Annual and Transition Report (foreign Private Issuer) (20-f)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

o	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

o	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o	SHELL COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report:

For the transition period from to

Commission File Number 1-14742

JINPAN INTERNATIONAL LIMITED

(Exact name of Registrant as specified in its charter)

British Virgin Islands

(Jurisdiction of incorporation or organization)

c/o Hainan Jinpan Electric Company, Ltd

No. 168 Nanhai Avenue (Building No. 7), Haikou Free Trade Zone

Haikou, Hainan

People’s Republic of China

(Address of principal executive offices)

Mark Du, Chief Financial Officer

390 Veterans Boulevard

Carlstadt, NJ 07072

Telephone: (201) 460-8778 (x140)

Facsimile: (201) 460-8775

mdu@jstusa.net

(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Common Shares, $0.0045 par value per share

(Title of Class)

NASDAQ Global Select Market

(Name of each exchange on which registered)

Securities registered or to be registered pursuant to Section 12(g) of the Act: None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 16,418,456 Common Shares, par value $0.0045 per share

Indicate by check mark is the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o

No x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes o

No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x

No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x

No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP x

International Financial Reporting Standards as issued by the International Accounting Standards Board o

Other o

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o

Item 18 o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o

No x

Table of Contents


FORWARD-LOOKING STATEMENTS		1
	PART I
Item 1.	Identity of Directors, Senior Management and Advisors	2
Item 2.	Offer Statistics and Expected Timetable	2
Item 3.	Key Information	2
Item 4.	Information on the Company	17
Item 4A.	Unresolved Staff Comments	35
Item 5.	Operating and Financial Review and Prospects	35
Item 6.	Directors, Senior Management and Employees	44
Item 7.	Major Shareholders and Related Party Transactions	47
Item 8.	Financial Information	48
Item 9.	The Offer and Listing	50
Item 10.	Additional Information	51
Item 11.	Quantitative and Qualitative Disclosure of Market Risk	56
Item 12.	Description of Securities Other than Equity Securities	57
	Part II
Item 13.	Defaults, Dividend Arrearages and Delinquencies	57
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	57
Item 15.	Controls and Procedures	57
Item 16A.	Audit Committee Financial Expert	58
Item 16B.	Code of Ethics	58
Item 16C.	Principal Accountant Fees and Services	59
Item 16D.	Exemptions from the Listing Standards for Audit Committees	59
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	59
Item 16F.	Change in Registrant’s Certifying Accountant	59
Item 16G.	Corporate Governance	60
Item 16H.	Mine Safety Dislcosure	60
	Part III
Item 17.	Financial Statements	60
Item 18.	Financial Statements	60
Item 19.	Exhibits	60
SIGNATURES		63

	Financial Statements
	Reports of Independent Registered Public Accounting Firm	F-1
	Consolidated Balance Sheets as of December 31, 2014 and 2013	F-3
	Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012	F-4
	Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2014, 2013 and 2012	F-5
	Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012	F-6
	Notes to Consolidated Financial Statements	F-7

FORWARD-LOOKING STATEMENTS

All statements made in this Annual Report on Form 20-F other than purely historical information are “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements include statements regarding future plans and objectives. These statements may be preceded or followed by or otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “continues,” “plans,” “estimates,” “projects” or similar expressions or statements that events “will,” “should,” “could,” “might” or “may” occur. These statements are only our current expectations. These statements appear throughout this Annual Report on Form 20-F, including under “Item 3. Key Information – Risk Factors” and “Item 5 – Operating and Financial Review and Prospects.” They are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements involve risks, uncertainties and assumptions. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Actual results may differ materially from those expressed in these forward-looking statements due to a number of uncertainties and risks, including the risks described in this Annual Report on Form 20F and other risks, including:

●

our ability to successfully implement our business strategy;

●

the impact of existing and new competitors in the markets in which we compete, including competitors that may offer less expensive products and services, more desirable or innovative products or technological substitutes, or have more extensive resources or better financing;

●

the effects of rapid technological changes and vigorous competition in the markets in which we operate;

●

uncertainties about the future growth in electricity consumption and infrastructure development in the markets in which we operate;

●

other factors or trends affecting the industry generally and our financial condition in particular;

●

the effects of the higher degree of regulation or level of taxation in the markets in which we operate;

●

general economic and political conditions in the countries in which we operate or other countries which have an impact on our business activities or investments;

●

the monetary and interest rate policies of the countries in which we operate;

●

changes in competition and the pricing environments in the countries in which we operate; and

●

changes in exchange rates.

We caution you not to place undue reliance on the forward-looking statements, which speak only as of the date of this Annual Report on Form 20-F. Except as required by law, we are not under any obligation, and expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

All subsequent forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section and “Item 3. Key Information – Risk Factors”.

PART I

Unless specifically referenced, the following entities are collectively referred in this annual report as “we,” “us” or “our”:

(1)	Jinpan International Limited (“Jinpan International”), a British Virgin Islands International Business Company;

(2)	Jinpan International (USA) Limited (“Jinpan USA”), a New York corporation and wholly owned subsidiary of Jinpan International;

(3)	Jinpan Realty Group, LLC (“Jinpan Realty”), a New Jersey limited liability company and wholly owned subsidiary of Jinpan USA;

(4)	Jinpan Electric (China) Company Limited (“Jinpan China”), a foreign funded PRC limited liability company and wholly owned subsidiary of Jinpan International;

(5)	Hainan Jinpan Electric Company Limited (“Hainan Jinpan”), a sino-foreign cooperative venture owned by Jinpan International and Wuhan Jinpan Electric Company Ltd.;

(6)	Hainan Jinpan R&D Company Limited (“Hainan Jinpan R&D”). a Chinese enterprise wholly-owned by Hainan Jinpan;

(7)	Wuhan Jinpan Electric Company Limited (“Wuhan Jinpan”), a Chinese enterprise wholly owned by Jinpan China ;

(8)	Shanghai Jinpan Electric (Group) Company Limited (“Shanghai Jinpan”), a Chinese enterprise owned by Jinpan China and Hainan Jinpan;

(9)	Jinpan Electric Group Alternative Energy Equipment (Shanghai) Co. Ltd. (“Jinpan Alternative Energy”), a Chinese enterprise wholly owned by Shanghai Jinpan;

(10)	Jinpan Electric Group Transmission and Distribution Automation Equipment (Shanghai) Co. Ltd. (“Jinpan T&D”), a Chinese enterprise wholly owned by Shanghai Jinpan;

(11)	Shanghai Dong Dian International Trading Co. Ltd. (“Shanghai Dong Dian”), a Chinese enterprise wholly owned by Shanghai Jinpan; and

(12)	Shanghai Pan-Ding Investment Co. Ltd. (“Shanghai Panding”), a Chinese enterprise wholly owned by Shanghai Jinpan.

(13)	Guilin Jun Tai Fu Electric Co. Ltd. (“Guilin JTF”), a Chinese enterprise wholly owned by Hainan Jinpan.

(14)	Shanghai Huanliu Industrial Co. Ltd. (Shanghai Huanliu), a Chinese enterprise wholly owned by Shanghai Jipan.

Item 1. Identity of Directors, Senior Management and Advisors

Not Applicable.

Item 2. Offer Statistics and Expected Timetable

Not Applicable.

Item 3. Key Information

A. Selected Financial Data

The following selected financial data should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and the consolidated financial statements and notes included in this Annual Report on Form 20-F.

We prepare our historical consolidated financial statements in accordance with generally accepted accounting principles in the United States (U.S. GAAP). The following selected financial data have been derived from our audited consolidated financial statements for each of the years from 2010 to 2014. The selected consolidated statement of income data for the years 2012, 2013, and 2014, and the selected consolidated balance sheet data at December 31, 2013 and 2014, have been derived from our audited consolidated financial statements set forth in “Item 18. Financial Statements” of this Annual Report. The selected consolidated statement of income data for the years 2010 and 2011, and the selected consolidated balance sheet data at December 31, 2010, 2011 and 2012, has been derived from our previously published audited consolidated financial statements, which are not included in this Annual Report. These selected financial data should be read in conjunction with our consolidated financial statements and the notes thereto and are qualified entirely by reference to such consolidated financial statements.


							Year ended December 31,
	2014			2014			2013			2012			2011			2010
	US$(1)			RMB			RMB			RMB			RMB			RMB
				(In thousands, except per share and share data)
Income Statement Data:
Net sales		241,007			1,472,045			1,397,861			1,324,952			1,414,289			967,074
Costs of goods sold		(165,540	)		(1,011,100	)		(949,081	)		(892,042	)		(895,473	)		(591,591	)
Gross profit		75,467			460,945			448,780			432,910			518,816			375,483
Selling and administrative expenses		(59,585	)		(363,939	)		(345,464	)		(339,221	)		(350,822	)		(273,518	)
Income from operations		15,882			97,006			103,316			93,689			167,994			101,965
Interest expense		(2,323	)		(14,188	)		(12,830	)		(11,115	)		(8,088	)		(2,078	)
Non operating income		4,747			28,991			28,714			20,282			15,567			16,431
Income before income taxes		18,306			111,809			119,200			102,856			175,473			116,318
Income taxes		(2,792	)		(17,051	)		(16,579	)		(14,363	)		(21,334	)		(26,314	)
Net income		15,514			94,758			102,621			88,493			154,139			90,004


Earnings per share:
Basic		0.96			5.84			6.32			5.47			9.54			5.57
Diluted		0.93			5.70			6.14			5.29			9.37			5.46
Number of shares outstanding:(2)
Basic		16,232,381			16,232,381			16,230,165			16,170,107			16,163,696			16,159,893
Diluted		16,632,497			16,632,497			16,711,192			16,717,277			16,456,611			16,457,462

Dividends per share		US$ 0.16			US$ 0.16			US$ 0.12			US$ 0.18			US$ 0.14			US$ 0.14

Balance Sheet Data:
Cash and cash equivalents		13,209			80,826			149,874			116,341			152,597			182,300
Total assets		364,999			2,233,431			2,113,194			1,943,998			1,747,632			1,500,633
Net assets		226,689			1,387,113			1,305,616			1,212,189			1,139,789			1,003,294
Long term debt		26,239			160,553			195,087			165,406			-			-
Long term liabilities		4,964			30,377			29,176			19,383			9,451			16,458
Equity		226,689			1,387,113			1,305,616			1,212,189			1,139,789			1,003,294

Cash Flows Data
Depreciation		7,325			44,739			42,499			33,016			27,791			24,449
Capital expenditures:(3)		4,581			27,980			80,734			223,650			83,963			56,468
Ratio of earnings to fixed charges(4)		11.26	%		11.26	%		9.72	%		9.75	%		4.41	%		1.76	%

(1)

Our assets and liabilities are translated into United States dollars at the period-end exchange rate which is RMB 6.119 to 1 US dollar as of December 31, 2014. Revenues and expenses are translated into United Stated dollars at weighted average exchange rates which was RMB 6.1079 to 1 US dollar for the period from January 1, 2014 to December 31, 2014. Equity transactions are translated using historical rates.

(2)	There are 40,000,000 common shares authorized and 2,000,000 preferred shares authorized as of December 31, 2014.

(3)	Capital expenditures are comprised of the purchase of equipment, payment for construction-in-progress, and acquisition of land use rights.

(4)	Earnings consist of income (loss) from continuing operations before income taxes plus fixed charges. Fixed charges consist of interest expenses and amortization of deferred financing fees.

Exchange Rate Information

As used in this Annual Report, the rate of exchange for Renminbi Yuan, referred to in the financial statements as “RMB” or “Renminbi” or “Yuan,” expressed in U.S. dollars per Renminbi, using the rate published by China state administration of foreign exchange. Renminbi is the lawful currency of the People’s Republic of China or the PRC. The exchange rate published by China administration of foreign exchange on December 31, 2014 was US$1 = RMB 6.119.

The following tables describe, for the periods and dates indicated, information concerning the Noon Buying Rate for RMB. Amounts are expressed in RMB per US dollar 1.00.


Period	Period End	Average(1)	Low	High
		(RMB per US$1.00)

2010	6.6227	6.7696	6.6200	6.8328
2011	6.3009	6.4651	6.2939	6.6364
2012	6.2855	6.2932	6.2855	6.3495
2013	6.0969	6.1927	6.0969	6.2897
2014	6.1190	6.1457	6.0881	6.2080
December 2014	6.1190	6.130	6.1190	6.1411
January 2015	6.1370	6.1279	6.1188	6.1370
February 2015	6.1475	6.1368	6.1261	6.1475
March 2015	6.1422	6.1495	6.1375	6.1615

(1)	Annual averages are calculated using the noon buying rate on the last business day of each month during the period indicated. Monthly averages are calculated using the average of the daily rates during the relevant period.

B. Capitalization and indebtedness

Not applicable.

C. Reasons for the offer and use of proceeds

Not applicable.

D. Risk Factors

Our business is subject to many risks and uncertainties, which may affect our future financial performance. If any of the events or circumstances described below occurs, our business and financial performance could be harmed, our actual results could differ materially from our expectations and the market value of our securities could decline. The risks and uncertainties discussed below are not the only ones we face. There may be additional risks and uncertainties not currently known to us or that we currently do not believe are material that may harm our business and financial performance.

Risks Related to Our Business

Our operating results are substantially dependent on one product.

In 2014, revenue derived from the sale of cast resin transformers accounted for 62.2% of our net sales as compared to 71.08% last year, or RMB 915.8 million (US$ 149.9 million). This decrease was the result of selling more switchgears and unit sub-systems in 2014 than we sold in 2013. We began to work to balance the sales of different products in 2014 to moderate the risk of relying on sales of cast resin transformers. This strategy will continue through 2015. However, in the near term we still expect a significant portion of our revenue to continue to come from the sale of cast resin transformers. Accordingly, our immediate future operating results will still depend on the demand for this product. We cannot assure you that the market will continue to demand our product or we will be successful in marketing any new or enhanced products. If our competitors produce new products that are superior to our cast resin transformers in performance or price, demand for our product may decline. A decline in demand for our cast resin transformers as a result of competition, technological change, economic conditions, restrictions on our ability to market this product, or other factors would reduce our total revenues and harm our ability to maintain profitability.

Our revenues would decline significantly if we lost one or more of our largest customers, which could have a material adverse impact on our business.

A significant portion of our revenues is derived from our largest customers. Sales to our five largest customers in the aggregate for 2012, 2013 and 2014, accounted for 21.3%, 22.3%, and 19.7%, respectively, of our net sales. Sales to our largest customer during those years accounted for 12.7%, 10.5%, and 7.3%, respectively, of our net sales. We cannot assure you that any of our principal customers will maintain their volume of business with us or that a similar volume of business will be forthcoming from new or existing customers to replace any lost business. The loss of one or more of our principal customers without replacement by a customer of similar volume could have a material adverse effect on our business and financial condition.

We sell most of our reactors to one large original equipment manufacturer, or OEM, and any significant decrease of sales of reactors to this OEM would have a negative effect on the revenues we receive from the sale of reactors.

In 2014, revenue derived from the sale of reactors accounted for 6.3 % of our net sales, or RMB 92.1 million (US$ 15.1 million). We sell most of our reactors to one OEM. This is in contrast to a more diversified customer base for our cast resin transformers. Any significant decrease in the sale of reactors to this large OEM could have a material adverse effect on revenue derived from the sale of reactors. In addition, if we fail to collect accounts receivable from this OEM, we could be subject to significant financial exposure.

If we lose our key personnel, our ability to operate our company and our results of operations may suffer.

Our future growth and success will depend in part on our ability to retain key members of our management who are familiar with our business and our potential markets. If we lose their services or the services of other key personnel, our financial results or business prospects may be harmed. We do not have “key man” or similar insurance on any of these individuals. Additionally, our future growth and success will depend in part on our ability to attract, train and retain sales, marketing, and management personnel. We cannot be certain that we will be able to attract and retain the personnel necessary to manage our operations effectively. Competition for experienced executives from numerous companies may limit our ability to hire or retain personnel on acceptable terms. In addition, many of the companies with which we compete for experienced personnel have greater financial and other resources than we do. Moreover, the employment of non-citizens may be restricted by applicable immigration laws.

The expansion of our operations internationally may be adversely affected by economic, political, legal and other uncertainties of some foreign countries.

Although most of our products are sold to customers based principally in China, we sell to markets worldwide. In the future, our international operations and sales may be affected by the following risks, which may adversely affect Chinese companies doing business internationally:

●

political and economic risks, including political instability,

●

currency controls and exchange rate fluctuations,

●

changes in import/export regulations, tariff and freight rates, and

●

various forms of protectionist trade legislation that currently exist or have been proposed in some foreign countries.

Our growth may be slowed if demand for electric power slows, declines or if there is a decline in fixed asset investment in China.

Our products are used for the distribution of electricity. Demand for our products is linked closely to increased demand for electrical power in China. According to the China Electricity Council (“CEC”), China consumed 5.52 trillion KWH of electricity in 2014, up 3.8% over the prior year. There can be no assurance that demand for electricity will continue to grow at steady rates. Any material decline in the consumption of electricity in China is likely to have an adverse impact on our business.

Our products are used in infrastructure, industrial manufacturing facilities, commercial and residential buildings, and by utilities in building electric grids. Demand for our products is affected by the level of investment in fixed assets. According to the National Bureau of Statistics of China (“NBS”), the investment in fixed assets of China in 2014 was 50,200.5 billion yuan, up by 15.7% over the previous year. We cannot assure that the level of investment in fixed assets in China will continue at 2014 rates. Any material decline in fixed asset investment in China is likely to have an adverse impact on our business.

Our growth may be slowed if there is a decline in investment in wind energy.

We supply power distribution equipment for wind turbine platforms. In 2014, the sale of wind energy products accounted for approximately 6.3% of our net sales, or RMB 92.6 million (US$ 15.2 million). The majority of the wind energy products we sold in 2014 were delivered to Europe and North America. Any material decline of investment in wind energy in the principal markets we serve is likely to have an adverse impact on our business.

Increase in cost, disruption of supply or of shortage raw materials could harm our business.

The principal raw materials we require for our business are (1) silicon steel, which forms the core of our transformers, (2) copper and aluminum foil and wire, which wind around the core to form the coil, and (3) epoxy resin and electric isolation material, which serve as the insulation medium between coils. Prevailing prices for such commodities are subject to fluctuations due to changes in supply and demand and a variety of additional factors beyond our control, such as global political and economic conditions. Historically, prices for some of these raw materials have been volatile and unpredictable, and such volatility is expected to continue. In the event of unexpected increases in raw material costs, we may be unable to increase our prices to offset these increased costs without suffering reduced volume, revenue or operating income. Furthermore, sustained declines in raw materials prices may put downward pressure on the price of our products and increase competition by enabling our competitors to lower the price of their products and lower the barriers of entry for new market entrants, thereby reduce our sales revenue. Currently, we do not hedge against changes in commodity prices.

We maintain at least two suppliers for each of the principal raw materials we require for our business in order to enhance our ability to obtain an adequate supply of high quality, competitively-priced raw materials. We usually keep a two or three month supply of these raw materials in our inventory. However, we cannot guarantee that we will be able to maintain favorable arrangements and relationships with these suppliers. Also, if our suppliers fail to supply these raw materials to us for any reason, including due to adverse financial developments affecting the supplier, and/or due to unexpected demand, labor shortages or disputes, it could have a material adverse effect on our results of operations.

Increased competition may result in reduced prices and loss of market share.

The market for cast resin transformers in China is highly competitive and we expect increased competition in the future. Increased competition may result in price reductions or loss of market share, which could adversely affect our business, results of operations or financial condition. Our future success will largely depend on our marketing efforts and ability to adapt our product to more applications.

We may also face foreign competition in China from firms that have greater financial and other resources than we do. Increased domestic competition in China and foreign participation may also have a material adverse effect on our financial condition and results of operations as well as our business and prospects. In addition, we may not be able to compete successfully in the future with existing or new competitors.

We may face claims or lawsuits for losses due to the failure of our products that may result in costly litigation and divert the attention of our management.

Our business exposes us to liability risks that are inherent in the manufacturing and marketing of electrical equipment. Any failure of our products could result in direct and consequential losses to our customers, which could result in our customers filing claims or lawsuits against us for losses resulting from the failure of our products. If a litigant were successful against us, it could have an adverse effect on our business, financial condition, results of operations and liquidity. Additionally, a well-publicized actual or perceived problem could adversely affect our market reputation, which could result in a decline in demand for our products. Although we have purchased some product liability and product quality insurance, the scope of these insurance policies does not include all markets to which we sell. Furthermore, the scope and/or amount coverage of these insurance policies may not be sufficient to cover all our costs and losses.

We may be subject to trademark infringement claims by third parties that could subject us to financial liability or limit our product offerings, and our competitive position could be harmed if we are unable to protect our trademark.

We registered the trademark “JST” with the Trademark Bureau of the State Administration of Industry and Commerce in China. We believe that much of our success in growing sales and market share is due to our focus on providing high quality products and services. Achieving greater customer recognition of our trademark is important to our marketing and expansion efforts.

With regard to our current trademark or any future trademarks, we cannot be sure that any one or all of the following scenarios has not occurred or will not occur, any one of which could have a material adverse effect upon us:

●

we are unable to register other names or service marks that we may consider important;

●

our currently registered trademark or any future registered trademark currently does or will violate the proprietary rights of others;

●

our trademarks are not upheld by the Chinese government or its judicial system if challenged;

●

we are prevented from using our trademarks; or

●

we will not have the financial resources necessary to enforce or defend our trademarks.

●

we have not registered our trademark outside of China and we cannot be certain that the laws of other countries will protect proprietary rights to the same extent as do the laws of China.

We may be subject to patent infringement claims by third parties that could subject us to financial liability or limit our product offerings.

We own the rights to various utility, invention and design patents which have been granted or are pending. The patents cover aspects of our product and manufacturing technologies. All of our patents have been issued by the Chinese government. To date, we have not filed for patent protection outside of China. Consequently, our patents provide some protection of our technology in China, but they do not provide protection elsewhere.

We currently hold a license, granted by Schneider Electric (China) Investment Co. Ltd., for the manufacture of certain switchgears. We manufacture low and medium voltage switchgear products under license from Schneider. We also hold a license, granted by Siemens Ltd. China to manufacture SIVACON 8pt low voltage switchboards. We also licensed from Hitran Corporation certain VPI reactor designs used in wind turbine platforms. If our arrangements with these licensors terminate, or expire without renewal, we could be prohibited from manufacturing and selling these products. We may not be able to enter into other license agreements, or enter into such agreements on commercially reasonable terms, to continue to manufacture switchgears and reactors. Furthermore, we may not be able to redesign our product to avoid infringement. Any required modification of our products or development of new products could also harm our business.

Any failure by us to control the use or adequately restrict the discharge of hazardous substances or to obtain work safety and professional health approvals, could subject us to potentially significant monetary damages and fines or suspension of our business operations.

We utilize potentially toxic, volatile and otherwise hazardous chemicals and materials in our research and development and production processes, and we are subject to regulations and periodic monitoring by local environmental protection and work safety authorities. In addition, we are required to comply with all PRC national and local environmental protection and work safety laws and regulations. If we fail to comply with relevant environmental, work safety and health laws, regulations and/or administrative rules relating to hazardous materials and chemicals in the future, we may be required to pay fines, suspend production or cease our business operations. In addition, if more stringent regulations are adopted in the future, the costs of compliance with these new regulations could be substantial. Any failure by us to control the use of or to adequately restrict the discharge of hazardous substances could subject us to potentially significant monetary damages and fines or suspension of our business operations.

Our financial performance and prospects could be affected by natural calamities or health epidemics, and we have limited insurance coverage.

Our business could be materially and adversely affected by natural calamities (such as earthquake or fire), health epidemics (such as H1N1 influenza, avian influenza, severe acute respiratory syndrome), or other epidemics. Since we keep on site materials, work in progress, and some finished goods ready for shipment, there is a risk that these goods and our premises may be damaged or destroyed by earthquake, fire, and other natural calamities. Any disruption of electricity supply or any outbreak of fire or similar calamities at our premises may result in a disruption of our business.

At present, insurance companies in China offer limited coverage for business related risks. As such, we only have a very limited form of insurance for our properties covering loss arising from theft, fire, lightning, and explosives. We do not have any business liability or disruption insurance coverage for our operations and our coverage may not be adequate to compensate for all losses that may occur. Any business disruption, natural disaster, or litigation resulting therefrom could expose us to substantial costs and losses.

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business and share price.

We are subject to reporting obligations under the United States securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires that we establish and maintain an effective internal control structure and procedures for financial reporting and include a report of management on our internal control over financial reporting in our annual report. Our Annual Report on Form 20-F must contain an assessment by management of the effectiveness of our internal control over financial reporting and must include disclosure of any material weaknesses in internal control over financial reporting that we have identified. In addition, our independent registered public accounting firm must attest to the effectiveness of our internal control over financial reporting.

The requirements of Section 404 of the Sarbanes-Oxley Act are ongoing and also apply to future years. We expect that our internal control over financial reporting will continue to evolve as we continue to grow our business. Although we are committed to continue to improve our internal control processes and will continue to diligently and vigorously review our internal control over financial reporting in order to ensure compliance with the Section 404 requirements, any control system, regardless of how well designed, operated and evaluated, can provide only reasonable, not absolute, assurance that its objectives will be met. Therefore, we cannot be certain that in the future additional material weaknesses or significant deficiencies will not exist or otherwise be discovered.

Risks Related to Our Chinese Operations

Changes in PRC government policies could have a material adverse effect on our business and operations.

Since the late 1970s, the PRC government has pursued policies that encourage private economic activity, that emphasize the utilization of market forces in resource allocation, and that has led to greater economic decentralization and reduction in state ownership of productive assets. However, the PRC government still maintains a high level of involvement in the economy. Despite economic decentralization and reductions in state ownership of productive assets, the PRC government still owns or controls a substantial portion of productive assets in China. The PRC government continues to play a significant role in regulating industry development through central planning and industrial policies. The PRC government also exercises significant control over China’s economic development through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Because a substantial portion of our assets and business operations are in China, PRC government policies that negatively affect the economy, our industry or us could have a material adverse effect on our business, financial condition, results of operations and prospects.

Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.

The PRC’s legal system is a civil law system based on written statutes. Unlike in a common law system, it is a system in which cases have limited precedential value.

In the late 1970s, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters. The overall effect of legislation over the past three decades has significantly increased the protections afforded to various forms of foreign or private-sector investment in China. Our PRC subsidiaries are subject to various PRC laws and regulations generally applicable to companies in China. However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties.

From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at all) some of which may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely affect our business and impede our ability to continue our operations.

Furthermore, because certain of our directors and officers are non-residents of the United States, it may be difficult for investors to affect service of process upon these non-residents in the United States or to enforce United States judgments against them in PRC courts. There is uncertainty as to whether PRC courts would enforce:

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judgments of U.S. courts obtained against us or these non-resident directors and officers based on the civil liability provisions of the securities laws of the United States or any state; or

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in original actions brought in the PRC, liabilities against us or any of these non-resident directors and officers predicated upon the securities laws of the United States or any state.

Since a majority of our assets are located in the PRC, it may be difficult for an investor who obtains a judgment in the United States or another state to enforce such foreign judgment in the PRC. Such judgment may be further limited by applicable bankruptcy, insolvency, liquidation, arrangement, moratorium or similar laws relating to or affecting creditors’ rights generally and will be subject to a statutory limitation of time within which proceedings may be brought.

Under the PRC Enterprise Income Tax Law, we may be classified as a PRC “resident enterprise” for PRC enterprise income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the value of your investment.

Under the PRC Enterprise Income Tax Law, or the EIT Law, that became effective on January 1, 2008, an enterprise established outside the PRC with “de facto management bodies” within the PRC is considered a PRC “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. Under the Implementation Rules to the EIT Law, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise.

In addition, a circular, known as Circular 82, issued in April 2009, as amended in January 2014, by the State Administration of Taxation, or the SAT, specifies that certain offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if the following are located or resident in the PRC: senior management personnel and departments that are responsible for daily production, operation and management; financial and personnel decision making bodies; key properties, accounting books, company seal, and minutes of board meetings and shareholders’ meetings; and half or more of the senior management or directors having voting rights. Circular 82 also clarified that dividends and other income paid by such “resident enterprises” will be considered to be PRC source income, subject to PRC withholding tax, currently at a rate of 10%, when recognized by shareholders that are non-PRC resident enterprises.

Further to Circular 82, the SAT issued a bulletin, known as Bulletin 45, which took effect on September 1, 2011, to provide more guidance on the implementation of Circular 82 and clarify the reporting and filing obligations of such “Chinese-controlled offshore-incorporated resident enterprises.” Bulletin 45 provides procedures and administrative details for the determination of PRC resident enterprise status and administration on post-determination matters. Although both Circular 82 and Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals like us, the determining criteria set forth in Circular 82 and Bulletin 45 may reflect the SAT’s general position on how the “de facto management body” test should be applied in determining the tax resident enterprise status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, PRC enterprise groups or by PRC or foreign individuals.

