Crypto Flow Technology Limited — Annual Report 2007

Mar 28, 2007

==> picture [109 x 49] intentionally omitted <==

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 2006

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 and Mr. David Tsoi.

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

• 1 -

CHAIRMAN’S STATEMENT

TO OUR SHAREHOLDERS

For and on behalf of the board of directors (the “Board”), I am pleased to present the annual results of Wafer Systems Limited (the “Company”) and its subsidiaries (collectively, “Wafer Systems” or the “Group”) for the year ended 31 December 2006 (the “Review Period”).

During the Review Period, turnover decreased by approximately 11% to approximately HK$327 million (2005: HK$368 million) while net profit increased by approximately 253% to approximately HK$5.10 million (2005: HK$1.44 million).

FINANCIAL PERFORMANCE

During the Review Period, mainland China continued to contribute the Group’s bulk business. Network infrastructure business accounted for the Group’s main source of revenue, generating revenue of approximately HK$286 million (2005: HK$320 million). Revenue from professional services business amounted to approximately HK$38 million (2005: HK$46 million) while revenue from network software was approximately HK$2.2 million (2005: HK$2.4 million).

FINAL DIVIDEND

The Board does not recommend the payment of any dividend for the year ended 31 December 2006 (2005: Nil).

BUSINESS REVIEW

Competition in the market continued to be very keen during the Review Period. However, such competition had become more rationalized. As a result, with concerted efforts, the Group was able to turn in better profits in spite of the slightly lower turnover.

The overall better performance of the Group in 2006 has been mainly due to the higher value-added solutions and services of network infrastructure business.

For the past year, the Group continued its emphasis in the sector of service provider customers. Close working relations have been maintained with all four major telecommunication carriers in the Mainland. The Group’s participation in Phase 2 of the China Telecom business network project (“CN2”) in the first half of 2006 had its significance not only on the revenue aspect. It also signified the Group’s advancement in technical ability in addition to further understanding the business of service providers. Such deeper knowledge into the systems requirements of the service providers is important for the Group to increase its technical and business competitiveness in offering seamless solutions when the market goes into the 3rd generation (“3G”) era.

• 2 -

Professional services, while maintaining about the same percentage of total revenue as the year before, has also returned a better margin during the year. These reflected the higher satisfaction level from enterprise customers; especially multi-national corporation (“MNCs”) customers on whom your Group has always place high priority.

The policy to stay focused on our core business areas has proved most appropriate. Therefore, the Group continued to invest to improve our competitive strength to equip ourselves for next generation network (“NGN”) readiness. With the second phase of Internet protocol (“IP”) based communications further enhanced technologically, the Group has started to get itself ready for the third phase. The ultimate NGN era will see the network used as a platform to enable collaboration and inter-reaction of different applications, converged real time communications, and various other services. Technically, the Group is now more capable than ever in providing its customers the professional services in networking.

Enhancement of the suite of IP NGN management software, which the Group has consolidated last year, continued during the Review Period. Productizing them has made them now more readily available for both service provider and enterprise market applications.

The Group’s dedication to align partners’ collaborations has given us the ability to master advanced technologies. It is this ability that made us an important Partner for Unified Call Centre Technology of Cisco Systems Inc. in the Asia Pacific area as well as one of it’s first Advanced Specialization Partner in the areas of network security, IP telephony and wireless communications. We are also close working partners with other well-known names in the technology field.

PROSPECTS

The economic growth in China being witnessed now will continue with its open door policy. This will encourage the expansion of the enterprise market further when enterprises, both local and MNCs, invest on higher efficiency communications. With the strong technical capabilities of the Group’s networking engineers, we shall benefit from the ability to provide high value advanced professional services in consultancy services to the enterprise market.

With the emergence of new technology, opportunity for high growth will be available for companies that have the technical capability as well as a reputation for good customer satisfaction. The Group will benefit accordingly since it has been investing in this direction for the past years and has been a pioneer in the areas of unified communications and advanced communications security.

For the telecommunications sector, your Group foresees a reasonable level of growth in business in 2007. Telecom service providers will speed up their investment on IP network infrastructure. This will be even more so with the issue of the 3G licences, which has been reported widely as an imminent move on the part of the Chinese government. When this happens, the Group will benefit from its established good relationship with the telecom service providers and our ability to propose tailor made solutions to match their needs. The fact that the Group has been working on testing trials on 3G with solution and system vendors will put the Group in a favourable competing position.

