Crypto Flow Technology Limited - Annual Report 2005

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Wafer Systems Limited **威發系統有限公司[*]**

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8198)

ANNUAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2005

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

The Exchange takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

As at the date of this announcement, the executive director of the Company is Mr. Chan Sek Keung, Ringo, the non-executive directors are Ms. Clara Ho, Mr. Alasdair Gordon Nagle and Mr. Kwan Kit Tong and the independent non-executive directors are Mr. Pang Hing Chung, Alfred, Mr. Tsoi Tai Wai, David and Mr. Yu Zhonghou.

This announcement, for which the directors (the “Directors”) of Wafer Systems Limited (the “Company”) collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on the GEM of the Exchange (the “GEM Listing Rules”) for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief: (i) the information contained in this announcement is accurate and complete in all material respects and not misleading; (ii) there are no other matters the omission of which would make any statement in this announcement misleading; and (iii) all opinions expressed in this announcement have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

For identification purpose only
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CHAIRMAN’S STATEMENT

TO OUR SHAREHOLDERS

For and on behalf of the board of Directors (the “Board”), I am pleased to present the annual report of Wafer Systems Limited (the “Company”) and its subsidiaries (collectively, “Wafer Systems” or the “Group”) for the year ended 31 December 2005 (the “Review Period”).

During the Review Period, turnover increased by approximately 37% to approximately HK$368 million (2004: HK$270 million) while net profit decreased by approximately 47% to approximately HK$1.44 million (2004: HK$2.01 million).

FINANCIAL PERFORMANCE

During the Review Period, China remained the Group’s substantial source of business. Network Infrastructure business accounted for the Group’s main source of revenue, generating turnover of approximately HK$320 million, (2004: HK$241 million). Turnover from Professional Services business amounted to approximately HK$46 million (2004: HK$25 million) while turnover from Network Software was approximately HK$2.4 million (2004: approximately HK$4.0 million).

FINAL DIVIDEND

The Board of Directors does not recommend the payment of any dividend for the year ended 31 December 2005. (2004: Nil)

BUSINESS REVIEW

Through participation in large scale projects, such as the CN2 project of China Telecom, the Group had gained more experience and knowledge into service providers operations. Such deeper knowledge is most important in the Group’s future success when the markets goes into the 3G era and with new next generation network (“NGN”) services as in voice over IP (“VOIP”) and IPTV services. Even more important will be the groundwork now being laid in the sale of software which the Group has been developing and now near maturity.

Professional Services has shown a very satisfactory growth during the Review Period.

Higher market share and penetration had been achieved, especially among the multinational corporations (“MNCs”) in which the Group has a traditional strong hold as the result of high customer satisfaction.

Although competition has been keen, the Group remained much focused in our core business and has made heavy investments to improve our competitive strength in the areas of advanced technologies and professional services to cope with the challenge & opportunity in the coming NGN Era.

The ability to master advanced technologies is critical to the continued success of the Group. The business of network communications has evolved into the third phase. The first phase was for pure data transmission network. The second phase saw the pure data network evolving into a network of networks where an IP based backbone supporting multiple services and applications running over it. The third phase is the IP NGN where the network will be used as a platform enabling collaboration and inter-reaction of applications, converged real time communications, virtual storage and quadruple play services, etc. etc.

Wafer Systems has built up strong capability in advanced technologies and formed strong alliance with leading partners like Cisco Systems Inc. We are specialized partner of Cisco System in the areas of network security, IP telephony and wireless communications. For 2005 the Group was awarded the Global Partner of the Year in the Commercial Sector in recognition of its achievements.

The Group has developed a suite of IP NGN management software in the past few years. In 2005, we have consolidated, productized and packaged them into a portfolio of softwares addressing both the service provider market and the enterprise markets.

Service is a key differentiator of our Group’s go to market strategy. We are serving hundreds of large multinational corporation and telecom operators. They choose Wafer Systems primarily because of our capability to provide good services.

