Sing Lee Software (Group) Limited - Annual Report 2005

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(incorporated in Bermuda with limited liability)

(Stock Code: 8076)

ANNUAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2005

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 however 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 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 Sing Lee Software (Group) Limited. 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 (“Board”) 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 2005, together with the unaudited comparative figures for the corresponding periods in 2004, as follows:

Consolidated Income Statement

For the year ended 31 December 2005 (Expressed in thousands of Renminbi (“RMB”) except for loss per share)

Note Revenue 4 Cost of sales Gross (loss)/profit Other operating income 5 Distribution costs General and administrative expenses Loss from operations Finance costs 6 Loss before tax 7 Income tax expenses 8 Net loss for the year Dividends 9 Loss per share 10 - Basic - Diluted	Group 2005 2004 *RMB’000* RMB’000 11,276 40,303 (15,238) (23,141) (3,962) 17,162 4,372 7,071 (15,393) (6,779) (21,412) (19,578) (36,395) (2,124) (826) (222) (37,221) (2,346) — — (37,221) (2,346) — — (RMB6.17 cents) (RMB0.39 cents) N/A N/A

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Balance Sheets

As at 31 December 2005 (Expressed in thousands of RMB)

Group 2005 2004 *RMB’000* RMB’000 6,119 9,234 2,992 5,631 — — 9,111 14,865 5,760 14,154 18,005 9,545 4,430 17,597 2,083 — 2,505 10,712 32,783 52,008 41,894 66,873 6,271 6,392 (4,972) 31,850 1,299 38,242 5,586 5,155 7,603 8,831 5,165 1,785 1,904 2,890 9,284 3,357 1,785 — 14 14 5,477 3,180 2,426 2,418 — 857 1,351 144 40,595 28,631 41,894 66,873	Group 2005 2004 *RMB’000* RMB’000 6,119 9,234 2,992 5,631 — — 9,111 14,865 5,760 14,154 18,005 9,545 4,430 17,597 2,083 — 2,505 10,712 32,783 52,008 41,894 66,873 6,271 6,392 (4,972) 31,850 1,299 38,242 5,586 5,155 7,603 8,831 5,165 1,785 1,904 2,890 9,284 3,357 1,785 — 14 14 5,477 3,180 2,426 2,418 — 857 1,351 144 40,595 28,631 41,894 66,873	Group 2005 2004 *RMB’000* RMB’000 6,119 9,234 2,992 5,631 — — 9,111 14,865 5,760 14,154 18,005 9,545 4,430 17,597 2,083 — 2,505 10,712 32,783 52,008 41,894 66,873 6,271 6,392 (4,972) 31,850 1,299 38,242 5,586 5,155 7,603 8,831 5,165 1,785 1,904 2,890 9,284 3,357 1,785 — 14 14 5,477 3,180 2,426 2,418 — 857 1,351 144 40,595 28,631 41,894 66,873	Company 2005 2004 *RMB’000* RMB’000	Company 2005 2004 *RMB’000* RMB’000	Company 2005 2004 *RMB’000* RMB’000
6,119 2,992 —		9,234 5,631 —		— 24 48,576	— 43 58,051
	14,865		48,600		58,094
5,760 18,005 4,430 2,083 2,505		14,154 9,545 17,597 — 10,712		8,433 11,966 — — 1	3,575 749 — — 55
	52,008 66,873 6,392 31,850 38,242		20,400 69,000 6,271 34,783 41,054		4,379
					62,473
					6,392 41,092
					47,484
5,586 7,603 5,165 1,904 9,284 1,785 14 5,477 2,426 — 1,351		5,155 8,831 1,785 2,890 3,357 — 14 3,180 2,418 857 144		5,586 2,445 842 — 9,284 1,785 14 5,477 2,513 — —	5,155 — 865 — 3,357 — 14 3,180 2,418 — —
	28,631 66,873		27,946 69,000		14,989
					62,473

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Consolidated Statement of Changes in Equity

For the year ended 31 December 2005

(Expressed in thousands of RMB)

