hmvod Limited — Interim / Quarterly Report 2001

Aug 14, 2001

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Systek Information Technology (Holdings) Limited *

(incorporated in the Cayman Islands with limited liability)

CHARACTERISTICS OF THE GROWTH ENTERPRISE MARKET (“GEM”) OF THE STOCK EXCHANGE OF HONG KONG LIMITED (THE “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 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 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 in order to obtain up-to-date information on GEM-listed issuers.

The Stock Exchange of Hong Kong Limited 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.

This announcement, for which the directors of Systek Information Technology (Holdings) Limited (“Systek” or 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 Stock Exchange for the purpose of giving information with regard to Systek. 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.

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Systek Information Technology (Holdings) Limited *

(incorporated in the Cayman Islands with limited liability)

RESULTS FOR THE THREE MONTHS ENDED 30 JUNE 2001

FIRST QUARTERLY RESULTS

The Board of Directors of the Company is pleased to present the unaudited first quarterly results of the Company and its subsidiaries (the “Group”) for the three months ended 30 June 2001 together with the comparative unaudited figures for the corresponding periods in 2000 as follows:

First Quarterly Results

		Three months ended 30 June	Three months ended 30 June
	Note	2001	2000
		HK$’000	HK$’000
Turnover	2	6,005	13,865
Cost of services and
merchandise sold		(3,529)	(6,581)
Gross profit		2,476	7,284
Other revenue		705	37
Selling expenses		(4,325)	(26)
General and administrative
expenses		(13,178)	(2,147)
(Loss)/profit from operations		(14,322)	5,148
Finance cost		(13)	(178)
(Loss)/profit from ordinary
activities before taxation	3	(14,335)	4,970
Taxation	4	—	(817)
(Loss)/profit from ordinary
activities after taxation		(14,335)	4,153
Minority interests		179	(7)
(Loss)/profit attributable
to the shareholders		(14,156)	4,146
(Loss)/earnings per share	5
Basic (HK cents)		(1.366)	0.691
Diluted (HK cents)		N/A	0.564

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Notes:

1 REORGANISATION AND BASIS OF PRESENTATION

(a) Reorganisation

The Company was incorporated in the Cayman Islands on 16 March 2000 as an exempted company with limited liability under the Companies Law (Revised) of the Cayman Islands. The Company became the holding company of the Group on 26 August 2000 through a reorganisation (the “Reorganisation”).

(b) Basis of presentation

The Group resulting from the Reorganisation has been regarded as a continuing group. Accordingly, the consolidated results have been prepared on the basis of merger accounting, under which the Company was the holding company of the Group for both periods presented, rather than from 26 August 2000. Furthermore, the results of the Group for the periods ended 30 June 2001 and 2000 included the results of the Company and its subsidiaries with effect from 1 April 1999 or since their respective dates of incorporation, whichever is a shorter period. In the opinion of the Directors, the resulting consolidated results give a more meaningful view of the results of the Group as a whole.

All significant intra-group transactions and balances have been eliminated in the preparation of the consolidated results.

(c) Statement of compliances

The consolidated results have been prepared in accordance with all applicable statements of Standard Accounting Practice and Interpretations issued by the Hong Kong Society of Accountants and accounting principles generally accepted in Hong Kong.

2 TURNOVER

The principal activities of the Group are the provision of systems development and consultancy services and sale of software and hardware products. Turnover represents income arising from the provision of systems development and consultancy services, provision of IT engineering and technical support services, provision of training courses and the sale of software and hardware products.

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An analysis of the turnover by principal activities of the operations of the Group during the reporting period is as follows:

	Three months ended 30 June	Three months ended 30 June
	2001	2000
	HK$’000	HK$’000
Principal activities
System development	2,934	5,882
Sales of software and hardware products	642	3,989
Professional service fees	1,584	2,010
Training fees	797	1,026
Technical support fees	47	199
Others	1	759
	6,005	13,865

3 (LOSS)/PROFIT FROM ORDINARY ACTIVITIES BEFORE TAXATION

(Loss)/profit from ordinary activities before taxation is arrived at after crediting and charging the following items:

	Three months ended 30 June	Three months ended 30 June
	2001	2000
	HK’000	HK’000
Crediting
Interest income	562	37
Charging
Interest on bank advances and other
borrowings repayable within five years	13	178
Staff costs	12,627	6,739
Operating lease rentals - properties	1,107	233
Pre-operating costs written off	63	—
Amortisation of deferred asset	24	—
Depreciation	611	273

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4. TAXATION

Three months ended 30 June 2001 2000 HK’000 HK’000 Hong Kong Taxation — 101 Overseas Taxation — — — 101 Deferred taxation — 716 — 817	Three months ended 30 June 2001 2000 HK’000 HK’000 Hong Kong Taxation — 101 Overseas Taxation — — — 101 Deferred taxation — 716 — 817	Three months ended 30 June 2001 2000 HK’000 HK’000 Hong Kong Taxation — 101 Overseas Taxation — — — 101 Deferred taxation — 716 — 817
	— —	101 716
	—	817

No provision for taxation has been made for the three months ended 30 June 2001 as the Group sustained losses for taxation purpose during the period.

The provision for Hong Kong Profits Tax is calculated at 16% of the estimated assessable profits arising in Hong Kong for the three months ended 30 June 2001. Taxation on the profits of subsidiaries operating outside Hong Kong is calculated at the current rates applicable in the respective jurisdictions.

A subsidiary operating in the PRC is exempted from PRC income tax for two years commencing from the first profit making year and is entitled to a 50% relief from PRC income tax for the following three years, after which the profits are subject to PRC income tax at the standard rate of 33%. No provision for taxation has been made for the three months ended 30 June 2001 since the subsidiary is still within the two-year tax exemption period.

5 (LOSS)/EARNINGS PER SHARE

(a) Basic (loss)/earnings per share

The calculation of basic loss per share is based on the combined loss attributable to shareholders for three months ended 30 June 2001 of approximately of HK$14,156,000 divided by the weighted average number of 1,036,375,000 shares in issue during the three months ended 30 June 2001.

The calculation of basic earnings per share for the three months ended 30 June 2000 is based on the combined profit attributable to shareholders of approximately HK$4,146,000 divided by 599,999,942 shares, prior to the placing but after adjusting the effect of the capitalisation issue on 1 September 2000.

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(b) Diluted earnings per share

There were no potential dilutive ordinary shares in issue during the period ended 30 June 2001.

The calculation of diluted earnings per share for the three months ended 30 June 2000 is based on the adjusted combined profit attributable to shareholders of HK$4,324,000 and the weighted average number of ordinary shares of 766,774,667 shares after adjusting for the effects of the dilutive potential ordinary shares committed under the convertible notes issued on 20 December 1999, 29 January 2000, 27 April 2000, 6 May 2000 and 15 May 2000 which entitled the noteholders to convert the paid up principal into ordinary shares of the Company.

(c) Reconciliations

	2000
	HK$’000
Profit attributable to shareholders	4,146
Interest paid for the convertible notes	178
Adjusted profit attributable to shareholders	4,324
	2000
	Number of Shares
Weighted average number of ordinary shares used in
calculating basic earnings per share	599,999,942
Deemed issue of ordinary share	166,774,725
Weighted average number of ordinary shares used in
calculating diluted earnings per share	766,774,667

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6 Reserves

			Retained
			profits/
	Share	Exchange	(Accumulated
	premium	reserves	losses)	Total
	HK$’000	HK$’000	_HK$’000 _	HK$’000
At 1 April 2000	—	41	7,373	7,414
Premium on the issuance of shares	127,840	—	—	127,840
Shares issue expenses	(15,389)	—	—	(15,389)
Capitalisation issue	(79,307)	—	—	(79,307)
Exchange differences on translation
of accounts of subsidiaries
outside Hong Kong	—	(73)	—	(73)
Loss for the year	—	—	(28,541)	(28,541)
At 31 March 2001	33,144	(32)	(21,168)	11,944
At 1 April 2001	33,144	(32)	(21,168)	11,944
Exchange differences on translation
of accounts of subsidiaries
outside Hong Kong	—	(27)	—	(27)
Loss for the period	—	—	(14,156)	(14,156)
At 30 June 2001	33,144	(59)	(35,324)	(2,239)

According to the relevant PRC accounting rules and regulations, the PRC subsidiary may appropriate part of its profits after tax to general reserve, at the discretion of the board of directors of the subsidiary. The general reserve can be used to make good losses and to convert into paid-up capital.

