Interim Report 1 CONTENT IMPORTANT NOTE OVERVIEW OF THE COMPA

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2 Interim Report 1 CONTENT IMPORTANT NOTE OVERVIEW OF THE COMPANY CHANGES IN SHARE CAPITAL AND SHAREHOLDERS OF THE COMPANY DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT MANAGEMENT DISCUSSION AND ANALYSIS SIGNIFICANT EVENTS FINANCIAL REPORTS DOCUMENTS AVAILABLE FOR INSPECTION

3 IMPORTANT NOTE 1. The Board of directors, Supervisory Committee and the Directors, Supervisors and Senior Management of Jiaoda Kunji High-Tech Company Limited (the Company ) confirmed that there are no material omissions and misrepresentations or serious misleading statements in this interim report and accept joint and several responsibility for the truthfulness, accuracy and completeness of the contents of the report. 2. All Directors attended the meeting except Director Mr. Wang Shangjin. Mr. Wang Shangjin could not attend the meeting due to official duties, and he appointed Director Mr. Zhang Hanrong to vote on his behalf at the meeting. 3. The interim report of the Company and its subsidiaries (collectively referred to as the Group ) has not been audited. The interim report was reviewed by the audit committee of the Company. 4. Mr. Lei Jinlu, Representative of the Company, Ms. Yu Yan, Financial Controller and Ms. Zhao Qiongfen, Accounting Supervisor, have declared that they assure for the truthfulness and completeness of the financial statements in the interim report OVERVIEW OF THE COMPANY (1) OVERVIEW OF THE COMPANY 1. Name of the Company (Chinese): JIAODA KUNJI HIGH-TECH COMPANY LIMITED JKHT 2. A A A H H H 0300 Name of the Company (English): JIAODA KUNJI HIGH-TECH COMPANY LIMITED Abbreviated Name (English): JKHT 2. Place of A Shares Listing: Shanghai Securities Exchange Abbreviation for Company A Shares: JIAODA HIGH-TECH Stock Code of A Shares: Place of H Shares Listing: The Stock Exchange of Hong Kong Limited Abbreviation for Company H Shares: JIAODA HIGH-TECH Stock Code of H Shares: 0300

4 Interim Report dsh@jkht.com szfeng@jkht.com dsh@jkht.com THE STANDARD Company Registered Address: 23 Ciba Road, Kunming City, Yunnan Province, the PRC Company Business Address: 23 Ciba Road, Kunming City, Yunnan Province, the PRC Postal Code: Company s internet website: Company s address: dsh@jkht.com 4. Company s Legal Representative: Mr. Lei Jinlu 5. Company Secretary of the Board of Directors: Mr. Feng Sizhong Telephone: Facsimile: address: szfeng@jkht.com Address: 23 Ciba Road, Kunming City, Yunnan Province, the PRC Securities Representative of the Board of Directors: Madam Qu Xin Ye Telephone: Facsimile: address: dsh@jkht.com Address: 23 Ciba Road, Kunming City, Yunnan Province, the PRC 6. Company s designated newspaper for publishing: China Securities Journal, Shanghai Securities Daily, Hong Kong Wen Wei Pao and THE STANDARD Company s designated internet website for publishing interim report in the PRC and Hong Kong: and Company s designated address for interim report: 23 Ciba Road, Kunming City, Yunnan Province, the PRC Room 216

5 Other Relevant Information: Date of incorporation: 19th October, 1993 Place of Registration: Yunnan Commercial and Industrial Administrative Bureau Change of Registrations Date: 29th March, 2002 Place of Change of Registration: Yunnan Commercial and Industrial Administrative Bureau Business Registration Number: Tax Registration Number: Appointed Auditor in the PRC: Xian Xigema Certified Public Accountants PRC Auditor s Address: Xigema Building, No. 25 Gao Xin Road, Xian China Appointed Auditor outside the PRC: Messrs. Deloitte Touche Tohmatsu Certified Public Accountants Address: 35/F One Pacific Place 88 Queensway Hong Kong Other Relevant Information of the Company Registered office in Hong Kong: Rm 1006, 10/F The Centre Mark Queen s Road Central Hong Kong

6 Interim Report 5 (2) PRINCIPAL FINANCIAL INFORMATION AND HIGHLIGHTS Principal accounting information and financial highlights Currency: RMB 000 (%) As at As at 30th June, 31st December, Difference (%) Current assets 679, , Current liabilities 472, , Total assets 1,145,477 1,079, Total shareholders equity 552, , (excluding minority interest) Net assets per share (Dollar) Adjusted equity interest per share (Dollar) (%) For the six months For the six months ended 30th June, ended 30th June, Difference (%) Net profit for the period 21,001 15, Net profit after deducting non-recurring items 18,089 13, Earnings per share (Dollar) (%) Returns on net assets (%) Cash inflow from operating activities 25,649 23, Non-recurring items 2. Non-recurring items for the period Unit: 000 Currency: RMB Amount Government grants 444 Non-operating income, expenses after deducting the provision for impairment loss of assets 79 Written back on various provision for diminution in previous years 2,467 Impact from profits tax (78) Total 2,912

