Joy Spreader Group Inc. - Annual Report 2005

==> picture [96 x 59] intentionally omitted <==

(Incorporated in Bermuda with limited liability)

Stock Code: 8279

FINAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 30TH JUNE, 2005

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

The 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 the GEM with neither a track record of profitability nor any obligation to forecast further profitability. Furthermore, there may be risks arising out of the emerging nature of companies listed on the 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 the GEM mean that it is a market more suited to professional and other sophisticated investors.

Given the emerging nature of companies listed on the GEM, there is a risk that securities traded on the GEM may be more susceptible to high market volatility than securities traded on the stock market operated by the Exchange prior to the establishment of the GEM (excluding the options market) and which stock market continues to be operated by the Exchange in parallel with the GEM and no assurance is given that there will be a liquid market in the securities traded on the GEM.

The principal means of information dissemination on the 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 in order to obtain up-to-date information on the 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.

This announcement, for which the directors of MegaInfo Holdings Limited (“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 (“GEM Listing Rules”) for the purpose of giving information with regard to the Company. The directors of the Company (“Directors”), having made all reasonable enquiries, confirm that, to the best of their knowledge and belief: (1) the information contained in this announcement is accurate and complete in all material respects and not misleading; (2) there are no other matters the omission of which would make any statement in this announcement misleading; and (3) 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

RESULTS

The board of Directors (“Board”) is pleased to announce the audited consolidated results of the Company and its subsidiaries (collectively the “Group”) for the year ended 30th June, 2005, together with the comparative audited figures for the year ended 30th June, 2004 as follows:

Notes Turnover 3 Cost of sales Gross profit Bank interest income Impairment loss recognised in respect of software licences Impairment loss recognised in respect of goodwill Selling expenses Administrative expenses Loss from operations 5 Finance costs 6 Loss before taxation Income tax 7 Net loss for the year Basic loss per share 9	2005 *HK$* 14,289,721 (12,125,708) 2,164,013 35,523 (9,900,000) (482,693) (186,543) (14,245,763) (22,615,463) (6,171) (22,621,634) – (22,621,634) (4.23 cents)	2004 HK$ 10,465,492 (7,559,171) 2,906,321 3,130 – – (97,971) (9,398,765) (6,587,285) (1,614) (6,588,899) – (6,588,899) (1.41 cents)

MOVEMENT IN RESERVES OF THE GROUP DURING THE YEAR WERE AS FOLLOWS:

At 1st July, 2003 Issue of shares in a subsidiary for purchase of software licences Issue of shares in a subsidiary for acquisition of a business Capitalisation issue Issue of shares by placing and public offer Share issuance costs Exchange differences on translation of the financial statements of foreign subsidiaries not recognised in income statement Wavier of amount due to immediate holding company Net loss for the year At 30th June, 2004 Exchange differences on translation of the financial statements of foreign subsidiaries not recognised in income statement Net loss for the year At 30th June, 2005	Share premium HK$ 5,400,000 – – (4,016,250) 28,890,000 (9,697,190) – – – 20,576,560 – – 20,576,560	Exchange Contributed Accumulated reserve surplus losses HK$ HK$ HK$ – (5,523,620) – – 11,000,000 – – 132,019 – – – – – – – – – – (42,978) – – – 5,500,000 – – – (6,588,899) (42,978) 11,108,399 (6,588,899) (30,476) – – – – (22,621,634) (73,454) 11,108,399 (29,210,533)	Total HK$ (123,620) 11,000,000 132,019 (4,016,250) 28,890,000 (9,697,190) (42,978) 5,500,000 (6,588,899) 25,053,082 (30,476) (22,621,634) 2,400,972

Notes:

1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The Company was incorporated in Bermuda on 22nd January, 2003 as an exempted company under the Companies Act 1981 of Bermuda (as amended) and its shares have been listed on the GEM of the Exchange on 19th January, 2004.

