Sing Lee Software (Group) Limited — Interim / Quarterly Report 2003

Aug 18, 2003

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(incorporated in Bermuda with limited liability)

INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2003

• For identification purposes only

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 report, 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 report.

This report, 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 report is accurate and complete in all material respects and not misleading; (2) there are no other matters the omission of which would make any statement in this report misleading; and (3) all opinions expressed in this report have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

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Charles Chan, Ip & Fung CPA Ltd. 37[th ] Floor, Hennessy Centre 500 Hennessy Road Causeway Bay, Hong Kong

REVIEW REPORT TO THE BOARD OF DIRECTORS OF SING LEE SOFTWARE (GROUP) LIMITED

(INCORPORATED IN BERMUDA WITH LIMITED LIABILITY)

We have reviewed the accompanying combined balance sheet of Sing Lee Software (Group) Limited (the “Company”) and its subsidiaries (collectively, the “Group”) at 30 June 2003, and the related combined statements of income, changes in equity an condensed combined statement of cash flows of the Group for the six months ended 30 June 2003. These condensed interim financial statements set out on pages 2 to 9 are the responsibility of the Company’s management. Our responsibility is to issue a report on these condensed interim financial statements based on our review.

We conducted our review in accordance with the International Standard on Auditing applicable to review engagements. This Standard requires that we plan and perform the review to obtain moderate assurance as to whether the condensed interim financial statements are free of material misstatement. A review is limited primarily to inquiries of company personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed interim financial statements for the six months ended 30 June 2003 do not give a true and fair view in accordance with International Financial Reporting Standards.

Charles Chan, Ip & Fung CPA Ltd.

Certified Public Accountants Hong Kong, 14 August 2003

Chan Wai Dune, Charles

Practising Certificate Number P00712

1

The board of Directors (“Board”) of Sing Lee Software (Group) Limited (the “Company”) announce the unaudited results of the Company and its subsidiaries (collectively, the “Group”) for the three and six months ended 30 June 2003, together with the unaudited comparative figures for the corresponding periods in 2002, as follows:

UNAUDITED COMBINED STATEMENT OF INCOME

Note Turnover 2 Cost of sales Gross profit Distribution costs General and administrative expenses Other operating income 3 Profit/(Loss) from operations Finance costs Profit/(Loss) before tax 4 Taxation 5 Profit/(Loss) after tax Minority interests Profit/(Loss) attributable to shareholders Earnings/(Loss) per share - Basic 6 - Diluted 6	Three months ended 30 June 2003 2002 Rmb’000 Rmb’000 7,981 14,336 (6,688) (10,503) 1,293 3,833 (2,999) (4,954) (5,413) (3,863) 7,445 2,838 326 (2,146) (120) (220) 206 (2,366) — 32 206 (2,334) — — 206 (2,334) Rmb0.03 cents Rmb(0.39) cents N/A N/A	Six months ended 30 June 2003 2002 Rmb’000 Rmb’000 14,224 22,707 (13,969) (16,152) 255 6,555 (7,931) (8,434) (12,236) (9,378) 8,020 3,305 (11,892) (7,952) (331) (330) (12,223) (8,282) (3) — (12,226) (8,282) — — (12,226) (8,282) Rmb(2.03) cents Rmb(1.37) cents N/A N/A

2

CONSOLIDATED BALANCE SHEETS

		(Unaudited)	(Audited)
		As at	As at
		30 June	31 December
		2003	2002
	Note	Rmb’000	Rmb’000
ASSETS
Non-current assets
Intangible assets		10,586	9,229
Property, plant and equipment, net		8,710	9,830
Amount due from a related company	11	5,000	—
		24,296	19,059
Current assets
Inventories		13,582	11,280
Trade receivables	8	49,029	44,332
Deposits, prepayments and
other receivables		8,524	10,276
Amount due from a related company	11	2,000	—
Cash and cash equivalents		2,964	32,782
		76,099	98,670
LIABILITIES
Current liabilities
Trade payables	9	19,574	17,092
Accruals and other payables		3,277	2,244
Customers’ deposits		3,574	4,563
Amount due to ultimate
holding company	11	14	14
Bills payable		678	1,848
Short-term borrowings		3,000	8,000
Tax payable		6,228	9,774
Deferred income		819	1,921
Amount due to a related company	11	3,180	—
		40,344	45,456
Net current assets		35,755	53,214
Total assets less current liabilities		60,051	72,273
CAPITAL AND RESERVES
Share capital		6,392	6,392
Reserves		53,659	65,881
Shareholders’ fund		60,051	72,273

Approved and authorised for issue by and signed on behalf of the Board of Directors on 14 August 2003.

