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ST华发A: 2007年年度报告英文版（修订稿）
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Annual Report 2007
Shenzhen Zhongheng Huafa Co., Ltd.
Annual Report 2007
Stock Code: 000020, 200020
Short Form of the Stock: ST HUAFA-A, ST HUAFA-B
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Annual Report 2007
Important Notice
The Board of Directors and the Supervisory Committee its members of Shenzhen Zhongheng Huafa
Co., Ltd. (hereinafter referred to as the Company) and its directors, supervisors and senior
executives hereby confirm that there are no any fictitious statements, misleading statements, or
important omissions carried in this report, and shall take all responsibilities, individual and/or joint,
for the reality, accuracy and completion of the whole contents.
All the directors attended the meeting of the board of directors.
Mr. Li Zhongqiu, Chairman of Board and General Manager of the Company, Mr. Shi Cheng, Person
in charge of Accounting Work, and Mr. Zhang Zhiyong, Person in Charge of Accounting Organ
hereby confirm that the Financial Report of Annual Report 2007 is true and complete.
Shinewing Certified Public Accountants audited the 2007 financial report of the Company and
issued the standard unqualified Auditors’ Report.
The Board of Directors of
Shenzhen Zhongheng Huafa Co., Ltd.
Contents
Ⅰ. Company Profile
Ⅱ. Summary of Financial Highlight and Business Highlight
Ⅲ. Changes in Capital Shares and Particulars about Shareholders
Ⅳ. Particulars about Directors, Supervisors, Senior Executives and Employees
Ⅴ. Administrative Structure
Ⅵ. Brief Introduction to the Shareholders’ General Meeting
Ⅶ. Report of the Board of Directors
Ⅷ. Report of the Supervisory Committee
Ⅸ. Significant Events
Ⅹ. Financial Report
Ⅺ. Documents for Reference
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Annual Report 2007
I. Company Profile
1. Name of the Company
In Chinese: 深圳中恒华发股份有限公司
In English: SHENZHEN ZHONGHENG HUAFA CO., LTD.
2. Legal Representative: Li Zhongqiu
3. Agent Secretary of the Board: Shi Cheng
Securities Affairs Representative: Weng Xiaojue
Contact Address: 6/F, East Tower of 411 Bldg., Huafa Road (N), Futian District, Shenzhen.Tel:
Tel: (86) 755-83352207, 83352206
Fax: (86) 755-83323160, 83352200
E-mail: hwafainvestor@163.com
4. Registered Address: 411 Bldg., Huafa North Road, Futian District, Shenzhen
Office Address: 6/F, East Tower of 411 Bldg., Huafa Road (N), Futian District, Shenzhen.
Post Code: 518031
Company’s Internet Web Site: http://www.hwafa.com
5. Newspapers for Disclosing the Information of the Company:
China Securities, Securities Times and Hong Kong Wen Wei Po
Internet Web Site for Publishing the Annual Report: http://www.cninfo.com.cn
The Place Where the Annual Report is Prepared and Placed: OFF. of Board of Directors of
Shenzhen Huafa Electronics Co., Ltd.
6. Stock Exchange Listed with: Shenzhen Stock Exchange
Short Form of the Stock: ST HUAFA-A, ST HUAFA- B
Stock Code: 000020, 200020
7. Other Relevant Information of the Company
Initial registered date and place or changed registered date and place:
Registered date: May, 1992
Registered place: 411 Bldg., Huafa North Road, Futian District, Shenzhen
Registered number of enterprise legal person’s business license: 100296
Registered number of tax: 113260
Name and office address of Certified Public Accountants engaged by the Company:
Name: Shinewing Certified Public Accountants
Address: 9/F, Block A, Fu Hua Mansion No.8 Chaoyang Men, Bei da jie, Dong Cheng District,
Beijing, P.R.China
II. Financial highlights and business highlights
(I) Major profit index as of the year 2007
Unit: RMB
Items Amount
Operating profit -2,514,105.56
Total profit 21,365,133.68
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Annual Report 2007
Net profit attributable to shareholders of
22,065,920.97
the listed company
Net profit attributable to shareholders of
the listed company after deducting -1,813,318.27
non-recurring gains and losses
Net cash flow arising from operating
14,843,814.16
activities
Items of non-recurring gains and losses deducted and its revolved amount
Items Amount
Gains from donation of Wuhan Zhongheng due to
19,554,224.24
ShareMerger Reform
The items which could not be paid 1,009,706.51
Net lease income of the transferred the property
3,523,045.69
right of Huafa Yard
Other -207,737.20
Total 23,879,239.24
CAS IAS
Net profit 22,065,920.97 22,065,920.97
Net asset 242,200,200.60 242,200,200.60
(II) Major accounting data and financial indexes over the past three years ended by the report year
1. Main accounting data
Unit: RMB
Increase/decrease
in this year
2006 2005
2007 compared with
last year (%)
Before Before
After adjustment After adjustment After adjustment
adjustment adjustment
Operating income 193,244,882.85 161,208,668.37 201,883,363.71 -4.28 114,421,667.78 153,505,946.98
Total profit 21,365,133.68 -19,554,248.65 -23,262,805.55 191.84 6,622,306.73 6,622,306.73
Net profit
attributable to
22,065,920.97 -19,554,248.65 -23,262,805.55 194.85 6,622,306.73 6,622,306.73
shareholders of the
listed company
Net profit
attributable to
shareholders of the
listed company after -1,813,318.27 -19,610,828.58 -23,319,385.48 92.22 6,291,825.58 6,291,825.58
deducting
non-recurring gains
and losses
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Annual Report 2007
Net cash flow
arising from 14,843,814.16 26,649,992.33 26,649,992.33 -44.30 27,577,022.56 27,577,023.56
operating activities
Increase/decrease
at the end of this
At the end of 2006 year compared At the end of 2005
At the end of with that at the
2007 end of last year
(%)
Before Before
After adjustment After adjustment After adjustment
adjustment adjustment
Total assets 373,957,038.94 377,755,155.15 376,031,844.21 -0.55 389,185,291.70 389,185,291.70
Owners’
equity(Shareholders’ 242,200,200.60 223,842,836.53 220,134,279.63 10.02 238,858,928.26 238,858,928.26
equity)
2. Main financial indexes
Unit: RMB
Increase/decrease
in this year
2006 2005
2007 compared with
last year (%)
Before After Before After
After adjustment
adjustment adjustment adjustment adjustment
Basic earnings per
0.0779 -0.0691 -0.08 197.38 0.0234 0.0234
share
Diluted earnings per
0.0779 -0.0691 -0.08 197.38 0.0234 0.0234
share
Basic earnings per
share after deducting
-0.0064 -0.069 -0.082 92.20 0.022 0.022
non-recurring gains
and losses
Increased 19.6
Fully diluted return on
9.11% -8.74% -10.57% 8 percentage 2.77% 2.77%
equity
points
Increased
Weighted average 19.79
9.55% -8.54% -10.24% 2.81% 2.81%
return on equity percentage
points
Fully diluted return on Increased 9.84
equity after deducting
-0.75% -8.76% -10.59% percentage 2.63% 2.63%
non-recurring gains
and losses points
Weighted average
return on equity Increased 9.48
after deducting -0.78% -8.56% -10.26% percentage 2.87% 2.87%
non-recurring gains points
and losses
Net cash flow arising
from operating 0.05 0.09 0.09 -44.44 0.10 0.10
activities per share
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Annual Report 2007
Increase/decrease
at the end of this
At the end of 2006 year compared At the end of 2005
At the end of with that at the
2007 end of last year
(%)
Before After Before After
After adjustment
adjustment adjustment adjustment adjustment
Net asset per share
attributable to
0.86 0.79 0.78 10.26 0.84 0.84
shareholders of listed
company
Return on equity Earnings per share
Item
Weighted Basic earnings per Diluted earnings
Fully diluted (%)
average (%) share(RMB) per share(RMB)
Net profit attributable to
shareholders of the listed 9.11 9.55 0.0779 0.0779
company
Net profit attributable to
shareholders of the listed
company after deducting -0.75 -0.78 -0.0064 -0.0064
non-recurring gains and
losses
Note: In June 2005, the former first largest and second largest shareholders of the Company
Shenzhen SEG Group Co., Ltd (hereinafter refers to SEG Group) and China Zhenhua Electronic
Group Co., Ltd (hereinafter refers to Zhenhua Group) signed Equity Transfer Agreement with
Wuhan Zhongheng New Science & Technology Industrial Group Co., Ltd. (hereinafter refers to
Wuhan Zhongheng Group) in which the equity of the Company held by them was transferred to
Wuhan Zhongheng Group. In accordance with the equity transfer agreement of the Company and
the spirit of meeting summary from leader group on works of employee compensation and
allocation, the on-job employees with Shenzhen registeration and no Shenzhen registeration who
signed labor contracts in fixed period and unfixed period with the Company before July 13, 2005
needed to terminating labor contract with the Company; the expense on teminating contract and
compensating allocation were paid by the Company and the former shareholders SEG Group and
Zhenhua Group, in which the Company needed bearing the following expenses: the expense on
teminating contract and compensating allocation for employee without Shenzhen registeration;
extra compensation expense for the employee with Shenzhen registeration in Circuit Board
Department; and the wages and welfare for early retiree and job-waiting people. The aforesaid
expenses were initially confirmed in year 2006.