Pursuant to a group reorganisation (“Reorganisation”) in preparation for the listing of the shares of the Company on the GEM, the Company became the holding company of the companies now comprising the Group on 23rd December, 2003. Vodatel Holdings Limited (“VHL”) and Gofull Investments Limited (“Gofull”) then had 82% and 18% equity interests in the Group respectively and the equity interests in the Group owned by VHL and Gofull remained the same immediately before and after the Reorganisation. The Reorganisation involved companies under common control and the Company and its subsidiaries resulting from the Reorganisation are regarded as a continuing group. Details of the Reorganisation are set out in the Prospectus of the Company dated 31st December, 2003.

Accordingly, the Reorganisation had been accounted for on the basis of merger accounting, under which the consolidated financial statements have been prepared as if the Company had been the holding company of the companies comprising the Group throughout the accounting year ended 30th June, 2004 presented.

The Directors regard Vodatel Networks Holdings Limited, a company incorporated in Bermuda, as the ultimate holding company of the Company.

The principal activity of the Company is investment holding.

2. POTENTIAL IMPACT ARISING FROM THE RECENTLY ISSUED ACCOUNTING STANDARDS

During the year, the Hong Kong Institute of Certified Public Accountants issued a number of new or revised Hong Kong Accounting Standards and Hong Kong Financial Reporting Standards (“HKFRSs”) (hereinafter collectively referred to as “new HKFRSs”) which are effective for accounting periods beginning on or after 1st January, 2005 except for HKFRS 3 “Business Combinations”. The Group has not early adopted these new HKFRSs in the financial statements for the year ended 30th June, 2005.

HKFRS 3 is applicable to business combinations for which the agreement date is on or after 1st January, 2005. The Group has not entered into any business combination for which the agreement date is on or after 1st January, 2005. Therefore, HKFRS 3 did not have any impact on the Group for the year ended 30th June, 2005.

The Group has considered these new HKFRSs but does not expect that the issuance of these HKFRSs will have a material impact on how its results of operations and financial position are prepared and presented.

3. TURNOVER

Turnover represents the net amounts received and receivable from sale of computer software products and provision of digital image processing management solutions and maintenance services by the Group to outsider customers for the year, and is analysed as follows:

Provision of digital image processing management solutions for “one-stop project” under construction contracts Sale of computer software products and related services	2005 *HK$* 8,787,212 5,502,509 14,289,721	2004 HK$ 2,260,137 8,205,355
		10,465,492

4. SEGMENT INFORMATION

The Group is principally engaged in the provision of digital image processing management solutions in the Macao Special Administration Region of the People’s Republic of China (“Macao”) and the People’s Republic of China (“PRC”).

The Directors present the geographical segment as the Group’s primary segment information.

There are no sales between the geographical segments.

Geographical segment – Primary reporting segment

The following table provides an analysis of the Group’s sales by geographical markets:

Income statement

Turnover
Segment results
Unallocated income
Unallocated expenses
Loss from operations
Finance costs
Loss before taxation
Income tax
Net loss for the year

Macao
The PRC
Consolidated
2005
2004
2005
2004
2005
2004
HK$
HK$
HK$
HK$
HK$
HK$
11,322,670
10,359,949
2,967,051
105,543
14,289,721
10,465,492
(7,071,489) (2,693,702) (1,534,516) (1,975,087) (8,606,005) (4,668,789)
–
1,530
(14,009,458) (1,920,026)
(22,615,463) (6,587,285)
(6,171)
(1,614)
(22,621,634) (6,588,899)
–
–
(22,621,634) (6,588,899)

