Sing Lee Software (Group) Limited — Annual Report 2002

Mar 25, 2003

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(Incorporated in Bermuda with Limited Liability)

Annual Results Announcement

For the Year Ended 31 December 2002

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 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 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 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 Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

This announcement, for which the directors of Sing Lee Software (Group) Limited (the “Company”) collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited 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.

* for identification purposes only

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Results

The board of directors (the “Directors”) of Sing Lee Software (Group) Limited (the “Company”) is pleased to announce the audited combined results of the Company and its subsidiaries (the “Group”) for the year ended 31 December 2002 as follows:

Note Revenue 3 Cost of sales Gross profit Distribution costs General and administrative expenses Other operating income 4 (Loss)/profit from operations Finance costs 5 (Loss)/profit before tax 6 Income tax expense 7 (Loss)/profit after tax Minority interests (Loss)/profit attributable to shareholders Dividends 8 (Loss)/Earnings per share 9 — Basic — Diluted	Group 2002 2001 RMB’000 RMB’000 62,853 70,416 (45,004) (31,266) 17,849 39,150 (17,070) (19,724) (17,364) (14,565) 6,921 7,094 (9,664) 11,955 (649) (1,196) (10,313) 10,759 — (779) (10,313) 9,980 — 480 (10,313) 10,460 3,196 1,500 (RMB1.71 cents) RMB2.09 cents N/A N/A

Notes:

1. Basis of presentation and comparative figure

The accompanying financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board, the disclosure requirements of the Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities on the GEM. Except as otherwise stated, the accompanying financial statements are prepared under the historical cost convention.

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Owing to the fact that the Group principally operates in PRC and its business activities are principally transacted in RMB, the financial statements are prepared in RMB.

With a review of financial statements presentation, certain items in the financial statements were reclassified which would result in a more appropriate presentation of events or transactions. Accordingly, comparative figures have been reclassified to conform with the current year’s presentation.

2. Principles of combination

The combined financial statements include the accounts of the Company and its subsidiaries.

All significant intercompany balances and transactions, including intercompany profits and unrealised profits and losses, are eliminated on combination. Combined financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances.

3. Revenue

Sale of software Sale of hardware Revenue from maintenance services	Group 2002 2001 RMB’000 RMB’000 22,318 34,826 36,181 30,360 4,354 5,230 62,853 70,416	Group 2002 2001 RMB’000 RMB’000 22,318 34,826 36,181 30,360 4,354 5,230 62,853 70,416
		70,416

All sales were derived from the PRC.

4. Other Operating Income

Interest income from bank deposits VAT refund Enterprise income tax refund Government subsidies	Group 2002 2001 RMB’000 RMB’000 416 367 5,068 5,985 805 — 632 742 6,921 7,094	Group 2002 2001 RMB’000 RMB’000 416 367 5,068 5,985 805 — 632 742 6,921 7,094
		7,094

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5. Finance costs

			Group
			2002	2001
			RMB’000	RMB’000
Interest on bank loans wholly repayable within	5	years	649	1,196

6. (Loss)/Profit before tax (Loss)/Profit before tax was determined after crediting and charging the following:

After crediting: Written back of provision for doubtful receivables After charging: Employment costs — Salaries and wages — Provision for bonus and welfare fund — Contribution to retirement schemes Cost of inventories Research and development costs expenditures Amortisation of intangible assets Depreciation of property, plant and equipment Provision for doubtful receivables Operating lease rentals Loss on disposal of property, plant and equipment Auditors’ remuneration	Group 2002 2001 RMB’000 RMB’000 190 663 18,475 10,832 1,865 1,253 1,429 942 21,769 13,027 29,390 21,749 7,600 9,689 359 11 2,410 2,180 1,219 — 3,617 3,101 251 — 425 382	Group 2002 2001 RMB’000 RMB’000 190 663 18,475 10,832 1,865 1,253 1,429 942 21,769 13,027 29,390 21,749 7,600 9,689 359 11 2,410 2,180 1,219 — 3,617 3,101 251 — 425 382
		10,832 1,253 942
		13,027 21,749 9,689 11 2,180 — 3,101 — 382

7. Income tax expense

PRC enterprise income tax (c)

Group
2002	2001
RMB’000	RMB’000
—	779

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(a) Overseas income tax

The company is incorporated in Bermuda and is exempt from taxation in Bermuda until 28 March 2016. The Company’s subsidiary established in BVI is incorporated under the International Business Companies Acts of BVI and, accordingly, is exempt from payment of BVI income taxes.

