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3 Shanghai Baosight Software Co.,Ltd. Baosight investor@baosight.com hudekang@baosight.com investor@baosight.com A A A B B B B

4 : : 78,255, ,186, ,834, ,581, ,899, ,065, ,628, ,345, ,215, ,660, , : : 65,186, ,454, ,317, ,796, , , , , ,920, , ,252, ,401, ,096, , : : 3,019, ,

5 , , , , ,351, : : (%) 1,336,822, ,311,488, ,717, ,255, ,813, ,306, ,186, ,145, ,929, ,834, ,007, ,688, % % % ,660, ,051, ,300, (%) 872,936, ,580, ,014, ,317, ,982, ,743, : : 262,244, ,205, ,616, ,751, ,604, ,982, ,982, ,876, ,518, ,186, ,659, ,324, ,324, ,244, ,188, ,492, ,269, ,465, ,317, , , % 3

6 2005 9, ) 3) 4), 1 : (%) (%) 1150,044, % 150,044, % 150,044, % -150,044, ,044, ,044, % 2 11,000, % 11,000, % ,044, % 161,044, % 1 13,200, % 13,200, % 2 88,000, % 88,000, % ,200, % 101,200, % 262,244, % 262,244, % 2 (1) (2) (3) 4

7 : 16,128 (%) ,044, ,044, ,794, ,752, ,400,000 ( ) ,100, ,016, , , , ,000 19,000 1,752,500 1,016, , , ,000 SKANDIA GLOBAL FUNDS PLC 710, , ,343 WARBURG DILLON READ NOMINEES (HONG KONG) LTD - GENERAL A/C 601, , ,512,000, ( ) ( ) ( 57.22%)

8 , ( 57.22%) : : ( ) A 36256A 8900A B 79700B 22200B A 13700B 31110A13700B 9000A A 23600A 7300A A 7900A 3600A A 40200B 6400A65400B 25200B B 70200B 19500B

9 A 26400A 6800A B 63200B 19500B A 19110A 6410A 38.6 / / / / / A B A B / ) IT,, 2), 3) 4) 5) 6) 7) 863 8) 9) 10) 11) 12) 13) 14) 15) 16) 17) 7

10 , ,

11 ) ) 3) 4) 5) 9

12 % B % B , 2005 CMM5 10

13 2005 MES 2005 ecop CMMI CMMI , 1 : : % (%) 748,190, ,205, ,058, ,122, ,221, ,345, ,351, ,126, ,336,822, ,029,800, : : ( ) 35,351, ,301,470, ,336,822, ,047, % 11,958, % ,589, % 209,180, %

14 ,359, % 98,523, % ,832, % 71,310, % ,217, % 2,028, % ,550, % 10,257, % ,936, ,580, ,439, ,053, % 72,493, ,304, %, 3,628, ,234, % 1,345, , %, 3,716, , % , 54,660, ,051, ,006, ,417, ,079, ,630, (5) 104,213, % 610,937, % 6 4,967, ,776, , ,000, ,777, , ,792, ,267, , ,000, ,502, ,449, ,689, ,694, ,

15 ,415, ,803, , % IT 1 IBM Cisco 2) SAP Oracle 3) 4) 1) 2) 3) IT 4, : 1 13

16 ) ) a b c 3) 4) 2006 : 1) 2)

17 % % , 75% 1 1) ) ) ) ,244, ,448,

18 ,186, ,604, ,790, ,357, ,518, ,448, ,465, ,454, ,812, ,266, ,357, ,518, , ,448, ,590,

19 (1) : : ( ) 447,709, ,709, ,546, ,546, ,647, ,647, IT 2 25%

20 , ,084, ,906, , , , ,

21 2005 (2006) 198 ( )

22 : : : 160,837, ,648, ,032, ,907, ,500, ,500, ,047, ,958, ,007, ,938, , ,066, , , ,589, ,180, ,936, ,839, ,103, ,060, ,951, ,709, ,990, ,926, ,860, ,228, ,359, ,523, ,744, ,090, , ,220, , ,083, ,000, ,000, ,378, ,138, ,495, ,984, ,342, ,548, ,911, ,876, ,342, ,548, ,911, ,876, ( - 1,233, ,439, ) ( - ) 180,933, ,489, ,163, ,870, ,661, ,427, ,108, ,042, ,272, ,061, ,054, ,827, ,259, ,278, ,013, ,782, ,054, ,827, ,013, ,782, ,054, ,827,

