GANSU YASHENG GROUP
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002
C O N T E N T S
| Independent Auditors' Report | 3 |
| Consolidated Balance Sheets | 4 |
| Consolidated Statements of Income | 6 |
| Consolidated Statements of Cash Flows | 7 |
| Consolidated Statements of Stockholders' Equity | 8 |
| Notes to the Consolidated Financial Statements | 9 |
2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Gansu Yasheng Salt Industrial (Group) Co., Ltd
We have audited the accompanying balance sheets of Gansu Yasheng Salt Industrial (Group) Co., Ltd. (Collectively "Gansu Yasheng Group") as of December 31, 2003, 2002, and 2001 and the related consolidated statements of income shareholders equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Gansu Yasheng Group at December 31, 2003, 2002, and 2001 and the results of their operations and their cash flows for the years ended December 31, 2003, 2002, and 2001 in conformity with accounting principles generally accepted in the United States of America.
Gansu Hongxin Certified Public Accountants Co., Ltd.
March 16, 2004
3
GANSU YASHENG GROUP
Consolidated Balance Sheets
ASSETS
December 31, | ||||||
| 2003 | 2002 | 2001 | ||||
| CURRENT ASSETS | ||||||
| Cash and cash equivalents | $ | 45,681,890 | $ | 43,431,770 | $ | 38,273,671 |
| Accounts receivable, net (Note 4) | 79,032,369 | 298,498,764 | 279,417,576 | |||
| Inventories, net (Note 5) | 55,325,772 | 151,010,782 | 134,899,839 | |||
| Deferred taxes | - | - | - | |||
| Other current assets | 1,122,607 | 28,589,022 | 30,740,873 | |||
| Total Current Assets | 181,162,638 | 521,530,338 | 483,331,959 | |||
| OTHER ASSETS | ||||||
| Property, plant and equipment, net (Net 6) | 1,088,002,037 | 892,177,499 | 842,631,129 | |||
| Intangible assets, net (Note 7) | 10,467,817 | 10,917,552 | 4,692,164 | |||
| Other assets | 47,526,778 | 80,170,915 | 128,256,322 | |||
| Total Other Assets | 1,145,996,632 | 983,265,966 | 975,579,615 | |||
| TOTAL ASSETS | $ | 1,327,159,270 | $ | 1,504,796,304 | $ | 1,458,911,574 |
The accompanying notes are an integral part of these financial statements.
4
GANSU YASHENG GROUP
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, | ||||||
| 2003 | 2002 | 2001 | ||||
| CURRENT LIABILITIES | ||||||
| Accounts payable and accrued expenses | $ | 51,858,793 | $ | 171,005,492 | $ | 173,155,746 |
| Accrued employee compensation and benefits (Note 8) | 9,199,478 | 10,709,677 | 16,218,855 | |||
| Short-term loans (Note 9) | 74,797,102 | 165,561,411 | 153,790,322 | |||
| Taxes payable | 11,504,544 | 35,820,620 | 45,499,020 | |||
| Total Current Liabilities | 147,359,917 | 383,097,200 | 388,663,943 | |||
| LONG-TERM LIABILITIES | ||||||
| Long-term loans (Note 9) | 81,093,901 | 82,850,927 | 94,830,974 | |||
| Other long-term liabilities | 8,203,979 | 8,270,630 | 3,657,664 | |||
| Total Long-term Liabilities | 89,297,880 | 91,121,557 | 98,488,638 | |||
| MINORITY INTEREST | 113,219,184 | 106,391,933 | 101,918,971 | |||
| SHAREHOLDERS' EQUITY | ||||||
| Common stock; US $1.00 par value; 154,651,008 shares with the total amount of US $154,651,008 | 154,651,008 | 155,907,429 | 155,907,429 | |||
| Retained earnings (Note 11) | 822,631,281 | 768,278,185 | 713,932,593 | |||
| Total Shareholders' Equity | 977,282,289 | 924,185,614 | 869,840,022 | |||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
| $ | 1,327,159,270 | $ | 1,504,796,304 | $ | 1,458,911,574 | |
The accompanying notes are an integral part of these financial statements.
