Joy Spreader Group Inc. — Interim / Quarterly Report 2005

Feb 16, 2005

INTERIM REPORT 05

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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 GE M, 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 GE M (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 G EM 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 report, 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 report.

This report, 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 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 report 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 report misleading; and (3) all opinions expressed in this report have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

MegaInfo Holdings Limited

Interim Report 2005

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HIGHLIGHTS

• Turnover for the Six-Month Period amounted to approximately HK$7.8 million (2003: HK$4.7 million), representing an increase of approximately 66% over corresponding period during 2003.

• Loss attributable to shareholders recorded at approximately HK$5 million.

• Secured and completed various contracts for the Government of Macao and various local enterprises with orders on hand as at 31 December 2004 amounted H K$13.8 million.

• The Board does not recommend payment of an interim dividend for the SixMonth Period.

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MegaInfo Holdings Limited

Interim Report 2005

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INTERIM RESULTS

The board of Directors (“Board”) is pleased to announce the unaudited consolidated results of the Company and its subsidiaries (collectively the “Group”) for the three months (“Three-Month Period”) and six months ended 31 December 2004 (“Six-Month Period”) together with the comparative unaudited figures of the corresponding period in 2003 as follows:

CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT (UNAUDITED)

For the three and six months ended 31 December 2004

Note Turnover 2 Cost of sales Gross Profit Other revenue 2 Selling and administrative expenses Loss from operation 3 Finance costs Loss attributable to shareholders Basic loss per share 6	Three months ended 31 December 2004 2003 HK$ HK$ 2,847,378 2,733,247 (1,853,670) (2,069,016) 993,708 664,231 13,315 426 (4,512,605) (1,670,070) (3,505,582) (1,005,413) – (35) (3,505,582) (1,005,448) 0.655 cents 0.242 cents	Six months ended 31 December 2004 2003 HK$ HK$ 7,757,077 4,730,044 (5,660,830 ) (3,659,411) 2,096,247 1,070,633 15,019 426 (7,091,471) (2,623,444) (4,980,205 ) (1,552,385) – (35) (4,980,205 ) (1,552,420) 0.931 cents 0.374 cents	Six months ended 31 December 2004 2003 HK$ HK$ 7,757,077 4,730,044 (5,660,830 ) (3,659,411) 2,096,247 1,070,633 15,019 426 (7,091,471) (2,623,444) (4,980,205 ) (1,552,385) – (35) (4,980,205 ) (1,552,420) 0.931 cents 0.374 cents
	2004 HK$ 2,847,378 (1,853,670) 993,708 13,315 (4,512,605) (3,505,582) – (3,505,582) 0.655 cents	2004 HK$ 7,757,077 (5,660,830 ) 2,096,247 15,019 (7,091,471) (4,980,205 ) – (4,980,205 ) 0.931 cents
			1,070,633 426 (2,623,444)
			(1,552,385)
			(35)
			(1,552,420)
			0.374 cents

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MegaInfo Holdings Limited

Interim Report 2005

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CONDENSED CONSOLIDATED BALANCE SHEET

At 31 December 2004

As at 31 December 2004 (unaudited) Note HK$ Non-current assets Intang ible assets 10,489,828 Interest in an associate 14,272 Fixed assets 1,338,587 Current assets Inventories 602,498 Trade receivables 7 3,499,616 Other receivables, deposits and prepayment 5,382,327 Bank balances and cash 8,958,423 18,442,864 Current liabilities Trade payables 8 577,853 Other payables, accruals and deposits received 4,084,153 Deferred revenue 224,050 Bank overdrafts – 4,886,056 Net current assets 13,556,808 Total assets less current liabilities 25,399,495 Financed by: Share capital 9 5,350,000 Reserves 9 20,049,495 Shareholders’ funds 25,399,495	As at 30 June 2004 (audited) HK$ 11,302,728 – 1,499,380 3,993,514 4,100,080 1,422,501 16,015,256
	25,531,351
	1,088,687 4,473,801 224,050 2,143,839
	7,930,377
	17,600,974
	30,403,082
	5,350,000 25,053,082
	30,403,082

