Youzan Technology Limited — Proxy Solicitation & Information Statement 2006

Apr 26, 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in SYSCAN Technology Holdings Limited, you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, 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 circular.

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SYSCAN Technology Holdings Limited 矽感科技控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 8083)

VERY SUBSTANTIAL DISPOSAL – DISPOSAL OF THE ENTIRE ISSUED SHARE CAPITAL OF SYSCAN IMAGING LIMITED

A notice convening a special general meeting of SYSCAN Technology Holdings Limited to be held at Function Room 1, Ground Floor, City Garden Hotel, 9 City Garden Road, North Point, Hong Kong on Thursday, 18 May 2006 at 11:30 a.m., is set out on pages 95 to 96 of this circular. A form of proxy for use at the special general meeting is also enclosed.

Whether or not you are able to attend the special general meeting, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return it to the principal place of business and head office in Hong Kong of SYSCAN Technology Holdings Limited c/o the Company Secretary at Unit C, 21/F, Seabright Plaza, 9-23 Shell Street, North Point, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the special general meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting at the special general meeting if you so wish.

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

25 April 2006

• For identification purposes only

CHARACTERISTICS OF THE GROWTH ENTERPRISE MARKET OF THE STOCK EXCHANGE OF HONG KONG LIMITED

The Growth Enterprise Market (“GEM”) of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) 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 Stock 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 at www.hkgem.com in order to obtain up-to-date information on GEM-listed issuers.

– i –

TABLE OF CONTENTS

		Page
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from	the Board
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
2.	The Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
3.	Information on SIL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
4.	Sufficiency of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
5.	Reasons for and Benefits of the Disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
6.	Very Substantial Disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
7.	SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
8.	Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
9.	Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Appendix I	– Accountants’ Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Appendix II – Unaudited Pro Forma Financial Information
	of the Remaining Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	76
Appendix III – Additional Financial Information of the Group. . . . . . . . . . . . . . . .		84
Appendix IV – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		88
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		95

– ii –

DEFINITIONS

In this circular, the following expressions have the following meanings unless the context requires otherwise:–

“Agreement”	the sale and purchase agreement dated 25 November
	2005 entered into between the Company and Purchaser
	in relation to the sale and purchase of the Sale Shares
	as amended by the Supplemental Agreement
“Board”	the board of Directors
“Business Day”	a day (excluding Saturday) on which licensed banks
	in Hong Kong are open for business
“Company”	SYSCAN Technology Holdings Limited, a company
	incorporated in Bermuda with limited liability whose
	shares are listed on the GEM
“Completion”	completion of the transactions contemplated under the
	Agreement
“Directors”	directors of the Company
“Disposal”	the disposal of the entire issued share capital of SIL at
	a consideration of US$4,500,000 pursuant to the
	Agreement
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	The Hong Kong Special Administrative Region of the
	PRC
“GEM”	The Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules”	The Rules Governing the Listing of Securities on the
	GEM
“Group”	the Company and its subsidiaries
“Latest Practicable Date”	21 April 2006, being the latest practicable date prior
	to the printing of this circular for the purpose of
	ascertaining certain information contained in this
	circular

– 1 –

DEFINITIONS

“Litigation”	the pending litigation in respect of a writ of summons
	issued from the Guangdong Province Higher People’s
	Court (廣東省高級人民法院) against the Company and
	SOT, by Bank of China Limited, Shenzhen Branch as
	disclosed in the announcement of the Company dated
	3 March 2006 claiming for repayment of a loan of
	RMB120,000,000 with a maturity date on 22 April 2006
	together with interest accrued thereon
“Long Stop Date”	30 June 2006
“Open Offer”	the proposed open offer of the Company as disclosed
	in the announcement of the Company dated 28
	February 2006
“PRC”	The People’s Republic of China
“Purchaser”	Mr. Wang Han, whom to the best of the knowledge of
	the Directors, is a third party independent of the
	Company and connected persons (as defined in the
	GEM Listing Rules) of the Company
“Remaining Group”	the Group immediately after the Completion
“RMB”	Renminbi, the lawful currency of the PRC
“Sale Shares”	1 share of US$1.00 each in the share capital of SIL,
	being the entire issued share capital of SIL
“SFO”	Securities and Futures Ordinance (Cap. 571 of the Laws
	of Hong Kong)
“SGM”	the special general meeting of the Company to be held
	for the purpose of approving, amongst other things,
	the Disposal
“Shareholder(s)”	shareholder(s) of the Company
“Share Mortgage”	the share mortgage on the entire issued share capital
	of SIL then held by the Purchaser upon Completion,
	executed by the Purchaser, under which all such shares
	are mortgaged to the Company as security for the due
	performance by the Purchaser of the Purchaser’s
	payment obligations under the Agreement

– 2 –

DEFINITIONS

“SIL” SYSCAN Imaging Limited, a company incorporated in the British Virgin Islands, which is a wholly-owned subsidiary of the Company

• “SOT” SYSCAN Optoelectronics Technology (Shenzhen) Co., Limited, an indirect wholly-owned subsidiary of the Company

• “Stock Exchange” The Stock Exchange of Hong Kong Limited

“Subsidiaries” SYSCAN, Inc. (incorporated in the United States), SYSCAN Viewtech Limited (incorporated in the British Virgin Islands), SYSCAN Laser Technology Limited (incorporated in the British Virgin Islands) and Leadbuilt Technology Limited (incorporated in the British Virgin Islands), all of which are wholly-owned subsidiaries of SIL

• “Supplemental Agreement” the supplemental agreement dated 7 March 2006 to the Agreement entered into by the Company and the Purchaser

• “United States” the United States of America “US$” United States dollars, the lawful currency of the United States

Note: Unless otherwise stated, certain amounts denominated in US$ in this circular have been converted, for the purpose of illustration only, into HK$ using an exchange rate of US$1.00 = HK$7.8 or vice versa. Such conversion shall not be construed as a representation that amounts in US$ were or may have been converted into HK$ using such exchange rate or any other rate or vice versa.

– 3 –

LETTER FROM THE BOARD

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SYSCAN Technology Holdings Limited 矽感科技控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 8083)

Executive Directors: Cheung Wai (Chairman) Chan Man Ching

Independent Non-executive Directors: Lo Wai Ming Fong Chi Wah Jin Qingjun

Registered office: Canon’s Court 22 Victoria Street Hamilton, HM 12 Bermuda

Principal place of business and head office in Hong Kong: Unit C, 21/F Seabright Plaza 9-23 Shell Street North Point, Hong Kong

25 April 2006

To the Shareholders, and for information only, the holders of share options of the Company

Dear Sir or Madam,

VERY SUBSTANTIAL DISPOSAL – DISPOSAL OF THE ENTIRE ISSUED SHARE CAPITAL OF SYSCAN IMAGING LIMITED

1. INTRODUCTION

It was announced that on 25 November 2005, the Company and the Purchaser entered into the Agreement, pursuant to which the Company agreed to sell and the Purchaser agreed to purchase the entire issue share capital of SIL at a consideration of US$4,500,000 (equivalent to approximately HK$35,100,000).

It was also announced that on 7 March 2006, the Company and the Purchaser entered into the Supplemental Agreement for the purpose of postponing the Long Stop Date and revising the payment schedule of the consideration of the Sale Shares by the Purchaser under the Agreement.

• For identification purposes only

– 4 –

LETTER FROM THE BOARD

The Disposal constitutes a very substantial disposal of the Company under the GEM Listing Rules, and is therefore conditional upon the approval of the Shareholders at the SGM.

The purpose of this circular is to provide the Shareholders with further details relating to the Disposal and a notice of the SGM.

2. THE AGREEMENT

Date : 25 November 2005 Parties Vendor : The Company Purchaser : Mr. Wang Han, whom to the best of the knowledge of the Directors, is a third party independent of the Company and connected persons (as defined in the GEM Listing Rules) of the Company

Interest to be sold and consideration

Pursuant to the Agreement, the Purchaser agreed to acquire from the Company the Sale Shares at a consideration of US$4,500,000 (equivalent to approximately HK$35,100,000) payable by six installments in accordance with the following timetable: –

Installment	Payment Due Date	Amount
1st	Completion Date	US$100,000
2nd	30 June 2006	US$400,000
3rd	30 September 2006	US$1,000,000
4th	31 December 2006	US$1,000,000
5th	31 March 2007	US$1,000,000
6th	30 June 2007	US$1,000,000

The payment method (by six installments) was agreed by the Company and the Purchaser after arm’s length negotiation which is a commercial decision. The Directors considered that, as SIL and its Subsidiaries are principally engaged in trading the Group’s products and have recorded losses in the last financial year, the consideration would have been much lower than it is now if it were to be paid in full upon Completion. No interest will be charged on the outstanding balance of the consideration.

– 5 –

LETTER FROM THE BOARD

The consideration of US$4,500,000 (equivalent to approximately HK$35,100,000) was determined after arm’s length negotiation between the parties to the Agreement by reference to the consolidated unaudited net assets value of SIL and its Subsidiaries and represents a premium of approximately 13% to the consolidated unaudited net assets value of approximately US$4,000,000 (equivalent to approximately HK$31,200,000) of SIL and its Subsidiaries as at 30 September 2005.

Security

As security for the due performance of the Purchaser’s payment obligations under the Agreement, the Purchaser would, upon Completion, mortgage the Sale Shares in favour of the Company by means of the Share Mortgage.

Conditions precedent

Completion of the Agreement is conditional upon the following conditions being fulfilled or waived on or before the Long Stop Date:–

1. approval of the Disposal by the Shareholders at the SGM having been obtained;

2. no event having occurred which suggests that there has been a breach of any of the warranties or other provisions of the Agreement by the Company in any material respect.

Completion of the Agreement shall take place on the third Business Day after the fulfillment (or waiver) of the above conditions or such later date as the parties to the Agreement may agree in writing.

3. INFORMATION ON SIL

SIL is an investment holding company incorporated in the British Virgin Islands with limited liability and is wholly owned by the Company. SIL has not carried on any business activities since its incorporation and has no material assets other than holding of the entire issued share capital of each of its Subsidiaries. The Subsidiaries are principally engaged in the distribution business of the products manufactured by other members of the Group such as optical image capturing devices and related components in the United States and Europe.

– 6 –

LETTER FROM THE BOARD

As at 31 December 2005, SIL and its Subsidiaries had a consolidated unaudited net assets value of approximately US$2,374,000 (equivalent to approximately HK$18,523,000). The following table shows certain unaudited financial information of SIL and its Subsidiaries for the three years ended 31 December 2003, 2004 and 2005:–

	Year ended	Year ended	Year ended
	31 December 2005	31 December 2004	31 December 2003
Net profit/loss	Net loss of	Net loss of	Net profit of
(after taxation and	approximately	approximately	approximately
extraordinary	US$338,000	US$786,000	US$1,111,000
items)	(equivalent to	(equivalent to	(equivalent to
	approximately	approximately	approximately
	HK$2,638,000)	HK$6,135,000)	HK$8,666,000)
Net profit/loss	Net loss of	Net loss of	Net profit of
(before taxation	approximately	approximately	approximately
and extraordinary	US$337,000	US$785,000	US$1,112,000
items)	(equivalent to	(equivalent to	(equivalent to
	approximately	approximately	approximately
	HK$2,631,000)	HK$6,128,000)	HK$8,673,000)
Revenue	Approximately	Approximately	Approximately
	US$6,596,000	US$6,058,000	US$7,457,000
	(equivalent to	(equivalent to	(equivalent to
	approximately	approximately	approximately
	HK$51,451,000)	HK$47,251,000)	HK$58,163,000)

It is estimated that, upon Completion, the Group will record a gain on disposal of approximately US$2,074,000 (equivalent to approximately HK$16,177,000) which will be recorded in the consolidated income statement of the Group for the year ending 31 December 2006.

Upon Completion, the Company will not hold any interests in the share capital of SIL and SIL will cease to be a subsidiary of the Company.

4. SUFFICIENCY OF OPERATIONS

SIL is an investment holding company and its Subsidiaries are principally engaged in the distribution business of the products manufactured by other members of the Group such as optical image capturing devices and related components in the United States and Europe. As at 31 December 2005, the consolidated unaudited net assets value and total assets value of SIL and its Subsidiaries were approximately US$2,374,000 (equivalent to approximately HK$18,523,000) and US$3,815,000 (equivalent to approximately HK$29,760,000), respectively, whereas, as at 31 December 2005, the consolidated audited net assets value and total assets value of the Group (including SIL and its Subsidiaries) were approximately US$2,372,000 (equivalent to approximately HK$18,501,000) and

– 7 –

LETTER FROM THE BOARD

US$27,054,000 (equivalent to approximately HK$211,022,000), respectively. After the Disposal, SIL and its Subsidiaries will remain as the distributor of the Group in the United States and Europe and the manufacturing function still vests in the Group, therefore, the Company will carry out a sufficient level of operations and have tangible assets of sufficient value to warrant the continued listing of the Company’s securities after the Disposal as required under Rule 17.26 of the GEM Listing Rules. As the segregation of SIL (and its Subsidiaries) through the Disposal will have a negative impact on the selling prices of the Group’s products (that is, the selling prices of the Group’s products after the Disposal will be the internal transfer prices before the Disposal), it is estimated that the revenue of the Group will drop slightly after the Disposal. However, it is estimated that the profitability of the Group will be improved as the overhead of the Group will be reduced after the Disposal. It is also estimated that the Disposal will have a positive effect on the balance sheet position of the Company.

In short, save that the distribution business of the Group’s products in the United States and Europe has been segregated from the Group through the Disposal, there will not be any significant change in overall business operations of the Group after the Disposal. No distribution agreement has been or will be signed by the Company and SIL (and its Subsidiaries) in anticipation of the Disposal and upon Completion, SIL (and its Subsidiaries) will continue to buy goods from the Group as it does now.

Upon Completion, the Group will continue to engage in the design, research, development, manufacturing and distribution of optical image capturing devices and related components. The Directors believe that there will not be any significant negative financial or operational impact on the Group as a result of the Disposal.

5. REASONS FOR AND BENEFITS OF THE DISPOSAL

The Company is an investment holding company. Its subsidiaries are principally engaged in the design, research, development, manufacturing and distribution of optical image capturing devices and related components. The Group has suffered from making losses for the last three years ended 31 December 2003, 2004 and 2005. The Group at present is in shortage of cash and has difficulties to satisfy its short-term liabilities in the coming few months. The Directors believe that, in the short run, the cash inflow as a result of the Disposal will temporarily relieve the cashflow shortage of the Group, and in the long run, the financial status of the Group will be improved as the overhead of the Group will be reduced by means of the Disposal.

The Company negotiated the terms and conditions of the Agreement with the Purchaser at arms’ length and considered the terms and conditions of the Agreement to be fair and reasonable and in the best interests of the Company and the Shareholders as a whole after taking into account that the consolidated unaudited net assets value of SIL and its Subsidiaries as at 31 December 2005 of approximately US$2,374,000 (equivalent to approximately HK$18,523,000) is less than the consideration of US$4,500,000 (equivalent to approximately HK$35,100,000) payable by the Purchaser. The sale proceeds of the Disposal will be used by the Group as general working capital and repayment of short-term bank loans.

– 8 –

LETTER FROM THE BOARD

6. VERY SUBSTANTIAL DISPOSAL

The Disposal constitutes a very substantial disposal for the Company under the GEM Listing Rules and is therefore conditional upon the approval of Shareholders at the SGM. No Shareholder will be required to abstain from voting in respect of the proposed resolution to approve the Disposal at the SGM.

7. SGM

The notice of the SGM is set out on pages 95 to 96. At the SGM, the Directors will seek the approval by the Shareholders of the Disposal.

A form of proxy for use at the SGM is enclosed. In order to be valid, the form of proxy must be deposited at the principal place of business and head office of the Company in Hong Kong at Unit C, 21/F, Seabright Plaza, 9-23 Shell Street, North Point, Hong Kong together with the power or attorney or other authority (if any) under which it is signed or certified copy of such power of attorney or authority, not less than 48 hours before the time appointed for holding the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting at the special general meeting if you so wish.

Under bye-law 66 of the bye-laws of the Company, a resolution put to the vote of a general meeting shall be decided on a show of shows (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demand:–

1. by the chairman of such meeting;

2. by at least three Shareholders present in person or in case of a Shareholder being a corporation by its duly authorized representative or by proxy for the time being entitled to vote at the meeting;

3. by a Shareholder or Shareholders present in person or in case of a Shareholder being a corporation by its duly authorized representative or by proxy and holding shares in the Company representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or

4. by a Shareholder or Shareholders present in person or in case of a Shareholder being a corporation by its duly authorized representative or by proxy and holdings shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all shares conferring that right.

A demand by a person as proxy for a Shareholder or in the case of a Shareholder being a corporation by its duly authorized representative shall be deemed to be the same as a demand by a Shareholder.

– 9 –

LETTER FROM THE BOARD

8. RECOMMENDATION

The Board is of the opinion that the terms of the Disposal are fair and reasonable and the Disposal is in the best interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Shareholders to vote in favour of the ordinary resolution of the Company to be proposed at the SGM.

9. ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this circular.

By order of the board of SYSCAN Technology Holdings Limited Cheung Wai Chairman

– 10 –

APPENDIX I

ACCOUNTANTS’ REPORT

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The Directors Syscan Technology Holdings Limited

25 April 2006

Dear Sirs,

We set out below our report on the financial information regarding Syscan Technology Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for each of the three years ended 31 December 2003, 2004 and 2005 (the “Relevant Periods”) for inclusion in the circular issued by the Company dated 25 April 2006 (the “Circular”) in connection with the proposed disposal of the entire share capital of SYSCAN Imaging Limited (“SIL”), a directly wholly owned subsidiary of the Company, and its directly wholly owned subsidiaries namely SYSCAN, Inc. (“SI”) and SYSCAN Viewtech Limited.

The Company was incorporated in Bermuda on 17 August 1999 as an exempted company with limited liability under the Companies Act 1981 of Bermuda (as amended).

During the Relevant Periods, the principal activity of the Company was investment holding. The principal activities of its subsidiaries were design, research, development, manufacture and distribution of optical image capturing devices chips and other optoelectronic products.

The Group has adopted 31 December as its financial year end date for statutory reporting purposes.

For the purpose of this report, the directors of the Company have prepared the consolidated financial statements of the Group for the Relevant Periods in accordance with accounting principles generally accepted in Hong Kong. We have audited the consolidated financial statements of the Group for each of the three years ended 31 December 2003, 2004 and 2005 in accordance with Statements of Auditing Standards (“SASs”) and Hong Kong Standards on Auditing (“HKSAs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

For the purpose of this report, we have examined the audited consolidated financial statements of the Group for the Relevant Periods in accordance with the SASs and HKSAs and carried out such additional procedures as we considered necessary in accordance with Auditing Guideline 3.340 “Prospectuses and the reporting accountant” issued by the HKICPA.

– 11 –

APPENDIX I

ACCOUNTANTS’ REPORT

The summaries of the consolidated income statements, the consolidated statements of changes in equity, the consolidated cash flow statements of the Group for the Relevant Periods and the consolidated balance sheets of the Group and the balance sheets of the Company as at 31 December 2003, 2004 and 2005 (collectively the “Summaries”) as set out in this report have been prepared, and are presented on the basis as set out in Notes 2 and 3 of Section II below.

The Summaries together with the notes thereto are the responsibility of the directors of the Company. It is our responsibility to form an independent opinion on such information and to report our opinion to you.

We planned our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the Summaries together with the notes thereto are free from material misstatement. However, the evidence made available to us was limited to the extent as explained in the following paragraphs.

1. Prior year’s audit scope limitation affecting opening balances and comparative figures

As stated in the prior year’s auditors’ report, we disclaimed our opinion on the Group’s financial statements for the year ended 31 December 2004 because of the significance of the possible effects of the limitation of scope and limitation in evidence made available to us as more fully explained in Note 17 (ii) to the financial statements, any adjustment found to be necessary to the opening net assets of the Group would have a consequential effect on its results for the year ended 31 December 2005 and the financial position as at 31 December 2005. In respect of the limitation of scope in prior year described above, we are unable to express our opinion as to whether the balances brought forward as at 1 January 2005 and the comparative figures as at and for the year ended 31 December 2004 were fairly stated in the financial statements.