23 2005 1,205, ,067, ,105, ,927, ,996, ,043, ,397, ,283, ,201, ,111, ,502, ,210, ,936, ,580, ,964, ,898, ,000, ,990, ,530, ,941, ,478, ,941, ,149, ,875, ,304, ,167, ,832, ,310, ,692, ,020, ,007, ,022, ,477, ,490, , , , , ,314, ,217, ,028, ,691, , , , , , ,550, ,257, ,728, ,906, ,365, ,436, ,351, ,423, , ,918, ,579, ,727, ,357, , ,846, ,020, ,846, ,870, ,448, ,020, ,846, ,870, ,366, ,600, ,573, ,228, ( 21,252, ,997, ) 262,244, ,244, ,244, ,244, ,244, ,244, ,244, ,244,

24 ,188, ,205, ,188, ,205, ,492, ,616, ,359, ,322, ,269, ,751, ,269, ,751, ,465, ,604, ,598, ,898, ( ) -72, , ( ) 426,317, ,982, ,390, ,670, ,936, ,580, ,964, ,898, : : : : : : 1,336,822, ,311,488, ,172,933, ,118,985, ,029,800, ,037,970, ,597, ,569, ,439, ,053, ,596, ,545, ,581, ,463, ,739, ,870, ,899, ,725, ,139, ,635, : 72,493, ,304, ,090, ,765, ,560, ,630, ,973, ,872, , , , , ,065, ,334, ,754, ,944, ,628, ,234, ,821, ,983, ,345, , ,012, , ,716, , ,035, , , , , , ,255, ,813, ,266, ,918, ,515, ,515, ,080, ,772,

25 2005 1,554, ,152, ( ) - 65,186, ,145, ,186, ,145, ,604, ,341, ,898, ,581, ,790, ,487, ,084, ,727, ,518, ,414, ,518, ,414, ,518, ,414, ,518, ,414, ( ) 419, , , , ,914, ,604, ,047, ,898, ,448, ,448, ( - ) 95,465, ,604, ,598, ,898, ( ) 4. ( ) : : : 23

26 : : : 1,399,867, ,203,815, ,084, ,445, ,644, ,512, ,473,597, ,272,772, ,134, ,895, ,827, ,545, ,535, ,202, ,440, ,382, ,418,936, ,223,026, ,660, ,746, ,653, ,153, ,800, ,815, ,231, ,847, ,685, ,817, ,448, ,485, ,243, ,302, ,691, ,788, ,006, ,971, , , ,000, ,825, ,975, ,677, ,975, ,045, ,711, ,625, ,

27 ,756, ,625, ,079, ,650, , , ,875, ,186, ,186, ( - ) 1,554, ,687, ,023, ,290, ,144, ,862, ,822, ,047, , , , ,937, ,927, ,353, ,742, ( : ) 226, , , , ,628, ,821, ,213, ,030, ( ) -138,562, ,779, ( ) 143,814, ,420, ( ) 54,660, ,746, ,837, ,032, ,648, ,907, , ,875, : : : 25

28 : : : 1 7,200, ,323, / / 317, ,206, ,099, ,885, / / 317, ,666, , , / / 539, , ,377, ,437, ,303, ,303, ,278, , , ,259, ,278, , , ,259, ,539, ,700, , , ,902, : : : 26

29 : : : 1 6,204, ,903, / / 257, ,849, ,172, ,657, / / 257, ,572, , , / / 276, ,377, ,377, ,303, ,303, ,204, ,280, , ,227, : : : 9 : : %

30 ( 1993) A B (1994) (95)073 10:1 (95) ( ) 262,244, ( ) 57.22% (2000)499 ( ) ( ) ( ) , ,244, ,244,070 ( 1 ) (A )13,200,000 (B )88,000,000 (95) 562 A B ( ) ( ) ( ) 150,044,070 ( 57.22%) (2004) 1954 [2004] [2005] ( )

