ASD International Holdings Limited 創徽國際控股有限公司. (Incorporated in the Cayman Islands with limited liability) Stock Code: 8335 PLACING.

Transcription

1 ASD International Holdings Limited 創徽國際控股有限公司 (Incorporated in the Cayman Islands with limited liability) Stock Code: 8335 PLACING Sponsor Joint Global Coordinators

2 IMPORTANT If you are in any doubt about any of the contents of this prospectus, you should seek independent professional advice. ASD International Holdings Limited (Incorporated in the Cayman Islands with limited liability) LISTING ON THE GROWTH ENTERPRISE MARKET OF THE STOCK EXCHANGE OF HONG KONG LIMITED BY WAY OF PLACING Number of Placing Shares : 60,000,000 Placing Shares comprising 50,000,000 New Shares and 10,000,000 Sale Shares Placing Price : Not more than HK$1.08 per Placing Share and expected to be not less than HK$1.00 per Placing Share, plus brokerage of 1%, SFC transaction levy of % and Stock Exchange trading fee of 0.005% (payable in full on application in Hong Kong dollars and subject to refund) Nominal Value Stock Code : : HK$0.01 per Share 8335 Sponsor Joint Global Coordinators Joint Bookrunners and Joint Lead Managers Co-Managers Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this prospectus, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this prospectus. A copy of this prospectus, having attached thereto the documents specified in Documents Delivered to the Registrar of Companies and Available for Inspection Documents delivered to the Registrar of Companies in Appendix V to this prospectus, has been registered by the Registrar of Companies in Hong Kong as required by section 342C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong). The Securities and Futures Commission and the Registrar of Companies in Hong Kong take no responsibility as to the contents of this prospectus or any other documents referred to above. The Placing Price is expected to be fixed by the Price Determination Agreement to be entered into between the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and our Company (for itself and on behalf of the Selling Shareholder) on the Price Determination Date, which is expected to be on or about Tuesday, 15 March 2016 or such later date as the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and our Company (for itself and on behalf of the Selling Shareholder) may agree. The Placing Price will not be more than HK$1.08 per Placing Share and is expected to be not less than HK$1.00 per Placing Share. If, for any reason, the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and our Company (for itself and on behalf of the Selling Shareholder) are unable to reach an agreement on the Placing Price by the Price Determination Date, the Placing will not become unconditional and will lapse. The Joint Global Coordinators (for themselves and on behalf of the Underwriters) may, with the consent of our Company (for itself and on behalf of the Selling Shareholder), reduce the indicative Placing Price range stated in this prospectus at any time prior to the Price Determination Date. In the case of such reduction, a notice will be published on the website of the Stock Exchange at and the website of our Company at Prior to making an investment decision, prospective investors should carefully consider all the information set out in this prospectus, including the risk factors set out in Risk Factors. Prospective investors of the Placing Shares should note that the Sponsor and/or the Joint Global Coordinators (for themselves and on behalf of the Underwriters) shall have the absolute right to terminate the Underwriting Agreement by notice in writing to our Company (for itself and on behalf of the Selling Shareholder) with immediate effect if any of the events set forth in Underwriting Underwriting arrangements, commissions and expenses Grounds for termination occurs at any time prior to 8:00 a.m. on the Listing Date (which is currently expected to be Thursday, 24 March 2016). No information on any website forms part of this prospectus. 14 March 2016

3 CHARACTERISTICS OF GEM GEM has been positioned as a market designed to accommodate companies in which a higher investment risk may be attached than other companies listed on the Stock Exchange. 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 newspaper. Accordingly, prospective investors should note that they need to have access to the website of the Stock Exchange at in order to obtain up-to-date information on GEM-listed issuers. i

4 EXPECTED TIMETABLE 2016 (Note 1) Expected Price Determination Date (Note 2)...Tuesday, 15 March Announcement of the Placing Price, the indication of level of interest in the Placing and basis of allocation of the Placing Shares to be published on the website of the Stock Exchange at (Note 3) and our Company s website at (Note 3) on...wednesday, 23 March Allotment of the Placing Shares to placees on...wednesday, 23 March Deposit of share certificates for the Placing Shares into CCASS on (Note 4)....Wednesday, 23 March Dealings in Shares on GEM to commence at 9:00 a.m. on...thursday, 24 March Notes: 1. All times refer to Hong Kong local time. Details of the structure of the Placing, including its conditions, are set out in Structure and Conditions of the Placing. If there is any change in the above expected timetable, an announcement will be published on the website of the Stock Exchange at and our Company s website at 2. The Price Determination Date, being the date on which the Placing Price is to be determined, is expected to be or about Tuesday, 15 March 2016 or such later date as the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and our Company (for itself and on behalf of the Selling Shareholder) may agree. If, for any reason, the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and our Company (for itself and on behalf of the Selling Shareholder) are unable to reach an agreement on the Placing Price by the Price Determination Date, the Placing will not become unconditional and will lapse. 3. None of the websites or any information contained therein form part of this prospectus. 4. The share certificates for the Placing Shares allotted and issued to the placees are expected to be deposited directly into CCASS on Wednesday, 23 March 2016 for credit to the respective CCASS Participants or the CCASS Investor Participants stock accounts designated by the Underwriters, the placees or their agents (as the case may be). Our Company will not issue any temporary documents or evidence of title. Share certificates will only become valid certificates of title of the Shares to which they relate when the Placing has become unconditional in all respects and the Underwriting Agreement has not been terminated in accordance with its terms at or before 8:00 a.m. (Hong Kong time) on the Listing Date. For details of the structure of the Placing, including the conditions thereto, see Structure and Conditions of the Placing. ii

5 CONTENTS IMPORTANT NOTICE TO INVESTORS This prospectus is issued by our Company solely in connection with the Placing and does not constitute an offer to sell or a solicitation of an offer to buy any security other than the Placing Shares offered by this prospectus pursuant to the Placing. This prospectus may not be used for the purpose of, and does not constitute, an offer to sell or a solicitation of an offer in any other jurisdiction or in any other circumstances. You should rely only on the information contained in this prospectus to make your investment decision. Our Company, the Selling Shareholder, the Sponsor, the Joint Global Coordinators, the Joint Bookrunners, the Joint Lead Managers and the Underwriters have not authorised anyone to provide you with information that is different from what is contained in this prospectus. Any information or representation not made in this prospectus must not be relied on by you as having been authorised by our Company, the Selling Shareholder, the Sponsor, the Joint Global Coordinators, the Joint Bookrunners, the Joint Lead Managers, the Underwriters, any of their respective directors, advisers, officers, employees, agents, affiliates and/or representatives or any other persons or parties involved in the Placing. Page(s) Characteristics of GEM... Expected Timetable... Contents... i ii iii Summary and Highlights... 1 Definitions Glossary of Technical Terms Forward-looking Statements Risk Factors Information about this Prospectus and the Placing Directors, Senior Management and Parties Involved in the Placing Corporate Information Industry Overview Regulatory Overview iii

6 CONTENTS Page(s) History, Reorganisation and Corporate Structure Business Connected Transactions Directors, Senior Management and Staff Controlling, Substantial and Significant Shareholders Relationship with Controlling Shareholders Share Capital Financial Information Future Plans and Use of Proceeds Sponsor s Interest Underwriting Structure and Conditions of the Placing Appendices Appendix I Accountants Report.... I-1 Appendix II Unaudited Pro Forma Financial Information... II-1 Appendix III Summary of the Constitution of the Company and Cayman Company Law... III-1 Appendix IV Statutory and General Information.... IV-1 Appendix V Documents Delivered to the Registrar of Companies and Available for Inspection... V-1 iv

7 SUMMARY AND HIGHLIGHTS This summary aims to give you an overview of the information contained in this prospectus and should be read in conjunction with the full set of this prospectus. Since this is only a summary, it does not contain all the information that may be important to you. You should read this prospectus in its entirety before you decide whether to invest in our Shares. There are risks associated with any investment. Some of the particular risks in investing in our Shares are set out in Risk Factors. You should read that section carefully before you decide whether to invest in our Shares. BUSINESS OVERVIEW Our Group is principally engaged in the sale of: (i) imaging electronic components; and (ii) ODM and OBM video and imaging products. During the Track Record Period, we derived our revenue principally from the sale of imaging electronic components which include IC chips, CMOS sensors, digital imaging compression chips and other electronic components for imaging products. We have been offering design and engineering solutions to selective customers by utilising our know-how to design schematic, PCB layout (including verifying and fine-tuning the functionality of PCB assembly) and software to meet their specific requirements for over ten years. During the Track Record Period, our revenue as derived from ODM and OBM video and imaging products were generated primarily from the sale of hunting cameras and wired scanner mouses. Our current ODM video and imaging products are hunting camera, wired scanner mouse, bicycle camera and bluetooth tracker. Our current OBM video and imaging products are wired and wireless scanner mouses and bluetooth tracker. The tables below set forth the breakdown of our revenue, gross profit and gross profit margin by business segments during the Track Record Period: Year ended 31 March Six months ended 30 September Revenue Revenue Revenue Revenue Revenue HK$ %of HK$ %of HK$ %of HK$ %of HK$ %of million revenue million revenue million revenue million revenue million revenue Imaging electronic components IC chips CMOS sensors Digital imaging compression chips Others (Note 1) Subtotal ODM video and imaging products Hunting camera Scanner mouse Bicycle camera OBM video and imaging products Scanner mouse ODM and OBM video and imaging products Others (Note 2) Subtotal Total

8 SUMMARY AND HIGHLIGHTS Notes: 1. The other imaging electronic components include, among other things, thin film transistor, lens and packaging materials. 2. The other ODM and OBM video and imaging products include door phone, car digital video recorder, gun camera and bluetooth tracker. We ceased the sales of door phone, car digital video recorder and gun camera in or around November 2014, January 2013 and May 2012, respectively. The sales of other ODM and OBM video and imaging products for the six months ended 30 September 2014 and 2015 were less than HK$0.1 million. Year ended 31 March Six months ended 30 September Gross Gross Gross Gross Gross Gross profit/ (gross loss) HK$ million profit margin % Gross profit HK$ million profit margin % Gross profit HK$ million profit margin % Gross profit HK$ million profit margin % Gross profit HK$ million profit margin % Sales of imaging electronic components IC chips CMOS sensors Digital imaging compression chips (0.6) (2.1) Others (Note 1) Subtotal ODM video and imaging products Hunting camera Scanner mouse Bicycle camera OBM video and imaging products Scanner mouse ODM and OBM video and imaging products Others (Note 2) Subtotal Total Notes: 1. The other imaging electronic components include, among other things, thin film transistor, lens and packaging materials. 2. The other ODM and OBM video and imaging products include door phone, car digital video recorder, gun camera and bluetooth tracker. We ceased the sales of door phone, car digital video recorder and gun camera in or around November 2014, January 2013 and May 2012, respectively. The gross loss for each of the six months ended 30 September 2014 and 2015 was less than HK$0.1 million and therefore the gross profit margin for each of the six months ended 30 September 2014 and 2015 was not applicable. 2

9 SUMMARY AND HIGHLIGHTS REVENUE BY GEOGRAPHICAL LOCATION OF SHIPMENT DESTINATION OF IMAGING ELECTRONIC COMPONENTS AND ODM AND OBM VIDEO AND IMAGING PRODUCTS (NOTE 1) Year ended 31 March Six months ended 30 September HK$ 000 %of revenue HK$ 000 %of revenue HK$ 000 %of revenue HK$ 000 %of revenue HK$ 000 %of revenue Hong Kong 147, , , , , PRC 44, , , , , U.S. 73, , , , , Europe (Note 2) 18, , , , , Others (Note 3) 19, , , , , Total 303, , , , , Notes: 1. The geographic breakdown was prepared based on shipment destination without taking into account the re-export or onward sales (if any) of our imaging electronic components and ODM and OBM video and imaging products by our customers. 2. Europe includes but is not limited to Belgium and Germany. 3. Others include but are not limited to Japan, Australia, Malaysia and Singapore. COMPETITIVE STRENGTHS We consider that our Group s competitive strength are as follows: (i) provision of value added design and engineering solutions; (ii) strong video and imaging product design and development capabilities; (iii) experienced management team with extensive industry experience; (iv) established stable business relationships with the majority of our suppliers; and (v) long-term history with a proven track record in the imaging electronic components industry. BUSINESS STRATEGIES Our Group s business strategies are as follows: (i) strengthen our research and development capability; (ii) strengthen our marketing efforts through expansion of our sales and marketing team; and (iii) enhance our efficiency through improvement of our working environment. INDUSTRY AND MARKET According to the Ipsos Report, (i) there were about three ODM and OBM service providers of video and imaging products that produced scanner mouse and about 16 ODM and OBM service providers of video and imaging products that produced hunting cameras in Hong Kong in 2014; and (ii) in Hong Kong, as of December 2014, we accounted for (a) approximately 1.2% of the total revenue of the imaging electronic components and design service providers, and approximately 0.2% of the total revenue of ODM and OBM video and imaging products service providers, and (b) approximately 0.5% of the video and imaging and IC product manufacturing industry. According to the Ipsos Report, in 2014, Systech Electronics had a market share of (i) approximately 8.5% in terms of revenue of the hunting camera market in the PRC and Hong Kong; and (ii) approximately 12.3% in terms of revenue of the wired scanner mouse market in the PRC and Hong Kong. 3

10 SUMMARY AND HIGHLIGHTS The Ipsos Report has highlighted certain unfavourable market factors in the video and imaging products and the imaging electronic components markets: the average wholesale price of each of wired scanner mouse, hunting camera, CMOS sensors and IC chips in Hong Kong has been declining. The Ipsos Report has also highlighted certain favourable market factors in the video and imaging products and the imaging electronic components markets which our Directors consider to be key to our business: (i) stability in growth in global sales of video and imaging IC products or components or parts; (ii) stability in growth in global sales of video and imaging products; and (iii) stability in increase in revenue in Hong Kong. For details, see Business Industry and market. OUR CUSTOMERS AND SUPPLIERS Customers We have maintained stable business relationships with our major customers. As at the Latest Practicable Date, we had established approximately one to nine years of business relationship with our five largest customers for the Track Record Period. Our sales to our five largest customers for each of the three years ended 31 March 2015 and the six months ended 30 September 2015 amounted to approximately HK$133.9 million, HK$178.5 million, HK$257.4 million and HK$189.2 million, respectively, representing approximately 44.2%, 55.5%, 76.7% and 81.0% of our total revenue, respectively, for the corresponding periods. Our sales to our largest customer for each of the three years ended 31 March 2015 and the six months ended 30 September 2015 amounted to approximately HK$66.9 million, HK$91.6 million, HK$140.3 million and HK$67.8 million, respectively, representing approximately 22.1%, 28.5%, 41.8% and 29.0% of our total revenue, respectively, for the corresponding periods. During the Track Record Period, our Group had maintained continuous business relationships with most of our major customers. Among our five largest customers during the Track Record Period, Company J was the only one which placed purchase orders with us within just one financial year period and did not continue the business relationship with us thereafter. Our Group recorded a decrease in sales of CMOS sensors by approximately 23.4% from approximately HK$101.8 million for the year ended 31 March 2013 to approximately HK$78.0 million for the year ended 31 March 2014 but such sales increased by approximately 20.5% from approximately HK$78.0 million for the year ended 31 March 2014 to approximately HK$94.0 million for the year ended 31 March Our sales of CMOS sensors for the year ended 31 March 2015 almost recovered to the sales level for the year ended 31 March Our Group recorded a decrease in sales of digital imaging compression chips by approximately 35.3% and 88.7% for each of the two years ended 31 March 2015 as compared to their respective prior corresponding periods in 2013 and Our Group also recorded commission income from Company T in relation to sales of digital imaging compression chips and IC chips for each of the two years ended 31 March 2015 and the six months ended 30 September 2015 in the amount of approximately HK$0.2 million, HK$1.1 million and HK$1.3 million, respectively. For details, see Business Customers. Suppliers We have maintained good business relationships with our major suppliers. As at the Latest Practicable Date, we had established approximately two to ten years of relationship with our five largest suppliers during the Track Record Period. Our purchases from our five largest suppliers for each of the three years ended 31 March 2015 and the six months ended 30 September 2015 amounted to approximately HK$169.5 million, HK$151.3 million, HK$209.7 million and HK$160.4 million, respectively, representing approximately 61.3%, 54.5%, 71.2% and 78.3% of our total purchases, respectively, for the corresponding periods. Our purchases from our largest supplier for each of the three years ended 31 March 2015 and the six months ended 30 September 2015 amounted to approximately HK$95.6 million, HK$70.8 million, HK$99.0 million and HK$73.5 million, respectively, representing approximately 34.5%, 25.5%, 33.6% and 35.9% of our total purchases, respectively, for the corresponding periods. 4

11 SUMMARY AND HIGHLIGHTS We had ceased business relationships with some of our major suppliers during the Track Record Period mostly due to individual circumstances concerning those major suppliers, which our Group had no control of. Our distribution agreement with Company B, one of our five largest suppliers for the year ended 31 March 2013, for the distribution of its imaging electronic components in September 2012, was mutually agreed to be terminated in September 2013 as Company B decided not to proceed with the development of certain series of digital imaging compression chips which it had been selling to ASD Technology. Thereafter, we placed purchase order(s) with Company B for each individual purchase which it duly fulfilled. Subsequent to the termination of the distribution agreement with Company B, we sourced digital imaging compression chips from Company T and entered into a distribution agreement with Company T for the distribution of its imaging electronic components. It took a period of time for us to develop this new platform for the supply of digital imaging compression chips and for our customers to adapt to such changes. Our distribution agreement with Company D, one of our five largest suppliers for the year ended 31 March 2013, for the distribution of its electronic components in August 2012, was mutually agreed to be terminated in December 2013 because there was not a sufficient market demand for the electronic components of Company D. The supply of IC chips by Company E, one of our five largest suppliers for the year ended 31 March 2013, ceased in September 2013 as it proceeded with a corporate reorganisation. It referred Company G to us and we had started placing purchase orders with Company G since November Our Directors confirm that given that we had been sourcing IC chips from over 70 suppliers during the Track Record Period, we did not experience any material adverse impact on the cessation of our business relationship with Company D and Company E. For details, see Business Suppliers. RISK FACTORS HIGHLIGHTS There are certain risks involved in our operations and in connection with the Placing, many of which are beyond our control. These risks can be broadly categorised into: (i) risks relating to our business; (ii) risks relating to our industry; (iii) risk relating to conducting business in the PRC and the overseas market; and (iv) risks relating to the Placing. As different investors may have different interpretations and criteria in determining the significance of a risk, we advise you to read Risk Factors in its entirety in assessing or deciding to invest in our Placing Shares. Set forth below are some of the major risks that may materially and adversely affect us: We had experienced net current liabilities as at 31 March 2013, 2014 and Failure to manage our liquidity situation could expose us to difficulties to obtain adequate financing for our business in the future. We had low net operating cash inflow for the year ended 31 March 2015 and high gearing ratio for the year ended 31 March 2015 and the six months ended 30 September Future shortfalls in operating cash flow may expose us to liquidity risks. We derived a significant portion of our revenue from our five largest customers during the Track Record Period, and if our relationship with them deteriorates or terminates, our business and results of operations would be adversely affected. We do not have long-term purchase commitments from our customers, which expose us to potential volatility in our revenue. 5

12 SUMMARY AND HIGHLIGHTS Our purchases from our five largest suppliers accounted for over 50% of the total purchases of our Group during the Track Record Period. If our arrangements with these major suppliers are terminated, interrupted, or adversely modified, our business, financial condition and results of operations could be adversely affected. Our business, financial condition and results of operations could be adversely affected by the global economic downturn and adverse market conditions. We rely on subcontractors for production of our ODM and OBM video and imaging products. Any changes to our relationship with them or their manufacturing operations could adversely affect our business. Fluctuations in our electronic components purchase price that we are unable to pass on to our customers could adversely affect our results of operations, profit margins and profitability. SHAREHOLDER INFORMATION Controlling Shareholders Immediately following completion of the Capitalisation Issue and the Placing and taking no account of any Shares which may be allotted and issued pursuant to the exercise of options which may be granted under the Share Option Scheme, our Company will be owned as to approximately 70% by On Hong Century, which is owned as to 50% by Mr. Lee and 50% by Ms. Kwok. As On Hong Century, Mr. Lee and Ms. Kwok are directly or indirectly entitled to exercise or control the exercise of 30% or more of the voting power at general meetings of our Company immediately following the Listing, each of On Hong Century, Mr. Lee and Ms. Kwok will be regarded as our Controlling Shareholders under the GEM Listing Rules. Apart from our Group s business relating to the sale of imaging electronic components and the sale of ODM and OBM video and imaging products, Mr. Lee and Ms. Kwok are also engaged in other businesses. Our Controlling Shareholders have entered into the Deed of Non-competition with us to ensure that competition will not exist in the future. For details of our Controlling Shareholders and the Deed of Non-competition, see Relationship with Controlling Shareholders. SUMMARY OF FINANCIAL INFORMATION The following is a summary of our combined results for the Track Record Period, which has been extracted from the Accountants Report. Highlights of combined income statements Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Revenue 303, , , , ,766 Cost of sales (277,168) (277,885) (294,337) (157,161) (204,712) Gross profit 25,987 43,912 41,682 21,049 29,054 Profit before taxation 11,551 36,121 1,507 8,397 14,086 Profit for the year 8,260 31, ,963 11,791 Profit for the year (excluding net gain on sale of property, plant and equipment, net gain on sale of non-current assets classified as held for sale and impairment loss on remeasurement of noncurrent assets held for sale) ,770 1,577 3,326 4,557 6

13 SUMMARY AND HIGHLIGHTS Highlights of combined statements of financial position As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Non-current assets 148,794 91,195 33,061 1,382 Current assets 68,640 97, , ,093 Current liabilities 162, , , ,168 Non-current liabilities Net current (liabilities)/assets (93,828) (4,469) (10,707) 20,925 As at 31 March 2013, 2014 and 2015, we experienced net current liabilities of approximately HK$93.8 million, HK$4.5 million and HK$10.7 million, respectively, which principally resulted from bank loans of approximately HK$105.3 million, HK$47.2 million and HK$92.6 million, respectively. As at 30 September 2015, we had net current assets of approximately HK$20.9 million which was primarily attributable to the net effect of (i) the decrease of approximately HK$41.7 million in amount due to directors after repayment; (ii) the decrease of approximately HK$10.7 million in mortgage loans resulted from the disposals of one residential property and one carpark unit during the six month ended 30 September 2015; (iii) the decrease of approximately HK$9.1 million in receipt in advance from Company K in relation to deposits for hunting camera orders; and (iv) the decrease of approximately HK$16.7 million in amounts due from directors. For details of the analysis on our Group s net current liabilities or assets positions, see Financial Information Net current (liabilities)/assets positions. Our Directors are of the opinion and the Sponsor concurs that, taking into account the estimated net proceeds of the Placing, the unutilised banking facilities available to our Group, cash flows generated from operating activities and our internal resources, our Group will have sufficient working capital to meet our present working capital requirements for at least the next 12 months from the date of this prospectus. Highlights of combined statements of cash flows Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Net cash generated from/(used in) operating activities 2,858 31, (9,078) 1,546 Net cash generated from/(used in) investing activities 1,192 54,904 (12,671) (9,819) 75,760 Net cash (used in)/generated from financing activities (265) (65,203) 11,277 22,117 (83,197) Cash and cash equivalents at beginning of the year/period 4,578 8,363 29,353 29,353 28,629 Cash and cash equivalents at end of the year/period 8,363 29,353 28,629 32,564 22,669 7

14 SUMMARY AND HIGHLIGHTS SELECTED KEY FINANCIAL RATIOS The table below sets out certain major financial ratios of our Group as at the dates indicated: As at or for the six months ended As at or for the year ended 31 March 30 September Current ratio Quick ratio Gearing ratio (%) 245.4% 83.3% 604.3% 357.6% Gearing ratio (%) (excluding mortgages loans) 140.0% 57.0% 515.9% 316.8% Gross profit margin (%) 8.6% 13.6% 12.4% 12.4% Net profit margin (%) 2.7% 9.9% 0.1% 5.0% Net profit margin (%) (excluding net gain on sale of property, plant and equipment, net gain on sale of noncurrent assets classified as held for sale and impairment loss on remeasurement of non-current assets held for sale) 0.1% 4.0% 0.5% 1.9% Inventory turnover days Trade debtors turnover days Trade creditors turnover days IMPACT OF DISPOSAL OF PROPERTIES ON OUR GROUP S PROFITABILITY, CASH FLOW AND GEARING RATIO DURING THE TRACK RECORD PERIOD Profitability Net profit Our net profit during the Track Record Period was driven to a significant extent by gain on sale of property, plant and equipment which does not form part of our Group s core businesses. On the basis that the net gain on sale of property, plant and equipment for the two years ended 31 March 2014 were excluded, our net profits would be approximately HK$0.2 million and HK$12.8 million for each of the two years ended 31 March 2014, respectively. On the basis that the net gain on sale of property, plant and equipment and impairment loss on remeasurement of non-current assets held for sale for our Group s office premises in the PRC for each of the two years ended 31 March 2015 were excluded, our profit would decrease by approximately HK$11.2 million from approximately HK$12.8 million for the year ended 31 March 2014 to HK$1.6 million for the year ended 31 March On the basis that net gain on sale of property, plant and equipment and net gain on sale of non-current assets classified as held for sale for each of the six months ended 30 September 2014 and 2015 were excluded, our profit would increase by approximately HK$1.3 million from approximately HK$3.3 million for the six months ended 30 September 2014 to approximately HK$4.6 million for the six months ended 30 September 2015 and our net profit margin for the period would remain stable at approximately 1.9% for each of the six months ended 30 September 2014 and Net profit margin Our net profit margins were approximately 2.7%, 9.9%, 0.1% and 5.0% for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. On the basis that our above net gain on sale of property, plant and equipment, net gain on sale of non-current assets classified as held for sale and impairment loss on remeasurement of non-current assets held for sale during the Track Record Period were excluded, our net profit margins would be approximately 0.1%, 4.0%, 0.5% and 1.9% for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. 8

15 SUMMARY AND HIGHLIGHTS Cash flow Investing activities On the basis that the payment for purchase of buildings held for own use and gross proceeds from sale of residential properties and their related leasehold improvements and carpark(s) during the Track Record Period were excluded, the net cash used in investing activities would be approximately HK$1.2 million, HK$18.6 million, HK$20.7 million and HK$17.8 million for each of the three years ended 31 March 2015 and the six months ended 30 September 2014, respectively, and the net cash generated from investing activities would be approximately HK$34.8 million for the six months ended 30 September Financing activities On the basis that the payments of mortgage loans for the disposed residential properties and carpark(s) and their corresponding interest expenses during the Track Record Period were excluded, the net cash used in financing activities would be approximately HK$4.5 million, HK$30.3 million and HK$59.0 million for each of the two years ended 31 March 2014 and the six months ended 30 September 2015, respectively. On the basis that the payments of mortgage loans for the disposed residential properties and carpark(s) and their corresponding interest expenses during the Track Record Period were excluded, and the net cash generated from financing activities would be approximately HK$24.2 million and HK$14.7 million for the six months ended 30 September 2014 and for the year ended 31 March 2015, respectively. On the basis that the payments of mortgage loans for the disposed residential properties and carpark(s) and their corresponding interest expenses during the Track Record Period were excluded, the net decrease in cash and cash equivalents would be approximately HK$2.8 million, HK$17.7 million, HK$5.3 million, HK$2.7 million and HK$36.1 million for each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, respectively. Gearing ratio On the basis that the mortgage loans were excluded, our gearing ratio would be approximately 140.0%, 57.0%, 515.9% and 316.8% as at 31 March 2013, 2014, 2015 and 30 September 2015, respectively. For details, see Financial Information. ANNUAL RESULTS FOR THE YEAR ENDING 31 MARCH 2016 Our Directors expect that there will be adverse effect to our annual results for the year ending 31 March 2016, which is primarily attributable to the incurring of (i) the Listing expenses (for details, see Financial Information Listing expenses ); and (ii) the selling and administrative expenses due to (a) the increase in staff costs resulting from the recruitment of additional staff (for details, see Future Plans and Use of Proceeds Implementation plan ) and the transfer of previous staff of Shenzhen Yunxu to Aolang Electronics for continued employment. During the period from July 2013 to January 2015, Shenzhen Yunxu already provided research and development and technical support services to ASD Technology for an aggregate service fee of approximately HK$5.7 million, including approximately HK$2.5 million and HK$3.2 million for each of the two years ended 31 March 2015, our Group is expected to incur additional staff costs of approximately HK$3.3 million for the year ending 31 March 2016 based on the estimated staff cost for the previous staff of Shenzhen Yunxu after the subsequent transfer of the previous staff of Shenzhen Yunxu to Aolang Electronics in February 2015 and no service fee is expected to be incurred for the year ending 31 March 2016; and (b) the increase in rental expenses for leasing the two office premises in the PRC. 9

16 SUMMARY AND HIGHLIGHTS DIVIDEND AND DIVIDEND POLICY Save for the dividends in the amount of (i) HK$12.0 million declared by ASD Technology to its then shareholders during the year ended 31 March 2013 and the amount was settled through the current account with director; (ii) an interim dividend in the amount of HK$65.0 million declared by ASD Technology on 13 February 2015 and subsequently paid to its then shareholders; and (iii) an interim dividend in the amount of HK$12.0 million declared by Systech Electronics on 30 April 2015 and subsequently paid to its then shareholders, we had not declared other dividend during the Track Record Period and up to the Latest Practicable Date. The declaration of future dividends will be subject to our Directors decision and will depend on, among other things, our earnings, financial condition, cash requirements and availability, the amount of distributable profits based on HKFRS, the Memorandum and Articles of Association, the Companies Law, applicable laws and regulations and any other factors our Directors may consider relevant. Currently, we do not have any predetermined dividend distribution ratio. Accordingly, potential investors should note that dividend payments in the past should not be regarded as indication of future dividend policy. There can be no assurance that we will declare dividends in the future. LISTING EXPENSES Our Directors are of the view that the financial results of our Group for the year ending 31 March 2016 is expected to adversely affected by, among others, the Listing expenses, the nature of which is non-recurring. The total Listing expenses, primarily consisting of fees paid or payable to professional parties, underwriting commissions, selling concession and a praecipium fee, are estimated to be approximately HK$38.0 million (assuming a Placing Price of HK$1.04 per Placing Share, being the mid-point of the indicative Placing Price range of HK$1.00 to HK$1.08 per Placing Share). During the Track Record Period, we incurred Listing expenses of approximately HK$20.0 million of which approximately HK$15.2 million was recognised in the combined statements of profit or loss and other comprehensive income and HK$4.8 million was recognised as prepayments in the combined statements of financial position which will be accounted for as a deduction from equity upon Listing. We expect to further incur Listing expenses in the amount of approximately HK$18.0 million prior to and upon completion of the Placing, of which, (i) approximately HK$11.2 million is expected to be recognised as expenses in our combined statements of profit or loss and other comprehensive income for the year ending 31 March 2016; and (ii) approximately HK$6.8 million is expected to be accounted for as a deduction from equity upon Listing. Our Directors would like to emphasise that the amount of the Listing expenses is a current estimate for reference only and the final amount to be recognised in the combined financial statements of our Group for the year ending 31 March 2016 is subject to adjustment based on audit and the then changes in variables and assumptions. RECENT DEVELOPMENTS AND NO MATERIAL ADVERSE CHANGE The material developments concerning our operations and financial position subsequent to 30 September 2015 and up to the Latest Practicable Date were: (i) the completion of the disposal of a property, namely, Unit No and Unit No. 2804, 28th Floor, West Tower, Shun Tak Centre, Connaught Road, Central, Hong Kong, for a consideration of HK$51.8 million between ASD Technology (as vendor) and an Independent Third Party (as purchaser) which took place on 7 October A gain on such disposal of approximately HK$19.9 million is expected to be recognised for the year ending 31 March 2016; and 10

17 SUMMARY AND HIGHLIGHTS (ii) the completion of the disposal of a property, namely, Unit C on 12th Floor, Shen Ye Tai Ran Shuisong Building, Bin He Road, Futian District, Shenzhen City, Guangdong Province, the PRC, for a consideration of RMB11.0 million (equivalent to approximately HK$13.4 million) between Aolang Electronics (as vendor) and Wenxingjin Management (as purchaser) for the purposes of settling the amounts due to directors by Aolang Electronics which took place on 20 October Such consideration was paid by Mr. Lee as a shareholder of Wenxingjin Management. The consideration of RMB11.0 million in relation to the disposal of the office premises was determined with reference to the value of the office premises (the Estimated Value ) as at the date of the sale and purchase agreement as estimated by the Center for Assessment and Development of Real Estate, Shenzhen ( ), an institution under the Urban Planning, Land and Resources Commission of Shenzhen Municipality ( ) responsible for, inter alia, valuation of properties in Shenzhen. Having considered that (a) the Center for Assessment and Development of Real Estate, Shenzhen, being a public institution established for more than 20 years, is experienced and is capable of providing the Estimated Value; and (b) the settlement of the amounts due to directors by Aolang Electronics, being a privately-owned company before the Listing, is an arrangement to enhance the financial independence of our Group, the Estimated Value was adopted even though it was lower than the original purchase price of the said property. Based on the above, our Directors are of the view and the Sponsor concurs that the terms of the disposal are fair and reasonable and in the interest of the Company. An impairment loss on remeasurement of non-current assets held for sale of approximately HK$4.7 million for the office premises in the PRC had been recognised for our Group for the year ended 31 March Save (i) as disclosed in Summary and Highlights Listing Expenses ; (ii) as disclosed in Summary and Highlights Annual results for the year ending 31 March 2016 ; and (iii) as above, our Directors confirm, after performing sufficient due diligence work which they consider appropriate and after due and careful consideration, that as at the Latest Practicable Date, there had been no material adverse change in the financial and trading position or prospects of our Group; and that our revenue and cost structure had remained stable, since 30 September 2015, the date as of which the latest audited financial statements of our Group were prepared, and up to the date of this prospectus. To the best of our Directors knowledge, information and belief, subsequent to 30 September 2015 and up to the date of this prospectus, there had been no material change to the overall economic and market condition in the industry which we operate, which would have a material adverse effect on our business, results of operations or financial condition. KEY PLACING STATISTICS Based on the Placing Price of HK$1.00 per Placing Share Based on the Placing Price of HK$1.08 per Placing Share Market capitalisation of the Share (Note 1) HK$200 million HK$216 million Unaudited pro forma adjusted net tangible assets per Share (Notes 2 and 3) HK$0.25 HK$

18 SUMMARY AND HIGHLIGHTS Notes: 1. The calculation of the market capitalisation of the Shares is based on the respective Placing Prices of HK$1.00 and HK$1.08 per Placing Share and 200,000,000 Shares in issue immediately after completion of the Capitalisation Issue and the Placing, but takes no account of (i) any Share which may fall to be allotted and issued pursuant to the general mandate for the allotment and issue of Shares or any Shares which may be repurchased by our Company pursuant to the general mandate for repurchase of Shares referred to in Statutory and General Information Further information about our Company and our subsidiaries 3. Resolutions in writing of the sole Shareholder passed on 2 March 2016 in Appendix IV to this prospectus; and (ii) any Shares which may be allotted and issued pursuant to the exercise of any options that may be granted under the Share Option Scheme. 2. The unaudited pro forma adjusted combined net tangible asset value per Share has been arrived at after the adjustments referred to in Appendix II in this prospectus, and on the basis of the respective Placing Prices of HK$1.00 and HK$1.08 per Placing Share and 200,000,000 Shares in issue immediately following completion of the Capitalisation Issue and the Placing but taking no account of any Shares which may be allotted and issued pursuant to the exercise of any options that may be granted under the Share Option Scheme. 3. No adjustment has been made to the unaudited pro forma adjusted net tangible assets to reflect any trading results or other transactions of our Group entered into subsequent to 30 September USE OF PROCEEDS We intend to apply that the net proceeds to be received by us from the Placing of approximately HK$14.0 million (after deducting the underwriting commissions, selling concession and a praecipium fee and related expenses payable by our Company in the aggregate amount of approximately HK$38.0 million and assuming a Placing Price of HK$1.04 per Placing Share, being the mid-point of the indicative Placing Price range) as follows: Business Strategy Approximate amount of net proceeds or % Strengthen our research and development capability HK$9.9 million or 70.7% Strengthen our marketing efforts through expansion of our sales and marketing team HK$1.6 million or 11.4% Enhance our efficiency through improvement of our working environment HK$1.3 million or 9.3% General working capital HK$1.2 million or 8.6% We estimate that the Selling Shareholder will receive net proceeds of approximately HK$9.8 million from the Placing (after deduction of underwriting commissions, selling concession and a praecipium fee payable by the Selling Shareholder and assuming a Placing Price of HK$1.04 per Placing Share, being the mid-point of the indicative Placing Price range). NON-COMPLIANCE During the Track Record Period, Aolang Electronics was involved in a non-compliance incident which involved the omission to pay deed tax of approximately RMB197,400 (equivalent to approximately HK$235,000) and stamp duty of approximately RMB3,290 (equivalent to approximately HK$3,917) out of the full amounts as required by the relevant PRC laws and regulations arising from its acquisition of an office premises. For details, see Business Non-compliance. 12

19 DEFINITIONS Unless the context otherwise requires, the following expressions have the following meanings in this prospectus. Accountants Report Aolang Electronics Arrangement Articles or Articles of Association the report of the Reporting Accountants dated 14 March 2016, the text of which is set out in Appendix I to this prospectus ( ) (Aolang Electronics (Shenzhen) Limited*), a wholly foreign owned enterprise established in the PRC with limited liability on 9 March 2012, which is an indirect wholly-owned subsidiary of our Company the arrangement whereby at the request of some of our PRC customers, the payments in relation to the sales of imaging electronic components from ASD Technology to them were settled by way of cash deposits or bank transfers made to Mr. Lee s personal bank accounts in the PRC the amended and restated articles of association of our Company conditionally adopted by our sole Shareholder on 2 March 2016 to take effect upon commencement of trading of the Shares on GEM, a summary of which is set out in Appendix III to this prospectus ASD Technology ASD Technology Limited ( ), a company incorporated in Hong Kong with limited liability on 25 March 2002, which is an indirect whollyowned subsidiary of our Company Board or Board of Directors business day BVI the board of Directors any day (other than a Saturday, a Sunday or public holiday in Hong Kong) on which licensed banks in Hong Kong are generally open for normal banking business the British Virgin Islands Capitalisation Issue the issue of 149,999,000 Shares to be made upon capitalisation of certain sums standing to the credit of the share premium account of our Company as referred to in Statutory and General Information Further information about our Company and our subsidiaries 3. Resolutions in writing of the sole Shareholder passed on 2 March 2016 in Appendix IV to this prospectus CCASS the Central Clearing and Settlement System established and operated by HKSCC 13

20 DEFINITIONS CCASS Clearing Participant CCASS Custodian Participant CCASS Investor Participant CCASS Operational Procedures CCASS Participant China or PRC Companies Law Companies Ordinance Companies (Winding Up and Miscellaneous Provisions) Ordinance Company or our Company Controlling Shareholder(s) a person admitted to participate in CCASS as a direct clearing participant or general clearing participant a person admitted to participate in CCASS as a custodian participant a person admitted to participate in CCASS as an investor participant who may be an individual or joint individuals or a corporation the operational procedures of HKSCC in relation to CCASS, containing the practices, procedures and administrative requirements relating to the operations and functions of CCASS, as from time to time in force a CCASS Clearing Participant or a CCASS Custodian Participant or a CCASS Investor Participant the People s Republic of China, which for the purpose of this prospectus excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands the Companies Ordinance (Chapter 622 of the Laws of Hong Kong) which took effect from 3 March 2014, as amended, supplemented or otherwise modified from time to time the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong) as amended, supplemented or otherwise modified from time to time ASD International Holdings Limited ( ) (formerly known as Advanced Research International Holdings Limited), an exempted company incorporated in the Cayman Islands on 16 December 2014 with limited liability Mr. Lee, Ms. Kwok and On Hong Century 14

21 DEFINITIONS Deed of Indemnity Deed of Non-competition Director(s) EIT Law EU GEM GEM Listing Rules General Rules of CCASS the deed of indemnity dated 2 March 2016 and executed by our Controlling Shareholders in favour of our Company (for itself and as trustee for its subsidiaries), particulars of which are set out in Statutory and General Information Other information 16. Estate duty, tax and other indemnities in Appendix IV to this prospectus the deed of non-competition dated 2 March 2016 and executed by our Controlling Shareholders in favour of our Company (for itself and as trustee for its subsidiaries), a summary of the principal terms of which is set out in Relationship with Controlling Shareholders Deed of Non-competition the director(s) of our Company Enterprise Income Tax Law of the PRC ( ) as adopted by the National People s Congress on 16 March 2007 and became effective on 1 January 2008 European Union the Growth Enterprise Market of the Stock Exchange the Rules Governing the Listing of Securities on GEM as amended, supplemented or otherwise modified from time to time the terms and conditions regulating the use of CCASS, as may be amended or modified from time to time and where the context so permits, shall include the CCASS Operational Procedures Grand Prospect Grand Prospect Power Limited ( ), a company incorporated in the BVI with limited liability on 7 November 2014, which is a direct wholly-owned subsidiary of our Company Group, our Group, we, our or us HK$, HKD or Hong Kong dollar(s) our Company and its subsidiaries or, where the context so requires, in respect of the period before our Company became the holding company of its present subsidiaries, such subsidiaries as if they were our Company s subsidiaries at the relevant time, or the businesses acquired or operated by them or (as the case may be) their predecessors Hong Kong dollar(s), the lawful currency of Hong Kong 15

22 DEFINITIONS HKFRSs HKSCC Hong Kong or HK Independent Third Party(ies) Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants Hong Kong Securities Clearing Company Limited, a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited the Hong Kong Special Administrative Region of the PRC an individual(s) or a company(ies) who or which is/are independent of and not connected with (within the meaning of the GEM Listing Rules) any directors, chief executives or substantial shareholders of our Company or any of its subsidiaries or any of their respective associates and not a connected person of our Company Ipsos Ipsos Limited, an industry research consultant, an Independent Third Party Ipsos Report Joint Bookrunners or Joint Lead Managers the industry expert report dated 14 March 2016 issued by Ipsos, details of which are set out in Industry Overview Quam Securities Company Limited, Pacific Foundation Securities Limited and Ping An Securities Limited Joint Global Coordinators Quam Securities Company Limited and Pacific Foundation Securities Limited Kenxen Kenxen Limited ( ), a company incorporated in Hong Kong with limited liability on 6 September 2010, which was owned as to 100% by Independent Third Parties as at the Latest Practicable Date Latest Practicable Date Listing Listing Date Listing Division 6 March 2016, being the latest practicable date prior to the printing of this prospectus for ascertaining certain information contained herein the listing of the Shares on GEM the date on which dealings in the Shares on GEM first commence, which is expected to be on 24 March 2016 the listing division of the Stock Exchange 16

23 DEFINITIONS Main Board the stock exchange (excluding the option market) operated by the Stock Exchange which is independent from and operated in parallel with GEM Memorandum or Memorandum of Association Mr. Lee Mr.Ma the amended and restated memorandum of association of our Company adopted by our sole Shareholder on 2 March 2016, as amended from time to time Mr. Lee Siu On ( ), our chief executive officer, an executive Director, one of our Controlling Shareholders and the spouse of Ms. Kwok Mr.MaKaPo( ), an executive Director Mr. Ng Mr. Ng Chun Sum ( ), a senior management member of our Group Ms. Kwok New Shares Ms. Kwok Mei Foon ( ), our Chairlady and an executive Director, one of our Controlling Shareholders and the spouse of Mr. Lee 50,000,000 new Shares to be offered by our Company for subscription at the Placing Price under the Placing On Hong Century On Hong Century Limited ( ), a company incorporated in the BVI with limited liability on 23 April 2014, which is owned as to 50% by Mr. Lee and 50% by Ms. Kwok and one of our Controlling Shareholders Placing Placing Price Placing Share(s) the conditional placing by the Underwriters on behalf of our Company and the Selling Shareholder of the Placing Shares for cash at the Placing Price, as further described in Structure and Conditions of the Placing the final price per Placing Share (exclusive of brokerage, SFC transaction levy and Stock Exchange trading fee payable thereon) which will be not more than HK$1.08 per Placing Share and is expected to be not less than HK$1.00 per Placing Share, such price is to be fixed on the Price Determination Date the 60,000,000 Shares (comprising New Shares to be offered by our Company and Sale Shares to be offered by the Selling Shareholder) being offered for subscription by our Company and offered for sale by the Selling Shareholder at the Placing Price under the Placing 17

24 DEFINITIONS PRC Legal Advisers Predecessor Companies Ordinance Price Determination Agreement Price Determination Date Reorganisation Reporting Accountants RMB or Renminbi SAFE SAT Global Law Office, the legal advisers of our Company as to PRC law the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) as in force from time to time before 3 March 2014 the agreement to be entered into between the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and our Company (for itself and on behalf of the Selling Shareholder) on the Price Determination Date to fix and record the Placing Price the date, expected to be on or before Tuesday, 15 March 2016 or such later date as the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and our Company (for itself and on behalf of the Selling Shareholder) may agree, on which the Placing Price will be fixed for the purposes of the Placing the corporate reorganisation arrangements undergone by our Group in preparation for the Listing, details of which are set out in History, Reorganisation and Corporate Structure KPMG Renminbi, the lawful currency of the PRC the State Administration of Foreign Exchange of the PRC ( ) the State Administration of Taxation ( ) Sale Shares 10,000,000 Shares to be offered by the Selling Shareholder for sale at the Placing Price under the Placing Selling Shareholder SFC On Hong Century, the particulars of which are set out in Statutory and General Information Other information 24. Particulars of the Selling Shareholder in Appendix IV to this prospectus the Securities and Futures Commission of Hong Kong 18

25 DEFINITIONS SFO Share(s) Share Option Scheme Shareholder(s) the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended and supplemented from time to time ordinary shares of HK$0.01 each in the share capital of our Company the share option scheme conditionally approved and adopted by our Company on 2 March 2016, the principal terms of which are summarised in Statutory and General Information Other Information 15. Share Option Scheme in Appendix IV to this prospectus the holders of the Shares Shenzhen Yunxu (Shenzhen Yunxu Trading Limited*), a wholly foreign owned enterprise established in the PRC with limited liability on 15 April 2013, wholly-owned by Mr. Lee and was in the process of deregistration as at the Latest Practicable Date Sponsor or Quam Capital sq.m. Stock Exchange subsidiary(ies) Quam Capital Limited, a licensed corporation permitted to carry out type 6 (advising on corporate finance) regulated activity under the SFO square metre The Stock Exchange of Hong Kong Limited has the meaning ascribed to it under the Companies Ordinance Systech Electronics Systech Electronics Limited ( ), a company incorporated in Hong Kong with limited liability on 17 September 2003, which is an indirect wholly-owned subsidiary of our Company Takeovers Code the Codes on Takeovers and Mergers and Share Buybacks, as amended, supplemented or otherwise modified from time to time Track Record Period the period comprising the three financial years ended 31 March 2015 and the six months ended 30 September 2015 Underwriters the underwriters of the Placing named in Underwriting Underwriters 19

26 DEFINITIONS Underwriting Agreement U.S. US$, USD or US dollar(s) Wenxingjin Management yen the conditional underwriting agreement to be entered into by, among others, our Company, our executive Directors, our Controlling Shareholders, the Sponsor, the Joint Global Coordinators and the Underwriters on or about 14 March 2016, brief particulars of which are summarised in Underwriting the United States of America United States dollar(s), the lawful currency of the U.S. ( ) (Wenxingjin Management Consulting (Shenzhen) Limited*), a wholly foreign owned enterprise established in the PRC with limited liability on 17 July 2015, which is owned as to 50% by Mr. Lee and 50% by Ms. Kwok Japanese yen, the lawful currency of Japan % per cent. Unless otherwise specified, for the purpose of this prospectus and for the purpose of illustration only, Hong Kong dollar amounts have been translated using the following rates: HK$7.80 : US$1.00; HK$1.00 : RMB0.84; and HK$1.00 : 14.7 yen. No representation is made that any amounts in HK$, US$, RMB or yen were or could have been converted at the above rate or at any other rates or at all. In this prospectus, the terms associate, close associate, connected person, core connected person, connected transaction, controlling shareholder, substantial shareholder and significant shareholder shall have the meanings given to such terms in the GEM Listing Rules, unless the context otherwise requires. Certain amounts and percentage figures included in this prospectus have been subject to rounding adjustment. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures preceding them. If there is any inconsistency between the Chinese names of entities or enterprises established in the PRC and their English translations, the Chinese names shall prevail. The English translation of company names in Chinese or another language which are marked with * and the Chinese translation of company names in English which are marked with * is for identification purpose only. 20

27 GLOSSARY OF TECHNICAL TERMS This glossary contains certain definitions and other terms used in this prospectus in connection with our Group and our business. The terms and their meanings may not correspond to standard industry definitions. 2.4GHz and 5GHz dual band frequency 3D acronym for 3 dimensional, referring to objects that are rendered visually on paper, film or on screen in three planes representing width, height and depth 3G the third generation of mobile telecommunications technology. It is based on a set of standards used for mobile devices and mobile telecommunications use services and networks that comply with the International Mobile Telecommunications-2000 (IMT-2000) specifications by the International Telecommunication Union 4G the fourth generation of mobile telecommunications technology 4K TV a television set with 2,160 lines of resolution 8K TV the next generation television technology with 4,320 lines of resolution bluetooth a proprietary open wireless technology standard for exchanging data over short distances (using short wavelength radio transmissions) from fixed and mobile devices, creating personal area networks with high levels of security CAGR compound annual growth rate CE The Conformity European Certificate, conformity marking used on certain products placed in the market in the European Economic Area indicating conformity with the applicable requirements of the European Union, such as health and safety CMOS complementary metal oxide semiconductor, a fabrication process that incorporates n-channel and p-channel complementary metal oxide semiconductor transistors within the same silicon substrate. Complementary metal oxide semiconductor technology is used in chips and for various analog circuits 21

28 GLOSSARY OF TECHNICAL TERMS engineering solutions ERP FCA FCC FOB design and development of software, hardware and/or PCB layout acronym for enterprise resource planning, a system that integrates internal management information through the use of an integrated software application free carrier, where the seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place The Federal Communications Commission in the U.S. acronym for free (or freight) on board fps acronym for frames per second, referring to the measurement of the speed of motion sequences such as in movies, television and animation. Motion displayed electronically are the rapid sequence of static images called frames HD HDR IC high-definition acronym for High Dynamic Range, referring to a high contrast ratio between the brightest whites and darkest blacks on a screen. It is a photographic technique in which several shots are taken of the same high-contrast scene at different exposures. Highlights from the underexposed images and shadows from the overexposed frames are blended together to create a more natural look acronym for integrated circuit, a semi-conductor device that combines a number of transistors and electronic circuits onto a piece of silicon IR acronym for infrared, any type of invisible electromagnetic radiation below visible light and is at the lower end of the visible light spectrum ISO speed LTE the international standard measurement of a camera s sensitivity to light acronym for long term evolution, a standard for wireless communication of high-speed data for mobile phones and data terminals 22

29 GLOSSARY OF TECHNICAL TERMS megapixel one million pixels, referring to the resolution of a digital imaging device Microsoft Excel Microsoft Excel, a full-featured spreadsheet from Microsoft Microsoft Word NAND flash Microsoft Word, a full-featured word processing program from Microsoft a type of flash memory, where NAND stands for not and, which describes the logic gate circuit the memory uses OBM acronym for original brand manufacturing (or manufacturer), a business model that an entire product sold by a company under its own brand name OCR acronym for optical character recognition ODM acronym for original design manufacturing (or manufacturer), a business model that designs and manufactures a product and eventually rebranded and sold by the customer PCB pixel(s) acronym for printed circuit board picture element, basic unit of programmable colour on a computer display or in computer image REACH Regulation (EC) No 1907/2006 of the European Parliament and of the European Council concerning, among others, registration, evaluation, authorisation and restriction of chemicals RoHS acronym for Restriction of Hazardous Substances Directive of the European Parliament and of the European Council creating collection schemes for customers to return used e-waste free of charge Wi-Fi the standard wireless local area network (WLAN) technology for connecting computers and myriad electronic devices to each other and to the Internet 23

30 FORWARD-LOOKING STATEMENTS This prospectus contains certain forward-looking statements and information relating to us and our subsidiaries that are based on the beliefs of our management as well as assumptions made by and information currently available to our management. When used in this prospectus, the words aim, anticipate, believe, could, estimate, expect, going forward, intend, may, ought to, plan, potential, predict, project, seek, shall, should, will, would and similar expressions, as they relate to our Company or our management, are intended to identify forward-looking statements. Such statements reflect the current views of our management with respect to future events, operations, liquidity and capital resources, some of which may not materialise or may change. These statements are subject to certain risks, uncertainties and assumptions, including but not limited to the risk factors as described in this prospectus. You are strongly cautioned that reliance on any forward-looking statements involves known and unknown risks and uncertainties. The risks and uncertainties facing our Company which could affect the accuracy of forward-looking statements include, but are not limited to, the following: our business prospect; future developments, trends and conditions in the industry and markets in which we operate; our strategies, plans, objectives and goals; general economic trends and conditions; changes to regulatory and operating conditions in the industry and markets in which we operate; our ability to control costs; our dividend policy; the amount and nature of, and potential for, future development of our business; capital market developments; the actions and developments of our competitors; and certain statements in Financial Information with respect to trend in prices, volumes, operations, margins, overall market trends, risk management and exchange rates. 24

31 FORWARD-LOOKING STATEMENTS Subject to the requirements of the GEM Listing Rules, we do not intend to publicly update or otherwise revise the forward-looking statements in this prospectus, whether as a result of new information, future events or otherwise. As a result of these and other risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus might not occur in the way we expect, or at all. Accordingly, you should not place undue reliance on any forward-looking statements. All forward-looking statements in this prospectus are qualified by reference to this cautionary statement. 25

32 RISK FACTORS Investors should carefully consider all of the information in this prospectus, including the risks and uncertainties described below, before making an investment in the Placing Shares. If any of the possible events described below occur, our business operations, financial conditions or results of operation could be materially and adversely affected and the market price of the Placing Shares could fall significantly. RISKS RELATING TO OUR BUSINESS We had experienced net current liabilities as at 31 March 2013, 2014 and Failure to manage our liquidity situation could expose us to difficulties to obtain adequate financing for our business in the future. As at 31 March 2013, 2014 and 2015, we had experienced net current liabilities of approximately HK$93.8 million, HK$4.5 million and HK$10.7 million, respectively, which included bank and other loans of HK$105.3 million, HK$47.2 million and HK$92.6 million, respectively. For details, see Financial Information Net current (liabilities)/assets positions. Our net current liabilities position may expose us to liquidity risk, and we may have net current liabilities in the future, which will be affected by our future operating performance, prevailing economic conditions, financial, business and other factors, many of which are beyond our control. We had low net operating cash inflow for the year ended 31 March 2015 and high gearing ratio for the year ended 31 March 2015 and the six months ended 30 September Future shortfalls in operating cash flow may expose us to liquidity risks. We recorded net cash inflow from operating activities of approximately HK$31.3 million and HK$0.7 million for the year ended 31 March 2014 and 2015, respectively. The significant decrease in net cash inflow by approximately HK$30.6 million for the year ended 31 March 2015 was primarily due to the combined effect of (i) an increase in inventories of approximately HK$14.1 million for the year ended 31 March 2015 as compared to a decrease in inventories of approximately HK$11.5 million for the year ended 31 March 2014; and (ii) the payment in relation to the Listing expenses of approximately HK$13.1 million. In addition, our gearing ratio was approximately 245.4%, 83.3%, 604.3% and 357.6% as at 31 March 2013, 2014, 2015 and 30 September 2015, respectively. The significant increase for the year ended 31 March 2015 was mainly due to the increase of approximately HK$45.7 million in bills loans for short term financing in relation to our Group s purchases of inventories and the decrease in total equity of our Group due to the dividend declared of HK$65.0 million for the year ended 31 March We cannot assure you that we will not experience low net cash flow from our operating activities or a high gearing ratio position in the future again. A low net cash flow position for operating activities could impair our ability to make necessary capital expenditures, constrain our operational flexibility and adversely affect our liquidity. For 26

33 RISK FACTORS example, if we do not have sufficient net cash flow to fund our future capital requirements, pay our trade payable and repay principal and interest on our borrowings when they become due, we may need to significantly increase external borrowings or secure other external financing. If the increase in our total borrowings results in our gearing ratio being higher, our capability for further external financing as well as our flexibility in reacting to changes in our business or in the market in which we operate will be limited. Furthermore, if adequate funds are not available from external borrowings, whether on satisfactory terms or at all, we may be forced to delay or curtail our development and expansion plans, and our business, financial condition and results of operations may be materially and adversely affected. We derived a significant portion of our revenue from our five largest customers during the Track Record Period, and if our relationship with them deteriorates or terminates, our business and results of operations would be adversely affected. Our sales to our five largest customers for each of the three years ended 31 March 2015 and the six months ended 30 September 2015 amounted to approximately HK$133.9 million, HK$178.5 million, HK$257.4 million and HK$189.2 million, respectively, representing approximately 44.2%, 55.5%, 76.7% and 81.0% of our total revenue, respectively, for the corresponding periods. Our sales to our largest customer for each of the three years ended 31 March 2015 and the six months ended 30 September 2015 amounted to approximately HK$66.9 million, HK$91.6 million, HK$140.3 million and HK$67.8 million, respectively, which accounted for approximately 22.1%, 28.5%, 41.8% and 29.0% of our total revenue, respectively, for the corresponding periods. Among our five largest customers during the Track Record Period, Company J was the only one which placed purchase orders with us within just one financial year period and did not continue the business relationship with us thereafter. As at the Latest Practicable Date, we entered into a sales agreement with each of Company M and Company O, two of our five largest customers during the Track Record Period, under which each of Company M and Company O would place separate purchase order for each transaction. For further details of these sales agreements, see Business Customers. We cannot assure you that our five largest customers during the Track Record Period will continue to do business with us at the same or increased levels or at all. If any of these major customers were to substantially reduce the volume and/or the value of new businesses with us or to cease to conduct business with us and we were unable to expand our business with existing customers or attract new customers at desired levels, we may experience slower growth or no growth at all and our business, financial condition and results of operations would be materially and adversely affected. We do not have long-term purchase commitments from our customers, which expose us to potential volatility in our revenue. We do not have long-term purchase commitments from our customers. Our sales are made on the basis of individual purchase orders. Such purchase orders set out the basic terms and conditions for the transactions without any long-term purchase commitments. Our customers may cancel or defer purchase orders. Our customers purchase orders may vary from period to period, and it is difficult to accurately forecast future order quantities. 27

34 RISK FACTORS There is no assurance that any of our customers will continue to place purchase orders with us in the future at the same volume, or at the same margin, as compared to prior periods, or at all. We may not be able to locate alternative customers to place new purchase orders. There is also no assurance that the volume or margin of our customers purchase orders will be consistent with our expectations. As a result, our results of operations may vary from period to period and may fluctuate significantly in the future. During the Track Record Period, at the request of some of our PRC customers, the payments in relation to the sales of imaging electronic components from ASD Technology to them were settled by way of cash deposits or bank transfers made to Mr. Lee s personal bank accounts in the PRC. We permitted the Arrangement for convenience and efficiency purposes for our PRC customers. As we generally do not grant credit terms to the customers of ASD Technology and our sales are conducted on a payment in advance of delivery basis, our PRC customers have to make payments to our Group s bank account in Hong Kong before delivery. Given that ASD Technology did not maintain any PRC bank account and the considerable time required to remit funds from the PRC to Hong Kong, some of our PRC customers would directly make payments to Mr. Lee s personal bank accounts in the PRC so that we could process their urgent orders as soon as possible. Our Group had been downsizing the scale of the sales under the Arrangement during the Track Record Period and had completely ceased the Arrangement since February For details, see Financial Information Description and analysis of principal items in the combined statements of financial position Amounts due from director. There is no assurance that our PRC customers who were involved in the Arrangement would continue to place purchase orders with us for imaging electronic components after the cessation of the Arrangement. The cessation of the Arrangement may have material adverse impact on our Group s revenue from the PRC. For the three years ended 31 March 2015 and the six months ended 30 September 2015, our Group s revenue generated from the PRC amounted to approximately HK$44.9 million, HK$24.5 million, HK$6.7 million and HK$1.7 million, respectively. Our purchases from our five largest suppliers accounted for over 50% of the total purchases of our Group during the Track Record Period. If our arrangements with these major suppliers are terminated, interrupted, or adversely modified, our business, financial condition and results of operations could be adversely affected. Our purchases from our five largest suppliers for each of the three years ended 31 March 2015 and the six months ended 30 September 2015 amounted to approximately HK$169.5 million, HK$151.3 million, HK$209.7 million and HK$160.4 million, respectively, representing approximately 61.3%, 54.5%, 71.2% and 78.3% of our total purchases, respectively, for the corresponding periods. Our purchases from our largest supplier, Company A, for each of the three years ended 31 March 2015 and the six months ended 30 September 2015 amounted to approximately HK$95.6 million, HK$70.8 million, HK$99.0 million and HK$73.5 million, respectively, representing approximately 34.5%, 25.5%, 33.6% and 35.9% of our total purchases, respectively, for the corresponding periods. As at the Latest Practicable Date, ASD Technology had entered into a short term reseller agreement with Company A, our largest supplier during the Track Record Period, and five short term distribution agreements, 28

35 RISK FACTORS a design partner program agreement and an international sales representative agreement with certain of our suppliers (including Company T), none of whom is one of our five largest suppliers during the Track Record Period. For further details of the said reseller agreement and distribution agreements, see Business Suppliers. We had ceased business relationships with some of our major suppliers during the Track Record Period. For details, see Business Suppliers. There is no guarantee that we will not suffer from any shortage of suppliers in the future. Should our largest supplier and/or any of other major suppliers reduce the volume supplied to us or cease to supply to us and we are unable to find alternative sources at comparable prices and quality, our business would be adversely affected. Our business, financial condition and results of operations could be adversely affected by the global economic downturn and adverse market conditions. Our Group s revenue from Hong Kong, the PRC, U.S., Europe and other countries represented approximately 48.6%, 14.8%, 24.1%, 6.0% and 6.5% of our total revenue for the year ended 31 March 2013, approximately 32.8%, 7.6%, 36.2%, 11.9% and 11.5% of our total revenue for the year ended 31 March 2014, approximately 31.3%, 2.0%, 39.3%, 15.2% and 12.2% of our total revenue for the year ended 31 March 2015 and approximately 39.4%, 0.6%, 43.2%, 8.8% and 8.0% of our total revenue for the six months ended 30 September 2015, respectively. We are dependent on the health of global economic conditions and the levels of global consumer consumption in general. Our Group is principally engaged in the sale of: (i) imaging electronic components; and (ii) ODM and OBM video and imaging products. The demand from our customers, therefore, depends on the overall consumer demand for the end-products they provide. The global financial markets experienced significant disruptions in 2008 and the U.S., Europe and other economies went into recession. The recovery from the economic downturns of 2008 and 2009 was uneven and there are new challenges, including the escalation of the European sovereign debt crisis since 2011 and the slowdown of the PRC economy in A continuous deterioration in global economic conditions could affect consumer confidence and spending. If the demand for the products we provide declines as a result of changes in global economic conditions or does not grow at the pace we anticipate, our business, financial condition and results of operations could be adversely affected. Therefore, the global financial and economic crisis could also adversely affect the ability of our customers and suppliers to obtain financing for significant purchases and operations and result in a decrease in, or cancellation of, orders for the products we provide or limitations on the quantity of products supplied to us due to reduced production output. Furthermore, these economic conditions could make it difficult for our customers to accurately forecast and plan future business activities, which could cause our customers to reduce spending on the products we provide. If the market in which we operate deteriorates due to these global economic conditions, our business, financial condition and results of operations could be adversely affected. 29

36 RISK FACTORS We rely on subcontractors for production of our ODM and OBM video and imaging products. Any changes to our relationship with them or their manufacturing operations could adversely affect our business. During the Track Record Period, the production processes of our ODM and OBM video and imaging products were outsourced to three subcontractors, namely Company F and Company U, which were Independent Third Parties, and Kenxen, which subsequently became an Independent Third Party on 12 February For details of our relationship with Kenxen and the arrangements between these three subcontractors and us, see Business Our subcontractors. For each of the three years ended 31 March 2015 and the six months ended 30 September 2015, the amounts we paid to the aforesaid three subcontractors represented approximately 6.6%, 19.5%, 20.4% and 27.8% of our total purchases, respectively, for the corresponding periods. In the event that we are unable to secure suitable subcontractors when required, or if the subcontractors substantially increase their subcontracting fees, the production process and/or financial position of our Group may be adversely affected. Furthermore, the subcontractors may be late in completing the production and/or producing products with unsatisfactory quality. Problems with any of the subcontractors production facilities or production could result in deteriorating quality of our products or reduction in production. We may also face claims arising from latent defects, that are existing but not yet discovered or visible, which are not properly handled by our subcontractors. In such event, our operations and profitability would be adversely affected. Fluctuations in our electronic components purchase price that we are unable to pass on to our customers could adversely affect our results of operations, profit margins and profitability. Any shortage in electronic components or fluctuations in prices could negatively affect our electronic components purchase price. Risks such as social and political unrest, and economic volatility in the countries or regions where we purchase electronic components could also negatively and materially affect our electronic components purchase price. We, therefore, cannot guarantee that the prices we currently pay for electronic components will remain stable. Any increase in the prices we pay for electronic components could result in our offering to the market a less competitive product, and compel us to identify more suitable and costcompetitive alternatives. In particular, our ability to pass on part or all of our cost increases to our customers depends largely on market conditions, including the activities of our competitors. If we are unable to pass on our cost increases to our customers, our results of operations, profit margins and profitability could be adversely affected. 30

37 RISK FACTORS We could be subject to imposition of fines or penalties due to non-compliance with certain laws and regulations in relation to deed tax and stamp duty for the acquisition of the office premises located at Shenzhen, the PRC. During the Track Record Period, Aolang Electronics did not pay deed tax of approximately RMB197,400 (equivalent to approximately HK$235,000) and stamp duty of approximately RMB3,290 (equivalent to approximately HK$3,917) out of the full amounts as required by the relevant PRC laws and regulations arising from its acquisition of an office premises, namely, Unit C on 12th Floor, Shen Ye Tai Ran Shuisong Building, Bin He Road, Futian District, Shenzhen City, Guangdong Province, the PRC ( 12C). For details, see Business Non-compliance. Our PRC Legal Advisers have advised that, as a result of this non-compliance incident, according to the Tax Collection Management Law of the PRC* ( ), tax authorities may request Aolang Electronics to pay 50% or up to 5 times the outstanding tax amount, which in the present case varies from approximately RMB100,000 to approximately RMB1.0 million. We cannot assure you that we will not be subject to fines or penalties or other liabilities in the future, and if such happens, our financial position could be adversely affected. If the lease of our office in Hong Kong was terminated early or could not be renewed, we may not be able to relocate our office in time or on commercially reasonable terms. The lease agreement for our office situated at 26th Floor, Lever Tech Centre, Nos King Yip Street, Kwun Tong, Kowloon, Hong Kong between an Independent Third Party and us will expire on 31 March If such lease was terminated early or could not be renewed, we would have to relocate our office to another property and may incur additional costs in restoring such property. We cannot assure you that we are able to relocate our office in time or on commercially reasonable terms. As a result, our business, results of operations and financial condition could be affected. The success of our business depends on the quality of the products we provide. If a product that we provide has defects or performance problems, our reputation and ability to sell other products to customers could be adversely affected. We take different steps to ensure the quality of incoming imaging electronic components we purchase, subcontracting process and our ODM and OBM video and imaging products. For details, see Business Quality control and industry standards. If a product that we provide has defects or performance problems, our reputation and ability to sell other products to customers could be adversely affected. In addition, we could be exposed to product liability claims if the use of our products results in damage or injury. If we are found liable for any such claims, we could be required to pay monetary damages. While we might, in turn, recoup any losses incurred by us from the suppliers, we cannot assure you that we would be fully reimbursed for our damages. Even if we successfully defend such claims, we might still incur substantial expenses and expend significant time in defending against such claims. 31

38 RISK FACTORS We face direct competition from other electronic components distributors or resellers. As at the Latest Practicable Date, we entered into five short term distribution agreements with certain of our suppliers, four of which provide for us to be the non-exclusive distributor of the supplier. We had also signed a short term reseller agreement with Company A, our largest supplier during the Track Record Period, acting as its non-exclusive reseller, and a design partner program agreement with a supplier, acting as one of such supplier s authorised design partners. We had also entered into an international sales representative agreement with a supplier, acting as its non-exclusive representative. We have no control over such suppliers decisions and strategies as to their sales and distribution channel which affect the number of their distributors or resellers in the market nor the extent and nature of their co-operation with their distributors or resellers. The current or future distributors and resellers of the electronic components we provide could have a more extensive sales network or a stronger customer base compared with us. As a result, we could face direct competition if our electronic components suppliers supply the same electronic components we carry or more popular electronic components to other electronic components distributors and resellers in the market we operate. We rely on distributors and reseller to distribute our D+Oi brand wired and wireless scanner mouses. During the Track Record Period, we expanded the sales network of our D+Oi brand wired and wireless scanner mouses by appointing three distributors covering distribution in Hong Kong, South East Asia and Australia, respectively. Each of them had formally entered into a distribution agreement with us in December 2014 (as amended and supplemented by a side letter signed with us in February 2015) for one year and two of them had further entered into a supplemental agreement in December 2015, among other things, to extend the term of the respective distribution agreements for one year. The distribution agreement regarding distribution in Australia had lapsed as at the Latest Practicable Date. Subsequent to the Track Record Period, we further engaged a reseller covering distribution in United Arab Emirates and it had formally entered into a reseller agreement with us in October These distribution agreements/reseller agreement lay down the terms and conditions for their sale and distribution of our D+Oi brand wired and wireless scanner mouses. For details of these distribution agreements/reseller agreement, see Business Sales through distributors and reseller. Although these distribution agreements/reseller agreement contain standard terms for monitoring our distributors and reseller, we cannot assure you that our distributors and reseller will at all times strictly adhere to the terms and conditions under the respective distribution agreements/reseller agreement or that they will not compete with each other for the market share of our own-branded products. Further, any termination or non-renewal of distribution agreements/reseller agreement or failure to distribute our D+Oi brand wired and wireless scanner mouses according to the terms of the distribution agreements/reseller agreement may have a material adverse effect on our business, financial condition and operations. The sales and profitability of our ODM and OBM video and imaging products are significantly dependent on our customers business performance. Sales to our customers for ODM and OBM video and imaging products are significantly affected by the respective customers business performance and by factors relating to these 32

39 RISK FACTORS customers that are beyond our control. The under-performance of our customers business, their failure to market their products successfully, seasonality of demand for our customers products, adverse change in economic conditions in the markets in which our customers operate and unforeseen natural disasters, might lead to changes in their purchasing practices or their demand for our products, thereby materially and adversely affecting our business, financial condition, results of operations and prospect. We are exposed to disruptions to the delivery of our products. Our sale of imaging electronic components, and ODM and OBM video and imaging products are generally on FCA or FOB terms. As to local delivery of products, we generally engage third-party logistics companies to deliver our products to our customers. Delivery disruptions may occur for various reasons beyond our control, including but not limited to mishandling by outsourced transport operators, transportation bottlenecks, natural disasters, unfavourable weather conditions, labour strikes, political turmoil and social unrest. Such risks could lead to delayed, damaged or lost deliveries. If the products are not delivered to our customers on time, or are damaged in the course of delivery, our reputation could be adversely affected. We may also need to make compensation payments to our customers, which in certain circumstances could be of a substantial amount. Our inability to obtain, preserve and defend intellectual property rights could harm our competitive position. Our know-how and expertise in the technology and the design of video and imaging products may not be fully capable of being protected by intellectual property rights. As at the Latest Practicable Date, (i) our Group s brand D+Oi had been registered as a trademark in Hong Kong, the PRC, the European Union, Japan and the U.S.; (ii) our Group had registered two trademarks in the PRC and one trademark in Hong Kong; (iii) our Group had made one trademark application and one patent application in the U.S.; and (iv) our Group had registered four domain names. For further details, see Statutory and General Information Further information about the business of our Group 10. Intellectual property rights of our Group in Appendix IV to this prospectus. There is a risk that we will not be able to effectively prevent third parties from using our know-how and expertise to produce products similar or superior to ours. Further, we cannot assure that our trademark application and patent application would be successful. If such event happens, the competitive advantage of our products and technologies could reduce and our business, results of operations and prospects could be materially and adversely affected. We rely on licensed technology to manufacture our scanner mouse. If we are unable to obtain any or all of the necessary licensed technology or develop alternative technology for manufacturing scanner mouse or other ODM and OBM products (as the case may be), our business and operating results will be adversely affected. Currently, we rely on licensed technology to manufacture our scanner mouse. We entered into a non-exclusive, non-sublicensable and non-transferable licence agreement in April

40 RISK FACTORS with a Swiss software company, which is an Independent Third Party for the manufacturing of our ODM and OBM products, the wired and wireless scanner mouses. That licence agreement relates to the offering of a unique content capturing technology based on real-time image processing. We are authorised under that licence agreement to utilise the licensor s proprietary hardware reference design database and software solely for use in the development and manufacture of scanner mouses and to market and sell those same scanner mouses, subject to certain conditions. The aforesaid licence agreement will expire in April 2017 or can be terminated by either party giving a six months prior written notice after the first year of the licence agreement. Further, we have in the second half of 2014 accepted a budgetary quote from the Swiss software company to provide technology for ios support and Android support for wireless scanner mouse, e.g. for tablets and smart phones. There is no assurance that we would be able to obtain any or all of the necessary licenced technology for manufacturing our scanner mouses or other ODM or OBM products (as the case may be) in the future on terms we consider reasonable, or at all. If for any reason such licence agreement is not renewed upon its expiry or is terminated by the licensor or we are unable to obtain any necessary licenced technology on acceptable terms, it may become necessary for us to develop alternative technology internally, which could be costly and could delay the marketing and delivery of relevant products, and therefore have an adverse effect on our business and operating results. In addition, we may be unable to independently develop the technology required by our customers on a timely basis or at all. If we are accused of infringing others intellectual property rights, there is a risk that we will be liable for significant damages. Our products incorporate a variety of technologies. We could face legal proceedings or claims against us from time to time asserting that such technologies infringe the intellectual property rights owned by others. If such event occurs, there is a risk that we will need to, enter into settlement or licence agreements, pay significant damage awards, and/or face a temporary or permanent injunction prohibiting us from marketing or selling certain of our products, which could have an adverse effect on our business, operating results, financial condition and reputation. Confidentiality agreements with employees and others may not adequately prevent disclosure of confidential information. We have devoted significant resources to research and development. In order to protect our technology and know-how, we rely on the confidentiality clauses under the employment agreements and subcontracting agreements with our employees and subcontractors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Costly and time-consuming litigation might be necessary to enforce our proprietary rights, which could adversely affect our competitive position. We depend on the proper performance of our ERP system and any serious interruption of this system could materially affect our operations. Our ERP system provides us with useful tools to, among other things, computerize our purchase orders placed with our suppliers and the purchase orders placed by our customers, 34

41 RISK FACTORS maintain our inventory level on a regular basis and a centralized system of the price information of imaging electronic components from time to time and provide information as to account receivables from our customers and account payables to our suppliers. Any disruption to our ERP system will affect the rate at which we respond to market demand. Any delay may cause a strain on our procurement, inventory control, finance controlling processes. Increasing business complexity of our operations due to our expansion plans may place additional requirements on our ERP system. Any serious interruption or breakdown of our ERP system may have a material adverse effect on our business, financial condition and results of operations. If we are unable to retain key members of our management, our growth and future success may be impaired and our financial condition could suffer. We believe that our continued success, growth and ability to expand our operations depend on a significant degree upon the continued efforts, contribution and abilities of our executive Directors and key managerial and technical employees, in particular Mr. Lee, our executive Director, chief executive officer and one of our Controlling Shareholders, Mr. Ma, our executive Director, and Mr. Leung Ting Yuk, Mr. Ng and Mr. Wong Tung Yuen, our senior management members. Losing the services of these key personnel could affect our business operation. Our Directors believe that these persons possess the relevant knowledge and requisite expertise which are essential to our business and our Group s future development. Our business depends on our ability to attract and retain these members of the senior management and skilled employees, in particular those who are skilled in product design and development of new products. Any failure to retain these key personnel or attract such personnel may affect our business operations, financial performance and future prospects of our Group. If any of our executive Directors or members of the senior management is unable or unwilling to continue in his/her present position, we cannot assure you that we will be able to replace him/her easily with people who have similar knowledge, skills and experience. We may have to incur additional expenses to recruit, train and retain personnel and may not be able to achieve our strategic objectives at a similar cost. Seasonal fluctuation of the sales of our hunting camera and imaging electronic components may materially and adversely affect our financial condition and results of operations. We generally observe a seasonal pattern in the sales of our hunting camera. Hunting normally takes place in autumn and winter, and our sales and shipment would take place before autumn. Our sales of imaging electronic components by ASD Technology generally experience low season around the Chinese New Year. However, this sales pattern may not be indicative of future sales performance which may fluctuate substantially. Seasonal fluctuation in the future may not match the expectations of investors. We are exposed to fluctuations in exchange rates and significant changes may adversely affect our business. The functional currency and reporting currency of our Group is HKD, except that the functional currency and reporting currency of our Group s PRC subsidiary is RMB. Our Group 35

42 RISK FACTORS is exposed to currency risks primarily arising from sales and purchase which give rise to receivables, payables and cash balances which are denominated in USD and RMB. For each of the three years ended 31 March 2015 and the six months ended 30 September 2015, our net foreign exchange loss amounted to approximately HK$0.20 million, HK$0.06 million, HK$0.71 million and HK$0.01 million, respectively. Any significant fluctuations in the exchange rates between RMB and HKD could materially and adversely affect our results of operations. Any future exchange rate volatility relating to RMB could expose us to risks of uncertainties in the value of net assets and profits. As HKD is currently pegged to USD, our Directors believe that our exposure to fluctuations in the exchange rate of the Hong Kong dollar against the US dollar is minimal. However, we cannot assure you that HKD will remain pegged to USD in the future. Hence, should there be any significant adverse fluctuations in the exchange rate of HKD against USD, our business, financial condition and results of operations could be adversely affected. We do not currently adopt any arrangement to hedge any fluctuation in the foreign currency in relation to our purchases and sales. We are exposed to interest rate risk which may affect our cash flow. As at 31 March 2013, 2014, 2015 and 30 September 2015, our bank and other loans amounted to approximately HK$105.3 million, HK$47.2 million, HK$92.6 million and HK$79.0 million, respectively. Our bank loans bear interest at effective interest rates of approximately 0.93% to 5.25% per annum, 1.21% to 3.73% per annum, 1.20% to 2.95% per annum and 1.20% to 2.95% per annum, as at 31 March 2013, 2014, 2015 and 30 September 2015, respectively. Should there be an increase in interest rate, our interest expenses may increase and our cash flow and profitability may be adversely affected. Our insurance coverage could be inadequate and potential losses borne by us could adversely affect our cash flow and liquidity. There is no assurance that our insurance coverage would be sufficient to cover all our potential losses or that we will be able to successfully claim any of our losses under our current insurance policies. In the event that we incur a loss that is not covered by our insurance coverage, or our insurance policies fail to sufficiently compensate for our actual losses, we would have to pay for the loss or the difference (as the case may be) ourselves and our cash flow and liquidity could be adversely affected. We do not maintain product liability insurance for our products. Any product liability claim against us and any legal proceedings, arbitration or administrative sanctions or penalties arising therefrom, irrespective of the outcome or the merits of such claims, would adversely affect our business, financial condition, results of operations as well as our corporate image and reputation. Even if we are able to defend any such claim successfully, we cannot assure you that our customers will not lose confidence in our products as a result of such claim, which may 36

43 RISK FACTORS in turn adversely affect our future business. In addition, any product liability claim could result in significant costs and expenses which may or may not be recoverable. There is no assurance that no product liability claims will be made against us in the future. We are exposed to credit risk from our customers. Our trade debtors turnover day were approximately 23.0 days, 23.7 days, 21.5 days and 16.6 days for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. Our Group s exposure to credit risk is influenced mainly by the individual characteristics of each customer rather than the industry or country in which our customers operate. Therefore, significant concentration of credit risk primarily arises when our Group has significant exposure to individual customers. As at 31 March 2013, 2014, 2015 and 30 September 2015, approximately 28.1%, 38.4%, 47.3% and 32.0% of the total trade receivables were due from our largest customer for each of the three years ended 31 March 2015 and the six months ended 30 September 2015 and approximately 79.2%, 38.8%, 62.0% and 74.7% were due from our five largest customers, respectively. We cannot assure you that our customers will pay us on time and that they will be able to fulfill their payment obligations. Should we experience any unexpected delay or difficulty in collections from our customers, our operating results and financial condition may be adversely affected. Further, as our customers base grows and as the competition in the industry increases, we may be exposed to further credit risks from providing credit to new customers and our existing customers. As a result, we cannot assure you that the risk of default by these customers will not occur in the future. We had a thin profit margin during the Track Record Period and thus any adverse movement in selling price, sales volume and component costs will have a disproportionate effect on our profitability. Our total revenue amounted to approximately HK$303.2 million, HK$321.8 million, HK$336.0 million and HK$233.8 million for the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. Our gross profit for the three years ended 31 March 2015 and the six months ended 30 September 2015 amounted to approximately HK$26.0 million, HK$43.9 million, HK$41.7 million and HK$29.1 million, respectively. Our gross profit margin for the three years ended 31 March 2015 and the six months ended 30 September 2015 amounted to approximately 8.6%, 13.6%, 12.4% and 12.4%, respectively. For details, see Financial Information Description and analysis of principal items in the combined statements of profit or loss and other comprehensive income Gross profit and gross profit margin. Our net profit margins were approximately 2.7%, 9.9%, 0.1% and 5.0% for the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. For details, see Financial Information Analysis of the key financial ratios Net profit margin. Our profit is sensitive to changes in selling price. Any significant decline in the selling prices of our products will adversely affect our profitability in the future. According to the Ipsos Report, the average wholesale price of IC chips, CMOS sensors, wired scanner mouse 37

44 RISK FACTORS and hunting camera in Hong Kong had been declining from 2011 to 2014 generally. For details, see Industry Overview Price trend of video and imaging products in Hong Kong and Industry Overview Price trend of major electronic components. Given that, our profitability for the Track Record Period might not give any indication of, and should not be interpreted as guidance for, our total profits in the future. In the event we encounter continued decline in the selling prices of our major products in the future, we may have difficulty in maintaining or managing our business growth and our business operations and financial results could be adversely affected. Even if the selling prices of our products remain stable in future, our sales volume may decrease significantly and our component costs may increase significantly. Our Directors expect our selling and administrative expenses to increase for the year ending 31 March 2016 due to (a) the increase in staff costs resulting from the recruitment of additional staff (for details, see Future Plans and Use of Proceeds Implementation plan ) and the transfer of previous staff of Shenzhen Yunxu to Aolang Electronics for continued employment; and (b) the increase in rental expenses for leasing the two office premises in the PRC. Therefore, any adverse movement in selling price, sales volume and component costs will have a disproportionate effect on our profitability. Our profit margin during the Track Record Period may not be indicative of our future performance. There is no assurance that our results of operation will continue to improve in the future. Our profit may fluctuate significantly due to change in net gain on sale of property, plant and equipment and net gain on sale of non-current assets classified as held for sale which are non-recurring in nature. The net gain on sale of property, plant and equipment of our Group for each of the three years ended 31 March 2015 amounted to approximately HK$8.1 million, HK$19.1 million and HK$3.6 million representing approximately 97.6%, 59.9% and 749.7% of our profit, respectively, for the corresponding periods. The net gain on sale of non-current assets classified as held for sale for the six months ended 30 September 2015 amounted to approximately HK$7.2 million, representing approximately 61.4% of our profit for the six months ended 30 September Sale of property, plant and equipment and sale of non-current assets classified as held for sale are non-recurring in nature and do not form part of our Group s core businesses. There can be no assurance that we will continue to achieve net gain on sale of property, plant and equipment and net gain on sale of non-current assets classified as held for sale at the same or higher levels in the future. Therefore, our profit may fluctuate significantly. 38

45 RISK FACTORS Our Directors estimate that our annual results for the year ending 31 March 2016 will decline when compared to the year ended 31 March Our profit for each of the three years ended 31 March 2015 and the six months ended 30 September 2015 amounted to approximately HK$8.3 million, HK$31.9 million, HK$0.5 million and HK$11.8 million, respectively. Our Directors are of the view that our annual results for the year ending 31 March 2016 are expected to be adversely affected by the following factors: the total non-recurring Listing expenses, primarily consisting of fees paid or payable to professional parties, underwriting commissions, selling concession and a praecipium fee, are estimated to be approximately HK$38.0 million (assuming a Placing Price of HK$1.04 per Placing Share, being the mid-point of the indicative Placing Price range of HK$1.00 to HK$1.08 per Placing Share). During the Track Record Period, we incurred Listing expenses of approximately HK$20.0 million. We expect to further incur Listing expenses in the amount of approximately HK$18.0 million prior to and upon completion of the Placing, of which, (i) approximately HK$11.2 million is expected to be recognised as expenses in our combined statements of profit or loss and other comprehensive income for the year ending 31 March 2016; and (ii) approximately HK$6.8 million is expected to be accounted for as a deduction from equity upon Listing. Our Directors would like to emphasise that the amount of the Listing expenses is a current estimate for reference only and the final amount to be recognised in the combined financial statements of our Group for the year ending 31 March 2016 is subject to adjustment based on audit and the then changes in variables and assumptions; and the increase in our selling and administrative expenses due to (a) the increase in staff costs resulting from the recruitment of additional staff (for details, see Future Plans and Use of Proceeds Implementation plan ) and the transfer of previous staff of Shenzhen Yunxu to Aolang Electronics for continued employment; and (b) the increase in rental expenses for leasing the two office premises in the PRC. Prior dividend distributions are not an indication of our future dividend policy and we may not be able to pay any dividend on our Shares. During the year ended 31 March 2013, ASD Technology declared the dividends in the amount of HK$12.0 million to its then shareholders. In addition, an interim dividend in the amount of HK$65.0 million was declared by ASD Technology on 13 February 2015 to its then shareholders and an interim dividend in the amount of HK$12.0 million was declared by Systech Electronics on 30 April 2015 to its then shareholders. However, historical dividend distributions are not indicative of our future distribution policy and we cannot assure you that dividends of similar amounts or at similar rates will be declared in the future. Any future dividend declaration and distribution by us will be at the discretion of our Directors and will depend on our future operations and earnings, capital requirements, general financial condition and other factors that our Directors deem relevant. Any declaration and payment as well as the 39

46 RISK FACTORS amount of dividends will also be subject to our constitutional documents and the Companies Law, including (where required) the approval of shareholders. Therefore, we cannot guarantee when, if and in what form dividends will be paid on our Shares following the Placing. We may not have sufficient or any profits to enable us to make dividend distributions to our Shareholders in the future, even if our financial statements indicate that our operations have been profitable. For other details of our dividend policy, see Financial Information Dividend policy. If our operation licences, approvals or permits are cancelled, suspended or fail to be renewed, it may materially and adversely affect our business, financial position, results of operations and prospects. Our Directors confirm that we have obtained all relevant licences, approvals, permits or certificates from relevant governmental bodies or regulatory authorities in Hong Kong that are required for the conduct of our business operation in Hong Kong. Our Directors, as advised by our PRC Legal Advisers, confirm that we have obtained all necessary licences, approvals and permits from the relevant governmental authorities for our business operations in the PRC. There can be no assurance that the relevant governmental authorities will not amend or revise existing laws, regulations or rules to require additional approvals, licenses or permits, or to impose stricter requirements or conditions for the approvals, licenses or permits required for our business and operations. Any loss of or failure to obtain or renew our approvals, licenses or permits could disrupt our operations and subject us to fines or penalties imposed by the relevant governmental authorities. We may fail to anticipate technology innovation and successfully develop and market new products in time, or at all, which would materially and adversely affect our business, results of operations and prospect. There is no assurance that our research and development efforts will result in the introduction of new technologies or new products or that they will be completed on time or generate expected benefits. If we fail to introduce new products or new technologies that meet market demand, we may incur loss and we may also be unable to compete effectively due to our failure to offer products most demanded by the market. If any of these failures occur, our business, results of operations and prospect would be materially and adversely affected. The process of developing and marketing new products is inherently complex and uncertain, and involves a number of risks, including but not limited to the following: We cannot assure you that we will have adequate funding and resources necessary for investments in new products and technologies. We cannot assure you that we can anticipate successfully new products and technologies which will gain market acceptance and that such products can be successfully marketed. We cannot assure you that our newly developed products or technologies can be successfully protected as proprietary intellectual property rights. 40

47 RISK FACTORS If the life cycle of our products is shortened, we have to invest more resources to develop new technology and product and launch new product at a faster speed, which could result in an increase in the cost of development and a decrease on the return on investment. Our products may become obsolete due to rapid advancement in technology and changes in consumer preferences. Inventory obsolescence may occur due to short product life cycle of our OBM video and imaging products as a result of rapidly changing technology in the market. The product life cycle of our OBM video and imaging products, in particular, different models of scanner mouse, depend on the level of competition, the launching of new substitute products and the pace of technological development in the market. To the best of our Directors knowledge, information and belief, different models of scanner mouse generally have an estimated product life cycle of approximately one to two years. Our Group generally does not keep inventories of ODM video and imaging products. For details, see Financial Information Description and analysis of principal items in the combined statements of financial position Inventories. As a result, the inventory of the older models of our OBM video and imaging products may become obsolete and our Company may be required to adjust the book values of such obsolete inventory to the lower of their costs or their net realisable value. Our Company s operating results may be adversely affected by such adjustments. Our performance could fluctuate due to changes in our business strategies. During the Track Record Period, our revenue was largely derived from Hong Kong, accounting for approximately 48.6%, 32.8%, 31.3% and 39.4% of our revenue for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. The percentage of sales made to overseas markets in the U.S. and Europe accounted for approximately 24.1% and 6.0% for the year ended 31 March 2013, approximately 36.2% and 11.9% for the year ended 31 March 2014, approximately 39.3% and 15.2% for the year ended 31 March 2015 and approximately 43.2% and 8.8% for the six months ended 30 September 2015 of our revenue. We cannot assure that we will be able to sustain continuing growth in our sales in the U.S. and Europe in the future. We cannot assure you that changes in our business strategies will achieve the desired results. If we fail to execute our business plans effectively or if we are unable to manage our managerial, operational and financial resources to accommodate these changes, we may then not be able to implement our business strategies accurately and our business, reputation and prospect could be adversely affected. 41

48 RISK FACTORS Future expansion plans are subject to uncertainties and risks. We have set out our future plans in Future Plans and Use of Proceeds. Whether our future plans can be implemented successfully may be beyond our control and some future events may affect the smooth running of the expansion plan such as shortage of talent for research and development and sales and marketing purpose, delays in acquisition of machineries and equipment, changes in applicable laws, rules and regulations. There is no assurance that we will be successful in our expansion plans. If we fail to project accurately the time, labour and costs required for implementing our expansion plans, or if we fail to secure sufficient amount of sales order or at all after the expansion, our business and results of operation may be adversely affected. RISKS RELATING TO OUR INDUSTRY We operate in a competitive market that could result in lower profit margins. According to the Ipsos Report, the ODM and OBM sector for video and imaging products in Hong Kong is fragmented and remains in a developing stage. Most players offer very similar or even homogeneous products, resulting in price competition among themselves. The average wholesale prices of IC chips, CMOS sensors, wired scanner mouse and hunting camera in Hong Kong had been decreasing from 2011 to 2014 generally. In the event that our competitors offer less expensive alternatives to our products or services, or engage in aggressive pricing in order to increase their market share, or are capable of supplying products with superior performance, functions or efficiency, we could lose customers to our competitors and our business, financial condition and results of operations could be adversely affected. Competition could also lead to, among other things, stricter terms in agreements with manufacturers of imaging electronic components, which could have an adverse impact on our business, financial condition and results of operations and lower our profit margins. Competition in the imaging electronic component trading industry in Hong Kong may increase due to low entry barrier. According to the Ipsos Report, due to the relatively low material costs such as those for IC chips and CMOS sensors, the imaging electronic component trading industry in Hong Kong requires relatively low capital and monetary commitment. Owing to the low entry barrier, such industry is fragmented with a large number of players and most of the players offer homogeneous products, resulting in fierce price competition among industry players and thereby reducing their profit margins. In the case of an increase in competition in the imaging electronic component trading industry in Hong Kong, our business, results of operations and prospects could be adversely affected. 42

49 RISK FACTORS We are susceptible to the business cycles of the industries in which our customers operate. We provide ODM and OBM video and imaging products to various customers in a wide range of industries including hunting camera, bicycle camera, scanner mouse and other application segments. The business cycles and growth prospects of each of these segments will have a corresponding effect on the demand for our products and services. We cannot assure you that we could effectively manage the fluctuations in demand for our products and services. Should there be a prolonged downturn in any of these industries, our business, financial condition and results of operations could be adversely affected. We are subject to changes in restrictions of import and export trade due to the nature of our business. Our suppliers and customers are from different areas all over the world. Any changes in restrictions of import and export trade of the country or region which we operate in or we purchase materials from or deliver products to, such as regulatory restrictions, industryspecific quotas, tariffs, non-tariff barriers and taxes, could adversely affect our business, financial condition and results of operations. RISKS RELATING TO CONDUCTING BUSINESS IN THE PRC AND THE OVERSEAS MARKET Uncertainties with respect to the PRC legal system could have a material adverse effect on us. Some of our business and operations are conducted in the PRC and are governed by PRC laws, regulations and rules. The PRC legal system is a civil law system based on written statutes. Prior court decisions may be cited for reference, but have limited precedential value. The PRC has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in the PRC. As many of these laws, regulations and rules are relatively new, and because of the limited volume of published decisions and their non-binding nature, the interpretation and enforcement of these laws, regulations and rules may involve uncertainties and may not be as consistent or predictable as in other more developed jurisdictions. Furthermore, the legal protections available to us under these laws, regulations and rules may be limited. Any litigation or regulatory enforcement action in the PRC may be protracted and could result in substantial costs and diversion of resources and management attention. In addition, there can be no assurance that the PRC Government will not amend or revise existing laws, regulations or rules, or promulgate new laws, regulations or rules, that have a material and adverse effect on our business, operations, growth or prospects. For further information, see Regulatory Overview and Business Legal compliance and proceedings. 43

50 RISK FACTORS Withholding tax on dividends received from our PRC subsidiary could affect our Company s ability to pay dividends to our Shareholders. Under the EIT Law and its implementing regulations, the profits of a foreign invested enterprise generated from 1 January 2008 and onwards, which are distributed to its immediate holding company outside the PRC, are subject to a withholding tax rate of 10%. Pursuant to the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion With Respect to Taxes on Income ( ), and the Notice of the SAT on Issuing the Table of Agreed Tax Rates on Dividends ( ), when an enterprise in China distributes dividends to Hong Kong residents who are eligible for receiving such dividends, the Hong Kong residents, if holding more than 25% equity interest in such enterprise of China, are generally subject to an income tax rate of 5% of the total dividends received. According to the Announcement of the SAT on Promulgating the Administrative Measures for the Application of Tax Treaties to Non-residents Taxpayers ( ), which became effective on 1 November 2015, a non-resident enterprise may claim and enjoy the 5% tax rate without any approval by the relevant tax authorities when paying the tax with submitting the relevant documents required. However, the non-resident enterprise is still subject to the succession administration and investigation by the relevant tax authorities. However, according to the Notice of the SAT on Issues Regarding the Implementation of Dividend Provisions in Tax Treaties ( ), if the main purpose of an offshore arrangement is to obtain a preferential tax treatment, the PRC tax authorities have the discretion to adjust the tax rate enjoyed by the relevant offshore entity. We cannot assure you that the relevant PRC tax authorities will determine that the 5% tax rate applies to dividends received by our subsidiary in Hong Kong from our PRC subsidiary nor that the relevant PRC tax authorities will not levy a higher withholding tax rate on such dividends in the future. We are subject to extensive regulatory requirements, the non-compliance with which could cause us to incur penalties. We have business operations in Hong Kong and the PRC and deliver products to different areas all over the world and are subject to extensive regulatory requirements of the relevant areas. For a summary of certain aspects of the laws, rules, regulations, government policies and requirements, which are relevant to our Group s operation, see Regulatory Overview. There are associated risks, e.g. in areas where applicable regulations may be unclear or where regulators subsequently revise their previous guidance. We cannot assure you that we will be able to meet all the applicable regulatory requirements, or comply with all the applicable regulations and guidelines at all times. Failure to do so could result in sanctions, fines, penalties or other disciplinary actions, which may consequently materially and adversely affect our financial condition and results of operations. 44

