions to terminate its confirmation, the principle of attaching more importance to substance than form should be adopted. The Company divides financial assets transfer into complete and partial transfer of financial assets. Where the complete transfer of financial assets meets the conditions of confirmation, the difference of the following two amounts should be recorded as current gains and losses. (1) The book value of the transferred financial assets; (2) The sum of the consideration received due to transfer and the accumulated amount of the changes in sound value originally recorded in owners’ equity (involving the situation when the transferred financial assets are the salable financial assets ). If part of transfer of financial assets meet conditions for the termination of confirmation, the part with its confirmation terminated and that with its confirmation not terminated, among the book value of all the transferred financial assets, are apportioned separately according to their relevant sound value while the difference between the following two items is recorded into current gains and losses. (1) Book value of the part with its confirmation terminated; (2) The sum of the consideration of the part with its confirmation terminated and the part of the accumulated amount of the changes in sound value originally recorded in owners’ equity corresponding to the part with its confirmation terminated (involving the situation when the transferred financial assets are the salable financial assets). Where the financial assets transfer does not meet the conditions to terminate confirmation, the confirmation of such financial assets should be continued. The received consideration should be confirmed as a financial liability. 4. Methods for the determination of the sound value of financial assets and liabilities The prices on the active market should be referred to with respect to both the financial assets and liabilities of the Company measured by sound value. 72 5. Impairment provisions of financial assets (1) Impairment provisions of salable financial assets: If the sound value of the salable financial assets sees a large decrease at the end of the year or it is anticipated that such decrease tendency is not provisional upon the comprehensive analysis of various relevant factors, then it can be determined that impairment occurred to such assets. All the accumulative losses formed from the decrease of the sound value originally directly recorded as owners’ equity should be transferred out and relevant impairment loss confirmed. (2) Impairment provision of held-to-maturity securities The measurement of the impairment loss of held-to-maturity securities should be processed with reference to the method for the measurement of the impairment loss of accounts receivable. (VIII) Confirmation standards and accrual method of bad debt provisions for accounts receivable If there is objective evidence at the end of the year showing a decrease in accounts receivable, the book value of the accounts receivable will be recorded by reducing it to the recoverable amount while the reduced amount should be recognized as impairment loss and recorded into current gains and losses. The recoverable amount is determined through discounting the future cash flow (excluding the credit loss yet to occur) based on the original actual rate while considering the value of relevant guaranties (by deducting predicted disposal expense, etc). The original actual rate is the actual rate determined when the account receivable is first confirmed. If there is little difference between the predicted future cash flow and the current value of short-term accounts receivable, the predicted future cash flow will not be discounted when relevant impairment loss is determined. Impairment tests will be conducted separately for the accounts receivable with significant individual amount. If there is objective evidence showing a decrease, the impairment loss will be determined according to the difference between the future cash flow and the current value, and the bad debt provision will be accrued. Accounts with significant individual amount refer to top five accounts receivable or a total amount over 10% of the balance of accounts receivable. As for the year-end accounts receivable with insignificant individual amount, their impairment tests will be included in the combinations of similar credit risk characteristics. If there is no impairment loss with the accounts after separate tests, including both accounts with significant individual amount and those with insignificant individual amount, the impairment tests will be included in the combinations of similar credit risk characteristics. Except for the accounts receivable with impairment provisions accrued separately, the Company determines the following proportions for the accrual of bad debt provisions with the current conditions taken into account and on the basis of the actual loss rate of the combinations of similar credit risk characteristics that are divided by the account age segments, contain accounts receivable, and are similar or identical to those in the previous years: Account age of accounts receivable Proportions of accrual Less than one year 0% 1-2 years 5% 2-3 years 10% Over 3 years 20% 73 (IX) Accounting method of inventory 1. Classification of inventory Inventory is classified as follows: goods on route, raw materials, circulating materials, in-stock goods, goods in process, delivered goods, consigned processing materials and consumable biological assets. 2. Pricing method of delivered inventory The pricing of the inventory should be made according to the weighted average method at the time of delivery. Amortization method of circulating materials For low value consumables, one-off amortization method should be adopted. For packaging materials, one-off amortization method should be adopted 3. Inventory taking system The perpetual inventory method is adopted in the stock inventory. 4. Accrual method of inventory decline provision After a complete counting and examination of the inventory at the end of the year, the inventory decline provision should be accrued or adjusted according to the lower of the inventory cost and net realizable value. The net realizable value of the goods inventory directly for sale such as finished products, goods and materials for sale should be determined in regular production and operation according to the amount of the estimated sale price of such inventory minus estimated sale expenses and relevant taxes. That of the material inventory to be processed should be determined in regular production and operation according to the estimated sale price of the finished products produced minus estimated sale expenses upon completion and relevant taxes. That of the inventory held for the performance of sale or service contracts should be calculated on the basis of the contract price. Where the quantity of the inventory is more than the quantity ordered in the sale contract, the net realizable value of the surplus of such inventory should be calculated on the basis of the general sale price. At the end of the year, inventory decline provision should be accrued according to individual inventory item. However, that of the inventory of large quantity and low unit price should be accrued according to the types of the inventory. For the inventory involving the product series produced and sold in the same region, having identical or similar final use or purpose, and being difficult to be separated from other items for measurement, relevant inventory decline provision should be accrued in a combined manner. Where the factors previously causing the recording of the reduction of inventory value stop to exist, the reduced amount should be restored and transferred back from the amount of the originally accrued inventory decline provision. The transferred amount should be recorded as current gains and losses. (X) Accounting of long-term equity investment 1. Initial measurement (1) Long-term equity investment formed from enterprise merger 74 In the merger of the enterprises under the control of the same entity, if the Company pays cash, transfers non-monetary assets or bears debts, and issues equity securities, as the consideration of the merger, the book value of the share of the owners’ equity obtained from the merged party on the date of merger should be taken as initial investment cost of the long-term equity investment. The capital public reserve will be adjusted according to the difference between the initial investment cost of the long-term equity investment and the consideration of the merger. The retained earnings will be ajusted if the capital public reserve is not sufficient for writing off. The various relevant expenses during the consolidation, including auditing fee, evaluation fee, and legal fee for the merger, will be recorded into current gains and losses at the time when the fees occur. In the merger of the enterprises not under the control of the same entity, the cost for the merger will be the sound value of the assets paid, the liabilities incurred or assumed, and equity securities issued by the purchasing party for acquisition of the control of the purchased party as well as all direct relevant expenses for the merger on purchasing date. In the merger of enterprises realized through several exchange transactions, the cost for the merger will be the total amount of cost for different single transactions. If future items likely to influence the merger cost, for which relevant agreement has been reached, are estimated very possible to occur on purchasing date and the amount of their influence on the merger cost can be measured reliably, these future items will be also recorded into the cost for the merger. (2) Long-term equity investment obtained in other ways The purchase price money actually paid should be taken as the initial investment cost of the long-term equity investment obtained by paying cash. The sound value of the issued equity securities should be taken as the initial investment cost of the long-term equity investment obtained from issuing equity securities. The value agreed in investment contracts or agreements (with the cash dividends declared but not yet distributed or profits deducted) of the long-term equity investment given by the investors should be taken as initial investment cost, unless the value agreed in investment contracts or agreements is not sound value. Under the premises that the non-monetary assets exchange is of commercial nature and that the sound value of the assets received and given out in the exchange can be measured reliably, the initial investment cost of the long-term equity investment received in non-monetary assets exchange should be determined on the basis of the sound value of the assets given out, unless there are definite evidences that the sound value of the received assets is more reliable. For the non-monetary assets exchange that do not meet the above premises, the book value of the received assets and relevant taxes payable should be taken as the cost of the long-term equity investment. The initial investment cost of the long-term equity investment obtained through debt restructuring should be determined according to its sound value. 2. Basis that the invested organizations are under common control or significant influence The common control over a certain economic activity as agreed in a contract exists only with the unanimous agreement of the investors who need to share the controlling powers in the important financial and operation decisions related to such economic activity and such investors should be deemed as exercising joint control with other parities over the invested organization. If an investor has the power to participate in the decision making of the financial and operation matters of an enterprise but cannot control or jointly control with other parties the formation of such policies, then such investor should be deemed as being able to exercising significant influence over the invested organizations. 3. Subsequent measurement and income confirmation When the Company can exercise significant influence on or joint control over the invested organizations, if the initial investment cost is larger than the investment, the Company should enjoy the difference with the due share of the sound value of the discernible net assets of the invested organizations and the initial investment cost of the long-term equity investment should not be adjusted; if the initial investment cost is smaller than the investment, the Company should enjoy the difference with the due share of the sound value of the discernible net assets of the invested organizations and such difference should be recorded as current gains and losses 75 The accounting of the long-term equity investment of the Company into the subsidiaries should be done according to the cost method. Such investment should be adjusted according to the equity method in the preparation of consolidated financial statements. The accounting of the long-term equity investment that does not involve the joint control over or significant influence on the invested organizations, that does not have quoted prices on active markets, and whose sound value cannot be reliably measured should be done according to the cost method. The accounting of the long-term equity investment that involves the joint control over or significant influence on the invested organizations should be done according to the equity method. The confirmation of investment income by the Company under the cost method should only be limited to the distributed amount of the accumulative net profits generated after the invested organizations have received investments. The part exceeding the above amounts in the obtained profits or cash dividends should be taken as the recovery of initial investment cost. Where the Company confirms the due share of the losses incurred by the invested organizations under the equity method, the following sequence should be followed: First, the book value of the long-term equity investment should be offset; second, if the book value of the long-term equity investment is not sufficient for the offsetting, the investment loss should continue to be confirmed within the limit of the book value of other long-term equity that practically constitutes net investments into the invested organization and the book values of long-term accounts receivable and others should be offset; finally, if the enterprise still bears additional obligations as agreed in the investment contract or agreement after the above processing, liabilities should be confirmed according to the anticipated obligations to be borne and recorded as current investment loss. Where the invested organizations realize profits in the later periods, the Company should make accounting treatment in the reversed sequence against the preceding after deducting the shared loss not yet confirmed, reduce the book balance of the confirmed anticipated liabilities, restore other long-term equity that practically constitutes net investments into the invested organizations and the book value of the long-term equity investment, and confirm investment income at the same time. In the accounting treatment of the changes in owners' equity other than net gains and losses of the invested organizations, the book value of the long-term equity investment should be adjusted and the capital public reserve (other capital public reserve) added or decreased with respect to the part of the changes in owners’ equity other than net gains and losses of the invested organizations that the Company should enjoy or bear according to the proportion of shareholding under the circumstance that the proportions of shareholding remain unchanged. (XI) Type and measurement mode of investment property Investment property refers to the property held for earning rental or increasing the value of capital or both, including the right to use of the rented land, the right to use of the land held for transfer after the value increases, and the rented building. The investment property presently held by the Company should be measured in a cost mode. The depreciation policy of the assets for rent - a type of investment property measured according to the cost mode should be the same as that of the fixed assets of the Company. The amortization policy of the rented land use right should be the same as that of intangible assets. Where there are indications of impairment, the recoverable amount of these should be estimated. If the recoverable amount is lower than the book value, the corresponding impairment loss should be confirmed. (XII) Pricing of fixed assets and its depreciation method 1. Conditions on confirmation of fixed assets Fixed assets refer to the tangible assets held for the purpose of the manufacture of commodities, provision of labor services, lease or operation and management with a term of use exceeding one fiscal year. The confirmation of fixed assets can be made only when all the following conditions are satisfied: (1) Where the economic interests related to such fixed assets are likely to flow into the company; 76 (2) Where the cost of such fixed assets can be measured reliably. 2. Classification of fixed assets The fixed assets can be classified into houses and buildings, machinery and equipment, transportation equipment, electronic equipment and other equipment. 