hongguang lighting holdings company limited ® …‰ ç…§ § è‚ œ‰ é™ …¬ ¸

The Stock Exchange of Hong Kong Limited and the Securities and Futures Commission take no responsibility for the contents of

this Application Proof, 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 Application Proof.

Application Proof of

HONGGUANG LIGHTING HOLDINGS COMPANY LIMITED宏光照明控股有限公司

(the ‘‘Company’’)

(incorporated in the Cayman Islands with limited liability)

WARNING

The publication of this Application Proof is required by The Stock Exchange of Hong Kong Limited (the‘‘Exchange’’) and the Securities and Futures Commission (the ‘‘Commission’’) solely for the purpose ofproviding information to the public in Hong Kong.

This Application Proof is in draft form. The information contained in it is incomplete and is subject to changewhich can be material. By viewing this document, you acknowledge, accept and agree with the Company, itssponsor, advisers or member of the underwriting syndicate that:

(a) this document is only for the purpose of providing information about the Company to the public inHong Kong and not for any other purposes. No investment decision should be based on the informationcontained in this document;

(b) the publication of this document or supplemental, revised or replacement pages on the Exchange’swebsite does not give rise to any obligation of the Company, its sponsor, advisers or members of theunderwriting syndicate to proceed with an offering in Hong Kong or any other jurisdiction. There is noassurance that the Company will proceed with the offering;

(c) the contents of this document or supplemental, revised or replacement pages may or may not bereplicated in full or in part in the actual final listing document;

(d) the Application Proof is not the final listing document and may be updated or revised by the Companyfrom time to time in accordance with the Rules Governing the Listing of Securities on the GrowthEnterprise Market of the Exchange;

(e) this document does not constitute a prospectus, offering circular, notice, circular, brochure oradvertisement offering to sell any securities to the public in any jurisdiction, nor is it an invitation tothe public to make offers to subscribe for or purchase any securities, nor is it calculated to invite offersby the public to subscribe for or purchase any securities;

(f) this document must not be regarded as an inducement to subscribe for or purchase any securities, and nosuch inducement is intended;

(g) neither the Company nor any of its affiliates, advisers or underwriters is offering, or is soliciting offersto buy, any securities in any jurisdiction through the publication of this document;

(h) no application for the securities mentioned in this document should be made by any person nor wouldsuch application be accepted;

(i) the Company has not and will not register the securities referred to in this document under the UnitedStates Securities Act of 1933, as amended, or any state securities laws of the United States;

(j) as there may be legal restrictions on the distribution of this document or dissemination of anyinformation contained in this document, you agree to inform yourself about and observe any suchrestrictions applicable to you; and

(k) the application to which this document relates has not been approved for listing and the Exchange andthe Commission may accept, return or reject the application for the subject public offering and/or listing.

If an offer or an invitation is made to the public in Hong Kong in due course, prospective investors arereminded to make their investment decisions solely based on the Company’s prospectus registered withthe Registrar of Companies in Hong Kong, copies of which will be distributed to the public during theoffer period.

If you are in any doubt about any contents of this [REDACTED], you should obtain independent professional advice.

HONGGUANG LIGHTING HOLDINGS COMPANY LIMITED宏光照明控股有限公司

(incorporated in the Cayman Islands with limited liability)

[REDACTED]

Number of [REDACTED] : [REDACTED] [REDACTED][REDACTED] : Not more than HK$[REDACTED] per

[REDACTED] and expected to be not lessthan HK$[REDACTED] per [REDACTED](payable in full upon application, plusbrokerage fee of 1%, SFC transaction levyof 0.0027% and Stock Exchange trading feeof 0.005%)

Nominal Value : HK$0.01 per ShareStock Code : [REDACTED]

Sole Sponsor

[REDACTED]

[.]

Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited takeno responsibility for the contents of this [REDACTED], make no representation as to its accuracy or completeness and expressly disclaim anyliability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this [REDACTED].

A copy of this [REDACTED], having attached thereto the documents specified under the section headed ‘‘Documents Delivered to the Registrar ofCompanies in Hong Kong’’ in Appendix V to this [REDACTED], has been registered with the Registrar of Companies in Hong Kong as required bysection 342C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong). The Securities andFutures Commission of Hong Kong and the Registrar of Companies in Hong Kong take no responsibility as to the contents in this [REDACTED] orany other documents referred to above.

The [REDACTED] is expected to be fixed by the [REDACTED] to be entered into between the [REDACTED] (for itself and on behalf of theUnderwriters) and our Company on the [REDACTED], which is expected to be on or before [REDACTED], [REDACTED] 2016, or such later dateas the [REDACTED] (for itself and on behalf of the Underwriters) and our Company may agree. The [REDACTED] will not be more thanHK$[REDACTED] per [REDACTED] and is expected to be not less than HK$[REDACTED] per [REDACTED]. If the [REDACTED] (for itself andon behalf of the Underwriters) and our Company are unable to reach an agreement on the [REDACTED] by that date or such later date as agreed bythe [REDACTED] (for itself and on behalf of the Underwriters) and our Company, the [REDACTED] will not become unconditional and will notproceed.

Prospective investors of the [REDACTED] should note that the Sole Sponsor and/or the [REDACTED] (for itself and on behalf of the Underwriters)may in its/their absolute discretion, upon giving notice in writing to our Company, terminate the Underwriting Agreement with immediate effect ifany of the events set out under the section headed ‘‘Underwriting — Underwriting arrangements — Grounds for termination’’ in this [REDACTED]occurs at any time prior to 8:00 a.m. (Hong Kong time) on the [REDACTED]. Should the Sole Sponsor and/or the [REDACTED] (for itself and onbehalf of the Underwriters) terminate the Underwriting Agreement in accordance with the terms of the Underwriting Agreement, the [REDACTED]will not proceed and will lapse.

Prior to making an investment decision, prospective investors should carefully consider all the information set out in this [REDACTED],including the risk factors set out in the section headed ‘‘Risk Factors’’ in this [REDACTED].

IMPORTANT

[REDACTED]

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THEINFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED ‘‘WARNING’’ ONTHE COVER OF THIS DOCUMENT.

GEM has been positioned as a market designed to accommodate companies to 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 by publication on the website

operated by the Stock Exchange. Listed companies are not generally required to issue paid

announcements in gazetted newspapers. Accordingly, prospective investors should note that they

need to have access to the Stock Exchange’s website at www.hkexnews.hk in order to obtain up-

to-date information on companies listed on GEM.

CHARACTERISTICS OF GEM

– i –


[REDACTED]

EXPECTED TIMETABLE

– ii –


IMPORTANT NOTICE TO INVESTORS

You should rely only on the information contained in this [REDACTED] to make your

investment decision.

Our Company, the Sole Sponsor, the [REDACTED] and the Underwriters have not

authorised anyone to provide you with information that is different from what is contained in

this [REDACTED].

Any information or representation not made in this [REDACTED] must not be relied on by

you as having been authorised by our Company, the Sole Sponsor, the [REDACTED], the

Underwriters, and any of their respective directors, officers, employees, agents or

representatives or any other party involved in the [REDACTED].

The contents on the website at www.lighting-hg.com, which is the official website of our

Company, do not form part of this [REDACTED].

Page

Characteristics of GEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Glossary of Technical Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Information about this [REDACTED] and the [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . 39

Directors and Parties Involved in the [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

CONTENTS

– iii –


Page

History, Reorganisation and Corporate Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

Relationship with the Controlling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Directors, Senior Management and Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

Substantial Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148

Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154

Future Plans and Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202

Structure and Conditions of the [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212

Appendix I — Accountant’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1

Appendix II — Unaudited Pro Forma Financial Information . . . . . . . . . . . . . . . . . . . . . II-1

Appendix III — Summary of the Constitution of our Company

and Cayman Islands Company Law . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1

Appendix IV — Statutory and General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1

Appendix V — Documents Delivered to the Registrar of Companies

and Available for Public Inspection in Hong Kong . . . . . . . . . . . . . V-1

CONTENTS

– iv –


This summary aims to give you an overview of the information contained in this[REDACTED]. Since it is a summary, it does not contain all the information that may beimportant to you. You should read the [REDACTED] in its entirety before you decide to invest inour Shares.

There are risks associated with any investment. Some of the particular risks in investing inthe [REDACTED] are set out in the section headed ‘‘Risk Factors’’ in this [REDACTED]. Youshould read that section carefully before you decide to invest in our Shares.

OVERVIEW

We principally engage in the design, development, manufacture and sale of LED beads andare based in Guangdong Province of the PRC since 2010. LED beads are core components forproduction of backlight LED products in the midstream of the value chain of LED lighting industry.According to the CIC Report, backlight LED product market can be categorised into small, mediumand large segments, according to the size of the final electronic products where the backlight LEDproducts form a component. Our LED beads are used for production of backlight LED products inthe small and medium segments, which are generally applied as the light emitting source of thedisplays in smartphones and LCD panels in tablet computers. According to the CIC Report, weranked fourth among the LED bead manufacturers supplying LED beads to the small and mediumsegments of backlight LED product market in the PRC in terms of sales value in 2015 whereas thesmall and medium segments together accounted for approximately 40.9% of the entire backlightLED product market in the PRC in 2015. Leveraging our experience in developing LED beads, westarted developing and selling LED lighting products with our LED beads since late 2013.

OUR BUSINESS MODEL

We manufactured LED beads under our own brand and our LED lighting products onODM basis, both at our Zhuhai HongGuang Production Plant situated at Zhuhai City of the PRC.The following table sets forth the breakdown of our Group’s revenue in respect of our productcategory during the Track Record Period:

Year ended 31 December

2014 2015

RMB’000

% of total

revenue RMB’000

% of total

revenue

LED beads 99,870 90.8 114,989 96.9LED lighting products 10,168 9.2 3,717 3.1

Total 110,038 100.0 118,706 100.0

Our Group recorded an increase in revenue from approximately RMB110.0 million in 2014 toRMB118.7 million in 2015, which was mainly attributable to the increase in revenue generatedfrom the sales of LED beads from approximately RMB99.9 million in 2014 to RMB115.0 millionin 2015. Our Group recorded a significant decrease in the revenue generated from the sales of ourLED lighting products from approximately RMB10.1 million in 2014 to approximately RMB3.7million in 2015, which was mainly due to the fact that (i) our LED lighting business was still at thedevelopment stage in 2015 and hence our revenue generated from the sales of LED lightingproducts were yet to be stable in 2014 and 2015 and we had not expand our customer base by that

SUMMARY

– 1 –


time; and (ii) an Australian company, being a major customer for our LED lighting products in2014 had not placed any order to us in 2015. Nevertheless, this customer continued to place salesorders for our LED lighting products in the first quarter of 2016.

OUR PRODUCTS AND PRODUCTION

Our production plant: Our Zhuhai HongGuang Production Plant is a leased property with aGFA of 2,165 m2. Our Group has been accredited with the ISO 9001:2008 certification on qualitymanagement and ISO 14001:2004 certification on environmental management system for the designand manufacture of SMD LEDs since October 2011.

LED beads: Our production of LED beads is highly automated with advanced encapsulationmachineries and equipment by SMD method. Our annual production capacity for production of ourLED beads in both 2014 and 2015 was approximately 983,808,000 pieces and our utilisation ratewas approximately 78.9% and 86.5%, respectively. Our LED beads are of different sizes andspecifications in terms of chromaticity, luminous intensity and forward voltage, which can cater fordifferent requirements of our customers.

LED lighting products: We had developed six series of LED lighting products for sales duringthe Track Record Period, categorised in terms of their respective functions and applicability andobtained certifications in respect of the national standard of ‘‘CCC’’ in the PRC and variousnational standards including ‘‘CE’’, ‘‘RCM’’, ‘‘SAA Approvals’’ and ‘‘RoHS’’ in other countries. Ourannual production capacity for assembling LED lighting products was approximately 173,000pieces during the Track Record Period. As the assembling of LED lighting products are undertakenby our staff manually with support of simple equipment and devices and our production capacitydepends on the number of workers we deployed to handle the assembly works, it is therefore notpracticable nor feasible for us to accurately quantify the utilisation rate of our assembly line.

Pricing: We generally determine the prices of both our LED beads and LED lighting productson a cost-plus basis, and we determine the pricing of each product on a case by case basis.Primarily attributed to the decrease in the price of LED chips which are one of the key productionmaterials, the average selling price of our LED beads decreased from RMB0.147 per piece in 2014to RMB0.134 per piece in 2015. The respective average unit price of our LED lighting productsranged from RMB23.7 to RMB375.0 in 2014 and from RMB14.0 to RMB189.7 in 2015, dependingon the types and the specifications of the products ordered by our customers.

OUR SALES AND CUSTOMERS

Customers: Customers of our LED beads consist of manufacturers of backlight LED modules/panels and LCD panel modules, manufacturers of electronics products and a trading company in thePRC, which exports our LED beads to Hong Kong. Our customers in LED lighting products consistof the same trading company in the PRC, and a company based in Australia which carries onbusiness as a manufacturer and importer of lighting products. Our customers predominantly locatedin Guangdong Province of the PRC.

Settlement of payment: Our customers settle their payment of our products mainly by banktransfers or bank acceptance bills with maturities of no more than six months. We will typicallyendorse these bank acceptance bills to our suppliers to settle our payment with them.

SUMMARY

– 2 –


For the two years ended 31 December 2014 and 2015, our Group’s sales to our top fivecustomers accounted for approximately 50.5% and 76.4% of our total revenue respectively. In thecorresponding periods, whereas sales to our largest customer accounted for approximately 13.7%and 34.0% of its total revenue in each of the respective year.

OUR MAJOR PRODUCTION MATERIALS, SUPPLIERS AND PROCUREMENT

Production materials: The costs of material used represented approximately 90.1% and 90.3%of our total cost of sales for the two years ended 31 December 2014 and 2015, respectively.Production materials purchased and used by our Group for production of our products mainlyinclude LED chips, gold wires and brackets, which were in aggregate attributable to approximately88.0% and 96.6% of our total cost of material used during the Track Record Period.

Suppliers: During the Track Record Period, our Group purchased production materials fromover 50 suppliers in the PRC. For the two years ended 31 December 2014 and 2015, our purchasesfrom our top five suppliers amounted to approximately RMB75.9 million and RMB62.2 millionrespectively, representing approximately 85.2% and 65.3% of our total cost of purchases for thecorresponding periods. Our purchases from our largest supplier for the two years ended 31December 2014 and 2015 accounted for approximately 19.6% and 21.6% of our total cost ofpurchases for the corresponding periods. All our suppliers are based in the PRC.

Payments: During the Track Record Period, we made payments to our suppliers mainly bybank transfers or bank acceptance bills endorsed in favour of us by our customers.

Procurement: We formulate our procurement planning and budget for purchases of ourproduction materials based on our purchase orders and our projected production schedules in thenext 30 to 45 working days.

COMPETITIVE STRENGTHS

We believe that the following competitive strengths have allowed us to achieve rapid growthand profitability and maintain our leading position for production of LED beads applied in thesmall and medium segments in the backlight LED product market in the PRC:

. We have the capability of developing and manufacturing both midstream and downstreamLED products.

. We are equipped with advanced and highly automated encapsulation machineries andequipment, enabling us to produce LED beads efficiently and cost-effectively.

. We are committed to high standard of quality control.

. We have an experienced management team.

. We have established relationships with our major customers.

SUMMARY

– 3 –


STRATEGIES

Our Group’s goal is to maintain our position as a leading manufacturer of LED beads in thePRC and to continue to penetrate into the downstream of the value chain in LED lighting industryin the PRC for the development of LED lighting products with our LED beads. To this end, ourGroup intends to achieve this goal by implementing the following business strategies:

. Expand our production capacity. Regarding the expansion of our production capacity, wewill acquire additional LED bead encapsulation machineries and equipment and set uptwo additional LED lighting product assembly lines. Though our Group recorded asignificant decrease in the revenue generated from the sales of our LED lighting productsfrom approximately RMB10.1 million in 2014 to approximately RMB3.7 million in2015, our Directors take the view that by capitalising on our experience and reputation inLED lighting industry, it would not be difficult for us to penetrate into the LED lightingproduct market by developing and producing LED lighting products with the LED beadsdeveloped and manufactured by us in-house. Furthermore, the Australian customer whichhad not placed purchase order with us in 2015 and led to a significant decrease in ourrevenue generated from the sale of LED lighting products in 2015, had resumed placingorders with us for our LED lighting products in the first quarter of 2016.

. Continue to develop our Group’s sales channels.

RISK FACTORS — HIGHLIGHTS

There are certain risks involved in our operations and in connection with the [REDACTED].

Many of these risks are beyond our control. A detailed discussion of the risk factors that we believe

are particularly relevant to us is set out in the section headed ‘‘Risk Factors’’ in this [REDACTED].

Set out below are some of the major risks that may materially and adversely affect us:

. Fluctuations in the price of production materials may affect our cost of sales and

adversely affect our business operations and profitability.

. Our reliance on major customers and any loss of our major customers or changes in their

demands for our products would have a material adverse effect on our business, results

of operations, financial conditions and prospect.

. Our reliance on the success of the downstream LED lighting industry and our business is

highly correlated to the performance of our customers’ industries

. Any unanticipated or prolonged interruption of operations of our production facilities at

our Zhuhai HongGuang Production Plant would materially and adversely affect our

business and results of operation.

. Our quality control systems may not be maintained effectively and this would result in

our failure to conform with both international and domestic quality standards in relation

to our products.

SUMMARY

– 4 –


INDUSTRY AND MARKET

The LED beads manufactured by us are generally used for the production of displays in the

smartphones or LCD panels in tablet computers, which belong to the small and medium segments

of backlight LED product market. The small and medium segments together accounted for

approximately 40.9% of the market share in terms of sales value of overall backlight LED product

market in the PRC in 2015. According to the CIC Report, our Group ranked fourth among all the

60 LED bead manufacturers supplying LED beads to the small and medium segments of the

backlight LED products in the PRC.

The CIC Report has highlighted certain market trends and drivers in the PRC in relation to the

market in LED beads including (i) consumer demand driven by new consumer electronics products,

in particular, smartphones and tablet computers; (ii) penetration into international downstream

market whereby domestic LED products are expected to be accepted by international downstream

consumers further; (iii) government support to use local materials to speed up the research and

development of new technology and to build up co-operation with international companies; (iv)

increasing emphasis on the importance of intellectual property; and (v) wider application of LED

products.

Regarding our LED lighting products, the market of which is rather fragmented with around

1,000 manufacturers in the PRC. Our Group’s market share in the LED lighting product market in

2014 and 2015 was therefore negligible.

SHAREHOLDER INFORMATION

Upon completion of the Capitalisation Issue and the [REDACTED] and not taking into

account any Shares that may be issued pursuant to the exercise of any options that may be granted

under the Share Option Scheme, our Company will be owned as to (i) [REDACTED]% by First

Global (being wholly-owned by Mr. YW Zhao), [REDACTED]% by Star Eagle (being wholly-

owned by Mr. Lin) and [REDACTED]% by Bigfair Enterprises (being wholly-owned by Mr. KS

Chiu); and (ii) [REDACTED]% by public Shareholders. Each of Mr. YW Zhao, Mr. Lin and Mr.

KS Chiu will be interested in [REDACTED]% of the issued share capital of our Company through

the shareholding interests held jointly with each other by virtue of their acting in concert

arrangements, which are confirmed and documented in the Concert Parties Confirmatory Deed.

Therefore, Mr. YW Zhao, Mr. Lin and Mr. KS Chiu are Controlling Shareholders under the GEM

Listing Rules. Mr. YW Zhao is an executive Director, the chief executive officer and the chairman

of the Board. Mr. Lin is an executive Director and Mr. KS Chiu is a non-executive Director.

Apart from our Group’s business relating to the design, development, manufacture and sale of

LED beads and LED lighting products, the Controlling Shareholders and their close associates do

not have any interest in any business which competes or is likely to compete, directly or indirectly

with our Group’s business. The Controlling Shareholders have entered into the Deed of Non-

competition with us to ensure that competition with our Group would not exist in the future. For

details, please see the section headed ‘‘Relationship with the Controlling Shareholders’’ in this

[REDACTED].

SUMMARY

– 5 –


SUMMARY HISTORICAL FINANCIAL INFORMATION

The tables below present the financial information of our Group for the Track Record Period.

The summary consolidated statements of profit or loss for the two years ended 31 December 2014

and 2015, the summary consolidated statements of financial position as of 31 December 2014 and

2015 and the summary consolidated cash flow statements for the two years ended 31 December

2014 and 2015 are derived from, and should be read in conjunction with the Accountant’s Report in

Appendix I to this [REDACTED] and the section headed ‘‘Financial Information’’ in this

[REDACTED].

Our Summary Consolidated Statements of Profit or Loss


2014 2015

RMB’000 RMB’000

Revenue 110,038 118,706

Cost of sales (91,802) (90,781)

Gross profit 18,236 27,925

Other income and gains 231 82

Selling and distribution expenses (2,109) (1,553)

Administrative expenses (7,180) (12,698)

Finance costs (1,319) (1,439)

Profit before income tax expense 7,859 12,317

Income tax expense (2,456) (4,581)

Profit for the year 5,403 7,736

Our Summary Consolidated Statements of Financial Position

As of December 31

2014 2015

RMB’000 RMB’000

Non-current assets 19,558 16,833

Current assets 109,796 94,072

Current liabilities (87,075) (57,733)

Net current assets 22,721 36,339

Net assets 42,279 53,172

Total equity 42,279 53,172

SUMMARY

– 6 –


The table below sets forth selected information from the consolidated statements of cash flows

of our Group:


2014 2015

RMB’000 RMB’000

Operating profit before working capital change 14,290 17,925

Net cash flows (used in)/generated from operating

activities (15,372) 18,934

Net cash flows (used in)/generated from investing

activities (1,188) 826

Net cash flows generated from/(used in) financing

activities 23,727 (20,115)

Net increase/(decrease) in cash and cash equivalents 7,167 (355)

Cash and cash equivalents at beginning of the year 797 7,986

Cash and cash equivalents at end of the year 7,986 7,670

ANALYSIS OF KEY FINANCIAL RATIOS


2014 2015

Net profit margin before interest and tax (%) 8.3 11.6

Net profit margin (%) 4.9 6.5

Return on equity (%) 12.8 14.5

Return on assets (%) 4.2 7.0

Interest coverage (times) 7.0 9.6

Current ratio 1.3 1.6

Quick ratio 1.0 1.3

Gearing ratio (%) 100.8 39.2

Net debt to equity ratio (%) 82.0 24.8

SUMMARY

– 7 –


[REDACTED] EXPENSES

Our Directors are of the view that the financial results of our Group for the year ending 31

December 2016 is expected to be adversely affected by, among others, the [REDACTED] expenses,

which is non-recurring by nature. The total [REDACTED] expenses to be borne by our Company is

estimated to be RMB[REDACTED] based on mid-point of our indicative [REDACTED] for the

[REDACTED]). Our Group expects to account for approximately RMB[REDACTED] as deduction

from equity upon [REDACTED] and recognise the remaining approximately RMB[REDACTED] as

expenses in our consolidated statement of comprehensive income, of which approximately

RMB[REDACTED] has been recognised as expenses for the year ended 31 December 2015 and the

remaining of approximately RMB[REDACTED] is expected to be recognised as expenses for the

year ending 31 December 2016.

RECENT DEVELOPMENT AND MATERIAL ADVERSE CHANGE

As far as we are aware, the growth of backlight LED bead market in the PRC remained steady

after the Track Record Period and there was no material adverse change in our market share in

terms of sales value up to the Latest Practicable Date.

Based on the unaudited financial information of our Group, our revenue for the four months

ended 30 April 2016 had increased moderately as compared to that of the correspondence period in

2015, which was mainly due to the facts that (i) we have continued to focus on production of LED

beads for small-sized and medium-sized backlight LED products with different specifications; and

(ii) there were no significant changes to the general business model of our Group and economic

environment save for the renovation works in our Zhuhai HongGuang Production Plant for

expansion of our production capacities as described in the section headed ‘‘Business — Business

Strategies’’ in this [REDACTED], which had been approved by the Environmental Protection

Bureau of Xiangzhou. On the other hand, the average purchase price of LED chips had increased

slightly for the four months ended 30 April 2016. In this connection, our prepayments relating to

the purchase of LED chips from our major suppliers have been increased during the 1st quarter of

2016 as compared to the 4th quarter of 2015 to secure our purchase order in order to meet the

increasing demand of our LED beads.

Prospective investors should note that the financial performance of our Group for the year

ending 31 December 2016 is expected to be materially and adversely affected by (i) the estimated

non-recurring expenses in relation to the [REDACTED]; and (ii) the expected increase in our direct

labour cost and staff salaries and benefits (including our Directors’ remuneration) following the

implementation of our future plans.

Save as disclosed above, our Directors confirm that, up to the Latest Practicable Date, there

had been no material adverse change in our financial or trading position since 31 December 2015

which would materially affect the information shown in the Accountant’s Report in Appendix I to

this [REDACTED].

SUMMARY

– 8 –


DIVIDEND

During the Track Record Period and up to the Latest Practicable Date, we had not distributed

any dividends to the then equity holders of our Group. Going forward, we may distribute dividends

depend on our results of operations, cash flows, financial condition, statutory and regulatory

restrictions on the payment of dividends by us, future prospects, and other facts that we may

consider relevant. We do not have any predetermined dividend payment ratio. Please also refer to

the section headed ‘‘Financial Information — Dividend policy’’ in this [REDACTED] for details.

REASONS FOR THE [REDACTED] AND USE OF PROCEEDS

Our Directors believe that the [REDACTED] of the Shares on GEM will enhance our Group’s

profile and the net proceeds from the [REDACTED] will strengthen our financial position and will

enable our Group to implement our business strategies set out in the sections headed ‘‘Business —

Business Strategies’’ and ‘‘Future Plans and Use of Proceeds’’ in this [REDACTED]. Furthermore, a

public listing status on the Stock Exchange can (i) strengthen our Group’s reputation, credibility

and competitiveness to facilitate the expansion of geographical coverage in the PRC and the

overseas market; and (ii) enhance the capability in both debt and equity financing for future

expansion of our business.

Based on the [REDACTED] of HK$[REDACTED] per [REDACTED], being the mid-point of

the indicative [REDACTED] range of HK$[REDACTED] per [REDACTED] to HK$[REDACTED]

per [REDACTED], we will receive a gross proceeds of approximately HK$[REDACTED]. The net

proceeds from the [REDACTED] are estimated to be approximately HK$[REDACTED], after

deducting the underwriting commission and other estimated expenses payable by our Company in

relation to the [REDACTED]. We intend to apply such net proceeds from the [REDACTED] as

follows:

. approximately HK$[REDACTED], representing approximately [REDACTED]% of the

net proceeds from the [REDACTED], will be used for expansion of our Group’s

production capacity;


net proceeds from the [REDACTED], will be used for developing our Group’s sales

channels;


net proceeds from the [REDACTED], will be used for the repayment of bank loans. For

further details, see the section headed ‘‘Financial Information — Indebtedness — Bank

borrowings’’; and


net proceeds from the [REDACTED], will be used as general working capital of our

Group.

SUMMARY

– 9 –


[REDACTED] STATISTICS

Based on[REDACTED] ofHK[REDACTED]

Based on[REDACTED] of

HK$[REDACTED]

Market capitalisation at the [REDACTED] (Note 1) HK$[REDACTED] HK$[REDACTED]

Unaudited pro forma adjusted consolidated net

tangible assets per Share (Note 2)

HK$[REDACTED] HK$[REDACTED]

Notes:

1. The calculation of market capitalisation is based on [REDACTED] Shares expected to be in issue immediately upon

completion of the [REDACTED] and the Capitalisation Issue without taking into account the Shares that may be

allotted or issued pursuant to the exercise of any option which may be granted under the Share Option Scheme.

2. The unaudited pro forma adjusted consolidated net tangible assets per Share has been arrived at after the adjustments

referred to under the section headed ‘‘Unaudited pro forma adjusted consolidated net tangible assets’’ in Appendix II

to this [REDACTED] and on the basis of [REDACTED] Shares in issue at the [REDACTED] of HK$[REDACTED]

or HK$[REDACTED] per Share immediately following completion of the [REDACTED] and the Capitalisation Issue

without taking into account the Shares that may be allotted or issued pursuant to the exercise of any option which

may be granted under the Share Option Scheme or any Shares which may be allotted and issued or repurchased by

the Company pursuant to the general mandates for the allotment and issue or repurchase of Shares referred to in

Appendix IV to this [REDACTED].

SUMMARY

– 10 –


In this [REDACTED], unless the context otherwise requires, the following expressions have

the following meanings:

‘‘Accountant’s Report’’ the accountant’s report on our Company set out in Appendix I

to this [REDACTED]

‘‘Articles’’ or ‘‘Articles of

Association’’

the articles of association of our Company conditionally

adopted on [.] 2016 and with effect from the [REDACTED],

and as amended from time to time, a summary of which is set

out in Appendix III to this [REDACTED]

‘‘associate(s)’’ has the meaning ascribed to it under the GEM Listing Rules

‘‘Audit Committee’’ the audit committee of the Board

‘‘Bigfair Enterprises’’ Bigfair Enterprises Limited, a company incorporated in BVI on

2 January 2015 with limited liability, which is wholly-owned

by Mr. KS Chiu and is a Controlling Shareholder

‘‘Board’’ or ‘‘Board of Directors’’ the board of Directors

‘‘business day’’ a day (other than a Saturday, Sunday or public holiday) on

which licensed banks in Hong Kong are generally open for

normal banking business

‘‘BVI’’ the British Virgin Islands

‘‘Capitalisation Issue’’ the allotment and issue of [REDACTED] Shares upon

capitalisation of an amount of HK$[REDACTED] out of the

share premium account of our Company as referred to under

the paragraph headed ‘‘A. Further information about our

Company — 3. Written resolutions of the Shareholders’’ in

Appendix IV to this [REDACTED]

‘‘CCASS’’ the Central Clearing and Settlement System established and

operated by HKSCC

‘‘CCASS Clearing Participant’’ a person admitted to participate in CCASS as a direct clearing

participant or general clearing participant

‘‘CCASS Custodian Participant’’ a person admitted to participate in CCASS as a custodian

participant

DEFINITIONS

– 11 –


‘‘CCASS Investor Participant’’ a person admitted to participate in CCASS as an investor

participant who may be an individual or joint individuals or a

corporation

‘‘CCASS Operational Procedures’’ the operational procedures of HKSCC in relation to CCASS,

containing the practices, procedure and administrative

requirements relating to the operations and functions of

CCASS, as from time to time in force

‘‘CCASS Participant’’ a CCASS Clearing Participant or a CCASS Custodian

Participant or a CCASS Investor Participant

‘‘CIC’’ China Insights Consultancy Limited, an independent industry

consultant engaged by our Company

‘‘CIC Report’’ an independent industry research report dated [June] 2016,

which was commissioned by our Company and prepared by

CIC, details of which are set out in the section headed

‘‘Industry Overview’’ in this [REDACTED]

‘‘close associate(s)’’ has the meaning ascribed to it under the GEM Listing Rules

‘‘Companies Law’’ the Companies Law (as revised) of the Cayman Islands, Cap.