31 ( ) ( ) ( ) 6. ( ) ( ) 7. ( ) 8. (1) ( ) 29

32 2005 (2) 9. (1) / (2) ( ) 1 0.5% % % 3 50% (1) (2) 30

33 2005 (3) (4) (5) 12. (1) (2) ( ) (3) ( ) ( ) (4) (5) ( ) ( [2004]3 ) 31

34 2005 ( ) 13. (1) 1 2,000 2 (2) (3) (4) ( 4%) % 4.8% % % % % 20%( ) 14. (1) (2) ( 10 )

35 2005 (3) 15. (1) (2) 16. (1) (2) A B C (1995)11 (96)2 *1 15% 17% 33

36 2005 *2 5% 1% 3% 0.5% *1 42% 27% 15% *2 [1999]273 (1999)93 217,153, (%) US 600, ,477, ,000, ,490, *1 ( ) US 2,170, ,984, ( ) *2 20,000, ,615, ( ) JP 25,000, ,689, *3 US 1,500, ,104, ( ) *1 18% 12.2%

37 2005 *2 4,743, ( )25% , (2005)0841 *3 ( ) , , , , , , , , , , , , , , , , , ,614, ,099, , , , ,765, ,851, ,866, ,300, ,610, , , ,801, ,837, ,648, ,000, ,000, ,000, ,000, ,511, ,500, ,500, ,500, ,500, ,500, ,500, ,500, ,500, ,858, ,778, , , ,047, ,958, %( 5%) 35

38 , (%) (%) (%) (%) 1 292,840, ,273, ,224, , ,318, ,037, ,680, ,977, ,593, ,328, ,378, , ,503, ,026, ,995, ,995, ,256, ,666, ,279, ,099, %( 5%) 114,550, ,239, , % % 0.5% 318, ,280, % (%) (%) (%) (%) 1 9,957, , ,827, , ,100, , ,245, , , , , , , , , , ,643, , ,162, , %( 5%) ( ) 1,350, , <1 800,

39 , <1 120, <1 3,551, % (%) (%) 1 35,628, ,388, , , , , , ,990, ,926, %( 5%) ,834, ,695, ,303, ,303, ,430, ,178, ,407, ,795, , , , ,191, ,005, , , ,171, ,582, * 8,040, ,796, ,583, , ,377, ,437, * , , ,026, , , , , , ,220, ,000, % 6,000, ,000, , ,200,

40 (1) ( ) 1,439, , ,233, ,439, , ,233, ( ) 24,108, ,108, ,108, ,108, ,548, , ,342, (2) ( ) 2,042, , ,227, , , , ,053, , ,233, (3) ( ) ( ) 13,600, % 9,508, % 1,000, % 24,108, % 12. (1) 86,370, ,918, ,451, ,450, ,002, ,090, ,363, ,834, ,139, ,223, ,749, ,893, ,174, , ,921, ,941, , , ,448, ,489, ,029, ,585, ,933,

41 2005 (2) 10,386, ,405, ,204, ,587, ,461, ,772, ,869, ,363, ,283, ,862, , ,419, ,621, , , ,329, , ,460, , ,961, ,427, ,290, ,057, ,661, (3) 75,983, ,863, ,988, ,999, ,550, ,330, ,271, ,591, ,266, ,487, ,061, ,272, (4) ,840, ,840, , , , , , , , , ,278, , , ,259, (5) 75,983, ,863, ,148, ,159, ,198, ,985, ,185, ,517, ,266, ,487, ,782, ,013, (6) 172,489, ,029, ,029, ,585, ,585, ,933,

42 ,427, ,290, ,290, ,057, ,057, ,661, (7) 1,250, (8) 115, , ,508, ,127, ,501, ,883, , ,803, , , ,223, , ,311, ,067, ,862, ,106, ,205, ,966, ,810, ,021, ,178, ,788, , , , , , ,484, ,043, ,047, ,488, ,996, ,000, ,990, ,807, ,314, ,723, , ,530, ,941,

43 2005 5%( 5%) 17. 5%( 5%) 1,992, %( 5%) 51,750, ,007, , , ( ) 335, , , , , ,314, ,947, (998,723.75) 1,376, ,119, , , ,441, , ,863, , (424,983.28) 27, ,217, ,028, , , , , , , , %( 5%) 41