3. Initial measurement of fixed assets The initial measurement of fixed assets should be conducted according to the actual cost at the time of obtainment. The cost of the fixed assets purchased from outside should be determined according to purchase price, relevant taxes and the traffic expenses, handling expenses, installation expenses and the service fees of special personnel attributable to such assets and incurred before the fixed assets reach the desired usable status. Where the price money of the purchased fixed assets is paid on a deferred basis within a term exceeding regular credit conditions and actually of a financing nature, the cost of the fixed assets should be determined on the basis of the current value of the price money in purchase. The cost of the self-built fixed assets should be composed of the necessary construction expenditure incurred before the assets reach the desired usable status. The recorded value in the account of the fixed assets obtained from debtors for the repayment of debts in debt restructuring should be determined on the basis of the sound value of the fixed assets. The difference between the book value of debt restructuring and the sound value of the fixed assets used for the repayment of debts should be recorded as current gains and losses. Under the premises that the non-monetary assets exchange is of commercial nature and that the sound value of the assets received and given out in the exchange can be measured reliably, the recorded value of the received fixed assets in the account should be determined on the basis of the sound value of the assets given out, unless there are definite evidence proving that the sound value of the received assets is more reliable. For the non-monetary assets exchange that do not meet the above premises, the book value of the received assets and relevant taxes payable should be taken as the cost of the fixed assets and no gains and losses should be confirmed. The recorded value in the account of the fixed assets obtained by the merger of the enterprises under the control of the same entity should be determined according to the book value of the merged party. The recorded value in the account of the fixed assets obtained by the merger of the enterprises under the control of different entities should be determined according to the sound value. The recorded value of the fixed assets obtained by financing lease in the account should be the lower of the sound value of the leased assets on the lease date and the current value of the minimum lease payments. 4. Accrual method of fix assets depreciation The fixed assets depreciation should be accrued according to the straight line method and the depreciation rate should be determined according to the type of fixed assets, anticipated service life and anticipated net residual value rate. For the fixed assets leased by financing lease, if it can be reasonably determined that the ownership right of the leased assets will be obtained upon the expiration of the lease term, depreciation should be accrued within the remaining service life of the leased assets; and if it cannot be reasonably so determined, depreciation should be accrued during the shorter one of the lease term and the remaining service life of the leased assets. The anticipated service life and annual depreciation rate of various fixed assets are as follows: Anticipated net residual Type of fixed assets Estimated service life Annual depreciation rate value rate Houses and buildings 20-40 years 5% 4.75-2.375% Machinery and equipment 5-10 years 5% 19.00-9.00% 77 Electronic equipment 5-10 years 5% 19.00-9.00% Fixed assets obtained by 5-10 years 5% 19.00-9.00% financing lease Means of transportation 5-10 years 5% 19.00-9.00% Other equipment 10 years 5% 9.50% (XIII) Accounting method of construction in progress 1. Type of construction in progress The accounting of construction in progress should be made according to the classification of the projects determined in project establishment. 2. Standards and time points for the construction in progress being carried forward to fixed assets For the construction in progress, all expenses during the construction till the desired usable status of the fixed assets are reached will be taken as the recorded value. When the construction in progess has reached the desired usable status but has not conducted final accounting, it can be transferred as fixed assets when it reaches the desired usable status, according to the estimated value based on the project budget, the construction cost, or the actual cost; in the meantime, depreciation should be accured according to depreciation policies for fixed assets of the Company; when the final accounting is conducted the temporarily estimated value will be adjusted according to the actual cost while the accrued depreciation amount will not be adjusted. (XIV) Accounting method of intangible assets 1. Pricing method of intangible assets The initial measurement is conducted according to the cost method. The cost of the intangible assets purchased from outside includes purchase price money, relevant taxes and other expenses incurred due to putting such assets to the anticipated use that can be directly attributed to such assets. Where the price money of the purchased intangible assets is paid on a deferred basis within a term exceeding regular credit conditions and actually of a financing nature, the cost of the intangible assets should be determined on the basis of the current value of the price money in purchase. The recorded value in the account of the fixed assets obtained from debtors for the repayment of debts in debt restructuring should be determined on the basis of the sound value of the fixed assets. The difference between the book value of debt restructuring and the sound value of the fixed assets used for the repayment of debts should be recorded as current gains and losses. Under the premises that the non-monetary assets exchange is of commercial nature and that the sound value of the assets received and given out in the exchange can be measured reliably, the initial investment cost of the long-term equity investment received in non-monetary assets exchange should be determined on the basis of the sound value of the assets given out, unless there are definite evidences that the sound value of the received assets is more reliable. For the non-monetary assets exchange that do not meet the above premises, the book value of the received assets and relevant taxes payable should be taken as the cost of the long-term equity investment. The recorded value in the account of the intangible assets obtained by the merger of the enterprises under the control of the same entity should be determined according to the book value of the merged party. The 78 recorded value in the account of the intangible assets obtained by the merger of the enterprises under the control of different entities should be determined according to the sound value. 2. Service life and amortization of intangible assets (1) The estimation of the service life of the intangible assets with limited service life: Item Estimated service life Basis Land use right 50 years Period of benefit Municipal supporting facilities 10 years Period of benefit Patent 10 years Period of benefit LAN firewall series 5 years Period of benefit Gaiwei multimedia extraction software 5 years Period of benefit Non-proprietary technology 7-10 years Period of benefit At the end of each year, the service life and amortization method of the intangible assets with limited service life should be reviewed. It is verified at the end of the year that the service life and amortization method of the intangible assets with limited service life show no difference from those before . (2) Amortization of intangible assets The intangible assets with limited service life should be amortized according to the straight line method within the period when such assets bring economic benefits to the enterprise. Where the period cannot be anticipated in which such intangible assets bring economic interests to the enterprise, such intangible assets should be deemed as having indeterminate service life and no amortization will be made. (3) Accounting treatment for expenditure for internal research and development projects The expenditure in the research stage of the research and development project should be recorded into current gains and losses at the time when the project occurs. The expenditure in the development stage of the research and development project can be confirmed as intangible assets only when all the following conditions are met: A. The completion of such intangible assets makes it usable or its sale technically feasible. B. There is an intention to complete such intangible assets and use or sell it. C. The way that the intangible assets generate economic interests can prove that the product using such intangible assets or the intangible assets itself have market. If the intangible assets are to be used internally, its usefulness should be proved. D. The Company has sufficient technical and financial resources and other resources to support the completion of the development of such intangible assets and the capacities to use or sell such intangible assets. E. The expenditure attributed to the development stage of such intangible assets can be reliably measured. (XV) Amortization method and term of long-term expenses to be apportioned The long-term expenses to be apportioned should be averaged and amortized in the benefit period. Among these: (1) The rental paid in advance for operating leased fixed assets should be averaged and amortized in accordance with the term provided in the lease contract or other reasonable ways (this needs to be explained with the special conditions of the Company taken into account). 79 (2) The expenditure on the improvement of operating leased fixed assets should be averaged and amortized according to the shorter one of the remaining part of the lease term and the remaining service life. (XVI) Impairment of main assets other than inventory, investment property and financial assets 1. Long-term equity investment For the long-term equity investment that does not have price quotations on active markets, whose sound value cannot be reliably measured, and the accounting of which is conducted with cost method, its impairment loss is determined by the difference between its book value and the current value determined through discounting the future cash flow according to the current market return rate of similar financial assets. If the measurement results of the recoverable amount of other long-term equity investments indicate that such recoverable amount is lower than the book value of such investments, then the difference between the two should be confirmed as impairment loss. Once the impairment loss of long term equity investment is confirmed, such loss will not be transferred back. 2. Long-term non-financial assets such as fixed assets, construction in progress, intangible assets and goodwill The Company judges at the end of the year whether there are indications of possible impairment of relevant long-term non-financial assets such as fixed assets, construction in progress and intangible assets. Impairment tests will be conducted each year on the goodwill formed through merger of enterprises and the intangible assets with indeterminate service life no matter whether there are indications of impairment or not. Where there are indications of impairment on some assets, the recoverable amount of such assets should be estimated. The recoverable amount may be determined according to the higher one of the net value of the sound value of the assets minus the disposal expenses and the current value of the anticipated future cash flow of the assets. Where the recoverable amount of the assets is lower than its book value, the book value of such assets may be reduced and recorded as the recoverable amount. The reduced amount should be confirmed as assets impairment loss and recorded as current gains and losses. At the same time, the corresponding assets impairment provision should be accrued. After the confirmation of assets impairment loss, corresponding adjustments should be made in the future periods on the depreciation or amortized expenses of the impaired assets so that the adjusted book value of such assets (with the anticipated net residual value deducted) can be amortized systematically within the remaining service life. The impairment loss from long-term non-financial assets will not be transferred back in the future accounting period once it is confirmed. When there are indications of impairment of an asset, the Company should estimate its recoverable amount based on the single asset. If it is hard for the Company to estimate the recoverable amount of the single asset, the recoverable amount can be determined based on the asset group to which the asset belongs. 80 (XVII) Capitalization of borrowing costs 1. Confirmation principle of borrowing costs capitalization Where the borrowing costs incurred by the Company can be directly attributable to the purchase, building or production of the assets that meet the conditions of capitalization, such assets should be capitalized and recorded as relevant assets cost. Other borrowing costs should be confirmed as expenses according to the incurred amount at the time of incurrence and recorded as current gains and losses. The assets that meet the conditions of capitalization refer to the assets such as fixed assets, investment property and inventory that can reach the anticipated usable or salable status only after a considerable time of purchase, building or production activities. The borrowing costs may be capitalized when all of the following conditions are met: (1) The assets expenditure has already incurred, including that incurred in the form of cash payment, non-monetary assets transfer or bearing of debts with interests for the purchase, building or production of the assets that meet the conditions of capitalization. (2) The borrowing costs have already been incurred. (3) The construction or production activities necessary for putting the assets into a usable or salable status have already started. Where abnormal discontinuation has occurred in the purchase, building or production of the assets that meet the conditions of capitalization and the time of discontinuation exceeds three months consecutively, the capitalization of the borrowing costs should be suspended. Where the purchase, building or production of the assets that meet the conditions of capitalization has put such assets into the anticipated usable or salable status, the capitalization of the borrowing costs should be stopped. Where part of the projects in the purchase, building or production of the assets that meet the conditions of capitalization have been completed and reached the anticipated usable or salable status, the capitalization of the borrowing costs of such part of the assets should be stopped. 2. Capitalization term of borrowing costs The capitalization term refers to the period between the start time point and the end time point of the capitalization of the borrowing costs, excluding the period in which the capitalization is suspended. 3. Calculation method of the amount of borrowing costs capitalization The interest expenses of special loans (with the interest income of the unused borrowed funds deposited in the bank or the investment income obtained from temporary investment deducted) and relevant auxiliary expenses should be capitalized before the assets that meet the conditions of capitalization, purchased, built or produced with such loans, reach the anticipated usable or salable status. The amount of the interests of common loans that should be capitalized should be calculated and determined by the weighted average of the accumulative parts of the assets expenditure exceeding special loans multiplied by the capitalization rate of common loans. The capitalization rate should be determined according to the weighted average interest rate of common loans. Where the loans involve discount or premium, the amount of discount or premium to be amortized in each accounting period should be determined in accordance with the actual interest rate method and the amount of interests of each period should also be adjusted. 81 (XVIII) Share payment 1. Types of share payment The payment of employees’ shares settled with equity should be recorded as costs and expenses and capital public reserve (other capital public reserves) according to the sound value of the equity instruments on the grant date (the method of the determination of the grant date should be specifically set) and the subsequent changes of the sound value will not be confirmed. No adjustments will be made to the confirmed costs and expenses and total owners' equity after the option becomes exercisable. The share capital and share capital premium should be confirmed according to the conditions of the exercise of the options and the capital public reserve confirmed during the vesting period (other capital public reserve) should be carried forward. Among these: For the share payment in exchange for the employees' services, relevant assets costs and the current expenses should be recorded on each balance sheet date within the vesting period, on the basis of the best estimation of the number of exercisable equity instruments and according to the sound value of the equity instruments on the grant date and as capital public reserve (other capital public reserve). The share payment in exchange for the service of other parties should be measured according to the sound value of the service exchanged from other parties. If such sound value cannot be measured reliably but the sound value of the equity instruments can be measured reliably, then the above share payment should be measured according to the sound value of the equity instruments on the date of service obtainment and recorded as relevant assets cost or expense and as other capital public reserve in the capital public reserve. For the share payment involving employees settled in cash, measurement should be made once again on the sound value of the equity instruments on each balance sheet date to determine costs and expenses and wage payable. On each balance sheet date within the vesting period, measurement should be made according to the sound value of the liabilities borne as calculated and determined on the basis of the share or other equity instruments and on the basis of the best estimation of the number of exercisable equity instruments. The results should be recorded as relevant assets costs or expenses and as wage payable. No cost expenses will be confirmed after the option becomes exercisable. The sound value of the wage payable should be re-measured and the changes of such sound value should be recorded as gains and losses from changes of sound value. 