22 (Law 3 of 1961) as amended, supplemented or otherwise

modified from time to time

‘‘Companies Ordinance’’ the Companies Ordinance (Chapter 622 of the Laws of Hong

Kong), as amended, supplemented or otherwise modified from

time to time

‘‘Companies (Winding Up and

Miscellaneous Provisions)

Ordinance’’

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

‘‘Company’’ HongGuang Lighting Holdings Company Limited (宏光照明控

股有限公司), a company incorporated in the Cayman Islands

on 27 May 2015 as an exempted company with limited

liability. The expression ‘‘we’’, ‘‘us’’ and ‘‘our Company’’ may

be used to refer to our Company or our Group as the context

may require

DEFINITIONS

– 12 –


‘‘Concert Parties Confirmatory

Deed’’

the confirmatory deed dated 8 June 2016, entered into by our

ultimate Controlling Shareholders, namely Mr. Lin, Mr. YW

Zhao and Mr. KS Chiu to acknowledge and confirm, among

other things, that they are parties acting in concert in relation

to our Group, details of which are set out in the section headed

‘‘History, Reorganisation and Corporate Structure — Parties

acting in concert’’ in this [REDACTED]

‘‘connected person(s)’’ has the meaning ascribed to it under the GEM Listing Rules

‘‘Controlling Shareholder(s)’’ has the meaning ascribed to it under the GEM Listing Rules,

in the context of this [REDACTED], means Mr. Lin, Mr. YW

Zhao, Mr. KS Chiu and First Global, Star Eagle and Bigfair

Enterprises

‘‘Deed of Indemnity’’ the deed of indemnity dated [.] 2016 provided by the

Controlling Shareholders in favour of our Company (for itself

and as trustee for each of its subsidiaries), particulars of which

are set out in the paragraph headed ‘‘E. Other information —

1. Tax and other indemnities’’ in Appendix IV to this

[REDACTED]

‘‘Deed of Non-Competition’’ the deed of non-competition dated [.] 2016 given by the

Controlling Shareholders in favour of our Company (for itself

and as trustee for each of its subsidiaries), particulars of which

are set out in the section headed ‘‘Relationship with the

Controlling Shareholders — Non-competition undertakings’’ in

this [REDACTED]

‘‘Director(s)’’ the director(s) of our Company

‘‘First Global’’ First Global Limited, a company incorporated in BVI on 2

January 2015 with limited liability, which is wholly-owned by

Mr. YW Zhao and is a Controlling Shareholder

‘‘GEM’’ the Growth Enterprise Market of the Stock Exchange

‘‘GEM Listing Rules’’ the Rules Governing the Listing of Securities on GEM, as

amended, supplemented or otherwise modified from time to

time

‘‘General Rules of CCASS’’ 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

DEFINITIONS

– 13 –


‘‘Group’’ or ‘‘Our Group’’ our Company together with our subsidiaries or, where the

context requires, in respect of the period before our Company

became the holding company of our present subsidiaries, the

companies which carried on the business of the present Group

at the relevant time

‘‘HK$’’ or ‘‘HK dollar(s)’’ or

‘‘HKD’’ or ‘‘cent(s)’’

Hong Kong dollar(s) and cent(s) respectively, the lawful

currency of Hong Kong

‘‘HKFRSs’’ Hong Kong Financial Reporting Standards

‘‘HKSCC’’ Hong Kong Securities Clearing Company Limited, a wholly-

owned subsidiary of Hong Kong Exchange and Clearing

Limited

‘‘HKSCC Nominees’’ HKSCC Nominees Limited, a wholly-owned subsidiary of

HKSCC

‘‘Hong Kong’’ the Hong Kong Special Administrative Region of the PRC

‘‘HongGuang Hong Kong’’ HongGuang Lighting (Hong Kong) Holdings Limited (宏光照

明(香港)控股有限公司), previously known as HongGuang

Lighting (Hong Kong) Limited (宏光照明(香港)有限公司), a

company incorporated in Hong Kong on 31 October 2014 with

limited liability and an indirect wholly-owned subsidiary of

our Company

‘‘HongGuang International’’ HongGuang Lighting (International) Limited (宏光照明(國際)

有限公司), previously known as Day Harvest International

Limited (日發國際有限公司), a company incorporated in BVI

on 16 April 2010 with limited liability and a direct wholly-

owned subsidiary of our Company

‘‘HongGuang Lighting’’ HongGuang Lighting Group Company Limited (宏光照明集團

有限公司), a company incorporated in BVI on 8 June 2015

with limited liability and a direct wholly-owned subsidiary of

our Company

‘‘Independent Third Party(ies)’’ party or parties that is or are not connected person(s) of our

Company within the meaning of the GEM Listing Rules

‘‘Latest Practicable Date’’ 13 June 2016, being the latest practicable date for ascertaining

certain information contained in this [REDACTED] prior to its

publication

DEFINITIONS

– 14 –


‘‘Lego Corporate Finance’’ or

‘‘Sole Sponsor’’

Lego Corporate Finance Limited, a licensed corporation under

the SFO and permitted to carry out Type 6 (advising on

corporate finance) of the regulated activity as defined under

the SFO, acting as the sole sponsor to the [REDACTED]

‘‘[REDACTED]’’ [REDACTED]


‘‘Listing Division’’ the listing division of the Stock Exchange (with responsibility

for GEM)

‘‘Main Board’’ the stock exchange (excluding the options market) operated by

the Stock Exchange which is independent from and operated in

parallel with GEM

‘‘Memorandum’’ or

‘‘Memorandum of Association’’

the memorandum of association of our Company adopted on

[.] 2016 and with effect from the [REDACTED], as amended

from time to time, a summary of which is set out in Appendix

III to this [REDACTED]

‘‘Mr. Chan’’ Mr. Chan Wing Kin (陳永健), an executive Director, company

secretary and compliance officer of our Company

‘‘Mr. KS Chiu’’ Mr. Chiu Kwai San (趙桂生), a non-executive Director and a

Controlling Shareholder

‘‘Mr. Lin’’ Mr. Lin Qi Jian (林啟建), an executive Director and a

Controlling Shareholder

‘‘Mr. YW Zhao’’ Mr. Zhao Yi Wen (趙奕文), an executive Director, chairman,

chief executive officer and a Controlling Shareholder

‘‘Nomination Committee’’ the nomination committee of the Board


DEFINITIONS

– 15 –




‘‘PRC’’ or ‘‘China’’ the People’s Republic of China, for the purpose of this

[REDACTED], shall exclude Hong Kong, the Macau Special

Administrative Region and Taiwan

‘‘PRC Legal Advisers’’ Deheng Law Offices (Shenzhen), the legal advisers to our

Company as to PRC laws

‘‘Predecessor Companies

Ordinance’’

the Companies Ordinance (Chapter 32 of the Laws of Hong

Kong) as in force from time to time before 3 March 2014



‘‘Remuneration Committee’’ the remuneration committee of the Board

‘‘Reorganisation’’ the corporate reorganisation of our Group conducted in

preparation for the [REDACTED], as more particularly

described in the section headed ‘‘History, Reorganisation and

Corporate Structure — Reorganisation’’ in this [REDACTED]

‘‘RMB’’ or ‘‘Renminbi’’ Renminbi, the lawful currency of the PRC

‘‘SFC’’ the Securities and Futures Commission of Hong Kong

DEFINITIONS

– 16 –


‘‘SFO’’ the Securities and Futures Ordinance (Chapter 571 of the Laws

of Hong Kong), as amended, supplemented or otherwise

modified from time to time

‘‘Share(s)’’ ordinary share(s) of nominal value of HK$0.01 each in the

share capital of our Company

‘‘Share Option Scheme’’ the share option scheme conditionally approved and adopted

by our Company pursuant to the written resolutions of the

Shareholders passed on [.] 2016, the principal terms of which

are summarised in the paragraph headed ‘‘D. Share option

scheme — 1. Share Option Scheme’’ in Appendix IV to this

[REDACTED]

‘‘Shareholder(s)’’ holder(s) of issued Share(s)

[‘‘[REDACTED]’’] [REDACTED]

‘‘Star Eagle’’ Star Eagle Enterprises Limited, a company incorporated in

BVI on 2 January 2015 with limited liability, which is

wholly-owned by Mr. Lin and is a Controlling Shareholder

‘‘State Council’’ the State Council of the PRC (中華人民共和國國務院)

‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited

‘‘subsidiary’’ has the meaning ascribed to it under the GEM Listing Rules

and the term ‘‘subsidiaries’’ shall be construed accordingly

‘‘Substantial Shareholder(s)’’ substantial shareholder(s) of our Company having the meaningascribed to it in the GEM Listing Rules

‘‘Takeovers Code’’ the Codes on Takeovers and Mergers and Share Buybacksissued by the SFC, as amended, supplemented or otherwisemodified from time to time

‘‘Track Record Period’’ the period comprising the two years ended 31 December 2015

‘‘Underwriter(s)’’ the underwriter(s) of the [REDACTED] named in the sectionheaded ‘‘Underwriting — Underwriters’’ in this [REDACTED]

‘‘Underwriting Agreement’’ the conditional underwriting agreement dated [.] 2016 enteredinto amongst our Company, the executive Directors, theControlling Shareholders, the Sole Sponsor, the [REDACTED]and the Underwriters, particulars of which are set out in thesection headed ‘‘Underwriting’’ in this [REDACTED]

DEFINITIONS

– 17 –


‘‘US’’ the United States of America

‘‘US$’’, ‘‘USD’’ or ‘‘US dollars’’ United States dollars, the lawful currency of the United States

‘‘Warrantors’’ collectively, our Company, our Controlling Shareholders andexecutive Directors

‘‘Zhuhai Hengqin’’ 珠海橫琴新區宏潤達光電有限公司 (Zhuhai Hengqin XinquHongrunda Guangdian Company Limited*), a limited liabilitycompany established in the PRC on 28 March 2013 and hadbeen disposed of by Zhuhai HongGuang to an IndependentThird Party on 7 April 2016

‘‘Zhuhai HongGuang’’ 珠海宏光照明器材有限公司 (Zhuhai HongGuang LightingFixture Company Limited*), a limited liability companyestablished in the PRC on 10 May 2010 and an indirectwholly-owned subsidiary of our Company

‘‘Zhuhai HongGuang ProductionPlant’’

the production plant located at 2nd Floor and north side of 3rdFloor, No. 8 Pinggong Er Road, Nanping TechnologyIndustrial Park, Zhuhai, PRC and leased by our Group

‘‘Zhuhai Lijia’’ 珠海經濟特區利佳電子發展有限公司 (Zhuhai SpecialEconomic Zone Lijia Electronics Development CompanyLimited*), a limited liability company established in the PRCon 18 May 1995 and is owned as to 60% by a companyincorporated in Hong Kong (an Independent Third Party) and40% by Zhuhai Qishuo as at the Latest Practicable Date

‘‘Zhuhai Qishuo’’ 珠海啟爍電子科技有限公司 (Zhuhai Qishuo ElectronicsTechnology Company Limited*), a limited liability companyestablished in the PRC on 2 June 2005 which is owned as to50% by Mr. Lin and 50% by the brother of Mr. Lin as at theLatest Practicable Date. Zhuhai Qishuo is a connected personof our Company

‘‘Zhuhai Wenjian’’ 珠海文鍵光電有限公司 (Zhuhai Wenjian Optic ElectricCompany Limited*), a limited liability company established inthe PRC on 24 December 2009 and is owned as to 50% by Mr.Lin and 50% by Mr. YW Zhao

‘‘%’’ per cent

Unless otherwise specified, for the purpose of this [REDACTED], amounts denominated inUSD are translated into HK$ at the rate of HK$7.78 = USD1.00 and amounts denominated in RMBare translated into HK$ at the rate of HK$1.00 to RMB0.833.

The above exchange rate is for the purpose of illustration only and no representation is madethat any amounts in USD and RMB have been, would have been or may be converted, at these orany other rates or at all.

DEFINITIONS

– 18 –


Certain amounts and percentage figures included in this [REDACTED] have been subject torounding adjustment. Accordingly, figures shown as totals in certain tables may not be anarithmetic aggregation of the figures preceding them.

The English translation of company names in Chinese or another language which are markedwith ‘‘*’’ and the Chinese translation of company names in English which are marked with ‘‘*’’ arefor identification purposes only. Translated English names of Chinese natural persons, legalpersons, governmental authorities, institutions, PRC-incorporated companies or other entities orany descriptions for which no English translation exists are unofficial translations for identificationpurposes only.

DEFINITIONS

– 19 –


The glossary of technical terms contains explanations and definitions of certain terms used

in this [REDACTED] in connection with our Group and our Group’s business. The terms and

their meaning may not correspond to meanings or usage of these terms as used by others.

‘‘backlight LED module/panel’’ a type of backlight LED products

‘‘backlight LED product(s)’’ optical component(s) including backlight LED module/panels

for emitting light behind the display of LCD panels or other

electronic products by LED beads

‘‘B.O.S.E. Consortium’’ a consortium formed by four companies, namely Tridonic

Jennersdorf GmbH, Toyoda Gosei Co., Ltd, Leuchtstoffwerk

Breitungen GmbH and Litec GbR, which holds certain patents

in relation to the use of LED phosphor materials and the

application of the phosphors in LEDs

‘‘bracket(s)’’ LED supporting frame(s)

‘‘CAGR’’ compound annual growth rate

‘‘CCC’’ China Compulsory Certificate

‘‘CE’’ Conformité Européene, a mandatory conformity marking for

certain products sold within the European Economic Area

since 1985 which denotes the manufacturer’s declaration that

the product meet the requirements of the applicable European

Union directives

‘‘chromaticity’’ an objective specification of the quality of a colour regardless

of its luminance

‘‘forward voltage’’ the voltage across a semiconductor junction carrying current in

the forward direction

‘‘GFA’’ gross floor area

‘‘ISO’’ International Organisation for Standardisation, a worldwide

federation of national standards bodies

‘‘ISO 9001:2008’’ an internationally recognised standard for a quality

management system, which aims at ensuring the ability of any

organization to provide products and services which

consistently fulfill customer and applicable regulatory

requirements.

GLOSSARY OF TECHNICAL TERMS

– 20 –


‘‘ISO 14001:2004’’ an internationally recognised standard for an environmental

management system, which aims at assisting organisations on

identifying, managing, monitoring and controlling their

environmental issues.

‘‘large segment of backlight LED

product market’’

a segment in the backlight LED product market where the

backlight LED products are applied for production of final

electronic products such as television sets, LCD monitors,

laptops etc

‘‘LCD’’ liquid crystal display, a screen for showing pictures or text

that uses liquid crystal that becomes dark when an electric

current flows across it

‘‘LED’’ light-emitting diode, which is a semi-conductor light source,

used for lighting and illumination in diverse applications as

mobile phones, computers, television sets, traffic lights, lamps,

street lights

‘‘LED bead(s)’’ LED lamp bead, a miniature electronic device(s) in the order

of millimeter in size and emits light when electric current is

passed through both ends of it

‘‘LED chip(s)’’ a core component(s) of LED bead and its main functions are

converting the electrical energy into light

‘‘luminous intensity’’ a measure of the wavelength-weighted power emitted by a

light source

‘‘medium segment of backlight

LED product market’’

a segment in the backlight LED product market for production

of medium-sized backlight LED products

‘‘medium-sized backlight LED

product(s)’’

LED backlight product(s) applied for production of final

electronic products with the size over 7 inches and up to 26

inches

‘‘mm’’ millimetre(s), a metric unit measure of distance

‘‘m2’’ square metre

‘‘OBM’’ an abbreviation of Original Brand Manufacturing under which

the manufacturer develops and owns the design of products

which are sold under such manufacturer’s own brand names


– 21 –


‘‘ODM’’ an abbreviation of Original Design Manufacturing, the

suppliers design and manufacture a product which is specified

by the buyers and eventually sold under the brand name of the

buyers or under no specific brand

‘‘PCB’’ an abbreviation for Printed Circuit Board

‘‘RCM’’ Regulatory Compliance Mark, a visible indication of a

product’s compliance with the Australian Communications and

Media Authority regulatory arrangements. It replaces the A-

Tick and C-Tick compliance marks used under previous

regulatory arrangement effective 1 March 2016

‘‘SAA Approvals’’ SAA Approvals are issued by a privately owned organisation

as a third party certification body for certain electrical

equipment that has proven to comply with the safety

requirements of the applicable Australian standards

‘‘small segment of backlight LED

product market’’

a segment in the backlight LED product market for production

of small-sized backlight LED products

‘‘small-sized backlight LED

product(s)’’

LED backlight product(s) for production of final electronic

products with size of 7 inches or less such as smartphones,

dashboards on consumer/industrial electronics such as e-book

readers, digital cameras etc

‘‘SMD’’ an abbreviation for Surface-Mounted-Device. An SMD LED

Module is a type of LED module that uses SMT to mount LED

chips on printed circuit board PCB. It is a self-contained

Surface-Mount LED device designed either to function on its

own or to plug into a compatible unit

‘‘SMT’’ an abbreviation for Surface Mount Technology, a method for

producing electronic circuits in which the components are

mounted or placed directly onto the surface of PCBs

‘‘tablet computer’’ or ‘‘tablet PC’’ a general purpose portable computer equipped with a touch

screen interface as the input device

‘‘Voltage’’ Voltage is the measurement of potential energy per unit of

charge, and is measured in Volts

‘‘W’’ Watts, a measurement of electrical power


– 22 –


Our Company has included in this [REDACTED] forward-looking statements that are not

historical facts, but relate to its intentions, beliefs, expectations or predictions for future event.

These forward-looking statements are contained principally in the sections entitled ‘‘Summary’’,

‘‘Risk Factors’’, ‘‘Industry Overview’’, ‘‘Business’’ and ‘‘Financial Information’’, which are, by

their nature, subject to risks and uncertainties.

In some cases, our Company uses the words ‘‘aim’’, ‘‘anticipate’’, ‘‘believe’’, ‘‘continue’’,

‘‘could’’, ‘‘expect’’, ‘‘intend’’, ‘‘may’’, ‘‘plan’’, ‘‘potential’’, ‘‘predict’’, ‘‘project’’, ‘‘propose’’,

‘‘seek’’, ‘‘should’’, ‘‘will’’, ‘‘would’’ and similar expressions or statements to identify forward-

looking statements. These forward-looking statements include statements relating to:

. the business strategies and plans of operations of our Group;

. the capital expenditure and funding plans of our Group;

. the business prospect of our Group;

. general economic conditions;

. capital market development;

. certain statements in ‘‘Financial Information’’ with respect to trends in prices, volumes,

operations;

. overall market trends, risk management and exchange rates;

. the regulatory environment for the PRC’s consumer electronics and LED lighting

industry in general; and

. other statements in this [REDACTED] that are not historical fact.

These forward-looking statements are subject to risks, uncertainties and assumptions, some of

which are beyond the control of our Company. In addition, these forward-looking statements reflect

the current views of our Company with respect to future events and are not a guarantee of future

performance.

Additional factors that could cause actual performance or achievements to differ materially

include, but are not limited to those discussed under the section headed ‘‘Risk Factors’’ and

elsewhere in this [REDACTED].

These forward-looking statements are based on current plans and estimates, and speak only as

of the date they are made. Our Company undertakes no obligation to update or revise any forward-

looking statement in light of new information, future events or otherwise. Forward-looking

statements involve inherent risks and uncertainties and are subject to assumptions, some of which

FORWARD-LOOKING STATEMENTS

– 23 –


are beyond the control of our Company. Our Company cautions you that a number of important

factors could cause actual outcomes to differ, or to differ materially, from those expressed in any

forward-looking statements.

Due to these risks, uncertainties and assumptions, the forward-looking events and

circumstances discussed in this [REDACTED] might not occur in the way our Company expects,

or at all. Accordingly, you should not place undue reliance on any forward-looking information. All

forward-looking statements contained in this [REDACTED] are qualified by reference to these

cautionary statements.

FORWARD-LOOKING STATEMENTS

– 24 –


You should consider carefully all the information set out in this [REDACTED] and, in

particular, should consider and evaluate the following risks and uncertainties associated with an

investment in our Company before making any investment into us. The business, financial

position, or results of operations of our Group can be materially and adversely affected by any

of these risks. The market price of the [REDACTED] could fall significantly and you may lose

all or part of your investment.

RISKS RELATING TO OUR BUSINESS

Fluctuations in the price of production materials may affect our cost of sales and adversely

affect our business operations and profitability.

Our production of LED beads and LED lighting products, to a large extent, depends on a

reliable supply of a wide variety of key production materials and supplies from our suppliers in the

PRC at competitive prices. Such key materials include LED chips, gold wires and brackets. For the

two years ended 31 December 2014 and 2015, the cost of production materials amounted to

approximately RMB82.7 million and RMB81.9 million, respectively, representing approximately

90.1% and 90.3% of our total cost of sales. The prices of our production materials generally follow

their respective price trends in the market. According to the CIC Report, the price of key raw

materials of LED beads had been reduced and thus, the average selling price of our LED beads had

been reduced from RMB0.147 per piece in 2014 to RMB0.134 per piece in 2015 correspondingly in

order to maintain the competitiveness of our products. Our gross profit margin is depended upon

the difference between the selling prices of our products and our cost of sales. If there is any

fluctuation in the price of our production materials and we are unable to respond to it in a timely

manner or pass the increase in price of production materials to our customers, our products may

lose their competitiveness and our profitability, financial condition and results of operations may be

materially and adversely affected. On the other hand, we cannot assure you that we will be able to

effectively manage the risk of price fluctuations of the production materials at all times.

Our reliance on major customers and any loss of our major customers or changes in their

demands for our products would have a material adverse effect on our business, results of

operations, financial conditions and prospect.

For the two years ended 31 December 2015, our Group’s sales to our top five customers

accounted for approximately 50.5% and 76.4% of our total revenue in each of the respective years.

In the corresponding periods, sales to our largest customer accounted for approximately 13.7% and

34.0% of our total revenue in each of the respective years.

Furthermore, we do not maintain any long-term sales agreement with any of our customers for

any minimum purchase amount during a fixed term but instead, we sell our products to our

customers based on individual purchase orders. There is no assurance that our major customers will

continue their business relationship with us, or the revenue generated from dealings with them will

RISK FACTORS

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be maintained or increased in the future. In particular, if there is any claim against us related to the

quality of our products from our major customers, such claim would affect the relationship with our

major customers or substantially reduce their volume of purchases from us.

If there is a reduction or cessation of purchase orders from these customers for whatever

reasons and we are unable to obtain suitable purchase orders of a comparable size and terms in

substitution, our business, financial conditions and results of operation may be materially and

adversely affected. Furthermore, any deterioration on their ability to purchase our products and/or

to pay their trade receivables in a timely manner will also have a material adverse effect on our

business, results of operations, financial conditions and prospect. For details, please refer to the

section headed ‘‘Business — Sales and Customers’’ in this [REDACTED].

Our reliance on the success of the downstream LED lighting industry and our business is

highly correlated to the performance of our customers’ industries.

Most of our LED beads would be used for onward production of small-sized backlight LED

products or medium-sized backlight LED products, which would in turn, have end-use applications

such as the displays in smartphones and the LCD panels in tablet computers etc. As such, our

results of operations and financial performance are dependent upon the prospects of these

downstream industries.

Our business relies on the LED lighting industry and consumer electronics market as our

customers are generally manufacturers of small-sized and medium-sized backlight LED modules/

panel generally for the displays in smartphones, manufacturers of LCD panels of tablet computers

and manufacturers of other electronics products. The demand from our customers is therefore

depending on the demand and supply dynamics of the consumer electronics market and the LED

lighting industry. As such, the demand for our LED beads may fluctuate according to the cycles of

the consumer electronics market and the LED lighting industry.

The demand for our LED beads is also affected by the business performance of our customers

and/or their ultimate retail customers, which is beyond our control. Our customers’ business could

underperform due to a number of factors, such as changes in their business strategies, failure to

develop successful marketing strategies, changes in the market demand for their products and

adverse market or economic conditions in the markets in which our customers operate. If our

customers experience underperformance or are under financial difficulties, they could reduce their

purchases from our Group, which could have a material and adverse impact on our business, results

of operations, financial conditions and prospect.

RISK FACTORS

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Any unanticipated or prolonged interruption of operations of our production facilities at our

Zhuhai HongGuang Production Plant would materially and adversely affect our business and

results of operations.

During the Track Record Period, all our products are developed and produced at our Zhuhai

HongGuang Production Plant where all our production machineries and equipment are situated. Our

business is therefore largely dependent on the continued and uninterrupted performance of our

production facilities at our Zhuhai HongGuang Production Plant. However, these production

machineries and equipment are subject to operating risks, such as equipment failures, disruptions in

power supply, industrial accidents, labour shortage, strike, fire or natural disasters. If any

unanticipated or prolonged interruption of our operations at our Zhuhai HongGuang Production

Plant happens due to any of the aforesaid risks, we may not be able to deliver our products to our

customers in a timely manner or at all. As a result, our relationships with our customers could be

adversely affected due to our failure and we may be subject to contractual claims for compensation

from our customers, which may materially and adversely affect our business, financial conditions

and results of operations.

Our quality control systems may not be maintained effectively and this would result in our

failure to conform with both international and domestic quality standards in relation to our

products.

The quality of our products is crucial to the success of our business. This depends

significantly on the effectiveness of our quality control systems, which in turn, rely on a number of

factors, which include the design of the quality control systems, the quality control training

programme, and our employees’ awareness in adhering to our quality control policies and

guidelines. Any significant failure or deterioration of our Group’s quality control systems could

result in the production of defective or substandard products, delay in delivery of our products,

replacement of defective or substandard products and damage to our reputation.

As a LED bead manufacturer, if our LED beads do not meet the specifications and

requirements agreed with or requested by our customers who are mainly backlight LED module/

panel manufacturers and use our LED beads for onward production of backlight LED products, or if

any of our products are defective, or result in our customers suffering losses as a result of product

liability claims, we may be subject to product liability claims and litigations, claims for indemnity

by our customers and other claims for compensation. We may also incur significant legal costs

regardless of the outcome of any claim of alleged defect. Product failure or defects, and any

complaints or negative publicity resulting therefrom, could result in decreased sales of these or

other products, or claims or litigation against us regarding the quality of our products. As a result,

it may have a material adverse effect on our business, reputation, financial conditions and results of

operations.

In addition, our Group has received internationally recognised certifications relating to quality

management standards such as ISO 9001:2008 and ISO 14001:2004 certifications, and other

certifications including ‘‘CCC’’, ‘‘CE’’, ‘‘RCM’’, ‘‘SAA Approvals’’ and ‘‘RoHS’’ for our LED

lighting products. We cannot assure you that we can continue to maintain our quality control

RISK FACTORS

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systems effectively and we will not lose such certifications in future. Accordingly, any significant

failure or deterioration of our quality control systems could result in a loss of such recognitions and

certifications, which in turn may have a material adverse effect on our sales performance, reputation

and prospects.

Our failure to purchase production materials or to meet our customers’ orders could

materially and adversely affect our business operations and profitability.

We purchase our production materials from external suppliers based on customers’ confirmed

purchase orders and our projected production schedule in the next 30 to 45 working days. For each

of the two years ended 31 December 2015, the total purchases from our Group’s top five suppliers

amounted to approximately RMB75.9 million and RMB62.2 million, representing approximately

85.2% and 65.3% of our total cost of purchases for the corresponding periods. As such, our reliance

on our top five suppliers in supplying quality production materials to us has been relatively high.

If any of our major suppliers is not able to deliver raw materials to us according to our

production schedule or in such volume as is required for our production, or we fail to purchase the

production materials from other suppliers in a timely and cost-effective manner, our production

process and the delivery of products required by our customers could be delayed. As a result, our

relationships with our customers could be adversely affected due to such delays, which may

materially and adversely affect our business, financial conditions and results of operations.

Risk of shortage of labour or increase in our labour costs.

The production of our LED lighting products and certain production process of our LED beads

have to be carried out manually. Alongside the expansion of our production capacity and increase

of our production size, our need for production personnel will increase. Moreover, labour costs

have increased in the PRC in recent years. There is no assurance that we will not experience any

shortage of labour for our production or that the costs of labour in the PRC will not continue to

increase in the future. Furthermore, if labour costs continue to increase in the PRC, our production

costs may increase eventually and we may not be able to shift these extra costs to our customers

due to competitive pricing pressures among our competitors.

If we fail to retain our existing labour and/or recruit sufficient labour in a timely manner, we

may not be able to accommodate any increase in demand for our products or smoothly implement

our expansion plans, our business, prospect, financial conditions and results of operations would be

materially and adversely affected.

Our future growth will depend on our ability to expand our production capacity in a planned

manner.

For the years ended 31 December 2014 and 2015, the average utilisation rate of our LED bead

encapsulation machineries and equipment at our Zhuhai Hongguang Production Plant was

approximately 78.9% and 86.5% respectively. It is our strategic plan to purchase ten additional

units of each principal machinery and equipment for LED bead encapsulation production, and

RISK FACTORS

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recruit additional production staff in order to meet the increasing demand for LED beads and LED

lighting products for domestic PRC and overseas markets and to capture the future growth

opportunities in both markets. Upon commencement of operation of these new production

machineries and equipment, our estimated annual production capacity of LED beads and LED

lighting products will increase by approximately 703 million pieces and 346,000 pieces

respectively.