7 Prepared in accordance with Hong Kong Financial Reporting Standards Principal accounting information and financial highlights Unit: 000 Currency: RMB (%) As at As at Principal accounting 30th June, 31st December, information Difference (%) Current assets 655, , Current liabilities 447, , Total assets 1,113,689 1,070, Total shareholders equity 545, , (excluding minority interest) Net assets per share (Dollar) Adjusted equity interest per share (Dollar) 2, (%) For the six months ended 30th June, Difference (%) Net profit for the period 19,698 15, Earnings per share (Dollar) (%) Returns on net assets (%) Cash inflow from operating activities 17,010 10,

8 Interim Report Differences between PRC Accounting Standards ( PRC GAAP ) and Hong Kong Accounting Standards ( HK GAAP ) Unit: 000 Currency: RMB Net profit Total shareholders equity For the For the six months six months ended ended As at As at 30th June, 30th June, 1st January, 30th June, Items As per the financial statements prepared under PRC GAAP 21,001 15, , ,995 Add: Gain on deemed partial disposal of (55) a subsidiary Add: Goodwill unamortized under HK GAAP but subject to amortization under PRC GAAP 1,144 Add: Amortization of deferred gain on sale and lease back transaction 101 (332) (3,219) (3,118) Add: Amortisation of good will 935 2,243 3,178 Add: Accrued rebate for profit tax of a subsidiary Less: Provision for diminution of short-term investment 2,339 Less: Land appreciation tax recognized as an expense under Hong Kong GAAP 8,869 8,869 As per financial statements prepared under HK GAAP 19,698 15, , ,178

9 CHANGE IN SHARE CAPITAL AND SHAREHOLDING OF THE COMPANY (1) Change in share capital During the reporting period, there is no change in the total number of share and structure of the Company resulting from scrip dividend and placing. (2) Shareholding of the company 1. Shareholding of the Company Unit: Share As at 30th June, 2006, the Company has 20,782 shareholders. (including 20,659 A Shares Shareholders, 123 H Shares Shareholder) The top ten shareholders of the Company: Type of Number of Number of shareholders shares held Class shares (state or foreign Proportion at the end Increase/ (Trading/ pledged Name of shareholders shareholders) (%) of the period (decrease) non-trading) or froze 29 71,052,146 Xian Jiaotong University Industrial state owned non-trading (Group) Incorporation ,639,998 66,000 HKSCC Nominees Limited social public shares trading unknown ,345,554 Yunnan Provincial People s state owned shares non-trading Government ,609,700 Kunming Jinghua Company Others non-trading ,760,188 Unknown trading unknown ,400,600 Unknown trading unknown ,250,505 Bank of Jiatong-Huaan Baoli Unknown trading unknown Securities Investment Funds ,000,000 Unknown trading unknown ,676 Bank of Agriculture (China) Wanjia Bashen Unknown trading unknown Add value Securities Investment Funds ,260 Xu Wei Ya Unknown trading unknown

10 Interim Report 9 The top ten shareholders of circulating shares Name of shareholder Number of shares held Types of shares HKSCC Nominees Limited 63,639,998 H Shares 1,760,188 A Shares 1,400,600 A Shares Bank of Jiatong Huaan Baoli Securities Investment Fund 1,250,505 A Shares 1,000,000 A Shares Bank of Agriculture (China) Wanjia Bashen Add value Securities Investment Funds 550,676 A Shares Xu Wei Ya 504,260 A Shares Wang Ling Feng 500,000 A Shares Yunnan Power Group Limited 441,000 A Shares Shanghai Wang Xuan Property Sales Co. Ltd. 425,182 A Shares Details of the connected relationship among the above shareholders of the Company and consistent action: (1) 10% 105% 5% 4 H HSBC NOMTNEES (HONG KONG) LIMITED 3,336,000H There are no connected relationship among the top ten Shareholders of circulating shares of the Company, shareholers of legal person shares and shareholders of state-owned shares. None of the top ten largest shareholders of the Company have relationship with each other and the Company was not notified by its shareholders that there is any relationship between the shareholders of non-circulating shares, the sharesholders of the state owned shares and the public shareholders. Other than the substantial shareholders disclosed above as at 31st December, 2005, there were no other shareholders whose shareholdings exceeded the amount required to be disclosed under Article 60 of Administration of the Issuing and Trading of Shares Provisional Regulations of the PRC and Issue No.2 of The Content and Format of Disclosure of information of Annual Report of the Listed Companies (Amended in 2005) and the register of substantial shareholders maintained showed that the Group was not notified of any interests representing 10% or more of the issued share capital of the Company. There are 4 top 10 largest shareholders holding 5% or more of the Company s shares. They are the Xian Jiaotong University Industrial (Group) Incorporation ( Jiaotong Group ) which holds the State owned legal person shares; Yunnan Provincial People s Government ( Yunnan Government ) which holds the State owned shares; Kunming Jinghua Company which holds the legal person shares. All of the shares held by these shareholders are non-circulating and are not pledged, frozen, mortgaged nor designated. The overseas listed shares (H shares) of the Company were held by the HKSCC Nominees Limited. Note: Credit Suisse First Boston (HK) Co. Ltd. holds 3,336,000 H Shares, which represents 5.53% of the total H shares.