2. Determination method of sound value For equity instruments such as the granted option, which exist in active markets, the sound value should be determined according to their prices in active markets. For those not existing in active markets, the sound value should be determined by adopting option pricing model and the option pricing model should be selected in consideration of the following factors: a. option exercise price; b. option period; c. the current price of the underlying shares; d. the predicted fluctuation rate of the share price, e. the estimated dividend of the share; f. risk free rate in the option period; g. payment of shares of installment options. 3. Basis for the determination of the best estimation of the exercisable equity instruments On each balance sheet date in the vesting period, the Company should make the best estimation on the basis of the latest subsequent information on the changes of the number of the employees with exercisable option and adjust the number of the exercisable equity instruments. On the vesting date, the ultimate number of the anticipated exercisable equity instruments should be consistent with the actual quantity of the exercisable options. The accumulative amount of the cost expenses to be confirmed in the current period should be calculated on the basis of the sound value of the above equity instruments and the anticipated exercisable equity instruments. Such amount deducted by the accumulative confirmed amount in the last period should be taken as the amount of cost expenses to be confirmed in the current period. 82 (XIX) Principle of the confirmation of income 1. Sale of commodities The realization of the income from the sale of commodities should be confirmed when the Company has already transferred the main risks and consideration in the ownership right of the commodities to the purchaser, the Company has not retained any further management right connected to the ownership right nor implement effective control over the sold commodities, the amount of the revenue can be reliably measured, relevant economic interests are likely to flow into the enterprise, and relevant costs incurred or to be incurred can be measured reliably. 2. Provision of labor services Where the results of the labor services provided on the balance sheet date can be estimated reliably, the income from the provision of labor services should be confirmed with the percentage of completion method. The completion progress of the labor services provision should be determined on the basis of the measurement results of the completed work (or the proportion of the provided labor services to the total volume of the labor services to be provided or the proportion of the cost incurred to the total cost). The total amount of the income from provision of labor services should be determined according to the price money received or receivable of relevant contract or agreement, unless the price money received or receivable of relevant contract or agreement is unfair. The labor services income of the current period should be confirmed on the balance sheet date according to the resulted amount of the total amount of income from provision of labor services times the completion percentage and deducted by the accumulative amount of the confirmed income from provision of labor services in previous accounting periods. At the same time, the labor cost of the current period should be carried forward according to the estimated total cost of the provision of labor services times the completion percentage and deducted by the accumulative amount of the confirmed labor cost in previous accounting periods. Where the results of the provision of labor services on the balance sheet date cannot be estimated reliably, such results should be processed respectively according to the following conditions: (1) Where it is estimated that the labor services cost incurred can be met, the income from provision of labor services is recognized according to the amount of the labor services cost incurred and the same amount should be transferred into labor cost. (2) Where it is estimated that the labor services cost incurred cannot be met, the labor services cost incurred will be recorded as current gains and losses and no income is confirmed. 3. Transfer of right to use of assets For economic interests related to transactions, which are very likely to enter the Company and whose amount can be reliably measured, the amount of the income from transfer of asset use right should be determined according to the conditions as follows: (1) The amount of interest income should be determined according to the time when other people using the monetary fund of the Company and the actual interest rate. (2) The amount of the income from use fee should be determined in accordance with the time and method of charges as agreed in relevant contract or agreement. (XX) Basis for the confirmation of deferred incomes tax assets The Company confirms the deferred incomes tax assets generated from deductible temporary difference. 83 (XXI) Reason for and influence of accounting policies of the Company In accordance with Interpretation of Accounting Standards for Business Enterprises (2008), the Company adjusted the surplus public reserve accrued in original consolidated financial statements in previous years, and increased retained profits to RMB 11,940,531.53. The adjustment has no influence on the financial statements of the parent company. IV Taxes (I) Main tax types and tax rates imposed on the Company Tax type Tax rate note Value-added tax 17% Business tax 3%, 5% Enterprise income tax 15%, 18%, 16.5%, 25% City maintenance and construction tax 1%, 7% Education surtax 3% The enterprise income tax rate applicable to the Xi’an SEG Electronics Market Co., Ltd., a subsidiary of the Company, was 25%, and that of city maintenance and construction tax was 7%. The enterprise income tax rate applicable to the Chongqing SEG Electronics Market Co., Ltd., a subsidiary of the Company, was 15% and that of city maintenance and construction tax was 7%. The enterprise income tax rate applicable to the Suzhou SEG Electronics Market Management Co., Ltd., a subsidiary of the Company, was 25% and that of city maintenance and construction tax was 7%. The enterprise income tax rate of the SEG (Hong Kong) Storage and Transportation Co., Ltd., a subsidiary indirectly controlled by the Company, was 16.5%. Except for the above companies, the income tax rate applicable to all the rest companies was 18% and the city maintenance and construction tax rate was 1%. (II) Tax preference None. V The Consolidated Financial Statements The Accounting Standard for Business Enterprises No. 33 - Consolidated financial statements promulgated in February 2006 should apply with respect to the consolidated financial statements. All subsidiaries controlled by the Company should be included in the scope of the consolidated financial statements. The consolidated financial statements should be prepared by the parent company based on individual financial statements of the parent company and subsidiaries included in the consolidation scope as well as other relevant materials after the long-term equity investment in subsidiaries have been adjusted by the equity method. During the consolidation, offsets will be made between internal equity investment and the owners’ equity of subsidiaries, and between internal investment income and profit distribution of subsidiaries, internal transaction items, and internal creditor’s rights and liabilities. When the merger cost is more than the sound value of the recognized net assets of the purchased party, the difference will be confirmed as goodwill. Otherwise, the difference will be recorded into current gains and losses. The accounting policies adopted by subsidiaries were kept consistent with the parent company. Unless particularly noted, the unit of the amounts in the data listed in this section is 10,000 yuan. 84 (I) Information on Subsidiaries 1. Subsidiaries acquired through the merger of enterprises under the control of the same entity Percentage of total votes Actual investment of the Company at the end of Full name of invested held by the Company Financial statements Place of registration consolidated or not Percentage of total Nature of business shares held by the Type of subsidiary Registered capital Business scope organization Company the year Shenzhen SEG Baohua Controlled Shen Property leasing Service 3,080.88 20,51.25 66.58% 66.58% Yes Electronics Co., subsidiary zhen and management Ltd Shenzhen SEG Overseas Storage and Controlled Shen Service 6,600 transportation and 6,572.91 99.59% 99.59% Yes Transportation subsidiary zhen bonded storage Co., Ltd. Shenzhen SEG Investment in Industrial Controlled Shen industrial and Investment 2,550 2,378.00 91.79% 91.79% Yes Investment Co., subsidiary zhen commercial Ltd businesses Shenzhen SEG Manufacturing of Controlled Shen Communications Communication 3,000 telecommunication 2,994.34 99.81% 99.81% Yes subsidiary zhen and electronics Co., Ltd. equipments 2. Subsidiaries acquired through the merger of enterprises not under the control of the same entity None. 3. Subsidiaries not acquired through enterprise merger Consolidated financial Full name of invested Actual investment of actual investment in the Company at the Percentage of total Percentage of total Nature of business shares held by the Type of subsidiary Balance of the net Registered capital statements or not votes held by the Business scope end of the year organization subsidiaries Company Company Domestic trade; Xi’an SEG Electronic Xi’an 300 material supply 195.00 195.00 65.00% 65.00% Yes Market Co., Ltd and marketing Chongqing SEG Chongqing 300 Domestic trade; 150.00 150.00 50.00% 50.00% Yes 85 Electronic Market Co., material supply Ltd and marketing Shenzhen SEG Domestic trade; Electronics Market Shenzhen 300 material supply 210.00 210.00 70.00% 70.00% Yes Management Co., Ltd and marketing Suzhou SEG Domestic trade; Electronic Market Suzhou 300 material supply 135.00 135.00 45.00% 45.00% Yes Management Co., Ltd and marketing (II) Information on subsidiaries having changes during the current year 1. Subsidiaries increased through the merger of enterprises under the control of the same entity There are no subsidiaries increased through the merger of enterprises under the control of the same entity in the report period. 2. Information on subsidiaries increased due to equity purchase not under the same entity There are no subsidiaries increased due to equity purchase not under the same entity in the report period. 3. Information on subsidiaries decreased due to equity selling not under the same entity Determination method Name of company Selling date Determination method of selling date Note of sound value Date of registration of change with Shenzhen SEG Network & October 31, the Administration of Industry and Listed for trading Information Co., Ltd 2008 Commerce (III) Subsidiaries included in consolidation scope of which the parent company only possesses half or less than half of all the votes and relevant reasons of inclusion There are subsidiaries included in the consolidation scope in the reporting period, of which the parent company only possesses half or less than half of all the votes, which are Suzhou SEG Electronic Market Management Co., Ltd and Chongqing SEG Electronic Market Co., Ltd, of whose board of directors the Company possesses over half of all the votes. 86 (IV) Invested organizations of which the parent company possesses over half of all the votes, yet failing to control, and relevant reasons There are no invested organizations in the reporting period, of which the parent company possesses over half of all the votes, yet failing to control. V) Changes on the consolidation scope of the year 1. The organizations in the consolidation scope decreased by one and the cause is that the Company transferred all its investment in its subsidiary Shenzhen SEG Network & Information Co., Ltd, which is an equity of 52.41%, to the employees of the Shenzhen SEG Network & Information Co., Ltd at a price of RMB 6,353,300. The registration of change of the above-mentioned equity transfer was handled with the Administration of Industry and Commerce on October 31, 2008. 2. Information on companies no longer included in the consolidation scope in the report period Original Net profit from year Year-beginning Net asset on Name of company share-holding beginning to disposal Note net asset disposal date proportion in total date Shenzhen SEG Network & 52.41% 1,051.99 1,158.09 106.10 Information Co., Ltd (VI) Conditions in which the capacities of the subsidiaries to transfer funds were strictly restricted There were no conditions in which the capacities of the subsidiaries to transfer funds were strictly restricted in the report period. (VII) Business nature and activities of the special purpose entities included into the consolidation scope as subsidiaries There are no special purpose entities included in the consolidation scope as subsidiaries in the report period. (VIII) Conditions of the special purpose entities that were not included in the consolidation scope and would no longer be included in the consolidation scope There were no special purpose entities that were not included in the consolidation scope and would no 87 longer be included in the consolidation scope within the report period. VI Notes on the Main Items of the Consolidated Financial Statements (Unless specially noted, the unit for the following amounts is RMB yuan) (I) Monetary funds Ending amount Year-beginning amount Item Amount in Discount Amount in foreign Amount in RMB Discount rate Amount in RMB foreign currency rate currency Cash RMB 1,421,151.20 425,810.63 US$ 3,430.00 6.83 24,930.96 14,770.53 7.30 107,889.74 HK$ 51,401.97 0.89 45,803.35 198,150.10 0.94 185,546.28 JPY 211.00 0.08 15.96 211.00 0.06 13.52 Bank deposit RMB 397,852,445.56 214,181,763.64 US$ 43,775.28 6.83 339,262.84 49,554.13 7.30 361,971.88 HK$ 511,743.41 0.89 488,398.99 2,860,042.23 0.94 2,678,143.54 Other monetary fund RMB 4,070,874.36 43,362,648.27 US$ Total 404,242,883.22 261,303,787.50 Including: US$ 47,205.28 6.83 364,193.80 64,324.66 7.30 469,861.62 JPY 211.00 0.08 15.96 211.00 0.06 13.52 HK$ 563,145.38 0.89 534,202.34 3,058,192.33 0.94 2,863,689.82 The details for the restricted monetary funds are as follows: Ending amount Year-beginning amount Refundable deposits Margin for letter of credit Margin for bank acceptance bills Other margin 4,070,824.13 Amount due from banks abroad Total 4,070,824.13 The ending amount of the monetary funds increased by RMB 142,939,095.72 than the year-beginning amount, a 54.70% increase. The main cause is the Company received the equity transfer payment of Shenzhen SEG Zhongdian Color Display Devices Co., Ltd in the current year. Other main monetary funds are the guaranty of RMB 3,080,824.13, which is the project guaranty of Shenzhen SEG Communications Co., Ltd, a subsidiary of the Company. (II) Accounts receivable 3. Composition of accounts receivable Duration of the Ending amount Year-beginning amount t 88 Bad debt provision Bad debt provision Percentage of bad Percentage of bad Percentage in the Percentage in the debt provision debt provision Book Balance Book Balance total amount total amount Less than 1 year 30,513,232.62 65.11% 0.00% 209,179,182.80 91.52% 0.00% (including 1 year) 1-2 years (including 5,462,201.49 11.66% 273,110.08 5.00% 6,638,073.72 2.90% 331,903.70 5.00% 2 years) 2-3 years (including 943,490.49 2.01% 94,349.05 10.00% 481,571.03 0.21% 48,157.10 10.00% 3 years) Over 3 years 9,946,248.93 21.22% 9,443,567.72 94.95% 12,254,813.28 5.36% 11,586,090.75 94.54% 100.00 Total 46,865,173.53 100.00% 9,811,026.85 20.93% 228,553,640.83 11,966,151.55 5.24% % Ending amount Year-beginning amount Percentage of bad Percentage of bad Percentage in the Percentage in the debt provision debt provision Book Balance Book Balance total amount total amount provision Bad debt provision Bad debt Category 1. Accounts with significant individual amount and 3,490,725.63 7.45% 3,490,725.63 100.00% 3,490,725.63 1.53% 3,490,725.63 100.00% accrued as separate bad debt provision 2. Accounts with insignificant individual 5,777,171.79 12.33% 5,777,171.79 100.00% 7,767,481.79 3.40% 7,767,481.79 100.00% amount and accrued as separate bad debt provision 3.Other combinations classified as of similar 37,597,276.11 80.22% 543,129.43 1.44% 217,295,433.41 95.07% 707,944.13 0.33% credit risk characteristics Including: Accounts with significant individual 31,693,048.21 67.62% 280,049.42 0.88% 184,510,000.00 80.73% 0.00% amount Accounts with insignificant 5,904,227.90 12.60% 263,080.01 4.46% 32,785,433.41 14.34% 707,944.13 2.16% individual amount Including: Accounts with insignificant individual amount but featuring great risk as a combination based on credit risk characteristics 11,966,151.5 Total 46,865,173.53 100.00% 9,811,026.85 20.93% 228,553,640.83 100.00% 5.24% 5 4. Changes on bad debt provision for accounts receivable are as follows: Year-beginning Decrease of the year Year-end book Provision of the year book balance Write back Write off balance Year 11,966,151.55 1,000,781.14 3,155,905.84 9,811,026.85 2008 5. Year-end accounts receivable featuring significant individual amount and accrued as separate bad debt provision: 89 Ranking of significant individual Amount Percentage of Reason accounts provision No.1: Cluster Project for Bad debt due to long duration of the Lianhua Power Station 1,330,000.00 100.00% accounts No. 2: Guangzhou Bad debt due to long duration of the Shuangxionghui Co., Ltd 2,160,725.63 100.00% accounts 6. There are no accounts receivable at the end of the year, which feature insignificant individual amount but have great risk as a combination based on credit risk characteristics. 