09:05 EFORCE HOLDINGS<00943> - Results Announcement (2) Unallocated Consolidated 2004 2003 2004 2003 HK$'000 HK$'000 HK$'000 HK$'000 Sales to external customers - - 170,283 96,339 Other revenue from external customers - - 604 482 --------- --------- ---------- --------- Total - - 170,887 96,821 ========= ========= ========== ========= Profit/(loss) from operations (17,747) (20,456) (11,948) (87,424) Finance costs (816) (597) (1,456) (2,527) Share of losses of associates - (178) (8,011) (3,743) ----------- --------- Loss from ordinary activities before taxation (21,415) (93,694) Taxation - - Minority interests - 4,495 ----------- --------- Loss attributable to shareholders (21,415) (89,199) =========== ========= III EXTRACT OF REPORT OF THE AUDITORS Basis of opinion We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants, except that the scope of our work was limited as explained below. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the Group and of the Company, consistently applied and adequately disclosed. We planned our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. However, the evidence available to us was limited as set out below. (1) Impairment of interest in associates The Group's interest in associates included a 42.5% interest in Chinese 2 Linux (Holdings) Limited ("C2L") stated at a carrying value of HK$15,886, 209 as at 31 December 2004. C2L has incurred a loss of HK$14,044,844 for the nine-month period ended 31 December 2004 and has net current liabilities of HK$18,123,589 as at 31 December 2004. Accordingly, there is an indication that the interest in C2L may be impaired. The Group has estimated the future cash flows from the investment in C2L, but we were unable to obtain detailed documentation to assess the reasonableness of the cash flow forecast. There were no other satisfactory audit procedures that we could perform to assess the fair value of C2L, and hence to quantify the impairment loss, if necessary. Any adjustment to the carrying value of the interest in associates in respect of an impairment loss would have a consequential effect on the Group's net liabilities as at 31 December 2004 and its loss for the year then ended. (2) Financial support from a substantial shareholder. As explained in note 2(a) to the financial statements, the Company's directors consider that the Company and the Group are able to continue as a going concern and to meet their obligations when they fall due. This conclusion is based on the loan facilities totalling HK$30 million made available to the Company from financial institutions (which is mentioned under "fundamental uncertainty" section below) and the continuing financial support from the major substantial shareholder, Tees Corporation. However, the current financial statements of Tees Corporation were not made available to us. There were no other satisfactory audit procedures that we could adopt to verify whether Tees Corporation could provide adequate financial assistance to maintain the Company and the Group as a going concern in the foreseeable future. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.