Hung Yung Lai Director

Li Kei Ling Director

3

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

						Retained
					Cumulative	earnings/
	Share	Share	Capital	Revenue	**translation **	(Accumulated
	capital	premium	reserve	reserve	adjustment	losses)	Total
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
	Rmb’000	Rmb’000	Rmb’000	Rmb’000	Rmb’000	Rmb’000	Rmb’000
As at 1 January 2003	6,392	59,267	—	3,546	4	3,064	72,273
Profit appropriation
to reserve fund	—	—	—	94	—	(94 )	—
Translation adjustment	—	—	—	—	4	—	4
Loss for six months ended
30 June 2003	—	—	—	—	—	(12,226 )	(12,226 )
As at 30 June 2003	6,392	59,267	—	3,640	8	(9,256 )	60,051
					Cumulative
	Share	Share	Capital	Revenue	translation	Retained
	capital	premium	reserve	reserve	adjustment	earnings	Total
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
	Rmb’000	Rmb’000	Rmb’000	Rmb’000	Rmb’000	Rmb’000	Rmb’000
As at January 2002	6,392	59,122	3,435	4,454	5	12,276	85,684
Dividend	—	—	—	—	—	(3,196 )	(3,196 )
Translation for distribution	—	—	(1,500 )	—	—	1,500	—
Utilisation for the period	—	—	—	(47 )	—	—	(47 )
Translation adjustment	—	—	—	—	2	—	2
Reverse over-accrued share
issuing expenses	—	145	—	—	—	—	145
Reverse over-accrued profit
appropriation to reserve fund	—	—	—	(1,350 )	—	1,350	—
Loss for six months ended
30 June 2002	—	—	—	—	—	(8,282 )	(8,282 )
As at 30 June 2002	6,392	59,267	1,935	3,057	7	3,648	74,306
					Cumulative
	Share	Share	Capital	Revenue	translation	Retained
	capital	premium	reserve	reserve	adjustment	earnings	Total
	(Audited)	(Audited)	(Audited)	(Audited)	(Audited)	(Audited)	(Audited)
	Rmb’000	Rmb’000	Rmb’000	Rmb’000	Rmb’000	Rmb’000	Rmb’000
As at 1 July 2002	6,392	59,267	1,935	3,057	7	3,648	74,306
Profit appropriation
to reserve fund	—	—	—	488	—	(488 )	—
Transfer for distribution	—	—	(1,935 )	—	—	1,935	—
Utilisation for the period	—	—	—	1	—	—	1
Translation adjustment	—	—	—	—	(3 )	—	(3 )
Loss for six months ended
31 December 2002	—	—	—	—	—	(2,031 )	(2,031 )
As at 31 December 2002	6,392	59,267	—	3,546	4	3,064	72,273

4

UNAUDITED CONDENSED COMBINED CASH FLOW STATEMENT

	Six months ended	Six months ended	Six months ended
		30 June
	2003		2002
	Rmb’000	Rmb’000
Net cash outflow from operating activities	(24,147)	(18,296)
Net cash outflow from investing activities	(2,685)		(4,013)
Net cash outflow from financing activities	(2,990)		(1,196)
Net decrease in cash and cash equivalents	(29,822)	(23,505)
Cash and cash equivalents at beginning of period	32,782		58,617
Effect of foreign exchange differences	4		2
Cash and cash equivalents at end of period	2,964		35,114
Analysis of balances of Cash and Cash equivalents:
Cash and bank	2,964		35,114

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

1. Basis of preparation and principal accounting policies

The results 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 GEM.

The Group principally operates in the People’s Republic of China (the “PRC”) and its business activities are principally transacted in Renminbi (“Rmb”), the results are prepared in Rmb.

All significant intra-group transactions and balances have been eliminated on consolidation.

