深康佳2005年半年度财务报告（英文版）

KONKA GROUP COMPANY LIMITED

Financial Report

Ended June 30， 2005

(Unaudited)

Table of Contents

Balance Sheet

Profit Statement

Cash Flow Statement

Schedule of Assets Impairment Losses

Statement of Change in Owner's Equity

Divisional Reporting（Area）

Divisional Reporting（Business）

Notes to the Accounting Statements

— — — — — — — — — — — — — — — — — — — — — — — — — — — —

Legal Representative: Ren Kelei Chief Financial Officer: Yang Guobin

Manager of the Accounting Department: Ruan Renzong

KONKA GROUP COMPANY LIMITED

Consolidated Profit and Loss Statement

Ended June 30， 2005

Items Notes

1st Half Year of

2005

in RMB ’000

1st Half Year of

2004

in RMB ’000

Turnover 5 5，464，656 6，868，598

Sales costs ( 4，658，248 ) 5，830，428

Gross profit 806，408 1，038，170

Other income 6 10，346 13，553

Distribution cost ( 634，152 ) ( 798，810 )

Administration expenses ( 159，190 ) ( 192，083 )

Operating profit 23，412 59，869

Financial expenses ( 4，567 ) ( 252 )

Amount in deficits of associated companies ( 312 ) ( 102 )

Profit before tax 18，533 59，515

Taxes 7 ( 1，535 ) ( 7，718 )

Profit before minority shareholders’ equity 16，998 51，797

Profit distributable to minority shareholders 7，849 ( 7，817 )

Profit distributable to shareholders 24，847 43，980

Accumulative loss at year beginning ( 361，412 ) ( 503，961 )

Compensating accumulated losses in previous year 375，757

Deficits before distribution or allocation ( 39，192 ) ( 459，981 )

Distribution or allocation:

Dividend not payable -

Accumulative loss at year end ( 39，192 ) ( 459，981 )

RMB RMB

Earnings per share – basic 0.04 0.07

The basic earning per share is calculated based on the profit distributable to the shareholders

this year amounting to RMB24，847thousand (while RMB 43，980 thousand in 2004) and the

share capital issued in the year totaling 601，986，352.KONKA GROUP COMPANY LIMITED

Consolidated Balance Sheet

Ended June 30， 2005

Items Notes June， 2005 in RMB ’000

2004

in RMB ’000

Non-current assets

Fixed assets 8 1，361，134 1387，288

Goodwill 9 989 989

Intangible assets 10 16，242 11，014

Amount in equity of associated companies 11 34，732 35，159

Other Investments 12 10，290 10，290

1，423，387 1，444，740

Current assets

Inventories 13 2，860，882 3，580，777

Properties to be sold 14 4，172 4，172

Accounts receivable 15 551，496 571，016

Advance payments， margin and other receivables 16 204，821 199，251

Notes receivable 17 2，608，473 2，933，652

Bank balance and cash 604，223 851，762

6，834，067 8，140，630

Current liabilities

Taxes payable 9，742 ( 2，145 )

Accounts payable ( 1，365，950 ) ( 1，271，053 )

Other payables and accrued charges ( 621，661 ) ( 821，192 )

Notes payable ( 2，789，963 ) ( 3，977，323 )

Short-term bank loan 18 ( 25，000 ) ( 48，149 )

( 4，792，832 ) ( 6，119，862 )

Net current assets 2，041，235 2，020，768

Total assets less current liabilities 3，464，622 3，465，508

(to be continued)

KONKA GROUP COMPANY LIMITED

Consolidated Balance Sheet

Ended June 30， 2005

(continued)

Items Notes June， 2005 in RMB ’000

2004

in RMB ’000

Total assets less current liabilities 3，464，622 3，465，508

Non-current liabilities

Deferred income ( 12，024 ) ( 13，490 )

Other long-term liabilities ( 10，499 ) ( 10，499 )

( 22，523 ) ( 23，989 )

Minority shareholders’ equity ( 223，476 ) ( 247，827 )

Net asset value 3，218，623 3，193，692

Financial sources:

Share capital 19 601，986 601，986

Reserve 2，616，637 2，591，706

Shareholder’s equity 3，218，623 3，193，692

Director Director

The financial report from page

1to page 24 was approved and

authorized for issuing by the

Board of Directors and the

following two director

representatives subscribed the

report in Aug. 25， 2005.KONKA GROUP COMPANY LIMITED.