From Jan. to June of 2007, the actual expense for paying the aforesaid items totaled to RMB
3,708,556.90, in which the expense on teminating contract and compensating allocation for
employee without Shenzhen registeration amounting to RMB 2,400,784; extra compensation
expense for the employee with Shenzhen registeration in Circuit Board Department amounting to
RMB 604,000; and the wages and welfare for early retiree and job-waiting people amounting to
RMB 703,772.90.
From Jan.1, 2007, the Company began to adopt new Accounting Standards for Business Enterprises.
The Article 8 of Accounting Standards for Business Enterprises No. 38 – First Adpotioon of
Accounting Standards for Business Enterprises regulated: As to a plan on terminating the labor
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Annual Report 2007
relationship with an employee which is already existing on the date of initial implementation, in
case it meets the conditions described in the Accounting Standards for Business Enterprises No. 9 -
Wages and Salaries of Employees for the recognition of expected liabilities, the liability resulting
from the compensation made for the cancellation of the labor relationship with the employee shall
be recognized as well as the retained earnings shall be modulated. The Article 6 of Accounting
Standard for Business Enterprises No. 9 - Employee Compensation regulated: If an enterprise
cancels the labor relationship with any employee prior to the expiration of the relevant labor
contract or brings forward any compensation proposal for the purpose of encouraging the employee
to accept a layoff, and the following conditions are met concurrently, the enterprise shall recognize
the expected liabilities incurred due to the compensation for the cancellation of the labor
relationship with the employee, and shall simultaneously record them into the profit or loss for the
current period: (1)Where the enterprise has formulated a formal plan on the cancellation of labor
relationship or has brought forward a proposal on voluntary layoff and will execute it soon; (2) The
enterprise is unable to unilaterally withdraw the plan on the cancellation of labor relationship or the
layoff proposal.
The aforesaid three expenses paid from Jan. to June of 2007 by the Company conformed to the
above regulations, in according to the Article 4 of Accounting Standards for Business Enterprises
No. 38 – First Adpotioon of Accounting Standards for Business Enterprises regulated: On the date
of initial implementation, according to the Accounting Standards for Enterprises, an enterprise shall
make classification, recognition and measurement on all assets, liabilities and the owner's equities
again, as well as shall make a balance sheet for the initial period, the retroactive adjustment on the
aforesaid three items were adjusted to retained profit in year-begin of 2007 and projected liabilities;
the retroactive adjustment influenced the data of 2006 financial statement with follows:
Difference before Difference after
adjustment for first adjustment
adpotioon of first adpotioon of The influenced
Item
Accounting Standards Accounting amount
for Business Standards for
Enterprises Business Enterprises
Projected
0.00 3,708,556.90 3,708,556.90
liabilities
Total liabilites 152,189,007.68 155,897,564.58 3,708,556.90
Shareholders’
223,842,836.53 220,134,279.63 -3,708,556.90
equity
Net profit -19,554,248.65 -23,262,805.55 -3,708,556.90
III. Changes in capital shares and particulars about shareholders
(I) Particulars about the changes in share capital
Before the change Increase or decrease of this time (+) After the change
New Capitalization
Bonus
Amount Proportion shares of public Others Subtotal Amount Proportion
(Share) (%) shares (Share) (%)
issued reserve
I. Restricted shares 124,956,261 44.13 -8,440,119 -8,440,119 116,516,142 41.15
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Annual Report 2007
1. State-owned shares
2. State-owned legal
person’s shares
3. Other domestic shares 124,956,261 44.13 -8,440,119 -8,440,119 116,516,142 41.15
Including:
Domestic non-state-owned
124,925,828 44.12 -8,435,934 -8,435,934 116,489,894 41.14
legal person’s shares
Domestic natural person’s
30433 0.01 -4185 -4185 26248 0.01
shares
4. Foreign shares
Including:
Foreign legal person’s
shares
Foreign natural person’s
shares
II. Unrestricted shares 158,204,966 55.87 8,440,119 8,440,119 166,645,085 58.85
1. RMB Ordinary shares 56,209,130 19.85 8,440,119 8,440,119 64,649,249 22.83
2.Domestically listed
101,995,836 36.02 0 0 101,995,836 36.02
foreign shares
3. Overseas listed foreign
shares
4. Others
Ⅲ. Total shares 283,161,227 100 0 0 283,161,227 100
Note:
1. On May 18, 2007, the share stock structure of the Company changed for the implementation of
Share Merger Reform.
2. In accordance with the provisions of China Securities Regulatory Commission and China
Securities Depository and Clearing Corporation Limited Shenzhen Branch on releasing the sale
restriction of shares held by directors, supervisors and senior executives of listed companies, 8,750
shares held by directors, supervisors and senior executives of the Company are released from the
sale restriction in the report period.
(II) The amount of shares held by the top ten restricted shareholders and restricted condition
Amount of
Name of restricted Amount of Date of being listed for newly added
shareholders restricted shares transactions shares being Restriction condition
held listed for
transactions
Promising that the
non-tradable shares
of the Company held
Wuhan Zhongheng New
by it will not be
Science & Technology
116,489,894 May 18, 2010 0 listed for transaction
Industrial Group Co., within 36 months
Ltd.
since the date of
acquiring circulating
right.
(III) Issuance and listing of shares
(1) The previous three year ended the period-end; the Company issued neither new share nor
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Annual Report 2007
derived securities.
(2) There existed no inner employees’ shares in the Company.
(IV) About shareholders (ended Dec. 31, 2007)
1. The number of shareholders and particulars about the shares held by them
Unit: share
Total shareholders 23,372
Particulars about shares held by the top ten shareholders
Proportion Amount of Shares
Nature of Amount of
Names of shareholders shareholder of share share held restricted shares pledged or
held held frozen
Domestic
Wuhan Zhongheng New Science & non-state-owned
41.14% 116,489,894 116,489,894 0
Technology Industrial Group Co., Ltd. legal person
shares
Foreign legal
SEG (HONG KONG) CO., LTD. 5.85% 16,569,560 0 Unknown
person
Foreign legal
GOOD HOPE CORNER
4.91% 13,900,000 0 Unknown
INVESTMENTS LTD person
Domestic
ZHOU ZAI MING 0.50% 1,432,985 0 Unknown
natural person
HUNAN RUIHE INVESTMENT Dometic legal
0.45% 1,291,031 0 Unknown
HOLDING(GROUP) CO., LTD. person
Domestic
NIE PING 0.44% 1,266,755 0 Unknown
natural person
RENJUN DEVELOPMENT CO., Foreign legal
0.42% 1,200,000 0 Unknown
LTD. person
Domestic
WU WEI MIN 0.34% 965,600 0 Unknown
natural person
JIANGYIN POWER Domestic legal
0.31% 880,000 0 Unknown
DEVELOPMENT CENTER person
Foreign natural
BINGHUA LIU 0.31% 876,213 0 Unknown
person
Particulars about shares held by the top ten unrestricted shareholders
Name of shareholder Amount of unrestricted shares held Type of share
Domestically listed foreign
SEG (HONG KONG) CO., LTD. 16,569,560 share
GOOD HOPE CORNER INVESTMENTS Domestically listed foreign
13,900,000
LTD share
ZHOU ZAI MING 1,432,985 RMB common share
HUNAN RUIHE INVESTMENT
1,291,031 RMB common share
HOLDING(GROUP) CO., LTD.
