Joy Spreader Group Inc. - Annual Report 2006

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(Incorporated in Bermuda with limited liability) Stock Code: 8279

FINAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 30 JUNE 2006

CHARACTERISTICS OF THE GROWTH ENTERPRISE MARKET (“GEM”) OF THE STOCK EXCHANGE OF HONG KONG LIMITED (“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 further 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 stock market operated by the Exchange prior to the establishment of GEM (excluding the options market) and which stock market continues to be operated by the Exchange in parallel with GEM 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 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.

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

BUSINESS AND FINANCIAL HIGHLIGHTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2006

Total turnover of the Group rose by approximately 4.9 times to reach approximately HK$69.4 million as compared to approximately HK$14.3 million for the preceding financial year
Net loss narrowed sharply to approximately HK$2.8 million from approximately HK$22.6 million for the preceding financial year
Attributable to heightened activities, strong orders from the East Asian Games, Macao Government and various gaming and hotel operators secured during the financial year
Streamlined and realigned the software development teams in the PRC to focus on the fine-tuning of the MegaImage application and to support the development team in Macao to complete the e-government project and their related applications
Successfully sold the MegaImage application to four mobile bureaus in the Guangdong Province during the financial year
The Board did not recommend a payment of dividend

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 30 June 2006, together with the comparative audited figures for the year ended 30 June 2005 as follows:

Consolidated income statement

Notes Revenue 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 Finance costs 5 Loss before taxation 6 Taxation 7 Loss for the year Basic loss per share 8	2006 *HK$* 69,404,045 (56,407,186) 12,996,859 120,816 – – (148,153) (15,619,685) – (2,650,163) (152,000) (2,802,163) 0.52 cent	2005 HK$ 14,289,721 (12,125,708) 2,164,013 35,523 (9,900,000) (482,693) (186,543) (14,245,763) (6,171) (22,621,634) – (22,621,634) 4.23 cents

Consolidated balance sheet

Notes Non-current assets Property, plant and equipment Software licences Goodwill Investment in an associate Current assets Inventories Trade receivables 9 Amounts due from customers for contract work Other receivables, deposits and prepayments Bank balances and cash Current liabilities Trade payables 10 Other payables, accruals and deposits received Amount due to a customer for contract work Deferred revenue Tax payable Net current assets Capital and reserves Share capital Reserves Equity attributable to equity holders of the Company	2006 *HK$* 1,040,534 – – – 1,040,534 1,466,967 1,709,969 5,513,552 1,940,370 7,037,538 17,668,396 8,176,498 4,703,008 659,373 18,675 152,000 13,709,554 3,958,842 4,999,376 5,350,000 (350,624) 4,999,376	2005 HK$ 1,604,617 – – 14,272
		1,618,889
		3,917,964 3,559,012 754,694 10,873,397 11,329,719
		30,434,786
		659,279 23,419,374 – 224,050 –
		24,302,703
		6,132,083
		7,750,972

		5,350,000 2,400,972
		7,750,972

Consolidated statement of changes in equity

At 1 July 2004 Exchange differences arising on translation of foreign operations recognised directly in equity Loss for the year Total recognised expense for the year At 30 June 2005 Exchange differences arising on translation of foreign operations recognised directly in equity Loss for the year Total recognised expense for the year Transfer At 30 June 2006	Share capital HK$ 5,350,000 – – – 5,350,000 – – – – 5,350,000	Share premium HK$ 20,576,560 – – – 20,576,560 – – – – 20,576,560	Statutory reserves HK$ (Note a) – – – – – – – – 292,038 292,038	Exchange reserve HK$ (42,978) (30,476) – (30,476) (73,454) 50,567 – 50,567 – (22,887)	Contributed Accumulated surplus losses HK$ HK$ (Note b) 11,108,399 (6,588,899) – – – (22,621,634) – (22,621,634) 11,108,399 (29,210,533) – – – (2,802,163) – (2,802,163) – (292,038) 11,108,399 (32,304,734)	Total HK$ 30,403,082 (30,476) (22,621,634) (22,652,110) 7,750,972 50,567 (2,802,163) (2,751,596) – 4,999,376

Notes:

(a) In accordance with statutory requirements in the People’s Republic of China, other than the region of Hong Kong, Macao and Taiwan (the “PRC”), a subsidiary of the Company registered in the PRC is required to transfer a certain percentage of its annual net income from retained profits to statutory reserves. The statutory reserves are not distributable.
(b) The contributed surplus of the Group represents (1) the difference between (a) the nominal value of the share capital and the existing balances on the share premium account of a subsidiary acquired pursuant to the Group reorganisation prior to the listing of the Company’s shares; and (b) the nominal value of the shares issued by the Company and the release and waiver of the amount owed by the then holding company of the subsidiary to the Company in exchange thereof; and (2) the release and waiver of the amount owed by the Company to its former immediate holding company.