51 RISK FACTORS RISKS RELATING TO THE PLACING There has been no prior public market for the Shares and an active trading market of the Shares may not develop. Prior to the Placing, there has not been a public market for the Shares. While our Company has applied to list and deal in the Shares on the Stock Exchange, there is no assurance that an active or liquid trading market will develop or be sustained if developed. The initial Placing Price range for the Placing Shares has been determined through negotiation between the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and our Company (for itself and on behalf of the Selling Shareholder). The Placing Price may differ significantly from the market price for the Shares following the Placing. However, even if approved, being listed on GEM does not guarantee that an active trading market for the Shares will develop following the Placing or that the Shares will always be listed and traded on GEM. Our Group cannot assure that an active trading market will develop or be maintained following completion of the Placing, or that the market price of the Shares will not fall below the Placing Price. The liquidity, trading volume and the market price of the Shares may be volatile. The market price and trading volume of the Shares may be highly volatile. Factors such as variations in our Group s revenue, earnings and cash flow, changes in the analysis and recommendations of securities analysts, announcements of new technologies, strategic alliances or acquisitions made by our Group or its competitors, loss of key personnel, litigation or fluctuations in the market prices for the products or the services or the raw materials of our Group, the liquidity of the market for the Shares, the general market sentiment regarding the industries in which we operate could cause large and sudden changes in the volume and price at which the Shares will trade. In addition, the Stock Exchange and other securities markets have from time to time experienced significant price and volume fluctuations that are not related to the operating performance or prospects of any particular company. These fluctuations may also materially and adversely affect the market price of the Shares. Future sales or perceived sales of a substantial number of the Shares in the public market could materially and adversely affect the prevailing market price of the Shares. There is no assurance that our Controlling Shareholders will not dispose of their Shares following the expiration of their respective lock-up periods after the Placing. We cannot predict the effect, if any, of any future sales of the Shares by any of our Controlling Shareholders, or that the availability of the Shares for sale by any of our Controlling Shareholders may have on the market price of the Shares. Sales of a substantial number of Shares by any of our Controlling Shareholders or the market perception that such sales may occur could materially and adversely affect the prevailing market price of the Shares. 45

52 RISK FACTORS Investors may experience dilution effect if our Group issues additional Shares in the future. Our Company may issue additional Shares upon exercise of options to be granted under the Share Option Scheme in the future. The increase in the number of Shares outstanding after the issue would result in the reduction in the percentage ownership of the Shareholders and may result in a dilution in the earnings per Share and net asset value per Share. In addition, our Group may need to raise additional funds in the future to finance business expansion or new development plans and acquisitions. If additional funds are raised through the issuance of new equity or equity-linked securities of our Company, other than on a pro rata basis to existing Shareholders, then (i) the percentage ownership of those existing Shareholders in our Company may be reduced, and they may experience subsequent dilution in the percentage ownership, and/or (ii) such newly issued securities may have preferred rights, options or privileges superior to those of the Shares of the existing Shareholders. Shareholders and investors could face difficulties in protecting their interests because our Company was incorporated under the laws of the Cayman Islands and these laws could provide different protections to minority Shareholders than the laws of Hong Kong. Our corporate affairs are governed by the Memorandum and Articles of Association and by the Companies Law and common law of the Cayman Islands. The laws of the Cayman Islands relating to the protection of the interests of minority shareholders could differ in some respects from those established under statutes or judicial precedents in existence in Hong Kong. Such differences could mean that the minority Shareholders could have different protections than they would have under the laws of Hong Kong. Our Controlling Shareholders may take actions that are not in, or may conflict with, the public Shareholders best interests. Our Controlling Shareholders together will control the exercise of 70% voting rights in the general meeting of our Company immediately after completion of the Capitalisation Issue and the Placing (without taking into account any Shares which may be allotted and issued upon the exercise of options that may be granted under the Share Option Scheme). Therefore, our Controlling Shareholders will continue to be able to exercise controlling influence over our business through their ability to take actions which do not require the approval of independent Shareholders. As such, our Controlling Shareholders have substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors, timing and amount of dividends, if any, and other significant corporate actions. In the case where the interests of our Controlling Shareholders conflict with those of other Shareholders, or if our Controlling Shareholders choose to cause us to pursue objectives that would conflict with the interests of other Shareholders, those Shareholders could be left in a disadvantageous position and the price of our Shares could be adversely affected. 46

53 RISK FACTORS RISK RELATING TO THE STATEMENTS MADE IN THIS PROSPECTUS Statistics and facts in this prospectus have not been independently verified. This prospectus includes certain statistics and facts that have been extracted from government official sources and publications or other sources. We believe that the sources of these statistics and facts are appropriate sources for such statistics and facts and have taken reasonable care in extracting and reproducing such statistics and facts. We have no reason to believe that such statistics and facts are false or misleading or that any fact has been omitted that would render such statistics and facts false or misleading. These statistics and facts have not been independently verified by us, the Selling Shareholder, the Sponsor, the Joint Global Coordinators, the Joint Bookrunners, the Joint Lead Managers, the Underwriters, any of their respective directors, advisers, officers, employees, agents, affiliates and/or representatives or any other persons or parties involved in the Placing and therefore, we make no representation as to the accuracy of these statistics and facts, and as such, these statistics and facts should not be unduly relied upon. In all cases, investors should give consideration as to how much weight or importance they should attach to, or place on, such facts or other statistics. Forward-looking statements in this prospectus could prove inaccurate. This prospectus contains certain forward-looking statements relating to the plans, objectives, expectations and intentions of our Directors. Such forward-looking statements are based on numerous assumptions as to our present and future business strategies and the development of the environment in which we operate. Our actual financial results, performance or achievements could differ materially from those discussed in this prospectus. Investors should be cautions against placing undue reliance on any forward-looking statements as these statements involve known and unknown risks, uncertainties and other factors which could cause our actual financial results, performance or achievements to be materially different from our anticipated financial results, performance or achievements expressed or implied by these statements. We are not obliged to update or revise any forward-looking statements in this prospectus, whether by reason of new information, future events or otherwise. 47

54 RISK FACTORS You should read this entire prospectus and we strongly caution you not to place any reliance on any information contained in press articles or media regarding us or the Placing. There may be press and media coverage regarding us or the Placing, which may include certain events, financial information, financial projections and other information about us that do not appear in this prospectus. We have not authorised the disclosure of any other information not contained in this prospectus. We do not accept any responsibility for any such press or media coverage and we make no representation as to the accuracy or completeness or reliability of any such information or publication. To the extent that any such information appearing in publications other than this prospectus is inconsistent or conflicts with the information contained in this prospectus, we disclaim responsibility for them. Accordingly, prospective investors should not rely on any such information. In making your decision as to whether to subscribe for our Shares, you should rely only on the financial, operational and other information included in this prospectus. 48

55 INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING DIRECTORS RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS This prospectus, for which our Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Companies (Winding Up and Miscellaneous Provisions) Ordinance, the Securities and Futures (Stock Market Listing) Rules (Chapter 571V of the Laws of Hong Kong) and the GEM Listing Rules for the purposes of giving information with regard to our Company. Our Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief: the information contained in this prospectus is accurate and complete in all material respects and not misleading or deceptive; there are no other matters the omission of which would make any statement herein or this prospectus misleading; and all opinions expressed in this prospectus have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable. The Placing Shares are offered for subscription and sale solely on the basis of the information contained and the representations made in this prospectus. No person is authorised in connection with the Placing to give any information, or to make any representation, not contained in this prospectus. Any information or representation not contained herein shall not be relied upon as having been authorised by our Company, the Selling Shareholder, the Sponsor, the Joint Global Coordinators, the Joint Bookrunners, the Joint Lead Managers, the Underwriters, any of their respective directors, advisers, officers, employees, agents, affiliates and/or representatives or any other persons or parties involved in the Placing. Printed copies of this prospectus are available, for information purposes only, at the offices of (1) Quam Capital Limited at 18/F-19F, China Building, 29 Queen s Road Central, Hong Kong; and (2) Quam Securities Company Limited at 18/F-19/F, China Building, 29 Queen s Road Central, Hong Kong from 4:00 p.m. to 5:00 p.m. on Monday, 14 March 2016 and during normal office hours from 9:00 a.m. to 5:00 p.m. from Tuesday, 15 March 2016 up to and including Wednesday, 23 March 2016 (both dates inclusive but on business days only). PLACING SHARES ARE FULLY UNDERWRITTEN This prospectus is published solely in connection with the Placing which is sponsored by the Sponsor and managed by the Joint Global Coordinators. The Placing Shares will be fully underwritten by the Underwriters, subject to the terms and conditions of the Underwriting Agreement (including but not limited to the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and our Company (for itself and on behalf of the Selling Shareholder) agreeing on the Placing Price). For further information about the Underwriters and underwriting arrangements, see Underwriting. 49

56 INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING DETERMINATION OF THE PLACING PRICE The Placing Price is expected to be fixed by the Price Determination Agreement to be entered into between the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and our Company (for itself and on behalf of the Selling Shareholder) on the Price Determination Date, which is expected to be on or about Tuesday, 15 March 2016, or such later date as the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and our Company (for itself and on behalf of the Selling Shareholder) may agree. For full information relating to the determination of the Placing Price, see Structure and Conditions of the Placing. RESTRICTIONS ON SALE OF THE PLACING SHARES No action has been taken to permit any offering of the Placing Shares or the distribution of this prospectus in any jurisdiction other than Hong Kong. Accordingly, this prospectus may not be used for the purpose of, and does not constitute, an offer or invitation nor is it calculated to invite or solicit offers in any jurisdiction or in any circumstances in which such offer or invitation is not authorised or to any person to whom it is unlawful to make such an offer or invitation. The distribution of this prospectus and the offering of the Placing Shares in other jurisdictions are subject to restrictions and may not be made except as permitted under the applicable laws, rules and regulations of such jurisdictions pursuant to registration with or authorisation by the relevant regulatory authorities or as an exemption therefrom. Each person acquiring the Placing Shares will be required to confirm, or by his/her acquisition of the Placing Shares be deemed to confirm, that he/she is aware of the restrictions on offers of the Placing Shares described in this prospectus and that he/she is not acquiring, and has not been offered, any such shares in circumstance that contravenes any such restrictions. Prospective subscribers for the Placing Shares should consult their financial advisers and take legal advice as appropriate, to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. STRUCTURE AND CONDITIONS OF THE PLACING Details of the structure of the Placing, including the conditions thereto, are set out in Structure and Conditions of the Placing. DETAILS OF THE SELLING SHAREHOLDER Details of the Selling Shareholder are set out in Statutory and General Information Further information about our Company and our subsidiaries 24. Particulars of the Selling Shareholder in Appendix IV to this prospectus. 50

57 INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING APPLICATION FOR LISTING ON GEM Application has been made to the Listing Division for the listing of, and permission to deal in, our Shares in issue and to be issued as mentioned in this prospectus on GEM. No part of the share or loan capital of our Company is listed on or dealt in on any other stock exchange and no such listing or permission to list is being or is proposed to be sought in the near future. Pursuant to Rule 11.23(7) of the GEM Listing Rules, at all times after the Listing, our Company must maintain the minimum prescribed percentage of 25% or such applicable percentage of the issued share capital of our Company in the hands of the public (as defined in the GEM Listing Rules). Under section 44B(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, if the permission for the Shares offered under this prospectus to be listed on GEM has been refused before the expiration of three weeks from the date of the closing of the Placing or such longer period not exceeding six weeks as may, within the said three weeks, be notified to our Company for permission by or on behalf of the Stock Exchange, then any allotment made on an application in pursuance of this prospectus shall, whenever made, be void. Only securities registered on the branch register of members of our Company kept in Hong Kong may be traded on GEM unless the Stock Exchange otherwise agrees. SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS Subject to the approval of the listing of, and permission to deal in, our Shares in issue and to be issued as mentioned in this prospectus on GEM and the compliance with the stock admission requirements of HKSCC, our Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the Listing Date or on any other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange is required to take place in CCASS on the second business day after any trading day. Investors should seek the advice of their stockbroker or other professional adviser for details of those settlement arrangements as such arrangements will affect their rights and interests. All necessary arrangements have been made for the Shares to be admitted into CCASS. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time. HONG KONG SHARE REGISTRAR AND STAMP DUTY Our Company s principal register of members will be maintained by our principal share registrar, Codan Trust Company (Cayman) Limited, in the Cayman Islands and our Company s Hong Kong branch register of members will be maintained by our Hong Kong branch share registrar, Tricor Investor Services Limited, in Hong Kong. 51

58 INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING All Shares in issue will be registered in our Company s branch register of members to be maintained in Hong Kong. Only Shares registered on our Company s branch register of members maintained in Hong Kong may be traded on GEM unless the Stock Exchange otherwise agrees. Dealings in Shares registered in the branch register of members of our Company in Hong Kong will be subject to Hong Kong stamp duty. Unless determined otherwise by our Company, dividends payable in Hong Kong dollars in respect of our Shares will be paid to the Shareholders listed on our Company s Hong Kong branch register of members to be maintained in Hong Kong, by ordinary post, at the Shareholders risk, to the registered address of each Shareholder or if joint Shareholders, to the first-named therein in accordance with the Articles. PROFESSIONAL TAX ADVICE RECOMMENDED Potential investors in the Placing are recommended to consult their professional advisers if they are in any doubt as to taxation implications of the subscription for, purchase, holding or disposal of, dealings in, or the exercise of any rights in relation to, our Shares. None of our Company, the Selling Shareholder, the Sponsor, the Joint Global Coordinators, the Joint Bookrunners, the Joint Lead Managers, the Underwriters, any of their respective directors, advisers, officers, employees, agents, affiliates and/or representatives or any other persons or parties involved in the Placing accepts responsibility for any tax effects on or liabilities of any person resulting from the subscription for, purchase, holding or disposal of, dealings in, or the exercise of any rights in relation to, our Shares. DEALINGS AND SETTLEMENT Dealings in the Shares on GEM are expected to commence at 9:00 a.m. (Hong Kong time) on Thursday, 24 March Shares will be traded in board lots of 4,000 Shares each and are freely transferable. The GEM stock code for the Shares is Our Company will not issue any temporary document of title. LANGUAGE If there is any inconsistency between this prospectus and the Chinese translation of this prospectus, this prospectus shall prevail. Names of any laws and regulations, governmental authorities, institutions, natural persons or other entities which have been translated into English and included in this prospectus and for which no official English translation exists are unofficial translations for your reference only. If there is any inconsistency, the Chinese name prevails. 52

59 INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING EXCHANGE RATE CONVERSION Unless otherwise specified, this prospectus contains translations for the convenience of the reader the following rates: HK dollars into US dollars at the rate of HK$7.80 = US$1.00; HK dollars into RMB at the rate of HK$1.00 = RMB0.84 and HK dollars into yen at the rate of HK$1.00 = 14.7 yen. These translations are provided for reference and convenience only, and no representation is made, and no representation should be construed as being made, that any amounts in HK$, US$, RMB or yen can be or could have been at the relevant dates converted at the above rates or any other rates at all. Unless our Company determines otherwise, dividends payable in HK dollars in respect of the Shares will be paid to the Shareholders listed on our Company s Hong Kong branch register of members to be maintained in Hong Kong by cheque sent, by ordinary post, at the Shareholder s risk to the registered address of each Shareholder or, in the case of joint holders, the first-named holder in accordance with the Articles. ROUNDING Any discrepancies in any table or chart between the totals and the sums of the amounts listed therein are due to rounding. 53

60 DIRECTORS, SENIOR MANAGEMENT AND PARTIES INVOLVED IN THE PLACING DIRECTORS Name Residential Address Nationality Executive Directors Mr. Lee Siu On Flat D, G/F, Tower 3 One Beacon Hill 1 Beacon Hill Road Kowloon Tong Hong Kong Chinese Ms. Kwok Mei Foon Flat D, G/F, Tower 3 One Beacon Hill 1 Beacon Hill Road Kowloon Tong Hong Kong Chinese Mr. Ma Ka Po Room 1017 Shin Tsui House Fu Shin Estate Tai Po New Territories Hong Kong Chinese Independent non-executive Directors Mr. Cheng Hok Kai Frederick 12/F, 10C Lai Wan Road Mei Foo Sun Chuen Lai Chi Kok Kowloon Hong Kong British Mr. Kow Ping Flat B2, 3/F Flora Garden 50 Cloud View Road North Point Hong Kong Singaporean Mr. Tao Hong Ming Flat A, 31/F, Block 12 Discovery Park Tsuen Wan New Territories Hong Kong Chinese 54

61 DIRECTORS, SENIOR MANAGEMENT AND PARTIES INVOLVED IN THE PLACING SENIOR MANAGEMENT Name Residential Address Nationality Mr. Leung Ting Yuk Room 1218 King Nam House King Lam Estate Tseung Kwan O Hong Kong Chinese Mr. Ng Chun Sum Flat G, 5/F, Block On King Street Ravana Garden Sha Tin New Territories Hong Kong Chinese Mr. Wong Tung Yuen Room 9, Flat 12, Block B San Shun House San Wai Court Tuen Mun New Territories Hong Kong Chinese See Directors, Senior Management and Staff for further details of our Directors and senior management. PARTIES INVOLVED IN THE PLACING Sponsor Joint Global Coordinators Quam Capital Limited 18/F-19/F, China Building 29 Queen s Road Central Hong Kong Quam Securities Company Limited 18/F-19/F, China Building 29 Queen s Road Central Hong Kong Pacific Foundation Securities Limited 11/F, New World Tower Two Queen s Road Central Hong Kong 55

62 DIRECTORS, SENIOR MANAGEMENT AND PARTIES INVOLVED IN THE PLACING Joint Bookrunners and Joint Lead Managers Quam Securities Company Limited 18/F-19/F, China Building 29 Queen s Road Central Hong Kong Pacific Foundation Securities Limited 11/F, New World Tower Two Queen s Road Central Hong Kong Ping An Securities Limited Unit 02, 2/F, China Merchants Building Connaught Road Central Hong Kong Co-Managers Opus Capital Limited 18/F, Fung House Connaught Road Central Hong Kong Ample Orient Capital Limited Room 902, 9/F, Far East Consortium Building 121 Des Voeux Road Central Hong Kong Legal advisers to our Company As to Hong Kong law: Locke Lord 21/F, Bank of China Tower 1 Garden Road Central Hong Kong As to the PRC law: Global Law Office 15/F, Tower 1 China Central Place No. 81 Jianguo Road Chaoyang District Beijing PRC As to Cayman Islands law: Conyers Dill & Pearman Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY Cayman Islands 56

63 DIRECTORS, SENIOR MANAGEMENT AND PARTIES INVOLVED IN THE PLACING As to Belgian law: Baker & McKenzie CVBA/SCRL Avenue Louise 149 B-1050 Brussels Belgium As to German law: ARNECKE SIBETH SIEBOLD Rechtsanwälte Steuerberater Partnerschaftsgesellschaft mbb Hamburger Allee 4 (WestendGate) Frankfurt am Main Germany As to Japan law: Nishimura & Asahi Otemon Tower Otemachi Chiyoda-ku Tokyo Japan As to Singapore law: Rajah & Tann Singapore LLP 9 Battery Road #25-01 Straits Trading Building Singapore As to U.S. law (State of Illinois): Locke Lord LLP 111 South Wacker Drive Chicago, IL As to U.S. law (State of Mississippi): Adams and Reese LLP 1018 Highland Colony Parkway Suite 800 Ridgeland, MS As to U.S. law (State of Tennessee): Husch Blackwell LLP 1661 International Drive Suite 300 Memphis, TN

64 DIRECTORS, SENIOR MANAGEMENT AND PARTIES INVOLVED IN THE PLACING As to U.S. law (State of Texas): Locke Lord LLP 2800 JPMorgan Chase Tower 600 Travis Houston, TX Legal advisers to the Sponsor and the Underwriters As to Hong Kong law: Pinsent Masons 50th Floor Central Plaza 18 Harcourt Road Hong Kong As to the PRC law: Dentons 17/F, Gongjiao Building No. 1001, Lianhuazhi Road Futian District Shenzhen PRC Auditors and reporting accountants Property valuer Industry consultant Compliance adviser KPMG Certified Public Accountants 8th Floor Prince s Building 10 Chater Road Central Hong Kong LCH (Asia-Pacific) Surveyors Limited 17th Floor Champion Building Des Voeux Road Central Hong Kong Ipsos Limited 77 Leighton Road Causeway Bay Hong Kong Lego Corporate Finance Limited Room 1601, 16/F, China Building 29 Queen s Road Central Hong Kong 58

65 CORPORATE INFORMATION Registered office Headquarters and principal place of business in Hong Kong Authorised representatives Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY Cayman Islands 26th Floor, Lever Tech Centre Nos King Yip Street Kwun Tong Kowloon Hong Kong Mr. Lee Siu On Flat D, G/F, Tower 3 One Beacon Hill 1 Beacon Hill Road Kowloon Tong Hong Kong Mr. Leung Ting Yuk Room 1218 King Nam House King Lam Estate Tseung Kwan O Hong Kong Members of audit committee Members of remuneration committee Members of nomination committee Company website Compliance officer Mr. Cheng Hok Kai Frederick (Chairman) Mr. Kow Ping Mr. Tao Hong Ming Mr. Kow Ping (Chairman) Mr. Cheng Hok Kai Frederick Mr. Tao Hong Ming Mr. Tao Hong Ming (Chairman) Mr. Cheng Hok Kai Frederick Mr. Kow Ping (Note: contents on this website do not form part of this prospectus) Mr. Lee Siu On 59

66 CORPORATE INFORMATION Company secretary Principal banker Principal share registrar and transfer office in the Cayman Islands Hong Kong branch share registrar and transfer office Mr. Leung Ting Yuk (CPA) Room 1218 King Nam House King Lam Estate Tseung Kwan O Hong Kong Hang Seng Bank Limited 83 Des Voeux Road Central Hong Kong Codan Trust Company (Cayman) Limited Cricket Square Hutchins Drive PO Box 2681 Grand Cayman KY Cayman Islands Tricor Investor Services Limited Level 22 Hopewell Centre 183 Queen s Road East Hong Kong 60

67 INDUSTRY OVERVIEW This section contains certain information which is derived from official government publications and industry sources as well as a commissioned report from Ipsos, an Independent Third Party. We believe that the sources of the information are appropriate sources for such information and have taken reasonable care in extracting and reproducing such information. We have no reason to believe that such information is false or misleading or that any fact has been omitted that would render such information false or misleading. The information derived from the above sources has not been independently verified by us, the Selling Shareholder, the Sponsor, the Joint Global Coordinators, the Joint Bookrunners, the Joint Lead Managers, the Underwriters, any of their respective directors, advisers, officers, employees, agents, affiliates and/or representatives or any other persons or parties involved in the Placing and no representation is given as to its accuracy. Please refer to Risk Factors Risk relating to the statements made in this prospectus Statistics and facts in this prospectus have not been independently verified for details. We believe, after taking reasonable care, that there have been no material adverse changes in the market information since 14 March 2016, being the date of the report issued by Ipsos which may qualify, contradict or have an impact on the information in this section. INTRODUCTION We commissioned Ipsos, an independent market research company, to conduct an analysis of, and to report on the (i) industry development and trends and competitive landscape of the video and imaging and related IC product industry in the global market in general and the Hong Kong market; and (ii) demand for: (a) imaging electronic components in Hong Kong, the PRC, U.S., Europe, South East Asia and Australia; and (b) ODM and OBM video and imaging products, mainly in U.S., Japan and Europe from 2009 to The Ipsos Report commissioned has been prepared by Ipsos independent of our influence. Ipsos has charged our Company a total fee of HK$458,000 for the Ipsos Report, which we believe reflects the market rate. Ipsos is an independent market research company and is one of the largest research companies in the world, employing approximately 16,000 personnel worldwide across 85 countries. Ipsos conducts research on market profiles, market size, market share and segmentation analyses, distribution and value analyses, competitor tracking and corporate intelligence. The Ipsos Report includes information on the video and imaging solution and design industry in general and the Hong Kong market. The information contained in the Ipsos Report is derived by means of data and intelligence gathering which includes: (i) desk research covering government and regulatory statistics, industry reports and analyst reports, industry associations, industry journals and other online sources and data from the research database of Ipsos; (ii) client consultation to obtain background information of our Company; and (iii) primary research by interviewing key stakeholders and industry experts, including associations and experts, video and imaging product solution providers and designers, ODM and OBM service providers and manufacturers and customers in Hong Kong. 61

68 INDUSTRY OVERVIEW The information and data gathered by Ipsos has been analysed, assessed and validated using Ipsos in-house analysis models and techniques. The methodology used by Ipsos is based on information sourced from multiple levels and allows such information to be crossreferenced for accuracy. This is the basis upon which we consider the data and statistics to be reliable. PARAMETERS AND ASSUMPTIONS USED IN THE IPSOS REPORT Analyses in the Ipsos Report are based on, among others, the following assumptions: the supply and demand of products and services provided by video and imaging and related IC product industry in the global market are assumed to be stable and without shortage over the forecast period; and it is assumed that there is no external shock such as financial crisis or natural disasters in the global market to affect the demand and supply for the products and service of video and imaging and related IC product industry in Hong Kong over the forecast period. Analyses in the Ipsos Report have taken into account, among others, the following parameters: average annual disposable income and consumption expenditure per capita in the global market, Hong Kong, the PRC, Europe, U.S., Canada and Japan from 2009 to 2018; and the total sales value of video and imaging products in the global market from 2009 to GROWTH IN DISPOSABLE INCOME The average annual disposable income per head in Hong Kong, the PRC and Europe have been increasing since 2009 and their CAGR from 2009 to 2014 was approximately 4.4%, 15.8% and 2.7% respectively. It is anticipated that the average annual disposable income per head in Hong Kong, the PRC and EU will grow at a slower rate in comparison with the previous six years, at a CAGR of approximately 4.8%, 9.4% and 2.2% respectively for the years from 2015 to As for U.S., Canada and Japan, the CAGR of the average annual disposable income per head from 2009 to 2014 was approximately 2.7%, 4.2% and -1.4% respectively. It is expected that the average annual disposable income per head in U.S., Canada and Japan would grow at a CAGR of approximately 3.4%, 5.9% and 2.2% respectively from 2015 to

69 INDUSTRY OVERVIEW OVERVIEW OF THE VIDEO AND IMAGING SOLUTION AND DESIGN INDUSTRY Video and imaging and related IC product industry contributes to the early stages of the product development cycle of video and imaging products. It provides a one-stop solution to the video and imaging product brand owners, including but not limited to the provision of product design, procurement, product development and production. The major types of services in the video and imaging and related IC product industry include the sales of (i) imaging electronic components and design services; and (ii) ODM and OBM video and imaging products. Video and imaging components include IC chips, CMOS sensors, digital imaging compression chips. ODM and OBM video and imaging products refer to hunting cameras and wired scanner mouse. There are approximately 50 CMOS sensors manufacturers and over 300 IC chips and digital imaging compression chip manufacturers worldwide. Due to the cyclical nature of the industry, the global semi-conductor industry may experience market downturn from time to time. From 2011 to 2012, the global semi-conductor industry experienced a decrease in revenue of approximately 2.7% compared with the year before. The global semi-conductor industry then experienced an increase in revenue of approximately 4.8% in 2013 and 9.9% in There was also a market downturn in the first quarter of 2015, with an approximately 5.0% decline in the revenue of key semi-conductor companies on average. The decrease in demand, normal market cycle fluctuation and currency devaluation in some of the regional markets, such as Europe and Japan, are the main reasons for the decrease in sales of semi-conductor in the first quarter of However, amid the market cycle fluctuation of the semi-conductor industry, the image sensor market (i.e. covering CMOS sensors) kept growing during the period from 2009 to 2014 at a CAGR of approximately 9.2%. The increase in the global demand for (i) security and defence segment with products such as surveillance camera; (ii) automotive segment with products such as car digital video recorder; and (iii) consumer electronic products, such as action camera (including hunting camera, bicycle camera, wearable camera and sport camera), mobile phones and digital cameras, was the major factor contributing to such increase in revenue in the global image sensor market. The global IC industry experienced an overall increase from 2009 to 2014, except for the cyclical decrease in From 2009 to 2014, the revenue of the global IC industry represented an overall increasing trend at a CAGR of approximately 7.2%, which was supported by the increase in demand for consumer products and automotive. In 2012, the revenue of the global IC industry recorded a negative growth rate of approximately 4.1%, which was due to the decrease in demand for IC chips that were mainly applied for manufacturing computer related products. Since 2013, the global IC industry increased gradually. In terms of sales revenue, approximately 50% of IC chips were applied for manufacturing consumer products, such as cameras, computers and mobile phones. 63

70 INDUSTRY OVERVIEW Key players in the industry In general, there are four key players in the supply chain of video and imaging and IC product industry, which are namely raw material suppliers, manufacturers, brand owners and retailers who purchase the finished video and imaging products and sell to the end-users. For raw material suppliers, they supply the major electronic components of video and imaging products such as CMOS sensors, digital imaging compression chip and IC chips to the manufacturers of video and imaging products, who are then responsible for manufacturing the video and imaging products based on orders from brand owners where they do not own any production facilities. Brand owners have the ownership of the brand and the products. They normally design and develop the prototypes of the products themselves before proceeding to the manufacturing stage. Where they lack the capability in product design and manufacturing, such processes would be outsourced to ODM. In cases where the brand owners possess manufacturing capability but lack the capability in products design, customised video and imaging engineering solution and design service providers are usually engaged to provide the necessary raw materials and technical support for the production of relevant video and imaging products. Hong Kong market In Hong Kong, the video and imaging and related IC product industry has been experiencing restructuring since Before 2000, most video and imaging product manufacturers in Hong Kong had multiple roles such as designers, manufacturers and re-exporters. After 2000, Taiwan and the PRC have started to strengthen their market position as a hub of semiconductors and electronic components manufacturing and distribution region that supply to the global market. The service providers of video and imaging and related IC product industry in Hong Kong started to focus more on providing high-valued added services, transforming into a more design- and logistic-focused hub. ODM and OBM service providers in Hong Kong became less directly involved in the manufacturing process and play an increasingly important role in the product innovation process. Due to the close proximity of Hong Kong to the PRC and Taiwan, the service providers in Hong Kong have the strategic advantage to develop an efficient logistic network to source the newest model of electronic equipment. The demand from clients for designs and sourcing capability and the strategic geographical location of Hong Kong created more growth opportunities for ODM and OBM service providers of video and imaging products and sales of imaging electronic components and design service providers in Hong Kong. 64

71 INDUSTRY OVERVIEW THE VIDEO AND IMAGING AND RELATED IC PRODUCT INDUSTRY Imaging electronic components and engineering solution and design Customers in the imaging electronic components and engineering solution and design segment are manufacturers of video and imaging products and are located in the PRC, Europe, Canada, U.S. and Hong Kong. Most of them do not have adequate research and development capability and require assistance on product development and sourcing of electronic components from customised video and imaging engineering solutions and design service providers. The provision of design and engineering solutions may generate lock-in sales of related electronic components. In Hong Kong, customers in this segment are video and imaging products manufacturers who mostly come from Hong Kong and the PRC. Global market The total sales value of video and imaging IC products or components or parts in global market increased at a CAGR of approximately 9.2% during 2009 to It is expected that the total sales value of video and imaging IC products or components or parts in global market will increase with a CAGR of approximately 6.6% between 2015 and 2018, at a slower growth rate than the period from 2009 to The total sales value of video and imaging IC products or components or parts in global market can be represented by the sales value of CMOS sensors and digital imaging compression chips. During 2009 to 2014, the sales value of CMOS sensors has accounted for a larger part in the global market of video and imaging IC products or components or parts. It is predicted that the market size of digital imaging compression chips will continue to shrink, while the market size of CMOS sensor will continue to grow given the growth in demand from the automotive, healthcare and consumer electronics segments. The growth in sales of CMOS sensors will be partially offset by the shrinkage in digital imaging compression chip sales. 65

72 INDUSTRY OVERVIEW Total sales value of video and imaging IC products or components or parts in global market Year Value (US$ billion) U.S. Europe Asia PRC Rest of the World Total Percentage to total revenue Value (%) (US$ billion) Percentage to total revenue Value (%) (US$ billion) Percentage to total revenue Value (%) (US$ billion) Percentage to total revenue Value (%) (US$ billion) Percentage to total revenue Value (%) (US$ billion) Percentage to total revenue (%) % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % CAGR (%) 15.2% 13.7% 7.3% 2.4% 18.3% 9.2% 2015F % % % % % % 2016F % % % % % % 2017F % % % % % % 2018F % % % % % % CAGR 2015F-2018F (%) 4.5% 4.6% 7.8% 2.3% 18.7% 6.6% CAGR F (%) 11.0% 9.6% 7.6% 1.6% 19.2% 8.0% Source: Ipsos Report U.S. market The total sales value of video and imaging IC products or components or parts in U.S. increased from approximately US$1.2 billion in 2009 to approximately US$2.5 billion in 2014, giving a CAGR of approximately 15.2%. The growth in total sales value in U.S. can be largely contributed to the sales of digital imaging compression chip. It is predicted that the total sales value of video and imaging IC products or components or parts in U.S. will increase from approximately US$2.7 billion in 2015 to approximately US$3.1 billion in 2018, giving a CAGR of approximately 4.5%. Slower rate of growth in total sales value in U.S. can be explained by the lower adoption rate of digital imaging compression chip from consumer electronics manufacturers in U.S. in the future. European market From 2009 to 2014, the total sales value of video and imaging IC products or components or parts in Europe experienced a strong growth. This increment gave a CAGR of approximately 13.7%, from approximately US$1.6 billion in 2009 to approximately US$3.0 billion in Between 2015 and 2018, the sales value in Europe will grow at a slower pace from approximately US$3.1 billion in 2015 to approximately US$3.6 billion in 2018, representing 66

73 INDUSTRY OVERVIEW a CAGR of approximately 4.6%. The sales value of video and imaging IC products or components or parts in Europe will experience a slower growth because of the strong competition of manufacturing video and imaging IC products from Asia and the PRC, which will therefore induce a lower concentration of downstream industry players and lack of indigenous manufacturing in Europe. Asian market The total sales value of video and imaging IC products or components or parts in Asia grew at a CAGR of approximately 7.3%, from approximately US$4.6 billion in 2009 to approximately US$6.5 billion in In both global markets for CMOS sensor and digital imaging compression chip, Asia has accounted for the largest part of the sales. Specifically, Japan, Taiwan and Korea were the main contributors for the growth in total sales value in Asia from 2009 to In the future, it is believed that these countries will continue to become the hub of the electronics products manufacturing industry. Therefore, it is predicted that the total sales value of video and imaging IC products or components or parts in Asia will grow from approximately US$7.0 billion in 2015 to approximately US$8.8 billion in 2018, giving a CAGR of approximately 7.8% between 2015 and PRC market There has been an increasing demand for video and imaging IC products or components or parts in the PRC since 2011 due to the recovery of the global economy from global financial crisis. Between 2015 and 2018, it is predicted that the PRC will maintain a consistent growth in the sales value of video and imaging IC products or components or parts, from approximately US$1.9 billion in 2015 to approximately US$2.1 billion in 2018 at a CAGR of approximately 2.3%. Propelled by the continual technological advancement, the projected increase in consumption expenditure during the period, as well as the increasing population, the demand for video and imaging IC products or components or parts in the PRC is expected to rise accordingly. Thus, the PRC is expected to become an emerging market leader in the consumer electronic manufacturing industry. ODM and OBM business for video and imaging products For customers of video and imaging products in ODM business, they are brand owners who sell video and imaging products and are mainly from the U.S., Japan and Europe. Some of them do not have sufficient research and development capability and look for business partner ODM service providers who can provide the latest product design for their market. Some brand owners who do not have manufacturing capacity may also outsource the manufacturing process to ODM service providers. For OBM customers, they are mainly wholesalers and distributors selling the OBM video and imaging products over the world. In Hong Kong, customers in this segment are the brand owners of video and imaging products who mostly come from Asian countries with some from the U.S., Europe and Japan. Global market Total sales value of video and imaging products in global market rose from approximately US$9.9 billion in 2009 to approximately US$22.2 billion in 2014 at a CAGR of approximately 17.4%. 67

74 INDUSTRY OVERVIEW The continual increase in total sales value of video and imaging products from 2009 to 2014 can be attributed to the growth in demand for video and imaging products in global market, which is expected to continue between 2015 and 2018 at a CAGR of approximately 15.1% with the expected growth in the total sales value of video surveillance. Total sales value of video and imaging products in global market US$ billion F F F F Total sales value of video and imaging IC products in global market Source: Ipsos Report U.S. market Total sales value of video and imaging products in the U.S. market is expected to grow from approximately US$3.1 billion in 2009 to approximately US$12.3 billion in 2018 at a CAGR of approximately 16.4%. The trend can be explained by a considerable surge in the replacement demand from the existing video and imaging products users in the U.S. market from 2009 to 2014, which is primarily due to the shortening of the replacement cycle of video and imaging products among U.S. consumers. Moreover, the consumption expenditure in the U.S. has recovered from financial crisis, from approximately US$32,074.2 in 2009 to approximately US$37,556.5 in 2014, representing a CAGR of about 3.2%, as a result of the improvement in consumers confidence. The favourable factor has led to a continual increase in the sales value of video and imaging products in the U.S. European market From 2009 to 2018, total sales value of video and imaging products in Europe is expected to grow from approximately US$2.2 billion in 2009 to approximately US$8.9 billion in 2018 at a CAGR of approximately 16.9%. As Europe has been slowly recovering from the financial crisis in 2008, the restoration of consumers confidence and purchasing power have been the major factors for growth of the European market in this segment. 68

75 INDUSTRY OVERVIEW Asian market Total sales value of video and imaging products in Asia has been growing at a relatively moderate pace, rising from approximately US$1.6 billion in 2009 to approximately US$4.4 billion in 2018 at a CAGR of approximately 11.9%. The rising trend is attributable to the robust economic performance from 2009 to 2018 and the growing consumption power. This has encouraged consumers to purchase video and imaging products such as scanner mouse and action cameras. However, since Asia has been growing at a slower rate compared to other regions, its percentage to total revenue of the global market has been decreasing from approximately 16.2% in 2009 to approximately 11.3% in Video and imaging and related IC product industry in Hong Kong Video and imaging and IC product manufacturing industry in Hong Kong and the PRC The total revenue of video and imaging and IC product manufacturing industry in Hong Kong and the PRC kept increasing during 2009 to 2014 at a CAGR of approximately 28.9%. For 2015 to 2018, it is predicted that the total revenue will continue to increase from approximately HK$83.7 billion in 2015 to approximately HK$176.6 billion at a CAGR of approximately 28.3%. The historical growth in total revenue was mainly supported by the demand from two segments, which were security and defense segment and automotive segment. In the future, it is predicted that apart from these two segments, the increasing demand from consumer electronics segment will also continue to fuel the growth of the total revenue throughout 2015 to Total Revenue of Video and imaging and IC Product Manufacturing Industry in Hong Kong and the PRC HK$ billion F F F F Total Revenue of Video and Imaging and IC Product Manufacturing Industry in China and Hong Kong Source: Ipsos Report 69

76 INDUSTRY OVERVIEW Total revenue of imaging electronic components and design service providers in Hong Kong increased from approximately HK$5.1 billion in 2009 to approximately HK$18.2 billion in 2014 at a CAGR of approximately 29.0%. The rising trend is attributable to the increase in value-added services from the sales of imaging electronic components and design service providers, such as technical support and acceleration of the process of product development. The continuous technological improvement and advancement in video and imaging product has increased the demand for imaging electronic components and design services from 2009 to Owing to the strong demand from the PRC as a result of continuous economic growth, the total revenue of ODM and OBM service providers of video and imaging products in Hong Kong increased from approximately HK$12.4 billion in 2009 to approximately HK$44.0 billion in 2014, rising at a CAGR of approximately 28.8%. The improving individuals wealth in the PRC has broadened the spectrum of demand for video and imaging products, which has led to growth in the production volume of the ODM and OBM service providers of video and imaging products in Hong Kong. The total revenue of imaging electronic components and design service providers in Hong Kong is expected to increase from approximately HK$24.5 billion in 2015 to approximately HK$51.9 billion in 2018 at a CAGR of approximately 28.4%, while the total revenue of ODM and OBM service providers of video and imaging products in Hong Kong is expected to increase from approximately HK$59.2 billion in 2015 to approximately HK$124.7 billion in 2018 at a CAGR of approximately 28.2%. The major factors for such significant growth are the increase in consumer income in Hong Kong and the PRC from 2015 to 2018 and the increasing demand for the multifunctional lifestyle video and imaging products, such as wearable cameras and scanner mouse. Total revenue of (i) imaging electronic components and design service providers; and (ii) ODM and OBM service providers of video and imaging products in Hong Kong HK$ billion F F F F Sales of imaging electronic components and design service providers ODM and OBM service providers of video and imaging products Source: Ipsos Report 70

77 INDUSTRY OVERVIEW PRICE TREND OF VIDEO AND IMAGING PRODUCTS IN HONG KONG Scanner mouse The average wholesale price of wired scanner mouse in Hong Kong has decreased from approximately HK$571.8 per unit in 2011 to approximately HK$418.5 per unit in 2014 at a CAGR of approximately 9.9%. Average wholesale price of wired scanner mouse in Hong Kong from 2011 to 2014 HK$ Average wholesale price per unit Source: Ipsos Report The decrease is due to the decrease in the cost of manufacturing wired scanner mouse and thereby leading to the decrease in the average wholesale price of wired scanner mouse. To achieve long-term profitability, it is a common practice for ODM service providers of video and imaging products to regularly upgrade their products to newer models. Unlike other electronics and products, however, the lifecycle of computer mouse including wired scanner mouse is longer. In fact, wired scanner mouse was launched globally in January Since the launch of the wired scanner mouse, there was no new scanner mouse model in the market until the first wireless scanner mouse developed by us in August Therefore, it is believed that the relatively long product lifecycle of wired scanner mouse leads to a continuing decline in manufacturing costs and wholesale prices of wired scanner mouse. 71

78 INDUSTRY OVERVIEW Hunting Cameras The average wholesale price of hunting cameras in Hong Kong fell moderately from approximately HK$447.5 in 2009 to approximately HK$426.5 in 2014, representing a negative CAGR of approximately 1.0%. Average wholesale price of hunting camera in Hong Kong from 2009 to 2014 HK$ Average wholesale price per unit Source: Ipsos Report On average, raw material costs account for about 80.0% of the production cost of each ODM project. Raw material costs, mainly IC chips, of manufacturing hunting cameras fell at a CAGR of approximately 3.0% from 2009 to 2014, or from approximately HK$3.5 per unit in 2009 to approximately HK$3.0 per unit in Therefore, the decline in raw material costs contributed to moderate decline in the average wholesale price of hunting cameras. However, average wholesale prices of hunting cameras remained at a relatively constant level albeit seeing a moderate decline can be ascribed to the fact that rising rental costs have offset the benefits of lower raw material costs. To achieve long-term profitability, it is a common practice for ODM service providers of video and imaging products to regularly upgrade their products to newer models. It is an industry norm for ODM service providers to incorporate planned obsolescence into their product design to sustain demand for their next series of products. Planned obsolescence means that manufacturers or ODM service providers will upgrade the functions of products so that customers would purchase products more frequently due to the perceived desirability of high-technology items. In this industry, manufacturers or ODM service providers will release slightly updated products at regular intervals and emphasize the importance of new function and new technology. 72

79 INDUSTRY OVERVIEW PRICE TREND OF MAJOR ELECTRONIC COMPONENTS CMOS sensors The average wholesale price of CMOS sensors in Hong Kong during 2009 to 2014 declined at a CAGR of approximately -2.0%, from approximately HK$ 27.0 per unit in 2009 to approximately HK$24.4 per unit in Average wholesale price of CMOS sensors in Hong Kong from 2009 to 2014 HK$ / Unit Average Wholesale Price of CMOS Sensor in Hong Kong Source: Ipsos Report During this period, increasing competition, from the PRC and Taiwan in particular, resulted in a lower average wholesale price of CMOS sensors. Full utilisation of factory lines for manufacturing IC chips enabled CMOS sensors suppliers to offer products at competitive prices. Robust growth in demand for advanced CMOS sensors, such as the latest generations of CMOS technology, has been generated from expanding applications in consumer electronic such as security cameras, IP cameras and action cameras. The strong demand for CMOS sensors in video and imaging products, against the backdrop of technological advancement and intense competition among CMOS sensor suppliers, has kept the wholesale price of CMOS sensors relatively steady in comparison to the downtrend in the average price of IC chips over the same period. 73

80 INDUSTRY OVERVIEW IC Chips The average wholesale price of IC chip in Hong Kong declined at a CAGR of approximately -3.0% from the period 2009 to 2014, falling from approximately HK$3.5 per unit in 2009 to approximately HK$ 3.0 per unit in Average wholesale price of IC chip in Hong Kong from 2009 to 2014 HK$ / Unit Average price of IC chips in Hong Kong Source: Ipsos Report The continuing decrease in the wholesale price of IC chip can be attributable to the decrease in the production cost of IC chip as well as competitive market environment. Greater competition among semiconductor factories also lowered the wholesale price of IC chips. The moderate decrease in the wholesale price of IC chips from 2009 to 2014 has reduced the production cost of ODM and OBM products. However, upgrades in products specifications are expected to raise the selling price, which should offset the decreased price of IC, leading to a flat or a slight increase in the price of products. FACTORS AFFECTING THE VIDEO AND IMAGING AND RELATED IC PRODUCT INDUSTRY IN HONG KONG Government regulation on personal privacy in Hong Kong According to the Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong), in relation to the use of related security products such as surveillance camera, all personal data (images or footages) shall only be collected where it is necessary for a lawful purpose directly related to the function or activity of the data user and that the data collected shall be adequate but not excessive. It is foreseeable that the corporate demand for video surveillance and related security products will be directly affected by this privacy ordinance. Tightening of privacy rules in Hong Kong on the use of video surveillance will inevitably lead to a weaker demand for video surveillance and related security products. 74

81 INDUSTRY OVERVIEW COMPETITIVE LANDSCAPE AND COMPETITIVE ADVANTAGES Competitive landscape The ODM and OBM sector for video and imaging products in Hong Kong is fragmented and remains in a developing stage. Most players offer very similar or even homogeneous products, resulting in price competition among themselves. The manufacturing facilities owned by these ODM and OBM video and imaging service providers are located in the PRC because of lower labour and overhead costs. As the market continues to advance, ODM and OBM service providers of video and imaging products with a stronger brand name and research and development capabilities will be more competitive in the market and stand out from its peers. As of December 2014, there were about 2 ODM and OBM video and imaging service providers that produced scanner mouse and about 16 ODM and OBM video and imaging service providers that produced hunting cameras in Hong Kong. Most of them have no branding or very low brand awareness. In Hong Kong, as of December 2014, we accounted for approximately 1.2% of the total revenue of the imaging electronic components and design service providers, and approximately 0.2% of the total revenue of the sales of ODM and OBM video and imaging products. We accounted for approximately 0.5% of the video and imaging and related IC product manufacturing industry in Hong Kong. In respect of hunting cameras, Systech Electronics was one of the top five ODM and OBM video and imaging product providers in Hong Kong and the PRC in 2014 with a market share of 8.5% in terms of the total revenue of the hunting cameras market in Hong Kong and the PRC. The other four top five ODM and OBM video and imaging product providers accounted for approximately HK$349.4 million, representing approximately 54.5% of the total revenue of the hunting cameras market in Hong Kong and the PRC in In respect of wired scanner mouse, there were only three ODM and OBM video and imaging product providers in Hong Kong and the PRC in Systech Electronics was the third largest ODM and OBM video and imaging product provider in Hong Kong and the PRC in 2014 with a market share of 12.3% in terms of the total revenue of the wired scanner mouse market in Hong Kong and the PRC. The top two ODM and OBM video and imaging product providers accounted for approximately HK$118.7 million, representing approximately 87.7% of the total revenue of the wired scanner mouse market in Hong Kong and the PRC in As confirmed by Ipsos, the bases adopted in deriving the above market share information of our Group for hunting camera and wired scanner mouse in the PRC and Hong Kong include (i) publicly available information and data obtained from research of our competitors; (ii) information and data obtained from interviews conducted by Ipsos with our competitors; and (iii) verification of information and data obtained by them having cross-checked amongst our competitors. The above information include information on the manufacturing capability, product portfolios and the number of employees of our competitors. 75

82 INDUSTRY OVERVIEW As confirmed by Ipsos, the assumptions adopted in deriving the above market share information of our Group for hunting camera and wired scanner mouse in the PRC and Hong Kong include (i) the scale of the industry measured by the manufacturing capabilities and the spectrum of the product portfolios offered by the industry players; (ii) the number of employees of industry players; and (iii) the relevant industry players have provided, to the best of Ipsos knowledge, information and belief, an accurate estimation of the state of the industry. Competitive advantages According to Ipsos Report, the key strengths which we enjoy over our competitors include (i) our one-stop business model (from the sale of imaging electronic components, the provision of design and engineering solutions, to the design and sale of ODM and OBM video and imaging product) which enables us to control and manage, the imaging electronic components procurement process and the resource allocation when providing our services and also allows us to capture the advantage of vertical integration by eliminating the markup in prices between different companies in the supply chain and thus increase our profit margin; (ii) strong research and development capability as we have a strong research and development team and are able to offer the most up-to-date product design and functionality to our ODM customers; and (iii) stable network with our distributors for our OBM products which is crucial in bringing success to a supply chain. In respect of hunting cameras and wired scanner mouse, we were also one of the top five ODM and OBM video and imaging providers in Hong Kong and the PRC in Entry barriers of the video and imaging and related IC product industry in Hong Kong Research and development capability The research and development capability to innovate by developing new product designs and solutions could be an entry barrier to new entrants. ODM manufacturers have been striving to be innovative by rolling out new models with more advanced features and functionality such as wireless scanner mouse. ODM manufacturers who have existed for a certain period may have more resources and knowledge in developing new technology with their relatively stronger research and development team. In contrast, new entrants may not have such knowledge and resources especially when it comes to research and development capacity. This may therefore pose an entry barrier for new entrants. High demand for technical expertise and talent Customers are getting more mature in terms of knowledge of the latest technological advancement and market information. ODM service providers of video and imaging products are required to design the products with the latest technology and understand the up-to-date marketing buzz to advise their customers on product development. As such, new entrants may not have adequate resources to recruit top talents with a high level of technical expertise. This may pose a barrier to new entrants to enter the video and imaging and related IC product industry. 76

83 INDUSTRY OVERVIEW Distribution network Distributors are crucial in bringing success to a supply chain and an entrant may not be able to establish its distribution network. Key drivers for the video and imaging and related IC product industry in Hong Kong The key drivers for the market growth of video and imaging and related IC product industry in Hong Kong are: Technological advancement. The video and imaging product market is technologydriven and constant innovation is important to maintain market position in the industry. The technological advancement of the video and imaging product, such as HD cameras and 3D cameras, feature better performance and will be more appealing to consumers. Increase in driving safety awareness. As driving safety awareness is increasing in the world, demand for car backup camera and car digital video recorder is expected to grow in the future. Launching of new products. One of the new products in the video and imaging and related IC industry is wired scanner mouse. Apart from scanning service, some of the wired scanner mouse products would also provide translation service for words and image fine-tuning for better image quality. It is believed that these features of wired scanner mouse will successfully attract customers. Benign economic environment and continual technological development. The global and the major economies are expecting to undergo positive growth in the near future, bolstering the demand for hunting camera. The continual technological innovation, the aim to achieve better-quality craftsmanship, longer battery life, solar panel compatibility and extended night vision capabilities are expected to drive the demand for hunting camera. Opportunities and threats for the video and imaging and related IC product industry in Hong Kong Opportunities i. The growing popularity of social media globally, through which people share photos, images and other interactive content as a part of their daily life, has increased the worldwide demand for video and imaging products. This shall bring an opportunity for video and imaging and related IC product industry in Hong Kong. 77

84 INDUSTRY OVERVIEW ii. From a more macro perspective, the improvement in global economy will continue to drive the demand for video and imaging products. The average disposable income globally increased from approximately US$5,707.5 in 2009 to approximately US$7,007.8 in The figure is expected to further increase from approximately US$7,309.6 in 2015 to approximately US$8,136.6 in The continuing increase in disposable income is therefore expected to strengthen the demand for video and imaging products, which should also bring an opportunity for video and imaging and related IC product industry in Hong Kong. iii. Around the world, both the corporate and government sectors are tightening their security measures against crimes and terrorist attacks with the deployment of surveillance system in their properties, especially with the rise of terrorist organisations. As a result, demand for high-quality, high performance CCTVs and related security products is expected to increase in the years to come, which will continue to drive the growth of the video and imaging sector. Threats i. The existence of low quality of video and imaging product manufacturers leads to stiff price competition in the market. Referring to the competition situation of video and imaging and related IC product industry in Hong Kong, this industry is fragmented and the market maturity is at a developing stage. Most players in the industry offer homogeneous products at lower quality, resulting in a fierce price competition among industry players and therefore squeezing their profit margins. ii. The increasingly multi-functional smartphones, many of which come with HD cameras and camcorder functions, are a good substitute to wearable cameras and sport cameras. Some newly-launched smartphones also have hands-free camera functions and are waterproof. The increasingly technologically-advanced smartphones can be seen as a potential substituent of wearable cameras and sport cameras. This may negatively affect the demand for video and imaging and related IC product industry. iii. The fast-growing nature of the video and imaging product sector with new products being launched frequently and low capital requirements can attract new entrants easily. Besides, the low brand equity of the existing players may turn their focus to compete on prices instead of brand building or other innovations, thereby limiting the sales growth of the video and the ODMs in the imaging product sector. 78

85 REGULATORY OVERVIEW This section sets out summaries of certain aspects of the laws, rules, regulations, government policies and requirements, which are relevant to our Group s operations and business in Hong Kong, the PRC, Belgium, Japan, Germany, Singapore and the U.S.. A. REGULATORY REQUIREMENTS IN HONG KONG As at the Latest Practicable Date, our Group had business operations in Hong Kong, which is required to comply with the laws of Hong Kong in general. However, no material license or approval is required for the conduct of our operations in Hong Kong. We set out below a summary of certain aspect of Hong Kong laws and regulations which are relevant to our Group s operation and business. 1. Product Liabilities Manufacturers and suppliers of defective products in Hong Kong may be subject to liability for loss or any injury caused by such products. Pursuant to the Consumer Goods Safety Ordinance (Chapter 456 of the Laws of Hong Kong), manufacturers, importers and suppliers of consumer products are required to comply with a general safety requirement and any approved standard that applies to such products. The general safety requirement for consumer goods is that the consumer goods are reasonably safe having regard to all of the circumstances. Where an approved standard applies to consumer goods, the consumer goods shall be taken as complying with the general safety requirement if they comply with the approved standard. The Consumer Goods Safety Ordinance imposes criminal penalties for a breach of safety requirements. Besides the imposition of criminal liability for unsafe products, the Consumer Goods Safety Ordinance empowers the Commissioner of Customs and Excise to serve a recall notice requiring the immediate withdrawal of any consumer goods, which it believes to be unsafe or may have a significant risk to cause serious injury, from being supplied and the retrieval of those items already supplied. B. REGULATORY REQUIREMENTS IN THE PRC As at the Latest Practicable Date, our Group had business operations in the PRC. The following is a summary of material PRC laws and regulations applicable to our business operations within the territory of the PRC: 1. Regulations relating to Foreign Investment 1.1 The Company Law The establishment, operation and management of corporate entities in the PRC are governed by the Company Law of the PRC ( ) (the Company Law ), which was promulgated by the National People s Congress ( ) on 29 December 1993 and became effective on 1 July 1994, and subsequently amended on 25 December 1999, 28 August 2004, 27 October 2005 and 28 December 2013 respectively, the last amendment became effective on 1 March According to the 79

86 REGULATORY OVERVIEW Company Law, the companies are classified into two categories, the limited liability companies and the joint stock limited companies. The shareholders of a limited liability company shall bear liabilities for the company to the extent of their respective subscribed capital contribution. The shareholders of a joint stock limited company shall bear liabilities for the company to the extent of their respective subscribed shares. The registered capital of a limited liability company shall be the amount of capital contribution subscribed to by all shareholders as registered with the relevant company registration authority. Where a joint stock limited company is established by way of promotion, its registered capital shall be the total amount of share capital subscribed to by all promoters as registered with the relevant company registration authority. The Company Law also applies to foreign-invested limited liability companies and foreigninvested joint stock limited companies. According to the Company Law, where laws on foreign investment have other stipulations, such stipulations shall prevail. 1.2 The Wholly Foreign-owned Enterprises Law The establishment procedures, approval procedures, registered capital requirement, foreign exchange restriction, accounting practices, taxation and labour matters of a wholly foreign-owned enterprise are also regulated by the Law of the PRC on Wholly Foreign-owned Enterprises ( ) (the Wholly Foreignowned Enterprises Law ), which was promulgated by the National People s Congress ( ) on and became effective on 12 April 1986 and amended and became effective on 31 October 2000, and the Detailed Implementing Rules for the Wholly Foreign-owned Enterprises Law of the PRC ( ) (the Detailed Implementing Rules for the Wholly Foreign-owned Enterprises Law ), which was promulgated by the Ministry of Foreign Trade and Economic Cooperation ( ) (the predecessor of Ministry of Commerce of the PRC ( )) on and became effective on 12 December 1990 and subsequently amended by the State Council ( ) on 12 April 2001 and 19 February 2014, the last amendment became effective on 1 March According to the Wholly Foreign-owned Enterprises Law and the Detailed Implementing Rules for the Wholly Foreign-owned Enterprises Law, to establish a wholly foreign-owned enterprise, the foreign investor shall make an application for approval to the department in charge of foreign trade under the State Council or the organs authorised by the State Council. The foreign investor shall register with and collect the business license from the industry and commerce administration authorities after obtaining the establishment approval. In the event of a separation, merger or other major change, a wholly foreign-owned enterprise shall report to and seek approval from the authorities in charge of examination and approval, and register the change with the industry and commerce administration authorities. The foreign investor in any wholly foreign-owned enterprise may remit abroad profits lawfully earned from the enterprise and other income and funds lawfully obtained following the liquidation of the enterprise. 80

87 REGULATORY OVERVIEW 1.3 The Provisions on Guiding Foreign Investment On 20 June 1995, the State Planning Commission ( ), the State Economic and Trade Commission ( ) (the missions of the State Planning Commission and the State Economic and Trade Commission have been taken over by the National Development and Reform Commission ( )) and the Ministry of Foreign Trade and Economic Cooperation ( ) jointly promulgated the Interim Provisions on Guiding Foreign Investment ( ), classifying all foreign investment projects into four categories: encouraged projects, permitted projects, restricted projects and prohibited projects. On 11 February 2002, the State Council ( ) promulgated the Provisions on Guiding Foreign Investment ( Foreign Investment Provisions, ), re-stating the four classifications of foreign investment projects. The purpose of the Foreign Investment Provisions is to direct foreign investment into certain priority industry sectors while restricting or prohibiting investment in some other sectors. The Foreign Investment Provisions became effective on 1 April 2002 and replaced the Interim Provisions on Guiding Foreign Investment. Foreign investors are prohibited to invest in any prohibited projects but are permitted to invest in the restricted projects upon obtaining appropriate approvals from relevant governmental authority. 1.4 The Catalogue for the Guidance of Foreign Investment The Catalogue for the Guidance of Foreign Investment ( Foreign Investment Catalogue, ) lists out specific industries and economic activities in which foreign investment in the PRC is encouraged, restricted or prohibited. The State Planning Commission ( ), the State Economic and Trade Commission ( ) and the Ministry of Foreign Trade and Economic Cooperation ( ) jointly promulgated the Foreign Investment Catalogue in Since then, the Foreign Investment Catalogue has been amended in 2002, 2004, 2007, 2011 and The version of the Foreign Investment Catalogue currently in effect was jointly promulgated by the National Development and Reform Commission ( ) and the Ministry of Commerce ( ) on 10 March 2015 and became effective on 10 April 2015, the Foreign Investment Catalogue (as amended in 2011) was repealed on the same day. None of our Group s investments fall within the restricted or prohibited category and accordingly, our Group is not subject to restrictions or prohibitions under the Foreign Investment Provisions and Foreign Investment Catalogue. 81

88 REGULATORY OVERVIEW 1.5 M&A Rules According to the Rules on the Mergers and Acquisitions of Domestic Enterprises by Foreign Investors ( ) (the M&A Rules ), which was issued by the Ministry of Commerce ( ), the State-owned Assets Supervision and Administration Commission of the State Council ( ), the SAT, State Administration for Industry and Commerce ( ), China Securities Regulatory Commission ( ) and the SAFE on 8 August 2006 and became effective on 8 September 2006 and was amended on 22 June 2009, mergers and acquisitions of domestic enterprises by foreign investors must be approved by the Ministry of Commerce or its local branches. According to the M&A Rules, the term mergers and acquisitions of domestic enterprises by foreign investors shall mean (i) a foreign investor purchases the equity interest of an enterprise in China other than a foreign-invested enterprise ( domestic enterprise ) or increases the capital of a domestic enterprise so as to convert such domestic enterprise in to a foreign-invested enterprise; or (ii) a foreign investor establishes a foreign-invested enterprise for operating assets purchased from a domestic enterprise, or a foreign investor enterprises assets from a domestic enterprise and uses this asset to invest and establish a foreign-invested enterprise and operate such assets. Where a domestic company, enterprise or natural person intends to take over his/her/its related domestic company through an offshore company which he/she/it lawfully established or controls, the takeover shall be subject to the examination and approval of the Ministry of Commerce. The listing and trading of the securities of a special purpose company on an overseas stock exchange shall subject to the approval of the China Securities Regulatory Commission. The special purpose company refers to an overseas company directly or indirectly controlled by a domestic company or natural person for the purpose of the overseas listing of the equity and interests actually held by such domestic company or natural person in a domestic company. Our PRC Legal Advisers are of the opinion that since Mr. Lee and Ms. Kwok are permanent residents of Hong Kong, each of them is not a PRC domestic natural person as defined under the M&A Rules. In addition, the PRC subsidiary of our Group, Aolang Electronics, was directly established as a wholly foreign-owned enterprise by its shareholder (i.e. ASD Technology). No issues relating to mergers or acquisitions of domestic enterprises by foreign investors under the M&A Rules were involved during the establishment of Aolang Electronics. On this basis, the M&A Rules are not applicable to our Group. 82

89 REGULATORY OVERVIEW 2. Regulations relating to Foreign Exchange Regulation of the PRC on Foreign Exchange Administration Rules ( ), issued by the State Council ( ) on 29 January 1996 and amended on 14 January 1997 and 5 August 2008, is the principal regulation on foreign exchange in the PRC. Pursuant to this regulation, RMB is freely convertible for payments of current account items (including trade and service related foreign exchange transactions and payments of dividend), but not for capital account expenses (including direct investment, loan and investment in securities outside of the PRC). RMB may only be converted for capital account expenses once a prior approval from the SAFE has been obtained. According to the Notice of the State Administration of Foreign Exchange on Matters concerning the Issuance of Foreign Exchange Administration Rules for Trade in Goods ( ) and its appendix the Detailed Implementation Rules for the Guidelines for the Foreign Exchange Administration of Trade in Goods ( ) (Huifa [2012]NO.38) issued by the SAFE on 27 June 2012 and became effective on 1 August 2012, the SAFE, the General Administration of Customs ( ) and the SAT decided to implement the national foreign exchange administration system reform of trade in goods from 1 August After obtaining the right to engage in foreign trade, enterprises shall undergo the registration formalities of Directory of Enterprises for Foreign Exchange Payments and Receipts for Trade in the local foreign exchange bureau with relevant materials. Enterprises shall declare foreign exchange payments and receipts for trade according to the provisions on the declaration of balance-ofpayments statistics and the declaration of information on foreign exchange payments and receipts for trade and fill out the relevant declaration documents based on the flow of foreign exchange payments and receipts for trade. Enterprises shall handle foreign exchange payments and receipts under the principle of whoever exports collects foreign exchange and whoever imports pays foreign exchange. Foreign exchange authorities shall divide enterprises into Class A, Class B and Class C according to the results of off-site or on-site checkups and in consideration of enterprises compliance with foreign exchange administrative provisions. The SAFE issued the Circular on Relevant Issues Concerning Foreign Exchange Administration Relating to Domestic Residents Overseas Investment and Financing and Round-Trip Investment via Special Purpose Vehicles ( ) ( Circular No. 37 ), which became effective on 4 July 2014, which replaced the previous Circular on Relevant Issues Concerning Foreign Exchange Administration Relating to Domestic Residents Financing and Round-Trip Investment via Overseas Special Purpose Vehicles ( ) ( Circular No. 75 ). Circular No. 37 requires PRC residents, including PRC individuals and institutions, to register with the SAFE or its local branches in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents legally owned assets or equity interests in domestic enterprises or offshore assets or interests, such offshore entity being referred to as an offshore special purpose vehicle. 83

90 REGULATORY OVERVIEW In addition, such PRC residents must update their foreign exchange registrations with the SAFE or its local branches when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and operation term), increases or decreases in investment amount, share transfers or exchanges, or mergers or divisions. Based on our Group s corporate history, the existing Shareholders are and have always been permanent resident domiciled in Hong Kong. Our PRC Legal Advisers are of the opinion that the ultimate controllers of our Group are not subject to the registration process under the Circular No Regulations relating to Taxation 3.1 Enterprise Income Tax Under the EIT Law, domestic enterprises and foreign invested enterprises are subject to the same corporate income tax rate of 25%. According to the Arrangements between the Mainland of China and Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ( ) signed on 21 August 2006 and became effective on 1 January 2007, and the Notice of the SAT on Issuing the Table of Agreed Tax Rates on Dividends ( ) issued by the SAT on 29 January 2008, when an enterprise in China distributes dividends to Hong Kong residents who are eligible for receiving such dividends, the Hong Kong residents, if holding more than 25% equity interest in such enterprise of China, are generally subject to an income tax rate of 5% of the total dividends received. Furthermore, the SAT issued the Notice of the SAT on Issues Regarding the Implementation of Dividend Provisions in Tax Treaties ( ) on 20 February 2009, which, among other things, (i) requires the non-resident taxpayer or the withholding agent to provide a host of documentary evidencing that the recipient of the dividends meets the relevant requirements for enjoying a lower withholding tax rate under a tax treaty, and (ii) empowers the competent tax authorities with the discretion to adjust the preferential tax rate to which an offshore entity would otherwise be eligible if the main purpose of such offshore arrangement is to obtain a preferential tax treatment. Pursuant to the Announcement of the SAT on Promulgating the Administrative Measures for the Application of Tax Treaties to Non-residents Taxpayers ( ), which were promulgated on 27 August 2015 by the SAT and became effective on 1 November 2015, a non-resident enterprise, which considers it has meet the conditions that can enjoy the favorable tax benefits under the tax treaties, may claim and enjoy the favorable tax benefits without any approval by the relevant tax authorities when paying the tax by itself or by the withhold agent with submitting the relevant documents required. However, the non-resident enterprise is still subject to the succession administration and investigation by the relevant tax authorities. 84

91 REGULATORY OVERVIEW 3.2 Value-added Tax According to the Provisional Regulations on Value-added Tax of the PRC ( ), which was promulgated on 13 December 1993 and became effective on 1 January 1994, and amended on 5 November 2008 and became effective on 1 January 2009 and its implementation rules, all entities or individuals in China engaging in the sale of goods, the provision of processing services, repairs and replacement services, and the importation of goods are required to pay value-added tax (the VAT ). The amount of VAT payable is calculated as output VAT minus input VAT. The rate of VAT is 17% for those engaging in the sale or importation of goods except as otherwise provided by paragraph (2) and paragraph (3) of Article 2 in the Provisional Regulations on Value-added Tax of the PRC and is also 17% for those providing processing services, repairs and replacement services. According to the Implementing Measures for the Pilot Program of Replacing Business Tax with Value-Added Tax ( ), the Appendix of the Notice of the Ministry of Finance and the SAT on Including Railway Transport and Postal Services under the Pilot Program of Replacing Business Tax with Value-Added Tax ( No. CaiShui [2013]106), which was promulgated on 12 December 2013 and became effective on 1 January 2014, the entities and individuals that provide services relating to the transportation industry, postal services and some modern service industries (including research and development and technical services, information technology services, etc.) within the territory of the PRC are taxpayers of VAT. Taxpayers who provide taxable services shall pay VAT in accordance with these Measures, and shall no longer pay business tax. The tax rate for provision of services relating to modern service industries is 6%. 3.3 Tax Collection for Share Transfer by Non-PRC Resident Enterprises The SAT issued the Announcement of the SAT on Several Issues Concerning the Enterprise Income Tax on Indirect Property Transfer by Non-Resident Enterprises ( ) ( SAT Circular No. 7 ), which became effective on 3 February 2015, which replaced relevant provisions on a foreign investor transfers its indirect equity interest in a PRC resident enterprise by disposing of its equity interests in an overseas holding company ( Indirect Transfer ) in the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises ( ) ( SAT Circular No. 698 ). According to SAT Circular No. 7, where a non-resident enterprise indirectly transfers properties ( Chinese taxable properties ) such as equity in Chinese resident enterprises without any justifiable business purposes with the aim of avoiding to pay enterprise income tax, such indirect transfer shall be reclassified as a direct transfer of Chinese taxable properties in Chinese resident enterprise in accordance with Article 47 of the Enterprise Income Tax Law. 85

92 REGULATORY OVERVIEW Our PRC Legal Advisers are of the view that since Mr. Lee and Ms. Kwok are not non-resident enterprise under the SAT Circular NO.7, the SAT Circular NO.7 is not applicable to our Group s Reorganisation immediately before completion of the Capitalisation Issue and the Placing. 4. Regulations relating to Import and Export 4.1 Technology Import and Export According to Regulation on Administration of Technology Import and Export of the PRC ( ) promulgated on 10 December 2001 and became effective on 1 January 2002, and subsequently amended on 8 January 2011, technology import and export include the transfer of the rights of patents, application rights of patents, know-how, and license of patents, the provision of services in relation to technology, and technology transfer in other forms. The catalog of prohibited or restricted import or export technology is promulgated and updated by the PRC Government from time to time. Technology falling under the catalog of prohibited import or export technology cannot be imported or exported. Technology falling under the catalog of restricted import or export technology can only be imported or exported with approval from Ministry of Commerce of the PRC (and/or its competent local counterparts). Technology which does not fall under the above two catalogs can be imported or exported upon registration of contracts with respect to the import or export of the technology with the competent commercial administration authority. 4.2 Import and Export of Goods According to the Foreign Trade Law of the PRC ( ) promulgated on 12 May 1994 and became effective on 1 July 1994, and subsequently amended on 6 April 2004 and became effective on 1 July 2004, the Customs Law of the PRC ( ) promulgated on 22 January 1987 and became effective on 1 July 1987, and subsequently amended on 8 July 2000, 29 June 2013 and 28 December 2013, the Regulations on the Administration of Import and Export of Goods of the PRC ( ) promulgated on 10 December 2001 and became effective on 1 January 2002, and the Measures for Record Filing and Registration of Foreign Trade Operator ( ) promulgated on 25 June 2004 and became effective on 1 July 2004, any foreign trade business operator engaging in the import or export of goods or technology must go through the record filing and registration formalities with the MOFCOM or an authority authorized by the Ministry of Commerce of the PRC. If a foreign trade business operator fails to go through the formalities for record-filing and registration in accordance with the relevant provisions, customs will refuse to handle the declaration and clearance formalities of its imports and exports. 86

93 REGULATORY OVERVIEW According to the Administrative Provisions of the Customs of the PRC on the Registration of Customs Declaration Entities ( ) promulgated and became effective on 13 March 2014, imported and exported goods shall be declared by the consignor or consignee itself, or by a customs declaration enterprise entrusted by the consignor or consignee and duly registered with the customs authority. Consignors and consignees of imported and exported goods shall go through customs declaration entity registration formalities with the competent customs in accordance with the applicable provisions. After going through the registration formalities with the customs, consignors and consignees of imported and exported goods may handle their own customs declarations at customs ports or localities where customs supervisory affairs are concentrated within the customs territory of the PRC. C. REGULATORY REQUIREMENTS IN BELGIUM Our Group delivers scanner mouse to Belgium. The following is a summary of material Belgian laws and regulations applicable to our business operations in Belgium: 1. Product Warranties and Product Liability 1.1 Statutory Warranties (a) Statutory warranty of conformity (Article 1649bis to 1649octies of the Belgian Civil Code) The concept of statutory warranty of conformity derives from the European Directive 1999/44/EC, which has been implemented into the Belgian Civil Code by the Act of 1 September The statutory warranty of conformity is only applicable to the contractual relations between a seller acting in his professional commercial capacity and a consumer in the legal sense. Pursuant to article 1649bis and seq. of the Belgian Civil Code, the seller who sells to consumers is required to deliver a conforming product (in the legal sense) and is held liable for any lack of conformity which exists upon delivery and which becomes apparent within the warranty period, which is in principle two years as of the delivery. In certain cases, this two-year period will be suspended. For second-hand goods, parties may agree on a shorter term which cannot be less than one year. Where the final seller is liable to the consumer because of a lack of conformity, the Belgian Civil Code provides a right of redress for the final seller against the producer or any other prior seller in the chain of contracts, based on their respective contractual liability. In such a case, any contractual clause that would limit this right of redress will be held unenforceable towards the seller (Article 1649sexies of the Belgian Civil Code). Nevertheless, the recourse action that the final seller would bring against the producer or any prior seller will be governed by the Belgian general provisions relating to sales contracts with regard to the remedies available (Articles 1602 to 1649 of the Belgian Civil Code), not by the statutory warranty of conformity regime. 87

94 REGULATORY OVERVIEW The provisions relating to statutory warranty of conformity do not deprive the consumer of the right to bring any other action of a contractual or extra-contractual nature to which he is entitled under applicable laws. (b) Statutory warranty against and liability for hidden defects Pursuant to Article 1641 of the Belgian Civil Code, the seller bears an obligation to deliver a product free from hidden defects. The hidden defects warranty and liability apply to both consumers and professional purchasers. The seller of a product must warrant it and may be held liable for a hidden defect where such defect is not apparent (i.e. it cannot be detected through a normal, yet prudent examination by the purchaser upon delivery, taking into account the nature of the good sold and the capacity of the buyer), renders the product unfit for the use for which it is intended or diminishes the usefulness of the product to such a point that the purchaser would not have acquired it or would have paid a lower purchase price if he had been aware of the defect. However, according to Article 1642 of the Belgian Civil Code, a seller is not to warrant and is not to be held liable for visible defects, neither for defects that the buyer was aware of or should have been aware of, once the product has been delivered to and accepted by the latter. According to settled-case law, the purchaser has a right of direct action against the manufacturer and prior sellers, even if the sales contracts have been concluded with an independent dealer, subject, possibly, (i) to the final or prior sellers not exercising the same right against the same defendant beforehand, and (ii) to the contractual limitation/exoneration of liability provisions contained in contracts sales concluded by prior sellers, which could restrict the scope of the claim of the consumer against the manufacturer or prior sellers or even block such claim. Under Belgian law, a professional seller can in principle not validly impose a limitation (or exclusion) of its warranty and/or liability for hidden defects because of the presumption of bad faith on the part of the professional seller (by which is meant that a professional vendor is deemed to have known of the existence of the defect). Pursuant to Article 1643 of the Belgian Civil Code, such liability and warranty for hidden defect can only be contractually excluded if the seller was acting in good faith, i.e. if he can prove that he could not have had knowledge of such defect. This counter-evidence is very hard to deliver and is tantamount, effectively, to what is called undefeatable ignorance. Practice has shown that Belgian courts do not accept such proof easily. 88

95 REGULATORY OVERVIEW 1.2 Commercial Guarantee Pursuant to Article 1649septies of the Belgian Civil Code the seller who opts to grant a commercial warranty to consumers, in addition and without prejudice to the aforementioned warranties, is legally bound under the conditions laid down in the guarantee statement and the associated advertising. 1.3 Specific Rules Governing Liability of Defective Products (Act of February 25, 1991, on Product Defect Liability, hereinafter the Belgian Product Liability Act ) The regime of product defect liability in Belgium derives from the European Liability for Defective Products Directive 85/374/ECC, pursuant to which a manufacturer of a defective product must compensate injured persons for damages caused by the defect in the product. A product is defective when it does not provide the safety that the public at large can reasonably expect, taking into account the circumstances of the moment, including the presentation of the product and the purpose usually associated or reasonably expected thereof and the moment at which the product was placed on the market. The Belgian Product Liability Act establishes an objective liability regime. This means that the liability can be established without the victim having to prove a fault on the part of the manufacturer, provided that the victim proves the existence of a defect, a damage and the causal link between them. The Belgian Product Liability Act covers a wide range of professionals, all of whom may be liable. They are, according to Articles 3 and 4 of the Belgian Product Liability Act: (i) the manufacturer of a finished product, of a component thereof, or of raw materials; (ii) any person purporting to be a manufacturer or producer by virtue of displaying on the product its name, brand or any other distinctive sign; (iii) any person who imports a product into the European Union with a view to selling or renting it (whether or not intending to sell the product), irrespective of the type of distribution; and (iv) only in subsidiary order, the supplier of the product, whenever the claimant is not able to identify the producer, an own-brander or an importer of the product into the European Union and the supplier fails to provide the identification details of said persons upon request of the claimant (where various persons are being held liable pursuant to the Belgian Product Liability Act, the latter are jointly and severally liable). Contractual clauses that tend to exclude or restrict liability for defective products under the Belgian Product Liability Act are null and void, except for cases where the damage arises due to a defect in the product, as well as a fault of the victim. 89

96 REGULATORY OVERVIEW Article 11 of the Belgian Product Liability Act provides for full compensation for damages caused to persons, including moral damages. As damages caused to private goods (other than the product itself) is concerned, a deductible of EUR 500 applies. The aforementioned provisions do not prevent the victim to benefit from rights arising from contractual or tortious liability. 1.4 Tortious Liability (Article 1382 of the Belgian Civil Code) In addition to the above, a manufacturer or seller of a product may be held liable for damages on the basis of the general rules with respect to tortious liability laid down in Articles 1382 and following of the Belgian Civil Code. Article 1382 of the Belgian Civil Code provides for a system of fault liability, according to which any act by which a person causes damage to another makes the person through whose fault the damage occurred liable to repair such damage. To succeed in a claim against a manufacturer or seller, a claimant must prove that: (i) it has suffered damages of any kind; (ii) the manufacturer or seller has committed a fault which can be attributed to it; and (iii) the fault committed by the manufacturer or seller caused the damages suffered by the claimant. 1.5 Criminal Liability (Articles 418 and following of the Belgian Criminal Code) Articles 418 and following of the Belgian Criminal Code provide that unintentionally causing death or bodily injury as a result of one s recklessness or negligence is a criminal offence. The applicable criminal sanctions for companies violating said provisions are fines from EUR8,250 up to EUR264,000 in case of death and from EUR2,750 up to EUR66,000 in case of bodily injury. 2. Product Safety Belgium has implemented the European Directive 2001/95/EC on general product safety ( Product Safety Directive ), which applies in the absence of specific EU legislation governing the safety of certain categories or if specific legislation is insufficient. The Product Safety Directive imposes a general safety requirement on any product put on the market for consumers or likely to be used by them. Manufacturers/importers are obliged to take all necessary measures to avoid threats to consumers safety (e.g., to withdraw products from the market, inform consumers, and to recall products which have already been supplied to consumers). 3. Product-Specific Regulations A number of additional legal acts may be relevant for certain types of products, including, but not limited to: Directive 2006/95/EC relating to electrical equipment designed for use within certain voltage limits ( Low Voltage Directive ) (Note that a new Low Voltage Directive 2014/35/EU of the European Parliament and of the Council of 26 February 2014 will be applicable as of 20 April 2016); 90

97 REGULATORY OVERVIEW Directive 2004/108/EC of the European Parliament and of the Council of 15 December 2004 on the approximation of the laws of Member States relating to electromagnetic compatibility ( EMC Directive ) (Note that a new EMC Directive 2014/30/EU of the European Parliament and of the Council of 26 February 2014 will be applicable as of 20 April 2016); Directive 2009/125/EC establishing a framework for the setting of ecodesign requirements for energy-related products ( Energy-Related Products Directive ) and its national and EU implementing legislation; Directive 2011/65/EU on the restriction of the use of certain hazardous substances in electrical and electronic equipment ( RoHS Directive ); Directive 2012/19/EU on waste electrical and electronic equipment ( WEEE Directive ); The Low Voltage Directive, the EMC Directive, the Energy-Related Products Directive and the RoHS Directive referred to above are examples of CE-marking directives. They have all been implemented into Belgian law. CE-marking means that the product is assessed before being placed on the market. Full compliance of a product with the harmonized EU standards in legislation gives the product the presumption of conformity with the relevant and essential EU safety, health, and environmental protection requirements. It is the manufacturer s (or the authorised representative appointed by the manufacturer) responsibility to carry out the conformity assessment, set up the required technical files, issue the EC declaration of conformity, and affix the CE-marking on the product, as the case may be, with the required intervention of a so-called Notified Body. Notified Bodies are recognized third party bodies that can carry out the conformity assessment on whether products comply with the harmonized EU standards. Products containing dangerous substances or preparations/mixtures may fall under the ambit of Regulation (EC) No. 1272/2008 on classification, labelling and packaging of substances and mixtures. 4. Customs Duties and VAT Belgium is part of the European Union ( EU ), whose Member States form a customs union. This means that, within the customs union, no duties or other trade-restrictive regulations apply and in relation to trade with other countries, there is one common duty tariff. Trade between member states is called intra-community trade and is not subject to duties. Trade with non-member states is import/export and is subject to import duties. The VAT rules applicable in Belgium are based on EU legislation (the VAT Directive Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax and relevant supplemental laws and regulations) on the one hand, and on national laws and decrees (VAT Code of 3 July 1969 and its Royal and Ministerial Decrees) on the other hand. 91

98 REGULATORY OVERVIEW Customs duties and the VAT must, in principle, be paid at the (customs) office of importation when the declaration for release for free circulation and/or for consumption is validated. However, in Belgium, several duty/vat suspension/deferral regimes are available, such as customs and VAT warehouses, the VAT deferral licence, etc. In some cases, a refund or remission of customs duties and import VAT is available. 5. Tariff Suspensions and Quotas Tariff suspensions and quotas approved on the basis of Article 31 of the Treaty on the Functioning of the European Union constitute an exception to the normal state of affairs since they permit, during the period of validity of the measure and for a limited quantity, the total (total suspension) or partial waiver (partial suspension) of duties normally applicable to imported goods (antidumping duties are not affected by these suspensions). Goods imported under tariff suspension or quota arrangements enjoy freedom of movement throughout the EU. Autonomous tariff quotas are managed by the Commission in close cooperation with the EU Member States in a central tariff quota database. These tariff quotas are allocated on a first-come first-served basis in accordance with the legal provisions of Articles 308a to 308c of Regulation (EEC) No 2454/93 laying down provisions for the implementation of Council Regulation (EEC) No 2913/92 establishing the Community Customs Code. In the framework of several agreements that the EU has concluded with third countries, as well as in the framework of autonomous preferential arrangements for some beneficiary countries, tariff concessions are provided for a pre-determined volume of goods. These tariff concessions are called preferential tariff quotas. Within these preferential tariff quotas, a predetermined volume of goods originating in a specified country can benefit at import into the EU from a more favourable rate of duty than the normal third countries duty mentioned in the combined nomenclature. 6. Intellectual Property Intellectual property laws in Belgium include amongst others laws relating to patents, copyright, registered designs and trademarks. The Belgian Patent Act of 28 March 1984, as subsequently incorporated in Book XI, Title 1 of the Economic Law Code ( Patent Act ), provides for an exclusive and temporary right to prevent any third party from exploiting an invention that is new, involves an inventive step and is susceptible of industrial application. A valid patent thus confers on its proprietor the exclusive right to exploit, or to authorize another person to exploit the patented invention. 92

99 REGULATORY OVERVIEW Copyright protects original works of authorship expressed in a tangible form. The Belgian Author Right and Neighbouring Rights Act of 30 June 1994, as subsequently incorporated in Book XI, Title 5 of the Economic Law Code, governs general author right and neighbouring rights law in Belgium ( author right being the European continental version albeit not exactly the equivalent of the common law concept of copyright ). Special rules with respect to author right on software are laid down in the Belgian Software Act of 30 June 1994, as subsequently incorporated in Book XI, Title 6 of the Economic Law Code. According to the Benelux Convention on Intellectual Property of 25 February 2005 ( BCIP ) the appearance of the whole or a part of a product may be protected as a design. In this context, a product is defined as any industrial or handicraft item, including parts intended to be assembled into a complex product, packaging, get-up, graphic symbols and typographic typefaces, with the exception of computer programs. A design may be protected to the extent it is new and has individual character. The protection of a design is subject to certain registration formalities with the Benelux Intellectual Property Office. Trademarks are distinctive names or signs used to identify products and/or services and to distinguish them from other products and/or services. The protection of a term as a trademark is subject to certain registration formalities to be completed with the relevant trademark office in the jurisdiction where protection is requested. The main condition for a trademark to be valid lies in its distinctive character. Trademark protection is granted on a national or regional basis, depending on the geographical scope chosen when registering a trademark. A trademark registered with the Benelux Intellectual Property Office in accordance with the BCIP will be protected on the territory of the Netherlands, Belgium and Luxembourg while so-called Community Trademarks registered with the Office for Harmonization in the Internal Market will benefit from such protection within the territory of the European Union in accordance with the Community Trademark Regulation 207/2009 of 26 February D. REGULATORY REQUIREMENTS IN GERMANY Our Group delivers integrated circuits, multipoint control units and memory chips to Germany. The following is a summary of material German laws and regulations applicable to our business operations in Germany: 1. Product Liability 1.1 Liability according to the German Product Liability Act (Produkthaftungsgesetz) If by the defect of a product a person is killed, injured to body or health or such defect leads to damages or destruction of property the manufacturer of such product is liable for such damages according to the German Product Liability Act. 93

100 REGULATORY OVERVIEW 2. Import to Germany There are no import quotas with regard to the products of our Group into Germany. Generally, goods imported from non-eu states are subject to an import turnover tax (Einfuhrumsatzsteuer). The import turnover tax rate equals the VAT (value-added tax) rates of 19 percent levied on domestic products (or 7 percent for some product categories) and has to be paid to the customs authority. The assessment base for the import turnover tax is the so-called customs value. 3. Regulations Governing Electronic Components and Electric Products Ordinance on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (Verordnung zur Beschränkung der Verwendung gefährlicher Stoffe in Elektro- und Elektronikgeräten). The Ordinance on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (Verordnung zur Beschränkung der Verwendung gefährlicher Stoffe in Elektro- und Elektronikgeräten, ElektroStoffV ) came into force in Germany on 9 May 2013 and serves to implement the directive 2011/65/EC of the European Parliament and of the council dated 8 June According to Section 1 para. 1 clause 1 of the ElektroStoffV, this ordinance applies to the marketing and making available of new electrical and electronic equipment on the German market. Such electrical and electronic equipment shall only be marketed or made available in the German market if the permitted maximum concentration of the following substances is not exceeded: 0.1% by weight and in homogeneous material, for lead, hexavalent chromium and mercury and up to 0.01% by weight in homogeneous material for cadmium. The ElektroStoffV does not directly apply to our business, but it does so indirectly as our customers in Germany will fall under that ordinance and for that reason are only permitted to sell their products if they comply with it. 4. Intellectual Property 4.1 German Semiconductor Act (Halbleiterschutzgesetz) According to the Semiconductor Act (Halbleiterschutzgesetz, HalbLSchG ), three-dimensional structures of microelectronic semiconductor products (topographies) are subject to protection if they are new and of original design. 94

101 REGULATORY OVERVIEW Only the owner of the right of protection is entitled to exploit the topography. Any third person is not allowed to copy, to offer or to market the topography or to import the topography for such purposes. If any of the products our Company delivers to Germany infringe a protection right of a third party protected under the HalbLSchG, the owner of such right of protection may seek injunctive relief or assert a claim for damages against the violator of such right. Furthermore, if our Company violates a right of protection by copying, offering, or marketing a protected topography or importing one for such purposes, our Company (and/or the individuals responsible) would be liable to imprisonment or a fine. Even if we do not directly violate a right of protection according to the HalbLSchG because it does not directly infringe such right, our Company could be held liable for supporting the direct violator. 4.2 German Utility Model Act (Gebrauchsmustergesetz) Our Group delivers products to a company with operations in Germany that may be subject to utility model protection rights according to the German Utility Model Act (Gebrauchsmustergesetz, GebrMG ). Utility model protection is available for all technical inventions (with the exception of processes and biotechnological inventions) which are new, inventive and capable of industrial application. If any of the products our Group delivers to Germany infringe a utility model right of a third party in Germany, the owner of such right may seek injunctive relief or assert a claim for damages against the violator of such right. The owner of the utility model right is furthermore entitled to prompt disclosure of the origin and channel of distribution of the objects used without authority by the infringer. In cases of an obvious infringement or in cases where the owner of a utility model right has already started court proceedings, the claim to disclosure can also be directed against a party that was in possession of the infringing objects, that has used infringing services, that rendered services for infringing actions or that was involved in the manufacturing or distributing of infringing objects. The owner of an utility model right can also claim that the violator has to destroy any infringing objects being in possession of the violator. If our Group violates a utility model right by manufacturing, marketing or using an infringing object or by importing or possessing the object for such purposes, we (and/or the individuals responsible) would be liable to imprisonment or a fine. Even if we do not directly violate a utility model right because it does not directly infringe the utility model right, our Company could be held liable for supporting the direct violator. 95

102 REGULATORY OVERVIEW 4.3 German Patent Act (Patentgesetz) Our Group delivers products to a company with operations in Germany that may be subject to patent rights according to the German Patent Act (Patentgesetz, PatG ). According to the PatG, patents shall be granted for inventions that are new, involve an inventive step and are susceptible of industrial application. If any of the Products infringe a patent right of a third party, such third party may seek injunctive relief or assert a claim for damages against the violator of such patent right. Furthermore, the owner of the patent right may claim from the violator using the violating object to destroy all violating objects in the possession of the user. The patentee is furthermore entitled to prompt disclosure of the origin and channel of distribution of the invention used by the infringer without authority. Furthermore, anyone who violates patent rights by manufacturing, offering, marketing, using or importing or possessing the patented object for such purposes; or using a process which is the subject-matter of the patent or offering such is liable to imprisonment or a fine. Even if we do not directly violate a patent right because it does not directly infringe the patent right, our Company could be held liable for supporting the direct violator. E. REGULATORY REQUIREMENTS IN JAPAN Our Group delivers wired scanner mouse to Japan. The following is a summary of material Japanese laws and regulations applicable to our business operations in Japan: 1. Product Liability Act The Product Liability Act stipulates special provisions for torts under the Civil Code. In the case of damages arising from the infringement of the life, body or property of others that is caused by a defect of a product, the manufacturer, etc. will generally be subject to strict liability. The term manufacturer, etc. includes a manufacturer, an importer and any person who provides its trade name on the product as the manufacturer of such product. 2. Electrical Appliances and Materials Safety Act The Electrical Appliance and Materials Safety Act requires a person to file a notification with the Minister of Economy, Trade and Industry within 30 days from the commencement of business, if the person engages in importing the Electrical Appliances and Materials defined in this Act. However, the wired scanner mouse would not constitute such Electrical Appliances and Materials. This Act also sets some requirements for importers who have filed the notifications, such as compliance with technical standards for the imported products. 96

103 REGULATORY OVERVIEW 3. Customs Act The Customs Act imposes criminal sanctions of no more than 10 years of imprisonment and/or no more than a JPY10 million fine if a person imports goods that violate patent rights, copyrights and other IP rights of others (Article 109, Paragraph 2 and Article 69-11, Paragraph 1, Item 9). The same applies to exporters (Article 108-4, Paragraph 2 and Article 69-2, Paragraph 1, Item 3). The same fine will apply to customers in Japan or our Group if its representatives or employees violate the above (Article 117). 4. Foreign Exchange and Foreign Trade Act The Foreign Exchange and Foreign Trade Act regulates foreign exchange and foreign trade, but the purpose of this Act respects the freedom of such exchange and trade, and stipulates a minimum set of regulations. With respect to importing (from foreign countries), this Act may require that importers of certain products obtain an approval from the Minister of Economy, Trade and Industry of Japan. The scope of these products includes products such as certain sea foods, chemical materials related to the destruction of the ozone layer, certain goods exported from certain countries (such as North Korea), and nuclear related materials. F. REGULATORY REQUIREMENTS IN SINGAPORE Our Group delivers integrated circuits and complementary metal oxide technology sensors and other electronic components for video and imaging products to Singapore. The following is a summary of material Singaporean laws and regulations applicable to our business operations in Singapore: 1. Product Liability The issue of product liability in Singapore is generally governed by negligence in the case of manufacturers and contract against sellers/suppliers. To establish a case in negligence, there must be proven the existence of a duty of care, a breach of that duty and that the breach caused the damage to the consumer. Liability for death or personal injury resulting from negligence cannot be excluded. However, other liability for negligence may be excluded if such restriction is reasonable. A right to claim damages under contract is based on the claimant having entered into a contract with the supplier of the product and the supplier having breached a terms of the contract e.g. by supplying defective products. Standard conditions are implied into all contracts for the sale of goods under the Sale of Goods Act (Cap. 393) and Supply of Goods Act (Cap. 394). Products sold in the course of business must be of satisfactory quality and comply with the description applied to them or a sample supplied. The seller will not be liable for faults drawn to the buyer s attention prior to the contract, or which should have been revealed by the buyer s examination of the goods. As against a person acting as a consumer, the Unfair Contract Terms Act (Cap. 396) prevents the exclusion or restriction by contract of the seller s implied undertakings as to conformity of goods with a description or sample, or as to their quality or fitness for a particular purpose. 97

104 REGULATORY OVERVIEW 2. Imports The import of goods into Singapore is regulated under the Customs Act (Cap. 70), Regulation of Imports and Exports Act (Cap. 272A) as well as their relevant subsidiary legislations. Generally, all goods imported into Singapore are subjected to GST payment for non-dutiable goods and GST and/or duty payment in the case of dutiable goods. Dutiable goods in Singapore consist of the following items: (a) intoxicating liquors; (b) tobacco products; (c) motor vehicles; and (d) petroleum products. All other products are non-dutiable. The actual importer is responsible for the payment of any duties, GST and other miscellaneous fees to the Singapore customs upon importation of its goods. GST and/or duty is payable on imported goods regardless of whether or not the person importing the goods is a taxable person. GST is calculated on the value of the goods which includes cost, insurance and freight plus the duty payable (if any) at the point of importation. The current GST rate is 7%. Duty is calculated based on the value of the goods at the point of importation. The importer is required to take up the appropriate import permit before the import of goods into Singapore regardless of whether or not the goods are controlled or non-controlled. 3. Labeling and Marking As the national safety authority and legal metrology authority for Singapore, SPRING Singapore administers two trust-marks, namely the SAFETY Mark and the Accuracy Label. The SAFETY Mark is intended for selected electrical and electronics products as well as gas appliances which are sold to consumers in Singapore. The SAFETY Mark helps consumers and traders to identify registered controlled goods. All registered controlled goods must be tested to specific international and national safety standards and certified by designated product certification bodies. The Accuracy Label covers weighing and measuring instruments for trade use. 4. Tariffs Singapore is generally a free port and an open economy. Most imports into Singapore enter the country duty-free, except for certain items whereby significant import duties are levied for social and/or environmental reasons e.g. liquor, tobacco, petroleum products and motor vehicles. 5. Quotas Singapore generally does not impose import quota restrictions with most goods being imported under open general licence. However, significant import duties are levied on certain items for social and/or environmental reasons e.g. liquor, tobacco, petroleum products and motor vehicles. 98

