600845 2005 1

2005...1...1...2...4...6...8...9...10...16...16...18...54 1

2005 1 2 3 4 1 Shanghai Baosight Software Co.,Ltd. Baosight 2 3 515 021-50801155 021-50803294 E-mail investor@baosight.com 515 021-50801155-1462 021-50803294 E-mail hudekang@baosight.com 4 515 515 201203 http://www.baosight.com investor@baosight.com 5 http://www.sse.com.cn 6 A A A 600845 B B B B 900926 7 1994 8 15 2950 2001 6 14 515 019032 310115607280598 989 23 1

2005 989 23 : : 78,255,887.63 65,186,083.73 61,834,180.34 292,581,991.00 1,899,633.41 70,065,708.66 3,628,809.99 1,345,440.96 3,215,928.02 54,660,359.62-810,515.92 : : 65,186,083.73 70,454,091.79 426,317,353.97 451,796,966.12 205,335.73 350,443.60 217,594.84 9,884.38 4,920,738.51-435,989.00 21,252,577.10-1,401,774.40 5,096,897.06 531,912.39 : : 3,019,361.04 272,227.50 2

2005 302,948.69 78,147.63 319,841.85-640,623.32 3,351,903.39 : : 2005 2004 2003 (%) 1,336,822,430.56 1,311,488,207.61 1.93 964,717,881.55 78,255,887.63 68,813,072.06 13.72 61,306,979.86 65,186,083.73 54,145,551.19 20.39 53,929,225.85 61,834,180.34 54,007,148.14 14.49 53,688,869.35 0.249 0.206 20.87 0.206 % 15.29 13.14 2.15 1.39 0.72 14.50 13.11 % 15.01 14.75 14.03 % 15.93 54,660,359.62 70,051,101.37-21.97 74,300,358.89 0.208 0.267-21.97 0.283 2005 2004 2003 (%) 872,936,737.16 702,580,750.25 24.25 603,014,256.77 426,317,353.97 411,982,701.01 3.48 357,743,586.74 1.626 1.571 3.50 1.364 1.605 1.547 3.75 1.336 15.07 : : 262,244,070.00 21,205,721.29 31,616,637.39 13,751,301.49 96,604,081.67 411,982,701.01 1,982,433.29 13,876,113.16 6,518,608.37 65,186,083.73 80,659,580.12 66,324,927.16 66,324,927.16 262,244,070.00 23,188,154.58 45,492,750.55 20,269,909.86 95,465,238.24 426,317,353.97 2,735.70 217,595.02 25% 3

2005 9,884.38 2) 3) 4), 1 : (%) (%) 1150,044,070 57.22% 150,044,070 57.22% 150,044,070 57.22% -150,044,070 150,044,070 150,044,070 57.22% 2 11,000,000 4.19% 11,000,000 4.19% 3 4 161,044,070 61.41% 161,044,070 61.41% 1 13,200,000 5.03% 13,200,000 5.03% 2 88,000,000 33.56% 88,000,000 33.56% 3 4 101,200,000 38.59% 101,200,000 38.59% 262,244,070 100.00% 262,244,070 100.00% 2 (1) (2) (3) 4

2005 1 : 16,128 (%) 57.22 150,044,070 150,044,070 1.07 2,794,550 0.67 1,752,500 0.53 1,400,000 ( ) 0.42 1,100,000 0.39 1,016,617 0.31 818,000 0.31 800,000 0.30 791,317 0.30 778,000 19,000 1,752,500 1,016,617 818,000 791,317 778,000 SKANDIA GLOBAL FUNDS PLC 710,257 683,410 616,343 WARBURG DILLON READ NOMINEES (HONG KONG) LTD - GENERAL A/C 601,994 595,900. 2 1 17,512,000,000.00 2000 2 3 2 2004 8 11 ( ) ( ) 2004 8 11 150044070 ( 57.22%) 2004 12 23 5

2005 150044070, 150044070 2005 4 21 150044070 ( 57.22%) 2005 12 31 3 100 77.86 57.22 3 : : ( ) 52 2004-04-29 2007-04-28 27356A 36256A 8900A 46.9 49 2005-08-17 2007-04-28 57500B 79700B 22200B 46.9 54 2004-04-29 2007-04-28 22110A 13700B 31110A13700B 9000A 41 2004-04-29 2007-04-28 46 2004-04-29 2007-04-28 48 2004-04-29 2007-04-28 16300A 23600A 7300A 38.6 49 2004-04-29 2007-04-28 12 54 2004-04-29 2007-04-28 12 41 2004-04-29 2007-04-28 12 50 2004-04-29 2007-04-28 48 2004-04-29 2007-04-28 52 2005-03-10 2007-04-28 4300A 7900A 3600A 28 48 2004-04-29 2007-04-28 6400A 40200B 6400A65400B 25200B 42.3 42 2004-04-29 2007-04-28 50700B 70200B 19500B 38.6 6

2005 43 2004-04-29 2007-04-28 19600A 26400A 6800A 38.6 35 2004-04-29 2007-04-28 43700B 63200B 19500B 38.6 39 2005-10-19 2007-04-28 12700A 19110A 6410A 38.6 / / / / / 102546A 205800B 119666A 292200B / 440.0 5 1) IT,, 2), 3) 4) 5) 6) 7) 863 8) 9) 10) 11) 12) 13) 14) 15) 16) 17) 7

2005 1 2 1,425 26 1 141 1,066 90 27 101 2 16 365 750 204 65 25 8

2005 1 4 2 2 4 4 0 4 3 1 2 1) 2001 3 2) 3) 4) 5) 9

2005 2001 2004 1 2004 2005 3 12 2005 4 21 515 155 157381114 60.01% B 51 6275292 154 7337044 2 2004 2004 2004 2005 2005 2005 2005 4 23 1 1 2005 2005 8 19 2005 9 23 515 16 153186471 58.41 % B 10 3100400 5 42001 2 2005 3 2005 2005 9 24, 2005 CMM5 10

2005 MES 2005 ecop 180 2005 4 CMMI3 2007 CMMI5 2005 13.36 1.93 6518.61 20.39 5466, 1 : : % (%) 748,190,476.76 554,205,565.68 25.93 26.08 31.65 3.13 128,058,858.14 73,122,904.58 42.90 33.21 30.86 1.03 399,221,346.58 358,345,906.50 10.24-28.96-30.69 2.23 61,351,749.08 44,126,273.29 28.08 2.32-0.03 1.69 1,336,822,430.56 1,029,800,650.25 22.97 1.93-0.79 2.11 2 : : ( ) 35,351,887.76 3.61 1,301,470,542.80 1.89 1,336,822,430.56 1.93 3 2005 2004 40,047,765.00 4.59% 11,958,897.20 1.70% 2.89 325,589,544.25 37.30% 209,180,211.28 29.77% 7.53 11

2005 138,359,028.40 15.85% 98,523,462.33 14.02% 1.83 147,832,958.53 16.94% 71,310,928.54 10.15% 6.79 21,217,249.81 2.43% 2,028,845.44 0.29% 2.14 42,550,508.61 4.87% 10,257,194.18 1.46% 3.41 872,936,737.16 702,580,750.25 2005 2005 2004 14,439,789.51 8,053,620.55 79.30% 72,493,684.97 53,304,427.55 36.00%, 3,628,809.99 1,234,664.24 193.91% 1,345,440.96 280,800.00 379.15%, 3,716,015.08 389,463.34 854.14% 4 2005 2004, 54,660,359.62 70,051,101.37-3,006,317.15-22,417,365.26-52,079,508.33 7,630,974.48 (5) 104,213,689.77 12.65% 610,937,260.44 45.70% 6 4,967,280.00 5,776,498.44 418,604.87 5,000,000.00 11,777,956.25-885,198.63 18,792,188.00 20,267,734.67-728,388.00 20,000,000.00 72,502,455.39 5,449,672.86 1,689,750.00 7,694,119.04 524,058.57 12

2005 12,415,703.98 10,803,682.38-830,841.01 193 05 25% IT 1 IBM Cisco 2) SAP Oracle 3) 4) 1) 2) 3) IT 4, : 1 13

2005 2 3 2005 2006 1) 2006 2) a b c 3) 4) 2006 : 1) 2) 1 2 3 14

2005 1 2 2005 25% 2005 11 2 441.37 75% 2005 11 16 849.08, 75% 1 1) 2005 3 10 2004 2004 2004 2004 2005 2005 3 2005 2004 2004 2) 2005 4 21 2005 3) 2005 8 17 2005 2005 2005 4) 2005 10 19 2005 2 1 2004 2004 2 2005 2005 2005 6 30 262,244,070 10 2.00 52,448,814.00 15

2005 2005 65,186,083.73 96,604,081.67 161,790,165.40 7,357,504.79 6,518,608.37 2005 52,448,814.00 95,465,238.24 200 70,454,091.79 103,812,021.75 174,266,113.54 7,357,504.79 6,518,608.37 350,443.60 2005 52,448,814.00 107,590,742.78 2005 1 2005 3 10 1 2004 2 2004 3 2004 4 2004 5 2004 6 2005 7 2005 8 2005 9 10 11 12 2004 13 2004 2 2005 4 21 2005 3 2005 8 17 1 2005 2 2005 3 4 5 6 2005 4 2005 10 19 1 2005 2 16

2005 2005 1 (1) : : ( ) 447,709,440.57 447,709,440.57 33.49 39,546,968.83 39,546,968.83 2.96 74,647,025.01 74,647,025.01 5.58 IT 2 25% 441.37 21.76 426.68 461.67 3 17

2005 2002 11 18 2007 9 20 294,189.60 30 2005 1 1 2005 12 31 1,084,000.00 2,906,400 2003 7 250 250 2005 7 200,772.68 2005 9 250 300 2005 4 19 1000, 1000 2005 6 29 2005 7 1 1000, 1000 2005 9 27 2005 10 13 1000, 1000 2005 12 30 2004 4 40 2005 12 31 135 82.5 13 77.5 13 18