NIE PING 1,266,755 RMB common share
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Domestically listed foreign
RENJUN DEVELOPMENT CO., LTD. 1,200,000
share
WU WEI MIN 965,600 RMB common share
JIANGYIN POWER DEVELOPMENT
880,000 RMB common share
CENTER
Domestically listed foreign
BINGHUA LIU 876,213
share
Domestically listed foreign
LUO YA 756,620
share
Among the top ten shareholders, Wuhan Zhongheng New Science &
Technology Industrial Group Co., Ltd. neither bears associated relationship
with other shareholders, nor belongs to the consistent actor that are
prescribed in Measures for the Administration of Disclosure of Shareholder
Explanation on associated relationship among
the aforesaid shareholders or consistent action Equity Changes of Listed Companies.
The Company neither knew whether there exists associated relationship
among the other shareholders, nor they belong to consistent actors that are
prescribed in Measures for the Administration of Disclosure of Shareholder
Equity Changes of Listed Companies.
(V) The controlling shareholder of the Company
(1) Change of the controlling shareholder of the Company
On June，2005, Shenzhen SEG Group Co., Ltd. (hereinafter referred to as SEG Group) and China
Zhenhua Electrics Group Co., Ltd. (hereinafter referred to as Zhenhua Group), which are the former
first and second largest shareholders of the Company, signed the Equity Transfer Agreement with
Wuhan Zhongheng New Science & Technology Industrial Group Co., Ltd. (hereinafter referred to
as “Wuhan Zhongheng”) and transferred all the equity of the Company held by them to Wuhan
Zhongheng. On Apr.12, 2007, all the transfer procedures of the equity transfer was completely
settled, and the shares held by the shareholders of the Company changed; SEG Group and Zhenhua
Group no longer hold the shares of the Company, and Wuhan Zhongheng holds 124,925,828 shares
of the Company, accounting for 44.12% of the total capital stock of the Company, so that it
becomes the first largest shareholder of the Company. On May 18, 2007, for the implementation of
Share Merger Reform Plan of the Company, the amount of shares held by Wuhan Zhongheng were
changed as 116,489,894 shares, proportion of holding shares changed as 41.14%.
Wuhan Zhongheng New Science & Technology Industrial
Name of new controlling shareholder
Group Co., Ltd.
Date of changing new controlling shareholder Apr.12, 2007
Date of disclosure on changing new controlling
Apr.13, 2007
shareholder
Newspapers for disclosure on changing new controlling
China Securities, Securities Times and Hong Kong Wen Wei Po
shareholder
(2) Name of the controlling shareholder: Wuhan Zhongheng New Science & Technology Industrial
Group Co., Ltd.
Legal representative: Li Zhongqiu
Date of foundation: Mar.21, 1996
Registered capital: RMB 138,000,000
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Annual Report 2007
Business scope: Production; sales of computers, TV set, display, other hardware and computer
software; development of internal data communication network, building of packing materials and
light weight building material for packaging; hardware metal product, plastic product; acoustic
product and electronic equipment; fabrics and garments; sales of building materials; management of
exports business for the own products and technologies for the Company and member enterprise;
management of export business on raw material, apparatus and instrument, machinery equipments,
spare parts and technologies (barring those limited on operations or forbidden products or
techniques of export and import by nation), development of real-estate and sales of commercial
housings.
(3) Name of the actual controller was Wuhan Zhongheng New Science & Technology Industrial
Group Co., Ltd with legal representative of Li Zhongqiu( for the resume, please refers to the IV.
Particulars about directors, supervisors, senior executives and employees)
Li Zhongqiu
98.4%
Wuhan Zhongheng New Science & Technology Industrial Group Co., Ltd.
41.14%
Shenzhen Huafa Electronics Co., Ltd.
IV. Particulars about directors, supervisors, senior executives and employees
(I) Directors, supervisors and senior executives during the report period
1. Basic information
Drawing
remuneration
Shares Shares
Reason from
held at held at
Name Title Sex Age Office term for shareholders’
year-be year
change units or other
gin -end related units or
not
Chairman, 2007.7.18－
Li Zhongqiu Male 45 0 0 Naught Yes
GM 2010.7.18
Vice 2007.7.18－
Tang Chongyin Chairman Male 47 2010.7.18 0 0 Naught Yes
2007.7.18－
Chen Zhigang Director Male 34 0 0 Naught Yes
2010.7.18
Director, 2007.7.18－
Shi Cheng Male 44 0 0 Naught No
Deputy GM 2010.7.18
Independent 2007.7.18－
Yan Haizhong Director Male 62 2010.7.18 0 0 Naught No
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Independent 2007.7.18－
Song Pingping Director Female 40 2010.7.18 0 0 Naught No
Chairman of
2007.7.18－
Cao Li Supervisory Female 37 0 0 Naught No
2010.7.18
Committee
2007.7.18－
Tang Ganyu Supervisor Female 30 0 0 Naught Yes
2010.7.18
2007.7.18－
Weng Xiaojue Supervisor Female 27 0 0 Naught No
2010.7.18
2. Major business experience of directors, supervisors and senior executives in recent 5 years.
(1) Member of the board of directors
Li Zhongqiu: Male, was born in 1962 with Master of Engineering. He is representative to the NPC
(the tenth) of Hubei Province, Wuyi labor medalist of Wuhan. He is Chairman of Wuhan
Zhongheng New Science & Technology Industrial Group Co., Ltd. from 1996 till now. From July,
2007 till now, he works as Chairman and the General Manager of the Company.
Tang Chongyin: Male, was born in 1960. He is a Doctor of Laws. He worked as Chief of the law
office in Shenzhen SEG Group Co., Ltd. from November 1998 to April 2004, and chief of the audit
office of Shenzhen SEG Group Co., Ltd. from May 2000 to April 2003. Moreover, he has been
chief legal adviser of Shenzhen SEG Group Co., Ltd. from July 2000 till now and Manager of the
Assets Department of Shenzhen SEG Group Co., Ltd. from April 2003 till now. Since July 2007, he
held the position of Vice-chairman of the Company.
Chen Zhigang: Male, born in 1973, Master of Business Administration. From 2002 to 2005, he
was supervisor, investment manager, securities representative of Wuhan Huaxin Hi-Tech Co., Ltd.
He is CFO and secretary of the board of directors of Wuhan Zhongheng New Science &
Technology Industrial Group Co., Ltd. from June 2005 till now. He works as Director of the
Company since July 2007.
Shi Cheng: Male, was born in 1965, Master. He was deputy general manager of International
Business Department of Wuhan Huaxia Bank from 2000 to 2002 and worked as Vice president of
Wuhan Huaxia Bank Qingshan Branch from 2003 to 2005. He was general manager of International
Business Department of Wuhan Huaxia Bank from 2005 to May 2007, and Special Assistant to
General Manager of the Company from May to July of 2007. He works as Director and Deputy
General Manager of the Company since July 2007.
Yan Haizhong: Male, was born in 1945. He is senior engineer of researcher level, enjoys specially
subsidized by the State Council. He was General Manager of Shenzhen Shennan Circuits Co., Ltd
from 1987 to 2005 and Vice-president of CATICSZ from 2002 to 2005. He has been deputy director
of CPCA from 1992. He is in charge of Lean Six Sigma and management innovation and leadership
of CATICSZ from 2005 to now. Since July 2007, he becomes the Independent Director of the
Company.
Song Pingping: Female, was born in 1967. She holds Bachelor Degree of Law and Master of Civil
and Commercial Law of Zhongnan University of Economics and Law. She was Partner lawyer of
Beijing King & Wood, permanent legal advisor of listed companies such as SEG, Gemdale
Corporation, etc. and independent director of Shenzhen Changyuan New Material Co., Ltd since
2002. Since July 2007, she became the Independent director of the Company.
(2) Member of the supervisory committee
Cao Li: Female, was born in 1970, graduated from Junior College, Intermediate Accountant. She
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Annual Report 2007
was CFO of Wuhan Zhongheng New Science & Technology Industrial Group Co., Ltd. from 2000
to May 2005, was a member of transition period workgroup of the Company from June 2005 to
June 2006. She worked as Assistant General Manger from July 2006 to October 2007 and Secretary
of the Board of Directors from October 2006 to July 2007. She worked as General Manager of
Purchasing Center from May to October 2007. Since July 2007, she works as Chairman of the
Chariman of the Supervisory Committee of the Company.
Tang Ganyu: Female, was born in 1977, holding bachelor. She was assistant to Plant Manager of
Wuhan Hengsheng Photoelectrical Industry Co., Ltd. from August 2003 to July 2005 and
Engineering Manager from August 2005 to July 2006. She became of Special Project Manager in
office of deputy general manager, and production manager since August 2006. She is Supervisor of
the Company since July 2007.
Weng Xiaojue: Female, was born in 1980. She graduated from Zhongshan University. She was
engaging in securities work in the office of board of directors of Guangzhou Friendship Co., Ltd.
from July 2002 to August 2006 and became Representative for Securities Affairs of the Company
since January 2007. She is Supervisor and Vice Chairman of Labor Union of the Company since
July2007.
The above-mentioned personnel excluding independent directors have not held any post in other
units other than the shareholders' units.
3. Particulars about the annual remuneration
i. The decision-making processes of annual remuneration held by directors, supervisors and senior
executives
The remunerations of directors and supervisors of the Company are decided by the shareholders’
general meeting, the remuneration of senior executives is confirmed by the board of directors in
accordance with the general remuneration management system of the Company and the actual
achievements of operations targets.
ii. The annual remuneration of directors, supervisors and senior executives
Total 3 director, supervisor and senior executive drew remunerations from the Company,and
calculated from July 2007(the begin date of office term), and the total annual remuneration was
RMB 260,000(excluded the allowance of independent director)
Names Title Total amount of annual remuneration
(July, 2007-Dec., 2007)
Shi Cheng Director, GM 120,267
Chairman of Supervisory
Cao Li 92719
Committee
Weng Xiaojue Supervisor 47,324
iii.The allowance for independent director: 36,000/person/year(befor tax)
4. Changes on directors, supervisors and senior executives in the report period
th
On Jun.29, 2007, decided by the 6 extraordinary meeting of the board of directors of the Company
th th
in 2007 and the 8 extraordinary meeting of the 5 supervisory committee, the board of directors,
the board of directors and the supervisory committee of the Company carry on election at expiration
of office terms in advance. On Jul.18, 2007, decided by the 2nd extraordinary shareholders’ meeting
in 2007, Li Zhongqiu, Tang Chongyin, Chen Zhigang, Shi Cheng, Yan Haizhong, Song Pingping
were elected as directors of the 6th board of directors of the Company, thereinto Yan Haizhong and
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Song Pingping as independent director; Cao Li, Tang Ganyu were elected as the supervisors of 6th
supervisory committee of the Company. In addition, elected by the whole people of the Company,
Weng Xiaojue was elected the employee representative supervisor of the 6th supervisory committee
of the Company.
On Jul.18, 2007, elected by the 1st meeting of the 6th board of directors of the Company, Li
Zhongqiu was elected as the chairman of the board of the Company; Tang Chongyin was elected tas
he vice chairman of the board of the Company; according to the nomination of chairman of the
board, Mr. Li Zhongqiu was engaged as the general manager; according to the nomination of
general manager, Mr. Shi Cheng was engaged as deputy general manager, and act on secretary of
the board’s responsibility as a deputy. At the same day, elected by the 1st meeting of the 6th
supervisory committee of the Company, Cao Li was elected as the chairman of supervisory
committee of the Company.
In the later half of 2007, with the nomination of 2007 7th extraordinary meeting of the board of
directors of the Company and the approval of 2007 3rd extraordinary shareholders’ general meeting
of the board of directors of the Company, Mr. Mai Jianguang was supplementarily eleted as the
th
independent director of the 6 board of directors of the Company, however, later he resigned due to
individual reason.
(II) About Employees
In the end of report period, the Company had in-job staff of 625; the Company did not have retiree
to bear the expenses.
The structure of the employee is as follows:
Profession constitution
Production personnel 428 68.5%
Salesperson 20 3.2%
Technicians 34 5.4%
Financial personnel 15 2.4%
Administrative personnel 56 9.0%
Other 72 11.5%
Education background
Master and On-the -job master 2 0.32%
Bachelor degree 31 4.96%
3-years regular college graduate 70 11.2%
Other 522 83.5%
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V. Administrative Structure
I. Administration of the Company
The Company always strictly conformed to Company Law, Security Law, Code of Corporate
Governance for Listed Companies, Guidelines for the Articles of Association of Listed Companies,
Rules Governing Listing Of Stock On Shenzhen Stock Exchange, and requirements of other laws
and administrative rules related to administration of listed companies, constantly perfected legal
person administrative structure, regulated operation of the Company, and formed management
systems for decision-making and operation with the main structure of Shareholders’ General
Meeting, Board of Directors, Supervision Committee and management team. The actual situation of
legal person administrative structure basically accorded with the requirements of aforesaid rules,
and specific information in the report period was as follows:
(I) The Company revised The Articles of Association and rules of procedure of Shareholders’
General Meeting, Board of Directors and Supervision Committee, Detailed Rules of General
Manager’s Working and Working System of Independent Directors; formulated all kinds of internal
control management systems such as Management Measures of Shares Held by Directors,
Supervisors and Senior Managers and Changes, Management System of Collected Funds,
Management System of Information Disclosure, Management System of Connected Transaction,
Working System of Reception and Extension and Internal Audit System.
(II) Election and engagement of directors, supervisors and senior managers accorded with laws,
administrative rules and requirements of The Articles of Association, and directors, supervisors and
senior managers could all seriously participated study and training organized by supervision
department to grasp relevant knowledge required to possess; Board of Directors, Supervision
Committee could implement their duties in accordance with laws, administrative rules and The
Articles of Association. Notice, decision-making and information disclosure of each meeting were
all completed according to legal proceedings.
(III) According to the requirements of Notice on Issues Concerning Campaign to Strengthen
Governance of Listed Companies promulgated by CSRS ZJGSZ[2007] No.28 and Notice on Issues
Concerning Doing Well of Strengthening Governance of Listed Companies promulgated by
Shenzhen Stock Exchange SZS[2007]No.39, the Company started Special Activities of the
Company Administration, established special group with Chairman of the Board as the leader, with
the principle of being practice and realistic, compared contents of aforesaid documents one item by
one item, started self-inspection, and received completed inspection of the Company administration
by Shenzhen Security Regulatory Office and public comments. After these special activities, the
Company feasibly reformed the found problems, newly carded each process of the Company
administration, supplemented and perfected a set of basic management systems and operating
criteria, further standardized the operation of three meetings of the Company. Relevant information
was published on China Securities, Securities Times, Hong Kong Wen Wei Po and Juchao website
respectively on Sep.1, 2007 and Oct.24, 2007. The problems founded in Special Activities and
reform information were summarized as follows:
1. Board of Directors did not establish special committees: Board of Directors had established
Strategy Committee, Nomination Committee, Audit Committee and Remuneration and Appraisal
Committee, and formulated detailed working rules of special committees, to provide specialized
support to decision-making of Board of Directors.
2. There were the situations of mending and not timely disclosing in respect of information
disclosure: the Company formulated and perfected Management System of Information Disclosure
Affairs, and strengthened operation study and training of information disclosure.
3. Internal control remained to be perfected according to new organize structure and operation flows:
the Company revised and perfected internal control system.
4. The situation of overlapping of personnel in supervision committee and operation team remained
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to be changed: the Company adjusted the working of Chairman of Supervision Committee Ms. Cao
Li, dismissed her post as assistant of General Manager.
5. There were no person majored in accounting in independent directors: the Company held 2007
the 3rd Extraordinary Shareholders’ general Meeting on Oct.15, 2007, added Mr. Mai Jianguang as
independent director of the sixth Board of Directors. But later he resigned with individual reasons.
At present, because of lacking independent directors specialized in accounting, the member
structure of Board of Directors remained imperfect, and the Company will complete the working of
adding independent directors in the next year as soon as possible to exert the special function of the
subsidiary committees of Board of Directors.