Balance sheet Segment assets Investment in an associate Unallocated assets Consolidated total assets Segment liabilities Unallocated liabilities Consolidated total liabilities Other information Capital expenditures – allocated – unallocated Depreciation Amortisation charge – allocated – unallocated Impairment loss recognised in respect of software licences – unallocated Impairment loss in respect of goodwill	Macao 2005 2004 *HK$* HK$ 28,021,492 17,616,939 23,648,795 6,866,738 478,369 1,774,062 – – 476,502 371,075 – – – – – – – –	The PRC 2005 2004 *HK$* HK$ 3,397,172 3,554,088 168,568 367,716 129,981 29,433 – – 26,611 11,555 58,508 43,881 – – – – 482,693 –	Consolidated 2005 2004 *HK$* HK$ 31,418,664 21,171,027 14,272 – 620,739 17,162,432 32,053,675 38,333,459 23,817,363 7,234,454 485,340 695,923 24,302,703 7,930,377 608,350 1,803,495 – 11,467,290 503,113 382,630 58,508 43,881 861,527 705,763 9,900,000 – 482,693 –	Consolidated 2005 2004 *HK$* HK$ 31,418,664 21,171,027 14,272 – 620,739 17,162,432 32,053,675 38,333,459 23,817,363 7,234,454 485,340 695,923 24,302,703 7,930,377 608,350 1,803,495 – 11,467,290 503,113 382,630 58,508 43,881 861,527 705,763 9,900,000 – 482,693 –
				38,333,459

				7,234,454 695,923
				7,930,377

				1,803,495 11,467,290 382,630 43,881 705,763 – –

Business segment – Secondary reporting segment

No business segment analysis is presented as the Group has been operating in a single business segment, which is the provision of digital image processing management solutions for both years.

5. LOSS FROM OPERATIONS

THE GROUP 2005 2004 *HK$* HK$ 480,000 465,000 11,475,638 5,489,487 503,113 382,630 861,527 705,763 58,508 43,881 920,035 749,644 511,626 428,990 – 21,000 511,626 449,990 26,772 25,221 – 480,000 7,490,305 4,768,942 250,466 142,280 21,352 9,000 7,762,123 4,920,222	THE GROUP 2005 2004 *HK$* HK$ 480,000 465,000 11,475,638 5,489,487 503,113 382,630 861,527 705,763 58,508 43,881 920,035 749,644 511,626 428,990 – 21,000 511,626 449,990 26,772 25,221 – 480,000 7,490,305 4,768,942 250,466 142,280 21,352 9,000 7,762,123 4,920,222	THE GROUP 2005 2004 *HK$* HK$ 480,000 465,000 11,475,638 5,489,487 503,113 382,630 861,527 705,763 58,508 43,881 920,035 749,644 511,626 428,990 – 21,000 511,626 449,990 26,772 25,221 – 480,000 7,490,305 4,768,942 250,466 142,280 21,352 9,000 7,762,123 4,920,222
861,527 58,508		705,763 43,881
	749,644 428,990 21,000 449,990 25,221 480,000
7,490,305 250,466 21,352		4,768,942 142,280 9,000
	4,920,222

The staff costs included staff costs incurred on research and development which amounted to HK$1,749,456 (2004: HK$664,720).

6. FINANCE COSTS

The amount represents interest on bank loans and overdrafts wholly repayable within five years.

7. INCOME TAX

No provision for profits tax has been made in the financial statements as the Group has no assessable profits in the jurisdictions in which the Group operates for both years.

8. DIVIDEND

The Board does not recommend the payment of a final dividend for the year ended 30th June, 2005.

9. BASIC LOSS PER SHARE

The calculation of loss per share is based on the Group’s loss for the year of HK$22,621,634 (2004: HK$6,588,899) and 535,000,000 (2004: weighted average of 468,381,507) shares in issue during the year.

MANAGEMENT DISCUSSION AND ANALYSIS

REVIEW OF BUSINESS ACTIVITIES

Macao – A year of unlimited business opportunities

The past year in Macao has been a year with robust business opportunities and a year whereby the Macao Government invested heavily in the promotion of e-government for the local territory as a means to improve the overall efficiency of administrative services and processes and in the effective dissemination of government information to citizens and tourists. The investments made by the Macao Government are also to complement the mandate to promote and enhance the image of Macao as an international destination for leisure, hospitality and in the hosting of sporting events, meetings, conferences and exhibitions.