Consolidated Statement of Change in Shareholders’ Equity

Ended June 30， 2005

______________________________________________________________

Reserve

Share

capital

in

RMB ’000

Capital public

reserve

in RMB ’000

Surplus public

reserve

in RMB ’000

Accumulative

retained

profit (loss)

in RMB ’000

Dividend

reserve

in

RMB ’000

Reserve for

foreign

currency

conversion

in RMB ’000

Total reserve

in RMB ’000

Total

in RMB ’000

Ended January

1， 2004 601，986 1，820，452 1，133，044 (503，961) - (128) 2，449，407 3，051，393

Profit of 2004 - - - 142，549 - - 142，549 142，549

Foreign

currency

conversion

balance - - - - - (250) (250) 250

December 31，

2004 601，986 1，820，452 1，133，044 (361，412) - (378) 2，591，706 3，193，692

Ended January

1， 2005 601，986 1，820，452 1，133，044 (361，412) - (378) 2，591，706 3，193，692

Profit of the 1st

Half Year of

2005 - - - 24，847 - - 24，847 24，847

Dividend not

payable

Compensation

for accumulated

losses in

previous year (375，757) 375，757 - -

Foreign

currency

conversion

balance - - - - - 84 84 84

June 30， 2005 601，986 1，820，452 757，287 39，192 - (294) 2，616，637 3，218，623

According to the PRC Company Law and the regulations in connection with joint stock company，the Company must list the income form designated sources as capital public reserve， includingstock premium， assets reappraisal premium and premium from the assets invested externally， etc.The statutory purpose of the capital public reserve is usually the share capital converted or increased

while the premium of assets reappraised invested externally is written off from the relevant

investment or when non-temporary reserve for devaluation is provided. Surplus public reserve

includes the statutory public reserve， statutory public welfare fund and discretionary surpluspublic reserve.The statutory public reserve is provided based on no less than 10% of the profit of the year after

making up for the loss but shall no longer be provided after the total amount has reached

50% of the accumulated registered share capital. The statutory public reserve can be used for

making up for loss and additional issuing of shares， etc. However， the statutory public reserveretained after additional issuing of shares should not be less than 25% of the registered capital.The statutory public welfare fund is provided based on no less than 5% of the profit of the year

after making up for the loss. The statutory public reserve is solely used in payment for staff’

s welfare facilities. The discretionary surplus public reserve is provided according to the

resolution of the shareholders’ general meeting. It can be used for making up for loss and

additional issuing of shares， etc.KONKA G.ROUP COMPANY LIMITED

Consolidated Cash Flow Statement

Ended June 30， 2005

Items Notes

1st Half Year of

2005

in RMB ’000

1st Half Year of

2004

in RMB ’000

Cash flows arising from operating activities

Operating profit before tax 24，847 43，980

Adjustment items:

Depreciation of fixed assets 68，286 67，869

Amortization of intangible assets 2，738 1，900

Amortization of deferred expenses 9，107 8，932

Loss from sale or discard of fixed assets 1，192 724

Interest income 1，181 887

Dividend income 313 127

Government subsidy income ( 1，634 ) ( 6，155 )

Foreign currency conversion balance 84 ( 731 ）

(Increase)/decrease of accounts receivable 291，549 380，978(Increase)/decrease of inventories 719，895 ( 623，548 ）

Decrease of accounts payable ( 1，291，465 ) 248，616

Income tax payment 1，535 7，718

Net cash flow in/(out) arising from operating

activities ( 172，372 ) 131，297

Investment activities

Interest received 648 0

Interest paid ( 1，128 ) ( 478 )

Dividend paid 0 595

Purchase of fixed assets ( 45，014 ) ( 67，640 )

Income from sales of fixed assets 1，324 840

Cash flow in (payment) in acquisition/sale of

subsidiaries 8，431 6，796

Income from selling and taking back other investment 0

Short-term investment (increase)/decrease 0

Net cash flow in/(out) arising from investment

activities

( 35，739 ( 59，887 )

(to be continued)

KONKA G.ROUP COMPANY LIMITED

Consolidated Cash Flow Statement

Ended June 30， 2005

(continued)

Items Notes

1st Half Year of

2005

in RMB ’000

1st Half Year of

2004

in RMB ’000

Net cash flow in/(out) arising from investment

activities

( 35，739 ) ( 59，887 )

Financing activities

Newly increased bank loan 5，082 23，096

Repayment of bank loan 20 ( 28，232 ) ( 18，565 )

Payment of financing lease 20 0 75

Payment of dividends to minority shareholders 20 ( 16，278 ) ( 5，005 )

Cash flow in/(out) arising from financing activities ( 39，428 ) ( 399 )

Increase/decrease of cash and cash equivalents ( 247，539 ) 71，011

Cash and cash equivalents at the beginning of the

period 851，762 1，331，893

Cash and cash equivalents at the end of the period 604，223 1，402，904

Analysis on balance of cash and cash equivalents

Bank balance and cash 604，223 1，402，904

KONKA GROUP COMPANY LIMITED

Notes to Financial Report

Ended June 30， 2005

1.Background Information

KONKA GROUP COMPANY LIMITED (the Company) is a company limited by shares through reorganization of the former

