Phoenitron Holdings Limited — Annual Report 2006

Mar 27, 2007

==> picture [67 x 51] intentionally omitted <==

CARDLINK TECHNOLOGY GROUP LIMITED 鍇聯科技集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 8066)

ANNUAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2006

Characteristics of The Growth Enterprise Market (“GEM”) of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

GEM has been established as a market designed to accommodate companies to which a high investment risk may be attached. In particular, companies may list on GEM with neither a track record of profitability nor any obligation to forecast future profitability. Furthermore, there may be risks arising out of the emerging nature of companies listed on GEM and the business sectors or countries in which these 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 Stock 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. GEM-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 at “www.hkgem.com” in order to obtain upto-date information on GEM-listed issuers.

The Stock 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 (the “Directors”) of Cardlink Technology Group Limited (the “Company”) collectively and individually accept full responsibility, includes particulars given in compliance with the Rules (the “GEM Listing Rules”) Governing the Listing of Securities on GEM of the Stock Exchange 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 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.

1

HIGHLIGHTS

• Total turnover of the Group for the financial year ended 31 December 2006 was about HK$73,800,000.

• The Group recorded a profit attributable to shareholders of about HK$80,000 for the year ended 31 December 2006.

• The Directors do not recommend the payment of a final dividend for the year ended 31 December 2006.

CONSOLIDATED INCOME STATEMENT

The board (the “Board”) of Directors announces the consolidated results of the Company and its subsidiaries (together, the “Group”) for the year ended 31 December 2006 together with the comparative figures for the year 2005 as follows.

Note Turnover 2 Cost of sales Gross profit Other revenue 2 Selling and distribution costs Administrative expenses Finance costs 4 Profit (loss) before taxation 4 Taxation 5 Profit (loss) attributable to shareholders Basic earnings (loss) per share 7	2006 HK$ 73,782,948 (53,522,654) 20,260,294 331,864 (5,320,195) (13,545,610) (803,856) 922,497 (842,793) 79,704 0.025 cents	2005 HK$ 58,810,261 (40,645,533) 18,164,728 805,574 (5,353,129) (14,490,591) (490,539) (1,363,957) (643,752) (2,007,709) (0.63)cents

2

CONSOLIDATED BALANCE SHEET

Note Non-current assets Property, plant and equipment Available-for-sale financial assets 8 Deferred tax assets 14 Current assets Inventories 9 Trade and other receivables 10 Pledged bank deposits 11 Bank balances and cash Current liabilities Trade and other payables 12 Taxation Current portion of interest-bearing borrowings 13 Net current assets Total assets less current liabilities Non-current liabilities Long term interest-bearing borrowings 13 Deferred tax liabilities 14 NET ASSETS CAPITAL AND RESERVES Share capital Reserves 15	2006 HK$ 27,040,401 2,158,058 – 29,198,459 7,834,947 26,696,617 4,545,351 8,959,449 48,036,364 19,895,769 24,987 5,337,527 25,258,283 22,778,081 51,976,540 2,658,723 159,582 2,818,305 49,158,235 32,000,000 17,158,235 49,158,235	2005 HK$ 29,018,135 2,158,058 493,545
		31,669,738
		4,097,026 25,639,797 4,075,395 6,001,377
		39,813,595
		13,998,529 – 4,124,193
		18,122,722
		21,690,873
		53,360,611
		4,965,234 –
		4,965,234
		48,395,377
		32,000,000 16,395,377
		48,395,377

3

NOTES TO THE FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

(a) Basis of preparation

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKAS”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance.

These financial statements also comply with the applicable disclosure provisions of the GEM Listing Rules.

The preparation of financial statements in conformity with HKFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of HKFRS that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are as follows:

Allowance for bad and doubtful debts

The provisioning policy for bad and doubtful debts of the Group is based on the evaluation by management of the collectability of the accounts receivable. A considerable amount of judgment is required in assessing the ultimate realisation of these receivables, including assessing the current creditworthiness and the past collection history of each customer. If the financial conditions of these customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowance will be required.

