Joy Spreader Group Inc. — Interim / Quarterly Report 2004

Feb 17, 2004

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*

(incorporated in Bermuda with limited liability)

INTERIM REPORT

2004

* For identification purpose only

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 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 Main Board of the Exchange 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 document, 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 document.

This document, for which the directors (the “Directors”) of MegaInfo Holdings Limited (the “Company”) collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on GEM of the Exchange (“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: (1) the information contained in this document 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 document misleading; and (3) all opinions expressed in this document have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

1

BUSINESS AND FINANCIAL HIGHLIGHTS FOR THE THREE-MONTH PERIOD ENDED 31ST DECEMBER 2003

• Turnover for the Three Month ended 31st December 2003 amounted to approximately HK$2.7 million, representing an increase of approximately 86% over the corresponding period last year with gross profit of approximately HK$0.66 million

• The Board does not recommend the payment of an interim dividend for the Six-Month Period

• Contracts awarded by two departments of Macau Government and Polytechnic Institute of Macau

• Orders on hand as at 31st December 2003 amounted to over HK$15 million

2

INTERIM RESULTS

On behalf of the board of Directors (the “Board”) of the Company, I am pleased to present the unaudited consolidated results of the Company and its subsidiaries (collectively, the “Group”) for the three months (“Three-Month Period”) and six months (“Six-Month Period”) ended 31st December 2003. The interim report for the Six Month Period has been reviewed by the Company’s audit committee.

CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT

For the three months and the six months ended 31st December 2003

			Unaudited	Unaudited
		Three months ended		Six months ended
		31st December		31st December
		2003	2002	2003	2002
	Notes	HK$	HK$	HK$	HK$
Turnover	3	2,733,247	1,467,423	4,730,044	2,456,920
Cost of sales		(2,069,016)	(824,597)	(3,659,411)	(1,650,397)
Gross profit		664,231	642,826	1,070,633	806,523
Other revenue	3	426	—	426	—
Selling and
administrative
expenses		(1,670,070)	(158,266)	(2,623,444)	(372,172)
(Loss)/profit from
operations	4	(1,005,413)	484,560	(1,552,385)	434,351
Finance costs		(35)	—	(35)	—
(Loss)/profit before
taxation		(1,005,448)	484,560	(1,552,420)	434,351
Taxation	5	—	—	—	—
(Loss)/profit
attributable to
the shareholders		(1,005,448)	484,560	(1,552,420)	434,351
(Loss)/earnings
per share
(HK cents)	7
Basic		(0.242)	0.117	(0.374)	0.105

3

CONDENSED CONSOLIDATED BALANCE SHEET As at 31st December 2003

Unaudited 31st December 2003 Notes HK$ Non-current assets Fixed assets 368,967 Perpetual exclusive licence of a software 11,000,000 Goodwill 570,455 11,939,422 ---------------- Current assets Inventories 446,471 Trade receivables 8 3,303,851 Prepayments, deposits and other receivables 295,246 Bank balances and cash 122,739 4,168,307 ---------------- Current liabilities Trade payables 9 2,217,349 Deferred revenue 224,050 Amount due to the immediate holding company 10 4,884,216 Other payables and accrued charges 14,623 Bank borrowing 11 200,000 7,540,238 ---------------- Net current (liabilities)/assets (3,371,931) ---------------- Total assets less current liabilities 8,567,491 Financed by: Share capital 12 130,000 Reserves 12 8,437,491 8,567,491	Audited 30th June 2003 HK$ 22,844 — —
	22,844 ---------------- — 2,199,840 — —
	2,199,840 ---------------- 26,451 224,050 1,833,784 — —
	2,084,285 ----------------
	115,555 ----------------
	138,399
	106,380 32,019
	138,399

4

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six months ended 31st December 2003

		Unaudited	Unaudited
		Six months	ended
		31st December
		2003	2002
	Note	HK$	HK$
Total equity at the beginning
of the period		5,506,380	(2,245,500)
(Loss)/profit for the period	12	(1,552,420)	434,351
Issue of shares	12	23,620	—
Merger reserve arising on
group re-organisation	12	5,608,399	—
Share issuance costs	12	(1,018,488)	(1,024,590)
Total equity at the end of the period		8,567,491	(2,835,739)