• 3 -

The reputation of delivering good services and high concern for customer satisfaction will continue to place the Group in a very favourable position. The deeper knowledge into the operations of the service providers will enable the Group to present technical and business proposals to the service providers, which are in seamless match of their needs. Such better understanding is also important for the Group in its future direction of software development.

In the past, we were more focused on infrastructure projects for both service providers and MNCs. Now, we have begun to focus on value-added solutions of our own. We have formed a dozen of hot solutions ready for release in the near future. Some are integrated with Cisco and other worldwide leading vendors and some are designed to fulfil the requirements of specific industries. They are all for the latest communication technology deployment and subscriber management.

Continuing to place high importance on technology up-grading, customer satisfaction, congenial partnership with technology leaders and the perseverance for self-improvement, I am confident that the Group will continue to grow and be able to take on the opportunities available to us in the coming year and beyond.

CONCLUSION

The Group has been floated on the Growth Enterprise Market of the Hong Kong Stock Exchange for five years now. Over this period of time, in spite of the very keen competition in the market place, your Group has been able to stay viable and financially healthy. At the same time, the Group has continued to upgrade its technological capability, align collaboration with technology leaders and to win the praise of customers. We have prepared ourselves for future challenges and the satisfaction in overcoming them.

For this good foundation, I have to thank the entire staff for their concerted and incessant hard work over the years. The emphasis on our corporate values will always be there as a vital driving force behind us in this 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, 27 March 2007

• 4 -

MANAGEMENT DISCUSSION AND 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, short-term bank loans and other loans.

The Group remained healthy in the financial and liquidity position during the Review Period. As at 31 December 2006, the Group had net current assets of approximately HK$61.0 million, a 25% increase over last year end of HK$48.8 million. The current ratio dropped slightly from 1.52 to 1.47. Net current assets included bank balances and cash of approximately HK$47.3 million (2005: HK$17.1 million), bank borrowings of approximately HK$49.8 million (2005: HK$48.3 million) and current portion of other loans of approximately HK$23.8 million (2005: Nil).

Non-current portion of other loans at year end amounted to approximately HK$ 5.6 million (2005: Nil).

As at 31 December 2006, 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 2006, the Group had contracts on hand for sales amounting to approximately HK$20.2 million (2005: HK$28.9 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 under the heading Financial Performance in the Chairman’s Statement and in note 4 to the financial statements of the results announcement.

• 5 -

Charges on Group Assets

As at 31 December 2006, the Group had a pledged bank deposit of approximately HK$5.0 million (2005:4.6 million) and certain trade receivables of approximately HK$6.9 million (2005: Nil) for securing certain banking facilities.

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

Gearing Ratio

As at 31 December 2006, the gearing ratio, i.e. total liabilities over total assets, slightly increased to approximately 0.68 from approximately 0.61 as at 31 December 2005.

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 2006, the Group had 170 employees comprising 21 employees based in Hong Kong and 149 employees based in mainland China. Total employee expense, excluding for directors, was approximately HK$21.5 million (2005: HK$18.2 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.

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.

• 6 -

Corporate Governance Practices

The Company applies the principles set out in the Code on Corporate Governance Practices (the “Code”) contained in Appendix 15 to the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange of Hong Kong Limited (“GEM Listing Rules”) to provide a sound system of checks and balance in the leadership, executive management and business operations of the Group.

In practising corporate governance in line with, sometimes exceeding, 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 complied with all the Code provisions except that the roles of Chairman and the Chief Executive Officer of the Company have been performed by 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 divide the two roles between two individuals, as Mr. Chan is able to perform these two roles to the satisfaction of the Board. The Board keeps the current structure under review and will propose changes as and when it becomes appropriate in the future.

Also, the Articles of Association of the Company were amended at the Annual General Meeting held on 28 April 2006 so that all directors, including the chairman and managing director, are now subject to retirement by rotation at least every three years.

To tie in with this requirement change, a new service contract with Mr. Chan was signed.

The complete Corporate Governance Report will be included in the 2006 Annual Report which will also be published on the GEM website.