105 REGULATORY OVERVIEW 6. Intellectual Property Intellectual property laws in Singapore include laws relating to patents, copyright, registered designs, trademarks and breach of confidence. A patent is a right granted to the owner of an invention that prevents others from making, using, importing or selling the invention without his permission. The Patents Act (Cap. 221) and its subsidiary legislation govern patent laws in Singapore. Copyright protects works such as novels, computer programmes, plays, sheet music and paintings. The Copyright Act (Cap. 63) and its subsidiary legislation govern copyright laws in Singapore. Registered designs are used primarily to protect designs for industrial use. The Registered Designs Act (Cap. 266) and its subsidiary legislation govern registered design laws in Singapore. A trademark is a sign used to distinguish one s business goods or services from those of other traders. The TradeMarks Act (Cap.332) and its subsidiary legislation govern trademark laws in Singapore. A trade secret is information that is important to a business or company and is not known to the public. The general law on the protection of confidential information protects ideas and information not in the public domain, including trade secrets. The Intellectual Property Office of Singapore ( IPOS ) is a statutory board under the Singapore Ministry of Law. IPOS advises and administers the intellectual property regime, promotes its usage and builds expertise to facilitate the development of Singapore s intellectual property eco-system. G. REGULATORY REQUIREMENTS OF THE U.S. Our Group delivers integrated circuits and scanner mouse to the U.S.. The following is a summary of material federal and state laws and regulations applicable to our business operations in the U.S.: FEDERAL REGULATORY REQUIREMENTS 1. Product Liability Laws State laws allow persons who are killed or injured or whose property is damaged by dangerous or defective goods to sue anyone in the supply change (including foreign companies), such as the manufacturer, distributor, and retailer of the products. 99

106 REGULATORY OVERVIEW 2. Product Safety Laws Both federal and state law can apply to unsafe goods that are imported into the U.S. As with the Customs laws, federal agencies focus their enforcement actions on the importers of the dangerous goods, which in this case would be the customers of Company. Company works with its customers and suppliers to ensure that goods exported to the United States meet the applicable standards for its products. 3. U.S. Customs Laws U.S. Customs laws and regulations apply to all goods imported into the U.S. Company s customers are the importers of goods and are required to comply with the Customs laws and regulations. Company cooperates with its U.S. customers to ensure that its packaging and commercial documents properly identify the country of origin and harmonized tariff schedule classification of the products. 4. Federal and State Taxes Both the U.S. federal government and the various state governments can impose income and other taxes on foreign entities that engage in U.S. trade or business. U.S. trade or business includes providing services in any state or soliciting business while in the United States. 5. Tax Law Internal Revenue Code ( I.R.C. ) imposes corporate income taxes on a foreign corporation s income that is effectively connected with a U.S. trade or business. While I.R.C. defines clearly that the performance of personal services within the U.S. constitutes a U.S. trade or business if the services are performed within the United States for over 90 days or exceed US$3,000 in compensation, the term U.S. trade or business is otherwise defined under common law. If a foreign company s U.S. business activities are considerable, continuous AND regular, they can rise to the level of a U.S. trade or business. Thus, a foreign company could be deemed to have a U.S. trade or business to the extent it systematically conducts business within the U.S. with the aim of making a profit. Regular visits to the U.S. to solicit orders and customers or regularly signing contracts in the U.S. are evidence that a foreign company has crossed or may soon cross the U.S. trade/business threshold. Once this threshold is crossed, all income effectively connected with the U.S. trade or business must be reported on a U.S. tax return and is subject to U.S. corporate taxation. See I.R.C. Section Intellectual Property Intellectual property laws in the U.S. provide protection in the form of patents, trademarks, copyrights, and trade secrets and other tangible or intangible personal or property rights of third parties. As a general rule, such laws apply to transactions occurring in the United States. 100

107 REGULATORY OVERVIEW REGULATORY REQUIREMENTS OF THE STATE OF ILLINOIS 1. Product Liability Illinois law allows a person who is injured or whose property is damaged by an unreasonably dangerous or defective good to recover from anyone in the supply chain. The supply chain includes the manufacturer, distributor, seller, and retailer of the product, including foreign entities. Under Illinois law, non-manufacturing sellers can be insulated from liability if the seller can demonstrate that it merely sold the product and that the manufacturer of the product is subject to suit in Illinois and can satisfy any judgment or settlement. In order to recover under a product liability theory, the injured or damaged party must demonstrate that the product left the company s control in a defective or unreasonably dangerous condition and that this condition was the proximate cause of the injury or damage. Proof of the defendant s negligence is not necessary under the most commonly used theory of liability strict liability. Under Illinois law, a manufacturer does not have a post-sale duty to warn or retrofit a product to remedy defects first discovered after the product left its control. There are additional defenses available under Illinois law including the statute of limitations (generally, two years for personal injury and five years for property damage), assumption of the risk, misuse of the product and alteration of the product. 2. Intellectual Property Intellectual property laws in the U.S. provide protection in the form of patents, trademarks, copyrights, and trade secrets and other tangible or intangible personal or property rights of third parties. As a general rule, patents and copyrights in the U.S. are governed by federal laws. As a general rule, federal law also governs the use of trademarks in commerce that may be regulated by the U.S. Congress, including interstate commerce, commerce involving federal territories, commerce between the U.S. and a foreign country, and commerce within a State which affects any of the foregoing types of commerce. The owner of a trademark may seek damages and injunctive relief under federal and Illinois law from a defendant who uses a trademark or colorable imitation thereof in a manner which is likely to cause confusion among consumers. Illinois has also adopted the Illinois Uniform Trade Secrets Act. A trade secret is information that is sufficiently secret to derive economic value from, not being generally known and is the subject of reasonable efforts to maintain its secrecy or confidentiality. The owner of a trade secret may seek damages and injunctive relief from a defendant who acquires the trademark through improper means or who discloses a trade secret acquired through improper means or in violation of a duty (contractual or otherwise) to maintain its secrecy or limit its use. 101

108 REGULATORY OVERVIEW REGULATORY REQUIREMENTS OF THE STATE OF MISSISSIPPI 1. Product Safety and Product Liability Claims in Mississippi for an unsafe or defective product are governed by the Mississippi Products Liability Act (the MPLA ). The MPLA outlines four specific theories of relief in any action for damages caused by a product. It states, the manufacturer or seller of the product shall not be liable if the claimant does not prove by the preponderance of the evidence that at the time the product left the control of the manufacturer or seller, the product (1) was defective because it deviated in a material way from the manufacturer s specifications or from otherwise identical units manufactured to the same manufacturing specifications; (2) was defective because it did not contain adequate warnings or instructions; (3) was designed in a defective manner; or (4) breached an express warranty or did not conform to other express factual representations upon which the claimant justifiably relied on in choosing to use the product. In order to prevail under any of these four theories, the claimant must also prove that the alleged defective condition rendered the product unreasonably dangerous to the user or consumer and that this condition proximately caused the damages for which recovery is sought. 2. Intellectual Property Intellectual property law concerns itself with the protection of ideas or various means of expression of those ideas. The field of intellectual property typically is divided into four separate and distinct avenues of protection: copyrights, patents, trademarks and trade secrets. Copyright law in the U.S. is governed exclusively by federal law and patents in the U.S. are controlled exclusively by federal legislation and cases interpreting such legislation. Mississippi has adopted the uniform Model State Trademark Act, which, in many respects, mirrors federal trademark law. Mississippi s adaptation of the Model State Trademark Act serves two functions: (1) to provide for a system of registration of trademarks and (2) to provide remedies for violation of another s trademark rights. Trademarks may be protected on the state level initially for a term of five years and may be renewed for successive five year periods. Unlike other forms of intellectual property, trade secrets are governed by the laws of each individual state. Mississippi has adopted the Uniform Trade Secrets Act. Under the Act, a trade secret includes:...information, including a formula, pattern, compilation, program, device, method, technique or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by a proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The Act provides for injunctive relief, damages, as well as punitive damages in cases of willful or malicious misappropriation of trade secrets. 102

109 REGULATORY OVERVIEW REGULATORY REQUIREMENTS OF THE STATE OF TENNESSEE 1. Products Liability Tennessee law allows persons who are killed or injured or whose property is damaged by unreasonably dangerous or defective goods to sue anyone in the supply chain (including foreign companies), such as the manufacturer, distributor, seller, and retailer of the products. However, liability is dependent upon a showing that the allegedly defective product left the company s control in a defective or unreasonably dangerous condition. Additionally, nonmanufacturing sellers are insulated from liability on some level as Tennessee law prohibits the commencing or maintaining of a products liability action against non-manufacturing sellers outside of five specific circumstances. Notwithstanding, there are other additional defenses, as well as statutory caps on damages, that defendants in products liability actions can rely on to minimize their exposure. 2. Intellectual Property Intellectual property laws in the U.S. provide protection in the form of patents, trademarks, copyrights, and trade secrets and other tangible or intangible personal or property rights of third parties. As a general rule, patents and copyrights in the U.S. are governed by federal laws. Tennessee has adopted the Tennessee Trademark Act. In Tennessee, a trademark is a word, name, symbol, or device, or any combination thereof, used by a person to identify the source of his or her goods or services from the good and services of others and to indicate the source of the goods and services, even if that source is unknown. Infringement of a trademark in the U.S. is based upon a likelihood of confusion among consumers arising from the use in U.S. commerce of a trademark (or a colorable imitation thereof). Tennessee has also adopted the Tennessee Uniform Trade Secrets Act. A trade secret is typically defined as all information which has been subject to reasonable measures to be kept secret and derives independent economic value from not being generally known to, and not being readily ascertainable through proper means by, the public. Liability under Tennessee trade secret law generally arises when a trade secret is acquired by improper means or is disclosed in violation of a duty to maintain its secrecy. 103

110 REGULATORY OVERVIEW REGULATORY REQUIREMENTS OF THE STATE OF TEXAS 1. Product Liability If a person is injured or killed or his property is damaged by an unreasonably dangerous product, Texas law allows the person or his representatives to sue the maker/manufacturer of the product and anyone in the supply chain, including distributors, retailers, and other sellers of the product. Makers and sellers of a component or ingredient which renders a product unreasonably dangerous may also be sued. A product manufacturer has a duty to indemnify a seller which is further down the supply chain, except where the loss was caused by the seller s negligence, intentional misconduct, or other act or omission. A seller that did not manufacture the product is liable only if it participated in the product s design, modified or installed the product, helped formulate a warning, made express factual representations regarding the product, knew about the defect, or if the manufacturer is insolvent or outside the court s jurisdiction. If a product is unreasonably dangerous, the manufacturer/seller is strictly liable. The claimant need not prove that the manufacturer/seller was negligent or at fault in some way. A product can be unreasonably dangerous because of a manufacturing defect, a design defect, a failure to warn, or a failure to conform to an express representation or warranty. In determining whether a product is unreasonably dangerous, a court or jury may consider the product s utility, safer alternative designs or products, and the potential to eliminate the unsafe character of the product without seriously impairing its usefulness. The claimant may recover if he can show that the unreasonably dangerous product was the producing cause of his injury. Producing cause is a lower standard than proximate cause, the standard for most other claims under Texas law. A manufacturer/seller is not liable if the product is inherently unsafe and is known to be unsafe by an ordinary consumer (like alcohol or tobacco). The claimant may recover damages for lost wages, medical expenses, pain and suffering, mental anguish, and disfigurement. The claimant may also recover punitive damages. 2. Intellectual Property Intellectual property law concerns itself with the protection of ideas or various means of expression of those ideas. The field of intellectual property typically is divided into four separate and distinct avenues of protection: copyrights, patents, trademarks and trade secrets. Copyrights and patents in the U.S. are governed almost exclusively by federal law. Trademarks are the subject of both federal and state laws. Under Texas law, trademark is defined as a word, name, symbol, or device, or any combination of those terms, used by a person to identify and distinguish the person s goods from the goods manufactured or sold by another and indicate the source of the goods. The term trademark is defined similarly under the federal Lanham Act. The Texas trademark statutes can be found in Chapter 16 of the Texas Business and Commerce Code, which takes after the federal trademark laws in some respects and can be considered stronger in protection than the more common Uniform Model State Trademark Act. Texas trademark laws serve two general functions: (1) to provide for a system of state registration of trademarks and (2) to provide remedies for violation of another s trademark rights. Trademarks may be protected on the state level initially for a term of five years and may be renewed for successive five year periods. 104

111 REGULATORY OVERVIEW Trade secrets are governed by the laws of each individual state. Texas recently has adopted its version of the Uniform Trade Secrets Act. Under the Act, trade secret means information, including a formula, pattern, compilation, program, device, method, technique, or process, that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The Act provides for injunctive relief and damages, which can include exemplary damages if willful and malicious misappropriation is proven by clear and convincing evidence. 105

112 HISTORY, REORGANISATION AND CORPORATE STRUCTURE HISTORY AND DEVELOPMENT Our Company was incorporated on 16 December 2014 in the Cayman Islands as an exempted company with limited liability. Since our incorporation, our Company has been an investment holding company without business operations. We have four subsidiaries, namely, Grand Prospect, ASD Technology, Systech Electronics and Aolang Electronics. The following sets forth the corporate development of each member of our Group since their respective dates of incorporation. We also underwent certain reorganisation steps in contemplation of the Listing, particulars of which are set forth in Reorganisation. Grand Prospect Grand Prospect was incorporated in the BVI on 7 November 2014 to act as the intermediate holding company of our Group. The authorised share capital of Grand Prospect was US$50,000 divided into 50,000 shares of US$1.00 each. Grand Prospect allotted and issued 50,000 shares to our Company on 16 December 2014 for cash at par value. As such, Grand Prospect became our wholly-owned subsidiary. Since its incorporation, Grand Prospect has been an investment holding company. ASD Technology ASD Technology, an indirect wholly-owned subsidiary of our Company, was incorporated in Hong Kong on 25 March Upon its incorporation, the authorised share capital of ASD Technology was HK$10,000 divided into 10,000 shares. On 25 March 2002, ASD Technology allotted and issued one share credited as fully paid to each of Mr. Lee and Ms. Kwok as subscribers. The authorised share capital of ASD Technology was increased to HK$500,000 divided into 500,000 shares on 11 November On the same day, ASD Technology allotted and issued 249,999 shares credited as fully paid to each of Mr. Lee and Ms. Kwok. As a result, the total issued share capital of ASD Technology was HK$500,000 divided into 500,000 shares, and each of Mr. Lee and Ms. Kwok held 250,000 shares in ASD Technology credited as fully paid. On 14 November 2012, ASD Technology allotted and issued 2,250,000 shares to each of Mr. Lee and Ms. Kwok. As a result, the total issued share capital of ASD Technology was HK$5,000,000 divided into 5,000,000 shares, and each of Mr. Lee and Ms. Kwok held 2,500,000 shares in ASD Technology credited as fully paid. 106

113 HISTORY, REORGANISATION AND CORPORATE STRUCTURE Pursuant to a sale and purchase agreement dated 16 September 2015, Mr. Lee and Ms. Kwok transferred the entire issued share capital of each of ASD Technology and Systech Electronics to Grand Prospect at a consideration equivalent to the total net asset value of ASD Technology and Systech Electronics as at 31 March Such consideration was satisfied by the allotment and issue of 999 Shares to On Hong Century credited as fully paid and crediting as fully paid at par the one initial Share, at the direction of Mr. Lee and Ms. Kwok. Such transfer was properly and legally completed and settled. As a result, ASD Technology became a wholly-owned subsidiary of Grand Prospect. ASD Technology is one of the principal operating subsidiaries of our Group and is primarily engaged in the sale of imaging electronic components. Systech Electronics Systech Electronics, an indirect wholly-owned subsidiary of our Company, was incorporated in Hong Kong on 17 September Upon its incorporation, the authorised share capital of Systech Electronics was HK$10,000 divided into 10,000 shares. On 19 September 2003, Systech Electronics allotted and issued 5,000 shares credited as fully paid to each of Mr. Lee and Ms. Kwok as subscribers. On 14 November 2012, Systech Electronics further allotted and issued 1,495,000 shares credited as fully paid to each of Mr. Lee and Ms. Kwok. Pursuant to a sale and purchase agreement dated 16 September 2015, Mr. Lee and Ms. Kwok transferred the entire issued share capital of each of ASD Technology and Systech Electronics to Grand Prospect at a consideration equivalent to the total net asset value of ASD Technology and Systech Electronics as at 31 March Such consideration was satisfied by the allotment and issue of 999 Shares to On Hong Century credited as fully paid and crediting as fully paid at par the one initial Share, at the direction of Mr. Lee and Ms. Kwok. Such transfer was properly and legally completed and settled. As a result, Systech Electronics became a wholly-owned subsidiary of Grand Prospect. Systech Electronics is one of the principal operating subsidiaries of our Group and is primarily engaged in the sale of ODM and OBM video and imaging products. Aolang Electronics Aolang Electronics was established in the PRC as a wholly-foreign owned enterprise on 9 March 2012 with an initial registered capital of HK$1,000,000. The registered capital of Aolang Electronics had been fully paid up by ASD Technology in July The registered capital of Aolang Electronics was increased from HK$1,000,000 to HK$9,900,000 in July 2015, of which HK$2,000,000 and HK$3,000,000 of the additional registered capital was paid up in September 2015 and November 2015, respectively, and the remaining HK$3,900,000 is expected to be paid up by July 2017 according to its articles of associations. Aolang Electronics is one of the operating subsidiaries of our Group. It is primarily engaged in the development of technology in relation to electronic products and electronic components and the provision of technical advice connected therewith. 107

114 HISTORY, REORGANISATION AND CORPORATE STRUCTURE OUR BUSINESS DEVELOPMENT Our history can be traced back to early 2002 when Mr. Lee and Ms. Kwok established ASD Technology for sale and purchase of imaging electronic components. Our business operation was initially funded by personal savings of Mr. Lee. Mr. Lee and Ms. Kwok established Systech Electronics in 2003 and commenced selling ODM products since 2012 and OBM products since Throughout our development, we aim at differentiating ourselves from our competitors through the provision of value-added services that complement the sales of our imaging electronic components. Business milestones The key milestones in our business development are as follows: March 2002 ASD Technology was incorporated April 2002 ASD Technology commenced the trading of imaging electronic components September 2003 September 2012 February 2013 August 2013 April 2014 Systech Electronics was incorporated Wired scanner mouse was launched in the market Hunting camera was launched in the market Our brand name D+Oi was established Our scanner mouse received the Judge Award of the Hong Kong Smart Gifts Design Awards from The Hong Kong Exporters Association Our scanner mouse received the Corporate Gold Award of the Hong Kong Smart Gifts Design Awards from The Hong Kong Exporters Association Our scanner mouse received the Best Innovation (Innovative Technology) Award (special mention) from The Information Technology Division of the Hong Kong Institution of Engineers January 2015 March 2015 Our scanner mouse received the Grand Prize of My Favourite Stationary 2015 from the Hong Kong Trade Development Council Wireless scanner mouse was launched in the market 108

115 HISTORY, REORGANISATION AND CORPORATE STRUCTURE REORGANISATION The following chart sets out our shareholding and corporate structure immediately prior to the Reorganisation: Mr. Lee Ms. Kwok 50% 50% ASD Technology (Hong Kong) Systech Electronics (Hong Kong) 100% Aolang Electronics (The PRC) The Reorganisation involves the following steps: 1. Our Company was incorporated in the Cayman Islands on 16 December 2014 to act as the listing vehicle and the ultimate holding company of our Group. The authorised share capital of our Company upon incorporation was HK$380,000 divided into 38,000,000 Shares of par value of HK$0.01 each. Our Company allotted and issued one Share in nil-paid form to the subscriber upon its incorporation. On the same day, such nil-paid Share was transferred to Mr. Lee. 2. On Hong Century was incorporated in the BVI on 23 April 2014 to act as the holding company of our Company. The authorised share capital of On Hong Century upon incorporation was US$50,000 divided into 50,000 shares of par value of US$1.00 each. Upon its incorporation, 25,000 shares were allotted and issued to each of Mr. Lee and Ms. Kwok respectively. 3. Grand Prospect was incorporated in the BVI on 7 November 2014 to act as the intermediate holding company of our Group. The authorised share capital of Grand Prospect upon incorporation was US$50,000 divided into 50,000 shares of par value of US$1.00 each. On 16 December 2014, 50,000 shares were allotted and issued to our Company. 4. On 16 September 2015, Mr. Lee and Ms. Kwok transferred the entire issued share capital of each of ASD Technology and Systech Electronics to Grand Prospect at a consideration equivalent to the total net asset value of ASD Technology and Systech Electronics as at 31 March Such consideration was satisfied by the allotment and issue of 999 Shares to On Hong Century credited as fully paid and crediting as fully paid at par the one initial Share, at the direction of Mr. Lee and Ms. Kwok. 109

116 HISTORY, REORGANISATION AND CORPORATE STRUCTURE 5. On 16 September 2015, Mr. Lee transferred the one initial Share held by him to On Hong Century in consideration of On Hong Century allotting and issuing 5,000 shares in its share capital to each of Mr. Lee and Ms. Kwok credited as fully paid. 6. On 2 March 2016, the authorised share capital of our Company was increased from HK$380,000 divided into 38,000,000 Shares of HK$0.01 each to HK$8,000,000 divided into 800,000,000 Shares of HK$0.01 each by the creation of an additional 762,000,000 Shares. Save for the Capitalisation Issue and the Placing, no further changes in the shareholding of our Company and its subsidiaries will take place after the Reorganisation and at the time of Listing. Our Directors confirmed that all approvals from relevant authorities have been obtained and that the Reorganisation complies with the relevant laws and regulations. The following chart sets out our shareholding and corporate structure immediately after completion of the Capitalisation Issue and the Placing (without taking into account any Shares which may be allotted and issued upon exercise of the options that may be granted under the Share Option Scheme): Mr. Lee Ms. Kwok 50% 50% On Hong Century (BVI) The public 70% 30% Our Company (Cayman Islands) 100% Grand Prospect (BVI) 100% 100% ASD Technology (Hong Kong) Systech Electronics (Hong Kong) 100% Aolang Electronics (The PRC) 110

117 HISTORY, REORGANISATION AND CORPORATE STRUCTURE M&A RULES For details of the Rules on the Mergers and Acquisitions of Domestic Enterprises by Foreign Investors ( ), please see Regulatory Overview Regulatory requirements in the PRC M&A Rules. CIRCULAR NO. 75 AND CIRCULAR NO. 37 For details of the Circular on Relevant Issues Concerning Foreign Exchange Administration Relating to Domestic Residents Financing and Round-Trip Investment via Overseas Special Purpose Vehicles ( ) and the Circular on Relevant Issues Concerning Foreign Exchange Administration Relating to Domestic Residents Overseas Investment and Financing and Round-Trip Investment via Special Purpose Vehicles ( ), please see Regulatory Overview Regulatory requirements in the PRC Regulations relating to foreign exchange. 111

118 BUSINESS OVERVIEW Our Group is principally engaged in the sale of (i) imaging electronic components; and (ii) ODM and OBM video and imaging products. During the Track Record Period, we derived our revenue principally from the sale of imaging electronic components. Our imaging electronic components are mainly sold to customers in North America, the PRC and Hong Kong. During the Track Record Period, our revenue as derived from ODM and OBM video and imaging products were generated primarily from the sale of hunting cameras and wired scanner mouses. Our current ODM video and imaging products are hunting camera, wired scanner mouse, bicycle camera and bluetooth tracker. They are mainly sold to customers in the U.S., Japan, Europe and Australia. Our current OBM video and imaging products are wired and wireless scanner mouses and bluetooth tracker. They are mainly sold through distributors/reseller in Hong Kong, South East Asia, Australia and United Arab Emirates. We sell IC chips, CMOS sensors, digital imaging compression chips and other electronic components for imaging products through, ASD Technology, which started engaging in the sale of imaging electronic components in We have been offering design and engineering solutions to selective customers by utilising our know-how to design schematic, PCB layout (including verifying and fine-tuning the functionality of PCB assembly) and software to meet their specific requirements for over ten years. We sell our ODM and OBM video and imaging products through Systech Electronics, which started engaging in, the sale of ODM video and imaging products in 2012 and the sale of OBM video and imaging products in We develop our ODM video and imaging products through discussing and collecting product ideas from our customers and based on them, we design the products and further refine the product specifications. Our ODM video and imaging products are sold in the market under our customers own brand names. Our OBM video and imaging products are sold in the market under our own D+Oi and TAGGO brands. During the Track Record Period, we also had door phone, car digital video recorder and gun camera as our ODM video and imaging products. We ceased the sale of (i) door phone in or around November 2014 as it did not generate a sufficient gross profit margin; and (ii) car digital video recorder in or around January 2013 and gun camera in or around May 2012, as the quantities placed by our customers did not meet our minimum order quantities. We do not manufacture our ODM and OBM video and imaging products ourselves. We outsource our production processes to our subcontractors so that we could focus our resources on research and development of new products and better manage our overall operations. For the three years ended 31 March 2015 and the six months ended 30 September 2015, our Group recorded revenue of approximately HK$303.2 million, HK$321.8 million, HK$336.0 million and HK$233.8 million, respectively. 112

119 BUSINESS The table below sets forth a breakdown of our revenue by business segments during the Track Record Period: Year ended 31 March Six months ended 30 September Revenue Revenue Revenue Revenue Revenue HK$ million %of revenue HK$ million %of revenue HK$ million %of revenue HK$ million %of revenue HK$ million %of revenue Imaging electronic components IC chips CMOS sensors Digital imaging compression chips Others (Note 1) Subtotal ODM video and imaging products Hunting camera Scanner mouse Bicycle camera OBM video and imaging products Scanner mouse ODM and OBM video and imaging products Others (Note 2) Subtotal Total Notes: 1. The other imaging electronic components include, among other things, thin film transistor, lens and packaging materials. 2. The other ODM and OBM video and imaging products include door phone, car digital video recorder, gun camera and bluetooth tracker. We ceased the sales of door phone, car digital video recorder and gun camera in or around November 2014, January 2013 and May 2012, respectively. The sales of other ODM and OBM video and imaging products for the six months ended 30 September 2014 and 2015 were less than HK$0.1 million. 113

120 BUSINESS The table below sets forth a breakdown of our revenue as derived from our sale of imaging electronic components and ODM and OBM video and imaging products by geographical location of shipment destination (Note 1) and as a percentage of our revenue during the Track Record Period: Year ended 31 March Six months ended 30 September HK$ 000 %of revenue HK$ 000 %of revenue HK$ 000 %of revenue HK$ 000 %of revenue HK$ 000 %of revenue Hong Kong 147, , , , , PRC 44, , , , , U.S. 73, , , , , Europe (Note 2) 18, , , , , Others (Note 3) 19, , , , , Total 303, , , , , Notes: 1. The geographic breakdown was prepared based on shipment destination without taking into account the re-export or onward sales (if any) of our imaging electronic components and ODM and OBM video and imaging products by our customers. 2. Europe includes but is not limited to Belgium and Germany. 3. Others include but are not limited to Japan, Australia, Malaysia and Singapore. OUR COMPETITIVE STRENGTHS Our Directors believe that we have the following competitive strengths: Provision of value added design and engineering solutions We constantly strive to differentiate ourselves from our competitors through the provision of value-added services that complement the sales of our imaging electronic components. For example, the research and development team of ASD Technology has been offering value added design and engineering solutions to selective customers which are tailored to meet their specific requirements for over ten years. We believe that such capabilities represent one of our competitive strengths. Although ASD Technology does not always enter into design agreements with our customers for the provision of value-added design and engineering solutions, since ASD Technology started the provision of the service in 2002, we have entered into over 18 design agreements, pursuant to which ASD Technology generally (i) provided related imaging electronic components to the customer; and (ii) charged design fees, the whole or a portion of which may be refunded to the customer after a certain quantity of electronic components has 114

121 BUSINESS been purchased by the customer from ASD Technology. Among these customers, some of them have been purchasing related imaging electronic components from us for over three years. Our Directors believe that such customer loyalty demonstrated by the years of relationship with these customers shows that our competitiveness is enhanced by the provision of value-added design and engineering solutions to selective customers. Furthermore, based on our Directors view that our customers are not likely to change to new platforms frequently once they have adopted the design and engineering solutions that ASD Technology provided, our competitiveness is enhanced. As at the Latest Practicable Date, the research and development team of ASD Technology comprised of 12 staff. Such team is led by Mr. Wong Tung Yuen, our senior management member and the head of the software division of ASD Technology, and the head of the hardware division of ASD Technology, who joined us in 2005 and 2002, respectively. Each of them has over 10 years of engineering experience relating to imaging electronic components. As at the Latest Practicable Date, the research and development team of Aolang Electronics comprised of 16 staff, eight of whom provide support to the research and development team of ASD Technology. For details of our research and development activities, see Research and development. Strong video and imaging product design and development capabilities We consider that product design, development and innovation are key factors for a competitive edge in the industry we operate in. For our ODM and OBM video and imaging products, our product design and development capabilities enable us to continuously provide competitive products in markets categorised by rapid technological changes and short product life cycle. We incurred research and development expenses of approximately HK$8.2 million, HK$10.1 million, HK$11.4 million and HK$6.6 million, respectively, for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, accounting for approximately 31.3%, 35.1%, 33.1% and 39.6% of our selling and administrative expenses, respectively, for the corresponding periods. As at the Latest Practicable Date, the research and development team of Systech Electronics comprised of 11 staff. Such team is led by Mr. Ng, our senior management member, who joined us in September He has approximately 14 years of experience in designing and developing electronic products. As at the Latest Practicable Date, eight out of a total of 16 staff of the research and development team of Aolang Electronics provide support to the research and development team of Systech Electronics. As at the Latest Practicable Date, our research and development teams comprised of a total of 39 staff, representing approximately 48.1% of the total number of staff of our Group. 115

122 BUSINESS We believe that the recruitment and retention of experienced staff in our research and development teams enable us to maintain and strengthen our market position in the video and imaging product industry, as well as to expand our product range in the future. For details of our research and development activities, see Research and development. Experienced management team with extensive industry experience Our management team possesses extensive industry expertise and experience. Mr. Lee, our executive Director and chief executive officer, as well as one of our Controlling Shareholders, has over 20 years of experience in the electronic components industry. Mr. Ma, our executive Director, has approximately 15 years of experience in the electronics components industry. Mr. Leung Ting Yuk, our senior management member, has approximately 15 years of corporate finance and accounting experience. Mr. Ng, our senior management member, has approximately 14 years of experience in designing and developing electronic products. Mr. Wong Tung Yuen, our senior management member, has approximately 15 years of experience in designing and developing electronic products. Our Directors believe that the combination of our extensive knowledge and experience in the video and imaging product industry will enable us to maintain and grow our market share and to expand our product range through the design and development of ODM and OBM video and imaging products. Established stable business relationships with the majority of our major suppliers We have established and maintained stable business relationships with the majority of our major suppliers. As at the Latest Practicable Date, we had established approximately two to ten years of relationship with our five largest suppliers during the Track Record Period. As at the Latest Practicable Date, we also entered into (i) a short term reseller agreement with Company A, our largest supplier, acting as its non-exclusive reseller; (ii) five short term distribution agreements with certain of our suppliers, acting either as their exclusive or non-exclusive distributors; (iii) a design partner program agreement with a supplier pursuant to which we are one of their authorised design partners and we could develop for our customers circuit or system designs by utilising the portfolio of products supplied by it; and (iv) an international sales representative agreement with a supplier, acting as its non-exclusive representative. Our Directors believe that the above reseller agreement, the distribution agreements, the design partner program agreement and the sales representative agreement enable us to secure a constant and stable supply of the imaging electronic components we require. We believe that our stable relationships with the majority of our major suppliers help to ensure that we have a reliable supply of the imaging electronic components we require. Long-term history with a proven track record in the imaging electronic components industry Our Directors believe that we have established a proven track record in the imaging electronic component industry. Our history can be traced back to 2002 when ASD Technology started engaging in the sale of imaging electronic components. Our Directors consider that we have established a stable relationship with our major customers, in particular, Company H, our 116

123 BUSINESS largest customer for the three years ended 31 March 2015 and one of our five largest customers for the six months ended 30 September We believe that our long-term presence in the imaging electronic component industry gives our customers an overall confidence in our ability to meet their demand for imaging electronic components. OUR BUSINESS Our business can be divided into two segments: Sale of imaging electronic components; and Sale of ODM and OBM video and imaging products. Sale of imaging electronic components During the Track Record Period, our principal line of business was the sale of imaging electronic components. ASD Technology, an indirect wholly-owned subsidiary of our Company, is responsible for our sale of imaging electronic components. It was incorporated in March 2002 and has been engaged in the sale of imaging electronic components for approximately 12 years. We function as an intermediary between imaging electronic components suppliers and customers. Given that we are a reseller or a distributor of some of our suppliers, our customers will place orders with ASD Technology for specific types of imaging electronic components manufactured by these suppliers. In order to ascertain the availability of the imaging electronic components we provide, we will keep constant contact with our major suppliers. During the Track Record Period, we were engaged in the sale of imaging electronic components, such as IC chips, CMOS sensors and digital imaging compression chips. For each of the three years ended 31 March 2015 and the six months ended 30 September 2015, our sale imaging electronic components contributed to approximately 85.8%, 69.3%, 75.0% and 69.7% of our total revenue, respectively. Business workflow for sale of imaging electronic components Below are the key steps in the process for our sale of imaging electronic components during the Track Record Period and up to the Latest Practicable Date: Step 1: Receive enquiries from our customer We receive enquiries from our customer as to the availability of imaging electronic components. They would state their expected volume, price and delivery time. Step 2: Conduct stock checking The sales and marketing team of ASD Technology conducts stock checking to ascertain whether we have the required level of stock. We also liaise with our suppliers to ascertain the availability of the imaging electronic components required by our customer. 117

124 BUSINESS Step 3: Receive purchase order and payment from our customer If we or our suppliers have sufficient stock, we revert to our customer. Our customer then issues purchase order to us accordingly. It is our normal practice to require customers to make payment to us before we arrange for delivery of imaging electronic components to them. Step 4: Delivery As our purchase order are generally on FCA or FOB terms, we are responsible for delivery of the electronic components to the port of shipment. We strive to differentiate ourselves from other companies which only sell electronic components in that apart from selling imaging electronic components, we have been offering value added design and engineering solutions to selective customers by utilising our know-how to design schematic, PCB layout (including verifying and fine-tuning the functionality of PCB assembly) and software to meet their specific requirements for over ten years. Based on the customers requests, the research and development team of ASD Technology would utilise their know-how to tune quality of images. These solutions cover products such as drive recorder, police camera, microscope, tools camera and sport camera. During the Track Record Period, ASD Technology charged design fees for certain projects which amounted to a total of approximately HK$1.1 million. Our customers would normally purchase a programmed microcontroller together with related imaging electronic components from us. Hence, the provision of design and engineering solutions would generate lock-in sales of related imaging electronic components and repeated purchase orders from our customers bringing repeated businesses. In general, the design cycle of the projects undertaken by ASD Technology would take approximately 10 months to two years to complete. Our Directors believe that once our customers have adopted the design and engineering solutions that ASD Technology provided, they are not likely to change to new platforms frequently to avoid incurring switching costs. In selecting which customers to offer these solutions, we would take into account (i) the extent to which our provision of such solution would assist to generate lock-in sales of our imaging electronic components; (ii) the extensiveness of the sales network of the customers; and (iii) the reputation of the customers. 118

125 BUSINESS Business workflow for providing design and engineering solutions The following are the key steps of our business workflow in providing design and engineering solutions to our customers with the aim of generating lock-in sales of related imaging electronic components for our Group during the Track Record Period and up to the Latest Practicable Date. 1. Collect product ideas from customers. Our customers may provide us with product specifications 2. Design schematic and PCB layout 3. Develop software for PCB assembly and programmes for microcontroller 4. Conduct testing 5. Conduct pilot run 6. Lock-in sales of related imaging electronic components Step 1: Collect product ideas from customers. Our customers may provide us with product specifications The research and development team of ASD Technology would typically discuss and collect product ideas from our customers, propose an initial product concept and provide solutions to our customers. Our customers may provide ASD Technology the product specifications. Step 2: Design schematic and PCB layout The research and development team of ASD Technology would design the schematic and the PCB layout (including verifying and fine-tuning the functionality of the PCB assembly). Step 3: Develop software for PCB assembly and programmes for microcontroller The research and development team of ASD Technology would develop the software for PCB assembly and programmes for microcontrollers. 119

126 BUSINESS Step 4: Conduct testing Our customer would conduct testing on the prototype. Engineers of ASD Technology and our customer would have continuous communication and discussion at this stage to rectify defects and improve product effect. Step 5: Conduct pilot run Our customer would place purchase order with us for the imaging electronic components required to conduct pilot run of the product. Step 6: Lock-in sales of related imaging electronic components ASD Technology provided the aforesaid design and engineering solutions, including but not limited to software development, to its customers with the aim of generating lock-in sales of the related imaging electronic components. The business workflow in providing design and engineering solutions normally takes approximately 10 months to two years to complete. Sale of ODM and OBM video and imaging products The following diagram illustrates the business model for the sale of our ODM and OBM video and imaging products: Research and development Sourcing and Procurement Outsourcing of production and assembly Sales, marketing and logistics Systech Electronics, an indirect wholly-owned subsidiary of our Company, is responsible for our sale of ODM and OBM video and imaging products. It was incorporated in September 2003 and began to engage in the sale of ODM and OBM video and imaging products in 2012 and 2013, respectively. During the Track Record Period, our ODM customers were mainly located in U.S., Japan, Europe and Australia. To the best of our Directors knowledge, information and belief, our major ODM customers are brand owners of our respective ODM products. Our major OBM customers include distributors/reseller of our OBM products in Hong Kong, South East Asia, Australia and United Arab Emirates. For further details of our distributors/reseller, see Sales through distributors and reseller. For each of the three years ended 31 March 2015 and the six months ended 30 September 2015, our ODM and OBM businesses contributed to approximately 14.2%, 30.7%, 25.0% and 30.3% of our total revenue, respectively. 120

127 BUSINESS Our Group intends to focus more on the development of this business segment in the future. For details, see Future Plans and Use of Proceeds Our business strategies Strengthen our research and development capability Expand our research and development team. Business workflow The following are the key steps of the business workflow for our sale of ODM and OBM video and imaging products during the Track Record Period and up to the Latest Practicable Date: 1. Collect product ideas from customers or initiate our own product ideas and then provide product proposals 2. Produce or arrange production of product sample 3. Conduct tooling 4. Verify design 5. Mass production 6. Delivery Step 1: Collect product ideas from customers or initiate our own product ideas and then provide product proposals The research and development team of Systech Electronics would discuss and collect product ideas from our ODM customers. Such ODM customers would also provide us with their proposed product specifications. Based on them, the research and development team of Systech Electronics would design the products and further refine the product specifications. Thereafter, we provide our product proposals to our ODM customers setting out the relevant product details and the preliminary price quotations. Alternatively, the research and development team of Systech Electronics would discuss with our ODM customers its own product ideas and the customers requirements. Based on those discussions, it would design the products and refine the product specifications. Thereafter, we would provide our ODM customers with product proposals similar as described above. For our OBM products, the research and development team of Systech Electronics would initiate its own product ideas. 121

128 BUSINESS Step 2: Produce or arrange production of product sample Systech Electronics research and development team would produce or arrange production of product sample in accordance with the product specifications. We either produce or arrange samples for (i) our own trial use; or (ii) customers trial use for which they would provide their comments to us. We arrange samples to be sent to external laboratories for testing to obtain the required certifications. Step 3: Conduct tooling We outsource to external tooling house to produce moulding for conducting pilot production run. The tooling fees are either paid by our customers or Systech Electronics (as the case may be). Step 4: Verify design The engineers of Systech Electronics would hold meetings with our subcontractors for discussion. Our subcontractors would carry out pilot production run in order to verify our design and to identify latent defect(s) in the products which may not be discovered during the design and development stage. For details of our subcontractors, see Our subcontractors. Step 5: Mass production Generally, after our ODM customers have placed purchase orders with us and paid deposits in an amount of typically not more than 35% of the value of the purchase order, we would proceed to mass production to be carried out by our subcontractors. We generally keep a certain level of inventory of our OBM video and imaging products. Upon receiving orders placed by our OBM customers, we would check our inventory level of our OBM video and imaging products. If there is sufficient stock to satisfy the order, we will arrange delivery. In the event that we do not have sufficient inventory of the OBM products so ordered, we would instruct our subcontractors to proceed to mass production. Our OBM customers are required to settle payment in full to us immediately or in accordance with the relevant credit terms specifically agreed, before we deliver our OBM products to them. Step 6: Delivery Upon completion of mass production, we either instruct our subcontractors to arrange for product delivery to our ODM customers or our distributors in the case of our OBM products, or we arrange for product delivery ourselves. As our purchase orders are generally on FOB terms, we instruct our subcontractors to deliver our ODM and OBM products to the ports of shipment or other locations. The remaining balance of the value of the purchase order for our ODM or OBM products would be settled before product delivery, or in accordance with the relevant credit terms specifically agreed, as the case may be. 122

129 BUSINESS The business workflow for our sale of ODM and OBM video and imaging products normally takes approximately nine months to complete. OUR MAJOR IMAGING ELECTRONIC COMPONENTS AND ODM AND OBM VIDEO AND IMAGING PRODUCTS Major imaging electronic components Imaging electronic components IC chip Specifications/descriptions IC chips consists of, among other things, (i) microcontroller units to control and lower system power consumption; (ii) audio IC; (iii) power management IC to manage system power requirements; and (iv) NAND flash for photo and video storage. Applicable products camera CMOS sensor CMOS sensor is an image sensor with resolution including 1280x720, 1920x1080 and 2688x1520. Video outputs include 30fps, 120fps and 180fps. The sensor delivers low-light sensitivity and HDR. This enables vivid imaging in virtually every lighting condition from bright daylight to near complete darkness condition. camera Digital imaging compression chip Digital imaging compression chip provides high video compression ratio; full HD 1080 pixels 60 or 4 megapixels 30 on H.264 video recording in HD resolution with high-speed CMOS sensor interface capturing 500 megapixels capture rate per second. It enables features including smooth slow-motion replay. It delivers image quality in low-light conditions through a combination of high ISO speed, 3D motion compensated noise reduction and multiple exposures. digital video camera 123

130 BUSINESS ODM Video and Imaging Products Specifications/descriptions Hunting camera The hunting camera has incorporated IR illumination technology and a motion detector with no flash to disturb the wild animals or alert the trespassers. It is designed with a unique zero blur technology that ensures crystal clear shots even when the target is in motion. It features a 10 megapixel camera which delivers high resolution of 1280 x 720, thus improving night picture quality. It also features color viewing screen. It also captures high quality HD video clips with high sound quality. Bicycle camera The bicycle camera can replace the traditional tail-light and records in real-time the back view of the cyclist. It features a 720 pixel video recording and audio functions. It also delivers high resolution of 1280 x 720 with a sensor viewing angle of 100 degrees wide. It has a highly visible tail-light and uses nano technology protection against the weather. 124

131 BUSINESS Discontinued ODM Video and Imaging Products Specifications/descriptions Door phone During the Track Record Period, we had door phone as one of our ODM video and imaging products. We ceased the sale of this product in or around November 2014 as it did not generate a sufficient gross profit margin. The door phone camera monitors unattended entrances of households by incorporating an indoor display and an outdoor camera. The outdoor camera contains a CMOS sensor and a frame rate of 60 frame per second which provides the visualisation of outside view in natural light and under darkness. A speaker and microphone is fixed to enable audio communication from the person inside the household to the person at the doorstep. Car digital video recorder During the Track Record Period, we had car digital video recorder as one of our ODM video and imaging products. We ceased the sale of this product in or around January 2013 as the quantity placed by our customer did not meet our minimum order quantity. The car digital video recorder has a recording resolution of 1920 x 1080 at 30fps and 1280 x 720 at 30fps on H.264 video codec. Gun camera During the Track Record Period, we had gun camera as one of our ODM video and imaging products. We ceased the sale of this product in or around May 2012 as the quantity placed by our customer did not meet our minimum order quantity. The gun camera captures the sight picture of a target at the precise moment the shooter decides to pull the trigger. This allows the shooter to have images and data to analyse. It delivers HD 1280 x 720 pixels at 60fps and comprises 1/3 CMOS sensor and 2.0 megapixel image sensor. 125

132 BUSINESS ODM and OBM Video and Imaging Products Specifications/descriptions Wired scanner mouse The wired scanner mouse is a mouse that has a built-in scanner, with the addition of OCR software. It eliminates the need to have a flatbed scanner. It is of the size of an average mouse and is portable. The OCR software enables it to convert scans to typed text; to edit sentences on Microsoft Word and to edit spreadsheets on Microsoft Excel; to translate text to another language; and to share the scanned images instantly through social network sites. Bluetooth tracker The bluetooth tracker is a device to track valuables. It can be tagged to anything. It provides timely reminders and helps to find misplaced items. It is ios compatible and needs to be paired with devices that have bluetooth. It has a detection range of approximately 150 feet. OBM Video and Imaging Product Wireless scanner mouse The specification of the wireless scanner mouse is similar to the wired scanner mouse, except that it has a wireless connectivity function via Wi-Fi. 126

133 BUSINESS Licence Agreement We entered into a non-exclusive, non-sublicensable and non-transferable licence agreement in April 2012 with a Swiss software company, which is an Independent Third Party for the manufacturing of our ODM and OBM products, namely, the wired and wireless scanner mouses. That licence agreement relates to the offering of a unique content capturing technology based on real-time image processing. We are authorised under that licence agreement to utilise the licensor s proprietary hardware reference design database and software solely for use in the development and manufacture of scanner mouses and to market and sell those same scanner mouses, subject to certain conditions. The aforesaid licence agreement will expire in April 2017 or can be terminated by either party giving a six months prior written notice after the first year of the licence agreement. We will negotiate with the licensor to renew the licence agreement on or before the expiration date of the licence agreement. Currently, we expect that there is no obstacle in renewing the licence agreement given our good business relationship with them. Further, we have in the second half of 2014 accepted a budgetary quote from the Swiss software company to provide technology for ios support and Android support for wireless scanner mouse, e.g. for tablets and smart phones. The cost of royalties per licensed scanner mouse sold is determined based on certain quantity ranges. Royalties paid to the Swiss software company amounted to approximately HK$2.6 million, HK$6.2 million, HK$1.1 million and HK$0.3 million, representing approximately 0.8%, 1.9%, 0.3% and 0.1% of our Group s total revenue, for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. INDUSTRY AND MARKET The Ipsos Report has highlighted certain unfavourable market factors in the video and imaging products and the imaging electronic components markets. The average wholesale price of wired scanner mouse in Hong Kong has been declining from approximately HK$571.8 per unit in 2011 to approximately HK$418.5 per unit in The average wholesale price of hunting camera in Hong Kong has been declining from approximately HK$447.5 per unit in 2009 to approximately HK$426.5 per unit in The average wholesale price of CMOS sensors in Hong Kong has been declining from approximately HK$27.0 per unit in 2009 to approximately HK$24.4 per unit in The average wholesale price of IC chips in Hong Kong has been declining from approximately HK$3.5 per unit in 2009 to approximately HK$3.0 per unit in The Ipsos Report has also highlighted certain favourable market factors in the video and imaging products and the imaging electronic components markets which our Directors consider to be key to our business: stability in growth in global sales of video and imaging IC products or components or parts: From 2009 to 2014, total sales value of video and imaging IC products or components or parts in the global market increased at a CAGR of approximately 9.2%. From 2015 to 2018, the total sales value of video and imaging IC products or 127

134 BUSINESS components or parts in the global market is expected to increase at a CAGR of approximately 6.6%. The total sales values of video and imaging IC products or components or parts in the U.S., European and Asian markets from 2015 to 2018 are projected to grow at a CAGR of approximately 4.5%, 4.6% and 7.8%, respectively; stability in growth in global sales of video and imaging products: From 2009 to 2014, total sales value of video and imaging products in global market rose at a CAGR of approximately 17.4%. From 2015 to 2018, the total sales value of video and imaging products is expected to increase at a CAGR of approximately 15.1%. The total sales values of video and imaging products in the U.S., European and Asian markets from 2015 to 2018 are projected to grow at a CAGR of approximately 14.7%, 15.2% and 11.8%, respectively; and stability in increase in revenue in Hong Kong: From 2009 to 2014, total revenue of the sales of imaging electronic components and design service providers in Hong Kong increased at a CAGR of approximately 29.0%. From 2015 to 2018, the total revenue of the sales of imaging electronic components and design service providers in Hong Kong is expected to increase at a CAGR of approximately 28.4%. From 2009 to 2014, the total revenue of ODM and OBM service providers of video and imaging products in Hong Kong increased at a CAGR of approximately 28.8%. From 2015 to 2018, the total revenue of ODM and OBM service providers of video and imaging products in Hong Kong is expected to increase at a CAGR of approximately 28.2%. BUSINESS PROSPECTS We have continued our efforts to tap into the growth potential in the imaging electronic components and the video and imaging products markets. We strive to increase our market shares in such markets through the following strategies: 1. Strengthen our relationship with existing customers and suppliers and further expand our customer base With the long establishment of ASD Technology since 2002, our Directors believe that we have established a proven track record in the imaging electronic component industry. Our Directors also believe that relationships with our customers are vital to the growth of our business. It is our Group s strategy to strengthen customers relationships through close communications with our customers, responding promptly to customers requests and providing design and engineering solutions to meet our customers specific requirements. We have established business relationships with (i) our largest customer for the three years ended 31 March 2015 and one of our five largest customers for the six months ended 30 September 2015, Company H, since 2006; and (ii) one of our five largest customers for the year ended 31 March 2015, Company P, since In view of such long term business relationships, our Directors consider that our business relationships with Company H and Company P have remained stable and positive. 128

135 BUSINESS During the Track Record Period, to the best of our Directors knowledge, information and belief, (i) most of the customers of ASD Technology were trading companies or manufacturers; and (ii) certain manufacturers were engaged in the manufacture of and sale of electronic products. We have maintained stable business relationships with some of these manufacturers who had been purchasing imaging electronic components from us during the Track Record Period which, to the best of our Directors knowledge, information and belief, were for the manufacture of their own electronic products. Our Directors believe that the stable business relationships with these customers would help us achieve sustainable business growth going forward. As we expand our product offerings, we seek to increase our marketing efforts to sell to more new customers by actively participating in trade fairs and exhibitions to promote our business. Our Directors believe that since we have established relationships with our major suppliers, we can obtain first hand information in relation to their latest innovations in imaging technology. Based on such information, we can use or market directly to our customers key electronic components using the latest innovations in imaging technology or utilise our relevant knowledge to refine and improve our design and engineering solutions for customers with the aim of generating lock-in sales of the related imaging electronic components. We have established business relationship with our largest supplier during the Track Record Period, Company A, since In view of such long term business relationship, our Directors consider that our business relationship with Company A has remained stable and positive. ASD Technology had further expanded its suppliers network by entering into a design partner program with a supplier on 7 April Our Directors consider that with the imaging electronic components supplied by such supplier, our Group will be able to expand our product offerings as well as provide more diversified design and engineering solutions to customers with the aim of generating lock-in sales of the related imaging electronic components. 2. Continue to expand our sales in overseas markets During the Track Record Period, we had strived to expand the sales of our imaging electronic components and ODM and OBM video and imaging products to the overseas markets in the U.S. and Europe. During each of the three years ended 31 March 2015 and the six months ended 30 September 2015, our sales attributable to customers from the U.S. accounted for approximately 24.1%, 36.2%, 39.3% and 43.2% of our revenue, respectively. During each of the three years ended 31 March 2015 and the six months ended 30 September 2015, our sales attributable to customers from Europe accounted for approximately 6.0%, 11.9%, 15.2% and 8.8% of our revenue, respectively. For details, see Financial Information Description and analysis of principal items in the combined statements of profit or loss and other comprehensive income Revenue Geographical breakdown of our revenue. According to the Ipsos Report, (i) the total sales values of video and imaging IC products, components or parts in the U.S. and European markets from 2015 to 2018 are projected to grow at a CAGR of approximately 4.5% and 4.6%, respectively; and (ii) the total sales values of 129

136 BUSINESS video and imaging products in the U.S. and European markets from 2015 to 2018 are projected to grow at a CAGR of approximately 14.7% and 15.2%, respectively. Considering such growth potential, we intend to continue to devote resources in generating sales for imaging electronic components and our ODM video and imaging products in the U.S. and the European markets. 3. Provide value added design and engineering solutions based on anticipated market trends of electronic products We plan to continue to provide value added design and engineering solutions to our customers as a means to create opportunities to promote the use of the imaging electronic components that ASD Technology sells. Our Directors believe that once our customers have adopted the design and engineering solutions that ASD Technology provided, they are not likely to change to new platforms frequently to avoid incurring switching costs. Our executive Directors, based on their industry knowledge and experience, expect that (i) in the mid term, 4G/LTE police camera, Wi-Fi/4G wearable camera, drone and HDR security camera would become increasingly popular; and (ii) in the long term, television sets of 1080 pixel, 4K TV and 8K TV would become mainstream electronic products. ASD Technology has therefore provided design and engineering solutions to our customers which would enable them to adopt imaging electronic components that can be used for certain of these products. In addition, certain of the imaging electronic components that ASD Technology sell are compatible with the HDR techniques applicable to cameras and automobiles. We believe that our above strategy would assist us in maintaining sustainable business growth. 4. Continue to develop our research and development capability During the Track Record Period, ASD Technology had provided design and engineering solutions to selective customers by utilising our know-how to design schematic, PCB layout (including verifying and fine-tuning the functionality of PCB assembly) and software to meet their specific requirements. These solutions cover products such as drive recorder, police camera, microscope, tools camera and sport camera. ASD Technology provided the aforementioned design and engineering solutions to its customers with the aim of generating lock-in sales of the related imaging electronic components. We are able to differentiate ourselves from our competitors through the provision of these value-added services that complement the sales of our imaging electronic components. During the Track Record Period, our revenue as derived from ODM and OBM video and imaging products were generated primarily from the sale of hunting cameras and wired scanner mouses. Two models of the hunting cameras that Systech Electronics produced for our customer ranked in the top ten of game camera in the 2015 Game Camera Review on According to the Ipsos Report, wired scanner mouse was launched globally in January Since the launch of the wired scanner mouse, there was no new model of scanner mouse in the market until the first wireless scanner mouse developed by us in August We have obtained various awards in Hong Kong for our wired and wireless scanner mouses. For further details of such awards, see Awards. 130

137 BUSINESS According to the Ipsos Report, the key strengths which we enjoy over our competitors include but are not limited to our one-stop business model (from the sale of imaging electronic components, the provision of design and engineering solutions, to the design and sale of ODM and OBM video and imaging products) which enables us to control and manage, the imaging electronic components procurement process and the resource allocation when providing our services. With such one-stop business model, we are less dependent on particular imaging electronic components suppliers and are able to enjoy a stable supply of imaging electronic components when providing design and engineering solutions and ODM and OBM services to our customers. The one-stop business model also allows us to capture the advantage of vertical integration by eliminating the markup in prices between different companies in the supply chain and thus increase our profit margin. In view of the above, our Group intends to devote more resources to strengthen our research and development capability and enhance our ability to respond to the market trend for video and imaging products. For details, see Future Plans and Use of Proceeds Our business strategies 1. Strengthen our research and development capability. 5. Develop our ODM and OBM video and imaging products For the three years ended 31 March 2015 and the six months ended 30 September 2015, our gross profit amounted to approximately HK$26.0 million, HK$43.9 million, HK$41.7 million and HK$29.1 million, respectively, and our gross profit margin amounted to approximately 8.6%, 13.6%, 12.4% and 12.4%, respectively. During the Track Record Period, our ODM and OBM video and imaging products segment generally had a higher gross profit margin for its product sales than that for our imaging electronic components segment, as evidenced by the gross profit margin for sales of ODM and OBM video and imaging products of approximately 16.4%, 17.0%, 19.0% and 18.8% for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively, as compared to the gross profit margin for sales of imaging electronic components of approximately 7.3%, 12.2%, 10.2% and 9.7% for the same corresponding periods. For details of the gross profit and gross profit margin of our Group, see Financial Information Description and analysis of principal items in the combined statements of profit or loss and other comprehensive income Gross profit and gross profit margin. Our revenue from selling ODM and OBM video and imaging products increased by approximately 128.7% from approximately HK$43.2 million for the year ended 31 March 2013 to approximately HK$98.8 million for the year ended 31 March 2014; and then decreased by approximately 15.0% from approximately HK$98.8 million for the year ended 31 March 2014 to approximately HK$84.0 million for the year ended 31 March Our revenue from selling ODM and OBM video and imaging products increased by approximately 58.7% from approximately HK$44.6 million for the six months ended 30 September 2014 to approximately HK$70.8 million for the six months ended 30 September Our Group recorded an increase in gross profit from sales of ODM and OBM video and imaging products by approximately 136.6% from approximately HK$7.1 million for the year ended 31 March 2013 to approximately HK$16.8 million for the year ended 31 March 2014; and a slight decrease in gross profit from this segment of approximately 4.8% from approximately HK$16.8 million for 131

138 BUSINESS the year ended 31 March 2014 to approximately HK$16.0 million for the year ended 31 March For the six months ended 30 September 2015, we recorded an increase in gross profit from sales of ODM and OBM video and imaging products by approximately 79.7% from approximately HK$7.4 million for the six months ended 30 September 2014 to approximately HK$13.3 million for the six months ended 30 September The sale of hunting camera had generated a trend of increase of revenue and gross profit for our Group during the Track Record Period. The resulting decrease of revenue and gross profit from the ODM and OBM video and imaging products segment by approximately 15.0% and 4.8%, respectively, in the year ended 31 March 2015 when compared with the previous financial year was mainly attributable to the decrease in revenue and gross profit generated from the sale of ODM wired scanner mouse. For details, see Financial Information Description and analysis of principal items in the combined statements of profit or loss and other comprehensive income (i) Revenue ODM and OBM video and imaging products and (ii) Gross profit and gross profit margin. In view of the higher gross profit margin of the ODM and OBM video and imaging product business compared to that of the imaging electronic components business, both ASD Technology and Systech Electronics will continue to expand and explore new business opportunities with the focus on enhancing our existing ODM and OBM video and imaging products and developing new ODM and OBM video and imaging products. We have plans to introduce new series/next generation of our bicycle camera and hunting camera the first quarter of 2016, respectively. For details of the new series/next generation of our existing ODM video and imaging products, see New product or service development subsequent to the Track Record Period New series/next generation of our existing ODM video and imaging products. With our new ODM and OBM video and imaging products development, we may expand our customer base, and capture different revenue streams by having a diverse product range and servicing customers in different segments. Our Directors believe that the above action would enhance our overall profitability in the future. New product or service development subsequent to the Track Record Period New series/next generation of our existing ODM video and imaging products In order to stay competitive in the ever-changing video and imaging product industry, we continually strive to develop our ODM and OBM video and imaging products. Our Group recorded increase in sales of hunting camera for each of the two years ended 31 March The sales value of hunting camera increased by approximately 368.9% and 90.6% from approximately HK$6.1 million for the year ended 31 March 2013 to approximately HK$28.6 million for the year ended 31 March 2014 and further to approximately HK$54.5 million for the year ended 31 March Our Group recorded an increase in sales value of hunting camera for the six months ended 30 September 2015 as compared to the year ended 31 March

139 BUSINESS Systech Electronics has been continuously developing new series/next generation of our existing ODM video and imaging products, namely, hunting camera and bicycle camera. According to the Ipsos Report, the total sales value of hunting camera, bicycle camera, wearable camera and sport camera (collectively, Action Camera ) in the global market will increase at an estimated CAGR of approximately 22.8% from US$3,738.9 million in 2015 to US$6,930.7 million in For the U.S. market, the total sales value of Action Camera will increase at an estimated CAGR of approximately 20.4% from US$1,906.5 million in 2015 to US$3,325.3 million in The reason for this rising trend is that since over 50% of the population in the U.S. is involved with adventure activities such as hunting, the growing demand of hunting camera in the U.S. is expected to continue in the future. For the rest of the world (including Australia but excluding U.S., Europe, Asia and China), the total sales value of Action Camera will increase at an estimated CAGR of approximately 56.3% from US$108.0 million in 2015 to US$412.4 million in This rising trend is attributable to the on-going promotion of cycling under the Australian National Cycling Strategy by the Australian Government. Such promotion will continue to increase the number of people cycling in Australia, increasing the demand for bicycle and bicycle related accessories, including bicycle camera. Based on the above, our Directors believe that the new versions/next generation of our existing ODM video and imaging products are likely to generate positive demand in the market. Details of such ODM product models and the relevant product development plan are set forth below: Four new series of hunting camera with the U.S. as the target market Product development plan (i) Current stage: We have accepted purchase orders for three series of hunting cameras Expected product launch date: The first quarter of 2016 Value of purchase orders received from customer subsequent to the Track Record Period: Approximately HK$23.7 million (ii) Current stage: One series of hunting camera is at the product design stage Expected product launch date: Can only be ascertained at the later stage of the development Value of purchase orders received from customer: Can only be ascertained at the later stage of the development Next generation of bicycle camera with Australia as the target market Product development plan Current stage: We have accepted purchase order for the bicycle camera Expected product launch date: The first quarter of 2016 Value of purchase orders received from customer subsequent to the Track Record Period: Approximately HK$4.5 million 133

140 BUSINESS Our Directors are of the view that, barring unforeseen circumstances, it would take approximately nine months to complete the business workflow for our sale of ODM video and imaging products. Hence, our Directors expect that most of the new versions/next generation of our existing ODM video and imaging products, as described above, would be launched in the first quarter of 2016, thus completing and commercialising our present research and development initiatives. Design and engineering solutions ASD Technology has been continuously providing design and engineering solutions for video and imaging products with the aim of generating sales or lock-in sales of the related imaging electronic components. These solutions can be applied in surveillance camera, car camera, drone camera and cloud camera. Details of such design and engineering solutions and the expected sales or related lock-in sales of the related imaging electronic components are set forth below: Providing design and engineering solutions in respect of trouble shooting for schematic which can be applied in surveillance camera. With the provision of such design and engineering solutions, ASD Technology aims to generate sales of digital imaging compression chips. Sales schedule Current stage: Expected time of next delivery: Expected minimum level of revenue contribution subsequent to the Track Record Period: Continuing sales and awaiting next purchase order for the digital imaging compression chips Approximately one month after the receipt of the next purchase Approximately HK$4.5 million Providing design and engineering solutions relating to, among others, the resistance of the flow of electric current in PCB assembly which can be applied in police camera. With the provision of such design and engineering solutions, ASD Technology aims to generate lock-in sales of digital imaging compression chips. Lock-in sales schedule Current stage: Expected time of next delivery: Value of purchase orders received from customer subsequent to the Track Record Period (Note): Continuing sales and awaiting next purchase order for the digital imaging compression chips Approximately one month after the receipt of the next purchase Can only be ascertained after the receipt of the next purchase order Providing design and engineering solutions in respect of the selection of the electronic components of the PCB assembly which can be applied in surveillance camera. With the provision of such design and engineering solutions, ASD Technology aims to generate lock-in sales of digital imaging compression chips. 134

141 BUSINESS Lock-in sales schedule Current stage: We have accepted purchase orders for the digital imaging compression chips Expected time of next delivery: The first quarter of 2016 Value of purchase orders received from customer subsequent to the Track Record Period (Note): Approximately HK$2.4 million Providing design and engineering solutions the design of schematic and PCB layout which can be applied in drone camera. With the provision of such design and engineering solutions, ASD Technology aims to generate lock-in sales of digital imaging compression chips. Lock-in sales schedule Current stage: Continuing sales and awaiting next purchase order for the digital imaging compression chips Expected time of next delivery: The first quarter of 2016 Value of purchase orders received from customer subsequent to the Track Record Period (Note): Approximately HK$4.1 million Providing design and engineering solutions in respect of the design of PCB layout which can be applied in cloud camera. With the provision of such design and engineering solutions, ASD Technology aims to generate lock-in sales of digital imaging compression chips. Lock-in sales schedule Current stage: We have accepted purchase orders for the digital imaging compression chips Expected time of next delivery: The first quarter of 2016 Value of purchase orders received from customer subsequent to the Track Record Period (Note): Approximately HK$0.7 million Note: Our Group recorded commission income received from Company T in relation to sales of imaging electronic components instead of revenue. For further details, see Suppliers Rebate and sales commission. Other product As at the Latest Practicable Date, we had a patent application in relation to an adaptable lighting system in the U.S.. The adaptable lighting system comprises an image sensor, a microcontroller and one or more lighting unit(s). It provides for adaptive illumination. It is able to, calculate the illumination algorithm based on certain information of the environment, generate adjustment command, and adjust lighting output. Our Group intends to focus more on the development of new products. For details, see Future Plans and Use of Proceeds Our business strategies Strengthen our research and development capability Expand our research and development team. 135

142 BUSINESS Our Directors are of the view and the Sponsor concurs that: (i) we will be able to sustain our business given that we strive to increase our market shares in the imaging electronic components and video and imaging products markets through (a) strengthening our relationship with existing customers and suppliers and further expanding our customer base; (b) continuing to expand our sales in overseas markets; (c) providing value added design and engineering solution based on anticipated market trends of electronic products; (d) continuing to develop our research and development capability; and (e) developing our ODM and OBM video and imaging products, as described above; and (ii) we will be able to secure sufficient working capital for our operations given that (a) both ASD Technology and Systech Electronics will continue to expand and explore new business opportunities with the focus on enhancing our existing ODM and OBM video and imaging products and developing new ODM and OBM video and imaging products; (b) we are developing new versions/next generation of our bicycle camera and hunting camera; (c) we will continue to provide design and engineering solutions to our customers with the aim to generate lock-in sales of the related imaging electronic components; and (d) we have obtained bills loans to facilitate our business. As at 31 March 2013, 2014, 2015 and 30 September 2015, we had outstanding balance of bills loans of approximately HK$36.6 million, HK$16.1 million, HK$61.9 million and HK$52.9 million, respectively. RESEARCH AND DEVELOPMENT We believe that research and development is fundamental to the maintenance of our competitiveness and the sustaining of our continuous growth. For each of the three years ended 31 March 2015 and the six months ended 30 September 2015, we incurred research and development expenses of approximately HK$8.2 million, HK$10.1 million, HK$11.4 million and HK$6.6 million, respectively, representing 31.3%, 35.1%, 33.1% and 39.6% of our selling and administrative expenses, respectively, for the corresponding periods. Our expenses in this regard are the salaries of our research and development teams. Given that both ASD Technology and Systech Electronics will continue to expand and explore new business opportunities with the focus on enhancing our existing ODM and OBM video and imaging products and developing new ODM and OBM video and imaging products, we intend to recruit more engineers to support the research and development team of ASD Technology and recruit staff at different levels to generate product ideas and implement projects to support the research and development team of Systech Electronics. Thus, the amount of research and development expenses to be incurred would depend on the relevant stage(s) of development of our Group. 136

143 BUSINESS Research and development team As at the Latest Practicable Date, our research and development teams comprised of a total of 39 staff, representing approximately 48.1% of the total number of staff of our Group. The research and development team of ASD Technology comprised of 12 staff, who are allocated amongst the software and hardware divisions. Such team is led by Mr. Wong Tung Yuen, our senior management member and the head of the software division of ASD Technology, and the head of the hardware division of ASD Technology, who joined us in 2005 and 2002, respectively. Each of them has over 10 years of engineering experience relating to imaging electronic components. The hardware division of ASD Technology is responsible for designing and developing hardware schematics and PCB layout, and project follow up. The software division of ASD Technology is responsible for developing software and programmes for microcontroller. The research and development team of Systech Electronics comprised of 11 staff, who are allocated amongst the project management, mechanical engineering, electronics engineering, software, product design and quality assurance divisions. Such team is led by Mr. Ng, our senior management member, who joined us in September He has approximately 14 years of experience in designing and developing electronic products. The project management division is responsible for coordinating amongst the different divisions and liaising with suppliers and customers as regards existing product updates. The mechanical engineering division is responsible for arranging tooling. The electronics engineering division, the software division and the mechanical division cooperate to design and develop software and PCB schematics and layout, troubleshoot and complete the development of our ODM and OBM video and imaging products. The quality assurance division is responsible for identifying product quality issues and referring the issues to the appropriate division(s) to handle. The research and development team of Aolang Electronics comprised of 16 staff, who are allocated amongst the project management, mechanical engineering, electronics engineering, hardware and quality assurance divisions. They provide assistance and support to the research and development teams of ASD Technology and Systech Electronics. As at 31 March 2013, 2014 and 2015 and 30 September 2015, our research and development teams comprised of 35, 38, 46 and 39 staff, respectively. Our Group intends to employ 15 additional staff for our research and development teams from the Latest Practicable Date to 31 March The estimated total number of staff in our research and development teams would be increased to approximately 54 as at 31 March For details, see Future Plans and Use of Proceeds Our business strategies 1. Strengthen our research and development capability Expand our research and development team. Research and development capabilities The research and development team of ASD Technology focuses on developing design and engineering solutions for video and imaging products; and the research and development team of Systech Electronics focuses on research and development in video and imaging products. 137

144 BUSINESS During the Track Record Period, ASD Technology had provided design and engineering solutions to our customers by utilising our know-how to design schematic, PCB layout (including verifying and fine-tuning the functionality of the PCB assembly) and software to meet their specific requirements. These solutions cover products such as drive recorder, police camera, microscope, tools camera and sport camera. The research and development team of ASD Technology would typically discuss and collect product ideas from our customers, propose an initial product concept and provide solutions to our customers. Our customers may also provide us with their proposed specifications. We provide the design and engineering solutions for PCB assembly to our customers for their own production. Upon request of our customers for us to design the mechanical structure of the product casing, we would provide a sample of the product casing together with the relevant design and engineering solutions to our customers for their own production. For certain projects, our customers would purchase programmed microcontrollers for control. During the Track Record Period, ASD Technology charged design fees for certain projects. ASD Technology provided the aforementioned design and engineering solutions to its customers with the aim of generating lock-in sales of the related imaging electronic components. Hence, our Directors are of the view that given technology is constantly changing in the industry, ASD Technology will need to recruit more engineers to support our development of design and engineering solutions, and our provision of the value-added services that we offer to selective customers to complement the sales of our imaging electronic components. During the Track Record Period, our revenue as derived from ODM and OBM video and imaging products were generated primarily from the sale of hunting cameras and wired scanner mouses. For manufacturing of the scanner mouse, apart from licensing the technology from an Independent Third Party, the research and development team of Systech Electronics would design the optical module, PCB layout and hardware and arrange for our subcontractors to conduct pilot production run to verify the design and optimise the effect and performance. For manufacturing of the hunting camera, the research and development team of Systech Electronics would incorporate custom-made software, electronic and mechanical structures into the design of the camera. Hence, our Directors are of the view that in order to sustain demand from our customers, Systech Electronics will need to recruit staff of different levels to continue to engage in research and development in relation to hunting camera and scanner mouse as well as to generate new product ideas and implement new projects. 138

145 BUSINESS Our Group has also been granted awards for our products. For further details of such awards, see Awards. We intend to strengthen our research and development capability in the future. For details, see Future Plans and Use of Proceeds Our business strategies Strengthen our research and development capability. INVENTORY CONTROL ASD Technology usually purchases imaging electronic components from our suppliers having considered its confirmed customers orders and inventory levels. It maintains an inventory of imaging electronic components at a level which it considers sufficient for its operations. For example, it keeps buffer stocks for CMOS sensors. Buffer stocks are maintained to minimise the effect of the occurrence of shortage or delay in the supply of imaging electronic components. Systech Electronics generally does not keep inventories of our ODM video and imaging products as we instruct our subcontractors to proceed with production after we have received confirmed customers orders and our subcontractors sometimes arrange for product delivery directly to our ODM customers. Systech Electronics generally keeps a certain level of inventory of our OBM video and imaging products. We employ an ERP system. It provides us with useful tools to, among other things, computerize our purchase orders placed with our suppliers and the purchase orders placed by our customers, maintain our inventory level on a regular basis and a centralized system of the price information of imaging electronic components from time to time and provide information as to account receivables from our customers and account payables to our suppliers. We believe this system allows us to respond to market demand effectively and manage our inventory more efficiently. Our inventory turnover days during the Track Record Period remained stable at approximately 34.2 days, 32.5 days, 32.3 days and 26.2 days for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. During the Track Record Period, our Group had conducted annual assessment on the inventory value by product type. As at 31 March 2013, we recognised inventories write-down of approximately HK$1.9 million for obsolete and slow-moving inventories based on market conditions and management judgment. As at 31 March 2014, 2015 and 30 September 2015, we did not recognise write-down on obsolete and slow-moving inventories. 139

146 BUSINESS SUPPLIERS We have maintained good business relationships with our major suppliers. We purchase IC chips, CMOS sensors and digital imaging compression chips, from our suppliers. During the Track Record Period, we had a total of three suppliers who are our subcontractors providing us with manufacturing service for our ODM and OBM video and imaging products, namely hunting cameras, scanner mouse and bicycle camera. As at the Latest Practicable Date, we established approximately two to ten years of relationship with our five largest suppliers during the Track Record Period. Our major suppliers are located in Singapore, the United Kingdom, Taiwan, the PRC and Hong Kong. Our purchases from our five largest suppliers for each of the three years ended 31 March 2015 and the six months ended 30 September 2015 amounted to approximately HK$169.5 million, HK$151.3 million, HK$209.7 million and HK$160.4 million, respectively, representing approximately 61.3%, 54.5%, 71.2% and 78.3% of our total purchases, respectively, for the corresponding periods. Our purchases from our largest supplier for each of the three years ended 31 March 2015 and the six months ended 30 September 2015 amounted to approximately HK$95.6 million, HK$70.8 million, HK$99.0 million and HK$73.5 million, respectively, representing approximately 34.5%, 25.5%, 33.6% and 35.9% of our total purchases, respectively, for the corresponding periods. The information below sets out our five largest suppliers during the Track Record Period, our years of relationship with them and their background information. Five largest suppliers for the year ended 31 March 2013 Approximate purchase amount HK$ 000 Approximate percentage of our total purchase Company A 95, % Company B 29, % Individual C 16, % Company D 14, % Company E 13, % Five largest suppliers for the year ended 31 March 2014 Approximate purchase amount HK$ 000 Approximate percentage of our total purchase Company A 70, % Company F 29, % Kenxen 22, % Individual C 15, % Company G 13, % 140

147 BUSINESS Five largest suppliers for the year ended 31 March 2015 Approximate purchase amount HK$ 000 Approximate percentage of our total purchase Company A 99, % Kenxen 46, % Company G 32, % Individual C 19, % Company Q 12, % Five largest suppliers for the six months ended 30 September 2015 Approximate purchase amount HK$ 000 Approximate percentage of our total purchase Company A 73, % Kenxen 54, % Company G 18, % Company R 7, % Individual C 6, % Name of supplier Year commencing relationship Background information Company A (Note 1) 2005 It is a company primarily engaged in the development of advanced CMOS image sensors and complete camera solutions. Its holding company is listed on NASDAQ Company B (Note 2) 2005 It is a company primarily engaged in the designing and marketing of single chip radio devices. It also manufactures various electronic components Principal imaging electronic components or products supplied to us CMOS sensors Digital imaging compression chips Typical credit terms and payment method 30 days credit terms, paid by telegraphic transfer 30 days credit terms, paid by telegraphic transfer Individual C (Note 3) 2011 A businessman IC chips Cash on delivery, paid by telegraphic transfer Company D (Note 4) 2009 It is a company primarily engaged in the development and sale of transceiver technology and radio frequency components IC chips 30 days after month end statement, paid by telegraphic transfer Relationship with our Group Independent Third Party Independent Third Party Independent Third Party Independent Third Party 141

148 BUSINESS Name of supplier Year commencing relationship Background information Principal imaging electronic components or products supplied to us Typical credit terms and payment method Relationship with our Group Company E (Note 5) 2012 It is a company primarily engaged in the sale and development of electronic products IC chips Cash on delivery, paid by cheque Independent Third Party Company F 2012 It is a company primarily engaged in the manufacture and sale of cameras, toys, television games and microscopes Scanner mouse Cash on delivery, paid by telegraphic transfer Independent Third Party Company G 2013 It is a company primarily engaged in research and development, production and sales of electronic products IC chips Cash on delivery, paid by cheque Independent Third Party Kenxen 2012 It manufactures and exports digital imaging products including cameras Hunting camera Cash on delivery, paid by telegraphic transfer During the period from February 2011 to September 2012, Kenxen was owned as to 25% by Ms. Kwok, our Chairlady, executive Director and the spouse of Mr. Lee, and as to 75% by an Independent Third Party. During the period from September 2012 to February 2015, Kenxen was owned as to 80% by Ms. Kwok and as to 20% by an Independent Third Party. On 12 February 2015, Ms. Kwok disposed of all her shareholdings in Kenxen to an Independent Third Party and both Mr. Lee and Ms. Kwok who had been directors of Kenxen since September 2012 and February 2011 respectively ceased to be directors of Kenxen on 12 February Since then, Kenxen became an Independent Third Party. Company Q 2012 It provides electronic components IC chips 30 days credit terms, paid by telegraphic transfer Independent Third Party 142

149 BUSINESS Name of supplier Year commencing relationship Background information Company R 2006 Trading of electronic components Principal imaging electronic components or products supplied to us IC chips Typical credit terms and payment method Deposit required, remaining balance paid by telegraphic transfer before shipment Relationship with our Group Independent Third Party Notes: 1. From 2005 to 2009, we placed purchase orders with an entity which is a fellow subsidiary of Company A. Since 2010, we placed purchase orders with Company A. 2. In September 2012, Company B and ASD Technology entered into a distribution agreement pursuant to which ASD Technology was appointed as a non-exclusive distributor in Hong Kong and the PRC to distribute imaging electronic components of Company B. Company B and ASD Technology had mutually agreed to terminate the distribution agreement in September Thereafter, since December 2013, we placed purchase order(s) with Company B for each individual purchase. 3. Individual C is a businessman engaged in the electronic components trading business. He was introduced to Mr. Lee by an industry participant who was also engaged in the electronic components trading business. To the best of our Directors knowledge, information and belief, Individual C has established networks in the electronic components trading industry, and is capable of sourcing certain imaging electronic components at competitive pricing. 4. In August 2012, Company D and ASD Technology entered into a distribution agreement pursuant to which ASD Technology was appointed as a non-exclusive distributor in Hong Kong and the PRC to distribute the electronic components of Company D. Company D and ASD Technology mutually agreed to terminate the distribution agreement in December The supply of IC chips by Company E ceased after its last delivery of IC chips to our Group in September We had ceased business relationships with some of our major suppliers during the Track Record Period mostly due to individual circumstances concerning those major suppliers, which our Group had no control of. In September 2012, Company B, one of our five largest suppliers for the year ended 31 March 2013, and ASD Technology entered into a distribution agreement pursuant to which ASD Technology was appointed as a non-exclusive distributor in Hong Kong and the PRC to distribute imaging electronic components of Company B. Company B subsequently made a commercial decision not to proceed with the development of certain series of digital imaging compression chips which it had been selling to ASD Technology, and agreed with ASD Technology to terminate the distribution agreement in September Thereafter, since December 2013, as we needed certain models of the relevant imaging electronic components of Company B for our then existing projects which had been using such imaging electronic components in the past, we placed purchase order(s) with Company B for each individual purchase which it duly fulfilled. Subsequent to the termination of the distribution agreement with Company B, we changed our sourcing of digital imaging compression chips from Company B to Company T. On 1 November 2013, Company T entered into a distribution agreement with ASD Technology 143

150 BUSINESS pursuant to which ASD Technology was appointed as a non-exclusive distributor in Hong Kong and the PRC to distribute imaging electronic components of Company T. It took a period of time for us to develop this new platform for the supply of digital imaging compression chips and for our customers to adapt to such changes. Our revenue from selling imaging electronic components decreased by approximately 14.2% from approximately HK$260.0 million for the year ended 31 March 2013 to approximately HK$223.0 million for the year ended 31 March In particular, our Group recorded a decrease in the sales of digital imaging compression chips supplied by Company B by approximately 50.3% and approximately 81.0%, respectively, from approximately HK$28.6 million for the year ended 31 March 2013 to approximately HK$14.2 million for the year ended 31 March 2014 and to approximately HK$2.7 million for the year ended 31 March There were also decreases in our sales of CMOS sensors and digital imaging compression chips to Company I, one of our five largest customers for the year ended 31 March 2013, which had been purchasing the digital imaging compression chips supplied by Company B, by approximately HK$9.8 million and HK$8.8 million, respectively, for the year ended 31 March 2014 as compared to the corresponding period in In August 2012, Company D, one of our five largest suppliers for the year ended 31 March 2013, and ASD Technology entered into a distribution agreement pursuant to which ASD Technology was appointed as a non-exclusive distributor in Hong Kong and the PRC to distribute the electronic components of Company D. Company D and ASD Technology mutually agreed to terminate the distribution agreement in December 2013 because there was not a sufficient market demand for the electronic components of Company D. Our Group recorded a decrease in the sales of IC chips supplied by Company D by approximately 65.7% from approximately HK$10.5 million for the year ended 31 March 2013 to approximately HK$3.6 million for the year ended 31 March Our Group recorded no sales of IC chips supplied by Company D during the year ended 31 March 2015 and the six months ended 30 September The supply of IC chips by Company E, one of our five largest suppliers for the year ended 31 March 2013, ceased after its last delivery of IC chips to our Group in September At that time, Company E notified us that it would proceed with its corporate reorganisation and referred Company G to us. Hence, we changed our sourcing of certain IC chips from Company E to Company G. We had started placing purchase orders with Company G since November Our Directors confirm that given that we changed our sourcing of certain IC chips from Company E to Company G, there was no material financial impact as a result of such change of supplier on our Group s financial performance during the Track Record Period. Our Directors are of the view that we would not face difficulties in finding alternative suppliers for CMOS sensors, IC chips and digital imaging compression chips in the event that the business relationship with our existing suppliers is interrupted or terminated as (i) according to the Ipsos Report as disclosed in Industry Overview, there are approximately 50 CMOS sensors manufacturers and over 300 IC chips and digital imaging compression chip manufacturers worldwide; and (ii) we had been sourcing IC chips from over 70 suppliers during the Track Record Period. 144

151 BUSINESS Our Directors confirm that, save as above, there has been no other material change in our procurement strategy. Our Directors also confirm that we did not experience any material delay, shortage or interruption or substantial difficulties in securing imaging electronic components and we did not have any material dispute with any of our major suppliers during the Track Record Period. Save for Kenxen, none of our Directors, their respective close associates or any of our Shareholders, whom to the knowledge of our Directors owned more than 5% of the Shares in issue, had any interest in any of our five largest suppliers during the Track Record Period. During the period from February 2011 to September 2012, Kenxen was owned as to 25% by Ms. Kwok, our chairlady, executive Director and the spouse of Mr. Lee, and as to 75% by an Independent Third Party. During the period from September 2012 to February 2015, Kenxen was owned as to 80% by Ms. Kwok and as to 20% by an Independent Third Party. On 12 February 2015, Ms. Kwok disposed of all her shareholdings in Kenxen to an Independent Third Party and both Mr. Lee and Ms. Kwok who had been directors of Kenxen since September 2012 and February 2011 respectively ceased to be directors of Kenxen on 12 February Since then, Kenxen became an Independent Third Party. Our sensitivity and breakeven analysis which illustrates the impact of fluctuations in cost of sales on our net profit for the three years ended 31 March 2015 and the six months ended 30 September 2015 is set out in Financial Information Sensitivity and breakeven analysis. We did not adopt any arrangement to hedge any fluctuation in the foreign currency in relation to our purchases during the Track Record Period. We select our potential suppliers with reference to a number of factors such as price, background, technology niche and/or market position. We purchase electronic components from our suppliers through one of the following methods: (i) entering into reseller agreement and acting as a non-exclusive reseller of our supplier; (ii) entering into distribution agreement and acting as an exclusive distributor or a non-exclusive distributor of our supplier; (iii) entering into design partner program agreement and being an authorised design partner of our supplier and (iv) placing purchase order(s) with our suppliers for each individual purchase. Any increase in purchase costs would be passed on to our customers. We strive to control the cost of imaging electronic components by negotiating with our suppliers for lower prices of such components. Reseller agreement with our supplier As at the Latest Practicable Date, ASD Technology had entered into a short term reseller agreement with Company A, our largest supplier during the Track Record Period, in relation to the supply of (i) CMOS sensors and (ii) IC chips for CMOS sensors, both for non-cellphone products. The salient features and terms of such agreement are set out below: Agreement date: 17 September

152 BUSINESS Imaging electronic component: (i) CMOS sensor and (ii) IC chips for CMOS sensors, both for non-cellphone products Term and termination: The agreement is valid for a period of one year and is automatically renewable on a yearly basis. Each party has the right to terminate the agreement by giving the other party 30 days prior written notice. This agreement may also be terminated by the supplier upon material breach or default by us of any provision of the agreement by giving written notice of termination and specifying the breach or default upon which such termination is based. This agreement may also be terminated immediately without notice by the supplier if (i) we are liquidated or dissolved; (ii) any assignment is made of our business for the benefit of creditors; (iii) a receiver, or similar officer is appointed to take change of a substantial part of our assets; (iv) we are unable to pay our debts as they mature; (v) we undergo a change in ownership or other major organisational change; (vi) any petition in applicable bankruptcy laws is filed by or against us. As at the Latest Practicable Date, none of the parties had exercised such right. Geographical area and exclusivity: We are the non-exclusive reseller of the supplier. The subject imaging electronic components can only be resold by us in the South China region. The South China region in this context, as agreed to by the parties subsequent to the entering into of the agreement, includes Hong Kong, Shenzhen, Guangzhou, Dongguan and Zhuhai (the Territory ). Placing of orders: We place a separate purchase order for each purchase. Minimum purchase: The agreement does not stipulate any minimum purchase amount or purchase commitment. Prices: We shall pay the prices for the subject imaging electronic components in effect at the time of their shipment from the supplier s shipping point as determined by the supplier. Prices are exclusive of tax. All prices are subject to change or withdrawal at the discretion of the supplier upon 30 days prior written notice. Payment and credit terms: Payment will be due 30 days from the invoice date. All payments shall be made in US dollars. Delivery: Delivery of the subject imaging electronic components shall be FCA at the supplier s shipping point. The title and risk of loss to such imaging electronic components delivered shall pass to us at the supplier s shipping point. Product return: We shall inspect all subject imaging electronic components upon receipt and shall promptly notify the supplier of any non-conformation to the specifications and obtain an authorisation for their return. Such imaging electronic components shall be deemed free of defects if no notification is received by the supplier within 10 days of our receipt of the subject imaging electronic components. Resale price: We are free to set the prices under which we resell the subject imaging electronic components to our customers in the Territory. 146

153 BUSINESS Warranty: The supplier agrees to provide a warranty of one year from the date of shipment to us for defects in material and workmanship regarding the subject imaging electronic components under normal use. Marketing: We undertake activities required for the proper management and development of our sales efforts with respect to the subject imaging electronic components at our own expense, which include but are not limited to, attending sales conferences held by the supplier, providing monthly submission of rolling six-month purchase forecasts, providing annual sales forecasts, assisting the supplier to implement its promotional and merchandising campaigns as well as reporting to the supplier on activities of its competitors which we are aware of on a regular basis. The supplier will provide us its sales promotion materials, literature and brochures for the subject imaging electronic components for no charge. Distribution agreements and design partner program agreement with our suppliers As at 31 December 2014, ASD Technology entered into three short term distribution agreements with certain of our suppliers (including Company T), none of whom is one of our five largest suppliers during the Track Record Period. Each of the above suppliers is an Independent Third Party. These agreements are for the supply of various imaging electronic components to us. Two of them have a term of one year, subject to automatic renewal on a yearly basis and specific prior written termination notice. One of them has a term of two years, subject to automatic renewal on a yearly basis and specific prior termination notice. Two of them provide for us to be the non-exclusive distributor of the supplier in Hong Kong and the PRC. One of them provides for us to be the non-exclusive distributor of the supplier in Hong Kong only. Each of them provides for a separate order to be placed by us for each purchase. As to pricing, we would (i) negotiate the purchase price with our supplier based on the standard prices of the supplier in effect for each specific customer supported by us; (ii) adopt the prices set by the supplier; or (iii) adopt the price list agreed between the supplier and us. One of them provides for a commission income based on an agreed percentage of the net invoiced amount to be payable to us. Subsequent to 31 December 2014 and up to 30 September 2015, ASD Technology entered into two short term distribution agreements with certain of our suppliers, none of whom is one of our five largest suppliers during the Track Record Period. Each of the above suppliers is an Independent Third Party. ASD Technology has been appointed as an exclusive distributor of wireless charging solutions and IC chips in Hong Kong and the PRC pursuant to one of the distribution agreements. Such distribution agreement has a term of two years, subject to automatic renewal on a yearly basis and specific prior written termination notice. ASD Technology has been appointed as a non-exclusive distributor of certain image signal processors, digital signal processors and/or image sensors in the PRC pursuant to another distribution agreement. Such distribution agreement has a term of two years and is 147

154 BUSINESS subject to specific termination for cause. Pursuant to such distribution agreement, ASD Technology is required to meet certain purchase commitments in accordance with a separate agreement to be entered into between ASD Technology and the supplier. In the event that ASD Technology fails to purchase such minimum purchase amount, the supplier may, at its sole discretion, terminate the distribution agreement. The supplier subsequently confirmed that no separate agreement regarding minimum purchase amount would be signed. On 7 April 2015, ASD Technology entered into a design partner program agreement with a supplier which is a provider of microcontroller and analog semiconductors, agreeing to become a member of the program for the period from April 2015 to December Such supplier is not one of our five largest suppliers during the Track Record Period and is an Independent Third Party. As one of such supplier s authorised design partners, ASD Technology could develop for our customers circuit or system designs by utilising the portfolio of products supplied by the supplier. Each party has the right to withdraw from the design partner program or terminate the agreement itself by giving 15 days written notice to the other party. Three of our five largest suppliers during the Track Record Period had entered into either reseller agreement or distribution agreement with ASD Technology. ASD Technology had entered into a reseller agreement with Company A in September 2013; and a distribution agreement with each of Company B and Company D in September 2012 and August 2012, respectively. Such agreements with Company B and Company D were subsequently terminated in September 2013 and December 2013, respectively. As at the Latest Practicable Date, ASD Technology had entered into five short term distribution agreements with certain of our suppliers (including Company T), none of whom is one of our five largest suppliers during the Track Record Period. A distributor and a reseller would both assist a company in selling products. Distributors typically buy and take inventory of one s products and then sell them to the end users, customers or resellers. Distributors tend to be more service oriented and require higher margins than a reseller. A reseller in contrast is typically a company that will find retailers, end users or customers for one s products, but does not normally take inventory of those products itself. Our Group negotiates with our suppliers on a case by case basis rather than strictly according to the legal definition of the terms of distributor and reseller. There are no major difference between the terms of distribution agreement and reseller agreement here in terms of pricing and geographical restriction as (i) the pricing under the reseller agreement is determined by the supplier while the pricing of the above seven distribution agreements consists of pricing set by supplier or pricing arrived at after negotiation between the relevant supplier(s) and ASD Technology; and (ii) the geographical restriction for the above seven distribution agreements and the reseller agreement is within Hong Kong and/or the PRC. According to the above distribution agreement entered into between ASD Technology and Company T, in the event that ASD Technology accumulates excessive product inventory due to customer cancellations, it may return all such products to Company T for credit, and Company T shall credit its account for the returned products in an amount equal to the price 148

155 BUSINESS paid by it, less any prior credits granted by Company T on such products. For the other six distribution agreements described above, and the above reseller agreement entered into between ASD Technology and Company A, ASD Technology actually buys and takes inventory of the products and then sells them to its customers. Purchase orders We generally enter into purchase orders with our suppliers for each purchase. The purchase order would include terms such as the product model, quantity, price, payment terms, payment method and delivery date. For the purchases that we conduct through purchase order, we often seek price quotes from different suppliers and compare them before placing orders so as to secure a more favourable rate. Credit terms During the Track Record Period, most of our purchases were denominated in US$. The general payment terms provided by our suppliers range from cash on delivery to 30 days after month end statement. Rebate and sales commission For the two years ended 31 March 2014, we recorded rebates of approximately HK$219,000 and HK$1,900,000, respectively, from Company D amounting to approximately 0.07% and 0.59% of our revenue, respectively, for the corresponding periods. Company D offered us rebates calculated based on (i) the difference between the purchase order price set by Company D and our selling price to our customers in respect of the sale and purchase of the IC chips; and (ii) an agreed percentage of the selling price of the subject IC chips because there was not a sufficient market demand for the subject IC chips. After we had delivered the subject IC chips to our customers and they had settled the payments to us, we were required to submit rebate approval forms to Company D for their approval of the amounts of rebates we were entitled. We would then settle payment to Company D for the supply of the subject IC chips, less the amount of rebates we were entitled. We did not record any rebates for the year ended 31 March 2015 and for the six months ended 30 September Pursuant to the distribution agreement dated 1 November 2013 and entered into between Company T (one of our suppliers) and ASD Technology, Company T would offer us sales commissions to motivate us to market its digital imaging compression chips. Sales commission is payable on a monthly basis in an amount equivalent to an agreed percentage of the net invoiced amount for the subject digital imaging compression chips we charge our customers as agreed by Company T and us from time to time. Commissions are paid only when we have delivered the subject digital imaging compression chips to our customers and we have made full payment to Company T for the supply of the subject digital imaging compression chips. We are required to submit monthly purchase, sales and inventory reports of the preceding month to Company T for determining the amount of commission we are entitled. For the three years ended 31 March 2015 and the six months ended 30 September 2015, we recorded commission income of nil, approximately HK$0.2 million, HK$1.1 million and HK$1.3 million, respectively, from Company T. 149

156 BUSINESS To motivate us to market a specific model of its CMOS sensors, Company A offered us commissions calculated based on an agreed fixed sum of commission per unit of such CMOS sensors. Such commissions are paid after we have settled our payment to Company A. Apart from the requirement that we need to settle our payment in full, there is no other pre-condition for obtaining the commissions. For the year ended 31 March 2015, such commission income from Company A to us amounted to approximately HK$0.6 million, representing approximately 0.2% of our revenue for the same period. On 17 July 2015, ASD Technology entered into an international sales representative agreement with a supplier, which is a provider of integrated circuits, agreeing to be an non-exclusive representative of integrated circuits manufactured by the supplier in Hong Kong and the PRC for a period of one year, subject to automatic renewal on a yearly basis and specific prior written termination notice. Such supplier is not one of our five largest suppliers during the Track Record Period and is an Independent Third Party. Pursuant to this agreement, (i) ASD Technology is entitled to commission income based on an agreed percentage of the net sales billed by ASD Technology, subject to possible adjustment by the supplier upon written notice, including a split of commissions when shipments are delivered to another representative s territory; and (ii) ASD Technology is allowed to become a distributor of the supplier in certain situations. Our Directors confirm that as at the Latest Practicable Date, ASD Technology acted as a sales representative of the supplier. OUR SUBCONTRACTORS We outsource our production processes for ODM and OBM video and imaging products to our subcontractors so that we can focus our resources on research and development of new products and better manage our overall operations. When evaluating and selecting a subcontractor, we will request them to provide a presentation covering, among other things, information about itself and its manufacturing facilities. To ensure the quality of the products manufactured by the new subcontractors, we will pay site visits to their production facilities before we determine to engage them as our subcontractors. During the Track Record Period, we engaged three subcontractors, namely Company F, Company U and Kenxen, out of which (i) Company F was one of our five largest suppliers for the year ended 31 March 2014 and one of our five largest customers for each of the two years ended 31 March 2014 and also being our customer during the Track Record Period; and (ii) Kenxen was one of our five largest suppliers for each of the two years ended 31 March 2015 and the six months ended 30 September 2015 and one of our five largest customers for the year ended 31 March 2013 and also being our customer during the Track Record Period. Each of them had entered into a subcontracting agreement with Systech Electronics in December Our Directors confirm that during the Track Record Period, Company F and Company U were Independent Third Parties. During the period from February 2011 to September 2012, Kenxen was owned as to 25% by Ms. Kwok, our Chairlady, executive Director and the spouse of Mr. Lee, and as to 75% by an Independent Third Party. During the period from September 2012 to 150