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 31st December 2003

Net cash from/(used in) operating activities Net cash used in investing activities Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1st July Cash and cash equivalents at 31st December Analysis of balances of cash and cash equivalents: Bank balances and cash	Unaudited Six months ended 31st December 2003 2002 HK$ HK$ 911,853 (747,521) ---------------- ---------------- (1,012,734) (33,521) ---------------- ---------------- 223,620 781,042 ---------------- ---------------- 122,739 — — — 122,739 — 122,739 —

5

NOTES TO CONDENSED ACCOUNTS

1. Group reorganisation

The Company was incorporated in Bermuda on 22nd January 2003 as an exempted company with limited liability under the Companies Act 1981 of Bermuda. Pursuant to a group reorganisation (the “Reorganisation”), which was completed on 23rd December 2003, to rationalise the structure of the Group in preparation for the listing of the ordinary shares of the Company (the “Shares”) on GEM, the Company became the holding company of the companies comprising the Group. The Shares were listed on GEM on 19th January 2004.

2. Basis of preparation of the unaudited condensed accounts

These unaudited condensed consolidated accounts have been prepared in accordance with the Statement of Standard Accounting Practice 25 “Interim Financial Reporting” issued by the Hong Kong Society of Accountants and the disclosure requirements set out in Chapter 18 of the GEM Listing Rules.

These condensed accounts should be read in conjunction with the accountants’ report set out in the prospectus of the Company dated 31st December 2003 (the “Prospectus”).

The comparative figures of the accounts have been prepared on a combined basis as if the current group structure had been in existence througthout the periods under review.

The accounting policies and methods of computation used in the preparation of these unaudited condensed accounts are consistent with those used in the financial information as included in the accountants’ report set out in the Prospectus.

3. Turnover, revenue and segment information

The Group is principally engaged in the provision of enterprise solutions with an initial focus on self-developed digital image processing management applications in the PRC and Macau. Turnover recognised during the periods is as follows:

Turnover Provision of digital image processing management solution Other revenue Interest income Total revenue	Unaudited Three months ended Six months ended 31st December 31st December 2003 2002 2003 2002 HK$ HK$ HK$ HK$ 2,733,247 1,467,423 4,730,044 2,456,920 426 — 426 — 2,733,673 1,467,423 4,730,470 2,456,920	Unaudited Three months ended Six months ended 31st December 31st December 2003 2002 2003 2002 HK$ HK$ HK$ HK$ 2,733,247 1,467,423 4,730,044 2,456,920 426 — 426 — 2,733,673 1,467,423 4,730,470 2,456,920
		2,456,920

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Segment information

(i) Primary reporting format — geographical segment

The Group is principally engaged in the provision of enterprise solutions with an initial focus on self-developed digital image processing management applications in the PRC and Macau. There are no sales between the geographical segments.

geographical segments.
Turnover The PRC Macau Segment results The PRC Macau Unallocated costs Operating (loss)/profit Segment assets The PRC Macau Unallocated assets Total assets Segment liabilities The PRC Macau Unallocated liabilities Total liabilities Capital expenditure — unallocated Depreciation — unallocated Other non-cash expenses The PRC Unallocated	Unaudited Six months ended 31st December 2003 2002 HK$ HK$ — 2,456,920 4,730,044 — 4,730,044 2,456,920 (1,079,128) 437,689 (444,233) — (1,523,361) 437,689 (29,024) (3,338) (1,552,385) 434,351 171,493 2,481,454 15,909,391 — 26,845 30,183 16,107,729 2,511,637 766,106 224,050 1,689,916 — 5,084,216 5,123,326 7,540,238 5,347,376 30,183 33,521 3,338 3,338 — — — —
	171,493 15,909,391 26,845 16,107,729 766,106 1,689,916 5,084,216 7,540,238
	30,183 3,338 — —

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(ii) Secondary reporting format — business segment

No business segment analysis is presented as the Group has been operating in a single business segment, which is the provision of enterprise solutions with an initial focus on self-developed digital image processing management applications in the PRC and Macau.