2005 (2006) 198 ( )2005 12 31 2005 2005 2005 12 31 2005 2006 3 8 19

2005 2005 12 31 : : : 160,837,760.59 161,648,276.51 118,032,042.22 122,907,577.19 5,500,000.00 5,500,000.00 40,047,765.00 11,958,897.20 40,007,765.00 11,938,897.20 247,329.17 2,066,561.33 120,000.00 120,000.00 325,589,544.25 209,180,211.28 306,936,452.89 183,839,053.26 14,103,935.76 14,060,854.36 8,951,115.21 9,709,903.07 35,990,763.92 35,926,172.05 32,860,683.23 34,228,406.03 138,359,028.40 98,523,462.33 108,744,093.63 72,090,676.13 949,898.79 1,220,445.99 715,521.47 1,083,089.35 6,000,000.00 6,000,000.00 721,378,696.71 544,138,319.72 616,495,002.82 443,984,163.56 25,342,992.01 25,548,327.74 73,911,605.31 61,876,465.25 25,342,992.01 25,548,327.74 73,911,605.31 61,876,465.25 ( - 1,233,992.67 1,439,328.40 ) ( - ) 180,933,911.88 172,489,437.18 157,163,054.55 147,870,133.82 57,661,063.45 46,427,981.27 44,108,436.53 33,042,839.34 123,272,848.43 126,061,455.91 113,054,618.02 114,827,294.48 2,259,196.27 2,278,922.42 121,013,652.16 123,782,533.49 113,054,618.02 114,827,294.48 121,013,652.16 123,782,533.49 113,054,618.02 114,827,294.48 20

2005 1,205,372.64 4,067,737.70 1,105,372.62 3,927,737.70 3,996,023.64 5,043,831.60 3,397,452.65 4,283,080.73 5,201,396.28 9,111,569.30 4,502,825.27 8,210,818.43 872,936,737.16 702,580,750.25 807,964,051.42 628,898,741.72 3,000,000.00 5,990,000.00 21,530,747.72 18,941,634.90 20,478,591.95 18,941,634.90 148,149,354.17 117,875,209.57 128,304,884.75 100,167,600.93 147,832,958.53 71,310,928.54 136,692,795.87 55,020,220.25 9,007,609.20 13,022,911.67 6,477,011.61 8,490,479.46 107,915.90 340,099.46 1,960 797,009.36 1,314,868.58 21,217,249.81 2,028,845.44 18,691,057.30 346,787.24 16,537.81 61,536.22 3,771.20 58,427.54 42,550,508.61 10,257,194.18 40,728,142.82 8,906,841.24 9,365,350.00 7,436,292.92 9,351,000.00 7,423,375.90 343,030.27 403,918,271.38 248,579,521.48 360,727,255.50 199,357,327.46 601,952.16 20,846,582.55 18,020,903.91 20,846,582.55 17,870,903.91 21,448,534.71 18,020,903.91 20,846,582.55 17,870,903.91 425,366,806.09 266,600,425.39 381,573,838.05 217,228,231.37 ( 21,252,577.10 23,997,623.85 ) 262,244,070.00 262,244,070.00 262,244,070.00 262,244,070.00 262,244,070.00 262,244,070.00 262,244,070.00 262,244,070.00 21

2005 23,188,154.58 21,205,721.29 23,188,154.58 21,205,721.29 45,492,750.55 31,616,637.39 44,359,727.40 31,322,510.66 20,269,909.86 13,751,301.49 20,269,909.86 13,751,301.49 95,465,238.24 96,604,081.67 96,598,261.39 96,898,208.40 ( ) -72,859.40 312,190.66 ( ) 426,317,353.97 411,982,701.01 426,390,213.37 411,670,510.35 872,936,737.16 702,580,750.25 807,964,051.42 628,898,741.72 : : : 2005 1-12 : : : 1,336,822,430.56 1,311,488,207.61 1,172,933,650.51 1,118,985,806.53 1,029,800,650.05 1,037,970,920.7 906,597,829.55 887,569,281.08 14,439,789.51 8,053,620.55 12,596,182.78 6,545,836.17-292,581,991.00 265,463,666.36 253,739,638.18 224,870,689.28-1,899,633.41 1,725,235.94 2,139,935.48 2,635,857.96 : 72,493,684.97 53,304,427.55 65,090,722.33 46,765,814.63 151,560,044.24 146,630,290.43 125,973,072.61 121,872,647.23 362,186.54-80,629.96 61,051.15-76,535.82-70,065,708.66 67,334,814.28 64,754,727.57 58,944,621.20-3,628,809.99 1,234,664.24 5,821,472.04 4,983,651.94 1,345,440.96 280,800.00 1,012,440.96 6,800.00 3,716,015.08 389,463.34 3,035,690.06 379,395.64 500,087.06 426,669.80 357,488.77 395,913.30-78,255,887.63 68,813,072.06 74,266,841.86 63,918,555.48 11,515,329.97 11,515,185.71 9,080,758.13 9,772,986.29 22

2005 1,554,473.93 3,152,335.16 ( ) - 65,186,083.73 54,145,551.19 65,186,083.73 54,145,569.19 96,604,081.67 53,341,633.16 96,898,208.40 53,581,753.05 161,790,165.40 107,487,184.35 162,084,292.13 107,727,322.24 6,518,608.37 5,414,556.92 6,518,608.37 5,414,556.92 6,518,608.37 5,414,556.92 6,518,608.37 5,414,556.92 ( ) 419,448.21 26,994.42 419,448.21 26,994.42 147,914,052.24 96,604,081.67 149,047,075.39 96,898,208.40 52,448,814.00 52,448,814.00 ( - ) 95,465,238.24 96,604,081.67 96,598,261.39 96,898,208.40 1. 2. 3. ( ) 4. ( ) 5. 6. : : : 23

2005 2005 1-12 : : : 1,399,867,783.60 1,203,815,199.03 5,084,716.86 4,445,056.49 68,644,680.99 64,512,188.76 1,473,597,181.45 1,272,772,444.28 881,134,425.94 746,895,320.65 310,827,164.84 275,545,478.11 60,535,010.40 49,202,505.47 166,440,220.65 151,382,935.80 1,418,936,821.83 1,223,026,240.03 54,660,359.62 49,746,204.25 38,653,373.04 36,153,373.04 3,800,772.68 3,815,955.40 7,231,435.93 4,847,817.61 49,685,581.65 44,817,146.05 15,448,398.80 12,485,706.81 37,243,500.00 37,302,932.46 52,691,898.80 49,788,639.27-3,006,317.15-4,971,493.22 850,876.70 850,876.70 25,000,740.00 2,825,678.64 2,975,678.64 28,677,295.34 2,975,678.64 27,045,757.57 53,711,046.10 52,625,924.64 712,350.11 24

2005 80,756,803.67 52,625,924.64-52,079,508.33-49,650,246.00-385,050.06-810,515.92-4,875,534.97 1 65,186,083.73 65,186,083.73 ( - ) 1,554,473.93 6,687,210.72 6,023,316.77 17,290,571.94 15,144,862.98 2,862,365.06 2,822,365.08 1,047,807.96 885,628.08 270,547.20 367,567.88 1,937,624.10 1,927,624.10-3,353,976.97-2,742,753.97 ( : ) 226,555.83 166,037.12 541,314.97 177,110.64-3,628,809.99-5,821,472.04-41,213,146.50-38,030,997.93 ( ) -138,562,787.30-157,779,252.22 ( ) 143,814,524.94 161,420,084.03 ( ) 54,660,359.62 49,746,204.25 2 3 160,837,760.59 118,032,042.22 161,648,276.51 122,907,577.19-810,515.92-4,875,534.97 : : : 25

2005 2005 : : : 1 7,200,657.03 5,323,013.65 / / 317,617.01 12,206,053.67 2 7,099,357.74 4,885,076.61 / / 317,617.01 11,666,817.34 3 101,299.29 437,937.04 / / 539,236.33 4 5 6 7 59,920.84 1,377,580.43 1,437,501.27 8 1,303,937.42 1,303,937.42 9 10 11 12 13 2,278,922.42 19,726.15 19,726.15 2,259,196.27 14 15 2,278,922.42 19,726.15 19,726.15 2,259,196.27 16 17 18 19 20 21 9,539,500.29 6,700,594.08 19,726.15 337,343.16 15,902,751.21 : : : 26

2005 2005 : : : 1 6,204,015.42 4,903,354.35 / / 257,617.01 10,849,752.76 2 6,172,608.47 4,657,872.33 / / 257,617.01 10,572,863.79 3 31,406.95 245,482.02 / / 276,887.97 4 5 6 7 1,377,580.43 1,377,580.43 8 1,303,937.42 1,303,937.42 9 10 11 12 13 14 15 16 17 18 19 20 21 6,204,015.42 6,280,934.78 257,617.01 12,227,333.19 : : : 9 : : % 68.63 69.80 1.116 1.116 16.44 16.72 0.267 0.267 15.29 15.55 0.249 0.249 14.50 14.75 0.236 0.236 27

2005 28 2005 1. 1993 9 25 ( 1993) 409 1994 3 A B 1994 6 23 (1994)05 1995 5 (95)073 10:1 (95) 562 1995 10 019032 ( ) 262,244,070.00 ( ) 57.22% (2000)499 ( ) ( ) 2000 11 2001 3 26 2001 ( ) 2001 3 30, 2001 6 14 262,244,070.00 262,244,070 ( 1 ) (A )13,200,000 (B )88,000,000 (95) 562 A B 1994 3 11 1994 3 15 2004 8 11 ( ) ( ) ( ) 150,044,070 ( 57.22%) 2004 11 23 2004 12 2 (2004) 1954 [2004]1122 2005 4 19 [2005]25 2005 12 31 2. ( )

