宁通信Ｂ(200468)2008年年度报告（英文版）

Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report March 2009 Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Important Notice The Board of Directors, the Supervisory Committee, the directors, supervisors and senior management of the Company hereby confirm that there are no factitious record, misleading statements or material omissions in this report, and collectively and individually accept full responsibility for the truthfulness, accuracy and completeness of the whole contents. Nine directors were present at the board meeting, including Mr. Zheng Jianhua and Ms. Fu Ruolin who respectively authorized Mr. Sun Liang and Mr. Zhao Xinping to attend the meeting and vote on his/her behalf due to official business. The Company’s Legal Representative Mr. Zhao Xinping, General Manager Mr. Sun Liang, and Chief Accountant Mr. Shi Lian hereby confirm that the financial report in this report is truthful and complete. This report is prepared both in Chinese and in English. In case of any inconsistency between the two versions, the Chinese version should prevail. I. Company Profile............................................................................................................. 2 II. Financial & Operating Highlights ................................................................................. 2 III. Changes in Share Capital & Shareholders Introduction............................................ 4 IV. Directors, Supervisors, Senior Management & Employees ...................................... 6 V. Corporate Governance Structure ............................................................................... 10 VI. Highlights of Shareholders’ General Meeting ........................................................... 12 VII. Report of the Board of Directors ................................................................................ 13 VIII. Report of Supervisory Committee.............................................................................. 21 IX. Significant Events ........................................................................................................ 23 X. Financial Report ........................................................................................................... 26 XI. Documents for Inspection........................................................................................... 28 -1- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report I. Company Profile 1. Legal Chinese Name of the Company: 南京普天通信股份有限公司 Legal English Name of the Company: Nanjing Putian Telecommunications Co., Ltd. 2. Legal Representative: Mr. Zhao Xinping 3. Secretary of the Board of Directors: Mr. Zhang Shenwei Mailing Address: No. 1 Putian Road, Qinhuai District Nanjing Telephone: 86-25-58962009 Fax: 86-25-52409954 Email Address: zsw@postel.com.cn Securities Affair Representative: Ms. Xiao Hong Mailing Address: No. 1 Putian Road, Qinhuai District Nanjing Telephone: 86-25-58962072 Facsimile: 86-25-52409954 Email Address: xiaohong@postel.com.cn 4. Registered Address: No. 58 Qinhuai Road, Jiangning Economics and Technology Development Zone, Nanjing, Jiangsu Province PRC Postal Code: 211100 Business Address: No. 1 Putian Road, Qinhuai District Nanjing Postal Code: 210012 Web Site: www.postel.com.cn Email Address: securities@postel.com.cn 5. Appointed Newspaper for Company Information Disclosure: Securities Times & Hong Kong Wen Wei Po Appointed Web Site for Annual Report Publication: www.cninfo.com.cn Annual Report Prepared At: Financial & Securities Department 6. Listing and Trading Place of Company stock: Shenzhen Stock Exchange Stock Abbreviation: NJ TEL Stock Code: 200468 7. Latest Registration Date: 10 June, 2008 Registered At: Jiangsu Administration for Industry and Commerce Legal Person Operating License No. 320000400000500 Registration Code: Taxation Registration Code: 320121134878054 Organization Code: 13487805-4 Appointed Public Accounting Firm: Daxin Certified Public Accountants Business Address: 15/F, College of Beijing Nation Mansion, No.1 Zhichun Road, Haidian Disrict, Beijing II.Financial & Operating Highlights 1. Financial data for 2008(RMB Yuan) Operating profit 12,501,407.30 Gross profit 22,151,820.51 Net profit attributable to the shareholders of the listed company 6,447,713.08 -2- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Net profit attributable to the shareholders of the listed company after deducting non-recurrent profits/losses -3,492,821.18 Net cash generated from operating activities 52,264,490.16 Note : Details of the deducted non-recurrent profits/losses: Item Amount Profit and loss of non-current assets disposal 4,422,854.61 Tax refund and exemption without authorized approval or formal approval 510,000.00 document Government subsidy recorded into profit and loss of current period 577,594.31 Profit and loss of debt restructure 696,022.33 Income from the condition that the consolidation cost is less than the fair-value of tangible net assets of the corporation being consolidated that belonging to the 7,212,896.03 consolidating corporation Net amount of other non-operating profit and expenses excluding items above 170,388.67 Influenced amount of minority interest -726,543.99 Influenced amount of income tax -2,922,677.70 Total 9,940,534.26 2. Main accounting data and financial indexes for and the recent 3 years(RMB Yuan) (1) Main accounting data 2006 2008 2007 Change(%) Before adjustment After adjustment Operating income 1,174,912,697.30 974,329,991.52 20.59% 1,025,868,770.75 990,564,040.32 Gross profit 22,151,820.51 13,951,785.88 58.77% -1,851,795.04 -2,499,164.41 Net profit attributable to the shareholders 6,447,713.08 3,936,869.94 63.78% 4,118,123.31 -24,290,696.88 of the listed company Net profit attributable to the shareholders of the listed company -3,492,821.18 -107,842,636.46 96.76% -1,847,782.72 -30,256,602.91 after deducting non-recurrent profits/losses Net cash generated from operating 52,264,490.16 134,692,646.13 -61.20% -17,049,329.81 -23,571,497.29 activities At year-end 2006 At year-end 2008 At year-end 2007 Before adjustment After adjustment Total assets 1,229,410,783.11 1,154,943,713.09 6.45% 1,132,450,789.10 1,120,584,047.40 Owner’s equity( or 325,891,395.73 320,385,899.25 1.72% 316,210,729.68 317,139,006.28 shareholder’s equity) Share capital 215,000,000.00 215,000,000.00 0.00% 215,000,000.00 215,000,000.00 (2) Main financial indexes 2006 Change over 2008 2007 Before After 2007 adjustment adjustment Basic earnings per 0.03 0.02 50.00% 0.02 -0.11 share Diluted earnings per 0.03 0.02 50.00% 0.02 -0.11 share Earnings per share after deducting -0.02 -0.50 96.00% -0.01 -0.14 non-recurrent profits/losses Fully-diluted ROE 1.98% 1.23% 0.75% 1.30% -7.66% Weighted average 1.99% 1.23% 0.76% 1.20% -7.38% ROE Fully-diluted ROE after deducting -1.07% -33.66% 32.59% -0.58% -9.54% non-recurrent -3- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report profits/losses Weighted average ROE after deducting -1.08% -33.80% 32.72% -0.54% -9.19% non-recurrent profits/losses Net cash per share generated from 0.24 0.63 -61.90% -0.08 -0.11 operating activities Change over At year-end 2006 At year-end 2008 At year-end 2007 year-end Before After 2007(%) adjustment adjustment Net assets per share attributable to 1.52 1.49 2.01% 1.47 1.48 shareholders of the listed company III. Changes in Share Capital & Shareholders Introduction 1. Changes in Share Capital (1)Change of the Company’s shares Increase/decre Year-beginning ase During the Year-end Year Number Proportion Number Proportion I. Non-tradable shares 115,000,000 53.49% 115,000,000 53.49% 1.Promoter shares 115,000,000 53.49% 115,000,000 53.49% Including: State-owned shares 115,000,000 53.49% 115,000,000 53.49% Domestic legal person shares Foreign legal person shares Other 2.Placement legal person shares 3.Employee’s shares 4.Preference shares and other II. Listed shares 100,000,000 46.51% 100,000,000 46.51% 1.RMB ordinary shares 2.Domestically-listed shares in 100,000,000 46.51% 100,000,000 46.51% foreign currency 3.Overseas listed foreign shares 4.Other III. Total number of shares 215,000,000 100% 215,000,000 100% (2)Share issuing and listing in the last three years The Company did not issue shares in the last three years ended by 2008. 2. Shareholders introduction -4- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Total number of shareholders 15203 Top ten shareholders Non-tradable Number of Shareholder’s Type of Proportion in Shareholding shares held by mortgaged or name shareholder share capital the shareholder frozen shares China Potevio State-owned Company 53.49% 115,000,000 115,000,000 0 legal person Limited Chan Keung Overseas natural 0.60% 1,281,700 0 Unknown person Jiang Xiaoming Domestic natural 0.27% 583,800 0 Unknown person Wang Feifei Domestic natural 0.26% 568,008 0 Unknown person Li Meifang Domestic natural 0.25% 530,300 0 Unknown person Shen Guo Overseas natural 0.23% 500,265 0 Unknown person Huang Kuiying Domestic natural 0.20% 422,424 0 Unknown person Chen Chaofan Domestic natural 0.19% 416,979 0 Unknown person Guo Mingbiao Domestic natural 0.18% 390,600 0 Unknown person Zhong Guowei Domestic natural 0.17% 362,900 0 Unknown person Top ten shareholders of tradable shares Shareholder’s name Number of tradable shares Share type Chan Keung 1,281,700 B share Jiang Xiaoming 583,800 B share Wang Feifei 568,008 B share Li Meifang 530,300 B share Shen Guo 500,265 B share Huang Kuiying 422,424 B share Chen Chaofan 416,979 B share Guo Mingbiao 390,600 B share Zhong Guowei 362,900 B share Long Jianqiu 340,000 B share Among the top ten shareholders, China Potevio Company Limited is neither a Specification of related parties related party nor a person acting in concert with the others. It’s unknown by or persons acting in concert the Company whether there are related parties or persons acting in concert among the above-mentioned among the other shareholders. shareholders The Company does not know whether there are related parities or persons acting in concert among the top ten holders of tradable shares. 3. Introduction of the Company’s controlling shareholder and effective controller: Name of the controlling shareholder: China Potevio Company Limited Company type: a company limited by shares Legal representative: Xing Wei Date of corporation: July 23, 2003 Registered capital: RMB 1.9 billion Principal business: to develop, manufacture, sell and provide services for mobile telecommunications system and terminals, Internet communication equipment and terminals, radio and TV equipment and terminals, computers, software, system -5- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report integration, optical cable, postal equipment and related spare and parts; to contract domestic and overseas projects, to undertaken project planning, designing and inspection; to produce, sell and maintain mechanical and electrical products, mechanical devices, instruments, meters and related spare and parts; to engage in industry investment; to provide technology transfer, consultancy and services; import and export. Name of the Company’s effective controller: China Putian Corporation Company type: state-owned sole enterprise Legal representative: Xing Wei Registered capital: RMB 3086.94 million Date of corporation: 1980 Main business: To organize its subsidiaries to manufacture various products. Research, development, wholesale, retail, commission purchasing, commission sales, sales exhibition of telecommunication equipment, postal specialized equipment, communication wires and spare parts, telecommunication specialized electric appliances, postal specialized motor cycles and spare parts. Export of self-manufactured mechanical and electrical products and whose sets of products. Import of technology and products needed by the enterprise such as raw materials, machinery, instruments, meters and spare parts. Conduct joint investments and production with foreign enterprises. Conduct processing and compensation trades(processing with materials or given samples, assembling supplied components). Conduct processing with imported materials. Conduct counter trade and transit trade. The diagram that illustrates the ownership and controlling relationship between the Company and its effective controller is as follows: State-owned Assets Supervision and Administration Commission of the State Council 100% China Putian Corporation 100% China Potevio Company Limited 53.49% Nanjing Putian Telecommunications Co., Ltd. IV. Directors, Supervisors, Senior Management & Employees -6- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report 1. Directors, supervisors and senior management (1) Changes of shareholding by the directors, supervisors and senior management and the remuneration of the directors, supervisors and senior management Whether Remunerati Receive Sharehold on received Remunera Beginning expiration Sharehol Reason ing at from the tion from a Name Position Sex Age date of office date of office ding at of the year-begi Company(b sharehold term term year-end change nning efore tax, in er or other RMB0’000) related-par ties Zhao Chairman of the Xinping BOD Male 42 May 2006 May 2009 0 0 - 0.00 Yes Vice chairman of Sun Liang the BOD, Male 44 May 2006 May 2009 0 0 - 22.78 No General Manager Zheng Jianhua Director Male 36 May 2006 May 2009 0 0 - 0.00 Yes Li Tong Director Male 38 May 2006 May 2009 0 0 - 0.00 Yes Fu Ruolin Director Female 38 May 2006 May 2009 0 0 - 0.00 Yes Pu Pei Director Male 36 Aug. 2008 May 2009 0 0 0.00 Yes Yang Independent Zhen Director Male 47 May 2006 May 2009 0 0 - 5.00 No Yu Independent Hongliang Director Male 54 May 2006 May 2009 0 0 - 5.00 No Independent Shi Jiguo Director Male 54 May 2006 May 2009 0 0 - 5.00 No Chairman of the Liu Shuping Supervisory Female 59 Dec. 2007 May 2009 0 0 - 0.00 Yes Committee Xiong Weihua Supervisor Male 46 May 2006 May 2009 0 0 - 0.00 Yes Shi Xinhua Supervisor Male 58 May 2006 May 2009 0 0 - 9.00 No Zou Deputy General Dengzhon Manager Male 48 May 2006 May 2009 0 0 - 20.25 No g Jiang Deputy General Hanbin Manager Male 46 May 2006 May 2009 0 0 - 18.70 No Sun Deputy General Qiang Manager Male 51 May 2006 May 2009 0 0 - 18.70 No Shi Lian Chief Accountant Male 36 Sep. 2008 May 2009 0 0 9.60 No Zhang Secretary of the Shenwei BOD Male 33 Nov. 2007 May 2009 0 0 - 10.29 No Total - - - - - 0 0 - 124.32 - By the end of 2008, the Company has not carried out stock incentive plans to directors, supervisors or senior management. 2、Procedure of decision-making on the annual remuneration of the directors, supervisors and senior management, and the basis on which such decisions are made. The Company does not pay remunerations to the directors and supervisors. The directors and supervisors who concurrently take administrative posts in the Company receive salary according to their administrative posts. The independent directors receive allowances from the Company according to the decision of shareholders general meeting. The remuneration standard and assessment measures for the senior management is decided by the board of directors. (3) Major work experience of the directors, supervisors and senior management in the last five years Directors: Mr. Zhao Xinping, aged 42, a postgraduate. He began to work in 1989, and served successively as manager of Investment Management Department, manager of Operation and Finance Department, associate chief accountant(concurrently), assistant to general -7- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report manager of China Putian Corporation, financial supervisor of China Potevio Company Limited(concurrently), chief accountant of China Putian Corporation during September 1999 - November 2006. He has been serving as secretary of the BOD and manager of Purchase Center of China Potevio Company Limited since March 2006. During March 2006 - May 2006 he served as a member of the Third BOD of the Company. Since May 2006, he has been serving as chairman of the Fourth BOD of the Company. Mr. Sun Liang, aged 44, a university graduate, began to work in 1986, and served successively as assistant to general manager, deputy general manager, and executive deputy general manager of Shanghai Posts and Telecommunications Co., Ltd. during September 1995 - January 2005. He has been serving as general manager of the Company since January 2005, and was a member of the Third BOD during June 2005 to May 2006. Since May 2006, he has been serving as vice chairman of the Fourth BOD. Mr. Zheng Jianhua, aged 36, a university graduate, began to work in 1994, serves as supervisor of President Office of China Putian Corporation during November 2001- May 2006, and successively served as general manager of General Administrative Department, vice general manager of Financial Business Division, and vice general manager of Industry Electric Business Division since May 2006. He has been serving as general manager of Potevio Logistics Technology Ltd. since February 2008. He was elected into the Fourth BOD of the Company in May 2006. Mr. Li Tong, aged 38, a university graduate, began to work in 1993, and served successively as the head of Operation Plan Division and vice manager of Enterprise Management Department, deputy supervisor of Enterprise Reorganization Office and vice manager of Enterprise Development Department of China Putian Corporation during September 1999 to November 2005. During November 2005 to November 2007 he served as vice manager of Enterprise Development Department and concurrently supervisor of No. 1 Operation Division under the department of China Potevio Company Limited. Since November 2007 he has been serving as general manager of Nanjing Potevio Telecommunication Technology Industry Park Co., Ltd. He was elected into the Fourth BOD of the Company in May 2006. Ms. Fu Ruolin, aged 38, a postgraduate, began to work in 1992. She successively served as assistant to manager of Financial Department, supervisor of Financial Management Office and vice manager of Financial Department of China Putian Corporation during July 1999 - April 2005. Since April 2005 she successively served as vice manager and manager of Financial Department of China Potevio Company Limited. She was elected into the Fourth BOD of the Company in May 2006. Mr. Pu Pei, aged 36, a postgraduate, began to work in 1994. He used to serve as a cadre of Personnel Division of North China Electric Power University, senior specialist of Human Resource Department of China International Electronic Commerce Center Co., Ltd., and manger of Human Resource Department of Eastern Communications Technology Development. During June 2003 – December 2007, he successively served as vice general manger and general manger of Human Resource Department of Potevio Institute of Technology Co., Ltd., and assistant to president of the institute. Since December 2007 he has been serving as assistant to general manager of Human Resource Department of China Potevio Company Limited. He was elected into the Fourth BOD of the Company in August 2008. Independent Directors: Mr. Yang Zhen, aged 47, Ph.D., began to work in 1983. He serves as president of Nanjing University of Posts & Telecommunications. He used to serve as an independent director in the Third BOD of the Company during June 2003 -May 2006, and was elected into the Fourth BOD of the Company as independent director in May 2006. Mr. Yu Hongliang, aged 54, a university graduate, CPA, began to work in 1971, and now serves as professor in Nanjing Audit University. He used to serve as independent director of the Third BOD of the Company and was elected into the Fourth BOD as -8- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report independent director in May 2006. Mr. Shi Jiguo, aged 54, a postgraduate, began to work in 1997, serves as dean of Network Center of Xuzhou TV Station. He was elected into the Fourth BOD of the Company as independent director in May 2006. Supervisors Ms. Liu Shuping, aged 59, a college graduate, began to work in 1969. She served successively as Party branch secretary of Standardization Office of Institute of Post and Telecom Industry Standard, vice supervisor of Administration Office, director of Human Resources Department of PTIC, general manager of Human Resources Department of China Putian Corporation. She currently serves as head of Discipline Inspection Group, chairman of labor union, Party branch secretary and chairman of supervisory committee of China Potevio Company Limited. She was elected as chairman of the supervisory Committee of the Company in December 2007. Mr. Xiong Weihua, aged 46, a college graduate, began to work in 1982. He served successively as a supervisor, vice chief and chief of Auditing Office of China Putian Corporation during August 1995 -April 2006, as senior supervisor of Party-mass Relation Department of China Potevio Company Limited since April 2006. He was elected into the Fourth Supervisory Committee of the Company in May 2006. Mr. Shi Xinhua, aged 58, a university graduate, joined the Company in 1994. He served successively as deputy secretary of the Party Committee, an employee supervisor and concurrently chairman of labor union during July 1997 – April 2007. Since May 2006 he has been serving as supervisor in the Fourth Supervisory Committee and concurrently chairman of labor union of the Company. Senior management: Mr. Sun Liang: see Directors Mr. Zou Dezhong, aged 48, a university graduate, began to work in 1979. He used to hold the post of associate chief engineer, chief engineer of Wireless Department and assistant to general manager of the Company, and has been serving as deputy genera manager of the Company since August 2002. Mr. Jiang Hanbin, aged 46, a university graduate, began to work in 1983. He used to hold the post of manager of Wiring Department and assistant to general manager of the Company and has been serving as deputy general manager of the Company since December 1998. Mr. Sun Qiang, aged 51, a university graduate, began to work in 1978. He used to hold the post of vice secretary of Party Committee, supervisor, and chairman of labor union. He has been serving as deputy general manager of the Company since May 2002. Mr. Shi Lian, aged 36, a postgraduate, started to work in 1997. He has been serving as head of Financial Department of the Company since May 2003. During December 2004 – September 2008 he served as associate chief accountant of the Company, and since Setember 2008 he has been serving as chief accountant of the Company. Mr. Zhang Shenwei, aged 33, a university graduate, started to work in 1999. He used to serve as deputy head of Financial and Securities Department of the Company and head of President Office since May 2006. During May 2006 to November 2007 he served as securities affair representative. Since May 2006 he has been serving as secretary of Fourth BOD. Among the above-mentioned people, Mr. Zhao Xinping, Mr. Zheng Jianhua, Ms. Fu Ruolin, Mr. Pu Pei, Ms. Liu Shuping and Mr. Xiong Weihua are working for the Company’s shareholder, China Potevio Company Limited. (4) Appointment and resignation of the directors, supervisors and senior management in -9- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report the reporting period ① Mr. Pu Pei was elected into the Fourth Board of Directors by the First Extempore Shareholders’ General Meeting of 2008 on 15 August 2008. ② As approved by the 25th Meeting of the Fourth BOD on 25 September 2008, Mr. Yuan Yong resigned as deputy general manger of the Company, and Mr. Zou Dezhong, Mr. Jiang Hanbin and Mr. Sunqiang were appointed as deputy general manager of the Company. Mr. Shi Lian was appointed as chief accountant of the Company. 2. Employees of the Company At the end of 2008, the Company had 1,274 employees. A breakdown by job duties of the employees is as follows: Technology 224 Production 483 Sales 307 Services 101 Administration 159 A breakdown by educational level is as follows: University degree and above Technical secondary school 320 and senior middle school 367 College Junior middle school and 423 below 164 The Company should bear expenses for 504 retired employees. V. Corporate Governance Structure 1. Present status of the Company’s governance The Company made unswerving efforts in optimizing legal person governance structure in accordance with the PRC Company Law, Securities Law and relevant requirements of CSRC on corporate governance structure of listed companies. Pursuant to the requirement of the Announcement No. 27[2008] of CSRC, the Company deepened the special campaign to strengthen the corporate governance in 2008. By amending the Articles of Association, the Company improved long-effect measures to prevent the controlling shareholder to occupy the fund of the Company. And the Company continued to strengthen the work on establishing and improving internal control system. Some regulations and rules were revised or formulated. And a self-check was conducted on the rectification of the problems located in the rectification plan. On 19 July 2008, the Company disclosed the Report on Rectification Made by the Company in the Special Campaign to Strengthen the Corporate Governance of Listed Companies after the report was passed by the 22nd Meeting of the Fourth BOD. The special campaign to strengthen corporate governance carried out by the Company since 2007 has experienced a series of stages, including regulation learning, self-check, collecting public suggestions, accepting field inspection and making rectification. By making rectification for the weakness in legal person governance structure and internal control system, the Company improved the level of standard operations. 