2. No direct access to the books and records of a major subsidiary

The financial statements have been prepared based on the books and records maintained by the Company and its subsidiaries. However, the directors of the Company had no direct access to the books and records of SI, which was incorporated in the United States of America (“USA”) and whose operations principally comprised the design, development and sales of optical image capturing devices and modules, and was controlled by a former director of the Company. Consequently, the directors cannot substantiate or otherwise support transactions undertaken by SI and the directors cannot ensure the nature, timing, completeness, appropriateness of classifications and disclosures in respect of the transactions undertaken by SI and the related balances as included in these financial statements or whether any additional disclosures are required. Therefore, the financial position, results and cash flows of SI have been consolidated into the financial statements of the Group based on its unaudited management accounts for the year ended 31 December 2005. In the opinion of the directors, as SI is a major subsidiary of the Group, its financial position, results and cash flows for the year ended 31 December 2005 would have material impact on the Group’s financial statements.

– 12 –

APPENDIX I

ACCOUNTANTS’ REPORT

As a result of the foregoing, we have been unable to obtain sufficient audit evidence or perform alternative audit procedures to satisfy ourselves as to the nature, timing, completeness, appropriateness of classifications and disclosures in respect of the transactions undertaken by SI and the related balances as included in the financial statements and as to whether any additional disclosures are required. In addition, we have not been provided with sufficient evidence to satisfy ourselves as to the shareholding of SI held by the Group as at and for the year ended 31 December 2005.

For the reason stated above and as more fully explained in Note 2(a) to the financial statements, we have been unable to obtain sufficient audit evidence to complete our review of subsequent events from the balance sheet date up to the date of this report. Such procedures might have resulted in the identification of adjustments to the amounts reported in the financial statements.

3. Impairment of intangible assets, available-for-sale investment and interest in subsidiaries

In the course of our audit, we were not provided with sufficient audit evidence to assess the valuation of intangible assets of HK$2,551,000 and available-for-sale investment of HK$9,342,000 as stated in the consolidated balance sheet as at 31 December 2005 and the valuation of interest in subsidiaries of HK$50,640,000 as stated in the Company’s balance sheet as at 31 December 2005. There were no other satisfactory alternative audit procedures that we could perform to quantify the extent of the impairment losses made in respect of the amounts of intangible assets, available-for-sale investment and interest in subsidiaries.

4. Interest in associates

Included in the consolidated balance sheet and the consolidated income statement were the Group’s interest in associates of HK$10,875,000 and its share of loss of associates of HK$1,660,000 as at and for the year ended 31 December 2005, we were not provided with sufficient evidence to satisfy ourselves as to whether the amounts were fairly stated and free from material misstatement.

5. Trade payables, accruals and other payables

Included in trade payables of HK$25,707,000, accruals and other payables of HK$28,369,000 as stated in the consolidated balance sheet as at 31 December 2005 were trade and other creditors of HK$50,736,000, we were unable to obtain confirmations from these creditors or other supporting evidence to satisfy ourselves as to the nature of the recorded balances due to these creditors and whether the recorded balances were fairly stated.

– 13 –

APPENDIX I

ACCOUNTANTS’ REPORT

6. Provision for impairment of trade and other receivables, write-down of inventories, research and development expenses

Included in the consolidated income statement for the year ended 31 December 2005 were provision for impairment of trade and other receivables of HK$20,191,000, writedown of inventories of HK$29,235,000 to net realizable value and research and development expenses of HK$30,285,000, we were not provided with sufficient evidence to satisfy ourselves as to whether the amounts were free from material misstatement.

We were unable to carry out alternative audit procedures to satisfy ourselves as to the matters set out in the preceding paragraphs 1 to 6 above.

Any adjustments that might have been found to be necessary in respect of the matters set out above would have a consequential effect on the Summaries together with the notes thereon.

Fundamental Uncertainty Relating to the Going Concern Basis

In forming our opinion, we have considered the adequacy of the disclosure made in note 2(b) to the financial statements which describes the liquidity position of the Group. The Group is dependent upon the financial support of its banks and on its ability to renew its credit facility of RMB120 million, which falls due on 22 April 2006, with its major banker. However, as explained in note 39(a) to the financial statements, the Group defaulted in respect of the repayment of the bank loan from its major banker and the related interest totalling HK$116.5 million and such amounts had become repayable on demand. The major banker had applied to the court in Guangdong, mainland China, to freeze the leasehold land included in the property under development of the Group. The Company is currently negotiating with the major banker for the rescheduling or extension of the existing loan currently in default. On the assumption that negotiations would be successful and the major banker would renew its credit facilities and withdraw the writ, the directors consider that the Group will be able to meet in full its financial obligations as they fall due for the foreseeable future.

The Summaries together with the notes thereon have been prepared on a going concern basis, the validity of which depends upon continuing financial support from its bankers and creditors, the Company’s ability to renew its credit facilities from the major banker, the availability of additional external funding and the attainment of profitable and positive cash flow operations to meet the Group’s future working capital and financial requirements. The Summaries together with the notes thereon do not include any adjustments that may be necessary should the implementation of the above measures be unsuccessful. We consider that appropriate disclosures have been made. However, in view of the extent of the fundamental uncertainty relating to whether the going concern is appropriate, we have disclaimed our opinion.

Because of the significance of the possible effects of the limitation in evidence made available to us as set out in the preceding paragraphs 1 to 6 and the significance of the fundamental uncertainty relating to the going concern basis as set out above, we are unable to form an opinion as to whether the Summaries together with the notes thereon give, for the purpose of this report, a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2003, 2004 and 2005 respectively, and of the loss and cash flows of the Group for the Relevant Periods.

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APPENDIX I

ACCOUNTANTS’ REPORT

I. FINANCIAL INFORMATION

Consolidated Income Statements

Note Turnover 7 Cost of sales Gross profit Other revenues and gains 7 Selling and distribution expenses General and administrative expenses Research and development expenses Provision for impairment of trade and other receivables Loss from operations Finance costs Gain on deemed disposal of a subsidiary Impairment loss on goodwill Loss on disposal of a subsidiary Negative goodwill on acquisition of a subsidiary Share of loss of associates Write back of impairment loss of an associate Loss before taxation 8 Taxation 10 Loss for the year Attributable to: Equity holders of the Company Minority interests Loss per share – Basic 12 – Fully diluted 12

For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 264,213 192,339 66,555 (216,834) (162,679) (42,359) 47,379 29,660 24,196 10,672 36,153 4,376 (18,482) (17,024) (10,450) (33,673) (29,193) (57,818) (13,273) (17,605) (39,195) (3,128) (14,977) (20,191) (68,556) (78,799) (127,654) (10,505) (12,986) (99,082) (6,218) (5,636) (4,644) – 4,228 2 – – (3,869) – (9,440) (472) – – 8,911 – (42) (1,660) – – 733 (16,723) (23,876) (100,081) (7) (7) (7) (16,730) (23,883) (100,088) (14,651) (23,040) (99,435) (2,079) (843) (653) (16,730) (23,883) (100,088) (14.31) cents (22.50) cents (97.10) cents N/A N/A N/A

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APPENDIX I

ACCOUNTANTS’ REPORT

Consolidated Balance Sheets

Note Non-current assets Intangible assets 13 Goodwill 14 Property, plant and equipment 15 Property under development 16 Interest in associates 18 Long-term loan receivable 19 Available-for-sale investment 20 Investment securities 21 Current assets Inventories 22 Trade receivables 23 Prepayments, deposits and other receivables Cash and bank balances 24 Current liabilities Short-term bank loans – pledged 25 Trade payables 26 Current portion of interest-bearing borrowings 27 Accruals and other payables Net current liabilities Total assets less current liabilities Non-current liabilities Interest-bearing borrowings 27 Net assets Capital and reserves Share capital 28 Reserves 29 Equity attributable to the equity holders Minority interests Total equity	As at 31 December 2003 2004 HK$’000 HK$’000 3,706 2,967 (594) 3,305 46,581 41,364 123,706 127,807 – 17,241 189 – – – 14,059 9,342 187,647 202,026 60,083 33,355 48,424 23,167 15,449 16,467 24,759 23,162 148,715 96,151 128,302 140,375 59,105 27,164 141 145 7,857 8,763 195,405 176,447 (46,690) (80,296) 140,957 121,730 772 616 140,185 121,114 1,024 1,024 137,643 114,283 138,667 115,307 1,518 5,807 140,185 121,114	2005 HK$’000 2,551 – 23,154 141,134 10,875 – 9,342 – 187,056 5,860 8,286 1,680 8,140 23,966 137,940 25,707 59 28,369 192,075 (168,109) 18,947 446 18,501 1,024 16,027 17,051 1,450 18,501

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APPENDIX I

ACCOUNTANTS’ REPORT

Balance Sheets

Note Non-current assets Interest in subsidiaries 17 Current assets Prepayments, deposits and other receivables Cash and bank balances Current liabilities Accruals and other payables Net current liabilities Net assets Capital and reserves Share capital 28 Reserves 29	As at 31 December 2003 2004 HK$’000 HK$’000 59,252 54,057 460 460 10 11 470 471 807 789 807 789 (337) (318) 58,915 53,739 1,024 1,024 57,891 52,715 58,915 53,739	2005 HK$’000 50,640 460 9 469 1,980 1,980 (1,511) 49,129 1,024 48,105 49,129

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APPENDIX I

ACCOUNTANTS’ REPORT

Consolidated Statement of Changes in Equity

Attributable to equity holders of the Company

Share capital HK$’000 At 1 January 2003 102,264 Exercise of employee share options 100 Reduction of share capital and share premium cancellation (101,340 ) Elimination of accumulated losses – Exchange differences – Partial acquisition of subsidiaries – Transfer – Loss for the year – At 31 December 2003 1,024 At 1 January 2004 1,024 Elimination of accumulated losses – Exchange differences – Equity contribution by a minority shareholder – Deemed disposal of a subsidiary – Disposal of a subsidiary – Loss for the year – At 31 December 2004 1,024 At 1 January 2005 1,024 Effect of adoption HKFRS 3 on negative goodwill – Exchange differences – Deemed disposal of a subsidiary – Disposal of a subsidiary – Acquisition of a subsidiary – Loss for the year – At 31 December 2005 1,024	Share premium HK$’000 101,378 (52 ) (101,378 ) – – – 52 – – – – – – – – – – – – – – – – – –	Contributed surplus HK$’000 – – 202,718 (123,559 ) – – (52 ) – 79,107 79,107 (79,107 ) – – – – – – – – – – – – – –	Capital reserve HK$’000 198,068 – – – – – – – 198,068 198,068 – – – – – – 198,068 198,068 – – (2 ) – – – 198,066	Statutory reserve fund HK$’000 439 – – – – – – – 439 439 – – – – – – 439 439 – – – – – – 439	Exchange reserve HK$’000 1,403 – – – 189 – – – 1,592 1,592 – (313 ) – – (7 ) – 1,272 1,272 – 580 28 9 – – 1,889	Accumul- ated losses HK$’000 (250,471 ) – – 123,559 – – – (14,651 ) (141,563 ) (141,563 ) 79,107 – – – – (23,040 ) (85,496 ) (85,496 ) 564 – – – – (99,435 ) (184,367 )	Total HK$’000 153,081 48 – – 189 – – (14,651 ) 138,667 138,667 – (313 ) – – (7 ) (23,040 ) 115,307 115,307 564 580 26 9 – (99,435 ) 17,051	Minority interests HK$’000 4,530 – – – – (933 ) (2,079 ) 1,518 1,518 – – 4,386 746 – (843 ) 5,807 5,807 – – 24 (221 ) (3,507 ) (653 ) 1,450	Total equity HK$’000 157,611 48 – – 189 (933 ) (16,730 ) 140,185 140,185 – (313 ) 4,386 746 (7 ) (23,883 ) 121,114 121,114 564 580 50 (212 ) (3,507 ) (100,088 ) 18,501

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APPENDIX I

ACCOUNTANTS’ REPORT

Consolidated Cash Flow Statements

Note CASH FLOW FROM OPERATING ACTIVITIES Loss before taxation Adjustments for: Amortisation of negative goodwill Amortisation of patents and intellectual property rights Amortisation of positive goodwill Depreciation of property, plant and equipment Gain on deemed disposal of a subsidiary 31(a) Impairment of positive goodwill Interest expenses Interest income Loss/(gain) on disposal of property, plant and equipment Loss on disposal of a subsidiary 31(b) Loss on disposal of long-term investments Negative goodwill on acquisition of a subsidiary Provision for impairment of trade and other receivables Recovery of bad debts Share of loss of associates Write back of write-down of inventories Write back on impairment loss of an associate Write-down of inventories Operating (loss)/profit before working capital changes Decrease/(increase) in inventories Decrease/(increase) in trade receivables Decrease/(increase) in prepayments, deposits and other receivables (Decrease)/increase in trade payables Increase in accruals and other payables	As at 31 December 2003 2004 HK$’000 HK$’000 (16,723) (23,876) (8) (30) 514 494 414 204 6,252 6,245 – (4,228) – – 6,218 5,636 (573) (88) – (595) – 9,440 2,530 – – – 3,128 14,977 (853) – – 42 (5,960) (2,000) – – – – (5,061) 6,221 (25,786) 12,912 (32,511) 1,430 8,096 (5,616) 52,333 10,945 2,283 11,216	2005 HK$’000 (100,081) – 470 – 6,383 (2) 3,869 4,644 (73) 3,079 472 – (8,911) 20,191 – 1,660 – (733) 29,235 (39,797) (2,779) 14,814 3,436 (3,551) 15,560

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APPENDIX I

ACCOUNTANTS’ REPORT

Note Cash (used in)/generated from operations Interest received Interest paid Overseas tax paid NET CASH (USED IN)/GENERATED FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Purchase of property, plant and equipment Net cash outflow from partial acquisition of subsidiaries Proceeds from disposal of property, plant and equipment Proceeds from disposal of long-term investment Additions to property under development Cash outflow from deemed disposal of a subsidiary 31(a) Cash inflow/(outflow) from disposal of a subsidiary 31(b) Cash inflow from acquisition of a subsidiary 31(c) Increase in loan receivable Decrease/(increase) in interest in associates Decrease in pledged bank deposits NET CASH (USED IN)/GENERATED FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Proceeds from issuance of shares upon exercise of employee share options (Repayment)/inception short-term bank loans Repayment of interest-bearing borrowings Equity contribution by a minority shareholder of a subsidiary	As at 31 December 2003 2004 HK$’000 HK$’000 (646) 37,108 573 88 (8,302) (7,710) (7) (7) (8,382) 29,479 (5,832) (2,991) (745) – 310 1,006 – 4,717 (1,902) (2,027) – (1,200) – (4,048) – – (189) – – (42,527) 39,000 – 30,642 (47,070) 48 – (30,189) 12,073 (135) (152) – 4,386	2005 HK$’000 (12,317) 73 (7,751) (7) (20,002) (1,762) – 12,961 – (7,762) (8) 23 4,062 – 3,535 – 11,049 – (2,435) (256) –

– 20 –

APPENDIX I

ACCOUNTANTS’ REPORT

Note NET CASH (USED IN)/GENERATED FROM FINANCING ACTIVITIES DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR EFFECT OF FOREIGN EXCHANGE RATE CHANGES, NET CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances	As at 31 December 2003 2004 HK$’000 HK$’000 (30,276) 16,307 (8,016) (1,284) 32,586 24,759 189 (313) 24,759 23,162 24,759 23,162	2005 HK$’000 (2,691) (11,644) 23,162 (3,378) 8,140 8,140

II. NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL

SYSCAN Technology Holdings Limited (“the Company”) was incorporated in Bermuda on 17 August 1999 as an exempted company with limited liability under the Companies Act 1981 of Bermuda (as amended). Its shares have been listed on The Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (“GEM”) since 14 April 2000.

The Company is an investment holding company. Its subsidiaries are principally engaged in the design, research, development, manufacture and distribution of optical image capturing devices chips and other optoelectronic products.

The business of the Company and its subsidiaries (together “the Group”) is characterized by constant technological change and new product and service development.

2. BASIS OF PREPARATION AND FUNDAMENTAL UNCERTAINTY RELATING TO THE GOING CONCERN BASIS

(a) Basis of preparation

The financial statements have been prepared based on the books and records maintained by the Company and its subsidiaries. However, the directors of the Company had no direct access to the books and records of SI, an indirectly wholly owned subsidiary of the Company incorporated in the United States of America (“USA”) and whose operations principally comprised the design, development and sales of optical image capturing devices and modules, and was controlled by a former director of the Company. Consequently, the directors cannot substantiate or otherwise support transactions undertaken by SI and the directors cannot ensure the nature,

– 21 –

APPENDIX I

ACCOUNTANTS’ REPORT

timing, completeness, appropriateness of classifications and disclosures in respect of the transactions undertaken by SI and the related balances as included in these financial statements or whether any additional disclosures are required. Therefore, the financial positions, results and cash flows of SI have been consolidated into the financial statements of the Group based on its unaudited management accounts for the year ended 31 December 2005. In the opinion of the directors, as SI is a major subsidiary of the Group, its financial position, results and cash flows for the year ended 31 December 2005 would have material impact on the Group’s financial statements.

As further detailed in note 39(b) to the financial statements, the directors have resolved to dispose of the operations of SI subsequent to the balance sheet date.

The assets, liabilities, revenue and results of SI based on its unaudited management accounts for the year ended 31 December 2005 are summarized as follows:

	HK$’000
Assets	21,954
Liabilities	11,237
Revenue	51,538
Loss for the year	2,618

In view of the above, no representations as to the accuracy and completeness of the books and records of SI for year ended 31 December 2005 could be given by the directors. The directors were also unable to represent that all transactions entered into the name of SI had been included or disclosed in the financial statements.

(b) Fundamental uncertainty relating to the going concern basis

In preparing the financial statements, the directors of the Company have given careful consideration to the future liquidity of the Group in light of its net current liabilities of approximately HK$168 million and the loss attributable to the equity holders of the Company of approximately HK$99 million as at and for the year ended 31 December 2005.

The Group is dependent upon the financial support of its banks and on its ability to renew its credit facility of RMB120 million, which falls due on 22 April 2006, with its major banker. However, as explained in note 39(a) to the financial statements, the Group defaulted in respect of the repayment of the bank loan from its major banker and the related interest totalling HK$116.5 million and such amounts had become repayable on demand. The major banker had applied to the court in Guangdong, mainland China, to freeze the leasehold land included in the property under development of the Group. The Company is currently negotiating with the major banker for the rescheduling or extension of the existing loan currently in default. On the assumption that negotiations would be successful and the major banker would renew its credit facilities and withdraw the writ, the directors consider that the Group will be able to meet in full its financial obligations as they fall due for the foreseeable future.

3. SIGNIFICANT ACCOUNTING POLICIES

These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which also include all Hong Kong Accounting Standards (“HKASs”) and Interpretations, issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance and The Rules Governing the Listing of Securities on The Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM” Listing Rules). They have been prepared under the historical cost convention.

The HKICPA has issued a number of new and revised HKFRSs that are effective for accounting periods beginning on or after 1 January 2005. In 2005, the Group adopted the following new/revised HKFRSs, which are relevant to its operations in the preparation of these financial statements. The 2004 comparatives have been amended as required, in accordance with the relevant requirements.

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APPENDIX I

ACCOUNTANTS’ REPORT

(a) Adoption of HKFRSs

HKAS 1	Presentation of Financial Statements
HKAS 2	Inventories
HKAS 7	Cash Flow Statements
HKAS 8	Accounting Policies, Changes in Accounting Estimates and Errors
HKAS 10	Events after Balance Sheet Date
HKAS 12	Income Taxes
HKAS 14	Segment Reporting
HKAS 16	Property, Plant and Equipment
HKAS 17	Leases
HKAS 18	Revenue
HKAS 19	Employee Benefits
HKAS 21	The Effects of Changes in Foreign Exchange Rates
HKAS 23	Borrowing Costs
HKAS 24	Related Party Disclosures
HKAS 27	Consolidated and Separate Financial Statements
HKAS 28	Investments in Associates
HKAS 32	Financial Instruments: Disclosure and Presentation
HKAS 33	Earnings Per Share
HKAS 36	Impairment of Assets
HKAS 37	Provisions, Contingent Liabilities and Contingent Assets
HKAS 38	Intangible Assets
HKAS 39	Financial Instruments: Recognition and Measurement
HKAS 40	Investment Property
HKFRS 2	Share-based Payment
HKFRS 3	Business Combinations
HKFRS 5	Non-Current Assets Held for Sale and Discontinued Operations
HKAS-Int 12	Scope of HKAS-Int 12 Consolidation – Special Purpose Entities
HKAS-Int 15	Operating Leases – Incentives
HKAS-Int 21	Income Taxes – Recovery of Revalued Non-Depreciable Assets

The adoption of the above new HKFRSs has the following impacts on the Group’s accounting policies:

• HKAS 1 affects certain presentation and disclosure of the financial statements;

• HKASs 8, 27 and 33 affect certain disclosure of the financial statements;

• HKASs 2, 7, 10, 12, 14, 16, 17, 18, 19, 21, 23, 24, 28, 32, 37, 39, 40, HKFRSs 2, 3, 5, HKAS-Int 12, HKAS-Int 15 and HKAS-Int 21 do not have any significant impact on the Group’s accounting policies; and

• the impact on the adoption of other new and revised HKFRS is set out in note 4.

