6th Mar 2007 07:04
Sinosoft Technology plc06 March 2007 SINOSOFT TECHNOLOGY PLC PRELIMINARY RESULTS FOR THE YEAR ENDING 31 DECEMBER 2006 Sinosoft Technology plc, the China based developer and provider of e-Governmentsoftware and services, announces preliminary results for the year ended 31December 2006. Highlights include: • Revenue up 37% to US$8.4m (2005 US$6.1m) • Gross margin of 70% (2005: 72%) • Net profit of US$3.7m (2005 US$3.4m) • Substantial progress with national export tax project • Cash and cash equivalents of US$15 million (2005: US$4 million) • Agreement with Microsoft to incorporate ERP suite into Sinosoft products • Agreement with Newgen Software Technologies to develop financial and telecommunication software solutions • Sales of e-government solution into new cities and provinces Commenting on the results, Mao Ning, Chairman of Sinosoft said: "The managementremains focused on the development and growth of the business and is confidentthat the successful execution of the export tax project, as well as increasingsales of e-government and information integration software, will createsignificant value for shareholders. "I would like to take this opportunity to express my appreciation to the board,our shareholders and all our staff for their commitment to the Group," he added. -ends- For further information please contact: Sinosoft Technology Plc Ms. Helen Xin, Chief Executive Officer 020 7601 6100 (today only) Hanson Westhouse Limited Tim Metcalfe/Richard Baty 020 7601 6100 Tavistock Communications Matt Ridsdale/ Simon Compton 020 7920 3150 CHAIRMAN'S STATEMENT Review of businessI am pleased to report the preliminary results for Sinosoft Technology plc forthe period ended 31 December 2006. Sinosoft Technology plc is the UK holdingcompany for a group of companies (together the "Group") engaged in thedevelopment and sale of software products, the provision of software relatedservices and systems integration. The Group's software and services arespecifically tailored to meet the unique demands of certain Chinese regional andnational agencies. Since its admission to AIM in March 2006 Sinosoft has successfully penetratednew cities in Jiangsu Province and other provinces in China with itse-government solutions. The Group has established various technologypartnerships and alliances in 2006, including an agreement with Microsoft toincorporate its ERP suite into certain of the Group's products and an agreementwith Newgen Software Technologies, a leading Indian software company, to jointlydevelop financial and telecommunication software solutions. However, 2006 was not without its challenges. As anticipated in the InterimReport, the delay in the State Administration of Taxation ("SAT") project rollout has impacted on the Group's revenue and profits. Undaunted by the delay,management remains pro-active in growing revenues in the Group's other businessareas. Against this background, the board is pleased that the Group has achieved37% growth in sales from $6,155,852 in 2005 to $8,446,162 in 2006. The boardbelieves that, as we proceed to the pan-China roll out stage of the SAT contractin the second half of 2007, the Group will be able to grow its revenues at agreater rate. Golden Tax ProjectOur wholly-owned subsidiary, Nanjing Skytech Co. Ltd has been fully engaged inthe execution of its landmark contract with the SAT for the development,installation and commissioning of export tax software to all 36 Chineseprovincial tax bureaus. As disclosed in the interim report, some initial delays were experienced withthe project but substantial progress has now been made. Following detailedconsultation between SAT, the Group and all the tax bureaus in Q4 2006, uniformtechnical specifications were agreed incorporating the requirements of allparties. The Board believes that having agreed these specifications in advance,the Group will be better positioned to manage the roll out of its export taxsoftware across the entire country. The Group finalised its product design accordingly and in December 2006,in-principle approval of the final product was received from SAT. The Group'ssoftware engineers are now fully engaged in the detailed task of encoding theagreed product specifications; this process should be completed in the earlypart of Q2 2007. Product testing is expected to commence in Q2 2007 and roll outis scheduled to begin in Q3 2007. Expansion and DevelopmentThe Group has continued to grow its business both within and outside Jiangsuprovince, notably securing contracts in Wuhu, in Anhui Province, as well asentering into a co-operation agreement with Newgen Software Technologies Ltd("Newgen"). Newgen is a leading Indian software company specialising in BusinessProcess Management, Document Management and Imaging Solutions whose products aresold to more than 700 