We do not believe that Jinpan International meets all of the conditions above and thus we do not believe that Jinpan International is a PRC resident enterprise, despite the fact that some of the members of our management team as well as the management team of our offshore holding company are located in China. However, if the PRC tax authorities determine that Jinpan International is a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we will be subject to the uniform 25% enterprise income tax on our world-wide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Second, although dividends paid by one PRC tax resident to another PRC tax resident should qualify as “tax-exempt income” under the EIT Law, we cannot assure you that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax on dividends, and the PRC tax authorities have not yet issued guidance with respect to the processing of outbound remittances to entities that are not controlled by any PRC enterprise or enterprise group and treated as resident enterprises for PRC enterprise income tax purposes.

Finally, dividends we pay to our non-PRC enterprise shareholders and gains derived by our non-PRC shareholders from the sale of our shares may be become subject to a 10% PRC withholding tax. In addition, future guidance may extend the withholding tax to dividends we pay to our non-PRC individual shareholders and gains derived by such shareholders from transferring our shares. In addition to the uncertainty in how the new “resident enterprise” classification could apply, it is also possible that the rules may change in the future, possibly with retroactive effect. If PRC income tax were imposed on gains realized through the transfer of our shares or on dividends paid to our non-resident investors, the value of the investment in our shares may be materially and adversely affected. Furthermore, our shareholders whose jurisdictions of residence have tax treaties or arrangements with China may not qualify for benefits under such tax treaties or arrangements.

We face uncertainty regarding the PRC tax reporting obligations and consequences for certain indirect transfers of our operating company’s equity interests. Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.

In connection with the EIT Law, the Ministry of Finance and the SAT jointly issued a Circular 59 in April 2009, and the SAT issued a Circular 698 in December 2009. Both Circular 59 and Circular 698 became effective retroactively on January 1, 2008.

According to Circular 698, where a non-resident enterprise transfers the equity interests of a PRC “resident enterprise” indirectly by disposition of the equity interests of an overseas holding company, or an Indirect Transfer, and the overseas holding company is located in a tax jurisdiction that: (1) has an effective tax rate less than 12.5% or (2) does not impose tax on foreign income of its residents, the non-resident enterprise, being the transferor, must report to the relevant tax authority of the PRC “resident enterprise” this Indirect Transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC withholding tax at a rate of up to 10%. Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC “resident enterprise” to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction. In addition, the PRC “resident enterprise” is supposed to provide necessary assistance to support the enforcement of Circular 698.

On March 28, 2011, the SAT released Bulletin [2011] No. 24, or Bulletin 24, to clarify several issues related to Circular 698. Bulletin 24 became effective on April 1, 2011. According to SAT Bulletin 24, the term “effective tax” refers to the effective tax on the gain derived from disposition of the equity interests of an overseas holding company; and the term “does not impose income tax” refers to the cases where the gain derived from disposition of the equity interests of an overseas holding company is not subject to income tax in the country/region where the overseas holding company is a resident.

There is little guidance and practical experience as to the application of Circular 698. For example, while the term “Indirect Transfer” is not clearly defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with China. In addition, there are no formal declarations with regard to how to determine whether a foreign investor has adopted an abusive arrangement in order to reduce, avoid or defer PRC tax. Moreover, although Circular 698 contains an exemption for transfers of publicly traded stock in a PRC resident enterprise, it remains unclear whether we will be deemed a PRC resident enterprise and whether such exemption will be applicable to the transfer of our shares. If any of the previous investments by non-resident investors in our company were determined by the tax authorities to lack reasonable commercial purpose, it is possible that the PRC tax authorities would pursue our offshore shareholders to conduct a filing regarding our offshore restructuring transactions where non-resident investors were involved and would request our PRC subsidiaries to assist in providing such disclosures. In addition, if our offshore subsidiary is deemed to lack substance, it could be disregarded by the PRC tax authorities. As a result, we and our non-resident investors may become at risk of being taxed under Circular 698 and may be required to expend valuable resources to comply with Circular 698 or to establish that we should not be taxed under Circular 698, which may have a material adverse effect on our financial condition and results of operations or the non-resident investors’ investments in us.

By promulgating and implementing these circulars, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-resident enterprise. The PRC tax authorities have the discretion under Circular 59 and Circular 698 to make adjustments to the taxable capital gains based on the difference between the fair value of the equity interests transferred and the cost of investment. Although we currently have no confirmed plans to pursue any acquisitions in China or elsewhere in the world, we may pursue acquisitions in the future that may involve complex corporate structures. If we are considered a non-resident enterprise under the EIT Law and if the PRC tax authorities make adjustments under Circular 59 or Circular 698, our income tax costs associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations.

Discontinuation or revocation of any of the preferential tax treatments and government subsidies or imposition of any additional taxes and surcharges could adversely affect our financial condition and results of operations.

Our PRC subsidiaries are incorporated in the PRC and governed by applicable PRC tax laws and regulations. The EIT Law and its Implementing Rules, both became effective on January 1, 2008, have adopted a uniform statutory enterprise income tax rate of 25% to all enterprises in China including foreign-invested enterprises. The EIT Law and its Implementation Rules also permit qualified “high and new technology enterprises,” or HNTEs, to enjoy a preferential enterprise income tax rate of 15% upon filing with relevant tax authorities. The qualification as a HNTE generally has a valid term of three years and the renewal of such qualification is subject to review by the relevant authorities in China.

The average enterprise income tax rate on our PRC subsidiaries in 2013 was 15%. Many of our PRC subsidiaries maintained their HNTE qualifications and enjoyed a preferential tax rate of 15% in 2013. Our PRC subsidiaries can continue to enjoy the preferential tax rate of 15% as long as they maintains their HNTE qualifications and duly conduct filing procedures with relevant tax authority regarding the tax incentive. If our PRC subsidiaries fail to maintain their HNTE qualifications or to renew the qualifications when their current term expires, the enterprise income tax rate applicable to our PRC subsidiaries may increase to 25%, which could have an adverse effect on our financial condition and results of operations.

PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us, limit our ability to inject capital into our PRC subsidiaries, or otherwise expose us to liability and penalties under PRC law.

The PRC State Administration of Foreign Exchange, or the SAFE, promulgated in October 2005 a SAFE Circular 75 that requires PRC citizens or residents to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas equity financing involving a roundtrip investment whereby the offshore entity acquires or controls onshore assets or equity interests held by the PRC citizens or residents. In addition, such PRC citizens or residents must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to increases or decreases in investment amount, transfers or exchanges of shares, mergers or divisions, long-term equity or debt investments, external guarantees, or other material events that do not involve roundtrip investments. The term “control” under SAFE Circular 75 is broadly defined as the operation rights, beneficiary rights or decision-making rights acquired by the PRC residents in the offshore special purpose vehicles, or SPVs, or PRC companies by such means as acquisition, trust, proxy, voting rights, repurchase, convertible bonds or other arrangements. Subsequent regulations further clarified that PRC subsidiaries of an offshore company governed by the SAFE regulations are required to coordinate and supervise the filing of SAFE registrations in a timely manner by the offshore holding company’s shareholders and beneficial owners who are PRC citizens or residents. If these shareholders or beneficial owners fail to comply, the PRC subsidiaries are required to report to the local SAFE branches. See “PRC Regulation—Regulations on Foreign Exchange Registration of Overseas Investment by PRC Residents.” If our shareholders or beneficial owners who are PRC citizens or residents do not complete their registration with the local SAFE branches, our PRC subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional capital to our PRC subsidiaries. Moreover, failure to comply with the various SAFE registration requirements described above could result in liabilities for our PRC subsidiaries under PRC laws for evasion of applicable foreign exchange restrictions, including (1) the requirement by SAFE to return the foreign exchange remitted overseas within a period specified by SAFE, with a fine of up to 30% of the total amount of foreign exchange remitted overseas and deemed to have been evasive and (2) in circumstances involving serious violations, a fine of no less than 30% of and up to the total amount of remitted foreign exchange deemed evasive. Furthermore, the persons-in-charge and other persons at our PRC subsidiaries who are held directly liable for the violations may be subject to criminal sanctions.

These foreign exchange regulations provide that PRC residents include both PRC citizens, meaning any individual who holds a PRC passport or resident identification card, and individuals who are non-PRC citizens but primarily reside in the PRC due to their economic ties to the PRC. We have requested all of our current shareholders and/or beneficial owners to disclose whether they or their shareholders or beneficial owners fall within the ambit of SAFE Circular 75 and its guidance and will urge relevant shareholders and beneficial owners, upon learning they are PRC residents, to make the necessary applications, filings and amendments as required under SAFE Circular 75 and other related rules. To our knowledge, all of our shareholders who are PRC citizens and hold interest in us, have registered with the local SAFE branch as required under SAFE Circular 75 and are in the process of amending certain applicable registrations with the local SAFE pursuant to SAFE Circular 75. We would expect these shareholders to also amend their registrations after the completion of this offering as required by PRC law. However, we cannot assure you that they can successfully amend their foreign exchange registrations with the local SAFE branch in full compliance with applicable laws after this offering. In addition, we may not be informed of the identities of all the PRC residents holding direct or indirect interest in our company, and we cannot provide any assurances that these PRC residents will comply with our request to make or obtain any applicable registrations or comply with other requirements required by SAFE Circular 75 or other related rules. A failure by any of our current or future shareholders or beneficial owners who are PRC residents to comply with the SAFE regulations may subject us to fines or other legal sanctions, restrict our cross-border investment activities, limit our PRC subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

Furthermore, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. We cannot predict how these regulations will affect our business operations or future strategy. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results of operations. In addition, if we decide to acquire a PRC domestic company, either we or the owners of such company, as the case may be, may not be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.

PRC regulation of direct investment and loans by offshore holding companies to PRC entities and governmental control of currency conversion may delay or limit us from making additional capital contributions or loans to our PRC subsidiaries.

Any capital contributions or loans that we, as an offshore entity, make to our PRC subsidiaries are subject to PRC regulations. Under PRC laws and regulations, we are permitted to fund our existing PRC subsidiaries only through loans or capital contributions or to establish new PRC subsidiaries, subject to applicable government registration and approval requirements. None of our loans to a PRC subsidiary can exceed the difference between its total amount of investment and its registered capital approved under relevant PRC laws, and the loans must be registered with the local branch of SAFE. Our capital contributions to our PRC subsidiaries or establishment of new PRC subsidiaries must be approved by the Ministry of Commerce or its local counterpart. We cannot assure you that we will be able to complete the necessary registration or obtain the necessary approval on a timely basis, or at all. If we fail to complete the necessary registration or obtain the necessary approval, our ability to make loans or equity contributions to our PRC subsidiaries may be negatively affected, which could adversely affect our PRC subsidiaries’ liquidity and their ability to fund their working capital and expansion projects and meet their obligations and commitments.

Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements.

We are an international business company incorporated in the British Virgin Islands. We may need dividends and other distributions on equity from our PRC subsidiaries to satisfy our liquidity requirements. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. Our PRC subsidiaries may also allocate a portion of its after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends. Furthermore, if our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. Any limitation on the ability of our subsidiaries to distribute dividends to us or may restrict our ability to satisfy our liquidity requirements.

In addition, the EIT Law, and its implementation rules provide that withholding tax rate of up to 10% will be applicable to dividends payable by PRC companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are incorporated.

Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value of your investment.

Although our reporting currency is in U.S. dollars, our functional currency is the RMB. We earn revenues and incur costs and expenses in RMB. Appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate may also cause us to incur foreign exchange losses on any foreign currency holdings they may have. If we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. We also may face higher than anticipated costs for purchases that are made in other currencies.

The value of the RMB against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange policies. In July 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar, and the RMB appreciated more than 20% against the U.S. dollar over the following three years. However, the People’s Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in RMB exchange rates and achieve policy goals. During the period between July 2008 and June 2010, the exchange rate between the RMB and the U.S. dollar had been stable and traded within a narrow range. However, the RMB fluctuated significantly during that period against other freely traded currencies, in tandem with the U.S. dollar. Since June 2010, the RMB has started to slowly appreciate against the U.S. dollar, though there have been periods recently when the U.S. dollar has appreciated against the RMB. It is difficult to predict how long the current situation may last and when and how the relationship between the RMB and the U.S. dollar may change again. There remains significant international pressure on the PRC government to adopt a flexible currency policy. Any significant appreciation or depreciation of the RMB may materially and adversely affect our net revenues, earnings and financial position in U.S. dollars.

Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your investment.

Failure to comply with PRC regulations regarding the registration requirements for employee share ownership plans or share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly-Listed Companies, or the Stock Option Rules. Under the Stock Option Rules and other relevant rules and regulations, PRC residents who participate in stock incentive plan in an overseas publicly-listed company are required to register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of the overseas publicly-listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of its participants. The participants must also retain an overseas entrusted institution to handle matters in connection with their exercise of stock options, the purchase and sale of corresponding stocks or interests and fund transfers. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes. See “PRC Regulation—Regulation on Employee Stock Option Plans.” We and our PRC employees who have been granted share options will be subject to these regulations upon the completion of this offering. Failure of our PRC share option holders to complete their SAFE registrations may subject these PRC residents to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiaries, limited our PRC subsidiaries’ ability to distribute dividends to us, or otherwise materially and adversely affect our business.

Failure to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.

We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies and certain non-U.S. companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in China and other foreign countries. Our employees or other agents may engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

The audit report included in this annual report is prepared by an auditor who is not inspected by the Public Company Accounting Oversight Board and, as such, you are deprived of the benefits of such inspection

Auditors of companies that are registered with the U.S. Securities and Exchange Commission and traded publicly in the United States, including our independent registered public accounting firm, must be registered with the U.S. Public Company Accounting Oversight Board (United States), or PCAOB, and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of the United States and professional standards. Because our auditor is located in the Peoples’ Republic of China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the PRC authorities, our auditor is not currently inspected by the PCAOB. In May 2013, PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the CSRC and the PRC Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by PCAOB, the CSRC or the PRC Ministry of Finance in the United States and the PRC, respectively. PCAOB continues to be in discussions with the CSRC and the PRC Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with PCAOB and audit Chinese companies that trade on U.S. exchanges.

This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating audits and quality control procedures of any auditors operating in China, including our auditor. As a result, investors may be deprived of the benefits of PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements.

Risks Relating to Our Common Shares

We may experience volatility in our share price, which could negatively affect your investment, and you may not be able to resell your shares at or above the price you paid for them.

The market price of our common shares may fluctuate significantly in response to a number of factors, some of which are beyond our control, including:

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quarterly variations in operating results;

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changes in financial estimates by securities analysts;

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changes in market valuations of other similar companies;

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announcements by us or our competitors of new products or of significant technical innovations, contracts, acquisitions, strategic partnerships or joint ventures;

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additions or departures of key personnel;

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any deviations in net sales or in losses from levels expected by securities analysts; and

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future sales of common shares.

In addition, the stock market has recently experienced volatility due to political and economic events that has often been unrelated to the performance of particular companies. These market fluctuations may cause our share price to fall regardless of our performance.

The price of our common shares may be adversely affected by negative market sentiments about U.S. traded China based companies.

In the last several years, numerous fraud allegations against U.S. listed China based companies have shaken the confidence of U.S. investors in these companies. This negative market sentiment not only affect the company facing fraud allegations, but may also adversely impact the share price of other U.S. listed China based companies.

Future issuance of additional common shares could cause dilution of ownership interests and adversely affect our share price.

We may in the future issue our previously authorized and un-issued securities, resulting in the dilution of the ownership interests of our shareholders. We are currently authorized to issue 40,000,000 common shares and 2,000,000 preferred shares. The potential issuance of such additional common shares may create downward pressure on the trading price of our common shares. We may also issue additional common shares or other securities that are convertible into or exercisable for common shares for capital-raising or other business purposes. Future sales of substantial amounts of common shares, or the perception that sales could occur, could have a material adverse effect on the price of our common shares.

We may not continue to pay cash dividends in the future.

We may not continue to pay cash dividends or even if we do, we may not do so at the current rate. We may elect at any time to retain all future earnings for use in the operation of our business and to fund future growth. Any future cash dividends will depend upon our results of operations, financial condition, cash requirements, the availability of a surplus and other factors. For a discussion of the limits on our ability to pay dividends, see “Risk Factors – Risks Related to Our Chinese Operations – Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements.”

Because we are a British Virgin Islands company, your rights as a shareholder may be less clearly established as compared to the rights of shareholders of companies incorporated in other jurisdictions.

Our corporate affairs are governed by our memorandum of association and articles of association and by the BVI Business Companies Act, 2004. Principles of law relating to such matters as the validity of corporate procedures, the fiduciary duties of management and the rights of our shareholders may differ from those that would apply if we were incorporated in the United States or another jurisdiction. The rights of shareholders under British Virgin Islands law are not as clearly established as are the rights of shareholders in many other jurisdictions. Under British Virgin Islands corporate law, our board of directors may negate or modify the three basic rights of shareholders (the right to vote, the right to an equal share in any dividend paid and the right to an equal share in any distribution of our surplus assets). Additionally, our board of directors could negate any transfer of our common shares between shareholders of record. Thus, our shareholders may have more difficulty protecting their interests in the face of actions by our board of directors than they would have as shareholders of a company incorporated in another jurisdiction.

Because we are a British Virgin Islands company with substantially all of our assets and operations in China, you may not be able to enforce judgments against us that are obtained in United States courts.

We are incorporated under the laws of the British Virgin Islands and substantially all of our assets and operations are located in China. As a result, it may be difficult for investors to effect service of process upon us within the United States or to enforce against us judgments obtained in the United States courts, including judgments predicated upon the civil liability provisions of the federal securities laws of the United States.

We have been advised by British Virgin Islands counsel that judgments of United States courts predicated upon the civil liability provisions of the federal securities laws of the United States may be difficult to enforce in British Virgin Islands courts and that there is doubt as to whether British Virgin Islands courts will enter judgments in original actions brought in British Virgin Islands courts predicated solely upon the civil liability provisions of the federal securities laws of the United States. Our PRC counsel has given us similar advice about the ability of investors to effect service of process upon us within China or to enforce judgments against us obtained in the United States.

Item 4. Information on the Company

A. History and Development

Jinpan International Limited was incorporated in the British Virgin Islands on April 3, 1997 under the International Business Companies Act of the British Virgin Islands. We are primarily engaged in the design, manufacture and sale of electrical power control and distribution products. Our main product lines include cast resin transformers, vacuum pressure impregnated (VPI) transformers, vacuum pressure impregnated (VPI) line reactors, switchgears and unit substations.

Our predecessor, Haikou Jinpan Special Transformers Works (“Haikou Jinpan”), was established in 1993. On June 30, 1997, we entered into an agreement with Haikou Jinpan to form a joint venture, Hainan Jinpan, pursuant to which Haikou Jinpan received a 15% equity interest in Hainan Jinpan in exchange for its contribution of buildings, equipment, and other production and related facilities to the joint venture and we received an 85% equity interest in Hainan Jinpan for our capital contribution of US$2.1 million. We took over management of Hainan Jinpan after our acquisition of this 85% interest. On February 13, 2007, we purchased Haikou Jinpan’s 15% interests in Hainan Jinpan for US$11 million. To maintain Hainan Jinpan’s status as a sino-foreign joint venture, we subsequently transferred this 15% equity interest in Hainan Jinpan to Wuhan Jinpan, a subsidiary of ours that qualifies as a domestically funded limited liability company.

In 2005 and 2006, we invested RMB 4.5 million (US$ 0.7 million) and RMB 21 million (US$ 3.1 million), respectively, on capital expenditures mainly to purchase equipment and to expand the Hainan facility. We funded these expenditures with our available cash, funds generated from operations and borrowings under credit facilities from Nan Yan Commercial Bank and the Bank of China.

In 2007, we invested RMB 33.1 million (US$4.7 million) to purchase land use right for approximately 20,000 square meters of land in Wuhan and to construct a second manufacturing facility. We financed the acquisition and construction of the Wuhan facility from the proceeds we received from the sale of our common shares in December 2006. Construction of the Wuhan facility began in early 2007 and was completed in May 2008. We began production in June 2008.

In 2008, we invested RMB 65.4 million (US$9.6 million) to purchase approximately 71,000 square meters of land (including buildings on the land) in Shanghai and to construct a third manufacturing facility. We financed the acquisition using RMB 25.4 million (US$ 3.8 million) of our available cash and RMB 40.0 million (US$ 5.8 million) from secured loan facilities. We paid back all our bank loans related to the acquisition of the Shanghai facility by the end of 2009. Construction of the Shanghai facility proceeded in tandem with our need for additional manufacturing capacity. From the fourth quarter of 2008 to the end of 2012, we spent RMB 117.7 million (US$18.7 million) to renovate, construct, and equip the Shanghai facility and to build employee dormitories on site.

In the second quarter of 2011, we acquired Guilin Jun Tai Fu Construction and Development Co. Ltd., later renamed Guilin Jun Tai Fu Electric Co. Ltd., (“Guilin JTF”) for RMB 15.0 million (US$ 2.3 million) and assumed debt of RMB 44.2 million (US$ 6.7 million). Guilin JTF’s primary asset was land of approximately 154,000 square meters zoned for industrial development in Guilin, Guangxi province. Guilin JTF also sought local government approval to purchase an adjacent lot of land of approximately 178,000 square meters, but was not successful in this endeavor. We acquired Guilin JTF to build a large scale manufacturing facility in southwestern China. In early 2012, we began construction of factory buildings, administrative buildings, and employee dormitories in Guilin. We completed construction in January 2013. Formal production at the Guilin facility officially began at the end of the first quarter of 2013. Capital expenditure for the construction at the Guilin facility and acquisition of manufacturing equipment was RMB 63.6million (US$ 10.5 million), in 2013 and RMB 17 million (US$ 2.8 million) in 2014. We financed the acquisition of Guilin JTF, construction at the Guilin facility and the procurement of manufacturing equipment using RMB 197.6 million (US$32.4million) of secured loan facilities, of which RMB 152.1 million (US$24.9 million) remains outstanding. Currently, we do not plan to further expand the Guilin facility.

Our headquarters in China are located at the administrative offices of our subsidiary, Hainan Jinpan, located at 168 Nanhai Avenue (Building 7), Haikou Free Trade Zone, Haikou, Hainan, China, and our China telephone number is (86) 898-6681-1301. Our headquarters in the United States are located at the administrative offices of our subsidiary, Jinpan USA, located at 390 Veterans Boulevard, Carlstadt, New Jersey 07072 and our US telephone number is (201) 460 8778. Our website is www.jinpaninternational.com.

B. Business Overview

General overview

We design, manufacture and sell electrical power control and distribution equipment that are used in a wide range of commercial, industrial, and infrastructural applications. Our main product lines include cast resin transformers, VPI transformers, VPI line reactors, switchgears and unit substations. (See Item 4 - Information on Company – Business Overview- Products.)

We are a leading manufacturer of cast resin transformers in China based on a reputation for quality, safety, efficiency, and good customer service. Starting with one manufacturing facility in Haikou, China, we have grown to four full-scale manufacturing facilities in the Chinese cities of Haikou, Wuhan, Shanghai, and Guilin respectively. With the completion of our Guilin facility, we believe that we are the largest manufacturer of cast resin transformers in China by capacity. We also own and operate a limited-scale manufacturing facility in Carlstadt, New Jersey at which we assemble, test, and service cast resin transformers on a project-by-project basis. (See Item 4 - Information on Company – Property, Plant, and Equipment.)

While we sell products to customers worldwide, most of our sales are concentrated in China where we have an extensive marketing and sales network comprised of 36 regional sales offices across the country. We leverage this network to serve a wide range of industries and directly market and sell our product to both private and state owned companies in China. In 2014, our sales in China reached RMB 1,349.3 million (US$ 220.9 million), which constituted 91.7 % of our total sales revenue. We rely on OEM customers for international sales. These OEM customers are typically industrial electrical equipment manufacturers who integrate our product into their systems. Being part of these OEM customers’ global supply chain, we can leverage the extensive marketing and sales networks of these OEM customers to reach global markets. In 2014, our international sales reached RMB 122.7 million (US$ 20.1million), which constituted 8.3% of our total sales revenue.

Sales of wind energy products to one OEM customer comprise the bulk of our international sales. Our portfolio of wind energy products in 2014 comprised of cast resin transformers for wind turbines and VPI reactors for wind turbine platforms. We entered the wind equipment market in 2004 when we first began to supply VPI reactors for wind turbine platforms to this OEM customer. In 2006, we began to supply both reactors and cast resin transformers for wind turbine platforms to the same OEM customer. Our top market for our wind energy products are Europe followed by North America. Revenue from the sale of our wind energy products fluctuates with broader market demand for wind turbines and also customer specific issues. In 2014, revenue from the sale of wind energy products was RMB 92.6 million (US$ 15.2 million) which constituted 6.3% of our total sales revenue.

Business Strategy

Our net sales revenue in 2014 reached RMB 1,472.1 million (US$ 241 million), a 5.3% increase from sales revenue of RMB 1,397.9 million (US$ 225.7 million) in 2013. Our net income in 2014 reached RMB 94.8 million (US$ 15.5 million), a 7.6% decrease from net income of RMB 102.6 million (US$ 16.6 million) in 2013. While the market for electrical power control and distribution product remained competitive in 2014, the average sale price of our products stabilized. Prices for our key raw materials – silicon steel, copper, and aluminum became volatile during the last quarter of 2014. We will closely monitor the raw material prices and trends in 2015.

Since a slower growth rate is predicted in China in 2015, we adopted a cautious strategy towards the market. We will continue to enhance our manufacturing capabilities, expand our product offering and mixes, deepen our relationship with OEM customers, and not only focus on market opportunities in China but also other countries in the Asia Pacific region. Key elements of our business strategy include, but are not limited to, the following:

Leverage our new, state-of-the art manufacturing facility in Guilin to enhance our competitive position.

After a successful launch in the first quarter of 2013, our new Guilin facility added much needed capacity to accommodate sales growth and to enable us to compete on both quality and price in China. In 2014, production of cast resin transformers and switchgears at the Guilin facility reached approximately 3.5 million KVA and 1,220 units, respectively. The Guilin facility is our fourth and largest manufacturing facility in China. Currently, the Guilin facility is currently equipped to support 6 million KVA of cast resin transformer manufacturing capacity. With additional equipment, the Guilin facility can support up to 12 million KVA of cast resin transformer manufacturing capacity although we currently have no plans to further expand this facility. With the launch of the Guilin facility, we believe that we are the largest cast resin transformer manufacturer in China in terms of capacity. The Guilin facility gives us the economy of scale to reduce the cost of inputs, improve efficiency, and compete aggressively in the market place.

We incorporated into the Guilin facility 20 years of cast resin transformer manufacturing expertise. The result is an integrated manufacturing facility that employs state-of-the-art manufacturing equipment and streamlined workflow. We also re-designed our cast resin transformer to employ new fill materials that reduce the environmental impact and the risk to the health of our employees during the production process. The new fill materials also improve the insulation properties of our transformers. We expect that the streamlined manufacturing process, automated production equipment, and new transformer design can lower the cost of production of our standard cast resin transformers by 5% to 10%.

Expand and Diversify our Product Offering

We continue to expand our product offerings to address new market opportunities. From cast resin transformers, we diversified into related products including VPI transformers, VPI line reactors, switchgears and unit substations. Over the years, we made significant progress in expanding our product offering and adapting our products to new applications through research and development (See Item 5 – Operating and Financing Review and Prospects – Research and Development) and technology licensing. We also maintain licenses for the manufacture of certain VPI reactors (designed for an OEM customer’s wind turbine platform) and for the manufacture of certain switchgears and low voltage switchboards. (See Item 4 – Business Overview – Material Agreements.) We believe that enriching our product portfolio will enable us to offer more comprehensive power distribution solutions to our customers, to reach into new markets, and to reduce the risk of overconcentration on one product line.

Leverage our relationship with major OEM customers to expand our global reach.

Over the last several years, we have worked to expand and diversify our OEM customer base. Starting with one major OEM customer in 2009, we have to date qualified as supplier to six major OEM customers. By integrating into the global supply chain of OEM customers with a global presence, we can leverage the market reach of these OEM customers to effectively address a broader international market.

Revenue from sales to OEM customers reached RMB 224.2 million (US$ 36.7 million) in 2014. Of this total, sales to our largest OEM customer was approximately RMB 107.4 million (US$ 17.6 million) and sales to our second largest OEM customer was approximately RMB 90.4 million (US$14.8 million). Going forward, we will shift focus from expanding our OEM customer base to deepening relationship with existing OEM customers to grow our sales.

Focus on China’s Growing Electric Infrastructure Market

China remained our largest market in 2014. Sales in China of RMB 1,349.3 million (US$ 220.9 million) accounted for 91.6 % of our total sales revenue of RMB 1,472 million (US$ 241 million) in 2014. Despite recent moderations in the growth rate of GDP, electricity consumption, and fixed asset investment (See Item 4 – Business Overview – Background information relating to the electric transformer industry in China-Growth Drivers), we believe that the macro-trends in China - urbanization and industrialization - will continue to drive demand for power distribution equipment over the long term. We continue to focus on the growth opportunities provided by our home market.

As a supplier of medium voltage electrical power control and distribution products, we sell to broad customer base in both the public and private sectors for variety of commercial, industrial, and infrastructure projects. We are a leading manufacturer of cast resin transformers in China and currently also the largest in terms of manufacturing capacity. We believe that we have both the capacity and opportunity to capitalize on growth of China’s market.