2005 3. 1. 2. 1 1 12 31 3. 4. 5. ( ) ( ) ( ) 6. ( ) ( ) 7. ( ) 8. (1) ( ) 29

2005 (2) 9. (1) / (2) ( ) 1 0.5% 1 2 10% 2 3 30% 3 50% 10. 12 12 11. (1) (2) 30

2005 (3) (4) (5) 12. (1) (2) 10 2002 10 2003 2004 5 28 ( ) (3) ( ) ( ) (4) (5) 2004 5 28 ( ) ( [2004]3 ) 31

2005 ( ) 13. (1) 1 2,000 2 (2) (3) (4) ( 4%) 20 30 3.2% 4.8% 5 19.2% 7 13.7% 5 19.2% 5 9 7 10.4% 20%( ) 14. (1) (2) ( 10 ) 5 5 32

2005 (3) 15. (1) (2) 16. (1) (2) A B C 17. 18. (1995)11 (96)2 *1 15% 17% 33

2005 *2 5% 1% 3% 0.5% *1 42% 27% 15% *2 [1999]273 (1999)93 217,153,788.50 (%) US 600,000.00 3,477,096.00 70 5,000,000.00 3,490,000.00 69.8 *1 ( ) US 2,170,000.00 8,984,310.00 52.9954 ( ) *2 20,000,000.00 19,615,360.88 75 ( ) JP 25,000,000.00 1,689,750.00 100 *3 US 1,500,000.00 9,104,755.00 73.33 ( ) *1 18% 12.2% 2005 12 31 34

2005 *2 4,743,500.00 ( )25% 2005 10 2005 11 100.30 2,000 2005 12 13 (2005)0841 *3 ( ) 300 150 2005 12 31 150 2004 12 31 1. 2005 2004 421,812.61 549,026.53 5,952.00 8.0709 48,038.00 247.00 8.2765 2,044.30 753,690.00 0.0685 51,611.88 661,693.00 0.079701 52,737.60 19,019.40 9.5624 181,871.11 515.00 11.2627 5,800.29 1,200.00 1.0405 1,248.60 14,400.00 1.0637 15,317.28 535.00 13.9150 7,444.53 - - - 144,614,809.25 161,099,249.98 76,219.42 8.0615 614,443.11 938,297.39 8.2765 7,765,818.34 70,851,504.00 0.0687 4,866,254.32 45,300,837.00 0.079701 3,610,522.01 4,857.21 9.5624 46,446.58 6.10 11.2627 68.70 15,801,138.73-160,837,760.59 161,648,276.51 2. 3,000,000.00 30,000,000.00 30,000,000.00 3,000,000.00 3,511,892.12 2,500,000.00 2,500,000.00 2,500,000.00 2,500,000.00 1800 5,500,000.00 32,500,000.00 32,500,000.00 5,500,000.00 3. 2005 2004 39,858,149.00 11,778,897.20 189,616.00 180,000.00 40,047,765.00 11,958,897.20 5%( 5%) 35

2005 4. 2005 2004 - - 120,000.00 5. 2005 2004 (%) (%) (%) (%) 1 292,840,158.71 86.83 0.43 1,273,801.00 199,224,596.69 92.12 0.17 335,720.48 1 2 36,318,924.14 10.77 11.12 4,037,925.31 12,680,419.77 5.86 23.48 2,977,985.31 2 3 4,593,649.88 1.36 72.46 3,328,368.20 1,378,631.97 0.64 57.28 789,731.36 3 3,503,628.86 1.04 86.39 3,026,722.83 2,995,920.59 1.38 100.00 2,995,920.59 337,256,361.59 100.00 11,666,817.34 216,279,569.02 100.00 7,099,357.74 5%( 5%) 114,550,006.64 1,239,726.40 317,617.01 5% 1 86.83% 0.5% 318,803.50 170,280,493.38 50.49% 6. 2005 2004 (%) (%) (%) (%) 1 9,957,821.17 68.00 0.49 49,218.79 12,827,746.99 90.58 0.33 42,238.52 1 2 4,100,000.00 28.00 8.96 367,279.39 1,245,650.21 8.80 0.50 6,228.25 2 3 519,114.47 3.55 15.86 82,317.45 20,996.45 0.15 89.07 18,702.52 3 66,236.45 0.45 61.02 40,420.70 67,760.00 0.47 50.37 34,130.00 14,643,172.09 100.00 539,236.33 14,162,153.65 100.00 101,299.29 5%( 5%) ( ) 1,350,000.00 1-2 981,037.00 <1 800,000.00 1-2 36

2005 300,000.00 <1 120,000.00 <1 3,551,037.00 24.25% 7. 2005 2004 (%) (%) 1 35,628,736.82 98.99 35,388,559.38 98.51 1 2 301,242.10 0.84 532,499.67 1.48 2 3 58,272.00 0.16 5,113.00 0.01 3 2,513.00 0.01 - - 35,990,763.92 100.00 35,926,172.05 100.00 5%( 5%) 8. 110,834,572.57 82,695,360.72-1,303,937.42 - - - 1,303,937.42 4,430,221.57 3,178,538.95 - - - - - - 11,407,674.29 6,795,942.77 59,920.84 - - - - 59.920.84 720,051.19 325,098.70 - - - - - - 1,191,699.38 1,005,514.04-73,643.01 - - - 73,643.01 3,171,516.12 4,582,927.99 - - - - - - * 8,040,794.55 - - - - - - - 139,796,529.67 98,583,383.17 59,920.84 1,377,580.43 - - - 1,437,501.27 * 9. 2005 2004-10,100.00 948,601.67 1,026,603.33-12,500.00-66,401.71 1,297.12 104,840.95 949,898.79 1,220,445.99 10. 99 6,000,000.00 4% 6,000,000.002005 8 10-6,000,000.00 120,000.00 1,200,000.00 37

2005 11. (1) ( ) 1,439,328.40-205,335.73 1,233,992.67 - - - - - - 1,439,328.40-205,335.73 1,233,992.67 - - - - - - ( ) 24,108,999.34 - - 24,108,999.34 - - - - - - 24,108,999.34 - - 24,108,999.34 - - - - - - 25,548,327.74-205,335.73 25,342,992.01 - - - - - - (2) ( ) 2,042,882.71 10 204,288.25 1,227,620.55 10,474.74 10 1,047.48 6,372.12 2,053,357.45 205,335.73 1,233,992.67 (3) ( ) ( ) 13,600,000.00 17% 9,508,999.34 8% 1,000,000.00 7.128% 24,108,999.34 6.14% 12. (1) 86,370,256.97-2,918,883.00 83,451,373.97 62,450,538.91 15,002,833.36 6,090,010.04 71,363,362.23 15,834,001.94 2,139,665.22 1,223,947.35 16,749,719.81 3,893,164.96 1,174,136.42 146,003.46 4,921,297.92 3,941,474.40 713,035.25 206,351.70 4,448,157.95 172,489,437.18 19,029,670.25 10,585,195.55 180,933,911.88 38

2005 (2) 10,386,467.29 2,405,038.01 1,204,039.10 11,587,466.20 26,461,619.82 10,772,054.20 3,869,850.30 33,363,823.72 7,283,060.73 1,862,480.08 726,264.08 8,419,276.73 1,621,591.76 790,042.08 82,234.58 2,329,399.26 675,241.67 1,460,957.57 175,101.70 1,961,097.54 46,427,981.27 17,290,571.94 6,057,489.76 57,661,063.45 (3) 75,983,789.68 71,863,907.77 35,988,919.09 37,999,538.51 8,550,941.21 8,330,443.08 2,271,573.20 2,591,898.66 3,266,232.73 2,487,060.41 126,061,455.91 123,272,848.43 (4) - - - - - - 1,840,110.25 - - - - 1,840,110.25 352,256.21 - - 7,258.15 7,258.15 344,998.06 86,555.96 - - 12,468.00 12,468.00 74,087.96 - - - - - - 2,278,922.42 - - 19,726.15 19,726.15 2,259,196.27 (5) 75,983,789.68 71,863,907.77 34,148,808.84 36,159,428.26 8,198,685.00 7,985,445.02 2,185,017.24 2,517,810.70 3,266,232.73 2,487,060.41 123,782,533.49 121,013,652.16 (6) 172,489,437.18 19,029,670.25 19,029,670.25 10,585,195.55 10,585,195.55 180,933,911.88 39

2005 46,427,981.27 17,290,571.94 17,290,571.94 6,057,489.76 6,057,489.76 57,661,063.45 (7) 1,250,203.55 (8) 115,000.00 275,748.20 13. 12,508,732.00 3,127,183.21-2,501,746.70 11,883,295.49-625,436.51 5 1,803,093.00 940,554.49-360,618.36 1,223,156.87-579,936.13 2-19 14,311,825.00 4,067,737.70-2,862,365.06 13,106,452.36-1,205,372.64 14. 8,966,987.00 4,810,733.88-1,021,908.08 5,178,161.20-3,788,825.80 3-57 517,996.80 233,097.72-25,899.88 310,798.96-207,197.84 96 9,484,983.80 5,043,831.60-1,047,807.96 5,488,960.16-3,996,023.64 15. 2005 2004 3,000,000.00 5,990,000.00 16. 2005 2004 12,807,396.41 18,314,222.50 8,723,351.31 627,412.40 21,530,747.72 18,941,634.90 40

2005 5%( 5%) 17. 5%( 5%) 1,992,594.85 18. 5%( 5%) 51,750,849.43 19. 9,007,609.20 20. 2005 2004 378,687.27 287,695.68 ( ) 335,879.04 335,879.04 82,443.05 691,293.86 797,009.36 1,314,868.58 21. 2005 2004 1,947,102.11 (998,723.75) 1,376,173.18 2,119,358.53 14,396.06 32,471.64 5,441,349.66 62,527.07 12,863,212.08 785,562.93 (424,983.28) 27,649.02 21,217,249.81 2,028,845.44 22. 2005 2004 10,085.86 13,304.81 6,451.95 38,447.97-9,783.44 16,537.81 61,536.22 23. 5%( 5%) 41