However, the addition of these production machineries and equipment may encounter

unexpected difficulties such as delays, costs overrun, regulatory constraints, shortage of labour and

shortage of key materials, etc. We may even have problems of under-utilisation if demand for our

products will not increase at the same rate. In the event that we are unable to achieve high

utilisation of our production capacity as planned, there could be a material adverse effect on our

performance and results of operation.

Our profit margin could be adversely affected if we are unable to continuously maintain the

high utilisation of our production machineries and equipment.

Our ability to maintain our profitability depends partly on our ability to maintain the high

utilisation rate of our production machineries and equipment in our Zhuhai HongGuang Production

Plant. The level of the utilisation rate of our production machineries and equipment can impact on

our operating results as a certain percentage of our costs of sales such as direct labour and

production overhead are fixed in nature. Higher utilisation rate of our production machineries and

equipment allow us to spread our fixed costs over a larger quantity of product, resulting in a higher

profit margin. Hence, if we are unable to continuously maintain the high utilisation of our

production machineries and equipment, our profit margin would be adversely affected.

Our research and development in relation to our LED beads and LED lighting products and

the relevant patents acquired by us in relation thereto may not be well-received by the

market.

Our Directors believe that our capability to meet our customers’ requirements and

specifications in our LED beads and the requirements in our LED lighting products in terms of

style, quality and performance is a key differentiating factor that sets us apart from the rest of the

industry players. That is the reason why we devote resources to (i) conduct research and

development in enhancing the production process of our LED beads; (ii) acquire suitable patents

from third parties; and (iii) design and develop new LED lighting products. For the years ended 31

December 2014 and 2015, our expenses in the research and development were approximately

RMB0.3 million and RMB0.9 million, representing approximately 4.5% and 6.7% of our

administrative expenses, respectively.

However, conducting research, acquiring intellectual property rights from third parties and

product development can be costly processes and do not necessarily lead to the launch of a

marketable new product. Instead, the results of research and development are sometimes

RISK FACTORS

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unpredictable in the sense that we are not able to predict market response to our new products

before mass production. If our research and development capabilities fail to develop products that

meet our customers’ expectations, our business and results of operations may be adversely affected.

Reliance on our senior management team.

Our success has been heavily dependent on the services provided by our key management

personnel, and we believe that the senior management team will continue to be essential to the

development and success of our business. In particular, Mr. YW Zhao has been engaged in the

manufacture of electronic products business for more than 12 years and he is also one of the

founders of our Group. Mr. YW Zhao played a pivotal role in the operation of our Group during

the Track Record Period. Mr. YW Zhao is assisted by Mr. Xu Jian Hui, a member of our senior

management team, who has more than 12 years’ experience in administration and production

management, in the daily operation, administration and production management of our Group. They

oversee our operations and production of products in order to ensure that our quality of our

products can be maintained and the production process can take place efficiently. Mr. YW Zhao,

Mr. Xu and other senior management’s knowledge and experience in the LED lighting industry are

a major factor which led to our Group’s success. To a certain extent, the future of our Group relies

on our ability to retain the services of key management personnel.

While each of Mr. YW Zhao, Mr. Xu and other members of the senior management team had

entered into or agreed to enter into service agreements with us, there is no assurance that they or

any of them would not terminate their service agreement or decline to renew their service

agreements with us. If that happens, we may not be able to replace, retain, attract and hire other

qualified managerial personnel and there may be a disruption to our business, which may adversely

affect our performance.

We may not be able to obtain adequate financing for the development of our business in the

future.

The daily operation of our business requires intensive working capital and we also require

capital investment to purchase new production equipment for our business growth. During the

Track Record Period, we relied on our registered capital, bank borrowings and amount due to

shareholders to maintain our cash flow and satisfy the needs of our daily productions. As at 31

December 2014 and 2015, our bank borrowings repayable within one year are approximately

RMB17.0 million and RMB8.0 million, respectively. The outstanding bank borrowings as at 30

April 2016 of approximately RMB14.7 million will be repaid by the combination of net proceeds

after [REDACTED] and our internal resources.

We cannot assure that we will be able to obtain bank loans and/or other equity or debt

financing on commercially reasonable terms and/or on a timely basis following the [REDACTED].

If we are unable to obtain necessary financing or obtain such financing on favourable terms due to

various factors beyond our control, we may not have sufficient funds to develop our business and

the future prospect and growth potentials of our Group may be adversely affected.

RISK FACTORS

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Our cash flow could be adversely affected due to overdue payments from our customers.

As at 31 December 2014 and 2015, our total trade and bills receivables was approximately

RMB77.1 million and RMB58.4 million respectively, of which approximately RMB27.9 million and

RMB34.9 million was due from our top five customers respectively over the corresponding periods.

For details, please refer to the section headed ‘‘Financial Information — Description and analysis of

principal items in the consolidated statements of financial position — Trade and bills receivables’’

in this [REDACTED]. There is no assurance that we are able to secure the payments from our

customers on a timely manner. If we are unable to collect payments from our customers before the

expiry of the respective credit period or our customers default on settlement of outstanding balance,

there could be a material effect on the results of our operation and financial condition.

We are exposed to risks of infringement of our intellectual property right by third parties.

We are the registered owner of our trademarks and certain patents in the PRC and our

trademarks in Hong Kong, however the said registrations of which, may not be adequate to prevent

third parties from misappropriating our intellectual property rights. In particular, we are susceptible

to infringement of our intellectual property rights due to the fact that protection and enforcement of

intellectual property rights in the PRC are not as certain and effective as in other developed

countries. Even though we have applied for patent protection for some of our products, there is no

assurance that we are free from any infringement of our patent rights by our competitors or other

third parties. We cannot assure you that imitation of our LED beads and LED lighting products will

not occur. Any occurrence of imitation of our products may result in a reduction of our market

share, a decline in our sales and profitability as well as an increase of our administrative costs in

detection and protection of our products, which in turn affects our overall results.

Furthermore, as at the Latest Practicable Date, we had applied for registration of one patent

relating to LED beads in the PRC. However, there is no assurance that the said patent under

applications will be approved or approved on a timely basis.

We may be exposed to any infringement claims by third parties, which, if determined

adversely against us, could cause us to pay significant damage awards.

Our success partly depends on our ability to use and develop our know-how, patents and

brand name without infringing the intellectual property rights of third parties. However, we cannot

assure you that there is no potential risk of infringement claims made by any third party against us.

If that happens, the defence of intellectual property rights claims, including infringement lawsuits

and related legal and administrative proceedings, can be both costly and time consuming and may

significantly divert the efforts of our management personnel and our financial resources. It would

also result in our customers deferring or limiting their purchase or use of our products until

resolution of such lawsuits. If such claims are brought against us, we might also face lengthy and

costly litigation that could adversely affect our overall performance.

RISK FACTORS

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Our business is subject to seasonality.

We generally record lower sales in the first quarter of the year, due to the Chinese New Year

holiday in the PRC. On the other hand, we generally record higher demands from our customers in

the last quarter of the year because our customers require our LED beads to manufacture backlight

LED modules/panels for displays of smartphones and LCD panels of the tablet computers a few

months before the holiday seasons, including Chinese New Year, such that the end customers could

launch its products during the holiday seasons, where demand is generally higher. Hence, any

comparison of our sales and operating results during different periods within a single same financial

year, are not necessarily meaningful and shall not be relied on as an indication of our performance.

Our results of operation are likely to continue to fluctuate due to seasonality.

Our financial performance is expected to be affected by our [REDACTED] expenses.

Our financial results for the year ending 31 December 2016 will be affected by non-recurring

expenses in relation to the [REDACTED]. Whether or not the [REDACTED] eventually takes place,

a major portion of the [REDACTED] expenses will have been incurred and recognised as expenses,

which will reduce our net profit and therefore negatively affect our future financial performance.

The estimated expenses in relation to the [REDACTED] are approximately RMB[REDACTED].

Our Group expects to recognise approximately RMB[REDACTED] in the consolidated statement of

comprehensive income and to deduct the remaining of approximately RMB[REDACTED] from our

Group’s equity. In addition, if the [REDACTED] were to be postponed due to the then prevailing

marking condition or other reasons, additional [REDACTED] expenses would also be incurred for

future [REDACTED] plan. This would further negatively affect our Group’s future net profit. As a

result, our business, financial performance, operating results and prospect would be adversely

affected.

We are exposed to the risk of industrial accidents at our production site.

Our Group may be exposed to the risk of industrial accidents at our Zhuhai HongGuang

Production Plant in the PRC. Although we have enforced our safety measure and equipped with

insurance under normal market practice, there is no guarantee that industrial accidents may not

occur in the future, which may result in suspension of the operation in the Zhuhai HongGuang

Production Plant, damaging our plant or machinery, and give rise to potential liability to our

employees, our customer or third parties.

We are subject to risks in relation to changes in technology.

The LED lighting industry in which we operate is characterised by rapid changes and

advancements in technology. With technology advancement, the LED beads and LED lighting

products we offered to the market may become obsolete. If we are not able to respond to the rapid

changing trends in the LED lighting market and to introduce new products on a timely basis, our

performance in the future would be adversely affected. In addition, new technological developments

often bring price declines and decreasing profit margin for both LED beads and LED lighting

products which may present risks in driving our results downwards.

RISK FACTORS

– 32 –


We operate in a competitive environment.

We face fierce competition in terms of technologies and product prices not only in the PRC

but also in other countries or regions, such as Japan, Korea and Taiwan. Our ability to compete also

depends on a number of factors which may be beyond our control, including the price of the

comparable products offered by our competitors in the market and the responsiveness to changes of

customers’ needs.

Owing to the intense competition in the LED lighting industry in which we operate, we cannot

assure that the selling prices of certain products are free from downward pressure. In the event that

our competitors lower their products’ prices, we might follow their act in order to maintain our

market shares, competitiveness, or to lower our inventory level.

As new competitors enter into the industry, we may not be able to maintain or expand our

sales of our LED beads or expand the sales of our LED lighting products or to continue to compete

effectively against current and future competitors. There is no assurance that our attempts to remain

competitive in the market will succeed. If our attempts to remain competitive fail and our market

share shrink, our overall performance may be adversely affected.

RISKS RELATING TO CONDUCTING BUSINESS IN THE PRC

Owing to the fact that all of our Group’s assets, business operations and manufacturing

facilities are in the PRC, the results of our operations, financial position and prospects would be

affected by the economic, political and legal developments in the PRC. The major risks that we are

exposed to are as follows:

We face risks associated with changes in the economic conditions of the PRC and other export

destinations.

For the two years ended 31 December 2014 and 2015, the revenue derived from sales in the

PRC accounted for approximately 95.6% and all of our revenue respectively. Relying heavily on

domestic sales in the PRC, our financial performance may be affected by the fluctuations in its

economy. As our LED beads are used for onward production of small-sized or medium-sized

backlight LED products for electronic consumer goods including smartphones and tablet computers,

if there is any economic downturn or significant changes in consumer preferences, consumers’

spending pattern in the PRC results in the decline in the demands for consumer electronics

products, the sale of our LED beads would be materially affected correspondingly. As the prices of

LED lighting products are generally more expensive than their comparable traditional lighting

products, any financial crisis or economic downturn in the PRC may cause the market demand for

LED lighting products decrease as well. As a result, our business, financial condition and results of

operations may be adversely affected.

RISK FACTORS

– 33 –


We cannot assure you that we will be able to predict and respond to changes in economic

conditions of the PRC. We may not be able to adopt measures to sufficiently control our costs or

maintain our sales volume during the recession period of the PRC. Any failure to do so may have a

material adverse effect on our business, financial condition and results of operation.

Uncertainties with respect to China’s economic and political policies could affect our

performance.

During the past decades, PRC’s economy has been transitioning from a planned economy to a

relatively market-oriented economy. Although the PRC government has implemented measures for

economic reform, a substantial portion of productive assets in China is still owned or controlled by

the PRC government. The PRC government exercises significant control over the country’s

economic growth by controlling the allocation of resources, controlling payment of foreign currency

denominated obligations, setting monetary and industrial policies and providing preferential

treatment to certain industries or companies. While some of these measures may benefit the overall

economy, they may have a negative impact on our business. Furthermore, changes in the political

environment of the PRC may have an adverse effect on our business.

Our business operations are subject to uncertainties with respect to the laws and regulations

of the PRC.

Our business and operations in the PRC are governed by the laws of the PRC. The PRC law is

a codified system which comprises of statutory laws, regulations, circulars, administrative directives

and internal guidelines. Some of them, and the interpretation, implementation and enforcement

thereof, are still at an experimental stage and are therefore subject to policy changes.

In the event that our PRC subsidiary breaches any of the foregoing, whether by omission or

not, we will subject to penalties prescribed therein. Owing to the fact that the growing of the legal

system and economic system are in different pace, some degree of uncertainty exists in connection

with whether and how existing laws and regulations are applicable to certain circumstances.

Moreover, precedents on the interpretation, implementation and enforcement of the PRC laws and

regulations are of limited value for decisions because the higher court decisions in the PRC do not

necessary have binding effect on lower courts. Accordingly, the outcome of dispute resolution may

not be as consistent or predictable as in other jurisdictions.

Currency conversion and exchange rate risks.

The PRC’s current currency policy is allowing the exchange rate of RMB to move in a

managed way subject to ad hoc measure will be taken by the relevant government authorities, there

can be no assurance that exchange rate of RMB will not have any substantial fluctuation. Since a

substantial amount of the income and profit of our Group are denominated in RMB, any

fluctuations in the value of the RMB may adversely affect the amount of dividends, if any, payable

to the Shares in Hong Kong dollars to our Shareholders.

RISK FACTORS

– 34 –


RISKS RELATING TO THE [REDACTED]

There has been no prior public market for the Shares and the liquidity and market price of

the Shares may be volatile.

Prior to the [REDACTED] of the Shares on the Stock Exchange, there has been no public

market for the Shares. We have made an application to the Stock Exchange for the [REDACTED]

and [REDACTED] of the Shares. There is no assurance that the [REDACTED] will result in the

development of an active, liquid public trading market for the Shares. In addition, the price and

trading volume of the Shares may be volatile since factors such as variations in our Group’s

revenues, earnings and cash flows or any other developments, whether due to seasonal sales

fluctuations or for any other reasons, may affect the volume and price at which the Shares will be

traded.

The liquidity, trading volume and market prices of our Shares may be volatile.

The liquidity, trading volume and market prices of the Shares may be volatile. The factors that

may affect the volume and price of our Shares include, but not limited to, variations in our revenue,

earnings, cash flows, announcements of new investments and changes in laws and regulations in the

PRC. We cannot assure that such events will not happen in the future. In addition, shares of other

companies listed on the Stock Exchange with significant business and assets in the PRC have

experienced price volatility in the past, and it is possible that the Shares may be subject to changes

in price not directly related to our performance.

Future sale of Shares or major divestment of Shares by any major shareholder may adversely

affect the prevailing market price of the Shares.

The Shares held by the Controlling Shareholders are subject to certain lock-up undertakings

for periods commencing on the date of this [REDACTED] and up to twelve months after the

[REDACTED]. We cannot give any assurance that the Controlling Shareholders will not dispose of

Shares they may own now or in the future. We cannot predict the subsequent effect on the then

prevailing market price of our Shares after any of such disposal. Sale of substantial amounts of our

Shares by any of our existing Shareholders, or the market perception that such sales may occur,

could have a material and adverse effect on the prevailing market price of our Shares.

Investors may experience difficulties in protecting interest of minority shareholders because

our Company is incorporated in the Cayman Islands, and the laws of the Cayman Islands

relating to the protection of the interests of minority shareholders may be different from those

in Hong Kong or other jurisdictions.

Our Company is incorporated in the Cayman Islands and its affairs are governed by the

Articles, the Companies Law and common law applicable in the Cayman Islands. The laws of the

Cayman Islands may differ in some respects from those of Hong Kong or other jurisdictions where

investors may be located. As a result, minority shareholders may have less protection than they

RISK FACTORS

– 35 –


would otherwise have under the laws of Hong Kong or such other jurisdictions. A summary of the

Cayman Islands law on protection of minority shareholders is set out in the section headed ‘‘3.

Cayman Islands Company Law’’ in Appendix III to this [REDACTED].

Investors may experience dilution if additional Shares are issued.

We may need to raise additional funds in the future to finance our future plans, whether in

relation to our sales operation or in expanding our production facilities. If additional funds are

raised through the issuance of our new equity or equity-linked securities other than on a pro-rata

basis to existing Shareholders, then (i) the percentage ownership of our existing Shareholders may

be reduced; and/or (ii) such newly issued securities may have rights, preferences or privileges

superior to those of the Shares of the existing Shareholders.

Purchasers of [REDACTED] may incur an immediate dilution in net tangible book value per

Share as a result of the [REDACTED].

The [REDACTED] of the [REDACTED] is substantially higher than the net tangible book

value per Share. Therefore, purchasers of the [REDACTED] in the [REDACTED] may experience

an immediate dilution in net tangible book value per Share as a result of the [REDACTED].

Our interests may conflict with those of our Controlling Shareholders acting in concert, who

may take actions that are not in, or may conflict with, our public Shareholders’ best interests.

Upon completion of the Capitalisation Issue and [REDACTED], our Controlling Shareholders

acting in concert will own [REDACTED]% of our entire issued share capital. As such, our

Controlling Shareholders acting in concert have and will continue to have the ability to exercise a

controlling influence over our business, including matters relating to our management and policies

and certain matters requiring the approval of our Shareholders, including election of Directors,

approval of significant corporate transactions and the timing and distribution of dividends. They

will also have veto power with respect to any Shareholder action or approval requiring a majority

vote.

They may take actions that you may not agree with or that are not in our public Shareholders’

best interest. This concentration of ownership may have the effect of delaying, deferring or

preventing a change in control, discouraging bids for the Shares at a premium over the market

price, or adversely affecting the market price of the Shares.

Adverse effect associated with the Share Option Scheme will cause dilution to your

shareholding in our Company.

Issuance of Shares for the purpose of satisfying any award made under the Share Option

Scheme and/or pursuant to the exercise of the options to be granted under the Share Option Scheme

will cause dilution to the earnings per Share and net asset value per Share because of the increase

in the number of Shares in issue after the issuance.

RISK FACTORS

– 36 –


We may be unable to pay any dividend on our Shares.

We are a holding company incorporated in Cayman Islands, and we operate our core business

through our subsidiary in the PRC. Therefore, the availability of funds for us to pay dividends to

our Shareholders and to settle our indebtedness depends upon dividends received from our PRC

subsidiary. If our PRC subsidiary incurs debt or losses, the ability to pay dividends or other

distributions to us may be impaired. As a result, our ability to pay dividends and to repay our

indebtedness will be restricted. PRC laws require that the dividends be paid only out of the after-

tax profit of our PRC subsidiary calculated in accordance with the PRC accounting principles,

which differ in many aspects from generally accepted accounting principles in other jurisdictions.

PRC laws also require enterprises established in the PRC to set aside part of their after-tax profits

as statutory reserves, which are not available for distribution as cash dividends. In addition,

restrictive covenants in bank credit facilities or other agreements that we or our subsidiaries may

enter into in the future may also restrict the ability of our subsidiaries to pay dividend to us. The

restrictions on the availability of our funding may impact our ability to pay dividends to our

Shareholders and to service our indebtedness. As a result, there is no assurance that dividends will

be distributed at all or in any particular form.

We cannot assure that future declaration of dividends, if any, will be consistent with our

historical declarations of dividends. There is no assurance that we will declare dividends at all in

the future. Future dividends, if any, will be at the discretion of the Board and will depend upon the

then our overall results of performance, financial condition, legal and contractual restrictions and

other factors as the Board may deem relevant.

You may experience difficulties in effecting service of legal process, enforcing judgments or

bringing original action in the PRC against us, our management or the experts named in this

[REDACTED].

Substantially all of our assets and operation are located in the PRC. Furthermore, some of our

Directors and executive officers reside within the PRC. As a result, it may not be possible to effect

service of legal process outside Hong Kong (as the case may be) upon some of our Directors and

senior executive officers with respect to matters arising under applicable securities laws. Moreover,

the PRC does not have entered into treaties with Hong Kong and a number of jurisdictions for

reciprocal recognition and enforcement of judgments of foreign courts. As a result, recognition and

enforcement in the PRC of judgments of a court in Hong Kong and certain jurisdictions mentioned

above in relation to any matter, which is not subject to a binding arbitration provision, may be

difficult if not impossible.

RISK FACTORS

– 37 –


Certain information, facts and statistics from official sources contained in this [REDACTED]

have come from third party publications and publicly available sources whose reliability

cannot be assumed or assured.

Certain information, facts and statistics contained in this [REDACTED] are derived from

various publicly available government and/or other publications. Whilst our Directors and the Sole

Sponsor have taken reasonable care to ensure that such information, facts and statistics contained in

this [REDACTED] are accurately reproduced, such information, facts and statistics have not been

independently verified by us. We, the Sole Sponsor, the Underwriters, their respective directors and

advisers or any other parties involving in the [REDACTED] do not make any representation as to

the accuracy of such information, facts and statistics, which may not be consistent with other

information, facts or statistics and may not be up-to-date. Due to the possibly flawed or ineffective

data collection methods or discrepancies between published data and market practice and other

problems, certain information, facts and statistics contained in this [REDACTED] may be

inaccurate or may not be comparable from period to period to those information, facts and statistics

produced for other purposes and should not be unduly relied upon. Furthermore, we cannot assure

you that such information, facts and statistics are stated or complied on the same basis or with the

same degree of accuracy as may be the case elsewhere.

Investors should read this entire [REDACTED] carefully and should not place any reliance on

any information contained in press articles or other media regarding our Group.

There may have been press coverage on our Group’s business and the [REDACTED], which

included certain financial information, financial and operation projections, valuations and other

information on our business that do not appear in this [REDACTED]. We have not authorised the

disclosure of any such information in the press or media and do not accept any responsibility for

the accuracy or completeness of such press articles or other media coverage. We make no

representation as to the appropriateness, accuracy, completeness or reliability of any of the

information contained in the press articles or other media about our Group, or to any assumptions

underlying such information included in or referred to by the press articles or other media.

Accordingly, investors should rely only on the financial, operational and other information included

in this [REDACTED]. By applying to purchase our Shares in this [REDACTED], investors will be

deemed to have agreed that they will not rely on any information other than the information

contained in this [REDACTED].

RISK FACTORS

– 38 –


[REDACTED]

INFORMATION ABOUT THIS [REDACTED] AND THE [REDACTED]

– 39 –


[REDACTED]


– 40 –


[REDACTED]


– 41 –


[REDACTED]


– 42 –


[REDACTED]


– 43 –


DIRECTORS

Name Residential Address Nationality

Executive Directors

Mr. Zhao Yi Wen (趙奕文) Room 1603

No. 3 Building

Yi Qing Yuan

Gongbei Lianan RoadXiangzhou District

Zhuhai City

Guangdong Province

PRC

Chinese

Mr. Lin Qi Jian (林啟建) Room 1801

Block 4

Zhong Xin International Garden

301 Zhuhai Avenue

Zhuhai CityGuangdong Province

PRC

Chinese

Mr. Chan Wing Kin (陳永健) 8th Floor

Wah On Court292 Ma Tau Wai Road

To Kwa Wan

Kowloon

Hong Kong

Chinese

Non-executive Directors

Mr. Chiu Kwai San (趙桂生) Flat D, 18th Floor

Block 28

Stage 2

BroadwayMei Foo Sun Chuen

Kowloon

Hong Kong

Chinese

DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED]

– 44 –


Name Residential Address Nationality

Independent non-executive Directors

Professor Chow Wai Shing, Tommy

(周偉誠)

Flat 1B, 1/F, Block 13

Tak Chee Yuen

88 Tat Chee AvenueKowloon

Hong Kong

British

Dr. Wu Wing Kuen, B.B.S.

(胡永權)

Apartment B-2

2nd Floor

Sunderland EstateNo. 1, Hereford Road

Kowloon Tong

Kowloon

Hong Kong

Chinese

Mr. Chan Chung Kik, Lewis

(陳仲戟)

Room 2907

Kam Wai House

Kam Fung Court

Man On Shan

New TerritoriesHong Kong

Chinese

For further information, please refer to the section headed ‘‘Directors, Senior Management and

Employees’’ in this [REDACTED].


– 45 –


PARTIES INVOLVED IN THE [REDACTED]

Sole Sponsor Lego Corporate Finance LimitedA licensed corporation under the SFO and permitted

to carry out Type 6 (advising on corporate finance)

of the regulated activity as defined under the SFO

Room 1601

16th Floor

China Building

29 Queen’s Road CentralHong Kong

[REDACTED] [REDACTED]

Legal advisers to our Company As to Hong Kong law

TC & Co.Solicitors, Hong Kong

Units 2201–3

22nd Floor

Tai Tung Building8 Fleming Road

Wanchai

Hong Kong

As to PRC law

Deheng Law Offices (Shenzhen)PRC attorneys-at-law

11th Floor

Tower B

Anlian Plaza

4018 Jintian RoadShenzhen

PRC

As to Cayman Islands law

Appleby2206–19

Jardine House

1 Connaught Place

Central

Hong Kong


– 46 –


Legal advisers to the Sole Sponsor andthe [REDACTED]

As to Hong Kong law

EvershedsSolicitors, Hong Kong

21st Floor

Gloucester Tower

The Landmark

15 Queen’s Road CentralHong Kong

As to PRC law

DentonsPRC attorneys-at-law

10th FloorGongjiao Building

No. 1001 Lianhuazhi Road

Futian District

Shenzhen 518036

PRC

Auditor and reporting accountant BDO LimitedCertified Public Accountants

25th Floor

Wing On Centre111 Connaught Road Central

Hong Kong

Industry consultant China Insights Consultancy LimitedRoom 1203Shanghai International Group Building

511 Weihai Road

Jing’an District, Shanghai

PRC


– 47 –


Registered office in the Cayman Islands Clifton House

75 Fort Street

P.O. Box 1350

Grand Cayman

KY1-1108

Cayman Islands

Headquarter and principal place of

business in the PRC

The North Side

2nd Floor

No. 8 Pinggong Er Road

Nanping Technology Industrial Park

Zhuhai

PRC

Place of business in Hong Kong Rooms 2401–02

24th Floor

Jubilee Centre

46 Gloucester Road

Wanchai

Hong Kong

Company’s website address www.lighting-hg.com

(information on this website does not form part of

this [REDACTED])

Company secretary Mr. Chan Wing Kin (陳永健) (CPA, CIA, CFE)

8th Floor

Wah On Court

292 Ma Tau Wai Road

To Kwa Wan

Kowloon

Hong Kong

CORPORATE INFORMATION

– 48 –


Authorised representatives Mr. Chan Wing Kin (陳永健)

8th Floor

Wah On Court

292 Ma Tau Wai Road

To Kwa Wan

Kowloon

Hong Kong

Mr. Zhao Yi Wen (趙奕文)

Room 1603

No.3 Building

Yi Qing Yuan

Gongbei Lianan Road

Xiangzhou District

Zhuhai City

Guangdong Province

PRC

Compliance officer Mr. Chan Wing Kin (陳永健)

8th Floor

Wah On Court

292 Ma Tau Wai Road

To Kwa Wan

Kowloon

Hong Kong

Audit committee Mr. Chan Chung Kik Lewis (陳仲戟) (Chairman)

Dr. Wu Wing Kuen, B.B.S. (胡永權)

Professor Chow Wai Shing, Tommy (周偉誠)

Remuneration committee Mr. Chan Chung Kik Lewis (陳仲戟) (Chairman)



Nomination committee Mr. Chan Chung Kik Lewis (陳仲戟) (Chairman)




– 49 –


Cayman Islands principal share registrar

and transfer office

[REDACTED]

Hong Kong branch share registrar and

transfer office

[REDACTED]

Principal bankers Industrial and Commercial Bank of China,

Zhuhai Gongbei Sub-branch

ICBC Tower

36 Guihuanan Road

Gongbei, Zhuhai

PRC

Compliance adviser Lego Corporate Finance Limited

Room 1601

16th Floor

China Building

29 Queen’s Road Central

Hong Kong


– 50 –


This section contains certain statistics, industry data or other information mainly derived

or extracted from publicly available government sources, market data providers and other

Independent Third Party sources. In addition, this section and elsewhere in this [REDACTED]

contains information extracted from a commissioned report, or the CIC Report, prepared by CIC

for the inclusion in this [REDACTED].

Our Directors believe that the sources of such information are appropriate and have taken

reasonable care in extracting and reproducing the information. Our Company and the Sole

Sponsor 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 has

not been independently verified by our Company, the Sole Sponsor, the [REDACTED], any of

their respective directors, officers, affiliates, advisers or representatives, or any other party

involved in the [REDACTED] and no representation is given as to its accuracy. The information

in this section should not be unduly relied upon.

SOURCES OF INFORMATION

Our Group has commissioned CIC, an Independent Third Party, to conduct an analysis of, and

to prepare a report on, among others, the PRC’s consumer electronics and LED lighting industry,

the application of LED beads in different segments in the backlight LED product market and other

economic data at a fee of RMB515,000. Our Directors consider that such fee reflects market rates.

CIC’s services include industry consulting, commercial due diligence, strategic consulting, etc.

Its consultant team has been tracking the latest market trends in public utility, industrial, energy,

chemical, healthcare, consumer goods, transportation, agriculture, internet, finance, etc.

CIC undertook both primary and secondary research through various resources. Primary

research involved interviewing key industry experts and leading industry participants in the PRC’s

consumer electronics and LED lighting industry, as well as the LED product market. Secondary

research involved analysing data from various publicly available data sources, including China

government releases, company reports, independent research reports, CIC’s internal database, etc.

The information and statistics as set forth in this section have been extracted from the CIC Report.

In compiling and preparing the CIC Report, CIC has adopted the following key assumptions: (i) the

overall social, economic and political environment in China is expected to remain stable in the

forecast period; (ii) China’s economy is likely to maintain a steady growth in the next decade with

ongoing urbanisation; (iii) related industry key drivers are likely to drive China’s backlight LED

product market in the forecast period, such as new products drive the demand, penetration into

international downstream market, industry merger and acquisition, government support; and (iv)

there is no any extreme force majeure or industry regulation in which the market may be affected

dramatically or fundamentally.