The principal accounting policies and methods of computation adopted for the preparation of the interim financial statements are same and consistent with those adopted by the Group in its audited annual financial statements for the year ended 31 December 2002.

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2. Turnover

Turnover represents revenue from sale of computer software and hardware, and maintenance income. Turnover comprises the following:

Sales of software Sales of hardware Maintenance income	Three months ended 30 June 2003 2002 Rmb’000 Rmb’000 2,513 5,889 4,171 7,587 1,297 860 7,981 14,336	Six months ended 30 June 2003 2002 Rmb’000 Rmb’000 4,743 8,988 7,416 11,952 2,065 1,767 14,224 22,707	Six months ended 30 June 2003 2002 Rmb’000 Rmb’000 4,743 8,988 7,416 11,952 2,065 1,767 14,224 22,707
			22,707

3. Other operating income

	Three months ended	Three months ended	Six months ended	Six months ended
	30	June	30 June
	2003	2002	2003	2002
	Rmb’000	Rmb’000	Rmb’000	Rmb’000
Others	—	—	26	—
Interest income	33	195	105	361
Value added tax refund	412	2,643	889	2,944
Income from open up
source code	7,000	—	7,000	—
	7,445	2,838	8,020	3,305

Pursuant to document Caishui [2000] No. 25 issued by State Tax Bureau, effective from 24 June 2000, for companies engaged in the development and distribution of software, their revenues from sale of software are subject to value added tax with applicable tax rate of 17% and are entitled to refund of value added tax paid exceeding 3% of the revenues. The value added tax refund of the Group has been accounted for as other operating income.

4. Profit/(Loss) before tax

Profit/(Loss) before tax was determined after charging the following:

	Three months ended	Three months ended	Six months ended	Six months ended
	30	June	30 June
	2003	2002	2003	2002
	Rmb’000	Rmb’000	Rmb’000	Rmb’000
Amortisation of intangible assets	166	66	380	89
Depreciation of property,
plant & equipment	1,082	586	1,616	1,160
Provision for (written back of)
doubtful receivables	729	(87)	2,490	864
Interest on bank loans	156	132	279	234

6

5. Taxation

PRC taxation_(Note a)_ PRC enterprise income tax refund	Three months ended 30 June 2003 2002 Rmb’000 Rmb’000 — — — (32) — (32)	Six months ended 30 June 2003 2002 Rmb’000 Rmb’000 3 — — — 3 —	Six months ended 30 June 2003 2002 Rmb’000 Rmb’000 3 — — — 3 —
			—

Hong Kong profits tax has not been provided as the Group had no income assessable for profits tax in Hong Kong for the six months ended 30 June 2003 (six months ended 30 June 2002: Nil).

PRC enterprise income tax has not been provided as the Group had no estimated assessable profits for the six months ended 30 June 2003 (six months ended 30 June 2002: Nil).

There was no significant unprovided deferred taxation for the reported periods.

Note:

(a) Tax paid in respect to interest income of PRC source.

6. Earnings/(Loss) per share

The calculation of the Group’s basic earnings/(loss) per share for the three months and six months ended 30 June 2003 is based on the Group’s unaudited combined earnings attributable to shareholders of approximately Rmb206,000 and loss attributable to shareholders of approximately Rmb12,226,000 (three months and six months ended 30 June 2002: loss of approximately Rmb2,334,000 and Rmb8,282,000 respectively) divided by the weighted average number of ordinary shares outstanding for three months and six months ended 30 June 2003 of 603,000,000 shares (three and six months ended 30 June 2002: 603,000,000 shares) in issue respectively.

Diluted loss per share has not been presented as the exercise of share options would have an anti-dilutive effect during the six months ended 30 June 2003, three and six months ended 30 June 2002.

No diluted earnings per share has been presented for the three months ended 30 June 2003 because the computation of diluted earnings per share does not assume the exercise of share options as the exercise price of the Company’s outstanding share options was higher than the average market price of the shares in the Company and the exercise of share options of the Company has an anti-dilutive effect.

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7. Dividend

• (a) The Board does not recommend the payment of an interim dividend for the six months ended 30 June 2003 (six months ended 30 June 2002: Nil).

• (b) Final dividend of HK$0.005 per share for the year ended 31 December 2001 were declared, approved and paid during the six months ended 30 June 2002.