customers in 25 countries. The two companies signed anagreement on 21 November 2006, pursuant to which the Group will collaborate withNewgen on financial and telecommunications software development. The Group's expansion in Beijing is expected to take place during the first halfof 2007. It is intended that this will facilitate more efficient communicationwith SAT. In addition, this can also provide the Group with further salesopportunities for its e-government and Information Integration products in NorthChina. The Group plans to develop ten new products in 2007, two of which are in taxsoftware business, four in e-government, three in information integration andone in a new sector. SummaryThe management remains focused on the development and growth of the business andis confident that the successful execution of the export tax project, as well asincreasing sales of e-government and information integration software, willcreate significant value for shareholders. I would like to take this opportunity to express my appreciation to the board,our shareholders and all our staff for their commitment to the Group. The Annual General Meeting of Sinosoft Technology plc will be held at 11 a.m. onWednesday 2 May 2007 at the offices of Tavistock Communications, 131 FinsburyPavement, London, EC2A 1NT. Mao NingChairman Extract from operating and financial review Current Operations ResultsThe Group's revenue and profit were US$8.4 million (2005: US$6.2 million) andUS$3.7 million (2005: US$3.4 million) respectively. In 2006, approximately 68%of revenues were generated from the sale of software products and 32% ofrevenues were generated from the provision of system integration services. The provision of data security protection software, which is distributed througha third party to the overall Chinese market, has also contributed US$0.4 millionto our current year revenue. In addition, we have expanded into new sectors of the Chinese governmentsoftware market, providing work flow software to a variety of governmentbureaus. This new area of our business, while only increasing our sales byUS$0.13 million is expected to grow in the current year. As discussed, to our disappointment, there were initial delays on the SAT exporttax contract and our current year revenue has been adversely affected ascompared to our anticipation at the time of our admission to AIM. Despite the delay, the Board has been putting in tremendous effort to improvethe overall performance of the Group and achieve the growth in revenues whichthese results demonstrate. The gross margin had been fairly consistent in 2006,being 70% as compared to 72% in 2005. In 2006, the Group has continued to invest in research and development. Moreprojects were undertaken by the Group, and these include five major projects,that in aggregate cost approximately US$1.0 million and which started amortisingagainst current year profit. In accordance with the Group's accounting policy,these costs are amortised over three years and gave rise to a significantincrease in research and development costs by approximately US$282,000 ascompared to 2005. Apart from higher research and development costs incurred, the Group alsoincurred higher selling and administrative expenses. Selling expenses increasedfrom US$421,000 to US$853,000. This is in line with increase in marketingactivities to promote Sinosoft products in other provinces and cities, such asBeijing. Together with the increase in payroll, staff benefits, such as insurance andtravelling, increased accordingly. During the year, the Group recognised the noncash cost of the share options granted to a non-executive director whichamounted to US$310,000. With the proceeds from our successful placing and admission to AIM, we were ableto reduce our financing costs in 2006. In addition, the Group earned interestincome of US$305,000 solely from bank deposits. The Group companies based in the Peoples' Republic of China currently benefitfrom local tax concessions which result in no taxation being levied on profits.Consequently the taxation charge in the accounts in the year represents deferredtax only. Net AssetsAs part of the Group's continuous effort to invest in research and development,apart from additional investment in development of US$1.2 million as at yearend, the management has also invested approximately US$2.8 million in upgradingresearch infrastructure as at year end. A further US$1.7 million has beencommitted to complete this exercise. This is reflected in our financialstatements as an increase in other receivables being a down payment made for thefacilities. InvestmentsIn 2006, the Group disposed its investment in Jiangsu CA Company ofapproximately US$223,000. This transaction is expected to be completed in 2007with an expected profit of US$34,000 on disposal, based on the sale and purchaseagreement. Following our admission to AIM, we have held the proceeds in low riskinstruments. We have enjoyed a significant increase in our cash and cashequivalents to US$15 million (2005: US$4 million) and investments accounts toUS$296,000 (2005: US$186,000). Thus far the Group has deployed, from the IPOproceeds, approximately US$5.9 million comprising US$1.5 million on softwareinvestment, US$2.0 million on investment in hardware and equipment and US$2.4million on repaying the restructuring loan. The Board is of the view that the Group is well positioned to rapidly increaseits user base and revenues from exporting enterprises. The Group's strategyremains to replicate its successful business model nationwide. Operationally,the management continues to focus on realising the full value of our software inthis rapidly developing market place. It is expected that the larger and moreeconomically developed provinces will be targeted during 2007. Xin YingmeiChief Executive Officer GROUP INCOME STATEMENT 2006 2005 US$ US$ Revenue 8,446,162 6,155,852Cost of sales (2,528,187) (1,673,880) ----------------------------------Gross profit 5,917,975 4,481,972Other income 990,319 622,185Research and development cost (800,992) (519,462)Selling and distribution expenses (852,856) (421,417)Administrative expenses (1,671,387) (610,957)Other operating expenses (40,625) (1,173) ----------------------------------Profit from operations 3,542,434 3,551,148 Finance cost (32,692) (113,704)Finance income 305,537 27,349 ----------------------------------Profit before tax 3,815,279 3,464,793 Taxation (91,822) (44,913) ----------------------------------Profit for the year 3,723,457 3,419,880 ================================== Earnings per ordinary shareBasic 0.0269 19.10Diluted 0.0263 19.10 All operations are continuing GROUP BALANCE SHEET AS AT 31 DECEMBER 2006 2006 2005 US$ US$ ASSETSNon-current assetsProperty, plant and equipment 397,764 381,238Intangible assets 2,100,933 1,238,636Investments - 185,795 ----------------------------------Total non-current assets 2,498,697 1,805,669 ---------------------------------- Current assetsInventories 228,884 557,415Trade receivables 2,646,712 2,010,203Other receivables 3,750,172 1,260,342Investments 296,059 -Cash deposits 171,352 -Cash and cash equivalents 15,030,483 3,965,714 ----------------------------------Total current assets 22,123,662 7,793,674 ----------------------------------Total assets 24,622,359 9,599,343 ================================== LIABILITIES & EQUITYCurrent liabilities Trade payables 629,473 369,598Other payables 479,776 2,869,175Bank loans - 371,591 ----------------------------------Total current liabilities 1,109,249 3,610,364 ---------------------------------- Non-current liabilitiesDeferred income - 148,636Deferred tax 140,562 45,636 ----------------------------------Total non-current liabilities 140,562 194,272 ----------------------------------Total liabilities 1,249,811 3,804,636 ---------------------------------- Capital and reserves Share capital 424,023 107,656Share premium 11,283,551 -Merger reserve (1,118,051) (917,326)Other reserves 3,956,096 916,972Retained earnings 8,826,929 5,687,405 ----------------------------------Total shareholders' equity 23,372,548 5,794,707 ----------------------------------Total liabilities & equity 24,622,359 9,599,343 ================================== COMPANY BALANCE SHEET AS AT 31 DECEMBER 2006 Company 2006 US$ ASSETSNon-current assetsInvestments 350,464Total non-current assets 350,464 Current assetsOther receivables 6,685,804Cash and cash equivalents 6,817,357 --------------Total current assets 13,503,161 --------------Total assets 13,853,625 LIABILITIES & EQUITYCurrent liabilitiesOther payables 158,810 --------------Total current liabilities 158,810 --------------Total liabilities 158,810 -------------- Capital and reservesShare capital 424,023Share premium 11,283,551Other reserves 2,601,211Retained earnings (613,970) --------------Total shareholders' equity 13,694,815 --------------Total liabilities & equity 13,853,625 ============== GROUP CASH FLOW STATEMENT 2006 2005 US$ US$ Operating activitiesIncome before taxation from continuing operations 3,815,279 3,464,793 ------------------------Adjustments for:Interest income (305,537) ( 27,349)Interest expense 32,692 113,704Gain on disposal of investments (228,161) -Share based payment 310,816 -Impairment loss in receivables 20,687 20,381Depreciation of property, plant and equipment 47,695 36,065Amortisation for intangible assets 434,700 108,560 ------------------------Operating cash generated before working capital changes 4,128,171 3,716,154 Decrease/(increase) in inventories 328,531 (310,761)Increase in trade and other receivables (1,517,937) (514,314)Increase in trade and other payables 174,746 388,637 ------------------------Cash