(b) Hong Kong profits tax

No Hong Kong profits tax was provided as the Group had no assessable profit arising in or derived from Hong Kong.

(c) PRC enterprise income tax

As foreign investment enterprises that incorporated in the Advanced Technology Industry Development Area in Hangzhou City are entitled to full exemption from income tax for two years with effect from its first profitable year after offsetting prior year’s losses and a 50% reduction in income tax for the following three years. Foreign investment enterprises are also exempted from income tax in years with financial loss.

The reconciliation of statutory tax rate to effective tax rate is as follows:

Accounting (loss)/profit before taxation Tax at the statutory tax rate — Tax exempted — Tax benefit arising from tax regulations applicable to foreign enterprises in the PRC — Tax effect of income that are not taxable in determining taxable profit Tax expense	2002 RMB’000 (10,313) 742 (742) — — —	% 100 15 (15) — — —	2001 RMB’000 10,759 1,614 — (807) (28) 779	% 100 15 — (7.5) (0.3) 7.2

There was no significant unprovided deferred taxation for the year ended 31 December 2002 (2001: Nil).

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8. Dividends

Final dividends declared and paid Interim dividends declared and paid	The Group 2002 2001 RMB’000 RMB’000 3,196 — — 1,500 3,196 1,500	The Group 2002 2001 RMB’000 RMB’000 3,196 — — 1,500 3,196 1,500
		1,500

During the year ended 31 December 2001, the dividends were declared and paid to the then owners/shareholders of subsidiaries.

Subsequent to 31 December 2002, the directors of the Company do not recommend the payment of a final dividend.

9. (Loss)/Earnings per share

The calculation of basic loss per share is based on the combined net loss for the year attributable to shareholders of approximately RMB10,313,000 (2001: profit RMB10,460,000) divided by the weighted average number of ordinary shares outstanding during the year of 603,000,000 shares (2001: 501,360,000 shares). The weighted average number of shares outstanding for 2001 is calculated assuming all ordinary shares outstanding at 31 December 2002 were outstanding throughout 2001.

The computation of diluted loss per share has not assumed the excess of the potential ordinary share as their exercise would not have dilutive effect on the loss per share (2001:nil).

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10. Movement of reserves

Movements of reserves were:

Group Balance as at beginning of year Buyout of minority interests by majority shareholders Premium on issue of ordinary shares, net of issues at nil consideration Share issuance expenses Capitalisation of share premium Effect of reorganisation Translation adjustments Net (loss)/profit for the year Reverse over accrued profit to reserve fund Accrued profit to reserve fund Dividends Profit appropriation to reserve fund Reverse over accrued share issuing expenses Utilisation for the year Balance as at end of year				2002	Total RMB’000 79,292 — — — — — — (10,313) — — (3,196) — 144 (46) 65,881	2001 Total RMB’000 11,700 (480) 74,593 (10,828) (4,642) (15) 4 10,460 — — (1,500) — — — 79,292
		Share premium RMB’000 59,123 — — — — — — — — — — — 144 — 59,267	Capital reserve RMB’000 3,435 — — — — — — — — — — (3,435) — — —	Retained Cumulative profits/ Revenue translation (Accumulated reserve adjustments losses) RMB’000 RMB’000 RMB’000 4,454 4 12,276 — — — — — — — — — — — — — — — — — — — — (10,313) (1,350) — 1,350 488 — (488) — — (3,196) — — 3,435 — — — (46) — — 3,546 4 3,064

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Company Balance as at beginning of year Premium on issue of ordinary shares, net of issues at nil consideration Share issuance expenses Reverse over accrued share issuing expenses Capitalisation of share premium Effect of reorganisation Dividends Profit appropriation to reserve fund Net (loss)/profit for the year Balance as at end of year				2002	Total RMB’000 79,238 — — 144 — — (3,196) — (10,894) 65,292	2001 Total RMB’000 (2,741) 74,593 (10,828) — (4,642) 6,653 — — 16,203 79,238
		Share premium RMB’000 59,123 — — 144 — — — — — 59,267	Capital reserve RMB’000 6,653 — — — — — — (1,935) — 4,718	Retained Cumulative profits/ Revenue translation (Accumulated reserve adjustments losses) RMB’000 RMB’000 RMB’000 — — 13,462 — — — — — — — — — — — — — — — — — (3,196) — — 1,935 — — (10,894) — — 1,307