157 BUSINESS February 2015, Kenxen was owned as to 80% by Ms. Kwok and as to 20% by an Independent Third Party. On 12 February 2015, Ms. Kwok disposed of all her shareholdings in Kenxen to an Independent Third Party and both Mr. Lee and Ms. Kwok who had been directors of Kenxen since September 2012 and February 2011 respectively ceased to be directors of Kenxen on 12 February Since then, Kenxen became an Independent Third Party. To the best of our Directors knowledge, information and belief, prior to Ms. Kwok s disposal of all her shareholdings in Kenxen as described above, Kenxen had other customers and suppliers besides our Group. The typical terms of the subcontracting agreements entered into between our Group and our subcontractors are set out below: Contract period: The agreement remains effective unless and until terminated by either party by giving six months prior written notice. Responsibilities of subcontractor: The subcontractor is appointed as our nonexclusive manufacturer and supplier of the relevant products and will not manufacture, sell or otherwise dispose of or deal with our products except in accordance with our directions. Price and payment terms: As agreed by the parties and set out in the purchase orders. Delivery: The relevant products shall be delivered by the subcontractor to the location indicated by us in writing. Quality requirements: The relevant products manufactured or supplied shall, among other things: (a) conform as to quantity, quality and description with the particulars as may be directed by us from time to time; (b) conform to the samples, descriptions or specifications provided or given by us from time to time; (c) be up to the standard of performance and be of the quality control standards specified by us from time to time; and (d) be manufactured using processes approved by us. Inspection by our Group: We may require the subcontractor to submit to us samples of the products for examination and inspection. We shall be entitled to inspect and test the products, semi-finished products, raw materials and component parts and the manufacturing, processing and storage processes of the subcontractor. Warranty: In the event that the quality of the relevant products do not conform to the standards of quality pursuant to the agreement and such non-conformity is not identified until the products are delivered to us, the subcontractors will bear the costs of return of the faulty products and cost of replacement to us. Confidentiality: The subcontractor undertakes to take appropriate measures to safeguard our interests in, among other things, the trade secrets, techniques and method of carrying on business. 151

158 BUSINESS Non-assignability: The subcontractor shall not appoint agents or submanufacturers or subcontractors without our prior written consent. Termination: Each party has the right to immediately terminate the agreement by written notice if the other party fails to observe or fulfil any terms or conditions of the agreement and fails to remedy such non-observance or non-fulfilment within 30 days after receipt of notice of reasonable particulars of default issued by the party seeking remedy. Upon termination of the agreement, all outstanding orders placed by us with the subcontractor prior to the termination date shall be continued and the terms of the agreement shall remain in effect until such orders have been fulfilled. To ensure the quality of the products manufactured by our subcontractors, we send quality assurance staff to our subcontractors production facilities to conduct quality control check. Our Directors confirm that, during the Track Record Period, we did not experience any material adverse consequences from any defective products produced by our subcontractors. The following table sets forth the information in relation to the three subcontractors we had engaged as at the Latest Practicable Date. Name of company When we first engaged them as our subcontractors Products manufactured as at the Latest Practicable Date Company F 2012 Wired and wireless scanner mouse Company U 2011 Bicycle camera Kenxen 2012 Hunting camera For the three years ended 31 March 2015 and the six months ended 30 September 2015, the amounts we paid to our subcontractors were approximately HK$18.3 million, HK$54.1 million, HK$60.0 million and HK$56.9 million, respectively, representing approximately 6.6%, 19.5%, 20.4% and 27.8% of our total purchases, respectively, for the corresponding periods. Save for Kenxen, none of our Directors, their respective close associates or any of our Shareholders, whom to the knowledge of our Directors owned more than 5% of the Shares in issue, had any interest in the above mentioned subcontractors during the Track Record Period. During the Track Record Period, after arm s length negotiation with each subcontractor, (i) we supplied imaging electronic components to Company F and Company U free of charge; and (ii) Kenxen placed purchase orders for imaging electronic components with us for the manufacturing of our ODM and OBM video and imaging products. The different arrangements with these three subcontractors are based on commercial decisions. These subcontractors would factor such imaging electronic component costs into account when determining the subcontracting fee and the relevant tooling fee they charged us. Hence, the costs of such 152

159 BUSINESS imaging electronic components supplied would be passed on to our customers. The subcontracting agreements entered into between Systech Electronics and these subcontractors in December 2014 (i) do not prescribe any arrangement in relation to the supply of the necessary imaging electronic components; and (ii) do not stipulate that the subcontractors must use our imaging electronic components for the manufacturing of our ODM and OBM video and imaging products. Therefore, we can vary the relevant arrangement from time to time, when necessary. Our Directors consider that the above sourcing method of our subcontractors can ensure a stable supply of raw materials and the quality of the imaging electronic components supplied. The following table sets forth (i) our revenue as contributed by Company F and Kenxen and the percentages of our revenue they represent; (ii) our costs as paid to Company F and Kenxen and the percentages of our cost of sales they represent; and (iii) the gross profit of sales attributable to Company F and Kenxen for the periods indicated. Six months ended Year ended 31 March 30 September Company F Approximate amount of revenue (HK$ 000) 12,592 14,495 1,056 As a percentage of our total revenue 4.2% 4.5% 0.3% Approximate amount of costs (HK$ 000) 8,499 10, As a percentage of our cost of sales 3.1% 3.8% 0.3% Kenxen Approximate amount of revenue (HK$ 000) 14,083 11,516 3,176 1,309 As a percentage of our total revenue 4.6% 3.6% 0.9% 0.6% Approximate amount of costs (HK$ 000) 13,688 11,141 2,995 1,175 As a percentage of our cost of sales 4.9% 4.0% 1.0% 0.6% Gross profit of sales attributable to Company F (HK$ 000) 4,093 3, Gross profit of sales attributable to Kenxen (HK$ 000) Our Directors have confirmed that, save as disclosed above, we did not enter into similar arrangement with any of our customers or our suppliers during the Track Record Period. 153

160 BUSINESS SALES AND MARKETING Sales For a breakdown of our revenue by business category, see Financial Information Description and analysis of principal items in the combined statements of profit or loss and other comprehensive income Revenue. For a breakdown of our revenue by geographical location of the shipment destination of our imaging electronic components and ODM and OBM video and imaging products, see Overview. During the Track Record Period, we sold imaging electronic components and ODM video and imaging products through direct sales to our customers carried out by our own sales and marketing team, without engaging agents or distributors. During the Track Record Period, we (i) mainly engaged distributors to sell our OBM product, wired and wireless scanner mouses, under our D+Oi brand; and (ii) sold our OBM product, bluetooth trackers, under our TAGGO brand through websites. Sales and marketing team As at the Latest Practicable Date, the sales and marketing team of ASD Technology, Systech Electronics and Aolang Electronics comprised of 22 staff who are responsible for handling orders, liaising with our customers and identifying potential customers. The sales and marketing team of ASD Technology is also responsible for promoting our design and engineering solutions. For ODM video and imaging products, we will accompany our customers to make site visits to the factories of our subcontractors and work closely with them on the development of the ODM video and imaging products. For OBM video and imaging products, our sales and marketing team will normally attract new customers by participating in exhibitions. Our Directors believe that the Listing will also help to promote our Group s corporate image and enhance public awareness towards our products which will enable us to attract more customers and enhance our customer profile. The sales and marketing team of Systech Electronics also conducts marketing activities such as participating in trade exhibitions (such as Hong Kong International Stationery Fair, Hong Kong Electronics Fair, Hong Kong Gifts & Premium Fair and Consumer Electronic Show in the U.S.), promoting our products on online shopping sites and setting up meetings with our customers to promote new product ideas. For our plan to expand our sales and marketing team, see Future Plans and Use of Proceeds Our business strategies Strengthen our marketing efforts through expansion of our sales and marketing team. CUSTOMERS We have maintained stable business relationships with our major customers. As at the Latest Practicable Date, we had established approximately one to nine years of business relationship with our five largest customers for the Track Record Period. 154

161 BUSINESS Our customers for our imaging electronic components are mainly located in North America, the PRC and Hong Kong. To the best of our Directors knowledge, information and belief, most of these customers are trading companies or manufacturers. Our customers for our ODM products are mainly located in the U.S., Japan, Europe and Australia. To the best of our Directors knowledge, information and belief, our major ODM customers are brand owners of our respective ODM products. During the Track Record Period, our major OBM customers include distributors of our OBM video and imaging products in Hong Kong, South East Asia, Australia and subsequent to the Track Record Period, we further engaged one reseller based in United Arab Emirates. For further details of our distributors/reseller, see Sales through distributors and reseller. Our sales to our five largest customers for each of the three years ended 31 March 2015 and the six months ended 30 September 2015 amounted to approximately HK$133.9 million, HK$178.5 million, HK$257.4 million and HK$189.2 million, respectively, representing approximately 44.2%, 55.5%, 76.7% and 81.0% of our total revenue, respectively, for the corresponding periods. Our sales to our largest customer for each of the three years ended 31 March 2015 and the six months ended 30 September 2015 amounted to approximately HK$66.9 million, HK$91.6 million, HK$140.3 million and HK$67.8 million, respectively, representing approximately 22.1%, 28.5%, 41.8% and 29.0% of our total revenue, respectively, for the corresponding periods. The information below sets out our five largest customers for the Track Record Period, our years of relationship with them and their background information. Five largest customers for the year ended 31 March 2013 Approximate amount of revenue HK$ 000 Approximate percentage of our total revenue Company H (Note 1) 66, % Company I 24, % Company J 15, % Kenxen 14, % Company F 12, % Five largest customers for the year ended 31 March 2014 Approximate amount of revenue HK$ 000 Approximate percentage of our total revenue Company H (Note 1) 91, % Company K 28, % Company L 28, % Company M 15, % Company F 14, % 155

162 BUSINESS Five largest customers for the year ended 31 March 2015 Approximate amount of revenue HK$ 000 Approximate percentage of our total revenue Company H (Note 1) 140, % Company K 54, % Company N 43, % Company P (Note 2) 11, % Company O 8, % Five largest customers for the six months ended 30 September 2015 Approximate amount of revenue HK$ 000 Approximate percentage of our total revenue Company K 67, % Company H (Note 1) 67, % Company N 41, % Company P (Note 2) 6, % Company S 5, % 156

163 BUSINESS Name of customer Year commencing relationship Background information (Note 8) Company F (Notes 3 and 9) 2010 Incorporated in 1981, it is a company primarily engaged in the manufacture and sale of cameras, toys, television games and microscopes Company H 2006 It comprises a group of companies with a common shareholding company which was established in These companies are primarily engaged in the distribution of electronic components. They are one of the top five electronic components distributors in the world Company I (Note 9) 2012 Incorporated in 2011, it is a company primarily engaged in the manufacture and sale of electronic products, digital products and car cameras Company J (Note 4) 2012 Incorporated in 1995, it primarily operates as a specialty retailer who provides products, such as personal accessories, with approximately 290 stores in the U.S. and in Puerto Rico Country in which our customers are located Size of operation (Note 8) Hong Kong Approximately 1,000 staff Canada/Singapore/ United Kingdom Approximately 5,500 staff PRC Approximately 270 staff U.S. Over 1,000 staff Principal imaging electronic components or products sold to customers Typical credit terms and payment method Relationship with our Group Product sold by our customers (Note 8) IC chips, CMOS sensors and digital imaging compression chips Cash on delivery, paid by cheque Independent Third Party Electronic products such as surveillance camera IC chips 15 or 30 days credit terms, paid by telegraphic transfer Independent Third Party Electronic components etc. IC chips, CMOS sensors and digital imaging compression chips Cash on delivery, paid by cheque Independent Third Party Digital camera, video camera, car camera etc. Scanner mouse Letter of credit, paid by telegraphic transfer Independent Third Party Consumer electronic products 157

164 BUSINESS Name of customer Year commencing relationship Background information (Note 8) Company K 2012 Incorporated in 2011, it is a company primarily engaged in the manufacture and sale of photographic equipment specializing in cameras or related equipment Company L (Note 5) 2013 Incorporated in 2012, it is a company primarily engaged in the sale of portable power devices and is one of the top portable charger brands in the world Company M (Note 9) 2012 Incorporated in 1948, it is a company primarily engaged in the sale of stationery, office appliances and paper products. It has been listed on the Tokyo Stock Exchange since 2001 and has a consolidated annual sales of approximately 33,184 million yen (equivalent to approximately HK$2,257 million), as of June 2015 Country in which our customers are located Size of operation (Note 8) U.S. Approximately 80 staff U.S. Approximately 25 staff Japan Approximately 2,300 staff Principal imaging electronic components or products sold to customers Typical credit terms and payment method Relationship with our Group Product sold by our customers (Note 8) Hunting camera Deposit required, remaining balance paid by telegraphic transfer upon presentation of on board ocean vessel bill of lading Independent Third Party Photographic equipment such as hunting camera Scanner mouse Deposit required, remaining balance paid by telegraphic transfer before shipment Independent Third Party Electronic products such as scanner mouses Scanner mouse Deposit required, remaining balance paid by telegraphic transfer before shipment Independent Third Party Electronic products such as scanner mouses 158

165 BUSINESS Name of customer Year commencing relationship Background information (Note 8) Company N (Note 6) 2014 Incorporated in 2014, it is a company engaged in general trading Company O (Note 9) 2012 Incorporated in 1987, it is a company primarily engaged in the business of intelligent document recognition and electronic document management solutions Company P 2007 Incorporated in 2001 and 2004, they are companies primarily engaged in the manufacturing and sale of digital cameras, telecommunication products and electronic products Country in which our customers are located Size of operation (Note 8) Hong Kong Such information is not available in the public domain Belgium Approximately 450 staff PRC Approximately 2,000 staff Principal imaging electronic components or products sold to customers Typical credit terms and payment method Relationship with our Group Product sold by our customers (Note 8) CMOS sensors and IC chips 30 days after month end statement, paid by cash Independent Third Party Electronic components etc. Scanner mouse Deposit required, remaining balance with 60 days credit terms, paid by telegraphic transfer Independent Third Party Portable scanner products such as scanner mouses and scanner pens CMOS sensors 21 days post delivery check, paid by cheque Independent Third Party Digital cameras etc. 159

166 BUSINESS Name of customer Year commencing relationship Background information (Note 8) Kenxen (Note 7) 2012 Incorporated in 2010, it manufactures and exports digital imaging products including cameras Country in which our customers are located Size of operation (Note 8) Hong Kong Approximately 300 staff Principal imaging electronic components or products sold to customers IC chips, CMOS sensors and digital imaging compression chips Typical credit terms and payment method Relationship with our Group (i) 90 days credit terms up to March 2015; (ii) 60 days credit terms from April 2015 to June 2015; (iii) 30 days credit terms since July 2015, paid by cash During the period from February 2011 to September 2012, Kenxen was owned as to 25% by Ms. Kwok, our Chairlady, executive Director and the spouse of Mr. Lee, and as to 75% by an Independent Third Party. During the period from September 2012 to February 2015, Kenxen was owned as to 80% by Ms. Kwok and as to 20% by an Independent Third Party. On 12 February 2015, Ms. Kwok disposed of all her shareholdings in Kenxen to an Independent Third Party and both Mr. Lee and Ms. Kwok who had been directors of Kenxen since September 2012 and February 2011 respectively ceased to be directors of Kenxen on 12 February Thereafter, Kenxen became an Independent Third Party. Product sold by our customers (Note 8) Digital imaging products 160

167 BUSINESS Name of customer Year commencing relationship Background information (Note 8) Country in which our customers are located Size of operation (Note 8) Principal imaging electronic components or products sold to customers Typical credit terms and payment method Relationship with our Group Product sold by our customers (Note 8) Company S 2013 Incorporated in 2012, it is a company engaged in the research and development of technology and sale of electronic products and software PRC Between 201 to 300 staff CMOS sensors Cash on delivery, paid by cheque Independent Third Party Consumer electronic products such as car black box, car digital video camera Notes: 1. Revenue derived from sale of imaging electronic components to Company H includes sales to entities which to the best of our Directors knowledge, information and belief, are under common control with Company H. 2. Revenue derived from sale of imaging electronic components to Company P includes sales to Company P and its fellow subsidiary. 3. Company F is also one of our subcontractors which has been manufacturing wired and wireless scanner mouse for us. For details, see Our subcontractors. 4. Company J conducted purchases from us during the year ended 31 March 2013 only. 5. Company L conducted purchases from us during the year ended 31 March 2014, but not during the year ended 31 March To the best of our Directors knowledge, information and belief, a group company of Company L purchased from us during the six months ended 30 September To the best of our Directors knowledge, information and belief, Company N is primarily engaged in the trading of electronic components and its customers are mainly located in the PRC. Mr. Lee has known the sole shareholder of Company N for over 10 years and Mr. Lee considered that he is reliable and is an experienced salesperson and has established sales networks in the electronics industry in the PRC. Given that the business of Company N is trading of electronic components and the business of the Group is, among other things, sale of imaging electronic components, it would be mutually beneficial for both parties to commence business. Hence, upon the incorporation of Company N in 2014, the Group started selling imaging electronic components to Company N. To the best of our Directors knowledge, information and belief, given that the sole shareholder of Company N is an experienced salesperson who has established sales networks in the PRC over the years, Company N may require constant supply of relevant imaging electronic components to satisfy its customers demand, thus achieving a considerable scale of business and became one of our five largest customers for the year ended 31 March 2015 and the six months ended 30 September Given that Mr. Lee has known the sole shareholder of Company N for many years and considered him reliable, the Group granted a 30 days after month end statement credit period to Company N, notwithstanding it is a new customer. In July 2014, we made a one-off purchase of CMOS sensors from Company N for on sale to our customer. The purchase amount of this one-off transaction was approximately HK$38,000, which accounted for approximately 0.01% of our cost of sales for the year ended 31 March

168 BUSINESS 7. Kenxen is also one of our subcontractors which has been manufacturing hunting cameras for us. For details, see Our subcontractors. Although, since the commencement of the Track Record Period and up to March 2015, Kenxen has a 90 days credit terms which is more favorable than other customers, we charge Kenxen overdue interest for late payment which we would not charge other customers. For details of the overdue interest charged to Kenxen, see Note 23. Material related party transactions (b) Transactions with related parties of section B of the Accountants Report. 8. Such information is based on the Ipsos Report, search results conducted by an independent search agent or publicly available information from the official websites of our customers. 9. Such customers did not place purchase order with us during the six months ended 30 September Our Directors confirm that as at the Latest Practicable Date, such customers showed no indication that they would cease to place purchase orders with us. 162

169 BUSINESS During the Track Record Period, our Group had maintained continuous business relationships with most of our major customers. Among our five largest customers during the Track Record Period, Company J was the only one which placed purchase orders with us within just one financial year period and did not continue the business relationship with us thereafter. Save for Company J as aforementioned, we, to the best of our Directors knowledge, information and belief, are not aware of any material adverse change in the business and financial position of our five largest customers for the Track Record Period as at the Latest Practicable Date based on our continuous business relationships with them and the past settlement records of them during the said period. Our Group recorded a decrease in sales of CMOS sensors by approximately 23.4% from approximately HK$101.8 million for the year ended 31 March 2013 to approximately HK$78.0 million for the year ended 31 March 2014 but such sales increased by approximately 20.5% from approximately HK$78.0 million for the year ended 31 March 2014 to approximately HK$94.0 million for the year ended 31 March Our sales of CMOS sensors for the year ended 31 March 2015 almost recovered to the sales level for the year ended 31 March Our Group recorded a decrease in sales of digital imaging compression chips by approximately 35.3% and 88.7% for each of the two years ended 31 March 2015 as compared to their respective prior corresponding periods in 2013 and The decrease in sales of digital imaging compression chips by 35.3% for the year ended 31 March 2014 was primarily attributable to the decrease in sales of digital imaging compression chip to Company I, which purchased digital imaging compression chip sourced from Company B, by approximately HK$8.8 million for the year ended 31 March 2014 as compared to the corresponding period in The decrease in sales of digital imaging compression chips by 88.7% for the year ended 31 March 2015 was primarily due to the shift of focus from developing our platform for the supply of applicable imaging electronic components sourced from Company B to that of Company T. Our Group also recorded commission income from Company T in relation to sales of digital imaging compression chips for each of the two years ended 31 March 2015 and the six months ended 30 September 2015 in the amount of approximately HK$0.2 million, HK$1.1 million and HK$1.3 million, respectively. For details, see Financial Information Description and analysis of principal items in the combined statements of profit or loss and other comprehensive income Revenue Imaging electronic components. To the best of our Directors knowledge, information and belief, during the Track Record Period, certain of our five largest customers, such as Kenxen, had sourced IC chips directly from other suppliers; and Company I had reduced the purchases of CMOS sensors and digital imaging compression chips from us. For details, see Financial Information Description and analysis of principal items in the combined statements of profit or loss and other comprehensive income Revenue Imaging electronic components. In order to be competitive in the industry and be able to differentiate ourselves from other companies which only sell electronic components, ASD Technology has been providing design and engineering solutions that complement the sales of our imaging electronic components. In general, the design cycle of that ASD Technology had undertaken during the Track Record Period had generally taken approximately 10 months to two years to complete. Our Directors believe that once our customers have adopted the design and engineering solutions that ASD Technology provided, they are not likely to change to new platforms frequently to avoid incurring switching costs. 163

170 BUSINESS We select our potential customers with reference to a number of factors such as their sales channel, sales track record, whether they are new comers or have an established reputation in their industries. We generally do not enter into long-term agreements with our customers. According to the Ipsos Report, it is a common industry practice that the video and imaging products manufacturers and brand owners generally place their purchases through purchase orders instead of entering into long-term agreements with purchase obligations. For sale of electronic components, our customers place purchase orders with us, which generally include terms such as the component model, quantity, price, payment term and method and delivery date. For our ODM and OBM video and imaging products, our customers generally place purchase order to us for each purchase. The purchase order generally includes terms such as the product model, quantity, price, payment term, method and delivery date. However, (i) with our D+Oi brand scanner mouse, we sell them mainly through distributors (for details, see Sales through distributors and reseller ); (ii) with our TAGGO brand bluetooth tracker, we sell them through websites; and (iii) as at the Latest Practicable Date, we entered into a sales agreement with each of Company M and Company O. The salient terms of such agreements are set out below: Sales agreement with Company M Agreement date: 18 May 2012 Product: Scanner mouse Contract period: The agreement is for a term of one year. In the event neither party provides to the other party written notice of a refusal to renew the agreement or of an amendment of the terms and conditions no later than three months prior to the expiration of the term of the agreement, the agreement shall be extended on the basis of the same terms and conditions for an additional one-year period, and such provisions shall apply to such renewed term and any succeeding terms. As at the Latest Practicable Date, none of the parties had provided to the other party the written notice described above. Termination: Either of the parties may terminate the agreement with immediate effect and without notice to the other party under the following circumstances: (i) dishonour of a bill, note or check written or endorsed; (ii) cessation of payment; (iii) an application has been made for provisional attachment, attachment, provisional disposition, enforced execution and auction of property; (iv) an application has been made for bankruptcy, liquidation, corporate reorganisation or similar proceedings concerning the other party; (v) a resolution is passed to dissolve the company; (vi) an order is received to cease conducting business from an administrative agency with appropriate jurisdiction; and (vii) a disposition is made due to unpaid taxes or government fees. In the event that either we or the customer breach(es) the 164

171 BUSINESS agreement or a separate agreement based on this sales agreement and fail(s) to cure such breach within 14 days following notice thereof, the other party may terminate all or a portion of the agreement upon notice to such breaching party. In the event that either we or the customer terminate(s) the agreement pursuant to the above, such party may make a request for compensation of damages from the other party. Trademarks: In the event trademarks designated by the customer are to be affixed on the products or the packing materials, we shall affix the same in the form and manner designated by the customer. Delivery and shipping: Delivery will be on FOB terms in Hong Kong. The customer shall notify us of the forwarder at least 90 days prior to the delivery date. Placing of orders: The customer would place separate purchase order for each transaction at least 90 days prior to the desired shipping date. Such purchase order contains type, volume, unit price and shipping date of the ordered products, together with the settlement currency, payment conditions and other relevant information. Within 7 days following the date of receipt of the products shipped by us, the customer shall inspect such products. In the event it is discovered that the products do not match specifications or short of the quantity ordered, we shall be obligated to provide replacement products, reduce the price or make up for such shortage in quantity. We shall in this situation bear one way shipment costs from Hong Kong to Japan. Minimum purchase: The agreement does not specify any minimum purchase requirement. Warranty: We offer a warranty period of one year from the receipt of the products by the customer. We warrant that our products shall be in accordance with the specifications for the products provided by us and approved by our customer and shall match the samples. In the event a hidden defect is discovered and is not attributable to the customer, we shall, in accordance with request of the customer, ship replacement products, reduce the price or repair the defects, or bear liability for the expenses relating to such repairs. In the event a defect exists in the products, as a result, a third party suffers damages using the products or products incorporating the products, and a claim for damages is made against the customer, the customer and us shall cooperate to discover the cause of the defect and, additionally, we shall respond to such third party together with the customer or in place of the customer, if so requested by the customer. Further, in the event the customer makes compensation to a third party for damages, we shall compensate the customer for the damages suffered by the customer in connection therewith; provided, however, that such defect in the products is not attributable to the fault of the customer. The amount of such compensation shall be determined through consultations between the customer and us. 165

172 BUSINESS Sales agreement with Company O Agreement date: 15 October 2012 Product: Wired and wireless scanner mouse Contract period: The agreement is for a term of three years and is renewed automatically on a yearly basis. Termination: Each party has the right to terminate the agreement by giving the other party 9 months prior written notice. License: We have granted the customer a non-exclusive license to distribute worldwide the product under its own brand based on its own pricing model. Payment terms: 20% pre-payment and the balance will be made by letter of credit within 60 days after the date of invoice. Price: The price is mutually agreed by our Group and the customer. If we offer lower prices to any other customers, we are required to credit to the customer such differences between the original product price applied to it and the reduced product price offered to other customers, as applied to the customers product inventory, including: (i) any customer product in-transit from/to the customer; (ii) any unshipped orders; and (iii) orders in-transit to the customer on the price reduction or increased discount offer date. For any increase in price, we shall give at least 90 days prior written notice to the customer. Delivery and shipping: Delivery will be on FOB terms in Hong Kong. The delivery time is a maximum of 90 days as of purchase order date. Any shipment delay will cost our Group 0.5% penalty of total purchase order and be deducted from the invoiced amount. For any defective shipment, the customer will pay for the freight back to our Group and our Group will pay for the freight back to the customer. Placing of orders: the customer would place separate purchase order for each transaction. Minimum purchase: The minimum order quantity is 5,000 units initially, and thereafter any further order must be a minimum of 3,000 units. 166

173 BUSINESS Quality requirements: All products must pass the quality control tests of the customer and meet applicable industry and environmental standards. Product samples shall be checked and approved by the customer before any payment is made. The maximum defective rate accepted will be within 0.5%. We will allow 0.5% free spare parts with each delivery for free. If defective rate is above 0.5%, the customer will pay for the freight back to Hong Kong for the exchange units and we will then pay for the freight back to the customer. Warranty: We offer a warranty period of two years from the date of delivery of the products during which we will accept return of products. Save for Kenxen, none of our Directors, their respective close associates or any of our Shareholders, whom to the knowledge of our Directors owned more than 5% of the Shares in issue, had any interest in any of our five largest customers during the Track Record Period. During the period from February 2011 to September 2012, Kenxen was owned as to 25% by Ms. Kwok, our Chairlady, executive Director and the spouse of Mr. Lee, and as to 75% by an Independent Third Party. During the period from September 2012 to February 2015, Kenxen was owned as to 80% by Ms. Kwok and as to 20% by an Independent Third Party. On 12 February 2015, Ms. Kwok disposed of all her shareholdings in Kenxen to an Independent Third Party and both Mr. Lee and Ms. Kwok who had been directors of Kenxen since September 2012 and February 2011 respectively ceased to be directors of Kenxen on 12 February Thereafter, Kenxen became an Independent Third Party. Customer concentration Our five largest customers accounted for approximately 44.2%, 55.5%, 76.7% and 81.0% of our total revenue for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. In particular, approximately 22.1%, 28.5%, 41.8% and 29.0% of our total revenue were attributable to our largest customer for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. Despite such customer concentration, our Directors consider that we are not reliant on our major customers because: (a) we try to accommodate their requests for quotations and engagements as far as our resources allowed instead of turning down their requests; (b) our number of customers remained relatively stable during the Track Record Period; and (c) we expect to continue to acquire new customers for sales of our imaging electronic components and our ODM and OBM video and imaging products. 167

174 BUSINESS Pricing policy and credit terms The pricing strategy of our products takes into account various factors including market prices of the products, electronic components costs, product specifications required by our customers and subcontracting costs. We generally price all of our products on cost plus profit margin basis. We generally do not grant credit terms to the customers of ASD Technology except for a few customers whom we grant credit term of not more than 90 days. For ODM products, we normally require our customers to place deposits with us upon issuance of purchase orders and settle the remaining balance at the time of delivery. For the OBM products, we normally require payment on a cash on delivery basis. Our trade debtors turnover days were approximately 23.0 days, 23.7 days, 21.5 days and 16.6 days for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively, which was in line with the credit period granted by us. As at 31 January 2016, 100.0%, 100.0%, 100.0% and 100.0% of our Group s trade receivables as at 31 March 2013, 2014, 2015 and 30 September 2015, respectively, were subsequently settled. Based on the past settlement records of our customers, our Directors believe that no impairment allowance is necessary for each of the three years ended 31 March 2015 and the six months ended 30 September Our Directors confirmed that during the Track Record Period and up to the Latest Practicable Date, we did not record any bad debt provisions for any of our five largest customers for the Track Record Period. For further details, see Financial Information Description and analysis of principal items in the combined statements of financial position Trade and other receivables Trade receivables. During the Track Record Period, the majority of our sales were denominated in US$ and our customers generally settled our payments in US$ through banks. We did not adopt any arrangement to hedge any fluctuation in the foreign currency in relation to our sales during the Track Record Period. Delivery and logistics Our sale of imaging electronic components, and ODM and OBM video and imaging products are generally on FCA or FOB terms. As to local delivery of products, we generally engage third-party logistics companies to deliver our products to our customers. We did not experience any material disruption or damage to our products in the course of delivery during the Track Record Period. 168

175 BUSINESS Product returns and warranty For imaging electronic components, our customers generally place purchase orders with us and we generally do not offer warranty for the imaging electronic components we supply. Certain of our suppliers, such as Company T, would provide to our customers a warranty of one year from the date of our shipment to our customers under the distribution agreement entered into with us. In general, in the event that our customers inform us that the components supplied are defective, we would act as a coordinator and assist them to liaise with our suppliers to conduct checking of the defective components to determine whether our customers are entitled for replacement of defective components. For ODM video and imaging products, we provide product warranty under the sales agreements with Company M and Company O. For details of the warranty terms and time period, see Customers Sales agreement with Company M and Customers Sales agreement with Company O. For OBM video and imaging products, our distribution agreements with our distributors do not contain warranty terms. For ODM and OBM products, if we receive a complaint from a customer relating to defective products, our quality assurance staff would conduct investigation to ascertain the cause of the defect. If the defect is caused by our design default, we would bear the costs of replacing the defective products. If the defect is caused by manufacturing process, our subcontractors would bear the costs of replacing the defective products. Our Directors confirm that during the Track Record Period, we had not received any material complaint(s) from our customers and had not encountered any material incident(s) of returned products or incident(s) of product liability claims. Hence, the costs relating to those incidents was nil. Product life cycle and seasonality The product life cycle of our ODM and OBM video and imaging products, in particular, different models of hunting camera and scanner mouse, depend on the level of competition, the launching of new substitute products and the pace of technological development in the market. To the best of our Directors knowledge, information and belief, different models of hunting camera and scanner mouse generally have an estimated product life cycle of approximately one to two years. During the Track Record Period, we had (i) continued to sell older models of hunting camera and scanner mouse to satisfy customer demand; and (ii) launched new models of hunting camera and scanner mouse. Consistent with the industry norm for ODM service providers, we incorporate planned obsolescence into our ODM video and imaging product design by improving the functions of our ODM video and imaging products so that our customers would purchase the products more frequently due to the perceived desirability of high-technology items to sustain demand for the next series of ODM video and imaging products. Systech Electronics would discuss with and collect product ideas from our ODM customers, drawing on information including our customers yearly plans covering the required features and specifications of their ODM video and imaging products and any anticipated improved version(s) and/or new models of their ODM video and imaging products. 169

176 BUSINESS We generally observe a seasonal pattern in the sales of our hunting camera. Hunting normally takes place in autumn and winter, and our sales and shipment would take place before autumn. Our sales of imaging electronic components by ASD Technology generally experience low season around the Chinese New Year. Our Directors consider that the demand for our other products is less dependent on seasonal factors. They believe that the demand for our other products is mainly influenced by the business plans of our customers and the general market conditions. SALES THROUGH DISTRIBUTORS AND RESELLER During the Track Record Period, we expanded the sales network of our D+Oi brand wired and wireless scanner mouses by appointing three distributors covering distribution in Hong Kong, South East Asia and Australia, respectively. The distribution agreement regarding distribution in Australia had lapsed as at the Latest Practicable Date. Subsequent to the Track Record Period, we further expanded the sales network of our D+Oi brand wired and wireless scanner mouses by appointing a reseller covering distribution in United Arab Emirates. As at the Latest Practicable Date, these distributors/reseller were Independent Third Party corporate entities. Our Directors confirm that during the Track Record Period and up to the Latest Practicable Date, all of our business with our distributors/reseller were conducted on an arm s length basis and none of our distributors/reseller terminated their distributorships with us. The table below sets out the number of distributors/reseller of our D+Oi brand wired and wireless scanner mouses during the Track Record Period and up to the Latest Practicable Date: Number of distributors/ reseller Six months ended Year ended 31 March 30 September Subsequent to the Track Record Period and up to the Latest Practicable Date Beginning of period 0 1 (Note 1) 1 (Note 1) 3 (Notes 1, 2 and 3) 3 (Notes 1, 2 and 3) Additions (Notes (Note 4) and 3) Terminations (Note 3) End of period Note 1: The distributor is based in Hong Kong for distribution in Hong Kong on a non-exclusive basis as at the Latest Practicable Date. Note 2: The distributor is based in Malaysia and covers different distribution regions, namely Thailand, Brunei, the Philippines, Cambodia, Vietnam, Laos, East Timor and Singapore on a non-exclusive basis as at the Latest Practicable Date. Note 3: The distributor is based in Australia for distribution in Australia on a non-exclusive basis. The distribution agreement had lapsed as at the Latest Practicable Date. Note 4: The reseller is based in United Arab Emirates and covers different distribution regions, namely United Arab Emirates, Sultanate of Oman, Saudi Arabia, Qatar, Kuwait and Bahrain on an exclusive basis as at the Latest Practicable Date. The increase in the number of distributors/reseller during the Track Record Period was mainly due to our expansion in product presence in different countries and regions outside 170

177 BUSINESS Hong Kong. Revenue generated by our sales through distributors/reseller amounted to nil, approximately HK$1.7 million, HK$3.9 million and HK$1.5 million for the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively, representing approximately 0%, 0.5%, 1.2% and 0.7% of our revenue for the corresponding periods. For details of revenue recognition, see Financial Information Critical accounting policies and estimates Revenue recognition. Our Directors confirm that, to the best of their knowledge, information and belief, there was no material accumulation of inventories with our distributors/reseller during the Track Record Period and up to the Latest Practicable Date. Our Directors also confirm that the amount of our products that have been returned from our distributors/reseller was insignificant during the Track Record Period and up to the Latest Practicable Date. Our Directors confirm that our relationship with our distributors/reseller is that of between seller and buyer but not principal and agent. We had engaged the three distributors during the Track Record Period and each of them had formally entered into a distribution agreement with us in December 2014 (as amended and supplemented by a side letter signed with us in February 2015) for one year and two of them had further entered into a supplemental agreement in December 2015, among other things, to extend the term of the respective distribution agreements for one year. The distribution agreement regarding distribution in Australia had lapsed as at the Latest Practicable Date. Subsequent to the Track Record Period, we further engaged one reseller and it had formally entered into a reseller agreement with us in October These distribution agreements/reseller agreement lay down the terms and conditions for their sale and distribution of our D+Oi brand wired and wireless scanner mouses. We set out below the salient terms of these distribution agreements/reseller agreement: Duration: ranging from one year to two years Rights and obligations of each of the distributors/reseller: (i) We grant to each of the distributors/reseller exclusive/non-exclusive (as the case may be) rights to distribute the relevant products of our Group in the territories specified in the respective distribution agreements/reseller agreement; (ii) each of the distributors/reseller is entitled to describe itself as our authorised distributor / authorised reseller (as the case may be) for the relevant products of our Group, but must not hold itself out as our Group s agent for sales of the relevant products of our Group or as being entitled to bind our Group in any way; (iii) each of the distributors/reseller must not obtain the relevant products of our Group, or any goods that compete with them, for resale from any person, firm or company other than our Group; (iv) each of the distributors/reseller must not seek customers, establish any branch or maintain any distribution/resale depot for the relevant products of our Group in any country that is outside the specified territories, or solicit customers for the relevant products of our Group in any country that is outside the specified territory; and (v) we authorise each of our distributors/reseller to use our trademarks within the specified territories on or in relation to the relevant products of our Group for the sole purpose of exercising its rights and performing its obligations under the respective distribution agreements/reseller agreement. Rights and obligations of our Group: Upon receipt and confirmation of each order, we must, as soon as is practicable, inform the distributor/reseller of the estimated delivery date for our products. 171

178 BUSINESS Prices, payment and credit terms: The prices and payment terms of the products to be supplied by us shall be set out in the purchase orders of the products which shall be mutually agreed by both parties. Pricing policy: Each of our distributors/reseller may promote and market the products of our Group in the specified territory in such manner as it thinks fit, and in particular, it may resell the products to its customers at such prices as it determines. Minimum order quantity: The distribution agreements/reseller agreement do not specify minimum purchase requirements. Sales target: The distribution agreements/reseller agreement do not specify sales target. Title and risk of products: The title to any of our products shall not pass to the distributor/reseller until we have received payment of the price in full. Risk of loss or damage to the relevant products of our Group shall only pass to our distributors/reseller from the time of delivery to our distributors /reseller s premises. Stock arrangement upon termination of cooperation: Upon termination, we shall be entitled, but not obliged, to repurchase from our distributors/reseller all or part of any stocks of the relevant products held by the distributors/reseller at the invoice value, provided that we shall arrange for transport and insurance and bear the costs involved. Return of unsold goods: The distribution agreements do not specify return of unsold goods arrangement. Termination: Either party is entitled to terminate the distribution agreement/reseller agreement by written notice to the other under the following circumstances: (i) a breach of the agreement is committed by the other party, and in case of where a breach is capable of remedy, fails to remedy the same within 30 days after receipt of a written notice giving full particulars of the breach and requiring it to be remedied; (ii) an encumbrancer takes possession or a receiver is appointed over any of the property or assets of the other party; (iii) either party makes any voluntary arrangement with their creditors or becomes subject to an administration order; (iv) either party goes into liquidation with the exception that the purpose is for corporate amalgamation or reconstruction; and (v) either party ceases, or threatens to cease, to carry on business. To manage our distributors/reseller, our sales staff maintain regular contact with our distributors/reseller by telephone. In addition, given that the distribution agreement/reseller agreement is for an initial term of one year, in the event that their performance do not match with our expectation, we will not renew the agreement(s). According to Ipsos Report, the distributorship model is consistent with the industry norm. 172

179 BUSINESS QUALITY CONTROL AND INDUSTRY STANDARDS Our quality assurance teams within our research and development departments comprise three quality assurance staff. The head of our quality assurance teams has over six years of experience in the field of quality control and who oversees the quality control aspects of our operations, while the other two staff each has over 12 and six years of experience in the field of quality control. Quality control on incoming imaging electronic components Given that the imaging electronic components we purchase from our suppliers are mainly for onward sale to our customers, we normally would not unpack them for checking. Instead, we would rely on the quality reports provided by our major suppliers, where available. Quality control on subcontracting process To ensure the quality of the products manufactured by our subcontractors, we send quality assurance staff to our subcontractors production facilities to conduct quality control check. Quality control on ODM and OBM video and imaging products Our subcontractors would provide quality assurance inspection reports for our products. Our products are generally required to comply with certain standards which include but are not limited to CE, FCC, RoHS and/or REACH standards depending on the requests of our customers and the relevant regulatory requirements in their local countries and/or countries where our goods are delivered. For details of the regulatory requirements of the majority of our shipment destinations, see Regulatory Overview. To ensure compliance with these requirements, we would arrange for our products to be sent to external laboratories for testing to obtain certifications. COMPETITION According to Ipsos Report as disclosed in Industry Overview, (i) the ODM and OBM sector for video and imaging products in Hong Kong is fragmented and remains in a developing stage; and (ii) there were about three ODM and OBM service providers of video and imaging products that produced scanner mouse and about 16 ODM and OBM service providers of video and imaging products that produced hunting cameras in Hong Kong in Most of them have no branding or very low brand awareness. In Hong Kong, as of December 2014, we accounted for approximately 1.2% of the total revenue of the imaging electronic components and design service providers, and approximately 0.2% of the total revenue of ODM and OBM video and imaging products service providers. Our Company accounted for approximately 0.5% of the video and imaging and IC product manufacturing industry in Hong Kong. Pursuant to Ipsos Report, (i) in respect of hunting cameras, Systech Electronics had a market share of approximately 8.5% in terms of revenue of the hunting camera market in the PRC and Hong Kong in 2014; and (ii) in respect of wired scanner mouse, Systech Electronics had a market share of approximately 12.3% in terms of revenue of the wired scanner mouse market in the PRC and Hong Kong in

180 BUSINESS Our Directors consider that competition within the video and imaging product industry is keen and there are numerous competitors operating on different scales, which engage in business similar to that of our Group. Most market players offer very similar or even homogeneous products, resulting in price competition among themselves. Nevertheless, given that we produce ODM products primarily for brand owners of our respective ODM products and are required to be compliant with certain standards such as CE and FCC, our Directors consider that we are competing with mid- and high-end video and imaging products ODM and OBM providers. Our Directors consider that our Group is in a competitive position in the industry in view of the reputation that we have built up over the years, our good business relationships with our major suppliers and our major customers, our product quality and our pricing. We believe that we also compete on the strength of our (i) one-stop business model (from the sale of imaging electronic components, provision of design and engineering solutions, to the design and sales of ODM and OBM video and imaging products) which enables us to control and manage, the imaging electronic components procurement process and the resource allocation when providing our services and also allows us to capture the advantage of vertical integration by eliminating the markup in prices between different companies in the supply chain and thus increase our profit margin; (ii) strong research and development capability; and (iii) stable network with our distributors for OBM products which is crucial in bringing success to a supply chain. INSURANCE For our Hong Kong operations, we maintain office insurance covering risks including stock, money, public liability and employees compensation. For our PRC operations, we have made contributions to our employees social security insurance and housing accumulation fund. We do not maintain product liability insurance for our products. We consider that our insurance coverage is adequate for our operations and is in line with industry practice in Hong Kong and the PRC. Our Directors have confirmed that, during the Track Record Period and up to the Latest Practicable Date, we had not made, nor been the subject of, any material insurance claim. ENVIRONMENTAL PROTECTION As our operations do not involve manufacturing, we are not required to obtain approval or licence from any environmental protection bureau in respect of our principal operations under the applicable national or local environmental laws and regulations in the jurisdictions where we operate. Due to the nature of our business, our Group s operational activities do not directly generate industrial pollutants, and our Group did not incur directly any cost of compliance with applicable environmental protection rules and regulations during the Track Record Period. Our 174

181 BUSINESS Directors do not expect our Group to incur directly significant costs for compliance with applicable environmental protection rules and regulations in the future. As at the Latest Practicable Date, our Group was not involved in any material non-compliance of any applicable laws and regulations on environmental protection. EMPLOYEES Number of staff The geographical and functional distribution of our full-time employees as at the Latest Practicable Date are as follows: Function Hong Kong PRC Total Chief executive officer and Chairlady 2 2 Accounting, Human resources and Administration Customer Services, Warehouse & Logistic 7 7 Purchasing 1 1 Sales & Marketing Information Technology 1 1 Research and development ASD Technology Hardware Division 1 1 Software Division Systech Electronics Director of business development 1 1 Project management 2 2 Mechanical engineering 1 1 Electronics engineering 2 2 Software Division 3 3 Product design 1 1 Quality assurance 1 1 Aolang Electronics Hardware Division 8 8 Electronics engineering 2 2 Mechanical engineering 3 3 Project management 1 1 Quality assurance 2 2 Total (Note) Note: During the period from July 2013 to January 2015, Shenzhen Yunxu had provided hardware research and development and technical support services to ASD Technology. As at the Latest Practicable Date, Shenzhen Yunxu was in the process of deregistration and all the staff of Shenzhen Yunxu were transferred to and employed by Aolang Electronics in February

182 BUSINESS Training and recruitment policies We believe that the quality of our staff plays an important role in maintaining an efficient operation, as well as the product design quality. We place emphasis on the hiring of our engineers and place advertisements on Joint Institutions Job Information System and a recruitment website in Hong Kong in order to recruit engineers. In order to recruit, develop and retain talented employees, we offer competitive remuneration packages to our staff, including, among other things, double pay and discretionary bonuses. We enter into standard employment contracts with our staff which contain provisions governing intellectual property rights and confidentiality. We have a staff handbook which sets out, among others, the benefits, code of conduct and performance and development review procedure. We provide on-the-job training to our staff. For the three years ended 31 March 2015 and the six months ended 30 September 2015, our staff costs amounted to approximately HK$15.2 million, HK$16.5 million, HK$20.7 million and HK$11.8 million, respectively. Staff relation We recognise the importance of having good relationship with our staff. Our Directors confirm that we had not experienced any significant disputes with our staff or disruption to our operations due to labour disputes, nor had we experienced any difficulties in the recruitment and retention of higher skilled personnel during the Track Record Period. Our staff have not formed any union or association. Staff benefits Hong Kong We have participated in the mandatory provident fund prescribed by the Mandatory Provident Fund Schemes Ordinance (Chapter 485 of the Laws of Hong Kong). PRC In the PRC, our Group has participated in the basic pension insurance, basic medical insurance, unemployment insurance, occupational injury insurance, maternity insurance prescribed by the Social Insurance Law of the PRC ( ) which was promulgated on 28 October 2010 and became effective on 1 July 2011, and housing fund prescribed by the Regulations on the Administration of Housing Fund ( ) which was promulgated and effective on 3 April 1999, as amended on 24 March Our PRC Legal Advisers confirm that our Group was in full compliance with the Social Insurance Law and the Regulations on the Administration of Housing Fund during the Track Record Period. 176

183 BUSINESS Our Company has conditionally adopted the Share Option Scheme on 2 March 2016 under which certain selected classes of participants (including, among others, full-time employees) may be granted options to subscribe for the Shares. The principal terms of the Share Option Scheme are summarised in Statutory and General Information Other Information 15. Share Option Scheme in Appendix IV to this prospectus. Health and work safety Our Group strives to provide employees with a safe and healthy environment. Our Directors confirm that there were no material accidents, health injuries or any non-compliance incidents with the relevant laws and regulations during the Track Record Period and up to the Latest Practicable Date. INTELLECTUAL PROPERTY Our Group s intellectual property rights are important to our business. As at the Latest Practicable Date, (i) our Group s brand D+Oi had been registered as a trademark in Hong Kong, the PRC, the European Union, Japan and the U.S.; (ii) our Group had registered two trademarks in the PRC and one trademark in Hong Kong; (iii) our Group had made one trademark application and one patent application in the U.S.; and (iv) our Group had registered four domain names. For details of our intellectual property rights, see Statutory and General Information Further information about the business of our Group Intellectual property rights of our Group in Appendix IV to this prospectus. As at the Latest Practicable Date, we were not involved in any proceedings with regard to, and we had not received notice of any claims of infringement of, any intellectual property rights that may be threatened or pending, in which we may be involved either as a claimant or respondent. PROPERTY Set out below is a summary of the properties occupied by our Group under various operating leases in Hong Kong and the PRC. As at the Latest Practicable Date, we did not own any properties in the PRC and Hong Kong. 177

184 BUSINESS Leased properties in Hong Kong As at the Latest Practicable Date, we leased two properties in Hong Kong. The following table sets out a summary of these properties. Address Our use of the property Landlord Tenant Term of current lease Approximate gross floor area Monthly rental (exclusive of management fee, government rates and rent) (HK$) 1. 26th Floor, Lever Tech Centre, Nos King Yip Street, Kwun Tong, Kowloon, Hong Kong Office Independent Third Party ASD Technology From 1 March 2016 to 31 March sq.m. 78, Suite 1301, 13th Floor, Level Tech Centre, Nos King Yip Street, Kwun Tong, Kowloon, Hong Kong Warehouse Independent Third Party ASD Technology From 29 September 2014 to 28 September sq.m. 18,

185 BUSINESS Leased properties in the PRC As at the Latest Practicable Date, we leased two properties in the PRC from (i) Mr. Lee, our chief executive officer and executive Director, as well as one of our Controlling Shareholders; and (ii) Wenxingjin Management which is owned as to 50% by Mr. Lee and 50% by Ms. Kwok, our Chairlady and executive Director, as well as one of our Controlling Shareholders. The following table sets out a summary of the properties. Address Our use of the property Landlord Tenant Term of current lease Approximate gross floor area Monthly rental (RMB) 1. Unit 1113, 1115 on 11th Floor, South Tower of Tai Ran Cang Song Building, Che Gong Miao Tai Ran 6th Road, Futian District, Shenzhen City, Guangdong Province, The PRC Office Mr. Lee Aolang Electronics From 1 July 2015 to 31 March sq.m. 37,000 (equivalent to approximately HK$44,048) 2. Unit C on 12th Floor, Shen Ye Tai Ran Shuisong Building, Bin He Road, Futian District, Shenzhen City, Guangdong Province, The PRC Office Wenxingjin Management Aolang Electronics From 1 November 2015 to 31 October sq.m. 61,000 (equivalent to approximately HK$72,619) For details of the relevant leases entered into between Aolang Electronics and Mr. Lee and Wenxingjin Management, respectively, each of whom is also a connected person of our Company, see Connected Transactions. Our Directors confirm that all of our current leases were negotiated on an arm s length basis with reference to the prevailing market rates. 179

186 BUSINESS IMPACT OF DISPOSAL OF PROPERTIES ON OUR GROUP S PROFITABILITY, CASH FLOW AND GEARING RATIO DURING THE TRACK RECORD PERIOD Profitability Net profit We recorded net profits of approximately HK$8.3 million, HK$31.9 million, HK$0.5 million, HK$7.0 million and HK$11.8 million for each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, respectively. Our net profit during the Track Record Period was driven to a significant extent by gain on sale of property, plant and equipment which does not form part of our Group s core businesses. We recorded net gain on sale of property, plant and equipment of approximately HK$8.1 million, HK$19.1 million, HK$3.6 million and HK$3.6 million for each of the three years ended 31 March 2015 and the six months ended 30 September 2014, respectively, and net gain on sale of non-current assets classified as held for sale of approximately HK$7.2 million for the six months ended 30 September On the basis that the net gain on sale of property, plant and equipment for each of the two years ended 31 March 2014 were excluded, our net profits would be approximately HK$0.2 million and HK$12.8 million for each of the two years ended 31 March 2014, respectively. On the basis that net gain on sale of property, plant and equipment and impairment loss on remeasurement of non-current assets held for sale for our Group s office premises in the PRC for each of the two years ended 31 March 2015 were excluded, our profit would decrease by approximately HK$11.2 million from approximately HK$12.8 million for the year ended 31 March 2014 to HK$1.6 million for the year ended 31 March On the basis that net gain on sale of property, plant and equipment and net gain on sale of non-current assets classified as held for sale for each of the six months ended 30 September 2014 and 2015 were excluded, our profit would increase by approximately HK$1.3 million from approximately HK$3.3 million for the six months ended 30 September 2014 to approximately HK$4.6 million for the six months ended 30 September 2015 and our net profit margin for the period would remain stable at approximately 1.9% for each of the six months ended 30 September 2014 and Net profit margin Our net profit margins were approximately 2.7%, 9.9%, 0.1% and 5.0% for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. On the basis that our net gain on sale of property, plant and equipment, net gain on sale of non-current assets classified as held for sale and impairment loss on remeasurement of non-current assets held for sale during the Track Record Period were excluded, our net profit margins would be approximately 0.1%, 4.0%, 0.5% and 1.9% for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. For further details of the impact of disposal of properties on our Group s profitability during the Track Record Period, see Financial Information Period-to-period comparison of results of operations. 180

187 BUSINESS Cash flow Investing activities We derived our cash partly from investing activities involving principally sale of property, plant and equipment. Net cash generated from such investing activities for each of the two years ended 31 March 2014 was approximately HK$1.2 million and HK$54.9 million, respectively. Net cash used in such investing activities for the year ended 31 March 2015 was approximately HK$12.7 million. Net cash generated from such investing activities was approximately HK$75.8 million for the six months ended 30 September On the basis that the payment for purchase of buildings held for own use and gross proceeds from sale of residential properties and their related leasehold improvements and carpark(s) during the Track Record Period were excluded, the net cash used in investing activities would be approximately HK$1.2 million, HK$18.6 million, HK$20.7 million and HK$17.8 million for each of the three years ended 31 March 2015 and the six months ended 30 September 2014, respectively, and the net cash generated from investing activities would be HK$34.8 million for the six months ended 30 September Financing activities We derived our cash partly from financing activities involving principally bank loans and amounts due to directors. Our cash used in financing activities was approximately HK$0.3 million and HK$65.2 million for each of the two years ended 31 March Our cash generated from financing activities was approximately HK$11.3 million for the year ended 31 March Our cash used in financing activities was approximately HK$83.2 million for the six months ended 30 September On the basis that the payments of mortgage loans for the disposed residential properties and carpark(s) and their corresponding interest expenses during the Track Record Period were excluded, the net cash used in financing activities would be approximately HK$4.5 million, HK$30.3 million and HK$59.0 million for each of the two years ended 31 March 2014 and the six months ended 30 September 2015, respectively. On the basis that the payments of mortgage loans for the disposed residential properties and carpark(s) and their corresponding interest expenses during the Track Record Period were excluded, and the net cash generated from financing activities would be approximately HK$24.2 million and HK$14.7 million for the six months ended 30 September 2014 and for the year ended 31 March 2015, respectively. On the basis that the payments of mortgage loans for the disposed residential properties and carpark(s) and their corresponding interest expenses during the Track Record Period were excluded, the net decrease in cash and cash equivalents would be approximately HK$2.8 million, HK$17.7 million, HK$5.3 million, HK$2.7 million and HK$36.1 million for each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, respectively. For further details of the impact of disposal of properties on our Group s cash flow during the Track Record Period, see Financial Information Liquidity and capital resources. 181

188 BUSINESS Gearing ratio Our gearing ratio was approximately 245.4% and 83.3% as at 31 March 2013 and 2014, respectively. The decrease in gearing ratio as at 31 March 2014 as compared to 31 March 2013 was mainly due to the decrease in bank loans from approximately HK$105.3 million as at 31 March 2013 to approximately HK$47.2 million as at 31 March 2014 as a result of the decrease in bills loans and the repayment of mortgage loans in relation to properties sold during the year ended 31 March Our gearing ratio increased to approximately 604.3% as at 31 March 2015 mainly due to the increase of approximately HK$45.7 million in bills loans for short term financing in relation to our Group s purchases of inventories and the decrease in total equity of our Group due to the dividend declared of HK$65.0 million for the year ended 31 March Our gearing ratio decreased to approximately 357.6% as at 30 September 2015 mainly due to (i) the decrease of approximately HK$41.7 million in amount due to directors after repayment; and (ii) the decrease of approximately HK$10.7 million in mortgage loans resulted from the disposals of one residential property and one carpark unit during the six months ended 30 September On the basis that the mortgage loans were excluded, our gearing ratio would be approximately 140.0%, 57.0%, 515.9% and 316.8% as at 31 March 2013, 2014, 2015 and 30 September 2015, respectively. For further details of the impact of disposal of properties on our Group s gearing ratio during the Track Record Period, see Financial Information Analysis of the key financial ratios Gearing ratio. AWARDS The following table sets out the major awards and certificates granted to us as at the Latest Practicable Date: Awards/Certificates Year Issuing organisation Video and imaging products of our Group Hong Kong Smart Gifts Design Awards Judge Award 2014 The Hong Kong Exporters Association wired scanner mouse Hong Kong Smart Gifts Design Awards Corporate Gold Award 2014 The Hong Kong Exporters Association wired scanner mouse Best Innovation (Innovative Technology) Award (special mention) 2014 The Information Technology Division of the Hong Kong Institution of Engineers wired scanner mouse 182

189 BUSINESS Awards/Certificates Year Issuing organisation Video and imaging products of our Group My Favourite Stationery 2015 The Grand Prize 2015 Hong Kong Trade Development Council wireless scanner mouse LICENCES AND PERMITS Our Directors confirm that we have obtained all relevant licences, approvals, permits or certificates from relevant governmental bodies or regulatory authorities in Hong Kong that are required for the conduct of our business operation in Hong Kong. Our Directors, as advised by our PRC Legal Advisers, confirm that we have obtained all necessary licences, approvals and permits from the relevant governmental authorities for our business operations in the PRC. LEGAL COMPLIANCE AND PROCEEDINGS As at the Latest Practicable Date, neither we nor any of our Directors were engaged in any litigation, arbitration or claim of material importance, and no litigation, arbitration or claim of material importance is known to our Directors to be pending or threatened by or against us, or any of our Directors, that would have a material adverse effect on our results of operations or financial condition. 183

190 BUSINESS NON-COMPLIANCE During the Track Record Period, we failed to comply with certain applicable laws and regulations, a summary of which is set out below. Non-compliance incident Reasons for non-compliance Legal consequences and potential maximum penalties Rectification actions taken Any operational and financial impact on our Group PRC Aolang Electronics did not pay deed tax of approximately RMB197,400 (equivalent to approximately HK$235,000) and stamp duty of approximately RMB3,290 (equivalent to approximately HK$3,917) out of the full amounts as required by the relevant PRC laws and regulations arising from its acquisition of an office premises, namely, Unit C on 12th Floor, Shen Ye Tai Ran Shuisong Building, Bin He Road, Futian District, Shenzhen City, Guangdong Province, the PRC ( 12C). The incident occurred inadvertently due to reliance on a property agent engaged by Aolang Electronics to complete the procedural requirements in acquiring the property including payment of deed tax and stamp duty and application for ownership certificate. According to the Tax Collection Management Law of the PRC* ( ), tax authorities may request Aolang Electronics to pay 50% or up to 5 times the outstanding tax amount, which in the present case varies from approximately RMB100,000 to approximately RMB1.0 million. Aolang Electronics has, through our PRC Legal Advisers, made enquiries with the relevant PRC authorities with a view to paying the outstanding deed tax and stamp duty in full. Our PRC Legal Advisers have obtained a confirmation from each of Shenzhen Futian District Local Tax Bureau* ( ) and Shenzhen Real Estate Ownership Registration Center ( ) that it is not possible to process payments of outstanding deed tax and stamp duty for properties which property ownership certificates have been issued. As such, our PRC Legal Advisers are of the view that it is not possible for Aolang Electronics to pay the outstanding deed tax and stamp duty. A provision of approximately HK$0.4 million was included in the amount of other payables and accruals of our Group as at 31 March Our Controlling Shareholders have executed the Deed of Indemnity in favour of our Group against, among others, all losses, liabilities, damages, costs, claims and expenses incurred by our Group in relation to this noncompliance incident. Please refer to Statutory and General Information Other information 16. Estate duty, tax and other indemnities in Appendix IV to this prospectus for further details of the Deed of Indemnity. Our Directors believe that this noncompliance incident will not have any material impact on our Group s operation and financial position. 184

191 BUSINESS Internal control measures designed to prevent future non-compliance and improve corporate governance To further enhance the quality of our corporate governance and to prevent recurrence of the non-compliance incident referred to above, our Group has adopted or intends to adopt the following measures: (1) our Directors attended training sessions conducted by our Company s Hong Kong legal adviser on 15 December 2014 and 23 October 2015, respectively, regarding the ongoing obligations, duties and responsibilities of directors of publicly listed companies under the Companies Ordinance, the Companies (Winding Up and Miscellaneous Provisions) Ordinance, the SFO and the GEM Listing Rules; (2) our Company has appointed Mr. Leung Ting Yuk as our chief financial officer and company secretary. Mr. Leung will act as the principal channel of communication between members of our Group and our Company in relation to legal, regulatory and financial reporting compliance matters of our Group as well as the chief coordinator to oversee the internal control procedures in general. Upon receipt of any queries or reports on legal, regulatory and financial reporting compliance matters, our chief financial officer and/or company secretary will look into the matter and, if considered appropriate, seek advice, guidance and recommendations from professional advisers before reporting to relevant members of our Group and/or our Board. Detail of Mr. Leung s qualifications and experience are set out in Directors, Senior Management and Staff ; (3) our Group has appointed Mr. Lee, our chief executive officer and executive Director, as compliance officer. The role of the compliance officer includes the following: to advise, with the assistance of our chief financial officer and/or company secretary, on the implementation of procedures to ensure that our Group complies with the GEM Listing Rules and other relevant laws and regulations applicable to our Group; to carry out the day-to-day implementation and monitoring of our internal control system with the assistance of our chief financial officer and/or company secretary; to oversee the risk management and implement the risk management policies and procedures; and to respond promptly and efficiently to all enquiries directed at him by the Stock Exchange. (4) our Company has appointed Lego Corporate Finance Limited as our compliance adviser to advise our Group on compliance matters upon Listing in accordance with Rule 6A.19 of the GEM Listing Rules; 185

192 BUSINESS (5) our Group has established an audit committee with written terms of reference in accordance with Appendix 15 to the GEM Listing Rules to review the internal control system and procedures for compliance with the requirements of the GEM Listing Rules, the Companies Ordinance and other applicable laws, rules and regulations; (6) our Company proposes to appoint an internal control consultant to provide advice and review our internal control system regarding internal control matters on a regular basis after Listing and such appointment will be reviewed annually; and (7) our Company proposes to appoint external Hong Kong and/or PRC Legal Advisers, where applicable, to advise us on compliance with and to provide us with updates on the changes in the GEM Listing Rules and the applicable Hong Kong and PRC laws, rules and regulations from time to time to see if any change is required to be made with our operation and internal control system. With the assistance of our external legal advisers as to Hong Kong law and PRC law, the compliance adviser, the internal control consultant, our compliance officer, chief financial officer and/or company secretary, we aim to ensure that our Group s operations are in compliance with the applicable laws, rules and regulations with respect to our business operations in the PRC and Hong Kong. The internal control consultant will conduct regular internal control reviews on our operations and recommend remedial plans to our audit committee, which will then advise our Board on the implementation of any remedial plans should there be any material internal control deficiencies. Our Board will make final decisions on the implementation of the remedial plans. To ensure all the remedial plans are implemented, the internal control consultant will follow up and monitor the implementation and report to the audit committee about the progress and results of the remedial plans. Any material internal control failings, weaknesses or deficiencies identified during the review process and the relevant follow up or remedial measures (if applicable) taken by our Group will be disclosed in our annual report after the Listing. Views of our Directors and the Sponsor Our Directors are of the view that (i) the non-compliance incident described above was due to inadvertence and did not involve any element of fraud or dishonesty; and (ii) we have taken all reasonable steps to establish a proper internal control system to prevent future non-compliance with the relevant laws and regulations. Our Directors (including independent non-executive Directors) are satisfied and the Sponsor concurs that the non-compliance incident described above would not affect the suitability of our Directors under Rules 5.01, 5.02 and of the GEM Listing Rules and the suitability for listing of our Company under Rule of the GEM Listing Rules on the following basis: (1) we have taken steps to improve our internal control and corporate governance system as referred to above; 186

193 BUSINESS (2) the occurrence of the abovementioned non-compliance incident was solely due to inadvertence and did not involve dishonesty or fraud on the part of our Directors; (3) as the abovementioned non-compliance incident is not a matter with significant financial impact on our Group and our Controlling Shareholders have executed the Deed of Indemnity in favour of our Group against, among others, all losses, liabilities, damages, costs, claims and expenses incurred by our Group in relation to any non-compliance occurring on or before Listing Date, our Directors are satisfied that our Controlling Shareholders have sufficient financial resources to honour their obligations to provide indemnities in respect of the aforesaid non-compliance incident against our Group under the Deed of Indemnity; (4) as a result of the occurrence of the abovementioned non-compliance incident, our Directors confirm that they are aware of and are alert to any issues that might result in any non-compliance and that there are in place measures for preventing recurrence of non-compliance as disclosed above and consider such measures to be adequate and effective; (5) our Directors confirm that since the implementation of our enhanced internal control and corporate governance measures and up to the Latest Practicable Date, our Group had not been accused of any further breach of laws, rules and regulations; and (6) our Directors are aware of their responsibilities and obligations as directors of a listed issuer pursuant to the GEM Listing Rules and have undertaken to observe and comply with all the relevant laws, rules and regulations. 187

194 CONNECTED TRANSACTIONS Our Group entered into certain arrangements with the connected persons of our Company which constituted connected transactions for our Company pursuant to the GEM Listing Rules during the Track Record Period. Certain transactions have ceased while the following transactions are expected to continue after the Listing. Details of such transactions are set out below. EXEMPT CONTINUING CONNECTED TRANSACTIONS PRC Tenancy Agreements Aolang Electronics entered into tenancy agreements with each of (i) Wenxingjin Management on 20 October 2015 and (ii) Mr. Lee on 1 February 2015 (being terminated on 22 June 2015) and 22 June 2015, respectively (collectively, the PRC Tenancy Agreements ), pursuant to which Wenxingjin Management and Mr. Lee agreed to lease their respective owned properties in Shenzhen (collectively, the PRC Premises ) to Aolang Electronics subject to the terms and conditions of the PRC Tenancy Agreements. Below sets out the summary of the terms of the PRC Tenancy Agreements: Date Landlord Tenant Property Monthly rental Term Type of premises October 2015 Wenxingjin Aolang Management Electronics Unit C on 12th Floor, Shen Ye Tai Ran Shuisong Building, Bin He Road, Futian District, Shenzhen City, Guangdong Province, The PRC ( 12C) RMB61,000 (equivalent to approximately HK$72,619) 1 November 2015 to 31 October 2018 Office premises 2. (i) 1 February 2015 (being terminated on 22 June 2015); and (ii) 22 June 2015 Mr. Lee Aolang Electronics Unit 1113, 1115 on 11th Floor, South Tower of Tai Ran Cang Song Building, Che Gong Miao Tai Ran 6th Road, Futian District, Shenzhen City, Guangdong Province, The PRC ( ) RMB37,000 (equivalent to approximately HK$44,048) (i) 1 February 2015 to 31 January 2016 (terminated on 22 June 2015 and effective on 30 June 2015); and (ii) 1 July 2015 to 31 March 2018 Office premises 188

195 CONNECTED TRANSACTIONS Historical transaction amounts During each of the three years ended 31 March 2015 and six months ended 30 September 2015, the aggregate amount of rental paid by Aolang Electronics in connection with the PRC Tenancy Agreements was nil, nil, RMB74,000 (equivalent to approximately HK$91,000) and RMB222,000 (approximately HK$277,000), respectively. Annual caps and basis The aggregate rent payable by Aolang Electronics to Wenxingjin Management and Mr. Lee for the three years ending 31 March 2018 will not exceed RMB749,000 (equivalent to approximately HK$891,667), RMB1,176,000 (equivalent to approximately HK$1,400,000) and RMB1,176,000 (equivalent to approximately HK$1,400,000), respectively. The rental payable under the PRC Tenancy Agreements is payable on a monthly basis and was determined after arm s length negotiations with reference to the prevailing market rates. According to the rental appraisal reports issued by LCH (Asia-Pacific) Surveyors Limited, an independent qualified valuer engaged by our Group, our Company considered that the rental of the PRC Tenancy Agreements is fair and reasonable and reflects market rates. Implications under the GEM Listing Rules As Wenxingjin Management is owned as to 50% by Mr. Lee and 50% by Ms. Kwok, both Directors and Controlling Shareholders, and together with Mr. Lee, are core connected persons of our Company after Listing, the lease of the PRC Premises to Aolang Electronics by Wenxingjin Management and Mr. Lee under the PRC Tenancy Agreements will constitute continuing connected transactions for our Company pursuant to Rule of the GEM Listing Rules. Our Directors (including our independent non-executive Directors) consider that the PRC Tenancy Agreements had been entered into on arm s length basis and in the ordinary and usual course of business, and that the transactions contemplated under the PRC Tenancy Agreements and the annual caps are on normal commercial terms, fair and reasonable and in the interests of our Group and our Shareholders as a whole. Given that each of the percentage ratios (other than profit ratio) for the transactions contemplated under the PRC Tenancy Agreements, where applicable, calculated by reference to Rule of the GEM Listing Rules, is expected to be less than 5% and the annual consideration is less than HK$3.0 million, the transactions contemplated under the PRC Tenancy Agreements fall within the de minimis threshold under Rule 20.74(1) of the GEM Listing Rules and is exempt from the reporting, annual review, announcement and independent Shareholders approval requirements under Chapter 20 of the GEM Listing Rules. DISCONTINUED RELATED PARTY TRANSACTIONS Our Group entered into certain related party transactions with its related parties during the Track Record Period and up to the Latest Practicable Date, details of the Related Party Transactions are set out in note 23 of section B to the Accountants Report. Save as disclosed above, these related party transactions have been discontinued as at the Latest Practicable Date. 189

196 DIRECTORS, SENIOR MANAGEMENT AND STAFF DIRECTORS AND SENIOR MANAGEMENT Our Board currently consists of six Directors, comprising three executive Directors and three independent non-executive Directors. The main functions of our Board include the approval of our Group s overall business plans and strategies, monitoring the implementation of these policies and strategies and the management of our Company as well as overseeing the corporate governance functions of our Company. The following table sets forth certain information concerning our Directors: Name Age Position Roles and responsibilities Date of joining our Group Date of appointment as Director Relationship with other Directors and senior management Lee Siu On ( ) 49 Executive Director and chief executive officer Strategic development and planning of our Group and participating in the day-to-day management of our Group s business and operation March December 2014 Spouse of Ms. Kwok Kwok Mei Foon ( ) 46 Chairlady and Executive Director Overall management of our business operations and participating in the day-to-day management of our Group s business and operation March February 2015 Spouse of Mr. Lee Ma Ka Po ( ) 41 Executive Director Overall management of our business and participating in the day-to-day management of our Group s business and operation March October 2015 Nil 190

197 DIRECTORS, SENIOR MANAGEMENT AND STAFF Name Age Position Roles and responsibilities Date of joining our Group Date of appointment as Director Relationship with other Directors and senior management Cheng Hok Kai Frederick ( ) 52 Independent non-executive Director Providing independent judgment March March 2016 Nil Kow Ping ( ) 46 Independent non-executive Director Providing independent judgment March March 2016 Nil Tao Hong Ming ( ) 48 Independent non-executive Director Providing independent judgment March March 2016 Nil The following table sets forth certain information concerning our other senior management member: Name Age Position Roles and responsibilities Date of joining our Group Date of appointment for current position Relationship with other Directors and senior management Leung Ting Yuk ( ) 41 Chief financial officer and company secretary Overall finance and accounting management and financial administration and secretarial work of our Group September September 2015 Nil Ng Chun Sum ( ) 38 Director of business development Marketing plans and strategy and in charge of all technical projects September December 2013 Nil Wong Tung Yuen ( ) 39 Senior system manager Developing strategic marketing plans and supervising all technical projects July April 2014 Nil 191

198 DIRECTORS, SENIOR MANAGEMENT AND STAFF DIRECTORS Executive Directors Mr. Lee Siu On ( ), aged 49, is our executive Director and chief executive officer responsible for the strategic development and planning of our Group and participating in the day-to-day management of our Group s business and operation. Mr. Lee is one of the founders of our Group. Mr. Lee is a director of each of ASD Technology, Systech Electronics and On Hong Century and the sole director of Aolang Electronics since their respective incorporation. Prior to establishing ASD Technology in March 2002, Mr. Lee was a sales engineer of Future Electronics Inc., which is a company engaged in the distribution of electronic components business, from October 1993 to July 1997 and he was responsible for certain customers in Hong Kong and the PRC. Mr. Lee was a sales manager of Serial System (Hong Kong) Limited, which is a company engaged in the distribution of electronic components business, from August 1997 and December 1999 and he was responsible for sales management, and a senior sales manager of WT Microelectronics (Hong Kong) Ltd. (formerly known as Wintech Microelectronics (HK) Ltd.), which is a company engaged in the sale and distribution of electronic components, from January 2000 to March 2002 responsible for sales management. Mr. Lee obtained a higher diploma in computer engineering from the City Polytechnic of Hong Kong (currently known as the City University of Hong Kong) in November 1991, a bachelor of engineering degree in digital systems engineering from the University of Sunderland in June 1992, and a master of business administration degree from the Hong Kong Polytechnic University in November Mr. Lee was a director of the following company which was incorporated in Hong Kong and was deregistered pursuant to section 291AA of the Predecessor Companies Ordinance which provides that a defunct and solvent company may be dissolved by way of deregistration. It is confirmed by Mr. Lee that the following deregistration was voluntary by way of submitting an application to the Companies Registry of Hong Kong. The relevant details are as follows: Name of Company Nature of business Date of submission of application of deregistration Date of deregistration Allied Technology (HK) Limited Trading 23 March July 2001 As at the Latest Practicable Date, Shenzhen Yunxu was wholly owned by Mr. Lee and it was in the process of deregistration. For details, please see Relationship with Controlling Shareholders. Mr. Lee has not held any directorship in any listed company in the last three years. Save as being the spouse of Ms. Kwok, Mr. Lee does not have any relationship with any Director, senior management, substantial shareholder or controlling shareholder of our Company. 192

199 DIRECTORS, SENIOR MANAGEMENT AND STAFF Ms. Kwok Mei Foon ( ), aged 46, is our chairlady and executive Director responsible for the overall management of our business operations and participating in the day-to-day management of our Group s business and operation. Ms. Kwok is one of the founders of our Group. Ms. Kwok is a director of each of ASD Technology, Systech Electronics and On Hong Century and a supervisor of Aolang Electronics since their respective incorporation. Prior to joining our Group in March 2002, Ms. Kwok was a clerk of the accounts department of Johnson, Stokes & Master (currently known as Mayer Brown JSM), which is a law firm in Hong Kong, from June 1988 to August 1996, and she was responsible for recording and processing accounting transactions, a customer relations officer, a customer care officer and a project coordination officer of the customer service division of SmarTone Mobile Communications Limited, which is a telecommunication services provider, from August 1996 to February 1998, and she was responsible for customer service, and a sales administrator of WT Microelectronics (Hong Kong) Ltd. (formerly known as Wintech Microelectronics (HK) Ltd.), which is a company engaged in the sale and distribution of electronic components, from March 1998 to March 2000, and she was responsible for sales administration. Ms. Kwok completed a secretarial studies course at the City College of Commerce in Hong Kong in May Ms. Kwok was a director of the following company which was incorporated in Hong Kong and was deregistered pursuant to section 291AA of the Predecessor Companies Ordinance which provides that a defunct and solvent company may be dissolved by way of deregistration. It is confirmed by Ms. Kwok that the following deregistration was voluntary by way of submitting an application to the Companies Registry of Hong Kong. The relevant details are as follows: Name of Company Nature of business Date of submission of application of deregistration Date of deregistration Allied Technology (HK) Limited Trading 23 March July 2001 Ms. Kwok has not held any directorship in any listed company in the last three years. Save as being the spouse of Mr. Lee, Ms. Kwok does not have any relationship with any Director, senior management, substantial shareholder or controlling shareholder of our Company. Mr.MaKaPo( ), aged 41, is our executive Director responsible for the overall management of our business operations and participating in the day-to-day management of our Group s business and operation. Mr. Ma joined our Group in March 2011 as the director of sales of ASD Technology responsible for sales and marketing management and was appointed as an executive Director in October Prior to joining our Group, Mr. Ma was a field application engineer of Tektron Electronics (HK) Ltd., which is a company engaged in the distribution of semiconductor and components from October 1997 to October 1998 and he was responsible for design of the semiconductors in personal computing, consumer electronics and data communication solutions. He was a senior field application engineer of WT 193

200 DIRECTORS, SENIOR MANAGEMENT AND STAFF Microelectronics (Hong Kong) Ltd. (formerly known as Wintech Microelectronics (HK) Ltd.), which is a company engaged in the sale and distribution of electronic components, from October 1998 to June 2000, and he was responsible for design and a development in telecommunication and networking solutions. He was a district sales manager for South China and Hong Kong of Cypress Semiconductor International (Hong Kong) Limited, which is a subsidiary of Cypress Semiconductor Corporation listed on the NASDAQ stock exchange (symbol: CY) and is engaged in design, development and marketing of semiconductors, from June 2000 to March 2009, and he was responsible for field application and sales in various segments. Mr. Ma obtained a bachelor degree of engineering in electronic engineering from the Hong Kong Polytechnic University in November Mr. Ma has not held any directorship in any listed company in the last three years and he does not have any relationship with any Director, senior management, substantial shareholder or controlling shareholder of our Company. Independent Non-executive Directors Cheng Hok Kai Frederick ( ), aged 52, was appointed as an independent non-executive director of our Company on 2 March Mr. Cheng has extensive working experience in business, finance and accounting management. Mr. Cheng joined PuraPharm International (H.K.) Limited, which is a subsidiary of PuraPharm Corporation Limited ( PuraPharm ), whose shares are listed on the Main Board (stock code: 1498) and the principal business of which is research and development, production, marketing and sale of concentrated Chinese medicine granule products, in April 2010 as a chief financial officer and he became a company secretary of PuraPharm since December 2013 and a managing director of corporate finance and investment department of PuraPharm responsible for corporate finance and investment matter since October He joined Price Waterhouse (currently known as PricewaterhouseCoopers), which is a certified public accounting firm in Hong Kong, as an audit assistant in November 1985 and was later promoted to a position of senior accountant II in July 1988, in charge of a group of audits under the direct supervision of accountant managers and partners. Mr. Cheng left Price Waterhouse in August Mr. Cheng was the finance director of Asia Pacific and Japan of LSI Logic Hong Kong Limited, which is principally engaged in the design, development and marketing of semiconductors and storage systems, from July 1997 to August 2004 responsible for the finance and accounting function of the operation in Asia Pacific and Japan, the finance director of Pacific Rim of Mentor Graphics Asia Pte Ltd, which is a subsidiary of Mentor Graphics Corporation whose shares are listed on NASDAQ and principally engaged in the development of electronic design automation software, from August 2004 to April 2006 responsible for the finance and accounting function in Asia, and the finance director of Asia Pacific Region of Autodesk Asia Pte Ltd, which is a subsidiary of Autodesk, Inc. whose shares are listed on NASDAQ and principally engaged in the development of 3D design, engineering and entertainment software, from April 2006 to June 2008 responsible for the finance function in Asia Pacific and Japan. 194

201 DIRECTORS, SENIOR MANAGEMENT AND STAFF Mr. Cheng obtained a bachelor of science degree in finance and accounting from the University of Salford, the United Kingdom in July 1985 and a master of commerce degree in accounting from the University of New South Wales, Australia in May Mr. Cheng was admitted as a member of The Australian Society of Certified Practising Accountants (the CPA Australia ) and as an associate of the Hong Kong Institute of Certified Public Accountants (formerly known as the Hong Kong Society of Accountants) (the CPA HK ) in February 1992 and April 1992 respectively. And became fellow member of the CPA Australia and the CPA HK in January 2004 and March 2003 respectively. As at the Latest Practicable Date, Mr. Cheng was the fellow member of the CPA Australia and CPA HK. Mr. Cheng was admitted as an associate member of the Institute of Chartered Secretaries and Administrators in April 1995 and as a member of the Governance Institute of Australia Ltd (formerly known as Chartered Secretaries Australia Ltd) in December And became a fellow member of both the Institute of Chartered Secretaries and Administrators and the Governance Institute of Australia Ltd in June Mr. Cheng was a director of the following company which was incorporated in Hong Kong and was struck off and dissolved pursuant to section 291 of the Predecessor Companies Ordinance which provides that the Registrar of Companies in Hong Kong may strike a defunct company off the register of companies. The relevant details are as follows: Name of Company Nature of business Date of notice of striking off Date of struck off China Tripod International Limited ( ) Property development 17 April August 2003 Mr. Kow Ping ( ), aged 46, was appointed as an independent non-executive director of our Company on 2 March Mr. Kow has been the director of Well Being Digital Limited, which is a company principally engaged in the development of underlying technologies for wearable biometric devices since October 2012 responsible for sales and marketing. Mr. Kow was the marketing manager of Texas Instruments Incorporated, which is a company listed on NASDAQ and principally engaged in the design, manufacture and sale of semiconductors, from June 1993 to June 1997 responsible for regional product marketing, business operation functions and CPU marketing in Asia, the marketing manager of Via-Cyrix, Inc., which is a company engaged in the design, development and marketing of microprocessors, from June 1997 to January 2000 responsible for the management of marketing activities in Asia, the co-founder and chief operating officer of WebPro Limited, which is a company engaged in the electronic components infomediary business, from March 2000 to February 2004 responsible for daily business operation, the vice president of strategic accounts of Perception Digital Limited and principally engaged in the business of research, design and development of digital signal processing platform and the provision of embedded firmware to customers, from July 2006 to November 2012 responsible for sales development. Mr. Kow obtained a bachelor of applied science degree in computer technology from Nanyang Technological University in Singapore in May

202 DIRECTORS, SENIOR MANAGEMENT AND STAFF Mr. Tao Hong Ming ( ), aged 48, was appointed as an independent non-executive director of our Company on 2 March Mr. Tao has been a director of On Real International Holdings Limited, whose shares are listed on GEM (stock code: 8245) and is principally engaged in the manufacture and sale of two-way radios and baby monitor products on ODM basis, since December 2014, and he is responsible for the overall operation and new business development. Mr. Tao was the vice president of business development and the senior vice president of Perception Digital Limited, which was principally engaged in the business of research, design and development of digital signal processing platform and the provision of embedded firmware to customers during his tenure, respectively from June 2001 to March 2007 and from June 2008 to January From October 2010 to January 2013, he was the executive director of Perception Digital Holdings Limited (currently known as E-Rental Car Company Limited) which is listed on the Main Board (stock code: 1822) and was principally engaged in the business of research, design and development of digital signal processing platform and the provision of embedded firmware to customers during his tenure, and he was responsible for sales and marketing, project management and operation. He was the director of business line management of P-Marshall Hong Kong Limited, which is a company engaged in the sale of mobile phones and digital audio products, from August 2007 to June 2008, and he was responsible for business line management. He joined Vtech Holdings Ltd., which is a company listed on the Main Board (stock code: 303) and principally engaged in the manufacture and sale of electronic learning products and telecommunication products, in June 1996 and became the business development manager until May 2001, and he was responsible for business development, customer service and product development. Mr. Tao obtained a bachelor of engineering degree in electronic engineering from Hong Kong Polytechnic (currently known as the Hong Kong Polytechnic University) in November Save as disclosed, none of the courses attended by our Directors was distance learning or online courses. Save as disclosed, each of our Directors (i) did not hold other positions in our Company or other members of our Group as at the Latest Practicable Date; (ii) had no other relationship with any Directors, senior management, substantial shareholder or controlling shareholder of our Company as at the Latest Practicable Date; and (iii) did not hold any other directorships in listed companies in the three years prior to the Latest Practicable Date. Save as disclosed in Relationship with Controlling Shareholders, none of our Directors nor their respective close associates has any interests in any business apart from the business of our Group which competes or is likely to compete, either directly or indirectly, with the business of our Group. Save as the disclosed herein, to the best of the knowledge, information and belief of our Directors having made all reasonable enquiries, there were no other matters with respect to the appointment of our Directors that need to be brought to the attention of our Shareholders and there was no information relating to our Directors that is required to be disclosed pursuant to Rule 17.50(2)(h) to (v) of the GEM Listing Rules as at the Latest Practicable Date. 196

203 DIRECTORS, SENIOR MANAGEMENT AND STAFF SENIOR MANAGEMENT Mr. Leung Ting Yuk ( ), aged 41, is the chief financial officer and company secretary of our Company. Mr. Leung has approximately 15 years of corporate finance and accounting experience. He joined the Group as the chief financial officer and company secretary in September 2015 and is currently responsible for the overall finance and accounting management, financial administration and secretarial work of our Group. Prior to joining our Group, Mr. Leung worked in an accounting firm for over seven years during the period from November 2000 to January 2008, he was manager when he left the firm. Mr. Leung was then employed as the chief financial officer and company secretary of China Kangda Food Company Limited from January 2008 to May 2010, whose shares are listed on the Main Board (stock code: 834) and principal business is processing, sales and distribution of chilled and frozen meat products, processed food products and other related products, China 33 Media Group Limited from May 2010 to October 2012, whose shares are listed on the GEM (stock code: 8087) and principal business is the operation and provision of advertising services of printed media for the railway networks, and outdoor advertising spaces on air traffic control towers at airports, trains and railway stations in the PRC and ZMFY Automobile Glass Services Limited from September 2012 to February 2015, whose shares are listed on the GEM (stock code: 8135) and principal business is sales of automobile glass with installation/repair services and the trading of automobile glass in the PRC. Mr. Leung currently acts as an independent non-executive director of Yanchang Petroleum International Limited (formerly known as Sino Union Energy Investment Group Limited), whose shares are listed on the Main Board (stock code: 346) and principal business includes fuel oil trading and distribution. Mr. Leung graduated from the University of Wollongong, Australia with a bachelor s degree in Commerce in July Mr. Leung became a member of the Hong Kong Institute of Certified Public Accountants in January 2008 and a certified practising accountant of the CPA Australia in November Mr. Ng Chun Sum ( ), aged 38, is the director of business development of Systech Electronics responsible for marketing plans and strategy and in charge of all technical projects. Mr. Ng joined our Group as application engineer of ASD Technology from September 2002 to November 2013 responsible for the development of software and hardware and has been a director of business development of Systech Electronics since December 2013 responsible for business development. Prior to joining our Group, Mr. Ng was a sales engineer of Serial System (HK) Ltd, which is a company principally engaged in the distribution of electronic components business, from July 1999 to December 1999, and he was responsible for the sale of semiconductor components, a field application engineer of WT Microelectronics (Hong Kong) Ltd. (formerly known as Wintech Microelectronics (HK) Ltd.), which is a company principally engaged in the sales and distribution of electronic components business, from January 2000 to August 2001, and he was responsible for technical support, and a software engineer of the research and development department of Welback Enterprises Ltd, which is a company principally engaged in the sale and manufacture of electronic products, from October 2001 to September 2002, and he was responsible for software development. Mr. Ng obtained a bachelor of engineering (honours) degree and a master of science degree in electronic engineering from the Chinese University of Hong Kong in December 1999 and December 2004 respectively. 197

204 DIRECTORS, SENIOR MANAGEMENT AND STAFF Mr. Wong Tung Yuen ( ), aged 39, is a senior system manager responsible for developing strategic marketing plans and supervising all technical projects, and he joined our Group in July He has approximately 15 years of experience in designing and developing electronic products. Prior to joining our Group, Mr. Wong was an electronic engineer of Chomp Technology Limited, which is principally engaged in IC software development, and electronic circuit designs and voice and sound editing, from November 2000 to June 2005, and he was responsible for software development. Mr. Wong graduated from Hong Kong Baptist University with a bachelor of science degree in applied physics in December He further obtained a master of science degree from The Chinese University of Hong Kong in December Save as disclosed herein, none of the courses attended by our senior management was distance learning or online courses. COMPANY SECRETARY Mr. Leung Ting Yuk ( ), please refer to Mr. Leung s biography as disclosed in Senior Management above. COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE We place high value on our corporate governance practice and our Board firmly believes that a good corporate governance practice can improve accountability and transparency for the benefit of our Shareholders. Our Board has adopted the code provisions of the Corporate Governance Code (the CG Code ) set out in Appendix 15 to the GEM Listing Rules as our code on corporate governance. The Board will also review and monitor the practices of our Company from time to time with an aim to maintain and improve high standards of corporate governance practices. We will comply with the code provisions of the CG Code upon Listing. BOARD COMMITTEES Our Board has established the audit committee, the remuneration committee and the nomination committee and delegated various responsibilities to these committees, which assist our Board in discharging its duties and overseeing particular aspects of our Group s activities. Audit committee We established an audit committee on 2 March 2016 with written terms of reference in compliance with Rule 5.28 of the GEM Listing Rules and paragraph C.3 of the CG Code. The duties of our audit committee include, without limitation, (a) making recommendations to our Board on the appointment, re-appointment and removal of the external auditor, approving the remuneration and terms of engagement of the external auditor, and any questions of its resignation or dismissal; (b) monitoring integrity of our financial statements, our annual report and accounts and our half-year report, and reviewing significant financial reporting judgments contained therein; and (c) reviewing our financial controls, internal control and risk management systems. 198

205 DIRECTORS, SENIOR MANAGEMENT AND STAFF Our audit committee consists of Mr. Cheng Hok Kai Frederick, Mr. Kow Ping and Mr. Tao Hong Ming. Mr. Cheng Hok Kai Frederick is the chairman of the audit committee. Remuneration committee We established a remuneration committee on 2 March 2016 with written terms of reference in compliance with Rule 5.34 of the GEM Listing Rules and paragraph B.1 of the CG Code. The duties of our remuneration committee, under the principle that no Director should be involved in deciding his own remuneration, include, without limitation, (a) making recommendations to our Board on our policy and structure for the remuneration of all of our Directors and senior management and on the establishment of a formal and transparent procedure for developing remuneration policies; (b) making recommendations to our Board on the remuneration packages of our executive Directors and senior management, including benefits in kind, pension rights and compensation payments, including any compensation payable for loss or termination of their offices or appointments, and making recommendations to our Board of the remuneration of our non-executive Directors; and (c) reviewing and approving our management s remuneration proposals with reference to our Board s corporate goals and objectives. Our remuneration committee consists of Mr. Cheng Hok Kai Frederick, Mr. Kow Ping and Mr. Tao Hong Ming. Mr. Kow Ping is the chairman of the remuneration committee. Nomination committee We established a nomination committee on 2 March 2016 with written terms of reference in compliance with paragraph A.5 of the CG Code. The duties of our nomination committee include, without limitation, (a) reviewing the structure, size and composition (including the skills, knowledge and experience) of our Board at least annually and making recommendations on any proposed changes to our Board to complement our corporate strategy; (b) identifying individuals suitably qualified to become members of our Board and selecting or making recommendations to our Board on the selection of individuals nominated for directorships; (c) assessing the independence of our independent non-executive Directors; and (d) making recommendations to our Board on the appointment or re-appointment of our Directors and succession planning for our Directors, in particular the chairman and the chief executive. Our nomination committee consists of Mr. Cheng Hok Kai Frederick, Mr. Kow Ping and Mr. Tao Hong Ming. Mr. Tao Hong Ming is the chairman of the nomination committee. DIRECTORS REMUNERATION We reimburse our Directors for expenses which are necessarily and reasonably incurred for providing services to our Company or executing their functions in relation to our operations. Our executive Directors are also employees and receive, in their capacity as employees, compensation in the form of salaries and other allowances and benefits in kind. 199

206 DIRECTORS, SENIOR MANAGEMENT AND STAFF For each of the three years ended 31 March 2015 and the six months ended 30 September 2015, the aggregate amount of fees, salaries, allowances, discretionary payments, bonuses and contribution to pension schemes paid by our Group to our Directors was approximately HK$3.6 million, HK$3.7 million, HK$4.4 million and HK$1.9 million, respectively. It is estimated that under the arrangements currently in force, the aggregate remuneration (excluding any discretionary bonuses) payable to our Directors for the year ending 31 March 2016 will be approximately HK$3.6 million. The five highest paid individuals of our Group for the three years ended 31 March 2015 included two Directors, Mr. Lee and Ms. Kwok, and included three Directors, namely, Mr. Lee, Ms. Kwok and Mr. Chan Man Wa, who joined the Group in June 2014 and resigned in September 2015, for the six months ended 30 September 2015 whose remunerations are included in the aggregate amount of fees, salaries, allowances, discretionary payments, bonuses and contribution to pension schemes paid by our Group to the relevant Directors set out above. The aggregate amount of fees, salaries, allowances, discretionary payments, bonuses and contribution to pension schemes paid by our Group to our five highest paid individuals excluding the Directors in respect of each of the three years ended 31 March 2015 and the six months ended 30 September 2015 was approximately HK$2.0 million, HK$2.7 million, HK$2.2 million and HK$0.9 million, respectively. During the Track Record Period, no remuneration was paid to, or received by, the Directors or the five highest paid individuals of our Group as an inducement to join or upon joining our Group. No compensation was paid to, or received by, such individuals during the Track Record Period for the loss of any office in connection with the management of the affairs of any member of our Group. During the Track Record Period, none of our Directors has waived or agreed to waive any remuneration. Save as disclosed above, no other payments have been paid or are payable in respect of each of the three years ended 31 March 2015 and the six months ended 30 September 2015 to our Directors or the five highest paid individuals of our Group. EMPLOYEES For details of the employees of our Group, including staff benefits and incentive plans provided by our Group, please refer to Business Employees. COMPLIANCE ADVISER We have appointed Lego Corporate Finance Limited as our compliance adviser pursuant to Rule 6A.19 of the GEM Listing Rules to advise us in the following circumstances in accordance with Rule 6A.23 of the GEM Listing Rules: (a) (b) before the publication of any regulatory announcement, circular or financial report; where a transaction, which might be a notifiable or connected transaction, is contemplated, including share issues and share repurchases; 200

207 DIRECTORS, SENIOR MANAGEMENT AND STAFF (c) where we propose to use the proceeds of the Placing in a manner different from that detailed in this prospectus or where the business activities, developments or results of our Group deviate from any forecast, estimate or other information in this prospectus; and (d) where the Stock Exchange makes an inquiry of us of unusual movements in the price or trading volume of our listed securities or any other matters in accordance with Rule of the GEM Listing Rules. The term of the appointment will commence on the Listing Date and end on the date on which our Company complies with Rule of the GEM Listing Rules in respect of our financial results for the second full financial year commencing after the Listing Date, or until the agreement is terminated, whichever is earlier. 201