5
GANSU YASHENG GROUP
Consolidated Statements of Income
December 31, | ||||||
| 2003 | 2002 | 2001 | ||||
| Operating revenue | $ | 605,246,913 | $ | 555,479,607 | $ | 524,011,009 |
| Operating expense | 487,918,542 | 436,338,301 | 403,407,849 | |||
| Gross profit | 117,328,371 | 119,141,306 | 120,603,160 | |||
| Selling expenses | 14,406,297 | 22,031,426 | 22,378,215 | |||
| General and administrative expenses | 21,526,469 | 26,934,296 | 30,394,612 | |||
| Other operating expenses | 26,797,165 | 25,641,261 | 21,309,037 | |||
| Operating profit | 54,598,440 | 44,534,323 | 46,521,296 | |||
| Investment income | 621,008 | 7,419,103 | 5,643,497 | |||
| Other income | 19,751,566 | 18,910,938 | 18,393,287 | |||
| Income before taxes and minority shareholders earnings | 74,971,014 | 70,864,364 | 70,558,080 | |||
| Income taxes (Note 12) | 7,536,444 | 6,705,875 | 9,347,413 | |||
| Minority shareholder earnings | 7,437,628 | 6,006,288 | 6,653,756 | |||
| Net income | $ | 59,996,942 | $ | 58,152,201 | $ | 54,556,911 |
| Earnings per common share (Note 10) | ||||||
| Basic | $ | 0.3879 | $ | 0.3760 | $ | 0.3527 |
| Diluted | $ | 0.3879 | $ | 0.3760 | $ | 0.3527 |
The accompanying notes are an integral part of these financial statements.
6
GANSU YASHENG GROUP
Consolidated Statements of Cash Flows
For the Year Ended December 31, | ||||||
| 2003 | 2002 | 2001 | ||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
| Net (loss) income | $ | 59,996,942 | $ | 58,152,201 | $ | 54,556,911 |
| Adjustments to reconcile net (loss) income to net cash Provided by operating activities: | ||||||
| Depreciation and amortization | 53,186,941 | 49,422,496 | 31,922,762 | |||
| Non-cash compensation | 26,042,182 | 33,888,410 | 43,297,880 | |||
| Tax benefits from investments | (621,009) | (7,419,104 ) | (5,643,498) | |||
| Loss (gain) on disposal of assets | 145,885 | - | - | |||
| Change in asset and liability: | ||||||
| Accounts receivable, net | 141,978,079 | 14,343,157 | (3,333,157 ) | |||
| Inventories, net | 95,685,009 | (16,110,943) | (22,731,064) | |||
| Account payable | (101,538,28) | (54,922,414) | (25,140,664) | |||
| Accrued employee compensation and benefits | (1,510,200) | (5,509,178) | (5,102,975) | |||
| Income tax payable | (1,830,569) | (2,641,539) | (2,359,353) | |||
| Other liabilities | 5,662,907 | (9,780,307) | (10,159,587) | |||
| Net Cash Provided by Operating Activities | 277,197,881 | 59,422,779 | 55,307,255 | |||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
| Capital expenditures | 51,470,822 | 37,321,105 | 4,926,338 | |||
| Investments | 621,008 | 2,896,301 | 4,904,076 | |||
| Proceeds from sale of assets | 19,510,351 | 450,878 | (1,330,626) | |||
| Purchasing property, plant & equipment or other assets | (260,568,278) | (78,415,982) | (42,074,411) | |||
| Net Cash Used by Investing Activities | (188,966,097) | (37,747,698) | (33,574,623) | |||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
| Net proceeds from borrowings | 45,992,353 | 26,768,415 | 40,848,109 | |||
| Proceeds from accepting investments | 20,160,275 | 2,604,141 | - | |||
| Other financing activities | 2,411,955 | 846,514 | 7,637,764 | |||
| Dividends paid, net | (17,786,583) | (20,383,288) | (16,434,270) | |||
| Debt retirement | (136,759,664) | (26,352,764) | (48,207,748) | |||
| Net Cash Used in Financing Activities | (85,981,664) | (16,516,982) | (16,156,145) | |||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 2,250,120 | 5,158,099 | 5,576,487 | |||
| CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR | 43,431,770 | 38,273,671 | 32,697,184 | |||
| CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR | $ | 45,681,890 | $ | 43,431,770 | $ | 38,273,671 |
| SUPPLEMENTAL DISCLOSURE: | ||||||
| Cash paid for interest | $ | 22,758,307 | $ | 25,560,647 | $ | 23,095,401 |
| Cash paid for income taxes | $ | 6,705,875 | $ | 9,347,413 | $ | 8,664,529 |
The accompanying notes are an integral part of these financial statements.