4. (Loss)/profit from operations

(Loss)/profit from operations is stated after charging the following:

Crediting Write-back of provision for inventories Charging Costs of inventories sold Depreciation Staff costs (including directors’ emoluments)	Unaudited Three months ended Six months ended 31st December 31st December 2003 2002 2003 2002 HK$ HK$ HK$ HK$ — 165,208 — 165,208 2,069,016 824,597 3,659,411 1,650,397 21,516 3,338 29,024 3,338 963,638 196,408 1,577,777 336,088	Unaudited Three months ended Six months ended 31st December 31st December 2003 2002 2003 2002 HK$ HK$ HK$ HK$ — 165,208 — 165,208 2,069,016 824,597 3,659,411 1,650,397 21,516 3,338 29,024 3,338 963,638 196,408 1,577,777 336,088
		1,650,397 3,338 336,088

5. Taxation

No provisions for PRC profits tax and Macau complementary profit tax have been made in the accounts as the Group has estimated tax losses brought forward to offset estimated assessable profits for the period ended 31st December 2002 and does not have any estimated assessable profits for the period ended 31st December 2003.

There is no material unprovided deferred taxation for the periods under review.

6. Dividend

The Directors do not recommend the payment of an interim dividend for the six months ended 31st December 2003 (2002: Nil).

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7. (Loss)/earnings per Share

The calculation of basic loss per Share for the three months and six months ended 31st December 2003 is based on the unaudited net loss of approximately HK$1,005,000 and HK$1,552,000 respectively (three months and six months ended 31st December 2002: net profit of HK$484,560 and HK$434,351 respectively) and on the assumption that 414,625,000 Shares had been in issue throughout the periods under review, comprising 13,000,000 Shares then in issue and 401,625,000 to be issued by way of capitalisation issue as described in the Prospectus (“Capitalisation Issue”).

No diluted earning per Share has been presented for each of the periods under review as no diluting events existed.

8. Trade receivables

The ageing analysis of the trade receivables at the respective balance sheet dates is as follows:

Unaudited As at 31st December 2003 HK$ 0-30 days 1,615,146 31-60 days — 61-90 days — 91-120 days — 121-365 days 1,124,309 >365 days 564,396 3,303,851	Audited As at 30th June 2003 HK$ 378,843 — — 381,116 875,485 564,396
	2,199,840

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

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1. Trade payables

The ageing analysis of the trade payables at the respective balance sheet dates is as follows:

Unaudited As at 31st December 2003 HK$ 0-30 days 2,009,940 31-60 days 22,524 61-90 days 45,243 91-120 days 47,360 121-365 days 92,282 Over 365 days — 2,217,349	Audited As at 30th June 2003 HK$ 26,451 — — — — —
	26,451

10. Amount due to the immediate holding company

The amount is unsecured, interest-free and repayable on demand. The amount has been fully settled subsequently.

11. Bank borrowing

Unaudited 31st December 2003 Note HK$ Repayable within one year (i) 200,000 Repayable later than one year — 200,000	Audited 30th June 2003 HK$ — —
	—

Note:

(i) The loans are unsecured, bear interest at lending rate from time to time plus 3% per annum and have been repaid in full subsequent to 31st December 2003.

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1. Share capital and reserves

At 1st July 2002 Issue of shares_(Note (i))_ Profit for the year Shares issue costs At 30th June 2003 At 1st July 2003 Issue of shares Loss for the period Shares issue costs Merger reserve arising on group re-organisation At 31st December 2003	Share capital HK$ — 106,380 — — 106,380 106,380 23,620 — — — 130,000	Share premium HK$ — 5,400,000 — — 5,400,000 5,400,000 — — — — 5,400,000	Merger Accumulated reserve losses HK$ HK$ — (2,245,500) — — — 778,632 — — — (1,466,868) — — — — — (1,552,420) — — 5,608,399 — 5,608,399 (1,552,420)	Shares issuance costs HK$ — — — (3,901,113 ) (3,901,113 ) — — — (1,018,488) — (1,018,488)	Total HK$ (2,245,500) 5,506,380 778,632 (3,901,113) 138,399 5,506,380 23,620 (1,552,420) (1,018,488) 5,608,399 8,567,491

Notes:

• (i) The share capital as at 30th June 2003 represented the combined share capital of the Company and MegaInfo Limited which was the then holding company of other members of the Group.

The Company was incorporated in Bermuda on 22nd January 2003, with an authorised share capital of HK$100,000 divided into 1,000,000 shares of HK$0.10 each, all of which were allotted and fully paid.