		Six months ended	Six months ended	Six months ended
			30 June
		2003		2002
		Rmb’000	Rmb’000
	Final dividends declared and paid	—		3,196
8.	Trade receivables, net
		As at		As at
		30 June	31 December
		2003		2002
		Rmb’000	Rmb’000
	Within 90 days	13,446		20,088
	Over 90 days but within 180 days	5,115		6,114
	Over 180 days but within 365 days	15,567		4,415
	Above 365 days	18,355		16,031
		52,483		46,648
	Less: Provision for doubtful receivables	(3,454)		(2,316)
		49,029		44,332

The normal credit period granted by the Group is on average 30 to 90 days from the date of invoice.

Doubtful receivables provision has been made in accordance to the Group’s accounting policy. According to the Board’s opinion, no specific provision was considered necessary.

9. Trade payables

	As at	As at
	30 June	31 December
	2003	2002
	Rmb’000	Rmb’000
Within 90 days	19,167	16,665
Over 90 days but within 180 days	82	376
Over 180 days but within 365 days	315	27
Above 365 days	10	24
	19,574	17,092

10. Commitments

As of 30 June 2003, the Group did not have any significant authorised or contracted capital commitments (31 December 2002: Nil).

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11. Related Party Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.

The Group had the following significant related party transactions during the periods under review:

under review:
		(Unaudited)
		Six months ended
		30	June
		2003		2002
	Note	Rmb’000	Rmb’000
Discontinuing transactions:
Rental paid to Hangzhou Singlee Electronics
Company Limited for lease of office premises	(i)	—			97
Continuing transactions:
Rental paid to Hangzhou Singlee Electronics
Company Limited for lease of motor vehicles	(i)	68			84
Rental paid to Sing Lee Pharmaceutical
Import & Export Co. Limited
for lease of office premises	(ii)	242		171
Income from opening source code to
Hangzhou New Dynamics Software Co. Ltd.	(iii)	7,000			—
Total		7,310		255
		(Unaudited)	(Audited)
		As at		As	at
		30 June	31 December
		2003		2002
	Note	Rmb’000	Rmb’000
Due to Goldcorp Industrial Limited	(iv)	(14)		(14)
Due (to) Sing Lee International Trading Limited	(v)	(3,180)			—
Due from Hangzhou New Dynamics
Software Co., Ltd. (current asset)	(iii)	2,000			—
Due from Hangzhou New Dynamics
Software Co., Ltd. (non-current asset)	(iii)	5,000			—
		3,806		(14)

Notes:

• (i) Hangzhou Singlee Electronics Company Limited is a Sino-foreign equity joint venture registered in the PRC. It is indirectly owned by Mr. Hung Yung Lai and Ms. Li Kei Ling.

• (ii) Sing Lee Pharmaceutical Import & Export Co. Limited is a limited company incorporated in Hong Kong. It is owned by Mr. Hung Yung Lai and Ms. Li Kei Ling, who are also the directors of the company.

• (iii) Hangzhou New Dynamics Software Co. Ltd. is a Sino-foreign equity joint venture registered in the PRC. Mr. Xu Ke Han, Vice President and Financial Controller of the Group, has an equity interest and is a director of this company.

• (iv) Goldcorp Industrial Limited is the holding company of the Company and is equally owned by Mr. Hung Yung Lai and Ms. Li Kei Ling.

• (v) Sing Lee International Trading Limited is a limited company incorporated in Hong Kong. It is owned by Mr. Hung Yung Lai and Ms. Li Kei Ling who are also the directors of this company.

• (vi) The above related party transactions were carried out in the normal course of business.

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MANAGEMENT DISCUSSION AND ANALYSIS

Financial review and results of operations

For the six months ended 30 June 2003, the Group recorded a total turnover of approximately Rmb14,224,000, representing a decrease of 37% as compared to the same period of last year (30 June 2002: approximately Rmb22,707,000). Decrease in turnover was primarily attributable to the prolonged economic downturn and the outbreak of SARS in PRC.