With roots in Macao and capitalising on the strong momentum of the mandate of the Macao Government to strengthen the image of the territory, the Group has been actively participating the construction of various software infrastructural projects in Macao. During the year, the Group successfully completed the implementation of the one-stop e-government project for the civic and municipal affairs bureau of the Macao Government, allowing over 100 administrative services and processes offered by the Macao Government to be centralised and easily accessible by the citizens via web or call centre. The Group has also completed another e-government project for the public administration and civil service bureau, allowing a web based media for the Macao Government in the dissemination of latest information to citizens and tourists, thus increasing awareness and assisting in the promotion of new local attractions and hot spots. In addition to these two landmark e-government projects, the Group has participated in other infrastructural projects to enhance the tourism industry of Macao and to support the hosting of major events, including the automatic vehicle clearance system for the customs service bureau and the automatic passenger clearance system for the public security force, both systems of which are designed to effectively assist the monitoring, controlling and patrolling of inbound and outbound custom clearance of vehicles and passengers at various borders and major ports in Macao.

These infrastructural projects, in addition to bringing in revenue to the Group, have allowed the Group to enhance and greatly expand the applications of the various modules in its own developed products, for example, MegaImage, MegaDMS and MegaERP . Moreover, these projects have offered opportunities to the Group to participate in the development of software infrastructure for the territory and are a means to demonstrate to the Macao Government the experience and capability of the Group.

These infrastructural projects undertaken by the Macao Government have also translated to initial steps taken to erect a governmental resources planning platform for fast and efficient administrative processes and effective distribution and access of information, not only to citizens or tourists, but also a gateway to the business sectors to truly position Macao as an integrated international centre for leisure, hospitality and major events. In this respect, the Group has therefore built from the expertise in system integration and project management brought over from our parent company, VHL, to strategically participate in the construction of software and system infrastructure that supported entertainment and sporting events – with the goals to expand the revenue base of the Group and build a solid base of premium customers, comprising the Macao Government, hotel and gaming operators, to allow cross selling opportunities of the other applications and services of the Group.

The Group has secured various contracts from the upcoming East Asian Games, including a project for the supply and installation of gaming applications and related services, such as project management, system integration and support services, and other projects to install extra-low voltage (“ELV”) systems for the shooting range centre and the news and media centre. Aggregate of these projects amounted to approximately HK$40 million of turnover for the upcoming financial year. Concurrently, we have also targeted the entertainment section and have secured various contracts to install ELV systems at various hotels with a total of approximately HK$4 million of contracts awarded.

PRC – A year of reaching out

During the year, the Group has successfully completed the installation and integration of MegaImage with the operating support systems of various bureaus of Guangdong China Mobile. Although the Group has had challenges in the integration process, causing delays to the completion of these projects, these challenges have translated to opportunities for the Group to gain field experience and to enhance and enrich the functionalities and features of MegaImage to better fit the business and operating environment of telecommunications operators. With successful projects as reference sites, the Group has continued the marketing of MegaImage to other bureaus of China Mobile and, leveraging on the relationship network of VHL, to promote the application to various bureaus of China Telecom. Projects from different bureaus of Guangdong China Mobile and Guangdong China Telecom were registered.

With respect to the marketing of MegaERP in the PRC, the Group has deployed a new marketing strategy during the year to promote the enterprise resource planning (“ERP”) application by establishing a network of resellers to tap the mass market. To complement this new strategy, in addition to participating in various IT exhibitions, the Group has also partnered with local IT educational institutes in selected cities to build the “School of ERP” by setting up training centres and laboratories to provide ERP software training to resellers, enterprises and academics – a means to promote a broader knowledge and usage of MegaERP .

To maximise the experience and expertise gained from the participation of the various infrastructural projects in Macao and leveraging the active promotion of business activities in the Pearl River Delta Region, the Group has commenced the promotion of the governmental resources planning platform to the various governmental bureaus in the PRC by partnering with reputable local companies. Collaboration arrangement with Beijing Redflag Linux, who has strong relationship network and has been supporting IT infrastructure of various governmental bureaus in the PRC in different provinces and municipalities, is currently under discussion.

REVIEW OF OPERATING RESULTS

Turnover and Profitability

As anticipated, Macao remained the major revenue contributor of the Group, with approximately 80% of its total turnover derived from business opportunities in Macao. Although a handful of contracts from the Macao Government and hotel operators were secured during the year ended 30th June, 2005, as completion of these projects was expected to be end of 2005 or early 2006, therefore, the Group registered turnover of approximately HK$14.3 million for the year, representing a mere increase of 36.5% over the corresponding financial year.