208 CONTROLLING, SUBSTANTIAL AND SIGNIFICANT SHAREHOLDERS CONTROLLING SHAREHOLDERS So far as our Directors are aware, immediately following completion of the Capitalisation Issue and the Placing (without taking into account any Shares which may be allotted and issued upon the exercise of options that may be granted under the Share Option Scheme), the following persons are entitled to exercise or control the exercise of 30% or more of the voting power at the general meetings of our Company: Aggregate long positions in Shares Name Nature of interest Number of Shares immediately following completion of the Capitalisation Issue and the Placing Percentage of shareholding in our Company immediately following completion of the Capitalisation Issue and the Placing On Hong Century Beneficial owner (Note 1) 140,000,000 70% Mr. Lee Interest in a controlled corporation and interest (Note 2) of spouse 140,000,000 70% Ms. Kwok Interest in a controlled corporation and interest (Note 2) of spouse 140,000,000 70% Notes: 1. The entire issued share capital of On Hong Century is owned as to 50% by Mr. Lee and 50% by Ms. Kwok. 2. Mr. Lee and Ms. Kwok are deemed to be interested in the Shares held by On Hong Century under the SFO. Mr. Lee is the spouse of Ms. Kwok and both of them are executive Directors. 202

209 CONTROLLING, SUBSTANTIAL AND SIGNIFICANT SHAREHOLDERS SUBSTANTIAL SHAREHOLDERS AND SIGNIFICANT SHAREHOLDERS Save as disclosed above, our Directors are not aware of any other persons who will, immediately following completion of the Capitalisation Issue and the Placing (without taking into account any Shares which may be allotted and issued upon the exercise of options that may be granted under the Share Option Scheme) have interests or short positions in the Shares or underlying Shares which would fall to be disclosed to us and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or who will be directly or indirectly interested in 10% or more of the voting power in all circumstances at general meetings of any member of our Group. 203

210 RELATIONSHIP WITH CONTROLLING SHAREHOLDERS OUR CONTROLLING SHAREHOLDERS Immediately following completion of the Capitalisation Issue and the Placing and taking no account of any Shares which may be allotted and issued pursuant to the exercise of options which may be granted under the Share Option Scheme, our Company will be owned as to approximately 70% by On Hong Century, which is owned as to 50% by Mr. Lee and 50% by Ms. Kwok. As On Hong Century, Mr. Lee and Ms. Kwok are directly or indirectly entitled to exercise or control the exercise of 30% or more of the voting power at general meetings of our Company immediately following the Listing, each of On Hong Century, Mr. Lee and Ms. Kwok will be regarded as our Controlling Shareholders under the GEM Listing Rules. Apart from our Group s business relating to the sale of imaging electronic components and the sale of ODM and OBM video and imaging products, Mr. Lee and Ms. Kwok are also engaged in other businesses. The following table sets out the companies held by our Controlling Shareholders during the Track Record Period and up to the Latest Practicable Date: Company Place of Incorporation Date of Incorporation Principal Business Shareholdings as at the Latest Practicable Date Directors as at the Latest Practicable Date 1. Kenxen (Notes 1 and 2) Hong Kong 6 September 2010 Manufacturing and exporting of imaging products including cameras Subcontractor of our Group 100% by Independent Third Parties Independent Third Parties Mr. Lee and Ms. Kwok ceased to be directors in February Vision Electronics Limited Hong Kong 9 October 2012 Trading of electronic components; dormant since January % by Ms. Kwok Ms. Kwok 3. Pro-Vision Electronics Limited Hong Kong 1 December 2010 Trading of electronic components; dormant since January % by Mr. Lee and 50% by Ms. Kwok Mr. Lee and Ms. Kwok 4. 3D Min-Tex Technology Limited (formerly known as Kangde Nanotech (HK) Co., Limited) ( 3D Min-Tex ) Hong Kong 13 November 2008 Trading of garments 50% by Ms. Kwok and 50% by an Independent Third Party An Independent Third Party Ms. Kwok ceased to be director in September Simple Living Technology Limited ( SLT HK ) Hong Kong 13 January 2014 Sale of OBM audio speakers 100% by Mr. Lee Mr. Lee 6. Simple Living Technology, Inc. ( SLT U.S. ) U.S. 1 January 2014 Sale of OBM audio speakers 50% by Mr. Lee and 50% by an Independent Third Party Mr. Lee and an Independent Third Party 204

211 RELATIONSHIP WITH CONTROLLING SHAREHOLDERS Company Place of Incorporation Date of Incorporation Principal Business Shareholdings as at the Latest Practicable Date Directors as at the Latest Practicable Date 7. Shenzhen Yunxu (Note 3) PRC 15 April 2013 Wholesale and trading of electronic components and products, etc. 100% by Mr. Lee Mr. Lee 8. Wenxingjin Management PRC 17 July 2015 Consultation of commercial information, corporate governance and corporate image strategy 50% by Mr. Lee and 50% by Ms. Kwok Mr. Lee 9. Mega Growth International Investment Limited 10. Spring Rich Investment Limited Hong Kong 8 May 2015 Investment holding 50% by Mr. Lee and 50% by Ms. Kwok Hong Kong 21 July 2015 Investment holding 50% by Mr. Lee and 50% by Ms. Kwok Mr. Lee and Ms. Kwok Mr. Lee and Ms. Kwok Notes: 1. During the period from February 2011 to September 2012, Kenxen was owned as to 25% by Ms. Kwok and as to 75% by an Independent Third Party. During the period from September 2012 to February 2015, Kenxen was owned as to 80% by Ms. Kwok and as to 20% by an Independent Third Party. As our Group is principally engaged in the sale of (i) imaging electronic components; and (ii) ODM and OBM video and imaging products, Mr. Lee and Ms. Kwok considered the operation of Kenxen which is manufacturing differs from our Group s business focus. Further, Mr. Lee and Ms. Kwok have never been involved in the daily operation of Kenxen. As such, Mr. Lee and Ms. Kwok resigned as directors of Kenxen and Ms. Kwok disposed all of her shareholding in Kenxen in February 2015 so that they can focus on the business development of our Group. Given that Kenxen was one of our five largest suppliers for the two years ended 31 March 2015 and the six months ended 30 September 2015 and also being our customer during the Track Record Period, the value of transactions between our Group and Kenxen during the Track Record Period include sale and purchase of goods to and from Kenxen. Our Group s sale of goods to Kenxen for the three years ended 31 March 2015 and the six months ended 30 September 2015 was approximately HK$14.1 million, HK$11.5 million, HK$2.5 million and HK$1.3 million, respectively. Our Group s purchase of goods from Kenxen for the three years ended 31 March 2015 and the six months ended 30 September 2015 was approximately HK$4.9 million, HK$22.2 million, HK$33.7 million and HK$54.6 million, respectively. 2. As at the Latest Practicable Date, Kenxen held as to 100% equity interest in (Kenxen Electronics (SZ) Limited*) ( Kenxen SZ ) which was established in December 2010 and wholly owned by Kenxen. During the period from January 2013 to June 2014, Kenxen SZ was held as to 80% by Mr. Lee and 20% by an Independent Third Party. Our Group s sale of goods to Kenxen SZ for the three years ended 31 March 2015 and the six months ended 30 September 2015 was nil, nil, approximately HK$0.9 million and HK$1.2 million, respectively. 3. As at the Latest Practicable Date, Shenzhen Yunxu was in the process of deregistration. During the period from July 2013 to January 2015, Shenzhen Yunxu had provided research and development and technical support services to ASD Technology. Shenzhen Yunxu assisted ASD Technology to perform certain of its functions which related mainly to hardware aspects, such as providing solutions regarding components or designs, verifying and fine-tuning the functionality of PCB assembly, and co-operating with ASD Technology in the provision of samples. Shenzhen Yunxu was entitled to an aggregate service fee of approximately HK$5.7 million for the relevant period. During the Track Record Period, Shenzhen Yunxu had provided service to a PRC company, which was an Independent Third Party. Except for the provision of service to the said company and ASD Technology, Shenzhen Yunxu did not have any customers. The staff of Shenzhen Yunxu were transferred to Aolang Electronics prior to the acceptance of the application of its deregistration so as to centralise the research and development functions of Aolang Electronics and Shenzhen Yunxu. Aolang Electronics provides research and development services to both ASD Technology and Systech Electronics. The value of transactions between our Group and Shenzhen Yunxu for the three years ended 31 March 2015 and the six months ended 30 September 2015 was nil, approximately HK$2.5 million, HK$3.2 million and nil, respectively. 205

212 RELATIONSHIP WITH CONTROLLING SHAREHOLDERS The business operation of 3D Min-Tex, SLT HK, SLT U.S. and Wenxingjin Management (the Other Business ) will not form part of our Group after the Reorganisation. Save as disclosed above, there is no other person who, immediately following completion of the Capitalisation Issue and the Placing (without taking into account any Shares which fall to be issued pursuant to the exercise of options which may be granted under the Share Option Scheme), will be directly or indirectly interested in 30% or more of the Shares then in issue. DELINEATION OF BUSINESSES Our Directors are of the view that there is a clear delineation between the Other Business and our business operations, as a result of which none of the Other Business would compete, or is expected to compete, directly or indirectly with our Group s business. Operations of our Group are independent of and separate from the Other Business. The Other Business was excluded from our Group through the Reorganisation as our Directors are of the view that such businesses do not form part of our principal business. Given the different nature of our Group s business from that of the Other Business, our Directors do not expect there to be any overlap or competition between the Other Business and our Group s business after the Listing. INDEPENDENCE FROM CONTROLLING SHAREHOLDERS As at the Latest Practicable Date, save as disclosed, none of our Controlling Shareholders was engaged, or interested, in any business which, directly or indirectly, competed or might compete with our business which was discloseable under Rule of the GEM Listing Rules. Our Directors believe that we are capable of carrying on our business independently from, and does not place reliance on, our Controlling Shareholders and their respective close associates, taking into consideration the factors set out below. Management independence Our Board comprises three executive Directors and three independent non-executive Directors. While our executive Directors, namely Mr. Lee and Ms. Kwok, are also our Controlling Shareholders due to their interest in On Hong Century as disclosed above, our Board comprises a balanced composition of independent non-executive Directors who have sufficient character, integrity and calibre for their views to carry weight, and thus can effectively exercise independent judgment. In addition, each of our Directors is aware of his/her fiduciary duties as a director which require, among others, that he/she must act for the benefit of and in the best interests of our Company and does not allow any conflict between his/her duties as a director and his/her personal interests. If our Directors who to their knowledge is in any way, whether directly or indirectly, interested in a contract or arrangement or proposed contract or arrangement with our Group, the interested Directors shall declare such interest at the meeting of the Board at which the relevant transactions are to be first considered in accordance with the Articles of Association. The interested Directors shall also abstain from voting at the relevant Board meetings in 206

213 RELATIONSHIP WITH CONTROLLING SHAREHOLDERS respect of such transactions and shall not be counted in the quorum in accordance with the Articles of Association. As such, Mr. Lee and Ms. Kwok will not vote on those matters or transactions relating to any of our Controlling Shareholders or otherwise give rise to potential conflicts of interest come up for discussion at Board meetings and they would not be counted towards quorum in the relevant meetings. Since On Hong Century has no business other than holding the shareholding interest in our Company, our Directors do not foresee any issue which may affect our management independence. In addition, save for Mr. Lee and Ms. Kwok, none of our executive Directors or senior management has any managerial role or beneficial interest in On Hong Century or has any family relationship with our Controlling Shareholders or any of their respective associates. Three of our Board members, representing half of the members of our Board, are independent non-executive Directors who have extensive experience in different professions. They have been appointed pursuant to the requirements under the GEM Listing Rules to ensure that the decisions of the Board are made only after due consideration of independent and impartial opinions. Our Directors believe that the presence of Directors from different backgrounds provides a balance of views and opinions. Furthermore, our Board s main functions include the approval of our Group s overall business plans and strategies, monitoring the implementation of these policies and strategies and the management of our Company. Our Board acts collectively by majority decisions in accordance with the Articles of Association and the applicable laws, and no single Director is supposed to have any decision-making power unless otherwise authorised by our Board. Having considered the above factors and in light of the non-competition undertakings given by our Controlling Shareholders in favour of our Group (as more particularly disclosed in Deed of Non-competition below), our Directors are satisfied that they are able to perform their roles in our Group independently and are of the view that they are capable of managing our business independently from our Controlling Shareholders and their respective associates after Listing. Operational independence While our Board has full rights to make all decisions on the overall strategic development and management and operational aspects of our Group, all essential operational functions have been and will be overseen by Mr. Ma, our executive Director and Mr. Ng Chun Sum, our senior management (whose biographies are disclosed in Directors, Senior Management and Staff ), without unduly requiring the support of our Controlling Shareholders and their close associates. Further, our Group either holds or is the licensee of all the patent, trademarks, copyrights and domain names with respect to our business, and has sufficient capital, equipment and employees to operate our business independently from our Controlling Shareholders and their respective close associates. 207

214 RELATIONSHIP WITH CONTROLLING SHAREHOLDERS Save for Kenxen, one of our subcontractors which was owned as to 25% by Ms. Kwok during the period from February 2011 to September 2012 and 80% by Ms. Kwok during the period from September 2012 to February 2015, we have access to our customers and suppliers who are third parties independent from and not connected with our Controlling Shareholders and their respective close associates. We have implemented a set of internal control procedures to facilitate the effective and independent operation of our business. Further, save for the continuing connected transactions disclosed in Connected Transactions, there have been no business dealings between our Group and the Controlling Shareholders and their close associates as at the Latest Practicable Date. Our Directors consider that our Group can operate independently from our Controlling Shareholders and their close associates. Financial viability and independence During the Track Record Period and up to the Latest Practicable Date, we had our own internal control and accounting system, accounting and finance department and treasury function for cash receipts and payments. As at 31 March 2013 and 2014 and 2015 and 30 September 2015, the amount of total borrowings of our Group that were secured by the assets of and/or guaranteed by Mr. Lee and/or Ms. Kwok and/or a company controlled by Mr. Lee and/or Ms. Kwok (details of which are set out in note 18 to the Accountants Report) was approximately HK$127.9 million, HK$71.1 million, HK$71.6 million and HK$37.4 million, respectively. These borrowings will subsist after the Listing. As at the Latest Practicable Date, all the banks had provided in-principle consents or entered into a new banking facility agreement with our subsidiaries to release the above personal guarantees and to replace the above personal guarantees by corporate guarantee or replacement security given by one or more members of our Group upon Listing. The in-principle consents from the banks are generally subject to, among others, (i) the Shares becoming successfully listed on the Stock Exchange, and (ii) the execution of guarantees (in the form and substance satisfactory to the banks) by the Company in favour of the banks. Moreover, we make financial decisions according to our own business requirements and in this connection, our Directors are of the view that our Group is capable of obtaining financing from external sources without reliance on our Controlling Shareholders after the Listing and thus there is no financial dependence on them. DEED OF NON-COMPETITION For the purpose of the Listing, the Controlling Shareholders have entered into with and in favour of our Company (for ourselves and as trustee for our subsidiaries) the Deed of Non-competition. Pursuant to the Deed of Non-competition, each of our Controlling Shareholders has confirmed that none of them is engaged in, or interested in, any business (other than our Group) which, directly or indirectly, competes or may compete with our 208

215 RELATIONSHIP WITH CONTROLLING SHAREHOLDERS business. To protect our Group from any potential competition, each of our Controlling Shareholders has unconditionally and irrevocably undertaken in favour of our Company (for ourselves and for the benefits of our subsidiaries), on a joint and several basis, that at any time during the Relevant Period (as defined below), each of them shall, and shall procure that their respective close associates and/or companies controlled by them (other than our Group) shall: (a) (b) (c) (d) (e) (f) not, directly or indirectly, be interested or involved or engaged in or carry on or be concerned with or acquire or hold any right or interest (in each case whether as a shareholder, partner, agent or otherwise and whether for profit, reward or otherwise) in any business which competes or is likely to compete directly or indirectly with the business currently and from time to time engaged by our Group in Hong Kong, the PRC and any other country or jurisdiction to which our Group provides such products and/or services and/or in which any member of our Group carries on business mentioned above currently and from time to time (the Restricted Activity ); not solicit any existing employee or then existing employee of our Group for employment by it/him/her or its/his/her close associates (excluding our Group); not, without the consent from our Company, make use of any information pertaining to the business of our Group which may have come to its/his/her knowledge in its/his/her capacity as the Controlling Shareholder or otherwise for any purpose of engaging, investing or participating in any Restricted Activity; to, either on its/his/her own or in conjunction with any body corporate, partnership, joint venture or other contractual agreement, whether directly or indirectly, whether for profit or not, carry on, participate in, hold, engage in, acquire or operate, or provide any form of assistance to any person, firm or company (except members of our Group) to conduct any Restricted Activity; to, either on its/his/her own or in conjunction with any body corporate, partnership, joint venture or other contractual agreement, whether directly or indirectly, whether for profit or not, solicit or endeavour to entice away from or discourage from dealing with our Group any person who was at any time during the period of one year preceding the date of the Deed of Non-competition a manufacturer for or supplier or subcontractor, customer or client of our Group; if there is any project or new business opportunity that relates to the Restricted Activity and is offered or becomes aware to our Controlling Shareholders, they shall (i) promptly refer such project or new business opportunity to our Group in writing for consideration and provide such information as is reasonably required in order to enable our Group to come to an informed assessment of such opportunity, (ii) use its/his/her best endeavours to procure that such opportunity is offered to our Group on terms no less favourable than the terms on which such opportunity is offered to such Controlling Shareholder and/or its/his/her close associates, and (iii) with regard to any project or new business opportunity shall have been rejected by our Group and the principal terms of which our Controlling Shareholders and/or any of 209

216 RELATIONSHIP WITH CONTROLLING SHAREHOLDERS his/her/its close associates and/or entities or companies controlled by he/she/it invest or participate are no more favourable than those made available to our Company; (g) (h) not invest or participate in or carry on any project or business opportunity of the Restricted Activity; and procure its/his/her close associates (excluding our Group) not to invest or participate in or carry on any project or business opportunity of the Restricted Activity. The above undertakings under the Deed of Non-competition do not apply to: (a) (b) the holding of, or interests in, the shares of any members of our Group; the holding of, or interests in, the shares of a company other than a member of our Group whose shares are listed on a recognised stock exchange provided that the total number of the shares held by the relevant Controlling Shareholder and/or its/his/her close associates does not exceed 5% of the issued shares of that class of the company in question, and such Controlling Shareholder and its/his/her respective close associates, whether acting singly or jointly, would not participate in or be otherwise involved in the management of the company in question. Each of our Controlling Shareholders has further unconditionally and irrevocably undertaken to our Company (for ourselves and for the benefit of our subsidiaries): (a) (b) (c) to allow our Directors, their respective representatives and our auditors to have sufficient access to the records of each of our Controlling Shareholders and their respective close associates to ensure compliance with the terms and conditions of the Deed of Non-competition; to provide to our Group and our Directors (including the independent non-executive Directors) from time to time all information necessary for the annual review by the independent non-executive Directors with regard to compliance with the terms of the Deed of Non-competition by our Controlling Shareholders; to make an annual declaration as to full compliance with the terms of the Deed of Non-competition and a consent to disclose such letter in our annual report. The Deed of Non-competition will become effective upon the Placing becoming unconditional. The obligations of our Controlling Shareholders under the Deed of Noncompetition will remain in effect during the period (the Relevant Period ) from the Listing Date until the earlier of the date on which: (a) our Controlling Shareholders, together with their close associates, whether individually or taken together, cease to be interested directly or indirectly in 30% (or such other amount as may from time to time be specified in the GEM Listing Rules 210

217 RELATIONSHIP WITH CONTROLLING SHAREHOLDERS as being the threshold for determining a controlling shareholder) or more of the issued share capital of our Company; or (b) the Shares cease to be listed and traded on the Stock Exchange. We believe the 30% threshold is justifiable as it is equivalent to the thresholds applied under the GEM Listing Rules and the Takeovers Code for the concept of control. CORPORATE GOVERNANCE MEASURES Our Company will adopt the following measures to manage the conflict of interests arising from the possible competing business of our Controlling Shareholders and to safeguard the interests of our Shareholders: (i) our independent non-executive Directors will review, on an annual basis, the compliance with the Deed of Non-competition by our Controlling Shareholders, and the decisions on matters reviewed will be disclosed in our annual reports; (ii) an annual declaration as to full compliance with the terms of the Deed of Non-competition will be made by our Controlling Shareholders, and will be disclosed in our annual reports; (iii) our Directors will operate in accordance with our Articles which require the interested Director not to vote (nor be counted in the quorum) on any resolution of the Board approving any contract or arrangement or other proposal in which he or any of his close associates is materially interested; and (iv) pursuant to the Corporate Governance Code (the CG Code ) set out in Appendix 15 of the GEM Listing Rules, our Directors, including the independent nonexecutive Directors, will be able to seek independent professional advice from external parties in appropriate circumstances at our Company s cost. We will follow the measures in the CG Code which sets out the principles of good corporate governance in relation to, among others, Directors, the chairman and chief executive officer, Board composition, the appointment, re-election and removal of Directors, their responsibilities and remuneration and communications with our Shareholders. Our Company will state in its interim and annual reports whether we have complied with the CG Code, and will provide details of, and reasons for, any deviations from it in the corporate governance report which will be included in our annual reports. 211

218 SHARE CAPITAL SHARE CAPITAL The authorised and issued share capital of our Company are as follows: Authorised share capital (HK$) 800,000,000 Shares 8,000,000 Issued share capital 1,000 Shares in issue as at the date of this prospectus 10 Shares to be issued 149,999,000 Shares to be issued pursuant to the Capitalisation Issue 1,499,990 50,000,000 Shares to be issued pursuant to the Placing 500,000 Total issued shares on completion of the Placing 200,000,000 Shares 2,000,000 Assumptions The above table assumes the Capitalisation Issue and the Placing become unconditional and the issue of Shares pursuant thereto is made as described herein. It does not take into account any Shares which may be allotted and issued upon the exercise of options that may be granted under the Share Option Scheme or any Shares which may be allotted and issued or repurchased by our Company pursuant to the general mandate granted to our Directors to allot and issue or repurchase Shares as referred to in General mandate to issue Shares or General mandate to repurchase Shares, as the case may be. Public Float Pursuant to Rule 11.23(7) of the GEM Listing Rules, at least 25% of the total issued share capital of our Company must at all times be held by the public. The Placing Shares represent 30% of the issued share capital of our Company upon Listing. Ranking The Placing Shares will rank pari passu in all respects with all of the Shares now in issue or to be issued, and will qualify for all dividends or other distributions declared, made or paid on the Shares after the date of this prospectus, except for the entitlements under the Capitalisation Issue. 212

219 SHARE CAPITAL SHARE OPTION SCHEME We have conditionally adopted the Share Option Scheme on 2 March The principal terms of the Share Option Scheme are summarised in Statutory and General Information Other Information 15. Share Option Scheme in Appendix IV to this prospectus. GENERAL MANDATE TO ISSUE SHARES Our Directors have been conditionally granted a general unconditional mandate authorizing them to exercise all the powers of our Company to allot, issue and deal with the Shares with a total number of not more than 20% of the number of our issued Shares immediately following completion of the Capitalisation Issue and the Placing (without taking into account any Shares which may be allotted and issued upon the exercise of options that may be granted under the Share Option Scheme), and the number of Shares repurchased by us, if any, pursuant to the repurchase mandate described below. The general mandate will expire: (a) at the conclusion of our Company s next annual general meeting; (b) at the expiration of the period within which our Company is required by any applicable law of the Cayman Islands or the Articles to hold the next annual general meeting; or (c) when varied, revoked or renewed by passing an ordinary resolution of our Shareholders in general meeting, whichever is the earliest. Further information of this general mandate is summarised in Statutory and General Information Further Information about our Company and our subsidiaries 3. Resolutions in writing of the sole Shareholder passed on 2 March 2016 in Appendix IV to this prospectus. GENERAL MANDATE TO REPURCHASE SHARES Our Directors have been conditionally granted a general unconditional mandate to exercise all the powers of our Company to repurchase the Shares with a total number of not more than 10% of the total number of our issued Shares immediately following completion of the Capitalisation Issue and the Placing (without taking into account any Shares which may be allotted and issued upon the exercise of options that may be granted under the Share Option Scheme). 213

220 SHARE CAPITAL This repurchase mandate only relates to repurchases made on the Stock Exchange and/or on any other stock exchange on which the Shares are listed (and which is recognized by the SFC and the Stock Exchange for this purpose) and which are in accordance with all applicable laws, rules and regulations. A summary of the relevant requirements of the GEM Listing Rules on this repurchase mandate is summarized in Statutory and General Information Further Information about our Company and our subsidiaries 7. Repurchase by our Company of our own securities in Appendix IV to this prospectus. This repurchase mandate will expire: (a) (b) (c) at the conclusion of our Company s next annual general meeting; at the expiration of the period within which our Company is required by any applicable law of the Cayman Islands or the Articles to hold the next annual general meeting; or when varied, revoked or renewed by passing an ordinary resolution of our Shareholders in general meeting, whichever is the earliest. Further information of this general mandate is summarised in Statutory and General Information Further Information about our Company and our subsidiaries 3. Resolutions in writing of the sole Shareholder passed on 2 March 2016 in Appendix IV to this prospectus. CIRCUMSTANCES UNDER WHICH GENERAL MEETING AND CLASS MEETING ARE REQUIRED Pursuant to the Companies Law and the terms of the Memorandum and Articles of Association, our Company may from time to time by ordinary resolution of shareholders (i) increase its capital; (ii) consolidate and divide its capital into Shares of larger amount; (iii) divide its Shares into several classes; (iv) subdivide its Shares into Shares of smaller amount; and (v) cancel any Shares which have not been taken. In addition, our Company may subject to the provisions of the Companies Law reduce its share capital or capital redemption reserve by its shareholders passing a special resolution. For details, see Summary of the Constitution of the Company and Cayman Company Law 2. Articles of Association (c) Alteration of capital in Appendix III to this prospectus. Pursuant to the Companies Law and the terms of the Memorandum and Articles of Association, all or any of the special rights attached to the Share or any class of Shares may be varied, modified or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued Shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the Shares of that class. For details, see Summary of the Constitution of the Company and Cayman Company Law 2. Articles of Association (d) Variation of rights of existing shares or classes of shares in Appendix III to this prospectus. 214

221 FINANCIAL INFORMATION The following discussion and analysis of our Group s financial conditions and results of operations should be read in conjunction with our combined financial information as at and for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, and the accompanying notes, included in the Accountants Report, which has been prepared in accordance with HKFRSs. The discussions and analysis in this section of this prospectus contain forwardlooking statements that involve risks and uncertainties. These statements are based on assumptions and analysis made by us in light of our experience and interpretation of historical trends, current conditions and expected future developments as well as other factors that we believe are appropriate under the relevant circumstances. However, whether our actual results reported in future periods differ materially from those discussed below depends on various factors which we do not have any control over. Factors that could cause or contribute to such differences include those discussed in Forward-looking Statements, Risk Factors and Business as well as those discussed elsewhere in this prospectus. Unless the context otherwise requires, financial information described in this section is described on a combined basis. OVERVIEW Our Group is principally engaged in the sale of: (i) imaging electronic components; and (ii) ODM and OBM video and imaging products. During the Track Record Period, we derived our revenue principally from the sale of imaging electronic components which include IC chips, CMOS sensors, digital imaging compression chips and other electronic components for imaging products. We have been offering design and engineering solutions to selective customers by utilising our know-how to design schematic, PCB layout (including verifying and fine-tuning the functionality of PCB assembly) and software to meet their specific requirements for over ten years. Our imaging electronic components are mainly sold to customers in North America, the PRC and Hong Kong. During the Track Record Period, our revenue as derived from ODM and OBM video and imaging products were generated primarily from the sale of hunting cameras and wired scanner mouse. Our current ODM video and imaging products are hunting camera, wired scanner mouse, bicycle camera and bluetooth tracker. They are mainly sold to customers in the U.S., Japan, Europe and Australia. Our current OBM video and imaging products are wired and wireless scanner mouse and bluetooth tracker. They are mainly sold through distributors/reseller in Hong Kong, South East Asia, Australia and United Arab Emirates. We develop our ODM video and imaging products through discussing and collecting product ideas from our customers and based on them, we design the products and further refine the product specifications. Our ODM video and imaging products are sold in the market under our 215

222 FINANCIAL INFORMATION customers own brand names. Our OBM video and imaging products are sold in the market under our own D+Oi and TAGGO brands. We do not manufacture our ODM and OBM video and imaging products ourselves. We outsource our production processes to subcontractors. For each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, our Group recorded revenue of approximately HK$303.2 million, HK$321.8 million, HK$336.0 million, HK$178.2 million and HK$233.8 million, respectively. BASIS OF PRESENTATION The combined financial information comprises our Company and its subsidiaries and has been prepared using the merger basis of accounting as if our Group had always been in existence, as further described below. Our Company was incorporated in the Cayman Islands on 16 December Pursuant to the Reorganisation in preparation for the listing of our Company s shares on GEM which was completed on 2 March 2016, our Company became the holding company now comprising our Group. The companies that took part in the Reorganisation were controlled by Mr. Lee and Ms. Kwok prior to and after the Reorganisation. The control is not transitionary and, consequently, there was a continuation of the risks and benefits to the Controlling Shareholders. Therefore, the Reorganisation is considered as a business combination of entities under common control. The combined financial information has been prepared using the merger basis of accounting as if the companies now comprising our Group have been combined at the beginning of the Track Record Period unless the combining companies first came under common control at a later date. The assets and liabilities of the combining companies are combined using the existing book values from the Controlling Shareholders perspective. The combined statements of profit or loss and other comprehensive income, the combined statements of changes in equity and the combined cash flow statements of our Group as set out in Section A include the combined results of operations of the companies comprising our Group for the Track Record Period (or where the companies were incorporated at a date later than 1 April 2012, for the period from the date of incorporation to 30 September 2015) as if the current group structure had been in existence throughout the Track Record Period. The combined statements of financial position of our Group as at 31 March 2013, 2014, 2015 and 30 September 2015 have been prepared to present the state of affairs of our Group as at the respective dates as if the Reorganisation had occurred at the beginning of the Track Record Period. 216

223 FINANCIAL INFORMATION MAJOR FACTORS AFFECTING OUR GROUP S RESULTS OF OPERATIONS Our financial conditions and results of operations have been and will continue to be affected by a number of factors that are beyond our control, including those discussed below. Intense competition According to the Ipsos Report, the existence of low quality of video and imaging product manufacturers leads to stiff price competition in the market. Referring the competition situation of video and imaging and related IC product industry in Hong Kong, this industry is fragmented and the market maturity is at a developing stage. Most players in the industry offer homogeneous products at lower quality, resulting in a fierce price competition among industry players and therefore squeezing their profit margins. If our Group cannot compete and respond to the market conditions rapidly, our Group s business and results of operations may be adversely affected. Market demand We are dependent on the health of global economic conditions and levels of global consumer consumption in general. According to the Ipsos Report, the growing popularity of social media globally and the continuing increase in disposable income globally has increased and is expected to strengthen the worldwide demand for video and imaging products. However, if the demand for the products we provide declines as a result of changes in global economic conditions or does not grow at the pace we anticipate, our business, financial condition and results of operations could be adversely affected. Costs of sales Our Group s major costs of sales is the costs of inventories in relation to the purchase costs of imaging electronic components and ODM and OBM video and imaging products. Any shortage in electronic components or fluctuations in prices could negatively affect our purchase prices of electronic components. If we are unable to pass on part or all of our cost increase to our customers, our results of operations, profit margins and profitability could be adversely affected. Regulatory requirements Our Group s business is subject to extensive regulatory requirements. For details, see Regulatory Overview. As our Group has business operations in Hong Kong and the PRC and deliver products to different areas all over the world, we must comply with various regulatory requirements of the relevant areas. As there are associated risks, such as regulations may be unclear, or previous guidance may be revised in areas, our Group cannot assure you that we will be able to meet all the applicable overseas regulations, or comply with all the applicable overseas regulations and guidelines at all time. If our Group fails to do so, it could result in sanctions, fines, penalties or other disciplinary actions, our Group s financial condition and results of operations may be materially and adversely affected. 217

224 FINANCIAL INFORMATION CRITICAL ACCOUNTING POLICIES AND ESTIMATES Critical accounting policies and estimates refer to those accounting policies and estimates that entail significant uncertainty and judgment, and could yield materially different results under different conditions and/or assumptions. Actual results may differ from these estimates. During the Track Record Period, there were no significant changes in our assumptions and estimates, and we will continuously assess our assumptions and estimates going forward. The preparation of the combined financial information in conformity with HKFRSs requires our management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The methods and approaches that we use in determining these items is based on our experience, the nature of our business operations, the relevant rules and regulations and the relevant circumstances. These underlying assumptions and estimates are reviewed regularly as they may have a significant impact on our operational results as reported in our combined financial information included elsewhere in this prospectus. Below is a summary of the accounting policies in accordance with HKFRSs that we believe are important to the presentation of our financial results and involve the need to make estimates and judgments about the effect of matters that are inherently uncertain. We also have other policies, judgements, estimates and assumptions that we consider as significant, which are set out in detail in note 1 of the Accountants Report. Revenue recognition Our Group is principally engaged in the: (i) sale of imaging electronic components; and (ii) sale of ODM and OBM video and imaging products. For ODM and OBM video and imaging products, we focus on the development of video and imaging products. Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable that the economic benefits will flow to our Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in the profit or loss as follows: (i) Sale of goods Revenue is recognised when the customer has accepted the goods and the related risks and rewards of ownership. Revenue excludes value added tax or other sales tax and is after deduction of any trade discounts. (ii) Rental income from operating leases Rental income receivable under operating leases is recognised in profit or loss in equal instalments over the periods covered by the lease term, except when an alternative basis is more representative of the pattern of benefits to be derived from the use of leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable. (iii) Interest income Interest income is recognised as it accrues using the effective interest method. 218

225 FINANCIAL INFORMATION (iv) Commission income Commission income arising from the provision of agency services is recognised when the relevant services are rendered. Research and development costs Research and development costs comprise all costs that are directly attributable to research and development activities or that can be allocated on a reasonable basis to such activities. Because of the nature of our Group s research and development activities, the criteria for the recognition of such costs as an asset are generally not met until late in the development stage of the project when the remaining development costs are immaterial. Hence both research costs and development costs are generally recognised as expenses in the period in which they are incurred. Investment property Investment properties are land and/or buildings which are owned to earn rental income and/or for capital appreciation. Investment properties are stated at cost less accumulated depreciation and impairment losses. Depreciation is calculated to write off the cost of investment properties over the shorter of the unexpired term of leases and their estimated useful lives, being no more than 50 years after the date of addition. Gains or losses arising from the retirement or disposal of an investment property are determined as the difference between the net disposal proceeds and the carrying amount of the investment property and are recognised in profit or loss as the date of retired or disposal. Other property, plant and equipment Our other property, plant and equipment mainly comprises of buildings held for own use, leasehold improvements, furniture and fixtures, office equipment and motor vehicles. Other property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Gains or losses arising from the retirement or disposal of an item of other property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal. 219

226 FINANCIAL INFORMATION Depreciation is calculated to write off the cost of items of other property, plant and equipment, less their estimated residual value, if any, using the straight line method over their estimated useful life as follows: Building situated on leasehold land are depreciated over the shorter of the unexpired term of lease and their estimated useful lives, being no more than 50 years after the date of completion Leasehold improvements Over shorter of the remaining unexpired lease term of the lease and their estimated useful lives Furniture and fixtures 5 years Office equipment 5 years Motor vehicles 4 years Where parts of an item of other property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually. Inventories Our Group s inventories comprise (i) imaging electronic components and (ii) ODM and OBM video and imaging products. Inventories are carried at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out cost formula and comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs. 220

227 FINANCIAL INFORMATION Trade and other receivables Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost using the effective interest method, less allowance for impairment of doubtful debts of the Accountants Report, except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts. Non-current assets held for sale Our non-current assets held for sale comprises of buildings held for sale. A non-current asset is classified as held for sale if it is highly probable that its carrying amount will be recovered through a sale transaction rather than through continuing use and the asset is available for sale in its present condition. Immediately before classification as held for sale, the measurement of the non-current assets is brought up-to-date in accordance with the accounting policies before the classification. Then, on initial classification as held for sale and until disposal, the non-current assets (except for certain assets as explained below) are recognised at the lower of their carrying amount and fair value less costs to sell. The principal exceptions to this measurement policy so far as the financial information of our Group are concerned are deferred tax assets, assets arising from employee benefits, financial assets (other than investments in subsidiaries, associates and joint ventures) and investment properties. These assets, even if held for sale, would continue to be measured in accordance with the policies set out elsewhere in note 1 of Part B of Appendix I to this prospectus. Impairment losses on initial classification as held for sale, and on subsequent remeasurement while held for sale, are recognised in profit or loss. As long as a non-current asset is classified as held for sale, the non-current asset is not depreciated or amortised. Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between the amount initially recognised and redemption value being recognised in profit or loss over the period of the borrowings, together with any interest and fees payable, using the effective interest method. Trade and other payables Trade and other payables are initially recognised at fair value and are subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost. 221

228 FINANCIAL INFORMATION Key sources of estimation uncertainty The methods, estimates and judgements the directors used in applying our Group s accounting policies have a significant impact on our Group s financial position and operating results. Some of the accounting policies require our Group to apply estimates and judgements, on matters that are inherently uncertain. The key sources of estimation uncertainty are as follows: Impairment losses for bad and doubtful debts Our Group estimates impairment losses for bad and doubtful debts resulting from the inability of the customers to make the required payments. Our Group bases the estimates on the ageing of the trade receivable balance, customer credit-worthiness and historical write-off experience. If the financial conditions of customers were to deteriorate, actual write-offs would be higher than estimated. Net realisable value of inventories Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated costs to completion and selling expenses. These estimates are based on the current market condition and the historical experience of manufacturing and selling products of similar nature. The estimates could change significantly as a result of changes in customer preferences and competitor actions in response to severe industry cycle. Management reassesses these estimates at the end of each reporting period. Other impairment losses If circumstances indicate that the carrying value of property, plant and equipment may not be recoverable, these assets may be considered impaired, and an impairment loss may be recognised. The carrying amounts of these assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amount may not be recoverable. When such a decline has occurred, the carrying amount is reduced to recoverable amount. The recoverable amount is the greater of the fair value less costs of disposal and the value in use. It is difficult to estimate precisely fair value less costs of disposal because quoted market prices for our Group s assets are not readily available. In determining the value in use, expected cash flows generated by the asset are discounted to their present value, which requires significant judgement relating to revenue and amount of operating costs. Our Group uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of revenue and amount of operating costs. 222

229 FINANCIAL INFORMATION SUMMARY RESULTS OF OPERATIONS The combined statements of profit or loss and other comprehensive income for the Track Record Period set forth below are derived from the Accountants Report. Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Revenue 303, , , , ,766 Cost of sales (277,168) (277,885) (294,337) (157,161) (204,712) Gross profit 25,987 43,912 41,682 21,049 29,054 Other revenue 4,980 4,971 6,865 3,081 2,660 Other net gain 8,775 17,962 3,779 3,964 5,691 Selling and administrative expenses (26,329) (28,710) (34,566) (16,065) (16,776) Other operating expenses (4,728) Listing expenses (9,873) (2,907) (5,312) Profit from operations 13,413 38,135 3,159 9,122 15,317 Finance costs (1,862) (2,014) (1,652) (725) (1,231) Profit before taxation 11,551 36,121 1,507 8,397 14,086 Income tax (3,291) (4,238) (1,022) (1,434) (2,295) Profit for the year/period 8,260 31, ,963 11, Other comprehensive income for the year Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of financial statements of operations with functional currency other than Hong Kong dollars 3 (71) Other comprehensive income for the year/period (71) Total comprehensive income for the year/period 8,263 31, ,124 11,

230 FINANCIAL INFORMATION DESCRIPTION AND ANALYSIS OF PRINCIPAL ITEMS IN THE COMBINED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Revenue During the Track Record Period, we derived our revenue from the (i) sale of imaging electronic components; and (ii) sale of ODM and OBM video and imaging products. Our imaging electronic components are mainly sold to customers in North America, the PRC and Hong Kong. Our current ODM video and imaging products are hunting camera, wired scanner mouse, bicycle camera and bluetooth tracker. They are mainly sold to customers in the U.S., Japan, Europe and Australia. During the Track Record Period, our revenue in relation to the sale of ODM and OBM video and imaging products are mainly generated from the sale of hunting camera and wired scanner mouse. Our current OBM video and imaging products are wired and wireless scanner mouse and bluetooth tracker. They are mainly sold through distributors/reseller in Hong Kong, South East Asia, Australia and United Arab Emirates. Set out below is the breakdown of our revenue as derived from our major products group for the Track Record Period: Six months ended Year ended 31 March 30 September HK$ million % HK$ million % HK$ million % HK$ million % HK$ million % Imaging electronic components IC chips CMOS sensors Digital imaging compression chips Others (Note 1) Subtotal ODM video and imaging products Hunting camera Scanner mouse Bicycle camera OBM video and imaging products Scanner mouse ODM and OBM video and imaging products Others (Note 2) Subtotal Total

231 FINANCIAL INFORMATION Notes: 1. The other imaging electronics components include, among other things, thin film transistor, lens and packaging materials. 2. The other ODM and OBM video and imaging products include door phone, car digital video recorder, gun camera and bluetooth tracker. We ceased the sales of door phone, car digital video recorder and gun camera in or around November 2014, January 2013 and May 2012, respectively. The sales of other ODM and OBM video and imaging products for the six months ended 30 September 2014 and 2015 were less than HK$0.1 million. Set out below is the breakdown of sales volume of our major products for the Track Record Period: Six months ended Year ended 31 March 30 September Sales Volume Sales Volume Sales Volume Sales Volume Sales Volume Imaging electronic components IC chips 10,823 10,595 14,524 7,749 7,230 CMOS sensors 5,784 4,197 5,073 2,824 4,025 Digital imaging compression chips 1,494 1, Others (Note 1) , ,464 ODM video and imaging products Hunting camera Scanner mouse Bicycle camera (Note 2) 24 OBM video and imaging products Scanner mouse ODM and OBM video and imaging products Others (Note 3) Notes: 1. The other imaging electronic components include, among other things, thin film transistor, lens and packaging materials. 2. The sales volume of ODM bicycle camera for the six months ended 30 September 2015 was less than one thousand units. 3. The other ODM and OBM video and imaging products include door phone, car digital video recorder, gun camera and bluetooth tracker. We ceased the sales of door phone, car digital video recorder and gun camera in or around November 2014, January 2013 and May 2012, respectively. The sales volume for each of the six months ended 30 September 2014 and 2015 was less than one thousand units. 225

232 FINANCIAL INFORMATION Set out below is the breakdown of average selling price of our major products for the Track Record Period: Six months ended Year ended 31 March 30 September Average Selling Price Average Selling Price Average Selling Price Average Selling Price Average Selling Price HK$/unit HK$/unit HK$/unit HK$/unit HK$/unit Imaging electronic components IC chips (Note 2) CMOS sensors (Note 2) Digital imaging compression chips (Note 2) Others (Notes 1, 2) ODM and OBM video and imaging products (Note 3) Notes: 1. The other imaging electronic components include, among other things, thin film transistor, lens and packaging materials. 2. The average selling price of our imaging electronic components for the Track Record Period is set out above for illustrative purpose. It is calculated based on the total revenue of imaging electronic components with a variety mix of imaging electronic components subsets divided by the total sales volume. 3. The average selling price of our ODM and OBM video and imaging products for the Track Record Period is set out above for illustrative purpose. It is calculated based on the total revenue of ODM and OBM video and imaging products with a variety mix of products divided by the total sales volume. Imaging electronic components During each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, sales of imaging electronic components segment remained the largest contributor to our revenue and accounted for approximately 85.8%, 69.3%, 75.0%, 75.0% and 69.7% of our revenue, respectively. For our business segment of selling imaging electronic components, we primarily sell IC chips, CMOS sensors, digital imaging compression chips and other electronic components for imaging electronic products. Our revenue from selling imaging electronic components decreased by approximately HK$37.0 million or 14.2% from approximately HK$260.0 million for the year ended 31 March 2013 to approximately HK$223.0 million for the year ended 31 March Our revenue from selling imaging electronic components increased by approximately HK$29.0 million or 13.0% from approximately HK$223.0 million for the year ended 31 March 2014 to approximately HK$252.0 million for the year ended 31 March Our revenue from selling imaging electronic components increased by approximately HK$29.4 million or 22.0% from approximately HK$133.6 million for the six months ended 30 September 2014 to approximately HK$163.0 million for the six months ended 30 September

233 FINANCIAL INFORMATION IC chips The sales of IC chips remained relatively stable of approximately HK$124.2 million and HK$122.6 million for each of the two years ended 31 March 2013 and 2014, respectively. The quantity of IC chips sold also remained relatively stable for the two years ended 31 March 2013 and The increase in sales of IC chips to Company H for the year ended 31 March 2014 mainly resulted from the increase in quantity sold due to introduction of additional IC chips models as compared to the corresponding financial year in 2013, partially offset by the decrease in sales of IC chips during the year ended 31 March 2014 to some of our ten largest customers for the year ended 31 March 2013 mainly resulted from the then strategy of our Group to diversify our customer base in sales of IC chips. Our Group recorded an increase in sales of IC chips by approximately HK$31.2 million or 25.4% from approximately HK$122.6 million for the year ended 31 March 2014 to approximately HK$153.8 million for the year ended 31 March 2015, primarily attributable to the increase in the total quantity of IC chips sold to our customers in spite of a decrease of approximately 8.6% in the overall average selling price of IC chips, in particular, the increase in sales of IC chips to Company H for the year ended 31 March 2015 mainly resulted from the increase in quantity of IC chips sold due to introduction of additional IC chips models as compared to the corresponding period in 2014, partially offset by the decrease in sales of IC chips to Kenxen during the year ended 31 March 2015 mainly resulted from less quantity sold to the said customer as, to the best of our Directors knowledge, information and belief, Kenxen decided to source the IC chips directly from other suppliers to save the overdue interests charged to Kenxen in relation to our overdue receivables. Our Group recorded a decrease in sales of IC chips by approximately HK$4.5 million or 5.7% from approximately HK$79.3 million for the six months ended 30 September 2014 to approximately HK$74.8 million for the six months ended 30 September 2015, primarily attributable to the decrease of approximately HK$7.2 million in sales of IC chips to Company H with slight decrease in quantity and average selling price of IC chips sold to Company H. The overall average selling price of IC chips remained stable for the six months ended 30 September 2015 as compared to the year ended 31 March CMOS sensors Our Group recorded a decrease in sales of CMOS sensors by approximately HK$23.8 million or 23.4% from approximately HK$101.8 million for the year ended 31 March 2013 to approximately HK$78.0 million for the year ended 31 March 2014, primarily attributable to (i) the decrease in sales of CMOS sensors of approximately HK$9.8 million to Company I due to Company I purchased CMOS sensors together with digital imaging compression chips, the sale of which decreased during the year ended 31 March 2014 for the reason set out in Description and analysis of principal items in the combined statements of profit or loss and other comprehensive income Revenue Digital imaging compression chips ; (ii) the decrease in sales of CMOS sensors of approximately HK$5.7 million to a customer incorporated in Hong Kong for the year ended 31 March 2014 mainly resulted from the decrease in quantity sold; and (iii) the decreases in sales of CMOS sensors of approximately HK$3.6 million and quantity sold to one of our ten largest customers during the year ended 31 March

234 FINANCIAL INFORMATION Our Group recorded an increase in sales of CMOS sensors by approximately HK$16.0 million or 20.5% from approximately HK$78.0 million for the year ended 31 March 2014 to approximately HK$94.0 million for the year ended 31 March 2015, primarily attributable to the expansion of new customer base for CMOS sensors, such as Company N, a new customer being one of our Group s five largest customers for the year ended 31 March 2015 as well as increase in quantity sold for the year ended 31 March 2015 as compared to the corresponding period in Our Group recorded an increase in sales of CMOS sensors by approximately HK$33.0 million or 64.8% from approximately HK$50.9 million for the six months ended 30 September 2014 to approximately HK$83.9 million for the six months ended 30 September 2015, primarily attributable to sales of a specific model of CMOS sensors ( Specific CMOS Sales ) including sales generated from customers in the field of police camera and IP camera in relation to the Specific CMOS Sales resulted from the provision of design and engineering solutions and technical support by the research and development department of the Group. The overall average selling price of CMOS sensors steadily increased during the Track Record Period. Digital imaging compression chips During the year ended 31 March 2013, we mainly sourced digital imaging compression chips from Company B, our supplier since In September 2013, Company B and ASD Technology mutually agreed to terminate the distribution agreement for sourcing the digital imaging compression chips and we subsequently signed a distribution agreement with a new supplier, Company T, for the supply of, among other things, digital imaging compression chips in November See Business Suppliers for details of sourcing arrangement with Company B and Company T. Accordingly, our Group experienced the decrease in sales of digital imaging compression chips during the transitional period of (i) the change of major supplier of digital imaging compression chips; (ii) the development of our new platform for the supply of digital imaging compression chips sourced from Company T; and (iii) the shift of customers who mainly utilise the applicable imaging electronic components sourced from Company B to those who mainly utilise the applicable imaging electronic components sourced from Company T. As a result of the development of our new platform for the supply of the digital imaging compression chips sourced from Company B which were sold at discounted price, our Group recorded a decrease in average selling price of digital imaging compression chips for the year ended 31 March Our Group recorded a decrease in sales of digital imaging compression chips by approximately HK$10.6 million or 35.3% from approximately HK$30.0 million for the year ended 31 March 2013 to approximately HK$19.4 million for the year ended 31 March 2014, primarily attributable to the decrease in sales of digital imaging compression chip to Company I, which purchased digital imaging compression chip sourced from Company B, by approximately HK$8.8 million for the year ended 31 March 2014 as compared to the corresponding period in Our Group recorded a decrease in sales of digital imaging compression chips by approximately HK$17.2 million or 88.7% from approximately HK$19.4 million for the year ended 31 March 2014 to approximately HK$2.2 million for the year ended 31 March The decrease in sales of digital imaging compression chips was primarily due to the shift of focus from developing our platform for the supply of applicable imaging electronic components sourced from Company B to that of Company T. Our Group recorded commission income 228

235 FINANCIAL INFORMATION received from Company T in relation to sales of imaging electronic components instead of revenue. See Business Suppliers Rebate and sales commission for further details of the commission income received from Company T. Our Group recorded a decrease in sales of digital imaging compression chips by approximately HK$1.0 million or 52.6% from approximately HK$1.9 million for the six months ended 30 September 2014 to approximately HK$0.9 million for the six months ended 30 September The decrease in sales of digital imaging compression chips was primarily due to the shift of focus from the demand of digital imaging compression chips sourced from Company B to Company T, which we recorded commission income instead of revenue in relation to such sales. Our Group recorded a decrease in average selling price of digital imaging compression chips for the six months ended 30 September 2015 as compared to the year ended 31 March ODM and OBM video and imaging products For each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, approximately 14.2%, 30.7%, 25.0%, 25.0% and 30.3% of our revenue, respectively, was generated from the business segment of selling ODM and OBM video and imaging products. Our revenue from selling ODM and OBM video and imaging products increased by approximately HK$55.6 million or 128.7% from approximately HK$43.2 million for the year ended 31 March 2013 to approximately HK$98.8 million for the year ended 31 March Our revenue from selling ODM and OBM video and imaging products decreased by approximately HK$14.8 million or 15.0% from approximately HK$98.8 million for the year ended 31 March 2014 to approximately HK$84.0 million for the year ended 31 March Except for the lower average selling price for the year ended 31 March 2014 mainly resulted from change in the product mix of ODM scanner mouse, the overall average selling price of ODM and OBM video and imaging products remained stable during the three years ended 31 March Our Group recorded an increase in average selling price of ODM and OBM video and imaging products for the six months ended 30 September 2015 as compared to the year ended 31 March Our revenue from selling ODM and OBM video and imaging products increased by approximately HK$26.2 million or 58.7% from approximately HK$44.6 million for the six months ended 30 September 2014 to approximately HK$70.8 million for the six months ended 30 September ODM video and imaging products Hunting camera Our sales of hunting camera increased by approximately HK$22.5 million or 368.9% from approximately HK$6.1 million for the year ended 31 March 2013 to approximately HK$28.6 million for the year ended 31 March 2014, was attributable to the increase of approximately HK$22.5 million in sales of hunting cameras to Company K for the year ended 31 March 2014 mainly resulted from the increase in quantity sold to Company K during the year ended 31 March 2014 as compared to the corresponding financial year in 2013 after first commencing business with our Group in

236 FINANCIAL INFORMATION The sales of hunting cameras increased by approximately HK$25.9 million or 90.6% from approximately HK$28.6 million for the year ended 31 March 2014 to approximately HK$54.5 million for the year ended 31 March 2015 mainly resulted from the increase in quantity sold to Company K during the year ended 31 March 2015 as Company K continued to expand its sales in the North America. The sales of hunting cameras increased by approximately HK$37.5 million or 123.8% from approximately HK$30.3 million for the six months ended 30 September 2014 to approximately HK$67.8 million for the six months ended 30 September 2015 mainly resulted from the increase in the quantity and average selling price of hunting cameras sold to Company K during the six months ended 30 September Scanner mouse The sales of ODM scanner mouse increased by approximately HK$40.2 million or 161.4% from approximately HK$24.9 million for the year ended 31 March 2013 to approximately HK$65.1 million for the year ended 31 March 2014, was attributable to the increase of approximately HK$28.4 million and HK$10.4 million in sales of ODM scanner mouse to Company L and Company M, which aimed at the U.S. and Japan markets, respectively, mainly resulted from the increase in quantity sold of ODM scanner mouse since each of these companies raised promotional program focusing the U.S. and Japan markets, respectively, during the year ended 31 March The sales of ODM scanner mouse decreased by approximately HK$48.5 million or 74.5% from approximately HK$65.1 million for the year ended 31 March 2014 to approximately HK$16.6 million for the year ended 31 March The decrease was primarily attributable to the decrease of approximately HK$11.2 million in sales of ODM scanner mouse to Company M and the absence of sales of ODM scanner mouse to Company L during the year ended 31 March 2015, mainly resulted from the drop in quantity sold after both companies have stocked up the ODM scanner mouse during the prior period in The sales of ODM scanner mouse decreased by approximately HK$11.6 million or 95.1% from approximately HK$12.2 million for the six months ended 30 September 2014 to approximately HK$0.6 million for the six months ended 30 September The decrease was primarily attributable to the absence of sales of ODM scanner mouse of approximately HK$9.0 million to Company O and Company M for the six months ended 30 September Bicycle camera Our Group launched a new product line for bicycle camera during the year ended 31 March The bicycle camera was mainly sold to a customer in Australia. For details, see Business Our major imaging electronic components and ODM and OBM video and imaging products ODM video and imaging products. 230

237 FINANCIAL INFORMATION OBM video and imaging products Scanner Mouse We did not record any revenue for our OBM scanner mouse for the year ended 31 March During the two years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, approximately 0.3%, 1.4%, 1.2% and 1.0% of our revenue was generated from the business segment of selling OBM video and imaging product, which represented the sales of our D+Oi brand wired scanner mouse. We recorded approximately HK$1.0 million and HK$4.6 million, HK$2.1 million and HK$2.3 million in sales of scanner mouse for the two years ended 31 March 2015, and the six months ended 30 September 2014 and 2015, respectively. The increase of approximately HK$3.6 million in sales of OBM scanner mouse for the year ended 31 March 2015 and the increase of approximately HK$0.2 million in sales of OBM scanner mouse for the six months ended 30 September 2015 as compared to the year ended 31 March 2014 and the six months ended 30 September 2014, respectively, were mainly attributable to the increase in the number of distributors, which covered Hong Kong, South East Asia regions and Australia and internet sale to ultimate consumers. Geographical breakdown of our revenue The table below sets forth a breakdown of our revenue as derived from our sale of imaging electronic components and ODM and OBM video and imaging products by geographical location of shipment destination (Note 1) and as a percentage of our revenue during the Track Record Period: Six months ended Year ended 31 March 30 September HK$ 000 % HK$ 000 % HK$ 000 % HK$ 000 % HK$ 000 % Hong Kong 147, , , , , PRC 44, , , , , U.S. 73, , , , , Europe (Note 2) 18, , , , , Other countries (Note 3) 19, , , , , Total 303, , , , , Notes: 1. The geographic breakdown was prepared based on shipment destination without taking into account the re-export or onward sales (if any) of our imaging electronic components and ODM and OBM video and imaging products by our customers. 2. Europe includes but is not limited to Belgium and Germany. 3. Others include but are not limited to Japan, Australia, Malaysia and Singapore. 231

238 FINANCIAL INFORMATION During each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, our revenue was largely contributed from Hong Kong, whose value accounted for approximately 48.6%, 32.8%, 31.3%, 30.1% and 39.4% of our revenue, respectively. During the Track Record Period, management strived to expand into the overseas markets in the U.S. and Europe. The percentage of sales made and delivered to overseas markets in the U.S. and Europe accounted for our revenue increased from approximately 24.1% and 6.0% for the year ended 31 March 2013 to approximately 36.2% and 11.9% for the year ended 31 March 2014 and further increased to approximately 39.3% and 15.2% for the year ended 31 March 2015, respectively. The percentage of sales made and delivered to the U.S. increased from approximately 39.1% for the six months ended 30 September 2014 to approximately 43.2% for the six months ended 30 September The percentage of sales made and delivered to Europe decreased from approximately 16.8% for the six months ended 30 September 2014 to approximately 8.8% for the six months ended 30 September The goods delivered to Hong Kong/PRC decreased by approximately HK$62.0 million or 32.3% from approximately HK$192.1 million for the year ended 31 March 2013 to approximately HK$130.1 million for the year ended 31 March 2014, primarily attributable to (i) the decreasing scale of the sales under the Arrangement; and (ii) the decrease in the sales of electronic components delivered to Company I in Hong Kong and another company located in the PRC, which mainly purchased digital imaging compression chip sourced from Company B. The goods delivered to Hong Kong/PRC further decreased by approximately HK$18.1 million or 13.9% from approximately HK$130.1 million for the year ended 31 March 2014 to approximately HK$112.0 million for the year ended 31 March 2015, primarily attributable to the (i) decreasing scale of the sales under the Arrangement and the cessation of the Arrangement since February 2015; and (ii) decrease in sales of electronic components of approximately HK$21.8 million delivered to Company F and Kenxen mainly resulted from the decrease in quantity sold, while the revenue derived from Hong Kong remained stable. During the Track Record Period, the goods delivered to the PRC experienced a declining trend. The goods delivered to Hong Kong/PRC increased by approximately HK$35.7 million or 61.6% from approximately HK$58.0 million for the six months ended 30 September 2014 to approximately HK$93.7 million for the six months ended 30 September 2015, primarily attributable to the increase of approximately HK$28.6 million in sales of imaging electronic components to Company N mainly resulted from the increase in quantity and average selling price of imaging electronic components sold. The goods delivered to the U.S. increased by approximately HK$43.3 million or 59.2% from approximately HK$73.2 million for the year ended 31 March 2013 to approximately HK$116.5 million for the year ended 31 March 2014, primarily attributable to (i) the increase of approximately HK$28.4 million in the sales of scanner mouse delivered to the U.S. to Company L; and (ii) the increase of approximately HK$12.1 million in sales of imaging electronic components delivered to the U.S. to Company H. The goods delivered to the U.S. increased by approximately HK$15.6 million or 13.4% from approximately HK$116.5 million for the year ended 31 March 2014 to approximately HK$132.1 million for the year ended 31 March 2015, primarily attributable to (i) the increase of approximately HK$25.8 million in sales of hunting cameras delivered to the U.S. to Company K mainly resulted from the increase 232

239 FINANCIAL INFORMATION in sales quantity during the year ended 31 March 2015 as compared to the corresponding period in 2014; and (ii) the increase of approximately HK$21.5 million in sales of electronic components delivered to the U.S. to Company H mainly resulted from the increase in quantity sold during the year ended 31 March 2015 as compared to the corresponding period in 2014, which partially offset by the decrease in sales of scanner mouse of approximately HK$28.4 million to Company L during the year ended 31 March The goods delivered to the U.S. increased by approximately HK$31.2 million or 44.8% from approximately HK$69.7 million for the six months ended 30 September 2014 to approximately HK$100.9 million for the six months ended 30 September 2015, primarily attributable to the net effect of (i) the increase of approximately HK$37.5 million in sales of hunting cameras delivered to the U.S. to Company K mainly resulted from the increase in quantity and average selling price of hunting cameras sold during the six months ended 30 September 2015; and (ii) the decrease of approximately HK$8.0 million in sales of imaging electronic components delivered to the U.S. to Company H mainly resulted from the decrease in average selling price of imaging electronic components sold during the six months ended 30 September The goods delivered to Europe increased by approximately HK$20.0 million or 109.9% from approximately HK$18.2 million for the year ended 31 March 2013 to approximately HK$38.2 million for the year ended 31 March 2014, primarily attributable to (i) the increase of approximately HK$8.5 million in sales of electronic components delivered to Europe to Company H; (ii) the increase of approximately HK$5.3 million in sales of scanner mouse delivered to Europe to Company O; and (iii) the increase of approximately HK$4.7 million in sales of scanner mouse delivered to Europe to a company located in Switzerland. The sales made to Europe increased by approximately HK$12.8 million or 33.5% from approximately HK$38.2 million for the year ended 31 March 2014 to approximately HK$51.0 million for the year ended 31 March 2015, primarily attributable to the net effect of (i) the increase of approximately HK$18.3 million in sales of imaging electronic components delivered to Europe to Company H mainly resulted from the increase in quantity sold during the year ended 31 March 2015 as compared to the corresponding period in 2014; and (ii) the decrease of approximately HK$4.7 million in sales of scanner mouse delivered to Europe to a company located in Switzerland during the year ended 31 March 2014 and subsequently no sales order was received from this company during the year ended 31 March The goods delivered to Europe decreased by approximately HK$9.4 million or 31.4% from approximately HK$29.9 million for the six months ended 30 September 2014 to approximately HK$20.5 million for the six months ended 30 September 2015, primarily attributable to (i) the absence of approximately HK$6.2 million in sales of ODM scanner mouse delivered to Europe to Company O; and (ii) the decrease of approximately HK$2.8 million in sales of imaging electronic components delivered to the Europe to Company H mainly resulted from the decrease in quantity of imaging electronic components sold during the six months ended 30 September 2015 despite an increase in average selling price of imaging electronic components sold. The goods delivered to the U.S. and Europe by our Group increased by approximately 59.2% and 109.9%, respectively, for the year ended 31 March The goods delivered to the U.S. and Europe by our Group further increased by approximately 13.4% and 33.5%, respectively, for the year ended 31 March As a result, the goods delivered to the U.S. and 233

240 FINANCIAL INFORMATION Europe by our Group increased at a CAGR of approximately 34.3% and 67.4%, respectively, during the three years ended 31 March The goods delivered to the U.S. by our Group increased by approximately 44.7% for the six months ended 30 September 2015 as compared to that for the six months ended 30 September According to the Ipsos Report, the total sales value of video and imaging IC products or components or parts in the U.S. and Europe markets increased at a CAGR of approximately 15.2% and 13.7%, respectively, between 2009 and Despite a slower projected CAGR of approximately 4.5% and 4.6% in total sales value of video and imaging IC products or components or parts in the U.S. and Europe markets between 2015 and 2018, given that (i) the CAGR of the goods delivered to the U.S. and Europe markets by our Group during the three years ended 31 March 2015 outperformed the CAGR of the total sales value of video and imaging IC products or components or parts in the U.S. and Europe markets between 2009 and 2014; and (ii) our Group continued to strive expanding into the overseas markets in the U.S. and Europe, our Directors are of the view that there will not be any material adverse change in the financial and trading position or prospects of our Group. The sales made to other geographical locations increased by approximately HK$17.4 million or 88.8% from approximately HK$19.6 million for the year ended 31 March 2013 to approximately HK$37.0 million for the year ended 31 March 2014, primarily attributable to (i) the increase of approximately HK$10.4 million in sales of scanner mouse delivered to Japan to Company M mainly resulted from the increase in quantity sold during the year ended 31 March 2014 as compared to the corresponding period in 2013; and (ii) the increase of approximately HK$4.1 million in sales of imaging electronic components in Singapore to Company H mainly resulted from the increase in quantity sold during the year ended 31 March 2014 as compared to the corresponding period in The sales made to other geographical locations increased by approximately HK$3.9 million or 10.5% from approximately HK$37.0 million for the year ended 31 March 2014 to approximately HK$40.9 million for the year ended 31 March 2015, primarily attributable to (i) the increase of approximately HK$8.9 million in sales of imaging electronic components delivered to Singapore to Company H mainly resulted from the increase in quantity sold during the year ended 31 March 2015 as compared to the corresponding period in 2014; and (ii) the increase of approximately HK$7.0 million in sales of bicycle camera to a customer in Australia, which partially offset by the decrease of approximately HK$11.2 million in sales of scanner mouse in Japan to Company M mainly resulted from the decrease in quantity sold during the year ended 31 March 2015 as compared to the corresponding period in The goods delivered to other geographical locations decreased by approximately HK$2.0 million or 9.7% from approximately HK$20.6 million for the six months ended 30 September 2014 to approximately HK$18.6 million for the six months ended 30 September 2015, primarily attributable to the absence of approximately HK$2.8 million in sales of ODM scanner mouse delivered to Japan to Company M. 234

241 FINANCIAL INFORMATION Cost of sales The following table sets out the breakdown of our Group s cost of sales for the Track Record Period: Year ended 31 March Six months ended 30 September HK$ 000 % HK$ 000 % HK$ 000 % HK$ 000 % HK$ 000 % Cost of inventories 266, , , , , Others 10, , , , , Total 277, , , , , During the Track Record Period, the main factor affecting our total cost of sales was cost of inventories, which contributed over 96.0% of the total cost of sales of our Group. The cost of inventories mainly comprises (i) the purchase costs for imaging electronic components and ODM and OBM video and imaging products and (ii) quantity-based royalties fees paid to a Swiss software company, which authorise us to utilise their unique content capturing technology based on real-time image processing, proprietary hardware design database and software solely for use in the manufacture of scanner mouses and to market and sell those same scanner mouses to our customers or the licensor s customers. The cost of inventories amounted to approximately HK$266.6 million, HK$271.1 million, HK$291.5 million, HK$155.3 million and HK$203.5 million for each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, respectively, representing approximately 87.9%, 84.2%, 86.7%, 87.1% and 87.0% of total revenue for each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, respectively. Other costs related to cost of sales mainly consisted of development cost, tooling and moulding charges, subcontracting charges, testing fees, mock up expenses, handling and commission fees. The gradual decrease in the other costs of sales of our Group was mainly attributable to (i) the overall decrease in product development cost in relation to the sales of ODM and OBM products; and (ii) the decrease in handling and commission fees in relation to the sales of imaging electronic components. 235

242 FINANCIAL INFORMATION Gross profit and gross profit margin For each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, our Group s gross profit amounted to approximately HK$26.0 million, HK$43.9 million, HK$41.7 million, HK$21.0 million and HK$29.1 million, respectively, and our gross profit margin amounted to approximately 8.6%, 13.6%, 12.4% 11.8% and 12.4%, respectively. The following table sets forth the breakdown of gross profit and gross profit margin of each of our business segments for the Track Record Period: Year ended 31 March Six months ended 30 September Gross profit/ (gross loss) Gross Profit margin Gross profit Gross Profit margin Gross profit Gross Profit margin Gross profit Gross Profit margin Gross profit Gross Profit margin HK$ million % HK$ million % HK$ million % HK$ million % HK$ million % Sales of imaging electronic components IC chips CMOS sensors Digital imaging compression chips (0.6) (2.1) Others (Note 1) Subtotal ODM video and imaging products Hunting camera Scanner mouse Bicycle camera OBM video and imaging products Scanner mouse ODM and OBM video and imaging products Others (Note 2) Subtotal Total Notes: 1. The other imaging electronic components include, among other things, thin film transistor, lens and packaging materials. 2. The other ODM and OBM video and imaging products include door phone, car digital video recorder, gun camera and bluetooth tracker. We ceased the sales of door phone, car digital video recorder and gun camera in or around November 2014, January 2013 and May 2012, respectively. The gross loss for each of the six months ended 30 September 2014 and 2015 was less than HK$0.1 million and therefore the gross profit margin for each of the six months ended 30 September 2014 and 2015 was not applicable. 236

243 FINANCIAL INFORMATION The increase in the overall gross profit margin to approximately 13.6% for the year ended 31 March 2014 from approximately 8.6% for the year ended 31 March 2013 was primarily attributable to (i) a change in product mix with increased portion of sales of ODM and OBM video and imaging products segment; and (ii) the sales of certain imaging electronic components which were considered obsolete and slow-moving being written off in prior financial period. Our sales of ODM and OBM video and imaging products segment generally has a higher gross profit margin than sales of imaging electronic components segment, as evident by the gross profit margin of ODM and OBM video and imaging product segment of approximately 16.4%, 17.0% and 19.0% for each of the three years ended 31 March 2015, respectively, as compared to the gross profit margin of sales of imaging electronic components segment of approximately 7.3%, 12.2% and 10.2% for the same corresponding period, due to the value-added services tailor-made to our ODM customers needs which include, but not limited to, design ODM products subcontracting procedures, quality control and logistics. In contrast, the sales of imaging electronic components generally involve less time cost and minimal design solution except for the design and engineering solutions provided to selective customers. The decrease in the overall gross profit margin from approximately 13.6% for the year ended 31 March 2014 to approximately 12.4% for the year ended 31 March 2015 was mainly attributable to (i) the decrease in gross profit margin of sales of CMOS sensors from approximately 7.8% for the year ended 31 March 2014 to approximately 5.7% for the year ended 31 March 2015 mainly resulted from the competitive price provided for bulk purchases from Company N, a new customer, being one of our Group s five largest customers for the year ended 31 March 2015; (ii) the decrease in sales of digital imaging compression chips and its contribution to the gross profit margin; and (iii) the decrease of approximately HK$7.8 million in gross profit of ODM scanner mouse with a relatively high gross profit margin of approximately 20.8% during the year ended 31 March The increase in the overall gross profit margin from approximately 11.8% for the six months ended 30 September 2014 to approximately 12.4% for the six months ended 30 September 2015 was primarily attributable to (i) the increase of approximately HK$7.4 million in gross profit from sales of hunting cameras mainly resulted from the increase in quantity and average selling price of hunting cameras sold to Company K and the increase of approximately 2.0% in gross profit margin of hunting cameras from approximately 16.2% for the six months ended 30 September 2014 to approximately 18.2% for the six months ended 30 September 2015; and (ii) the increase of approximately HK$3.9 million in gross profit from sales of CMOS sensors resulted from increase in quantity sold and average selling price. The gross profit margin of CMOS sensors increased to approximately 7.9% for the six months ended 30 September 2015 from approximately 5.6% for the six months ended 30 September The increase in gross profit from the sales of imaging electronic components segment by approximately HK$8.2 million or 43.4% from approximately HK$18.9 million for the year ended 31 March 2013 to approximately HK$27.1 million for the year ended 31 March 2014 was mainly attributable to the increase in gross profit generated from the increase of approximately HK$24.7 million in sales of imaging electronic components to Company H which we enjoy higher margin because of bulk purchases from our suppliers for the imaging electronic components. The decrease in gross profit from this segment by approximately HK$1.4 million or 5.2% from HK$27.1 million for the year ended 31 March 2014 to approximately HK$25.7 million for the year ended 31 March 2015 was mainly attributable to the net effect of (i) the increase in gross profit generated from the increase of approximately HK$48.7 million in sales of IC chips to Company H; and (ii) the decrease in gross profit generated from the decrease of approximately HK$17.2 million in sales of digital imaging compression chips, mainly resulted from the shift of focus from developing our platform for the supply of applicable imaging 237

244 FINANCIAL INFORMATION electronic components sourced from Company B to that of Company T. The increase in gross profit from the sales of imaging electronic components segment by approximately HK$2.2 million or 16.2% from approximately HK$13.6 million for the six months ended 30 September 2014 to approximately HK$15.8 million for the six months ended 30 September 2015 was mainly attributable to the increase of approximately HK$3.9 million in gross profit from sales of CMOS sensors mainly resulted from the Specific CMOS Sales. The gross profit margin remained stable at approximately 9.7% for the six months ended 30 September The gross profit from the sales of IC chips increased from approximately HK$11.2 million for the year ended 31 March 2013 to approximately HK$13.4 million for the year ended 31 March 2014 and the gross profit margin increased from approximately 9.0% for the year ended 31 March 2013 to approximately 10.9% for the year ended 31 March 2014 mainly attributable to the increase in number of suppliers we sourced from and hence, we obtained more favourable price for our purchases of the IC chips for the said period. The gross profit from the sales of IC chips increased from approximately HK$13.4 million for the year ended 31 March 2014 to approximately HK$18.3 million for the year ended 31 March 2015 and the gross profit margin increased from approximately 10.9% for the year ended 31 March 2014 to approximately 11.9% for the year ended 31 March 2015 mainly attributable to the increase in quantity sold and the increase in number of suppliers we sourced from and hence, we obtained more favourable price for our purchases of the IC chips for the said period. The slight decrease in gross profit from the sales of IC chips by approximately HK$0.4 million or 4.5% from approximately HK$8.8 million for the six months ended 30 September 2014 to approximately HK$8.4 million for the six months ended 30 September 2015 was mainly attributable to the slight decrease in average selling price of IC chips sold to Company H during the six months ended 30 September The gross profit margin from sales of IC chips remained stable at approximately 11.1% and 11.2% for the six months ended 30 September 2014 and 2015, respectively. The gross profit from the sales of CMOS sensors for the three years ended 31 March 2015 amounted to approximately HK$7.9 million, HK$6.1 million and HK$5.3 million, respectively, save for the decrease in sales during the year ended 31 March 2014 as set out in Description and analysis of principal items in the combined statements of profit or loss and other comprehensive income Revenue CMOS sensors. The gross profit margin from the sales of CMOS sensors for the three years ended 31 March 2015 were approximately 7.8%, 7.8% and 5.7%, respectively. The decrease in gross profit margin of approximately 7.8% for the year ended 31 March 2014 to approximately 5.7% for the year ended 31 March 2015 and the decrease in gross profit of approximately HK$6.1 million for the year ended 31 March 2014 to approximately HK$5.3 million for the year ended 31 March 2015 were mainly attributable to the competitive price provided for bulk purchases from Company N, a new customer, being one of our Group s five largest customers for the year ended 31 March The increase in gross profit from the sales of CMOS sensors by approximately HK$3.9 million or 139.3% from approximately HK$2.8 million for the six months ended 30 September 2014 to approximately HK$6.7 million for the six months ended 30 September 2015 was mainly attributable to the increase in quantity and average selling price of CMOS sensors sold to Company N during the six months ended 30 September The gross profit margin increased from 5.6% for the six months ended 30 September 2014 to 7.9% for the six months ended 30 September 2015, primarily attributable to the increase in average selling price of CMOS sensors. 238

245 FINANCIAL INFORMATION Our Group recorded gross loss from the sales of digital imaging compression chips of approximately HK$0.6 million for the year ended 31 March 2013 and improved to gross profit of approximately HK$7.0 million for the year ended 31 March 2014 mainly attributable to the provision made on certain obsolete and slow-moving inventories of digital imaging compression chips, based on market conditions and management judgement, prior to and for the year ended 31 March 2013, which were subsequently sold during the two years ended 31 March The gross profit from the sales of digital imaging compression chips decreased from approximately HK$7.0 million for the year ended 31 March 2014 to approximately HK$1.6 million for the year ended 31 March 2015 and further decreased to approximately HK$0.1 million for the six months ended 30 September 2015, mainly attributable to the shift of focus from developing our platform for the supply of applicable imaging electronic components sourced from Company B to that of Company T. The gross profit margin was approximately -2.1%, 36.2% and 74.1% for each of the three years ended 31 March 2015, respectively. The fluctuation of the gross profit margin during the Track Record Period was mainly due to the reasons set out in Description and analysis of principal items in the combined statements of profit or loss and other comprehensive income Revenue Digital imaging compression chips regarding the termination of the distribution agreement with Company B and the above reason regarding the provision made for the year ended 31 March The decrease in gross profit margin of digital imaging compression chips from 57.6% for the six months ended 30 September 2014 to 22.0% for the six months ended 30 September 2015 was mainly attributable to (i) the shift of focus from the demand of digital imaging compression chips sourced from Company B to Company T, which we recorded commission income instead of revenue in relation to such sales; and (ii) the decrease in average selling price of digital imaging compression chips. The increase in gross profit from sales of ODM and OBM products segment by approximately HK$9.7 million or 136.6% from approximately HK$7.1 million for the year ended 31 March 2013 to HK$16.8 million for the year ended 31 March 2014 was mainly attributable to the increase of approximately HK$28.4 million and HK$10.4 million in sales of scanner mouse to Company L and Company M, respectively. We are authorised under a licence agreement with a Swiss software company to utilise their unique content capturing technology based on real-time image processing, proprietary hardware reference design database and software solely for use in the development and manufacture of scanner mouses and to market and sell those same scanner mouses, subject to certain conditions. Therefore, we were able to enjoy a higher profit margin in the sales of ODM product (i.e. scanner mouse) than that of the imaging electronic components. Such increase is also backed by our research and development capability and engineering efforts to provide value-added services tailor-made to our customers requirements in relation to our sales of hunting cameras. The decrease in gross profit from this segment of approximately HK$0.8 million or 4.8% from approximately HK$16.8 million for the year ended 31 March 2014 to approximately HK$16.0 million for the year ended 31 March 2015 was mainly attributable to the net effect of (i) the decrease of approximately HK$28.4 million in sales of scanner mouse to Company L; and (ii) the increase of approximately HK$25.9 million in sales of hunting camera, mainly resulted from increase in quantity sold. The increase in gross profit from the sales of ODM and OBM products segment by approximately HK$5.9 million or 79.7% from approximately HK$7.4 million for 239

246 FINANCIAL INFORMATION the six months ended 30 September 2014 to approximately HK$13.3 million for the six months ended 30 September 2015 was mainly attributable to the increase of approximately HK$7.4 million in gross profit from sales of hunting cameras mainly resulted from the increase in quantity and average selling price of hunting cameras sold to Company K. The increase in gross profit margin of ODM and OBM products segment from 16.7% for the six months ended 30 September 2014 to 18.8% for the six months ended 30 September 2015 was mainly attributable to the increase of approximately 2.0% in the gross profit margin of hunting cameras from 16.2% for the six months ended 30 September 2014 to 18.2% for the six months ended 30 September 2015, mainly resulted from the increase in average selling price of hunting cameras sold to Company K. Our Group launched a new product line for bicycle cameras during the year ended 31 March The gross profit and gross profit margin from the sales of bicycle camera were approximately HK$1.6 million and 23.6% for the year ended 31 March 2015, respectively. The gross profit and gross profit margin from the sales of bicycle camera were approximately HK$0.1 million and 35.3% for the six months ended 30 September 2015, respectively. The gross profit from the sale of ODM hunting camera increased from approximately HK$1.2 million for the year ended 31 March 2013 to approximately HK$4.8 million for the year ended 31 March 2014 mainly attributable to the increase in quantity sold for the said period. The gross profit margin from the sale of ODM hunting camera decreased from approximately 20.1% for the year ended 31 March 2013 to approximately 16.9% for the year ended 31 March 2014 mainly attributable to the increase in subcontracting fee for the said period. The gross profit from the sale of ODM hunting camera increased from approximately HK$4.8 million for the year ended 31 March 2014 to approximately HK$9.3 million for the year ended 31 March 2015 mainly attributable to the increase in quantity sold for the said period. The gross profit margin from the sale of ODM hunting camera remained stable at approximately 16.9% for the year ended 31 March 2014 and approximately 17.1% for the year ended 31 March The increase in gross profit from the sales of ODM hunting camera by approximately HK$7.4 million or 151.0% from approximately HK$4.9 million for the six months ended 30 September 2014 to approximately HK$12.3 million for the six months ended 30 September 2015 was mainly attributable to the increase in quantity and average selling price of hunting cameras sold to Company K. The increase in gross profit margin of hunting cameras from 16.2% for the six months ended 30 September 2014 to 18.2% for the six months ended 30 September 2015 was mainly attributable to the increase in average selling price of hunting cameras sold to Company K during the six months ended 30 September The gross profit from the sale of ODM scanner mouse increased from approximately HK$4.6 million for the year ended 31 March 2013 to approximately HK$11.2 million for the year ended 31 March 2014 mainly attributable to the increase in quantity sold for the said period. The gross profit margin decreased from approximately 18.7% for the year ended 31 March 2013 to approximately 17.2% for the year ended 31 March 2014 mainly attributable to the decrease in average selling price for the said period as a result of reducing selling price of an existing model sold during the financial year ended 31 March 2014 as compared to the corresponding year in The gross profit from the sale of ODM scanner mouse decreased from approximately HK$11.2 million for the year ended 31 March 2014 to approximately 240

247 FINANCIAL INFORMATION HK$3.4 million for the year ended 31 March 2015 mainly attributable to the decrease in quantity sold for the said period. The gross profit margin increased from approximately 17.2% for the year ended 31 March 2014 to approximately 20.8% for the year ended 31 March 2015 mainly attributable to more favourable price for our purchases of IC chips, being one of the components used for ODM scanner mouse, for the said period. The decrease in gross profit from the sales of ODM scanner mouse by approximately HK$2.1 million or 95.5% from approximately HK$2.2 million for the six months ended 30 September 2014 to approximately HK$0.1 million for the six months ended 30 September 2015 was mainly attributable to the absence of sales of ODM scanner mouse of approximately HK$9.0 million to Company O and Company M. The increase in gross profit margin of ODM scanner mouse from 17.9% for the six months ended 30 September 2014 to 22.4% for the six months ended 30 September 2015 was mainly attributable to the decrease in average cost resulted from development cost incurred in prior period. Other revenue Our other revenue mainly consisted of rental income for investment properties, interest income, commission income (mainly comprising commission income received from Company T in relation to sales of imaging electronic components) and sundry income (mainly comprising income in relation to mock-up, tooling, design and setup, project income and testing income). Other revenue of our Group was approximately HK$5.0 million, HK$5.0 million, HK$6.9 million, HK$3.1 million and HK$2.7 million for each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, respectively. The other revenue remained relatively stable for the two years ended 31 March 2014 and the other revenue increased by approximately HK$1.9 million from approximately HK$5.0 million for the year ended 31 March 2014 to approximately HK$6.9 million for the year ended 31 March 2015, mainly attributable to the increase in commission income from Company T in relation to sales of imaging electronic components. The decrease in other revenue by approximately HK$0.4 million or 12.9% from approximately HK$3.1 million for the six months ended 30 September 2014 to approximately HK$2.7 million for the six months ended 30 September 2015 was mainly attributable to the net effect of (i) the increase of approximately HK$0.6 million in commission income mainly resulted from the increase in commission income from Company T in relation to sales of imaging electronic components; and (ii) the absence of approximately HK$0.5 million in service fee income charged to Kenxen and SLT HK for financial assistance provided by our Group during the six months ended 30 September See Business Suppliers Rebate and sales commission for further details of the commission income received from Company T. The following table sets forth the breakdown of our Group s other revenue for the Track Record Period: Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Rental income for investment properties 2,756 2,185 1, Interest income 623 1, Commission income 165 1, ,253 Sundry income 1,601 1,495 2,809 1, Total 4,980 4,971 6,865 3,081 2,

248 FINANCIAL INFORMATION Other net gain Our other net gain mainly consisted of net gain on sale of property, plant and equipment, net gain on sale of non-current assets classified as held for sale, changes in fair value of financial instruments, net handling income and net foreign exchange loss. Our other net gain amounted to approximately HK$8.8 million, HK$18.0 million, HK$3.8 million, HK$4.0 million and HK$5.7 million for each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, respectively. Our other net gain mainly comprised of net gain on sale of property, plant and equipment of approximately HK$8.1 million, HK$19.1 million, HK$3.6 million and HK$3.6 million, representing approximately 97.6%, 59.9%, 749.7% and 52.2% of our Group s net profit for each of the three years ended 31 March 2015 and the six months ended 30 September 2014, respectively. Our other net gain for the six months ended 30 September 2015 mainly comprised of net gain on sale of non-current assets classified as held for sale of approximately HK$7.2 million, representing approximately 61.4% of our Group s net profit for the six months ended 30 September Our Directors had a positive view in Hong Kong property market and acquired a number of investment properties from time to time with excess cash after due and careful consideration on our Group s working capital sufficiency level for asset appreciation and rental income prior to the Track Record Period. With the successful launching of our ODM products, namely, scanner mouse and hunting camera, in September 2012 and February 2013, respectively, and the booming price in the property market in Hong Kong, our Group began to actively dispose its investment properties to realise gain in investment and improve working capital of our Group to support further expansion of our research and development department and the research and development on video and imaging products. The following table sets forth the breakdown of our Group s other net gain for the Track Record Period: Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Net gain on sale of property, plant and equipment 8,061 19,113 3,636 3,636 Net gain on sale of non-current assets classified as held for sale 7,234 Changes in fair value of financial instruments (1,636) (1,529) Handling income, net Net foreign exchange loss (202) (55) (711) (214) (14) Total 8,775 17,962 3,779 3,964 5,

249 FINANCIAL INFORMATION Selling and administrative expenses Our selling and administrative expenses mainly consisted of staff costs, depreciation expenses, rental expenses (mainly comprising rent and rates paid for our offices, rate paid for staff quarter and investment properties), service fee expenses, transportation costs, advertising expenses, and other selling and administrative expenses (mainly comprising entertainment expenses and travelling expenses). Our Group recorded selling and administrative expenses of approximately HK$26.3 million, HK$28.7 million, HK$34.6 million, HK$16.1 million and HK$16.8 million for each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, respectively, representing approximately 8.7%, 8.9%, 10.3%, 9.0% and 7.2% of our Group s total revenue for each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, respectively. The following table sets forth the breakdown of selling and administrative expenses of our Group during the Track Record Period: Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Staff costs 15,205 16,494 20,670 9,190 11,785 Depreciation 4,255 4,203 2,696 1, Rental expenses 959 1,043 1, Service fee expenses 2,466 3,244 2,046 Transportation costs Advertising expenses Others 5,327 3,659 5,147 2,051 3,002 Total 26,329 28,710 34,566 16,065 16,776 The major components of selling and administrative expenses were staff costs and depreciation expenses, which in total was approximately HK$19.5 million, HK$20.7 million, HK$23.4 million, HK$10.7 million and HK$12.3 million, or approximately 73.9%, 72.1%, 67.6%, 66.8% and 73.0% of our total selling and administrative expenses for each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, respectively. The staff costs mainly represented salaries, directors emoluments, bonus and retirement scheme contributions, which amounted to approximately HK$15.2 million, HK$16.5 million, HK$20.7 million, HK$9.2 million and HK$11.8 million, representing approximately 5.0%, 5.1%, 6.2%, 5.2% and 5.0% of our revenue for each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, respectively. The increase in staff costs by approximately HK$1.3 million or 8.6% for the year ended 31 March 2014 was primarily due to salary increment for talents retention. The increase in staff costs by approximately HK$4.2 million or 25.5% from approximately HK$16.5 million for the year ended 31 March 2014 to approximately HK$20.7 million for the year ended 31 March 2015 was primarily due to (i) the 243

250 FINANCIAL INFORMATION increase of headcount at our office in Hong Kong and the PRC to strengthen our research and development capability; and (ii) the increase in the maximum defined contribution implemented by the Mandatory Provident Fund Schemes Authority in June Approximately HK$8.2 million, HK$10.1 million, HK$11.4 million, HK$5.3 million and HK$6.6 million included in staff costs for the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015 were regarded as research and development expenses, which were the salaries of our research and development teams. The increase in staff costs by approximately HK$2.6 million or 28.3% from approximately HK$9.2 million for the six months ended 30 September 2014 to approximately HK$11.8 million for the six months ended 30 September 2015 was mainly attributable to the increase of headcount at our offices in both Hong Kong and the PRC. The depreciation expenses mainly represented depreciation charges for property, plant and equipment including, amongst others, investment properties, buildings held for own use, leasehold improvement, furniture and fixtures and office equipment of our Group. The depreciation expenses amounted to approximately HK$4.3 million, HK$4.2 million, HK$2.7 million, HK$1.5 million and HK$0.5 million for each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, respectively. The depreciation expenses remained relatively stable for the two years ended 31 March The depreciation expenses decreased by approximately HK$1.5 million or 35.7%, from approximately HK$4.2 million for the year ended 31 March 2014 to approximately HK$2.7 million for the year ended 31 March Such decrease was mainly due to the disposals of four residential properties and three carpark units during the two years ended 31 March The decrease in depreciation expense by approximately HK$1.0 million or 66.7% from approximately HK$1.5 million for the six months ended 30 September 2014 to approximately HK$0.5 million for the six months ended 30 September 2015 was mainly attributable to the disposals of one residential property during the year ended 31 March 2015 and one residential property and one carpark unit during the six months ended 30 September The service fee expenses mainly represented hardware research and development and technical support services provided by Shenzhen Yunxu, a related party of our Company, to our Group during the period from July 2013 to January As at the Latest Practicable Date, Shenzhen Yunxu was in the process of deregistration and all the staff of Shenzhen Yunxu had been employed by Aolang Electronics. Other operating expenses Our other operating expenses for the year ended 31 March 2015 represented the impairment loss on remeasurement of non-current assets held for sale of approximately HK$4.7 million for an office premises in the PRC our Group purchased during the year ended 31 March 2013, mainly attributable to our Group s intention to sell the office premises within twelve months from 31 March On 1 September 2015, Aolang Electronics (as vendor) and Wenxingjin Management (as purchaser) entered into a sale and purchase agreement in respect of the sale and purchase of the office premises for a consideration of RMB11.0 million (equivalent to approximately HK$13.4 million), which was lower than original purchase price. See Recent developments and no material adverse change for further details of the sale of our Group s office premises subsequent to the year ended 31 March

251 FINANCIAL INFORMATION Listing expenses Our Listing expenses primarily consist of legal and professional fees paid or payable to professional parties in relation to the Listing. For the year ended 31 March 2015 and the six months ended 30 September 2015, Listing expenses of approximately HK$9.9 million and HK$5.3 million were recognised, respectively. Finance costs Our finance costs mainly represent interest expenses on trust receipt loans, bills loans and mortgage loans. For the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, finance costs amounted to approximately HK$1.9 million, HK$2.0 million, HK$1.7 million, HK$0.7 million and HK$1.2 million, representing approximately 0.6%, 0.6%, 0.5%, 0.4% and 0.5% of our revenue, respectively. The increase of approximately HK$0.1 million or 5.3% for the year ended 31 March 2014 is mainly due to the net effect of (i) the increase of approximately HK$0.3 million in bank interest expenses in relation to trust receipt loans; and (ii) the decrease of approximately HK$0.2 million in other interest expense. The decrease of approximately HK$0.3 million or 15.0% for the year ended 31 March 2015 was mainly due to the net effect of (i) the decrease of approximately HK$0.3 million in mortgage loans interest expense mainly resulted from the disposals of four residential properties and three carpark units during the two years ended 31 March 2015; and (ii) the increase of approximately HK$0.1 million in interest expenses in relation to bills loans. The increase of approximately HK$0.5 million or 71.4% for the six months ended 30 September 2015 as compared with the six months ended 30 September 2014 was mainly attributable to the increase of approximately HK$0.3 million in bank interest expenses in relation to trust receipt loans. Income tax Income tax expense principally represents amount of current income tax paid or payable by us, at the applicable tax rates in accordance with the relevant laws and regulations in Hong Kong. The statutory income tax rate in Hong Kong was 16.5% for the Track Record Period. For each of the three years ended 31 March 2013, 2014, 2015 and the six months ended 30 September 2014 and 2015, our income tax expense amounted to approximately HK$3.3 million, HK$4.2 million, HK$1.0 million, HK$1.4 million and HK$2.3 million, representing approximately 1.1%, 1.3%, 0.3%, 0.8% and 1.0% of our revenue, respectively. During each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, our effective tax rates calculated based on the tax charged to our combined profit or loss over the profit before tax were approximately 28.5%, 11.7%, 67.8%, 17.1% and 16.3%, respectively. The higher effective tax rate for the year ended 31 March 2013 was partly due to under-provision of income tax in respect of prior years of approximately HK$1.0 million. The under-provision of income tax arose from the additional assessment of profit tax in relation to the gain on disposal of a property by ASD Technology for the year of tax assessment 2010/11 which was subsequently paid for a notice of assessment received during the year ended 31 March The lower effective tax rate for the year ended 31 March 2014 was primarily attributable to the non-taxable gain on the disposals of three residential properties and three carpark units during the year ended 31 March The higher effective tax rate for the year ended 31 March 2015 was mainly due to the net effect of (i) the lesser non-taxable gain on sale of property, plant and equipment of approximately HK$3.6 million during the year ended 31 March 2015; (ii) the recognition of unused tax loss not recognised in prior years by Aolang Electronics and utilisation of tax losses not recognised in prior years by Aolang Electronics; and (iii) the non-deductible impairment loss on remeasurement of non-current assets held for 245

252 FINANCIAL INFORMATION sale for our Group s office premises in the PRC of approximately HK$4.7 million. The lower effective tax rate for the six months ended 30 September 2015 was mainly due to the non-taxable gain on the disposals of one residential property and one carpark unit during the six months ended 30 September Save as disclosed in the non-compliance matter as disclosed in Business Non compliance, our Group had no tax obligation arising from other jurisdictions during the Track Record Period. Our Directors confirm that, during the Track Record Period and up to the Latest Practicable Date, our Group had no material dispute or unresolved tax issues with the relevant tax authority. PERIOD-TO-PERIOD COMPARISON OF RESULTS OF OPERATIONS Year ended 31 March 2013 compared with year ended 31 March 2014 Revenue Our revenue increased by approximately HK$18.6 million or 6.1% from approximately HK$303.2 million for the year ended 31 March 2013 to approximately HK$321.8 million for the year ended 31 March The increase was primarily due to the increase in revenue of ODM and OBM video and imaging products by approximately HK$55.6 million or 128.7% and offset by the decrease in sales of imaging electronic components by approximately HK$37.0 million or 14.2%. The revenue from sales of imaging electronic components decreased from approximately HK$260.0 million for the year ended 31 March 2013 to approximately HK$223.0 million for the year ended 31 March 2014, mainly attributable to the decrease in the sales of CMOS sensors by approximately HK$23.8 million and the decrease in the digital imaging compression chips by approximately HK$10.6 million. The revenue from sales of ODM and OBM video and imaging products increased from approximately HK$43.2 million for the year ended 31 March 2013 to approximately HK$98.8 million for the year ended 31 March 2014 was mainly attributable to the increase in the sales of hunting camera and scanner mouse by approximately HK$22.5 million and HK$40.2 million, respectively, which partially offset by the decrease in the other revenue in relation to the ODM and OBM video and imaging products by approximately HK$8.1 million. For details of the revenue movement of each product type, see Description and analysis of principal items in the combined statements of profit or loss and other comprehensive income Revenue. Cost of sales Our cost of sales slightly increased from approximately HK$277.2 million for the year ended 31 March 2013 to approximately HK$277.9 million for the year ended 31 March 2014, representing an increase of approximately HK$0.7 million or 0.3%. The increase was mainly attributable to the net effect of (i) the increase in sales to Company K as a result of the increase in quantity of hunting cameras sold for the year ended 31 March 2014; (ii) the sales to Company L, a new customer and one of the five largest customers of our Group for the year ended 31 March 2014; and (iii) the increase in sales to Company M as a result of the increase in quantity of scanner mouse sold for the year ended 31 March 2014, which is partially offset by the decrease in sales of imaging electronic components to Company I as a result of the cessation of our purchase from Company B. For details, see Revenue. 246