44 ,500, ,701, , , , ,020, ,200, ,200, ,800, , , , , , ,365, ,436, * 4,992, , ,760, , * ,255, ,852, ,255, ,000, , *1 MES *3 6,000, ,000, ,591, ,168, , , , DSS Real Time System 50, , *1 1,163, ,700, ,263, *2 798, , ERP MES *1-157, MES 123, ,

45 , , , *3-483, CMM 2,400, , ,846, ,020, *1 MES 964, *2 787, * ( ) ( A /B ) (%) ( ) / (%) ,044, ,044, (1) 150,044, (150,044,070.00) - - (2) ,044, ,044, (3) (4) ,000, ,000, ,044, ,044, ,200, ,200, ,000, ,000, ,200, ,200, ,244, ,244, , , , , , , ,552, , ,562, ,752, ,752, ,257, ,257, ,205, ,982, ,188, ,

46 , % 9, ,581, ,357, ,938, ,751, ,518, ,269, ,284, ,284, ,616, ,876, ,492, (1) 96,604, (2) 65,186, (3) 7,357, (4) 6,518, (5) 52,448, (6) 95,465, % 10% % 10% / ,190, ,412, ,205, ,964, ,984, ,448, ,058, ,130, ,122, ,878, ,935, ,251, ,221, ,984, ,345, ,986, ,875, ,998, ,351, ,960, ,126, ,140, ,225, ,819, ,336,822, ,311,488, ,029,800, ,037,970, ,021, ,517, ,336,822, ,311,488, ,029,800, ,037,970, ,021, ,517, ,937, % 44

47 ,346, ,902, , , , , , , ,439, ,053, , , ,195, , , , , , , , (80,629.96) * 120, , (205,335.73) (205,335.76) ( ) 3,360, ,200, , ,628, ,234, * , ,012, [2000]25 (2005) / ( )[2004] / (2005) / (2005) , , [2005]55 1,345, ,

48 : ,500, ,810, ,195, : ,375, : ,825, (%) (%) (%) (%) 1 276,293, ,125, ,990, , ,152, ,682, ,441, ,873, ,926, ,093, ,244, , ,136, ,671, ,334, ,334, ,509, ,572, ,011, ,172, , , % % 0.5% 164,043, % 46

49 (%) (%) (%) (%) 1 7,374, , ,495, , ,586, , ,245, , , , ,228, , ,741, , ( ) 981, <1 800, , <1 120, <1 100, % % 2,301, % 3. (1) ( ) 37,767, ,537, ,502, ,802, ,767, ,537, ,502, ,802, ( ) 24,108, ,108, ,108, ,108, ,876, ,537, ,502, ,911, (2) ( ) ( ) (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)=(5)+(6) +(9)+(11) % 3,477, , , , ,856, % 1,295, , (617,868.65) - 460, , , ,141, % 8,973, (386,012.13) - 279, , ,313, % 6,739, ,131, ,189, ,080, ,917, , , ,790,

50 % 1,689, , ,034, ,724, % 9,104, (609,283.13) - (1,362,820.49)- - 7,741, ,280, ,282, ,393, ,296, ,708, , , ,568, ,042, , ,227, , , , ,053, , ,233, (3) ( ) 13,600, % 9,508, % 1,000, % 24,108, % ,646, ,872, ,981, ,288, ,664, ,583, ,626, ,252, ,591, ,441, ,034, ,810, ,661, ,860, ,024, ,838, ,636, ,022, ,172,933, ,118,985, ,597, ,569, ,335, ,416, * 120, , ( ) 3,360, ,200, ,393, ,676, (205,335.73) (205,335.76) 153, , ,821, ,983, * 48

51 2005 ( ) ,512,000, ,000,000, ,512,000, ,678, ,321, ,000, US 3,000, US 1,500,000.00US 1,500, % % % % 150,044, ,044, ,044, ,044, ,339, ,660, ,000, ( ) 49

52 2005 ( ) ( ) (%) (%) ,628, ,024, ,005, ,220, ,600, , , ( ) (%) (%) 447,709, ,347, ,131, ,481, ,546, ,893, ,276, ,988, ,103, ,152, ,609, ,278, ,850, ,647, ,432, , ,436, , , ,665, ,041, ,384, ,642, ,878, ,008, ,090,

