Major Shareholder:

• Li Qi Ming ¡V 44.20% interest
• Zhu Qing Feng ¡V 9.75% interest

The Group is principally engaged in the research and development, production, sales and marketing of the two main categories of cards, namely non-IC cards and IC cards as well as cards peripheral equipment. A non-IC card is a plastic blank card without embedded IC chips, which can be customised according to customer's requirements. The Group offers a vast array of printed non-IC cards such as PVC cards without magnetic stripes and magnetic stripe cards. IC cards can be classified into three main categories, namely memory cards, logic cards and smart cards. A smart card has added security capability that helps keep information more secure than other types of cards. The Group has successfully developed a proprietary smart card operating system, namely SmartCOS. To meet the increasing demand of information security products, the Group jointly developed an advanced information security hardware, namely eKey, with °ê®a°Ó¥Î±K½X¬ã¨s¤¤¤ß (State Commercial Cryptography Research Centre).

According to 2003-2004 Annual Report on the PRC's IC Market published by CCID Consulting Company Limited, the Group was one of the top 10 IC cards producers in terms of sales amount of IC cards in the PRC in 2003. The sales amount of IC cards of the Group was approximately RMB120 million, representing approximately 2.9% of the total market share in the PRC in 2003. In addition, the sales amount of the top three manufactures of IC cards were approximately RMB710 million, RMB610 million and RMB510 million, respectively, representing approximately 16.9%, 14.6% and 12.1% of the total market share in PRC in 2003, respectively.

The Directors believe that the Group has the following competitive advantages:

• In order to expand the geographical reach and facilitate the execution of the Group's sales and marketing activities as well as the provision of after-sales services, the Group has established a branch office in Shanghai and 4 sales representative offices in Changsha, Chongqing, Nanjing and Wuhan. In addition, the Group has entered into sales agency agreements with 10 sales agent companies over major PRC cities.
• The clientele of the Group is diversified and is engaged in a wide spectrum of industries such as finance, public affairs, telecommunication, transportation, social security, e-government as well as medical and insurance businesses.
• The Group has its own functional units dedicated for each of the initial research and development phase, the middle production process and the final sales and marketing phase.
• The Directors are well aware that research and development are critical to guarantee the Group a continuous pipeline of new products and hence sustain its long term competitiveness. The Group has established an in-house research and development centre in Beijing, namely Beijing Research Institute.
• The quality control system of the Group is implemented in accordance with the requirements and standards specified by ISO9001: 2000 and MasterCard International.

• Reliance on executive Directors and senior management team
• Reliance on major suppliers
• Potential litigation and liability for defective products
• Uncertainty in future expansion
• Risk involved in the development of new products
• Fluctuation in the cost of principal raw materials
• Profit sustainability
• Credit risk
• Reliance on short-term borrowings
• Use of the Company's name by sales agent companies
• Lack of proper title documents
• Expiration of tax concession and change in tax rate

The Group's long term business objective is to become the leading player in the card industry with the establishment of the most recognised brand name in the PRC. In addition, in recognition of the huge market potential in the area of information security, the Group plans to secure a dominant position in such field by leveraging its expertise and competitive advantages in the card business with an objective to achieving overall business diversification of the Group.

Beijing Research Institute is the core research and development centre of the Group which secures the Group a consistent pipeline of new products and technology in the long term. The research focus of the Group is twofold. With a view to consolidating leading position and enhancing a market share in the card industry and in view of the rising market demand for variety and functionality of SCOS, the Group is committed to explore new applications and upgrade of SCOS in different fields such as banking, telecom, petrochemical industry and social security. Another research and development focus of Group is on information security products.

With an objective to fulfilling the new certification requirements of telecommunications cards, bank union cards and credit cards, (e.g. Visa International) as well as the production specifications of dual interface smart cards, the Group intends to introduce large scale production line to, and upgrade the techanology of existing production facilities in, its production base in Sihui, Guangdong province, the PRC. After implementation of such procedures, the Directors expect that the Group's production capacity and product quality would be enhanced with lower unit cost of production.

T is one of the strategies of the Group to commercialise its self developed products in the market shortly after market demand for such products arises in order to gain the first mover advantage and strive for the largest market share for suchproducts and technology. Such products and technology in the pipeline include various versions of SmartCOS (in line with applications in different industries) and information security products. The Directors believe that quick response time to market demand has been and will continue to be one of the competitive advantages of the Group that differentiates the Group from its competitors.

The net proceeds to be received by the Company from the Placing, after deducting related expenses and the net proceeds payable to the National Social Security Fund pursuant to the sale of the Sale Shares and without taking into account of any proceeds from the exercise of the Offer Size Adjustment Option, are estimated to be approximately HK$39.4 million based on a Placing Price of HK$0.28 per H Share, being the lower limited of the stated range of the Placing Price. The Group at present intends to apply the net proceeds as follows: