Annual Report

C M Y K

Characteristics of the Growth Enterprise Market (‘‘GEM’’) of The Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’)

GEM has been established as a market designed to accommodate companies to which a high investment risk may be attached. In particular, companies may list on GEM with neither a track record of profitability nor any obligation to forecast future profitability. Furthermore, there may be risks arising out of the emerging nature of companies listed on GEM and the business sectors or countries in which the companies operate. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.

Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board and no assurance is given that there will be a liquid market in the securities traded on GEM.

The principal means of information dissemination on GEM is publication on the Internet website operated by the 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 in order to obtain up-to-date information on GEM-listed issuers.

The Stock Exchange takes no responsibility for the contents of this report, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this report.

This report, for which the directors (the ‘‘Directors’’) of Global Digital Creations Holdings Limited (the ‘‘Company’’) collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on GEM of the Stock Exchange (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: (i) the information contained in this report is accurate and complete in all material respects and not misleading; (ii) there are no other matters the omission of which would make any statement in this report misleading; and (iii) all opinions expressed in this report have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

香港聯合交易所有限公司「聯交所( 」) 創業板之特色

創業板為帶有高投資風險之公司提供上市之市場。尤其在創業板上市之公司毋須有過往盈利記錄，亦毋須預測未來盈利。此外，在創業板上市之公司可因其新興性質及該等公司經營業務之行業或國家而帶有風險。有意投資人士應了解投資於該等公司之潛在風險，並應經過審慎周詳之考慮後方作出投資決定。創業板之較高風險及其他特色表示創業板較適合專業及其他經驗豐富之投資者。

鑒於在創業板上市之公司新興之性質，在創業板買賣之證券可能會較在主板買賣之證券承受較大市場波動風險，同時無法保證在創業板買賣之證券會有高流通量之市場。

創業板發佈資料之主要方法為在聯交所所設之互聯網網站上刊登。上市公司一般毋須在憲報指定報章刊登付款公佈。因此，有意投資人士應注意彼等須閱覽創業板網站，方能取得創業板上市發行人之最新資料。

聯交所對本報告的內容概不負責，對其準確性或完整性亦不發表任何聲明，並明確表示概不就因本報告全部或部份內容而產生或因倚賴該等內容而引致的任何損失承擔任何責任。

本報告乃遵照聯交所創業板證券上市規則「創業板上市規則( 」) 的規定而提供有關環球數碼創意控股有限公司「本公司( 」) 的資料，本公司各董事「董事( 」) 願共同及個別對此承擔全部責任。董事在作出一切合理查詢後確認，據彼等所知及所信：(i) 本報告所載資料在各重大方面均為準確及完整，且無誤導成分；(ii) 本報告並無遺漏其他事項足以致使本報告所載任何陳述有所誤導；及 (iii) 本報告內表達的一切意見乃經審慎周詳考慮後始行作出，並以公平合理的基準和假設為依據。

Where the English and the Chinese texts conflict, the English text prevails. 本年報備有中英文版本，如有歧義，概以英文版本為準。

READY C M Y K

CONTENTS 目錄

Mission Statement 2 任務與使命 Corporate Profile 3 集團簡介 Company Information 4 公司資料 Chairman’s Statement 7 主席報告 Chief Executive Officer‘s Review & Outlook 11 行政總裁回顧及展望報告 Directors’ and Senior Management Profile 21 董事及高級管理人員簡介 Management Discussion and Analysis 27 管理層討論及分析

Comparison of Business Objectives with Actual Business Progress 34 業務目標與實際業務進度比較 Use of Proceeds from the Company’s Initial Public Offering 58 本公司首次公開招股所得款項用途 Report of the Directors 62 董事會報告 Auditors’ Report 79 核數師報告 Financial Statements 81 財務報表 Five Years Financial Summary 170 五年財務摘要 Corporate Governance Statement 171 企業管治聲明 We are the pioneers in a new technology and industry. There are many problems and difficulties in our way. We will conquer and overcome. We believe our future will rest on the people that we train and nurture today. Together working as a team, we will build and lead the digital content development industry in Asia.

MISSION STATEMENT ͨ৻ၤԚ՜

ࠨܰ๫ʌޫҌʥଐพؿׅ঄ّc֢ப࿾࿾c҈ cڌe҈ࠨ૯کق֡ڭшᗒࠇࠇc҈ࠨੀჲআ઩౭c Ɂɷؿ਩ө՗ʌˀؿЦɈcగܰ҈ࠨؿ̰Ԟe ຒଠȹʶc΃ʶ΃ᄨcೕ౔྆අ၀ुc ࠨΕᅕᆦఌ᛽ޫҌეਟؿეኒΔϽc҈͓ۺ ੓ეᅕᆦఌ᛽ޫҌɮพΕԓݘؿณೕࢄe

2 Global Digital Creations Holdings Limited CORPORATE PROFILE එ྆ᓯʍ

ࠗಋؿ᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇cடכHeadquartered in Hong Kong, Global Digital Creations Holdings ᐢ஫உ ᙔʔ̇c˞Ɏ଻ီ̯එֶ྆᏷ଈᅕڃLimited, together with its subsidiaries, (hereinafter collectively ΃ԯ referred to as the “Group” or “GDC”) is one of the leading groups ᆦ˞ეኒԓʪΔਂᅕᆦʑࢀଐพೕࢄݯ˚οe providing an integrated value chain in the digital content business ̯එ྆˚߬ొԜȹӡͶ˞ᅕᆦʑࢀݯ˚ؿพ৻c which encompasses computer graphics (“CG”) creation and ๫ɻ˳ܢཋ຾྇ཫ௚АʥႇАdᅕᆦʑࢀೕϷʥ production, distribution and exhibitions of digital content, and ࢄ͐c˞ʥཋ຾྇ཫؿ਩ফᇾೡe training of CG artists in the Asia Pacific region.

͓ۺGDC has built a production pipeline in the city of Shenzhen in the ᏷ଈᅕᆦΕɻജɁ̵ͳ՗ਝ*ɻਝ૯Γ̟ People’s Republic of China* (the “PRC”) for the production of CG ȿȹૈႇАᅕᆦཋ຾྇ཫʑࢀؿ́ଐᇃc˞ႇА e᏷ଈᅕۂcontent for animated films, TV series and other CG applications. GDC ৽ೋཋᄧdཋ഼டᙩჱ՗ԯˢᅕᆦଐ has finished the production of Thru the Moebius Strip. ᆦɰѧιႇАᚓˈ౜᏷e

Εཋ຾྇ཫඖ͌௚АʥႇА́ଐɐྦྷࡗړTo secure a stable supply of CG creation and production staff for ݯȿᆢ CG projects, GDC has organized CG training courses in Shenzhen in ɮɁᅕؿᖇց჏ұc᏷ଈᅕᆦϬɀཌྷཌྷཌྷαնc co-operation with Shenzhen University since year 2000. Having Εɻਝ૯Γ̟ၤ૯Γɣነᐲ΋௚ፒȿཋ຾྇ཫؿ trained over 400 CG artists, GDC now has a strong CG production ਩ফᇾೡcԎɰ਩ቔˮ400ΛΊཋ຾྇ཫႇАؿ team with over 300 animators and artists, the largest in the PRC ᖚ୺ࡼe᏷ଈᅕᆦଊኟτ൚༦300Ί৽ೋᖚ୺ ԓݘ௖ɣؿཋ຾྇ཫႇА྆כand in Asia. In September 2003, GDC extended its training services ࢑cܰɻਝȽϭ ৻ׅרto Shanghai to nurture talents. අeΕɀཌྷཌྷɍαȾ˂c̯එ྆ҡੀ਩ফ ࢄϭɐࣵc˞ᄈ˱Ɂɷ਩ቔe

Leveraging its proprietary technologies in digital film processing, ንᔄΕᅕᆦཋᄧ˱ɮ୮ଉdᇁᆦdᎦᐛd᎝Φd encryption, compression, storage, delivery and distribution, GDC ඨፏʥೕ঺ʿࠍؿਿτҌ୺c᏷ଈᅕᆦɰ඀ೕȹ developed a proprietary 2K x 1K digital cinema solution. In 2002, ࠯ਿτ2K x 1K ᅕᆦᄧ৑໬Һʿ࣐eΕɀཌྷཌྷɀ ৻רthe Group successfully used its proprietary DSRTM Digital Film Agile αcɻਝࠖࡼᅕᆦᄧ৑༜͂DSRTM ᅕᆦᄧ৑ ཋᄧఖ࿡eϬɀخɻਝࠖ஫ᇒː฻ᅕᆦܮEncoder for the premiere of The Missing Gun, the PRC’s first digitally ӡ଻ࠖ ౨c̯එ྆ι˲Δઐᄤԯᅕᆦᄧ৑໬ٱreleased film. The Group has, since early 2003, commercialized its ཌྷཌྷɍα רdigital cinema solution under the DSRTM range of equipment for Һʿ࣐cݯͲଈᅕᆦᄧ৑ొԜDSRTM ᅕᆦᄧ৑ supply to digital cinemas worldwide. ৻ӡ଻e

τࠉʔ̇௚พ׶ɐ̟מShares of the Company are listed on the Growth Enterprise Market ̯ʔٖ̇ͫΕࠗಋᐲ΋͚ of The Stock Exchange of Hong Kong Limited (stock code: 8271.HK) ٖͫˤ໔i8271.HKeԯٖͫ͛˱ɃؒᙬКါᖬ ᖬԴ͚׳݇כւʿ̟௿c˞ʥڈֺՇဳԹמand traded on the Regulated Unofficial Markets of Frankfurt, Berlin, Դ͚ /i8271.Fم༏஦מֺ͚מֺ՗ᄮ̛КᖬԴ͚מ /and Munich Stock Exchanges (Reuters: 8271.F/8271.BE/8271.MU 8271.DE (XETRA) and Bloomberg: GDC GR EQUITY). 8271.BE/8271.MU/8271.DE(XETRA)ʥధ௟iGDC GREQUITYe

GDC’s vision is to become a leader in the digital ᏷ଈᅕᆦɾԚ՜ܰιݯԓʪΔਂᅕᆦʑ content development industry in the Asia Pacific ࢀೕࢄଐพؿეኒّe region.

ܢ˳For the purpose of this annual report, the People’s Republic of China or * గ̯αంϤӰcɻജɁ̵ͳ՗ਝֶɻਝɣ஺ɺ* ՗̎ᜪeਂܧऋПϷپChina mainland excludes Hong Kong and Macau Special Administrative ࠗಋʥዌ Regions and Taiwan.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 3 COMPANY INFORMATION ʔ̇༅ࢿ

Board of Directors ໎ԑผ ਨϷ໎ԑiڈ :Non-executive Director Mr. Cao Zhong (Chairman) ઴֦ͱ́˚࢐ Mr. Leung Shun Sang, Tony ષ඗́ͱ́ Dr. David Deng Wei (Vice-Chairman) ሳ৩௟ɡ৹˚࢐

Executive Directors: ਨϷ໎ԑi ᐢസܧMr. Chen Zheng (Chief Executive Officer) ஹ֢ͱ́Ϸ ਝ̡ͱ́৹ᐢസټ (Mr. Jin Guo Ping (Vice President Dr. Catherine Xu Qing (Vice President) ࢘૜௟ɡ৹ᐢസ

ਨϷ໎ԑiڈIndependent non-executive Directors: ዟ͓ Mr. Gordon Kwong Che Keung ㅽҁੜͱ́ Mr. Bu Fan Xiao ɋɓѣͱ́ Mr. Stephen Hui Hung ஈݙͱ́

Chief Financial Officer & Qualified Accountant ল৻ᐢဟ࠹΋༅ࣟผ߮࢑ Mr. Tsang Yu Tit ౦Σᚁͱ́

Compliance Officer ဟྦ˚ͨ Mr. Chen Zheng ஹ֢ͱ́

Company Secretary ʔ̇ो࣊ Mr. Tang Wing Fai ሳ࿘ሣͱ́ Mr. Ira Stuart Outerbridge III (Assistant Secretary) Ira Stuart Outerbridge III ͱ́Хଉो࣊

Audit Committee ᄗ࣏կࡗผ Mr. Gordon Kwong Che Keung (Chairman) ㅽҁੜͱ́˚࢐ Mr. Bu Fan Xiao ɋɓѣͱ́ Mr. Stephen Hui Hung ஈݙͱ́

կࡗผټRemuneration Committee ༭ Mr. Leung Shun Sang, Tony (Chairman) ષ඗́ͱ́˚࢐ Mr. Cao Zhong (Vice-Chairman) ઴֦ͱ́৹˚࢐ Mr. Bu Fan Xiao ɋɓѣͱ́ Mr. Stephen Hui Hung ஈݙͱ́ Mr. Gordon Kwong Che Keung ㅽҁੜͱ́

4 Global Digital Creations Holdings Limited COMPANY INFORMATION ʔ̇༅ࢿ

Nomination Committee ొΊկࡗผ Mr. Bu Fan Xiao (Chairman) ɋɓѣͱ́˚࢐ Mr. Gordon Kwong Che Keung ㅽҁੜͱ́ Mr. Stephen Hui Hung ஈݙͱ́

ٲAuthorised Representatives ઒ᚬˤ Mr. Chen Zheng ஹ֢ͱ́ Dr. Catherine Xu Qing ࢘૜௟ɡ

ٲBermuda Resident Representative ϛᄮ༠቙ֈˤ Mr. John C. R. Collis John C. R. Collis ͱ́

ٲBermuda Deputy Resident Representative ϛᄮ༠৹቙ֈˤ Mr. Anthony D. Whaley Anthony D. Whaley ͱ́

Website Address ၉э http://www.gdc-world.com http://www.gdc-world.com

Stock Code ٖͫˤ໔ 8271.HK 8271.HK i 8271.F/8271.BE/8271.MU/8271.DEمReuters: 8271.F/8271.BE/8271.MU/8271.DE (XETRA) ༏஦ Bloomberg: GDC GR EQUITY (XETRA) ధ௟i GDC GR EQUITY

Head Office and Principal Place of Business ࠗಋᐢፒԑ୮ʥ˚߬ᏪพΔᒨ in Hong Kong 6/F., Bank of East Asia Harbour View Centre ࠗಋᜪˠ 56 Gloucester Road йɡ̨༞56໔ Wanchai, Hong Kong ׭ԓႺϷಋᜪɻʶ6ᅢ

Registered Office ഽ˫ፒԑ୮ Clarendon House Clarendon House 2 Church Street 2 Church Street Hamilton HM 11 Hamilton HM 11 Bermuda Bermuda

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 5 COMPANY INFORMATION ʔ̇༅ࢿ

Auditors ࣏ᅕ࢑ Deloitte Touche Tohmatsu ᄨඵg ᗐඡஹʿผ߮࢑Ϸ

ᔈɁړ Sponsor ࿔ጪ༅ԓݘτࠉʔ̇ټ Goldbond Capital (Asia) Limited

ᚋਐ܁ؒ Legal Advisers ܁As to Hong Kong Laws ࠗಋؒ ࢑ԑ৻ֺ܁Sidley Austin Brown & Wood ଞᄨ

܁As to Bermuda Laws ϛᄮ༠ؒ Conyers Dill & Pearman Conyers Dill & Pearman

Principal Bankers ˚߬֡ԞႺϷ Hang Seng Bank Limited 㞫́ႺϷτࠉʔ̇ The Development Bank of Singapore Ltd. ܱࢄႺϷ Standard Chartered Bank ಔ̨ႺϷ Shenzhen Commercial Bank ૯Γ̟ਆพႺϷ Bank of China ɻਝႺϷ

Principal Share Registrar and Transfer Office ٖͫ༦ʸ೔তᐢ୮ The Bank of Bermuda Limited The Bank of Bermuda Limited Bank of Bermuda Building Bank of Bermuda Building 6 Front Street 6 Front Street Hamilton HM 11 Hamilton HM 11 Bermuda Bermuda

Hong Kong Branch Share Registrar and Transfer ࠗಋٖͫ༦ʸ೔তʗ୮ Office ᅟๅᖬԴ೔তτࠉʔ̇ Standard Registrars Limited ࠗಋ ΍ɣ༞׭1໔ޒ Level 25, Three Pacific Place 1 Queen’s Road East ʪ̀ᄤ௿ɍ౨25ᅢ Hong Kong

6 Global Digital Creations Holdings Limited CHAIRMAN’S STATEMENT ˚࢐ంй

঴Ԟؿཋ຾྇ٽAfter the production of the film “Thru the Moebius Strip”, ஝༦ཋᄧᚓˈ౜᏷ԹАι ɰΕɻਝɍၐ৽ೋႇАეکthe CG production team has grown up and is now in a ԹА྆අc͌ ეኒΔϽeͲፆАݯɍၐ৽ೋႇАכleading position in 3-D animation production in China. ਟ୮ Thanks to the most proficient 3-D team, the relevant ௖ঢ়ˋๅɾ྆අc̯එ྆ΐϊᏵ੡ɻਝܧ ፭ɻڌޚcܛᗐʿࠍؿঢ়۹ࠇ഼՗ʻޚ֚ authorities of the PRC has paid special attention and ৽࿾ଐพؿ༩˱ࠇ഼c̯එ྆ੀྦྷ֚ܧprovided genuine support to the Group. We are confident ਝ ҡɣؿᎳХe΃ࣂc̯එ֚ܧthat the Group will obtain even greater support from the ผᏵ੡ɻਝ Ί৽ೋʔكPRC government as it develops growing concerns over the ྆ؿԹАˋ̡ɖɰᏵ੡჌ஈΛ animation industry. Meanwhile, the production quality of ̇ؿႏ˿՗ጙመcݯ̯එ྆੓Ԟਝ჌ཋ຾ خthe Group has already been widely recognised by ৽ೋ˱ɮ߯௰՗ɍၐ৽ೋཋᄧؿ΋А ཋ຾৽ೋؿ௚А՗ԹАੀݯʔ̇ڌޚinternationally renowned animation companies, bringing ᚬe processing orders and 3-D animated movies co-production ੓Ԟ˿ᜮؿνɃcԎιݯʔ̇ᖇցνɃؿ copyrights. It is believed that creation and production of ᔔఒɾ฻eᚓˈ౜᏷ɾ܃౨ႇАɰѧιc ᜡᆉݠټcomputer animations will bring about significant income Ԏ਄˱ȿɻਝཋᄧพ௖Ԯᚬۤؿ

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 7 CHAIRMAN’S STATEMENT ˚࢐ంй

ғ࠿̯αੀ֚ܧfor the company and become a substantial source of steady ৽cᏵ੡ొΊᆉe຤ɻਝ income. The final-stage production of “Thru the Moebius ผΕɻਝɐܮeϤ໮ཋᄧɾ̟῾ઐᄤพɰ Strip” has been completed and the film attained nomination ΣˌΣ୫ؿ൬ϷcԎ൬Ϸݡਆe to the Golden Eagle Award, the most authoritative events in the animation industry in the PRC. The film will be released in the PRC this year as approved by the PRC government. The marketing activities of the film is proceeding intensively and other negotiation is in progress.

˜Development in the animation and comic industry in the ɻਝɾ৽࿾พؿೕࢄʵ঴ؿᗲࠇɁҥॠ PRC has already triggered the phenomenon of severe labour ଊോcݯʔ̇ؿ຾྇ཫ਩ফพ৻੓Ԟ̜ɣ Ⴉ൬үcٽshortage, which provided enormous opportunities for the ؿਆዀc໮พ৻Ε˾αɰՅ੡ Group’s CG training business. Such business has already ݯ̯එ྆੓Ԟᖇցؿνऩe achieved far-reaching progress last year and bringing in steady revenue to the Group.

8 Global Digital Creations Holdings Limited CHAIRMAN’S STATEMENT ˚࢐ంй

The relevant digital cinema technology standards have been τᗐᅕᆦᄧ৑Ҍ୺ᅟๅ຤ɰʔЗcϤ̯එ issued and the Group is among the most compliant ྆ᙻӸ௖ଲ΋Ҍ୺ᅟๅɾԜᎶਆcད߮ᅕ providers to such technology standards. It is expected that ᆦᄧ৑உௐɾሻਕଉ෱cց๫ݯ̯එ྆੓ ᅶɈc໮พ৻ٽcؗ˘ϣᄬԷԯᄈٽthe sales of the digital cinema equipment would be positive Ԟᄈ by which a growth to the Group is definitely to follow. ੀιݯ̯එ྆˚߬ೕࢄඖ͌ɾȹe̯ʔ̇ Furthermore, in consideration of its growth potential, such ᏃʵɃณؿҙ༅ّc˞˱ੜٖ׭ਥᓣc੣ business will be one of the major development projects of ϤޢӠೕࢄᅕᆦᄧ৑உௐҌ୺e the Group. We intend to introduce new investors, to enhance the Shareholders base, for research and development of technology on digital cinema equipment.

ਝ̡ͱ́ʥ࢘૜௟ɡɰټಳۧЗc؀I am pleased to announce that Mr. Jin Guo Ping and Dr. ̯Ɂ ͱ́ݯɻਝ৽ೋԾผผټCatherine Xu Qing had joined the Group. Mr. Jin is the ˱Ƀ̯එ྆e כcٽcԎ౦ͨɐࣵ޻୺ཋᄧԹːᄥᄥٽ chairman of China Animation Association and was appointed as the director of Shanghai Animation Film ɻਝؿ৽ೋϷพኟτᔔఒ຤᛻eϤ࢘௟ɡ Studios. He has extensive experience in animation industries ኟτͬพೕࢄʥ̟௿ሻਕʿࠍؿᔔఒ຤ in China. Dr. Xu has extensive experience of business ᛻eˢࠨɾ˱๷c˱ɐဳଉᄙؿЦɈcց development and marketing experience. Their initiation, ̦ݯ̯එ྆৽ೋҌ୺ʥሻਕೕࢄఈɎਥ together with the effort of the management, is bound to ͏cԎ੓ე̯එ྆൬Ƀณؿೕࢄආݒe lay solid foundation for the Group in terms of animation technology and sales development, leading the Group to a new stage of development.

Mr. Anthony Francis Neoh, joint chairman of the Company, ̯ʔ̇ᐲ࢐˚࢐ષցԄͱ́ʥᖓʼ❔ઠ઒ and Professor Japhet Sebastian Law resigned as directors ʗПΐ੩ञʥΐӝɁଉͅᖽ̯ͨʔ̇໎ ʥ֤ܛof the Company due to illness and personal reasons ԑc̯Ɂᔑϊగ֤೩ྦྷ໎ԑผɾʻ respectively. I hereby express my gratitude towards their ೩ֺАˮɾ༾ɣ঳ᘆߎᑢe support and their great contribution to the board.

ʿ(එ྆)τࠉ̒ٽɀཌྷཌྷʄαɀ˂cࠖכ Shougang Concord Grand (Group) Limited (“SCG”), through τɾȹࡼܛʿ஦༦ԯංઅ̒ٽits indirect wholly owned subsidiary, has completed a ʔ̇ࠖ ۺᙔʔ̇cɰѧιϬᗙֲٖ͚ͫ౒ڃvoluntary share exchange offer by February 2005 and has Ͳ༅ ʿ̒ٽbecome the holding company of the Company. The Group ᘪcԎιݯ̯ʔ̇ɾઁٖʔ̇eࠖ ˘is now provided with more financial resources as well as ɺЎݯ̯එ྆ొԜҡΛؿল৻༅฻cԎ management resources by SCG. Furthermore, the excellent ˿˥̯එ྆ԔτҡΛဳଉ༅฻eϊ̔cࠖ ʿɾઁᚬٖ׭ࠖ፡ઁٖ(ࠗಋ)τࠉʔ̒ٽ relationship with the PRC government and extensive ӪΡ˘ਆพ၉೼ᄤ㟴cڝᗐ֚ܧcommercial network of Shougang Holding (Hong Kong) ̇ၤɻਝ Limited, the controlling shareholder of SCG, provided the ݯ̯එ྆ొԜׅࢄพ৻ؿਆዀe Group with opportunities for business expansion.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 9 CHAIRMAN’S STATEMENT ˚࢐ంй

I am confident that the Group is able to maintain steady ንᘒཋ຾྇ཫʑࢀ௚АʥႇАɾᖇցν growth and becomes the most capable animation ɃhᅕᆦʑࢀೕϷʥࢄ͐ɾᅶɈd̯එ྆ එ̯ڌޚc̯Ɂܛproduction company in China, as we possess stable income ࡗɮɾ৉΋ʥٖ׭ɾʻ cιݯɻਝ௖ԮྡྷɈٽᙩᖇցᄈܛfrom CG content creation and production; potential for ྆ॶਪ digital content distribution and exhibition, accompanied ؿ৽ೋԹАʔ̇e with the cooperation of our staff and the support from the Shareholders.

Cao Zhong ઴֦ Chairman ˚࢐

10 Global Digital Creations Holdings Limited CHIEF EXECUTIVE OFFICER’S REVIEW & OUTLOOK ϷܧᐢസΑᚋʥࢄશంй

ࣱ൒ّྦྷཋ຾྇ཫཋᄧʥཋ഼ʑࢀ჏ұࣨכͅ With the enthusiastic consumer demand for CG movies and TV ذcontents, major US studios such as Pixar and Dream Works ʘc޻ਝ˚߬ႇАʔ̇ΣPixarʥྒɮ௿ɰ඀ն Animation have started looking for Asian partners to help them fill ϳԓݘྑЂ˞ԾХි໤ԯɁɷॠɟc˞ʥࠌГཋ the talent gap as well as lower the cost for CG content productions. ຾྇ཫʑࢀႇАؿι̯eၤ̔Рؿ̡ࠍ৽ೋพ৻ ΃ؿܰcɍၐཋ຾྇ཫ৽ೋ߬ұႇАʔ̇ԮޚUnlike the outsourcing business for 2D animations, 3D CG animation ɺ requires higher technology know-how and more complex ༖ঢ়ؿޫҌʥҡᇲᔵؿဳଉҌ̝eΐϊcɍၐཋ management skills on the production studios’ part. As a result, the ຾྇ཫ৽ೋႇАؿɃϷ჋ᖄ༖ঢ়e᏷ଈᅕᆦ௚෮ barrier to entry for 3D CG animation production is relatively high. ɺඩܰɻਝ௖ఒ຤᛻ʥ௖ɣஃᅡؿཋ຾྇ཫ৽ೋ ሔؿۂʥԮਝ჌ێGDC is not only the most experienced and largest CG animation ʔ̇c͛ܰɻਝ਒ȹ˿ႇАɣ ʔ̇ؿ̯֡כcompany in China, but also the only team in China capable of ৽ೋཋ഼டᙩჱʥཋᄧؿʔ̇eᛇ ੀˢقproducing large scale, international quality animation TV series and ᐜ޵፣ʥι̯᎚බc̯ʔ̇ؿ޻ਝ۪ʸȹ movies. With our track record and cost advantage, our US clients ࠨؿ́ଐАพͅ޻ਝʥԯˢԓݘΔਂᔝଫϭ᏷ଈ have been shifting their production work from the US and other ᅕᆦ௚෮e̯ʔ̇ؿᅩݘʥˀ̯ྑЂ͛ၤ᏷ଈᅕ ᇁԹ̯ంйࣂc̯ʔכparts of Asia to GDC. Our partners in Europe and Japan are also ᆦ௚෮ᒷ˨ԯ΋Аพ৻e ɀཌྷཌྷʒα༖כexpanding their scope of collaboration with GDC. As the time of ̇ད౨ཋ຾྇ཫ৽ೋႇАؿνऩ ʒϭɄࠛeٽwriting this report, we expect to see 6-8 times revenue growth in ɀཌྷཌྷʄαᄈ CG animation production in 2006 over that of 2005.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 11 CHIEF EXECUTIVE OFFICER’S REVIEW & OUTLOOK ϷܧᐢസΑᚋʥࢄશంй

I. CG Content Creation & Production I. ཋ຾྇ཫʑࢀ௚АʥԹА ːԹАٽCG Feature films Production 1. ཋ຾྇ཫཋᄧ .1 Thru the moebius strip ᚓˈ౜᏷

αѧιͲ஫ԹАcԎɰᏵɻ˾כThe production of the film was fully completed last year and ໮ᄧːɰ αΕɻਝࢄ඀ೕϷe̯כғ࠿cੀ֚ܧthe film has already been approved by the Chinese ਝ government for commencing distribution in the PRC this ࣵ̔ೕϷؿ൬ࢄѴશ஝༦ᄧːΕɻਝؿೕ year. It is hoped that the distribution of the film in the PRC ϷϤ੡˞ઐ൬cʔ̇͛Εཹ໰஝༦ࠑཫʥ ઒ᚬ඀ೕ೩Λိۂሻਕcߪ́ଐۂwill foster its distribution overseas. We are also trying to ഼ཫႇ maximise the combined returns from the film in various ʿβᒷɣᄧːؿ΋ԡࢽऩe ways including the sales of audio-visual products and the franchising development of derivative products. c̯ʔ̇ɰၤȹࡼԔۂAs bi-products of the film, the company has signed the Аݯ໮ཋᄧؿ৹ଐ ໮ཋᄧؿႇخਆᖋ߯΋޸ˮخcontract with a prestige publisher to publish the “Making ߲ଞΊؿˮ of” and comic books of the film. Both books are expected to АऋፎMaking ofʥ࿾ೋ࣊eད౨໮ԭ̯ ܮ໮ཋᄧΕɀཌྷཌྷʒαࡧʨɐכੀޑذ˰ be on shelf in bookstores before the film is released in Ε࣊֙τਕeک .summer of 2006

12 Global Digital Creations Holdings Limited CHIEF EXECUTIVE OFFICER’S REVIEW & OUTLOOK ϷܧᐢസΑᚋʥࢄશంй

The “Making of Moebius Film” documentary program about τᗐ໮ཋᄧؿত፣ːMaking of Moebius ໮ཋᄧઐכthe film has also been completed in production. It will be Filmɖɰ຤ѧιႇАcԎੀ eיΕɻਝؿ˚߬ཋ഼̎ɐᅌکshown on major Chinese TV stations before the film is ˮ released.

2. Television CG Series Production 2. ཋ຾྇ཫཋ഼டᙩჱႇА

We have already signed a television CG series production ҈ࠨɰᖋ߯ȿȹͫཋ຾྇ཫཋ഼டᙩჱႇ agreement with and started to produce a renowned АԾᘪc඀նݯȹං޻ਝʔ̇˱ɮႇАȹ American television CG series for an American company. It ஫޻ਝടΊؿཋ຾྇ཫཋ഼டᙩჱe஛ܰ is the first time for the Group to obtain this sort of order ̯එ྆ι͓ʄαΛԞ଱ȹωᏵ੡ϊᗘ߯ since its establishment more than five years ago. This ௰c஛ᅟႌട̯එ྆ؿႇАҌ୺ɰ༠Է޻ signifies that the production technology of the Group has ਝ˚ݚ৽ೋཋ഼ႇАʔ̇ؿႏ˿c඀ઢȿ been recognised by American mainstream animation TV ̯එ྆ณؿพ৻νɃԞ฻e̯එི̳྆߮ production companies and opens a new source of revenue ᒷɣϊᗘ΋АcԚཋ຾྇ཫؿႇА˱ɮι for the Group. The Group is planning to expand this sort of ݯ̯එ྆พ৻νɃؿ˚߬ୂι஫ʗe cooperation to make CG processing and production a principal component of the Group’s business income.

3. CG Television Cooperation 3. ཋ຾྇ཫཋ഼΋А The future of Chinese animation market is attracting more ɻਝ৽ೋ̟௿ؿ̰Ԟ̳мʵട൙Ԟ൙Λؿ Ί৽ೋͬพe̯එ྆С͂᏷ଈᅕᆦكand more internationally renowned animation corporations. ਝ჌ Based on GDC’s level of production and its background of ௚෮ؿႇАˋๅ՗၇ൎ̟௿ؿ߇ౡcଊ̳ being adjacent to the market, the Group is now under ၤΛࡼਝ჌ʔ̇ݡᇹ΋АႇАཋ຾྇ཫཋ negotiation with a number of international companies for ഼e஝༦΋Аc̯ʔ̇ੀՅ੡ཋ຾྇ཫཋ خᚬ՗Ͳଈؿɩ஫ʗخthe cooperation in producing CG Television. Through such ഼Εɻਝؿɣ஫ʗ ႩؿνɃٽᚬؿᏵ੡ੀݯʔ̇خcooperation, GDC will obtain the majority of the CG ᚬc஛Ԓ eڰ܃Television copyrights in the PRC and a minority worldwide ੓ԞੜɈؿ copyrights. Attaining these copyrights will bring about strong momentum for the long-term income of GDC.

4. The development of CG Markets in China 4. ɻਝཋ຾྇ཫ̟௿඀ೕ This year, GDC started entering into the CG markets in China ̯α۹ʔ̇඀ն൬Ƀɻਝཋ຾྇ཫ̟௿c and had generated income from the Chinese CG market. Ԏɰ੣ɻਝཋ຾྇ཫ̟௿ଐ́νɃeʔ̇ GDC planned to jointly develop the CG market in the scope ི߮ၤɻਝടΊؿඨఌඑ྆ͳ΃඀ೕɻਝ ɻڌޚof education in China with well known Chinese media ઠөეਟؿཋ຾྇ཫ̟௿e̯එ྆ corporation. The Group believes that the immense market ਝᕡɣؿ̟௿ࢀ൴ੀݯʔ̇੓Ԟ̜ɣؿೕ volume in China will provide enormous development ࢄዀผe opportunities for GDC.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 13 CHIEF EXECUTIVE OFFICER’S REVIEW & OUTLOOK ϷܧᐢസΑᚋʥࢄશంй

II. CG Training II. ཋ຾྇ཫ਩ফ With only thousands of CG operators in practice, and the ɻਝడɝΊؿཋ຾྇ཫ੣พɁࡗ՗ɊຒΊ shortage of hundred thousand in the CG labour market, ؿཋ຾྇ཫ̟௿Ɂɷॠɟc஥ιȿཋ຾྇ there is enormous market demand for CG training in China. ཫ਩ফؿรɣؿ̟௿჏ұe᏷ଈᅕᆦఌ᛽ The IDMT’s training business is now developing rapidly. ؿ਩ফพ৻̳Εঢ়஠ೕࢄe᏷ଈᅕᆦఌ᛽ ےʥᓍඈɍ࠯ڲIDMT has expanded its presence in Xi’an, Jinan and ޫҌɰ຤஦༦ΕϹΪdᏜ Shenyang by opening IDMT authorised training centers in ̟඀உऋஈؿ᏷ଈᅕᆦఌ᛽ޫҌ਩ফɻʶ the three cities. IDMT also continued to provide industry- Ԟᒷɣԯஃᅡe᏷ଈᅕᆦఌ᛽ޫҌ΃ࣂɌ leading CG training courses in its own training centers in ᘗᙩΕԯϬஉؿɐࣵʥ૯Γ਩ফɻʶొԜ Shanghai and Shenzhen. In 2005, there were over 200 Ϸพʑეͱؿཋ຾྇ཫ਩ফᇾೡeΕɀཌྷ students graduated from IDMT and more than 250 full-time ཌྷʄαc൚༦200Ίነࡗ੣᏷ଈᅕᆦఌ᛽ students enrolled in the CG training courses in Shanghai and ޫҌଓพϤ൚༦250ΊͲˀԹነࡗ࠳ᚾ᏷ Shenzhen. The Group is still planning to open new training ଈᅕᆦఌ᛽ޫҌΕɐࣵʥ૯Γ඀ፒؿཋ຾ ɻਝҡΛכcenters in more Chinese cities. ਝཫ਩ফᇾೡe̯එ྆ᑹི߮ ඀உณؿ਩ফɻʶe̟ےؿ

With expanded in-house CG training facilities and increased ፭ടʑ஫ཋ຾྇ཫ਩ফஉܪᒷ˨ʥ਩ফ௿ training locations, IDMT’s CG animation training business Δτֺᄈ˱c᏷ଈᅕᆦఌ᛽ޫҌؿཋ຾྇ ɀཌྷཌྷʒαঢ়஠ೕࢄכwill be robust and continue to grow in 2006. We are actively ཫ৽ೋ਩ফพ৻ੀ e̯ʔ̳̇ዶรၤਝ჌ᅕᆦఌٽᙩᄈܛdiscussing with international digital media creation training ʥ partners to expand our curriculum. ᛽௚АྑЂদሃᒷɣ̯ʔ̇ؿᇾೡe

III. Digital Content Distribution and Exhibition III. ᅕᆦʑࢀೕϷʥࢄ͐ ɀཌྷཌྷʄαȼ˂cDigital Cinemaכ In July 2005, Digital Cinema Initiatives, LLC (“DCI”) formally released its digital cinema (“DC”) specifications, establishing InitiativesoLLCDCI̳βʔЗԯᅕᆦᄧ ȹ࠯ᅕᆦೕϷ͓ۺa digital distribution format, digital exhibition requirements ৑ᅕᆦᄧ৑ஃࣟc and addressing security concerns. DCI was created in March Թβdᅕᆦࢄ͐ஃցԎ໬ҺΪͲʿࠍɾਐ ɀཌྷཌྷɀαɍ˂௚͓cܰכas a joint venture of Disney, Fox, MGM, Paramount, ᕀeDCI ,2002 Sony Pictures Entertainment, Universal and Warner Bros. DisneydFoxdMGMdParamountdSony Studios. DCI’s primary purpose is to establish and document Pictures Entertainmentd Universalʥ voluntary specifications for an open architecture for DC that Warner Bros. Studiosɾ΋༅ʔ̇cοΕݯ ਄ϣஃעʥ͓߯ۺ࿚ܼיensures a uniform and high level of technical performance, ᅕᆦᄧ৑ɾ඀ ଊd˿ቌֲʥሔ൴ઁԹٲҌ୺ړreliability and quality control. ࣟc˞ᆢ яၐܛ଻ȹʥঢ়ˋๅe

14 Global Digital Creations Holdings Limited CHIEF EXECUTIVE OFFICER’S REVIEW & OUTLOOK ϷܧᐢസΑᚋʥࢄશంй

cɀཌྷཌྷʄ͓ۺThe last quarter of 2005 saw a flurry of activity as the DC ፭ടᅕᆦᄧ৑พ৻ᅡβɾ ȹ࠯տ۹ಐଊଠΛݠ৽h୩Ԉݠཋ܃business models were established; Hollywood studios α௖ (Disney, Warner Bros. Pictures, 20th Century Fox, Universal ᄧʔ̇DisneydWarner Bros. Picturesd Pictures, Sony Pictures and DreamWorks) entered into 20th Century FoxdUniversal Picturesd landmark agreements with third-party DC facilitators where Sony PicturesʥDreamWorksၤ଱ɍʿᅕ ע৻ਆ͓߯ȿԈೡຌβԾᘪc߯רvirtual print fees would be paid for the DC rollout. In ᆦᄧ৑ ᅕᆦᄧ৑ࠖωઐˮࣂʻכDecember 2005, a major US cinema chain — Carmike മᏃͿԵ൒͂ੀ ɀཌྷཌྷʄαɊɀ˂c޻ਝ˚߬ᄧ৑כCinemas pacted with a third-party DC facilitator — Christie/ ˟e AIX to install up to 2,300 DC projection systems. At the same டᔧʔ̇Carmike Cinemasၤ଱ɍʿᅕᆦ ৻ਆChristie/AIXᘪցΪ໦ঢ়༠רtime, US largest cinema group — National CineMedia also ᄧ৑ announced its intention to develop DC business that would 2,300ࡨᅕᆦᄧ৑ҙᄧӡ଻e΃ࣂc޻ਝ eventually rollout DC to more than 13,000 screens it ௖ɣɾᄧ৑එ྆National CineMedia͛ כcurrently operates. ۧЗτ෮඀ೕᅕᆦᄧ৑พ৻ི߮c௖ୄ ᜨɻઐˮᅕܮיԯଊࣂ຤Ꮺɾ༩13,000ࡼ ᆦᄧ৑e

ȹȾȾȾα௚͓c޻ਝܰࠖ࠯כDC began in Year 1999 with the first DC installations in the ᅕᆦᄧ৑ US in time for Star Wars Episode 1. After six years of Ϊ໦ᅕᆦᄧ৑ɾਝࡼc๫ࣂ̳ࠤܱଈɣ cଠΛพʺجe຤༦ʒαɾܮඨ1ɐکstruggling, many industry observers would agree that DC ኝ conversion would take place in 2006 with the sound ʑɁɡяႏݯc፭ടᅕᆦᄧ৑พ৻ᅡβؿ business models as well as universal DC specifications from ѧഁ˞ʥ୩ԈݠʔЗ஝͂ᅕᆦᄧ৑ஃࣟc ɀཌྷཌྷʒαᔝ౒ݯᅕᆦᄧכHollywood. Most observers would agree that DC brings ඨ଻ᄧ৑ੀ many benefits such as the saving of print fees, improved ৑eɣΛᅕɁɡႏݯᅕᆦᄧ৑ኟτଠΛ᎚ ړᚬخҿͿ൒͂dҝഁޘຝܢ˳copyrights protection, improved flexibility to theaters for බcԯɻ the booking of alternative content such as concerts and ᙶdొঢ়ჱ৑ད߯А̊ᗘ͂பΣࠑᅥผ ҡΛיsporting events, more choice of movies that can be stored ʥ᛽өᑩԑɾ᜙ݠֲʥᄧ৑˿Φ in the cinema multiplex, among others. However, less than ཋᄧ˞ԜፕእeಳϤc࿀ϭɀཌྷཌྷʄαɊ of the world cinemas have converted to digital by 31 ɀ˂ɍɊȹˀcͲଈɰᔝ౒ݯᅕᆦᄧ৑ɾ 1% December 2005. ᄧ৑ɺӷ1%e cᅕᆦᄧ৑พ৻ੀᘗᙩڌޚGDC believes DC will continue to represent a growth market ᏷ଈᅕᆦ௚෮ ᙔʔ̇GDC Techؿڃfor GDC Holdings and its subsidiary, GDC Tech. The revenue ݯGDC Holdingsʥԯ ࿀ϭɀཌྷཌྷʄכ௿eGDC Tech̟ٽof GDC Tech for the year ended 31 December 2005 was ȹ࠯ᄈ approximately HK$20.0 million, which compared with the αɊɀ˂ɍɊȹˀ˅α۹ɾνऩ޸ݯ turnover of GDC Tech for the year ended 31 December 2004 20,000,000ಋʏc༖࿀ϭɀཌྷཌྷ̒αɊɀ of HK$42.9 million, represented a decrease of approximately ˂ɍɊȹˀ˅α۹ɾ42,900,000ಋʏɎࠌ 53.4%. ޸53.4%e

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 15 CHIEF EXECUTIVE OFFICER’S REVIEW & OUTLOOK ϷܧᐢസΑᚋʥࢄશంй

The significant decrease in GDC Tech’s revenue was due to GDC TechνऩɣఝɎࠌȽΐᅕᆦᄧ৑ʥཋ ჱʥΐॠ˱جthe increase in competition in the DC and electronic- cinema ɥᄧ৑ཋɥᄧ৑̟௿ᘏ ࣍ΐॖeעኂϤଐ́ؿɺרEC”) markets and uncertainty due to the lack of a DCI ˜DCI࠹ࢀЉ“) compliant server. The Group increasingly faced competitive ̯එ྆Εֺτᅕᆦᄧ৑ʥཋɥᄧ৑̟௿ࠍ ९ʥցძᎦɈɺᒾ˱ჱeቱဳۤجthreats and pricing pressure in all of the DC and EC markets. ᐽɾᘏ ኂႇ஥ਆ඀ೕˮѧͲרAlthough none of the server manufacturers in year 2005 has ɀཌྷཌྷʄαԎಲЉ ኂcЎ஫ͫרdeveloped DC server that completely meets DCI ଲ΋DCIஃࣟɾᅕᆦᄧ৑Љ ፮Ꮆ͂ณઔ͂ɾڣኂɐרspecifications, some manufacturers had taken the risk of ႇ஥ਆɰΕԯЉ ኂ௖ୄרsimply implementing the newly adopted DCI codec — DCI codeczJPEG2000c໮೩Љ ԞАˮʠज़c˞࿶ӷDCIஃࣟɻτ̰כJPEG2000 in their server that would eventually need future ჏ ΪͲֲॶɾஃցe̯එ྆඀ܢ˳upgrade to meet DCI specifications on security features ᗐԯɻ ኂؿ֝႒ੀྦྷ̯එ྆Εᅕרamong others. The delay in the development of the Group’s ೕDCI࠹ࢀЉ ॶɈ੓ԞɺСᄧᚊeجDCI compliant server may adversely affect the Group’s ability ᆦᄧ৑̟௿ɾᘏ to compete in the DC market.

However, the adoption of open standards in DCI ಳϤcΕDCIஃࣟɻઔ͂ʔ඀ᅟๅੀτС ّجᘏێʔ̇Εᅕᆦᄧ৑̟௿ɻၤɣ̯כ specifications might improve the Group’s chances to ਿСҌ୺cڈכeʔ඀ᅟๅҌ୺Ƚਥجcompete with bigger and larger competitors in the DC ᘏ market. Since open standards technologies are based upon ͨЄʔ̇ྦྷ໮˚ኒҌ୺яӀτኟτᚬeΐ ʔێ޻ਝʥᅩݘɾɣכ߬Ͻ˚כྦྷޚnon-proprietary technology in which none of the ϊc ຤Ꮺʥႇ஥ι̯༖Гɾԓכਥۺcompanies maintains ownership over the dominant ̇ϤӰc ᎚බeجҡԮᘏڏtechnologies. As such, GDC Tech being based in Asia with ݘؿGDC Tech lower operation and manufacturing costs might have competitive advantages over the bigger and larger companies that are based primarily in US and Europe.

GDC Tech continues its world leadership in its market share GDC Techɾ̟௿ͫᔾʋֈ˖ވეͱΔϽc רwith over 500 servers delivered since year 2002. In year 2005, Ϭɀཌྷཌྷɀα˞Ԟͳ͚˟༩500̎Љ ɀཌྷཌྷʄαcGDC Tech͚˟༩100כGDC Tech delivered more than one hundred servers and ten ኂe ኂʥ10ࡨEN1000 DSRTM DigitalרEN1000 DSRTM Digital Mastering Systems. EN1000 prepares ̎Љ content for DC and is the preferred choice for leading post- Mastering SystemseEN1000ݯᅕᆦᄧ৑ᇁ production facilities worldwide. To date, over 160 full-length ႇʑࢀcܰͲଈეͱ܃౨ႇАஉܪɾ௖ԙ feature films, numerous advertisements and alternative ፕእeϭʌݯ˅cΕɻਝdͿ۹dˀ̯d contents have been prepared at mastering sites worldwide ᄨਝd୩ᙬdณ˱գd̎ᜪʥ޻ਝ೩˖ވ ٽێin China, India, Japan, Germany, the Netherlands, Singapore, ˚߬ႇА၉ॎɰ຤ᇁႇˮ༩160஫ɣ Taiwan and the US. ːdଠΛᄤйʥԯˢɺ΃ʑࢀe

16 Global Digital Creations Holdings Limited CHIEF EXECUTIVE OFFICER’S REVIEW & OUTLOOK ϷܧᐢസΑᚋʥࢄશంй

ውईcЎGDC TechجGDC Tech continues to receive orders from customers in ቱဳֺ੣ԑϷพɾᘏ Europe, China, India, Korea, US, Japan and Singapore despite ʋɺᒾઅᏵԞϬᅩݘdɻਝdͿ۹dᒚ of the intense competition in the industry. GDC Tech ਝd޻ਝdˀ̯ʥณ˱գ۪ʸɾ߯௰e Ԛ͂e̟ޘɰΕɻਝ༩25࠯ۂproducts have been deployed in more than 25 provinces in GDC Techଐ ৻רChina. In 2005, GDC Tech has entered into an agreement with GDC Techၤɻਝ௖ɣɾᅕᆦᄧ৑உௐ ɀཌྷཌྷʄα͓߯Ծᘪe໮ʔ̇ߎɈכChina largest digital cinema equipment service company ʔ̇ Εɻਝᅕᆦᄧܢ˳৻cרwhich is dedicated to provide services for digital cinemas Ήᅕᆦᄧ৑ొԜ ৻eGDCר܃including sales, installation and after sales service of DC ৑உௐؿሻਕdΪ໦ʥਕ ኂଊ޸Ќɻਝרequipment in China. GDC Tech’s DSRTM DC servers now make TechɾDSRTMᅕᆦᄧ৑Љ up for approximately 85% of the total China digital cinema ᅕᆦᄧ৑̟௿ᐢᔾɾ85%e market.

α۹ʑcGDC Techɾ˚۪߬ʸԎ̰༠̯כ During the year, one of the GDC Tech’s major customers did ኂɾ๫α͌ᅟe໮۪ʸɰᅗ৤רnot meet the target of installing servers for the year. The ԷΪ໦Љ ዀʠज़ܮיϭੀ௰ౠːᅕᆦقcustomer has temporary stopped the order of new servers ೕˮ߯௰c ዀѧιݯ˅eGDC Techܮיuntil the upgrade of digital projectors from a single chip to ݯɍౠːDLP ኂၤ໮۪ʸ൬Ϸਆר3-chip DLP projectors is complete. GDC Tech continues its ੀᘗᙩగԜᎶͲณЉ discussion with the customer for the order of new servers. দeಳϤcGDC Tech͛ᔄടઔ͂GDCTech ஫ʭ൴ᄧ৑൬ϷᓺณڲኂੀͿ۹רHowever, GDC Tech has expanded its market share in India ᅕᆦЉ Ϳ۹̟௿ɾЌτଅeGDCכby retrofitting a small number of cinemas in South India with Ϥᒷɣȿԯ SA1000 DSRTMᅕᆦᄧ৑ЉۂGDC Tech’s digital servers. GDC Tech’s flagship product — Techɾ࿏ᘜଐ ᜨཋᄧ৑ֺፕܮיኂ͛ᏵͿ۹ঢ়ᏌωΛר SA1000 DSRTM DC servers have also been selected by India’s up market multiplex for India’s first commercial DC to screen ͂eSathyam CinemasݯͿ۹ࠖࡼ˞ᅕᆦ ୩Ԉݠཋᄧɾਆพᅕᆦᄧ৑cԯܮHollywood films digitally. Sathyam Cinemas is a 5 screen Ѽβɐ Chennai Metropolisɻʶcܰȹࡼኟτכmultiplex in the heart of the Chennai Metropolis. Sathyam’s Ͻ ᜨܮיᚹɾᄧ৑eSathyamɾଠΛܮיmultiplex hosts an array of films in Tamil, English, Hindi and, 5ං ࣮ϝဍႍdߜႍdͿΔႍཋᄧcτܮי˿ occasionally, other South Indian languages and the ஫ႍӰཋᄧcܰ໮ਝڲԯˢͿ۹ܮיmultiplex is the country’s highest attended theatre. ࣂ͛ ࡼ௖ሒ࢔ɾᄧ৑e

Overall, GDC Tech has led the number of server installations ᐢϤӰɾcGDC TechΕɻਝdԓݘʥͲଈ ეͱΔϽeܛړኂᅕ͌яרin China, in Asia and worldwide. Ϊ໦ɾЉ

ɀཌྷཌྷʄαcGDC Techܰԓݘ௖ɣ࡯ᅥכ In 2005, GDC Tech is the content delivery and display sponsor of Asia largest entertainment event — Hong Kong ຝ͌ࠗಋᄧ഼࡯ᅥ௟ᙴɾʑࢀඨ঺ʥᛷ Entertainment Expo. Hong Kong Entertainment Expo is the ͐ᖳХਆeࠗಋᄧ഼࡯ᅥ௟ᙴܰጪཋᄧʥ first mega entertainment event in Asia to bring together ཋ഼ຝ͌dཋᄧጪ༅dཋᄧຝdཋᄧᆉ ȹ᛽ɾԓݘࠖ࠯ɣכfilm and television programming, film financing, film festival, ඖdࠑᅥʥᅕᆦ࡯ᅥ ࡯ᅥຝ͌e໮௟ᙴԚ͂ɾ18̎೩ᔴɥdێ film awards, music and digital entertainment. 18 PLASMA, 9

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 17 CHIEF EXECUTIVE OFFICER’S REVIEW & OUTLOOK ϷܧᐢസΑᚋʥࢄશంй

ዀяͅGDC TechܮיLCD monitors and 5 projectors at the Expo were centrally 9̎૖ౠᛷ͐ኂʥ5̎ DSRTM Display Maestroඑɻઁۂcontrolled by GDC Tech new product — DSRTM Display ɾณଐ ߲ஐੀɺ΃໬ཫ۹ʥԹβɾʑۂMaestro that manages the delivery and playback of content Թc໮ଐ ϭɺ΃ᛷ͐உௐe஦༦Ԛ͂יin various resolutions and formats to different display ࢀඨፏʥᅌ devices. The PLASMA wall is synchronised to single frame DSRTM Display Maestroc೩ᔴɥᏳЩॶྡྷ c˥೩ᔴɥʥ૖ౠᛷיaccuracy with DSRTM Display Maestro that enhances the ଊ௰టๅᆢ΃үᅌ look of the content on PLASMA and LCD monitors. With ͐ဟ഼ኂɐɾʑࢀࢄ͐ࢽ׮ҡԙe஦༦ DSRTM Display Maestro, exhibitors can now display the full DSRTM Display Maestrocࢄ͐ਆΣʌ˿ͅ ኂ΃ࣂੀཋᄧདйːdᄤйʥԯרarray of trailers, advertisements and alternative digital ɻ̕Љ Εɣਦʑؿ೩ᔴɥŉ૖ౠיcontent on both the in-lobby PLASMA/LCD monitors and ˢᅕᆦʑࢀᅌ ྭۮԷᄧ৑ʑיዀᅌܮיin-theatre screens using projectors from a central server. The ᛷ͐ኂɐʥ຤ͅ cΛိᛷ͐உௐя˿୽ᇁખАᅌکvarious display devices can now be programmed to ɐe͌ ȹୂட஑ঢ়Ծሁؿ྇ཫ഼ֶ፼eϊ̔cי .playback a sequence of images or video in coherency ୽ඨ঺ϭ஦༦τᇃֶಲᇃ˿ޑBesides, up-to-the-last minute content can be delivered to ௖ณؿʑࢀ ኂɾֺτɺ΃ɾᛷ͐רall the various display devices connected to a central server ʿβடઅϭɻ̕Љ c˳ф೩ᔴɥŉ૖ౠᛷ͐ဟ഼ک˞by wire or wireless. In the past, frame accurate உௐe programmable video wall comprising a matrix of PLASMA/ ኂर৒ɾటๅᆢ˿ᇁೡ഼፼ᏳඩܰʭᅕΛ eۂɾਫԢܛᄧᜨᄧ৑༜Ꮺਆֺॶၐי LCD monitors is a luxury few multiplex operators could afford. GDC Tech’s affordable solution — DSRTM Display GDC TechɾDSRTM Display Maestro໬Һʿ Maestro shall change all that. Up-to-the-last minute ࣐ν൒΋ଉcੀѧͲҝᛰϊိଊോe௖ณ ଊτɾ໬Һʿכprogrammable video wall, at a fraction of the cost of the ˿ᇁೡ഼፼Ᏻɾι̯ႩГ ᄧᜨᄧ৑༜Ꮺਆؿ௖ਥיexisting solutions, shall become the most essential ࣐c̚ੀιݯΛ advertising tool of the multiplex cinema operators. ̯ᄤйɮԮe

כ͂˲ɰιۂɀཌྷཌྷʄαcGDC Techଐכ In 2005, GDC Tech products have been used in a successful cross-continent transmission of digital cinema content ੀ˞ϷพᅟๅMXFԹβ፣ႇɾᅕᆦᄧ৑ʑ packaged in the industrial standard MXF format. The event ࢀ൬Ϸݘ჌ංඨ঺e໮ԑͧܰᅕᆦᄧ৑ೕ marks an important milestone for the development of ࢄɾࠇ߬ԈೡຌeDCI StEM೩ᅕᆦʑࢀʥ digital cinema. The digital content such as DCI StEM ୩ԈݠႇАؿᄧːяΕઔढ़MXFԹβɾ (Standard Evaluation Material) and Hollywood feature films DCIɻᇁႇcԎ஦༦Ɂ஥ᇯܱ຤ͅGDC were prepared in the DCI adopted MXF format and was TechɾDSRTM SA1000 DC ServersԚ͂MXF securely delivered from US to DC theatres with GDC Tech’s ֲॶʠज़c੣޻ਝΪͲඨ঺ϭ࣮ਝʥณ DSRTM SA1000 DC servers upgraded with MXF capability ˱գɾᅕᆦᄧ৑e໮ѧኬɮАᅡβʐஈᄧ located in Thailand and Singapore via satellite. This complete ৑ΪͲΔੀᅕᆦʑࢀඨ঺ϭณ˱գcಳ܃ working model allows studios to securely deliver digital ྡྷܪΔʿʝcԎੀΔʿʝɾʑࢀࠇณඨ঺ cGDC Tech܃content to Singapore, localise it and re-transmit the localised АΔਂֲೕϷe၇અ໮ԑͧ ኂʠज़רcontent for regional distribution. Immediately after this ιݯࠖࡼι˲ੀԯͲଈSA1000Љ event, GDC Tech is the first company that successfully ϭԚ͂MXFֲॶɾʔ̇eGDC Techʹωე cႭႩݯϷพʑ຤ɰ஫ອɾɣ஫ͫވupgraded its worldwide SA1000 servers with MXF ኒพ

18 Global Digital Creations Holdings Limited CHIEF EXECUTIVE OFFICER’S REVIEW & OUTLOOK ϷܧᐢസΑᚋʥࢄશంй

ၤGDC Techܛኂʠज़ϭMXFc΃ࣂၐרcapabilities. GDC Tech once again leads the industry by Љ remotely upgrading most of the servers deployed in the ɾਿСDSRTMࣟβޚࢀɾᓿτࣟβe field to MXF while maintaining backward compatible with GDC Tech’s proprietary DSRTM format.

ɀཌྷཌྷʄαɊɀ˂cGDC TechΕ˵ԕณכ In December 2005, GDC Tech successful demonstrated its ٲˤێdigital cinema solution which is adopted by DCI to a large ׭Ϊᄧ৑ι˲Ήԓʪཋᄧ௟ᙴผɣ contingent of CineAsia delegates in Beijing. At CineAsia, GDC ྆ࢄ͐୽DCIઔ͂ɾᅕᆦᄧ৑໬Һʿ࣐e ԓʪཋᄧ௟ᙴผࢄ͐ȿכTech presented DCI-compliant equipment including GDC Tech JPEG2000 codec and security feature such as forensic JPEG2000 codec೩DCI࠹ࢀஉௐʥΪͲֲ marking. In addition, GDC Tech also presented an innovative ॶcΣԉৣᅟত೩eϊ̔cGDC Tech͛గ “Digital Censor Key” solution for repackaging contents ࠇณ˳໦ʑࢀొˮȹඖ௚ณDigital ໮ʿ࣐ಲ჏ҝכwithout altering the originally encoded contents — a highly Censor Key໬Һʿ࣐eͅ anticipated solution for digital releases in countries where ᛰࡈτ˱਽ʑࢀcΐϊగྦྷᄗ݅Թ۹෰Է censorship is a concern. ᄯᄬɾਝࡼɾᅕᆦೕϷϤӰcԯܰȹඖ౨ શࠤ༖ঢ়ɾ໬Һʿ࣐e

Outlook ࢄશ CG Content Creation and Production ཋ຾྇ཫ௚АʥႇА ɀཌྷཌྷʒαc᏷ଈᅕᆦఌ᛽ޫҌɾ͌ᅟݯιݯכ In 2006, IDMT aims to become the largest and most sophisticated 3D CG content creation and production studio in China. We will ɻਝஃᅡ௖ɣʥҌ୺௖ͱ൬ؿɍၐཋ຾྇ཫ௚А continue improve our artistic and technical skills and match our ʥႇАʔ̇e̯ʔ̇ੀᘗᙩҝഁ̯ʔ̇ؿᄗ޻ଡ ˿ʔ̇ؿ৽ೋႇАॶɈʥࢽଅ̯ڏ˞animation production capability and efficiency with that of world ͮʥҌ̝c ज़৽ވ˖೛e̯ʔ̇ၤٽجეͱؿʔ̇ȹވ˖leading studios. Our collaboration with world class animation ၤ partners will not only allow us to achieve multifold revenue growth ೋྑЂ΋АcɺЎԚ҈ࠨΕɀཌྷཌྷʒα˿፣੡ᅕ ΈΔؿೕވ˖cҡ˿Ԛ҈ࠨΕԞα੣ٽin 2006, but also give us continue revenue stream from worldwide ࠛνऩᄈ distribution in years to come. ϷɻᘗᙩᏵ੡νऩe

CG Training ཋ຾྇ཫ਩ফ ʹɀཌྷཌྷʒαc᏷ଈᅕᆦఌ᛽ޫҌི߮Εɻਝכ In 2006, IDMT plans to set up another 5 authorised training centers in China. IDMT will also develop more high end training courses. By ඀உ5ං઒ᚬ਩ফɻʶcԎੀೕࢄҡΛঢ়ဲ਩ফᇾ expanding its presence and providing more CG training courses, ೡe஦༦ᒷࢄพ৻ᆲ௼ʥొԜҡΛཋ຾྇ཫ਩ফ IDMT will be able to secure its leading position on CG training in ᇾೡc᏷ଈᅕᆦఌ᛽ޫҌੀ੡˞቏՞ԯΕɻਝཋ China and maintain high growth on income from CG training. ຾྇ཫ਩ফ̟௿ɾეͱΔϽcԎၐܛཋ຾྇ཫ਩ eٽফνɃɾঢ়஠ᄈ

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 19 CHIEF EXECUTIVE OFFICER’S REVIEW & OUTLOOK ϷܧᐢസΑᚋʥࢄશంй

Digital Content Distribution and Exhibitions ᅕᆦʑࢀೕϷʥࢄ͐ According to an industrial report prepared by Scenic Wonders Inc. ࣓ኣScenic Wonders Inc.ᇁႇɾϷพంйʥᅕᆦᄧ and Digital Cinema Report, the compound annual growth rate ৑ంйcད౨ᅕᆦᄧ৑Ϊ໦พ৻Εɀཌྷཌྷʄαϭ ଅCAGRੀ༠Է޸ٽCAGR) in D-cinema installations over the years 2005 — 2009 period ɀཌྷཌྷȾα౨ංɾᇲ΋αᄈ) will range from approximately 120% to 140%. In fact, GDC does 120%ϭ140%ɺ೩eԑྡྷɐc᏷ଈᅕᆦ௚෮ᆢྡྷ ᅕΥ൚ˮɐ߸ంйٽobserve an increase in the number of DC installations exceeding ೕଊᅕᆦᄧ৑Ϊ໦พ৻ɾᄈ the predicted figures in the abovementioned report. ɻɾདಡᅕΥe

GDC shall continue to deliver DSRTM range of DC equipment to ᏷ଈᅕᆦ௚෮ੀᘗᙩΉͲଈ۪ʸొԜDSRTMӡͶᅕ ᅕᆦᄧ৑̟௿ɾЌτכcustomers around the world, and to increase GDC’s market share ᆦᄧ৑உௐc˞ొʠ҈ࠨ in the DC market. Today, GDC Tech dominates the world market in ଅeࣂϭʌˀcGDC TechɰιݯͲଈΕᅕᆦᄧ৑ ΈΔ̟௿כDC solution; GDC Tech have sold over 500 DSRTM servers in the ໬Һʿ࣐̟௿ؿ˚ኒّcGDC Techɰ ኂeGDC Techኟτঢ়ဲᅕרmarketplace. GDC Tech possesses both the high-end D-cinema and ਕˮ༩500̎DSRTMЉ ኂԭඖҌ୺eרཋɥᄧ৑Љێeconomical electronic cinema server technologies. ᆦᄧ৑ʥ຤Ꮬ

ᄤйɾʔͳਂਟᛷ͐̔۩כGDC envisages the conversion of public area display systems used ᏷ଈᅕᆦ௚෮ད౨͂ for outdoor advertisement to digital systems. Digital signage offers ӡ଻ੀ஢ү୽ᅕᆦӡ଻ֺˤ౧eᅕᆦۧඨ׶ݯ̟ marketeers and advertisers a unique and innovative tool to bring ௿ሒࡼʥᄤйਆొԜȹိዟऋ௚ณɾɮԮc˞˥ classic advertising to life. Networks of digital advertising displays ඨ଻ᄤй˨࿶৽෰eᅕᆦᄤйᛷ͐၉೼˞৽ೋ঩ show animated messages, precisely targeted at the audience, be it ࢠѼβๅᆢցϽ͌ᅟɁະcΣ˾ᄧ৑ޜཋᄧɾɁ ɾɁɡֶΑࡼபɻɾɁɡ೩eذmovies-goers in a cinema multiplex, shoppers in a mall, or ɡdΕਆ௿ᑪ ኂcЩרcommuters going home. GDC Tech has developed a digital signage GDC Techɰ඀ೕˮȹိᅕᆦۧඨ׶Љ server — SDM4000 DSRTM Display Maestro in an attempt to capture SDM4000 DSRTM Display MaestrocοΕҐྔՅϊ ᅶɈeSDM4000ɾ˿ᇁೡᐲ၉૖ౠᛷٽthe potential growth in this market. SDM4000’s programmable, ̟௿ɾᄈ networked LCD and LED display solutions offer a dynamic, high- ͐ኂʥೕͮɀรဳᛷ͐໬Һʿ࣐cݯᄤйˤଉొ ɀཌྷཌྷכimpact medium for the advertising agencies. SDM4000 is developed Ԝȿȹိ৽ྸdঢ়ࢽɾఌʍeSDM4000 ɀཌྷཌྷʒα඀նכin 2005 and GDC Tech expects to revenue from the sales of ʄα඀ೕѧιcད౨SDM4000 Ϭ˚ᎁᜨڏcΣʿ؟SDM4000 in year 2006. SDM4000 has wide applications such as ଐ́νऩeSDM4000͂பᄤ ਆ௿ɾʑࢀ͚˟c˞ʥ˥டઅ၉೼ɾ૖ౠذproviding cafeterias and shopping malls ease of content delivery ʥᑪ ˱ҡۮೕͮɀรဳᛷֶ͐ۮd೩ᔴɥᛷ͐ۮand impressive presentation to networked LCD, PLASMAS or LED ᛷ͐ displays. ͮ੟ྔ͌e

20 Global Digital Creations Holdings Limited DIRECTORS’ AND SENIOR MANAGEMENT PROFILE ໎ԑʥঢ়ज़ဳଉɁࡗᓯʍ

Executive Director ਨϷ໎ԑ ਨϷ໎ԑڈ Non-Executive Director مɻਝࣶϐɣነʥɻਝכMr. Cao Zhong, aged 46, graduated from Zhejiang University, the ઴֦ͱ́c46ัcଓพ PRC and Graduate School, The Chinese Academy of Social Sciences ผޫነ৑ޢӠ́৑cܛτɮነነɡነϽʥ຤Ꮬነ ʔ̯ͨ܃ɀཌྷཌྷʒαɀ˂ͱכwith a bachelor degree in engineering and a master degree in ဨɡነϽe઴ͱ́ ٽਨϷ໎ԑ࠹ᐲ࢐˚࢐e֤͛ݯࠖڈeconomics respectively. He is the chairman and non-executive ̇ɾ˚࢐࠹ Ҍඑ྆τࠉʔ̇ɾ໎ޫٽdirector and a joint chairman of the Company in February 2006. He ᗸԙඑ྆τࠉʔ̇ʥࠖ ࠹ᐢٽdࠖ፡ઁٖࠗಋτࠉʔ̇ɾ৹໎ԑٽwas appointed as the chairman of Shougang Concord Century ԑ ਝ჌ͬพτࠉʔ̇ɾ໎ԑᐢ຤ଉʥࠖٽHoldings Limited and Shougang Concord Technology Holdings ຤ଉdࠖ ʿඑ྆τࠉʔ̇ɾ৹˚࢐࠹໎ԑᐢ຤ଉe̒ٽ Limited, the deputy chairman and general manager of Shougang Holding (Hong Kong) Limited, the managing director of Shougang ֤͛ኪͨࠖ፡ᐢʔ̇ɾᐢ຤ଉХଉʥɻਝࠖ፡ਝ ʔ̇ဳଉʥכe઴ͱ́ٽɮೡʔ̇ɾ໎ԑמConcord International Enterprises Company Limited and the vice ჌ൗ chairman and managing Director of Shougang Concord Grand Ꮺ༜ʿࠍτᔔఒ຤᛻e (Group) Limited. He also acts as the assistant general manager of Shougang Corporation and the chairman of China Shougang International Trade and Engineering Corporation. Mr. Cao has extensive experience in corporate management and operation.