Gross profit for the six months ended 30 June 2003 was approximately Rmb255,000, representing a decrease of 96% as compared to the same period of last year (30 June 2002: approximately Rmb6,555,000). Decrease in gross profit was primarily attributable to decrease in development cost capitalisation as compared to the same period of last year. In addition, decline in the gross profit margin of some of the Group’s products such as POS payment also attributable to the decrease in gross profit margin.

General and administrative expenses for the six months ended 30 June 2003 was approximately Rmb12,236,000, representing an increase of 30% as compared to the same period of last year (30 June 2002: approximately Rmb9,378,000). Increase in general and administrative expenses was primarily attributable to increase in doubtful debts provision, which is made in accordance to the Company’s accounting policy.

Other operating income for the six months ended 30 June 2003 was approximately Rmb8,020,000, representing an increase of 143% as compared to the same period of last year (30 June 2002: Rmb3,305,000). Such increase is primarily attributable to Rmb7,000,000 income from opening source code of certain software products.

The Group consequently recorded a profit attributable to shareholders of approximately Rmb206,000 and a loss attributable to shareholder of approximately Rmb12,226,000 for the three months and six months ended 30 June 2003 correspondingly.

Business review

In respect of banking business

Since its reorganization, the banking business of the Group has been continuing smoothly. During the second quarter of 2003, the Group won the Certificated System Provider of Bank of China Head Office. This would create competitive advantage for the Group’s POS integration business. Also, the Group signed contracts with clients such as Industry and Commercial Bank of China Hunan Branch and Sichuan Branch. Beyond the POS system, the Group is also participating in new projects emerging from new market, such as Performance Evaluation System of Portfolio Managers for Wenzhou Commercial Banks and Short Message System for Zhejiang Post Office.

In respect of securities business

The Group is continuing to upgrade and promote the New Generation Platform, which is the new version of the securities trading system. The New Generation Platform is expected to replace existing trading platforms such as Sing Lee 3, All Web, and CSP in the year 2004 with stronger functions and centralized system infrastructure. The Group believes the centralized system solution will be the trend of the securities market in PRC.

10

Other income

As mentioned in the first quarter report, the Group open up the source code of Sing Lee 3, All Web, and CSP for a strategic partner, Hangzhou New Dynamics Software Co. Ltd., for a consideration of Rmb7 million for the source code usage. The Group retains the ownership of the source code.

The Group believes that the securities market still remains very weak in the lower half year of 2003. Also, the Sing Lee 3, All Web, and CSP decentralized system solutions need high cost of maintenance and updating. According to the prediction of the Directors, the Group believes it is profitable for the Group to open up the source code of the older version of the securities trading system to Hangzhou New Dynamics Software Co. Ltd. Hangzhou New Dynamics Software Co. Ltd will perform maintenance for some of its brokerage clients. Meanwhile, the Group continues to promote the sales of the above mentioned software products.

Future outlook

The Group has positive outlook to the future development of the banking system in PRC. Commercial banks in PRC are undergoing reorganization. So commercial banks are investing intensively on the IT system integration. The Group has already designed a few new systems, testing stage is undergoing, such as the Performance Evaluation System of Portfolio Managers.

As China joins WTO, the software system of the clearinghouse of securities market is going to change in the coming few years. The Group believes it is a good chance for the new product, New Generation Platform. The reason behind this is that all brokerage firms have to change the trading system to the newer version after the clearinghouse changes its software.

Liquidity, financial resources, capital structure and gearing ratio

As at 30 June 2003, the Group had bank borrowings of Rmb3.0 million (31 December 2002: Rmb8.0 million), all represented short-term bank loans repayable within one year. The bank borrowings were unsecured, interest bearing at 5.58% (31 December 2002: from 5.54% to 5.58%) per annum and collectively guaranteed by the Company and one of the subsidiaries of the Group. The Group does not have any committed banking facilities as at 30 June 2003.

No interest was capitalized by the Group during the period under review (31 December 2002: Nil).

As at 30 June 2003, the Group held cash and cash equivalents denominated in Rmb, US dollars and HK dollars, amounted to approximately Rmb3 million (31 December 2002: Rmb32 million).

The gearing ratio of the Group, based on total liabilities over total assets, as at 30 June 2003, was approximately 40% (31 December 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 period under review.