6. The Company did not engage intermediary agencies to evaluate or audit the object of connected
transaction bid: according to 10.2.5 regulations of Rules Governing Listing Of Stock On Shenzhen
Stock Exchange, the object of transaction referred to connected transaction related to daily
operation could not be evaluated or audited, therefore, the Company did not engaged intermediary
agencies to evaluate and audit object of daily connected transaction. In order to regulate the
performance of connected transaction, to protect legal rights and interests of the Company and
shareholders, the Company formulated Management System of Connected Transaction in Jun.,
2007, and according to the requirements of relevant regulations, reasonably made prediction of the
total amount of daily connected transaction of the whole year, which was put in to Board of
Directors and Shareholders’ General Meeting to approve. Besides implementation of the
information disclosure process before, the Company audited and monitored the process of each
transaction through internal contact appraising procedure, Audit Department audited later, Certified
Public Accountants completely audited connected transaction affairs of the whole year in the annual
audit, and ensured connected transaction accorded with the principles of fairness, justice and
publicity.
(IV) There was no situation of regularly or irregularly reporting unopened information to majority
shareholders and actual controllers in the Company; there was no situation of depositing in financial
institution of majority shareholders in the Company and subsidiary enterprises.
II. Implementation of independent directors’ duties of the Company
1. Particulars about independent directors’ presenting the board meeting:
Times of Times of
Names of Times that should have
personal commission Times of absence
independent attended the Board
presence presence (Time)
directors meeting
(Time) (Time)
Yan Haizhong 5 3 2 0
Song Pingping 5 5 0 0
2. After completing the election in Jul., 2007, new Board of Directors held five board meetings
totally. Each independent director actively participated decision-making of Board of Directors, with
the attitude of taking responsibility for shareholders, discussed each proposal of meetings and
expressed individual opinions from the point of view of industry operation and risk control with due
diligence, and did not expressed disagreement.
III. Explanation about relations of the Company and controlling shareholders
The Company and controlling shareholders feasibly managed to achieve Five Separation in respect
of operation, personnel, assets, institution and finance. The Company had independent and complete
operation ability and independent management ability.
IV. Particulars about establishing and implementing appraisal and incentive mechanism of senior
managers
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The Company established System of Employee Rank and Basic Salary, the salaries of senior
managers connected with the benefit index, work quality index, and were granted floatingly,
increased and decreased the grade of salaries on the basis of annual check each year, and
preliminarily formed incentive and control mechanism of Income Could Increase and Decrease.
V. Self-evaluation on internal control
(I) Summary on internal control
The Company established legal person administration system with the main structure of
Shareholders’ General Meeting, Board of Directors, Supervision Committee and Senior Managers,
and Board of Directors set up four special committees (Strategy Committee, Nomination
Committee, Audit Committee and Remuneration and Appraisal Committee) and two routine
implement departments (Audit department and Board Office), which efficiently ensured the
exertion of decision-making right, exerting right and supervising right by the Three Meeting system,
with The Articles of Association as general rules, all kinds of systems including production
operation, human resource, finance management, internal audit and information transfer control
formed internal control system of the Company.
The Board of Directors set up Audit department, which was in charge of the audit working of each
unit of the Company, weighed and estimated current operation risk, security of finance and
management information; the operation team set up Check and Supervision Office, which was in
charge of supervising the efficiency of internal control operation, follow-up checked operation
implementation of each department and evaluated department work performance.
(II) Key activities of internal control
1. Management and control of holding subsidiaries
At present, the Company owned one holding subsidiary—Shenzhen Huafa Real Estate Tenancy
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Management Co. Ltd., which held 60% shares. Holding subsidiary conformed systems of the
Company and combined to its actual situation to establish and perfect operation and financial
management system. The Company implemented flatting management. Functional department gave
special guidance, supervision and support to the suitable department in subsidiary company,
especially controlled significant operations such as capital transaction, operation trade and
investment activities, Operation audit and report authority were clear, estimated the operation
performance of the subsidiary company according to annual operation achievement, made the
rewards and punishment clear, and efficiently formed supervision of significant operation affairs
and risks in subsidiary company.
2. Management and control of connected transaction
The Company established Management System of Connected Transaction, made clear of the object,
content, approval procedure and information disclosure. The Company tried to avoid connected
transaction. To the possible connected transaction, the Company would asked independent directors
for opinions, and put in to Board of Directors or Shareholders’ General Meeting to approve. The
Board of Directors and Shareholders’ General Meeting strictly conformed to the system of avoiding
when approving to ensure the fairness and justice of transaction, and according to relevant
regulations, timely disclosed relevant information to ensure the publicity of transaction. The
connected transactions in the report period all accorded with the requirement of relevant
administrative rules, and to the routine connected transaction affairs, besides implementing the
procedure of information disclosure, the Company audited and supervised the process of each
transaction with internal contact audit procedure, audit department audited later, and certificated
public accountants made complete audit of connected transaction of the whole year in the annual
audit.
3. Management and control of external guarantee
Internal control system made clear definition of external guarantee, and there was no external
guarantee affair in the report period.
4. Management and control of the use of collected funds
The Company formulated Management System of Collected Funds in accordance with relevant
regulations of collected funds management issued by CSRC, which made clear of the requirements
of store, use and supervision of collected funds. There was no situation of using collected funds in
the report period.
5. Management and control of significant investment
Significant investment of the Company conformed to the principles of being within the law,
prudence, security and efficiency to control investment risks and pay attention to investment
benefits. The Articles of Association made clear definition of approval authority of significant
investment of Board of Directors and Shareholders’ General Meeting. There was no significant
investment activity in the report period.
6. Management and control of information disclosure
The Company formulated Management System of Information Disclosure affairs in accordance
with security laws and regulations of relevant information disclosure, which made clear of the
content, procedure, responsibility division and management of information disclosure, and
formulated procedures of reporting, transferring auditing and disclosing significant events to
completely and efficiently control opened information disclosure and significant internal
information communication. The Company took the work of strengthening information disclosure
affairs management and protecting investors’ legal benefits as an important one, and would pay
persistent attention to it.
(III) Problems in internal control and reform plans
In the report period, the Company experienced significant revolution from state-own system to
private mechanism. Each operation was in the initial period of transition, adaptation and
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readjustment; internal control was confronted with severe challenges, which proposed new
problems to comprehensive and scientific management; the ability of coping with emergencies
remained to be strengthened; each warning mechanism remained to be perfected. The Company will
constantly optimize internal control including operation control, financial management control and
information disclosure control, timely supplement and perfect internal control system to increase
the operability of internal mechanism.
(IV) Comprehensive evaluation of internal control
The definition of rights and duties of Shareholders’ General Meeting, Board of Directors and
Supervision Committee were accurate, Board of Directors and Management team separated with
each other respectively, the location and duties of each department were accurate and clear to ensure
deferent institutions and posts restrict and supervise with each other with accurate rights and duties;
the Company established reasonable internal control system in significant respects and was fulfilled
and implemented well; the Company timely found problems, blocked holes, corrected deviations
and eliminated hidden dangers to guaranteed normal performance of operation activities, protect the
security and integrity of the Company assets and ensure the whole internal monitoring system
normally operating.
(V) Opinions on self-evaluation of internal control expressed by Supervision Committee
1. According to Company Law, Security Law, relevant regulations of supervision institution, and
other relevant national laws and administrative regulations, combined to the industry the Company
placed, operation method and its own characters, the Company formulated relevant internal control
system to ensure normal performance and risk control of operation activities;
2. In the report period, there was no situation of disobeying Guidance to Listed Company Internal
Control promulgated by Shenzhen Stock Exchange and internal control system of the Company.
Self-evaluation on internal control of the Company was comprehensive, authentic and accurate,
which reflected the actual situation of internal control of the Company.
(VI) Opinions on self-evaluation of internal control expressed by independent directors
Important activities of internal control processed in accord with all the systems of internal control.
The internal control of holding subsidiary, connected transaction, external guarantee, use of
collected funds, significant investment and information disclosure were strict, sufficient and
efficient, and ensured normal operation management of the Company. Self-evaluation of internal
control accorded with the actual situation of internal control of the Company.
VI. Brief Introduction to the Shareholders’ General Meeting
In the report period, the Company held five shareholders’ general meetings:
st
1. On Apr.2, 2007, the 2007 1 Extraordinary Shareholders’ General Meeting was held in spot way;
2. On Jun.29, 2007, the Annual Shareholders’ General Meeting 2006 was held in spot way;
3. On Jul.18, 2007, the 2007 2nd Extraordinary Shareholders’ General Meeting was held in spot
way;
4. On Oct.15, 2007, the 2007 3rd Extraordinary Shareholders’ General Meeting was held in spot
way;
th
5. On Jan.3, 2008, the 2007 4 Extraordinary Shareholders’ General Meeting was held in spot way.
Notices on aforesaid shareholders’ general meetings were respectively published on China
Securities, Securities Times, Hong Kong Wen Wei Po and Juchao website
(http://www.cninfo.com.cn.) dated Apr.3, 2007, Jun.30, 2007, Jul.19, 2007, Oct.16, 2007 and Jan.4,
2008.