Shenzhen Konka Electronics Co.， Ltd. in August 1991 in accordance with the Provisions of the People’s Republic of Chinagoverning Companies Limited by Shares with approval by Shenzhen Municipal People’s Government. Meanwhile approved by

People’s Bank of China Shenzhen Special Economic Zone Branch， the Company issued RMB based ordinary shares (A-shares)and domestically listed foreign capital shares (B-shares). Both A-shares and B-shares are listed with Shenzhen Stock Exchange.The present name Konka Group Company Limited was renamed on August 29， 1995.The Company and its subsidiaries (jointly referred to as the Group) are mainly engaged in production and sales of color TV sets，cell phones， recorders， music centers， facsimile machines， interphone and the relevant components， real estate development andsecurities investment.

2. Preparation of Accounting Statements

This financial report is prepared in accordance with the international accounting standards. These standards are different from

the Enterprise Accounting Standards of the People’s Republic of China on which the Company’s statutory financial report is

prepared. The Company has made reasonable adjustment of the statutory financial report according to the international

accounting standards. Such adjustment involves the details that have influenced the net asset value ended June 30， 2005 and the

operation result ended that day which is stated in Note 26 of the financial report. In addition， this financial report is preparedaccording to the historical cost method except that fixed assets are stated based on the estimated value less the accumulative

depreciation and short term investments are calculated based on the lower of the cost and the market value or net realizable

value.

3. Basis of Consolidated Statements

Consolidated financial report includes the financial report of the Group ended June 30， 2005. Except the subsidiaries not

consolidated as specified otherwise， the material transactions and account balance among the companies under the Group havebeen offset in consolidation.(a) Subsidiaries:

Subsidiaries refer to the companies whose equity is directly or indirectly controlled by the Company by over 50%

and/or whose major voting power can be exercised by the Company in their board of directors/management committee.

As at June 30， 2005， the Company has the following subsidiaries:

Proportion of

shares held Companies Registration place Registered capital

Direct Indirect

Principal business

Dongguan Konka Electronics

Co.，Ltd. China RMB 200 million 100% -

TV sets and audio

products， etc.Pacific Konka Electronics

Co.，Ltd. *

Macao A$1 million 100% - Sales of electronic

products

Konka Electronics (USA) Inc. * United

States

US$ 3 million 100% - Research and

development

Konka (Hong Kong) Limited Hong Kong HK$ 0.5 million 100% -

Import& export of

mechanical and electrical

products and electronic

products

Anhui Konka Electronics Co.，Ltd.

China RMB 140 million 65% - Color TV sets

Mudanjiang Konka Industrial

Co.， Ltd. China RMB 60 million 60% - Color TV sets

Chongqing Konka Electronics

Co.， Ltd.

China RMB 45 million 60% - Color TV sets

Shenzhen Konka Video System

Engineering Co.， Ltd. China RMB 15 million 60% -

Manufacture and

processing of mold

products

KONKA GROUP COMPANY LIMITED

Notes to Financial Report

Ended June 30， 2005

(continued)

3. Basis of Consolidated Statements (continued)

(a) Subsidiaries (continued)

Proportion of

shares held Name of Companies Registration place Registered capital

Direct Indirect

Principal business

Shenzhen Konka Electrical Appliances

Co.， Ltd. China RMB 8.30 million 51% - Electronic equipment

Shenzhen Konka Communications

Technology Co.， Ltd.

China RMB 120 million 75% 25% Mobile communication

products

Shenzhen Shushida Electronics Co.， Ltd. China RMB 42 million 75% 25% Video products andrelevant accessories

Shenzhen Konka Information Network

Co.， Ltd.

China RMB 30 million 75% 25% Digital network products

Chongqing Qingjia Electronics Co.， Ltd. China RMB 15 million 50% 10% Electronic tuner and high frequency heads

Shenzhen Konka Sophisticated Mold

Manufacture Co.， Ltd.

China RMB 14.50 million 49% 51% Various molds

Shenzhen Konka Plastic Products Co.，Ltd.

China RMB 9.50 million 49% 51% Plastic products

Shaanxi Konka Electronics Co.， Ltd. China RMB 69.50 million 45% 15% Color TV sets

Chongqing Konka Electronics Co.， Ltd.

**

China RMB 15 million 30% 10% Electronic tuner

Dongguan Konka Packing Materials Co.，Ltd.