Over the years, Wafer Systems has already established our reputation as a reliable provider of traditional services like product installation, maintenance and project management. In 2005 we have invested heavily to equip us in the advanced services space to provide support across the entire network lifecycle. These included from planning to the implementation and ongoing network improvement. This will enhance our position in the services value chain, further securing our partnership with our customer and most important of all, ensure our customers’ success.

PROSPECTS

The Group has successfully penetrated into the telecommunications service provider market and established stable revenue source. With the advent of the 3G communications, tipped to be launched in China in the near future, the Group will benefit.

On the other hand the strong technical capabilities of the Group’s networking engineers has advanced the Group’s ability to provide high value advanced Professional Services in consultancy, for the MNCs market.

The overall market while competitive has become more rationalized and will improve gradually. Over the past two years, the Group has invested to transform itself to a new business model focusing in advanced technologies and network life cycle services. This will position the Group in a more favorable competitive position.

With customer satisfaction in mind as our prime motivator, we will continue to provide the most suitable solution and professional services to clients who wish to reap the full benefits of the IP NGN era.

CONCLUSION

The Group has laid down a solid foundation going forward which is the direct result and the concerted efforts of our dedicated staff. In addition to the teamwork, for which I am most thankful, the Group’s insistence in observing its vision and mission, and its emphasis on its corporate values were also vital in driving our achievements in the challenging market.

I take the opportunity to also thank our customers, suppliers, bankers, investors, business partners and advisors for their continued trust and support.

I would also like to thank my fellow directors for their wise counsel and support to me personally and contributions of time and efforts to the Group during the year.

CHAN Sek Keung, Ringo

Chairman and Chief Executive Officer

Hong Kong, 28 March, 2006

MANAGEMENT DISCUSSION & ANALYSIS

Liquidity, Financial Resources and Capital Structure

During the Review Period, the Group kept its conservative policies in cash and financial management. Surplus funds were placed on interest-bearing deposits with banks. The Group generally financed its operations and serviced its debts with its internal resources and short-term bank loans.

The Group remained healthy in the financial and liquidity position during the Review Period. As at 31 December 2005, the Group had net current assets of approximately HK$48.8 million, a 5% increase over last year end of HK$46.2 million. The current ratio dropped slightly from 1.57 to 1.52. Net current assets included bank balances and cash of approximately HK$17.1 million (2004: HK$40.8 million) and bank borrowings of approximately HK$48.3 million (2004: HK$48.0 million).

The Group had no long term liabilities (2004: Nil) as at year end.

As at 31 December 2005, all assets and liabilities of the Group were denominated in U.S. dollars, Hong Kong dollars and Renminbi.

Order Book and Prospects of New Business

As at 31 December 2005, the Group had contracts on hand for sales amounting to approximately HK$28.9 million (2004: HK$36.6 million) which would be booked as revenue upon delivery and implementation.

Significant Investment Held

The Group had not made any significant investment since floatation or during the Review Period.

Segmental Information

The segmental information of the Group is covered in the second paragraph of Financial Performance under the Chairman’s Statement and in note 3 to the financial statements.

Charges on Group Assets

As at 31 December 2005, the Group had a pledged bank deposit of approximately HK$4.6 million for securing certain bank overdrafts facilities (2004: Nil).

Save as disclosed above, the Group did not have any significant charges on assets.

Gearing Ratio

As at 31 December 2005, the gearing ratio, i.e. total liabilities over total assets, slightly increased to approximately 0.61 from approximately 0.59 as at 31 December 2004.

Foreign Exchange Exposure

During the Review Period, the Group earned revenue and incurred costs and expenses mainly in U.S. dollars, Hong Kong dollars and Renminbi. As the impact of foreign exchange exposure has been insignificant and positive, no hedging or other alternatives have been implemented.

Acquisitions, Disposals and Significant Investment

The Group had not made any significant acquisition, disposal or investment during the Review Period

Future Plans for Investments or capital Assets and sources of Funding

There are no plans for any significant investments in capital assets and sources of funding.