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MegaInfo Holdings Limited

Interim Report 2005

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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAU DITED)

For the Six-Month Period

Total equity at the beginning of the period Loss for the period Issue of shares Merger reserve arising on group re-organization Share issuance costs Exchange differences arising on translation of accounts of foreign subsidiaries Total equity at the end of the period	Six months ended 31 December 2004 2003 HK$ HK$ 30,403,082 5,506,380 (4,980,205) (1,552,420) – 23,620 – 5,608,399 – (1,018,488) (23,382) – 25,399,495 8,567,491

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MegaInfo Holdings Limited

Interim Report 2005

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CONDENSED CONSOLIDATED CASHFLOW (UNAUDITED)

For the Six-Month Period

Net cash (outflow)/inflow from operating activities Net cash outflow from investing activities Net cash inflow from financing activities (Decrease)/Increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Analysis of balances of cash and cash equivalents Bank balances and cash	Six months ended 31 December 2004 2003 HK$ HK$ (4,876,225) 911,853 (36,769) (1,012,734 – 223,620 (4,912,994) 122,739 13,871,417 – 8,958,423 122,739 8,958,423 122,739	Six months ended 31 December 2004 2003 HK$ HK$ (4,876,225) 911,853 (36,769) (1,012,734 – 223,620 (4,912,994) 122,739 13,871,417 – 8,958,423 122,739 8,958,423 122,739	)
		122,739 –
		122,739
		122,739

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MegaInfo Holdings Limited

Interim Report 2005

Notes:

(1) Basis of preparation of the accounts

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The 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 Institute of Certified Public Accountants and the disclosure requirements set out in Chapter 18 of the GEM Listing Rules.

The condensed consolidated accounts have not been audited by the Company’s auditors, but have been reviewed by the Company’s audit committee.

The accounting policies and methods of computation used in the preparation of the unaudited condensed accounts are consistent with those used in the audited financial statement for the year ended 30 June 2004.

(2) Turnover

The Group is principally engaged in the provision of digital image processing management solutions and products maintenance services in mainland China and the Macao Special Administration Region of the People’s Republic of China (“Macao”). Turnover recognized during the periods is as follows:

Turnover Provision of digital image processing management solution Other revenue Interest income Total Revenue	Three months ended 31 December 2004 2003 (unaudited) (unaudited) HK$ HK$ 2,847,378 2,733,247 13,315 426 2,860,693 2,733,673	Six months ended 31 December 2004 2003 (unaudited) (unaudited) HK$ H K$ 7,757,077 4,730,044 15,019 426 7,772,096 4,730,470	Six months ended 31 December 2004 2003 (unaudited) (unaudited) HK$ H K$ 7,757,077 4,730,044 15,019 426 7,772,096 4,730,470
	2004 (unaudited) HK$ 2,847,378 13,315 2,860,693	2004 (unaudited) HK$ 7,757,077 15,019 7,772,096
			4,730,470

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MegaInfo Holdings Limited

Interim Report 2005

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Segment information

(i) Primary report 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 mainland China and Macao. There are no sales between the geographical segments.

Turnover Mainland China Macao Segment results Mainland China Macao Unallocated costs Operating loss Segment assets Mainland China Macao Unallocated assets Total assets Segment liabilities Mainland China Macao Unallocated liabilities Total liabilities Capital expenditure Macao Unallocated Amortization Mainland China Unallocated Deprecation Mainland China Macao	Six months ended 31 December 2004 2003 (unaudited) (unaudited) HK$ HK$ 2,58 0,623 – 5,176,454 4,730,044 7,757,077 4,730,044 374,350 (1,079,128 (3,6 08,020) (444,233 (3,233,670) (1,523,361 (1,746,535) (29,024 (4,980,205) (1,552,385 5,128,471 171,493 21,628,488 15,909,391 3,528,592 26,845 30,285,551 16,107,729 320,178 766,106 4,562,078 1,689,916 3,800 5,084,216 4,886,056 7,540,238 22,497 – – 30,183 275,000 – 131,450 – 10,580 3,757 218,880 25,449 229,460 29,206	Six months ended 31 December 2004 2003 (unaudited) (unaudited) HK$ HK$ 2,58 0,623 – 5,176,454 4,730,044 7,757,077 4,730,044 374,350 (1,079,128 (3,6 08,020) (444,233 (3,233,670) (1,523,361 (1,746,535) (29,024 (4,980,205) (1,552,385 5,128,471 171,493 21,628,488 15,909,391 3,528,592 26,845 30,285,551 16,107,729 320,178 766,106 4,562,078 1,689,916 3,800 5,084,216 4,886,056 7,540,238 22,497 – – 30,183 275,000 – 131,450 – 10,580 3,757 218,880 25,449 229,460 29,206	) ) ) ) )
		4,730,044
		(1,079,128 (444,233
		(1,523,361 (29,024
		(1,552,385
		171,493 15,909,391 26,845
		16,107,729
		766,106 1,689,916 5,084,216
		7,540,238
		– 30,183 – – 3,757 25,449
		29,206

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MegaInfo Holdings Limited

Interim Report 2005

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(ii) Secondary report 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 mainland China and Macao.

(3) Loss from operations

Loss from operations is stated after charg ing the following:

Cost of inventories Depreciation of fixed assets Amor tization of intangible assets – goodwill – software licenses Staff cost (including directors’ remuneration)	Three months ended 31 December 2004 2003 (unaudited) (unaudited) HK$ HK$ 1,853,670 2,069,016 115,946 21,516 275,000 – 131,450 – 2,522,595 963,638	Six month 31 Dece	s ended mber 2003 (unaudited) H K$ 3,659,411 29,024 – – 1,577,777
	2004 (unaudited) HK$ 1,853,670 115,946 275,000 131,450 2,522,595	2004 (unaudited) HK$ 5,660,830 229,460 550,000 262,899 3,729,835

(4) Taxation

No provision for profits ta x has been made in the accounts as the Group does not have any estimated assessable profits in the jurisdictions in which the Group operates for the both periods ended 31 December 2004 and 2003.

(5) Dividend

The Board does not recommend the payment of an interim dividend for the six months ended 31 December 2004 (2003: Nil).

(6) Loss per share

The calculation of basic loss per share for the Three-Month Period and the Six-Month Period is based on the unaudited net loss of approximately HK$3,505,582 and HK$4,980,205 respectively (three months and six months ended 31 December 2003: net loss of H K$1,005,448 and HK$1,552,420 respectively) and the weighted average number of 535,000,000 ordinary shares in issue (2003: 414,625,000) during the periods.

Diluted loss per share has not been disclosed as there were no potential dilutive ordinary shares.

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MegaInfo Holdings Limited

Interim Report 2005

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(7) Trade receivables

At 31 December 2004, the ageing analysis of the trade receivables is as follows:

0 – 30 days 31 – 60 days 61 – 90 days 91 – 120 days 121 – 365 days > 365 days	31 December 2004 (unaudited) HK$ 642,869 325,631 – – 2,364,766 166,350 3,499,616	30 June 2004 (audited) HK$ 18,948 2,260,135 – – – 1,820,997
		4,100,080

(8) Trade payables

At 31 December 2004, the ageing analysis of the trade payables is as follows:

0 – 30 days 31 – 60 days 61 – 90 days 91 – 120 days 121 – 365 days > 365 days	31 December 2004 (unaudited) HK$ 57,329 501,080 1,351 – 18,093 – 577,853	30 June 2004 (audited) HK$ 1,088,687 – – – – –
		1,088,687