(b) Basis of Consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries made up to 31 December.

The results of the subsidiary acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Minority interests represent the interests of outside shareholders in the operating results and net assets of the Company’s subsidiaries and are presented separately in the consolidated income statements and within the equity in the consolidated balance sheet from the results/ equity attributable to equity holders of the Company.

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APPENDIX I

ACCOUNTANTS’ REPORT

(c) Subsidiaries

A subsidiary is a company in which the Group or the Company, directly or indirectly, controls more than half of its voting power or issued share capital or controls the composition of its board of directors.

Intra-group balances and transactions, and any unrealised profits arising from intragroup transactions, are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains, but only to the extent there is no evidence of impairment.

In the Company’s balance sheet, an investment in a subsidiary is stated at cost less any impairment losses. The results of subsidiaries are included in the Company’s income statement to the extent of dividends received and receivable.

(d) Associates

An associate is a company, not being a subsidiary, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence.

The Group’s share of the post-acquisition results and reserves of its associates are included in the consolidated income statement and consolidated reserves respectively. The Group’s interests in the associates are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting less any impairment losses.

Unrealised profits and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s interests in the associate, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in the consolidated income statement.

(e) Goodwill

Positive goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s share of fair value of the identifiable assets and liabilities acquired on acquisitions of subsidiaries and associates.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is no longer amortised but is tested annually for impairment. In respect of associates, the carrying amount of goodwill is included in the carrying amount of the interest in the associates.

Negative goodwill arising on acquisitions of controlled subsidiaries and associates represents the excess of the Group’s share of the fair value of the identifiable assets and liabilities acquired over the cost of the acquisition. Negative goodwill is recognised immediately in the consolidated income statement as it arises.

(f) Revenue Recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably on the following basis:

• (a) Sales revenue is recognised when the merchandise is delivered and title has passed.

• (b) Design fees are recognised when the services are rendered.

• (c) Interest income on a time proportion basis, taking into account the principal outstanding and at the effective rate applicable.

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APPENDIX I

ACCOUNTANTS’ REPORT

(g) Research and Development Expenditures

Research expenditures are written off as incurred. Development expenditures are also written off as incurred except for those incurred for specific projects which are deferred where recoverability can be foreseen with reasonable assurance and which comply with the following criteria: (i) the costs attributable to the development of the product or process can be separately identified and measured reliably; (ii) the technical feasibility of the product or process can be demonstrated; (iii) there is an intention to produce and market, or use, the product or process; (iv) the ability to produce or use the product or process can be demonstrated; (v) the existence of a market for the product or process or, if it is to be used internally rather than sold, its usefulness, can be demonstrated; and (vi) adequate resources exist, or their availability can be demonstrated, to complete the project and market or use the product or process. Capitalised development expenditures are amortised on a straight-line basis over the period in which the related products are expected to be sold, starting from the commencement of sales.

All research and development costs for the years ended 31 December 2003, 2004 and 2005 have been expensed as no expenditure met the criteria for deferral.

(h) Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Major expenditures on modifications and betterments of property, plant and equipment which will result in future economic benefits are capitalised, while expenditures on repairs and maintenance are expensed when incurred. Depreciation is provided on a straight-line basis to write off the cost less estimated residuals value of each asset over its estimated useful life. The annual rates of depreciation are as follows:

Buildings	5%
Leasehold improvements	over the lease term
Furniture and office equipment	20 to 33%
Machinery	10 to 20%
Motor vehicles	20%

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected. Gain or loss on derecognition of property, plant and equipment, calculated as the difference between the net disposal proceeds and the carrying amount of the item, is included in the income statement in the period the item is derecognised.

(i) Prepaid Land Lease Payments

Prepaid land lease payments are lump sum upfront payments to acquire long term interest in lessee-occupied properties.

Prepaid land lease payments for land relating to buildings of the Group are stated at cost and are amortised over the period of the lease on the straight-line basis to the income statement.

(j) Property under development

Property under development is stated at cost, which includes land costs and construction costs incurred and other costs attributable to the construction of the related assets and other related expenses capitalised during the development period, less any impairment losses. No depreciation is provided in respect of properties under development until the construction work is completed.

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APPENDIX I

ACCOUNTANTS’ REPORT

(k) Investment Securities

Investment securities are stated at cost less any provision for impairment losses.

The carrying amounts of individual investments are reviewed at each balance sheet date to assess whether the fair values have declined below the carrying amounts. When a decline other than temporary has occurred, the carrying amount of such securities will be reduced to its fair value. The impairment loss is recognised as an expenses in the income statement. The impairment loss is written back to income statement when the circumstances and events that led to the write-down or write-offs cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future.

(l) Investment and Other Financial Assets

Financial assets in the scope of HKAS 39 are classified into four categories including financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year end.

All regular purchases and sales of financial assets are recognised on the trade date i.e. the date that the Group commits to purchase the asset. Regular purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Available-for-sale investments

Available-for-sale investments are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the other three categories under the scope of HKAS 39. After initial recognition, available-for-sale investments are measured at fair value with gains or losses recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement.

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date.

The Group assesses at each balance sheet date whether there is any objective evidence that an available-for-sale investment is impaired as a result of one or more events that occurred after the initial recognition of the assets (“loss events”). Where the loss event has an impact on the estimated future cash flows that can be reliably estimated, they are stated at cost less any accumulated impairment losses. If an available-for-sale investment is impaired, an amount comprising the difference between its cost and its current fair value, less any impairment loss previously recognised in profit and loss, is transferred from equity to the income statement. If the fair value of an available-for-sale debt investment increases in the subsequent period, and the increase can be objectively related to an event occurring after the loss was recognised in the income statement, the impairment loss should be reversed and recognised in the income statement. However, in case of equity investments, impairment cannot be reversed through the income statement.

(m) Patents and Intellectual Property Rights

Patents and intellectual property right is measured initially at cost and amortized on a straight-line basis over its estimated useful life.

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APPENDIX I

ACCOUNTANTS’ REPORT

(n) Trade Receivables

Provision is made against trade receivables to the extent that they are considered to be doubtful. Trade receivables in the balance sheet is stated net of such provision.

(o) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost includes cost of raw materials determined using the weighted average method of costing and, in the case of work-in-progress and finished goods, also direct labour and an appropriate proportion of production overheads. Net realisable value is based on estimated normal selling prices, less further costs expected to be incurred to completion and disposal. Provision is made for obsolete, slow-moving or defective items where appropriate.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

(p) Impairment of Assets

An assessment is made at each balance sheet date of whether there is any indication of impairment of any asset, or whether there is any indication that an impairment loss previously recognised for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount.

(i) Calculation of recoverable amount

The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

(ii) Reversal of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment losses made against goodwill is not reversed.

A reversal of impairment losses is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to the income statement in the year in which the reversals are recognised.

(q) Government Grants and Subsidies

Grants and subsidies from the government are recognized at their fair values when there is reasonable assurance that the grant/subsidy will be received and all attached conditions are complied with. When the grant or subsidy relates to an expense item, it is recognized as income over the periods necessary to match the grant or subsidy, on a systematic basis, to the costs which it is intended to compensate. Where the grant or subsidy relates to an asset, the fair value is deducted in arriving at the carrying amount of the related asset.

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APPENDIX I

ACCOUNTANTS’ REPORT

(r) Cash Equivalents

Cash equivalents represent short-term highly liquid investments which are readily convertible into known amounts of cash and which were generally within three months of maturity when acquired. For the purpose of the consolidated cash flow statement, cash equivalents also include bank overdrafts and advances from banks repayable within three months from the date of the advance. For the purpose of balance sheet classification, cash equivalents represent assets similar in nature to cash, which are not restricted as to use.

(s) Income Tax

Income tax comprises current and deferred tax. Income tax is recognised in the income statement or in equity if it relates to items that are recognised in the same or a different period, directly in equity.

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences except where the deferred tax liability arises from goodwill or the initial recognition of an asset or liability in a transaction and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with interests in subsidiaries and associates, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary difference, and the carryforward of unused tax assets and unused tax losses can be utilised except where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of deductible temporary difference associated with interests in subsidiaries and associates, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

(t) Related Parties

For the purpose of these financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group.

– 28 –

APPENDIX I

ACCOUNTANTS’ REPORT

(u) Foreign Currencies

These financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

Foreign currency transactions are initially recorded using the functional currency rate ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the income statements. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

The functional currencies of certain overseas subsidiaries are not Hong Kong dollars. As at the balance sheet date, the assets and liabilities of these entities are translated into the presentation currency of the Company (i.e., Hong Kong dollars) at the exchange rates ruling at the balance sheet date and their income statements are translated into Hong Kong dollars at the weighted average exchange rates for the year. The resulting exchange differences are included in the exchange fluctuation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign entity is recognised in the income statement.

For the purpose of the consolidated cash flow statement, the cash flows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries that arise throughout the year are translated into Hong Kong dollars at the weighted average exchange rates for the year.

(v) Employee Benefits

(i) Retirement benefit scheme

The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for those employees who are eligible to participate in the Scheme. Contributions are made based on a percentage of the employee’s basic salaries and are charged to the income statement as they become payable in accordance with the rules of the Scheme. The assets of the Scheme are held separately from those of the Group in independently administrated funds. The Group’s employer contributions vest fully with the employees when contributed to the Scheme, except for the Group’s employer voluntary contributions, which are refunded to the Group when the employee leaves employment prior to the contributions vesting fully, in accordance with the rules of the Scheme.

(ii) Share-based compensation

The Group operates an equity-settled share-based compensation plan. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

– 29 –

APPENDIX I

ACCOUNTANTS’ REPORT

(w) Provisions and Contingent Liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Company or the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(x) Segment Reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

In accordance with the Group’s internal financial reporting, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format.

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. For example, segment assets may include inventories, trade receivables and property, plant and equipment. Segment revenue, expenses, assets, and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between Group’s enterprises within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets (both tangible and intangible) that are expected to be used for more than one period.

Unallocated items mainly comprise financial and corporate assets, interest-bearing loans, borrowings, corporate and financing expenses and minority interests.

(y) Operating Lease Charges

Where the Group has the use of assets under operating leases, payments made under the leases are charged to the income statement in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset.

4. CHANGES IN ACCOUNTING POLICIES

• (a) Amortisation of positive and negative goodwill (HKFRS 3 Business Combinations, HKAS 36 Impairment of Assets and HKAS 38 Intangible assets)

In prior years:

• positive or negative goodwill which arose prior to 1 January 2001 was taken directly to reserves at the time it arose, and was not recognised in the income statement until disposal or impairment of the acquired business;

– 30 –

APPENDIX I

ACCOUNTANTS’ REPORT

• positive goodwill which arose on or after 1 January 2001 was amortised on a straight line basis over its useful life of 20 years and was subject to impairment testing when there were indications of impairment; and

• negative goodwill which arose on or after 1 January 2001 was amortised over 20 years the weighted average useful life of the depreciable/amortisable nonmonetary assets acquired, except to the extent it related to identified expected future losses as at the date of acquisition. In such cases it was recognised in the income statement as those expected losses were incurred.

With effect from 1 January 2005 in accordance with HKFRS 3, HKAS 36 and HKAS 38, the Group no longer amortises positive goodwill. Such goodwill is tested annually for impairment, including in the year of its initial recognition, as well as when there are indications of impairment. Impairment losses are recognised when the carrying amount of the cash generating unit to which the goodwill has been allocated exceeds its recoverable amount.

Also with effect from 1 January 2005 and in accordance with HKFRS 3, if the fair value of the net assets acquired in a business combination exceeds the consideration paid (i.e. an amount arises which would have been known as negative goodwill under the previous accounting policy), the excess is recognised immediately in the income statement as it arises.

The new policy in respect of positive goodwill has been applied prospectively in accordance with the transitional arrangements under HKFRS 3. As a result, comparative amounts have not been restated, the cumulative amount of amortisation as at 1 January 2005 has been offset against the cost of the goodwill and no amortisation charge for goodwill has been recognised in the income statement for the year ended 31 December 2005, the carrying amounts of the negative goodwill (including that remaining in consolidated capital reserve) is derecognized against accumulated losses as at 1 January 2005.

Also in accordance with the transitional arrangements under HKFRS 3, goodwill which had previously been taken directly to reserves (i.e goodwill which arose before 1 January 2001) will not be recognised in the income statement on disposal or impairment of the acquired business, or under any other circumstances.

(b) Minority interest (HKAS 1 Presentation of Financial Statements and HKAS 27 Consolidated and Separate Financial Statements)

In prior years, minority interests at the balance sheet date were presented in the consolidated balance sheet separately from liabilities and as a deduction from net assets. Minority interests in the results of the Group for the year were also separately presented in the consolidated income statement as a deduction before arriving at the profit attributable to shareholders.

With effect from 1 January 2005, in order to comply with HKAS 1 and HKAS 27, minority interests at the balance sheet date are presented in the consolidated balance sheet within equity, separately from the equity attributable to the equity holders of the Company, and minority interests in the results of the Group for the year are presented on the face of the consolidated income statement as an allocation of the total profit or loss for the year between the minority interests and the equity holders of the Company.

The presentation of minority interests in the consolidated balance sheet, income statement and statement of changes in equity for the comparative year has been restated accordingly.

– 31 –

APPENDIX I

ACCOUNTANTS’ REPORT

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will by definition, seldom equal the related actual results. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Property, plant and equipment and property under development

The Group assesses annually whether property, plant and equipment and property under development have any indication of impairment. The recoverable amounts of property, plant and equipment and property under development have been determined based on value-in-use calculations. These calculations require the use of judgements and estimates.

(b) Write-downs of inventories

Inventories are written down to net realisable value based on an assessment of the realisability of inventories. Write-downs on inventories are recorded where events or changes in circumstances indicate that the balances may not be realised. The identification of write-downs requires the use of judgements and estimates. Where the expectation is different from the original estimate, such difference will impact the carrying value of inventories and write-downs of inventories in the periods in which such estimate has been changed.

(c) Provision for trade receivables

In determining whether any of the trade receivables and bills receivable is impaired, significant judgement is required. In making this judgement, the Group evaluates, among other factors, the duration and extent by all means to which the amount will be recovered.

6. FINANCIAL RISK MANAGEMENT

The Group’s activities are exposed to the following risks:

(a) Currency risk

Certain trade receivables and borrowings of the Group are denominated in foreign currencies. The Group currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure if necessary.

(b) Interest rate risk

The Group’s fair value interest rate risk to variable-rate borrowings. The Group is exposed to interest rate risk through the impact of rate changes on interest bearing bank borrowings.

(c) Credit risk

The Group’s concentration of credit risk by geographical locations is mainly in U.S.A. and Mainland China. The Group has no significant concentration of credit risk by any single debtor, with exposure spread over a number of counterparties and customers.

– 32 –

APPENDIX I

ACCOUNTANTS’ REPORT

(d) Liquidity risk

Bank borrowings are the general sources of funds to finance the operations of the Group. Majority of the Group’s banking facilities are subject to floating rate and in short-term. The Group liquidity risk management includes making available standby banking facilities and diversifying the funding sources. The Group regularly reviews its major funding positions to ensure that it has adequate financial resources in meeting its financial obligations.

7. TURNOVER, OTHER REVENUES AND GAINS

Turnover

Sales of merchandise – Optical image capturing devices – Modules of optical image capturing devices – Chips and other optoelectronic products – LCD and CRT monitors Design fees – High speed module Other revenues and gains Bank interest income Exchange gain, net Gain on disposal of property, plant and equipment Income from sales of patent rights Others Recovery of bad debts Rental income Subsidy income Trade payables written off Write back of write-down of inventories	For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 62,249 47,901 48,094 8,749 6,681 5,745 25,065 21,214 12,716 167,888 115,978 – 263,951 191,774 66,555 262 565 – 264,213 192,339 66,555 573 88 73 – 314 74 – 595 – – 30,000 – 383 700 1,455 853 – – – 313 928 2,903 2,143 1,390 – – 456 5,960 2,000 – 10,672 36,153 4,376	For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 62,249 47,901 48,094 8,749 6,681 5,745 25,065 21,214 12,716 167,888 115,978 – 263,951 191,774 66,555 262 565 – 264,213 192,339 66,555 573 88 73 – 314 74 – 595 – – 30,000 – 383 700 1,455 853 – – – 313 928 2,903 2,143 1,390 – – 456 5,960 2,000 – 10,672 36,153 4,376
		66,555 –
		66,555
		73 74 – – 1,455 – 928 1,390 456 –
		4,376

– 33 –

APPENDIX I

ACCOUNTANTS’ REPORT

8. LOSS BEFORE TAXATION

Loss before taxation was determined after charging and crediting the following items:

After charging Interest on short-term bank loans Interest on interest-bearing borrowings Less:_amounts capitalised in property under development(i) Auditors’ remuneration Amortisation of patents and intellectual property rights Amortisation of positive goodwill Cost of inventories sold Depreciation Exchange loss, net Impairment loss on positive goodwill Loss on disposal of a subsidiary Loss on disposal of long-term investment Loss on disposal of property, plant and equipment Provision for impairment of trade and other receivables Write-down of inventories Operating lease rentals of premises Retirement costs Staff costs (including directors’ emoluments) After crediting Amortisation of negative goodwill Bank interest income Exchange gain, net Gain on deemed disposal of a subsidiary Gain on disposal of property, plant and equipment Income from sales of patent rights(ii) Negative goodwill on acquisition of a subsidiary Recovery of bad debts Rental income Subsidy income(iii)_ Write back of provision for impairment loss of an associate Write back of write-down of inventories

For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 8,263 7,665 7,716 39 45 35 8,302 7,710 7,751 (2,084) (2,074) (3,107) 6,218 5,636 4,644 560 560 410 514 494 470 414 204 – 216,834 162,679 42,359 6,252 6,245 6,383 150 – – – – 3,869 – 9,440 472 2,530 – – – – 3,079 3,128 14,977 20,191 – – 29,235 2,159 2,081 1,967 954 894 428 26,512 29,009 19,242 8 30 – 573 88 73 – 314 74 – 4,228 2 – 595 – – 30,000 – – – 8,911 853 – – – 313 928 2,903 2,143 1,390 – – 733 5,960 2,000 –

(i) During the year, interest of a short-term bank loan approximately HK$3,107,000 (2004: HK$2,074,000; 2003: HK$2,084,000) was capitalised as construction expenditures included in property under development.

• (ii) In 2004, the Group sold its patent rights to two independent third parties for a consideration of approximately HK$30,000,000.

– 34 –

APPENDIX I

ACCOUNTANTS’ REPORT

• (iii) During the year, the Group received cash subsidies from certain mainland China government bodies totaling HK$1,390,000 (2004: HK$2,143,000; 2003: HK$2,903,000). These cash subsidies were for the Group’s development of certain products.

9. DIRECTORS’ AND SENIOR EXECUTIVES’ EMOLUMENTS

• (a) Details of emoluments paid/payable to directors of the Company are:

Fees Other emoluments: – Salaries, allowances and benefits in kind – Retirement contributions	For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 240 240 360 3,443 3,311 2,069 15 17 25 3,698 3,568 2,454	For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 240 240 360 3,443 3,311 2,069 15 17 25 3,698 3,568 2,454
		2,454

No directors waived any emoluments during the year. No incentive payment for joining the Group or compensation for loss of office was paid or payable to any director during the year.