Employee Information

As at 31 December 2005 the Group had 162 employees comprising 24 employees based in Hong Kong and 138 employees based in mainland China. Total employee expense, excluding for directors, was approximately HK$18.2 million (2004: HK$17.5 million) during the Review Period. The Group continues to provide remuneration package to employees according to market practices and past performance. In addition to basic remuneration, the Group also provides employees with other benefits such as a mandatory provident fund, medical insurance scheme, share option schemes and staff training program. There has been no major change on staff remuneration policies during the year.

Corporate Governance Practices

The Company applies the principles of corporate governance and those in the Code on Corporate Governance Practices as contained in Appendix 15 of the GEM Listing Rules to provide a sound system of checks and balance in the leadership, executive management and business operations of the Company and its subsidiaries.

In practising corporate governance in line with the Code provisions, the Directors are conscientious as to the transparency of operations of the Company for the benefits of its shareholders and the investing public.

During the year under review, the Company met all the Code provisions except for the two areas below.

Firstly, the Chairman and the Chief Executive Officer of the Company have been in the same individual, Mr. Ringo Chan.

The Board considers that, with the present board structure and scope of business of the Group, there is no immediate need to separate the roles into two individuals as Mr. Chan is perfectly capable of distinguishing the priority of these roles in which he has been acting.

The Board keeps the current structure under review and will propose changes as and when it becomes appropriate in the future.

Secondly, under the present Articles of Association of the Company, Mr. Ringo Chan, being Chairman and Chief Executive Officer of the Company, is not subject to retirement by rotation. This is not in compliance with the Code requirement that every director must retire by rotation once every 3 years.

A Special Resolution has been proposed for adoption at the forthcoming Annual General Meeting to amend the relevant Articles to facilitate future compliance of this requirement. Further, the service contract between the Company and Mr. Chan has been renewed for a term of 3 years from 1 January 2006 with terms and conditions appropriately adjusted to allow his future retirement by rotation.

Directors’ Securities Dealings

The Company has adopted a code of conducts on terms no less exacting than required in GLR 5.48 and 5.68 on directors’ transactions in the securities of the Company.

Specific enquiries have been made to all directors and they all confirmed their compliance with the Company’s code of conducts during the year.

Audit Committee

The Audit Committee of the Board was established in 2002, adopting the terms of reference as contained in “A Guide for Effective Audit Committee” published by the Hong Kong Institute of Certified Public Accountants.

Members of the Committee include Mr. David Tsoi (Chairman) Mr. Alfred Pang and Mr. Yu Zhonghou, independent non-executive directors.

During the year, the Audit Committee met four times to discuss and review annual as well as quarterly results and in meeting with the external auditors. It also made the necessary review on the various aspects of the internal control systems of the Group.

The audited results of the Group for year ended 31 December, 2005 were reviewed by the Audit Committee.

Purchase, Sale or Redemption of the Company’s Listed Securities

During the year, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities.

RESULTS

The Board announces the audited consolidated results of the Group for the year ended 31 December 2005 together with the comparative audited consolidated results for 2004 as follows:

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2005

NOTES Turnover 2 Other income Charges in materials and equipment Employee expense Depreciation and amortisation Other expenses Finance costs 4 Profit before taxation 5 Taxation 6 Profit for the year Profit (loss) attributable to: Equity holders of the parent Minority interest Earnings per share – Basic 7	2005 *HK$’000* 368,250 1,615 (310,684) (17,822) (4,431) (32,146) (2,707) 2,075 (632) 1,443 1,443 – 1,443 0.50 cents	2004 HK$’000 (restated) 269,688 747 (219,059) (16,937) (5,297) (23,375) (2,593) 3,174 (473) 2,701 2,736 (35) 2,701 0.94 cents