Allowance for inventories

The Company’s management reviews the condition of inventories, as stated in note 9 to the financial statements, at each balance sheet date, and makes allowance for inventories that are identified as obsolete, slow-moving or no longer recoverable or suitable for use in production. The Group carries out the inventory review on a product-by-product basis and makes allowances by reference to the latest market prices and current market conditions.

Impairment of investments, property, plant and equipment and receivables

The Group assesses annually if investment in subsidiaries and property, plant and equipment have suffered any impairment in accordance with HKAS 36 and follows the guidance of HKAS 39 in determining whether the investment in available-for-sale financial assets and amounts due from subsidiaries are impaired. Details of the approach are stated in the respective accounting policies. The assessment requires an estimation of future cash flows, including expected dividends, from the assets and the selection of appropriate discount rates, Future changes in financial performance and position of these entities would affect the estimation of impairment loss and course the adjustments of their carrying amounts.

4

(b) Changes in accounting policies

The HKICPA has issued certain new and revised HKFRS that are first effective or available for early adoption for the current accounting period of the Group. The new and revised HKFRS that are relevant to the Group’s and the Company’s operations are as follows:

Financial guarantees issued (Amendments to HKAS 39, Financial instruments: Recognition and measurement and HKFRS 4 Insurance contracts: Financial guarantee contracts)

Under the amendments, financial guarantees issued are accounted for as financial liabilities under HKAS 39 and measured initially at fair value, where the fair value can be reliably measured. Subsequently, they are measured at the higher of the amount initially recognised less accumulated amortisation, and the amount of the provision, if any, that should be recognised in accordance with HKAS 37. The fair value of the financial guarantees issued is estimated to be insignificant.

The adoption of the above amendments has had no significant effects on the Group’s and the Company’s result and financial position for the current and prior years.

2. TURNOVER AND REVENUE

The principal activities of the Group are the manufacturing and sales of smart cards and plastic cards, and provision of customised smart card application systems.

Turnover and revenue recognised by category are as follows:

Turnover Sales of smart cards and plastic cards Sales of smart card application systems Service and other income Other revenue Interest income Sundry income	2006 HK$ 70,588,279 3,031,450 163,219 73,782,948 244,880 86,984 331,864	2005 HK$ 55,115,237 3,180,377 514,647
		58,810,261
		199,277 606,297
		805,574

5

3. SEGMENT REPORTING

The Group comprises the following main business segments:

Turnover External sales Result Segment result Unallocated operating income and expenses Finance costs Profit (Loss) before taxation Taxation Profit (Loss) attributable to shareholders Assets and liabilities Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Other information Capital expenditure incurred during the year Impairment loss on available-for-sale financial assets Depreciation and amortisation for the year	Sales of smart cards and Sales of smart card plastic cards application systems 2006 2005 2006 2005 HK$ HK$ HK$ HK$ 70,588,279 55,115,237 3,031,450 3,180,377 19,623,960 17,705,758 473,116 (55,676) 51,701,780 47,136,505 1,433,877 533,243 22,102,149 14,778,975 876,933 184,430 6,156,674 16,366,772 – – – – – – 8,132,621 5,293,808 – –	Sales of smart cards and Sales of smart card plastic cards application systems 2006 2005 2006 2005 HK$ HK$ HK$ HK$ 70,588,279 55,115,237 3,031,450 3,180,377 19,623,960 17,705,758 473,116 (55,676) 51,701,780 47,136,505 1,433,877 533,243 22,102,149 14,778,975 876,933 184,430 6,156,674 16,366,772 – – – – – – 8,132,621 5,293,808 – –	Sales of smart cards and Sales of smart card plastic cards application systems 2006 2005 2006 2005 HK$ HK$ HK$ HK$ 70,588,279 55,115,237 3,031,450 3,180,377 19,623,960 17,705,758 473,116 (55,676) 51,701,780 47,136,505 1,433,877 533,243 22,102,149 14,778,975 876,933 184,430 6,156,674 16,366,772 – – – – – – 8,132,621 5,293,808 – –	Sales of smart cards and Sales of smart card plastic cards application systems 2006 2005 2006 2005 HK$ HK$ HK$ HK$ 70,588,279 55,115,237 3,031,450 3,180,377 19,623,960 17,705,758 473,116 (55,676) 51,701,780 47,136,505 1,433,877 533,243 22,102,149 14,778,975 876,933 184,430 6,156,674 16,366,772 – – – – – – 8,132,621 5,293,808 – –	Others 2006 2005 HK$ HK$ 163,219 514,647 793,529 1,639,818 – 2,300,000 1,138,006 931,154	Others 2006 2005 HK$ HK$ 163,219 514,647 793,529 1,639,818 – 2,300,000 1,138,006 931,154	Consolidated 2006 2005 HK$ HK$ 73,782,948 58,810,261 20,097,076 17,650,082 (18,370,723) (18,523,500) (803,856) (490,539) 922,497 (1,363,957) (842,793) (643,752) 79,704 (2,007,709) 53,135,657 47,669,748 24,099,166 23,813,585 77,234,823 71,483,333 22,979,082 14,963,405 5,097,506 8,124,551 28,076,588 23,087,956 6,950,203 18,006,590 – 2,300,000 9,270,627 6,224,962
	19,623,960	17,705,758	473,116	(55,676)	793,529	1,639,818
	51,701,780 22,102,149 6,156,674	47,136,505 14,778,975 16,366,772	1,433,877 876,933 –	533,243 184,430 –
							79,704
							53,135,657 24,099,166
							77,234,823
							22,979,082 5,097,506
							28,076,588
							6,950,203
	–	–	–	–	–	2,300,000	–
	8,132,621	5,293,808	–	–	1,138,006	931,154	9,270,627

6

Geographical segments:

Hong Kong North Asia PRC South Asia Europe Others	Revenue 2006 2005 HK$ HK$ 5,166,849 7% 6,410,401 11% 161,324 – 53,779 – 24,893,036 34% 23,121,791 39% 31,291,110 42% 20,524,388 35% 8,849,839 12% 2,788,040 5% 3,420,790 5% 5,911,862 10% 73,782,948 100% 58,810,261 100%	Assets 2006 2005 HK$ HK$ 27,572,070 36% 28,576,328 40% – – – – 49,662,753 64% 42,907,005 60% – – – – – – – – – – – – 77,234,823 100% 71,483,333 100%	Capital 2006 HK$ 51,081 1% – – 6,899,122 99% – – – – – – 6,950,203 100%	expenditure 2005 HK$ 567,358 3% – – 17,439,232 97% – – – – – – 18,006,590 100%

In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets and segment capital expenditure are based on the geographical location of assets.

4. PROFIT (LOSS) BEFORE TAXATION

This is arrived at after charging: (a) Finance costs Interest on bank loans, overdrafts and other borrowings wholly repayable within five years Finance charges on obligations under finance leases (b) Other items Employee benefits expense including directors’ emoluments Contributions to defined contribution plan Cost of inventories Auditors’ remuneration Depreciation Research and development costs Impairment loss on available-for-sale financial assets Operating lease payments on premises Bad debts written off	2006 HK$ 32,799 771,057 803,856 13,000,225 897,244 13,897,469 53,522,654 415,664 9,270,627 37,800 – 2,498,699 26,447	2005 HK$ – 490,539
		490,539
		12,150,167 649,203
		12,799,370
		40,645,533 345,859 6,224,962 38,535 2,300,000 1,730,085 –

7

5. TAXATION

Hong Kong Profits Tax has been provided at the rate of 17.5% (2005: 17.5%) on the Group’s estimated assessable profits arising from Hong Kong during the year. Taxation for subsidiaries incorporated in the People’s Republic of China (“PRC”) is charged at the appropriate current rates of taxation ruling in the PRC.