Products

Cast Resin Transformers

Transformers are electrical equipment that changes the voltage and the current of electricity to facilitate its efficient transmission and distribution. Transformers are commonly used at power generation facilities to increase voltage and to decrease current in order to transport electric energy across transmission lines. When the electricity reaches the end user, transformers are used to reduce voltage and to increase current to make the electricity suitable for general use. The process of transforming voltage results in energy loss that is released in the form of heat and therefore transformers must contain effective cooling systems. Transformers are differentiated by their cooling systems (this is one of several ways that the transformer industry classifies its products). Dry type transformers dissipate heat directly into the ambient air. Liquid cooled transformers (e.g. oil filled transformers) dissipate heat into liquid mediums.

The cast resin transformer is a dry type transformer first developed in Germany in the 1960s as an alternative to oil-filled transformers. In contrast to an oil-filled transformer which immerse coils in oil to absorb and disperse heat, the coils of a cast resin transformer are coated with epoxy resin, which is able to withstand temperatures as high as 188 degree Celsius. Heat passes through the epoxy and dissipates into the surrounding air. The cast resin transformer does not compete with oil-filled transformers in all applications. Most step up transformers at power plants that increase the voltage to hundreds of thousands of volts are oil-filled transformers, because at such high voltages the amount of heat generated is more efficiently dissipated through a liquid medium. However, many step down transformers located in the electricity distribution network and at the end user’s site are dry type transformers. Certain wind and solar farms also use dry type transformers to step up electricity for transmission. The cast resin transformer has several advantages over the oil filled transformer, including greater efficiency, less maintenance requirements, greater fire resistance, and more environmentally friendly (the lack of cooling liquids eliminates the possibility of oil leaks). While oil-filled transformers are still widely used in China and throughout the world, we believe cast resin transformers are increasing in popularity because of these advantages.

In a cast resin transformer, the dry epoxy resin coating the transformer coils serve as the insulation medium between coils. To ensure effective insulation, appropriate precautions must be maintained to ensure that any moisture or condensation has been removed when the epoxy resin is cast. Our cast resin transformers use four main types of insulation systems. The insulation systems used are: 155 degree Celsius Class “F” per IEC60076 (International Electrotechnical Commission) and 180 degree Celsius Class “H” for the Chinese market and 150 and 185 degree Celsius per ANSI (American National Standard Institute), IEEE (Institute of Electrical and Electronics Engineers), and NEMA (National Electrical Manufacturers Associations) standards for the U.S. and North American markets.

We manufacture cast resin transformers for a wide range of infrastructural and industrial applications, including

Cast resin dry type distribution (dual voltage) transformers, which are used in a wide range of infrastructural, commercial, and residential developments to step down the voltage of electricity from the electric grid;

Cast resin dry type power transformers, which are used in the electric grid to convert voltages;

Cast resin dry type excitation rectifier transformers, which are used in power plants to deliver power to the excitation systems for electric generators;

Cast resin dry type traction rectifier transformers, which are used in subways and light rail systems to deliver power to rail electrification systems;

Cast resin dry type transformers for variable frequency drives, which are used in wide range of industrial applications to deliver power to drive electric motors;

Cast resin dry type transformers for marine applications, which are used on board ships or off shore platforms;

Cast resin dry type transformers for wind applications, which are used in wind farms (either in or outside the wind turbine platform) to step up voltage of the electricity generated for transmission in medium voltage electric grids;

Cast resin dry type transformers for solar applications, which are used in solar farms to step up voltage of the electricity generated for transmission to medium voltage;

Cast resin dry type transformers for Polycrystalline Silicon Reduction Furnace, which are used by manufacturers to deliver power to polycrystalline manufacturing facilities;

Cast resin dry type isolation transformers, which provide galvanic isolation to transfer power between two circuits not connected together and to protect against electric shock and suppress electric noise is sensitive devices; and

Cast resin dry type transformers with amorphous alloy core, which are energy efficient and used in a wide infrastructural, commercial, and residential to step down voltage of electricity from the electric grid to lower levels.

VPI Transformers and VPI Line Reactors

The VPI (Vacuum Pressure Impregnated) transformer and cast resin transformer are two popular dry type transformers. In contrast with the cast resin dry type transformer, the coils of the VPI transformer are coated with varnish (comprised primarily of polyester resin) instead of epoxy resin. The varnish coating serves as an insulation medium. VPI transformers are manufactured using a process that applies varnish coating to the coils in interchanging cycles of pressure and vacuum. The coils are then cured in an oven. This manufacturing process allows for better penetration of the varnish into the coils.

The VPI line reactor does not change electric voltage. It is an inductor. In an AC circuit, an inductor has the characteristic of storing energy in a magnetic field and is reluctant to a change in current. In a DC circuit, an inductor limits the rate of change of current in a circuit. The VPI line reactor is used to filter waveforms and attenuate electric noise and harmonics to help balance current and voltage output in an electrical circuit. It is manufactured using a process similar to that used to produce VPI transformers.

We have the engineering capability to design and manufacture VPI transformers and line reactors that suit our customers’ specific needs. Presently, we manufacture VPI transformers and line reactors customized for a range of infrastructural and industrial applications, including VPI transformers that supply electricity to wind power converters, photo voltaic inverters, uninterrupted power supplies, variable frequency control drives, traction rectifier systems, and for ship board use. Our VPI transformers and line reactors are characterized by class H insulation, low loss levels, strong overload handling capacity, low flammability, low noise levels, compact size, and easy installation.

Switchgears

The switchgear is electric equipment comprised of a combination of electrical disconnect switches, fuses, or circuit breakers. Through the control of the flow of electricity, the switchgear protects, and isolates electrical equipment. The switchgear is used to de-energize equipment to allow maintenance work to be performed safely and to clear faults in the grid downstream. Consequently, the switchgear is an important piece of equipment, because it is directly linked to the reliability of the electricity supply.

We offer a range of switchgear products for general power distribution and for specialized infrastructural and industrial applications. We manufacture high and low voltage switchgears, both conventional and gas insulated. We manufacture switchgears using our designs and also using designs licensed from Schneider Electric. Because each transformer is paired with both a high voltage and low voltage switchgear, we can offer a packaged solution to our customers.

Unit Substations

The unit substation is a compact, fully enclosed transformer substation. It is integrated assembly comprised of high and low voltage switchgear, transformer, power meter and compensation device, all interconnected with cables or buss bars and housed in weather proof enclosure. We supply unit substations suitable for a range of infrastructural and industrial applications where the transformer is installed outdoors and exposed to the elements.

Net sales by Products and Geographic Market

Our net sales by product for the years ended December 31, 2014, 2013, and 2012 is as follows:


	2014	2014	2013	2012
	US$	RMB	RMB	RMB
	(In thousands)
Cast Resin Transformers	149,934	915,781	993,718	1,048,995
Switchgears and Unit substations	56,287	343,795	250,422	163,585
VPI transformers	19,708	120,374	76,284	40,125
Line Reactors	15,078	92,095	77,437	72,246
Total	241,007	1,472,045	1,397,861	1,324,951

Our net sales by geographic market for the years ended December 31, 2014, 2013 and 2012 is as follows:


	2014		2014		2013		2012
	US$		RMB		RMB		RMB
	(In thousands)
Net Sales
United States		9,906		60,505		105,938		108,347
Europe		10,190		62,237		40,749		59,910
PRC		220,911		1,349,303		1,251,174		1,156,695
Total		241,007		1,472,045		1,397,861		1,324,952

Background information relating to the electric transformer industry in China

Growth Drivers

We believe that the demand for electrical power control and distribution equipment in China is drive by two macro trends: (i) growth in electricity consumption and (ii) growth investment in infrastructure. China’s economic growth underlies both of these growth drivers.

Growth rate of the Chinese economy remained stable in 2014. According to the NBS, China’s GDP for 2014 was 63,646.3 billion yuan, an increase of 7.4% over the previous year. Of this total, the value added of the primary industry was 5,833.2 billion yuan, an increase of 4.1%, that of the secondary industry was 27,139.2 billion yuan, up by 7.3% and the tertiary industry was 30, 673.9 billion yuan, an increase of 8.1% The value added of the primary industry accounted for 9.1% of the GDP, that of the secondary industry accounted for 42.6%, and that of the tertiary industry accounted for 48.2%. For the second year in a row, the share of the value added of the tertiary industry surpassed that of the second industry. Growth in the secondary and tertiary sectors, which encompass manufacturing and service sectors, tend to correlate with increase in electricity consumption and infrastructure spending.

According to the CEC, China consumed 5.52 trillion KWH of electricity in 2014, an increase of 3.8% over the previous year. Electricity consumption in the tertiary sector in 2014 reached 666 billion KWH in 2014, an increase of 6.4% over the previous year, reflecting continuing active consumer demand in that sector. Electricity consumption in the secondary sector reached 4.06 trillion KWH in 2014, an increase of 3.7% over the previous year. Residential consumption of electricity in 2014 reached 692.8 billion KWH in 2014, an increase of 2.2% over the previous year.

The growth of investment in fixed assets slowed in 2014. According to the NBS, the completed investment in fixed assets of China in 2014 was 51,276.1 billion yuan, an increase of 15.3% over the previous year. The real growth was 14.7% after deducting price factors. Of the total investment, the investment in fixed assets (excluding rural households) was 50,200.5 billion yuan, an increase of 15.7% over the previous year and the investment by rural households reached 1,075.6 billion yuan, an increase of 2% over the previous year. With respect to investment in fixed assets (excluding rural households), (1) the investment in the primary industry was 1,198.3 billion yuan, an increase of 33.9% over the previous year;(2) the investment in the secondary industry was 20,810.7 billion yuan, an increase of 13.2% over the previous year and (3) the investment in the tertiary industry was 28,191.5 billion yuan, an increase of 16.8% over previous year. Although the level of fixed asset investment in China has slowed over the last several years, we believe that investment in fixed assets in China will continue at elevated levels as the country continues down the path of urbanization and industrialization. Over the long term, we expect the rate of growth of investment in fixed assets to gradually moderate as the country’s economy transition from primarily investment and export driven growth to more consumption driven growth.

Growth in Electric Generation and Distribution Capacity

We believe that growth in electricity generation and transmission capacity leads to downstream investments in distribution capacity, because power generated and transmitted need to reach end users in usable lower voltages. The majority of the electrical equipment we manufacture is under 35KV. Consequently, we benefit from China’s investment in power generation and transmission capacity.

China continued adding to its power generating capacity in 2014. According to data provided by the China National Energy Administration (“NEA”), China added 103.50 million KW of electricity generating capacity in 2014; bringing China’s total electricity generation capacity to 1.35 trillion KW, an increase of 8.3%over the previous year. China continued to build out its power grids in 2014.

According to the CEC, overall demand and supply of electricity in China during 2014 was balanced, with some excess supply from north eastern and north western regions, balanced supply and demand in north, central and southern regions, and tight supply in the eastern regions during peak seasons in the beginning of the year and during the summer.

China’s Transformer Industry

Transformers change the voltage and current of electricity through electromagnetic induction. They serve a critical function in the transmission and distribution of electricity. During the voltage transformation process, some energy is lost and dissipates in the form of heat. Transformers are designed with cooling systems to dissipate the heat produced during its operation. Categorized by cooling system, transformers can be divided into liquid filled and dry type transformers. In a liquid filled transformer, the transformer’s core and coil are encapsulated in an insulating liquid medium, usually oil that is stable at high temperatures. The oil dissipates the heat generated by the transformer during its operation. A dry type transformer uses air to dissipate heat generated by the transformer.

Dry type transformers are used in a wide range of applications that requires transformers that are highly reliable, flame resistant, low maintenance, and non-polluting, including urban infrastructure with high standard for fire safety (e.g. high concentration commercial and residential areas and transportation hubs), industrial facilities (e.g. mining, chemical, and metallurgical works), wind and solar farms, and in electricity distribution networks. The two main categories of dry type transformers that currently dominate the market are cast resin transformers and open ventilated dry type transformers. Cast resin dry type transformers are predominant in Europe, Japan, and developed markets in Asia, including China. Open ventilated dry type transformers are widely used in North America.

Because our largest market is in China and cast type cast resin transformers comprise approximately 62.2% of our sales revenue in 2014, the following discussion focuses on China’s overall transformer industry (including both liquid and dry type transformers) and the cast resin dry type segment of that market.

According to data from the NBS, transformer production in China increased from 1,346.30 million KVA in 2010 to 1,701 billion KVA in 2014. In 2014, transformer production in China increased by 11.7% over that in 2013 (1.523.23 billion KVA). The following table lists China’s transformer production from 2010 to 2014.

Year	Transform Production (Million KVA)	Annual Growth Rate

2010	1,346.30	6.43%

2011	1,429.77	6.20%

2012	1,431.32	0.11%

2013	1,523.23	6.42%

2014	1,701.00	11.7%

The world’s first cast resin dry type transformer was developed in Germany in 1964. It was first introduced to the Chinese market in the 1980s. Because China imported much of its dry type transformer manufacturing technology from Europe, the cast resin dry type transformer became the predominant type of dry type transformer in China . According to a report published by the market research firm China Industry Research Net titled “Cast Resin Transformer Market Analysis and Trends 2014-2019” (the “CIR Report”), some 95% of the dry type transformers manufactured in China are cast resin dry type transformers.

Between 2010 and 2014, China’s demand for cast resin dry type transformers has also grown at a fast clip albeit slower than production growth. According to the CIR Report, China’s demand for cast resin dry type transformers from 2010 to 2014 is as follows:

Year	Demand	Growth Rate

2010	RMB 4.778 billion	15.0%

2011	RMB 5.563 billion	16.4%

2012	RMB 6.607 billion	18.8%

2013	RMB 7.894 billion	19.5%

2014	RMB 9.025 billion	14.3%

China’s cast resin dry type transformer market remained competitive in 2014. Prices of key raw materials (e.g. silicon steel, copper, and aluminum), though more volatile in the fourth quarter of 2014, remained at relative low levels. Low raw materials prices enabled more price competition among established manufacturers and kept the entry barrier low to new market entrants. As expected, the price for high-end customized transformers, for which there are fewer competing manufacturers and a more demanding customer base, held up better than that for standard distribution transformers in such a competitive market environment.

How our cast resin transformers are manufactured

The essential components of our cast resin transformers are their windings and cores. Under our current manufacturing process, we use coil winding machines to wind copper or aluminum wire or foils into high and low voltage coils. Our coils are insulated with fiber glass mats or quartz powder and are then cast with an epoxy resin in an automated vacuum casting machine to provide further insulation. The vacuum casting machine then removes all moisture and condensation between the coil and the resin coating. We implement such procedures to ensure that our coils are properly insulated for safety. We use the materials described above so that none of our windings crack when heat is produced in the transformer since the expansion coefficient of copper or aluminum coil is similar to the expansion coefficient of epoxy resin and fiber glass.

The high and low voltage windings are then wrapped around a silicon steel core. The core is composed of silicon steel, which has been cut using automated steel cutting machines. The cut silicon steel are assembled and stacked by our assembly table machines to form the core of a transformer. As one of the most important components of a transformer, the core is used as a transforming medium of electric energy during the transforming process.

We use high quality material, advanced winding and cutting machines. Our transformers are designed to operate with minimal energy loss and noise. We test and inspect our transformers in accordance with Chinese national standards and will not deliver a transformer to a customer unless each required test has been passed. The standard testing procedure is comprised of the following 12 procedures:


1.	measurement of winding resistance;

2.	measurement of voltage ratio;

3.	measurement of impedance voltage;

4.	measurement of current;

5.	Source voltage tolerance test;

6.	induced over-voltage tolerance test;

7.	measurement of winding insulation resistance;

8.	measurement of partial discharge;

9.	lightning impulse test;

10.	temperature raise test;

11.	measurement of sound level; and

12.	short-circuit test.

How Our VPI Transformers and Line Reactors Are Manufactured

Our VPI transformers and line reactors use high temperature polyester varnish as insulation. We use a manufacturing process known as varnish pressure impregnation. Once our VPI transformers and reactors are assembled, we place the assembly in a special container and submerse it in varnish under vacuum conditions and the cure it in an oven. The resulting product is protected from moisture and dirt. Our VPI transformers and line reactors are smaller in size in terms of both dimensions and capacity. We manufacture VPI transformers and line reactor for a range of specialized applications, including for the distribution of wind and solar power and for use with variable frequency drives.

How Our Switchgear Products Are Manufactured

We manufacture a range of medium and low voltage switchgear products for the China market. We use sheet metal to manufacture switchgear enclosures, coat the enclosure, and assemble switchgears using high quality components from brand name suppliers such as Siemens and Schneider. We strictly implement ISO 9000 to ensure manufacture of high quality products.

Switchgears are highly customized products. Recognizing that providing solutions and quality service to customers is key to our success, we assembled a team of seasoned engineers. Our engineers work with customers to provide custom designed solutions and after sales support from installation to operations. We design our switchgear products and also license component designs from high quality suppliers such as Schneider Electric and Siemens.

The raw materials used in our cast resin transformers and their sources of supply

The principal raw materials we require for our business are (1) epoxy resin, used to coat the coils of our transformers, (2) silicon steel, which comprises the cores of our transformers, and (3) copper and aluminum wires and foils for windings. We maintain at least two suppliers for each of our principal raw materials in order to enhance our ability to obtain an adequate supply of high quality, competitively-priced raw materials.

The price of epoxy resin remained relatively stable in 2014. Silicon steel prices continued to decline and the price of copper and aluminum declined slightly but started to increase in the fourth quarter of 2014. In 2014, the price of silicon steel, copper, and aluminum averaged RMB 12,115 per ton (a 4.6% decreased over 2013), RMB 49,153 per ton (a 7.8 % decreased over 2013) , and RMB 13,497 per ton (a 7% decreased over 2013) respectively We expect the prices of these raw materials to be volatile during the first half of 2015 but will become stable toward in the second half of 2015.

Other raw materials required to produce our products include glass fiber and quartz powder. We purchase our glass fiber and quartz powder from local suppliers in nearby regions and believe that these materials are readily available.

Our sales and marketing network

We have an extensive sales and marketing network in China, which consists of 36 regional sales offices located in various cities. We employ 140 salaried marketing and sales representatives who are based at our regional sales offices. In addition to sales representatives at our regional offices, we staff our manufacturing facilities at Haikou, Wuhan, Shanghai, and Guilin with sales support personnel.

Our significant customers

Sales to our five largest customers for fiscal years ended December 31, 2012, 2013, and 2014 accounted for 21.3%, 22.3%, and 19.7% of total sales, respectively. Sales to our single largest customer for those same periods accounted for 12.7%, 10.5%, and 7.3% of our net sales, respectively.

Our trademark, “JST”

We own the rights to the trade mark “JST,” which is registered with the Trademark Bureau of the State Administration of Industry and Commerce in China. We believe that much of our success in growing sales and market share is due to our focus on providing high quality products and services. Achieving greater customer recognition of our trademark is also important to our marketing and expansion efforts. We have not registered our intellectual property rights outside of China and we cannot be certain that the laws of other countries will protect proprietary rights to the same extent as do the laws of China.

Material Agreements

In May 2012, China Bank of Communications Guilin Branch, the mortgagee, entered into a mortgage agreement with Guilin JTF, the mortgagor. Guilin JTF mortgaged to the bank the land use rights associates with the its manufacturing facility in Guilin and rights to structures thereon (the “Collateral”). The bank and the Guilin JTF entered into the agreement to provide collateral for the loans up to RMB 350 million to be made by the bank to the Guilin JTF from May 2012 to May 2015. The Collateral secures loan principal, interest, compound interest, penalty interest, liquidated damages, compensatory damages, and costs associated with bank’s enforcement of its rights under this Agreement.

In May 2012, China Bank of Communications Guilin Branch, the guarantee, entered into a guarantee agreement with Hainan Jinpan, the guarantor. Hainan Jinpan provided guarantees to the bank for credit – for fixed asset investment, operations, and letter of credit – extended to Guilin JTF between May 2012 and May 2019 up to RMB 350 million.

On August 26, 2013, Schneider Electric (China) Co. Ltd. (“Schneider”) and Hainan Jinpan entered into a licensing agreement on August 26, 2013. Schneider granted Hainan Jinpan a non-exclusive license to (i) manufacture, repair and maintain MVnex HP switchgear /Model No. 630-2500A/31.5KA (“Licensed Product”) and (ii) to sell the Licensed Product in China. The license agreement expires on December 31, 2015 unless terminated by the parties prior to that date. In consideration for the license, Hainan Jinpan would pay Schneider a license fee of nil. However, the parties entered into a separate agreement in which Hainan Jinpan agreed to procure certain component parts from Schneider for the production of license products.

Our competitors in the electric transformer business

In the cast resin transformer market, we compete against a few large transformer manufactures and a large number of smaller manufacturers. In China, our major competitors are Chinese enterprises that are either privately owned or partially state-owned (usually as a result of the re-organization of formerly state-owned enterprises). We believe that foreign cast resin transformer manufacturers currently do not pose a significant competitive threat to us in China, because of their prices and costs are usually higher than that of Chinese manufacturers. However, we may face increased competition in the future as foreign manufacturers source more of their production from China or enter into joint ventures with manufacturers in China. Outside of China, we compete against the transformer manufacturing units of some large and well established firms. We believe that our largest competitor in U.S. and Europe, our two top export markets, is ABB. Although some of our competitors entered the market before us, we believe that the scale and efficiency of our operations, the quality of our products, and our growing brand recognition enable us to compete effectively both at home and abroad. To the best of our knowledge, none of our transformers have been the cause of any major accident. We have a track record of good product quality and customer service.

Seasonality

Historically, our revenue has fluctuated quarterly and has generally been the higher in second half of the year primarily due to the seasonal demand of our customers. We believe that the seasonality is due to the procurement cycles of our domestic Chinese customers which tend to be heavily weighted in the second half of the year. In 2014, the first, second, third, and fourth quarter represented 17.2%, 27.3%, 25.7% and 29.8% of full year net sales, respectively. We believe that the seasonality in 2015 sales will remain the same as 2014.

Doing Business in China

China’s Corporate Income Tax

At the present time, the enterprise income tax rate for companies operating in China is 25%, The EIT Law and its Implementation Rules permit qualified “high and new technology enterprises,” or HNTEs, to enjoy a preferential enterprise income tax rate of 15% upon filing with relevant tax authorities The average enterprise income tax rate on our PRC subsidiaries in 2014 was 15%. Many of our PRC subsidiaries maintained their HNTE qualifications and enjoyed a preferential tax rate of 15% in 2014.

Our PRC subsidiaries can continue to enjoy the preferential tax rate of 15% as long as they maintains their HNTE qualifications and comply with filing requirements of relevant tax authority regarding the tax incentive. Furthermore, although we expect the PRC government to continue to offer preferential tax treatment to enterprises that qualify as HNTE, we cannot assure that such policies will continue indefinitely and the enterprise income tax rate applicable to our PRC subsidiaries may increase. Increased taxation could have an adverse effect on our financial condition and results of operations.

Under the EIT law, an enterprise established outside of China with “de facto management bodies” within China is considered a PRC “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. “De facto management bodies” are defined in the implementation rules for the new EIT law and “tax resident enterprises” interpreted in the relevant circular issued by the State Administration of Taxation. We do not believe that Jinpan International qualifies as a PRC “resident enterprise” However, if the tax authorities determine that we, as a British Virgin Islands holding company, are a PRC “resident enterprise” for EIT purposes, a number of unfavorable tax consequences could follow, including we may be subject to EIT at a rate of 25% on our worldwide taxable income, as well as EIT reporting obligations. It is also possible that the rules regarding PRC “resident enterprise” classification may change in the future and possibly be retroactively applied.

Chinese Regulation on Dividends

Applicable PRC laws and regulations require that before a foreign invested enterprise distributes profits to its shareholders, it must first do the following:

settle up tax-related penalty or fine and provide for losses of assets that have been confiscated;

	·	provide for any losses still unpaid from previous years; and
	·	make allocations, in the proportions as determined by the discretion of the board, to a reserve fund, an enterprise expansion fund and an employee welfare fund. However, a wholly foreign owned enterprise is not required to have an enterprise expansion fund although it must set aside at least 10% of its after–tax profits to its reserve fund until the accumulated amount of such reserve fund has reached 50% of its registered capital.

For more information on limitations of our subsidiaries to pay dividends to us, its parent company, see Item 8. Financial Information – Dividend Policy.

PRC Regulation of Loans and Direct Investment by Offshore Holding Companies

We are an offshore holding company conducting our operations in China through our PRC subsidiaries. Any loans or capital contributions we make to our PRC subsidiaries cannot exceed statutory limits and must be registered with SAFE or its local counterparts. Under applicable PRC law, the government authorities must approve a foreign-invested enterprise’s registered capital amount, which represents the total amount of capital contributions made by shareholders and registered with the business registration authorities. In addition, the authorities must also approve the foreign-invested enterprise’s total investment, which represents the total statutory capitalization of the company, equal to the company’s registered capital plus the amount of foreign loans it is permitted to borrow under the law. The ratio of registered capital to total investment cannot be lower than the minimum statutory requirement and the excess of the total investment over the registered capital represents the maximum amount of foreign borrowings that a foreign invested enterprise is permitted to have under PRC law. If we were to advance funds to our PRC subsidiaries in the form of foreign loans or capital contributions, which exceed the maximum amount of foreign debt that our PRC subsidiaries are permitted to incur, we may have to apply to the relevant government authorities for an increase in their permitted total investment amounts. The various applications could be time-consuming and the outcomes may be uncertain. Concurrently with the loans, we might have to make capital contributions to these subsidiaries to maintain the statutory minimum registered capital and total investment ratio, and such capital contributions involve uncertainties of their own. Furthermore, even if we make loans to our PRC subsidiaries that do not exceed their current maximum amount of foreign borrowings, we will have to register each loan with SAFE or its local counterpart for the issuance of a registration certificate of foreign debts. In practice, it could be time-consuming to complete such SAFE registration process.

Although there is no statutory requirement for the total investment amount of a domestic company, any loans we make to our PRC affiliated entities, which are treated as PRC domestic companies rather than foreign-invested enterprises under PRC law, are also subject to various PRC regulations and approvals. Under applicable PRC regulations, international commercial loans to PRC domestic companies are subject to various government approvals and the SAFE registration.

We may be unable to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, or at all, with respect to future loans by us to our PRC subsidiaries or PRC affiliated entities or with respect to future capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to capitalize or otherwise fund our PRC operations may be negatively affected, which could adversely and materially affect our liquidity and our ability to fund and expand our business.

Legal system

The PRC’s legal system is a civil law system based on written statutes. Unlike in a common law system, it is a system in which cases have limited precedential value.

Environmental laws

Environmental protection in China is regulated in accordance with the Environmental Protection Law of the People’s Republic of China, which became effective on December 26, 1989, the Environment Impact Assessment Law, the Administrative Regulations on Environmental Protection for Construction Projects, the various laws on the protection and control of air, water, noise, solid wastes pollution, etc. These laws and regulations set national standards for environmental quality and monitoring as well as for the utilization of natural resources and the reduction of pollution. In addition, since there has been a growing awareness of environmental issues in China, enterprises may be expected to meet a standard, which is higher than the requirement under the prevailing environmental laws and regulations. We have adopted environmental protection measures generally required to be taken in the ordinary course of business of companies in the industry and we believe we are materially in compliance with applicable environmental laws. As a manufacturer, we are subject to periodic inspections. We have passed our most recent inspection and believe that we are materially in compliance with applicable environmental laws.

C. Organizational Structure

We are a British Virgin Islands company and our securities are registered with the SEC and publicly traded on The NASDAQ Global Select Market. We conduct business through our subsidiaries in the United States and China. We are also registered to conduct business in Hong Kong. The following chart illustrates our organizational structure:

Jinpan USA

Jinpan USA is a U.S. wholly owned subsidiary of us. Jinpan USA is a corporation organized under the laws of the State of New York in January 1998. Jinpan USA’s principle office is located in Carlstadt, New Jersey. Jinpan USA is primarily engaged in the sale, product support, and limited scale manufacture of cast resin transformers to customers in the United States and worldwide.

Jinpan Realty

Jinpan Realty is a wholly owned subsidiary of Jinpan USA. Jinpan Realty is a limited liability company organized under the laws of New Jersey in July 2009. Its principal office is located in Carlstadt, New Jersey. Jinpan Realty owns the land and building located at 390 Veterans Blvd, Carlstadt, New Jersey. Jinpan Realty leases the building to Jinpan USA for its operations.

Jinpan China

Jinpan China is a foreign funded limited liability company organized under the laws the PRC in January 2007. Its principal office is located in the city of Wuhan, Hubei Province, PRC. Jinpan China is wholly owned by Jinpan International. Jinpan China is the parent company of Wuhan Jinpan and Shanghai Jinpan.

Hainan Jinpan

On June 30, 1997, we entered into an agreement with Haikou Jinpan to form a joint venture, Hainan Jinpan, pursuant to which Haikou Jinpan received a 15% equity interest in Hainan Jinpan in exchange for its contribution of buildings, equipment, and other production and related facilities to the joint venture and we received an 85% equity interest in Hainan Jinpan for its capital contribution of US$2.1 million. We assumed management of Hainan Jinpan from Haikou Jinpan after our acquisition of this 85% interest. In February 2007, we purchased Haikou Jinpan’s interests in Hainan Jinpan (15%) for US$11 million.