PRC laws and regulations require wholly foreign-owned enterprises to provide for certain statutory funds, namely, reserve fund and staff and worker’s bonus and welfare fund, which are appropriated from net profit after tax (based on the local statutory accounts of the Company’s subsidiaries in the PRC) but before dividend distribution. The subsidiaries are required to allocate at lease 10% of their net profit to the reserve fund until the balance of such fund has reached 50% of their respective registered capital. Appropriation to the staff and workers’ bonus and welfare fund is at the discretion of the directors of such subsidiaries. The reserve fund can only be used, upon approval by the relevant authority, to offset accumulated losses or increase capital. The staff and workers’ bonus and welfare fund can only be used for special bonuses or collective welfare of the employees of the individual subsidiary, and assets acquired through this fund shall not be taken as the Group’s assets. As of 31 December 2002, the reserve funds amounted to approximately RMB3,546,000 (2001: RMB4,454,000). Under IFRS, appropriations to the staff and workers’ bonus and welfare fund have been included as expenses and the balance of the fund as a liability of the Group.

Under the Companies Act 1981 of Bermuda (“Companies Act”), share premium and capital reserve are distributable to shareholders, subject to the condition that the Company cannot declare or pay a dividend, or make a distribution out of share premium and capital reserve if (i) it is, or would after the payment be, unable to pay its liabilities as they become due, or (ii) the realisable value of its assets would thereby be less than the aggregate of its liabilities and its issued share capital account.

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As at 31 December 2002, the Company’s reserves available for distribution to shareholders amounted to approximately RMB65,292,000, computed in accordance with the Companies Acts and the Company’s articles of association. This includes the Company’s share premium and capital reserve of approximately RMB59,267,000 and RMB4,718,000 respectively, plus retained profits of approximately RMB1,307,000, which is available for distribution provided that immediately following the date on which the dividend is proposed, the Company will be able to pay off its debts as they fall due in the ordinary course of business.

BUSINESS REVIEW AND ANALYSIS

Increase in losses was mainly due to the increase in labour costs on additional high calibre expertise needed for the research and development (“R&D”) of the Group’s new products and market research expenses. Also, the significant losses of the securities sector has strong negative impact to the sales of the Group’s major security software products.

Hangzhou Singlee Software Company Limited

2002 was a year when the Group continued with its transition towards a corporate structure whereby the general managers of subsidiaries were held accountable under the framework of the management by the Group. During the year, the Company had to deal with adjustments to its management system and the restructuring of its operating activities, and externally, it had to tackle the re-positioning of its market image, product innovation and increasing industrial competition from its competitors. In the face of the imminent losses the securities sector would come up with, major securities dealers continued to postpone their purchase of the Integrated Securities Transaction System in which the Group had made substantial investments, as such, Hangzhou Singlee Software Company Limited suffered losses.

This year, the head offices of Hua Tai and Guang Fa were added to the list of the Company’s new customers in the trust and insurance sectors, thereby laying down the foundation for the Company to enter into a new area of competition. However, the Company’s market share in the systems for traditional business departments dropped. Major customers lost from our customer’s list included Huaxia Securites, Changjiang Securities and Xiamen Securities.

At a time in the development of the securities sector where the profit margin is slim, the operations of customers from the securities sector is moving from extensive to intensive, and the Company’s competitive edge in the traditional sector is being eroded over time. Such being the case, the following represents the Company’s analysis in respect of the business environment for the Company in the future:

Closer and closer cooperation among the various financial sectors, and systems for the financial business will be moving from a single industry system which is product-oriented to a single industry system which is customer-oriented, which will eventually come up with a general system in which customers become the center of business. Under this general financial framework, securities dealers, trust companies, fund companies and insurance companies are all competing and working altogether. On the one hand, trust companies, fund companies, insurance companies and securities companies compete intensively for product sales and institutional customers, and on the other hand, they work closely on investment varieties, investment channels, R&D and product innovation.

Securities dealers are developing towards market orientation and intensive operations. The focus of contention of securities dealers’ for the high-end profit will be in the design and production in the cycle of “R&D - design - production - circulation - market - sale - service”. Major securities dealers will set up financial holding companies to operate in the various areas, such as investment banking, asset management and brokerage subsidiaries. At the same time, following

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changes such as opening up to the rest of the world and the reduction in commission, securities dealers are forced to change from the extensive operations in the old days to core operations at present. Another area of competition is the target for quality customers such as corporate customers, and the rolling out of financial consultation services as well as collaboration in many aspects such as consultation, financing, financial management and risk investments for the purpose of innovation in the financial business.

