On behalf of the Board, TA Securities wishes to provide the following additional information to the Announcement:

Transcription

1 PALETTE MULTIMEDIA BERHAD ( PALETTE OR COMPANY ) PROPOSED PRIVATE PLACEMENT OF NEW ORDINARY SHARES OF RM0.04 EACH IN PALETTE, REPRESENTING NOT MORE THAN TEN PERCENT (10%) OF THE ENLARGED ISSUED AND PAID-UP SHARE CAPITAL OF PALETTE (EXCLUDING TREASURY SHARES, IF ANY) ( PROPOSED PRIVATE PLACEMENT ) We refer to the announcement made on 18 November 2015 ( Announcement ) in relation to the Proposed Private Placement ( Announcement ). Unless otherwise defined, the definitions set out in the Announcement shall apply herein. On behalf of the Board, TA Securities wishes to provide the following additional information to the Announcement: 1. UTILISATION OF PROCEEDS For illustrative purposes, based on the assumed issue price of RM0.04 per Placement Share, the gross proceeds are expected to be utilised by Palette and its subsidiaries ( Palette Group or the Group ) in the following manner: Note Expected time frame for utilisation of proceeds (from the date of listing of the Placement Shares) Working capital (1) 1,052 1,618 Within 12 months Estimated expenses in relation to the Proposed Private Placement (2) Within 2 weeks Total estimated proceeds 1,162 1,743 Notes: (1) The Group intends to utilise up to RM1.62 million of the proceeds from the Proposed Private Placement for its working capital as follows: Note Wages and staff benefits (a) 1,052 1,320 Payment to trade payables (b) Total 1,052 1,618 (a) Comprise payment of wages, Employees Provident Fund and Social Security Organisation contributions to the staff of the Palette Group as follows: Wages 830 1,058 Employees Provident Fund Social Security Organisation 7 12 Total 1,052 1,320 [The rest of this page has been intentionally left blank] 1

2 (b) Comprise payment to the suppliers for computer hardware such as modem, server and software licenses as follows: Computer hardware Software licenses - 12 Total (2) The estimated expenses consist of professional fees, fees payable to the relevant authorities and other miscellaneous expenses. Any variation in the actual amount of the expenses for the Proposed Private Placement will be adjusted proportionately to/from the proceeds earmarked for the working capital. The actual proceeds to be raised from the Proposed Private Placement are dependent on the final issue price of the Placement Shares and the subscription level of the Proposed Private Placement. Any variation in the actual proceeds raised will be adjusted to or from the amount earmarked for the working capital of the Palette Group. Pending utilisation of the proceeds from the Proposed Private Placement for the abovementioned purposes, the proceeds will be placed in deposits with financial institution or short-term money market instruments as the Board may deem fit. The interest derived from the deposits with the financial institution or any gain arising from the short-term money market instruments will be used as additional working capital of the Group. 2. FURTHER INFORMATION 2.1 Commentary on the financial performance and financial position of the Palette Group The summary of the financial information of the Palette Group for the past three (3) audited FYEs 2012 to 2014 as well as the unaudited nine (9)-month periods ended 30 September 2014 and 30 September 2015 is as follows: 9-month period ended 30 September 2015 Unaudited Audited 9-month period ended 30 September 2014 FYE 2014 FYE 2013 FYE 2012 Revenue 1, ,117 3,629 4,099 Profit/(Loss) after tax attributable to owners of the Company 1,881 (1,975) (6,836) (5,721) (520) Shareholders funds / NA 10,783 13,644 8,902 15,764 18,848 Share capital 11,621 11,621 11,621 29,053 29,053 Total borrowings No. of Shares outstanding ( 000) 290, , , , ,527 NA per Share (RM) Gearing ratio (times) Basic earnings/(loss) per share (sen) 0.65 (0.68) (2.35) (1.97) (0.18) Diluted earnings/(loss) per share (sen) N/A (1) N/A (1) (2.14) N/A (2) N/A (2) Notes: N/A Not applicable. 2

