Sing Lee Software (Group) Limited — Annual Report 2003

Mar 31, 2004

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(Incorporated in Bermuda with Limited Liability)

Annual Results Announcement

For the Year Ended 31 December 2003

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 annual 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 annual announcement.

This annual 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 annual 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 annual announcement misleading; and (3) all opinions expressed in this annual 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 2003 as follows:

		Group	Group
	Note	2003	2002
		RMB’000	RMB’000
Revenue	3	37,848	62,853
Cost of sales		(38,863)	(45,004)
Gross (loss)/profit		(1,015)	17,849
Distribution costs		(14,963)	(17,070)
General and administrative expenses		(24,058)	(17,364)
Other operating income	4	8,877	6,921
Loss from operations		(31,159)	(9,664)
Finance costs	5	(508)	(649)
Loss before tax	6	(31,667)	(10,313)
Income tax expenses	7	—	—
Loss after tax		(31,667)	(10,313)
Minority interests		—	—
Loss attributable to shareholders		(31,667)	(10,313)
Dividends	8	—	3,196
Loss per share	9
— Basic		(RMB5.25 cents)	(RMB1.71 cents)
— Diluted		N/A	N/A

Notes:

1 BASIS OF PRESENTATION

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 the PRC and its business activities are principally transacted in Renminbi (“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 to the current year’s presentation.

2. PRINCIPLES OF CONSOLIDATION

The consolidated 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 consolidation. Consolidated 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 All sales were derived from the PRC.	Group 2003 2002 RMB’000 RMB’000 18,396 22,318 15,622 36,181 3,830 4,354 37,848 62,853	Group 2003 2002 RMB’000 RMB’000 18,396 22,318 15,622 36,181 3,830 4,354 37,848 62,853
		62,853

4. OTHER OPERATING INCOME

	Group
	2003	2002
	RMB’000	RMB’000
Income from opening source code after tax	6,650	—
Interest income from bank deposits	89	416
VAT refund_(See Note 24)_	1,581	5,068
Enterprise income tax refund	—	805
Government subsidies	530	632
Other income	27	—
	8,877	6,921

5. FINANCE COSTS

Interest on bank loans wholly repayable within 5 years Bank charges Exchange difference	Group 2003 2002 RMB’000 RMB’000 305 584 102 52 101 13 508 649	Group 2003 2002 RMB’000 RMB’000 305 584 102 52 101 13 508 649
		649

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6. LOSS BEFORE TAX

Loss before tax was determined after crediting and charging the following:

		Group
		2003	2002
		RMB’000	RMB’000
	After crediting:
	Written back of provision for doubtful receivables	—	190
	After charging:
	Employment costs
	— Salaries and wages	17,833	18,475
	— Provision for bonus and welfare fund	1,713	1,865
	— Contribution to retirement schemes_(See Note 29)_	347	1,429
		19,893	21,769
	Cost of inventories sold	23,448	29,390
	Research and development costs expenditures	9,469	7,600
	Amortisation of intangible assets	803	359
	Impairment loss for intangible assets	175	—
	Depreciation of property, plant and equipment	2,811	2,410
	Provision for doubtful debts	6,278	1,219
	Provision for obsolete inventories	2,006	—
	Operating lease rentals	3,296	3,617
	Loss on disposal of property, plant and equipment	165	251
	Auditors’ remuneration	249	425
7.	INCOME TAX EXPENSE
		Group
		2003	2002
		RMB’000	RMB’000
	PRC enterprise income tax (c)	—	—

(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 the 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.

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(c) PRC enterprise income tax

As foreign investment enterprises that incorporated in the Advanced Technology Industry Development Area in Hangzhou City and Zhuhai 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:

	2003		2002
	RMB’000	%	RMB’000	%
Accounting loss before taxation	(31,667)	100	(10,313)	100
Tax at the statutory tax rate	—	—	742	15
— Tax exempted	—	—	(742)	(15)
Tax expense	—	—	—	—

There was no significant unprovided deferred taxation for the year ended 31 December 2003 (2002: Nil).