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Interim Report 2005

Report 2005				MegaInfo Holdings	MegaInfo Holdings	Limited
Share capital and reserves
	Share	Share	Exchange	Contributed Accumulated
	capital	premium	reserve	surplus	losses	Total
	HK$	HK$	HK$	HK$	HK$	HK$
At 1 July 2004 (audited)	5,350,000	20,576,560	(42,978)	11,108,399	(6,588,899)	30,403,082
Exchange differences in
transaction of accounts
of overseas subsidiaries	–	–	(23,3 82)	–	–	(23,3 82)
Loss attributable to shareholders	–	–	–	–	(4,980,205 )	(4,980,205)
At 31 December 2004	5,350,000	20,576,560	(66,360)	11,108,399	(11,569,104 )	25,399,495
At 1 July 2003 (unaudited)	106,380	5,400,000	–	–	–	5,506,380
Issue of shares	23,620	–	–	–	–	23,620
Loss attributable to shareholders	–	–	–	–	(1,552,420)	(1,552,420)
Share issuance costs	–	–	–	–	(1,018,488 )	(1,018,488 )
Merger reserve arising on
group re-organization	–	–	–	5,608,399	–	5,608,399
At 31 December 2003	130,000	5,400,000	–	5,608,399	(2,570,908 )	8,567,491

(9) Share capital and reserves

(10) Operating lease commitments

At the balance sheet date, the Group had future aggregate minimum lease payments under non-cancellable operating leases in respect of buildings as follows:

Within one year In the second to fifth y	ear inclusive	31 December 2004 (unaudited) HK$ – – –	30 June 2004 (audited) HK$ 268,719 –
			268,719

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Interim Report 2005

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(11) Related party transaction

Significant related party transactions, which were carried out in the normal course of the Group’s business are as follows:

Rental expense payable to Vodatel Services and Consultant Limited for lease of office premises	Six months ended 31 December 2004 2004 HK$ HK$ – 65,429	Six months ended 31 December 2004 2004 HK$ HK$ – 65,429

(12) Ultimate holding company

The directors regard Vodatel Networks Holdings Limited, a company incorporated in Bermuda, as being the ultimate holding company.

MANAGEMENT DISCUSSION AND ANALYSIS Business Review – Macao

As previously anticipated, Macao continued to provide promising business opportunities for the Group during the Three-Month Period. Focusing on the development of innovative and value-added products and services and capitalizing on our roots in Macao, we have continued to build our reputation and position ourselves as the preferred provider of enterprise solutions for the Government of Macao and enterprises in the territory.

Marketing and promotional activities of the Group’s products and services undertaken over the past 12 months, in particular with a primary target to penetrate the Government of Macao, yielded us rewards. During the Three-Month Period, we have been awarded a contract from the Alfândega de Macau (Macao Customs Service) and the Direcção dos Serviços das Forças de Segurança de Macau (Public Security Force) under the Government of Macao to supply and install an Automatic Vehicle Clearance System and an Automatic Passenger Clearance System respectively, aggregate of these contracts amounted to approximately HK$11 million. Both systems, which are highly efficient, reliable and automated systems that operate 24 hours a day, 7 days a week, will span and provide effective patrol at borders and major ports in Macao. These systems are designed to strategically assist the enhancement of efficiency of both inbound and outbound custom clearance of vehicles and passengers at the various borders and ports in Macao, especially during peak hours where there is a high flow of vehicles and passengers. These systems will also allow the capture of data related to the flow of vehicles and passengers, offering vital statistics to the Government of Macao in overall systematic management and future town planning.

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Interim Report 2005

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During the Three-Month Period, we have also successfully secured different contracts from various bureaus under the Government of Macao and quasi-governmental organizations, including contracts for the installation of an IP-based PABX system and surveillance system from the organizers of the Macau East Asian Games, contracts from the Direcção dos Serviços para os Assuntos Laborais (Labour Affairs Bureau) to supply and install our MegaImage solution at their premise, contract from Instituto para os Assuntos Cívicos e Municipais (Civic & Municipal Affairs Bureau) (“IACM”) for the upgraded and enhanced version of our MegaImage solution, and a contract from the Polícia Judiciária (Judiciary Police) for the maintenance of the hardware associated with the MegaImage application. Total value of these contracts amounted to approximately HK$3 million.