2. Independent directors’ working performance Independent directors’ attendance at the board meetings in the reporting period: Name Number of Attendance in Attendance by Absence -10- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report board meetings person proxy Yan Zhen 8 7 1 0 Yu Hongliang 8 8 0 0 Shi Jiguo 8 8 0 0 In the reporting period, the independent directors attended all the board meetings and carefully considered all of the proposals. They presented independent opinions on the related party transactions, guaranty providing, senior management appointment and internal control system of the Company. They practically performed the duties that the laws, regulations and articles of association granted to them, improved the scientificalness and justness of the decisions of the Company, and safeguarded the interest of minor shareholders. 3. The Company’s separation from the controlling shareholder in five aspects (1) Business: The Company has the ability to operate independently and has a complete system of production, purchasing and sales. Its operations are independent on the controlling shareholder. (2) Personnel: The Company owns an independent human resources and salary management system. Members of the senior management receive remuneration from the Company. (3) Assets: The assets invested by a controlling shareholder in the company is independent, complete and with clear indication of ownership. The controlling shareholder did not interfere with the Company’s management of such assets. (4) Organization: The Company has a complete and independent internal organization. All of the branches, including the Board of Directors and Supervisory Committee, can perform their duties independently. (5) Finance: The Company has an independent financial department and accounting and financial management rules. It conducts independent business accounting. The controlling shareholder did not interfere with the financial activities of the Company. 4. Establishment and improvement of internal control system The Company has established an internal control system according to the laws and regulations and its actual conditions that covers all aspects of day-to-day operations, such as financial management, assets management, investment management, technology and quality control, employee’s safety and health protection, internal inspection, human resources management and so on. In the reporting period, the Company continued to improve the internal control system while carrying out the special campaign to strengthen corporate governance. As to the problems located in the special campaign, the Company made rectification by improving the long-effect measures to prevent the controlling shareholder to impropriate the fund of the Company. And the Company formulated and revised some internal rules and regulations, such as Working Rules of Independent Directors for Annual Report Preparation, Working Procedures of Audit Committee for Annual Report Preparation, Inventory Management Rule, Employee Handbook, Work Attendance Checking System, Employee Vacation Management Rule, Rules on Periodical Inspection on Execution of Investment Project, Rules on Periodical Inspection on Implementation of Resolutions of Board of Directors of the Subsidiaries, -11- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Contract Management Rule, Administrative Measures for Economic Responsibility in Office Term, Procedures of Control on Nonconforming Product. Managers of the Company believe that the Company has established a basically sound and standard internal control system that covers all aspects of operations and is in conformity with the requirement of the laws and regulations. With the change of managerial environment and the development of business, the Company must continuously improve the internal control system. The Company conducted a self-appraisal on internal control system and disclosed the Self-appraisal Report on Internal Control at Cninfo (www.cninfo.com.cn) on the same day when this annual report was disclosed. 5. Establishment and implementation of appraisal and incentive system for the senior management The board of directors has worked out a remuneration scheme and measures on assessment for the senior management. The Company applies the performance-related annual salary system for the senior management, paying remuneration to the senior management according to the assessment on the fulfillment of operating target and fulfillment of the job respectively undertaken by members of the senior management. VI. Highlights of Shareholders’ General Meeting Two shareholders’ general meetings were held in the reporting period. I. On 19 May 2008, the Company held the 2007 Shareholders’ General Meeting, at which the following proposals were considered and passed: (1) 2007 Work Report of the Board of Directors (2) 2007 Work Report of the Supervisory Committee (3) 2007 Work Report of General Manager (4) 2007 Financial Report (5) 2007 Profit Distribution Plan (6) 2007 Annual Report of the Company (7) Proposal on estimating related party transactions relating to day-to-day operations for the year 2008 (8) Proposal on amending the Articles of Association The announcement concerning the resolutions of the meeting was published on Securities Times and Hong Kong Wen Wei Po on 20 May 2008. II. On 15 August 2008, the Company held the First Extempore Shareholders’ General Meeting of 2008, at which the following proposals were considered and passed: (1) Proposal on co-opting Mr. Pu Pei into the Fourth Board of Directors. (2) Proposal on discharging and appointing a public account firm. The announcement concerning the resolutions of the meeting was published on Securities Times and Hong Kong Wen Wei Po on 16 August 2008. -12- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report VII.Report of the Board of Directors I. Review of operations during the reporting period 1. Discussion and analysis of the overall operating condition of the Company during the reporting period In the year 2008, the Company developed through innovations and transformation of managerial pattern. In this year, the Company experienced a lot of serious challenges. The intensification of market competition, the sliding of product prices, the fluctuation of raw material prices, the changes of bank-loan interests, the rising labor costs, the restructuring of telecommunication operators and the impact of financial crisis, all imposed pressures and difficulties on the Company in operation and management. In the face of these challenges, we centered on the operating tasks and fully implement the strategy of promoting both industry development and reform. Innovations and corporate restructuring were conducted to improve the industry development pattern. Refined management, industrial upgrading and technical renovations were applied to promote the Company’s comprehensive competitiveness. Under the efforts of the whole staff, the Company realized revenue of 1,174.91 million Yuan and net profit of 6.448 million Yuan. 2008 2007 Change(Yuan) Change（%） Operating income 1,174,912,697.30 974,329,991.52 200,582,705.78 20.59% Operating profit 12,501,407.30 -96,291,625.38 108,793,032.68 112.98% Net profit attributable 6,447,713.08 3,936,869.94 2,510,843.14 63.78% to shareholders of the listed company Operating profit increased 112.98 percent compared that of last year. The main cause for the change is that part of wireless products were disposed in last year according to the Company’s product mix adjustment strategy, which affected the general profit margin of last year. And the year-on-year increase of nearly 200 million Yuan of revenue also contributed to the growth of operating profit. 2. Operating condition of main business (1) Industry and products which account for more than 10 percent of the company’s main business( RMB0’000) A breakdown of main business by industry Year-on-year Year-on-year Year-on-year A breakdown by Gross margin increase/decre Revenue Cost increase/decrease increase/decrease industry or product （%） ase of gross of revenue（%） of cost（%） margin（%） Telecommunicati 109,092.03 91,104.13 16.49% 28.44% 19.84% 5.99% ons industry A breakdown of main business by product Comprehensive access products 46,875.81 37,850.34 19.25% 21.02% 22.73% -1.13% Video conference 31,996.29 27,954.18 12.63% 26.23% 28.29% -1.40% system Wire transfer 3,707.01 2,656.32 28.34% -20.15% -17.91% -1.96% products (2) A breakdown of main business by region( RMB0’000) Year-on-year increase/decrease of Region Revenue revenue (%) -13- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report North China 25,791.92 -4.71% East China 48,212.19 52.03% Other regions 38,066.93 9.21% 3. Major suppliers and customers In 2008, the Company’s purchase from the top five suppliers amounted to RMB 373.78 million Yuan, accounting for about 45.26 percent of the total purchase, and sales to the top five customers amounted to RMB 169.89 million Yuan, accounting for about 14.46 percent of the total revenue. 4. Composition of assets in the reporting period Year-end 2008 Year-end 2007 Change of the Main factors Proportion Proportion proportion(by that cause a Amount in the total Amount in the total percentage material change assets assets points) Total assets 1,229,410,783.11 100.00% 1,154,943,713.09 100.00% 0.00 - Accounts 337,226,330.95 27.43% 321,963,622.38 27.88% -0.45 - receivable Inventories 177,019,556.57 14.40% 165,661,233.35 14.34% 0.06 - Property 5,433,475.69 0.44% 5,678,568.25 0.49% -0.05 - investment Long-term 216,398,929.36 17.60% 214,759,591.64 18.59% -0.99 - share equity investment Fixed assets 75,339,969.01 6.13% 68,049,573.06 5.89% 0.24 - Construction 0.00 0.00% 6,937,748.78 0.60% -0.60 - in progress Short-term 490,000,000.00 39.86% 404,000,000.00 34.98% 4.88 - borrowings Long-term 0.00 0.00% 0.00 0.00% 0.00 - borrowings Note: In calculating the accounting factors, the Company adopts the historical cost method; in case the determined accounting factor amount can be obtained or reliably calculated, the replacement cost, net realizable value, current value or fair value of the individual accounting factor may be adopted. There were no changes in calculation nature in the reporting period. 5. Items related to fair value In the reporting period the Company had no financial assets, financial liabilities, investment real estate that were calculated in fair value. Neither were there changes in fair value that would influence the profits of the period. The Company has formulated Accounting Policies and Estimates, which specifies the range of financial assets and financial liabilities that were calculated in fair value and the confirmation method of fair value. 6. Holding of financial assets and financial liabilities in foreign currency (RMB0’000) Item Beginning Gains or losses Accumulative Impairment loss Ending balance from change of change of fair provided for current balance fair value in the value recorded period reporting period in equity Financial assets Including: 1.the financial assets or financial liabilities that are calculated in the fair values and whose changes are accrued to current profit and loss -14- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Including: derivative financial instruments 2.loans and receivables 530.94 337.72 3.available-for-sale financial assets 4.held-to-maturity investments Subtotal of financial assets 530.94 337.72 Financial liabilities 7. Changes of expenses and incomes in the reporting period 2008 2007 Change(Yuan) Change( Main factors that cause a %) material change Sales expenses 76,391,808.55 77,386,162.32 -994,353.77 -1.28% - Administrative 70,723,539.54 75,917,015.29 -5,193,475.75 -6.84% - expenses Financial costs 30,852,690.98 23,778,972.97 7,073,718.01 29.75% Bank-loan interest rates were generally raised under the influence of macro economic environment, which brought about a substantial growth in financial costs. Non-operating 10,087,973.48 111,740,037.14 -101,652,063.6 -90.97% The company invested in income 6 Nanjing Putian Telecommunication Technology Industry Park Co., Ltd., with land property last year. The appreciation of the land property was recorded in current profits and losses. There were no such incomes in the reporting period. Income tax 5,758,580.28 5,459,666.09 298,914.19 5.47% - expenses 8. Composition of cash flows and material change 2008 2007 Change(Yuan) Change( Main factors that cause a %) material change Cash flows from 52,264,490.16 134,692,646.13 -82,428,155.97 -61.20% Payment from customers operating was slower than the activities previous year under the influence of the financial crisis in the reporting period. Cash flows from -36,202,588.39 -44,803,680.19 8,601,091.80 19.20% In the reporting period the investment Company received the activities share transfer payment of the subsidiary, Nanjing Hongyan, 10.98 million Yuan Cash flows from 5,329,887.93 -28,302,696.95 33,632,584.88 118.83% Adding of bank loans. financing activities 9. Operating results of main subsidiaries and associated companies in 2008 (1) Operating results of main subsidiaries (Yuan) Equity owned Registered Total assets at Net assets at Total business i Operating Net profit Subsidiary by the Main business capital year-end year-end ncome profit /(net loss) Compa ny -15- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Nanjing Nanfang Manufacture and Telecommunic 98.24 sales of data 34,205,148 161,197,857.51 62,540,537.26 319,962,907.31 9,578,017.59 14,870,983.88 ations % communication Company equipment Limited Nanjing Putian Manufacture and Intelligent 41.35 sales of 12,000,000 138,233,876.29 61,300,322.56 185,911,650.01 16,905,613.11 14,380,288.84 Building Ltd. % intelligent building system Nanjing Putian manufacture and Network sales of software Company Ltd. of 92.16 telecommunicati 10,000,000 13,599,410.29 4,042,458.53 9,487,011.61 -555,409.20 -521,865.19 % ons, network and electronic equipment Nanjing Putian Changle Manufacture and Telecommunic sales of 50.7% 10,000,000 45,868,362.86 17,965,098.93 76,310,342.31 4,463,857.52 4,401,977.49 ations telecommunicati Equipment on equipment Co., Ltd. Putian Export and Telecommunic import of ations (H.K.) telecommunicati HKD -10,579,022.9 Co., Ltd. 90% on equipment, 6,509,190.37 18,951,646.57 -49,611.89 -49,611.89 2,000,000 1 Hi-tech R & D and transfer, technology trade Nanjing Postel Production, Wongzhi sales and Telecommunic 67% processing of 90,190,000 24,680,605.08 39,394,808.69 13,871,196.83 -1,257,135.19 -1,264,982.68 ations Co., Ltd. electrical products Manufacture and Nanjing Putian sales of Inforamtion 100% electrical and 14,000,000 11,868,708.50 4,260,719.92 14,321,240.05 1,987,837.14 1,981,033.39 Technology telecommunicati Company Ltd. on products Note: The Company sold a 51.2% stake of the subsidiary, Nanjing Putian Hongyan Electric Appliances Company Limited in the year. And one subsidiary, Beijing Picom Telecommunications Equipment Ltd was excluded from consolidation scope. The Company’s investment proportion of it is 51%. The company was revoked its business license by Beijing Industrial and Commercial Bureau, and was thus excluded from the consolidated scope. (2) Associated companies that contributed more than 10 percent of the Company’s net profit.（Yuan） Equity Operating owned by Net assets at Net profit for Company Main business income for the the year-end the year year Company Nanjing 50.00% Plugs and 49,434,882.30 101,570,937.74 5,877,033.49 Mennekes receptacles for Electric industrial use Appliances Ltd. Qufu Yulong 21.00% Development, 72,061,944.74 0 -20,340,520.50 Biotech Ltd. manufacture and sales of bio-tech products II. Forecast of future development 1. Analysis on industrial development trend and market competition The year of 2009 will be a difficult year for the Company in the process of development, with the wide spread of financial crisis and fierce economic situations both at home and abroad. On the other hand, it will be a year full of challenges and -16- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report opportunities for the Company. The three major telecommunication operators of china, which are the main target customers of the Company, will increase investment in 2009, and that will bring about a new upsurge in 3G network construction. Although the competition among telecommunication equipment manufacturers are intensified, the Company has comparatively strong competitiveness and rich marketing opportunities in the fields of integrated access products and Internet video communication products. In 2009, we will pay special attention to the development of distribution frame industry, access application industry, integrated trade and processing industry. We will adhere to technological innovations and technology advancement and emphasize the integration of market and technology to develop more products that can adapt to the need of 3G network construction. We will intensify internal management and exploit potentialities to enhance the comprehensive competitiveness of the Company and promote the industrial upgrading and development. 2. Operating plan for the new year We need to focus on the following aspects of our work in 2009: (1) Deepening internal reforms in system and mechanism. We will further define the development direction of our prior industry. We should conduct business integration and corporate reorganization, so that the economic resources can be distributed and used (2)Accelerating technological innovations and industrial development. We will increase investment in technology and speed up technological innovations oriented to 3G construction and customer demand to realize product upgrading and enhance our core competencies. (3) Implementing refined management to cut down costs and enhance economic returns. We need to realize process management in all links of the industry chain. We should adhere to making innovations in management and exploiting potentiality, and conduct strict assessment to reduce operational costs. (4) Strengthening information technology application to improve fundamental management. We will formulate a unified program for company informationization and implement it step by step in order that the Company’s managerial level and efficiency can be raised and that a common share of company information, the integration of management and control can be realized. (5) Strengthening brand awareness and increase input in marketing. We will intensify the publicity and promotion of the Company’s brand and build a popular brand image in market, making preparation to launch the new products. (6) Intensifying corporate culture construction and enhancing employee’s quality. We will put people first and pay close attention to talent fostering. The corporate culture of “communication, implementation, achievements” will be advocated. We will create a steady and harmonious environment for development. 3. Difficulties and risks in operations The fluctuation of raw material prices in recent years affected the purchasing costs of the Company, leading to uncertainty in reducing production costs and reaching the estimated profit margin. And the adoption of reverse tendering method by telecommunication operators has led to tough competition in communication product market. We will try to boost our market shares, and meanwhile reduce cost and maintain profit margin by intensifying management, ensuring the fulfillment of operating target. With the implementation of macro economic control policy, the bank-loan benchmark interest rate shows a downward tendency. The Company’s interest cost is estimated to drop down this year , but the financing cost will still be relatively high. Meanwhile, due to the global economic crisis, delay of payment has become a common phenomenon among enterprises. It is difficult for the Company to control receivables and payables, which possibly may affect the cash flow and assets liabilities ratio of current period. We will work out more detailed fund usage plan and scientifically estimate the incomes and expenses, and surplus and deficiency of fund capital in the year, and make a overall plan for fund demand in operating, investing and financing activities. We shall budget -17- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report expenses according to incomes and manage fund capital cautiously to prevent financial risks and ensure a dynamic balance of fund capital. 4. Fund demand and usage plan According to the operating plan, the need of current capital for 2009 is around 120 million Yuan. We will solve the need mainly by customer payment and bank loans. III. Investment in the reporting period 1. Use of proceeds from share issuing The Company did not raise any proceeds by issuing shares in the reporting period or use proceeds raised in previous periods. 2. Significant investment using self-owned fund in the reporting period There was no significant investment using self-owned fund in the reporting period. The Company invested 6.6983 million Yuan in fixed assets for productive use and 5.7144 million Yuan for constructing a new plant of Nanjing Putian Smart Building Company Ltd., a subsidiary of the Company. And 4.8599 million Yuan was invested for capital increase of two subsidiaries, including 3.4599 million Yuan to Nanjing Mennekes Electric Appliances Ltd., of which a 50% stake is held by the Company, and Nanjing Putian Datang Electric Ltd., of which a 40% stake is held by the Company. IV. Day-to-day work of the Board of Directors 1. Meetings and resolutions of the BOD during the reporting period The board of directors held eight meetings in the reporting period. (1) The 19th Meeting of the Fourth BOD was held on 3 April 2008, at which the following proposals were considered and passed: ① 2007 Work Report of the Board of Directors ② 2007 Work Report of General Manager ③ 2007 Financial Report and 2008 Budget Report ④ 2007 Profit Distribution Plan ⑤ 2007 Annual Report of the Company and Summary of the report ⑥ Proposal on estimating related party transactions relating to day-to-day operations for the year 2008 ⑦ Proposal on amending the Articles of Association ⑧ Proposal on formulating Work Rules of Independent Directors on Annual Report ⑨ Proposal on formulating Work Rules of Auditing Committee on Annual Report ⑩ Proposal on adjusting the Yulong Bio-tech investment plan 1○1 Proposal on adjusting the beginning amount of some items in the Balance Sheet of 2007； 1○2 Proposal on holding the 2007 Shareholders General Meeting The announcement concerning the resolutions of the meeting was published in the Securities Times and Hong Kong Wen Wei Po on 8 April 2008. (2) The 20th Meeting of the Fourth BOD was held on 24 April 2008, at which the following proposals were considered and passed: ① The First Quarterly Report of 2008 of the Company ② Proposal on providing guaranty for some subsidiaries of the Company when they apply for bank loans -18- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report The announcement concerning the resolutions of the meeting was published in the Securities Times and Hong Kong Wen Wei Po on 25 April 2008. (3) The 21st Meeting of the Fourth BOD was held on 27 June 2008, at which the following proposals were considered and passed: ① Proposal on co-opting Mr. Pu Pei into the fourth board of directors ② Proposal on increasing capital of Nanjing Mennekes Electric Appliances Ltd., a joint venture of the Company The announcement concerning the resolutions of the meeting was published in the Securities Times and Hong Kong Wen Wei Po on 28 June 2008. (4) The 22nd Meeting of the Fourth BOD was held on 17 July 2008, at which the following proposals were considered and passed: ① Proposal on changing a public accounting firm ② Proposal on holding the First Extempore Shareholders’ General Meeting of 2008 ③ Report on Retification Made by the Company in the Special Campaign to Strengthen the Corporate Governance of Listed Companies The announcement concerning the resolutions of the meeting was published in the Securities Times and Hong Kong Wen Wei Po on 19 July 2008. (5) The 23rd Meeting of the Fourth BOD was held on 30 July 2008, at which the Self-check Report on Fund Flow between the Company and the Controlling Shareholder and Fund Possession by the Controlling Shareholder was considered and approved. The announcement concerning the resolutions of the meeting was published in the Securities Times and Hong Kong Wen Wei Po on 31 July 2008. (6) The 24th Meeting of the Fourth BOD was held on 15 August 2008, at which the following proposals were considered and passed: ① 2008 Interim Work Report of General Manager ② Financial Analysis Report for the First Half of 2008 ③ 2008 Semi-annual Report and Summary of 2008 Semi-annual Report The announcement concerning the resolutions of the meeting was published in the Securities Times and Hong Kong Wen Wei Po on 19 August 2008. (7) The 25th Meeting of the Fourth BOD was held on 25 September 2008, at which the following proposals were considered and passed: ① Proposal on Resignation of Mr. Yuang Yong as Deputy General Manager ② Proposal on continuing to appoint Mr. Zou Dezhong, Mr. Jiang Hanbin and Mr. Sun Qiang as Deputy General Manager of the Company ③ Proposal on appointing Mr. Shi Lian as Chief Accountant of the Company ④ Proposal on increasing capital of Nanjing Puitan Datang Information and Electric Company Ltd. The announcement concerning the resolutions of the meeting was published in the Securities Times and Hong Kong Wen Wei Po on 26 September 2008. 