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VII. Report of the board of directors
I. Review on the operation of the Company in the report period
(I) Overall operation of the Company
In 2007, the Company experienced a significant change in its system that the state-owned
shareholders withdrawed and shareholders from private enterprises joined in. Great administration
and changes have been carried out covering aspects of supply and sale of products, staff, finance
and material. Balance between the new and old systems, collision between different cultures, great
change in staff and change and adjustment of positions make the Company’s operation and
management faced with various unsteable elements and conflicts of deep level in short term. Once
for a while, the business of printed circuit and injection molding parts process had to partly stop
operation. The Company had been plunged in the smoothing difficult situation brought by the
merger and restructure, experiencing the baptism presented by complicated situation. Due to that
the holding shareholder-Wuhan Zhongheng Group endowed the relevant assets concerning the
assembly business of whole machine of EPS and liquid crystal display to the Company in the share
merger reform, the Company has realized net profit of RMB 25.86 million for a whole year, which
made a turnover compared to the same period of last year, among which: revenue of RMB 0.64
million has been made in business of injection molding; being in the start step, the whole machine
business of liquid crystal display which was newly increased after the merger and restructure, has
received gross profit of RMB 1 million approximately with its clients group to be cultivated; while
being the main profit source of the Company, property leasing business maintains steady growth in
the report period, with the leasing rate of 98%, leasing income of RMB 33,950,000, leasing profit of
RMB2,2050,000 and the rent returned rate of 98%.
1. Improve the operation and make the efficiency turn over from the easy to the hard. The
consequent disadvantages, such as customers’ wait-and-see attitude, sufficient orders, old
equipments, low efficiency and frequent change in staff, presented hard examination in the initial
period of the change in the holding shareholders of the Company and period of linking up and
transition. The Company actively takes advantage of the new holding shareholders, their working
experience and personnel reserve resource in injection molding and liquid crystal, borrows part
talents in management and technology from the Group Company, refers to and brings in part
management pattern of the Group Company, re-smooths and captures the obstacles in taches of
production and operation, gradually improve client relationship, takes live use of the bad materials
in stock, strictly controls consume in production, the operation gradually walks into the expected
way, the injection molding department said goodbye to loss in August and the capacity has been
improved in some degree.
2. Cut down the consumption and dig the potential and raise income from property leasing.
Grabbing the advantages that some self-owned property is located in the center area of Shenzhen’s
commercial and trading area, the Company digs potential in rent and field. According to the market
situation, the Company raised the rent price in the newly achieved agreement in time. Meanwhile, it
enlarges the scope available for leasing, increases shops next to streets and attracts and brings rent
by many channels. The billboards are used with pay and methods for operating property have been
innovated; at the same time, strictly controls the various leasing management expenses in fitment,
maintaining and reform. Labor cost has been shortened, with controls in every taches and fine
calculation and consideration.
3. Clear up the accouns, stop the hole and advance the capital to return. With the problems of
comparatively big amounts in accounts receivable, difficulty to call back and lacking position of
management and control, the Compay has stipulated the encouragement method for examination on
calling back the accounts receivable, estimation and examination system of sales contract, spot
investigation system to customers, which helps the Company to conreol and avoid the occurance of
bad debts in accounts receivable in source, and enhances the sales men could actively and forwardly
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call back the accounts receivable in long term; with the method of concentrative management in
head office, accounts receivable would be cleared up every month and the task of calling back the
accounts is divided and practically sent to sales men or person in charge; through law litigation and
external commission, par accounts receivable left in history has been cleared up. With efforts made
in a half year, the Company has received obvious effect in managing accounts receivable. Totally
RMB 50 million accounts have been called back from June to December, which completely changes
the former situation that more sales and more arrearage, effectively controls increase in accounts
receivable and assures circulation of the capital used in daily operation.
4. Make stipulation, establish system, smooth procedure and complete team construction. Faced
with the situation of great change in staff and operation in mess, the Company successively carried
out works which could make the operation of the enterprise in order, such as business restructure,
system rebuidling and perfecting procedure. The details were: re-smoothed the
examine-and-approve procedure and management method of the important economic tache such as
purchase, inviting public bid, examination of contract, calling back accounts receivable and
in-and-out of staff and materials; signed target responsibility book with the persons in charge of the
various economic departments, established examination system, annually and monthly, classified
level of employees and offerred with relevant remuneration to form the incentive and eliminated
system that Up and Down in Duty and Income, and In and Out in Staff, which also meant encourage
the good and the diligent, and punish the bad and the lazy; established the supervision system for
work, made every work detail dispatched to individual, supervised the practice of the work in
aspects of plan process, supervision record, result estimation and method of punishment and
detainment. This can avoid phenomenon of deferring and shuffle and greatly enhanced the
execution of work and quality efficiency; controled personnel arrangement, be strict in discipline of
personnel and labor and capital, built working responsibility commitment system of positions
offerred to all staff, absorbed person of ability through many channels, realized the effective
allotment and renewal of employee team, effectively controled operation cost, maintained the
normal working order of human resource and labor and capital.
5. Care about the employees, do more practical things and build enterprise culture. In order to
quickly cultivate the collective ascription feeling of the staff, and strengthen the team coherence, the
Company started the theme activity that the Company do Practice for You. The Company took out
some outlay to improve the staff’s live, in aspects of repast, accommodation, environment,
entertainment and safety. Cared about the needs of its staff, heared their thinking, promoted the
internal journal Huafa Person, made follow-up report on the important news, production and
operation, and staff spirit of the Company, held the big-typed literature gam party involving all staff,
tried to create the enterprise atmosphere of harmony and union and gradually built the new
enterprise culture for the Company.
(II) Main business and its operation of the Company
The main operation of the Company focuses on the industry of electronic products, including the
production and sales of circuit boards and plastic injection hardware and LCD whole machine
business. The sales of products of the Company focus on the area of South China. Details could be
available in the following table:
Unit: RMB
Gross Increase/decrease Increase/decrease Increase/decrease
Income from
Cost of profit in income from in cost of in gross profit
Industry operations
operations ratio operations over operations over ratio over the last
(%) the last year (%) the last year (%) year (%)
Plastic
Increased 0.59
injection 15,849,667.48 14,308,379.98 9.72% -6.17% -6.78%
hardware percentage points
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Circuit Decreased 4.03
64,650,992.46 65,695,271.08 -1.62% -35.88% -33.24%
Boards percentage points
LCD Decreased 0.46
58,798,941.86 58,743,984.85 0.09% 35.22% 35.85%
business percentage points
Color
TV 1,884,615.45 1,257,458.02 33.27% —— —— ——
process
Decreased 1.78
Total 141,184,217.25 140,005,093.93 0.84% -12.42% -10.82%
percentage points
Increase/decrease in income from
Area Income from operation
operations over the last year (%)
South China 128,382,501.46 -28.93
Hong Kong 50,462,909.45 480.19
Southwest 14,399,471.94 14.87
(III) Customers of purchase and sales
The total amount of purchase from the top five suppliers was RMB 67,207,800, taking 61.34% of
the total amount of purchase.
The total amount of sales of the top five customers was RMB 86,812,100, taking 44.92% of the
total amount of sales.
(IV) The constitution of assets
Proportion Increase/decrease Increase/decrease
of the
Item Amount in 2007 Amount in 2006 amount over the proportion over
total
last year the last year
assets
Account
57,501,749.38 15.38% 88,757,569.38 -31,255,820.00 -35.21%
receivable
Inventory 32,595,773.55 8.72% 14,400,324.64 18,195,448.91 126.35%
Net account
17,885,097.37 4.78% 11,744,468.19 6,140,629.18 52.29%
receivable
Real estate
45,819,394.37 12.25% 48,409,227.51 -2,589,833.14 -5.35%
investment
Fixed assets 187,238,973.29 50.07% 188,619,721.35 -1,380,748.06 -0.73%
Short-term loan 60,400,000.00 16.15% 67,300,000.00 -6,900,000.00 -10.25%
Account payable 42,777,941.82 11.44% 74,524,574.49 -31,746,632.67 -42.60%
Other account
22,199,987.43 5.94% 6,942,162.84 15,257,824.59 219.78%
payable
Total asset 373,957,038.94 100.00% 376,031,844.21 -2,074,805.27 -0.55%
Reasons for change:
1. The great decrease of accounts receivable was mainly due to that the arrearage of last period,
RMB 36.99 million from the customers of LCD had been taken back in this period; besides, the
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newly increased customers of LCD made payment in time.