INDUSTRY OVERVIEW

– 51 –


DIRECTORS CONFIRMATION

Our Directors confirm that after taking reasonable care, as at the Latest Practicable Date, there

was no material adverse change in the market information since the issue date of the CIC Report.

OVERVIEW OF INDUSTRY VALUE CHAIN OF LED LIGHTING INDUSTRY IN THE PRC

Industry Value Chain of Consumer Electronics and LED Lighting Industry (China)

Source: CIC

OVERVIEW OF CHINA’S CONSUMER ELECTRONIC INDUSTRY

Development of China’s consumer electronics industry

Production Volume of Consumer Electronics Industry by Application, China, 2010–2020E

Source: China Academy of Information and Communication Technology and CIC

INDUSTRY OVERVIEW

– 52 –


Consumer electronics are electronic appliances intended for daily use, especially often inentertainment, communications and office productivity. Most of these products have LCD screens.Consumer electronics can be classified by application. In this connection, the Company’s targetconsumer electronics industry include portable personal computers tablet computers andsmartphones etc. As the global and domestic economy recovers, the growth for China’s consumerelectronics industry is anticipated to increase. This increase is expected to bring huge demand forbacklight LED products. The production volume of the mobile phone market, which accounted forthe largest market share in China’s consumer electronics industry, grew moderately with a CAGR of13.2% from 2010 to 2015. As LED beads are largely used in smartphones, portable PC and tabletPC, the continuous growth of these products production in China is expected to further boost thedemand for LED beads.

In relation to LED lighting industry, a LED lamp or lighting product is a LED product that isassembled into a lamp for use in lighting. LED lighting industry includes industrial lighting,outdoor lighting, residential lighting and commercial lighting market.

Product Scope Specification

Consumer ElectronicsIndustry

. Refers to personal electronic productswhich have LCD screens to displaydigital contents.

. LCD panel industry is upstream ofconsumer electronics industry.

. Normally backlight LED modules areused to light LCD panels.

. According to different technics, backlightLED modules are classified into threetypes: side-light-type white LED, direct-light-type white LED and direct-light-typeRGB LED.

LED Lighting Industry . Refers to LED lamps or other flashlighting products which use LED chips.

. LED lamps have a lifespan and electricalefficiency that is several times better thanincandescent lamps, and significantlybetter than most fluorescent lamps, withsome LED chips able to emit more than100 lumens per watt.

. The highest luminous efficacy parameterof LED chips exceeds 200 lm/W.

OVERVIEW OF THE BACKLIGHT LED PRODUCT MARKET IN THE PRC

Dynamic growth of the LED beads in the PRC

Generally, the backlight LED product market is divided into the following three segments inaccordance with size of the final products to which the LED beads are applied:

INDUSTRY OVERVIEW

– 53 –


Backlight LED Bead Value Chain

Backlight LED bead manufacturing is a complex and highly technologically intensive process.

The upstream covers the LED chip, bonding wire, fluorescent powder, encapsulant, bracket, etc.

LED chip is the key component to build finished product of backlight LED beads. The downstream

end-use covers backlight LED module, which is a component to integrate LED display panel. The

integrated display panels have been widely used to produce smartphones, tablet PCs and so on.

The overall sales value of LED beads reached RMB9,356.5 million in 2015, representing a

CAGR of 8.0% over the period from 2010 to 2015. It is expected to reach RMB13,175.5 million in

2020, with a CAGR of 7.1% from 2015 to 2020.

Sales Value of LED Beads for production of Backlight LED Products

in all Segments (China), 2010–2020E

Source: CIC

Note: sales value refers to the LED beads produced in China only, including domestic sales and export.

The sales value of LED beads for production of backlight LED products in small segment

achieved a sales value of RMB3,427.6 million in 2015, taking a large share of the overall sales

value of LED beads for the entire backlight LED product market, which was about 36.6% and

mainly attributed to the development of mobile phones market, especially smartphones segment. It

is expected to reach RMB4,975.5 million in 2020, with a CAGR of 7.7% from 2015 to 2020.

INDUSTRY OVERVIEW

– 54 –


In general, five to 20 pieces of backlight LED products are integrated in a backlight module

which is then integrated in a smartphone. The medium segment’s sales value reached RMB396.8

million in 2015, attaining a CAGR of 106.8% over the period from 2010 to 2015, and taking a

share of 4.2% of the overall sales value of LED beads for backlight LED product market.

Tablet PC is one of the major end-users of the LED beads in the medium segment. It is

estimated that each backlight module of a tablet PC requires the integration of around 20 to 40

pieces of backlight LED products. The market demand of tablet PC is therefore highly likely to

affect the LED product market. The growth of the medium segment is however expected to slow

down in the coming five years as the market gradually matures.

The large segment reached RMB5,532.2 million in 2015 in terms of sales value. The large

segment attained the largest market share of 59.1% in the overall backlight LED product market in

2015, with a CAGR of approximately 3.0% over the period between 2010 and 2015. According to

CIC, the slower growth rate of the segment was attributed to the high saturation of and fierce

competition in the large-sized LCD panel market.

Sales Volume of LED Beads for production of Backlight LED Products

in all Segments, China, 2010–2020E

Source: CIC

Note: Sales volume refers to the LED beads produced in China only, including domestic sales and export.

INDUSTRY OVERVIEW

– 55 –


Price analysis of key raw materials and LED beads in the PRC

Price Trends of Key Raw Materials Used in LED Beads Manufacturing forProduction of Backlight LED Products in Small and Medium Segments (China), 2010–2015

Source: CIC

Note: Prices of LED chip, bracket and gold wire mentioned above refer to the average prices of each raw materialused in the manufacturing of backlight LED beads for production of final electronic products in the smalland medium segments market. The price of gold wire refers to the typical 99.9% pure gold wire with thediameter of 28 micrometer.

The key raw materials of LED beads mainly consist of LED chip, bracket, gold wire,fluorescent powder and encapsulant which contribute to most of the cost of LED beads.

Among the key raw materials, LED chip contributed to the highest percentage ofmanufacturing cost of LED beads. The average price of LED chip was RMB0.051 per piece in2015 with a CAGR of negative 13.2% over the period from 2010 to 2015. The price reduction wasmainly caused by technical breakthrough in the manufacturing process of LED chips; and massproduction. However, a slight recover was observed in the first quarter of 2016 as the price of LEDchips increased to approximately RMB0.055 per piece. The average price of bracket was RMB0.023per piece in 2015 with a CAGR of negative 14.0% from 2010 to 2015. The cost of gold wirecontributed the least to the manufacturing cost of backlight LED beads. The price of gold wire wasRMB3.748 per meter in 2015 with a CAGR of negative 1.0% from 2010 to 2015.

Price Trend of Backlight LED Bead forProduction of Backlight LED Products in Small and Medium Segments

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50

Source: CIC

INDUSTRY OVERVIEW

– 56 –


The average price of LED beads for production small and medium segments in China was

RMB0.12 per piece in 2015 with a CAGR of negative 18.8% over the period from 2010 to 2015.

The price of LED beads is highly dependant on the price of raw materials. In the past few

years, the prices of raw materials of LED beads were sharply reduced due to technical

breakthrough. The decreasing price trend of LED beads is also due to, among others, the

widespread adoption of smartphone and tablet PC, etc which leads to mass production and

application of LED beads.

Trends and drivers

Consumer demand driven by new consumer electronics products

According to CIC, consumers in the PRC generally prefer portable and visually appealing

smartphones and tablet PCs, etc. With the short refresh cycle of consumer electronic products and

the increasing trend of consumers in the PRC owning more than one smartphone or tablet PC, the

market of consumer electronics products is expected to grow.

Penetration into international downstream market

Quality of the domestic backlight LED products is expected to improve along with the

continuous technological improvement, leading to an increased rate of acceptance and demand of

domestic backlight LED products by international downstream customers.

Industry merger and acquisition

Industry concentration is increasing and some small manufacturers which are not competitive

is likely to be eliminated. As a result, the technology, product quality and management level in the

overall industry are expected to develop further, which are advantageous to the industry to further

enlarge the market size.

Increasing demand from downstream smartphone manufacturers in the PRC

Chinese smartphone manufacturers have already earned a great reputation in the PRC’s

smartphone market, and thus benefit related backlight LED bead manufacturers in the PRC as their

major suppliers as well.

Increasing emphasis on the importance of intellectual property

In order to gain competitive strength and expand to western market, more and more LED bead

manufacturers in the PRC began the strategic cooperation with Toyoda Gosei in the production of

white light LED products.

INDUSTRY OVERVIEW

– 57 –


Wider application of LED products

The LED products are expected to be widely used in more application creating a large growth

potential for the market.

Government Support

The PRC government supports the companies to use local materials to speed up the research

and development of new technology and to build up co-operation with international companies.

Future opportunities and threats to China’s backlight LED beads

Demands for smartphones with larger screen is expected to drive the markets

The smartphone manufacturers tend to design large screen products to enhance the user

experience, which will lead to smartphone manufacturers increasing the production of large screen

smartphones, and demand for LED beads will increase in the process.

Opportunity for high-end products

The per capita disposable income of urban households in China grows with a CAGR of 10.3%

from 2010 to 2015.

The standard of living will likely improve along with the increase in per capita disposable

income, which leads to an increase in the demand for better quality electronic products, such as

smartphone and tablet PC, etc. As a result, it is expected that an increasing number of consumers

will replace their low-end electronic products with high-end electronic products, which will further

drive the growth of high-end LED beads.

Opportunity for export

The overall quality of domestic LED beads is expected to improve with the continuous

technology advancement. Thus, international downstream customers are more likely to purchase

LED beads from China.

Threats from new entrants

Some large LED manufacturers plan to join the competition of production and sale of LED

beads because of existing gross profit margin. Once the research and development work engaged by

these new entrants has become successful, the existing market players will have to face the threats

from these newcomers.

Potential overcapacity problem

The LED industry has experienced a rapid growth during the past few years. With more

intensive competition and decreasing gross margin, overcapacity may be a potential problem in the

future.

INDUSTRY OVERVIEW

– 58 –


Competitive landscape of the market for backlight LED beads

The LED beads supplied for production of backlight LED products in small and medium

segments, which together accounted for approximately 40.9% of the market share of the overall

market for backlight LED products in the PRC in 2015 in terms of sales value. There were around

60 enterprises engaged in production of LED beads for the small and medium segments of the

backlight LED product market by the end of 2015, which reflect that these two segments were

relatively concentrated. The top five leading producers contributed a sales value of approximately

RMB1,443.7 million in 2015, representing approximately 37.7% of the market share in the

production of LED beads for the small and medium segments of China’s backlight LED product

market, while our Group attained a market share of approximately 3.0% in the said market of the

same year.

The chart below sets forth the competitive landscape by sale value of the top five

manufacturers in the small and medium segments in the PRC in 2015.

Ranking of the Top 5 Manufacturers in LED Beads for Small and Medium Segments

of Backlight LED Product Market by Sales Value (China), 2015

Rank Company Name Sales Value Market Share

(RMB million)

1 Company A 678.7 17.7%

2 Company B 280.0 7.3%

3 Company C 260.0 6.8%

4 Our Group 115.0 3.0%

5 Company D 110.0 2.9%

Subtotal 1,443.7 37.7%

Others 2,380.7 62.3%

Total 3,824.4 100.0%

Source: CIC

Entry barriers

Technology requirement

Higher lighting effect, increased life time, and better performance stability are required for

LED beads to optimise the display effectiveness of panels. The technology of LED beads

production is complex and it is not easy to master in a short-term.

The well-established and leading companies are able to provide products of high quality,

which can satisfy the needs of consumers. New entrants with insufficient technology accumulation

and limited knowhow experience will be difficult to produce products that can meet the strict

industry criteria in a short period of time.

INDUSTRY OVERVIEW

– 59 –


Cost control

The management of LED beads production is complex. A well cost control requires rich

experience in the purchasing, production and marketing of the LED beads products. It is difficult

for new entrants to reduce the cost so as to increase their competitiveness. Hence, a well cost

control sets a high barrier for the new entrants to have a further development in the market.

Solid clientele

Most of the downstream customers tend to build a strong and long-term relationship with

reliable suppliers of LED beads. Customers in the market do not frequently switch from a reliable

supplier with established relationship to a new one, as such change may disrupt the already staple

supply of high-quality products. Therefore, it becomes particularly difficult for a new entrant to

solicit customers.

Scale effect

The industry became increasingly concentrated after the intense competition in the backlight

LED product market in the past years. As a result, the leading companies are more likely to enjoy

the benefit of economies of scale.

It is not easy for new entrants to rapidly grow into a scale company in a short period of time.

Strength analysis of our group

Technology and equipment

Our Company is well equipped with automated encapsulation machineries and equipment for

our production process, which give us high production capacity.

Stable customer relationship

Our Group has established stable relationship with our customers.

Experienced management team

We have an experienced management team with more than five years of working experience in

LED related industry.

Please refer to the section headed ‘‘Business — Competitive strengths’’ in this [REDACTED]

for further details of our competitive strengths.

INDUSTRY OVERVIEW

– 60 –


OVERVIEW OF THE LED LIGHTING PRODUCT INDUSTRY IN THE PRC

Development of the LED lighting product industry in the PRC

Sales Value of LED Lighting Product Industry by Application, China, 2010–2020E

Source: CIC

The overall LED lighting product industry in the PRC by sales value reached approximately

RMB22.3 billion in 2015, with a CAGR of approximately 36.0% from 2010 to 2015.

Attributed to (i) the policies issued by the PRC government to (a) phase out and prohibit the

importation and sales of traditional electric incandescent lamps and (b) promote the adoption of

LED lighting products; (ii) the reduction in the average prices of LED lighting products due to

advancement of technology, which stimulates the demand from the end consumer market; and (iii)

the growth of the PRC economy, it is anticipated that the penetration rate of LED lighting products

will further increase. The sales value of the overall LED lighting industry is expected to reach

approximately RMB68.6 billion by 2020, representing a CAGR of approximately 25.2% from 2015

to 2020.

The LED lighting product industry can be divided into four markets by application, which

consists of the industrial, outdoor, residential and commercial market.

INDUSTRY OVERVIEW

– 61 –


Price analysis of the LED lighting product industry in the PRC

Price Analysis of LED Lighting Product Industry, China, 2010–2015

Source: CIC

The average price of LED lighting products in the PRC had decreased during the past five

years due to the decrease in raw material costs caused by technology advancement. The average

price of 7W LED lighting products decreased from approximately RMB134.5 per unit in 2010 to

RMB25.2 per unit in 2015. The average price of 9W LED lighting products decreased from

approximately RMB172.8 per unit in 2010 to RMB27.9 per unit in 2015. The price of LED lighting

products is still experiencing the downward trend. However, with the PRC government’s effort to

eliminate overcapacity in the LED lighting product industry, the price of LED lighting products in

the PRC is expected to be stabilised after 2018.

Trends and drivers

Continuous cost reduction stimulates the market demand

Both the prices of LED chips and LED lighting products had been decreased during the past

five years. In 2015, the price per LED lighting products was below RMB30 for both 7W and 9W

LED lighting products. Such continuing price reduction will stimulate the market demand.

The consideration of environmental protection increases the replacement market

The manufacturing process of fluorescent lamps involves mercury, which is harmful to the

environment. Compared to fluorescent lamps, LED lighting products are relatively more

environmental friendly as they contain no mercury and consume significantly less energy. Thus,

LED lighting products are anticipated to replace fluorescent lamps gradually.

Government regulations on phasing out traditional lighting products increase the LED lighting

product penetration rate

The PRC government had promulgated certain plans which aim at phasing out or prohibiting

the sales of electric incandescent lamps, which are likely to increase the LED lighting product

penetration rate.

INDUSTRY OVERVIEW

– 62 –


Future opportunities and threats to the LED lighting product industry in the PRC

Competitive price of LED lighting products and increasing market demand

Benefiting from the advancement of LED lighting technology, the average price of LED

lighting products had gradually decreased during the past years and become closer to that of

traditional lighting products. As a result, market demand for LED lighting products, e.g. from the

residential lighting market and commercial lighting market, is expected to grow.

Opportunity for export

As the LED lighting industry matures and more stringent regulations being enforced, the

overall product quality of the industry is expected to be improved. As a result, it is anticipated that

more international customers will import LED lighting products from the PRC.

Over supply market environment and reduced net profit

Due to the PRC government policies on promoting the adoption of LED lighting products, the

number of newly established LED lighting product manufacturing plants has increased rapidly over

the past few years. The possible over supply market environment is likely to cause price war among

large manufacturers and reduce the net profit rate of the overall industry.

Competitive landscape of LED lighting product industry

The LED lighting product industry in the PRC is rather fragmented. In 2015, the production

value of the LED lighting industry in the PRC was approximately RMB33.7 billion, which were

contributed by around 1,000 LED lighting product manufacturers. It is expected that the number of

LED lighting product manufacturers will continue to increase in the coming years.

In 2015, the LED lighting product manufacturers in the Guangdong province of the PRC

accounted for more than 60% of the market share of the LED lighting market in the PRC. As the

development of our LED lighting products is only at reception stage, the market share of our Group

is negligible in 2015.

INDUSTRY OVERVIEW

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This section sets out summaries of certain major laws and regulations, which are relevant to

our Group’s business and operation.

PRC LAWS AND REGULATIONS

Our Group’s business activities are principally based in the PRC. We are therefore required to

comply with a number of PRC laws and regulations to carry out our operating activities. The major

PRC laws and regulations applicable to the business of our Company and its PRC subsidiary is set

out below.

1. Laws and Regulations Relating to Foreign Investment

The establishment, operation and registration of corporate entities in the PRC are governed by

such applicable laws in the PRC as the Company Law of the PRC (〈中華人民共和國公司法〉) (the

‘‘PRC Company Law’’), which was promulgated on 29 December 1993 and amended on 25

December 1999, 28 August 2004, 27 October 2005 and 28 December 2013, and the Regulations of

the PRC on the Administration of Company Registration (〈中華人民共和國公司登記管理條例〉)

(the ‘‘Regulations on Company Registration’’), which was promulgated on 24 June 1994 and

amended on 18 December 2005 and 19 February 2014. According to the PRC Company Law and

the Regulations on Company Registration, except where laws on foreign investment stipulate

otherwise, the PRC Company Law and the Regulations on Company Registration also apply to

foreign-invested limited liability companies.

The establishment, alteration and approval procedures, and the registered capital requirements,

foreign exchange, accounting practices, taxation and labour matters of a wholly foreign-owned

enterprise are regulated by the Wholly Foreign-owned Enterprise Law of the PRC (〈中華人民共和

國外資企業法〉) (the ‘‘Wholly Foreign-owned Enterprise Law’’), which was promulgated on 12

April 1986 and amended on 31 October 2000, the Implementation Rules to the Wholly Foreign-

owned Enterprise Law of the PRC (〈中華人民共和國外資企業法實施細則〉) (the ‘‘Implementation

Rules’’), which was promulgated on 12 December 1990 and amended on 12 April 2001 and 19

February 2014.

Any investments in the PRC by foreign investors and foreign-owned enterprises (the ‘‘Foreign

Party’’) is governed by the Provisions on Guiding the Orientation of Foreign Investment (〈指導外

商投資方向規定〉) (the ‘‘Provisions’’), which was promulgated on 11 February 2002 and came into

effect on 1 April 2002, and the Guidance Catalogue of Industries for Foreign Investment (〈外商投

資產業指導目錄〉) (the ‘‘Catalogue’’), the latest version of which was promulgated by the Ministry

of Commerce of the PRC (商務部) (the ‘‘Ministry of Commerce’’) and the National Development

and Reform Commission (國家發展和改革委員會) on 10 March 2015 and came into effect on 10

April 2015.

The Provisions and the Catalogue divide foreign investment industries into three categories:

the encouraged industries, the restricted industries, and the prohibited industries. Industries listed in

the encouraged category are opened to the foreign investors who usually can further enjoy

supportive policies of the local government. Investment in the restricted industries can only be

LAWS AND REGULATIONS

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conducted by the foreign investors within the scope of the relevant regulatory authority’s approval

or in the form of Sino-foreign equity or contractual joint ventures (usually with Chinese investors

as the majority shareholder required). Prohibited industries are closed to foreign investment.

Industries which are not listed in the Catalogue are generally classified as the permitted industries.

The subsidiary of our Group in the PRC is operating in the industry of the design, development,

manufacture and sales of diverse LED lighting products, which is a permitted industry as not to be

listed in the Catalogue.

2. Laws and Regulations Relating to Importation and Exportation of Goods

Pursuant to the Foreign Trade Law of the PRC (〈中華人民共和國對外貿易法〉)，which was

promulgated on 12 May 1994 and amended on 6 April 2004, and the Measures for the Record-

keeping and Registration by Foreign Trade Dealers (〈對外貿易經營者備案登記辦法〉) (the

‘‘Record-keeping and Registration Measures’’), which was promulgated on 25 June 2004 and came

into effect on 1 July in the same year, foreign trade dealers who are engaged in the import or

export of goods or technologies shall register with the Ministry of Commerce or its authorized

bodies unless such registration is not required under the laws and administrative regulations and/or

by the Ministry of Commerce.

Pursuant to the Administrative Provisions for the Registration of Customs Declaration Entities

by the PRC Customs Authorities (〈中華人民共和國海關報關單位註冊登記管理規定〉), which was

promulgated on 13 March 2014 and came into effect on the same day, ‘‘consignor or consignee of

export or import goods’’ means any legal person, other organisation or individual that directly

imports or exports goods within the territory of the PRC. Consignors or consignees of import or

export goods shall go through registration formalities with their local Customs authorities in

accordance with the applicable provisions. After completing the registration formalities with

Customs authorities, consignors or consignees of import or export goods may handle their own

declarations at any customs port or any locality where customs supervisory affairs are concentrated

within the customs territory of the PRC. Also, a PRC Customs Declaration Registration Certificate

for Consignor or Consignee of Import or Export Goods shall be valid for a period of two years.

Pursuant to the Customs Law of the PRC* (中華人民共和國海關法) promulgated by the

Standing Committee of the NPC on 22 January 1987 and amended on 8 July 2000, 29 June 2013

and 28 December 2013 and related regulations, unless otherwise stipulated the declaration of import

and export goods may be made by consignees and consignors themselves, and such formalities may

also be completed by their entrusted PRC Customs brokers that have registered with the PRC

Customs. The consignees and consignors for import or export goods and the PRC Customs brokers

engaged in the PRC Customs declaration shall register with the PRC Customs, and no enterprises or

persons can make declarations without registering with the PRC Customs or obtaining the relevant

qualifications for declaration in accordance with the law.

Principal regulations on the inspection of import and export commodities are set out in the

Law of the PRC on Import and Export Commodity Inspection* (中華人民共和國進出口商品檢驗

法) promulgated by the Standing Committee of the NPC on 21 February 1989 and amended on 28

April 2002 and 29 June 2013 and its implementation rules. According to the aforesaid law and its


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implementation regulations, the Administration of Quality Supervision, Inspection and Quarantine

of the PRC* (中華人民共和國國家質量監督檢驗檢疫總局) (‘‘AQSIQ’’) shall be in charge of the

inspection of import and export commodities throughout the country. The local inspection and

quarantine authorities set up by AQSIQ shall be responsible for the inspection of import and export

commodities within areas under their jurisdiction. The import and export commodities that are

subject to compulsory inspection listed in the catalogue compiled by the state administration shall

be inspected by the commodity inspection authorities, and the consignor shall apply to the

inspection and quarantine authorities for inspection in the places and within the time limit specified

by AQSIQ. No permission shall be granted for the export of export commodities subject to

mandatory inspection by the inspection and quarantine authorities until they have been found to be

up to standard through inspection. While the import and export commodities that are not subject to

statutory inspection shall be subject to random inspection. Consignees and consignors themselves or

its entrusted agent may apply for inspection to the commodity inspection authorities.

3. Laws and Regulations Relating to Taxation

Enterprise Income Tax

Pursuant to the Enterprise Income Tax Law of the PRC (〈中華人民共和國企業所得稅

法〉) (the ‘‘EIT Law’’) and its implementation rules, which was promulgated on 16 March

2007 and became effective on 1 January 2008, tax payers are divided into resident enterprises

and non-resident enterprises. A resident enterprise refers to an enterprise that is established

within the PRC, or which is established under the law of a foreign country (region) but whose

actual institution of management is within the PRC. A resident enterprise shall pay the

enterprise income tax on its incomes derived from both within and outside the PRC at the rate

of 25%. A non-resident enterprise refers to an enterprise established under the law of a foreign

country (region), whose actual institution of management is not within the PRC but which has

offices or establishments within the PRC; or which does not have any offices or

establishments within the PRC but has income sources in the PRC. A non-resident enterprise

having offices or establishments within the PRC shall pay enterprise income tax on its

incomes derived from the PRC as well as on incomes derived from outside the PRC but which

has real connection with the said offices or establishments at the rate of 25%. A non-resident

enterprise having no office or establishment within the PRC, or whose incomes have no actual

connection to its institution or establishment within the PRC shall pay enterprise income tax

on the incomes derived from the PRC at the rate of 20%.

Value-added Tax

Pursuant to the Provisional Regulations on Value-added Tax of the PRC (〈中華人民共和

國增值稅暫行條例〉) (the ‘‘Provisional Regulations on VAT’’) which was promulgated on 13

December 1993 and amended on 10 November 2008 and Detailed Rules for the

Implementation of the Interim Regulation of the People’s Republic of China on Value Added

Tax (〈中華人民共和國增值稅暫行條例實施細則〉) which was promulgated on 25 December

1993 and amended on 28 October 2011, all entities or individuals in the PRC engaging in the

sale of goods, provision of processing services, repairs and replacement services and the


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importation of goods are required to pay value-added tax (‘‘VAT’’). VAT payable is calculated

as ‘‘output VAT’’ minus ‘‘input VAT’’. The rate of VAT is usually 17%, and in certain limited

circumstances is 13%, subject to the products involved.

Income Tax on Share Transfer of Non-resident Enterprise

Pursuant to the Notice of the State Administration of Taxation on Strengthening the

Administration of Enterprise Income Tax on Gain Derived from Equity Transfer Made by

Non-Resident Enterprises (國家稅務總局關於加強非居民企業股權轉讓所得企業所得稅管理

的通知, the ‘‘Notice 698’’) promulgated by the State Administration of Taxation (中華人民共

和國國家稅務總局) (the ‘‘SAT’’) and came into effect from 1 January 2008, and the

Announcement of the State Administration of Taxation on Several Issues Concerning the

Enterprise Income Tax on Indirect Property Transfer by Non-Resident Enterprises (國家稅務

總局關於非居民企業間接轉讓財產企業所得稅若干問題的公告, the ‘‘Announcement No. 7’’)

promulgated by SAT and came into effect on 3 February 2015, where a non-resident enterprise

indirectly transfers properties such as equity in Chinese resident enterprises without any

reasonable commercial purposes with the aim of avoiding to pay enterprise income tax, such

indirect transfer shall be reclassified as a direct transfer of equity in Chinese resident

enterprise in accordance with Article 47 of the EIT Law. Indirect transfer of Chinese taxable

properties shall mean transactions of non-resident enterprises which are carried out through

transfer of equity of enterprises abroad that directly or indirectly hold Chinese taxable

properties (not including the Chinese resident enterprises registered abroad, hereinafter

referred to as ‘‘enterprises abroad’’) and other similar equities (hereinafter referred to as

‘‘equity’’) and cause the concrete results same as or similar to that of direct transfer of

Chinese taxable properties, including the circumstance that the restructuring of non-resident

enterprises causes changes of shareholders of enterprises abroad. Non-resident enterprises that

indirectly transfer Chinese taxable properties are referred to as equity transferor.

According to the Announcement No. 7, indirect transfer of Chinese taxable properties

that meets all of the following conditions shall be deemed as having a reasonable commercial

purpose:(1) the equity relationship of the parties involved in the transfer falls under one of the

following circumstances: (i) equity transferor directly or indirectly owns more than 80% of the

equity of the equity transferee; (ii) equity transferee directly or indirectly owns more than 80%

of the equity of the equity transferor; or (iii) more than 80% of the equity of both equity

transferor and equity transferee is owned by the same party. If more than 50% (not including

50%) of the value of the equity of an enterprise abroad is directly or indirectly from the real

estate in the territory of the PRC, the proportion in items (i), (ii) and (iii) of Paragraph 1 of

this article shall be 100%. The aforesaid equity indirectly held shall be calculated based on the

product of the shareholding ratios of all enterprises in the shareholding chain; (2) compared

with the same or similar indirect transfer occurred without this indirect transfer, the burden of

taxation in the PRC will not be reduced on the indirect transfer that may occur again after this

indirect transfer; and (3) equity transferee pays all the equity transfer consideration with its

equity or equity of enterprises controlled by it (not including equity of listed enterprises).


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Withholding Tax on Dividends

According to the EIT Law and its implementation rules, non-resident enterprises which

have not set up institutions or premises in the PRC, or where the institutions or premises are

set up but its subsidiary’s after-tax income has no actual relationship with such institutions or

premises shall be subject to the withholding tax of 10% on income derived from the after-tax

profit of its subsidiary. According to the Arrangements between the Mainland of the PRC and

Hong Kong Special Administrative Region on the Avoidance of Double Taxation and

Prevention of Fiscal Evasion With Respect to Taxes On Income (《內地和香港特別行政區關

於對所得避免雙重徵稅和防止偷漏稅的安排》), profit derived by a foreign investor residing

in Hong Kong from PRC enterprise in which such foreign investor owns directly at least 25%

equity interest is subject to the tax rate of 5% after obtaining the approval from the relevant

tax bureau.

Pursuant to the Circular of the State Administration of Taxation on Relevant Issues

relating to the Implementation of Dividend Clauses in Tax Treaties (《國家稅務總局關於執行

稅收協定股息條款有關問題的通知》), which was promulgated by the SAT and became

effective on 20 February 2009, all of the following requirements shall be satisfied for a party

to a tax agreement to be entitled to the tax rate specified in the tax agreement for dividends

paid to it by a PRC resident company: (i) such a fiscal resident who obtains dividends should

be our company as provided in the tax agreement; (ii) owner’s equity interests and voting

shares of the PRC resident company directly owned by such a fiscal resident reaches a

specified percentage; and (iii) the equity interests of the PRC domestic company directly

owned by such a fiscal resident, at any time during the twelve months prior to the obtainment

of the dividends, shall reach the percentage specified in the tax agreement.