53 2005 3,000 5% 2005 (%) 298,470, ,818, ,420, ,328, , ,517, ,330, ,612, ,704, (%) 196,793, ,139, ,414, ,184, , ,997, ,036, ,949, ,001, ,178, ,883, ,831, ,481, ,951, ,325, ,826, IT ( ) ( ) ( ) (%) , ,550, ,351, ,840, ,725, ,837, ,259, ,435, , , ,420, , , , ,544, ,407,

54 2005 4,463, , , ,259, ,149, ,854, ,368, ,002, ,477, ,577, ,755, ,249, , , , , ,992, , , , , , ,407, ,045, ,750, ,655, ,280, , ,504, , ,436, ,810, ,348, ,776, ,704, ,087, ,580, ,949, ,432, ,393, ( ) ( ) ( ) (%) , , , , , , ,500, ,

55 , ,500, , (1) , % (2) , (3) (4) 300 (5) ,042, ,786, ,148, ,864, USD4, USD384, ,126, ,581, , % 207, (6)

56 2005 (7) , ,084, ,906,400 (8) ( 5 ) , ,

57 (1) 100% (2) ( ) % (3) 32% 1 (2004 ) ,559, (101,795.45) 182, , , , , , , , (215,743.96) (248,612.28) 3,351, ,

58 [ : 2005 ] [ : 2005 ]

59 AFSCIE Baosight2005 Draft 2:39:18 PM 3/9/2006 Audited Financial Statements Shanghai Baosight Software Co., Ltd. (Incorporated in the People s Republic of China with limited liability) 31 December 2005

60 Shanghai Baosight Software Co., Ltd. CONTENTS Pages REPORT OF THE AUDITORS 1 AUDITED FINANCIAL STATEMENTS Consolidated: Income Statement 2 Balance Sheet 3 Cash Flow Statement 4 Statement of Changes in Equity 5 Notes to Consolidated Financial Statements 6-35

61 REPORT OF THE AUDITORS To the members Shanghai Baosight Software Co., Ltd. (Incorporated in the People s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Shanghai Baosight Software Co., Ltd. (the Company ) and its subsidiaries (the Group ) as at 31 December 2005, and the related consolidated statements of income and cash flows for the year then ended. These financial statements are the responsibility of the directors. Our responsibility is to express an opinion on these financial statements based on our audit. This report is made solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2005 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Certified Public Accountants Hong Kong 8 March

62 Shanghai Baosight Software Co., Ltd. Consolidated Income Statement For the year ended 31 December Notes Rmb 000 Rmb 000 Revenue 4 1,310,582 1,286,900 Cost of sales (1,029,801) (1,032,775) Gross profit 280, ,125 Other income 5 23,313 13,475 Selling and distribution costs (72,494) (53,304) Administrative expenses (151,434) (144,623) Profit from operating activities 6 80,166 69,673 Finance costs 7 (1,558) (580) Profit before tax 78,608 69,093 Income tax expense 8(a) (6,418) (11,374) Profit for the year 72,190 57,719 Attributable to: Equity holders of the parent 70,455 54,355 Minority interests 1,735 3,364 Earnings per share attributable to ordinary equity holders of the parent 72,190 57,719 Basic - For profit for the year 9 Rmb Rmb The accompanying notes on pages 6 to 35 form an integral part of the financial statements. 2

63 Shanghai Baosight Software Co., Ltd. Consolidated Balance Sheet At 31 December ASSETS Notes Rmb 000 Rmb 000 Non-current assets Property, plant and equipment , ,206 Land use rights 12 22,904 23,439 Available-for-sale investments 13 24,109 24,109 Intangible assets 14 2,971 5,834 Deferred tax assets 8(c) 5, , ,588 Current assets Held for trading investments 15 3,000 3,000 Held-to-maturity investments 16 2,500 8,620 Inventories ,359 98,523 Trade and other receivables, net , ,556 Unbilled amounts due from customers for contract works 19 81,879 81,891 Cash and cash equivalents 160, , , ,238 TOTAL ASSETS 878, ,826 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Issued capital , ,244 Reserves , , , ,751 Minority interests 21,429 24,018 Total equity 451, ,769 Non-current liabilities Interest-bearing loans and borrowings Deferred income 22 1,402 - Long term liabilities 23 20,846 18,021 22,850 18,021 Current liabilities Interest-bearing loans and borrowings 20 3,343 5,990 Trade and other payables , ,489 Income tax payable/(recoverable) 8(b) 5,441 (443) 403, ,036 Total liabilities 426, ,057 TOTAL EQUITY AND LIABILITIES 878, ,826 The accompanying notes on pages 6 to 35 form an integral part of the financial statements. 3