To maintain Hainan Jinpan’s status as a sino-foreign joint venture, we transferred 5% of our equity interest in Hainan Jinpan to Wuhan Jinpan, which qualifies as a domestically funded limited liability company. In April 2011, Wuhan Jinpan acquired an additional 10% of the equity from Hainan Jinpan for RMB 80 million (US$ 12 million).

Hainan Jinpan is organized under the laws of the PRC in May, 1997. Its principal office is located in Haikou, Hainan Province, PRC. It is primarily engaged in the design and manufacture of cast resin transformers, switchgears, and unit substations.

Hainan Jinpan R&D

Hainan Jinpan R&D is a domestically funded limited liability company organized under the laws of the PRC in September 2008. Hainan Jinpan R&D is a wholly owned subsidiary of Hainan Jinpan. Its principal office is located in Haikou, Hainan Province, PRC. Jinpan R&D is primarily engaged in the research and development of new cast resin transformer technologies and manufacturing techniques.

Wuhan Jinpan

Wuhan Jinpan is a limited liability company organized under the laws of the PRC in September 2006. Its principal office is located in Wuhan, Hubei Province, China. Hainan Jinpan and Jinpan China owned 5% and 95% of Wuhan Jinpan respectively until April 2011 when Hainan Jinpan transferred all of its equity interests in Wuhan Jinpan to Jinpan China. As a result of the transaction, Wuhan Jinpan became a wholly owned subsidiary of Jinpan China. Wuhan Jinpan is the primarily engaged in the manufacture of cast resin transformers.

Shanghai Jinpan

In June 2008, Jinpan China and Hainan Jinpan jointly acquired a new manufacturing facility in Shanghai China. Shanghai Jinpan is organized under the laws of the PRC as a domestically funded limited liability Company. Its principal office is located in Shanghai, China. Shanghai Jinpan owns and operates the Shanghai facility. Hainan Jinpan and Jinpan China own 70% and 30% of Shanghai Jinpan, respectively.

Jinpan Alternative Energy

Jinpan Alternative Energy is a domestically funded PRC limited liability company organized under the laws of the PRC in January 2010. Its principal office is in Shanghai, China. It is a wholly owned subsidiary of Shanghai Jinpan. The purpose of Jinpan Alternative Energy is to consolidate the design, manufacture, and sale of our wind energy products.

Jinpan T&D

Jinpan T&D is a domestically funded PRC limited liability company organized under the laws of the PRC in January 2010. Its principal offices is in Shanghai, China. It is a wholly owned subsidiary of Shanghai Jinpan. The purpose of Jinpan T&D is to consolidate the design, manufacture, and sell our switchgear and other integrated assembly products.

Shanghai Dong Dian

Shanghai DongDian is a domestically funded PRC limited liability company organized under the laws of the PRC in January 2010. Its principal office is in Shanghai, China. It is a wholly owned subsidiary of Shanghai Jinpan. The purpose of Shanghai Dong Dian is to engage in the procurement of raw materials and components for our products.

Shanghai Pan Ding

Jinpan Pan Ding is a domestically funded PRC limited liability company organized under the laws of the PRC in March 2010. Its principal office is in Shanghai, China. It is a wholly owned subsidiary of Shanghai Jinpan. The purpose of Shanghai Pan Ding is to hold our new facilities under construction in Shanghai and future investments not directly related to manufacturing

Guilin JTF

Guilin JTF is a domestically funded PRC limited liability company organized under the laws of the PRC in 2010. Its principal office is in Guilin, Guangxi Province, China. In April 2011, Hainan Jinpan acquired of Guilin JTF from its parent Guilin Jin Fu Investment Co. Ltd. in a cash for equity transaction. Hainan Jinpan paid RMB 15 million (US$ 2.3 million) for all the equity of JTF and also assumed RMB 44.2 million (US$ 6.7 million) in Guilin JTF’s debt. At the time of the acquisition, Guilin JTF’s primary asset was the property rights to 38 acres of land in Guilin, Guangxi Province. As a result of the acquisition, Guilin JTF became a wholly owned subsidiary of Hainan Jinpan.

D. Property, Plant and Equipment

We have four large scale manufacturing facilities in China located in the cities of Haikou, Wuhan, Shanghai, and Guilin. We also have a facility for limited scale manufacturing, product testing, and storage in the United States located in Carlstadt, New Jersey.

Haikou Facility

Our headquarters, administrative and manufacturing facilities are located at No. 100 Nanhai Avenue, Haikou, Hainan Province, China. Our Haikou facility is our primary manufacturing and R&D facility. It manufactures cast resin transformers, switchgears, and unit substations. The Company established this facility in 1993 and has gradually expanded the size and capacity of this facility to meet increasing demand. Currently, our Haikou Facility is approximately 54,000 square meters, of which 42% is owned and 58% is under lease to Hainan Jinpan. As of the end of 2013, our Haikou facility has reached a maximum transformer manufacturing capacity of approximately 6 million KVA.

Wuhan Facility

In February 2007, we acquired approximately 22,000 square meters of land in Wuhan to build a second manufacturing facility. Our Wuhan facility is located at No. 90 Nanhu Ave., Dong Hu High Tech Development Zone, Wuhan, Hubei Province, PRC 430074. We paid a purchase price of RMB 6.7 million (US$0.97 million) for the site and incurred an additional RMB 26.4 million (US$3.84 million) in construction costs. We financed the acquisition and construction of the Wuhan facility from the net proceeds we received from the sale of our common shares in December 2006.Construction on the Wuhan facility began in early 2007 and was completed in May 2008.

The Wuhan facility manufactures cast resin transformers. We began production at the Wuhan Facility in June 2008. As of the end of 2013, the maximum transformer manufacturing capacity at our Wuhan facility approached 6 million KVA.

Shanghai Facility

In June 2008, we acquired land and buildings to serve as a third manufacturing facility near Shanghai. The Shanghai facility is located at No. 999 Huijin Road, QingPu Industrial Park, QingPu District, Shanghai, PRC 201700. The site covers an area of approximately 71,000 square meters. At time of acquisition, the site contained partially completed factory buildings. We purchased the facility through a court ordered bankruptcy auction. On June 10, 2008, we paid RMB 64.0 million (US$9.4 million) for the site, plus RMB 1.4 million (US$205,000) in administrative fees associated with the closing. On June 18, 2008, the Shanghai Qingpu District People’s court issued an order granting us the land and buildings on the site.

To fund this acquisition, we secured a loan of RMB 40.0 million (US$5.9 million) from the Bank of Communications, in China at an interest rate that declared by the Bank of China times 1.025. Our borrowings under this credit facility accrued interest at an average interest rate of 5.35% per annum for the year ended December 31, 2008. We renewed this credit facility in 2009. We also used RMB 24 million (US$3.5 million) from our existing cash to fund the acquisition. At the end of the 2009, we repaid all our bank loans related to the acquisition of the Shanghai facility.

The Shanghai facility is equipped for the manufacture of VPI transformers, VPI line reactors and gas-insulated switchgears. The construction of the Shanghai facility proceeded in tandem with our need for additional manufacturing facility and the introduction of new products. We began renovations of existing buildings in the Shanghai Facility in the fourth quarter of 2008. We completed the renovation and began production of VPI transformers and VPI line reactors in the fourth quarter of 2009. From 2009 to 2011, we built and equipped additional factor buildings for the production of VPI line reactors, VPI transformers and gas -insulated switchgears. During the same period, we also built two dormitory buildings on site to house our employees. We spent RMB 154.2 million to renovate, construct, and equip the Shanghai facility.

Guilin Facility

In the second quarter of 2011, we acquired Guilin Jun Tai Fu Construction and Development Co. Ltd. (“Guilin JTF”) for RMB 15 million (US$ 2.3 million) and assumed debt of RMB 44.2 million (US$ 6.7 million). Guilin JTF’s primary asset is land use right of approximately 154,000 square meters (38 acres) zoned for industrial development in Guilin, Guangxi province. Guilin JTF also sought local government approval to purchase an adjacent lot of land of approximately 178,000 square meters (44 acres), but was not successful in this endeavor.

We acquired Guilin JTF to build a large scale manufacturing facility in southwestern China. In early 2012, we began construction of factory buildings, administrative buildings, and employee dormitories in Guilin. We completed their construction in January 2013. Formal production of cast resin transformers at the Guilin facility began at the end of March 2013. We believe that the current manufacturing equipment in the Guilin facility can support 6 million KVA of cast resin transformer production, however with additional equipment, we believe that the Guilin facility can support up to 12 million KVA of cast resin transformer production.

We plan to gradually ramp up production in Guilin over a two to three year period. In 2014, production of cast resin transformers and switchgears at the Guilin facility reached 3.5 million KVA and 1,220 units respectively in 2014. We plan to continue ramping up production at our Guilin facility in 2015. Capital expenditure for the construction at the Guilin facility and acquisition of manufacturing equipment was RMB 63.6 million (US$ 10.4 million) in 2013 and RMB 17 million (US$ 2.8 million) in 2014.

We financed the acquisition of Guilin JTF, construction at the Guilin facility, and the procurement of manufacturing equipment using RMB197.6 million ( US$ 32.4 million) of secured loan facilities, of which RMB 152.1 million(US$ 24.8million) remains outstanding. Currently, we do not plan to further expand the Guilin facility and any future expansion of the Guilin facility will depend on the need for additional manufacturing facility to execute our business plan.

New Jersey Facility

In October 2009, we purchased a new 53,000 square feet (1.24 acres) facility (including building and land) in Carlstadt, New Jersey. The facility serves as the administrative headquarters for our U.S. subsidiary, Jinpan USA. The facility supports limited scale manufacture, on a project by project basis, of our cast resin transformers. It also provides a platform for the testing, service, and storage of our products. We acquired the facility, which includes land and a newly constructed building for US$ 2.5 million. We funded this acquisition through mortgage financing from Enterprise Bank, in the amount of US$ 1.7 million and US$ 0.8 million from our own cash flow. This facility enables us to better support our North American customers.

Sales Offices in China

We have 36 regional sales offices in China. We own the sales offices in Beijing, Wuhan, and Heifei and lease office space for remaining 33 sales offices.

Capacity

We believe that our facilities, including our machinery and equipment, currently are, and in the foreseeable future will be, generally in good condition, well-maintained and suitable for their intended uses. We also believe that our manufacturing, service, and sales facilities have adequate capacity to accommodate our present needs and have room for capacity expansion to meet foreseeable business growth.

Our Haikou facility manufactures cast resin transformers, switchgears, and unit substations. Our Wuhan facility manufactures cast resin transformers. Our Guilin facilities manufactures cast resin transformers and switchgears. Our Shanghai facility manufactures VPI transformers, VPI line reactors and gas insulated switchgears. We measure production capacity for cast resin transformers and unit substations, which incorporates cast resin transformers, in Kilovolt Amperes (KVA). We measure production capacity for switchgears and VPI transformers and reactors in units.

The following table provides our sales volume in 2014 by product line:

Product Line	Sales Volume	Unit

Cast Resin Transformers	9,746,583	KVA

VPI Reactors	19,860	Units

VPI Transformers	1,235	Units

Switchgears	3,793	Units

Unit Substations	653,795	KVA

Item 4A. Unresolved Staff Comments

None.

Item 5. Operating and Financial Review and Prospects

The following discussion and analysis should be read together with our audited consolidated financial statements and notes appearing in Item 18 below.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial conditions and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We base our estimates and judgments on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies reflect the more significant estimates and judgments used in the preparation of our consolidated financial statements.

Revenue Recognition

Revenue is recognized when (1) persuasive evidence of an arrangement exists, (2) delivery occurs, (3) the sales price is fixed or determinable, and (4) collectability is reasonably assured. Some of the long term sales contract’s payments term is longer than normal term, the Group recognizes revenue if the collectability is reasonably assured based on past collection history. For some of our products sales in China, there are provisions that we need to provide technical support to customers before or during customers’ installation of the products. This involves multi-deliverable arrangement and should be accounted for as separate units of accounting. However, the Group considers the cost associated with the technical support to customers is inconsequential and perfunctory. The Group recognizes all the revenue upon delivery of the products when the significant risks and rewards of ownership have been transferred to the buyer upon delivery as one unit of accounting.

As for Installation services revenue, if the Company is the primary obligator, has general inventory risk, the Company recognizes revenue at gross. If the Company is not primary obligator, earns a fixed amount of fee, the Company recognizes revenue at net.

Allowance for Doubtful Accounts

We reserve for doubtful accounts for estimated losses resulting from the inability of our customers and others to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We estimate the allowance for doubtful accounts related to trade receivable and other receivables based on analysis as described below. We evaluate specific accounts where we have information that certain customers are unable to meet their financial obligations. In these cases, we make judgments, based on the best available facts and circumstances, including but not limited to, the length of our relationship with the customer or debtor and customer’s current credit status based on third party credit reference and known market factors, to record specific reserve for customers against amounts due to reduce our receivables to amounts that we expect to collect. These specific reserves are re-evaluated and adjusted as additional information received affects the amounts estimated. This analysis requires the Company to make significant estimates, and the changes in fact and circumstances could result in changes in the allowance for doubtful accounts. While bad debts have historically been within the provision established, we cannot guarantee that we will continue to experience the same bad debt rate that we have in the past.

Inventories Obsolescence

Inventories are stated at the lower of cost or market value. Market value represents the net realizable value for inventories. Cost is determined using the weighted average cost method. We periodically review our inventory for excess inventory and obsolescence. We write down the value of ending inventory for obsolete and unmarketable inventory equal to the difference between the cost of inventory and the estimated market value. These reviews require management to estimate future demand for our products and the market conditions. Possible changes in these estimates could result in a write down of inventory. If actual market conditions are less favorable than those projected, additional inventory write-downs may be required. If actual market conditions are more favorable than projected, inventory previously written down may be sold, resulting in lower cost of sales and higher income from operations than expected in that period.

Deferred Tax Valuation Allowance

Estimates and judgments are required in the calculation of certain tax liabilities and in determining the recoverability of certain of the deferred tax assets, which arise from net operating losses, tax carry forwards and temporary differences between the timing of the recognition of revenues and expenses for tax and financial statement purposes. We record a valuation allowance to reduce our deferred tax assets to the amount that is more-likely-than-not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. Likewise, should we determine that we would be able to realize our deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made.

Goodwill

We adopted amended standards that simplify how entities test goodwill for impairment. These amended standards permit an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit in which goodwill resides is less than its carrying value. For reporting units in which this assessment concludes that it is more likely than not that the fair value is more than its carrying value, these amended standards eliminate the requirement to perform goodwill impairment testing. We adopted amended standard, the adoption of these amended standards did not have an impact on our consolidated financial statements. We along with the assistance of an independent third party valuation company performed a quantitative impairment test at the end of December 31, 2014. We concluded that the fair value is more than the carry amount of the asset.

Stock-based Compensation

We are required to measure and recognize compensation expense for all share-based payment awards based on estimated fair values at the date of grant. Determining the fair value of share-based awards requires judgment in developing assumptions, which involve a number of variables. We calculate fair value by using the Black-Scholes option-pricing model, which requires estimates for expected volatility, expected dividends, the risk-free interest rate and the expected term of the option.

New Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition,” and most industry-specific guidance. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The amendments in the ASU must be applied using either the retrospective or cumulative effect transition method and are effective for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. We will evaluate the effects, if any, that adoption of this guidance will have on our consolidated financial statements.

In June 2014, the FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period” (“ASU 2014-12”). The FASB issued ASU 2014-12 to clarify that a performance target in a share-based compensation award that could be achieved after an employee completes the requisite service period should be treated as a performance condition that affects the vesting of the award. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. ASU 2014-12 is effective for the Company for fiscal year 2016, and early adoption is permitted. We will evaluate the effects, if any, that adoption of this guidance will have on our consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 requires an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). When conditions or events raise substantial doubts about an entity’s ability to continue as a going concern, management shall disclose: (i) the principal conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern; (ii) management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations; and (iii) management’s plans that are intended to mitigate the conditions or events and whether or not those plans alleviate the substantial doubt about the entity’s ability to continue as a going concern. ASU 2014-15 is effective for the Company for fiscal year 2016, and early application is permitted. We do not currently anticipate that ASU 2014-15 will have any impact on the Company’s financial statement disclosures.

A. Operating Results

Overview

We design, manufacture and sell cast resin transformers for voltage distribution equipment primarily in China. Historically, our revenue has fluctuated quarterly and has generally been the higher in second half of the year due to the seasonal demand of our customers. We believe this seasonality is likely to continue in the future.

We intend to sustain the long-term growth of our businesses through technological innovation, engineering excellence, expanding our international presence and a commitment to delivering high-quality products and services to our customers. As part of our efforts to maximize growth, we continue to focus on research and development to ensure that our products maintain the quality and efficiency that our customers expect from our brand.

We believe that over the last few years we have laid a foundation for long-term growth by:

expanding our product line by developing new products and applications that extend the use of our cast resin transformers into new markets, including, but not limited to, wind, solar and nuclear;

receiving UL certification for our transformer products, which are listed under transformer categories XPRS and XPFS7 for the United States and Canada, respectively;

continuing to execute our plan to manufacture, sell, and promote higher margin integrated assemblies such as our switchgear and unit substations internationally; and

expanding our presence in the OEM market by successfully passing the qualification program of one of the world’s largest power generating equipment manufacturers.

Our focus in 2014 is and will be to build on this foundation and continue to execute well in key areas, including responding effectively to customer needs and continuing to focus internally on product excellence, business efficacy, and accountability across our company. For a discussion of trends we expect for 2014, see “Trends” below.

Summary of Financial Results

The following table presents selected statement of operations data expressed as a percentage of net sales for the years ended December 31, 2014, 2013 and 2012.

	Year ended December 31,
	2014			2013			2012
Net sales		100	%		100	%		100	%
Cost of goods sold		(68.7	%)		(67.9	%)		(67.3	%)
Gross profit		31.3	%		32.1	%		32.7	%
Selling and administrative expenses		(24.7	%)		(24.7	%)		(25.6	%)
Other income		2.0	%		1.9	%		1.5	%
Other expenses		(1.0	%)		(0.9	%)		(0.8	%)
Income taxes		(1.2	%)		(1.2	%)		(1.1	%)

Net income		6.4	%		7.2	%		6.7	%

Year ended December 31, 2014 compared with the year ended December 31, 2013

Net Sales. Net sales increased RMB 74.2 million or 5.3% to RMB 1,472.1 million (US$ 241 million) in the year ended December 31, 2014 from RMB 1,397.9 million (US$ 225.7 million) in the year ended December 31, 2013. Transformers accounted for 70.4% of our net sales. Transformers sales decreased from the prior year primarily due to our OEM customer in US changed their products design resulting less demand of our products. Switchgear and unit substations accounted for 23.3% of net sales, and line reactors accounted for 6.3% of net sales. The increase in net sales was primarily due to the increase in the sales of switchgears and unit substation. Compared to 2013, we increased switchgear and unit substations sales by approximately RMB 93.4 million (US$ 15.3 million). The reason for the increase in switchgear and unit substation sales is because we increased production capacity for switchgears and substations in our newly constructed Guilin facility. This increase in production capacity enabled us to sell switchgears and substations to customers in markets in which we did not focus previously because of a lack of available switchgears and substations due to production restraints. Export sales reached to RMB 122.7 million (US$ 20.1 million) in 2014 which is RMB 24 million (US$ 3.9 million) lower than the export sales in 2013. The decrease in exporting sales was primary due to overall slowdown in the wind transformers market in United States.

Cost of Goods Sold. Cost of goods sold increased RMB 62 million or 6.5% to RMB 1,011.1 million (US$165.5 million) in the year ended December 31, 2014 from RMB 949.1 million (US$ 153.3 million) in the year ended December 31, 2013. The increase in cost of goods sold was due to increase in sales volume. Cost of goods sold as a percentage of sales increased by 0.8 % in the year ended December 31, 2014 to 68.7% from 67.9% in the year ended December 31, 2013. The increase in percentage was mainly the result of decrease in the average selling price. The price for our raw materials was not impacted by inflation due to sufficient supply. Raw materials are the major component of our products cost, the relative stable materials price in 2014 resulting in the cost of goods sold as percentage of sales to remain on par with prior year.

Gross Profit. Gross profit increased RMB 12.2 million or 2.7% to RMB 461 million (US$75.5 million) in the year ended December 31, 2014 from RMB 448.8 million in the year ended December 31, 2013. As a percentage of sales, gross profit decreased from 32.1% in the year ended December 31, 2013 to 31.3% in the year ended December 31, 2014. This decrease also resulted from the aforementioned decrease in average selling price. The gross profit as percentage of sales remain stable as compared the year 2013 due to the stable material price as aforementioned.

Selling and Administrative. Selling and administrative expenses increased by RMB 18.5 million or 5.3% to RMB 363.9 million (US$59.6 million) in the year ended December 31, 2014 from RMB 345.4 million (US$ 55.7 million) in the year ended December 31, 2013. The increase in selling and administration expense was primary due to increase of the number of employees as a result of ramping up newly completed Guilin facility. Compared with 2013, Guilin incurred RMB 10.4 million more in selling and administrative expenses in 2014. As a percentage of sales, selling and administrative expenses remains on par with 2013.

Interest Expense. Interest expense increased RMB 1.4 million or 10.9 % to RMB 14.2 million (US$ 2.3 million) for the year ended December 31, 2014 from RMB 12.8 million (US$ 2.1 million) for the year ended December 31, 2013. This increase was mainly due to the fact that interest expense was partially capitalized in 2013. Since the capitalization of interest expense ceased upon completion of Guilin’s construction no interest expenses were capitalized in the year 2014.

Income Tax. Income tax expense increased RMB 0.5 million or 3% to RMB 17.1 million (US$2.8 million) for the year ended December 31, 2014 from RMB 16.6 million (US$ 2.7 million) for the year ended December 31, 2013. The increase was mainly due to higher income rate for some of entities in China.

Net Income. Net income decreased RMB 7.8 million or 7.6% to RMB 94.8 million (US$ 15.5 million) in the year ended December 31, 2014 from RMB 102.6 million (US$ 16.6 million) in the year ended December 31, 2013. The decrease in net income was mainly the result of an increase in selling and administrative expenses . As a percentage of sales, net income decreased from approximately 7.4% in the year ended December 31, 2013 to approximately 6.4% in the year ended December 31, 2014.

Basic Earnings Per Share. Basic earnings per share decreased RMB 0.48 or 7.6% from RMB 6.32 (US$ 1.02) in the year ended December 31, 2013 to RMB 5.84 (US$ 0.96) in the year ended December 31, 2014.

Year ended December 31, 2013 compared with the year ended December 31, 2012

Net Sales. Net sales increased RMB 72.9 million or 5.5% to RMB 1,397.9 million (US$ 225.7 million) in the year ended December 31, 2013 from RMB 1,325 million (US$ 210.5 million) in the year ended December 31, 2012. Transformers accounted for 76.6% of our net sales. Switchgear and unit substations accounted for 17.9% of net sales and line reactors accounted for 5.5% of net sales. The increase in net sales was primarily due to increase in the sales of switchgears and unit substation in China. Compared to 2012, we increased switchgear and unit substations sales by approximately RMB 86.8 million (US$ 14 million) in 2013. The reason for the increase in switchgear and unit substation sales is because we increased production capacity in our newly constructed Guilin facility that enabled us to increase sales and compete in the market of switchgear and unit substation. Export sales reached to RMB 146.7 million (US$ 23.4 million) in 2013 which is RMB 21.6 million (US$ 3.5 million) lower than the export sales in 2012. The decrease in exporting sales was primary due to overall slowdown in the wind transformers market in Europe.

Cost of Goods Sold. Cost of goods sold increased RMB 57.1 million or 6.4% to RMB 949.1 million (US$153.3 million) in the year ended December 31, 2013 from RMB 892.0 million (US$ 141.7 million) in the year ended December 31, 2012. The increase in cost of goods sold was due to increase in sales volume. Cost of goods sold as a percentage of sales increased by 0.6 % in the year ended December 31, 2013 to 67.9% from 67.3% in the year ended December 31, 2012. Our raw materials price was not impacted by inflation due to sufficient supply. Raw materials are the major component of our products cost, the relative stable materials price in the year 2013 resulting in the cost of goods sold as percentage of sales to remain on par with prior year.

Gross Profit. Gross profit increased RMB 15.9 million or 3.7% to RMB 448.8 million (US$72.5 million) in the year ended December 31, 2013 from RMB 432.9 million in the year ended December 31, 2012. As a percentage of sales, gross profit decreased from 32.7% in the year ended December 31, 2012 to 32.1% in the year ended December 31, 2013. The gross profit percentage as percentage of sales remain stable as compared the year 2012, this is due to the stable material price as aforementioned.

Selling and Administrative. Selling and administrative expenses increased by RMB 6.2 million or 0.2% to RMB 345.4 million (US$55.7 million) in the year ended December 31, 2013 from RMB 339.2 million (US$ 53.9 million) in the year ended December 31, 2012. The increase in selling and administration expense was primary due to increase of the number of employees to staff our newly completed Guilin facility. As a percentage of sales, selling and administrative expenses decreased approximately 0.9% to 24.7% in the year ended December 31, 2013 from 25.6% in the year 2012.

Interest Expense. Interest expense increased RMB 1.7 million or 15.3% to RMB 12.8 million (US$ 2.1 million) for the year ended December 31, 2013 from RMB 11.1 million (US$ 1.8 million) for the year ended December 31, 2012. This increase was mainly due to the capitalization of interest expense ceased upon the completion of Guilin’s construction.

Income Tax. Income tax expense increased RMB 2.2 million or 15.3% to RMB 16.6 million (US$2.7 million) for the year ended December 31, 2013 from RMB 14.4 million (US$ 2.3 million) for the year ended December 31, 2012. The increase was mainly due to increase in taxable income in 2013 as compared with 2012.

Net Income. Net income increased RMB 14.1 million or 15.9% to RMB 102.6 million (US$ 16.6 million) in the year ended December 31, 2013 from RMB 88.5 million (US$ 14 million) in the year ended December 31, 2012.. The increase in net income was mainly the result of increase in sales . As a percentage of sales, net income increased from approximately 6.7% in the year ended December 31, 2012 to approximately 7.4% in the year ended December 31, 2013.

Basic Earnings Per Share. Basic earnings per share increased RMB 0.85 or 15.5% from RMB 5.47 (US$ 0.87) in the year ended December 31, 2012 to RMB 6.32 (US$1.02) in the year ended December 31, 2013.

Impact of Inflation

We do not believe that inflation over the past three years has had a material impact on our net sales or operating results.

Foreign Currency Fluctuations

We receive almost all of our revenues in Renminbi, which is not freely convertible into foreign currency. However, we are required to meet certain foreign currency obligations, for things such as future purchases of certain equipment and raw materials. The Chinese government controls our foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign currency and through restrictions on foreign imports. Effective January 1, 1994, the conversion of Renminbi into U.S. Dollars must be based on rates set by the People’s Bank of China ( the “PBOC”), which rates are set daily based on the previous day’s Chinese interbank foreign exchange market rate with reference to current exchange rates on the world financial markets (the “PBOC Rate”). The Renminbi/U.S. Dollar exchange rate has been relatively stable since January 1, 1994. However, China revalued the Renminbi against the U.S. Dollar on July 21, 2005 and introduced a basket of currencies to determine the exchange rate rather than pegging the Renminbi to the U.S. Dollar. As a result of adopting a more flexible exchange rate system, China’s financial sector has become more responsive to fluctuations in the international currency market. The Renminbi/U.S. Dollar exchange rate has climbed steadily since July 2005.

Effective as of December 1, 1996, Renminbi has become fully convertible for all current account transactions. Foreign currency, which is required for current account transactions, can be bought freely at authorized Chinese banks, so long as the procedural requirements prescribed by law are met. Payment of dividends to foreign investors holding equity interests in Chinese companies, including Foreign Investment Enterprises such as Hainan Jinpan and Jinpan China, is considered a current account transaction. At the same time, Chinese companies are also required to sell their foreign exchange earnings to authorized Chinese banks. Purchase of foreign currency for capital account transactions still requires prior approval of the State Administration for Foreign Exchange.

During 2014, the RMB remained relatively stable against the U.S. Dollar. Domestic sales in China accounted for 91.7% of our net sales. Sales in China are priced in Renminbi. Exports accounted for 8.3 % of our net sales. Exports are either priced in U.S. Dollars or Euros. We procured most of our raw materials from China and paid for these materials using RMB. We procured less than 10% of our raw materials from abroad and paid for these materials using the U.S. Dollar or Euros. Because most of our operations are conducted in China using RMB, the RMB’s appreciation against the U.S. Dollar did not have a material adverse effect on our business.

Political and Economic Risks

Our operations in China are subject to several potential political and economic risks. See Item 3. Key Information – Risk Factors – Risks Related to our Chinese Operations.

B. Liquidity and Capital Resources

Sources of Funds

Hainan Jinpan has a working capital credit facility from the Bank of China for RMB 100.0 million (US$16.4 million). As of December 31, 2014, no amounts were outstanding under this credit facility. This credit facility bears interest at the prime rate declared by the Bank of China. Our borrowings under this credit facility accrued interest at an average interest rate 5.6% per annum for the year ended December 31, 2014. This facility expires in March 2016.