The Government of Macao is and will be the major targeted customer of the Group. While we will continue to explore opportunities with various bureaus under the Government of Macao, we will also continue to actively seek for business prospects from quasi-governmental organizations, e.g. the Macau 2005 4th East Asians Games Organising Committee who will be hosting the upcoming 2005 Macau East Asian Games in October 2005.

Our experience and successes with the installation and completion of various projects for the Government of Macao have been critical in building up the Group’s reputation in the market as every successful project represents strong reference site that proves the capabilities of the Group in handling large-scale IT solution projects. During the ThreeMonth Period, we are proud that we have completed the installation and the deployment of the one-stop e-government public service solution for IACM and have entered into the final testing stage. The one-stop e-government project will nevertheless, become one of the most important landmark projects for the Group. We believe that our proven track record and experience in the success delivery of major projects for the Government of Macao will strengthen the foundation of the Group and position MegaInfo as one of the preferred providers of enterprise solutions in the market.

Besides targeting projects from the Government of Macao, we have also been actively pursuing business opportunities in different industries in Macao. To promote the series of Mega branded products and services, in October 2004, the Group par ticipated in the Macau IT Week. This exhibition, which is one of the major annual exhibitions held in Macao attracting enterprises from both Macao and mainland China, provided us with the opportunity to introduce the Group’s spectrum of products and services to potential customers. To allow us to gain access to a broader range of customers, partnering with strong market players has also been our core strategy. During the Three-Month Period, we have concluded a joint venture – CTM-Mega Technolog y Limited – with Companhia de

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MegaInfo Holdings Limited

Interim Report 2005

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Telecomunicações de Macau S.A.R.L. (“CTM”), the largest telecommunications operator in Macao. We believe that joining forces with CTM will assist the Group to strengthen the marketing and distribution of Mega branded products and allow us approach an expanded customer base.

Business Review – Mainland China

During the period under review, we have continued to actively expand our geographical coverage and customer base. In addition to establishing an office in Guangzhou, Guangdong Province, to serve as the marketing centre overseeing sales and marketing activities in southern China and providing sales support to our local distributors and resellers, we have also tapped the mainland China market by forming business collaborations with reputable local partners. In December 2004, we entered into an Industry Distributor Agreement with Red Flag Linux in mainland China, which will allow us to gain access and cross-sell our products and services to the established networks of Red Flag Linux in mainland China. In the same month, we have also entered into a reseller agreement with Beijing-based Talent First Technology Limited for the distribution of MegaECM .

To capture more business oppor tunities in the mainland China market, we have put in place an aggressive sales & marketing strategy. In October 2004, we participated in a large technical exposition, the China Hi-Tech Fair in Shenzhen, Guangdong Province and received positive responses. We will continue to participate in similar events, utilizing them as promotional tools to market and promote the Mega branded products and services to the mainland China market, develop potential channel resellers and attract new customers.

FINANCIAL POSITION AND OPERATI NG PERFORMANCE REVIEW Turnover and Profitability

During the Six-Month Period, the Group reported consolidated turnover of approximately HK$7.8 million, representing an increase of 64% over the corresponding period for the six months ended 31 December 2003 of approximately HK$4.7 million. Improved consolidated turnover for the Group was attributed primarily to projects secured from the Government of Macao, including those from IACM and the Polícia Judiciária. Nevertheless, with increased number of headcounts to support both the research development and marketing activities of the Group and for the delivery of projects secured from the Government of Macao, coupled with amortization of the perpetual license, consolidated net loss of the Group widened to approximately HK$5 million for the Six-Month Period.

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MegaInfo Holdings Limited

Interim Report 2005

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During the Six-Month Period, although much resources have been invested in the development of a series of Mega branded products and services and in marketing and promotional activities, we have successfully secured several contracts from the Government of Macao and various local enterprises, orders on hand as at 31 December 2004 amounted to approximately HK$13.8 million. Improving our revenue stream, margins and profitability will remain the key objectives of the Group.