The charge comprises: Current tax Hong Kong Profits Tax: Current year Underprovision of PRC Enterprise Income Tax in prior year Deferred tax recognised in the income statement Types of temporary differences: Depreciation allowances Tax losses Total tax charge for the year	2006 HK$ 147,760 41,906 189,666 (81,416) 734,543 653,127 842,793	2005 HK$ – – – (216,064) 859,816 643,752 643,752

No provision for the PRC enterprise income tax has been made for the current year as the PRC subsidiaries are under tax holiday.

Reconciliation of tax expense Profit (loss) before taxation Income tax at applicable tax rate of 17.5%(2005: 17.5%) Non-deductible expenses Tax exempt revenue Differences in overseas tax rates Unrecognised tax losses Unrecognised temporary differences Underprovision of overseas tax in prior year Others Tax expense for the year	2006 HK$ 922,497 161,438 2,707,841 (2,062,560) (75,096) 69,717 797 41,906 (1,250) 842,793	2005 HK$ (1,363,957) (238,693) 1,069,155 (256,576) (27,558) 98,483 (1,059) – – 643,752

The applicable tax rate is the Hong Kong profits tax rate of 17.5% (2005: 17.5%) .

8

6. DIVIDEND

The Directors do not recommend the payment of a final dividend for the year ended 31 December 2006.

7. BASIC EARNINGS (LOSS) PER SHARE

The calculation of basic earnings (loss) per share is based on the profit for the year attributable to shareholders of the Company of HK$79,704 (2005: a loss of HK$2,007,709) and the weighted average number of 320,000,000 shares (2005: 320,000,000 shares) in issue during the year.

Diluted earnings per share for the year ended 31 December 2006 had not been presented as the exercise price of the share options granted by the Company was higher than the average market price of the Company’s shares during the year. Diluted loss per share for the year ended 31 December 2005 has not been presented as the share options outstanding during the year had an anti-dilutive effect on the basic loss per share.

8. AVAILABLE-FOR-SALE FINANCIAL ASSETS

Unlisted equity securities, at cost Less: Impairment loss	2006 HK$ 4,458,058 (2,300,000) 2,158,058	2005 HK$ 4,458,058 (2,300,000)
		2,158,058

Unlisted equity securities represent 11.33% equity interest in Guangzhou Tecsun Golden Card Ltd. (廣州德生 金卡有限公司 ), a company registered in the PRC with paid up registered capital of RMB41,700,000.

9. INVENTORIES

Raw materials Work-in-progress Finished goods TRADE AND OTHER RECEIVABLES Trade receivables From third parties Other receivables Deposits, prepayment and other debtors	2006 HK$ 4,334,093 1,369,966 2,130,888 7,834,947 2006 HK$ 23,188,131 3,508,486 26,696,617	2005 HK$ 1,674,683 575,961 1,846,382
		4,097,026
		2005 HK$ 18,751,880 6,887,917
		25,639,797

10. TRADE AND OTHER RECEIVABLES

9

The credit term granted by the Group to its trade customers normally ranges from 30 days to 90 days. The ageing analysis of the trade receivables as at the balance sheet date is as follows:

Current – 30 days 31 – 90 days Over 90 days	2006 HK$ 20,247,262 1,354,031 1,586,838 23,188,131	2005 HK$ 9,554,129 5,105,198 4,092,553
		18,751,880

11. PLEDGED BANK DEPOSITS

At the balance sheet date, bank deposits of HK$4,241,674 (2005: HK$4,075,395) and HK$303,677 (2005: Nil) were pledged as collateral under certain finance lease arrangements and bank loan respectively for the purchase of machineries.