According to the Administrative Measures for Non-resident Taxpayers to Enjoy

Treatments under Tax Treaties (《非居民納稅人享受稅收協定待遇管理辦法》) (the

‘‘Administrative Measures’’), which was promulgated on 27 August 2015 and came into force

on 1 November 2015, if the non-resident taxpayers are qualified for enjoying the favorable tax

benefits under the tax arrangements, they could enjoy such benefits of themselves from the tax

authority when they or their withholding agents make declarations to the relevant tax

authority. Under the Administrative Measures, when the non-resident taxpayers or their

withholding agents make declarations to the relevant tax authority, they should deliver the

relevant reports and materials to the tax authority and such non-resident taxpayers and

withholding agents will be subject to the follow-up management of the tax authority.

Export Tax Rebate

According to the Provisional Regulations on VAT and the Notice of the Ministry of

Finance and the State Administration of Tax on the Policies of Value-added Tax and

Consumption Tax Applicable to Exported Goods and Services (財務部、國家稅務總局關於出

口貨物勞務增值稅和消費稅政策的通知) which came into effect since 1 January 2011, goods

and services exported by export-oriented enterprises shall be eligible for VAT exemption and


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rebate policies. In accordance with the regulations on the export tax rebate rate, export

commodities have different tax rebate rates depending on the different types, respectively 5%,

9%, 13%, 15%, 16% and 17%.

4. Laws and Regulations Relating to Foreign Exchange

Foreign Currency Exchange

The principal regulation governing foreign currency exchange in the PRC is the Foreign

Exchange Administration Rules of the PRC (〈中華人民共和國外匯管理條例〉) (the ‘‘Foreign

Exchange Administration Rules’’), which was promulgated on 29 January 1996 and amended

on 14 January 1997 and 5 August 2008. Under Foreign Exchange Administration Rules, the

Renminbi is generally freely convertible for payments of current account items, such as trade

and service-related foreign exchange transactions and dividend payments, but not freely

convertible for capital account items, such as capital transfers, direct investment, investment in

securities, derivative products or loans, unless prior approval of the Sate Administration of

Foreign Exchange (‘‘SAFE’’) or of its branches was obtained.

Under the Foreign Exchange Administration Rules, foreign-invested enterprises in the

PRC may purchase foreign exchange without the approval of the foreign exchange

administrative authority for paying dividends by providing certain evidencing documents

(board resolutions, tax certificates, etc.), or for trade and services-related foreign exchange

transactions by providing commercial documents evidencing such transactions. They are also

allowed to retain foreign currency (subject to a cap approval by SAFE) to satisfy foreign

exchange liabilities. In addition, foreign exchange transactions involving overseas direct

investment or investment and exchange in securities, derivative products abroad are subject to

registration with SAFE and approval or filing with the relevant governmental authorities (if

necessary).

On 30 March 2015, SAFE promulgated Notice of the State Administration of Foreign

Exchange on Reforming the Management Mode of Foreign Exchange Capital Settlement of

Foreign Investment Enterprises (《國家外匯管理局關於改革外商投資企業外匯資本金結匯管

理方式的通知》) to reform the management approach regarding the settlement of the foreign

exchange capital of foreign-invested enterprises. The notice implemented a discretional foreign

exchange settlement where the foreign exchange capital in the capital account of foreign-

invested enterprises for which the confirmation of rights and interests of monetary contribution

by the local foreign exchange bureau (or the book-entry registration of monetary contribution

by the banks) has been handled can be settled at the banks based on the actual operation needs

of the enterprises.

Dividend Distribution

The principal regulations governing distribution of dividends paid by wholly foreign-

owned enterprises include (i) the Company Law; (ii) the ‘‘Wholly Foreign-owned Enterprise

Law’’; and (iii) the ‘‘Implementation Rules to Wholly Foreign-owned Enterprise Law’’. Under


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the above laws and regulations, wholly foreign-owned enterprises in the PRC may pay

dividends only from accumulated after-tax profits, if any, determined in accordance with the

PRC accounting standards and regulations. In addition, such enterprises are required to set

aside at least 10% of their after-tax profits each year, if any, to fund certain reserve funds

unless these accumulated reserves have reached 50% of the registered capital of the

enterprises. These reserves are not distributable as cash dividends. Under the relevant PRC

laws, no net assets other than the accumulated after-tax profits can be distributed in the form

of dividends.

Overseas Investment by Domestic Residents

Notice of the State Administration of Foreign Exchange on the Administration of Foreign

Exchange Involved in Overseas Investment and Financing and Return on Investment

Conducted by PRC Residents via Special-Purpose Companies (國家外匯管理局關於境內居民

通過特殊目的公司境外投融資及返程投資外匯管理有關問題的通知) (‘‘SAFE Circular No.

37’’), which was promulgated and effective on 4 July 2014, replaces Notice of the State

Administration of Foreign Exchange on the Administration of Foreign Exchange Involved in

Financing and Return on Investment Conducted by PRC Residents via Special-Purpose

Companies (國家外匯管理局關於境內居民通過境外特殊目的公司融資及返程投資外匯管理

有關問題的通知) (‘‘SAFE Circular No. 75’’). According to SAFE Circular No. 37, prior to

making contribution to a Special-Purpose Company (‘‘SPC’’) with legitimate holdings of

domestic or overseas assets or interests, a Mainland resident shall apply to the relevant

Foreign Exchange Bureau for foreign exchange registration of overseas investment. Mainland

resident individuals shall refer to Chinese citizens holding the identity cards for Mainland

residents, military identity documents or identity documents for Chinese armed police force,

and overseas individuals who do not hold any Mainland legal identity document, but who

have habitual residences within the territory of the PRC due to relationship of economic

interests. After a SPC has completed overseas financing, if the funds raised are repatriated to

the Mainland for use, relevant Chinese provisions on foreign investment and external debt

management shall be complied with.

Under the relevant rules, failure to comply with the registration procedures set forth in

SAFE Circular No. 37 may result in restrictions being imposed on the foreign exchange

activities of the relevant onshore company, including the increase of its registered capital, the

payment of dividends and other distributions to its offshore parent or affiliate and the capital

inflow from the offshore entity, and may also incur penalties under PRC foreign exchange

administration regulations to relevant domestic resident.

On 13 February 2015, SAFE promulgated the Circular on Further Simplifying and

Improving Direct Investment-related Foreign Exchange Administration Policies (國家外匯管理

局關於進一步簡化和改進直接投資外匯管理政策的通知) (Huifa [2015] No. 13, ‘‘Circular

No. 13’’), which went into effect on 1 June 2015. Circular No. 13 simplifies the foreign

exchange registration procedures for foreign direct investment and overseas direct investment,

enables enterprises to handle it in a designated foreign exchange bank, and abolishes the


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capital contribution confirmation registration procedures. The foreign exchange registration

procedure for direct investment is delegated to local banks which, after reviewing the

documents a foreign-invested enterprise submits, will complete the registration through the

online Capital Account Information System managed by SAFE.

5. Laws and Regulations Relating to Market Competition, Product Quality and Consumer

Right Protection

Anti-Unfair Market Competition

Competitions among the business operators in the PRC are generally governed by the

Anti-Unfair Competition Law of the PRC (〈中華人民共和國反不正當競爭法〉) (the ‘‘Anti-

Unfair Competition Law’’)，which was promulgated on 2 September 1993 and came into

effect on 1 December 1993.

According to the Anti-Unfair Competition Law, corporations, other economic

organizations and individuals who are engaging in the trading of goods or profit-making

services shall abide by the principles of voluntariness, equality, fairness, honesty and

credibility, and observe generally recognised business ethics. Operators shall not conduct acts

that damage the lawful rights and interests of other operators or that disturb the socio-

economic order. Such acts include, but do not limit to counterfeit, libel, malicious exclusion,

commercial bribery and secret infringement.

Product Quality

Product quality supervision in the PRC is generally governed by the Product Quality Law

of the PRC (〈中華人民共和國產品質量法〉) (the ‘‘Product Quality Law’’), which was

promulgated on 22 February 1993 and amended on 8 July 2000. Producers and sellers shall

be liable for product quality in accordance with the Product Quality Law.

Under the Product Quality Law, consumers or other victims who suffer personal injury or

property damage due to product defects may claim compensation from the producer as well as

the seller. The producer and the seller shall be jointly liable for the compensation. In case of

violations of the Product Quality Law, the responsible authorities have the right to impose

fines on the violators, order them to suspend operation, and revoke their business licenses. In

serious cases, even criminal liability may be incurred.

Protection of Consumer Rights

The Law of the PRC on the Protection of Consumer Rights and Interests* (中華人民共和

國消費者權益保護法) (the ‘‘Consumer Protection Law’’) was promulgated on 31 October

1993 and the latest edition was amended on 25 October 2013 by the Standing Committee of

the NPC. Business operators must abide by this law when manufacturing or selling

commodities or when rendering services to consumers.


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The Consumer Protection Law sets out obligations that business operators must fulfill in

their dealings with consumers, including the following:

. commodities and services provided to consumers must comply with the Product

Quality Law and other relevant laws and regulations, including requirements for

personal and property safety;

. consumers must be provided with authentic information without false or misleading

propaganda concerning their commodities and services, as well as truthful and

definite replies to inquiries concerning the quality and use of commodities or

services provided to them;

. purchase invoices or service vouchers must be issued to consumers in accordance

with relevant national regulations or commercial practices;

. the quality and functioning of the commodities or services under normal business

operations must be ensured, and the actual quality of the commodities or services

must be consistent with what is displayed in advertising materials, product

descriptions or product samples;

. responsibilities such as guaranteed repair, replacement and return must be properly

performed in accordance with national regulations or agreements with consumers;

and

. unreasonable or unfair terms on consumers or terms or practices that exclude the

business operator from civil liability or undermine the legal rights and interests of

consumers by means of, among others, standard contracts, circulars, announcements

or shop notices should not be imposed.

Violations of the Consumer Protection Law may result in the imposition of fines. In

addition, the business operator may be ordered to suspend its operations and its business

license may be revoked. Criminal liability may be incurred in serious cases.

According to the Consumer Protection Law, a consumer whose legal rights and interests

are infringed upon during the purchase or use of commodities may claim compensation from

the seller. Where the responsibility lies with the manufacturer or another seller that provides

the commodities to the seller, the seller shall, after settling compensation, have the right to

recover such compensation from that manufacturer or that other seller. Consumers or other

victims who suffer personal injury or property damage due to product defects in certain

commodities may demand compensation from the manufacturer as well as the seller. Where

the responsibility lies with the manufacturer, the seller shall after settling compensation, have

the right to recover such compensation from the manufacturer, and vice versa.


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6. Laws and Regulations Relating to Environmental Protection

The Environmental Protection Law of the PRC (中華人民共和國環境保護法) (the

‘‘Environmental Protection Law’’) became effective on 26 December 1989 and was amended on 24

April 2014. The Regulations on the Administration of Construction Project Environmental

Protection (建設項目環境保護管理條例) (the ‘‘Administration Regulations’’) was promulgated and

became effective on 29 November 1998, and amended on 27 February 2003. According to the

Environmental Protection Law and the Administration Regulations:

(a) enterprises, public institutions and other producers and business operators that discharge

pollutants shall take measures to prevent and control the environmental pollution and

harm caused by waste gas, waste water, waste residues, medical waste, dust, malodorous

gases, radioactive substances, noise, vibration, optical radiation and electromagnetic

radiation, etc. generated during production, construction or other activities;

(b) a statement on environmental impact should be compiled for a construction project that

may cause light impact on the environment, giving analysis or special-purpose evaluation

of the pollution generated and environmental impact caused by the construction project;

and a registration form should be filled out and submitted for a construction project that

has slight impact on the environment and necessitates no environmental impact

evaluation; and

(c) the enterprises, public institutions and other producers and business operators shall

discharge pollutants according to pollutant emission license and shall not discharge

pollutants without obtaining the pollutant emission license. Where an enterprise, public

institution or other producer or business operator is fined and ordered to make correction

due to illegal discharge of pollutants but refuses to make correction, the administrative

organ that makes the punishment decision pursuant to the law may impose the fine

thereon consecutively on a daily basis according to the original amount of the fine

commencing from the date immediately following the date when it is ordered to make

correction. Where an enterprise, public institution or other producer or business operators

discharges pollutants in excess of the pollutant emission standards or the control targets

for total emission volume of major pollutants, the competent departments for

environmental protection of the people’s governments at or above the county level may

order it to restrict production, stop production for rectification or take any other

measures, or, if the circumstances are serious, may order it to stop operations or close

down after such an order has been reported to the people’s government with approval

authority for approval. The competent department of environmental protection of the

State Council shall conduct unified supervision and administration of the environmental

protection work throughout the country. The competent departments of environmental

protection of the local people’s governments at or above the county level shall conduct

unified supervision and administration of the environmental protection work within their

respective administrative regions. Different penalties shall be imposed against persons or


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enterprises in violation of the Environmental Protection Law depending on the individual

circumstances and the extent of contamination. Such penalties include fines, the

suspension of operations or shut-down or orders to close down or criminal responsibility.

7. Laws and Regulations Relating to Fire Safety and Production Safety

Fire Safety

According to the Fire Control Law of the PRC (〈中華人民共和國消防法〉), which was

promulgated on 29 April 1998 and amended on 28 October 2008, the fire safety facility design

and construction of a construction project shall conform to the state technical standards on fire

control. The construction, design, contractor and the supervision units shall be legally liable

for the quality of the fire safety design and construction of the project. Upon the completion

of a construction project containing a fire control design conducted in accordance with

requirements of the State Technical Standards on Fire Control for Engineering Construction,

the project must go through acceptance check or filing on fire control in accordance with the

relevant provisions.

Production Safety

According to the Production Safety Law of the PRC (〈中華人民共和國安全生產法〉),

which was promulgated on 29 June 2002 and amended on 27 August 2009 and 31 August

2014, production units shall comply with this law and other laws and regulations relevant to

production safety, strengthen production safety management, establish and optimize the

production safety responsibility system, improve the production safety conditions and ensure

the safety of production. Persons in charge of the production unit shall be fully responsible for

the production safety of the unit. Employees in the production unit are entitled to be secured

of production safety and shall carry out its own obligations with respect to the production

safety. For those do not comply with the laws, the regulatory authorities have the right to

impose fines, order them to suspend operations and revoke their business licenses. Criminal

liability may be incurred in serious cases.

8. Laws and Regulations Relating to Labour and Social Insurance

Labour and Employment

According to the Labour Law of the PRC (〈中華人民共和國勞動法〉) which was

promulgated on 5 July 1994 amended on 27 August 2009 and the Labour Contract Law of the

PRC (〈中華人民共和國勞動合同法〉) which was promulgated on 29 June 2007, came into

effect on 1 January 2008 and amended on 28 December 2012, to establish a labour

relationship, a written labour contract should be concluded. The wages paid by the employer

to the employee shall not be less than the minimum wage rate in the place where the employer

is located. In certain circumstances, financial compensation shall be paid to the employee if

the employer terminates its employment relationship with the employee. The employer shall

provide relevant education and training to the employee. Employers are also required to


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provide healthy and safety working conditions in conformity with the relevant national rules

and standards and provide regular healthy checks for the employees who are engaged in

hazardous work.

Social Insurance

Pursuant to the PRC Social Insurance Law (中華人民共和國社會保險法) promulgated

on 28 October 2010, which became effective on 1 July 2011, employers in the PRC must

register with the relevant social insurance authority and make contributions to the pension

insurance fund, basic medical insurance fund, unemployment insurance fund, maternity

insurance fund and work-related injury insurance fund. Pursuant to the PRC Social Insurance

Law, pension insurance, basic medical insurance and unemployment insurance contributions

must be paid by both employers and employees, while work-related injury insurance and

maternity insurance contributions must be paid solely by employers. An employer must

declare and make social insurance contributions in full and on time. The social insurance

contributions payable by employees must be withheld and paid by employers on behalf of the

employees. Employers who fail to register with the social insurance authority may be ordered

to rectify the failure within a specific time period. If the employer fails to rectify the failure to

register within a specified time period, a fine of one to three times the actual premium may be

imposed. If the employer fails to make social insurance contributions on time and in full, the

social insurance collecting agency shall order the employer to make up the shortfall within the

prescribed time period and impose a late payment fee amounting to 0.05% of the unpaid

amount for each day overdue. If the non-compliance continues, the employer may be subject

to a fine ranging from one to three times the unpaid amount owed to the relevant

administrative agency.

Housing Provident Fund

The Regulations on Management of Housing Provident Fund (〈住房公積金管理條例〉),

which was promulgated on 3 April 1999 and amended on 24 March 2002, requires enterprises

to register with the relevant housing provident fund management centre within 30 days from

the date of establishment, open housing provident fund accounts with the designated bank and

pay and deposit housing provident fund for employees with the rate not less than five percent

of the average monthly salary of the employee concerned in the previous year. If an employer,

in violation of the aforesaid regulations, fails to undertake registration or to open the housing

provident funds account for its employees, the administrative center of housing provident

funds will impose an order for completion within prescribed time limit, if such employer

further fails to process within the aforesaid time limit, a fine ranging from RMB10,000 to

RMB50,000 will be imposed. On the other hand, if a unit, in violation of the aforesaid

regulations, fails to pay or to fully pay the housing provident funds, the administrative center

of housing provident funds will impose an order for payment within a prescribed time limit if

such unit further fails to make payment within the aforesaid time limit, the center shall have

the right to apply for compulsory enforcement with the people’s court.


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The regulatory authorities of government at the provincial, municipality and district level

have also issued relevant policies from time to time to regulate the payment for housing

provident fund.

9. Laws and Regulations Relating to Intellectual Property

Patents

The PRC Patent Law (〈中華人民共和國專利法〉) was promulgated in 1984 and amended

in 1992, 2000, 2008 respectively. Under the PRC Patent law, invention patents are valid for

twenty years and external design patents and utility model patents are valid for ten years, in

each case commencing on their respective application dates. Persons or entities who use

patents without the consent of the patent owners, make counterfeits of patented products, or

engage in activities that infringe upon patent rights are held liable to the patent owner for

compensation and may be subject to fines and even criminal punishment.

The patent prosecution system in the PRC is different in many ways from that in other

countries. The patent system in the PRC uses the principle of first to file. This means that

when more than one person file a patent application for the same invention, the patent will be

granted to the person who files the application first. In addition, the PRC requires absolute

novelty in order for an invention to be patentable. Therefore, in general, a patent will be

denied if it is publicly known in or outside of the PRC. Furthermore, patents issued in the

PRC are not enforceable in Hong Kong, Taiwan and Macau Special Administrative Region,

each of which has an independent patent system.

(a) Invention Patent

The products seeking invention patent protection must possess such characteristics

as novelty and innovation and the grant of invention patent is subject to disclosure and

publication requirement. Normally, the patent administrative authority publishes the

application 18 months after application is filed, which may be shortened upon request by

the applicant. The patent administrative authority conducts a substantive review as

required by applicant within 3 years from publication or if necessary at its discretion to

grant the invention patent, issue the certificate of invention patent and announce and

register it if there is no cause for rejection of the application of the invention patent after

substantive review and makes a decision. The term of protection is 20 years from the

date of application. Once an invention patent is granted, unless otherwise permitted by

law, no individuals or entities are permitted to engage in the manufacture, use, sale or

import of the product protected by such patent or otherwise engage in the manufacture,

use, sale or import of the product directly derived from applying the production

technology or method protected by such patent, without consent of the patent holder.


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(b) Utility Model Patent

The products seeking utility model patent protection must also possess such

characteristics as novelty and innovation. Utility model patent is granted and registered

upon application unless there are reasons for the patent administrative authority to reject

the application after its preliminary review. The utility model patent is also subject to the

disclosure and publication requirement upon application. The term of protection is ten

years from the date of application. Once an utility model patent is granted, unless

otherwise permitted by law, no individuals or entities are permitted to engage in the

manufacture, use, sale or import of the product protected by such patent or otherwise

engage in the manufacture, use, sale or import of the product directly derived from

applying the production technology or method protected by such patent, without consent

of the patent holder.

(c) External Design Patent

The products seeking external design patent protection must not be the same as or

similar to those previously released in domestic or overseas publications, publicly used

in the country or infringing upon third parties’ legal rights. The application procedure

and term of protection is the same as utility model patent. Once a design patent is

granted, no individuals or entities are permitted to engage in the manufacture, use, sale

or import of the product protected by such patent without consent of the patent holder.

Trademarks

Both the PRC Trademark Law (〈中華人民共和國商標法〉) which was promulgated in

1982 and amended in 1993, 2001 and 2013, and the Implementation Regulation of the PRC

Trademark Law (〈中華人民共和國商標法實施條例〉) which was promulgated by the State

Council of the PRC in 2002 give protection to the holders of registered trademarks. The

Trademark Office under the State Administration for Industry and Commerce of the PRC (中

華人民共和國國家工商行政管理總局商標局) (the ‘‘Trademark Office’’) handles trademark

registrations and grants a term of ten years to registered trademarks, renewable every ten

years. Trademark license agreements must be filed with the Trademark Office or its regional

counterparts.

10. Laws and Regulations Relating to M&A Rules and Overseas Listings

On 8 August 2006, six PRC governmental and regulatory agencies, including Ministry of

Commerce and the China Securities Regulatory Commission (中國證券監督管理委員會) (the

‘‘CSRC’’), promulgated the Regulations on Merger and Acquisition of Domestic Enterprises by

Foreign Investors (關於外國投資者併購境內企業的規定) (the ‘‘M&A Rules’’), a regulation with

respect to the mergers and acquisitions of domestic enterprises by foreign investors that became

effective on 8 September 2006 and was amended on 22 June 2009.


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According to the M&A Rules, a foreign investor is required to obtain necessary approvals

when it (i) acquires the equity of a domestic enterprise so as to convert the domestic enterprise into

a foreign-invested enterprise; (ii) subscribes the increased capital of a domestic enterprise so as to

convert the domestic enterprise into a foreign-invested enterprise; (iii) establishes a foreign-invested

enterprise through which it purchases the assets of a domestic enterprise and operates these assets;

or (iv) purchases the assets of a domestic enterprise, and then invests such assets to establish a

foreign-invested enterprise and operate such assets. The M&A Rules, among other things, further

purport to require that an offshore special vehicle, or a special purpose vehicle, formed for listing

purposes and controlled directly or indirectly by PRC companies or individuals, shall obtain the

approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on

an overseas stock exchange, especially in the event that the special purpose vehicle acquires shares

of or equity interests in the PRC companies in exchange for the shares of offshore companies.


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INTRODUCTION

The business of our Group can be traced back to 2010 when Zhuhai HongGuang wasestablished as a sino-foreign joint venture in the PRC by (i) Zhuhai Wenjian (a limited liabilitycompany incorporated in the PRC and is wholly-owned by Mr. YW Zhao and Mr. Lin in equalshares); and (ii) Mr. KS Chiu whose interest was held by Mr. Chow Kin Man (‘‘Mr. Chow’’) ontrust for him at the material time. Zhuhai HongGuang has been our sole operating subsidiary in thePRC since commencement of business of our Group.

Since its incorporation, Zhuhai HongGuang has been principally engaged in the design,development, manufacture and sale of LED beads. Since late 2013, Zhuhai HongGuang starteddeveloping and selling LED lighting products with its LED beads.

BUSINESS MILESTONES

2010 Zhuhai HongGuang was incorporated

Zhuhai HongGuang Production Plant commenced production ofLED beads products

2011 Zhuhai HongGuang was first accredited with ISO 9001:2008 inrelation to the design and manufacture of SMD LEDs

Zhuhai HongGuang was first accredited with ISO 14001:2004 inrelation to the design and manufacture of SMD LEDs

2013 Zhuhai HongGuang commenced production of LED lightingproducts

Zhuhai HongGuang was accredited with the SAA Approvals byJoint Accreditation Service of Australia and New Zealand

2014 Zhuhai HongGuang became a member of LED Patent Alliance*(LED產業專利聯盟) since its 1st year of establishment

Zhuhai HongGuang was accredited with the Certificate for ChinaCompulsory Product Certification by China Quality CertificateCentre (中國質量認證中心)

Zhuhai HongGuang was accredited with the Certificate ofConformity — CE marking by Global-Standard Testing ServiceCo., Ltd

Zhuhai HongGuang was accredited with the Attestation ofConformity — C-tick labels by Global-Standard Testing ServiceCo., Ltd, which has been subsequently superseded by ‘‘RCM’’

labels

Zhuhai HongGuang was accredited with the Certificate ofConformity — RoHS by Global-Standard Testing Service Co.,Ltd

2015 Zhuhai HongGuang became a committee member of ChinaInformation Industry Chamber of Commerce (LED Section)* (中國信息產業商會LED分會)

By December 2015, Zhuhai HongGuang was the registeredproprietor of 14 utility model patents in the PRC

HISTORY, REORGANISATION AND CORPORATE STRUCTURE

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ESTABLISHMENT AND DEVELOPMENT OF OUR COMPANY AND ITS MAJOR

SUBSIDIARIES

As at the Latest Practicable Date, our Group comprises our Company, HongGuang Lighting,

HongGuang International, HongGuang Hong Kong and Zhuhai HongGuang. Set out below is the

brief corporate history of our Company and its subsidiaries.

Our Company

Our Company, being the [REDACTED] vehicle of our Group, was incorporated in the Cayman

Islands as an exempted company with limited liability on 27 May 2015. As at the date of

incorporation, our Company had an authorised share capital of HK$100,000,000 divided into

10,000,000,000 shares of HK$0.01 each, of which one subscriber’s share was allotted and issued as

fully paid to the initial subscriber at par, which was transferred to Bigfair Enterprises on the same

date. On 27 May 2015, our Company also allotted and issued as fully paid an additional 329 shares to

Bigfair Enterprises (a BVI company wholly and beneficially owned by Mr. KS Chiu), 335 shares to

First Global (a BVI company wholly and beneficially owned by Mr. YW Zhao) and 335 shares to Star

Eagle (a BVI company wholly and beneficially owned by Mr. Lin), respectively. For further details of

the Reorganisation, please refer to the paragraph headed ‘‘Reorganisation’’ in this section below.

HongGuang Lighting

HongGuang Lighting was incorporated in the BVI with limited liability on 8 June 2015. As at

the date of incorporation, HongGuang Lighting was authorised to issue a maximum of 50,000

shares of a single class with a par value of USD1.00 each, of which one share (representing the

entire issued Share Capital of HongGuang Lighting) was allotted and issued as fully paid to our

Company on the same date. Since its incorporation and up to the Latest Practicable Date,

HongGuang Lighting had been a wholly-owned subsidiary of our Company.

As at the Latest Practicable Date, HongGuang Lighting was an investment holding company.

HongGuang International

HongGuang International (formerly known as Day Harvest International Limited before 3 July

2015) was incorporated in the BVI with limited liability on 16 April 2010. As at the date of

incorporation, HongGuang International was authorised to issue a maximum of 50,000 shares of a

single class with a par value of US$1.00 each, of which 666 Shares (representing 66.6% of the

issued share capital) and 334 shares (representing 33.4% of the issue share capital) were allotted

and issued as fully paid to Mr. YW Zhao and Mr. KS Chiu respectively.

As part of the Reorganisation, (i) on 12 November 2014, Mr. YW Zhao and Mr. KS Chiu

transferred 331 shares and four shares of HongGuang International respectively to Mr. Lin at par.

The said transfers had been properly and legally completed and settled. After the said transfers,

HongGuang International was owned as to 33.5% by Mr. YW Zhao, 33.0% by Mr. KS Chiu and

33.5% by Mr. Lin, respectively; and (ii) on 9 June 2015, each of Mr. YW Zhao, Mr. KS Chiu and


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Mr. Lin transferred his entire shareholding interests in HongGuang International to our Company at

the nominal consideration of US$1.00. The said transfers had been properly and legally completed

and settled. After the said transfers, HongGuang International became a wholly-owned subsidiary of

our Company.

As at the Latest Practicable Date, HongGuang International was inactive.

HongGuang Hong Kong

HongGuang Hong Kong was incorporated in Hong Kong with limited liability on 31 October

2014. On the date of incorporation, HongGuang Hong Kong allotted and issued as fully paid one

share (representing the then entire issued shares of HongGuang Hong Kong) to Mr. KS Chiu.

As part of the Reorganisation, (i) on 12 November 2014, HongGuang Hong Kong allotted and

issued as fully paid 329 shares, 335 shares and 335 shares to Mr. KS Chiu, Mr. YW Zhao and Mr.

Lin respectively. After the said allotment and issuance of shares, HongGuang Hong Kong was

owned as to 33.0% by Mr. KS Chiu, 33.5% by Mr. YW Zhao, and 33.5% by Mr. Lin; and (ii) on 5

October 2015, each of Mr. KS Chiu, Mr. YW Zhao and Mr. Lin transferred his entire shareholding

interests in HongGuang Hong Kong to HongGuang Lighting at the nominal consideration of

HK$1.00. The said transfers had been properly and legally completed and settled. After the said

transfers, HongGuang Hong Kong became a wholly-owned subsidiary of HongGuang Lighting.

As at the Latest Practicable Date, HongGuang Hong Kong was an investment holding

company.

Zhuhai HongGuang

Zhuhai HongGuang was incorporated as a sino-foreign joint venture in the PRC on 10 May

2010. As at the date of incorporation, Zhuhai HongGuang had a registered capital of

RMB3,000,000, which was owned as to 67.0% by Zhuhai Wenjian (a limited liability company setup by Mr. YW Zhao and Mr. Lin in 2010) and 33.0% by Mr. Chow (who hold on trust for Mr. KS

Chiu), respectively. Pursuant to a confirmatory deed executed by Mr. Chow on 8 June 2016, Mr.

Chow confirmed that he held the said equity interests in Zhuhai HongGuang for and on behalf of

Mr. KS Chiu.

On 24 November 2010, the registered capital of Zhuhai HongGuang was increased byRMB6,000,000 from RMB3,000,000 to RMB9,000,000. The additional registered capital was

contributed by Zhuhai Wenjian and Mr. Chow (at the direction of Mr. KS Chiu and with Mr. KS

Chiu’s personal resources) in cash in proportion to their respective equity interest in Zhuhai

HongGuang.