253 FINANCIAL INFORMATION Gross profit and gross profit margin Our gross profit increased by approximately HK$17.9 million or 68.8% from approximately HK$26.0 million for the year ended 31 March 2013 to approximately HK$43.9 million for the year ended 31 March The increase in our gross profit was primarily due to (i) the change in product mix with increased portion of sales of ODM and OBM video and imaging products segment with a higher gross profit margin of approximately 17.0% for the year ended 31 March 2014; (ii) the increase in the gross profit margin of sales of imaging electronic components segment to approximately 12.2% for the year ended 31 March 2014 from approximately 7.3% for the year ended 31 March 2013 primarily attributable to the increase of approximately HK$24.7 million in sales of imaging electronic components to Company H, which we enjoy higher margin because of bulk purchases from our suppliers. For details of analysis of gross profit and gross profit margin during the period, see Description and analysis of principal items in the combined statements of profit or loss and other comprehensive income Gross profit and gross profit margin. Other revenue Our other revenue remained relatively stable at approximately HK$5.0 million for the years ended 31 March 2013 and 2014, which was primarily due to the net effect of (i) the decrease of approximately HK$0.6 million in rental income for investment properties mainly resulted from the disposals of three residential properties and three carpark units during the year ended 31 March 2014; and (ii) the increase of approximately HK$0.5 million in interest income mainly resulted from overdue interests charged to Kenxen in relation to trade receivables arising from our sales of electronic components and interest income earned from two forward foreign exchange contracts entered in September 2013 and March Other net gain Our other net gain increased by approximately HK$9.2 million or 104.5% from approximately HK$8.8 million for the year ended 31 March 2013 to approximately HK$18.0 million for the year ended 31 March The increase in our other net gain was primarily due to the gain on disposals of three residential properties and three carpark units during the year ended 31 March 2014 as compared to the disposals of three residential properties and one carpark unit during the year ended 31 March Selling and administrative expenses Our selling and administrative expenses increased by approximately HK$2.4 million or 9.1% from approximately HK$26.3 million for the year ended 31 March 2013 to approximately HK$28.7 million for the year ended 31 March 2014, primarily as due to the increase of approximately HK$2.5 million in service fee expenses for hardware research and development and technical support services provided by Shenzhen Yunxu. Finance costs Our finance costs increased by approximately HK$0.1 million or 5.3% from approximately HK$1.9 million for the year ended 31 March 2013 to approximately HK$2.0 million for the year ended 31 March 2014 mainly due to the increase of approximately HK$0.3 million in bank interest expense in relation to trust receipt loans. 247

254 FINANCIAL INFORMATION Income tax Our income tax increased from approximately HK$3.3 million for the year ended 31 March 2013 to approximately HK$4.2 million for the year ended 31 March 2014, representing an increase of approximately HK$0.9 million or 27.3%. Our effective tax rates are calculated based on the tax charged to the combined profit or loss over the profit before tax has decreased from approximately 28.5% for the year ended 31 March 2013 to approximately 11.7% for the year ended 31 March The higher effective tax rate for the year ended 31 March 2013 which was partly due to under-provision of income tax in respect of prior years of approximately HK$1.0 million. The lower effective tax rate for the year ended 31 March 2014 was primarily attributable to the non-taxable gain on the disposals of three residential properties and three carpark units during the year ended 31 March Profit for the year Our profit for the year increased by approximately HK$23.6 million or 284.3% to approximately HK$31.9 million for the year ended 31 March 2014 from approximately HK$8.3 million for the year ended 31 March 2013, primarily attributable to (i) the increase of approximately HK$17.9 million in gross profit; and (ii) the increase of approximately HK$11.0 million in net gain on disposals of residential properties and carpark units. On the basis that the net gain on sale of property, plant and equipment for the two years ended 31 March 2014 were excluded, our profit would increase by approximately HK$12.6 million from approximately HK$0.2 million for the year ended 31 March 2013 to HK$12.8 million for the year ended 31 March Our net profit margin increased from approximately 2.7% for the year ended 31 March 2013 to approximately 9.9% for the year ended 31 March 2014, primarily attributable to (i) the increase in gross profit margin; and (ii) the increase in other gain mainly resulted from the gain on disposals of property, plant and equipment such as residential properties and carpark units. On the basis that the net gain on sale of property, plant and equipment for the two years ended 31 March 2014 were excluded, our net profit margin for the year would increase from approximately 0.1% for the year ended 31 March 2013 to 4.0% for the year ended 31 March Year ended 31 March 2014 compared with year ended 31 March 2015 Revenue Our revenue slightly increased by approximately HK$14.2 million or 4.4% from approximately HK$321.8 million for the year ended 31 March 2014 to approximately HK$336.0 million for the year ended 31 March The increase was primarily due to the increase in sales of imaging electronic components by approximately HK$29.0 million or 13.0% partially offsets by the decrease in revenue of ODM and OBM video and imaging products by approximately HK$14.8 million or 15.0%. The revenue from sales of imaging electronic components increased from approximately HK$223.0 million for the year ended 31 March 2014 to approximately HK$252.0 million for the year ended 31 March 2015, mainly attributable to the increase in sales of IC chips by approximately HK$31.2 million and the increase in sales of CMOS sensors by approximately HK$16.0 million, which partially offset by the decrease in digital imaging compression chips by approximately HK$17.2 million. The 248

255 FINANCIAL INFORMATION revenue from sales of ODM and OBM video and imaging products decreased from approximately HK$98.8 million for the year ended 31 March 2014 to approximately HK$84.0 million for the year ended 31 March 2015 was mainly attributable to the net effect of (i) the decrease in sales of ODM scanner mouse by approximately HK$48.5 million; (ii) the increase in sales of hunting camera by approximately HK$25.9 million; and (iii) the sales of approximately HK$7.0 million in bicycle cameras that were launched during the year ended 31 March For details of the revenue movement of each product type, see Description and analysis of principal items in the combined statements of profit or loss and other comprehensive income Revenue. Cost of sales Our cost of sales increased from approximately HK$277.9 million for the year ended 31 March 2014 to HK$294.3 million for the year ended 31 March 2015, primarily attributable to the increase in quantity sold of imaging electronic components to Company H, which was offset by the decrease in quantity sold of scanner mouse to Company L and the decrease in quantity sold for imaging electronic components to Company F. Gross profit and gross profit margin Our gross profit decreased by approximately HK$2.2 million or 5.0% from approximately HK$43.9 million for the year ended 31 March 2014 to approximately HK$41.7 million for the year ended 31 March 2015, primarily due to the decrease in gross profit from sale of digital imaging compression chips and ODM scanner mouse. The gross profit margin decreased from approximately 13.6% for the year ended 31 March 2014 to approximately 12.4% for the year ended 31 March 2015, which was primarily attributable to (i) the decrease in gross profit margin of sales of CMOS sensors from approximately 7.8% for the year ended 31 March 2014 to approximately 5.7% for the year ended 31 March 2015 mainly resulted from the competitive price provided for bulk purchases from Company N, a new customer, being one of our Group s five largest customers for the year ended 31 March 2015; (ii) the decrease in sales of digital imaging compression chips and its impact to the gross profit margin; and (iii) decrease of approximately HK$7.8 million in gross profit of ODM scanner mouse with a relatively high gross profit margin of approximately 20.8% during the year ended 31 March For details of analysis of gross profit and gross profit margin during the period, see Description and analysis of principal items in the combined statements of profit or loss and other comprehensive income Gross profit and gross profit margin. Other revenue Our other revenue increased by approximately HK$1.9 million or 38.0% from approximately HK$5.0 million for the year ended 31 March 2014 to approximately HK$6.9 million for the year ended 31 March The increase in our other revenue was primarily due to the increase of approximately HK$1.5 million in commission income received from Company T and Company A in relation to sales of imaging electronic components supplied by Company T pursuant to distribution agreement dated 1 November 2013 entered into between Company T and ASD Technology and sales of CMOS sensors supplied by Company A. For further details about the distribution agreement, please refer to Business Suppliers Rebate and sales commission to this prospectus. The increase was also mainly attributable to the 249

256 FINANCIAL INFORMATION increase in service fee income of approximately HK$0.6 million charged to Kenxen and SLT HK for financial assistance provided by our Group, which partially offset by the decrease in rental income for investment properties mainly resulted from the disposals of residential properties and carpark units. Other net gain Our other net gain decreased by approximately HK$14.2 million or 78.9% from approximately HK$18.0 million for the year ended 31 March 2014 to approximately HK$3.8 million for the year ended 31 March 2015 which was primarily due to the decrease in gain recognised on the sale of one residential property during the year ended 31 March 2015 as compared to that of the disposals of three residential properties and three carpark units during the year ended 31 March Selling and administrative expenses Our selling and administrative expenses increased by approximately HK$5.9 million or 20.6% from approximately HK$28.7 million for the year ended 31 March 2014 to approximately HK$34.6 million for the year ended 31 March 2015, primarily attributable to (i) the increase of approximately HK$4.2 million in staff costs mainly resulted from the increase of headcount at our office in Hong Kong and the PRC to strengthen our research and development capability; and (ii) the increase of approximately HK$0.8 million in service fee expenses charged by Shenzhen Yunxu. Other operating expenses Our other operating expenses for the year ended 31 March 2015 represent the impairment loss on remeasurement of non-current assets held for sale of approximately HK$4.7 million for an office premises in the PRC our Group purchased during the year ended 31 March 2013, mainly attributable to our Group s intention to sell the office premises within twelve months from 31 March On 1 September 2015, Aolang Electronics (as vendor) and Wenxingjin Management (as purchaser) entered into a sale and purchase agreement in respect of the sale and purchase of the office premises for a consideration of RMB11.0 million (equivalent to approximately HK$13.4 million), which was lower than original purchase price. See Recent Developments and no material adverse change for further details of the sale of our Group s office premises subsequent to the year ended 31 March Finance costs Our finance costs decreased by approximately HK$0.3 million from approximately HK$2.0 million for the year ended 31 March 2014 to approximately HK$1.7 million for the year ended 31 March 2015 mainly due to the decrease of approximately HK$0.3 million in mortgage loans interest expense mainly resulted from the disposals of four residential properties and three carpark units during the two years ended 31 March

257 FINANCIAL INFORMATION Income tax Our income tax decreased from approximately HK$4.2 million for the year ended 31 March 2014 to approximately HK$1.0 million for the year ended 31 March 2015, representing a decrease of approximately HK$3.2 million or 76.2%. Our effective tax rates of approximately 11.7% and 67.8% for each of the two years ended 31 March 2015, respectively, are calculated based on the tax charged to our combined profit or loss over the profit before tax. The higher effective tax rate of our Group for the year ended 31 March 2014 was mainly attributable to the net effect of (i) the lesser non-taxable gain on sale of one residential property during the year ended 31 March 2015; (ii) the recognition of unused tax loss not recognised in prior years by Aolang Electronics and utilisation of tax losses not recognised in prior years by Aolang Electronics; and (iii) the non-deductible impairment loss on remeasurement of non-current assets held for sale for our Group s office premises in the PRC of approximately HK$4.7 million. Profit for the year Our profit for the year decreased by approximately HK$31.4 million or 98.4% to approximately HK$0.5 million for the year ended 31 March 2015 from approximately HK$31.9 million for the year ended 31 March Our net profit margin decreased from approximately 9.9% for the year ended 31 March 2014 to approximately 0.1% for the year ended 31 March The decrease in the profit and net profit margin for the year ended 31 March 2015 was primarily attributable to (i) lesser disposal gain on sale of one residential property for the year ended 31 March 2015 as compared to the gain on disposals of three residential properties and three carpark units for the year ended 31 March 2014; (ii) the non-recurring impairment loss on remeasurement of non-current assets held for sale of approximately HK$4.7 million; and (iii) the non-recurring Listing expenses of approximately HK$9.9 million. On the basis that the net gain on sales of property, plant and equipment and impairment loss on remeasurement of non-current assets held for sale for our Group s office premises in the PRC for each of the two years ended 31 March 2014 and 2015 were excluded, our profit would decrease by approximately HK$11.2 million from approximately HK$12.8 million for the year ended 31 March 2014 to HK$1.6 million for the year ended 31 March 2015 and our net profit margin for the period would decrease from approximately 4.0% for the year ended 31 March 2014 to 0.5% for the year ended 31 March Six months ended 30 September 2014 compared with six months ended 30 September 2015 Revenue Our revenue increased by approximately HK$55.6 million or 31.2% from approximately HK$178.2 million for the six months ended 30 September 2014 to approximately HK$233.8 million for the six months ended 30 September The increase was primarily due to the increase in sales of ODM and OBM video and imaging products by approximately HK$26.2 million or 58.7% and the increase in sales of imaging electronic components by approximately HK$29.4 million or 22.0%. The revenue from sales of imaging electronic components increased from approximately HK$133.6 million for the six months ended 30 September 2014 to approximately HK$163.0 million for the six months ended 30 September 2015, mainly attributable to the increase in sales of CMOS sensors by approximately HK$33.0 million, which partially offset by the decrease in sales of IC chips by approximately HK$4.5 million. The revenue from sales of ODM and OBM video and imaging products increased from 251

258 FINANCIAL INFORMATION approximately HK$44.6 million for the six months ended 30 September 2014 to approximately HK$70.8 million for the six months ended 30 September 2015 was mainly attributable to the net effect of (i) the increase in sales of hunting camera by approximately HK$37.5 million; and (ii) the decrease in sales of ODM scanner mouse by approximately HK$11.6 million. For details of the revenue movement of each product type, see Description and analysis of principal items in the combined statements of profit or loss and other comprehensive income Revenue. Cost of sales Our cost of sales increased from approximately HK$157.2 million for the six months ended 30 September 2014 to approximately HK$204.7 million for the six months ended 30 September 2015, primarily attributable to the increase in quantities of CMOS sensors and hunting camera sold to Company N and Company K respectively, which was partially offset by the absence of sales of ODM scanner mouse made to Company O and Company M. Gross profit and gross profit margin Our gross profit increased by approximately HK$8.1 million or 38.6% from approximately HK$21.0 million for the six months ended 30 September 2014 to approximately HK$29.1 million for the six months ended 30 September 2015, primarily due to the increase of approximately HK$7.4 million in gross profit of hunting camera mainly resulted from the increase in sales of approximately HK$37.5 million to Company K. The gross profit margin increased from approximately 11.8% for the six months ended 30 September 2014 to approximately 12.4% for the six months ended 30 September 2015, which was primarily attributable to the increase in gross profit margin of ODM and OBM video and imaging products during the period mainly resulted from improved gross profit margin of hunting camera sold during the period. Other revenue Our other revenue decreased by approximately HK$0.4 million or 12.9% from approximately HK$3.1 million for the six months ended 30 September 2014 to approximately HK$2.7 million for the six months ended 30 September The decrease in our other revenue was primarily due to the increase of approximately HK$0.6 million commission income received from Company T in relation to sales of imaging electronic components, which was partially offset by the absence of approximately HK$0.5 million in service fee income charged to Kenxen and SLT HK for financial assistance provided by our Group during the six months ended 30 September Other net gain Our other net gain increased by approximately HK$1.7 million or 42.5% from approximately HK$4.0 million for the six months ended 30 September 2014 to approximately HK$5.7 million for the six months ended 30 September 2015 which was primarily due to the net effect of (i) the increase in net gain recognised on the sale of one residential property and one carpark unit during the six months ended 30 September 2015 as compared to that of the disposal of one residential property during the six months ended 30 September 2014; and (ii) the loss of approximately HK$1.5 million in relation to the termination of forward foreign exchange contracts in August

259 FINANCIAL INFORMATION Selling and administrative expenses Our selling and administrative expenses increased by approximately HK$0.7 million or 4.3% from approximately HK$16.1 million for the six months ended 30 September 2014 to approximately HK$16.8 million for the six months ended 30 September 2015, primarily attributable to the net effect of (i) the increase of approximately HK$2.6 million in staff costs mainly resulted from the increase of headcount at our offices in both Hong Kong and the PRC; and (ii) the absence of approximately HK$2.0 million in service fee expenses charged by Shenzhen Yunxu. Finance costs Our finance costs increased by approximately HK$0.5 million from approximately HK$0.7 million for the six months ended 30 September 2014 to approximately HK$1.2 million for the six months ended 30 September 2015 mainly due to the increase of approximately HK$0.3 million in bank interest expenses in relation to trust receipt loans. Income tax Our income tax increased from approximately HK$1.4 million for the six months ended 30 September 2014 to approximately HK$2.3 million for the six months ended 30 September 2015, representing an increase of approximately HK$0.9 million or 64.3%. Our effective tax rates of approximately 17.1% and 16.3% for the six months ended 30 September 2014 and 2015, respectively, are calculated based on the tax charged to our combined profit or loss over the profit before tax. The decrease in the effective tax rate of our Group for the six months ended 30 September 2015 was mainly due to the non-taxable gain on the disposals of one residential property and one carpark unit during the six months ended 30 September Profit for the period Our profit for the period increased by approximately HK$4.8 million or 68.6% from approximately HK$7.0 million for the six months ended 30 September 2014 to approximately HK$11.8 million for the six months ended 30 September Our net profit margin increased from approximately 3.9% for the six months ended 30 September 2014 to approximately 5.0% for the six months ended 30 September The increase in the profit and net profit margin for the six months ended 30 September 2015 was primarily attributable to the net effect of (i) the increase of approximately HK$7.4 million in gross profit of hunting camera and the increase in gross profit margin in relation to sales of hunting camera; (ii) the increase of approximately HK$3.9 million in gross profit of CMOS sensors and improved gross profit margin in relation to sales of CMOS sensors; (iii) the increase of approximately HK$2.6 million in staff cost; and (iv) the increase of approximately HK$2.4 million in non-recurring Listing expenses. On the basis that net gain on sale of property, plant and equipment and net gain on sale of non-current assets classified as held for sale for each of the six months ended 30 September 2014 and 2015 were excluded, our profit would increase by approximately HK$1.3 million from approximately HK$3.3 million for the six months ended 30 September 2014 to HK$4.6 million for the six months ended 30 September 2015 and our net profit margin for the period would remain stable at approximately 1.9% for each of the six months ended 30 September 2014 and

260 FINANCIAL INFORMATION LIQUIDITY AND CAPITAL RESOURCES Cash flows Our Group s principal liquidity and capital requirements primarily relate to our operating expenses and capital expenditures. Historically, we have met our working capital and other liquidity requirements principally from cash generated from our operations, banking facilities and advance from our Directors. Going forward, we expect to fund our working capital and other liquidity requirements with a combination of various sources, including but not limited to cash generated from our operations, banking facilities, the net proceeds from the Placing as well as other equity and debt financing. The following table summarises our Group s cash flows for the Track Record Period: Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Net cash generated from/ (used in) operating activities 2,858 31, (9,078) 1,546 Net cash generated from/(used in) investing activities 1,192 54,904 (12,671) (9,819) 75,760 Net cash (used in)/generated from financing activities (265) (65,203) 11,277 22,117 (83,197) Net increase/(decrease) in cash and cash equivalents 3,785 20,988 (722) 3,220 (5,891) Cash and cash equivalents at beginning of the year/period 4,578 8,363 29,353 29,353 28,629 Effect of foreign exchange rate changes 2 (2) (9) (69) Cash and cash equivalents at end of the year/period 8,363 29,353 28,629 32,564 22,669 Operating activities We derived our cash generated from operating activities principally from the receipt of payments for the sale of our products. Our cash used in operating activities is principally for payments for purchase of (i) imaging electronic components from suppliers; and (ii) ODM and OBM video and imaging products from our subcontractors. For the year ended 31 March 2013, we recorded net cash inflow from operating activities of approximately HK$2.9 million, which comprised of operating profit before changes in working capital of approximately HK$10.8 million and profit tax payment of approximately HK$3.9 million, adjusted mainly for the increases in trade and other receivables and inventories in the amount of approximately HK$7.6 million and HK$11.0 million, respectively. The working capital outflow for the year ended 31 March 2013 was partially offset by an increase in trade and other payables of approximately HK$14.6 million. As a result of the above, we recorded a net working capital outflow of approximately HK$4.0 million. 254

261 FINANCIAL INFORMATION For the year ended 31 March 2014, we recorded net cash inflow from operating activities of approximately HK$31.3 million, which mainly comprised operating profit before changes in working capital of approximately HK$23.7 million and profit tax payment of approximately HK$2.8 million, adjusted for changes in net working capital inflow of approximately HK$10.4 million. The net working capital inflows were primarily due to a decrease in inventories of approximately HK$11.5 million; partially offset by a decrease in trade and other payables of approximately HK$0.8 million and an increase in trade and other receivables of approximately HK$0.3 million. For the year ended 31 March 2015, we recorded net cash inflow from operating activities of approximately HK$0.7 million. It was mainly due to the net effect of (i) the payment in relation to the Listing expenses of approximately HK$13.1 million; (ii) an increase in inventories of approximately HK$14.1 million for stocking up for sales orders of imaging electronic components to be delivered subsequent to the year ended 31 March 2015; and (iii) an increase in trade payables of approximately HK$5.3 million mainly resulted from the increase of approximately HK$4.6 million in trade payable for inventory purchases from Company A. For the six months ended 30 September 2014, we recorded net cash outflow from operating activities of approximately HK$9.1 million, which mainly comprised operating profit before changes in working capital of approximately HK$6.1 million and profit tax payment of approximately HK$0.3 million, adjusted for changes in working capital of approximately HK$14.8 million such as trade and other receivables, inventories and trade payables and other payables. The net working capital outflows of approximately HK$14.8 million were primarily due to (i) an increase in trade and other receivables of approximately HK$12.9 million mainly resulted from the increase of approximately HK$10.4 million in trade receivables due from Company N, which were subsequently settled as at the Latest Practicable Date; (ii) a decrease in trade and other payables of approximately HK$1.4 million; and (iii) an increase in inventories of approximately HK$0.5 million. For the six months ended 30 September 2015, we recorded net cash inflow from operating activities of approximately HK$1.5 million, which mainly due to the net effect of (i) the payment in relation to the Listing expenses of approximately HK$6.9 million; (ii) the increase of approximately HK$8.3 million in trade receivables due from Company N; (iii) the decrease of approximately HK$7.5 million in trade payable due to Company A for purchases of CMOS sensors; (iv) the utilisation of receipt in advance of approximately HK$9.1 million from Company K in relation to deposits for hunting camera orders; (v) the receipt in advance of approximately HK$13.4 million in relation to the disposal of office premises in the PRC; and (vi) a decrease in inventories of approximately HK$6.6 million mainly resulted from the Group s intention to keep a lower inventory level. Investing activities We derived our cash partly from investing activities involving principally sale of property, plant and equipment. Our cash generated from in investing activities for the year ended 31 March 2013 was primarily due to the net effect of (i) the purchases of property, plant and equipment of approximately HK$19.3 million mainly as a result of the purchase of an office premises in the PRC; and (ii) the proceeds of approximately HK$21.5 million received mainly from the disposals of three residential properties and one carpark unit during the year ended 31 March

262 FINANCIAL INFORMATION Net cash generated from investing activities of approximately HK$54.9 million for the year ended 31 March 2014 was largely attributed to the net effect of (i) the proceeds from sale of property, plant and equipment of approximately HK$73.6 million mainly resulted from the disposals of three residential properties and three carpark units during the year ended 31 March 2014; and (ii) the increase of approximately HK$18.5 million in amounts due from director. Net cash used in investing activities was approximately HK$12.7 million for the year ended 31 March This was primarily due to the net effect of (i) the increase of approximately HK$13.2 million in amounts due from director; (ii) the increase of approximately HK$6.2 million in pledged bank deposits; and (iii) the proceeds of approximately HK$8.0 million received mainly from the disposal of one residential property. Net cash used in investing activities was approximately HK$9.8 million for the six months ended 30 September This was primarily due to the net effect of (i) the increase of approximately HK$13.2 million in amounts due from director; (ii) the proceeds of approximately HK$8.0 million received mainly from the disposal of one residential property; and (iii) the increase of approximately HK$3.9 million in amounts due from related companies. Net cash generated from investing activities was approximately HK$75.8 million for the six months ended 30 September This was primarily due to (i) the proceeds of approximately HK$41.0 million received from the disposals of one residential property and one carpark unit; and (ii) the decrease of approximately HK$31.7 million in amount due from director. On the basis that the payment for purchase of buildings held for own use and gross proceeds from sale of residential properties and their related leasehold improvements and carpark(s) during the Track Record Period were excluded, the net cash used in investing activities would be approximately HK$1.2 million, HK$18.6 million, HK$20.7 million and HK$17.8 million for each of the three years ended 31 March 2015 and the six months ended 30 September 2014, respectively, and the net cash generated from investing activities would be HK$34.8 million for the six months ended 30 September Financing activities We derived our cash partly from financing activities involving principally bank loans and amounts due to directors. Our cash used in financing activities of approximately HK$0.3 million for the year ended 31 March 2013 was primarily due to the net effect of (i) the proceeds of approximately HK$158.2 million from new bank loans; (ii) the repayment of bank loans of approximately HK$152.0 million; (iii) the decrease of approximately HK$4.7 million in amounts due to directors; and (iv) interest payments of approximately HK$1.9 million. For the year ended 31 March 2014, we recorded net cash outflow from financing activities of approximately HK$65.2 million. We obtained proceeds from new bank loans of approximately HK$197.4 million and repaid bank loans of approximately HK$255.6 million during the year ended 31 March The net cash outflow from financing activities for the year ended 31 March 2014 was also attributed to (i) the decrease of approximately HK$5.0 million in amounts due to directors; and (ii) interest payments of approximately HK$2.0 million. 256

263 FINANCIAL INFORMATION For the year ended 31 March 2015, we recorded net cash inflow from financing activities of approximately HK$11.3 million. We obtained proceeds from new bank loans of approximately HK$196.4 million and repaid bank loans of approximately HK$151.0 million during the year ended 31 March The net cash inflow from financing activities for the year ended 31 March 2015 was also attributed to (i) the dividend payment of approximately HK$35.0 million; (ii) the increase of approximately HK$2.5 million in amounts due to directors; and (iii) interest payments of approximately HK$1.7 million. For the six months ended 30 September 2014, we recorded net cash inflow from financing activities of approximately HK$22.1 million. We obtained proceeds from new bank loans of approximately HK$90.6 million and repaid bank loans of approximately HK$68.8 million during the six months ended 30 September The net cash inflow from financing activities for the six months ended 30 September 2014 was also attributed to (i) the increase of approximately HK$1.0 million in amounts due to director; and (ii) interest payments of approximately HK$0.7 million. For the six months ended 30 September 2015, we recorded net cash outflow from financing activities of approximately HK$83.2 million. We obtained proceeds from new bank loans of approximately HK$124.2 million and repaid bank loans of approximately HK$147.0 million during the six months ended 30 September The net cash outflow from financing activities for the six months ended 30 September 2015 was also attributed to the payment of dividend of approximately HK$42.0 million and the decrease of approximately HK$13.2 million in amounts due to directors. On the basis that the payments of mortgage loans for the disposed residential properties and carpark(s) and their corresponding interest expenses during the Track Record Period were excluded, the net cash used in financing activities would be approximately HK$4.5 million, HK$30.3 million and HK$59.0 million for each of the two years ended 31 March 2014 and the six months ended 30 September 2015, respectively. On the basis that the payments of mortgage loans for the disposed residential properties and carpark(s) and their corresponding interest expenses during the Track Record Period were excluded, the net cash generated from financing activities would be approximately HK$24.2 million and HK$14.7 million for the six months ended 30 September 2014 and the year ended 31 March 2015, respectively. On the basis that the payments of mortgage loans for the disposed residential properties and carpark(s) and their corresponding interest expenses during the Track Record Period were excluded, the net decrease in cash and cash equivalents would be approximately HK$2.8 million, HK$17.7 million, HK$5.3 million, HK$2.7 million and HK$36.1 million for each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, respectively. WORKING CAPITAL The Directors are of the opinion and the Sponsor concurs that, taking into account the estimated net proceeds of the Placing, the unutilised banking facilities available to our Group, cash flows generated from operating activities and our internal resources, our Group will have sufficient working capital to meet our present working capital requirements for at least the next 12 months from the date of this prospectus. 257

264 FINANCIAL INFORMATION NET CURRENT (LIABILITIES)/ASSETS POSITIONS The table below sets forth our current assets, current liabilities and net current (liabilities)/assets for the dates indicated. This information should be read together with our combined financial information as set out in Appendix I to this prospectus: As at 30 September As at 31 January As at 31 March HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Current assets Inventories 30,488 19,013 33,148 26,517 29,957 Trade and other receivables 27,494 27,813 26,153 33,388 52,157 Amounts due from related companies 632 1,567 2,975 Amounts due from director 18,470 16,705 Tax recoverable 663 2,481 1, Pledged bank deposits 1,000 1,000 7,154 6,515 6,518 Cash and cash equivalents 8,363 29,353 28,629 22,669 48,538 Non-current assets classified as held for sale 47,465 45,042 Total current assets 68,640 97, , , ,070 Current liabilities Trade and other payables 26,605 27,464 40,697 35,510 39,716 Amounts due to directors 29,447 25,087 42, Bank and other loans 105,316 47,171 92,585 78,967 54,289 Tax payable 1,100 1, Total current liabilities 162, , , ,168 94,131 Net current (liabilities)/assets (93,828) (4,469) (10,707) 20,925 43,

265 FINANCIAL INFORMATION The net current liabilities of our Group of approximately HK$93.8 million was mainly due to (i) the mortgage loans of approximately HK$57.9 million in relation to buildings held for own use and investment properties; and (ii) the amount due to directors of approximately HK$19.1 million in relation to the financing for the purchase of an office premises in the PRC. The net current liabilities of our Group decreased by approximately HK$89.3 million from approximately HK$93.8 million as at 31 March 2013 to approximately HK$4.5 million as at 31 March 2014, primarily attributable to the decrease of approximately HK$58.1 million in bank loans mainly resulted from the disposals of three residential properties and three carpark units during the year ended 31 March 2014 and the proceeds received from such disposals of approximately HK$73.6 million and the net profit of our Group during the year ended 31 March 2014, which was partially offset by the decrease of approximately HK$11.5 million in inventories mainly due to the shift of supplier from Company B to Company T. The net current liabilities position of our Group increased from approximately HK$4.5 million as at 31 March 2014 to approximately HK$10.7 million as at 31 March 2015, primarily attributable to (i) the increase of approximately HK$45.7 million in bills loans; (ii) the increase of approximately HK$13.2 million in trade and other payables mainly resulted from the increase of approximately HK$4.6 million in trade payable due to Company A; and (iii) the increase of approximately HK$17.0 million in amounts due to directors, which was partially offset by the reclassification of non-current asset classified as held for sale of approximately HK$47.5 million to current assets. Our net current liabilities position of approximately HK$10.7 million as at 31 March 2015 improved to net current assets position of approximately HK$20.9 million as at 30 September This was primarily attributable to the net effect of (i) the decrease of approximately HK$41.7 million in amount due to directors after repayment; (ii) the decrease of approximately HK$10.7 million in mortgage loans resulted from the disposals of one residential property and one carpark unit during the six month ended 30 September 2015; (iii) the decrease of approximately HK$9.1 million in receipt in advance from Company K in relation to deposits for hunting camera orders; and (iv) the decrease of approximately HK$16.7 million in amounts due from directors. Our net current assets position of approximately HK$20.9 million as at 30 September 2015 improved to approximately HK$43.9 million as at 31 January This was primarily attributable to the net effect of (i) the receipt of gross proceeds of approximately HK$51.8 million upon completion of disposal of commercial properties in Hong Kong, previously classified as non-current assets classified as held for sale as at 30 September 2015, which contributed to the increase of approximately HK$25.9 million in cash and cash equivalents and the decrease of approximately HK$24.7 million in bank and other loans mainly resulted from repayment of mortgage loans and term loan of an aggregate amount of approximately HK$14.3 million; and (ii) the increase of approximately HK$18.8 million in trade and other receivables mainly resulted from the increase in trade receivable from Kenxen and the prepayment of Listing expenses. Our Directors confirm that the amounts due to directors as at 30 September 2015 had been settled as at 31 January

266 FINANCIAL INFORMATION DESCRIPTION AND ANALYSIS OF PRINCIPAL ITEMS IN THE COMBINED STATEMENTS OF FINANCIAL POSITION Property, plant and equipment and non-current assets classified as held for sale Property, plant and equipment mainly represent investment properties, buildings held for own use, leasehold improvement, and office equipment. The carrying value of the property, plant and equipment decreased from approximately HK$148.8 million as at 31 March 2013 to approximately HK$91.1 million as at 31 March 2014 and further decreased to approximately HK$32.3 million as at 31 March 2015, primarily due to the disposals of three residential properties and three carpark units during the year ended 31 March 2014 and the disposal of one residential property during the year ended 31 March The decrease was also attributed to the reclassification of a residential property, a carpark unit and office premises in the PRC with an aggregate net book value of approximately HK$47.5 million as at 31 March 2015 from property, plant and equipment in non-current assets to non-current assets classified as held for sale in current assets primarily attributable to our Group s intention to sell the said properties within twelve months from 31 March On 18 December 2014, ASD Technology (as vendor) entered into a provisional sale and purchase agreement with Ms. Kwok (as purchaser) at a consideration of HK$41.0 million in relation to the disposal of a residential property and a carpark unit. The disposal took place on 15 June 2015 and a gain on disposal of approximately HK$7.2 million was recognised for the six months ended 30 September On 1 September 2015, Aolang Electronics (as vendor) and Wenxingjin Management (as purchaser) entered into a sale and purchase agreement in respect of the sale and purchase of the office premises for a consideration of RMB11.0 million (equivalent to approximately HK$13.4 million). An impairment loss on remeasurement of non-current assets held for sale for the office premises in the PRC of approximately HK$4.7 million had been recognised for our Group for the year ended 31 March The carrying value of the property, plant and equipment further decreased to approximately HK$0.9 million as at 30 September 2015, primarily due to the reclassification of commercial properties with an aggregate net book value of approximately HK$30.9 million as at 30 September 2015 from property, plant and equipment in non-current assets to non-current assets classified as held for sale in current assets. ASD Technology and an Independent Third Party entered into a sale and purchase agreement in respect of the sale and purchase of such commercial properties on 25 August 2015 and the completion of the disposal took place on 7 October Inventories Our Group s inventories comprise (i) imaging electronic components; and (ii) ODM and OBM video and imaging products. During the Track Record Period, inventories were one of the principal components of our Group s current assets. As at 31 March 2013, 2014, 2015 and 30 September 2015, our Group had inventories of approximately HK$30.5 million, HK$19.0 million, HK$33.1 million and HK$26.5 million, respectively. Our Group generally does not keep inventories of our ODM video and imaging products as we instruct our subcontractors to proceed with production after we have received confirmed customers orders and our subcontractors sometimes arrange for product delivery shipped directly to our ODM customers. Systech Electronics generally keeps a certain level of our OBM video and imaging products. During the Track Record Period, our Group s inventories were mainly comprised of imaging electronic components with a minimal level of stock for our OBM video and imaging products. For details of inventory policy, see Business Inventory control. 260

267 FINANCIAL INFORMATION The following tables set out the breakdown of our inventory balance as at 31 March 2013, 2014, 2015 and 30 September 2015 and the inventory turnover days for the Track Record Period: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Imaging electronic components 30,487 18,978 32,300 25,090 ODM and OBM video and imaging products ,427 30,488 19,013 33,148 26,517 Six months ended Year ended 31 March 30 September Days Days Days Days Inventory turnover days (Note) Note: Inventory turnover days are calculated by dividing the average inventory balance by cost of sales for the period multiplied by 365 days for each of the three years ended 31 March 2015 or 180 days for the six months ended 30 September 2015 with respect to average inventory turnover days. Average inventory balance is the average of the beginning and ending inventory balances for the period. Our inventory balance decreased by approximately HK$11.5 million or 37.7% from approximately HK$30.5 million as at 31 March 2013 to approximately HK$19.0 million as at 31 March The decrease in inventory level from 31 March 2013 to 31 March 2014 was primarily due to (i) the decrease of approximately HK$4.1 million in inventories of CMOS sensors supplied by Company A; (ii) the decrease of approximately HK$4.7 million in inventories of IC Chips supplied by Company D; and (iii) the shift of supplier from Company B to Company T, which ASD Technology purchases electronic components from Company T on a back-to-back basis upon receiving purchase orders from customers. Our inventory balance increased by approximately HK$14.1 million from approximately HK$19.0 million as at 31 March 2014 to approximately HK$33.1 million as at 31 March 2015, primarily attributable to stocking up for sales orders of imaging electronic components to be delivered subsequent to 31 March Our inventory balance decreased by approximately HK$6.6 million or 19.9% from approximately HK$33.1 million as at 31 March 2015 to approximately HK$26.5 million as at 30 September 2015, which was primarily due to the decrease of approximately HK$7.2 million in imaging electronic components mainly resulted from the Group s intention to keep a lower inventory level. Our inventory turnover days during the Track Record Period remained stable at approximately 34.2 days, 32.5 days, 32.3 days and 26.2 days for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. The lower inventory turnover days of approximately 26.2 days for the six months ended 30 September 2015 as compared to 32.3 days for the year ended 31 March 2015 was mainly due to the Group s intention to keep a lower inventory level. 261

268 FINANCIAL INFORMATION The following table sets out the ageing analysis of our inventory balance as at 31 March 2013, 2014, 2015 and 30 September 2015: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Within 1 month 8,881 9,029 16,969 8,089 Over 1 month to 3 months 2,776 1,560 10,286 7,624 Over 3 months to 1 year 18,827 6,211 5,245 9,003 Over 1 year 4 2, ,801 Total 30,488 19,013 33,148 26,517 As at 31 March 2013, 2014, 2015 and 30 September 2015, approximately 100.0%, 88.4%, 98.0% and 93.2% of our inventory aged within 1 year. During the Track Record Period, our Group had conducted annual assessment on the inventory value by product type. As at 31 March 2013, we recognised inventories write-down of approximately HK$1.9 million for obsolete and slow-moving inventories based on market conditions and management judgment. As at 31 March 2014, 2015 and 30 September 2015, we did not recognise write-down on obsolete and slow-moving inventories. Consistent with the industry norm for ODM service providers, we incorporate planned obsolescence into our ODM video and imaging product design by improving the functions of our ODM video and imaging products so that our customers would purchase the products more frequently due to the perceived desirability of high-technology items to sustain demand for the next series of ODM video and imaging products. Systech Electronics would discuss and collect product ideas from our ODM customers, drawing on information including our customers yearly plans covering the required features and specifications of their ODM video and imaging products and any anticipated improved version(s) and/or new models of their ODM video and imaging products. After we have received confirmed customers orders from our ODM customers, we sometimes instruct our subcontractors to arrange for delivery of our ODM video and imaging products directly to our ODM customers. Therefore, our Group generally does not keep inventories of ODM video and imaging products. As at 31 January 2016, approximately 100.0%, 99.8%, 88.9% and 65.0% of our Group s inventory balances as at 31 March 2013, 2014, 2015 and 30 September 2015 were subsequently utilised, respectively. Trade and other receivables As at 31 March 2013, 2014, 2015 and 30 September 2015, trade and other receivables of our Group amounted to approximately HK$27.5 million, HK$27.8 million, HK$26.2 million and HK$33.4 million, respectively. As at 31 March 2013, 2014, 2015 and 30 September 2015, included in trade and other receivables of our Group were amounts due from related companies in which Controlling Shareholders have substantial financial interests of approximately HK$12.9 million, HK$13.1 million, nil and nil, respectively. Except for amount due from a related company of approximately HK$8.4 million, HK$5.5 million, nil and nil as at 31 March 2013, 2014 and 2015, respectively, which are interest bearing at 12% per annum, the other amounts are interest-free. The following tables set out the breakdown of our trade and other 262

269 FINANCIAL INFORMATION receivables as at 31 March 2013, 2014, 2015 and 30 September 2015 and debtors turnover days for the Track Record Period: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Trade receivables 21,274 20,503 19,071 24,022 Deposits, prepayments and other receivables 6,220 7,310 7,082 9,366 Trade and other receivables 27,494 27,813 26,153 33,388 Six months ended Year ended 31 March 30 September Days Days Days Days Trade debtors turnover days (Note) Note: Trade debtors turnover days are calculated by dividing the average trade receivables balance by corresponding revenue for the period multiplied by 365 days for each of the three years ended 31 March 2015 or 180 days for the six months ended 30 September Average trade receivables balance is the average of the beginning and ending trade receivables balances for the period. Trade receivables Our trade receivables balances remained stable at approximately HK$21.3 million, HK$20.5 million, HK$19.1 million and HK$24.0 million, respectively, as at 31 March 2013, 2014, 2015 and 30 September We generally did not grant credit terms to our customers of ASD Technology except for a few customers whom we grant credit term of not more than 90 days. For ODM products, we normally require our customers to place deposits to us upon issuance of purchase orders and settle the remaining balance at the time of delivery. For OBM products, we normally require payment on cash on delivery basis. Our trade debtors turnover days were approximately 23.0 days, 23.7 days, 21.5 days and 16.6 days for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively, which was in line with the credit period granted by us. The decrease in trade debtors turnover days from 21.5 days for the year ended 31 March 2015 to 16.6 days for the six months ended 30 September 2015 was mainly due to the increase of approximately HK$37.5 million in sales of hunting camera to Company K, which normally paid partial deposit and remaining balance upon presentation of on board ocean vessel bill of lading. The following table sets out an ageing analysis, based on the 263

270 FINANCIAL INFORMATION invoice date, of our Group s trade receivables as at 31 March 2013, 2014, 2015 and 30 September 2015: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Within 1 month 10,123 11,992 16,806 21,298 Over 1 month to 2 months 2, ,212 2,440 Over 2 months to 3 months 124 1, Over 3 months 8,392 7, ,274 20,503 19,071 24,022 The ageing analysis of trade receivables that are neither individually nor collectively considered to be impaired are as follows: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Neither past due nor impaired 7,314 6,517 11,119 17, Within 1 month past due 7,459 6,812 7,349 6,463 Over 1 month to 2 months past due 3,121 1, Over 2 months to 3 months past due 155 2, Over 3 months past due 3,225 3, ,960 13,986 7,952 6, ,274 20,503 19,071 24,022 As at 31 March 2013, 2014, 2015 and 30 September 2015, trade receivables of approximately HK$14.0 million, HK$14.0 million, HK$8.0 million and HK$6.5 million, respectively, were past due but not impaired. These relate to customers for whom there is no significant financial difficulty and based on past experience, the overdue amounts can be recovered. As at 31 March 2013, 2014, 2015 and 30 September 2015, trade receivables of approximately HK$18.0 million, HK$17.3 million, HK$19.1 million and HK$24.0 million were within the credit term of not more than 90 days normally granted to customers, representing 84.5%, 84.4%, 100.0% and 100.0% of the total trade receivables as at 31 March 2013, 2014, 2015 and 30 September 2015, respectively. As at 31 January 2016, 100.0%, 100.0%, 100.0% and 100.0% of our Group s trade receivables as at 31 March 2013, 2014, 2015 and 30 September 2015, respectively, were subsequently settled. 264

271 FINANCIAL INFORMATION Based on the past settlement records of our customers, our Directors believe that no impairment allowance is necessary for each of the three years ended 31 March 2015 and the six months ended 30 September Deposits, prepayments and other receivables As at 31 March 2013, 2014, 2015 and 30 September 2015, our Group had prepayments, deposits and other receivables of approximately HK$6.2 million, HK$7.3 million, HK$7.1 million and HK$9.4 million, respectively, which mainly represented trade deposits, prepayments for non-trade nature items, and other miscellaneous deposits such as rental and utility deposits. The prepayments, deposits and other receivables balance increased by approximately HK$1.1 million from approximately HK$6.2 million as at 31 March 2013 to approximately HK$7.3 million as at 31 March 2014, primarily attributable to the net effect of (i) an increase of approximately HK$3.7 million in financing receivable from Kenxen; and (ii) the decrease of approximately HK$3.3 million in trade deposits paid to Kenxen and a CMOS sensor supplier. The increase in the prepayments, deposits and other receivables balance from approximately HK$7.1 million as at 31 March 2015 to approximately HK$9.4 million as at 30 September 2015 was mainly attributable to the payment in advance of approximately HK$1.7 million to Company T in relation to purchases of imaging electronic components. Trade and other payables Our Group s trade and other payables amounted to approximately HK$26.6 million, HK$27.5 million, HK$40.7 million and HK$35.5 million as at 31 March 2013, 2014, 2015 and 30 September 2015, respectively. The following tables set out the breakdown of our trade and other payables as at 31 March 2013, 2014, 2015 and 30 September 2015 and creditors turnover days for the Track Record Period: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Trade payables 14,318 10,487 15,824 13,903 Receipt in advance 9,757 9,482 13,894 15,866 Derivative financial instruments forward foreign exchange contracts 1, Other payables and accruals 2,530 5,859 10,185 5,741 Total 26,605 27,464 40,697 35,

272 FINANCIAL INFORMATION Six months ended Year ended 31 March 30 September Days Days Days Days Trade creditors turnover days (Note) Note: Trade creditors turnover days are calculated by dividing the average trade payables balance by corresponding cost of sales for the period multiplied by 365 days for each of the three years ended 31 March 2015 or 180 days for the six months ended 30 September Average trade payables balance is the average of the beginning and ending trade payables balances for the period. Trade payables Our trade payables balance decreased from approximately HK$14.3 million as at 31 March 2013 to approximately HK$10.5 million as at 31 March 2014, primarily due to (i) the decrease of approximately HK$11.5 million in inventory balance as at 31 March 2014, mainly attributable to the decrease of purchases from Company D as a result of the cessation of the supply of IC chips by Company D since January 2014; and (ii) payments made and financed by net cash generated from operating activities during the year ended 31 March 2014 and short term bills loans, which were subsequently repaid by cash received from sales of imaging electronic components. Our trade payables balances increased from approximately HK$10.5 million as at 31 March 2014 to approximately HK$15.8 million as at 31 March 2015, primarily attributable to the increase of approximately HK$4.6 million in trade payable due to Company A for purchases of CMOS sensors with 30-day credit period. Such purchases of CMOS sensors were included in the inventory balance as at 31 March The inventories of CMOS sensors purchased from Company A as at 31 March 2015 were substantially utilised as at the Latest Practicable Date. The trade payables as at 31 March 2015 were subsequently settled as at the Latest Practicable Date with cash and financing from short term bills loans, which were subsequently repaid by cash received from sales of imaging electronic components. Our trade payables balances decreased from approximately HK$15.8 million as at 31 March 2015 to approximately HK$13.9 million as at 30 September 2015, primarily due to the net effect of (i) the decrease of approximately HK$7.5 million in trade payable due to Company A for purchases of CMOS sensors; (ii) the absence of approximately HK$0.6 million in trade payable due to Company B for purchases of digital imaging compression chips with 30-day credit period; and (iii) the increase of approximately HK$6.9 million in trade payable due to Kenxen for purchases of hunting camera. As at the Latest Practicable Date, the trade payable due to Kenxen as at 30 September 2015 was subsequently settled. The credit period on purchases of goods granted to us by our suppliers is normally up to 30 days. Our trade creditors turnover days were approximately 14.8 days, 16.3, and 16.3 days and 13.1 days, respectively, for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, which was in line with the credit period granted by our suppliers to us. 266

273 FINANCIAL INFORMATION The following table sets out an ageing analysis of our Group s trade payables based on the invoice date as at 31 March 2013, 2014, 2015 and 30 September 2015: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Within 1 month 9,524 9,628 15,057 9,725 Over 1 month to 3 months ,587 Over 3 months 4, ,591 Total 14,318 10,487 15,824 13,903 As at 31 January 2016, 100.0%, 100.0%, 100.0% and 100.0% of our Group s trade payables as at 31 March 2013, 2014, 2015 and 30 September 2015, respectively, were subsequently settled. Our Directors confirm that our Group did not have any material default in payment of accounts payable. Receipt in advance Receipt in advance remained stable at approximately HK$9.8 million and HK$9.5 million as at 31 March 2013 and 31 March 2014, respectively. The increase of approximately HK$4.4 million in receipt in advance as at 31 March 2015 as compared to that as at 31 March 2014 was primarily due to the increase of approximately HK$3.9 million in deposit made by Company K for sales order of hunting cameras. The increase of approximately HK$2.0 million in receipt in advance as at 30 September 2015 as compared to that as at 31 March 2015 was primarily due to the net effect of (i) the receipt in advance of approximately HK$13.4 million in relation to the disposal of office premises in the PRC; and (ii) the decrease of approximately HK$9.1 million in receipt in advance from Company K in relation to deposits for hunting camera orders. Derivative financial instruments forward foreign exchange contracts The derivative financial instruments mainly represent the forward foreign exchange contracts in relation to the RMB/USD exchange rate, which are valued based on the relevant bank s valuations. The carrying values of the derivative financial instruments were approximately US$210,000 (equivalent to approximately HK$1.6 million), US$102,000 (equivalent to approximately HK$0.8 million) and nil as at 31 March 2014, 2015 and 30 September 2015, respectively. The forward foreign exchange contracts are structured transactions that settle on a monthly basis and give our Group an opportunity to earn a monthly interest income in anticipation of the appreciation of RMB against USD if the expiry reference rate of RMB/USD 267

274 FINANCIAL INFORMATION is less than or equal to the pivot rate of RMB/USD. However, if the expiry reference rate of RMB/USD is greater than the pivot rate of RMB/USD, our Group will be obliged to sell USD against RMB for the notional amount at the pivot rate and therefore incur a loss. The forward foreign exchange contracts were entered in September 2013 and March 2014 and would be expired in September 2015 and March 2016, respectively. During each of the two years ended 31 March 2014 and 2015 and the six months ended 30 September 2014 and 2015, our Group received an aggregate interest income of HK$1.1 million, HK$0.9 million, HK$0.3 million and HK$0.2 million, respectively. Our Group had terminated all the forward foreign exchange contracts in August 2015 with a realised loss of approximately HK$1.5 million. As at the Latest Practicable Date, our Group did not have any outstanding position of forward foreign exchange contract and the Directors confirm that our Group currently has no intention to enter into any forward foreign exchange contract. Under the existing practice, any financial instruments are subject to approval by our chief executive officer. For any transactions in respect of financial instruments (including but not limited to foreign exchange forward contracts), our chief financial officer is responsible to prepare an information pack (including but not limited to a summary of the proposed trade and rationale, list of counterparties for performing the trade, bidding requirements, the maximum exposures, which shall be within 1% of total assets of latest financial statement of the Company, and the range of pricing of the financial instruments) for the chief executive officer in advance to review and the Board to approve. After the proposed financial instruments have been approved, an authorised person will execute the trade on behalf of our Group. Our chief financial officer is also responsible for preparing a quarterly report in conjunction with the Board meetings, which shall include the summary of existing financial instruments and assessment of current exposure to foreign exchange, interest rates and price fluctuation. Please also refer to Directors, Senior Management and Staff Senior Management for details of the qualification and experience of Mr. Leung, our chief financial officer. Other payables and accruals Other payables and accruals amounted to approximately HK$2.5 million, HK$5.9 million, HK$10.2 million and HK$5.7 million as at 31 March 2013, 2014, 2015 and 30 September 2015, respectively. The increase of approximately HK$3.4 million in other payables and accruals as at 31 March 2014 was primarily contributed by the accrual of service fee payable to Shenzhen Yunxu of approximately HK$2.5 million. The increase of approximately HK$4.3 million in other payables and accruals as at 31 March 2015 was mainly due to the net effect of (i) the increase of the accrual of service fee payable to Shenzhen Yunxu of approximately HK$3.2 million; and (ii) the increase of approximately HK$1.3 million in accrual for staff cost. The decrease of approximately HK$4.5 million in other payables and accruals as at 30 September 2015 was mainly due to the net effect of (i) the absence of approximately HK$5.7 million in the accrual of service fee payable to Shenzhen Yunxu; and (ii) the increase of approximately HK$1.1 million in the accrual in relation to Listing expenses. A provision of approximately HK$0.4 million for non-compliance on deed tax and stamp duty in relation to the purchase of the office premises in the PRC during the year ended 31 March 2013 was included in the amount of other payables and accruals as at 31 March For details of non-compliance on deed tax and stamp duty, see Business Legal compliance and proceedings. 268

275 FINANCIAL INFORMATION Our Directors confirm that our Group did not have any material default in payment of accruals and other payables during the Track Record Period. Amounts due from related companies The amounts due from related companies are interest-free and repayment on demand. The amounts due from related companies increased by approximately HK$1.0 million from approximately HK$0.6 million as at 31 March 2013 to approximately HK$1.6 million as at 31 March This was primarily resulted from the increase of approximately HK$0.9 million in the amount due from Vision Electronics Limited. The amounts due from related companies, which mainly represent the funds advanced to related companies, increased by approximately HK$1.4 million from HK$1.6 million as at 31 March 2014 to approximately HK$3.0 million as at 31 March This was primarily due to the net effect of (i) the increase of approximately HK$3.0 million in the amount due from SLT HK; (ii) the decrease of approximately HK$0.9 million in the amount due from Vision Electronics Limited; and (iii) the decrease of approximately HK$0.6 million in the amount due from Pro-vision Electronics Limited. Our Directors confirm that all outstanding balances due from related companies as at 31 March 2015 had been settled. For details of the related companies, see Relationship with Controlling Shareholders. Amounts due from director The amounts due from director increased by approximately HK$18.5 million from nil as at 31 March 2013 to approximately HK$18.5 million as at 31 March The amounts due from director decreased by approximately HK$1.8 million from approximately HK$18.5 million as at 31 March 2014 to approximately HK$16.7 million as at 31 March The amounts due from director comprised settlement from our customers received by Mr. Lee on behalf of our Group. During the Track Record Period, at the request of some of our PRC customers, the payments in relation to the sales of imaging electronic components from ASD Technology to them were settled by way of cash deposits or bank transfers made to Mr. Lee s personal bank accounts in the PRC. We permitted the Arrangement for convenience and efficiency purposes for our PRC customers. As we generally do not grant credit terms to the customers of ASD Technology and our sales are conducted on a payment in advance of delivery basis, our PRC customers have to make payments to our Group s bank account in Hong Kong before delivery. Given that ASD Technology did not maintain any PRC bank account and the considerable time required to remit funds from the PRC to Hong Kong, some of our PRC customers would directly make payments to Mr. Lee s personal bank accounts in the PRC so that we could process their urgent orders as soon as possible. The sales amounts settled under the Arrangement for the three years ended 31 March 2015 were approximately HK$46.5 million, HK$26.8 million and HK$3.4 million, which represented approximately 15.3%, 8.3% and 1.0% of the total revenue for each of the three years ended 31 March 2015, respectively. Our Group had been downsizing the scale of the sales under the Arrangement during the Track Record Period and had completely ceased the Arrangement since February As at the Latest Practicable Date, the PRC bank accounts of Mr. Lee involved in the Arrangement were all closed (save for one account which Mr. Lee uses for mortgage payments in the PRC). We had also sent notices to our PRC customers involved in the Arrangement notifying them that all future payments must be remitted to our Group s bank accounts in Hong Kong. Our 269

276 FINANCIAL INFORMATION Directors consider that even if these customers terminate business relationship with us after the cessation of the Arrangement, it would not have any material adverse financial and operational impact on our Group as a whole as our Group recorded a stable increase of total revenue for the three years ended 31 March 2015 and the six months ended 30 September 2015 of approximately HK$303.2 million, HK$321.8 million, HK$336.0 million and HK$233.8 million, respectively, and our Group will continue to attend trade fairs to solicit new customers and expand into the overseas markets in the U.S. and Europe. See Description and analysis of principal items in the combined statements of profit or loss and other comprehensive income Revenue Geographical breakdown of our revenue. Our Directors do not foresee material difficulty in finding other customers when necessary. During the Track Record Period, our Group had adopted proper internal control measures to account for the relevant sales under the Arrangement and the corresponding cash proceeds denominated in RMB being paid to Mr. Lee by our PRC customers. For the receipts collection from cash on delivery under the Arrangement, customer directly paid to Mr. Lee s personal bank accounts. After receipt of payment from our customers, our customer services staff would inform the accounting department that payment had been made and the accounting department would counter check Mr. Lee s personal bank accounts as supporting for sales recognition. For the timely recognition of the relevant sales under the Arrangement, our Group follows the regular procedures by generating a goods delivery note and sales invoice from our accounting system for delivery of goods. After payment by our PRC customers, the accounting department updated the bank movement summary in accordance with the online banking record for Mr. Lee s personal bank accounts in the PRC in respect of relevant sales under the Arrangement. The accounting department also prepares the accounting records for the cash receipts in respect of relevant sales under the Arrangement accordingly, which were subject to the review by a senior accounting supervisor and approval of the chief financial officer or executive Director. Our Group has revised our internal control manual to require all the receipt, payment and money transfer for our Group s business must be made via our Group s bank accounts. Our sales department will also require these customers to pay directly to our Group s bank accounts in Hong Kong before processing any orders or arranging delivery of products for them and therefore, ASD Technology had opened a bank account in the PRC. Our Directors confirm that the purpose of setting up the Arrangement was to receive sales proceeds on behalf of our Group and the Arrangement did not involve any fraud, money laundering or other illegal activities. Mr. Lee further confirms that he had not derived any personal benefit from the Arrangement. Our Directors confirm that the amounts received by Mr. Lee on behalf of our Group under the Arrangement had not been remitted out of the PRC to our Group by Mr. Lee, it was accounted by our Group as the amounts due from director. Our Group had settled the amounts due from director by cash and set off with amounts due to directors. Our Directors confirm that all outstanding balances due from director as at 31 March 2015 had been settled by cash and set off with amounts due to directors as at 31 March As advised by our PRC Legal Advisers, according to the Notice of the State Administration of Foreign Exchange on Matters concerning the Issuance of Foreign Exchange Administration Rules for Trade in Goods ( ) and its appendix the Detailed Implementation Rules for the Guidelines for the Foreign Exchange Administration of Trade in Goods ( ) (Huifa [2012]No.38) issued by SAFE on 27 June 2012 and became effective on 1 August 2012, PRC 270

277 FINANCIAL INFORMATION enterprises shall handle foreign exchange payments and receipts under the principle of whoever exports collects foreign exchange and whoever imports pays foreign exchange. The PRC enterprises shall declare foreign exchange payments and receipts for trade according to the provisions on the declaration of balance-of-payments statistics and the declaration of information on foreign exchange payments and receipts for trade and fill out the relevant declaration documents based on the flow of foreign exchange payments and receipts for trade. The PRC enterprises will be subject to imposition of fines or penalties due to non-compliance with the above provisions by SAFE. In the Arrangement, the imaging electronic components purchased by our PRC customers from ASD Technology constituted importing goods, they did not pay the amounts directly to ASD Technology which violated the above provisions of the Detailed Implementation Rules for the Guidelines for the Foreign Exchange Administration of Trade in Goods ( ), and they may be subject to imposition of fines or penalties. However, there is no such provisions that oversea enterprises or oversea persons will be subject to imposition of fines or penalties in the Detailed Implementation Rules for the Guidelines for the Foreign Exchange Administration of Trade in Goods ( ), therefore, our Group and our Directors should not be fined or penalised for the Arrangement. In addition, the amounts received by Mr. Lee on behalf of our Group under the Arrangement was accounted by our Group as the amounts due from director and had been settled by cash and set off with amounts due to directors. Since there was no remittance of money out of the PRC to our Group by Mr. Lee, our PRC Legal Advisers are of the opinion that the settlement did not involve any PRC foreign exchange laws and regulations. As advised by our PRC Legal Advisers, there are no other laws or regulations of the PRC that are applicable to the Arrangement and our Group and our Directors did not violate any other laws and regulations of the PRC. Our PRC Legal Advisers had made verbal enquiries with consultant officers of the Current Items Administrative Department and the Supervision Department of Shenzhen Branch of SAFE on 17 November 2014 and 26 October 2015 as to whether oversea enterprises or oversea persons involved in such Arrangement would violate any applicable PRC foreign exchange laws and regulations, or are subject to any fines or penalties. The consultant officers provided a verbal confirmation that the oversea enterprises or oversea persons did not violate any applicable PRC foreign exchange laws and regulations, and therefore should not be fined or penalized by SAFE. Based on the above, our PRC Legal Advisers are of the opinion that our Group and our Directors did not violate any PRC laws and regulations through their involvements in the Arrangement, and should not be fined or penalised. Our PRC Legal Advisers are of the opinion that the consultant officers of the Current Items Administrative Department and the Supervision Department of Shenzhen Branch of SAFE were authorised to give such confirmation. Further, our PRC Legal Advisers had made verbal enquiry with a taxation consultant officer of the Tax Service Department of Shenzhen Provincial Office of the SAT on 23 March 2015 as to whether the income derived from a Hong Kong company selling goods in Hong Kong to its customers in the PRC is subject to enterprise income tax. The consultant officer provided a verbal confirmation that income derived from such transaction should not be subject to enterprise income tax as the transaction takes place outside the PRC. As such, our PRC Legal Advisers are of the opinion that the sale of products in Hong Kong to PRC companies by ASD Technology were not subject to enterprise income tax in the PRC. Our PRC Legal Advisers are of the opinion that the taxation consultant officer was authorized to give such confirmation. The amounts due from director amounted to nil as at 31 March 2013 was due to the fact that the amount for the year has been set off by the declared interim dividend of HK$12.0 million to shareholders. Our Directors confirm that all outstanding balances due from director as at 31 March 2015 had been settled by cash and set off with amounts due to directors as at 31 March

278 FINANCIAL INFORMATION Amounts due to directors The amounts due to directors represent the amounts due to Mr. Lee for funding of our Group s operation. The amounts due to directors are unsecured, interest free and have no fixed repayment terms. The amounts due to directors remained stable at approximately HK$25.1 million as at 31 March 2014 and increased to approximately HK$42.1 million as at 31 March The amounts due to directors decreased to approximately HK$0.5 million as at 30 September Our Directors confirm that all outstanding balances due to directors as at 31 October 2015 had been fully settled. TAX RECOVERABLE AND TAX PAYABLE Our tax recoverable balance of approximately HK$0.7 million as at 31 March 2013 was mainly due to the overpayment on tax for ASD Technology partially offset by the tax provision for the year ended 31 March 2013 and an under-provision of a taxable gain previously not recognised in prior year. The under-provision of income tax arose from the additional assessment of profit tax in relation to the gain on disposal of a property by ASD Technology for the year of tax assessment 2010/11 which was subsequently paid for a notice of assessment received during the year ended 31 March Our tax recoverable balance of approximately HK$2.5 million as at 31 March 2015 was mainly attributable to the overpayment on tax for Systech Electronics and ASD Technology partially offset by the tax provision for the year ended 31 March Our tax recoverable balance decreased to approximately HK$2.0 million as at 30 September 2015, mainly due to the payment of provisional tax for prior period partially offset by the tax provision for the period for Systech Electronics and the tax provision for ASD Technology for the period. Our tax payable balance increased from approximately HK$1.1 million as at 31 March 2013 to approximately HK$2.0 million as at 31 March 2014, primarily due to the increase of profit before taxation mainly resulted from the increase of gross profit of approximately HK$17.9 million. Our tax payable balance decreased to approximately nil as at 31 March 2015, primarily due to the tax payment made during the year ended 31 March Our tax payable balance slightly increased to HK$0.2 million as at 30 September 2015, mainly attributable to the tax provision for ASD Technology for the period partially offset by the payment of provisional tax for ASD Technology for prior period. INDEBTEDNESS Borrowings The table below sets out our borrowings, according to the original repayment date, as at the dates indicated: As at 31 March As at 30 September As at 31 January HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Short-term bank and other loans Within 1 year or on demand 54, , , , ,

279 FINANCIAL INFORMATION As at 31 March As at 30 September As at 31 January HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Long-term bank loans repayable on demand After 1 year but within 2 years 7,846 5,118 7,334 3,673 After 2 years but within 5 years 23,162 13,817 9,803 6,310 After 5 years 19,816 6,946 3, ,824 25,881 20,764 10, ,316 47,171 92,585 78,967 54,289 As at 31 March 2013, 2014, 2015 and 30 September 2015, the bank and other loans were secured as follows: As at 31 March As at 30 September As at 31 January HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Bank and other loans Secured 101,573 47,090 87,750 67,125 52,023 Unsecured 3, ,835 11,842 2, ,316 47,171 92,585 78,967 54,289 The following table sets out an interest rate analysis of our borrowings as of the dates indicated: As at 31 March As at 30 September As at 31 January % % % % % Interest rate range (per annum) 0.93%-5.25% 1.21%-3.73% 1.20%-2.95% 1.20%-5.25% 2.99%-5.25% As at 31 March 2013, 2014, 2015, 30 September 2015 and 31 January 2016, our bank and other loans amounted to approximately HK$105.3 million, HK$47.2 million, HK$92.6 million, HK$79.0 million and HK$54.3 million, respectively. The decrease in our bank loans by approximately HK$58.1 million from approximately HK$105.3 million as at 31 March 2013 to approximately HK$47.2 million as at 31 March 2014 was primarily attributable to (i) the decrease of approximately HK$35.1 million in mortgage loans resulted from the disposals of 273

280 FINANCIAL INFORMATION three residential properties and three carpark units during the year ended 31 March 2014; and (ii) the decrease of approximately HK$20.5 million in bills loans. The increase in our bank loans by approximately HK$45.4 million from approximately HK$47.2 million as at 31 March 2014 to approximately HK$92.6 million as at 31 March 2015 was primarily attributable to the increase of approximately HK$45.7 million in bills loans for the year ended 31 March The decrease in our bank and other loans by approximately HK$13.6 million from approximately HK$92.6 million as at 31 March 2015 to approximately HK$79.0 million as at 30 September 2015 was primarily attributable to the decrease of approximately HK$10.7 million in mortgage loans resulted from the disposals of one residential property and one carpark unit during the six months ended 30 September The decrease in our bank and other loans by approximately HK$24.7 million from approximately HK$79.0 million as at 30 September 2015 to HK$54.3 million as at 31 January 2016 was primarily attributable to the decrease of approximately HK$5.2 million in a term loan and the decrease of approximately HK$9.1 million in mortgage loans resulted from the disposals of commercial properties in Hong Kong. Our bank and other loans bear interest rates ranging between 0.93% and 5.25% per annum, between 1.21% and 3.73% per annum, between 1.20% and 2.95% per annum, between 1.20% and 5.25% per annum and between 2.99% and 5.25% per annum, as at 31 March 2013, 2014, 2015, 30 September 2015 and 31 January 2016, respectively. As at 31 March 2013, 2014, 2015 and 30 September 2015, our secured bank loans with a carrying amount of approximately HK$101.6 million, HK$47.1 million, HK$87.8 million and HK$67.1 million, respectively, had to comply with certain covenants and undertakings. In the event of a breach of the covenants or undertakings, the bank may declare that the loan to be cancelled and the loan together with all interest, fees and commissions accrued to be immediately due and payable to the bank. During the year ended 31 March 2013, we breached one of the undertakings of a bank loan with a carrying amount of HK$69.9 million as at 31 March 2013, which required us to notify the bank before distributing a dividend. Upon the bank s discovery of the breach subsequent to review of audited accounts of our subsidiaries for the year ended 31 March 2013, our Directors contacted the relevant lender and commenced a negotiation on the waiver of the relevant undertaking of the relevant loan with such lender. On 6 June 2014, we reentered into a banking facilities agreement with the relevant lender with the relevant undertaking in the loan agreement being no longer required after satisfactory completion of all documents and conditions required by the relevant lender. To avoid the reoccurrence of similar incidents, from January 2015 onwards, we have adopted certain internal control measures to ensure compliance with the terms and conditions stipulated in the loan agreements which we entered into. Such internal control measures include monthly review of compliance with these terms and conditions with proper documentation conducted by our chief financial officer and is responsible for our Group s on-going compliance with the covenants contained in our various loan agreements. Our chief financial officer prepares and updates a summary of terms and conditions of banking facilities and immediately upon any change in banking facilities or receiving any notice from banks. The summary will highlight the important bank covenants and requirements, including gearing ratio. 274

281 FINANCIAL INFORMATION Our chief financial officer regularly reviews the monthly financial statements to ensure the financial indicators are in compliance with the bank covenants. On a quarterly basis, our company secretary will report the summary to our executive Directors to inform the Board of any material changes or new requirements. If chief financial officer identifies any potential breach of covenants, the incident will be brought to the attention of our executive Director immediately and the Board will be notified by our executive Directors. Our company secretary will communicate with the bank, if necessary, and make sure the non-compliance will be avoided. Our Directors consider that the qualification and experience of our current chief financial officer, being Mr. Leung Ting Yuk is adequate and sufficient for our Group s on-going monitoring and compliance. For details of Mr. Leung Ting Yuk s qualification and experience, see Directors, Senior Management and Staff. As at 31 March 2013, 2014, 2015, 30 September 2015 and 31 January 2016, we had total banking facilities of approximately HK$174.9 million, HK$158.2 million, HK$144.9 million, HK$124.8 million and HK$116.4 million of which approximately HK$105.3 million, HK$47.2 million, HK$92.6 million, HK$69.8 million and HK$52.3 million were utilised, respectively. The remaining banking facilities of approximately HK$69.6 million, HK$111.0 million, HK$52.3 million, HK$55.0 million and HK$64.1 million were not utilised, respectively. As at 31 January 2016, we had unutilised banking facilities of approximately HK$60.5 million available for draw down. Our Group s banking facilities are subject to requirements including, but not limited to, gearing ratio, tangible net worth and pledged bank deposits. As of the close of business on 31 January 2016, being the latest practicable date for the purpose of ascertaining information contained in the indebtedness statement of our Group, we have outstanding secured bills loans of approximately HK$52.0 million secured by the assets of and/or guaranteed by Mr. Lee and/or Ms. Kwok. These borrowings will subsist after the Listing. As at the Latest Practicable Date, all the banks had either provided in-principle consents or entered into new banking facility agreement with our subsidiaries to release the above personal guarantees and to replace the above personal guarantees by corporate guarantee or replacement security given by one or more members of our Group upon Listing. The in-principle consents from the banks are generally subject to, among others, (i) the Shares becoming successfully listed on the Stock Exchange, and (ii) the execution of guarantees (in the form and substance satisfactory to the banks) by the Company in favour of the banks. Contingent liabilities Saved as disclosed in Note 24 of the Accountants Report, we did not have any material contingent liabilities. The above banking facilities as at 31 March 2013, 2014, 2015 and 30 September 2015 did not contain any material covenants. Save and except the breach of covenants as mentioned above, our Directors confirmed that there was neither material delay nor default in payment of 275

282 FINANCIAL INFORMATION our borrowings, nor did we breach any relevant financial covenants, during the Track Record Period. To the best of our Directors knowledge, information and belief, our Group will not have difficulties in obtaining new banking facilities or renewing our existing banking facilities after Listing. Save for the abovementioned, our Group did not have any outstanding loan capital issued and outstanding or agreed to be issued, term loans, bank overdrafts, other borrowings or other similar indebtedness, liabilities under acceptances (other than normal trade bills) or acceptable credits, debentures, mortgages, charges, finance leases or hire purchase commitments, guarantees, banking facility or other material contingent liabilities as at 30 September Our Directors confirm that, up to the Latest Practicable Date, there had been no material change in indebtedness, capital commitment and contingent liabilities of our Group since 30 September As at the Latest Practicable Date, our Group did not have any plans to raise any material debt financing shortly after Listing. LISTING EXPENSES Our Directors are of the view that the financial results of our Group for the year ending 31 March 2016 is expected to be adversely affected by, among others, the Listing expenses, the nature of which is non-recurring. The total Listing expenses, primarily consisting of fees paid or payable to professional parties, underwriting commissions, selling concession and a praecipium fee, are estimated to be approximately HK$38.0 million (assuming a Placing Price of HK$1.04 per Placing Share, being the mid-point of the indicative Placing Price range of HK$1.00 to HK$1.08 per Placing Share). During the Track Record Period, we incurred Listing expenses of approximately HK$20.0 million of which approximately HK$15.2 million was recognised in the combined statements of profit or loss and other comprehensive income and HK$4.8 million was recognised as prepayments in the combined statements of financial position which will be accounted for as a deduction from equity upon Listing. We expect to further incur Listing expenses in the amount of approximately HK$18.0 million prior to and upon completion of the Placing, of which, (i) approximately HK$11.2 million is expected to be recognised as expenses in our combined statements of profit or loss and other comprehensive income for the year ending 31 March 2016; and (ii) approximately HK$6.8 million is expected to be accounted for as a deduction from equity upon Listing. Our Directors would like to emphasise that the amount of the Listing expenses is a current estimate for reference only and the final amount to be recognised in the combined financial statements of our Group for the year ending 31 March 2016 is subject to adjustment based on audit and the then changes in variables and assumptions. Prospective investors should note that the financial performance of our Group for the year ending 31 March 2016 is expected to be adversely affected by the estimated non-recurring Listing expenses mentioned above, and may or may not be comparable to the financial performance of our Group in the past. Please also refer to Risk Factors Our Directors estimate that our Company s annual results for the year ending 31 March 2016 will decline when compared to the year ended 31 March for details. 276

283 FINANCIAL INFORMATION RELATED PARTY TRANSACTIONS During the Track Record Period, we had entered into certain related party transactions, details of which are set out in note 23 of section B of the Accountants Report. Our Directors confirm that during the Track Record Period, the terms of the related party transactions (including recurring and non-recurring transactions) were conducted on an arm s length basis. During the Track Record Period, our Group was under cross guarantee arrangements with Kenxen and SLT HK in respect of banking facilities granted to our Group, Kenxen and SLT HK which our Group has charged service fee income against Kenxen and SLT HK. The service fee income is non-recurring in nature. The cross guarantee with SLT HK had been released subsequent to 31 March 2015 and the cross guarantee with Kenxen will be released upon Listing. Having considered that the amounts of these related party transactions are immaterial as compared to the revenue generated by our Group, our Directors are of the view that the aforesaid related party transactions did not distort our financial results during the Track Record Period or cause our Track Record Period results to be unreflective of our future performance. OFF-BALANCE SHEET TRANSACTIONS We have not entered into any material off-balance sheet transactions or arrangements during the Track Record Period. 277

284 FINANCIAL INFORMATION ANALYSIS OF THE KEY FINANCIAL RATIOS Six months ended Year ended 31 March 30 September Gross profit margin (%) (Note 1) 8.6% 13.6% 12.4% 12.4% Net profit margin (%) (Note 2) 2.7% 9.9% 0.1% 5.0% Net profit margin (%) (excluding net gain on sale of property, plant and equipment, net gain on sale of non-current assets classified as held for sale and impairment loss on remeasurement of non-current assets held for sale) (Note 3) 0.1% 4.0% 0.5% 1.9% Return on equity (%) (Note 4) 15.0% 36.8% 2.2% 53.1% Return on equity (%) (excluding net gain on sale of property, plant and equipment, net gain on sale of non-current assets classified as held for sale and impairment loss on remeasurement of non-current assets held for sale) (Note 5) 0.4% 14.7% 7.1% 20.5% Return on total assets (%) (Note 6) 3.8% 16.9% 0.3% 8.6% Return on total assets (%) (excluding net gain on sale of property, plant and equipment, net gain on sale of non-current assets classified as held for sale and impairment loss on remeasurement of non-current assets held for sale) (Note 7) 0.3% 12.9% 1.3% 4.9% Interest coverage (times) (Note 8) 7.20x 18.93x 1.91x 12.44x Interest coverage (times) (excluding net gain on sale of property, plant and equipment, net gain on sale of non-current assets classified as held for sale and impairment loss on remeasurement of non-current assets held for sale) (Note 9) 2.87x 9.44x 2.57x 6.57x As at As at 31 March 30 September Current ratio (Note 10) Quick ratio (Note 11) Gearing ratio (%) (Note 12) 245.4% 83.3% 604.3% 357.6% Gearing ratio (%) (excluding mortgage loans) (Note 13) 140.0% 57.0% 515.9% 316.8% Debt-to-equity ratio (%) (Note 14) 227.2% 25.2% 355.5% 226.2% 278

285 FINANCIAL INFORMATION Notes: 1. Gross profit margin is calculated based on the gross profit for the period divided by total revenue for the period and multiplied by 100%. 2. Net profit margin is calculated based on the net profit for the period divided by total revenue for the period and multiplied by 100%. 3. Net profit margin (excluding net gain on sale of property, plant and equipment, net gain on sale of non-current assets classified as held for sale and impairment loss on remeasurement of non-current assets held for sale) is calculated based on the net profit for the period (excluding net gain on sale of property, plant and equipment, net gain on sale of non-current assets classified as held for sale and impairment loss on remeasurement of non-current assets held for sale) divided by total revenue for the period and multiplied by 100%. 4. Return on equity is calculated based on the net profit for the period divided by issued share capital and reserves at the end of the period and multiplied by 100%. 5. Return on equity (excluding net gain on sale of property, plant and equipment, net gain on sale of non-current assets classified as held for sale and impairment loss on remeasurement of non-current assets held for sale) is calculated based on the net profit for the period (excluding net gain on sale of property, plant and equipment, net gain on sale of non-current assets classified as held for sale and impairment loss on remeasurement of non-current assets held for sale) divided by issued share capital and reserves at the end of the period and multiplied by 100%. 6. Return on total assets is calculated based on the net profit for the period divided by total assets at the end of the period and multiplied by 100%. 7. Return on total assets (excluding net gain on sale of property, plant and equipment, net gain on sale of non-current assets classified as held for sale and impairment loss on remeasurement of non-current assets held for sale) is calculated based on the net profit for the period (excluding net gain on sale of property, plant and equipment, net gain on sale of non-current assets classified as held for sale and impairment loss on remeasurement of non-current assets held for sale) divided by total assets at the end of the period (excluding net book values of buildings held for own use, investment properties and non-current assets classified as held for sale) and multiplied by 100%. 8. Interest coverage is calculated based on the profit before interest and tax for the period divided by interest expenses for the period. 9. Interest coverage (excluding net gain on sale of property, plant and equipment, net gain on sale of non-current assets classified as held for sale and impairment loss on remeasurement of non-current assets held for sale) is calculated based on the profit before interest and tax for the period (excluding net gain on sale of property, plant and equipment, net gain on sale of non-current assets classified as held for sale and impairment loss on remeasurement of non-current assets held for sale) divided by interest expenses for the period. 10. Current ratio is calculated based on the total current assets at the end of the period divided by the total current liabilities at the end of the period. 11. Quick ratio is calculated based on the total current assets (excluding inventories) at the end of the period divided by the total current liabilities at the end of the period. 12. Gearing ratio is calculated based on total sum of debt, amounts due to directors at the end of the period divided by total equity at the end of the period and multiplied by 100%. 13. Gearing ratio (excluding mortgage loans) is calculated based on total sum of debt, amounts due to directors at the end of the period (excluding mortgage loans) divided by total equity at the end of the period and multiplied by 100%. 14. Debt to equity ratio is calculated based on net debt at the end of the period divided by total equity at the end of the period and multiplied by 100%. Net debt is defined to include all borrowings and amounts due to directors net of cash and cash equivalents, pledged bank deposits and amounts due from related companies and director. 279

286 FINANCIAL INFORMATION Gross profit margin The increase in the overall gross profit margin to approximately 13.6% for the year ended 31 March 2014 from approximately 8.6% for the year ended 31 March 2013 was primarily attributable to (i) a change in product mix with increased portion of sales of ODM and OBM video and imaging products segment; and (ii) the sales of certain imaging electronic components which were considered obsolete and slow-moving being written off before the Track Record Period and during 31 March Our sales of ODM and OBM video and imaging products segment generally has a higher gross profit margin than sales of imaging electronic components segment due to the value-added services tailor-made to our ODM customers needs which include, but not limited to, design ODM products, subcontracting procedures, quality control and logistics. In contrast, the sales of imaging electronic components involve less time cost and minimal design solution except for the design and engineering solutions provided to selective customers. The decrease in the overall gross profit margin from approximately 13.6% for the year ended 31 March 2014 to approximately 12.4% for the year ended 31 March 2015 was mainly attributable to (i) the decrease in gross profit margin of sales of CMOS sensors from approximately 7.8% for the year ended 31 March 2014 to approximately 5.7% for the year ended 31 March 2015 mainly resulted from the competitive price provided for bulk purchases from Company N, a new customer, being one of our Group s five largest customers for the year ended 31 March 2015; (ii) the decrease in sales of digital imaging compression chips and its contribution to the gross profit margin; and (iii) the decrease of approximately HK$7.8 million in gross profit of ODM scanner mouse with a relatively high gross profit margin of approximately 20.8% during the year ended 31 March The overall gross profit margin remained stable at approximately 12.4% for the six months ended 30 September Net profit margin Our net profit margins were approximately 2.7%, 9.9%, 0.1% and 5.0% for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. Our net profit margin increased from approximately 2.7% for the year ended 31 March 2013 to approximately 9.9% for the year ended 31 March 2014 mainly attributable to (i) the increase in gross profit margin from approximately 8.6% for the year ended 31 March 2013 to approximately 13.6% for the year ended 31 March 2014; and (ii) the increase of approximately HK$11.0 million in net gain on disposals of three residential properties and three carpark units during the year ended 31 March Our net profit margin decreased from approximately 9.9% for the year ended 31 March 2014 to approximately 0.1% for the year ended 31 March 2015 mainly due to (i) less disposal gain on sale of one residential property for the year ended 31 March 2015 as compared to the gain on disposals of three residential properties and three carpark units for the year ended 31 March 2014; (ii) the non-recurring impairment loss on remeasurement of non-current assets held for sale of approximately HK$4.7 million; and (iii) the non-recurring Listing expenses recognised during the year ended 31 March The increase in our net profit margin from approximately 0.1% for the year ended 31 March 2015 to approximately 5.0% for the six months ended 30 September 2015 was mainly attributable to (i) the increase in gross profit margins of hunting camera and CMOS sensors; and (ii) the increase of approximately HK$3.6 million in net gain on sale of properties. On the basis that our net gain on sale of property, plant and equipment, net gain on sale of non-current assets 280

287 FINANCIAL INFORMATION classified as held for sale and impairment loss on remeasurement of non-current assets held for sale during the Track Record Period were excluded, our net profit margins would be approximately 0.1%, 4.0%, 0.5% and 1.9% for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. For details on our overall financial performance, see Period-to-period comparison of results of operations. Return on equity Our return on equity was approximately 15.0%, 36.8%, 2.2% and 53.1% for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. Our return on equity for the year ended 31 March 2014 increased mainly because our growth of profit increased more than our total equity in terms of percentage for the year ended 31 March 2014 as a result of the increase in the growth of our net profit driven by the increases in gross profit and disposal gain on sale of properties. Our return on equity for the year ended 31 March 2015 decreased mainly because of the decreases in gross profit, disposal gain on sale of properties, the non-recurring Listing expenses and impairment loss on remeasurement of non-current assets held for sale. The increase in our return on equity from approximately 2.2% for the year ended 31 March 2015 to approximately 53.1% for the six months ended 30 September 2015 was mainly attributable to (i) the absence of impairment loss on remeasurement of non-current assets classified as held for sale of approximately HK$4.7 million, (ii) the decrease in non-recurring Listing expenses incurred during the six months ended 30 September 2015 as compared to that for the year ended 31 March 2015; and (iii) the increase of approximately HK$3.6 million in net gain on sale of properties. On the basis that our net gain on sales of property, plant and equipment, net gain on sale of non-current assets classified as held for sale and impairment loss on remeasurement of non-current assets held for sale during the Track Record Period were excluded, our return on equity would be approximately 0.4%, 14.7%, 7.1% and 20.5% for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. For details of our overall financial performance and our profit growth, see Period-to-period comparison of results of operations and Analysis of the key financial ratios Net profit margin respectively. Return on total assets Our return on total assets was approximately 3.8%, 16.9%, 0.3% and 8.6% for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. Our return on total assets increased for the year ended 31 March 2014 mainly attributable to the increase in the growth of our profit as compared to that for the year ended 31 March 2013 and the decrease of approximately HK$57.7 million in the property, plant and equipment mainly resulted from the disposals of three residential properties and three carpark units during the year ended 31 March Our return on total assets for the year ended 31 March 2015 decreased mainly because of the decreases in gross profit, disposal gain on properties, the non-recurring Listing expenses and impairment loss on remeasurement of non-current assets held for sale. On the basis that (i) our net gain on sales of property, plant and equipment, net gain on sale of non-current assets classified as held for sale and impairment loss on remeasurement of non-current assets held for sale during the Track Record Period; and (ii) net book values of buildings held for own use, investment properties and non-current assets classified as held for sale were excluded, our return on total assets would be approximately 281

288 FINANCIAL INFORMATION 0.3%, 12.9%, 1.3% and 4.9% for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. The increase in our return on total assets from approximately 0.3% for the year ended 31 March 2015 to approximately 8.6% for the six months ended 30 September 2015 was mainly attributable to (i) the absence of impairment loss on remeasurement of non-current assets classified as held for sale of approximately HK$4.7 million, (ii) the decrease in non-recurring Listing expenses incurred during the six months ended 30 September 2015 as compared to that for the year ended 31 March 2015; and (iii) the increase of approximately HK$3.6 million in net gain on sale of properties. For details of our overall financial performance and growth of our profit, see Period-to-period comparison of results of operations and Analysis of the key financial ratios net profit margin respectively. Interest coverage Interest coverage ratio increased from approximately 7.20 times as at 31 March 2013 to approximately times as at 31 March The interest coverage ratio increased for the year ended 31 March 2014 as compared to that for the year ended 31 March 2013 mainly due to the increase in profit before interest and tax. The interest coverage ratio decreased to approximately 1.91 times for the year ended 31 March 2015 as compared to that for the year ended 31 March 2014, mainly due to (i) less disposal gain on sale of one residential property for the year ended 31 March 2015 as compared to the gain on disposals of three residential properties and three carpark units for the year ended 31 March 2014; and (ii) the non-recurring Listing expenses of approximately HK$9.9 million and impairment loss on remeasurement of non-current assets held for sale of approximately HK$4.7 million recognised during the year ended 31 March On the basis that our net gain on sales of properties and impairment loss on remeasurement of non-current assets held for sale during the Track Record Period were excluded, our interest coverage ratio would be approximately 2.87 times, 9.44 times and 2.57 times for each of the three years ended 31 March 2015, respectively. The increase in our interest coverage ratio from approximately 1.91 times for the year ended 31 March 2015 to approximately times for the six months ended 30 September 2015 was mainly attributable to (i) the absence of impairment loss on remeasurement of non-current assets classified as held for sale of approximately HK$4.7 million; (ii) the decrease in non-recurring Listing expenses incurred during the six months ended 30 September 2015 as compared to that for the year ended 31 March 2015; and (iii) the increase of approximately HK$3.6 million in net gain on sale of properties. Further details of our financial performance are set out in Period-to-period comparison of results of operations. Current ratio Our current ratio increased from approximately 0.42 times as at 31 March 2013 to approximately 0.96 times as at 31 March 2014, respectively. Such increase was primarily attributable to the decrease in mortgage loans in relation to properties sold during the year ended 31 March Our current ratio remained stable at approximately 0.94 times as at 31 March The increase in our current ratio from approximately 0.94 times for the year ended 31 March 2015 to approximately 1.18 times for the six months ended 30 September 2015 was mainly attributable to the net effect of (i) the decrease of approximately HK$41.7 million in amount due to directors after repayment; (ii) the decrease of approximately HK$10.7 million 282

289 FINANCIAL INFORMATION in mortgage loans resulted from the disposals of one residential property and one carpark unit during the six months ended 30 September 2015; (iii) the decrease of approximately HK$9.1 million in receipt in advance from Company K in relation to deposits for hunting camera orders; (iv) the absence of service fee payable to Shenzhen Yunxu of approximately HK$5.7 million; and (v) the decrease of approximately HK$16.7 million in amounts due from directors. For details of our borrowings and operating cash flows, see Description and analysis of principal items in the combined statements of profit or loss and other comprehensive income Indebtedness Borrowings and Liquidity and capital resources respectively. Quick ratio Our quick ratio increased from approximately 0.23 times as at 31 March 2013 to approximately 0.77 times as at 31 March The increase is mainly due to the decrease in bank loans from approximately HK$105.3 million as at 31 March 2013 to approximately HK$47.2 million as at 31 March Our quick ratio remained stable at approximately 0.75 times as at 31 March The increase in our quick ratio from approximately 0.75 times for the year ended 31 March 2015 to approximately 0.95 times for the six months ended 30 September 2015 was mainly attributable to the net effect of (i) the decrease of approximately HK$41.7 million in amount due to directors after repayment; (ii) the decrease of approximately HK$10.7 million in mortgage loans resulted from the disposals of one residential property and one carpark unit during the six months ended 30 September 2015; (iii) the decrease of approximately HK$9.1 million in receipt in advance from Company K in relation to deposits for hunting camera orders; (iv) the absence of service fee payable to Shenzhen Yunxu of approximately HK$5.7 million; and (v) the decrease of approximately HK$16.7 million in amounts due from directors. For details of bank loans, see Description and analysis of principal items in the combined statements of profit or loss and other comprehensive income Indebtedness Borrowings. Gearing ratio Our gearing ratio was approximately 245.4% and 83.3% as at 31 March 2013 and 2014, respectively. The decrease in gearing ratio as at 31 March 2014 as compared to 31 March 2013 was mainly due to the decrease in bank loans from approximately HK$105.3 million as at 31 March 2013 to approximately HK$47.2 million as at 31 March 2014 as a result of the decrease in bills loans and the repayment of mortgage loans in relation to properties sold during the year ended 31 March Our gearing ratio increased to approximately 604.3% as at 31 March 2015 mainly due to the increase of approximately HK$45.7 million in bills loans for short term financing in relation to our Group s purchases of inventories and the decrease in total equity of our Group due to the dividend declared of HK$65.0 million for the year ended 31 March Our gearing ratio decreased to approximately 357.6% as at 30 September 2015 mainly due to (i) the decrease of approximately HK$41.7 million in amount due to directors after repayment; and (ii) the decrease of approximately HK$10.7 million in mortgage loans resulted from the disposals of one residential property and one carpark unit during the six months ended 30 September On the basis that the mortgage loans were excluded, our gearing ratio would be approximately 140.0%, 57.0%, 515.9% and 316.8% as at 31 March 2013, 2014, 2015 and 30 September 2015, respectively. For details of our bank loans, see Description and analysis of principal items in the combined statements of profit or loss and other comprehensive income Indebtedness Borrowings. 283

290 FINANCIAL INFORMATION SENSITIVITY AND BREAKEVEN ANALYSIS Sensitivity analysis Revenue For each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, revenue amounted to approximately HK$303.2 million, HK$321.8 million, HK$336.0 million, HK$178.2 million and HK$233.8 million, respectively. Fluctuation in the revenue could affect our operating profits. The following sensitivity analysis illustrates the impact of hypothetical fluctuations in our revenue on profit before taxations and profit for the year, assuming all other factors affecting our profit remain unchanged. Fluctuations are assumed to be 20% and 40% during each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, which correspond to the range of historical fluctuations of our revenue during each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and Increase/ (decrease) in cost of inventories Increase/ (decrease) in profit before taxation For the year ended 31 March For the six months ended 30 September Increase/ Increase/ Increase/ Increase/ Increase/ Increase/ Increase/ Increase/ (decrease) in (decrease) in (decrease) in (decrease) in (decrease) in (decrease) in (decrease) in (decrease) in profit for profit before profit for profit before profit for profit before profit for profit before the year taxation the year taxation the year taxation the year taxation Increase/ (decrease) in profit for the year HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ % 121, , , , , ,230 71,284 59,522 93,506 78,078 20% 60,631 50,627 64,359 53,740 67,204 56,115 35,642 29,761 46,753 39,039 (20%) (60,631) (50,627) (64,359) (53,740) (67,204) (56,115) (35,642) (29,761) (46,753) (39,039) (40%) (121,262) (101,254) (128,719) (107,480) (134,408) (112,230) (71,284) (59,522) (93,506) (78,078) 284

291 FINANCIAL INFORMATION Sensitivity analysis Cost of inventories For the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, the major component of our cost of sales was the purchase cost of inventories of the imaging electronic components, hunting cameras and scanner mouse we purchased from our suppliers. For each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, cost of inventories amounted to approximately HK$266.6 million, HK$271.1 million, HK$291.5 million, HK$155.3 million and HK$203.5 million, respectively, representing approximately 87.9%, 84.2%, 86.7%, 87.1% and 87.0% of our total revenue. Fluctuation in the cost of inventories could affect our selling price and profit margin, thus indirectly affect our operating profits. The following sensitivity analysis illustrates the impact of hypothetical fluctuations in our cost of inventories on profit before taxations and profit for the year, assuming all other factors affecting our profit remain unchanged. Fluctuations are assumed to be 20% and 40% during each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, which correspond to the range of historical fluctuations of our cost of inventories during each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and Increase/ (decrease) in cost of inventories (Decrease)/ increase in profit before taxation For the year ended 31 March For the six months ended 30 September (Decrease)/ (Decrease)/ (Decrease)/ (Decrease)/ (Decrease)/ (Decrease)/ (Decrease)/ (Decrease)/ increase in increase in increase in increase in increase in increase in increase in increase in profit for profit before profit for profit before profit for profit before profit for profit before the year taxation the year taxation the year taxation the year taxation (Decrease)/ increase in profit for the year HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ % (106,648) (89,051) (108,428) (90,537) (116,585) (97,348) (62,118) (51,869) (81,395) (67,965) 20% (53,324) (44,526) (54,214) (45,269) (58,292) (48,674) (31,059) (25,934) (40,697) (33,982) (20%) 53,324 44,526 54,214 45,269 58,292 48,674 31,059 25,934 40,697 33,982 (40%) 106,648 89, ,428 90, ,585 97,348 62,118 51,869 81,395 67,965 Sensitivity analysis Staff costs For the three years ended 31 March 2015, the major component of our selling and administrative expenses was staff costs, which comprises salaries, bonus and retirement contributions. For each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, staff costs amounted to approximately HK$15.2 million, HK$16.5 million, HK$20.7 million, HK$9.2 million and HK$11.8 million, respectively, representing approximately 5.0%, 5.1%, 6.2%, 5.2% and 5.0% of our total revenue. Fluctuation in the staff cost could affect our operating profits and profit margin. The following sensitivity analysis illustrates the impact of hypothetical fluctuation in our staff cost on profit before taxations and profit for the year, assuming all other factors affecting our profit remain unchanged. Fluctuation is assumed to be 15% and 30% for the three years ended 31 March 2015 and the six months ended 30 September 2014 and 2015, which correspond to the range of historical fluctuations of staff cost during each of the three years ended 31 March 2015 and the six months ended 30 September 2014 and

292 FINANCIAL INFORMATION Increase/ (decrease) in staff costs (Decrease)/ increase in profit before taxation For the year ended 31 March For the six months ended 30 September (Decrease)/ (Decrease)/ (Decrease)/ (Decrease)/ (Decrease)/ (Decrease)/ (Decrease)/ (Decrease)/ increase in increase in increase in increase in increase in increase in increase in increase in profit for profit before profit for profit before profit for profit before profit for profit before the year taxation the year taxation the year taxation the year taxation (Decrease)/ increase in profit for the year HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ % (4,562) (3,809) (4,948) (4,132) (6,201) (5,178) (2,757) (2,302) (3,536) (2,952) 15% (2,281) (1,904) (2,474) (2,066) (3,101) (2,589) (1,379) (1,151) (1,768) (1,476) (15%) 2,281 1,904 2,474 2,066 3,101 2,589 1,379 1,151 1,768 1,476 (30%) 4,562 3,809 4,948 4,132 6,201 5,178 2,757 2,302 3,536 2,952 Breakeven analysis For the year ended 31 March 2013, it is estimated that (i) with a decrease in revenue of approximately 3.3% and all other variables held constant, our Group would achieve breakeven; (ii) with an increase in cost of inventories of approximately 3.7% and all other variables held constant, our Group would achieve breakeven; and (iii) with an increase in staff costs of approximately 65.1% and all other variables held constant, our Group would achieve breakeven. For the year ended 31 March 2014, it is estimated that (i) with a decrease in revenue of approximately 11.9% and all other variables held constant, our Group would achieve breakeven; (ii) with an increase in cost of inventories of approximately 14.1% and all other variables held constant, our Group would achieve breakeven; or (iii) with an increase in staff costs of approximately 231.5% and all other variables held constant, our Group would achieve breakeven. For the year ended 31 March 2015, it is estimated that (i) with a decrease in revenue of approximately 0.2% and all other variables held constant, our Group would achieve breakeven; (ii) with an increase in cost of inventories of approximately 0.2% and all other variables held constant, our Group would achieve breakeven; and (iii) with an increase in staff costs of approximately 2.8% and all other variables held constant, our Group would achieve breakeven. For the six months ended 30 September 2014, it is estimated that (i) with a decrease in revenue of approximately 4.7% and all other variables held constant, our Group would achieve breakeven; (ii) with an increase in cost of inventories of approximately 5.4% and all other variables held constant, our Group would achieve breakeven; and (iii) with an increase in staff costs of approximately 90.7% and all other variables held constant, our Group would achieve breakeven. For the six months ended 30 September 2015, it is estimated that (i) with a decrease in revenue of approximately 6.0% and all other variables held constant, our Group would achieve breakeven; (ii) with an increase in cost of inventories of approximately 6.9% and all other variables held constant, our Group would achieve breakeven; and (iii) with an increase in staff costs of approximately 119.8% and all other variables held constant, our Group would achieve breakeven. CAPITAL EXPENDITURES Historical capital expenditures Our capital expenditures primarily comprised purchase of property, plant and equipment of approximately HK$19.3 million, HK$0.4 million, HK$0.8 million and HK$0.8 million for each of the three years ended 31 March 2015 and the six months ended 30 September 2015, respectively. We principally funded our capital expenditures through internal resources, bank loans and financings from Controlling Shareholders. 286