11 Change of substantial shareholders and actual holders There was no change in substantial shareholders and actual holders during the report period. Flowchart for the relationship between actual holders and the Company. State-owned Assets Supervision and Administration Commission of the State Council 100% Xian Jiaotong University 100% Jiatong Group 29% Jiaoda Kunji High-Tech Company Limited 4. DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT (1) No change in shareholding of directors, supervisors and senior management Number of Number of shares as at shares as at Increase/ Reason for Name Position 1st January, th June, 2006 (decrease) the change 1,000 1,000 N/A Shen Guorong Supervisor (2) Newly appointed and dismissed directors, supervisors and senior management Change in directorship in the period: No Change in directorship, supervisors and senior management in the period.

12 Interim Report % 38.10% % % % 29.65%,, 5. MANAGEMENT DISCUSSION AND ANALYSIS (1) Business review and financial status of the Group In the first half of year 2006, various measures were taken by the Group to improve its operating efficiencies and financial performance. As at 30th June, 2006 the Group recorded a strong consolidated turnover of RMB355 million, and the net profit attributable to shareholders approximately of RMB21 million, with an increase of 14.15% and 38.10% respectively. Noted that, the CNC machine tools recorded a strong turnover of RMB254,500,000 representing a significant increase of approximately 41.13% as compared to period ended 30th June The Group remand continuous strong development of its operations. During the reporting period, various measures were taken by the Group including the continuous improvement of its sales and management functions stringent credit policy and also various marketing and promotions to improve the profitability of its product sales and the development of its domestic Internet sales. The Group has also established three new customer source branches in Wu Xi, Weizhou and Dongguan to deliver quality services to serve its growing market. As the results, more new sales contracts signed by the Group which will generated turnover approximately of RMB400 million and have received RMB297 million. Meanwhile the Company also developed the International market and attained a turnover of USD1,068,900, which mainly contributed by sales of turbo machine and tools since both of the products have a strong market demand in U.S.A and Europe countries. During the reporting period, the Group has also expanded its production division, set up production department to achieve better product quality as well as the Group s profitability through its sales of quality products. As at 30th June 2006, the total volume of turbo machine completed by the Group was approximately 300 units, representing a significant increase of approximately 45 units as compared to period ended 30 June Meanwhile, production control ratio reached to 59%, representing an increase of approximately 18% as compared to period ended 30 June During the reporting period, Tos Kunming Machine Tool Company Limited the jointly controlled entity had incorporated around one year since it established and commence its operations. As per its half year result, the said company predicted will achieve better operation result in future. During the reporting period, due to PRC s Government Stringent control for manufacturing machine industries and inefficiency of internal control of the Group, the operating result of the four subsidiaries which involved in non-turbo machine operating were decreased significantly if compared to period ended 30th June, Xian Ser Turbo Machinery Company Limited, one of the subsidiary of the Group had attained a turnover and net profit approximately of RMB87,600,000 and RMB7,660,000 respectively, representing the decrease of approximately 27.27% and 29.65% respectively. Meanwhile, Winko Machines Company Limited continued making losses during the period. As at the balances sheet date, the Company had first time received the sales order from advance digital machines which represented a new challenge to the Company as well.

13 (2) Management discussion and analysis on the changes of major items Currency: RMB 000 Increase % of 30th June, 31st December, (decrease) increase Numbers Items in amount (decrease) 1 Bank balance the cash 158, ,876 (13,503 ) (7.86% ) 2 Short term investment 14,241 12,774 1, % 3 Bills receivables 55,626 19,058 36, % 4 Prepayment 61,508 26,107 35, % 5 Total assets 1,145,477 1,079,184 66, % 6 Advance from customer 237, ,375 40, % Increase % of 30th June, 30th June, (decrease) increase in amount (decrease) 7 Principal operating income 355, ,420 44, % 8 Administrative expenses 44,656 30,960 13, % 9 Investment income/(loss) 1,542 (2,172) 3, , % 2, , % 3. 36, % 4. 35, % 5. 66, % 6. 40, %, 1. The decrease in bank balance and cash by RMB13,503,000, representing a decrease of approximately 7.86% was mainly due to repayment of loan amounting to RMB20 million; 2. The increase in short term investment by RMB1,467,000, representing an increase of approximately 11.48% was mainly due to reversal of impairment loss which provided in previous years and refund of investment; 3. The increase in bills receivable by RMB36,568,000, representing a significant increase of approximately % was in line with the increase in turnover of the period; 4. The increase in prepayment by RMB35,401,000, representing a significant increase of approximately 135.6%. The Increase was mainly contributed by increase in deposits of machines which was due to more purchase incurred during the period. 5. The increase in total assets by RMB66,293,000 representing an increase of approximately 6.14% is due to expansion of productions scale of the Group during the period; 6. The increase in advance from customer by RMB40,656,000, representing a significant increase of approximately 20.7% is due to more new sales contracts signed by the Group during the period;