8. DIVIDENDS

		2003	2002
		RMB’000	RMB’000
Final dividends of HK$0.005	per share declared and paid	—	3,196

During the year ended 31 December 2003, no dividend was declared and paid.

During the year ended 31 December 2002, final dividends of HK$0.005 per share were declared and paid.

Subsequent to 31 December 2003, the directors of the company do not recommend the payment of a final dividend.

9. LOSS PER SHARE

The calculation of basic loss per share is based on the consolidated net loss for the year attributable to shareholders of approximately RMB31,667,000 (2002: RMB10,313,000) divided by the weighted average number of ordinary shares outstanding during the year of 603,000,000 shares (2002: 603,000,000 shares). No diluted loss per share was presented as the exercise of share options would have an anti-dilutive effect during the year.

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10. RESERVES

Movements of reserves were:

			2003				2002
					Retained
				Cumulative	profits/
	Share	Capital	Revenue	translation	(Accumulated
	premium	reserve	reserve	adjustments	losses)	Total	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Group
Balance as at beginning
of year	59,267	—	3,546	4	3,064	65,881	79,292
Translation adjustments	—	—	—	10	—	10	—
Profit appropriation to
reserve fund
under-provided	—	—	94	—	(94)	—	—
Reverse over accrued
share issuing
expenses	—	—	—	—	—	—	144
Utilisation for the year	—	—	(27)	—	—	(27)	(46)
Net loss for the year	—	—	—	—	(31,667)	(31,667)	(10,313)
Dividends	—	—	—	—	—	—	(3,196)
Balance as at end of year	59,267	—	3,613	14	(28,697)	34,197	65,881
Company
Balance as at beginning
of year	59,267	4,718	—	—	1,307	65,292	79,238
Reverse over accrued
share issuing
expenses	—	—	—	—	—	—	144
Net loss for the year	—	—	—	—	(22,200)	(22,200)	(10,894)
Dividends	—	—	—	—	—	—	(3,196)
Balance as at end of year	59,267	4,718	—	—	(20,893)	43,092	65,292

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 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 2003, the reserve funds amounted to approximately RMB3,613,000 (2002: RMB3,546,000). 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 2003, the Company’s reserves available for distribution to shareholders amounted to approximately RMB43,092,000, 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, less accumulated losses of approximately RMB20,893,000. The Company can only distribute its retained profits 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

The Company incurred further loss during the year, which was mainly due to the continued unfavourable situation in the securities markets in the PRC and price competition between the Group and other IT enterprises, large users of successfully developed new products delayed in signing contracts leading to increase in costs, large scale outbreak of SARS in the PRC, resulting in the continued economic slow-down and increase in unstable factors.

Securities Business

During the past year, in view of the introduction of the floating rate commission system and the PRC becoming hampered by the outbreak of SARS, profit as well as income were subject to direct blow upon successive unfavourable incidents. Subject to the influence of numerous adverse factors, the results of the entire securities industry in the PRC remained gloomy and depressed during 2003. Some small securities dealers even facing with survival crisis. Loss incurred by securities dealers was an uncontested fact. In order to survive, the securities industry in the PRC underwent a radical change. More emphasis were placed on cost control. More and more securities dealers, including the existing customers and potential customers, tightened their IT budgets and investments in order to sustain their operations. Securities dealers continued to postpone their purchases for the ALLWEB, a regional centralised system, new generation securities business platform which the Group invested heavily on its development, causing the Group to incur substantial losses as result of the continued delay in the returns period in respect of the investments in the securities industry products.

Price competition with competitors in respect of the sales on the Group’s securities industry products also brought about tremendous distress and resulted in losses.

Banking Business

Although the Group’s electronic payment business and country-wide POS Sharing platform continued to maintain its leading position, however, in recapitulating the results of banking business products in the past decade, there existed three major weaknesses requiring immediate adjustments.

The first was that the non-core business and peripheral business of the Group’s banking software business, such as Singlee short message platform, bank administrative fees collecting system and Singlee bank short message service system, can only bring minimal gross profits to the Group.

The second was the problem of customer services. With the PRC gradually blended with the rest of the world, customers’ requests for service were also increasing. In order to strengthen with the Group’s competitiveness and the advantage of maintaining good and long-term relationships with customers, the headquarter of the Group have to strengthen staff training, to strengthen their skills with respect to sales and higher quality customer service.