generated by operations 3,113,511 3,279,716 Income taxes paid - -Interest paid (124,252) (113,704) ------------------------NET CASH GENERATED FROM OPERATING ACTIVITIES 2,989,259 3,166,012 ------------------------ Investing activitiesInterest received 305,537 27,349Proceeds on disposal of trading investment 717,485 -Purchase of property, plant and equipment (1,678,181) (43,234)Purchase of intangible assets (1,255,010) (867,045)Purchase of investments for trading (599,588) -Increase in pledged bank deposits (171,352) - ------------------------NET CASH USED IN INVESTING ACTIVITIES (2,681,109) (882,930) ------------------------ Financing activitiesNet proceeds from issue of shares 12,020,824 -Repayment of borrowing (2,671,591) (371,591)Dividend paid (61,346) -New borrowings raised - 371,591 ------------------------NET CASH GENERATED FROM FINANCING ACTIVITIES 9,287,887 - ------------------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 9,596,037 2,283,082Effect of exchange rate changes 1,468,732 85,810CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,965,714 1,596,822 ------------------------CASH AND CASH EQUIVALENTS AT THE END OF YEAR 15,030,483 3,965,714 ======================== GROUP STATEMENT OF SHAREHOLDERS'FUNDS AND STATEMENT OF CHANGES IN SHAREHOLDERS'EQUITY Share Share Merger Other Retained Total capital premium reserve reserves earnings US$ US$ US$ US$ US$ US$ (note 26) Balance at 1 January 2005 107,656 - (917,326) 333,016 2,691,393 2,214,739Profit for the year - - - - 3,419,881 3,419,881Transfer to statutoryreserve - - - 423,869 (423,869) -Effect of exchange rates - - - 160,087 - 160,087 --------------------------------------------------------------------Balance at 31 December2005 107,656 - (917,326) 916,972 5,687,405 5,794,707 --------------------------------------------------------------------Profit for the year - - - - 3,723,457 3,723,457Transfer to statutory reserve - - - 583,933 (583,933) -Effect of exchange rates - - - 1,522,744 - 1,522,744Issue of share capital 316,367 14,666,233 (200,725) - - 14,781,875Issue expenses - (2,761,050) - - - (2,761,050)Issue of options - (621,632) - 932,447 - 310,815 --------------------------------------------------------------------Balance at 31 December 2006 424,023 11,283,551 (1,118,051) 3,956,096 8,826,929 23,372,548 ==================================================================== NOTES TO THE FINANCIAL STATEMENTS 1. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS 1.1. General informationThe Company was incorporated in the England on 16 December 2005 as a privatelimited company and was reregistered as a public limited company on 21 February2006. The company was admitted to the Alternative Investment Market ("AIM") on 6March 2006. The Company's registered office is 1 Park Row, Leeds, LS1 5AB. The Group financial statements consolidate the financial statements of SinosoftTechnology plc and its subsidiaries for year ended 31 December 2006. 1.2. Statement of complianceThese financial statements have been prepared in accordance with InternationalFinancial Reporting Standards ("IFRS") and IFRIC interpretations endorsed by theEuropean Union and those parts of the Companies Act 1985 applicable to companiesreporting under IFRS. The company has adopted IFRS since the date of its registration. These financialstatements have been prepared under the historical cost convention except asdisclosed in the accounting policies below. 1.3. Basis of consolidationThe consolidated financial statements incorporate the financial statements ofthe company and the subsidiaries controlled by the company up to 31 Decembereach year. All intra group transactions, balances, income and expenses are eliminated onconsolidation. 1.4. Merger accountingThe company was incorporated in England on 16 December 2005 and entered into anagreement to acquire the entire share capital of Infotech Holdings Pte. Limitedon 20 January 2006. The acquisition was effected by way of issue of shares. Theacquisition has been accounted for using merger accounting principles under UKStandard FRS 6 (Acquisition and Mergers) as the directors believe that this isnot a business combination in the scope of IFRS 3 (Business Combinations) andthere is no international accounting standard dealing with business combinationsoutside the scope of IFRS 3. Accordingly, the financial information for the current and previous year hasbeen presented as if the Infotech Holdings Pte. Limited, and its subsidiaries,had been owned throughout the current and comparative periods. 