CONSOLIDATED BALANCE SHEET

As at 31 December, 2005

NOTES Non-current assets Property, plant and equipment Software product development costs Current assets Inventories Trade and other receivables 8 Pledged bank deposits Bank balances and cash Current liabilities Trade and other payables 9 Taxation Bank borrowings Convertible bonds maturing within one year Net current assets Net assets Capital and reserves Share capital 10 Reserves Equity attributable to equity holders of the parent Minority interest Total equity	2005 *HK$’000* 3,142 7,527 10,669 5,866 114,338 4,571 17,072 141,847 43,989 824 48,277 – 93,090 48,757 59,426 2,900 56,526 59,426 – 59,426	2004 HK$’000 (restated) 3,779 7,256
		11,035
		11,895 75,072 9 40,752
		127,728
		29,635 866 47,979 3,000
		81,480
		46,248
		57,283

		2,900 54,383
		57,283 –
		57,283

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2005

At 1st January, 2004 – as previously reported – effect of changes in accounting policies_(note 2)_ – as restated Profit for the year, representing total recognised income and expense for the year Capital contributions by a minority shareholder of a subsidiary Recognition of equity settled share– based payments At 1st January, 2005 Exchange differences on translation of foreign operations Profit for the year Total recognised income and expenses for the year Recognition of equity settled share– based payments At 31st December, 2005	Share capital HK$’000 2,900 – 2,900 – – – 2,900 – – – – 2,900	Share-based Share payments premium reserve HK$’000 HK$’000 55,824 – – 166 55,824 166 – – – – – 287 55,824 453 – – – – – – – 134 55,824 587	Statutory surplus reserve fund HK$’000 1,003 – 1,003 – – – 1,003 – – – – 1,003	Enterprise expansion fund HK$’000 502 – 502 – – – 502 – – – – 502	Staff welfare fund HK$’000 502 – 502 – – – 502 – – – – 502	Attributable to equity Translation Accumulated holders of reserve losses the parent HK$’000 HK$’000 HK$’000 – (6,471) 54,260 – (166) – – (6,637) 54,260 – 2,736 2,736 – – – – – 287 – (3,901) 57,283 566 – 566 – 1,443 1,443 566 1,443 2,009 – – 134 566 (2,458) 59,426	Minority interest HK$’000 – – – (35) 35 – – – – – – –	Total HK$’000 54,260 –
								54,260
								2,701 35 287
								57,283
								566 1,443
								2,009
								134
								59,426

As stipulated by the relevant laws and regulations for foreign investment enterprises in the Mainland China (the “PRC”), the PRC subsidiaries of the Company are required to maintain three statutory reserves, statutory surplus reserve fund, enterprise expansion fund and staff welfare fund which are non-distributable. Appropriations to such reserves are made out of profit after taxation based on statutory financial statements of the PRC subsidiaries and the amount and allocation basis are decided by its board of directors annually. The statutory surplus reserve fund can be used to make up prior year losses of the PRC subsidiaries, if any, and can be applied in conversion into capital by means of capitalisation issue. The enterprise expansion fund is used for expanding the capital base of the PRC subsidiaries by means of capitalisation issue. The staff welfare fund, which is to be used for the welfare of the staff and workers of the Company, is of a capital nature.

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NOTES TO THE FINANCIAL STATEMENTS

1. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS

In the current year, the Group has applied, for the first time, a number of new Hong Kong Financial Reporting Standards (HKFRSs), Hong Kong Accounting Standards (HKASs) and Interpretations (hereinafter collectively referred to as “new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) that are effective for accounting periods beginning on or after 1st January, 2005. The application of the new HKFRSs has resulted in a change in the presentation of the consolidated income statement, consolidated balance sheet and consolidated statement of changes in equity. In particular, the presentation of minority interest has been changed. The changes in presentation have been applied retrospectively. The adoption of the new HKFRSs has resulted in changes to the Group’s accounting policies in the following areas that have an effect on how the results for the current and prior accounting years are prepared and presented. The impact on basic and diluted earnings per share is discussed in note 7.