2005 2005 30,500,000.00 3,701,421.86 622,158.02 549,445.90 287,727.83 24. 2005 2004 1,020,000.00 1,200,000.00 8,200,000.00 5,800,000.00-50,000.00 4,350.00 12,917.02 141,000.00 373,375.90 9,365,350.00 7,436,292.92 25. 2005 2004 * 4,992,000.00 343,030.27 - - - 26. 2005 2004 8,760,000.00 601,952.16 - - - * 27. 2005 2004 14,255,000.00 10,852,336.61 8,255,000.00 4,000,000.00 863-852,336.61 *1 MES *3 6,000,000.00 6,000,000.00 6,591,582.55 7,168,567.30 726,902.00 800,000.00-150,000.00 DSS Real Time System 50,000.00 - - 534,800.00 *1 1,163,051.39 2,700,000.00-1,263,263.30 *2 798,458.10 781,872.00 ERP MES *1-157,800.00 MES 123,171.06 297,040.00 42

2005 70,000.00 - - 940,000.00-140,000.00 - *3-483,792.00 CMM 2,400,000.00-180,000.00-20,846,582.55 18,020,903.91 *1 MES 964,600.00 *2 787,618.19 *3 2001 10 ( ) 600 2005 12 31 28. 1 ( A /B ) (%) ( ) / (%) 1. 150,044,070.00 57.22 - - - - - 150,044,070.00 57.22 (1) 150,044,070.00 57.22 - - - - (150,044,070.00) - - (2) - - - - - - 150,044,070.00 154,044,070.00 57.22 (3) - - - - - - - - - (4) - - - - - - - - - 2. 11,000,000.00 4.19 - - - - - 11,000,000.00 4.19 3. - - - - - - - - - 4. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 161,044,070.00 61.41 - - - - - 161,044,070.00 61.41 1. 13,200,000.00 5.03 - - - - - 13,200,000.00 5.03 2. 88,000,000.00 33.56 - - - - - 88,000,000.00 33.56 3. - - - - - - - - - 4. - - - - - - - - - 101,200,000.00 38.59 - - - - - 101,200,000.00 38.59 262,244,070.00 100.00 - - - - - 262,244,070.00 100.00 29. 367,200.00 2,735.70-369,935.70 28,461.83 217,595.02 246,056.85 2,552,746.38 9,884.38-2,562,630.76-1,752,218.19 1,752,218.19 18,257,313.08 - - 18,257,313.08 21,205,721.29 1,982,433.29-23,188,154.58 2,735.70 43

2005 217,595.02 25% 9,884.38 30. 16,581,253.43 7,357,504.79-23,938,758.22 13,751,301.49 6,518,608.37-20,269,909.86 1,284,082.47 - - 1,284,082.47 31,616,637.39 13,876,113.16-45,492,750.55 31. 2005 (1) 96,604,081.67 (2) 65,186,083.73 (3) 7,357,504.79 (4) 6,518,608.37 (5) 52,448,814.00 (6) 95,465,238.24 10% 10% 2004 10% 10% 2005 0.20 / 32. 2005 2004 2005 2004 2005 2004 748,190,476.76 593,412,893.14 554,205,565.68 420,964,791.40 193,984,911.08 172,448,101.74 128,058,858.14 96,130,719.95 73,122,904.58 55,878,961.97 54,935,953.56 40,251,757.98 399,221,346.58 561,984,509.52 358,345,906.50 516,986,330.36 40,875,440.08 44,998,179.16 61,351,749.08 59,960,085.00 44,126,273.29 44,140,836.97 17,225,475.79 15,819,248.03 1,336,822,430.56 1,311,488,207.61 1,029,800,650.05 1,037,970,920.70 307,021,780.51 273,517,286.91 - - - - - - 1,336,822,430.56 1,311,488,207.61 1,029,800,650.05 1,037,970,920.70 307,021,780.51 273,517,286.91 610,937,260.44 45.70% 44

2005 33. 2005 2004 14,346,903.46 7,902,253.87 31,434.27 58,898.28 39,778.73 55,571.66 21,673.05 36,896.74 14,439,789.51 8,053,620.55 34. 2005 2004 541,314.97 525,914.96 1,195,993.98 720,705.51 719,537.80 86,313.68 179,756.27 297,327.75 207,603.18 362,186.54 (80,629.96) 35. 2005 2004 * 120,000.00 240,000.00 (205,335.73) (205,335.76) ( ) 3,360,000.00 1,200,000.00 354,145.72-3,628,809.99 1,234,664.24 * 36. 2005 2004 6,800.00 1,012,440.96 - [2000]25 (2005) 2000.6.24-0009 24494/ ( 2010.12.31 )[2004]0075 21669 / (2005) 0068 29409/ (2005)31849-274,000.00 1112303592 2001.1.1-2003.12.31 333,000.00 - [2005]55 1,345,440.96 280,800.00 45

2005 37. : 2005 30,500,000.00 2,810,783.00 1,195,993.98 38. : 2005 87,375,308.00 39. : 2005 2,825,678.64 1. 2005 2004 (%) (%) (%) (%) 1 276,293,732.41 87.01 0.41 1,125,184.57 173,990,479.43 91.57 0.14 250,335.81 1 2 34,152,621.08 10.76 10.78 3,682,819.20 12,441,865.26 6.55 23.10 2,873,614.76 2 3 3,926,712.31 1.24 78.77 3,093,233.32 1,244,859.58 0.66 57.37 714,200.44 3 3,136,250.88 0.99 85.19 2,671,626.70 2,334,457.46 1.22 100.00 2,334,457.46 317,509,316.68 100.00 10,572,863.79 190,011,661.73 100.00 6,172,608.47 722,453.40 257,617.01 5% 1 87.01% 0.5% 164,043,309.18 51.67% 46

2005 2. 2005 2004 (%) (%) (%) (%) 1 7,374,265.06 79.91 0.49 35,860.81 8,495,659.81 87.21 0.29 25,178.70 1 2 1,586,557.12 17.19 10.00 158,709.71 1,245,650.21 12.79 0.51 6,228.25 2 3 267,181.00 2.90 30.81 82,317.45 - - - 9,228,003.18 100.00 276,887.97 9,741,310.02 100.00 31,406.95 ( ) 981,037.00 <1 800,000.00 1-2 300,000.00 <1 120,000.00 <1 100,000.00 1-2 5% 1 79.91% 2,301,037.00 24.94% 3. (1) ( ) 37,767,465.91 14,537,209.13 2,502,069.07 49,802,605.97 - - - - - - 37,767,465.91 14,537,209.13 2,502,069.07 49,802,605.97 - - - - - - ( ) 24,108,999.34 - - 24,108,999.34 - - - - - - 24,108,999.34 - - 24,108,999.34 - - - - - - 61,876,465.25 14,537,209.13 2,502,069.07 73,911,605.31 - - - - - - (2) ( ) ( ) (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)=(5)+(6) +(9)+(11) 1999.03-70% 3,477,096.00-293,023.41 215,955.41 379,436.82 - - 3,856,532.82 2019. 03 2001.12-69.80% 1,295,840.55 151,276.74 (617,868.65) - 460,302.73 9,884.38 234,184.09 2,141,604.11 2051.12 2002.2-52.9954% 8,973,835.26 - (386,012.13) - 279,256.11-60,722.13 9,313,813.50 2009.3 2003.1-75% 6,739,261.83 12,131,154.32 3,189,516.66 2,080,777.93 3,917,424.46 2,735.70 2,735.70 22,790,576.31 2009.1 47

2005 100% 1,689,750.00-524,058.57-1,034,402.05 - - 2,724,152.05 2004.3-73.33% 9,104,755.00 - (609,283.13) - (1,362,820.49)- - 7,741,934.51 2024.3 31,280,538.64 12,282,431.06 2,393,434.73 2,296,733.34 4,708,001.68 12,620.08 297,641.92 48,568,613.30 2,042,882.71 10 204,288.25 1,227,620.55 10,474.74 10 1,047.48 6,372.12 2,053,357.45 205,335.73 1,233,992.67 (3) ( ) 13,600,000.00 17% 9,508,999.34 8% 1,000,000.00 7.128% 24,108,999.34 16.35% 4. 2005 2004 2005 2004 2005 2004 728,646,412.04 568,872,686.02 544,981,734.79 408,288,883.36 183,664,677.25 160,583,802.66 112,626,210.54 86,252,164.01 65,591,957.49 51,441,893.85 47,034,253.05 34,810,270.16 331,661,027.93 463,860,956.50 296,024,137.27 427,838,503.87 35,636,890.66 36,022,452.63 1,172,933,650.51 1,118,985,806.53 906,597,829.55 887,569,281.08 266,335,820.96 231,416,525.45 5. 2005 2004 * 120,000.00 240,000.00 ( ) 3,360,000.00 1,200,000.00 2,393,434.73 3,676,128.97 (205,335.73) (205,335.76) 153,373.04 72,858.73 5,821,472.04 4,983,651.94 * 48

2005 ( ) 1. 2. 12,512,000,000.005,000,000,000.00-17,512,000,000.00 8,678,889.20 11,321,110.80-20,000,000.00 US 3,000,000.00 - US 1,500,000.00US 1,500,000.00 3. % % % % 150,044,070.00 57.22 - - 150,044,070.00 57.22 - - - - 150,044,070.00 57.22 - - 150,044,070.00 57.22 4,339,444.60 50.00 10,660,555.40 25.00 - - 15,000,000.00 75.00 ( ) 49