Under such circumstances, customer demand of securities dealers have changed from “channel” technology to highend technology which mainly involves integration with the internet. The customer demand for products has changed to one of business innovation, management innovation and technology innovation. As a result of the difference in operations of securities dealers, securities dealers begin to differentiate, whereby some are pursuing steady growth, some are looking for innovation, some are focusing on investment banking, and some are working on positioned retail.

With the transformation of the securities sector and the demand for differentiation from securities dealers becoming a dominant feature, in 2003, Hangzhou Singlee Software Company Limited will position itself as an “Industrial solution provider”, and implement a differentiated competition strategy on the basis of a unified technological structure, whereby customers’ demand for differentiation can be met, and the strategy of competition by differentiation will be implemented. The Company has turned from a market leader and follower to a challenging player once again.

Hangzhou Singlee Technology Company Limited

In 2002, the Company has sold totally approximately 8,000 sets of POS, the highest historical figure. With “POS Supermarket” as the core concept, the business of the Company has gone through the stage of sale and development of VERIFONE 395 cable POS, its “blooming all over the place” and its development into the various brands and models including Verifone 395, 3350, 3750, 3600, LipMan 3010, 3020, 2085, 8000, Anzhi 790, 510, Ruipe 9010, P2000, Shida and Tianshi, with more than ten models of both domestic and overseas POS of prestigious brand names, and it has the capability of development and maintenance for the above brands. In respect of wireless POS, the use of short messaging transaction alone can no longer satisfy the demand of users. Through additional inputs in the R&D of products by the project team, the original short messaging method has been expanded to cover the various methods including data service (wireless dialing), CDPD, MOBITAX, GPRS real-time on-line.

In the electronic payment sector, the Company has launched a new generation Chongqing model, which has preserved the advantages of a mode without a center, and for the saving in investment, an automatic parameter down-loading system is installed through an additional “Front Line” Server to support the application of banking cards, thus developing a new concept for the mode without a center. In order to ensure the system development, the technical department has deployed an expert team, and completed the testing in 16 banks by the end of November last year, and the system was in full operation in early December, and the model has also seen a breakthrough and has been implemented in Guiyang and Xian.

In 2002, the POS-MIS system was continuously promoted and innovated, and the Shanghai Chengda Shopping Mall collaborated with IBM and completed the networking of 400 cashier machines with the Industrial Bank. Besides shopping malls, the scope of application has been expanded to other industries such as libraries, hospitals, taxation, transport and tobacco, and is integrated with the IC card system, and completed the development of medical insurance in Xinjiang. At the same time, the POS-MIS system has also incorporated the ALLWEB concept, and ALLWEB revamp has been carried out and completed for seven banks.

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On the basis of its top market position in the nationwide wireless POS, the Company took the initiative to introduce the concept of “Wireless application with unlimited application” and launched the Singlee Short Message Service Platform last year, which is a professional banking short messaging solution launched afresh by using advanced wireless communication technology. The product is currently under full application by Zhejiang Industrial Bank, Anhui Industrial Bank and Hefei Guangda Bank.

Singlee Software (Zhuhai) Company Limited

At the end of 2002, the Company signed the contract with Shanghai Pudong Development Bank (“SPDB”) for the “Centralized Foreign Currency Testing System”（外㶅集中交易系統）. The progress was implemented smoothly. Currently it is in the testing stage. During the year of 2003, it is intended that this system will be implemented in all the branches of SPDB in the People’s Republic of China (the “PRC”).

Since its establishment in 2002, the Company has successfully passed the software product registration and software enterprise accreditation, and has obtained the two State software certificates for accreditation. The technical department of the Company adopts the continuous and developing strategy, and on the basis of the bank card order placement system (“Bank Card Order System”), it adopts changeable independent business logic modules through the provision of banking terminal and securities terminal common sharing function modules, thus simplifying the upgrading brought about by changes in adjustments to the documentary structure and transaction flow, and effectively solved the version allocation management which is applicable in different operation environment.

Contracts entered into between the Company and head offices in 2002 included : Bank of China B Share bank card transfer, Bank Card Order System, Shanghai Pudong Development Bank Integrated Bank Card Order System.

In respect of product development, the Company has collected technological information and related background information for over 20 products, and has been actively preparing for the formation of the Company’s strategic development direction and for the analysis of the position of its competitors. In 2003, the five categories of products, including the Bank Card Order System, transfer derivatives, personal banking, credit loans, value-added services for financial information will be the key development directions of the Company.