The third was that the lucrative margin for the electronic payment sector was over. Under the continuous emergence of competitors, the outbreak of price competition resulted in the gross profit margin to drop for more than 30% in 2002 to below 20% in 2003.

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Due to the above three reasons, the gross profit margin of the Group’s banking business dropped drastically, which also contributed to the loss in the banking business.

FUTURE OUTLOOK

Due to the above reasons, the Board and the management of the Company conducted intensive market research and detailed investigations to identify measures to solve the problems. It was decided that we have to further leverage on our own advantages, overcome the weakness, and dedicate to explore more resources. At the same time, we will exercise tight control over resources and define the direction for the development of the Group’s banking and securities business to be: application software targeting at the core business of banks, management software targeting at different business segments, and new business models and value-added services for hardware products. We must introduce well qualified personnel, promote the Group’s culture in four aspects through the segmentation in organisation structure, standardization in working style, systematic management and all staff attaining vocational skills. The formulation of rules and system for the Company and strict compliance with the laws and regulations, maintain a high standard of ethics, strictly implementing incentive mechanism of rewards and punishments and tight control over costs.

On the basis of the integrated software products and the Group’s projects, upon in-depth study, the Group has identified new profit centres and room for margins, profits in the financial industry in the PRC, including the OEM-based core management business, such as the balance sheet management and management accounting system, fund management system and international settlement system, foreign exchange information system, personal financial system and comprehensive business system.

For this purpose, the Group has introduced Mr. Wang Xi and Mr. Wang Yu Min who are highly qualified persons. These two persons are experienced and have in-depth knowledge and extensive connections in the core business development and system product integration in the banking software industry and financial industry in the PRC respectively. At the same time, the Group has introduced international software providers such as IPS-SENDEO and MISYS to form strategic cooperative partnerships with the Group, and to strengthen the Group’s products.

At the same time, the Group has integrated internally the centralised management system covering market, engineering, sales, thereby increasing the sales of the above new products, enhancing the progress of the project works, and attained the effect of further reducing costs. From 2002 to 2003, the Group has completed developments in the major products which the Group has made considerable investments, the “Country-wide Banking Card POS Sharing System” and “New Generation Securities Business Platform”. Cost for R&D in 2004 will be reduced significantly. At the same time, the Group has further strengthen the centralised management and motion control mechanism on the Group’s three major systems, finance, business and market, so as to ensure the realisation of the various targets of the Group. The Group is confident to enhance the overall gross profit of the Group considerably in 2004.

In order to strengthen cash flow and logistics, the Group will also set up effective measures and mechanisms to fulfill the Group’s requirements.

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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 People’s Republic of China (the “PRC”).

For the year ended 31st December 2003 (“the financial year”), the Group recorded a net loss of RMB31,667,000, an increase of 207% over that in the previous year. The main reasons attributing to the above loss were: the price competition with other IT enterprises, the cost increase in the R&D process, the large scale outbreak of SARS in the PRC resulting in the continued overall economic slow-down. With the above reasons, provisions for the Group’s doubtful and bad debts for the year amounted to approximately RMB8.6 millions.

Due to the gloomy situation in the Group’s securities business and the securities industry in the PRC, causing more deterioration to the operating situation of broking companies in the PRC, and some securities companies even have to wind up or merged all of which have brought significant adverse impact to the Group, from the product sales to accounts receivable in respect of the products provided to them from 2001 to 2002.

Similarly, products sales in banking business in last year also brought forward a number of reasons causing losses, being: drop in the gross profit of the Group’s banking software business which were basically non-core business, customers requesting for enhancement of services, electronic payment hardware products, drastic drop in prices due to keen market competitions.

With regard to the above underlying factors, the Group recorded a consolidated turnover of approximately RMB37,848,000 for the financial year, representing a drop of approximately 40% compared to that of last year (2002: RMB62,853,000). Turnover of the Group comprises of:

Sales of software Sales of hardware Maintenance income	Turnover 2003 RMB’000 18,396 15,622 3,830 37,848	2002 RMB’000 22,318 36,181 4,354
		62,853

The main reasons for the gross loss was due to drop in the sales of pure software business insufficient to compensate the amortisation of past R&D expenses, salaries. Sales of Hangzhou Singlee Software Company Limited alone shrank by approximately 84% compared with that in 2002.