7. There are no accounts receivable of the year, which were fully or largely accrued as bad debt provision in previous years, and fully or partly recovered during the current year. 8. Accounts receivable verified this year Caused by related Name of company Verified amount Reason for verification transactions or not Jianli Industrial Co., Ltd 557,103.20 Client goes bankrupt No Xinxiang North Railway Station 299,999.82 Bad debt No People’s Procuratorate of Dongying City 174,627.00 Bad debt No Xinhua Communication and Signalling Section of Huaihua Railway General 65,800.00 Bad debt No Company Xiamen Industrial Bank 149,820.00 Bad debt No Branches in Wuxi 516,434.00 Bad debt No West Railway Station 64,811.00 Bad debt No th Quanfa Electronics CO., Ltd on the 9 88,793.83 Bad debt No floor Yiyun Company 90,665.42 Broke No Changji Co., Ltd 90,115.28 Bad debt No Shenzhen Poly Southern Investment and 64,048.79 Bad debt No Development Co., Ltd Communications Subsection of Chengdu 122,493.60 Bad debt No Railway Bureau Chongqing Communications Industrial 180,154.50 Bad debt No Development Co., Ltd Dalian Fire Alarm Network Center 57,400.00 Bad debt No Anyang Construction Section of Henan 70,000.00 Bad debt No Province Shunan Transportation 130,479.57 Bad debt No Yongchang Loading and Unloading 125,209.36 Bad debt No Others 307,950.47 Bad debt No Total 3,155,905.84 9. Year-end accounts receivable for corporate shareholders without more than 5% (including 5%) of the voting shares of the Company. 10. Top five accounts among year-end accounts receivable Relationship Percentage in the total Duration of the Ranking of debtors with the Amount of debt amount of accounts accounts Company receivable Wuhan Subway Group Co., Ltd 10,298,043.57 Less than one year 21.97% Shenzhen Subway Co., Ltd 4,696,955.80 Less than one year 10.02% No. 1: Shenzhen Zhongxing 4,477,831.49 1-2 years 9.55% Kangxun Electronics Co., Ltd Guangzhou Shuangxionghui 2,160,725.63 Over 3 years 4.61% 90 Fiber Co., Ltd Shenzhen Liyuanshun Industrial 1,906,865.35 Over 3 years 4.07% Co., Ltd 11. There are no transaction arrangements at the end of the year, which take accounts receivable as underlying assets for asset securitization. 12. There are no financial instruments that are underlying assets for securitization and do not meet the conditions to terminate confirmation. 13. The ending amount of accounts receivable decreased by RMB 181,688,467.30 than the year-beginning amount, a decrease of 79.49%. The cause is that the Company received RMB 184,510,000.00 during the current year, the equity transfer payment of Shenzhen SEG Zhongdian Color Display Devices Co., Ltd. (III) Advances 1. Analysis on the duration of accounts Ending amount Year-beginning amount Duration of the accounts Percentage in the Percentage in the total Amount Amount total amount amount Less than one year (including 11,998,640.69 70.34% 8,384,827.02 99.46% one year) (including 2 years) 5,059,340.90 29.66% - 0.00% 2-3 years (including 3 years) 624.00 0.01% Over 3 years 44,995.53 0.53% Total 17,057,981.59 100.00% 8,430,446.55 100.00% 2. Important advances with the duration over 1 year Item Amount Reason Tonmac International Electronics (Suzhou) The prepaid rent by a subsidiary of the Company, Suzhou 5,000,000.00 Co., Ltd SEG Electronics Market Co., Ltd 3. Year-end advances of relatively large amount (1) Total amount of top 5 borrowing Ending amount Year-beginning amount companies and corresponding percentage Amount Proportion (%) Amount Proportion (%) Xi’an High-tech Western Industrial 10,000,000.00 58.62% Development Co., Ltd Tonmac International Electronics (Suzhou) 5,000,000.00 29.31% 5,126,666.67 60.81% Co., Ltd (2) Main companies for advances Relationship with Name of company Amount of debt Time of debt Reason the Company Xi’an High-tech Western Industrial Partner 10,000,000.00 Year 2008 Prepaid rent Development Co., Ltd Tonmac International Electronics (Suzhou) Partner 5,000,000.00 Year 2007 Prepaid rent Co., Ltd Total 15,000,000.00 4. Among the year-end advances, no advances are receivable from corporate shareholders that hold over 5% (including 5%) of the voting shares of the Company. 91 5. .The ending amount of advances increased by RMB 8,627,535.04 than the year-beginning amount, a 102.34% increase. The cause is that Xi’an SEG Electronic Market Co., Ltd, a subsidiary of the Company, has prepaid the rent during the current year. (IV) Dividends receivable Increase Reason Are there indications of Year-beginning Decrease Ending Item during the for bad impairment to relevant amount during the year amount year debt accounts 1. Dividends receivable with the 6,300,000.00 6,300,000.00 duration less than 1 year 2. Dividends receivable with the 6,315.45 6,315.45 duration over 1 year Total 6,306,315.45 6,306,315.45 The ending amount of dividends receivable decreased by RMB 6,306,315.45, a 100.00% decrease. The cause is that the Company received during the current year cash dividends of the year 2007 from an invested company, Shenzhen SEG GPS Scientific Navigations Co., Ltd, based on equity method. (V) Other accounts receivable 1. Composition of other accounts receivable Ending amount Year-beginning amount Bad debt provision Bad debt provision Percentage of bad Percentage of bad Percentage in the Percentage in the debt provision debt provision Book Balance Book Balance total amount total amount Duration of the accounts Less than 1 year (including 5,670,534.01 10.51% 0.00% 9,997,582.31 16.22% 0.00% 1 year) 1-2 years (including 2 5,535,627.31 10.25% 41,900.73 0.76% 1,448,498.30 2.35% 142,716.00 9.85% years) 2-3 years (including 3 685,808.45 1.27% 70,743.44 10.32% 1,967,368.61 3.19% 187,558.98 9.53% years) Over 3 years 42,092,062.76 77.97% 38,616,768.46 91.74% 48,212,903.96 78.24% 40,096,220.39 83.16% 100.00 Total 53,984,032.53 100.00% 38,729,412.63 71.74% 61,626,353.18 40,426,495.37 65.60% % Ending amount Year-beginning amount Bad debt provision Bad debt provision Percentage of bad Percentage of bad Percentage in the Percentage in the debt provision debt provision Book Balance Book Balance total amount total amount Category 92 1. Accounts with significant individual amount and accrued 28,708,732.44 53.18% 28,708,732.44 100.00% 22,147,391.97 35.94% 22,147,391.97 100% as separate bad debt provision 2. Accounts with insignificant individual amount 8,627,486.12 15.98% 8,627,486.12 100.00% 12,756,502.58 20.70% 12,756,502.58 100% and accrued as separate bad debt provision 3. Other combinations classified as of 16,647,813.97 30.84% 1,393,194.07 8.37% 26,722,458.63 43.36% 5,522,600.82 20.67% similar credit risk characteristics: Including: Accounts with significant 14,431,208.63 26.73% 1,324,669.78 9.18% individual amount Accounts with significant individual 2,216,605.34 4.11% 68,524.29 3.09% 26,722,458.63 43.36% 5,522,600.82 20.67% amount Total 53,984,032.53 100.00% 38,729,412.63 71.74% 61,626,353.18 100.00% 40,426,495.37 65.60% 2. Changes on bad debt provision for other accounts receivable are as follows: Year-beginning Provision of Other Decrease of the year Year-end book book balance the year increases and balance decreases Write back Write off Year 2008 40,426,495.37 40,048.57 5,904,271.52 3,816,017.95 3,825,384.88 38,729,412.63 3. Other year-end accounts receivable featuring significant individual amount and accrued as separate bad debt provision: Content of other accounts Percentage Amount of bad Book Balance Reason receivable of provision debt provision Yangjiang Yuntong Bad debt due to long duration of the 8,530,276.35 100% 8,530,276.35 Grease Co., Ltd accounts Shenzhen Lianjing Trade Bad debt due to long duration of the 5,697,287.51 100% 5,697,287.51 Co., Ltd. accounts Bad debt due to long duration of the Yunsen Trading Co., Ltd 1,668,343.74 100% 1,668,343.74 accounts Bad debt due to long duration of the Jiangsu Unicom 3,092,011.09 100% 3,092,011.09 accounts 4. There are no other accounts receivable at the end of the year, which feature insignificant individual amount but have great risk as a combination based on credit risk characteristics. 5. Other accounts receivable that were fully or largely accrued as bad debt provision in previous years and were fully or partly recovered this year. 6. For the other year-end accounts receivable from corporate shareholders that hold over 5% (including 5%) of voting shares of the Company, please refer to Note 8. 7. For other accounts receivable from related parties at the end of the year, please refer to Note 8. 8. Top five accounts among other year-end accounts receivables Percentage in the Relationship with Nature or Amount of Duration of total amount of Ranking of debtors the Company Content debt the accounts other accounts receivable No.1: Yangjiang Yuntong Incomings and Over 3 years 15.80% Grease Co., Ltd outgoings 8,530,276.35 93 Shenzhen Lianjing Trade Incomings and Over 3 years 10.55% Co., Ltd. outgoings 5,697,287.51 Shenzhen Top Industry Incomings and Over 3 years 6.08% Co., Ltd. outgoings 3,281,387.96 Incomings and Over 3 years 5.73% Jiangsu Unicom outgoings 3,092,011.09 Shenzhen SEG Business Incomings and 1-2years, 2-3 2,815,532.68 5.22% Machines Co., Ltd outgoings years (VI) Inventories and provisions for inventory price drop Ending amount Year-beginning amount Item Provisions for Provisions for inventory Book Balance Book Balance inventory price drop price drop Raw materials 2,967,777.44 749,065.97 2,728,853.55 2,507,551.53 Low-cost 115,202.50 200,554.83 - consumables Goods in production 2,657,672.60 4,396,200.03 - Finished products 678,083.69 179,537.36 1,350,677.64 786,345.76 (Inventories) Others 26,023.96 Total 6,444,760.19 928,603.33 8,676,286.05 3,293,897.29 The ending amount has no inventories for guaranty, nor inventories whose owners’ rights are restricted. 1. Provisions for inventory price drop Year-beginning Provision of Decrease of the year Item Year-end book balance book balance the year Write back Write off Raw materials 2,507,551.53 1,758,485.56 749,065.97 Low-cost consumables Goods in production Finished products 786,345.76 606,808.40 179,537.36 (Inventories) Others Total 3,293,897.29 2,365,293.96 928,603.33 The raw materials and finished goods accrued as impairment loss in the previous year were disposed during the current year, and the provisions for inventory price drop were written off. Provisions for inventory price drop should be accrued according to the lower value of the two items: the inventory cost and the realizable net value. 2. The ending amount of inventories decreased by about RMB 2,231,525.86 than the year-beginning amount, a 25.72% decrease. The cause is that the raw materials and finished goods accrued as impairment loss in the previous year were written off during the current year. (VII) Financial assets available for sale 1. Category of Composition Item Year-end sound value Year-beginning sound value 1. Bonds available for sale 2. Equity instruments available for sale 3,430,544.62 8,164,453.46 Including: restricted shares available for sale 94 Non-restricted shares available for sale 3,430,544.62 8,164,453.46 3. Others Total 3,430,544.62 8,164,453.46 2. The ending amount of financial assets available for sale decreased by RMB 4,733,908.84, a 57.98% decrease. The main cause is the change of the sound value of the shares of Shendasheng held by the Company. (VIII) Long-term equity investment Ending amount Year-beginning amount Name of the invested company Impairment Book Balance Book Balance Impairment provision provision Shenzhen SEG Samsung Glass Co., 507,558,807.0 Ltd. 3 502,683,785.16 Nanjing Shangsha Co., Ltd 280,000.00 280,000.00 Shenzhen Tianji Optoelectronic Technology Industrial Co., Ltd 105,000.00 105,000.00 105,000.00 105,000.00 Anshan Yibai Co., Ltd 15,000.00 15,000.00 Shenzhen SEG GPS Scientific Navigations Co., Ltd 43,332,929.26 39,628,080.51 Shenzhen SEG Telecom Equipment 3,679,217.22 3,679,217.22 3,679,217.22 3,679,217.22 Co., Ltd Shanghai SEG Electronic Market Co., Ltd 6,326,533.75 5,189,456.25 Shenzhen SEG Marketing Co., Ltd 1,900,000.00 682,202.50 1,900,000.00 682,202.50 Shenzhen SEG Orient Industrial Development Co., Ltd. 99,702.21 563,197,487.2 Total 6 4,466,419.72 553,580,241.35 4,466,419.72 1. Main information about the invested companies Name of the Voting ratio in Total operating Net profits of Place of Nature of Sharehold Total year-end net income of the year the year invested the invested registration business ing radio assets company company Total income Net profit Shenzhen CPT and glass SEG Shenzhen shell production 23.45% 23.45% 1,901,291,452.77 2,295,410,762.40 20,732,036.36 Samsung Co., City and operation Ltd. Shenzhen SEG GPS Shenzhen Scientific GPS equipment 35% 35% 109,500,828.52 208,704,603.46 10,585,282.13 City Navigations Co., Ltd Shenzhen Domestic trade; SEG Shenzhen material supply 19% 19% Marketing City and marketing Co., Ltd Shanghai SEG Domestic trade; Electronic Shanghai material supply 35% 35% 18,076,870.36 36,732,285.15 7,501,859.49 Market Co., and marketing Ltd 2. Long-term equity investment calculated as per cost 95 Year-beginni Change in Name of the invested Year-end Impairment Initial amount ng book investment company book balance provision balance amount this year Shenzhen SEG Marketing 1,900,000.00 1,900,000.00 - 1,900,000.00 682,202.50 Co., Ltd Shenzhen SEG Telecom 3,679,217.22 3,679,217.22 - 3,679,217.22 3,679,217.22 Equipment Co., Ltd Nanjing Shangxia Co., Ltd 280,000.00 280,000.00 - 280,000.00 - Anshan Yibai Co., Ltd 15,000.00 15,000.00 - 15,000.00 - Shenzhen Tianji Optoelectronic Technology 105,000.00 105,000.00 - 105,000.00 105,000.00 Industrial Co., Ltd Total 5,979,217.22 5,979,217.22 - 5,979,217.22 4,466,419.72 3. Long-term equity investment calculated as per equity Equity change amount this year Year-beginning Name of the invested company Initial amount Among which the Year-end balance balance Total bonus in cash Shenzhen SEG Orient 400,000.00 99,702.21 -99,702.21 0.00 Industrial Co., Ltd Shenzhen SEG Samsung 225,279,600.15 502,683,785.16 4,875,021.87 507,558,807.03 Co., Ltd. Shenzhen SEG GPS Scientific 23,170,900.00 39,628,080.51 3,704,848.75 43,332,929.26 Navigations Co., Ltd Shanghai SEG Electronic 1,750,000.00 5,189,456.25 1,137,077.50 -1,490,594.64 6,326,533.75 Market Co., Ltd Total 250,600,500.15 547,601,024.13 9,617,245.91 -1,490,594.64 557,218,270.04 Note: The investment income of Shenzhen SEG Samsung Glass Co., Ltd during the year 2008 was calculated according to the weighted shareholding ratio. 