Share-based payments

In the current year, the Group has applied HKFRS 2 “Share-based payment” which requires an expense to be recognised when the Group buys goods or obtains services in exchange for shares or rights over shares (“equitysettled transactions”). The principal impact of HKFRS 2 on the Group is in relation to the expensing of the fair value of share options granted to directors, employees of the Group, and other individuals providing similar services determined at the date of grant of the share options, and recognised over the vesting period. Prior to the application of HKFRS 2, the Group did not recognise the financial effect of these share options until they were exercised. The Group has applied HKFRS 2 to share options granted on or after 1st January, 2005. In relation to share options granted before 1st January, 2005, the Group elected not to apply HKFRS 2 with respect to share options granted on or before 7th November, 2002 and vested before 1st January, 2005. However, the Group is still required to apply HKFRS 2 retrospectively to share options that were granted after 7th November, 2002 and had not yet vested on 1st January, 2005.

The effect of the change in accounting policy is an increase of HK$166,000 in the accumulated loss at 1st January, 2004 and a decrease in the profit for the year ended 31st December, 2004 of HK$287,000 (included in employee expenses of HK$279,000 and other expenses of HK$8,000). The consolidated balance sheet at 31st December, 2004 has been restated to reflect the recognition of a share-based payments reserve of HK$453,000.

For the year ended 31st December, 2005, impact of share-based payment is a charge to income statement of HK$134,000 (include in employee expenses of HK$129,000 and other expenses of HK$5,000). At 31st December, 2005, the share-based payments reserve amounted to HK$587,000.

Financial instruments

In the current year, the Group has applied HKAS 32 Financial instruments: Disclosure and Presentation and HKAS 39 Financial instruments: Recognition and Measurement. HKAS 32 requires retrospective application. HKAS 39, which is effective for annual periods beginning on or after 1st January, 2005, generally does not permit the recognition, derecognition or measurement of financial assets and liabilities on a retrospective basis. The principal effects resulting from the implementation of HKAS 32 and HKAS 39 are summarised below:

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Convertible bonds

The principal impact of HKAS 32 on the Group is in relation to convertible bonds issued by the Company that contain both liability and equity components. Previously, convertible bonds were classified as liabilities on the balance sheet. HKAS 32 requires an issuer of a compound financial instrument that contains both financial liability and equity components to separate the compound financial instrument into liability and equity components on initial recognition and to account for these components separately. At the date of issue, the liability component is the carrying amount of the financial liability determined by discounting the steam of future payment of interest and principal at the prevailing market rate. In subsequent periods, the liability component is carried at amortised cost using the effective interest method. The directors consider that the value of the equity component embedded in the convertible bonds is insignificant. Accordingly, no retrospective restatement is considered.

HKAS 1 (Amendment) HKAS 19 (Amendment) HKAS 21 (Amendment) HKAS 39 (Amendment) HKAS 39 (Amendment) HKAS 39 and HKFRS 4

Capital disclosures[1] Actuarial gains and losses, group plans and disclosures[2] Net investment in a foreign operation[2] Cash flow hedge accounting of forecast intragroup transactions[2] The fair value option[2] Financial guarantee contracts[2]

(Amendments) HKFRS 6 Exploration for and evaluation of mineral resources[2] HKFRS 7 Financial instruments: Disclosures[1] HK(IFRIC) – INT 4 Determining whether an arrangement contains a lease[2] HK(IFRIC) – INT 5 Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds[2] HK(IFRIC) – INT 6 Liabilities arising from participating in a specific market– waste electrical and electronic equipment[2] HK(IFRIC) – INT 7 Applying the restatement approach under HKAS 29 Financial Reporting in Hyperinflationary Economies[4]

1 Effective for annual periods beginning on or after 1st January, 2007. 2 Effective for annual periods beginning on or after 1st January, 2006.
3 Effective for annual periods beginning on or after 1st December, 2005.
4 Effective for annual periods beginning on or after 1st March, 2006.