Notes:

1. BASIS OF PREPARATION

The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). The consolidated financial statements have been prepared on the historical cost basis.

2. 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 (“INTs”) (hereinafter collectively referred to as “new HKFRSs”) issued by the HKICPA that are effective for accounting periods beginning on or after 1 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. 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 area:

Business combinations

In the current year, the Group has applied HKFRS 3 “Business combinations” which is effective for business combinations for which the agreement date is on or after 1 January 2005. The principal effects of the application of HKFRS 3 to the Group are summarised below:

Goodwill

In previous years, goodwill arising on acquisitions was capitalised and amortised over its estimated useful life. The Group has applied the relevant transitional provisions in HKFRS 3 “Business Combinations”. With respect to goodwill previously capitalised in the balance sheet, the Group on 1 July 2005 eliminated the carrying amount of the related amortisation and impairment of HK$585,082 with a corresponding decrease in the cost of goodwill. Goodwill arising on acquisitions after 1 July 2005 is measured at cost less accumulated impairment losses (if any) after initial recognition. The application of HKFRS 3 has had no material impact on how financial statements of the Group are presented for current and prior accounting periods.

The Group has not early applied the following new standards, amendments and interpretations that have been issued but are not yet effective. The Directors anticipate that the application of these new standards, amendments and interpretations will have no material impact on the financial statements of the Group.

HKAS 1 (Amendment) Capital disclosures[1] HKAS 19 (Amendment) Actuarial gains and losses, group plans and disclosures[2] HKAS 21 (Amendment) Net investment in a foreign operation[2] HKAS 39 (Amendment) Cash flow hedge accounting of forecast intragroup transactions[2] HKAS 39 (Amendment) The fair value option[2] HKAS 39 & HKFRS 4 (Amendments) Financial guarantee contracts[2] 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[3] HK(IFRIC) – INT 7 Applying the restatement approach under HKAS 29 Financial Reporting in Hyperinflationary Economies[4] HK(IFRIC) – INT 8 Scope of HKFRS 2[5] HK(IFRIC) – INT 9 Reassessment of embedded derivatives[6]

1 Effective for accounting periods beginning on or after 1 January 2007. 2 Effective for accounting periods beginning on or after 1 January 2006. 3 Effective for accounting periods beginning on or after 1 December 2005. 4 Effective for accounting periods beginning on or after 1 March 2006. 5 Effective for accounting periods beginning on or after 1 May 2006. 6 Effective for accounting periods beginning on or after 1 June 2006.

3. REVENUE

Revenue represents the amounts received and receivable from provision of information technology management solutions and sales of computer software products and maintenance services by the Group to outside customers for the year, and is analysed as follows:

Revenue in respect of provision of information technology management solutions under construction contracts Sales of computer software products and maintenance services	2006 *HK$* 64,671,443 4,732,602 69,404,045	2005 HK$ 8,787,212 5,502,509
		14,289,721

4. SEGMENT INFORMATION

The Group is principally engaged in the provision of information technology management solutions in Macao and the PRC.

The Directors present the geographical segment as the primary segment information of the Group.

There are no inter-segment sales between the geographical segments.

Geographical segment – Primary reporting segment

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

Income statement Revenue Segment results Unallocated corporate expenses Finance costs Loss before taxation Taxation Loss for the year Balance sheet Segment assets Investment in an associate Unallocated corporate assets Consolidated total assets Segment liabilities Unallocated corporate liabilities Consolidated total liabilities	Macao The PRC 2006 2005 2006 2005 *HK$* HK$ *HK$* HK$ 66,432,236 11,322,670 2,971,809 2,967,051 2,972,470 (7,071,489) (1,746,623) (12,296,042) 16,343,935 28,021,492 1,752,069 3,397,172 12,059,877 23,648,795 250,511 168,568	Consolidated 2006 2005 *HK$* HK$ 69,404,045 14,289,721 1,225,847 (19,367,531) (3,876,010) (3,247,932) – (6,171) (2,650,163) (22,621,634) (152,000) – (2,802,163) (22,621,634) 18,096,004 31,418,664 – 14,272 612,926 620,739 18,708,930 32,053,675 12,310,388 23,817,363 1,399,166 485,340 13,709,554 24,302,703