4. Depreciation reserve for long-term equity investment Increase Decrease Year-beginning Name of the invested company during the during the Ending amount Reason for the provision number year year Shenzhen SEG Telecom The business license has 3,679,217.22 3,679,217.22 Equipment Co., Ltd been revoked Shenzhen SEG Marketing Co., 682,202.50 682,202.50 Business loss Ltd Shenzhen Tianji Optoelectronic 105,000.00 105,000.00 Business loss Technology Industrial Co., Ltd Total 4,466,419.72 4,466,419.72 (IX) Investment property Increase during the year Decrease of the period Year-beginning Private real estate Current-period Transferred as Year-end Item Purch balance or inventory depreciation or Disposal private real balance ase transfer amortization estate I. Total of original 589,834,998.77 1,031,359.72 590,866,358.49 price (1) Houses and 574,622,897.93 1,031,359.72 575,654,257.65 buildings (2) Land use right 15,212,100.84 15,212,100.84 96 II Accumulated depreciation or accumulated 114,321,767.32 15,037,754.83 129,359,522.15 amortization in total (1) Houses and 111,520,168.48 14,786,596.15 126,306,764.63 buildings (2) Land use right 2,801,598.84 251,158.68 3,052,757.52 III. Total accumulated impairment 3,117,633.12 3,117,633.12 provision for investment property (1) Houses and buildings (2) Land use right 3,117,633.12 3,117,633.12 Ⅳ. Total book value of 472,395,598.33 458,389,203.22 investment property (1) Houses and 463,102,729.45 449,347,493.02 buildings (2) Land use right 9,292,868.88 9,041,710.20 For mortgage details of investment real estate, please refer to Note 10. (X) Original price and accumulated depreciation of fixed assets 1. Original price of fixed assets Year-beginning Increase Decrease during Year-end Category balance during the year the year balance Houses and buildings 65,768,149.51 7,339,399.23 58,428,750.28 Machinery and equipment 34,368,889.20 34,368,889.20 Electronic equipment 16,690,379.39 1,088,819.86 4,780,636.36 12,998,562.89 Transportation equipment 46,377,779.13 2,750,433.60 2,127,642.16 47,000,570.57 Other equipment 6,207,191.23 44,319.66 2,950,978.75 3,300,532.14 Fixed assets obtained by financing lease Renovation of fixed assets Improvement expenses on fixed assets obtained by financing lease Total 169,412,388.46 3,883,573.12 17,198,656.50 156,097,305.08 2. Accumulated depreciation Increase Year-beginning Provision of Decrease Year-end Category during balance the year during the year balance the year 26,422,205.7 Houses and buildings 27,165,584.27 4,033,703.36 4,777,081.89 4 26,202,207.4 Machinery and equipment 24,253,891.80 1,948,315.63 3 10,200,547.3 Electronic equipment 12,594,322.61 722,668.74 3,116,444.01 4 97 29,851,255.4 Transportation equipment 27,056,567.84 4,149,125.92 1,354,438.28 8 Other equipment 2,395,181.77 81,859.07 1,701,805.52 775,235.32 Fixed assets obtained by financing lease Renovation of fixed assets Improvement expenses on fixed assets obtained by financing lease 93,451,451.3 Total 93,465,548.29 10,935,672.72 10,949,769.70 1 3. Impairment provision for fixed assets Increase Decrease Reason for Year-beginning Year-end Category during the during the the balance balance year year provision Houses and buildings 3,135,098.32 1,291,845.83 1,843,252.49 Machinery and equipment - Electronic equipment 1,981,969.34 1,981,969.34 Transportation equipment 51,775.31 51,775.31 Other equipment 178,256.92 178,256.92 Fixed assets obtained by financing lease Renovation of fixed assets Improvement expenses on fixed assets obtained by financing lease Total 5,347,099.89 1,291,845.83 4,055,254.06 The measuring result according to the market price shows the market price of the assets is lower than their book value and the Company had accrued impairment provision of fixed assets for the difference between the market prize and the book value. 4. Book value of fixed assets Increase Year-beginning Decrease Category during the Ending amount amount during the year year Houses and buildings 35,467,466.92 5,304,174.87 30,163,292.05 Machinery and equipment 10,114,997.40 1,948,315.63 8,166,681.77 Electronic equipment 2,114,087.44 1,088,819.86 2,386,861.09 816,046.21 Transportation equipment 19,269,435.98 2,750,433.60 4,922,329.80 17,097,539.78 Other equipment 3,633,752.54 44,319.66 1,331,032.30 2,347,039.90 Fixed assets obtained by financing lease Renovation of fixed assets Improvement expenses on fixed assets obtained by financing lease Total 70,599,740.28 3,883,573.12 15,892,713.69 58,590,599.71 Note: for mortgage details of fixed assets, please refer to Note 16. 5. Year-end fixed assets for which property right certificates have not been gained Original book Accumulated Reason for having not gained property right Item Book value value depreciation certificate Houses and Houses built with funds collected by the 226,750.00 128,421.94 98,328.06 buildings buyers 98 Transportation 2,604,397.63 1,837,433.76 766,963.87 equipment (XI) Projects in Construction Ending amount Year-beginning amount Item Book Impairment Net book Book Impairment Net book value Balance provision value Balance provision Comprehensive building 17,800.00 17,800.00 Exchange system 144,020.90 144,020.90 Network 482,300.00 482,300.00 IM communications 338,000.00 338,000.00 platform Improvement project for 800,000.00 800,000.00 Huaqiang Area Total 944,020.90 944,020.90 838,100.00 338,000.00 500,100.00 1. Changes on projects in construction Increase Decrease during the year Year-beginni Ending Project name Budget amount during the Changed to Capital source ng amount Other amount year fixed assets Comprehensive --- 17,800.00 17,800.00 Self- prepared building Exchange system 144,020.90 144,020.90 Self- prepared Network 498,000.00 482,300.00 24,900.00 507,200.00 Self- prepared Improvement project for 800,000.00 800,000.00 Self- prepared Huaqiang Area. Total 500,100.00 968,920.90 525,000.00 944,020.90 2. The projects in construstion increased in the current year do not include loan commissions for capitalization. 3. After inspection, at the end of the year no projects in construction had been long suspended or been backward in their function and technology, which were expected to be very uncertain in gaining economic interests. Thus, impairment provision need not to be accrued. (XII) Intangible Assets Increase Decrease Year-beginning Ending Item during the during the amount amount year year I. Total of original price 2,195,500.00 507,200.00 1,074,116.00 1,628,584.00 1. UFIDA software 406,484.00 406,484.00 2. KOA software 555,300.00 555,300.00 3. Second-phase office 507,200.00 507,200.00 information-based system 4. Others 733,716.00 574,116.00 159,600.00 Others—IM communications platform, 500,000.00 500,000.00 0.00 etc II.Total accumulated amortization 1,087,690.34 306,855.12 462,365.53 932,179.93 99 1. UFIDA software 317,109.90 72,603.19 389,713.09 2. KOA software 272,774.96 101,805.00 374,579.96 3. Second-phase office 101,440.00 101,440.00 information-based system 4. Others 422,805.51 31,006.93 387,365.56 66,446.88 Others—IM communications platform, 74,999.97 74,999.97 etc III. Total accumulated impairment 425,000.03 425,000.03 provision for intangible assets 1. UFIDA software 2. KOA software 3. Second-phase office information-based system 4. Others 5. Others—IM communications 425,000.03 425,000.03 platform, etc IV. Total book value of intangible 682,809.63 200,344.88 186,750.44 696,404.07 assets 1. UFIDA software 89,374.10 -72,603.19 16,770.91 2. KOA software 282,525.04 -101,805.00 180,720.04 3. Second-phase office 405,760.00 405,760.00 information-based system 4. Others 310,910.49 -31,006.93 186,750.44 93,153.12 5. Others—IM communications platform, etc (XIII) Long-term expenses to be apportioned Item Ending amount Year-beginning amount Decoration fee 1,712,719.93 Insurance premium for house mortgage 394,368.75 Expense on equipment improvement 4,300,383.69 267,255.82 Improvement of fire-fighting equipment 404,544.28 549,382.24 Network cabling 817,811.33 Special installation fee 536,216.71 Decoration fee for office areas 73,291.67 Land price for Block B and market supporting fee 464,221.01 1,578,351.53 Other long-term expenses to be apportioned 5,277,222.11 7,129,437.01 Total 10,446,371.09 13,058,834.99 (XIV) Deferred income tax assets and liabilities 1. Recognized income tax assets Item Ending amount Year-beginning amount From bad debt 7,173,126.95 7,477,911.96 From inventory price drop 185,720.67 494,084.59 From impairment of long-term equity investment 893,283.94 1,301,932.09 100 From impairment of fixed assets 116,923.75 56,373.95 From impairment of investment real estate 623,526.62 456,302.60 From intangible assets 63,750.00 Total 8,992,581.93 9,850,355.19 The temporary difference amount related to assets or liabilities items incurring temporary difference. Item Temporary difference amount 1. Bad debt provision for accounts receivable 35,865,634.74 2. Provisions for inventory price drop 928,603.33 3. Long-term equity investment 4,466,419.72 4. Impairment provision for fixed assets 584,618.74 5. Impairment provision for investment property 3,117,633.12 Total 44,962,909.65 2. Recognized deferred income tax liabilities Item Ending amount Year-beginning amount From bad debt 4,772.68 15,719.38 2. From financial assets available for sale 288,268.33 950,309.94 Total 293,041.01 966,029.32 The temporary difference amount related to assets or liabilities items incurring temporary difference: Item Temporary difference amount 1. Bad debt provision for accounts receivable 17,451.31 2. Change of sound value of financial assets available for sales 1,601,490.72 Total 1,618,942.03 (XV) Asset impairment provision Year-beginning Other Provision of Decrease of the year Year-end book Item book balance increases the year Write back Write off balance 1.Bad debt provision 52,392,646.92 5,904,271.52 1,040,829.71 3,816,017.95 6,981,290.72 48,540,439.48 2.Provisions for inventory price 3,293,897.29 2,365,293.96 928,603.33 drop 3. Impairment provision for financial assets available for sale 4. Impairment provision for held-to-maturity securities 5. Depreciation reserve for 4,466,419.72 4,466,419.72 long-term equity investment 6. Impairment provision for 3,117,633.12 3,117,633.12 investment property 7.Impairment provision for fixed 5,347,099.89 1,291,845.83 4,055,254.06 assets 8. Impairment provision for engineering materials 9.Impairment provision for 338,000.00 338,000.00 projects in construction 10 Impairment provision for consumable biological assets Including: Impairment provision 101 for mature consumable biological assets 11. Loss from impairment of oil and gas assets 12. Impairment provision for 425,000.03 425,000.03 0 intangible assets Total 69,380,696.97 5,904,271.52 1,040,829.71 3,816,071.95 11,401,430.54 61,108,349.71 (XVI) Short-term loan 1. Short-term loan Loan type Ending amount Year-beginning amount Credit loan Mortgage loan 1,750,000.00 96,750,000.00 Secured loan Total 1,750,000.00 96,750,000.00 2. There were no loans in foreign currency at the end of the year. 3. Shenzhen SEG Communications Co., Ltd, a subsidiary of the Company, borrowed RMB 1,750,000.00 from Shenzhen New Technology Development and Promotion Fund with its electronic equipments as mortgage. The original value of the equipments is RMB 3,140,434.29 with its net value as RMB 83,742.00. By December 31, 2008, an overdue amount of RMB 1,750,000 of the short-term loan (loan from other companies) had not been repaid. 4. The ending amount of short-term loans decreased by RMB 95,000,000.00, a 98.19% decrease. The cause is that the Company repaid the short-term loan from Hongli Branch of Everbright Bank of China during the current year. (XVII) Accounts payable Duration of the accounts Ending amount Year-beginning amount Less than one year 11,248,531.49 19,174,454.06 1-2 years 16,643,631.25 4,122,465.88 2-3 years 3,127,807.32 175,786.00 Over 3 years 272,463.80 463,988.46 Total 31,292,433.86 23,936,694.40 1. Among the year-end accounts receivable, no accounts are receivable from corporate shareholders that hold over 5% (including 5%) of the voting shares of the Company. 2. Among the year-end balance, no accounts are payable to affiliated companies. 3. Significant accounts payable with their duration over 1 year Note (it should be noted if the accounts Creditor Amount Reason for not repaying the debt have been repaid after the report date) undue equipment payment of subway Radio Frequency System Co., Ltd 11,871,135.88 project the temporarily estimated accounts European Aeronautic Defense and 8,614,815.55 payable due to delayed construction Space Company period Shenzhen Winhap Communications undue equipment payment of subway 2,050,574.26 Inc. project 102 Jingxin Communication Development undue equipment payment of subway 2,025,802.85 (Guangzhou) Co., Ltd project Shenzhen Wonderful International undue equipment payment of subway 427,500.00 Economy and Culture Co., Ltd project 4. The ending amount of accounts payable increased by RMB 7,355,739.46 than the year-beginning amount, a 30.73% increase. The cause is the increase of materials purchasing payment payable of the year. (XVIII) Advances Duration of the accounts Ending amount Year-beginning amount Less than one year 112,794,823.81 102,389,732.48 1-2 years 2,573,174.50 186,687.97 2-3 years 150,740.66 - Over 3 years 20,400.00 Total 115,518,738.97 102,596,820.45 1. Among the year-end accounts receivable, no accounts are receivable from corporate shareholders that hold over 5% (including 5%) of the voting shares of the Company. 2. Among the year-end balance, no accounts are payable to affiliated companies. 3. The ending amount of advances increased by RMB 12,921,918.52 than the year-beginning amount, a 12.59% increase. The cause is the increase of advance of the prophase project of Subway Line 3 during the current year. (XIX) Wages payable 1. Wages payable Year-beginning Increase during Payment of the Item Ending amount amount the year year Wage, bonus, allowance, and subsidy 1,767,184.54 38,427,122.40 37,559,158.46 2,635,148.48 Benefits of employees 482,279.74 2,468,866.01 2,951,145.75 Social insurance premiums 466,064.95 2,982,089.42 3,442,125.73 6,028.64 Housing fund - 119,683.00 119,683.00 .Expenditure of Labor Union and 858,215.03 1,003,211.54 1,686,885.45 174,541.12 employees’ education . Non-monetary benefits --- --- --- Compensation due to termination of 3,191,643.37 2,667,620.81 3,191,643.37 2,667,620.81 labor contract Others 718,042.57 7,854.77 45,854.77 680,042.57 Total 7,483,430.20 47,676,447.95 48,996,496.53 6,163,381.62 2. There are no payment of delay or related to efficiency among the balance of wages payable. (XX) Taxes payable Item of taxes Ending amount Year-beginning amount Taxation standards Business tax -366,945.95 1,576,682.00 3%, 5% 103 Value-added tax 2,252,084.38 3,506,281.64 17% Enterprise income tax 7,884,297.55 13,880,000.25 15%, 16.5%, 25% Housing property tax 290,935.65 300,203.78 City maintenance and -40,139.04 13,106.55 1%, 7% construction tax Education surtax 90,665.46 185,000.77 3% Withholding and paying of 337,010.47 255,783.89 individual income tax Authorized tax collection -171,568.28 Stamp tax and water fund 102,887.59 32,502.98 Others Total 10,550,796.11 19,577,993.58 (XXI) Dividends payable Name or category of the investor Year-end unpaid amount of dividends Reason for unpaying Shenzhen SEG Computer Co., Ltd 129,690.00 Yet to be paid Nanjing Shangxia Co., Ltd 108,900.00 Yet to be paid Individual shares 184,399.81 Yet to be paid A shares 191,981.48 Yet to be paid B shares 45,698.54 Yet to be paid Others 194,233.64 Yet to be paid Total 854,903.47 (XXII) Other accounts payable Item Ending amount Year-beginning amount Less than one year 39,878,490.36 78,800,549.75 1-2 years 39,688,262.21 907,381.06 2-3 years 950,468.03 1,101,535.53 Over 3 years 2,562,316.35 3,749,032.33 Total 83,079,536.95 84,558,498.67 Including: Accrued expenses 2,599,222.93 3,019,387.78 1. Among the year-end accounts receivable, no accounts are receivable from corporate shareholders that hold over 5% (including 5%) of the voting shares of the Company. 2. Among the year-end balance, no accounts are payable to affiliated companies. 3. Other significant accounts payable with their duration over 1 year Name of company Amount Reason for unpaying Comprehensive deposit 18,748,056.06 Undue Other notes for other significant accounts payable with their duration over 1 year: none. 4. Other significant accounts payable Name of company Amount Nature or Content Margin for sites 5,891,084.53 Margin Margin for property 2,913,594.15 Margin Comprehensive deposit 21,531,397.86 Deposit 104 (XXIII) Predicted liabilities Year-beginning Increase during Decrease during Item Ending amount Note amount the year the year Unsettled 2,728,268.64 2,728,268.64 Unsettled lawsuit lawsuit Product quality Product quality 309,950.00 309,950.00 guarantee guarantee Total 3,038,218.64 3,038,218.64 Note: For details on unsettled lawsuits, please refer to Note 9, Contingency Situations. (XXIV) Share capital The issued and paid-up share capital of the Company is as follows: Ending amount Year-beginning amount Number of Shares Amount Number of shares Amount 784,799,010.00 784,799,010.00 784,799,010.00 784,799,010.00 The changes of the share capital of the Company are as follows: Year-beginning number Change of the year Ending amount Proportion (%) Proportion (%) Decrease Increase Amount Item Amount 1. Restricted shares --- --- (1) State-held shares --- --- --- --- --- --- (2) Shares held by --- state-owned legal 198,119,716.00 25.24 39,239,950.00 158,879,766.00 20.24 persons --- --- (3) Other shares held by 130,022,368.00 16.57 78,485,538.00 51,536,830.00 6.57 domestic shareholders Including: Shares held by domestic 129,968,232.00 16.56 78,479,900.00 51,488,332.00 6.56 legal persons Shares held by domestic 54,136.00 0.01 5,638.00 48,498.00 0.01 natural persons (4) Shares held by foreign capital Including: --- Shares held by foreign --- --- legal persons --- --- --- Shares held by foreign --- --- natural persons --- --- 105 Total of restricted shares 328,142,084.00 41.81 117,725,488.00 210,416,596.00 26.81 2. Non-restricted shares (1) RMB common shares 210,195,608.00 26.78 117,725,488.00 327,921,096.00 41.78 (A Share) (2)Domestically listed 246,461,318.00 31.40 246,461,318.00 31.40 foreign shares (B Share) (3)Overseas listed foreign shares (H Share) (4)Others Total of non-restricted 456,656,926.00 58.19 117,725,488.00 574,382,414.00 73.19 shares Total 784,799,010.00 100 117,725,488.00 117,725,488.00 784,799,010.00 100 The aforementioned capital has been audited in Xinde Audit Report No. 018 (2006) by Shenzhen Tianjian Xinde Certified Public Accountants. (XXV) Capital public reserve Year-beginning Increase during Decrease Item Ending amount amount the year during the year 1.Capital premium (share premium) (1) Capital by investors 325,329,854.26 325,329,854.26 (2) Influence by the merger under the control of 0.00 the same entity Total 325,329,854.26 325,329,854.26 Other capital public reserve --- (1) Other changes on owners’ equity of the 24,492,556.75 24,492,556.75 invested entities except net gains or losses (2) Profit or loss from the change of the sound 5,376,549.76 3,941,921.35 1,434,628.41 value of financial assets available for sale Subtotal 29,869,106.51 3,941,921.35 25,927,185.16 Total 355,198,960.77 3,941,921.35 351,257,039.42 (XXVI) Surplus public reserve Year-beginning Increase during the Decrease during Item Ending amount amount year the year Statutory surplus reserve 98,493,970.82 