The remuneration of individual director is set out below:

	For	the year ended	31 December 2003
		Salaries,
		allowances
		and benefits	Retirement
	Fees	in kind	contributions	Total
	HK$’000	HK$’000	HK$’000	HK$’000
Executive directors
Cheung Wai	–	1,356	12	1,368
Darwin Hu	–	1,950	–	1,950
Zhang Hongru	–	137	3	140
Non-executive director
Joseph Liu	–	–	–	–
Independent non-executive directors
Lo Wai Ming	120	–	–	120
Lo Hang Fong	120	–	–	120
Fong Chi Wah	–	–	–	–
	240	3,443	15	3,698

– 35 –

APPENDIX I

ACCOUNTANTS’ REPORT

	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December	2004	2004
			Salaries,
			allowances
		and benefits			Retirement
	Fees		in kind	contributions			Total
	HK$’000		HK$’000		HK$’000		HK$’000
Executive directors
Chan Man Ching	–		200		5		205
Cheung Wai	–		1,356		12		1,368
Darwin Hu	–		1,560		–		1,560
Wong Chung	–		80		–		80
Zhang Fu	–		115		–		115
Independent non-executive directors
Fong Chi Wah	120		–		–		120
Lo Wai Ming	120		–		–		120
Jin Qingjun	–		–		–		–
	240		3,311		17		3,568
	For the year ended 31 December					2005
			Salaries,
			allowances
		and benefits			Retirement
	Fees		in kind	contributions			Total
	HK$’000		HK$’000		HK$’000		HK$’000
Executive directors
Chan Man Ching	–		468		12		480
Cheung Wai	–		1,374		12		1,386
Darwin Hu	–		203		–		203
Zhang Fu	–		24		1		25
Independent non-executive directors
Fong Chi Wah	120		–		–		120
Lo Wai Ming	120		–		–		120
Jin Qingjun	120		–		–		120
	360		2,069		25		2,454

The remuneration of the directors falls within the following bands:

HK$Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000 HK$1,500,001 to HK$2,000,000	For the year ended 31 December 2003 2004 2005 5 6 6 1 1 1 1 1 – 7 8 7	For the year ended 31 December 2003 2004 2005 5 6 6 1 1 1 1 1 – 7 8 7
		7

– 36 –

APPENDIX I

ACCOUNTANTS’ REPORT

• (b) The five highest paid employees during the year included two directors (2004: two; 2003: two), details of whose remuneration are set out in note 9(a). The details of the remaining three (2004: three; 2003: three) are as follow:

	For the year ended 31	For the year ended 31	December
	2003	2004	2005
	HK$’000	HK$’000	HK$’000
Salaries, allowances and benefits in kind	3,171	3,354	3,354

During the year, no emoluments were paid to the five highest paid individuals (including directors and other employees) as inducement to join or upon joining the Group or as compensation for loss of office.

The remuneration falls within the following band:

HK$Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000	For the year ended 31 December 2003 2004 2005 2 1 1 1 2 2 3 3 3	For the year ended 31 December 2003 2004 2005 2 1 1 1 2 2 3 3 3
		3

10. TAXATION

(a) Bermuda income tax

The Company is exempted from tax in Bermuda on its profit or capital gains until March

(b) Hong Kong profits tax

No provision for Hong Kong profits tax has been made as the Group had no assessable profit in Hong Kong for the year (2004 and 2003: Nil).

(c) United States federal income tax

The Group had no assessable profit subject to United States federal income tax. However, the subsidiary SI was liable to California State income tax of approximately HK$7,000 (2004: HK$7,000; 2003: HK$7,000), being the minimum amount for a company in a tax loss position.

(d) Mainland China taxes

No provision for mainland China enterprise income tax has been made as the Group had no assessable profits for the year (2004 and 2003: Nil).

• (e) No Taiwan income tax has been made as the Group had no assessable profit in Taiwan (2004 and 2003: Nil).

– 37 –

APPENDIX I

ACCOUNTANTS’ REPORT

(f) Reconciliation between tax expenses and accounting loss at applicable tax rates:

A numerical reconciliation between tax expenses and the product of accounting loss multiplied by the applicable tax rates is as follows:–

Loss before taxation Notional tax on loss before taxation, calculated at the rates applicable to profits in the tax jurisdictions concerned Tax effect of non-taxable revenue Tax effect of non-deductible expenses Tax effect of unused tax losses not recognized Utilization of previously unrecognized tax losses Unrecognized temporary difference Actual tax expenses	For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 (16,723) (23,876) (100,081) (2,849) (5,667) (16,659) – (141) (4) 194 279 3,860 3,566 5,549 12,810 (896) (13) – (8) – – 7 7 7

(g) Deferred tax assets not recognized

At 31 December 2005, the Group had tax losses of approximately HK$395,610,000 (2004: HK$321,881,000; 2003: HK$289,969,000) which are available for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognized in respect of these losses as they have arisen in subsidiaries that have been loss-making for a number of years.

11. LOSS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

During the year, the loss attributable to equity holders of the Company included a loss of approximately HK$4,610,000 (2004: HK$5,176,000; 2003: HK$91,337,000) dealt with in the financial statements of the Company.

12. LOSS PER SHARE

The calculation of basic loss per share for the Relevant Periods are as follows:–

Net loss attributable to equity holders of the Company Weighted average number of ordinary shares for the purpose of basic loss per share Loss per share-basic	For the year ended 31 December 2003 2004 2005 HK’000 HK$’000 HK’000 (14,651) (23,040) (99,435) 102,364,327 102,364,327 102,364,327 (14.31) cents (22.5) cents (97.1) cents

No diluted loss per share is presented as the outstanding employee share options were antidilutive.

– 38 –

APPENDIX I

ACCOUNTANTS’ REPORT

13. INTANGIBLE ASSETS

Group

Cost At 1/1/2003 and at 31/12/2003 Amortisation At 1/1/2003 Amortisation for the year At 31/12/2003 Net book value At 31/12/2003 Cost At 1/1/2004 Disposal of a subsidiary At 31/12/2004 Amortisation At 1/1/2004 Amortisation for the year Disposal of a subsidiary At 31/12/2004 Net book value At 31/12/2004	Intellectual property Patents rights HK$’000 HK$’000 2,745 1,698 122 101 368 146 490 247 2,255 1,451 2,745 1,698 – (283) 2,745 1,415 490 247 368 126 – (38) 858 335 1,887 1,080	Total HK$’000 4,443 223 514 737 3,706 4,443 (283) 4,160 737 494 (38) 1,193 2,967

– 39 –

APPENDIX I

ACCOUNTANTS’ REPORT

Group

Cost At 1/1/2005 Exchange differences At 31/12/2005 Amortisation At 1/1/2005 Exchange differences Amortisation for the year At 31/12/2005 Net book value At 31/12/2005	Intellectual property Patents rights HK$’000 HK$’000 2,745 1,415 53 27 2,798 1,442 858 335 17 9 343 127 1,218 471 1,580 971	Total HK$’000 4,160 80
		4,240
		1,193 26 470
		1,689
		2,551

(i) Patents and intellectual property rights are amortised over their estimated useful lives. The foreseeable lives of the patents and intellectual property rights are on average of 10 years.

(ii) The intellectual property rights with net book value of HK$971,000 (2004 and 2003: Nil) pledged as collateral for the Group’s banking facilities (Note 37).

14. GOODWILL

Group

Cost At 1/1/2003 Additions At 31/12/2003 Amortisation At 1/1/2003 Recognised in income statement Impairment loss At 31/12/2003 Net book value At 31/12/2003	Positive Goodwill HK$’000 – 414 414 – – 414 414 –	Negative Goodwill HK$’000 – (602) (602) – (8) – (8) (594)	Total HK$’000 – (188
			(188
			– (8 414
			406
			(594

– 40 –

APPENDIX I

ACCOUNTANTS’ REPORT

Group

Cost At 1/1/2004 Additions At 31/12/2004 Amortisation At 1/1/2004 Recognised in income statement Amortisation At 31/12/2004 Net book value At 31/12/2004 Cost At 1/1/2005 Effect of adoption HKFRS 3 on negative goodwill (i) Acquisition of a subsidiary_(Note 31(c))_ Recognised in income statement At 31/12/2005 Amortisation At 1/1/2005 Effect of adoption HKFRS 3 on negative goodwill (i) Impairment loss At 31/12/2005 Net book value At 31/12/2005	Positive Goodwill HK$’000 414 4,073 4,487 414 – 204 618 3,869 4,487 – – – 4,487 618 – 3,869 4,487 –	Negative Goodwill HK$’000 (602) – (602) (8) (30) – (38) (564) (602) 602 (8,911) 8,911 – (38) 38 – – –	Total HK$’000 (188) 4,073 3,885 406 (30) 204 580 3,305 3,885 602 (8,911) 8,911 4,487 580 38 3,869 4,487 –

(i) The transitional provisions of HKFRS 3 have required the Group to eliminate the carrying amounts of accumulated amortisation with a corresponding entry to the cost of goodwill and to derecognise the carrying amounts of negative goodwill against accumulated losses as at 1 January 2005.

– 41 –

APPENDIX I

ACCOUNTANTS’ REPORT

15. PROPERTY, PLANT AND EQUIPMENT

Group

Cost At 1/1/2003 Additions Disposals At 31/12/2003 Accumulated depreciation At1/1/2003 Provision for the year Disposals At 31/12/2003 Net book value At 31/12/2003 Cost At 1/1/2004 Additions Disposals Disposals of subsidiaries At 31/12/2004 Accumulated depreciation At 1/1/2004 Provision for the year Disposals Disposals of subsidiaries At 31/12/2004 Net book value At 31/12/2004	Leasehold land and Leasehold buildings (i) improvements HK$’000 HK$’000 24,961 2,951 – – – – 24,961 2,951 1,146 2,432 1,266 519 – – 2,412 2,951 22,549 – 24,961 2,951 – – – – – – 24,961 2,951 2,412 2,951 1,299 – – – – – 3,711 2,951 21,250 –	Furniture and office equipment HK$’000 10,286 1,733 (147 ) 11,872 4,666 511 (33) 5,144 6,728 11,872 875 (3,011 ) (1,365) 8,371 5,144 898 (2,708) (397 ) 2,937 5,434	Machinery HK$’000 35,430 3,364 – 38,794 20,806 3,280 – 24,086 14,708 38,794 1,310 (1,661) – 38,443 24,086 3,347 (1,642) – 25,791 12,652	Motor vehicles HK$’000 3,912 735 (209) 4,438 1,179 676 (13) 1,842 2,596 4,438 806 (267) (588) 4,389 1,842 701 (178) (4) 2,361 2,028	Total HK$’000 77,540 5,832 (356 ) 83,016 30,229 6,252 (46) 36,435 46,581 83,016 2,991 (4,939) (1,953) 79,115 36,435 6,245 (4,528) (401 ) 37,751 41,364

– 42 –

APPENDIX I

ACCOUNTANTS’ REPORT

Cost At 1/1/2005 Exchange differences Additions Disposals Addition of a subsidiary Disposal of subsidiaries At 31/12/2005 Accumulated depreciation At 1/1/2005 Exchange differences Provision for the year Disposals Disposal of subsidiaries At 31/12/2005 Net book value At 31/12/2005	Leasehold land and Leasehold buildings (i) improvements HK$’000 HK$’000 24,961 2,951 526 – – – (17,355) – – – – – 8,132 2,951 3,711 2,951 53 – 875 – (2,824) – – – 1,815 2,951 6,317 –	Furniture and office equipment HK$’000 8,371 140 353 (702 ) 1,078 (76) 9,164 2,937 44 1,075 (329 ) (28) 3,699 5,465	Machinery HK$’000 38,443 516 1,409 (364) – – 40,004 25,791 194 4,043 – – 30,028 9,976	Motor vehicles HK$’000 4,389 55 – (1,951) 490 – 2,983 2,361 15 390 (1,179) – 1,587 1,396	Total HK$’000 79,115 1,237 1,762 (20,372 ) 1,568 (76) 63,234 37,751 306 6,383 (4,332) (28) 40,080 23,154

• (i) As the prepaid land lease payment cannot be allocated reliably between the land and building elements, the entire lease payment is included in the cost of land and buildings as a finance lease in property, plant and equipment in accordance with HKAS 17.

• (ii) The leasehold land and buildings are located in Shenzhen, mainland China, and are used as research and development centre of the Group and held under medium lease term. All leasehold land and buildings are pledged as collateral for the Group’s banking facilities (see Note 37).

• (iii) The machinery with net book value of HK$9,976,000 (2004 and 2003: Nil) and motor vehicle with net book value of Nil (2004: HK$318,000; 2003: 403,000) are pledged as collateral for the Group’s banking facilities (see Note 37).

– 43 –

APPENDIX I

ACCOUNTANTS’ REPORT

16. PROPERTY UNDER DEVELOPMENT

Group

At 1/1/2003 Additions At 31/12/2003 At 1/1/2004 Additions At 31/12/2004 At 1/1/2005 Exchange differences Additions At 31/12/2005	Leasehold Construction land expenditures HK$’000 HK$’000 49,743 69,977 249 3,737 49,992 73,714 49,992 73,714 – 4,101 49,992 77,815 49,992 77,815 960 1,498 – 10,869 50,952 90,182	Total HK$’000 119,720 3,986
		123,706
		123,706 4,101
		127,807
		127,807 2,458 10,869
		141,134

(i) The leasehold land is located in Shenzhen, mainland China, for a period of 50 years up to July 2051.

(ii) The leasehold land is pledged for the short-term bank loan to the Group (Note 37).

17. INTEREST IN SUBSIDIARIES

Company

Unlisted shares, at cost Due from subsidiaries Due to subsidiaries _Less:_Impairment loss	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 74,698 74,698 74,698 100,594 95,623 92,986 (2,540) (2,764) (3,544 172,752 167,557 164,140 (113,500) (113,500) (113,500 59,252 54,057 50,640	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 74,698 74,698 74,698 100,594 95,623 92,986 (2,540) (2,764) (3,544 172,752 167,557 164,140 (113,500) (113,500) (113,500 59,252 54,057 50,640
		164,140 (113,500
		50,640

The amounts due from/to subsidiaries are unsecured and non-interest bearing. The Company has agreed not to demand for repayment of the amounts due from the subsidiaries until the subsidiaries are financially capable to do so.

– 44 –

APPENDIX I

ACCOUNTANTS’ REPORT

The following list contains only the particulars of subsidiaries which principally effected the results, assets or liabilities of the Group. Details of the principal subsidiaries as at 31 December 2005 are:

			Percentage
		Issued	of equity
	Place of	share capital/	interest
	incorporation/	paid up	attributable
Name	operations	capital	to the Group	Principal activities
SYSCAN Holdings Limited_(i)_	British Virgin Islands/	US$3	100%	Investment holding
	Hong Kong
SYSCAN Digital Systems	British Virgin Islands/	US$24,500	100%	Investment holding
Co., Ltd.	Hong Kong
SYSCAN Imaging Limited	British Virgin Islands/	US$1	100%	Investment holding
(i), (ii)	Hong Kong
SYSCAN, Inc.(ii)	California, United States	–	100%	Design, development
	of America			and sale of optical
				image capturing
				devices and modules
SYSCAN InterVision Limited	Hong Kong/	HK$15,000,000	100%	Trading of optical
	Mainland China			image capturing
				devices and
				modules
SYSCAN Lab., Limited	Hong Kong/	HK$10,000	100%	Design and
	Mainland China			development of
				image sensor
				modules
SYSCAN Laser Technology	British Virgin Islands/	US$1	100%	Investment holding
Limited	Hong Kong
SYSCAN Manufacturing Limited	British Virgin Islands/	US$1	100%	Investment holding
	Hong Kong
SYSCAN Viewtech Limited	British Virgin Islands/	US$10,000	100%	Investment holding
	Hong Kong
SYSCAN Group Limited	British Virgin Islands/	US$1	100%	Investment holding
	Hong Kong
Shenzhen SYSCAN Technology	Mainland China	US$10,000,000	100%	Design, development,
Co., Ltd.(iii)				manufacture and sale
				of optoelectronic
				products
Syscan Optoelectronics	Mainland China	US$6,000,000	100%	Property holding
Technology (Shenzhen)
Co., Limited
深圳矽感光電有限公司_(iv)_
深圳市旭感數碼系統	Mainland China	RMB15,000,000	100%	Design, development,
有限公司_(v)_				manufacture and sale
				of optoelectronic
				products

– 45 –

APPENDIX I

ACCOUNTANTS’ REPORT

Notes:

• (i) SYSCAN Holdings Limited and SYSCAN Imaging Limited are held by the Company directly. All other subsidiaries are held by the Company indirectly.

• (ii) On 29 March 2004, SYSCAN Imaging Limited (“SIL”), wholly-owned subsidiary of the Company, and SI entered into a share exchange agreement (“Share Exchange Agreement”) with an overseas listed company and its principal shareholder, pursuant to which the principal shareholder of the overseas listed company and SIL agreed to exchange shares between the oversea listed company and SI. SIL exchanged 100% equity interest in SI for 81.23% equity interest in the overseas listed company so that upon completion of the share exchange arrangement, the Company would indirectly hold 81.23% equity interest in the overseas listed company. In addition, SIL agreed to grant an option to the overseas listed company, pursuant to which the overseas listed company had the right to acquire from SIL the entire issued capital of SYSCAN Manufacturing Limited (“SML”) at a consideration of not less than USD16 million (equivalent to approximately HK$124.8 million) during a period of 2 years commencing from the date of completion of the Share Exchange Agreement.

On 2 April 2004, the overseas listed company announced that it had completed the acquisition of 100% of the issued and outstanding capital stock of SI. As at 31 December 2004, the register of members of the overseas listed company listed SIL as holding 81.23% of the overseas listed company.

However, on 12 May 2004, the directors of the Company announced in Hong Kong that the Share Exchange Agreement constituted a discloseable transaction for the Company under the GEM Listing Rules and that the Stock Exchange of Hong Kong Limited (the “Stock Exchange”) had indicated that the transactions contemplated pursuant to the Share Exchange Agreement to be a proposed spin-off (the “Proposed Spin-off”) of SI and SML and “therefore the transactions and the Proposed Spin-off would be conditional on, inter alia, the approval of GEM Listing Committee and the Shareholders”. SI is a major subsidiary of the Company (as defined in the GEM Listing Rules), the transactions constituted a material dilution of the Company’s interest in SI. The announcement also stated that the Company would apply for the approval of the Stock Exchange to proceed with the Proposed-Spin-off, as further detailed in the Company’s announcement on 12 May 2004.

In November 2004, the Stock Exchange was informed that the shares of SI had not been and will not be transferred to the overseas listed company; unless and until the Proposed Spin-off and the transactions were approved by the GEM Listing Committee and the independent shareholders of the Company.

On 26 January 2005, the directors of the Company wrote to the overseas listed company to terminate the Share Exchange Agreement. On even date, the directors of the Company announced in Hong Kong that the “Share Exchange Agreement was terminated on 26 January 2005 given that to date, almost 10 months after the signing of the Share Exchange Agreement, the Proposed Spin-off has not yet been approved by the GEM Listing Committee”. The termination was announced on the web-site of the Stock Exchange of Hong Kong Limited on 26 January 2005.

• (iii) Shenzhen SYSCAN Technology Co., Ltd. is a wholly foreign owned enterprise established in mainland China to be operated for 20 years up to 2021.

• (iv) 深圳矽感光電有限公司 is a wholly foreign owned enterprise established in mainland China to be operated for 15 years up to 2009.

• (v) 深圳市旭感數碼系統有限公司 is a domestic limited company established in mainland China to be operated for 20 years up to 2021.

None of the subsidiaries had any loan capital in issue at any time during the year ended 31 December 2005.

– 46 –

APPENDIX I

ACCOUNTANTS’ REPORT

18. INTEREST IN ASSOCIATES

Group

Share of net assets Due from an associate Due to associates Provision for impairment	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – 35,967 32,403 – 763 19,131 – (17,136) (39,040) – 19,594 12,494 – (2,353) (1,619) – 17,241 10,875

The amounts due are unsecured, interest free and are repayable on demand.

Details of the principal associates as at 31 December 2005 are:

			Percentage
			of equity
	Place of	Fully paid	interest
	incorporation/	share capital/	attributable
Name	and operations	registered capital	to the Group	Principal activities
浙江矽感科技有限公司(i)	Mainland China	RMB50,000,000	40%	Development of
				computer products
深圳市旭感和誠信息技術	Mainland China	RMB45,000,000	40%	Development of
有限公司(ii)				computer products

Notes:

• (i) 浙江矽感科技有限公司 is a domestic limited company established in mainland China to be operated for 20 years up to 2024.

• (ii) 深圳市旭感和誠信息技術有限公司 is a domestic limited company established in mainland China to be operated for 14 years up to 2018.

