CO., LTD. SUMMARY OF ANNUAL REPORT 2004

§1. Important Notice 1.1 Board of Directors and of KONKA GROUP CO., LTD. (hereinafter referred to as the Company) its Directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. The summary of annual report 2004 is abstracted from the full text of annual report; the investors are suggested to read the full text of annual report to understand more details. 1.2The annual report and its summary was examined and approved by the whole directors in the 6 th meeting of the 5 th Board of Directors of the Company. This annual report is prepared in both Chinese and English. Should there be any difference in understanding of the two versions, the Chinese version shall prevail. 1.3 No director stated that they couldn’t ensure the correctness, accuracy and completeness of the contents of the Annual Report or have objection for this report. 1.4 List of Absent Director Name of absent director Reason for absence Name of assignee Jian Di’an Business trip Ren Kelei 1.5 Dahua Tiancheng Certified Public Accountants issued standard unqualified Auditors’ Report for the Company. 1.6 Chairman of the Board of the Company Mr. Ren Kelei, Chief Financial Officer Mr. Yang Guobin and Person in Charge of Accounting Affairs Ms. Yang Rong hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. §2. Company Profile 2.1 Basic information Short form of the stock Shen Konka - A, Shen Konka - B Stock code 000016, 200016 Listed stock exchange Registered address and Office address Registered address: Overseas Chinese Town, Nanshan District, Shenzhen Office address: Overseas Chinese Town, Nanshan District, Shenzhen Post code Post Code of Registered address: 518053 Post Code of Office address: 518053 Internet website of the Company http://www.konka.com E-mail [email protected]

2.2 Contact person and method Secretary of the Board of Authorized representative in charge Directors of securities affairs Name Mr. He Jianjun Mr. Xu Wenxiao Contact address Konka Group Co., Ltd., Overseas Konka Group Co., Ltd., Overseas Chinese Town, Shenzhen Chinese Town, Shenzhen Telephone (86) 755-26608866 (86) 755-26608866 Fax (86) 755-26600082 (86) 755-26600082 E-mail [email protected] [email protected] §3. Summary of Accounting Data and Financial Indexes 3.1 Major accounting data Unit: RMB 2003 Increase/decrease over last 2004 2002 After adjust Before Adjust year（％） Income from main operations 13,362,521,889.70 12,806,466,103.13 12,806,466,103.13 4.34 8,041,652,825.33 Total profit 170,738,565.22 125,454,309.40 127,379.887.60 36.10 54,433,581.62 Net profit 140,726,699.45 99,145,459.51 101,071,037.71 41.94 35,590,430.74 Net profit after deducting non-recurring gains and 101,953,623.20 96,142,234.62 98,067,812.82 6.04 28,653,362.49 losses Net cash flow arising from -373,669,766.48 351,386,559.94 351,386,559.94 -206.33 653,723,377.38 operating activities Increase/decrease from the At the end of 2003 end of previous year（％） At the end of 2004 At the end of 2002 After adjustment Before Adjustment

Total assets 9,597,845,796.50 9,634,588,145.10 9,637,375,732.89 -0.38 7,005,974,161.16 Shareholder’s equity 3,193,928,132.53 3,050,731,841.15 3,053,519,428.94 4.69 2,953,508,827.21 (excluding minority interests) 3.2 Major financial indexes Unit: RMB 2003 Increase/decrease over 2004 2002 After Before last year（％） adjustment Adjustment Earnings per share 0.234 0.165 0.178 41.82 0.06 Earnings per share (note) 0.234 0.165 0.178 41.82 - Incress Return on equity 4.41% 3.15% 3.31% 1.21% 1.16 percent Return on equity calculated based on net profit after 3.19% 3.15% 3.22% Increse 0.04percent 0.97% deducting non-recurring gains and losses Net cash flow per share arising from operating -0.62 0.58 0.58 -206.90 1.09 activities Increase or decrease At the end of 2003 At the end of from the end of At the end of 2002 2004 After previous year（％） Before Adjust adjust Net assets per share 5.31 5.07 5.07 4.73 4.91 Net assets per share after adjustment 5.11 4.89 4.90 4.50 4.79 Note: Earnings per share was calculated based on new share capital if share capital was changed from the end of the report period to disclosure date of the report. Items of non-recurring gains and losses √Applicable □Inapplicable Unit: RMB Nature or contents Amount Investment earnings of projects such as “Swan Castle” and “Jinxiu Garden” 36,128,808.90 Short-term investment earnings 595,483.68 Earnings from transfer of long-term equity investment 105,831.86 Switch aback of bad debt reserve 2,269,153.63 Income from government subsidy 240,640.57 Non-operating income 7,638,743.41 Non-operating expenditure -7,781,492.29 Influenced amount of losses or gains of minority shareholders -424,093.51 Total 38,773,076.25 3.3 Difference of net profit as audited by Chinese Accounting Standard (CAS) and International Accounting Standard (IAS) √Applicable □Inapplicable Unit: RMB Net assets According to International Financial Reporting Standards 142,548,611.93 1. Partial government’s subsidy’s listing into income (2,997,500.00) 2. Liabilities of affiliated companies unnecessary for payment’s listing into (5,841,924.86) income 3. Net assets decrease of associated company 2,787,587.79 4. Balance of moving fees in the period 2,317,654.09 5. Withdrawal of welfare and premium funds 1,912,270.50 According to Accounting System for Business Enterprises 140,726,699.45

§4. Changes in Share Capital and Particulars about Shareholders 4.1 Statement of change in shares (Unit: share)