14 Interim Report , % 8. 13, % , The increase in principal operating income by RMB44,070,000, representing an increase of approximately 14.15% was due to increase in sales of turbo machines during the period; 8. The increase in administrative expenses by RMB13,696,000, representing a significant increase of approximately 44.24% was due to provision of inventory obsolescence and provision of doubtful receivables made by the Group which approximately of RMB7,880,000 and increase in staff cost for the period; 9. The increase in investment income by RMB3,714,000 was mainly due to reversal of impairment loss of short-term investment approximately RMB2,330,000. (3) Review of operations 1. Major business, products Currency: RMB 000 Change in Change in principal principal Change in Principal Principal operating operating gross operating operating Gross income from cost from profit from Business segment income cost ratio last period last period last period Machine tools 254, , increased by 0.65% Fuel and electricity machine 87,603 68, (27.27 ) (31.44 ) 4.74 increased by 4.74% Analysis of business and geographical segments 2.1 Analysis on turnover by product categories Currency: RMB 000 Proportion to total sales of Product Turnover machine tools (%) Horizontal boring and milling machines Floor-type boring and milling machines Horizontal machine centres Table type boring and milling machines Jig Boring machines Others Total

15 Analysis on turnover by business Currency: RMB 000 Proportion to total sales of Business Turnover machine tools (%) Normal equipment production 94, Professional equipment 86, Transportation equipment production 20, Other production 53, Total 254, Analysis on turnover by geographical segment Currency: RMB 000 Proportion to total sales of Area Turnover machine tools (%) Hua Dong Area 90, Hua Bei Area 41, Xi Nan Area 36, Hua Nan Area 36, Others 48, Total 254, (4) INVESTING ACTIVITIES 1. There was no new proceeds from raised funds during the reporting period and there was no listing proceeds from previous reporting period being unitized during the reporting period. 2. There is no principal investment in non-raised funds dump the reporting period.

16 Interim Report SIGNIFICANT EVENTS (1) Corporate governance The Company complies throughout the period with the Code of Best Practices as set out in Appendix 14 of the Listing Rules of The Stock Exchange of Hong Kong Limited. During the reporting period, the Company followed the Appendix 10, Model Code for Securities Transactions by Directors of Listed Issuers of Listing rules issued by the Stock Exchange for Hong Kong as regulation for securities transactions of Director. (2) Profit Appropriation or transfer of capital reserve fund during the reporting period No appropriation and no transfer were made to the statutory surplus reserve for the half year ended 2006 and for the year ended 31st December, (3) Major Litigation These was no major litigation during the reporting period. (4) Purchase and disposal of assets or merger and acquisition activities during the reporting period During the reporting period, there was no significant purchase and disposal of assets, or merger and acquisition activities occurred in the Company. (5) Significant connected transactions during the reporting period During the reporting period, there was no significant connected transactions in the Company. (6) Designated contracts There was no designated contract in the reporting period. (7) Subcontracting contracts There was no subcontracting contract in the reporting period. (8) Operating lease arrangement There was no operating lease arrangement in the reporting period. (9) Guarantee given in the reporting period The Company has not given guarantee to companies.

17 CHINA DAILY % (10) Entrusted investment On 23rd February, 2004, an agreement for trusteeship of the Management of Investment in State Bonds was entered by the Company and Chinese Fortune Securities ( China Fortune ), pursuant to which the Company entrusted China Fortune Securities to conduct investment on State Bonds with RMB50,000,000 funded by internal sources. After the inspection performed by the Group, it has been identified that Chinese Fortune Securities fails to comply with agreement to invest in State Bonds, but using the fund to invest in A shares. The Company is in discussion with China Fortune to rectify such failure to comply with terms of the agreement and to bear the damages on losses. As the report date, China Fortune did not repay RMB50,000,000 to the Company. China Fortune was taken over by China Huarong Asset Management Corporation ( China Huarong ) and the Company reported the entrusted amount RMB50, 000,000 to China Huarong. As at 31st December, 2005, the Company had made a provision of RMB38,100,000. The Group has announced the above incident in China Securities Daily, Shanghai Securities Daily, Hong Kong Wen Wei Po and China Daily on 2nd April, 2004, 10th June, 2004 and 22nd April, In January, 2006, Capital Airport Group Company Started the restructuring process of China fortune, for the period of 6 months. However, the process was failed after 6 months. On 3rd August, 2006, China Securities Regulation Commission appointed Beijing Gao Peng Tianda Law Firm to establish an Administrative Liquidation Working Group for performing the liquidation work and registration of claims. On 3rd August, 2006, according to the China Fortune Securities is registration of claim, the Administrate Liquidation Working Group made the announcement to the public. According to the announcement, Shanghai Securities Limited Company was formed in accordance with the law for China Fortune s debts registration. Registration time for debt started from 5th August, 2006 to 3rd November, 2006, for the period of 90 days. The Company will disclose further process of the liquidation process in future if any. (11) Other major contract Nil (12) Commitment Events Commitments by the company and shareholders holdings more than 5% of total Capital Pursuant to the Related party transaction and prohibited for the competition Agreement signed by the Company and Jiaotong Group, Jiaotong Group had undertaken that it will not participate in any business or activities, which will compete against the Company either directly or indirectly. During the reporting period, Jiaotong Group had adhered to the agreement.