8) The 26th Meeting of the Fourth BOD was held on 22 October 2008, at which the Third Quarterly Report of 2008 of the Company was considered and approved. -19- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report 2. Implementation of resolutions of shareholders’ general meeting by the board of directors (1) Implementation of issues the shareholders’ general meeting authorized the board of directors to exercise In the reporting period, the shareholders’ general meeting authorized the board of directors to decide the remuneration of Daxin Certified Public Accountants, the public accounting firm engaged by the Company for 2008. The board of directors approved to pay 1.35 million Yuan to the accounting firm according to the workloads and the work performance of the firm in conducting annual report audit. (2) Implementation of profit allocation plan and stock incentive plan The Company did not conduct profit distribution plan or formulate a stock incentive plan in the last and current year. 3. Summary report of the Audit Committee on the performance of their duties The Audit Committee conducted a series of work for the audit of 2008 annual financial report according to the requirement of Announcement No. 48 [2008] of CSRC and the Working Rules of the Audit Committee for Annual Report Preparation of the Company. Before the public accounting firm started the annual audit work, the Audit Committee consulted with the public accounting firm for the schedule of the audit work. They also examined the 2008 financial statements of the Company prepared by the financial department, and presented opinions in written form, holding that the financial statements basically gave a true view of the financial state as at 31 December 2008 and of the operating result of the year then ended, agreeing to conduct audit on the basis of the statements. In the process of audit, the committee kept contact with the public accountants, urging them to complete the audit work on time and to communicate with the committee on significant issues. After the accountants presented a preliminary audit opinion, the committee examined the financial statements for the second time and presented opinion in writing, holding that the preparation of the financial statements was reasonable and standard, and in conformity with the Accounting Standard for Business Enterprises and the financial rules of the Company, and that it was truthful, accurate, and complete, giving a fair view of the financial status as at 31 December 2008 as well as the operating result and cash flow of 2008. The Audit Committee voted on the financial statements, agreeing to submit the statements to the board of directors to consider. At the same time, the committee submitted to the BOD the audit work conclusion report of the public accounting firm. In the opinion of the Audit Committee, Daxin Public Certified Accountants complied with the ethic of independence, objectiveness and fairness when they provided audit service for the Company, and completed the audit work, therefore the committee advised the board of directors to continue to engage the accounting firm for 2009. 4. Summary report of the Remuneration and Assessment Committee subordinate to the BOD on the performance of their duties The Remuneration and Assessment Committee examined the remuneration of the directors, supervisors and senior management disclosed by the Company and believe -20- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report that the remuneration standard of the above-mentioned people is in conformity with the Company’s salary management rules and the remuneration disclosed in 2008 annual report is truthful and accurate. V. Profit distribution preplan for 2008 1. According to Daxin Certified Public Accountants, the net profit attributable to shareholders of the parent company for 2008 is RMB 6,447,713.08. Plus retained earnings of previous yeas of RMB -77,343,697.79 and other changeover in of RMB 769,373.61, the distributable profit for 2008 is RMB -70,126,611.10, which does not meet the conditions for profit distribution. Therefore, the Company will not conduct profit distribution for 2008 or transfer capital reserve to share capital. 2、Cash dividend declared in the last three years Proportion in the net Net profit attributable to profit attributable to shareholders of the Amount of cash shareholders of the parent company on the dividend(before tax) parent company on the consolidated financial consolidated financial statements statements 2007 0.00 3,936,869.94 0.00% 2006 0.00 4,118,123.31 0.00% 2005 0.00 6,303,423.69 0.00% VIII. Report of Supervisory Committee 1. Meetings of the Supervisory Committee during the reporting period Meetings of the Supervisory Resolutions of the meetings Committee The 11th Meeting of the Fourth Considered and passed the proposal on writing Supervisory Committee was held on off bad accounts for 2007 3 January 2008 by way of communication. The 12nd Meeting of the Fourth Considered and passed the 2007 work report of Supervisory Committee was held on the supervisory committee, the 2007 financial 3 April 2008 by way of report and 2008 budget report, the profit communication. distribution pre plan of 2007, and the 2007 Annual Report and summary of the annual report. The 13rd Meeting of the Fourth Considered and passed the First Quarterly Supervisory Committee was held on Report of 2008 of the Company 24 April 2008 by way of communication. The 14th Meeting of the Fourth Considered and passed the 2008 Semi-annual Supervisory Committee was held on Report of the Company 15 August 2008 by way of communication. The 15th Meeting of the Fourth Considered and passed the Third Quarterly Supervisory Committee was held on Report of 2008 of the Company 22 October 2008 by way of -21- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report communication. 2. Independent opinion presented by the Supervisory Committee (1) The Company’s operation according to the laws The Supervisory Committee supervised the procedures and resolutions of shareholders’ general meeting and meetings of the board of directors, the implementation of resolutions of shareholders’ general meeting by the board of directors, and the actions of senior management in performing their duties, as well as the managerial rules formulated by the Company. The Supervisory Committee believe that the Company’s operations were in conformity with the PRC Company Law, Securities Law, Rules Governing Listing of Stocks on Shenzhen Stock Exchange, and the Company’s Articles of Association. The Company’s procedures of decision-making is in conformity with the relevant laws, and a sound internal control system has been established by the Company. No acts of the directors and senior management were observed violating the laws, regulations and the Company’s Articles of the Association or contrary to the interest of the Company. (2) The Company’s financial position: The Supervisory Committee examined the accounting rules and financial condition of the Company. We believe that the 2008 Financial Statements give a true view of the Company’s financial position and operating results, and the unqualified opinion and appraisal on relevant issues presented by Shulun Pan Certified Public Accountants Co., Ltd. is objective and fair. (3) The Company’s transactions of buying and selling assets The Company’s transactions of buying and selling assets in the reporting period were executed at fair prices. No insider deals, actions harmful to a part of shareholders’ interest or causing loss of the Company’s assets were found. (4) The Company’s related-party transactions: The Company’s related-party transactions in the reporting due to objective reasons were executed with contracts signed under the rule of fair trade. No actions of harming the interests of the Company were observed. (5) The Company has established an internal control system that covers all aspects according to relevant regulations of CSRC and Shenzhen Stock Exchange. The internal control structure is complete. Implementation and supervision of the internal control rules is sufficient and effective. In the reporting period, we did not find any acts of the Company that violated the Guidelines of Shenzhen Stock Exchange for the Internal Control of Listed Companies. The supervisory committee believe that the self-appraisal on internal control reflects the actual situation of the Company’s internal control. -22- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report IX. Significant Events 1. Significant lawsuit or arbitration during the reporting period The Company was not involved in any significant lawsuit or arbitration during the reporting period. 2. Issues concerning bankruptcy or reorganization No such issues as bankruptcy or reorganization happened in the reporting period. 3. Shareholding in other listed companies The Company did not hold shares of other listed companies in the reporting period. 4. Matters related to purchasing assets, selling assets, acquisition or merging during the reporting period (1) Assets purchasing(RMB0’000) Transaction Assets to be Purchasing Purchasing Net profit Net profit contributed Whether to be a Pricing Whether the Whether all of party or the purchased date Price contributed to to the Company related-party Principle ownership the liabilities ultimate the Company from the transaction(if it of the or debts controller from the year-beginning to is, explain the assets involved has purchasing date year-end (applicable pricing principle) involved been to the year-end for a business has been transferred combination not fully under common transferred control ) Wong’s 33% equity of Nanjing 22 May 2008 603.09 -28.57 0.00 No Negotiated Yes Yes International Postel Wongzhi price (Holdings) Telecommunications Limited Co., Ltd. The board of directors approved its subsidiary, Nanjing Nanfang Telecommunication Company Limited, to buy a 33% stake of Nanjing Postel Wongzhi Telecommunications Co., Ltd. from Wong’s International (Holdings) Limited. The related procedures concerning the settlement of the equity and registration were completed in the reporting period. (2) Assets selling(RMB0’000) Pricing Wheth Net profit principle er the Wheth contributing to Whether a debts er the the listed related and Profit/loss proper Relation company by transactio liabiliti Transaction Assets to be from the ty right with the Selling date Selling price the assets n or not (if es party sold transactio is transactio from the yes, state involv n totally n party year-beginnin the pricing ed is transfe g to the selling principle) totally rred date transfe rred t 51.2% equity China of Nanjing Potevio Putian Company China Potevio Hongyan Limited is Evaluated Company Electric 23 June 2008 1,098.02 -23.89 86.56 Yes Yes Yes the price Limited Appliances controlling Company, a sharehold former er of the subsidary Company Approved by the board of directors, the Company sold 51.2% equity of Nanjing Putian Hongyan Electric Appliances Company with 10.9802 million Yuan through public auction in equity market. The controlling shareholder of the Company, China Potevio Company Limited acquired the right to buy the equity. By June 2008, all of the -23- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report procedures concerning the transfer of equity have been gone through. As a result of the above-mentioned equity transfer and purchasing, the Company no longer hold any equity in Nanjing Putian Hongyan Electric Appliances Company, and now has a whole control of the equity of Nanjing Postel Wongzhi Telecommunications Ltd. The above-mentioned issues are favorable for the Company to optimize assets composition, promote industrial structure adjustment and will not exert bad influences on the stability of management and the continuity of business. 5. Implementation of stock incentive plan in the reporting period: The Company did not implement a stock incentive plan in the reporting period. 6. Related-party transactions and receivables and payables with the related parties: (1) Related-party transactions that are relevant to day-to-day operations in the reporting period (RMB0’000) The day-to-day related party transactions in the reporting period between the Company and its effective controller, China Putian Corporation, and the controlling shareholder, China Potevio Company Limited, and their subsidiaries were as follows: ① Purchasing and selling goods Selling products to, and providing Purchasing products and receiving services for the related parties services from the related parties Related Party Proportion in the Amount of the Amount of the t same type of transaction ransaction transaction Shenzhen Putianlingyun Electronic 1.40 0.00% 0.00 0.00% Ltd. Beijing Great Dragon Information 352.92 0.32% 0.00 0.00% Tech. Co. China Potevio Company Limited 618.66 0.56% 0.00 0.00% Naning Putian Zhongyou 130.58 0.12% 0.00 0.00% Telecommunications Co., Ltd. Chengdu Putian Telecommunications Cable Co., 102.43 0.09% 271.27 0.76% Ltd. Potevio Institute of Techonology 0.90 0.00% 0.00 0.00% Nanjing Putian Hongyan Electric 11.69 0.01% 90.86 0.26% Appliances Company Telecommunication Technology 0.00 0.00% 50.28 0.14% Industry Park Co., Ltd. Total 1,218.58 1.10% 412.41 1.16% Among the above transactions, sales to the controlling shareholder and its subsidiaries amounted to 12.1858 million Yuan. ② The company leased the land and houses of Nanjing Potevio Telecommunication Technology Industry Park Co., Ltd. The annual lese fee was 9.62 million Yuan. The above-mentioned transactions were executed with some related parties on the basis of equality and mutual benefit to satisfy the demand of production and operation. Such transactions were executed under the principle of market price. The independence of the Company will not be affected due to such transactions. The transactions with some of the related parties are estimated to continue in the next year. (2) Related party transactions in light of assets purchasing and selling in the reporting period In December 2007, China Potevio Company Limited acquired the right to buy the equity of Nanjing Putian Hongyan Electric Appliance Company Limited in exchange market. By June 2008, all of the procedures concerning the equity transfer have been gone through and since June 2008 the Company no longer consolidate Nanjing Hongyan -24- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report into the financial statements. (3) Significant related party transactions in light of joint investment There were no related party transactions in light of joint investment in the reporting period. (4) Receivables and payables with the related parties(RMB0’000) Item Related party Balance at 2008 Balance at 2007 year-end year-end Account receivable Nanjing Potevio Telecommunication 5.53 Technology Industry Park Co., Ltd. Account receivable Shenzhen Putianlingyun Electronic Ltd. 1.42 Account receivable Shanghai Potevio Co., Ltd. 1,334.17 1,647.60 Account receivable Naning Putian Zhongyou 115.81 491.10 Telecommunications Co., Ltd. Account receivable Guangxi Putainyoutong Telecommunications Equipment Company 7.30 Ltd. Account receivable Shanghai Huanying Display Technology 395.46 Company Ltd. Account receivable Beijing Great Dragon Information Tech. Co. 3.53 Account receivable China Putian Corporation 4.52 Prepaid account Shanghai Huanying Display Technology 60.00 Company Ltd. Account payable Nanjing Putian Hongyan Electric 44.36 Appliances Company Account payable Nanjing Potevio Telecommunication 19.61 1.04 Technology Industry Park Co., Ltd. Advances from customers China Putian Corporation 3.46 Other payables Nanjing Putian Hongyan Electric 0.05 Appliances Company Other payables Nanjing Potevio Telecommunication 2,013.95 5,424.15 Technology Industry Park Co., Ltd. 7. Material contracts (1) Assets trust, contracting and lease The Company singed a lease agreement with Nanjing Potevio Telecommunication Technology Industry Park Co., Ltd., to lease its buildings and land. The annual lease fee was 9.62 million Yuan. (2) Guarantee providing(Yuan) Guarantee offered by the Company(excluding the guarantee offered to the subsidiaries) Happening Date Guaranty whether Name of the (the date when the Amount of Type of Term of Completed or offered to a related debtor guaranty agreement guaranty guaranty guaranty not party or not was signed) Accumulative amount of guaranty during reporting 0 period Balance of guarantee at the end of the reporting 0 period Guaranty offered to the subsidiaries Accumulative amount of guarantee offered to the 40,000,000 subsidiaries during this reporting period Balance of guarantee offered to the subsidiaries at 40,000,000 the end of the reporting period Total amount of guarantee offered by the Company(including guaranty offered to the subsidiaries) Total amount of guarantee 40,000,000 Proportion of the total amount of guarantee in net 12.27% assets -25- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Including: Amount of guarantee offered to the Company’s shareholders, effective controller and their related 0 parties) Amount of guarantee directly or indirectly offered for a debtor whose assets liabilities ratio was 0 above 70% Amount of guarantee exceeding 50% of net assets 0 Total amount of the three types of guarantee above 0 (3) Entrustment investment The Company made no entrust investment during the reporting period. 8. Commitment of the Company or a shareholder holding over 5 percent of the Company’s share capital In the reporting period, the controlling shareholder China Potevio Company Limited made the commitment that it would help Nanjing Putian Hongyan Electric Appliance Company to pay back debts to the Company before 30 September 2008. Nanjing Hongyan paid off debts of 13.6371million Yuan to the Company on 20 August 2008. 9. Appointment and discharging of a public accounting firm The public accounting firms that were engaged by the Company in 2007 was Shulun Pan Certified Public Accountants Co., Ltd. and Horwath Hong Kong CPA Limited. The Company engaged Daxin Certified Public Accountants as the auditor for 2008. Payment to Daxin was 1.35 million Yuan, including an audit fee of 1.2 million Yuan and travel expenses 0.15 million. 10. Punishment exerted by securities regulatory departments on the Company, the directors, supervisors, senior management and the effective controller In the reporting period, the Company, the directors, supervisors, the senior management and effective controller were not investigated or exerted administrative punishment by CSRC or publicly condemned by Shenzhen Stock Exchange. 11. Reception of visitors and interviews during the reporting period Main topics of discussion Time Place Way Visitor and information provided Main topics of discussion: the operating conditions of the Company. 2 December In the Onsite Mr. Zhou, an individual Information provided: the 2008 Company investigation investor semi-annual report and other information that has been publicly disclosed X. Financial Report 1. Auditor’s report -26- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report The Company’s 2008 Financial Statements were audited and issued a report with unqualified opinion by Daxin Certified Public Accountants. AUDITORS’ REPORT Daxin Shenzi No. 5-0012 (2009) To all the shareholders of Nanjing Putian Telecommunications Co., Ltd.: We have audited the accompanying financial statements of Nanjing Putian Telecommunications Co., Ltd. (hereinafter referred to as ‘the Company’), which comprise the balance sheet and consolidated balance sheet as of December 31, 2008, the income statement and consolidated income statement, the cash flow statement and consolidated cash flow statement, the statement of changes in owners’ (shareholders’) equity and the consolidated statement of changes in owners’ (shareholders’) equity, for the year then ended, and notes to the financial statements. 1．Management’s responsibility for the financial statements Management is responsible for the preparation of these financial statements in accordance with Accounting Standards for Business Enterprises. This responsibility includes: (1) Designing, implementing and maintaining internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error; (2) Selecting and applying appropriate accounting policies; (3) Making accounting estimates that are reasonable in the circumstances. 2. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Chinese Certified Public Accountants Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider the internal control relevant to the preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a -27- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report basis for our audit opinion. 3. Opinion In our opinion, the financial statements of the Company have been prepared in accordance with Accounting Standards for Business Enterprises and present fairly, in all material respect, the financial position of the Company as of December 31, 2008, the results of its operations and cash flows for the year then ended. Daxin Certified Public Accountants Certified Public Accountant of China Guo Huawen Shu Ming Shanghai, China Date: March 20, 2009 2. Financial statements(attached) 3. Notes to the financial statements (attached) 4. Supplementary information(attached) Impairment of assets XI. Documents for Inspection 1. Original text of accounting statements signed and sealed by legal person representative, financial controller and accountant officer. 