Hainan Jinpan has a working capital credit facility from Bank of Communication for RMB 120 million (US$19.6 million). As of December 31, 2014, no amounts were outstanding under this credit facility. This credit facility bears interest at the benchmark rate set by the People’s Bank of China. This credit facility expired in expired December 2014 and we are negotiating a new credit facility the Bank of Communication on similar terms as the old credit facility.

Hainan Jinpan has an unsecured letter of credit facility from the Bank of China for RMB 203 million (US$33.2 million). This credit facility bears interest at LIBOR plus a margin rate. As of December 31, 2014, no amounts were outstanding under this credit facility. This facility expires in March 2016.

Hainan Jinpan has an oral agreement of working capital credit facility from the Industrial and Commercial Bank of China for RMB 100 million (US$16.3 million). This credit facility bears interest at the benchmark rate set by the People’s Bank of China. As of December 31, 2014, no amounts were outstanding under this credit facility. This credit facility will expire in June 2015 and we intend to extend this credit facility.

Hainan Jinpan has an oral agreement of unsecured letter of credit facility from the Industrial and Commercial Bank of China for RMB 130 million (US$21.3 million). This credit facility bears interest at LIBOR plus a margin rate. As of December 31, 2014, no amounts were outstanding under this credit facility. This credit facility will expire in June 2015 and we intend to extend this credit facility.

Hainan Jinpan has an unsecured letter of credit facility from Bank of Communication for RMB 180 million (US$29.4 million). As of December 31, 2014, no amounts were outstanding under this credit facility. This credit facility bears interest at LIBOR plus a margin rate. This credit facility expired in expired in December 2014 and we are negotiating a new credit facility with the Bank of Communication on similar terms as the old credit facility.

Shanghai Jinpan has a credit facility from Bank of China for RMB 90 million (US$ 14.7 million) of which 60 million (US$ 9.8 million) was working capital facility and RMB 30 million (US$4.9 million was letter of credit facility. As of December 31, 2014, no amounts were outstanding under this credit facility. This credit facility bears interest according to the benchmark rate set by the Bank of China. This credit facility expired in February 2015 and we are negotiating a new credit facility with the Bank of Communication on similar terms as the old credit facility.

Hainan Jinpan has a credit facility from Nanyang Commercial Bank for RMB 100 million (US$16.34million) of which RMB 50 million(US$ 8.17million) was working capital facility and RMB 50 million(US$ 8.17million) was letter of credit facility. As of December 31, 2014, no amounts were outstanding under this credit facility. This credit facility bears interest according to the benchmark rate set by the Bank of China. This credit facility expires in April 2015 and we are negotiating a new credit facility with Nanyang Commercial Bank on similar terms as the old credit facility.

Hainan Jinpan has a credit facility from China CITIC Bank for RMB 200 million (US$ 32.69 million). As of December 31, 2014, no amounts were outstanding under this credit facility. This credit facility bears interest according to the benchmark rate set by the Bank of China. This credit facility expired in March 2015 and we are negotiating a new credit facility with China CITIC Bank on similar terms as the old credit facility.

Guilin JFT has two credit facilities with the Bank of Communications, a long term credit line for fixed asset investment and a short term credit line for working capital totaling RMB 350 million (US$57.2 million). The fixed asset credit line is in the amount of RMB 210 million (US$34.3 million) and carries an interest rate of People’s Bank of China bench mark rate x 1.05 per annum. Our borrowings under this credit line accrued interest at an average interest rate 6.88% per annum for the year ended December 31, 2014. Loans made under this credit line must be applied to fixed asset investment at the Company’s Guilin facility and was secured by the fixed assets investment at Guilin. As of December 31, 2014, there was RMB 152.1 million (US$24.9 million) outstanding under this credit facility. The credit line has a term of seven years. Repayment of loan principal is scheduled over a seven year period, from 2013 to 2019. The working capital credit line is in the amount of RMB 140 million (US$22.9 million) and carries an interest rate of People’s Bank of China bench mark rate x 1.05 per annum. Loans made under this credit line must be applied to the working capital of the Company’s Guilin facility. The credit line has a term of two years. The loan principal must be repaid in full annually. As of December 31, 2014, no amounts were outstanding under this credit facility.

Jinpan Realty has a long term mortgage bank loan of US$1.7 million from Enterprise Bank in USA for purchasing the land and building, which constitute our U.S. offices, in 2009. The loan is secured by the property. The interest rate is fixed at 6% for first 5 years. Thereafter, the rate shall be reset at the then current five year U.S. treasury rate plus 2% for the remainder term of the loan. The term of the loan is 20 years. Jinpan Realty amended the loan agreement with Enterprise Bank on December 1, 2013. The interest rate is fixed at 4.75% per annum effective December 1, 2013 and the loan matures on October 1, 2019. There was approximately RMB 8.5 million (US$1.4 million) outstanding as of December 31, 2014.

For a discussion of economic restrictions on the ability of any of our subsidiaries to transfer funds to us or restrictions on the use of funds from our credit facilities, see “Item 8. Financial Information, A. Consolidated Statements and Other Financial Information, Dividend Policy” and “Item 3. Key Information, Risk Factors, Risks Related to Our Chinese Operations. We rely principally on dividends paid by our PRC subsidiaries to fund our cash and financing requirements and to pay dividends. Our ability to pay dividends is restricted.”

At December 31, 2014, we had working capital of RMB 933.1 million (US$ 152.5 million) compared to RMB 868.1 million (US$ 142.4 million) at December 31, 2013.

In our opinion, we believe that our cash balances and cash generated from operation, supplemented as needed by financing activities including obtaining short-term bank loans from our loan facilities in China are sufficient for our present capital requirements.

Analysis of Cash Flows

In 2014, net cash provided by operating activities of RMB 126.2 million (US$ 20.7 million) primarily resulted from income generated from operations, increase in inventories, prepaid expenses, accounts payable, notes payable and advances from customers. In 2014, inventories and prepaid expenses increase by RMB 101 million and RMB 102 million, respectively. This increase was mainly due to the expectation of material price increase, and as a result, the Company stored more inventories and increased prepaid to materials supplier in order to secure a lower price. The increase in accounts payable and notes payable primary resulted from extension of payment terms from suppliers. In 2014, we negotiated better credit line and longer credit term from suppliers as compared with prior year. The increase in advances from customers was due to the enhancement of our credit policies that required certain customers with lower credit rating to pay us in advance.

In 2013, net cash provided by operating activities of RMB 88.8 million (US$ 14.3 million) primarily resulted from income generated from operations, increase in accounts payable, notes payable and other payable. In 2013, accounts receivable increased by RMB 125 million (US$ 20.2 million) primarily resulting from an increase in average accounts receivable collection period from 212 days to 231 days. For some customers, we provide payment term based on the progress of their projects which may exceed the normal term of 30 days to 180 days. In addition, solar panels manufacturers over expanded their capacities prior to the year 2012 resulted oversupply of their products and slowdown of the industry. The European Union also imposed anti-dumping measures on some Chinese solar panels manufacturers who rejected amicable settlement. The overall slowdown in China’s solar panel industry impacted our accounts receivable collection period. We expect average accounts receivable collection period to trend lower once the solar panels industry recovered. The increase in accounts payable and notes payable primary resulted from the increase in purchase from supplier due to increase in sales in 2013.

In 2014, net cash used in investing activities of RMB 77.3 million (US$ 12.7 million) primarily resulted from purchasing of new equipment and increasing investment in short term financial products provided by our banks. In 2013, net cash used in investing activities of RMB 30.7 million (US$ 4.9 million) primarily resulted from construction of production facilities and purchasing of equipment for our Guilin and Shanghai facilities.

In 2014, net cash used by financing activities of RMB 118 million (US$ 19.3 million) primarily resulted from net repayment of bank loans of RMB 102.2 million (US$ 16.7 million), and a dividend payment of RMB 15.9 million (US$ 2.6 million). In 2013, net cash used by financing activities of RMB 24.3 million (US$ 3.9 million) primarily resulted from net repayment of bank loans of RMB 13.5 million (US$ 2.2 million), and a dividend payment of RMB 12.1 million (US$ 2.0 million).

Capital Expenditures and Requirements

Our principal commitments consist of a long-term obligation outstanding under operating leases on certain buildings and apartments, employee contracts, capital commitments and bank loans. For more information on these commitments, see “Tabular Disclosure of Contractual Obligations” below.

We had capital expenditures of RMB 28 million (US$ 4.6 million) for 2014. RMB 14 million (US$ 2.3 million) were used in construction of our own used photovoltaic power station and RMB 14 million (US$ 2.3 million) were used to purchased equipment. In 2015, we expect capital expenditures of RMB 15 million (US$ 2.5 million) for replacement of old equipment.

We anticipate, based on management’s internal forecasts and assumptions relating to our operations, that our existing cash and funds generated from our operations, together with our existing financing agreements, will be sufficient to meet our working capital and capital expenditure requirements for the next 12 months.

C. Research and Development

Our R&D strategy is to develop new products and to expand the application of our existing product lines with objective of addressing a broader market. Our R&D efforts in 2014 focused on developing products for E3 grade product, nuclear power transformers, large-capacity water-cooled transformer. In 2014, we finished 19 projects development, such as wind turbine cast resin multi-pulse phase shift rectifier transformer, Dry type power transformer optimization project, inshore and offshore wind turbine transformer development.

We were granted numerous patents relating to our products technology by the PRC government in 2014 and during the first two months of 2015. Such as A Supporting Structure for Dry-type Transformer Coil, An Insulate Structure for Amorphous Alloy Dry-Type Transformer, An Explosion-proof Device for Gas Insulated Metal Clad Switchgear, and etc.

D. Trends

Based on forecasts provided by our customers, we expect domestic China sales will slow down in 2015 and international sales will be slightly improved in 2015 compared to 2014.

With regard to materials prices, we expect prices of copper, aluminum, and epoxy resin to remain relatively stable in 2015. We expect silicon steel prices to trend higher. At this time, we do not expect a significant or sudden rise in materials prices that would have a material adverse effect on our gross margins.

E. Off-Balance Sheet Arrangements

None.

F. Tabular Disclosure of Contractual Obligations

Our material contractual obligations are composed of operating lease commitments, employees contracts, capital commitments and repayment of bank loans. The table below provides a summary of the Company’s contractual obligations at December 31, 2014.

	Payments due by period (RMB in thousands)
Contractual Obligations	Total		Less than 1 year		1-3 Years		4-5 years		More than 5 years
Operating Lease Obligations		4,386		1,656		858		716		1,156
Employees Contracts (1)		230,686		41,094		50,285		23,269		116,038
Capital Commitments (2)		2,856		2,856		-		-		-
Interest Cost (3)		40,413		10,356		20,557		9,500		-
Bank loans		160,553		401		39,413		120,739		-
Total		437,828		55,297		111,113		154,224		117,194

(1)

Our employees in China include 291 engineers and technicians, 451 management and administrative personnel, 156 marketing and sales personnel, and 835 factory personnel, while employees in the United States include management, administrative, technical, and marketing personnel. All of the employees except US employees are contract employees and have entered into renewable employment contracts with us. Terms of the employment agreements with management, engineers, marketing and sales personnel and technicians range from two to five years and terms of the employment agreements with administrative personnel range from six months to one year.

(2)	Capital commitments related to the purchase of our new equipment and machinery.

(3)

The calculation of interest cost is based on the interest rate ranging from 4.75% to 6.87% , applied to the ending long term loan balance outstanding at December 31, 2014. The outstanding loan was from our credit facilities with Enterprise Bank and Bank of Communications. For more details of this loan, see “B. Liquidity and Capital Resources” within this item above.

Item 6. Directors, Senior Management and Employees.

A. Directors and Senior Management

Our directors and executive officers are as follows:

Name	Age	Position
Li Zhiyuan	60	Chairman of the Board of Directors, President, and Chief Executive Officer
Ling Xiangsheng	63	Vice Chairman of the Board of Directors and Vice President
Jing Yuqing	52	Secretary
Mark Du	54	Principal Financial Officer
Jing Zhang	40	Director
Li-wen Zhang	62	Director
Donald S. Burris	72	Director
Cai Xu	51	Director

Li Zhiyuan has served as our Chairman of the Board of Directors, President, and Chief Executive Officer since April 1997, and of our predecessor, Haikou Jinpan, since August 1993, and as Chairman of the Board of Directors and Chief Executive Officer of Jinpan Hainan since June 1997. From October 1991 to present, Mr. Li served as General Manager of Haikou Rongda Enterprise Company and Director of Hainan’s KaDa Manufacturing Company, a Sino-Japanese joint-venture. From August 1988 to October 1991, Mr. Li served as General Manager of Hainan Jindao Yacht Company. From August 1982 to October 1988, Mr. Li was employed as an engineer at Guangxi Electric Power Institute. Mr. Li is responsible for the overall management of our operations. He is married to Jing Yuqing, our Secretary.

Ling Xiangsheng has served as our Vice Chairman of the Board of Directors and Vice President since April 1997, and of our predecessor, Haikou Jinpan, since August 1993 and is responsible for the design, manufacture and development of our cast resin transformers. He has also served as the Vice President of Jinpan Hainan since June 1997. From June 1990 to December 1992, Mr. Ling was the chief consultant for the Dynacast Company in Thailand where he was responsible for the entire production process of its cast resin transformer line. From January 1980 to June 1990, Mr. Ling was employed by the Beijing Transformer Company ultimately serving as Chief Engineer and General Manager for its cast resin transformer plant. Between October 1985 and February 1986, Mr. Ling attended Fuji Electric Company in Japan to study vacuum cast resin insulated transformer manufacturing technology. Mr. Ling was responsible for designing China’s first cast resin transformer.

Jing Yuqing has served as our Secretary since April 1997, the President of our subsidiary Jinpan USA since 2000, and a director of our subsidiary Jinpan Hainan since 1993. From 1997 to 2002, Ms. Jing served as a director on our board. From October 1988 to December 1992, Ms. Jing was employed by the Hainan Electric Bureau Electric Planning Department as manager of the electrical engineering department. From September 1984 to October 1988, Ms. Jing performed designing services for the Liaoning Electric Designing Institute. Ms. Jing is married to Li Zhiyuan, our Chairman of the Board of Directors, President, and Chief Executive Officer.

Mark Du has served as our Principal Financial Officer since August 2002. From January 1993 to December 2000, Mr. Du has been Controller of PC Warehouse, Inc., a worldwide company headquartered in New Jersey, with 24 subsidiaries companies located throughout the United States. From September 1987 to December 1992, Mr. Du served in different accounting positions in various accounting firms and companies. Mr. Du received his Masters in Business Administration in Accounting from Pace University in 1987 and is a CPA( inactive status).

Zhang Jing was elected to our Board of Directors in November 2014. Since September 2012, Ms. Zhang has worked as a life coach for Pathfinder Coach Jing LLC. From December 2010 to September 2012, she served as Tax Manager at Jackson National Life Insurance Company and from June 1998 to November 2010, she served in various capacities at Deloitte Tax LLP, most recently as Senior Manager. Ms. Zhang holds a Master degree in Taxation from DePaul University and a B.A. degree in Accounting from University of Illinois – Urbana Champaign. She is a Certified Public Accountant.

Dr. Li-Wen Zhang has served as a member of our Board of Directors since August 2003. Dr. Zhang served as a permanent staff member of the United Nations Department of General Assembly Management Affairs currently in Economic and Social Council Servicing Branch. As part of the managing staff, Dr. Zhang provided consulting services to the Delegation of Beijing Fiscal Bureau on socioeconomic issues in November of 2000. In 1996, Dr Zhang helped organize a conference in Shanghai with Chinese authorities regarding the Development and Management of Special Economic Zones in a Transitional Economy. Dr. Zhang received a Ph.D. in International Comparative Education from Columbia University in 2001 and holds a Masters degree in Economic Policy Management from Columbia University Graduate School of Business and International Affairs.

Donald S. Burris has served as a member of our Board of Directors since June 2001. Mr. Burris is the senior principal in the firm of Burris & Schoenberg, LLP, an AV-rated West Coast based law firm with a national and international practice. Mr. Burris served as editor-in-chief of the Georgetown Law Journal and as a law clerk to the Honorable James R. Browning of the United States Court of Appeals for the Ninth Circuit and has taught at the Georgetown Law Center, Loyola University School of Law, and the International Law Institute in Washington, D.C. Mr. Burris also served with distinction as a Special Counsel for the United States Senate Watergate Committee.

Cai Xu has served as a member of our Board of Directors since June 2009. Since 2002, Dr. Cai has been a distinguished faculty member of the School of Electronic, Information, and Electrical Engineering at Shanghai Jiaotong University, one of China’s leading research universities. His research focuses on the application of high power electronics in electric systems, generators, and related electrical equipment, on the automation of power distribution networks, and on wind power grid connection and conversion technology. Since 2008, he has chaired the University’s Wind Energy Research Centre. The Centre combines research expertise in the fields of electrical, mechanical, control, and oceanic engineering to create a multidisciplinary platform for the research of wind energy. The Centre provides consultation services for the Chinese government and both public and private industries. Dr. Cai received his Ph.D and master’s degrees in electrical engineering from China University of Mining and Technology. He received his bachelor’s degree in power generation and electrical systems from China South East University.

Family Relationships. Li Zhiyuan, our Chairman of the Board of Directors, President and Chief Executive Officer is married to Jing Yuqing, our Secretary.

There is no arrangement or understanding with major shareholders, customers, suppliers or other, pursuant to which any person referred to above was selected as a director or member of senior management.

B. Compensation of Directors and Officers

The total compensation paid to our directors and officers during fiscal year 2014 was US$ 1,255,493 comprised of salaries in the amount of US$ 970,094 and bonuses in the amount of US$ 285,398. During 2014, we issued 203,200 options to purchase common shares to our directors and officers. We did not reserve for any pension, retirement or similar benefits for our directors and officers.

C. Board Practices

All of our directors hold office until the next annual meeting of shareholders and until their successors have been elected and qualified. Our officers are elected by the Board of Directors at the first Board of Directors meeting after each annual meeting of shareholders and hold office until the earlier of the next annual meeting of shareholders, death, resignation, or upon removal from office.

None of our directors have service contracts with us or our subsidiaries providing for benefits upon termination of their employment.

Our Audit Committee consists of Jing Zhang, Donald S. Burris, and Dr. Li-Wen Zhang, all of whom are independent directors under the rules of the Nasdaq Stock Market. Ms. Zhang is the chair of Audit Committee and also meets the criteria of an “Audit Committee Financial Expert” under the applicable rules and regulations of the SEC. The Audit Committee oversees our auditing procedures, receives and accepts the reports of our independent certified public accountants, oversees our internal systems of accounting and management controls, and makes recommendations to the Board of Directors as to the selection and appointment of our auditors. The Audit Committee is governed by the terms of the Charter of the Audit Committee of the Board of Directors.

Our Compensation Committee consists of Donald S. Burris, Jing Zhang and Li-Wen Zhang. Mr. Donald S. Burris is the chair of the Compensation Committee. The function of the Compensation Committee is to administer the 2006 Stock Incentive Plan and to have authority over the salaries, bonuses, and other compensation arrangements of our executive officers.

Our Nominating and Corporate Governance Committee consists of Li-Wen Zhang, Donald S. Burris, and Jing Zhang. Dr. Li-Wen Zhang is the chair of the Nominating and Corporate Governance Committee. This committee (1) identifies individuals qualified to become members of the Board, (2) selects, or recommends to the Board, the director nominees for the next annual stockholders meeting, (3) selects candidates to fill any vacancies on the Board; and (4) develops and recommends to the Board a set of corporate governance principles applicable to the corporation.

D. Employees

As of December 31, 2014, we had 1,733 employees in China, consisting of 291 engineers and technicians, 451 management and administrative personnel, 156 marketing and sales personnel and 835 manufacturing personnel. We also had 10 employees in the United States, consisting of two management and administrative personnel, five marketing and sales personnel, two accounting personnel, and one legal personnel.

Except for our U.S. employees, all of our employees are contract employees and have entered into renewable employment contracts with us. Terms of our employment agreements with management, engineers, sales persons, and technicians range from two to three years and the terms of our employment agreements with support personnel range from six months to one year. Our employees are not currently members of a trade union. We have not experienced any strikes or other labor disputes that have interfered with our operations and we believe that our relations with our employees are good.

E. Share Ownership

For the share ownership of our directors and executive officers, see Item 7(A).

Item 7. Major Shareholders and Related Party Transactions.

A. Major Shareholders

The following table sets forth specific information as of April 24 , 2015, to the best of our knowledge, concerning the beneficial ownership of (i) persons or entities who, to our knowledge, beneficially own more than 5.0% of our outstanding common shares, (ii) each of our directors and officers, and (iii) the number of our common shares beneficially owned by all officers and directors as a group.

Title of Class	Name of Beneficial Owner	Amount Owned(1)		Percent of Class

Common Shares	Li Zhiyuan (2)		3,986,657		24.3	%
Common Shares	Ling Xiangsheng (3)		651,575		4.0	%
Common Shares	Jing Yuqing (4)		3,986,657		24.3	%
Common Shares	Mark Du (5)		59,350		*
Common Shares	Jing Zhang		-		*
Common Shares	Li-wen Zhang (6)		24,863		*
Common Shares	Donald S. Burris (7)		24,745		*
Common Shares	Cai Xu		-		-
Common Shares	All officers and directors as a group (7 persons) (8)		4,746,640		28.9	%
Common Shares	First Wilshire Securities Management, Inc. (9)		1,315,951		8.0	%

*	Represents share ownership of less than one percent (1%).

(1)	We believe that all persons named in the table have sole investment power with respect to all shares of common shares beneficially owned by them, unless otherwise noted in these footnotes.

(2)

Represents (i) 2,650,739 common shares, (ii) 1,200,052 common shares beneficially owned by Jing Yuqing, the wife of Mr. Li, as to which Mr. Li disclaims beneficial ownership, and (iii) 135,866 common shares issuable upon exercise of currently exercisable share options held by Mr. Li and Ms. Jing. The options have an exercise price and expiration dates ranging from US$5.53 to US$10.83 per share and March 6, 2016 to March 3, 2022, respectively.

(3)	Represents (i) 612,992 common shares and (ii)38,583 common shares issuable upon exercise of currently exercisable share options. The options have an exercise price and expiration dates ranging from US$5.53 to US$10.83 per share and March 6, 2016 to March 3, 2022 respectively.

(4)

Represents (i) 1,200,052 common shares (ii) 2,650,739 common shares beneficially owned by Li Zhiyuan, the husband of Ms. Jing as to which Ms. Jing disclaims beneficial ownership, and (iii) 135,866 shares of common shares issuable upon exercise of currently exercisable share options held by Mr. Li and Ms. Jing. The options have an exercise price and expiration dates ranging from US$5.53 to US$10.83 per share and March 6, 2016 to March 3, 2022 respectively.

(5)	Represents 59,350 common shares issuable upon exercise of currently exercisable share options. The options have exercise prices and expiration dates which range from US$5.53 to US$10.83 and March 6, 2016 to March 3, 2022, respectively.

(6)	Represents (i) 5,000 common shares and (ii) 19,863 common shares issuable upon exercise of currently exercisable share options. The options have exercise prices and expiration dated ranging from US$5.53 to US$10.83 and March 6, 2016 to March 3, 2022, respectively.

(7)	Represents (i) 1,700 common shares and (ii) 23,045 common shares issuable upon exercise of currently exercisable share options. The options have exercise prices and expiration dates ranging from US$5.53 to US$10.83 and March 6, 2016 to March 3, 2022, respectively.

(8)	Represents (i) 4,469,933 common shares and (ii) 301,236 common shares issuable upon exercise of currently exercisable share options issued to all directors and executive officers.

(9)	According to a Schedule 13G (Amendment No. 3) filed with the SEC on February 17, 2015, The Principal business address is 1214 East Green Street, suite 104, Pasadena, CA 91106.

As of April 14, 2015, 16,418,456 common shares were issued and outstanding and were held by 17 record holders in the United States.

Our shareholders who beneficially own 5.0% or more of the common shares outstanding do not have different voting rights from other shareholders.

Since April 28, 2012, beneficial ownership percentages for Mr. Li and Mrs. Jing, have increased by 0.3% and 0.3% respectively and Mr. Ling has increased by 0.1%, to the percentages as indicated in the chart above.

B. Related Party Transactions

None.

C. Interests of Experts and Counsel.

Not applicable.

Item 8. Financial Information.

A. Consolidated Statements and Other Financial Information

See Item 18.

Export Sales

For the year ended December 31, 2014, our export sales were US$ 20.1 million or 8.3% of net sales.

Dividend Policy

Any future payment of dividends is within the discretion of our board of directors and will be dependent upon, among other things, our earnings, and capital requirements, financing agreement covenants, our financial condition and applicable Chinese and BVI laws. To the extent that our board of directors may decide to pay cash dividends in the future, these dividends will be declared from the retained earnings, e.g., surplus, as determined by resolution of our board.

As a holding company, we rely principally on dividends and other distributions on equity paid by our PRC subsidiaries for our cash requirements, including funds necessary to pay dividends on our common shares and to service any debt we may incur. This in turn, affects the amount of the our retained earnings which is limited by the amount of dividends or other distributions, which can be declared by our subsidiaries and paid to us under agreements governing the subsidiaries’ debt and applicable law. Our subsidiaries are separate and distinct legal entities and have no obligation to make funds available for dividends or other distributions to us. In addition, substantially all of our consolidated assets are held by our subsidiaries. Accordingly, our ability to service our debt, and to pay dividends on our common shares depends on -

(i)

the results of operations of our subsidiaries;

(ii)

the ability of such subsidiaries to provide us with cash, whether in the form of dividends, loans or otherwise;

(iii)

our ability to pay amounts due on our obligations; and

(iv)

with respect to our ability to pay dividends, upon current and future agreements governing our debt and Chinese and BVI law.

Certain debt instruments may restrict our ability, or the ability of our subsidiaries, to pay dividends or make other distributions to us. Hainan Jinpan’s credit facility with Bank of China prohibits it from paying dividends or to make other distributions to its shareholders if in the relevant fiscal year –

(i)

the net income after tax is zero or negative;

(ii)

the net income after tax is insufficient to cover accumulated losses in prior fiscal years;

(iii)

the principal, interest, and other fees due in the fiscal year has not been paid from net income before tax; and

(iv)

net income before tax is insufficient to make the next payment of principal, interest, and other fees.

Other restrictions include relevant PRC laws and regulations which permit our subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our subsidiaries in China are required to set aside each year a certain amount of their accumulated after-tax profits, if any, to fund certain statutory reserves. These reserves are not distributable as dividends until the accumulated amount of such reserves has exceeded 50% of its registered capital. In addition, each of our PRC subsidiaries, before distribution of its dividends, is required to provide for a statutory reserve fund and a staff and workers’ bonus fund, and to set aside at least 10% (up to an aggregate amount equal to half of its registered capital) of its after-tax profits each year at the discretion of its board of directors. In addition, applicable Chinese laws and regulations require that before a Sino-foreign cooperative joint venture enterprise, such as Hainan Jinpan, distributes profits to its joint venture partners, in our case Jinpan International and Wuhan Jinpan, it must first satisfy all of its tax liabilities, provide for any losses still unpaid from previous years, and make allocations, in the proportions as required by Chinese laws to certain statutory reserve funds.

In January 2010, the board of directors declared a two-for-one forward stock split and a post-split full year dividend of US$ 0.14 per share. We made the first distribution of US$ 0.07 per share on February 25, 2010, and a second distribution of US$ 0.07 per share on July 20, 2010. In January 2011, the board of directors declared a dividend of US$ 0.14 per share. We made the first distribution of US$ 0.07 per share on February 10, 2011 and a second distribution of US$ 0.07 per share on July 26, 2011. In January 2012, the board of directors declared a dividend of US$ 0.14 per share. We made the first distribution of US$ 0.07 per share on February 8, 2012 and we made the second distribution of US$ 0.07 per share on July 12, 2012. We also declared a special dividend of US$ 0.04 per common share on November 29, 2012 which was paid on December 21, 2012. In According to the board of directors’ resolution on November 29, 2012, the company began to pay quarterly dividend of US$0.03 per common share in 2013. We did not declare any more dividend in 2013. In February, 2014, the board of directors declared an annual dividend of US$ 0.16 per common share in the year 2014 and US$ 0.04 cash dividend to be distributed at the end of each quarter.

Legal Proceedings

Neither we nor our subsidiaries is a party to, nor is our property or the property of our subsidiaries’ the subject of, any pending legal or arbitration proceeding that is material.

B. Significant Changes

None.

Item 9. The Offer and Listing.

A. Offer and Listing Details

Trading Prices and Markets

The following tables set forth the high and low sales prices for our common shares, as publicly traded on the NASDAQ Global Select Market (the “NASDAQ”) for: (i) the five most recent full financial years, (ii) each full financial quarter for the two most recent full financial years, and (iii) for each month, during the six months of November 2014 through April 2015. All of the prices below have been adjusted to reflect the two-for-one stock split of our common shares, effective February 6, 2010, as if such reverse split had been in effect during the periods indicated.