12. TRADE AND OTHER PAYABLES

Note Trade payables To third parties Other payables Accrued charges and other creditors Due to a shareholder (a) The ageing analysis of trade payables as at the balance sheet date is as Current – 30 days 31 – 60 days 61 – 90 days Over 90 days	2006 HK$ 15,605,149 2,730,620 1,560,000 19,895,769 follows: 2006 HK$ 13,731,531 624,318 370,563 878,737 15,605,149	2005 HK$ 12,325,169 1,673,360 –
		13,998,529
		2005 HK$ 5,847,939 852,387 969,755 4,655,088
		12,325,169

• (a) The amount due was unsecured, interest-free and was subsequently settled.

10

13. INTEREST-BEARING BORROWINGS

Secured bank loan Obligations under finance leases Current portion Non-current portion	2006 HK$ 1,000,000 6,996,250 7,996,250 5,337,527 2,658,723 7,996,250	2005 HK$ – 9,089,427
		9,089,427
		4,124,193 4,965,234
		9,089,427

At the balance sheet date, the bank loan has an effective interest rate of 6.92% per annum and is repayable within one year. The above bank loan was secured by a pledged deposit of HK$303,677, corporate guarantee provided by the Company and personal guarantee provided by a shareholder of the Company.

Amount payable: Within one year Between one to two years Between two to five years Future finance charges Present value of lease obligations	Minimum lease payments 2006 2005 HK$ HK$ 4,763,556 4,711,577 2,598,084 3,732,630 171,221 1,569,286 7,532,861 10,013,493 (536,611) (924,066) 6,996,250 9,089,427	Present value of minimum lease payments 2006 2005 HK$ HK$ 4,337,527 4,124,193 2,489,339 3,444,940 169,384 1,520,294 6,996,250 9,089,427 – – 6,996,250 9,089,427	Present value of minimum lease payments 2006 2005 HK$ HK$ 4,337,527 4,124,193 2,489,339 3,444,940 169,384 1,520,294 6,996,250 9,089,427 – – 6,996,250 9,089,427
			9,089,427 –
			9,089,427

The average lease term is three years and the average effective borrowing rate was 8.57% (2005: 8.25%) . All leases are repayable in fixed monthly principal instalments plus interest and no arrangements have been entered into for contingent rental payments. The above leases were secured by a pledged deposit of HK$4,241,674 and corporate guarantee provided by the Company.

14. DEFERRED TAXATION

The movement for the year in the Group’s net deferred tax position was as follows:

At beginning of the year Income statement charge_(note 5)_ At the balance sheet date	2006 HK$ 493,545 (653,127) (159,582)	2005 HK$ 1,137,297 (643,752)
		493,545

11

Recognised deferred tax assets (liabilities)

Depreciation allowances Tax losses Deferred tax assets (liabilities) Offsetting Net recognised deferred tax assets	Assets 2006 2005 HK$ HK$ – – – 734,543 – 734,543 – (240,998) – 493,545	Liabilities 2006 2005 HK$ HK$ (159,582) (240,998) – – (159,582) (240,998) – 240,998 (159,582) –

Unrecognised deferred tax

The Group has not recognised deferred tax assets in respect of tax losses of HK$3,744,636 (2005: HK$3,346,000) . The tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised because it is not probable that future taxable profit will be available against which the Group can utilise the benefits therefrom.

15. RESERVES

At 1 January 2005 Loss for the year Exchange difference on translation of financial statements of overseas subsidiaries At 31 December 2005 Profit for the year Exchange difference on translation of financial statements of overseas subsidiaries At 31 December 2006	Contributed surplus HK$ 13,985,669 – – 13,985,669 – – 13,985,669	Other reserves HK$ 7 – – 7 – – 7	Exchange difference HK$ (8,407) – 366,757 358,350 – 683,154 1,041,504	Accumulated profits HK$ 4,059,060 (2,007,709) – 2,051,351 79,704 – 2,131,055	Total HK$ 18,036,329 (2,007,709) 366,757 16,395,377 79,704 683,154 17,158,235

The contributed surplus of the Group represents the difference between the nominal value of the share capital and share premium of the subsidiaries acquired pursuant to the group reorganisation over the nominal value of the share capital of the Company issued in exchange therefor less share issue expenses.