293 FINANCIAL INFORMATION Planned capital expenditures Save for the planned usage of the net proceeds from the Placing as disclosed in Future Plans and Use of Proceeds in this prospectus and the additions of property, plant and equipment, such as furniture and fixtures, office equipments, computers and leasehold improvement necessary for our business operations which will be made by our Group from time to time, our Group had no material planned capital expenditures as at the Latest Practicable Date. CONTRACTUAL OBLIGATIONS Commitments under operating leases The total future minimum lease payments under non-cancellable operating leases are payable as follows: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Within 1 year , After 1 year but within 5 years ,144 1,714 1,173 Our Group is the lessee in respect of a number of properties held under operating lease. The lease typically runs for an initial period of 1 to 3 years with an option to renew the lease when all terms are renegotiated. None of the leases includes contingent rentals. PROPERTY INTERESTS As at the Latest Practicable Date, we leased two properties in Hong Kong and two properties in the PRC. As at the Latest Practicable Date, we did not own any properties in the PRC and Hong Kong. For details, see Business Property. TREASURY MANAGEMENT AND INVESTMENT POLICIES It is our Group s treasury management policy not to engage in any highly leveraged or speculative derivative products. In this respect, our Group continued to adopt a conservative approach to financial risk management, with majority of cash in either Hong Kong dollars, US dollars, Renminbi or in the local currencies of the operating subsidiaries, keeping a minimum exposure to foreign exchange risks. In respect of cash and cash equivalents or deposits with financial institutions, our Group only places with major financial institutions which, management believe, are of high credit rating. 287

294 FINANCIAL INFORMATION After listing, foreign forward exchange contracts can only be entered into if they are intended to reduce the foreign exchange risk and/or offset potential losses that may be incurred by our Group. Prior to purchase of these contracts, the chief financial officer of our Group, Mr. Leung Ting Yuk, is responsible to prepare a treasury plan with analysis of risk exposure of these contracts for the Board to review and approve. For continuous monitoring, the management in collaboration with our accounting department are held responsible for the on-going monitoring of our investments and would report to the Board for any event that may affect our investments. The chief financial officer is responsible to prepare a quarterly report in conjunction with the Board meetings, which shall include a summary of our Group s existing investments (including financial instruments), actual cash flow reports and cashflow projections and an assessment of exposures to investment and liquidity risks. Our Directors consider that the professional qualification and extensive working experience of our chief financial officer is adequate and sufficient to help our Group oversee and ensure the compliance of its treasury and investment strategies with our Group s policies approved by the Board. For details of Mr. Leung Ting Yuk s qualification and experience, see Directors, Senior Management and Staff. DIVIDEND POLICY Save for the dividends in the amount of (i) HK$12.0 million declared by ASD Technology to its then shareholders during the year ended 31 March 2013 and the amount was settled through the current account with director; (ii) an interim dividend in the amount of HK$65.0 million declared by ASD Technology on 13 February 2015 and subsequently paid to its then shareholders; and (iii) an interim dividend in the amount of HK$12.0 million declared by Systech Electronics on 30 April 2015 and subsequently paid to its then shareholders, we had not declared other dividend during the Track Record Period and up to the Latest Practicable Date. As at the Latest Practicable Date, ASD Technology and Systech Electronics had paid all of the above declared dividend to the then shareholders of ASD Technology and Systech Electronics in cash out of our internal resources, respectively. Investors should nevertheless pay attention to the possible impact on our cashflow and working capital as a result of the payment of the dividend. Our Directors intend to strike a balance between maintaining sufficient capital to grow our business and rewarding our Shareholders. The declaration of future dividends will be subject to Directors decision and will depend on, among other things, our earnings, financial condition, cash requirements and availability, the amount of distributable profits based on HKFRS, the Memorandum and Articles of Association, the Companies Law, applicable laws and regulations and any other factors our Directors may consider relevant. Currently, we do not have any predetermined dividend distribution ratio. Accordingly, potential investors should note that dividend payments in the past should not be regarded as indication of future dividend policy. There can be no assurance that we will declare dividends in the future. Any distributable profits that are not distributed in any given year will be retained and available for distribution in subsequent years. To the extent profits are distributed as dividends, such portion of profits will not be available to be reinvested in our operations. 288

295 FINANCIAL INFORMATION QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of our Group s business. Our Group s exposure to these risks and the financial risk management policies and practices used by our Group to manage these risks are described below. (a) Credit risk Our Group s credit risk is primarily attributable to trade and other receivables. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. In respect of trade and other receivables, individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customer s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Trade receivables are due within 21 to 90 days from the date of billing. Normally, our Group does not obtain collateral from customers. Our Group s exposure to credit risk is influenced mainly by the individual characteristics of each customer rather than the industry or country in which the customers operate and therefore significant concentration of credit risk primarily arises when our Group has significant exposure to individual customers. As at 31 March 2013, 2014, 2015 and 30 September 2015, 28%, 38%, 47% and 32% of the total trade receivables were due from our Group s largest customer and 79%, 39%, 62% and 75% were due from the five largest customers of our Group, respectively. Except for the financial guarantees given by our Group as set out in note 24 of the Accountants Report, our Group does not provide any other guarantees which would expose our Group to credit risk. (b) Liquidity risk Our Group s policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term. Management of our Group believes there is no significant liquidity risk as our Group is able to generate net cash inflow from operating activities and has sufficient committed facilities to fund our operations and debt servicing requirements and to satisfy our future working capital and financing requirements from our operation cash flows and available bank financing. (c) Interest rate risk Our Group s interest rate risk arises primarily from interest-bearing deposits and bank borrowings. Deposits and bank borrowings at variable rates and at fixed rates expose 289

296 FINANCIAL INFORMATION our Group to cash flow interest rate risk and fair value interest rate risk respectively. Our Group s interest rate profile is set out in note 21(c) of the Accountants Report. At 31 March 2013, 2014, 2015 and 30 September 2015, it is estimated that a general increase/decrease of 100 basis points in interest rates, with all other variables held constant, would have decreased/increased our Group s profit after tax for the year and retained profits by approximately HK$810,000, HK$149,000, HK$534,000 and HK$393,000, respectively. The sensitivity analysis above indicates the instantaneous change in our Group s profit after tax for the year and retained profits that would arise assuming that the change in interest rates had occurred at the end of the reporting periods and had been applied to re-measure those financial instruments held by our Group which expose our Group to fair value interest rate risk at the end of the reporting periods. In respect of the exposure to cash flow interest rate risk arising from floating rate non-derivative instruments held by our Group at the end of reporting periods, the impact on our Group s profit after tax for the year and retained profits is estimated as an annualised impact on interest income or expense of such a change in interest rates. The analysis is performed on the same basis throughout the Track Record Period. (d) Currency risk The functional currency and reporting currency of our Company and its subsidiaries is HKD, except that the functional currency and reporting currency of our Group s PRC subsidiary is RMB. Our Group is exposed to currency risks primarily arising from sales and purchase which give rise to receivables, payables and cash balances which are denominated in USD and RMB. As HKD is pegged to USD, our Group considers the risk of movements in exchange rates between HKD and USD to be insignificant. In respect of balances denominated in RMB, our Group ensures that the net exposure is kept to an acceptable level by buying or selling foreign currency at spot rates where necessary to address short term imbalances. Please refer to note 21(d)(i) of the Accountants Report for details of our Group s exposure at the end of reporting periods to currency risk arising from recognised assets or liabilities denominated in a currency other than the functional currency of the entity to which they relate. The following table indicates the approximate change in our Group s profit after tax and retained profits that would arise if the foreign exchange rates to which our Group has significant exposure at the end of the reporting periods had changed at that date, assuming all other risk variable remained constant. In this respect, it is assumed that (i) the pegged rate between the HKD and the USD would be materially unaffected by any changes in movement in value of the USD against other currencies; and (ii) the change in foreign exchange rates had been applied to re-measure those financial instruments held by our Group which expose our Group to foreign currency risk at the end of the reporting periods. 290

297 FINANCIAL INFORMATION As at 31 March As at 30 September Effect on Effect on Effect on Effect on Increase/ (decrease) in foreign exchange rates profit after tax and retained profits Increase/ (decrease) in foreign exchange rates profit after tax and retained profits Increase/ (decrease) in foreign exchange rates profit after tax and retained profits Increase/ (decrease) in foreign exchange rates profit after tax and retained profits HK$ 000 HK$ 000 HK$ 000 HK$ 000 RMB 5% 18 5% (97) 5% (198) 5% 51 (5)% (18) (5)% 97 (5)% 198 (5)% (51) It cannot be guaranteed that under certain exchange rate, we will have sufficient foreign exchange to satisfy our foreign exchange requirements or meet our dividend payment obligations to our Shareholders. DISTRIBUTABLE RESERVES Under the Companies Law, we may pay dividends out of our profit or our share premium account in accordance with the provisions of our Articles of Association, provided that immediately following the date on which the dividend is proposed to be distributed, we remain able to pay our debts as and when they fall due in the ordinary course of business. Our Company was incorporated on 16 December 2014 and there was no distributable reserve as at 30 September DISCLOSURE UNDER CHAPTER 17 OF THE GEM LISTING RULES Save as disclosed in this prospectus, our Directors have confirmed that as at the Latest Practicable Date, there are no circumstances which would give rise to a disclosure requirement under Rules to of the GEM Listing Rules. UNAUDITED PRO FORMA STATEMENT OF ADJUSTED NET TANGIBLE ASSETS The following statement of unaudited pro forma adjusted net tangible assets of our Group prepared in accordance with paragraph 7.31 of the GEM Listing Rules is for illustrative purposes only, and is set out below to illustrate the effect of the Placing on the net tangible assets of our Group as if the Placing had taken place on 30 September The unaudited pro forma statement of adjusted net tangible assets has been prepared for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position of our Group had the Placing been completed as at 30 September 2015 or at any future dates. 291

298 FINANCIAL INFORMATION Combined net tangible assets attributable to equity shareholders of our Company as at 30 September 2015 (1) Unaudited pro forma adjusted net tangible assets attributable to equity shareholders of our Company (3) Unaudited pro forma Estimated net proceeds from the Placing (2) adjusted net tangible asset per Share (4) HK$ 000 HK$ 000 HK$ 000 HK$ Based on a Placing Price of HK$1.00 per Placing Share 22,213 27,305 49, Based on a Placing Price of HK$1.08 per Placing Share 22,213 31,065 53, Notes: 1. The combined net tangible assets attributable to equity shareholders of our Company as at 30 September 2015 is based on the combined net assets of our Company of HK$22,213,000 as at 30 September 2015, as shown in the Accountants Report. 2. The estimated net proceeds from the Placing are based on the indicative Placing Price of HK$1.00 and HK$1.08 per Placing Share respectively, after deduction of the underwriting commissions, selling concession and a praecipium fee and other listing related expenses payable by us. 3. No adjustment has been made to the unaudited pro forma adjusted net tangible assets to reflect any trading results or other transactions of our Group entered into subsequent to 30 September The unaudited pro forma adjusted net tangible assets per Share is arrived at after the adjustments referred to in the preceding paragraphs and on the basis of 200,000,000 Shares in issue immediately following completion of the Capitalisation Issue and the Placing but taking no account of any Shares which may be allotted and issued pursuant to the exercise of any options that may be granted under the Share Option Scheme. RECENT DEVELOPMENTS AND NO MATERIAL ADVERSE CHANGE The material developments concerning our operations and financial position subsequent to 30 September 2015 and up to the Latest Practicable Date were: (i) the completion of the disposal of a property, namely, Unit No and Unit No. 2804, 28th Floor, West Tower, Shun Tak Centre, Connaught Road, Central, Hong Kong, for a consideration of HK$51.8 million between ASD Technology (as vendor) and an Independent Third Party (as purchaser) which took place on 7 October A gain on such disposal of approximately HK$19.9 million is expected to be recognised for the year ending 31 March 2016; and 292

299 FINANCIAL INFORMATION (ii) the completion of the disposal of a property, namely, Unit C on 12th Floor, Shen Ye Tai Ran Shuisong Building, Bin He Road, Futian District, Shenzhen City, Guangdong Province, the PRC for a consideration of RMB11.0 million (equivalent to approximately HK$13.4 million) between Aolang Electronics (as vendor) and Wenxingjin Management (as purchaser) for the purposes of setting the amounts due to directors by Aolang Electronics which took place on 20 October Such consideration was paid by Mr. Lee as a shareholder of Wenxingjin Management. The consideration of RMB11.0 million in relation to the disposal of the office premises was determined with reference to the Estimated Value as at the date of the sale and purchase agreement as estimated by the Center for Assessment and Development of Real Estate, Shenzhen ( ), an institution under the Urban Planning, Land and Resources Commission of Shenzhen Municipality ( ) responsible for, inter alia, valuation of properties in Shenzhen. Having considered that (a) the Center for Assessment and Development of Real Estate, Shenzhen, being a public institution established for more than 20 years, is experienced and is capable of providing the Estimated Value; and (b) the settlement of the amounts due to directors by Aolang Electronics, being a privately-owned company before the Listing, is an arrangement to enhance the financial independence of our Group, the Estimated Value was adopted even though it was lower than the original purchase price of the said property. Based on the above, our Directors are of the view and the Sponsor concurs that the terms of the disposal are fair and reasonable and in the interest of the Company. An impairment loss on remeasurement of non-current assets held for sale of approximately HK$4.7 million for the office premises in the PRC had been recognised for our Group for the year ended 31 March Save (i) as disclosed in Summary and Highlights Listing expenses ; (ii) as disclosed in Summary and Highlights Annual results for the year ending 31 March 2016 ; and (iii) as above, our Directors confirm, after performing sufficient due diligence work which they consider appropriate and after due and careful consideration, that as at the Latest Practicable Date, there had been no material adverse change in the financial and trading position or prospects of our Group; and that our revenue and cost structure had remained stable, since 30 September 2015, the date as of which the latest audited financial statements of our Group were prepared, and up to the date of this prospectus. To the best of our Directors knowledge, information and belief, subsequent to 30 September 2015 and up to the date of this prospectus, there had been no material change to the overall economic and market condition in the industry which we operate, which would have a material adverse effect on our business, results of operations or financial condition. 293

300 FUTURE PLANS AND USE OF PROCEEDS BUSINESS OBJECTIVE Our business objective is to grow our existing business through diversification of our revenue streams and expansion of our customer base by expanding product offerings and features. OUR BUSINESS STRATEGIES We will endeavour to achieve our business objective by implementing the following business strategies in accordance with the schedule set out in Implementation plan. The respective scheduled completion times are based on certain bases and assumptions as set out in Bases and assumptions. These bases and assumptions are inherently subject to many uncertainties and unpredictable factors, in particular the risk factors as set out in Risk Factors. Therefore, there is no assurance that our business plans will materialise in accordance with the estimated time frame and that our future plans will be accomplished at all. 1. Strengthen our research and development capability We plan to continue to strengthen our research and development capability and our research and development team to enhance our ability to respond to the market trend for video and imaging products: Expand our research and development team We intend to devote more resources to strengthen our research and development team by recruiting staff of different levels for our sale of (i) imaging electronic components; and (ii) ODM and OBM video and imaging products. For ASD Technology, we intend to recruit more engineers to support our development of design and engineering solutions, and our provision of the value-added services that we offer to our customers to complement the sales of our imaging electronic components. We intend to develop further the connectivity features for video and imaging products as we anticipate that connectivity features will be increasingly relevant to our video and imaging products as bluetooth, 2.4GHz and 5GHz Wi-Fi networks, 3G and 4G wireless connectivity in general become more popular due to rapid growth in the connectivity market. The various kinds of connectivity features will be applicable to different kinds of video and imaging products. We intend to develop higher resolution imaging solution for sport camera and drone to meet the increase trend of global demand. We also intend to develop applications for mobile phones and tablets, allowing users to use the relevant products as remote controls. For Systech Electronics, we intend to devote more resources to strengthen our research and development team by recruiting staff at different levels to generate product ideas and implement projects. 294

301 FUTURE PLANS AND USE OF PROCEEDS During the Track Record Period, we had been developing and selling our ODM and OBM video and imaging products, namely hunting camera, wired and wireless scanner mouses, bicycle camera, bluetooth tracker, door phone, car digital video recorder and gun camera. We consider that research and development, product innovation and product design and development are key factors for a competitive edge in the industry we operate in. In order to maintain our competitiveness and to better serve our customers, we will endeavour to develop and offer new products. As at the Latest Practicable Date, we had a patent application in relation to an adaptable lighting system in the U.S.. The adaptable lighting system comprises an image sensor, a microcontroller and one or more lighting unit(s). It provides for adaptive illumination. It is able to, calculate the illumination algorithm based on certain information of the environment, generate adjustment command, and adjust lighting output. Purchase additional machineries and equipment for wireless signal measurement, image quality measurement and light measurement As we plan to devote more resources in developing connectivity features for imaging products as well as new video and imaging products, we would need to purchase additional machineries and equipment mainly for wireless signal measurement (which can be used for projects for wireless scanner mouse, bicycle camera and hunting camera), image quality measurement (which can be used for all camera projects) and light measurement (which can be used for camera projects in relation to light and projects for hunting camera and bicycle camera) and establish a specialised testing laboratory. 2. Strengthen our marketing efforts through expansion of our sales and marketing team We plan to expand our sales and marketing team with the addition of staff with international sales experience in order to focus on the soliciting of new customers for our expanding product portfolio. 3. Enhance our efficiency through improvement of our working environment We plan to enhance our efficiency through improvement of our working environment by (i) relocating our office and renovating the new office; and (ii) upgrading our ERP system to cope with the increase in volume and complexity of our business. 295

302 FUTURE PLANS AND USE OF PROCEEDS BASES AND ASSUMPTIONS Potential investors should note that the attainability of our business objectives depends on the following general assumptions and specific assumptions: there will be no material changes in the existing political, legal, fiscal, social or economic conditions in Hong Kong or in any other places in which any member of our Group carries on its business or will carry on its business; there will be no material changes in the bases or rates of taxation in Hong Kong or in any other places in which any member of our Group operates or will operate; there will be no material changes in legislation or regulations whether in Hong Kong or elsewhere materially affecting the business carried on by our Group; there will be no significant changes in our business relationship with our major customers and suppliers; there will be no material changes in the funding required for each of the scheduled achievements as outlined in Implementation plan ; the Placing will be completed in accordance with and as described in Structure and Conditions of the Placing ; we will not be materially affected by the risk factors as set out in Risk Factors ; and we will have sufficient financial resources to meet the planned capital expenditure and business development requirements during the period to which the business objectives relate. IMPLEMENTATION PLAN We will endeavour to achieve the following milestone events during the period from the Latest Practicable Date to 31 March The respective scheduled completion time for these events are based on certain bases and assumptions as set out in Bases and assumptions. 296

303 FUTURE PLANS AND USE OF PROCEEDS For the six months ending From the Latest Practicable Date to 31 March September March September March 2018 Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Strengthen our research and development capability Expand our research and development team Recruit one research and development staff Recruit 10 research and development staff and retain the research and development staff recruited from the Latest Practicable Date to 31 March 2016 Recruit four research and development staff and retain the research and development staff recruited from the Latest Practicable Date to 30 September 2016 Retain the research and development staff recruited from the Latest Practicable Date to 31 March 2017, evaluate the performance of the research and development department and recruit additional staff, if necessary Retain the research and development staff recruited from the Latest Practicable Date to 31 March 2017, evaluate the performance of the research and development department and recruit additional staff, if necessary Amount to be applied from the net proceeds of the Placing , , ,932.8 Purchase additional machineries and equipment mainly for wireless signal measurement (which can be used for projects for wireless scanner mouse, bicycle camera and hunting camera), image quality measurement (which can be used for all camera projects) and light measurement (which can be used for camera projects in relation to light and projects for hunting camera and bicycle camera) Purchase equipment for research and development purposes and establish a specialised testing laboratory Continue to utilise the new equipment and specialised testing laboratory Continue to utilise the new equipment and specialised testing laboratory Continue to utilise the new equipment and specialised testing laboratory Amount to be applied from the net proceeds of the Placing 6, ,

304 FUTURE PLANS AND USE OF PROCEEDS For the six months ending From the Latest Practicable Date to 31 March September March September March 2018 Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Strengthen our marketing efforts through expansion of our sales and marketing team Recruit two sales and marketing staff Retain the sales and marketing and customer service staff recruited from the Latest Practicable Date to 31 March 2016 Retain the sales and marketing and customer service staff recruited from the Latest Practicable Date to 31 March 2016 Retain the sales and marketing and customer service staff recruited from the Latest Practicable Date to 31 March 2016 Retain the sales and marketing and customer service staff recruited from the Latest Practicable Date to 31 March 2016, evaluate the performance of the sales and marketing and customer service department and recruit additional staff, if necessary Amount to be applied from the net proceeds of the Placing ,610.0 Enhance our efficiency through improvement of our working environment Relocate our office and renovate the new office Continue occupation in the new office Continue occupation in the new office Continue occupation in the new office Upgrade ERP system Amount to be applied from the net proceeds of the Placing 1, ,300.0 Total , , , ,

305 FUTURE PLANS AND USE OF PROCEEDS REASONS FOR THE PLACING AND USE OF PROCEEDS Our Company intends to raise funds by the Placing in order to pursue our business objective as set out in Business objective. Although our Group has been operating in the industry of imaging electronic components and ODM and OBM video and imaging products for years and had maintained stable growth during the Track Record Period, in order to further penetrate into the industry and to increase our market share in the industry, we will continue to expand our customer base and develop various new products to cater for the ever changing consumer demand. Unlike other options of financing, the Listing will enhance our Group s corporate profile and increase the visibility of our products both domestically and globally, and hence increase our competitiveness in the industry. The Listing will also strengthen our financial position by providing us with additional working capital to implement our future plans as set out in Implementation plan. We estimate that the net proceeds to be received by us from the Placing, after deducting the underwriting commissions, selling concession and a praecipium fee and related expenses payable by our Company in the aggregate amount of approximately HK$38.0 million, will be approximately HK$14.0 million (assuming a Placing Price of HK$1.04 per Placing Share, being the mid-point of the indicative Placing Price range). We intend to apply such net proceeds from the Placing as follows: approximately HK$9.9 million, representing about 70.7% of the net proceeds from the Placing, will be used for strengthening our research and development capability, among which: approximately HK$3.9 million, representing about 27.9% of the net proceeds from the Placing, will be used for expanding our research and development team; and approximately HK$6.0 million, representing about 42.8% of the net proceeds from the Placing, will be used for purchasing additional machineries and equipment mainly for wireless signal measurement (which can be used for projects for wireless scanner mouse, bicycle camera and hunting camera), image quality measurement (which can be used for all camera projects) and light measurement (which can be used for camera projects in relation to light and projects for hunting camera and bicycle camera); approximately HK$1.6 million, representing about 11.4% of the net proceeds from the Placing, will be used for strengthening our marketing efforts through expansion of our sales and marketing team; approximately HK$1.3 million, representing about 9.3% of the net proceeds from the Placing, will be used for enhancing our efficiency through improvement of our working environment; and approximately HK$1.2 million, representing about 8.6% of the net proceeds from the Placing, will be used for general working capital of our Group. 299

306 FUTURE PLANS AND USE OF PROCEEDS The above allocation of the net proceeds from the Placing will be adjusted on a pro rata basis in the event that the Placing Price is fixed at a higher level or a lower level compared to the mid-point of the indicative Placing Price range. In the event that any part of the future plans does not materialise or proceed as planned, we will carefully evaluate the situation and may reallocate the intended funding to our other future plans and/or place the proceeds on short term interest bearing deposit accounts with licenced banks and/or financial institutions in Hong Kong so long as we consider it to be in the best interest of our Company and our Shareholders taken as a whole. Should our Directors decide to allocate the net proceeds from the Placing to business plans and/or new projects of our Group other than those disclosed in this prospectus after the Listing, we will make an announcement to notify our Shareholders and investors of the changes in compliance with the GEM Listing Rules. If the final Placing Price is set at the highest or lowest point of the indicative Placing Price range, the net proceeds to be received by us from the Placing will increase or decrease by HK$2.0 million, respectively. In such event, the net proceeds will be used in the same proportions as disclosed above irrespective of whether the Placing Price is determined at the highest or lowest of the indicative Placing Price range. We estimate that the Selling Shareholder will receive net proceeds of approximately HK$9.8 million from the Placing (after deduction of underwriting commissions, selling concession and a praecipium fee payable by the Selling Shareholder and assuming a Placing Price of HK$1.04 per Placing Share, being the mid-point of the indicative Placing Price range). Our Company will not receive any of the proceeds from the sale of the Sale Shares by the Selling Shareholder. 300

307 SPONSOR S INTEREST Save as disclosed in this prospectus, neither the Sponsor nor any of its close associates has or may have, as a result of the Placing, any interest in any securities of our Company or any other member of our Group (including rights to subscribe for such securities). Neither the Sponsor nor any of its close associates has accrued any material benefit as a result of the successful outcome of the Placing, other than the following: (i) by way of the documentation and financial advisory fee to be paid to the Sponsor for acting as the sponsor of the Listing; and (ii) certain close associates of the Sponsor whose usual and ordinary courses of business involve trading of and dealing in securities may derive commissions from the trading of and dealing in securities of our Company or provide margin financing in connection thereto or purchase or sell securities of our Company or hold securities of our Company for investment purposes after the Listing on GEM. None of the directors and employees of the Sponsor has any directorship in our Company or any other companies comprising our Group. 301

308 UNDERWRITING UNDERWRITERS Quam Securities Company Limited Pacific Foundation Securities Limited Ping An Securities Limited Ample Orient Capital Limited UNDERWRITING ARRANGEMENTS, COMMISSIONS AND EXPENSES Underwriting Agreement Pursuant to the Underwriting Agreement, our Company and the Selling Shareholder are offering the Placing Shares for subscription and for sale, respectively, by way of Placing at the Placing Price, subject to the terms and conditions in the Underwriting Agreement and this prospectus. Subject to, the Stock Exchange granting the listing of, and permission to deal in, the Shares in issue and any share to be issued as mentioned in this prospectus and to certain other conditions set out in the Underwriting Agreement being fulfilled, the Underwriters have agreed to subscribe for or purchase or procure subscribers or purchasers for the Placing Shares on the terms and conditions of the Underwriting Agreement and this prospectus. Grounds for termination The Sponsor and/or the Joint Global Coordinators (for themselves and on behalf of the Underwriters) shall have the absolute right to terminate the Underwriting Agreement by notice in writing to our Company (for itself and on behalf of the Selling Shareholder) with immediate effect if at any time prior to 8:00 a.m. on the Listing Date: (a) there has come to the notice of the Sponsor and/or the Joint Global Coordinators: (i) any statement contained in this prospectus, the post hearing information pack, the placing letter, the formal notice, any submission, document or information provided to the Sponsor and/or the Joint Global Coordinators and any announcement or document issued by our Company in connection with the Placing (including any supplement or amendment thereto) (the Relevant Documents ) which considered by the Sponsor and/or the Joint Global Coordinators in its/their sole and absolute opinion was, when it was issued, or has become, or been discovered to be untrue, incorrect, inaccurate or misleading in any material respect or any expression of opinion, intention or expectation contained in any such document is not, in all material respects fair and honest and based on reasonable assumptions, when taken as a whole; or 302

309 UNDERWRITING (ii) any matter has arisen or has been discovered which, had it arisen or been discovered immediately before the date of this prospectus, would have constituted, in the sole and absolute opinion of the Sponsor and/or the Joint Global Coordinators, a material omission from the Relevant Documents in the context of the Placing; or (iii) either (1) there has been a breach of any of the representations, warranties and undertakings or any other provisions set out in the Underwriting Agreement by any of our Company, our executive Directors and our Controlling Shareholders; or (2) any matter or event showing or rendering any of the representations, warranties and undertakings or any other provisions set out in the Underwriting Agreement, in the sole and absolute opinion of the Sponsor and/or the Joint Global Coordinators, to be untrue, incorrect, inaccurate or misleading in any material respect when given or repeated; or (iv) (v) (vi) any event, act or omission which gives or is likely to give rise to any liability of a material nature of any of our Company, our Controlling Shareholders and the executive Directors pursuant to the indemnity provisions under the Underwriting Agreement or the Placing to be performed or implemented as envisaged; or any event, series of events, matter or circumstance occurs or arises on or after the date of the Underwriting Agreement and prior to 8:00 a.m. on the Listing Date, being an event, a series of events, matter or circumstance which, if it had occurred before the date of the Underwriting Agreement, would have rendered any of the representations, warranties or undertakings set out in the Underwriting Agreement, in the sole and absolute opinion of the Sponsor and/or the Joint Global Coordinators, untrue, incorrect, inaccurate or misleading in any material respect; or approval by the Stock Exchange of the listing of, and permission to deal in, the Shares is refused or not granted before the Listing Date, other than subject to customary conditions, or if granted, the approval is subsequently withdrawn, qualified (other than by customary conditions) or withheld; or (vii) our Company withdraws any of the Relevant Documents (and/or any other documents used in connection with the contemplated issue and sale of the Placing Shares); or (viii) any person (other than the Sponsor, the Joint Global Coordinators and any of the Underwriters) has withdrawn or sought to withdraw its consent to the issue of any of the Relevant Documents with the inclusion of its reports, letters, summaries of valuations and/or legal opinions (as the case may be) and references to its name included in the form and context in which it respectively appears; or 303

310 UNDERWRITING (b) there shall develop, occur, happen, exist or come into effect: (i) (ii) any event, or series of events in the nature of force majeure, including, without limitation, acts of government or orders of any courts, labour disputes, riots, strikes, calamity, crisis, public disorder, lock-outs (whether or not covered by insurance), fire, explosion, flooding, earthquake, civil commotion, acts of war, acts of God, acts of terrorism (whether or not responsibility has been claimed), declaration of a national or international emergency, economic sanctions, outbreaks of diseases or epidemics (including but not limited to swine influenza (H1N1 flu), severe acute respiratory syndrome and avian influenza A (H5N1) and other related or mutated forms), accidents, interruption or delay in transportation, any local, national, regional or international outbreak or escalation of hostilities (whether or not war is or has been declared) or other state of emergency or calamity or crisis in Hong Kong or anywhere in the world; or any change or development involving a prospective change, or any event or series of events, matters or circumstances likely to result in or represent any change or development involving a prospective change, in the local, national, regional, international, financial, economic, political, military, industrial, fiscal, regulatory, currency, equity securities, credit, market, exchange control, stock market, financial market or other market conditions or any monetary or trading settlement system or matters and/or disaster (including without limitation any change in the system under which the value of the Hong Kong dollar is linked to that of the US dollar, or a material fluctuation in the exchange rate of the Hong Kong dollar or the Renminbi against any foreign currency, or any interruption in securities settlement or clearance service or procedures) in or affecting Hong Kong or anywhere in the world; or (iii) any adverse change in the general fund raising environment in Hong Kong or elsewhere; or (iv) (v) (vi) any new law or regulation or any change or development involving a prospective change in existing laws or regulations or any change or development involving a prospective change in the interpretation or application thereof by any court or other competent authority in or affecting Hong Kong, the PRC, the BVI or the Cayman Islands or any other jurisdictions relevant to any member of our Group or the Placing (the Relevant Jurisdictions ); or the imposition of economic sanctions or changes in existing economic sanctions, or withdrawal of trading privileges, in whatever form, directly or indirectly, by, or for, any of the Relevant Jurisdictions; or any change or development involving a prospective change in any taxation or exchange control (or the implementation of any exchange control, currency exchange rates or foreign investment laws or regulations) in any of the Relevant Jurisdictions; or 304

311 UNDERWRITING (vii) any change or development involving a prospective change, or a materialisation of, any of the risks in Risk Factors ; or (viii) any litigation or claim of material importance being threatened or instigated against any member of our Group or any Director; or (ix) (x) (xi) a Director being charged with an indictable offence or prohibited by operation of law or regulation or otherwise disqualified from taking part in the management of a company; or the chairlady or chief executive officer of our Company vacating his/her office; or the commencement by any governmental, regulatory or political body or organisation of any investigation or other action against a Director or any member of our Group or an announcement by any governmental, judicial, regulatory or political body or organisation that it intends to take any such action; or (xii) any contravention by any member of our Group or any Director or any Controlling Shareholder of the Companies Ordinance, the Companies (Winding Up and Miscellaneous Provisions) Ordinance, the Companies Law, the PRC Company Law, the GEM Listing Rules, the SFO or any applicable laws and regulations; or (xiii) a prohibition on our Company for whatever reason from offering, allotting or issuing any of the Placing Shares pursuant to the terms of the Placing; or (xiv) a prohibition on the Selling Shareholder for whatever reason from selling the Sale Shares pursuant to the terms of the Placing; or (xv) non-compliance by any member of our Group or any Director or any Controlling Shareholder of this prospectus (and/or any other documents used in connection with the issue and sale of the Placing Shares) or any aspect of the Placing with the GEM Listing Rules or any other applicable laws and regulations; or (xvi) other than with the written approval of the Sponsor and/or the Joint Global Coordinators, the issue or requirement to issue by our Company of a supplement or amendment to any of the Relevant Documents (and/or any other documents used in connection with the issue and sale of the Placing Shares) pursuant to the Companies (Winding Up and Miscellaneous Provisions) Ordinance or the GEM Listing Rules; or (xvii) a demand by any creditor for repayment or payment of any indebtedness of any member of our Group or in respect of which any member of our Group is liable prior to its stated maturity; or 305

312 UNDERWRITING (xviii) any material loss or damage sustained by any member of our Group (howsoever caused and whether or not the subject of any insurance or claim against any person); or (xix) any change or prospective change in the earnings, results of operations, business, business prospects, financial or trading position, conditions or prospects (financial or otherwise) of any member of our Group (including any litigation or claim of material importance being threatened or instigated against any member of our Group); or (xx) a petition or an order is presented for the winding-up or liquidation of any member of our Group or any member of our Group makes any composition or arrangement with its creditors or enters into a scheme of arrangement or any resolution is passed for the winding-up of any member of our Group or a provisional liquidator, receiver or manager is appointed over all or part of the assets or undertaking of any member of our Group or any analogous matter thereto occurs in respect of any member of our Group; or (xxi) a disruption in or any general moratorium on commercial banking activities or foreign exchange trading or securities settlement, or payment or clearance services or procedures in or affecting any of the Relevant Jurisdictions; or (xxii) the imposition of any moratorium, suspension or restriction on trading in shares or securities generally on or by the Stock Exchange, the New York Stock Exchange, the NASDAQ Global Market, the London Stock Exchange, the Tokyo Stock Exchange, the Shanghai Stock Exchange or the Shenzhen Stock Exchange, or minimum or maximum prices for trading having been fixed, or minimum or maximum ranges for prices having been required, by any of the said exchanges or by such system or by order of any regulatory or governmental authority, which, in each case or in aggregate, in the sole and absolute opinion of the Sponsor and/or the Joint Global Coordinators (for themselves and on behalf of the Underwriters): (A) (B) is or may or will be or is likely to be materially adverse to or may prejudicially affect the general affairs, management, business, financial, trading or other condition or prospects of our Group taken as a whole or any member of our Group or to any present or prospective shareholder in his, her or its capacity as such; or has or may or will or is likely to have a material adverse effect on the success or marketability or pricing of the Placing or the level of interest under the Placing or the distribution of the Placing Shares or the demand or market price of the Shares following the Listing; or 306

313 UNDERWRITING (C) makes or may or will make it inadvisable, inexpedient or impracticable to proceed with or to market the Placing on the terms and in the manner contemplated by the Underwriting Agreement and this prospectus; or (D) has or may or will or is likely to have the effect of making any part of the Underwriting Agreement (including underwriting) incapable of implementation or performance in accordance with its terms and in the manner contemplated by any of the Relevant Documents and the Underwriting Agreement or which prevents the processing of applications and/or payments pursuant to the Placing or pursuant to the underwriting thereof. Lock-up Undertakings Undertakings pursuant to the Underwriting Agreement Undertakings by our Company Pursuant to the Underwriting Agreement, our Company has undertaken to and covenanted with each of the Sponsor, the Joint Global Coordinators and the Underwriters that our Company will not, and each of our executive Directors and our Controlling Shareholders has jointly and severally undertaken to and covenanted with the Sponsor, the Joint Global Coordinators and the Underwriters that it/he/she will procure our Company not to, without the prior written consent of the Sponsor and/or the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and unless in compliance with the requirements of the GEM Listing Rules, except for the issue of Shares under the Capitalisation Issue or the Placing, the grant of any option under the Share Option Scheme or the issue of Shares upon exercise of any option granted under the Share Option Scheme: (i) at any time during the period commencing on the date by reference to which disclosure of the shareholding of our Controlling Shareholders in our Company is made in this prospectus and ending on the date which is six months from the Listing Date (the First Six-month Period ) offer, allot, issue, agree to allot or issue, sell, lend, assign, contract to allot, issue or sell, sell any option or contract to purchase, purchase any option or contract to sell, grant or agree to grant any options, rights or warrants to purchase or subscribe for, lend or otherwise transfer or dispose of, either directly or indirectly, or repurchase any of the share capital or other securities of our Company or any interest therein (including but not limited to any securities convertible into or exercisable or exchangeable for or that represent the right to receive any such share capital or securities or any interest therein), or enter into any swap, derivative, repurchase, lending, pledge or other arrangement that transfers to another, in whole or in part, any of the economic consequences of subscription or ownership of share capital or such other securities, in cash or otherwise, or publicly disclose that our Company will or may enter into any of the foregoing transactions (whether or not such transaction will be completed in the aforesaid period); and 307

314 UNDERWRITING (ii) at any time during the period of six months commencing on the date on which the First Six-month Period expires (the Second Six-month Period ), issue or grant (conditionally or unconditionally) any options or right to subscribe for or otherwise convert into or exchange for Shares or securities of our Company so as to result in any of our Controlling Shareholders ceasing to be a controlling shareholder (as defined in the GEM Listing Rules) of our Company; and in the event our Company enters into any transaction specified in sub-paragraph (i) above during the Second Six-month Period (whether or not such transaction will be completed in the aforesaid period), it shall take all reasonable steps to ensure that any such transaction, agreement, or as the case may be, announcement will not create a disorderly or false market in the securities of our Company. Undertakings by our Controlling Shareholders Each of our Controlling Shareholders has jointly and severally undertaken to and covenanted with each of our Company, the Sponsor, the Joint Global Coordinators and the Underwriters that, without the prior written consent of the Sponsor and/or the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and unless in compliance with the requirements of the GEM Listing Rules, it/he/she shall not, and will procure that none of its/his/her close associates or companies controlled by it/him/her or any nominee or trustee holding in trust for it/him/her shall, except for the sale of the Sale Shares by the Selling Shareholder: (i) at any time during the First Six-month Period, dispose of, nor enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of, any of the securities of our Company in respect of which it/he/she is shown by this prospectus to be the beneficial owner (whether direct or indirect); and (ii) at any time during the Second Six-month Period, dispose of, nor enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of any of the securities referred to in sub-paragraph (i) above if, immediately following such disposal or upon the exercise or enforcement of such options, rights, interests or encumbrances, any of our Controlling Shareholders would cease to be a controlling shareholder (as defined in the GEM Listing Rules) of our Company; and in the event that it/he/she enters into any transaction specified in sub-paragraph (i) above during the Second Six-month Period (whether or not such transaction will be completed in the aforesaid period), it/he/she will take all reasonable steps to ensure that any such transaction, agreement or as the case may be, announcement will not create a disorderly or false market in the securities of our Company. 308

315 UNDERWRITING Undertakings pursuant to the GEM Listing Rules Undertakings by our Company Our Company has undertaken to the Stock Exchange that, except pursuant to the Placing and the Share Option Scheme, no further shares or securities convertible into equity securities of our Company (whether or not of a class already listed) may be issued by our Company or form the subject of any agreement to such an issue within six months from the Listing Date (whether or not such issue of shares or securities will be completed within six months from the Listing Date), except for those permitted in accordance with Rule 17.29(1) to (5) of the GEM Listing Rules. Undertakings by our Controlling Shareholders Each of our Controlling Shareholders has undertaken to our Company and to the Stock Exchange that, except pursuant to the Placing, it/he/she shall not: (i) at anytime during the First Six-month Period, dispose of, nor enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of, any of those securities of our Company in respect of which it/he/she is shown by this prospectus to be the beneficial owner(s); and (ii) at anytime during the Second Six-month Period, dispose of, nor enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of, any of the securities referred to in sub-paragraph (i) above if, immediately following such disposal or upon the exercise or enforcement of such options, rights, interests or encumbrances, it/he/she would cease to be a controlling shareholder of our Company, save as permitted under the GEM Listing Rules. Each of our Controlling Shareholders has undertaken to and covenanted with our Company, the Sponsor, the Joint Global Coordinators, the Underwriters and the Stock Exchange that: (i) in the event that it/he/she pledges or charges any of its/his/her direct or indirect interest in the Shares or other securities of our Company under Rule 13.18(1) of the GEM Listing Rules or pursuant to any right or waiver granted by the Stock Exchange pursuant to Rule 13.18(4) of the GEM Listing Rules at any time during the period commencing on the date by reference to which disclosure of the shareholding of our Controlling Shareholders in our Company is made in this prospectus and ending on the date on which the Second Six-month Period expires, it/he/she must inform our Company, the Sponsor and the Joint Global Coordinators immediately thereafter, disclosing the details specified in Rule 17.43(1) to (4) of the GEM Listing Rules; and 309

316 UNDERWRITING (ii) having pledged or charged any of its/his/her interests in the Shares or other securities of our Company under sub-paragraph (i) above, it/he/she must inform our Company, the Sponsor and the Joint Global Coordinators immediately in the event that it/he/she becomes aware that the pledgee or chargee has disposed of or intends to dispose of such interest and of the number of the Shares or other securities of our Company affected. Our Company will also inform the Stock Exchange as soon as our Company has been informed of the above matters (if any) by any of our Controlling Shareholders and disclose such matters by way of announcement in accordance with GEM Listing Rules as soon as possible after being so informed by any of our Controlling Shareholders. Our Company, our Controlling Shareholders and the executive Directors have agreed to indemnify the Underwriters from certain losses which they may suffer, including losses arising from their performance of their obligations under the Underwriting Agreement and any breach by our Company or our Controlling Shareholders or the executive Directors of the Underwriting Agreement. Commission and expenses The Underwriters will receive an underwriting commissions of 1.0% of the aggregate Placing Price of all Placing Shares and the Underwriters and Opus Capital Limited (as applicable) will receive a selling concession of 1.0% of the aggregate Placing Price multiplied by the number of the Placing Shares actually placed by them, which are to be borne by our Company and the Selling Shareholder, out of which the Underwriters will pay any sub-underwriting commissions and will be reimbursed for their reasonable expenses. The Company and the Selling Shareholder will also pay to Quam Securities Company Limited a praecipium fee of 4.0% of the aggregate Placing Price of all Placing Shares. The total expenses relating to the Placing and Listing (including the GEM listing fees, legal and other professional fees and printing) are estimated to be approximately HK$38.0 million (assuming a Placing Price of HK$1.04 per Placing Share, being the mid-point of the indicative Placing Price range of HK$1.00 to HK$1.08 per Placing Share) which will be payable by our Company. Underwriters interest in our Company Save as disclosed in this prospectus and as contemplated pursuant to the Underwriting Agreement, none of the Underwriters or any of their close associates is interested legally or beneficially in the shares of any member of our Group or has any right or option (whether legally enforceable or not) to subscribe for or purchase or nominate persons to subscribe for or purchase any Shares. 310

317 STRUCTURE AND CONDITIONS OF THE PLACING PRICE PAYABLE ON SUBSCRIPTION Applicants shall have to pay on application the maximum Placing Price of HK$1.08 per Placing Share plus 1.0% brokerage fee, a 0.005% Stock Exchange trading fee and a % SFC transaction levy amounting to a total of approximately HK$4, per board lot of 4,000 Shares. CONDITIONS OF THE PLACING The Placing will be conditional upon, among others: (i) (ii) the Stock Exchange granting the listing of, and permission to deal in, the Shares in issue and the Shares to be issued as mentioned herein on GEM; the Price Determination Agreement having been executed by the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and our Company (for itself and on behalf of the Selling Shareholder) and becoming effective on the Price Determination Date; and (iii) the obligations of the Underwriters under the Underwriting Agreement becoming unconditional (including the waiver of any condition(s) by the Sponsor and/or the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and not being terminated in accordance with the terms of the Underwriting Agreement or otherwise). in each case, on or before the dates and times specified in the Underwriting Agreement (unless and to the extent such conditions are validly waived on or before such dates and times) and in any event not later than the date which is the 30th day after the date of this prospectus. If such conditions have not been fulfilled or waived prior to the times and dates specified, the Placing will lapse and the Stock Exchange will be notified immediately. Notice of the lapse of the Placing will be published on the website of the Stock Exchange at and our Company s website at on the next business day following such lapse. THE PLACING The 60,000,000 Placing Shares comprising 50,000,000 New Shares and 10,000,000 Sale Shares, representing in aggregate 30% of our Company s enlarged issued share capital immediately after the completion of the Capitalisation Issue and the Placing, will be offered under the Placing, which will be conditionally placed with professional, institutional and/or other investors. Professional and institutional investors generally include brokers, dealers, companies (including fund managers) whose ordinary business involves dealing in shares and other securities and corporate entities which regularly invest in shares and other securities. The Placing is fully underwritten by the Underwriters, subject to the terms and conditions of the 311

318 STRUCTURE AND CONDITIONS OF THE PLACING Underwriting Agreement, including the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and our Company (for itself and on behalf of the Selling Shareholder) agreeing the Placing Price. The minimum subscription or purchase size for each subscriber or purchaser of the Placing Share is 4,000 Placing Shares and thereafter in integral multiples of board lot size of 4,000 Shares. Investors subscribing for or purchasing the Placing Shares are required to pay the Placing Price plus 1.0% brokerage, a 0.005% Stock Exchange trading fee and a % SFC transaction levy for each board lot of 4,000 Shares. BASIS OF ALLOCATION Allocation of the Placing Shares to selected professional, institutional and/or other investors will be based on a number of factors, including the level and timing of demand and whether or not it is expected that the relevant investors are likely to purchase further Shares or hold or sell their Shares after the Listing. Such allocation is intended to result in a distribution of the Placing Shares which would lead to the establishment of a solid professional and institutional shareholder base to the benefit of our Company and the Shareholders as a whole. In particular, the Placing Shares will be allocated pursuant to Rule 11.23(8) of the GEM Listing Rules, which provides that not more than 50% of the Shares in public hands at the time of Listing will be owned by the three largest public Shareholders. There will not be any preferential treatment in the allocation of the Placing Shares to any persons. Save with the prior written consent of the Stock Exchange, no allocations will be permitted to nominee companies unless the name of the ultimate beneficiary is disclosed. PLACING PRICE The Placing Price will not be more than HK$1.08 per Placing Share and is expected to be not less than HK$1.00 per Placing Share. Subscribers, when subscribing for the Placing Shares, shall pay the Placing Price plus 1.0% brokerage, 0.005% Stock Exchange trading fee and % SFC transaction levy. Assuming the Placing Price of HK$1.08 or HK$1.00 per Share (being the highest and lowest points of the indicative Placing Price range respectively), subscribers shall pay HK$4, or HK$4, for every board lot of 4,000 Shares, respectively. The Placing Price is expected to be fixed by the Price Determination Agreement to be entered into between the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and our Company (for itself and on behalf of the Selling Shareholder) on the Price Determination Date, which is expected to be on or about Tuesday, 15 March 2016 or such later date as the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and our Company (for itself and on behalf of the Selling Shareholder) may agree. If, for any reason, the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and our Company (for itself and on behalf of the Selling Shareholder) are unable to reach an agreement on the Placing Price by the Price Determination Date, the Placing will not become unconditional and will lapse. 312

319 STRUCTURE AND CONDITIONS OF THE PLACING Prospective investors of the Placing Shares should be aware that the Placing Price to be determined on the Price Determination Date may be, but is currently not expected to be, lower than the indicative Placing Price range stated in this prospectus. If, the Joint Global Coordinators (for themselves and on behalf of the Underwriters), with the consent of our Company (for itself and on behalf of the Selling Shareholder), considers it appropriate (for instance, if based on the level of interest expressed by prospective investors), the indicative Placing Price range may be reduced below that stated in this prospectus at any time prior to the Price Determination Date. In the case of such reduction, our Company shall, as soon as practicable following the decision to make such reduction, and in any event not later than 9:00 a.m. on the Price Determination Date, cause to be published on the website of the Stock Exchange at and our Company s website at notice of the reduction of the indicative Placing Price range. The indication of level of interest in the Placing and the basis of allocations of the Placing Shares will be announced on the website of the Stock Exchange at and our Company s website at on or before Wednesday, 23 March SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS If the Stock Exchange grants the listing of, and permission to deal in, the Shares on GEM and our Company complies with the stock admission requirements of HKSCC, the Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the Listing Date or on any other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange is required to take place in CCASS on the second business day after any trading day. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time. All necessary arrangements have been made for the Shares to be admitted into CCASS. COMMENCEMENT OF DEALINGS IN THE SHARES Dealings in the Shares on GEM are expected to commence at 9:00 a.m. on Thursday, 24 March Shares will be traded in board lots of 4,000 Shares and are fully transferable. The GEM stock code for the Shares is

320 APPENDIX I ACCOUNTANTS REPORT The following is the text of a report, prepared for the purpose of incorporation in this prospectus, received from the Company s reporting accountants, KPMG, Certified Public Accountants, Hong Kong. 8th Floor Prince s Building 10 Chater Road Central Hong Kong 14 March 2016 The Directors ASD International Holdings Limited Quam Capital Limited Dear Sirs, INTRODUCTION We set out below our report on the combined financial information relating to ASD International Holdings Limited (the Company ) and its subsidiaries (together the Group ) which comprise the combined statements of financial position of the Group as at 31 March 2013, 2014 and 2015 and 30 September 2015 and the statements of financial position of the Company as at 31 March 2015 and 30 September 2015 and the combined statements of profit or loss and other comprehensive income, the combined statements of changes in equity and the combined cash flow statements of the Group, for each of the years ended 31 March 2013, 2014 and 2015 and the six months ended 30 September 2015 (the Relevant Periods ), and a summary of significant accounting policies and other explanatory information (the Financial Information ), for inclusion in the prospectus of the Company dated 14 March 2016 (the Prospectus ). The Company was incorporated in the Cayman Islands on 16 December 2014 as an exempted company with limited liability under the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. Pursuant to a group reorganisation completed on 2 March 2016 (the Reorganisation ) as detailed in the section headed History, Reorganisation and Corporate Structure in the Prospectus, the Company became the holding company of the companies now comprising the Group, details of which are set out in note 1(b) of Section B below. The Company has not carried on any business since the date of its incorporation save for the aforementioned Reorganisation. As at the date of this report, no audited financial statements have been prepared for the Company and Grand Prospect Power Limited, as they either have not carried on any business since the date of incorporation or are investment holding companies and not subject to statutory audit requirements under the relevant rules and regulations in their jurisdictions of incorporation. I-1

321 APPENDIX I ACCOUNTANTS REPORT All companies now comprising the Group have adopted 31 March as their financial year end date, except for Aolang Electronics (Shenzhen) Limited which adopts 31 December as its financial year end. Details of the companies comprising the Group that are subject to audit during the Relevant Periods and the names of the respective auditors are set out in note 28 of Section B. The statutory financial statements of these companies were prepared in accordance with Hong Kong Financial Reporting Standards ( HKFRSs ) issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ) or the Accounting Standards for Business Enterprises issued by the Ministry of Finance of the People s Republic of China (the PRC ). The directors of the Company have prepared the combined financial statements of the Group for the Relevant Periods (the Underlying Financial Statements ) on the same basis as used in the preparation of the Financial Information as set out in Section B below. The Underlying Financial Statements for each of the years ended 31 March 2013, 2014 and 2015 and the six months ended 30 September 2015 were audited by us under separate terms of engagement with the Company in accordance with Hong Kong Standards on Auditing issued by the HKICPA. The Financial Information has been prepared by the directors of the Company for inclusion in the Prospectus in connection with the listing of the shares of the Company on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited based on the Underlying Financial Statements, with no adjustments thereon and in accordance with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the Listing Rules ). DIRECTORS RESPONSIBILITY FOR THE FINANCIAL INFORMATION The directors of the Company are responsible for the preparation of the Financial Information that gives a true and fair view in accordance with HKFRSs issued by the HKICPA and the applicable disclosure provisions of the Listing Rules, and for such internal control as the directors of the Company determine is necessary to enable the preparation of the Financial Information that is free from material misstatement, whether due to fraud or error. REPORTING ACCOUNTANTS RESPONSIBILITY Our responsibility is to form an opinion on the Financial Information based on our procedures performed in accordance with Auditing Guideline Prospectuses and the Reporting Accountant (Statement 3.340) issued by the HKICPA. We have not audited any financial statements of the Company, its subsidiaries or the Group in respect of any period subsequent to 30 September OPINION In our opinion, the Financial Information gives, for the purpose of this report, and on the basis of preparation set out in note 1(b) of Section B below, a true and fair view of the financial position of the Group as at 31 March 2013, 2014 and 2015 and 30 September 2015 and the Company as at 31 March 2015 and 30 September 2015 and of the Group s financial performance and cash flows for the Relevant Periods then ended. I-2

322 APPENDIX I ACCOUNTANTS REPORT CORRESPONDING FINANCIAL INFORMATION For the purpose of this report, we have also reviewed the unaudited corresponding interim financial information of the Group comprising the combined statement of profit or loss and other comprehensive income, the combined statement of changes in equity and the combined cash flow statement for the six months ended 30 September 2014, together with the notes thereon (the Corresponding Financial Information ), for which the directors are responsible, in accordance with Hong Kong Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the HKICPA. The directors of the Company are responsible for the preparation of the Corresponding Financial Information in accordance with the same basis adopted in respect of the Financial Information. Our responsibility is to express a conclusion on the Corresponding Financial Information based on our review. A review consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the Corresponding Financial Information. Based on our review, for the purpose of this report, nothing has come to our attention that causes us to believe that the Corresponding Financial Information is not prepared, in all material respects, in accordance with the same basis adopted in respect of the Financial Information. I-3

323 APPENDIX I ACCOUNTANTS REPORT A COMBINED FINANCIAL INFORMATION OF THE GROUP 1 Combined statements of profit or loss and other comprehensive income Section B Note Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Revenue 2 303, , , , ,766 Cost of sales (277,168) (277,885) (294,337) (157,161) (204,712) Gross profit 25,987 43,912 41,682 21,049 29,054 Other revenue 3 4,980 4,971 6,865 3,081 2,660 Other net gain 4 8,775 17,962 3,779 3,964 5,691 Selling and administrative expenses (26,329) (28,710) (34,566) (16,065) (16,776) Other operating expenses 16 (4,728) Listing expenses (9,873) (2,907) (5,312) Profit from operations 13,413 38,135 3,159 9,122 15,317 Finance costs 5(a) (1,862) (2,014) (1,652) (725) (1,231) Profit before taxation 5 11,551 36,121 1,507 8,397 14,086 Income tax 6(a) (3,291) (4,238) (1,022) (1,434) (2,295) Profit for the year/period 8,260 31, ,963 11, Other comprehensive income for the year/period Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of financial statements of operations with functional currency other than Hong Kong dollars 3 (71) Other comprehensive income for the year/period (71) Total comprehensive income for the year/period 8,263 31, ,124 11,919 The accompanying notes form part of the Financial Information. I-4

324 APPENDIX I ACCOUNTANTS REPORT 2 Combined statements of financial position and statements of financial position The Group The Company As at As at As at Section B As at 31 March 30 September 31 March 30 September Note HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Non-current assets Property, plant and equipment 10 Investment properties Other property, plant and 65,288 36,216 31,160 equipment Deferred tax assets 19(b) 83,506 54, , ,794 91,195 33,061 1, Current assets Inventories 11 30,488 19,013 33,148 26,517 Trade and other receivables 12 27,494 27,813 26,153 33, Amounts due from related companies ,567 2,975 Amounts due from director 13 18,470 16,705 Tax recoverable 19(a) 663 2,481 1,962 Pledged bank deposits 15 1,000 1,000 7,154 6,515 Cash and cash equivalents 15 8,363 29,353 28,629 22,669 68,640 97, ,245 91, Non-current assets classified as held for sale 16 47,465 45,042 68,640 97, , , Current liabilities Trade and other payables 17 26,605 27,464 40,697 35, Amounts due to directors 14 29,447 25,087 42, Bank and other loans ,316 47,171 92,585 78,967 Tax payable 19(a) 1,100 1, , , , , Net current (liabilities)/assets (93,828) (4,469) (10,707) 20,925 (197) (399) Total assets less current liabilities 54,966 86,726 22,354 22,307 (197) (399) Non-current liabilities Deferred tax liabilities 19(b) NET ASSETS/(LIABILITIES) 54,914 86,726 22,294 22,213 (197) (399) CAPITAL AND RESERVES 20/27 Share capital 8,000 8,000 8,000 8,000 * * Reserves 46,914 78,726 14,294 14,213 (197) (399) TOTAL EQUITY/(NET DEFICIT) 54,914 86,726 22,294 22,213 (197) (399) * The balance represents an amount less than HK$1,000. The accompanying notes form part of the Financial Information. I-5

325 APPENDIX I ACCOUNTANTS REPORT 3 Combined statements of changes in equity Section B Note Share Exchange Retained Total capital reserve profits equity HK$ 000 HK$ 000 HK$ 000 HK$ 000 Balance at 1 April ,651 51, Changes in equity for the year ended 31 March 2013: Profit for the year 8,260 8,260 Other comprehensive income 3 3 Total comprehensive income for the year , , Issue of additional share capital 20(a) 7,490 7,490 Dividends declared in respect of the current year (12,000) (12,000) 7,490 (12,000) (4,510) Balance at 31 March 2013 and 1 April , , , Changes in equity for the year ended 31 March 2014: Profit for the year 31,883 31,883 Other comprehensive income (71) (71) Total comprehensive income for the year (71) 31, , Balance at 31 March 2014 and 1 April , (68) 78, , Changes in equity for the year ended 31 March 2015: Profit for the year Other comprehensive income Total comprehensive income for the year Dividend declared in respect of the previous years (65,000) (65,000) Balance at 31 March 2015 and 1 April , , , I-6

326 APPENDIX I ACCOUNTANTS REPORT Section B Note Share Exchange Retained Total capital reserve profits equity HK$ 000 HK$ 000 HK$ 000 HK$ 000 Changes in equity for the six months ended 30 September 2015: Profit for the period 11,791 11,791 Other comprehensive income Total comprehensive income for the period , , Dividends declared in respect of the previous years (12,000) (12,000) Balance at 30 September , ,070 22,213 (Unaudited) Balance at 1 April , (68) 78, , Changes in equity for the six months ended 30 September 2014: Profit for the period 6,963 6,963 Other comprehensive income Total comprehensive income for the period , , Balance at 30 September , ,757 93,850 The accompanying notes form part of the Financial Information. I-7

327 APPENDIX I ACCOUNTANTS REPORT 4 Combined cash flow statements Section B Note Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Operating activities Cash generated from/(used in) operations 15(c) 6,805 34,106 6,791 (8,762) 2,734 Hong Kong Profits Tax paid (3,947) (2,819) (6,119) (316) (1,188) Net cash generated from/(used in) operating activities 2, , (9,078) , Investing activities Interest received 623 1, (Increase)/decrease in pledged bank deposits (1,000) (6,154) (1,000) 639 Payment for the purchase of other property, plant and equipment (19,311) (368) (813) (53) (759) Proceeds from sale of property, plant and equipment 21,500 73,551 8,000 8,000 41,000 (Increase)/decrease in amounts due from related companies (620) (935) (1,408) (3,911) 2,975 (Increase)/decrease in amounts due from director (18,470) (13,235) (13,174) 31,705 Net cash generated from/(used in) investing activities 1, , (12,671) (9,819) , Financing activities Proceeds from new bank loans 158, , ,374 90, ,205 Repayment of bank loans (151,993) (255,586) (150,960) (68,757) (147,040) Repayment of other loan (3,941) (Decrease)/increase in amounts due to directors (4,651) (5,044) 2,515 1,005 (13,190) Interest paid (1,862) (2,014) (1,652) (725) (1,231) Dividend paid (35,000) (42,000) Net cash (used in)/generated from financing activities (265) (65,203) , , (83,197) Net increase/(decrease) in cash and cash equivalents 3,785 20,988 (722) 3,220 (5,891) Cash and cash equivalents at beginning of year/period 4,578 8,363 29,353 29,353 28,629 Effect of foreign exchange rate changes 2 (2) (9) (69) Cash and cash equivalents at end of year/period 8,363 29,353 28,629 32,564 22,669 The accompanying notes form part of the Financial Information. I-8

328 APPENDIX I ACCOUNTANTS REPORT B NOTES TO THE FINANCIAL INFORMATION 1 SIGNIFICANT ACCOUNTING POLICIES (a) Statement of compliance The Financial Information set out in this report has been prepared in accordance with HKFRSs, which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ( HKASs ) and related interpretations issued by the HKICPA. Further details of the significant accounting policies adopted by the Group are set out in the remainder of this Section B. The HKICPA has issued a number of new and revised HKFRSs. For the purpose of preparing this Financial Information, the Group has adopted all applicable new and revised HKFRSs to the Relevant Periods, except for any new standards or interpretations that are not yet effective for the Relevant Periods. The revised and new accounting standards and interpretations issued but not yet effective for the Relevant Periods are set out in note 29. This Financial Information also complies with the applicable disclosure provisions of the Listing Rules. The accounting policies set out below have been applied consistently to all periods presented in the Financial Information. The Corresponding Financial Information for the six months ended 30 September 2014 has been prepared in accordance with the same basis and accounting policies adopted in respect of the Financial Information. (b) Basis of preparation and presentation The Financial Information comprises the Company and its subsidiaries and has been prepared using the merger basis of accounting as if the Group had always been in existence, as further described below. The Company was incorporated in the Cayman Islands on 16 December Pursuant to the Reorganisation in preparation for the listing of the Company s shares on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited which was completed on 2 March 2016, the Company became the holding company now comprising the Group. The companies that took part in the Reorganisation were controlled by Mr. LEE Siu On and Ms. KWOK Mei Foon (the Controlling Shareholders ) prior to and after the Reorganisation. The control is not transitionary and, consequently, there was a continuation of the risks and benefits to the Controlling Shareholders. Therefore, the Reorganisation is considered as a business combination of entities under common control. The Financial Information has been prepared using the merger basis of accounting as if the companies now comprising the Group have been combined at the beginning of the Relevant Periods unless the combining companies first came under common control at a later date. The assets and liabilities of the combining companies are combined using the existing book values from the Controlling Shareholders perspective. The combined statements of profit or loss and other comprehensive income, the combined statements of changes in equity and the combined cash flow statements of the Group as set out in Section A include the combined results of operations of the companies comprising the Group for the Relevant Periods (or where the companies were incorporated at a date later than 1 April 2012, for the period from the date of incorporation to 30 September 2015) as if the current group structure had been in existence throughout the Relevant Periods. The combined statements of financial position of the Group as at 31 March 2013, 2014 and 2015 and 30 September 2015 as set out in Section A have been prepared to present the state of affairs of the Group as at the respective dates as if the Reorganisation had occurred at the beginning of the Relevant Periods. Intra-group balances and transactions have been eliminated in preparing the Financial Information. I-9

329 APPENDIX I ACCOUNTANTS REPORT As at the date of this report, the Company has direct and indirect interests in the following subsidiaries, all of which are private companies, particulars of which are set out below: Name of company Place and date of incorporation/ establishment and operation Particulars of issued and paid up capital Proportion of equity interest attributable to the Company Direct Indirect Principal activity Grand Prospect Power Limited British Virgin Islands ( BVI )/ 7 November ,000 shares of US$1 each 100% Investment holding ASD Technology Limited ( ASD Technology ) Systech Electronics Limited ( Systech Electronics ) Aolang Electronics (Shenzhen) Limited ( Aolang Electronics ) (Note) Hong Kong/ 25 March 2002 Hong Kong/ 17 September 2003 PRC/ 9 March ,000,000 shares 100% Sale of imaging electronic components 3,000,000 shares 100% Sale of original brand manufacturing ( OBM ) and original design manufacturing ( ODM ) video and imaging products HK$3,000, % Research and development Note: Aolang Electronics is registered under the laws of the PRC as foreign investment enterprise. The official name of the entity is in Chinese. The English name is for identification purpose only. (c) Basis of measurement and use of estimates and judgements The Financial Information is presented in Hong Kong Dollars ( HK$ ), rounded to the nearest thousand. The measurement basis used in the preparation of the Financial Information is the historical cost basis. Non-current assets and disposal groups held for sale are stated at lower of carrying amount and fair value less cost to sell (see note 1(u)). The preparation of the Financial Information in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of HKFRSs that have significant effect on the Financial Information and major sources of estimation uncertainty are discussed in note 25. I-10

330 APPENDIX I ACCOUNTANTS REPORT (d) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether the Group has power, only substantive rights (held by the Group and other parties) are considered. The financial information of subsidiaries is included in the Financial Information from the date that control commences until the date that control ceases. Merger accounting is adopted for common control combinations in which all of the combining entities are ultimately controlled by the Controlling Shareholders both before and after the business combination and that control is not transitory. Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the Financial Information. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment. (e) Investment property Investment properties are land and/or buildings which are owned to earn rental income and/or for capital appreciation. Investment properties are stated at cost less accumulated depreciation and impairment losses (see note 1(h)). Depreciation is calculated to write off the cost of investment properties over the shorter of the unexpired term of leases and their estimated useful lives, being no more than 50 years after the date of completion. Gains or losses arising from the retirement or disposal of an investment property are determined as the difference between the net disposal proceeds and the carrying amount of the investment property and are recognised in profit or loss as the date of retired or disposal. Rental income from investment properties is accounted for as described in note 1(r)(ii). (f) Other property, plant and equipment Other property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (see note 1(h)). Gains or losses arising from the retirement or disposal of an item of other property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal. Depreciation is calculated to write off the cost of items of other property, plant and equipment, less their estimated residual value, if any, using the straight line method over their estimated useful lives as follows: Building situated on leasehold land are depreciated over the shorter of the unexpired term of lease and their estimated useful lives, being no more than 50 years after the date of completion Leasehold improvements Over shorter of the remaining unexpired lease term of the lease and their estimated useful lives Furniture and fixtures 5 years Office equipment 5 years Motor vehicles 4 years Where parts of an item of other property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually. I-11

331 APPENDIX I ACCOUNTANTS REPORT (g) Operating lease charges Where the Group has the use of assets under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. (h) Impairment of assets (i) Impairment of trade and other receivables Trade and other receivables that are stated at cost or amortised cost are reviewed at the end of each reporting period to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events: significant financial difficulty of the debtor; a breach of contract, such as a default or delinquency in interest or principal payments; it becoming probable that the debtor will enter bankruptcy or other financial reorganisation; and significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor. If any such evidence exists, the impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial asset s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where these financial assets share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group. If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the asset s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years/periods. Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in respect of trade debtors included within trade and other receivables, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade debtors directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss. (ii) Impairment of other assets Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or an impairment loss previously recognised no longer exists or may have decreased: investment properties; and other property, plant and equipment. I-12

332 APPENDIX I ACCOUNTANTS REPORT If any such indication exists, the asset s recoverable amount is estimated. Calculation of recoverable amount The recoverable amount of an asset is the greater of its fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit). Recognition of impairment losses An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount of the assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs of disposal (if measurable) or value in use (if determinable). Reversals of impairment losses An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. A reversal of an impairment loss is limited to the asset s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year/period in which the reversals are recognised. (i) Inventories Inventories are carried at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out cost formula and comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs. (j) Trade and other receivables Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost using the effective interest method, less allowance for impairment of doubtful debts (see note 1(h)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts. (k) Interest bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between the amount initially recognised and redemption value being recognised in profit or loss over the period of the borrowings, together with any interest and fees payable, using the effective interest method. (l) Trade and other payables Trade and other payables are initially recognised at fair value and are subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost. I-13

333 APPENDIX I ACCOUNTANTS REPORT (m) Derivative financial instruments Derivative financial instruments are recognised initially at fair value. At the end of each reporting period the fair value is remeasured. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss. (n) Cash and cash equivalents Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. (o) Employee benefits Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values. (p) Income tax Income tax for the year/period comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity, respectively. Current tax is the expected tax payable on the taxable income for the year/period, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years/periods. Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits. Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised. The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future. The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the end of reporting period. Deferred tax assets and liabilities are not discounted. I-14

334 APPENDIX I ACCOUNTANTS REPORT The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available. Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met: (i) (ii) in the case of current tax assets and liabilities, the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either: the same taxable entity; or different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously. (q) Provisions and contingent liabilities Provisions are recognised for liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote. (r) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in the profit or loss as follows: (i) Sale of goods Revenue is recognised when the customer has accepted the goods and the related risks and rewards of ownership. Revenue excludes value added tax or other sales tax and is after deduction of any trade discounts. (ii) Rental income from operating leases Rental income receivable under operating leases is recognised in profit or loss in equal instalments over the periods covered by the lease term, except when an alternative basis is more representative of the pattern of benefits to be derived from the use of leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable. (iii) Interest income Interest income is recognised as it accrues using the effective interest method. (iv) Commission income Commission income arising from the provision of agency services is recognised when the relevant services are rendered. I-15

335 APPENDIX I ACCOUNTANTS REPORT (s) Translation of foreign currencies Foreign currency transactions during the year/period are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the end of the reporting period. Exchange gains and loss are recognised in profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was measured. The results of operation with functional currency other than Hong Kong dollars are translated into Hong Kong dollars at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Combined statement of financial position items are translated into Hong Kong dollars at the closing foreign exchange rates at the end of the reporting period. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in the exchange reserve. (t) Borrowing costs Borrowing costs are expensed in the period in which they are incurred. (u) Non-current assets held for sale A non-current asset is classified as held for sale if it is highly probable that its carrying amount will be recovered through a sale transaction rather than through continuing use and the asset is available for sale in its present condition. Immediately before classification as held for sale, the measurement of the non-current assets is brought up-to-date in accordance with the accounting policies before the classification. Then, on initial classification as held for sale and until disposal, the non-current assets (except for certain assets as explained below) are recognised at the lower of their carrying amount and fair value less costs to sell. The principal exceptions to this measurement policy so far as the Financial Information of the Group are concerned are deferred tax assets, assets arising from employee benefits, financial assets (other than investments in subsidiaries, associates and joint ventures) and investment properties. These assets, even if held for sale, would continue to be measured in accordance with the policies set out elsewhere in note 1. Impairment losses on initial classification as held for sale, and on subsequent remeasurement while held for sale, are recognised in profit or loss. As long as a non-current asset is classified as held for sale, the non-current asset is not depreciated or amortised. (v) Related parties (a) A person, or a close member of that person s family, is related to the Group if that person: (i) (ii) (iii) has control or joint control over the Group; has significant influence over the Group; or is a member of the key management personnel of the Group or the Group s parent. (b) An entity is related to the Group if any of the following conditions applies: (i) (ii) (iii) The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). Both entities are joint ventures of the same third party. I-16

336 APPENDIX I ACCOUNTANTS REPORT (iv) (v) (vi) (vii) One entity is a joint venture of a third entity and the other entity is an associate of the third entity. The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group. The entity is controlled or jointly controlled by a person identified in (a). A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). (viii) The entity, or any member of a group of which it is a part, provide key management personnel services to the Group or to the Group s parent. Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity. (w) Segment reporting Operating segments, and the amounts of each segment item reported in the Financial Information, are identified from the financial information provided regularly to the Group s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group s various lines of business and geographical locations. Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria. (x) Research and development costs Research and development costs comprise all costs that are directly attributable to research and development activities or that can be allocated on a reasonable basis to such activities. Because of the nature of the Group s research and development activities, the criteria for the recognition of such costs as an asset are generally not met until late in the development stage of the project when the remaining development costs are immaterial. Hence both research costs and development costs are generally recognised as expenses in the period in which they are incurred. 2 REVENUE AND SEGMENT REPORTING (a) Revenue The principal activities of the Group are sale of imaging electronic components and sale of OBM and ODM video and imaging products. Revenue represents the sales value of goods supplied to customers. The amount of each significant category of revenue is set out as follows: Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Sale of imaging electronic components 259, , , , ,956 Sale of OBM and ODM video and imaging products 43,196 98,773 84,016 44,564 70, , , , , ,766 I-17

337 APPENDIX I ACCOUNTANTS REPORT The Group s customer base is diverse and includes only one, one, three, two and three customers with whom transactions have exceeded 10% of the Group s revenue for the years ended 31 March 2013, 2014 and 2015 and the six months ended 30 September 2014 and 2015 respectively. Revenue from sale of imaging electronic components and sale of OBM and ODM video and imaging products to these customers, including sales to entities which are known to the Group to be under common control with these customers, amounted to HK$66,883,000, HK$91,563,000, HK$238,013,000, HK$105,090,000 and HK$176,799,000 for the years ended 31 March 2013, 2014 and 2015 and the six months ended 30 September 2014 and 2015 respectively. Details of concentrations of credit risk arising from these customers are set out in note 21(a). (b) Segment reporting The Group manages its businesses by divisions, which are organised by business lines and geography. In a manner consistent with the way in which information is reported internally to the Group s most senior executive management for the purposes of resource allocation and performance assessment, the Group has presented the following two reportable segments. No operating segments have been aggregated to form the following reportable segments. Electronic components division: this segment engages in the sale of imaging electronic components. OBM and ODM division: this segment engages in the sale of original brand manufacture and original design manufacture video and imaging products. (i) Segment results For the purposes of assessing segment performance and allocating resources between segments, the Group s senior executive management monitors the results attributable to each reportable segment on the following bases: Revenue and expenses are allocated to the reportable segments with reference to sales generated by those segments and the expenses incurred by those segments or which otherwise arise from the depreciation of assets attributable to those segments. The measure used for reporting segment profit is adjusted EBITDA i.e. adjusted earnings before interest, taxes, depreciation and amortisation. To arrive at adjusted EBITDA, the Group s earnings are further adjusted for items not specifically attributed to individual segment. A measurement of segment assets and liabilities is not provided regularly to the Group s most senior executive management and accordingly, no segment assets or liabilities information is presented. Information regarding the Group s reportable segments as provided to the Group s most senior executive management for the purposes of resource allocation and assessment of segment performance for the Relevant Periods is set out below. Year ended 31 March 2013 Electronic component division OBM and ODM division Total HK$ 000 HK$ 000 HK$ 000 Revenue from external customers 259,959 43, ,155 Inter-segment revenue 14,110 14,110 Reportable segment revenue 274,069 43, ,265 Reportable segment profit (adjusted EBITDA) 12,955 4,090 17,045 Interest income Finance costs 1, ,862 Depreciation 4, ,255 I-18

338 APPENDIX I ACCOUNTANTS REPORT Year ended 31 March 2014 Electronic component division OBM and ODM division Total HK$ 000 HK$ 000 HK$ 000 Revenue from external customers 223,024 98, ,797 Inter-segment revenue 15,989 15,989 Reportable segment revenue 239,013 98, ,786 Reportable segment profit (adjusted EBITDA) 27,339 13,873 41,212 Interest income ,126 Finance costs 1, ,014 Depreciation 3, ,203 Year ended 31 March 2015 Electronic component division OBM and ODM division Total HK$ 000 HK$ 000 HK$ 000 Revenue from external customers 252,003 84, ,019 Inter-segment revenue 8,542 8,542 Reportable segment revenue 260,545 84, ,561 Reportable segment profit (adjusted EBITDA) 15,790 4,127 19,917 Interest income Finance costs 1, ,652 Depreciation 2, ,696 Six months ended 30 September 2014 Electronic component division OBM and ODM division Total HK$ 000 HK$ 000 HK$ 000 (Unaudited) (Unaudited) (Unaudited) Revenue from external customers 133,646 44, ,210 Inter-segment revenue 2,234 2,234 Reportable segment revenue 135,880 44, ,444 Reportable segment profit (adjusted EBITDA) 7,469 2,871 10,340 Interest income Finance costs Depreciation 1, ,537 I-19

339 APPENDIX I ACCOUNTANTS REPORT Six months ended 30 September 2015 Electronic component division OBM and ODM division Total HK$ 000 HK$ 000 HK$ 000 Revenue from external customers 162,956 70, ,766 Inter-segment revenue 6,346 6,346 Reportable segment revenue 169,302 70, ,112 Reportable segment profit (adjusted EBITDA) 18,148 3,346 21,494 Interest income Finance costs ,231 Depreciation (ii) Reconciliations of reportable segment revenues and profit or loss Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Revenue Reportable segment revenue 317, , , , ,112 Elimination of intersegment revenue (14,110) (15,989) (8,542) (2,234) (6,346) Combined revenue (Note 2(a)) 303, , , , ,766 Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Profit Reportable segment profit derived from Group s external customers 17,045 41,212 19,917 10,340 21,494 Interest income 623 1, Depreciation (4,255) (4,203) (2,696) (1,537) (465) Finance costs (1,862) (2,014) (1,652) (725) (1,231) Unallocated head office expenses (15,001) (5,912) Combined profit before taxation 11,551 36,121 1,507 8,397 14,086 I-20

340 APPENDIX I ACCOUNTANTS REPORT (iii) Geographic information The following table sets out information about the geographical location of (i) the Group s revenue from external customers and (ii) the Group s investment properties and other property, plant and equipment ( specified non-current assets ). The geographical location of customers is based on the geographical location of the shipment destination of the goods. The geographical location of the specified non-current assets is based on the physical location of the operation to which they are allocated. Revenues from external customers Specified non-current assets Year ended 31 March Six months ended 30 September As at 31 March As at 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Hong Kong (place of domicile) 147, , , , , , , , PRC 44,852 24,489 6,746 4,309 1,677 19,078 19, The United States of America 73, , ,130 69, ,913 Europe 18,227 38,218 50,982 29,874 20,513 Other countries 19,638 37,024 40,934 20,631 18, , , , , ,723 19,078 19, , , , , , ,794 91,140 32, OTHER REVENUE Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Rental income for investment properties 2,756 2,185 1, Interest income 623 1, Commission income 165 1, ,253 Sundry income 1,601 1,495 2,809 1, ,980 4,971 6,865 3,081 2,660 I-21

341 APPENDIX I ACCOUNTANTS REPORT 4 OTHER NET GAIN Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Net gain on sale of property, plant and equipment 8,061 19,113 3,636 3,636 Net gain on sale of non-current assets classified as held for sale 7,234 Changes in fair value of derivatives financial instruments (1,636) (1,529) Handling income, net Net foreign exchange loss (202) (55) (711) (214) (14) 8,775 17,962 3,779 3,964 5,691 5 PROFIT BEFORE TAXATION Profit before taxation is arrived at after charging/(crediting): Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) (a) Finance costs Interest on bank loans wholly repayable within five years 925 1,138 1, Interest on other bank loans Other interest expenses ,862 2,014 1, ,231 (b) Staff costs Salaries, wages and other benefits 14,860 16,121 20,041 8,867 11,465 Contributions to defined contribution retirement plans ,205 16,494 20,670 9,190 11,785 I-22

342 APPENDIX I ACCOUNTANTS REPORT The Group operates a Mandatory Provident Fund Scheme (the MPF scheme ) under the Hong Kong Mandatory Provident Fund Schemes Ordinance for employees employed under the jurisdiction of the Hong Kong Employment Ordinance and not previously covered by the defined benefit retirement plan. The MPF scheme is a defined contribution retirement plan administered by independent trustees. Under the MPF scheme, the employer and its employees are each required to make contributions to the plan at 5% of the employees relevant income, subject to cap of monthly relevant income of HK$30,000 (HK$25,000 from June 2012 to May 2014 and HK$20,000 prior to June 2012). Contributions to the plan vest immediately. Pursuant to the relevant labour rules and regulations in the PRC, the Group s subsidiary in the PRC participates in a defined contribution retirement benefit scheme (the Scheme ) organised by the local authority whereby the subsidiary is required to make contributions to the Scheme based on a percentage of the eligible employees salaries during the Relevant Periods. Contributions to the Scheme vest immediately. Under the Scheme, retirement benefits of existing and retired employees are payable by the relevant scheme administrators and the Group has no further obligations beyond the annual contributions. Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) (c) Other items Depreciation 4,255 4,203 2,696 1, Impairment loss on remeasurement of non-current assets held for sale 4,728 Auditors remuneration Operating lease charges: minimum lease payments property rental 959 1,043 1, Rental receivable from investment properties less direct outgoings of HK$166,000, HK$143,000, HK$2,000, HK$2,000 and HK$Nil for the years ended 31 March 2013, 2014 and 2015 and six months ended 30 September 2014 and 2015 respectively (2,590) (2,042) (1,497) (754) (743) Research and development expenses 8,237 10,081 11,447 5,258 6,644 Cost of inventories (Note 11(b)) 266, , , , ,487 I-23

343 APPENDIX I ACCOUNTANTS REPORT 6 INCOME TAX IN THE COMBINED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (a) Income tax in the combined statements of profit or loss and other comprehensive income represents: Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Current tax Hong Kong Profits Tax Provision for the year/period 2,261 4,240 1,756 1,399 1,941 Under/(over)- provision in respect of prior year/period (81) 3,239 4,345 1,675 1,399 1,941 Deferred tax Origination and reversal of temporary differences (Note 19(b)) 52 (107) (653) ,291 4,238 1,022 1,434 2,295 I-24

344 APPENDIX I ACCOUNTANTS REPORT (b) Reconciliation between tax expense and accounting profit at applicable tax rates: Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Profit before taxation 11,551 36,121 1,507 8,397 14,086 Notional tax on profit before taxation, calculated at the rates applicable to profits in the jurisdictions concerned (Notes) 1,663 5,694 1,708 1,281 2,466 Tax effect of nondeductible expenses , ,154 Tax effect of nontaxable income (554) (3,092) (739) (744) (1,325) Tax effect of unused tax losses not recognised Tax effect of recognition of unused tax loss not recognised in prior years/periods (768) Tax effect of utilisation of tax losses not recognised in prior years/periods (487) Statutory tax concession (20) (20) (20) Under/(over)- provision in prior years/periods (81) Actual tax expense 3,291 4,238 1,022 1,434 2,295 Notes: (i) (ii) (iii) The provision for Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profits for the Relevant Periods. No provision for PRC income tax has been made for the Relevant Periods as the Group s subsidiary in the PRC sustained a loss for taxation purpose for the years ended 31 March 2013 and 2014 and tax losses brought forward from prior years exceeded the estimated assessable profits for the year ended 31 March 2015 and six months ended 30 September Pursuant to the rules and regulations of the Cayman Islands and the BVI, the Group is not subject to any income tax in these jurisdictions. I-25

345 APPENDIX I ACCOUNTANTS REPORT 7 DIRECTORS REMUNERATION Directors remuneration disclosed with reference to Section 383(1) of the Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation is as follows: Year ended 31 March 2013 Salaries, Directors fees allowances and benefits in kind Retirement scheme contributions Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Executive directors Mr. LEE Siu On 2, ,211 Ms. KWOK Mei Foon 1, ,371 Total 3, ,582 Year ended 31 March 2014 Salaries, Directors fees allowances and benefits in kind Retirement scheme contributions Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Executive directors Mr. LEE Siu On 2, ,269 Ms. KWOK Mei Foon 1, ,429 Total 3, ,698 Year ended 31 March 2015 Salaries, Directors fees allowances and benefits in kind Retirement scheme contributions Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Executive directors Mr. LEE Siu On 2, ,310 Ms. KWOK Mei Foon 1, ,470 Mr. CHAN Man Wa (Note a) Total 4, ,351 I-26

346 APPENDIX I ACCOUNTANTS REPORT Six months ended 30 September 2014 Salaries Directors fees allowances and benefits in kind Retirement scheme contributions Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Executive directors Mr. LEE Siu On 1, ,149 Ms. KWOK Mei Foon Mr. CHAN Man Wa (Note a) Total 2, ,092 Six months ended 30 September 2015 Salaries Directors fees allowances and benefits in kind Retirement scheme contributions Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Executive directors Mr. LEE Siu On Ms. KWOK Mei Foon Mr. CHAN Man Wa (Note a) Total 1, ,933 Note a: Mr. CHAN Man Wa joined the Group in June 2014 and resigned in September Note b: Mr. MA Ka Po was appointed as a director of the Company on 7 October The remuneration paid to Mr. MA Ka Po during the years ended 31 March 2013, 2014 and 2015 and the six months ended 30 September 2014 and 2015 was HK$617,000, HK$820,000, HK$714,000, HK$357,000 (unaudited) and HK$362,000, respectively. During the Relevant Periods, there was no amount paid or payable by the Group to the directors or any of the highest paid individuals as set out in note 8 below as an inducement to join or upon joining the Group or as compensation for loss of office. And, there was no arrangement under which a director has waived or agreed to waive any remuneration during the Relevant Periods. I-27

347 APPENDIX I ACCOUNTANTS REPORT 8 INDIVIDUALS WITH HIGHEST EMOLUMENTS Of the five individuals with the highest emoluments three (for the years ended 31 March 2013, 2014 and 2015 and the six months ended 30 September 2014: two) are directors whose emoluments are disclosed in note 7. The aggregate of the emoluments in respect of the other two (for the years ended 31 March 2013, 2014 and 2015 and the six months ended 30 September 2014: three) individuals are as follows: Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Salaries and other emoluments 1,967 2,635 2,160 1, Retirement scheme contributions ,011 2,680 2,214 1, The emoluments of the two (for the years ended 2013, 2014, 2015 and six months ended 30 September 2014: three) individuals with the highest emoluments are within the following bands: Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) HK$Nil to HK$1,000, HK$1,000,001 to HK$1,500, EARNINGS PER SHARE Earnings per share information is not presented as its inclusion for the purpose of this report is not considered meaningful due to the Reorganisation and the preparation of the results of the Group for the Relevant Periods on the basis as disclosed in note 1(b) of Section B. I-28

348 APPENDIX I ACCOUNTANTS REPORT 10 PROPERTY, PLANT AND EQUIPMENT Buildings held for own use Leasehold improvements Furniture and fixtures Office equipment Motor vehicles Sub-total Investment properties Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Cost: At 1 April ,781 4, ,037 85, ,041 Exchange adjustments Additions 19, ,311 19,311 Disposals (22) (36) (58) (14,454) (14,512) At 31 March ,909 4, , ,321 70, , At 1 April ,909 4, , ,321 70, ,871 Exchange adjustments Additions Disposals (29,091) (1,473) (30,564) (31,079) (61,643) At 31 March ,440 3, , ,748 39, , At 1 April ,440 3, , ,748 39, ,219 Exchange adjustments (528) (2) (530) (530) Additions Disposals (4,848) (4,848) Transfer to non-current assets classified as held for sale (55,912) (2,466) (58,378) (58,378) At 31 March , ,653 34,623 38, At 1 April , ,653 34,623 38,276 Exchange adjustments (1) (3) (4) (4) Additions Transfer to non-current assets classified as held for sale (711) (711) (34,623) (35,334) At 30 September , ,697 3, Accumulated depreciation: At 1 April ,711 1, ,164 4,731 9,895 Charge for the year 1, ,700 1,555 4,255 Written back on disposals (13) (36) (49) (1,024) (1,073) At 31 March ,199 2, ,815 5,262 13, At 1 April ,199 2, ,815 5,262 13,077 Exchange adjustments Charge for the year 1, ,777 1,426 4,203 Written back on disposals (2,570) (1,202) (3,772) (3,433) (7,205) At 31 March ,301 2, ,824 3,255 10, At 1 April ,301 2, ,824 3,255 10,079 Exchange adjustments (14) (14) (14) Charge for the year 1, , ,696 Written back on disposals (484) (484) Transfer to non-current assets classified as held for sale (4,342) (1,946) (6,288) (6,288) At 31 March , ,526 3,463 5, I-29

349 APPENDIX I ACCOUNTANTS REPORT Buildings held for own use Leasehold improvements Furniture and fixtures Office equipment Motor vehicles Sub-total Investment properties Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1 April , ,526 3,463 5,989 Exchange adjustments (2) (2) (2) Charge for the period Transfer to non-current assets classified as held for sale (3,693) (3,693) At 30 September , ,759 2, Net book value: At 31 March ,710 2, ,506 65, ,794 At 31 March ,139 1, ,924 36,216 91,140 At 31 March ,127 31,160 32,287 At 30 September (a) The analysis of net book value of properties is as follows: At as As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 In Hong Kong medium-term leases 126,944 70,143 31,160 Outside Hong Kong medium-term leases 19,054 19, ,998 89,355 31,160 Representing: Buildings held for own use 80,710 53,139 Investment properties 65,288 36,216 31, ,998 89,355 31,160 (b) Investment properties leased out under operating leases The Group leases out investment properties under operating leases. The leases typically run for an initial period of 1 to 2 years, with an option to renew the lease after that date at which time all terms are renegotiated. None of the leases includes contingent rentals. I-30

350 APPENDIX I ACCOUNTANTS REPORT The Group s total future minimum lease payments under non-cancellable operating leases are receivable as follows: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Within 1 year 1,016 1, After 1 year but within 5 years 991 1,016 2, (c) Fair value of investment properties The Group s investment properties are stated at cost less accumulated depreciation and impairment loss (if any). Had the investment properties been stated at fair value, the carrying amounts would have been HK$96,190,000, HK$60,600,000, HK$54,600,000 and HK$Nil as at 31 March 2013, 2014 and 2015 and 30 September 2015 respectively. (i) Fair value hierarchy The fair value of the Group s investment properties is categorised into the three-level of fair value hierarchy as defined in HKFRS 13, Fair value measurement. The level into which a fair value measurement is classified is determined with reference to the observability and significance of the inputs used in the valuation technique as follows: Level 1 valuations: Fair value measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date Level 2 valuations: Fair value measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available Level 3 valuations: Fair value measured using significant unobservable inputs During the Relevant Periods, there were no transfers between Level 1 and Level 2, or transfers into or out of Level 3. (ii) Valuation techniques and inputs used in Level 2 fair value measurements The fair value of investment properties in Hong Kong was HK$49,390,000, HK$8,000,000, HK$Nil and HK$Nil as at 31 March 2013, 2014 and 2015 and 30 September 2015 respectively, which was determined using sales comparison approach by considering the sales, listings or offering of similar or substitute properties and related market data and establishing a value of a property that a reasonable investor would have to pay for a similar property of comparable utility and with an absolute title. (iii) Information about Level 3 fair value measurements Valuation techniques Unobservable input Range Investment property Commercial Hong Kong Income approach Capitalisation rate 2.8% to 3.4% The fair value of an investment property in Hong Kong was HK$46,800,000, HK$52,600,000, HK$54,600,000 and HK$Nil as at 31 March 2013, 2014 and 2015 and 30 September 2015 respectively, which was determined using income approach by taking into account the current rent receivable from the existing tenancy agreement and the reversionary potential of the property interest. I-31

351 APPENDIX I ACCOUNTANTS REPORT (d) The buildings held for own use and investment properties with aggregate carrying value of HK$126,944,000, HK$70,143,000 and HK$31,160,000 and HK$Nil as at 31 March 2013, 2014 and 2015 and 30 September 2015 were mortgaged against bank loans as set out in note INVENTORIES (a) Inventories in the combined statements of financial position comprise: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Imaging electronic components 30,487 18,978 32,300 25,090 OBM and ODM video and imaging products ,427 30,488 19,013 33,148 26,517 (b) The analysis of the amount of inventories recognised as an expense and included in profit or loss is as follows: Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Carrying amount of inventories sold 264, , , , ,487 Write-down of inventories 1, , , , , , TRADE AND OTHER RECEIVABLES As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Trade receivables 21,274 20,503 19,071 24,022 Deposits, prepayments and other receivables 6,220 7,310 7,082 9,366 27,494 27,813 26,153 33,388 As at 31 March 2013, 2014 and 2015 and 30 September 2015, none of the Group s trade receivables was individually or collectively considered to be impaired. The Group does not hold any collateral over these balances. I-32

352 APPENDIX I ACCOUNTANTS REPORT (a) Ageing analysis Included in trade and other receivables are trade receivables (with nil allowance for doubtful debts) with the following ageing analysis, based on the invoice date, as of the end of the reporting periods: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Within 1 month 10,123 11,992 16,806 21,298 Over 1 month to 2 months 2, ,212 2,440 Over 2 months to 3 months 124 1, Over 3 months 8,392 7, ,274 20,503 19,071 24,022 (b) Trade receivables that are not impaired The ageing analysis of trade receivables that are neither individually nor collectively considered to be impaired are as follows: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Neither past due nor impaired 7,314 6,517 11,119 17, Within 1 month past due 7,459 6,812 7,349 6,463 Over 1 month to 2 months past due 3,121 1, Over 2 months to 3 months past due 155 2, Over 3 months past due 3,225 3, ,960 13,986 7,952 6, ,274 20,503 19,071 24,022 Among the past due trade receivables of HK$6,538,000 as at 30 September 2015, the balance has been settled subsequent to the balance sheet date. Trade receivables are due within 21 to 90 days from the date of billing. Further details on the Group s credit policy are set out in note 21(a). (c) As at 31 March 2013, 2014 and 2015 and 30 September 2015, included in trade and other receivables of the Group are amounts due from related companies in which the Controlling Shareholders have substantial financial interests (trade) of HK$12,863,000, HK$13,057,000, HK$Nil and HK$Nil respectively. Except for amount due from a related company of HK$8,363,000, HK$5,474,000, HK$Nil and HK$Nil as at 31 March 2013, 2014 and 2015 and 30 September 2015 respectively, which are interest bearing at 12% per annum (note 23(b)), the other amounts are interest-free. I-33

353 APPENDIX I ACCOUNTANTS REPORT 13 AMOUNTS DUE FROM DIRECTOR AND RELATED COMPANIES The amounts due from director and related companies disclosed with reference to section 383 of the Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of information about Benefits of Directors) Regulation are as follows: Name of borrower Relationship Terms of the balance duration and repayment terms Mr. LEE Siu On Director and the Controlling Shareholder Kenxen Limited ( Kenxen ) Company controlled by Ms. KWOK Mei Foon (Note) Vision Electronics Limited ( Vision ) Company controlled by Ms. KWOK Mei Foon Pro-vision Electronics Limited Company controlled by Mr. LEE Siu On and Ms. KWOK Mei Foon Simple Living Technology Limited ( SLT HK ) Company controlled by Mr. LEE Siu On Simple Living Technology Inc. Company controlled by Mr. LEE Siu On Repayable on demand Repayable on demand Repayable on demand Repayable on demand Repayable on demand Repayable on demand interest rate Interest-free Interest-free Interest-free Interest-free Interest-free Interest-free security/guarantee Nil Nil Nil Nil Nil Nil Balance outstanding at 31 March 2013 HK$18,000 HK$9,000 HK$605,000 at 31 March 2014 HK$18,470,000 HK$15,000 HK$939,000 HK$607,000 HK$6,000 at 31 March 2015 HK$16,705,000 HK$1,000 HK$2,974,000 at 30 September 2015 Maximum balance outstanding during the year ended 31 March 2013 during the year ended 31 March 2014 during the year ended 31 March 2015 during the period ended 30 September 2015 HK$18,000 HK$9,000 HK$605,000 HK$18,470,000 HK$2,077,000 HK$939,000 HK$607,000 HK$6,000 HK$50,521,000 HK$4,712,000 HK$941,000 HK$615,000 HK$8,070,000 HK$2,608,000 HK$16,705,000 HK$1,000 HK$2,974,000 Note: In February 2015, Ms. Kwok Mei Foon disposed of her equity interest in Kenxen to an independent third party and Kenxen is no longer controlled by Ms. Kwok Mei Foon afterwards. 14 AMOUNTS DUE TO DIRECTORS The amounts due to directors are unsecured, interest free and have no fixed repayment terms. 15 PLEDGED BANK DEPOSITS AND CASH AND CASH EQUIVALENTS (a) Pledged bank deposits comprise: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Pledged bank deposits (Note) 1,000 1,000 7,154 6,515 Note: These bank balances were pledged to banks for banking facilities granted (see note 18). I-34