China RMB 10 million - 100% Plastic products

Kangdian International Trading Co.， Ltd. Hong Kong HK$ 500，000 - 100% International tradeKangdian Investment Development Co.，Ltd.Hong Kong HK$ 500，000 - 100% Shareholding and

investment

Konka Trading (Indonesia) Co.， Ltd. * Indonesia US$ 500，000 - 100% TradeKonka Electronics (India) Co.， Ltd.* India RMB 1.16 million - 70% Color TV sets

Changshu Konka Electronics Co.， Ltd. China RMB 24.65 million - 60% Production and sales of

electronic products

Boluo Konka Printed Circuit Board Co.，Ltd.

China RMB 40 million - 51% Production and sales of

electronic products

Anhui Konka Electrical Appliances Co.，Ltd. **

China RMB 10 million - 35% Production and sales of

electrical appliances

* Such companies have closed business through approval and therefore are not consolidated this year.** The Company is the actual controller of that company.(b) Associates

Associates refer to the companies whose equity is directly or indirectly held by the Company by over

20% but below 50% as long term investment and the Company is entitled to exert material influence

upon their financial and operational decisions.The associates’ operation results and reserves attributable to the Company are stated in the

consolidated profit and loss statement and consolidated reserve. The Group’s investment in the

associates is stated on the consolidated balance sheet based on the net assets of the associates

attributable to the Group less the provision for deterioration as the board of directors thinks necessary.The Company’s associates as at June 30， 2005 are listed in Note 11 of this financial report.KONKA GROUP COMPANY LIMITED

Notes to Financial Report

Ended June 30， 2005

(Continued)

4. Summary of Accounting Policies

(a) Fixed Assets and Depreciation

Fixed assets (with construction-in-process) are stated based on the costs or the revaluated value less

the depreciation. The initial value includes costs and all the expenses in connection with purchase and

installation of such fixed assets and the expenses， such as costs of maintenance after the fixed assetsare put into application are charged in the gain/loss statement of the very period. In case increase of

expenses may bring about financial benefit to the Company， such expenses should be capitalized andstated in the initial value of fixed assets.

Depreciation of fixed assets is calculated based on the service life by means of straight-line method

after deduction of the estimated residual value (10% of the cost or re-estimated value) with the details

as follows:

Land use right Based on the specified service life

Housing & building 2.25%

Fixing up of property rented 20%

Machines & equipment 9%

Electronic equipment 18%

Motor vehicle 18%

Value of fixed assets includes interest expense and exchange balance arising from financing of

building works with loans for buildings， machines and furniture costs and in the construction period.Gain and loss confirmed on the profit and loss statement at the time of selling or rejecting fixed assets

refer to the balance between the income from sale and the book value of the related assets.If the recoverable amount of fixed assets is lower than their book value due to continuously falling

market price， backward technology， out-of-date equipment， damage or long term idleness， reserve fordevaluation of fixed assets shall be provided based on the balance of the recoverable amount and the

book value of the fixed assets.(b) Construction-in-progress

Construction-in-progress refers to factory， office building and equipment in construction which are all

stated based on the original value without depreciation provided until the building works has been

completed and the fixed assets are applicable. The original value includes the straight cost， loan costsand relevant direct costs of the works.(c) Goodwill

The goodwill arising from acquisition of subsidiaries， associates or join ventures is the amount of thecosts of such acquisition exceeding the fair value of the net assets acquired amortized in average over

10 years by the straight-line method.

In selling subsidiaries， associates or joint ventures， the concerned part of the goodwill attributable tothe Company but not yet amortized is stated on the profit and loss statement of the very period at the

time of calculation of the income or loss resulted from the sales.KONKA GROUP COMPANY LIMITED

Notes to Financial Report

Ended June 30， 2005

(continued)

4. Summary of Accounting Policies (continued)

(d) Intangible assets

The cost for registration of foreign trademark is amortized in average over the earning period by

means of the straight-line method based on the predicted service life.The cost for patent and special technology is amortized in average over five years by means of the

straight-line method.(e) Other Investments

The long-term investment is stated based on the cost less the non-temporary provision for devaluation.The short-term investment is stated based on the lower of the cost and market value or net realizable

value.(f) Inventories:

Inventories are stated based on the cost (calculated based on the weighted average cost method) and

the net realizable value. Costs of finished products and products in process include those of raw

materials， direct manpower， and the production expenses attributable. The net realizable value iscalculated based on the net value of the estimated sales price less all the costs of further production

and the costs in connection with promotion， sales and distribution.(g) Property to be sold

Property to be sold is stated based on the lower of the costs and net realizable value. Costs include all

the costs of the land attributable to the property and the building. The net realizable value is

determined based on the standard of the individual property by the Board of Directors according to

the market price at the time.(h) Deferred income

Deferred income refers to the long term financial support supplied by the government to the Group

for research and development of new technology. The recognizable income is calculated every year

based on the financing year by means of the straight-line method.(i) Cash equivalent