No transfer to the general reserve was made by the PRC subsidiary during the period.

DIVIDENDS

The Board of Directors has resolved not to recommend the payment of dividend for the three months ended 30 June 2001 (2000: Nil).

BUSINESS REVIEW

Overview

During the reporting period, the Group has continued to focus on establishing distribution channels for its software products. New features have been added to the current product portfolio based on the feedback from customers. In June 2001, our sales and marketing office in Canada with support from the Hong Kong research and development staff has made a tour

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to Europe to promote the sales of Internet software products. Additional distribution channels have also been established in the PRC and Taiwan. The Group has successfully completed WinVest� R4.0 to support the implementation of centralized trading in the PRC.

Financial Performance

For the three months ended 30 June 2001, the Group recorded a turnover of approximately HK$6.0 million, representing a decrease of approximately 56.7% over the same period in 2000. Loss attributable to the shareholders for the three months ended 30 June 2001 was approximately HK$14.2 million as compared to a profit of approximately HK$4.2 million for the same period in 2000. The decrease in turnover of the Group was mainly attributable to general weak demand in goods and services in the IT market.

PROSPECTS

Research and Development

The Group continued to focus on e-Business and Internet related technology and has continued to devote its research and development efforts in technologies which are related to Internet collaboration, XML, wireless, Internet and messaging security and financial applications.

For the Financial Technology line of business, the Group has continued to enhance the current WinVest� software, Release 3.0 and Release 4.0. In addition to the current WinVest� software features, the Group has also developed the Chinese version of WinVest, which is being used and marketed in the PRC. The Group has also built and marketing WinVest Lite for the small and medium brokerage business. Implementation of the products will be driven by market demand and customer take-up rate.

For the Internet Technology line of business, the Group has continued to enhance the existing product portfolio, which includes ezConnect� and ezXML�. The Group completed ezConnect� R4.0 which provides full Customer Contact functions including the integration of PBX, eCRM and office automation. Featuring Telephony integration capabilities, ezConnect� can handle both voice and Internet customer contacts. The Group has also � � completed the productization of two ezXML products - ezXML professional version and ezXML� enterprise version.

For the Internet Security and Messaging line of business, the Group has continued to enhance SecurTrac�. The Group completed SecurTrac� Release 2.1 and the completion of Release 2.5 is on schedule. SecurTrac� Release 2.5 consists of a real time administration system which allows users to effectively monitor the use of multiple systems and multiple server environment.

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Business Development

During the period, the Group continues to enter into new contracts for enhancing WinVest� with their base customers. The Group has also been engaging in final contract negotiation with two new WinVest� customers in Hong Kong, the implementation of which is targeted for completion in the 4th quarter, 2001.

The Group is currently organizing promotion seminars with local and PRC vendors. The Group had signed agreements with Baltimore Technologies, Intel Corporation in the training of e-Business security and e-Business development. The Group has also in discussion with telephony hardware manufacturers to integrate their hardware with ezConnect�. The sales and marketing office established in Toronto, Canada now support the Internet Technology product sales for the European and North America markets. A number of resellers in Europe and North America has signed up to sell SecurTrac�. The Group is planning to launch ezConnect� in Europe and North America in late 2001.

During the reporting period, the Group participated in the following trade shows:

• Admin 2001, Boston, (April 2001)

• IBM e-Business Software at Work, Rome and Milan, Italy (May 2001)

In addition to the above trade shows, the Group has also launch the XML Master Program with the Productivity Council and the eSchool. An executive focused eCRM seminar was also conducted during the period. A CRM system has been set up for sales team to track customer activities and to provide a systematic way to follow-up customer leads generated by direct mailing, magazine advertisement and direct telephone marketing activities.

Internal Management Control

The Group will streamline its internal management structure to attain a higher degree of efficiency as well as cost-effectiveness of production and services. The Group will further its internal automation to enhance its management control system to meet its multi-branch, multi-country expansion.

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PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES

From the date of listing since 8 September 2000 up to 30 June 2001, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities.

On behalf of the Board To Cho Kei Chairman

Hong Kong, 13 August 2001

This announcement will remain on the GEM website on the “Latest Company Announcements” page for 7 days from the day of its posting.

• for identification purposes only

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