Capital Resources and Liquidity

Net cash and bank balances as at 31 December 2004 were HK$10 million. The total assets of the Group as at 31 December 2004 were HK$30.3 million. There was no charge on the Group’s assets as at 31 December 2004.

The total liabilities of the Group were HK$4.9 million, translating to a gearing ratio (total liabilities over shareholders’ fund) of approximately 19.2%. During the Six-Month Period, the Group maintained a debt-free capital structure.

Foreign Exchange Exposure

As at 31 December 2004, the Group held cash and bank deposits denominated in Hong Kong Dollars, Renminbi, and Macao 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 Macao Patacas, which is considered as a stable currency under the control of the Government of Macao, the Group faced minimal exchange rate risk during the period.

Employees’ Information

As at 31 December 2004, the Group had 60 employees (30 June 2004: 49) in Hong Kong, Macao and mainland China. Total staff costs (excluding directors’ emoluments) for the Six-Month Period amounted to approximately HK$2.7 million.

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

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MegaInfo Holdings Limited

Interim Report 2005

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COMPARISON OF BUSINESS OBJECTIVES

Actual business progress for the period under review

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

Complete the development of the multimedia document and system mobile accessibility module of MegaImage .

Completed.

Complete the integration of the image counting module with MegaMax .

In view of market demand, we have put a halt to the integration of the image counting module with MegaMax .

Commence the R&D of MegaOffice , a system that integrates MegaDMS , workflow system and MegaImage in to a complete office automation imaging solution.

Completed the document flow module and commenced the R&D of the workflow module of the MegaOffice application.

Complete the integration of the imaging processing management module with Mega-ERP/ECM application upgrades.

Completed with a reseller agreement with Beijing-based Talent First Technology Limited entered into during December 2004 for the distribution of integrated version of the MegaECM application.

Continue the promotion and marketing activities in previous period.

Strong marketing and promotional activities have been undertaken to primary target the Macao market, in particular the Government of Macao, so as to capitalize business opportunities brought from the increased capital spending of the Government of Macao and the opening up of the gaming industry.

Launch and promote upgraded MegaImage to mobile service providers in Nanjing and the Hunan Province, the PRC.

On hold as marketing activities have been geared to secure business opportunities from the mobile service providers in the Guangdong Province.

Launch and promote MegaDMS to various department under the Government of Macau and public utilities companies.

Commenced the promotion of MegaDMS application to the electricity bureau and different government departments in Macao.

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MegaInfo Holdings Limited

Interim Report 2005

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

Form a strategic alliance with either a supplier or a distributor in the medical sector to research on the documents imaging requirements for hospitals and laboratories in the Guangdong Province, the PRC.

Strengthen the sales and marketing team by recruiting 1 sales representative.

Par ticipate in one major IT exhibition in the PRC to promote the Group’s enterprise solutions.

Complete the setting up of the representative office in Shanghai, the PRC.

Apply for quality assurance certification for MegaImage , MegaMax and MegaDMS from an independent software center in the PRC.

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Actual business progress for the period under review

In view of robust business environment in Macao, we have selected to form strategic alliance with reputable partners in Macao to tap the market and have concluded a j o i n t v e n t u r e w i t h t h e l a r g e s t telecommunications operator in Macao for the promotion of the Group’s series of Mega branded products.

Recruited 2 sales representatives to strengthen the sales and marketing teams in Zhuhai and Beijing.

In October 2004, the Group participated in a large technical exposition, the Shenzhen High Technology Trade Fair in Shenzhen, Guangdong Province.

With an established customer base in the Guangdong Province, a subsidiary in Guangzhou has been first selected to act as the marketing centre to oversee sales and marketing activities in southern China and to provide sales support to the Group’s local distributors and resellers.

Submitted the MegaImage application to CEPREI Certificate Body, an independent software centre in the Guangdong Province for testing and independent evaluation of the application’s features and functionalities.