19. LONG-TERM LOAN RECEIVABLE

The amount was unsecured, interest charged at a rate of 6% per annum and receivable in July

– 47 –

APPENDIX I

ACCOUNTANTS’ REPORT

20. AVAILABLE-FOR-SALE INVESTMENT

Group

CMOS Sensor, Inc.(i) GFG Asia Alliance Holdings Co., Ltd.(ii)	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – 7,782 – – 1,560 – – 9,342	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – 7,782 – – 1,560 – – 9,342
		9,342

• (i) As at 31 December 2005, the Group held 16.1% equity interest in CMOS Sensor, Inc., a company incorporated in California, the United States of America, which is principally engaged in the research and development of infra-red sensors and CMOS sensors.

• (ii) As at 31 December 2005, the Group invested a total of US$200,000 (equivalent to approximately HK$1,560,000) in the preference stocks of GFG Asia Alliance Holdings Co., Ltd., a company incorporated in British Virgin Islands, which is principally engaged in investment and fund management.

21. INVESTMENT SECURITIES

Group

CMOS Sensor, Inc.(i) GFG Asia Alliance Holdings Co., Ltd.(ii) Shenzhen Guocheng Venture Capital Co., Ltd.(iii)	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 7,782 7,782 – 1,560 1,560 – 4,717 – – 14,059 9,342 –	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 7,782 7,782 – 1,560 1,560 – 4,717 – – 14,059 9,342 –
		–

• (i) As at 31 December 2003 and 2004, the Group held 16.1% equity interest in CMOS Sensor, Inc., a company incorporated in California, the United States of America, which is principally engaged in the research and development of infra-red sensors and CMOS sensors.

• (ii) As at 31 December 2003 and 2004, the Group invested a total of US$200,000 (equivalent to approximately HK$1,560,000) in the preference stocks of GFG Asia Alliance Holdings Co., Ltd., a company incorporated in British Virgin Islands, which is principally engaged in investment and fund management.

• (iii) As at 31 December 2003, the Group held 7.3% equity interest in Shenzhen Guocheng Venture Capital Co., Ltd., a company incorporated in Shenzhen, mainland China, which is principally engaged in investment in enterprises in the optoelectronics industry.

– 48 –

APPENDIX I

ACCOUNTANTS’ REPORT

22. INVENTORIES

Group

Raw materials Work-in-progress Finished goods _Less:_Write-down of inventories	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 32,234 17,395 21,767 12,618 4,208 2,600 19,970 14,491 13,467 64,822 36,094 37,834 (4,739) (2,739) (31,974) 60,083 33,355 5,860

As at 31 December 2005, inventories of approximately Nil (2004: HK$77,000; 2003: HK$1,264,000) were stated at net realisable value.

23. TRADE RECEIVABLES

The Group normally grants to its customers credit periods ranging from one to three months. Aging analysis of the Group’s trade receivables is as follows:

0 to 1 month 1 to 2 months 2 to 3 months 3 to 6 months 6 to 12 months 12 to 18 months Over 18 months _Less:_Provision for impairment of trade and other receivables	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 32,484 8,585 8,444 6,655 123 887 793 9,253 40 6,137 – 111 3,649 9,975 884 2,119 876 1,349 650 560 7,917 52,487 29,372 19,632 (4,063) (6,205) (11,346) 48,424 23,167 8,286

24. CASH AND BANK BALANCES

As at 31 December 2005, the Group’s cash and bank balances approximately HK$2,283,000 (2004: HK$4,557,000; 2003: HK$7,594,000) were denominated in Renminbi, a currency which is not freely convertible into other currencies.

– 49 –

APPENDIX I

ACCOUNTANTS’ REPORT

25. SHORT-TERM BANK LOANS – PLEDGED

• (a) Included in the short-term bank loans of the Group of HK$137,940,000 (2004: HK$140,375,000; 2003: HK$128,302,000) were a loan and the related interest totalling HK$116,576,000 (2004: Nil; 2003: Nil), of which the Group had defaulted on repayment, therefore such amounts had become repayable on demand. The loan was secured by the leasehold land included in the property under development of the Group. The banker had applied to the court in Guangdong, mainland China, to freeze the leasehold land (Note 39(a)).

• (b) All the Group’s short-term bank loans were denominated in Renminbi. As at 31 December 2005, the short-term bank loans bore interest at rates of 6% – 8% (2004: 5.58%; 2003: 5.31%) per annum.

26. TRADE PAYABLES

Group

0 to 1 month 1 to 2 months 2 to 3 months 3 to 6 months 6 to 12 months Over 12 months	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 21,064 18,652 3,653 33,821 1,985 1,531 538 1,080 1,102 2,763 3,391 1,196 577 1,464 1,009 342 592 17,216 59,105 27,164 25,707	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 21,064 18,652 3,653 33,821 1,985 1,531 538 1,080 1,102 2,763 3,391 1,196 577 1,464 1,009 342 592 17,216 59,105 27,164 25,707
		25,707

27.

INTEREST-BEARING BORROWINGS

Group

Bank loans, secured The analysis of the above balances is as follows: Bank loans Within one year After 1 year but within 2 years After 2 years but within 5 years After 5 years Current portion of bank loans Non-current portion of bank loans	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 913 761 505 141 145 59 141 145 59 273 196 178 358 275 209 913 761 505 (141) (145) (59 772 616 446	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 913 761 505 141 145 59 141 145 59 273 196 178 358 275 209 913 761 505 (141) (145) (59 772 616 446
		59 59 178 209
		505 (59
		446

– 50 –

APPENDIX I

ACCOUNTANTS’ REPORT

28. SHARE CAPITAL

Company

Notes Authorised Ordinary shares of HK$0.01 each At 1 January Reduced due to capital reduction (a)(i) Reduced due to share consolidation (a)(ii) Increase during the year (a)(iii) At 31 December Notes Issued and fully paid At 1 January Issue of shares through exercise of employee share options (b) Reduced due to capital (a)(i) reduction & (a)(iv) Reduced due to share consolidation (a)(ii) 31 December	2003 Number of shares Amount HK$’000 HK$’000 2,000,000 200,000 – (198,000) (1,800,000) – 19,800,000 198,000 20,000,000 200,000 2003 Number of shares Amount HK$’000 HK$’000 1,022,643 102,264 1,000 100 – (101,340) (921,279) – 102,364 1,024	As at 31 December 2004 Number of shares Amount HK$’000 HK$’000 20,000,000 200,000 – – – – – – 20,000,000 200,000 As at 31 December 2004 Number of shares Amount HK$’000 HK$’000 102,364 1,024 – – – – – – 102,364 1,024	2005 Number of shares Amount HK$’000 HK$’000 20,000,000 200,000 – – – – – – 20,000,000 200,000 2005 Number of shares Amount HK$’000 HK$’000 102,364 1,024 – – – – – – 102,364 1,024	2005 Number of shares Amount HK$’000 HK$’000 20,000,000 200,000 – – – – – – 20,000,000 200,000 2005 Number of shares Amount HK$’000 HK$’000 102,364 1,024 – – – – – – 102,364 1,024
				1,024

– 51 –

APPENDIX I

ACCOUNTANTS’ REPORT

Notes:

• (a) Capital reduction and Share consolidation for the year ended 31 December 2003 Pursuant to the special resolution passed on 6 October 2003, the Company

• (i) reduced the issued share capital by canceling the paid-up capital to the extent of HK$0.099 on each issued share and reduced the nominal value of issued share capital from HK$0.1 to HK$0.001 (“Capital Reduction”).

• (ii) consolidated every 10 reduced shares of HK$0.001 each into one share of HK$0.01 each (“Consolidated Share(s)”) (“Share Consolidation”).

• (iii) increased the authorized share capital to HK$200,000,000 by the creation of additional unissued 19,800,000,000 Consolidated Shares.

• (iv) transferred the credit amount arising from the Capital Reduction of approximately HK$101,340,000 to the contributed surplus account.

Capital reduction and Share Consolidation took effect on 7 October 2003.

• (b) 1,000,000 ordinary shares of HK$0.1 each were issued pursuant to the Share Option Scheme A of the Company (see Note 30) for the year ended 31 December 2004.

– 52 –

APPENDIX I

ACCOUNTANTS’ REPORT

29. RESERVES

Group At 1 January 2003 Exercise of employee share options Share premium cancellation (a)(i) Transferred from capital reduction (a)(ii) Elimination of accumulated losses Exchange differences Transfer Loss attributable to equity holders of the Company At 31 December 2003 At 1 January 2004 Elimination of accumulated losses Exchange differences Disposal of a subsidiary Loss attributable to equity holders of the Company At 31 December 2004 At 1 January 2005 Effect of adoption HKFRS 3 on negative goodwill Exchange differences Deemed disposal of a subsidiary Disposal of a subsidiary Loss attributable to equity holders of the Company At 31 December 2005	Share premium HK$’000 101,378 (52) (101,378 ) – – – 52 – – – – – – – – – – – – – – –	Contributed surplus HK$’000 – – 101,378 101,340 (123,559) – (52) – 79,107 79,107 (79,107) – – – – – – – – – – –	Capital reserve HK$’000 198,068 – – – – – – – 198,068 198,068 – – – – 198,068 198,068 – – (2) – – 198,066	Statutory reserve fund HK$’000 439 – – – – – – – 439 439 – – – – 439 439 – – – – – 439	Exchange reserve HK$’000 1,403 – – – – 189 – – 1,592 1,592 – (313) (7) – 1,272 1,272 – 580 28 9 – 1,889	Accumulated losses HK$’000 (250,471) – – – 123,559 – – (14,651) (141,563) (141,563) 79,107 – – (23,040) (85,496) (85,496) 564 – – – (99,435) (184,367)	Total HK$’000 50,817 (52) – 101,340 – 189 – (14,651 ) 137,643 137,643 – (313 ) (7) (23,040 ) 114,283 114,283 564 580 26 9 (99,435 ) 16,027

– 53 –

APPENDIX I

ACCOUNTANTS’ REPORT

Reserves retained by: Company and subsidiaries Associates At 31 December 2003 Company and subsidiaries Associates At 31 December 2004 Company and subsidiaries Associates At 31 December 2005 Company At 1 January 2003 Exercise of employee share options Share premium cancellation (a)(i) Transferred from capital reduction (a)(ii) Transfer Elimination of accumulated losses Loss attributable to equity holders of the Company At 31 December 2003 At 1 January 2004 Elimination of accumulated losses Loss for the year At 31 December 2004 At 1 January 2005 Elimination of accumulated losses Loss for the year At 31 December 2005	Share premium HK$’000 – – – – – – – – – Share premium HK$’000 101,378 (52) (101,378 ) – 52 – – – – – – – – – – –	Contributed surplus HK$’000 79,107 – 79,107 – – – – – – Contributed surplus HK$’000 70,121 – 101,378 101,340 (52) (123,559) – 149,228 149,228 (79,107) – 70,121 70,121 – – 70,121	Capital reserve HK$’000 198,068 – 198,068 198,068 – 198,068 198,066 – 198,066 Capital reserve HK$’000 – – – – – – – – – – – – – – – –	Statutory reserve fund HK$’000 439 – 439 439 – 439 439 – 439 Statutory reserve fund HK$’000 – – – – – – – – – – – – – – – –	Exchange reserve HK$’000 1,592 – 1,592 1,272 – 1,272 1,889 – 1,889 Cumulative translation adjustments HK$’000 – – – – – – – – – – – – – – – –	Accumulated losses HK$’000 (141,563) – (141,563) (85,454) (42) (85,496) (182,665) (1,702) (184,367) Accumulated losses HK$’000 (123,559) – – – – 123,559 (91,337) (91,337) (91,337) 79,107 (5,176) (17,406) (17,406) – (4,610) (22,016)	Total HK$’000 137,643 – 137,643 114,325 (42) 114,283 17,729 (1,702) 16,027 Total HK$’000 47,940 (52) – 101,340 – – (91,337 ) 57,891 57,891 – (5,176) 52,715 52,715 – (4,610) 48,105

– 54 –

APPENDIX I

ACCOUNTANTS’ REPORT

• (a) Pursuant to the special resolution passed on 6 October 2003, the Company:–

• (i) reduced the credit of the share premium account of approximately HK$101,378,000 and that the credit arising therefrom be applied to eliminate the accumulated losses of the Company as at 31 December 2003.

• (ii) transferred the credit amount arising from the capital reduction of approximately HK$101,340,000 to the contributed surplus account and apply such credit towards the partial elimination of the accumulated losses of the Company as at 31 December 2003.

• (b) Contributed surplus of the Company represents the difference between the nominal value of the ordinary shares issued by the Company and the net asset value of subsidiaries acquired through an exchange of shares pursuant to a group reorganization completed on 27 March 2000 (“the Recoganisation”). The contributed surplus of the Group arose during the year ended 31 December 2003 represents the net effect of the capital reduction, the share premium cancellation and the partial elimination with the accumulated losses of the Company as at 31 December 2002.

• (c) Capital reserve represents the difference between the nominal value of the ordinary shares issued by the Company and the aggregate of the share capital and share premium of a subsidiary acquired through an exchange of shares pursuant to the Reorganisation, and the difference between the consideration paid and the value of the net assets acquired upon the acquisition of a 100% equity interest in SOT, an indirectly wholly owned subsidiary of the Company.

Under the Companies Act 1981 of Bermuda (as amended), contributed surplus is distributable to shareholders, subject to the condition that the Company cannot declare or pay a dividend, or make a distribution out of contributed surplus if (i) it is, nor 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 and share premium.

The Company has no reserves available for distribution to shareholders as at 31 December 2003, 2004 and 2005.

30. EMPLOYEE SHARE OPTIONS

The Company has three employee share option schemes, namely Share Option Scheme A, Share Option Scheme B and Share Option Scheme C.

On 2 March 2000, the Company has adopted Share Option Scheme A and Scheme B under which share options to subscribe for shares of the Company may be granted under the terms and conditions stipulated in Scheme A and Scheme B.

Share Option Scheme A ceased to be effective (save for the options already granted but unexercised) upon the listing of the Company on 14 April 2000. At the annual general meeting of the Company held on 26 April 2002, shareholders of the Company approved the adoption of a new Share Option Scheme C and the termination of Share Option Scheme B (save for the options already granted but unexercised).

Under Share Option Scheme A, the Company may grant options to employees of the Group (including directors of the Company) and consultants of the Group to subscribe for a maximum of 5,278,400 ordinary shares of HK$0.01 each, at exercise prices ranging from HK$0.2422 to HK$0.4844 per ordinary share.

– 55 –

APPENDIX I

ACCOUNTANTS’ REPORT

Under Share Option Scheme B, the Company may grant options to employees of the Group (including directors of the Company) to subscribe for ordinary shares of HK$0.01 each, subject to a maximum of 30% of the nominal value of the issued share capital of the Company from time to time, excluding for this purpose shares issued on the exercise of options. The subscription price will be determined by the Company’s Board of Directors, and will not be less than the higher of (i) the nominal value of the ordinary shares, (ii) the average of the closing price of the ordinary shares quoted on the GEM on the five business days immediately preceding the date of grant, and (iii) the closing price of ordinary shares quoted on the GEM on the date of grant, which must be a business day.

Under Share Option Scheme C, the Company may grant options to employees of the Group (including directors of the Company) or at the absolute discretion of the directors to invite any person who has contributed to the Group’s business to take up options to subscribe for ordinary shares of HK$0.01 each, subject to a maximum of 30% of the nominal value of the issued share capital of the Company from time to time, excluding for this purpose shares issued on the exercise of options. The subscription price will be determined by the Company’s Board of Directors, and will not be less than the higher of (i) the nominal value of the ordinary shares, (ii) the average of the closing price of the ordinary shares quoted on the GEM on the five business days immediately preceding the date of grant, and (iii) the closing price of ordinary shares quoted on the GEM on the date of grant, which must be a business day.

The following table discloses details of the Company’s share options under Share Option Scheme A, Share Option Scheme B and Share Option Scheme C and its movements during Relevant Period.

– 56 –

APPENDIX I

ACCOUNTANTS’ REPORT

For the year ended 31 December 2003

Subscription price per Date of grant Exercise period share(a) I. Share Option Scheme A Directors and chief executive – – – Other employees and optionees 2 March 2000 2 March 2000 to HK$0.4844 1 March 2010 2 March 2000 2 March 2000 to HK$0.2422 1 March 2010 II. Share Option Scheme B Directors and chief executive Mr. Cheung Wai 19 June 2000 19 June 2001 to HK$3.30 18 June 2010 Mr. Darwin Hu 17 June 2001 17 June 2002 to HK$2.06 16 June 2011 19 June 2000 19 June 2001 to HK$3.30 18 June 2010 Mr. Chan Man Ching 4 December 4 December 2001 to HK$1.016 2000 3 December 2010 Other employees and optionees 12 July 2000 12 July 2001 to HK$2.46 11 July 2010 4 December 4 December 2001 to HK$1.016 2000 3 December 2010 17 January 17 January 2002 to HK$2.06 2001 16 January 2011 13 August 13 August 2002 to HK$2.75 2001 12 August 2011	Beginning of year – 34,000,000 160,000 34,160,000 34,160,000 5,000,000 1,800,000 5,000,000 500,000 12,300,000 4,670,000 6,200,000 36,000,000 6,900,000 53,770,000 66,070,000	Granted before 7 Oct 2003 – – – – – – – – – – – – – – – –	Cancelled/ lapsed before 7 Oct 2003 – – – – – – – – – – (620,000 ) – (400,000 ) (1,200,000 ) (2,220,000 ) (2,220,000 )	Exercised before 7 Oct 2003 – (1,000,000 ) – (1,000,000 ) (1,000,000 ) – – – – – – – – – – –	Adjusted on 7 Oct 2003 (b) – (29,700,000 ) (144,000 ) (29,844,000 ) (29,844,000 ) (4,500,000 ) – (4,500,000 ) (450,000 ) (9,450,000 ) (3,645,000 ) (5,580,000 ) (33,660,000 ) (5,130,000 ) (48,015,000 ) (57,465,000 )	Lapsed after 7 Oct 2003 – (32,000 ) (16,000 ) (48,000 ) (48,000 ) – – – – – – – – – – –	End of year –
							3,268,000 –
							3,268,000
							3,268,000
							500,000 1,800,000 500,000 50,000
							2,850,000
							405,000 620,000 1,940,000 570,000
							3,535,000
							6,385,000

– 57 –

APPENDIX I

ACCOUNTANTS’ REPORT

Subscription price per Date of grant Exercise period share(a) III. Share Option Scheme C Directors and chief executives Mr. Chan Man Ching 14 May 2002 14 May 2003 to HK$1.412 13 May 2010 12 November 12 November 2003 to HK$1.00 2002 11 November 2012 Dr. Zhang Fu 14 August 14 August 2003 to HK$1.00 2002 13 August 2012 26 March 2003 26 March 2004 to HK$1.00 25 March 2013 Other employees and optionees 14 May 2002 14 May 2003 to HK$1.412 13 May 2012 14 August 14 August 2003 to HK$1.00 2002 13 August 2012 12 November 12 November 2003 to HK$1.00 2002 11 November 2012 26 March 2003 26 March 2004 to HK$1.00 25 March 2013 13 August 13 August 2004 to HK$1.00 2003 12 August 2013 Total share options	Beginning of year 50,000 200,000 300,000 – 550,000 34,810,000 18,050,000 3,300,000 – – 56,160,000 56,710,000 156,940,000	Granted before 7 Oct 2003 – – – 700,000 700,000 – – – 24,070,000 2,800,000 26,170,000 26,870,000 26,870,000	Cancelled/ lapsed before 7 Oct 2003 – – – – – (3,950,000 ) – – (1,600,000 ) – (5,550,000 ) (5,550,000 ) (7,770,000 )	Exercised before 7 Oct 2003 – – – – – – – – – – – – (1,000,000 )	Adjusted on 7 Oct 2003(b) – – – – – (27,819,000 ) (16,515,000 ) (3,150,000 ) (20,223,000 ) (2,520,000 ) (70,227,000 ) (70,227,000 ) (157,536,000 )	Lapsed after 7 Oct 2003 – – – – – (100,000 ) – – (160,000 ) – (260,000 ) (260,000 ) (308,000 )	End of year 50,000 200,000 300,000 700,000
							1,250,000
							2,941,000 1,535,000 150,000 1,387,000 280,000
							6,293,000
							7,543,000
							17,196,000

(a) The subscription price and the number of options which remains outstanding at the close of business on 6 October 2003 are adjusted due to Share Consolidation of the Company for 10 existing shares into 1 Consolidated Share with effect from 7 October 2003. The adjusted subscription price per share is equivalent to the original subscription price per share before the Share Consolidation multiplied by 10. The original subscription prices per share before the Share Consolidation were HK$0.04844; HK$0.02422; HK$0.33; HK$0.246; HK$0.1016; HK$0.206; HK$0.275; HK$0.1412; HK$0.10; HK$0.10, HK$0.10 and HK$0.10 respectively.