On 4 July 2011, the registered capital of Zhuhai HongGuang was further increased byRMB11,000,000 from RMB9,000,000 to RMB20,000,000. The additional registered capital was

contributed by Zhuhai Wenjian and Mr. Chow (at the direction of Mr. KS Chiu and with Mr. KS

Chiu’s personal resources) in cash in proportion to their respective equity interest in Zhuhai

HongGuang.


– 81 –


On 18 November 2014, as part of the Reorganisation, HongGuang Hong Kong entered into an

equity transfer agreement with each of Zhuhai Wenjian and Mr. Chow (at the direction of Mr. KS

Chiu), pursuant to which (i) Zhuhai Wenjian transferred 67.0% equity interest in Zhuhai

HongGuang at the consideration of RMB13,011,200; and (ii) Mr. Chow (at the direction of Mr. KSChiu) transferred 33.0% equity interest in Zhuhai HongGuang at the consideration of

RMB6,408,500. The considerations were arrived at after arm’s length negotiation between the

parties and taking into account the then net asset value of Zhuhai HongGuang. The said transfers

and the resulting transformation of Zhuhai HongGuang into a wholly foreign-owned enterprise were

subsequently approved and registered by the Zhuhai City Administration for Industry & Commerceon 8 December 2014. Upon completion of the said transfers, Zhuhai HongGuang became a wholly

foreign-owned enterprise in the PRC and a wholly-owned subsidiary of HongGuang Hong Kong.

During the Track Record Period and up to the Latest Practicable Date, Zhuhai HongGuang

was the principal operating subsidiary of our Group which engaged in the design, development,

manufacture and sale of (i) LED beads; and (ii) LED lighting products for commercial andconsumer use.

PARTIES ACTING IN CONCERT

On 8 June 2016, the ultimate Controlling Shareholders, namely, Mr. YW Zhao, Mr. Lin and

Mr. KS Chiu entered into the Concert Parties Confirmatory Deed to acknowledge and confirm:

(a) that among each of them that they are parties acting in concert with each of the members

of our Group (the ‘‘Relevant Companies’’) during the Track Record Period and shall

continue the same as at and after the date of the Concert Parties Confirmatory Deed;

(b) they shall continue to give unanimous consent, approval or rejection on any other

material issues and decisions in relation to the business of the Relevant Companies;

(c) they shall continue to cast unanimous vote collectively for or against all resolutions in all

meetings and discussions of the Relevant Companies;

(d) they shall continue to cooperate with each other to obtain and maintain the consolidated

control and the management of the Relevant Companies; and

(e) they shall continue to obtain written consent from all the parties to the Concert Parties

Confirmatory Deed in advance of purchasing selling, pledging or creating any right to

acquire or dispose of any securities of our Company and/or any of the Relevant

Companies.


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DISPOSAL DURING THE TRACK RECORD PERIOD

Disposal of Zhuhai Hengqin

Zhuhai Hengqin was incorporated as a limited liability company in the PRC and a wholly-

owned subsidiary of Zhuhai HongGuang on 28 March 2013. As at the date of incorporation and up

to the date prior to its disposal, Zhuhai Hengqin had a registered capital of RMB2,000,000.

Zhuhai Hengqin was originally set up to develop, inter alia, the research and development of

optoelectronics technology, smart chip control technology and general lighting products in the

Hengqin District of Zhuhai in the PRC. However, since Zhuhai Henqin did not develop any

substantial business during the Track Record Period as planned, the Controlling Shareholders were

of the opinion that it was more beneficial to focus their financial resources elsewhere, and therefore

decided to dispose of Zhuhai Hengqin from our Group. As a result, Zhuhai HongGuang entered into

a sale and purchase agreement dated 28 March 2016 with an Independent Third Party, pursuant to

which Zhuhai HongGuang disposed of the entire equity interest of Zhuhai Hengqin to the said

Independent Third Party at nil consideration. The consideration was arrived at after arm’s length

negotiation between the parties thereto and taking into account that no contribution of registered

capital had been made by Zhuhai HongGuang since the date of establishment of Zhuhai Hengqin.

The said disposal had been properly and legally completed on 7 April 2016. After the disposal and

as at the Latest Practicable Date, our Group ceased to have any interest in Zhuhai Hengqin.


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REORGANISATION

The following charts set forth the corporate and shareholding structure of our Group prior to

the Reorganisation:

Notes:

1. Pursuant to a confirmatory deed executed by Mr. Chow on 8 June 2016, Mr. Chow confirmed that he held

33.0% of the equity interests in Zhuhai HongGuang for and on behalf of Mr. KS Chiu.

2. HongGuang International was formerly known as Day Harvest International Limited before 3 July 2015.

In preparation for the [REDACTED], our Group has carried out the Reorganisation which

involved the following steps:

(1) On 31 October 2014, HongGuang Hong Kong was incorporated in Hong Kong with

limited liability. For details of HongGuang Hong Kong, please refer to the paragraph

headed ‘‘Establishment and development of our Company and its major subsidiaries —

HongGuang Hong Kong’’ of this section above.

(2) On 12 November 2014, Mr. YW Zhao and Mr. KS Chiu transferred 331 shares and four

shares of HongGuang International respectively to Mr. Lin at par. The said transfers had

been properly and legally completed and settled. After the said transfers, HongGuang

International was owned as to 33.5% by Mr. YW Zhao, 33.5% by Mr. Lin and 33.0% by

Mr. KS Chiu, respectively.


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(3) On 12 November 2014, HongGuang Hong Kong further allotted and issued as fully paid

329, 335 and 335 shares to Mr. KS Chiu, Mr. YW Zhao and Mr. Lin respectively. After

the said allotment and issuance of shares, HongGuang Hong Kong was owned as to

33.5% by Mr. YW Zhao, 33.5% by Mr. Lin and 33.0% by Mr. KS Chiu.

(4) On 18 November 2014, HongGuang Hong Kong entered into an equity transfer

agreement with each of Zhuhai Wenjian and Mr. Chow, pursuant to which (i) Zhuhai

Wenjian transferred its entire equity interest in Zhuhai HongGuang at the consideration

of RMB13,011,200; and (ii) Mr. Chow transferred his entire equity interest in Zhuhai

HongGuang at the consideration of RMB6,408,500. The considerations were arrived at

after arm’s length negotiation between the parties thereto and taking into account the then

net asset value of Zhuhai HongGuang. The said transfers had been properly and legally

completed and settled and the resulting transformation of Zhuhai HongGuang into a

wholly foreign-owned enterprise were approved and registered by the Zhuhai City

Administration for Industry & Commence on 8 December 2014. Upon completion of the

said acquisitions, Zhuhai HongGuang became a wholly foreign-owned enterprise and a

wholly-owned subsidiary of HongGuang Hong Kong.

(5) On 27 May 2015, our Company was incorporated in the Cayman Islands as an exempted

company with limited liability under the Companies Law. At the time of incorporation,

our Company had an authorised capital share capital of HK$100,000,000 divided into

10,000,000,000 shares of HK$0.01 each, of which one subscriber’s share was allotted

and issued as fully paid to the initial subscriber at par, which was transferred to Bigfair

Enterprises on the same date. On 27 May 2015, our Company allotted and issued as fully

paid 329 Shares to Bigfair Enterprises, 335 Shares to First Global, 335 Shares to Star

Eagle, respectively.

(6) On 8 June 2015, HongGuang Lighting was incorporated in the BVI with limited liability.

As at the date of incorporation, HongGuang Lighting was authorised to issue a maximum

of 50,000 shares of a single class with a par value of USD1.00 each, of which one share

(representing the entire issued share capital of HongGuang Lighting) was allotted and

issued as fully paid to our Company on the same date.

(7) On 9 June 2015, each of Mr. YW Zhao, Mr. Lin and Mr. KS Chiu transferred his entire

shareholding interests in HongGuang International to our Company at the nominal

consideration of US$1.00. The said transfers had been properly and legally completed

and settled. After the said transfers, HongGuang International became a wholly-owned

subsidiary of our Company.

(8) On 5 October 2015, each of Mr. YW Zhao, Mr. Lin and Mr. KS Chiu transferred his

entire shareholding interests in HongGuang Hong Kong to HongGuang Lighting at the

nominal consideration of HK$1.00. The said transfers had been properly and legally

completed and settled. After the said transfers, HongGuang Hong Kong became a

wholly-owned subsidiary of HongGuang Lighting.


– 85 –


(9) Given that Zhuhai Hengqin had no operation, in order to streamline the corporate

structure of our Group, on 28 March 2016, Zhuhai HongGuang entered into an equity

transfer agreement with an Independent Third Party, pursuant to which Zhuhai

HongGuang disposed of the entire equity interest of Zhuhai Hengqin to the said

Independent Third Party at nil consideration. The consideration was arrived at after arm’s

length negotiation between the parties thereto and taking into account that no

contribution of registered capital had been made by Zhuhai HongGuang since the date of

establishment of Zhuhai Hengqin. The said disposal had been properly and legally

completed on 7 April 2016.

(10) Upon completion of the Reorganisation set out above, our Company became the holding

company of our Group. The following chart sets out the shareholding and corporate

structure of our Group immediately after the Reorganisation but prior to completion of

the [REDACTED] and the Capitalisation Issue:


– 86 –


The PRC Legal Advisers confirmed that all relevant approvals and permits in relation to thetransfer of equity interest of the PRC established company in our Group, as described above as partof the Reorganisation, had been obtained and the procedures involved had been carried out inaccordance with PRC laws and regulations. As advised by the PRC Legal Advisers, our ultimatebeneficial owners who are PRC citizens or residents, namely Mr. YW Zhao and Mr. Lin, have dulyapplied for the registration of their foreign investment pursuant to Circular No. 37.

Conditional on the share premium account of our Company being credited as a result of the[REDACTED], certain amounts standing to the credit of the share premium account of ourCompany will be capitalised and applied in paying up in full such number of Shares for allotmentand issue to its shareholders (i.e. Bigfair Enterprises, First Global and Star Eagle) in proportion totheir respective shareholdings prior to trading and dealing of the Shares commence on GEM, so thatthe number of Shares so allotted and issued, when aggregated with the number of Shares alreadyowned by them, will constitute not more than 75.0% of the total issued share capital of ourCompany. Details of the Capitalisation Issue are set out in the paragraph headed ‘‘A. Furtherinformation about our Company — 3. Written resolutions of the Shareholders’’ in Appendix IV tothis [REDACTED].

The following chart sets out the shareholding structure of our Group immediately followingthe [REDACTED] and the Capitalisation Issue (without taking into account any Shares which maybe issued upon the exercise of any option which may be granted under the Share Option Scheme):


– 87 –


OVERVIEW

We principally engage in the design, development, manufacture and sale of LED beads in the

Guangdong Province of the PRC. LED beads, being the light emitting source, are core components

for production of backlight LED products. Our LED beads are used and applied for the displays in

smartphones and LCD panels in tablet computers. In late 2013, we started developing and selling

LED lighting products with our LED beads on ODM basis. In 2013, we obtained ‘‘SAA Approvals’’

for export of our LED lighting products to Australia. In 2014, we obtained ‘‘CCC’’ certification for

sale of our LED lighting products in the PRC, and also ‘‘CE’’, ‘‘C-Tick’’ (subsequently superseded

by ‘‘RCM’’) and ‘‘RoHS’’ certifications for our future expansion to overseas countries.

Our revenue generated from the sale of LED beads for the two years ended 31 December 2014

and 2015 was approximately RMB99.9 million and RMB115.0 million respectively, representing

approximately 90.8% and 96.9% of our total revenue during the corresponding periods. Our

revenue generated from the sale of LED lighting products for the two years ended 31 December

2014 and 2015 was approximately RMB10.1 million and RMB3.7 million respectively, representing

approximately 9.2% and 3.1% of our total revenue during the corresponding periods. The sales of

our LED lighting products dropped significantly in 2015 because (i) our LED lighting business was

still at the development stage in 2015 and hence our revenue generated from the sales of LED

lighting products were yet to be stable in 2014 and 2015 and we had not expand our customer base

by that time; and (ii) an Australian customer, being one of the customers of our LED lighting

products in 2014, had not placed purchase orders to us in 2015. This Australian customer resumed

purchasing LED lighting products from us in the first quarter of 2016.

According to the CIC Report, we ranked fourth among all the LED bead manufacturers

supplying LED beads to the small and medium segments of the backlight LED product market (Note)

in the PRC in terms of sales value in 2015, whereas the small and medium segments of the

backlight LED product markets together accounted for approximately 40.9% of the entire backlight

LED product market in the PRC.

We aim at providing our customers with suitable LED beads for their onward manufacture of

small-sized or medium-sized backlight LED products and to develop LED lighting products with

our LED beads. We pride ourselves on the know-how in the development and production of our

products and our commitment to the quality of our products.

Our products: We mainly manufacture LED beads of different sizes and different

specifications in terms of their chromaticity, luminous intensity and forward voltage to cater for

various needs of our customers. To the best knowledge of the Directors, based on the written

confirmations from our major customers, our LED beads are mainly used for production of

Note: According to the CIC Report, the backlight LED product market is categorised according to the size of the final electronic

products where the backlight LED products form a component. The small and medium segments refer to the segments of the

backlight LED product market where the LED beads are used on smartphones, tablet computers, car on-board monitors,

dashboards on commercial/industrial electronics such as e-book readers and digital cameras.

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backlight LED products of smartphone and tablet computers of certain popular brands in the PRC.

We also develop our own LED lighting products with our LED beads to suit various customers’

needs in commercial and consumer lighting.

Our customers: During the Track Record Period, our LED beads were sold to manufacturers

of small-sized and medium-sized backlight LED modules/panels, manufactures of LCD panels and

other electronic products and a trading company, which are concentrated in the Guangdong

Province. Customers of our LED lighting products comprised the same trading company and an

Australian company.

Our production: We lease a production plant, namely, the Zhuhai HongGuang Production

Plant, in Zhuhai city of the Guangdong Province with a gross floor area of 2,165 m2. Our Zhuhai

Production Plant is equipped with advanced and highly automated encapsulation machineries and

equipment using SMD method for the production of LED beads. We have an assembly line for

production of LED lighting products.

Our Zhuhai HongGuang Production Plant has been accredited with the ISO 9001:2008

certification on quality management system, and ISO 14001:2004 on environmental management

system, both for the design and manufacture of SMD LEDs since October 2011. Our estimated

annual production capacity for LED beads and the LED lighting products as at 31 December 2015

amounted to approximately 983,808,000 pieces and 173,000 pieces respectively.

Outlook of our Group: Going forward, by leveraging our plan to expand our production

capability, we aim to expand our customer base of our LED beads by penetrating our sales to other

provinces in the PRC and the overseas markets. Meanwhile, our Group plans to enhance the design

and development of our products in the LED lighting products using our LED beads to fit market

needs.

COMPETITIVE STRENGTHS

Our Group believes that our success to date and our potential for future growth are attributed

to a combination of our competitive strengths set out below:

We have the capability of developing and manufacturing both midstream and downstream

LED products

We are capable of developing and producing LED beads of different sizes and of different

specifications in terms of their chromaticity, luminous intensity and forward voltage, in order to

cater for our customers’ various requirements. LED beads are core components for production of

various kinds of small-sized and medium-sized backlight LED products in the midstream of the

value chain of LED lighting industry. To the best knowledge of our Directors based on our major

customers’ written confirmations, our LED beads are normally assembled into small or medium-

sized backlight LED products, namely displays in smartphones and LCD panels in tablet computers

of certain popular brands in the PRC.

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Our LED beads can also be applied and assembled to LED lighting modules. Our established

production capability in LED beads provides a good platform and support for us to develop LED

lighting products in the downstream of the value chain of LED lighting industry. As such, our

Group began to develop and sell our LED lighting products in late 2013 and become an enterprise

having the capability of producing both midstream and downstream LED products.

We are equipped with advanced and highly automated encapsulation machineries and

equipment, enabling us to produce LED beads efficiently and cost-effectively

Our machineries and equipment for production of LED beads are advanced and highly

automated and are operated by SMD method, which can produce different sizes of LED beads with

various specifications with slight adjustments. These highly automated encapsulation machineries

and equipment enable us to manufacture products efficiently. Our automated encapsulation

machineries and equipment were either imported from Hong Kong or purchased in the PRC. As the

backlight LED product market is dynamic and fast-changing, the availability of advanced and

effective machineries and equipment is the key to our success as they would enable the process of

our production of LED beads to be highly flexible for onward production of backlight LED

products.

Our Directors are of the view that these automated machineries and equipment allow our

Group to enhance our production efficiency and help us cater for production of LED beads of

different product sizes and specifications, which in turn offer us a competitive edge in the industry.

Our Group is also able to reduce our direct labour and enhance the quality control over our

products, which in turn increase our production capacity and enhance our ability to achieve a higher

profit margins.

We are committed to high standard of quality control

Our Group is committed to implementing high standard quality control measures in production

materials, production process and the finished products. Our Group has been accredited with both

the ISO 9001:2008 certification of quality management system and ISO 14001:2004 certification of

environmental management system since October 2011. Our LED beads are generally adopted and

used by a number of backlight LED product manufacturers for onward production of their small-

sized and medium-sized backlight LED modules/panels, including the displays of smartphones and

LCD panels of tablet computers for certain popular brands in the PRC.

With respect to our Group’s LED lighting products, we have received the ‘‘CCC’’ certification

in the PRC. Our Group has also obtained ‘‘SAA Approvals’’ and ‘‘RCM’’ for importation of

electrical products into Australia as well as other international product quality and safety

certifications in compliance with European Union Restriction of Hazardous Substances Directive

including the ‘‘CE’’ and ‘‘RoHS’’.

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We have an experienced management team

Our Group’s performance and success are, to a significant extent, attributable to the expertise

and experience of our key management personnel. Our Group’s core management team is led by

Mr. YW Zhao, who is a founder and has over 12 years’ experience in the electronics components

industry. He is responsible for formulating overall corporate strategies and handling day to day

management of our Group. Mr. YW Zhao is assisted by Mr. Xu Jian Hui, a member of our senior

management team, who has more than 12 years experience in administration and production

management. He is responsible for the daily operation, administration and production management

of our Group.

Our Directors believe that the extensive experience of our Group’s management enhances our

capability to meet the expectations and changing demands of our customers from time to time. For

further biographical details of our Company’s management team, please refer to the section headed

‘‘Directors, Senior Management and Employees’’ of this [REDACTED].

We have established relationships with our major customers

For LED beads, our Group’s major customers during the Track Record Period included

manufacturers of backlight LED modules/panels and LCD panel modules for smartphones and tablet

computers of certain popular brands in the PRC, manufacturers of electronics products and a trading

company in the PRC. As at the Latest Practicable Date, our Group maintained more than two years

of business relationship with our top five major customers. We provide them with quality products

and after-sales services including product warranty and technical support.

Our Directors believe that our understanding on our customers’ needs and our ability to

deliver quality products at competitive price and produce LED beads of different sizes and

specifications to cater for the different requirements of our customers have all together been the key

factors leading to our Group’s success in keeping stable relationships with our customers. Our

Group’s stable customer relationships enable us to openly interact and discuss with our customers

and allow us to keep abreast of the latest technology and to acquire the necessary industry

knowledge in developing our products with market appeal.

BUSINESS STRATEGIES

Our goal is to maintain our position as one of the leading manufacturers of LED beads in the

small and medium segments of the backlight LED product market in the PRC and on the other

hand, continue to penetrate into the downstream of the value chain in LED lighting industry in the

PRC by developing and selling LED lighting products with our LED beads. Our Group intends to

achieve this goal by implementing the following business strategies:

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Expand our production capacity

Plan for expansion of our production capacity: For the two years ended 31 December 2014

and 2015, the utilisation rate of our LED bead encapsulation machineries and equipment was

approximately 78.9% and 86.5% respectively. In order to meet the increasing demand for our LED

beads and LED lighting products for domestic and overseas markets and to capture the future

growth opportunities in such markets, our Group plans to acquire additional LED bead

encapsulation machineries and equipment.

We also plan to add two additional assembly lines for our LED lighting product on top of theexisting one assembly line.

Projected increase of our production capacity: Upon commencement of the operation of thesenew encapsulation machineries and equipment, our production capacity for the production of LEDbeads will increase by approximately 492 million pieces and 211 million pieces by the first quarterof 2017 and first half of 2018 respectively. The greater production capacity will enable our Groupto meet the increasing demand for LED products in the markets we serve thereby maintaining orincreasing our market share.

In respect of our LED lighting products, after setting up the two additional assembly lines, theproduction capacity for the production of LED lighting products will increase by approximately346,000 pieces to approximately 518,000 pieces.

Implementation of our expansion plan: We commenced the preparation work for expansion ofour production facilities in late 2015. Our expansion plan includes renovating our ZhuhaiHongGuang Production Plant, acquiring new machineries and equipment, setting up additionalassembly lines and recruiting additional staff.

Renovation works: We have received approval from the Environmental Protection Bureau ofXiangzhou to carry out renovation works in vacant areas in our Zhuhai HongGuang ProductionPlant for our expansion plan to increase production capacity. The renovation works was completedin April 2016 and we are in the process of obtaining the opinion for completion inspection of theenvironmental protection for production process (the ‘‘Completion Inspection Opinion’’). It isexpected that the Completion Inspection Opinion will be obtained in July 2016.

Acquisition of additional LED bead encapsulation machineries and equipment: We will startacquiring additional machineries and equipment soon after obtaining the Completion InspectionOpinion. Based on the preliminary quotations obtained by us, we estimate that the total cost for themachineries and equipment would be approximately RMB15.3 million.

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Particulars of additional machineries and equipment we intend to acquire for production ofLED beads are as follows:

Additional machineries and equipment

Estimated cost

(RMB’000)

— ten die bonders 3,660— ten ball bonders 2,861— ten tabletop dispensing robots 282— ten automate LED sorting systems 4,857— ten automate LED taping systems 3,147— 30 LED photoelectric ovens 513

We expect the additional machineries and equipment will be delivered to us around the fourthquarter of 2016 to the first quarter of 2017 and the first half of 2018 respectively.

Recruitment of additional staff: We will recruit 14 additional production workers in or aroundthe fourth quarter of 2016 and will further recruit 4 additional production workers during the firsthalf of 2018 in order to align with our enlarged production capacity. We expect the additional LEDbead encapsulation machineries and equipment can commence operation by the first quarter of2017, following installation and testing of the newly acquired machineries and equipment.

In respect of our existing LED lighting product assembly line, we have completed the relevantrenovation work and no significant machineries and equipment is required. Instead, we will recruitsix additional production workers soon after receipt of the Completion Inspection Opinion tooperate the two additional assembly lines. We expect the additional assembly lines to commenceoperation by the end of 2016.

Our Directors take the view that by capitalising on our experience and reputation in LEDbeads industry, it would not be difficult for us to penetrate into the LED lighting product market bydeveloping and producing LED lighting products with the LED beads developed and manufacturedby us in-house.

Continue to develop our Group’s sales channels

The PRC government has promulgated various plans and policies which aim at promoting thedevelopment of the LED market in the PRC and speeding up the localisation of the key materialsfor production of LED lighting products such as LED chips (the major production material forproduction of our LED beads) and the research and development of semi-conductor lightingindustry. These measures are expected to drive the backlight LED product market to grow further inthe next five years. The said government plans and policies mainly include the following:

. the ‘‘Innovation Action Plan for New Type of Display Industry 2014–2016’’ issued bythe Ministry of Industry and Information Technology of China (中華人民共和國工業和

信息化部) in October 2014 setting out therein, among others, that the increase of boththe localisation rate of key materials of small and medium size TFT-LCD panel, largesize TFT-LCD panel and AMOLED and the government would support the cooperationbetween domestic and foreign companies to promote the development of industrial valuechain; and

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. the Opinions of the State Council on Promoting Information Consumption and BoostingDomestic Demand (國務院關於促進信息消費擴大內需的若干意見) issued by The StateCouncil in August 2013 to strengthen electronic industry innovation ability and supportthe industry participants to speed up the research and development of new generation ofdisplay panels.

Our LED beads are mainly used for onward production of backlight LED modules/panels forconsumer electronics products including smartphones and tablet computers of certain popularbrands in the PRC. According to the CIC Report, the smartphone market accounted forapproximately 69.8% of the total market share of the mobile phone market in the PRC in 2015 interms of production volume and is expected to grow continuously to 2,795.1 million units in 2020with a CAGR of 16.8% from 2015 to 2020 and domestic manufacturers of smartphones accountedfor increasing market share due to improved technology and growing brand reputation.

In view of the above-mentioned supports from the PRC government and the growth of

smartphones market, in particular, the growing prospect of domestic brands of smartphones in the

PRC, we plan to continue to expand the sale of our LED beads in the PRC market.

Implementation of our plan for expansion of our sales channels in the PRC: As our currentcustomer base is predominantly in the Guangdong Province, we intend to penetrate the sale of our

LED beads into other provinces in the PRC. We plan to expand our sales and marketing team by

recruitment of two sales supervisors with profound knowledge in the backlight LED products for

smartphone and tablet computer in the PRC in early 2017. The new sales supervisors will be

particularly designated for promoting and marketing our LED beads to manufacturers of backlightLED modules/panels, LCD panel modules and other electronics products in other provinces in the

PRC. Regarding the sale of our LED lighting products, our sales and marketing team also plans to

expand our customer base by exploring new sale channels, including sales to wholesalers of

commercial and consumer lighting products in the PRC.

Implementation of our plan for expansion to overseas markets: Owing to the energy-savingnature and other advantages of LED lighting, governments in other countries also enact policies to

promote the development of LED lighting products. Hence, we also plan to expand the sale of our

LED beads and LED lighting products to overseas countries. We plan to develop our LED lighting

products on ODM and OBM basis, and enhance the design and development of our LED lighting

products to fit changing market needs.

We plan to expand our sales and marketing team by recruitment of three additional sales

supervisor with profound knowledge in the LED lighting industry in overseas markets by the end of

2016, who will be particularly designated for promoting and marketing our LED beads and LED

lighting products under our own brands in overseas markets.

We will also attend various trade fairs in the PRC and elsewhere to promote our brands and

products. Our Directors believe that a successful brand is the key to our Group’s sales growth in the

LED lighting products, as it distinguishes our Group from our competitors in the LED lighting

product industry in the PRC which focus on manufacturing LED lighting products on OEM or

ODM basis instead.

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For details of our implementation plan and use of proceeds, please refer to the section headed

‘‘Future Plans and Use of Proceeds’’ in this [REDACTED].

OUR BUSINESS MODEL

Our Group principally engages in the design, development, manufacturing and sale of LED

beads. Our LED beads are used as the core components of the small-sized and medium-sized

backlight LED products, which are in turn the light source for LCDs as LCDs do not produce light

themselves but rely on the backlight products for illumination.

As backlight LED products are generally categorised by size or dimension, our LED beads are

generally used for small-sized and medium-sized backlight LED products, which can be applied on

the displays of smartphones and LCD panels in tablet PC and other electronic products.

Notwithstanding the wide application of LED beads, to the best knowledge of our Directors, our

LED beads were generally applied for production of the displays in smartphones and LCD panels of

tablet computers during the Track Record Period.

During the Track Record Period, all our LED beads were developed and manufactured by us

at our Zhuhai HongGuang Production Plant. We did not outsource any production step to any sub-

contractors.

On the other hand, in order to expand our product range and utilise our capability in the

manufacture of LED beads, being a core component of LED lighting devices, our Group decided to

tap into the downstream LED lighting product market and since late 2013, our Group has started

developing and selling LED lighting products on ODM basis for sale to a customer in Australia and

a trading company in the PRC.

The table below sets forth the breakdown of our Group’s revenue in respect of our product

category during the Track Record Period:


2014 2015

RMB’000

% of total

revenue RMB’000

% of total

revenue

LED beads 99,870 90.8 114,989 96.9

LED lighting products 10,168 9.2 3,717 3.1

Total 110,038 100.0 118,706 100.0

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The following diagram illustrates the operation flow of a purchase order within our Group in

relation to the manufacture and sale of our LED beads:

The following diagram illustrates the operation flow of a purchase order within our Group in

relation to the manufacture and sale of our LED lighting products:

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OUR GROUP’S PRODUCTS

During the Track Record Period, our Group manufactured the following major products:

LED beads

The heart of a LED lighting device is the LED bead, which is a miniature electronic

device in the order of millimetre in size and emits light when electric current is passed

through both ends of it. In principle, the LED bead converts electrical energy into light energy

under a certain efficiency scale. The LED bead is therefore the component which emits lightfrom the back of a LCD.

LED beads on tape, which are ready for delivery to our customers

The sales in our LED bead attributed to a significant proportion of our revenue during

the Track Record Period. For the two years ended 31 December 2014 and 2015, the sales inour LED beads were approximately RMB99.9 million and RMB115.0 million respectively,

which represented approximately 90.8% and 96.9% of our total revenue during the

corresponding periods respectively.

The average unit price of our LED beads decreased from RMB0.147 per piece in 2014 to

RMB0.134 per piece in 2015 primarily due to the decrease in the costs of productionmaterials. For details, please refer to the section headed ‘‘Financial Information — Cost of

material used’ in this [REDACTED].

Our Group manufactures LED beads for our customers who are mainly backlight LED

module/panel manufacturers and manufacturers of LCD panels and other electronic products inthe PRC for their onward production of small and/or medium-sized backlight LED products,

which can be used in the displays of smartphones as well as LCD panels of tablet computers.

As the lighting displays or panels of those devices do not produce light themselves, they need

to be illuminated by a light source underneath the panels. The LED bead acts as the

fundamental light source for illumination of the displays or panels at their back and hence the

LED bead is given the terminology ‘‘backlight’’.

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Our Group manufactures LED beads of different sizes and specifications in terms of their

chromaticity, luminous intensity and forward voltage to cater for various requirements from

our customers. Our LED beads are largely in the size of 3.8 mm × 0.6 mm × 1.0 mm. There is

no significant difference in the production lead time for the LED beads of different sizes.

Individual LED beads with the light emitting part at the centre and the gold wires

connecting the light emitting part to both ends of the beads

LED lighting products

For the two years ended 31 December 2014 and 2015, the sales of our LED lighting

products amounted to approximately RMB10.1 million and RMB3.7 million respectively,

which represented approximately 9.2% and 3.1% of our total revenue in the respective years.