	(in US$)
Year Ended	High	Low
2010	26.44	9.51
2011	14.94	6.75
2012	9.46	4.35
2013	8.90	4.38
2014	9.90	5.91

Quarter Ended	High	Low
March 31, 2013	6.33	4.94
June 30, 2013	5.75	4.38
September 30, 2013	7.86	4.84
December 31, 2013	8.90	5.86
March 31, 2014	9.90	6.72
June 30, 2014	8.23	6.40
September 30, 2014	8.59	5.91
December 31, 2014	8.00	6.05
March 31, 2015	6.62	4.44
April 30, 2015 (through April 15, 2015)	4.53	3.87

Month	High	Low
November 2014	7.77	7.36
December, 2014	7.59	6.05
January, 2015	6.62	4.54
February, 2015	5.45	5.00
March, 2015	5.29	4.44
April, 2015 (through April 15, 2015)	4.53	3.87

B. Plan of Distribution

Not applicable.

C. Markets

Our common shares began trading on the American Stock exchange (the “AMEX”) on February 1998 under the symbol “JST”. On September 9, 2008, we delisted from AMEX and began to trade on the NASDAQ Global Select Market under the symbol “JST”.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

Item 10 Additional Information.

A. Share Capital

Not Applicable.

B. Memorandum and Articles of Association

Our registered office is located at the offices of Offshore Incorporations Limited, P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. Our purpose, as stated in Article 4 of our Memorandum of Association, is to engage in any lawful act not prohibited under any law of the British Virgin Islands. We may not, however: (i) engage in business with British Virgin Islands residents, (ii) own an interest in real property situated in the British Virgin Islands, (iii) carry on banking or trust business, unless licensed to do so under the Banks and Trust Companies Act of 1990, (iv) carry on business as an insurance or reinsurance company, insurance agent, or insurance broker, unless licensed to do so under an enactment authorizing us to carry on that business, (v) carry on business of company management, unless licensed under the Company Management Act of 1990, or (vi) carry on the business of providing the registered office or the registered agent for companies incorporated in the British Virgin Islands.

According to our Articles of Association, our directors can vote on a proposal, arrangement or contract in which they are materially interested and such transaction is not void or voidable so long as such director’s interest in the transaction is disclosed in good faith or is known by the other directors. Our directors are empowered to cause us to borrow money, to mortgage or charge our undertakings and property and to issue debentures, debenture stock or other securities when money is borrowed. Under our Articles of Association, a director shall not require a share qualification. Our Articles of Association do not state whether in the absence of an independent quorum, a director has, or does not have, the power to vote compensation to himself or another director. There is no age limit requirement causing retirement of any director.

Holders of our common shares are entitled to receive dividends if and when declared by our Board of Directors out of funds legally available under British Virgin Islands law. All common shares are equal to each other with respect to liquidation and dividend rights. In the event of our liquidation, all assets available for distribution to the holders of common shares are distributable among them according to their respective share holdings. Holders of our common shares are entitled to one vote for each share held of record on all matters to be voted upon by the shareholders, including the election of directors. Holders of our common shares do not have cumulative voting rights in the election of our directors. The Company’s convertible preferred shares (the “Preferred Shares”) are convertible at any time to common shares and each Preferred Share entitles its holder to the same number of votes as a common share. In the event of our liquidation, dissolution or winding up, the holders of our Preferred Shares are entitled to a preference over the holders of our common shares in the distribution of our assets in an amount equal to the sum of: (i) US$4.375 per share, and (ii) an amount equal to declared but unpaid dividends on each such share. After payment of the full amount of the liquidation distributions to which the holders of our Preferred Shares are entitled, holders of our Preferred Shares and holders of our common shares will be entitled to any further distributions of our assets on a pari passu basis. Each Preferred Share entitles its holder to the same number of votes as a common share with respect to any vote of our shareholders. Holders of our Preferred Shares are entitled, at any time, to convert their Preferred Shares into common shares, subject to the anti-dilution adjustments described below. Holders of our Preferred Shares have certain anti-dilution protection upon the occurrence of certain events including share dividends, divisions, combinations, reclassifications, mergers and issuances of shares of our common shares.

The rights attached to any class or series of our shares may be varied with the written consent of the holders of not less than three-fourths of the issued shares of that class or series and the written consent of the holders of not less than three-fourths of the issued shares of any other class or series which may be affected by such variation.

Our directors may convene shareholder meetings as they deem necessary. The directors must convene a meeting upon the written request of members holding 10% or more of our outstanding voting shares. The directors must give at least 7 days notice of any meeting to members whose names appear as members in our share register and are entitled to vote as of the date such notice is given. A meeting may be called on short notice if: (i) members holding not less than 90% of the total number of shares entitled to vote on the matters to be considered at the meeting, or 90% of the votes of each class or series of shares where members are entitled to vote thereon as a class or series, together with not less than a 90% majority of the remaining votes, have agreed to short notice of the meeting, or (ii) all members holding shares entitled to vote on all or any matters to be considered at the meeting have waived notice of the meeting, presence at such meeting being indicative of such waiver.

Our Memorandum of Association and Articles of Association have no limitations on the rights to own securities.

Our Memorandum of Association and Articles of Association do not have any provisions, which would effectively delay, defer or prevent a change of control of our company.

Our Memorandum of Association and Articles of Association do not have any provisions governing the ownership threshold above which shareholder ownership must be disclosed.

C. Material Contracts

In August 2013, Schneider Electric (China) Co. Ltd. (“Schneider”) and Hainan Jinpan entered into a licensing agreement on August 26, 2013. Schneider granted Hainan Jinpan a non-exclusive license to (i) manufacture, repair and maintain MVnex HP switchgear /Model No. 630-2500A/31.5KA (“Licensed Product”) and (ii) to sell the Licensed Product in China. The license agreement expires on December 31, 2015 unless terminated by the parties prior to that date. (For more details on the Agreement, see Item 4. Information on the Company – B. Business Overview – Material Agreements.)

D. Exchange Controls and Other Limitations Affecting Security Holders

There are no exchange control restrictions on payment of dividends in the British Virgin Islands. Other jurisdictions in which we conduct operations may have various exchange controls.

Dividend distribution and repatriation by our Chinese subsidiaries is regulated by China’s laws and regulations.

Applicable Chinese laws and regulations require that before a Sino-foreign equity joint venture enterprise, such as Hainan Jinpan, distributes profits to its parent company, Jinpan International, it must first do the following:

●

satisfy all of its tax liabilities;

●

provide for any losses still unpaid from previous years; and

●

make allocations, in the proportions as determined by the discretion of the board, to a capital reserve fund and a public welfare fund.

Furthermore, if there is to be any distribution of profits, it is required to be in the proportion of each party’s investment in the joint venture. To date, these controls have not had and are not expected to have a material impact on our financial results.

There are no British Virgin Islands laws which impose foreign exchange controls on us or that affect the payment of dividends, interest or other payments to nonresident holders of our common shares. British Virgin Islands law and our Memorandum and Articles of Association impose no limitations on the right of nonresident or foreign owners to hold or vote our common shares.

E. Taxation

The following discussion is a summary of all material anticipated British Virgin Islands, Chinese and United States tax consequences of an investment in our common shares for security holders located in the United States. The discussion does not deal with all possible tax consequences relating to an investment in our common shares and does not purport to deal with the tax consequences applicable to all categories of investors, some of which (such as dealers in securities, insurance companies and tax-exempt entities) may be subject to special rules. In particular, the discussion does not address the tax consequences under state, local and other national (e.g., non-Chinese, non-British Virgin Islands, and non-United States) tax laws. Accordingly, each investor should consult his own tax advisor regarding the particular tax consequences to him of an investment in our common shares. The following discussion is based upon laws and relevant interpretations relating to our common shares currently in effect, all of which are subject to change.

BVI Taxation

British Virgin Islands Taxation Policy. Under the BVI Business Companies Act 2004 of the British Virgin Islands as currently in effect, a holder of common shares who is not a resident of the British Virgin Islands is exempt from British Virgin Islands income tax on dividends paid with respect to common shares and all holders of common shares are not liable to British Virgin Islands income tax on gains realized during the year on sale or disposal of any common shares. The British Virgin Islands has enacted legislation, the Mutual Legal Assistance (Tax Matters) (Amendment) Bill 2004 (the “EU Act”), to implement the European Union Savings Tax Directive (the “Tax Directive”) and the bilateral agreements agreed with the European Union to be entered into with the 25 Member States of the European Union. The EU Act and the bilateral agreements provide for alternative procedures, both a withholding tax option and an automatic exchange of information option. Under the withholding tax option, banks and other paying agents will automatically deduct tax from interest and other savings income earned. For the purposes of implementation of the Tax Directive in the BVI, paying agents will pay the withholding tax to the Competent Authority. 75% of the withholding tax levied will be remitted to the tax authorities in the receiving EU Member States and the Competent Authority will keep 25%. The withholding tax rates will be:

●

15% from July 1, 2005;

●

20% from January 1, 2008; and

●

35% from January 1, 2011.

Withholding tax will be transferred to receiving EU Member States at specific periods but receiving EU Member States will not receive information relating to EU resident individuals. Under the automatic exchange of information option, the Tax Directive requires the following information:

●

The identity and residence of the beneficial owner;

●

The name and address of the paying agent;

●

The account number of the beneficial owner; and

●

Information concerning the savings income.

This information will be reported by the paying agent to the competent authority in the country where the account is held and forwarded to the competent authority of the country where the EU resident individual resides. If you are an individual who is resident in an EU Member State and earn bank interest or other savings income, as defined by the Tax Directive, on deposits or investments held in your own name in the British Virgin Islands then you will probably be affected by the implementation of the Tax Directive. The Tax Directive does not apply to individuals, including EU nationals, who are resident outside the EU.

There are no capital gains, gift or inheritance taxes levied by the British Virgin Islands on companies incorporated under the BVI Business Companies Act 2004. In addition, the common shares of these companies is not subject to transfer taxes, stamp duties or similar charges.

Presently, there is no income tax treaty, convention or reciprocal tax treaty regarding withholdings currently in effect between the United States and the British Virgin Islands.

PRC Taxation

There are no material Chinese tax consequences to holders of common shares solely as a result of the purchase, ownership and disposition of common shares or receipt of dividends, if declared.

United States Taxation

The following discussion is a summary of certain U.S. federal income tax consequences that may be relevant with respect to the ownership and disposition of our common shares by a U.S. Holder (as hereinafter defined). This discussion is based upon the provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated thereunder, administrative rulings and judicial decisions, in each case as of the date hereof. These authorities are subject to differing interpretations and may be changed, perhaps retroactively, resulting in U.S. federal income tax consequences different from those discussed below.

We have not sought any ruling from the U.S. Internal Revenue Service (“IRS”) with respect to the statements made and the conclusions reached in this discussion, and there can be no assurance that the IRS will agree with such statements and conclusions. This discussion applies only to U.S. Holders who hold our common shares as capital assets within the meaning of Section 1221 of the Code. In addition, this summary does not address all U.S. federal income tax considerations that may be applicable to a U.S. Holder’s particular circumstances or to U.S. Holders who may be subject to special tax rules, including, without limitation: tax-exempt organizations, qualified retirement plans, individual retirement accounts and other tax-deferred accounts, financial institutions, insurance companies, partnerships or other entities treated as partnerships for U.S. federal income tax purposes, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals, U.S. Holders whose “functional currency” is not the U.S. dollar, persons subject to the alternative minimum tax, persons who hold our common shares as part of a straddle, hedging or conversion transaction, and persons who own, actually or constructively, 10% or more of our voting shares.

For purposes of this discussion, a “U.S. Holder” means a holder of our common shares who is (i) a citizen or an individual resident of the U.S., (ii) a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the U.S., any state thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if it (1) is subject to the primary supervision of a court within the U.S. and one or more “U.S. persons,” as defined in the Code, have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person.

If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds our common shares, the tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner should consult its own tax advisors as to the U.S. federal income tax consequences of being a partner in a partnership that holds or disposes of our common shares.

This discussion addresses only certain aspects of U.S. federal income taxation to U.S. Holders. U.S. Holders should consult their own tax advisors regarding the U.S. federal, state, local, non-U.S. and other tax consequences of the ownership and disposition of our common shares.

Distributions on Our Common Shares. Generally, U.S. Holders receiving dividend distributions (including constructive dividends) with respect to our common shares are required to include in gross income for U.S. federal income tax purposes the gross amount of such distributions (without reduction for any PRC or BVI income or other tax withheld from such distributions), equal to the U.S. dollar value of such distributions on the date of receipt (based on the exchange rate on such date), to the extent that we have current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits, it will be treated as a return of capital to the extent of a U.S. Holder’s adjusted tax basis in our common shares and thereafter as capital gain from the sale or exchange of such common shares. We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that the full amount of a distribution with respect to the common shares will be treated, and reported by us, as a dividend.

Certain U.S. Holders (including individuals) are eligible for reduced U.S. federal income tax rates (at a maximum rate of 20%) in respect of “qualified dividend income”. For this purpose, qualified dividend income generally includes dividends paid by a non-U.S. corporation if, among other things, the U.S. Holder meets certain minimum holding periods and the non-U.S. corporation satisfies certain requirements, including that either (i) the shares with respect to which the dividend has been paid are readily tradable on an established securities market in the United States, or (ii) the non-U.S. corporation is eligible for the benefits of a comprehensive U.S. income tax treaty which provides for the exchange of information. United States Treasury Department guidance indicates that our common shares, which are listed on the NASDAQ, are readily tradable on an established securities market in the United States. There can be no assurance that our common shares will be considered readily tradable on an established securities market in later years. Non-corporate U.S. Holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income’’ pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. Each individual U.S. Holder is urged to consult his or her own tax advisor regarding the availability of the reduced dividend tax rate in light of his or her own particular situation and regarding the computations of his or her foreign tax credit limitation with respect to any qualified dividend income paid by us, as applicable.

In the case of foreign currency received as a dividend that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Generally any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for U.S. dollars, will be ordinary income or loss.

Disposition of Our Common Shares. Generally, U.S. Holders will recognize gain or loss upon the sale of our common shares equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received, and (ii) the U.S. Holder’s tax basis in our common shares. A U.S. Holder’s tax basis in the shares generally will be equal to the amount such U.S. Holder paid for the shares, subject to adjustments. Any gain or loss on disposition of our common shares generally will be U.S. source gain or loss and will be capital gain or loss. If, at the time of the disposition, a U.S. Holder is treated as holding the common shares for more than one year, such gain or loss will be a long-term capital gain or loss. Long-term capital gain recognized by a non-corporate U.S. Holder is currently subject to taxation at a reduced rate. The deductibility of capital losses is subject to limitations.

Passive Foreign Investment Company. We do not believe that we are a passive foreign investment company, or PFIC, for U.S. federal income tax purposes, and we expect to operate in such a manner so as not to become a PFIC. If, however, we are or become a PFIC, U.S. Holders could be subject to additional U.S. federal income taxes on gain recognized with respect to the common shares and on certain distributions, plus an interest charge on certain taxes treated as having been deferred under the PFIC rules. Non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year.

The PFIC rules are complex. U.S. Holders should consult their own tax advisors regarding the potential application of the PFIC rules to the ownership of our ordinary shares.

Information Reporting; Backup Withholding. In general, payments made in the U.S. or through certain U.S. related financial intermediaries with respect to the ownership and disposition of our common shares will be required to be reported to the IRS unless the U.S. Holder is a corporation or other exempt recipient and, when required, demonstrates this fact. In addition, a U.S. Holder may be subject to backup withholding (currently at a rate of 28%) on such payments unless the U.S. Holder (i) is a corporation or other exempt recipient and when required, demonstrates this fact or (ii) provides a taxpayer identification number and otherwise timely complies with applicable certification requirements. U.S. Holders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption, if applicable. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder’s U.S. federal income tax liability and such U.S. Holder may obtain a refund of any excess amounts withheld by filing the appropriate claim for refund with the IRS and furnishing any required information in a timely manner.

THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS FOR GENERAL INFORMATION PURPOSES ONLY, DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF THE POTENTIAL TAX CONSIDERATIONS RELATING TO OUR COMMON SHARES AND IS NOT TAX ADVICE. U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF OUR COMMON SHARES.

F. Dividends and Paying Agents

Not Applicable.

G. Statement by Experts

Not Applicable.

H. Documents on Display

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with these requirements, we file reports and other information with the Securities and Exchange Commission (the “Commission”). These materials, including this annual report on Form 20-F and its exhibits, may be inspected and copied at the Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and at the Commission’s regional office at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the materials may be obtained from the Public Reference Room of the Commission at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. The public may obtain information on the operation of the Commission’s Public Reference Room by calling the Commission in the United States at 1-800-SEC-0330.

I. Subsidiary Information

Not Applicable.

Item 11. Quantitative and Qualitative Disclosure of Market Risk.

We do not invest in derivative financial instruments nor other market risk sensitive instruments. Accordingly, our exposure to financial market risk derives primary from changes in interest rates. The primary objective of our investments in corporate securities is to preserve principal while maximizing yields, without significantly increasing risk. These available for sale securities are subject to interest rate risk. The fair market value of these securities may fluctuate with changes in interest rate.

We maintain letters of credit with several banking institutions in the PRC. These facilities bear interest at rates that fluctuate based on the prime rate as declared by the Bank of China. As a result, changes in interest rates also impact our interest expense associated with these facilities. If the interest rate on our credit facilities had been 1% higher, an additional RMB 2.3 million (US$ 0.38 million) of interest expense could have been incurred throughout the year 2014. (For more details on our loans with banking institutions in the PRC, see “Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources)

Item 12. Description of Securities Other than Equity Securities.

Not Applicable.

Part II

Item 13. Defaults, Dividend Arrearages and Delinquencies.

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.

None.

Item 15. Controls and Procedures

(a) Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report, an evaluation was performed under the supervision and with the participation of our management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on that evaluation, our management, including the chief executive officer and chief financial officer, concluded that at December 31, 2014, the Company’s disclosure controls and procedures were effective to give reasonable assurance that information required to be disclosed by us in the reports that we file under the Exchange Act, is i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and ii) accumulated and communicated to management, including our principle executive and financial officers to allow timely decisions regarding required disclosure.

(b) Management’s Annual Report on Internal Control Over Financial Reporting

Management, including our Principal Executive Officer and Principal Financial Officer, is responsible for establishing and maintaining adequate internal control over our financial reporting.

Our internal control over financial reporting is a process designed under the supervision of our Principal Executive and Financial Officers, and effected by our Board of Directors, management and other personnel, to provide reasonable but not absolute assurance regarding the reliability of financial reporting and the preparation of its published financial statements in accordance with U.S. GAAP. Internal control over financial reporting includes policies and procedures that:

●

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

●

Provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with the generally accepted accounting principles;

●

Provide reasonable assurance that receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

●

Provide reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements would be prevented or detected in a timely manner.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting on the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2014

Our independent registered public accounting firm, Grant Thornton China, has issued an audit report on the effectiveness of our internal control over financial reporting as of December 31, 2014, which is included herein.

The effectiveness of our internal control over financial reporting as of December 31, 2014 was audited by Grant Thornton, an independent registered public accounting firm, as stated in their report included under Item 18 of this Annual Report on Form 20-F.

(d) Changes in Internal Controls Over Financial Reporting

As a result of a material weakness in our internal control over financial reporting identified in our Annual Report on Form 20-F for the year ended December 31, 2013, management implemented changes to our internal control over financial reporting during the period covering this Annual Report. Specifically, in 2013, our review of account receivable allowance methodology and calculation did not operate at a level of precision that would prevent detection and correct a material misstatement. The Company’s management determined that this control deficiency constituted a material weakness that resulted in a material error to our accounts receivable in our 2013 annual consolidated financial statements, which were corrected prior to issuance of the Company’s consolidated financial statements for that year. During the period covered by this Annual Report, we took steps to enhance our accounts receivables policies and procedures and remediated the material weakness in our internal control over financial reporting that existed as of December 31, 2013. Specifically we performed a comprehensive reevaluation of our policies and procedures for estimating accounts receivable reserves. This process resulted in changes to our policies and procedures and related internal control and the hiring of additional accounting resources.

Item 16A. Audit Committee Financial Expert

Jing Zhang, a member of our Audit Committee, meets the criteria of an “Audit Committee Financial Expert” under the applicable rules and regulations of the SEC, and his designation as the Audit Committee’s Financial Expert has been ratified by the Board. Mrs. Zhang is “independent”, as that term is defined in the Nasdaq Marketplace Rules.

Item 16B. Code of Ethics

We adopted a code of ethics that is applicable to all of our directors, officers and employees, including our principal executive, financial and accounting officers, and persons performing similar functions (the “Code of Ethics”). The Code of Ethics covers areas of professional and business conduct, and is intended to promote honest and ethical behavior, including fair dealing and the ethical handling of conflicts of interest, support full, fair, accurate, timely, and understandable disclosure in reports and documents we file with, or submits to, the SEC and other governmental authorities, and in our other public communications; deter wrongdoing; encourage compliance with applicable laws and governmental rules and regulations; and ensure the protection of our legitimate business interests. We encourage all of our directors, officers, and employees to promptly report any violations of the Code of Ethics, and have provided mechanisms by which they may do so. We will provide a copy of the Code of Ethics to any person, without charge, upon written request addressed to our Corporate Secretary at our offices in Carlstadt, New Jersey.

Item 16C. Principal Accountant Fees and Services

The Audit Committee maintains a policy of approving and recommending only those services to be performed by our external auditors that are permitted under the Sarbanes-Oxley Act and the applicable rules of the SEC relating to auditor’s independence, and which are otherwise consistent with and will encourage, and are remunerated at levels that accord with, the basic principles of auditor independence. The practice of the Audit Committee is to receive from our management, at the time of approval of our annual financial statements for the preceding fiscal year, a list of all services, including audit, audit-related, tax and other services, proposed to be provided during the current fiscal year to us and our subsidiaries by Grant Thornton as well as a report regarding the extent of such services actually provided by Grant Thornton during the previous fiscal year and the fees paid for such services performed. After reviewing and considering the services proposed to be provided during the current fiscal year and, where appropriate in order better to understand their nature, discussing them with management, the Audit Committee pre-approves such of the proposed services, with a specific pre-approved budget, as it considers appropriate in accordance with the above principles. Management also maintains a practice of discussing these matters on an ongoing basis during the year with Stephan R. Clark, the Audit Committee’s appointed delegate in respect of audit-related and non audit-related services. Additional services from Grant Thornton and any increase in budgeted amounts will similarly be pre-approved during the year by the Audit Committee on a case-by-case basis.

All (100%) services performed by Grant Thornton during 2013 and 2014 were reported to, and the services proposed to be provided during 2013 and 2014 were pre-approved by, the Audit Committee in accordance with the procedures outlined above.

The following table provides information regarding fees we paid to our auditors for all services, including audit services, for the years ended December 31, 2013 and 2014.

	Year Ended December 31, 2014	Year Ended December 31, 2013
Audit Fees	RMB 2,060,000	RMB 2,000,000
Audit Related Fees	-	-
Tax Fees	-	-
All Other fees	-	-
Total	RMB 2,060,000	RMB 2,000,000

“Audit Fees” are the aggregate fees billed for the audit of our annual financial statements. This category also includes services that generally the independent accountant provides, such as statutory audits, consents and assistance with and review of documents filed with the SEC.

There were no audit-related, tax or other fees billed by our principle auditor during the years ended December 31, 2014 and 2013.

Item 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

Item 16F. Change in Registrant’s Certifying Accountant

None.

Item 16G. Corporate Governance

Our corporate governance practices do not differ in any significant way from those followed by U.S. domestic companies listed on the NASDAQ.

Item 16H. Mine Safety Dislcosure

Not applicable

Part III

Item 17. Financial Statements

Not applicable.

Item 18. Financial Statements

See Item 19 below for consolidated financial statements filed as a part of this Annual Report.

Item 19. Exhibits

(a)

Index to Financial Statements

	Page
Reports of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets	F-3
Consolidated Statements of Comprehensive Income	F-4
Consolidated Statements of Shareholders’ Equity	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7

(b)

Exhibits

Exhibit No.		Exhibit Description
1.1		Memorandum of Association and Articles of Association of Jinpan International Limited. (1)

1.2		Amendments to the Memorandum of Association and Articles of Association. (1)

4.1		License Agreement dated April 30, 2008, between Hainan Jinpan Electric Company Ltd. and Hitran Corporation. (2)

4.2		Amendment dated May 19, 2008, between Hainan Jinpan Electric Company Ltd., Hitran Corporation and Jinpan International (USA), Ltd. amending the License Agreement dated April 30, 2008. (2)

4.3		License Agreement dated November 14, 2008, between Jinpan International (USA) Co. Ltd., Hainan Jinpan Electric Co. Ltd., Jinpan Electric (China) Co. Ltd. and Wuhan Jinpan Electric Co. Ltd. and Hitran Corporation. (2)

4.4		License Agreement dated January 19, 2005, between Hainan Jinpan Electric Co., Ltd. and Schneider Electric (China) Investment Co., Ltd. (2)


4.5		Amendment dated April 10, 2008, between Hainan Jin Pan Electric Co. Ltd. and Schneider Electric (China) Investment Co. Ltd. amending the License Agreement dated January 19, 2005. (2)

4.6		Summary of the Agreement between Hainan Jinpan Electric Co. Ltd. and Siemens Ltd. China to license SIVACON 8PT low-voltage switchboard. (3)

4.7		Summary of Agreement between Hainan Jinpan Electric Co. Ltd. and Hainan Si Hai Industrial Commercial Consolidated Company to lease factory building in the Haikou facility (3)

4.8		Summary of the Agreement between Jinpan Electric Group (Shanghai) Co. Ltd. and Beijing Shi Xin Steel Frame Co. Ltd. to construct steel frame for factory building in the Shanghai facility. (3)

4.9		Summary of Agreement between Jinpan Electric Group (Shanghai) Co. Ltd. and Shanghai Kai Tian Construction Group Co. Ltd. to construct factory building in the Shanghai facility. (3)

4.10		Summary of the Agreement between Guilin Jun Tai Fu Construction and Development Co. Ltd. and Zhe Jiang Qing Ye Construction Design Co. Ltd. to design factory buildings, roads, and associated networks in the Guilin facility

4.11		Summary of Agreement between Guilin Jun Tai Fu Construction and Development Co. Ltd. and Guilin Institute of Survey Design to conduct construction site survey in the Guilin facility. (3)

4.12		Summary of mortgage agreement between China Bank of Communications Guilin Branch and Guilin Jun Tai Fu Construction and Development Co. Ltd. (4)

4.13		Summary of guaranty agreement between China Bank of Communications Guilin Branch and Hainan Jinpan Electric Co. Ltd. (4)

4.13		Summary of export invoice financing master agreements between the Industrial and Commercial Bank of China and Hainan Jinpan Electric Co. Ltd. (5)

4.14		Summary of technology licensing agreement between Schneider Electric (China) Co. Ltd. and Hainan Jinpan Electric Co. Ltd. for MVnex HP Switchgear. (5)

8.1*		List of Subsidiaries

12.1*		Certification of the Principal Executive Officer pursuant to 17 C.F.R. 240.13a-14(a), as adopted pursuant to § 302 of the Sarbanes-Oxley Act.

12.2*		Certification of Principal Financial Officer pursuant to 17 C.F.R. 240.13a-14(a), as adopted pursuant to § 302 of the Sarbanes-Oxley Act.

13.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act.

14.1*		Consent of Grant Thornton, China.

101. INS*		XBRL Instance

101.SCH* 101.CAL*		XBRL Taxonomy Extension Schema XBRL Taxonomy Extension Calculation

101.DEF*		XBRL Taxonomy Extension Definition

101.LAB*		XBRL Taxonomy Extension Label


101.PRE*		XBRL Taxonomy Extension Presentation

*	Filed herewith.

(1)	Filed as an exhibit to Jinpan International Limited’s Registration Statement on Form F-1 (File No. 333-8198), filed with the Securities and Exchange Commission on November 22, 1997, and incorporated herein by reference.

(2)	File as an exhibit to Jinpan International Limited’s Report of Foreign Private Issuer on Form 6-K, filed with the Securities and Exchange Commission on November 12, 2009 and incorporated herein by reference.

(3)	File as an exhibit to Jinpan International Limited’s Annual Report on Form 20-F for the year ended December 31, 2011, filed with the Securities and Exchange Commission on April 30, 2012 and incorporated herein by reference.

(4)	File as an exhibit to Jinpan International Limited’s Annual Report on Form 20-F for the year ended December 31, 2012, filed with the Securities and Exchange Commission on April 30, 2013 and incorporated herein by reference

(5)	File as an exhibit to Jinpan International Limited’s Annual Report on Form 20-F for the year ended December 31, 2013, filed with the Securities and Exchange Commission on April 30, 2014 and incorporated herein by reference.

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

	JINPAN INTERNATIONAL LIMITED

	By:	/s/ Li Zhiyuan
	Name:	Li Zhiyuan
	Title:	Chief Executive Officer
		(Principal Executive Officer)

April 30, 2015

INDEX TO FINANCIAL STATEMENTS


		Pages

JINPAN INTERNATIONAL LIMITED AND SUBSIDIARIES:

Reports of Independent Registered Public Accounting Firm		F-1

Consolidated Balance Sheets as of December 31, 2014 and 2013		F-3

Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012		F-4

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2014, 2013 and 2012		F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012		F-6

Notes to Consolidated Financial Statements		F-7

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Jinpan International Limited

We have audited the accompanying consolidated balance sheets of Jinpan International Limited (a British Virgin Islands company) and its subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall 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 Jinpan International Limited and its subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated April 30, 2015 expressed an unqualified opinion.