Future outlook

The Group is fully aware of the fact that for financial software providers in the PRC, cost control will be of the utmost importance in the coming two years. Therefore, the Group will continue to integrate its engineering capability and channel construction in 2003, and redundant staff will be eliminated to reduce costs.

In 2003, the Group anticipates that it will successfully establish the operation of CMM2 software maturity development model, and will launch the trust and fund products currently under R&D. At the same time, as the price of the Group’s

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VSP product is far lower than the Integrated Securities Transaction Platform, and the product is stable, transaction risks can be effectively controlled. It has attracted securities dealers at the regional level since early 2003.

On this basis, the Group will increase the liquidity of its existing assets in 2003, and will endeavor in the continued expansion and penetration into the related sectors of value-added services for financial information.

Financial Review

The Group is principally engaged in the development and sale of information and network technologies and services to the financial industry in the PRC.

For the year ended 31 December 2002 (“the financial year”), the securities market in the PRC was the weakest among the past three years. Currently many nation-wide brokerage firms, the Group’s potential clients, are under corporate restructuring process. Therefore, they postpone on making significant capital investment to improve existing network technologies. This makes it difficult for the Group to launch new products into the securities market, in particular those products requiring significant capital investment. In addition, certain commercial banks in the PRC took the initiative to restructure themselves, which had an impact on the sales of the securities and banking solutions of the Group as well as the sales of related hardwares.

In 2002, several nation-wide commercial banks performed upgrade reforms to their own core systems by themselves, which have hindered the sales and the implementation of orders on the banking peripheral products of the Group directly.

The adverse condition in the securities market during the year has led to the deterioration of the operations of the PRC brokerage firms, which in turn has a direct adverse impact in terms of the short-term promotion on the Group’s securities IT solution.

In light of keen competition in the PRC, selling prices of some of the Group’s major products like Singlee Bank/ Brokerage Firm Account Transfer System （銀証轉帳）and Sing Lee 3 Trading System （新利3型交易系統） dropped by approximately 51% and 31% respectively.

With regard to the above underlying factors, the Group recorded a consolidated turnover of approximately RMB62.9 million for the financial year, representing a drop of approximately 11% as compared to that of last year (2001: RMB70.4 million). Turnover of the Group comprises of:

Sales of software Sales of hardware Maintenance income	Turnover 2002 2001 RMB’000 RMB’000 22,318 34,826 36,181 30,360 4,354 5,230 62,853 70,416	Turnover 2002 2001 RMB’000 RMB’000 22,318 34,826 36,181 30,360 4,354 5,230 62,853 70,416
		70,416

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The Group recorded a gross profit of RMB17.8 million, decrease by 54% as compared to that of last year (2001: RMB39.1 million). Gross profit margin shrank to approximately 28% (2001: 56%). Gross profit margin decreased mainly due to more sales of thinner gross profit margin products and price cut on some of the Group’s major products.

Loss attributable to shareholders enlarged to approximately RMB10.3 million (2001: Profit RMB10.5 million). The enlarged loss was mainly caused by increase in the PRC manpower cost, market research expenses, administrative cost following listing of the Company on Growth Enterprise Market and drop on sales due to securities customer postpone on making significant investment.

LIQUIDITY, FINANCIAL RESOURCES, CAPITAL STRUCTURE AND GEARING RATIO

As at 31 December 2002, the Group had bank borrowings of RMB8.0 million (2001: RMB11.0 million), all represented short term-bank loans repayable within one year. The bank borrowings were unsecured, interest bearing within the range from 5.54% to 5.58% (2001: from 5.02% to 6.14%) per annum and collectively guaranteed by the Company and one of the subsidiaries of the Group (2001: of which RMB1 million was secured by the Group’s bank deposits). The Group does not have any committed banking facilities as at 31 December 2002.

No interest was capitalized by the Group during the year (2001: nil).

As at 31 December 2002, the Group held cash and cash equivalents denominated in RMB, US dollars and HK dollars.

The gearing ratio of the Group, based on total liabilities over total assets, as at 31 December 2002 was approximately 39% (2001: 35%).

MATERIAL ACQUISITION AND DISPOSALS OF SUBSIDIARIES AND AFFILIATED COMPANIES

Apart from the establishment of an indirectly wholly owned subsidiary, Singlee Software (Zhuhai) Co. Ltd., as disclosed on note 4 to the fianancial statements, the Group did not have any material acquisitions or disposals of subsidiaries and affiliated companies, or significant investments during the year under review.

SEGMENTAL INFORMATION

No segmental information is presented for the Group as the Group conducts its business within one geographical and business segment.