Mr. Leung Shun Sang, Tony, aged 62, holds a Master Degree in ષ඗́ͱ́c62ัcܛτख़޸ή͓ɣነɮਆဳଉ ɀཌྷཌྷʄαɊɀ˂Ᏽկͨݯ̯כBusiness Administration of New York State University. He was ነဨɡነϽe֤ ਝ჌ͬพτࠉʔٽਨϷ໎ԑe֤͛ݯࠖڈappointed as a non-executive director of the Company in December ʔ̇ Ҍඑ྆τޫٽʿඑ྆τࠉʔ̇dࠖ̒ٽHe is a non-executive director of Shougang Concord ̇dࠖ .2005 ਨϷ໎ԑֺڈᗸԙඑ྆τࠉʔ̇ɾٽInternational Enterprises Company Limited, Shougang Concord ࠉʔ̇ʥࠖ ֺτࠉʔ̇˚׶ɐמGrand (Group) Limited, Shougang Concord Technology Holdings τ໮೩ʔ̇яΕࠗಋᐲ΋͚ Limited and Shougang Concord Century Holdings Limited, all of ̟eષͱ́͛ݯ˱ࢬɣֱ׭එ྆τࠉʔ̇ɾ໎ ጪᆲᕿdҙ༅ʥͬพဳଉʿࠍټכwhich are companies listed on the Main Board of The Stock ԑᐢ຤ଉe֤ Exchange of Hong Kong Limited. Mr. Leung is also the managing ኟτᔔఒ຤᛻e director of CEF Holdings Limited. He has extensive experience in areas of finance, investment and corporate management.

כ࠹ᐢസc֤ٽDr. David Deng Wei, aged 42, Chairman and Chief Executive Officer ሳ৩௟ɡc42ัcყඈඑ྆໎ԑ ܛof ყඈඑ྆. He was appointed as a director of the Company in ɀཌྷཌྷɍα̒˂Ᏽկͨݯ̯ʔ̇໎ԑeሳ௟ɡ April 2003. Dr. Deng holds a bachelor degree in Electronic τཋɥɮೡነነɡdɮਆဳଉဨɡd຤Ꮬነ௟ɡ Engineering, a master degree in Business Administration and a PhD. ነϽe֤ݯঢ়ज़ɮೡ࢑c౦ͨ଱Ⱦ։d଱Ɋ։Ͳ ᐲਨկdڇԾկࡗdͲਝɮਆᐲਨկdͲਝܧdegree in Economics and is a senior engineer. He was a member of ਝ eሳͱ́͛ܰ଱Ɋ։ٽαͬพࡼԾผ৹ผڇthe Nineth and Tenth Committee of the Chinese People’s Political ɻਝ αdͲਝʄȹ௜৽ᆉ௃Ᏽ੡ڇConsultative Conference, Executive Committee Member of the ɻਝɊɣ௑ˮ National Federation of Industry and Commerce, Standing ّe Committee Member of the National Federation of Youth, Vice Chairman of the Young Entrepreneur Association of the PRC. Dr. Deng was also one of the ‘Ten Most Outstanding Youth in the PRC’ in its Tenth annual election and received a ‘May Labor Day’ Excellent National Award.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 21 DIRECTORS’ AND SENIOR MANAGEMENT PROFILE ໎ԑʥঢ়ज़ဳଉɁࡗᓯʍ

Executive Director ਨϷ໎ԑ ɀכMr. Chen Zheng, aged 46, is an engineer and a senior economist. ஹ֢ͱ́c46ัcɮೡ࢑ʥঢ়ज़຤Ꮬ࢑e֤ τܛHe was appointed as a director of the Company in February 2005. ཌྷཌྷʄαɀ˂Ᏽկͨݯ̯ʔ̇໎ԑeஹͱ́ ɀכMr. Chen holds a bachelor degree in chemical engineering and a ʝነነɡነϽʥɮਆဳଉဨɡነϽeஹͱ́ master degree in business administration. He is appointed an ཌྷཌྷʄαɀ˂Ᏽկͨݯ̯ʔ̇ɾਨϷ໎ԑ࠹ᐢ຤ ʿඑ྆τࠉʔ̇ɾਨϷ໎̒ٽexecutive Director and the General Manager of the Company in ଉe֤͛ݯࠖ ҙ༅พ৻ʥͬพဳଉʿࠍኟτᔔఒכFebruary 2005. He is also an executive director of Shougang ԑeஹͱ́ Concord Grand (Group) Limited. Mr. Chen has extensive experience ຤᛻e in investing business and corporate management.

τɻᅩਝ჌ܛਝ̡ͱ́c47ัcঢ়ज़຤Ꮬ࢑cټ Mr. Jin Guo Ping, aged 47, senior economist, holds a master of ผمbusiness administration degree of China Europe International ɮਆነ৑CEIBSɮਆဳଉဨɡነϽeଊͨؿ dɻਝཋᄧԹːɁԾผٽBusiness School (CEIBS), occupies current social positions as follows: ᓻ৻iɻਝ৽ೋነผผ Chairman of China Animation Association, Syndic of China Film ଉԑdɐࣵཋᄧࡼԾผ৹˚࢐e΃ࣂc֤ᑹᎶᑼ ᖚ׳Producer’s Association and Vice President of China Film Association. ኪͨݯ˵ԕཋᄧነ৑৽ೋነ৑۪࢔ઠ઒d΁ Meanwhile, he has also accepted as visiting professor in Animation ୺ነ৑৽ೋነ৑ᚋਐʥᒚਝ৽ೋԾผᚋਐe School of Beijing Film Academy, Counselor of Animation School of Jinlin College of the Arts and Korea Animation Association.

ͱ́Ε1994αϭ2005αͨɐࣵ޻୺ཋᄧԹːᄥټ From 1994 to 2005, Mr. Jin worked as the Director of Shanghai dɐٽd࠹ͨɐࣵყС޻৽ೋτࠉʔ̇໎ԑٽAnimation Film Studios, and the chairman in Shanghai Yilimei ᄥ ՗˺஝˔ᔵႌٽAnimation Company Limited, the chairman in Shanghai Carton ࣵ˺஝ʼʝೕࢄτࠉʔ̇໎ԑ ࠹ͨɐࣵཋᄧඑ྆܃eΕϊ౨ංc֤ᑹͱٽمم «Culture Developing Co. Ltd. and Proprieter in «Cartoon King magazine concurrently. Meanwhile, he also worked as Vice President ʔ̇৹ᐢസdɐࣵᐲ՗ཋᄧ৑ᇃτࠉʔ̇৹໎ԑ dɐ̷ࣵᅥٖͫτࠉʔ̇໎ԑ2002αϭ2004ٽ in Shanghai Film Group Corporation, vice the chairman in Shanghai United Film Chain Co., Ltd, director of Shanghai Paradise Co. Ltd αdɐࣵ৽ೋᄧ഼එ྆ʔ̇ᐢ຤ଉ1999αϭ 1996αϭ1999ٽGeneral Manager in Shanghai Animation Film & TV 2002αʥɐࣵཋ഼̎৹̎ ,(2002-2004) (Group) (1999-2002) and Vice Chairman in Shanghai Television αe1995αϭ2000αͨਝ჌৽ೋᐲผASIFAଉ Station (1996-1999) concurrently. From 1995 to 2000, Mr. Jin worked ԑcԎαᎶᑼኪͨݯ˱ࢬɣಓʪജਝ჌৽ೋཋᄧ ৽ೋʥཋᄧϷพτᔔఒ຤᛻eכas Syndic in International Animation Association (ASIFA), and ຝിկe֤ accepted the invitation as appraiser in Ottawa International Animation Festival of Canada. He has extensive experience in animation and film industries.

22 Global Digital Creations Holdings Limited DIRECTORS’ AND SENIOR MANAGEMENT PROFILE ໎ԑʥঢ়ज़ဳଉɁࡗᓯʍ

ͱ́ኪͨ೪ི՗ဟԹؿ৽ೋཋᄧ՗ټ10αɻcٶ In the last ten years, Mr. Jin had schemed and supervised the following animation films and teleplays, «The Lotus Lamp», «Liang ཋ഼ჱτᗸᇘ዗dષɬВၤूߜ̎d҈ݯ Shanbo and Zhu Yingtai», «I’m Crazy about Music», «Around The ࿨Ӕd᏷༝ΔଈɄɊʨɻᄨ΋׏d۬ु࿔ ര˔ɥdڇWorld in 80 Days» (Sino-German), «Gods of Honour Legend», ඨթdඇࡌߜඐඨd͉ுʔ˚ၤ ࡼၤዌɣСԓพ΋׏dעLegend of Sui Tang Hero», «Snow White and Frog Prince», «White ͉ᒥࢌdʨɷೕ» Dove Island», «Talent Inventor» (Sino-Australian) and «Detective ᎓ɥ৮઄ɻ˱΋׏೩e Duck» (Sino-Canadian).

Dr. Catherine Xu Qing, aged 39, holds PhD of Electronic ࢘૜௟ɡc39ัcܛτၐނ̛ԓɣነཋዀ௟ɡነ ɀཌྷཌྷʄכEngineering from University of Virginia and BS of Electronic Ͻʥ˵ԕɣነಲᇃཋነነɡነϽe֤ Engineering from Peking University. She was appointed as vice αɊ˂Ɋȼˀʥɀཌྷཌྷʒαɀ˂ʒˀʗПᏵկͨ ʃᐲ၉dಲᇃʥᅕכpresident and director of the Company on 17 October 2005 and 06 ݯ̯ʔ̇৹ᐢസʥ໎ԑe֤ February 2006 respectively. She has extensive experience of ᆦ࡯ᅥϷพɾͬพೕࢄʥ̟௿ኟτ14αᔔఒؿ຤ business development and marketing experience in the internet, ᛻e࢘௟ɡ౦ݯeTrieve, Inc.ȹං ৻ʔ̇ͨᓻ৹ᐢസ߲ஐרࢠڌwireless and digital entertainment industries for 14 years. Dr. Xu ၃΋ כwas the Vice President for business development of eTrieve, Inc., ͬพೕࢄe֤͛ݯRight4Me.comȹංᗘЍ ͚၉೼ʔ̇ɾਨϷᐢസʥمan integrated messaging service company. She was also the Chief Linkedin.comؿଫ৽ ޻ਝΕᇃʥ၉ౡݯԓכc֤͛کExecutive Officer and co-founder of Right4Me.com, a Linkedin.com ͳ΃௚ّ͓eɾ like mobile internet community company. Before that, she had held ʪਂ̟௿ᐢဟc୮ଉԓʪਂ̟௿cሻਕʥพ৻ೕ director positions in marketing, sales and business development ࢄe in American Online and Netscape for their Asia-Pacific operations.

ਨϷ໎ԑڈIndependent Non-Executive Director ዟ͓ ࠗಋɣכȹȾȼɀαଓพכMr. Gordon Kwong Che Keung, aged 56, was a graduate of the ㅽҁੜͱ́c56ัc ȹȾȼȼαΕߜࣟᙬᏵ੡ऋஈผ߮࢑༅כUniversity of Hong Kong in 1972 and qualified as a chartered ነcԎ ڈɀཌྷཌྷɍα̒˂Ᏽկͨݯ̯ʔ̇ዟ͓כaccountant in England in 1977. He was appointed as an ࣟe֤ independent non-executive director of the Company in April 2003. ਨϷ໎ԑeϬȹȾɄ̒αϭȹȾȾɄαcㅽͱ́ ผ߮࢑ԑ৻ֺؿ΋ྑɁeϬȹȾȾɍαڻMr. Kwong was a partner of PriceWaterhouse Hong Kong from 1984 ȽᖓМ ೪ɩୂܧɻ֚̕ܧto 1998. He has served as a part-time panel member of the Hong ϭȹȾȾʄαcㅽͱ́ݯࠗಋ Kong Government’s Central Policy Unit from 1993 to 1995 and was ɾ࠹ᓻιࡗcȹȾȾɀαϭȹȾȾȼαcԯАݯ an independent member of the Council of the Stock Exchange from ᐲֺ͚ଉԑผɾዟ͓ଉԑ౨ංcㅽͱ́ኪͨᐲ͚ to 1997 during which time he also acted as convener of both ֺဟྦկࡗผʥɐ̟կࡗผɾผᘪ̂එɁe͌ 1992 ਨϷ໎ڈcㅽͱ́ȽΛංࠗಋɐ̟ʔ̇ɾዟ͓ک the Compliance Committee and the Listing Committee of the Stock iɻႩਝ჌ઁٖτࠉʔ̇dʨݛೕࢄઁܢ˳Exchange. Currently, he is an independent non-executive director ԑc of a number of Hong Kong listed companies, including COSCO ٖτࠉʔ̇d˵ԕࠖ஭ਝ჌ዀ௿ٖͫτࠉʔ̇d එ྆τࠉʔ̇dɻࣵۺInternational Holdings Limited, Tianjin Development Holdings ۤณඑ྆τࠉʔ̇dณ௚ ৻ٖͫτࠉʔ̇d̳թҙ༅τࠉʔ̇dɻרLimited, Beijing Capital International Airport Co. Limited, Vision ؖ̈́ ፮එ྆ړCentury Corporation Limited, NWS Holdings Limited, China Oilfield ਝ໶஝ೕࢄඑ྆τࠉʔ̇dɻਝ̡Ϊ

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 23 DIRECTORS’ AND SENIOR MANAGEMENT PROFILE ໎ԑʥঢ়ज़ဳଉɁࡗᓯʍ

Services Limited, Concepta Investments Limited, China Chengtong ٖͫτࠉʔ̇dജఒਝ჌ઁٖτࠉʔ̇dTom Development Group Limited, Ping An Insurance (Group) Company Online Inc.dɻਝཋɈਝ჌ೕࢄτࠉʔ̇dณ˖ ଫ৽ઁٖτࠉʔ̇d㞫ਥͰพΔଐτࠉʔ̇dވ of China, Limited, Quam Limited, Tom Online Inc., China Power International Development Limited, New World Mobile Holdings 㞫ਥͰพೕࢄτࠉʔ̇ʥඏֈᅥָΔଐτࠉʔ Limited, Henderson Land Development Company Limited, ̇e Henderson Investment Limited and Agile Property Holding Limited.

ࣶϐɣነଓכMr. Bu Fan Xiao, aged 59, graduated from Zhejiang University in ɋɓѣͱ́c59ัcȹȾɄɀα majoring in Chemical Engineering with automation พc˚࠳ʝɮӡϬ৽ʝਿพcԯࣂԎݯɣነ̯ޫ 1982 concentration, and was then an undergraduate culture researcher. ʼʝޢӠࡗeɋͱ́ኟτ൚༦20αϷܧဳଉ຤ ڈɀཌྷཌྷʄαʄ˂Ᏽկͨݯ̯ʔ̇ዟ͓כMr. Bu has over 20 years of experience in administrative ᛻e֤ management. He was appointed as an independent non-executive ਨϷ໎ԑeɋͱ́ͅȹȾȾɀα঴ࣶͨϐɣነ৹ cϬȹȾȾɄα঴͛ݯ҄ۤޫҌඑ྆τࠉʔٽdirector of the Company in May 2005. Mr. Bu has been the vice- ࣎ eٽchancellor of Zhejiang University since 1992 and the chairman of ̇໎ԑ Qware Technology Group Co. Ltd. since 1998.

ጪڋพτࠉʔ̇ʥ๷ྡྷڋMr. Stephen Hui Hung, aged 48, is the managing director of Federal ஈݙͱ́c48ัcݯ๷ ˂ɀཌྷཌྷʒαɀכGlory Industrial Limited and Federal Glory Investment Consultancy ༅ᚋਐʔ̇ɾ໎ԑᐢ຤ଉe֤ ਨϷ໎ԑeΕ˱Ƀ໎ԑผڈCompany. He was appointed as an independent non-executive Ᏽկͨݯ̯ʔ̇ዟ͓ כ൘ႺϷτࠉʔ̇உڌਝ჌ਆพכcஈͱ́౦ک director of the Company in February 2006. Prior to joining the Board, Mr. Hui had been the manager of the China Division of the ࠗಋɾႩ׭ਂᐢ஫cˮͨɻਝพ৻஫຤ଉe֤ྦྷ Far East Regional Office of the Bank of Credit and Commerce ɻਝɣ஺ɾႺϷพ৻dҙ༅ʥҙ༅ጪ༅Ϊખʿࠍ ߜਝכȹȾɄɀαଓพכInternational in Hong Kong. He has extensive experience in banking, яԮτᔔఒ຤᛻e֤ investment and financing investment in Mainland China. He Middlesex UniversitycᏵ຤ᏜʥΔଉነነɡነ ɀཌྷཌྷȹαᏵ޻ਝʱ᜙ནɣነཕ઒כgraduated from Middlesex University in the United Kingdom in Ͻeஈͱ́ ᗸԙඑ྆ٽwith a Bachelor of Arts degree in Economics and Geography. ɮਆဳଉဨɡነϽeஈͱ́౦ˮͨࠖ 1982 ʿඑ྆τࠉʔ̇ࠗಋɐ̟̒ٽMr. Hui has been conferred a Master of Business Administration in τࠉʔ̇ʥࠖ ਨϷ໎ԑeଊࣂcஈͱ́ԎᏵկڈby the Barrington University of the United States. Mr. Hui had ʔ̇ɾዟ͓ 2001 ֺτמࠗಋᐲ΋͚כalso been an independent non-executive directors of Shougang ͨݯᄨၐ౲ઁٖτࠉʔ̇ ਨϷ໎ԑɾᓻeڈConcord Century Holdings Limited and Shougang Concord Grand ࠉʔ̇ɐ̟ɾʔ̇ዟ͓ (Group) Limited (listed companies in Hong Kong). Currently, Mr. Hui is also an independent non-executive directors of Techwayson Holdings Limited which is a listed company in The Stock Exchange of Hong Kong Limited.

24 Global Digital Creations Holdings Limited DIRECTORS’ AND SENIOR MANAGEMENT PROFILE ໎ԑʥঢ়ज़ဳଉɁࡗᓯʍ

Senior Management ঢ়ᄙဳଉɁࡗ ᙔႇАʔ̇᏷ڃMs. Ellen Xu Ling, aged 43, is the General Manager of Institute of ஈୋɤɡc43ัc̯ͨඑ྆Ͳ༅ Ӡ૯Γτࠉʔ̇ؿᐢ຤ଉeޢDigital Media Technology (Shenzhen) Ltd., a wholly-owned ଈᅕᆦఌ᛽ޫҌ τߜႍӰʼነነɡܛɬ׭࢑ᆲɣነcԎכsubsidiary of the Group. Ms. Xu graduated from Shandong Teachers’ ԯଓพ University with Bachelor of Art degree in English Language and ነϽeஈɤɡΕ৽ೋϷพτ13αɾ຤᛻e੣1990 Literature. Ms. Xu has over 13 year of experience in animation ϭ 1994αኪͨʪ̡ݗ৽ೋʔ̇Pacific Rim industry in China and was a production manager of Pacific Rim AnimationcΕ૯Γؿȹࡼ޻ਝ৽ೋʔ̇cኪͨ animation Co. Ltd, an American animation Studio in Shenzhen from ɾА຤ଉe౦຤਄ၤ༦Λ஫Ρഠූ৽ೋཋᄧ՗ཋ She participated in production of many Hollywood ഼ːؿႇАeஈɤɡ͛Ε̟௿ઐᄤʿࠍτ7α຤ .1990-1994 ᜡᆉɻਝ௖ɣؿཋټprojects. She has also over 7 years of experience in marketing. She ᛻eஈɤɡȽ଱18։ཋ഼ c΢ܰɻਝཋکhas served as one of the judges for Animation of 18th Golden Eagle ഼ᆉඖ৽ೋːؿിկɾȹe͌ Award, the biggest award for TV programs in PRC China and in ഼ᖚ୺ࡼԾผ˺஝ᖚկผؿݠᙺιࡗe currently an active member of Cartoon Commission of the Chinese TV Artists Association in China.

Dr. Chong Man Nang, aged 40, is the Chief Executive Officer of GDC ਜ਼ຒॶ௟ɡc40ัcݯGDC Technology Limited Technology Limited, which is a subsidiary of the Company. GDC ȹංࠗಋʔଠɐ̟ʔ̇ z ᏷ଈᅕᆦ௚෮ઁٖτ ᐢസeGDCܧᙔʔ̇ɾϷڃTechnology pioneers digital post-production, delivery and ࠉʔ̇ɾ Ҍ୺ɾܮי౨ႇАdඨፏʥ܃presentation technologies. GDC Technology is a leader in digital TechnologyȽᅕᆦ ɾეኒۂcinema products and has an unsurpassed track record of ͱቂeGDC Technologyݯᅕᆦᄧ৑ଐ ኂרsuccessfully installing more than 400 servers worldwide and half a ّcԎɰՅ੡ΕͲଈι˲Ϊ໦൚༦400̎Љ ːཋᄧɾ൚ԿιᐜeٽʄɊຒωܮיmillion perfect screenings of full-length feature films. ʥѧ޻

ȹȾɄɄαʥȹȾȾɀαՅ੡ߜਝכDr. Chong received his B. Eng. (1st Honours) and Ph.D. degrees, both ਜ਼௟ɡʗП in Electronic and Electrical Engineering from University of University of Strathclydeཋɥʥཋࣩɮೡਿพȹज़ ɃGDC˱כStrathclyde, UK in 1988 and 1992, respectively. Prior to joining GDC ࿘ᙷɮೡነɡነϽʥ௟ɡነϽe ȹȾȾɀαϭɀཌྷཌྷכcکTechnology Limited, he is an associate professor of School of Technology Limitedɾ ݗଉɮɣነ့߮ڲComputer Engineering at Nanyang Technological University, ཌྷα౨ංcਜ਼௟ɡ౦Εณ˱գ قSingapore, from 1992 to 2000. He is also leading the digital film, ዀɮೡነ৑ኪͨ৹ઠ઒ȹᓻe֤Εณ˱գ͛ȹ high definition television and digital TV research in Singapore. Dr. ߲ஐ੓ეᅕᆦཋᄧdঢ়૜౞۹ཋ഼ʥᅕᆦཋ഼ɾ ᄧཫ୮ଉd഼ཫכӠɮАeਜ਼௟ɡɰዶรҙӸޢ ,Chong has been actively involved in the field of image processing video coding, digital cinema and motion picture restoration for over ᇁᆦdᅕᆦᄧ৑ʥ֛ː࠳నეਟ༩Ɋαɾɔe a decade.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 25 DIRECTORS’ AND SENIOR MANAGEMENT PROFILE ໎ԑʥঢ়ज़ဳଉɁࡗᓯʍ

ȹȾȾʒαcਜ਼௟ɡֺଅეɾඅ͢ᘰ੡ᄨήშכ In 1996, Dr. Chong led a team to win the worldwide Texas Instruments’ Digital Signal Processing Solutions Challenge ኂᐾፒɾͲଈᅕᆦ঩໔୮ଉ໬Һʿ࣐ܥኝᑩ ȹȾȾȾαcਜ਼௟ɡ௚͓כeټUS$100,000 award. In 1999, Dr Chong founded Nirvana Digital Pte 100,000޻ʏɾᆉ Ltd, a leading digital signal processing company and was Nirvana Digital Pte Ltdȹංეͱɾᅕᆦ঩໔୮ଉ ɀཌྷཌྷཌྷα୽Acterna Incorporationכ܃subsequently acquired by Acterna Incorporation (NASDAQ: ACTR) ʔ̇c፭ in 2000. Acterna Incorporation is the holding company of Da Vinci ढ़౜༠Кˤ໔iACTRν ᑪ e Acterna Systems Incorporation which is the market leader in providing Incorporation ݯDa Vinci Systems Incorporationȹ ౨ႇА̟௿ొԜᅕᆦཋᄧdঢ়૜౞۹܃digital film, HDTV and SDTV colour enhancement technology to ංΉͲଈ the worldwide post-production marketplace. Dr Chong was the ཋ഼ʥᅟๅ૜౞۹ཋ഼ϳ੟˱ੜҌ୺ɾეͱʔ̇ ɀཌྷཌྷཌྷαϭɀཌྷཌྷɀαכChief Consultant of Da Vinci Technologies from Year 2000-2002. Dr ɾઁٖʔ̇eਜ਼௟ɡ Chong is credited with the architecture, design, and successful ౨ංኪͨDa Vinci Technologies ɾࠖ࢐ᚋਐeਜ਼ ஥dஉ߮Ԏι˲Ή̟௿ઐˮNirvanaۺcommercial release of Nirvana’s awardwinning REVIVAL DIGITAL® ௟ɡΐ਄ၤ ᇃϤԔᙷพۂREVIVAL DIGITAL® ଐۂproduct lines. REVIVAL DIGITAL® has been used to restore a large ɾᏵᆉଐ Φ᎝ɣ൴ᄧːeכ͂قeREVIVAL DIGITAL®ȹވ .number of movies

26 Global Digital Creations Holdings Limited MANAGEMENT DISCUSSION AND ANALYSIS ဳଉᄙদሃʥʗ׹

Financial Review ল৻Αᚋ Revenue of the Group for the year ended 31 December 2005 ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹c̯එ྆ amounted to approximately HK$32.2 million which, comparing with ፣੡νऩ޸32,200,000ಋʏc༖࿀ϭɀཌྷཌྷ̒α the revenue of approximately HK$48.0 million for the year ended Ɋɀ˂ɍɊȹˀ˅α۹ɾνऩ޸48,000,000ಋ 31 December 2004, represented a decrease of approximately 33%. ʏcɎൡȿ޸33%e

ؿҌވพۿαʑΐ೩כʸ۪כThe decrease in revenue is mainly due to the decrease in sales of νऩؿɎൡ˚߬ͅ digital cinema equipment as a result of deferral of placing orders ୺ᅟๅˮ̎Ϥ֝ፖೕˮ߯௰cኒߎᅕᆦᄧ৑உௐ from customers during the year while they were waiting for the ሻਕɎൡֺ஥ιeๅ۪ʸΐኪʶԷGDCஉௐ།Ϸ issuance of industrial technical standard. The potential customers พɻؿҌ୺ᅟๅΕ৉΋ɐɾʠज़ʥ࠹ࢀॶɈϤઔ concerned the upgradeability/compatibility of the GDC equipment Յȿᜮશྸ۹e΃ࣂcཋ຾྇ཫ௚АʥႇАၤ ሻȿᅕאѫ஫ٽfor compliance with the industrial technical standard and therefore ཋ຾྇ཫ਩ফᇾೡଐ́ؿνɃᄈ adopted a “wait and see” approach. At the same time, increase in ᆦᄧ৑உௐሻਕؿɎൡe income generated from computer graphic (“CG”) creation and production and from CG training courses partly compensated the decrease in sales of digital cinema equipment.

Costs of sales for the year ended 31 December 2005 amounted to ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹cሻਕι approximately HK$34.8 million which, comparing with the costs of ̯޸ݯ34,800,000ಋʏc༖࿀ϭɀཌྷཌྷ̒αɊɀ sales of approximately HK$35.3 million for the year ended 31 ˂ɍɊȹˀ˅α۹ɾሻਕι̯޸35,300,000ಋ νऩɎכDecember 2004, represented a decrease of approximately 1%. Costs ʏcಕʭ޸1%eሻਕι̯Ɏൡఝ۹ʭ α۹ʑ඀ࢄȿཋ຾྇ཫ௚כof sales decreased to an extent less than turnover decreased mainly ൡc˚߬ΐݯ̯එ྆ because the Group started business as a subcontractor of CG АʥႇА̔Рਆพ৻cϤ໮ณᄈพ৻Εκ৖ߗɳ Сֺߎe̯එ྆Εᅕᆦᄧޔʋ̰ଐ́܃creation and production during the year and has not generated ඀ፒι̯ profit after deducting certain starting up costs from this new ৑உௐሻਕʥࢄ͐՗ཋ຾྇ཫ਩ফʿࠍʋಳၐܛ business. The Group maintained gross profit in the business of sales τˉСe of digital cinema equipment and exhibitions and CG training.

Allowance for production work in progress made during the year Εႇඖ͌ᅆௐΕ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ ended 31 December 2005 amounted to approximately HK$24.7 ˅α۹޸ݯ24,700,000ಋʏc༖࿀ϭɀཌྷཌྷ̒α million which, comparing with allowance for production work in Ɋɀ˂ɍɊȹˀ˅α۹ɾΕႇඖ͌ᅆௐ޸ ɣ஫ʗͅႇכprogress of approximately HK$84.6 million made during the year 84,600,000ಋʏcɎൡȿ޸71%eͅ ended 31 December 2004, represent a decrease of approximately А৽ೋᄧːᚓˈ౜᏷໮ཋᄧ՗ཋ഼டᙩჱ As most of the costs incurred and capitalised for the Panshel’s WorldPanshelֺଐ́Ԏ༅̯ʝؿι .71% ࿀ϭɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀ˅α۹כɰޑ̯ production of an animation movie Thru the Moebius Strip (the ΃ֲሔϤАˮؿᅆௐޚMovie”) and a television series Panshel’s World (“Panshel”) had Аˮᅆௐc̯α۹ʑ჏ݯ“ ॶᆢց˿ЯͲᅕνన໮ཋᄧଐ̰כbeen provided for during the year ended 31 December 2004, ΐϤɎൡeͅ allowance of the same nature made during the year decreased. As ́Ԏ༅̯ʝؿι̯c໎ԑႏݯɺᎶʹҐ໮೩ι̯ ɰАˮͲᅕᅆௐeΐPanshelֺܨcۿޜthe prospects for full recovery of the cost incurred and capitalised ͶА༅ଐ

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 27 MANAGEMENT DISCUSSION AND ANALYSIS ဳଉᄙদሃʥʗ׹

for the Movie is uncertain, the Directors consider that it is no longer ଐ́Ԏ༅̯ʝؿι̯຤ɰΕ࿀ϭɀཌྷཌྷ̒αɊɀ proper keeping such costs as an asset and therefore make full ˂ɍɊȹˀ˅α۹Ͳᅕᅆௐe allowance for the costs. Cost incurred and capitalised for Panshel had already been fully provided for during the year ended 31 December 2004.

Distribution costs for the year ended 31 December 2005 amounted ʗሻι̯Ε࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α ˂to approximately HK$2.0 million which, comparing with distribution ۹޸ݯ2,000,000ಋʏc༖࿀ϭɀཌྷཌྷ̒αɊɀ costs of approximately HK$4.2 million for the year ended 31 ɍɊȹˀ˅α۹ɾೕϷι̯޸4,200,000ಋʏc޸ December 2004, represented a decrease of approximately 52%. The Ɏൡȿ52%eʗሻι̯ؿɎࠌ།ᅕᆦᄧ৑உௐሻ decrease in the distribution costs was in line with the decrease in ਕɎൡτᗐe sale of digital cinema equipment.

Administrative expenses for the year ended 31 December 2005 Ϸܧ൒͂Ε࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α amounted to approximately HK$37.4 million which, comparing with ۹޸ݯ37,400,000ಋʏc༖࿀ϭɀཌྷཌྷ̒αɊɀ ൒ܧadministrative expenses of approximately HK$34.7 million, ˂ɍɊȹˀ˅α۹޸34,700,000ಋʏɾϷ represented an increase of approximately 8%. The slight increase ͂cɐʠȿ޸8%e໮Ⴆ෬ɐʠȽ˚߬ԞϬ̯එ྆ was mainly attributable to expenses related to the restructure of ဳଉᄙݯҝഁʑ஫ဳଉʥࢽଅϤࠇୂֺʵ঴ؿ൒ management which was implemented for improving internal ͂e control and efficiency of the Group.

พdᄥָʥஉௐɾಕࠤᑋฌΕ࿀ϭɀཌྷذImpairment losses recognised for property, plant and equipment ɰᆢႏ during the year ended 31 December 2005 amounted to ཌྷʄαɊɀ˂ɍɊȹˀ˅α۹޸ݯ2,400,000ಋ approximately HK$2.4 million which, comparing with losses of the ʏc༖࿀ϭɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀ˅α۹޸ same nature of approximately HK$14.9 million recognised during 14,900,000ಋʏɾ΃ֲሔಕࠤᑋฌc޸Ɏൡȿ ࿀ϭɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀ˅α۹כthe year ended 31 December 2004, represented a decrease of 84%e พʑֺذapproximately 84%. The losses recoginsed during the year ended ֺᆢႏɾᑋฌȽ̯එ̳྆Εሰˮɾै༉ ฌาכα۹ʑcͅכᔾeټDecember 2004 was the full amount of net book value of τ໦࠳ؿሏࠍࠤͲᅕ 31 leasehold improvements of a premises rented by the Group and ʥҌ୺ໃֺ͢ᆢႏɾᑋฌȽཋ຾உௐdᅕᆦᄧː ᔾeټኂؿሏࠍ૱ࠤͲᅕרfrom which the Group was relocating. The losses recognised during ˱਽໦ສʥЉ the year was the full amount of net book values of computer equipment and digital film encoders and servers, which were impaired due to physical damage and technical obsolescence.

28 Global Digital Creations Holdings Limited MANAGEMENT DISCUSSION AND ANALYSIS ဳଉᄙদሃʥʗ׹

Finance costs for the year ended 31 December 2005 amounted to ጪ༅ι̯Ε࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α ˂approximately HK$7.7 million which, comparing with finance costs ۹޸ݯ7,700,000ಋʏc༖࿀ϭɀཌྷཌྷ̒αɊɀ of approximately HK$5.5 million, represented an increase of ɍɊȹˀ˅α۹޸5,500,000ಋʏɾጪ༅ι̯c޸ approximately 40%. The increase in finance costs was mainly due ɐʠȿ40%eጪ༅ι̯ɐʠȽ˚߬ΐݯႺϷࠥ൘ to the increase in interest costs as a result of increase in outstanding ʥԯˢ൘ಁؿ೶˄ᄈ˱Ϥʵ঴ؿณᄈСࢠι̯e ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹כbalance of bank and other borrowings. The Group incurred loss for ̯එ྆ ၬՇᑋฌe̯එ྆ɾᏪ༜ʥԜ̯එޑΛαکthe year ended 31 December 2005 and the years before. The Group’s ʥɾ พdᄥָʥஉௐ஫ͫ˞ႺϷࠥ൘ʥԯذoperation as well as property, plant and equipment acquired for ྆ೕࢄؿ eܛᙔʔ̇ؿ൘ಁʻڃthe Group’s development was partly financed by the bank and other ˢ൘ಁʥԞϬȹࡼ΃ӡ borrowings and loan from a fellow subsidiary.

˂࿀ϭɀཌྷཌྷʄαɊɀכAs an overall result, the Group incurred a loss of HK$76.4 million ኬ᛽พᐜϤӰc̯එ྆ for the year ended 31 December 2005 which, comparing with the ɍɊȹˀ˅α۹ၬՇ޸76,400,000ಋʏᑋฌc༖ loss of approximately HK$131.2 million for the year ended 31 ࿀ϭɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀ˅α۹޸ December 2004, represented a decrease of approximately 42%. 131,200,000ಋʏɾᑋฌc޸Ɏൡȿ42%e

Business review พ৻Αᚋ The Company has adjusted its strategy and entered into the ̯ʔ̇ɰ຤࠳̳ԯ೪଑c൬Ƀཋ຾྇ཫ௚Аʥႇ business of subcontractor of CG creation and production, while А˱ɮਆพ৻c΃ࣂcɌೕࢄԯᅕᆦʑࢀೕϷʥ developing its businesses in digital content distribution and ࢄ͐ၤཋ຾྇ཫ਩ফ೩พ৻e exhibitions and CG training.

CG creation and production ཋ຾྇ཫ௚АʥႇА ௿ྦྷ̟כ౨ႇАɮАɰ຤ѧιe਒ͅ܃Post production works for the Movie have been completed. ໮ཋᄧؿ However, as market response to the Movie was different from ໮ཋᄧؿʦᎶၤད౨ɺଲc໎ԑႏݯಲؒᆢցઐ expected, the Directors considered the financial result of the release ˮ໮ཋᄧԷ̟௿ؿল৻พᐜe of the Movie to the market is uncertain.

During the year under review, the Group entered into the business ΕΑᚋα۹c̯එ྆൬Ƀȿ౧໮ཋ഼டᙩჱd༝ ৻ؿཋ຾྇ཫ௚АʥႇА˱ɮਆרof subcontractor of CG creation and production, for including TV Ꮋʥਆพᄤй series, games and commercials, that is expected to bring steady พ৻c໮พ৻ད౨˿౧̯එ྆੓ԞᖇցνɃe࿀ income to the Group. By 31 December 2005, the Group has ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀc̯එ྆ɰ຤ݡਆ ܰכconcluded several contracts and started related production. As it ѧιడͫ΋޸ʥ඀ࢄȿτᗐؿႇАɮАeͅ was a new business and was started in the second half of the year, ณஉพ৻ϤɌΕɎ˸αʑɷ඀ࢄc̯එ྆Εκ৖ the Group has not generated profit after deducting starting up costs ඀ፒ໮೩พ৻ɾι̯܃ֆ̰੣ɻՅ੡СᅼeЎ੣ ผτڌޚֺνԷؿ߯௰ઐ့c໮ณᄈพ৻܃from the business. However, from orders received after the year end, α̱ the new business is expected to be successful. ֺιe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 29 MANAGEMENT DISCUSSION AND ANALYSIS ဳଉᄙদሃʥʗ׹

Digital content distribution and exhibitions ᅕᆦʑࢀೕϷʥࢄ͐ ؗ˄ԙeๅرMarket environment for digital cinema equipment was not ΕΑᚋαʑcᅕᆦᄧ৑உௐؿ̟௿ །ณ߯ؿϷพʑҌ୺ᅟๅΕۂfavourable during the year under review. Potential customers ۪ʸኪʶ̯එ྆ଐ concerned the upgradeability/compatibility of the Group’s ৉΋ɐɾʠज़ʥ࠹ࢀॶɈeኣϊc஫ͫๅ۪ʸɰ products in compliance with the new industrial technical standard. ຤֝౨ೕˮ߯௰ϭ໮೩ᅟๅΕɀཌྷཌྷʄαȼ˂ೕ For this reason, some of the potential customers has deferred Ϸɾ܃eΐϊc๫໮ϷพʑᅟๅΕɀཌྷཌྷʄαɎ c̯එ྆νԷؿ߯௰ᐢࠤɰঢ়ˮ΃α܃placement of orders until the standard was issued in July 2005. In ˸αೕˮ the second half of the year 2005, after the industrial technical ɐ˸αؿȹࠛe standard having been issued, value of orders received by the Group was more than double of the value in the first half of the year.

CG training ཋ຾྇ཫ਩ফ ֺ߬ͅొԜᇾ˚ٽRevenue from CG training increased mainly due to increase in both Ϭཋ຾྇ཫ਩ফֺ੡νऩؿᄈ number of courses provided and average number of students ೡᅕ൴ʥΈᇾೡ̡яν́ᅕΥԭّɐʠτᗐcऋ e̯එ྆܃Εɐࣵؿ਩ফɻʶɾۺattending each course, especially after the expansion of the Group’s П̯ܰඑ྆ᒷ CG training center in Shanghai. The Group also expanded its ΃ࣂɖ˞઒ᚬʿβ˞ᒷɣԯొԜফᆻऒؿॶɈe capacity of providing training course by franchise arrangements.

Outlook ࢄશ CG creation and production ཋ຾྇ཫ௚АʥႇА ౨ႇАɮАɰ຤ѧιe໮ཋᄧɰ຤ખ܃Post production works for the Movie has been completed. The ໮ཋᄧؿ eτᗐ໮ཋᄧؿઐᄤܮɀཌྷཌྷʒαΕɻਝʔכMovie is scheduled to be released in the PRC in the year 2006. ౨ Activities promoting the Movie have been continuing. ݠ৽ଊ̳ᘗᙩe

̯עઅᏵؿ߯௰൴cɰᖬ܃The value of orders received after the year end of 2005 proves that ੣ɀཌྷཌྷʄαα̱ɾ the Group’s strategy of entering the business of subcontractor of එ྆൬Ƀཋ຾྇ཫ௚АʥႇА˱ɮਆพ৻ؿ೪଑ CG creation and production will likely be successful. The Group has ˿ॶੀτֺιe̯එ྆ɰι˲ͅ໮˱ɮਆพ৻Ε ݚɃe໎ټbeen successful in generating net operational cash inflow by the ɀཌྷཌྷʒαɻΛ࠯˂ͫଐ́૱Ꮺ༜ଊ ݚټsubcontractor business in some of the months in the year 2006. ԑ͓ҁ߬Ґ໮พ৻ೕࢄݯȹඖ˿ొԜᖇցଊ The Directors aim at developing the business to be a source ɃؿԞ฻c˞ϊ౧̯එ྆νన˞֡ΛαֺၬՇؿ providing steady cash inflow based on which the Group will recover ᑋฌʥʹೕࢄe from losses incurred in previous years and develop.

ཋ຾྇ೋ௚АʥႇАȽȹඖɻ̕ʥכAs CG creation and production is an industry encouraged by central Εɻਝcͅ ར᎞ؿϷพcད౨̯එ྆ੀ˿੣ঽޑ֚ܧand local governments in the PRC, it is expected that the Group Δʿ ֚ܧʥСࢠ඀ʻؿ໤᎛ݛൎ೩ΛိѼβټwill be benefited by various forms of support from the governments, ೢdै including tax refund, subsidies for compensation of rental and ʻܛɾɎ૯૯੡ऩe interest expenses.

30 Global Digital Creations Holdings Limited MANAGEMENT DISCUSSION AND ANALYSIS ဳଉᄙদሃʥʗ׹

Digital content distribution and exhibitions ᅕᆦʑࢀೕϷʥࢄ͐ ؿτᗐᅕᆦᄧ৑Ϸพᔵႌcད౨ᅕخ౨ˮٶFrom the recent issues of magazines related to digital cinema ࣓ኣ ɀཌྷཌྷʒααʑɣஃᅡౝʥeϣᄬԷכindustry, it is believed that digital cinema will be rolled out in large ᆦᄧ৑ੀ ɰᙻӸ௖ଲ΋ϷพʑҌ୺ᅟๅؿଐۂscale in the year 2006. Considering that the Group’s products are ̯එ྆ଐ c̯එ྆ੀ˿࠘໮ད౨ɻؿౝʥଐ́ɣఝ۹ঢ়ۂ ,among those best complying with the industrial technical standard ˀˋ̡ؿνऩeΐϊcᅕᆦᄧ৑உௐሻਕੀ̡כ the Group will be benefited by the expected roll-out and generate ᒨeٽrevenue substantially higher than current level. In that case, sales ˿ιݯ̯එ྆˿ᜮؿᄈ of digital cinema equipment will become a point of significant growth of the Group.

In view of the potential of business of sales of digital cinema ϣᄬԷᅕᆦᄧ৑உௐሻਕพ৻ɾᅶɈc̯එ̳྆ equipment, the Group is strengthening its division specialised in ஦༦˱ɣ༅̯ҙ༅೩ʿβʥʵ൬ณٖ׭˞ੜʝԯ Ӡޢכthe business by means including increasing equity investment in ਿᏪϊϷพؿʗ஫e̯එ྆͛ੀᘗᙩҙ༅ එ྆ΕϷพʑؿ̯ܛthe division, as well as adding new shareholders to the division. ʥೕࢄᅕᆦᄧ৑ޫҌ˞ұၐ The Group will also continue invest in research and development ეኒΔϽʥ੣ད౨ɻؿౝʥသ˿ॶՅ੡௖ɣؿС in technology of digital cinema in order to maintain the Group’s ऩe leading position in the industry and to capture the largest possible benefit from the expected roll-out of digital cinema.

CG training ཋ຾྇ཫ਩ফ The Group is expanding its capacity and geographic coverage of ̯එ̳྆΃ࣂ஦༦ᒷ˨ԯϬສஉܪʥᄈ˱઒ᚬ΋ providing CG training course by both expanding of its own facilities ྑɁ˞ұᒷɣ̯එ྆ొԜཋ຾྇ཫ਩ফɾଐॶʥ ੀᘗᙩݯ̯එ྆ȹ࠯τСپand increasing franchise partners. The segment will continue to be Δਂఝၰᆲ௼eϊ஫ a profitable division of the Group. ˿྇ؿ஫ͫe

༅฻ܧʥলټLiquidity and Financial Resources ݚ৽༅ ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀc̯එ྆ɾႺϷ೶כ The Group had bank balances and cash and pledged bank deposits ׋Φಁ޸ݯ20,100,000ಋʏɀཌྷאʥτټof approximately HK$20.1 million as at 31 December 2005 (2004: ቗ʥଊ HK$5.6 million) which were mainly denominated in Hong Kong ཌྷ̒αi5,600,000ಋʏc˚߬˞ಋʏʥɁ̵ྫྷ dollars and Renminbi. The increase was mainly the result of that, at ցࠤeᅕᔾᄈ˱˚߬ΐݯ̯එ྆Ε೶့ˀ̳൬Ϸ the balance sheet date, the Group was restructuring/renewing bank ࠇୂþࠇᙩႺϷࠥಁ˞ʻܛ̯එ྆ɾᏪ༜eτᗐ ಕʭe܃೶့ˀכ׋Φಁאcτ܃borrowing in funding the Group’s operations. Balances of pledged ႺϷࠥಁࠇᙩ bank deposits decreased subsequent to the balance sheet date, upon the renewal of the related bank borrowing.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 31 MANAGEMENT DISCUSSION AND ANALYSIS ဳଉᄙদሃʥʗ׹

ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀc̯එ྆ɾࠥ൘޸כ The Group’s borrowings amounted to approximately HK$101.9 ɀཌྷཌྷʄαɊɀ˂ɍכmillion as at 31 December 2005 which were repayable within one ݯ101,900,000ಋʏcя඘ ɀཌྷཌྷʄαʥɀཌྷཌྷ̒כȹαʑ᎛ᑹe܃year after 31 December 2005. There was no gearing ratio (calculated Ɋȹˀ ᘗ፣੡༅̯ᑋޚඑ̯྆כas bank and other borrowings less bank balances and cash and αɊɀ˂ɍɊȹˀcͅ pledged bank deposits divided by shareholders’ fund) presented ିcܨԎಲеͶ༅̯߲ඦଅ˞ႺϷʥԯˢࠥ൘ ߮ټ׋Φಁ৖˞ٖ׭༅אʥɰټas the Group recorded capital deficiency as at both 31 December ಕႺϷ೶቗ʥଊ 2005 and 2004. ့e

߬˞ಋʏdɁ̵ྫྷʥ޻ʏցࠤe˚מTransactions of the Group were mainly denominated in Hong Kong ̯එ྆ɾ͚ αכඑ̯྆ܨ໮೩ஒྫྷɾංමଅდݯᖇցcכͅ dollars, Renminbi and United States dollars. In view of the stability ൬ϷͨЄྦྷҿeמof the exchange rate among those currencies, no hedging for the ۹ʑԎಲగ̔ྫྷ͚ foreign currency transaction had been carried out during the year.

Charge on assets ༅ଐሔ׋ ׋ႺϷΦאɀཌྷཌྷʄαɊɀ˂ɍɊȹˀcɰכ As at 31 December 2005, pledged bank deposits, computer equipment and motor vehicles with carrying value of approximately ಁdཋ຾உௐʥӁӹɾሏࠍࠤʗП޸16,500,000 HK$16.5 million, HK$2.3 million and HK$21,000, respectively, and ಋʏd2,300,000ಋʏʥ21,000ಋʏc˞ʥ̯එ྆ Ӡ૯Γτࠉʔ̯̇එޢ᏷ଈᅕᆦఌ᛽ޫҌכ the Group’s entire interests in the registered capital of ᏷ଈᅕᆦఌ ᙔʔ̇ഽ˫ٖ̯ɻɾͲ஫ᚬऩяɰڃӠ૯Γτࠉʔ̇, a wholly owned subsidiary of the ྆ɾͲ༅ޢ᛽ޫҌ ߗɳল৻ዀ࿚cАݯ̯එֺ྆Ᏽ઒ߗɳጪכ׋א Group, were pledged to certain financial institutions to secured ᖬeړ൘ɾڌcertain financing facilities granted to the Group. ༅

Capital structure ٖ̯೶࿚ ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀc̯එ྆፣੡༅̯כ As at 31 December 2005, the Group recorded capital deficiency of approximately HK$128.2 million which was mainly financed by ᑋି޸128,200,000ಋʏc˚߬ͅʑ஫༅฻dႺϷ α۹ɾ̯כe༅̯ᑋି˚߬Ƚΐܛinternal resources, bank and other borrowings. The capital ʥԯˢࠥ൘ʻ α۹ᑋฌֺߎeک˞deficiency was mainly arisen from the loss incurred during the year ᑋฌ޸76,400,000ಋʏʥ of approximately HK$76.4 million and of previous years.

Contingent liabilities ֶಳ߲ඦ ൘ΉႺϷʥڌᙔʔ̇Ᏽ઒ʀɾȹঁڃThe Company has given guarantees of approximately HK$16.4 ̯ʔ̇గԯ ڃe໮೩ړmillion to banks and other parties in respect of general facilities ԯˢɁɡАˮ޸16,400,000ಋʏɾኪ ڌɀཌྷཌྷʄαɊɀ˂ɍɊȹˀɰ৽͂ɾכgranted to its subsidiaries. Such facilities utilised by the subsidiaries ᙔʔ̇ at 31 December 2005 amounted to approximately HK$14.4 million ൘ᔾ޸ݯ14,400,000ಋʏɀཌྷཌྷ̒αi (2004: HK$38.1 million). 38,100,000ಋʏe

32 Global Digital Creations Holdings Limited MANAGEMENT DISCUSSION AND ANALYSIS ဳଉᄙদሃʥʗ׹

Litigation േஊ כഽ42ֺׄᚉ൬Ϸɻɾേஊ̔cڃٲল৻ంכSave as the litigation in progress disclosed in note 42 to the financial ৖ ᙔʔ̇ลಲ૾ࣹڃstatements, neither the Company nor any of its subsidiaries was ̯ంйˀ౨c̯ʔֶ̇ԯͨЄ c̯ʔֶ̇كengaged in any litigation or arbitration of material importance and ͨЄࠇɣേஊֶͦസcϤగ໎ԑֺ ᙔʔ̇͛ಲͨЄࠇɣɾֆ̰ȿ೶ֶࠍᐽڃno litigation or claim of material importance is known to the ԯͨЄ Directors to be pending or threatened by or against the Company ɾേஊֶॗ᎛e or any of its subsidiaries as the date of this report.

Employees ཭ࡗ ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀc̯එ྆཭τ330כ As at 31 December 2005, the Group employed 330 (2004: 339) full time employees. The Group remunerated its employees mainly with Ίɀཌྷཌྷ̒αi339ΊͲᓻ཭ࡗe̯එ྆˚߬ ଊʥɮА຤᛻Ϥᔤցԯٲreference to the prevailing market practice, individual performance Ƚ਄๑̟௿ྻԝd࠯Ɂ ܢ˳and experience. Other benefits such as medical coverage, insurance ཭ࡗɾᑀ༭e̯එ྆ݯ཭ࡗొԜɾԯˢါС d৊ੱ٦޴ʥ཭ࡗټ፮ི߮dੜዶړ፮dړplan, mandatory provident fund, discretionary bonus and employee ᔢᏻ share option scheme are also available to employee of the Group. ᑪٖᚬི߮e

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 33 COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

Business objectives from the Latest Practical Date Actual business progress to 31 December 2003 as stated in the Prospectus ྡྷ჌พ৻൬۹ (only limited to those which have not been fulfilled in full as stated in the annual report of the Company for each of the financial year ended 31 December 2003 and 2004) ჌˿Ϸˀ౨঴ϭɀཌྷཌྷɍྡྷ܃௃ೡֺ߸ͅ௖ٖ׃໶Σ Ε̯ʔ̇࿀כαɊɀ˂ɍɊȹˀ˅ɾพ৻͌ᅟඩࠉ ϭɀཌྷཌྷɍαʥɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀ˅লܧα ۹Έαɾαంʑֺ߸ɾֆ̰Ͳࠍ༠ιّ

CG creation and production 1. Complete Thru the Moebius Strip production and 1. The production of Thru the ཋ຾྇ཫ௚АʥႇА premiere. Moebius Strip was completed in ѧιᚓˈ౜᏷ႇАԎࠖωઐˮe May 2004 and was officially launched in the Cannes Film Festival in the same month. כThru the Moebius StripɾႇАɰ ˂΃כɀཌྷཌྷ̒αʄ˂ѧιԎ ཋᄧຝɐ̳βઐˮeےΕ੖

2. Sign up a US distributor for Thru the Moebius Strip. 2. GDC entered into a sales గᚓˈ౜᏷ၤ޻ਝȹೕϷਆᖋ߯΋޸e agency agreement (which was terminated in the second half of 2004) with Senator International Inc. in respect of the distribution of Thru the Moebius Strip in the US. GDC also received offers for distribution of Thru the Moebius Strip in the US. ᏷ଈᅕᆦၤSenator International Inc.గΕ޻ਝೕϷThru the Moebius StripϤ͓߯ȹͫሻਕˤ ɀཌྷཌྷ̒αɎ˸αכଉԾᘪɰ ୄ˅e᏷ଈᅕᆦ͛νԷτᗐΕ ޻ਝೕϷThru the Moebius Stripɾ ᘪeۺ

34 Global Digital Creations Holdings Limited COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

3. Pre-sell Thru the Moebius Strip to markets other 3. GDC pre-sold Thru the Moebius than the US. Strip to 7 markets other than Ή޻ਝ˞̔ɾ̟௿དਕᚓˈ౜᏷e the US. GDC also received offers from distributors from the rest of the world. ᏷ଈᅕᆦɰΉ޻ਝ˞̔ɾ7࠯̟ ௿དਕThru the Moebius Stripe ᏷ଈᅕᆦ͛νԷ˖ވԯˢ̟௿ ᘪeۺೕϷਆɾ

4. Set up a merchandising arm and begin licensing 4. GDC set up a merchandising of merchandise in the PRC market and other target arm and started to license its markets. products in PRC and other .ሻਕ஫cԎ඀նΕɻਝʥԯˢ͌ᅟ̟௿ target markets in 2004ۂι͓ਆ ɀཌྷཌྷ̒αι͓כɾਿСᚬe ᏷ଈᅕᆦɰۂઐᄤਆ ሻਕ஫cԎ඀նΕɻਝʥۂਆ ɾਿۂԯˢ͌ᅟ̟௿ઐᄤԯਆ Сᚬe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 35 COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

5. Begin development of prototype of Thru the 5. GDC commenced the Moebius Strip and Sandman console games in the development of Thru the US with Equinoxe. Moebius Strip game in house ඀նၤEquinoxe΋АΕ޻ਝ඀ೕᚓˈ౜᏷ʥ with other partners including e G ameone OnlineخٱSandmanཋ഼༝Ꮋɾ Entertainment Group Limited (“Gameone”). ᏷ଈᅕᆦɰ඀նၤԯˢ΋Аྑ Ђ ˳ ܢ Gameone Online Entertainment Group Limited Gameoneͳ΃඀ೕThru the Moebius Strip༝Ꮋe

6. Publish the first issue of CG, games and digital 6. Instead of publishing the print cinema print and e-magazine. version of CG, games and e- ዀ̨Ϳʥཋɥ magazine, GDC started anޚτᗐཋ຾྇ཫd༝Ꮋdᅕᆦخˮ ᔵႌɾ௚˰໔e online forum in relation to these topics. In addition, GDC published three textbooks relating CG in PRC. ཋ຾྇خˮૃי᏷ଈᅕᆦɰ ཫd༝Ꮋdᅕᆦޚዀ̨Ϳʥཋ ɥᔵႌɾͿԵ̯cϤ඀նઐˮ τᗐ໮೩ʑࢀɾ၉ɐሃኋeϊ ɍخc᏷ଈᅕᆦɰΕɻਝˮ̔ ࡨτᗐཋ຾྇ཫɾઠҥe

36 Global Digital Creations Holdings Limited COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

7. Finalise the appointment of Overseas Chinese 7. Overseas Chinese Town was Town as merchandising agent of GDC in the PRC. appointed as the ሻਕˤ merchandising agent of GDC inۂݯ᏷ଈᅕᆦΕɻਝɾਆےໃྡྷկͨജཬ ଉe PRC. ɰᏵկͨݯ᏷ଈᅕᆦΕےജཬ ሻਕˤଉeۂɻਝɾਆ

8. Begin pre-production of sequel to Thru the 8. Not yet begun. Moebius Strip. ֆ̰඀նe ౨ႇАeک඀նᚓˈ౜᏷ᙩඑɾ

9. Issue first comic based on Thru the Moebius Strip. 9. Not yet begun. ೕϷࠖ஫˞ᚓˈ౜᏷ݯᔂ̯ɾ࿾ೋe ֆ̰඀նe

10. Begin development of next online game and 10. GDC set up a joint venture with localization of Korean and Japanese games. Gameone to develop its next ඀ն඀ೕͲณ၉ɐ༝ᎻcԎੀᒚਝʥˀ̯၉ɐ༝ online game to be released in Ꮋ̯Δʝe the third quarter of 2005. ᏷ଈᅕᆦɰၤGameoneι͓΋ ༅ʔ̇c˞඀ೕͲณ၉ɐ༝ ɀཌྷཌྷʄα଱ɍտכᎻcԎੀ ۹ઐˮ໮ࡨ༝Ꮋe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 37 COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

Business objectives from 1 January 2004 to 30 June Actual business progress as stated in the Prospectus (only limited to ྡྷ჌พ৻൬۹ 2004 those which have not been fulfilled in full as stated in the annual report of the Company for the financial year ended 31 December 2004) ௃ೡֺ߸ͅɀཌྷཌྷ̒αȹ˂ȹˀ঴ϭɀཌྷཌྷٖ׃໶Σ Ε̯ʔ̇࿀ϭכαʒ˂ɍɊˀ˅ɾพ৻͌ᅟඩࠉ̒ α۹ɾαంʑֺ߸ܧɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀ˅ল ɾֆ̰Ͳࠍ༠ιّ

CG creation and production 1. Launch localised Korean and Japanese on-line 1. Not yet launched. ཋ຾྇ཫ௚АʥႇА games in Greater China market. ֆ̰ઐˮe ΕɣɻജΔਂ̟௿ઐˮ̯Δʝɾᒚਝʥˀ̯၉ɐ ༝Ꮋe

2. Complete development of Thru the Moebius Strip 2. GDC commenced the and Sandman console games for publisher. development of Thru the ਆѧι඀ೕᚓˈ౜᏷ʥSandmanཋ഼༝ Moebius Strip game in houseخݯˮ Ꮋe with other partners including Gameone. ᏷ଈᅕᆦɰ඀նၤԯˢ΋Аྑ Ђ˳ܢGameoneͳ΃඀ೕ Thru the Moebius Strip༝Ꮋe

3. Begin development of next prototypes. 3. Have developed two sets of .e prototypes for TV seriesخٱ඀ն඀ೕͲณ၉ɐ༝Ꮋɾ ᏷ଈᅕᆦɰ඀ೕԭࡨཋ഼டᙩ eخٱჱɾ

38 Global Digital Creations Holdings Limited COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

4. Market DVDs for Thru the Moebius Strip. 4. The deal is in discussion. ଊ̳൬Ϸݡᇹeמe τᗐ͚خઐˮᚓˈ౜᏷ɾDVD

5. Complete The New Adventures of Raggedy Ann & 5. WAWC did not have the rights Andy series and begin work on next series. of this series and therefore GDC ѧιThe New Adventures of Raggedy Ann & Andy decided not to pursue on .e development of this seriesۂӡͶԎ඀ն඀ೕͲณӡͶଐ ɾۂWAWCԎಲኟτ̯ӡͶଐ ᚬcΐϊc᏷ଈᅕᆦɰҺցخ eۂ඀ೕ̯ӡͶଐૃי

6. Begin production of sequel of Thru the Moebius 6. Not yet commenced. Strip. ֆ̰඀նe ඀նႇАᚓˈ౜᏷ɾᙩඑe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 39 COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

Digital content distribution 1. Further supply digital cinema equipment to 1. Mukta Adlabs Digital Exhibition and exhibitions Adlabs. Limited (“Adlabs”) did not meet ᅕᆦʑࢀೕϷʥࢄ͐ ൬ȹүΉAdlabsԜᎶᅕᆦᄧ৑உௐe the target of installing 400 servers for the year ended 31 December 2004. Adlabs has temporary stopped the order of new servers until the upgrade of digital projectors from a single chip to 3-chip DLP projectors is complete. GDC Technology continues its discussion with Adlabs for the order of new servers. Mukta Adlabs Digitalכͅ Exhibition LimitedAdlabs ࿀ϭɀཌྷཌྷ̒αɊɀ˂ɍɊȹ ˀα˅α۹Ԏ̰༠ԷΪ໦400 Adlabsɰܨኂɾ͌ᅟcרЉ̎ ϭੀقኂcרᅗ৤ᑪສͲณЉ ዀҡณݯɍౠܮי௰ౠːᅕᆦ ዀѧιݯ˅eGDCܮיːDLP רTechnologyੀᘗᙩగͲณЉ ኂɾ߯௰ၤAdlabs൬Ϸਆদe

40 Global Digital Creations Holdings Limited COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

On the other hand, GDC Technology expanded its market share in India by reprofitting 5 cinemas in Southern India with GDC Technology’s digital servers in 2004. ɀཌྷཌྷ̒αcכȹʿࠍc̊ GDC Technology͛ΐઔ͂GDC ኂੀϽרTechnologyɾᅕᆦЉ ஫ɾ5ࡼཋᄧ৑ᓺڲͿ۹כ Ϳ۹̟௿כณc੣Ϥᒷɣȿԯ ɾЌτଅe

2. Sign up around 80 digital cinemas in the PRC and 2. The launch of further D-cinemas rest of Asia, such as Singapore and Hong Kong. under the franchise model is .ၤɻਝʥԓݘԯˢΔਂΣณ˱գʥࠗಋͳ޸80ࡼ currently delayed ऋஈ຤Ꮺᅡβܘᅕᆦᄧ৑ᖋອ΋޸e ଊɰ֝ፖτᗐ ઐˮԯˢᅕᆦᄧ৑e

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 41 COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

3. Continue with research and development for 3. GDC Technology continues interactive digital cinema. some R&D programs that do ᘗᙩޢೕʃ৽βᅕᆦᄧ৑e not require substantial funding. Currently, GDC Technology does not carry out capital intensive R&D such as FPGA implementation of JPEG2000 codec and interactive digital cinema systems. GDC Technologyᘗᙩߗɳಲ჏ cکೕඖ͌e͌ޢɾټɣ೫༅ GDC TechnologyԎಲ൬Ϸ༅̯ ਽එޢೕcΣFPGAྡྷܪ JPEG2000 codecʥʃ৽βᅕᆦ ᄧ৑ӡ଻e

42 Global Digital Creations Holdings Limited COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

Business objectives from 1 July 2004 to 31 Actual business progress December 2004 as stated in the Prospectus (only ྡྷ჌พ৻൬۹ limited to those which have not been fulfilled in full as stated in the annual report of the Company for the financial year ended 31 December 2004) ௃ೡֺ߸ͅɀཌྷཌྷ̒αȼ˂ȹˀ঴ϭɀཌྷٖ׃໶Σ Ε̯כཌྷ̒αɊɀ˂ɍɊȹˀ˅ɾพ৻͌ᅟඩࠉ α۹ɾܧʔ̇࿀ϭɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀ˅ল αంʑֺ߸ɾֆ̰Ͳࠍ༠ιّ

CG creation and production 1. Complete production of first part of sequel to Thru 1. Not yet commenced. ཋ຾྇ཫ௚АʥႇА the Moebius Strip. ֆ̰඀նe ౨஫ͫeکѧιႇАᚓˈ౜᏷ᙩඑɾ

2. Launch further on-line games in Greater China 2. Not yet launched. market. ֆ̰ઐˮe ΕɣɻജΔਂ̟௿ઐˮԯˢ၉ɐ༝Ꮋe

3. Begin pre-production of next film. 3. Not yet begun. ౨ႇАe ֆ̰඀նeک඀նͲณཋᄧɾ

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 43 COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

Digital content distribution 1. Further supply digital cinema equipment to 1. Mukta Adlabs Digital Exhibition and exhibitions Adlabs. Limited (“Adlabs”) did not meet ᅕᆦʑࢀೕϷʥࢄ͐ ൬ȹүΉAdlabsԜᎶᅕᆦᄧ৑உௐe the target of installing 400 servers for the year ended 31 December 2004. Adlabs has temporary stopped the order of new servers until the upgrade of digital projectors from a single chip to 3-chip DLP projectors is complete. GDC Technology continues its discussion with Adlabs for the order of new servers. Mukta Adlabs Digitalכͅ Exhibition LimitedAdlabs ࿀ϭɀཌྷཌྷ̒αɊɀ˂ɍɊȹ ˀ˅α۹Ԏ̰༠ԷΪ໦400̎ Adlabsɰᅗܨኂɾ͌ᅟcרЉ ϭੀ௰قኂcר৤ᑪສͲณЉ ዀҡณݯɍౠːܮיౠːᅕᆦ ዀѧιݯ˅eGDCܮיDLP רTechnologyੀᘗᙩగͲณЉ ኂɾ߯௰ၤAdlabs൬Ϸਆদe

44 Global Digital Creations Holdings Limited COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

2. Sign up further digital cinemas to reach a total of 2. The launch of further Dcinemas around 150 in the PRC and around 100 in rest of under the franchise model is Asia, such as Singapore and Hong Kong. currently delayed. ऋஈ຤Ꮺᅡβܘɻਝ޸150 ଊɰ֝ፖτᗐכၤԯˢᅕᆦᄧ৑ᖋອ΋޸c˞༠ߎ ࡼʥԓݘԯˢΔਂΣณ˱գʥࠗಋ޸100ࡼᅕ ઐˮԯˢᅕᆦᄧ৑e ᆦᄧ৑ɾ͌ᅟe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 45 COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

3. Continue with research and development of the 3. GDC Technology continues evolving digital cinema technology and some R&D programs that do specification (including interactive digital cinema not require substantial and network-based entertainment system). funding. Currently, GDC ʃ৽β Technology does not carry outܢ˳ೕׅࢄᅕᆦᄧ৑ޫҌʥඖ͌ޢᘗᙩ ᅕᆦᄧ৑ʥ၉೼࡯ᅥӡ଻e capital intensive R&D such as FPGA implementation of JPEG2000 codec and interactive digital cinema systems. GDC Technologyᘗᙩߗɳಲ჏ cکೕඖ͌e͌ޢɾټɣ೫༅ GDC TechnologyԎಲ൬Ϸ༅̯ ਽එޢೕΣFPGAྡྷܪ JPEG2000 codecʥʃ৽βᅕᆦ ᄧ৑ӡ଻e

46 Global Digital Creations Holdings Limited COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

Business objectives from 1 January 2005 to 30 June Actual business progress as stated in the Prospectus ྡྷ჌พ৻൬۹ 2005 ௃ೡֺ߸ͅɀཌྷཌྷʄαȹ˂ȹˀ঴ϭɀཌྷٖ׃໶Σ ཌྷʄαʒ˂ɍɊˀ˅ɾพ৻͌ᅟ

CG creation and production 1. Market DVDs for sequel of Thru the Moebius Strip. 1. Not yet commenced. ཋ຾྇ཫ௚АʥႇА ݯᚓˈ౜᏷ᙩඑɾDVD൬Ϸ̟௿ઐᄤe ֆ̰඀նe