	Macao	Macao	The PRC	The PRC	Unallocated	Unallocated	Consolidated	Consolidated
	2006	2005	2006	2005	2006	2005	2006	2005
	*HK$*	HK$	*HK$*	HK$	*HK$*	HK$	*HK$*	HK$
Other information
Additions of property,
plant and equipment	104,700	478,369	–	129,981	–	–	104,700	608,350
Depreciation	622,942	476,502	41,174	26,611	–	–	664,116	503,113
Amortisation charge	–	–	–	58,508	–	861,527	–	920,035
Allowance for bad and
doubtful debts	138,495	–	–	–	–	–	138,495	–
Allowance for slow
moving inventories	108,920	–	–	–	–	–	108,920	–
Impairment loss
recognised in
respect of software
licences	–	–	–	–	–	9,900,000	–	9,900,000
Impairment loss recognised
in respect of goodwill	–	–	–	482,693	–	–	–	482,693
Impairment loss recognised
in respect of
investment in
an associate	–	–	–	–	14,272	–	14,272	–

Business segment – Secondary reporting segment

No business segment analysis is presented as the Group has been operating mainly in the provision of information technology management solutions for both years.

5. FINANCE COSTS

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

6. LOSS BEFORE TAXATION

	2006	2005
	*HK$*	HK$
Loss before taxation has been arrived at after charging:
Amortisation charge (included in administrative expenses)
– software licences	–	861,527
– goodwill	–	58,508
	–	920,035
Auditor’s remuneration	550,000	480,000
Allowance for bad and doubtful debts (included in administrative expenses)	138,495	–
Allowance for slow moving inventories (included in cost of sales)	108,920	–
Cost of inventories recognised as an expense	53,701,155	11,475,638
Depreciation of property, plant and equipment	664,116	503,113
Impairment loss recognised in respect of investment in an associate
(included in administrative expenses)	14,272	–
Loss on write off of property, plant and equipment	9,770	–
Net foreign exchange loss	23,956	26,772
Operating lease rentals in respect of rented premises	709,398	511,626
Staff costs, including directors’ emoluments
Fees, salaries, discretionary bonus and other benefits	8,545,273	7,490,305
Social security costs	233,077	250,466
Retirement benefits scheme contributions	12,000	21,352
	8,790,350	7,762,123

The staff costs included staff costs incurred on research and development which amounted to HK$2,339,099 (2005: HK$1,749,456).

7. TAXATION

Taxation represents Macao Complementary Tax calculated at 12% (2005: 15.75%) of the estimated assessable profits for the year.

No provision for Profits Tax has been made in the financial statements for prior year as the Group has no assessable profits in the jurisdictions in which the Group operated for that year.

The taxation for the year can be reconciled to the loss before taxation as per the consolidated income statement as follows:

Loss before taxation Tax at the Macao Complementary Tax rate of 12% (2005: 15.75%) Tax effect of income not taxable for tax purpose Tax effect of expenses not deductible for tax purpose Utilisation of tax losses previously not recognised Effect of tax exemptions granted Effect of different tax rates of subsidiaries operating in other jurisdictions Tax effect of estimated tax losses not recognised Taxation for the year	2006 *HK$* (2,650,163) (318,020) (16,759) 64,576 (188,000) – (444,602) 1,054,805 152,000	2005 HK$ (22,621,634) (3,562,907) (164,463) 346,521 – (141,536) 36,829 3,485,556 –

During the year, the Macao Complementary Tax rate was decreased from 15.75% to 12% and the change of the tax rate was effective for the year ended 30 June 2006.

Pursuant to the relevant laws and regulations in the PRC, the PRC subsidiaries of the Group are exempted from PRC income tax either for two years or two years starting from their first profit-making year, followed by a 50% reduction for the next three years. No provision for PRC income tax has been made in the financial statements as all of the PRC subsidiaries were exempted from PRC income tax during the year.

At the balance sheet date, the Group has estimated tax losses of approximately HK$31,872,000 (2005: HK$28,310,000), out of which the estimated unused tax losses of HK$12,723,000 (2005: HK$7,594,000) are available for offset against future profits. The remaining tax losses of approximately HK$19,149,000 (2005: HK$20,716,000) cannot be carried forward to offset against future profits. No deferred tax asset has been recognised in respect of the estimated tax losses, which are available for offset against future profit, due to unpredictability of future profit streams. Included in unrecognised estimated unused tax losses are losses of HK$4,244,000 (2005: HK$2,925,000) that will expire within 5 years. Other estimated unused tax losses of HK$8,479,000 (2005: HK$4,669,000) may be carried forward indefinitely.