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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 30 June 2003, the Group had 220 employees, including both PRC and Hong Kong employees. Remuneration and bonus policy are primarily determined by the performance of the individual employees and financial results of the Group. Total staff costs for the reported period were approximately Rmb13 million (30 June 2002: approximately Rmb11 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 has adopted a share option scheme whereby certain employees of the Group granted options to acquire shares.

CHARGE ON GROUP ASSETS

As at 30 June 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 “Comparison of Business Objectives with Actual Business Progress” in the section of Management Discussion and Analysis. Other than those disclosed, the Group did not have any future plan for material investments or capital assets.

EXPOSURE TO EXCHANGE RATE FLUCTUATION

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

CONTINGENT LIABILITIES

As at 30 June 2003, the Group did not have any material contingent liabilities (31 December 2002: nil).

PROSPECTS OF NEW PRODUCTS

Please refer to the Business Review in the section of Management Discussion and Analysis for a discussion on this.

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COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS

Objectives up to 30 June 2003 as stated in the prospectus dated 30 August 2001

Actual business progress up to 30 June 2003

1. ALLWEB banking solution

• I. Bank CRM solution

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.

• II. B a n k fi n a n c i a l m a n a ge m e n t system

• M a r k e t B a n k I n t e r m e d i a r y 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 fo r t h e B a n k I n s u ra n c e Fi n a n c e 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.

• III. Bank account manager system

Integrate the functions of Bank IC Card Application System, POS A p p l i c a t i o n S y s t e m o n t h e ALLWEB financial platform

• IV. Bank supervision system

Market Bank Supervision System t o t h e G ro u p ’s c o m m e r c i a l banking customers

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

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

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2. ALLWEB securities solution

• I. Brokerage CRM solution Market Brokerage CRM Solution to the Group’s brokera ge fir m 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.

• II. ALLWEB Enterprise Securities The Unix version is completed. The Transaction System Group is negotiating for a client for use of the Unix System in the PRC.

• Full launch of the Unix version

3. ALLWEB electronic financial service platform

• I. F u l l l a u n ch o f t h e A L LW E B System development of the Electronic Electronic Financial Ser vice Financial Service Platform completed. Platform to the financial industry The first client is Nanjing Commercial in the PRC bank and currently engages in the testing stage.

4. Business development & information network

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

Completion of internal information network infrastructure upgrade.

5. Marketing & promotion

• I. To p a r t i c i p a t e i n t h e P R C securities products exhibitions

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

Due to the effects of SARS, the Group temporarily decided not to participate t h e P R C s e c u r i t i e s p r o d u c t s exhibitions.

6. CMM

• I. 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.

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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
		in the prospectus	30 June 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
Placed with banks		—	—
		61,900	61,900

(i) The excess utilization 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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DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS IN SECURITIES

As at 30 June 2003, the interests or short positions of the directors and chief executives of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (“SFO”)) which were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which he/she is taken or deemed to have under such provisions of the SFO), or which were required to be entered into the register required to be kept by the Company, pursuant to Section 352 of the SFO, or which were required, pursuant to Rules 5.40 to 5.58 of the GEM Listing Rules, to be notified to the Company and the Stock Exchange, were as follows:

Shares in the Company:

		Number of	shares held	Percentage
	Capacity/	Long	Short	of
Name of directors	Nature of interest	position	position	shareholding
Mr. Hung Yung Lai	Corporate interest	306,000,000	—	50.7%
		(note 1)
Ms. Li Kei Ling	Corporate interest	306,000,000	—	50.7%
		(note 1)

Shares in associated corporation:

		Number of ordinary
		shares held in Goldcorp
		Industrial Limited (note 2)	Percentage
	Capacity/	Long Short	of
Name of directors	Nature of interest	position position	shareholding
Mr. Hung Yung Lai	Personal interest	1 —	50%
Ms Li Kei Ling	Corporate interest	1 —	50%
	(note 3)

Notes:

1. The Shares were held by Goldcorp Industrial Limited, a company equally owned by Mr. Hung Yung Lai and Great Song Enterprises Limited which in turn is wholly owned by Ms. Li Kei Ling. Mr. Hung Yung Lai controls more than one third of the voting power of Goldcorp Industrial Limited. Ms. Li Kei Ling controls more than one third of the voting power of Great Song Enterprises Limited which in turn holds more than one third of the voting power of Goldcorp Industrial Limited. Mr. Hung Yung Lai and Ms. Li Kei Ling are deemed, by virtue of the SFO, to be interested in the same 306,000,000 shares held by Goldcorp Industrial Limited.