EMPLOYEE INFORMATION

As at 31 December 2002, the Group had 340 employees, including both the PRC and Hong Kong employees. Remuneration and bonus policy are basically determined by the performance of the individual employees and financial results of the Group. Total staff costs for the year amounted to RMB22 million.

The Group highly encourages employees to receive training and further education. The Group sponsors senior executives for MBA programs and further education.

The Group adopted a share option scheme, details of which were set out in the Report of the Directors.

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CHARGE ON GROUP ASSETS

As at 31 December 2002, the Group did not have any charges on group assets.

FUTURE PLANS FOR MATERIAL INVESTMENTS AND EXPECTED SOURCE OF FUNDING

Details of the Group’s future plans for material investments or capital assets and their expected source of funding have been stated in the Company’s prospectus dated 30 August 2001 under the sections headed “Statement of Business Objectives” and “Reasons for the New Issue and Use of Proceeds” respectively. Progress of these has been dealt within sections headed “Comparison of Use of Proceeds” and “Review of Business Objectives” in the section of Management Discussion and Analysis. Other than those disclosed, the Group did not have any plan for material investments or capital assets.

EXPOSURE TO EXCHANGE RATE FLUCTUATION

The Group’s revenue generating operations are mainly transacted in RMB. The Directors consider the impact of foreign exchange exposure to the Group is minimal.

CONTINGENT LIABILITIES

As at 31 December 2002 the Group did not have any material contingent liabilities (2001: nil).

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PROSPECTS OF NEW PRODUCTS

Please refer to the Business Review and Analysis for a discussion on this.

COMPARISON OF USE OF PROCEEDS

The net proceeds raised from the public listing on 5 September 2001 were approximately HK$61.9 million. The proceeds had been applied to achieve the business objectives as set out in the prospectus dated 30 August 2001 and are detailed below:

		Use of proceeds	Actual amount
		as stated	utilized up to
		in the prospectus	31 December 2002
		HK$’000	HK$’000
Research and development of new products
and technologies		25,000	15,800
Sales, marketing and promotion		7,500	1,430
Expansions of regional offices,
implementation of CMM and
enhancement of internal information network
infrastructure		5,500	820
Repayment of bank loans and other borrowing	(i)	8,300	14,000
Repayment of shareholder’s loan		4,200	4,200
General working capital		11,400	6,850
Placed with banks		—	17,480
		61,900	60,580

Unused net proceeds of approximately HK$17.5 million have been placed with licenced banks in Hong Kong and the PRC, and would be used to achieve objectives as stated in the prospectus.

(i) The excess utilization is attributable to the Group’s decision to decrease its debt level.

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REVIEW OF BUSINESS OBJECTIVES

Objectives as stated in the Statement of Business

Actual business progress

Objectives of the Prospectus

1. ALLWEB banking solution

2. I. Bank CRM solution

For the six months ending 30 June 2002

• (i) Complete the system development of ALLWEB Bank Customer Service Centre

• (ii) Full launch of ALLWEB Bank Customer Service Centre

• (iii) Complete the system development of ALLWEB Bank Customer Information Analysis System

• (iv) Full launch of ALLWEB Bank Customer Information Analysis System

• (i-v) The Group considered that the market demand for this project remained uncertain. Hence, it was decided that the progress on the system development would be delayed in accordance with the market conditions in the coming two years.

The Group is going to re-start the project if the market in the PRC has more room for the financial produces innovation.

• (v) Complete the requirement analysis of ALLWEB Bank Information Business Decision System

For the six months ending 31 December 2002

• (i) Complete the system development of ALLWEB Bank Business Decision System

• (ii) Complete the entire bank CRM solution

• (iii) Full launch of bank CRM solution

(i-iii) The financial products in the PRC are still remain very limited even though the PRC joined WTO. So it is not necessary for the commercial banks in the PRC invest heavy in IT system to support the CRM solution. Therefore, the Group decided that the progress on the system development would be delayed in accordance with the market conditions.

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Objectives as stated in the Statement of Business Objectives of the Prospectus

Actual business progress

• II. Bank financial management system

For the six months ending 30 June 2002

• (i) Full launch of bank card order placement system for Bank-Securities Finance Management System

• (ii) System upgrade for Bank-Securities Finance Management System

• (iii) Complete the entire system development of BankInsurance Finance Management System

• (iv) Trial marketing of Bank-Insurance Finance Management System

• (v) Enhance the existing functions of Bank-Fund Finance Management System

• (i-v) The Group launched bank card order placement system ahead of the schedule. It is now undergoing research and development on the integrated upgrade version for the system. Following the integration, the system platform will be applied uniformly in the bank finance management series, including Bank Securities Finance Management System, Bank Insurance Financial Management System and Bank Fund Finance Management System. Trial sales for the Bank Insurance Finance Management System will be delayed in accordance with the market conditions.