Cash equivalent refers to the short-term investment with high liquidity due within three months

commencing from the date of purchase and convertible into the known cash amount at any time less

the bank advance repayable within three months commencing from the very day when the advance is

made.KONKA GROUP COMPANY LIMITED

Notes to Financial Report

Ended June 30， 2005

(Continued)

4. Summary of Accounting Policies (continued)

(j) Income recognition

When the economic benefit of income may possibly belong to the Group and can be reliably measured，income is recognized based on the following standards:

i) For the sale of goods， income is recognized when significant risks and rewards of ownership

have been transferred to the buyers. The Group maintains neither managerial involvement nor

actual control over the goods sold;

ii) For the sale of property， income is recognized when unconditional sales contract duly executedwith legal force has been confirmed;

iii) Interest income is recognized based on time proportions;

iv) Dividend is recognized when the shareholders are entitled to collect the dividend.(k) Financing lease contract

All the lease contracts in which most risks and return involved in the possession of the assets have

been transferred to the Group are stated as financing lease contracts. The assets involved in the

financing lease contract are transferred into capital based on the fair value at the time of acquisition;

the principal part in the lease contract unpaid is the Group’s liability. Financing cost refers to the

difference between the total amount undertaken in the lease contract and the fair value in the asset

acquisition and is deducted in the profit and loss statement within the lease term based on the practical

conditions.(l) Foreign currency translation

The Company takes RMB as the standard currency for bookkeeping. Any transaction in foreign

currency is translated into RMB based on the exchange rate as of the first day of the month when the

transaction takes place. The monetary assets and liabilities calculated based on foreign currency is

translated into RMB based on the exchange rate as of the balance sheet date. The exchange difference

arising from borrowings in foreign currency for purchase/construction of office building， factorybuilding， machines and equipment as well as other principal fixed assets is stated in the costs prior todelivery of the concerned fixed assets for application. Other exchange differences are stated on the

profit and loss statement of the very period.

At the time consolidation， the financial report of overseas subsidiaries prepared with foreign currency

as the standard currency should be restated in RMB after conversion and the balance produced from

conversion is transferred into the reserve for foreign currency conversion.(m) Devaluation

At various settlement days， the Group may jointly review the book value of its assets so as to decide

whether there is any clue to show the loss from devaluation of assets. If such clue does exist， it isnecessary to estimate the amount recoverable from the relevant assets so as to determine the degree of

loss arising from the devaluation. If it is impossible to estimate the amount recoverable from some

assets， the Group shall estimate the amount recoverable from the cash business created from therelevant assets.If the amount recoverable from the assets is estimated less than the book value， the book value of therelevant assets should be reduced to the recoverable amount. Any devaluation arising therefrom shall

be recognized as expenses on real time basis.KONKA GROUP COMPANY LIMITED

Notes to Financial Report

Ended June 30， 2005

(Continued)

4. Summary of Accounting Policies (continued)

(m) Devaluation (continued)

If loss from devaluation is reversed immediately afterwards， the book value of the relevantassets shall increase to the revised estimated recoverable amount. However， the book valueafter the increase must not exceed the book value of the supposed relevant assets without any

loss from devaluation in previous years. Income is recognized when the loss from devaluation

is reversed.(n) Reserves

Reserve is recognized when the Group when the Group may loose the economic benefit

reasonably estimated arising from the exiting statutory or constructive duties due to the past

events.(o) Tax

Tax is the total amount of the income tax payable and the deferred taxes of the very period.The income tax of the very period is worked out according to the taxable profit of the very year.Taxable profit is different from the net profit stated on the profit and loss statement. This is

because it has not been stated in the taxable income or expenses which can offset taxes in other

years and even excludes non-taxable items or the items which cannot offset taxes. The

Group's income tax bearing assets or liabilities are calculated according to the tax rate specified

on the balance sheet day or actually specified.The deferred taxes are the estimated payable or recoverable taxes arising from the balance

between the book amount of assets and liabilities in the financial report and the

corresponding taxes basis used for calculating profit taxable. Deferred taxes are calculated

by the balance sheet approach In usual cases， all the deferred income tax liabilities arisingfrom temporary difference of tax taxable should be recognized while the assets with

deferred income tax can be recognized when only future taxable profit can be sufficiently

used to offset temporary difference. If such temporary difference arises from the initial

recognition of other asset and liabilities in goodwill (or negative goodwill) or some

transaction which neither affect taxable profit nor accounting profit (except merge of

enterprises)， such deferred income tax assets and liabilities shall not be recognized.