18 Interim Report (13) Appointment and re-appointment of auditors During the reporting period, the company re-appointed Xian Xigema Certified Public Accountants as the domestic auditors of the Company and Deloitte Touche Tohmatsu as the international auditor of the Company for the year The Board of Directors was authorized to determine the audit fee. (14) Company, board of directors and director s penalty and improvement situation There was no company, board of directors and director s penalty in the reporting period. (15) Other significant events 1. During the reporting, the Company settled all of the nonoperating advance payables. 2. Process of transfer of Shares at the ended of the reporting period. 2.1 Due to unsettlement debts and no communications between non-trading shares shareholders, the process of transfer of shares is still under pending status. 2.2 As at balance sheet date, the Group settled all of the nonoperating advance payables. 2.3 Non-trading shares shareholder which have consolidated 66% of the entire interest of the Company proposed the plan of transfer of shares. They appointed guarantor and lawyer for performing the process. 2.4 Until the day of publicising this interim report, the above mentioned transfer of shares is still under application for approval from all of the non-trading shares shareholders.

19 (16) Company s designated newspaper and internet website for publishing Event Published Press Date for publishing Relevant website THE STANDARD Board of Director Resolution China Securities Daily, Shanghai Securities Daily, Wen Wei Po and THE STANDARD THE STANDARD Profit Estimation China Securities Daily, Announcement Shanghai Securities Daily, Wen Wei Po and THE STANDARD THE STANDARD Board of Director Resolution China Securities Daily, Shanghai Securities Daily, Wen Wei Po and THE STANDARD THE STANDARD Board of Director Meeting China Securities Daily, Shanghai Securities Daily, Wen Wei Po and THE STANDARD THE STANDARD Continuing related party China Securities Daily, transaction Shanghai Securities Daily, Wen Wei Po and THE STANDARD THE STANDARD Principal Accounting Date China Securities Daily, and Financial Highlights Shanghai Securities Daily, for year 2005 Wen Wei Po and THE STANDARD

20 Interim Report 19 Event Published Press Date for publishing Relevant website THE STANDARD Board of Director Resolution China Securities Daily, Shanghai Securities Daily, Wen Wei Po and THE STANDARD THE STANDARD First Quarter report China Securities Daily, for year 2006 Shanghai Securities Daily, Wen Wei Po and THE STANDARD THE STANDARD Notice For Annual General China Securities Daily, Meeting ( AGM ) Shanghai Securities Daily, for year 2005 Wen Wei Po and THE STANDARD THE STANDARD Unusual Change in Market China Securities Daily, Shanghai Securities Daily, Wen Wei Po and THE STANDARD THE STANDARD Related Party China Securities Daily, Transaction-Capital being Shanghai Securities Daily, used for the reporting period Wen Wei Po and THE STANDARD THE STANDARD AGM Agenda China Securities Daily, Shanghai Securities Daily, Wen Wei Po and THE STANDARD

21 Event Published Press Date for publishing Relevant website THE STANDARD AGM for year 2005 China Securities Daily, Shanghai Securities Daily, Wen Wei Po and THE STANDARD THE STANDARD Related Party China Securities Daily, Transaction-Capital being Shanghai Securities Daily, repaid for the reporting period Wen Wei Po and THE STANDARD 7. FINANCIAL REPORTS A. IN ACCORDANCE WITH PRC GAAP 1. Balance Sheets, Statement of Income and Appropriation, Cash Flow Statement, Detail Summary of allowance and impairment of Consolidated assets 2. Percentage of return on net assets and earnings per share in accordance with provision No.9 of issued by the China Securities Regulatory Commission: Unit: Dollar Currency: RMB Earning per equity interest (%) Profit per shares Weighted Weighted Profit during the reporting period Diluted average Diluted average Principal operating profit Operating profit Net profit for the period Net profit for the period after deducting non-recurring items

22 Interim Report 21 BALANCE SHEET Prepared by : Jiaoda Kunji High-tech Company Limited 01 Unit: RMB 30th June, st December, 2005 Assets Note The Group The Company The Group The Company CURRENT ASSETS: Bank balances and cash.1 158,373, ,997, ,876, ,260, Short-term investments.2 14,240, ,240, ,773, ,773, Bills receivable.3 55,625, ,633, ,057, ,968, Dividends receivable 2,000, ,000, Interest receivable Accounts receivable.4 81,132, ,469, ,505, ,739, Other receivable.5 19,845, ,684, ,806, ,077, Prepayments.6 61,508, ,996, ,107, ,394, Subsidies receivable 335, , Inventories.7 288,600, ,508, ,502, ,648, Prepaid expenses.8 7, , Net loss on deferred current assets Long term debt investment due within one year TOTAL CURRENT ASSETS 679,669, ,772, ,653, ,863, LONG TERM INVESTMENTS: Long term equity investments.9 31,156, ,432, ,208, ,264, Comprising consolidated difference in value 7,690, ,690, ,389, ,389, Comprising difference in equity investments.9 7,690, ,690, ,389, ,389, Long term debt investment due within one year Total long term investments 31,156, ,432, ,208, ,264, FIXED ASSETS: Fixed asset at cost ,982, ,861, ,962, ,594, Less: Accounted depreciation ,224, ,071, ,265, ,479, Fixed assets net book value ,757, ,789, ,696, ,115, Less: Provision for impairment loss.10 6,914, ,684, ,929, ,700, Fixed assets net realisable value ,843, ,104, ,766, ,414, Project materials Construction in progress, net realisable value.11 51,469, ,672, ,594, ,119, Disposal of fixed assets Loss on deferred fixed assets, net Total fixed assets 382,313, ,777, ,360, ,533, Intangible and other assets: Intangible assets.12 52,317, ,864, ,910, ,773, Long-term deferred expenditures 20, , Other long-term investments TOTAL INTANGIBLE AND OTHER ASSETS 52,337, ,864, ,961, ,773, DEFERRED TAXATION: Deferred taxation TOTAL ASSETS 1,145,477, ,846, ,079,184, ,436,390.55