• 7 -

RESULTS

The Board announces the audited consolidated results of the Group for the year ended 31 December 2006 together with the comparative audited consolidated results for 2005 as follows:

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2006

NOTES Turnover 3 Other income Charges in materials and equipment Employee benefits costs 6 Depreciation and amortisation Other expenses Finance costs 5 Total expenses Profit before taxation 6 Taxation 7 Profit for the year Attributable to: Equity holders of the Company Earnings per share – Basic 8	2006 HK$’000 326,611 639 (268,055) (20,575) (4,647) (23,812) (4,104) (321,193) 6,057 (956) 5,101 5,101 HK1.76 cents	2005 HK$’000 368,250 1,615 (310,684) (17,817) (4,431) (32,151) (2,707) (367,790) 2,075 (632) 1,443 1,443 HK0.50 cents

• 8 -

CONSOLIDATED BALANCE SHEET

As at 31 December 2006

NOTES Non-current assets Property, plant and equipment Software product development costs Current assets Inventories Trade and other receivables 9 Pledged bank deposits Cash and cash equivalents Current liabilities Trade and other payables 10 Tax payable Bank borrowings Other loans Convertible bonds maturing within one year Net current assets Total assets less current liabilities Non-current liabilities Other loans Net assets Capital and reserves Share capital 11 Reserves Total equity	2006 HK$’000 2,032 7,753 9,785 5,602 133,065 5,013 47,276 190,956 54,721 1,548 49,843 23,843 – 129,955 61,001 70,786 5,573 65,213 2,900 62,313 65,213	2005 HK$’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
		–
		59,426
		2,900 56,526
		59,426

• 9 -

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2006

Share capital HK$’000 At 1 January 2005 2,900 Exchange differences on translation of foreign operations – Profit for the year – Total recognised income and expenses for the year – Recognition of equity settled share-based payments – At 31 December 2005 2,900 Transfer to statutory surplus reserve – At 1 January 2006 2,900 Exchange differences on translation of foreign operations – Profit for the year – Total recognised income and expenses for the year – Recognition of equity settled share-based payments – At 31 December 2006 2,900	Share-based Share payment premium reserve HK$’000 HK$’000 55,824 453 – – – – – – – 134 55,824 587 – – 55,824 587 – – – – – – – 56 55,824 643	Statutory surplus reserve fund HK$’000 1,003 – – – – 1,003 502 1,505 – – – – 1,505	Enterprise expansion fund HK$’000 502 – – – – 502 – 502 – – – – 502	Staff welfare fund HK$’000 502 – – – – 502 (502) – – – – – –	Retained earnings/ Exchange (Accumulated reserve losses) HK$’000 HK$’000 – (3,901) 566 – – 1,443 566 1,443 – – 566 (2,458) – – 566 (2,458) 630 – – 5,101 630 5,101 – – 1,196 2,643	Total HK$’000 57,283 566 1,443
						2,009 134
						59,426 –
						59,426 630 5,101
						5,731 56
						65,213

• 10 -

NOTES TO THE FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of Compliance

These financial statements have been prepared in accordance with all applicable HKFRSs, which collectively includes all applicable individual HKFRSs, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the HKICPA, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange. A summary of the significant accounting policies adopted by the Group is set out below.

The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for the current accounting period of the Group and the Company. Note 2 provides information on the changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current and prior accounting periods reflected in these financial statements.

(b) Basis of Preparation of the Financial Statements

The consolidated financial statements for the year ended 31 December 2006 comprise the Company and its subsidiaries.

The measurement basis used in the preparation of the financial statements is the historical costs basis.

The preparation of financial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

2 APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

The Hong Kong Institute of Certified Public Accountants (“HKICPA”) has issued certain new and revised HKFRSs that are first effective for accounting periods beginning on or after 1 January 2006 or available for early adoption for the current accounting period of the Group. The adoption of the new HKFRSs had no material effect on how the results for the current or prior accounting periods have been prepared and presented.

• 11 -

New standard, amendment or interpretations that have been issued but are not yet effective

The Group has not early applied the following new standard, amendment or interpretations that have been issued but are not yet effective. The directors of the Company anticipate that the application of these standard, amendment or interpretations will have no material impact to the results and the financial position of the Group.

HKAS 1 (Amendment) Capital Disclosures[1] HKFRS 7 Financial Instruments: Disclosures[1] HK(IFRIC)-Int 7 Applying the restatement approach under HKAS 29 Financial Reporting in Hyperinflationary Economies[2] HK(IFRIC)-Int 8 Scope of HKFRS[3] HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives[4] HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment[5] HK(IFRIC)-Int 11 HKFRS 2 – Group and Treasury Share Transactions[6]

• 1 Effective for annual periods beginning on or after 1 January 2007 2 Effective for annual periods beginning on or after 1 March 2006 3 Effective for annual periods beginning on or after 1 May 2006 4 Effective for annual periods beginning on or after 1 June 2006 5 Effective for annual periods beginning on or after 1 November 2006 6 Effective for annual periods beginning on or after 1 May 2007

3. TURNOVER

The Company is an investment holding company. The principal activities of the Group are provision of network infrastructure solutions, including the sales of network equipment and software and the provision of related network infrastructure services, provision of network professional services, and sales of its proprietary network software.