4,418,864.85 102,912,835.67 Free surplus reserve Total 98,493,970.82 4,418,864.85 102,912,835.67 In accordance with the Company Law and the regulations of the Company, 10% net profit should be accrued as statutory surplus reserve. (XXVII) Retained profits Item Amount Accrual/Distribution Rate Ending amount of the previous year 35,146,212.59 Plus: Change of accounting policies 106 Correction of errors in the last period Year-beginning balance 35,146,212.59 Plus: Net profit attributable to the parent company 48,579,535.53 Less: accrual of statutory surplus reserve 4,418,864.85 Accrual of Free Surplus Reserve Accrual of Reserve Fund Accrual of Enterprise Development Fund Accrual of bonus and welfare fund 330,773.57 Ordinary Share Dividends Payable 19,619,975.25 Ordinary Share Dividends Converted to Share Capital Other Ingoing Surplus reserve offsetting losses Ending amount of the current year 59,356,134.45 The profit distribution draft scheme of the Board of Directors is that the net profit achieved by the parent company in the year 2008 is RMB 44,188,648.51 and 10% of the net profit, RMB 4,418,864.85, will be accrued as statutory public reserve. (XXVIII) Operating income and cost Amount incurred in the year Amount incurred last year Item Income Cost Income Cost Main business 306,096,237.08 183,774,403.22 701,946,302.91 650,445,417.40 Other businesses 11,909,026.03 5,980,295.03 9,134,258.75 5,984,634.28 Total 318,005,263.11 189,754,698.25 711,080,561.66 656,430,051.68 1. Main operating revenue and main operating cost listed as per business type Amount incurred in the year Amount incurred last year Item Main operating Main operating Main operating Main revenue cost revenue operating cost 394,590,086.0 476,678,795.2 (1) Industry 4 6 (2) Commerce (3) Real estate 307,356,216.8 173,766,622.1 (4) Tourism, catering, and service 183,774,403.22 306,096,237.08 7 4 701,946,302.9 650,445,417.4 Subtotal 183,774,403.22 306,096,237.08 1 0 Counteracted among various operations in the company 701,946,302.9 650,445,417.4 Total 183,774,403.22 306,096,237.08 1 0 2. Main operating income and cost listed according to different regions Amount incurred in the year Amount last year Item Main operating Main operating Main operating Main operating cos revenue cost revenue China 275,803,853.71 154,053,650.67 436,142,799.97 355,505,153.93 Overseas 30,292,383.37 29,720,752.55 265,803,502.94 294,940,263.47 Total 306,096,237.08 183,774,403.22 701,946,302.91 650,445,417.40 107 3. Main operating income of the Company from top 5 clients Percentage in main operating Name or ranking of client Main operating revenue income Ricoh Express (Shenzhen) Warehouse Ltd 11,989,514.29 3.92% Hon Hai Precision Industry Co., Ltd. 8,699,898.77 2.84% Shenzhen Subway Co., Ltd 8,321,973.46 2.72% Ritong (Shenzhen) International Trade Stream Co., Ltd 8,313,280.00 2.72% Wuhan Subway Group Co., Ltd 8,239,704.62 2.69% Total 45,564,371.14 14.89% 4. The operating income of the current year decreased by RMB 393,075,298.55 than the previous year, a 55.28 decrease. The cause is the decrease from selling the equity of Shenzhen SEG Zhongdian Color Display Devices Co., Ltd. . (XXIX) Operating tax and extras Item Taxation standards Amount incurred in the year Amount incurred last year Consumption tax --- Business tax 5% 12,768,360.71 11,931,982.53 Urban construction tax 1%、7% 64,046.65 329,210.54 Education surtax 3% 182,058.93 371,481.61 Others 727,193.18 679,880.21 Total 13,741,659.47 13,312,554.89 (XXX) Financial expenses Item Amount incurred in the year Amount last year Interest payment 4,562,430.08 39,554,346.13 Less: Interest income 4,721,425.83 3,687,710.91 Loss on exchange 1,738,261.22 6,106,710.46 Income from exchange -50,494.10 Others 495,787.80 2,872,834.81 Total 2,024,559.17 44,846,180.49 The financial expenses of the current year decreased by RMB 42,821,621.32 than the previous period, a 95.49% decrease. The main cause is that the Company repaid in the current year a short-term loan from Hongli Branch of Everbright Bank of China, RMB 85,000,000, and sold the equity of Shenzhen SEG Zhongdian Color Display Devices Co., Ltd. (XXXI) Loss from asset impairment Item Amount incurred in the year Amount last year 1. Loss from bad debt -2,775,188.24 -2,974,537.45 2. Loss from inventory price drop 30,026,702.16 3. Loss from impairment of financial assets available for sale 4. Loss from impairment of held-to-maturity securities 5. Loss from impairment of long-term equity investment 3,454,945.10 6. Loss from impairment of investment property 108 7. Loss from impairment of fixed assets 123,545,190.83 8. Loss from impairment of engineering materials 9. Loss from impairment of projects in construction 11,019,134.69 10. Loss from impairment of consumable biological assets 11. Loss from impairment of oil and gas assets 12. Loss from impairment of intangible assets 31,930,229.02 13. Loss from goodwill impairment 14. Others Total -2,775,188.24 197,001,664.35 The impairment loss of the current year decreased by RMB 199,776,852.59 than the previous period. The main cause is that the Company, at the end of the previous year, sold the equity of Shenzhen SEG Zhongdian Color Display Devices Co., Ltd. (XXII) Investment income Name of the project or invested company Amount incurred in the year Amount last year I. Investment income for financial assets 32,001,591.63 II. Investment income for equity investment 9,244,069.20 507,759,397.98 (I) Calculated and confirmed as per cost 82,496.94 (II) Calculated and confirmed as per equity 11,107,840.57 -40,100,445.15 (III) Income from disposal of investment -1,863,771.37 547,777,346.19 Total 9,244,069.20 539,760,989.61 The investment income of the current year decreased by RMB 530,516,920.41 than the previous year, a 98.29% decrease. The cause is the income from disposal of investment, RMB 547,777,346.19, when Shenzhen SEG Zhongdian Color Display Devices Co., Ltd was disposed in the previous period. (XXXIII) Non-operating income Item Amount incurred in the year Amount last year 1. Total disposal profit of non-current assets 3,179,370.65 1,036,293.97 Including: Disposal profit of fixed assets 3,179,370.65 1,036,293.97 Disposal profit of intangible assets 2. Tax refund 3. Profit from debt restructuring 15,752.74 4. Income from donations 5. Government subsidies 30,000.00 150,000.00 6. Inventory surplus 47,400.66 7 Others 3,446,115.69 2,297,552.03 Total 6,702,887.00 3,499,598.74 The non-operating income of the current year increased by RMB 3,203,288.26 than the previous year, a 91.53% increase. The main cause is the increase of the income from the disposal of the Company’s real estate. (XXXIV) Non-operating expenses Item Amount incurred in the year Amount last year 1. Total disposal loss of non-current assets 93,961.83 76,916.54 109 Including: Disposal loss of fixed assets 93,961.83 76,916.54 Disposal loss of intangible assets 2. Transfer loss of non-monetary assets 110.14 3. Loss from debt restructuring 4. Donation expenses 25,000.00 20,000.00 Including: Charitable donation expenses 25,000.00 20,000.00 5. Unusual loss 69,481.04 6. Inventory loss 7. Others 1,707,291.40 90,336.94 Total 1,826,253.23 256,844.66 The non-operating expenses of the current year increased by RMB 1,569,408.57 than the previous year, a 611.03% increase. The cause is that Shenzhen SEG Communications Co., Ltd, a subsidiary of the Company, paid the late fee and penalty, RMB 1,651,803.72, for value added tax. (XXXV) Income Tax Item Amount incurred in the year Amount last year Income tax of the current period 10,656,753.21 16,664,526.47 Deferred income tax 209，981.94 -1,182,393.10 Total 10,866,735.15 15,482,133.37 (XXXVI) Notes on cash flow statement 1. Other cash received concerning operating activities Item Amount incurred in the year Tender margin 2,660,000.00 Interest income 2,409,460.43 Non-operating income 1,311,615.67 Incomings and outgoings 29,648,380.63 Total 36,029,456.73 2. Other cash paid concerning operating activities Item Amount incurred in the year Tender margin 4,070,824.13 Non-operating expenses 1,676,367.81 Cash expenses 71,492,609.54 Incomings and outgoings 49,365,965.70 Total 126,605,767.18 3. Other cash paid concerning financing activities Item Amount incurred in the year Commitment fee of loans 100,000.00 Total 100,000.00 4. Supplementary information to cash flow statement Amount incurred Amount incurred in Item in the year the last period I. Net profit adjusted as the cash flow for operating activities Net profit 48,579,535.53 62,945,577.11 110 Plus: Asset impairment provision -2,775,188.24 184,094,940.64 Depreciation of fixed assets, oil & gas assets and consumable biological 25,973,427.55 assets 14,420,287.46 Amortization of intangible assets 306,855.12 412,279.77 Amortization of long-term expenses to be apportioned 4,716,214.26 8,691,944.69 Loss on disposal of fixed assets, intangible assets, and other long-term -3,085,408.82 -959,377.43 assets (Profit will be marked with "-") Loss on discard of fixed asset (Profit will be marked with "-") 0 Loss on change of sound value (Profit will be marked with "-") 0 Financial expenses (Profit will be marked with "-") 4,662,430.08 39,554,346.13 Loss on investment (Profit will be marked with "-") -9,244,069.20 -52,061,194.40 Decrease of deferred income tax assets (Profit will be marked with "-") 220，581.49 -560,493.57 Increase of deferred income tax liabilities (Decrease will be marked with "-") -10，599.55 206,633.96 Decrease of inventories (Increase will be marked with "-") 2,231,525.86 215,884,887.71 Decrease of operating accounts receivable (Increase will be marked with -3,806,747.09 "-") 313,469,717.01 Increase of operating accounts payable (Decrease will be marked with "-") 10,022,486.66 -865,613,508.66 Others Net Cash flow arising from operating activities 77,791,043.65 -79,513,959.58 II. Important investment and financing activities not concerning cash deposit and withdrawal debt transferred as capital Convertible bonds due in 1 year Fixed assets obtained by financing lease III. Net change on cash and cash equivalents Year-end balance of cash 400,172,059.09 261,303,787.50 Less: Year-beginning balance of cash 261,303,787.50 239,795,150.92 Plus: Year-end balance of cash equivalents Less: Year-beginning balance of cash equivalents Net increase of cash and cash equivalents 138,868,271.59 21,508,636.58 5. Composition of cash and cash equivalents Item Ending amount Year-beginning number I. Cash 400,172,059.09 261,303,787.50 Including: Cash on hand 1,491,901.47 719,260.17 Bank deposit available for payment at any time 398,680,107.39 217,221,879.06 Other monetary fund available for payment at any time 50.23 43,362,648.27 Deposits due from the Central Bank available for payment Deposits due from other banks Call loan to banks II. Cash equivalents Including: Bond investment due within 3 months III. Year-end balance of cash and cash equivalents 400,172,059.09 261,303,787.50 Including: Cash and cash equivalents restricted in use by the parent company or subsidiaries of the group 111 VII Notes on Main Items in the Financial Statements of the Parent Company (I) Accounts receivable 1. The composition of accounts receivable Ending amount Year-beginning amount Bad debt provision Bad debt provision Percentage of bad Percentage of bad Percentage in the Percentage in the debt provision debt provision Book Balance Book Balance total amount total amount Duration of the accounts Less than 1 year 96.96 114,405.00 1.94% 184,510,000.00 (including 1 year) % 1-2 years (including 2 years) 2-3 years (including 3 years) Over 3 years 5,777,171.79 98.06% 5,777,171.79 100% 5,777,171.79 3.04% 5,777,171.79 100.00% Total 5,891,576.79 100% 5,777,171.79 98.06% 190,287,171.79 100% 5,777,171.79 3.04% Ending amount Year-beginning amount Bad debt provision Bad debt provision Percentage of bad Percentage of bad Percentage in the Percentage in the debt provision debt provision Book Balance Book Balance total amount total amount Category 1. Accounts with significant individual amount and --- --- --- --- accrued as separate bad debt provision 2. Accounts with insignificant individual 5,777,171.79 98.06% 5,777,171.79 100.00% 5,777,171.79 3.04% 5,777,171.79 100.00% amount and accrued as separate bad debt provision 3. Other combinations classified as of similar 114,405.00 1.94% 184,510,000.00 96.96% credit risk characteristics: Including: Accounts with significant individual 184,510,000.00 96.96% amount Accounts with insignificant 114,405.00 1.94% individual amount Including: Accounts with insignificant individual amount but featuring great --- --- --- risk as a combination based on credit risk characteristics Total 5,891,576.79 100.00% 5,777,171.79 98.06% 190,287,171.79 100.00% 5,777,171.79 3.04% 2. Changes on bad dent provision for accounts receivable are as follows: 112 Year-beginning Provision of Decrease of the year Year-end book balance book balance the year Write back Write off Year 2007 5,777,171.79 5,777,171.79 Year 2008 5,777,171.79 5,777,171.79 3. Accounts receivable with significant individual amount or those with insignificant individual amount but accrued as separate impairment provision. Percentage of Amount of bad debt Content of accounts receivable Book Balance Reason provision provision Shenzhen Liyuanshun Industrial 1,906,865.35 100% 1,906,865.35 Long duration Co., Ltd Shanghai Tianci Industrial (Group) 899,000.00 100% 899,000.00 Long duration Co., Ltd Zhejiang Finance Information 786,000.00 100% 786,000.00 Long duration Sichuan Huiyuan Electronics Co., 480,000.00 100% 480,000.00 Long duration Ltd Zhujiang Department Co., Ltd of 198,348.57 100% 198,348.57 Long duration Wal-Mart (Shenzhen) 4. There are no accounts receivable at the end of the year, which feature insignificant individual amount but have great risk as a combination based on credit risk characteristics. 5. There are no accounts receivable, which were fully or largely accrued as bad debt provision in previous years, and fully or partly recovered this year. 6. There are no accounts receivable of actual verification during the current year. 7. Among the year-end accounts receivable, no accounts are receivable from corporate shareholders that hold over 5% (including 5%) of voting shares of the Company.. 8. Among accounts receivable at the end of the year, no accounts were receivable from related parties. 9. Top five accounts among year-end accounts receivable Percentage Amount of bad Content of accounts receivable Book Balance Reason of provision debt provision Shenzhen Liyuanshun Industrial Co., Ltd 1,906,865.35 100% 1,906,865.35 Long duration Shanghai Tianci (Group) Co., Ltd 899,000.00 100% 899,000.00 Long duration Zhejiang Finance Information 786,000.00 100% 786,000.00 Long duration Sichuan Huiyuan Electronics Co., Ltd 480,000.00 100% 480,000.00 Long duration Zhujiang Department Co., Ltd of 198,348.57 100% 198,348.57 Long duration Wal-Mart (Shenzhen) 10. The ending amount of accounts receivable decreased by RMB 184,395,595.00 than the year-beginning amount, a 96.90% decrease. The cause is that the Company received RMB 184,510,000.00, the payment for equity transfer of Shenzhen SEG Zhongdian Color Display Devices Co., Ltd during the current year. (II) Other accounts receivable 1. Composition of other accounts receivable Duration of the Ending amount Year-beginning amount t 113 Bad debt provision Bad debt provision Percentage of bad Percentage of bad Percentage in the Percentage in the debt provision debt provision Book Balance Book Balance total amount total amount Less than 1 year 1,750,992.49 4.72% 0.00% 1,104,579.84 2.60% 0.00% (including 1 year) 1-2 years (including 2 63,772.10 0.17% 3,188.61 5.00% 138,772.14 0.33% 6,938.61 5.00% years) 2-3 years (including 3 129,053.04 0.35% 12,905.30 10.00% 602,288.25 1.41% 60,228.83 10.00% years) Over 3 years 35,171,294.43 94.76% 31,972,777.41 90.91% 40,672,175.45 95.66% 34,725,424.75 85.38% 100.00 100.00 Total 37,115,112.06 31,988,871.32 86.19% 42,517,815.68 34,792,592.19 81.83% % % Ending amount Year-beginning amount Bad debt provision Bad debt provision Percentage of bad Percentage of bad Percentage in the Percentage in the debt provision debt provision Book Balance Book Balance total amount total amount Category 1. Accounts with significant individual 100.00 amount and accrued as 22,147,391.97 59.67% 22,147,391.97 100.00% 22,147,391.97 52.09% 22,147,391.97 % separate bad debt provision 2. Accounts with insignificant individual 100.00 amount and accrued as 8,618,400.12 23.22% 8,618,400.12 100.00% 8,591,345.12 20.21% 8,591,345.12 % separate bad debt provision 3. Other combinations classified as of similar 6,349,319.97 17.11% 1,223,079.23 19.26% 11,779,078.59 27.70% 4,053,855.10 34.42% credit risk characteristics: Including: Accounts with significant individual 6,178,151.79 16.65% 1,204,705.60 19.50% --- --- --- --- amount Accounts with insignificant 171,168.18 0.46% 18,373.63 10.73% 11,779,078.59 27.70% 4,053,855.10 34.42% individual amount Including: Accounts with insignificant individual amount but featuring great --- --- --- --- --- --- --- --- risk as a combination based on credit risk characteristics 100.00 Total 37,115,112.06 100.00% 31,988,871.32 86.19% 42,517,815.68 34,792,592.19 81.83% % 2. Changes on bad debt provision for other accounts receivable are as follows: Decrease of the year Year-end book Year-beginning book balance Provision of the year Write back Write off balance 114 Year 2007 32,903,092.05 1,889,500.14 34,792,592.19 Year 2008 34,792,592.19 2,803,720.87 31,988,871.32 3. Accounts receivable with significant individual amount or those with insignificant individual amount but accrued as separate impairment provision. Content of other accounts receivable Book Balance Percentage of Amount of bad debt Reason provision provision Shenzhen Top Industry Co., Ltd. 3,281,387.96 100.00% 3,281,387.96 Bad debt Shenzhen Shoujia Industrial Co., Ltd 1,611,184.04 100.00% 1,611,184.04 Bad debt Shenzhen Lianjing Trade Co., Ltd. 5,697,287.51 100.00% 5,697,287.51 Bad debt Shenzhen Jimeng Industrial Co., Ltd 1,358,912.37 100.00% 1,358,912.37 Bad debt Yangjiang Yuntong Grease Co., Ltd 8,530,276.35 100.00% 8,530,276.35 Bad debt Yunsen Trade Co., Ltd 1,668,343.74 100.00% 1,668,343.74 Bad debt Jiangsu Unicom 3,092,011.09 100.00% 3,092,011.09 Bad debt 4. There are no other accounts receivable at the end of the year, which feature insignificant individual amount but have great risk as a combination based on credit risk characteristics. 