/s/ Grant Thornton

Shanghai, The People’s Republic of China

April 30, 2015

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Jinpan International Limited

We have audited internal control over financial reporting of Jinpan International Limited (a British Virgin Islands company) and its subsidiaries (the “Company”) as of December 31, 2014, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended December 31, 2014, and our report dated April 30, 2015 expressed an unqualified opinion on those financial statements.

/s/ Grant Thornton

Shanghai, The People’s Republic of China

April 30, 2015

F-2

Jinpan International Limited and Subsidiaries

Consolidated Balance Sheets

As of December 31, 2014 and 2013


					December 31,
		2014			2014			2013
	Notes	US$			RMB			RMB
		(In thousands, except number of shares and per share data)
Assets
Current assets:
Cash and cash equivalents			13,209			80,826			149,874
Restricted cash			1,178			7,210			8,024
Short-term investment	4		13,156			80,500			30,000
Notes receivable			11,557			70,718			96,341
Accounts receivable, net	5		140,225			858,037			881,646
Inventories	6		50,003			305,967			204,942
Prepaid expenses			20,856			127,619			25,630
Deferred tax assets	10		2,515			15,388			12,920
Other receivables			6,901			42,229			42,013
Total current assets			259,600			1,588,494			1,451,390

Property, plant and equipment, net	8		73,976			452,659			460,932
Construction-in-progress	8		2,693			16,481			23,092
Land use right	7		14,856			90,902			92,777
Goodwill			13,768			84,246			84,246
Other assets			106			649			757

Total assets			364,999			2,233,431			2,113,194

Liabilities and shareholders’ equity

Current liabilities:

Short-term bank loans	11		-			-			67,681
Accounts payable			37,364			228,633			164,695
Notes Payable	9		14,665			89,733			64,004
Income tax payable			2,025			12,389			15,338
Value added tax payable			1,457			8,917			25,978
Advances from customers			21,563			131,946			86,619
Commission payable			22,046			134,899			116,141
Accrued employee benefits			2,028			12,411			11,448
Other liabilities			5,959			36,460			31,411
Total current liabilities			107,107			655,388			583,315
Commitments and contingencies Long term liability:	14
Deferred Income			4,964			30,377			29,176
Long Term bank loans	11		26,239			160,553			195,087
Total Liabilities			138,310			846,318			807,578

Shareholders’ equity:
Convertible preferred stock, US$0.0045 par value:
Authorized shares - 2,000,000
Issued and outstanding shares – none in 2014 and 2013	20		-			-			-
Common stock, US$0.0045 par value:
Authorized shares – 40,000,000
Issued and outstanding shares –16,418,456 in 2014 and 2013	20		74			606			606

Additional paid-in capital			38,138			298,418			295,688
Reserves			13,442			93,985			90,356
Retained earnings	20		149,197			1,001,054			925,837
Accumulated other comprehensive income			26,106			(3,848	)		(3,673	)
			226,957			1,390,215			1,308,814
Less: Treasury shares at cost,
Common stock –135,488 in 2014 and 138,306 in 2013			(268	)		(3,102	)		(3,198	)
Total shareholders’ equity			226,689			1,387,113			1,305,616

Total liabilities and shareholders’ equity			364,999			2,233,431			2,113,194

The accompanying notes form an integral part of these consolidated financial statements.

F-3

Jinpan International Limited and Subsidiaries
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2014, 2013 and 2012


			Year ended December 31,
			2014			2014			2013			2012
	Notes		US$			RMB			RMB			RMB
			(In thousands, except number of shares and per share data)

Net sales		18		241,007			1,472,045			1,397,861			1,324,952
Cost of products sold				(165,540	)		(1,011,100	)		(949,081	)		(892,042	)
Gross profit				75,467			460,945			448,780			432,910
Selling and administrative				(59,585	)		(363,939	)		(345,464	)		(339,221	)
Operating profit				15,882			97,006			103,316			93,689

Other income ( expense)
Other income, net				4,457			27,220			27,021			19,119
Interest income				290			1,771			1,693			1,163
Interest expense				(2,323	)		(14,188	)		(12,830	)		(11,115	)
Income before income taxes				18,306			111,809			119,200			102,856
Income taxes		10		(2,792	)		(17,051	)		(16,579	)		(14,363	)

Net income				15,514			94,758			102,621			88,493

Other comprehensive income (loss)
Foreign currency translation adjustment				(29	)		(174	)		(169	)		(460	)
Total comprehensive Income				15,485			94,584			102,452			88,033
Earnings per share

-Basic				US$ 1.02		RMB 6.32			RMB 6.32			RMB 5.47

-Diluted				US$ 0.99		RMB 6.14			RMB 6.14			RMB 5.29

Weighted average number of shares

-Basic				16,232,381			16,232,381			16,230,165			16,170,107

-Diluted				16,633,683			16,633,683			16,711,192			16,717,277

The accompanying notes form an integral part of these consolidated financial statements.

F-4

Jinpan International Limited and Subsidiaries
Consolidated Statements of Shareholders’ Equity
For the years ended December 31, 2014, 2013 and 2012


	Number of treasury			Number of common		Number of preferred		Treasury stock			Warrants			Common shares		Convertible preferred stock		Additional paid-in capital		Reserves		Retained earnings			Accumulated Other Comprehensive Income			Total
	shares			shares		shares		RMB			RMB			RMB		RMB		RMB		RMB		RMB			RMB			RMB
	(In thousands, except for number of shares)
Balance at January 1, 2012		(227,306	)		16,395,456		-		(4,417	)		6,232			605		-		284,936		85,321		770,156			(3,044	)		1,139,789
Net income		-			-		-		-			-			-		-		-		-		88,493			-			88,493
Expired Warrants		-			-		-		-			(6,232	)		-		-		6,232		-		-			-			-
Cash dividends distributed ($0.18 per share)		-			-		-		-			-			-		-		-		-		(18,324	)		-			(18,324	)
Exercise of stock options for cash		12,000			-				135						-		-		-		-		-			-			135
Employees stock-based expenses		-			-		-		-			-			-		-		2,556		-		-			-			2,556
Currency translation adjustments		-			-		-		-			-			-		-		-		-		-			(460	)		(460	)

Balance at December 31, 2012		(215,306	)		16,395,456		-		(4,282	)		-			605		-		293,724		85,321		840,325			(3,504	)		1,212,189

Net income		-			-		-		-			-			-		-		-		-		102,621			-			102,621
Transfer to reserves		-			-		-		-			-			-		-		-		5,035		(5,035	)		-			-
Cash dividends distributed ($0.12 per share)		-			-		-					-			-		-		-		-		(12,074	)		-			(12,074	)
Exercise of stock options for cash		77,000			23,000		-		1,084			-			1		-		251		-		-			-			1,336
Employees stock-based expenses		-			-		-		-			-			-		-		1,713		-		-			-			1,713
Currency translation adjustments		-			-		-		-			-			-		-		-		-		-			(169	)		(169	)

Balance at December 31, 2013		(138,306	)		16,418,456		-		(3,198	)		-			606		-		295,688		90,356		925,837			(3,673	)		1,305,616

Net income		-			-		-		-			-			-		-		-		-		94,758			-			94,758
Transfer to reserves		-			-		-		-			-			-		-		-		3,629		(3,629	)		-			-
Cash dividends distributed ($0.16 per share)		-			-		-					-			-		-		-		-		(15,912	)		-			(15,912	)
Exercise of stock options for cash		2,818			-		-		96			-			-		-		-		-		-			-			96
Employees stock-based expenses		-			-		-		-			-			-		-		2,730		-		-			-			2,730
Currency translation adjustments		-			-		-		-			-			-		-		-		-		-			(174	)		(174	)

Balance at December 31, 2014		(135,488	)		16,418,456		-		(3,102	)		-			606		-		298,418		93,985		1,001,054			(3,847	)		1,387,113

The accompanying notes form an integral part of these consolidated financial statements.

F-5

Jinpan International Limited and Subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31, 2014, 2013 and 2012


	Year ended December 31,
	2014			2014			2013			2012
	US$			RMB			RMB			RMB
	(In thousands)
Operating activities
Net income		15,514			94,758			102,621			88,493
Adjustments to reconcile net income to
net cash provided by/(used in) operating activities:
Depreciation and Amortization		7,325			44,739			42,499			35,746
Deferred income taxes		(429	)		(2,622	)		(4,499	)		(2,053	)
Allowance for doubtful accounts		1,723			10,524			26,595			17,198
Loss/(gain) on disposal of property, plant and equipment		-			-			(250	)		(27	)
Employee stock-based compensation		447			2,730			1,713			2,556
Changes in operating assets and liabilities
Restricted cash		133			814			(2,845	)		(3,155	)
Accounts receivable		2,142			13,084			(125,016	)		(104,914	)
Notes receivable		4,195			25,623			2,470			21,627
Inventories		(16,540	)		(101,025	)		(19,113	)		45,258
Prepaid expenses		(16,698	)		(101,989	)		(9,741	)		67,606
Other receivables		8			46			(5,277	)		(2,680	)
Accounts payable		10,468			63,938			7,373			9,389
Notes Payable		4,212			25,729			26,243			(48,002	)
Income tax		(483	)		(2,949	)		3,523			(2,899	)
Value added tax		(2,793	)		(17,061	)		3,849			2,005
Advances from customers		7,421			45,327			982			5,982
Commission payable		3,071			18,758			29,169			24,849
Accrued employee benefits		158			963			778			(8,505	)
Government grants		172			1,200			(3,500	)		(150	)
Other liabilities		620			3,639			11,211			(24,022	)
Net cash provided by/ operating activities		20,666			126,226			88,785			124,302
Investing activities
Purchases of property, plant and equipment		(1,278	)		(7,805	)		(2,289	)		(55,298	)
Proceeds from sales of property, plant and equipment		-			-			250			180
Payment for construction-in-progress		(3,303	)		(20,175	)		(78,445	)		(168,352	)
Purchase of short term investment		(74,330	)		(454,000	)		(314,090	)		(150,000	)
Sales of short term investment		66,062			403,500			354,090			80,000
Receipt of government grant for new plant construction		196			1,200			9,794			19,383
Sales of investment in Beijing Jinpan Huineng Co.		-			-			-			200
Net cash used in investing activities		(12,653	)		(77,280	)		(30,690	)		(273,887	)
Financing activities
Proceeds from bank loans		9,887			60,390			261,415			397,841
Repayment of bank loans		(26,622	)		(162,604	)		(274,954	)		(266,299	)
Proceeds from exercise of stock options		16			96			1,337			135
Dividends paid		(2,605	)		(15,912	)		(12,074	)		(18,323	)
Net cash (used in financing activities		(19,324	)		(118,030	)		(24,276	)		113,354

Effect of exchange rate changes on cash		(62	)		36			(286	)		(25	)

Net increase/(decrease) in cash and cash equivalents		(11,373	)		(69,048	)		33,533			(36,256	)
Cash and cash equivalents at beginning of year		24,582			149,874			116,341			152,597
Cash and cash equivalents at end of year		13,209			80,826			149,874			116,341

Interest paid		1,651			10,085			16,869			10,528
Income taxes paid		3,701			22,605			15,296			19,048

The accompanying notes form an integral part of these consolidated financial statements.

F-6

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

Jinpan International Limited (the “Company”) was incorporated under the laws of the British Virgin Islands on April 3, 1997. The Company’s securities are registered with the U.S. Securities and Exchange Commission and publicly traded on The NASDAQ Global Select Market. The Company designs, manufactures and markets equipment for distribution of electricity through its subsidiaries in the United States and China. The Company is also registered to conduct business in Hong Kong. The following chart illustrates the Company’s organizational structure:

The Company and its subsidiaries are collectible referred to as the “Group.”

2. BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

The consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). This basis of accounting differs from that used in the statutory financial statements of Hainan Jinpan and Jinpan China, which were prepared in accordance with the accounting principles and relevant financial regulations applicable to foreign investment enterprises as established by the Ministry of Finance of China.

The reporting currency of the Group is Renminbi (“RMB”), the national currency of China. Solely for the convenience of the reader, the asset and liability accounts have been translated into United States dollars (“US$”) using the People’s Bank of China’s rate of RMB 6.1190 to US$1, the prevailing rate on December 31, 2014 and equity accounts were translated using historical rates. Income statement accounts were translated using the average exchange rate of RMB 6.11 to US$1 for the year 2014. No representation is made that the Renminbi amounts could have been, or could be, converted into United States dollars at this rate or any other.

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Consolidation

F-7

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

The consolidated financial statements include the accounts of the Company and its subsidiaries, which are directly and indirectly wholly-owned. All intercompany accounts and transactions have been eliminated in consolidation.

(b) Cash, Cash Equivalents and Restricted Cash

The Group considers all highly liquid investments with a maturity of three months or less to be cash equivalents. The Group maintains certain bank accounts in the PRC which are not protected by FDIC insurance or other insurance. There was approximately RMB 77.4 million held in non-US banks or financial institutions as of December 31, 2014. As of December 31, 2014, the Group held approximately RMB 10.6 million (US$ 1.7 million) cash in the United States of which RMB 4.0 million (US$ 0.7 million) was in excess of FDIC insurance limits. At December 31, 2014, the Group had approximately RMB 7.2 million (US$ 1.2 million) restricted cash related to products guaranty insurance.

The Group classifies its marketable debt and equity securities at the date of acquisition as available-for-sale. These securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), a component of shareholders’ equity.

When determining whether an impairment of investments exists or a decline in value of an available-for-sale security is other-than-temporary, the Group evaluates evidence to support a realizable value in excess of the current market price for securities with readily determinable fair value. Such information may include the investment’s financial performance (including factors such as earnings trends, dividend payments, asset quality and specific events), the near-term prospects of the investment, the financial condition and prospects of the investment’s region and industry, and the Group’s investment intent. Typically, a sustained decline in the market value of a quoted security for six months is generally indicative of an other-than-temporary impairment. When a decline in value is deemed to be other-than-temporary, an impairment loss is recognized through a charge to interest income and other, net in the current period to the extent of the decline below the carrying value of the investment. Adverse changes in market conditions or poor operating results of underlying investments could result in additional other-than-temporary losses in future periods.

(d) Trade Receivables

Trade receivables, which generally have 30 to 180 day terms, except for some of long term sales contracts that we provide a payment term based on the progress of their projects, are recognized and carried at original invoice amounts less an allowance for doubtful accounts. Credit is offered to customers based on their payment history, financial capability, and credit rating. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. We evaluate specific accounts where we have information that certain customers are unable to meet their financial obligations. We also make judgments, based on the best available facts and circumstances, including but not limited to, the length of our relationship with the customer, the customers’ current credit status and known market factors, to record a specific reserve for customers against their corresponding receivable amounts. These specific reserves are re-evaluated and adjusted as additional information affects the estimated amounts. We write off receivables against allowance for doubtful account when there is evidence that the likelihood of collection is not probable and it is deemed uncollectible. From time to time customers pay us with in-kind product in lieu of cash. When this occurs we compare the receivable balance against the fair market value of the product received in determining whether a gain or loss should be recorded.

F-8

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

(e) Notes Receivable

For accounts receivable in which payment is received in the form of short-term financial instruments, the Group classifies such accounts receivable as notes receivable. These short-term financial instruments generally mature, and thus are convertible into cash, in six months or less.

(f) Inventories

Inventories are priced at the lower of cost or market value. Market value represents the net realizable value for inventories. Cost is determined using the weighted average cost method.

We periodically review our inventory for excess inventory obsolescence. We write down the value of ending inventory for obsolete and unmarketable inventory equal to the difference between the cost of inventory and the estimated market value. These reviews require management to estimate future demand for our products and evaluate market conditions. Possible changes in these estimates could result in a write down of inventory. If actual market conditions are less favorable than those projected, additional inventory write-downs may be required. If actual market conditions are more favorable than projected, inventory previously written down may be sold, resulting in lower cost of sales and higher income from operations than expected in that period.

(g) Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful life of the asset. Estimated useful lives are as follows:


Buildings		10 - 20 years
Machinery and equipment		6 - 10 years
Motor vehicles		6 years
Furniture, fixtures and office equipment		5 years

Maintenance and repair costs of a routine nature are expensed as incurred. Expenditures for major renewals and improvements that extend the life of an asset are capitalized.

(h) Construction-in-Progress

Construction-in-progress is stated at cost which includes the cost of construction and other direct costs attributable to the construction. No provision for depreciation is made on construction-in-progress until such time as the relevant assets are completed and put into use. Construction-in-progress at December 31, 2014 mostly represents machinery under installation. Interest related to construction-in-progress of nil, RMB 4.7 million (US$ 0.8 million) and RMB 4.5 million ( US$ 0.7 million) was capitalized for the year end December 31, 2014 2013 and 2012 respectively.

(i) Impairment of Long-lived Assets

For long-lived assets used in operations, the Group records impairment losses when events and circumstances indicate that these assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their respective carrying amounts. If less, the impairment losses are based on the excess of the carrying amounts of these assets over their respective fair values. Their fair values would then become the new cost basis. Fair value is determined by quoted market prices, if available. When quoted market prices are not available, the present value of the future estimated net cash flow is generally used. For assets held for sale, impairment losses are measured at the lower of the carrying amount or the fair value less costs to sell. For assets to be disposed of other than by sale, impairment losses are measured at their carrying amount less salvage value, if any, at the time the assets cease to be used.

F-9

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

(j) Income Taxes

The Group uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. This method also requires the recognition of future tax benefits such as net operating loss carry forwards, to the extent that such benefits will more-likely-than-not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

China set a unified corporate income tax rate of 25% applicable to both domestic and foreign funded companies in 2007. The new tax rate of 25% will take effect gradually. The applicable tax rate is 18% for calendar year 2008, 20% for 2009, 22% for 2010, 24% for 2011, and 25% for 2012. However, Hainan Jinpan was recognized as a technically advanced enterprise and is entitled to a 15% tax rate for three years commencing from January 1, 2008. Hainan Jinpan extended its status as technically advanced enterprise in 2011 and 2014. The income tax rate applicable to Jinpan China is one half of the prevailing rate from 2010 to 2012 and is 25% in 2013 and 2014. Shanghai Jinpan also was recognized as a technically advanced enterprise in 2012 and its income tax rate is 15% from 2012 to 2014. Shanghai T&D is taxed at 25% of net income before tax from 2012 to 2014. Guiline JTF was recognized as a “West Development Enterprise” and also entitled to a 15% income tax rate from 2013 to 2020 (For more information on Jinpan China’s effective tax rates, see Note 10. Deferred Tax Assets and Income Taxes.)

The Group classifies tax penalties and interest expense as income tax expense.

(k) Value Added Tax

All of the Group’s products sold in the PRC are subject to Chinese VAT at a rate of 17% of the gross sales price. This VAT may be offset by VAT paid by the Group on raw materials and other materials included in the cost of producing its finished products. The VAT amounts paid and available for offset are maintained in VAT Tax payables.

(l) Goodwill

We perform our annual goodwill impairment test as of December 31. Goodwill is reviewed for impairment utilizing a qualitative assessment or a two-step quantitative process. We have an option to make a qualitative assessment of a reporting unit’s goodwill for impairment. If we choose to perform a qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary. Where we perform the two-step process, the first step requires us to compare the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value, there is an indication that impairment may exist and the second step is required. In step two, the implied fair value of goodwill is calculated as the excess of the fair value of the reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting unit’s goodwill, the difference is recognized as an impairment loss.

The Group performed first step quantitative impairment test at the end of December 31, 2014. The test concluded that the fair value is more than the carry value of the asset.

F-10

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

(m) Foreign Currency Translation

The reporting currency of the Group is the Renminbi. The functional currency of Hainan Jinpan and Jinpan China is Renminbi and the functional currency of the Company and Jinpan USA is the US dollar. Financial statements for these entities have been translated into Renminbi in accordance with ASC 830, Foreign Currency Translation. Asset and liability accounts are translated using the exchange rates in effect at the balance sheet date, and shareholders’ equity accounts are translated at the historical exchange rate. Income statement and cash flows amounts are translated using the average exchange rate for the applicable year. The gains and losses resulting from the changes in exchange rates from year-to-year are reported in Accumulated Other Comprehensive Income (Loss). The effect on the transaction gains and losses as reported on the Consolidated Statements of Comprehensive Income is insignificant for all years presented herein.

(n) Operating Leases

Leases, where substantially all the rewards and risks of ownership of assets remain with the leasing company, are accounted for as operating leases. Rentals applicable to such operating leases are reported on the Consolidated Statements of Comprehensive Income and determined using the straight-line basis over the applicable lease term. The operating lease rental expense incurred by the Group during the years ended December 31, 2014, 2013 and 2012 amounted to RMB 3.7 million (US$ 0.6 million), RMB 4.0 million (US$ 0.6 million), and RMB 4.3 million (US$ 0.7 million), respectively. The operating leases were recorded as cost of products sold or selling and administrative expense.

(o) Revenue Recognition

As for Installation services revenue, if the Company is the primary obligor and has general inventory risk, the Company recognizes revenue on a gross basis. If the Company is not primary obligor and earns a fixed amount of fee, the Company recognizes revenue on a net basis.

(p) Non-Operating Income

For the Group’s non-operating transactions, income is recognized as follows:

(i)

interest income from bank deposits is recognized on a time proportionate basis using the principal outstanding and at the applicable interest rate; and

(ii)

government grant income is recognized as a component of other income when the relevant approvals are received from the government and any grant terms are met. If management does not believe that sufficient objective and positive evidence exists to conclude that approval of the grant from government is probable, the receipt of the grant is not recognized as income.

(q) Use of Estimates

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affected the reported amount of the assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported revenues and expenses during the reported periods. Significant accounting estimates reflected in the Company’s consolidated financial statements include the allowance for doubtful accounts, inventory obsolescence, goodwill impairment, and stock based compensation. Such accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of our consolidated financial statements, and actual results could differ materially from these estimates.

F-11

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

(r) Earnings Per Common and Common Equivalent Share

Basic earnings per share is computed by dividing net income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by dividing net income attributable to ordinary shareholders as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the year. The number of ordinary equivalent shares is related to outstanding stock options and warrants and is calculated using the treasury stock method.

(s) Accumulated Other Comprehensive Income (Loss)

Unrealized gains or losses on the Group’s available-for-sale securities and foreign currency translation adjustments are included in Accumulated Other Comprehensive Income (Loss).

(t)

Research and Development Costs

Research and development costs consist of expenditures incurred during the course of planned research and investigation to develop new products or processes, or significantly enhance existing products or production processes, and implement new methods of design, testing of product alternatives or construction of prototypes. The Group expenses all research and development costs as incurred. The research and development costs incurred by the Group during the years ended December 31, 2014, 2013 and 2012 were RMB 66.2 million(US$ 10.8 million), RMB 56.8 million (US$ 9.2 million) and RMB 58.8 million (US$ 9.3 million), respectively and all these amounts were recorded as selling and administrative expense.

(u)

Advertising Expense

The cost of advertising is expensed as incurred. The Group incurred RMB 1.3 million (US$ 0.2 million), RMB 0.4 million (US$ 0.06 million) and RMB 0.6 million (US$ 0.09 million) in advertising costs during 2014, 2013 and 2012, respectively and all these amounts were recorded as selling and administrative expense.

(v) Shipping and Handling Expenses

The cost of shipping and handling is expensed as incurred and reported within Selling and Administration Expenses. The Group incurred RMB 31.7 million (US$ 5.2 million), RMB 35.9 million (US$ 5.8 million) and RMB 28.1 million (US$ 4.5 million) in shipping and handling costs during 2014, 2013 and 2012, respectively.

(w) Stock-based Compensation

We record stock-based compensation expense based upon the grant date fair value of share-based awards. The fair value of the award is recognized as expense ratably over the requisite service periods. We use the Black-Scholes option-pricing model, which incorporates various assumptions including volatility, expected life and interest rates to determine fair value.

F-12

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

(For more information on the valuation methods used for options, see note 20(g), Stock options Valuation.)

(x)

Product Warranty

The Group provides a basic limited warranty, which covers parts and labor, for all products, for one year. The product warranty expense incurred in each year from 2012 through 2014 is not considered significant thus, the Group recorded warranty expense as incurred. The Group incurred RMB 4.8million (US$ 0.8 million), RMB 4.1 million (US$ 0.7 million), and RMB 3.3 million (US$ 0.5 million) in product warranty expense during the years ended December 31, 2014, 2013 and 2012, respectively.

(y)

New Accounting Pronouncements

F-13

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

(z)

Fair Value Measurement

In accordance with ASC subtopic 820-10, a fair value measurement is determined based on the assumptions that a market participant would use in pricing an asset or liability. Overall, establishes a three-tiered hierarchy that draws a distinction between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). The following table presents information about assets and liabilities required to be carried at fair value on a recurring basis as of December 31, 2014 and 2013:

	Fair value at December 31,
(RMB in thousands)	2014		Level 1		Level 2		Level 3
Investment available-for-sale		80,500		80,500		-		-

	Fair value at December 31,
(RMB in thousands)	2013		Level 1		Level 2		Level 3
Investment available-for-sale		30,000		30,000		-		-

4. INVESTMENTS AVAILABLE-FOR-SALE

Available-for-sale securities held by the Group at December 31, 2014 and 2013 were as follows:

	2014		2014		2013
	US$		RMB		RMB
	(In thousands)
Portfolio investment
Cost		13,156		80,500		30,000
Gross unrealized loss		-		-		-
Fair market value		13,156		80,500		30,000
Total investments available-for-sale		13,156		80,500		30,000

5.	ACCOUNTS RECEIVABLE,

Accounts receivable of the Group at December 31, 2014 and 2013 were as follows:

	2014			2014			2013
	US$			RMB			RMB
				(In thousands)
Accounts receivable-trade		152,600			933,758			946,843
Less: Allowance for doubtful accounts		(12,375	)		(75,721	)		(65,197	)
Accounts receivable-net		140,225			858,037			881,646

Movement of allowance for doubtful accounts
Beginning at January 1		(10,655	)		(65,197	)		(38,602	)
Provided during the year		(1,939	)		(11,862	)		(26,656	)
Less: Written off during the year		219			1,338			61
		(12,375	)		(75,721	)		(65,197	)

F-14

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

6.	INVENTORIES

Inventories of the Group at December 31, 2014 and 2013 were as follows:

	2014		2014		2013
	US$		RMB		RMB
	(In thousands)
Finished products		25,068		153,394		108,475
Products in process		8,760		53,602		42,986
Raw materials		16,175		98,971		53,481
Inventories		50,003		305,967		204,942

7 LAND USE RIGHT

All lands in the PRC are state-owned and no private land ownership rights exist.

The Group has obtained land use right certificates for all its facilities. We amortize the land use right in Hainan and Shanghai on a straight line basis over 20 to 40 years which will expire from the year 2026 to 2051. We also amortize the land use right in Wuhan and Guilin on a straight line basis over 50 years which will expire in the year 2057 to 2061.

8.	PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment of the Group at December 31, 2014 and 2013 were as follows:

	2014			2014			2013
	US$			RMB			RMB
	(In thousands)
Buildings		53,030			324,494			317,930
Machinery and equipment		47,730			292,060			221,203
Motor vehicles		4,812			29,443			27,037
Furniture, fixtures and office equipment		9,710			59,413			104,649
		115,282			705,410			670,819
Less: accumulated depreciation		(41,306	)		(252,751	)		(209,887	)
Property, plant and equipment, net		73,976			452,659			460,932

The Group’s buildings are located in the PRC and United States and the land on which the Group’s buildings are situated in the PRC are State-owned. The property in the U.S. is owned by Jinpan Realty, LLP, a wholly owned subsidiary of Jinpan USA. Depreciation expense in 2014, 2013 and 2012 was RMB 42.9 million (US$ 7.0 million), RMB 40.2 million (US$ 6.5 million) and RMB 33.0 million (US$ 5.2 million) respectively. The depreciation was included both in cost of goods sold and selling and administrative expense.

Construction in progress represents labors cost, materials in connection with the construction of new facility and installation of manufacturing equipment. At December 31, 2014 and 2013 the balance of construction in progress was RMB 16.5 million (US$ 2.7 million) and RMB 23.1 million (US$ 3.8 million) respectively. Interest related to construction in progress of RMB nil and RMB 4.7 million ( US$ 0.8 million) was capitalized for the years ended December 31, 2014 and 2013 respectively.

F-15

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

9.	NOTES PAYABLE

In 2014, Hainan Jinpan entered into material purchasing agreement with suppliers in China. The notes were payable to the suppliers and were unsecured, short term and non-interest bearing. As of December 31, 2014 and 2013, the balance of the note payable was RMB 89.7 million (US$ 14.7 million) and RMB 64.0 million (US$ 10.5 million) respectively.

10. DEFERRED TAX ASSETS AND INCOME TAXES

The Company was incorporated in the British Virgin Islands and, under the current laws of the British Virgin Islands, is not subject to tax on income or on capital gains.

Jinpan USA, a wholly-owned subsidiary of the Company, is incorporated in the State of New York. Jinpan USA is subject to federal tax and state tax in the United States.