2. Complete second Japan film. 2. No substantial progress. ѧι଱ɀ஫ˀ̯ཋᄧe Ԏಲࠇɣ൬ࢄe

3. Begin prototype for next console game. 3. No substantial progress. ႇАe Ԏಲࠇɣ൬ࢄeێ඀նɎȹ࠯ઁԹ̎༝Ꮋɾࡈ

4. Launch further on-line games in Greater China. 4. No substantial progress. ΕɣɻജΔਂ൬ȹүઐˮ၉ɐ༝Ꮋe Ԏಲࠇɣ൬ࢄe

5. Begin production in next film project. 5. No substantial progress. ඀նႇАɎȹ࠯ཋᄧඖ͌e Ԏಲࠇɣ൬ࢄe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 47 COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

Digital content distribution 1. Further supply digital cinema equipment to 1. Mukta Adlabs Digital Exhibition and exhibitions Adlabs. Limited (“Adlabs”) did not meet ᅕᆦʑࢀೕϷʥࢄ͐ ൬ȹүΉAdlabsԜᎶᅕᆦᄧ৑உௐe the target of installing 400 servers for the year ended 31 December 2004. Adlabs has temporary stopped the order of new servers until the upgrade of digital projectors from a single chip to 3-chip DLP projectors is complete. GDC Technology continues its discussion with Adlabs for the order of new servers. However, GDC Technology also expanded its market share in India by retrofitting more than 10 cinemas in South India with GDC Technology’s digital servers. Mukta Adlabs Digitalכͅ Exhibition LimitedAdlabs࿀ ϭɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀ α۹Ԏ̰༠ԷΪ໦400̎Љ˅ Adlabsɰᅗ৤ܨኂɾ͌ᅟcר ϭੀ௰ౠقኂcרᑪສͲณЉ ዀҡณݯɍౠːܮיːᅕᆦ ዀѧιݯ˅eGDCܮיDLP רTechnologyੀᘗᙩగͲณЉ ኂɾ߯௰ၤAdlabs൬Ϸਆদe ಳϤc GDC Technology͛ΐઔ רGDC TechnologyɾᅕᆦЉ͂ ஫ɾ10ࡼཋᄧڲͿ۹כኂੀϽ Ϳ۹כ৑ᓺณc੣Ϥᒷɣȿԯ ̟௿ɾЌτଅe

48 Global Digital Creations Holdings Limited COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

2. Sign up further digital cinemas in the PRC and rest 2. The launch of further of Asia, such as Singapore and Hong Kong, to reach D-cinemas under the franchise total of around 250 and 120 respectively. model is currently delayed. ऋஈ຤ᏪᅡβܘΕɻਝʥԓݘԯˢΔਂԝΣณ˱գʥࠗಋ൬ȹ ଊɰ֝ፖτᗐ үၤᅕᆦᄧ৑͓߯΋޸cᐢᅕʗП޸ݯ250ංʥ ઐˮԯˢᅕᆦᄧ৑e 120ංe

3. Continue with research and development of the 3. GDC Technology continues evolving digital cinema technology and some R&D programs that do specification (including interactive digital cinema not require substantial and network-based entertainment system). funding. Currently, GDC Ӡʥ඀ೕ࿫൬ɻؿᅕᆦᄧ৑ޫҌʥஃࣟ Technology does not carry outޢᘗᙩ ʃ৽ᅕᆦᄧ৑ʥ˞၉೼ݯ̯ؿ࡯ᅥӡ଻e capital intensive R&D such asܢ˳ FPGA implementation of JPEG2000 codec and interactive digital cinema systems. GDC Technologyᘗᙩߗɳಲ჏ cکೕඖ͌e͌ޢɾټɣ೫༅ GDC TechnologyԎಲ൬Ϸ༅̯ ਽එޢೕΣFPGAྡྷܪ JPEG2000 codecʥʃ৽βᅕᆦ ᄧ৑ӡ଻e

Provision of CG training 1. Continue to run the 5th CG training course in 1. 136 students of the 5th CG courses Shenzhen, the PRC and the 2nd CG training course training course in Shenzhen ొԜཋ຾྇ཫ਩ফᇾೡ in Shanghai, the PRC. graduated on 31 May. The 2nd ɻਝ૯ΓᘗᙩᏪፒ଱ʄ౨ཋ຾྇ཫ਩ফᇾೡʥ and 3rd CG courses in Shanghaiכ .ɻਝɐࣵᘗᙩᏪፒ଱ɀ౨ཋ຾྇ཫ਩ফᇾೡe were also successfully finishedכ ૯Γ଱ʄ౨ཋ຾྇ཫ਩ফᇾೡ ʄ˂ɍɊȹכɾ136Ίነࡗɰ ˀଓพeɐࣵ଱ɀ౨ʥ଱ɍ౨ ཋ຾྇ཫ਩ফᇾೡ͛ɰ෋࿶೶ Ңe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 49 COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

Business Objectives from1 July 2005 to 31 Actual Business Progress December 2005 as stated in the Prospectus ྡྷ჌พ৻൬۹ ௃ೡֺ߸ͅɀཌྷཌྷʄαȼ˂ȹˀ঴ϭɀཌྷཌྷٖ׃໶Σ ʄαɊɀ˂ɍɊȹˀ˅ɾพ৻͌ᅟ

CG creation and production 1. Complete "Thru Moebius Strip" production and Production of this CG feature film ཋ຾྇ཫ௚АʥႇА premiere has completed in production. It ѧιThru Moebius StripႇАԎࠖωઐˮe is planned to be released in China in summer of 2006. ໮ཋ຾྇ཫཋᄧɰႇАѧιe߮ ɀཌྷཌྷʒαࡧտઐˮɻਝ̟כི ௿e

2. Recruited a new sales agent to distribute the GDC recruited Fantastic Films to film worldwide. distribute the film after the າᇼณሻਕˤଉcੀ໮ཋᄧೕϷϭͲଈ̟௿e termination of the sales agent agreement with Senator International. ᏷ଈᅕᆦၤSenator International ୄ˅ሻਕˤଉ΋޸܃cາᇼ Fantastic FilmsೕϷ໮ཋᄧe

3. GDC has entered into 2 co-production There hasn't been substantial agreements with 2 US studios to produce 6 CG progress with the production features film in the 5 years. under these 2 agreements yet ᏷ଈᅕᆦၤԭං޻ਝႇАʔ͓̇߯ԭඖ΋АԾ due to delay of fund raising by the ᘪcʄαʑႇАʒ஫ཋ຾྇ཫཋᄧe producers in the US. ˮټႇАʔ̇Ε޻ਝᘐඑ༅כͅ ଊ֝႒c໮ԭඖԾᘪɾႇАԎ̰ Յ੡ࠇɣ൬ࢄe

50 Global Digital Creations Holdings Limited COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

4. GDC is in negotiation with several major US GDC singed contract with two US production companies for co-production TV animation producing company to series and other "Work-for hire" only project. do production for two TV series ᏷ଈᅕᆦၤ޻ਝᅕࡼടΊႇАʔ̇cగͳ΃ႇ and one DVD package. One of the Аཋ഼டᙩჱʥԯˢ̋ࠉˮैɮАʿ࣐൬Ϸ contracts has been fulfilled in Ծਆe 2005 and the other projects are still in production. The DVD package is due to be completed in production by mid 2006. Another co-production contract has also been secured for a TV series of 52 episodes. GDC will share the right in both domestic as well as international market. ᏷ଈᅕᆦၤԭං৽ೋႇАʔ̇ᖋ ߯΋޸ႇАԭ஫ཋ഼டᙩჱʥȹ ɀཌྷཌྷʄαᄚכࡨDVDࡨ໦eɰ ڬϷԯɻȹͫ΋޸c̊ȹ࠯ඖ͌ ɀכʋΕႇАɻeད౨DVDࡨ໦ ཌྷཌྷʒααɻѧιႇАe̊ȹͫ ΋А΋޸͛ɰՅ੡ȹ஫52එཋ഼ டᙩჱɾႇАᚬe᏷ଈᅕᆦੀԔ τΕ̯Δ̟௿ʥਝ჌̟௿ೕϷ໮ ཋ഼ჱɾᚬСe

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5. GDC has entered a co-production agreement There hasn't been any substantial with Gameone Online Entertainment Group progress with the co-production Limited to co-produce online games. yet. However, there has been ᏷ଈᅕᆦၤGameone Online Entertainment more production service work Group Limited͓߯΋АԾᘪcͳ΃ႇА၉ɐ༝ signed and done for game Ꮋe companies in Europe, USA and Japan. GDC is in discussion with a French game company for licensing and developing the property of "Moebius" film into an online game. ΋АԎ̰Յ੡ࠇɣ൬ࢄeɺ༦c Εᅩݘd޻ਝʥˀ̯ɰ͓߯Ԏѧ ৻ɮАe᏷ଈᅕᆦרιΛ࠯ႇА గMoebiusཋᄧɾਿС൒ʥ඀ ೕԯ၉ɐ༝Ꮋၤؒਝ༝ᎻႇАʔ ̇൬Ϸਆদe

6. GDC are seeking opportunities for special effects The studio has been approached productions in live action films. by a Chinese producer for doing ϳτᗐྡྷؗ৽АཋᄧऋࢽႇАพ special effects for a live action TVذ᏷ଈᅕᆦ̳ ৻ɾਆዀe drama. Plans and budget have been provided to the producer. We expect to start the project in mid 2006 if fund is secured for this show. ႇАʔ̇ၤȹංɻਝႇАʔ̇΋ Аcݯྡྷؗ৽Аཋ഼டᙩჱႇА ऋࢽeɰΉ໮ɻਝႇАʔ̇ొԜ ི߮ʥད့eΣᏵ੡໮ඖ͌ɾ༅ ɀཌྷཌྷʒααכc̯ʔ̇ད߮ټ ɻ඀նႇА໮ඖ͌e

52 Global Digital Creations Holdings Limited COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

7. GDC is doing production for commercials, and The company did production for other special films. a few commercials in 2005 and ᏷ଈᅕᆦ̳ႇАਆพʥԯˢऋПཋᄧe will continue this business as well as expanded the market to customised special films, such as multi-screen films. ɀཌྷཌྷʄαႇАߗɳਆכʔ̯̇ พཋᄧcԎੀᘗᙩ໮೩พ৻c΃ ࣂᒷࢄऋПཋᄧ̟௿cΣΛྭཋ ᄧe

8. We are actively developing new characters for We have selected a range of merchandising and licensing. merchandizing items for the ሻਕʥઐᄤਿ market. When the promotion ofۂАਆذʔ̳̇ዶร௚АณɁ̯ Сᚬe the film release starts in April, we expect to have good reactions from licensing. Other characters have been designed and created for projects which are merchandizing oriented for China market. Аሻۂʔ̇ɰጂፕȹӡͶਆ̯ ਕe̯ʔ̇ད౨c໮ཋᄧɾઐᄤ ඀նࣂc͇ᇼਿСᚬɾʦ˂̒כ ɻਝ̟כ੒ፉᙺeɰݯڈᎶੀผ ௿ઐˮɾඖ͌உ߮ʥ௚АԯˢɁ eذ

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 53 COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

Business Objectives from 1 July 2005 to 31 Actual Business Progress December 2005 as stated in the Prospectus ྡྷ჌พ৻൬۹ ௃ೡֺ߸ͅɀཌྷཌྷʄαȼ˂ȹˀ঴ϭɀཌྷٖ׃໶Σ ཌྷʄαɊɀ˂ɍɊȹˀ˅ɾพ৻͌ᅟ

Digital content distribution 1. Further supply digital cinema equipment to During the year, Mukta Adlabs and exhibitions Adlabs. Digital Exhibition Limited (“Adlabs”) ᅕᆦʑࢀೕϷʥࢄ͐ ൬ȹүΉAdlabsԜᎶᅕᆦᄧ৑உௐe did not meet the target of installing 400 servers for the year ended 31 December 2005. Adlabs has temporary stopped the order of new servers until the upgrade of digital projectors from a single chip to 3-chip DLP projectors is complete. GDC Technology continues its discussion with Adlabs for the order of new servers but its is highly unlikely that will meet the target. However, GDC Technology’s expanded its market share in lndia by retrofitting a few cinemas in South lndia with GDC Technology’s digital servers. αʑcMukta Adlabs Digitalכ Exhibition LimitedAdlabs࿀ϭ ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹ ኂɾ͌רԎ̰༠ԷΪ໦400̎Љ רᅟeAdlabsɰᅗ৤ᑪສͲณЉ ዀҡณܮיϭੀ௰ౠːᅕᆦقኂc ዀѧιݯ˅eܮיݯɍౠːDLP ኂרGDC TechnologyᘗᙩగͲณЉ ɾ߯௰ၤAdlabs൬ϷਆদcЎ Adlabs༠Է͌ᅟɾ˿ॶֲรɩeಳ ϤcGDC Technologyΐઔ͂GDC ͿכኂੀϽרTechnologyɾᅕᆦЉ ஫ɾᅕࡼཋᄧ৑ᓺณc੣Ϥᒷڲ۹ Ϳ۹̟௿ɾЌτଅeכɣȿԯ

54 Global Digital Creations Holdings Limited COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

Digital content distribution 2. Sign up further digital cinemas in the PRC and rest The launch of further D-cinemas under and exhibitions of Asia, such as Singapore an Hong Kong, to reach the franchise model is currently delayed ᅕᆦʑࢀೕϷʥࢄ͐ total of around 250 and 120 resepectively. because it is lack of fund. At the end of ΕɻਝʥԓݘԯˢΔਂԝΣณ˱գʥࠗಋ൬ȹ 2005, China and Singapore have үၤᅕᆦᄧ৑͓߯΋޸cᐢᅕʗП޸ݯ250ංʥ retrofitted approximately 200 and 22 120ංe digital cinemas respectively. Many Asia markets are also inviting third-party to expand on their D-cinema franchise. One of our competitors-EVS spun-out XDC and raised €9 millions in Q4 2004 to deploy the European digital cinema network. Similar to GDC IPO plan, XDC aims to digitse 500 cinema screens over the next two years. At the same time, XDC plans to enter into Asia and America markets through its subsidiary XDC lnc. New player such as Christie/ AIX is also planning to work with local players to digitise cinema screens in Asia. ऋܘॠ˜cଊɰ֝ፖτᗐټ༅כͅ כஈ຤Ꮺᅡβઐˮԯˢᅕᆦᄧ৑e ɀཌྷཌྷʄαα֛cɻਝʥณ˱գʗ Пᓺณ޸200ʥ22ංᅕᆦᄧ৑eଠ Λԓݘ̟௿͛໶ᑼ଱ɍʿׅࢄԯᅕ ّجᆦᄧ৑ऋஈ຤Ꮺe᏷ଈᅕᆦᘏ ɀཌྷཌྷ̒α଱כɾȹEVS࿏ɎXDC տ۹ᘐ੡9,000,000ᅩʏc˞஫ອ̒ ᅩݘᅕᆦᄧ৑၉೼eၤ᏷ଈᅕᆦɾ ི߮ᗘЍcXDCིٖ߮׃ࠖωʔ඀ Ԟԭαੀ500ංᄧ৑Ⴚྭྡྷଊ̰כ ڃᅕᆦʝe΃ࣂcXDCི߮஦༦ԯ ᙔʔ̇XDC Inc.ׅࢄԓݘʥ޻ਝ̟ ௿eϊ̔cChristieŉAIX೩ณ̟௿ ਄ၤّི͛߮ၤΔʿ̟௿਄ၤّ΋ Аੀԓݘᄧ৑Ⴚྭᅕᆦʝe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 55 COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

3. Continue with research and development of the GDC Technology begins its R&D evolving digital cinema technology and programs to develop products that aim specification (including interactive digital cinema to meet DCI specifications published in and network-based entertainment system). July 2005. The DCI adopted MXF Ӡʥ඀ೕೕࢄɻؿᅕᆦᄧ৑ޫҌʥஃࣟ JPEG2000 Upgrade Kit is expected toޢᘗᙩ ʃ৽ᅕᆦᄧ৑ʥ˞၉೼ݯ̯ؿ࡯ᅥӡ଻ be available in Q2 2006. GDCܢ˳ Technology has also developed Network Operations Center (NOC) software for content delivery, management and remote monitoring. New networked Server — SDM4000 Server has been developed for new applications such as in-lobby displays and digital signage. These additional products shall play an important role in providing a total end-to-end solution for our customers in 2006 and beyond. GDC Technologyɰ඀նԯޢೕඖ ͌c˞඀ೕଲ΋ɀཌྷཌྷʄαȼ˂˰ eઔ͂MXFۂೕɾDCIஃࣟɾଐ ɀכJPEG2000ʠज़˳ɾDCIད౨ੀ ௿eϊ̔c̟יཌྷཌྷʒα଱ɀտҙ ʑכGDC Technology͛ɰ඀ೕˮ͂ ࢀ͚˟dဳଉʥႩೡဟઁɾ၉೼༜ ᏪɻʶNOCசͧeͲณடઅ၉೼ ኂɰ඀ೕרኂcЩSDM4000ЉרЉ ˮณ͂பcΣᜨʑᛷ͐ʥᅕᆦۧඨ ɀཌྷཌྷʒכੀగۂ׶e໮೩ᔾ̔ଐ ݯ۪ʸొԜኬ᛽ဲྦྷဲ໬܃˞αʥ Һʿ࣐ೕ౎ࠇɣА͂e

56 Global Digital Creations Holdings Limited COMPARISON OF BUSINESS OBJECTIVES WITH ACTUAL BUSINESS PROGRESS พ৻͌ᅟၤྡྷ჌พ৻൬۹ˈ༖

Business objectives from 1 July 2005 to 31 Actual business progress December 2005 as stated in the Prospectus ྡྷ჌พ৻൬۹ ௃ೡֺ߸ͅɀཌྷཌྷʄαȼ˂ȹˀ঴ϭɀཌྷཌྷٖ׃໶Σ ʄαɊɀ˂ɍɊȹˀ˅ɾพ৻͌ᅟ

Provision of CG training Continue to run the 6th CG training course in Shenzhen, 120 students and 44 students courses the PRC and CG training course in Shanghai, the PRC. attended the training courses in ొԜཋ຾྇ཫ਩ফᇾೡ ᘗᙩΕɻਝ૯Γ൬Ϸ଱ʒ౨ཋ຾྇ཫ਩ফᇾೡʥΕɻ Shenzhen and Shanghai respectively. ૯Γʥɐࣵంᚾ਩ফᇾೡؿነ́כ ਝɐࣵ൬Ϸཋ຾྇ཫ਩ফᇾೡe ʗПτ120Ɂʥ44Ɂe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 57 USE OF PROCEEDS FROM THE COMPANY’S INITIAL PUBLIC OFFERING ֺ੡ಁඖ͂பٖ׃ʔ̇ࠖωʔ඀̯

ɾٲɀཌྷཌྷ̒αɀ˂ɀɊʒˀೕכThe Directors had explained the reasons for the changes in the ໎ԑΕ̯ʔ̇ ɀཌྷཌྷ̒αɄ˂ɊȾˀೕכapplication of the net proceeds (the “IPO Proceeds”) raised from ʔЗɀ˂ʔЗʥ ˂ɾʔЗɻc໯߸ҝᛰ̯ʔ̇ΕɀཌྷཌྷɍαɄٲ the listing of the shares of the Company on GEM in August 2003 the “Listing”) and in the “Statement of business objectives” in an Ε௚พ׶ɐ̟ɐ̟˞ʔ඀ೕਕ̯ʔ̇ɾٖͫ) ֺ੡ಁඖ૱ᔾ͂பʥٖ׃announcement made by the Company dated 26 February 2004 (the ֺ੡ಁඖࠖωʔ඀ ڬ௚พ׶ɐ̟ஃܘFebruary Announcement”) and 19 August 2004 and the Directors พ৻͌ᅟஹ߸ɾࡈΐe໎ԑ“ would like to set out below the reasons, as required by the GEM ɾஃցΕɎʼ༗Ͷτᗐࡈΐe Listing Rules.

ʥټɾֺ੡ಁඖ૱ᔾκ৖τᗐЏٖ׃The net amount of the IPO Proceeds, after deduction of related ࠖωʔ඀ ௃ೡʥԯٖ׃כ޸༠53,300,000ಋʏe༗܃commission and expenses, amounted to approximately HK$53.3 ൒͂ ᘪۺֺ੡ಁඖɾٖ׃ɀ˂ʔЗʑɾࠖωʔ඀כ܃ million. A comparison of the proposed usage of IPO Proceeds made in the Prospectus and subsequently in the February Announcement ͂பၤ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅౨ංɾ against the actual usage for the period ended 31 December 2005 ྡྷ჌͂பˈ༖༗ͶΣɎi is set out as follows.

Amounts utilised up to 31 December Proposed Actual Proposed 2003 as stated usage amounts usage as in the as stated in the Adjusted utilised up to stated in the February February proposed 31 December Application of proceeds Prospectus Announcement Announcement usage 2005 Difference ɀ˂ʔЗכ ϭق ϭقֺ߸ ɀཌྷཌྷɍα ɀཌྷཌྷʄα ˂ɀ˂ Ɋɀכ ˂Ɋɀ ௃ೡʑ ɍɊȹˀ ʔЗ ɍɊȹˀٖ׃כ ֺ߸ɾ ɰ৽͂ ֺ߸ɾ ຤ሁኬ ɰ৽͂ɾ ᘪ͂ப ྡྷ჌ᅕᔾ ࢏ᔾۺ ᘪ͂பۺ ᘪ͂ப ɾᅕᔾۺ Ꮆֺ͂੡ಁඖ (Note 1) (Note 2) (Note 3) ഽ 3ڃ ഽ 2ڃ ഽ1ڃ (Approximate HK$ million) ޸ϛຒಋʏ

Strengthening management and ᄈੜဳଉඅ͢ʥ international marketing team ਝ჌̟௿ઐᄤඅ͢ 4.9 3.3 — 3.3 13.2 9.9 Developing digital cinema distribution ඀ೕᅕᆦᄧ৑ network ೕϷ၉೼ 27.7 3.1 13.8 16.9 20.5 3.6 Research and development of ޢӠʥ඀ೕᅕᆦ digital cinema technologies ᄧ৑Ҍ୺ 12.6 2.4 5.5 7.9 12.2 4.3 Production maintenance ႇАʻ౐ʥᐲ΋ˮ༅ and co-financing 5.6 20.9 1.2 22.1 71.6 49.5 11.9 15.0 3.1 — 3.1 2.5 ټWorking capital Ꮺ༜༅

Total ᐢ՗ 53.3 32.8 20.5 53.3 132.5 79.2

58 Global Digital Creations Holdings Limited USE OF PROCEEDS FROM THE COMPANY’S INITIAL PUBLIC OFFERING ֺ੡ಁඖ͂பٖ׃ʔ̇ࠖωʔ඀̯

ഽiڃ :Notes

˂ɀٲೕכᘪ͂பȽ࣓ኣۺɀ˂ʔЗֺ߸ɾכ .The proposed usage as stated in the February Announcement was 1 .1 ֺ੡ಁٖ׃based on the remaining portion of the IPO Proceeds available to ʔЗࣂc̯එ྆˿Ԛ͂ɾࠖωʔ඀ the Group (approximately HK$20.5 million) at the time of the ඖɾ௛቗஫ͫ޸20,500,000ಋʏ˞ѧι̯එ ˂ˀ౨঴ϭɀཌྷཌྷʄαɊɀٲmaking of the February Announcement to complete the business ྆Ϭɀ˂ʔЗೕ objectives of the Group from the date of the February ɍɊȹˀ˅౨ංɾพ৻͌ᅟϤᔤցe Announcement to 31 December 2005.

ϭɀقɀ˂ʔЗֺ߸כᘪ͂பȽ࣓ኣۺThe adjusted proposed usage is calculated based on the amounts 2. ຤ሁኬ .2 כutilised up to 31 December 2003 as stated in the February ཌྷཌྷɍαɊɀ˂ɍɊȹˀɰ৽͂ɾᅕᔾ˞ʥ כᘪ͂பϤ့߮͌ؿݯеͶۺAnnouncement and the proposed usage as stated in February ɀ˂ʔЗֺ߸ɾ ۺֺ੡ಁඖɾٖ׃cࠖωʔ඀܃ɀ˂ʔЗٲAnnouncement for the purpose of presenting the proposed usage ೕ of the IPO Proceeds upon publication of the February ᘪ͂பe Announcement.

ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀɰ৽͂ɾقThe difference between the actual amounts being utilised by the 3. ̯එ྆ .3 ˂ɀٲೕכֺ੡ಁඖٖ׃Group up to 31 December 2005 and the adjusted proposed usage ྡྷ჌ᅕᔾၤࠖωʔ඀ ᘪ͂பԭّɾ࢏ᔾeۺɾ຤ሁኬ܃of the IPO Proceeds upon publication of the February ʔЗ Announcement.

ֺ੡ಁඖΣɐʼֺ߸຤ሁٖ׃Reasons for the change of application of the IPO ࠖωʔ඀ ೕࢄᅕᆦᄧ৑ೕϷ၉೼ɾᅕᔾכProceeds (adjusted as mentioned above) in ኬᎶ͂ developing digital cinema distribution network ҝᛰɾࡈΐ ௃ೡ˰ೕ˞Ԟc໎ԑΐ̟௿ɐᅕᆦᄧ৑ٖ׃Since the publication of the Prospectus, the Directors experienced Ϭ੣ ௃ೡʑพٖ׃certain changes in the market conditions brought about by ޫҌ൬үϤ຤ዃȹԒҝᛰe໶Σ ٱtechnological advancement in the D-cinema marketplace. As stated ৻͌ᅟஹ߸ֺ߸c̯එ྆˞ऋஈ຤Ꮺᅡβc ʗکin the section headed “Statement of business objectives” in the ౨͌ᅟད့ΕɀཌྷཌྷʄαɊɀ˂ɍɊȹˀɾ Prospectus, the Group had, under the franchise business model, ПΕɻਝɣ஺ၤ޸350ࡼᅕᆦᄧ৑ʥΕԓݘԯˢ originally targeted the signing up to around 350 digital cinemas in Δਂၤ޸150ࡼᅕᆦᄧ৑ᖋ߯΋޸c˞ԜᎶᅕᆦ உௐe͂Аೕࢄᅕᆦᄧ৑ೕϷ၉೼ɾיthe PRC and around 150 in the rest of Asia for the supply of digital ҙᄧʥΑ projection and playback equipment by the end of 31 December ಁඖҝᛰȽΐ̯එ྆ઐፖΕɻਝʥԓݘԯˢΔਂ ɎʼeכThe change in the amount spent on developing digital cinema ઐϷऋஈ຤Ꮺพ৻ᅡβcࡈΐ༗ .2005 distribution network was due to the Group’s delay in the implementation of the franchise business model for D-cinemas in the PRC and the rest of Asia for the reasons set forth below.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 59 USE OF PROCEEDS FROM THE COMPANY’S INITIAL PUBLIC OFFERING ֺ੡ಁඖ͂பٖ׃ʔ̇ࠖωʔ඀̯

The franchise model for D-cinema was based on the use of ᅕᆦᄧ৑ɾऋஈ຤Ꮺพ৻ᅡβؿਥᓣܰ˞Digital projectors which carry the technical standard approved by the Cinema Initiative, LLCDCI͓߯ʥͅ୩Ԉݠཋ ዀؿԚ͂ϤܮיֺႇιڬHollywood major film distributors, represented by Digital Cinema ᄧೕϷਆႏ˿ɾҌ୺ๅ Initiative, LLC (“DCI”). The digital distribution of major films, however, ԞeЎܰc˚߬ཋᄧɾᅕᆦೕϷcԎӀτˈད౨ did not accelerate as anticipated but instead, DCI decided in the ˱҄cʦϤcDCIΕɀཌྷཌྷɍα଱ɍտ۹Һցొʠ ዀ໬ཫ۹ܮthird quarter of 2003, to raise the bar of D-cinema standard to a ᅕᆦᄧ৑ɾૈ॔ᅟๅϭ2K໬ཫ۹ҙ Εɀཌྷۂresolution of 2K (which requires a projector at the resolution of ඘τ1,080 x 2,048ϷcᐣԚ̯එ྆ɾଐ x 2,048 lines). Although the Group’s product has already been ཌྷɍα଱ɍտ۹ɰొʠϭ2K໬ཫ۹ɾᅟๅcಳ 1,080 upgraded to the 2K resolution standard in the third quarter of 2003, Ϥc2Kᅕᆦ዗ͮ୮ଉኂᅕᆦ዗ͮ୮ଉኂ ৻ӡרÐDSRTMۂዀϊȽ̯එ྆ଐܮprojector manufacturers of 2K digital light processor (“DLP”) CinemaTMҙ CinemaTM projectors (which is a component in the Group’s product, ଻ୂͧɾҙܮዀႇ஥ਆc̋ॶొԜʭ൴༠ϭ໬ ዀeܮDSRTM servers), could only produce small quantities of the 2K DLP ཫ۹ᅟๅɾ2Kᅕᆦ዗ͮ୮ଉኂCinemaTMҙ CinemaTM projectors with resolution standard.

ዀcඑɻੀܮႇι໮೩2KҙۿThe Group had consequently concentrated its efforts in the sales ̯එ྆ΐϊɺʹ೩ ሻ֡Ԏɺ჏߬ঢ়໬ཫ۹ᅟๅؿͿ۹̟௿ʥͲۂof its products to India and the rest of the world , where does not ଐ ௃ೡพ৻ٖ͌׃ɐ߸ଉͅcכrequire such high resolution standard, rather than waiting for the ଈԯ቗Δਂeਥ 2K projectors to become available. For the above reasons, the ᅟஹ߸ֺ༗͌ᅟɺ੡ɺҡҝe targets as stated in the sector headed “Statement of business objectives” of the Prospectus had to be altered.

ֺ੡ಁඖΣɐʼֺ߸຤ሁٖ׃Reasons for the change of application of the IPO ࠖωʔ඀ ႇАʻ౐ʥᐲ΋ˮ༅ɾᅕᔾҝכProceeds (adjusted as mentioned above) in ኬᎶ͂ production maintenance and co-financing ᛰɾࡈΐ ౨ංc໎ԑད౨ΕɀཌྷཌྷɍαɊٖ׃At the time of the IPO, the Directors expected that pre-sale contracts Εࠖωʔ඀ ˿cʔ̇ႇАɾ໮ᄧːɾೕϷᚬکfor certain countries/territories in respect of the distribution rights ɀ˂ɍɊȹˀ of the Film would have been concluded and completed by 31 ΕܺਝࡼþΔਂѧ೶ʥѧιདሻcԎੀདሻֺ੡ e͂АႇАʻ౐ʥᐲ΋ˮ༅ɾټDecember 2003, bringing pre-sale proceeds to finance the ಁඖА́ଐɾ༅ ፖѧι໮ᄧːeΐϊc໮ᄧ֝כproduction. The increase in the spending on production ಁᔾᄈ˱cܰͅ ඘֝౨cᘗ˞ᄧᚊԷ໮ᄧːɾདܮmaintenance and co-financing was due to the delay in the ːɾۧඨʥ໰ ɀཌྷཌྷ̒αɄ˂ɊȾˀೕכcompletion of the Film. As a result, the marketing and screening of ሻࣂංe໶Σ̯ʔ̇ ɾʔЗֺ߸c໎ԑɰంй໮ᄧːɾֺτႇАɮٲ the Film had to be delayed which had consequently affected the ޻ਝ൬Ϸכtiming for the pre-sale of the Film. As set out in the announcement АɰѧιcϤ໮ᄧːɾ਽එβۧඨɰ of the Company dated 19 August 2004, the Directors reported that ੡ΣˌΣ୫e all the production work of the Film had been completed, and intensive marketing of the Film was taking place in the US.

60 Global Digital Creations Holdings Limited USE OF PROCEEDS FROM THE COMPANY’S INITIAL PUBLIC OFFERING ֺ੡ಁඖ͂பٖ׃ʔ̇ࠖωʔ඀̯

Εɀཌྷཌྷ̒α̱དਕ໮ᄧː̰τ੓Ԟᕡɣνכͅ Since the pre-sale revenue of the Film did not materialise in late ֺ੡ಁඖɾᔾ̔ଊٖ׃the Company had utilised additional cash resources from the ऩc̯ʔ̇৽͂ࠖωʔ඀ ,2004 ˳༅฻ࡈց͂Аᅆ༅དਕ໮ᄧː͂Аԯɻټ IPO Proceeds (which would have been substantially financed from ѧι໮ᄧːeכcЎɺࠉܢ .the pre-sale proceeds of the Film) to, inter alia, complete the Film

ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀɰ৽͂ق Financing of the difference of the actual amounts ޚֺ੡ಁඖٖ׃utilised up to 31 December 2005 and the IPO ɾྡྷ჌ᅕᔾၤࠖωʔ඀ ᔾɾጪ༅ټProceeds ࢏ ֺ੡ಁඖ૱ᔾκٖ׃As mentioned above, the net amount of the IPO Proceeds, after ໶Σɐʼֺ߸cࠖωʔ඀ ޸༠53,300,000ಋʏeϊ܃ʥ൒͂ټdeduction of related commission and expenses, amounted to ৖τᗐЏ ɾٲɀཌྷཌྷ̒αɄ˂ɊȾˀೕכapproximately HK$53.3 million. Further, as disclosed in the ̔c໶Σ̯ʔ̇ ֺ੡ಁඖɰͲᅕ৽ٖ׃announcement of the Company dated 19 August 2004, the IPO ʔЗʑֺׄᚉcࠖωʔ඀ ɀཌྷཌྷɍαɄ˂ɐ̟঴ϭɀכProceeds have been fully utilised. The Group utilised a total funding ͂e̯ͅʔٖ̇ͫ of approximately HK$132.5 million from the period of the listing of ཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅౨ංc̯එ྆ɰ৽͂ ΋ͳ޸ݯ132,500,000ಋʏc ΐϊ൚ˮࠖωټthe shares of the Company in August 2003 up to 31 December 2005, ɾ༅ ᔾ޸ټᘪ͂பɾۺֺ੡ಁඖ຤ሁኬٖ׃therefore exceeded the adjusted proposed usage of IPO Proceeds ʔ඀ by approximately HK$79.2 million. The Group financed such 79,200,000ಋʏe̯එ྆˞ԯɻ˳ܢi(i)৉ਕ̯ ɀཌྷཌྷ̒αʄ˂ʄˀೕכadditional applications by, among others, (i) the placing of shares ʔٖ̇ͫ໶Σ̯ʔ̇ ᐲ࢐˚࢐کɾʔЗʑֺׄᚉh(ii)ષցԄͱ́ٲ of the Company as disclosed in the announcement of the Company ׋൘ಁhʥ(iii)̯ʔאਨϷ໎ԑֺొԜɾಲڈdated 5 May 2004; (ii) the unsecured loans provided by Mr. Anthony ࠹ ʿ̒ٽᙔʔ̇ࠖڃʿɾͲ༅̒ٽFrancis Neoh (former Joint chairman and former non-executive ̇ɾ˚ٖ߬׭ࠖ ׋൘ಁొԜτᗐᔾ̔אDirector); and (iii) the unsecured loans provided by SCG Finance ল৻τࠉʔֺ̇ొԜɾಲ eټCorporation Limited, a wholly-owned subsidiary of the major Ꮆ͂ɾ༅ shareholder of the Company, SCG.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 61 REPORT OF THE DIRECTORS ໎ԑผంй

ಳеం̯ʔ̇࿀ϭɀཌྷཌྷʄαɊɀ˂ɍ؀The Directors have pleasure in presenting their annual report and ໎ԑผ eٲthe audited financial statements of the Company for the year ended Ɋȹˀ˅α۹ɾαంʥ຤ᄗ࣏ল৻ం 31 December 2005.

Principal Activities ˚߬พ৻ ᙔʔ̇ɾڃThe Company acts as an investment holding company. The activities ̯ʔ̇ݯȹංҙ༅ઁٖʔ̇cԯ˚߬ ഽ41eڃٲল৻ంכof its principal subsidiaries are set out in note 41 to the financial พ৻༗ statements.

Results พᐜ The results of the Group for the year ended 31 December 2005 are ̯එ྆࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹ɾ ʑeٲ଱81ࠒɾ၃΋ฌऩכset out in the consolidated income statement on page 81. พᐜ༗

พdᄥָʥஉௐذ Property, Plant and Equipment พdᄥָʥஉௐɾᛰ৽ذα۹ʑc̯එ྆ɾ̯כ Details of movements in the Group’s property, plant and equipment ഽ14eڃٲল৻ంכduring the year are set out in note 14 to the financial statements. ໯ੱ༗

Summary Financial Information ল৻༅ࢿล߬ ɾพᐜʥ༅ٲα۹พɰೕܧʄ࠯লٶA summary of the published results and assets and liabilities of the ̯එ྆గ௖ ԎɰٲGroup for the last five financial years, as extracted from the audited ଐʥ߲ඦɾล߬࿂፣ϬΈ຤ᄗ࣏ল৻ం ଱170ࠒe̯ล߬Ԏɺ࿚ιכfinancial statements is set out on page 170. This summary does not Аሬ๫ࠇณʗᗘ༗ ɾȹ஫ͫeٲform part of the audited financial statements. ຤ᄗ࣏ল৻ం

̯ٖ Share Capital α۹ʑc̯ʔ̇ɾٖ̯ɾᛰ৽໯ੱȽʗП༗̯כ Details of movements during the year in the share capital of the ʑeٲഽ33ʥ၃΋ᚬऩᛰ৽ڃٲল৻ంכ Company are set out in note 33 to the financial statements and in the consolidated statement of changes in equity.

Distributable Reserves ˿Ԝʗݢ᎝ௐ ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀc࣓ኣϛᄮ༠ȹȾכ At 31 December 2005, the Company did not have reserves available for distribution, calculated in accordance with the provisions of The Ʉȹαʔ̇ؒ຤࠳߯ɾૈʼஃց့߮c̯ʔ̇ Companies Act 1981 of Bermuda (as amended). Ԏಲ˿Ԝʗݢ᎝ௐe

Major Customers and Suppliers ˚۪߬ʸʥԜᎶਆ α۹ʑc̯එ྆ɾʄɣԜᎶਆЌԯႇАι̯̯כ During the year, the five largest suppliers of the Group accounted for about 12% of its production costs and the largest supplier ޸ݯ12%cϤ௖ɣԜᎶਆЌԯႇАᐢι̯޸ݯ accounted for about 5% of the total production costs. 5%e

62 Global Digital Creations Holdings Limited REPORT OF THE DIRECTORS ໎ԑผంй

α۹ʑc̯එ྆ɾʄɣ۪ʸЌ̯එ྆νऩ޸̯כ During the year, the five largest customers of the Group accounted for about 44% of the of the Group and the largest customer ݯ44%cϤ௖ɣ۪ʸЌԯνऩ޸ݯ12%e accounted for about 12% of the revenue.

None of the Directors, their associates, or any shareholder of the ̯ʔ̇ɾ໎ԑd֤೩ɾᐲᖎɁɡֶͨЄٖ׭గ cݯኟτ̯ʔ̇ɰೕϷٖ̯൚༦5%ّكCompany (which to the knowledge of the Directors own more than ໎ԑֺ එ྆ɾͨЄʄɣԜᎶਆʥ۪ʸɻኟτ̯ͨכof the Company’s issued share capital) has any interest in any ลಲ 5% of the Group’s five largest suppliers and customers. Єᚬऩe

Directors ໎ԑ ϭ̯ంйˀ౨ݯ˅ɾ໎ԑقα۹ʑʥ̯כThe Directors of the Company during the year and up to the date ̯ʔ̇ of this report were: ΣɎi

Executive directors: ਨϷ໎ԑi ɀཌྷཌྷʄαɀ˂Ɋכ Mr. Chen Zheng (appointed on 15 February 2005 ஹ֢ͱ́ ɀཌྷכᐢസ ʄˀᏵկͨcܧChief Executive Officer) and re-designated as Chief Ϸ) Executive Officer on 16 February ཌྷʒαɀ˂Ɋʒˀᔝ 2006) ͨϷܧᐢസ ɀཌྷཌྷʒαɀ˂ʒכ ਝ̡ͱ́ټ (Mr. Jin Guo Ping (appointed on 6 February 2006 (Vice President) ৹ᐢസ ˀᏵկͨ ɀཌྷཌྷʒαɀ˂ʒכ Dr. Catherine Xu Qing (appointed on 6 February 2006) ࢘૜௟ɡ (Vice President) ৹ᐢസ ˀᏵկͨ ɀཌྷཌྷʄαɄ˂ɀכ Mr. Raymond Dennis Neoh (resigned on 29 August 2005) ષցඐͱ́ (Vice Chairman) ৹˚࢐ ɊȾˀᖽͨ

ਨϷ໎ԑiڈ :Non-executive directors ɀཌྷཌྷʄαɀ˂Ɋכ Mr. Cao Zhong (appointed on 16 February 2005, ઴֦ͱ́ ɀཌྷཌྷכChairman) r e-designated from non- ˚࢐ ʒˀᏵկͨc) ڈexecutive director to executive ʄαɄ˂ɀɊȾˀͅ director on 29 August 2005 and ਨϷ໎ԑᔝͨਨϷ໎ ˂ɀཌྷཌྷʒαɀכre-designated from executive ԑc director to non-executive director ʒˀͅਨϷ໎ԑᔝͨ˚ ਨϷ໎ԑڈand as Chairman on 6 February 2006) ࢐࠹ Dr. David Deng Wei ሳ৩௟ɡ (Vice Chairman) ৹˚࢐ ˂ɀཌྷཌྷʄαɊɀכ Mr. Leung Shun Sang, Tony (appointed on 1 December 2005) ષ඗́ͱ́ ȹˀᏵկͨ ˂ɀཌྷཌྷʄαɊɀכ Mr. Anthony Francis Neoh (resigned on 30 December 2005) ષցԄͱ́ (Joint Chairman) ᐲ࢐˚࢐ ɍɊˀᖽͨ ɀཌྷཌྷʄαɀ˂Ɋכ Mr. Stephen Scharf (resigned on 16 February 2005) Stephen Scharfͱ́ ʒˀᖽͨ

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 63 REPORT OF THE DIRECTORS ໎ԑผంй

ਨϷ໎ԑiڈIndependent non-executive directors: ዟ͓ Mr. Gordon Kwong Che Keung ㅽҁੜͱ́ ɀཌྷཌྷʄαʄ˂ɍכ Mr. Bu Fan Xiao (appointed on 30 May 2005) ɋɓѣͱ́ ɊˀᏵկͨ ɀཌྷཌྷʒαɀ˂ȹכ Mr. Stephen Hui Hung (appointed on 1 February 2006) ஈݙͱ́ ˀᏵկͨ ɀཌྷཌྷʄαʄ˂ɍכ Mr. Paul Kwan Yuen Chiu (retired on 30 May 2005) ᗐႩ্ͱ́ Ɋˀঽͨ ɀཌྷཌྷʒαɀ˂ȹכ Professor Japhet Sebastian Law (resigned on 1 February 2006) ᖓʼ❔ઠ઒ ˀᖽͨ

Alternate Director: ౧ͨ໎ԑi Mr. Zhang Dong Sheng ਜ਼׭́ͱ́ (Alternative to Dr. David Deng Wei) bሳ৩௟ɡɾ౧ͨ໎ԑ

଱86ʥ87ૈcɋɓѣڬPursuant to Clauses 86 and 87 of the Company’s Bye-Laws, Messrs. ࣓ኣ̯ʔ̇ɾʔ̇௃ೡୀ ਝ̡ͱ́d࢘ټBu Fan Xiao, Leung Shun Sang, Tony, Stephen Hui Hung, Jin Guo ͱ́dષ඗́ͱ́dஈݙͱ́d ʔ̇ɾᎶ։ٖ׭൪αɣ̯כPing, Dr. Catherine Xu Qing and Dr. David Deng Wei will retire at the ૜௟ɡʥሳ৩௟ɡੀ Company’s forthcoming Annual General Meeting (“AGM”) and, ผɐٖ׭൪αɣผঽͨc੹֤೩΋༅ࣟԎᗙ being eligible, offer themselves for re-election. ෮ᐶፕடͨe

ॠϤկيα۹ʑc৖ݯි໤໎ԑผᓻϽᐽࣂ̯כ In addition to the Directors appointed to fill casual vacancies on the Board during the year, one third of the Directors shall retire by ͨɾ໎ԑ̔cɍʗɾȹ໎ԑ඘ረࠤйঽc੹΋༅ rotation and shall, if eligible, offer themselves for re-election. ࣟԎᗙ෮ᐶፕடͨe

Ꮆ։ٖ׭൪αɣผɐᐶፕடͨɾ໎ԑลಲၤכNone of the Directors being proposed for re-election at the Ꮓ ȹαʑୄ˅Ϥˇ඘Аˮכforthcoming AGM has a service contract which is not terminatable ̯ʔ͓̯̇߯එ྆ɺ੡ ৻΋޸eרby the Group within one year without payment of compensation, ላ᎛ؒցላ᎛৖̔ɾͨЄ other than statutory compensation.

ၤਨϷ໎ԑܘਨϷ໎ԑя඘ڈਨϷ໎ԑʥዟ͓ڈ The non-executive Directors and independent non-executive Directors are subjected to retirement by rotation in the same ޚ΃ɾʿβረࠤйঽe manner as the executive Directors.

64 Global Digital Creations Holdings Limited REPORT OF THE DIRECTORS ໎ԑผంй

ᗐٖͫޚdٖͫכɁࡗܧDirectors’ and Chief Executive’s Interests and Short ໎ԑʥ˚߬Ϸ Positions in Shares, Underlying Shares or ֶඦԴɻɾᚬऩʥ૗࠸ Debentures ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀc໎ԑʥ֤೩ɾᐲכ As at 31 December 2005, the interests and short positions of the ᐲؒ྆ցຮӮᖬԴޚʔֶ̇ԯͨЄ̯כDirectors and their associates in the shares, underlying shares and ᖎɁɡ debentures of the Company or any of its associated corporations ʥ౨ஒૈԝ଱571௃ᖬԴʥ౨ஒૈԝ଱Ɋ ᗐٖͫʥඦԴɻኟτ࣓ኣᖬԴޚas defined in Part XV of the Securities and Futures Ordinance (Cap ʄ஫ɾٖͫd) SFO”) as recorded in the register maintained under Section ʥ౨ஒૈԝ଱Ɋʄ஫଱352ૈΦສɾ೔ত˫ֺত“) (571 ֺτࠉʔמof Part XV of the SFO or as otherwise notified to the Company ፣ɾᚬऩʥ૗࠸cֶ࣓ኣࠗಋᐲ΋͚ 352 ڬand The Stock Exchange of Hong Kong Limited (the “Stock ̇ᐲֺ͚௚พ׶௚พ׶ᖬԴɐ̟ஃ ଱5.46ૈֺஃցɾ໎ԑൕሒڬExchange”) pursuant to the required standard of dealings by ௚พ׶ɐ̟ஃ ผ̯ʔ̇ʥᐲֺ͚ɾᚬऩʥ૗࠸كϤ඘̊ϷڬDirectors as referred to Rule 5.46 of the Rules Governing the Listing ๅ of Securities on GEM (the “GEM Listing Rule”), were as follows: ΣɎi

ʿ̒ٽᐲؒ྆ࠖޚMr. Leung Shun Sang, Tony was personally interested in 8,278,000 ષ඗́ͱ́࠯Ɂኟτ̯ʔ̇ɾ shares and 679 share options of Shougang Concord Grand (Group) එ྆τࠉʔ̇ɾ8,278,000ٖٖͫʥ679ͫᑪٖ Limited, an associated corporation of the Company. ᚬe

ɀཌྷཌྷʄαɊɀ˂ɍɊȹכSave as disclosed above and the options holdings under section ৖ɐʼֺׄᚉّ̔c ʔ̇ʥ̯כɁࡗลಲܧheaded “Share Options”, as at 31 December 2005, none of the ˀc̯ʔ̇໎ԑʥ˚߬Ϸ ᖬԴʥ౨ஒૈԝ଱Ɋʄ஫ɾ૪ຮܘᐲؒ྆ޚDirectors and the chief executive of the Company nor their ԯ ࣓ኣᖬԴכᗐٖͫʥඦԴɻኟτ೔তޚassociates had any interests and short positions in the shares, ɾٖͫd underlying shares and debentures of the Company and its ʥ౨ஒૈԝ଱352ૈɾஃց඘ௐΦɾ೔ত˫ʑɾ ଱5.46ڬassociated corporations (within the meaning of Part XV of the SFO) ͨЄᚬऩʥ૗࠸cֶ࣓ኣ௚พ׶ɐ̟ஃ ผ̯ʔ̇ʥᐲֺ͚ɾͨЄᚬऩʥ૗كas recorded in the register required to be kept under Section 352 ૈ඘̊Ϸ of the SFO or as otherwise notified to the Company and the Stock ࠸e Exchange pursuant to Rules 5.46 of the GEM Listing Rules.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 65 REPORT OF THE DIRECTORS ໎ԑผంй

Share Options ᑪٖᚬ SOTAS Option SOTASᑪٖᚬ ɀཌྷཌྷɍαʒ˂ʄˀc̯ʔ̇ΉSotasכ On 5 June 2003, the Company granted a share option to Sotas ߜᙔ୮ɤະࢌഽ˫ι͓ɾτࠉʔכLimited, a company incorporated in the BVI with limited liability Limitedcȹං and wholly-owned by Morningside Cyber Ventures Holdings ̇ʥͅMorningside Cyber Ventures Holdings Limited, which is in turn a wholly-owned subsidiary of Verrall LimitedͲ༅ኟτcϤMorningside Cyber Ventures Verrall Limited˞ஹᖭᄪ٧ɤͅڬLimited in its capacity as trustee of a family trust established by Holdings Limited ᙔʔڃপՇপɁӸͫͲ༅ኟτɾڌɾࡼપ͓ۺMrs. Chan Tan Ching Fen, who was taken to be interested in the ɡ cஹᖭᄪ٧ɤɡА܃shares disclosed herein in her capacity as founder of the trust (as ̇cϤϬٖͫΕ௚พ׶ɐ̟ পɾ௚ፒɁցຮӮᖬԴʥ౨ஒૈԝȽڌdefined in the SFO) referred to above upon the listing of the shares ݯɐ߸ on GEM, which entitles Sotas Limited to acquire 8,331,615 shares ୽๫Аኟτ̯ʼֺׄᚉɾٖͫɾᚬऩ઒ˮᑪٖ ̒˂ɀཌྷཌྷɍαɄכof the Company within 36 months from 4 August 2003, the date of ᚬc˞˥Sotas Limitedτᚬ listing of the shares, at an aggregate exercise price of US$600,000. ˀϬٖͫɐ̟ˀ౨঴߮36࠯˂ʑc˞ᐢϷԚძ 600,000޻ʏ੣̯ʔ̇ᑪൕ8,331,615ٖʔٖ̇ͫe

ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀc઒ˮʀSotasכ As at 31 December 2005, the share option to Sotas Limited had been cancelled. Limitedɾᑪٖᚬ຤ɰഽሻe

66 Global Digital Creations Holdings Limited REPORT OF THE DIRECTORS ໎ԑผంй

Share Option Scheme ᑪٖᚬི߮ ɀཌྷཌྷɍαȼ˂ɊɄˀᐾϷɾٖ׭כThe Company by shareholders’ resolution passed at its Special ̯ʔ̇ɰΕ General Meeting held on 18 July 2003, has adopted a share option ऋПɣผɐ஝༦ٖ׭Һᘪ࣐cઔढ़ȹඖᑪٖᚬ߮ ˿scheme (“Scheme”). The principal purpose of the Scheme is to ི໮ི߮e໮ི߮ɾ˚߬͌ؿݯᜑ̯ʔ̇ enable the Company to grant options to eligible participants as Ή΋༅ࣟ਄ၤّ઒ˮᑪٖᚬcАݯ֤೩ྦྷ̯එ྆ כincentives or rewards for their contributions to the Group. Details Аˮ঳ᘆɾᆉ᎞ʥΑంeτᗐ໮ི߮ɾ໯ੱ༗ ഽ34eڃٲof the Scheme are set out in note 34 to the financial statements. ল৻ం

α۹ʑc̯ʔ̇ᑪٖᚬɾᛰ৽୽ᚉΣɎi̯כ The following table discloses movements in the Company’s share options during the year:

Number of share options ᑪٖᚬᅕ͌ Balance Cancelled/ Balance as at Granted Exercised Lapsed as at Exercise 1 January during during during 31 December Name of director Date of grant price 2005 the year the year the year 2005 ɀཌྷཌྷʄαכ ˂ɀཌྷཌྷʄα αʑഽሻ Ɋɀכ ໎ԑշΊ ઒ˮˀ౨ ϷԚძ ȹ˂ȹˀ೶቗ αʑ઒ˮ αʑϷԚ ֶАᄠ ɍɊȹˀ೶቗

Dr David Deng Wei 21.6.2004 0.44 8,000,000 — — 8,000,000 — ሳ৩௟ɡ

Mr. Gordon Kwong Che Keung 21.6.2004 0.44 2,100,000 — — 2,100,000 — ㅽҁੜͱ́

Professor Japhet Sebastian Law 21.6.2004 0.44 2,100,000 — — 2,100,000 — ᖓʼ❔ઠ઒ (resigned on 1 February 2006) ɀཌྷཌྷʒαɀ˂ȹˀᖽͨכ

Mr. Stephen Scharf (resigned on 16 February 2005) — ɀཌྷཌྷʄαɀ˂Ɋʒˀᖽͨ 21.6.2004 0.44 2,100,000 — — 2,100,000כ

Total ᐢᅕ 14,300,000 — — 14,300,000 —

˂ഽi ͅɀཌྷཌྷ̒αʒ˂ɀɊȹˀϭɀཌྷȹɍαȼڃ Note: The 14,300,000 share options could be exercised at any time during the period from 21 June 2004 to 17 July 2013. As at 31 December Ɋȼˀ౨ංʑcτ14,300,000ͫᑪٖᚬ˿˞Ϸ ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀc໮೩ɰ຤כall of them had been cancelled. Ԛe ,2005 Ͳᅕഽሻe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 67 REPORT OF THE DIRECTORS ໎ԑผంй

Interests Discloseable under the SFO and ࣓ኣᖬԴʥ౨ஒૈԝ඘ʀׄᚉɾᚬऩʥ Substantial Shareholders ˚ٖ߬׭ ੪cكɀཌྷཌྷʄαɊɀ˂ɍɊȹˀcኣ໎ԑֺכ As at 31 December 2005, so far as is known to the Directors, the Ɂࡗܧʔ̇ɾ໎ԑֶ˚߬Ϸ̯ڈfollowing, not being a Director or chief executive of the Company, ɎͶ˚ٖ߬׭ have an interest or short position in the shares or underlying shares ኟτ࣓ኣᖬԴʥ౨ஒૈԝ଱Ɋʄ஫଱2ʥ3ʗ஫ɾ ᗐٖͫɾᚬऩޚof the Company which would fall to be disclosed to the Company ૈʼϤ඘Ή̯ʔ̇ׄᚉɾֶٖͫ under the provision of Division 2 and 3 of Part XV of the SFO: ֶ૗࠸i

ᗐֺٖࣹͫʥɾΡ࠸iޚLong positions in shares and in equity derivatives in, or in respect ٖͫʥٖ̯ߪ́ɮԮֶ of, underlying shares of the Company:

Approximate percentage of number of Number of shares to total Name shares Capacity issued shares ˈΊီ ٖͫᅕ͌ Ӹͫ ᚬऩล޸ϛʗ

Shougang Holding (Hong Kong) 658,466,023 Interest in controlled 82.22% Limited corporation (note 1) ഽ1ڃࠖ፡ઁٖࠗಋτࠉʔ̇ ՇઁԹʔ̇ᚬऩ Shougang Concord Grand 658,466,023 Interest in controlled 82.22% (Group) Limited corporation (note 1) ഽ1ڃʿඑ྆τࠉʔ̇ ՇઁԹʔ̇ᚬऩ̒ٽࠖ Upper Nice Assets Ltd. 658,466,023 Beneficial interest (note 1) 82.22% ഽ1ڃऩᚬऩྡྷ Mr. Li Baoku 58,000,000 Beneficial interest (note 2) 7.24% ഽ2ڃңᗸ࢒ͱ́ ྡྷऩᚬऩ Sotas Limited 55,544,102 Beneficial interest (note 3) 6.94% ഽ3ڃऩᚬऩྡྷ Morningside CyberVentures 55,544,102 Interest in a controlled 6.94% Holdings Limited corporation (note 3) ഽ3ڃՇઁԹʔ̇ᚬऩ Biswick Holdings Limited 55,544,102 Interest in a controlled 6.94% corporation ՇઁԹʔ̇ᚬऩ Verrall Limited 55,544,102 Interest in a controlled 6.94% corporation (note 3) ഽ3ڃՇઁԹʔ̇ᚬऩ Verrall Enterprises Holdings Limited 55,544,102 trustee 6.94% ઒পɁ Mrs. Chan Tan Ching Fen 55,544,102 Founder of a trust (note 3) 6.94% ഽ3ڃপɾ௚ፒɁڌ ஹᖭᄪ٧ɤɡ

68 Global Digital Creations Holdings Limited REPORT OF THE DIRECTORS ໎ԑผంй

ഽiڃ :Notes

ʿඑ྆̒ٽUpper Nice Assets Ltd. is an indirectly wholly-owned subsidiary of 1. Upper Nice Assets Ltd.Ƚȹࡼࠖͅ .1 ᙔʔڃʿංઅͲ༅ኟτؿ̒ٽShougang Concord Grand (Group) Limited (“SCG”) which is τࠉʔ̇ࠖ ϛᄮ༠ഽ˫ι͓ؿȹࡼᏵᑥכʿȽ̒ٽincorporated in Bermuda as an exempted company with limited ̇cࠖ ᐲֺ͚˚׶ɐ̟eכliability with its securities listed on the Main Board of the Stock Лτࠉ߲ඦʔ̇cԯᖬ㜝 ʿɰ༗Ƀ࣓ኣᖬԴʥ౨ஒૈԝ଱336ૈ̒ٽࠖܘ Exchange and is regarded to be held as to approximately 41% by Shougang Holding (Hong Kong) Limited as recorded under the ֺΦສɾ˚ٖ߬׭ٖͫᚬऩʥ૗࠸೔ত˫ɾ޵ τ޸ܛregister SCG kept under Section 336 of the SFO. The interests held ፣c୽഼ݯࠖͅ፡ઁٖࠗಋτࠉʔ̇ by Upper Nice Assets Ltd. are included in the interests held by both 41%eͅUpper Nice Assets Limitedܛτɾᚬऩ ʿʥࠖ፡ઁٖࠗಋτࠉʔ̇̒ٽΕࠖܢ˳of SCG and Shougang Holding (Hong Kong) Limited. Ƚ τɾᚬऩɾɻeܛԭّ

̒ٽUpper Nice Assets Ltd. (as the grantor) and SCG (as the guarantor) Upper Nice Assets Ltd.Аݯғ઒Ɂʥࠖ ౨ᚬցຮӮ̯ʔ̇ၤ؍Ɂ઒ˮႏړgranted the Put Options (as defined in the joint announcement of ʿАݯኪ ʿˀ౨ݯɀཌྷཌྷʄαɄ˂ɀɊʄˀɾᐲ̒ٽthe Company and Shougang dated 25 August 2005) and whereby ࠖ Upper Nice Assets Ltd. is obliged to purchase 58,000,000 shares of ΋ʔЗcኣϊcUpper Nice Assets Ltd.τஐͨ ϷԚძҰٖ0.22ಋʏcᑪɃ̯ʔ̇58,000,000ܘ the Company, representing approximately 7.24% issued share כʔ̇ɰೕϷٖ̯7.24%e̯כ๫ޚcapital of the Company at the exercise price of HK$0.22 per share. ٖٖͫc޸ On 5 November 2005, the 58,000,000 Options Shares have been ɀཌྷཌྷʄαɊȹ˂ʄˀc໮58,000,000ٖ౨ᚬٖ transferred to Mr. Li Baoku at a price of HK$0.20 per Option Share ͫɰ຤ᔝᜑʀңᗸ࢒ͱ́cАძҰٖ౨ᚬٖͫ ౨ᚬ؍and the Put Option relating to such Option Shares have also been 0.20ಋʏeϤၤ໮೩౨ᚬٖͫτᗐؿႏ assigned to Mr. Li Baoku. ͛΃ࣂᔝᜑ೽ңᗸ࢒ͱ́e

Mr. Li Baoku beneficially owns 58,000,000 shares of the Company. 2. ңᗸ࢒ͱ́ྡྷऩኟτ̯ʔ̇58,000,000ٖٖͫe .2 ϷԚძҰܘ౨ᚬcңᗸ࢒ͱ́τᚬ؍In the event that exercises the Put Option, he will be entitled to ࠱ϷԚႏ ૜ԯֺτྡྷऩኟτɾ౨ᚬٖͫc؍sell up to all of the Option Shares beneficially owned by Mr. Li Baoku ٖ0.22ಋʏ כ౨ᚬ؍ႏכat the Exercise Price HK0.22 and Upper Nice Assets Ltd. is obliged ϤUpper Nice Assets Ltd.τஐͨ to purchase the 58,000,000 Option Shares of the Company in ໮ϷԚძϷԚࣂcᑪɃ̯ʔ̇58,000,000ٖ౨ᚬ respect of which the Put Option is exercised at such Exercise Price. ٖͫe

ߜᙔכThe 55,544,102 shares were held by Sotas Limited a company 3. 55,544,102ٖʔٖ̇ͫͅSotas Limited .3 incorporated in the BVI with limited liability and wholly-owned by ୮ɤະࢌഽ˫ι͓ɾτࠉʔ̇ԯͅ Morningside CyberVentures Holdings Limited. Meanwhile Morningside CyberVentures Holdings LimitedͲ Morningside CyberVentures Holdings Limited is wholly-owned by ༅ኟτcಳϤcMorningside CyberVentures Biswick Holdings Limited, which is in turn a wholly-owned Holdings LimitedɌݯBiswick Holdings Limited ͅڬsubsidiary of Verrall Limited in its capacity as trustee of a family Ͳ༅ኟτdϤBiswick Holdings Limited পڌɾࡼપ͓ۺtrust established by Mrs. Chan Tan Ching Fen, who was taken to be Verrall Limited˞ஹᖭᄪ٧ɤɡ ᙔʔ̇cϤϬٖͫΕڃinterested in the shares disclosed herein in her capacity as founder ՇপɁӸͫͲ༅ኟτɾ পɾڌcஹᖭᄪ٧ɤɡАݯɐ߸܃of the trust (as defined in the SFO) referred to above upon the ௚พ׶ɐ̟ Listing. ௚ፒɁցຮӮᖬԴʥ౨ஒૈԝȽ୽๫Аኟτ τeܛʼֺׄᚉɾٖͫɾᚬऩ̯

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 69 REPORT OF THE DIRECTORS ໎ԑผంй

ᗐֺٖࣹͫʥɾ૗࠸iޚShort positions in shares and equity derivatives in, or in respect of, ٖͫʥٖ̯ߪ́ɮԮֶ underlying shares of the Company:

Number and descirption Number of of equity underlying Approximate derivatives shares percentage of ᗐ Capacity interestޚ Name ٖ̯ߪ́ɮԮ ˈΊီ ɾᅕ͌ʥล߸ ٖͫᅕ͌ Ӹͫ ᚬऩล޸ϛʗ

Mr. Li Baoku 58,000,000 (Note a) 58,000,000 Beneficial owner 7.24% ഽa ྡྷऩኟτɁڃ ңᗸ࢒ͱ́

Ұٖ౨ᚬٖͫܘഽ(a)i 58,000,000ٖ౨ᚬٖͫ຤ɰڃ Note (a): The 58,000,000 Options Shares have been transferred to Mr. Li Baoku at a price of HK$0.20 per Option Share and the Put Option 0.20ಋʏɾძࣟᔝᜑʀңᗸ࢒ͱ́͛ɰҐ໮೩ ౨ᚬ઒ʀңᗸ࢒ͱ́e؍ᗐႏޚrelating to such Option Shares have also been assigned to Mr. Li ౨ᚬٖͫɾ ౨ᚬcңᗸ࢒ͱ؍Baoku. Pursuant to the Option Agreement, in the event that ࣓ኣ౨ᚬԾᘪc࠱ϷԚႏ ૜ԯֺτྡྷऩ؍ϷԚძҰٖ0.22ಋʏܘexercises the Put Option, Mr. Li Baoku shall be entitled to sell up ́τᚬ to all of the Option Shares beneficially owned by Mr. Li Baoku at ኟτɾ౨ᚬٖͫcϤUpper Nice Assets Ltd.τ ໮ϷԚძᑪɃ58,000,000ٖכ౨ᚬ؍the Exercise Price HK$0.22 and Upper Nice Assets Ltd. is obliged ஐͨగႏ to purchase the 58,000,000 Option Shares of the Company in ̯ʔٖ̇ͫe respect of which the Put Option is exercised at such Exercise Price.

ɀཌྷཌྷʄαɊɀ˂ɍɊȹכSave as disclosed above, as 31 December 2005, the Directors were ৖ɐʼֺׄᚉّ̔c ˚࣓ኣᖬԴʥ౨ஒૈԝ଱336ૈֺΦສɾܘnot aware of any other persons (other than the Directors or chief ˀc executive of the Company) who had an interest or short position ٖ߬׭ٖͫᚬऩʥ૗࠸೔ত˫ɾ޵፣c໎ԑԎɺ Ɂࡗܧʔ̇໎ԑֶ௖ঢ়Ϸڈ੪ͨτЄɁɡԎك in the shares and underlying shares of the Company which would fall to be disclosed under the provisions of Division 2 and 3 of Part ܛτ࣓ኣᖬԴʥ౨ஒૈԝ଱Ɋʄ஫଱2ʥ଱3஫ͫ ᗐٖͫɾޚXV of the SFO as recorded in the register required to be kept under ɾૈʼϤ඘Аˮׄᚉؿ̯ʔٖ̇ͫʥ Section 336 of the SFO. ᚬऩֶ૗࠸e

ࠇɣ΋޸ɾᚬऩכDirectors’ Interests in Contracts of Significance ໎ԑ ഽ40ֺ༗ɾᗐடɁɡ͚ڃٲApart from the foregoing and the related party transactions referred ৖ɐʼֺ߸ʥল৻ం α۹ɾαୄֶ̯α۹ɾͨЄࣂංʑc̯כc̔מ to in note 40 to the financial statements, no contracts of significance ᙔʔ̇ลಲ͓̯߯ʔ̇ɾ໎ԑڃto which the Company, or any of its subsidiaries was a party and in ̯ʔֶ̇ԯͨЄ અֶංઅኟτࠇɣᚬऩɾͨЄࠇɣ΋޸eق which a Director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year.

70 Global Digital Creations Holdings Limited REPORT OF THE DIRECTORS ໎ԑผంй

Directors’ Rights to Acquire Shares or Debentures ໎ԑᑪɃֶٖͫඦԴɾᚬС α۹ɾͨЄ̯כExcept for the share option scheme disclosed above, at no time ৖ɐʼֺׄᚉɾᑪٖᚬི߮̔c ᙔʔ̇ลಲ͓߯ͨЄڃduring the year was the Company, or any of its subsidiaries, a party ࣂංʑc̯ʔֶ̇ԯͨЄ to any arrangements to enable the directors of the Company to ΪખcߎԚ̯ʔ̇ɾ໎ԑ˿ᔄട˞ᑪɃ̯ʔֶ̇ acquire benefits by means of the acquisition of shares in, or ͨЄԯˢؒ྆ྡྷ᛽ɾֶٖͫඦԴʿβϤᏵऩe debentures of, the Company or any other body corporate.