During the Track Record Period, our Group’s LED lighting products were developed and

manufactured by our Group on the ODM basis for (i) a customer in Australia which carried on

business as a manufacturer and importer of lighting products; and (ii) a trading company based

in the PRC.

The key types of our Group’s LED lighting products sold to our customers during the

Track Record Period are set out below:

1. Downlight series

Description andgeneral use

Usual place forinstallation

Photo ofa typical product

Average unit price

2014 2015

(RMB)

Our Group’s downlightseries refers to lightfixture that is installedinto the hollow openingin the ceiling.

Exhibition halls,shopping malls, officeand places wherecontinuousillumination are needed

66.1 96.1(Note 1)

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2. Candle light series




Average unit price

2014 2015

(RMB)

Our Group’s candle lightseries is a lightingfixture which consists ofan outer shellresembling the tip offire of a candle. It fits tobe installed in achandelier as well as alighting fixture whichexposing light bulb thatgives a classicalappearance.

Exhibition halls,shopping malls, officesand places whereclassical atmosphere isneeded

24.2 23.0

3. Spotlight series




Average unit price

2014 2015

(RMB)

Our Group’s spotlightseries primarily consistsof one or morespotlights installed on amatching track for mainvoltage power and withinternal isolated powersupply for eachspotlight.

Entertainment venues,exhibition halls,shopping malls,libraries and placeswhere illumination tomatch with thedecoration are needed

34.0 83.4(Note 1)

4. Oyster light series




Average unit price

2014 2015

(RMB)

Our Group’s oyster lightrefers to a light fixturethat is similar to ceilinglight in terms offunction but is usuallyattached to the indoorceiling for decorativelighting.

Indoor, homes and placeswhere decorativelighting is needed

189.1 189.7

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5. Bulb light series




Average unit price

2014 2015

(RMB)

Our Group’s bulb lightseries primarily consistsof an outer shell forlamp alignment andprotection and a lightingelectronics appliance.

Homes, Exhibition halls,shopping malls,offices, libraries andplaces wherecontinuousillumination are needed

23.7 14.0

6. Flood light series




Average unit price

2014 2015

(RMB)

Our Group’s flood lightseries consists of anarray of LEDs for a highbrightness illuminationmainly for outdoorexposed locations. It isinstalled by hanging orceiling mounted.

Entertainment venues,external illuminationand places wherebright and continuousillumination are needed

375.2 N/A(Note 2)

Note 1: The difference between the average unit price in 2014 and that in 2015 arises from the different

specifications and rated power in terms of watt of the products within the same series (e.g. different

electrical power carried) and the customers’ requirements on the products.

Note 2: We did not sell any flood light series product in 2015.

PRODUCTION

During the Track Record Period, all of our Group’s LED beads were produced by our

own LED bead encapsulation machineries and equipment in the Zhuhai HongGuang

Production Plant. We also set up one assembly line for the assembling of LED lighting

products.

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Production process of LED beads and LED lighting products

The production of LED beads and the onward production of LED lighting products adopt

the following production process:

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LED beads

Based on customers’ requirements and the intended usage of the LED beads, our

engineers design by ourselves or together with our customers the LED beads’ specifications,

including their chromaticity, luminous intensity and forward voltage. We will then prepare the

design plans and blueprints. If customers require, we will make prototypes and conduct

production trial upon receiving customers’ approval on the prototypes. Once our customers

have confirmed on the design, which contain the specifications of the LED beads, we can

commence mass production of the LED beads.

The major production processes of LED beads are as follows:

Die Binding and Wire Bonding

The process of die binding mainly involves (i) picking light emitting parts from 6’’

LED wafer containing LED chips; (ii) checking of the surface of the 6’’ LED wafer; (iii)

binding light emitting parts onto the brackets; (iv) sample-checking of the die binding to

confirm there is no crack between the LED chips and the brackets; and (v) curing of the

die-binding. It is entirely undertaken by SMD method.

The process of wire bonding mainly involves connecting light emitting parts by

gold wires to the polarities and curing, which involves adjustments to the LED beads’

specifications in accordance with customers’ needs.

Envelope Epoxy

The process of envelop epoxy mainly involves (i) preheating for two hours at 140

degree celsius; (ii) preparation of epoxy which includes optimising the mix of phosphor

to satisfy individual customers’ order variations in terms of technical specifications

including luminous intensity and chromaticity; (iii) curing, checking of all envelope

epoxy; and (iv) peel light emitting parts from frame to become LED beads.

Baking

The semi-finished products will be put in the photoelectric ovens for baking so that

the epoxy of which would be fixed.

Product Sorting, Taping, Inspection and Packing

These processes involve (i) sorting LED beads according to their light emitting

characteristics; (ii) curing before taping; (iii) checking the tape, mounting the

homogenous LED beads onto a peel of tape; (iv) final inspection of the LED bead on

tape and (v) vacuum packing.

Our LED beads, after mounted onto a peel of tape, will be subject to inspection and

packaging afterwards and be available for delivery to our customers.

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In terms of usage, our LED beads can be installed into various kinds of small-sizedor medium-sized backlight LED products according to the required specifications of thelight emitting capability of the LED beads, which are in turn generally applied as thedisplay of smartphones and the LCD panels of tablet computers.

The production lead time is approximately two to six days, subject to the size of thepurchase order.


During the Track Record Period, we focused on the outward design and functions of ourLED lighting products. Our LED lighting products were developed and manufactured on anODM basis. We prepare the design plans and blueprints based on customers’ requirements interms of the outward design, illuminous intensity and voltage of the product and the intendeduse of the products. If customers require, we make prototypes and conduct production trialupon receiving customers’ approval on the prototypes. Our production process of LED lightingproducts therefore include mainly (i) installation, assembling and testing of the parts andcomponents including (a) circuit boards and power modules which are purchased from oursuppliers and (b) the LED beads developed and produced by us in-house by fixing andsoldering manually and (ii) inspection on the finished products. Our workers also undertakethe cleaning, labelling and packaging of the finished products manually.

The production lead time is approximately 30 days, subject to the size of the sales order.

PRODUCTION FACILITIES AND MACHINERY

LED beads

Our Zhuhai HongGuang Production Plant is equipped with a variety of machineries andequipment for different stages of production of our LED beads. The primary type of LED beadencapsulation machineries and equipment used by our Group are, namely, die bonder, ball bonder,tabletop dispensing robot, LED photoelectric oven, automatic LED taping system and automaticLED sorting system. We purchased these machineries and equipment in Hong Kong and in thePRC. Generally, the machineries and equipment have a useful life of approximately 10 years in linewith our depreciation policy. The table below sets out a summary of the principal machineries andequipment owned by our Group for the production of LED beads as at the Latest Practicable Date:

Name of themachinery Quantity Principal functions

Average age ofthe machinery

(approximately)(Note 1)

Remaininguseful life


Die bonder 17 Perform die bonding of the LED chipsby way of computerised machine

5.3 years 4.7 years

Ball bonder 14 Perform metal wire bonding by way ofcomputerised machine

5.3 years 4.7 years

Tabletop dispensingrobot

15 Perform precise fluorescein gelinjection by way of computerisedmachine

5.1 years 4.9 years

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Name of themachinery Quantity Principal functions

Average age ofthe machinery


Remaininguseful life


Automatic LEDsorting system

19 Perform computerised LED inspection,sorting and packing

4.4 years 5.6 years

Automatic LEDtaping system

13 Mounting of homogenous backlightLED beads onto a peel of tape

4.5 years 5.5 years

LED photoelectricoven

42 Heat up the soldering environment forLED beads

5.7 years 4.3 years

Notes:

1. The average age of the machinery and equipment is calculated based on the aggregated age of the machinery

divided by the number of units of the machinery.

2. The remaining useful life of the machinery and equipment is calculated based on the estimated useful life

deducted the average age of the machinery.

During the Track Record Period, we had not outsourced or sub-contracted any part of

manufacturing process of our LED beads to any contract manufacturers in the PRC. During the

Track Record Period and as at the Latest Practicable Date, our Group did not experience any

material or prolonged stoppages of production due to machinery or equipment failure.

The table below sets forth our estimated annual production capacity, actual production volume

and utilisation rate of our production machineries and equipment of our LED beads for the two

years ended 31 December 2015:

For the year ended 31 December

2014 2015

Estimatedannual

productioncapacity(Note 1)

Actualproduction

volume

Utilisationrate (%)

(approximate)(Note 2)

Estimatedannual

productioncapacity(Note 1)

Actualproduction

volume

Utilisationrate (%)

(approximate)(Note 2)

(approximateunit)

(approximateunit)

(approximateunit)

(approximateunit)

LED beads 983,808,000 776,390,000 78.9 983,808,000 850,526,000 86.5

Notes:

1. The estimated production capacity is calculated for illustration purpose only, based on 288 working days per

year and 20 working hours per working day.

2. The average utilisation rate is calculated by dividing the total production volume of a year by the estimated

production capacity of the year.

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Repair and maintenance

We implement strict repair and maintenance procedures for our major machineries and

equipment. Our production team conducts routine checking on our machineries and equipment on a

daily basis and conducts cleaning and detailed checking on a monthly basis. We check the sensors

and other major parts of our machineries on a quarterly basis and conduct thorough cleaning thereof

and their power supply systems on an annual basis. We maintain detailed records of maintenance

and repair of the machineries.

We had compiled a handbook related to the guidelines for the management of our production

facilities. The handbook contains the procedures related to the planning and acquisition of new

machineries and equipment and details on the repair and maintenance of our machineries and

equipment. For the two years ended 31 December 2014 and 2015, our costs incurred for the repair

and maintenance of our machineries and equipment were approximately RMB0.2 million and

RMB0.2 million respectively.


As at the Latest Practicable Date, we had one assembly line consisting of three workers to

undertake the entire assembling and packaging of LED lighting products. Regarding the assembling

of LED lighting products, we use the parts and components including LED beads manufactured in-

house together the circuit boards and power modules which are purchased from our suppliers. Our

production process of LED lighting products therefore include mainly testing, assembling and

installation of these parts and components and our in-house manufactured LED beads. These works

are undertaken by our workers manually with support of simple machineries and equipment. Hence,

our capacity for production of LED lighting products primarily depends on the number of workers

we have deployed to undertake the fixing, soldering, checking, cleaning, labelling, inspecting and

packaging of finished products in this respect. Based on 288 working days per year and 10 working

hours per working day(note) and a production team of three workers, the estimated annual production

capacity of our assembly line for production of LED lighting products would be 173,000 pieces.

The production of our LED lighting products is still in the inception stage and we deploy workers

from our production team to the assembly line of our LED lighting products only after we have

received purchase orders from customers. Hence, it is not feasible or practicable for us to accurately

quantify the utilisation rate of our assembly line for the production of LED lighting products.

PRODUCTION MATERIALS AND SUPPLIERS

For the two years ended 31 December 2014 and 2015, the cost of production materials used

accounted for approximately 90.1% and 90.3% of our total cost of sales, respectively. Production

materials purchased and used by our Group mainly include LED chips, gold wires and brackets.

During the Track Record Period, LED chips were the largest purchases, representing approximately

68.2% and 80.9% of the total cost of material used for the two years ended 31 December 2014 and

Note: As our production process of LED lighting products is mainly undertaken by our workers manually with support of

simple machineries and equipment, our Directors consider that the maximum working hours per worker shall not be

more than 10 working hours per working day.

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2015 respectively. Our Group sources production materials generally from our PRC suppliers. The

table below shows a breakdown of our Group’s purchases by types of production materials for the

two years ended 31 December 2015:

For the year ended 31 December

2014 2015

RMB’000 % RMB’000 %

LED chips 56,419 68.2 66,248 80.9

Gold wires 2,382 2.9 1,014 1.2

Brackets 13,991 16.9 11,852 14.5

Others (Note) 9,883 12.0 2,820 3.4

Total 82,675 100.0 81,934 100.0

Note: Other production materials mainly include plastic tapes, phosphors, glue and packaging materials.

For the hypothetical sensitivity analysis and breakeven analysis on the cost of production

materials used for each year during the Track Record Period, please refer to the section headed

‘‘Financial Information — Sensitivity and breakeven analysis’’ for further details.

During the Track Record Period, our Group purchased production materials from over 50

suppliers. Our Group generally has alternative sources of supply for production materials and hence

the loss of any single supplier would not have a material impact on our operations.

Procurement planning

As at the Latest Practicable Date, the procurement department of our Group comprised two

personnel. Our Group in general purchases our production materials based on (i) customers’

confirmed purchase orders; (ii) projected production schedule in the next 30 to 45 working daysand (iii) the prevailing price of certain major production materials, including LED chips, gold wires

and brackets. Our production department will first place an internal purchase request with our

procurement department, based on customers’ confirmed orders. Our procurement staff would

request for price quotations in advance from our suppliers biannually as future reference for the

production materials required for production. Our procurement staff will place purchase orders forthe production materials with the suppliers with reference to the quotation obtained in advance.

Since our Group did not engage in any hedging activity nor enter into any futures contract to

manage price fluctuation of the production materials, parts and components during the Track

Record Period and does not plan to engage in any hedging activity in the foreseeable future, our

procurement department will closely monitor the price of the production materials. When our Groupanticipates any increase in the price of production materials or shortage of supply thereof, our

Group will adjust our procurement plans accordingly in order to minimise the exposure to the

fluctuations in prices and supply.

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Although there was decrease in the average purchase price of LED chips and brackets and

fluctuation in the price of gold wires as detailed in the section headed ‘‘Industry Overview’’ in this

[REDACTED], such decrease in prices of our production materials, did not cause any material

adverse impact on the financial conditions to our Group during the Track Record Period.

Selection of suppliers

Our Group selects our suppliers based on a number of criteria including but not limited to

their product quality, pricing, supply capability and business track record with our Group. Our

Directors take the view that due to their experience in the LED lighting industry, they strive tosafeguard safety and quality of our production materials. Hence, our Directors are capable of

identifying suitable suppliers based on the aforesaid criteria. Our Group regularly conducts on-site

inspections of the suppliers’ production facilities, reviews their background information and

licences, including their business licence(s) and requisite certifications. As such, our Group has

compiled and maintained a list of approved suppliers. These suppliers or any one of them would beremoved from the list should they fail to satisfy our quality and service requirements upon periodic

review by our production team and quality control team.

In view of our Group’s stringent criteria in selection of suppliers, we tend to maintain stable

relationships with our suppliers to ensure that no disruption would be caused to our operation as a

result of any change of suppliers. Our business relationship with our top five suppliers ranged fromone to four years as at the Latest Practicable Date.

Salient terms of our purchase orders

Standard terms of our purchase orders: Owing to the large number of suppliers, our Directors

do not consider it necessary to enter into any long-term procurement agreements with suppliers,

which is in line with industry practice. Instead, our Group would issue a standard purchase order to

the supplier on our list of approved suppliers in an ordinary purchase transaction. A standard

purchase order contains specifications and quantity of the production materials procured by us, unit

prices, the total transaction amount, payment date and method and the delivery date. The suppliers

are usually required to make delivery to our warehouse at their own costs before a specified date.

Payment methods: Our Group is generally required to pay for the production materials

between 30 to 120 days from our suppliers. Sometimes, at the request of the suppliers subject to the

demand and supply conditions of LED chips, we may need to prepay certain amount of the

purchase price in order to secure our purchase of LED chips. Payment of purchase price for the

production materials is generally made by bank transfers or bank acceptance bills endorsed to us by

our customers and settled in RMB. During the Track Record Period, we had not entered into any

arrangement with the banks or financial institutions with respect to the issue of any bank

acceptance bills by ourselves. For more details, please refer to the section headed ‘‘Financial

Information — Trade and bills receivables’’ in this [REDACTED].

Our Directors confirm that, save for the litigation with a supplier of brackets, during the Track

Record Period and up to the Latest Practicable Date, our Group had not encountered any quality

issues on or shortage or delay of production materials and/or any significant return of defective

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production materials, which would have material adverse effect on the manufacture of our products.

For details about this litigation proceeding, please see the paragraph headed ‘‘Litigations’’ in this

section. For each of the two years ended 31 December 2014 and 2015, the value of the products

returned to suppliers over our total cost of sales was approximately 4.8% and 1.1%, respectively.

Our Group’s top five suppliers

For each of the two years ended 31 December 2015, total purchases from our Group’s top five

suppliers amounted to approximately RMB75.9 million and RMB62.2 million, representing

approximately 85.2% and 65.3% of our total cost of purchases for the corresponding periods. For

each of the two years ended 31 December 2015, our Group’s purchases from our largest supplier

accounted for approximately 19.6% and 21.6% of our total cost of purchases in each of the

respective years. All our suppliers are domestic suppliers carried on business in the PRC.

None of our Directors, their respective associates, and existing Shareholders own more than

5% of our issued share capital or have any interest in any of our Group’s five largest suppliers

during the Track Record Period.

The following tables set forth certain information about our Group’s top five suppliers during

the Track Record Period:

For the year ended 31 December 2014:

Majorproductsprocuredfrom thesupplier

Creditperiod(days)

Businessrelationship

sinceBusiness nature ofthe supplier

% to totalcosts of

purchaseour Group

(approximate)

Supplier A LED chips 90 2012 Manufacture ofelectronic chips andcomponents

19.6

Supplier B LED chips 90 2013 Wholesale of LEDchips

18.1

Supplier C LED chips 90 2012 Wholesale ofelectronic parts andcomponents andLED lightingproducts

16.1

Supplier D LED chips 90 2011 Wholesale of LEDchips

16.1

Supplier E Brackets 120 2012 Manufacture of LEDcomponents andrelated parts

15.3

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Majorproductsprocuredfrom thesupplier

Creditperiod(days)


sinceBusiness nature ofthe supplier

% to totalcosts of

purchaseour Group

(approximate)

Supplier C LED chips 90 2012 Wholesale ofelectronic parts andLED componentsand LED lightingproducts

21.6

Supplier F LED chips 90 2015 Wholesale and tradingof buildingmaterials, chemicalproducts andelectronic products

21.6

Supplier B LED chips 90 2013 Wholesale of LEDchips

8.9

Supplier G LED chips 90 2013 Manufacture and saleof LED epitaxialwafers and LEDchips

7.8

Supplier H Brackets 90 2014 Manufacture of LED,components andrelated parts

5.4

SALES AND CUSTOMERS

Our sales and marketing team is responsible for the sales activities of our Group. As at the

Latest Practicable Date, our sales and marketing team comprised 16 staff members. The sales and

marketing team is responsible for formulating our Group’s overall sales strategies, collecting and

analysing market data and negotiating and finalising sales terms with our customers. Our sales and

marketing team, along with our production team, provides sales and after-sales services to our

customers.

For the years ended 31 December 2014 and 2015, our PRC sales accounted for approximately

95.6% and all, respectively, of the total revenue of our Group for the corresponding years, and our

overseas sales accounted for approximately 4.4% and nil, respectively, of the total revenue of our

Group for the corresponding years.

Customers

During the Track Record Period, our Group sold the LED beads and LED lighting products

directly to our customers predominantly in the Guangdong Province. We had not appointed any

regional distributors or agents to conduct sales on our behalf.

Customers for our LED beads comprise manufacturers of small-sized and medium-sized

backlight LED modules/panels, LCD panels and other electronics products and a trading company

in the PRC. Our LED beads would be applied for production of backlight LED products, which are

in turn generally used as the light emitting source for the displays of smartphones and the LCD

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panels of tablet computers. In 2014, our LED lighting products were sold to an Australian company

and a trading company in the PRC, whereas in 2015, our LED lighting products were sold to a

trading company in the PRC. To the best knowledge of our Directors, this trading company in the

PRC, which is one of our top five customers in both 2014 and 2015, subsequently exported our

LED beads and LED lighting products to Hong Kong and Australia.

Top five customers

For the two years ended 31 December 2014 and 2015, our Group’s sales to our top five

customers accounted for approximately 50.5% and 76.4% of our total revenue in each of the

respective years. In the corresponding periods, sales to our largest customer accounted for

approximately 13.7% and 34.0% of our total revenue in each of the respective years. None of our

Directors, their respective associates, and existing Shareholders hold more than 5% of the issued

share capital or have any interest in our five largest customers during the Track Record Period.

The tables below set forth the basic information of our Group’s top five customers during the

Track Record Period:


Customer

Majorproductssold tothe customer

Creditperiod(days)


sinceBusiness nature ofthe customer

% to totalrevenue ofour Group

(approximate)

Customer A LED beads 75 2013 Manufacture of backlightLED module/panel

13.7

Customer B LED beads 90 2013 Manufacture of backlightLED module/panel andLED lighting products

10.9

Customer C(Note)

LED beadsand LEDlightingproducts

90 2014 Trading of LED beadsand LED lightingproducts

10.1

Customer D LED beads 90 2012 Manufacture of backlightLED module/panel

8.8

Customer E LED beads 30 2012 Manufacture of backlightLED module/panel

7.0

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Customer

Majorproductssold tothe customer

Creditperiod(days)


sinceBusiness nature ofthe customer

% to totalrevenue ofour Group

(approximate)

Customer F LED beads 90 2012 Manufacture ofbacklight LEDmodule/panel

34.0

Customer C(Note)

LED beadsand LEDlightingproducts

90 2014 Trading of LED beadsand LED lightingproducts

23.7

Customer D LED beads 90 2012 Manufacture ofbacklight LEDmodule/panel

9.0

Customer A LED beads 75 2013 Manufacture ofbacklight LEDmodule/panel

5.6

Customer B LED beads 90 2013 Manufacture ofbacklight LEDmodule/panel andLED lightingproducts

4.1

Note: During the Track Record Period and as at the Latest Practicable Date, Customer C had been owned as to40% by Mr. Chen Shuo, who together with Mr. Lin owned the equity interest in Zhuhai Qishuo in equalshare up to 4 January 2016, which had, during the Track Record Period and up to 4 January 2016, in turnowned 40% equity interest in Zhuhai Lijia, the landlord of our leased property in the PRC.

During the Track Record Period and up to the Latest Practicable Date, our Group did not haveany material disputes with our major customers.

Principal contractual terms

Our Group does not enter into any master framework agreement or long term sales contractwith our customers. Instead, customers place purchase orders with us for purchase of our products.The placing orders from different customers have different terms and conditions. We set out belowthe typical terms contained in our customers’ purchase orders:

Product Specifications With respect to LED beads, the specifications mainlyinclude the LED bead sizes, its specifications in terms ofchromaticity, luminous intensity and forward voltage.

With respect to our LED lighting products, thespecifications mainly include the particulars of the productseries.

Quantity There is no minimum quantity per sale order.

Unit Price The purchase orders from our customers usually set out theunit price of the products.

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Delivery We are responsible for the delivery of the products. Somepurchase orders specify that in case of delay in delivery, weshall pay compensation at an agreed percentage of the entirevalue of the relevant purchase order to the customers.

Quality and acceptance Different purchase orders have different quality andacceptance standards, such as (i) sampling checks beforedelivery against individual customers’ requisite passing rateof sampling check; (ii) compliance with internationalcertification standard; (iii) compliance with the productspecifications agreed by the customers and us in advancebefore production commences etc; or (iv) compliance withindividual customers’ internal quality control standards.

Warranty There is no warranty period in the purchase orders but wegive warranty on our products based on the qualitystandards specified in individual purchase orders. Suchquality standards may include our warranties that ourproducts are (i) in compliance with the sample provided tothe customer; (ii) in compliance with the specifiedinternational certification standards; (iii) in compliance withthe product specifications agreed by the customers and us inadvance; and (iv) compliance with individual customers’internal quality control standards.

Product return We allow product returns and replacement due to the breachof our warranties in respect of the quality of the products ifthe requests for product return are made within theprescribed time in the purchase orders. For details, pleasesee the paragraph headed ‘‘Sales — Products return policyand after-sale services’’ in this section.

Credit terms of our customers’ purchase orders

Save for new customers who are required to make full payment to us before we deliver theproducts to them, we generally grant credit periods to our customers varying from 30 days to 90days, depending on the creditworthiness of individual customers and determining on a case-by-casebasis with reference to the customers’ scale of operation and length of business relationship with us.Our customers in the PRC usually settle payment by way of bank transfer or bank acceptance bills.As to the latter, we would accept bank acceptance bills if we have confirmed with a supplier whowould allow us to settle our payment with it by endorsing the bank acceptance bills we receivedfrom our customers. The maturity of the bills receivables generally are not more than six months.For the two years ended 31 December 2014 and 2015, approximately 62.0% and 47.0% of therevenue received from our customers are paid by bank acceptance bills for settlement of thepurchase of our products, respectively.

During the Track Record Period, we experienced delays in receiving our trade and billsreceivables. For details, please see the section headed ‘‘Risk Factors — Our cash flow could beadversely affected due to overdue payments from our customers’’ in this [REDACTED]. We have

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implemented a number of internal control procedures to enhance our management over our tradeand bills receivables. For details, please see the paragraph headed ‘‘Risk Management’’ in thissection.

Sales

Products return policy and after-sale services

Product return policy: Our Group normally allows return and replacement of products mainly

due to quality reasons. Our Group generally categorises the defects in the products into technical

defects and non-technical defects. Any technical defect found will be referred to our engineering

team while the non-technical defect, for instance, defects found in the surface of packaging of our

products, will be handled by our sales and marketing team together with other relevant teams.

Generally, our Group responds to the customers’ inquiries regarding any defective products within

one day. During the Track Record Period, our Group had not experienced any significant product

return and replacement owing to any quality issue, which would have caused any material and

adverse impact on the financial condition and operating results of our Group. For each of the two

years ended 31 December 2014 and 2015, the value of the product returned (owing to quality issue)

over our total revenue was approximately 0.76% and 0.25%, respectively.

After-sale services: The staff members of our sales and marketing team regularly pay visits to

and communicate with our customers to collect their feedbacks on the quality, preferences,

improvements and market demands of our products. Our sales and marketing team will share this

information with our production team and research and development team in order to improve the

existing products.

Complaint handling: Our sales and marketing team is responsible for handling customers’

complaints. After a customer has lodged a complaint on the quality of our products and/or make a

written request for product return and replacement, our sales and marketing team will pass the

matter to our production team and quality control team to inspect the products under complaint. If

the complaint and/or the request for product return and replacement is genuine, we will arrange for

a replacement to be sent to customer.

Delivery and logistics

Delivery of our products to the customers is made via road or sea shipment. For products

delivered via road, our Group generally engages third party logistic service providers to deliver the

products from our Zhuhai HongGuang Production Plant to the destinations specified by the

customers at our own costs. The risks of the products remain with our Group until the products are

duly delivered to our customers’ designated destinations. For each of the two years ended 31

December 2014 and 2015, the delivery costs for engaging third-party logistic service providers

amounted to approximately RMB0.2 million and RMB89,000, respectively. For the exports sales to

the customer in Australia, our products are delivered through shipment on a freight-on-board (FOB)

basis. The risks of loss or damage of goods transported under FOB basis pass to the buyer when the

goods are on board of the vessel, and the buyer bears all costs from that moment onwards.

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PRICING POLICY

Our pricing policy aims to facilitate the profitable and sustainable growth of our business. We

generally determine the prices of both our LED beads and LED lighting products on a cost-plus

basis. Since each product has its own specifications or requirements, the pricing of each new

product is negotiated and determined on a case by case basis with individual customers in order to

balance the profitability between our customers and our Group. In general, we determine the price

of our products by reference to the following factors:

. product specifications, functional and quality requirements, complexity of the

manufacturing process, sales volume, lead time and the delivery schedules required by

our customers;

. production costs including costs of production materials and the prevailing labour cost;

. payment terms; and

. the packaging requirements.

As a result of the ‘‘cost-plus’’ pricing strategy, our Directors believe that our Group could

generally pass the risks arisen from any fluctuation in purchase costs of production materials to the

customers during the Track Record Period. As the price of the LED chip has reduced in recent

years, the average price of our LED beads had reduced correspondingly from RMB0.147 per piece

in 2014 to RMB0.134 per piece in 2015. In this connection, we continuously keep ourselves abreast

of changes to the market prices, conduct regular reviews on the pricing policy and pay close

attention to responses of the customers during negotiations/quotations stage. Our Group may adjust

the pricing policy to ensure our Group is responsive to market price changes and customers’

responses in a timely manner to avoid any material adverse impact on our market position,

competitiveness, performance and financial conditions.

Tax rebate

During the Track Record Period, part of our LED lighting products were exported to an

Australian company and for the two years ended 31 December 2014 and 2015, the revenue

generated from these export sales amounted to approximately RMB4.8 million and nil, representing

approximately 4.4% and nil of our revenue, respectively. We were therefore entitled to a rebate of

the VAT from the PRC tax authority arising from these export sales at rates ranging from 13% to

17% for our LED lighting products. We received export tax rebate in the respective sum of

approximately RMB0.6 million and nil for the year ended 31 December 2014 and 2015,

respectively.

SEASONALITY AND PRODUCT LIFE CYCLE

As our LED beads are mainly applied for production of the backlight LED modules/panels for

smartphones and tablet computers of certain popular brands in the PRC, our Directors consider that

the product life cycle of our LED beads would be affected by the pace of technological

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development and the launching of new smartphone and/or tablet computers of these popular brands

in the PRC. According to the CIC Report, the fast update of consumer electronics, like portable and

visual products of smartphones, tablet computer etc., is likely to lead people to change new

products frequently. With the speeding up of electronics consumption, more and more new

smartphones and tablet computer spring up. The old products are therefore expected to be replaced

in a short term, which benefit for the increase of demand for backlight LED products. Meanwhile,

the number of customers tending to have more than one smartphone or tablet PC is continuously

increasing.

Our Directors consider that the life cycle of our LED lighting products would depend on the

level of competition of LED lighting products in the markets in which our LED lighting products

are offered for sale.

We generally record lower sales in the first quarter of the year, which our Directors consider

to be generally attributable to the Chinese New Year holiday in the PRC. On the other hand, we

generally record higher demands from our customers in the last quarter of the year, which we

consider to be attributable to their needs to manufacture backlight LED products for displays of

smartphones and LCD panels of the tablet computers as their end customers may have sales

promotion for smartphones and tablet computers during holiday seasons, such as Chinese New

Year. Our customers, which include manufacturers of backlight LED modules/panels, LCD panels

modules and manufacturers of electronics products therefore typically make purchase orders with us

a few months before holiday seasons, including Chinese New Year.