MegaInfo Limited was incorporated in the British Virgin Islands on 10th December 2002 with an authorised share capital of US$50,000 divided into 50,000 shares of US$1 each, and 820 shares of US$1 each were allotted and issued, credited as fully paid for cash at par amounting to HK$6,380 to its then immediate holding company.

• (ii) By written resolutions of the then sole shareholder of the Company dated 23rd December 2003:

• (a) every issued and unissued share of HK$0.10 in the share capital of the Company was subdivided into 10 Shares; and

• (b) the authorised share capital of the Company was increased from HK$100,000 to HK$10,000,000 by the creation of an additional 990,000,000 Shares. All Shares ranked pari passu in all respects with Shares then in issue.

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1. Commitments under operating leases

At 31st December 2003, the Group had future aggregate minimum lease payments under non- cancellable operating leases in respect of buildings as follows:

Unaudited 31st December 2003 HK$ Not later than one year 247,250 Later than one year and not later than five years 7,167 254,417	Audited 30th June 2003 HK$ 603,329 388,905
	992,234

14. Related party transactions

Significant related parties transactions are as follows:

	Unaudited	Unaudited
	Six months ended
	31st December
	2003	2002
	HK$	HK$
Sale of goods to Guangzhou Vodatel
Development Limited (“GVDL”)(Note (i))	—	2,456,920
Rental expenses payable to Vodatel Services and
Consultant Limited (“VSCL”)_(Note (ii))_for
lease of office premises	65,429	—

Notes:

• (i) Mr. José Manuel dos Santos (“Mr. Santos”), the major shareholder of Vodatel Networks Holdings Limited (“Vodatel”), and Vodatel held 46% and 54% beneficial interests respectively in GVDL. On 2nd June 2003, Mr. Santos disposed of his 46% interests in GVDL to an independent third party.

• (ii) Mr. Santos has a 90% beneficial interest in VSCL.

The Directors are of the opinion that the above related party transactions were conducted on normal commercial terms and in the ordinary course of business.

15. Ultimate holding company

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

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MANAGEMENT DISCUSSION AND ANALYSIS

Business Review

Market

During the period under review, the Group has been actively involved in bidding various projects in Macau and the PRC. In order to capture the growing business potential in both Macau and the PRC markets, the Group had expanded its marketing team and research and development team by adding in 8 sales representatives and 7 software developers/engineers respectively.

Market in Macau

The Group recorded an increase in sales generated from the Macau market. During the Three-Month Period, the Group has successfully secured three projects from the Macau Government, and Polytechnic Institute. In November 2003, the Group was successfully awarded a contract by Instituto para os Assuntos Civicos e Municipais to provide VodaImage, server and other accessories and a contract by Polytechnic Institute of Macau to provide smart card application. In December, the Group secured a contract from Polic Judicia bureau to provide VodaImge, server and other accessories. It is envisaged that opportunities from the provision of our digital imaging solutions in Macau are promising, which will be beneficial to the Group.

Market in PRC

The outbreak of SARS has adversely affected the marketing momentum of the Group as many potential customers temporarily delayed their capital expenditures on new projects. With the impact of SARS gradually settled, the Group has commenced the marketing and promotion of the upgraded version of VodaImage to various local mobile bureaus of a telecommunications service provider in Zhuhai and Zhongshan in the Guangdong Province, the PRC. The Group has also resumed its marketing and promotion activities to various telecommunications service providers in Shanghai, Zhejiang Province and Nanjiang in the PRC. During the Three-Month Period, the Group entered into two distributor agreements and three memoranda of understanding on a nonexclusive basis with five independent distributors to more timely and efficiently extend the reach of the Group’s products to potential customers in different selected vertical markets and geographical locations. Such move is to pave path for the capitalisation of the continued growth and development of the IT industry in the PRC.

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Research and development

Throughout the period under review, the Group has continued to invest in product enhancement of its existing products with new features and functionalities and to develop new enterprise solutions. The Group has commenced the sourcing of a facial recognition module for VodaMax, which when integrated with VodaMax, will enable VodaMax to equip with the capability to capture specific facial features and cross match against pre-defined faceprints in the database. Concurrently, the Group has commenced the research of an image counting module for VodaMax, which enables the identification of a target person, records and stores movements of such person within a defined premise. The Group also commenced the development of a document management system and a web-based software application and conducted research on the integration of the Group’s image processing management solutions with the “TianXin” ERP/ CRM software (“TianXin Software”). Pursuant to the relevant agreement entered into between the Group and eForce Holdings Limited (“eForce”), the Group acquired from eForce a perpetual licence to use TianXin Software commencing on 1st January 2003 together with an option to acquire TianXin Software and the associated intellectual property rights.