7
GANSU YASHENG GROUP
Statements of Stockholders' Equity
| Common Stock Amounts | Retained Earnings | Total | ||||
| Balance, December 31, 2000 | $ | 155,907,429 | $ | 663,930,745 | $ | 819,838,174 |
| Exercise of stock options | - | - | - | |||
| Cash dividends | - | (4,555,063) | (4,555,063) | |||
| Equity adjustment from foreign currency exchange translation | - | - | - | |||
| Net income | - | 54,556,911 | 54,556,911 | |||
| Balance, December 31, 2001 | 155,907,429 | 713,932,593 | 869,840,022 | |||
| Exercise of stock options | - | - | - | |||
| Cash dividends | - | (3,806,609) | (3,806,609) | |||
| Equity adjustment from foreign currency Exchange translation | - | - | - | |||
| Net income | - | 58,152,201 | 58,152,201 | |||
| Balance, December 31, 2002 | 155,907,429 | 768,278,185 | 924,185,614 | |||
| Exercise of stock options | - | - | - | |||
| Cash dividends | - | - | - | |||
| Equity adjustment from foreign currency Exchange translation | (1,256,421) | (5,643,846) | (6,900,267) | |||
| Net income | - | 59,996,942 | 59,996,942 | |||
| Balance, December 31, 2003 | $ | 154,651,008 | $ | 822,631,281 | $ | 977,282,289 |
The accompanying notes are an integral part of these financial statements.
8
GANSU YASHENG GROUP
Notes to the Financial Statements
December 31, 2003 and 2002
NOTE 1 - THE COMPANY
GANSU YASHENG SALT INDUSTRIAL (GROUP) CO., LTD. ("Gansu Yasheng Group" or the "Company") is a corporation formed and registered in Gansu Provincial Bureau of Business Management in November 23,1998. The company includes Gansu Yasheng Industrial (Group) Co., Ltd, Gansu Tiaoshan Agricultural-Industrial-Commercial Co. Ltd., Gansu Xiaheqing Co. Ltd., Gansu Yanguoxia Chemicals General Plant, Lanzhou Vinylon (Group) Co., Ltd.as well as other subsidiaries. The Company is a limited liability company, exclusive-funded Corp. Limited. The Company designs, develops, manufactures and markets high-quality farming and sideline products; chemical materials and products; textiles; construction materials; livestock and poultry. It also designs, develops and markets new technologies of agriculture, genetic biology and network exploring. Headquarters' permanent address: No 609, East Binghe Road, Lanzhou City, P. R. of China.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Accounting
The consolidated financial statements of the Company are made in accordance with "Corporate Accounting Standards of China" and "Corporate Accounting Policies of China". Based on the Principles listed above, the statements are readjusted to comply with the accounting standards generally accepted in the United States of America.
Fiscal year
In the Financial Statements of the Company, the Gregorian calendar is used and the fiscal year starts from January 01 to December 31 of the year.
Currency & Foreign currency translation
The Company uses RMB Yuan as its accounting currency. The accounting currency used in the financial statements presented herewith have been translated into US Dollars at rates of exchange quoted by the Central Bank, the People's Bank of China on the day of December 31, 2003, 2002 and 2001 respectively. Cumulative translation gains or losses are included in the net profit and loss for each period.
Methods of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company transactions and balances have been eliminated. The shareholders' equity of the related parties with 20% and over are calculated by using the pooling of interest method.
Revenue recognition
Revenues are recognized at the time goods, services, commodities and so forth are converted into cash or cash demanding rights.
9
GANSU YASHENG GROUP
Notes to the Financial Statements
December 31, 2003 and 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
Cash and cash equivalents include cash deposited in a bank, cash in hand and securities with maturities of three months or less.
Inventories
Inventories acquired are valued at actual purchase cost; inventories forwarded are valued by using weighted average cost. At the end of the accounting, the inventories are valued at the lower of cost or market value.
Investments / Earnings per common share
The investments are accounted for at the actual cost. The investment with a percentage of less than 20% shares in the new company is calculated by using "Cost Method" and that with 20 - 50% percentage be calculated by using "Equity Method".
Basic net earnings per common share are calculated by dividing net income for the period by the weighted-average number of common shares during the period.