1.5. Management estimatesThe presentation of financial information under IFRS requires management to makeprudent estimates and assumptions that affect the reported amounts of assets andliabilities at the date of the preparation of the financial information and thereported amounts of revenue and expenses during the reporting year. Estimateshave been made principally in respect of the amounts capitalised as, and theuseful economic life of, intangible assets, useful economic life of property,plant and equipment, provisions for impairment of accounts receivable andinvestments. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1. Functional and presentation currencySterling is the functional currency of Sinosoft as it is the currency of theprimary economic environment in which it operates. The US Dollar ("US$") is thecurrency used to present the financial information in order to improveunderstanding of the financial position of Sinosoft by increasing comparabilitywith the financial information of its subsidiaries whose functional currenciesare the US Dollar and the Chinese Renminbi. 2.2. Revenue recognitionRevenue is measured at the fair value of consideration received or receivableand represents amounts receivable for goods and services provided in the normalcourse of business, net of discounts and sales related taxes. Revenue from the sale of goods is recognised when the significant risks andrewards of ownership are transferred to the buyer and the amount of revenue andthe costs of the transaction can be measured reliably. Revenue from installation contracts is recognised in accordance with thecombined entities' accounting policy on installation contracts (see below). Revenue from rendering of services that are of a short duration is recognisedwhen the services are completed. Other income includes Value Added Tax (VAT) rebates, which are recognised on anaccruals basis. Interest income is accrued on a time proportionate basis, by reference to theprincipal outstanding and at the interest rate applicable, on an effective yieldbasis. 2.3. Installation contractsWhen the outcome of a contract for the installation of network systems can beestimated reliably, revenue and costs are recognised on the percentage ofcompletion method, measured by reference to the proportion that costs incurredto date bear to estimated total costs for each contract, except where this wouldnot be representative of the stage of completion. Variations in contract work,claims and incentive payments are included to the extent that they have beenagreed with the customer. When the outcome of a contract cannot be estimated reliably, revenue isrecognised to the extent of contract costs incurred that it is probable thatthey are recoverable. Contract costs are recognised as expenses in the period inwhich they are incurred. When it is probable that the total contract costs will exceed total contractrevenue, the expected loss is recognised as an expense immediately. 2.4. Government grantsGovernment grants relating to expenditure that is not capitalised is credited tothe income statement to match the related expenditure when it is incurred. Government grants relating to the purchase of property, plant and equipment areincluded in the balance sheet by deducting the grant in arriving at the carryingamount of the assets. 2.5. Employee benefitsPost-employment benefit plans cost Defined contribution plans are post-employment benefit plans under which theGroup pays fixed contributions into separate entities such as the MandatoryProvident Fund ("MPF") scheme in the Peoples' Republic of China, and will haveno legal or constructive obligation to pay further contributions if any of thefunds do not hold sufficient assets to pay all employee benefits relating toemployee service in the current and preceding financial years. The Group'scontribution to defined contribution plans are recognised in the financial yearto which they relate. 2.6. TaxationIncome tax expense represents the sum of tax currently payable and deferred tax. Current taxationThe tax currently payable is based on the taxable profit for the year. Taxableprofit differs from profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantially enacted by the relevant balance sheet date. Deferred taxationDeferred tax is determined on the basis of tax effect accounting, using theliability method, and it is applied to all significant temporary differencesarising between the carrying amount of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, except that the potential tax savings relating to a tax loss carry forward is not recorded as anasset unless there is a reasonable expectation of realisation in the foreseeablefuture. Deferred tax assets and liabilities are measured using the tax rates that areexpected to apply to the period when the asset is realised or the liability issettled, based on tax rates (and tax laws) that have been enacted orsubstantially enacted by the balance sheet date. Deferred tax is charged orcredited to the profit or loss statement, except when it relates to itemscharged or credited to equity, in which case the deferred tax is also dealt within equity. Deferred tax assets and liabilities are offset when they relate toincome taxes levied by the same tax authority. 