In accordance with the relevant PRC income tax laws, Hainan Jinpan’s applicable tax rate is 25%, however, in 2008, 2011 and 2014, Hainan Jinpan was recognized as a High and New Technology Enterprise by the PRC government and was approved for a preferential tax rate of 15% for three years commencing from January 1, 2008. Hainan Jinpan extended its status as High and New Technology Enterprise in 2014 and is entitled to a 15% tax rate for another three years commencing from January 2014.

Jinpan China is subject to a 12.5% tax rate in the year 2012. Jinpan China is subject to applicable tax rate of 25% in the year 2013 and 2014 in accordance with PRC income tax law.

Shanghai Jinpan is subject to a corporate income tax rate of 25% in 2012. In 2012, however, Shanghai Jinpan was granted as High and New Technology Enterprise and was approved for a preferential tax rate of 15% for three years from 2012 to 2014.

Guilin JFT’s tax rate was 25% in 2012. In 2013, Guilin JFT was approved from tax authority for a 15% preferential tax rate from 2013 to 2020 according to the tax policy that encouraging companies set up operation in Western Region of China.

Pretax income for the years ended December 31, 2014, 2013 and 2012 was taxed in the following jurisdictions with the exception of the British Virgin Islands, which is tax exempt:

	2014			2014			2013			2012

	US$			RMB			RMB			RMB
	(In thousands)

British Virgin Islands		(2,446	)		(14,939	)		(5,886	)		(6,592	)
United States of America		(300	)		(1,833	)		(528	)		3,171
The People’s Republic of China		21,052			128,581			125,614			106,277

		18,306			111,809			119,200			102,856

Significant components of the provision for income taxes attributable to income before taxes are as follows:

	2014			2014			2013			2012
	US$			RMB			RMB			RMB
	(In thousands)
Current
Non-US		(3,221	)		(19,673	)		(21,066	)		(15,058	)
US		-			-			(12	)		(1,358	)
Deferred US		-			-			-			-
Non-US		429			2,622			4,499			2,053
		(2,792	)		(17,051	)		(16,579	)		(14,363	)

F-16

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

Deferred tax assets and deferred tax liabilities of the Group at December 31, 2013 and 2012 were as follows:

	2014		2014		2013
	US$		RMB		RMB
	(In thousands)
Deferred tax assets-China
Current
Allowance for doubtful accounts		1,864		11,402		9,785
Inventories		387		2,370		1,562
Deferred expenses		264		1,616		1,573
		2,515		15,388		12,920
Non-Current
Depreciation		59		362		208
Total deferred tax assets-China		2,574		15,750		13,128
Deferred tax assets-USA		-				-
Total deferred Tax assets		2,574		15,750		13,128

Deferred tax liabilities-China		-				-
Deferred tax liabilities-USA
Current
Depreciation		-		-		-
Non-Current		-		-		-
Total deferred tax liabilities		-		-		-

Net deferred tax assets		2,574		15,750		13,128

Based on available evidence, management believes it is more-likely-than-not that the net deferred tax assets will be fully realized. Accordingly, the Group did not provide a valuation allowance against its net deferred tax assets at December 31, 2014. At December 31, 2014, the Group has approximately RMB 1.2 million (US$0.2 million) net operating loss carry forward.

The reconciliation of income tax computed using the PRC statutory rate of 25% in 2014, 2013 and 2012 to actual income tax expense is as follows:

	2014			2014			2013			2012
	US$			RMB			RMB			RMB
	(In thousands)
Computed expected income tax		4,586			28,012			25,070			25,655
Impact of tax holiday and benefit of companies in China		(1,794	)		(10,961	)		(9,094	)		(11,858	)
Effect of difference between the PRC and USA tax rate					-			603			566
		2,792			17,051			16,579			14,363

Under ASC 740, the Group recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. We evaluated the Company’s overall tax positions and determined there were no material unrecognized tax benefits and there have been no material changes in unrecognized benefits since January 1, 2007. We have not filed 2014 US federal and state tax returns as of the date of this report.

F-17

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

11.	BANK LOANS

Bank loans comprised:	2014		2014		2013
	US$		RMB		RMB
	(In thousands)

Short-term bank loans		-		-		67,681
Long-term bank loans		26,238		160,553		195,087
Less: current portion		-		-		(67,681	)
		26,238		160,553		195,087

Each of the credit line below can only be used by the specific entity that signed agreement with the banks and cannot be used by other entities within the group.

Hainan Jinpan has a working capital credit facility from Bank of Communication for RMB 120 million (US$19.6 million). As of December 31, 2014, no amounts were outstanding under this credit facility. This credit facility bears interest at the benchmark rate set by the People’s Bank of China. This credit facility expired in December 2014 and we are negotiating a new credit facility the Bank of Communication on similar terms as the old credit facility.

Hainan Jinpan has an unsecured letter of credit facility from the Bank of China for RMB 203 million (US$33.2 million). This credit facility bears interest at LIBOR plus a margin rate. As of December 31, 2013, no amounts were outstanding under this credit facility. This facility expires in March 2016.

Shanghai Jinpan has a credit facility from bank of China for RMB 90 million (US$ 14.7 million) of which 60 million (US$ 9.8 million) was working capital facility and RMB 30 million (US$4.9 million was letter of credit facility. As of December 31, 2014, no amounts were outstanding under this credit facility. This credit facility bears interest according to the benchmark rate set by the Bank of China. This credit facility expired in expired in February 2015 and we are negotiating a new credit facility with the Bank of Communication on similar terms as the old credit facility.

F-18

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

Hainan Jinpan has a credit facility from Nanyang Commercial Bank for RMB 100 million (US$16.34 million) of which RMB 50 million(US$ 8.17million) was working capital facility and RMB 50 million(US$ 8.17million) was letter of credit facility. As of December 31, 2014, no amounts were outstanding under this credit facility. This credit facility bears interest according to the benchmark rate set by the Bank of China. This credit facility expires in April 2015 and we are negotiating a new credit facility with Nanyang Commercial Bank on similar terms as the old credit facility.

The table below reflects the principal balance due of Jinpan Realty , Guilin JFT and short term bank loans for the next five years.

RMB in thousands

	Year	2015	2016	2017	2018	2019	Thereafter	Total
	Principal Due	401	420	38,993	58,264	62,475	-	160,553

12. GOVERNMENT GRANTS

Hainan Jinpan, Shanghai Jinpan and Jinpan China received grants in advance from the local Chinese government based on its past business performance and its development of advance technologies which has to be pre-approved by the government. Government grants are recorded as deferred grant revenue until the terms of the grants are met and final approval from the government is obtained. Once these conditions are satisfied grant revenue is recognized in other income. The Group recognized income of RMB 20.7 million (US$ 3.4 million), RMB 14.2 million (US$ 2.3 million) and RMB 16.2 million (US$ 2.6 million) respectively in 2014, 2013 and 2012, respectively. In the year 2014 and 2013, Guilin JFT received approximately RMB 4.4 million (US$ 0.7 million) and RMB 14.0 million (US$ 2.3 million) respectively from Guilin government to subsidize the bank loan interest that occurred for fixed assets investment in Guilin. The amount we received was recorded as deferred grant revenue.

F-19

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

13. DISTRIBUTION OF INCOME

According to PRC accounting rules and regulation, the Group’s Chinese subsidiaries are required to maintain reserves which include a statutory reserve fund, an enterprise expansion fund and staff welfare and bonus fund based on 10% of its net income for the year as reported in the statutory accounts prepared in accordance with GAAP. The maximum amount of the aggregate of these reserves is 50% of its registered capital. The Group and its subsidiaries in China reserved RMB 3.6 million (US$ 0.6 million), RMB 5.03 million (US$ 0.8 million) million and RMB nil for the years ended December 31, 2014, 2013 and 2012 respectively.

The statutory reserve fund, enterprise expansion fund and staff welfare and bonus fund represent appropriations made at the sole discretion of the Company’s board of directors. The statutory reserve fund and enterprise expansion fund are used for future expansion. The staff welfare and bonus fund is used for the collective welfare of the staff and workers of Hainan Jinpan. During the years ended December 31, 2013, 2012 and 2011, the directors of the Group’s China subsidiaries approved the following appropriations to reserves.

	2014		2014		2013		2012
(In thousands)	US$		RMB		RMB		RMB
Statutory reserve fund		586		3,629		5,035		-
Enterprise expansion fund		-		-		-		-
Staff welfare and bonus fund		-		-		-		-
Dividends		-		-		-		-

		586		3,629		5,035		-

The Company declared a cash dividend of US$0.16 per common share for the year 2014 on February 26, 2014. Total dividend paid was US $2.6 million in 2014. A quarterly dividend of $0.04 per common share was paid at the end of March, June, September, and December 2014. The Company declared a cash dividend of US$0.12 per common share for the year 2013 on November 29, 2012, which was paid in four installments at the end of each quarter of 2013. The Company also declared a special dividend of US$ 0.04 per common share on November 29, 2012 which was paid on December 21, 2012.

14.	COMMITMENTS AND CONTINGENT LIABILITIES

(1) Operating lease commitments

The Group leases certain buildings and apartments under non-cancelable lease arrangements. These operating leases expire in various years through 2023. The operating lease rental expense incurred by the Group during the years ended December 31, 2014, 2013 and 2012 amounted to RMB 3.7 million (US$ 0.6 million), RMB 4.0 million (US$ 0.6 million), and RMB 4.3 million (US$ 0.7 million), respectively. These leases may be renewed for periods ranging from one to two years.

F-20

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

Future minimum payments under non-cancelable operating leases with initial terms of one year or more consisted of the following at December 31, 2014:

	(In thousands)
	US$	RMB
2015	271	1,656
2016	73	443
2017	68	415
2018	59	358
2019	59	358
2020 and thereafter	189	1,156
Total minimum lease payments	719	4,386

(2) Capital commitments

As of December 31, 2014, the Group has commitments of RMB 2.9 million for the purchase of new machinery and construction project.

(3) Employment contracts

The Group’s employees in the PRC include engineers, technicians, management administrative personnel, marketing and sales personnel, and factory personnel while employees in U.S. include management, administration and marketing personnel. All of the employees except U.S. employees are contract employees and have entered into renewable employment contracts with the Group’s applicable entities. Terms of the employment agreements with management, engineers, sales persons and technicians range from two to five years and terms of the employment agreements with support personnel range from six months to one year.

Future minimum payments to employees under employment contracts consisted of the following at December 31, 2014:

	US$	RMB
	(In thousands)
2015	6,728	41,094
2016	5,016	30,635
2017	3,217	19,650
2018	2,083	12,721
2019	1,727	10,548
2020 and thereafter	18,998	116,038
Total minimum employment contract payments	37,769	230,686

(4) Licensee agreement

The Group is engaged in a licensee agreement with a third party that designs certain line reactors. This agreement provides us the exclusive right to manufacture, assemble, sell, and maintain the licensed products. Licensee expense was RMB 0.3 million (US$ 0.05 million), RMB 0.2 million (US$0.03 million) and RMB 1.0 million (US$ 0.15 million) for the years ended December 31, 2014, 2013, and 2012, respectively. These amounts were recorded in the selling and administrative expense.

15.	FINANCIAL INSTRUMENTS

Cash and cash equivalents

The carrying amount reported on the Consolidated Balance Sheets for cash and cash equivalents approximates their fair value because of the short maturity of those instruments.

F-21

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

Investments, accounts receivable, notes receivable, other receivables, advance from customers and bank loans

The carrying value, as reported on the Consolidated Balance Sheets, of short-term investments, accounts receivable, notes receivable, other receivables, advance from customers, accruals, and bank loans approximate their market values based on their short-term maturities, or their fair values.

16. CONCENTRATION OF RISK

Financial instruments that potentially subject the Group to significant concentrations of credit risk consist principally of cash and cash equivalents, accounts receivable and short-term investments.

The Group maintains cash and cash equivalents with the Bank of China, Industrial and Commercial Bank of China, Bank of Communication, Nan-Yang commercial Bank and China Construction Bank in the PRC and Citibank, in the United States and Hong Kong.

Concentrations of credit risk with respect to accounts receivable are minimal because the Group has many different customers. The Group also performs ongoing credit evaluations of its customers’ financial conditions and, as a result, does not require collateral for Accounts Receivable.

During 2014, the Group was dependent on two major suppliers ChongQing Industry Co., Ltd (NAGASE) and Momentive (Hexion /Bakelite AG) for cast resin, which accounted for 1.33% (1.6% in 2013) and 0.32% (1.32% in 2013) of total purchases, respectively. Additionally, the Group was dependent on one major supplier: Wuhan Steel Processing Co. Ltd., for silicon steel, which accounted for 26.02% (2013: 24.73%) of total purchases. The Group is also dependent on Hainan Xinlong Copper Co. Ltd., Foshan HuaHong Copper Co. Ltd., and Shanghai Congxin Electric Co. Ltd. for copper and aluminum, which accounted for 3.99 % (2013: 5.71 %) and 2.75 % (2013: 0.26 %) and 2.88% (2013: 2.18 %) of total purchases, respectively.

A significant portion of our sales revenues is concentrated on one OEM, which is our largest customer. Sales to our largest customer accounted for 7.3%, 10.5% and 12.7% for years 2014, 2013 and 2012, respectively.

17.	PENSION AND OTHER POST RETIREMENT BENEFITS

Jinpan USA set up a Simple IRA plan for its employees. The amount employees contribute are tax deferred. Jinpan USA has not made any contributions. since set up simple IRS.

Hainan Jinpan, Jinpan China and Shanghai Jinpan have a defined contribution retirement plan for their employees. As required by PRC laws and organized by local government, Hainan Jinpan and Jinpan China make certain statutory contributions to the plan. All permanent employees are entitled to an annual pension that is equal to a fixed proportion of their final annual salary at their retirement date. Hainan Jinpan and Jinpan China and its employees are required to make contributions to the retirement plan at rates of 20% and 8% of each employee’s annual salary, respectively, while Shanghai Jinpan and its employees are required to make contributions to the retirement plan at rates of 21% and 8% of each employee’s annual salary. Payment is made, on a monthly basis, to a PRC insurance company organized by the PRC government, which is responsible for the payments of pension benefits to retired employees. Hainan Jinpan and Jinpan China have no obligations for the pension benefits beyond the annual contributions as described above. The pension costs recognized by Hainan Jinpan, Jinpan China ,Shanghai Jinpan and Guilin JFT during the years ended December 31, 2014, 2013 and 2012 amounted to RMB 18.6 million (US$ 3.0 million), RMB 10.1 million (US$ 1.6 million) and RMB 18.3 million(US$ 2.9 million), respectively.

F-22

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

18.	OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA

We operate in one reportable segment, electrical distribution equipment based on aggregation criteria:

(1) We manufacture and sell power control and distribution equipment, including cast resin transformers, substation, reactors, and switchgears. While each type of product has a different function, all are used to control and to distribute electric power. (2) While the manufacturing techniques and equipment may vary among product types, we apply the similar production process, quality, and cost monitoring and control systems throughout our manufacturing facilities. (3) Our customer base is not differentiated by the type of products. Our customers base comprise of resellers or end users of power control and distribution equipment, including OEMs, utilities, municipal governments, industrial companies, and commercial and residential developers. Customers often procure one or more types of products we offer depending on their requirements. (4) Presently, we use the same sales team and similar distribution channels for all of our products, because the customer base for our products are the same.

Thus, we report one operating segment based on aggregation criteria. We sell our products in the People’s Republic of China, the United States, and Europe.

Geographic area data

	Year ended December 31,
	2014		2014		2013		2012
	US$		RMB		RMB		RMB
	(In thousands)
Revenues from external customers:
United States		9,906		60,505		105,938		108,347
Europe		10,190		62,237		40,749		59,910
PRC		220,911		1,349,303		1,251,174		1,156,695
		241,007		1,472,045		1,397,861		1,324,952
Property, Plant, and Equipment by area:
United States		2,169		13,270		14,027		15,092
PRC		71,807		439,389		446,905		244,880
		73,976		452,659		460,932		259,972
Net Assets
United States		3,983		24,375		12,477		43,089
PRC		222,706		1,362,738		1,293,139		1,169,100
		226,689		1,387,113		1,305,616		1,212,189

19 EARNINGS PER SHARE

Basic earnings per share for the years ended December 31, 2014, 2013 and 2012 was computed by dividing net income of RMB 94.8 million (US$ 15.5 million), RMB 102.6 million (US$ 16.6 million) and RMB 88.5 million (US$ 14.1 million) respectively by the weighted average number of 16,232,381, 16,230,165 and 16,170,107 common shares outstanding, respectively.

Diluted earnings per share for the years ended December 31, 2014, 2013 and 2012 was computed by dividing net income of RMB 94.8 million (US$ 15.5 million), RMB 102.6 million (US$16.6 million) and RMB 88.5 million (US$14.1 million) by the weighted average number of 16,633,683, 16,711,192 and 16,717,277 common shares outstanding, respectively. The weighted average number of shares includes potentially dilutive common shares, which reflect the dilutive effect of stock options, preferred shares and warrants. Reconciliation of the denominator is as follows:

	2014		2013		2012

Denominator for basic earnings per share weighted average shares		16,232,381		16,230,165		16,170,107

Effect of dilutive securities:
Exercisable stock options		401,302		481,027		547,170
Convertible warrants				-		-
Denominator for diluted earnings per share adjusted weighted average shares and assumed conversions		16,633,683		16,711,192		16,717,277

F-23

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

20.

EQUITY

The Company issued 2,818, 77,000, and 12,000 shares respectively in 2014, 2013 and 2012 from its treasury shares to the employees who exercised their stock options.

The Company’s convertible preferred stock (“preferred stock”) is convertible at any time into common shares at the rate of 1-to-1 and each share of preferred stock entitles its holder to the same number of votes as a Common Share. In the event of the Company’s liquidation, dissolution or winding up, the holders of preferred stock are entitled to a preference over the holders of common shares in the distribution of assets in an amount equal to the sum of: (i) US$2.188 per share, and (ii) an amount equal to declared but unpaid dividends on each such share. There was no outstanding preferred shares at the end of December 31, 2014.

(a)

1997 Stock Option Plan

A total of 1,000,000 common shares have been reserved for issuance under the Company’s 1997 Stock Option Plan. The 1997 Stock Option Plan provides for options to employees, officers, directors and consultants of the Group. The 1997 Stock Option Plan, which was established in October 1997, is administered by the board of directors or a committee appointed by the board, which determines the terms of options granted, including the exercise price, the number of shares subject to the option and the option’s exercisability. The exercise price of all options granted under the 1997 Stock Option Plan must be at least equal to the fair market value of each share on the date of grant. The vesting period is determined in each stock option agreement. Options shall be fully vested and become exercisable at the date vested. The maximum term of options granted under the 1997 Stock Option Plan is 10 years.

(b)

Stock option transactions under 1997 Stock Option Plan

During 2013 and 2012 certain employees exercised stock options to purchase an aggregate of 100,000 shares and 12,000 shares of the Company’s common shares respectively. The Company received US$ 215,400 in 2013 and US$21,300 in 2012 from these exercises. No options were exercised under this plan in 2014.

(c)

2006 Stock Option Plan

In October 2006, the Company adopted the 2006 Stock Option Plan, under which 600,000 common shares have been reserved for issuance. The 2006 Stock Option Plan provides for options to employees, officers, directors and consultants of the Group. The 2006 Stock Option Plan is administered by the board of directors or a committee appointed by the board, which determines the terms of options granted, including the exercise price, the number of shares subject to the option and the option’s exercisability. The exercise price of all options granted under the 2006 Stock Option Plan must be at least equal to the fair market value of a Common Share on the date of grant. Options shall be fully vested and become exercisable on the date of vesting. The vesting period is determined in each stock option agreement. The maximum term of options granted under the 2006 Stock Option Plan is 10 years. We measure the fair value of each stock option grant at the date of grant using a Black-Scholes option pricing model.

(d)

Stock option transactions under the 2006 Stock Option Plan

F-24

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

In March 2012, the Company issued stock options to purchase 132,166 common shares to its directors and certain employees. These options are exercisable at the price of US$ 8.34 per share and will expire on September 7, 2016.

In June 2012, one employee exercised his options to purchase 12,000 common shares. The Company received US$ 21,300 from this exercise.

In March 2013, the Company issued stock options to purchase 61,800 common shares to its directors and certain employees. These options are exercisable at the price of US$ 5.53 per share and will expire on March 3, 2022.

In October 2013, the Company issued stock options to purchase 91,200 common shares to its directors and certain employees. These options are exercisable at the price of US$ 6.25 per share and will expire on October 7, 2016.

In March 2014, the Company issued stock options to purchase 203,200 common shares to its directors officers and certain employees. These options are exercisable at the price of US$ 8.56 per share and will expire on March 18, 2019.

(e)

Common Shares Reserved for Options and Preferred Stock.

	December 31, 2014		December 31, 2013

Stock options		520,548		548,366
Preferred stock		-		-

Total		520,548		548,366

(f)

Stock Option Valuation

We measure the fair value of each stock option grant at the date of grant using a Black-Scholes option pricing model. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options, including expected volatility, expected life, expected dividend rate and expected risk-free rate of return. The weighted-average exercise price for options outstanding as of December 31, 2014 was US$ 7.95. The weighted-average remaining contractual life of those options is 3.2 year.

The following assumptions were used for calculating fair value of stock options:

	December 31,		December 31,		December 31
	2014		2013		2012
Risk -free interest rate		0.91%	0.40% to 0.75 %		0.55% to 1.62%.
Average expected term (years)		3		3		3
Dividend yield		1.91%		2.40%		1.62%
Expected volatility	44.9% to 52.82%		44.9% to 63.48%		57.73% to 68.65%

The Company’s calculation of expected volatility for the year ended December 31, 2014 was based on the historical volatility of the Company’s stock price. We have adopted the guidance of ASC 718-10-S99-1 for purposes of determining the expected term for stock options. Due to limited historical data to rely upon, we use the “simplified” method in developing an estimate of expected term for stock options per ASC 718-10-S99-1. The interest rate is based on the U.S. Treasury yields in effect at the time of grant. While we believe that these assumptions are reasonable, actual experience may differ materially from these assumptions.

F-25

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

(g)

Option Award Activity

A summary of the Company’s stock option activities, and related information for the years ended December 31, 2014, 2013 and 2012 are as follows:


	2014					2013					2012
	Options			Weighted average exercise price		Options			Weighted average exercise price		Options			Weighted average exercise price
				US$					US$					US$

Outstanding at beginning of year		548,366			7.49		586,566			7.74		498,566			7.52
Granted		203,200			8.56		153,000			5.96		132,166			8.34
Exercised		(2,818	)		5.53		(100,000	)		2.15		(12,000	)		1.775
Cancelled		-			-		-			-		-			-
Forfeited		(228,200	)		-		(91,200	)		-		(32,166	)		-
Outstanding at the end of year		520,548			7.95		548,366			7.49		586,566			7.74
Exercisable at the year end		324,348			7.74		457,166			7.74		454,400			7.56

Weighted average grant-date fair value of options granted during the year					US$8.56					US$5.96					US$8.34

A summary of the status of the Company’s nonvested shares for the years ended December 31, 2014, 2013, 2012 are as follows


				Weighted-Average
				Grant-Date
Nonvested Shares	Shares			Fair Value (US$)
Nonvested at January 1, 2012		177,200			8.46
Granted		132,166			8.34
Vested		(177,200	)		8.46
Forfeited		-			-
Nonvested at December 31, 2012		132,166			8.34
Granted		153,000			5.96
Vested		(223,366	)		7.44
Forfeited		-			-
Nonvested at December 31, 2013		61,800			5.53
Granted		203,200			8.56
Vested		(61,800	)		5.53
Forfeited		(7,000	)		8.56
Nonvested at December 31, 2014		196,200			US$8.56

F-26

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

The Company recognized approximately RMB 2.7 million, RMB 1.4 million and RMB 2.6 million of compensation cost for the years ended December 31, 2014, 2013 and 2012, respectively. No income tax benefit was recognized for the years ended December 31, 2014, 2013 and 2012. The total intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was RMB 0.02 million , RMB 3.9 million and RMB 0.3 respectively. The total intrinsic value of all options outstanding (including vested options) during the year ended December 31, 2014 was RMB nil million. The total fair value of shares vested during the years ended December 31, 2014, 2013 and 2012 were approximately RMB 2.0 million , RMB 10.2 million and RMB 9.4 million respectively. Total compensation cost related to nonvested stock options that are not recognized at the end of December 31, 2014 and will be recognized in future years is RMB 0.7 million.

The following table summarizes information with respect to options outstanding at December 31, 2014:


			Outstanding
	Options		Weighted Average
Exercise	Number		Remaining
Price	Outstanding		Contractual Life (in years)

US$ 10.83		44,000		1.2
US$ 8.34		130,166		1.7
US$5.53		58,982		7.2
US$ 6.25		91,200		1.8
US$ 8.56		196,200		4.2
		520,548		3.2

21 SUBSEQUENT EVENT

a) Cash Dividend

According to the board of directors’ resolution on March 24, 2015, the board approved to pay annual cash dividend of US$ 0.03 per common shares in the year 2015 and the cash dividend is to be paid by the end of second quarter.

The Company has performed an evaluation of subsequent events through the date these consolidated financial statements were issued to determine whether the circumstances warranted recognition and disclosure of those events or transactions in the consolidated financial statements as of December 31, 2014.

F-27

Jinpan International Limited and Subsidiaries

Notes to Consolidated Financial Statements

22 QUARTERLY FINANCIAL DATA (Unaudited)

Summarized quarterly financial data for 2014 and 2013 is as follows:

	Quarter
Fiscal 2014	First		Second		Third		Fourth
RMB	unaudited		unaudited		unaudited		unaudited
Sales		253,035,775		402,487,008		378,260,046		438,261,778
Gross profit		78,324,882		134,844,876		123,947,540		123,827,223
Net income from continuing operations		9,289,887		32,364,810		26,146,348		26,957,036
Net income		9,289,887		32,364,810		26,146,348		26,957,036

Earnings per share - Basic		0.57		2.00		1.61		1.66
Earnings per share - Diluted		0.56		1.95		1.57		1.62

	Quarter
Fiscal 2013	First		Second		Third		Fourth
RMB	unaudited		unaudited		unaudited		unaudited
Sales		220,777,799		364,015,592		425,926,695		387,140,688
Gross profit		73,562,227		126,597,747		148,023,358		100,596,341
Net income from continuing operations		7,170,983		27,246,301		43,283,357		24,920,607
Net income		7,170,983		27,246,301		43,283,357		24,920,607

Earnings per share - Basic		0.44		1.69		2.66		1.53
Earnings per share - Diluted		0.41		1.64		2.60		1.49

F-28

Exhibit 8.1

JINPAN INTERNATIONAL LIMITED AND PRINCIPAL SUBSIDIARIES

AS OF DECEMBER 31, 2014


Name		State of Incorporation
Jinpan International (USA) Limited		State of New York

Jinpan Realty Group, LLC		State of New Jersey

Jinpan Electric (China) Company Limited		People’s Republic of China

Hainan Jinpan Electric Company Limited		People’s Republic of China

Hainan Jinpan R&D Company Limited		People’s Republic of China

Wuhan Jinpan Electric Company Limited		People’s Republic of China

Shanghai Jinpan Electric Company Limited		People’s Republic of China

Jinpan Electric Group Alternative Energy Equipment (Shanghai) Co. Ltd.		People’s Republic of China

Jinpan Electric Group Transmission and Distribution Automation Equipment (Shanghai) Co. Ltd.		People’s Republic of China

Shanghai Dong Dian International Trading Co. Ltd.		People’s Republic of China

Shanghai Pan-Ding Investment Co. Ltd.		People’s Republic of China

Guilin Jun Tai Fu Electric Co. Ltd.		People’s Republic of China

Shanghai Huanliu Industrial Co. Ltd.		People’s Republic of China

Exhibit 12.1

CERTIFICATION

I, Li Zhiyuan, certify that:

1. I have reviewed this annual report on Form 20-F of Jinpan International Limited;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a- 15(f) and 15d- 15(f)) for the company and we have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any changes in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: April 30, 2015


	/s/ Li Zhiyuan
	By:	Li Zhiyuan
	Title:	Chief Executive Officer
		(Principal Executive Officer)

Exhibit 12.2

CERTIFICATION

I, Mark Du, certify that:

1. I have reviewed this annual report on Form 20-F of Jinpan International Limited;

(a)

(b)

(c)

(d)

Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: April 30, 2015


	/s/ Mark Du
	By:	Mark Du
	Title:	Chief Financial Officer
		(Principal Financial and Accounting Officer)

Exhibit 13.1

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Jinpan International Limited (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Annual Report on Form 20-F for the year ended December 31, 2014 of the Company fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company.

April 30, 2015	By:	/s/ Li Zhiyuan
	Name:	Li Zhiyuan
	Title:	Chief Executive Officer

April 30, 2015	By:	/s/ Mark Du
	Name:	Mark Du
	Title:	Chief Financial Officer

Exhibit 14.1

Consent of Independent Registered Public Accounting Firm

We have issued our reports dated April 30, 2015 with respect to the consolidated financial statements and internal control over financial reporting included in the Annual Report of Jinpan International Limited on Form 20-F for the year ended December 31, 2014. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Jinpan International Limited on Form S-8 (No. 333-140109) and Post-Effective Amendment to Form S-8 (No. 333-140109).

/s/ Grant Thornton

Shanghai, The People’s Republic of China

April 30, 2015

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