Financial Review

Turnover of the Group for the Six-Month Period was approximately HK$4.7 million which, when compared with turnover of approximately HK$2.5 million for the six months ended 31st December 2002, represented a sharp increase of about 92.5% and was attributable to revenue generated from a total of three large projects in Macau. The Group made a gross profit of approximately HK$1.1 million for the Six-Month Period. Although turnover increased, cost of sales increased to approximately HK$3.7 million. This was attributable to the Group deriving approximately 95% of its turnover for the Six-Month Period from selling of hardware and related accessories (2002: 67%). The software portion of the projects will be delivered and recorded as turnover in next two quarters. With less margin earned from selling hardware and related accessories than from selling enterprises solutions, the profit margin of the Group was decreased from approximately 32.8% for the six months ended 31st December 2002 to approximately 22.6% for the Six-Month Period. Orders on hand as at 31st December 2003 amounted to over HK$15 million.

Selling and administrative expenses for the Six-Month Period totalled approximately HK$2.6 million (2002: HK$0.4 million). The increase was attributable to, inter alias, the increase in staff costs reflecting the rise in the Group’s sales & marketing and managerial headcount, promotion expenses and the business trip expenses called upon as a result of increase in business activities. The Directors are keeping a close eye on such expenses to ensure that they are kept under strict control.

Overall, the Group incurred an unaudited net loss of approximately HK$1.55 million for the Six-Month Period.

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Capital structure

As at 1st October 2003, the Company’s issued share capital consisted of 13,000,000 ordinary shares of HK$0.01 each. The 10,660,000 and 2,340,000 Shares were held by two initial shareholders, namely Vodatel Holdings Limited (“VHL”) (a wholly-owned subsidiary of Vodatel) and Gofull Investment Limited (“Gofull”) (a wholly-owned subsidiary of eForce), representing 82% and 18% respectively of the then issued share capital of the Company (the “Initial Shareholders”). In preparation for its listing on the GEM, the Company underwent the Capitalisation Issue and additionally issued 120,375,000 new Shares by way of placing as described in the Prospectus (the “Placing”), representing approximately 22.5% of the enlarged share capital of the Company. With a 2.5% distribution in specie by Vodatel to Vodatel’s existing shareholders, the Company has attained a public float of 25%. Upon its successful listing on 19th January 2004, the capital base of the Company comprised 535,000,000 ordinary shares of HK$0.01 each, with the shareholding of the ultimate shareholders of the Initial Shareholders, Vodatel and eForce, diluted to 61.05% and 13.95% respectively.

Liquidity and financial resources

As at 31st December 2003, the Group has cash and bank balances of approximately HK$ 123,000. The Group’s current assets are approximately 0.55 times (2002: 1.1 times) over its current liabilities. For the period under review, the Group was financed by bank borrowings of HK$200,000 and its working capital with shareholders’ loan from Vodatel. Subsequent to 31st December 2003, the Group made full repayment of the bank loan.

Upon the Group’s successful listing on 19th January 2004, the Group current assets ratio has been improved from approximately 0.55 times as at 31st December 2003 to approximately 4.2 times over its current liabilities. The Directors are of the opinion that subsequent to the listing the Group has a healthy financial position and will be capable of meeting its liabilities.

Charge on assets

As at 31st December 2003, the Group did not have any charges on its assets.

Material acquisition, disposals and significant investment

During the Six-Month Period, the Group acquired two subsidiaries, namely PE Research and Development Limited and Zhuhai MegaSoft Software Development Co., Ltd. They were acquired on 22nd September 2003 as part of the Reorganisation in preparation for the listing of the shares of the Company on the GEM. At present, the Group has no plan for material investments and acquisition of capital assets. In any event, for achieving the business objectives of the Company, the Directors may from time to time pursue opportunities to develop the Group’s businesses through acquisitions, strategic alliances, joint ventures and/or co-operative arrangements.