23 BALANCE SHEET (Continued) Unit: RMB Liabilities and 30th June, st December, 2005 shareholders equity Note The Group The Company The Group The Company CURRENT LIABILITIES Short-term loans.13 40,000, ,000, ,000, ,000, Bills payable 8,944, Accounts payable ,631, ,648, ,037, ,920, Advances from customers ,031, ,352, ,375, ,153, Accrued salary.16 1,849, ,295, ,574, ,547, Accrued welfare 7,947, ,148, ,421, ,949, Dividends payable 2,101, ,101, Taxes payable.17 21,298, ,490, ,237, ,632, Other payable , , , , Other accrual 42,264, ,574, ,713, ,391, Accrued expenses 2,907, ,738, ,562, ,392, Estimated liabilities Long-term loans due within one year , , , , Other current liabilities Total current liabilities 472,008, ,242, ,129, ,898, LONG TERM LIABILITIES Long-term loans.21 40,000, ,000, ,000, ,000, Long-term payables.22 10,333, ,133, ,269, ,069, Specific project payable 6,783, ,676, ,782, ,675, Deferred gain Total long-term liabilities 57,117, ,810, ,051, ,744, Deferred taxation: Deferred taxation TOTAL LIABILITIES 529,125, ,052, ,181, ,642, Minority interests 63,357, ,009, SHAREHOLDERS EQUITY: Share capital ,007, ,007, ,007, ,007, Less: Return on investment Share capital, net 245,007, ,007, ,007, ,007, Capital reserves ,193, ,193, ,193, ,193, Surplus reserves.25 16,812, ,812, ,812, ,812, Unappropriated profits (23,018, ) (21,219, ) (44,019, ) (42,220, ) TOTAL SHAREHOLDERS EQUITY 552,994, ,793, ,994, ,793, TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 1,145,477, ,846, ,079,184, ,436, Company s Legal Representative: Financial Controller: Prepared by: Mr. Lei Jin Lu Ms. Yu Yan Ms. Zhao Qiongfen

24 Interim Report 23 STATEMENT OF INCOME Prepared by : Jiaoda Kunji High-tech Company Limited 02 Unit: RMB For the six months ended 30th June Items Note The Group The Company The Group The Company 1. Principal operating income ,489, ,519, ,419, ,338, Less: Principal operating cost ,395, ,327, ,954, ,310, Principal operation tax and addition 453, , Principal operating profits 90,640, ,192, ,733, ,027, Add: Profit from other operations 434, , , , Less: Selling expenses 17,344, ,310, ,882, ,213, Administrative expenses 44,655, ,444, ,959, ,403, Financial expenses.28 2,681, ,371, ,824, ,076, Operating profit 26,392, ,232, ,051, ,172, Add: Investment income.29 1,542, ,740, (2,172, ) (663, ) Subsidy income 444, ,552, ,000, Non-operating income , , , , Less: Non-operating expenses , , , , Profit before income tax 28,458, ,066, ,588, ,637, Less: Income tax.32 3,087, ,065, ,190, ,430, Minority interest 4,369, ,191, Net profit for the period 21,000, ,000, ,206, ,206, Add: Accumulated losses at the beginning of the year 44,019, ,220, ,340, ,340, Other transfer 6. Profit for distribution 23,018, ,219, ,134, ,134, Less: Statutory surplus reserve Statutory public welfare fund 7. Profit available for distribution 23,018, ,219, ,134, ,134, Less: Preference shares dividend paid Surplus reserve Ordinary share dividend paid Convertible share dividend 8. Unappropriate profit 23,018, ,219, ,134, ,134,130.93

25 STATEMENT OF INCOME (Continued) Supplementary information: 02 Unit: RMB For the six months ended 30th June Items Note The Group The Company The Group The Company Profit from sale and disposal of investee companies Loss arising from natural disasters Increase (decrease) in profit due to change in accounting policies Increase (decrease) in profit due to change in accounting estimates Loss arising from debt restructuring Others Company s Legal Representative: Financial Controller: Prepared by: Mr. Lei Jin Lu Ms. Yu Yan Ms. Zhao Qiongfen