8. BASIC LOSS PER SHARE

The calculation of basic loss per share is based on the Group’s loss for the year of HK$2,802,163 (2005: HK$22,621,634) and 535,000,000 (2005: 535,000,000) shares in issue during the year.

9. TRADE RECEIVABLES

The aged analysis of the Group’s trade receivables is as follows:

Less than 30 days 31 to 60 days 61 to 90 days 91 to 120 days 121 to 365 days Over 365 days	2006 *HK$* 1,471,057 171,646 4,591 – 26,170 36,505 1,709,969	2005 HK$ 72,905 146 – 1,020,346 1,054,547 1,411,068
		3,559,012

The credit terms granted to customers vary and are generally the result of negotiations between the individual customers of the Group.

At 30 June 2005, among the outstanding trade receivables balances, there was HK$166,350 due from a former fellow subsidiary of the Group.

The Directors consider that the carrying amount of the trade receivables approximates its fair value.

10. TRADE PAYABLES

The aged analysis of the Group’s trade payables is as follows:

Less than 30 days 31 to 60 days 61 to 90 days 91 to 120 days 121 to 365 days	2006 *HK$* 586,557 3,162,735 1,953,821 1,625,915 847,470 8,176,498	2005 HK$ 252,128 – – – 407,151
		659,279

At 30 June 2006, among the outstanding trade payables, there was HK$2,706,938 (2005: Nil) due to related companies in which Mr. José Manuel dos Santos[*] has a beneficial interest.

Mr. José Manuel dos Santos resigned as director of the Company on 19 July 2006.

The Directors consider that the carrying amount of the trade payables approximates its fair value.

MANAGEMENT DISCUSSION AND ANALYSIS

REVIEW OF BUSINESS ACTIVITIES

Macao – Focus of attention and city of opportunities

During the financial year, the Macao Special Administration Region of the People’s Republic of China (“Macao”) remained the main focus of the Group with organic growth and business activities fuelled from three major forces, namely the East Asian Games held during October 2005, mandate of the Macao Government to improve efficiency and massive investments from gaming and hotel operators.

The East Asian Games, being the first multi-discipline event ever held in Macao and the third most important multi-sports event in Asia, after the Olympics and the Asian Games, had been a showcase for the Macao Government to put Macao on an international stage. Taking the Macao Government nine years to prepare this major event, we are proud to be selected as one of the participants in the infrastructure building and had been involved in a number of projects of the East Asian Games. Of the projects that the Group was awarded and successfully completed, included a landmark project for the supply and installation of a gaming application that supported the event scoring system. In addition, the Group completed various extra-low voltage (“ELV”) systems for the shooting range and the football stadium, the locations of which to host gaming events, and the media centre for dissemination of latest news about the East Asian Games. Total revenue attributable to the Group during the financial year from projects for the East Asian Games amounted to approximately HK$25.4 million.

Since 2004, the Macao Government pragmatically carried out the administrative reforms with the ultimate goal to improve efficiency and effectiveness, including the streamlining of internal operations, building infrastructure of an e-government, simplifying administrative formalities and improving the transparency of the work of the Macao Government. During the preceding financial year, the Group was awarded and successfully completed the implementation and integration of the one-stop e-government application under the Public Administration and Civil Service Bureau. This application, which incorporates workflow, document imaging and management system, allows Macao citizens to access a variety of governmental services and information via a single governmental portal. With the completion of this infrastructural project for the Macao Government, the Group successfully completed the installation and implementation of two other e-government related applications during the financial year, namely the automatic vehicle clearance system and the automatic passenger clearance system, and was awarded an expansion project to develop an enhancement to the automatic queuing system of the one-stop e-government system – an upgraded feature to better monitor and improve reservations and queuing of different governmental services.

With the gaming and tourism as pillar industries of Macao, Macao is characterised as one of the world’s fastest growing gaming markets. Spurred with a solid base and presence in Macao and benefiting from the massive investments made by various gaming and hotel operators, the Group tapped selected gaming and hotel operators and was successfully awarded a number of contracts to supply and install ELV systems at various gaming and hotel premises. Total revenue recognised during the financial year amounted to approximately HK$15.2 million, with orders on hand of approximately HK$12.6 million as at 30 June 2006.