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 Group’s turnover for the year is as follows:

Network infrastructure Network professional services Network software	2006 HK$’000 286,398 38,008 2,205 326,611	2005 HK$’000 319,903 45,927 2,420
		368,250

• 12 -

4. SEGMENT REPORTING

Segment information is presented in respect of the Group’s business and geographical segments. Business segment information is chosen as the primary reporting format because this is more relevant to the Group’s internal financial reporting.

Business segments

The Group comprises the following main business segments:

Network infrastructure : The sales of network equipment and software and the provision of related network infrastructure services Network professional services : Provision of network professional services Network software : The sales of the Group’s proprietary network software

Analysis by business segments is as follows:

Network infrastructure Network professional services Network software Unallocated corporate income Interest income Unallocated corporate expenses Finance costs Profit before taxation Taxation Profit for the year	Revenue 2006 2005 HK$’000 HK$’000 286,398 319,903 38,008 45,927 2,205 2,420 326,611 368,250	Results 2006 2005 HK$’000 HK$’000 9,547 3,498 1,854 1,429 (1,537) (1,421) 9,864 3,506 412 1,460 227 155 (342) (339) (4,104) (2,707) 6,057 2,075 (956) (632) 5,101 1,443

• 13 -

Assets Segment assets – network infrastructure – network professional services – network software Unallocated corporate assets Total Assets Liabilities Segment liabilities – network infrastructure Unallocated corporate liabilities Total Liabilities OTHER INFORMATION Capital expenditure – network infrastructure – network professional services – network software Depreciation and amortisation – network infrastructure – network professional services – network software Impairment loss on trade and retention money receivables	2006 HK$’000 124,579 4,915 9,668 61,579 200,741 54,722 80,806 135,528 633 147 2,863 3,643 1,590 368 2,689 4,647 391	2005 HK$’000 106,823 5,013 9,483 31,197
		152,516
		43,989 49,101
		93,090
		1,216 485 2,410
		4,111
		1,672 683 2,076
		4,431
		3,685

• 14 -

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, other than Hong Kong Hong Kong	Revenue 2006 2005 HK$’000 HK$’000 305,263 351,880 21,348 16,370 326,611 368,250	Revenue 2006 2005 HK$’000 HK$’000 305,263 351,880 21,348 16,370 326,611 368,250
		368,250

The following is an analysis of the carrying amount of segment assets and capital expenditure, analysed by the geographical area in which the assets are located.

PRC, other than Hong Kong Hong Kong	Carrying amount of segment assets 2006 2005 HK$’000 HK$’000 191,104 142,271 9,637 10,245 200,741 152,516	Capital expenditure incurred during the year 2006 2005 HK$’000 HK$’000 3,630 3,466 13 645 3,643 4,111	Capital expenditure incurred during the year 2006 2005 HK$’000 HK$’000 3,630 3,466 13 645 3,643 4,111
			4,111

5. FINANCE COSTS

Interest expenses on bank borrowings wholly repayable within five years Interest expenses on other loans wholly repayable within five years	2006 HK$’000 3,127 977 4,104	2005 HK$’000 2,707 –
		2,707

• 15 -

6. PROFIT BEFORE TAXATION

Profit before taxation has been arrived at after charging/(crediting):

Directors’ emoluments Other staff retirement benefits scheme contributions Salaries, wages and other benefits Share-based payment expenses 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 write off of property, plant and equipment Operating lease rentals in respect of minimum lease payments of land and buildings Research and development costs Cost of inventories Exchange gain Interest income Reversal of impairment loss on trade and retention money receivables recognised in previous years 7. TAXATION (a) Income tax in the consolidated income statement represents:	2006 HK$’000 1,545 3,030 18,408 24 (2,432) 20,575 391 2,689 470 1,958 15 2,096 329 268,055 (351) (227) (1,444)	2005 HK$’000 1,561 2,205 15,971 68 (1,988)
		17,817
		3,685 2,076 470 2,355 – 2,729 289 310,684 (674) (155) –

Current tax – Provision for the PRC enterprise income tax Provision for the year Deferred taxation Origination and reversal of temporary differences	2006 HK$’000 956 – 956	2005 HK$’000 632 –
		632

Hong Kong Profits Tax has not been provided for in the financial statements as the Group has sufficient taxation losses brought forward to offset against the estimated assessable profits for the years ended 31 December 2006 and 2005.

