China Netcom Technology Holdings Limited - Interim / Quarterly Report 2006

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CHARACTERISTICS OF THE GROWTH ENTERPRISE MARKET (“GEM”) OF THE STOCK EXCHANGE OF HONG KONG LIMITED (“STOCK EXCHANGE”)

GEM has been established as a market designed to accommodate companies to which a high investment risk may be attached. In particular, companies may list on GEM with neither a track record of profitability nor any obligation to forecast future profitability. Furthermore, there may be risks arising out of the emerging nature of companies listed on GEM and the business sectors or countries in which these companies operate. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.

Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board of the Stock Exchange and no assurance is given that there will be a liquid market in the securities traded on GEM.

The principal means of information dissemination on GEM is publication on the internet website operated by the Stock Exchange. Listed companies are not generally required to issue paid announcements in gazetted newspapers. Accordingly, prospective investors should note that they need to have access to the GEM website at “www.hkgem.com” in order to obtain up-to-date information on GEM-listed issuers.

– 1 –

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006

HIGHLIGHTS

The unaudited revenue of the Group for the six months ended 30 June 2006 was approximately HK$598,000, which was more than six times the amount of that for the corresponding period in 2005.
The Group recorded an unaudited loss of approximately HK$2,769,000 for the six months ended 30 June 2006, which increased by approximately 42% as compared with the restated figure of the corresponding period in 2005.
The unaudited loss per share for loss attributable to equity holders of the Company was approximately HK3.67 cents for the six months ended 30 June 2006.

RESULTS

The board of directors of the Company (“ Board ”) is pleased to announce the unaudited consolidated results of the Company and its subsidiaries (collectively, the “ Group ”) for the three months and six months ended 30 June 2006 together with the restated comparative figures for the corresponding periods in 2005 as follows:

CONDENSED CONSOLIDATED INCOME STATEMENT

For the three months and six months ended 30 June 2006

Notes Revenue 3 Cost of sales Gross (loss)/profit Other revenue Selling and distribution expenses Administrative expenses Operating loss Finance costs 5 Loss before income tax 6 Income tax expense 7 Loss for the period Loss per share for loss attributable to equity holders of the Company 8 – Basic – Diluted	(Unaudited) Three months ended 30 June (Restated) 2006 2005 *HK$’000* HK$’000 168 60 (256) (28) (88) 32 10 7 (78) 39 (48) – (834) (501) (960) (462) (536) (405) (1,496) (867) – – (1,496) (867) (HK1.98 cents) (HK1.15 cents) N/A N/A	(Unaudited) Six months ended 30 June (Restated) 2006 2005 *HK$’000* HK$’000 598 90 (614) (53) (16) 37 27 12 11 49 (91) – (1,648) (949) (1,728) (900) (1,041) (1,053) (2,769) (1,953) – – (2,769) (1,953) (HK3.67 cents) (HK2.59 cents) N/A N/A

– 2 –

CONDENSED CONSOLIDATED BALANCE SHEET

As at 30 June 2006

Notes ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 9 Current assets Inventories Trade receivables 10 Prepayments, deposits and other receivables Cash and cash equivalents Current liabilities Trade payables 11 Other payables and accrued expenses Convertible bonds 12 Loans from a shareholder 13 Net current liabilities Total assets less current liabilities Non-current liabilities Due to minority shareholders of subsidiaries Net liabilities EQUITY Equity attributable to equity holders of the Company Share capital 14 Reserves Total equity	(Unaudited) 30 June 2006 *HK$’000* 84 65 256 101 1,174 1,596 213 747 8,623 13,500 23,083 (21,487) (21,403) (499) (21,902) 754 (22,656) (21,902)	(Audited) 31 December 2005 HK$’000 60 – 187 165 1,854 2,206 30 801 7,980 12,089 20,900 (18,694) (18,634) (499) (19,133) 37,686 (56,819) (19,133)

– 3 –

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six months ended 30 June 2006