2. The great increase of inventory was mainly due to the reserve of LCD.
3. Other accounts receivable had increased with RMB 6,140,629.18 over last year, with the increase
rate of 52.29%, which was mainly due to the re-recording of the leasing bail of Wanshang-RMB 3.4
million into other accounts payable (however, it used to be dealt with as the credit side of accounts
receivable from Wanshang in previous years).
4. Accounts payable had decreased with RMB 31,746,632.67 over last year, with the decrease rate
of 42.60%, which was mainly due to the Company had made payment payable of last year to
Hongkong Haowei Industry Co., Ltd, HORACE INDUSTRIAL LTD with RMB 33,172,035.98 in
this period.
5. At this report period-end, the balance of other accounts payable had increased with RMB
15,257,824.59 over that of the last period-end and the increase rate of 219.78%. The main reason
accounting for this change was that when the Company at one side accepted the donated assets from
Wuhan Zhongheng Group, correspondingly, it was also expected to carry the relevant debt of RMB
15,622,206.03.
(V) Changes of item of periodic gains and losses
Increase or
Increase or decrease
Item Amount in 2007 Amount in 2006 decrease amount proportion
compared with compared
last year with last
year
Operating expenses 3,733,724.38 3,445,845.36 287,879.02 8.35%
Administrative expenses 17,100,889.55 18,175,239.26 -1,074,349.71 -5.91%
Financial expenses 4,227,096.85 5,203,253.28 -976,156.43 -18.76%
Losses from the devaluation
2,062,177.47 18,322,980.62 -16,260,803.15 -88.75%
of asset
Nonoperatin income 24,122,046.44 57,147.98 24,064,898.46 42209.80%
Operating profit -2,514,105.56 -23,319,385.48 20,805,279.92 89.22%
Total profit 21,365,133.68 -23,262,805.55 44,627,939.23 191.84%
Net profit 22,065,920.97 -23,262,805.55 45,328,726.52 194.85%
1. Losses from the devaluation of asset decreased RMB 16,260,803.15 compared with last year with
the decrease proportion of 88.75%, which were mainly because the devaluation loss withdrawn in
last year was enough and no more withdrawal in this year.
2. Nonoperating income increased RMB 24,064,898.46 compared with last year and the increase
proportion was 42209.80%, which were mainly because: i. business asset of Baolilong and LCD
whole set assembly donated from Wuhan Zhongheng Group amounted to RMB 19,554,224.24; ii.
The account received in advance and account payable which could not be paid in this period
totaling up to RMB 1,009,706.51 would not be taken as nonoperating income; iii. The net income
from the lease of Huafa Building which has taken equity ownership transfer amounted to RMB
3,523,045.69.
3. Operating income: increased RMB 20,805,279.92 compared with last year with the increased
proportion of 89.22%, which was mainly because of the bigger losses from the net value of asset
withdrawn in last year.
4. Total profit and net profit increased above 190% compared with last year, which was mainly
because of receiving the asset donated by the controlling shareholder and the bigger losses from the
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net value of asset withdrawn in last year.
(VI) Constitution of cash flow
Ratio of Increase
2007 2006 Increase or decrease
or decrease
Cash flow arising
from operating 14,843,814.16 26,649,992.33 -11,806,178.17 -44.30%
activities
Cash flow arising
from investment -6,401,787.21 8,211,339.56 -14,613,126.77 -177.96%
activities
Cash flow arising
from financing -11,371,829.59 -31,985,881.05 20,614,051.46 -64.45%
activities
Net increase of cash
16,272,633.42 19,610,336.01 -3,337,702.59 -17.02%
and cash equivalent
Reasons for changing:
1. Great decrease in cash flow arising from operating activities over the same period of last year is
mainly due to paying for the goods to the suppliers of previous period for business of circuit board
and plastic injection hardware
2. Great decrease in cash flow arising from investment activities over the same period of last year is
mainly due to that the Company received amount of RMB 10,190,000 from transferring the No.1
workshop and its subsidiary building in Shangbu Industry Park in 2006.
3. Great decrease in cash flow arising from financing activities over the same period of last year is
mainly due to that nore arrearage of RMB 19,900,000 has been paid in 2006 over in 2007.
(VII) Operation and achievement of main holding and share-holding companies
The controlling company, Shenzhen Huafa Property Rent and Management Co., Ltd., is mainly
engaged in the lease surrogate of property and property management of the Company with a
registered capital of RMB 1 million. Its 60% equity is held by the Company, and the total asset at
the end of this year was RMB 3,261,400. The income from property management expense of the
Company in 2007 was RMB 1,952,900, with a net profit of RMB 977,200.
II. The prospect for future of the Company
(I) Development of the Industry and analysis to the market
The original main business of the Company is the production and process of printed circuit board
and plastic injection hardware. The merger and restructure in assets has injected live blood to the
Company. The new holding shareholder endowed whole machine business of LCD, assissts the
Company to switch to industry of LCD. In future, the Company will position itself in production
and manufacture of LCD and LC TV, and will offer itself with the printed circuit board and precise
plastic injection hardware made by it. LCD products have been variedly used in industries of
computer, vedio terminal, communication and instrument. The market is vast, with great climbing
in performance of production and sales. With the uncomparable advantages of non-radiation,
low-energy-consumption, little-heat, fine and legerity and reverting picture exactly, LCD is
replacing the traditional display product-CRT, and becomes the mainstream of the market. In recent
years, government has treated it as one of the leading industries and offered it with lots of support.
Meanwhile, the production and process of the global LCD products is gradually displaced and
concentrated to China, which obviously a good opportunity for the Company to develop its industry
of vedio and information.
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(II) Business plan of the new report year
In 2008, the Company plans to realize operating income amounting to RMB 0.405 billion, operating
cost is estimated to be about RMB 0.343 billion, sales expense is estimated to be about RMB 6
million, administration expense is estimated to be about RMB 25,250,000, and financial expense is
estimated to be about RMB 6,680,000.
1. Actively build the rudiment of the industry chain of vedio and information. In order to completely
turn over the not-so-well operation of the listed company formed in many years, the new holding
shareholder-Wuhan Zhongheng Group plans to conform the group industry assets (including
business of plastic injection hardware and assemble of LC pattern) and the industry assets of listed
company (including business of printed circuit board, plastic injection and manufacture of whole
LCD) by way of capital operation. This is done to realize rational allotment of resources, cut down
operation cost and integrity listing with excellent assets. Once the assets conformity is finished, the
Company will possess the top, middle and low resources in production of LC—take printed circuit
board business as top, the fittings business of LC, plastic injection and ESP as middle, and the
whole machine business of LCD and LC TV as low. By getting through every tache in the top,
middle and low level, conforming production resource, advancing operation efficiency, the
production cost of the relevant products in the industry chain could be forwardly cut down and then
market advantage could be won.
2. Steadily enhance the property operation level. Further optimize commercial structure, collect
leasing information through many ways, visit the nearby leasing property to get known of the
market situation in time, broaden clients resource and strive for steady growth in leasing rate; focus
on the potential of property, seek for new measurement to make profit, save unnecessary
expenditure, actively create income; improve management ability in property service, assure safety
management system is practical, do well in daily check and maintaining of property equipment, take
the customers as basis to detail the various fitting service measurement, consolidate and enhance
satisfaction from customers.
3. Standardize and strengthen the internal control system. Focusing on the key taches such as
exchange of important business, significant investment, related transaction, the Company reinforces
the audit and daily supervision power in operation procedure, strengthens power in self-examination,
self-correction, internal audit and internal correction, and finds deficiency of control and hole in
management in time, presents practical countermeasure and suggestion for improvement,
standardizes operation procedure, perfects ask-for-responsibility and ask-for-effect mechanism,
solves problems internal, perfects works internal, makes sure that the supervision is accomplying
with examination, result and change, gradualy forms the internal control system of clear work
dispatch, responsibility dispatched to individual, and supervision from every round. It is avoided to
have breaking discipline, loss, waste and lacking position in management happened.