PRC – A year of preparation

During the financial year, the Group reorganised its resources in the PRC by streamlining and realigning its resources primarily to two areas: (1) the fine-tuning and promotion of the MegaImage application; and (2) the provision of support in software development and implementation to the team in Macao.

With encouraging results in the Guangdong Province, with various mobile bureaus now deploying the MegaImage application, we geared our development effort to fine-tune the various features and functionalities of the application to better cater the needs of the mobile bureaus. We also aimed our marketing efforts to primarily the promotion of the MegaImage application to other mobile bureaus in the Guangdong Province. By refocusing our marketing efforts to a single province, we targeted to build a strong reference site by cost effectively utilising the existing resources of the software development teams in Zhuhai and Guangzhou. With such changes, we successfully sold the MegaImage application to the mobile bureaus in Dongguan, Yunfu and Zhaoqing and were awarded an expansion contract to install the upgraded version of the application at the mobile bureau in Shenzhen during the financial year.

Faced with human resources challenges in Macao as a result of robust economic activities, the Group further realigned its human resources in the PRC by utilising the software development capabilities of its technical teams in the PRC to complement the team in Macao and to support the various business opportunities secured by the Group in Macao. Today, the software development teams in Zhuhai and Guangzhou involved heavily in the development of the software infrastructure of the one-stop e-government project and its related applications, and in the provision of maintenance and support services for the e-government infrastructure.

REVIEW OF OPERATING RESULTS

Turnover and Profitability

Attributable to the successful award and completion of various projects for the East Asian Games, the Macao Government and various gaming and hotel operators, total turnover of the Group surged considerably to approximately HK$69.4 million, representing about 4.9 times the turnover of the preceding year of approximately HK$14.3 million. In line with ample business opportunities in Macao, the territory brought in approximately 96% of total turnover of the Group for the financial year. In view of the nature of a number of projects with a higher software component, gross profit margin improved from approximately 15.1% to approximately 18.7%.

An impressive improvement in total turnover and gross profit margin had been supported by a wellcontrolled cost structure. Total selling, general and administrative expenses amounted to approximately HK$15.8 million, representing a slight increase of approximately HK$1.3 million, or approximately 9.3%, over the preceding year. Challenged by an environment with rising wages in Macao, resulting in total wages and salaries (including directors’ fees) of the Group to increase by approximately 13.2% to reach approximately HK$8.8 million, the Group incurred a one-off expense item of approximately HK$0.6 million as a result of the change of majority ownership and the general offer from MAXPROFIT GLOBAL INC.

Fuelled from improved revenue streams and in the absence of goodwill impairment, net loss of the Group significantly narrowed from approximately HK$22.6 million to approximately HK$2.8 million for the financial year.

Capital Resources and Liquidity

Net cash and bank balances as at 30 June 2006 were approximately HK$7.0 million, with a debtfree capital structure. As a means to well manage and control its cash position, the Group continued to strive for back-to-back payment terms with its suppliers.

Capital Commitments and Significant Investments

At 30 June 2006, the Group did not have any significant capital commitments and significant investments.

Charges on Group Assets

At 30 June 2006, the Group did not have any charges on assets of the Group.

Foreign Exchange Exposure

At 30 June 2006, the Group held cash and bank deposits denominated in Hong Kong Dollars, Renminbi, and Macao Patacas. Since all of it 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 Macao Patacas, which is considered as a stable currency under the control of the Macao Government, the Group faced minimal exchange rate risk during the financial year.

Contingent Liabilities

At 30 June 2006, there were no material contingent liabilities.

Employees’ Information

At 30 June 2006, the Group had 44 (2005: 58) full-time employees in Hong Kong, Macao and the PRC. Total staff costs (excluding directors’ emoluments) amounted to approximately HK$6.7 million. The Group is keen to retain and motivate talent and continues to make adjustments in compensation, where necessary, to recognise employees’ contributions and to respond to changes in the employment market. Payroll costs were adjusted to selected employees to recognise outstanding performance. In addition to the salary, the Group also offers to its employees other fringe benefits including stock option scheme, provident fund, social security fund and medical benefits.