• (b) The adjustment for the number of outstanding options is equivalent to 9/10 of the number of the existing outstanding option as at the close of business on 6 October 2003,

– 58 –

APPENDIX I

ACCOUNTANTS’ REPORT

For the year ended 31 December 2004

Subscription price Date of grant Exercise period per share I. Share Option Scheme A Directors and chief executives – – – Other employees and optionees 2 March 2000 2 March 2000 to HK$0.4844 1 March 2010 II. Share Option Scheme B Directors and chief executives Mr. Cheung Wai 19 June 2000 19 June 2001 to HK$3.30 18 June 2010 Mr. Darwin Hu 19 June 2000 19 June 2001 to HK$3.30 18 June 2010 17 January 17 January 2002 to HK$2.06 2001 16 January 2011 Mr. Chan Man Ching 4 December 4 December 2001 to HK$1.016 2000 3 December 2010 Other employees 12 July 2000 12 July 2001 to HK$2.46 and optionees 11 July 2010 4 December 4 December 2001 to HK$1.016 2000 3 December 2010 17 January 17 January 2002 to HK$2.06 2001 16 January 2011 13 August 2001 13 August 2002 to HK$2.75 12 August 2011	Beginning of year – 3,268,000 3,268,000 500,000 500,000 1,800,000 50,000 2,850,000 405,000 620,000 1,940,000 570,000 3,535,000 6,385,000	Granted during the year – – – – – – – – – – – – – –	Cancelled/ lapsed during the year – (1,120,000 ) (1,120,000 ) – – – – – (320,000 ) (500,000 ) (1,000,000 ) – (1,820,000 ) (1,820,000 )	Exercised during the year – – – – – – – – – – – – – –	End of year –
					2,148,000
					2,148,000
					500,000 500,000 1,800,000 50,000
					2,850,000
					85,000 120,000 940,000 570,000
					1,715,000
					4,565,000

– 59 –

APPENDIX I

ACCOUNTANTS’ REPORT

Subscription price Date of grant Exercise period per share III. Share Option Scheme C Directors and chief executives Mr. Chan Man Ching 14 May 2002 14 May 2003 to HK$1.412 13 May 2010 12 November 12 November 2003 to HK$1.00 2002 11 November 2012 Dr. Zhang Fu 14 August 2002 14 August 2003 to HK$1.00 13 August 2012 26 March 2003 26 March 2004 to HK$1.00 25 March 2013 Other employees and 14 May 2002 14 May 2003 to HK$1.412 optionees 13 May 2012 14 August 2002 14 August 2003 to HK$1.00 13 August 2012 12 November 12 November 2003 to HK$1.00 2002 11 November 2012 26 March 2003 26 March 2004 to HK$1.00 25 March 2013 13 August 2003 13 August 2004 to HK$1.00 12 August 2013 Total share options	Beginning of year 50,000 200,000 300,000 700,000 1,250,000 2,941,000 1,535,000 150,000 1,387,000 280,000 6,293,000 7,543,000 17,196,000	Granted during the year – – – – – – – – – – – – –	Cancelled/ lapsed during the year – – – – – (1,331,000 ) – – (240,000 ) – (1,571,000 ) (1,571,000 ) (4,511,000 )	Exercised during the year – – – – – – – – – – – – –	End of year 50,000 200,000 300,000 700,000
					1,250,000
					1,610,000 1,535,000 150,000 1,147,000 280,000
					4,722,000
					5,972,000
					12,685,000

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APPENDIX I

ACCOUNTANTS’ REPORT

For the year ended 31 December 2005

Subscription price Date of grant Exercise period per share I. Share Option Scheme A Directors and chief executives – – – Other employees and optionees 2 March 2000 2 March 2000 to HK$0.4844 1 March 2010 II. Share Option Scheme B Directors and chief executives Mr. Cheung Wai 19 June 2000 19 June 2001 to HK$3.30 18 June 2010 Mr. Darwin Hu 19 June 2000 19 June 2001 to HK$3.30 18 June 2010 17 January 2001 17 January 2002 to HK$2.06 16 January 2011 Mr. Ching Man Ching 4 December 4 December 2001 to HK$1.016 2000 3 December 2010 Other employees and 12 July 2000 12 July 2001 to HK$2.46 optionees 11 July 2010 4 December 4 December 2001 to HK$1.016 2000 3 December 2010 17 January 2001 17 January 2002 to HK$2.06 16 January 2011 13 August 2001 13 August 2002 to HK$2.75 12 August 2011	Beginning of year – 2,148,000 2,148,000 500,000 500,000 1,800,000 50,000 2,850,000 85,000 120,000 940,000 570,000 1,715,000 4,565,000	Granted during the year – – – – – – – – – – – – – –	Cancelled/ lapsed during the year – – – – – – – – – (50,000 ) (10,000 ) (100,000 ) (160,000 ) (160,000 )	Exercised during the year – – – – – – – – – – – – – –	End of year –
					2,148,000
					2,148,000
					500,000 500,000 1,800,000 50,000
					2,850,000
					85,000 70,000 930,000 470,000
					1,555,000
					4,405,000

– 61 –

APPENDIX I

ACCOUNTANTS’ REPORT

For the year ended 31 December 2005

Subscription price Date of grant Exercise period per share III. Share Option Scheme C Directors and chief executives Mr. Chan Man Ching 14 May 2002 14 May 2003 to HK$1.412 13 May 2012 12 November 12 November 2003 to HK$1.00 2002 11 November 2012 Dr. Zhang Fu 14 August 2002 14 August 2003 to HK$1.00 13 August 2012 26 March 2003 26 March 2004 to HK$1.00 25 March 2013 Other employees and optionees 14 May 2002 14 May 2003 to HK$1.412 13 May 2012 14 August 2002 14 August 2003 to HK$1.00 13 August 2012 12 November 12 November 2003 to HK$1.00 2002 11 November 2012 26 March 2003 26 March 2004 to HK$1.00 25 March 2013 13 August 2003 13 August 2004 to HK$1.00 12 August 2013 Total share options	Beginning of year 50,000 200,000 300,000 700,000 1,250,000 1,610,000 1,535,000 150,000 1,147,000 280,000 4,722,000 5,972,000 12,685,000	Granted during the year – – – – – – – – – – – – –	Cancelled/ lapsed during the year – – (300,000 ) (700,000 ) (1,000,000 ) – – – – – – (1,000,000 ) (1,160,000 )	Exercised during the year – – – – – – – – – – – – –	End of year 50,000 200,000 – –
					250,000
					1,610,000 1,535,000 150,000 1,147,000 280,000
					4,722,000
					4,972,000
					11,525,000

– 62 –

APPENDIX I

ACCOUNTANTS’ REPORT

31. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(a) Net cash outflow from deemed disposal of a subsidiary

Net liabilities disposed of: Intangible assets Property, plant and equipment Inventories Trade receivables Prepayments, deposits and other receivables Amounts due from group companies Cash and bank balances Trade payables Accruals and other payables Amounts due to group companies Minority interests Net liabilities Reserves released Capital reserve Exchange reserve Gain on deemed disposal of a subsidiary Consideration Satisfied by: Cash consideration Analysis of the net outflow of cash and cash equivalents in respect of the deemed disposal of a subsidiary Cash consideration received _Less:_Cash and bank balances disposed of Net outflow of cash and cash equivalents in respect of the deemed disposal of a subsidiary

For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – 245 – – 300 48 – 13,877 1,603 – 556 18 – 3,094 1,160 – 20,639 – – 1,200 8 – (34,430) (1,707) – (8,896) (1,182) – (1,559) – – 746 24 – (4,228) (28) – – (2) – – 28 – (4,228) (2) – 4,228 2 – – – – – – – – – – 1,200 8 – (1,200) (8)

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APPENDIX I

ACCOUNTANTS’ REPORT

(b) Net cash inflow/(outflow) from disposal of a subsidiary

Net assets disposed of: Property, plant and equipment Long-term investments Inventories Trade receivables Prepayments, deposits and other receivables Short term loan receivable Cash and bank balances Trade payables Accruals and other payables Amount due to a group company Minority interests Net assets Reserves released Capital reserve Exchange reserve Loss on disposal of a subsidiary Consideration Satisfied by: Cash consideration Analysis of the net inflow/(outflow) of cash and cash equivalents in respect of the disposal of a subsidiary Cash consideration received _Less:_Cash and bank balances disposed of Net inflow/(outflow) of cash and cash equivalents in respect of the disposal of a subsidiary

For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 (i) – 1,252 – – 3,846 – – 1,939 10 – 8,294 – – 1,504 697 – 189 – – 4,048 29 – (8,456) – – (1,414) – – (1,120) – – – (221) – 10,082 515 – (635) – – (7) 9 – 9,440 524 – (9,440) (472) – – 52 – – – – – 52 – (4,048) (29) – (4,048) 23

(i) On 23 December 2004, the Group disposed of 90% equity interest in 深圳市旭感數 碼系統有限公司 with its shared net assets value of approximately HK$9 million to 深圳市旭感和誠信息技術有限公司 , a company in which the director of the Company, Mr. Cheung Wai, has substantial personal interest indirectly, for a consideration of RMB1.

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APPENDIX I

ACCOUNTANTS’ REPORT

(c) Net cash outflow from acquisition of a subsidiary

Fair value of identiable assets/(liabilities) acquired: Property, plant and equipment Inventories Trade receivables Prepayments, deposits and other receivables Cash and bank balances Trade payables Accruals and other payables Minority interests Net assets Goodwill Total consideration Satisfied by: Cash consideration Cash and bank balances acquired Cash consideration Net inflow of cash and cash equivalents in respect of the acquisition of a subsidiary

For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – 1,568 – – 663 – – 6,500 – – 4,171 – – 4,062 – – (3,801) – – (7,759) – – 3,507 – – 8,911 – – (8,911) – – – – – – – – 4,062 – – – – – 4,062

On 11 March 2005, the Group purchased back the 90% equity interest in 深圳市旭感數碼 系統有限公司 with the consideration of RMB1 from 深圳市旭感和誠信息技術有限公司, a company in which the director of the Company, Mr. Cheung Wai, has substantial personal interest indirectly.

32. BUSINESS COMBINATIONS

On 11 March 2005, the Group acquired 90% of equity interest of 深圳市旭感數碼系統有限公司 for a total consideration of RMB1. Since the date of acquisition, the revenue of 深圳市旭感數碼系統有限 公司 was approximately HK$6 million and it incurred net loss of approximately HK$3 million for the year ended 31 December 2005.

Details of net assets acquired and goodwill are as follows:

Purchase consideration: Cash Fair value of net assets acquired Excess of the fair value of net assets acquired over the cost of acquisition	2005 HK$’000 – 8,911 (8,911)

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APPENDIX I

ACCOUNTANTS’ REPORT

The assets and liabilities arising from acquisition are as follows:

Net assets acquired: Property, plant and equipment Inventories Trade receivables Prepayment, deposits and other receivables Cash and bank balances Trade payables Accruals and other payables Minority interests	Acquirer’s Fair value carrying amount HK$’000 HK$’000 1,568 1,568 663 663 6,500 6,500 4,171 4,171 4,062 4,062 (3,801) (3,801) (7,759) (7,759) 3,507 3,507 8,911 8,911

33. EMPLOYEE RETIREMENT BENEFITS

From 1 December 2000, the Group had arranged for its Hong Kong employees to join the Mandatory Provident Fund Scheme (“the MPF Scheme”), a defined contributed scheme managed by an independent trustee. Under the MPF Scheme, each of the Group and its employees makes monthly contributions to the scheme at 5% of the employees’ earnings as defined under the Mandatory Provident Fund legislation, subject to a cap of HK$1,000 per month and thereafter contributions are voluntary.

As stipulated by rules and regulations in mainland China, the Group contributes to statesponsored retirement plans for its employees in mainland China. The Group contributes approximately 9% (2004 and 2003: approximately 9%) of the basic salaries of its employees, and has no further obligations for the actual payment of pension or post-retirement benefits beyond the annual contributions. The state-sponsored retirement plans are responsible for the entire pension obligations payable to retired employees.

During the year ended 31 December 2005, the aggregate contributions of the Group to the aforementioned retirement benefit schemes were approximately HK$428,000 (2004: HK$894,000; 2003: HK$954,000). As at 31 December 2005, there were no forfeitures available to offset the Group’s future contributions (2004 and 2003: Nil).

The other group companies did not have retirement benefit scheme for their employees.

34. SEGMENT INFORMATION

(a) Primary segment

The Group’s business can be classified into four major segments – (i) the manufacturing and selling of optical image capturing devices; (ii) the manufacturing and selling of modules of optical image capturing devices; (iii) the manufacturing and selling of chips and other optoelectronic products and (iv) the manufacturing and selling of LCD and CRT monitors.

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APPENDIX I

ACCOUNTANTS’ REPORT

Analysis by business segment is as follows:

Turnover – optical image capturing devices unit – modules unit – chips and other optoelectronic products unit – LCD and CRT monitors Loss attributable to equity holders of the Company – optical image capturing devices unit – modules unit – chips and other optoelectronic products unit – LCD and CRT monitors Depreciation and amortization – optical image capturing devices unit – modules unit – chips and other optoelectronic products unit – LCD and CRT monitors Capital expenditures – optical image capturing devices unit – modules unit – chips and other optoelectronic products unit – LCD and CRT monitors Assets – optical image capturing devices unit – modules unit – chips and other optoelectronic products unit – LCD and CRT monitors Liabilities – optical image capturing devices unit – modules unit – chips and other optoelectronic products unit – LCD and CRT monitors

For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 62,249 47,901 48,094 8,749 6,681 5,745 25,327 21,779 12,716 167,888 115,978 – 264,213 192,339 66,555 (3,452) (5,738) (71,853) (485) (800) (8,583) (1,404) (2,609) (18,999) (9,310) (13,893) – (14,651) (23,040) (99,435) 1,473 1,555 4,612 207 217 551 599 707 1,220 3,973 3,766 – 6,252 6,245 6,383 1,374 745 1,273 193 104 152 559 339 337 3,706 1,803 – 5,832 2,991 1,762 79,247 74,260 152,489 11,138 10,358 18,215 32,243 33,762 40,318 213,734 179,797 – 336,362 298,177 211,022 46,220 44,097 139,119 6,496 6,150 16,618 18,805 20,049 36,784 124,656 106,767 – 196,177 177,063 192,521

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APPENDIX I

ACCOUNTANTS’ REPORT

(b) Secondary segment

An analysis of turnover and loss attributable to equity holders of the Company by geographical location is as follows:

Turnover* – The Philippines – Taiwan – Hong Kong – Mainland China – Japan – The United States of America – Belgium – Korea – Singapore – France – Germany – Italy – Nigeria – Pakistan – Spain – Others	For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – 414 – 166,829 108,162 348 10,230 645 596 34,597 32,895 14,054 262 565 – 46,448 45,447 44,629 222 – – 724 1,779 1,305 518 1,203 3,136 579 453 204 2,596 341 232 765 63 332 – – 153 – – 588 – – 843 443 372 135 264,213 192,339 66,555	For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – 414 – 166,829 108,162 348 10,230 645 596 34,597 32,895 14,054 262 565 – 46,448 45,447 44,629 222 – – 724 1,779 1,305 518 1,203 3,136 579 453 204 2,596 341 232 765 63 332 – – 153 – – 588 – – 843 443 372 135 264,213 192,339 66,555
		66,555

* Turnover by geographical location is determined mainly on the basis of the destination of delivery of merchandise.

Loss attributable to equity holders of the Company – The Philippines – Taiwan – Hong Kong – Mainland China – Japan – The United States of America – Belgium – Korea – Singapore – France – Germany – Italy – Nigeria – Pakistan – Spain – Others	For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – (49) – (9,251) (12,957) (520 (567) (77) (891 (1,918) (3,940) (20,997 (15) (68) – (2,576) (5,444) (66,676 (12) – – (40) (213) (1,949 (29) (144) (4,685 (32) (54) (304 (144) (41) (347 (42) (8) (497 – – (228 – – (879 – – (1,260 (25) (45) (202 (14,651) (23,040) (99,435	For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – (49) – (9,251) (12,957) (520 (567) (77) (891 (1,918) (3,940) (20,997 (15) (68) – (2,576) (5,444) (66,676 (12) – – (40) (213) (1,949 (29) (144) (4,685 (32) (54) (304 (144) (41) (347 (42) (8) (497 – – (228 – – (879 – – (1,260 (25) (45) (202 (14,651) (23,040) (99,435
		(99,435

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APPENDIX I

ACCOUNTANTS’ REPORT

No analysis of capital expenditures by geographical location is presented as the majority of the Group’s capital assets acquired during the year are located in mainland China.

An analysis of the Group’s assets by geographical location is as follows:

Assets – Mainland China – Hong Kong – The United States of America – Taiwan	For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 299,168 267,458 178,684 4,414 3,228 2,593 32,680 27,488 29,745 100 3 – 336,362 298,177 211,022	For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 299,168 267,458 178,684 4,414 3,228 2,593 32,680 27,488 29,745 100 3 – 336,362 298,177 211,022
		211,022

35. RELATED PARTY TRANSACTIONS

• (a) Apart from the above, the Group also had the following transactions with the related parties during the Relevant Periods.

Rental expenses paid/payable to a director Trade payables to the director as at the balance sheet date	For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 216 216 72 3 3 3	For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 216 216 72 3 3 3
		3

Rental expenses were based on the terms stated in the lease agreement.

36. COMMITMENTS

(a) Capital commitments

As at the balance sheet date, the Group had the following commitments:

		As at	31 December
	2003		2004	2005
	HK$’000		HK$’000	HK$’000
Contracted but not provided for	9,032		6,880	4,292

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APPENDIX I

ACCOUNTANTS’ REPORT

(b) Operating lease commitments

As at the balance sheet date, the Group had the following commitments for future lease payable/receivable under non-cancellable operating leases as follows:

Lease receivable – Within one year – In the second to fifth years Lease payable – Within one year – In the second to fifth years	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – 260 628 – 435 393 – 695 1,021 As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 1,549 1,097 936 1,848 788 37 3,397 1,885 973	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – 260 628 – 435 393 – 695 1,021 As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 1,549 1,097 936 1,848 788 37 3,397 1,885 973
		973

• (c) The Company did not have capital and operating lease commitments as at 31 December 2003, 2004 and 2005.

37. PLEDGE OF ASSETS

• (a) As at 31 December 2005, the Group had banking facilities of HK$150,225,000 (2004: HK$183,720,000; 2003: HK$136,888,000) in which HK$138,445,000 (2004: HK$141,136,000; 2003: HK$129,215,000) were utilised. These facilities were secured by:

• (i) pledge of the Group’s leasehold land included in property under development with a net book value of HK$50,952,000 (2004: HK$49,992,000; 2003: HK$49,992,000) (Note 16), the leasehold land has been frozen by the court in mainland China following the legal action taken by a banker of the Group (Note 39(a));

• (ii) pledge of the Group’s intangible assets with net book value of HK$971,000 (2004 and 2003: Nil) (Note 13).

• (iii) pledge of the Group’s leasehold land and buildings with an aggregate net book value of HK$6,317,000 (2004: HK$21,250,000; 2003: HK$22,549,000) (Note 15).

• (iv) pledge of the Group’s machinery with net book value of HK$9,976,000 (2004 and 2003: Nil) and motor vehicle with net book value of Nil (2004: HK$318,000; 2003: HK$403,000) (Note 15).

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APPENDIX I

ACCOUNTANTS’ REPORT

38. CONTINGENT LIABILITIES

Group

As at 31 December 2005, the Group had contingent liabilities relating to the discounted bills of approximately HK$1,243,000 (2004 and 2003: Nil).

Company

As at 31 December 2005, the Company had contingent liabilities relating to corporate guarantee given in respect of banking facilities extended to certain subsidiaries of approximately HK$150,256,000 (2004: HK$233,832,000; 2003: Nil).

Apart from the above, the Group and the Company had no other contingent liabilities as at 31 December 2003, 2004 and 2005.