Property, plant & Equipment
Property and equipment are recorded at cost. Major additions and improvements are capitalized. Minor replacements, maintenance and repairs that do not increase the useful life of the assets are expensed as incurred. The cost and related accumulated depreciation of property and equipment sold or otherwise disposed of are removed from the accounts and any gain or loss is reported as current year's other revenue or expense. Depreciation of property and equipment is determined using the straight-line method over the expected useful lives of the assets are follows:
Buildings & improvements 20 - 40 years Farming facilities 15 years Machinery & equipment 12 years Transportation & other facilities 8 - 10 years Long-lived assets
Long-lived assets are accounted for at their direct purchase price. Long-lived assets are recognized at the lower of carrying amount on fair value less selling expenses. The difference between carrying amount and fair value less selling expenses is recognized as long-lived assets impairment losses and is included in the net gain and loss of the period. Long-lived assets are in the calculation of the newly - recognized carrying amount value.
Intangible assets
The intangible assets are accounted for at cost, and are amortized using the straight line method over their estimated useful lives. The estimated lives do not exceed 40 years.
10
GANSU YASHENG GROUP
Notes to the Financial Statements
December 31, 2003 and 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income taxes
The Company uses balance-sheet approach to record its income taxes. There has been no temporary difference in terms of income taxes up to date.
Profits distribution
In accordance with the requirements under related Chinese laws and regulations as well as with the articles of the corporation, net profit after tax is distributed as follows:
(1) Prior years deficit coverage
(2) 10% off for legal surplus
(3) 5% off for legal welfare fund
(4) Any portion of earning surplus
(5) Dividends distributions
NOTE 3 - SELECTED FINANCIAL STATEMENT INFORMATION
December 31, | |||||||
| 2003 | 2002 | 2001 | |||||
| Cash and cash equivalents: | |||||||
| Cash | $ | 45,681,890 | $ | 43,431,770 | $ | 38,273,671 | |
| Cash Equivalents Total | $ | 45,681,890 | $ | 43,431,770 | $ | 38,273,671 | |
| Accounts receivable, net: | |||||||
| Accounts receivable | $ | 79,032,369 | $ | 298,498,764 | $ | 279,417,576 | |
| Accounts Receivable Total | $ | 79,032,369 | $ | 298,498,764 | $ | 279,417,576 | |
| Property, plant and equipment, net: | |||||||
| Land | $ | 286,822,160 | $ | 176,384,058 | $ | 113,809,342 | |
| Buildings & improvements | 126,926,938 | 78,109,462 | 88,107,635 | ||||
| Machinery & equipment | 453,074,108 | 370,639,788 | 239,964,818 | ||||
| Transportation facilities | 11,337,907 | 9,837,224 | 5,634,987 | ||||
| Farming facilities | 309,352,525 | 303,383,706 | 186,516,670 | ||||
| Construction-in-process | 128,712,754 | 132,640,617 | 271,231,598 | ||||
| Other fixed assets | 24,198,532 | 37,066,087 | 119,940,122 | ||||
| Accumulated depreciation | (252,422,887) | (215,883,493) | (182,574,043) | ||||
| Property, Plant and Equipment Total | $ | 1,088,002,037 | $ | 892,177,499 | $ | 842,631,129 | |
11
GANSU YASHENG GROUP
Notes to the Financial Statements
December 31, 2003 and 2002
NOTE 3 - SELECTED FINANCIAL STATEMENT INFORMATION (Continued)
December 31, | ||||||
| 2003 | 2002 | 2001 | ||||
| Accounts payable and accrued expenses: | ||||||
| Accounts payable | $ | 46,283,592 | $ | 166,944,628 | $ | 160,195,044 |
| Accrued expenses | 5,575,201 | 4,060,864 | 12,960,702 | |||
| Total | $ | 51,858,793 | $ | 171,005,492 | $ | 173,155,746 |
| Accrued employee compensation and benefits: | ||||||
| Accrued payroll | $ | 6,991,321 | $ | 7,672,340 | $ | 9,549,100 |
| Accrued vacation & sick pay | 2,208,157 | 3,037,337 | 6,669,755 | |||
| Total | $ | 9,199,478 | $ | 10,709,677 | $ | 16,218,855 |
NOTE 4 - ACCOUNTS RECEIVABLE
Accounts receivable are carried at anticipated realizable value. Bad debts should be written off during the year they are identified. The recognition could be made in one of the following cases:
1. Accounts receivable that is impossible to be collected due to the debtor's bankruptcy and after legal claiming procedure; or
2. Accounts receivable that is impossible to be collected due to the debtor's death, leaving nothing to claim, nor liability bearers; or
3. Accounts receivable that is impossible to be collected due to the debtor's failure to fulfill his duty and with obvious evidence that it is the truth.
The aforesaid accounts are written off on the basis of recognition by relevant management certified by the Board of Directors.