For the investment in the subsidiaries and associates as well as the taxable temporary

difference arising from the equity in the joint venture may be recognized as deferred

income tax liabilities， but except such case that the Group is able to control the reverse ofthese temporary differences and the temporary difference may not be possibly reversed in

the foreseeable future.The book value of the deferred income tax assets is verified on each balance sheet day

when there will be no longer sufficient taxable income in future to reserve partial or total

deferred income tax assets; the deferred income tax assets are deducted based on the part

that cannot be reversed. Deferred income tax is calculated based on the income tax rate

used in the very period when the relevant assets are estimated to be realized or the relevant

liabilities are expected to be paid off The deferred income tax may stated in the income

statement unless it is related to the items which are directly sated in the equity. In such acase， the deferred income may also be treated as equity item.The deferred income tax assets and liabilities can only be mutually offset when income tax

related to them is collected by the same tax authority and the Group plans to settle its income

tax assets and liabilities of the very period with the net amount.KONKA GROUP COMPANY LIMITED

Notes to Financial Report

Ended June 30， 2005

(Continued)

5. Businesses and Region Division

The Group’s businesses are located in Main Land China and Hong Kong respectively. The

following tables make analysis based on the regions of the Group’ sales market without consideration

of the origin of commodities:

1

st Half Year of 2005

in RMB ’000

1

st Half Year of 2004

in RMB ’000

Mainland China 4，854，708 6，328，983

Hong Kong 609，948 539，615

5，464，656 6，868，598

6. Other income

1st Half Year of 2005

in RMB ’000

1st Half Year of 2004

in RMB ’000

Net investment income ( 1 185 )

Subsidy income (*) 1，634 6，155

Selling part of premium equity of underling company

Selling premium equity of affiliated company

Selling non-listed company investment lossesIncome from transfer of material， less the costs 9，435 1，298 ）Net other operating income )

722 6，285

Total 10，346 13，553 )

(*) The Group lists the supporting fund for the national key technical innovation projects as its

income by means of the straight line method and the amount of amortization in the report

period is RMB 1，499 thousand and the other subsidies in the period amount to RMB 135

thousand.

7. Taxes

1st Half Year of

2005

in RMB ’000

1st Half Year of

2004

in RMB ’000

Chinese business income tax 1，266 6，158

Hong Kong profit tax 269 1，560

Total 1，535 7，718

The Group could withdrawal provision for tax after derating income and expenses of income tax

according to premium adjusted by legal financial report， income tax in 2005 was withdrew as per

15% of payable tax premium made by the Company established in Shenzhen China， other companies

outside Shenzhen was withdrew as per 33%. Hong Kong income tax was withdrew as per 17.5% of

payable tax premium made in Hong Kong in 2005

KONKA GROUP COMPANY LIMITED

Notes to Financial Report

Ended December 31， 2005

_____________________________________________________________________________________________________(continued)_

8. Fixed assets

Land use right

RMB’000

Housing and buildings

RMB’000

Fitting up of rented

property

RMB’000

Machines &

equipment

RMB’000

Electronic equipment

RMB’000

Cost or estimated value

Ended January 1， 2005 31，326 864，655 5，788 638，451 595，061

Increase 10，225 635 20，400 10，803

Decrease - (7，477) (8，091)

Reclassification - -

Ended June 30， 2005 31，326 874，880 6，423 651，374 597，773

Accumulated depreciation

Ended January 1， 2005 (3，007) (145，208) (3，296) (327，588) (355，486)

Increase (315) (10，627) (854) (25，713) (29，992)

Decrease - 4，560 7，913

Ended June 30， 2005 (3，322) (155，835) (4，150) (348，741) (377，565)

Net book value

Ended June 30， 2005 28，004 719，045 2，273 302，633 223，778

Ended December 31， 2004 28，319 719，447 2，492 310，863 239，575

The Group holding numbers of fixed assets with original book value amounting to RMB 66，274，000 has been pledged to bank

in order to obtain bank loan of the Group.The above evaluation occurred in the time of preparing and reorganizing limited company， fixed assets owned by theCompany on Jul. 31， 1991 was re-evaluated by Shenzhen Zhonghua CPAs as per public market price on that very day，

balance rising from evaluation amounting to RMB 29，203，000 has transferred into share equity.KONKA GROUP COMPANY LIMITED

Notes to Financial Report

Ended June 30， 2005

_____________________________________________________________________(continued)

9. Goodwill

RMB’000 RMB’000

Costs

Ended January 1， 2005 and June 30， 2005 3，217

Accumulated amortization

Ended January 1， 2005 ( 2，228 )

Amortization in this period ( 161 )

Ended June 30， 2005 ( 2，389 )