At 1 January 2005, as previously reported Effect of initial adoption of HKAS 32 At 1 January 2005, as restated Loss for the period (Total recognised income and expense for the period) Redemption of convertible bond At 30 June 2005, as restated At 1 January 2006 Loss for the period (Total recognised income and expense for the period) Par value reduction At 30 June 2006	Share capital HK$’000 37,686 – 37,686 – – 37,686 37,686 – (36,932) 754	(Unaudited) Share Convertible premium bond equity Translation Accumulated account reserve reserve losses HK$’000 HK$’000 HK$’000 HK$’000 15,796 – (10) (70,407) – 4,875 – (2,542) 15,796 4,875 (10) (72,949) – – – (1,953) – (1,656) – 1,656 15,796 3,219 (10) (73,246) – 3,219 (15) (60,023) – – – (2,769) – – – 36,932 – 3,219 (15) (25,860)	Total HK$’000 (16,935) 2,333 (14,602) (1,953) – (16,555) (19,133) (2,769) – (21,902)

The aggregate amount of these balances of HK$22,656,000 (As at 31 December 2005: HK$56,819,000) in deficit is included as reserves in the condensed consolidated balance sheet as at 30 June 2006.

– 4 –

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30 June 2006

Net cash used in operating activities Net cash (used in)/from investing activities Net cash from financing activities NET DECREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of period CASH AND CASH EQUIVALENTS AT END OF PERIOD	(Unaudited) Six months ended 30 June (Restated) 2006 2005 *HK$’000* HK$’000 (2,037) (2,312) (43) 12 1,400 1,929 (680) (371) 1,854 893 1,174 522

– 5 –

Notes:

1) Basis of preparation

The unaudited condensed consolidated financial statements of the Group for the six months ended 30 June 2006 have been prepared in accordance with the Hong Kong Financial Reporting Standards (“ HKFRS ”) and comply with Hong Kong Accounting Standard (“ HKAS ”) 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants (“ HKICPA ”), and the applicable disclosure requirements of Chapter 18 of GEM Listing Rules. They have been prepared under historical cost convention.

2) Significant accounting policies

The significant accounting policies used in the preparation of the unaudited condensed consolidated financial statements for the six months ended 30 June 2006 are consistent with those used in the preparation of the Company’s annual financial statements for the year ended 31 December 2005.

The Group has adopted the following standards that have been issued and effective for periods beginning on or after 1 January 2006. The adoption of such standards did not have material effect on the unaudited condensed consolidated financial statements.

HKAS 21 (Amendment) The Effects of Changes in Foreign Exchange Rates-Net Investment in a Foreign Operation HKAS 39 (Amendment) The Fair Value Option

The Group has not early adopted the following standards that have been issued but are not yet effective. The adoption of such standards will not result in substantial changes to the Group’s accounting policies.

HKAS 1 (Amendment) Capital Disclosures HKFRS 7 Financial Instruments-Disclosures HK(IFRIC) – Int 8 Scope of HKFRS 2 HK(IFRIC) – Int 9 Reassessment of Embedded Derivatives

3) Revenue

Revenue, which is also the Group’s turnover, represents the net invoiced value of services rendered during the six months ended 30 June 2006.

– 6 –

4) Segment Information

The following table presents the revenue and results for the Group’s business segments.

Internet-based and Windows-based applications, web page design and website maintenance (Unaudited) Six months ended 30 June 2006 2005 *HK$’000* HK$’000 Segment revenue: Sales to external customers 3 – Segment results: (5) (23) Interest income Unallocated expenses Operating loss Finance costs Loss before income tax Income tax expense Loss for the period	System integration (Unaudited) Six months ended 30 June 2006 2005 *HK$’000* HK$’000 62 – (27) –	Information technology consultancy services (Unaudited) Six months ended 30 June 2006 2005 *HK$’000* HK$’000 533 90 16 60	Consolidated (Unaudited) Six months ended 30 June (Restated) 2006 2005 *HK$’000* HK$’000 598 90 (16) 37 27 12 (1,739) (949) (1,728) (900) (1,041) (1,053) (2,769) (1,953) – – (2,769) (1,953)	Consolidated (Unaudited) Six months ended 30 June (Restated) 2006 2005 *HK$’000* HK$’000 598 90 (16) 37 27 12 (1,739) (949) (1,728) (900) (1,041) (1,053) (2,769) (1,953) – – (2,769) (1,953)