2. Original text of Auditor’s Report signed and sealed by Certified Public Accountant with the public accounting firm’s seal on. 3. Original texts of all the files and announcements published on the newspapers appointed by China Securities Regulatory Commission during the reporting period. Board of Directors Nanjing Putian Telecommunications Co., Ltd. 24 March 2009 -28- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Balance Sheet Company name: Nanjing Putian Telecommunications Co., Ltd. 31 December 2008 Unit: CNY At the end of the current period At the beginning of the current period Item Consolidated Parent Company Consolidated Parent Company Current asset: Monetary fund 320,147,650.59 259,364,708.17 287,726,540.06 199,852,279.50 Settlement provision Outgoing call loan Trading financial assets Notes receivable 6,349,430.00 736,000.00 9,520,075.20 1,303,420.50 Account receivable 337,226,330.95 244,877,404.04 321,963,622.38 215,208,638.19 Prepaid fund 48,146,368.56 39,570,789.34 8,013,943.63 5,005,433.36 Insurance receivable Reinsurance receivable Provisions of Reinsurance contracts receivable Interest receivable Dividends receivable 1,562,824.17 1,562,824.17 Other account receivable 33,411,453.54 30,760,661.50 54,056,194.10 49,647,188.72 Repurchasing of financial assets Inventories 177,019,556.57 68,012,117.85 165,661,233.35 65,792,748.95 Non-current asset due in year Other current asset Total of current asset 922,300,790.21 643,321,680.90 848,504,432.89 538,372,533.39 Non-current assets Loans and payment on other’s behalf disbursed Disposable financial asset Expired investment in possess Long-term receivable Long-term share equity 216,398,929.36 326,642,004.09 214,759,591.64 335,677,647.38 investment Property investment 5,433,475.69 5,678,568.25 Fixed assets 75,339,969.01 39,746,992.57 68,049,573.06 43,901,944.96 Construction in progress 6,937,748.78 270,490.00 Engineering material Fixed asset disposal Production physical assets Gas & petrol Intangible assets 9,937,618.84 3,221,250.46 11,010,544.08 3,614,811.83 R&D expense Goodwill Long-term deferred 3,254.39 expenses Differed income tax asset Other non-current asset Total of non-current assets 307,109,992.90 369,610,247.12 306,439,280.20 383,464,894.17 Total of assets 1,229,410,783.11 1,012,931,928.02 1,154,943,713.09 921,837,427.56 Legal person representative：Zhao Xinping Financial controller: Sun Liang Accountant officer: Shi Lian -29- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Balance Sheet (continued) Company name: Nanjing Putian Telecommunications Co., Ltd. 31 December 2008 Unit: CNY At the end of the current period At the beginning of the current period Item Consolidated Parent Company Consolidated Parent Company Current liabilities Short-term borrowings 490,000,000.00 290,000,000.00 404,000,000.00 280,000,000.00 Loan from Central Bank Deposit received and hold for others Call loan received Trade off financial liabilities Notes payable 160,000,000.00 80,000,000.00 Accounts payable 303,518,882.73 108,621,465.61 254,366,894.39 76,056,245.87 Advances from customers 15,375,739.80 3,679,516.42 32,990,187.59 3,801,729.22 Selling of repurchased financial assets Fees and commissions receivable Employees benefits payable 13,489,219.64 3,477,875.49 14,749,924.40 4,119,207.68 Tax payable -5,996,782.80 5,843,015.57 -6,010,483.82 1,216,760.08 Interest payable Dividends payable Other payables 36,696,588.02 137,639,798.33 71,950,839.60 155,861,697.96 Reinsurance fee payable Insurance contract provision Entrusted trading of securities Entrusted selling of securities Non-current liability due in year Other current liability Total of current liability 853,083,647.39 709,261,671.42 772,047,362.16 601,055,640.81 Non-current liabilities Long-term borrowings Bond payable Long-term payables 80,118.00 80,118.00 80,118.00 80,118.00 Special payable Expected liabilities Differed income tax liability Other non-recurring liabilities 1,350,000.00 1,350,000.00 Total of non-current liabilities 80,118.00 80,118.00 1,430,118.00 1,430,118.00 Total of liability 853,163,765.39 709,341,789.42 773,477,480.16 602,485,758.81 Owners’ equity (or shareholders’ equity) Paid-in capital (or share capital) 215,000,000.00 215,000,000.00 215,000,000.00 215,000,000.00 Capital reserves 183,465,955.00 172,417,299.81 183,465,955.00 172,417,299.81 Less: Treasury stocks Surplus reserves 589,559.77 589,559.76 589,559.77 589,559.76 Common risk provision Undistributed profit -70,126,611.10 -84,416,720.97 -77,343,697.79 -68,655,190.82 Difference of foreign currency -3,037,507.95 -1,325,917.73 translation Total of equity attributable to owners of 325,891,395.72 303,590,138.60 320,385,899.25 319,351,668.75 the parent company Minor shareholders’ equity 50,355,622.00 61,080,333.68 Total of owners’ equity 376,247,017.72 303,590,138.60 381,466,232.93 319,351,668.75 Total of liabilities and owners’ equity 1,229,410,783.11 1,012,931,928.02 1,154,943,713.09 921,837,427.56 Legal person representative：Zhao Xinping Financial controller: Sun Liang Accountant officer: Shi Lian -30- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Income Statement Company name: Nanjing Putian Telecommunications Co., Ltd. January to December 2008 Unit: CNY Current Period Same Period of Last Year Item Consolidated Parent Company Consolidated Parent Company I. Total operating income 1,174,912,697.30 655,189,381.08 974,329,991.52 454,716,324.58 Incl. operating income 1,174,912,697.30 655,189,381.08 974,329,991.52 454,716,324.58 Interest income Insurance fee earned Fee and commission received II. Total operating cost 1,165,150,379.30 672,674,041.75 1,071,491,808.71 599,863,235.50 Incl. operating cost 986,908,595.88 567,690,786.32 870,379,291.03 450,451,688.92 Interest expense Fee and commission paid Insurance discharge payment Net claim amount paid Net insurance policy reserves provided Insurance policy dividend paid Reinsurance expenses Taxes and surcharges on 4,821,719.08 423,534.70 2,561,403.21 -331,896.49 operations Sales expense 76,391,808.55 39,690,857.74 77,386,162.32 34,567,392.27 Administrative expense 70,723,539.54 39,941,277.56 75,917,015.29 44,350,267.55 Financial expenses 30,852,690.98 28,438,118.05 23,778,972.97 22,242,903.86 Impairment loss on assets -4,547,974.73 -3,510,532.62 21,468,963.89 48,582,879.39 Plus: Gains from change of fair value (“-“ for loss) Investment income (“-“ for loss) 2,739,089.30 446,816.85 870,191.81 3,735,790.06 Incl. Investment gains from affiliates Gains from currency exchange (“-“ for loss) III. Operational profit (“-“ for loss) 12,501,407.30 -17,037,843.82 -96,291,625.38 -141,411,120.86 Plus: Non-operating income 10,087,973.48 1,568,506.47 111,740,037.14 110,196,903.20 Less: Non-operating expenses 437,560.27 292,192.80 1,496,625.88 902,842.48 Incl. Loss from disposal of non-current assets IV. Gross profit (“-“ for loss) 22,151,820.51 -15,761,530.15 13,951,785.88 -32,117,060.14 Less: Income tax expenses 5,758,580.28 5,459,666.09 V. Net profit (“-“ for net loss) 16,393,240.23 -15,761,530.15 8,492,119.79 -32,117,060.14 Net profit attributable to the 6,447,713.08 -15,761,530.15 3,936,869.94 -32,117,060.14 owners of parent company Minor shareholders’ equity 9,945,527.15 4,555,249.85 VI. Earnings per share: (I) Basic earnings per share 0.03 -0.07 0.02 -0.15 (II) Diluted earnings per share 0.03 -0.07 0.02 -0.15 Legal person representative：Zhao Xinping Financial controller: Sun Liang Accountant officer: Shi Lian -31- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Cash Flow Statement Company name: Nanjing Putian Telecommunications Co., Ltd. January to December 2008 Unit: CNY Current Period Same Period of Last Year Item Consolidated Parent Company Consolidated Parent Company I. Net cash flow from operating activities Cash received from sales of 1,393,096,717.98 739,171,638.67 1,280,792,191.94 639,972,966.55 products and providing of services Net increase of customer deposits and capital kept for brother company Net increase of loans from central bank Net increase of inter-bank loans from other financial bodies Cash received against original insurance contract Net cash received from reinsurance business Net increase of client deposit and investment Net increase of trade financial asset disposal Cash received as interest, processing fee and commission Net increase of inter-bank fund received Net increase of repurchasing business Tax returned 577,594.31 1,104,075.98 Other cash received from operating 40,362,876.70 49,989,922.78 37,758,012.97 36,977,842.95 activities Sub-total of cash inflow from 1,434,037,188.99 789,161,561.45 1,319,654,280.89 676,950,809.50 operating activities Cash paid for purchasing of 1,167,804,489.32 594,862,949.61 986,972,624.47 524,793,695.11 merchandise and services Net increase of client trade and advance Net increase of savings in central bank and brother company Cash paid for original contract claim Cash paid for interest, processing fee and commission Cash paid for policy dividend Cash paid to staffs or paid for staffs 86,843,049.58 44,514,583.21 85,190,503.03 47,714,915.92 Taxes paid 64,745,534.16 22,805,926.73 36,824,171.47 13,034,369.27 Cash paid for other operating 62,379,625.77 61,203,820.04 75,974,335.79 44,044,285.64 activities Sub-total of cash outflow from 1,381,772,698.83 723,387,279.59 1,184,961,634.76 629,587,265.94 operating activities Net Cash flow from 52,264,490.16 65,774,281.86 134,692,646.13 47,363,543.56 operating activities II. Cash flow from investing activities Cash received from investment retrieving Cash received as investment gains 252,013.02 1,033,464.32 1,249,700.78 8,019,401.20 Net cash retrieved from disposal of fixed assets, intangible assets, and 1,132,757.31 742,834.76 478,821.37 232,910.80 other long-term assets Net cash received from disposal of 10,980,200.00 10,980,200.00 subsidiaries or other operational units -32- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Cash received from other investing activities Sub-total of cash inflow from 12,364,970.33 12,756,499.08 1,728,522.15 8,252,312.00 investing activities Cash paid for construction of fixed assets, intangible assets and other 40,757,878.72 22,469,790.84 23,829,485.40 10,958,941.60 long-term assets Cash paid as investment 7,809,680.00 1,778,780.00 22,702,716.94 21,202,716.94 Net increase of loan against pledge Net cash received from subsidiaries and other operational units Cash paid for other investing activities Sub-total of cash outflow from 48,567,558.72 24,248,570.84 46,532,202.34 32,161,658.54 investing activities Net cash flow from investing -36,202,588.39 -11,492,071.76 -44,803,680.19 -23,909,346.54 activities III. Cash flow from financing activities Cash received as investment Incl. Cash received as investment from minor shareholders Cash received as loans 589,000,000.00 530,000,000.00 482,000,000.00 430,000,000.00 Cash received from bond placing Other financing-related cash 10,099,640.00 10,099,640.00 92,759,884.26 145,815,886.22 received Subtotal of cash inflow from 599,099,640.00 540,099,640.00 574,759,884.26 575,815,886.22 financing activities Cash to repay debts 524,000,000.00 480,000,000.00 551,900,000.00 513,000,000.00 Cash paid as dividend, profit or 35,586,745.81 31,715,736.00 31,162,581.21 25,275,637.55 interests Incl. Dividend and profit paid by 3,333,283.89 subsidiaries to minor shareholders Cash paid for other financing 34,183,006.26 34,183,006.26 20,000,000.00 20,000,000.00 activities Subtotal of cash outflow due to 593,769,752.07 545,898,742.26 603,062,581.21 558,275,637.55 financing activities Net cash flow from financing 5,329,887.93 -5,799,102.26 -28,302,696.95 17,540,248.67 activities IV. Influence of exchange rate alternation on cash and cash 929,680.83 929,680.83 -917,840.79 -843,203.93 equivalents V. Net increase of cash and cash 22,321,470.53 49,412,788.67 60,668,428.20 40,151,241.76 equivalents Plus: Balance of cash and cash 217,726,540.06 129,852,279.50 157,058,111.86 89,701,037.74 equivalents at the beginning of term VI. Balance of cash and cash 240,048,010.59 179,265,068.17 217,726,540.06 129,852,279.50 equivalents at the end of term Legal person representative：Zhao Xinping Financial controller: Sun Liang Accountant officer: Shi Lian -33- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Statement of Changes in Owners' Equity(consolidated) Company name: Nanjing Putian Telecommunications Co., Ltd. 31 December 2008 Current period Equity attributable to shareholders of the parent company Equity attributable to s Paid-in Minor Paid-in Item capital Less: General Undistrib sharehol Total capital Less: (or share Capital Treasury Surplus risk uted ders' owners' (or share Capital Treasury capital) reserves stocks reserves provision profit Other equity equity capital) reserves stocks I. Opening balance brought 215,000, 183,465, 589,559. -77,343, -1,325,9 61,080,3 381,466, 215,000, 189,178, forward 000.00 955.00 77 697.79 17.73 33.68 232.93 000.00 025.20 Plus: Adjustments for -5,722,9 changes in accounting policy 84.00 Adjustments for correction of accounting errors in previous period Other II. Beginning balance of 215,000, 183,465, 589,559. -77,343, -1,325,9 61,080,3 381,466, 215,000, 183,455, current year 000.00 955.00 77 697.79 17.73 33.68 232.93 000.00 041.20 III. Adjustments for current 7,217,08 -1,711,5 -10,724, -5,219,2 10,913.8 year 6.69 90.22 711.68 15.21 0 6,447,71 9,945,52 16,393,2 1. Net Profit 3.08 7.15 40.23 2. Gain and loss directly 769,373. -1,711,5 -942,216 10,913.8 recognized in owners' equity 61 90.22 .61 0 1) Adjustments for changes in fair value of available-for-sale financial assets 2) Adjustments for changes in owners' equity of invested unit under equity method 3) Adjustments on income tax recognized in owners' equity items 769,373. -1,711,5 -942,216 10,913.8 4) Others 61 90.22 .61 0 7,217,08 -1,711,5 9,945,52 15,451,0 10,913.8 Sub-total of 1 and 2 6.69 90.22 7.15 23.62 0 3. Capital contributed or -20,670, -20,670, reduced by owners 238.83 238.83 1) Capital contributed by owners -34- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report 2) Amount of share payment recognized in owners' equity -20,670, -20,670, 3) Others 238.83 238.83 4. Distributed profit 1) Extract for surplus reserves 2) General risk provision 3) Distributable profit to investors (or shareholders) 4) Others 5. Internal transfer of owners' equity 1) Capital reserves transferring to paid-in capital (or share capital) 2) Surplus reserve transferring to paid-in capital (or share capital) 3) Surplus reserves offsetting loss 4) Others IV. Ending balance carried 215,000, 183,465, 589,559. -70,126, -3,037,5 50,355,6 376,247, 215,000, 183,465, forward 000.00 955.00 77 611.10 07.95 22.00 017.72 000.00 955.00 Legal person representative：Zhao Xinping Financial controller: Sun Liang -35- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Statement of Changes in Owners' Equity (parent company) Company name: Nanjing Putian Telecommunications Co., Ltd. 31 December 2008 Current period Equity attributable to shareholders of the parent company Equity attributable to s Paid-in Minor Paid-in Item capital Less: General Undistrib sharehol Total capital Less: (or share Capital Treasury Surplus risk uted ders' owners' (or share Capital Treasury capital) reserves stocks reserves provision profit Other equity equity capital) reserves stocks I. Opening balance brought 215,000, 172,417, 589,559. -68,655, 319,351, 215,000, 189,178, forward 000.00 299.81 76 190.82 668.75 000.00 025.20 Plus: Adjustments for -16,760, changes in accounting policy 725.39 Adjustments for correction of accounting errors in previous period II. Beginning balance of 215,000, 172,417, 589,559. -68,655, 319,351, 215,000, 172,417, current year 000.00 299.81 76 190.82 668.75 000.00 299.81 - III. Adjustments for current -15,761, -15,761, year 530.15 530.15 - - - -15,761, -15,761, 1. Net Profit 530.15 530.15 2. Gain and loss directly recognized in owners' equity - - - 1) Adjustments for changes in fair value of available-for-sale financial assets 2) Adjustments for changes in owners' equity of invested unit under equity method 3) Adjustments on income tax recognized in owners' equity items 4) Others -15,761, -15,761, Sub-total of 1 and 2 530.15 530.15 - - 3. Capital contributed or reduced by owners - - - 1) Capital contributed by owners 2) Amount of share payment -36- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report recognized in owners' equity 3) Others 4. Distributed profit - - - 1) Extract for surplus reserves 2) General risk provision 3) Distributable profit to investors (or shareholders) 4) Others 5. Internal transfer of owners' equity - - - 1) Capital reserves transferring to paid-in capital (or share capital) 2) Surplus reserve transferring to paid-in capital (or share capital) 3) Surplus reserves offsetting loss 4) Others IV. Ending balance carried 215,000, 172,417, 589,559. -84,416, 303,590, 215,000, 172,417, forward 000.00 299.81 76 720.97 138.60 000.00 299.81 - Legal person representative：Zhao Xinping Financial controller: Sun Liang -37- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. NOTES TO THE FINANCIAL STATEMENTS (All amounts are stated by RMB Yuan unless otherwise stated） 1. Corporate information Nanjing Putian Telecommunications Co., Ltd. (hereafter refers to ‘the Company’) is the original Nanjing Telecommunication Facility Factory, and was established as joint stock limited company by raising money approved with TGS (1997) No. 28 issued by National Economic Institutional Reform Commission on March 21, 1997. The Company is mainly engaged in telecom equipment manufacture industry and was listed in Shenzhen Stock Exchange on May 22, 1997. As of December 31, 2008, the capital of the Company is CNY 215,000,000.00. The business scope of the Company is data telecom product, wires telecom product, wireless telecom product, distribution and allocation of layout of telecom product, research, manufacture of media computer and digital television, vehicle electronics and other related product and software, sales of self-produced products and provide the related after-sales service, and telecom information net project, buildings intelligentized project, design of computer information systematic project, construction and system combination and related consultancy service. 2. Basis of preparation of the financial statements The financial statements of company based on the assumption of continuing operations and are prepared according to “Enterprise Accounting Standard – Basic Standard”, “Enterprise Accounting Standard No. 1 – Inventories” and other 37 specific accounting standards issued by the Ministry of Finance on February 15, 2006. 3.Statement of compliance The consolidated financial statements have been prepared in accordance with the Basis of preparation of the financial statements set out in note 2,and it meet the requirements of Accounting Standard for Business Enterprises, reflect the financial situation of enterprises、results of operations and cash flow, and other relevant information truly、fairly and completely. 4. Main accounting policies and estimations 4.1 Fiscal year The fiscal year of the Company is the solar calendar year, which is from January 1 to December 31. 4.2 Recording currency Recording currency is CNY -38- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report 4.3 Measurement characters The Company measures financial statements’ items according to stated measurement characters and measurement characters don’t be changed during the report period. The company uses history cost commonly for the measurement of accounting factors. When the Company uses replacement cost, net realizable value, net value and fair value based on assured amounts that could be obtained and measured reliably. 4.4Confirmation of cash equivalence Cash equivalence is that the Company holds short-term (expiration of 3 months from purchasing day),liquidity, easy to convert to known amount of cash and low-risk changes in value of investment. 4.5Foreign currency transaction and translation of foreign currency financial statements (1) Foreign currencies caused by foreign businesses are translated into RMB accounts according to the spot exchange rate of transaction occurring day. For the balances of foreign currency accounts at the end of period, foreign currency monetary items are translated according to the spot exchange rate at the balance sheet date, the difference recorded into current profit and loss; the foreign currency non-monetary items using historical cost are translated according to the spot exchange rate of transaction occurring day; the foreign currency non-monetary items using fair value are translated according to the spot exchange rate of fair value confirming day, the difference is taken as the changes in the profit and loss of fair value. (2) How to deal with exchange profit and loss: exchange profit and loss due to foreign currency loan relating with purchasing, building or producing assets that comply with capitalization conditions should be dealt same as loan expenses; in addition to above condition, exchange profit and loss should be charged into current financial expenses. 4.6 Financial assets and financial liabilities (1) Classification of financial assets and financial liabilities Financial assets include financial assets held for trading; financial assets designated as at fair value through profit and loss; held-to-maturity investments; loans and receivables; available-for-sale financial assets. Financial liabilities include financial liabilities held for trading, financial liabilities designated as at fair value through profit and loss. (2) Recognition and measurement of financial instruments a. The Company shall recognize one financial asset or financial liability when the Company becomes one party to the contractual provisions of financial instrument. The Company shall derecognize a financial asset if one of the following conditions is met: the contractual rights to the cash flows from the financial asset expire; the financial asset has been transferred, and the transfer meets the terms of recognition. The Company shall derecognize a financial liability (or part of it) only when the underlying present obligation (or part of it) is discharged/cancelled. b. The financial assets and financial liabilities are measured with fair -39- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report value when confirming initially. As to financial assets or financial liabilities at fair value through profit and loss, relevant trade expenses are recorded into the profit and loss of current period; as to other financial assets or financial liabilities, relevant trade expenses are recorded into the initial confirming amount. c. For financial assets, the Company adopts fair value for follow-up measure, and doesn’t deduct trade expenses that would generate when disposing the financial assets. d. For financial liabilities, the Company uses actual interest rate and adopts amortized cost for follow-up measure. e. Profit or loss due to fair value change of financial assets and financial liabilities, excluding relating with hedging, should be dealt with followings: financial assets or financial liabilities at fair value through profit and loss, profit or loss due to fair value change should be recorded into profit or loss due to fair value change; profit or loss due to fair value change of available-for-sale financial assets should be recorded into capital reserves after deducting impairment and exchange difference due to foreign currency financial assets, the capital reserves shall be transferred into current profit and loss when recognition. f. For financial assets or financial liabilities, the Company adopts amortized cost, excluding relating with hedging, profit or loss due to derecognition, impairment or amortization should be recorded into profit and loss of current period. g. The Company charges counteractive results of fair value change due to hedge instrument and hedged item in same accounting period. (3) Fair value of financial instruments If there is an active market for a financial asset or financial liability, the quoted price in the active market shall be used to establish the fair value of the financial asset or financial liability. If no active market exists for a financial instrument, the Company establishes fair value by using a valuation technique. Valuation techniques include using recent market transactions between knowledgeable, willing parties, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. (4) Impairment of financial assets The Company assesses at the balance sheet date the carrying amount of the financial assets excluding financial assets at fair value through profit and loss. If there is objective evidence that the financial asset is impaired, the Company shall determine the amount of any impairment loss. For a financial asset that is individually significant, the Company should assess the asset impairment individually. For a financial asset that is not individually significant, the Company should collect similar financial assets group and assess asset impairment. 4.7 Recognition standard and provision method of provision for bad and doubtful debts of accounts receivable If there is objective evidence at the year end to indicate that impairment exists in accounts receivable, their carrying amount should be decreasingly recorded as recoverable amount. The decreased amount should be recognized as impairment loss of assets and be recorded into profit and loss of the current -40- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report period. Recoverable amount is recognized through discounting its future cash flow (excluding credit loss that has not occurred) at original actual rate with consideration of the value of related guarantee (deducting estimated disposal expenses and etc.). Original actual rate is actual rate calculated when recognizing the accounts receivable at first. Since there is tiny difference between estimated future cash flow and present value of short-term accounts receivable, the estimated future cash flow will not be discounted when recognizing related impairment loss. Conduct impairment testing separately on accounts receivable with relatively higher individual price at the end of the period. If there is objective evidence to indicate that impairment exists, recognize impairment loss and provide for bad and doubtful debts in accordance with the difference between its future cash flow and carrying amount. Individual material receivables are the first five largest receivables. For individual receivables not material, the Company categorizes them together with the receivables tested unimpaired into groups using aging of the accounts as a similar risk factor, and assigns a certain percentage of the end of the period balance of the receivable groups (individual impairment test may be carried out) to determine the impairment loss and provide for bad debts. Except the receivables provided impairment loss separately, the Company set the provision rate in accordance with the actual loss percentage of the same or similar credit risk group by aging divided in the previous years and the real circs as follows: Proportion（%） Proportion（%） Aging None Telecommunication products telecommunication products Within 2 years 0.00 0.00 2-3 years 10.00 20.00 3-4 years 30.00 50.00 4-5 years 40.00 80.00 5-6 years 80.00 100.00 Over 6 years 100.00 100.00 4.8 Inventory: (1) Inventory classification: Raw materials, finished goods, turn-over materials, goods in process, and materials for manufacturing consignment etc. (2) Calculation of issued inventory a. The inventory is calculated using weighted average method when issued. b. Amortization of turn-over materials: For low cost and short lived articles, use step-amortization method；For package materials, use lump-sum amortization method. (3) System of stock inventories :Perpetual inventory system. (4) Recording method of provision for inventory devaluation At the end of the year, after overall check of the inventory, draw or adjust provision for inventory devaluation according to the lower of the cost of inventory and net realizable values of inventory. In normal operation process, -41- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report net realizable values of commodities inventories for direct sales including finished goods, commodities and materials for sales are determined by the estimated selling prices minus the estimated selling expenses and relevant taxes and fees; In normal operation process, net realizable values of materials that need further processing are determined by the estimated selling prices of the finished goods minus estimated cost to completion, estimated selling expenses and relevant taxes. For the inventory held to implement sales contract or work contract, its net realizable value is calculated on the basis of contract price. For the balance of inventory beyond the amount of the sales contract, its net realizable value is calculated on the basis of general selling price. When the factors that influence the decreased bookkeeping of inventory value have disappeared, switch back from the provision for inventory devaluation amount that previously appropriated and the amount that switched back is charged to profit and loss of current period. 