26 Interim Report 25 CASH FLOW STATEMENT Prepared by : Jiaoda Kunji High-tech Company Limited January-June, 2006 Unit: RMB Items Note The Group The Company 1. Cash flows from operating activities Cash received from sales of goods or rendering of services 329,586, ,986, Refund of taxes and surcharges received 444, Other cash received relating to operating activities 6,038, Sub-total of cash inflows 336,069, ,986, Cash paid for goods and services 195,511, ,220, Cash paid to and on behalf of employees 48,314, ,423, Taxes and surcharges paid 31,627, ,801, Other cash paid relating to operating activities 34,967, ,301, Sub-total of cash outflows 310,420, ,747, Net cash flows from operating activities 25,649, ,239, Cash flow from investing activities: Receipt of investment proceed 1,000, ,000, Dividend income received 105, , Net cash received from disposal of fixed assets, intangible assets and other long-term assets 609, , Other cash received relating to investing activities 14,149, ,149, Sub-total of cash inflows 15,864, ,864, Cash paid to acquire fixed assets, intangible assets, and long-term assets 18,639, ,929, Cash paid for investment 21,617, ,617, Other cash paid relating to investing activities 115, Sub-total of cash outflows 40,372, ,547, Net cash flows from operating activities (24,507,215.20) (31,682,400.64)

27 CASH FLOW STATEMENT (Continued) January-June, 2006 Unit: RMB Items Note The Group The Company 3. Cash Flow from financing activities Cash from proceeds for use of investment Including: Cash from proceeds arising from minority fund Cash from borrowings 20,000, ,000, Other cash received relating to financing activities Sub-total of Cash inflows 20,000, ,000, Loan interest paid 40,000, ,000, Cash payment for distribution of dividends on, profits and payments of interest expenses 2,112, ,287, Including: Dividend paid by subsidiaries to minority interest Other cash paid relating to financing activities Sub-total of Cash outflows 42,112, ,287, Net cash flow from financing activities (22,112,836.11) (21,287,809.69) 4. Effect of foreign exchange rate changes on cash 5. Net increase in cash and cash equivalent (20,970,969.50) (23,731,209.20) Company s Legal Representative: Financial Controller: Prepared by: Mr. Lei Jin Lu Ms. Yu Yan Ms. Zhao Qiongfen

28 Interim Report 27 CASH FLOW STATEMENT (Continued) Supplementary Information Prepared by : Jiaoda Kunji High-tech Company Limited January-June, 2006 Unit: RMB Items Note The Group The Company Reconciliation of Loss to cash flows from operating activities Net profit 21,000, ,000, Add: Gain or loss of minority shareholders 3,738, Provision for diminution in value of assets 5,395, ,515, Amortisation of deferred income Depreciation of fixed assets 13,689, ,746, Amortisation of intangible assets 2,288, ,007, Amortisation of long-term deferred expenses 78, Decrease in deferred expenses (less: increase) 9, Increase in accrual expenses (less: decrease) 1,355, ,345, Loss on disposal of fixed assets intangible assets and other long-term assets (less: income) 253, , Loss on deserted fixed assets Financial expenses 2,280, ,371, Investment loss (less: income) (1,542, ) (1,740, ) Credit on deferred tax (less: borrowing) Decrease in inventory (15,611, ) (1,859, ) Decrease in operating receivables (less: increase) (51,122, ) (21,845, ) Increase in operating payables (less: decrease) 43,835, ,444, Others Net cash flows from operating activities 25,649, ,239, Financing and investing activities not involving in cash Debts capitalised Convertible bond due within one year Fixed assets under financial lease Net increase in cash and cash equivalent Cash and bank balances at the end of the period ,755, ,379, Less: Cash and bank balances at the beginning of the period ,726, ,111, Add: Cash equivalents at the ended of the period Less: Cash equivalent at the beginning of the period Net increase in cash and equivalent (20,970, ) (23,731, ) Company s Legal Representative: Financial Controller: Prepared by: Mr. Lei Jin Lu Ms. Yu Yan Ms. Zhao Qiongfen

29 DETAILED SUMMARY OF ALLOWANCE AND IMPAIRMENT OF CONSOLIDATED ASSETS Prepared by : Jiaoda Kunji High-tech Company Limited Unit: RMB Decrease during the period Written back due to Reduction/ As 1st January, Addition the increase transfer out At 30th June, Items Notes 2006 this year of asset value this year Total Bad debt provision 51,524, ,183, ,707, Comprising: Accounts receivable 44,795, ,187, ,982, Other receivables 6,728, , ,725, Provision for diminution in value 38,226, ,467, ,467, ,759, of short-term investments Comprising: Investment in shares 38,226, ,467, ,467, ,759, Investment in debts 3. Provision of diminution in inventory 31,260, ,694, ,955, Comprising: Finished goods 12,240, ,240, Raw materials 6,104, ,277, ,382, Work in progress 12,915, , ,332, Provision for diminution in value of long-term investment 2,000, ,000, Comprising: Long-term equity investment 2,000, ,000, Long-term debt investments 5. Total provision for diminution in value of fixed assets 6,929, , , ,914, Comprising: Buildings Plant & machinery 6,505, , , ,490, Furniture, Fixture and equipment 423, , Provision for diminution in value of intangible assets 5,943, ,943, Comprising: Patents 4,574, ,574, Trademarks 1,368, ,368, Provision for diminution in value of construction in progress 1,818, ,818, Provision for diminution in value of designated loans 9. Total 137,702, ,878, ,482, ,482, ,098, Company s Legal Representative: Financial Controller: Prepared by: Mr. Lei Jin Lu Ms. Yu Yan Ms. Zhao Qiongfen

