DISCUSSION OF FINANCIAL PROJECTIONS

The attached Excel (spreadsheets employ accrual method accounting and are presented in accordance with Generally Accepted (American) Accounting Principles (GAAP, FASB). Amounts shown are in RMB (China's Currency of roughly 8.275 to 1 US Dollar) unless preceded by a dollar sign, in which case the amount that follows is in US dollars.

These financials are estimates and projections, but are detailed. The spreadsheet sheets show, in order,

1. Summary of annual results of 2004, 2005, and 2006,
2. Details of results for the year 2004,
3. Details for 2006,
4. Details for 2006, and
5. Definitions for each line
6. Summary of results for 2004 - 2006 in US$
7. Summary of results for 2004 - 2006 in HK$
8. Summary of results for 2004 - 2006 in the currency of your choice

The projections show the SUPPLY AND DEMAND, OPERATING STATEMENT, FUNDS FLOW, BALANCE SHEET by month for all three years together with the BUSINESS MODEL PARAMETERS. Figures in blue drive the financial model and are entered manually. All the rest are derived by equations that are tailored for this business, but fall within GAAP and FASB practices.

The assumptions of the financial projections, in order of impact on the investment, are believed to be:

• The product can be reliably produced at the levels shown with the resources shown on the schedule shown.
• The demand for the product right now and in the foreseeable future is strong and the price will not erode faster than indicated.
• Payment for the product will be prompt in the first year and bad debts will be small (as shown on the Aging lines, 71 and 72).
• There is no provision for any product liability contingency.
• That trade credit at the substantial levels shown can be achieved to the extent of 30 to 60 days.
• The productivity improvements for productivity, uptime, quality, and cost of materials can proceed as stated.
• Taxes are 7.5% of profit prescribed for Economic Zones for High Technology for which this business qualifies.
• Numerous financial parameters are detailed in the bottom portion of each sheet. Note, especially, the collection period times that vary from year to year.

Every winter, the factory is shut down for its' annual product changeover, unless existing customers' demand product as evidenced by payment on delivery or earlier. Accordingly, in keeping with the conservative bias of the financial projections, no production, nor sales are shown until mid-march. This shutdown also allows time for the outstanding receivables to clear and prevents complication of the new models interfering with the existing models (if a customer or a distributor knows the next year's model is going to be very good/cheap/advanced, they may become reluctant to pay for or accept the current model). The Company has too much money in receivables at stake to risk jeopardizing its financial well being with its' own good engineering and manufacturing advances. During this shutdown, a 50% maintenance wage will be given to factory workers. Every December, as a bonus, the workers are given double pay (which helps offset their costs of relocating for the winter.)

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