In view of hardware and software mix of each project to vary based on nature of the project and customers’ specifications and with hardware carrying lower margin than software, gross profit margin showed a decline from 28.8% to 15.1%. Nevertheless, based on the hardware and software mix of the various contracts on hand, management anticipated the overall gross profit margin for the next financial year to improve.

Loss for the year widened to approximately HK$22.6 million, explained primarily by the write-off of the perpetual licences for the Tianxin software of approximately HK$9.9 million and an increase of headcount and related administrative expenses to support the various projects secured in Macao and the research and development (“R&D”) activities. However, with revenue of most of the projects on hand expected to be booked, improved gross margin and careful cost control exercises, management is of the view that the operating results of the Group would improve during the next financial year.

Capital Resources and Liquidity

Net cash and bank balances as at 30th June, 2005 were HK$11.3 million, with a debt-free capital structure. Worth noting was the cash management of the Group to strive to maintain back-to-back payment terms with its suppliers.

Capital Commitments and Significant Investments

As at 30th June, 2005, the Group did not have any significant capital commitments and significant investments.

Charges on Group Assets

As at 30th June, 2005, the Group did not have any charges on assets of the Group.

Foreign Exchange Exposure

As at 30th June, 2005, the Group held cash and bank deposits denominated in Hong Kong Dollars, Renminbi and Patacas. Since all of its revenue-generating operations, monetary assets and liabilities of the Group are conducted or transacted substantially in Renminbi, which is not freely convertible into foreign currencies, and in Patacas, which is considered as a stable currency under the control of the Macao Government, the Group faced minimal exchange rate risk during the year.

Contingent Liabilities

As at 30th June, 2005, there were no material contingent liabilities.

Employees’ Information

As of 30th June, 2005, the Group had 58 (2004: 49) full-time employees in Hong Kong, Macao and the PRC. Total staff costs (excluding directors’ emoluments) amounted to approximately HK$5.3 million, attributable to an increase in headcount to accommodate the business and research and development activities in Macao and the PRC.

The Group’s remuneration policies are formulated on the basis of performance and experience of individual employee and are in line with local market practices. In addition to salary, the Group also offers to its employees other fringe benefits including stock options, provident fund, social security fund and medical benefits.

SHARE OPTION SCHEME

The Company’s share option scheme (“Scheme”) was adopted pursuant to a resolution passed on 18th November, 2004 for the primary purpose of providing incentives to Directors and eligible participants (as defined in the Scheme), and will be expired 10 years commencing on the adoption of the Scheme.

Under the Scheme, the Board may at their discretion grant options to eligible employees, including directors of the Group, and certain consultants, suppliers or customers of the Group, to subscribe for shares in the Company from time to time. The maximum number of shares, which may be granted under the Scheme, shall not exceed 10% of the shares of the Company in issue at any point in time, without prior approval from the Company’s shareholders. The number of shares in respect of which options may be granted under the Scheme to any individual in any one year is not permitted to exceed 1% of shares of the Company in issue at any point in time, without prior approval from the Company’s shareholders.

Options granted to a Director, the chief executive or substantial shareholder of the Company or any of their associates (as defined in the GEM Listing Rules) requires the approval of independent nonexecutive Directors (excluding an independent non-executive Director who is the prospective grantee in question). Options granted to substantial shareholders or independent non-executive Directors or their respective associates in excess of 0.1% of the Company’s share capital or with a value in excess of HK$5 million must be approved in advance by the Company’s shareholders.

Options granted must be taken up within 28 days of the date of grant, upon payment of HK$1 per option. Options may be exercised at any time from the date of grant of the share option to a period to be notified by the Board to each grantee at the time of making such offer, which shall not expire later than 10 years from the date of grant.

The subscription price of the share option is determined by the Board, and the amount will not be less than the higher of (a) the closing price of the Company’s shares on the Exchange on the date of grant; (b) the average closing price of the Company’s shares as stated in the daily quotation sheets issued by the Exchange for the 5 business days immediately preceding the date of grant; and (c) the nominal value of a share of the Company on the date of grant.