				37 12 (949)
				(900) (1,053)
				(1,953) –
				(1,953)

5) Finance costs

(Unaudited) Three months ended 30 June (Restated) 2006 2005 *HK$’000* HK$’000 Interest charges on: – Loans from a shareholder, wholly repayable within five years 145 67 – Convertible bonds 391 338 536 405	(Unaudited) Six months ended 30 June (Restated) 2006 2005 *HK$’000* HK$’000 263 70 778 983 1,041 1,053	(Unaudited) Six months ended 30 June (Restated) 2006 2005 *HK$’000* HK$’000 263 70 778 983 1,041 1,053
		1,053

– 7 –

6) Loss before income tax

The Group’s loss before income tax is arrived at after crediting and charging the followings:

(Unaudited) Three months ended 30 June 2006 2005 *HK$’000* HK$’000 Crediting: Interest income 10 7 Charging: Cost of services provided 256 28 Auditors’ remuneration 45 45 Depreciation 14 19 Staff costs (excluding Directors’ remuneration): Wages and salaries 439 143 Pension scheme contributions (MPF) 15 4 Minimum lease payments paid under operating leases in respect of: – Land and buildings 45 44 – Computer server 2 17	(Unaudited) Six months ended 30 June 2006 2005 *HK$’000* HK$’000 27 12 614 53 90 90 36 39 836 332 30 11 89 88 6 17	(Unaudited) Six months ended 30 June 2006 2005 *HK$’000* HK$’000 27 12 614 53 90 90 36 39 836 332 30 11 89 88 6 17

		53 90 39 332 11 88 17

7) Income tax expense

Hong Kong profits tax has not been provided as the Group did not generate any assessable profits arising in Hong Kong during the three months and six months ended 30 June 2006 and the corresponding periods in 2005.

Provision for the profits tax of subsidiaries operating outside Hong Kong has not been provided as the subsidiaries did not generate any assessable profits in the respective jurisdictions during the three months and six months ended 30 June 2006 and the corresponding periods in 2005.

The Group did not have any significant unprovided deferred tax liabilities for the three months and six months ended 30 June 2006 and the corresponding periods in 2005.

– 8 –

8) Loss per share

The calculation of basic loss per share is based on the unaudited consolidated loss attributable to equity holders of the Company during the three months and six months ended 30 June 2006 of HK$1,496,000 and HK$2,769,000 respectively (three months and six months ended 30 June 2005 restated: HK$867,000 and HK$1,953,000, respectively) and 75,372,000 ordinary shares of the Company in issue during the aforementioned two respective periods ended 30 June 2006 (three months and six months ended 30 June 2005: 75,372,000 ordinary shares as adjusted to reflect the share consolidation on the basis of every 10 issued and unissued shares of HK$0.05 each in the capital of the Company into one ordinary share of HK$0.50 each which became effective on 17 November 2005 (“ Share Consolidation ”)).

Diluted loss per share for the three months and six months ended 30 June 2006 and that for the three months and six months ended 30 June 2005 have not been disclosed as the share options and the convertible bonds outstanding during the respective periods had an anti-dilutive effect on the basic loss per share for the relevant periods.

9) Property, plant and equipment

At 1 January 2005 (Audited)
Cost
Accumulated depreciation
Net book amount
Year ended 31 December 2005 (Audited)
Opening net book amount
Additions
Depreciation
Closing net book amount
At 31 December 2005 (Audited)
Cost
Accumulated depreciation
Net book amount
Period ended 30 June 2006 (Unaudited)
Opening net book amount
Additions*
Depreciation
Closing net book amount
At 30 June 2006 (Unaudited)
Cost
Accumulated depreciation
Net book amount

Total
HK$’000
2,559
(2,441)
118
118
25
(83)
60
2,584
(2,524)
60
60
60
(36)
84
2,644
(2,560)
84

Leasehold improvements incurred in May 2006 are subject to depreciation over the estimated useful life of five years on a straight-line basis.

– 9 –

10) Trade receivables

A defined credit policy is maintained within the Group. The general credit terms range from 30 days to 45 days (2005: 30 days to 90 days). The Group seeks to maintain strict control over its outstanding receivables to minimise credit risk. Overdue balances are regularly reviewed by the senior management.