COMPARISON OF BUSINESS OBJECTIVES

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

Continue to upgrade MegaImage and MegaMax with new and enhanced features based on latest market trends and customers’ requirements

Continue to upgrade the Group’s products with new and enhanced features based on latest market trends and customers’ requirements

Continue the promotion and marketing activities in previous periods

Continue to identify appropriate distributors and with the appointed distributors, to promote MegaImage to mobile service providers in other provinces with strong demand for the Group’s products

Continue the promotion of upgraded MegaImage to fixed-line telecommunications service providers in the Hunan Province, the PRC

Identify appropriate distributors and with the appointed distributors commence to promote MegaLab to hospitals and laboratories in the Zhejiang Province, the PRC

Continue to promote upgraded MegaImage , MegaDMS and MegaOffice to various departments under the Government of Macao and public utilities companies

Participate in one major information technology (“IT”) exhibition in the PRC to promote the Group’s enterprise solutions

Actual business progress for the year under review

Focus principally on the fine-tuning of the features and functionalities of the MegaImage application to better cater the needs of the mobile bureaus

Various features and functionalities of the MegaImage application upgraded and fine-tuned

To capitalise the ample market opportunities in Macao, marketing efforts were geared primarily to the promotion of the enterprise solutions of the Group to the Macao Government, gaming and hotel operators. In the PRC, marketing efforts were geared towards the promotion of the MegaImage application to various mobile bureaus in the Guangdong Province

Discussion with various distributors in the Guangdong Province that complemented the existing marketing team in progress

To strengthen the foothold of the Group in the Guangdong Province and to build a strong reference site, promotion was geared principally to various mobile bureaus in the Guangdong Province

Promotion was first geared principally to various mobile bureaus in the Guangdong Province

In progress, with various modules of the MegaImage , MegaDMS and MegaOffice embedded in the core software infrastructure of the one-stop e-government application

Participated in the Hi-Tech Expo in Shenzhen during October 2005

Continue to 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

Strategy to expand market coverage under review

With the software development engineers of the Group, commence the research and development (“R&D”) of an identified new enterprise solution

The technical teams were involved in the development of the software infrastructure of the one-stop e-government project and its related applications in Macao

Complete the integration of the targeted software company in the PRC to the operations of the Group

Strategy to acquire software company under review

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 19 January 2004 Approximately HK$0.3 million for product Approximately HK$0.22 million for fine-tuning enhancement with new features and of the MegaImage application functionalities

Approximately HK$0.4 million for R&D of new Investment in research and development of new products under the Group’s own brand name products under review Approximately HK$0.9 million for business Approximately HK$0.2 million had been used development, expansion of the Group’s marketing for business development and participation in IT team and participation in IT exhibitions exhibitions Approximately HK$1.2 million for expansion of Strategy to expand market coverage under review

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

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

The application of quality assurance certifications had been postponed

Approximately HK$2.2 million for working capital

Balance of the proceeds had been deposited with licensed banks in Macao and Hong Kong and were used as working capital

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 listed securities of the Company.

AUDIT COMMITTEE

The audit committee had reviewed the annual results and provided advices and comments thereon.

CODE ON CORPORATE GOVERNANCE PRACTICES

The Company had complied with the code provisions of the Code on Corporate Governance Practices, as set out in Appendix 15 of GEM Listing Rules, except that:

Under the code provision A.2.1, the roles of chairman and chief executive officer should be separate and should not be performed by the same individual. The roles of chairman and chief executive officer of the Company were performed by the same individual, Mr. José Manuel dos Santos during the year under review. The Company considered that the combination of the roles of chairman and chief executive officer could effectively formulate and implement the strategies of the Company. The Company considered that under the supervision of its Board and its independent non-executive Directors, a balancing mechanism existed so that the interests of shareholders were adequately and fairly represented. The Company considered that there was no imminent need to change the arrangement.

Under the code provision A.4.2, every Director should be subject to retirement by rotation at least once every three years. The chairman of the Board was not subject to retirement by rotation, as the Board considered that the continuity of office of the chairman provided the Group with strong and consistent leadership and was of great importance to the smooth operations of the Group.

Under the code provision E.1.2, the chairman of the Board should attend the annual general meeting. The chairman of the Board was away on a business trip on the date when the annual general meeting was held during the year under review.

As disclosed in the interim report of the Company for the six months ended 31 December 2005, the Company had not disclosed the terms of reference of the remuneration committee and audit committee on the website of the Company. Such terms of reference have now been posted on the Company’s website at www.megainfo.com.cn.

By Order of the Board MegaInfo Holdings Limited Sun Ho Chairman

The Hong Kong Special Administrative Region of

the People’s Republic of China (“Hong Kong”), 18 September 2006

Executive Directors Independent non-executive Directors Sun Ho Kwok Wing Leung Andy Kot Wai Ming Wang Ronghua Hua Fengmao

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 its posting and on the website of the Company at www.megainfo.com.cn.