For the six months ending 31 December 2002

• (i) Full launch of Bank-Securities Finance Management System

• (ii) Full launch of Bank-Insurance Finance Management System and enhance its existing functions

• (iii) Full launch of Bank-Fund Finance Management System and upgrade its existing functions

• (i-iii) The Group is still promoting the further research of the system platform, which ideally can be applied uniformly in the bank finance management series, including Bank Securities Finance Management System and Bank Fund Finance Management System. Trial sales for the Bank Insurance Finance Management System will be delayed in accordance with the market conditions. Bank Insurance Financial Management System will be delayed in accordance with the market conditions.

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Objectives as stated in the Statement of Business Objectives of the Prospectus

Actual business progress

• III. Bank account manager system

For the six months ending 30 June 2002

• (i) Launch Bank IC Card Application System targetting retail customers at commercial banks for electronic payment

• (ii) Develop POS Application System on the ALLWEB platform and full launch of multiple bank POS Application Systems

• (i) Bank IC Card Application System was launched ahead of the schedule.

• (ii) Development was completed.

For the six months ending 31 December 2002

• (i) Full launch of POS Application System targetting corporate customers at commercial banks for electronic payment

• (ii) Full launch of Bank IC Card Application system targetting retail customers at commercial banks for electronic payment

• (i) Successfully installed the system for Bank of China Harbin Branch’s tobacco distribution system.

• (ii) Successfully installed the system for China Industrial and Commercial Bank Xinjan Branch’s medical care system.

• IV. Bank supervision system

For the six months ending 30 June 2002

• (i) Full launch of bank internal audit system

• (i) Marketing activities were conducted for the Bank Internal Audit System.

For the six months ending 31 December 2002

• (i) Market Bank Supervision System to the Group’s commercial banking customers

• (i) Successfully installed the system for the Internal Auditing Department of Industrial and Commercial Bank of China.

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Objectives as stated in the Statement of Business Objectives of the Prospectus

Actual business progress

1. ALLWEB securities solution

2. I. Brokerage CRM solution

For the six months ending 30 June 2002

• (i) Full launch of ALLWEB brokerage Customer Service Centre

• (ii) Full launch of ALLWEB Brokerage Customer Information Centre and product test trial of ALLWEB Brokerage Customer Information Decision System with selected brokerage customers

• (i-iii) The Group considered that the market demand for this project remained uncertain. Hence, it was decided that the progress on the system development would be delayed in accordance with the market conditions.

• (iii) Complete the entire Brokerage CRM Solution

For the six months ending 31 December 2002

• (i) Full launch of Brokerage CRM Solution

• (ii) Complete system upgrade accordingly to market and customer demands

• (i-ii) The financial products in the PRC are still remain very limited even though the PRC joined WTO. So it is not necessary for the commercial banks in the PRC to invest heavily in IT systems to support the CRM solution. Therefore the Group decided that the progress on the system development would be delayed in accordance with the market conditions.

• II. ALLWEB enterprise securities transaction system

For the six months ending 30 June 2002

• (i) Launch upgraded version and complete new system design based on Unix and Oracle systems

• (i) Enterprise Securities Transaction System was successfully upgraded. A new system based on UNIX and Oracle is now being designed. It is expected that such system will be developed jointly with ALLWEB electronic financial service platform.

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Objectives as stated in the Statement of Business Objectives of the Prospectus

Actual business progress

For the six months ending 31 December 2002

• (i) Complete the integration of this system with the ALLWEB financial platform and launch the new version based on the Unix and Oracle systems

• (i) The Unix and Oracle solution is centralized package for brokerages. However, most of the nationalized brokerages are loss making. Currently many nationwide brokerage firms, the Group’s potential clients, are under corporate restructuring process. Therefore they postponed plans to start the platform. But, the Group has successfully completed the research and development for the same solution with NT, which requires lower investment. Currently, the clients are Guangdong Development Securities （廣發證券） and Hua Tai Securities (華泰證券).