2005 ( ) 1. 2005 2004 ( ) 2005 2004 (%) (%) - - - 2,628,350.82 0.34 5,024,891.72 0.61 3,005,335.50 0.39 3,220,726.75 0.39 - - - 1,600,000.00 0.20 - - - 852,862.79 0.11 887,043.42 0.12 2. 2005 2004 ( ) 2005 2004 (%) (%) 447,709,440.57 33.49 312,347,922.06 23.82 12,131,397.12 0.91 33,481,548.46 2.55 39,546,968.83 2.96 30,893,392.83 2.35 18,276,958.92 1.37 40,988,231.01 3.12 13,103,197.96 0.98 67,152,144.32 5.12 1,609,909.50 0.12 - - - 4,278,619.81 0.32 5,850,469.48 0.45 74,647,025.01 5.58 83,432,978.08 6.36 900,504.81 0.07 1,436,421.68 0.11 521,300.00 0.04 564,255.65 0.04 5,665,450.55 0.42 4,041,110.91 0.31 9,384,608.89 0.70 27,642,537.55 2.11 18,878,249.42 1.41 - - - 36,008,806.43 2.70 24,090,622.05 1.84 50

2005 3,000 5% 2005 (%) 298,470,182.71 39.89 87,818,460.22 68.58 61,420,797.64 15.39 17,328,636.03 2.32 700,553.50 0.55 21,517,779.30 0.05 49,330,470.43 6.59 10,612,214.91 8.29 14,704,339.67 3.68 2004 (%) 196,793,512.29 33.16 63,139,633.82 71.52 52,414,775.95 11.12 18,184,075.79 3.06 300,000.00 0.34 14,997,472.67 3.18 16,036,918.19 2.70 2,949,610.75 3.34 22,001,702.07 4.67 18,178,229.87 3.06 2,883,928.82 3.27 9,831,234.14 2.09 47,481,840.66 8.00 35,951,137.42 7.63 59,325,840.07 10.00 7,826,304.25 1.66 IT 3. 2005 2004 ( ) ( ) ( ) (%) 2005 2004 2005 2004-120,000.00-100.00 114,550,006.64 30,351,749.70 33.97 14.03 7,840,930.34 8,725,263.24 2.32 4.03 1,837,430.78 2,259,706.12 0.54 1.04 1,435,590.00-0.43-171,728.89 214,479.80 0.05 0.10-4,420,595.84-2.04 51,461.67 25,034.48 0.02 0.01 433,158.51 1,544,575.14 0.13 0.71 1,407,146.60-0.42-51

2005 4,463,975.83 502,814.79 1.32 0.23 80,000.00 2,259,719.88 0.02 1.04 1,149,119.37-0.34-2,854,547.89 3,368,194.00 0.85 1.56 1,002,246.13-0.30-3,477,843.15 1,577,416.71 1.03 0.73 140,755,185.80 55,249,549.70 41.74 25.52 378,687.27 287,695.68 47.51 21.88-560.00-0.00-200,000.00-0.56-200,560.00-0.56 1,992,594.85 765,152.80 1.36 0.65 235,776.42 111,276.42 0.16 0.09 179,454.00 169,511.85 0.12 0.14 2,407,825.27 1,045,941.07 1.64 0.88 51,750,849.43-35.01-1,655,079.51-1.12-1,280,000.00-0.87-292,994.35 1,504,505.17 0.20 2.11-648,724.42-0.91 4,436,696.35 8,810,553.13 3.00 12.36 1,348,212.31 1,776,260.05 0.91 2.49-1,704,183.57-2.39 1,087,758.78-0.74-2,580,663.47 1,949,563.95 1.73 2.73 64,432,254.20 16,393,790.29 43.58 22.99 4. 2005 2004 ( ) ( ) ( ) (%) 2005 2004 2005 2004-1,540.00-0.01-316,000.00-2.23 981,037.00-6.70-981,037.00 317,540.00 6.70 2.24-149,799.00-1.46 30,500,000.00 800.00 71.68 0.01-250,000.00-2.44 52

2005-23,753.00-0.23 30,500,000.00 424,352.00 71.68 4.14 5. (1) 2005 426.68461.67441.37 217,595.02 25% (2) 2003 7 250 250 2005 7 200,772.68 (3) 2005 9 250 (4) 300 (5) 2005 2004 1,042,252.86 9,786,539.92 1,148,889.21 8,864,380.35 USD4,614.22 USD384,412.56 3,126,164.34 1,581,579.96 2005 1,647 2005 12 31 300 5.22% 207,921.30 (6) 2003 7 2003 7 2005 8 200 2005 12 31 100 2004 9 2004 9 2006 12 300 2005 12 31 100 53

2005 (7) 2002 11 18 2007 9 20 294,189.60 30 2005 1 1 2005 12 31 1,084,000.00 2,906,400 (8) 2004-04-29 2007-04-28 46.9 2005-08-17 2007-04-28 46.9 2004-04-29 2007-04-28 46.9 2004-04-29 2007-04-28 2004-04-29 2007-04-28 2004-04-29 2007-04-28 38.6 2004-04-29 2007-04-28 12 2004-04-29 2007-04-28 12 2004-04-29 2007-04-28 12 2004-04-29 2007-04-28 2004-04-29 2007-04-28 2005-03-10 2007-04-28 28 2004-04-29 2007-04-28 42.3 2004-04-29 2007-04-28 38.6 2004-04-29 2007-04-28 38.6 2004-04-29 2007-04-28 38.6 2005-10-19 2007-04-28 38.6 440.0 1. 2004 4 40 2005 12 31 135 2. 2005 2004 1 641.16 442.90 2 5 ( 5 ) 811.56 871.00 5 173.89 180.50 1,626.61 1,494.40 54

2005 2006 3 8 (1) 100% (2) ( ) 47.0046% (3) 32% 1 (2004 ) 2005 2004 2,559,819.01 (101,795.45) 182,317.50 122,230.00-17,004.91 - - 249,826.83-305,047.24 20,841.13 270,636.77 328,734.74 (215,743.96) (248,612.28) 3,351,903.39 138,403.05 55

2005 2006 3 8 [ : 2005 ] 2006 3 8 [ : 2005 ] 2005 1 2 3 2006 3 8 56

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

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

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 2006 1

Shanghai Baosight Software Co., Ltd. Consolidated Income Statement For the year ended 31 December 2005 2005 2004 Notes Rmb 000 Rmb 000 Revenue 4 1,310,582 1,286,900 Cost of sales (1,029,801) (1,032,775) Gross profit 280,781 254,125 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 Rmb0.2687 Rmb0.2073 The accompanying notes on pages 6 to 35 form an integral part of the financial statements. 2

Shanghai Baosight Software Co., Ltd. Consolidated Balance Sheet At 31 December 2005 2005 2004 ASSETS Notes Rmb 000 Rmb 000 Non-current assets Property, plant and equipment 11 102,106 105,206 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) 5,097-157,187 158,588 Current assets Held for trading investments 15 3,000 3,000 Held-to-maturity investments 16 2,500 8,620 Inventories 17 138,359 98,523 Trade and other receivables, net 18 334,803 280,556 Unbilled amounts due from customers for contract works 19 81,879 81,891 Cash and cash equivalents 160,838 161,648 721,379 634,238 TOTAL ASSETS 878,566 792,826 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Issued capital 24 262,244 262,244 Reserves 25 168,125 150,507 430,369 412,751 Minority interests 21,429 24,018 Total equity 451,798 436,769 Non-current liabilities Interest-bearing loans and borrowings 20 602 - 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 21 395,134 332,489 Income tax payable/(recoverable) 8(b) 5,441 (443) 403,918 338,036 Total liabilities 426,768 356,057 TOTAL EQUITY AND LIABILITIES 878,566 792,826 The accompanying notes on pages 6 to 35 form an integral part of the financial statements. 3

Shanghai Baosight Software Co., Ltd. Consolidated Cash Flow Statement For the year ended 31 December 2005 2005 2004 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 1,196 721 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) 854 - 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 160,838 161,648 The accompanying notes on pages 6 to 35 form an integral part of the financial statements. 4

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 2004 262,244 14,410 10,678 1,910 8,496 249 60,340 358,327 17,378 375,705 Net profit for the year - - - - - - 54,355 54,355 3,364 57,719 Foreign currency translation difference on an overseas subsidiary - - - - - 69-69 - 69 Dividends of subsidiaries - - - - - - - - (35) (35) Incorporation of a subsidiary - - - - - - - - 3,311 3,311 Transfer to/(from) retained earnings - - 5,468-5,415 - (10,883) - - - At 31 December 2004 262,244 14,410 16,146 1,910 13,911 318 103,812 412,751 24,018 436,769 Net profit for the year - - - - - - 70,455 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 - 3 - - - - - 3 2,501 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 - - - - (350) - - - Equity dividends - - - - - - (52,449) (52,449) - (52,449) (Note10) Dividends of subsidiaries - - - - - - - - (2,194) (2,194) At 31 December 2005 262,244 14,763 23,504 1,910 20,430 (73) 107,591 430,369 21,429 451,798 The accompanying notes on pages 6 to 35 form an integral part of the financial statements. 5

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 1. 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 1994. 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 1994. 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 2000. 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

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 2.1 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 2005. 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

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 2.2 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

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 3. 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 1999 70 Software development, computer information and provision of consultancy services 13 May 1998 69.8 Computer networks, equipment installation and e-commerce 17 March 1994 53 Software development, system integration and provision of related technical services 11 January 1994 75 Design, development, manufacture and sale of electronics surveillance systems and equipment and provision of related technical services 10 January 2003 100 Software development and system integration 15 March 2004 73.3 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

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 3. 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

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 3. Summary of significant accounting policies (continued) Land use rights Land use rights are stated at cost less accumulated amortisation and any impairment in value. Land use rights are amortised on a straight-line basis over 50 years, being the period of the land use rights. The carrying values of land use rights are reviewed for impairment at each balance sheet date. Intangible assets Patents and computer software licences Patents and computer software licences acquired separately are capitalised at cost and those from a business acquisition are capitalised at fair value as at the date of acquisition. Following initial recognition, patents and computer software licences are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of patents and computer software licences are assessed to be five years and amortisation is charged on a straight-line basis. The amortisation of patents and computer software licences is recognised in the consolidated income statement in the expense category consistent with the function of the intangible asset. Patents and computer software licences are tested for impairment annually either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Goodwill/excess over the cost of business combination Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the cash-generating units, or groups of cashgenerating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or group of units. Each unit or group of units to which the goodwill is so allocated: represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and is not larger than a segment based on either the Group s primary or the Group s secondary reporting format determined in accordance with IAS 14 Segment Reporting Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units), to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cashgenerating unit retained. 11