4.9 Long-term equity investment (1) Initial Calculation a. Long-term equity investment formed from enterprises merger In case the long-term equity investment are made to obtain the equities of the enterprises under the same control and the Company pays the cash, transfers the non-cash assets or bears the liabilities as the consideration for the merger, the book value share on the merging date to obtain the owners’ equities of the merging party will be deemed as the initial investment cost of long-term equity investment. The difference between the initial investment cost of long-term equity investment and paid cash, transferred non-cash assets and book values of liabilities will be supplemented by the capital reserve; in case the capital reserve is not enough, the remaining gains will be adjusted. All direct expenses related to the enterprise merger, including the auditing expenses, evaluation expenses, legal service expense, etc, will be accrued to the current profit and loss. In case the long-term equity investment are made to obtain the equities of the merging enterprises which are not under the same control, the consolidation cost determined according to ‘Accounting Standard for Business Enterprises No. 20 – Business Combinations’ on the purchase date will be deemed as the initial investment cost. b. Other types of long-term equity investment In case the long-term equity investment is made by cash payment, the actual payment amount will be deemed as the initial investment cost. In case the long-term equity investment is made by issuing the equity securities, the fair values of issued equity securities will be deemed as the initial investment cost. For the long-term equity investment made by the investors, the values agreed in the investment contracts or agreements (deducting the cash dividends or profits that have been declared but have not been dismissed) will be deemed as the initial investment cost, except that the contracts or agreements provide that the values are not fair. In case the long-term equity investment is made by exchanging the non-currency assets, and this exchange has the commercial substance and the fair values of exchanged assets can be reliably calculated, the fair values of assets surrendered will be deemed as the initial investment cost, unless there is conclusive evidence that the fair values of assets received are more reliable; for exchange of non-currency assets that do not satisfy the above conditions, the sum of book -42- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report value of assets surrendered and relevant taxes payable will be deemed as the initial investment cost. In case the long-term equity investment is made by the mode of liability restructure, the fair values of the obtained equities will be deemed as the initial investment cost. (2) Judgment criteria of joint control and significant influence in the invested companies If, in accordance with provisions in the contracts, the Company enjoys joint control over certain economic activities only when taking part in significant financial and operational decisions with investors in need of share of control who unanimously agree, the Company is deemed to enjoy joint control with other parties over the invested companies. If the Company is authorized to take part in decision making with regard to the financial and operational policies, but is unable to control or control jointly with other parties over the invested company, the Company is deemed to be able to exercise significant influence over the invested companies. (3) Subsequent measurement and income recognition When the Company is able to exercise significant influence or joint control, the difference of cost of initial investment in excess of the proportion of the fair value of the net identifiable assets in the invested companies is not adjusted against the initial cost of long-term equity investment. The difference of cost of initial investment in short of the proportion of the fair value of the net identifiable assets in the invested companies is charged into the current profit and loss statement. . The Company’s long-term equity investments in subsidiaries are accounted for by the cost method and adjusted according to the equity method when preparing consolidated financial statements. For joint ventures, proportional consolidation method is not applicable. When the Company has neither joint control nor significant influence in the invested companies, there is no quotation available on the active market, and the fair value of the investment cannot be reliably measured, the long-term equity investment is accounted for under the cost method. When the Company has joint control or significant influence over the invested companies, the long-term equity investment is accounted for under the equity method. Investment income recognized under the cost method is limited to the proportion of the accumulated profit of the invested companies after the investment. Any excess of profit or cash dividend received over the above amount is recognized as withdrawals of initial investments. Recognition of share of losses of the invested companies under the equity method is treated in the following steps: First, reduce the book value of the long-term equity investment. Second, when the book value is insufficient to cover the share of losses, investment losses are recognized up to a limit of book values of other long-term equity which form net investment in substance by reducing the book value of long term receivables, etc. Finally, after all the above treatments, if the Company is still responsible for any additional liabilities in accordance with the provisions stipulated in the investment contracts or agreements, estimated liabilities are recognized and charged into current investment loss according to the liabilities estimated. If the invested company achieve profit in subsequent periods, the treatment is in the reversed steps described above after deduction of any unrecognized investment losses, i.e., reduce book value of estimated liabilities recognized, restore book values of other long-term equity which form net investment in substance, and in long-term -43- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report equity investment, and recognize investment income at the same time. Treatment of other equity changes except for net profit or loss in the invested companies: For other equity changes except for net profit or loss in the invested companies, if the proportion of investments remain unchanged, the Company calculates the proportion it shall enjoy or bear and adjust book value of long-term equity investment, and increase or decrease capital reserves – other capital reserves at the same time. 4.10 Classification and measurement of investment real estate Investment real estate is defined as the real estate with the purpose to earn rentals or capital appreciation or both, including rented land use rights, land use rights which are held and prepared for transfer after appreciation and rented buildings. The Company adopts the cost model to value investment real estate. For investment real estate for lease accounted for under the cost model, the same depreciation policies as those of the Company’s fixed assets are adopted. For land use right for lease, the same amortization policies as those of the intangibles are adopted. 4.11Fixed assets (1) Recognition of fixed assets Fixed assets are tangible assets that are held for use in the production or supply of goods or services, for rental to others, or for administrative purpose, and have useful lives more than one accounting year. (2) Classification of fixed assets The Company’s fixed assets are classified as buildings and constructions, machinery equipment, transportation equipment and electronic and other equipment. (3) Initial measurement of fixed assets Fixed assets are recorded at the actual cost on acquisition. The cos of fixed assets purchased includes purchase price, related tax, transportation expenses, loading and uploading expenses, installment expenses and specialist service expenses attributable to the assets that arise before the assets are completed and put into use. Where payment for the purchase price of a fixed asset is deferred beyond normal credit terms, such that the arrangement is in substance of a financing nature, the cost of the fixed asset shall be determined based on the present value of the purchase price. The cost of a self-constructed fixed asset comprises those expenditures necessarily incurred for bringing the asset to working condition for its intended use. For fixed assets formed through the debtor’s paying for debt in debt restructure, recognize their recording value as fair value of the fixed assets, and record the difference between the carrying amounts of debt restructure and the fixed assets used for paying debt into profit and loss of the current period. In the circumstance that the non monetary assets exchange has commercial nature and fair value of surrendered or received assets can be measured reliably, recording value of received assets should be recognized as fair value of surrendered assets unless there is clear evidence to indicate that fair value of received assets is more reliable; for non monetary assets exchange which doesn’t meet the requirement of premise mentioned above, cost of received assets should be recognized as carrying amount and related -44- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report tax expenses payable of surrendered assets and should not be recognized as profit and loss. Recording value of fixed assets obtained by absorbing and consolidated by enterprise under the same control should be recognized as carrying amount of the consolidated party; recording value of fixed assets obtained by absorbing and consolidated by enterprise under different control should be recognized as fair value. Recording value of financing leasehold should be recognized as the lower of the fair value of leasing assets and present value of lowest leasing payment when leasing occurs whichever is lower. (4) Depreciation method Depreciation of fixed assets is provided for on a straight-line basis. The depreciation rate is recognized in accordance with category, estimated useful life and estimated residual rate of fixed assets. Fixed assets renovations expenses that meet the criteria of capitalization are depreciated on an individual basis over the interval of two renovations or remaining useful life of the fixed assets, whichever is shorter. Depreciation of financial lease assets is provided for during the remaining useful life if the Company is certain to obtain the ownership of the assets after the leasehold period is over; Depreciation of financial lease assets is provided for during the leasehold period or remaining useful life whichever is shorter if the Company is not certain to obtain the ownership of the assets after the leasehold period is over. Depreciation of improvement on financial lease assets that can be capitalized is provided for on a straight-line basis during the interval between the two improvements, remaining leasehold period or remaining useful life whichever is shortest. Estimated useful life and annual depreciation rate of fixed assets by categories are as follows: Category Estimated useful life (year) Estimated net residual rate Buildings and 15－35 years 3% constructions Machinery 10－15 years 3% equipment Transportation 6－8 years 3% equipment Electronic and 4－11 years 3% other equipment (5)Provision for impairment of fixed assets At the end of an accounting period, fixed asset have impaired, estimated reclaimable value, recognized impairment if reclaimable value is lower than book value and recorded as current profit and loss, and estimated provision for impairment of fixed asset. The fixed assets should provision for impairment with fully book value as the following circumstance: to predict, the fixed assets will not be used for a long time and don’t use in the future to predict, and don’t have the recoverable value; for the reason of improving technology, the fixed assets cannot be used; the fixed assets produce too many disqualification products; for the reason of the damaged, the fixed assets don’t have any usage value and recoverable value; the assets cannot bring any further economic benefits to the Company for other reasons. The provision for impairment of fixed asset as above can not write-off in future. -45- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report 4.12 Construction in progress The Company measures construction in progress according to detailed items, including: construction project, installation project, pending installation of equipment and prepaid expenses. Construction in progress is measured at actual cost. Construction in progress is transferred to fixed assets when the project is substantially ready for its intended use. Borrowing costs relating to construction in progress are measured according to borrowing costs measurement method. 4.13 Intangible assets (1) Calculation method of intangible assets The intangible assets are recorded at actual cost upon acquisition. Cost of purchased intangible assets comprises the purchase price, relevant taxes and surcharges and other expenses directly attributable to bringing the assets to intended usage. For those whose deferred paid price exceeds normal credit condition and that substantively have financing character, the cost is confirmed on the basis of present value of purchasing price. The book values of intangible assets to be obtained by the absorption merger from the enterprises which are under the same control will be determined based on the book values of merging party; the book values of intangible assets to be obtained by the absorption merger from the enterprises which are not under the same control will be determined based on their fair values. (2) Usage life and amortization of intangible assets (a) Estimation of useful life for intangible assets with finite useful life： Item Estimated useful life Proof Land use right certificate Land use right 50 years period Software 5-10 years Update cycle Exclusive technology 10 years Exclusive certificate period At the end of each year, the Company will recheck the usage life of intangible assets with the limited usage life and amortization method will be rechecked. According to the re-check, the useful life and amortization method of the intangible assets at the end of the year are not different from those estimated before. (b) Amortization of intangible assets In case their usage life is limited, the intangible assets are amortized evenly over the period in which they produce economic profit for the Company; in case it is impossible to evaluate the usage life when the intangible assets bring the benefits to enterprises, it will be deemed that the usage life of such intangible assets is uncertain and amortization is not applicable. (3) The confirmation and calculation of internal R&D expenses The expenses in the developing stage of internal research and development programs can be recognized as intangible assets when satisfying the following conditions: (a) Completing the intangible assets to make them useful or to sell them is technically feasible; (b) Have intention of completing the intangible assets to use or sell; (c) The manners in that the intangible assets produce economic interest can prove that the products produced with the intangible assets have -46- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report market or the intangible assets themselves have market. For the intangible assets for internal use, verify their feasibility; (d) Have essential technique, financial resources and other resources to support completing the development of intangible assets, and have ability to use or sell the intangible assets; (e) The expenses that belong to development phase of the intangible assets can be calculated reliably. 4.14Amortization method and period of long-term deferred expenses Long-term deferred expenses are amortized evenly over the beneficial period. Among which: Leasehold improvement for operation on leased property is amortized evenly over the remaining leasing period or the remaining useful life whichever is shorter. 4.15 Impairment on other main assets except for inventories, investment properties and financial assets (1) Long-term equity investment In case the cost method is used to calculate the long-term equity investments which are not quoted in the active market or whose fair values cannot be reliably calculated, the depreciation loss will be determined based on the difference between the book values and present values determined by the discounting of future cash flow in line with the current market return rate of similar financial assets. For other long-term equity investments, in case the calculation results of receivable amounts indicate that the receivable amount of this long-term equity investment is lower than their book values, the difference will be confirmed as the asset depreciation losses. Once the depreciation loss of long-term equity investment is confirmed, it will not be reversed. (2)Long-term non-financial assets such as fixed assets, construction in progress, intangible assets and goodwill etc For long-term non-financial assets such as fixed assets, construction in progress, intangible assets, etc, the Company assesses whether signs of possible impairment exist at end of each year. Impairment tests are performed on goodwill arises from business combinations and intangibles with uncertain useful life regardless of whether signs of possible impairment exist. For assets with signs of impairment, recoverable amounts are estimated. Recoverable amounts are determined by the higher of the fair value of the assets after netting off costs of disposal and the current value of projected future cash flows generated by the assets. When the recoverable amount of an asset is lower than the book value of the asset, the book value of the asset is reduced to its recoverable amount. The amount reduced is recognized as impairment loss on assets in the current profit and loss statement, and provision for impairment loss on assets is recorded at the same time. Future depreciation or amortization of assets is adjusted after recognition of impairment loss so that the adjusted book value of the assets (less estimated residual value) is amortized systematically over their remaining useful life. Impairment loss on long-term non-financial assets such as fixed assets, construction in progress, intangibles, etc shall not be reversed once recognized. When there are signs of possible impairment on assets, the Company estimates the recoverable amount of the assets on an individual basis. -47- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report 4.16 Capitalization of borrowing expenses (1) Confirmation principle of capitalization of borrowing expenses In case the borrowing expenses occurring in the Company may directly be attributable to the construction and productions of assets complying with the capitalization conditions, they will be capitalized and accrued to the relevant capital costs; other borrowing expenses will be confirmed as the expenses based on the actual amount at the time of occurrence and accrued to the current profit and loss. The assets complying with the capitalization conditions mean the assets such as fixed assets, investment real estates and inventory, etc that need a long time of construction and production activities before they are ready for use or for sales. The borrowing expenses begin to be capitalized under the following circumstances: (a) The asset payment have been made which include the payment such as the paid cashes, transferred non-currency assets or borne liabilities with the interests to construct or produce the assets complying with the capitalization conditions; (b) The borrowing expenses have occurred; (c) The necessary construction or production activities to make the assets ready for use or sales have been launched. In case during the construction or production period the assets complying with the capitalization conditions are abnormally suspended and the suspension period exceeds 3 months continuously, the capitalization of borrowing expenses will also be suspended. The capitalization of borrowing expenses for the assets that have been constructed or produced and are ready for use or sales will be stopped. When parts of the purchased assets or assets whose production satisfies the capitalization conditions are completed respectively and can be used individually, the capitalization of the borrowing expenses of these parts will be stopped. (2) Capitalization period of borrowing expenses The capitalization period means the period from the moment that the borrowing expenses start to be capitalized to the moment that the capitalization is stopped, which does not include the period that the capitalization of borrowing expenses is suspended. (3) Calculation method about capitalization amount of borrowing expenses The interest expenses for special loans (after the deduction of interest income generated by the unused loan capitals or the investment return obtained from the temporary investments) and auxiliary expenses will be capitalized before the assets complying with the capitalization conditions are ready for the expected use or sales. The interest amount of general loans to be capitalized will be determined by multiplying the weighted average amount of the asset payment by which the accumulated assets exceed the special loans with the capitalization rate of general loans. The capitalization rate will be determined based on the weighted average interest rate of general loans. In case the loans have the discounts or premiums, the Company will adjust the interest amount in each period based on the amortized discount and premium amount in each accounting period in accordance with the actual interest rate method. 4.17.Recognition of Income (1) Sale of goods: -48- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Revenue from the sale of goods is recognized when the enterprise has transferred to the buyer the significant risks and rewards of ownership of the goods; the enterprise retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; it is probable that the economic benefits associated with the transaction will flow to the enterprise; and the relevant amount of revenue and costs can be measured reliably. (2)Rendering of service In case on the preparation date of balance sheet the results about service transaction can be reliably evaluated, the labor income will be confirmed by the completion percentage method. The completed percentage of service transactions is determined by the measurement of finished work. In case the service transaction results on the preparation date of balance sheet cannot be reliably evaluated, they will be determined in the following methods: (a) In case the service costs that have occurred can be compensated, the service income will be confirmed based on such service costs and the same amounts will be settled as the service costs. (b) In case the service costs that have occurred cannot be compensated, such service costs will be accrued to the current profit and loss and will not be confirmed as the service costs. (3) Use right of transferred assets In case the economic benefits related to the transaction will probably flow into the enterprise and the income amounts can be reliably calculated, the Company will determine the income amount about use right of transferred assets by the following means: (a) The interest income amount will be calculated and determined based on the use time of currency capital from the Company by others and actual interest rate. (b) The income amount of use expenses will be calculated and determined subject to the charging time and method agreed in the relevant contracts and agreements. (c) Rental income from lease of properties a. Lease contracts, agreements or other notice of settlement ratified by leaseholder b. Have executed liabilities as stipulated in the contract, issued rental invoices and the proceeds have been or will be received with certainty c. Cost can be reliably measured 4.18 Government grants Government grants shall be recognized at fair value on the conditions that the Company can receive the grant and comply with the conditions attaching to the grant. For a government grant related to income, if the grant is a compensation for related expenses or losses to be incurred by the Company in subsequent period, the grant shall be recognized as deferred income, and recognized in profit or loss over the periods in which the related costs are -49- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report recognized. A government grant related to an asset shall be recognized as deferred income, and evenly amortized to profit or loss over the useful life of the related asset. 