Before the Increase / decrease in this time After the change (+, -) change

I. Unlisted shares 1. Sponsors’ shares 174,949,746 0 174,949,746 Including: State-owned share 0 0 0 Domestic legal person’s shares 174,949,746 0 174,949,746 Foreign legal person’s shares 0 0 0 Others 0 0 0 2. Raised legal person’s shares 0 0 0 3. Inner employees’ shares 16,708 0 16,708 4. Preference shares or others 0 0 0 Total unlisted shares 174,966,454 0 174,966,454 II. Listed shares 1. RMB ordinary shares 224,181,996 0 224,181,996 2. Domestically listed foreign shares 202,837,902 0 202,837,902 3. Overseas listed foreign shares 0 0 0 4. Others 0 0 0 Total listed shares 427,019,898 0 427,019,898 III. Total shares 601,986,352 0 601,986,352 4.2 Statement of shares held by the top ten shareholders and the top ten shareholders of circulation share Total number of shareholders at the end of report period 142,611 Particulars about shares held by the top ten shareholders Number of Increase / Nature of shareholders Shares held at Type of shares share decrease in Proportion (State-owned Full name of Shareholders the year-end (Circulating/Non-cir pledged/ the report (%) shareholder/foreign (share) culating) frozen year (share) shareholder) (share) 1. OVERSEAS CHINESE TOWN GROUP 0 174,949,746 29.06% Non-circulating 0 State-owned shareholder CORPORATION 2. OVERSEAS CHINESE TOWN (HONG KONG) -19,137,800 49,238,883 8.18% Circulating Unknown Foreign shareholder CO., LTD. 3. HONG KONG CHINA TRAVEL SERVICE -5,875,125 39,541,212 6.57% Circulating Unknown Foreign shareholder (GROUP) CO., LTD. 4. THOMSON INVESTMENTS GROUP 19,000,000 19,000,000 3.16% Circulating Unknown Foreign shareholder LIMITED 5. MERRILL LYNCH PIERCE FENNER & 5,531,026 5,531,026 0.92% Circulating Unknown Foreign shareholder SMITH INC 6. SKANDIA GLOBAL FUNDS PLC 4,268,802 4,268,802 0.71% Circulating Unknown Foreign shareholder 7. MINSHENG SECURITIES CO., LTD. 2,847,622 2,847,622 0.47% Circulating Unknown Other shareholder 8. CHINA HIGH-TECH INVESTMENT GROUP 1,304,295 2,550,914 0.42% Circulating Unknown Other shareholder CO. 9. YUAN LAN XIANG 2,053,322 2,053,322 0.34% Circulating Unknown Foreign shareholder 10. DONGGUAN QIHANG INDUSTRIAL 1,872,764 1,872,764 0.31% Circulating Unknown Other shareholder INVESTMENT CO., LTD. Particulars about shares held by the top ten shareholders of circulation share Full name of Shareholders Number of circulation shares held at the year-end (share) Type (A-share, B-share, H-share and other) 1. OVERSEAS CHINESE TOWN (HONG KONG) CO., B-share 49,238,883 LTD. 2. HONG KONG CHINA TRAVEL SERVICE (GROUP) B-share 39,541,212 CO., LTD. 3. THOMSON INVESTMENTS GROUP LIMITED 19,000,000 B-share 4. MERRILL LYNCH PIERCE FENNER & SMITH INC 5,531,026 B-share 5. SKANDIA GLOBAL FUNDS PLC 4,268,802 B-share 6. MINSHENG SECURITIES CO., LTD. 2,847,622 A-share 7. CHINA HIGH-TECH INVESTMENT GROUP CO. 2,550,914 A-share 8. YUAN LAN XIANG 2,053,322 B-share 9. DONGGUAN QIHANG INDUSTRIAL A-share 1,872,764 INVESTMENT CO., LTD. 10. TOYO SECURITIES ASIA LIMITED A/C CLIENT 1,768,516 B-share Explanation on associated relationship among the above shareholders 1. Among the top ten shareholders, Overseas Chinese Town Group Corporation, the first largest shareholder, held non-circulating shares. There was no change in shares of the Company held by it in the report period. In the report period, Overseas Chinese Town Group Corporation (hereinafter referred to as “OCT Group Company”) signed two agreements of equity transfer: (1) On Aug. 28, 2004, OCT Group Company signed the Agreement of Equity Transfer with Anhui Tianda Enterprises (Group) Co., Ltd.. According to the said agreement, OCT Group Company planed to transfer its 550 million state-owned legal person’s shares for non-circulating of the Company to Anhui Tianda Enterprises (Group) Co., Ltd.. The State-owned Assets Supervision and Administration Commission of the State Council wrote a reply (GZCQ [2004] No. 923) and approved this transfer. (2) On Nov. 23, 2004, OCT Group Company signed the Agreement of Sale and Purchase between Thomson Investments Group Limited and Overseas Chinese Town Group Corporation with Thomson Investment Group Limited (hereinafter referred to as Thomson). Both parties agreed that OCT Group Company would transfer 290 million state-owned legal person’s shares of the Company to Thomson, the State-owned Assets Supervision and Administration Commission of the State Council and Ministry of Commerce of the PRC written replies on Jan. 19, 2005 and on Mar. 8, 2005 respectively (GZCQ [2005] No. 44, SZP [2005] No. 346) and approved this transfer. Since the above-mentioned two equity transfers had not undergone ownership transfer procedures, the shares of the Company held by OCT Group Company had not changed in the report period. 2. Overseas Chinese Town (Hong Kong) Co., Ltd. is the wholly-owned subsidiary of Overseas Chinese Town Group Corporation registered in Hong Kong; the shares held by it were changed due to trading in the second market in the report period. Except for this, there exists no associated relationship between Overseas Chinese Town Group Corporation and the other shareholders of circulation share, and they do not belong to the consistent actionist regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies. For the other shareholders of circulation share, the Company is unknown whether there exists associated relationship or consistent actionist regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies or not. 3. The other shareholders are social shareholders, who hold circulation shares. The shares held by them were changed due to trading in the second market during the report period.

4.3 Particulars about controlling shareholders and actual controller of the Company 4.3.1 Particulars about change in controlling shareholders and actual controller of the Company □Applicable √Inapplicable 4.3.2 Introduction of especial situation for controlling shareholder and other actual controller In the report period, the holding shareholder and actual controller of the Company remained unchanged, both being Overseas Chinese Town Group Corporation. Shares of the Company held by it had not been pledged, entrusted or frozen. Overseas Chinese Town Group Corporation was a large-scale state-owned enterprise, which had been founded in 1985 by the approval of the State Council and belonged to one of the central enterprises of State-owned Assets Supervision and Administration Commission of the State Council. Its legal representative was Mr. Ren Kelei. Overseas Chinese Town Group Corporation had a registered capital of RMB 0.2 billion, and owned 14 secondary enterprises, among which the Company and Shenzhen Overseas Chinese Town Holding Company (hereinafter referred to as OCT Holding, stock code: 000069) were two companies listing in domestic. Right now, the total assets of Overseas Chinese Town Group Corporation had reached RMB 17.7 billion, with the annual sales income exceeding RMB 15 billion and the net assets close to RMB 4 billion. 4.3.3 Property right and controlling relationship between the actual controller of the Company and the Company is as follows:

State-owned Assets Supervision and Administration Commission of the State Council

100%

Overseas Chinese Town Group Company

100％

OVERSEAS CHINESE TOWN (HONG KONG) CO., LTD. 29.06% (A-share)

8.18% (B-share) Konka Group Co., Ltd. §5. Particulars About Directors, Supervisors, Senior Executives 5.1 Particulars about changes in shares held by directors, supervisors and senior executives Shares held at Shares held at Name Title Sex Age Office term the year-begin the year-end Note (share) (share) Jun. 2004- Ren Kelei Chairman of the Board Male 54 0 0 Jun. 2007 Jun. 2004- Jian Di’an Vice Chairman of the Board Male 55 0 0 Jun. 2007 Jun. 2004- Vice Chairman of the Board Hou Jun. 2007 Male 36 0 0 Songrong Apr. 2004- President Apr. 2006 Wang Jun. 2004- Director Male 50 0 0 Ruquan Jun. 2007 Jun. 2004- Ni Zheng Director Male 36 0 0 Jun. 2007 Jun. 2004- Wei Qing Director Male 52 0 0 Jun. 2007 Jun. 2004- Xiao Zhuoji Independent Director Male 71 0 0 Jun. 2007 Jun. 2004- Ye Wu Independent Director Male 66 0 0 Jun. 2007 Jun. 2004- Ma Liguang Independent Director Female 64 0 0 Jun. 2007 Chairman of the Supervisory Jun. 2004- Dong Yaping Male 51 0 0 Committee Jun. 2007 Wang Jun. 2004- Supervisor Female 35 0 0 Xiaowen Jun. 2007 Jun. 2004- Sha Gang Supervisor Male 40 0 0 Jun. 2007 Nov. 2004- Zeng Hui Standing Vice-president Male 44 0 0 Apr. 2006 Apr. 2004- Yang Guobin Chief Financial Officer Male 35 0 0 Apr. 2006 Apr. 2004- Wang Youlai Vice-president Male 43 2,640 2,640 Apr. 2006 Huang Apr. 2004- Vice-president Male 43 514 514 Zhongtian Apr. 2006 Nov. 2004- Chen Yuehua Vice-president Male 41 0 0 Apr. 2006 Mar. 2004- He Jianjun Secretary of the Board Male 35 0 0 Jun. 2007 Zhang Apr. 2001- Director Male 60 0 0 Left his post Zhengkui Jun. 2004 Apr. 2001- He Shilin Director Male 64 0 0 Left his post Jun. 2004 Apr. 2001- Liang Rong Director Male 39 17,850 17,850 Left his post Jun. 2004 Chairman of the Supervisory Apr. 2001- Nie Guohua Male 62 0 0 Left his post Committee Jun. 2004 Wang Apr. 2001- Supervisor Male 56 99 99 Left his post Xinzhong Jun. 2004 Mar. 2002- Vice-president Apr. 2004 Chen Xuri Male 46 0 0 Left his post Apr. 2001- Secretary of the Board Mar. 2004 Huang Mar. 2002- Vice-president Male 41 0 0 Left his post Weigang Apr. 2004

5.2 Particulars about directors and supervisors holding the post in Shareholding Company √Applicable □Inapplicable

Name of Shareholding Drawing the payment from the Name Title in Shareholding Company Office term Company Shareholding Company (Yes / No) Overseas Chinese Town Ren Kelei CFO and concurrently President Dec. 1, 1993 to now No Group Corporation Overseas Chinese Town Jian Di’an Vice-president Dec. 1, 2001 to now No Group Corporation Wang Overseas Chinese Town Chief Supervisor of Auditing Oct. 1, 2000 to now No Ruquan Group Corporation Dept. Overseas Chinese Town Ni Zheng General Manager Dec. 1, 1998 to now No (Hong Kong) Co., Ltd. Hong Kong China Travel General Manager of Hotel Wei Qing Jan. 1, 2000 to now No Service (Group) Co., Ltd. Management Company Vice Chairman of Party Dong Overseas Chinese Town Committee and concurrently Jul. 1, 2000 to now No Yaping Group Corporation Vice-president Wang Overseas Chinese Town CFO Oct. 1, 2000 to now No Xiaowen Group Corporation