מConnected Transactions ᗐட͚ מExempt connected transactions ᏵᑥЛᗐட͚ ໤ХֲሔɾᏵᑥЛܧα۹ʑˮଊᙔল̯כThe following exempt connected transactions of financial ɎͶݯ iמassistance in nature subsisted during the year. ᗐட͚

Loans from Mr. Anthony Francis Neoh ષցԄͱ́ొԜɾ൘ಁ ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀcષցԄͱ́Ή̯כ Mr. Anthony Francis Neoh has advanced various loans to the Group totally approximately HK$18,256,000 as at 31 December 2005. එ྆ొԜɾΛඖ൘ಁ΋ͳ޸18,256,000ಋʏeϊ ᔾ஢ˀୃ့Сࢠcࢠଅݯټֆ̰᎛ᑹ̯ܘ൘Ƚڌ Interest is accrued from day to day on the outstanding the best lending rate as quoted by the Hongkong and Shanghai Banking ࠗಋɐࣵ㟱ᔔႺϷτࠉʔ̇ɺࣂంძɾ௖᎚యС ׋˘ಲ՞ցᑹಁ౨eא൘ȽಲڌCorporation Limited from time to time plus 3% per annum. This ଅ˱αଅ3᯵eϊ ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀcષցԄͱ́ɾ৉כ facility is unsecured aid with no fixed repayment terms. Madam Chan Wing Yee, Betty, the spouse of Mr. Anthony Francis Neoh, has ৫Chan Wing Yee, BettyɤɡΉ̯එ྆ొԜ΋ͳ ഽ29e໮ඖ൘ಁڃכadvanced loan to the Group totally HK$1,000,000 as at 31 December 1,000,000ಋʏ൘ಁɰׄᚉ ࠗಋɐࣵ㟱ᔔႺϷτࠉʔ̇ɺࣂంܘ׋dאas disclosed in note 29. The loan is unsecured, bears interest ݯಲ 2005 ᎛ᑹeͅك஝ܘat the best lending rate as quoted by the Hongkong and Shanghai ძɾ௖᎚యСଅ˱αଅ3᯵߮ࢠʥ ષցԄͱ́ݯɐ̟ࣂဳଉᄙٖ׭ցຮӮ௚พכ Banking Corporation Limited from time to time plus 3% per annum cΐϊcષցԄͱ́ၤ̯එֺ྆൬ڬand is repayable on demand. As Mr. Anthony Francis Neoh is an ׶ɐ̟ஃ eಳϤc໮מ࿚ι̯ʔ̇ɾȹඖᗐட͚מinitial management shareholder, as defined under the GEM Listing Ϸɾ͚ ϊcܨ ȹঁֶҡԙਆพૈಁ൬ϷcܘȽמRules, a transaction between Mr. Anthony Francis Neoh and the ೩͚ ଱20.65(4)ૈᎶᏵᑥЛፓΨ͇ڬGroup constitutes a connected transaction of the Company. ࣓ኣ௚พ׶ɐ̟ஃ However, the transaction is based on normal commercial terms (or ంdʔЗʥՅ੡ዟ͓ٖ׭ғ࠿ɾஃցe better) and should therefore be exempt from reporting, announcement and independent shareholders’ approval requirements under Rule 20.65(4) of the GEM Listing Rule.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 71 REPORT OF THE DIRECTORS ໎ԑผంй

Counter-guarantee given by Mr. Raymond Dennis Neoh in respect of ષցඐͱ́గ̯එֺ྆Ᏽ઒ႺϷ൘ಁϤАˮɾʦ ړbank loans made to the Group ኪ ˞As stated on page 148 of this annual report, Mr. Raymond Dennis ໶Σ̯αం଱148ࠒֺ߸cષցඐͱ́ɰАˮ ݯՇऩɁɾړኪڌτࠉʔ̇ɻړኪ͂ڌτ ɻҙړኪ͂ڌNeoh has given counter-guarantee in favour of ɻҙ గɻਝႺϷ૯ΓʗϷֺړኪڌc˞૜᎛ɻړࠉʔ̇ (“CICG”), an independent third party, for the repayment of ʦኪ all the debts incurred by CICG for which CICG is liable under the ొԜɾɁ̵ྫྷ30,000,000ʏႺϷௐ͂ᔾАˮɾኪ Ϥଐ́ɾͲ஫ඦ৻e̯එ྆ɾͨЄٖ׭ลಲΉړ guarantee given by it in respect of banking facilities of ϤొԜͨړԜʦኪొړኪڌRMB30,000,000 from Bank of China, Shenzhen Branch. No security ષցඐͱ́గ֤Ήɻ ׋ֶʻ˟ˤძeאor consideration has been given by any member of the Group to Є Mr. Raymond Dennis Neoh for the giving of the counter-guarantees to CICG.

ɐʼֺܨષցඐͱ́Ƚ̯ʔ̇ɾᗐடɁɡcכͅ As Mr. Raymond Dennis Neoh is a connected person of the Company ࿚ι̯ʔ̇ɾᗐடړand the above-mentioned counter-guarantee given by ߸ͅષցඐͱ́ొԜɾʦኪ eמMr. Raymond Dennis Neoh constitute a connected transaction of ͚ the Company. cȽ֤గ̯ʔ̇ɾСړThe counter-guarantee given by Mr. Raymond Dennis Neoh has ષցඐͱֺ́ొԜɾʦኪ ȹঁֶҡԙਆพૈಁϤАˮeΐϊc ࣓ܘbeen provided by him for the benefit of the Company on normal ऩϤ Ꮆړ଱20.65(4)ૈcֺАˮɾኪڬcommercial terms (or better). The guarantee given should therefore ኣ௚พ׶ɐ̟ஃ be exempt from reporting, announcement and independent ᏵᑥЛፓΨ͇ంdʔЗʥՅ੡ዟ͓ٖ׭ғ࠿ɾஃ shareholders’ approval requirements under Rule 20.65(4) of the ցe GEM Listing Rule.

ʿ̒ٽᙔʔ̇ࠖڃʿɾͲ༅̒ٽOther loan from SCG Finance Corporation Limited (“SCG Finance”), a ԯˢ൘ಁԞϬࠖ ʿল৻̒ٽwholly-owned subsidiary of SCG ল৻τࠉʔ̇ࠖ ιݯ̯܃ɀཌྷཌྷʄαɀ˂ɾٖᚬᛰ৽כʿ̒ٽSCG became the holding company of the Group after the change ࠖ ɀཌྷཌྷʄαɊכʿল৻̒ٽof shareholding in February 2005 and SCG Finance provided එ྆ؿઁٖʔ̇cࠖ HK$50,000,000 loan facilities as at 31 December 2005. ɀ˂ɍɊȹˀొԜȿ50,000,000ಋʏؿ൘ಁᔾ ۹e

Finance lease arrangement with South China International Leasing ʿਝ჌ै༉τࠉʔ̇ɾڲᙔʔ̇ڃʿɾ̒ٽၤࠖ Company Limited, a subsidy of SCG ጪ༅ै༉Ϊખ During the year, the Group has entered into finance lease ʿਝ჌ै༉τࠉʔ͓̇߯ጪ༅ڲαʑc̯එ྆Ή arrangements for leasing computer equipment from South China ˂ɀཌྷཌྷʄαɊɀכ༉Ϊખcै͂ཋ຾உௐeै International Leasing Company Limited. As at 31 December 2005, ɍɊȹˀcጪ༅ै༉ʥᎶ˟ैࢠʗПݯ1,898,000 the finance leases and interest payable to the fellow subsidiary ˟ಋʏʥ171,000ಋʏeၤጪ༅ै༉τᗐؿαʑɰ amounted to approximately HK$1,898,000 and HK$171,000 Сࢠ඀ʻ޸ݯ51,000ಋʏe respectively. Interest expense paid during the year in connection to the finance leases amounted to approximately HK$51,000.

72 Global Digital Creations Holdings Limited REPORT OF THE DIRECTORS ໎ԑผంй

מਨϷ໎ԑɰ຤ᄗቇȿ໮ᗐட͚ڈThe independent non-executive Directors of the Company have ̯ʔ̇Έዟ͓ ɾ͓߯Ƚiמreviewed the connected transactions and confirmed that the above Ԏɰᆢႏ໮೩͚ transactions have been entered into:

එ྆ɾȹঁʥˀ੒พ৻h̯כin the ordinary and usual course of business of the Group; (1) ᙔ (1)

(2) on normal commercial terms; and (2) ܘ๑ȹঁਆ৻ૈಁ൬Ϸhʥ

ૈמؿԾᘪૈಁ൬ϷcϤ͚מin accordance with the relevant agreement governing them (3) ࣓ኣτᗐ͚ (3) on terms that are fair and reasonable and in the interests of ಁʔ̡΋ଉcԎ˘ଲ΋̯ʔٖ̇׭ؿኬ᛽ the shareholders of the Company as a whole. Сऩe

Related Party Disclosures ᗐடɁɡׄᚉ α̯כȽמഽ40ֺׄᚉcɎͶ͚ڃٲAs disclosed in note 40 to the financial statements, the following ໶Σল৻ం transactions were entered into during the year: ۹ʑ൬Ϸi

ᙔʔ̇ڃa) The Group paid or was payable rental expense of (a) ̯එ྆ɰ˟ֶᎶ˟̯එ྆ɾ΃ӡ) ټพैذ۩ϼҙ༅τࠉʔ̇Аݯԯፒʔٽ approximately HK$410,000 to Long Cosmos Investment Limited, a fellow subsidiary of the Group for its office ඀ʻɾ޸410,000ಋʏhʥ premise; and b) The Group paid or was payable rental expense of (b) ̯එ྆ɰ˟ֶᎶ˟ષցඐͱ́ɾ৉৫ჳუ) ඀ʻ޸ټapproximately HK$224,000 to Ms. Lau Fung Sim, the spouse ᄑɤɡτᗐ໎ԑ਼ٞɾै of Mr. Raymond Dennis Neoh, in respect of a director quarter. 224,000ಋʏe i)ΈϛʗˈଅึСଅ৖̔Г)כძࠤГמ͚כͅ This transaction falls within the definition of a connected ೩ֶঢ়ޚ0.1%h ֶ(ii)ΈϛʗˈଅึСଅ৖̔כ -transaction but as the value of transaction falls below the de 1,000,000ಋʏכᐢˤძʭ˘2.5%כ0.1%ЎГכ minimis threshold of the higher of (i) each of the percentage ratios ࿚ιȹמ໮ඖ͚ܨother than the profits ratio) is less than 0.1%; or (ii) each of the ˞༖ঢ়ّݯๅɾ௖Гࠉᔾc) (଱20.31(2ڬc Ϥ࣓ኣ௚พ׶ɐ̟ஃמpercentage ratio (other than the profits ratio) is equal to or more ඖᗐட͚ ᏵᑥЛፓΨֺτ͇ంdʔЗʥՅ੡מthan 0.1% but less than 2.5% and the total consideration is less than ૈc ໮ඖ͚ HK$1,000,000, the transaction was exempt from all reporting, ٖ׭ғ࠿ɾஃցe announcement and shareholders’ approval requirements in accordance with GEM Listing Rule 20.31(2).

Purchase, Sale or Redemption of the Company’s ᑪൕdˮਕֶᚿΑ̯ʔ̇ɾɐ̟ᖬԴ Listed Securities ࿀ϭɀཌྷཌྷʄαכᙔʔ̇ลಲڃThere was no purchase, sales or redemption by the Company or ̯ʔֶ̇ԯͨЄ any of its subsidiaries, of the Company’s listed securities during the Ɋɀ˂ɍɊȹˀ˅α۹ʑcᑪൕdˮਕֶᚿΑͨ year ended 31 December 2005. Є̯ʔ̇ɾɐ̟ᖬԴe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 73 REPORT OF THE DIRECTORS ໎ԑผంй

ᚬऩجCompeting Interests ᘏ ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀc໎ԑΕพ৻Сऩכ As at 31 December 2005, the interests of the Directors in the ˿ֶجઅֶංઅɾᘏقbusinesses (other than those businesses where the Directors were ɐ୽഼ݯ།̯ʔ̇พ৻τ ʔ̇ʥ/ֶ̯ʔٖ̇׭̯ٲ໎ԑˤܢ˳cɺجappointed as directors to represent the interests of the Company ॶᘏ and/or any member of the Company) which are considered to ɾСऩϤΕ໮೩พ৻ɐˮͨɾ໎ԑcԯʑࢀΣ complete or are likely to compete, either directly or indirectly, with Ɏi the businesses of the Company were as follows:

Name of entity whose businesses Description of businesses of the are considered to compete or entity which are considered to likely to compete with the compete or likely to compete with Name of Director businesses of the Company the businesses of the Company ୽഼ݯԯพ৻ၤ̯ʔ̇พ৻ ୽഼ݯԯพ৻ၤ̯ʔ̇พ৻ ᛽ɾพ৻ֲሔྡྷجॶτᘏ˿ֶج᛽ τᘏྡྷجॶτᘏ˿ֶج໎ԑշΊ τᘏ Cao Zhong Shougang Concord Grand Property investment and management (Group) Limited (“SCG”) (Note 1) financial services and cultural recreation content provision (Note 2) พҙ༅ʥဳଉdল৻ٖ৻ʥذ ʿඑ྆τࠉʔ̇̒ٽ઴֦ ࠖ ഽ2ڃഽ1 ʼʝ࡯ᅥʑࢀԜᎶڃʿ̒ٽࠖ

Chen Zheng SCG (Note 1) Property investment and management financial services and cultural recreation content provision (Note 2) พҙ༅ʥဳଉdল৻ٖ৻ʥذ ഽ1ڃʿ̒ٽஹ֢ ࠖ ഽ2ڃʼʝ࡯ᅥʑࢀԜᎶ

Leung Shun Sang, Tony SCG (Note 1) Property investment and management financial services and cultural recreation content provision (Note 2) พҙ༅ʥဳଉdল৻ٖ৻ʥذ ഽ1ڃʿ̒ٽષ඗́ ࠖ ഽ2ڃʼʝ࡯ᅥʑࢀԜᎶ

Stephen Hui Hung SCG (Note 3) Property investment and management financial services and cultural recreation content provision (Note 2) พҙ༅ʥဳଉdল৻ٖ৻ʥذ ഽ3ڃʿ̒ٽஈݙ ࠖ ഽ2ڃʼʝ࡯ᅥʑࢀԜᎶ

τ޸ܛʿ஦༦Upper Nice Assets Ltd.ංઅ̒ٽഽ1iࠖڃ Note 1:SCG through Upper Nice Assets Ltd. indirectly holds approximately ᗐٖͫeޚܢ˳including underlying shares) interests in the Company. 82.22%̯ʔ̇ᚬऩcԯɻ) 82.22%

ᙔʔֶ̇ᐲᏪʔֶ̇ԯˢڃഽ2i໮೩พ৻Ƚ஦༦ԯڃ Note 2:Those businesses are carried out through its subsidiaries or associates or by way of other form of investments. ҙ༅ʿβ൬Ϸe

ʿ̒ٽɀཌྷཌྷʒαɀ˂ɀɊȼˀᖽͨࠖכഽ3iஈݙڃ .Note 3:Stephen Hui Hung resigned as director of SCG on 27 February 2006 ɾ໎ԑe

ᙔʔ̇ɾڃSave as disclosed above, none of the Directors, the chief executive, ৖ɐʼֺׄᚉّ̔c̯ʔֶ̇ԯͨЄ Ɂࡗd˚ٖ߬׭ֶɐ̟ࣂဳଉᄙܧsubstantial shareholders or initial management shareholders of the ໎ԑd˚߬Ϸ ၤ̯එ྆כCompany or any of its subsidiaries or any of their respective ٖ׭ֶ֤೩ΈϬɾͨЄᐲᖎɁɡลಲ ɾͨЄพ৻ɻኟτجॶ࿚ιᘏ˿ֶجassociates, has an interest in any business, which competes or may พ৻࿚ιᘏ compete with the business of the Group. ͨЄᚬऩe

74 Global Digital Creations Holdings Limited REPORT OF THE DIRECTORS ໎ԑผంй

ᔈɁᚬऩړ Interest on Sponsor ړ࿔ጪ༅ԓݘτࠉʔ̇ټᔈɁړAs updated and notified by the Company’s sponsor (the “Sponsor”), ໶Σ̯ʔ̇ ɀཌྷཌྷʄαɊɀ˂ɍכcكGoldbond Capital (Asia) Limited, as at 31 December 2005, none of ᔈɁАˮҡ൬ʥ஝ ᔈɁ̯Ӹdԯ໎ԑd཭ࡗֶᐲᖎɁɡړthe Sponsor itself, its directors, employees or associates (as defined Ɋȹˀc ̯כഽ3ลಲڃ଱6.35ૈڬin Note 3 to GEM Listing Rule 6.35) had any interests in the securities ցຮӮ௚พ׶ɐ̟ஃ of the Company. ʔ̇ᖬԴɻኟτͨЄᚬऩe

ɀཌྷཌྷɍαȼ˂ɀɊɍˀכᔈɁړPursuant to the agreement dated 23 July 2003 entered into ࣓ኣ̯ʔ̇ၤ ̒˂ɀཌྷཌྷɍαɄכᔈɁτᚬగړbetween the Company and the Sponsor, the Sponsor is entitled to ͓߯ɾԾᘪc receive an advisory fee for acting as the Company’s related sponsor ˀ঴ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅౨ංኪ̯ͨ ᔈɁϤνՅᚋਐ൒eړfor the period from 4 August 2003 to 31 December 2005. ʔ̇ɾ֝າ

೪ܧټEmolument Policy ༭ ๑֤೩ܘ೪Ƚͅᑀ༭կࡗผܧټThe emolument policy of the employees of the Group is set up by ̯එ྆ɾ཭ࡗ༭ ɈֺԹցؿeجthe Remuneration Committee on the basis of their merit, ؿ঳ᘆd༅ዃʥᘏ qualifications and competence.

Ƚͅᑀ༭կࡗผϣ൴༦̯ʔ̇ټThe emoluments of the Directors of the Company are decided by ̯ʔ̇ɾ໎ԑ༭ ֺ܃ଊʥ˿ˈ༖ؿ̟௿ᖬԴٲthe Remuneration Committee, having regard to the Company’s ɾᏪ༜พᐜd࠯Ɂ operating results, individual performance and comparable market Һցؿe securities.

The Company has adopted a share option scheme as an incentive ̯ʔ̇ɰ຤ઔढ़ȿȹ࠯ᑪٖᚬི߮Аݯྦྷ໎ԑʥ ল৻ంכto directors and eligible employees, details of the scheme is set out ΋༅ࣟ཭ࡗؿᆉ᎞c໮ི߮໯ੱɰ໯Ͷ ഽ34ʑeڃin note 34 to the financial statements. й

Pre-Emptive Rights ᎚ͱᑪൕᚬ ϛᄮ༠ؒԝลಲֶڬᓱ௃ೡୀୂֶڬThere are no provisions for pre-emptive rights under the Company’s ̯ʔ̇ɾୀ Bye-Laws, or articles of association or the laws of Bermuda, which ༗τͨЄτᗐ᎚ͱᑪൕᚬɾૈʼcϤ˥̯ʔ̇඘ ԝਥๅΉଊτٖ׭ೕਕณٖeˈܘ would oblige the Company to offer new shares on a pro-rata basis to existing shareholders.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 75 REPORT OF THE DIRECTORS ໎ԑผంй

Board Practices and Procedures ໎ԑผྻԝʥೡѵ ඀նɾผ߮౨܃ɀཌྷཌྷʄαȼ˂ȹˀֶɾכThe Company has complied with the Code on Corporate ৖ੀ ʼ̔c̯ʔૈڬGovernance Practices (the “Code”) (with the exception of code ං́ࢽτᗐʑ஫ઁԹɾ଱C.2ૈΨ ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹ʑɰכ̇ provision C.2 on internal control which is effective for accounting ፣Ɋʄֺ༗ɾͬพဳ؝੒ڃڬperiods commencing on or after 1 July 2005) as set out in Appendix ፓΨ௚พ׶ɐ̟ஃ c੹τ˞ɎৱᔴiڬΨڬof the GEM Listing Rules during the year ended 31 December ஃΨ 15 2005 and the Company has applied the Code as the general guiding principle in corporate governance, except for the following deviations:

ਨϷ໎ڈʼcૈڬ଱A.4.1ૈɾΨڬUnder code provision A.4.1 of the Code, non-executive — ࣓ኣΨ— directors should be appointed for a specific term and ԑɾկͨᎶτܞցͨ౨cԎ඘અՇࠇณፕ subject to re-election. ᐾe

ցͨ౨կͨeಳܞܘਨϷ໎ԑڈֺτڈNot all non-executive Directors were appointed for a specific Ԏ ਨϷ໎ԑڈcڬterm. However, both of them are subject to retirement by Ϥc࣓ኣ̯ʔ̇ɾʔ̇ୀ ׭൪αɣผɐረࠤйঽʥᐶፕٖכrotation and re-election at annual general meetings in ඘ԗ௃ רਨϷ໎ԑᖋ߯ڈaccordance with the provisions of the bye-laws of the டͨe̯ʔ̇ੀၤ໮೩ Company. Service contracts will be signed with those non- ৻΋޸e executive Directors.

ʼcૈڬ଱A.4.2ૈɾ଱ɀ஫ͫΨڬUnder the second part of code provision A.4.2 of the Code, — ࣓ኣΨ— ցͨ౨ɾ໎ԑ඘ረݚܞτܢ˳every director, including those appointed for a specific term, ҰΊ໎ԑ should be subject to retirement by rotation at least once ঽͨcϭʭҰɍαȹωe every three years. cɍʗɾȹΕᓻ໎ڬAccording to the Bye-laws of the Company, at each annual ࣓ኣ̯ʔ̇ɾʔ̇ୀ Յڬɍֶɍɾࠛᅕcڈgeneral meeting, one third of the Directors for the time ԑֶ໎ԑᅕ͌Ԏ Ұ։ٖ׭൪αɣכɍʗɾȹّ඘ٶbeing, or their number is not three or a multiple of three, ԯઅ then the number nearest one-third, shall retire from office ผɐረݚঽͨc੹ኪͨ˚࢐ֶ໎ԑᐢ຤ଉ ့߮ঽͨכby rotation, provided that no Director holding office as ᓻ৻ɾ໎ԑੀɺ඘ረݚঽͨc chairman or managing director shall be subject to ໎ԑɁᅕࣂc͛ɺ୽߮ɃϣᄬɁᅕɾʑe Ɏȹω̯ʔכʼc໎ԑผੀૈڬretirement by rotation or be taken into account in ݯፓΨΨ ᘪcగ࠳̯߯ʔ̇ୀۺdetermining the number of Directors to retire. To comply ٖ̇׭ɣผɐొе Ԛ̯ʔֺ̇τ໎ԑڔఖұٖ׭ғ࠿cڬ with the code provision, amendment to the Bye-laws of the Company will be proposed at the next general meeting of ˳ܢ˚࢐ʥ໎ԑᐢ຤ଉя඘ϭʭҰɍα the Company for approval by the shareholders such that all ረݚঽͨȹωe directors (including chairman and managing director) will be subject to retirement by rotation at least once every three years.

76 Global Digital Creations Holdings Limited REPORT OF THE DIRECTORS ໎ԑผంй

ʼcɐ̟ೕϷૈڬ଱B.1.1ૈɾΨڬUnder code provision B.1.1 of the Code, listed issuers should — ࣓ኣΨ— կټestablish a remuneration committee with specific written Ɂ඘உ͓Ԯτऋցιʼᓻᚬᆲ௼ɾ༭ կࡗผɾɣ஫ͫιࡗ඘ݯዟ͓ټterms of reference. A majority of the members of the ࡗผe༭ ਨϷ໎ԑeڈ -remuneration committee should be independent non executive directors.

࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅αכ ,The remuneration committee consists of three members կࡗผͅɍΊιࡗୂιcԯɻඩټonly one the of whom is independent non-executive ۹c༭ cڬਨϷ໎ԑeݯፓΨΨڈDirector during the year ended 31 December 2005. Two τȹΊݯዟ͓ կࡗผټਨϷ໎ԑ୽կͨݯ༭ڈIndependent Non-executive Directors were appointed as ԭΊዟ͓ members of remuneration committee so as to comply with ιࡗe the Code.

ڬؿᅟๅΨמCode of Conduct Regarding Securities Transactions ໎ԑ൬ϷᖬԴ͚ by Directors ଱5.48ϭ5.67ڬ๑௚พ׶ɐ̟ஃܘThe Company has adopted a code of conduct regarding directors’ ̯ʔ̇ɰઔढ़ eΕАˮڬؿᅟๅΨמsecurities transactions on terms no less exacting than the required ૈֺͶɾ໎ԑ൬ϷᖬԴ͚ ࿀ϭɀཌྷཌྷʄαכc̯ʔ̇Ͳ᛽໎ԑ܃໺ڸᆢע .standard set out in Rules 5.48 to 5.67 of the GEM Listing Rules ɰ΋ଲ̯ʔ̇ઔढ़ɾޑHaving made specific enquiry, all directors of the Company have Ɋɀ˂ɍɊȹˀ˅α۹ʑ eڬؿᅟๅΨמcomplied with the required standard of dealings and the code of ᅟๅൕሒ߬ұʥ໎ԑ൬ϷᖬԴ͚ conduct regarding directors’ securities transactions adopted by the Company during the year ended 31 December 2005.

Audit Committee ᄗ࣏կࡗผ එ྆ɾল৻̯ྦྷڏ˞The Company has an audit committee which was established for ̯ʔ̇ι͓ȿᄗ࣏կࡗผc the purposes of reviewing and providing supervision over the ͇ంೡѵʥʑ஫ઁԹАˮᄗቇԎొԜဟ๼e Group’s financial reporting process and internal controls.

ɀཌྷཌྷʄαɊɀ˂ɍɊˀʥכThe audit committee, comprising two independent non-executive ᄗ࣏կࡗผ৖ȿ ɍϽɁԑୂἱcͅԭϽዟ͓כDirectors and one non-executive directors except for 30 and 31 ɍɊȹˀ౨ංʭ αܧল̯כਨϷ໎ԑୂιڈਨϷ໎ԑʥȹϽڈ December 2005 when the committee had less than 3 members, met ໮೩ผᘪ౨ංʑcᄗ࣏כfour times during the financial year. During the meetings, the audit ۹ʑᐾϷȿ̒ωผᘪe ʥྻԝdڬcommittee reviewed the accounting principles and practices կࡗผɰᄗቇ̯එֺ྆ઔढ़ɾผ߮ࡈ cԎၤဳଉמadopted by the Group, the interim and annual reports of the Group, ̯එ྆ɾɻ౨ంйʥαంdᗐட͚ connected transactions and discussed with management the ᄙͳ΃ਆদτᗐᄗ࣏dʑ஫ઁԹʥল৻͇ంԑ auditing, internal control and financial reporting matters. փe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 77 REPORT OF THE DIRECTORS ໎ԑผంй

൴ٖܛSufficiency of Public Float ӷਪʔଠ The Company has maintained a sufficient public float throughout ̯ʔ̇c৖ȿɀཌྷཌྷʄαɍ˂ȹˀϭɀཌྷཌྷʄα the year ended 31 December 2005, except for the period from 1 Ⱦ˂ʒˀ౨ංcʔଠɁɡܛτ̯ʔ̇ᚬऩ̋τ޸ ˅࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀכMarch 2005 to 6 September 2005 only approximately 17.8% 17.8%̔c Upperכ൴e੹ٖܛӷਪʔଠܛinterests of the Company was held by the public. However, it was ኬ࠯α۹ʑяၐ ܛcʔଠ܃restored to 25.02% interests of public float after the placement of Nice Assets Ltd.৉ਕ58,000,000ٖٖͫ shares from Upper Nice Assets Ltd. ٖᚬऩɰ຤ΑనԷ25.02%e 58,000,000

Auditors ࣏ᅕ࢑ Except for the year ended 31 December 2003, in which Messrs. ৖࿀ϭɀཌྷཌྷɍαɊɀ˂ɍɊȹˀ˅α۹cᖓМ ༞ผ߮࢑ԑ৻ֺݯ̯ʔԑ࣏ᅕ࢑̔cᄨඵg̷ڻ .PricewaterhouseCoopers acted as auditors of the Company, Messrs ༦˾ԭαݯ̯ʔ࣏̇ᅕ࢑eכDelottle Touche Tohmatsu have acted as auditors of the Company ᗐඡஹʿผ߮࢑Ϸ Ꮆ։ٖ׭൪αɣผɐొеȹඖҺᘪכfor the past two years. A resolution will be submitted to the ̯ʔ̇Ꮓ forthcoming Annual General Meeting of the Company to appoint ࣐c˞າᇼ̯ʔ̇ɾ࣏ᅕ࢑e auditors of the Company.

໎ԑผٲOn behalf of the Board ˤ

CAO ZHONG ˚࢐ Chairman ઴֦ Hong Kong ࠗಋ

20 April 2006 ɀཌྷཌྷʒα̒˂ɀɊˀ

78 Global Digital Creations Holdings Limited AUDITORS’ REPORT ࣏ᅕ࢑ంй

TO THE SHAREHOLDERS OF GLOBAL DIGITAL CREATIONS ߎGLOBAL DIGITAL CREATIONS HOLDINGS LIMITED HOLDINGS LIMITED Ͳ᛽ٖ׭ ϛᄮ༠ഽ˫ι͓ɾτࠉʔ̇כ (incorporated in Bermuda with limited liability)

๑ࠗಋౝܘ଱81ϭ169ࠒכWe have audited the consolidated financial statements of the Group ̯Ϸɰѧιᄗ࣏˰༗ ᇁႇɾbൔඑ྆ɾ၃΋ল৻ంڬon pages 81 to 169 which have been prepared in accordance with ༧ઔढ़ɾผ߮ࡈ eٲ .accounting principles generally accepted in Hong Kong

Respective responsibilities of directors and auditors ໎ԑʥ࣏ᅕ࢑ΈϬɾஐͨ The Company’s Directors are responsible for the preparation of ൔʔ̇໎ԑ߲ஐᇁႇभྡྷ࠹ʔ̡ɾ၃΋ল৻ం eΕᇁႇ໮೩ొԜभྡྷ࠹ʔ̡෮Ӯɾ၃΋ল৻ٲ .consolidated financial statements which give a true and fair view ೪cԎ஑ྵܧࣂc໎ԑ̦඘ઔ͂ሬ๫ɾผ߮ٲIn preparing consolidated financial statements which give a true ం and fair view it is fundamental that appropriate accounting policies Ꮆ͂໮೩ผ߮ܧ೪e are selected and applied consistently.

It is our responsibility to form an independent opinion, based on ̯Ϸɾஐ࣓ͨܰኣᄗ࣏ɾ೶׮cྦྷ໮೩၃΋ল৻ ๑ϛᄮ༠ʔ̇ؒ଱90ૈܘˮԮዟ͓෮ӮcԎٲour audit, on those consolidated financial statements and to report ం ԯˢ͂כour opinion solely to you, as a body, in accordance with Section 90 ඩΉኬ᛽ٖ׭ంйcϤ̯ంйɺ੡͂ of The Companies Act of Bermuda, and for no other purpose. We பe̯Ϸɺผగ̯ంйɾʑࢀΉͨЄԯˢɁɡ߲ do not assume responsibility towards or accept liability to any other ɐֶֻኪͨЄஐͨe person for the contents of this report.

Basis of opinion ෮Ӯɾਥᓣ ڬWe conducted our audit in accordance with Hong Kong Standards ̯ϷȽፓ๑ࠗಋผ߮࢑ʔผཕЗɾࠗಋ࣏ᅕๅ ׊݅ʿβ࣏݅ၤ˞ܢ˳on Auditing issued by the Hong Kong Institute of Certified Public ൬Ϸᄗ࣏ɮАeᄗ࣏ᆲ௼ ˳ֺ༗ᅕᔾʥׄᚉԑඖτᗐɾንᖬc͛ٲAccountants. An audit includes examination, on a test basis, of ল৻ం ࣂֺАˮɾࠇɣٲᇁႇ၃΋ল৻ంכിᄗ໎ԑܢ evidence relevant to the amounts and disclosures in the financial ೪ܰЯሬ΋bൔඑܧstatements. It also includes an assessment of the significant Ѕ߮՗Рᒾcֺઔ͂ɾผ߮ estimates and judgments made by the Directors in the preparation ྆ɾԮ᛽ੱؗc ʥτЯ஑ྵᎶ͂Ԏӷਪׄᚉ໮೩ of the consolidated financial statements, and of whether the ผ߮ܧ೪e accounting policies are appropriate to the circumstances of the Group, consistently applied and adequately disclosed.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 79 AUDITORS’ REPORT ࣏ᅕ࢑ంй

We planned and performed our audit so as to obtain all the ̯ϷΕ೪ི՗൬Ϸᄗ࣏ɮАࣂcя˞Յ੡ֺτ̯ ͫ˨Ᏽ੡ڏ˞information and explanations which we considered necessary in Ϸႏݯ̦඘ɾ༅ࢿʥ໬ᘷݯ͌ᅟc ЯΦτࠇɣ፟႒ஹ߸cܰٲorder to provide us with sufficient evidence to give reasonable ንᖬcగ໮೩ল৻ం assurance as to whether the consolidated financial statements are Аˮ΋ଉɾᆢցeΕАˮ෮Ӯࣂc̯Ϸ͛ɰിЅ ʑֺ༗ɾ༅ࢿΕኬ᛽ɐܰЯӷٲfree from material misstatement. In forming our opinion we also ໮೩၃΋ল৻ం ۺc̯Ϸɾᄗ࣏ɮАɰݯɎͶ෮Ӯڌޚevaluated the overall adequacy of the presentation of information ਪe̯Ϸ in the financial statements. We believe that our audit provides a ͓ȿ΋ଉɾਥᓣe reasonable basis for our opinion.

Opinion ෮Ӯ яभྡྷ࠹ʔ̡ΔʦٲIn our opinion the consolidated financial statements give a true ̯Ϸႏݯɐ߸၃΋ল৻ం ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ೶့ࣂכbൔඑ྆ܮ and fair view of the state of affairs of the Group as at 31 December ؗcʥbൔඑ྆࿀ϭ໮ˀ˅α۹ɾᑋฌرand of the loss and cash flows of the Group for the year then ɾল৻ 2005 ๑ࠗಋʔ̇ૈԝɾׄᚉஃցѢܘݚ൴cԎټended and have been properly prepared in accordance with the ʥଊ disclosure requirements of the Hong Kong Companies Ordinance. ഁᇁႇe

Deloitte Touche Tohmatsu ᄨඵg ᗐඡஹʿผ߮࢑Ϸ Certified Public Accountants ਨพผ߮࢑

Hong Kong ࠗಋ 20 April 2006 ɀཌྷཌྷʒα̒˂ɀɊˀ

80 Global Digital Creations Holdings Limited ٲCONSOLIDATED INCOME STATEMENT ၃΋ฌऩ

FOR THE YEAR ENDED 31 DECEMBER 2005 ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α (restated) ຤ࠇͶ Notes HK$’000 HK$’000 ഽ ɝಋʏ ɝಋʏڃ

Revenue νऩ 7 32,195 47,987 Cost of sales ሻਕι̯ (34,848) (35,278) Allowance for production work in progress Εႇඖ͌ᅆௐ 19 (24,712) (84,615)

Gross loss ˉฌ (27,365) (71,906) Other income ԯˢνɃ 645 101 Distribution costs ʗሻι̯ (2,031) (4,246) Administrative expenses Ϸܧ඀ʻ (37,429) (34,738) พdᄥָʥذImpairment losses recognised in respect of ɰᆢႏ property, plant and equipment உௐɾಕࠤᑋฌ 14 (2,350) (14,868) Finance costs ጪ༅ι̯ 11 (7,675) (5,545)

(ᑋฌ 9 (76,205) (131,202کLoss before taxation ৖ೢ (Income tax expense ֺ੡ೢ඀ʻ 12 (151) (25

(Loss for the year ̯α۹ᑋฌ (76,356) (131,227

HK cents HK cents ಋ˦ ಋ˦

Loss per share Ұٖᑋฌ 13 Basic ਥ̯ (9.53) (16.54)

Diluted ᚫᑁ N/A ɺሬ͂ N/A ɺሬ͂

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 81 ٲCONSOLIDATED BALANCE SHEET ၃΋༅ଐ߲ඦ

ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀכ AT 31 DECEMBER 2005

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α (restated) ຤ࠇͶ Notes HK$’000 HK$’000 ഽ ɝಋʏ ɝಋʏڃ

ݚ৽༅ଐڈ Non-current assets พdᄥָʥஉௐ 14 6,301 14,000ذ Property, plant and equipment Available-for-sale investment ˿Ԝˮਕҙ༅ 16 — — Investment securities ҙ༅ᖬԴ 16 — — Deferred tax assets Ⴎ֝ೢඖ༅ଐ 17 — 151 6,301 14,151 Current assets ݚ৽༅ଐ Inventories, at cost Φஒܘι̯ࠤ 18 1,157 5,523 Production work in progress Εႇඖ͌ 19 951 21,301 ሏಁ 20 3,664 18,011מTrade receivables Ꮆνൗ (ʥ 21(aټܘPrepayments, deposits and other ད˟ಁඖd receivables ԯˢᎶνሏඖ 2,124 4,435 ׋ႺϷΦಁ 22 16,455 2,004אPledged bank deposits ɰ b) 3,667 3,635)21 ټBank balances and cash ႺϷ೶቗ʥଊ 28,018 54,909 Current liabilities ݚ৽߲ඦ Training fees received in advance དν਩ফ൒ 2,725 2,168 ሏಁ 23 1,065 11,018מTrade payables Ꮆ˟ൗ Other payables and accruals ԯˢᎶ˟ಁඖʥᎶ߮൒͂ 24 23,615 20,798 — ᙔʔ̇ 25 18,783ڃAmounts due to fellow subsidiaries Ꮆ˟΃ӡ Amounts due to directors Ꮆ˟໎ԑಁඖ 25 2,116 3,037 Amounts due to shareholders Ꮆ˟ٖ׭ಁඖ 26 339 2,147 Amounts due to related parties Ꮆ˟ᗐடɁɡಁඖ 27 5,125 1,180 Tax liabilities ೢඖ߲ඦ — 25 — ᙔʔ̇൘ಁ 28 43,983ڃLoan from a fellow subsidiary ΃ӡ Loan from a shareholder ٖ׭൘ಁ — due within one year ÐȹαʑԷ౨ 28 — 3,157 Loans from related parties ᗐடɁɡ൘ಁ 29 22,457 1,000 Obligations under finance leases ጪ༅ै޸ֻኪ — due within one year ÐȹαʑԷ౨ 30 3,468 6,796 Bank borrowings — due within one year ႺϷࠥ൘ÐȹαʑԷ౨ 31 27,210 31,907 Other loans ԯˢ൘ಁ 32 8,243 18,940 159,129 102,173 (Net current liabilities ݚ৽߲ඦ૱ᔾ (131,111) (47,264 (Total assets less current liabilities ᐢ༅ଐಕݚ৽߲ඦ (124,810) (33,113 ݚ৽߲ඦڈ Non-current liabilities Obligations under finance leases ጪ༅ै޸ֻኪ — due after one year Ðȹα܃Է౨ 30 1,907 2,211 Loan from a shareholder ٖ׭൘ಁ — due after one year Ðȹα܃Է౨ 28 — 18,237 Amount due to a related party Ꮆ˟ᗐடɁɡಁඖ — due after one year Ðȹα܃Է౨ 27 1,495 — 3,402 20,448 (128,212) (53,561)

82 Global Digital Creations Holdings Limited ٲCONSOLIDATED BALANCE SHEET ၃΋༅ଐ߲ඦ

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α (restated) ຤ࠇͶ Notes HK$’000 HK$’000 ഽ ɝಋʏ ɝಋʏڃ

Capital and reserves ٖ̯ʥ᎝ௐ Share capital ٖ̯ 33 8,008 8,008 (Share premium and reserves ٖͫึძʥ᎝ௐ (136,220) (61,569

(128,212) (53,561)

ɀཌྷཌྷʒα̒כɰٲ଱81ϭ169ࠒɾল৻ంכThe financial statements on pages 81 to 169 were approved and ༗ cԎ຤ͅɎͶٲauthorised for issue by the Board of Directors on 20 April 2006 and ˂ɀɊˀᏵ໎ԑผғ࠿ʥ઒ᚬೕ are signed on its behalf by: Ɂɡᖋອi

Cao Zhong Chen Zheng DIRECTOR DIRECTOR ઴֦ ஹ֢ ໎ԑ ໎ԑ

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 83 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ٲ၃΋ᚬऩᛰ৽

FOR THE YEAR ENDED 31 DECEMBER 2005 ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹

Share Capital Share Share premium contribution Contributed Statutory options Exchange Accumulated capital account reserve surplus reserve reserve reserve losses Total ቗ ؒց᎝ௐ ᑪٖᚬ᎝ௐ මЙ᎝ௐ ୃ߮ᑋฌ ΋߮ޔძሏ ༅̯ྡྷᖔ᎝ௐ ᖔɃึٖͫ ̯ٖ HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ (Note a) (Note b) (Note c) (Note d) ഽdڃഽcڃഽbڃഽaڃ

ɀཌྷཌྷ̒αȹ˂ȹˀ 7,800 84,299 — 40,271 538 — 48 (64,514) 68,442כ At 1 January 2004

Exchange differences on ΐ౒့ࠗಋྊ̔พ৻Ϥ כઅقtranslation of operations ଐ́ɾමЙ࢏ᔾ outside Hong Kong ᚬऩɻᆢႏ recognised directly in equity — —————(14)—(14) (Loss for the year as restated ̯α۹ᑋฌ຤ࠇͶ — ——————(131,227) (131,227

Total recognised income ̯α۹ɰᆢႏνɃ (expenses) for the year ඀ʻ — —————(14)(131,227) (131,241)

Sub-total ɩ߮ 7,800 84,299 — 40,271 538 — 34 (195,741) (62,799) Issue of shares by placing ஦༦৉ਕೕϷٖͫ 208 8,536 ——————8,744 (Share issuance cost ೕϷٖͫι̯ —(397) ——————(397 Recognition of equity-settled ᆢႏ˞ٖ̯೶့ɾ share-based payment ٖͫ˟ಁ — ————891——891 —(Transfer to statutory reserve ᔝᅆ֡ؒց᎝ௐ — ———142——(142

ɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀʥכ At 31 December 2004 and at (ɀཌྷཌྷʄαȹ˂ȹˀ຤ࠇͶ 8,008 92,438 — 40,271 680 891 34 (195,883) (53,561כ January 2005 as restated 1

Exchange differences on ΐ౒့ࠗಋྊ̔พ৻Ϥ અقtranslation of operations ଐ́ɾමЙ࢏ᔾ ᚬऩɻᆢႏכ outside Hong Kong recognised directly in equity — —————(78)—(78) (Loss for the year ̯α۹ᑋฌ — ——————(76,356) (76,356

Total recognised income ̯α۹ɰᆢႏνɃ (expenses) for the year ඀ʻ — —————(78)(76,356) (76,434)

Sub-total ɩ߮ 8,008 92,438 — 40,271 680 891 (44) (272,239) (129,995) ׭ɾ঳ᘆٖکDeemed contribution from ୽഼ݯ a former shareholder — — 445 —————445 Recognition of equity-settled ᆢႏ˞ٖ̯೶့ɾ share-based payment ˞ٖͫݯਥᓣɾ˟ಁ — ————1,338——1,338 —Cancellation of share option ഽሻᑪٖᚬ — ————(2,229)—2,229

(ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ 8,008 92,438 445 40,271 680 — (44) (270,010) (128,212כ At 31 December 2005

84 Global Digital Creations Holdings Limited CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ٲ၃΋ᚬऩᛰ৽

ഽiڃ :Notes

ݯ̯ʔٖ̇׭ɾᗐடɁک˟Ꮆܞa)Capital contribution reserve represents accumulated effect on (a) ༅̯ྡྷᖔ᎝ௐ) imputed interest on amount due to a related party, a former ɡಁඖɾઐ့Сࢠɾୃ߮ᄧᚊe shareholder.

ʔ̇ɰೕϷٖ̯ɾࠍࠤၤ̯ʔ̯̇ܞ቗ޔb)The contributed surplus represents the difference between the (b) ᖔɃ) ɀཌྷཌྷɀαɊɀ˂ɍɊȹˀѧכnominal value of share capital of the Company issued and the ࣓ኣඑ྆ࠇୂ ᙔʔٖ̯̇ࠍࠤᐢᔾڃaggregate amount of nominal value of share capital of subsidiaries ι஦༦ٖ͚ͫ౒ֺνᑪ acquired by the Company through an exchange of shares pursuant ɾ࢏ᔾe to a group reorganisation, which was completed on 31 December 2002.

ʥؒஃɾڬᗐஃޚɻജɁ̵ͳ՗ਝɻਝܘ (c) As stipulated by the rules and regulations in the People’s Republic (c) of China (the “PRC”), foreign investment enterprises are required ஃցc ̔ਆҙ༅ͬพ඘ੀԯೢ܃ึС຤ྦྷሻ כɾሬ๫஫ͫᅆАߗɳؒց᎝ௐe܃to appropriate part of their after-tax profit (after offsetting prior ֡αᑋฌ years’ losses) to certain statutory reserves. ᏷ଈᅕᆦఌ᛽ޫҌޢ ɻਝι͓ɾԭං̔ਆዟ༅ͬพ᏷ଈᅕᆦఌ᛽ޫ Ӡ(૯Γ)τࠉʔ̇ (“IDMT Shenzhen”) and ᏷ଈᅕᆦఌ᛽ޫҌ(ɐ ҌޢӠ૯Γτࠉʔ̇᏷ଈᅕᆦఌ᛽ޫҌޢ ࣵ)τࠉʔ̇, wholly-foreign owned enterprises established in the Ӡ૯Γʥ᏷ଈᅕᆦఌ᛽ޫҌɐࣵτࠉʔ ɾ܃С຤ྦྷሻ֡αᑋฌึ܃PRC, are required to appropriate 10% of their after-tax profit (after ̇я඘ొՅԯೢ ᅕᔾ༠ϭԯټϭ᎝ௐق cټoffsetting prior years’ losses) to a general reserve fund until the 10%Аݯȹঁ᎝ௐ c ˿ϬᗙАˮ൬ȹүᅆ܃balance of the fund reaches 50% of their share capital thereafter ٖ̯ɾ50%ݯ˅c ԯ any further appropriation is optional and is determinable by the ಁԎ຤ͅΈʔ̇ɾ໎ԑผᔤցe᏷ଈᅕᆦఌ᛽ ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀכӠ૯Γޢcompanies’ board of directors. The statutory reserve as at 31 ޫҌ ݯ޸680,000ಋʏɀټDecember 2005 represents general reserve fund of IDMT Shenzhen ɾؒց᎝ௐЩȹঁ᎝ௐ ټof approximately HK$680,000 (2004: HK$680,000) which can only ཌྷཌྷ̒αi680,000ಋʏcϤ໮೫ؒց᎝ௐ ሻ֡αᑋฌֶྦྷ܃ᗐዀᗐғ࠿ޚbe used, upon approval by the relevant authority, to offset prior ඩ˿͂А຤ years’ losses or to increase capital. ᄈ˱ٖ̯e cઁٖʔ܃ɀཌྷཌྷʄαɀ˂˚ٖ߬ᚬᛰ৽כd)Following the change of major shareholding in February 2005, the (d) ᘗ) ʿඑ྆τ̒ٽholding company, Upper Nice Assets Ltd., a wholly-owned ̇Upper Nice Assets Ltd.ࠖ ᙔʔ̇గഽሻ̯ʔֺ̇τڃsubsidiary of Shougang Concord Grand (Group) Limited, issued an ࠉʔ̇Ͳ༅ኟτɾ ۺνᑪټoffer document in respect of a voluntary conditional cash offer to ֆ̰ϷԚᑪٖᚬɾϬᗙֲτૈͧଊ ᘪʼͧe࣓ኣࠗಋল৻ంйۺcancel all the outstanding options of the Company. In accordance ᘪc˰ೕȿȹͫ ໮೩ֆכ଱2໔˞ٖͫݯਥᓣɾ˟ಁcͅڬwith HKFRS 2 Share-based Payment, as the outstanding options have ๅ ˱ᎶͶАܨᓊᙔ౨ʑഽሻcכbeen cancelled during the vesting period, it should be accounted ̰ϷԚᑪٖᚬɰ for as an acceleration of vesting and recognise the amount ஠ᓊᙔcԎ፭Щᆢႏτᗐಁᔾeഽሻτᗐᑪٖ ᔾ޸2,229,000ಋʏټcτᗐᑪٖᚬ᎝ௐɾ܃immediately. Upon the cancellation of options, the share option ᚬ reserve of approximately HK$2,229,000 (2004: Nil) was transferred ɀཌྷཌྷ̒αiಲᔝᅆϭୃ߮ᑋฌe to accumulated losses.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 85 ٲݚ൴ټCONSOLIDATED CASH FLOW STATEMENT ၃΋ଊ

FOR THE YEAR ENDED 31 DECEMBER 2005 ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α (restated) ຤ࠇͶ HK$’000 HK$’000 ɝಋʏ ɝಋʏ

OPERATING ACTIVITIES ຤Ꮺݠ৽ (ᑋฌ (76,205) (131,202کLoss before taxation ೢ Adjustments for: ຤ሁኬɎͶΈඖi Allowance for production work in progress Εႇඖ͌ᅆௐ 24,712 84,615 Finance costs ጪ༅ι̯ 7,675 5,545 Depreciation җᓿ 3,601 5,307 Allowance for inventories Φஒᅆௐ 2,645 — พdᄥָʥஉௐذImpairment losses recognised in respect ɰᆢႏ of property, plant and equipment ɾಕࠤᑋฌ 2,350 14,868 Share-based payment expense ٖͫѼβʻˮ൒͂ 1,338 891 Allowance for bad and doubtful debts вᕝሏᅆௐ 521 — พdᄥָʥஉௐɾذLoss on disposal of property, ˮਕ plant and equipment ᑋฌ 9 84 Impairment losses recognised in respect ɰᆢႏҙ༅ᖬԴɾ of investment securities ಕࠤᑋฌ — 117 Interest income СࢠνɃ (66) (17)

ɾکᛰ৽ټOperating cash flows before movements in Ꮺ༜༅ (ݚ൴ (33,420) (19,792ټworking capital ຤Ꮺଊ Decrease (increase) in inventories Φஒಕʭþᄈ˱ 1,890 (1,959) Increase in production work in progress Εႇඖ͌ᄈ˱ (103) (23,221) (ሏಁಕʭþᄈ˱ 13,826 (15,183מDecrease (increase) in trade receivables Ꮆνൗ ʥԯˢټܘDecrease in prepayments, ད˟ಁඖd deposits and other receivables Ꮆνಁඖಕʭ 1,843 604 Decrease in amount due from a ᎶνȹᗐடɁɡಁඖ related party ಕʭ — 19 Increase (decrease) in training fees དν਩ফ൒ᄈ˱þಕʭ received in advance 557 (87) ሏಁಕʭþᄈ˱ (9,953) 8,452מDecrease) increase in trade payables Ꮆ˟ൗ) Increase in other payables ԯˢᎶ˟ಁඖʥᎶ߮൒͂ᄈ˱ and accruals 1,863 9,580 ˱ᙔʔ̇ᄈڃIncrease in amounts due to Ꮆ˟΃ӡ fellow subsidiaries 18,783 — (Decrease) increase in amounts due to Ꮆ˟໎ԑಁඖಕʭþᄈ˱ directors (921) 2,621

(38,966) (5,635) ټCASH USED IN OPERATING ACTIVITIES ຤Ꮺݠ৽ֺ͂ɾଊ — (Income tax paid ɰ˟ֺ੡ೢ (25

(38,966) (5,660) ټNET CASH USED IN OPERATING ACTIVITIES ຤Ꮺݠ৽ֺ͂૱ଊ

86 Global Digital Creations Holdings Limited ٲݚ൴ټCONSOLIDATED CASH FLOW STATEMENT ၃΋ଊ

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α (restated) ຤ࠇͶ HK$’000 HK$’000 ɝಋʏ ɝಋʏ

INVESTING ACTIVITIES ҙ༅ݠ৽ (׋ႺϷΦಁᄈ˱ (14,451) (2,004אIncrease in pledged bank deposits ɰ (พdᄥָʥஉௐ (424) (2,176ذPurchase of property, plant and equipment ᑪൕ Purchase of investment securities ᑪൕҙ༅ᖬԴ — (117) พdᄥָʥذProceeds from disposal of property, plant ˮਕ and equipment உௐֺ੡ಁඖ 4 400 Interest received ɰνСࢠ 66 17

(3,880) (14,805) ټNET CASH USED IN INVESTING ACTIVITIES ҙ༅ݠ৽ֺ͂૱ଊ

FINANCING ACTIVITIES ጪ༅ݠ৽ ˱ᙔʔ̇൘ಁᄈڃIncrease in loan from a fellow ΃ӡ subsidiary 33,140 — Bank loans raised ֺᘐႺϷ൘ಁ 12,487 1,565 Increase in amounts due to related parties Ꮆ˟ᗐடɁɡಁඖᄈ˱ 5,885 1,180 Other loans raised ֺᘐԯˢ൘ಁ — 11,143 Increase in loans from shareholders ٖ׭൘ಁᄈ˱ — 9,858 Issue of shares ೕϷٖͫ — 8,744 Increase in loan from a related party ᗐடɁɡ൘ಁᄈ˱ — 1,000 Repayment of bank loans ᎛ᑹႺϷ൘ಁ (17,305) — Interest paid ɰ˟Сࢠ (6,253) (5,334) Repayment of obligations under ᎛ᑹጪ༅ै༉ֻኪ finance leases (5,843) (7,370) ˱Decrease) increase in amounts due to Ꮆ˟ٖ׭ಁඖಕʭþᄈ) shareholders (1,808) 2,147 (Share issuance costs ೕϷٖͫι̯ — (397

22,536 20,303 ټNET CASH FROM FINANCING ACTIVITIES ጪ༅ݠ৽ଐ́ɾ૱ଊ

ɾذ೩ࠤټʥଊټNET DECREASE IN CASH AND ଊ CASH EQUIVALENTS ಕʭ૱ᔾ (162) (20,310)

ʥټɾଊٱCASH AND CASH EQUIVALENTS α 21,889 1,579 ذ೩ࠤټAT BEGINNING OF THE YEAR ଊ

ʥټCASH AND CASH EQUIVALENTS αୄɾଊ 1,579 1,417 ذ೩ࠤټAT END OF THE YEAR ଊ

ɾʗ׹ذ೩ࠤټʥଊټANALYSIS OF CASH AND CASH ଊ EQUIVALENTS 3,635 3,667 ټBank balances and cash ႺϷ೶቗ʥଊ (׋ႺϷ஦ʻ (2,250) (2,056אSecured bank overdrafts ɰ

1,417 1,579

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 87 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

FOR THE YEAR ENDED 31 DECEMBER 2005 ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹

1. General 1. ȹঁԑඖ The Company is a public listed company incorporated in ̯ʔ̇ܰΕϛᄮ༠࣓ኣϛᄮ༠ȹȾɄȹα Bermuda as an exempted company with limited liability ʔ̇ؒ຤࠳߯Ϥഽ˫ι͓ɾՇᑥЛʔͳ under The Companies Act 1981 of Bermuda (as amended) ɐ̟τࠉʔ̇e̯ʔٖ̇ͫΕࠗಋᐲ΋͚ ֺτࠉʔ̇ᐲֺ͚௚พ׶ɐ̟eԯמ and its shares are listed on the Growth Enterprise Market of ɻജכThe Stock Exchange of Hong Kong Limited (the “Stock ௖ୄઁٖʔ̇ݯࠖ፡ᐢʔ̇cȹࡼ અઁٖقExchange”). Its ultimate holding company is Shougang Ɂ̵ͳ՗ਝഽ˫ι͓ɾʔ̇eԯ ̒ٽʿඑ྆τࠉʔ̇ࠖ̒ٽCorporation, a company incorporated in the People’s ʔ̇ݯࠖ ᙔʔ̇Upper NiceڃRepublic of China (the “PRC”). Its immediate holding ʿɾͲ༅ංઅ ߜᙔ୮ɤະࢌഽ˫ι͓cכcompany is Upper Nice Assets Ltd., a company incorporated Assets Ltd.c ᐲֺ͚ɐ̟e̯ʔ̇כʿؿᖬ㜝̒ٽin the British Virgin Islands, an indirectly wholly-owned Ϥࠖ αంכsubsidiary of Shougang Concord Grand (Group) Limited ഽ˫ፒԑ୮ʥ˚߬ᏪพΔᒨɾΔэ SCG”), with its securities listed on the Stock Exchange. The ʔ̇ᓯʍȹຝׄᚉe“) addresses of the registered office and principal place of business of the Company are disclosed in the “Company Information” section to the annual report.

The Company is an investment holding company. The ̯ʔ̇ݯȹංҙ༅ઁٖʔ̇c ԯ˚߬ ഽ41eڃכᙔʔ̇ɾพ৻༗ڃ principal activities and other particulars of its subsidiaries are set out in note 41.

ಋʏͶ͐cಋʏ͛ݯ̯ʔ̇˞ٲThe financial statements are presented in Hong Kong dollars, ̯ল৻ం which is the same as the functional currency of the ɾ˲ॶஒྫྷe Company.

ؿᇁႇਥๅٲBasis of Preparation of Financial Statements 2. ল৻ం .2 The Group incurred significant losses of approximately ̯එ྆࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅ HK$76,356,000 for the year ended 31 December 2005 and α۹፣੡ࠇɣᑋฌ޸76,356,000ಋʏcϤ ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀɾݚכthe Group had net current liabilities of approximately ̯එ྆ HK$131,111,000 and net liabilities of approxiamtely ৽߲ඦ૱ᔾʥ߲ඦ૱ᔾʗПݯ޸ HK$128,212,000 as at 31 December 2005. Notwithstanding, 131,111,000 ಋʏʥ128,212,000ಋʏeቱ ᙩ຤Ꮺਥๅᇁႇ໮ܛܘthe Directors are of opinion that the preparation of these ဳΣϊc໎ԑႏݯ ʋᙔሬ๫cԯଉͅΣɎiٲfinancial statements under going concern basis is ೩ল৻ం appropriate due to the following considerations:

(1) Bank borrowing’s restructuring (1) ࠇୂႺϷࠥ൘ɾ೶࿚ Ᏽғ࠿ɾˀݯٲϭ໮೩ল৻ంق Up to the date of approval of these financial statements, the Group signed an agreement with ˅c̯එ྆ၤɻਝႺϷ૯ΓʻϷ Bank of China, Shenzhen branch, to extend the ᖋອȿԾᘪc˞ੀႺϷ൘ಁɁ̵ כ೩ޚmaturity date of a bank loan of RMB13,000,000, or ྫྷ 13,000,000ʏ ֶ޸ equivalent to approximately HK$12,487,000, from 12,487,000ಋʏɾԷ౨ˀͅɀཌྷ January 2006 to January 2007. ཌྷʒαȹ˂֝ϭɀཌྷཌྷȼαȹ ˂e

88 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

ؿᇁႇਥๅᙩٲBasis of Preparation of Financial Statements 2. ল৻ం .2 (continued) ൘ᔾڌAvailability of facilities (2) ˿৽͂ɾ (2) ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀcכ The amount available to the Group for borrowings ᙔʔڃʿɾͲ༅̒ٽunder the facilities granted by SCG Finance ̯එ྆Ᏽࠖ ٽʿল৻τࠉʔ̇ࠖ̒ٽCorporation Limited (“SCG Finance”), a wholly- ̇ࠖ owned subsidiary of SCG, at 31 December 2005 was ̒ʿল৻઒ˮɾ˿৽͂ࠥ൘ᔾ HK$50,000,000, in which approximately ݯ 50,000,000ಋʏc๫ɻ޸ ɀཌྷཌྷʄαɊכHK$43,983,000 is utilised as at 31 December 2005, 43,983,000ಋʏɰ ഽ28ڃכand disclosed in note 28. Subsequent to the balance ɀ˂ɍɊȹˀ৽͂cԎ ڌc˿৽͂ɾ܃೶့ˀכsheet date, the amount of the facilities is further ׄᚉe increased to HK$100,000,000 and is available up to ൘ᔾ൬ȹүᄈϭ100,000,000ಋ December 2006. ʏcτࢽ౨֝ϭɀཌྷཌྷʒαɊɀ 31 ˂ɍɊȹˀe

ʿল৻ֺొԜɾ൘ಁ̒ٽLoan from SCG Finance (3) ࠖ (3) ʿল৻ੀ൬ȹү̒ٽThe Directors are of the opinion that SCG Finance ໎ԑႏݯࠖ c໮೩ܰכ൘ಁؿᑹಁ౨cٽ֝ would further extend the repayment date of the loan such that the repayment would not have a material ൘ಁੀɺผྦྷ̯එ྆ɾᏪ༜஥ι adverse effect on the operations of the Group. ࠇɣɺСᄧᚊe

(4) Financial support (4) লܧʻܛ ʿȹΊઁٖٖ̒ٽʿʥࠖ̒ٽSCG and a controlling shareholder of SCG, Shougang ࠖ Holding (Hong Kong) Limited, have committed to ׭ࠖ፡ઁٖࠗಋτࠉʔ̇ɰֻ provide financial support to enable the Group to ጻΉ̯එ྆ొԜলܧʻܛcԚ̯ ল৻ஐͨଐ́ࣂѧͲכmeet in full its financial obligations as and when they එ྆ॶਪ ంйˀ౨঴߮Ɋɀ̯כarise and to continue the Group’s operations for a ᄚϷcԎ period of twelve months from the date of this report. ࠯˂౨ංᘗᙩ຤Ꮺ̯එ྆ɾพ ৻e

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 89 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

3. ADOPTION OF NEW AND REVISED HONG KONG 3. ઔढ़Ͳณʥ຤࠳߯ࠗಋল৻ంй ڬFINANCIAL REPORTING STANDARDS ๅ α۹c̯එ྆ࠖωઔढ़ʗПࠗͅಋผ̯כ In the current year, the Group has adopted all the new and revised Hong Kong Financial Reporting Standards ߮࢑ʔผࠗಋผ߮࢑ʔผʥࠗಋਝ (“HKFRSs”), Hong Kong Accounting Standards (“HKASs”) and ჌ল৻ంйկࡗผཕЗɾͲณʥ຤࠳߯ ʥ໻ᘷڬdࠗಋผ߮ๅڬInterpretations (hereinafter collectively referred to as “new ࠗಋল৻ంйๅ ʥ໻ڬand revised Standards and Interpretations”) issued by the ˞Ɏ଻ီݯͲณʥ຤࠳߯ๅ ɀཌྷཌྷʄαȹ˂ȹכሬ͂ڬHong Kong Institute of Certified Public Accountants (the ᘷc໮೩ๅ ඀նɾผ߮౨ංeઔ͂Ͳณʥ຤܃˞HKICPA”) that are relevant to its operations and effective ˀֶ“ ೪Εܧʥ໻ᘷኒߎ̯එ྆ɾผ߮ڬfor accounting periods beginning on or after 1 January 2005. ࠳߯ๅ The adoption of these new and revised Standards and ˞Ɏʿࠍτֺᛰ৽cΐϊᄧᚊ̯ผ߮α۹ ᔾiټInterpretations has resulted in changes to the Group’s ʥ༦֡ผ߮α۹ɾɰʔం accounting policies in the following areas that have an effect on the amounts reported for the current or prior years:

ጪɮԮiټ ڬHKAS 32 Financial Instruments: • ࠗಋผ߮ๅ• Disclosure and Presentation ଱32໔ ׄᚉʥеͶ ጪɮԮiټ ڬHKAS 39 Financial Instruments: • ࠗಋผ߮ๅ• Recognition and Measurement ଱39໔ ᆢႏʥ߮൴ HKFRS 2 Share-based Payment • ࠗಋল৻ంй ˞ٖͫݯਥ • ଱2໔ ᓣɾ˟ಁڬๅ

ጪɮټ଱32໔ڬa) HKAS 32 Financial Instruments: Disclosure (a) ࠗಋผ߮ๅ) and Presentation and ԮiׄᚉʥеͶʥ ጪɮټ೩39໔ڬHKAS 39 Financial Instruments: Recognition ࠗಋผ߮ๅ and Measurement Ԯiᆢႏʥ߮൴ α۹c̯එ྆ɰᎶ͂ࠗಋผ̯כ In the current year, the Group has applied HKAS 32 ጪɮԮiׄᚉʥټ଱32໔ڬFinancial Instruments: Disclosure and Presentation ߮ๅ ټ଱39໔ڬand HKAS 39 Financial Instruments: Recognition and еͶʥࠗಋผ߮ๅ Measurement. The application of HKAS 32 has had ጪɮԮiᆢႏʥ߮൴eࠗಋผ߮ ଱32໔ྦྷЩ౨ʥ˞֡ؿผ߮ڬno material impact on how financial instruments are ๅ ጪɮԮΣЄеͶԎಲࠇɣټpresented for current and prior accounting periods. α۹ כڬ଱39໔ڬHKAS 39, which is effective for annual periods ᄧᚊeࠗಋผ߮ๅ ඀ն܃˞beginning on or after 1 January 2005, generally does ɀཌྷཌྷʄαȹ˂ȹˀֶ not permit to recognise, derecognise or measure ɾα۹౨ං́ࢽcԎਥ̯ɺࢀஈ ጪ༅ଐʥ߲ඦ൬Ϸুืֲᆢټྦྷ financial assets and liabilities on a retrospective basis. The principal effects resulting from the ႏdՅࣱᆢႏֶ߮൴e˞Ɏล߸ ଱39໔ֺଐ́ڬimplementation of HKAS 39 are summarised below: ྡྷϷࠗಋผ߮ๅ ɾ˚߬ᄧᚊi

90 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

3. ADOPTION OF NEW AND REVISED HONG KONG 3. ઔढ़Ͳณʥ຤࠳߯ࠗಋল৻ంй ᙩڬFINANCIAL REPORTING STANDARDS (continued) ๅ ጪɮټ଱32໔ڬa) HKAS 32 Financial Instruments: Disclosure (a) ࠗಋผ߮ๅ) and Presentation and ԮiׄᚉʥеͶʥ ጪɮټ೩39໔ڬHKAS 39 Financial Instruments: Recognition ࠗಋผ߮ๅ and Measurement (continued) Ԯiᆢႏʥ߮൴ᙩ ጪ߲ඦɾʗᗘၤ߮ټጪ༅ଐʥټ Classification and measurement of financial assets and financial liabilities ൴ ଱39໔ᆲڬThe Group has applied the relevant transitional ̯එ྆గࠗಋผ߮ๅ ጪ߲ඦɾʗټጪ༅ଐʥټprovisions in HKAS 39 with respect to classification ௼ʑྦྷ ଱ڬand measurement of financial assets and financial ᗘʥ߮൴ɰઔढ़ࠗಋผ߮ๅ liabilities that are within the scope of HKAS 39. 39໔ɾޚᗐ༦ಎૈಁe