The aged analysis of trade receivables is as follows:

Current – 3 months 3 – 6 months	(Unaudited) 30 June 2006 *HK$’000* 225 31 256	(Audited) 31 December 2005 HK$’000 187 –
		187

11) Trade payables

The aged analysis of trade payables is as follows:

Current – 3 months 3 – 6 months	(Unaudited) 30 June 2006 *HK$’000* 200 13 213	(Audited) 31 December 2005 HK$’000 30 –
		30

12) Convertible bonds

On 27 October 2003, the Company issued convertible bonds at a nominal value of HK$9 million to Sun Wah Net Investment Limited (“ Sun Wah ”). The convertible bonds were unsecured, interest bearing at 3% per annum and the interest was repayable half yearly in arrears. Under the terms of the convertible bonds, the Company shall have the right at any time before the maturity date on 27 October 2006, to redeem or purchase the whole or part of the convertible bonds from Sun Wah. Furthermore, Sun Wah has the right to convert the whole or part of the convertible bonds into the Company’s ordinary shares at a conversion price of HK$0.50 per each conversion share (as adjusted by the Share Consolidation), subject to adjustment, at any time before the maturity date on 27 October 2006. However, Sun Wah does not have any rights to request for redemption of the whole or part of the convertible bonds before the maturity date on 27 October 2006. Moreover, no assignment or transfer of the convertible bonds may be made without the prior consent of the Company.

– 10 –

The Company shall only redeem the whole or part of the convertible bonds, in cash, if the adequacy of working capital and liquidity of the Group are not impaired by such redemption.

The convertible bonds contain both liability and equity components. Upon the adoption of HKAS 32 Financial Instruments: Disclosure and Presentation, the convertible bonds were split between the liability and equity components, on a retrospective basis.

The fair values of the liability components of the Company’s convertible bonds were estimated at the issuance dates using equivalent market interest rates for similar bonds without a conversion option. The residual amounts, after deducting the fair values of the liability components from the fair value of the convertible bonds as a whole, representing the values of the equity components, are included in equity as convertible bond equity reserve.

13) Loans from a shareholder

Pursuant to a loan agreement signed between the Company and Sun Wah dated 2 May 2006, the Company obtained a new short-term loan of HK$12.2 million (“ Shareholder’s Loan to the Company ”) from Sun Wah which was mainly used to repay the outstanding principal of HK$11.4 million and accrued interest of HK$0.2 million of a shareholder’s loan of HK$12 million which was previously granted by Sun Wah to the Company on 18 October 2005. Thereafter, the balance of fund from the Shareholder’s Loan to the Company in the amount of approximately HK$0.6 million was retained as working capital of the Group. The Shareholder’s Loan to the Company is unsecured, interest bearing at 5% per annum and repayable on 2 August 2006. As at 30 June 2006, the balance of the Shareholder’s Loan to the Company, at amortised cost using the effective interest method, was HK$12.3 million.

Pursuant to a loan agreement signed between a subsidiary of the Company and Sun Wah dated 12 June 2006, a new short-term loan of HK$1.2 million was advanced from Sun Wah (“ Shareholder’s Loan to a Subsidiary of the Company ”) for repayment of the principal and accrued interest of a shareholder’s loan to a subsidiary of the Company of HK$0.6 million which was previously granted by Sun Wah on 24 November 2005 . Thereafter, the balance of fund of the Shareholder’s Loan to a Subsidiary of the Company of approximately HK$0.6 million was retained as the working capital of that subsidiary of the Company. The Shareholder’s Loan to a Subsidiary of the Company is unsecured, interest-bearing at 5% per annum and repayable on 12 August 2006. As at 30 June 2006, the balance of the Shareholder’s Loan to a Subsidiary of the Company, at amortised cost using the effective interest method, was HK$1.2 million.

Accordingly, the balance of the consolidated shareholder’s loans stated at amortised cost using the effective interest method was HK$13.5 million as at 30 June 2006 (As at 31 December 2005: HK$12.1 million).