5. There were no other accounts receivable at the end of the year, which were fully or largely accrued as bad debt provision in previous years, and fully or partly recovered during the current year. 6. Among the year-end advances, no advances are receivable from corporate shareholders that hold over 5% (including 5%) of the voting shares of the Company. See Note 8. 7. For other accounts receivable from related parties, please refer to Note 8. 8. Top five accounts among other year-end accounts receivables Relationship Percentage in the total Nature or Amount of Duration of Ranking of debtors with the amount of other Content liabilities the accounts Company accounts receivable Yangjiang Yuntong 8,530,276.35 Over 3 years 22.98% Grease Co., Ltd Shenzhen Lianjing Trade 5,697,287.51 Over 3 years 15.35% Co., Ltd. Shenzhen Top Industry 3,281,387.96 Over 3 years 8.84% Co., Ltd. Jiangsu Unicom 3,092,011.09 Over 3 years 8.33% 1-2 years, Shenzhen SEG Business 2,815,532.68 2-3 years, 7.59% Machines Co., Ltd over 3 years (III) Long-term equity investment Ending amount Year-beginning number Name of the invested company Impairment Impairment Book Balance Book Balance provision provision Shenzhen SEG Baohua Electronics Co., Ltd 20,512,499.04 20,512,499.04 Shenzhen SEG Storage and Transportation 62,700,000.00 62,700,000.00 Co., Ltd. Shenzhen SEG Communication Co., Ltd. 28,060,000.00 28,060,000.00 Shenzhen SEG Marketing Co., Ltd 1,900,000.00 682,202.50 1,900,000.00 682,202.50 Shenzhen SEG Industrial Investment Co., Ltd 23,780,000.00 23,780,000.00 Shenzhen SEG Orient Industrial Co., Ltd 0.00 99,702.21 Shenzhen SEG Samsung Co., Ltd. 506,796,662.03 501,921,640.14 115 Shenzhen SEG Telecom Equipment Co., Ltd 2,979,217.22 2,979,217.22 2,979,217.22 2,979,217.22 Shenzhen SEG GPS Scientific Navigations Co., 43,332,929.26 39,628,080.51 Ltd Shanghai SEG Electronic Market Co., Ltd 6,326,533.75 5,189,456.25 Shenzhen SEG Network & Information Co., Ltd 0.00 10,482,000.00 Chongqing SEG Electronic Market Co., Ltd 1,500,000.00 1,500,000.00 Shenzhen SEG Electronics Market 2,100,000.00 2,100,000.00 Management Co., Ltd Suzhou SEG Electronic Market Management 1,350,000.00 1,350,000.00 Co., Ltd Xi’an SEG Electronic Market Co., Ltd 1,950,000.00 1,950,000.00 Total 703,287,841.30 3,661,419.72 704,152,595.37 3,661,419.72 1. Main information about the invested companies Voting ratio in Net profits of Name of the Place of Nature of Shareholding Total year-end Total operating the year the invested invested company registration business ratio net assets income of the year company Net profit Shenzhen SEG Property Baohua Shenzhen leasing and 66.58 66.58 57,829,394.99 44,036,855.32 10,985,452.88 Electronics Co., City management Ltd Shenzhen SEG Overseas Storage and Shenzhen transportation 95.00 95.00 85,556,470.39 73,714,873.65 5,882,283.00 Transportation Co., City and bonded Ltd. storage Shenzhen SEG Investment in Industrial Shenzhen industrial and 91.79 91.79 20,792,310.97 746,647.80 2,104,280.81 Investment Co., City commercial Ltd businesses, Manufacturing Shenzhen SEG Shenzhen of Communication 97.70 97.70 3,140,678.66 19,933,655.99 -1,980,541.11 City telecommunicat Co., Ltd. ion equipments evelopment and Shenzhen SEG maintenance; Network & Shenzhen trading of 52.41 52.41 12,530,538.76 Information Co., City electronic Ltd products Shenzhen SEG Domestic trade; Shenzhen Orient Industrial material supply 20.00 20.00 320,616.31 509,300.41 -240,355.82 City Co., Ltd and marketing Xi’an SEG Domestic trade; Electronic Market Xi’an material supply 65.00 65.00 3,650,022.77 20,547,828.06 2,767,731.45 Co., Ltd and marketing Chongqing SEG Domestic trade; Electronic Market Chongqing material supply 50.00 50.00 4,374,063.87 8,212,639.28 1,145,052.38 Co., Ltd and marketing Shenzhen SEG Domestic trade; Electronics Market Shenzhen material supply 70.00 70.00 5,083,742.99 21,238,432.85 1,870,159.52 Management Co., City and marketing Ltd Suzhou SEG Domestic trade; Electronic Market Suzhou material supply 45.00 45.00 4,847,322.89 15,012,689.56 1,731,496.31 Management Co., and marketing Ltd Domestic trade; Shenzhen SEG Shenzhen material supply 19 19 Marketing Co., Ltd City and marketing Shenzhen SEG Shenzhen CPT and glass 23.39 23.39 1,901,291,452.77 2,295,410,762.40 20,732,036.36 116 Samsung Co., Ltd. City shell production and operation Shenzhen SEG GPS Scientific Shenzhen GPS equipment 35 35 109,500,828.52 208,704,603.46 10,585,282.13 Navigations Co., City Ltd Shanghai SEG Domestic trade; Electronic Market Shanghai material supply 35 35 18,076,870.36 36,732,285.15 7,501,859.49 Co., Ltd and marketing 2. Long-term equity investment calculated as per cost Change in Year-beginning investment Year-end book Impairment Name of the invested company Initial amount book balance amount this balance provision year Shenzhen SEG Marketing Co., 1,900,000.00 1,900,000.00 - 1,900,000.00 682,202.50 Ltd Shenzhen SEG Baohua 18,742,808.93 20,512,499.04 - 20,512,499.04 Electronics Co., Ltd Shenzhen SEG Storage and 62,700,000.00 62,700,000.00 62,700,000.00 Transportation Co., Ltd. Shenzhen SEG Communication 28,060,000.00 28,060,000.00 - 28,060,000.00 Co., Ltd. Shenzhen SEG Industrial 23,780,000.00 23,780,000.00 - 23,780,000.00 Investment Co., Ltd Shenzhen SEG Telecom 6,942,530.00 2,979,217.22 - 2,979,217.22 2,979,217.22 Equipment Co., Ltd Shenzhen SEG Network & 10,482,000.00 10,482,000.00 -10,482,000.00 0 Information Co., Ltd Chongqing SEG Electronic Market 1,500,000.00 1,500,000.00 - 1,500,000.00 Co., Ltd Shenzhen SEG Electronics 2,100,000.00 2,100,000.00 - 2,100,000.00 Market Management Co., Ltd Suzhou SEG Electronic Market 1,350,000.00 1,350,000.00 - 1,350,000.00 Management Co., Ltd Xi’an SEG Electronic Market Co., 1,950,000.00 1,950,000.00 - 1,950,000.00 Ltd Total 159,507,338.93 157,313,716.26 -10,482,000.00 146,831,716.26 3,661,419.72 3. Long-term equity investment calculated as per equity Equity change amount this year Year-beginning Name of the invested company Initial amount Year-end balance balance Among which the Total bonus in cash I. Associated enterprises Shenzhen SEG Orient Industrial 400,000.00 99,702.21 -99,702.21 Co., Ltd Shenzhen SEG Samsung Co., 224,709,600.15 501,921,640.14 4,875,021.89 506,796,662.03 Ltd. Shenzhen SEG GPS Scientific 23,170,900.00 39,628,080.51 3,704,848.75 43,332,929.26 Navigations Co., Ltd Shanghai SEG Electronic Market 1,750,000.00 5,189,456.25 1,137,077.50 -1,490,594.64 6,326,533.75 Co., Ltd Total 250,030,500.15 546,838,879.11 9,617,245.93 -1,490,594.64 556,456,125.04 117 4. Depreciation reserve for long-term equity investment Year-beginning Increase during Decrease Reason for the Name of the invested company Ending amount amount the year during the year provision The business Shenzhen SEG Telecom 2,979,217.22 2,979,217.22 license has been Equipment Co., Ltd revoked Shenzhen SEG Marketing Co., 682,202.50 682,202.50 Business loss Ltd Total 3,661,419.72 3,661,419.72 (IV) Operating revenue and operating cost Amount incurred in the year Amount last year Item Revenue Cost Revenue Cost Main business 101,321,101.84 45,577,023.64 102,143,739.39 43,595,553.14 Other operations 710,000.00 Total 102,031,101.84 45,577,023.64 102,143,739.39 43,595,553.14 1. Main operating revenue and main operating cost listed as per business type Amount incurred in the year Amount last year Item Main operating Main operating Main operating Main operating revenue cost revenue cost (1) Industry (2) Commerce --- --- --- --- (3) Real estate --- --- --- --- (4) Tourism, catering, and 101,321,101.84 45,577,023.64 102,143,739.39 43,595,553.14 service Total 101,321,101.84 45,577,023.64 102,143,739.39 43,595,553.14 (V) Investment Income Name of the project or invested company Amount incurred in the year Amount last year I. Investment income for financial assets 32,001,591.63 II. Investment income for equity investment 22,748,283.61 -2,984,371.70 (I) Calculated and confirmed as per cost 15,769,143.04 2,122,631.84 (II) Calculated and confirmed as per equity 11,107,840.57 -33,331,701.76 (III) Income from disposal of investment -4,128,700.00 28,224,698.22 Total 22,748,283.61 29,017,219.93 No significant limits on the remittance of investment income in this company VIII Relationships Between Related Parties and Their Transactions (I) Conditions of the related parties having controlling relationship 1. Related parties having controlling relationship 118 The related party controlling the Company Registered Main Relationship with Nature of Legal Organization Name of company address business the Company business representative code Shenzhen Electronics Guo Shenzhen SEG Group Shareholder State-owned 19218093-0 City products Yonggang The parent company holds 30.24% of the Company’s shares and 30.24% of its voting rights. The actual controlling party of the Company is Shenzhen SEG Group. For information on related parties controlled by the Company, please refer to Note 5. 2. Registered capital of the related parties having controlling relationship and relevant changes (unit: RMB yuan): Year-beginning Increase Decrease during Name of company Ending amount amount during the year the year Shenzhen SEG Group 1,355,420,000.00 1,355,420,000.00 3. Number of shares held by the related parties having controlling relationship and relevant changes (unit: RMB yuan): Increase during Decrease during Year-beginning number Ending amount Name of company the year the year Amount % Amount % Amount % Amount % Shenzhen SEG Group 237,359,666.00 30.24 237,359,666.00 30.24 4. Conditions of the related parties not having controlling relationship Name of company Relationship with the Company Guangzhou Fodak Group Co., Ltd. The second largest shareholder Shenzhen SEG Samsung Co., Ltd. Joint company Shenzhen SEG Orient Industrial Development Co., Ltd. Joint company Shenzhen SEG Square Investment & Development Co., Ltd. Subsidiary of shareholders Shenzhen SEG Property Development Co., Ltd. Subsidiary of shareholders (II) Transactions of related parties 1. Procurement The following are the details of the procurement made by the Company from the related parties this year and last year: Name of the related party Year 2008 Year 2007 Shenzhen SEG Samsung Co., Ltd. - 3,688,162.20 Pricing policy: Transactions are conducted in accordance with the market price. 2. Lease 1) Payment of rent Name of the related party Year 2008 Year 2007 Shenzhen SEG Group 480,000.00 480,000.00 The Company leases an area of 809.26 square meters located at the eighth floor of SEG Square owned by SEG Group as the warehouse and pays the amount of rent set out in the Property Lease Contract concluded with Shenzhen SEG Group. 3. Provision of labor services Name of the related party Year 2008 Year 2007 Shenzhen SEG Group - 25,000.00 119 (III) Balance of accounts receivable and accounts payable of Rrelated parties Amount Item 2008-12-31 2007-12-31 Accounts receivable Shenzhen SEG Group - 25,000.00 Other receivables Shenzhen SEG Property Development Co., Ltd. 21,600.00 27,465.40 Shenzhen SEG Orient Industrial Development Co., Ltd. 443,910.00 443,910.00 Shenzhen SEG Group 80,000.00 80,000.00 Other payables Shenzhen SEG Property Development Co., Ltd. 827,852.40 Notes to guanranty information of related parties: The Company has no guaranty information of related parties, which need to be noted. IX Contingency Items (I) Contingent liabilities as a result of unsettled litigation or arbitration (1) The Company provided ganrantee for a loan of RMB 10,000,000 from Futian Branch of Shenzhen Development Bank by Shenzhen SEG Dasheng Co., Ltd (hereinafter referred to as Shendasheng). The guarantee was due on March 25, 2004, which was counter-guaranteed by Guangzhou Borong Investment Co., Ltd (hereinafter referred to as Guangzhou Borong). After the loan was due the Company bore the responsibility of guanrantee and paid the principal, the interest, and legal fees, which amounted to RMB 10,194,200. The Company filed a lawsuit to Shenzhen Intermediate People’s Court in August 2004. The court, according to the property preservation application by the Company, sealed up 40,206,226 legal person shares of Shendasheng at the end of August 2004, which were held by Guangdong Borong and totally mortgaged to Shenzhen Caitian Branch of Communications Bank of China. In November 2004, the Company reached a reconciliation agreement with Shendasheng and Guangzhou Borong after the mediation of the Court: Shendasheng and Guangzhou Borong shall repay by installments the above-mentioned money and its interest before May 25, 2005. The Company applied for enforment to Shenzhen Intermediate People’s Court in January 2005 because Shendasheng did not perform its obligation according to the reconciliation agreement. On October 13, 2008, through the mediation of the Court, the Execution Reconciliation Agreement was reached by the Company, Shendasheng, and Guangzhou Borong. The main content is as follows: A. The repayment obligation unfulfilled by Shendasheng and Guangzhou Borong, which was affirmed by Shen Zhong Fa Min Er Chu Zi [2004] No. 484 Civil Mediation Agreement, includes the principal (including legal fees, property preservation fee, evaluation fee, etc ) RMB 8,930,000 and the late fulfillment penalty (till August 31, 2008) RMB 4,530,000. B. Shendasheng and Guangzhou Borong promise to repay the principal and the interest, RMB 10,000,000, in full and on time in accordance with the following by-installment repayment agreement: a. Shendasheng and Guangzhou Borong shall repay RMB 3,500,000 to the Company before October 15, 2008. 120 b. For the rest RMB 6,500,000, Shendasheng and Guangzhou Borong shall repay them by equal installments within 13 consecutive months from November, 2008. The repayment amount and time shall be RMB 500,000 before the end of the month. C. The Company promises that should Shendasheng and Guangzhou Borong fulfill the payment of RMB 10,000,000 in full and on time in accordance with Article 2, the Company shall be willing to give up other interest and the execution of this case shall be completed. D. Should any sum of repayment be not fulfilled in full and on time when Shendasheng fulfills the repayment obligation provided by Article 2, the Agreement shall be terminated and the Company’s promise about giving up other interest shall be no longer effective while Shendasheng shall still repay the Company the principal and the late fulfillment penalty provided in Article 1 (till all of them are paid off). Notice of Haifeng Court confirmed the above-mentioned agreement and that Shendasheng had repaid the first sum, RMB 3,500,000, as agreed. The Court required that Shendasheng strictly fulfill the Execution Reconciliation Agreement and repay the Company on time. By December 31, 2008, among other accounts receivable, Shendasheng still owed the Company RMB 2,377,649.56, for which RMB 475,529.91 was accrued as bad debt provision by the aging analysis method. (2) The Company received the paper of civil judgment from Shenzhen Futian People’s Court of Guangdong Province on the case of disputes on equity transfer contract, by Zhao Shishun. The statement was as follows: Zhao Shishun, through auctioning at Shenzhen International Hi-tech Property Right Exchange, gained the equity of Shenzhen SEG Business Machines Co., Ltd, the former subsidiary of the Company; after the plaintiff (Zhao Shishun) paid off transaction money, it was found that the assets of the third party, Shenzhen SEG Business Machines Co., Ltd, was not the same as said, and the plaintiff and the defendant (the Company) couldn’t reach agreement on settlement of some debts. The paper of civil judgment by the trial of first instance decided the Company shall pay Zhao Shishun RMB 2,164,432.98 and relevant interest. The Company did not accept the judgment and made an appeal on March 16, 2007. The trial of second instance was held at Shenzhen Intermediate People’s Court on August 2, 2007. The Company had not received the judgment by December 31, 2008. On April 30, 2007, the Company received a case of infringement dispute on equity transfer by Zhu Xiaoliang,with the subject matter as RMB 480,000, which was of the same statement of the lawsuit by Zhao Shishun for Zhu Xiaoliang was the other transferee. The case was held on August 3, 2007 and the Company had not received the judgment by December 31, 2008. For the above-mentioned matters, the Company has accrued RMB 2,728,268.64 as the expected debt (including interest) incurring from relevant disputes on equity transfer. On June 25, 2007, the Company filed a loan dispute lawsuit against Shenzhen SEG Commercial Machines Co., Ltd (Defendant One) and Li Zhongda (Defendant Two), whose subject matter was around RMB 2,840,000. The case was held for the first time on August 3, 2007. The case had been on the docket by December 31, 2008. (II) Other Contingent Liabilities Shenzhen SEG