5.3 Particulars about the annual remuneration of directors, supervisors and senior executives Unit : RMB’ 0000 Total annual remuneration 117.72 Total annual remuneration of the top three directors drawing the 0.00 highest payment Total annual remuneration of the top three senior executives drawing 73.92 the highest payment Allowance of independent director 5 per person per year Other treatment of independent directors The Company reimbursed the reasonable charges according to the actual situation, which independent directors exercise their functions and powers in accordance with the Articles of Association of the Company and Independent Director System. Name of directors and supervisors receiving no recompense or Ren Kelei, Jian Di’an, Wang Ruquan, Ni Zheng, Wei Qing, Dong Yaping and allowance from the Company Wang Xiaowen Payment Number of persons RMB 200,000 ～ RMB 300,000 4 RMB 300,000 ～ RMB 350,000 1 §6. Report of the Board of Directors 6.1 Discussion and analysis to the whole operation in the report period (I) Operation in the report period The Company is mainly engaged in production and sales of color TV sets, digital mobile phone and the complementary products (such as high frequency head, mold, plastic injection, packing) in the sector of electronic and communication manufacture. In 2004, the Company experienced a stern operation environment in its two principal businesses. In respect of the color TV market, with development of high-side TV and tablet TV, international brands resurged and new competitors came in great numbers. In respect of the overseas market, due to the overall loss of the Chinese manufacturers in the anti-dumping suit submitted by the United States, the export growth slowed down. In respect of the mobile phone market, international brands were fighting in terms of price, quantity of products as well as in manpower. In such circumstances, under the leadership of the Board of Directors, the Company, by taking the maximization of shareholders’ interest as the principle and inspired by the philosophy of “surpassing ego, being progressive and having high and distant vision” and “building KONKA into an enterprise at international level”, reinforced the principal businesses, attached great importance on broadening sources of income and reducing expenditures, focused on the management standardization and propelled the key projects. The whole teamwork, based on the spirit of surpassing ego, being progressive and having high and distant vision, got all out in the work, created new successes, and achieved big growths in various businesses. 1. In 2004, the Company maintained the trend of sustainable growth in color TV business in addition to the high growth of the business in 2003; realized a turnover in the domestic sales amounting to RMB8.17 billion, a 5.56 ％ growth over the previous year. Statistics from ZHONGYIKANG and SINO shows that KONKA color TV has firmly taking the first in the domestic market, continuing to hold the champion in the year. 2. In the report period, the Company insisted on its major operation principle of expanding the sales size and improving the fundament management work in its overseas business, seized the market opportunity and positively developed new market. As a result, the turnover grew by 80％over the same period of the previous year; the Company’s rank in export rapidly rose to the 5th from the 30th. Since October, 2004, the Company has ranked the 4th. The products with Company’s own brand made a breakthrough in retail in supermarkets in the United States. In addition, the Company’s export size has transferred from the original low-price and big size model to a model of high added value brand and high-side product model. 3. Not like other domestic mobile phone brands which have experienced output reduction and substantially gliding of sales, KONKA mobile phone is one of the few brands which can continue to keep the growth trend. The market share of KONKA mobile phones is rising steadily. (II) Work in the report period I. In the report period, the Company completed the assessment of over 460 color TV projects, where the common CRT products experienced renovation and updating from the low and medium side line to the high-side line; the Company achieved an important breakthrough in high-side digital line-by-line color kinescope products. In respect of tablet TV products, the Company has completed the development of LCD TV and plasma TV with the specifications from 15” to 42”. In respect of projection TV products, the Company successfully development micro-display back projection product; in addition, it also developed serialized 4:3 and 16:9 color kinescope back projection. In respect of products for foreign markets, the Company completed the development of line-by-line TV for the American market, 100 Hz TV for European market and 17” – 27” TV products for the American and European markets; in respect of digital AV products, the Company completed the development of NDS STB for Chongqing and the relevant products for Futjisu platform. In 2004, the Company’s mobile phone R & D capacity was greatly improved. Of the models of mobile phone products launched to the market in batches, the self R & D proportion rate reached 70%. The Company mastered the application of mobile phone with multi-media functions, completed the R & D of key technology of 1 million Pixel mobile phone and started R & D of over 2 million pixel mobile phone. The Company has also mastered the relevant technologies of 3D music and MP3 mobile phone; and the technologies of more than 10 substitution core components other than radio frequency core chips in GSM／GPRS proposal. Meanwhile, the Company has completed 3 G protocols, structural research and technology follow-up, fully mastered the 3G bottom protocol and laid technical foundation for application and service development. II. Implementing the market promotion strategy of “digital radio and high resolution” and “image strategy” on overall basis; establishing KONKA as leading position in the industry In 2004, the Company developed its color TV business towards the orientation in depth of digital TV and digital amusement and devoted itself to building KONKA into a “high resolution leader and digital pilot” of digital TV. Under the guidance of such strategy, the Company not only launched radio high resolution TV and tablet DOUBLE-HERO – 55” liquid crystal TV and 63” plasma TV, established a new “surveyor’s pole” of “high resolution” TV and tablet TV and substantially added high resolution product line on overall basis; and laid a solid foundation for KONKA color TV to rank the first sales volume in China continuously for twenty months and further propel “tablet TV strategy”. In 2004, the Company implemented the “image strategy” for mobile phone on overall basis, took the high-side image as breakthrough. Under the guidance of such divergence strategy, the Company took lead to launch several models of mobile phones with camera functions among the domestic brands, finished very quickly the product layout of mobile phones with camera functions; consolidated KONKA’s leading position in the field of mobile phone with camera functions by enhancing promotion and expansion of sales channels and established the product image of KONKA mobile phone with camera function as the leader in the technology. III. The Company successfully carried out the battle based public relations and promotion activities in defense against the anti-dumping suit brought about by the United Sates. Such activities not only helped the Company in winning a favorable public opinion environment, but, what is more important, turned the crisis into opportunity. This event has better upgraded KONKA’s position in the national industry, the sector and the society. From this, the Company achieved a good result in promotion in advancing towards a colorful image in the internationalization. IV. In respect of sales, the Company pushed on the VIP310 project of color TV in a steady way, and exercised the “Three Thousands Project” – “a thousand shops in a thousand counties, ten thousand counters in a thousand districts and KA1000 policy franchise shops, enhanced the terminal construction, effectively increased the coverage and optimization and consolidation channels, reinforced the confidence of distributors and agents in operation of KONKA brand. Meanwhile, through standardization of terminal image standard, the Company enhanced the business guidance on the terminal display and training coaching, reinforced the ability of selling terminal. V. Enhancement of the standardized administration over its subsidiaries On the basis of enhancing the subsidiaries’ system and process construction, the Company devoted major efforts to carry out the contract standardization and formatting and promote the standardized management of the subsidiaries. Meanwhile, the Company established a template of retail analysis, channel and inventory analysis and expense analysis, further improved the calculation method of retails and channel inventories, promoted the optimization of and control over the sales channel. VI. Preliminary Formation of Internationalized Overseas Development Layout The Company has started advancing towards the powerful force in operation of the brand internationalization. The Company’s overseas manufacture base has formed a complete delivery and supply chain in North America and Europe. Meanwhile, the Company has laid a foundation in the layout of the production base in Thailand and Indonesia as well as expansion of the market in Southeast market. Such high speed integration and manufacture capacity speeded up the process of globalization of lost cost manufacture; and meanwhile, provided powerful guarantee to evade such trading barrier as anti-dumping, etc. and accumulated the experience in operation of the overseas production base for KONKA as well and laid a good foundation for realization of the internationalization strategy development layout. With further smoothing of the international supply chain, the Company has accumulated more superiority in R &, production, sales and services of high-side color TV. As a result, the Company has become the unique enterprise enjoying exemption from inspection in export in the color TV industry. VII. Through optimization of product linear process flow and standard, implementation of product quality planning, improvement of the maintenance and management of the production network, organization and implementation of the plan of upgrading the straight- through rate of the production line, the production capacity of the line has been greatly improved. Meanwhile, through gradual promotion of the transfer from “extensive management” to “intensive management” in the process of production and manufacture, the production capacity of multiple models, multiple batches and big lot has been effectively enhanced. VIII. Quality and After-sale Services At the end of 2004, KONKA was granted three important awards – “Award of Brand Satisfactory to the Users”, “Award of Product Satisfactory to the Users” and “Award of Mobile phone with Camera Function Most Welcome by the Users” by Electronic Information Industry Development Research Institute of the Ministry of Information Industry, becoming one of the enterprises with most awards. KONKA is the first in the sector that offers transparent repairing services to the consumers. In addition, KONKA mobile phone has introduced QC service quality management system and has ensured high efficiency and top quality of services in terms of real-time of services, sound management process and supervision system. In addition to the warranty based services, KONKA has made innovation in added value services and has started on overall basis the “experience based marketing” and “KONKA Paradise” network service platform. IX. Effectively Promoting the Work of Cost Reduction Although the purchase environment in 2004 was extremely bad, the Company still conducted effective control and lowered the purchase costs by working out well prepared and effective purchase plan and improving the close cooperation with both upstream and downstream enterprises. In respect of financial management, while satisfying the fund demand in business development, the financial costs in the report year dropped by 71% over the same period of the previous year.