The exchange difference of the Group represents the difference on translation of the financial statements of the PRC subsidiaries.

12

16. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments comprise bank loans, finance lease obligations and cash and shortterm deposits. The main purpose of these financial instruments is to raise and maintain finance for the Group’s operations. The Group has various other financial instruments such as trade receivables and trade payables, which arise directly from its business activities.

The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk and credit risk. The directors of the Company meet periodically to analyse and formulate measures to manage the Group’s exposure to these risks. Generally, the Group introduces conservative strategies on its risk management. As the Group’s exposure to these risks is kept to a minimum, the Group has not used any derivatives and other instruments for hedging purposes. The Group does not hold or issue derivative financial instruments for trading purposes. The directors review and agree policies for managing each of these risks and they are summarised as follows:

(i) Fair value and cash flow interest rate risks

Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Group has no significant interest-bearing assets apart from cash and bank balances. The Group’s interest rate risk arising from finance leases and bank loan are disclosed in note 13.

(ii) Foreign exchange risk

The Group’s monetary assets and transactions are principally denominated in Hong Kong Dollars (“HKD”), United States Dollars (“USD”) and Renminbi (“RMB”). The Group is exposed to foreign exchange risk arising from the exposure of HKD against USD and RMB, respectively. Considering that the exchange rate between HKD and USD is pegged, and that there is insignificant fluctuation in the exchange rate between HKD and RMB, the Group believes its exposure to exchange rate risk is minimal. At present, the Group does not intend to seek to hedge its exposure to foreign exchange risk profile, and will consider appropriate hedging measures in future as may be necessary.

(iii) Credit risk

At the balance sheet date, the Group has a certain concentration of credit risk as 29% (2005: 29%) and 75% (2005: 79%) of the total trade receivables was due from the Group’s largest customer and the five largest customers respectively. The carrying amounts of trade receivables included in the balance sheet represent the Group’s maximum exposure to credit risk in relation to its financial assets. The Group has policies in place to ensure that sales of products are made to customers with an appropriate credit history. No other financial assets carry a significant exposure to credit risk.

(iv) Liquidity risk

The Group will consistently maintain a prudent financial policy and ensure that it maintains sufficient cash to meet its liquidity requirements.

(v) Fair values

All financial instruments are carried at amounts not materially different from their fair values as at 31 December 2006 and 2005.

13

17. POST BALANCE SHEET EVENT

On 26 February 2007, the Company entered into a subscription agreement with Golden Dice Co. Ltd as the subscriber and Mr. Tsai Chi Yuan as the guarantor, pursuant to which, the Company has allotted and issued to Golden Dice Co. Ltd. new ordinary shares of 64,000,000 of HK$0.10 each in the issued share capital of the Company (with an aggregate nominal value of HK$6,400,000) at a subscription price of HK$0.10 per share. The subscription price of HK$0.10 per share represented a premium of approximately 1.01% to the closing price of HK$0.099 per share as quoted on the Stock Exchange on 26 February 2007, being the date of the subscription agreement. As a result of the subscription, the Company received net proceeds of approximately HK$6.1 million, representing a net subscription price of HK$0.095 per subscription share. The proceeds provided additional working capital for the Group and the Directors considered that the proceeds has broaden the shareholder base and the capital base of the Company. The subscription was completed on 7 March 2007.

MANAGEMENT DISCUSSION AND ANALYSIS

BUSINESS AND OPERATION REVIEW

During the year under review, the Group was principally engaged in the manufacture and sale of smart cards and plastic cards. The Group was also engaged in the provision of customised smart card application systems.