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Gearing ratio

As at 31st December 2003, the Group had total debts of approximately HK$200,000 and shareholder’s funds of approximately HK$8,567,000. Gearing ratio (ratio of total debts to equity) increased slightly from Nil as at 30th June 2003 to approximately 2.3% as at 31st December 2003.

Foreign exchange exposure

Historically, all of the Group’s sales were settled in Hong Kong dollars and US dollars and MOP while all of the Group’s costs and expenses have been settled in Hong Kong dollars, US dollars, MOP and RMB. The Group has not experienced any material operating difficulties or effects on liquidity as a result of fluctuations in currency exchange rates in the past. The Group has not used or entered into any type of instruments or arrangements to hedge against currency exchange fluctuations in the past.

Staff

As at 31st December 2003, the Group employed 22 full time staff (2002: 5), at market remuneration with employee benefits such as comprehensive medical coverage, insurance plan and retirement benefit schemes under the Mandatory Provident Fund. Staff costs for the Six-Month Period were HK$1,577,777 (2002: HK$336,088).

The Group did not experience any significant labour disputes or substantial change in the number of its employees that led to the disruption of its business operations. The Directors consider that the Group has good working relationship with its employees. The Group recognises the importance of training for its staff. Apart from on-the-job training, the Group also regularly provides internal and external training for its staff to enhance their technical knowledge.

Contingent liabilities

The Group had no material contingent liabilities as at 31st December 2003 (30th June 2003: Nil).

Business direction

As set out above, the Company has, during the Six-Month Period, undertaken various initiatives to enhance sales, marketing, training and production and streamline research and development.

Although some of these initiatives have only been recently implemented, we are confident that encouraging results will flow from them in the near future.

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DISCLOSURE OF INTERESTS

a. Interests of the Directors and chief executive in Shares

As at 31st December, 2003, the Company had not maintained any register required to be kept under section 352 of the securities and Futures Ordinance (the “SFO”) and had no notice of any interest required to be recorded in such register as the Company was not listed in the GEM of the Exchange on that date.

As at 19th January 2004, the date of listing, the interests and short positions of the Directors and chief executive in the Shares, underlying Shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO which are required (a) to be notified to the Company and the Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provision of the SFO); or (b) pursuant to section 352 of theSFO, to be entered in the register referred to therein; or (c) pursuant to Rule 5.40 of the GEM Listing Rules, were as follows:

• (i) aggregate long and short positions in Shares and (in respect of equity derivatives) underlying Shares

				Approximate %
				of the issued
	**Long position/ **	Nature of	No. of	share capital of
Name of Director	short position	interest	Shares	the Company
Mr. Santos	Long position	Corporate	326,617,500	61.05%
		interest
		(Note)

• Note: 326,617,500 Shares were beneficially owned by VHL. VHL was a wholly-owned subsidiary of Vodatel, Eve Resources Limited (“Eve Resources”) owned more than one-third of the issued share capital of Vodatel and the entire issued share capital in Eve Resources was in turn held by a company wholly owned by Mr. Santos, as trustee of a discretionary family trust. Mr. Santos was deemed to be interested in 326,617,500 Shares held by VHL.

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• (ii) aggregate long and short positions in shares of Vodatel (“Vodatel Shares”) and (in respect of equity derivatives) underlying Vodatel Shares

				No. of underlying
				Vodatel Shares
				(in respect of	Approximate
			No. of	share option	% of the issued
Name of	Long position/	Nature of	Vodatel	and convertible	share capital
Director	short position	interest	Shares	bond) held	of Vodatel
Mr. Santos	Long position	Corporate interest/	293,388,000	—	47.80%
		founder of a
		discretionary trust
		(Note 1)
	Long position	Personal_(Note 2)_	—	600,000	0.10%
	Short position	Corporate interest	—	22,000,500	3.58%
		(Note 1)
Mr. Kuan Kin Man	Long position	Personal_(Note 3)_	12,262,500	900,000	2.14%
(“Mr. Kuan”)
Mr. Yim Hong	Long position	Personal_(Note 4)_	7,357,500	900,000	1.35%
(“Mr. Yim”)
Mr. Mok Chi Va	Long position	Family/Personal	20,000	230,000	0.04%
(“Mr. Mok”)		(Note 5)

Notes:

1. These Vodatel Shares were held in the name of Eve Resources and the entire issued share capital in Eve Resources was in turn held by a company wholly owned by Mr. Santos, as trustee of a discretionary family trust. Vodatel was under an obligation to issue a total of 22,000,500 Vodatel Shares in respect of the outstanding share options and the convertible bond. Mr. Santos was deemed to be interested in such short position by virtue of his interest in Eve Resources.