3 (1) The effect on the diluted earnings/loss per share for the financial periods under review arising from the assumed exercise of Warrants 2013/2018 is anti-dilutive. (2) The effects on the diluted loss per share for the respective financial periods/years under review arising from the assumed exercise of Warrants 2013/2018 and conversion of the outstanding options granted pursuant to the Company s employee share option scheme implemented on 6 April 2004 (which had expired on 5 April 2014) are anti-dilutive. (a) Nine (9)-month period ended 30 September 2015 vs. nine (9)-month period ended 30 September 2014 The Group s revenue increased by approximately % from RM0.32 million in the nine (9)-month period ended 30 September 2014 to RM1.24 million in the nine (9)- month period ended 30 September The increase in the revenue was mainly due to one-off projects from Kolej Matrikulasi Pahang, TM Info-Media Sdn Bhd and VADS Berhad and the revenue contribution from the project with Canvas Technology Pte Ltd ( Canvas ) of RM0.22 million in the nine (9)-month period ended 30 September 2015 compared to no revenue generated from Canvas in the nine (9)-month period ended 30 September The Group recorded profit after tax ( PAT ) attributable to the owners of the Company of RM1.88 million for the nine (9)-month period ended 30 September 2015 compared to the loss after tax ( LAT ) attributable to the owners of the Company of RM1.98 million for the nine (9)-month period ended 30 September 2014, which was mainly due to the following: (i) (ii) higher revenue recorded as a result of the above; and a gain on debt waiver from CIMB Bank Berhad ( CIMB ) of approximately RM3.68 million. The debt waiver was in relation to the litigation between the Company with Asustek Computer Inc ( Asustek ) and CIMB. On 9 May 2004, Palette claimed against Asustek for the defects of goods valued at RM3.6 million, and subsequently on 24 January 2006, Palette obtained an interparty order to restrain CIMB from releasing any payment to Asustek. On 4 June 2010, the High Court of Malaya dismissed Palette s claims against Asustek and CIMB. CIMB and Palette were ordered to pay Asustek the judgement sum of RM15.30 million ( Judgement Sum ), of which RM12.93 million were from cash held by CIMB pursuant to the letter of credit granted to the Company ( Cash Held ). On 16 July 2012, CIMB demanded RM2.37 million from the Company being the differential sum between the Judgement Sum and Cash Held ( Differential Sum ). Subsequently on 30 April 2015, CIMB granted a waiver to the Company on the Differential Sum and interests of approximately RM1.31 million accrued from the Differential Sum. (b) FYE 2014 vs. FYE 2013 The Group s revenue decreased by approximately 69.22% from RM3.63 million in the FYE 2013 to RM1.12 million in the FYE The decrease in the revenue was mainly due to a one-off project from Canvas for the software development in relation to Palette s Access Management Gateway ( AMG ) software and program code for integration into Canvas E-Health System that has contributed RM2.27 million in revenue for the FYE 2013 which was completed on 17 December 2013 and not recurrent in the FYE 2014 (only royalty fee of RM0.05 million charged in December 2014) and lower revenue contribution from the project with Federal Land Development Authority (FELDA) of RM0.06 million in the FYE 2014 as the project is close to completion compared to RM0.47 million in the FYE