2. TURNOVER

Turnover represents the aggregate of the net amounts received and receivable from third parties in connection with the provision of network infrastructure solutions, network professional services and network software. An analysis of the Groups’ turnover for the year is as follows:

Network infrastructure Network professional services Network software	2005 *HK$’000* 319,903 45,927 2,420 368,250	2004 HK$’000 240,694 24,973 4,021
		269,688

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3. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

Business segments for the year are as follows:

Network infrastructure Network professional services Network software Unallocated corporate income Unallocated corporate expenses Finance costs Profit before taxation Taxation Profit for the year	Turnover 2005 2004 *HK$’000* HK$’000 319,903 240,694 45,927 24,973 2,420 4,021 368,250 269,688	Results 2005 2004 *HK$’000* HK$’000 (restated) 3,498 5,255 1,429 1,659 (1,421) (1,437) 3,506 5,477 1,615 747 (339) (457) (2,707) (2,593) 2,075 3,174 (632) (473) 1,443 2,701	Results 2005 2004 *HK$’000* HK$’000 (restated) 3,498 5,255 1,429 1,659 (1,421) (1,437) 3,506 5,477 1,615 747 (339) (457) (2,707) (2,593) 2,075 3,174 (632) (473) 1,443 2,701
			5,477 747 (457) (2,593)
			3,174 (473)
			2,701

Geographical segments

The Group’s operations are located in the PRC and Hong Kong. The following table provides an analysis of the Group’s geographical segment information:

PRC Hong Kong	Turnover 2005 2004 *HK$’000* HK$’000 351,880 255,663 16,370 14,025 368,250 269,688	Turnover 2005 2004 *HK$’000* HK$’000 351,880 255,663 16,370 14,025 368,250 269,688
		269,688

4. FINANCE COSTS

Interest on bank borrowings wholly repayable within five years Interest charged	2005 *HK$’000* 2,707 – 2,707	2004 HK$’000 2,217 376
		2,593

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5. PROFIT BEFORE TAXATION

Profit before taxation has been arrived at after charging: Directors’ emoluments Other staff’s retirement benefits scheme contributions Other staff costs Share-based payments expense Less: Staff costs capitalised in software product development costs Impairment loss on trade and retention money receivables Amortisation of software product development costs (included in depreciation and amortisation) Auditors’ remuneration Depreciation of property, plant and equipment Loss on disposal of property, plant and equipment Operating lease rentals in respect of land and buildings and after crediting: Exchange gain Interest income	2005 *HK$’000* 1,561 2,205 15,971 68 (1,988) 17,817 3,685 2,076 470 2,355 – 2,729 674 155	2004 HK$’000 (restated) 1,557 1,317 15,974 177 (2,096) 16,929 2,435 1,989 440 3,308 9 2,630 – 261

6. TAXATION

The charge represents PRC income tax which is calculated at rates applicable to respective PRC subsidiaries.

No provision for Hong Kong Profits Tax has been made in the financial statements as the Group had no assessable profit for the year.

Pursuant to the relevant laws and regulations in the PRC, the Company’s PRC subsidiaries are entitled to the exemption from PRC income tax for two or three years commencing from their first profit-making year of operation and thereafter, these PRC subsidiaries will be entitled to a 50% relief from PRC income tax for the following three years. During the year, two of the Company’s PRC subsidiaries are within their 50% tax relief period, the rest is within its tax exemption period.