6.2 Statement of main operations classified according to industries or products Unit: RMB’0000 Classified according to Income from Cost of main Gross Increase/decrease in Increase/decrease in Increase/decrease in industries or products main operations operations profit ratio income from main cost of main gross profit ratio over (%) operations over the last operations over the the last year (%) year (%) last year (%) Manufacture of daily electric 943,492.66 799,647.46 15.25 11.85 12.87 -0.77 appliances Manufacture of communication and relevant 358,286.46 307,152.85 14.27 -7.65 -9.2 1.47 equipments Other industries 34,473.06 32,367.20 6.11 -29.80 -28.90 -1.23 Including: related 0.00 0.00 0.00 0.00 0.00 0.00 transactions

National sales of color TVs 817,148.46 684,190.41 16.27 5.56 6.19 -0.42 Export of color TVs 126,344.20 115,457.05 8.62 80.08 79.92 0.08 Communications: mobile 358,286.46 307,152.85 14.27 -7.65 -9.21 1.47 phones Others 34,473.06 32,367.20 6.11 -29.8 -28.90 -1.23 Including: related 0.00 0.00 0.00 0.00 0.00 0.00 transactions Pricing principle None Necessity and durative of None related transactions Including: total amount of related transactions that the listed company sold products or provided labor service to the controlling shareholder and its subsidiaries was RMB 0.00 millin the report period. 6.3 Particulars about main operations classified according to areas Unit: RMB’0000 Areas Income from main operations Increase/decrease in income from main operations over the last year (%) Mainland of China 1,209,789.25 -4.81 Overseas 233,092.13 97.98 All areas within the Company -106,629.20 -1.30

6.4 Particulars about the customers of purchase and sales Unit: RMB’0000 Total amount of purchase of the Proportion in the total 309,148.99 36.30% top five suppliers amount of purchase Total amount of sales of the top Proportion in the total 92,432.68 6.92% five sales customers amount of sales

6.5 Operation of share-holding companies (applicable to the situation where investment earnings takes over 10% of its net profit) √Applicable □Inapplicable Unit: RMB’0000 Name of the share-holding Shenzhen Konka Telecommunication Technology Co., Ltd. company Name of the share-holding Anhui Konka Electronic Co., Ltd. company Investment earnings contributed 1,457.99 Proportion in net profit of the listed 10.36% in the period company Share-holding company Business scope Mainly engaged in the production and operation of color TVs Net profit 2,243.06