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Interim Report 2005

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

Explore collaboration arrangements with R&D institutes of various universities or software companies in the PRC to engage in the R&D of new enterprise solutions that will strengthen the Group’s product offerings.

Conduct feasibility study on acquisition opportunities that will strengthen the Group’s R&D capability, geog raphical coverage and complement the Group’s integrated range of enterprise solutions.

Actual business progress for the period under review

Under review and to be in line with the Group’s strategies in product development.

Under review and to be in line with the Group’s strategies in market positioning.

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MegaInfo Holdings Limited

Interim Report 2005

Applications and Comparison of Use of Proceeds

The Group raised approximately HK$20.4 million from the listing of the Shares on GEM.

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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 share offer on 19th January 2004

Approximately HK$0.1 million for product enhancement with new features and functionalities.

Approximately HK$0.1 million for product enhancement of the Group’s existing solutions.

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 product.

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

Approximately H K$0.6 million for par ticipation in various IT exhibitions organized in Macao and mainland China to promote the Group’s products.

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

Approximately H K$0.4 million for the establishment of the subsidiary in Guangzhou and a centre in Beijing.

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

Under testing and the cost at this stage is insignificant. The major cost will be incurred in the next quarter.

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MegaInfo Holdings Limited

Interim Report 2005

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DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS AND SHORT POSITIONS IN THE SHARES, UN DERLYING SHAR ES AND DEBENTURES OF TH E COMPANY OR ANY ASSOCIATED CORPORATION

As at 31 December 2004, the interests and short positions of the Directors and chief executive in the ordinary shares of the Company (“Shares”), underlying Shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (“SFO”)) which are required (a) to be notified to the Company and the Exchange pursuant to Divisions 7 and 8 of Par t 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 the SFO, to be entered in the register referred to therein; or (c) pursuant to Rule 5.46 to 5.66 of the GEM Listing Rules, to be notified to the Company and the Exchange, were as follows:-

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

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

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

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MegaInfo Holdings Limited

Interim Report 2005

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(ii) aggregate long and short positions in shares of VN HL Shares and (in respect of equity derivatives) underlying VNHL Shares

No. of underlying VNHL Shares (in respect of Approximate share option of the issu Long position/ No. of and convertible share capit Name of Director short position Nature of interest VNH L Shares bond) held of VNH Mr. José Manuel Long position Corporate interest 293,388,000 – 47.80 dos Santos (note 1) Long position Personal interest – 600,000 0.10 (note 2) Short position Corporate interest – 14,612,000 2.38 (note 1) Mr. Kuan Kin Man Long position Personal interest 12,262,500 900,000 2.14 (note 3) Mr. Yim Hong Long position Personal interest 7,357,500 900,000 1.35 (note 4) Mr. Mok Chi Va Long position Family/Personal 20,000 23 0,000 0.04 interest_(note 5)_

% ed al L % % % % % %

Notes:

• (1) These VNHL Shares were held in the name of ER L and the entire issued share capital in ERL was in turn held by a company wholly owned by Mr. José Manuel dos Santos, as trustee of a discretionary family trust. VNHL was under an obligation to issue a total of 14,612,000 VNHL Shares in respect of the outstanding share options and the convertible bond. Mr. José Manuel dos Santos was deemed to be interested in such short position by virtue of his interest in ERL.

• (2) Mr. José Manuel dos Santos was the beneficial owner of such interest in VN HL Shares.

• (3) Mr. Kuan Kin Man was the beneficial owner of such interest in VNHL Shares.

• (4) Mr. Yim Hong was the beneficial owner of such interest in VNHL Shares.

• (5) The 20,000 VN HL Shares was held by the spouse of Mr. Mok Chi Va and Mr. Mok Chi Va was deemed to be interested in such VNHL Shares. Mr. Mok Chi Va was the beneficial owner of the remaining interest in VNHL Shares.