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 3. Summary of significant accounting policies (continued) Intangible assets (continued) Goodwill/excess over the cost of business combination (continued) Any excess of the Group s interest in the net fair value of the acquirees identifiable assets, liabilities and contingent liabilities over the cost of acquisition of subsidiaries and associates, after reassessment, is recognised immediately in the consolidated income statement. Research and development costs Research costs are expensed as incurred. An intangible asset arising from development expenditure on an individual project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the ability of resources to complete and the availability to measure reliably the expenditure during the development. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure capitalised is amortised over the period of expected future sales from the related project. The carrying value of development costs is reviewed for impairment annually when the asset is not yet in use or more frequently when an indication of impairment arises during the reporting year. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the consolidated income statement when the asset is derecognised. Impairment of assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset s recoverable amount. An asset s recoverable amount is the higher of an asset s or cash-generating unit s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognised in the consolidated income statement in those expense categories consistent with the function of the impaired asset. 12

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 3. Summary of significant accounting policies (continued) Impairment of assets (continued) An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation/amortisation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Investments All investments are initially recognised at cost, being the fair value of the consideration given and including acquisition charges directly associated with investment. After initial recognition, investments, which are classified as held for trading, are measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on investments held for trading are recognised in the consolidated income statement. Available-for-sale financial assets consisted of investments in ordinary shares in unlisted companies. For the investments in unlisted companies that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, the investments are carried at cost less any impairment losses. Gains or losses on available-for-sale investments are recognised in the consolidated income statement. Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Group has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Other long term investments that are intended to be held-to-maturity are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any discount or premium on acquisition, over the period to maturity. For investments carried at amortised costs, gains and losses are recognised in the consolidated income statement when the investments are derecognised or impaired, as well as through the amortisation process. For investments that are actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices at the close of business on the balance sheet date. For investments where there is no quoted market price, and whose fair value cannot be reliably measured, the investments are carried at cost less any impairment losses. All regular way purchases and sales of financial assets are recognised on the settlement date, i.e. the date that the assets are being delivered to or by the Group. 13

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 3. Summary of significant accounting policies (continued) Impairment of financial assets The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. Assets carried at amortised cost If there is objective evidence that an impairment loss on held-to-maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the impairment loss is recognised in the consolidated income statement. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the consolidated income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. Assets carried at cost If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed. Available-for-sale investments If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to the consolidated income statement. Impairment losses on equity instruments classified as available for sale are not reversed through profit or loss. 14

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 3. Summary of significant accounting policies (continued) Derecognition of financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where: the rights to receive cash flows from the asset have expired; the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay in full without material delay to a third party under a "pass-through" arrangement; or the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group's continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group's continuing involvement is the amount of the transferred asset that the Group may repurchase, except in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, where the extent of the Group's continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. Inventories Inventories are stated at the lower of cost, calculated using the moving average method, and net realisable value. The costs of work in progress and finished goods comprise direct materials, direct labour and an attributable proportion of production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Trade and other receivables Trade receivables are recognised and carried at original invoice amounts less a provision for any uncollectable amounts. Provision is made when there is objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified. 15

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 3. Summary of significant accounting policies (continued) Cash and cash equivalents Cash and short-term deposits in the consolidated balance sheet comprise cash at banks and in hand and short-term deposits with an original maturity of three months or less. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Trade and other payables Liabilities for trade and other payables are carried at cost, which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Group. Interest-bearing loans and borrowings All loans and borrowings are initially recognised at cost, being the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains or losses are recognised in net profit or loss when the liabilities are derecognised or impaired, as well as through the amortisation process. Borrowing costs Borrowing costs are recognised as an expense when incurred. Government grants and subsidies Grants and subsidies from the government are recognised when there is reasonable assurance that the grant or subsidy will be received and all attaching conditions will be complied with. When the grant or subsidy relates to an expense item, it is recognised as income over the period necessary to match the grant or subsidy, on a systematic basis, to the costs which it is intended to compensate. Where the grant or subsidy relates to an asset, the fair value is credited to a deferred income account and is released to the consolidated income statement over the expected useful life of the relevant asset by equal annual instalments. Retirement benefits Retirement benefits in the form of contributions under defined contribution retirement plans to relevant authorities are charged to the consolidated income statement as incurred. 16

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 3. Summary of significant accounting policies (continued) Income tax PRC income tax is provided at rates applicable to enterprises in the PRC on the income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes, based on the existing PRC income tax legislation, practices and interpretations thereof. Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax base of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except: where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carryforward of unused tax credits and unused tax losses can be utilized, except: where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilised. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. 17

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 3. Summary of significant accounting policies (continued) Operating leases Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rentals applicable to such operating leases are charged to the consolidated income statement on the straight-line basis over the lease terms. Foreign currencies The Group s financial records are maintained and the financial statements are stated in Renminbi ( Rmb ), which is the Group s functional and presentation currency. Foreign currency transactions are recorded in the functional currency at the applicable exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable exchange rates ruling at that date. Exchange differences are dealt with in the consolidated income statements. The functional currency of an overseas subsidiary is other than Rmb. The assets and liabilities of the overseas subsidiary are translated into Rmb at the rate of exchange ruling at balance sheet date. The income statement of the overseas subsidiary is translated at weighted average exchange rates for the year. The exchange differences arising on the retranslation are taken directly into equity. On disposal of a foreign entity, accumulated exchange differences are recognised in the consolidated income statement as a component of the gain or loss on disposal. Unbilled amounts due from customers for contract works Contract revenue on software development, system integration and the provision of related services mainly comprises the following contract amounts: - sale of hardware (including computer hardware, parts and components and equipment); and - software development (including system development, system design and the provision of related services). Cost of sale of hardware comprises, inter alia, the costs of computer hardware, parts and components and equipment. Cost of software development comprises, inter alia, labour, other costs of personnel and relevant equipment directly engaged in providing software development and attributable overheads. Revenue from software development is recognised based on the percentage of completion of the contract, provided that revenue and the costs incurred as well as the estimated costs to completion can be measured reliably. The percentage of completion of a contract is measured by reference to the percentage of labour hours incurred to date to the estimated total labour hours for each contract, which approximates to the percentage determined based on costs incurred. 18

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 3. Summary of significant accounting policies (continued) Unbilled amounts due from customers for contract works (continued) Unbilled amounts due from customers for contract works are recorded in the consolidated balance sheet at the amount of contract costs incurred plus attributable profits less provisions for foreseeable losses and progress billings. Management reviews contract works on a regular basis. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Revenue recognition Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases: (a) Software development income: - when the contract outcome can be reliably measured, revenue is recognised by reference to the stage of completion. Stage of completion is measured on the basis as explained in the accounting policy for Unbilled amounts due from customers for contract works above; - where the contract outcome cannot be reliably measured, revenue is recognised only to the extent of the expenses recognised which are recoverable; (b) (c) (d) (e) (f) Sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold; Maintenance services income, on a time proportion basis over the period of the contract; rental income, on a time proportion basis over the lease terms; Interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset; and Dividends and investment income, when the shareholders right to receive payment has been established. Use of estimates The preparation of the consolidated financial statements in conformity with IFRSs requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. 19

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 4. Segment information Revenue mainly represents the total invoiced value of goods supplied and services and contract revenue on the rendering of software development, net of returns and allowances, and after deducting various types of revenue taxes. The Group s revenue and profit for the current year were mainly derived from the software development, system integration and related services as well as the production of electronics security systems and equipment carried out in the PRC. The principal assets employed by the Group are located in the PRC. Accordingly, no segment analysis by business nature and geographical area is provided. An analysis of revenue is set out below: 2005 2004 Rmb 000 Rmb 000 Software development income 748,190 593,487 Sale of hardware 399,222 558,980 Maintenance service income 128,059 93,813 Sale of electronics surveillance systems and equipment 61,352 59,960 1,336,823 1,306,240 Less: Revenue taxes (26,241) (19,340) 1,310,582 1,286,900 5. Other income 2005 2004 Rmb 000 Rmb 000 Subsidy income 13,160 11,314 Investment income 3,834 1,440 Bank interest income 1,196 721 Recognised negative goodwill 217 - Amortisation of deferred income 350 - Rental income 3,523 - Others 1,033-23,313 13,475 20

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 6. Profit from operating activities The Group s profit from operating activities is arrived at after charging/(crediting): 2005 2004 Rmb 000 Rmb 000 Depreciation 17,803 15,168 Amortisation of land use rights 535 536 Amortisation of intangible assets 2,863 2,882 Provision for bad and doubtful debts 4,993 915 Staff costs: Wages and salaries 230,816 178,857 Contribution to statutory pension scheme 29,503 22,616 Other staff benefits 35,954 43,062 (Gains)/losses on disposal of property, plant and equipment (3,336) 567 Provision for inventories obsolescence 1,437 - Operating lease expenses: Land and buildings 4,550 3,950 Research and development costs 42,187 33,848 7. Finance costs 2005 2004 Rmb 000 Rmb 000 Bank interest expenses 541 466 Foreign exchange losses and bank charges 1,017 114 1,558 580 8. Income tax (a) Income tax expense in the consolidated income statement represents: 2005 2004 Rmb 000 Rmb 000 Current income tax: Current income tax charge 14,423 11,374 Adjustments in respect of current income tax of the previous year (2,908) - Deferred income tax: Relating to origination and reversal of temporary differences (5,097) - Income tax expense 6,418 11,374 21