30 Interim Report 29 DETAILED SUMMARY OF ALLOWANCE AND IMPAIRMENT OF ASSETS OF HOLDING COMPANY Prepared by : Jiaoda Kunji High-tech Company Limited Unit: RMB Decrease during the period Written back due to Reduction/ As 1st January, Addition the increase transfer out At 30th June, Items Notes 2006 this year of asset value this year Total Bad debt provision 26,987, ,998, ,985, Comprising: Accounts receivable 26,206, ,998, ,204, Other receivables 781, , Provision for diminution in value 38,226, ,467, ,467, ,759, of short-term investments Comprising: Investment in shares 38,226, ,467, ,467, ,759, Investment in debts 3. Provision of diminution in inventory 25,469, ,469, Comprising: Finished goods 10,897, ,897, Raw materials 3,137, ,137, Work in progress 11,434, ,434, Provision for diminution in value of long-term investment 2,000, ,000, Comprising: Long-term equity investment 2,000, ,000, Long-term debt investments 5. Total provision for diminution in value of fixed assets 2,700, , , ,684, Comprising: Buildings Plant & machinery 2,276, , , ,261, Furniture, Fixture and equipment 423, , Provision for diminution in value of intangible assets Comprising: Patents Trademarks 7. Provision for diminution in value of construction in progress 1,818, ,818, Provision for diminution in value of designated loans 9. Total 97,202, ,998, ,482, ,482, ,717, Company s Legal Representative: Financial Controller: Prepared by: Mr. Lei Jin Lu Ms. Yu Yan Ms. Zhao Qiongfen

31 AH ,052,146 29% [2001] , NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (1) GENERAL Jiaoda Kunji High-Tech Company Limited (formerly known as Kunming Machine Tool Company Limited) ( the Company ) was established in the Mainland People s Republic of China as a sinoforeign joint stock limited company as part of the reorganisation of a state owned enterprise known as Kunming Machine Tool Plant ( KMT Plant ). Pursuant to the reorganization, the operations, assets and liabilities of KMT Plant were divided between the Company and Kunming Kun Ji Group Company ( Kun Ji Group Company ). The Company was established on 19th October, The Company s A shares and H shares have been listed on the Shanghai Securities Exchange in Shanghai and The Stock Exchange of Hong Kong Limited in Hong Kong respectively. The Company is engaged principally in the design, development, production and sale of machine tool, precision measuring equipment and precision transducers. On 25th December, 2000, Xian Jiaotong University Industrial (Group) Incorporation ( Jiaotong Group ) entered into an agreement with Yunnan Provincial People s Government ( Yunnan Government ), the Company s former controlling shareholder whereby Yunnan Government would transfer a 29% interest of 71,052,146 stateowned shares in the Company to Jiaotong Group. The Ministry of Finance Signed Approval of State-owned shares transfer of Jiaoda Kunji High-tech Company Limited (Cao Qi [2001] No. 283), and approved the share transfer. Upon completion of share transfer procedure on 5th June, 2001, Jiaotong Group became substantial shareholder of the Company. Pursuant to extraordinary general meeting of the Company held on 31st December, 2001, the assets restructuring was approved by the Company s Shareholders. After the assets restructuring, the Company changed from a traditional machinery manufacturing company which focused on production of machine tools to a hightech and diversified production Company. With effective from 29th March, 2002, the Company uses the name Jiaoda Kunji High Tech Company Limited. The amount of registered Capital RMB245,007,400. The place of registration is 23 Ciba Road, Kunming City Yunnan Province. The business registration number is Qi Gu Dian Zong Zi No ,052,146 29% On 15th September, 2005, Xian Jiaotong University Industrial (Group) Incorporation and Shenyong Machine Tool (Group) Company Limited signed an agreement regarding transfer of shares. Shenyong Machine Tool (Group) Company Limited agreed to buy 71,052,146 shares of Jioda High-tech Company Limited from Xian Jiaotong University Industrial (Group) Incorporation. The number of shares transferred is 29% of the total 245,007,400 Shares. As of 30th June, 2006, the acquisition is still pending for approval.

32 Interim Report (1) (2) (2) SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF CONSOLIDATION 1. Accounting Policy The financial statements have been prepared in accordance with Accounting Standards for Business Enterprises and Accounting System for Business Enterprises. 2. Accounting Fiscal Year The accounting year of the Company commences on 1st January, and ends on 31st December each year. 3. Reporting Currency The reporting currency of the Company is Renminbi ( RMB ). 4. Recording Principles and Accounting Basis The Company adopts the accrual basis as the basis of accounting and the historical cost as the principle of valuation. 5. Foreign Currency Translation Transactions in foreign currencies are translated at the market exchange rates (middle rate), ruling on the dates of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-translated into RMB at the market exchange rates (middle rate) ruling on the balance sheet date. Profits and losses arising on exchange are included in financial expenses apart from those relating to the construction in progress. 6. Recognition for Cash equivalents Cash equivalents included in cash-flow statement are shortterm, highly liquid investments that are readily convertible to known amounts of cash and which are within three months of maturity and subject to limited risk on changes in value. 7. Accounting for Short-term Investment (1) Short-term investment is stated at the historical cost. Gain on an investment is recognized when the investment is transferred or repaid on maturity. (2) Short-term investment is recorded at the lower of cost and market value at the end of each period. Provision for impairment on short-term investment should be recognized according to the investment collectively.