The Group has achieved certain results in the further control on operating costs, and compared with 2002, distribution costs and financial costs in 2003 also reduced by approximately 12% and 22% respectively.

Compared with 2002, the increase in management expenses in 2003 by approximately 39% was due to the provision for doubtful and bad debts of approximately RMB8.6 millions.

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LIQUIDITY, FINANCIAL RESOURCES, CAPITAL STRUCTURE AND GEARING RATIO

As at 31 December 2003, the Group had no bank borrowings (2002: RMB8.0 million), all represented short term-bank loans repayable within one year.

No interest was capitalized by the Group during the year (2002: nil).

As at 31 December 2003, the Group held cash and cash equivalents denominated in RMB, US dollars and HK dollars, amounted to approximately RMB13.671 million.

The gearing ratio of the Group, based on total liabilities over total assets, as at 31 December 2003 was approximately 50% (2002: 39%).

MATERIAL ACQUISITION AND DISPOSALS OF SUBSIDIARIES AND AFFILIATED COMPANIES

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

Saved as disclosed on note 11 of the notes to the financal statements, 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 2003, the Group had 180 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 RMB19.893million.

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

CHARGE ON GROUP ASSETS

As at 31 December 2003, 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.

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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 2003, the Group did not have any material contingent liabilities (2002: nil).

PROSPECTS OF NEW PRODUCTS

Please refer to the Chairman’s Statement for a discussion on this.

COMPARISON OF USE OF PROCEEDS

The net proceeds raised from the placing of shares in the Company 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 which are detailed below:

		Use of proceeds	Actual amount
		as stated	utilized up to 31
		in the prospectus	December 2003
		HK$’000	HK$’000
Research and development of new products and technologies	(ii)	25,000	17,499
Sales, marketing and promotion of new products	(ii)	7,500	2,863
Expansion of regional offices, implementation of CMM and
enhancement of internal information network infrastructure	(iii)	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	(iv)	11,400	22,518
		61,900	61,900

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

(ii) The under-utilisation is primarily attributable to delay in research and development and marketing of certain software products.

(iii) The under-utilisation is primarily attributable to delay in expansion of regional office network in accordance to current market condition.

(iv) The excess utilisation is attributable to the Group’s decision to support its ongoing business operations and the actual amounts used exceed preliminary expectation.

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REVIEW OF BUSINESS OBJECTIVES

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

Actual business progress

1. ALLWEB banking solution

• I. Bank CRM solution

For the six months ending 30 June 2003

Full launch of Bank CRM Solution

The financial products available in the PRC are still limited even though the PRC joined WTO. So it is not necessary for PRC commercial banks invest heavily in IT system to support their CRM solution. For this reason, the Group has to delay the progress on its system development to be in line with the prevailing market conditions in the PRC.

For the six months ending 31 December 2003

Market Bank CRM Solution to the Group’s banking The Group delays the progress on its system development customers to be in line with the prevailing market conditions in the PRC.

• II. Bank financial management system

For the six months ending 30 June 2003

Market Bank Intermediary Business System Package to the Group’s commercial banking customers

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.

For the six months ending 31 December 2003

Market Bank Intermediary Business System Package Bank Insurance Financial Management System will be to the Group’s commercial banking customers 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 2003

Integrate the functions of Bank IC Card Application System, POS Application System on the ALLWEB financial platform

The system integration completed. The first client is Wenzhou Commercial Bank.

For the six months ending 31 December 2003

Full launch of ALLWEB financial platform and realise the real time electronic payment functions for multiple industrial sectors

After the integration completed, the Group is searching for other potential clients.

• IV. Bank supervision system

For the six months ending 30 June 2003

Market Bank Supervision System to the Group’s commercial banking customers

Marketing activities were conducted for the Bank Internal Audit System. Successfully installed of the system for the Internal Auditing Department of Industrial and Commercial Bank of China.