2.7. Cash and cash equivalentsCash and cash equivalents comprise cash in hand and cash held on demand withbanks, and other short-term highly liquid investments that are readilyconvertible to a known amount of cash and are subject to an insignificant riskof changes in value. 2.8. InventoriesInventories are measured at the lower of cost and net realisable value. Costincludes all costs of purchase, cost of conversion and other costs incurred inbringing the inventories to their present location and condition. Cost iscalculated using the first in first out method. Net realisable value is theestimated selling price less all estimated costs to completion and costs to beincurred in marketing, selling and distribution. 2.9. InvestmentsInvestments are recognised and derecognised on a trade-date basis and areinitially measured at cost, including transaction costs. At subsequent reporting dates, securities that the Group has the expressedintention and ability to hold to maturity (held-to-maturity securities) aremeasured at amortised cost, less any impairment loss recognised to reflectirrecoverable amounts. The annual amortisation of any discount or premium on theacquisition of a held-to-maturity security is aggregated with other investmentincome receivable over the term of the instrument so that the revenue recognisedin each period represents a constant yield on the investment. An impairment lossis recognised in profit or loss when there is objective evidence that the assetis impaired, and is measured as the difference between the investment's carryingamount and the present value of estimated future cash flows discounted at theeffective interest rate computed at initial recognition. Impairment losses arereversed in subsequent periods when an increase in the investment's recoverableamount can be related objectively to an event occurring after the impairment wasrecognised, subject to the restriction that the carrying amount of theinvestment at the date of the impairment is reversed shall not exceed what theamortised cost would have been had the impairment not been recognised. Investments other than held-to-maturity securities are classified as eitherheld-for-trading or available-for-sale, and are measured at subsequent reportingdates at fair value. The Group determines the fair value of these investments byreference to quoted market prices where there is an active market, valuationtechniques where these techniques may be expected to produce a reliable estimateof the fair value or at cost less impairment. Where securities are held fortrading purposes, gains and losses arising from changes in fair value areincluded in profit and loss for the period. For available-for-sale investments,gains and losses arising from changes in fair value are recognised directly inequity, until the security is disposed of or is determined to be impaired, atwhich time the cumulative gain or loss previously recognised in equity isincluded in the net profit or loss for the period. Impairment losses recognisedin profit or loss for debt-instruments classified as available-for sale aresubsequently reversed if an increase in the fair value of the instrument canobjectively be related to an event occurring after recognition of the impairmentloss. 2.10. Property, plant and equipmentProperty, plant and equipment are recorded at historic cost, less accumulateddepreciation and any impairment loss where the recoverable amount of the assetis estimated to be lower than its carrying amount. Property in the course of construction for production or administrative purposesis carried at cost, less any recognised impairment loss. Cost includesprofessional fees and, for qualifying assets, borrowing costs capitalised inaccordance with the Group's accounting policy. Depreciation of these assetscommences when the assets are ready for their intended use. Depreciation is charged so as to write off the cost of the assets over theirestimated useful lives, using the straight-line method, as follows: Property - 20 years Electronic equipment, furniture and fixtures - 5 years Motor vehicles - 8 years The assets' residual values and useful lives are reviewed, and adjusted, ifappropriate, at each balance sheet date. The gain or loss arising on the disposal or retirement of an item of property,plant and equipment is determined as the difference between the sales proceedsand the carrying amount of the asset and is recognised in the income statement. 