– 11 –

14) Share capital

Authorised: At 31 December 2005, ordinary shares of HK$0.50 each (Audited) Par value reduction_(Note) At 30 June 2006, ordinary shares of HK$0.01 each (Unaudited) Issued and fully paid: At 31 December 2005, ordinary shares of HK$0.50 each (Audited) Par value reduction(Note)_ At 30 June 2006, ordinary shares of HK$0.01 each (Unaudited)	Number of shares 200,000,000 9,800,000,000 10,000,000,000 75,372,000 – 75,372,000	HK’000 100,000 – 100,000 37,686 (36,932) 754

Note: Details of the par value reduction had been mentioned in the paragraph headed “Capital structure” in the first quarterly results announcement for the three months ended 31 March 2006.

15) Interim dividend

The Board does not recommend the payment of an interim dividend in respect of the six months ended 30 June 2006 (six months ended 30 June 2005: nil).

– 12 –

MANAGEMENT DISCUSSION AND ANALYSIS

Business Review

For the three months and six months ended 30 June 2006, the Group recorded an unaudited revenue of HK$168,000 and HK$598,000, which were more than two times and six times the amounts of that for the corresponding periods in 2005 respectively. The revenue was primarily derived from the provision of Internet-based and Windows-based applications, web pages design and website maintenance, system integration and information technology consultancy services. There was a gross loss of HK$16,000 sustained for the six months ended 30 June 2006 because of the keen competition in the information technology industry.

During the six months ended 30 June 2006, selling and distribution expenses were approximately HK$91,000, while there were no such expenses for the corresponding period in 2005. Such expenses incurred were due to the recruitment of a new sales manager in January 2006 to further promote the business of the Group upon economic recovery.

Administrative expenses for the six months ended 30 June 2006 were greatly increased by approximately 74%, as compared with that for the corresponding period in 2005. Such increase was partly due to higher salary payments upon economic recovery and partly caused by the additional legal and professional expenses incurred in the capital reorganisation completed in February 2006.

Accordingly, the loss of the Company increased by approximately 42% for the six months ended 30 June 2006 as compared with that for the corresponding period in 2005.

Prospects

In the future, the management team continues to focus on diversified business segments such as information technology development outsourcing services, consultancy services and system integration services. Internally, the management contemplates to divert internal resources for launching sales support and strengthen working capital management. The Group remains continuously optimistic about its future business development in the long run. Strategically, the Group would explore new possible investment opportunities in order to generate more businesses and achieve stable growth.

FINANCIAL REVIEW

Liquidity and financial resources

The Group financed its operation primarily with internally generated cash flow together with shareholder’s loans from its substantial shareholder, Sun Wah. The Group continued to adopt a prudent financial management policy.

– 13 –

As at 30 June 2006, the Group had total outstanding borrowings of approximately HK$22.6 million. (As at 31 December 2005: HK$20.6 million).

The outstanding borrowings comprised mainly the unsecured convertible bonds at a nominal value of HK$9 million stated at amortised cost of HK$8.6 million (As at 31 December 2005: HK$7.9 million), which will mature on 27 October 2006, and total loans of HK$13.5 million granted by Sun Wah to the Company and to a subsidiary of the Company on 2 May 2006 and 12 June 2006 respectively (As at 31 December 2005: HK$12.1 million) with maturity dates on 2 August 2006 and 12 August 2006 respectively.

Capital structure

As at 30 June 2006, the Company’s total number of issued shares was 75,372,000 (As at 31 December 2005: 75,372,000). Subsequent to the par value reduction which became effective on 15 February 2006, the issued share capital was reduced to HK$753,720, divided into 75,372,000 ordinary shares of HK$0.01 each. Details of the aforesaid par value reduction had already been mentioned in the paragraph headed “Capital structure” on page 7 of the first quarterly results announcement ended 31 March 2006.

As at 30 June 2006, the Group had convertible bonds at a nominal value of HK$9 million (As stated in the condensed consolidated balance sheet at amortised cost of approximately HK$8.6 million as at 30 June 2006) outstanding (As at 31 December 2005: HK$7.9 million). Details of the convertible bonds for the six months ended 30 June 2006 are set out in note 12 to the condensed consolidated balance sheet as at 30 June 2006.