39. POST BALANCE SHEET EVENTS

• (a) On 6 January 2006, the Bank of China Limited (“BOC”), Shenzhen, mainland China, took legal action against the Company and SOT, in respect of SOT’s default on repayment of interest of approximately RMB1.2 million accrued up to 21 December 2005 on a bank loan of RMB120 million granted from BOC on 22 April 2005. The BOC claimed against the Company and SOT for repayment of the loan and accrued interest totaling approximately RMB121.2 million (equivalent to approximately HK$116.5 million) and applied to freeze the leasehold land of SOT (Notes 25 and 37). On 2 March 2006, the Company received a writ of summons issued from the Guangdong Province Higher People’s Court lodged by the BOC against the Company and SOT for the above claim. The above transaction was detailed in the Company’s announcement dated 3 March 2006.

• (b) On 25 November 2005, the Company entered into an agreement (the “Agreement”) with Mr. Wang Han (“Mr. Wang”), an independent third party, pursuant to which the Company agreed to dispose of the entire issued capital of SIL, which directly held the entire issued capital of SI, SYSCAN Viewtech Limited and indirectly held the entire issued capital of SYSCAN Laser Technology Limited and Leadbuilt Technology Limited (collectively the “Subsidiaries”) as at 31 December 2005, at a consideration of US$4.5 million. On 7 March 2006, the Company and Mr. Wang entered into a supplemental agreement (the “Supplementary Agreement”) for purpose of postponing the date on completion of the disposal. The above transaction was detailed in the Company’s announcement dated 13 December 2005 and 8 March 2006 respectively and will be subject to approval at the special general meeting of the shareholders of the Company and by The Stock Exchange of Hong Kong Limited.

– 71 –

APPENDIX I

ACCOUNTANTS’ REPORT

• (i) Included in the consolidated balance sheet of the Group were the assets and liabilities attributable to SIL and the Subsidiaries as at each of the three years ended 31 December 2003, 2004 and 2005 based on the unaudited management accounts after exclusion of all intra-entity balances of SIL and the Subsidiaries with the Remaining Group. The assets and liabilities attributable to SIL and the Subsidiaries as at the years ended 31 December 2003 and 31 December 2004 were presented on a pro forma combined basis as if the Subsidiaries were all of SIL’s subsidiaries as at the years ended 31 December 2003 and 31 December 2004 respectively.

Non-current assets Property, plant and equipment Available-for-sale investments Current assets Inventories Trade receivables Prepayments, deposits and other receivables Cash and bank balances Current liabilities Short-term bank loans – pledged Trade payables Accruals and other payables Net current assets Net assets	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 (Unaudited (Unaudited (Unaudited) pro forma pro forma combined) combined) 84 187 1,246 7,782 7,782 7,782 7,866 7,969 9,028 1,557 3,874 5,860 16,680 8,775 8,286 84 1,566 1,680 7,970 5,376 4,906 26,291 19,591 20,732 – 7,278 7,902 200 684 1,988 3,017 6 1,347 3,217 7,968 11,237 23,074 11,623 9,495 30,940 19,592 18,523	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 (Unaudited (Unaudited (Unaudited) pro forma pro forma combined) combined) 84 187 1,246 7,782 7,782 7,782 7,866 7,969 9,028 1,557 3,874 5,860 16,680 8,775 8,286 84 1,566 1,680 7,970 5,376 4,906 26,291 19,591 20,732 – 7,278 7,902 200 684 1,988 3,017 6 1,347 3,217 7,968 11,237 23,074 11,623 9,495 30,940 19,592 18,523
		9,028
		5,860 8,286 1,680 4,906
		20,732
		7,902 1,988 1,347
		11,237
		9,495
		18,523

– 72 –

APPENDIX I

ACCOUNTANTS’ REPORT

• (ii) Included in the consolidated income statement of the Group were the results attributable to SIL and the Subsidiaries for each of the three years ended 31 December 2003, 2004 and 2005 based on the unaudited management accounts after exclusion of all intra-entity transactions of SIL and the Subsidiaries with the Remaining Group. The results attributable to SIL and the Subsidiaries for the years ended 31 December 2003 and 31 December 2004 were presented on a pro forma combined basis as if the Subsidiaries were all of SIL’s subsidiaries for the years ended 31 December 2003 and 31 December 2004 respectively.

Turnover Cost of sales Gross profit Other revenues and gains Selling and distribution expenses General and administrative expenses Research and development expenses Other operating expenses Profit/(loss) from operations Finance costs Profit/(loss) before taxation Taxation Profit/(loss) for the year

For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 (Unaudited (Unaudited (Unaudited) pro forma pro forma combined) combined) 58,163 47,251 51,451 (39,698) (32,504) (32,847) 18,465 14,747 18,604 5,908 114 88 (4,961) (5,731) (7,033) (4,663) (6,620) (8,350) (6,076) (4,078) (5,485) – (4,468) – 8,673 (6,036) (2,176) – (92) (455) 8,673 (6,128) (2,631) (7) (7) (7) 8,666 (6,135) (2,638)

– 73 –

APPENDIX I

ACCOUNTANTS’ REPORT

• (iii) Included in the consolidated cash flow statement of the Group were the cash flows attributable to SIL and the Subsidiaries for each of the three years ended 31 December 2003, 2004 and 2005 based on the unaudited management accounts after exclusion of all intra-entity transactions of SIL and the Subsidiaries with the Remaining Group. The cash flows attributable to SIL and the Subsidiaries for the years ended 31 December 2003 and 31 December 2004 were presented on a pro forma combined basis as if the Subsidiaries were all of SIL’s subsidiaries for the years ended 31 December 2003 and 31 December 2004 respectively.

Cash flow from operating activities Profit/(loss) before taxation Adjustments for: Depreciation of property, plant and equipment Interest expenses Interest income Impairment for other receivables Loss on disposal of property, plant and equipment Write-down of inventories Written back of impairment for trade receivables Written back of write-down of inventories Operating profit/(loss) before working capital changes Increase in inventories (Increase)/decrease in trade receivables Decrease in prepayments, deposits and other receivables (including intra-entity balances with the Remaining Group, net) Increase in trade payables Increase/(decrease) in accruals and other payables Net cash generated from/(used in) operations Interest received Interest paid Overseas tax paid Net cash generated from/(used in) operating activities

For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 (Unaudited (Unaudited (Unaudited) pro forma pro forma combined) combined) 8,673 (6,128) (2,631) 62 4 244 – 92 455 (96) (46) (51) – 4,468 – – 98 – – – 96 852 – – 4,959 – – 14,450 (1,512) (1,887) (6,516) (2,317) (2,082) (10,297) (11,166) 489 5,269 7,905 1,455 142 484 1,304 2,400 (3,011) 1,341 5,448 (9,614) 620 96 46 51 – (92) (455) (7) (7) (7) 5,537 (9,667) 209

– 74 –

APPENDIX I

ACCOUNTANTS’ REPORT

Investing activities Purchase of property, plant and equipment Net cash used in investing activities Financing activities Inception on short-term bank loans Net cash generated from financing activities Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes, net Cash and cash equivalents of end of year Analysis of the balances of cash and cash equivalents Cash and bank balances

For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 (Unaudited (Unaudited (Unaudited) pro forma pro forma combined) combined) (8) (205) (1,303) (8) (205) (1,303) – 7,278 624 – 7,278 624 5,529 (2,594) (470) 2,602 7,970 5,376 (161) – – 7,970 5,376 4,906 7,970 5,376 4,906

(c) On 13 February 2006, an executive director of the Company, Mr. Cheung Wai (“the Underwriter”) advanced a shareholder’s loan of HK$9,400,000 (“the Loan”) to the Company. The Loan does not carry any interest and in early April 2006, Mr. Cheung Wai confirmed that he would not seek repayment of loan prior to June 2007.

On 15 February 2006, the Company entered into an underwriting agreement with Mr. Cheung Wai, as the Underwriter who owned approximately 10.78% of the issued share capital of the Company as at the date of the Company’s announcement, in respect of a proposed open offer to raise a fund of not less than HK$9.2 million and not more than HK$10.3 million, before expenses of approximately HK$0.9 million by way of an open offer, of not less than 307,092,981 offer shares and not more than 341,667,981 offer shares on the basis of 3 offer shares for every 1 share to the qualifying shareholders. The Underwriter has irrevocably undertaken to the Company to take up the excluded offer share as his entitlement under the open offer. The above transaction was detailed in the Company’s announcement dated 28 February 2006.

– 75 –

APPENDIX I

ACCOUNTANTS’ REPORT

40. COMPARATIVE AMOUNTS

As further explained in notes 3 and 4 to the financial statements, due to the adoption of new HKFRSs during the current year, the accounting treatment and presentation of certain items and balances in the financial statements have been revised to comply with the new requirements. Accordingly, certain comparative amounts have been reclassified and restated to conform with the current year’s presentation and accounting treatment.

41. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared for the Company and its subsidiaries in respect of any period subsequent to 31 December 2005 up to the date of this report.

Yours faithfully, CCIF CPA LIMITED Certified Public Accountants

Delores Teh

Practising Certificate Number P03207

– 76 –

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

(A) Unaudited Pro Forma Financial Information

For illustrative purpose only, the following is the unaudited pro forma financial information of the Remaining Group, based on the Group’s audited consolidated income statement and audited consolidated cash flow statement for the year ended 31 December 2005 and the audited consolidated balance sheet as at 31 December 2005.

• (i) Unaudited pro forma consolidated income statement of the Remaining Group for the year ended 31 December 2005 as if the Disposal had been completed on 1 January 2005

on 1 January 2005
				Unaudited
	Audited			pro forma
consolidated				consolidated
	income			income
	statement			statement
of the Group for				of the
	year ended	Pro forma	adjustments	Remaining
31 December 2005		for the	Disposal	Group
	HK$’000	HK$’000	HK$’000	HK$’000
		(Note 1)	(Note 2)
Turnover	66,555	(51,451)		15,104
Cost of sales	(42,359) 32,847			(9,512)
Gross profit	24,196			5,592
Other revenues and gains	4,376	(88)		4,288
Selling and distribution expenses	(10,450) 7,033			(3,417)
General and administrative
expenses	(57,818) 8,350			(49,468)
Research and development
expenses	(39,195) 5,485			(33,710)
Provision for impairment of
trade and other receivables	(20,191)			(20,191)
Loss from operations	(99,082)			(96,906)
Finance costs	(4,644) 455			(4,189)
Gain on deemed disposal of a
subsidiary	2			2
Impairment loss on goodwill	(3,869)			(3,869)
Loss on disposal of a subsidiary	(472)			(472)
Negative goodwill on acquisition
of a subsidiary	8,911			8,911
Share of loss of associates	(1,660)			(1,660)
Write back of impairment loss of
an associate	733			733
Gain on disposal of SIL	–		16,177	16,177
Loss before taxation	(100,081)			(81,273)
Taxation	(7) 7			–
Loss for the year	(100,088)			(81,273)
Attributable to:
Equity holders of the Company	(99,435) 2,638		16,177	(80,620)
Minority interests	(653)			(653)
	(100,088)			(81,273)

– 77 –

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

• (ii) Unaudited pro forma consolidated balance sheet of the Remaining Group as at 31 December 2005 as if the Disposal had been completed on 31 December 2005

				Unaudited
	Audited			pro forma
	consolidated			consolidated
	balance sheet			balance sheet
	of the Group			of the
	as at	Pro forma	adjustments	Remaining
31	December 2005	for the	Disposal	Group
	HK$’000	HK$’000	HK$’000	HK$’000
		(Note 3)	(Note 4)
Non-current assets
Intangible assets	2,551			2,551
Property, plant and equipment	23,154	(1,246)		21,908
Property under development	141,134			141,134
Interest in associates	10,875			10,875
Available-for-sale investment	9,342	(7,782)		1,560
	187,056			178,028
Current assets
Inventories	5,860	(5,860)		–
Trade receivables	8,286	(8,286)		–
Prepayments, deposits and other
receivables	1,680	(1,680)		–
Cash and bank balances	8,140	(4,906)	34,700	37,934
	23,966			37,934
Current liabilities
Short-term bank loans – pledged	137,940	(7,902)		130,038
Trade payables	25,707	(1,988)		23,719
Current portion of interest-bearing
borrowings	59			59
Accruals and other payables	28,369	(1,347)		27,022
	192,075			180,838
Net current liabilities	(168,109)			(142,904)
Total assets less current liabilities	18,947			35,124
Non-current liabilities
Interest-bearing borrowings	446			446
Net assets	18,501			34,678
Capital and reserves
Share capital	1,024			1,024
Reserves	16,027	(18,523)	34,700	32,204
Equity attributable to the
equity holders	17,051			33,228
Minority interests	1,450			1,450
Total equity	18,501			34,678

– 78 –

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

• (iii) Unaudited pro forma consolidated cash flow statement of the Group for the year ended 31 December 2005 as if the Disposal had been completed on 1 January 2005

January 2005
								Unaudited
			Audited					pro forma
		consolidated					consolidated
			cash flow					cash flow
			statement					statement
	of the Group for							of the
			year ended	Pro forma adjustments				Remaining
	31 December 2005				for the Disposal			Group
			HK$’000	HK$’000	HK$’000	HK$’000		HK$’000
				(Note 2)	(Note 4)	(Note 5)
Cash flow from operating activities
Loss before taxation			(100,081)	16,177			2,631	(81,273)
Adjustments for:
Amortisation of patents and
intellectual property rights			470					470
Depreciation of property, plant	and
equipment			6,383				(244)	6,139
Gain on deemed disposal of
a subsidiary			(2)					(2)
Impairment of positive goodwill			3,869					3,869
Interest expenses			4,644				(455)	4,189
Interest income			(73)				51	(22)
Gain on disposal of property, plant
and equipment			3,079					3,079
Loss on disposal of a subsidiary			472					472
Negative goodwill on acquisition of a
subsidiary			(8,911)					(8,911)
Provision for impairment of trade and
other receivables			20,191					20,191
Share of loss of associates			1,660					1,660
Write back on impairment loss	of an
associate			(733)					(733)
Write-down of inventories			29,235				(96)	29,139
Gain on disposal of SIL			–	(16,177)				(16,177)
Operating loss before working
capital changes			(39,797)					(37,910)
Increase in inventories			(2,779)				2,082	(697)
Decrease in trade receivables			14,814				(489)	14,325
Decrease in prepayments, deposits and
other receivables (including
intra-entity balances with the
Remaining Group, net)			3,436			(1,455)		1,981
Decrease in trade payables			(3,551)			(1,304)		(4,855)
Increase in accruals and other payables			15,560			(1,341)		14,219
Net cash used in operations			(12,317)					(12,937)
Interest received			73				(51)	22
Interest paid			(7,751)				455	(7,296)
Overseas tax paid			(7)				7	–
Net cash used in from operating
activities			(20,002)					(20,211)

– 79 –

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

							Unaudited
	Audited						pro forma
consolidated						consolidated
	cash flow						cash flow
	statement						statement
of the Group for							of the
	year ended		Pro forma adjustments				Remaining
31 December 2005				for the Disposal			Group
	HK$’000		HK$’000	HK$’000	HK$’000		HK$’000
			(Note 2)	(Note 4)	(Note 5)
Investing activities
Purchase of property, plant
and equipment	(1,762)					1,303	(459)
Proceeds from disposal of
property, plant and equipment	12,961						12,961
Additions to property under
development	(7,762)						(7,762)
Cash outflow from deemed disposal
of a subsidiary	(8)						(8)
Cash inflow from disposal
of a subsidiary	23						23
Cash inflow from acquisition
of a subsidiary	4,062						4,062
Decrease in interest in associates	3,535						3,535
Proceeds from disposal of SIL	–			34,700			34,700
Net cash generated from
investing activities	11,049						47,052
Financing activities
Repayment short-term bank loans	(2,435)					(624)	(3,059)
Repayment of interest-bearing
borrowings	(256)						(256)
Net cash used in financing activities	(2,691)						(3,315)
Decrease in cash and cash equivalents	(11,644)						23,526
Cash and cash equivalents at beginning
of year	23,162				(5,376)		17,786
Effect of foreign exchange rate charge,
net	(3,378)						(3,378)
Cash and cash equivalents of end of
year	8,140						37,934
Analysis of the balances of cash and
cash equivalents
Cash and bank balances	8,140			34,700	(4,906)		37,934

– 80 –

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

• (iv) Notes to unaudited pro forma financial information

• The adjustments reflect the exclusion of the financial results of SIL and its subsidiaries from the consolidated income statement upon the Disposal by the Group, assuming the Disposal had taken place on 1 January 2005.

• The adjustment reflects the gain on the Disposal, which represents a net gain of approximately HK$16.2 million on the Disposal taking into account (a) the consideration received for the Disposal of US$4.5 million (equivalent to approximately HK$35.1 million); (b) the elimination of the aggregate net assets of SIL and its subsidiaries of approximately HK$18.5 million as at 31 December 2005; and (c) the estimated expenses directly attributable to the Disposal of HK$0.4 million.

• The adjustments reflect the exclusion of the assets and liabilities of SIL and its subsidiaries from the consolidated balance sheet as at 31 December 2005.

• The adjustments reflect the consideration for the Disposal of US$4.5 million (equivalent to approximately HK$35.1 million), net of the estimated expenses directly attributable to the Disposal of HK$0.4 million upon the completion of the Disposal. The net cash inflow would therefore be HK$34.7 million.

• The adjustments reflect the exclusion of the cash flows of SIL and its subsidiaries from the consolidated cash flow statement for the year ended 31 December 2005.

– 81 –

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

(B) Accountants’ Report on the Unaudited Pro Forma Financial Information on the Remaining Group

The following is the text of a letter prepared for the purpose of inclusion in this circular received from the reporting accountants, CCIF CPA Limited, Certified Public Accountants, Hong Kong.

==> picture [87 x 61] intentionally omitted <==

The Directors

Syscan Technology Holdings Limited

25 April 2006

Dear Sirs,

We report on the unaudited pro forma financial information of Syscan Technology Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) excluding the Group’s interests in Syscan Imaging Limited (“SIL”), a directly wholly owned subsidiary of the Company, and its directly wholly owned subsidiaries namely SYSCAN, Inc. and SYSCAN Viewtech Limited (collectively the “Remaining Group”), as prepared by the directors of the Company for illustrative purpose only, and to provide information on how the proposed disposal of the entire share capital of SIL and its subsidiaries (the “Disposal”) would have affected the financial information presented, for inclusion as Appendix I to the Company’s circular dated 25 April 2006 (the “Circular”). The basis of preparation of the pro forma financial information is set out in Section A of Appendix II of the Circular.

Respective responsibilities of directors of the Company and reporting accountants

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma financial information in accordance with paragraph 7.31 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

– 82 –

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

It is our responsibility to form an opinion, as required by paragraph 7.31(7) of the GEM Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those report were addressed by us at the dates of their issue.

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the pro forma financial information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 7.31(1) of the GEM Rules.

The unaudited pro forma financial information is for illustrative purpose only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of:

• the financial position of the Remaining Group as at 31 December 2005 or any future dates; or

• the results and cash flows of the Remaining Group for the year ended 31 December 2005 or for any future periods.

– 83 –

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Opinion

In our opinion:

• (a) the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated;

• (b) such basis is consistent with the accounting policies of the Group; and

• (c) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to the paragraph 7.31(1) of the GEM Rules.

Yours faithfully

CCIF CPA Limited

Certified public Accountants Delores Teh Practising Certificate Number P03207

– 84 –

APPENDIX III ADDITIONAL FINANCIAL INFORMATION OF THE GROUP

1. INDEBTEDNESS STATEMENT

As at 28 February 2006, being the latest practicable date prior to the printing of this circular for ascertaining information for inclusion in this statement of indebtedness, the Group had outstanding secured bank borrowings, which represented short and long-term bank loans, of approximately HK$139,839,000.

As at 28 February 2006, the Group’s bank loans were secured by the following:

• (i) pledge of the Group’s leasehold land included property under development with a net book value of approximately HK$50,952,000;

• (ii) pledge of the Group’s intangible assets with net book value of approximately HK$971,000;

• (iii) pledge of the Group’s leasehold land and buildings with an aggregate net book value of approximately HK$6,317,000;

• (iv) pledge of the Group’s machinery with net book value of approximately HK$9,976,000.

• (v) the corporate guarantee executed by a related company of which a former director of the Company is the director and principal shareholder.