Net book value

Ended January 1， 2005 828

Ended December 31， 2004 989

10. Intangible assets

Foreign

trademark

registration

RMB’000

Patent and

proprietary

technology

RMB’000

Total RMB’000

Cost

Ended January 1， 2005 1，562 23，860 25，422

Increase 7，663 7，663

Transfer into long-term expenses to be

apportioned

Ended June 30， 2005 1，562 31，523 33，085

Accumulated amortization

Ended January 1， 2005 ( 852 ) ( 13，556 ) ( 14，408 )

Amortization in this period ( 95 ) ( 2，339 ) ( 2，434 )

Transfer into long-term expenses to be

apportioned

Ended June 30， 2005 ( 947 15，859 16，842

Net book value

Ended June 30， 2005 615 15，664 16，243

Ended December 31， 2004 710 10，304 1，1014

KONKA GROUP COMPANY LIMITED

Notes to Financial Report

Ended June 30， 2005

(continued)

11. Equity attributable in associates

2005

RMB’000

2004

RMB’000

Net value taken in the asset 52，663 55，375

Reserve for devaluation ( 11，188 ) ( 11，188 )

Account receivable from the associates 1，130 1，130

Account payable to the associates ( 7，873 ) ( 10，158 )

Total 34，732 35，159

The Group’s associates ended June 30， 2005 are listed as follows:

Proportion of shares held Name of companies Registration place

Direct Indirect Principal business

Huadu Longfeng Property Co.，Ltd.*

Macao 50% - Investment by shareholding and real estate development

Shenzhen OCT International

Media Co.， Ltd.Mainland China 25% - Production and issuing of TV

programs

Shenzhen Dekang Electronics

Co.， Ltd. Mainland China - 30%

Production and sales of

electronic products;

Shenzhen Konka Energy

Technology Co.， Ltd.Mainland China - 30% New mobile energy products

Chongqing Jingkang Plastic

Products Co.， Ltd.Mainland China - 25% Manufacture and processing

of mould products

* The said company belongs to cooperated company jointly invested by the Group and other 4

companies， mainly engaged in development of Furong Holiday of Hudu City. The other 4companies asked to quit from cooperate enterprise， and local government want to change the landoriginally owned by the said company， so the project of property development of the saidcompany made no progress yet， the Group could take back investment and withdrawal provisionfor depreciation amounting to RMB 11，188，000.KONKA GROUP COMPANY LIMITED

Notes to Financial Report

Ended June 30， 2005

(continued)

12. Other Investment

June 2005

RMB’000

2004

RMB’000

Credit investment in non-consolidated subsidiaries 136，567 136，567

Reserve for devaluation ( 136，567 ) ( 136，567 )

- -

Non-listed shares， cost value 1，885 1，885Reserve for devaluation ( 1，400 ) ( 1，400 )

485 485

Listed shares， cost value* 9，805 9，805Total 10，290 10，290

* The market value of the above listed shares is not easy to be recognized.

13. InventoriesJune， 2005

RMB’000

2004

RMB’000

Raw materials 1，280，001 1，551，927

Products in process 88，676 113，212

Finished products 1，661，994 2，091，729

Reserve for price falling of inventories ( 169，788 ) ( 176，091 )

Total 2，860，883 3，580，777

14. Property to be soldJune， 2005

RMB’000

2004

RMB’000

Jingyuan Building - Original value at year-begin and

year-end 4，172 4，172

KONKA GROUP COMPANY LIMITED

Notes to Financial Report

Ended June 30， 2004

(continued)

15. Accounts receivableJune， 2005

RMB’000

2004

RMB’000

Accounts receivable 670，701 690，817

Reserve for bad debt ( 119，205 ) ( 119，801 )

Total 551，496 571，016

Ages of the accounts receivable as at the report day are analyzed as follows:June， 2005

RMB’000

2004

RMB’000

Within a year 480，173 493，906

Within over 1 year but below 2 years 9，595 13，328

Within over 2 years but below 3 years 16，589 18，752

Over 3 years 164，344 164，831

Total 670，701 690，817

16. Advances， margins and other receivablesJune， 2005

RMB’000

2004

RMB’000

Advances 51，718 49，570

Expenses to be apportioned 48，217 38，451

Other receivables 107，984 115，656

203，677

Reserve for bad debt ( 3，098 ) ( 4，426 )

Total 204，821 199，251

17. Note receivableJune， 2005

RMB’000

2004

RMB’000

Letter of credit 4，296 127，634

Bank acceptance 2604，177 2，806，018

Total 2，608，473 2，933，652

Numbers of bank acceptance held by the Group has been pledged to bank in order to obtain

bank loan.KONKA GROUP COMPANY LIMITED

Notes to Financial Report

Ended June 30， 2005

(continued)

18. Short-term investmentJune， 2005

RMB’000

2004

RMB’000

Bank loan – without mortgage - -

Bank loan – with mortgage 25，000 48，149

Total 25，000 48，149

19. Share CapitalJune， 2005

RMB’000

2004

RMB’000

Registered， issued and paid up:

A-shares at the price of RMB 1 per share 399，148 399，148

A-shares at the price of RMB 1 per share 202，838 202，838

601，986 601，986

Negotiable A shares， listed 224，199 224，199Negotiable B shares， listed 202，837 202，837

427，036 427，036

Shares not negotiable for time being 174，950 174，950

601，986 601，986

For the Company’s asses， profit distribution and all other aspects， both A-shares and

B-shares enjoy the same right. A-shares are held by the investors in Mainland China and

settled with RMB in transactions; B-shares are held by the investors outside Mainland hina

and settled with Hong Kong dollars in transactions.