4. Perfect and optimize management in human resources. On the basis of further doing well the
fundamental works of human resources, the Company continuously perfects the human resources
system in aspects of engagement, training, examination, remuneration and career life management.
By analysis on position whole and duty content, the Company continues to standardize works of
fixed-posion and fixed-human. With the principle of high efficiency, the Company optimizes the
allocation of human resources and controls staff number and labor cost; takes human resources into
management category of information, improves quality and efficiency of work of calculating
remuneration; continues to strengthen the development and trainings of human resources, put
emphasis on programming, implementation and coordination of training. Through the general
subject trainings and work skill trainings held by the Company, the theory knowledge, business
level and actual working ability of employees could be improved, then to fulfill the demand for the
Company’s development.
5. Further carry out activity to build the enterprise culture. Continue to carry out team activity of
variety, entertainment and knowledge. On favor of health in phsical and emotion of employees, and
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Annual Report 2007
also their life quality, as well as the human care activity of Do Well in Tiny Things and Show True
Emotion in Tiny Things, the Company increases the belonging feeling and centripetal force of its
staff, making bridge between the Company and staff for effective communication.
(III) Demand, use plan and source of capital
As the Company gradually manages to transfer and transit to liquid crystal industry, the integrating
business of LCD will ask for more in capital. The Company will continuously focus on the calling
back of the various accounts receivable; speed up the re-use of capital; continuously keep
cooperation with banks and other financial organizations; satisfy the capital need for production and
operation through getting loans from bank, such indirect financing method.
(IV) Main risk and countermeasure in operation
Last year, operation and administration of the Company had gradually got smoothed and improved;
in the new year, challenges and opportunities present themselves in the road of development and
exaltation of the Company after the previously mentioned adjustment and administration: because
the integrating business of LCD is just in the starting step, customer group still need to be cultivated
and not even form the scale effect; the businesses of printed circuit board and injection plastic
processing and producing are faced with the risks of worn equipments, insufficient orders and small
capacity. The Company will depend on its controlling shareholders by method of capital operation
to inject excellent industry assets, enlarge producing scale, and integrate the producing sources. All
these are done with the aim to cut down cost and finally to advance the competition ability and
persistent developing capability of the main business of the Company.
III. Investment in the report period
(I) Application of raised proceeds
In the report period, there were no events of raising funds or previous annual raising funds used till
the report period.
(II) Significant investing projects of non-raising funds
In the report period, there were no significant investing projects of non-raising funds
IV. Audit
In the report period, ShineWing Certified Public Accountant issued standard unqualified auditor’s
report for the Company.
V. Change in accounting policy, accounting estimation and accounting errors correction
(I) No change in accounting policy and accounting errors correction have happened to the Company
in the report period.
(II) Change in accounting estimation
The use term of the self-owned property of the Company-Huafa Building was expected to be 30
years, from Nov 21st of 1981 to Nov 20th of 2011. Its depreciation term was also 30 years. With
approval from the relevant department in 2007, the use term of the Building exceeds to Nov 20th of
2031, so the combined use term should be changed to 50 years. Since Oct.1, 2007, the depreciation
term of the property was changed to 50 years. This accounting estimation change will bring a
decrease of RMB 1,260,306.04 in the depreciation amount for 2007; correspondingly, the profit for
2007 will increase RMB 1,260,306.04. The change of the above depreciation of real estate
investment is as follows:
Depreciation amount withdrawn
Item Original
Before change After change Balance
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Annual Report 2007
Huafa Building
90,188,800.85 6,091,479.18 4,831,173.14 1,260,306.04
(III) Balance adjustment when first adoption of the new Accounting Standard for Business
Enterprise (details could be available in the Section 2 Accounting Data and Business Data Summary
VI. Routine work of the Board of Directors
(I) Meetings and resolutions of the Board of Directors in the report period
The Board totally held 13 meetings in the report period:
th th th
1. On Feb 12 of 2007, the 8 meeting of the 5 Board of Directors was held by way of spot.
th
Details could be available in the public notice of the Company dated Feb 14 of 2007.
th st
2. On Mar 14 of 2007, the 1 2007 provisional meeting of the Board was held by way of spot. In
this meeting, it was agreed to sell the No.1 workshop and its subsidiary building inShangbu
Industry Park to China Zhenhua Electron Group Co., Ltd; the independent directors was in duty of
engaging agency organization to issue independent finance consultant report for the price transacted;
after negotiation, planed to take the estimation and analysis resultfrom the agency organization as
the basis to assure the transaction price and planed to make examination and voting on the proposal
of selling the No.1 workshop and other assets in Shangbu Industry Park in the next meeting of the
Board; agreed to engage Shenzhen Zhongqin Asset Estimation Co., Ltd to carry out assets
estimation.
3. On Apr 3rd of 2007, the 2nd 2007 provisional meeting of the Board was held by way of
communication. Details could be available in the public notice of the Company dated Apr 6th of
2007.
4. On Apr 5th of 2007, the 3rd 2007 provisional meeting of the Board was held by way of
communication. Details could be available in the public notice of the Company dated Apr 10th of
2007.
5. On Apr 17th of 2007, the 9th meeting of the 5th Board of Directors was held by way of spot.
th
Details could be available in the public notice of the Company dated Apr 20 of 2007.
6. On Apr 27th of 2007, the 4th 2007 provisional meeting of the Board was held by way of
communication. Details could be available in the public notice of the Company dated May 8th of
2007.
7. On May 28th of 2007, the 10th meeting of the 5th Board of Directors was held by way of spot.
Details could be available in the public notice of the Company dated May 29th of 2007.
8) On Jun.29, 2007, the 6th Extraordinary Meeting of 2007 was held by way of spot and details
refer to Company Notice dated on July 3, 2007.
9) On July 18, 2007, the 1st Extraordinary Meeting of the 6th Board of Directors’ Meeting was held
by way of spot and details refer to Company Notice dated on July 19, 2007.
10) On Aug.24, 2007, the 2nd Extraordinary Meeting of the 6th Board of Directors’ Meeting was
held by way of spot and the meeting examined and approved 2007 Semi-Annual Report.
11) On Sep. 28, 2007, the 7th Extraordinary Meeting of 2007 was held by way of spot and details
refer to Company Notice dated on Sep. 29, 2007.
12) On Oct.22, 2007, the 8th Extraordinary Meeting of 2007 was held by way of spot and details
refer to Company Notice dated on Oct.24, 2007.
13) On Dec.14, 2007, the 9th Extraordinary Meeting of 2007 was held by way of spot and details
refer to Company Notice dated on Dec.15, 2007.
(II) The Board of Directors implemented all resolutions of Shareholders’ General Meeting
The Board had implemented resolutions of Shareholders’ General Meeting. In the report period, the
Company didn’t authorize the Board about any matters; distribute profit and ration, and additionally
issue any shares.
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(III) Summary report of Auditing Committee’s duty taking
In the report period, the Auditing Committee, according to requirements in Working Rules of Board
of Directors’ Special Committees and Board of Directors’ Auditing Committees’ Working Procedure
for Annual Report, earnestly took responsibility to exam annual financial auditing.
1. Twice issued checking opinions on 2007 Annual Financial Report of the Company
In the repot period, according to related regulations and requirements of CSRC, the Auditing
Committee twice issued checking opinions on Annual Financial Report of the Company,
Before the annual examining CPA entered, the Auditing Committee initially issued written opinions
on not audited financial report. The Auditing Committee, in accordance with Enterprise Financial
Codes-Basic Codes, Enterprise Financial Codes No.1 – Storage and 38 detailed rules as well as
related financial system regulations, paid lots of attention on accuracy and completeness of financial
documents, accordance of financial report with new Enterprise Financial Codes as well as
regulations of related financial systems. Through checking and analyzing financial documents, the
Auditing Committee believe that the Company according to related regulations of new Enterprise
Financial Codes and combining its actual condition, made reasonable financial policy and proper
financial assessing; transaction record is accurate and complete; financial report made by the
Company truly reflects financial status of the Company until Dec.31 of 2007 and operation
achievement and cash flow of 2007. And it agreed to carry out 2007 annual financial audit with the
basis of this financial report.
After the 1st draft of auditing report was made by annual examining CPA, the Auditing Committee
timely communicated with CPA. Both of them had no difference on important problems of annual
financial report of the Company. Financial report of the Company agrees with related regulations of
Enterpris