					Cumulative
	Share	Share	Capital	Revenue	translation	Accumulated
	capital	premium	reserve	reserve	adjustments	losses	Total
	*RMB’000*	*RMB’000*	*RMB’000*	*RMB’000*	*RMB’000*	*RMB’000*	*RMB’000*
Balance at 1 January 2005	6,392	59,267	—	3,613	13	(31,043)	38,242
Translation exchange differences	(121)	(1,119)	—	—	1,518	—	278
Net loss for the year	—	—	—	—	—	(37,221)	(37,221)
Balance at 31 December 2005	6,271	58,148	—	3,613	1,531	(68,264)	1,299
Balance at 1 January 2004	6,392	59,267	—	3,613	14	(28,697)	40,589
Translation exchange differences	—	—	—	—	(1)	—	(1)
Net loss for the year	—	—	—	—	—	(2,346)	(2,346)
Balance at 31 December 2004	6,392	59,267	—	3,613	13	(31,043)	38,242

Notes to the Financial Statements

31 December 2005

(Amounts expressed in Renminbi (“RMB”) unless otherwise stated)

1. GENERAL

Sing Lee Software (Group) Limited (the “Company”) was incorporated in Bermuda as an exempted company with limited liability under the Companies Act 1981 of Bermuda (as amended). The Company’s shares have been listed on the Growth Enterprise Market (the “GEM”) of The Stock Exchange of Hong Kong Limited.

The Company is an investment holding company. Its subsidiaries established in the People’s Republic of China (the “PRC”) were principally engaged in the development, manufacture and sale of software products, sale of related hardware products and provision of software-related technical services.

The Group’s principal place of business in the PRC is located in Jie Neng Huan Bao Technology Park, No. 108 Gu Cui Road, Hangzhou, Zhejiang Province, the PRC. The registered office of the Company is in Clarendon House, 2 Church Street, Hamilton, HM11, Bermuda. The Group was principally operated in the PRC and employed approximately 119 employees as at 31 December 2005.

2. IMPACT OF RECENTLY ISSUED INTERNATIONAL FINANCIAL REPORTING STANDARDS

The following revised, amended and new standards which are generally effective for accounting periods beginning on or after 1 January 2006 may result in changes in the future as to how the Group’s financial performance and financial position are prepared and presented:

IAS 1 Presentation of Financial Statements (revised 2005)
IAS 39 Financial instruments: Recognition and measurement (revised 2005)

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Adoption of IFRSs

In 2005, the company has adopted all IFRSs issued up to 31 December 2005 pertinent to its operations. The applicable IFRSs are set out below and the 2005 accounts have been restated in accordance with the relevant requirements.

—	IAS	2	Inventories (revised 2003);
—	IAS	8	Accounting policies, changes in accounting estimates and errors (revised 2003);
—	IAS	10	Events after the balance sheet date (revised 2003);
—	IAS	16	Property, plant and equipment (revised 2003);
—	IAS	17	Leases (revised 2003);
—	IAS	24	Related party disclosures (revised 2003);
—	IAS	21	The effects of changes in foreign exchange rates (revised 2003);
—	IAS	27	Consolidated and separated financial statements (revised 2003);
—	IAS	32	Financial instruments: Disclosure and presentation (revised 2003);
—	IAS	33	Earnings per share (revised 2003);
—	IAS	36	Impairment of assets (revised 2004); and
—	IAS	38	Intangible assets (revised 2004).

The adoption of above list of IFRSs did not result in substantial changes to the company’s policies.

3. PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies adopted in preparing the financial statements of the Company and the Group are as follows:

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.

Owing to the fact that the Group principally operates in the PRC and its business activities are principally transacted and denominated in Renminbi (“RMB”), the financial statements are prepared in RMB.

4. REVENUE

Computer software Computer hardware Provision for maintenance services	Group 2005 2004 *RMB’000* RMB’000 5,253 9,619 2,950 17,062 3,073 13,622 11,276 40,303	Group 2005 2004 *RMB’000* RMB’000 5,253 9,619 2,950 17,062 3,073 13,622 11,276 40,303
		40,303

All sales were derived from the PRC during the year.

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5. OTHER OPERATING INCOME

Interest income from bank deposits VAT refund_(See Note 28)_ Enterprise income tax refund Government and other subsidies Rental income Deferred income recognised this year Sundry income	Group 2005 2004 *RMB’000* RMB’000 17 29 — 824 — 277 1,936 5,941 95 — 2,145 — 179 — 4,372 7,071	Group 2005 2004 *RMB’000* RMB’000 17 29 — 824 — 277 1,936 5,941 95 — 2,145 — 179 — 4,372 7,071
		7,071

6. FINANCE COSTS

Interest on bank overdrafts Interest on bills Interest on borrowings Bank charges	Group 2005 2004 *RMB’000* RMB’000 337 222 279 — 19 — 191 — 826 222	Group 2005 2004 *RMB’000* RMB’000 337 222 279 — 19 — 191 — 826 222
		222