NOTE 5 - INVENTORIES
The major classes of inventory: raw materials, packing materials, products in process, finished goods, stocks, low-value consumable goods, materials in transit as well as others.
The method of determining inventory cost: accounting based on actual cost when inventory being in stock; and accounting based on average cost when inventory is being delivered.
12
GANSU YASHENG GROUP
Notes to the Financial Statements
December 31, 2003 and 2002
NOTE 5 - INVENTORIES (Continued)
The basis for stating inventory: lower of cost or market by the end of the period.
Details for inventory are as follows:
| December 31, | ||||||
| 2003 | 2002 | 2001 | ||||
| Raw materials | $ | 25,102,338 | $ | 78,510,843 | $ | 66,563,852 |
| Containers | 1,352,468 | 4,954,089 | 5,603,601 | |||
| Work-in-progress | 2,798,337 | 5,643,896 | 4,083,636 | |||
| Finished products | 8,273,125 | 10,254,635 | 10,191,007 | |||
| Goods in trade | 13,060,648 | 45,140,167 | 44,289,400 | |||
| Low-cost & short-lived articles | 679,983 | 879,241 | 569,143 | |||
| Materials-in-transit | 897,516 | 697,512 | 306,411 | |||
| Others | 3,161,323 | 4,930,366 | 3,292,789 | |||
| Total | $ | 55,325,772 | $ | 151,010,782 | $ | 134,899,839 |
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment: land, housing, machinery and equipment, transportation facilities, agricultural facilities, construction in progress and so on;
Depreciation policy: Housing, equipment and agricultural facilities should be stated at cost to the company less accumulated depreciation. Details see Note 2.
Amortization of land value: Land value is stated at average cost of land owning period.
Determination of accounts by the end of the period can be achieved at the lower of cost or market. Details of the item see Note 3.
NOTE 7 - INTANGIBLE ASSETS
The major classes of intangible assets include mainly know-how technology, mining rights, technology transferring expenses and information software, etc.
Amortization policy: Amortization can be recorded by means of Direct-line Method if beneficiary period is stated; if no beneficiary period stated, it can be estimated and then recorded by means of Direct-line Method within the period as aforesaid. The estimated period should not be more than 40 years.
Determination of accounts by the end of the period can be achieved at the lower of cost or account receivable.
NOTE 8 - EMPLOYEE BENEFIT PLANS
The Company provides the benefits for all the employees:
(1) Employee-welfare Fund: An amount similar to that of 14% of payrolls of all staff will be put aside by the Company for the employees' benefits expenses.
13
GANSU YASHENG GROUP
Notes to the Financial Statements
December 31, 2003 and 2002
NOTE 8 - EMPLOYEE BENEFIT PLANS (Continued)
(2) Open-policy pension: The Company pays to national and community insurance agents an amount similar to that of 20% of payrolls of all staff as pensions. The employees can still get paid by the insurance agents after retirement.
(3) Unemployment insurance: The Company pays to the national employment administrative units an amount similar to that of 1% of payrolls of all staff for unemployment insurance expense. In return, if the employee is dismissed, he or she could be paid from the authority a minimum amount of family-supporting fund within the specified period.
(4) Housing surplus reserve: The Company pays to the national housing fund administrative units an amount similar to that of 10% of the payroll for the employee's later housing allowance which shall be deposited in his or her given account.
The aforesaid items are for employee's benefits and should be accounted for as the Company's expenses.
NOTE 9 - THE BANK LOAN AND INTEREST
| Item | December 31, | Increased | Decreased | December 31, 2003 | Interest | ||||||
Short-term | In RMB | 1,370,302,138 | 380,664,915 | 1,131,918,704 | 619,048,349 | 5.31% | |||||
| In US $ | 165,561,411 | 45,992,354 | 136,759,663 | 74,794,102 | 5.31% | ||||||
Long-term | In RMB | 685,732,271 | - | 14,542,381 | 671,189,890 | 6.04% | |||||
| In US $ | 82,850,927 | - | 1,757,026 | 81,093,901 | 6.04% | ||||||
Total | In RMB | 2,056,034,409 | 380,664,915 | 1,146,461,085 | 1,290,238,239 | - | |||||
| In US $ | 248,412,338 | 45,992,354 | 138,516,689 | 155,888,003 | - | ||||||
The total interest costs for the year 2003 are RMB Yuan188,363,685 or US Dollars 22,758,307. Among them, RMB Yuan 32,872,778 or US Dollars 3,971,725; were capitalized and RMB155,490,907 or US Dollars 18,786,582 were charged to expense.