6.6 Explanation on reasons of material changes in main operations and its structure □Applicable √Inapplicable 6.7 Explanation on reasons of material changes in profitability capability of main operations (gross profit ratio) than that in the last year □Applicable √Inapplicable 6.8 Analysis to reasons of material changes in operating results and profit structure compared with the previous year √Applicable □Inapplicable Big growth in net profit is due to that the Company received income from the real estate projects in the report period; meanwhile, the gross profit rate increased somewhat at the same time the sales income grew steadily. Analysis to reasons of material changes in the whole financial position than that in the last year □Applicable √Inapplicable 6.9 Explanation on the past, current and future important effects of the material changes in production and operation environment, macro-policies and regulations on the Company’s financial position and operating results √Applicable □Inapplicable Analysis of Operation Environment in 2005 1. Great change may take place in the consumption structure of color TV. Tablet TV and high-side products shall take the leading position in the market. Meanwhile, the new trade protectionism trend shall further hinder the implementation of China’s color TV export and business internationalization strategy. 2. The National Development and Reform Commission promulgated Several Provisions on Verification of Mobile Communication System and Terminal Investment Projects (NDRC HI-TECH [2005] No. 256, which shows that the admission of the domestic mobile projects has been transferred from the review and approval system to the verification system. This may produce some influence upon the competition pattern of the domestic mobile phone market. Meanwhile, with the further lowering of the prices of foreign mobile phone brands and further enhancement of promotion of terminal sales links, the mobile phone business shall be confronted with intensified competition of the market. 6.10 Completion of the profit estimation □Applicable √Inapplicable 6.11 Completion of the business plan □Applicable √Inapplicable 6.12 Application of the raised proceeds □Applicable √Inapplicable Particulars about the changed projects □Applicable √Inapplicable 6.13 Application of the proceeds not raised through shares offering √Applicable □Inapplicable Unit: RMB’0000 Name of projects Amount of projects Progress of projects Earnings of projects Real estate project of This year, both parties conducted According to cooperation agreement and auditor’s report issued by Shenzhen Buildings D and E of settlement of the project. Xinyong Zhonghe CPAs, the profit for distrbution of the project was RMB 16,500.00 PORTFINO. Swan Castle, 21, 029,490.68 and the Company obtained investment income amounting to OCT RMb 12,617,694.40. Real estate project of This year, both parties conducted According to cooperation agreement and auditor’s report issued by Shenzhen Splendid Garden Phase III., settlement of the project. Xinyong Zhonghe CPAs, the profit for distrbution of the project was RMB 10,000.00 OCT 117,555,572.49 and the Company obtained investment income amounting to RMB 23,511,114.50. Total 26,500.00 - - 6.14 Explanation of the Board of Directors on the “Qualified Opinion” made by the Certified Public Accountants □Applicable √Inapplicable 6.15 Business plan as of the next year of the Board of Directors (If it has) √Applicable □Inapplicable 1. Principal Operation Strategy in 2005 In 2005, the Company’s operation strategy shall turn to the orientation from “giving first place to price based operation and the second place to value based operation” to “giving first place to the value based operation and the second place to price based operation. The Company shall carry out the work of purchase, manufacture, R & D, quality control, marketing, etc. by taking the enterprise’s profit and value addition of brand as the guide, difference based competition as the base and value addition of the value as the objective. The Company shall try every means to create value for the shareholders, produce benefit for staff to share and lay future-oriented development foundation for the Company. 2. Operation Objectives: (1) Color TV: While keeping a certain growth in sales income from the domestic color TV market, the Company shall try to maximize the profit, substantially increase the sales proportion and average sales price of its high-side products. (2) Mobile Phone: The Company shall maintain the existing leading position in the fierce competition. (3) International Business: In overall sales volume, the Company shall try to achieve a growth with quantity expanded and high quality; meanwhile, the Company shall realize a substantial breakthrough in sales of high-side products. (4) Diversifications: The Company has realized a big growth in refrigerator business, and is going to start automotive electronic businesses on overall basis and form sales with big scale. 3. Arrangement of Key Work in 2005 First: carry out various work of purchase, manufacture, R & D, quality control, marketing, etc. based on the value operation strategy. (1) Greatly improve and optimize IPD operation system and business flow and establish the product management system applicable to the value based operation. (2) Substantially upgrade the product definition and the ability of product line planning, and work out the product strategy in realizing the value based operation. (3) Greatly improve the industrial modeling design and application function design ability and level and ensure realization of the value based operation by development of the first class products. (4) Greatly improve the interface quality of KONKA in value based operation and communication with consumers and optimize the brand resources. (5) Greatly enhance the quality control in development, process design, material inspection and production process. (6) Realize the structural upgrading, optimize the staff structure and improve staff’s qualification while the total HR quantity is under control. (7) Establish and optimize dynamic and timely supplier assessment system and link the quota distribution with the assessment results. (8) Further carry forward the bidding work in product purchase and standardization and generalization work of components & parts. (9) Study expense items item by item, propose the objectives and methods of dropping expense and affix responsibilities to individuals. Secondly, further improve the internal management level. (1) Make full authorization while doing a good job in control, distinguish perfectly the rights and responsibilities, make correct authorization, strict supervision and investigation of and deal with the violations of the regulations. (2) On the basis of combing and integration, define the cultural concept of KONKA, propose a value system, carry out some directive corporate cultural activities under the guidance of such value based system and do a good job in internal and external transmission of the corporate culture ideas. Thirdly, further promote the strategic layout of internationalization. Speed up the establishment of internationalized purchase, production and sales platform, and improve planning and construction of overseas offices. Fourthly, while doing a good job in analysis of the sector the Company is engaged in and its position in the market, work out an explicit diversification and accessory business development plan and operation mechanism, positively look for strategic partners. Make good use of the superiority of KONKA brand and share the relevant resources, realize the objectives of big growth in diversification and accessory business. Fifthly, improve the relationship in management with investors and establish a good identity in the capital market. The Company shall, in accordance with the Guide of Shenzhen Stock Exchange on Management of the Relationship between the Listed Companies and the Investors, further standardize the information disclosure work; make full use of the modern IT means and timely, accurately and completely disclose the Company’s information; positively enhance and improve the relations and communications between the Company and its shareholders, investors as well as potential investors; gradually improve the management of relations with the investors and establish a good identity of the Company in the capital market. Sixthly, establish and effective long-term encouragement mechanism through reform of the research mechanism. The Company shall discuss the issue of mechanism reform in a positive way, establish a long term effective encouragement mechanism so as to ensure sustainable and stable development of the Company. Profit estimation of the next year (If it has) □Applicable √Inapplicable 6.16 The preplan on the profit distribution and capitalization of capital public reserve of the Board of Directors The reason why The Company made profits in the report period, but didn’t propose The usage and utilization plan of retained profit of the Preplan on Dividend Distribution Company The reason that the Company didn't propose cash profit distribution preplan was in None the report period, the Company realized profit amounting to RMB 140,726,699.45 to make up losses in previous years, and after making up losses the retained profit was negative. The plan should be approved by Shareholders’ General Meeting.