4 The Group s LAT attributable to the owners of the Company increased by approximately 19.49% from RM5.72 million in the FYE 2013 to RM6.84 million for the FYE 2014 mainly due to the following: (i) (ii) lower revenue recorded as a result of the above; and impairment on intangible assets of RM3.96 million in the FYE 2014 in accordance to Financial Reporting Standard 136 Impairment of Assets, taking into consideration future economic benefits expected from these assets such as expected future growth, cash flows and past performance. (c) FYE 2013 vs. FYE 2012 The Group s revenue decreased by approximately 11.47% from RM4.10 million in the FYE 2012 to RM3.63 million in the FYE The decrease in revenue was mainly due to the completion of contract for KUB Telekommunikasi Sdn Bhd for the supply, delivery, installation, testing, commissioning of single pair symmetrical high bit-rate digital subscriber line (SHDSL) system and provision of related works and management system on 20 December 2012 and lower revenue contribution from Telekom Malaysia Berhad of RM0.48 million in the FYE 2013 compared to RM1.72 in the FYE The Group s LAT attributable to the owners of the Company increased by 1,000.19% from RM0.52 million in the FYE 2012 to RM5.72 million in the FYE 2013 mainly due to the following: (i) higher finance costs of RM3.88 million in the FYE 2013 as compared to RM0.04 million in the FYE 2012 due to the interest costs arisen from the Judgement Sum being settlement of the litigation with Asustek; (ii) lower other operating income of approximately RM0.55 million for the FYE 2013 comprising mainly bad debts recovered of approximately RM0.05 million, gain on foreign exchange of approximately RM0.05 million and interest income of approximately RM0.02 million as compared to RM1.33 million for the FYE 2012 which included the reversal of impairment loss on trade receivables of approximately RM0.95 million and bad debts recovered of approximately RM0.17 million in the FYE 2012; (iii) bad debts written off of RM0.24 million in the FYE 2013; and (iv) development costs written off of RM0.13 million in the FYE Steps taken by the Group to improve its financial position The Group recorded losses for the FYEs 2012 to 2014, the details of which are disclosed in Section 2.1 of this announcement. Taking cognisance of this, the Group is taking measures to enhance its revenue and profitability in a bid to improve its financial position which include the following: [The rest of this page has been intentionally left blank] 4

5 (i) The Group has been embarking on the research and development of the next generation of AMG since July 2014, which is used in the deployment of WiFi (a local area wireless technology that allows an electronic device to exchange data or connect to the internet) hotspots or areas that are currently used by smartphones and is currently marketing the existing AMG locally to telecommunication operators and also enterprises such as hospitals, universities/colleges, hotels, shopping malls and cafes. The Group anticipates to incur an additional research and development costs of approximately RM1.50 million, which will be funded via the Group s internally-generated funds and/or bank borrowings, for the remaining period of the above mentioned research and development which is expected to be completed by January Moving forward, upon completion of the research and development, the Group intends to invest more in the sales and marketing team by recruiting three (3) to five (5) additional staff in 2017 to market AMG as a standalone product to its distributors or system integrators in the Southeast Asia region; (ii) Since 1 July 2013, the Group has developed and commercialised a digital mobile healthcare system called i-medic which is a system used for mobile digital medicine which enables patients to take measurements of his/her vital signs (e.g., blood pressure, oxygen saturation in the blood and electrical activity of the heart) with home wireless medical devices and data is transmitted to the Cloud (an internet-based database) where doctors have access and can analyse such data at any time and any place via WiFi. The Group is marketing its i-medic system through United Crest Healthcare Pte Ltd. As at the LPD, five (5) hospitals in China have signed up for trial for the Group s i-medic system through United Crest Healthcare Pte Ltd. Currently the Group is in the process of improving the i-medic system which is expected to be completed in the second (2 nd ) quarter of 2016 and working with hospitals and doctors in Malaysia and outside of Malaysia (such as People s Republic of China) by obtaining feedbacks from doctors to further enhance the i-medic system such that the system will be able to meet the basic needs of the doctors to render it practical and get a wider adoption of i-medic in the growing digital health market. The Group will continue its research and development on this system to further add on more advance features and functionalities such as providing doctors and patients with further analysis of vital signs, reminders of medication time and measurement time and effectiveness of the prescribed medications. Moving forward, the Group needs to continue to invest in the research and development on the i-medic system so that it remains competitive and relevant in the market. The Group also intends to invest more in the sales and marketing team by increasing the number of the Group s sales personnel from two (2) to three (3) or four (4) by June 2016 and promotional activities to market this system to the medical groups or doctors which will be sold on licensing or revenue-sharing basis; and (iii) The Group has registered with two (2) local online stores (i.e., Lazada and Lelong.my) to market and sell K-Card developed by Key ASIC Berhad as a distributor. K-Card is a secured digital ( SD ) WiFi card that is used to enable any device with SD slot to be an internet of things device (i.e., device that are capable of exchanging data or be sensed or controlled remotely via WiFi). Currently, K-Card is used in the digital camera primarily but could be potentially used for digital mobile health, factory automation and etc (i.e., to enable medical devices and factory equipment to be capable of exchanging data or be sensed or controlled remotely via WiFi). By implementing strategies which include expanding the Group s product offerings, intensifying sales and marketing efforts as well as expanding the sale platform of the Group s products as set out above, the management of the Group expects to secure more sales from new and existing customers going forward, thereby improving its financial performance and position. 2.3 Impact of the Proposed Private Placement and value creation to the Palette Group and its shareholders The Proposed Private Placement enables the Group to tap into the equity market to raise funds expeditiously to support the funding requirements as detailed in Section 1 of this announcement for its working capital without incurring interest cost as compared to bank borrowings. 5