NOTE 10 - EARNINGS PER COMMON SHARE
At December 31, 2002, Total common stock shares are 155,907,429
At December 31, 2003, Total common stock shares are 154,651,008.
| Item | December 31, 2003 | December 31, 2002 | ||
| Paid-in capital | 154,651,008 | 155,907,429 | ||
| Par value | 1.00 | 1.00 | ||
| Earnings/share | 0.38795 | 0.37299 |
14
GANSU YASHENG GROUP
Notes to the Financial Statements
December 31, 2003 and 2002
NOTE 11 - STOCK OPTION AND SHAREHOLDERS' EQUITY
At December 31, 2002, Total common stock shares are 155,907,429.
At December 31, 2003, Total common stock shares are 154,651,008.
| Item | December 31, 2003 | December 31, 2002 | ||
| Par value | 1.00 | 1.00 | ||
| Paid-in capital | 154,651,008 | 155,907,429 | ||
| Retained earnings | 822,631,281 | 768,278,185 | ||
| Total Shareholders' Equity | 977,282,289 | 924,185,614 |
NOTE 12 - INCOME TAXES
(1) Tax preference: Upon approval from Gansu Provincial Bureau of Local Tax, Gansu Yasheng Industrial Co. Ltd, a subsidiary of the Company, is income tax free during the period from January 01 to December 31 of the year 2003. Other subsidiaries of the Company dealing with farming are income tax free as well.
(2) Tax Expenses: All other subsidiaries of the Company pay the income taxes with a rate of 33% approximately. The total tax amount paid during the period of the year ended December 31, 2003 amounted to US Dollars 7,536,444.
NOTE 13 - SEGMENT INFORMATION
2003 | 2002 | |||||||
| Income | Cost | Income | Cost | |||||
| Beverage | $ | 23,778,357 | $ | 22,761,354 | $ | 22,760,909 | $ | 21,930,864 |
| Dye | 102,581,762 | 87,623,871 | 75,065,986 | 56,537,122 | ||||
| Farming | 237,293,595 | 157,754,844 | 284,285,265 | 224,194,214 | ||||
| Trade | 115,413,426 | 108,459,397 | 44,010,985 | 42,629,674 | ||||
| Chemicals | 154,800,678 | 130,345,334 | 113,857,236 | 77,635,772 | ||||
| Others | 566,844 | 311,847 | 27,716,582 | 19,016,936 | ||||
| Sub-Total | 634,434,662 | 507,256,647 | 567,696,963 | 441,944,582 | ||||
| Intercompany | (29,187,749) | (19,338,105) | (12,217,356) | (5,606,281) | ||||
| Total | $ | 605,246,913 | $ | 487,918,542 | $ | 555,479,607 | $ | 436,338,301 |
NOTE 14 - TRANSACTIONS WITH RELATED PARTIES
The Company holds 38.93% of the total, i.e., 243,360,000 shares of Gansu Yasheng Industrial (Group) Co. Ltd. The following transaction occured in 2003:
15
GANSU YASHENG GROUP
Notes to the Financial Statements
December 31, 2003 and 2002
NOTE 14 - TRANSACTIONS WITH RELATED PARTIES (Continued)
| Related Party | Transaction Balance | Transaction Amount | ||
| Gansu Yasheng Industrial (Group) Co., Ltd. | 17,953,906 | 22,924,236 | ||
| Total | 17,953,906 | 22,924,236 |
In the year 2002, The Company provided a loan warranty in the amount of RMB 418,257,919.04 (or US$50,534,381.94) for Gansu Yasheng Industrial (Group) Co., LTD.
NOTE 15 - RISKS AND UNCERTAINTIES
There is no such item to be reported or reminded by the Company this year.
NOTE 16 - FOREIGN CURRENCY AND TRANSLATION
The currency the Company used to record the accounts is RMB Yuan. Whenever business is transacted in foreign currencies, the amount is recorded in the specific foreign currency after it is translated from RMB into foreign currency with the inter-exchange rate at the beginning of the period. The amount by the end year should be recorded in the specific foreign currency after it is translated from RMB into foreign currency with the inter-exchange rate by the end of the year. The aggregate transaction gain or loss is included in net income for the period disclosed.
The company recorded its accounts in US Dollars at the end year by transferring its RMB accounts into US Dollar on the basis of the RMB Exchange rate of the day the accounts are recorded.
The amounts are transferred directly with the difference stated inclusively.
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