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 8. Income tax (continued) (a) Income tax expense in the consolidated income statement represents: (continued) The Group s applicable tax rate represents the weighted average of the statutory corporate income tax rates in the tax jurisdictions in which the Group operates. The statutory corporate income tax rates range between 15% and 42% (2004: 15% and 42%). A reconciliation of income tax expense applicable to accounting profit before income tax at the statutory income tax rate to income tax expense at the Group s effective income tax rate for the year ended 31 December 2005 and 2004 is as follows: 2005 2004 Rmb 000 % Rmb 000 % Accounting profit before income tax 78,608 100 69,093 100 Computed tax using the statutory corporate income tax rate of the Company 11,791 15 10,364 15 Differences in subsidiaries tax rate relative to the Company s tax rate 489 1 160 - Adjustments in respect of current income tax of previous year (2,908) (4) - - Tax exemptions according to the relevant tax rules and regulations in the PRC (863) (1) - - Non-deductible expenses/ non-taxable income (2,091) (3) 850 1 Income tax expense 6,418 8 11,374 16 The Company is entitled to enjoy a preferential corporate income tax rate of 15% as it is located in Shanghai Pudong New Area. (b) Income tax payable/(recoverable) in the consolidated balance sheet represents: 2005 2004 Rmb 000 Rmb 000 PRC income tax (recoverable)/payable at beginning of year (443) 1,238 Provision for the year 11,515 11,374 Payments during the year (5,631) (13,055) PRC income tax payable/(recoverable) at end of year 5,441 (443) 22

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 8. Income tax (continued) (c) Deferred income tax in the consolidated balance sheet and income statement represents: Consolidated Consolidated balance sheet income statement 2005 2004 2005 2004 Rmb 000 Rmb 000 Rmb 000 Rmb 000 Provisions 2,205-2,205 - Deferred income 210-210 - Accruals and other liabilities 2,682-2,682 - Deferred income tax assets 5,097-5,097-9. Earnings per share attributable to ordinary equity holders of the parent The calculation of basic earnings per share for the year ended 31 December 2005 is based on the net profit attributable to the equity holders of the parent of Rmb70,454,092 (2004: Rmb54,354,730) and the total number of 262,244,070 (2004: 262,244,070) ordinary shares in issue during the year. The Company has no dilutive ordinary shares in the current year. As a result, basic and diluted earnings per share are the same. 10. Dividends paid Dividends on ordinary shares: 2005 2004 Rmb 000 Rmb 000 Interim dividends for 2005: Rmb20 cents (2004: Nil) per share 52,449 - Interim dividends of Rmb20 cents per share amounting to Rmb52,448,814 were proposed and paid in 2005. The proposed dividends were approved at the 2005 extraordinary general meeting. 23

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 11. Property, plant and equipment Computer, Motor electronic vehicles, Leasehold and related furniture improvements Buildings equipment and fixtures Total Rmb'000 Rmb'000 Rmb 000 Rmb'000 Rmb 000 Cost: At 1 January 2005 6,682 68,526 64,958 16,007 156,173 Additions 50-16,447 2,139 18,636 Disposals (403) (2,919) (5,120) (1,397) (9,839) At 31 December 2005 6,329 65,607 76,285 16,749 164,970 Accumulated depreciation and impairment loss: At 1 January 2005 3,420 10,830 28,981 7,736 50,967 Depreciation provided during the year 1,365 2,755 11,820 1,863 17,803 Disposals (1,542) (336) (3,194) (834) (5,906) At 31 December 2005 3,243 13,249 37,607 8,765 62,864 Net book value: At 31 December 2005 3,086 52,358 38,678 7,984 102,106 At 31 December 2004 3,262 57,696 35,977 8,271 105,206 12. Land use rights 2005 2004 Rmb 000 Rmb 000 Cost: At beginning of year 25,448 25,448 Amortisation: At beginning of year 2,009 1,473 Provided during the year 535 536 At end of year 2,544 2,009 Net book value: At end of year 22,904 23,439 13. Available-for-sale investments 2005 2004 Rmb 000 Rmb 000 Shares, unlisted 24,109 24,109 Available-for-sale investments consist of investments in ordinary shares in unlisted companies, and therefore have no fixed maturity date or coupon rate. 24

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 14. Intangible assets Computer software Patents licences Goodwill Total Rmb 000 Rmb 000 Rmb 000 Rmb 000 Cost: At 1 January 2005 12,509 1,804 1,766 16,079 Additions - - - - At 31 December 2005 12,509 1,804 1,766 16,079 Accumulated amortisation: At 1 January 2005 9,382 863-10,245 Provided during the year 2,502 361-2,863 At 31 December 2005 11,884 1,224-13,108 Net book value: At 31 December 2005 625 580 1,766 2,971 At 31 December 2004 3,127 941 1,766 5,834 The cost of goodwill represented its cost as at 1 January 2004 net of accumulated amortisation. Since 1 January 2004, goodwill was no longer amortised and was annually tested for impairment. 15. Held for trading investments 2005 2004 Rmb 000 Rmb 000 Listed equity investment funds 3,000 3,000 The fair values of listed equity investment funds are assessed each year at the balance sheet date with reference to the quoted prices on the last trading day on applicable exchanges. 16. Held-to-maturity investments 2005 2004 Rmb 000 Rmb 000 Bonds - 6,120 Beneficiary right in an equity investment - 2,500 Entrusted investment 2,500-2,500 8,620 The entrusted investment has a fixed maturity date on 16 September 2006. Interest is earned at a rate of 4.16% per annum. 25

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 17. Inventories 2005 2004 Rmb 000 Rmb 000 Purchased computer hardware and equipment (at net realisable value) 108,434 88,443 Raw materials (at cost) 4,430 3,844 Work in progress (at cost) 20,640 3,656 Finished goods (at cost) 4,855 2,580 138,359 98,523 The amount of write-down of inventories recognised as an expense is Rmb1,437,000 (2004: Nil). 18. Trade and other receivables, net 2005 2004 Rmb 000 Rmb 000 Notes receivable 40,048 12,132 Accounts receivable 165,772 140,199 Prepayments and other receivables 50,602 50,979 Amounts due from the ultimate holding company 7,359 9,414 Amounts due from the immediate holding company 60,794 49,729 Amounts due from related companies 22,434 25,316 347,009 287,769 Less: Provision for bad and doubtful debts (12,206) (7,213) 334,803 280,556 For terms and conditions relating to related party receivables, refer to note 29. Trade receivables are non-interest bearing and are generally on 30-90 days terms. 19. Unbilled amounts due from customers for contract works The aggregate contract costs incurred plus recognised profits for contracts in progress amounted to approximately Rmb709,181,000 as at 31 December 2005 (2004: Rmb 613,515,000). Unbilled amounts due from customers for contract works amounted to approximately Rmb81,879,000 as at 31 December 2005 (2004: Rmb81,891,000). 26

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 20. Interest-bearing loans and borrowings 2005 2004 Rmb 000 Rmb 000 Bank loans: Unsecured 3,000 5,990 Secured 945-3,945 5,990 Classified as: Current liabilities 3,343 5,990 Long term portion 602 - The long term bank loans are repayable within a period of: Over two years but not exceeding five years 602 - The unsecured bank loans of Rmb3,000,000 (2004: Rmb5,990,000) bear interest at a rate of 5.220% (2004: 5.220% - 5.31%) per annum and are repayable on 20 October 2006. Interest-bearing bank loans of Rmb945,000 are guaranteed by Mr. Nanryu Isozato, an employee of Japan Baosight and bear interest at a rate of 2.125% per annum. The loans are repayable by 36 equal monthly instalments of Rmb28,586 starting from 5 October 2005. 21. Trade and other payables 2005 2004 Rmb 000 Rmb 000 Notes payable 21,531 18,942 Accounts payable 145,741 112,806 Accruals and other liabilities 129,725 97,128 Dividend payable 797 2,025 Amounts due to the ultimate holding company 32,391 995 Amounts due to the immediate holding company 53,743 18,824 Amounts due to related companies 11,206 81,769 For terms and conditions relating to related party payables, refer to note 29. 395,134 332,489 27

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 22. Deferred income 2005 2004 Rmb 000 Rmb 000 Cost: At 1 January - - Addition 1,752 - At 31 December 1,752 - Accumulated amortisation: At 1 January - - Change for the year 350 - At 31 December 350 - Net book value at 31 December 1,402 - Deferred income represented government subsidies of Rmb1,752,218 received in connection with the Group s purchase of certain equipment. 23. Long term liabilities Long term liabilities represented subsidies received from various government institutions for the research and development of new software by the Company. Included in long term liabilities is an amount due to the ultimate holding company of Rmb7,163,051 (2004: Rmb8,700,000). 24. Issued capital 2005 2004 Rmb 000 Rmb 000 Registered, issued and fully paid: 150,044,070 (2004: 150,044,070) unlisted ordinary state-owned shares of Rmb1 each 150,044 150,044 24,200,000 (2004: 24,200,000) A shares of Rmb1 each 24,200 24,200 88,000,000 (2004: 88,000,000) B shares of Rmb1 each 88,000 88,000 262,244 262,244 The shareholders of unlisted ordinary state-owned shares, A shares and B shares are entitled to receive the same amount of dividends per share as declared from time to time, and are entitled to one vote per share at annual general meetings of the Company. 28