Gearing ratio

As at 30 June 2006, the Group’s gearing ratio was approximately -1.03 (As at 31 December 2005: -1.08), based on the total borrowings of approximately HK$22.6 million (As at 31 December 2005: HK$20.6 million) and deficiencies in assets of approximately HK$21.9 million (As at 31 December 2005: HK$19.1 million).

Investment, material acquisitions and disposals of subsidiaries and affiliated companies

The Group had no significant investment during the period under review. There were no material acquisitions or disposals of subsidiaries and affiliated companies during the six months ended 30 June 2006 (six months ended 30 June 2005: nil).

– 14 –

Segment comments

For the six months ended 30 June 2006, the segment revenue and segment results of information technology consultancy services indicated to be a profitable business segment. Hence, the Group would consolidate internal resources to focus on information technology consultancy services apart from exploring information technology outsourcing services in the future.

Employee information

As at 30 June 2006, the Group employed a total of 8 (As at 30 June 2005: 4 ) employees. The staff costs, excluding director’s remuneration, were approximately HK$866,000 (As at 30 June 2005: HK$343,000). The staff costs increased due to the business growth and an increase in the number of staff employed during the period under review.

The salaries and benefits of the Group’s employees are kept at a competitive level and employees are rewarded on a performance-related basis within the general framework of the Group’s salary and bonus system, which is reviewed annually. The Group also operates a share option scheme where options to subscribe for shares of the Company may be granted to the executive Directors and full-time employees of the Group. The purpose of the scheme is to recognise staff outstanding performance and help the Group to retain key staff members.

Full time employees of the Company are remunerated with basic salary, performance bonuses, employee insurance and mandatory provident funds.

Charges on group assets

As at 30 June 2006, none of the Group’s assets was pledged (As at 31 December 2005: nil).

Exchange rate risk

For the six months ended 30 June 2006, most of the Group’s transactions, including borrowings, were generally denominated in Hong Kong dollars with few transactions occasionally denominated in Renminbi. In this respect, the Group was not exposed to any significant foreign exchange risk.

Contingent liabilities

As at 30 June 2006, the Group had no significant contingent liabilities (As at 31 December 2005: Nil).

– 15 –

DIRECTORS’ INTERESTS AND SHORT POSITIONS IN THE SHARES AND UNDERLYING SHARES OF THE COMPANY OR ANY ASSOCIATED CORPORATIONS

As at 30 June 2006, the interests and short positions of each Director and chief executive in the share capital of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance, Cap. 571 of the Laws of the Hong Kong (“ SFO ”)), as recorded in the register required to be kept by the Company pursuant to Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to Rule 5.46 of the GEM Listing Rules were as follows:

Long positions in the ordinary shares of HK$0.01 each in the Company (“Shares”) and underlying Shares of the Company

		Attributable			Number of
		interest to	Number of	Number of	Shares and
Name of director	Capacity	the director	Shares held	share options	underlying Shares
Mr. Choi Koon Ming	Beneficial owner	100% (directly)	–	750,000	750,000
Mr. Ng Kam Yiu	Beneficial owner	100% (directly)	–	300,000	300,000
Mr. Chow Yeung Tuen,	Beneficial owner	100% (directly)	–	300,000	300,000
Richard

Share options

The principal purpose of the share option scheme of the Company adopted on 19 February 2001 (“ Share Option Scheme ”) is to recognise the significant contributions of the directors and employees of the Group to the growth of the Group, by rewarding them with opportunities to obtain an ownership interest in the Company and to further motivate and give incentives to these persons to continue to contribute to the Group’s long term success and prosperity.

Following the Share Consolidation, the total number of share options outstanding was reduced by 12,150,000 and was then adjusted to 1,350,000. The exercise price of the share options outstanding and the closing price of the Share immediately before the date of granting options had also been adjusted from HK$0.115 to HK$1.15 and from HK$0.114 to HK$1.14 accordingly.