64 Shanghai Baosight Software Co., Ltd. Consolidated Cash Flow Statement For the year ended 31 December Notes Rmb 000 Rmb 000 Cash flows from operating activities before interest and income tax 26(a) 61,896 82,168 Interest paid (541) (466) Income tax paid (5,631) (13,055) Net cash inflow from operating activities 55,724 68,647 Cash flows from investing activities Purchases of property, plant and equipment (15,447) (19,587) Proceeds from disposal of property, plant and equipment 7,269 - Purchases of intangible assets - (200) Bank interest received 1, Purchase of held-to-maturity investments (2,500) - Proceeds from disposal of held-to-maturity investments 8,941 - Investment income received 3,513 1,440 Decrease in a time deposit matured beyond three months - 7,732 Acquisition of additional equity interests in a subsidiary from a minority investor 26(b) (4,744) - Incorporation of a subsidiary - 3,311 Net cash outflow from investing activities (1,772) (6,583) Cash flows from financing activities Dividends paid to minority shareholders (731) (56) Repayment of interest-bearing loans and borrowings (27,045) (5,000) Proceeds from interest-bearing loans and borrowings 25,000 5,990 Capital contribution from a minority investor of a subsidiary 26(c) Dividends paid to equity holders of the parent (52,449) - Net cash inflow/(outflow) from financing activities (54,371) 934 Net increase/(decrease) in cash and cash equivalents (419) 62,998 Net foreign exchange difference (391) 162 Cash and cash equivalents at 1 January 161,648 98,488 Cash and cash equivalents at 31 December 160, ,648 The accompanying notes on pages 6 to 35 form an integral part of the financial statements. 4

65 Shanghai Baosight Software Co., Ltd. Consolidated Statement of Changes in Equity For the year ended 31 December 2005 Attributable to equity holders of the parent Minority Total interests equity Statutory Discretionary Statutory Foreign surplus surplus public currency Issued Share common common welfare translation Retained capital premium reserve reserve fund difference earnings Total Rmb 000 Rmb 000 Rmb 000 Rmb 000 Rmb 000 Rmb 000 Rmb 000 Rmb 000 Rmb 000 Rmb 000 (note 24) (note 25) (note 25) (note 25) (note 25) (note 25) (note 25) At 1 January ,244 14,410 10,678 1,910 8, , ,327 17, ,705 Net profit for the year ,355 54,355 3,364 57,719 Foreign currency translation difference on an overseas subsidiary Dividends of subsidiaries (35) (35) Incorporation of a subsidiary ,311 3,311 Transfer to/(from) retained earnings - - 5,468-5,415 - (10,883) At 31 December ,244 14,410 16,146 1,910 13, , ,751 24, ,769 Net profit for the year ,455 70,455 1,735 72,190 Arising from acquisition of additional equity interests in a subsidiary (4,631) (4,631) Capital contribution from a minority investor of a subsidiary ,501 2,504 Foreign currency translation difference on an overseas subsidiary (391) - (391) - (391) Transfer to/(from) retained earnings - - 7,358-6,519 - (13,877) Financial subsidy (350) Equity dividends (52,449) (52,449) - (52,449) (Note10) Dividends of subsidiaries (2,194) (2,194) At 31 December ,244 14,763 23,504 1,910 20,430 (73) 107, ,369 21, ,798 The accompanying notes on pages 6 to 35 form an integral part of the financial statements. 5