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 25. Reserves 2005 2004 Rmb 000 Rmb 000 Share premium 14,763 14,410 Statutory surplus common reserve 23,504 16,146 Discretionary surplus common reserve 1,910 1,910 Statutory public welfare fund 20,430 13,911 Foreign currency translation difference (73) 318 Retained earnings 107,591 103,812 168,125 150,507 In accordance with the relevant PRC regulations and the Company s and certain subsidiaries articles of association, the Company and its subsidiaries are required to allocate 10% of their profit after tax, as determined in accordance with PRC accounting standards and regulations applicable to each individual company, to the statutory surplus common reserve until such reserve reaches 50% of the registered capital of the respective company. Subject to certain restrictions set out in the Company Law of the PRC and the Company s articles of association, part of the reserve may be converted to increase share capital. In accordance with the relevant PRC regulations and the Company s and its subsidiaries articles of association, the Company and its subsidiaries are required to transfer 5% to 10% of their profit after tax, as determined in accordance with the PRC accounting standards and regulations applicable to each individual company, to the statutory public welfare fund, which is a non-distributable reserve other than in the event of the liquidation of the Group. The statutory public welfare fund must be used for capital expenditure on staff welfare facilities. Such facilities are for staff use and remain as properties of the Group. The Company and its subsidiaries have recommended to appropriate 10% of its profit after tax, as determined in accordance with PRC accounting standards and regulations applicable to each individual company, to the statutory public welfare fund. These recommendations have been incorporated in the financial statements. Pursuant to the PRC laws and regulations on joint venture companies with foreign investments, certain subsidiaries of the Company are required to provide for certain statutory funds, namely, reserve fund, enterprise expansion fund and staff bonus and welfare fund, which are appropriated from net profit after tax (based on its PRC statutory accounts) but before dividend distribution. These funds are created for specific purposes and appropriations to these funds are at the discretion of its board of directors. The reserve fund can only be used upon approval by the relevant authority, to offset the accumulated losses or increase capital. The enterprise expansion fund can only be used to increase capital upon approval by the relevant authority. The staff bonus and welfare fund can only be used for special bonuses or collective welfare of its employees, and assets acquired through this fund shall not be treated as the Group s assets. According to the relevant regulations in the PRC, the amount of retained earnings available for distribution is the lower of the amount determined under PRC accounting standards and regulations and the amount determined under IFRSs. 29

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 26. Notes to the consolidated cash flow statement (a) Reconciliation of profit before tax and cash flows from operating activities 2005 2004 Rmb 000 Rmb 000 Profit before tax 78,608 69,093 Adjustments for: Bank interest income (1,196) (721) Bank interest expenses 541 466 Depreciation 17,803 15,168 Amortisation of land use rights 535 536 Amortisation of intangible assets 2,863 2,882 (Gains)/losses on disposal of property, plant and equipment (3,336) 567 Investment income (3,834) (1,440) Recognised negative goodwill (217) - Amortisation of deferred income (350) - Provision for bad and doubtful debts 4,993 915 Provision for inventories obsolescence 1,437 - Unrealised exchanges gains, net - (93) Operating profit before working capital changes 97,847 87,373 Increase in inventories (41,273) (24,192) Increase in trade and other receivables (53,112) (70,880) (Increase)/decrease in unbilled amounts due from customers for contract works 12 (173) Decrease in amounts due from the ultimate holding company 1,344 - Increase in amounts due from the immediate holding company (11,065) - (Increase)/decrease in amounts due from related companies 2,882 (22,561) Increase in trade and other payables 64,932 41,908 Increase in amounts due to the ultimate holding company 31,396 - Increase/(decrease) in amounts due to the immediate holding company 34,919 (8,234) Increase/(decrease) in amounts due to related companies (70,563) 76,537 Increase in deferred income 1,752 - Increase in long term liabilities 2,825 2,390 Cash flows from operating activities before interest and income tax 61,896 82,168 30

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 26. Notes to the consolidated cash flow statement (continued) (b) Acquisition of additional equity interests in a subsidiary On 7 November 2005, the Company acquired additional 25% equity interests in Baokang at a cash consideration of Rmb 4,743,500 from SBG. As a result, the Company s interest in Baokang increased from 50% to 75%. SBG also agreed to give up its dividends of year 2004 proposed by Baokang totalling Rmb 329,772. Net asset value as at 7 November 2005 Rmb 000 Property, plant and equipment 3,896 Inventories 25,854 Trade and other receivables 35,336 Cash and cash equivalents 12,337 Interest-bearing loans and borrowings (13,490) Trade and other payables (44,717) Income tax payable (691) 18,525 The Group s additional share of net assets 4,631 Negative goodwill (217) Dividends given up by SBG 330 Purchase consideration 4,744 Satisfied by: Cash and cash equivalents 4,744 Analysis of the net cash flow of cash and cash equivalents in respect of the acquisition of additional equity interests in a subsidiary: Net cash outflow: Cash and cash equivalents paid 4,744 (c) Additional capital contribution in a subsidiary On 23 November 2005, the Company and the minority investor of Baokang, Connings Electronics Engineering Co., Ltd, made additional capital contribution to Baokang based on their respective shareholding. As a result, Baokang s registered capital was increased from Rmb 8,678,889 to Rmb20,000,000. 31

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 26. Notes to the consolidated cash flow statement (continued) (c) Additional capital contribution in a subsidiary (continued) An analysis of the net cash flow in respect of the additional capital contribution: Rmb 000 Capital interest held by the minority investor before the capital increase 2,170 Capital transferred from share premium 330 Capital transferred from dividend payable 1,650 Capital interest held by the minority investor after the capital increase (5,000) Capital contribution by cash 850 Additional capital contributed as share premium 4 Cash and cash equivalents received 854 27. Commitments (a) Capital commitments 2005 2004 Rmb 000 Rmb 000 Contracted, but not provided for: Land use rights 6,050 54,050 (b) Operating lease commitments Future minimum lease rentals payable under non-cancellable operating leases as at 31 December are as follows: 2005 2004 Rmb 000 Rmb 000 Within one year 6,412 5,589 In the second to fifth years, inclusive 8,116 9,870 Over five years 1,739 1,805 16,267 17,264 28. Pension contribution The employees of the Company and its subsidiaries participate in retirement plans organised by the Shanghai Retirement Fund Bureau. The applicable rate of contribution for the year was 22.5% (2004: 22.5%) of the basic salaries of the employees. The Group has no further significant obligations in connection with the retirement plans beyond the annual contributions made. 32

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 29. Related party transactions During the year, the Group had the following significant related party transactions: (1) In September 2005, Baoxi subscribed from Fortune Trust & Investment Co., Ltd., a fellow subsidiary of the Company, an entrusted investment of Rmb2,500,000. (2) As at 7 November 2005, the Company acquired an additional 25% equity interest in Baokang from SBG, at a cash consideration of Rmb4,743,500. (3) Other transactions 2005 2004 Rmb 000 Rmb 000 Hardware purchases from the immediate holding company 5,025 3,005 Hardware purchases from fellow subsidiaries 5,674 3,996 Software development income from the ultimate holding company 5,495 16,037 Software development income from the immediate holding company 298,470 196,794 Software development income from fellow subsidiaries 146,226 227,273 Hardware sales to the ultimate holding company 4,486 22,002 Hardware sales to the immediate holding company 61,421 52,415 Hardware sales to fellow subsidiaries 50,290 46,293 Maintenance services provided to the ultimate holding company 8,295 2,953 Maintenance services provided to the immediate holding company 87,818 63,140 Maintenance services provided to fellow subsidiaries 20,161 17,010 Investment income from the ultimate holding company 120 240 In the opinion of directors, the above transactions were conducted on normal commercial terms. Outstanding balances at the year end are unsecured, interest-free and with no fixed terms of repayment. 33

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 30. Financial risk management objectives and policies The Group s principal financial instruments comprise cash and cash equivalents and interest-bearing loans and borrowings. The main purpose of these financial instruments is to raise finance for the Group s operations. The Group has various other financial assets and liabilities such as held for trading investments, held-to-maturity investments, available-for-sale investments, trade and other receivables, unbilled amounts due from customers for contract works, trade and other payables, deferred income and long term liabilities. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. It is, and has been, throughout the year under review, the Group s policy that no trading in financial instruments should be undertaken. The main risks arising from the Group s financial instruments are cash flow interest rate risk, foreign currency risk and credit risk. The board reviews and agrees policies for managing each of the risks and they are summarised below: Interest rate risk The Group s income and operating cash flows are substantially independent of changes in market interest rate. The interest rates and terms of repayments of the interest-bearing loans and borrowings of the Group are set out in note 20 to the consolidated financial statements. Other financial assets and liabilities do not have material interest rate risk. Foreign currency risk The Group operates mainly domestically and therefore is not exposed to significant foreign exchange risks. Credit risk The Group trades only with recognised and creditworthy customers. It is the Group s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Group s exposure to bad debts is not significant. The credit risk of the Group s other financial assets, which comprise cash and cash equivalents, held for trading investments, held-to-maturity investments, available-for-sale investments, trade and other receivables and unbilled amounts due from customers for contract works, arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. Since the Group trades only with recognised and creditworthy third parties, there is no requirement for collateral. 34

Shanghai Baosight Software Co., Ltd. Notes to Consolidated Financial Statements 31 December 2005 30. Financial risk management objectives and policies (continued) Fair value The fair values of cash and cash equivalents, trade and other receivables, unbilled amounts due from customers for contract works, trade and other payables, deferred income and long term liabilities are not materially different from their carrying amounts. The carrying values of available-for-sale investments, held for trading investments, heldto-maturity investment and interest-bearing loans and borrowings are estimated to approximate to their fair values based on the nature of the instruments. Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involved uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 31. Differences between consolidated financial statements prepared under IFRSs and PRC accounting regulations The effects of differences between IFRSs and PRC accounting regulations on the consolidated net profit attributable to equity holders of the parent for the year and the net assets attributable to equity holders of the parent as at 31 December 2005 are summarised as follows: Profit for the year Net assets 2005 2004 2005 2004 Rmb 000 Rmb 000 Rmb 000 Rmb 000 As reported in statutory audited financial statements prepared in accordance with the relevant PRC accounting regulations 65,187 54,146 426,317 411,983 Impact of cumulative IFRSs adjustments 5,268 209 4,052 768 As restated in conformity with IFRSs 70,455 54,355 430,369 412,751 32. Comparative amounts Certain prior year comparative amounts have been reclassified to conform with current year s presentation. These mainly include reclassifications to better present balances and transactions with the related parties. 33. Approval of the financial statements The financial statements were approved and authorised for issue in accordance with a resolution of the board of directors on 8 March 2006. 35