ጪ༅ଐټFinancial assets and financial liabilities other than debt ඦԴʥٖ̯ᖬԴ˞̔ɾ ጪ߲ඦټand equity securities ʥ From 1 January 2005 onwards, the Group classifies Ϭɀཌྷཌྷʄαȹ˂ȹˀ঴c̯එ ଱39໔ɾڬand measures its financial assets and financial ྆Ƚ࣓ኣࠗಋผ߮ๅ ټliabilities other than debt and equity securities ஃցྦྷඦԴʥٖ̯ᖬԴ˞̔ɾ ผכጪ߲ඦ˞֡ɺᙔټwhich were previously outside the scope of ጪ༅ଐʥ) ଱24໔ҙ༅ᖬԴผ߮ڬStatement of Standard Accounting Practice 24 ߮ྡྷ৻ๅ ټAccounting for investments in securities) in accordance ؒɾᆲ௼൬Ϸʗᗘʥ߮൴e ࣂя˞ʔ̡ٱጪ߲ඦټwith the requirements of HKAS 39. Financial assets ጪ༅ଐʥ ฌऩכጪ༅ଐʗᗘݯټand financial liabilities are initially measured at fair ࠤ߮൴e ጪ༅ଐdټʔ̡ࠤ୮ଉɾܘvalue. Financial assets are classified as “financial ሏ ጪ༅ଐd൘ಁʥᎶټassets at fair value through profit or loss”, “available- ˿Ԝˮਕ ጪ༅ټϭ Է ౨ˀ ܛ for-sale financial assets”, “loans and receivables” or νಁඖֶ ฌכጪ߲ඦ஝੒ʗᗘݯټheld-to-maturity financial assets”. Financial liabilities ଐe“ ጪ߲ඦֶټʔ̡ࠤ୮ଉɾܘare generally classified as “financial liabilities at fair ऩሏ ጪ߲ټʔ̡ࠤ୮ଉɾܘฌऩሏכ value through profit or loss” or “financial liabilities ጪ߲ټጪ߲ඦԯˢټother than financial liabilities at fair value through ඦ˞̔ؿ ʔ̡ࠤ୮ଉɾܘฌऩሏכprofit or loss (other financial liabilities)”. Financial ඦe ʔ̡ࠤ߮൴cϤʔ̡ܘጪ߲ඦټ liabilities at fair value through profit or loss are ฌऩሏʑᆢכઅقڬmeasured at fair value, with changes in fair value ࠤɾᛰ৽ ܃үᆢႏٱጪ߲ඦΕټbeing recognised in profit or loss directly. Other ႏeԯˢ ᚫሻι̯Ͷܘfinancial liabilities are carried at amortised cost using ઔ͂ྡྷ჌Сଅؒ ڬthe effective interest method after initial recognition. ሏe̯එ྆ɰઔढ़ࠗಋผ߮ๅ ผכᗐ༦ಎૈʼeͅޚThe Group has applied the relevant transitional ଱39໔ɾ provisions in HKAS 39. As a result of this change in ߮ܧ೪τܰඖᛰ৽cᎶ˟ᗐடɁ the accounting policy, the non-interest bearing ɡɾЛࢠಁඖ Ð ȹα܃Է౨ܘᚫ amount due to a related party — due after one year ሻι̯ͶሏcԎଐ́ȿ࿀ϭɀཌྷ was stated at amortised cost, giving rise to capital ཌྷʄαɊɀ˂ɍɊȹˀ˅α۹ɾ contribution reserve amounting to approximately ༅̯ྡྷᖔ᎝ௐ޸445,000ಋʏe HK$445,000 for the year ended 31 December 2005.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 91 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

3. ADOPTION OF NEW AND REVISED HONG KONG 3. ઔढ़Ͳณʥ຤࠳߯ࠗಋল৻ంй ᙩڬFINANCIAL REPORTING STANDARDS (continued) ๅ ጪɮټ଱32໔ڬa) HKAS 32 Financial Instruments: Disclosure (a) ࠗಋผ߮ๅ) and Presentation and ԮiׄᚉʥеͶʥ ጪɮټ೩39໔ڬHKAS 39 Financial Instruments: Recognition ࠗಋผ߮ๅ and Measurement (continued) Ԯiᆢႏʥ߮൴ᙩ ጪ༅ଐټFinancial assets and financial liabilities other than debt ඦԴʥٖ̯ᖬԴ˞̔ɾ ጪ߲ඦᙩټand equity securities (continued) ʥ ɀཌྷཌྷʄαȹ˂ȹˀc̯එ྆כ On 1 January 2005, the Group classified and ޚ଱39໔ɾڬmeasured its equity securities in accordance with the ɰᎶ͂ࠗಋผ߮ๅ transitional provisions of HKAS 39. As a result, ᗐ༦ಎૈಁeΐϊcҙ༅ᖬԴ ᔾཌྷκ৖޸117,000ಋʏᅆௐټInvestment securities” amounted to Nil (net of ɾ“ allowance of approximately HK$117,000) has been ɾ૱ᔾΕɀཌྷཌྷʄαȹ˂ȹˀɰ ഽڃclassified as available-for-sale investment on 1 ୽ʗᗘݯ˿Ԝˮਕҙ༅Ӯ January 2005 (see Note 3A). 3A)e

Derivative ߪ́ɮԮ c̯ʔکɀཌྷཌྷʄαȹ˂ȹˀכ Prior to 1 January 2005, the Company granted Sotas Limited, a related company, a share option which ̇઒ʀᗐடʔ̇Sotas Limitedᑪٖ entitled Sotas Limited to acquire 8,331,615 shares ᚬcSotas LimitedτᚬϬɀཌྷཌྷɍ of the Company within 36 months from 4 August αɄ˂̒ˀ঴36࠯˂ʑᑪൕ̯ʔ at an aggregate exercise price of US$600,000. ٖ̇ͫ8,331,615ٖcᐢϷԚძݯ 2003 This option meets the definition of a derivative 600,000޻ʏeᑪٖᚬଲ΋ߪ́ɮ which should be stated at fair value. According to ԮɾցຮcᎶܘʔ̡ࠤͶሏe࣓ ଱39໔ɾ༦ಎૈڬthe transitional provisions of HKAS 39, the difference ኣࠗಋผ߮ๅ ሏࠍࠤၤʔ̡ࠤɾ࢏ᔾکbetween the previous carrying amount and the fair ʼcͱ जړvalue should be adjusted to the retained earnings ඘Εɀཌྷཌྷʄαȹ˂ȹˀɾ ɀཌྷכϷԚძכСʑሁኬeͅޔ at 1 January 2005. As the exercise price was above ᗐٖͫɾ̟ޚthe market price of the underlying share as at 1 ཌྷʄαȹ˂ȹˀ༖ ɾพᐜٲJanuary 2005, there is no financial impact on the ძݯঢ়cΐϊྦྷল৻ం results of the financial statements. During the year, Ԏಲল৻ᄧᚊeαʑcτᗐᑪٖ this share option has been cancelled. ᚬɰ୽ഽሻe

92 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

3. ADOPTION OF NEW AND REVISED HONG KONG 3. ઔढ़Ͳณʥ຤࠳߯ࠗಋল৻ంй ᙩڬFINANCIAL REPORTING STANDARDS (continued) ๅ ٖͫ˞଱2໔ڬb) HKFRS 2 Share-based Payment (b) ࠗಋল৻ంйๅ) ݯਥᓣɾ˟ಁ α۹c̯එ྆ɰᎶ͂ࠗಋল̯כ In the current year, the Group has applied HKFRS 2 ଱2໔˞ٖͫݯਥᓣڬShare-based Payment which requires an expense to ৻ంйๅ ஃց̯එ྆ᑪൕڬbe recognised where the Group buys goods or ɾ˟ಁc໮ๅ ৻˞͚౒ֶٖٖͫרᏵՅֶۂobtains services in exchange for shares or rights over ஒ ֶ͂מshares (“equity-settled transactions”), or in exchange ͫɾᚬСᚬऩ೶့͚ ցᅕ͌ɾٖܞכ๫ޚfor other assets equivalent in value to a given ˞͚౒ძࠤ number of shares or rights over shares (“cash-settled ֶٖͫͫɾᚬСɾԯˢ༅ଐଊ ࣂ඘ᆢႏ඀ʻeࠗמ೶့͚ټ transactions”). The principal impact of HKFRS 2 on ଱2໔ྦྷ̯එ྆ɾڬthe Group is in relation to the expensing of the fair ಋল৻ంйๅ value of share options granted to directors and ᄧᚊ˚߬ݯ̯එ྆໎ԑʥ཭ࡗᏵ ઒ˮˀ౨ᔤցɾʔכemployees of the Group, determined at the date of ઒ɾᑪٖᚬ ᓊᙔ౨ʑʻሻeΕכgrant of the share options, over the vesting period. ̡ძࠤcੀ ˞଱2໔ڬPrior to the application of HKFRS 2, the Group did Ꮆ͂ࠗಋল৻ంйๅ ʿ܃c̯එ྆ΕᑪٖᚬᏵϷԚک not recognise the financial effect of these share options until they were exercised. In relation to share ผᆢႏԯল৻ᄧᚊe̯එ྆ɰੀ ɀכ଱2໔Ꮆ͂ڬoptions granted before 1 January 2005, the Group ࠗಋল৻ంйๅ ઒ˮɾ܃chooses not to apply HKFRS 2 with respect to share ཌྷཌྷʄαȹ˂ȹˀֶɾ options granted on or before 7 November 2002 and ᑪٖᚬeగɀཌྷཌྷʄαȹ˂ȹˀ ઒ˮɾᑪٖᚬϤӰc̯එ྆ک˞ vested before 1 January 2005. However, the Group is still required to apply HKFRS 2 retrospectively to ፕእྦྷɀཌྷཌྷɀαɊȹ˂ȼˀֶ ɀཌྷཌྷʄαȹ˂ȹכ઒ˮԎک˞ share options that were granted after 7 November ϷԚɾᑪٖᚬɺʀઔ͂ࠗک˞and had not yet vested on 1 January 2005. ˀ 2002 ଱2໔eಳϤc̯ڬComparative figures have been restated (see Note ಋল৻ంйๅ ଱2ڬ3A). එ྆ʋ඘ੀࠗಋল৻ంйๅ ˂ɀཌྷཌྷɀαɊȹכ໔ুืᎶ͂ ɀཌྷཌྷʄαȹכ઒ˮʥ܃˞ȼˀ ȹˀֆ̰ϷԚɾᑪٖᚬeˈ༖˂ ഽ3AeڃᅕΥɰʀࠇͶӮ

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 93 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

3A. SUMMARY OF THE EFFECTS OF THE CHANGES 3A. ผ߮ܧ೪ᛰ৽ɾᄧᚊล߬ IN ACCOUNTING POLICIES ೪ᛰ৽ྦྷ̯α۹ʥ༦֡α۹พܧThe effects of the changes in the accounting policies ɐ߸ผ߮ described above on the results for the current and prior ᐜɾᄧᚊΣɎi years are as follows:

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK$’000 HK$’000 ɝಋʏ ɝಋʏ

Increase in administrative expenses on ΐᆢႏݯ൒͂ɾ˞ٖͫݯ recognition of share-based payment ਥᓣɾ˟ಁϤᄈ˱ɾ ඀ʻʥ̯α۹ᑋฌᄈ˱ 1,338 891ܧas expenses and increase in loss for the year Ϸ

94 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

3A. SUMMARY OF THE EFFECTS OF THE CHANGES 3A. ผ߮ܧ೪ᛰ৽ɾᄧᚊล߬ᙩ IN ACCOUNTING POLICIES (continued) ɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀʥɀཌྷཌྷʄכ The cumulative effects of the application of the new and ʥ໻ᘷڬrevised Standards and Interpretations on 31 December 2004 αȹ˂ȹˀᎶ͂Ͳณʥ຤࠳߯ๅ and 1 January 2005 are summarised below: ɾୃ߮ᄧᚊล߸ΣɎi

As at 31 December As at As at 2004 31 December 1 January (originally Retrospective 2004 Prospective 2005 stated) adjustment (restated) adjustment (restated) ɀཌྷཌྷ̒αכ ɀཌྷཌྷ̒αכ ɀཌྷཌྷʄαכ ˂Ɋɀ˂ Ɋɀ ɍɊȹˀ ɍɊȹˀ ȹ˂ȹˀ ࡈͶ ুืሁኬ ຤ࠇͶ ད౨ሁኬ ຤ࠇͶ HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ HKFRS 2 HKAS 39 ࠗಋল৻ంй ࠗಋผ߮ ଱39໔ڬ଱2໔ ๅڬๅ

Balance sheet items ༅ଐ߲ඦඖ͌

พdᄥָʥذ Property, plant and equipment உௐ 14,000 — 14,000 — 14,000 Available-for-sale ˿Ԝˮਕҙ༅ ————— ഽaڃ (investment (Note a Investment securities ҙ༅ᖬԴ ————— ഽaڃ (Note a) Other payables and ԯˢᎶ˟ሏඖʥ accruals Ꮆ߮൒͂ (122,621) — (122,621) — (122,621) Other net assets ԯˢ༅ଐ૱ᔾ 55,060 — 55,060 — 55,060

Total effects on assets ྦྷ༅ଐʥ߲ඦ and liabilities ᄧᚊᐢᔾ (53,561) — (53,561) — (53,561)

Share capital ٖ̯ 8,008 — 8,008 — 8,008 Accumulated losses ୃ߮ᑋฌ (194,992) (891) (195,883) — (195,883) Other reserves ԯˢ᎝ௐ 133,423 891 134,314 — 134,314

Total effects on equity ྦྷᚬऩᄧᚊᐢᔾ (53,561) — (53,561) — (53,561)

ഽiڃ :Note

ࠗಋܘɀཌྷཌྷʄαȹ˂ȹˀכa) On 1 January 2005, the Group classified and measured its (a) ̯එ྆) ଱39ૈɾ༦ಎૈಁྦྷԯҙ༅ڬequity securities in accordance with the transitional ผ߮ๅ provisions of HKAS 39. As a result, “Investment securities” ᖬԴ൬Ϸʗᗘʥ߮൴eΐϊcҙ༅ᖬ ᔾݯཌྷಋʏκ৖޸117,000ಋʏټamounted to Nil (net of allowance of approximately Դ HK$117,000) has been classified as available-for-sale ᅆௐɾ૱ᔾɰ୽ʗᗘݯ˿Ԝˮਕҙ༅ ഽ16eڃinvestment on 1 January 2005 (see note 16). Ӯ

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 95 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

3A. SUMMARY OF THE EFFECTS OF THE CHANGES 3A. ผ߮ܧ೪ᛰ৽ɾᄧᚊล߬ᙩ IN ACCOUNTING POLICIES (continued) Ꮆ͂ɎͶɰཕЗЎֆ̰́کThe Group has not early applied the following new and ̯එ྆Ԏಲొ ʥ໻ᘷe̯ʔ̇໎ڬrevised Standards and Interpretations that have been issued ࢽɾͲณʥ຤࠳߯ๅ ʥ໻ڬbut are not yet effective. The Directors of the Company ԑད౨cᎶ͂໮೩Ͳณʥ຤࠳߯ๅ ஥ιࠇɣᄧٲanticipate that the application of these new and revised ᘷੀɺผྦྷ̯එ྆ɾল৻ం Standards and Interpretations will have no material impact ᚊe on the financial statements of the Group.

଱1໔࠳̯߯ ༅̯ׄᚉ1ڬHKAS 1 (Amendment) Capital Disclosure 1 ࠗಋผ߮ๅ ଱19໔ ၀့ฌऩdඑ྆߮ڬHKAS 19 (Amendment) Actuarial Gains and Losses, Group ࠗಋผ߮ๅ Plans and Disclosures 2 ࠳̯߯ ིʥׄᚉ2 ଱21໔ ྊ̔พ৻ҙ༅૱ᔾ2ڬHKAS 21 (Amendment) Net Investment in a Foreign ࠗಋผ߮ๅ operation 2 ࠳̯߯ מ଱39໔ དಡඑ྆ʑ஫͚ڬHKAS 39 (Amendment) Cash Flow Hedge Accounting of ࠗಋผ߮ๅ ݚ൴ྦྷҿټForecast Intragroup Transactions 2 ࠳̯߯ ɾଊ ผ߮୮ଉؒ2 ଱39໔ ౨ᚬɾʔ̡ძࠤ2ڬHKAS 39 (Amendment) The Fair Value Option 2 ࠗಋผ߮ๅ ࠳̯߯ ΋޸2ړ଱39໔ʥ ল৻ኪڬHKAS 39 and HKFRS 4 Financial Guarantee Contracts 2 ࠗಋผ߮ๅ ଱4໔ڬAmendments) bࠗಋল৻ంйๅ) ࠳̯߯ ༅฻ɾৼ઄ʥذ଱6໔ ᘊڬHKFRS 6 Exploration for and Evaluation of ࠗಋল৻ంйๅ Mineral Resources 2 ിЅ2 ጪɮԮiׄᚉ1ټ ଱7໔ڬHKFRS 7 Financial Instruments: Disclosures 1 ࠗಋল৻ంйๅ HK(IFRIC) — INT 4 Determining whether an Arrangement ࠗಋ(IFRIC)Ð໻ᘷ଱4໔ ᔤցΪખܰЯ˳ܢ Contains a Lease 2 ै༉2 HK(IFRIC) — INT 5 Rights to Interests Arising from ࠗಋ(IFRIC)Ð໻ᘷ଱5໔ ໬৖༜Аdనࡈʥ ֺټDecommissioning, Restoration and ᏷ྊ࠳నਥ Environmental Rehabilitation Funds 2 ଐ́ᚬऩɾᚬС2

HK(IFRIC) — INT 6 Liabilities arising from Participating in ࠗಋIFRICÐ໻ᘷ଱6໔ ਄ၤऋց̟௿ֺଐ a Specific Market-Waste Electrical and ́ɾஐͨÐᄠૃ Electronic Equipment 3 ÐཋɈʥཋɥஉ ௐ3 ڬHK(IFRIC) — INT 7 Applying the Restatement Approach ࠗಋIFRICÐ໻ᘷ଱7໔ ࣓ኣࠗಋผ߮ๅ under HKAS 29 Financial Reporting in ଱29໔బֲ஝ஒ Hyperinflationary Economies 4 ጗ഌ຤Ꮬɻɾল ৻ంйઔ͂ࠇͶ 4ؒ

96 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

3A. SUMMARY OF THE EFFECTS OF THE CHANGES 3A. ผ߮ܧ೪ᛰ৽ɾᄧᚊล߬ᙩ IN ACCOUNTING POLICIES (continued) ඀նɾ܃ɀཌྷཌྷȼαȹ˂ȹˀֶԯכ Effective for annual periods beginning on or after 1 January 1 1 α۹౨ං́ࢽe .2007 ඀նɾ܃ɀཌྷཌྷʒαȹ˂ȹˀֶԯכ Effective for annual periods beginning on or after 1 January 2 2 α۹౨ං́ࢽe .2006 ඀ն܃ɀཌྷཌྷʄαɊɀ˂ȹˀֶԯכ Effective for annual periods beginning on or after 1 3 3 December 2005. ɾα۹౨ං́ࢽe ඀նɾ܃ɀཌྷཌྷʒαɍ˂ȹˀֶԯכ Effective for annual periods beginning on or after 1 March 4 4 α۹౨ං́ࢽe .2006

4. SIGNIFICANT ACCOUNTING POLICIES 4. ˚߬ผ߮ܧ೪ Ƚ࣓ኣࠗಋผ߮࢑ʔผཕЗɾࠗٲThe financial statements have been prepared in accordance ল৻ం ༗ٲᇁႇeϊ̔cল৻ంڬwith Hong Kong Financial Reporting Standards issued by ಋল৻ంйๅ ʥࠗಋʔ̇ڬHKICPA. In addition, the financial statements include τᐲֺ͚௚พ׶ᖬԴɐ̟ஃ applicable disclosures required by the Rules Governing the ૈԝஃցɾሬ͂ׄᚉe Listing of Securities on the Growth Enterprise Market of the Stock Exchange and by the Hong Kong Companies Ordinance.

ዃ̌ι̯ਥๅᇁႇc੹ܘȽٲThe consolidated financial statements have been prepared ၃΋ল৻ం ʔ̡ძࠤ߮൴cΣɎͶผܘጪɮԮټon the historical cost basis except for certain financial ߗɳ ೪ֺ߸eܧinstruments, which are measured at fair values, as explained ߮ in the accounting policies set out below.

Basis of consolidation ၃΋ਥๅ ᙔʔ̇ɾڃʔ̇ʥԯ̯ܢ˳ٲThe consolidated financial statements incorporate the ၃΋ল৻ం eٲfinancial statements of the Company and its subsidiaries. ল৻ం

ᙔʔ̇พᐜڃα۹ʑֺνᑪֶˮਕɾ̯כ The results of subsidiaries acquired or disposed of during ϭˮਕ́ࢽˀ౨قthe year are included in the consolidated income statement Ƚͅνᑪ́ࢽˀ౨঴ֶ ʑΣሬ͂eٲfrom the effective date of acquisition or up to the effective ݯ˅߮Ƀ၃΋ฌऩ date of disposal, as appropriate.

ᙔʔ̇ɾল৻ంڃWhere necessary, adjustments are made to the financial Στ჏߬c̯එ྆ผྦྷ ೪ၤ̯එ྆ԯˢܧАˮሁኬcԚԯผ߮ٲ statements of subsidiaries to bring their accounting policies ȹߎeܛړinto line with those used by other members of the Group. ιࡗʔֺ̇ઔّ͂ d೶቗dνɃמAll intra-group transactions, balances, income and expenses ֺτ̯එ྆ʑʔ̇ංɾ͚ are eliminated on consolidation. ʥ඀ʻяɰА၃΋ྦྷሻe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 97 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

4. SIGNIFICANT ACCOUNTING POLICIES (continued) 4. ˚߬ผ߮ܧ೪ᙩ Jointly controlled operations ͳ΃ઁԹྡྷ᛽ અ࣓ኣ΋قWhere a group company undertakes its activities under joint ߗȹංඑ྆ʔֻ̇ጻԯพ৻Ƚ ໮೩ͳڬventure arrangements directly, constituted as jointly ᏪͬพΪખୂιͳ΃ઁԹพ৻c Ꮆ߮ܘcontrolled operations, the assets and liabilities arising from ΃ઁԹพ৻ֺଐ́ɾ༅ଐʥ߲ඦȽ ʑᆢႏcԎٲτᗐʔ̇ɾ༅ଐ߲ඦכthose jointly controlled operations are recognised in the ਥๅ τᗐ͚كbalance sheet of the relevant company on an accrual basis ࣓ኣΈඖֲ͌ሔʀ˞ʗᗘe๫ད ڬɾ຤ᏜСऩੀݚɃþݚˮ̯එ྆ࣂcמ and classified according to the nature of the item. The Group’s share of the income from jointly controlled ̯එֺ྆ᚫЌͳ΃ઁԹพ৻ɾνɃட΃ʵ ʑeٲoperations together with the expenses that it incurs are ߎɾ඀ʻȽ߮Ƀฌऩ included in the income statement when it is probable that the economic benefits associated with the transactions will flow to/from the Group.

Revenue recognition νऩᆢႏ ɰνܞνऩۂRevenue, representing fair value of amount received and ˀ੒พ৻༦ೡɻɾሻਕஒ ༠ιɎͶֺτכᔾɾʔ̡ࠤȽټreceivable from sale of goods in the ordinary course of ʥᎶν business, is recognised when all of the following criteria are ૈͧࣂᆢႏi met:

ֺτᚬɐɾࠇ߬ࠓ፮ʥం༭ۂthe significant risks and rewards of ownership of g ஒ • goods are transferred to buyers; ɰᔝଫʀൕʿh

ᙩဳܛܪྡྷۂजɾஒړneither continuing managerial involvement to the g ɺʹྦྷֺ • degree usually associated with ownership nor ଉᚬʥྡྷ჌ઁԹᚬh effective control over the goods are retained;

•the amount of revenue can be measured reliably; g τᗐνɃ˿˞˿ቌΔ߮൴h

ᗐɾ຤ᏜСऩ˿ॶݚɃޚמit is probable that the economic benefits associated g ၤ͚ • with the transaction will flow to the Group; and ̯එ྆hʥ

ֺଐֶ́ੀʀଐ́ɾιמthe costs incurred or to be incurred in respect of the g τᗐ͚ • transaction can be measured reliably. ̯˿˞˿ቌΔ߮൴e

Training fee income is amortised over the period of the ਩ফ൒νɃܘ਩ফᇾೡɾ౨ࠉᚫʗeɰν training course. Unearned training fee income received is ̰ᑨՅɾ਩ফ൒νɃȽɃሏͶݯདν਩ফ recorded as training fees received in advance. ൒e

98 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

4. SIGNIFICANT ACCOUNTING POLICIES (continued) 4. ˚߬ผ߮ܧ೪ᙩ Revenue recognition (continued) νऩᆢႏᙩ Computer Graphic (“CG”) creation and production income ཋ຾྇ཫཋ຾྇ཫ௚АʥႇАνɃȽ ৻ࣂᆢႏeרԜཋᄧႇАొכ .is recognised when the film production service is provided

৻ࣂᆢႏeרԜొכ৻νɃȽרTechnical service income is recognised when the service is Ҍ୺ provided.

τᗐैܘᇃؒق˞νɃȽټRental income from equipment leasing is recognised on a உௐै༉ɾै straight line basis over the relevant lease terms. ༉౨ࠉᆢႏe

ࣂᆢႏeܮᅕᆦ৽ೋɐכBox office receipts are recognised when the digital motion ଩ָνɃȽ pictures are exhibited.

Franchise fees from digital cinemas for use of equipment ΐԚ͂ᅕᆦᄧ৑உௐϤଐ́ɾਿСᚬ൒Ƚ ༉உௐֺଐ́ैܘare recognised based on certain percentage of revenue ࣓ኣਿСᚬԾᘪɾʑࢀ generated from the leasing of equipment in accordance νऩɾߗɳϛʗˈᆢႏe with the franchise agreement.

ጪ༅ଐؿСࢠνɃȽ຤਄ϣֆ̰᎛ᑹ̯ټ Interest income from a financial asset is accrued on a time ໮כᔾʥሬ͂ɾτࢽࢠଅЩ˿ੀད߮ټ basis, by reference to the principal outstanding and at the νɃѧͲҗټeffective interest rate applicable, which is the rate that ༅ଐؿད౨ྐ՜ʑؿ̰Ԟଊ ˈࣂංܘ܃exactly discounts the estimated future cash receipts ଊݯ໮༅ଐؿሏࠍࠤؿࢠଅ through the expected life of the financial asset to that asset’s ԝਥๅᆢႏe net carrying amount.

พdᄥָʥஉௐذ Property, plant and equipment ιܘඖ͌৖̔ȽۺพdᄥָʥஉௐΕذ Property, plant and equipment, other than construction in progress, are stated at cost less subsequent accumulated ̯ࠤಕˀ܃ɾୃ߮җᓿʥୃ߮ಕࠤᑋฌͶ depreciation and accumulated impairment losses. ሏe

ඖ͌৖ۺพdᄥָʥஉௐΕذܘܞDepreciation are provided to write off the cost of property, җᓿ ᇃؒ࿁ಕԯ༅ق˞plant and equipment, other than construction in progress, ̔ɾЅ߮˿Ԛ͂α౨ over their estimated useful lives, using the straight line ଐɾι̯e method.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 99 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

4. SIGNIFICANT ACCOUNTING POLICIES (continued) 4. ˚߬ผ߮ܧ೪ᙩ พdᄥָʥஉௐᙩذ (Property, plant and equipment (continued ப͂ܧֆΕႇА༦ೡɻֶАϷܞඖ͌ۺConstruction in progress represents assets in the course of Ε ι̯ࠤܘconstruction for production, or administrative purposes, or ֶԚ͂͌ؿʋ̰ᔤցɾ༅ଐc Ԏ ֺܢ˳for purposes not yet determined, are carried at cost, less any ಕͨЄɰᆢႏಕࠤᑋฌɃሏeι̯ અᎶقඖ͌඀ʻʥ໮೩ඖ͌ɾԯˢۺidentified impairment loss. Cost includes all construction τΕ ඖ͌ѧιࣂɾι̯Ƚᔝᅆϭۺexpenditure and other direct costs attributable to such Ќι̯eΕ ܘพdᄥָʥஉௐɾሬ๫ᗘПc Ԏذprojects. Costs on completed construction work are ԯˢ ѧιࣂੀ໮೩ۺτᗐ༅ଐɾጙכ΃ਥๅޚ transferred to other appropriate category of property, plant and equipment and depreciation of these assets are ༅ଐɾҗᓿκ৖Аԯˢ༅ଐe charged, on the same basis as other assets when the construction of the related assets is completed.

τɾ༅ଐȽ˞ֺኟτ༅ଐɾܛጪ༅ै༉ܘ Assets held under finance leases are depreciated over their ԯЅ߮˿Ԛ͂α౨ֶ࠱༖೛ܘ΃ਥๅޚ estimated useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. ޚᗐै༉౨ࠉʀ˞җᓿe

ˮਕࣂֶ๫ᘗᙩכพdᄥָʥஉௐඖ͌ذ An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are Ԛ͂໮༅ଐད౨ɺผଐ́ͨЄˀ܃຤ᏜС expected to arise from the continued use of the asset. Any ऩࣂՅࣱᆢႏe༅ଐՅࣱᆢႏଐ́ɾͨЄ ໮ඖ͌ɾˮਕֺ੡ಁඖ૱ᔾၤሏܘgain or loss arising on derecognition of the asset (calculated ฌऩ ໮ඖ͌Յࣱᆢႏɾכas the difference between the net disposal proceeds and ࠍࠤංɾ࢏ᔾ့߮ eٲthe carrying amount of the item) is included in the income α۹߮Ƀฌऩ statement in the year in which the item is dereognised.

Leasing ै༉ Leases are classified as finance leases whenever the terms ๫ै༉ૈಁੀֺࣹʥኟτᚬɾ೸ɣ஫ͫࠓ of the lease transfer substantially all the risks and rewards ፮ʥΑంᔝᜑʀֻैɁࣂcै༉Ƚʗᗘݯ of ownership to the lessee. All other leases are classified as ጪ༅ै༉eֺτԯˢै༉яʗᗘݯ຤Ꮺै operating leases. ༉e

The Group as lessor ̯එ྆АݯˮैɁ ˞ᗐै༉α౨ޚܘνɃȽټRental income from operating leases is recognised in the ຤Ꮺै༉ɾै ԾਆʥΪખࣂʵכᆢႏeٲฌऩכᇃؒق income statement on a straight line basis over the term of અι̯Ƚ˱ϭै༉༅ଐɾሏࠍقүٱthe relevant lease. Initial direct costs incurred in negotiating ߎɾ ᇃؒᆢႏАȹඖʻق˞༉α౨ैܘand arranging an operating lease are added to the carrying ࠤcԎ amount of the leased asset and recognised as an expense ˮe on a straight line basis over the lease term.

100 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

4. SIGNIFICANT ACCOUNTING POLICIES (continued) 4. ˚߬ผ߮ܧ೪ᙩ Leasing (continued) ै༉ᙩ The Group as lessee ̯එ྆АݯֻैɁ Assets held under finance leases are recognised as assets ܘጪ༅ै༉ܛτɾ༅ଐܘै༉඀նࣂɾʔ ɾଊࠤټ௖Гैܘof the Group at their fair value at the inception of the lease ̡ძࠤֶ࠱ݯ༖Гّ כᎶ߲ඦޚor, if lower, at the present value of the minimum lease ᆢႏݯ̯එ྆༅ଐeˮैɁɾ ˈܘټͶАጪ༅ै༉ֻኪeैٲpayments. The corresponding liability to the lessor is ༅ଐ߲ඦ ጪ༅൒͂ʥಕʭै༉ֻኪɾංАˮʗכincluded in the balance sheet as a finance lease obligation. ԝ Lease payments are apportioned between finance charges ৉c੣ϤԚ໮೩߲ඦɾᎶ˟቗ᔾɾࢠଅ՞ ฌऩɻκ৖eכand reduction of the lease obligation so as to achieve a ցeጪ༅൒͂ constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss.

˞ᗐै༉α౨ޚܘȽټै˟Rentals payable under operating leases are charged to profit ຤Ꮺै༉ɾᎶ ฌऩሏκ৖eАݯ͓߯ȹඖ຤Ꮺכᇃؒق or loss on a straight line basis over the term of the relevant ᇃؒق˞lease. Benefits received and receivable as an incentive to ै༉ɾ᎚యɾɰνʥᎶνါСȽ ʻˮಕʭeټ༉α౨ᆢႏАैैܘ enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight line basis.

Foreign currencies ̔ྫྷ ˞ࣂcٲᇁႇΈ࠯Пඑ྆ྡྷ᛽ɾল৻ంכ In preparing the financial statements of each individual group entity, transactions in currencies other than the ໮ྡྷ᛽˲ॶஒྫྷ˞̔ɾஒྫྷ̔ྫྷ൬Ϸɾ ˀ౨ɾሬ͂මଅ౒့ݯ˲ॶמ͚ܘяמfunctional currency of that entity (foreign currencies) are ͚ recorded in its functional currency (i.e. the currency of the ஒྫྷΣ໮ྡྷ᛽຤ᏪֺΕ˚߬຤ᏜΔਂɾ Έ೶့ˀc˞̔ྫྷ߮ࠤɾכprimary economic environment in which the entity ஒྫྷতሏe operates) at the rates of exchanges prevailing on the dates ஒྫྷඖ͌яܘ೶့ˀɾሬ͂මଅࠇณ౒ ஒྫྷඖ͌ڈʔ̡ძࠤ˞̔ྫྷ߮ࠤɾܘof the transactions. At each balance sheet date, monetary ့e ʔ̡ძࠤᔤց๫ˀɾሬ͂මଅࠇณכܘitems denominated in foreign currencies are retranslated Ƚ ஒྫྷඖ͌ڈ༦֡ι̯߮൴ɾྫྷ̔ܘat the rates prevailing on the balance sheet date. Non- ౒့e monetary items carried at fair value that are denominated ˇ඘ࠇณ౒့e in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non- monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 101 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

4. SIGNIFICANT ACCOUNTING POLICIES (continued) 4. ˚߬ผ߮ܧ೪ᙩ Foreign currencies (continued) ̔ྫྷᙩ ೶့ʥ౒့ஒྫྷඖ͌ࣂଐ́ɾමЙ࢏ᔾכ Exchange differences arising on the settlement of monetary ฌऩɻᆢႏe˞ʔכ೩ଐ́౨ංʑ֤כitems, and on the translation of monetary items, are я ଐ܃ஒྫྷඖ͌຤ࠇณ౒့ڈrecognised in profit or loss in the period in which they arise. ̡ძࠤ߮ࠤɾ ໮౨ංͶАฌऩc੹౒့כExchange differences arising on the retranslation of non- ́ɾමЙ࢏ᔾ ஒྫྷඖ͌ଐ́ڈᑋɾޔᚬऩʑᆢႏכઅق monetary items carried at fair value are included in profit قor loss for the period except for differences arising on the ɾ࢏ᔾ৖̔cΕϊੱؗɎcමЙ࢏ᔾ͛ ᚬऩʑᆢႏeכretranslation of non-monetary items in respect of which અ gains and losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity.

ϤӰc̯එ྆ࣵ̔຤ٲFor the purposes of presenting the consolidated financial గеͶ၃΋ল৻ం ೶့ˀɾሬ͂כܘstatements, the assets and liabilities of the Group’s foreign Ꮺพ৻ɾ༅ଐʥ߲ඦȽ operations are translated into the presentation currency of මଅ౒့ݯ̯ʔ̇ɾͶሏஒྫྷЩಋʏc ໮α۹ɾ̡яමଅ൬ܘthe Company (i.e. Hong Kong dollars) at the rate of exchange ϤԯνɃʥʻˮȽ ໮౨ංʑˮଊɣఝؐכමଅڈprevailing at the balance sheet date, and their income and Ϸ౒့c৖ ౒့כઔ͂ڬϊੱؗɎcכАПሃcڬexpenses are translated at the average exchange rates for ৽ the year, unless exchange rates fluctuate significantly during ๫ˀɾሬ͂මଅeֺଐ́ɾමЙ࢏ᔾΣ the period, in which case, the exchange rates prevailing at τȽᆢႏАᚬऩɾዟ͓஫ͫමЙ᎝ ࣵ̔พ৻୽ˮਕכthe dates of transactions are used. Exchange differences ௐe໮೩මЙ࢏ᔾȽ ฌऩሏʑᆢႏeכarising, if any, are recognised as a separate component of ɾ౨ංʑ equity (the exchange reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

102 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

4. SIGNIFICANT ACCOUNTING POLICIES (continued) 4. ˚߬ผ߮ܧ೪ᙩ Film costs and films under production ཋᄧι̯ʥΕႇཋᄧ Films under production is stated at lower of cost and net ΕႇཋᄧȽܘι̯ࠤၤ˿ᛰଊ૱ࠤɾ༖Г અႇАι̯dᚋਐقܢ˳realisable value. Cost comprises direct production costs, ّͶሏeι̯ ᖫଐᚬ൒ʥֺЌˀ੒ႇА൒͂ɾሬكconsultancy fees, payment for intellectual property rights ൒d ႇА۩ֺЌܘand appropriate proportion of production overheads which ๫஫ͫc Ϥˀ੒ႇА൒͂Ƚ are allocated on the basis of floor areas occupied by the ᅢࠍࠍዶdֺԚ͂ႇАஉௐɾࣂංˈԝֶ production unit, proportion of time of production facilities ໎ԑႏݯሬփɾԯˢӡ଻ʗ৉ʿؒʗᚫe utilised or other systematic allocation methods where the directors consider appropriate.

ᔝᅆϭཋᄧι̯܃ႇАѧιכProduction costs are transferred to film costs upon ႇАι̯ completion. Film costs are stated at the lower of cost and ʑeཋᄧι̯Ƚܘι̯ࠤၤ˿ᛰଊ૱ࠤɾ net realisable value. ༖ГّͶሏe

Inventories Φஒ ι̯ࠤၤ˿ᛰଊ૱ࠤɾ༖ГّͶܘInventories are stated at the lower of cost and net realisable ΦஒȽ ͱɃͱˮ့ؒ߮eܘvalue. Cost is calculated using the first-in, first-out method. ሏeι̯

Taxation ೢඖ ౨Ꮆ˟ೢඖʥႮ֝ೢඖe̯ܞIncome tax expense represents the sum of the tax currently ֺ੡ೢ඀ʻ payable and deferred tax.

α۹ɾᎶᇾೢึС̯߮ܘThe tax currently payable is based on taxable profit for the ̯౨Ꮆ˟ೢඖȽ ɻֺంक़Сɺٲyear. Taxable profit differs from net profit as reported in the ့eᎶᇾೢึСၤฌऩ Εԯˢα۹Ꮆᇾೢܢ˳ɺّکincome statement because it excludes items of income or ΃c ܰΐݯ ฌऩܢ˳expense that are taxable or deductible in other years, and it ֶ˿κೢؿνɃֶ඀ʻcԎ˘ɺ ʑ੣̰ᇾೢֶκೢɾඖ͌e̯එ྆ɾ๫ٲ further excludes income statement items that are never ೶့ˀɰྡྷϷֶɣߎɐɰܘtaxable or deductible. The Group’s liability for current tax is ౨ೢඖ߲ඦȽ calculated using tax rates that have been enacted or ྡྷϷɾೢଅ့߮e substantively enacted by the balance sheet date.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 103 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

4. SIGNIFICANT ACCOUNTING POLICIES (continued) 4. ˚߬ผ߮ܧ೪ᙩ Taxation (continued) ೢඖᙩ ༅ଐʥ߲ඦሏࠍࠤၤ့߮ᎶٲDeferred tax is recognised on differences between the ၃΋ল৻ం Ꮆೢਥංɾ࢏ᔾᆢႏݯႮޚcarrying amounts of assets and liabilities in the consolidated ᇾೢึСֺ͂ ߲ඦؒͶሏeٲfinancial statements and the corresponding tax bases used ֝ೢඖcԎԚ͂༅ଐ߲ඦ in the computation of taxable profit, and is accounted for ȹঁผగֺτᎶᇾೢᅗࣂ࢏ᔾȹঁผᆢႏ κאusing the balance sheet liability method. Deferred tax ݯႮ֝ೢඖ߲ඦcϤ˿ॶˮଊ˿͂А ᅆႮొڬliabilities are generally recognised for all taxable temporary ˿κೢᅗࣂ࢏ᔾɾᎶᇾೢึСࣂ ɻcΐਆᙷֶמȹඖ͚כdifferences and deferred tax assets are recognised to the ֝ೢඖ༅ଐeߗ үᆢႏԯˢ༅ଐʥٱextent that it is probable that taxable profits will be available ΐพ৻΋ԡ˞̔ࡈΐ against which deductible temporary differences can be ߲ඦϤʵߎܫɺᄧᚊᎶᇾೢึС͛ɺᄧᚊ ɺผᆢႏ໮೩༅ڬutilised. Such assets and liabilities are not recognised if the ผ߮ึСɾᅗࣂ࢏ᔾc temporary difference arises from goodwill or from the initial ଐʥ߲ඦe recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

ᙔʔ̇Ϥଐڃכΐҙ༅ܘDeferred tax liabilities are recognised for taxable temporary Ⴎ֝ೢඖ߲ඦȽ differences arising on investments in subsidiaries, except ́ɾᎶᇾೢᅗࣂ࢏ᔾᆢႏc ੹ߗ̯එ྆˿ ˿כwhere the Group is able to control the reversal of the ઁԹᅗࣂ࢏ᔾɾᅆΑʥᅗࣂ࢏ᔾ˿ॶ ৖̔eڬtemporary difference and it is probable that the temporary ӮੀԞɺผᅆΑɾੱؗ difference will not reverse in the foreseeable future.

Έ೶့ˀАᏎכThe carrying amount of deferred tax assets is reviewed at Ⴎ֝ೢඖ༅ଐɾሏࠍࠤผ each balance sheet date and reduced to the extent that it is দc ԎΕɺʹ˿ॶτӷਪᎶᇾೢึСᜑͲ no longer probable that sufficient taxable profits will be ஫ֶ஫ͫ༅ଐ੡˞νΑࣂАሁಕe available to allow all or part of the asset to be recovered.

๫ೡޚ೶့ˀɰԹցֶΕכ˞Deferred tax is calculated at the tax rates that are expected Ⴎ֝ೢඖȽ ߲ඦכད౨ܘto apply in the period when the liability is settled or the ۹ɐɰԹցɾೢଅݯਥๅc asset is realised, based on tax rates that have enacted or ૜᎛ֶ༅ଐᛰଊ౨ංʑɾሬ͂ೢଅ့߮e ɻκ৖ֶ߮Ƀฌऩٲฌऩכsubstantially enacted by the balance sheet date. Deferred Ⴎ֝ೢඖผ ٖכઅقc੹࠱ၤႮ֝ೢඖτᗐɾඖ͌ٲ tax is charged or credited to the income statement, except ໮Ⴎ֝ೢඖ͛ผڬ when it relates to items charged or credited directly to ̯ᚬऩɻκ৖ֶ߮Ƀc ᚬऩɻ୮ଉe̯ٖכ equity, in which case the deferred tax is also dealt with in equity.

104 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

4. SIGNIFICANT ACCOUNTING POLICIES (continued) 4. ˚߬ผ߮ܧ೪ᙩ Research and development expenditure ޢӠʥ඀ೕ඀ʻ ԯଐ́ɾ౨ංʑᆢႏАכӠݠ৽඀ʻȽޢ Expenditure on research activities is recognised as an expense in the period in which it is incurred. ʻˮe

כAn internally-generated intangible asset arising from ΐ඀ೕ඀ʻϤͅʑ஫ଐ́ɾಲѼ༅ଐඩ ցɾඖֺ͌ଐ́ɾ඀ೕι̯ད߮ผވdevelopment expenditure is recognised only if it is ૜౞ anticipated that the development costs incurred on a ஦༦̰Ԟਆพݠ৽νΑࣂᆢႏeֺଐ́ɾ ԯЅ߮Ԛ͂α౨ᚫሻeܘᇃؒق˞clearly-defined project will be recovered through future ༅ଐȽ commercial activity. The resultant asset is amortised on a straight line basis over its useful life.

඀ೕڬ Where no internally-generated intangible asset can be ߗ̰ॶᆢႏʑ஫ଐ́ɾಲѼ༅ଐc ଐ́ɾ౨ංʑᆢႏАʻˮeכrecognised, development expenditure is recognised as an ඀ʻȽ expense in the period in which it is incurred.

ጪɮԮټ Financial instruments එ྆ྡྷ᛽͓߯ܺכጪ߲ඦȽټጪ༅ଐʥټ Financial assets and financial liabilities are recognised on ᆢႏeٲጪɮԮۖ޸ૈʼࣂΕ༅ଐ߲ඦټ the balance sheet when an entity of the Group becomes a үᆢٱʔ̡ძࠤܘጪ߲ඦټጪ༅ଐʥټ .party to the contractual provisions of the instruments અقጪ߲ඦټጪ༅ଐʥټFinancial assets and financial liabilities are initially measured ႏeνᑪֶೕϷ ʔ̡ძࠤ୮ܘฌऩሏכι̯מat fair value. Transaction costs that are directly attributable ᎶЌɾ͚ үٱכto the acquisition or issue of financial assets and financial ଉɾল৻༅ଐʥল৻߲ඦ৖̔Ƚ ጪ߲ඦɾʔ̡ძټጪ༅ଐֶټliabilities (other than financial assets and financial liabilities ᆢႏࣂ߮Ƀ ጪ߲ඦɾʔ̡ძࠤκټጪ༅ଐֶټat fair value through profit or loss) are added to or deducted ࠤֶϬ ʔ̡ძࠤ୮ܘฌऩሏכfrom the fair value of the financial assets or financial ৖Σ΋ሬeνᑪ מઅᎶЌɾ͚قጪ߲ඦټጪ༅ଐֶټliabilities, as appropriate, on initial recognition. Transaction ଉɾ ฌऩሏʑᆢႏeכcosts directly attributable to the acquisition of financial ι̯Щࣂ assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

ጪ༅ଐټ Financial assets ጪ༅ଐȽᓊᗘݯɎͶ̒࠯ᗘПټThe Group’s financial assets are classified into loans and ̯එ྆ɾ ʔ̡ძࠤ୮ܘฌऩሏכܢ˳receivables and available-for-sale financial assets. All regular ɾԯɻȹ࠯c ϭԷܛጪ༅ଐd൘ಁʥᎶνಁඖdټway purchases or sales of financial assets are recognised and ଉɾ ጪ༅ଐeֺτց౨ټderecognised on a trade date basis. Regular way purchases ౨ˀҙ༅ʥ˿Ԝˮਕ ˀਥๅᆢႏʥՅࣱמ͚ܘጪ༅ଐȽټor sales are purchases or sales of financial assets that require ൕሒ ጪ༅ଐcټᑪൕֶˮਕܞdelivery of assets within the time frame established by ᆢႏeց౨ൕሒ regulation or convention in the marketplace. The accounting ԎஃցΕ̟௿ஃԝֶྻԝஉցɾࣂං࣑ܼ ጪ༅ଐτټpolicies adopted in respect of each category of financial ʑ͚˟༅ଐeֺઔढ़ɾၤΈᗘ Ɏʼeכ೪༗ܧassets are set out below. ᗐɾผ߮

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 105 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

4. SIGNIFICANT ACCOUNTING POLICIES (continued) 4. ˚߬ผ߮ܧ೪ᙩ ጪɮԮᙩټ (Financial instruments (continued Loans and receivables ൘ಁʥᎶνಁඖ ଊϷ̟௿ֺంɾ՞ցכLoans and receivables are non-derivative financial assets ൘ಁʥᎶνಁඖȽ үٱכጪ༅ଐeټߪ́ڈwith fixed or determinable payments that are not quoted ֶ˿ᔤց˟ಁɾ in an active market. At each balance sheet date subsequent ᆢႏ܃ɾΈ೶့ˀc൘ಁʥᎶνಁඖ˳ ʥԯˢᎶνಁඖټܘሏಁdמᎶνൗܢ to initial recognition, loans and receivables (including trade ᚫሻι̯ಕͨЄɰᖫܘreceivables, deposits and other receivables) are carried at Ƚઔ͂ྡྷ჌Сଅؒ τ۪ᜮᖬኣכamortised cost using the effective interest rate method, less ПಕࠤᑋฌͶሏeಕࠤᑋฌ any identified impairment losses. An impairment loss is ᛷ͐༅ଐˮଊಕࠤࣂΕฌऩሏᆢႏcԎܘ recognised in profit or loss when there is objective evidence ༅ଐɾሏࠍࠤၤܘࡈͱྡྷ჌СଅҗଊɾЅ ݚ൴ɾଊࠤංɾ࢏ᔾ့߮e࠱ټthat the asset is impaired, and is measured as the difference ̰߮Ԟଊ between the assets’ carrying amount and the present value ༅ଐɾ˿νΑᅕᔾᄈ˱Ƚᆢྡྷၤᆢႏಕࠤ ፭כಕࠤᑋฌผڬֺʵߎɾԑͧτᗐc܃ of the estimated future cash flows discounted at the original ಕࠤᅆΑˀ౨כ౨ංᅆΑc੹໮ඖ༅ଐ܃ effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s ɾሏࠍࠤɺ੡൚༦৥உಕࠤ̰ʀᆢႏɾᚫ recoverable amount can be related objectively to an event ሻι̯e occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

ጪ༅ଐټAvailable-for-sale financial assets ˿Ԝˮਕ ߪ́ඖ͌cಲሃܰڈጪ༅ଐᙔټAvailable-for-sale financial assets are non-derivatives that ˿Ԝˮਕ үᆢٱכցֶིʗݯԯˢͨЄᗘПeܞare either designated or not classified as any of the other Я ʔܘጪ༅ଐټɾΈ೶့ˀc˿Ԝˮਕ܃categories. At each balance sheet date subsequent to initial ႏ ᚬऩ̯ٖכrecognition, available-for-sale financial assets are measured ̡ძࠤ߮൴eʔ̡ძࠤɾᛰ৽ ጪ༅ଐ୽ˮਕֶᔤցݯ୽ټϭ໮قat fair value. Changes in fair value are recognised in equity, ᆢႏc ᚬऩᆢႏɾୃ߮ฌ̯ٖכuntil the financial asset is disposed of or is determined to ಕࠤc։ࣂ༦֡ ᆢႏeٲฌऩכbe impaired, at which time, the cumulative gain or loss ऩผϬٖ̯ᚬऩࡃ৖cԎ ฌऩכጪ༅ଐɾͨЄಕࠤᑋฌټpreviously recognised in equity is removed from equity and ˿Ԝˮਕ ᆢႏe˿Ԝˮਕٖᚬҙ༅ɾಕࠤᑋฌɺٲ recognised in profit or loss. Any impairment losses on ౨ංᅆΑeగ˿Ԝˮਕඦ৻ҙ༅܃˞כavailable-for-sale financial assets are recognised in profit or ผ loss. Impairment losses on available-for-sale equity ϤӰc࠱໮ҙ༅ɾʔ̡ძࠤᄈ˱ॶਪ۪ᜮ ಕࠤڬɾԑͧτᗐc܃investments will not reverse in subsequent periods. For Δၤᆢႏಕࠤᑋฌ available-for-sale debt investments, impairment losses are ᑋฌ፭܃ੀᏵᅆΑe subsequently reversed if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

106 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

4. SIGNIFICANT ACCOUNTING POLICIES (continued) 4. ˚߬ผ߮ܧ೪ᙩ ጪɮԮᙩټ (Financial instruments (continued ጪ༅ଐᙩټAvailable-for-sale financial assets (continued) ˿Ԝˮਕ For available-for-sale equity investments that do not have గԎಲݠᙺ̟௿ɾ̟௿ంძʥʔ̡ძࠤɺ a quoted market price in an active market and whose fair ॶ˿ቌ߮൴ɾ˿Ԝˮਕٖᚬҙ༅c˞ʥၤ ɐ̟ٖᚬɮԮτᗐԎ඘˞͚˟໮೩ڈvalue cannot be reliably measured and derivatives that are ໮೩ ࠖכlinked to and must be settled by delivery of such unquoted ɮԮ೶့ɾߪ́ɮԮϤӰc໮೩ҙ༅ equity instruments, they are measured at cost less any ωᆢႏ܃ɾΈ೶့ˀܘι̯ࠤಕͨЄɰᆢ identified impairment losses at each balance sheet date ႏಕࠤᑋฌ߮൴e࠱τ۪ᜮᖬኣᛷ͐༅ଐ ᆢႏಕࠤᑋฌeಕࠤᑋٲฌऩכڬsubsequent to initial recognition. An impairment loss is ಕࠤc ጪ༅ଐɾټᗘЍܘ༅ଐሏࠍࠤၤܘrecognised in profit or loss when there is objective evidence ฌᅕᔾ ݚ൴ɾټthat the asset is impaired. The amount of the impairment ଊϷ̟௿ΑంଅҗଊЅ̰߮Ԟଊ ˞כloss is measured as the difference between the carrying ଊࠤɾ࢏ᔾ့߮e໮೩ಕࠤᑋฌɺผ amount of the asset and the present value of the estimated ܃౨ංᅆΑe future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses will not reverse in subsequent periods.

ጪ߲ඦʥٖ̯ɮԮټ Financial liabilities and equity ܘጪ߲ඦʥٖ̯ɮԮȽټFinancial liabilities and equity instruments issued by a group එ྆ྡྷ᛽ೕϷɾ ጪ߲ඦ՗ٖټentity are classified according to the substance of the ֺ͓߯ɾۖ޸Ϊખɾֲሔʥ contractual arrangements entered into and the definitions ̯ɮԮɾցຮʗᗘe of a financial liability and an equity instrument.

܃κಕԯֺτ߲ඦכඑ྆עAn equity instrument is any contract that evidences a ٖ̯ɮԮȽᖬ residual interest in the assets of the group after deducting ɾ༅ଐɻኟτ௛቗ᚬऩɾͨЄ΋޸e̯එ ጪ߲ඦeగټԯˢܢ˳ጪ߲ඦȹঁټall of its liabilities. The Group’s financial liabilities are ྆ɾ ೪༗ܧጪ߲ඦʥٖ̯ɮԮֺઔढ़ɾผ߮ټ generally included other financial liabilities. The accounting Ɏʼeכ policies adopted in respect of financial liabilities and equity instruments are set out below.

ጪ߲ඦټOther financial liabilities ԯˢ ˟ሏಁʥᎶמᎶ˟ൗܢ˳ጪ߲ඦټOther financial liabilities including trade payables, other ԯˢ payables and accruals, amounts due to fellow subsidiaries/ ଩ኣdԯˢᎶ˟ಁඖʥᎶ߮൒͂dႺϷࠥ ઔ͂ྡྷ჌Сଅ܃directors/shareholders/related parties, loans from a fellow ൘ʥጪ༅ै༉ֻኪȽ፭ ᚫሻι̯Ͷሏeܘؒ ,subsidiary/shareholders, obligations under finance leases bank borrowings and other loans are subsequently measured at amortised cost, using the effective interest rate method.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 107 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

4. SIGNIFICANT ACCOUNTING POLICIES (continued) 4. ˚߬ผ߮ܧ೪ᙩ ጪɮԮᙩټ (Financial instruments (continued Equity instruments ٖ̯ɮԮ ɰνֺ੡ಁඖܘEquity instruments issued by the Company are recorded at ̯ʔ̇ೕϷɾٖ̯ɮԮȽ અೕϷι̯Ͷሏeقthe proceeds received, net of direct issue costs. κ৖

Derecognition Յࣱᆢႏ ጪ༅ټݚɾᚬСԷ౨ֶټFinancial assets are derecognised when the rights to receive ࠱੣༅ଐνՅଊ ጪ༅ଐኟټכcash flows from the assets expire or, the financial assets are ଐ୽ᔝᜑc˘̯එ྆ɰੀԯ ጪټڬtransferred and the Group has transferred substantially all τᚬɾͲ஫ࠓ፮ʥΑంྡྷሔᔝଫc ጪ༅ଐټՅࣱᆢႏכthe risks and rewards of ownership of the financial assets. ༅ଐੀ୽Յࣱᆢႏe ᚬכઅقOn derecognition of a financial asset, the difference ࣂc༅ଐሏࠍࠤၤɰνˤძʥɰ ฌכbetween the asset’s carrying amount and the sum of the ऩᆢႏɾୃ߮ฌऩɾᐢ՗ɾ࢏ᔾcੀ consideration received and the cumulative gain or loss that ऩሏʑᆢႏe had been recognised directly in equity is recognised in profit or loss.

ጪ߲ඦϤӰc࠱τᗐ΋޸ஃցɾஐͨټFor financial liabilities, they are removed from the Group’s గ එ྆ɾ༅̯כੀڬbalance sheet (i.e. when the obligation specified in the Ᏽ໬৖dՅֶࣱԷ౨c ጪ߲ඦɾټɻଫ৖eՅࣱᆢႏɾٲrelevant contract is discharged, cancelled or expired). The ଐ߲ඦ ฌऩכdifference between the carrying amount of the financial ሏࠍࠤၤɰνֶᎶνˤძɾ࢏ᔾȽ liability derecognised and the consideration received or ሏʑᆢႏe receivable is recognised in profit or loss.

מEquity-settled share-based payment transactions ˞ᚬऩ೶့ɾ˞ٖͫݯਥᓣɾ˟ಁ͚ Share options granted to directors and employees of the ̯එ྆཭ࡗᏵ઒ɾᑪٖᚬ Group ઒ˮˀ౨ɾʔ̡ძࠤᔤցכᏵ઒ᑪٖᚬܘ The fair value of services received determined by reference ᓊᙔ౨ං፭כ৻ɾʔ̡ძࠤcȽרto the fair value of share options granted at the grant date ɾֺᏵ ᇃؒͶА඀ʻᑪٖᚬق˞˱Ꮆᄈޚis expensed on a straight-line basis over the vesting period ٖᚬ with a corresponding increase in equity (share options ᎝ௐe reserve).

ᑪٖᚬ᎝ௐɻᆢכکAt the time when the share options are exercised, the ᑪٖᚬᏵϷԚࣂcͱ amount previously recognised in share options reserve will ႏɾᅕᔾੀᔝᅆϭٖͫึძe࠱ᑪٖᚬ୽ ڬ։࿶ˀ౨ʋ̰ᏵϷԚcכbe transferred to share premium. When the share options νΑdഽሻֶ ᑪٖᚬ᎝ௐᆢႏɾᅕᔾੀᔝଫϭୃכکare forfeited or cancelled or are still not exercised at the ͱ expiry date, the amount previously recognised in share ߮ึСþᑋฌɻe option reserve will be transferred to accumulated profits/ losses.

108 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

4. SIGNIFICANT ACCOUNTING POLICIES (continued) 4. ˚߬ผ߮ܧ೪ᙩ Impairment losses ಕࠤᑋฌ Έ೶့ˀc ̯එ྆ผᄗ࣏ԯτѼʥಲѼכ At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine ༅ଐɾሏࠍࠤc ˞ᔤց໮೩༅ଐܰЯˮଊ whether there is any indication that those assets have ͨЄಕࠤᑋฌ༌ཫeߗЅ߮༅ଐɾ˿νΑ ໮༅ଐɾሏࠍࠤੀڬ ԯሏࠍࠤcכsuffered an impairment loss. If the recoverable amount of ᅕᔾГ an asset is estimated to be less than its carrying amount, ಕϭԯ˿νΑᅕᔾeಕࠤᑋฌȽЩࣂᆢႏ the carrying amount of the asset is reduced to its А඀ʻe recoverable amount. An impairment loss is recognised as an expense immediately.

༅ଐɾሏࠍࠤȽڬ ᅆΑc܃Where an impairment loss subsequently reverses, the ߗಕࠤᑋฌ፭ carrying amount of the asset is increased to the revised ᄈϭԯ˿νΑᅕᔾɾ຤࠳߯Ѕ߮ࠤc ੹຤ ༦֡α۹༅ଐԎכɾࠍࠤɺ੡൚༦܃˱estimate of its recoverable amount, but so that the increased ᄈ carrying amount does not exceed the carrying amount that ಲˮଊͨЄಕࠤᑋฌࣂᔤցɾሏࠍࠤeᅆ would have been determined had no impairment loss been ΑɾಕࠤᑋฌȽЩࣂᆢႏАνɃe recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Borrowing costs ࠥ൘ι̯ ཋڬࣂංๅௐʿ˿ˮਕcٽBorrowing costs directly attributable to the production of ߗΕႇཋᄧ჏ અᎶЌࠥ൘ι̯඘АݯΕႇඖقfilms that necessary takes a substantial period of time to ᄧႇАɾ get ready for sale are captialised as part of the production ͌஫ͫᅆ˨༅̯e๫೸ɣ஫ͫ༅ଐɰ˿А τᗐࠥ൘ι̯ੀ৤˅ᅆڬ work in progress. Capitalisation of such borrowing costs ԯࡈᏃցˮਕc ceases when the assets are substantially ready for their ˨༅̯e intended sale.

ԯଐ́ɾ౨ංʑᆢכAll other borrowing costs are recognised as expenses in the ֺτԯˢࠥ൘ι̯Ƚ period in which they are incurred. ႏАʻˮe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 109 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

4. SIGNIFICANT ACCOUNTING POLICIES (continued) 4. ˚߬ผ߮ܧ೪ᙩ Retirement benefit costs ঽͤါСι̯ ټဳଉঽͤါСི߮ʥੜԹֲʔዶ֚ܧPayments to state-managed retirement benefit schemes Ή ԯԷ౨ʻ˟ࣂκ৖Аכand the Mandatory Provident Fund Scheme are charged as ི߮АˮɾԜಁȽ expenses when they fall due. ʻˮe

࣍ΐॖעCritical Accounting Judgements and Key 5. ᗐᒄผ߮РᒾʥЅ߮ɺ .5 Sources of Estimation Uncertainty ɾ˚߬Ԟ฻ ഽ4ֺ߸ڃ೪ΣܧᎶ̯͂එ྆ɾผ߮כ In the process of applying the entity’s accounting policies ٲল৻ంכwhich are described in note 4, management has made the ༦ೡɻcဳଉᄙ౦АˮɎͶྦྷ following judgement that have significant effect on the ʑɰᆢႏɾᅕᔾτࠇɣᄧᚊɾРᒾeτᗐ ࣍ע೶့ˀɾЅ߮ɺכɾ˚߬৥உʥ܃amounts recognised in the financial statements. The key ˀ assumptions concerning the future, and other key sources ΐॖɾԯˢ˚߬Ԟ฻ኟτኒߎɎ࠯লܧ of estimation uncertainty at the balance sheet date, that α۹༅ଐʥ߲ඦɾሏࠍࠤˮଊɣఝሁኬɾ Ɏʼeכhave a significant risk of causing a material adjustment to ࠇɣࠓ፮͛༗ the carrying amounts of assets and liabilities within the next financial year, are also discussed below.

Going concern ˿ܛᙩ຤Ꮺ The Group incurred significant losses of approximately ̯එ྆࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅ HK$76,356,000 for the year ended 31 December 2005 and α۹ଐ́ࠇɣᑋฌ޸76,356,000ಋʏʥ̯ the Group had net current liabilities and net liabilities of එ྆ɾݚ৽߲ඦ૱ᔾʥ߲ඦ૱ᔾ޸ʗПݯ approximately HK$131,111,000 and HK$128,212,000 131,111,000ಋʏʥ128,212,000ಋʏe໎ ᙩ຤Ꮺਥܛ˿๑ܘȽٲrespectively. The Directors are of the opinion that the ԑႏݯϊ೩ল৻ం ഽڃכᙩ຤Ꮺਥๅɰׄᚉܛ˿preparation of these financial statements are based on ๅֺᇁႇϤ going concern and the basis of going concern has been 2eߗ̯එ྆ɾܛᙩ຤ᏪˮଊͨЄਐᕀc ඘߬˞˿ᛰଊ૱ࠤޑԯͲ஫༅ଐʥ߲ඦڬ disclosed in note 2. Should there be any problem in the พdᄥָʥذܢ˳going concern of the Group, all the assets and liabilities have ͶሏeऋП̯ܰඑ྆̋ ݚ৽߲ඦя඘߬ʗڈݚ৽༅ଐʥڈto be stated at net realisable values. In particular, the non- உௐؿ כcurrent assets (which represents the property, plant and Пʹʗᗘݯݚ৽༅ଐʥݚ৽߲ඦe໎ԑ equipment only) and the non-current liabilities have to be ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀɰ຤Ґ໮೩Α พdᄥָʥஉௐͲᅕಕذreclassified as current assets and current liabilities νॶɈτਐᕀؿ respectively. As at 31 December 2005, the Directors have ࠤe໎ԑྦྷвᕝሏʥΦஒ஭Аˮȿ˨ӷᅆ fully impaired those property, plant and equipment with ௐe໎ԑႏݯֺτ༅ଐ՗߲ඦɾሏࠍࠤ޸ recoverable problem and adequate allowances have been ݯ֤೩ɾʔ̡ࠤe made for bad and doubtful debts and inventories. In the opinion of the Directors, the carrying amounts of all the assets and liabilities approximately their fair values.

110 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

࣍ΐॖעCritical Accounting Judgements and Key 5. ᗐᒄผ߮РᒾʥЅ߮ɺ .5 Sources of Estimation Uncertainty (continued) ɾ˚߬Ԟ฻ᙩ Depreciation җᓿ ɀཌྷཌྷʄαכพdᄥָʥஉௐذThe Group’s net book values of property, plant and ̯එ྆ɾ equipment as at 31 December 2005 was approximately Ɋɀ˂ɍɊȹˀɾሏࠍ૱ࠤ޸ݯ6,301,000 HK$6,301,000. The Group depreciates the computer ಋʏe̯එ྆Ƚܘཋ຾உௐɾЅ߮˿Ԛ͂ equipment on a straight line basis over the estimated useful α౨ɍαcԎ຤߮ʥԯЅ߮಄ࠤcઔ͂

1 ᇃؒྦྷԯ൬ق˞ɾαଅc%3/ 33ܘᇃؒق life of three years, and after taking into account of their estimated residual value, using the straight line method, at ϷҗᓿͅஉௐҙɃ́ଐɾˀ঴߮eЅ߮

1 the rate 33 /3% per annum, commencing from the date the ˿Ԛ͂α౨ʥ̯එ྆ੀཋ຾உௐҙɃԚ͂ τᗐ౨ංɾЅ߮cЩכ໎ԑܮcomputer equipment is placed into use. The estimated ɾˀ౨˿ʦ useful life and dates that the Group places the computer ̯එི྆߮ੀԞ੣Ԛ͂ཋ຾உௐɻ˿ᏵՅ equipment into use reflects the directors’ estimate of the ɾ຤ᏜСऩe periods that the Group intends to derive future economic benefits from the use of the Group’s computer equipment.

Allowances for bad and doubtful debts вᕝሏᅆௐ ೪Ƚ˞˿νΑֲിܧThe policy for allowance for bad and doubtful debts of the ̯එ྆ɾвᕝሏᅆௐ Group is based on the evaluation of collectability and aged Ѕdሏᙍʗ׹ʥဳଉᄙРᒾݯਥᓣeിЅ analysis of accounts and on management’s judgement. A ໮೩Ꮆνಁඖɾ௖ୄᛰଊॶɈ჏߬൬Ϸɣ ᙷʥ༦֡ڌҰϽ۪ʸɾଊࣂܢ˳considerable amount of judgement is required in assessing ൴Рᒾc ؗˀᑭرthe ultimate realisation of these receivables, including the νಁত፣e࠱̯එ۪྆ʸɾল৻ ॶ඘А˿ڬcurrent creditworthiness and the past collection history of బʝcߎԚԯ˟ಁॶɈࠌГc ࿀ϭɀཌྷཌྷʄכeach customer. If the financial conditions of customers of ˮᔾ̔ᅆௐeвᕝሏᅆௐ the Group were to deteriorate, resulting in an impairment αɊɀ˂ɍɊȹˀ˅α۹ొͶ޸521,000 of their ability to make payments, additional allowance may ಋʏɀཌྷཌྷ̒αiಲe be required. Allowance for bad and doubtful debts of approximately HK$521,000 was made for the year ended 31 December 2005 (2004: Nil).

Allowances for inventories Φஒᅆௐ Έ೶့ˀɾሏכThe management of the Group reviews an aged analysis at ̯එ྆ɾဳଉᄙяผᄗቇ ଐɾ́כeach balance sheet date, and makes allowance for obsolete ᙍʗ׹cԎྦྷᆢႏݯɺʹሬ΋͂ АˮᅆௐeဳଉᄙЅ߮ۂand slow-moving inventory items identified that are no ༦ࣂʥ࿷ሻ࢒Φ ɾ˿ᛰଊ૱ࠤ˚࣓߬ۂʥΕႇۂlonger suitable for use in production. The management ໮೩ႇι Έ೶כestimates the net realisable value for such raw materials and ኣ௖ณೕ଩ძࣟʥଊτ̟ؗᔤցe ஢࠯൬ϷᆚᒨcԎۂfinished goods based primarily on the latest invoice prices ့ˀc̯එ྆ผྦྷଐ ࿀ϭɀכАˮᅆௐeΦஒᅆௐိۂand current market conditions. The Group carries out an ྦྷ༦ࣂ inventory review on a product-by-product basis at each ཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹ొͶ޸ balance sheet date and makes allowance for obsolete items. 2,645,000ಋʏɀཌྷཌྷ̒αiಲe Allowance for inventories of approximately HK$2,645,000 was made for the year ended 31 December 2005 (2004: Nil).