66 Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December Corporate information Shanghai Baosight Software Co., Ltd. (the Company ) was reorganised into a joint stock limited company in the People s Republic of China (the PRC ) on 5 January Subsequent to a further reorganisation to rationalise the Company s structure in preparation for the listing of its shares, its ordinary ( A ) and special ordinary ( B ) shares have been listed on the Shanghai Stock Exchange since The Company was originally engaged in the manufacture and sale of steel tubes. Pursuant to the board of directors meeting and the first extraordinary shareholders meeting of the Company held in early 2001, it was resolved to swap with Baosteel Information Technology Company Limited ( BIT ), a wholly-owned subsidiary of Shanghai Baosteel Group ( SBG ), all of the business undertakings of the Company together with its underlying assets and liabilities in return for all of the business undertakings of BIT and its underlying assets and liabilities (the Asset Restructuring ), based on the revalued amounts of their respective net assets as at 30 November The difference in the revalued amounts was reimbursed by cash. Upon completion of the Asset Restructuring on 31 March 2001, the principal activities of the Company and its subsidiaries (the Group ) changed from the manufacture and sale of steel tubes to software development, system integration and surveillance equipment. The registered office of the Company is located at No. 515 Guoshoujin Road, Shanghai, the PRC. On 2 May 2005, upon approval from Shanghai Foreign Investment Commission and Stateowned Assets Supervision and Administration Commission of the State Council, SBG transferred all its 150,044,070 shares in the Company (57.22% of total shares of the Company) to Baoshan Iron & Steel Co., Ltd. Thereafter, Baoshan Iron & Steal Co., Ltd. has become the major shareholder of the Company. 2.1 Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ( IFRSs ), which comprise standards and interpretations approved by the International Accounting Standards Board, and International Accounting Standards and the Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee that remain in effect. The consolidated financial statements have been prepared under the historical cost convention unless otherwise disclosed in the accounting policies below. 6

67 Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December Basis of preparation (continued) The Group maintains its books and prepares its statutory financial statements in accordance with the relevant accounting principles and financial regulations promulgated by the Ministry of Finance of the PRC applicable to companies established in the PRC. The accounting policies and bases adopted in the preparation of the statutory financial statements differ in certain respects from IFRSs. The differences arising from restating the results of operations and financial position to comply with IFRSs have been adjusted in these financial statements, but will not be taken up in the accounting records of the Group. The principal adjustments made in presenting the financial statements of the Group to conform with IFRSs include: - Recognition of goodwill/negative goodwill; - Recognition of deferred taxes; - Recognition of government grants and subsidies; - Treatment of financial assets and liabilities; and - Other adjustments. The net impact of these IFRSs adjustments is included in note 31 to the consolidated financial statements. 2.2 Adoption of new and revised IFRSs during the year The accounting policies adopted are consistent with those of the previous financial year except that the Group has adopted those new/revised IFRSs mandatory for financial years beginning on or after 1 January The following new and revised IFRSs affect the Group and are adopted for the first time for the current year s consolidated financial statements: IAS 1 Presentation of Financial Statements; IAS 2 Inventories; IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors; IAS 10 Events after the Balance Sheet Date; IAS 16 Property, Plant and Equipment; IAS 17 Leases; IAS 21 Effects of Changes in Foreign Exchange Rates; IAS 24 Related Party Disclosures; IAS 27 Consolidated and Separate Financial Statements; IAS 32 Financial Instruments: Disclosure and Presentation; IAS 33 Earnings per Share; IAS 36 Impairment of Assets IAS 38 Intangible Assets; IAS 39 Financial Instruments: Recognition and Measurement; IFRS 3 Business Combinations; and IFRS 5 Non-Current Assets Held for Sales and Discontinued Operations. The adoption of IAS 2, 8, 10, 16, 17, 21, 24, 27, 32, 33, 36, 38, 39 and IFRS 3 and 5 has had no material impact on the accounting policies of the Group and the methods of computation in the Group s financial statements. 7