• 16 -

The charge represents PRC income tax calculated on the estimated assessable profit for the year at the rates applicable to respective PRC subsidiaries.

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 commencing from their first profit-making year of operation and thereafter entitled to a 50% relief from PRC income tax for the immediate following three years. During the year, one of the Company’s PRC subsidiaries is within its 50% tax relief period, one of the Company’s PRC subsidiaries is subject to full PRC income tax at effective tax rate of 27% and one of the Company’s PRC subsidiaries has not used of its tax exemption period as its first profit-making year of operation has not been started yet.

(b) Reconciliation between tax expense and accounting profit at applicable tax rates:

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

Profit before taxation Notional tax at the rates applicable to profits in the tax jurisdictions concerned Tax effect of non-deductible expenses Tax effect of non-taxable income Tax effect of unrecognised tax losses Tax effect of utilisation of tax losses previously not recognised Tax effect of tax concessionary rate granted to PRC subsidiaries Others	2006 HK$’000 6,057 (1,403) (35,907) 37,488 (1,321) 187 – – (956)	2005 HK$’000 2,075 (363) (44,592) 44,223 (50) 227 (33) (44) (632)

8. EARNINGS PER SHARE

(a) Basic earnings per share

The calculation of basic earnings per share is based on the profit attributable to equity shareholders of the Company of approximately HK$5,101,000 (2005: HK$1,443,000) and the weighted average of 289,944,745 (2005: 289,944,745) ordinary shares in issue during the year.

(b) Diluted earnings per share

The diluted earnings per share for the years ended 31 December 2006 and 2005 was the same as the basic earnings per share as the exercise price of the Company’s outstanding share option was higher than the fair price per share of the Company during the years ended 31 December 2006 and 2005.

• 17 -

9. TRADE AND OTHER RECEIVABLES

Trade receivables Retention money receivables Other receivables Prepaid maintenance charges	The Group 2006 2005 HK$’000 HK$’000 113,079 84,061 10,696 20,724 7,458 3,285 1,832 6,268 133,065 114,338	The Group 2006 2005 HK$’000 HK$’000 113,079 84,061 10,696 20,724 7,458 3,285 1,832 6,268 133,065 114,338
		114,338

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. All of the trade and other receivables are expected to be recovered within one year. The following is an aging 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: Impairment losses	The Group 2006 2005 HK$’000 HK$’000 40,652 39,755 32,044 15,016 6,056 6,101 17,285 16,063 15,909 5,856 4,224 4,256 116,170 87,047 (3,091) (2,986) 113,079 84,061

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

Prepaid maintenance charges which is expected to be expensed within 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 carrying amounts of trade and other receivables approximate their fair value.

• 18 -

Included in trade receivables are the following amounts denominated in a currency other than the functional currency of the Group to which they relate:

	As at 31	December
	2006	2005
	’000	’000
USD	3,863	2,353
RMB	89,643	69,543

10. TRADE AND OTHER PAYABLES

Trade payables Other payables	The Group 2006 2005 HK$’000 HK$’000 43,480 31,859 11,241 12,130 54,721 43,989	The Group 2006 2005 HK$’000 HK$’000 43,480 31,859 11,241 12,130 54,721 43,989
		43,989

All of the trade and other payables are expected to be settled or recognised as income within one year. The following is an aging 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	The Group 2006 2005 HK$’000 HK$’000 11,996 17,831 26,637 10,792 3,024 1,046 171 344 778 60 874 1,786 43,480 31,859	The Group 2006 2005 HK$’000 HK$’000 11,996 17,831 26,637 10,792 3,024 1,046 171 344 778 60 874 1,786 43,480 31,859
		31,859

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

• 19 -

Included in trade payables are the following amounts denominated in a currency other than the functional currency of the Group to which they relate:

	As at 31	December
	2006	2005
	’000	’000
USD	3,471	2,307
RMB	16,395	14,380

11. SHARE CAPITAL

Ordinary shares of HK$0.01 each Authorised: At 1 January 2005, 31 December 2005 and 2006 Issued and fully paid: At 1 January 2005, 31 December 2005 and 2006	Number of shares 500,000,000 289,944,745	Amount HK$’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 this publication.

• 20 -