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 111 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

࣍ΐॖעCritical Accounting Judgements and Key 5. ᗐᒄผ߮РᒾʥЅ߮ɺ .5 Sources of Estimation Uncertainty (continued) ɾ˚߬Ԟ฻ᙩ Allowance for production work in progress Εႇඖ͌ᅆௐ The policy for allowance for production work in progress of ̯එ྆τᗐΕႇඖ͌ᅆௐɾܧ೪Ƚ࣓ኣྦྷ ᅶΕ̟௿੡כthe Group is based on the evaluation of the certainty in ਿСᚬೕϷŉஈ˿ԾᘪॶЯ finalising the distribution/license agreements in the ԷໃྡྷɾിЅʥဳଉᄙɾРᒾᔤցeဳଉ ˂ɀཌྷཌྷʄαɊɀכpotential markets and on management’s judgement. The ᄙЅ߮໮೩Εႇඖ͌ management estimates the net realisable value for such ɍɊȹˀɾ˿ᛰଊ૱ࠤ޸ݯ951,000ಋʏ production work in progress was approximately HK$951,000 ɀཌྷཌྷ̒αi21,301,000ಋʏeΕႇඖ ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀכHK$21,301,000) as at 31 December 2005. Allowance ͌ᅆௐ :2004) for production work in progress of approximately ˅α۹ొͶ޸24,712,000ಋʏɀཌྷཌྷ̒ HK$24,712,000 was made for the year ended 31 December αi84,615,000ಋʏe 2005 (2004: HK$84,615,000).

Provision for litigation േஊᅆௐ The management of the Group monitor any litigation ̯එ྆ဳଉᄙ਽ʘဟઁΉ̯එ྆ొˮɾͨ ᚋਐగ˿ॶ܁against the Group closely. Provision for the litigation is made ЄേஊeേஊᅆௐȽ࣓ኣؒ based on the opinion of the legal adviser on the possible ೶׮ʥ̯එ྆ɾ߲ඦֺొˮɾ෮ӮϤА ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀcྦྷ̯כoutcome and liability of the Group. As at 31 December 2005, ˮe there is no foreseeable financial impact to the Group and එ྆Ԏಲ˿Ӯɾল৻ᄧᚊc˘ԎಲАˮͨ ഽ42eڃכno provision for litigation has been made. Details are set Єേஊᅆௐe໯ੱ༗ out in note 42. 6. Financial Risk Management Objectives and 6. ল৻ࠓ፮ဳଉ͌ᅟʥܧ೪ Policies ሏמᎶνൗܢ˳ጪɮԮټThe Group’s major financial instruments include trade ̯එ྆ɾ˚߬ ሏמdԯˢᎶνಁඖdᎶ˟ൗټܘreceivables, deposits and other receivables, trade payables, ಁd other payables and accruals and bank borrowings. Details ಁdԯˢᎶ˟ಁඖʥᎶ߮൒͂՗ႺϷࠥಁ ഽڃᗐޚכጪɮԮɾ໯ੱ༗ټof these financial instruments are disclosed in respective ೩e໮೩ ጪɮԮτᗐɾࠓ፮ټnotes. The risks associated with these financial instruments ʑeɎʼ༗Ͷၤ໮೩ and the policies on how to mitigate these risks are set out ʥΣЄࠌГ໮೩ࠓ፮ɾܧ೪eဳଉᄙဳଉ ʥࣂτࢽΔઔՅړbelow. The management manages and monitors these ʥဟઁ໮೩ࠓ፮c˞ᆢ exposures to ensure appropriate measures are implemented ሬ๫ઉܪe on a timely and effective manner.

Currency risk ஒྫྷࠓ፮ ᙔʔ̇ɾሻਕȽ˞̔ྫྷ߮ڃSeveral subsidiaries of the Company have foreign currency ̯ʔ̇ߗɳ sales, which expose the Group to foreign currency risk. ࠤc˥̯එֻ྆Շ̔ྫྷࠓ፮e

ྫྷ̔˞ሏಁʥࠥ൘ȽמCertain trade receivables and borrowings of the Group are ̯එ྆ߗɳᎶνൗ denominated in foreign currencies. The Group currently ߮ࠤe̯එ྆ଊࣂֆಲ̔ྫྷྦྷҿܧ೪eಳ does not have a foreign currency hedging policy. However, Ϥcဳଉᄙผྦྷ̔මࠓ፮൬ϷဟઁcԎผ the management monitors foreign exchange exposure and ϣᄬΕ̦߬ࣂྦྷҿࠇɣ̔මࠓ፮e will consider hedging significant foreign currency exposure should the need arise.

112 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

6. Financial Risk Management Objectives and 6. ল৻ࠓ፮ဳଉ͌ᅟʥܧ೪ᙩ Policies (continued) Interest rate risk Сଅࠓ፮ The Group is exposed to interest rate risk through the ̯එ྆ΐСଅᛰ৽ྦྷ߮ࢠႺϷࠥ൘ʥጪ༅ impact of rate changes on interest bearing bank borrowings ै༉ֻኪɾᄧᚊϤֻኪСଅࠓ፮eగ໮೩ and obligations under finance leases. In relation to these ࠥ൘ϤӰc̯එ྆ଊࣂԎಲСଅྦྷҿܧ borrowings, the Group currently does not have an interest ೪eဳଉᄙྦྷ໮ࠓ፮൬ϷဳଉʥဟઁcԎ rate hedging policy. The management manages and ϣᄬΕ̦߬ࣂྡྷܪሬ๫ྦྷҿe monitors this exposure and will consider to implement an appropriate hedging should the need arises.

The interest rate and terms of repayment of obligations ϊ̔c̯එ྆ɾ߮ࢠႺϷࠥ൘ʥጪ༅ै༉ under finance leases and bank borrowings of the Group are ֻኪֻՇСଅᛰ৽ࠓ፮e̯එ྆ɾႺϷࠥ disclosed in notes 30 and 31, respectively. ൘ʥጪ༅ै༉ֻኪɾСଅʥ᎛ᑹૈಁʗП ഽ30ʥ31ׄᚉeڃכ

൘ࠓ፮ڌ Credit risk ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ̰כThe Group’s maximum exposure to credit risk in the event ࠱ྦྷʹʿ එ྆గΈᗘɰᆢ̯ڬof the counterparties failure to perform their obligations as ॶᄚϷ֤೩ɾֻኪc כ൘ࠓ፮ݯڌጪ༅ଐϤ඘ֻՇɾ௖ɣټat 31 December 2005 in relation to each class of recognised ႏ Ͷሏɾ༅ଐɾሏࠍࠤeݯٲfinancial assets is the carrying amount of those assets as ၃΋༅ଐ߲ඦ ൘ࠓ፮c̯එ྆ဳଉᄙڌstated in the consolidated balance sheet. In order to ௖ɣࠉ۹ΔࠌГ ൘ڌ൘ࠉᔾdڌminimise the credit risk, the management of the Group has ɰկݢȹୂɁࡗ߲ஐԹ߯ ઔՅ།൬ઉړdelegated a team responsible for determination of credit ᄗғʥԯˢဟઁೡѵc˞ᆢ Έ೶့כνΑ༩౨̰˟ɾඦඖeϊ̔cܪ limits, credit approvals and other monitoring procedures to ˿ඦඖɾמensure that follow-up action is taken to recover overdue ˀc̯එ྆ผിЅΈඖ࠯Пൗ ᔾАˮɾټగɺ˿νΑړᔾc˞ᆢټdebts. In addition, the Group reviews the recoverable νΑ amount of each individual trade debt at each balance sheet ಕࠤᑋฌ຤ɰӷਪeగϊϤӰc̯ʔ̇໎ ൘ࠓ፮ɰɣఝࠌГeڌdate to ensure that adequate impairment losses are made ԑႏݯ̯එ྆ɾ for irrecoverable amounts. In this regard, the Directors of the Company consider that the Group’s credit risk is significantly reduced.

The five largest customers of the Group accounted for 44% ̯එ྆௖ɣؿʄϽ۪ʸЌ̯එ྆νऩؿ of the revenue of the Group. Management has delegated a 44%eဳଉᄙ຤ɰ઒ᚬȹ࠯ɩୂᔄടᄗ݅ ൘ࠓ፮ڌteam to minimise the Group’s concentration of credit risk Ұ࠯۪ʸɾ᎛ඦॶɈੀ̯එ྆ɾ by assessing the creditability of each customer. ወ۹ಕϭ௖Гe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 113 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

7. Revenue 7. νऩ ʸሻ۪ވඑ྆Ή̯̔ܞα۹ʑc νऩ̯כ Revenue represents the amounts received and receivable ɾɰνሏಁʥᎶνሏಁಕঽஒʥۂfor goods sold by the Group to outside customers, less ਕஒ ৻൒dೕϷרҗᜑh਩ফ൒dҌ୺מreturns and trade discounts, revenue arising on training fee, ൗ technical service fee, distribution of digital motion pictures ᅕᆦཋᄧʥਿСᚬ൒ଐ́ɾνऩhཋ຾྇ νټand franchise fee, CG creation and production income and ཫ௚АʥႇАνɃʥ உௐै༉ɾै rental income from equipment leasing during the year. Ƀe

An analysis of the Group’s revenue is as follows: ̯එ྆νऩɾʗ׹ΣɎi

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK$’000 HK$’000 ɝಋʏ ɝಋʏ

41,630 19,128 ۂSales of goods ሻਕஒ Training fee ਩ফ൒ 7,212 5,064 CG creation and production income ཋ຾྇ཫ௚АʥႇАνɃ 4,906 52 — Technical service income Ҍ୺ٖ৻νɃ 867 νɃ 82 1,072ټRental income from equipment leasing உௐै༉ɾै Box office receipts from distribution of ೕϷᅕᆦཋᄧɾ଩ָνɃ digital motion pictures — 93 Franchise fee from digital cinema for use of ᅕᆦᄧ৑Ԛ͂உௐֺଐ́ɾ equipment ਿСᚬ൒ — 76

32,195 47,987

114 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

8. Business and Geographical Segments 8. พ৻ʥΔਂʗ஫ (a) Business segments (a) พ৻ʗ஫ For management purposes, the Group is currently గဳଉϤӰc ̯එ྆ଊࣂʗݯɍ organised into three operating divisions — digital ࠯຤Ꮺʗ஫c ˳ܢᅕᆦʑࢀೕϷ content distribution and exhibitions, the provision ʥࢄ͐dొԜཋ຾྇ཫ਩ফᇾೡ of CG training courses and CG creation and ʥཋ຾྇ཫ௚АʥႇАe໮೩ʗ production. These divisions are the basis on which ஫Ƚ̯එ྆еంԯ˚߬ʗ஫༅ࢿ the Group reports its primary segment information. ɾਥๅe

Segment information about these businesses is τᗐ໮೩พ৻ɾʗ஫༅ࢿеͶΣ presented below: Ɏi

For the year ended 31 December 2005 ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ α۹˅ Digital content distribution CG CG and training creation and exhibitions courses production Consolidated ᅕᆦʑࢀ ཋ຾྇ཫ ཋ຾྇ཫ ೕϷʥࢄ͐ ਩ফᇾೡ ௚АʥႇА ΋߮ HK$’000 HK$’000 HK$’000 HK$’000 ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ

Revenue νऩ External sales ྦྷ̔ሻਕ 20,077 7,212 4,906 32,195

Result พᐜ Segment result ʗ஫พᐜ (9,245) 3,621 (49,487) (55,111)

Unallocated corporate ̰ʗ৉ͬพνɃ income 66 Unallocated corporate ̰ʗ৉ͬพ඀ʻ expenses (13,485) Finance costs ጪ༅ι̯ (7,675)

(ᑋฌ (76,205کLoss before taxation ৖ೢ (Income tax expense ֺ੡ೢ඀ʻ (151

(Loss for the year ̯α۹ᑋฌ (76,356

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 115 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

8. Business and Geographical Segments 8. พ৻ʥΔਂʗ஫ᙩ (continued) (a) Business segments (continued) (a) พ৻ʗ஫ᙩ For the year ended 31 December 2005 ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ α۹˅ Digital content distribution CG CG and training creation and exhibitions courses production Corporate Consolidated ᅕᆦʑࢀ ཋ຾྇ཫ ཋ຾྇ཫ ೕϷʥࢄ͐ ਩ফᇾೡ ௚АʥႇА ʔ̇ ΋߮ HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ

OTHER INFORMATION ԯˢ༅ࢿ Capital addition ༅̯ᄈ˱ 411 222 2,002 — 2,635 Depreciation җᓿ 1,947 437 5,333 143 7,860 พdᄥָذImpairment losses recognised ɰᆢႏ in respect of property, plant ʥஉௐɾ and equipment ಕࠤᑋฌ 2,350 — — — 2,350 Allowance for production Εႇඖ͌ʥΦஒ work in progress and ᅆௐ inventories 2,645 — 24,712 — 27,357 Allowance for bad and вᕝሏᅆௐ doutful debts 521 — — — 521 Share-based payment expenses ˞ٖͫݯਥᓣ ɾ˟ಁ඀ʻ ———1,338 1,338 ൒͂ɾړAmortisation of loan ൘ಁኪ guarantee fee ᚫሻ ———468 468

116 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

8. Business and Geographical Segments 8. พ৻ʥΔਂʗ஫ᙩ (continued) (a) Business segments (continued) (a) พ৻ʗ஫ᙩ ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀכ At 31 December 2005 Digital content distribution CG CG and training creation and exhibitions courses production Consolidated ᅕᆦʑࢀ ཋ຾྇ཫ ཋ຾྇ཫ ೕϷʥࢄ͐ ਩ফᇾೡ ௚АʥႇА ΋߮ HK$’000 HK$’000 HK$’000 HK$’000 ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ

ٲBALANCE SHEET ༅ଐ߲ඦ Assets ༅ଐ Segment assets ʗ஫༅ଐ 7,981 6,211 2,106 16,298 Unallocated corporate ̰ʗ৉ͬพ༅ଐ assets 18,021

Consolidated total assets ၃΋༅ଐᐢᔾ 34,319

Liabilities ߲ඦ Segment liabilities ʗ஫߲ඦ 3,273 2,455 25,694 31,422 Unallocated corporate ̰ʗ৉ͬพ߲ඦ liabilities 131,109

Consolidated total ၃΋߲ඦᐢᔾ liabilities 162,531

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 117 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

8. Business and Geographical Segments 8. พ৻ʥΔਂʗ஫ᙩ (continued) (a) Business segments (continued) (a) พ৻ʗ஫ᙩ For the year ended 31 December 2004 (as ࿀ϭɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀ restated) ˅α۹຤ࠇͶ Digital content distribution CG CG and training creation and exhibitions courses production Consolidated ᅕᆦʑࢀ ཋ຾྇ཫ ཋ຾྇ཫ ೕϷʥࢄ͐ ਩ফᇾೡ ௚АʥႇА ΋߮ HK$’000 HK$’000 HK$’000 HK$’000 ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ

Revenue Ꮺพᔾ External sales ྦྷ̔ሻਕ 42,871 5,064 52 47,987

Result พᐜ Segment result ʗ஫พᐜ 1,601 (9,026) (105,431) (112,856)

Unallocated corporate ̰ʗ৉ͬพνɃ income 17 Unallocated corporate ̰ʗ৉ͬพ඀ʻ expenses (12,818) Finance costs ጪ༅ι̯ (5,545)

(ᑋฌ (131,202کLoss before taxation ৖ೢ (Income tax expense ֺ੡ೢ඀ʻ (25

(Loss for the year ̯α۹ᑋฌ (131,227

118 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

8. Business and Geographical Segments 8. พ৻ʥΔਂʗ஫ᙩ (continued) (a) Business segments (continued) (a) พ৻ʗ஫ᙩ For the year ended 31 December 2004 (as ࿀ϭɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀ restated) ˅α۹຤ࠇͶ Digital content distribution CG CG and training creation and exhibitions courses production Corporate Consolidated ᅕᆦʑࢀ ཋ຾྇ཫ ཋ຾྇ཫ ೕϷʥࢄ͐ ਩ফᇾೡ ௚АʥႇА ʔ̇ ΋߮ HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ

OTHER INFORMATION ԯˢ༅ࢿ Capital addition ༅̯ᄈ˱ 1,207 182 3,657 6 5,052 Depreciation җᓿ 2,176 2,108 7,197 203 11,684 พdᄥָذImpairment losses recognised ɰᆢႏ in respect of property, plant ʥஉௐɾ and equipment ಕࠤᑋฌ 9,912 4,956 — — 14,868 Impairment losses recognised in ɰᆢႏ˿Ԝˮਕҙ༅ respect of available-for-sale ɾಕࠤᑋฌ investment — — — 117 117 Allowance for production Εႇඖ͌ᅆௐ work in progress — — 84,615 — 84,615 Share-based payment expenses ˞ٖͫݯਥᓣɾ˟ಁ඀ʻ ———891 891 ൒͂ɾړAmortisation of loan ൘ಁኪ guarantee fee ᚫሻ ———863 863

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 119 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

8. Business and Geographical Segments 8. พ৻ʥΔਂʗ஫ᙩ (continued) (a) Business segments (continued) (a) พ৻ʗ஫ᙩ ɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀכ At 31 December 2004 Digital content distribution CG CG and training creation and exhibitions courses production Consolidated ᅕᆦʑࢀ ཋ຾྇ཫ ཋ຾྇ཫ ೕϷʥࢄ͐ ਩ফᇾೡ ௚АʥႇА ΋߮ HK$’000 HK$’000 HK$’000 HK$’000 ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ

ٲBALANCE SHEET ༅ଐ߲ඦ Assets ༅ଐ Segment assets ʗ஫༅ଐ 28,902 1,944 31,410 62,256 Unallocated corporate ̰ʗ৉ͬพ༅ଐ assets 6,804

Consolidated total assets ၃΋ᐢ༅ଐ 69,060

Liabilities ߲ඦ Segment liabilities ʗ஫߲ඦ 13,415 8,040 8,321 29,776 Unallocated corporate ̰ʗ৉ͬพ߲ඦ liabilities 92,845

Consolidated total ၃΋ᐢ߲ඦ liabilities 122,621

120 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

8. Business and Geographical Segments 8. พ৻ʥΔਂʗ஫ᙩ (continued) (b) Geographical segments (b) Δਂʗ஫ The Group’s three business segments operate in four ̯එ྆ɾɍ࠯พ৻ʗ஫˚߬Ε̒ main geographical areas, namely the People’s ࠯Δਂ຤Ꮺc ЩɻജɁ̵ͳ՗ਝ ࠗಋɻਝdͿ۹dณܢ˳Republic of China excluding Hong Kong (the “PRC”), ɺ India, Singapore and other regions. The head office ˱գʥԯˢΔਂe̯එ྆ɾᐢፒ ࠗಋc Ϥཋ຾྇ཫ௚Аכof the Group is located in Hong Kong. The Group’s ԑ୮உ CG creation and production centre and the CG ʥႇАɻʶʥཋ຾྇ཫ਩ফነ࣎ ɻਝe̯එ྆ᅕᆦʑࢀೕכϽڬ training facilities are located in the PRC. Customers of the Group’s digital content distribution and Ϸʥࢄ͐พ৻ɾ۪ʸ༧Зɻਝd exhibitions business are located in the PRC, India, Ϳ۹dณ˱գʥԯˢΔਂe Singapore and other regions.

Δਂ̟௿ɾܘݯ̯එ྆νऩٲThe following table provides an analysis of the Ɏ Ԟ฻ΔeۂGroup’s revenue by geographical market, ʗ׹Ϥɺሃଐ irrespective of the origin of the goods.

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK$’000 HK$’000 ɝಋʏ ɝಋʏ

The PRC ɻਝ 13,769 29,747 India Ϳ۹ 2,123 1,905 Singapore ณ˱գ 2,439 5,653 Other regions ԯˢΔਂ 13,864 10,682

32,195 47,987

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 121 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

8. Business and Geographical Segments 8. พ৻ʥΔਂʗ஫ᙩ (continued) (b) Geographical segments (continued) (b) Δਂʗ஫ᙩ พdذThe following is an analysis of the carrying amount ˞Ɏݯʗ஫༅ଐɾࠍࠤʥ ԯ༅ଐֺΕܘof segment assets, and additions to property, plant ᄥָʥஉௐɾ૚ສ and equipment, analysed by the geographical area Δਂɾʗ׹i in which the assets are located:

Additions to property, Segment assets plant and equipment พdᄥָʥஉௐɾ૚ສذ ʗ஫༅ଐ 2005 2004 2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK$’000 HK$’000 HK$’000 HK$’000 ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ

The PRC ɻਝ 21,950 54,987 2,224 3,838 Hong Kong ࠗಋ 5,996 7,502 369 1,174 — — India Ϳ۹ 196 1,116 Singapore ณ˱գ 1,717 861 42 — Other regions ԯˢΔਂ 4,460 4,594 — 40

Total ΋߮ 34,319 69,060 2,635 5,052

122 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

ᑋฌکLoss before Taxation 9. ৖ೢ .9 2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK$’000 HK$’000 ɝಋʏ ɝಋʏ

ᑋฌɰκ৖کLoss before taxation was arrived at after ৖ೢ charging: ɎͶΈඖi

ټ໎ԑ༭ܢ˳Staff costs, including Directors’ emoluments ࡗɮι̯c ഽ10(a)iڃ :((note 10(a) dɮ༅ʥԯˢါС 28,732 35,590ټSalaries, wages and other benefits Ðᑀ — — Retirement benefit scheme contributions ÐঽͤါСི߮Ԝಁ 483 1,683

Total staff costs ᐢࡗɮι̯ 29,215 37,273 Less: amounts included in production work in ಕi߮ɃΕႇඖ͌ progress ɾಁᔾ (14,083) (17,638) amounts included in research and ߮ɃޢӠʥ඀ೕ development costs ι̯ɾಁᔾ (2,324) (2,275)

12,808 17,360

Allowance for bad and doubtful debts вᕝሏᅆௐ 521 — Allowance for inventories Φஒᅆௐ 2,645 — 874 1,043 ټAuditors’ remuneration ࣏ᅕ࢑༭

Depreciation җᓿ 7,860 11,684 Less: amounts included in production work in ಕi߮ɃΕႇඖ͌ progress ɾಁᔾ (4,259) (6,377)

3,601 5,307

Exchange loss, net මЙᑋฌ૱ᔾ 353 177 Cost of inventories recognised as an expense ɰᆢႏݯ඀ʻɾΦஒι̯ 32,203 35,278 พdᄥָʥذLoss on disposal of property, plant and ˮਕ equipment உௐɾᑋฌ 9 84 พdᄥָʥஉௐɾذImpairment losses recognised in ɰᆢႏ respect of property, plant and equipment ಕࠤᑋฌ 2,350 14,868 Impairment losses recognised in respect of ɰᆢႏ˿Ԝˮਕҙ༅ɾ available-for-sale investment ಕࠤᑋฌ formerly classified as investment securities, ༦֡୽ʗᗘݯҙ༅ᖬԴc) included in administrative expenses) ˳ܢΕϷܧ඀ʻɾʑ — 117 Minimum lease payments under operating ຤Ꮺै༉ɠΔʥᅢΧ leases for land and buildings ɾ௖Гै༉˟ಁ 2,302 6,069 Less: amounts included in production work in ಕi߮ɃΕႇඖ͌ progress ɾಁᔾ (1,759) (1,392)

543 4,677

Research and development costs ޢӠʥ඀ೕι̯ 2,324 2,275 and after crediting: Ԏ߮ɃɎͶΈඖi Interest income СࢠνɃ 66 17

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 123 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

ټDirectors’ Emoluments 10. ໎ԑ༭ .10 ټa) Directors’ emoluments (a) ໎ԑ༭) The emoluments paid or payable to each of the 11 ɰ˟ֶᎶ˟ɊȹϽ໎ԑɀཌྷཌྷ̒ ໯ੱΣɎiټDirectors were as follows: αiȾϽɾ༭ (9 :2004)

Year ended 31 December 2005 ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹ Retirement Salaries benefit and other scheme Fees benefits contributions Total ʥ ঽͤါСټᑀ ԯˢါС ི߮Ԝಁ ᐢᔾ ټ஀ Notes HK$’000 HK$’000 HK$’000 HK$’000 ഽ ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏڃ

Executive Directors: ਨϷ໎ԑi ———— (Mr. Chen Zheng ஹ֢ͱ́ (a Mr. Raymond Dennis Neoh ષցඐͱ́ (b) — 1,024 8 1,032

— 1,024 8 1,032

ਨϷ໎ԑiڈ :Non-executive Directors ———— (Mr. Cao Zhong ઴֦ͱ́ (c Dr. David Deng Wei ሳ৩௟ɡ 210 — — 210 Mr. Leung Shun Sang, Tony ષ඗́ͱ́ (d) 10 — — 10 Mr. Anthony Francis Neoh ષցԄͱ́ (e) ———— Mr. Stephen Scharf Stephen Scharfͱ́ (f) ————

220 — — 220

ਨϷ໎ԑiڈIndependent non-executive Directors: ዟ͓ Mr. Gordon Kwong Che Keung ㅽҁੜͱ́ 250 — — 250 Mr. Bu Fan Xiao ɋɓѣͱ́ (g) 71 — — 71 Mr. Paul Kwan Yuen Chiu ᗐႩ্ͱ́ (h) ———— Professor Japhet Sebastian Law ᖓʼ❔ઠ઒ (i) 250 — — 250

571 — — 571

791 1,024 8 1,823

124 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

ᙩټDirectors’ Emoluments (continued) 10. ໎ԑ༭ .10 ᙩټa) Directors’ emoluments (continued) (a) ໎ԑ༭) ഽiڃ :Notes

ɀཌྷཌྷʄαɀ˂ɊʄˀᏵկכ (a) Appointed on 15 February 2005. (a) ͨe

ɀཌྷཌྷʄαɄ˂ɀɊȾˀᖽכ (b) Resigned on 29 August 2005. (b) ͨe

ɀཌྷཌྷʄαɀ˂ɊʒˀᏵկכ (c)Appointed on 16 February 2005, re-designated (c) from non-executive Director to executive Director ͨcɀཌྷཌྷʄαɄ˂ɀɊȾˀ ਨϷ໎ԑᔝͨਨϷ໎ԑcڈͅ on 29 August 2005 and re-designated from ɀཌྷཌྷʒαɀ˂ʒˀͅਨכexecutive Director to non-executive Director on 6 Ԏ ਨϷ໎ԑeڈFebruary 2006. Ϸ໎ԑᔝͨ

ɀཌྷཌྷʄαɊɀ˂ȹˀᏵկכ (d) Appointed on 1 December 2005. (d) ͨe

ɀཌྷཌྷʄαɊɀ˂ɍɊˀᖽכ (e) Resigned on 30 December 2005. (e) ͨe

ɀཌྷཌྷʄαɀ˂Ɋʒˀᖽכ (f) Resigned on 16 February 2005. (f) ͨe

ɀཌྷཌྷʄαʄ˂ɍɊˀᏵկכ (g) Appointed on 30 May 2005. (g) ͨe

ɀཌྷཌྷʄαʄ˂ɍɊˀঽכ (h) Retired on 30 May 2005. (h) ͨe

ɀཌྷཌྷʒαɀ˂ȹˀঽͨeכ (i) Resigned on 1 February 2006. (i)

Mr. Paul Kwan Yuen Chiu waived his emoluments of ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α ཌྷಋʏɀټԯ༭ૃי۹cᗐႩ্ͱ́ approximately Nil (2004: HK$75,000) for the year ཌྷཌྷ̒αi75,000ಋʏe࿀ϭɀཌྷཌྷ ended 31 December 2005. No other Directors waived ʄαʥɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀ˅ eټЄ༭ͨૃיany emoluments for the years ended 31 December α۹cԎಲԯˢ໎ԑ 2005 and 2004.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 125 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

ᙩټDirectors’ Emoluments (continued) 10. ໎ԑ༭ .10 ᙩټa) Directors’ emoluments (continued) (a) ໎ԑ༭) Year ended 31 December 2004 ࿀ϭɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀ˅α۹ Retirement Salaries benefit and other scheme Fees benefits contributions Total ʥ ঽͤါСټᑀ ԯˢါС ི߮Ԝಁ ΋߮ ټ஀ HK$’000 HK$’000 HK$’000 HK$’000 ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ

Executive Directors: ਨϷ໎ԑi Mr. Raymond Dennis Neoh ષցඐͱ́ 1,200 336 12 1,548 Mr. Richard Yingneng Yin ɿᎶॶͱ́ — 1,200 6 1,206

1,200 1,536 18 2,754

ਨϷ໎ԑiڈ :Non-executive Directors Mr. Anthony Francis Neoh ષցԄͱ́ ———— Dr. David Deng Wei ሳ৩௟ɡ 300 — — 300 Mr. Stephen Scharf Stephen Scharfͱ́ 300 — — 300

600 — — 600

ਨϷ໎ԑiڈIndependent non-executive Directors: ዟ͓ Mr. Gordon Kwong Che Keung ㅽҁੜͱ́ 380 — — 380 Professor Japhet Sebastian Law ᖓʼ❔ઠ઒ 380 — — 380 Mr. Paul Kwan Yuen Chiu ᗐႩ্ͱ́ ———— Dato’ Mohd Ibrahim bin Mohd Zain Dato’ Mohd Ibrahim bin Mohd Zain 133 — — 133

893 — — 893

2,693 1,536 18 4,247

126 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

ᙩټDirectors’ Emoluments (continued) 10. ໎ԑ༭ .10 ټb) Employees’ emoluments (b) ཭ࡗ༭) ˳α۹ʑc ʄϽ௖ঢ়ᑀɁɡ̯כ During the year, the five highest paid individuals included one Director (2004: two Directors), details ܢȹϽ໎ԑɀཌྷཌྷ̒αiԭϽ໎ ɐʼe቗Ɏכ໯ੱ༗ټof whose emoluments are set out above. The ԑc ԯ༭ emoluments of the remaining four (2004: three) ̒Ͻɀཌྷཌྷ̒αiɍϽ௖ঢ়ᑀ ΣɎiټhighest paid individuals were as follows: Ɂɡɾ༭

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK$’000 HK$’000 ɝಋʏ ɝಋʏ

ʥԯˢါС 5,532 3,867ټSalaries and other benefits ᑀ Retirement benefits schemes ঽͤါСི߮Ԝಁ contributions 99 32

5,631 3,899

ʍ˝˞ɎୂПiټTheir emoluments were within the following bands: ֤೩ɾ༭

Number of employees ཭ࡗᅕ͌ 2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α

Nil to HK$1,000,000 ཌྷϭ1,000,000ಋʏ 3 2 HK$1,000,001 to HK$1,500,000 1,000,001ಋʏϭ1,500,000ಋʏ — — HK$1,500,001 to HK$2,000,000 1,500,001ಋʏϭ2,000,000ಋʏ — — HK$2,000,001 to HK$2,500,000 2,000,001ಋʏϭ2,500,000ಋʏ 1 1

4 3

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 127 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

11. Finance Costs 11. ጪ༅ι̯ 2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK$’000 HK$’000 ɝಋʏ ɝಋʏ

Interest on: ɎͶΈඖɾСࢠi ʄαʑכBank borrowings wholly repayable within ႺϷࠥ൘඘ five years Ͳᅕ᎛ᑹ 847 1,895 Finance leases ጪ༅ै༉ 624 1,069 — ᙔʔ̇൘ಁ 3,155ڃLoan from a fellow subsidiary ΃ӡ Loans from related parties ᗐடɁɡ൘ಁ 1,833 — Loans from shareholders ٖ׭൘ಁ 352 1,563 Other loans ԯˢ൘ಁ 396 807 Others ԯˢ 468 863

7,675 6,197 Less: amounts included in production work in ಕi߮ɃΕႇඖ͌ɾಁᔾ progress — (652)

7,675 5,545

Income Tax Expense 12. ֺ੡ೢ඀ʻ .12 2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK$’000 HK$’000 ɝಋʏ ɝಋʏ iܢ˳The income tax expense comprises: ֺ੡ೢ඀ʻ

Current tax ๫౨ೢඖ PRC Enterprise Income Tax Ðɻਝͬพֺ੡ೢ — EIT”) ɻਝͬพֺ੡ೢ — 25“) — ഽ17 151ڃDeferred tax (note 17) Ⴎ֝ೢඖ

151 25

එ̰྆τΕࠗಋଐ́ᎶᇾೢึСc̯כͅ No provision for Hong Kong Profits Tax has been made in ʑగࠗಋٲτΕ໮ԭ࠯α۹ɾল৻ం̰ܨ the financial statements for both years as the Group had no assessable profit arising in Hong Kong. С੡ೢАˮᅆௐe

128 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

Income Tax Expense (continued) 12. ֺ੡ೢ඀ʻᙩ .12 Εɻਝι͓ɾ̔ਆҙ༅́ଐͬכPursuant to the relevant income tax regulations for ࣓ኣሬ͂ productive enterprises with foreign investment established พɾτᗐֺ੡ೢؒஃԎ຤ɻਝτᗐೢ৻ዀ אᙔʔ̇΋༅ࣟͅԯڃin the PRC and being approved by the relevant PRC tax ᗐғ࠿c Εɻਝɾ ࠖ࠯ึ܃authority, the subsidiaries in the PRC are eligible for an ࣱ༦˾ʄα೶ᔝɾֺτೢ৻ᑋฌ exemption from PRC EIT for two years starting from the first Сα۹঴ԭ࠯α۹c ᏵᑥЛᖔढ़ɻਝͬพ ɍαᏵಕЛȹ˸ೢଅe܃profit-making year after offsetting all tax losses carried ֺ੡ೢc ԎΕԯ forward from the previous five years, followed by a 50% reduction of tax rate in the next three years.

ᑋฌɾྦྷٲThe income tax expense for the year can be reconciled to ̯α۹ֺ੡ೢ඀ʻၤ၃΋ฌऩ the loss per the consolidated income statement as follows: ሏΣɎi

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK$’000 HK$’000 ɝಋʏ ɝಋʏ (restated) ຤ࠇͶ

(ᑋฌ (76,205) (131,202کLoss before taxation ৖ೢ

Tax calculated at Hong Kong ܘࠗಋС੡ೢೢଅ17.5% Profits Tax rate of 17.5% ɀཌྷཌྷ̒αi17.5% (2004: 17.5%) ့߮ɾೢඖ (13,336) (22,960) Tax effect of income that are not taxable for గೢ৻ϤӰɺᎶᇾೢνɃɾ tax purpose ೢ৻ᄧᚊ (67) (1) Tax effect of expenses that are not deductible గೢ৻ϤӰɺʀκೢ඀ʻɾ for tax purpose ೢ৻ᄧᚊ 14,576 19,728 Tax effect of tax losses not recognised ̰τᆢႏೢ৻ᑋฌɾೢ৻ᄧᚊ 177 5 ʵߎמTax effect of temporary differences arising from එ྆ං̰ᆢႏ͚ unrealised profits resulting from intra-group ̰ᛰଊึСֺଐ́ɾ transactions not recognised ᅗࣂ࢏ଔɾೢ৻ᄧᚊ (3,484) 1,171 ᙔʔ̇Ᏽ઒ೢඖڃEffect of tax exemptions granted to subsidiaries ɻਝ in the PRC ᑥЛɾᄧᚊ 320 2,114 ԯˢ̇ؒᚬਂ຤Ꮺɾכ Effect of different tax rates of subsidiaries (ᙔʔ̇ɾೢଅ࢏ଔɾᄧᚊ 1,965 (32ڃ operating in other jurisdictions

Income tax expense for the year ̯α۹ֺ੡ೢ඀ʻ 151 25

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 129 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

Loss per Share 13. Ұٖᑋฌ .13 τɁܛʔ̇ౝ஝ᚬऩ̯ܘСȽޔThe calculation of the basic earnings per share is based on Ұٖਥ̯ the loss attributable to the ordinary equity holders of the ᎶЌɾᑋฌᔾ޸76,356,000ಋʏɀཌྷཌྷ̒ Company of HK$76,356,000 (2004: HK$131,227,000 as αi131,227,000ಋʏ຤ࠇͶʥαʑɰೕ restated) and the weighted average of 800,820,000 shares Ϸ 800,820,000ٖ ɀཌྷཌྷ̒αi shares) in issue during the year. 793,197,377ٖɾ˱ᚬ̡яࠤ့߮e 793,197,377 :2004)

ϷԚᑪٖᚬผኒߎɀཌྷཌྷʄα۹ʥɀכͅ No duiluted loss per share has been calculated for the year Ԏಲ့߮ܨended 31 December 2005 and 2004 as the exercise of the ཌྷཌྷ̒α۹ɾҰٖᑋฌಕʭc share options could result in a decrease in the loss per share. ࿀ϭɀཌྷཌྷ̒αʥɀཌྷཌྷʄαɊɀ˂ɍɊ ȹˀ˅α۹ɾҰٖᚫᑁᑋฌe

ล߸˞ɎΈඖྦྷҰٖਥ̯ᑋฌɾᄧٲThe following table summarises the impact on basic loss per Ɏ share as a result of: ᚊi

Impact on basic loss per share Ұٖਥ̯ᑋฌɾᄧᚊྦྷ 2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK cents HK cents ಋ˦ ಋ˦

(ɾɰʔЗᅕΥ (9.36) (16.43کReported figures before adjustments ሁኬ Adjustments arising from changes in ผ߮ܧ೪ҝ৽ଐ́ɾሁኬ (ഽ3A (0.17) (0.11ڃaccounting policies (See Note 3A) bӮ

Restated ຤ࠇͶ (9.53) (16.54)

130 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

พdᄥָʥஉௐذ .Property, Plant and Equipment 14 .14 Equipment, Digital film Construction Leasehold furniture and Computer encoders Motor in improvements fixtures equipment and servers vehicles progress Total ᅕᆦཋᄧ உௐd்ᯫ ᇁᆦኂʥ ඖ͌ ΋߮ۺኂ Ӂӹ Εר༉໦࠳ ʥ໦ສ ཋ຾உௐ Љै HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ

COST ι̯ ɀཌྷཌྷ̒αȹ˂ȹˀ 16,909 1,067 30,534 1,914 1,022 4,684 56,130כ At 1 January 2004 Additions ૚ສ 16 198 4,838 — — — 5,052 Disposals ˮਕ —— (4)—(570) — (574) Transfer ᔝᅆ 4,684 — — — — (4,684) —

ɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀכ At 31 December 2004 and 1 January 2005 bʥɀཌྷཌྷʄαȹ˂ȹˀ 21,609 1,265 35,368 1,914 452 — 60,608 Exchange realignment මЙሁኬ 416 18 244 — 2 — 680 Additions ૚ສ — 162 2,473 — — — 2,635 Disposals ˮਕ — (14) (397) — — — (411)

ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ 22,025 1,431 37,688 1,914 454 — 63,512כ At 31 December 2005

DEPRECIATION , җᓿdᚫሻʥಕࠤ AMORTISATION AND IMPAIRMENT ɀཌྷཌྷ̒αȹ˂ȹˀ 4,215 396 15,016 319 200 — 20,146כ At 1 January 2004 Provided for the year α۹ᅆௐ 2,157 237 9,047 96 147 — 11,684 Eliminated on disposals ˮਕ࿁ሻ —— (4)—(86) — (90) Impairment losses ಕࠤᑋฌ 14,868 — — — — — 14,868

ɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀכ At 31 December 2004 and 1 January 2005 bʥɀཌྷཌྷʄαȹ˂ȹˀ 21,240 633 24,059 415 261 — 46,608 Exchange realignment මЙሁኬ 399 11 212 — — — 622 Provided for the year α۹ᅆௐ 104 269 7,208 191 88 — 7,860 Eliminated on disposals ˮਕ࿁ሻ —(1) (228) — — — (229) Impairment losses ಕࠤᑋฌ ——1,042 1,308 — — 2,350

ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ 21,743 912 32,293 1,914 349 — 57,211כ At 31 December 2005

NET BOOK VALUES ሏࠍ૱ࠤ ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ 282 519 5,395 — 105 — 6,301כ At 31 December 2005

ɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀ 369 632 11,309 1,499 191 — 14,000כ At 31 December 2004

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 131 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

พdᄥָʥஉௐᙩذ .Property, Plant and Equipment (continued) 14 .14 ɎͶα۹ˈଅܘพdᄥָʥஉௐȽذThe above items of property, plant and equipment are ɐ߸ ᇃؒʀ˞ಕࠤiق˞ depreciated on a straight line basis at the following rates per annum:

Leasehold improvements Over the term of ै༉໦࠳ ܘै޸ the lease ౨ࠉ Equipment, furniture and fixtures 5 years உௐd்ᯫʥ໦ສ 5α Computer equipment 3 years ཋ຾உௐ 3α ኂ 10αרDigital film encoders and servers 10 years ᅕᆦཋᄧᇁᆦኂʥЉ Motor vehicles 5 years Ӂӹ 5α

พذɰΉ̯එֺ྆ै֚͂ܧτᗐɻਝכͅ Due to a disfurnishment notice from the PRC government ᗐैޚc ໎ԑϣᄬੀكto the landlord for which the premises were rented by the ɾพ˚ೕˮจሰ஝ Group, the directors considered the relevant leasehold ༉໦࠳АˮͲᅕಕࠤc Ϥɰᆢႏɾಕࠤᑋ ࿀ϭɀཌྷཌྷ̒כimprovements were fully impaired and impairment losses ฌ޸ݯ14,868,000ಋʏԎ ɻٲof approximately HK$14,868,000 were identified and αɊɀ˂ɍɊȹˀ˅α۹ɾ၃΋ฌऩ charged to the consolidated income statement for the year κ৖e ended 31 December 2004.

During the year, the Directors conducted a review of the αʑc໎ԑɰྦྷ̯එ྆ɾཋ຾உௐdᅕᆦ ˮଊכኂАˮᏎদcͅרGroup’s computer equipment and digital film encoders and ཋᄧᇁᆦኂʥЉ servers and determined that a number of these assets were ฌาʥҌ୺༦ࣂc໎ԑႏݯߗɳ໮೩༅ଐ ᙔڃimpaired, due to physical damage and technical ɰ຤ಕࠤeΐϊc̯එ྆ݯԯɻȹං ᔾ޸ݯ1,042,000ಋʏɾཋ຾உټobsolescence. Accordingly, the carrying amount of ʔ̇ሏࠍ ᔾ޸ݯ1,308,000ಋʏɾ̯එ྆ټcomputer equipment of one of the Group’s subsidiaries ௐʥሏࠍ ኂᆢႏАȿͲᅕಕרamounting to approximately HK$1,042,000 and the carrying ᅕᆦཋᄧᇁᆦኂʥЉ amount of the Group’s digital film encoders and servers ࠤe amounting to approximately HK$1,308,000 have been fully impaired.

132 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

พdᄥָʥஉௐᙩذ .Property, Plant and Equipment (continued) 14 .14 ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀc ̯එ྆͂כ At 31 December 2005, the cost, accumulated depreciation ຤Ꮺै޸ɾཋ຾உௐʥᅕᆦཋᄧᇁᆦኂכ and impairment, depreciation charge and impairment losses ኂɾι̯dୃ߮җᓿʥಕࠤdҗᓿרrecognised for the year of computer equipment and digital ʥЉ film encoders and servers of the Group held for use in ʻˮʥಕࠤᑋฌɾʗ׹ΣɎi operating leases are analysed as follows:

Digital film Computer equipment encoders and servers ኂרཋ຾உௐ ᅕᆦཋᄧᇁᆦኂʥЉ 2005 2004 2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK$’000 HK$’000 HK$’000 HK$’000 ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ (Note) (Note) ഽڃ ഽڃ

Cost ι̯ — 583 957 957 Accumulated depreciation and ୃ߮җᓿʥಕࠤ impairment — (367) (957) (256)

— 216 — 701

Depreciation charge for the year α۹җᓿʻˮ — 233 96 96

Impairment losses recognised α۹ᆢႏɾ for the year ಕࠤᑋฌ — — 605 —

ɀཌྷཌྷ̒כഽi ཋ຾உௐɾ຤Ꮺै༉ɰ຤ڃ Note: The operating lease of computer had been expired as at 31 December 2004. αɊɀ˂ɍɊȹˀԷ౨e

ጪ༅ܘɀཌྷཌྷʄαɊɀ˂ɍɊȹˀc గכ At 31 December 2005, net book values of computer equipment and motor vehicles of the Group included ै༉ܛτɾ༅ଐϤӰc ̯එ྆ཋ຾உௐʥ ݯᅕ޸2,329,000ܢ˳amounts of approximately HK$2,329,000 (2004: Ӂӹɾሏࠍ૱ࠤʗП HK$4,996,000) and HK$21,000 (2004: HK$86,000) ಋʏɀཌྷཌྷ̒αi4,996,000ಋʏʥ respectively in respect of assets held under finance leases. 21,000ಋʏɀཌྷཌྷ̒αi 86,000ಋʏe

Computer equipment with net book values of ሏࠍࠤ޸2,040,000ಋʏɀཌྷཌྷ̒αiಲ approximately HK$2,040,000 (2004: Nil) are held under ɾཋ຾உௐcȽ࣓ኣၤ̯එ྆ɾȹࡼ ʿਝ჌ै༉τࠉʔڲᙔʔ̇ڃfinance lease arrangements with South China International ΃ӡ Leasing Company Limited (“SCILCL”), a fellow subsidiary of ̇SCILCL߯ ͓ɾጪ༅ै޸ΪખϤ the Group. ܛτe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 133 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

15. Jointly Controlled Operation 15. ͳ΃ઁԹพ৻ The Group has entered into a jointly controlled operation ̯එ྆ɰ͓߯ȹඖͳ΃ઁԹพ৻c ˞൬Ϸ ɀཌྷཌྷʄαכto undertake a digital content distribution and exhibition ᅕᆦʑࢀೕϷʥࢄ͐΋޸e ሏ͌ʑᆢႏτᗐ̯̯כ contract. At 31 December 2005, the aggregate amounts of Ɋɀ˂ɍɊȹˀc ͳ΃ઁԹพ৻ɻֺЌᚬऩɾ༅ଐdכassets, revenue and results recognised in the accounts in එ྆ relation to the Group’s interests in the jointly controlled νऩʥพᐜᐢᔾΣɎi operation are as follows:

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK$’000 HK$’000 ɝಋʏ ɝಋʏ

RESULTS พᐜ Revenue νऩ Box office receipts from distribution of ೕϷᅕᆦཋᄧɾ digital motion pictures ଩ָνɃ — 93 Franchise fee from digital cinema for use of ᅕᆦᄧ৑Ԛ͂உௐ equipment ֺଐ́ɾਿСᚬ൒ — 76

— 169 Cost of sales — depreciation ሻਕι̯Ðҗᓿ (96) (96) Cost of sales — impairment ሻਕι̯Ðಕࠤ (605) —

Group’s share of (loss) profit for the year ̯එ྆ᎶЌɾα۹ᑋฌึС (701) 73

NET ASSETS ༅ଐ૱ࠤ Assets ༅ଐ พdᄥָʥஉௐذ Property, plant and equipment — digital film encoders and servers Ðᅕᆦཋᄧᇁᆦኂʥ ኂ — 702רЉ ሏಁ — 268מTrade receivables Ꮆνൗ

— 970

134 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

16. Available-for-sale Investment 16. ˿Ԝˮਕҙ༅ Formerly classified as Investment securities) ˞֡ʗᗘݯҙ༅ᖬԴ)

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK$’000 HK$’000 ɝಋʏ ɝಋʏ

ɐ̟ٖ̯ᖬ㜝 117 117ڈ Unlisted equity securities Less: Impairment losses recognised ಕiɰᆢႏಕࠤᑋฌ (117) (117)

— —

଱39໔c໮೩ᖬԴϬҙڬIn accordance with HKAS 39, those securities were ࣓ኣࠗಋผ߮ๅ reclassified from investment securities which was measured ༅ᖬԴࠇณʗᗘcҙ༅ᖬԴܘι̯ಕɀཌྷ at cost less any impairment loss to available-for-sale ཌྷʄαȹ˂ȹˀ˿Ԝˮਕҙ༅ɾͨЄಕࠤ ഽ3Aeڃinvestment at the beginning of 1 January 2005 (see Note ᑋฌ့߮Ӯ 3A).

ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀcτᗐҙ༅כ At 31 December 2005, the investment represents investment ȹංؒਝഽ˫ι͓ɾʔ̇Productionכܞ in a 25% equity interest in Production and Partners Multimedia, SAS (“P&PM”), a company incorporated in and Partners Multimedia, SASP&PMኟ כ˾ι̯ಕܘFrance. They are measured at cost less impairment loss at τ25%ٖᚬɾҙ༅e֤೩Ƚ එ྆ΐӀ̯כeach balance sheet date. Since the Group did not have any ೶့ˀɾಕࠤᑋฌ߮൴eͅ significant influence to the investee with no director τݢ໎ԑԷԯ໎ԑผྦྷ໮୽ҙ༅ʔ̇Ԏಲ presented on the board, the investment is accounted for as ͨЄࠇɣᄧᚊcܨ໮ඖҙ༅Ƚፓ๑ࠗಋผ ଱39໔˿Ԝˮਕҙ༅୮ଉeڬavailable-for-sale investment in accordance with HKAS 39. ߮ๅ

࿀ϭɀཌྷཌྷ̒αɊɀ˂ɍɊȹα۹ʑcכ During the year ended 31 December 2004, the Directors of the Company reviewed the carrying value of the investment ̯ʔ̇໎ԑ຤਄ϣ˿νΑᅕᔾ܃Ꮞদȿ໮ with reference to the recoverable amount, impairment ඖҙ༅ɾࠍࠤcɰᆢႏಕࠤᑋฌ޸ ၃΋כlosses of approximately HK$117,000 (2005: Nil) was 117,000ಋʏɀཌྷཌྷʄαiಲԎ ʑκ৖eٲidentified and charged to the consolidated income ฌऩ statement.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 135 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

Deferred Tax Assets 17. Ⴎ֝ೢඖ༅ଐ .17 α۹ʑʥ༦͇֡ం౨ං̯כThe following are the major deferred tax assets recognised ˞Ɏݯ̯එ྆ by the Group and movements thereon during the year and ɰᆢႏɾ˚߬Ⴎ֝ೢඖ༅ଐʥԯᛰ৽i prior reporting periods:

Accelerated tax depreciation Others Total ˱஠ೢඖҗᓿ ԯˢ ΋߮ HK$’000 HK$’000 HK$’000 ɝಋʏ ɝಋʏ ɝಋʏ

ɀཌྷཌྷ̒αȹ˂ȹˀcכ ,At 1 January 2004 31 December 2004 and ɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀ 1 January 2005 ʥɀཌྷཌྷʄαȹ˂ȹˀ 118 33 151 ഽ12ڃٲCharge to income statement ߮Ƀα۹ฌऩ for the year (note 12) (118) (33) (151)

——— ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀכ At 31 December 2005

೶့ˀc ̯එ྆τ˞Ɏ˚߬˿κᅗࣂ࢏כ At the balance sheet date, the Group has the following major Сึ܃ˀكಲؒདכdeductible temporary differences and tax losses, of which ᔾʥೢඖᑋฌc ੹ͅ ԎಲᆢႏͨЄႮ֝ೢඖ༅ଐiܨ no deferred tax assets were recognised due to the Ԟ฻c unpredictability of the future profit streams:

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK$’000 HK$’000 ɝಋʏ ɝಋʏ

ʵߎɾמUnrealised profits resulting from intra-group එ྆ං͚ transactions ̰ᛰଊึС 6,575 26,485 Tax losses that may be carried forward ˿ಲࠉ೶ᔝɾ indefinitely ೢඖᑋฌ 8,670 7,657

15,245 34,142

Έ೶့ˀԎಲכԭ࠯α۹ֶٶ௖כThe Company had no significant unprovided deferred tax ̯ʔ̇ for both years or at the balance sheet dates. ͨЄࠇɣֆ̰ᅆௐႮ֝ೢඖe

136 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

18. Inventories, at Cast 18. Φஒܘι̯߮ 2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK$’000 HK$’000 ɝಋʏ ɝಋʏ

Raw materials, net of allowance of ࡈࢿcκ৖ᅆௐ޸475,000ಋʏ approximately HK$475,000 (2004: Nil) ɀཌྷཌྷ̒αiಲ 448 1,765 cκ৖ᅆௐ޸ۂFinished goods, net of allowance of ႇι approximately HK$2,170,000 2,170,000ಋʏ (2004: Nil) bɀཌྷཌྷ̒αiಲ 709 3,758

1,157 5,523

19. Production Work in Progress 19. Εႇඖ͌ 2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α Notes HK$’000 HK$’000 ഽ ɝಋʏ ɝಋʏڃ

Movie, net of allowance of ཋᄧcκ৖ᅆௐ approximately HK$94,712,000 ޸94,712,000ಋʏ (2004: HK$70,000,000) ɀཌྷཌྷ̒αi70,000,000ಋʏ (i) — 20,340 Television series, net of allowance of ཋ഼டᙩჱcκ৖ᅆௐ approximately HK$14,615,000 ޸14,615,000ಋʏ (2004: HK$14,615,000) ɀཌྷཌྷ̒αi14,615,000ಋʏ (ii) — — Others ԯˢ 951 961

951 21,301

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 137 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

19. Production Work in Progress (continued) 19. Εႇඖ͌ᙩ ഽiڃ :Notes

(i) The amount represents production costs incurred for the (i) ໮ಁඖܞΐᄧːᚓˈ౜᏷໮ᄧ film titled “Thru the Moebius Strip” (the “Film”), a movie ːϤଐ́ɾႇАι̯c໮ᄧːȽ̯ ໮ᄧː௖כproject produced by the Group. Having regard to the latest එ྆ႇАɾཋᄧඖ͌eਥ ႇАੱؗd̯එ྆ɾሻਕˤଉЅ߮ٶ production status of the Film, projected sales estimated by the Group’s sales agents and the uncertainty in finalising ؿ͌ᅟሻਕᔾʥ̰ॶᆢցਿСᚬೕϷ ᅶΕ̟௿੡Էכdistribution/licence agreements among the potential þஈ˿ԾᘪܰЯॶց markets on a timely basis, the Directors have made an ሬࣂໃྡྷ೩ΐॖc໎ԑɰݯ̯α۹А additional allowance of approximately HK$24,712,000 ˮᅆௐ޸24,712,000ಋʏeɀཌྷཌྷ̒ (2004: HK$70,000,000) for the year. αi70,000,000ಋʏ

Details of the movements are as follows: ᛰ৽໯ੱΣɎi

HK$’000 ɝಋʏ

ɀཌྷཌྷ̒αȹ˂ȹˀ 75,666כ At 1 January 2004 Additions ᄈ˱ 14,674 Less: allowance ಕiᅆௐ (70,000)

ɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀʥɀཌྷཌྷʄαȹ˂ȹˀ 20,340כ At 31 December 2004 and 1 January 2005 Additions ᄈ˱ 4,372 Less: allowance ಕiᅆௐ (24,712)

— ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀכ At 31 December 2005

(ii) The amount represents production costs incurred for the (ii) ໮ಁඖܞΐཋ഼டᙩჱPanshel's television series titled “Panshel’s World” (the “TV Series”). World໮ཋ഼டᙩჱϤଐ́ɾႇ ɀཌྷཌྷʄαɊɀ˂ɍɊȹכAs at 31 December 2005, there was a litigation in relation Аι̯e to the co-production of the TV Series, details of which are ˀc̯එ྆ၤ΋Аʿΐͳ΃ႇА໮ཋ ഽڃכset out in note 42, the Directors have considered ഼டᙩჱϤʵߎേஊ໯ੱ༗ ΐ໮ཋ഼டᙩכrecoverability in these circumstance for the production 42c ໎ԑႏݯc ᛆ costs already incurred is uncertain and a full allowance of ჱϤ຤ɰଐ́ؿႇАι̯ܰЯ˿ʀν ࿀ϭɀཌྷཌྷכɰగϊܨ࣍cעapproximately HK$14,615,000 was made for the year Αʋɺ ended 31 December 2004. ̒αɊɀ˂ɍɊȹˀАˮͲᅕᅆௐ޸ 14,615,000ಋʏe

138 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

ሏಁמTrade Receivables 20. Ꮆνൗ .20 Ԟ۪ʸֺొԜؿଐ֡מThe Group allows an average different credit periods to its ̯එ྆Ƚ࣓ኣԯൗ ൘ڌ৻ိᗘϤ೽ʀ֤೩ɺ΃ؿ̡яרֶۂ trade customers depending on the type of products or ʿβʻر͂ڌ˞ሻਕȽۂservices provided. The majority of sales of goods are on letter ౨eɣΛᅕஒ ൘ڌ೽ʀ90ˀɾ̡яڬof credit against payment, the remaining amounts are ˟c Ϥ௛቗ಁඖ granted with average credit terms of 90 days. ౨e

ሏಁɾሏᙍʗ׹Σמ೶့ˀcᎶνൗכ The following is an aged analysis of the trade receivables at the balance sheet date: Ɏi

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK$’000 HK$’000 ɝಋʏ ɝಋʏ

ɍ࠯˂ 2,527 16,545כWithin three moths ʭ Three to six months ɍϭʒ࠯˂ 786 1,070 Over six months ʒ࠯˂˞ɐ 351 396

3,664 18,011

˂ɀཌྷཌྷʄαɊɀכሏಁמThe fair value of the Group’s trade receivables at 31 ̯එ྆Ꮆνൗ ޚᔾټᎶɾሏࠍޚDecember 2005 approximates to the corresponding ɍɊȹˀɾʔ̡ࠤၤ carrying amount. ߗe

ጪ༅ଐټOther Financial Assets 21. ԯˢ .21 ʥԯˢᎶνሏಁټܘ (a) Deposits and other receivables (a) ʥԯˢᎶνሏಁʔټܘThe fair value of the Group’s deposits and other ̯එ྆ɾ ᔾeټreceivables approximates to the corresponding ̡ࠤ޸ݯ΃౨ɾሏࠍ carrying amount.

ټb) Bank balance and cash (b) ႺϷ೶቗ʥଊ) The Group’s deposits carrying interest rate at ̯එ྆ɾΦಁф๫ࣂɾႺϷ᎝ၫ ɍ࠯˂ʑ౨࿶e̯ʔ̇כprevailing bank saving deposits rate and mature Сଅʥ ټwithin 3 months. The Directors of the Company ໎ԑႏݯ̯එ྆ႺϷ೶቗ʥଊ ᔾeټconsider that the fair value of the Group’s bank ɾʔ̡ࠤ޸ݯ΃౨ɾሏࠍ balances and cash approximates to the corresponding carryng amount.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 139 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

׋ႺϷΦಁאPledged Bank Deposits 22. ɰ .22 ׋ʀႺϷАݯ઒ʀ̯එ྆೛אɰܞᔾټThe amont represents deposits pledged to banks to seucre ໮ Ԏʗᗘݯݚ৽༅ଐeړshort-term banking facilities granted to the Group and is ౨ႺϷᔾ۹ɾኪ therefore classifieid as current assets.

אႺϷ๫ࣂɾ᎝ၫСଅ߮ࢠeɰܘThe deposits carry interest rate at prevailing bank saving ໮Φಁ ᗐႺϷࠥಁࣂޚ᎛ᑹ໮כdeposits rate. The pledged bank deposits will be released ׋ɾႺϷΦಁੀ ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀכ׋eאupon the settlement of the relevant bank borrowings. The ໬৖ ߗeޚᔾټfair value of the deposits at 31 December 2005 approximates ໮Φಁɾʔ̡ࠤၤ΃౨ɾሏࠍ to the corresponding carrying amount.

ሏಁמTrade Payables 23. Ꮆ˟ൗ .23 ሏಁɾሏᙍʗ׹Σמ೶့ˀcᎶ˟ൗכ The following is an aged analysis of the trade payables at the balance sheet date: Ɏi

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK$’000 HK$’000 ɝಋʏ ɝಋʏ

ɍ࠯˂ 1,049 10,257כWithin three months ʭ Three to six months ɍ࠯˂ϭʒ࠯˂ 16 744 Over six months ʒ࠯˂˞ɐ — 17

1,065 11,018

ɀཌྷཌྷʄכሏಁؿʔ̡ࠤמThe fair value of the Group’s trade payables at 31 December ̯එ྆Ꮆ˟ൗ ᔾeټapproximates to the corresponding carrying amount. αɊɀ˂ɍɊȹˀ޸ݯ΃౨ɾሏࠍ 2005

24. Other Payables and Accruals 24. ԯˢᎶ˟ಁඖʥᎶ߮൒͂ ɀཌྷכThe fair value of the Group’s other payables and accruals at ̯එ྆ɾԯˢᎶ˟ಁඖʥᎶ߮൒͂ December 2005 approximates to the corresponding ཌྷʄαɊɀ˂ɍɊȹˀɾʔ̡ࠤ޸ݯ΃౨ 31 ᔾeټcarrying amount. ɾሏࠍ

140 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

ᙔʔ̇ʥ໎ԑಁඖڃAmounts due to Fellow Subsidiaries and 25. Ꮆ˟΃ӡ .25 Directors ߬ұࣂᑹܘ׋dЛࢠʥאThe amounts are unsecured, non-interest bearing and ໮೩ಁඖݯಲ ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀɾכrepayable on demand. The fair value of the balances at 31 ಁe೶቗ ߗeޚᔾټᎶɾሏࠍޚDecember 2005 approximates to the corresponding ʔ̡ࠤၤ carrying amount.

Amounts due to Shareholders 26. Ꮆ˟ٖ׭ .26 ᑹಁeك஝ܘ׋dЛࢠʥאThe amounts are unsecured, non-interest bearing and ໮೩ಁඖݯಲ ɀཌྷཌྷʄαɊɀ˂ɍɊȹכrepayable on demand. The fair value of the balances at 31 Ꮆ˟ٖ׭ಁඖ ߗeޚᔾټᎶɾሏࠍޚDecember 2005 approximates to the corresponding ˀɾʔ̡ࠤၤ carrying amount.

27. Amounts due to Related Parties 27. Ꮆ˟ᗐடɁɡಁඖ 2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α Notes HK$’000 HK$’000 ഽ ɝಋʏ ɝಋʏڃ

Amounts due to related parties Ꮆ˟ᗐடɁɡಁඖ — due within one year: bÐ ȹαʑԷ౨ Mr. Anthony Francis Neoh ષցԄͱ́ (a) 4,147 — Bright Oceans Corporation (HK) Bright Oceans Corporation (HK) Limited Limited (a) 458 — Global Digital Creations Limited Global Digital Creations (“GDCL”) bLimitedGDCL (b) 422 422 Madam Chan Wing Yee, Betty Chan Wing Yee, Bettyɤɡ (c) 98 — O’Melveny and Myers LLP O’Melveny and Myers (“O’Melveny”) bLLPO’Melveny (d) — 758

5,125 1,180 Amounts due to a related party Ꮆ˟ᗐடɁɡಁඖ — due after one year: bÐ ȹα܃Է౨ Mr. Raymond Dennis Neoh bb ષցඐͱ́ (e) 1,495 —

6,620 1,180

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 141 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

27. Amounts due to Related Parties (continued) 27. Ꮆ˟ᗐடɁɡಁඖᙩ ഽiڃ :Notes

ᑹك஝ܘ׋dЛࢠʥאᔾȽಲټa)The amounts are unsecured, non-interest bearing and (a) ໮) ɀཌྷཌྷʄαɀ˂ٖ׭כrepayable on demand. Due to change of shareholding ಁeαʑcͅ ᔾɰͅᎶ˟ٖ׭ҝʗټduring the year in February 2005, they are reclassified from ˮଊᛰ৽c໮ ʿٖ׭ɾᗐடɁ̒ٽshareholders to related parties, who are shareholders of ᗘݯᎶ˟ιݯࠖ ك஝ܘ׋dЛࢠʥאᔾȽಲټSCG. The amounts are unsecured, non-interest bearing and ɡe໮ ɀཌྷཌྷʄαɊɀ˂ɍɊȹכrepayable on demand. The fair value of the balance as at ᑹಁe December 2005 approximates to the corresponding ˀc໮೶቗ɾʔ̡ࠤ޸ݯԯ΃౨ɾሏ 31 ᔾeټcarrying amount. ࠍ

ܘ׋dЛࢠʥאᔾݯಲټb)The amount due to GDCL is unsecured, non-interest (b) Ꮆ˟GDCLɾ) ɀཌྷཌྷɀכᑹಁeGDCLȽ̯එ྆كbearing and repayable on demand. GDCL is a former ஝ ୂکholding company of the subsidiaries comprising the Group αɊɀ˂ɍɊȹˀѧιඑ྆ࠇୂ ۹ઁٖʔکᙔʔ̇ɾڃprior to the group reorganisation completed on 31 ι̯එ྆Έ ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀcכDecember 2002. The fair value of the balance as at 31 ̇e ټDecember 2005 approximates to the corresponding ໮೶቗ɾʔ̡ࠤ޸ݯԯ΃౨ɾሏࠍ carrying amount. ᔾe

ʿ̒ٽc) Madam Chan Wing Yee, Betty is the sponse of Mr. Anthony (c) Chan Wing Yee, BettyɤɡȽࠖ) ɀཌྷཌྷʄαɊכFrancis Neoh, a former non-executive Director who had ٖ׭ષցԄͱ́ɰ຤ ਨϷ໎ԑcԎڈکresigned on 30 December 2005 and an existing ɀ˂ɍɊˀᖽͨɾ ʿɾଊٖͨ׭ɾ৉৫eಁඖ̒ٽshareholder of SCG. The amount is unsecured, non-interest ݯࠖ ɀכᑹಁeك஝ܘ׋dЛࢠʥאbearing and repayable on demand. The fair value of the Ƚಲ balance as at 31 December 2005 approximates to the ཌྷཌྷʄαɊɀ˂ɍɊȹˀc೶቗ɾʔ ᔾeټᎶɾሏࠍޚcorresponding carrying amount. ̡ࠤ޸ݯ

ਨϷ໎ԑStephen Scharfڈͨکd)Mr. Stephen Scharf, a former non-executive Director of the (d) ̯ʔ̇) ɀཌྷཌྷʄαɀ˂ɊʒˀᖽכCompany and had resigned on 16 February 2005. He is a ͱ́ ɰ ࢑ԑ৻ֺ܁partner of O’Melveny, a law firm in the United States of ᓻe֤Ƚȹࡼ޻ਝ America. As a result, balance in the amount of O’Melvenyɾ΋ྑɁcኣϊcᎶ˟ ɀכapproximately HK$384,000 due to O’Melveny as at 31 O’Melvenyɾಁඖ೶቗384,000ಋʏ December 2005 is classified as the other payables and ཌྷཌྷʄαɊɀ˂ɍɊȹˀʗᗘݯԯˢ ɀཌྷཌྷʄαɊכaccruals. The fair value of the balance as at 31 December Ꮆ˟ሏಁʥᎶ߮൒͂ approximates to the corresponding carrying amount. ɀ˂ɍɊȹˀc໮೶቗ɾʔ̡ࠤ޸ݯ 2005 ᔾeټԯ΃౨ɾሏࠍ

̒ٽ໎ԑʥࠖͨک˟ᔾȽᎶټe) The amount is due to Mr. Raymond Dennis Neoh, an ex- (e) ໮Лࢠ) ҰαܘDirector and relative of a shareholder of SCG, is non- ʿٖ׭ɾጱᙔષցඐͱ́cԎ כinterest bearing. The amount was stated at amortised cost 9.8%ɾτࢽСଅ˞ᚫሻι̯Ͷሏe at effective interest rate of 9.8% per annum. The imputed ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹c interest expense amounted to approximately HK$445,000 ໮ઐ့ɾСࢠ඀ʻȽ୽഼ݯȹඖ༅̯ (2004: Nil) is deemed to be a capital contribution and ྡྷᖔʥɰ຤Ґ޸445,000ಋʏɀཌྷཌྷ̒ recognised as capital contribution reserve as at 31 αiಲᆢႏԷ༅̯ྡྷᖔ᎝ௐʑe December 2005.

