letter to shareholders

Dear Shareholders,

Overview of Group's Performance and Strategy Ahead

2007 was a year where our hard work in preceding years bore fruit with the Group surpassing sales records. Revenue rose to a record RMB 388 million for 2007, with each of the 4 quarters in 2007 registering the top 4 highest quarterly sales since listing. Our sales breakdown by geographical and business sector also experienced significant changes.

Geographically, export sales have shown a substantial increase, accounting for 37% of total revenue compared to 27% in 2006. South East Asia continues to perform well with respectable growth in 2007. In our aspiration to become a global player, the Group had intensified its efforts on the development of our sales network in Europe, Australia, and South America. These are established mature markets and have very different requirements compared to our existing ones. The challenge is for our Group to come up with a product and support network that meets the requirements of these markets. Our management team has made commendable progress with its marketing efforts in Europe and Australia over the past few years with sales culminating to RMB 47 million in 2007, accounting for 12% of total revenue.

From the business sector perspective, annual sales from garden & lawn sector have eclipsed that of the agriculture & forestry sector for the first time. The catalyst for this is the sale of our brush cutter, both globally and domestically. Going forward, the brush cutter is expected to continue to be an important product of the Company.

With the large increase in sales, maintaining high product quality remains a top priority for the Group. The larger factory had enabled not only an increase in production capacity; it had also allowed us to devote more production area and internal resources to the testing of our assembled products. We have created a production zone specially designed to carry out the quality control function by a designated team on all products before delivery to our customers. In late 2006, we recruited an experienced engineer who is responsible for the project team that determines product quality control of our operations in China. In view of the increase in sales, we remain committed towards enhancing product consistency and quality control management to establish our Group's position as a reliable power tools equipment producer.

Strategy Ahead

Product development will continue to be important to our expansion plans. Our products are constantly undergoing refinement to keep up with the current trends, technology and customers' needs. I n 2007, the sale of our two main products, the mist duster and the brush cutter, continues to form the bulk of our sales. Nevertheless, their revenue contribution in percentage terms had declined compared to 2006. Sales from other products have increased their revenue contribution with encouraging results shown by our blower, tea harvester and perforator in 2007. However, these products are more complicated, and we expect a longer promotion and acceptance period for these products.

In 2008, with the adoption of a more stringent set of emission requirements for garden & lawn equipment by the European U nion and the U nited States, our Group is well positioned to break into these established markets as our Group has a line of low-emission engines certified to meet the emission legislation. The new emission requirements will add to the cost of production of these products, with the realised cost advantage of our Group expected to become even more pronounced.

The PRC central government continues to demonstrate their determination to improve the livelihood of China's rural population. Mechanization of farming has been identified as a key strategy to achieve this. A s the Group had its roots in this sector it is well-placed to capitalise on this opportunity. However, the challenge ahead is great as China has a huge rural population with a low income base. The Group believes that a large scale shift towards mechanisation in farming will require a period of time and over the short term; demand will continue to fluctuate between high to low.

Our Group currently has strong cash reserves generated from our operational cash flows as well as the placement of new shares in 2007. We will continue to be diligent in examining merger and acquisition opportunities as well as other business opportunities so as to enhance shareholders' returns. I n particular, we believe that China Steel A ustralia Limited ("China Steel") fits the strategic plans of the Company and we are currently working towards completing the proposed acquisition of a 46.25% stake. China Steel is listed on the Australia Stock Exchange and the acquisition of a China based business which can supply one of the critical base materials (stainless steel) for our products, enables an assurance of a constant supply for our expanded production. The acquisition of a profitable business will also enhance the Company's earnings per share, which will in turn enhance shareholders' value.

Acknowledgements

We would like to thank our fellow directors, our managers, and staff for their hard work and dedication and also our business associates and shareholders for their support.

Xue Yongwen
Executive Chairman and Managing Director