• ALLWEB electronic financial service platform

For the six months ending 30 June 2002

• (i) Complete the system development of the core electronic trading function of the platform

• (ii) Full launch of Electronic Securities Trading, Electronic Banking, Wireless Financial Management Systems and Family Financial Management System based on cable network

• (i) System development of the electronic trading function of the platform is now in progress. The standard version started in November and December 2001 and completed in February 2002

• (ii) Electronic Securities Trading, Electronic Banking, Wireless Financial Management Systems were fulfilled in the first phase of development with products already launched. Upon refinement, Family Financial Management System was temporarily suspended as a result of insufficient market demand. Resumption for the same will depend on the market condition.

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Objectives as stated in the Statement of Business Objectives of the Prospectus

Actual business progress

For the six months ending 31 December 2002

• (i) Complete the entire solution and system integration of the ALLWEB Electronic Financial Service Platform

• (i) System development of the electronic trading function of the platform is now undergoing. The standard version started in November and December 2001 and completed in February 2002.

• (ii) Electronic Securities Trading, Electronic Banking, Wireless Financial Management Systems were fulfilled in the first phase of development with products already launched. Upon refinement, Family Financial Management System was temporarily suspended as a result of insufficient market demand. Resumption for the same will depend on the market condition.

• Business development and information network

For the six months ending 30 June 2002

• (i) To complete the second stage of construction of the Group’s internal information network infrastructure

• (i) The construction of the internal information network was successfully completed.

For the six months ending 31 December 2002

• (i) To expand the Group’s regional sales offices in Chongqing

• (i)

• Currently the Group has 27 offices and supporting centers all over the PRC. The strongest distribution channel ever in the Group’s history.

• Marketing & Promotion

For the six months ending 30 June 2002

• (i) To participate in the PRC securities products exhibitions

• (i) The Group participated The China Securities Information Technology Forum 2002 and New Products of Securities IT Systems Exhibition

For the six months ending 31 December 2002

• (i) To participate in the PRC banking products exhibitions

• (i) The Group did not participate the PRC banking products exhibitions.

At the end of 2002, several Baring products, especially software products, are under R&D process. So the Group decided to promote these products on year 2003.

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Objectives as stated in the Statement of Business Objectives of the Prospectus

Actual business progress

6. CMM

For the six months ending 30 June 2002

• (i) Evaluation by the selected CMM appraisal agency

• (i) In February 2002, the chief R&D officer of the Group, the general manager of Hangzhou Singlee Software Company Limited and the chief investment officer of the Group visited India to make an inspection and appraisal on the organization of CMM, and has initially selected several potential candidates, pending further confirmation.

• (ii) In June 2002, the Group purchased the modeling tools (RUP) for the implementation of the main system of CMM, and the construction of the system modeling is under preparation.

• (iii) The setting up of CMM project by Singlee Software (Zhuhai) Company Ltd. has been basically completed, and appraisal shall be commenced in the next step.

For the six months ending 31 December 2002

• (i) Confirm improvement scheme, conduct training, amend development process and amend internal organization according to the relevant scheme

• (i) The Group started the CMM December 2002. The Group plans to pass the CMM 2 on November 2003 and CMM 3 on November 2004.

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FOUR YEAR FINANCIAL SUMMARY OF THE GROUP

Turnover (Loss) / Profit attributable to shareholders Total assets Total liabilities Net assets	Year ended 31 December 2002 RMB’000 62,853 (10,313) 117,729 (45,456) 72,273	Year ended 31 December 2001 RMB’000 70,416 10,460 131,526 (45,842) 85,684	For the period from 27 Year ended May1999 to 31 December 31 December 2000 1999 RMB’000 RMB’000 87,028 38,254 10,826 3,044 62,484 42,893 (50,678) (31,904) 11,806 10,989

MAJOR SUPPLIERS AND CUSTOMERS

The percentage of purchases and sales for the year ended 31 December 2002 attributable to the Group’s major suppliers and customers are as follows:

Purchases

— the largest supplier	33.3%
— five largest suppliers combined	88.5%
Sales
— the largest customer	6.1%
— five largest customers combined	24.1%

None of the Directors, their associates or any shareholder (which to the knowledge of the Directors owns more than 5% of the Company’s share capital) had an interest in the major suppliers or customers stated above.

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PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES

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

Board practices and procedures

Since the listing of the Company on GEM of the Stock Exchange, the Company has complied with Board Practices and Procedures as set out in Rules 5.28 to 5.39 of the GEM Listing Rules.

On behalf of the Board Hung Yung Lai Chairman

Hong Kong, 24 March 2003

This announcement will remain on the “Latest Company Announcements” page of the GEM website for at least seven days from its date of publication.

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