2.11. Internally generated intangible assets - research and development expenditure Research expenditure is recognised as an expense as incurred. Costs incurred on development projects are recognised as internally generatedintangible assets only if all of the following conditions are met: • an asset is created that can be identified (such as software and new processes); • it is probable that the asset created will generate future economic benefits; and • the development cost of the asset can be measured reliably. Internally generated intangible assets are amortised on a straight-line basisover their estimated useful lives, from the commencement of commercialproduction. Development costs that have been capitalised as intangible assets are amortisedon a straight-line basis over the period of its expected benefits, whichnormally does not exceed 3 years. 2.12. Patents and trademarksPatents and trademarks are measured initially at purchase cost and are amortisedon a straight-line basis over their estimated useful economic lives. Patents - 3 years Trademarks - 2 years 2.13. Impairment of tangible and intangible assetsAt each balance sheet date, the Group reviews the carrying amounts of its assetsto determine whether there is any indication that those assets have suffered animpairment loss. If any such indication exists, the recoverable amount of theasset is estimated to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individualasset, the Group estimates the recoverable amount of the cash-generating unit towhich the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value inuse. If the recoverable amount of an asset is estimated to be less than its carryingamount, the carrying amount of the asset is reduced to its recoverable amount.Impairment losses are recognised as an expense immediately. When an impairment loss subsequently reverses, the carrying amount of the assetis increased to the revised estimate of its recoverable amount, to the extentthat the increased carrying amount does not exceed the carrying amount thatwould have been determined had no impairment loss been recognised for the assetin prior years. A reversal of an impairment loss is recognised as incomeimmediately. 2.14. Financial assetsThe principal financial assets are cash, trade receivables, other receivablesand other investments. Trade and other receivables are stated at their nominalvalue as reduced by appropriate allowances for estimated irrecoverable amounts.The accounting policy of other investments is outlined above. 2.15. Financial liabilities and equityFinancial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. Significant financialliabilities include interest-bearing short-term bank loans, trade and otherpayables. Interest-bearing short-term bank loans are recorded at the proceeds received,net of direct issue costs. Finance charges, including premiums payable onsettlement or redemption, are accounted for on an accrual basis and are added tothe carrying amount of the instrument to the extent that they are not settled inthe period in which they arise. Finance costs are accounted for on an accrualbasis (effective yield method) and are added to the carrying amount of theinstrument to the extent that they are not settled in the period in which theyarise. Trade and other payables are stated at their nominal value. Equity instruments are recorded at the fair value of consideration received, netof direct issue costs. 2.16. Borrowings and borrowing costsBorrowings are recognised initially at fair value, net of transaction costsincurred. Borrowings are subsequently stated at amortised cost; any differencebetween the proceeds (net of transaction costs) and the redemption value istaken to the profit and loss statement over the period of the borrowings usingthe effective interest method. All borrowing costs are taken to the profit and loss statement over the periodof borrowing using the effective interest method. 2.17. Foreign currency transactionsIn preparing the financial statements of the individual entities, transactionsin currencies other than the entity's functional currencies are recorded atrates of exchange prevailing on the dates of the transactions. At each balancesheet date, monetary balances denominated in foreign currencies are retranslatedat the rates ruling at the balance sheet date. Exchange differences arising on the settlement of monetary items, and on theretranslation of monetary items, are included in the income statement for theyear. 2.18. ProvisionsProvisions are recognised when the combined entity has a present legal orconstructive obligation as a result of a past event where it is probable thatthe obligation will result in an outflow of economic benefits that can bereasonably estimated. 2.19. LeasesLeases where the lessor retains substantially all the risks and benefits ofownership of the asset are classified as operating leases. Initial direct costsincurred in negotiating an operating lease are added to the carrying amount ofthe leased asset and recognised over the lease term on the same bases as thelease income. Operating lease payments are recognised as an expense in theincome statement on a straight-line basis over the lease term. 2.20. DividendsDividends on ordinary shares are recognised as a liability in the period inwhich they are declared. 