On 6 January 2006, Bank of China Limited (“BOC”), Shenzhen, mainland China, took legal action against the Company and SOT, in respect of SOT’s default on repayment of interest of approximately RMB1.2 million accrued up to 21 December 2005 on a bank loan of RMB120 million granted from BOC on 22 April 2005. BOC claimed against the Company and SOT for repayment of the loan and accrued interest of approximately RMB121.2 million (equivalent to approximately HK$116.5 million) as at 21 December 2005 and applied to freeze the leasehold land of SOT (see (i) above). On 2 March 2006, the Company received a writ of summons issued from the Guangdong Province Higher People’s Court lodged by BOC against the Company and SOT for the above claim.

In the opinion of the Directors, as the Company is currently negotiating with BOC for the rescheduling of repayment or extension of the existing loan in default; and since the loan and interest accrued up to 28 February 2006 of approximately RMB122.7 million (equivalent to approximately HK$117.9 million) had been fully recorded in the Group’s bank borrowings as at 28 February 2006, being the latest practicable date prior to the printing of this circular for ascertaining information for inclusion in this statement of indebtedness, no other provisions for BOC’s claim and relevant legal expenses should be made.

– 85 –

APPENDIX III ADDITIONAL FINANCIAL INFORMATION OF THE GROUP

Save as aforesaid and apart from intra-group liabilities and normal trade payable and bills payable, the Group did not have any outstanding mortgages, charges, debentures, loan capital, debt securities, loan, bank overdraft or other similar indebtedness, financial leases or hire purchase commitments, liabilities under acceptances or acceptance credits or guarantees or other material contingent liabilities as at the close of business on 28 February 2006.

For the purpose of the above statement of indebtedness, foreign currency amounts have been translated into Hong Kong dollars at the approximately exchange rates prevailing at the close of business on 28 February 2006.

Save as disclosed above, the Directors have confirmed that there have been no material changes in the indebtedness and contingent liabilities of the Group since 28 February 2006.

2. MATERIAL ADVERSE CHANGE

The Directors consider that the Litigation has constituted a material adverse change in the financial or trading position of the Group since 31 December 2005, being the date to which the latest audited financial statements of the Company were made up.

3. WORKING CAPITAL STATEMENT

The Directors are of the opinion that the Group would not have sufficient working capital to enable it to operate as a going concern in the foreseeable future. The Directors are exploring every opportunity to raise additional working capital including the Disposal and Open Offer.

4. MANAGEMENT DISCUSSION AND ANALYSIS

(a) Financial Review

For the year ended 31 December 2005, the Remaining Group recorded a turnover of approximately HK$15,104,000. Such poor result was mainly attributable to the cessation of sales of liquid crystal display (“LCD”) and cathode ray tube monitors with very low profit margins. During the year, the Remaining Group has concentrated its efforts on selling its own proprietary optical image capturing devices units, modules units and chips and other optoelectronic products units which have much higher gross profit margins.

The Remaining Group recorded a net loss of approximately HK$81,273,000 for the year ended 31 December 2005, such huge loss was mainly attributable to the fact that research and development expenses and the general and administrative expenses of the Remaining Group were high when compared with its turnover.

During the year ended 31 December 2005, the Remaining Group has been developing multimedia display controllers that can be used for LCD television monitors, high definition television, as well as multimedia display controllers that can enhance the LCD image display and continued to explore the application of its 2D barcode technology in different

– 86 –

APPENDIX III ADDITIONAL FINANCIAL INFORMATION OF THE GROUP

fields of business. The Remaining Group has its own proprietary CM and GM coding certified by relevant PRC authorities. With the use of the Remaining Group’s 2D barcode products, the coding can provide for more superior results than normal 1D coding as more data can be contained therein. Moreover, the Remaining Group has finished the development of a duplex scanning device that can scan both sides of documentation with very high speed and the products of which have already been launched.

No material acquisition or disposal of subsidiary or affiliated company has been carried out by the Remaining Group during the year ended 31 December 2005.

The Remaining Group does not have any future plans for material investments or capital assets for the coming year (being the year ending 31 December 2006).

(b) Financial Resources and Liquidity

Cash and bank balances of the Remaining Group amounted to approximately HK$37,934,000 as at 31 December 2005 and accounted for 100% of the current assets of the Remaining Group. As at 31 December 2005, short-term bank borrowings of the Remaining Group amounted to approximately HK$130,038,000. All short-term bank borrowings were denominated in RMB, bore interest at rates of 6% to 8% per annum and were secured by the Remaining Group’s leasehold land included in property under development, the Remaining Group’s leasehold land and buildings in Shenzhen, and the Remaining Group’s machinery and intangible assets. The maturity profile of outstanding bank loans as at 31 December 2005 are analyzed as follows:–

Bank loans, secured The analysis of the above balances is as follows: Bank loans Within one year After 1 year but within 2 years After 2 years but within 5 years After 5 years Current portion of bank loans Non-current portion of bank loans	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 913 761 505 141 145 59 141 145 59 273 196 178 358 275 209 913 761 505 (141) (145) (59) 772 616 446

As at 31 December 2005, the gearing ratio, defined as long-term borrowings to equity, of the Remaining Group was 1.3%.

– 87 –

APPENDIX III ADDITIONAL FINANCIAL INFORMATION OF THE GROUP

During the year ended 31 December 2005, the Remaining Group has had no material exposure to exchange rate fluctuations and the Remaining Group has not had any financial instrument for hedging purpose.

As at 31 December 2005, the Remaining Group had contingent liabilities relating to discounted bills of approximately HK$1,243,000. As at 31 December 2005, the Company had contingent liabilities relating to corporate guarantee given in respect of banking facilities extended to certain subsidiaries of approximately HK$150,256,000.

(c) Employees

As at 31 December 2005, the Group had 343 employees. For the year ended 31 December 2005, staff costs of the Group including directors’ emoluments totaled approximately HK$19,242,000. During the year, all Hong Kong employees of the Group participated in the Mandatory Provident Fund Scheme.

Employees were remunerated according to their performance and working experience. In addition to basic salaries and retirement scheme, staff benefits include share options and performance bonus. During the year, no share option has been granted by the Company.

– 88 –

APPENDIX IV

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the GEM Listing Rules 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 circular 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 circular misleading; and (3) all opinions expressed in this circular have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

2. DISCLOSURE OF INTERESTS

(a) Interests or Short Positions of Directors in the Share Capital of the Company and Its Associated Corporations

As at the Latest Practicable Date, the interests and short positions of the Directors or chief executives of the Company in the shares, debentures or underlying shares of the Company or any of their associated corporations (within the meaning of Part XV of the SFO) which had to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he was taken or deemed to have under such provisions of the SFO) or which were required pursuant to section 352 of the SFO, to be entered in the register referred therein or which were required, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules relating to securities transactions by directors, to be notified to the Company and the Stock Exchange were as follows:

Long position in Shares

		No of	Shares held
	Personal	Family	Corporate		% of
	Interest	Interest	Interest	Total	Interest
Mr. Cheung Wai	720,000	–	10,310,000	11,030,000	10.78%
			(Note)
Mr. Jin Qingjun	50,000	–	–	50,000	0.049%

Note:

4,800,000 Shares and 5,510,000 Shares were held by Haing Assets Limited and Simrita Investments Limited, respectively, both of which are wholly and beneficially owned by Mr. Cheung Wai.

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APPENDIX IV

GENERAL INFORMATION

Long positions in underlining shares of the Company (Share options granted to the Directors)

				Number of
				Share Options
				held as at
				the Latest
	Date of			Practicable
Name	grant	Exercise price		Date	Exercise period
Mr. Cheung Wai	19 June 2000		HK$3.30	500,000	19 June 2001 to
					18 June 2010
Mr. Chan Man Ching	4 December 2000		HK$1.016	50,000	12 August 2001 to
					12 August 2011
	14 May 2002		HK$1.412	50,000	14 May 2003 to
					13 May 2012
	12 November 2002		HK$1.00	200,000	14 May 2003 to
					11 November 2012
			Sub-Total	300,000

(b) Persons Who have an Interest or Short Position Which Is Discloseable Under Division 2 and 3 Of Part XV of the SFO and Substantial Shareholders

As at the Latest Practicable Date, so far as was known to the Directors, the following person, not being a Director or a chief executive of the Company, had an interest or short position in the shares or underlying shares 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 be directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group:

Long position in Shares

		Nature of	Number of	% of issued
Name	Capacity	interest	Shares	share capital
Mr. Joseph Liu	Beneficial	Personal & family	7,200,000	7.03%
(Note 1)
Mr. Darwin Hu	Beneficial	Personal & family	5,455,600	5.33%
(Note 2)

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APPENDIX IV

GENERAL INFORMATION

Notes:

• (1) In addition to the 1,920,000 Shares held by Mr. Joseph Liu, 5,280,000 Shares were held by Messrs. Emmy Liu, Shirley Liu, Hui Chuan Liu and H.S.Liu, family associates of Mr. Joseph Liu.

• (2) These Shares were held by Mrs. Sonya Hsiu-Yu Hu, the spouse of Mr. Darwin Hu.

Long positions in underlining shares of the Company (Share options granted)

			Number of
			Share Options
			held as at
			the Latest
	Date of		Practicable
Name	grant	Exercise price	Date	Exercise period
Mr. Darwin Hu	19 June 2000	HK$3.30	500,000	19 June 2001 to
				18 June 2010
	17 January 2001	HK$2.06	1,800,000	17 January 2002 to
				16 June 2011
		Sub-Total	2,300,000

3. SERVICE CONTRACTS

None of the Directors has or proposes to have a service agreement with any member of the Group which is not expiring or determinable by such member within one year without payment of compensation (other than statutory compensation).

4. OTHER INTERESTS OF DIRECTORS

• (i) As the Latest Practicable Date, the Directors are Mr. Cheung Wai, Mr. Chan Man Ching, who are executive Directors, and Mr. Lo Wai Ming, Mr. Fong Chi Wah and Mr. Jin Qingjun, who are independent non-executive Directors.

• (ii) As the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement subsisting as at the Latest Practicable Date which is significant in relation to the business of the Group.

• (iii) As at the Latest Practicable Date, so far as the Directors are aware of, none of themselves or the management shareholders (as defined in the GEM Listing Rules) of the Company or their respective associates had interest in a business which competes or may compete with the business of the Group or any other conflicts of interest with the Group.

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APPENDIX IV

GENERAL INFORMATION

• (iv) As at the Latest Practicable Date, none of the Directors and CCIF CPA Limited has any interests, either direct or indirect, in any assets which have been acquired or disposed of or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2005, being the date to which the latest published audited financial statements of the Company were made up.

5. LITIGATION

As at the Latest Practicable Date, save and except for the Litigation, no member of the Group was engaged in any litigation or arbitration of material importance and there was no litigation or claims of material importance known to the Directors to be pending or threatened by or against any member of the Group.

6. EXPERT

The following is the qualification of the expert who has given an opinion or advice which is contained in this circular.

Name Qualification

CCIF CPA Limited Certified public accountants

As at the Latest Practicable Date, CCIF CPA Limited has given and has not withdrawn its consent to the issue of this circular with the inclusion of its report/letter and references to its name, as the case may be, in the form and context in which it appears. The statement made by CCIF CPA Limited is given as at the date of this circular for incorporation herein.

As at the Latest Practicable Date, CCIF CPA Limited did not have any shareholding in any member of the Group and did not have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for any securities in any member of the Group.

7. MATERIAL CONTRACTS

The following are the contracts, not being contracts entered into the ordinary course of business of the Group, have been entered into by the Group within 2 years preceding the date of this circular and are, or maybe material:–

• (a) the Agreement dated 25 November 2005 between the Company as vendor and Mr. Wang Han as the purchaser in respect of the entire issued share capital of SIL at a consideration of US$4,500,000;

• (b) the Supplemental Agreement dated 7 March 2006 entered into between the Company and the Purchaser for the purpose of postponing the Long Stop Date and revising the payment schedule of the consideration of the Sale Shares by the Purchaser under the Agreement;

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APPENDIX IV

GENERAL INFORMATION

• (c) the underwriting agreement dated 15 February 2006 between the Company and Mr. Cheung Wai in respect of underwriting of the Open Offer;

• (d) the irrevocable undertakings dated 15 February 2006 signed by Mr. Cheung Wai in favour of the Company in respect of his undertaking to accept the Shares provisionally allotted to him pursuant to the Open Offer; and

• (e) the loan agreement dated 23 February 2006 between the Company and Mr. Cheung Wai in respect of a loan in the sum of HK$9,400,000 advanced by Mr. Cheung Wai to the Company on 13 February 2006.

8. MISCELLANEOUS

• (a) The secretary of the Company is Mr. Chan Man Ching. Mr. Chan graduated from the University of South Australia with a bachelor degree in accountancy. He is also an associate member of the Hong Kong Institute of Certified Public Accountants and a member of CPA Australia.

• (b) The qualified accountant of the Company appointed pursuant to Rule 5.15 of the GEM Listing Rules is Mr. Chan Man Ching. Mr. Chan graduated from the University of South Australia with a bachelor degree in accountancy. He is also an associate member of the Hong Kong Institute of Certified Public Accountants and a member of CPA Australia.

• (c) The compliance officer of the Company appointed pursuant to Rule 5.19 of the GEM Listing Rules is Mr. Cheung Wai. Mr. Cheung holds a bachelor degree in electronic engineering from China Central Institute of Technology in the PRC.

• (d) The registered office of the Company is situated at Canon’s Court, 22 Victoria Street, Hamilton, HM 12, Bermuda. The principal place of business and head office of the Company in Hong Kong is situated at Unit C, 21/F, Seabright Plaza, 9-23 Shell Street, North Point, Hong Kong.

• (e) In the event of inconsistency, the English text of this circular and the form of proxy shall prevail over the Chinese text.

• (f) The Company established an audit committee on 2 May 2000 with written terms of reference in compliance with Rule 5.28 of the GEM Listing Rules. The duties of the audit committee include (1) reviewing, in draft form, the Company’s annual report and accounts, half-year report and quarterly reports and providing advice and comments thereon to the Board; and (2) reviewing and supervising the Company’s financial reporting and internal control procedures. The audit committee comprises three independent non-executive

– 93 –

APPENDIX IV

GENERAL INFORMATION

Directors, namely, Messrs. Lo Wai Ming, Fong Chi Wah and Jin Qingjun. The chairman of the audit committee is Mr. Lo Wai Ming. Further details of the members of the audit committee are set out below:–

Mr. Lo Wai Ming is the founder and president of Greater China Asset Management Limited. He has over 28 years’ extensive experience in investment, consumer marketing, business development and corporate finance including positions of managing director of Citifood Company International Limited, director of Cosmos Machinery Enterprises Limited (listed on the Stock Exchange) and managing director of Ocean Grand Holdings Limited (listed on the Stock Exchange). He holds a master degree in business administration of the Chinese University of Hong Kong. He is also a member of the Chartered Institute of Marketing and Chartered Management Institute of the United Kingdom. Presently, he is also the director and general manager of SW China Strategic Holdings Limited.

Mr. Fong Chi Wah is a Certified Practicing Accountant (Australia), a Chartered Financial Analyst and a member of the Hong Kong Institute of Directors. Mr. Fong has over 19 years of extensive experience in various sectors of financial industry, including direct investment, project and structured finance, and capital markets with focus on the PRC and Hong Kong. Mr. Fong was a director of Baring Capital (China) Management Limited and held various management positions in ING Bank.

Mr. Jin Qingjun is currently a partner of King & Wood, solicitors and attorneys in PRC. He has over 18 years of rich experience in the fields of finance, securities, investment, intellectual property, real estate, corporate, maritime, insolvency and litigation as well as foreign investment related areas. Mr. Jin was the founder and Managing Partner of Shu Jin & Co., solicitors and attorneys in PRC. He has previously worked as Attorney for C & C Law Office in PRC, as Foreign Attorney for Clyde & Co., British solicitors, and Johnson Stokes & Master, solicitors in Hong Kong. Presently, Mr. Jin acts as legal consultant for various financial institutions, securities companies, listed companies and overseas corporations such as the World Group International Finance Corporation. He is now also acting as independent director of two companies in Shenzhen, PRC namely 金地集團股份有限公司 (listed on Shanghai Stock Exchange) and 景順長城基金管理有限公司(listed on Shenzhen Stock Exchange). Mr. Jin is one of the first lawyers who are granted the license of securities transactions in PRC. He holds a bachelor’s degree in English from Anhui University and a master degree of Laws in International Laws from China University of Political Science & Law. He is the Adjunct Professor of China University of Political Science & Law, and Vice-Chairman of International Committee of All China Lawyers Association. Mr. Jin is also a member of various law societies and associations namely China Law Society, China International Law Association, China Maritime Law Association, D.C. Bar of the United States of America, WTO Committee of All China Lawyers Association and Inter Pacific Bar Association.

– 94 –

APPENDIX IV

GENERAL INFORMATION

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the followings documents are available for inspection during normal business hours on any weekday, other than public holidays at the principal place of business and head office of the Company in Hong Kong at Unit C, 21/F, Seabright Plaza, 9-23 Shell Street, North Point, Hong Kong from the date of this circular up to and including 12 May 2006:–

1. the memorandum of association and bye-laws of the Company;

2. the Agreement;

3. the Supplemental Agreement;

4. the underwriting agreement referred to in the paragraph headed “Material contracts” in this Appendix IV;

5. the irrevocable undertakings referred to in the paragraph headed “Material contracts” in this Appendix IV;

6. the loan agreement referred to in the paragraph headed “Material contracts” in this Appendix IV;

7. the written consent of CCIF CPA Limited referred to in the paragraph headed “Expert” in this Appendix IV;

8. the accountant’s report prepared by CCIF CPA Limited, the text of which is set in Appendix I to this circular;

9. the comfort letter from CCIF CPA Limited on the unaudited pro forma financial information of the Remaining Group, the text of which is set out in Appendix II to this circular.

– 95 –

NOTICE OF SGM

==> picture [42 x 46] intentionally omitted <==

SYSCAN Technology Holdings Limited 矽感科技控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 8083)

NOTICE IS HEREBY GIVEN that a special general meeting (the “ SGM ”) of SYSCAN Technology Holdings Limited (the “ Company ”) will be held at Function Room 1, Ground Floor, City Garden Hotel, 9 City Garden Road, North Point, Hong Kong on Thursday, 18 May 2006 at 11:30 a.m. for the purpose of considering and, if thought fit, passing, with or without modifications, the following ordinary resolution: –

ORDINARY RESOLUTION

“THAT the sale and purchase agreement (the “ Agreement ”) dated 25 November 2005 entered into between the Company as vendor and Mr. Wang Han as purchaser in relation to the disposal of 1 share of US$1.00 each in the share capital of SYSCAN Imaging Limited at a consideration of US$4,500,000 (equivalent approximately to HK$35,100,000) as supplemented by the supplemental agreement dated 7 March 2006 and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified and THAT the directors of the Company be and are hereby authorized to do all such acts and things, take all steps and execute all further documents which in their opinion may be necessary, desirable or expedient for the purpose of giving effect to and/or implementing the transactions contemplated under the Agreement.”

By Order of the Board of SYSCAN Technology Holdings Limited Cheung Wai Chairman

Hong Kong, 25 April 2006

• For identification purposes only

– 96 –

NOTICE OF SGM

Principal place of business and head office in Hong Kong:–

Unit C, 21/F, Seabright Plaza 9-23 Shell Street North Point, Hong Kong

Notes:

1. A member of the Company entitled to attend and vote at the SGM is entitled to appoint another person as his proxy to attend and, in the event of a poll vote in his stead. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at the SGM. If more than one proxy is so appointed, the appointment shall specify the number and class of shares in respect of which such proxy is so appointed. A proxy need not be a member of the Company, but must attend in person to represent the member.

2. In order to be valid, the form of proxy must be deposited at the principal place of business and head office of the Company in Hong Kong at Unit C, 21/F, Seabright Plaza, 9-23 Shell Street, North Point, Hong Kong together with the power or attorney or other authority (if any) under which it is signed or a notarially certified copy of such power of attorney or authority, not less than 48 hours before the time appointed for holding the SGM or any adjournment thereof.

3. Where there are joint holders of any share, any one of such persons may vote at the SGM either personally or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders be present at the SGM personally or by proxy, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of such joint holding.

4. A form of proxy for use in connection with the SGM is enclosed. Completion and delivery of the form of proxy will not preclude a member from attending and voting in person at the SGM if the member so desires and in such event, the instrument appointing a proxy shall be deemed to be revoked.

– 97 –