142 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

ᙔʔ̇þٖ׭൘ಁڃLoans from a Fellow Subsidiary/Shareholders 28. ΃ӡ .28 2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α Notes HK$’000 HK$’000 ഽ ɝಋʏ ɝಋʏڃ

ᙔʔ̇൘ಁڃLoan from a fellow subsidiary ΃ӡ Due within one year: ȹαʑԷ౨i — ʿল৻ (a) 43,983̒ٽSCG Finance b ࠖ

Loans from shareholders ٖ׭൘ಁ Due within one year: ȹαʑԷ౨ Bright Oceans Corporation Bright Oceans Corporation (HK) Limited (HK) Limited (b) — 3,157

Due after one year: ȹα܃Է౨i Mr. Anthony Francis Neoh b ષցԄͱ́ (c) — 18,237

— 21,394

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 143 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

ᙔʔ̇þٖ׭൘ಁᙩڃLoans from a Fellow Subsidiary/Shareholders 28. ΃ӡ .28 (continued) ഽiڃ :Notes

ࠗಋɐࣵ㟱ᔔႺܘ׋dאa) The loan is unsecured, bears interest at best lending rate (a) ໮൘ಁݯಲ) as quoted by the Hongkong and Shanghai Banking Ϸτࠉʔ̇ɺࣂֺంɾ௖᎚యСଅ ొכCorporation Limited (“Best Lending Rate”) from time to ௖᎚యСଅ˱αଅ3᯵߮ࢠʥ ʿ̒ٽtime plus 3% per annum and is repayable within 90 days ಁˀȾɊˀʑᑹಁe࣓ኣϬࠖ ൘ᙩڌɀཌྷཌྷʒαɀ˂ʒˀɾ൘ಁכ from the drawdown date. Pursuant to a renewed loan facility from SCG Finance dated 6 February 2006, the ౨c໮ᑹಁ౨ɰ֝ϭɀཌྷཌྷʒαɊɀ repayment date is extended to 31 December 2006. ˂ɍɊȹˀe

ɺࣂ௖᎚యСଅܘ׋dאb) The loan is unsecured, bears interest at Best Lending Rate (b) ໮൘ಁݯಲ) ɀכ᎛ᑹeك஝ܘfrom time to time plus 3% per annum and is repayable on ˱αଅ3᯵߮ࢠʥ჏ c໮൘܃demand. The loan is reclassified to loan from a related ཌྷཌྷʄαɀ˂ٖ׭ˮଊᛰ৽ party as a result of the change of shareholding in February ಁᏵࠇณʗᗘݯᗐடɁɡ൘ಁcࡈΐ ഽ29ֺׄڃas disclosed an note 29. ݯαʑτٖ׭ᛰ৽Σ ,2005 ᚉe

ɺࣂɾ௖᎚ܘ׋dСࢠאc) The loan is unsecured, bears interest at Best Lending Rate (c) ໮൘ಁԎಲ) from time to time plus 3% per annum and the Group does యСଅ˱αСଅ3%˘̯එ྆Ԏಲಲૈ not have an unconditional right to defer settlement of this ͧɾᚬСႮ֝໮೩൘ಁɾᑹಁϭ೶့ ٖ˂ɀཌྷཌྷʄαɀכɊɀ࠯˂e܃loan for twelve months after the balance sheet date. The ˀ c໮൘ಁᏵࠇณʗᗘݯ܃loan is reclassified to loan from a related party as a result ׭ˮଊᛰ৽ of the change of shareholding in February 2005, as ᗐடɁɡ൘ಁcࡈΐݯαʑτٖ׭ᛰ ഽ29ֺׄᚉeڃdisclosed an note 29. ৽Σ

ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀɾ೶቗ɾʔכ The fair value of the balances at 31 December 2005 ᔾeټapproximates to the corresponding carrying amount. ̡ࠤ޸ݯ΃౨ɾሏࠍ

144 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

29. Loans from Related Parties 29. ᗐடɁɡ൘ಁ

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α Notes HK$’000 HK$’000 ഽ ɝಋʏ ɝಋʏڃ

Due within one year: ȹαʑԷ౨i Mr. Anthony Francis Neoh ષցԄͱ́ (a) 18,256 — Bright Oceans Corporation Bright Oceans Corporation (HK) Limited (HK) Limited (b) 3,201 — Madam Chan Wing Yee, Betty Chan Wing Yee, Bettyɤɡ (c) 1,000 1,000

22,457 1,000

ഽiڃ :Notes

ʿٖ׭ષցԄͱ́ɾ൘̒ٽa)The loan from Mr. Anthony Francis Neoh, is unsecured, (a) Ꮆ˟ʀࠖ) ɺࣂ௖᎚యСଅ˱αܘ׋dאbears interest at Best Lending Rate from time to time plus ಁݯಲ 3% per annum and the Group does not have an ଅ3᯵߮ࢠ˘̯එ྆ԎಲಲૈͧɾᚬС Ɋɀ܃unconditional right to defer settlement of this loan for Ⴎ֝໮೩൘ಁɾᑹಁϭ೶့ˀ ɀཌྷཌྷʄαɀ˂ٖᚬˮଊᛰכtwelve months after the balance sheet date. The loan is ࠯˂e ഽ28ֺׄᚉᏵࠇڃc໮൘ಁΣ܃reclassified from loan from a shareholder as a result of the ৽ change of shareholding in February 2005, as disclosed in ณʗᗘݯᗐடɁɡ൘ಁe note 28.

ɺࣂɾ௖᎚ܘ׋dСࢠאb) The loan is unsecured, bears interest at Best Lending Rate (b) ໮൘ಁԎಲ) כᑹಁeك஝ܘfrom time to time plus 3% per annum and is repayable on యСଅ˱αСଅ3%ʥ cΣ܃demand. The loan is reclassified from loan from a ɀཌྷཌྷʄαɀ˂ٖᚬˮଊᛰ৽ ഽ28ֺׄᚉc໮൘ಁٖͅ׭൘ಁࠇڃ shareholder as a result of the change of shareholding in February 2005, as disclosed in note 28 ณʗᗘe

(c)The loan is advanced from Madam Chan Wing Yee, Betty. (c) ໮൘ಁͅChan Wing Yee, Bettyɤɡད ɺࣂɾܘ׋dСࢠאThe loan is unsecured, bears interest at Best Lending Rate ˟e໮൘ಁԎಲ ᑹك஝ܘfrom time to time plus 3% per annum and is repayable on ௖᎚యСଅ˱αСଅ3%ʥ demand. ಁe

ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀc೶቗ɾʔכ The fair value of the balances at 31 December 2005 ᔾeټᎶɾሏࠍޚapproximates to the corresponding carrying amount. ̡ࠤ޸ݯԯ

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 145 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

Obligations under Finance Leases 30. ጪ༅ै༉ֻኪ .30 Present value Minimum of minimum lease payments lease payments ɾଊࠤټ௖Гै ټ௖Гै 2005 2004 2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK$’000 HK$’000 HK$’000 HK$’000 ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ

Amounts payable under finance ܘጪ༅ै༉ɾ leases: Ꮆ˟ಁඖi

Within one year ȹαʑ 3,939 7,142 3,468 6,796 In more than one year but not ଱ȹϭ଱ɀαʑ more than two years 1,534 2,142 1,455 2,058 In more than two years but not ଱ɀϭ଱ɍαʑ more than three years 462 155 452 153

5,935 9,439 5,375 9,007 Less: future finance charges ಕḭԞጪ༅ʻˮ (560) (432) — —

Present value of lease obligations ै༉ֻኪɾଊࠤ 5,375 9,007 5,375 9,007

Ɋɀ࠯˂ʑכLess: Amount due for settlement ಕi඘ within 12 months (shown ᎛ᑹɾಁඖ under current liabilities) ͶАݚ৽߲ඦ (3,468) (6,796)

᎛ᑹ܃˂Ɋɀ࠯כAmount due for settlement after ඘ 12 months ɾಁඖ 1,907 2,211

It is the Group’s policy to lease certain of its computer ̯එ྆ɾܧ೪Ƚ࣓ኣጪ༅ै༉ै͂ߗɳཋ equipment and motor vehicles under finance leases. The ຾உௐʥӁӹeै༉α౨ʍ˝ɀϭɍαɺ ᖋ޸ˀ౨ᔤցcαଅͅ6.3כlease terms range from two to three years. Interest rates are ೩eСଅȽ fixed at the contract date ranged from 6.3% to 12.3% (2004: ᯵ϭ12.3᯵ɺ೩ɀཌྷཌྷ̒αi6.9᯵ϭ to 12.3%) per annum. All leases are on a fixed 12.3᯵eֺτै༉я˞՞ց᎛ᑹݯਥๅ 6.9% ͓߯ͨЄΪખeټrepayment basis and no arrangements have been entered ˘Ԏಲగֶಳै into for contingent rental payments.

146 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

Obligations under Finance Leases (continued) 30. ጪ༅ै༉ֻኪᙩ .30 ༉ैܘThe Group’s obligations under finance leases are secured ̯එ྆ɾጪ༅ै༉ֻኪȽͅˮैɁ ׋eאby the lessor’s charge over the leased assets. ༅ଐɾሔ׋ݯ

During the year, the Group has entered into finance lease αʑc̯එ྆ɰ͓߯ጪ༅ै༉ΪખcΉ ɀཌྷཌྷʄαɊɀכarrangements for leasing computer equipment from SCILCL. SCILCLै͂ཋ຾உௐe As at 31 December 2005, the finance leases and interest ˂ɍɊȹˀcጪ༅ै༉ʥᎶ˟ैࢠʗПݯ payable to the fellow subsidiary amounted to approximately 1,898,000ಋʏɀཌྷཌྷ̒αiཌྷʥ HK$1,898,000 (2004: Nil) and HK$171,000 (2004: Nil) 171,000ಋʏɀཌྷཌྷ̒αiཌྷeၤጪ༅ respectively. Interest expense paid during the year in ै༉τᗐؿαʑɰ˟Сࢠ඀ʻ޸ݯ51,000 connection to the finance leases amounted to ಋʏɀཌྷཌྷ̒αiཌྷe approximately HK$51,000 (2004: Nil).

ᎶޚThe Directors consider that the fair value of the obligations ໎ԑႏݯcጪ༅ै༉ֻኪɾʔ̡ࠤၤ ߗeޚᔾټunder finance leases approximates to the corresponding ሏࠍ carrying amount.

31. Bank Borrowings 31. ႺϷࠥ൘ 2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α Notes HK$’000 HK$’000 ഽ ɝಋʏ ɝಋʏڃ

׋ႺϷ൘ಁ (a) 24,960 28,286אUnsecured bank loans ಲ ׋ႺϷ஦ʻ (b) 2,250 2,056אSecured bank overdrafts τ ׋ൎଊ൘ಁ (c) — 1,565אSecured factoring loan τ

27,210 31,907

כଊϷ̟௿Сଅ߮ࢠc Ԏ඘ܘThe above amounts bear interest at prevailing market rates ɐ߸ಁඖȽ and are repayable within twelve months. ˞Ɋɀ࠯˂ʑ᎛ᑹe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 147 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

31. Bank Borrowings (continued) 31. ႺϷࠥ൘ᙩ ഽiڃ :Notes

ɀཌྷཌྷɀαɊ˂ɍɊȹˀc᏷ଈᅕכ (a) On 31 October 2002, banking facilities of RMB30,000,000, (a) or equivalent to approximately HK$28,286,000, had been ᆦఌ᛽ޫҌޢӠ૯Γτࠉʔ̇᏷ obtained by ᏷ଈᅕᆦఌ᛽ޫҌޢӠ(૯Γ)τࠉʔ̇ ଈᅕᆦఌ᛽ޫҌޢӠ૯ΓΉɻਝ Institute of Digital Media Technology (Shenzhen) Limited ႺϷ૯ΓʗϷՅ੡Ɂ̵ྫྷ30,000,000ʏ 28,286,000ಋʏႺϷௐ͂ᔾכ೩ޚIDMT Shenzhen”) from Bank of China, Shenzhen branch ޸“) (“BOC Facilities”). The BOC Facilities were renewed on 4 ɻਝႺϷௐ͂ᔾeɻਝႺϷௐ͂ ɀཌྷཌྷʄαɊȹ˂̒ˀࠇᙩcכNovember 2005 and the maturity date extended from 31 ᔾɰ October 2004 to 3 November 2005. The outstanding loan ЩԷ౨ˀͅɀཌྷཌྷ̒αɊ˂ɍɊȹˀ ɀཌྷכas at 31 December 2005 was RMB14,985,000 (2004: ֝ϭɀཌྷཌྷʄαɊȹ˂ɍˀe RMB15,000,000), or equivalent to approximately ཌྷʄαɊɀ˂ɍɊȹˀɾ̰᎛ᑹ൘ಁ HK$14,394,000 (2004: HK$14,143,000) in which full ݯɁ̵ྫྷ14,985,000ʏ ɀཌྷཌྷ̒αi כ೩ޚrepayment has been made in January 2006. Ɂ̵ྫྷ15,000,000ʏc ֶ޸ RMB14,999,000, or equivalent to approximately 14,394,000ಋʏ ɀཌྷཌྷ̒αi ˂ɀཌྷཌྷʒαȹכHK$14,407,000 (2004: Nil) bank deposits in Bank of China, 14,143,000ಋʏɰ Shenzhen branch of IDMT Shenzhen was pledged for the Ͳᅕ૜ᑹeݯȿ൘ಁᙩ౨Ϊખc᏷ଈ ɻਝכיӠ૯ΓΦޢpurpose of loan renewal arrangement. After the bank loan ᅕᆦఌ᛽ޫҌ in the amount of RMB13,000,000 extended from January ႺϷ૯ΓʗϷɾႺϷΦಁɁ̵ྫྷ 14,407,000ಋכ೩ޚto January 2007, it has been released subsequently. 14,999,000ʏֶ޸ 2006 אʏɀཌྷཌྷ̒αiཌྷಋʏɰ͂А ׋eɁ̵ྫྷ13,000,000ʏɾႺϷ൘ಁͅ ɀཌྷཌྷʒαȹ˂ᙩ౨ϭɀཌྷཌྷȼαȹ ɰ໬৖e܃׋ԯאc܃˂

ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀcɻਝכ At 31 December 2005, the BOC Facilities were guaranteed τࠉʔ̇ (“CICG”), an ႺϷௐ͂ᔾȽ̯ͅʔ̇ʥዟ͓଱ɍʿړኪ͂ڌby the Company and ɻҙ ړኪڌτࠉʔ̇ɻړኪ͂ڌindependent third party (the “CICG Guarantee”). The ɻҙ ᖬe̯ʔ̇ړړኪڌɻړCompany and Mr. Raymond Dennis Neoh have given Аˮኪ ݯՇऩړኪڌcounter-guarantees in favour of CICG and GDC China ၤષցඐͱ́Аˮ˞ɻ ᙔʔ̇᏷ڃcϤ̯ʔ̇ɾړLimited (“GDC China”), a subsidiary of the Company, has Ɂɾʦኪ pledged its entire interest in the registered capital of IDMT ଈᅕᆦ௚෮ɻਝτࠉʔ̇᏷ଈᅕᆦ ᏷כሔ׋ԯړኪڌShenzhen to CICG (“BOC Asset Pledge”) for the repayment ௚෮ɻਝɰΉɻ ̯ٖ˫Ӡ૯Γഽޢof all debts incurred by CICG for which CICG is liable under ଈᅕᆦఌ᛽ޫҌ the CICG Guarantee. The counter-guarantee given by Mr. ɻɾͲ஫ᚬऩɻਝႺϷ༅ଐሔ ړړኪڌΐɻړኪڌRaymond Dennis Neoh and the Company and the BOC ׋c˞૜᎛ɻ Asset Pledge remain effective until IDMT Shenzhen has ᖬϤଐ́ɾͲ஫ඦ৻eͅષցඐͱ́ ʥɻਝႺϷړrepaid all debts under the BOC Facilities. ʥ̯ʔֺ̇ొԜɾʦኪ ϭ᏷ଈᅕᆦقࢽćق༅ଐሔ׋ੀȹ ఌ᛽ޫҌޢӠ૯Γ૜᎛ɻਝႺϷௐ ᔾؿֺτඦ৻ݯ˅e͂

148 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

31. Bank Borrowings (continued) 31. ႺϷࠥ൘ᙩ ഽiᙩڃ (Notes: (continued

ɀཌྷཌྷɍαɍ˂ɀɊȹˀc᏷ଈᅕכ On 21 March 2003, another banking facilities of RMB30,000,000, or equivalent to approximately ᆦఌ᛽ޫҌޢӠ૯ΓΉ૯Γ̟ਆพ HK$28,286,000, had been obtained by IDMT Shenzhen ႺϷՅ੡̊ȹඖݯᅕɁ̵ྫྷ30,000,000 ಋʏɾႺϷ 28,286,000כ೩ޚfrom Shenzhen Commercial Bank in Shenzhen (“SCB ʏ ޸ Facilities”). The outstanding loan as at 31 December 2004 ௐ͂ᔾ૯Γ̟ਆพႺϷௐ͂ᔾe ɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀɾ̰᎛כ was RMB15,000,000, or equivalent to approximately ޚHK$14,143,000 which has been fuly repaid in March 2005. ᑹ൘ಁݯɁ̵ྫྷ15,000,000ʏcֶ޸ ɀཌྷཌྷʄαɍכ14,143,000ಋʏɰכThe SCB Facilities were guaranteed by CICG (the “SCB ೩ Guarantee”) and expired on 21 March 2005. The guarantee ˂੪ᅕ᎛ᑹe૯Γ̟ਆพႺϷௐ͂ᔾ ૯Γ̟ਆพႺϷړАኪړኪڌgiven by CICG shall be effective for three years after the ͅɻ ɀཌྷཌྷʄαɍכੀړcτᗐኪړexpiry of the SCB Facilities. The Company and Mr. Raymond ኪ ԜɾొړኪڌDennis Neoh have given counter-guarantees to CICG and ˂ɀɊȹˀԷ౨eͅɻ ܃։࿶ړੀΕ૯Γ̟ਆพႺϷኪړGDC China has pledged its entire interest in the registered ኪ capital of IDMT Shenzhen (“SCB Asset Pledge”) to CICG for τࢽcݯ౨ɍαe̯ʔ̇ʥષցඐͱ cϤ᏷ଈᅕړʦኪړኪڌthe repayment of all the debts incurred by CICG for which ́ɰ೽ʀɻ ᏷ଈᅕᆦఌ᛽כCICG is liable under the SCB Guarantee. The counter- ᆦ௚෮ɻਝɰሔ׋ԯ Ӡ૯Γഽ˫ٖ̯ɻɾͲ஫ᚬޢguarantees given by Mr. Raymond Dennis Neoh and the ޫҌ ˞Company and the SCB Asset Pledge provided by GDC China ऩ૯Γ̟ਆพႺϷ༅ଐሔ׋c ᖬړΐ૯Γ̟ਆพႺϷړኪڌremain effective until IDMT Shenzhen has repaid all the ૜᎛ɻ debts under the SCB Facilities in March 2005. Ϥଐ́ɾͲ஫ඦ৻eષցඐͱ́ʥ̯ ʥͅ᏷ଈᅕᆦ˞ړʔֺ̇ొԜɾʦኪ ௚෮ɻਝొԜؿ૯Γ̟ਆพႺϷ༅ଐ ϭ᏷ଈᅕᆦఌ᛽قࢽćقሔ׋ੀȹ ɀཌྷཌྷʄαɍ˂૜כӠ૯ΓޢҌޫ ᎛૯Γ̟ਆพႺϷௐ͂ᔾؿֺτඦ৻ ݯ˅e

ʿАˮ̒ٽɀཌྷཌྷʄαɍ˂cΕࠖכ In March 2005, Shenzhen Commercial Bank has granted a Ɏc૯Γ̟ਆพႺϷɰΉ᏷ଈړnew bank loan amounted to RMB13,000,000, or equivalent ɾኪ Ӡ૯Γ઒ˮݯᅕɁ̵ྫྷޢto HK$12,257,000, matured in March 2006 to IDMT ᅕᆦఌ᛽ 12,257,000ಋכ೩ޚShenzhen with guarantee given by SCG. The outstanding 13,000,000ʏֶ ɀཌྷཌྷʒαɍ˂Էכloan as at 31 December 2005 was RMB11,000,000, or ʏɾณ൘ಁc ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀɾכequivalent to HK$10,566,000. ౨e כ᎛ᑹ൘ಁݯɁ̵ྫྷ11,000,000ֶ೩̰ 10,566,000ಋʏe

ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀc೛౨כ (b)At 31 December 2005, a short-term deposit of (b) approximately HK$2,048,000 (2004: HK$2,004,000) was ႺϷΦಁ޸2,048,000ಋʏɀཌྷཌྷ̒ ȹංႺכ׋אpledged to a bank to secure the bank overdrafts. In αi 2,004,000ಋʏɰ ׋eϊ̔c̯אaddition, the Company provided a corporate guarantee of ϷcАݯႺϷ஦ʻɾ ݯړHK$2,000,000 (2004: HK$2,000,000) for the overdrafts. ʔ̇గ໮೩஦ʻАˮʔ̇ኪ 2,000,000ಋʏɀཌྷཌྷ̒αi2,000,000 ಋʏe

ᗐႺϷࠥޚכThe deposit carries floating interest rate and will be ໮Φಁфࣺ৽СଅԎੀ ɀཌྷཌྷʄαכ׋eאreleased upon the settlement of relevant bank borrowings. ൘૜᎛ࣂ࿄ሻ The fair value of the bank deposits at 31 December 2005 Ɋɀ˂ɍɊȹˀ໮ႺϷΦಁɾʔ̡ࠤ approximates to the corresponding carrying amount. །ԯޚྦྷɾሏࠍͲᔾޚߗe

ɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀcᎶνכ (c)At 31 December 2004, trade receivable of approximately (c) ȹכ׋אሏಁ޸2,496,000ಋʏɰמHK$2,496,000 was pledged to a bank to secure the ൗ ׋eאfactoring loan. ංႺϷcАݯ໮ൎଊ൘ಁɾ

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 149 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

31. Bank Borrowings (continued) 31. ႺϷࠥ൘ᙩ The carrying amounts of the Group’s borrowings are ̯එ྆ɾႺϷࠥ൘ሏࠍȽܘ˞Ɏஒྫྷҗ denominated in the following currencies: ့i

Hong Kong dollars Renminbi Total ಋʏ Ɂ̵ྫྷ ᐢᔾ HK$’000 HK$’000 HK$’000 ɝಋʏ ɝಋʏ ɝಋʏ

ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀכ As at 31 December 2005

Bank loans ႺϷ൘ಁ — 24,960 24,960 Bank overdrafts ႺϷ஦ʻ 2,250 — 2,250

2,250 24,960 27,210

Hong Kong dollars Renminbi USD Total ಋʏ Ɂ̵ྫྷ ޻ʏ ᐢᔾ HK$’000 HK$’000 HK$’000 HK$’000 ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ

ɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀכ As at 31 December 2004

Bank loans ႺϷ൘ಁ — 28,286 — 28,286 Bank overdrafts ႺϷ஦ʻ 2,056 — — 2,056 Factoring loan ൎଊ൘ಁ ——1,565 1,565

2,056 28,286 1,565 31,907

The bank borrowings are arranged at averaging floating ܘ̡яࣺ৽СଅΪખɾႺϷࠥಁΣɎi interest rates as follows:

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α

Bank loans ႺϷ൘ಁ 6.42% 5.27% Prime rate* +1% Prime rate* +1% Bank overdrafts ႺϷ஦ʻ ᎚యСଅ*+1% ᎚యСଅ*+1% Factoring loans ൎଊ൘ಁ — 5.13%

* Prime rate represents the Hong Kong Dollar Prime Lending * ᎚యСଅȽ㞫́ႺϷɺࣂంძɾಋʏ Rate as quoted from time to time by the Hang Seng Bank. ௖᎚యСଅe

ᔾ޸ݯ֤೩ɾټThe Directors consider that the carrying amount of bank ໎ԑႏݯႺϷࠥಁɾሏࠍ borrowings approximates their fair value. ʔ̡ࠤe

150 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

32. Other Loans 32. ԯˢ൘ಁ

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α Notes HK$’000 HK$’000 ഽ ɝಋʏ ɝಋʏڃ

එ྆τࠉʔ̇ྟٽඑ྆τࠉʔ̇ ɐࣵณྟٽɐࣵณ a) 7,943 7,797) ྟٽɐࣵณ (”ྟٽɐࣵณ“) Madam Chu Kwok Ying Chu Kwok Yingɤɡ (b) 300 300 ʿল৻ (c) — 10,843̒ٽSCG Finance ࠖ

8,243 18,940

ഽiڃ :Notes

αСଅ6%߮ࢠԎܘ׋cאa)The loan is unsecured, bears interest at 6% per annum and (a) ໮൘ಁԎಲ) with maturity date extended from 30 June 2004 to 30 June ɰ຤ҐԷ౨ˀͅɀཌྷཌྷ̒αʒ˂ɍɊ ϭɀཌྷཌྷʄαʒ˂ɍɊˀe໮ٽThe loan is guaranteed by the Company. Subsequent ˀ֝ .2005 c܃೶့ˀכeړto balance sheet date, the Group has repaid RMB3,000,000 ൘ಁȽ̯ͅʔ̇ኪ Ɂ̵ྫྷྟٽඑ྆ɰ຤᎛ᑹʀɐࣵณ̯ ٽor equivalent to approximately HK$2,882,000 to ɐࣵณ 2,882,000ಋכ೩ޚAs at 31 December 2005, interest payable in the amount 3,000,000ʏֶ޸ .ྟ ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀτכof approximately HK$954,000 in connection with the loan ʏe ᔾ޸ݯ954,000ټis included in other payables and accruals. In March 2006, ᗐ໮൘ಁɾᎶ˟Сࢠ ԯˢᎶ˟ಁඖʥᎶ߮כܢ˳to ಋʏcɰ ྟٽthe Group has signed an agreement with ɐࣵณ ˂ɀཌྷཌྷʒαɍכextend the maturity date of the outstanding loan of ൒͂ɾʑe̯එ྆ ᖋ߯ԾᘪҐ໮̰᎛ྟٽRMB6,262,000, or equivalent to approximately ຤ɰ།ɐࣵณ כ೩ޚHK$6,015,000 to August 2006. A court order was issued ᑹ൘ಁɁ̵ྫྷ6,262,000ʏֶ޸ ϭɀཌྷཌྷٽagainst the Group during the year and details of which are 6,015,000ಋʏɾԷ౨ˀ֝ disclosed in note 42. ʒαɄ˂eαʑೕˮʀ̯එ྆ɾؒ৑ ഽ42eڃכР˥cτᗐ໯ੱɰׄᚉ

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 151 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

32. Other Loans (continued) 32. ԯˢ൘ಁᙩ ഽiڃ :Notes

˱௖᎚యСଅܘ׋dאb)The loan is unsecured, bear interest at Best Lending Rate (b) ໮೩൘ಁݯಲ) ᎛ᑹeك஝ܘfrom time to time plus 3% per annum and is repayable on αଅ3᯵߮ࢠʥ demand. c܃ɀཌྷཌྷʄαɀ˂ٖ׭ˮଊᛰ৽כ (c)SCG Finance became a fellow subsidiary of the Group after (c) τɾͲ༅ܛʿ̒ٽʿল৻Ƚࠖ̒ٽthe change of shareholding in February 2005. As a result, ࠖ ɀཌྷཌྷʄכᙔʔ̇eΐϊc໮൘ಁڃ the loan is classified as loan from a fellow subsidiary as at ᙔʔڃDecember 2005, as disclosed in note 28. αɊɀ˂ɍɊȹˀʗᗘݯ΃ӡ 31 ഽ28eڃכ൘ಁcɰׄᚉ̇

ټᎶሏࠍޚThe Directors consider that the fair value of all other loans ໎ԑႏݯֺτԯˢ൘ಁɾʔ̡ࠤၤ approximates to the corresponding carrying amount. ᔾޚߗe

̯ٖ .Share Capital 33 .33 Number of shares Share capital ̯ٖ ᅕٖ͌ͫ HK$’000 ɝಋʏ

Ordinary shares of HK$0.01 each ౝ஝ٖҰٖ0.01 ಋʏ Authorised: bؒցٖ̯i ɀཌྷཌྷ̒αȹ˂ȹˀʥכAt 1 January 2004 and 31 December 2004 bb and 2005 bbbɀཌྷཌྷ̒α՗ɀཌྷཌྷʄα bbbɊɀ˂ɍɊȹˀ 1,200,000,000 12,000

Issued and fully paid: ɰೕϷʥᖔӷٖ̯i ɀཌྷཌྷ̒αȹ˂ȹˀ 780,000,000 7,800כAt 1 January 2004 b Issued of shares by placing b஦༦৉ਕೕϷٖͫ 20,820,000 208

ɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀכ At 31 December 2004, 1 January 2005 and 31 December 2005 bdɀཌྷཌྷʄαȹ˂ȹˀ ʥɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ 800,820,000 8,008

ɀཌྷཌྷ̒αʄ˂Ɋ̒ˀc̯ʔ̇஦༦৉כ On 14 May 2004, the Company allotted and issued shares of the Company of HK$0.01 each to ਕ˞Ұٖ0.42ಋʏΉᅕϽҙ༅ّ৉ೕʥೕ 20,820,000 investors through the placing at HK$0.42 per share, for cash Ϸ20,820,000ٖҰٖࠍࠤ0.01ಋʏɾ̯ʔ ˤძݯ8,744,000ಋʏe໮ᐢټconsideration of HK$8,744,000. The excess of the aggregate ٖ̇ͫeଊ ࠍࠤಕ˾ೕϷι̯ɾ૱ᔾٖͫכcash consideration over the nominal value of shares and net ᔾঢ় of issuance cost of HK$8,139,000 was credited to the share 8,139,000ಋʏɾ቗ᔾɰ߮Ƀ̯ʔٖ̇ͫึ premium account of the Company. ძሏʑe

The shares were issued for the purpose of raising additional ೕϷ໮ٖͫؿ͌ؿȽΐ߬ొԜᔾ̔༅̯ʻ capital to finance its operation. ܛԯᏪ༜e

152 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

Share Option Scheme 34. ᑪٖᚬི߮ .34 ɀཌྷཌྷɍαȼ˂ɊɄˀᐾϷכThe Company’s share option scheme (the “Scheme”) was ̯ʔ࣓̇ኣ adopted pursuant to a resolution passed at its Special ɾٖ׭ऋПɣผɐֺ஝༦ɾҺᘪ࣐c ઔढ़ ˚General Meeting held on 18 July 2003 for the primary ȹඖᑪٖᚬི߮໮ི߮e໮ི߮ɾ purpose of providing incentives or rewards to selected ߬͌ؿݯ˥̯ʔ̇˿Ή຤ፕց਄ၤّ઒ˮ participants for their contribution to the Group. The Scheme ᑪٖᚬc Аݯ֤೩ྦྷ̯එ྆Аˮ঳ᘆɾᆉ ɀཌྷȹɍαȼ˂Ɋכwill expire on 17 July 2013. ᎞ʥΑంe໮ི߮ੀ ȼˀ։࿶e

Under the terms of Scheme, the Board of Directors of the ࣓ኣ໮ི߮ɾૈಁc ̯ʔ̇ɾ໎ԑผ໎ Company (the “Board”) may grant options to all full-time ԑผ˿Ͳᚬ৊ੱΉ໎ԑผႏݯɰݯֶੀ employees, Directors (including independent non-executive ݯ̯එ྆Аˮ঳ᘆɾ̯එֺ྆τͲᓻ཭ ਨϷ໎ԑʥҰ൪ɮڈዟ͓ܢ˳directors) and part-time employees with weekly working ࡗd໎ԑ hours of 10 hours and above, of the Group and any advisor Аࣂංݯ10ɩࣂʥ˞ɐɾ࠹ᓻ཭ࡗʥͨЄ professional or otherwise) or consultant, distributors, ᚋਐਿพֶԯˢੱֶؗጺ໺ّdೕϷ) suppliers, agents, customers, joint venture partners, service ਆdԜᎶਆdˤଉd۪ʸd΋ᏪͬพྑЂ ৻ొԜّ઒ˮᑪٖᚬeרprovider to the Group who the Board considers, in its sole ʥ discretion, have contributed or contribution to the Group.

ֺτੀʀ઒ˮɾᑪٖᚬᏵۿ The maximum number of shares which may be issued upon ࣓ኣ໮ི߮c ʥੀʀϷԚࣂϤ˿ʀೕϷɾٖͫ௖܃exercise of all options to be granted and yet to be exercised ϷԚ under the Scheme is not permitted to exceed 10% of the ঢ়ᅕ͌ɺ੡൚༦̯ʔ࣓̇ኣ໮ི߮Ᏽҡณ ɰೕϷٖͫɾ10%e࣓ኣ໮ི߮ʥ̯ʔ܃ shares of the Company in issue which can be refreshed ֺۿЄࣂංͨכ according to the Scheme. The number of shares which may ̇ͨЄԯˢᑪٖᚬི߮c ʥੀ܃be issued upon exercise of all outstanding options granted τɰ઒ˮЎ̰ϷԚɾᑪٖᚬᏵϷԚ and yet to be exercised at any time under the Scheme and ʀϷԚࣂϤ˿ʀೕϷɾٖͫᅕ͌ɺ੡൚༦ any other share option schemes of the Company shall not ̯ʔ̇ɺࣂɰೕϷٖ̯ɾ30%e exceed 30% of the issued share capital of the Company from time to time.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 153 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

Share Option Scheme (continued) 34. ᑪٖᚬི߮ᙩ .34 The number of shares in respect of which options may be ࣓ኣ໮ི߮c Ε̰຤̯ʔٖ̇׭ԑͱғ࠿ Ɋɀ࠯˂౨ංͨЄࣂංʑc ˿Ήכ granted to any individual in any 12-month period is not Ɏc permitted to exceed 1% of the shares of the Company in ͨЄ࠯ПɁɡ઒ˮɾᑪٖᚬᅕ͌ɺ੡൚༦ ЄࣂංɰೕϷٖͫɾ1%e࣓ͨכissue at any point in time, without prior approval from the ̯ʔ̇ ਨڈCompany’s shareholders in accordance with the Scheme. ኣ໮ི߮cߗͨЄΉ˚ٖ߬׭ֶዟ͓ Where any grant of options to a substantial shareholder or Ϸ໎ԑֶ֤೩ɾͨЄᐲᖎɁɡ઒ˮɾᑪٖ ໮ˀݯܢ˳ϭ઒ˮˀ౨قכan independent non-executive Director or any of their ᚬੀผኒߎ ઒ʀ໮೩Ɂɡɾֺۿrespective associates would result in the shares in the ˅ɾɊɀ࠯˂౨ංʑ c ̯ʔ̇ɰೕϷʥੀʀ܃Company issued and to be issued upon exercise of all τᑪٖᚬᏵϷԚ options to such person in the 12-month period up to and ೕϷɾٖͫȽ൚༦̯ʔ̇ɰೕϷٖͫɾ Έ߬޸ˀכincluding the date of grant in excess of 0.1% of the shares 0.1%ʥძࠤ࣓ኣ̯ʔٖ̇ͫ ڬof the Company in issue and with a value (based on the ౨ɾν̟ძ့߮൚༦5,000,000ಋʏc closing price of the shares of the Company at the offer date τᗐᑪٖᚬɾ઒ˮ඘ԑͱ຤̯ʔٖ̇׭ғ of each offer) in excess of HK$5,000,000, such grant of ࠿e options must be approved in advance by the Company’s shareholders in accordance with the Scheme.

໎ԑᔤցɾ౨ංʑɾͨЄࣂͅכ˿An option may be exercised at any time during the period ᑪٖᚬ ผֻ઒Ɂʥߗ໎ԑԎكto be determined and notified by the Directors to the ංϷԚc Ԏͅ໎ԑ અढ़τͅכ˿ᑪٖᚬڬ grantee and in the absence of such determination, from the ಲАˮτᗐᔤցc date of acceptance of an offer of the grant of such option ᗐ઒ˮᑪٖᚬɾ߬޸ˀ౨঴ϭτᗐᑪٖᚬ to the earlier of the date on which such option lapses ࣓ኣ໮ི߮ɰ̖ࢽɾˀʥઅढ़τᗐ߬޸ɾ according to the Scheme and ten years from the date of offer ˀ౨঴Ɋα˅ɾˀ˞༖ξݯๅϷԚeઅ of that opinion. A consideration of HK$1 is payable upon ढ़߬޸܃඘ʻ˟ˤძ1ಋʏe acceptance the offer.

כThe exercise price is determined by the Directors of the ϷԚძ̯ͅʔ̇ɾ໎ԑᔤցc ˘ੀɺГ Company, and will not be less than the higher of the nominal ˞༖ঢ়ّݯๅٖͫɾࠍࠤh̯ʔٖ̇ͫ ၇અ߬޸כ߬޸ˀ౨ɾν̟ძh ʥٖͫכ value of the share; the closing price of the Company’s shares ʄ࠯Ꮺพˀɾ̡яν̟ძeکon the date of offer; and the average closing price of the ˀ౨ shares for the five business days immediately preceding the date of offer.

154 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

Share Option Scheme (continued) 34. ᑪٖᚬི߮ᙩ .34 ࿀ϭɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀ˅α۹כ During the year ended 31 December 2004, 14,300,000 options have been granted under the Scheme to the ʑc14,300,000ͫᑪٖᚬɰ࣓ኣ໮ི߮઒ directors of the Company of which three tranches of ʀ̯ʔ̇ɾ໎ԑc ᑪٖᚬȽʗɍғЩ 5,100,000, 5,100,000 and 4,100,000 options shall be vested 5,100,000ͫd5,100,000ͫʥ4,100,000ͫੀ ࠖ܃ғ࠿઒ˮᑪٖᚬɾˀ౨dғ࠿כon the date of approval of the grant of the option, the first ʗП and the second anniversary dates of the approval, ࠯൪αˀʥғ࠿܃଱ɀ࠯൪αˀ઒ʀ໎ Ϭɀཌྷכ˿respectively. Such 14,300,000 options may be exercised at ԑe໮೩14,300,000ͫᑪٖᚬ any time during the period from 24 June 2004 to 17 July ཌྷ̒αʒ˂ɀɊ̒ˀ঴ϭɀཌྷȹɍαȼ˂ 2013 at an exercise price of HK$0.44 per each option. No Ɋɍˀ˅౨ංʑɾͨЄࣂංܘϷԚძҰͫ ϭɀཌྷཌྷ̒αɊقshare option granted under the Scheme had been exercised ᑪٖᚬ0.44ಋʏϷԚe up to 31 December 2004. ɀ˂ɍɊȹˀݯ˅c ԎಲͨЄ࣓ኣ໮ི߮ ઒ˮɾᑪٖᚬᏵϷԚe

࿀ϭɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀ˅α۹כ Total consideration received during the year ended 31 December 2004 for taking up the options granted was ʑగઅढ़ɰ઒ˮᑪٖᚬνՅɾᐢˤძݯ4 amounted to HK$4. ಋʏe

࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹כ No share option was granted under the Scheme for the year ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀc Ԏಲ࣓כֶ .ended 31 December 2005 or at 31 December 2005 ኣ໮ི߮઒ˮͨЄᑪٖᚬe

Following the change or major shareholding in February ၇અടɀཌྷཌྷʄαɀ˂ɾ˚ٖ߬ᚬᛰ৽c νټʿೕˮȿȹͫϬᗙֲτૈͧଊ̒ٽSCG issued an offer document in respect of a voluntary ࠖ ,2005 ᘪ˞ഽሻ̯ʔֺ̇τֆ̰ϷԚᑪٖۺconditional cash offer to cancel all the outstanding options ᑪ ٖ˞଱ɀ໔ڬof the Company. In accordance with HKFRS 2 Share-based ᚬe࣓ኣࠗಋল৻ంйๅ Payment, as the outstanding options have been cancelled ͫݯਥᓣɾ˟ಁcΐݯ໮̰ϷԚᑪٖᚬ ઒ˮ౨ංʑ୽ഽሻcϊᎶ߮Ƀݯ˱஠כduring the vesting period, it should be accounted for as an ɰ ໮ٖͫ୽ഽሻכacceleration of vesting and recognise the amount ઒ˮԎЩࣂʀ˞ᆢႏe immediately. Upon the cancellation of options the share ࣂc޸2,229,000ಋʏᑪٖᚬ᎝ௐ୽ᔝଫԷ ᔾ޸1,338,000ಋʏټoption reserve of approximately HK$2,229,000 was ୃ߮ᑋฌʑeαʑc transferred to accumulated losses. Share option expenses ɾᑪٖᚬ඀ʻɀཌྷཌྷ̒αi891,000ಋ in the amount of approximately HK$1,338,000 (2004: ʏɰ୽ᆢႏe HK$891,000) was recognised during the year.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 155 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

Share Option Scheme (continued) 34. ᑪٖᚬི߮ᙩ .34 τᑪܛɀཌྷཌྷ̒αི߮໎ԑܘᚉȿׄٲThe following table discloses the details of the share options Ɏ ɀཌྷཌྷ̒αʥɀכٖܛunder 2004 Scheme held by the directors and movements ٖᚬɾʑࢀʥ໮೩ in such holdings during the year of 2004 and 2005: ཌྷཌྷʄαؿᛰ৽ੱؗi

Number of share options Outstanding Outstanding Outstanding at Granted at Cancelled at Category Exercise 1 January during 1 January during 31 December of grantees Date of grant price 2004 the year 2005 the year 2005 ɀཌྷཌྷʄαכ ɀཌྷཌྷʄαכ ɀཌྷཌྷ̒αכ ȹ˂ȹˀ ȹ˂ȹˀ Ɋɀ˂ɍɊȹˀ ઒ɁᗘП ઒ˮˀ౨ ϷԚძ ̰ϷԚ αʑ઒ˮ ̰ϷԚ αʑഽሻ ̰ϷԚֻ HK$ ಋʏ

Directors 21 June 2004 0.44 — 5,100,000 5,100,000 (5,100,000) — ໎ԑ ɀཌྷཌྷ̒αʒ˂ɀɊȹˀ 21 June 2004 0.44 — 5,100,000 5,100,000 (5,100,000) — ɀཌྷཌྷ̒αʒ˂ɀɊȹˀ 21 June 2004 0.44 — 4,100,000 4,100,000 (4,100,000) — ɀཌྷཌྷ̒αʒ˂ɀɊȹˀ

— 14,300,000 14,300,000 (14,300,000) —

๑໮ི߮ɾɎͶૈಁܘ˿The options granted may be exercised in accordance ɰ઒ˮɾᑪٖᚬ withthe terms of the relevant shcme as to: ϷԚi

઒ˮ๫כ˿i) The first tranch of 5,100,000 options will be (i) ࠖғ5,100,000ᑪٖᚬ) exercisable from the date of grant; ˀ঴ϷԚh

઒ˮˀכ˿ii) The second tranch of 5,100,000 options will be (ii) ωғ5,100,000ᑪٖᚬ) exercisable after the expiry of 12 months from the ܃12࠯˂܃঴ϷԚh date of grant;

઒ˮכ˿iii) The third tranch of 4,100,000 options will be (iii) ଱ɍғ4,100,000ᑪٖᚬ) exercisable after 24 months from the date of grant; ˀ܃24࠯˂܃঴ϷԚhʥ and

ɊαԷ౨e܃઒ˮˀכiv) The options will expire after ten years from date of (iv) ᑪٖᚬੀ) grant.

156 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

Share Option Scheme (continued) 34. ᑪٖᚬི߮ᙩ .34 ɀඖβ౨ᚬցძᅡβ့߮ɾҰͫᑪٖᚬܘ The weighted fair value per option of HK$0.22 was calculated using the Binomial Option Valuation pricing ˱ᚬʔ̡ࠤݯ0.22ಋʏe໮ցძᅡβɾࡈ model. The inputs into the model were as follows: ̯ᅕኣΣɎi

Share option ᑪٖᚬ઒ˮˀ౨ grant date ݯɀཌྷཌྷ̒α 21.6.2004 ʒ˂ɀɊȹˀ

Weighted average share price HK$0.44 ˱ᚬ̡яٖძ 0.44ಋʏ Exercise price HK$0.44 ϷԚძ 0.44ಋʏ Expected volatility 96% ད౨ؐఝ 96% Expected life 10 years ད౨ྐ՜ 10α Risk-free rate 4.57% ಲࠓ፮ࢠଅ 4.57% Expected dividend yield NIL ད౨ٖࢠΑం ಲ

Expected volatility was determined by using the historical ད౨ؐఝȽԚ̯͂ʔٖ̇ძؿዃ̌ؐఝֺ volatility of the Company’s share price. The expected life ߯ցeցძᅡβɻԚ͂ɾད౨ྐ՜ɰ຤గ ဳଉᄙؿ௖ԙདಡֺ੡ؿɺॶᔝᜑdࠉܘ used in the model has been adjusted, based on management’s best estimate, for the effects of non ԹϷԚʥϷݯϣᄬϤАˮሁኬe transferability, exercise restrictions and behavioural considerations.

The Group recognised the total expense of HK$1,338,000 ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹c for the year ended 31 December 2005 (2004: HK$891,000) ̯එ྆గ̯ʔ̇઒ˮᑪٖᚬɾɰᆢ඀ʻᐢ in relation to share options granted by the Company. ᔾݯ1,338,000ಋʏɀཌྷཌྷ̒αi891,000 ಋʏe

מ͚ټଊڈMajor Non Cash Transactions 35. ˚߬ .35 α۹ʑc ̯එ྆ɰగ༅ଐ͓߯ጪ༅ै̯כ During the year, the Group entered into finance lease arrangements in respect of assets with a total capital value ༉Ϊખc ै޸͓߯ࣂɾᐢ༅̯ࠤݯ at the inception of the leases of HK$2,211,000 (2004: 2,211,000ಋʏɀཌྷཌྷ̒αi2,876,000ಋ HK$2,876,000). ʏe

ɀཌྷཌྷʄαɀ˂ٖᚬˮଊᛰכBesides, details of the reclassification of loans from ϊ̔cͅ shareholders to loans from related parties and other loan ৽cࠇณʗᗘٖ׭൘ಁݯᗐடɁɡ൘ಁʥ כᙔʔ̇൘ಁɾ໯ੱ༗ڃto loan from a follow subsidiary due to the change of ԯˢ൘ಁݯ΃ӡ ഽ28c29ʥ32eڃ .shareholding in February 2005 as set in notes 28, 29 and 32

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 157 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

Contingent Liabilities 36. ֶಳ߲ඦ .36 ൘ڌᙔʔֺ̇Ᏽ઒ɾȹঁڃThe Company has given guarantees of approximately ̯ʔ̇ɰగԯ HK$16,408,000 to banks and other parties in respect of ϤΉႺϷʥԯˢɁɡАˮ޸16,408,000ಋ ɀཌྷཌྷʄαɊɀ˂ɍɊȹכeړgeneral facilities granted to its subsidiaries. The extent of ʏɾኪ ൘ᔾݯ޸ڌᙔʔ̇ɰ৽͂ɾτᗐڃ such facilities utilised by the subsidiaries at 31 December ˀc 2005 amounted to approximately HK$14,394,000 (2004: 14,394,000ಋʏɀཌྷཌྷ̒αi38,139,000 HK$38,139,000). ಋʏe

37. Operating Leases 37. ຤Ꮺै༉ The Group as lessee ̯එ྆АݯֻैɁ ೶့ˀc ̯එ࣓྆ኣɺ˿࿄ሻ຤Ꮺै༉כ At the balance sheet date, the Group had commitments for ኪΣɎiֻټԞԷ౨Ꮆ˟ɾ௖Гै̰כfuture minimum lease payments under non-cancellable Ϥ operating leases which fall due as follows:

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK$’000 HK$’000 ɝಋʏ ɝಋʏ

Within one year ȹαʑ 1,447 5,465 In the second to fifth year inclusive ଱ɀϭ଱ʄα˳ܢࠖѮԭα 4,808 9,251

6,255 14,716

එ྆గԯߗɳፒʔ۩௰Ͻd̯ܞټOperating lease payment represents rentals payable by the ຤Ꮺै Group for certain of its office premises, production studio, ႇА۩d਩ফɻʶd࠸࢒ʥࡗɮ਼ٞϤᎶ พɾै༉α౨຤Ծਆݯذe໮೩ټtraining centers, warehouse and staff quarters. Leases for ˟ɾै eټproperties are negotiated for a term ranging from one to ȹαϭʄαɺ೩c ʥ඘ʻ˟՞ցै five years with fixed rentals.

The Group as lessor ̯එ྆АݯˮैɁ ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀc ̯එ྆Ԏכ At 31 December 2005, the Group has no outstanding rental ɀཌྷཌྷ̒αɊɀכarrangement with tenants in respect of operating leases. At Ӏτ̰ѧιै৻Ϊખe 31 December 2004, the Group had contracted with tenants ˂ɍɊȹˀc̯එ࣓྆ኣɺ˿࿄ሻ຤Ꮺै ȹαכin respect of computer equipment under non-cancellable ༉గཋ຾உௐၤֻैɁ͓߯΋޸c ݯ޸114,000ಋʏeټoperating leases of approximately HK$114,000 which fall ʑԷ౨ϤᎶνɾै due within one year.

In respect of digital film encoders and servers held in use గ˞຤Ꮺै༉ʿβܛτɾᅕᆦཋᄧᇁᆦኂ ኂϤӰc ै༉ԾᘪԎಲ༗τ՞ցैרfor operating lease, the lease agreement does not contain a ʥЉ ᐢᔾԎಲټfixed lease term, accordingly, the total minimum lease ༉౨c ΐϊc ֺνɾ௖Гै ɐʼׄᚉeכ .receipts have not been disclosed in the above

158 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

Capital Commitments 38. ༅ֻ̯ኪ .38 ࿀ϭɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀ˅αכ During the year ended 31 December 2004, the Group entered into a co-production agreement with an ۹c̯එ྆ၤዟ͓଱ɍʿGameone Online independent third party, Gameone Online Entertainment Entertainment Group LimitedGameone Group Limited (“Gameone”) for the formation of a joint ݯι͓΋Ꮺͬพʔ̇Ϥ͓߯ȹͫ΋АԾ venture company for the development and production of ᘪc ˞ݯɻਝ̟௿඀ೕʥႇА၉ɐ഼፼༝ ɀཌྷཌྷ̒αɊɀ˂ɍɊȹˀc ̯එכon-line video games for the PRC market. At 31 December Ꮋe 2004, the Group committed to invest approximately ྆Аˮҙ༅޸600,000ಋʏc˞Յ੡΋Ꮺ ࿀ϭɀཌྷཌྷכHK$600,000 to subscribe for 60% equity interest in the joint ͬพʔ̇60%ٖᚬe̯එ྆ venture company. During the year ended 31 December ʄαɊɀ˂ɍɊȹˀ˅α۹ʑၤGameone 2005, the Group entered into a cancellation agreement with ͓߯ഽሻ΋޸cੀࡈԞɾ΋АԾᘪՅሻe ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ̯එ྆כ .Gameone to cancel the original co-production agreement The Group has no commitment on investment in the joint ԎӀτֻጻҙ༅Է΋Ꮺͬพʔ̇e venture company as at the year ended 31 December 2005.

ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀc̯එֻ྆כ At 31 December 2005, the Group had commitment for advertising expenditure of SGD100,000 (2004: SGD200,000) ጻ100,000ณ˱գʏɾᄤйʻˮɀཌྷཌྷ̒ or equivalent to approximately HK$470,000. αi200,000ณ˱գʏЩ޸470,000ಋʏe

39. Retirement Benefits Scheme 39. ঽͤါСི߮ The Group contributes to defined contribution retirement ̯එ྆඘Ήࠗಋʥณ˱գֺτ཭ࡗя˿਄ schemes which are available to all employees in Hong Kong ၤɾވցԜಁঽིͤ߮АˮԜಁe໮ི߮ ဳଉԎၤ̯එ྆ɾټand Singapore. The assets of the schemes are held separately ɾ༅ଐͅዟ͓ဳଉਥ from those of the Group in independently administered ༅ଐʗ඀ܛτe funds.

ᙔʔ̇඘ڃτᗐஃցc ɻਝ֚ܧPursuant to the relevant regulations of the government in ࣓ኣɻਝ ڃ ɾԜಁི߮c ኣϊc֚ܧthe PRC, the subsidiaries in the PRC participate in the ਄ၤ๫Δ̟ municipal government contribution scheme whereby the ᙔʔ̇඘ݯ΋༅ࣟ཭ࡗɾঽͤါСི߮А ߲ஐʻ˟ঽͤ཭֚ܧsubsidiaries are required to contribute to the scheme for ˮԜಁeɻਝ๫Δ̟ the retirement benefit of eligible employees. The municipal ࡗɾֺτါСֻኪeϤ̯එ྆గ໮ֺི߮ ᙩܛgovernment of the PRC is responsible for the entire benefit ඘ֻኪɾ਒ȹஐͨȽ࣓ኣ໮ི߮ஃց obligations payable to the retired employees. The only АˮԜಁe obligation of the Group with respect to the scheme is to pay the ongoing contributions required by the scheme.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 159 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

39. Retirement Benefits Scheme (continued) 39. ঽͤါСི߮ᙩ The retirement benefit costs represent gross contributions ঽͤါСι̯ܞ̯එ྆ΉΕࠗಋdɻਝʥ paid and payable by the Group to the schemes operated in ณ˱գஉ͓ɾི߮଻ီঽིͤ߮ɰ˟ ˂ɀཌྷཌྷʄαɊɀכHong Kong, the PRC and Singapore (collectively the ʥᎶ˟ɾԜಁᐢᔾe “Retirement Schemes”). Contributions totalling HK$91,000 ɍɊȹˀc ᎶΉঽིͤ߮ʻ˟ɾԜಁᐢᔾ HK$95,000) payable to the Retirement Schemes at 31 ݯ91,000ಋʏɀཌྷཌྷ̒αi 95,000 ಋʏ :2004) ̯כDecember 2005 are included in other payables and accrued ɰ߮ɃԯˢᎶ˟ಁඖʥᎶ߮൒͂ʑe charges. There was no forfeited contribution throughout the α۹ʑc̯එ྆ԎಲͨЄ୽ӀνԜಁɀ year (2004: Nil). ཌྷཌྷ̒αi ಲe

מRelated Party Transactions 40. τᗐடɁɡ͚ .40 α۹ʑc ̯ʔ̇ၤᗐடɁɡ̯כ (A) During the year, the Company entered into the (A) iמfollowing transactions with related parties: ߯τ˞Ɏ͚

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α Notes HK$’000 HK$’000 ഽ ɝಋʏ ɝಋʏڃ

Rental expense paid to Ms. Lau Fung Sim, గȹ໎ԑ਼ٞΉષցඐͱ́ the spouse of Mr. Raymond Dennis ɾ৉৫ჳუᄑɤɡ ඀ʻ (a) 224 117ټNeoh, in respect of a director quarter ʻ˟ɾै

Rental expense paid to Mr. Anthony గȹࡗɮ਼ٞΉષցԄͱ́ ඀ʻټFrancis Neoh in respect of a staff ʻ˟ɾै quarter (a) — 80

พΉ̯එ྆ذ۩Rental expenses paid to Long Cosmos గȹඖፒʔ ϼҙ༅ٽᙔʔ̇ڃInvestment Limited, a fellow ΃ӡ subsidiary of the Group, in respect of τࠉʔ̇ʻ˟ɾ — ඀ʻ (a) 410ټै an office premise

Rental expense paid to Solutions Lab గȹፒʔ۩௰ϽΉSolutions Pte. Ltd. in respect of an office Lab Pte. Ltd.ʻ˟ɾ ඀ʻ (b) — 8ټै premise Interest expenses paid to గጪ༅ै൘ஐͨʻ˟ʀ SCILCL, in respect of obligations bSCILCL under finance leases b (c) 51 —

Legal and professional fees paid to ʻ˟ʀO’Melveny and Myers ܁O’Melveny and Myers LLP (“O’ Melveny”) LLP O'Melvenyɾؒ ʥਿพ൒͂ (d) — 430 Interest expenses paid to ʻ˟ʀષցԄͱ́ɾ Mr. Anthony Francis Neoh bСࢠ൒͂ (e) 1,823 —

160 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

ᙩמRelated Party Transactions (continued) 40. τᗐடɁɡ͚ .40 ഽiڃ :Notes

ᗐै༉ԾᘪޚȽ࣓ኣמa) The transactions were carried out in accordance (a) ໮೩͚) with the relevant tenancy agreements. ൬Ϸe

ᗐै޸ਨϷeޚܘȽמb) The transaction was carried out in accordance with (b) ໮͚) the relevant tenancy agreement. Solutions Lab Pte. Solutions Lab Private Limited Ltd. is a related company of Cyber Prime ݯ̯ʔٖ̇׭Cyber Prime Developments Limited, a shareholder of the Development Limitedɾᗐட Company. ʔ̇e

ᗐै൘ԾᘪਨޚܘȽמc)The transactions was carried out in accordance (c) ໮͚) with relevant lease agreements. The Group has Ϸeαʑc̯එ྆།SCILCLగ ᔾ޸2,211,000ಋʏɾཋ຾உټ entered into finance lease arrangements with ɀཌྷכSCILCL during the year in respect of computer ௐ͓߯ጪ༅ै൘Ϊખe equipment in the amount of approximately ཌྷʄαɊɀ˂ɍɊȹˀcܘጪ HK$2,211,000. The relevant net book values of the ༅ै༉ܛτɾཋ຾உௐɾޚᗐ ᔾ޸ݯ2,040,000ಋټcomputer equipment held under finance leases ሏࠍ૱ࠤ ഽ14ׄᚉeڃכamounted to approximately HK$2,040,000 as at 31 ʏcɰ December 2005, as disclosed in note 14.

ɀཌྷཌྷʄαɀ˂Ɋʒˀᖽכd)Mr. Stephen Scharf, a former non-executive (d) ɰ) .ਨϷ໎ԑMrڈکDirector of the Company, who had resigned on 16 ᓻɾ̯ʔ̇ February 2005, is a partner of O’Melveny, a law firm Stephen ScharfȽȹࡼ޻ਝ܁ in the United States of America. ࢑ԑ৻ֺO’Melvenyɾ΋ྑ Ɂe

ʿɾٖ̒ٽe) Mr. Anthony Francis Neoh, who is the shareholder (e) ષցԄͱ́Ƚࠖ) of SCG. ׭e

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 161 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

ᙩמRelated Party Transactions (continued) 40. τᗐடɁɡ͚ .40 ɀཌྷཌྷཌྷαȹ˂Ɋʄכ In addition, on 15 January 2000, GDC Entertainment ϊ̔c Limited, a subsidiary of the Company, entered into ˀcGDC Entertainment Limited ᙔʔ̇ၤMoebiusڃan assignment with Moebius Strip Limited (formerly ̯ʔ̇ɾ Butterfly Danceီک known as Butterfly Dance Holdings Limited), in Strip Limited which Mr. Raymond Dennis Neoh was one of the Holdings Limitedcષցඐͱ́Ƚ shareholders, for the assignment of the copyright Moebius Strip LimitedԯɻȹϽٖ ᚬʥֺτԯˢخand all other rights in and to the Film. Pursuant to ׭గᔝᜑཋᄧɾ the assignment (which was supplemented by a ᚬСϤ͓߯ȹඖᔝᜑ࣊e࣓ኣ໮ ɀཌྷཌྷ̒αכsupplemental agreement dated 2 May 2004), the ᔝᜑ࣊ɰ஦༦ȹͫ assignment consideration consists of (i) US$60,000; ʄ˂ɀˀ͓߯ɾ໤˨Ծᘪ˱˞໤ (ii) deferred net profit from the Group’s film ˨cᔝᜑˤძ˳ܢ(i)60,000޻ production of the Film up to a maximum of ʏh(ii)࠱̯එ྆ཋᄧႇАଐ́क़ එ̯྆ڬUS$240,000 should the Group’s film production СցຮӮ໮ᔝᜑ࣊c generates a net profit as defined in the assignment, ԞϬႇА໮ᄧːɾႮ֝क़С௖Λ and (iii) 3% of the net profit from the Group’s ༠240,000޻ʏhʥ( i i i )̯එ྆ႇ production of the Film in excess of US$240,000 from А໮ᄧːɺࣂ൚༦240,000޻ʏक़ ɀཌྷཌྷ̒αɊɀ˂ɍכtime to time. As at 31 December 2004, the intellectual Сɾ3%e property rights as referred to in (i) above of Ɋȹˀc ̯එ྆ɰగɐʼ(i)ֺ߸ ޚᖫଐᚬʻ˟޸467,000ಋʏكapproximately HK$467,000 (equivalent to ɾ 60,000޻ʏc໮೩൒͂я߮כUS$60,000) was paid and is included in production ೩ ࿀ϭɀཌྷཌྷ̒כwork in progress. The equity interest held by Mr. ɃΕႇඖ͌ʑe Raymond Dennis Neoh was sold to a third party αɊɀ˂ɍɊȹˀ˅α۹c ષց ᚬɰਕʀ଱ɍʿeٖܛduring the year ended 31 December 2004. ඐͱֺ́

162 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

ᙩמRelated Party Transactions (continued) 40. τᗐடɁɡ͚ .40 (B) Compensation of key management (B) ˚߬ဳଉɁࡗ໤᎛ personnel The remuneration of directors and other members αʑ໎ԑʥԯˢ˚߬ဳଉɁࡗɾ ΣɎiټof key management during the year was as follows: ༭

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α HK$’000 HK$’000 ɝಋʏ ɝಋʏ

Short-term benefits ೛౨⮲С 6,422 4,247 Share-based payments ˞ٖͫݯਥᓣɾ˟ಁ 1,338 891

7,760 5,138

ȽͅټɁࡗɾ༭ܧThe remuneration of directors and key executives is ໎ԑʥ˚߬Ϸ ଊٲ๑࠯ПɁɡɾܘdetermined by the remuneration committee having ᑀ༭կࡗผ regard to the performance of individuals and market ʥ̟௿Ӷබֺᔤ߯e trends.