2.21. Related partiesFor the purpose of these financial statements, parties are considered to berelated to the Group if the Group has the ability, directly or indirectly, tocontrol the party or exercise significant influence over the party in makingfinancial and operating decisions, or vice versa, or where the Group and theparty are subject to common control or common significant influence. Relatedparties may be individuals (being members of key management personnel,significant shareholders and/or their close family members) or other entitiesand include entities which are under significant influence of related parties ofthe Group where those parties are individuals, and post-employment benefit planswhich are for the benefit of employees of the Group or of any entity that is arelated party of the Group. 2.22. Segment reportingA business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. A geographical segment is engaged inproviding products or services within a particular economic environment that aresubject to risks and returns that are different from those of segments operatingin other economic environments. Business SegmentThe Group comprises mainly the software development and system installationdivisions. Geographical SegmentNo geographical segment analysis of the Group is presented as the Group'sbusiness operates mainly in the People's Republic of China ("PRC"). 2.23. Statutory reserveStatutory reserve is in respect of the PRC companies and has been set aside inaccordance with the legislation in the country. 2.24. Share based paymentThe Group issues equity-settled share-based payments to certain employees.Equity settled share-based payments are measured at fair value (excluding theeffect of non market-based vesting conditions) at the date of grant. The fairvalue determined at the date of grant of the equity-settled share-based paymentsis expensed on a straight-line basis over the vesting period, based on theGroup's estimate of the shares that will eventually vest and where applicable,adjusted for the effect of non market-based vesting conditions. Fair value is measured using the Black-Scholes pricing model. 3. REVENUE AND SEGMENTAL ANALYSIS The Group's operations are organised into one operating division namely softwaredevelopment which includes sales of software products and system integration. Group 2006 2005 US$ US$ Software 5,729,937 4,338,422System integration 2,716,225 1,817,430 --------------------- 8,446,162 6,155,852 ===================== The Group's revenue and profit before taxation were all derived from itsprincipal activity. All revenue originates in the People's Republic of China. 4. OTHER INCOME Group 2006 2005 US$ US$ VAT refund 756,878 567,999Gain on disposal of quoted securities 228,161 -Government grants and rebates - 54,186Other income 5,280 - --------------------- 990,319 622,185 ===================== 5. TAXATION The tax expense recognised in the consolidated profit and loss account: Group 2006 2005 US$ US$ Current tax - -Deferred tax (note 22) 91,822 44,913 --------------------- 91,822 44,913 ===================== The current tax charge for the year can be reconciled to the results of theGroup as follows: Group 2006 2005 US$ US$ Profit before tax 3,815,279 3,464,793 ---------------------Tax at applicable income tax rate of 33% 1,259,042 1,143,382Tax effect of:Non-deductible expenses 521,052 34,857Exempt income (1,680,053) (1,178,239)Unrelieved tax losses (100,041) - ---------------------Tax expense for the period - - ===================== 6. EARNINGS PER SHARE 2006 2005 Profit for the year US$ 3,723,457 US$ 3,419,880 ------------------------------------Number of shares - weighted average - basic 138,556,608 179,000 Basic earnings per share US$ 0.0269 US$ 19.10 ------------------------------------ Number of shares - weighted average - diluted 141,679,987 179,000Diluted earnings per share US$ 0.0263 US$ 19.10 ------------------------------------ 7. FINANCIAL INFORMATIONThe foregoing statements do not constitute the Group's statutory accounts. TheGroup's statutory accounts on which the Group's auditors, Sedley RichardLaurence Voulters, have given an unqualified opinion in accordance with Section235 of the Companies Act 1985 are to be delivered to the Registrar of Companiesand will be posted to shareholders shortly. 8. ANNUAL GENERAL MEETINGThe Annual General Meeting of the Company will be held at 11am on Wednesday 2May 2007 at the offices of Tavistock Communications, 131 Finsbury PavementLondon EC2A 1NT. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Software Circle