The year 2006 was as challenging as the one in 2005 for the Group. The competition in the telecommunications market was very fierce. However, the Group was still able to deliver strong revenue growth in later half of this year, which proved the fact that our progressive strategy laid down in previous years in enhancing market presence was successful. With the completion and full utilisation of our highly automated smart card production facilities in Shenzhen in later half of this year, the Group not only able to offer convenient and speedy delivery service to its customers but also achieved a better operational efficiency.

In terms of geographic breakdown, the South Asia market becomes the largest single market for the Group, accounted for about HK$31.3 million, or about 42.4% of the total revenue. The PRC market ranked the second largest market for the Group, which amounted to about HK$24.9 million, or about 33.7%, of the total revenue. Other geographic areas also offer promising opportunities for growth in the future.

FINANCIAL REVIEW

Revenue for the year ended 31 December 2006 was about HK$73.8 million, representing an increase of about HK$15 million, or about 25.5%, as compared to the last year of about HK$58.8 million. Profit attributable to shareholders for the year was about HK$0.1 million.

Out of the total turnover for the year, about HK$70.6 million, or about 95.7%, was generated from the manufacturing and sales of smart cards and plastic cards, and about HK$3 million, or about 4.1%, was generated from the sales of smart card application systems.

Gross profit margin for the year ended 31 December 2006 decreased to about 27.5% as compared with about 30.9% in last year. During the year under review, cost of sales increased from about HK$40.6 million in 2005 to about HK$53.5 million in 2006, representing an increase of about 31.7% as compared to the corresponding increase in turnover, which was only about 25.5%. The increase was largely attributable to the substantial increase in depreciation charge, as well as factory overheads expenses, as a result of the expansion of our production plant in Shenzhen which was set up in late 2005.

14

Selling and distribution costs decreased slightly by about 0.6%, from about HK$5.4 million in 2005 to about HK$5.3 million in 2006. Likewise, administrative expenses also recorded a decrease of about 6.5%, from about HK$14.5 million in 2005 to about HK$13.5 million in 2006. However, included in last year’s administrative expenses was an one-off impairment loss of HK$2.3 million in respect of an equity interest in Guangzhou Tecsun Golden Card Ltd. If setting aside this factor, there was actually an increase in administrative expense of about HK$1.3 million, or about 10.7%. The increase in administrative expenses was primarily attributable to the operating costs associated with the Group’s new factory in Shenzhen.

LIQUIDITY AND FINANCIAL RESOURCES/CAPITAL STRUCTURE

During the period under review, the Group financed its business operations with cash revenue generated from operating activities, bank loan, and finance lease arrangements. The Group had cash and bank balances of about HK$13.5 million, secured bank loan of HK$1 million, and finance lease payables of about HK$7 million, as at 31 December 2006.

As at 31 December 2006, the Group had three finance lease arrangements used for financing the acquisition of certain printing machinery and personalisation equipment for the production lines in the PRC. The finance leases are all bearing interest of 0.5% over the Hong Kong Prime Rate per annum, repayable in three years, and denominated in Hong Kong dollars. In additions, the Group had a bank loan used for its working capital. The bank loan is bearing interest of 2% over 12-month Hongkong Interbank Offer Rate per annum, repayable within one year, and denominated in Hong Kong dollars.

As at 31 December 2006, the Group had current assets of about HK$48 million and current liabilities of about HK$25.3 million. The current ratio, expressed as current assets over current liabilities, was maintained at the satisfactory level of about 1.9.

EMPLOYEE INFORMATION

As at 31 December 2006, the Group employed a total of 536 employees; of which 14 were located in Hong Kong and the rest were located in the PRC. Employee cost, including directors’ remuneration, was about HK$13 million for the year under review. The Group remunerates its employees based on their performance, experience and the prevailing industry practice. In addition to basic salaries and participation in mandatory provident fund scheme, staff benefits include medical scheme and share options.