6 The management of the Group expects the several measures taken as mentioned above will increase the sales volume of the Group, thus improving the financial performance and position of the Group and in turn, enhance its shareholders value. The Proposed Private Placement is expected to increase the issued and paid-up share capital and the NA of the Company. The increase in the number of outstanding Palette Shares pursuant to the Proposed Private Placement will have a dilutive impact on the EPS and shareholdings of the existing shareholders of Palette. Notwithstanding the dilutive effect, the Proposed Private Placement is expected to have a positive impact on the earnings of the Palette Group by providing the Group with necessary funding to retain its existing staff for the continuous development and sales and marketing of the above mentioned products. Such efforts are expected to increase the sales volume as well as improve the cash flows of the Group. In addition, the Proposed Private Placement will enable the Group to raise funds without incurring interest cost as opposed to bank borrowings, which will directly enhance its shareholders value. 2.4 The adequacy of the Proposed Private Placement in addressing the Company s financial concern The Group recorded continual losses and substantial cash outflows for the past few years. As at 30 September 2015, the deposits, cash and bank balances of the Group amounted to approximately RM0.14 million. The management of the Group is of the view that the cash available for the Group should be conserved for the operating expenses of the Group to facilitate its current operations and to meet its cash flow obligations. Premised on the efforts to improve the financial position of the Group as set out in Section 2.2 above, the Board is of the view that the Company should raise additional funds for the Group s working capital requirements in order to ensure that the Group will not be impeded by a lack of working capital as well as to lower the risk of insufficient cash flows. The proceeds from the Proposed Private Placement will be utilised to support mainly the payment of wages and staff benefit in order to retain its existing staff for the continuous development and sales and marketing of the above mentioned products which is expected to provide an additional source of income and cash flows to the Group, thus improving the financial position of the Group and its shareholders value. Upon full utilisation of the proceeds from the Proposed Private Placement, the payment of wages and staff benefit of the Group will be funded via its internally-generated funds and/or bank borrowings as the Board may deem fit depending on the Group s cash position and availability of credit facilities at that point in time. In addition, the successful implementation of the Group s strategies as set out in Section 2.2 above will enable the Group to negotiate and explore other funding options with financial institutions on addressing the overall optimum financial structure and arrange for the Group in the long run which may include, amongst others, new lines of credit facilities, lower finance costs and higher credit limits. Premised on the above and after taking into consideration the steps taken by the Group to improve its financial position as mentioned above and the proposed utilisation of proceeds raised from the Proposed Private Placement as set out in Section 1 of this announcement, the Board is of the view that the Proposed Private Placement is adequate to address the Group s current financial concerns. This announcement is dated 3 February