Communications Co., Ltd, a subsidiary of the Company, borrowed RMB 1,750,000.00 from Shenzhen New Technology Development and Promotion Fund with its electronic equipments as mortgage. The original value and the net value of the mortgage equipments are RMB 3,140,434.29 and RMB 83,742.00 repectively. Among that short-term loan (a loan from other entities), a delayed sum of RMB 1,750,000 had not been paid back by December 12, 2008. X Commitments Information on mortgage assets On May 16, 2007, the Company signed the Mortgage Contract for Maximum Amount Loan with Shenzhen Branch of China CITIC Bank, the contract No. being Shen Yin Bao Zui Di [2007] No. 001, and gained a loan of the maximum amount, RMB 120,000,000. The mortgage is the second floor of SEG Square, whose original value had been RMB 212,648,630.00, with its accumulated depreciation RMB 40,352,124.76, and its net value RMB 172,296,505.24 by December 31, 2008. The mortgage period is from May 16, 2007 to May 16, 2012. The amount was not used at the end of the current year. 121 XI Matters Occurring after the Issue of the Balance Sheet The Company transferred its 19% equity of SEG Marketing to Sun Yucheng at a price of RMB 1,091,200. The two parties had already signed the Equity Transfer Contract on December 9, 2008. The equity transfer transaction was verified at Shenzhen Property Right Transaction Center on December 11, 2008 and the registration of change with the Administration of Industry and Commerce was completed on January 16, 2009. The Company signed Property Right Transfer Contract with Shenzhen Hyt Science and Technology Co., Ltd (hereinafter referred as HYT) on March 19, 2009. HYT was transferred the 100% equity of SEG Communications at a price of RMB 40,000,000, among which RMB 39,080,000 was for the 97.70% equity of SEG Communications held by the Company, and RMB 920,000 was for the 2.30% equity of SEG Communications held by Shenzhen SEG Industrial Investment Co., Ltd. The Company signed Equity Transfer Agreement with Shenzhen Jintai Hengye Investment and Development Co., Ltd (hereinafter referred to as Jintai Hengye) on February 26, 2009. the Company will purchage a 46% equity of Changsha Emerging Development Co., Ltd held by Jintai Hengye at a price of RMB 69,000,000. The profit distribution draft scheme of the Company is that the Company is planning to distribute a dividend of RMB 0.20 (before taxation) for every 10 shares to all shareholders, based on the total share capital of 784,799,010 shares on December 31, 2008, and the dividends to be distributed is 15,695,980.20. The above-mentioned draft scheme can be carried out only after being approved by the 2008 General Meeting of Shareholders of the Company. XII Other Matters The Company has no other matters needed to be disclosed. XIII Supplementary Information (I) Non-recurring gains and losses of the year attributable to common shareholders are listed as follows (+ refers to gain and – refers to loss ): Item Amount I. Gains and losses from disposal of non-current assets, including the written-off part accrued as 3,374,096.20 impairment provision (II) Tax refund, reduction or exemption upon approval exceeding authorized limits or without formal documents III. Government subsidies recorded in current gains and losses, except those closely related to the Company’s normal businesses, conforming with the state’s policies and regulations, and being enjoyed 30,000.00 continuously by quotas according to relevant standards (IV) Fund appropriation charges for non-financial entities included in current gains and losses V. Gains achieved because the investment cost for gaining subsidiaries, joint ventures, and associated enterprises by the Company is less than the sound value of the recognizable net assets of invested entities (VI)Gains and losses from exchange of non-monetary assets --- VII. Gains and losses from consigning others to make investment or manage assets --- (VIII) Provision for assets impairment withheld for Force Majeure --- (IX) Gains and losses from debt restructurings --- (X) Expenditures for corporate restructuring, such as expenses for relocation of employees and for --- integration (XI) Gains and losses from unfairly priced transactions in which the transaction value exceeds its sound --- value 122 (XII) Net current gains and losses of the subsidiaries in the period from the beginning to the date of the --- merger under the same control XIII. Gains and losses from contingency items irrelevant with the Company’s normal businesses --- XIV. Gains and losses from change of the sound value of held transaction monetary assets and liabilities, as well as investment profit from disposing transaction monetary assets and liabilities, and financial assets available for sale, except efficient hedging relevant with the Company’s normal businesses XV. Transferring back of impairment provision for accounts receivable, for which impairment tests are 1,823,509.82 separately conducted XVI. Gains and losses from entrust loans to other entities --- XVII. Gains and losses from change of the sound value of investment real estate after subsequent --- measurement adopting sound value mode XVIII. Influence on current gains and losses by one-off adjustment according to requirements of tax and --- accounting laws and regulations XIX. Trustee fee from trust operation --- XIV Net value of other non-operating incomes and expenses except the items mentioned above 1,756,309.35 XXI. Other items of gains and losses conforming to the definition of non-recurring gains and losses XXII Influence on gains and losses of minority shareholders 1,175,704.00 XXIII Influence on income tax -1,045,355.61 Total 7,114,263.76 (II) Return on Equity and Earnings Per Share Return on equity Earnings per share Profit in report period Weighted Basic earnings Diluted earnings Fully diluted average per share per share Net profit attributable to common shareholders of the Company 3.74% 3.77% 0.0619 0.0619 Net profit attributable to common shareholders of the Company after deducting the non-recurring losses and gains 3.20% 3.23% 0.0528 0.0528 1. Calculation Method The data mentioned above is from calculation based on the following formulas: Fully diluted return on equity (ROE) Fully diluted ROE = P / E Here, P refers to the net profit attributable to common shareholders of the Company or the net profit attributable to common shareholders of the Company after deducting non-recurring gains and losses. E refers to the year-end net assets attributable to common shareholders of the Company. The net profit attributable to common shareholders of the Company does not include gains and losses of minority shareholders. The net profit attributable to common shareholders of the Company after deducting non-recurring gains and losses is calculated by deducting the non-recurring gains and losses of the parent company (considering the influence of income tax), and the non-recurring gains and losses of all subsidiaries, based on the consolidated net profit after deducting gains and losses of minority shareholders (considering the influence of income tax), which are held by the parent company. The year-end net assets attributable to common shareholders of the Company do not include the equity of minority shareholders. Weighted average ROE Weighted average ROE =P/(E0+ NP/2 + Ei×Mi/M0 - Ej×Mj/M0±Ek×Mk/M0) Here, P refers to the net profit attributable to common shareholders of the Company or the net profit attributable to common shareholders of the Company after deducting non-recurring gains and losses. NP refers to the net profit attributable to common shareholders of the Company. EO refers to the year-beginning net assets attributable to common shareholders of the Company. Ei refers to the net assets increased because of issuance of new stocks or conversion of debts into stocks in the report period and attributable to common shareholders of the Company. Ej refers to the net assets decreased because of repurchase or distribution of cash dividends in the report period and attributable to common shareholders of the Company. MO refers to the number of the months in the report period. Mi refers to the number of the months in the period from the month following the one when net assets increase to the year-end month of the report period. Mj refers to the number of the months in the period from the month following the one 123 when net assets decrease to the year-end month of the report period. Ek refers to increases or decreases of net assets caused by other transactions or events. Mk refers to the number of the months in the period from the month following the one when net assets increase or decrease to the year-end month of the report period. Basic earnings per share Basic earnings per share=P/S S= S0 + S1 + Si X Mi / M0 - Sj X Mj / M0-Sk Here, P refers to the net profit attributable to common shareholders of the Company or the net profit attributable to common shareholders of the Company after deducting non-recurring gains and losses. S refers to the weighted average of the common shares issued. SO refers to the total number of the shares at the year-beginning. S1 refers to the number of shares increased because of capitalization of public reserve or distribution of dividends in the report period. Si refers to number of shares increased because of issuance of new stocks or conversion of debts into stocks in the report period. Sj refers to the number of shares decreased because of repurchase in the report period. Sk refers to the number of shares shrunk in the report period. MO refers to the number of the months in the report period. Mi refers to the number of the months in the period from the month following the one when the number of shares increases to the year-end month of the report period. Mj refers to the number of the months in the period from the month following the one when the number of shares decreases to the year-end month of the report period. Diluted earnings per share Diluted earnings per share = [P + (Interests of the diluted latent common shares determined to be expenses – Conversion expenses) × (1 – Income tax rate)]/(S0 + S1 + Si × Mi ÷ M0 – Sj × Mj ÷ M0 – Sk + Weighted average of increased common shares attributed to share warrants, share options and convertible bonds) Here, P refers to the net profit attributable to common shareholders of the Company or the net profit attributable to common shareholders of the Company after deducting non-recurring gains and losses. When calculating the diluted earnings per share, the Company has considered the influence of all diluted latent common shares, so the diluted earnings per share is set at the minimum value. 2. There is no latent common share that cannot be diluted in the current year but may likely be diluted in future periods. 3. There is no significant change in the number of common shares issued or latent common shares of the Company during the period from the balance sheet date to the date when the financial reports are approved to be issued. XIV Approval for Issuance of Financial Statements These financial statements have been approved by all directors (the board of directors) of the Company to be issued on April 13, 2009. Shenzhen SEG Co., Ltd April 13, 2009 124 Shenzhen SEG Co., Ltd. Special Statement File No. 880 [2009], BEIJING SHU LUN PAN CPA CO., LTD. BEIJING SHU LUN PAN CPA CO., LTD. Address: 3th/F Beijing Tower, No.10 East Changan Avenue, Beijing, China Postcode: 100006S Telephone: 86-10-65263615 65263616 Fax: 86-10-65130555 125 Special Statement File No. 880 [2009], BEIJING SHU LUN PAN CPA CO., LTD. To all shareholders of Shenzhen SEG Co., Ltd. We, consigned by Shenzhen SEG Co., Ltd, have audited the capital occupation by Majority Shareholder and related parties of Shenzhen SEG Co., Ltd and its controlling subsidiaries (hereinafter referred to as SEG Corporation) in 2008. It is the responsibility of SEG Corporation to ensure the trueness and completeness of the capital occupation information while our responsibility lies in issuing a special statement for the capital occupation. We carried out the audit in accordance with Auditing Standards for China’s Certified Public Accountants and Notice Concerning Some Issues on Regulating the Funds between Listed Companies and Related Parties and Listed Companies’ Provision of Guaranty to Other Parties, File No. 56 [2003] promulgated by CSRS. We, in consideration of the actual situation of the Company, have carried out auditing procedures we believe necessary, like testing accounting records and confirmations. The capital occupation of SEG Corporation in 2008 by Majority Shareholder and related parties is shown as follows: I Information on Related Parties The related parties stated by this special statement only include the shareholders and other related parties who are involved in occupying the capital of SEG Corporation. Name of the related party Relationship with SEG Corporation Shenzhen SEG Group Majority shareholder Shenzhen SEG Dasheng Co., Ltd. Original related party Shenzhen SEG Property Development Co., Ltd. Subsidiary of majority shareholder Shenzhen SEG Oriental Industrial Development Co., Ltd Joint company II Overview of Capital Occupation by Related Parties a) The balance of capital occupied by related parties is RMB 540,000 as of Dec 31, 2008. b) Capital occupied against rules by related parties 1) The balance of capital occupied against rules by related parties is RMB 0 as of Dec 31, 2008. 2) Capital occupied against rules by the controlling shareholder: The balance of capital occupied against rules by SEG Group is RMB 0 as of Dec 31, 2008. 126 III Details on Capital Occupied by Related Parties as of Dec 31, 2008 (Unit: RMB 10 thousand yuan) Year-beginning balance Accrued amount of bad Relationship between Way of and reason for Occupation prohibited Nature of occupation the related party and Name of the related by No 56 File or not Repayment means the listed company Year-end balance Item of Financial Credit amount Debit amount debt reserve Statements occupation party A B C D E F G H I J K L Guarantee Shenzhen Controlling Operating Others 8 -- ---- 8 ---- deposit for Cash No SEG Group shareholder occupation lease Shenzhen Controlling Accounts Engineering Operating 3 3 0 ---- Cash No SEG Group shareholder receivable payment occupation Shenzhen Subsidiary SEG Property Other Guarantee Operating of 3 --- 1 2 ---- Cash No Management receivables deposit occupation shareholder Co., Ltd. Shenzhen SEG Orient Equity Joint Other Operating Industrial 44 ---- ---- 44 9 transfer Cash No company receivables occupation Development payment Co., Ltd. Total 58 ---- 4 54 9 ---- ---- ---- ---- Note: The balance of other accounts receivable of SEG Group is the guarantee deposit from the Company’s Electronic Marketing Department for renting the property of SEG Group. IV Information on Capital Occupied by Original Related Parties Due to the equity change, SEG Corporation and Shenzhen SEG Dasheng Co., Ltd. (hereinafter referred to as SEG Dasheng) are no longer the related parties. The balance of the capital occupied by the original related party, SEG Dasheng, as of Dec 31, 2008 is RMB 2,380,000, decreasing by RMB 4,120,000 than the year-beginning amount. The main cause of the change is that the guarantee provided by Shenzhen SEG Co., Ltd for SEG Dasheng is transferred by the creditor bank in 2004 to repay the debt guaranteed. 127 V SEG Corporation did not provide entrust loans to related parties through banks or non-bank financial institutions. VI SEG Corporation did not entrust the controlling shareholder and other related parties to carry out investment activities. VII SEG Corporation did not issue commercial acceptance bills without true transactions for the controlling shareholder and other related parties. VIII SEG Corporation did not repay debts for the controlling shareholder and other related parties. We believe that the capital occupation of the aforementioned majority shareholder and related parties is in accordance with the report and presentation requirements provided by Notice Concerning Some Issues on Regulating the Funds between Listed Companies and Related Parties and Listed Companies’ Provision of Guaranty to Other Parties, No. 56 [2003] File promulgated by CSRS. It should be noted that the above report is the special statement issued in accordance with relevant regulations of Notice Concerning Some Issues on Regulating the Funds between Listed Companies and Related Parties and Listed Companies’ Provision of Guaranty to Other Parties, No. 56 [2003] File promulgated by CSRS, and on the basis of relevant materials, tested vouchers, etc. collected during the auditing. The report should not be regarded as our opinion on the whole financial statements of SEG Corporation. For our opinion on the financial statements of SEG Corporation in 2008, please refer to File No 912 [2009] Auditing Report issued by BEIJING SHU LUN PAN CPA CO., LTD. on April 13, 2009. BEIJING SHU LUN PAN CPA CO., LTD. Certified Public Accountant: (Beijing, China) Certified Public Accountant: April 13, 2008 128 XI. DOCUMENTS AVAILABLE FOR REFERENCE (I) Accounting Statements carrying the personal signatures and seals of the Legal Representative, person in charge of accounting work, and principal for accounting organ;. (II) Original of Auditors’ Report carrying the seal of CPAs as well as personal signatures and seals of certified public accountants. (III) Originals of all documents and manuscripts of public notices publicly disclosed on the newspapers designated by CSRC in the report period. Board of Directors of Shenzhen SEG Co., Ltd. April 15, 2009 129