4.19 Income Tax Income Tax comprises current income tax and deferred income tax. In addition to the corporate income tax adjustment of the merger goodwill, or directly charged to owners of the rights and interests of the transactions or matters included in the owner's equity, income tax is recorded as income tax expense are included in the current profit or loss. The company form during the current income tax liabilities or assets in current and previous, estimated in accordance with the provisions of the tax law calculating the expected to pay and return amount. According to temporary differences between book value of assets and liabilities in the balance sheet date and tax base, using deferred taxation accounting for income tax. All taxable temporary differences are recognized as deferred income tax liabilities, unless taxable temporary differences form in the following transactions: Initial recognition of goodwill; Although the transaction is not a consolidation, but when the transaction occurred impact neither accounting profit nor taxable income (or loss deductions); Taxable temporary differences of investment for subsidiaries, associated company and joint ventures, the reversal of the temporary differences can control the time and the temporary differences in the foreseeable future it is not likely to switch back. The company recognizes deferred income tax assets arising from temporary differences under the limite of taxable income that is likely to get and can be used to deduct temporary differences, unless the deductible temporary differences produced in the following transactions Although the transaction is not a consolidation, but when the transaction occurred impact neither accounting profit nor taxable income (or loss deductions); The deducible taxable temporary differences of investment for subsidiaries, associated company and joint ventures, deferred income tax assets recognized as temporary differences in the foreseeable future is likely to switch back, and the future is likely to be used to touch deduction deductible temporary differences of taxable income. The balance sheet date, conclusive evidence that the coming period is likely to be sufficient taxable income to deduct temporary differences, it should recognized deferred income tax assets of identified previously. The Company was the balance sheet date, the deferred income tax assets and deferred income tax liabilities, according to provisions of the tax law, in accordance with the expected recovery of the assets or liquidation of liabilities during the applicable tax rates measurement, and reflect the balance sheet date is expected to recover assets or liquidation of liabilities impact of the income tax form. The book value of deferred tax assets must be reviewed at the banlance sheet date. If the taxable income that arouses in the future is unlikely sufficient to deduct the benefit of the deferred tax assets, the book value of the deferred tax assets should be write-down.If likely, the amount that has been write-down should be write-off. -50- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report 5. Changes in accounting policies and accounting estimates None 6. Major Taxation 6.1 Turnover tax and others (1) Tax rate Item Type of tax Tax rate Products sales income VAT 17% Material transferred income VAT 17% Leasing income Business Tax 5% Installation and processiong Business Tax 3%-5% service income (2) City Maintenance & Construction Tax The City Maintenance & Construction Tax is recognized and paid as 7% of the turnover tax, and the foreign invested enterprise affiliated to the Company is exempt for the City Maintenance & Construction Tax according to rules. (3) Education Tax The Education tax is recognized and paid as 3% of the turnover tax, and the foreign invested enterprise affiliated to the Company is exempt for the Education 6.2 Income Tax (1) Nanjing Nanfang Telecommunications Company Limited and Nanjing Putian Intelligent Building Ltd. are the high-technique enterprise, which are located in Jiangning national new and high technique development area established with the approval by National Scientific Technique Commission. In accordance with relevant rules, Nanjing Nanfang Telecommunications Company Limited and Nanjing Putian Intelligent Building Ltd are subject to taxation at a rate of 15% of the standard Enterprise Income Tax rate. (2) Putian Telecommunications (Hong Kong) Co., Ltd. was established in Hong Kong on December 1,2000, and is subject to the Enterprise Income Tax at a rate of 17.5% according to relevant rules in Hong Kong. (3) Others are subject to the Enterprise Income Tax at a rate of 25%. 7. Business combination and consolidated financial statements 7.1 Business combination policy (1) Business combination involving enterprises under common control For this kind of business combination, the Company adopts equity method. Assets and liabilities that are obtained by the absorbing party in a business combination shall be measured at their carrying amounts, excluding the adjustment of using different accounting policies, and not be recognized as goodwill. The difference between the carrying amount of the net assets -51- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report obtained and the carrying amount of the consideration paid for the combination shall be adjusted to capital reserve. If the capital reserve is not sufficient to absorb the difference, any excess shall be adjusted against retained earnings. The net profit made by the party being absorbed before the combination shall be presented in the consolidated income statement. (2) Business combination not involving enterprises under common control Where the cost of a business combination exceeds the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference shall be recognized as goodwill, goodwill shall be measured at cost less accumulated impairment losses. Where the cost of combination is less than the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, after reassessment, the difference shall be recognized in profit or loss for the current period. The operation results of the acquiree shall be consolidated since the Company obtains the controlling rights, until the controlling rights are transferred from the Company. (3) Step-by-step realization of business combination The Company realizes business combination through multiple step-by-step exchange transactions; the combined cost is summation of each individual transaction’s cost according to “Enterprise Accounting Standards No. 20 – Business combinations”. 7.2 Preparation of consolidated financial statements (1) Consolidation scope Consolidation scope includes: the Company holds invested enterprise’s more than half of the right to vote directly, through subsidiary holds invested enterprise’s more than half of the right to vote indirectly, or the Company holds less than half of the right to vote but can control the invested enterprise. (2) Preparation of consolidated financial statements Parent company prepares consolidated financial statements on the basis of parent company and subsidiaries’ financial statements and other datum, adjusts long-term equity investment to subsidiaries according to equity method. The Company would offset all major internal transactions and intercompany current accounts within the consolidation scope. 7.3Subsidiary company Unit: Whet Holding her Company’s Registered proporti cons Name of subsidiary Business scope Investment Note capital on olidat amount (%) ed or not Nanjing Nanfang Manufacture and service of data Telecommunications 3,420.50 3,317.89 98.24 Yes --- communication products Company Limited Nanjing Bada Manufacture of cassette Telecommunications 1,130.14 678.07 60.00 Yes --- communication equipment Co., Ltd. Communication equipment, net Nanjing Putian equipment, electronic products, Inforamtion Technology data communication products, 1,400.00 1,386.00 99.98 Yes --- Company Ltd. electronic machinery and equipment products, research, -52- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report producing, sales, installation and repair of fitted software, telecommunication information net project, buildings intelligentize project, design of computer information system project, construction and system combination, consultancy; Maintenance of communication equipment; property management Manufacture and sales of buildings Nanjing Putian intelligentize product, construction 1,200.00 496.21 41.35 Yes Note Intelligent Building Ltd. and system combination Import & export transaction of Putian telecommunication product, Telecommunications research of high-tech technique HK 200.00 HK 180.00 90.00 Yes --- (Hong Kong) Co., Ltd. and technique transit, technique trade Telecommunication; Research, manufacture and repair of software Nanjing Putian Network and net electronic equipment, sales 1,000.00 921.60 92.16 Yes --- Company Ltd. of electronic computer system combination Nanjing Postel R&D, manufacture of CDMA mobile Wongzhi USD USD product, sales of self-produced 99.42 Yes --- Telecommunications 1,090.00 730.30 product and offer related service Co., Ltd. Outside allocation equipment, Nanjing Putian computer room network engine Changle trunk equipment, manufacture and 1,000.00 507.00 50.70 Yes --- Telecommunications sales of communication electronic Equipment Co., Ltd. product Allocation of station record and other electronic appliance; Nanjing Putian electronic product, R&D of Telecommunication communication product, sales and 475.00 3,32.5 70 Yes Technology Co., Ltd. technical service; Design, construction, maintenance and system combination of network Notes 1: The registered capital of Nanjing Putian Intelligent Building Ltd. (hereafter refer to as ‘Building company’) is CNY 12,000,000, and the equity proportion of the company is 41.3505%., Building company is within the consolidated scope because the Company’s voting authority among the Board of Directors is over a half and the company has actual control over the building company 7.4Changes in the scope of consolidation during the year Two enterprises were excluded from consolidation for the following reasons (a)The Company’s investment proportion of Beijing Picom Telecommunications Equipment Ltd is 51%. The company was revoked its business license by Beijing industrial and commercial bureau ,thus Beijing Picom Telecommunications Equipment Ltd. is excluded from the consolidated scope. (b)The Company’s investment proportion of Nanjing Hongyan Electronic Appliance Company is 51.20%.Now,all the equity has been transferred. Therefore, it is excluded from the consolidated financial statements as of -53- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report December 31,2008,but it is still included in the consolidated profit statements and cash flow statements from January to May 2008. 7.5 Minority shareholders’ equity and interest Proportion of Profit minority Minority distribution of Name of the company Relationship shareholders’ shareholders’ the minority equity amount equity（%） shareholders Nanjing Bada Telecommunications Co., Ltd 40.00% Subsidiary 4,419,824.52 -168,061.74 Nanjing Putian Telecommunication Technology 30.00% Subsidiary Co., Ltd Nanjing Putian Intelligent Building Ltd. 58.65% Subsidiary 35,432,019.47 7,913,419.69 Putian Telecommunications (Hong Kong) Co., 10.00% Subsidiary Ltd. Nanjing Putian Network Company Ltd. 7.84% Subsidiary 316,928.75 -40,914.23 Nanjing Postel Wongzhi Telecommunications 0.58% Subsidiary 228,489.89 54,554.77 Co., Ltd. Nanjing Putian Changle Telecommunications 49.30% Subsidiary 8,856,793.77 2,170,174.90 Equipment Co., Ltd. Nanjing Nanfang Telecommunications Company 1.76% Subsidiary 1,100,713.46 261,729.32 Limited Nanjing Putian Inforamtion Technology 0.02% Subsidiary 852.14 396.21 Company Ltd. Nanjing Putian Hongyan Electric Appliance 0.00% Subsidiary - -245,771.77 Company Total 50,355,622.00 9,945,527.15 8. Notes to the main items of financial statements 8.1 Cash and cash equivalents As of 31 December, 2008 As of 31 December, 2007 Item Non-CNY Exchange Non-CNY Exchange CNY amount CNY amount amount rate amount rate Cash on hand CNY 14,579.60 53,422.12 Cash in bank CNY 266,860,891.73 198,952,895.11 USD 1,056,626.45 6.8346 7,221,619.14 1,707,507.28 7.3046 12,472,657.68 EUR 337,414.11 9.6590 3,259,082.89 245,428.03 10.6669 2,617,956.25 GBP 208.78 9.8798 2,062.70 207.43 14.5807 3,024.47 HKD 1,989,033.91 0.8819 1,754,109.11 256,686.19 0.9364 240,355.81 Other monetary funds CNY 40,463,166.01 73,386,228.62 USD 82,082.09 6.8346 560,998.26 GBP 1,127.67 9.8798 11,141.15 Total 320,147,650.59 287,726,540.06 -54- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report a) Classification of other monetary funds： Item Amount Notes Security deposit for bank 40,000,000.00 Deducted in the cash flow statement. acceptance bills Including the deposit of CNY 99,640.00 for contracts, which Other security deposit 1,035,305.42 has been deducted in the cash flow statements Total 41,035,305.42 8.2 Notes receivables Item As of 31 December, 2008 As of 31 December, 2007 Bank acceptance bills 6,349,430.00 8,260,976.02 Commercial acceptance bills 1,259,099.18 Total 6,349,430.00 9,520,075.20 No acceptance bills are impawned 8.3 Accounts receivable a).Classification of accounts receivable in accordance with risk ： As of 31 December, 2008 As of 31 December, 2007 Item Proportio Proportion Provision for Provision for Amount Amount n (%) impairment impairment (%) Amount of individual with significant 39,644,499.35 11.27 42,508,534.55 12.12 amount and high possibility of bad debts Amount of individual with no significant amount but high 3,503,042.59 1.00 3,503,042.59 possibility of bad debts when combined Others 308,751,475.48 87.73 11,169,643.88 308,326,456.27 87.88 28,871,368.44 Total 351,899,017.42 100.00 14,672,686.47 350,834,990.82 100.00 28,871,368.44 b).Analysis of aging As of 31 December, 2008 As of 31 December, 2007 Aging Proportio Proportio Provision for Provision for Amount n Amount n impairment impairment (%) (%) 298,530,076.5 270,672,037.0 Within 1 year 84.83 1,854,415.35 77.15 820,754.94 1 5 1-2 years 26,542,044.16 7.54 2,431,077.15 38,562,968.58 10.99 3,264,693.64 2-3 years 13,536,703.05 3.85 2,539,469.03 20,627,414.91 5.88 7,639,594.58 3-4 years 5,855,565.70 1.67 1,756,669.71 6,241,050.78 1.78 3,750,199.47 4-5 years 2,684,427.39 0.76 2,290,894.74 4,579,506.57 1.31 3,851,022.79 over 5 years 4,750,200.61 1.35 3,800,160.49 10,152,012.93 2.89 9,545,103.02 Total 351,899,017.4 100.00 14,672,686.4 350,834,990.8 100.00 28,871,368.44 -55- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report 2 7 2 Accounts receivable, 337,226,330.95 321,963,622.38 net c). Top 5 debtors of accounts receivable Proportion Proportion of No Name of the debtors Amount Aging of bad Reasons total amount debts Low Within 1 possibility of 1 Shanghai Potevio Co., Ltd 13,341,700.00 3.79% year the bad debts Low China United Network Within 1 possibility of 2 Communications 7,759,971.00 2.21% year the bad Corporation Limited debts Low China Telecom Jiangsu Within 1 possibility of 3 6,800,000.00 1.93% branch year the bad debts Low Jiangsu Telecom Nanjing Within 1 possibility of 4 6,688,106.85 1.90% branch year the bad debts Low China Telecom,Xian Within 1 possibility of 5 5,054,721.50 1.44% Branch year the bad debts Total 39,644,499.35 11.27% 1. Accounts receivable actually offset in current year amounts to 1,822,049.29 and the amount of 99,876.62 which had been offset recovered the current year. 2. There is no accounts receivable due from shareholder who has more than 5% (including 5 %) voting shares of the Company as of 31 December. 3. Accounts receivable of related parties accounts for 3.81% of the total amount. 8.4 Prepayment a). Analysis of aging As of 31 December, Proportion As of 31 December, Proportion Aging 2008 (%) 2007 (%) Within 1 year 45,067,169.94 93.60 7,841,945.31 97.85 1-2 years 3,076,948.62 6.39 169,748.32 2.12 2-3 years 2,250.00 0.03 3-4 years 2,250.00 0.01 Total 48,146,368.56 100.00 8,013,943.63 100.00 1. There is no prepayment due from shareholder who has more than 5% (including 5 %) voting shares of the Company as of 31 December,2008 2.Prepayment of related parties accounts for3.58％of the total amount as of 31 December,2008 3.The amount of prepayment increases by 500.78% this year mainly -56- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report because of the prepayment of the project of the industry park. 4.The amount of prepayment over 1 year is 3,079,198.62 as of 31 December, 2008 which includes the land use right fee of 3,000,000.00 for the project of industry park. 8.5Other receivables 1).Classification of other receivables in accordance with the risk As of 31 December, 2008 As of 31 December, 2007 Item Proportion Provision for Proportion Provision for Amount Amount (%) impairment (%) impairment Amount with significant individual amount and has 45,977,863.58 70.13 31,094,464.14 31,176,679.55 51.84 1,517,667.95 been provided for bad and doubtful debts Amount of individual with no significant amount but high possibility of bad debts when combined Others 19,580,448.32 29.87 1,052,394.22 28,959,873.38 48.16 4,562,690.88 Total 65,558,311.90 100.00 32,146,858.36 60,136,552.93 100.00 6,080,358.83 2).Analysis of aging for other receivables As of 31 December, 2008 As of 31 December, 2007 Aging Proportio Proportio Provision for Provision for Amount n Amount n impairment impairment (%) (%) Within 1 year 17,192,253.40 26.22 35,769,963.98 59.48 193,046.10 1-2 years 7,176,160.63 10.95 2,434,364.40 4.05 106,542.43 2-3 years 128,006.18 0.20 12,901.24 17,550,391.14 29.19 2,338,317.67 3-4 years 39,153,680.98 59.72 30,372,681.54 1,602,256.93 2.66 850,074.12 4-5 years 362,665.64 0.55 290,132.51 591,551.40 0.98 421,041.12 over 5 years 1,545,545.07 2.36 1,471,143.07 2,188,025.08 3.64 2,171,337.39 Total 65,558,311.90 100.00 32,146,858.36 60,136,552.93 100.00 6,080,358.83 Other receivables, 33,411,453.54 54,056,194.10 net 3). Top 5 debtors of other receivables Company name Proportion Proportion of No. Amount Aging of bad Reasons total amount debts Beijing Picom No possibility for 1 29,270,792.71 3-4 years 100.00% 44.65% Telecommunications recover -57- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Equipment Ltd Shanghai linyan Investment Low possibility of 2 9,314,888.27 3-4 years 10.00% 14.21% Consulting bad debts Company Shanghai Youtong Low possibility of 3 4,000,000.00 1－2years 0.00% 6.10% Networking Co.,Ltd bad debts Shenzhen Fateli Low possibility of 4 2,500,000.00 1－2years 0.00% 3.81% Industry Co.,Ltd bad debts Nanjing Jintong Over 5 No possibility for 5 892,182.60 100.00% 1.36% CO.,Ltd years recover Total 45,977,863.58 70.13% b.The amount of other receivables for the top 5 debtors is 45,977,863.58 and equals to 70.13% of the total amount as of 31December,2008 2.There is no offset other receivables and no offset other receivables recover. this year. c. There is no other receivables due from shareholder who has more than 5% (including 5 %) voting shares of the Company as of 31 December, 2008 d. Other receivables of related parties accounts for 45.18％of the total amount as of 31 December,2008 e. Other receivables aging 3-4 years includes the amount of 29,270,792.71 from Beijing Picom Telecommunications Equipment Ltd which is excluded from the consolidated scope 8.6 Inventories a). Inventories and provision for inventory devaluation As of 31 December, 2008 As of 31 December, 2007 Item Provision for Provision for Amount Amount devaluation devaluation Raw materials 23,316,966.24 6,322,693.53 30,131,401.31 6,322,693.53 Goods process 38,633,788.53 10,404,064.58 23,464,841.84 10,404,064.58 Finished goods 135,278,464.30 3,482,904.39 139,649,219.22 10,857,470.91 Total 197,229,219.07 20,209,662.50 193,245,462.37 27,584,229.02 b).Provision for inventory devaluation As of 31 As of 31 Item December, Provided Returned Written off December, 2008 2007 Raw materials 6,322,693.53 6,322,693.53 Goods process 10,404,064.58 10,404,064.58 Finished goods 10,857,470.91 9,107,417.23 293,786.13 16,188,197.62 3,482,904.39 Total 27,584,229.02 9,107,417.23 293,786.13 16,188,197.62 20,209,662.50 -58- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report 8.7 Long-term equity investment a).Classification of the long-term equity investment Provision Net amount, as Provision for for Net amount, as Amount as of 31 of 31 Amount as of 31 Item diminution in diminutio of 31 December December 2008 December December 2007 value n in 2007 2008 value Investm ent of 26,317,441.14 26,317,441.14 21,687,320.23 21,687,320.23 joint venture Investm ent of 189,157,833.3 189,157,833.38 192,148,616.57 192,148,616.57 affiliated 8 venture Others 2,778,564.84 1,854,910.00 923,654.84 923,654.84 923,654.84 216,398,929.3 Total 218,253,839.36 1,854,910.00 214,759,591.64 214,759,591.64 6 b) .Information of the joint ventures and affiliated ventures Share Voting right holding proportion of Total net percent the assets as of Name of Registr Business Total sales of Net profit of age of Company 31 invested unit y nature current year current year the among December,2 Compa invested 008 ny units Joint venture Manufactur Nanjing e and sales Mennekes 49,434,882. 