2. Mr. Santos was the beneficial owner of such interest in Vodatel Shares.

3. Mr. Kuan was the beneficial owner of such interest in Vodatel Shares.

4. Mr. Yim was the beneficial owner of such interest in Vodatel Shares.

5. The 20,000 Vodatel Shares was held by the spouse of Mr. Mok and Mr. Mok was deemed to be interested in such Vodatel Shares. Mr. Mok was the beneficial owner of the remaining interest in Vodatel Shares.

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b. Interests of the substantial shareholders of the Company

As at 31st December, 2003, the Company had not maintained any register required to be kept under section 336 of the SFO and had no notice of any interest required to be recorded in such register as the Company was not listed on the GEM of the Exchange of that date.

So far as was known to any directors or chief executive of the Company as at 19th January 2004, the date of listing, the persons or companies (not being a director or chief executive of the Company) who had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed under Division 2 and 3 of Part XV of the SFO or who were directly or indirectly deemed to be interested in 10 per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group were as follows:

• (i) Aggregate long and short positions in Shares and (in respect of equity derivatives) underlying Shares

					No. of	Approximate %
					underlying	of the issued
		Long position/	Nature of	No. of Shares	Shares	share capital of
Name	Notes	short position	interest	held	held	the Company
Lois Resources	(1)	Long position	Corporate interest	326,617,500	—	61.05%
Limited
Eve Resources	(1)	Long position	Corporate interest	326,617,500	—	61.05%
Vodatel	(1)	Long position	Corporate interest	326,617,500	—	61.05%
VHL	(1)	Long position	Personal interest	326,617,500	—	61.05%
Lei Hon Kin	(2)	Long position	Family interest	326,617,500	—	61.05%
Gofull	(3)	Long position	Personal interest	74,632,500	—	13.95%
eForce	(3)	Long position	Corporate interest	74,632,500	—	13.95%

Notes:

1. Lois Resources Limited was deemed to be interested in 326,617,500 Shares by virtue of its interest in Eve Resources. Eve Resources owned more than one third of the issued share capital of Vodatel which in turn owned the entire issued share capital of VHL. 326,617,500 Shares were beneficially owned by VHL.

2. Madam Lei Hon Kin, the spouse of Mr. Santos, was deemed to be interested in 326,617,500 Shares which were deemed to be interested by Mr. Santos.

3. eForce was deemed to be interested in 74,632,500 Shares by virtue of its interest in Gofull. 74,632,500 Shares were beneficially owned by Gofull.

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COMPETING INTERESTS

As at 31st December 2003, none of the Directors or the management shareholders of the Company and their respective associates (as defined under the GEM Listing Rules) had any interest in a business which competes or may compete with the business of the Group.

SPONSOR’S INTEREST

Pursuant to the agreement entered into between the Company and the joint sponsors, namely REXCAPITAL (Hong Kong) Limited and CSC Asia Limited, the joint sponsors have received and will receive a fee for acting as the Company’s retained sponsors for the remainder of the financial year ending 30th June 2004 and the two years ending 30th June 2006.

None of the Company’s joint sponsors, their 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 31st December 2003.

BOARD PRACTICE AND PROCEDURES

Since the listing of the Company, the Company has complied with board practices and procedures as set out in Rules 5.28 to 5.39 of the GEM Listing Rules.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S SHARES

Neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed Shares during the six months ended 31st December 2003.

AUDIT COMMITTEE

The Company established an audit committee on 16th December 2003 with written terms of reference in compliance with the requirements as set out in Rules 5.23, 5.24 and 5.25 of the GEM Listing Rules. The primary duties of the audit committee are to review the Group’s annual report and accounts, half-year report and quarterly reports and to provide advice and comments thereon to the Board. The audit committee is also responsible for reviewing and supervising the financial reporting process and internal control system of the Group. The audit committee comprises two independent non-executive directors, namely Mr. Tsui Wai Kwan and Mr. Tam Pak Yip.

The unaudited condensed interim financial statements for the six months ended 31st December 2003 have been reviewed by the audit committee.

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

Hong Kong, 13th February 2004

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