20. Cash circulation in fund raising activities

Other long-term liabilities

RMB’000

Bank loans

RMB’000

Minority shareholders’ equity:

RMB’000

Opening balance 10，499 48，149 247，827

Net amount flow-in/flow-out rising

from financing activities - ( 23，149 ) -

Affiliated company transferring

part of equity so increase minority

shareholder parts - -

Dividend distributed to minority

shareholders - - ( 16，278 )

Selling part of equity premium of

affiliated company - - -

Profit distributable to minority

shareholders - - ( 8，527 )

Balance at period-end 10，499 25，000 223，022

KONKA GROUP COMPANY LIMITED

Notes to Financial Report

Ended June 30， 2005

(continued)

21. Undertakings

Ended June 30， 2005， the Group had no significant irrevocable operating lease contract and

capital undertakings.

22. Contingent Liabilities

Ended June 30， 2005， the Group had no contingent liabilities.

23. Transactions with related companies

The related businesses between the Group， OCT Group Company (the Company’s principalshareholder) and its subsidiaries ended June 30， 2005 are summarized as follows:

1st Half Year of

2005

RMB’000

1st Half Year of

2004

RMB’000

OCT Group Company

Payment of water， electricityfee and property

management fees

3，795 4，718

Shenzhen Dekang Electronics

Co.， Ltd. Purchase of goods 35，798 34，138

Shanghai Huali Packing Co.，Ltd. Purchase of goods 33，486 33，375

Shenzhen Huali Packing

Trading Co.， Ltd.Purchase of goods 13，825 27，491

KONKA GROUP COMPANY LIMITED

Notes to Financial Report

Ended June 30， 2005

(continued)

24. Financial Report Audited by Chinese Certified Public Accountants Adjusted according

to the International Financial Report Standards

Influence of net gain and loss and net asset value

Profit

distributable to

shareholders

RMB’000

Net asset value RMB’000

Financial report audited by the Chinese certified public

accountants 23，348 3，211，597

Prior period adjustment of capital public reserve ( 6，978 )

Prior period adjustment of surplus public reserve 17，909

Accumulated loss not made up to the subsidiaries

transferred to minority shareholders’ equity 10，437

Governmental financial support transferred to

deferred income from capital public reserve ( 13，523 )

Moving expenses used in occurred period write-off ( 2，318

Partial governmental financial support stated as

income 1，499 1，499

Reserve for depreciation of affiliated company -

No need paid debts of underling company -

Restated according to international financial report

standards 25，140 3，218，623

25. Financial Instruments

The Group’s financial assets include bank balance and cash， short term investment， notesreceivable， accounts receivable， advance payments， margin and other receivables; Thefinancial liabilities include short term bank loan， notes payable， accounts payable， otherpayables， accrual expenses， deferred income and other long term liabilities.(a) Credit risks

Bank balance and cashThe Group deposits its funds mainly with Bank of China， China

Merchants Bank， Shenzhen Development Bank， China Industrial and Commercial

Bank， China Construction Bank and China Agricultural Bank.

Accounts receivable:The Group’s accounts receivable from its customers or

transaction involve no significant risks. The main credit risks are from the same

region where big amount of accounts receivable are involved， namely Mainland China(b) Fair Value

There is no significant difference between the fair value and the book value in bank

balance and cash， notes receivable， advance payment， margin， other receivables， shortterm bank loan， accounts payable， other payables， accrued expenses， deferred incomeand other long term liabilities.In calculation bank loan interest according to the similar articles with close repaymentterm， the book value of the Group’s short term bank loan and other long termliabilities are very close to the fair value.

Fair value refers to the estimation according to the relevant market information within

a specific period of time. This estimate is subjective in respect of nature and involve

unidentified factors and quite a lot of judgment. Therefore， it cannot be regarded ascareful calculation. Change in any consumption may significantly affect the aforesaid

estimate.

26. Other Point for Attention

This consolidated financial report is prepared in both Chinese and English. The English

version is provided only for reference. If there is any discrepancy between the two versions，the Chinese version shall prevail.