2. The entire issued capital of Goldcorp Industrial Limited as of 30 June 2002 composed of 2 ordinary shares. Goldcorp Industrial Limited held 306,000,000 Shares in the Company.

3. The share was held by Great Song Enterprises Limited which is a company wholly owned by Ms Li Kei Ling.

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SHARE OPTION SCHEME

Pursuant to the share option scheme (the “Scheme”) adopted on 27 August 2001, the Directors may at their discretion grant options to employees (including Directors of the Company) of the Group and other persons who, in the sole discretion of the board of the Directors, have contributed to the Group (“Participants”). The Scheme enables the Company to grant share options to Participants as incentives or rewards for their contribution to the Group. The Scheme would be valid and effective for a period of ten years commencing on the adoption date.

The maximum number of shares in respect of which options may be granted under the Scheme shall not exceed 30% of the issued share capital of the Company from time to time. After the listing of the shares on GEM, the total number of shares which may be issued upon the exercise of all options to be granted under the Scheme and any other schemes must not in aggregate exceed 10% of the shares in issue upon completion of placing, capitalisation issue and say other shares to be issued upon the exercise of the over-allotment option in connection with the listing of the shares on GEM. According to the Scheme, the total number of shares available for issue as at 30 June 2003 is 60,300,000 shares.

The total number of shares issued and to be issued upon the exercise of options granted and to be granted to each Participant (including both exercised and outstanding options) in any 12 months period up to the date of grant must not exceed 1% of the shares in issue at the date of grant.

The subscription shall be a price determined by the board of directors at its absolute discretion and shall not be less than the higher of the closing price of the share on the date of grant of the option and the average closing price of the shares for the five business days immediately preceding the date of grant of the option.

Options granted shall be deemed to be accepted upon receipt of the acceptance of offer letter from the grantee within 28 days from the offer date, together with a remittance in favour of the Company of HK$1 by way of consideration for the grant.

An option may be exercised in accordance with the terms of the Scheme at any time during a period notified by the board to each grantee but may not be exercised after the expiry of 10 years from the date of grant.

On 8 April 2002 the Company granted 60,230,000 options to subscribe for shares in the Company under the Scheme at an exercise price of HK$0.614 per share to

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163 employees (including three executive directors) of the Group. Shares of the Company were at closing price HK$0.58 immediately before the day on which options were granted. The summary details of options granted are as follows:

		Number of	Number of	Number of	Number of	Number of	Number of
		share options	share options	share options	share options	share options	share options
Name of directors		outstanding as	granted during	exercised during	cancelled during	lapsed during	outstanding as
and employees	Exercise period	at 1 January 2003	the period	the period	the period	the period	at 30 June 2003
Cui Jian	7 September 2002	3,180,000	—	—	—	—	3,180,000
	to 7 April 2012
Li Kei Ling	7 September 2002	2,300,000	—	—	—	—	2,300,000
	to 7 April 2012
Duan Patrick	7 September 2002	3,800,000	—	—	—	(3,800,000 )	—
	to 7 April 2012
Continuous contract	7 September 2002	47,310,000	—	—	—	(19,120,000 )	28,190,000
employees	to 7 April 2012
(other than
directors)
		56,590,000	—	—	—	(22,920,000 )	33,670,000

The directors consider it inappropriate to value the options as a number of factors critical for the valuation cannot be determined accurately. Any valuation of the options based on various speculative assumptions would be meaningless and misleading. Therefore the directors believe that the cost for disclosing the value of options do not justify for the benefits it provides.

Save as disclosed above, as at 30 June 2003, none of the directors, chief executives, or their respective associates had any interest or short position in the shares of the Company or its associated corporations (within the meaning of Part XV of the SFO) which would have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provision of the SFO) or which were required to be kept under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the minimum standards of dealing by directors of listed issuers as referred to in Rules 5.40 to 5.58 of the GEM Listing Rules.