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The charge for the year is reconciled to profit before taxation per income statement as follows:

Profit before taxation Tax at the applicable income tax rate of 17.5% Tax effect of expenses not deductible for tax purposes Tax effect of income not taxable for tax purposes Tax effect of unrecognised tax losses Utilisation of tax losses previously not recognised Effect of tax concessionary rate granted to PRC subsidiaries Others Tax charge for the year 7. EARNINGS PER SHARE	2005 *HK$’000* 2,075 (363) (44,592) 44,223 (50) 227 (33) (44) (632)	2004 HK$’000 (restated) 3,174 (555) (27,261) 27,471 (203) 49 (38) 64 (473)

The calculation of the basic and diluted earnings per share to the equity holders of the parent is based on the following data:

Earnings: Profit attributable to equity holders for the parent for the purposes of basic and diluted earnings per share Number of shares: Number of ordinary shares for the purposes of basic earnings per share	2005 HK$1,443,000 289,944,745	2004 (restated) HK$2,736,000

		289,944,745

For the year ended 31st December, 2005 and 2004, there were no potential dilutive ordinary shares outstanding as the exercise price of the Company’s outstanding share options is higher than the average market price for the Company for both years.

For the year ended 31st December, 2004, the computation of diluted earnings per share does not assume the conversion of the Company’s outstanding convertible bonds since their exercise would result in an increase in earnings per share for the year ended 31st December, 2004.

Impact on application of new HKFRSs

Changes in the Group’s accounting policies during the year are described in detail in note 1. To the extent that those changes have had an impact on results reported for 2005 and 2004, they have had an impact on the amounts reported for earnings per share.

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The following table summarises the impact on both basic earnings per share as a result of:

Reported figures before adjustments Adjustments arising from changes in accounting policies As reported/restated	Impact on basic earnings per share 2005 2004 cents cents 0.54 1.04 (0.05) (0.10) 0.49 0.94	Impact on diluted earnings per share 2005 2004 cents cents N/A 1.04 N/A N/A N/A N/A	Impact on diluted earnings per share 2005 2004 cents cents N/A 1.04 N/A N/A N/A N/A
			N/A

No diluted earnings per share has been presented for 2004 because the exercise price of the Company’s options, after taken into account of the effect of share-based payment, was higher than the average market price for the shares during 2004.

8. TRADE AND OTHER RECEIVABLES

Trade receivables Retention money receivable Other receivables Prepaid maintenance charges	2005 *HK$’000* 84,061 20,724 3,285 6,268 114,338	2004 HK$’000 56,652 4,660 4,124 9,636
		75,072

Payment terms with customers are mainly on credit together with deposits. Invoices are normally payable from 30 to 90 days of issuance, except for certain well established customers. The following is an aged analysis of trade receivables at the balance sheet date:

Age 0 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days 181 to 365 days Over 365 days Less: Accumulated impairment	2005 *HK$’000* 39,755 15,016 6,101 16,063 5,856 4,256 87,047 (2,986) 84,061	2004 HK$’000 18,254 9,044 10,709 16,597 4,349 800
		59,753 (3,101)
		56,652

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Retention money receivable represents the progress payments receivable on the contract works of network infrastructure with aged over 180 days.

Prepaid maintenance charges which is expected to be recovered in more than twelve months after the balance sheet date is classified under current asset as it is expected to be realised in the Company’s normal operating cycle.

The fair value of trade and other receivables approximate their carrying amounts.

9. TRADE AND OTHER PAYABLES

Trade payables Other payables The following is an aged analysis of trade payables at the balance sheet date: Age 0 to 30 days 31 to 90 days 91 to 180 days 181 to 270 days 271 to 365 days Over 365 days	2005 *HK$’000* 31,859 12,130 43,989 2005 *HK$’000* 17,831 10,792 1,046 344 60 1,786 31,859	2004 HK$’000 18,548 11,087
		29,635

		2004 HK$’000 14,127 2,565 691 72 597 496
		18,548

The fair value of trade and other payables approximate their carrying amounts.

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10. SHARE CAPITAL

Authorised: – at 1st January, 2004, 31st December, 2004 and 2005 Issued and fully paid: – at 1st January, 2004, 31st December, 2004 and 2005	Number of shares 500,000,000 289,944,745	Amount HK$’000 5,000

		2,900

This announcement will remain on the “Latest Company Announcements” page of the GEM Website at www.hkgem.com for at least 7 days from the date of its publication.

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