For the six months ending 31 December 2003

Market Bank Supervision System to the Group’s commercial banking customers

Marketing activities were conducted for the system and the Group is searching for new potential clients

— 13 —

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

Actual business progress

2. ALLWEB securities solution

• I. Brokerage CRM solution

For the six months ending 30 June 2003

Market Brokerage CRM Solution to the Group’s brokerage firm customers

The financial products available in the PRC are still limited even though the PRC joined WTO. It is not necessary for PRC commercial banks to invest heavily in IT systems to support their CRM solution.For this reason, the Group has to delay the progress on its system development to be in line to the prevailing market conditions in the PRC.

For the six months ending 31 December 2003

Market Brokerage CRM Solution to the Group’s brokerage firm customers

The Group delays the progress on the system development to be in line to the prevailing market conditions in the PRC.

• II. ALLWEB Enterprise Securities Transaction System

For the six months ending 30 June 2003

Full launch of the Unix version

The Unix version is completed. The Group is searching for other potential clients.

For the six months ending 31 December 2003

Market the ALLWEB Enterprise Securities Transaction System to the Group’s brokerage firm customers

The Unix version is completed. The Group is negotiating for some potential clients and searching for other potential clients.

— 14 —

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

Actual business progress

3. ALLWEB electronic financial service platform

For the six months ending 30 June 2003

Full launch of the ALLWEB Electronic Financial Service Platform to the financial industry in the PRC

System development of the Electronic Financial Service Platform completed. The first client is Nanjing Commercial Bank and currently engages in the testing stage.

For the six months ending 31 December 2003

Market the ALLWEB Electronic Financial Service Platform to the financial industry in the PRC

System development of the Electronic Financial Service Platform completed. The first client is Nanjing Commercial Bank.

System development of the Foreign Exchange System completed. The Guang Fa Bank was successfully implemented and currently engages in phase two upgrading.

4. Business development & information network

For the six months ending 30 June 2003

To upgrade the functions of the Group’s internal information network infrastructure

Completion of internal information network infrastructure upgrade.

For the six months ending 31 December 2003

• I. To complete the final stage of construction of the Group’s internal information network infrastructure

• II. To expand the Group’s regional sales office in Xian

Completion of internal information network infrastructure upgrade. Surpass the objective stated in the Prospectus.

The Group delays the progress on expanding the sales office in Xian.

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

Actual business progress

5. Marketing & promotion

For the six months ending 30 June 2003

• I. To participate in the PRC securities products exhibitions

Due to the effects of SARS, the Group temporarily decided not to participate the PRC securities products exhibitions.

• II. To conduct the ALLWEB series products road shows in the major cities in the PRC

For the six months ending 31 December 2003

• I. To participate in the PRC bank products exhibitions

Due to the effects of SARS, the Group temporarily decided not to participate the PRC bank products exhibitions.

• II. To conduct the ALLWEB series products road shows in the major cities in the PRC

6. CMM

For the six months ending 30 June 2003

Complete all the improvement process

The improvement process of CMM2 is undergoing. The Group expects to receive the certificate of CMM2 in October, 2003. The improvement progress of CMM2 is currently at Pilot Phase and will reach mini-assessment stage in the September, 2003.

For the six months ending 31 December 2003

Complete all the level IV CMM recognition process

The Group received the certificate of CMM2 in November, 2003.

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FIVE YEARS FINANCIAL SUMMARY OF THE GROUP

Turnover (Loss) / Profit attributable to shareholders Total assets Total liabilities Net assets	Year ended 31 December 2003 RMB’000 37,848 (31,667) 80,559 (39,970) 40,589	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 Year ended 27 May 1999 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	For the period from Year ended 27 May 1999 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
					3,044
					42,893 (31,904)
					10,989

MAJOR SUPPLIERS AND CUSTOMERS

The percentage of purchases and sales for the year ended 31 December 2003 attributable to the Group’s major suppliers and customers are as follows:

Purchases
— the largest supplier	39.5%
— five largest suppliers combined	68.3%
Sales
— the largest customer	10.6%
— five largest customers combined	42.0%

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, 30 March 2004

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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