7. LOSS BEFORE TAX

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

After crediting: Interest income After charging: Staff costs (including directors’ remuneration — Salaries and wages — Contribution to retirement schemes — Staff welfare and others Cost of inventories sold Research and development costs expenditures Amortisation of intangible assets Depreciation of property, plant and equipment Provision for doubtful debts Provision for obsolete inventories Operating lease rentals Loss on disposal of property, plant and equipment Auditors’ remuneration	Group 2005 2004 *RMB’000* RMB’000 17 29 8,268 9,720 222 297 224 53 8,714 10,070 ------------------ ------------------ 7,379 14,903 7,835 470 1,140 2,028 2,662 2,624 — 5,040 3,569 285 2,202 2,382 326 5 356 386	Group 2005 2004 *RMB’000* RMB’000 17 29 8,268 9,720 222 297 224 53 8,714 10,070 ------------------ ------------------ 7,379 14,903 7,835 470 1,140 2,028 2,662 2,624 — 5,040 3,569 285 2,202 2,382 326 5 356 386
		9,720 297 53
		10,070 ------------------ 14,903 470 2,028 2,624 5,040 285 2,382 5 386

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8. INCOME TAX EXPENSE

	Group
	2005	2004
	*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 the British Virgin Islands (the “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.

c) PRC enterprise income tax

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

	2005		2004
	RMB’000	%	RMB’000	%
Accounting loss before taxation	(37,221)	100	(2,346)	100
Tax at the statutory tax rate	(12,283)	(33)	(774)	(33)
Tax loss unutilized	12,283	33	774	33
Tax expense	—	—	—	—

There was no significant unprovided deferred taxation for the year ended 31 December 2005 (2004: Nil).

9. DIVIDENDS

During the year ended 31 December 2005, RMB nil dividend was declared and paid (2004: RMB nil).

10. 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 RMB37,221,000 (2004: RMB2,346,000) divided by the weighted average number of ordinary shares outstanding during the year of 603,000,000 shares (2004: 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.

11. SEGMENT INFORMATION

The Group conducts its business in the PRC within one business segment – the business of development, manufacture and sale of software products, sale of related hardware products and provision of software-related technical services. The Group also operates within one geographical segment because its revenues are primarily generated in the PRC and its assets are primarily located in the PRC. Accordingly, no segment information is presented separately.

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12. RESERVES

Movements of reserves were:

			2005				2004
				Cumulative
	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 at beginning of year	59,267	—	3,613	13	(31,043)	31,850	34,197
Translation adjustments	(1,119)	—	—	1,518	—	399	(1)
Net loss for the year	—	—	—	—	(37,221)	(37,221)	(2,346)
Balance at end of year	58,148	—	3,613	1,531	(68,264)	(4,972)	31,850
			2005				2004
				Cumulative
	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
Company
Balance at beginning of year	59,267	4,718	—	—	(22,893)	41,092	43,092
Translation adjustments	(1,119)	—	—	—	—	(1,119)	—
Net loss for the year	—	—	—	—	(5,190)	(5,190)	(2,000)
Balance at end of year	58,148	4,718	—	—	(28,083)	34,783	41,092

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. At 31 December 2005, the reserve funds amounted to approximately RMB3,613,000 (2004: RMB3,613,000). 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.

At 31 December 2005, the Company’s reserves available for distribution to shareholders amounted to approximately RMB34,783,000 (2004: RMB41,092,000), 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 RMB58,148,000 and RMB4,718,000 (2004: RMB59,267,000 and RMB4,718,000) respectively, less accumulated losses of approximately RMB28,083,000 (2004: RMB22,893,000). 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.

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Chairman[’] s Statement

On behalf of the Board of Directors of Sing Lee Software (Group) Limited (the “Company”) and its subsidiaries (together referred to as the “Group”), I would like to present herewith the 2005 Annual Report of the Group.

BUSINESS REVIEW AND ANALYSIS

2005 was the second year the Group underwent strategic conversion and was a year of fundamental importance. The Group has focused all its human, financial and material resources on commencing the research and development and upgrading of the two major projects and the two major products on a full scale, and has made a strategic breakthrough. However, as the development, upgrading and stability testing of the four major projects and products has to continue in the following year, they have not generated any profits for the Group during the year. Through their efforts and dedication, the management of various levels, the technology research and development team and all staff in the past year have made tremendous contributions to the development, upgrading and stability of the four major projects and products as well as laying a foundation for sales in the future.