No option has been granted under the share option scheme since its adoption.

COMPARISON OF BUSINESS OBJECTIVES

Business objectives for the year under review as set out in the Prospectus

Complete the development of the system mobile accessibility and the web-based services accessibility of MegaMax

Commence the R&D of MegaLab, an imaging processing solution for the medical sector which allows record of patients to be scanned, indexed, digitalised and encrypted, allowing various units within the hospital to share, have access and manage the records

Complete the development of MegaOffice

Continue the promotion and marketing activities in previous periods

Launch and promote MegaOffice to various departments under the Macao Government and public utilities companies

Launch and promote the integrated and advanced version of the Mega-ERP/ECM applications to enterprises in the Guangdong Province, Shanghai and the Shandong Province, the PRC

Actual business progress for the year under review

Completed. Final testing in progress with full version of MegaMax expected to be ready for launch during early 2006

In progress. An upgraded version of MegaLab with improved image storage quality and functionalities, including scanning, indexing, sharing and managing patients’ records, under enhancement and expected to be completed during early 2006

Completed. Final testing in progress with full version of MegaOffice expected to be ready for launch during early 2006

Strong marketing and promotional activities continued to be underway, targeting the Macao Government, hotel and gaming operators in Macao and fixed-line and mobile service providers in the Guangdong Province and Shanghai

Various seminars on MegaOffice to different enterprises, public utilities companies and the Macao Government have been conducted, with feedback gathered from potential customers being thoroughly reviewed and studied. The Group is currently in the process of enhancing existing and integrating new features to the application so as to further improve the efficiency and effectiveness of office work flow

Various market surveys have been conducted and numerous discussions have been made with potential distributors of MegaERP in different major provinces and cities, including the Guangdong Province and Shanghai, with responses to strengthen its marketability received, reviewed and studied. The Group is currently in the process of upgrading MegaERP with mobile communications capacity using the newly developed mobile communications platform and the upgrade is expected to be completed by end of 2005

COMPARISON OF BUSINESS OBJECTIVES (Continued)

Launch and commence promotion of the upgraded MegaMax

Final testing in progress with full version of MegaMax expected to be ready for launch during early 2006

Commence the promotion of upgraded MegaImage to fixed-line telecommunications service providers in the Guangdong Province and Shanghai, the PRC

Marketing presentations of the upgraded MegaImage have been made to fixed-line service providers in the Guangdong Province, with positive response received

Identify appropriate distributors to promote MegaLab to hospitals and laboratories in Shanghai and the Grangdong Province, the PRC

Various potential distributors of MegaLab have been identified and discussions with them are in progress to promote the application in the Guangdong Province and Shanghai

Participate in one major IT exhibition in the PRC to promote the Group’s enterprise solutions

Subsequent to evaluation of the effectiveness of various IT exhibitions to be held in the PRC during the year, decision has been made to participate in a major IT exhibition in Shenzhen, the Guangdong Province, during October, 2005

Evaluate the need of setting up new representative offices in other provinces (subject to the business requirements of the Group) to handle customers’ enquiries and provide aftersales support services

The setup of technical support centres in Guangzhou, the Guangdong Province, and Shanghai is under review

Apply for quality assurance certification for Mega-ERP/ECM and MegaOffice applications from an independent software centre in the PRC

Pending testing and independent evaluation of MegaImage by the CEPREI Certificate Body, an independent software centre in the Guangdong Province

Finalise the collaboration arrangement with either R&D institute of a university or a software company in the PRC to engage in R&D of new enterprise solutions

Discussions with a software company in Beijing to form a partnership are underway for development of new enterprise solutions and in the joint promotion of the Mega branded products in the PRC

Target to acquire a software company in the PRC that will strengthen the Group’s R&D capability and complement the Group’s integrated range of enterprise solutions

Under review and to be in line with the Group’s strategic directions in product development and market positioning

APPLICATIONS AND COMPARISON OF USE OF PROCEEDS

The Group raised approximately HK$20.4 million from the listing of the ordinary shares of the Company on GEM.