101,570,937.7 Nanjing of industrial 50 50 5,877,033.49 Electric 30 4 plugs and Appliances Ltd. sockets Manufactur Danyang Putian Danyan e and sales 3,000,000.0 Building Digital 50 50 g of digital 0 Cable Co., Ltd. cables Affiliated venture Manufactur Nanjing Putian e and sales Datang of 5,722,034.5 Information and Nanjing 40 40 4,466,700.66 91,787.16 telecommu 7 Electric nication Company Ltd. products Manufactur Nanjing e and sales Zhongyou of Nanjing 30 30 982,352.98 3,025,388.99 26,856.51 Telecommunica telecommu tion Co., Ltd. nication products Nanjing Potevio Land 337,397,703 Telecommunica Nanjing leasing and 49.64 49.64 9,261,278.42 40,013.31 .46 tion Technology manageme -59- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Industry Park nt of the Co., Ltd. industry park Developme nt, Shanghai Shangh manufactur 39,552,269. Yulong Biotech 21 21 8,104.00 -875,753.87 ai e and sales 12 Ltd. of bio-tech products Developme nt, Qufu manufactur 72,061,944. YulongBio-Tech Qufu 21 21 -20,340,520.50 e and sales 74 Co., Ltd. of bio-tech products C).Classification of the long-term equity investment Share Increase Distribution holding and of Increase and As of percent Name of As of decrease of dividend in Initial amount decrease of the 31December age of invested unit 31December 2007 the cash the equity 2008 the investment current Compa cost year ny (%) Nanjing Mennekes 2,191,604.1 15,037,508.00 20,187,320.23 2,438,516.74 24,817,441.14 50.00 Electric 7 Appliances Ltd. Danyang Putian Building 1,500,000.00 1,500,000.00 1,500,000.00 50.00 Digital Cable Co., Ltd. Sub-total of 2,191,604.1 16,537,508.00 21,687,320.23 2,438,516.74 26,317,441.14 joint ventures 7 Nanjing Putian Datang 1,400,000.0 Information 600,000.00 852,098.97 36,714.86 2,288,813.83 40.00 0 and Electric Company Ltd. Nanjing Zhongyou 300,000.00 201,292.42 8,056.95 209,349.37 30.00 Telecommunic ation Co., Ltd. Nanjing Potevio Telecommunic 167,473,470.0 ation 167,548,141.29 167,453,607.41 19,862.61 2 49.64 Technology Industry Park Co., Ltd. Shanghai Yulong Biotech 23,310,000.00 14,160,251.44 -183,908.30 13,976,343.14 21.00 Ltd. Qufu YulongBio-Tec --- 9,481,366.33 -4,271,509.31 5,209,857.02 21.00 h Co., Ltd. Sub-total of the 1,400,000.0 189,157,833.3 affiliated 191,758,141.29 192,148,616.57 -4,390,783.19 0 8 ventures Nanjing Yuhua Galvanization 420,915.00 - 420,915.00 252,013.02 10.00 Factory Hangzhou 321,038.00 - 321,038.00 2.26 -60- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report HongyanElectri c Appliance Group Nanjing Putian Industry 181,701.84 - 181,701.84 10.00 Co.,Ltd Beijing Picom Telecommunic 1,854,910.0 1,854,910.00 51.00 ations 0 Equipment Ltd Sub-total of 1,854,910.0 923,654.84 2,778,564.84 252,013.02 others 0 5,446,514.1 218,253,839.3 Total 208,295,649.29 214,759,591.64 -1,952,266.45 252,013.02 7 6 d). Provision for diminution in value of long-term equity investment. Name of the As of December Increases Decreases As of December 31, 2008 company 31, 2007 Beijing Picom Telecommunications 1,854,910.00 1,854,910.00 Equipment Ltd 8.8. Investment real estate Increases Decreases Real estate Investment As of December for self-use real estate As of December Item Depreciation 31, 2007 or transferred 31,2008 and Disposal transferred into real amortization from estate for inventory self-use Total original 10,032,416.92 10,032,416.92 value Land use right 3,642,147.50 3,642,147.50 rented out Constructions 6,390,269.42 6,390,269.42 rented out Total depreciation provided or 2,511,430.67 245,092.56 2,756,523.23 accumulated amortization Land use right 523,169.89 79,973.76 603,143.65 rented out Constructions 1,988,260.78 165,118.80 2,153,379.58 rented out Accumulated provision for impairment loss 1,842,418.00 1,842,418.00 on investment real estate Land use right rented out Constructions 1,842,418.00 1,842,418.00 rented out Total book value of 5,678,568.25 -245,092.56 5,433,475.69 investment real estate -61- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Land use right 3,118,977.61 -79,973.76 3,039,003.85 rented out Constructions 2,559,590.64 -165,118.80 2,394,471.84 rented out 8.9 Fixed assets As of December 31, As of December 31, Item Increases Decrease 2007 2008 Total original cost of 189,008,310.85 29,464,575.25 23,023,943.46 195,448,942.64 fixed assets Buildings and 53,763,452.86 16,730,956.07 7,329,061.51 63,165,347.42 constructions Machinery equipment 74,857,356.68 4,143,896.18 14,274,126.30 64,727,126.56 Transportation 10,775,729.47 2,665,022.05 1,044,829.40 12,395,922.12 equipment Electronic equipment 49,611,771.84 5,924,700.95 375,926.25 55,160,546.54 Total accumulated 117,666,782.46 16,674,606.66 18,024,370.82 116,317,018.30 depreciation Buildings and 23,147,420.48 1,925,258.83 3,395,562.58 21,677,116.73 constructions Machinery equipment 49,020,816.14 5,058,012.61 13,431,620.60 40,647,208.15 Transportation 6,956,552.86 2,573,858.86 1,015,107.86 8,515,303.86 equipment Electronic equipment 38,541,992.98 7,117,476.36 182,079.78 45,477,389.56 Total provision for impairment loss on 3,291,955.33 2,088,896.79 1,588,896.79 3,791,955.33 fixed assets Buildings and 539,124.00 539,124.00 constructions Machinery equipment 746,565.99 1,314,775.00 2,061,340.99 Transportation 774,121.79 774,121.79 equipment Electronic equipment 2,006,265.34 1,588,896.79 417,368.55 Total book value of 68,049,573.06 75,339,969.01 fixed assets Buildings and 30,076,908.38 40,949,106.69 constructions Machinery equipment 25,089,974.55 22,018,577.42 Transportation 3,819,176.61 3,106,496.47 equipment Electronic equipment 9,063,513.52 9,265,788.43 The decrease of the fixed asset mainly because the Nanjing Hongyan Electronic Appliance Company and Beijing Picom Telecommunications Equipment Ltd are excluded from the consolidated scope. a).Fixed assets not in use Plan when Accumulated Item Original cost Provision of the Net book value to be depreciation reused -62- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Machinery 3,613,901.63 2,200,966.13 1,246,565.99 166,369.51 equipment Electronic 1,431,119.40 833,617.18 597,502.22 equipment Total 5,045,021.03 3,034,583.31 1,844,068.21 166,369.51 b). Fixed assets with no property right certificate Accumulated Reasons for no property right Item Original cost Net book value depreciation certification Buildings and No certification of land use 12,191,531.61 5,869,490.22 6,322,041.39 constructions right Buildings and 16,633,024.57 170,000.00 16,463,024.57 In process constructions Total 28,824,556.18 6,039,490.22 22,785,065.96 8.10 Construction in progress Decreases As of Proportion As of Fund Other Decemb of project Name of project Budget December 31, Increases Transfer into resource decreas er 31, input in 2007 fixed assets s es 2008 budget Construction Self and installation 270,490.00 270,490.00 funds program Newly built workshop 17,500,000.0 Self 6,667,258.78 9,965,765.79 16,633,024.57 program of 0 funds Building Co.Ltd Changle simplified Self workshop funds program Total 6,937,748.78 9,965,765.79 16,903,514.57 8.11 Intangible assets As of December As of December Amortization Item Increases Decreases 31, 2007 31, 2008 period left Total original cost of intangible 21,217,753.47 50,000.00 - 21,267,753.47 assets Land use right 8,250,892.87 - - 8,250,892.87 Exclusive 5,775,000.00 - - 5,775,000.00 -technology Software 7,191,860.60 50,000.00 - 7,241,860.60 Total accumulated 10,207,209.39 1,122,925.24 - 11,330,134.63 amortization Land use right 790,940.03 165,009.72 - 955,949.75 Exclusive 3,430,541.58 577,500.00 - 4,008,041.58 -technology Software 5,985,727.78 380,415.52 - 6,366,143.30 Total book value of 11,010,544.08 - 1,072,925.24 9,937,618.84 intangible assets Land use right 7,459,952.84 - 165,009.72 7,294,943.12 8-48 years -63- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report As of December As of December Amortization Item Increases Decreases 31, 2007 31, 2008 period left Exclusive 2,344,458.42 - 577,500.00 1,766,958.42 3 years -technology Software 1,206,132.82 - 330,415.52 875,717.30 0-8 years 8.12 Short-term borrowings Classification As of December 31, 2008 As of December 31, 2007 Mortgage borrowings 60,000,000.00 Guaranteed borrowings 270,000,000.00 324,000,000.00 Bank and commercial 160,000,000.00 80,000,000.00 acceptance bills Total 490,000,000.00 404,000,000.00 1.The company pledged fixed deposit of 40 millions yuan to the Shanghai Pudong Development Bank ,Nanjing Branch for the bank acceptance bills of 80 million yuan. 2. The company borrows short-term loan of 16 million yuan from the Shanghai Pudong Development Bank ,Nanjing Branch and the borrowing period is from 21 March 2008 to 21 March 2009.Two real estates with the fair value 28.01 million yuan and the book value of real estate 17,579,975.80 yuan are mortagage. 3.The company borrows short-term loan of 44 million yuan from the Shanghai Pudong Development Bank ,Nanjing Branch and the borrowing period is from 21 March 2008 to 21 March 2009 and from 2 April 2008 to 2 April 2009.Three real estates of its affiliated venture Nanjing Potevio Telecommunication Technology Industry Park Co., Ltd. with the fair value 78,715,000.00yuan and the book value 166,915,784.20 are mortgage. 4. The company guaranteed the borrowing of 23 million for Nanjing Putian Intelligent Building Ltd. and the borrowing of 17 million for Nanjing Nanfang Telecommunications Company Limited 5. The parent company China Potevio Company Limited guaranteed the borrowing of 30 million 6.The final controller China Putian Corporation Group guaranteed the borrowing of 200 million and the bank acceptance bills of 40 million 8.13 Accounts payable Item As of December 31, 2008 As of December 31, 2007 Accounts payable 303,518,882.73 254,366,894.39 1. There is no accounts payable due from shareholder who has more than 5% (including 5 %) voting shares of the Company as of 31 December, 2008 2. The amount of accounts payable of related parties is 639,709.80 , which amounts for 0.21%of the total as of 31 December,2008 a). Top 5 of account payables As of December 31, No Name of the company Aging 2008 Jiangsu mechanical Import-export company of SainTY Within 1 1 36,724,074.39 Group year -64- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report As of December 31, No Name of the company Aging 2008 Within 1 2 Zhengjiang Kexin Data Cable CO.,LTD 10,242,465.42 year Within 1 3 Hong’an Group 10,098,659.40 year Datang telecommunication science and technology Within 1 4 9,994,174.00 CO.,LTD year Within 1 5 Suzhou Hailong Data Cable CO.,LTD 7,429,423.99 year Total 74,488,797.20 8.14 Advances for customers Item As of December 31, 2008 As of December 31, 2007 Advances for customers 15,375,739.80 32,990,187.59 1. There is no advances for customers due from shareholder who has more than 5% (including 5 %) voting shares of the Company as of 31 December, 2008 2. The amount of advances for customers of related parties is 34,560.00, which amounts for 0.22%of the total as of 31 December, 2008 a).Top 5 creditors of advances to customers As of December No Name of the company Aging 31, 2008 Shanghai Zongxiang Technological Progress 1 1,250,000.00 Within 1 year CO.,LTD 2 Shanghai Xundi Technological Progress CO.,LTD 1,200,000.00 Within 1 year 3 Shijiazhuang Kewei Computer Company 1,128,800.00 Within 1 year Shandong Yhltnet Communications ＆ Within 1 year 4 1,000,000.00 Technology Co.,Ltd 5 Great Wall Securities Co.,Ltd 584,460.00 Within 1 year Total 5,163,260.00 8.15 Other payables Item As of December 31, 2008 As of December 31, 2007 Other payables 36,696,588.02 71,950,839.60 1. There is no other payable due from shareholder who has more than 5% (including 5 %) voting shares of the Company as of 31 December, 2008 2. The amount of other payable of related parties is 20,140,000.00, which amounts for 54.88% of the total as of 31 December,2008. The creditor is Nanjing Putian Telecommunication Technology Industry Park Co.,Ltd 8.16 Employee benefits payable As of December 31, As of December 31, Item 2008 2007 -65- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Salary, bonus allowance and subsidy 1,761,051.45 8,221.72 Welfare expenses for staff Social insurance fees Housing fund 2,870,351.37 Staff union expenses and staff education 3,103,389.29 4,018,896.00 expenses Non-monetary welfare Compensation for cancellation of work relationship Housing subsidy 5,754,427.53 10,722,806.68 Among which: Shares paid in cash Total 13,489,219.64 14,749,924.40 8.17 Tax payable As of December 31, As of December 31, Item Legal tax rate 2008 2007 VAT 17% -7,326,416.57 -10,447,546.09 Consumption tax - --- Business tax 3%-5% 184,742.24 151,793.93 City maintenance & construction tax 7% 356,829.83 463,310.58 Enterprise income tax 126,135.03 3,316,757.40 Individual income tax 346,749.35 187,360.96 Land VAT - --- Real estate tax - 578.9 Stamp duty 1,796.70 2,192.10 Education surcharge 3% 318,560.92 315,068.40 Embankment expenses -5,180.30 --- Total -5,996,782.80 -6,010,483.82 8.18 Share capital As of December 31, 2007 Increases(+) or decreases(-) in current year As of December 31, 2008 Shares Item Issuance transferred Proportion Gift Other Sub Proportion Amount of new from public Amount ％ share s total ％ shares reserve fund 1．Unlisted 115,000,000.00 53.49 115,000,000.00 53.49 shares （ 1 ） 115,000,000.00 53.49 115,000,000.00 53.49 Promotion shares Among which: State-holding shares Among which: State-owned -66- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report shares State-owned 115,000,000.00 53.49 115,000,000.00 53.49 legal entity shares Domestic legal entity shares Foreign legal entity shares Natural person’s shares （ 2 ） Recruitment legal entity shares （3）Internal staff shares （ 4 ） Preferred shares or ohers Among which: Transferred shares Total of 115,000,000.00 53.49 115,000,000.00 53.49 unlisted shares 2. Listed shares (1) CNY ordinary shares (2) 100,000,000.00 46.51 100,000,000.00 46.51 Domestically listed foreign shares (3) Overseas listed foreign shares (4) Others Total of listed 100,000,000.00 46.51 100,000,000.00 46.51 shares Total 215000000.00 100.00 215000000.00 100.00 8.19 Capital reserves As of December As of December Item Increases Decreases 31, 2007 31, 2008 Share capital premium 140,491,909.80 140,491,909.80 Other capital reserves 42,974,045.20 42,974,045.20 Total 183,465,955.00 183,465,955.00 8.20 Surplus reserves -67- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report As of December 31, As of December Item Increases Decreases 2007 31, 2008 Statutory surplus 589,559.77 589,559.77 reserves Total 589,559.77 589,559.77 8.21 Undistributed profit Item Amount Adjusted undistributed profit at the beginning of period -77,343,697.79 Plus：Net profit of current year 6,447,713.08 Other transferred in 769,373.61 Minus：Extract for statutory surplus reserves Extract for staff welfare fund Extract for reserve fund Extract for enterprise development fund Profit return for investment Dividends payable to preferred shares Extract for discretionary surplus reserves Dividends payable to ordinary shares Dividends for ordinary shares transferred into capitals Undistributed profit at the ending of period -70,126,611.10 Note:Beijing Picom Telecommunications Equipment Ltd is excluded from the consolidated scope because its business license is revoked by the Beijing administrative bureau for industry and commerce. The net profit of current year adds 769,373.61 8.22 Operating revenues and costs a).Operating revenues Item 2008 2007 Main operating revenues 1,120,710,371.81 936,335,907.10 Other operating revenues 54,202,325.49 37,994,084.42 Total 1,174,912,697.30 974,329,991.52 b)、Operating costs Item 2008 2007 Main operating cost 935,689,506.84 833,084,347.21 Other operating cost 51,219,089.04 37,294,943.82 Total 986,908,595.88 870,379,291.03 c).Classification of the operating revenues and costs (1) Classification by products -68- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Main operating revenues Main operating cost Main operating profit Item 2008 2007 2008 2007 2008 2007 Communic ation 1,095,659,913.64 745,115,310.49 915,780,912.96 650,364,891.64 179,879,000.68 94,750,418.85 products Electronic 25,050,458.17 185,362,967.42 19,908,593.88 177,615,812.22 5,141,864.29 7,747,155.20 products Others 5,857,629.19 5,103,643.35 753,985.84 Total 1,120,710,371.81 936,335,907.10 935,689,506.84 833,084,347.21 185,020,864.97 103,251,559.89 (2) Classification by markets Main operating revenues Main operating cost Main operating profit Areas 2008 2008 2008 2007 2008 2007 Domestic 1,117,032,251.35 930,847,125.83 932,084,948.79 827,705,341.57 184,947,302.56 103,141,784.26 market Oversea 3,678,120.46 5,488,781.27 3,604,558.05 5,379,005.64 73,562.41 109,775.63 market Total 1,120,710,371.81 936,335,907.10 935,689,506.84 833,084,347.21 185,020,864.97 103,251,559.89 d).The amount of sales to the top 5 customers is 169,889,700.24,which amounts to 14.46% of the total operating revenues in the current year. 8.23 Taxes and surcharges on operations Item 2008 2007 Business tax 1,775,548.76 888,736.07 City maintenance & 1,671,831.81 1,290,888.79 construction tax Education surcharge 1,330,215.36 381,778.35 Others 44,123.15 Total 4,821,719.08 2,561,403.21 8.24 Financial expenses Item 2008 2007 Interest expenses 34,826,873.06 27,829,297.32 Less: Interest income 5,291,482.46 4,764,931.93 Exchange loss 1,009,000.76 351,348.98 Others 308,299.62 363,258.60 Total 30,852,690.98 23,778,972.97 8.25 Impairment loss on assets Item 2008 2007 Bad debt loss -15,716,515.83 9,859,286.51 Impairment loss on inventory 8,813,631.10 10,265,609.17 -69- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Impairment loss on fixed assets 500,000.00 1,344,068.21 Provision for diminution in value 1,854,910.00 of long-term equity investment. Total -4,547,974.73 21,468,963.89 8.26 Investment income Item 2008 2007 1、Financial instrument investment --- income 2、Equity investment income 2,739,089.30 870,191.81 （1）Cost method valuation 252,013.02 4,731.90 recognition （2）Equity method valuation -1,452,266.46 865,459.91 recognition （3）Disposal investment income 3,939,342.74 --- Total 2,739,089.30 870,191.81 No significant restrictions on investment income. 8.27 Non-operating profit Item 2008 2007 1、Total income from disposal of 619,127.18 106,243,956.29 non-current assets Including: Income from disposal 619,127.18 106,243,956.29 of fixed assets 2、Income from debt restructure 706,022.33 22,100.00 3、Subsidy from government 577,594.31 868,237.00 4、Indemnity income 59,235.40 2,306,281.59 5、Compensation from moving 6、Compensation income 7、Gain or loss from the short-term investment cost compared to the appropriate 7,212,896.03 1,385,118.60 realizable fair value of net assets of the invested unit 8、Others 913,098.23 914,343.66 Total 10,087,973.48 111,740,037.14 8.28 None-operating expenses Item 2008 2007 1．Total loss for disposal of 135,615.31 328,574.47 non-current assets Including: Loss for disposal 54,165.92 328,574.47 of fixed assets -70- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report 2．Loss from debt restructure 10,000.00 288,091.35 3．Beneficent donation 9,334.97 20,100.00 4. Loss for inventory 73,774.39 5,396.42 shortage 5. Fine expenses 25,154.65 72,363.06 6. Default penalty expenses 121,613.88 --- 7.Various fund expenses 4,008.18 1,725.00 8. Others 58,058.89 780,375.58 Total 437,560.27 1,496,625.88 8.29 Income tax expenses Item 2008 2007 Income tax expenses of current year 5,758,580.28 5,459,666.09 Deferred income tax expenses Total 5,758,580.28 5,459,666.09 8.30 Government subsidies Item 2008 2007 Drawback of VAT 577,594.31 868,237.00 Total 577,594.31 868,237.00 The subsidiary Nanjing Telecommunication Factory ,seven branch has the VAT preferential policies 8.31 Notes to cash flow statement a).Other cash receipts related to operating activities Item 2008 2007 Other cash receipts related to operating 40,362,876.70 37,758,012.97 activities Including: Repayment of temporary payment 33,704,564.53 30,674,569.45 Interest income 5,291,482.46 4,764,931.93 Insurance indemnity income 59,235.40 2,043,614.65 Others 1,307,594.31 274,896.94 b). Other cash payment related to operating activities Item 2008 2007 Other cash payment related to operating 62,379,625.77 75,974,335.79 activities Including: Temporary payment 32,246,421.78 34,500,000.00 Various expenses 30,040,740.93 39,253,322.04 Others 92,463.06 2,221,013.75 -71- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report c) Other cash receipts related to financing activities Item 2008 2007 Development fund received from the 1,350,000.00 government Temporary loan to Putian Technology Park 54,241,475.91 Net value of non cash equivalent monetary 10,099,640.00 37,168,408.35 fund Total 10,099,640.00 92,759,884.26 d)、Other cash payment related to financing activities Item 2008 2007 Repayment of borrowing from China Putian Corporation 20,000,000.00 Repayment of borrowing from Putian Technology Park 34,183,006.26 Total 34,183,006.26 20,000,000.00 e)、Supplementary information Item 2008 2007 Net profit 16,393,240.23 8,492,119.79 Plus: Provision for asset impairment -4,547,974.73 21,468,963.89 Depreciation of fixed assets, depletion of oil and natural gas assets 16,674,606.66 15,304,033.98 and depreciation of bearer biological assets Amortization of intangible assets 1,122,925.24 2,146,242.03 Amortization of long-term deferred expenses 3,254.39 482,603.56 Loss from disposals of fixed assets, intangible assets and other 564,961.26 -105,915,355.57 long-term assets (deduct: increase) Loss on disposal of fixed assets (deduct: increase) -26.25 Loss from changes in fair values (deduct: increase) Financial expenses (deduct: increase) 35,835,873.82 28,747,138.11 Investment loss (deduct: increase) -2,739,089.30 -870,191.81 Decreases in deferred income tax assets (deduct: increase) Increases in deferred income tax liabilities (deduct: decrease) Decreases in inventories (deduct: increase) -3,983,756.70 22,608,477.03 Decreases in operating receivables (deduct: increase) -42,790,599.65 185,845,043.21 Increases in operating payables (deduct: decrease) 35,731,048.94 -43,616,401.84 Others --- Net cash flows from operating activities 52,264,490.16 134,692,646.13 -72- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report 9.Notes to the main items of accounting statement of parent company 9.1 Accounts receivable a).Classification of accounts receivable in accordance with risk ： As of 31 December, 2008 As of 31 December, 2007 Item Proportion Provision for Proportion Provision for Amount Amount (%) impairment (%) impairment Amount of individual with significant amount and high 35,546,286.43 14.07 41,363,097.35 18.24 possibility of bad debts Amount of individual with no significant amount but high 3,503,042.59 1.38 3,503,042.59 possibility of bad debts when combined Others 213,639,142.91 84.55 4,308,025.30 185,426,395.92 81.76 11,580,855.08 Total 252,688,471.93 100.00 7,811,067.89 226,789,493.27 100.00 11,580,855.08 b).Analysis of aging As of 31 December, 2008 As of 31 December, 2007 Aging Proportion Provision for Proportion Provision for Amount Amount (%) impairment (%) impairment Within 1 year 221,441,927.32 87.63 249,893.79 178,122,281.87 78.54 1-2 years 14,417,584.73 5.71 2,984,808.50 25,279,548.79 11.15 1,065,226.15 2-3 years 9,273,913.35 3.67 927,391.34 13,801,698.79 6.09 3,910,082.40 3-4 years 3,421,549.29 1.35 1,026,464.79 3,906,697.66 1.72 1,822,462.26 4-5 years 1,710,720.80 0.68 684,288.32 2,822,443.96 1.24 2,186,145.18 over 5 years 2,422,776.44 0.96 1,938,221.15 2,856,822.20 1.26 2,596,939.09 Total 252,688,471.93 100.00 7,811,067.89 226,789,493.27 100.00 11,580,855.08 Accounts receivable, 244,877,404.04 215,208,638.19 net c). Top 5 debtors of accounts receivable Proportion Proportion of No Name of the debtors Amount Aging of bad Reasons total amount debts Low Shanghai Potevio 1 13,341,700.00 Within1year possibility of 5.28% Co., Ltd the bad debts Within1year Low China Telecom 2 6,800,000.00 possibility of 2.69% Jiangsu branch the bad debts Jiangsu Telecom Within1year Low 3 6,688,106.85 2.65% Nanjing branch possibility of -73- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Proportion Proportion of No Name of the debtors Amount Aging of bad Reasons total amount debts the bad debts Within1year Low China Telecom,Xian 4 5,054,721.50 possibility of 2.00% Branch the bad debts Within1year Low Jiangsu Mobile Wuxi 5 3,661,758.08 possibility of 1.45% Branch the bad debts Total 35,546,286.43 14.07% 1.The amount of Accounts receivable for the top 5 debtors is 35,546,286.43 and equals to 14.07% of the total amount as of 31December,2008 2. There is no Accounts receivable due from shareholders who has more than 5% (including 5 %) voting shares of the Company as of 31 December, 2008 3.. Accounts receivables of related parties accounts for 0.47％of the total amount as of 31 December,2008 4.The amount of offset accounts receivable is 882,393.22 9.2 Other receivables a).Classification of other receivables in accordance with the risk: As of 31 December, 2008 As of 31 December, 2007 Item Proportion Provision for Proportion Provision for Amount Amount (%) impairment (%) impairment Amount of individual with significant amount 59,514,437.53 75.16 46,766,157.17 67,051,604.43 61.37 29,590,792.71 and high possibility of bad debts Amount of individual with no significant amount but high possibility of bad debts when combined Others 19,666,624.23 24.84 1,654,243.09 42,200,247.07 38.63 30,013,870.07 Total 79,181,061.76 100 48,420,400.26 109,251,851.50 100.00 59,604,662.78 b).Analysis of aging As of 31 December, 2008 As of 31 December, 2007 Item Proportio Proportion Provision for Provision for Amount Amount n (%) impairment impairment (%) Within 1 year 18,941,274.16 23.92 47,110,974.61 43.12 20,507,987.58 1-2 years 5,552,805.00 7.01 - 12,346,256.55 11.30 4,965,496.84 -74- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report 2-3 years 127,000.00 0.16 12,700.00 46,549,755.26 42.61 31,576,688.97 3-4 years 53,014,437.53 66.96 46,936,557.19 815,840.00 0.75 244,752.00 4-5 years - 241,000.00 0.22 138,400.00 over 5 years 1,545,545.07 1.95 1,471,143.07 2,188,025.08 2.00 2,171,337.39 Total 79,181,061.76 100 48,420,400.26 109,251,851.50 100.00 59,604,662.78 Other receivables, 30,760,661.50 49,647,188.72 net c). Top 5 debtors of other receivables Proportion Proportion No. Company name Amount Aging of bad Reasons of total debts amount Beijing Picom No possibility for 1 Telecommunications 3-4 years 100.00% recover Equipment Ltd 29,270,792.71 36.97% Shanghai linyan Investment 3-4 years Low possibility of 2 10.00% Consulting Company 9,314,888.27 bad debts 11.76% Putian Telecommunications 3-4 years High possibility 3 100.00% (Hong Kong) Co., Ltd. 14,428,756.55 of bad debts 18.22% Shanghai Youtong 1－2 Low possibility of 4 0.00% Networking Co.,Ltd 4,000,000.00 years bad debts 5.05% Shenzhen Fateli Industry 1－2 Low possibility of 5 0.00% Co.,Ltd 2,500,000.00 years bad debts 3.16% Total 59,514,437.53 75.16% 1. There is no offset other receivables and no regain of the offset other receivables 2. There is no other receivables due from shareholders who has more than 5% (including 5 %) voting shares of the Company as of 31 December, 2008 3.Other receivables of related parties accounts for 85.22 ％of the total amount as of 31 December,2008 9.3 Long-term equity investment Provision Provision for Net amount, as Net amount, as Amount as of 31 Amount as of 31 for Item diminution in of 31 December of 31 December December 2008 December 2007 diminution value 2008 2007 in value Investment of 113,779,686.57 1,854,910.00 111,924,776.57 122,599,757.58 122,599,757.58 subsidiary Investment of 24,817,441.14 24,817,441.14 20,187,320.23 20,187,320.23 joint venture Investment of affiliated 189,157,833.38 189,157,833.38 192,148,616.57 192,148,616.57 venture Others 741,953.00 741,953.00 741,953.00 741,953.00 Total 328,496,914.09 1,854,910.00 326,642,004.09 335,677,647.38 335,677,647.38 a) .Information of the joint ventures and affiliated ventures -75- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Share Voting right holding proportion of Total net percent the assets as Business Total sales of Net profit