Banking Business

Sales of the Group’s original banking peripheral and non-core products, which generated profits in the earlier period but ceased to generate any profits in recent years, has been suspended in 2005. With a change in the market sales model for the Group’s POS machine business, which has been operated for many years, banks now place orders directly with the manufacturer. For the EagleEye monitoring product which the Group has successfully developed in 2004, because of the need to upgrade the product to the combined version for headquarters, the Group has not taken the initiative to increase sales of the original version in the market. Given the aforesaid three reasons, the Group saw a significant reduction in sales in 2005. Nevertheless, after making a serious analysis and a comprehensive evaluation, the Group believes that not proceeding with sales of these non-core businesses and peripheral products and hardware but capitalizing on the Group’s edge in resources to accelerate the progress of its four core projects and products is a fundamental guiding principle for ensuring the Group’s long-term development and strategic transformation. Bank risk control products on which the Group focused in 2005 have been proceeding steadily and smoothly. The success rate of this bank core business of the Group has been the highest in the industry in the PRC in 2004 and 2005. This highly difficult business has also created a high-quality technical team and market brand for the Group. The Group will continue to step up its efforts in sales and implementation in this market segment so as to increase the profitability of the Group in the future.

Securities Business

For the securities industry in the PRC, the Group’s new combined and upgraded version of bank transfers has gained recognition from two major headquarters customers. One of the customers has signed a contract with the Group and has commenced the implementation. Following the success of this sample, the Group believes that there will be more major customers of the headquarters-grade to follow suit. There are some signs for the recovery of the China stock market. Major securities dealers now have greater demand for the new generation securities combined big platform than in the past few years. The Group has successfully developed this product and is striving to find a new point for penetration. A major securities dealer, which has cooperated with the Group for many years, has increased the service fees paid to the Group for its platform by 100%. The term of the contract has also been changed to two years. This

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demonstrates that the securities dealer recognizes the Group’s in-depth understanding of the securities business in the PRC and its services. This is also an important edge for the Group in the securities market in the future, demonstrating that the Group’s new generation combined version meets the needs for market development. It is anticipated that in the future, the recovering China securities market will again generate a new effect and brings a new point of profit growth for the Group.

Education Business

For the education business, the Group successfully launched the School-Banking Financial Fees Collecting System and other School-Banking products during the year. The products were sold to more than 50 colleges and universities in 2005 as compared with more than 10 universities in 2004. The combined and general versions of these products were successfully developed in late 2005. Full efforts will be made to market these products to more universities, institutes of higher learning, large key secondary schools and colleges for professional training nationwide in the next three years. A large strategic project jointly developed by the Group and one of the most famous universities in the PRC has commenced in an all-round way. The first phase of the project has been implemented by the Group. It is anticipated that these new projects and products will generate long-term and stable income for the Group in the next couple of years.

FUTURE OUTLOOK

The Group continues to step up its devotion and marketing efforts in products of the bank risk control and management information categories, with a maturing technical team. This product of the Group will maintain its leading position in the market in the coming year. As for the upgrading of the EagleEye monitoring product, the Group has entered into a strategic partnership agreement with a world-renowned provider of mainstream products, and has commenced the integration and upgrading work on a full scale. It is predicted that the Group can derive considerable effectiveness from the market in the next three years. Besides, the Group has also launched two strategic projects on a full scale. The success of these two projects will significantly increase the stable income from the Group’s cash flow and its long-term growth. The Group has been paying close attention to the development trend of the international and domestic financial markets and will persist in the guiding principle of: conducting the market survey three years in advance; proceeding with technology research and development two years in advance; entering the market six months in advance so as to ensure that new products of the Group can be launched to the market on a sustained basis.

While increasing income sources, the Group has stepped up its efforts in implementing the cost reduction plan and further increasing the soundness and actual effectiveness of the risk monitoring mechanism.

Management Discussion and Analysis

FINANCIAL REVIEW

The Group is principally engaged in the development and sales of information and network technologies and services to the finncial industry in the People’s Republic of China (the “PRC”).

For the year ended 31 December 2005 (“the financial year”), the Group recorded a total turnover of approximately Rmb11,276,000, representing a decrease of 72% as compared to last year (last year turnover were approximately RMB40,303,000).

