09:08 LINEFAN TECH<08166> - Yearly Results Announcement (2) The Group is engaged in the business of sales, development and implementation of structural information integration and analysis systems, non-structural knowledge integration systems, and knowledge management ("KM") related network application systems and technolog and provision of voice search engine portal. The accounts have been prepared under the historical cost convention. The accounts have been prepared in accordance with accounting principles generally accepted in Hong Kong. The Hong Kong Institute of Certified Public Accountants ("HKICPA") has issued a number of new Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards, herein collectively referred to as the new HKFRSs, which are generally effective for accounting periods beginning on or after 1 January 2005. The Group has not early adopted these new HKFRSs in the financial statements for the year ended 31 December 2004. The new HKFRSs, may result in changes in the future as to how the Group's financial performance and financial position are presented. 2. Turnover Turnover represents sales values of KM software systems and voice portal software less discounts and value added tax as follows: 2004 2003 HK$'000 HK$'000 KM Systems - Non-structural knowledge integration systems 3,153 10,680 - Structural information integration and analysis systems 314 1,988 KM related network application systems 265 986 Other system and software related services 91 767 Voice portal gateway facilities in communication and voice portal application software 2,358 - 6,181 14,421 3. Income tax expense The Group's primary operations are carried out in the PRC. The general tax rate for corporation in the PRC is 33%. However, in accordance with the applicable enterprise income tax law of the PRC, Beijing Linefan Technology Company Limited ("Beijing Linefan"), one of the Group's operating subsidiaries in the PRC is entitled to exemption for income tax for its first two profitable years of operations and a 50% relief on the income tax that would otherwise be charged for the succeeding three years. The income tax exemption period of Beijing Linefan expired in the year ended 31 December 2001. No provision for PRC income tax has been made for the year as Beijing Linefan has incurred a loss. Moreover, Unlimited Business Opportunity Communication Technology Company Limited ("UBO"), another PRC operating subsidiary of the Group, was officially recognised as Hi-Tech Enterprise by the Beijing Municipal Government in November 2001, and therefore is eligible to receive preferential treatment in form of a concession tax rate of 15%. It is also eligible for full exemption from income tax for its first three years of operations. No provision for PRC income tax has been made for the year as UBO incurred a loss. Similarly, Beijing Linefan Silver-Soft Technology Company Limited ("Beijing Silver-Soft"), another PRC operating subsidiary of the Group, was also officially awarded as Beijing Hi-Tech Enterprise by the Beijing Municipal Government in May 2002, and therefore is also eligible to receive preferential treatment in form of a concession tax rate of 15%. Moreover, it is also eligible for full exemption from income tax for its first three years of operations and a 50% relief on the income tax that would otherwise be charged for the succeeding three years. No provision for PRC income tax has been made for the year as Beijing Silver-Soft incurred a loss. For the other PRC subsidiaries of the Group, they have all incurred losses and no provision for PRC income tax are required for the year. These losses can be carried forward to offset against future profits for a period of five years. Certain tax losses in the year 2004 and 2003 cannot be carried forward. At the balance sheet date, the Group has unused tax losses of HK$6,208,000 (2003: HK$6,514,000) available to offset against future profits. No deferred tax asset has been recognised due to the unpredictability of future profit streams.