§7. Significant Events 7.1 Purchase of assets □Applicable √Inapplicable 7.2 Sales of assets □Applicable √Inapplicable 7.3 Significant guarantee □Applicable √Inapplicable 7.4 Significant related transactions 7.4.1 Current related purchase and sale √Applicable □Inapplicable Unit: RMB’0000 Selling products and providing service Purchasing products and accepting service to related parties to related parties Related parties Transaction Proportion in the Transaction Proportion in the amount same kind of amount same kind of transaction amount transaction amount Shanghai Huali Packaging 0.00 0.00% 5,722.56 0.75% Co., Ltd. Shenzhen Huali Packaging 0.00 0.00% 4,907.05 0.64% Trade Co., Ltd. Shenzhen Dekang Electronics 0.00 0.00% 5,884.08 0.77% Co., Ltd. Total amount 0.00 0.00% 16,513.69 0.00% 7.4.2 Current related credits and liabilities √Applicable □Inapplicable Unit: RMB’0000 Supply funds to related parties Related parties supplied funds to the Listed Company Related parties Amount occurred Balance Amount occurred Balance Shenzhen OCT Real Estate Company 74.27 104.61 0.00 0.00 Shenzhen OCT Properties Management 0.00 7.68 0.00 0.00 Company Shenzhen OCT Water & Electricity Company 141.78 137.85 0.00 0.00 Shenzhen Konka Energy Science and -20.00 113.00 0.00 0.00 Technology Shenzhen Dekang Electronics Co., Ltd. 0.00 0.00 -422.96 1,015.84 Shanghai Huali Packaging Co., Ltd. 0.00 0.00 61.94 772.56 Shenzhen Huali Packaging Trade Co., Ltd. 0.00 0.00 39.92 913.32 Total 196.05 363.14 -321.10 2,701.72 Including: in the report period, the capital amount the listed company provided to controlling shareholder and its subsidiaries was RMB 196.05 and the balance was RMB363.15. 7.5 Entrusted assets □Applicable √Inapplicable 7.6 Implementation of commitment items □Applicable √Inapplicable 7.7 Significant lawsuit and arbitration √Applicable □Inapplicable On May 2, 2003, Five Rivers Electronic Innovations LLC, IBEW and IUE-CWA brought antidumping action against Chinese enterprises in colour TV industry. On November 25, 2003, U.S. Department of Commerce announced the result of preliminary ruling and imposed antidumping tax rate of 27.94% against the Company, which will affect the export of color TVs of the Company to certain extent in the future. The Company published relevant announcement on China Securities Daily, Securities Times, Shanghai Securities Daily and Ta Kung Pao on November 26, 2003. On April 13, 2004, U.S. Department of Commerce announced the result of final ruling for the case of antidumping against Chinese color TV. The recognized dumping margin of the Company was 11.36 %. On May 14, 2004, U.S. Department of Commerce announced revised dumping margin of Chinese color TV. According to the revised result, the recognized dumping margin of the Company was 9.69%. This final conclusion of United States International Trade Commission will not waver the Company's confidence in and resolution of quickening internationalization and developing American market. The Company will not give up American market. 7.8 Particulars about the performance of obligations of Independent Directors Particulars about the independent directors attending the Board Name of Independent This year times of Presence in Entrusted Absence (Times) Notes Directors attending the Board person presence meeting (times) Entrusted Mr. Ye Wu to attend the meeting and vote instead of him at the Xiao Zhuoji 9 7 2 0 18th meeting of 4th Board and 1st meeting of the 5th Board Ye Wu 9 9 0 0 Ma Liguang 9 9 0 0 Particulars about the independent directors proposed different opinions about the relevant matters of the Company □Applicable √Inapplicable

§8. Report of the Supervisory Committee √Applicable □Inapplicable In the report period, the fourth and fifth supervisory committee of the Company held 4 meetings in total, i.e., the 9th and 10th meeting of the fourth supervisory committee and the first and second meeting of the fifth supervisory committee. The particulars of the meetings and resolutions are as follows: The 9th meeting of the fourth supervisory committee of the Company was held in meeting room 605 of Shenzhen OCT Group, China on April 16, 2004. 3 supervisors were supposed to attend the meeting and all of them were actually present. The meeting complied with relevant provisions of the Company Law of the People's Republic of China and the Articles of Association of the Company. Upon full discussion, the meeting unanimously adopted the following proposals and resolutions: 1. 2003 Annual Report of the Company and its summary. 2. 2003 work report of the supervisory committee of the Company. The 10th meeting of the 4th supervisory committee of the Company was held in 6/F meeting room of Shenzhen OCT Group Company on May 27, 2004 (Thursday). 3 supervisors were supposed to attend the meeting and all of them were actually present. The meeting complied with relevant provisions of the Company Law of the People's Republic of China and the Articles of Association of the Company. Upon full discussion, the meeting unanimously adopted the proposal for reelecting the supervisory committee. The term of office of the fourth supervisory committee expired. The supervisory committee nominated Mr. Dong Yaping and Ms Wang Xiaowen to serve as supervisors of the fifth supervisory committee. The above resolution is to be submitted to 2003 annual shareholders' general meeting for examination. Meanwhile, the labor union of the Company recommended Mr. Sha Gang to serve as a supervisor who is an employee representative. The 1st meeting of the 5th supervisory committee of the Company was held in 6/F meeting room of Shenzhen OCT Group Company on June 28, 2004 (Monday). 3 supervisors were supposed to attend the meeting and all of them were actually present. The meeting complied with relevant provisions of the Company Law of the People's Republic of China and the Articles of Association of the Company. Upon full discussion, the meeting unanimously elected Mr. Dong Yaping to serve as the chairman of the fifth supervisory committee. The 2nd meeting of the 5th supervisory committee of the Company was held in meeting room 607 of Shenzhen OCT Group Company in the morning of October 14, 2004 (Thursday). 3 supervisors were supposed to attend the meeting and all of them were actually present. The meeting was presided over by the chairman of the supervisory committee Mr. Dong Yaping. The meeting complied with relevant provisions of the Company Law of the People's Republic of China and the Articles of Association of the Company. Upon full discussion, the meeting examined and adopted the Report on the Rectification within Specified Time Limit Required by China Securities Regulatory Commission Shenzhen Securities Administration. The resolutions of the above 4 meetings of the supervisory committee were published on the newspapers designated by CSRC, i.e., China Securities, Securities Times, Shanghai Securities News and Ta Kung Pao, designated website www.cninfo.com.cn and the website of the Company www.konka.com respectively on April 20, 2004, May 28, 2004, June 29, 2004 and October 15, 2004. §9. Financial Report 9.1 Auditor’s opinions Auditor’s opinions: Standard unqualified auditor’s opinions 9.2 Financial statement

Konka Group Co., Ltd.

Consolidated income statement for the year ended December 31, 2004

2004 2003 RMB’000 RMB’000

Turnover 5 13,362,522 12,806,466 Cost of sales ( 11,393,120 ) ( 10,924,570 )

Gross profit 1,969,402 1,881,896 Other revenue 6 75,252 13,979 Distribution costs ( 1,471,606 ) ( 1,442,897 ) Administrative expenses ( 391,716 ) ( 297,938 )

Operating profit 181,332 155,040 Finance costs ( 7,033 ) ( 23,981 ) Share of loss from associates ( 1,738 ) ( 351 )

Profit before taxation 7 172,561 130,708 Taxation 8 ( 11,593 ) ( 15,935 )

Profit before minority interests 160,968 114,773 Minority interests ( 18,419 ) ( 10,374 )

Profit attributable to shareholders 142,549 104,399 Accumulated loss as at beginning of year ( 503,961 ) ( 610,169 )

Accumulated loss before appropriation/reversal ( 361,412 ) ( 505,770 ) Appropriations/reversal Dividend payment waived - 1,809

Accumulated loss as at end of year ( 361,412 ) ( 503,961 )

Earnings per share – basic RMB0.237 RMB0.173

The calculation of the basic earnings per share is based on the current year’s profit of RMB142,549,000 (2003 - RMB104,399,000) attributable to the shareholders and on the existing number of 601,986,352 shares in issue during the year.

Konka Group Co., Ltd.

Consolidated balance sheet as at December 31, 2004

2004 2003 RMB’000 RMB’000 Non-current assets Property, plant and equipment 9 1,387,288 1,400,005 Goodwill 10 989 1,311 Intangible assets 11 11,014 7,200 Interests in associates 12 35,159 39,216 Other investments 13 10,290 11,790

1,444,740 1,459,522 Current assets Inventories 14 3,580,777 3,170,081 Properties held for sale 15 4,172 4,172 Account receivables 16 571,016 333,217 Prepayments, deposits and other receivables 17 199,251 156,410 Note receivables 18 2,933,652 3,166,448 Short-term investments - 1,243 Cash and bank balances 851,762 1,331,894

8,140,630 8,163,465 Current liabilities Tax payable ( 2,145 ) ( 9,719 ) Account payables ( 1,271,053 ) ( 1,232,711 ) Other payables and accrued expenses ( 821,192 ) ( 1,256,385 ) Note payables ( 3,977,323 ) ( 3,783,822 ) Short-term bank loans 19 ( 48,149 ) ( 28,045 )

( 6,119,862 ) ( 6,310,682 )

(e) Net current assets 2,020,768 1,852,783

(f) Total assets less current liabilities 3,465,508 3,312,305

(to be cont’d) Konka Group Co., Ltd.

Consolidated balance sheet as at December 31, 2004 (cont’d)

2004 2003 RMB’000 RMB’000

(i) Total assets less current liabilities 3,465,508 3,312,305

(j) Non-current liabilities Deferred income ( 13,490 ) ( 16,487 ) Finance lease obligations - ( 1,875 ) Other long-term liabilities ( 10,499 ) ( 4,584 )

( 23,989 ) ( 22,946 )

(k) Minority interests ( 247,827 ) ( 237,966 )

Net assets employed 3,193,692 3,051,393

Financed by : Share capital 20 601,986 601,986 Reserves 2,591,706 2,449,407

Shareholders’ equity 3,193,692 3,051,393 The financial statements on pages 2 to 28 were approved and authorized for issued by the board of directors on April 15, 2005 and are signed on its behalf by : Ni Zheng Wang Ru quan Director Director

Konka Group Co., Ltd.

Consolidated cash flow statement for the year ended December 31, 2004

2004 2003 RMB’000 RMB’000 Cash flow from operating activities Operating profit before taxation 172,561 130,708 Adjustment items : Interest income ( 11,993 ) ( 10,922 ) Dividend income ( 595 ) ( 72 ) Income from government grant ( 2,997 ) ( 7,215 ) Short-term bank loan waived ( 4,500 ) - Other payables waived ( 473 ) - Interest expenses 7,227 5,776 Depreciation 147,438 126,744 Loss on disposal of property, plant and equipment 1,978 2,836 Amortization of goodwill 322 321 Amortization of intangible assets 3,295 2,514 Profit on partial disposal of a subsidiary ( 112 ) - Impairment loss provision on associates - 5,594 Share of results from associates 1,738 351 Profit on disposal of an associate ( 357 ) - Loss on disposal of other investments 364 - Provision for inventory obsolescence 35,502 22,636 Provision/(reversal) for doubtful debts on ,account receivables 18,165 ( 8,971 ) Reversal for doubtful debts on other receivables ( 2,135 ) ( 343 )

Net operating cash inflow before movements ,in working capital 365,428 269,957 Exchange reserve movement ( 250 ) 230 Increase in inventories ( 446,198 ) ( 613,921 ) Increase in account receivables ( 255,964 ) ( 47,090 ) (Increase)/decrease in prepayments, deposits and other receivables ( 33,824 ) 77,210 (Increase)/decrease in note receivables 232,796 ( 1,961,309 ) Increase in account payables 38,342 359,978 Increase/(decrease) in other payables and accrued expenses ( 434,720 ) 431,462 Increase in note payables 193,501 1,880,062

Cash generated from/(paid for) operations ( 340,889 ) 396,579 Interest paid ( 7,227 ) ( 5,776 ) Corporate and profits tax paid ( 19,167 ) ( 9,724 )

Net cash inflow/(outflow) from operating activities ( 367,283 ) 381,079

(to be cont’d ) Konka Group Co., Ltd.

Consolidated cash flow statement for the year ended December 31, 2004 (cont’d)

2004 2003 Note RMB’000 RMB’000

Net cash inflow/(outflow) from operating activities ( 367,283 ) 381,079 Investing activities Interest received 11,993 10,922 Dividend received 595 72 Purchases of property, plant and equipment ( 158,948 ) ( 167,193 ) Proceeds from disposal of property, plant and equipment 22,249 23,245 Purchases of intangible assets ( 7,285 ) ( 1,040 ) Additional investment in associates - ( 2,400 ) Receipts from/(repayments to) associates ( 4,030 ) 11,232 Proceeds from disposal/return of other investments 1,136 200,000 (Increase)/decrease in short-term investments 1,243 ( 1,243 )

Net cash inflow/(outflow) from investing activitie s ( 133,047 ) 73,595 Financing activities Government grant received - 4,217 Finance lease obligations repaid 21 ( 1,875 ) ( 625 ) Other long-term liabilities raised/(repaid) 21 5,915 ( 19,699 ) Bank loans raised/(repaid) 21 24,604 ( 135,955 ) Decrease in minority interests 21 ( 8,446 ) ( 15,617 )

Net cash inflow/(outflow) from financing activities 20,198 ( 167,679 )

Increase/(de crease) in cash and cash equivalents ( 480,132 ) 286,995 Cash and cash equivalents as at beginning of year 1,331,894 1,044,899

Cash and cash equivalents as at end of year 851,762 1,331,894

Analysis of cash and cash equivalents Cash and bank balances 851,762 1,331,894

21

9.3 Explanation on changes of accounting policy, accounting estimation and settlement compared with the latest annual report □Applicable √Inapplicable 9.4 Contents, correct amount, reason and its influence of significant accounting errors □Applicable √Inapplicable 9.5 Explanation on change of consolidated scope compared with the latest annual report □Applicable √Inapplicable Board of Directors Konka Group Co., Ltd. Apr. 15, 2005

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