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Turnover of the Group comprises of:

Sales of software Sales of hardware Maintenace income	Turnover 2005 2004 RMB’000 RMB’000 5,253 9,619 2,950 17,062 3,073 13,622 11,276 40,303	Turnover 2005 2004 RMB’000 RMB’000 5,253 9,619 2,950 17,062 3,073 13,622 11,276 40,303
		40,303

Decrease in turnover ws primarily attributable to the fact that sales of the Group’s original banking peripheral and noncore products, which generated profits in the earlier period but ceased to generate any profits in recent years, has been suspended in 2005. Also, with a change in the market sales model for the Group’s POS machine business, which has been operated for many years, banks now place orders directly with the manufactures. Finally, the EagleEye monitoring product which the Group has successfully developed in 2004, because of the need to upgrade the product to the combined version for headquarters, the Group has not taken the initiative to increase sales of the original version in the market. Given the aforesaid three reasons, the Group saw a significant reduction in sales in 2005.

The Group recorded also a loss attributable to shareholders of approximately Rmb37,221,000 for the financial year, a significant increase in loss as compared to last year (net loss for last year was approximately Rmb2,346,000).

Decrease in turnover mentioned above is one of the factors leading to the loss increase, as most administrative cost are fixed in nature and will reamin unchanged even thought turnover changed significantly. Secondly, decrease in other operating income from Rmb7,071,000 of last year to Rmb4,372,000 of this year also attributable to the loss increase. Such other operating income decrease is primarily due to decrease in subsidiary income from PRC government. Finally, the provision of obsolete inventories of approximately Rmb3,569,000 and impairment loss on development cost and other intangible assets of approximately RMB2,938,000 is another reason leading to the increase in group’s loss.

In order to improve the financial situation, The Group has adopted various measures to reduce cost and expenses. They include the reduction of manpower, strict control of expenses and the reduction of inventories held. With the rpoducts of our group become more mature in the market and the effective cost control, we expect that financial results of the group will be improved in the coming year.

LIQUIDITY, FINANCIAL RESOURCES, CAPITAL STRUCTURE AND GEARING RATIO

As at 31 December 2005, the Group had bank borrowings at prime rate of RMB15 million (2004: RMB5.1 million), all represented short term-bank loans repayable within one year with interest bearing at the prime rate.

No interest was capitalized by the Group during the year (2004: nil).

As at 31 December 2005, the Group held cash and cash equivalents denominated in RMB, US dollars and HK dollars, amounted to approximately RMB2.5 million.

The gearing ratio of the Group, based on total liabilities over total assets, as at 31 December 2005 was approximately 97% (2004: 43%).

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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.

SEGMENTAL INFORMATION

Saved as disclosed on note 13 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 2005, the Group had 145 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 RMB8.7 million.

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 2005, 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.

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 2005, the Group did not have any material contingent liabilities (2004: nil).

PROSPECTS OF NEW PRODUCTS

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

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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 2005 *RMB’000* 11,276 (37,221) 41,894 (40,595) 1,299	Year ended 31 December 2004 RMB’000 40,303 (2,346) 66,873 (28,631) 38,242	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

MAJOR SUPPLIERS AND CUSTOMERS

The percentage of purchases and sales for the year ended 31 December 2005 attributable to the Group’s major suppliers and customers are as follows:

Purchases
— the largest supplier	91%
— five largest suppliers combined	100%
Sales
— the largest customer	17%
— five largest customers combined	39%

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.

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.

CORPORATE GOVERNANCE PRACTICES

The hoard of directors of the Company believes that corporate governance is essential to the success of the Company and has adopted various measures to ensure that a high standard of corporate governance is maintained. The Company has applied the principles and complied with the requirements set out in the Code on Corporate Governance Practices (“CG code”) contained in Appendix 15 of the GEM listing Rules.

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DIRECTORS’ SECURITIES TRANSACTIONS

The Company has adopted the code of conduct regarding directors’ securities transactions as set out in GEM Listing Rules 5.48 to 5.67. The Company has made specific enquiry of all the Directors and the Company was not aware of any non-compliance with the required standard of dealings regarding the securities transactions by Directors.

By Order of the Board Hung Yung Lai Chairman

Hong Kong, 24 March 2006

The Board comprises of:

Hung Yung Lai (Executive Director) Cui Jian (Executive Director) Xu Shu Yi (Executive Director) Pao Ping Wing (Independent Non-Executive Director) Tam Kwok Hing (Independent Non-Executive Director) Lo King Man (Independent Non-Executive Director)

This announcement will remain on the “Latest Company Announcements” page on the GEM website for at least 7 days from the date of its publication.

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