68 Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December Adoption of new and revised IFRSs during the year (continued) The impact of adopting IAS 1 Presentation of financial statements is summarised as follows: IAS 1 has affected the presentation of minority interests on the face of the consolidated balance sheet, consolidated income statement, consolidated statement of changes in equity and other disclosures. 2.3 Impact of issued but not yet effective IFRSs The Group has not applied the following new and revised IFRSs, that have been issued but are not yet effective, to these financial statements. These IFRSs are effective for annual periods beginning on or after 1 January 2006: IAS 1 Amendment IAS 19 Amendment IAS 21 Amendment IAS 39 Amendment IAS 39 Amendment IAS 39 & IFRS 4 Amendments IFRS 1 & 6 Amendments IFRS 6 IFRS 7 IFRIC - Int 4 IFRIC - Int 5 IFRIC - Int 6 Capital Disclosures Actuarial Gains and Losses, Group Plans and Disclosures Net Investment in a Foreign Operation Cash Flow Hedge Accounting of Forecast Intragroup Transactions The Fair Value Option Financial Guarantee Contracts First-time Adoption of IFRS and Exploration for and Evaluation of Mineral Resources Exploration for and Evaluation of Mineral Resources Financial Instruments: Disclosures Determining whether an Arrangement contains a Lease Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds Liabilities arising from Participating in a Specific Market Waste Electrical and Electronic Equipment IFRIC Int 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economics IFRIC Int 8 Scope of IFRS 2 IFRIC Int 9 Reassessment of Embedded Derivatives The Group expects that the adoption of the pronouncements listed above will not have any significant impact on the Group s consolidated financial statements or not relevant to the activities of the Group in the period of initial application. 3. Summary of significant accounting policies Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December each year. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. All intra-group balances and transactions, including unrealised profits arising from intragroup transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. 8

69 Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December Summary of significant accounting policies (continued) Basis of consolidation (continued) Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Particulars of the Group s consolidated subsidiaries are as follows: Name Date of establishment Percentage of equity attributable to the Group Principal activities Shanghai Baoxi Computer Technology Co., Ltd. ( Baoxi ) Shanghai Baoscope Information Technology Co., Ltd. Shanghai Baoni Computer Systems Integration Co., Ltd. Shanghai Baokang Electronic Engineering Co., Ltd. ( Baokang ) Japan Baosight Co., Ltd. ( Japan Baosight ) Shanghai Renwei Software Co., Ltd. 19 March Software development, computer information and provision of consultancy services 13 May Computer networks, equipment installation and e-commerce 17 March Software development, system integration and provision of related technical services 11 January Design, development, manufacture and sale of electronics surveillance systems and equipment and provision of related technical services 10 January Software development and system integration 15 March Software development, system integration, sale of computer hardware and provision of related technical services Minority interests represent the portion of profit or loss and net assets in the Group s subsidiaries, not held by the Group and are presented separately in the consolidated income statement and within equity in the consolidated balance sheet, separately from parent shareholders equity. Subsidiaries A subsidiary is an entity whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities. The results of subsidiaries are included in the Company s income statement to the extent of dividends received and receivable. The Company s investments in subsidiaries that are not classified as held for sale in accordance with IFRS 5 are stated at cost less any impairment losses. 9

70 Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December Summary of significant accounting policies (continued) Related parties A party is considered to be related to the Group if: (a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, the Group; (ii) has an interest in the Group that gives it significant influence over the Group; or (iii) has joint control over the Group; (b) the party is an associate; (c) the party is a jointly-controlled entity; (d) the party is a member of the key management personnel of the Group or its parent; (e) the party is a close member of the family of any individual referred to in (a) or (d); or (f) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e). Property, plant and equipment Property, plant and equipment are stated at cost, excluding the costs of day-to-day servicing, less accumulated depreciation and any impairment in value. Such cost includes the cost of replacing part of such plant and equipment when that cost is incurred if the recognition criteria are met. Depreciation is calculated on a straight-line basis to write off the cost of property, plant and equipment over their estimated useful lives, after taking into account their estimated residual values (apart from leasehold improvements which do not have residual value). The estimated useful lives of assets are as follows: Leasehold improvements Buildings Computer, electronic and related equipment Motor vehicles, furniture and fixtures Over the lease terms 10 to 30 years 5 years 7 years The asset s residual values, useful lives and depreciation method are reviewed, and adjusted if appropriate, at each financial year end. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the consolidated income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in future economic benefits expected to be obtained from the use of an item of property, plant and equipment, and where the cost of the item can be measured liability, the expenditure is capitalised as an additional cost of the asset or as a replacement. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated income statement in the year the asset is derecognised. 10