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INTEREST IN SECURITIES AND SUBSTANTIAL SHAREHOLDERS

As at 30 June 2003, shareholders (other than directors or chief executive of the Company) who had interests or short positions in the shares, underlying shares and debentures of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or, directly, or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote on all circumstances at general meeting of any other members of the Group or substantial shareholders as recorded in the register required to be kept by the Company under Section 336 of the SFO were as follows:

		Number of shares held	Number of shares held	Percentage
	Capacity/	Long	Short	of
Name of shareholder	Nature of interest	position	**position **	shareholding
Goldcorp Industrial	Beneficial interest	306,000,000	—	50.7%
Limited		(note 1)
Great Song Enterprises	Corporate interest	306,000,000	—	50.7%
Limited		(notes 1 and 2)
Mr. Hung Yung Lai	Corporate interest	306,000,000	—	50.7%
		(notes 2 and 4)
Ms. Li Kei Ling	Corporate interest	306,000,000	—	50.7%
		(notes 2 and 3)

Notes:

1. Goldcorp Industrial Limited is a company incorporated in the British Virgin Islands equally owned by Mr. Hung Yung Lai and Great Song Enterprises Limited which in turn is wholly owned by Ms Li Kei Ling.

2. The Shares were held by Goldcorp Industrial Limited.

3. Ms. Li Kei Ling controls more than one third of the voting power of Great Song Enterprises Limited which in turn holds more than one third of the voting power of Goldcorp Industrial Limited. Ms Li Kei Ling is deemed, by virtue of the SFO, to be interested in the same 306,000,000 shares held by Goldcorp Industrial Limited.

4. Mr. Hung Yung Lai controls more than one third of the voting power of Goldcorp Industrial Limited. Mr. Hung Yung Lai is deemed, by virtue of the SFO, to be interested in the same 306,000,000 shares held by Goldcorp Industrial Limited.

Save as disclosed above, as at 30 June 2003, the directors of chief executives of the Company were not aware of any other person (other than directors or chief executives of the Company) who had an interest or short position in the shares, underlying shares and debentures of the Company which would fall to be disclosed to the Company under the provision of Divisions 2 and 3 of Part XV of the SFO, or who was interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other member of the Group or any other substantial shareholders as recorded in the register required to be kept by the Company under Section 336 of the SFO.

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PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

There was no purchase, sales or redemptions of the Company’s listed securities by the Company or any of its subsidiaries during the six months ended 30 June 2003.

COMPETING INTERESTS

None of the Directors, the management shareholders of the Company and their respective associates (as defined in GEM Listing Rules) has an interest in a business, which competes or may compete with the businesses of the Company.

BOARD PRACTICES AND PROCEDURES

During the six months ended 30 June 2003 the Company has complied with Board Practices and Procedures as set out in Rules 5.28 to 5.39 of the GEM Listing Rules.

AUDIT COMMITTEE

The Company has established an audit committee on 27 August 2001 with written terms of reference in compliance with the requirements of Rules 5.23 to 5.25 of the GEM Listing Rules. The primary duties of the audit committee are to review and supervise the financial reporting process and internal control procedures of the Group and to provide advice and comments to the Board. The members of the Group’s audit committee are as follows:

	Position in the	Position in the
Name	audit committee	Board of Directors
Prof. Wang, Gui Guo	Chairman	Independent Non-Executive Director
Prof. Pan, Yun He	Member	Independent Non-Executive Director

The audit committee has reviewed and commented in the Company’s interim report for the six months ended 30 June 2003.

INTEREST OF SPONSOR

As notified and updated by Core Pacific - Yamaichi Capital Limited (“CPY”), none of CPY, its directors, employees or associates (as referred to in note 3 to Rule 6.35 of the GEM Listing Rules) had an interest in the shares of the Company as at 30 June 2003.

Pursuant to the agreement dated 30 August 2001 entered into between the Company and CPY, CPY received fees for acting as the Company’s retained sponsor since listing. The agreement will be terminated, with effect from 16 August 2003, and ICEA Capital Limited (“ICEA”) was appointed as sponsor to the Company with effect from 16 August 2003.

Pursuant to an agreement dated 15 July 2003 entered into between the Company and ICEA, ICEA will receive a fee for acting as the Company’s sponsor.

By Order of the Board Hung Yung Lai Chairman

Hong Kong, 14 August 2003

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