354 APPENDIX I ACCOUNTANTS REPORT (b) Cash and cash equivalents comprise: As at 30 As at 31 March September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Cash at bank and in hand 8,363 29,353 28,629 22,669 Cash and cash equivalents in the combined cash flow statements 8,363 29,353 28,629 22,669 (c) Reconciliation of profit before taxation to cash generated from operations: Six months ended Year ended 31 March 30 September Note HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Profit before taxation 11,551 36,121 1,507 8,397 14,086 Adjustments for: Depreciation 5(c) 4,255 4,203 2,696 1, Net gain on sale of property, plant and equipment 4 (8,061) (19,113) (3,636) (3,636) Net gain on sale of non-current assets classified as held for sale 4 (7,234) Finance costs 5(a) 1,862 2,014 1, ,231 Interest income 3 (623) (1,126) (939) (319) (200) Write-down of inventories 11(b) 1,865 Change in fair value of derivatives financial instruments 4 1,636 (842) (530) 1,529 Impairment loss on remeasurement of non-current assets held for sale 5(c) 4,728 Foreign exchange (gain)/loss (60) 11 (13) (121) ,789 23,746 5,153 6,053 10,038 Changes in working capital: (Increase)/decrease in inventories (10,973) 11,475 (14,135) (456) 6,629 (Increase)/decrease in trade and other receivables (7,585) (305) 1,659 (12,919) (7,240) Increase/(decrease) in trade and other payables 14,574 (810) 14,114 (1,440) (6,693) Cash generated from/(used in) operations 6,805 34,106 6,791 (8,762) 2,734 I-35

355 APPENDIX I ACCOUNTANTS REPORT Non-cash transactions (i) (ii) (iii) During the year ended 31 March 2013, the Group declared interim dividend of HK$12,000,000 to shareholders and the amount was settled through the current account with director. During the year ended 31 March 2013, the Group issued additional share capital of HK$7,490,000 to shareholders and the amount was settled through the current account with director. During the six months ended 30 September 2015, Mr. LEE Siu On, a director of the Company assigned the amount due to director of RMB10,565,000 (approximately HK$13,158,000) to an independent third party as other loan (see note 18). 16 NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE As at 30 As at 31 March September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Carrying amount at beginning of the year/period 47,465 Exchange realignment 103 (298) Transfer from property, plant and equipment (Note 10) 52,090 31,641 Impairment loss on remeasurement of non-current assets held for sale (4,728) Disposal (33,766) Carrying amount at end of the year/period 47,465 45,042 In December 2014, the Group entered into a provisional sale and purchase agreement with Ms. KWOK Mei Foon, a director of the Company, for the disposal of a building held for own use with carrying amount of HK$33,766,000 as at 31 March 2015 at a consideration of HK$41,000,000. The transaction was completed during the six months ended 30 September 2015 with gain on disposal of HK$7,234,000. In February 2015, the Group entered into a legally binding letter of intent with Mr. LEE Siu On, a director of the Company, for the disposal of a building held for own use with carrying amount of HK$13,699,000 as at 31 March 2015 at a consideration of RMB11,000,000 (approximately HK$13,699,000). Subsequently, the Group entered into a sale and purchase agreement for the above disposal in April In August 2015, the Group entered into a provisional sale and purchase agreement for the disposal of an investment property with carrying amount of HK$31,641,000 as at 30 September 2015 at a consideration of HK$51,800,000. The above transactions were completed subsequent to 30 September 2015 (see section C note (b)). As set out above, the Group committed to plans to sell certain of its buildings held for own use together with the related leasehold improvements (the Disposable Assets ). In the opinion of the directors, the disposal of the Disposable Assets is expected to be completed within twelve months from the financial year end date. In accordance with HKFRS 5, certain assets held for sale with a carrying amount of HK$18,324,000 were written down to the lower of their carrying amount and their fair value less costs to sell of HK$13,699,000, resulting in a loss of HK$4,728,000, which was included in other operating expenses for the year ended 31 March As at 30 September 2015, certain non-current assets of the Group classified as held for sale were pledged and mortgaged to secure the banking facilities granted to the Group (note 18). I-36

356 APPENDIX I ACCOUNTANTS REPORT Certain non-current assets classified as held for sale of the Group are situated in Hong Kong and PRC and are held under the following lease terms: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 In Hong Kong medium term leases 33,246 30,930 Outside Hong Kong medium term leases 13,699 13,401 46,945 44, TRADE AND OTHER PAYABLES As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Trade creditors 14,318 10,487 15,824 13,903 Other payables and accruals 2,530 5,859 10,185 5,741 Receipt in advance 9,757 9,482 13,894 15,866 Derivative financial instruments forward foreign exchange contracts (Note 21(e)) 1, ,605 27,464 40,697 35,510 As at 31 March 2013, 2014 and 2015 and 30 September 2015, the amounts of the Group s trade and other payables expected to be settled or recognised as income after more than one year is HK$Nil, HK$421,000, HK$Nil and HK$Nil respectively, which mainly represents rental deposits received from tenants. All of the other trade and other payables are expected to be settled or recognised as income within one year or are repayable on demand. As at 30 September 2015, receipt in advance of HK$13,401,000 represents the prepayment received from Mr. LEE Siu On, a director of the Company, for the disposal of a building held for own use as disclosed in note 16. Included in trade and other payables are trade payables with the following ageing analysis, based on the invoice date, as of the end of the reporting periods: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Within 1 month 9,524 9,628 15,057 9,725 Over 1 month to 3 months ,587 Over 3 months 4, ,591 14,318 10,487 15,824 13,903 As at 31 March 2013, 2014 and 2015 and 30 September 2015, included in trade and other payables are amounts of HK$Nil, HK$2,479,000, HK$5,739,000 and HK$Nil due to related companies in which the Controlling Shareholders have substantial financial interests (trade), which are unsecured and interest-free. I-37

357 APPENDIX I ACCOUNTANTS REPORT 18 BANK AND OTHER LOANS (a) The analysis of the bank and other loans is as follows: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Short-term bank loans 54,492 21,290 71,821 59,184 Long-term bank loans repayable on demand (Note (i)) 50,824 25,881 20,764 10, ,316 47,171 92,585 69,751 Other loan (Note (ii)) 9, ,316 47,171 92,585 78,967 Notes: (i) These bank loans were classified as current liabilities in the Financial Information as the banking facilities are subject to repayment on demand clauses which can be exercised at the banks sole discretion. (ii) The other loan is unsecured, bears interest at 5.25% per annum and repayable in April (b) At 31 March 2013, 2014 and 2015 and 30 September 2015, according to the original repayment date, the bank loans were repayable as follows: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Within 1 year or on demand 54,492 21,290 71,821 59, After 1 year but within 2 years 7,846 5,118 7,334 3,673 After 2 years but within 5 years 23,162 13,817 9,803 6,310 After 5 years 19,816 6,946 3, ,824 25,881 20,764 10, ,316 47,171 92,585 69,751 (c) At 31 March 2013, 2014 and 2015 and 30 September 2015, the bank loans were secured as follows: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Bank loans Secured 101,573 47,090 87,750 67,125 Unsecured 3, ,835 2, ,316 47,171 92,585 69,751 I-38

358 APPENDIX I ACCOUNTANTS REPORT As at 31 March 2013, 2014 and 2015 and 30 September 2015, all the banking facilities were guaranteed by the Controlling Shareholders and secured by certain assets of the Group as set out below: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Investment properties 65,288 36,216 31,160 Buildings held for own use 61,656 33,927 Pledged bank deposits 1,000 1,000 7,154 6,515 Non-current assets classified as held for sale 33,246 30, ,944 71,143 71,560 37,445 In addition, banking facilities of the Group of HK$174,877,000, HK$158,246,000, HK$144,913,000 and HK$Nil as at 31 March 2013, 2014 and 2015 and 30 September 2015 respectively were cross guaranteed with related companies in which the Controlling shareholders have substantial financial interests. The facilities were utilised to the extent of HK$105,316,000, HK$47,171,000, HK$92,585,000 and HK$Nil as at the end of each reporting period. Certain bank loans of the Group are subject to the fulfillment of covenants as are commonly found in lending arrangements with financial institutions. If the Group were to breach the covenants the drawn down loan balances would become payable on demand. The Group regularly monitors its compliance with these covenants. Further details of the Group s management of liquidity risk are set out in note 21(b). As at 31 March 2013, 2014 and 2015 and 30 September 2015, none of the covenants relating to the Group s bank loans had been breached, except that the Group did not fulfil the restriction on distribution of dividends during the year ended 31 March The bank did not demand immediately repayment as a result of that. Subsequently, the Group was able to maintain the banking facilities and renewed during the year ended 31 March INCOME TAX IN THE COMBINED STATEMENTS OF FINANCIAL POSITION (a) Current taxation in the combined statements of financial position represents: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Provision for Hong Kong Profits Tax for the year/period 2,261 4,240 1,756 1,941 Provisional Profits Tax paid (2,802) (2,132) (3,567) (541) 2,108 (1,811) 1,941 Balance of Profits Tax provision relating to prior years 978 (145) (670) (3,669) 437 1,963 (2,481) (1,728) Represented by: Tax recoverable (663) (2,481) (1,962) Tax payable 1,100 1, ,963 (2,481) (1,728) I-39

359 APPENDIX I ACCOUNTANTS REPORT (b) Deferred tax liabilities/(assets) recognised: The deferred tax liabilities/(assets) recognised in the Group s combined statements of financial position and the movements during the Relevant Periods are as follows: Depreciation (in excess of)/ less than the related depreciation allowances Tax losses Total HK$ 000 HK$ 000 HK$ 000 At 1 April 2012 Charged to profit or loss At 31 March 2013 and 1 April Credited to profit or loss (107) (107) At 31 March 2014 and 1 April 2014 (55) (55) Charged/(credited) to profit or loss 115 (768) (653) Exchange difference (6) (6) At 31 March 2015 and 1 April (774) (714) Charged to profit or loss Exchange difference At 30 September (444) (350) (c) In accordance with the accounting policy set out in note 1(p), the Group has not recognised deferred tax assets in respect of cumulative tax losses of HK$2,860,000, HK$6,000,000, HK$942,000 and HK$922,000 as at 31 March 2013, 2014 and 2015 and 30 September 2015 respectively as it is not probable that future taxable profits against which the losses can be utilised will be available in the relevant tax jurisdiction and entity. The tax losses of the Group will expire within five years under current tax legislation. 20 CAPITAL, RESERVES AND DIVIDENDS (a) Share capital The Company was incorporated in the Cayman Islands on 16 December 2014 with an authorised share capital of HK$380,000 divided into 38,000,000 shares of HK$0.01 each. On the same date, 1 share of HK$0.01 was allotted and issued at nil paid form. On 14 November 2012, 4,500,000 ordinary shares of ASD Technology were allotted and issued as fully paid at par to shareholders. On 14 November 2012, 2,990,000 ordinary shares of Systech Electronics were allotted and issued as fully paid at par to shareholders. Upon the completion of the Reorganisation on 2 March 2016, the Company became the holding company of the Group. Since the Reorganisation was not completed as at 30 September 2015, the share capital in the combined statements of financial position as at 31 March 2013, 2014 and 2015 and 30 September 2015 represented an aggregate amount of the paid-in capital of the companies comprising the Group. (b) Dividends Dividends for the Relevant Periods represent interim dividends declared by the Company s subsidiaries, ASD Technology and Systech Electronics. The rate of dividend and the number of shares ranking for dividends are not presented as such information is not meaningful having regard to the basis of preparation of the Financial Information as disclosed in note 1(b) of Section B. I-40

360 APPENDIX I ACCOUNTANTS REPORT (c) Nature and purpose of reserve Exchange reserve The exchange reserve comprises all foreign exchange differences arising from translation of the financial statements of an entity with functional currency other than Hong Kong Dollar. The reserve is dealt with in accordance with the accounting policy set out in note 1(s). (d) Distributability of reserves At 30 September 2015, the Company does not have reserve available for distribution. (e) Capital management The Group s primary objectives when managing capital are to safeguard the Group s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, by pricing products commensurately with the level of risk and by securing access to finance at a reasonable cost. The Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholders returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions. The Group monitors capital with reference to its debt position. The Group s strategy was to maintain the equity and debt in a balanced position and ensure there was adequate working capital to service its debt obligations. At 31 March 2013, 2014 and 2015 and 30 September 2015, the ratio of the Group s total liabilities over its total assets was 75%, 54%, 89% and 84% respectively. Except for the bank loans which require the fulfilment of covenants as disclosed in note 18, the Group is not subject to externally imposed capital requirements during the Relevant Periods. 21 FINANCIAL RISK MANAGEMENT AND FAIR VALUES Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Group s business. The Group s exposure to these risks and the financial risk management policies and practices used by the Group to manage these risks are described below. (a) Credit risk The Group s credit risk is primarily attributable to trade and other receivables. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. In respect of trade and other receivables, individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customer s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Trade receivables are due within 21 to 90 days from the date of billing. Normally, the Group does not obtain collateral from customers. The Group s exposure to credit risk is influenced mainly by the individual characteristics of each customer rather than the industry or country in which the customers operate and therefore significant concentration of credit risk primarily arises when the Group has significant exposure to individual customers. At 31 March 2013, 2014 and 2015 and 30 September 2015, 28%, 38%, 47% and 32% of the total trade receivables were due from the Group s largest customer and 79%, 39%, 62% and 75% were due from the five largest customers of the Group respectively. Except for the financial guarantees given by the Group as set out in note 24, the Group does not provide any other guarantees which would expose the Group to credit risk. The maximum exposure to credit risk in respect of these financial guarantees at the end of the reporting periods is disclosed in note 24. Further quantitative disclosures in respect of the Group s exposure to credit risk arising from trade receivables are set out in note 12. I-41

361 APPENDIX I ACCOUNTANTS REPORT (b) Liquidity risk The Group s policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term. The following tables show the remaining contractual maturities at 31 March 2013, 2014 and 2015 and 30 September 2015 of the Group s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest date the Group can be required to pay. For term loans subject to repayment on demand clauses which can be exercised at the bank s sole discretion, the analysis shows the cash outflow based on the contractual repayment schedule and, separately, the impact to the timing of the cash outflows if the lenders were to invoke their unconditional rights to call the loans with immediate effect. Within 1 year or on demand As at 31 March 2013 Contractual undiscounted cash outflow More than More than 1 year but 2 years but within within More than 2 years 5 years 5 years Total Carrying amount at 31 March 2013 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Trade and other payables 16,848 16,848 16,848 Amounts due to directors 29,447 29,447 29,447 Bank and other loans 55,354 8,501 24,478 20, , , ,649 8,501 24,478 20, , ,611 Adjustments to present cash flow on bank loans based on lender s right to demand repayment 49,962 (8,501) (24,478) (20,194) (3,211) 151, ,611 Within 1 year or on demand As at 31 March 2014 Contractual undiscounted cash outflow More than More than 1 year but 2 years but within within More than 2 years 5 years 5 years Total Carrying amount at 31 March 2014 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Trade and other payables 16,346 16,346 16,346 Amounts due to directors 25,087 25,087 25,087 Bank loans 21,829 5,553 14,514 7,074 48,970 47,171 63,262 5,553 14,514 7,074 90,403 88,604 Adjustments to present cash flow on bank loans based on lender s right to demand repayment 25,342 (5,553) (14,514) (7,074) (1,799) 88,604 88,604 I-42

362 APPENDIX I ACCOUNTANTS REPORT Within 1 year or on demand As at 31 March 2015 Contractual undiscounted cash outflow More than More than 1 year but 2 years but within within More than 2 years 5 years 5 years Total Carrying amount at 31 March 2014 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Trade and other payables 26,009 26,009 26,009 Amounts due to directors 42,135 42,135 42,135 Bank and other loans 72,256 7,699 10,223 3,666 93,844 92, ,400 7,699 10,223 3, , ,729 Adjustments to present cash flow on bank loans based on lender s right to demand repayment 20,329 (7,699) (10,223) (3,666) (1,259) 160, ,729 Within 1 year or on demand As at 30 September 2015 Contractual undiscounted cash outflow More than More than 1 year but 2 years but within within More than 2 years 5 years 5 years Total Carrying amount at 31 March 2015 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Trade and other payables 19,644 19,644 19,644 Amounts due to directors Bank and other loans 70,440 3,816 6, ,278 78,967 90,541 3,816 6, ,379 99,068 Adjustments to present cash flow on bank loans based on lender s right to demand repayment 8,527 (3,816) (6,438) (584) (2,311) 99,068 99,068 I-43

363 APPENDIX I ACCOUNTANTS REPORT (c) Interest rate risk The Group s interest rate risk arises primarily from interest-bearing deposits and bank borrowings. Deposits and bank borrowings at variable rates and at fixed rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The Group s interest rate profile as monitored by management is set out in (i) below. (i) Interest rate profile The following table details the interest rate profile of the Group s net borrowings at the end of the reporting periods. As at 31 March 2013 Effective interest rate Amount HK$ 000 Fixed rate deposits Pledged bank deposits 0.01% 1, Variable rate (borrowings)/deposits: Bank loans 0.93% 5.25% (105,316) Cash and cash equivalents 0.01% 8,363 (96,953) Net borrowings (95,953) As at 31 March 2014 Effective interest rate Amount HK$ 000 Fixed rate deposits Pledged bank deposits 0.01% 1, Variable rate (borrowings)/deposits: Bank loans 1.21% 3.73% (47,171) Cash and cash equivalents 0.01% 29,353 (17,818) Net borrowings (16,818) I-44

364 APPENDIX I ACCOUNTANTS REPORT As at 31 March 2015 Effective interest rate Amount HK$ 000 Fixed rate deposits Pledged bank deposits 0.01% 7, Variable rate (borrowings)/deposits: Bank loans 1.20% 2.95% (92,585) Cash and cash equivalents 0.01% 28,629 (63,956) Net borrowings (56,802) As at 30 September 2015 Effective interest rate Amount HK$ 000 Fixed rate (borrowings)/deposits Pledged bank deposits 0.01% 6,515 Other loans 5.25% (9,216) (2,701) Variable rate (borrowings)/deposits: Bank loans 1.2% 2.95% (69,751) Cash and cash equivalents 0.01% 22,669 (47,082) Net borrowings (49,783) (ii) Sensitivity analysis At 31 March 2013, 2014 and 2015 and 30 September 2015, it is estimated that a general increase/decrease of 100 basis points in interest rates, with all other variables held constant, would have decreased/increased the Group s profit after tax for the year/period and retained profits by approximately HK$810,000, HK$149,000, HK$534,000 and HK$393,000 respectively. The sensitivity analysis above indicates the instantaneous change in the Group s profit after tax for the year/period and retained profits that would arise assuming that the change in interest rates had occurred at the end of the reporting periods and had been applied to re-measure those financial instruments held by the Group which expose the Group to fair value interest rate risk at the end of the reporting periods. In respect of the exposure to cash flow interest rate risk arising from floating rate non-derivative instruments held by the Group at the end of reporting periods, the impact on the Group s profit after tax for the year/period and retained profits is estimated as an annualised impact on interest income or expense of such a change in interest rates. The analysis is performed on the same basis throughout the Relevant Periods. I-45

365 APPENDIX I ACCOUNTANTS REPORT (d) Currency risk The functional currency and reporting currency of the Company and its subsidiaries is HKD, except that the functional currency and reporting currency of the Group s PRC subsidiary is Renminbi ( RMB ). The Group is exposed to currency risks primarily arising from sales and purchase which give rise to receivables, payables and cash balances which are denominated in United States dollars ( USD ) and RMB. As HKD is pegged to USD, the Group considers the risk of movements in exchange rates between the HKD and the USD to be insignificant. In respect of balances denominated in RMB, the Group ensures that the net exposure is kept to an acceptable level by buying or selling foreign currency at spot rates where necessary to address short-term imbalances. (i) Exposure to currency risk The following table details the Group s exposure at the end of reporting periods to currency risk arising from recognised assets or liabilities denominated in a currency other than the functional currency of the entity to which they relate. For presentation purposes, the amounts of the exposure are shown in HKD, translated using the spot rate at the end of the reporting periods. Exposure for foreign currencies (expressed in Hong Kong dollars) As at As at 31 March 30 September USD RMB USD RMB USD RMB USD RMB HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Cash and cash equivalents 5,757 21, , ,992 1,030 Trade and other receivables 16, , , , Trade and other payables (23,652) (169) (20,895) (2,936) (30,453) (5,866) (16,148) (129) Bank and other loans (36,606) (16,141) (61,868) (52,904) Gross exposure arising from recognised assets and liabilities (38,000) 443 9,756 (2,322) (48,377) (4,742) (25,749) 1,230 Furthermore, as at 31 March 2014 and 2015, forward foreign exchange contracts of notional amounts totalling USD1,699,000 (equivalent to HK$13,252,000) and USD1,699,000 (equivalent to HK$13,252,000) against RMB were entered into by the Group. During the years ended 31 March 2014 and 2015, a net loss of HK$1,636,000 and a net gain of HK$842,000 in the fair value of forward foreign exchange contracts above were recognised in the combined statement of profit or loss and other comprehensive income (see note 4). The fair values of HK$1,636,000 and HK$794,000 as at 31 March 2014 and 2015 respectively were recognised as derivative financial instruments and included in trade and other payables. The forward foreign exchange contracts were terminated in August 2015 with a realised loss of HK$1,529,000. I-46

366 APPENDIX I ACCOUNTANTS REPORT (ii) Sensitivity analysis The following table indicates the approximate change in the Group s profit after tax and retained profits that would arise if the foreign exchange rates to which the Group has significant exposure at the end of the reporting periods had changed at that date, assuming all other risk variable remained constant. In this respect, it is assumed that the pegged rate between the HKD and the USD would be materially unaffected by any changes in movement in value of the USD against other currencies. Increase/ (decrease) in foreign exchange rates As at As at 31 March 30 September Effect on Increase/ Effect on Increase/ Effect on Increase/ profit after (decrease) profit after (decrease) profit after (decrease) tax and in foreign tax and in foreign tax and in foreign retained exchange retained exchange retained exchange profits rates profits rates profits rates Effect on profit after tax and retained profits HK$ 000 HK$ 000 HK$ 000 HK$ 000 RMB 5% 18 5% (97) 5% (198) 5% 51 (5)% (18) (5)% 97 (5)% 198 (5)% (51) Results of the analysis as presented in the above table represent an aggregation of the instantaneous effects on each of the group entities profit after tax and retained profits measured in the respective functional currencies, translated into HKD at the exchange rate ruling at the end of the reporting periods for presentation purposes. The sensitivity analysis assumes that the change in foreign exchange rates had been applied to re-measure those financial instruments held by the Group which expose the Group to foreign currency risk at the end of the reporting periods. The analysis excludes differences that would result from the translation of the financial statements of foreign operations into the Group s presentation currency. The analysis is performed on the same basis throughout the Relevant Periods. (e) Fair values measurement (i) Financial liabilities carried at fair value The following table presents the fair value of the Group s financial instruments measured at the end of the reporting periods on a recurring basis, categorised into the three-level fair value hierarchy as defined in HKFRS 13, Fair value measurement. The level into which a fair value measurement is classified is determined with reference to the observability and significance of the inputs used in the valuation technique as follows: Level 1 valuations: Fair value measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date Level 2 valuations: Fair value measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available Level 3 valuations: Fair value measured using significant unobservable inputs I-47

367 APPENDIX I ACCOUNTANTS REPORT Valuation reports on fair value measurement of financial instruments are prepared by financial institution. The chief financial officer has discussions with the financial institution about the valuation assumptions and valuation results when the valuations are performed during the Relevant Periods. Fair value at 31 March Fair value measurements as at 31 March 2014 categorised into 2014 Level 1 Level 2 Level 3 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Recurring fair value measurement Liabilities: Derivative financial instruments: forward foreign exchange contracts 1,636 1,636 Fair value at 31 March Fair value measurements as at 31 March 2015 categorised into 2015 Level 1 Level 2 Level 3 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Recurring fair value measurement Liabilities: Derivative financial instruments: forward foreign exchange contracts Fair value at 30 September Fair value measurements as at 30 September 2015 categorised into 2015 Level 1 Level 2 Level 3 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Recurring fair value measurement Liabilities: Derivative financial instruments: foreign exchange contracts During the Relevant Periods, there were no transfers between Level 1 and Level 2 or out of level 3. The Group s policy is to recognise transfers between levels of fair value hierarchy as at the end of the reporting periods in which they occur. Valuation techniques and inputs used in Level 2 fair value measurements The fair value of forward foreign exchange contracts in Level 2 is determined by discounting the contractual forward price and deducting the current spot rate. The discount rate used is derived from the relevant government yield curve as at the end of each reporting periods plus an adequate constant credit spread. (ii) Fair values of financial instruments carried at other than fair value The carrying amounts of the Group s financial instruments carried at cost or amortised cost are not materially different from their fair values as at 31 March 2013, 2014 and 2015 and 30 September 2015 because of the immediate or short term maturity of the financial instruments. I-48

368 APPENDIX I ACCOUNTANTS REPORT 22 COMMITMENTS Commitments under operating leases The total future minimum lease payments under non-cancellable operating leases are payable as follows: As at As at 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 Within 1 year , After 1 year but within 5 years ,144 1,714 1,173 The Group is the lessee in respect of a number of properties held under operating lease. The lease typically runs for an initial period of 1 to 3 years with an option to renew the lease when all terms are renegotiated. None of the leases includes contingent rentals. 23 MATERIAL RELATED PARTY TRANSACTIONS During the Relevant Periods, transactions with the following parties are considered to be related party transactions: Ms. KWOK Mei Foon Director and one of the Controlling Shareholders of the Company Mr. LEE Siu On Director and one of the Controlling Shareholders of the Company Kenxen Controlled by Ms. KWOK Mei Foon (Note 13) Kenxen Electronics (SZ) Limited Controlled by Kenxen ( Kenxen SZ ) (Note) Vision Controlled by Ms. KWOK Mei Foon SLT HK Controlled by Mr. LEE Siu On Shenzhen Yunxu Trading Limited Controlled by Mr. LEE Siu On ( Shenzhen Yunxu ) (Note) Note: The official name of the entity is in Chinese. The English name is for identification purpose only. I-49

369 APPENDIX I ACCOUNTANTS REPORT In addition to the transactions and balances disclosed in elsewhere in the Financial Information, the Group enters into the following related party transactions: (a) Key management personnel remuneration Remuneration for key management personnel of the Group, including amounts paid to the Company s directors as disclosed in note 7 and certain of the highest paid employees as disclosed in note 8, is as follows: Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Salaries, wages and other benefits 4,428 4,888 5,263 2,551 2,422 Contribution to defined contribution retirement plans ,473 4,933 5,329 2,580 2,458 (b) Transactions with related parties During the Relevant Periods, the Group entered into the following material related party transactions: Six months ended Year ended 31 March 30 September HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Sale of goods to Vision 2,864 4,702 4,702 Sale of goods to Kenxen 14,083 11,516 2, Sale of goods to Kenxen SZ 912 Purchase of goods from Vision Purchase of goods from Kenxen 4,874 22,221 33,681 24,949 Interest income from Kenxen (Note 12(c)) Service fee income from Kenxen (Note 24) Service fee income from SLT HK (Note 24) Service fee expenses to Shenzhen Yunxu 2,466 3,244 2,046 Rental expense paid to Mr. LEE Siu On The directors consider that the above related party transactions during the Relevant Periods were conducted on normal commercial terms and in the ordinary and usual course of the Group s business. I-50

370 APPENDIX I ACCOUNTANTS REPORT 24 CONTINGENT LIABILITIES Financial guarantees issued The Group is covered by cross guarantee arrangements issued by the Group and its related companies to banks in respect of banking facilities granted to the Group and its related companies which remains in force so long as the Group and its related companies has drawn down under the banking facilities. Under the guarantees, the Group and its related companies that are parties to the guarantees are jointly and severally liable for all and any of the borrowings of each of them from the banks which are the beneficiaries of the guarantees. The directors have confirmed that the cross guarantee arrangements will be released upon listing. At the end of each reporting period, the directors do not consider it probable that a claim will be made against the Group under any of the guarantees. The maximum liability of the Group under the cross guarantees issued was the facilities drawn down by the related parties and there was no drawn down by the related companies at the end of each reporting period. Service fee income was received from the related companies in connection with such guarantee arrangement (note 23(b)). 25 ACCOUNTING ESTIMATES AND JUDGEMENTS Key sources of estimation uncertainty The methods, estimates and judgements the directors used in applying the Group s accounting policies have a significant impact on the Group s financial position and operating results. Some of the accounting policies require the Group to apply estimates and judgements, on matters that are inherently uncertain. The key sources of estimation uncertainty are as follows: (i) Impairment losses for bad and doubtful debts The Group estimates impairment losses for bad and doubtful debts resulting from the inability of the customers to make the required payments. The Group bases the estimates on the ageing of the trade receivable balance, customer credit-worthiness and historical write-off experience. If the financial conditions of customers were to deteriorate, actual write-offs would be higher than estimated. (ii) Net realisable value of inventories Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated costs to completion and selling expenses. These estimates are based on the current market condition and the historical experience of manufacturing and selling products of similar nature. The estimates could change significantly as a result of changes in customer preferences and competitor actions in response to severe industry cycle. Management reassess these estimates at the end of each reporting period. (iii) Other impairment losses If circumstances indicate that the carrying value of property, plant and equipment may not be recoverable, these assets may be considered impaired, and an impairment loss may be recognised in accordance with HKAS 36, Impairment of assets. The carrying amounts of these assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amount may not be recoverable. When such a decline has occurred, the carrying amount is reduced to recoverable amount. The recoverable amount is the greater of the fair value less costs of disposal and the value in use. It is difficult to estimate precisely fair value less costs of disposal because quoted market prices for the Group s assets are not readily available. In determining the value in use, expected cash flows generated by the asset are discounted to their present value, which requires significant judgement relating to revenue and amount of operating costs. The Group uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of revenue and amount of operating costs. I-51

371 APPENDIX I ACCOUNTANTS REPORT 26 IMMEDIATE AND ULTIMATE CONTROLLING PARTIES At 30 September 2015, the directors consider the immediate parent of the Group to be On Hong Century Limited, which is incorporated in the BVI and the ultimate controlling parties of the Group to be Mr. LEE Siu On and Ms. KWOK Mei Foon. None of the parties produces financial statements available for public use. 27 FINANCIAL INFORMATION OF THE COMPANY The Company was incorporated in the Cayman Islands on 16 December The issued share capital as at the date of incorporation was HK$0.01. On the same date, 1 share of HK$0.01 was allotted and issued at nil paid form. Except for the Reorganisation, the Company has not carried on any business since the date of incorporation. As at 31 March 2015 and 30 September 2015, trade and other payables of the Company included an amount due to subsidiary of HK$263,000 and HK$532,000 respectively and the reserve of the Company represents the accumulated losses. 28 STATUTORY FINANCIAL STATEMENTS The statutory financial statements of the Company s subsidiaries during the Relevant Periods were audited by the following auditors: Name of company Financial period Statutory auditors ASD Technology Systech Electronics Aolang Electronics For the years ended 31 March 2013 and 2014 For the year ended 31 March 2015 For the years ended 31 March 2013 and 2014 For the year ended 31 March 2015 For the period from 9 March 2012 (date of establishment) to 31 December 2012 and for the year ended 31 December 2013 and 2014 New Choice C.P.A & Company KPMG New Choice C.P.A & Company KPMG Shenzhen Chang Jiang Certified Public Accountants 29 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE RELEVANT PERIODS Up to the date of this Financial Information, the HKICPA has issued a few amendments and new standards which are not yet effective for the Relevant Periods and which have not been adopted in the Financial Information. These include the following which may be relevant to the Group. Effective for accounting periods beginning on or after Annual Improvements to HKFRSs cycle 1 January 2016 Amendments to HKAS 1, Disclosure initiative 1 January 2016 Amendments to HKAS 27, Equity method in separate financial statements 1 January 2016 Amendments to HKAS 16 and HKAS 38, Clarification of acceptable 1 January 2016 methods of depreciation and amortisation HKFRS 15, Revenue from contracts with customers 1 January 2018 HKFRS 9, Financial instruments 1 January 2018 The Group is in the process of making an assessment of what the impact of these amendments and new standards is expected to be in the period of initial application but is not yet in a position to state whether these amendments and new standards would have a significant impact on the Group s results of operations and financial position. I-52

372 APPENDIX I ACCOUNTANTS REPORT C SUBSEQUENT EVENTS The following significant transactions took place subsequent to 30 September 2015: (a) Reorganisation The companies now comprising the Group underwent and completed the Reorganisation on 2 March 2016 in preparation for the Listing. Further details of the Group Reorganisation are set out in the section headed History, Reorganisation and Corporate Structure in the Prospectus. (b) Disposal of buildings held for own use and investment properties In October 2015, the Group completed the disposal of a building held for own use to Mr. LEE Siu On, a director of the Company, at a consideration of RMB11,000,000 (approximately HK$13,401,000) with no gain or loss on disposal. In October 2015, the Group completed the disposal of an investment property to an independent third party, at a consideration of HK$51,800,000 with a gain on disposal of approximately HK$20 million. D SUBSEQUENT FINANCIAL STATEMENTS AND DIVIDENDS No audited financial statements have been prepared by the Company and its subsidiaries comprising the Group in respect of any period subsequent to 30 September Yours faithfully, KPMG Certified Public Accountants Hong Kong I-53

373 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION The information set forth in this appendix does not form part of the Accountants Report prepared by KPMG, Certified Public Accountants, Hong Kong, the Company s reporting accountants as set forth in Appendix I to this prospectus, and is included herein for information only. The unaudited pro forma financial information should be read in conjunction with the section headed Financial Information in this prospectus and the Accountants Report. A. UNAUDITED PRO FORMA STATEMENT OF ADJUSTED NET TANGIBLE ASSETS The following statement of unaudited pro forma adjusted net tangible assets of our Group prepared in accordance with paragraph 7.31 of the GEM Listing Rules is for illustrative purposes only, and is set out below to illustrate the effect of the Placing on the net tangible assets of our Group as if the Placing had taken place on 30 September This unaudited pro forma statement of adjusted net tangible assets has been prepared for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position of the Group had the Placing been completed as at 30 September 2015 or at any future dates. Combined net tangible assets attributable to equity shareholders of the Company as at 30 September 2015 (1) Unaudited pro forma adjusted net tangible assets attributable to equity shareholders of the Company (3) Unaudited pro forma Estimated net proceeds from the Placing (2) adjusted net tangible assets per Share (4) HK$ 000 HK$ 000 HK$ 000 HK$ Based on a Placing Price of HK$1.00 per Placing Share 22,213 27,305 49, Based on a Placing Price of HK$1.08 per Placing Share 22,213 31,065 53, Notes: (1) The combined net tangible assets attributable to equity shareholders of the Company as at 30 September 2015 is based on the combined net assets of the Company of HK$22,213,000 as at 30 September 2015, as shown in the Accountants Report. II-1

374 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION (2) The estimated net proceeds from the Placing are based on the indicative Placing Price of HK$1.00 and HK$1.08 per Placing Share respectively, after deduction of the underwriting commissions, selling concession and a praecipium fee and other listing related expenses payable by us. (3) No adjustment has been made to the unaudited pro forma adjusted net tangible assets to reflect any trading results or other transactions of the Group entered into subsequent to 30 September (4) The unaudited pro forma adjusted net tangible assets per Share is arrived at after the adjustments referred to in the preceding paragraphs and on the basis of 200,000,000 Shares in issue immediately following completion of the Capitalisation Issue and the Placing but taking no account of any Shares which may be allotted and issued pursuant to the exercise of any options that may be granted under the Share Option Scheme. II-2

375 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION B. REPORT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION The following is the text of a report received from the reporting accountants, KPMG, Certified Public Accountants, Hong Kong, in respect of the Group s pro forma financial information for the purpose in this prospectus. 8th Floor Prince s Building 10 Chater Road Central Hong Kong 14 March 2016 INDEPENDENT REPORTING ACCOUNTANTS ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION TO THE DIRECTORS OF ASD INTERNATIONAL HOLDINGS LIMITED We have completed our assurance engagement to report on the compilation of pro forma financial information of ASD International Holdings Limited (the Company ) and its subsidiaries (collectively the Group ) by the directors of the Company (the Directors ) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma statement of adjusted net tangible assets as at 30 September 2015 and related notes as set out in Part A of Appendix II to the prospectus dated 14 March 2016 (the Prospectus ) issued by the Company. The applicable criteria on the basis of which the Directors have compiled the pro forma financial information are described in Part A of Appendix II to the Prospectus. The pro forma financial information has been compiled by the Directors to illustrate the impact of the proposed placing of the ordinary shares of the Company (the Placing ) on the Group s financial position as at 30 September 2015 as if the Placing had taken place at 30 September As part of this process, information about the Group s financial position as at 30 September 2015 has been extracted by the Directors from the Group s historical financial statements included in the Accountants Report as set out in Appendix I to the Prospectus. Directors Responsibilities for the Pro Forma Financial Information The Directors are responsible for compiling the pro forma financial information in accordance with paragraph 7.31 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the GEM Listing Rules ) and with reference to Accounting Guideline 7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars ( AG 7 ) issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ). II-3

376 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION Our Independence and Quality Control We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior. The firm applies Hong Kong Standard on Quality Control 1 and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. Reporting Accountants Responsibilities Our responsibility is to express an opinion, as required by paragraph 7.31(7) of the GEM Listing Rules, on the pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue. We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements ( HKSAE ) 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus issued by the HKICPA. This standard requires that the reporting accountants plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the pro forma financial information in accordance with paragraph 7.31 of the GEM Listing Rules, and with reference to AG 7 issued by the HKICPA. For purpose of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the pro forma financial information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the pro forma financial information. The purpose of pro forma financial information included in an investment circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the Group as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of events or transactions as at 30 September 2015 would have been as presented. A reasonable assurance engagement to report on whether the pro forma financial information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the II-4

377 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION compilation of the pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether: the related pro forma adjustments give appropriate effect to those criteria; and the pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information. The procedures selected depend on the reporting accountants judgement, having regard to the reporting accountants understanding of the nature of the Group, the event or transaction in respect of which the pro forma financial information has been compiled, and other relevant engagement circumstances. The engagement also involves evaluating the overall presentation of the pro forma financial information. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We make no comments regarding the reasonableness of the amount of net proceeds from the issuance of the Company s shares, the application of those net proceeds, or whether such use will actually take place as described in the section headed Use of Proceeds in the Prospectus. Opinion In our opinion: (a) the pro forma financial information has been properly compiled on the basis stated; (b) such basis is consistent with the accounting policies of the Group; and (c) the adjustments are appropriate for the purposes of the pro forma financial information as disclosed pursuant to paragraph 7.31(1) of the GEM Listing Rules. Yours faithfully, KPMG Certified Public Accountants Hong Kong II-5

378 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW Set out below is a summary of certain provisions of the Memorandum and Articles of Association of our Company and of certain aspects of Cayman company law. Our Company was incorporated in the Cayman Islands as an exempted company with limited liability on 16 December 2014 under the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands (the Companies Law ). The Memorandum of Association (the Memorandum ) and the Articles of Association (the Articles ) comprise its constitution. 1. MEMORANDUM OF ASSOCIATION (a) (b) The Memorandum states, inter alia, that the liability of members of the Company is limited to the amount, if any, for the time being unpaid on the Shares respectively held by them and that the objects for which the Company is established are unrestricted (including acting as an investment company), and that the Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit, as provided in section 27(2) of the Companies Law and in view of the fact that the Company is an exempted company that the Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands. The Company may by special resolution alter its Memorandum with respect to any objects, powers or other matters specified therein. 2. ARTICLES OF ASSOCIATION The Articles were conditionally adopted on 2 March 2016 with effect from Listing. The following is a summary of certain provisions of the Articles: (a) Directors (i) Power to allot and issue shares and warrants Subject to the provisions of the Companies Law and the Memorandum and Articles and to any special rights conferred on the holders of any shares or class of shares, any share may be issued with or have attached thereto such rights, or such restrictions, whether with regard to dividend, voting, return of capital, or otherwise, as the Company may by ordinary resolution determine (or, in the absence of any such determination or so far as the same may not make specific provision, as the board may determine). Subject to the Companies Law, the rules of any Designated Stock Exchange (as defined in the Articles) and the Memorandum and Articles, any share may be issued on terms that, at the option of the Company or the holder thereof, they are liable to be redeemed. III-1

379 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW The board may issue warrants conferring the right upon the holders thereof to subscribe for any class of shares or securities in the capital of the Company on such terms as it may from time to time determine. Subject to the provisions of the Companies Law and the Articles and, where applicable, the rules of any Designated Stock Exchange (as defined in the Articles) and without prejudice to any special rights or restrictions for the time being attached to any shares or any class of shares, all unissued shares in the Company shall be at the disposal of the board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times, for such consideration and on such terms and conditions as it in its absolute discretion thinks fit, but so that no shares shall be issued at a discount. Neither the Company nor the board shall be obliged, when making or granting any allotment of, offer of, option over or disposal of shares, to make, or make available, any such allotment, offer, option or shares to members or others with registered addresses in any particular territory or territories being a territory or territories where, in the absence of a registration statement or other special formalities, this would or might, in the opinion of the board, be unlawful or impracticable. Members affected as a result of the foregoing sentence shall not be, or be deemed to be, a separate class of members for any purpose whatsoever. (ii) Power to dispose of the assets of the Company or any subsidiary There are no specific provisions in the Articles relating to the disposal of the assets of the Company or any of its subsidiaries. The Directors may, however, exercise all powers and do all acts and things which may be exercised or done or approved by the Company and which are not required by the Articles or the Companies Law to be exercised or done by the Company in general meeting. (iii) Compensation or payments for loss of office Pursuant to the Articles, payments to any Director or past Director of any sum by way of compensation for loss of office or as consideration for or in connection with his retirement from office (not being a payment to which the Director is contractually entitled) must be approved by the Company in general meeting. (iv) Loans and provision of security for loans to Directors There are provisions in the Articles prohibiting the making of loans to Directors. III-2

380 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW (v) Disclosure of interests in contracts with the Company or any of its subsidiaries A Director may hold any other office or place of profit with the Company (except that of the auditor of the Company) in conjunction with his office of Director for such period and, subject to the Articles, upon such terms as the board may determine, and may be paid such extra remuneration therefor (whether by way of salary, commission, participation in profits or otherwise) in addition to any remuneration provided for by or pursuant to any other Articles. A Director may be or become a director or other officer of, or otherwise interested in, any company promoted by the Company or any other company in which the Company may be interested, and shall not be liable to account to the Company or the members for any remuneration, profits or other benefits received by him as a director, officer or member of, or from his interest in, such other company. Subject as otherwise provided by the Articles, the board may also cause the voting power conferred by the shares in any other company held or owned by the Company to be exercised in such manner in all respects as it thinks fit, including the exercise thereof in favour of any resolution appointing the Directors or any of them to be directors or officers of such other company, or voting or providing for the payment of remuneration to the directors or officers of such other company. Subject to the Companies Law and the Articles, no Director or proposed or intended Director shall be disqualified by his office from contracting with the Company, either with regard to his tenure of any office or place of profit or as vendor, purchaser or in any other manner whatsoever, nor shall any such contract or any other contract or arrangement in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company or the members for any remuneration, profit or other benefits realised by any such contract or arrangement by reason of such Director holding that office or the fiduciary relationship thereby established. A Director who to his knowledge is in any way, whether directly or indirectly, interested in a contract or arrangement or proposed contract or arrangement with the Company shall declare the nature of his interest at the meeting of the board at which the question of entering into the contract or arrangement is first taken into consideration, if he knows his interest then exists, or in any other case, at the first meeting of the board after he knows that he is or has become so interested. A Director shall not vote (nor be counted in the quorum) on any resolution of the board approving any contract or arrangement or other proposal in which he or any of his close associates (as defined in the Articles) is materially interested, but this prohibition shall not apply to any of the following matters, namely: (aa) any contract or arrangement for giving to such Director or his close associate(s) any security or indemnity in respect of money lent by him or any of his close associates or obligations incurred or undertaken by him or any of his close associates at the request of or for the benefit of the Company or any of its subsidiaries; III-3

381 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW (bb) any contract or arrangement for the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director or his close associate(s) has himself/themselves assumed responsibility in whole or in part whether alone or jointly under a guarantee or indemnity or by the giving of security; (cc) any contract or arrangement concerning an offer of shares or debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase, where the Director or his close associate(s) is/are or is/are to be interested as a participant in the underwriting or sub-underwriting of the offer; (dd) any contract or arrangement in which the Director or his close associate(s) is/are interested in the same manner as other holders of shares or debentures or other securities of the Company by virtue only of his/their interest in shares or debentures or other securities of the Company; or (ee) any proposal or arrangement concerning the adoption, modification or operation of a share option scheme, a pension fund or retirement, death, or disability benefits scheme or other arrangement which relates both to Directors, his close associates and employees of the Company or of any of its subsidiaries and does not provide in respect of any Director, or his close associate(s) as such any privilege or advantage not accorded generally to the class of persons to which such scheme or fund relates. (vi) Remuneration The ordinary remuneration of the Directors shall from time to time be determined by the Company in general meeting, such sum (unless otherwise directed by the resolution by which it is voted) to be divided amongst the Directors in such proportions and in such manner as the board may agree or, failing agreement, equally, except that any Director holding office for part only of the period in respect of which the remuneration is payable shall only rank in such division in proportion to the time during such period for which he held office. The Directors shall also be entitled to be prepaid or repaid all travelling, hotel and incidental expenses reasonably expected to be incurred or incurred by them in attending any board meetings, committee meetings or general meetings or separate meetings of any class of shares or of debentures of the Company or otherwise in connection with the discharge of their duties as Directors. Any Director who, by request, goes or resides abroad for any purpose of the Company or who performs services which in the opinion of the board go beyond the ordinary duties of a Director may be paid such extra remuneration (whether by way III-4

382 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW of salary, commission, participation in profits or otherwise) as the board may determine and such extra remuneration shall be in addition to or in substitution for any ordinary remuneration as a Director. An executive Director appointed to be a managing director, joint managing director, deputy managing director or other executive officer shall receive such remuneration (whether by way of salary, commission or participation in profits or otherwise or by all or any of those modes) and such other benefits (including pension and/or gratuity and/or other benefits on retirement) and allowances as the board may from time to time decide. Such remuneration may be either in addition to or in lieu of his remuneration as a Director. The board may establish or concur or join with other companies (being subsidiary companies of the Company or companies with which it is associated in business) in establishing and making contributions out of the Company s monies to any schemes or funds for providing pensions, sickness or compassionate allowances, life assurance or other benefits for employees (which expression as used in this and the following paragraph shall include any Director or ex-director who may hold or have held any executive office or any office of profit with the Company or any of its subsidiaries) and ex-employees of the Company and their dependents or any class or classes of such persons. The board may pay, enter into agreements to pay or make grants of revocable or irrevocable, and either subject or not subject to any terms or conditions, pensions or other benefits to employees and ex-employees and their dependents, or to any of such persons, including pensions or benefits additional to those, if any, to which such employees or ex-employees or their dependents are or may become entitled under any such scheme or fund as is mentioned in the previous paragraph. Any such pension or benefit may, as the board considers desirable, be granted to an employee either before and in anticipation of, or upon or at any time after, his actual retirement. (vii) Retirement, appointment and removal At each annual general meeting, one third of the Directors for the time being (or if their number is not a multiple of three, then the number nearest to but not less than one third) shall retire from office by rotation provided that every Director shall be subject to retirement at an annual general meeting at least once every three years. The Directors to retire by rotation shall include any Director who wishes to retire and not offer himself for re-election. Any further Directors so to retire shall be those who have been longest in office since their last re-election or appointment but as between persons who became or were last re-elected Directors on the same day those to retire will (unless they otherwise agree among themselves) be determined by lot. There are no provisions relating to retirement of Directors upon reaching any age limit. III-5

383 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW The Directors shall have the power from time to time and at any time to appoint any person as a Director either to fill a casual vacancy on the board or as an addition to the existing board. Any Director appointed to fill a casual vacancy shall hold office until the first general meeting of members after his appointment and be subject to re-election at such meeting and any Director appointed as an addition to the existing board shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election. Neither a Director nor an alternate Director is required to hold any shares in the Company by way of qualification. A Director may be removed by an ordinary resolution of the Company before the expiration of his period of office (but without prejudice to any claim which such Director may have for damages for any breach of any contract between him and the Company) and the members may by ordinary resolution appoint another in his place at the meeting at which such Director is removed. Unless otherwise determined by the Company in general meeting, the number of Directors shall not be less than two. There is no maximum number of Directors. The office of director shall be vacated: (aa) if he resigns his office by notice in writing delivered to the Company at the registered office of the Company for the time being or tendered at a meeting of the Board; (bb) becomes of unsound mind or dies; (cc) if, without special leave, he is absent from meetings of the board (unless an alternate director appointed by him attends) for six (6) consecutive months, and the board resolves that his office is vacated; (dd) if he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors; (ee) if he is prohibited from being a director by law; (ff) if he ceases to be a director by virtue of any provision of law or is removed from office pursuant to the Articles. The board may from time to time appoint one or more of its body to be managing director, joint managing director, or deputy managing director or to hold any other employment or executive office with the Company for such period and upon such terms as the board may determine and the board may revoke or terminate any of such appointments. The board may delegate any of its powers, authorities and discretions to committees consisting of such Director or Directors and other persons III-6

384 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW as the board thinks fit, and it may from time to time revoke such delegation or revoke the appointment of and discharge any such committees either wholly or in part, and either as to persons or purposes, but every committee so formed shall, in the exercise of the powers, authorities and discretions so delegated, conform to any regulations that may from time to time be imposed upon it by the board. (viii) Borrowing powers The board may exercise all the powers of the Company to raise or borrow money, to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and, subject to the Companies Law, to issue debentures, bonds and other securities of the Company, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party. Note: These provisions, in common with the Articles in general, can be varied with the sanction of a special resolution of the Company. (ix) Proceedings of the Board The board may meet for the despatch of business, adjourn and otherwise regulate its meetings as it considers appropriate. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have an additional or casting vote. (x) Register of Directors and Officers The Companies Law and the Articles provide that the Company is required to maintain at its registered office a register of directors and officers which is not available for inspection by the public. A copy of such register must be filed with the Registrar of Companies in the Cayman Islands and any change must be notified to the Registrar within sixty (60) days of any change in such directors or officers. (b) Alterations to constitutional documents The Articles may be rescinded, altered or amended by the Company in general meeting by special resolution. The Articles state that a special resolution shall be required to alter the provisions of the Memorandum, to amend the Articles or to change the name of the Company. (c) Alteration of capital The Company may from time to time by ordinary resolution in accordance with the relevant provisions of the Companies Law: (i) increase its capital by such sum, to be divided into shares of such amounts as the resolution shall prescribe; III-7

385 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW (ii) consolidate and divide all or any of its capital into shares of larger amount than its existing shares; (iii) divide its shares into several classes and without prejudice to any special rights previously conferred on the holders of existing shares attach thereto respectively any preferential, deferred, qualified or special rights, privileges, conditions or restrictions as the Company in general meeting or as the directors may determine; (iv) (v) sub-divide its shares or any of them into shares of smaller amount than is fixed by the Memorandum, subject nevertheless to the provisions of the Companies Law, and so that the resolution whereby any share is sub-divided may determine that, as between the holders of the shares resulting from such sub-division, one or more of the shares may have any such preferred or other special rights, over, or may have such deferred rights or be subject to any such restrictions as compared with the others as the Company has power to attach to unissued or new shares; or cancel any shares which, at the date of passing of the resolution, have not been taken, or agreed to be taken, by any person, and diminish the amount of its capital by the amount of the shares so cancelled. The Company may subject to the provisions of the Companies Law reduce its share capital or any capital redemption reserve or other undistributable reserve in any way by special resolution. (d) Variation of rights of existing shares or classes of shares Subject to the Companies Law, all or any of the special rights attached to the shares or any class of shares may (unless otherwise provided for by the terms of issue of that class) be varied, modified or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. To every such separate general meeting the provisions of the Articles relating to general meetings will mutatis mutandis apply, but so that the necessary quorum (other than at an adjourned meeting) shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class and at any adjourned meeting two holders present in person or by proxy (whatever the number of shares held by them) shall be a quorum. Every holder of shares of the class shall be entitled to one vote for every such share held by him. The special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise expressly provided in the rights attaching to the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith. III-8

386 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW (e) Special resolution-majority required Pursuant to the Articles, a special resolution of the Company must be passed by a majority of not less than three-fourths of the votes cast by such members as, being entitled so to do, vote in person or, in the case of such members as are corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which notice has been duly given in accordance with the Articles (see paragraph 2(i) below for further details). A copy of any special resolution must be forwarded to the Registrar of Companies in the Cayman Islands within fifteen (15) days of being passed. An ordinary resolution is defined in the Articles to mean a resolution passed by a simple majority of the votes of such members of the Company as, being entitled to do so, vote in person or, in the case of corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting held in accordance with the Articles. (f) Voting rights Subject to any special rights or restrictions as to voting for the time being attached to any shares by or in accordance with the Articles, at any general meeting on a poll every member present in person or by proxy or, in the case of a member being a corporation, by its duly authorised representative shall have one vote for every fully paid share of which he is the holder but so that no amount paid up or credited as paid up on a share in advance of calls or installments is treated for the foregoing purposes as paid up on the share. A member entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way. At any general meeting a resolution put to the vote of the meeting is to be decided by way of a poll save that the chairman of the meeting may in good faith, allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands in which case every member present in person (or being a corporation, is present by a duly authorized representative), or by proxy(ies) shall have one vote provided that where more than one proxy is appointed by a member which is a clearing house (or its nominee(s)), each such proxy shall have one vote on a show of hands. III-9

387 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW If a recognised clearing house (or its nominee(s)) is a member of the Company it may authorise such person or persons as it thinks fit to act as its representative(s) at any meeting of the Company or at any meeting of any class of members of the Company provided that, if more than one person is so authorised, the authorisation shall specify the number and class of shares in respect of which each such person is so authorised. A person authorised pursuant to this provision shall be deemed to have been duly authorised without further evidence of the facts and be entitled to exercise the same powers on behalf of the recognised clearing house (or its nominee(s)) as if such person was the registered holder of the shares of the Company held by that clearing house (or its nominee(s)) including, where a show of hands is allowed, the right to vote individually on a show of hands. Where the Company has any knowledge that any shareholder is, under the rules of the Designated Stock Exchange (as defined in the Articles), required to abstain from voting on any particular resolution of the Company or restricted to voting only for or only against any particular resolution of the Company, any votes cast by or on behalf of such shareholder in contravention of such requirement or restriction shall not be counted. (g) Requirements for annual general meetings An annual general meeting of the Company must be held in each year, other than the year of adoption of the Articles (within a period of not more than fifteen (15) months after the holding of the last preceding annual general meeting or a period of not more than eighteen (18) months from the date of adoption of the Articles, unless a longer period would not infringe the rules of any Designated Stock Exchange (as defined in the Articles)) at such time and place as may be determined by the board. (h) Accounts and audit The board shall cause true accounts to be kept of the sums of money received and expended by the Company, and the matters in respect of which such receipt and expenditure take place, and of the property, assets, credits and liabilities of the Company and of all other matters required by the Companies Law or necessary to give a true and fair view of the Company s affairs and to explain its transactions. The accounting records shall be kept at the registered office or at such other place or places as the board decides and shall always be open to inspection by any Director. No member (other than a Director) shall have any right to inspect any accounting record or book or document of the Company except as conferred by law or authorised by the board or the Company in general meeting. However, an exempted company shall make available at its registered office in electronic form or any other medium, copies of its books of account or parts thereof as may be required of it upon service of an order or notice by the Tax Information Authority pursuant to the Tax Information Authority Law of the Cayman Islands. III-10

388 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW A copy of every balance sheet and profit and loss account (including every document required by law to be annexed thereto) which is to be laid before the Company at its general meeting, together with a printed copy of the Directors report and a copy of the auditors report, shall not less than twenty-one (21) days before the date of the meeting and at the same time as the notice of annual general meeting be sent to every person entitled to receive notices of general meetings of the Company under the provisions of the Articles; however, subject to compliance with all applicable laws, including the rules of the Designated Stock Exchange (as defined in the Articles), the Company may send to such persons summarised financial statements derived from the Company s annual accounts and the directors report instead provided that any such person may by notice in writing served on the Company, demand that the Company sends to him, in addition to summarised financial statements, a complete printed copy of the Company s annual financial statement and the directors report thereon. Auditors shall be appointed and the terms and tenure of such appointment and their duties at all times regulated in accordance with the provisions of the Articles. The remuneration of the auditors shall be fixed by the Company in general meeting or in such manner as the members may determine. The financial statements of the Company shall be audited by the auditor in accordance with generally accepted auditing standards. The auditor shall make a written report thereon in accordance with generally accepted auditing standards and the report of the auditor shall be submitted to the members in general meeting. The generally accepted auditing standards referred to herein may be those of a country or jurisdiction other than the Cayman Islands. If so, the financial statements and the report of the auditor should disclose this fact and name such country or jurisdiction. (i) Notices of meetings and business to be conducted thereat An annual general meeting must be called by notice of not less than twenty-one (21) clear days and not less than twenty (20) clear business days. All other general meetings (including an extraordinary general meeting) must be called by notice of at least fourteen (14) clear days and not less than ten (10) clear business days. The notice must specify the time and place of the meeting and, in the case of special business, the general nature of that business. In addition notice of every general meeting shall be given to all members of the Company other than to such members as, under the provisions of the Articles or the terms of issue of the shares they hold, are not entitled to receive such notices from the Company, and also to the auditors for the time being of the Company. III-11

389 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW Notwithstanding that a meeting of the Company is called by shorter notice than that mentioned above if permitted by the rules of the Designated Stock Exchange, it shall be deemed to have been duly called if it is so agreed: (i) (ii) in the case of a meeting called as an annual general meeting, by all members of the Company entitled to attend and vote thereat; and in the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority together representing not less than ninety-five per cent (95%) of the total voting rights at the meeting of all the members. All business shall be deemed special that is transacted at an extraordinary general meeting and also all business shall be deemed special that is transacted at an annual general meeting with the exception of the following, which shall be deemed ordinary business: (aa) the declaration and sanctioning of dividends; (bb) the consideration and adoption of the accounts and balance sheet and the reports of the directors and the auditors; (cc) the election of directors in place of those retiring; (dd) the appointment of auditors and other officers; (ee) the fixing of the remuneration of the directors and of the auditors; (ff) the granting of any mandate or authority to the directors to offer, allot, grant options over or otherwise dispose of the unissued shares of the Company representing not more than twenty per cent (20%) in nominal value of its existing issued share capital; and (gg) the granting of any mandate or authority to the directors to repurchase securities of the Company. (j) Transfer of shares All transfers of shares may be effected by an instrument of transfer in the usual or common form or in a form prescribed by the Designated Stock Exchange (as defined in the Articles) or in such other form as the board may approve and which may be under hand or, if the transferor or transferee is a clearing house or its nominee(s), by hand or by machine imprinted signature or by such other manner of execution as the board may approve from time to time. The instrument of transfer shall be executed by or on behalf III-12

390 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW of the transferor and the transferee provided that the board may dispense with the execution of the instrument of transfer by the transferee in any case in which it thinks fit, in its discretion, to do so and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the register of members in respect thereof. The board may also resolve either generally or in any particular case, upon request by either the transferor or the transferee, to accept mechanically executed transfers. The board in so far as permitted by any applicable law may, in its absolute discretion, at any time and from time to time transfer any share upon the principal register to any branch register or any share on any branch register to the principal register or any other branch register. Unless the board otherwise agrees, no shares on the principal register shall be transferred to any branch register nor may shares on any branch register be transferred to the principal register or any other branch register. All transfers and other documents of title shall be lodged for registration and registered, in the case of shares on a branch register, at the relevant registration office and, in the case of shares on the principal register, at the registered office in the Cayman Islands or such other place at which the principal register is kept in accordance with the Companies Law. The board may, in its absolute discretion, and without assigning any reason, refuse to register a transfer of any share (not being a fully paid up share) to a person of whom it does not approve or any share issued under any share incentive scheme for employees upon which a restriction on transfer imposed thereby still subsists, and it may also refuse to register any transfer of any share to more than four joint holders or any transfer of any share (not being a fully paid up share) on which the Company has a lien. The board may decline to recognise any instrument of transfer unless a fee of such maximum sum as any Designated Stock Exchange (as defined in the Articles) may determine to be payable or such lesser sum as the Directors may from time to time require is paid to the Company in respect thereof, the instrument of transfer, if applicable, is properly stamped, is in respect of only one class of share and is lodged at the relevant registration office or registered office or such other place at which the principal register is kept accompanied by the relevant share certificate(s) and such other evidence as the board may reasonably require to show the right of the transferor to make the transfer (and if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do). The registration of transfers may be suspended and the register closed on giving notice by advertisement in a relevant newspaper and, where applicable, any other newspapers in accordance with the requirements of any Designated Stock Exchange (as defined in the Articles), at such times and for such periods as the board may determine and either generally or in respect of any class of shares. The register of members shall not be closed for periods exceeding in the whole thirty (30) days in any year. III-13

391 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW (k) Power for the Company to purchase its own shares The Company is empowered by the Companies Law and the Articles to purchase its own Shares subject to certain restrictions and the Board may only exercise this power on behalf of the Company subject to any applicable requirements imposed from time to time by any Designated Stock Exchange (as defined in the Articles). (l) Power for any subsidiary of the Company to own shares in the Company and financial assistance to purchase shares of the Company There are no provisions in the Articles relating to ownership of shares in the Company by a subsidiary. Subject to compliance with the rules and regulations of the Designated Stock Exchange (as defined in the Articles) and any other relevant regulatory authority, the Company may give financial assistance for the purpose of or in connection with a purchase made or to be made by any person of any shares in the Company. (m) Dividends and other methods of distribution Subject to the Companies Law, the Company in general meeting may declare dividends in any currency to be paid to the members but no dividend shall be declared in excess of the amount recommended by the board. The Articles provide dividends may be declared and paid out of the profits of the Company, realised or unrealised, or from any reserve set aside from profits which the directors determine is no longer needed. With the sanction of an ordinary resolution dividends may also be declared and paid out of share premium account or any other fund or account which can be authorised for this purpose in accordance with the Companies Law. Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise provide, (i) all dividends shall be declared and paid according to the amounts paid up on the shares in respect whereof the dividend is paid but no amount paid up on a share in advance of calls shall for this purpose be treated as paid up on the share and (ii) all dividends shall be apportioned and paid pro rata according to the amount paid up on the shares during any portion or portions of the period in respect of which the dividend is paid. The Directors may deduct from any dividend or other monies payable to any member or in respect of any shares all sums of money (if any) presently payable by him to the Company on account of calls or otherwise. Whenever the board or the Company in general meeting has resolved that a dividend be paid or declared on the share capital of the Company, the board may further resolve either (a) that such dividend be satisfied wholly or in part in the form of an allotment of III-14

392 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW shares credited as fully paid up, provided that the shareholders entitled thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment, or (b) that shareholders entitled to such dividend will be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or such part of the dividend as the board may think fit. The Company may also upon the recommendation of the board by an ordinary resolution resolve in respect of any one particular dividend of the Company that it may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to shareholders to elect to receive such dividend in cash in lieu of such allotment. Any dividend, interest or other sum payable in cash to the holder of shares may be paid by cheque or warrant sent through the post addressed to the holder at his registered address, or in the case of joint holders, addressed to the holder whose name stands first in the register of the Company in respect of the shares at his address as appearing in the register or addressed to such person and at such addresses as the holder or joint holders may in writing direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the register in respect of such shares, and shall be sent at his or their risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. Any one of two or more joint holders may give effectual receipts for any dividends or other moneys payable or property distributable in respect of the shares held by such joint holders. Whenever the board or the Company in general meeting has resolved that a dividend be paid or declared the board may further resolve that such dividend be satisfied wholly or in part by the distribution of specific assets of any kind. All dividends or bonuses unclaimed for one year after having been declared may be invested or otherwise made use of by the board for the benefit of the Company until claimed and the Company shall not be constituted a trustee in respect thereof. All dividends or bonuses unclaimed for six years after having been declared may be forfeited by the board and shall revert to the Company. No dividend or other monies payable by the Company on or in respect of any share shall bear interest against the Company. (n) Proxies Any member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member of the Company and shall be entitled to exercise III-15

393 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW the same powers on behalf of a member who is an individual and for whom he acts as proxy as such member could exercise. In addition, a proxy shall be entitled to exercise the same powers on behalf of a member which is a corporation and for which he acts as proxy as such member could exercise if it were an individual member. Votes may be given either personally (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy. (o) Call on shares and forfeiture of shares Subject to the Articles and to the terms of allotment, the board may from time to time make such calls upon the members in respect of any monies unpaid on the shares held by them respectively (whether on account of the nominal value of the shares or by way of premium). A call may be made payable either in one lump sum or by installments. If the sum payable in respect of any call or instalment is not paid on or before the day appointed for payment thereof, the person or persons from whom the sum is due shall pay interest on the same at such rate not exceeding twenty per cent. (20%) per annum as the board may agree to accept from the day appointed for the payment thereof to the time of actual payment, but the board may waive payment of such interest wholly or in part. The board may, if it thinks fit, receive from any member willing to advance the same, either in money or money s worth, all or any part of the monies uncalled and unpaid or installments payable upon any shares held by him, and upon all or any of the monies so advanced the Company may pay interest at such rate (if any) as the board may decide. If a member fails to pay any call on the day appointed for payment thereof, the board may serve not less than fourteen (14) clear days notice on him requiring payment of so much of the call as is unpaid, together with any interest which may have accrued and which may still accrue up to the date of actual payment and stating that, in the event of non-payment at or before the time appointed, the shares in respect of which the call was made will be liable to be forfeited. If the requirements of any such notice are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the board to that effect. Such forfeiture will include all dividends and bonuses declared in respect of the forfeited share and not actually paid before the forfeiture. A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall, notwithstanding, remain liable to pay to the Company all monies which, at the date of forfeiture, were payable by him to the Company in respect of the shares, together with (if the board shall in its discretion so require) interest thereon from the date of forfeiture until the date of actual payment at such rate not exceeding twenty per cent. (20%) per annum as the board determines. III-16

394 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW (p) Inspection of register of members Pursuant to the Articles the register and branch register of members shall be open to inspection for at least two (2) hours during business hours by members without charge, or by any other person upon a maximum payment of HK$2.50 or such lesser sum specified by the board, at the registered office or such other place at which the register is kept in accordance with the Companies Law or, upon a maximum payment of HK$1.00 or such lesser sum specified by the board, at the Registration Office (as defined in the Articles), unless the register is closed in accordance with the Articles. (q) Quorum for meetings and separate class meetings No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, but the absence of a quorum shall not preclude the appointment of a chairman. Save as otherwise provided by the Articles the quorum for a general meeting shall be two members present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy and entitled to vote. In respect of a separate class meeting (other than an adjourned meeting) convened to sanction the modification of class rights the necessary quorum shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class. A corporation being a member shall be deemed for the purpose of the Articles to be present in person if represented by its duly authorised representative being the person appointed by resolution of the directors or other governing body of such corporation to act as its representative at the relevant general meeting of the Company or at any relevant general meeting of any class of members of the Company. (r) Rights of the minorities in relation to fraud or oppression There are no provisions in the Articles relating to rights of minority shareholders in relation to fraud or oppression. However, certain remedies are available to shareholders of the Company under Cayman law, as summarised in paragraph 3(f) of this Appendix. (s) Procedures on liquidation A resolution that the Company be wound up by the court or be wound up voluntarily shall be a special resolution. Subject to any special rights, privileges or restrictions as to the distribution of available surplus assets on liquidation for the time being attached to any class or classes of shares (i) if the Company shall be wound up and the assets available for distribution III-17

395 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW amongst the members of the Company shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed pari passu amongst such members in proportion to the amount paid up on the shares held by them respectively and (ii) if the Company shall be wound up and the assets available for distribution amongst the members as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up on the shares held by them respectively. If the Company shall be wound up (whether the liquidation is voluntary or by the court) the liquidator may, with the authority of a special resolution and any other sanction required by the Companies Law divide among the members in specie or kind the whole or any part of the assets of the Company whether the assets shall consist of property of one kind or shall consist of properties of different kinds and the liquidator may, for such purpose, set such value as he deems fair upon any one or more class or classes of property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members. The liquidator may, with the like authority, vest any part of the assets in trustees upon such trusts for the benefit of members as the liquidator, with the like authority, shall think fit, but so that no contributory shall be compelled to accept any shares or other property in respect of which there is a liability. (t) Untraceable members Pursuant to the Articles, the Company may sell any of the shares of a member who is untraceable if (i) all cheques or warrants in respect of dividends of the shares in question (being not less than three in total number) for any sum payable in cash to the holder of such shares have remained uncashed for a period of 12 years; (ii) upon the expiry of the 12 year period, the Company has not during that time received any indication of the existence of the member; and (iii) the Company has caused an advertisement to be published in accordance with the rules of the Designated Stock Exchange (as defined in the Articles) giving notice of its intention to sell such shares and a period of three (3) months, or such shorter period as may be permitted by the Designated Stock Exchange (as defined in the Articles), has elapsed since the date of such advertisement and the Designated Stock Exchange (as defined in the Articles) has been notified of such intention. The net proceeds of any such sale shall belong to the Company and upon receipt by the Company of such net proceeds, it shall become indebted to the former member of the Company for an amount equal to such net proceeds. III-18

396 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW (u) Subscription rights reserve The Articles provide that to the extent that it is not prohibited by and is in compliance with the Companies Law, if warrants to subscribe for shares have been issued by the Company and the Company does any act or engages in any transaction which would result in the subscription price of such warrants being reduced below the par value of a share, a subscription rights reserve shall be established and applied in paying up the difference between the subscription price and the par value of a share on any exercise of the warrants. 3. CAYMAN ISLANDS COMPANY LAW The Company is incorporated in the Cayman Islands subject to the Companies Law and, therefore, operates subject to Cayman law. Set out below is a summary of certain provisions of Cayman company law, although this does not purport to contain all applicable qualifications and exceptions or to be a complete review of all matters of Cayman company law and taxation, which may differ from equivalent provisions in jurisdictions with which interested parties may be more familiar: (a) Operations As an exempted company, the Company s operations must be conducted mainly outside the Cayman Islands. The Company is required to file an annual return each year with the Registrar of Companies of the Cayman Islands and pay a fee which is based on the amount of its authorised share capital. (b) Share capital The Companies Law provides that where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the value of the premiums on those shares shall be transferred to an account, to be called the share premium account. At the option of a company, these provisions may not apply to premiums on shares of that company allotted pursuant to any arrangement in consideration of the acquisition or cancellation of shares in any other company and issued at a premium. The Companies Law provides that the share premium account may be applied by the company subject to the provisions, if any, of its memorandum and articles of association in (a) paying distributions or dividends to members; (b) paying up unissued shares of the company to be issued to members as fully paid bonus shares; (c) the redemption and repurchase of shares (subject to the provisions of section 37 of the Companies Law); (d) writing-off the preliminary expenses of the company; and (e) writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company. No distribution or dividend may be paid to members out of the share premium account unless immediately following the date on which the distribution or dividend is proposed to be paid, the company will be able to pay its debts as they fall due in the ordinary course business. III-19

397 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW The Companies Law provides that, subject to confirmation by the Grand Court of the Cayman Islands (the Court ), a company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, by special resolution reduce its share capital in any way. The Articles includes certain protections for holders of special classes of shares, requiring their consent to be obtained before their rights may be varied. The consent of the specified proportions of the holders of the issued shares of that class or the sanction of a resolution passed at a separate meeting of the holders of those shares is required. (c) Financial assistance to purchase shares of a company or its holding company Subject to all applicable laws, the Company may give financial assistance to Directors and employees of the Company, its subsidiaries, its holding company or any subsidiary of such holding company in order that they may buy Shares in the Company or shares in any subsidiary or holding company. Further, subject to all applicable laws, the Company may give financial assistance to a trustee for the acquisition of Shares in the Company or shares in any such subsidiary or holding company to be held for the benefit of employees of the Company, its subsidiaries, any holding company of the Company or any subsidiary of any such holding company (including salaried Directors). There is no statutory restriction in the Cayman Islands on the provision of financial assistance by a company to another person for the purchase of, or subscription for, its own or its holding company s shares. Accordingly, a company may provide financial assistance if the directors of the company consider, in discharging their duties of care and acting in good faith, for a proper purpose and in the interests of the company, that such assistance can properly be given. Such assistance should be on an arm s-length basis. (d) Purchase of shares and warrants by a company and its subsidiaries Subject to the provisions of the Companies Law, a company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, issue shares which are to be redeemed or are liable to be redeemed at the option of the company or a shareholder and the Companies Law expressly provides that it shall be lawful for the rights attaching to any shares to be varied, subject to the provisions of the company s articles of association, so as to provide that such shares are to be or are liable to be so redeemed. In addition, such a company may, if authorised to do so by its articles of association, purchase its own shares, including any redeemable shares. However, if the articles of association do not authorise the manner and terms of purchase, a company cannot purchase any of its own shares unless the manner and terms of purchase have first been authorised by an ordinary resolution of the company. At no time may a company redeem or purchase its shares unless they are fully paid. A company may not redeem or purchase any of its shares if, as a result of the redemption or purchase, there would no longer be any issued shares of the company other than shares held as III-20

398 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW treasury shares. A payment out of capital by a company for the redemption or purchase of its own shares is not lawful unless immediately following the date on which the payment is proposed to be made, the company shall be able to pay its debts as they fall due in the ordinary course of business. Shares purchased by a company shall be treated as cancelled unless, subject to the memorandum and articles of association of the company, the directors of the company resolve to hold such shares in the name of the company as treasury shares prior to the purchase. Where shares of a company are held as treasury shares, the company shall be entered in the register of members as holding those shares, however, notwithstanding the foregoing, the company shall not be treated as a member for any purpose and shall not exercise any right in respect of the treasury shares, and any purported exercise of such a right shall be void, and a treasury share shall not be voted, directly or indirectly, at any meeting of the company and shall not be counted in determining the total number of issued shares at any given time, whether for the purposes of the company s articles of association or the Companies Law. Further, no dividend may be declared or paid, and no other distribution (whether in cash or otherwise) of the company s assets (including any distribution of assets to members on a winding up) may be made to the company, in respect of a treasury share. A company is not prohibited from purchasing and may purchase its own warrants subject to and in accordance with the terms and conditions of the relevant warrant instrument or certificate. There is no requirement under Cayman Islands law that a company s memorandum or articles of association contain a specific provision enabling such purchases and the directors of a company may rely upon the general power contained in its memorandum of association to buy and sell and deal in personal property of all kinds. Under Cayman Islands law, a subsidiary may hold shares in its holding company and, in certain circumstances, may acquire such shares. (e) Dividends and distributions With the exception of section 34 of the Companies Law, there is no statutory provisions relating to the payment of dividends. Based upon English case law, which is regarded as persuasive in the Cayman Islands, dividends may be paid only out of profits. In addition, section 34 of the Companies Law permits, subject to a solvency test and the provisions, if any, of the company s memorandum and articles of association, the payment of dividends and distributions out of the share premium account (see paragraph 2(m) above for further details). III-21

399 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW (f) Protection of minorities The Cayman Islands courts ordinarily would be expected to follow English case law precedents which permit a minority shareholder to commence a representative action against or derivative actions in the name of the company to challenge (a) an act which is ultra vires the company or illegal, (b) an act which constitutes a fraud against the minority and the wrongdoers are themselves in control of the company, and (c) an irregularity in the passing of a resolution which requires a qualified (or special) majority. In the case of a company (not being a bank) having a share capital divided into shares, the Court may, on the application of members holding not less than one fifth of the shares of the company in issue, appoint an inspector to examine into the affairs of the company and to report thereon in such manner as the Court shall direct. Any shareholder of a company may petition the Court which may make a winding up order if the Court is of the opinion that it is just and equitable that the company should be wound up or, as an alternative to a winding up order, (a) an order regulating the conduct of the company s affairs in the future, (b) an order requiring the company to refrain from doing or continuing an act complained of by the shareholder petitioner or to do an act which the shareholder petitioner has complained it has omitted to do, (c) an order authorising civil proceedings to be brought in the name and on behalf of the company by the shareholder petitioner on such terms as the Court may direct, or (d) an order providing for the purchase of the shares of any shareholders of the company by other shareholders or by the company itself and, in the case of a purchase by the company itself, a reduction of the company s capital accordingly. Generally claims against a company by its shareholders must be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by the company s memorandum and articles of association. (g) Management The Companies Law contains no specific restrictions on the power of directors to dispose of assets of a company. However, as a matter of general law, every officer of a company, which includes a director, managing director and secretary, in exercising his powers and discharging his duties must do so honestly and in good faith with a view to the best interests of the company and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. (h) Accounting and auditing requirements A company shall cause proper books of account to be kept with respect to (i) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place; (ii) all sales and purchases of goods by the company; and (iii) the assets and liabilities of the company. III-22

400 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW Proper books of account shall not be deemed to be kept if there are not kept such books as are necessary to give a true and fair view of the state of the company s affairs and to explain its transactions. (i) Exchange control There are no exchange control regulations or currency restrictions in the Cayman Islands. (j) Taxation Pursuant to section 6 of the Tax Concessions Law (2011 Revision) of the Cayman Islands, the Company has obtained an undertaking from the Governor-in-Cabinet: (1) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciation shall apply to the Company or its operations; and (2) that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on or in respect of the shares, debentures or other obligations of the Company. The undertaking for the Company is for a period of twenty years from 6 January The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands save certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are a party to a double tax treaty entered into with the United Kingdom in 2010 but otherwise is not party to any double tax treaties. (k) Stamp duty on transfers No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands. (l) Loans to directors There is no express provision in the Companies Law prohibiting the making of loans by a company to any of its directors. III-23

401 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW (m) Inspection of corporate records Members of the Company will have no general right under the Companies Law to inspect or obtain copies of the register of members or corporate records of the Company. They will, however, have such rights as may be set out in the Company s Articles. An exempted company may maintain its principal register of members and any branch registers at such locations, whether within or without the Cayman Islands, as the directors may, from time to time, think fit. A branch register shall be kept in the same manner in which a principal register is by the Companies Law required or permitted to be kept. The company shall cause to be kept at the place where the company s principal register is kept a duplicate of any branch register duly entered up from time to time. There is no requirement under the Companies Law for an exempted company to make any returns of members to the Registrar of Companies of the Cayman Islands. The names and addresses of the members are, accordingly, not a matter of public record and are not available for public inspection. However, an exempted company shall make available at its registered office, in electronic form or any other medium, such register of members, including any branch register of members, as may be required of it upon service of an order or notice by the Tax Information Authority pursuant to the Tax Information Authority Law of the Cayman Islands. (n) Winding up A company may be wound up compulsorily by order of the Court; voluntarily; or, under supervision of the Court. The Court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the Court, just and equitable to do so. A company may be wound up voluntarily when the members so resolve in general meeting by special resolution, or, in the case of a limited duration company, when the period fixed for the duration of the company by its memorandum or articles expires, or the event occurs on the occurrence of which the memorandum or articles provides that the company is to be dissolved, or, the company does not commence business for a year from its incorporation (or suspends its business for a year), or, the company is unable to pay its debts. In the case of a voluntary winding up, such company is obliged to cease to carry on its business from the time of passing the resolution for voluntary winding up or upon the expiry of the period or the occurrence of the event referred to above. For the purpose of conducting the proceedings in winding up a company and assisting the Court, there may be appointed one or more than one person to be called an official liquidator or official liquidators; and the Court may appoint to such office such qualified person or persons, either provisionally or otherwise, as it thinks fit, and if more persons than one are appointed to such office, the Court shall declare whether any act hereby required or authorised to be done by the official liquidator is to be done by all or III-24

402 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW any one or more of such persons. The Court may also determine whether any and what security is to be given by an official liquidator on his appointment; if no official liquidator is appointed, or during any vacancy in such office, all the property of the company shall be in the custody of the Court. A person shall be qualified to accept an appointment as an official liquidator if he is duly qualified in terms of the Insolvency Practitioners Regulations. A foreign practitioner may be appointed to act jointly with a qualified insolvency practitioner. In the case of a members voluntary winding up of a company, the company in general meeting must appoint one or more liquidators for the purpose of winding up the affairs of the company and distributing its assets. A declaration of solvency must be signed by all the directors of a company being voluntarily wound up within twenty-eight (28) days of the commencement of the liquidation, failing which, its liquidator must apply to Court for an order that the liquidation continue under the supervision of the Court. Upon the appointment of a liquidator, the responsibility for the company s affairs rests entirely in his hands and no future executive action may be carried out without his approval. A liquidator s duties are to collect the assets of the company (including the amount (if any) due from the contributories), settle the list of creditors and, subject to the rights of preferred and secured creditors and to any subordination agreements or rights of set-off or netting of claims, discharge the company s liability to them (pari passu if insufficient assets exist to discharge the liabilities in full) and to settle the list of contributories (shareholders) and divide the surplus assets (if any) amongst them in accordance with the rights attaching to the shares. As soon as the affairs of the company are fully wound up, the liquidator must make up an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of, and thereupon call a general meeting of the company for the purposes of laying before it the account and giving an explanation thereof. At least twenty-one (21) days before the final meeting, the liquidator shall send a notice specifying the time, place and object of the meeting to each contributory in any manner authorised by the company s articles of association and published in the Gazette in the Cayman Islands. (o) Reconstructions There are statutory provisions which facilitate reconstructions and amalgamations approved by a majority in number representing seventy-five per cent. (75%) in value of shareholders or class of shareholders or creditors, as the case may be, as are present at a meeting called for such purpose and thereafter sanctioned by the Court. Whilst a dissenting shareholder would have the right to express to the Court his view that the transaction for which approval is sought would not provide the shareholders with a fair value for their shares, the Court is unlikely to disapprove the transaction on that ground alone in the absence of evidence of fraud or bad faith on behalf of management. III-25

403 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANY LAW (p) Compulsory acquisition Where an offer is made by a company for the shares of another company and, within four (4) months of the offer, the holders of not less than ninety per cent. (90%) of the shares which are the subject of the offer accept, the offeror may at any time within two (2) months after the expiration of the said four (4) months, by notice in the prescribed manner require the dissenting shareholders to transfer their shares on the terms of the offer. A dissenting shareholder may apply to the Court within one (1) month of the notice objecting to the transfer. The burden is on the dissenting shareholder to show that the Court should exercise its discretion, which it will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority shareholders. (q) Indemnification Cayman Islands law does not limit the extent to which a company s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the court to be contrary to public policy (e.g. for purporting to provide indemnification against the consequences of committing a crime). 4. GENERAL Conyers Dill & Pearman, our Company s special legal counsel on Cayman Islands law, have sent to the Company a letter of advice summarising certain aspects of the Cayman Islands company law. This letter, together with a copy of the Companies Law, is available for inspection as referred to in Documents Delivered to the Registrar of Companies and Available for Inspection Documents available for inspection in Appendix V to this prospectus. Any person wishing to have a detailed summary of the Cayman Islands company law or advice on the differences between it and the laws of any jurisdiction with which he is more familiar is recommended to seek independent legal advice. III-26

404 APPENDIX IV STATUTORY AND GENERAL INFORMATION FURTHER INFORMATION ABOUT OUR COMPANY AND OUR SUBSIDIARIES 1. Incorporation of our Company Our Company was incorporated in the Cayman Islands under the Companies Law as an exempted company with limited liability on 16 December As our Company is incorporated in the Cayman Islands, we are subject to the relevant law of the Cayman Islands and our constitution which comprises a memorandum of association and an articles of association. A summary of the relevant aspects of the Cayman Islands company law and certain provisions of our constitution are set out in Appendix III to this prospectus. 2. Changes in share capital of our Company (a) On 16 December 2014, our Company was incorporated with an authorised share capital of HK$380,000 divided into 38,000,000 Shares of HK$0.01 each. Upon incorporation, one Share was subscribed in nil paid form by the subscriber, an Independent Third Party, which was then transferred in nil paid form to Mr. Lee on the same date. (b) Pursuant to a resolution in writing passed by the sole Shareholder on 2 March 2016, the authorised share capital of our Company was increased from HK$380,000 to HK$8,000,000 by the creation of a further 762,000,000 Shares. Immediately following completion of the Capitalisation Issue and the Placing, 200,000,000 Shares will be issued fully paid or credited as fully paid, and 600,000,000 Shares will remain unissued. Our Directors do not have any present intention to issue any of the authorised but unissued share capital of our Company and, without the prior approval of the Shareholders in general meeting, no issue of Shares will be made which would effectively alter the control of our Company. Save as disclosed herein and in paragraphs 3 and 4 below, there has been no alteration in the share capital of our Company since its incorporation. 3. Resolutions in writing of the sole Shareholder passed on 2 March 2016 On 2 March 2016, pursuant to resolutions in writing passed by the sole Shareholder: (a) our authorised share capital was increased from HK$380,000 to HK$8,000,000 by the creation of a further 762,000,000 Shares; (b) the Memorandum of Association was adopted with immediate effect; (c) the Articles of Association were conditionally adopted with effect from Listing; and IV-1

405 APPENDIX IV STATUTORY AND GENERAL INFORMATION (d) conditional on the Listing Division granting the listing of, and permission to deal in, the Shares in issue and to be issued as mentioned in this prospectus on GEM and on the obligations of the Underwriters under the Underwriting Agreement becoming unconditional and not being terminated in accordance with the terms of the Underwriting Agreement or otherwise, in each case on or before the day falling 30 days after the date of this prospectus: (i) (ii) the Placing was approved and our Directors were authorised to approve the allotment and issue of the New Shares and the transfer of the Sale Shares; the rules of the Share Option Scheme were approved and adopted and the Directors or any such committee thereof were authorised to approve any amendments to the rules of the Share Option Scheme as may be acceptable or not objected to by the Stock Exchange, and at their absolute discretion to grant options to subscribe for the Shares thereunder, to allot, issue and deal with the Shares pursuant to the exercise of options granted under the Share Option Scheme and to take all such steps as may be necessary or desirable to implement the Share Option Scheme; (iii) conditional on the share premium account being credited as a result of the Placing, our Directors were authorised to capitalise HK$1,499,990 standing to the credit of the share premium account of our Company by applying such sum in paying up in full at par 149,999,000 Shares for allotment and issue to Shareholder(s) whose name(s) appear(s) on the register of members of our Company at the close of business on 2 March 2016 (or as it/they may direct) in proportion (as nearly as possible without involving fractions) to its/their then existing shareholdings in our Company and so that the Shares to be allotted and issued pursuant to this resolution shall rank pari passu in all respects with the then existing issued Shares (other than the right to participate in the Capitalisation Issue) and our Directors be and they are thereby authorised to give effect to such capitalisation; (iv) a general unconditional mandate was given to our Directors to allot, issue and deal with, otherwise than by way of rights issue, scrip dividend schemes or similar arrangements in accordance with the Articles of Association, or pursuant to the exercise of any options which may be granted under the Share Option Scheme, or under the Capitalisation Issue or the Placing, Shares with an aggregate number of not exceeding the sum of (aa) 20% of the aggregate number of the share capital of our Company in issue immediately following completion of the Capitalisation Issue and the Placing but excluding any Shares which may be issued pursuant to the exercise of options that may be granted under the Share Option Scheme, and (bb) the aggregate number of the share capital of our Company which may be purchased by our Company pursuant to the authority granted to our Directors as referred to in subparagraph (v) below, until the conclusion of the next annual general IV-2

406 APPENDIX IV STATUTORY AND GENERAL INFORMATION meeting of our Company, or the date by which the next annual general meeting of our Company is required by the Articles of Association, the Companies Law or any applicable laws of the Cayman Islands to be held, or the passing of an ordinary resolution by the Shareholders revoking or varying the authority given to our Directors, whichever occurs first (the Applicable Period ); (v) (vi) a general unconditional mandate (the Repurchase Mandate ) was given to our Directors to exercise all powers of our Company to purchase Shares with an aggregate number of not exceeding 10% of the aggregate number of the share capital of our Company in issue immediately following completion of the Capitalisation Issue and the Placing but excluding any Shares which may be issued pursuant to the exercise of options that may be granted under the Share Option Scheme until expiry of the Applicable Period; and the extension of the general mandate to allot, issue and deal with Shares to include the number of Shares which may be purchased or repurchased pursuant to subparagraph (v) above. 4. Corporate reorganisation Our Group underwent the Reorganisation to rationalise our Group s structure in preparation for the Listing and our Company became the holding company of our Group. Please see History, Reorganisation and Corporate Structure for further details. 5. Particulars of our subsidiaries Our Group comprises our Company and four subsidiaries. Please refer to the Accountants Report for a summary of the corporate information of these companies. 6. Changes in share capital of our subsidiaries Save as disclosed in History, Reorganisation and Corporate Structure, there has been no alteration in the share capital of our subsidiaries within the two years immediately preceding the date of this prospectus. 7. Repurchase by our Company of our own securities This paragraph includes information required by the Stock Exchange to be included in this prospectus concerning the repurchase by our Company of our own securities. (a) Shareholders approval All proposed repurchases of securities (which must be fully paid up in the case of shares) by a company with a primary listing on the Stock Exchange must be approved in advance by an ordinary resolution of the shareholders, either by way of general mandate or by specific approval of a particular transaction. IV-3

407 APPENDIX IV STATUTORY AND GENERAL INFORMATION (b) Source of funds Repurchases must be paid out of funds legally available for the purpose in accordance with the Articles, the GEM Listing Rules and the Companies Law. A listed company may not repurchase its own securities on the Stock Exchange for a consideration other than cash or for settlement otherwise than in accordance with the trading rules of the Stock Exchange. Under the laws of the Cayman Islands, any repurchases by our Company may be made either (1) out of profits of our Company; (2) out of the share premium account of our Company; (3) out of the proceeds of a fresh issue of Shares made for the purpose of the repurchase; or (4) out of capital, if so authorised by the Articles and subject to the provisions of the Companies Law; and in the case of any premium payable on the repurchase, (1) out of the profits of our Company; (2) from sums standing to the credit of the share premium account of our Company or; (3) out of capital, if so authorised by the Articles and subject to the provisions of the Companies Law. On the basis of our current financial position as disclosed in this prospectus and taking into account our current working capital position, our Directors consider that, if the Repurchase Mandate were to be exercised in full, it might have a material adverse effect on our working capital and/or gearing position as compared with the position disclosed in this prospectus. However, our Directors do not propose to exercise the Repurchase Mandate to such an extent as would, in the circumstances, have a material adverse effect on our working capital requirements or gearing levels which in the opinion of our Directors are from time to time appropriate for our Group. The exercise in full of the Repurchase Mandate, on the basis of 200,000,000 Shares in issue immediately after the Listing, would result in up to 20,000,000 Shares being repurchased by us during the period in which the Repurchase Mandate remains in force. (c) Reasons for repurchases Our Directors believe that it is in the best interests of our Company and our Shareholders for our Directors to have general authority from the Shareholders to enable our Company to repurchase Shares in the market. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net asset value per Share and/or earnings per Share and will only be made if our Directors believe that such repurchases will benefit our Company and our Shareholders. (d) General None of our Directors nor, to the best of their knowledge having made all reasonable enquiries, any of their close associates currently intends to sell any Shares to our Company. Our Directors have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the Repurchase Mandate in accordance with the GEM Listing Rules and the applicable laws of the Cayman Islands. IV-4

408 APPENDIX IV STATUTORY AND GENERAL INFORMATION If, as a result of a securities repurchase, a Shareholder s proportionate interest in the voting rights of our Company is increased, such increase will be treated as an acquisition for the purpose of the Takeovers Code. Accordingly, a Shareholder or a group of Shareholders acting in concert could obtain or consolidate control of our Company and become obliged to make a mandatory offer in accordance with rule 26 of the Takeovers Code. Save as aforesaid, our Directors are not aware of any consequences which would arise under the Takeovers Code as a consequence of any repurchases pursuant to the Repurchase Mandate. No core connected person (as defined in the GEM Listing Rules) of our Company has notified our Company that he has a present intention to sell Shares to our Company, or has undertaken not to do so if the Repurchase Mandate is exercised. 8. Registration under the Companies Ordinance Our Company is a registered non-hong Kong company as defined under the Companies Ordinance with a principal place of business in Hong Kong at 26th Floor, Lever Tech Centre, Nos King Yip Street, Kwun Tong, Kowloon, Hong Kong. Mr. Lee, the executive Director and chief executive officer of our Company, has been appointed as the authorised representative of our Company for the acceptance of service of process in Hong Kong. The address for service of process and notices on our Company is the same as the address of our principal place of business in Hong Kong. FURTHER INFORMATION ABOUT THE BUSINESS OF OUR GROUP 9. Summary of material contracts The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by members of our Group within the two years preceding the date of this prospectus and are or may be material: (a) the sale and purchase agreement dated 15 April 2015 entered into between Aolang Electronics and Mr. Lee on behalf of Wenxingjin Management replaced by the sale and purchase agreement dated 1 September 2015 entered into between Aolang Electronics and Wenxingjin Management in connection with the sale and purchase of the property located at Unit C on 12th Floor, Shen Ye Tai Ran Shuisong Building, Bin He Road, Futian District, Shenzhen City, Guangdong Province, the PRC at a consideration of RMB11.0 million (equivalent to approximately HK$13.4 million); IV-5

409 APPENDIX IV STATUTORY AND GENERAL INFORMATION (b) (c) (d) (e) (f) (g) the assignment dated 15 June 2015 entered into between ASD Technology and Ms. Kwok in connection with the sale and purchase of the property located at Flat D on Ground Floor and Flat Roof adjacent thereto of Tower 3 and Car Parking Space No. 28 on Car Park A, One Beacon Hill, No. 1 Beacon Hill Road, Kowloon, Hong Kong at a consideration of HK$41.0 million; the sale and purchase agreement dated 25 August 2015 entered into between ASD Technology and China Sense Properties Limited in connection with the sale and purchase of the properties located at Unit No and Unit No. 2804, 28th Floor, West Tower, Shun Tak Centre, Nos Connaught Road, Central, Hong Kong together with tenancy, at a consideration of HK$51.8 million; the sale and purchase agreement dated 16 September 2015 entered into between Mr. Lee, Ms. Kwok and our Company for the acquisition of the entire issued share capital of each of ASD Technology and Systech Electronics at a consideration equivalent to the total net asset value of ASD Technology and Systech Electronics as at 31 March Such consideration was satisfied by the allotment and issue of 999 Shares to On Hong Century credited as fully paid and crediting as fully paid at par the one nil-paid Share, at the directions of Mr. Lee and Ms. Kwok; the Deed of Non-competition; the Deed of Indemnity; and the Underwriting Agreement. 10. Intellectual property rights of our Group Trademarks As at the Latest Practicable Date, our Group had registered the following trademarks which are material to our business: No. Trademark Registered owner Place of registration Class Registration number Expiry date 1. Systech Electronics European 9 and August 2023 Union 2. Systech Electronics Japan December Systech Electronics Hong Kong August Systech Electronics U.S November ASD Technology Hong Kong 9 and October 2024 IV-6