SIGNIFICANT INVESTMENTS

With the exception of the investment disclosed in note 8 under “Notes to the Financial Statements”, there were no other significant investments for the year ended 31 December 2006.

MATERIAL ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES AND AFFILIATED COMPANIES

The Group made no material acquisitions or disposals of subsidiaries and affiliated companies during the year ended 31 December 2006.

15

FUTURE PLANS FOR MATERIAL INVESTMENTS OR CAPITAL ASSETS

As at 31 December 2006, there were no future plans for material investments or capital assets.

SEGMENTAL INFORMATION

Details have been set out in note 3 under “Notes to the Financial Statements” and are further elaborated under “Business and Operation Review” and “Financial Review” of this section.

CHARGE ON GROUP ASSETS AND CONTINGENT LIABILITIES

As at 31 December 2006, the Company’s bank deposits of about HK$4.5 million were pledged as collateral under certain finance lease arrangements and bank loan for the purchase of machineries.

The Company and two subsidiaries have provided guarantees of repayment in respect of bank loan and finance lease obligations of other subsidiaries amounting to about HK$12.6 million (2005: about HK$15.6 million) of which about HK$8 million (2005: about HK$9.1 million) was outstanding as at 31 December 2006.

GEARING RATIO

As at 31 December 2006, the shareholders’ fund of the Group was about HK$49.2 million. The Group had outstanding long-term obligations under finance leases of about HK$2.7 million as at 31 December 2006. The Group’s gearing ratio, expressed as a ratio of total long-term debts to shareholders’ fund, was about 5.4% as of 31 December 2006 (2005: about 10.3%) .

EXPOSURE TO FLUCTUATIONS IN EXCHANGE RATES

As substantial portion of the Group’s operations are in the PRC and all assets and liabilities are denominated either in Renminbi, HK dollars or US dollars, the Directors believe that the Group is not subject to significant exchange risk. No hedging or other alternatives have been implemented.

FINAL DIVIDEND

The Directors do not recommend the payment of a final dividend for the year ended 31 December 2006.

AUDIT COMMITTEE

The Company has established an audit committee with written terms of reference in compliance with the GEM Listing Rules. The audit committee comprises three independent non-executive Directors, namely, Ms WONG Ka Wai, Jeanne, Mr. LEUNG Ka Kui, Johnny, Mr. WONG Wai Kwong, David (resigned on 1 March 2007) and Mr. CHAN Siu Wing, Raymond (appointed on 12 February 2007). Four audit committee meetings were held during the financial year 2006.

The Group’s results for the year ended 31 December 2006 have been reviewed by the audit committee.

16

COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES

In the opinion of the Board, the Company has complied with the code provisions in the Code on Corporate Governance Practice set out in Appendix 15 of the GEM Listing Rules throughout the year ended 31 December 2006.

COMPETING INTERESTS

As at 31 December 2006, none of the directors or the management shareholders or any of its respective associates (as defined under the GEM Listing Rules) of the Company had any interest in a business that competed or might compete with the business of the Group directly or indirectly.

PURCHASE, SALE OR REDEMPTION OF SECURITIES

During the year ended 31 December 2006, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities.

For and on behalf of the Board Lily Wu Chairman

Hong Kong, 26 March 2007

As at the date of this announcement, the Board comprises four executive Directors, Ms. Lily Wu (Chairman), Mr. Ho Lut Wa, Anton, Ms. Leung Quan Yue, Michelle, Mr. Chang Wei Wen, and three independent non-executive Directors, Ms. Wong Ka Wai, Jeanne, Mr. Leung Ka Kui, Johnny and Mr. Chan Siu Wing, Raymond.

This announcement will remain on the GEM website at www.hkgem.com on the “Latest Company Announcements” page for at least 7 days of its posting.

17