– 16 –

Details of the share options granted under the Share Option Scheme to certain Directors which remained outstanding as at 30 June 2006 are as follows:

Name of Date of grant directors of share options Mr. Choi Koon Ming 21 January 2003 Mr. Ng Kam Yiu 21 January 2003 Mr. Chow Yeung Tuen, 21 January 2003 Richard	Number of Shares underlying the share Exercise price options as at Exercise period per share 30 June 2006 of share options option HK$ 750,000 21 January 2003 to 1.148 20 January 2008 300,000 8 January 2004 to 1.148 7 January 2009 300,000 21 January 2003 to 1.148 20 January 2008 1,350,000

No share options had been granted under the Share Option Scheme during the six months ended 30 June 2006 and no option previously granted under the Share Option Scheme had been exercised during the same period.

Save as disclosed above, as at 30 June 2006, none of the Directors had registered an interest or short positions in the Shares, or underlying Shares or any of its associated corporations (within the meaning of Part XV of the SFO) that was required to be recorded pursuant to Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to Rule 5.46 of the GEM Listing Rules.

– 17 –

INTERESTS AND SHORT POSITIONS OF SHAREHOLDERS DISCLOSEABLE UNDER THE SFO

As at 30 June 2006, the following interests of 5% or more in the issued share capital, share options and convertible bonds of the Company were recorded in the register of interests required to be kept by the Company pursuant to Section 336 of SFO:

Long positions in the Shares and underlying Shares:

			Percentage
Name of			of issued share		Number of
substantial	Capacity and		capital of the	Number of	Shares and
shareholder of	nature of	Number of	Company as at	underlying	underlying
the Company	interest	Shares held	30 June 2006	Shares held	Shares
global.com Investments	Beneficial owner	15,557,000	20.6%	–	15,557,000
Corp.(Note 1)
Santana Enterprises Limited	Through a controlled	15,557,000	20.6%	–	15,557,000
(Note 1)	corporation
Yuen Fat Ching_(Note 1)_	Settlor	15,557,000	20.6%	–	15,557,000
Bornwise Investments	Security interest	15,557,000	20.6%	–	15,557,000
Limited_(Note 2)_
Cheung Wo Sin_(Note 2)_	Through a controlled	15,557,000	20.6%	–	15,557,000
	corporation
Glory Cyber Company Limited	Beneficial owner	10,000,000	13.3%	–	10,000,000
(“Glory Cyber”)(Note 3)
Luan Shusheng	Through a controlled	10,000,000	13.3%	–	10,000,000
(“Mr. Luan”)(Note 3)	corporation
Sun Wah_(Note 4)_	Beneficial owner	9,547,400	12.7%	18,000,000	27,547,400
Sun Wah Hi-Tech Holdings	Through a controlled	9,547,400	12.7%	18,000,000	27,547,400
Limited_(Note 4)_	corporation
Choi Koon Shum_(Note 4)_	Through a controlled	9,547,400	12.7%	18,000,000	27,547,400
	corporation
Tai Lee Assets Limited_(Note 5)_	Beneficial owner	9,440,600	12.5%	–	9,440,600
Tsoi Siu Lan, Mazie_(Note 5)_	Through a controlled	9,440,600	12.5%	–	9,440,600
	corporation
Ceroilfood Finance Limited	Beneficial owner	8,302,200	11.0%	–	8,302,200
(Note 6)
China National Cereals Oils	Through a controlled	8,302,200	11.0%	–	8,302,200
and Foodstuffs Import and	corporation
Export Corporation_(Note 6)_

– 18 –

Notes:

(1) global.com Investments Corp. is a company wholly owned by Santana Enterprises Limited as the trustee of The YFC Unit Trust, 99.9% of the units of which are owned by The YFC Family Trust, a discretionary trust of which the children of Mr. Yuen Fat Ching (“ Mr. Yuen ”) are the only beneficiaries. The balance of 0.1% of the units of The YFC Unit Trust is held by Mr. Yuen’s mother. Mr. Yuen is the settlor of The YFC Family Trust.
(2) Bornwise Investments Limited is a company incorporated in the British Virgin Islands and beneficially owned by Mr. Cheung Wo Sin. Bornwise Investments Limited and Mr. Cheung Wo Sin are deemed to be interested in 15,557,000 Shares and such Shares have been pledged to Bornwise Investments Limited.
(3) Glory Cyber is a company incorporated in Hong Kong with limited liability, the issued share capital of which is owned as to 70% by Mr. Luan. The indirect interest of Mr. Luan in the 10,000,000 Shares is held by Glory Cyber.
(4) Sun Wah is a wholly owned subsidiary of Sun Wah Hi-Tech Holdings Limited, which is wholly and beneficially owned by Mr. Choi Koon Shum, the brother of Mr. Choi Koon Ming. As at 30 June 2006, Sun Wah is also the holder of convertible bonds at a nominal value of HK$9 million issued by the Company, upon exercise of the conversion rights attaching thereto would entitle Sun Wah to subscribe for 18,000,000 ordinary shares (as adjusted by the Share Consolidation), representing approximately 23.88% of the issued share capital of the Company.
(5) Tai Lee Assets Limited is beneficially owned by Ms. Tsoi Siu Lan, Mazie, who is the sister of Mr. Choi Koon Ming.
(6) Ceroilfood Finance Limited is a wholly owned subsidiary of China National Cereals Oils and Foodstuffs Import and Export Corporation, a state-owned enterprise, which is principally engaged in the import and export of cereals, oil and foodstuffs in the People’s Republic of China.

Save as disclosed above, no person other than the Directors, whose interests are set out in the section headed “Directors’ interests and short positions in the shares and the underlying shares of the Company or any associated corporations” and shareholders, whose interests are set out in the paragraph headed “Interests and short positions of the shareholders discloseable under the SFO” above, had registered an interest or short position in the Shares or underlying Shares that was required to be recorded pursuant to Section 336 of the SFO.

OTHER INTERESTS DISCLOSEABLE UNDER THE SFO

Save as disclosed in the paragraphs headed “Directors’ interests and short positions in the shares and underlying shares of the Company or any associated corporations” and “Interests and short positions of shareholders discloseable under the SFO” above, so far as is known to the Directors, there is no other person who has an interest or short position in the Shares and underlying Shares that is discloseable under the Section 336 of SFO.

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AUDIT COMMITTEE

The Company has an audit committee which was established with written terms of reference in compliance with the GEM Listing Rules. The audit committee had three members comprising the three independent non-executive Directors, namely Mr. Wu Tak Lung (Chairman of the audit committee), Mr. Phillip King and Mr. Ng Cheuk Tat, Ambrose as at 30 June 2006.

The primary duties of the audit committee are to review and supervise the financial reporting process and internal control and risk management systems of the Group. The Group’s interim results for the six months ended 30 June 2006 have been reviewed by the members of the audit committee, who are of the opinion that such statements comply with the applicable accounting standards, the Stock Exchange listing requirements and other legal requirements, and that adequate disclosures have been made.

CODE ON CORPORATE GOVERNANCE PRACTICES

For the six months ended 30 June 2006, the Company has complied with the requirements of the code provisions set out in the Code on Corporate Governance Practices contained in Appendix 15 of the GEM Listing Rules.

CODE OF CONDUCT FOR SECURITIES TRANSACTIONS BY DIRECTORS

During the six months ended 30 June 2006, the Company has adopted a code of conduct for securities transactions by Directors (“ Code ”) which is no less exacting than the required terms for dealing of Shares by Directors as set out in Rules 5.48 to 5.67 of the GEM Listing Rules. In addition, the Company has made specific inquiry with all the Directors, and has not been notified of any non-compliance with the standard for dealings of securities by Directors and the Code.

COMPETITION AND CONFLICT OF INTERESTS

None of the Directors, the management shareholders or substantial shareholders of the Company or any of their respective associates has an interest in a business, which causes or may cause any significant competition with the business of the Group.

PURCHASE, REDEMPTION OR SALE OF LISTED SECURITIES OF THE COMPANY

Neither the Company nor any of its subsidiaries purchased, redeemed or sold any of the Company’s listed securities during the six months ended 30 June 2006.

By Order of the Board Glory Future Group Limited Choi Koon Ming Chairman

Hong Kong, 9 August 2006

As at the date hereof, the executive Directors are Messrs. Choi Koon Ming, Ng Kam Yiu and Chow Yeung Tuen, Richard; and the independent non-executive Directors are Messrs. Wu Tak Lung, Phillip King and Ng Cheuk Tat, Ambrose.

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