of Name of invested unit Registry age of Company of 31 nature current year current year the among December Compa invested ,2008 ny units Joint venture Manufacture and sales of 49,434,88 50.00 50.00 101,570,937.74 5,877,033.49 Nanjing Mennekes industrial plugs 2.30 Electric Appliances Ltd. Nanjing and sockets Affiliated venture Manufacture Nanjing Putian Datang and sales of 5,722,034 40.00 40.00 4,466,700.66 91,787.16 Information and telecommunica .57 Electric Company Ltd. Nanjing tion products Manufacture Nanjing Zhongyou and sales of 982,352.9 30.00 30.00 3,025,388.99 26,856.51 Telecommunication telecommunica 8 Co., Ltd. Nanjing tion products Land leasing Nanjing Potevio and 337,397,7 Telecommunication management of 49.64 49.64 9,261,278.42 40,013.31 03.46 Technology Industry the industry Park Co., Ltd. Nanjing park Development, manufacture 39,552,26 and sales of 21.00 21.00 8,104.00 -875,753.87 9.12 Shanghai Yulong Shangha bio-tech Biotech Ltd. i products Development, manufacture 72,061,94 and sales of 21.00 21.00 -20,340,520.50 4.74 Qufu YulongBio-Tech bio-tech Co., Ltd. Qufu products b).Classification of the long-term equity investment Share holding Increase and Increase and Distribution of As of 31 As of 31 percenta Name of invested unit Original cost decrease of decrease of the dividend in cash December,2007 December,2008 ge of the investment cost equity of current year Compan y (%) Nanjing Nanfang Telecommunications 33,175,148.00 33,175,148.00 33,175,148.00 98.24 Company Limited Nanjing Bada TelecommunicationsC 5,610,000.00 5,610,000.00 5,610,000.00 60 o., Ltd. Nanjing Putian Inforamtion 13,860,000.00 13,860,000.00 13,860,000.00 99.98 Technology Company Ltd. Nanjing Putian 3,320,003.46 3,320,003.46 3,320,003.45 41.35 Intelligent Building Ltd Putian Telecommunications 1,910,520.00 1,910,520.00 1,910,520.00 90 (Hong Kong) Co., Ltd. -76- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Beijing Picom Telecommunications 9,146,455.12 9,146,455.12 9,146,455.12 92.16 Equipment Ltd. Nanjing Postel Wongzhi 40,997,683.00 40,997,683.00 40,997,683.00 99.42 Telecommunications Co., Ltd. Nanjing Putian Changle 2,610,457.00 2,610,457.00 2,610,457.00 781,451.30 50.7 Telecommunications Equipment Co., Ltd Beijing Picom Telecommunications 1,854,910.00 1,854,910.00 1,854,910.00 51 Equipment Ltd Nanjing Hongyan Electronic Appliance Company 10,114,581.00 10,114,581.00 -10,114,581.00 Nanjing Putian Telecommunication 1,294,510.00 1,294,510.00 70 Technology Co., Ltd 122,599,757.58 122,599,757.58 -10,114,581.00 1,294,510.00 113,779,686.57 781,451.30 Joint venture Nanjing Mennekes Electric Appliances 15,037,508.00 20,187,320.23 2,191,604.17 2,438,516.74 24,817,441.14 50 Ltd. Sub-total of joint 15,037,508.00 20,187,320.23 3,459,950.54 1,170,170.37 24,817,441.14 venture Nanjing Putian Datang Information and 600,000.00 852,098.97 1,400,000.00 36,714.86 2,288,813.83 Electric Company Ltd. 40 Nanjing Zhongyou Telecommunication 300,000.00 201,292.42 8,056.95 209,349.37 30 Co., Ltd Nanjing Potevio Telecommunication 167,548,141.29 167,453,607.41 19,862.61 167,473,470.02 Technology Industry 49.64 Park Co., Ltd. Shanghai Yulong 23,310,000.00 14,160,251.44 -183,908.31 13,976,343.13 21 Biotech Ltd. Qufu YulongBio-Tech --- 9,481,366.33 -4,271,509.31 5,209,857.03 21 Co., Ltd. Sub-total of affiliated 191,758,141.29 192,148,616.57 1,400,000.00 -4,390,783.20 189,157,833.38 0.00 company Nanjing Yuhua 420,915.00 - 420,915.00 252,013.02 10 Galvanization Factory Hangzhou HongyanElectric 321,038.00 - 321,038.00 2.26 Appliance Group Subtotal of others 0.00 741,953.00 0.00 0.00 741,953.00 252,013.02 Total 329,395,406.87 335,677,647.38 -5,254,630.46 -1,926,102.83 328,496,914.09 1,033,464.32 c). Provision for diminution in value of long-term equity investment. As of December 31, Name of the company Increases Decreases As of December 31, 2008 2007 Beijing Picom Telecommunications 1,854,910.00 1,854,910.00 Equipment Ltd -77- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report 9.4 Operating revenues and operating costs a).Operating revenues Item 2008 2007 Main operating revenues 604,174,046.58 437,439,306.40 Other operating revenues 51,015,334.50 17,277,018.18 Total 655,189,381.08 454,716,324.58 b).Operating costs Item 2008 2007 Main operating cost 518,468,934.32 432,563,278.19 Other operating cost 49,221,852.00 17,888,410.73 Total 567,690,786.32 450,451,688.92 c).：Classification of operating revenues and operating costs （1）Classification by products Main operating revenues Main operating cost Main operating profit Item 2008 2007 2008 2008 2007 Communicat 604,174,046.58 437,439,306.40 518,468,934.32 432,563,278.19 85,705,112.26 4,876,028.21 ion products Total 604,174,046.58 437,439,306.40 518,468,934.32 432,563,278.19 85,705,112.26 4,876,028.21 （2）Classification by areas Main operating revenues Main operating cost Main operating profit Areas 2008 2007 2008 2007 2008 2007 Domestic 600,495,926.12 431,950,525.13 514,864,376.27 427,184,272.55 85,631,549.85 4,766,252.58 market Oversea 3,678,120.46 5,488,781.27 3,604,558.05 5,379,005.64 73,562.41 109,775.63 market Total 604,174,046.58 437,439,306.40 518,468,934.32 432,563,278.19 85,705,112.26 4,876,028.21 The amount of sales of the top 5 customers is 169,889,700.24 and equals to 25.93% of the total amount of the current year. 9.5 Investment income Item 2008 2007 1、Financial instrument investment income 2、Equity investment income 446,816.85 3,735,790.06 （1）Cost method valuation 1,033,464.32 4,731.90 recognition （2）Equity method valuation -1,452,266.46 3,731,058.16 recognition 3）Disposal investment income 865,618.99 -78- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Total 446,816.85 3,735,790.06 No significant restrictions on investment income. 10.Related parties and related parties transaction 10.1 Parent company and final controller Name of Registry Main business Relationship Business Representative enterprise nature China No. 2 Tudi Communication system and Parent State-owned Xing Wei Potevio 2 Road, terminal, Telecommunication company Company Zhongguan equipment and terminal, Limited village broadcast TV system and economy terminal, computer and zone, software, system Haidian combination, photoelectric district, cable; development, Beijing produce, sales and service of post specific equipment and related component; domestic and overseas project and bidding agency; project construction contract, project program, design and supervise; manufacture, sales and repair of electronic machinery, machinery equipment, appliance and accessory; industry investment; technique transmit, consultancy service; import & export business China Putian No. 2 Manufacture and sales of Controlling Xing Wei Corporation Jiangtai communication equipment shareholders Road, of partent State-owned Chaoyang company district, Beijing a)The holding percentage and voting proportion of the parent company is 53.49% and 53.49% respectively. The final controller of the Company is China Putian Corporation. b) Registered capital and its changes of related parties with controlling relationship(Unit: 0’000) As of 31 December, Name of the companies Increase Decrease As of 31 December, 2007 2008 China Potevio Company 190,000.00 190,000.00 Limited China Putian Corporation 308,694.00 308,694.00 Nanjing Nanfang Telecommunications 3,420.50 3,420.50 Company Limited Nanjing Bada TelecommunicationsCo., 1,130.14 1,130.14 Ltd. -79- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Nanjing Putian Inforamtion Technology 1,400.00 1,400.00 Company Ltd. Nanjing Putian Intelligent 1,200.00 1,200.00 Building Ltd Putian Telecommunications HK 200.00 HK 200.00 (Hong Kong) Co., Ltd. Beijing Picom Telecommunications USD 50.00 USD 50.00 Equipment Ltd. Nanjing Postel Wongzhi Telecommunications Co., USD 1,090.00 USD 1,090.00 Ltd. Nanjing Putian Changle Telecommunications 1,000.00 1,000.00 Equipment Co., Ltd Nanjing Putian Network 1,000.00 1,000.00 Company Ltd Nanjing Putian Telecommunication 475.00 475.00 Technology Co., Ltd c) Equity and its changes of related parties with controlling relationship (Unit: 0’000) As of 31 December, 2008 Increase Decrease As of 31 December, 2007 Name of companies Proportion Proporti Proportio Proportion Amount Amount Amount Amount （％） on（％） n（％） （％） China Potevio Company 11,500.00 53.49 11,500.00 53.49 Limited Nanjing Nanfang Telecommunications 3,359.60 98.24 3,359.60 98.24 Company Limited Nanjing Bada TelecommunicationsCo., 678.00 60.00 678.00 60.00 Ltd. Nanjing Putian Inforamtion Technology 1,400.00 99.98 1,400.00 99.98 Company Ltd. Nanjing Putian Intelligent 496.20 41.35 496.20 41.35 Building Ltd Putian Telecommunications (Hong Kong) HK 180.00 90.00 HK 180.00 90.00 Co., Ltd. Nanjing Postel Wangzhi USD USD Telecommunications Co., 67.00 353.38 32.42 99.42 730.30 1,083.68 Ltd. Nanjing Putian Changle Telecommunications 507.00 50.70 507.00 50.70 Equipment Co., Ltd Nanjing Putian Network 921.60 92.16 921.60 92.16 Company Ltd Nanjing Putian Telecommunication 332.50 70.00 332.50 70.00 Technology Co., Ltd -80- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report d).Related parties with no controlling relationship Name of the company Relationship Nanjing Mennekes Electric Appliances Ltd. Joint venture Danyang Putian Building Digital Cable Co., Ltd. Affiliated venture Nanjing Zhongyou Telecommunication Co., Ltd. Affiliated venture Nanjing Potevio Telecommunication Technology Industry Park Affiliated venture Co., Ltd. Shanghai Yulong Biotech Ltd. Affiliated venture Qufu YulongBio-Tech Co., Ltd. Affiliated venture Hangzhou HongyanElectric Appliance Group Controlled by the same company Shenzhen Potevio Lingyun Electronics Co. Ltd Controlled by the same final controller Nanjing Zhongyou Telecommunication Co., Ltd. Controlled by the same company Shanghai Putian Post And Telecommunications Technology Co., Controlled by the same company Ltd. Beijing Great Gragon Information Technology International Controlled by the same company Co.,Ltd. ChengDu PuTian Telecommunications Cable CO., LTD Controlled by the same company Potevio Institute of Technology Co.，Ltd Controlled by the same company 10.2 Related parties transaction a) sales of goods The company produces and sells the telecommunication products to the related parties at the market price. The amount of sales to the related parties is listed as follows (Unit: 0’000) 2008 2007 Name of the related party Amount Porportion(%) Amount Porportion(%) Nanjing Putian Datang Information 4.73 and Electric Company Ltd. Shenzhen Potevio Lingyun 1.4 Electronics Co. Ltd Beijing Great Gragon Information 352.92 0.32 Technology International Co.,Ltd. China Potevio Company Limited 618.66 0.56 2,822.40 2.90 Nanjing Zhongyou 130.58 0.12 1,391.08 1.43 Telecommunication Co., Ltd. -81- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report ChengDu PuTian Telecommunications Cable CO., 102.43 0.09 LTD Potevio Institute of Technology 0.90 Co.，Ltd. Shanghai Putian Post And Telecommunications Technology 1,371.09 1.41 Co., Ltd. Nanjing Postel Swanking Electrical 11.69 0.01 Co., Ltd Total 1,223.31 1.10 5,584.57 5.74 b) Purchase of goods The company purchases the goods at the market price from the related parties. The amount of purchase from the related parties is listed as follows 2008 2007 Name of the related party Amount Porportion(%) Amount Porportion(%) Nanjing Putian Datang Information and Electric Company 18.73 0.05 Ltd. Nanjing Postel Swanking 90.86 0.26 Electrical Co., Ltd Nanjing Potevio Telecommunication Technology 50.28 0.14 Industry Park Co., Ltd. Nanjing Zhongyou 55.74 0.06 Telecommunication Co., Ltd. ChengDu PuTian Telecommunications Cable CO., 271.27 0.76 Ltd Total 431.14 1.21 55.74 0.06 -82- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report c).Other transactions with the related parties. In November 27,2007 ,the company signed an equity transfer agreement which transfer the equity(51.20%) of its subsidiary Nanjing Hongyan Electronic Appliance Co.Ltd to China Potevio Company Limited. The transfer price based on”Hudongzhou Zipingbaozi No.DZ070429111” assessment report and the assessment value of the net capital of Nanjing Putian Hongyan Electronic Appliance Co.Ltd is 21,445,600.00.In June 16,2008,the changes of equity completed in Beijing Property Exchange and the company received the fund of 10,980,200.00 in June 23,2008. d) Payables and receivables of related parties Item Name of the related parties As of 31 December, 2008 As of 31 December, 2007 Amount Proportion(%) Amount Proportion(%) Accounts Nanjing Potevio Telecommunication 5.53 0.02 Receivable Technology Industry Park Co., Ltd. Accounts Shenzhen Potevio Lingyun 1.42 0 Receivable Electronics Co. Ltd Accounts Shanghai Putian Post And Receivable Telecommunications Technology Co., 1,334.17 3.79 1,647.60 4.70 Ltd. Accounts Nanjing Zhongyou Telecommunication 115.81 0.33 491.10 1.40 Receivable Co., Ltd. Prepayment Nanjing Putian Datang Information 7.30 0.02 and Electric Company Ltd. Other Nanjing Putian Datang Information 395.46 1.13 receivables and Electric Company Ltd. Other Beijing Picom Telecommunications 3.53 0.01 receivables Equipment Co., Ltd Nanjing Postel Swanking Electrical Payables Co., Ltd 4.52 0.01 Payables Nanjing Potevio Telecommunication 172.22 3.58 Technology Industry Park Co., Ltd. Advances China Putian Corporation 60.00 7.49 from -83- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report customers Nanjing Postel Swanking Electrical Other Co., Ltd 34.76 0.53 payables Other Nanjing Potevio Telecommunication 2,927.08 44.65 payables Technology Industry Park Co., Ltd. Accounts Receivable GuangXi Putian Post And Telecommunications Technology Co., 44.36 0.15 Ltd. Accounts Receivable Shanghai Vision Technology Co., Ltd 19.61 0.06 1.04 0.00 Accounts Beijing Great Gragon Information 3.46 0.22 Receivable Technology International Co.,Ltd. Payables Shanghai Vision Technology Co., Ltd 0.05 0 Payables Nanjing Potevio Telecommunication 2,013.95 54.88 5,424.15 75.39 Technology Industry Park Co., Ltd. Accounts China Putian Corporation 5.53 0.02 Receivable 10.3 Other related parties transactions. 1.The parent company China Potevio Company Limited guaranteed the short-term borrowing of 30 million for the company. The final controller China Putian Corporation Group guaranteed the borrowing of 200 million and the bank acceptance bills of 40 million 2.The company borrows short-term loan of 44 million yuan Three real estates of its affiliated venture Nanjing Potevio Telecommunication Technology Industry Park Co., Ltd. are mortgage. 3.The condition that the company guarantee the borrowings of the related parties is stated in Note 8.12 11.Contingencies a).The condition of guarantee as of 31 December 2008： Guaranteed party Amount Terms of borrowing Guaranteed by Influence on the -84- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report 0’000 compamy Nanjing Putian Nanjing Putian Intelligent No negative 800.00 2008.11.07-2009.06.07 Telecommunication influence Building Ltd Co.,Ltd Nanjing Putian No negative Nanjing Putian Intelligent Telecommunication influence 1,500.00 2008.05.27-2009.05.26 Co.Ltd Building Ltd Nanjing Putian No negative Nanjing south Telecommunication influence 1,200.00 2008.12.16-2009.12.15 Co.Ltd telecommunication Co., LTD Nanjing Putian No negative Nanjing south Telecommunication influence 500.00 2008.12.16-2009.12.15 Co.Ltd telecommunication Co., LTD Total 4,000.00 b) There are pending actions of the company at 31 Deceber,2008 (1)The subsidiary Nanjing Putian Intelligent Building Co.,Ltd prosecuted the Chongqing Xiongying Telecommunication (Group) Co.,Ltd and required it to repay the debts 1,109,268.54.The company won its case and the enforcement has already seized. However, according to the recession of the real estate market, auction failed three times and has been suspended. The account has not been received until the audit report date. （2）The company prosecuted Suzhou Xinhaiyi Telecom Co.,Ltd for patent infringement, requiring the compensation of 200,000.00. The case has been sent to the Beijing high court. However, unitl the audit report day, the company has not got the notice from Beijing high court. 12.The events after the balance sheet date a)The joint venture of Nanjing Putian Intelligent building Co.Ltd , Danyang Putian Building Cable was revoked by Danyang Industry and Commerce b) No other events after the balance sheet date -85- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report 13、Other significant issues None 14.Commitment a) Investment contracts already signed with third parties, not yet executed or fully executed and related capital expenditures The Company, purchased land use right of land which covers an area of 43 mu (Chinese unit of area)（in accordance with actual measurement）from Nanjing Economic & Technological Development Area Management Committee for manufacture base constructions with total payment for land amounting to CNY 6,020,000 (actual payment for land should be calculated in accordance with actually measured dimension)for the construction of Nanjing Putian Telecommunication production places The Company committed total project investment should be no less than CNY 110,000,000. b). Other significant financial commitments The Company drew bank acceptance amounting to CNY 80,000,000 with deposit amounting to CNY 70,000,000, the bank acceptance has been discounted by its subsidiaries, Nanjing Bada Telecommunications Co., Ltd. and Nanjing Postel Wongzhi Telecommunications Co., Ltd. and transferred into short-term borrowings when consolidating the Financial Statements 15.Other events a). Foreign currency translation Exchange difference recorded into profit and loss of current period isCNY1,009,000.76 b). None-recurring profit and loss of current year (Profit: +, loss: -) Item 2008 2007 Profit and loss of non-current assets disposal 4,422,854.61 105,915,381.82 Tax refund and exemption without authorized approval or 510,000.00 400,000.00 formal approval document Government subsidy recorded into profit and loss of 577,594.31 868,237.00 current period Profit and loss of debt restructure 696,022.33 Reverse of beginning balance of welfare payable -265,991.35 Income from the condition that the consolidation cost is less than the fair-value of tangible net assets of the 7,212,896.03 corporation being consolidated that -86- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report belonging to the consolidating corporation Net amount of other non-operating profit and expenses 170,388.67 1,964,649.15 excluding items above Influenced amount of minority interest -726,543.99 3,325,783.79 Influenced amount of income tax -2,922,677.70 -92,943.48 Total 9,940,534.26 112,115,116.93 Return on net asset and earnings per share a). Return on net asset 2008 2007 Fully diluted Weighted Fully diluted Weighted Profit of the reporting period return on average return on average equity equity Net profit attributable to common 1.98% 1.99% 1.23% 1.23% shareholders Net profit excluding extraordinary items attributable to common -1.07% -1.08% -33.66% -33.80% shareholders b), earnings per share 2008 2007 Profit of the reporting period Basic Diluted Basic Diluted earnings earnings earnings earnings per share per share per share per share Net profit attributable to common 0.03 0.03 0.02 0.02 shareholders Net profit excluding extraordinary items attributable to common -0.02 -0.02 -0.5 -0.5 shareholders Calculation Process The above data is calculated using the following formulae: Fully diluted return on equity Fully diluted return on equity = P/E Where: P is net profit attributable to ordinary shareholders of the Company or net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss; E is the year end equity attributable to ordinary shareholders of the Company. Net profit attributable to ordinary shareholders of the Company does not include the amount of gain or loss of minority shareholders. For net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or -87- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report loss, non-recurring gain or loss of parent company (after taking into consideration the income tax effects) and the proportion of non-recurring gain or loss (after taking into consideration the income tax effects) of all subsidiaries owned by ordinary shareholders of parent company are deducted on the basis of consolidated net profit after deducting gain or loss of minority shareholders. The year end equity attributable to ordinary shareholders of the Company does not include equity of minority shareholders. Weighted average return on equity Weighted average return on equity = P/(E0+NP/2+Ei*Mi/M0–Ej*Mj/M0+-Ek*Mk/M0) Where: P is net profit attributable to ordinary shareholders of the Company or net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss; E0 is the year beginning equity attributable to ordinary shareholders of the Company; Ei is increased equity attributable to ordinary shareholders of the Company which arises from new issuance of shares or conversion of debt instruments to stocks in the reporting period; Ej is -87- reduced equity attributable to ordinary shareholders of the Company due to stock repurchase or cash dividend in the reporting period; M0 is the number of months of the reporting period; Mi is the number of months from the next month that equity is increased to the year end of the reporting period; Mj is the number of months from the next month that equity is decreased to the year end of the reporting period; Ek is the change of equity resulting from other transactions or events; Mk is the number of months from the next month that other change of equity occurs to the year end of the reporting period. Basic earnings per share Basic earnings per share = P/S S = S0+S1+Si*Mi/M0-Sj*Mj/M0-Sk Where: P is net profit attributable to ordinary shareholders of the Company or net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss; S is weighted average number of ordinary shares outstanding; S0 is the total number of shares at the beginning of the year; S1 is the number of increased shares as a result of capitalization of reserves or scrip dividend during the reporting period; Si is the number of increased shares as a result of new issuance of shares or conversion of debt instruments to stocks during the reporting period; Sj is the number of reduced shares as a result of stock repurchase; Sk is the number of consolidated shares in the reporting period; M0 is the number of months of the reporting period; Mi is the number of months from the next month that the number of shares is increased to the year end of the reporting period; Mj is the number of months from the next month that the number of shares is decreased to the year end of the reporting period. Diluted earnings per share Diluted earnings per share = [P+(any recognized interest related to dilutive potential ordinary shares-conversion expenses)*(1-income tax rate)]/(S0+S1+Si*Mi/M0-Sj*Mj/M0-Sk +weighted average number of increased -88- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report ordinary shares arising from warrants, stock options and convertible debts) Where: P is net profit attributable to ordinary shareholders of the Company or net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss. In calculating the diluted earnings per share, the Company has taken into consideration the effects of all dilutive potential ordinary shares, until the diluted earnings per share reach the lowest amount. Item 2008 2007 Net profit attributable to common shareholders 6,447,713.08 3,936,869.94 Net profit excluding extraordinary items attributable -3,492,821.18 -107,500,000.00 to common shareholders Net asset as of 31December 2007 320,385,899.25 317,139,006.28 Months of the current year 12 12 Average weighted amount of common stock 215,000,000.00 215,000,000.00 Net asset as of 31December 2008 325,891,395.72 320,385,899.25 -89- Nanjing Putian Telecommunications Co., Ltd. 2008 Annual Report Supplementary information Impairment of assets (CNY) Withdrawal in Decrease in the current period Book value at Book value at Item the current year-beginning Write-back Write-off year-end period 1. Provision for bad debts 34,951,727.27 15,716,515.83 -27,584,333.39 46,819,544.83 2. Provision for inventory 27,584,229.02 9,107,417.23 293,786.13 16,188,197.62 20,209,662.50 devaluation 3. Provision for impairment loss on disposable financial assets 4. Provision for Impairment loss on held-to-maturity financial assets 5. Provision for impairment loss on 1,854,910.00 1,854,910.00 long-term investment on equity 6. Provision for impairment loss on 1,842,418.00 1,842,418.00 property investment 7. Provision for impairment loss on 3,291,955.33 500,000.00 3,791,955.33 fixed assets 8. Provision for impairment loss on engineering material 9. Provision for impairment loss on construction in progress 10. Provision for impairment loss on production physical assets Including: Provision for depreciation of mature production physical assets 11. Provision for impairment loss on gas and petrol 12. Provision for impairment loss on intangible assets 13. Provision for impairment loss on goodwill 14. Other Total 67,670,329.62 11,462,327.23 16,010,301.96 -11,396,135.77 74,518,490.66 -90-