Half Year Financial Statement For The Period Ended 30 September 2005

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Business Review
In 2004 the Chinese government implemented the macroeconomic measures to moderate the overheated economy. The economy has gradually slowed down and the consumer sentiment has also weakened. Nevertheless, with our increased sales and marketing effort as committed in the 3-year growth plan, our sales for the first six months ended 30th September 2005 has recorded HK$1,079.0 million, i.e. 0.9% increase as compared with the same period of last year which was HK$1,069.6 million.

There was a slight increase in gross margin from 9.61% for the six months ended 30th September 2004 to 9.71% for the same period of 2005. There has been pressure on the gross margins since the second half of last year. The Group’s competitive pricing strategy amidst the general market downturn and intense competition in the PRC’s electronics market led to a low gross margin for the first four months of the period under review. However this negative effect was more than offset by the unexpected surge in demand from the export-sales customers in the last two months of the first half year, thus slightly increased the overall margin for the first half year as compared with that of last year.

The increase in distribution costs to HK$13.9 million, as compared with that of last year of HK$11.1 million, was mainly due to the increase in sales and marketing activities in a tough and difficult market environment, especially in China.

Administrative expenses increased by HK$5.9 million, from HK$67.5 million for the six months ended 30th September 2004 to HK$73.4 million for the same period of 2005. The increase was due to the rise in staff costs as a result of hiring more staff and salary increment, more rental expenses for renting more warehouse space and expanding our Shanghai Office, and the set up cost of Taiwan Office.

Finance costs increased by HK$3.8 million, from HK$3.8 million for the six months ended 30th September 2004 to HK$7.6 million for the same period of 2005. It was mainly attributable to the rise in interest rates.

The increase in other operating income was mainly due to higher bank interest income from the increased interest rates and the higher commission income received from our major principal as an incentive rebate for achieving certain sales target.

Financial Position
The increase in trade receivables was mainly attributable to the increase in sales in the current financial year as compared with that of 2005. The debtors turnover period was maintained at the level of about 2 months.

The stock holding period was also maintained at about 2 months while the inventories level was reduced slightly from HK$291.0 million as at 31st March 2005 to HK$273.1 million as at 30th September 2005.

Cash Flow
As at 30th September 2005, the Group had a working capital of HK$270.8 million, which included a cash balance of HK$141.6 million, compared to a working capital of HK$311.0 million, which included a cash balance of HK$214.9 million at 31st March 2005. The decrease in cash by HK$73.3 million was principally attributable to a cash outflow of HK$59.8 million from operating activities, another HK$3.6 million from investing activities and HK$10.2 million from financing activities.

Cash outflow from operating activities was mainly attributable to an increase of trade receivables along with the increase in sales in the current period when compared with that of 2005.

The Group did not raise any bank loans during the period which resulted in a cash outflow from financing activities in the current period.

The Chinese government’s macro economic control measures commenced in early 2004 will go further into the second half of the financial year 2006. Rising interest rates, higher and volatile oil prices together with further increase in material prices will further dampen the global economy.

In spite of the market uncertainties and fierce competition, we will continue with our 3-year growth plan and move on with our expansion program in China. The essence of this plan is to strive for sales growth by means of market expansion, industry breadth and depth, and human resource management.

Looking forward, we will be leveraging our strengths, capability and experience in the electronic component distribution industry, as well as maintaining our emphasis on China market. Barring any unforseeable circumstances, we still remain positive with our business prospects even though we anticipate challenging market conditions for the coming six months.