כ೶့ˀc ၤᗐடɁɡτᗐؿಁඖȽ༗כ Details of balances with related parties as at the balance ഽ25d26d27d28dڃʥٲsheet date are set out in the consolidated balance sheet and ၃΋༅ଐ߲ ړin notes 25, 26, 27, 28, 29 and 30, and details of a counter- 29ʥ30ʑcϤષցඐͱֺ́೽ʀɾʦኪ ഽ31eڃכ༗ڬguarantee given by Mr. Raymond Dennis Neoh are set out ɾ໯ੱ in note 31.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 163 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

ᙔʔ̇ɾ໯ੱڃ .Particulars of Subsidiaries 41 .41 ᙔʔ̇ڃ ɀཌྷཌྷʄαɊɀ˂ɍɊȹˀcכ Details of the subsidiaries at 31 December 2005 are as follows: ɾ໯ੱΣɎi

Particulars Place of of issued Attributable Form of incorporation/ share capital/ equity interest Principal activities Name of subsidiary business structure establishment paid up capital of the Group and place of operation ഽ˫ι͓þ ɰೕϷٖ̯þ ̯එ྆ ˚߬พ৻ʥ ᙔʔ̇Ίီ พ৻ୂιᅡβ ι͓Δᒨ ᖔӷٖ̯ɾ໯ੱ ᎶЌٖᚬ ຤ᏪΔᒨڃ directly indirectly અ ංઅق %%

GDC (BVI) Limited Incorporated The British Virgin 521,418,075 ordinary 100 — Investment holding Islands (the “BVI”) shares of US$0.01 in Hong Kong each ࠗಋҙ༅ઁٖכ — GDC (BVI) Limited ഽ˫ι͓ ߜᙔ୮ɤະࢌ 521,418,075ٖ 100 bߜᙔ୮ɤະࢌ bҰٖࠍࠤ0.01޻ʏ bɾౝ஝ٖ

GDC Holdings Limited Incorporated The BVI 521,418,075 ordinary — 100 Investment holding shares of US$0.01 in Hong Kong each ࠗಋҙ༅ઁٖכ GDC Holdings Limited ഽ˫ι͓ ߜᙔ୮ɤະࢌ 521,418,075ٖ — 100 bҰٖࠍࠤ0.01޻ʏ bɾౝ஝ٖ

GDC Asset Management Incorporated The BVI 1 ordinary share — 100 Investment holding in Limited of US$1 Hong Kong ࠗಋҙ༅ઁٖכ GDC Asset Management ഽ˫ι͓ ߜᙔ୮ɤະࢌ 1ٖҰٖࠍࠤ1޻ʏ — 100 Limited bɾౝ஝ٖ

GDC Capital Limited Incorporated Hong Kong 2 ordinary shares — 100 Dormant of HK$1 each ᏷ଈᅕᆦጪ༅τࠉʔ̇ ഽ˫ι͓ ࠗಋ 2ٖҰٖࠍࠤ1ಋʏ — 100 ᅗಲᏪพ bɾౝ஝ٖ

GDC China Limited Incorporated Hong Kong 2 ordinary shares — 100 Investment holding of HK$1 each in Hong Kong ࠗಋҙ༅ઁٖכ ᏷ଈᅕᆦɻਝτࠉʔ̇ ഽ˫ι͓ ࠗಋ 2ٖҰٖࠍࠤ1ಋʏ — 100 bɾౝ஝ٖ

164 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

ᙔʔ̇ɾ໯ੱᙩڃ .Particulars of Subsidiaries (continued) 41 .41 Particulars Place of of issued Attributable Form of incorporation/ share capital/ equity interest Principal activities Name of subsidiary business structure establishment paid up capital of the Group and place of operation ഽ˫ι͓þ ɰೕϷٖ̯þ ̯එ྆ ˚߬พ৻ʥ ᙔʔ̇Ίီ พ৻ୂιᅡβ ι͓Δᒨ ᖔӷٖ̯ɾ໯ੱ ᎶЌٖᚬ ຤ᏪΔᒨڃ directly indirectly અ ංઅق %%

GDC Entertainment Limited Incorporated The BVI 3,510 ordinary shares — 100 Animation investment, (“GDC Entertainment”) of US$1 each licensing and merchandising distribution in a worldwide basis Ͳଈ൬Ϸ৽ೋːɾכ GDC Entertainment Limited ഽ˫ι͓ ߜᙔ୮ɤະࢌ 3,510ٖҰٖࠍࠤ1޻ʏ — 100 ʗሻۂGDC Entertainment bɾౝ஝ٖ bҙ༅dಶ๑ʥਆ

GDC International Limited Incorporated The Samoa 1 ordinary share — 100 Provision of computer of US$1 graphic animation, creation and production services GDC International Limited ഽ˫ι͓ ᔁᄾԓະࢌ 1ٖҰٖࠍࠤ1޻ʏ — 100 ొԜཋ຾྇ཫd৽ೋ௚А ৻רbɾౝ஝ٖ bʥႇА

GDC Technology Limited Incorporated The BVI 1 ordinary share — 100 Provision of computing of US$1 solutions for digital content distribution and exhibitions in a worldwide basis ͲଈݯᅕᆦʑࢀೕϷכ GDC Technology Limited ഽ˫ι͓ ߜᙔ୮ɤະࢌ 1ٖҰٖࠍࠤ1޻ʏ — 100 bɾౝ஝ٖ bʥࢄ͐ొԜཋ຾ b໬Һʿ࣐

GDC Technology Pte. Ltd. Incorporated Singapore 2 ordinary shares — 100 Provision of computing of US$1 solutions for digital content distribution and exhibitions in a worldwide basis ͲଈݯᅕᆦʑࢀೕϷʥכ GDC Technology Pte. Ltd. ഽ˫ι͓ ณ˱գ 2ٖҰٖࠍࠤ1޻ʏ — 100 bɾౝ஝ٖ ࢄ͐ొԜཋ຾໬Һʿ࣐

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 165 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

᏷ଈᅕᆦఌ᛽ޫҌɐࣵ Incorporated The PRC Registered capital — 100 Provision of computer τࠉʔ̇ of US$140,000 graphics and Institute of Digital Media animation training Technology (Shanghai) in the PRC Limited ɻਝొԜཋ຾྇ཫʥכ ᏷ଈᅕᆦఌ᛽ޫҌɐࣵ ഽ˫ι͓ ɻਝ ഽ˫ٖ̯140,000޻ʏ — 100 bτࠉʔ̇ b৽ೋႇА਩ফ

᏷ଈᅕᆦఌ᛽ޫҌޢӠ Incorporated The PRC Registered capital — 100 Provision of computer b૯Γτࠉʔ̇ of US$2,000,000 graphics and Institute of Digital Media animation training, Technology (Shenzhen) development of Limited multimedia software and hardware, and provision of related technical consultancy services in the PRC ɻਝొԜཋ຾྇ཫʥכ Ӡ ഽ˫ι͓ ɻਝ ഽ˫ٖ̯ — 100ޢ᏷ଈᅕᆦఌ᛽ޫҌ b૯Γτࠉʔ̇ b2,000,000޻ʏ b৽ೋႇА਩ফd඀ೕ bΛఌ᛽சʥೝͧʥొԜ ৻רᗐҌ୺ጺ໺ޚb

αୄลಲೕכα۹ʑʥ̯כᙔʔ̇ڃNone of the subsidiaries had issued any debt securities ໮೩ during the year and at the end of the year. ϷͨЄඦԴe

166 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

42. Litigation 42. േஊ ɀཌྷཌྷɍαʄ˂Ɋ̒ˀc̯ʔכ (i) On 14 May 2003, GDC Entertainment, a wholly (i) ᙔʔ̇GDCڃowned subsidiary of the Company, entered into a co- ̇ɾͲ༅ production agreement (the “Co-production Entertainmentၤ Westwood Agreement”) with Westwood Audiovisual and Audiovisual and Multimedia Multimedia Consultants, Inc. (“WAMC”) and P&PM, in Consultants, Inc.WAMCʥ̯එ τ25%ٖᚬɾP&PMగȹࡨཋܛ྆ which the Group has a 25% equity interest, in relation to an animated television series. ഼৽ೋ௰ʏჱ͓߯ᐲ΋ႇАԾᘪ ᐲ΋ႇАԾᘪe

Since November 2004, P&PM and WAMC issued a Ϭɀཌྷཌྷ̒αɊȹ˂cP&PMʥ summary summons judgement and then modified WAMCగτᗐ༢ʦᐲ΋ႇАԾᘪϤ ਝCourt of Commerce ofؒכ their claims against GDC Entertainment in the Court of Commerce of Angouleme (France) for breach of Angouleme (France)Ή GDC ೡѵРҺמthe Co-production Agreement. Entertainmentೕˮᓯ ࣊ʥ֤೩ɾ຤࠳߯ॗ᎛࣊e

ᚋਐࠇ܁In relation to their claims, the French legal adviser τᗐ֤೩ɾॗ᎛c໮ؒ holds his opinion that (i) in any event, the summary ͇ԯ෮Ӯcႏݯ(i)ΕͨЄੱؗɎc ۾ೡѵРҺ࣊ੀמjudgements to be rendered shall be very difficult or ੀʀႮ͚ɾᓯ at least costly to P&PM and WAMC to enforce and ᗒ˟ᇽਨϷֶP&PMʥWAMC௖Г (ii) the enforcement of the claims should only be ࠉ۹඘ֻኪҶࠇɾേஊ൒͂ʥ(ii) limited to the assets of GDC Entertainment. ͇ॗ࣊඘ඩ˞GDC Entertainment Accordingly, the Directors consider that the claims ɾ༅ଐݯࠉϤਨϷeΐϊc໎ԑ made by P&PM and WAMC have no material financial ผႏݯP&PMʥWAMCྦྷ̯එ྆ɾ impact to the Group and no provision for this ͇ॗԎಲྦྷ̯එ྆ɾল৻࿚ιࠇ ႏݯಲ඘ݯ໮ඖേஊܨlitigation is considered necessary. ɣᄧᚊc АˮͨЄᅆௐe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 167 ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

42. Litigation (continued) 42. േஊᙩ (i) (continued) (i) ᙩ ɀཌྷཌྷʄαʒ˂ɊʒˀcכOn the other hand, Arbitration proceedings were ಳϤc commenced by GDC Entertainment against P&PM GDC EntertainmentΕࠗಋ஦༦ೕ ࣊ࢄ඀ৌྦྷP&PMʥكand WAMC in Hong Kong by way of notice of ˮͦസ஝ arbitration dated 16 June 2005. In the arbitration, WAMCɾͦസೡѵeΕ໮րͦസ issues will be raised by GDC Entertainment as to ɻcGDC Entertainmentੀผగ whether P&PM and/or WAMC was in repudiatory P&PMʥþֶWAMCܰЯᘩ̻ɺᄚ جbreach of the Co-production Agreement which ޸༢ʦᐲ΋ႇАԾᘪొˮΛඖ GDC Entertainmentڬentitled GDC Entertainment to terminate the same ᘪcߗᙔྡྷ and claim damages from P&PM and WAMC. Pleadings ˿ୄ˅τᗐ΋޸ԎΉP&PMʥ have not yet exchanged in the arbitration. P&PM and WAMC͇ॗላ᎛eτᗐΈʿʋ̰గ WAMC have applied to the arbitrator for the ͦസ͚౒͇േ೮ᙽ࣊eP&PMʥ determination of a preliminary issue as to whether WAMCɰΉͦസɁొ͚͇ᇼc߬ұ she has jurisdiction to hear the dispute which GDC గ֤ܰЯԮ̇ؒဳᑲᚬྦྷGDC ᘪجEntertainment will refer to her in the arbitration. The Entertainmentੀొ߸ɾτᗐ ᘪАˮസցe୏جүٱhearing of the application was held on 20 January ൬Ϸ୏঩ɾ ɀཌྷཌྷʒαȹ˂ɀɊˀכAs at the date of this report, the arbitrator has ঩͇ᇼɰ .2006 ంйˀ౨cͦസɁɰೕ̯כissued her decision and concluded that she has ൬Ϸe jurisdiction to determine the disputes referred to her ˮҺցcԎᒾց֤Ԯτ̇ؒဳᑲᚬ in GDC Entertainment’s Notice of Arbitration. ˞ҺցGDC Entertainmentɾͦസ ᘪeج࣊ɻɾك஝ ii) During the year, a court order was issued from a court (ii) αʑcɐࣵؒ࢓గȹ೫Ꮆ˟ʀɐ) එ྆τࠉʔ̇ݯᅕɁྟٽin Shanghai against IDMT Shenzhen, in respect of a ࣵณ loan amounting to RMB9,262,000 payable to ɐࣵ ̵ྫྷ9,262,000ʏɾ൘ಁcΉ᏷ଈ Ӡ૯ΓཕЗؒޢඑ྆)τࠉʔ̇. Accordingly to the court ᅕᆦఌ᛽ޫҌ)ྟٽณ order, the assets of IDMT Shenzhen amounting to ˥e᏷ଈᅕᆦఌ᛽ޫҌޢӠ૯ RMB9,262,000 were frozen. On 1 March 2006, both ΓݯᅕɁ̵ྫྷ9,262,000ʏɾ༅ଐ ɀཌྷཌྷʒכparties entered into a mutual settlement agreement ɰ࣓ኣؒ˥୽࠽೶e and RMB3 million was subsequently repaid after the αɍ˂ȹˀcᔶʿ͓߯՗໬Ծ year ended 31 December 2005 based on the agreed ᘪc᏷ଈᅕᆦఌ᛽ޫҌޢӠ૯ ɀཌྷཌྷʄαɊɀ˂ɍɊȹכrepayment schedule. The court order for the Γɰ ٲᘪցɾᑹಁࣂංܘ܃cancellation of such dispute has been issued from ˀ˅α۹ the court on 14 March 2006. ᎛ᑹɁ̵ྫྷ3,000,000ʏeؒ࢓ɰ ɀཌྷཌྷʒαɍ˂Ɋ̒ˀཕЗؒכ ᘪeجՅࣱ໮೩˥

168 Global Digital Creations Holdings Limited ഽڃٲNOTES TO THE FINANCIAL STATEMENTS ল৻ం

࿂߬ٲSummarised Balance Sheet of the Company 43. ̯ʔ̇༅ଐ߲ඦ .43

2005 2004 ɀཌྷཌྷʄα ɀཌྷཌྷ̒α (restated) ຤ࠇͶ HK$’000 HK$’000 ɝಋʏ ɝಋʏ

ݚ৽༅ଐڈ Non-current assets — — ᙔʔ̇ᚬऩڃכ Interests in subsidairies ᙔʔ̇ಁඖ — 10,536ڃAmounts due from subsidairies Ꮆν

— 10,536

Current assets ݚ৽༅ଐ ʥټܘPrepayment, deposits and other receivable ད˟ಁඖd ԯˢᎶνಁඖ 5 731 6 6 ټBank balances and cash ႺϷ೶቗ʥଊ

11 737

Current liabilities ݚ৽߲ඦ Other payables and accruals ԯˢᎶ˟ಁඖʥᎶ߮൒͂ 3,001 1,992 — ᙔʔ̇ಁඖ 17,410ڃAmount due to a fellow subsidiary Ꮆ˟΃ӡ Amounts due to directors Ꮆ˟໎ԑಁඖ 2,624 1,833 Amounts due to shareholders Ꮆ˟ٖ׭ಁඖ — 225 Amount due to a related party Ꮆ˟ᗐடɁɡಁඖ 458 — — ᙔʔ̇൘ಁ 43,983ڃLoan from a fellow subsidiary ΃ӡ Loan from a shareholder ٖ׭൘ಁ — due within one year z ȹαʑԷ౨ — 3,157 Loan from a related party ᗐடɁɡ൘ಁ 3,201 — Other loans ԯˢ൘ಁ 300 11,143

70,977 18,350

(Net current liabilities ݚ৽߲ඦ૱ᔾ (70,966) (17,613

(70,966) (7,077)

Capital and reserves ٖ̯ʥ᎝ௐ Share capital ٖ̯ 8,008 8,008 (Share premium and reserves ٖͫึძʥ᎝ௐ (78,974) (15,085

(70,966) (7,077)

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 169 FIVE YEARS FINANCIAL SUMMARY ʄαল৻࿂߬

Consolidated Results ၃΋พᐜ For the year ended 31 December ࿀ϭɊɀ˂ɍɊȹˀ˅α۹ 2001 2002 2003 2004 2005 ɀཌྷཌྷȹα ɀཌྷཌྷɀα ɀཌྷཌྷɍα ɀཌྷཌྷ̒α ɀཌྷཌྷʄα HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ (restated) ຤ࠇͶ

Revenue νऩ 2,240 2,306 11,478 47,987 32,195

Loss from operations ຤Ꮺᑋฌ (10,235) (15,633) (28,045) (125,657) (68,530) Finance costs ጪ༅ι̯ (82) (1,796) (5,255) (5,545) (7,675)

(ᑋฌ (10,317) (17,429) (33,300) (131,202) (76,205کLoss before taxation ৖ೢ (Л඀ʻ ——151 (25) (151אIncome tax credit (expense) ֺ੡ೢ

(Loss for the year α۹ᑋฌ (10,317) (17,429) (33,149) (131,227) (76,356

Consolidated Assets and Liabilities ၃΋༅ଐʥ߲ඦ At 31 December Ɋɀ˂ɍɊȹˀכ 2001 2002 2003 2004 2005 ɀཌྷཌྷȹα ɀཌྷཌྷɀα ɀཌྷཌྷɍα ɀཌྷཌྷ̒α ɀཌྷཌྷʄα HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ ɝಋʏ

Total assets ᐢ༅ଐ 45,029 81,929 146,003 69,060 34,319 Total liabilities ᐢ߲ඦ (17,751) (76,502) (77,561) (122,621) (162,531)

Net assets (liabilities) ༅ଐ૱ࠤ߲ඦ૱ᔾ 27,278 5,427 68,442 (53,561) (128,212)

ഽiڃ :Note

1) The results for each of the two years ended 31 December 2002 1) ̯ʔ̇ɰᇁႇ࿀ϭɀཌྷཌྷɀαɊɀ˂ɍɊȹˀ ɀཌྷཌྷכwhich were extracted from the prospectus dated 23 July 2003 ˅ԭ࠯α۹Έαɾพᐜ࿂፣Ϭ̯ʔ̇ ௃ೡcಹΣ̯ʔٖ׃issued by the Company have been prepared as if the Company had ɍαȼ˂ɀɊɍˀ˰ೕɾ always been the holding company of the Group from the beginning ̇ϬԚ͂΋ԡؒеͶพᐜɾ௖ξ౨ං඀ն঴ȹ ݯ̯එ྆ɾઁٖʔ̇ȹᅚeق .of the earliest period presented, using the merger method

ഽڃٲΣল৻ంܮ౨ᅕΥɰ຤Аˮሁኬ˞ʦک (Prior periods have been adjusted to reflect the changes in 2 (2 ೪ᛰ৽eܧaccounting policies as described in note 3A to the financial 3Aֺ߸ɾผ߮ statements.

170 Global Digital Creations Holdings Limited עCORPORATE GOVERNANCE STATEMENT ͬพဳ؝ᐰ

Board of Directors ໎ԑผ Board Responsibilities and Composition ໎ԑผɾᓻஐʥୂι

઴֦ͱܢ˳ɾιࡗکThe board of directors of the Company (the “Board”) currently ̯ʔ̇໎ԑผ໎ԑผ͌ ਨϷ໎ڈਨϷ໎ԑhષ඗́ͱ́ڈcomprised Mr. Cao Zhong (Chairman and Non-Executive Director); ́˚࢐࠹ ਝ̡ټᐢസ࠹ਨϷ໎ԑhܧMr. Leung Shun Sang, Tony (Non-Executive Director); Mr. Chen Zheng ԑhஹ֢ͱ́Ϸ (Chief Executive Officer and Executive Director); Mr. Jin Guo Ping ͱ́ʥ࢘૜௟ɡ৹ᐢസ࠹ਨϷ໎ԑhሳ৩௟ɡ ਨϷ໎ԑhㅽҁੜͱ́dɋɓѣͱڈand Dr. Catherine Xu Qing (Vice Presidents and Executive Directors); ৹˚࢐࠹ ਨϷ໎ԑeڈDr. David Deng Wei (Vice-Chairman and Non-Executive Director); ́ʥஈݙͱ́ዟ͓ Mr. Gordon Kwong Che Keung, Mr. Bu Fan Xiao and Mr. Stephen Hui Hung (Independent Non-Executive Directors).

The Board is responsible for overseeing the successful management ໎ԑผ߲ஐဟ๼᏷ଈᅕᆦɾι˲ဳଉʥஃི̯ʔ of the Group and devising the Group’s future strategy. The Board ̇ɾ̰Ԟೕࢄ೪଑e໎ԑผੀ᏷ଈᅕᆦɾˀ੒༜ delegates the management of the Group’s day-to-day operations ᏪɮАଫ͚ୀʶܥፕɾਨϷ໎ԑʥঢ়ज़ဳଉɁࡗ to carefully chosen Executive Directors and senior management ဳଉᄙeϊ̔cဳଉᄙ߲͛ஐԮ᛽༜Ꮺɮ personnel (the “Management”). The Management is also responsible АcΣܥፕ೪଑໎ԑdᇁႇད့ʥพ৻ི߮ௐ໎ ԯിցֺτړfor specific operations, preparing strategic directions, budgets and ԑผғ࠿೩e໎ԑผࠦፆဳଉᄙᆢ business plans for the Board’s approval. The Board in its turn looks ࠇɣೕࢄcϤ໮೩ࠇɣೕࢄֶผྦྷ̯ʔ̇ʥԯพ to the Management to ensure it is appraised of all significant ৻஥ιᄧᚊeֺττᗐ̯ʔ̇ɾࠇɣνᑪdᇋ developments that may affect the Company and its operations. All Лdҙ༅dጪ༅ʥԯˢࠇɣਐᕀя඘຤ͅ໎ԑผ major acquisitions, disposals, investments, financing and other ғ࠿e significant issues pertaining to the Company are all subject to the Board’s approval.

ਨڈɍΊዟ͓ܢ˳ȾΊιࡗୂιcͅکThe Board is currently made up of nine members, three of whom ໎ԑผ͌ ɾ߇ౡʥ؟ᄤܮare Independent Non-executive Directors. The Board’s size Ϸ໎ԑe໎ԑผɾஃᅡʥୂιʦ and composition reflects a comprehensive range of backgrounds Ҍ୺ეਟcϤ໮೩ΐॖྦྷ੣ԑ̯එ྆พ৻Ϸพɾ and skill sets that have been deemed vital for the effective ʔ̇ɾτࢽဳ؝ϭᗐࠇ߬eτᗐ໎ԑ༅ࢿᇼ஄ਐ governance of a company involved in the business industry of the ၉ॎhttp://www.gdc-world.come Group. The profiles of the Directors can be accessed by clicking on to http://www.gdc-world.com.

ਨϷ໎ڈɍΊዟ͓ܢ˳ೕࣂංc໎ԑผιࡗ˰כ -At the time of publication, the Board has three Independent Non executive Directors. These Directors have been granted specific ԑe໮೩໎ԑɾͨ౨яݯȹαc৖ሳ৩௟ɡֺ̔ ਨϷ໎ԑͨ౨ݯȹαeԎ˿࣓ኣ᏷ଈᅕᆦʔڈterms of one year, and all Non-executive Directors are appointed τ ᔤցɾૈಁᐶፕடͨeڬfor specific terms of one year (except Dr. David Deng Wei) and are ̇ୀ subject to the re-election provisions laid down in the Company’s Bye-laws.

ஃցcΕҰ։ٖ׭൪αɣڬAccording to the Bye-laws of the Company, at each annual general ࣓ኣ̯ʔ̇ɾʔ̇ୀ ɍڈmeeting, one-third of the Directors for the time being, or if their ผɐc๫ࣂɾɍʗɾȹ໎ԑֶߗԯɁᅕԎ ɍʗɾȹɾɁᅕݯๅٶ௖અ˞ڬnumber is not three or a multiple of three, then the number nearest ֶɍɾࠛᅕc

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 171 עCORPORATE GOVERNANCE STATEMENT ͬพဳ؝ᐰ

one-third, shall retire from office by rotation, provided that no ੀረݚঽͨc੹ኪͨ˚࢐ֶ໎ԑᐢ຤ଉᓻϽɾ໎ ့߮඘ঽͨɾ໎ԑɁᅕࣂ͛כDirector holding office as chairman or managing director shall be ԑˇ඘ረݚঽͨc ಁஃցc࠳̯߯ʔૈڬsubject to retirement by rotation or be taken into account in ɺผ୽့߮Εʑe࣓ኣΨ ʔ̇ɾЩੀᐾϷɾٖ׭൪α̯כ඘ڬdetermining the number of Directors to retire. To comply with the ̇ɾʔ̇ୀ ࢐ʥ˚ܢ˳code provision, amendments to the Bye-laws of the Company will ɣผɐొеٖ׭ғ࠿cϤֺτ໎ԑ be proposed at the forthcoming annual general meeting of the ໎ԑᐢ຤ଉ඘௖ʭҰɍαረݚঽͨȹωe Company for approval by the shareholders such that all Directors (including the chairman and the managing director) will be subject to retirement by rotation at least once every three years.

Directors are empowered with all sufficient resources as deemed ໎ԑτᚬСֺ͂τԯႏݯ̦჏ɾ˨ӷ༅฻သ֤೩ necessary to carry out their duties to the best of their abilities. ֺॶᄚϷԯᓻஐeϊ̔c໎ԑ͛˿ᏵՅʔ̇ो࣊ ᏷ଈכ৻cԎ˿ͲࠍʥሬࣂΔՅ੡ᗐרDirectors also enjoy access to the advice and services of the ɾ෮Ӯʥ Company Secretary, and are given full and timely access to all ᅕᆦพ৻ؿȹʘ༅ࢿe໎ԑᑹ˿గ̯ʔ̇ɾ඀ʻ information relevant to the Group’s operations. Directors may also ఖұዟ͓ਿพ෮ӮΣ჏߬e seek independent professional advice at the Company’s expense should the need arise.

ᙔʔ̇ɾ໎ԑʥঢ়ज़ᓻڃThe Company has taken out comprehensive Directors’ and officers’ ̯ʔ̇ɰݯ̯ʔ̇ʥԯ liabilities insurance coverage for the Directors and officers of the ࡗᑪൕ၃΋໎ԑʥঢ়ज़ᓻࡗஐͨ፮e࣓ኣʔ̇ૈ ̯˞ᆲ௼૪ၰˢࠨړCompany and its subsidiaries. This covers their against costs, ԝʥԯˢሬ͂ஃԝஃցcҙ ᙔʔ̇ɾ໎ԑֶঢ়ज़ᓻࡗɾӸֺͫଐڃcharges, expenses and liabilities incurred by them in their capacity ʔ̇ʥԯ as Directors or officers of the Company and its subsidiaries, subject ́ɾι̯d൒͂d඀ʻʥஐͨe to the provisions of the Companies Ordinance and other applicable legislation.

ਨϷ໎ԑяɰగᐲֺ͚௚พڈEach of the Board’s Independent Non-executive Directors has ໎ԑผɾɍΊዟ͓ כ༗Ͷɾᗐڬ௚พ׶ɐ̟ஃڬprovided the Company and The Stock Exchange of Hong Kong ׶ᖬԴɐ̟ஃ מLimited (the “Stock Exchange”) with written confirmation in respect ໎ԑዟֲ͓ɾΈඖ߬ұΉ̯ʔ̇ʥࠗಋᐲ΋͚ of the factors set out in the Rules Governing the Listing of Securities ֺτࠉʔ̇ᐲֺ͚Ⴎ͚࣊ࠍᆢႏe຤ᄗ෶ϣ ਨϷ໎ԑяԮዟ͓ڈon the Growth Enterprise Market of the Stock Exchange (the “GEM ᄬc̯ʔ̇ႏݯɍΊዟ͓ Listing Rules”) concerning his independence. After careful ֲc˘ԯɻͨЄԭΊ໎ԑɾංԎಲΦΕͨЄࡼ࢓ eϊ̔c᏷ଈᅕᆦੀ˚࢐ၤϷڝconsideration, the Company has ruled that all three Independent ֶࠇɣֶᗐᐲᗐ Non-executive Directors are independent of and not connected ܧᐢസɾᓻஐʀ˞ིʗe˚࢐ეኒ໎ԑผғ࠿ܧ ɀཌྷཌྷʒαɀ˂Ɋʒˀכwith any of the Directors in question. In addition, the Company ೪ʥ೪଑cϤᐢ຤ଉ Ͳࠍ߲ஐਨϷ໎ԑผғ࠿ɾڬᐢസܧsegregates the roles of the Chairman from the Chief Executive ᔝͨݯϷ Officer. The Chairman provides leadership to the Board in terms of ܧ೪ʥ೪଑ʥဟઁʔ̇Ꮺ༜e˚࢐ၤϷܧᐢസԎ eڝapproving policies and strategies whereas the General Manager (re- ಲᗐ designated as Chief Executive Officer on 16 February 2006) has overall responsibility for implementing the policies and strategies approved by the Board and monitoring the operations of the Group. There are no relationships between the Chairman and the Chief Executive Officer.

172 Global Digital Creations Holdings Limited עCORPORATE GOVERNANCE STATEMENT ͬพဳ؝ᐰ

Board Activities ໎ԑผɾݠ৽ Action by the Board or its committees is taken at regularly held ໎ԑผֶԯկࡗผɾݠ৽஦༦ց౨̂඀ผᘪֶཋ Ұտכmeetings, or at meetings held by conference call, or by written ໷ผᘪֶ஦༦࣊ࠍ΃෮൬Ϸe໎ԑผผᘪ ଊdলٲᙴ᏷ଈᅕᆦɾޘresolution. Regular Board meetings aimed at reviewing/considering ցࣂ̂඀cοΕᄗቇŉ the Group’s performance, financial results and other relevant ৻พᐜʥ໎ԑᔤցɾԯˢޚᗐԑփcԎΕτ჏߬ matters identified by the Directors are held on a quarterly basis. ʥሬ๫ࣂୂᓱ̂඀ҡΛผᘪe Additional meetings may also be organised as and when circumstances demand them.

࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹౨ංcכ During the year ended 31 December 2005, the Board met seven times. Individual attendance or participation by means of a ໎ԑผ΋ͳ̂඀ȼωผᘪeጱӸˮ࢐ֶ஦༦ผᘪ conference telephone or other communication equipment of each ཋ໷ֶԯˢ஝঩உௐ਄ၤ໮೩ผᘪɾΈ໎ԑ༗Ͷ Director at these meetings were as follows: ΣɎi

Number of meetings attended Attendance rate Director ໎ԑ ˮ࢐ผᘪωᅕ ˮ࢐ଅ

Mr. Anthony Francis Neoh ષցԄͱ́ 7/7 100% ɀཌྷཌྷʄαɊɀ˂ɍɊˀᖽͨכ (Resigned on 30 December 2005) Mr. Cao Zhong ઴֦ͱ́ 3/7 43% ɀཌྷཌྷʄαɀ˂ɊʒˀᏵկͨכ (Appointed on 16 February 2005) Mr. Chen Zheng ஹ֢ͱ́ 7/7 100% ɀཌྷཌྷʄαɀ˂ɊʄˀᏵկͨכ (Appointed on 15 February 2005) Mr. Raymond Dennis Neoh ષցඐͱ́ 4/5 80% ɀཌྷཌྷʄαɄ˂ɀɊȾˀᖽͨכ (Resigned on 29 August 2005) Dr. David Deng Wei ሳ৩௟ɡ 0/7 0% Mr. Gordon Kwong Che Keung ㅽҁੜͱ́ 7/7 100% Professor Japhet Sebastian Law ᖓʼ❔ઠ઒ 7/7 100% Mr. Bu Fan Xiao ɋɓѣͱ́ 0/3 0% ɀཌྷཌྷʄαʄ˂ɍɊˀᏵկͨכ (Appointed on 30 May 2005) Mr. Paul Kwan Yuen Chiu ᗐႩ্ͱ́ 2/4 50% ɀཌྷཌྷʄαʄ˂ɍɊˀঽͨכ (Retired on 30 May 2005) Mr. Stephen Scharf Stephen Scharfͱ́ —— ɀཌྷཌྷʄαɀ˂Ɋʒˀᖽͨכ (Resigned on 16 February 2005) Mr. Leung Shun Sang, Tony ષ඗́ͱ́ —— ɀཌྷཌྷʄαɊɀ˂ȹˀᏵկͨכ (Appointed on 1 December 2005)

The Board mainly established the following Committees which have ໎ԑผ˚߬உ͓˞ɎկࡗผcԎ઒ʀ໮೩կࡗผ ցɾᓻஐdᚬɈʥᓻॶiވᆢע been granted the clearly defined duties, powers and functions as below:

(i) An Audit Committee; (i) ᄗ࣏կࡗผh

կࡗผhʥټii) A Remuneration Committee; and (ii) ༭)

(iii) A Nomination Committee. (iii) ొΊկࡗผe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 173 עCORPORATE GOVERNANCE STATEMENT ͬพဳ؝ᐰ

Audit Committee ᄗ࣏կࡗผ Audit Committee Structure & Membership ᄗ࣏կࡗผɾܼ࿚ʥιࡗ The Audit Committee was established with reference to “A Guide ᄗ࣏կࡗผȽ਄๑ࠗͅಋผ߮࢑ʔผଊီݯࠗ to the Formation of an Audit Committee” issued by The Hong Kong ಋผ߮࢑ʔผೕˮɾι͓ᄗ࣏կࡗผܞʵι ㅽҁੜͱ́˚࢐dɋɓѣܢ˳ɾιࡗکSociety of Accountants (currently known as “The Hong Kong ͓e͌ ਨϷ໎ԑe֤ڈInstitute of Certified Public Accountants”). The current members are ͱ́ʥஈݙͱ́cɍɁяݯዟ͓ ɾ̔າک˞ֶکԎಲኪ̯ͨʔ̇͌ک˞Mr. Gordon Kwong Che Keung (Chairman), Mr. Bu Fan Xiao and Mr. ೩ଊࣂֶ Stephen Hui Hung all of whom are Independent Non-executive ࣏ᅕ࢑eㅽҁੜͱ́ኪͨᄗ࣏կࡗผɾ˚࢐c֤ Directors. None of them is, or has previously been, a member of the ኟτȹʘֺ჏༅ࣟʥྡྷ჌຤᛻e Company’s current or previous external auditor. The Audit Committee is chaired by. Mr. Gordon Kwong Che Keung who posses all necessary qualifications and practical experience.

Audit Committee Functions ᄗ࣏կࡗผɾᓻॶ The functions of the Audit Committee are as follows: ᄗ࣏կࡗผɾᓻॶ༗ͶΣɎi

(a) To consider the appointment, resignation and dismissal of (a) ϣᄬկͨ̔າ࣏ᅕ࢑d࣏ᅕ൒͂c˞ʥ୮ the external auditor, and the determination of the audit fee; ଉᖽᓻֶ୽ᇋЛؿͨЄਐᕀh

ၤ̔າ࣏ᅕ࢑দሃ࣏ᅕکb) To discuss with the external auditor before the audit (b) Ε࣏ᅕɮА඀ն) commences, the nature and scope of the audit, and ensure ɾֲሔʥᆲ௼c๫կາ൚༦ȹං࣏ᅕ࢑ԑ ϊɾɮА੡ԷԾሁh֤ړco-ordination where more than one audit firm is involved; ৻ֺࣂcᆢ

Review of financial information of the issuer ᄗቇೕϷɁɾল৻༅ࢿ dαంʥሏ͌d˸αٲc) To monitor the integrity of the financial statements of the (c) ဟྦ̯ʔ̇ল৻ం) Company and the Company’s annual report and accounts, ۹ంйʥտ۹ంйܰЯѧኬcԎᄗቇɐ߸ ʥంйֺ༗τᗐল৻͇ంؿࠇɣРٲhalf-year report and quarterly reports, and to review ం significant financial reporting judgements contained in ᒾeగϊϤӰcᄗ࣏կࡗผΕొ͚໎ԑผ ᄗቇ̯ʔ̇ؿαంʥሏ͌d˸α۹ంйک them. In this regard, in reviewing the Company’s annual report and accounts, half-year reports and quarterly reports ՗տ۹ంйࣂc඘ऋПৌྦྷɎͶԑඖi before submission to the Board, the committee would focus particularly on:—

(i) any changes in accounting polices and practices; (i) ผ߮ܧ೪ʥྻԝɾͨЄҝᛰh

(ii) major judgmental areas; (ii) ࣹʥࠇ߬РᒾɾΔʿh

(iii) significant adjustments resulting from audit; (iii) ΐ࣏ᅕϤˮଊɾࠇɣሁኬh

जړᙩ຤Ꮺɾ৥உʥͨЄܛiv) the going concern assumptions and any (iv) ͬพ) qualifications; ෮Ӯh

174 Global Digital Creations Holdings Limited עCORPORATE GOVERNANCE STATEMENT ͬพဳ؝ᐰ

hʥڬv) compliance with accounting standards; and (v) ܰЯଲ΋ผ߮ๅ)

ʥԯˢڬɐ̟ஃخvi) compliance with the GEM Listing Rules and other (vi) ܰЯଲ΋௚พ) ஃցh܁legal requirements in relation to financial reporting; τᗐল৻͇ంɾؒ

In regard to (c) above:— గɐʼ଱(c)ݒϤӰi

(i) members of the committee must liaise with the (i) ᄗ࣏կࡗผιࡗ඘ၤ໎ԑผdဳ Board, the Management and the person appointed ଉᄙʥᏵկາݯ̯ʔ̇΋༅ࣟผ as the Company’s qualified accountant and the ߮࢑ɾɁɡᐲ೼c˘ᄗ࣏կࡗผ committee must meet, at least once a year, with the ඘ϭʭҰαȹωၤ̯ʔ̇ɾ࣏ᅕ Company’s auditors; and ࢑඀ผhʥ

໮೩ంйʥכii) the committee should consider any significant or (ii) ᄗ࣏կࡗผ඘ϣᄬ) unusual items that are, or may need to be, reflected ሏ͌ɻ༗ͶֶᎶ༗ͶɾͨЄࠇɣ in such reports and accounts and must give due ֶɺఖ੒ԑඖcԎ඘ሬ๫ϣᄬͨ consideration to any matters that have been raised Є̯ͅʔ̇΋༅ࣟผ߮࢑dဟྦ by the Company’s qualified accountant, compliance ˚ֶ࣏ͨᅕ࢑ొˮɾԑඖh officer or auditors; cԎמஃցɾᗐட͚ڬd) To review and opine on connected transactions where (d) ᄗቇ௚พ׶ɐ̟ஃ) required by GEM Listing Rules; గϊొˮ෮Ӯh

˞ज෮Ӯcړe) To discuss problems and reservations arising from the final (e) గα۹࣏ᅕֺଐ́ɾਐᕀʥ) audits, and any other matters the auditor may wish to ʥ࣏ᅕ࢑ᏃొˮɾͨЄԑඖ൬ϷদሃΣ discuss (in the absence of management where necessary); τ჏߬cဳଉᄙ඘ᑷ࢐h

(f)To review the external auditor’s management letter and (f) ᄗቇ̔າ࣏ᅕ࢑ߎဳଉᄙɾԲͧʥဳଉᄙ management’s response; АˮɾΑᎶh

Ꮞদ̯ʔ̇τᗐʑ஫ઁԹکg) To review the Company’s statement on internal control (g) Ε໎ԑผғ࠿) ԯɻȹͫ༗Ƀα۹ంйhעsystems (where one is included in the annual report) prior ӡ଻ɾᐰ to endorsement by the Board;

ʑ஫ʥ̔າ࣏ᅕړh) to review the internal audit programme, ensure co- (h) Ꮞদʑ஫ᄗི࣏߮cᆢ) ordination between the internal and external auditors, and ࢑ɾɮА੡ԷԾሁc˞ʥʑ஫ᄗ࣏˲ॶΕ ensure that the internal audit function is adequately ̯ʔ̇ʑτӷਪ༅฻༜АcԎ˘τሬ๫Δ resourced and has appropriate standing within the Ͻh Company; i) To consider the major findings of internal investigations and (i) గτᗐʑ஫ሁ݅ʥဳଉᄙΑᎶɾ˚߬೶׮) management’s response; and ൬ϷޢӠhʥ

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 175 עCORPORATE GOVERNANCE STATEMENT ͬพဳ؝ᐰ

On 10 November 2005, GDC adopted revised terms of reference of ɀཌྷཌྷʄαɊȹ˂Ɋˀc᏷ଈᅕᆦઔढ़຤࠳߯ɾ ڬԯѧͲଲ΋Ψړthe Audit Committee in order to ensure its full compliance with ᄗ࣏կࡗผɾᓻᚬᆲ௼c˞ᆢ the provisions of the code. The following duties are also included: ɾஃցeณᄈɾᓻஐ༗ͶΣɎi a) to be primarily responsible for making recommendation to (a) ˚߲߬ஐΉ໎ԑผొԜτᗐկͨdᙩາֶ) ᘪdғ࠿̔າ࣏ۺthe Board on the appointment, reappointment and removal ࿄౒̔າ࣏ᅕ࢑ɾઐᔈ ʥາͨૈಁc˞ʥ୮ଉτᗐ̔ټof the external auditor, and to approve the remuneration ᅕ࢑ɾ༭ and terms of engagement of the external auditor, and any າ࣏ᅕ࢑ᖽᓻֶ୽ᇋЛɾͨЄਐᕀh questions of resignation or dismissal of that auditor;

Ꮞদʥဟྦ̔າ࣏ᅕ࢑ڬb) to review and monitor the external auditor’s independence (b) ࣓ኣሬ͂ผ߮ๅ) and objectivity and the effectiveness of the audit process ܰЯዟ͓۪ᜮʥ࣏ᅕೡѵܰЯτࢽeᄗ࣏ ၤ̔າ࣏ᅕ࢑کin accordance with applicable standard. The audit կࡗผ඘Εᄗ࣏ɮА඀ն committee should discuss with the auditor the nature and দሃᄗ࣏ɾֲሔʥᆲ௼˞ʥ͇ంஐͨh scope of the audit and reporting obligations before the audit commences;

೪cܧ৻Թցרᄗ࣏ڈc) to develop and implement policy on the engagement of an (c) గ̔າ࣏ᅕ࢑ొԜ) external auditor to supply non-audit services. For this Ԏʀ˞ਨϷeగϊϤӰc̔າ࣏ᅕ࢑˳ܢ ΃ȹઁԹᚬdֺτᚬכpurpose, external auditor shall include any entity that is ၤ࣏ᅕ࢑ԑ৻ֺ୮ ɾੱكunder the common control, ownership or management with ֶဳଉᚬɎɾͨЄዀ࿚cֶ΋ଉʥ ΋ଉᒾց˿܃ᗐ༅ࢿޚthe audit firm or any entity that a reasonable and informed ଱ɍʿΕᏵ੡ֺτ ໮࣏ᅕ࢑ԑ৻ֺȹ஫כthird party having knowledge of all relevant information Ε๫Δֶਝ჌ɐᙔ would reasonably conclude as part of the audit firm ͫɾͨЄዀ࿚eᄗ࣏կࡗผ඘Ή໎ԑผొ nationally or internationally. The audit committee should ˮԯႏݯ჏߬ઔՅϷ৽ֶҝഁɾԑඖcԎ hܪᘪᎶઔՅɾઉۺ report to the Board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken; d) Oversight of the issuer’s financial reporting system and (d) ဟྦೕϷɁɾল৻͇ంԹ۹ʥʑ஫ઁԹೡ) internal control procedures ѵ

(f) to review the issuer’s financial controls, internal control and (f) Ꮞদ̯ʔ̇ɾল৻ဟઁdʑ஫ઁԹʥࠓ፮ risk management systems; ဳଉԹ۹h

ဳଉᄙړg)to discuss with the management the system of internal (g) ၤဳଉᄙদሃʑ஫ઁԹӡ଻cᆢ) τࢽɾʑ஫ઁԹӡ͓ۺcontrol and ensure that management has discharged its ɰᄚϷԯᓻஐc duty to have an effective internal control system; ଻h h) to consider any findings of major investigations of internal (h) Ε໎ԑผ઒ᚬɎֶ˚৽గτᗐʑ஫ઁԹԑ) ޢcontrol matters as delegated by the Board or on its own փɾ˚߬ሁ݅೶׮ʥဳଉᄙɾΑᎶ൬Ϸ initiative and management’s response; Ӡh

176 Global Digital Creations Holdings Limited עCORPORATE GOVERNANCE STATEMENT ͬพဳ؝ᐰ

ʑ஫ʥ̔າ࣏ړᆢڬi) where an internal audit function exists, to ensure co- (i) ࠱உτʑ஫࣏ᅕ࢑c) ordination between the internal and external auditors, and ᅕ࢑ɾɮА੡ԷԾሁc˞ʥʑ஫ᄗ࣏˲ॶ to ensure that the internal audit function is adequately Ε̯ʔ̇ʑτӷਪ༅฻༜АcԎ˘τሬ๫ resources and has appropriate standing within the ΔϽcԎᏎদʥဟྦʑ஫ᄗ࣏˲ॶܰЯτ Company, and to review and monitor the effectiveness of ࢽh the internal audit function;

(j) to review the group’s financial and accounting policies and (j) Ꮞদඑ྆ɾল৻ʥผ߮ܧ೪ʥྻԝh practices ;

(k)to review the external auditor’s management letter, any (k) ᄗቇ̔າ࣏ᅕ࢑ߎဳଉᄙɾԲͧd࣏ᅕ࢑ material queries raised by the auditor to management in గผ߮޵፣dল৻ሏֶ͌ဟઁӡ଻Ήဳଉ respect of the accounting records, financial accounts or ᄙొˮɾͨЄࠇɣဘਐʥဳଉᄙАˮɾΑ systems of control and management’s response; Ꮆh

໎ԑผྦྷ̔າ࣏ᅕ࢑ߎဳଉᄙɾԲͧړl) to ensure that the Board will provide a timely response to (l) ᆢ) the issues raised in the external auditor’s management ֺొˮɾԑփАˮʥࣂΑᎶh letter;

ಁֺ༗ԑඖΉ໎ԑผමంhʥૈڬm) to report to the Board on the matters set out in the (m) గ̯Ψ) provisions of the Code; and

(n) to consider other topics, as defined by the board. (n) ᄗᘪͅ໎ԑผވցɾԯˢԑඖe

Audit Committee Activities ᄗ࣏կࡗผɾݠ৽ Αᚋα۹ʑcᄗ࣏կࡗผ౦ၤ̔າ࣏ᅕ࢑ᐾϷכ .During the year under review, the Audit Committee met four times All members of the Audit Committee attended or participated by ̒ωผᘪeᄗ࣏կࡗผɾιࡗяͲ᛽ˮ࢐̒ωผ means of a conference telephone or other communication ᘪe equipment at all four Audit Committee meetings in full.

ᄗቇ᏷ଈᅕᆦɾکThe Audit Committee is entrusted with reviewing all GDC quarterly, ᄗ࣏կࡗผ߲ஐΕొ͚໎ԑผ e̯ʔ̇ɾল৻ٲinterim and annual financial statements of the Company before ֺτտ۹dɻ౨ʥα۹ল৻ం their submission to the Board. The Company’s Chief Financial Officer ᐢဟᎶᑼˮ࢐ɐ߸ผᘪeᄗ࣏կࡗผɰᄗቇ̯එ was invited to attend these meetings. The Audit Committee has ྆࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹ɾ຤ᄗ ၤྻڬreviewed the audited consolidated results of the Group for the year ࣏၃΋พᐜ˞ʥ̯එֺ྆ઔढ़ɾผ߮ࡈ ended 31 December 2005 and the accounting principles and ԝeἙາ࣏ᅕ࢑ֶ̰Ԟʑ஫࣏ᅕ࢑ɾԾХɎc practices adopted by the Group. With the assistance of the external ᄗ࣏կࡗผ͛ੀᏎদ̯ʔ̇ʑ஫ઁԹઉܪɾ˨ʗ ᘪeۺauditors or internal auditors in the near future, the Audit Committee ֲʥτࢽֲcԎΉ໎ԑผАˮሬ๫ will review the adequacy and effectiveness of the Company’s internal control measures and subsequently made appropriate recommendations to the Board.

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 177 עCORPORATE GOVERNANCE STATEMENT ͬพဳ؝ᐰ

cϤٲThe Company’s directors are responsible for the preparation of the ̯ʔ̇໎ԑ߲ஐᇁႇभྡྷ࠹ʔ̡ɾল৻ం ˮԮዟ͓෮Ӯe̔ٲ߲ஐྦྷ໮೩ল৻ంڬfinancial statements which give a true and fair view of the results ࣏ᅕ࢑ of the Company. There are no matters of uncertainties and no າ࣏ᅕ࢑ɾઐፕdկͨdᖽֶͨᇋЛԎಲΦΕͨ ࣍ΐॖcϤᄗ࣏կࡗผ͛ಲɺ΃෮עdifferent of view between the Audit Committee and the Board Єࠇɣɺ regarding the selection, appointment, resignation or dismissal of Ӯe external auditors.

ڝRelationship with External Auditors ၤ̔າ࣏ᅕ࢑ɾᗐ The Audit Committee is charged with reviewing the external ᄗ࣏կࡗผ߲ஐᄗቇ̔າ࣏ᅕ࢑ᇁႇɾ࣏ᅕం ဳଉᄙሬࣂΔΑᎶᄗ࣏Ꮞদంйɻొړauditors’ audit reports and ensuring that the Management makes йcԎᆢ າ࣏ᅕ࢑ɾѧͲ̔ړtimely responses to any and all issues raised therein. In order to ˮɾͨЄʥֺτਐᕀeݯᆢ ensure the full independence of the external auditors, the Audit ዟֲ͓cᄗ࣏կࡗผ߲͛ஐᄗቇ̔າ࣏ᅕ࢑ొԜ ࿀ϭɀཌྷཌྷʄαɊכ৻ඖ͌eרᄗ࣏ᗘڈCommittee also reviews all non-audit related services provided by ɾֺτ the external auditors. During the year ended 31 December 2005, ɀ˂ɍɊȹˀ˅α۹ʑc̯එ྆ɰ˟ʥᎶ˟̔າ ܢ˳the total fees paid and payable to the external auditors amounted ࣏ᅕ࢑ɾ൒͂΋ͳ޸ݯ1,459,000ಋʏcԯɻ ৻޸40,000ಋʏЌᐢ൒͂޸2.7%ʥऋПרto approximately HK$1,459,000. This sum included approximately ೢ৻ HK$40,000 (approximately 2.7% of total fee) for taxation services ᄗቇ൒͂޸376,000ಋʏЌᐢ൒͂޸25.8%e and approximately HK$376,000 (approximately 25.8% of total fee) for special audit.

կࡗผټRemuneration Committee ༭ կࡗผɾܼ࿚ʥιࡗټRemuneration Committee Structure & Membership ༭ ༗τԯ઒ᚬעկࡗผcԎ߯ټThe Company had established a Remuneration Committee with ᏷ଈᅕᆦɰι͓༭ ᆢᓻᚬᆲ௼eעspecific terms of reference that specify its authority and duties. ʥᓻஐɾ

˚ષ඗́ͱ́ܢ˳կࡗผɾιࡗټc༭ک͌ .The current members of the Remuneration Committee are Mr Leung Shun Sang, Tony (Chairman) Mr. Cao Zhong (Vice-Chairman), ࢐d઴֦ͱ́৹˚࢐dɋɓѣͱ́dㅽҁੜ ਨϷ໎ڈMr. Bu Fan Xiao, Mr. Gordon Kwong Che Keung and Mr. Stephen Hui ͱ́ʥஈݙͱ́c֤೩ɣ஫ͫݯዟ͓ Hung the majority of whom are Independent Non-executive ԑe Directors.

կࡗผɾᓻॶټRemuneration Committee Functions ༭ կࡗผᎶlټThe Committee shall: ༭

Determine and agree with the Board the framework or • ၤ໎ԑผᔤցʥԾਆτᗐԹց̯ʔֶ̯̇• broad policy for the remuneration of the company or group’s එ྆ɾ˚߬ϷܧɁࡗd̯ʔ̇ɾ˚࢐ʥ໮ ɾ᛽Թֶลټchief executive, the chairman of the Company and such ೩ਨϷဳଉᄙɾԯˢιࡗ༭ Ꮆͅ໎ԑผਨټਨϷ໎ԑɾ༭ڈ೪eܧother members of the executive management as it is ߬ designated to consider. The remuneration of non-executive Ϸ໎ԑʀ˞ᔤցeͨЄ໎ԑʥဳଉɁࡗя hټdirectors shall be a matter for the executive members of the ɺ੡਄ၤᔤցԯ༭ Board. No director or manager shall be involved in any decisions as to his or her own remuneration;

178 Global Digital Creations Holdings Limited עCORPORATE GOVERNANCE STATEMENT ͬพဳ؝ᐰ

Have the delegated responsibility to determine the specific • ᏵկݢᔤցͲ᛽ਨϷ໎ԑʥঢ়ज़ဳଉɁࡗ• ټСऩdঽͤذྡྷܢ˳༤cۿټremuneration packages of all executive directors and senior ɾԮ᛽༭ ௪ֶ̖ୄ˅ᓻ৻ֶܢ˳ᔾټmanagement, including benefits in kind, pension rights and ᚬСʥላ᎛ ਨϷ໎ԑɾڈcompensations payments, including any compensation կͨϤᎶ˟ɾላ᎛cԎగ կࡗผټᘪe༭ۺΉ໎ԑผొԜઐᔈټpayable for loss or termination of their office or appointment ༭ d໎ԑ˟ˮɾټand make recommendations to the board of the ඘ϣᄬ΃ᗘʔ̇ʻ˟ɾᑀ remuneration of non-executive directors. The remuneration ࣂංၤֺֻኪɾஐͨd̯ʔ̇ʑԯˢᓻϽ ʿ࣐ɾͨЄ஫ʗܰټcommittee should consider factors such as salaries paid by ɾ཭͂ੱؗc˞ʥ༭ ଊᔤց೩ΐॖhٲܘcomparable companies, time commitment and ЯᎶ responsibilities of the directors, employment conditions elsewhere in the Company and desirability of performance- based remuneration;

•Review and approve performance-based remuneration by • ਄๑໎ԑผɺࣂ஝༦ɾʔ̇͌ᅟʥրοc hټଊϤᔤցɾ༭ٲܘreference to corporate goals and objectives resolved by the ᄗᘪʥғ࠿ Board from time to time;

•Within the terms of the agreed policy, determine the total • ΕԾցɾܧ೪ᆲ௼ɾʑcᔤցҰϽਨϷဳ Σሬ๫٦ܢ˳ᐢᔾcټindividual remuneration package of each executive ଉɁࡗɾ࠯П༭ ʥٖͫ౨ᚬhټmanager including where appropriate, bonuses, incentive ޴dᆉ payments and share options;

ʥΪખcԎሬ๫ᚋʥͬพဳټDetermine such packages and arrangements, giving due • ᔤցɐ߸༭• ፣Ɋʄɾڃڬ௚พ׶ɐ̟ஃڬregard to the recommendations of the Code on Corporate ؝੒ஃΨ ᘪhۺ Governance Practices (Appendix 15 of the GEM Listing Rules);

•Review and approve the compensation payable to executive • ᄗᘪʥғ࠿ΉਨϷ໎ԑʥঢ়ज़ဳଉɁࡗʻ ˞directors and senior management in connection with any ˟τᗐ௪ֶ̖ୄ˅ᓻ৻ֶկͨɾላ᎛c τᗐ΋޸ૈಁᔤցc˘Εܘ໮೩ላ᎛ړloss or termination of their office or appointment to ensure ᆢ that such compensation is determined in accordance with ԯˢʿࠍʔ̡΋ଉcɺผྦྷ̯ʔ̇஥ι༦ relevant contractual terms and that such compensation is ɣ඀ʻh otherwise fair and not excessive for the Company;

Review and approve compensation arrangements relating • ᄗᘪʥғ࠿໎ԑΐݯϷݯ̖๫Ϥሯ໬཭ֶ• ໮೩Ϊખړto dismissal or removal of directors for misconduct to ensure ᇋЛֺࣹʥɾላ᎛Ϊખc˞ᆢ that such arrangements are determined in accordance with ܘτᗐ΋޸ૈಁᔤցc˘Εԯˢʿࠍ΋ଉ relevant contractual terms and that any compensation ܌๫h payment is otherwise reasonable and appropriate; and

•Oversee any major changes in employee benefit structures • ज෮ኬ࠯එ྆ʑ཭ࡗါСܼ࿚ɾͨЄࠇɣ throughout the group. ᛰʝe

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 179 עCORPORATE GOVERNANCE STATEMENT ͬพဳ؝ᐰ

կࡗผɾݠ৽ټRemuneration Committee Activities ༭ ˞կࡗผ౦̂඀ȹωผᘪcټΑᚋα۹ʑc༭כ During the year under review, the Remuneration Committee met eͲټɀཌྷཌྷʄαɾ༭כonce to review and approve the remuneration of Directors of the ᄗቇʥғ࠿̯ʔ̇໎ԑ яτˮ࢐ܰωผᘪ੹ɋɓٲCompany in 2005. All members or his proxy had attended the ᛽ιࡗֶԯկͨˤ ټ඀ผᘪࣂɺΕࠗಋe༭̂כmeeting (except Mr. Bu Fan Xiao, who was not in Hong Kong at the ѣͱ́৖̔c֤ ໎ԑผంй଱75ࠒʑׄᚉeכ೪ܧ time of meeting held). Emolument policy are disclosed in page 75 of Directors’ Report.

Nomination Committee ొΊկࡗผ ༗τԯ઒ᚬעThe Company had established a Nomination Committee with ᏷ଈᅕᆦɰι͓ొΊկࡗผcԎ߯ ɋɓѣܢ˳ɾιࡗکᆢᓻᚬᆲ௼e͌עspecific terms of reference that specify its authorities and duties. ʥᓻஐɾ The current members include Mr. Bu Fan Xiao (Chairman), Mr. ͱ́˚࢐dㅽҁੜͱ́ʥஈݙͱ́c֤೩яݯ ਨϷ໎ԑeڈGordon Kwong Che Keung and Mr. Stephen Hui Hung all of whom ዟ͓ are Independent Non-executive Directors.

Nomination Committee Guidelines ొΊկࡗผɾܞʵ •Regularly review the structure, size and composition of the • ց౨ᄗቇ໎ԑผɾܼ࿚dɁᅕʥୂιcԎ ۺBoard and make recommendations to the Board with regard గͨЄ഼ݯ̦߬ɾሁኬΉ໎ԑผАˮ to any adjustments that are deemed necessary; ᘪh

ϳ໎ԑɁፕʥΉذॠࣂcيBe responsible for identifying and nominating for the • ๫໎ԑผˮଊ• ໎ԑผ൬Ϸᄗғhڏ˞approval of the Board, candidates to fill Board vacancies as ໎ԑผАˮొΊ and when they arise;

ਨϷ໎ԑɾዟֲ͓hʥڈAssess the independence of independent non-executive • ിЅዟ͓• Directors; and

ዀړKeep under review the leadership needs of the organization • ɺࣂᄗቇዀ࿚ʑྦྷეኒᄙɾ჏ұcᆢ• ॶɈeجτࢽɾ̟௿ᘏܛړᙩܛwith a view to ensuring the continued ability to compete ࿚ॶ effectively in the organization’s marketplace.

ᘪiۺIt shall also make recommendations to the Board: ϊ̔cԯ͛඘గ˞ɎԑඖΉ໎ԑผАˮ

•As regards plans for succession, in particular, of the • ᘗིͨ߮ʮԯܰ˚࢐ʥϷܧᐢസʥၤ໎ Chairman and the Chief Executive and relevant matters ԑկֶͨࠇณկͨτᗐɾԑփh relating to the appointment or re-appointment of Directors;

For continuation (or not) in service of any director who has • ͨЄα։65ั໎ԑɾᘗᙩजֶͨɺʹज• reached the age of 65; ͨԑփh

ɾረݚঽͨஃցڬConcerning the re-election by shareholders of any director • ࣓ኣ̯ʔ̇ɾʔ̇ୀ• under the “retirement by rotation” provisions in the ٖͅ׭ࠇณፕᐾͨЄ໎ԑɾԑփhʥ Company’s Bye-laws; and

180 Global Digital Creations Holdings Limited עCORPORATE GOVERNANCE STATEMENT ͬพဳ؝ᐰ

ЄࣂංͨЄ໎ԑܰЯᘗᙩኪͨ໎ͨכConcerning any matters relating to the continuation in office • τᗐ• of any Director at any time. ԑɾͨЄԑփe

Nomination Committee Activities ొΊկࡗผɾݠ৽ Αᚋα۹ʑcొΊկࡗผ౦̂඀ȹωผᘪeͲכ .During the year under review, the Nomination Committee met once яτˮ࢐ܰωผᘪeΕผᘪٲAll members or his proxy had attended the meeting. The ᛽ιࡗֶԯկͨˤ ټNomination Committee proposed the appointment of Mr. Jin Guo ɐcొΊկࡗผ਄๑༅ዃʥ༦֡຤᛻ొᘪկͨ Ping and Dr. Catherine Xu Qing to the Board with reference to their ਝ̡ͱ́ʥ࢘૜௟ɡ൬Ƀ໎ԑผcԎగ઴֦ͱ́ qualification and past experience and also reviewed the re- ɾᖽͨАˮᄗቇe designation of Mr. Cao Zhong.

ʥʑ஫ઁԹڬCodes of Conduct and Internal Control ኧΨๅ ڬɾ௖ԙᎶ͂ΨڬCompliance with the Code of Best Practice as laid down ፓΨ௚พ׶ɐ̟ஃ in the GEM Listing Rules ඀նɾผ߮౨܃ɀཌྷཌྷʄαȼ˂ȹˀֶɾכThe Company has complied with the Code on Corporate ৖ੀ ʼ̔c̯ʔૈڬGovernance Practices (the “Code”) (with the exception of code ං́ࢽτᗐʑ஫ઁԹɾ଱C.2ૈΨ ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹ʑɰכ̇ provision C.2 on internal control which is effective for accounting ፣Ɋʄֺ༗ɾͬพဳ؝੒ڃڬperiods commencing on or after 1 July 2005) as set out in Appendix ፓΨ௚พ׶ɐ̟ஃ c੹τ˞ɎৱᔴiڬΨڬof the GEM Listing Rules during the year ended 31 December ஃΨ 15 2005 and the Company has applied the Code as the general guiding principle in corporate governance, except for the following deviations:

᏷ଈᅕᆦ௚෮ઁٖτࠉʔ̇ 181 עCORPORATE GOVERNANCE STATEMENT ͬพဳ؝ᐰ

then the number nearest one-third, shall retire from office ผɐረݚঽͨc੹ኪͨ˚࢐ֶ໎ԑᐢ຤ଉ ့߮ঽͨכby rotation, provided that no Director holding office as ᓻ৻ɾ໎ԑੀɺ඘ረݚঽͨc chairman or managing director shall be subject to ໎ԑɁᅕࣂc͛ɺ୽߮ɃϣᄬɁᅕɾʑe Ɏȹω̯ʔכʼc໎ԑผੀૈڬretirement by rotation or be taken into account in ݯፓΨΨ ᘪcగ࠳̯߯ʔ̇ୀۺdetermining the number of Directors to retire. To comply ٖ̇׭ɣผɐొе Ԛ̯ʔֺ̇τ໎ԑڔఖұٖ׭ғ࠿cڬ with the code provision, amendment to the Bye-laws of the Company will be proposed at the next general meeting of ˳ܢ˚࢐ʥ໎ԑᐢ຤ଉя඘ϭʭҰɍα the Company for approval by the shareholders such that all ረݚঽͨȹωe directors (including chairman and managing director) will be subject to retirement by rotation at least once every three years.

ڬɾኧΨๅמCode of Conduct Regarding Securities Transactions by ໎ԑ൬ϷᖬԴ͚ Directors ɾኧΨๅמThe Company has adopted a code of conduct regarding directors’ ̯ʔ̇ɰઔढ़τᗐ໎ԑ൬ϷᖬԴ͚ ଱5.48ϭ5.67ڬcԯૈಁɺผ༖௚พ׶ɐ̟ஃڬ securities transactions on terms no less exacting than the required כc܃standard set out in Rules 5.48 to 5.67 of the GEM Listing Rules. ૈֺͶ༗ஃցᅟๅᄖᕌe຤Аˮऋց݅໺ Having made specific enquiry, all directors of the Company have ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹ʑc̯ʔ ʥ̯ʔֺ̇ڬๅמፓΨஃցɾ͚قcomplied with the required standard of dealings and the code of ̇Ͳ᛽໎ԑȹ eڬɾኧΨๅמconduct regarding directors’ securities transactions adopted by the ઔढ़τᗐ໎ԑ൬ϷᖬԴ͚ Company during the year ended 31 December 2005.

ڬInternal Codes of Conduct ʑ஫ኧΨๅ ʥొʠԯֺτพړThe Company has always done everything in its power to ensure ᏷ଈᅕᆦնୄသԯֺॶࣂԳᆢ and promote integrity and ethical behaviour at all time and in all ৻ეਟɾ༞ᄨኧΨeݯϊc̯එ྆ɰԹցȹӡͶ c˞ஃဳᅶΕСऩᇰޯdСऩ͇ڬareas of its operations. To this end, the Group has laid down a series ᗲࣟɾኧΨๅ of stringent codes of conduct governing potential conflicts of ంdʦஓϔ੒ஃʥ༅ࢿӝᒔ೩eֺτ᏷ଈᅕᆦɾ interests, declaration of interests, anti-corruption practices and data ιࡗ˳ܢԯ཭ࡗdঢ়ज़ᓻࡗʥ໎ԑя඘ࣂԳѧ

182 Global Digital Creations Holdings Limited עCORPORATE GOVERNANCE STATEMENT ͬพဳ؝ᐰ

඘ց౨ʀ˞Ꮞদڬe໮೩ๅڬprivacy, etc. All members of the Company, including its employees, ͲፓΨ໮೩ኧΨๅ ᙩଲ΋ɺᒾᛰʝɾੱؗʥஃܛԯړofficers and Directors, are required to fully comply with these codes ʥ࠳߯c˞ᆢ of conduct at all times. Such codes are subject to regular reviews ԝe and updates in order to ensure their continued compliance in line with changing circumstances and regulations.

Internal Control ʑ஫ઁԹ ʑ஫ઁԹӡ଻ᖇ৪Ѣഁܛԯτஐͨၐ͉עThe Board acknowledges its responsibility for maintaining a sound ໎ԑผ and effective internal control system to safeguard the shareholders’ Ϥ˘τࢽc˞˥ٖ׭ɾҙ༅ʥ̯එ྆ɾ༅ଐᏵ੡ ჋e໎ԑผɰੀ˚߬ဟઁᔝ͚ʀɺ΃Έʿi̯ړ investment and the Group’s assets. It has delegated the key controls to different parties: the Management has the responsibility to එ྆ဳଉᄙ߲ஐၐܛพ৻τࢽʥঢ়ࢽʥց౨Ή໎ maintain an effective and efficient operation and reports to the ԑผంйh̯ʔ̇ो࣊୮߲ஐፓΨ௚พ׶ɐ̟ஃ dᖬԴʥ౨ஒૈԝʥԯˢሬ͂ஃԝhϤผ߮஫ڬ Board regularly; the company secretarial department has the එ̯ړၤ̔າ࣏ᅕ࢑ʥᄗ࣏կࡗผ΋Аc˞ᆢڬ responsibility for compliance with the GEM Listing Rules, Securities and Futures Ordinance and other applicable regulations; and ྆ল৻ంйɾ˿ቌֲe through working with the external auditors and Audit Committee, the accounting department has to ensure the reliability of financial reporting of the Group.

The Board will also update the internal control system of the Group ໎ԑผ͛ੀց౨࠳̯߯එ྆ɾʑ஫ઁԹӡ଻c˞ regularly to respond to changes in its business and the external ྦྷԯพ৻ʥ̔஫᏷ྊɾᛰʝАˮΑᎶe environment.

඀܃ɀཌྷཌྷʄαȼ˂ȹˀֶɾכBesides, in order to comply with the code provision C.2 on internal ϊ̔cݯፓΨੀ ʑ஫ઁڬcontrol of the Code which is effective for accounting periods նɾผ߮౨ං́ࢽτᗐͬพဳ؝੒ஃΨ ̯ྦྷ˞ʼcஉ͓ʑ஫ᄗ࣏Թ۹ૈڬcommencing on or after 1 July 2005, an internal audit function was Թɾ଱C.2ૈΨ just set up to conduct an annual review of the effectiveness of the එ྆࿀ϭɀཌྷཌྷʒαɊɀ˂ɍɊȹˀ˅α۹ɾʑ internal control system of the Group for the year ending 31 ஫ઁԹӡ଻ɾࢽɈ൬Ϸα۹ᄗ࣏e December 2006.

Communications with Shareholders ၤٖ׭ɾ฼஝ Annual General Meeting ٖ׭൪αɣผ eڝɾᗐיThe Company has always believed in nurturing a close and open ʔ̇ȹΉ؇ࠇၤԯٖ׭਩ቔ၇਽ʥ඀ relationship with its shareholders. Each year, the Company’s AGM ̯ʔ̇Ұαя̂඀ٖ׭൪αɣผcݯ̯ʔ̇ɾ໎ ෱ɾ̡̎eΕ܆provides a forum at which the Company’s Board and shareholders ԑผʥٖ׭ొԜȹ࠯͚ݚ෮Ӯʥ અొਐeقcan come together to exchange opinions and ideas. At the AGM, ٖ׭൪αɣผɐcٖ׭ᎶᑼΉ໎ԑผ shareholders are invited to direct questions to the Board. Those who τ༅ࣟΑ೮ొਐɾɁɡɺඩ˳ܢ໎ԑผ˚࢐c͛ ݯկࡗผڬΈկࡗผɾ˚࢐ߗ֤೩ॠ࢐cܢ˳ are available to answer such questions include not only the Chairman of the Board, but also the Chairman of the respective ɾιࡗe Committees, or in their absence, members of the Committees.

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ɀཌྷཌྷʄαʄ˂ɍɊˀ̂඀ٖ׭൪αɣכThe Company ’s AGM took place on 30 May 2005. All resolutions ʔ̇ Һٲʹtaken at the AGM were voted on by hand. Substantially separate ผeٖ׭൪αɣผɐɾֺτҺᘪ࣐я˞ᐾ issues such as the election of a director at an AGM are dealt with by ʿβ஝༦e࠯ПऋПࠇɣɾਐᕀΣΕٖ׭൪α ๫։ɣผ˚࢐̊̔ొᘪ୮ͅڬthe proposal of a separate resolution by the Chairman of that ɣผɐઐፕ໎ԑ particular meeting. ଉe

Һೡѵʥٖ׭߬ұҙ଩ɾᚬСٲDetails of all polls, the voting procedures and shareholders’ right ֺτҙ଩ୀຝd ʔ̇਺ʀٖ׭ɾ஝Բɻe̯כto demand a poll, are included in the Company’s circulars to я༗ shareholders.

ڝInvestor Relations ҙ༅ّᗐ ࠇɣݠ৽໯ੱdٖძણړThe Company continues to go to great lengths to ensure that its ʔ̇ᘗᙩɺፘ቗ɈΔᆢ eڬɾׄᚉѧͲፓΨ௚พ׶ɐ̟ஃמdissemination of details of major activities, price sensitive ෰༅ࢿʥ͚ ၤʗ׹ࡗʥఌ᛽฼஝ࣂעinformation and transactions is fully compliant with the GEM Listing ݯϊc̯ʔ̇ɰ໯ୀ߯ ѧͲፓړȽݯᆢܪRules. To ensure compliance, the Company has detailed a series of ̦඘Ԛ͂ɾೡѵeԹ߯໮೩ઉ ʵeϊ̔cܞprocedures which must be used in communication with analysts Ψᐲֺ͚τᗐׄᚉٖძણ෰༅ࢿɾ ፕߗɳঢ়ज़ᓻࡗАݯ̯ʔ̇ˤܥand the media. These measures were developed to ensure full ̯ʔ̇͛ɰɩʶ ၤʗ׹ࡗʥఌ᛽ᐲ೼eٲ compliance with the Stock Exchange’s guidelines regarding the disclosure of price-sensitive information. The Company has also carefully selected certain of its Officers to act as its representatives when liaising with analysts and the media.

۹cΕΉעThe Company remains determined to further enhance the ̯ʔ̇ʋߎɈ൬ȹүొʠԯพ৻ɾ஦ כࢠࣂСֺ͂τሬ๫ɾ฼஝ಒ༞eڌtransparency of its operations by making full use of all appropriate ଱ɍʿׄᚉ ໮כcommunication channels when sharing information with third ࿀ϭɀཌྷཌྷʄαɊɀ˂ɍɊȹˀ˅α۹ʑc ஦༦ณၘೕЗผʥ̳βܢ˳parties. During the year ended 31 December 2005, specific activities ეਟ൬ϷɾԮ᛽ݠ৽ ࢠc˞ʥೕЗտ۹dɻ౨ʥα۹ڌundertaken in this area included the publishing of news via press ʔйʔЗτᗐ releases and formal announcements, the issuing of quartely, interim ంйeͨЄɁя˿஦༦ʃᐲ၉፭ࣂᏵՅ໮೩ֺτ and annual reports. All of this information is freely accessible to ༅ࢿc၉эݯhttp://www.gdc-world.come anyone with an internet connection at http://www.gdc-world.com.

અၤ̯ʔ̇ᐲق׭ʥτጙመɾʔଠɁɡٖٴShareholders and interested members of the public are welcome ᚭ ਺ϭ̯ʔ̇܃ʔ̇ो࣊νcಳעᇼഽڌto communicate directly with the Company by sending ᖎcԞ ཋɥڝցҙ༅ّᗐܞcorrespondence marked “for the attention of the Company ɾഽ˫ፒԑ୮Δэcֶ஦༦ -Secretary” to the Company’s registered office address, or via its ൯ᆱೕ঺൯ͧcཋ൯Δэݯinfo@gdc designated investor relations e-mail account at info@gdc- world.come world.com.

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