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MegaInfo Holdings Limited

Interim Report 2005

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SUBSTANTIAL SHAREHOLDERS’ INTERESTS AND SHORT POSITIONS IN THE SHARES, UNDERLYING SHARES OF THE COMPANY

So far as was known to any Directors or chief executive of the Company as at 31 December 2004, 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 5 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

						Approximate %
					No. of	of the issued
		Long position/	Nature of	No. of Shares	underlying	share capital of
Name	Notes	short position	interest	held	Shares held	the Company
Lois Resources Limited	(1)	Long position	Corporate interest	326,617,500	–	61.05%
ERL	(1)	Long position	Corporate interest	326,617,500	–	61.05%
VNHL	(1)	Long position	Corporate interest	326,617,500	–	61.05%
VHL	(1)	Long position	Corporate interest	326,617,500	–	61.05%
Ms. Lei Hon Kin	(2)	Long position	Family interest	326,617,500	–	61.05%
Gofull Investment
Limited (“Gofull”)	(3)	Long position	Corporate interest	74,632,500	–	13.95%
eForce Holdings
Limited (“eForce”)	(3)	Long position	Corporate interest	74,632,500	–	13.95%
Tees Corporation (“Tees”)	(3)	Long position	Corporate interest	74,632,500	–	13.95%
Mr. Leung Chung Shan	(3)	Long position	Personal 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 ERL. ERL owned more than one third of the issued share capital of VNHL which in turn owned the entire issued share capital of VHL. 326,617,500 Shares were beneficially owned by VHL.

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

3. eForce was deemed to be interested in 74,632,500 Shares by virtue of its interest in Gofull. Tees owned more than one third of the issued share capital of eForce. Mr. Leung Chung Shan owned the entire issued share capital of Tees. 74,632,500 Shares were beneficially owned by Mr. Leung Chung Shan.

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MegaInfo Holdings Limited

Interim Report 2005

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OTHER INTERESTS DISCLOSEABLE UNDER THE SFO

Save as disclosed in the preceding paragraphs headed “Directors and chief executives’ interests and short positions in the Shares, underlying Shares and debentures of the Company or any associated corporation” and “Substantial shareholders’ interests and short positions in the Shares, underlying Shares of the Company”, so for as is known to the Directors, there is no other person or company who has an interest or short position in the shares, underlying shares or debentures of the Company that is discloseable under the SFO as at 31 December 2004.

SPONSOR’S INTEREST

Pursuant to the agreement dated 30 December 2003 entered into between the Company and CSC Asia Limited (“Sponsor”), the Sponsor has received and will receive a fee for acting as the Company’s Sponsor for the period from 19 January 2004 to 30 June 2006.

None of the Sponsor and its 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 31 December 2004.

COMPETING I NTERESTS

None of the Directors or any person who is (or group of persons who together are) entitled to exercise or control the exercise of 5% or more of the voting power at general meetings of the Company and who is (or are) able, as a practical matter, to direct or influence the management of the Company had an interest in a business, which competes or may compete with the business of the Group.

AUDIT COMMITTEE

The Company has established an audit committee (“Committee”) with written term of reference in compliance with 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 group 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.

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MegaInfo Holdings Limited

Interim Report 2005

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PU RCHASE, SALE OR REDEMPTION OF LISTED SECURITIES

During the Six-Month Period, neither the Company nor any or its subsidiaries has purchased, sold or redeemed any of the listed securities of the Company.

BOARD PRACTICES AN D PROCEDU RES

During the Six-Month Period, the Company was in compliance with the Board Practices and Procedures as set out in rules 5.34 to 5.45 of the GEM Listing Rules.

During the Six-Month Period, the Company and the Directors were also in compliance with the standard of dealings set out in rules 5.48 to 5.67 of GEM Listing Rules.

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, 4 February 2005

Executive Directors

José Manuel dos Santos Mok Chi Va Kuok Cheong Ian

Non-executive Directors Yim Hong Kuan Kin Man

Independent non-executive Directors Chui Sai Cheong Tsui Wai Kwan Tam Pak Yip

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