Comparison of the use of proceeds at stated in the Prospectus with actual application.

Use of proceeds as stated in the prospectus

Application of proceeds from the initial ordinary share offer on 19th January, 2004

Approximately HK$0.4 million for R&D of new products under the Group’s own brand name

Approximately HK$0.4 million for marketing research and recruitment of additional software engineers to engage in R&D of new products and upgrades

Approximately HK$0.9 million for business development, expansion of the Group’s marketing team and participation in IT exhibitions

Approximately HK$0.4 million for recruitment of new sales representatives to the marketing teams and participation in various IT exhibitions in Macao, Shenzhen and Guangzhou

Approximately HK$1.2 million for expansion of geographical presence in the PRC

The Group is in the process of evaluating the setting up of technical support centres in Guangzhou, the Guangdong Province, and Shanghai

Approximately HK$0.2 million for application for quality assurance certifications for the Group’s products

The application of quality assurance certifications has been postponed

Approximately HK$1.0 million for development of collaboration arrangement with universities and software companies

The Group has set up training centres and laboratories to provide ERP software training to resellers, enterprises and academics. Budgeted expense for training material is approximately HK$0.5 million

PURCHASE, REDEMPTION OR SALE OF LISTED SECURITIES OF THE COMPANY

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

AUDIT COMMITTEE

The Company has established an audit committee (“Committee”) with written term of reference in compliance with Rules 5.28 to 5.33 of the GEM Listing Rules. The Committee provides an important link between the Board and the Company’s auditors in matters coming within the scope of the audit. It also reviews the effectiveness of both the external and internal audit and of internal controls and risk evaluation.

The Committee comprises three independent non-executive Directors, namely Mr. Chui Sai Cheong, Mr. Tsui Wai Kwan and Mr. Tam Pak Yip. Mr. Chui Sai Cheong is the chairman of the Committee.

The Group’s financial statements for the year ended 30th June, 2005 have been reviewed by the Committee who was of the opinion that such financial statements complied with applicable accounting standards, the GEM Listing Rules, and that adequate disclosures had been made.

During the year, the Committee has held 4 meetings and has reviewed the Company’s draft annual, interim and quarterly financial reports and accounts prior to recommending such reports and accounts to the Board for approval.

SPONSOR’S INTEREST

Pursuant to the agreement dated 30th December, 2003 entered into between the Company and the joint sponsors, namely REXCAPITAL (Hong Kong) Limited (“RexCaptial”) and CSC Asia Limited (“CSC Asia”), the joint sponsors have received and will receive a fee for acting as the Company’s retained sponsors for the period from 19th January, 2004 to 30th June, 2006.

On 28th July, 2004, due to the major personnel changes at RexCapital, the Company and RexCapital have mutually agreed to terminate the engagement of RexCapital as one of the continuing sponsors to the Company with effect from 1st August, 2004.

CSC Asia will continue to act as the continuing sponsor to the Company pursuant to Chapter 6 of GEM Listing Rules for the period up to 30th June, 2006.

None of CSC Asia and the Company’s directors, employees or associates had any interests in the securities of the Company or any member of the Group or any rights to subscribe for or to nominate persons to subscribe for the securities of the Company or any member of the Group as at 30th June, 2005.

BOARD PRACTICES AND PROCEDURES

Throughout the year, the Company was in compliance with the Board Practices and Procedures as set out in rules 5.34 to 5.45 (where applicable) of the GEM.

By order of the Board MegaInfo Holdings Limited José Manuel dos Santos Chairman

The Hong Kong Special Administrative Region of the People’s Republic of China, 16th September, 2005

Executive Directors Non-executive Directors Independent non-executive José Manuel dos Santos Yim Hong Directors Mok Chi Va Kuan Kin Man Chui Sai Cheong Kuok Cheong Ian Tsui Wai Kwan Tam Pak Yip

This announcement will remain on the “Latest Company Announcement” page of the internet website operated by the Exchange for the purposes of GEM at www.hkgem.com for at least seven days from the day of posting and on the website of the Company at www.megainfo.com.cn.