MARKETING AND PROMOTION

As at the Latest Practicable Date, our sales and marketing team comprised 16 members staff

who are responsible to communicate with our customers from time to time to collect their feedbacks

on our products and updated market information. Our sales and marketing team is also responsible

for handling the return of customers’ defective products by timely attending to the matter and

referring the problem to the production and other departments.

To promote our Group and our products, our Group attended trade fairs in India and Russia in

2014 and in the PRC in 2015.

QUALITY CONTROL

As at the Latest Practicable Date, our Group had nine staff members responsible for quality

control. The quality control supervisor is in charge of the overall implementation of our quality

control measures on the entire production process and the finished products. Our quality control

team is mandated to identify any quality control issues and provide solutions to the production team

to address the quality control issues. Our quality control staff examine the products at each key

stage of production to ensure that the quality of the products can meet our internal standards and

customers’ requirements. In this connection, both the staff members in production team and quality

control team are trained to identify quality control issues.

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Quality control on production materials

Incoming production materials are subject to normal inspection by our quality control team to

ensure their conformity with the specifications and requirements of our customers before

acceptance. Upon discovery of any sub-standard or defective production materials, the quality

control personnel will refer the case to the procurement department which will communicate with

the relevant suppliers for defect analysis and arrange for return of such supplies. Depending on the

nature of the production materials, the internal guidelines of our Group require the testing and

inspection process to cover aspects including appearance, size, mechanical features, electrical

testing and geometric features. The maximum amount of defective production materials discovered

during random inspection which is considered by us as acceptable is 0.5% of the entire batch of the

production materials under inspection. Though our Group has adopted a strict quality control

measure in inspecting the incoming production materials, there are occasions that defects are

discovered during the production process. If that happens, we will return the defective production

materials to the relevant suppliers and request the suppliers to send the new batch of production

materials to us.

Quality control on production process

The quality control personnel test the quality of semi-finished products at several stages in the

production process. One of the major objectives is to ensure that the overall quality of semi-

finished products conforms to the required standards, by means of testing on all of the work-in-

progress, immediate defect analysis and timely repair. Those semi-finished products that fail to

meet the quality standards are either repaired or disposed of and are subject to failure analysis to

identify the root cause of failures and determine corrective actions to be taken. The production

personnel and quality control personnel meet regularly to discuss the causes of the quality problems

of our products and the corresponding solution to improve and ensure the quality of our products.

Quality control on finished products

It serves as the final control point to ensure that outgoing products comply with the

customers’ requirements and the industry standards. Our Group requires the quality control

personnel to conduct inspection and functional testing on the quality standard for product

inspection. The finished products must pass the final quality testing before packaging. Those

products that fail to meet the quality standard will be subject to additional work and those which

meet the requisite standard will be subject to final inspection by the customers, if required. Some of

the customers also send their representatives to conduct on-site quality checks on the finished

products.

Quality certifications and recognition

We have obtained quality certifications as an effort to ensure our manufacturing system and

processes conform with to the internationally recognised quality standards. We have obtained the

ISO 9001:2008 certification on quality management and ISO 14001:2004 certification on

environmental management system both since October 2011. We have also obtained certifications

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in respect of the national standard of ‘‘CCC’’ in the PRC and various international standards

including ‘‘CE’’, and ‘‘RoHS’’ for European Union and ‘‘RCM’’ and ‘‘SAA Approvals’’ for

importation of electronics products into Australia.

RESEARCH AND PRODUCT DEVELOPMENT

Our Group has a research and development team which focuses on the improvement of the

production process. As at the Latest Practicable Date, we had five members in our research anddevelopment team, out of which (i) one member possessed a bachelor degree in Physics; (ii) one

possessed post-secondary-school qualification in the field of applied electronics in the PRC; and

(iii) three attended secondary school in the PRC. As at the Latest Practicable Date, our Group had

applied for the registration of one patent in the PRC under the category of invention patent in

relation to a type of plastic dispensing syringe used in the step of envelop epoxy stage of theproduction process of the LED beads production process.

Please refer to the paragraph headed ‘‘B. Further information about the business of our Group

— 2. Intellectual property rights of our Group’’ of Appendix IV to this [REDACTED] for details of

the patent under application and the 14 utility model patents (實用新型專利) and one invention

patent (發明專利) already registered under the name of Zhuhai HongGuang.

Our Group incurred approximately RMB0.3 million and RMB0.9 million respectively in

aggregate for the costs of research and development for the two years ended 31 December 2014 and

2015, which mainly consisted of the staff costs of the research and development team.

INVENTORY MANAGEMENT

The inventory comprises mainly of production materials and finished products. Our

procurement and inventory team, which is consisted of nine staff as at the Latest Practicable Date,

closely monitor the inventory level to meet the production requirements, and minimise any waste on

inventory or obsolete inventory.

Production materials

We purchase most of our production materials after we have confirmed the purchase orders

with our customers in order to avoid accumulation of excessive inventories. However, we strive to

maintain minimal level of inventory for the production materials based on the purchase orders. Weaccumulate key production materials that we frequently use in our production, including LED chips,

brackets and gold wires, in order to meet our continuous production needs for a period around 30 to

45 working days.

As most of our products are produced based on individual orders, there is no significant risk

of obsolescence. Our production team will determine the amount of materials to be purchased basedon the number and sizes of purchase orders from our customers:

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. once the amounts are confirmed, with the assistance from our production team, our

procurement and inventory team will check the availability of existing inventory and will

then proceed to ordering the production materials from suppliers chosen from our

approved list of suppliers;

. after our quality control team has conducted inspections on the incoming production

materials, the production materials will be warehoused and we will perform material

categorisation and inventory tracking; and

. a full stock take is performed on a quarterly basis to ensure the accuracy of stock-in and

stock-out information on record. Throughout the year, our Group reviews the stock-

taking records and performs inventory aging analysis to ensure that inventories are

properly used and that there is no unnecessary accumulation of aged inventories.

We adopt a first-in-first-out approach for the utilisation of the raw materials and parts and

components.

Finished goods

Finished products refer to the products which are readily delivered to customers. As our

Group commences the production process after receipt of purchase orders placed by the customers,

there is no significant risk of obsolescence of finished goods. Our Group adopts a first-in-first-out

approach in utilising the finished goods and closely monitor the inventory level of the finished

goods to minimise the inventory level.

ACCREDITATION

Our Group has received the following recognitions and certifications:

Year Recognition or AccreditationIssuing Authority/Institution/Authorised Agent

2011 ISO 9001: 2008 Quality Management

for the design and manufacture of

SMD LEDs

SGS United Kingdom Systems &

Service Certification

2011 ISO 9001: 2004 Environmental

Management System for the design

and manufacture of SMD LEDs

SGS United Kingdom Systems &

Service Certification

2013 SAA Approvals for declared and non-

declared electrical equipment that

has proven to comply with the safety

requirements of the applicable

Australian Standard

Joint Accreditation Service of

Australia and New Zealand

(JAS-ANZ)

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Year Recognition or AccreditationIssuing Authority/Institution/Authorised Agent

2014 Certificate for China Compulsory

Product Certification

China Quality Certification Centre

(中國質量認證中心)

2014 Certificate of Conformity in — CE

marking, which is compulsory for

certain products to be traded in the

European Economic Area. By fixing

the CE marking on the products, the

manufacturer declares that the

product complies with the safety

requirements set out in the applicable

European Directives

Global-Standard Testing Service

Co., Ltd.

2014 Attestation of Conformity — C-Tick

labels, which apply to electrical and

electronic devices to be sold in

Australia and New Zealand and

indicates that the product is

compliant with the applicable

Australian Communications and

Media Authority’s requirements and

later superseded by ‘‘RCM’’ labels


Co., Ltd.

2014 Certificate of Conformity — RoHS for

the compliance with the European

Union Restriction of Hazardous

Substances Directive


Co., Ltd.

PROPERTIES

Owned property in the PRC

As at the Latest Practicable Date, our Group did not own any property in the PRC.

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Leased property in the PRC

As at the Latest Practicable Date, our Group leased one property in the PRC from Zhuhai

Lijia. The particulars of the lease are as follows:

Address of the leasedproperty as shown inthe lease Landlord GFA Monthly rental

Our Group’s useof the property Term

2nd Floor and North side

of the 3rd Floor, No. 8

Pinggong Er Road,

Nanping Technology

Industrial Park, Zhuhai,

PRC

Zhuhai Lijia 2,165 m2 RMB32,475

According to the

terms of the lease

agreement, during

the term of the

lease, both the

landlord and our

Group as tenant

shall by negotiation

adjust the amount of

the monthly rental

with reference to the

then prevailing

market rent. If that

happens, the

landlord and our

Group shall enter

into supplemental

lease agreement(s).

office and factory From 1 April

2015 to

31 March

2025

(Note)

Note: We operated our Zhuhai HongGuang Production Plant at the leased property since 2010 and started payment

of rent to Zhuhai Lijia since 2013. We entered into written lease agreement with Zhuhai Lijia since 1 April

2015.

During the Track Record Period, the equity interest of Zhuhai Lijia had been owned as to 60%by a company incorporated in Hong Kong (being an Independent Third Party) and 40% by ZhuhaiQiShuo, which was in turn owned as to 50% by Mr. Lin, our Controlling Shareholder and 50% byMr. Chen Shuo. Mr. Chen Shuo subsequently transferred his interest in Zhuhai QiShuo to Mr. Lin’sbrother in 2016. As at the Latest Practicable Date, Zhuhai QiShuo was owned as to 50% by Mr. Linand 50% by Mr. Lin’s brother.

Our Directors confirmed that our Group’s current lease in the PRC was negotiated on an arm’slength basis with reference to the prevailing market rates and/or other factors. The PRC LegalAdvisers are of the opinion that the lease agreement in relation to the leased property of our Groupin the PRC is legal and valid.

As at the Latest Practicable Date, the lease agreement had not been registered with theappropriate government authority in the PRC. As advised by our PRC Legal Advisers, under thePRC laws, an executed lease agreement must be registered and filed with the relevant land and realestate administration bureau. However, a failure to register an executed lease agreement will notinvalidate the lease agreement.

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In this connection, the PRC Legal Advisers enquired with the Registration Centre of Real

Properties of Zhuhai City* (珠海市不動產登記中心), the Land and Resources Bureau of Zhuhai

City* (珠海市國土資源局) and Nanping Police Station of Zhuhai City* (珠海市南屏派出所). The

PRC Legal Advisers note that there is no government department or authority in Zhuhai which isresponsible for registration of lease agreements entered into between corporations related to the

lease of premises for business and production purposes. As such, it is not able for us to register the

lease agreement. The PRC Legal Advisers opine that since we have been lawfully using and

occupying the premises pursuant to the lease agreement, the lease agreement is still subsisting and

enforceable and legally binding between the landlord and our Group. We have been advised by thePRC Legal Advisers that we will not be subject to material penalty under PRC laws and regulations

for the non-registration of the lease agreement.

INSURANCE

Our Group currently maintains social security insurance for our employees, property insurancefor our production facilities in the Zhuhai HongGuang Production Plant, and our vehicles. Our

Group does not maintain product liability insurance arising from the manufacture and sale of our

products. Our Directors confirm that our Group’s insurance coverage is adequate for our operations

and is in line with industry practice. As at the Latest Practicable Date, our Group had not made, nor

been the subject of, any material insurance claim. There had been no product liability claimsagainst us during the Track Record Period.

MARKET AND COMPETITION

According to the CIC Report, the sales value of backlight LED beads for production of

backlight LED products had grown with a CAGR of 8.0% over the period from 2010 to 2015 in thePRC, reaching an overall market size of approximately RMB9,356.5 million in 2015. In 2015, the

sales value of backlight LED beads in the small-sized and medium-sized backlight LED product

segments recorded a combined sales value of approximately RMB3,824.4 million, representing

approximately 40.9% of the total sales value of backlight LED beads for production of backlight

LED products in all the three segments in the PRC in 2015.

According to the CIC Report, the number of manufacturers supplying LED beads to the small

and medium segments was relatively concentrated, with the top five out of a total 60 manufacturers

in the segment attaining a combined sales value of approximately RMB1,442.8 million in 2015,

representing an aggregate market share of approximately 37.7%. Amongst 60 manufacturers in

these two segments, our Company ranked number four in terms of market share, recording a marketshare of approximately 3.0% and a sales value of approximately RMB115.0 million in the PRC in

2015.

In view of various government policies promulgated by the PRC government purported to

promote the development of the backlight LED product market in the PRC and the rapid growth of

the smartphone and tablet PC markets, the demand in backlight LED product market is expected togrow in the future. Our Directors consider that the (i) complex and highly technological intensive

nature of LED bead manufacturing; (ii) the time and experience involved in developing an effective

cost control system; (iii) the difficulty for newcomers to build a solid relationships with customers;

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and (iv) the time involved to grow into a sizable company to enjoy the benefit of economy of scale,

are the major entry barriers to the market for development and production of backlight LED beads

in the PRC.

Our Directors believe that the competitive strengths, which are more particularly set out in the

paragraph headed ‘‘Competitive strength’’ in this section, will enable our Group to maintain our

position as one of the active market players for developing and manufacturing of LED beads for the

small and medium backlight LED product market in the PRC.

Owing to the continuous reduction in the production costs as a result of the decrease in the

price of LED chips and the rapid increase in the number of LED lighting product manufacturing

plants as a result of the PRC government policies in phrasing out traditional lamps due to the

environmental protection nature of LED lighting products, the LED lighting product market is

rather fragmented with around 1,000 manufactures in the PRC. In 2015, our Group’s market share

in LED lighting product market is negligible.

EMPLOYEES

As at the Latest Practicable Date, our Group had 102 employees. The following table sets

forth the number of our Group’s employees by job functions and geographical locations as at the

Latest Practicable Date:

Job function Total

PRC

Engineering 6

Managerial, administrative and accounts 16

Sales and marketing 16

Procurement and inventory 9

Production 39

Quality control 10

Research and development 5

Hong Kong

Managerial, administrative and accounts 1

Total number of employees 102

Remuneration

Our Group’s employees are generally remunerated by way of fixed salary. Our Group utilises

an appraisal system for our employees and our Group would consider the appraisal results of

individual employees in conducting their salary reviews, making promotion decisions and

determining the amount of bonuses. Our Group’s employee is also entitled to a performance-based

bonus, paid leave and various subsidies.

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Relationship with employees and recruitment policies

Our Directors believe that our Group’s management policies, working environment, employee

development opportunities and employee benefits have together contributed to good employer-

employee relations and successful employee retention. Our Directors confirm that during the Track

Record Period and up to the Latest Practicable Date, our Group had not encountered any difficulty

in recruitment and retention of staff for our operation or experienced any disruption in our

operation as a result of labour disputes with our employees in all material respects.

Our Group recruits employees based on a number of factors such as their working experience,

educational background and vacancy needs.

Employee Training

In order to increase the overall competitiveness of our Group’s workforce and to attract and

retain existing employees and strengthen their knowledge, skill level and quality, our Group places

strong emphasis on the training of its employees. We provide trainings across different operational

functions, including induction training for new employees, technical training, and training to

enhance the employees’ knowledge in safety measures when performing their duties.

Social Welfare Scheme and Housing Provident Funds

According to the Social Insurance Law of the PRC* (中華人民共和國社會保險法), Zhuhai

HongGuang is required to make social insurance contributions for its employees in the PRC. As at

the Latest Practicable Date, Zhuhai HongGuang maintained a social insurance scheme that covers

basic pension insurance, unemployment, work-related injuries, medical and maternity expenses for

our PRC employees.

Zhuhai HongGuang is also required under the Administrative Regulations on the Housing

Provident Fund of the PRC* (住房公積金管理條例) to deposit housing provident funds for its

employees in the PRC. Zhuhai HongGuang set up its housing provident fund account in July 2013.

ENVIRONMENTAL PROTECTION

Manufacturing enterprises in the PRC are subject to PRC environmental protection laws and

regulations, which include the Environmental Protection Law of the PRC (中華人民共和國環境保

護法) and other PRC environmental protection laws and regulations. For further details, please refer

to the section headed ‘‘Laws and Regulations — 6. Laws and regulations relating to environmental

protection’’ in this [REDACTED].

Zhuhai HongGuang obtained the environmental permit statement from the Environmental

Protection Bureau of Xiangzhou District of Zhuhai City* (珠海市香洲區環境保護局) (the

‘‘Environmental Protection Bureau’’) in relation to the construction of Zhuhai Production Plant in

2010.

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Since the commencement of our Group’s operations and up to the Latest Practicable Date, it

had not been subject to any material penalty or fines imposed by the environmental protection

authorities. For the two years ended 31 December 2014 and 2015, the costs incurred by our Group

for compliance with the relevant environmental protection laws and regulations were approximately

RMB2,000 and RMB26,000 respectively. Based on the past experience of our Group’s management

team, the nature of the industry and future developments of the industry, our Directors believe that

our Group’s current environmental conservation facilities are adequate to satisfy the relevant laws

and regulations and do not expect any major or significant expenditure to be incurred in the future.

According to the PRC Legal Advisers, our Group had complied with all relevant

environmental laws and regulations in the PRC in all material respects during the Track Record

Period. Our Directors also confirmed that our Group had not been subject to any material

environmental claims, lawsuits, penalties or administrative sanctions, and the operations of our

Group had been in compliance with the relevant environmental laws and regulations in all material

respects in the PRC during the Track Record Period and up to the Latest Practicable Date.

OCCUPATIONAL HEALTH AND SAFETY

Our Group has implemented measures in the Zhuhai HongGuang Production Plant to promote

occupational health and safety and to ensure compliance with applicable law and regulations. We

published booklets with occupational health and safety for circulation to our employees to raise the

awareness of occupational health and safety among our employees. We had established a series of

safety guidelines, rules and procedures for different aspects of our production activities, including

fire safety, warehouse safety, work-related injuries and emergency and evacuation procedures.

During the Track Record Period, our Group did not experience any accidents or claims for

personal or property damage that, individually or in aggregate, had a material effect on our Group’s

financial condition and results of operations. As confirmed by our PRC Legal Advisers, our Group

had complied with the applicable national and local safety laws and regulations in all material

respects, and the relevant PRC authorities had not imposed any material sanctions or penalty on us

for incidents of non-compliance of any safety laws or regulations in the PRC.

INTELLECTUAL PROPERTY

As at the Latest Practicable Date, our Group was the registered holder of a total number of 14

utility model patents (實用新型專利) and one invention patent (發明專利) in the PRC. Out of the

utility model patents, six of them are related to the production of LED beads while eight of them

are related to LED lighting products. The invention patent and two utility model patents were

acquired by us from an Independent Third Party in 2015.

For details of our Group’s registered trademarks and patents, please refer to the paragraph

headed ‘‘B. Further information about the business of our Group — 2. Intellectual property rights of

our Group’’ in Appendix IV to this [REDACTED].

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In 2014, our Group started approaching Toyoda Gosei Optoelectronics (Shanghai) Co., Ltd

(‘‘TGOSH’’), a subsidiary of Toyoda Gosei Co., Limited (‘‘TG’’), which is a member of the

B.O.S.E. Consortium for the purpose of obtaining a sub-licence from TGOSH for using the

technology and patents held by TG. In April 2016, we entered into a sub-licence agreement with

TGOSH and pursuant to which, we are granted an non-exclusive, non-divisible, non-transferable,

and non-assignable right covering the period before the date of the sub-licence agreement until the

expiry of the last-to-survive patent rights of TG to (i) use and apply the technology and patents

held by TG and other parties for forming white light in the production of our products in the PRC;

and (ii) sell our products manufactured by using such technology, and patents on a worldwide basis

by payment of a lump-sum royalty fee.

Based on the information available from the website of TGOSH, as at the Latest Practicable

Date, only eleven companies in the PRC (including our Group) had obtained such sub-license from

TGOSH. As such, our Directors believe that entering into the sub-licence agreement would

strengthen our customers’ confidence on our products and help expanding our customer base.

Our Directors confirmed that during the Track Record Period and up to the Latest Practicable

Date, our Group had not engaged in or being threatened with any claim for infringement of any

intellectual property rights which would have a material financial and operational impact on us,

either as claimant or as respondent.

LICENSES, APPROVALS AND PERMITS

Based on the advice of the PRC Legal Advisers, our Group has obtained all necessary

licences, approvals and permits from the relevant governmental authorities for our Group’s business

operations in the PRC.

RISK MANAGEMENT

Our management has designed and implemented a risk management policy to address various

potential risks identified in relation to the operation of our businesses, including strategic risks,

operational risks, financial risks and legal risks. Our risk management policy sets forth procedures

to identify, analyse, categorise, mitigate and monitor various risks.

Our Board is responsible for overseeing the overall risk management system and assessing and

updating our risk management policy on a quarterly basis. Our risk management policy also sets

forth the reporting hierarchy of risks identified in our operations.

Our Group is mainly exposed to (i) risk related to price fluctuation of production materials

(e.g. LED chips, brackets and gold wire); and (ii) credit risk on our accounts receivable.

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As at the Latest Practicable Date, we did not intend to enter into any hedge transaction. We

have set up the following measures to mitigate the risk related to price fluctuation of raw materials

for our Group’s business:

(i) our procurement and inventory team would monitor the movement of production

materials as well as the projected production plan regularly, and estimate the production

schedule in the next 30 to 45 working days;

(ii) the Board would assess if there is any material and adverse impact on our financial

performance due to the price fluctuation of production materials and if there is any

hedging needs on a quarterly basis, taking into account the factors such as the movement

of production materials, the then prevailing prices of production materials and market

condition; and

(iii) if any hedging strategy is to be implemented, our accounts department would obtain

quotations of the relevant financial instruments from various banks and the Board would

consider the terms and conditions of each of such quotations and make decision as to

whether our Group would enter into such financial instruments.

In respect of the credit risk on our accounts receivable, we have implemented the following

measures to manage the risks:

(i) our financial controller would closely monitor the ageing and settlement of the accounts

receivable;

(ii) we regularly assess the credit rating of our customers and where necessary make

amendments to their credit period in accordance with our assessment to minimise the risk

of customer default;

(iii) settlement is monitored by our accounts department. For overdue balances, our

executives Directors and sales and marketing department will be alerted and appropriate

follow up action will be taken; and

(iv) our executive Directors would review the recoverable amount of each individual trade

debt at the end of each reporting period to ensure that adequate impairment losses are

made for irrecoverable amounts.

For details regarding the risks involved in our operations, please refer to the section headed

‘‘Risk Factors’’ in this [REDACTED].

LEGAL AND COMPLIANCE

As all our operations take place in the PRC, our operations shall comply with the relevant

laws and regulations in the PRC. A summary of the relevant PRC laws and regulations applicable

to our operations in the PRC is set out in the section headed ‘‘Laws and Regulations’’ in this

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[REDACTED]. As advised by our PRC Legal Advisers and as confirmed by our Directors, during

the Track Record Period and as at the Latest Practicable Date, we had complied with all applicable

laws and regulations in the PRC in all material respects.

INTERNAL CONTROL

Our Directors recognise the importance of up-keeping adequate internal control and risk

management systems. In order to continuously improve our Group’s corporate governance, ourGroup has implemented and will implement the following measures:

. Our Group will engage a PRC legal adviser to provide legal services to our Group in

relation to future compliance with the PRC laws and regulations in all respects;

. For the purpose of ensuring future compliance with the relevant laws and regulations inHong Kong in all material respects, our Group will engage external legal advisers as to

Hong Kong laws to advise on the relevant laws and regulations in Hong Kong applicable

to our Group, including but not limited to the statutory requirements to make filings to

the Hong Kong Companies Registry within the prescribed time period.

. Our Group has arranged for our Directors and senior management to attend training

program on relevant applicable laws and regulations, including the GEM Listing Rules,

provided by our Company’s legal advisers as to Hong Kong laws prior to the

[REDACTED]. Our Group will continue to arrange various training programs on an

annual basis to be provided by the legal advisers in Hong Kong and the PRC and/or anyappropriate accredited institution to update our Directors, senior management and

relevant employees on the relevant laws and regulations. In addition, specific training

programme(s) in relation to updates on relevant applicable laws and regulations will also

be held when necessary;

. Our Group will appoint a compliance officer who will be responsible for assessing andmonitoring compliance with our internal control policies, recommending additional

internal control measures if required, coordinating compliance training for our Group’s

employees and reporting the above to our Directors;

. Our Company has appointed Lego Corporate Finance as our compliance adviser to advise

on compliance matters upon [REDACTED] in accordance with Rule 6A.19 of the GEMListing Rules; and

. Our Group will strengthen trainings for our employees on compliance matters in order to

develop a corporate culture and to enhance their compliance perception and responsibility

and to enhance their knowledge to manage our operation risks. Our Group plans toprovide training to employees of managerial level on an annual basis and ad hoc training

to all relevant employees when our Group finds it necessary.

Based on the above, our Directors are of the view that the above internal control measures

could adequately and effectively ensure that our Group has implemented a proper internal control

system and maintained good corporate governance practices.

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LITIGATIONS

Set out below is a summary of the litigation and arbitration proceedings instituted by or

against our Group involving a sum more than RMB0.1 million, which took place during the TrackRecord Period and up to the Latest Practicable Date:

Completed legal proceedings during the Track Record Period

(i) Contractual dispute instituted by Zhuhai HongGuang

On 10 January 2014, Zhuhai HongGuang instituted legal proceedings in the Shenzhen Bao’anDistrict People’s Court against a customer for (i) the repayment of an outstanding sum of

approximately RMB0.5 million for the lighting products supplied to such customer; and (ii) the

penalties for late payment pursuant to the relevant laws and regulations in the PRC.

On 1 July 2014, with the assistance of the Shenzhen Bao’an District People’s Court, theparties reached a settlement, pursuant to which (i) the parties confirmed that the outstanding sum

amounted to approximately RMB0.5 million in total; (ii) the parties agreed that, should the

defendant repay approximately RMB0.4 million to Zhuhai HongGuang on or before 30 July 2014

(the ‘‘Settlement Sum’’), Zhuhai HongGuang shall waive its right to claim against the defendant for

the remaining outstanding amount and the interests accrued so far; and (iii) Zhuhai HongGuangshall have the right to apply to court for the compulsory enforcement of the repayment of the

outstanding sum in full (the ‘‘Compulsory Enforcement Application’’), if the defendant failed to

adhere to its payment obligation under (ii).

The defendant did not pay the Settlement Sum to Zhuhai HongGuang in full on or before 30

July 2014, as a result, Zhuhai HongGuang filed the Compulsory Enforcement Application to Courton 14 August 2014. Subsequently on 1 August 2014 and 17 October 2014, Zhuhai HongGuang

received in aggregate the outstanding sum in full from the defendant.

(ii) Contractual dispute against Zhuhai HongGuang

On 17 January 2015, a supplier of Zhuhai HongGuang as plaintiff instituted legal proceedingsin the People’s Court of Hengqin New Area, Zhuhai against Zhuhai HongGuang as defendant, for

the repayment of an aggregate outstanding sum of approximately RMB1.3 million for payment of

brackets supplied to Zhuhai HongGuang up to 2013 and the relevant interest.

By an order of the court dated 28 January 2015, the bank balances of Zhuhai HongGuang

amounting to approximately RMB1.3 million was restricted for use until the case is being settled.

On 1 April 2015, Zhuhai HongGuang filed a counterclaim against the plaintiff for damages in

the sum of approximately RMB1.5 million, on the ground that there were material defects on the

brackets supplied by the plaintiff.

On 10 October 2015, the court ruled in favour of the plaintiff and dismissed the counterclaimmade by Zhuhai HongGuang. Zhuhai HongGuang disagreed with the judgement and filed a notice

of appeal to the Zhuhai City Intermediate People’s Court on 27 August 2015.

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On 26 May 2016, the parties reached a settlement, pursuant to which Zhuhai Hongguang shall

pay to the plaintiff a sum of approximately USD0.2 million (equivalent to approximately RMB1.4

million) for the outstanding balance and interest and approximately RMB28,000 for other

disbursements incurred by the plaintiff during the litigation. On the same day, the Zhuhai CityIntermediate People’s Court issued a verdict confirming the same.

On-going legal proceedings

(i) Contractual dispute instituted by Zhuhai HongGuang

On 5 May 2015, Zhuhai HongGuang as plaintiff instituted legal proceedings in the Shenzhen

Longgang District People’s Court to claim against one existing customer and one former customer

as defendants (which had the same management structure and business scope, and shared the same

pool of financial resources) for the repayment of an outstanding sum of approximately

RMB810,500 for the lighting products supplied to the said existing customer.

On 21 July 2015, the parties reached an settlement, pursuant to which the defendants shall pay

in full the outstanding sum of approximately RMB0.8 million to Zhuhai HongGuang on or before

27 July 2015.

Subsequently, according to the arrangement ordered by the Shenzhen Longgang DistrictPeople’s Court on 15 October 2015, the defendants were ordered to realise their assets by public

auction for repayment of debts to their creditors. Pursuant to the arrangement, Zhuhai HongGuang

obtained approximately RMB50,000 from the sale proceeds of the public auction. To the best

knowledge of our Directors, the defendants have no further assets for repayment of debts as at the

Latest Practicable Date.

Our Directors confirmed that they will consult with our PRC Legal Advisers and explore any

other legal means to enforce the settlement agreement to claim back the remaining outstanding sum

from the defendants. In any event, as confirmed by our Directors, we have made financial

provisions for the said remaining outstanding sum.

(ii) Contractual dispute instituted by Zhuhai HongGuang

On 17 July 2015, Zhuhai HongGuang as plaintiff instituted legal proceedings in the Shenzhen

Bao’an District People’s Court to claim against a customer as defendant for the repayment of an

outstanding sum of approximately RMB0.6 million with interests for the lighting products supplied

to such customer.

On 13 November 2015, as the defendant could not be located, the court published the

statement of claim and other ancillary documents on a local newspaper to give notice to the

defendant.

As at the Latest Practicable Date, we were still unable to locate the defendant. Our Directorsconfirmed that they will consult our PRC legal adviser and explore any other legal means to

retrieve the outstanding sum from the defendant. In any event, as confirmed by our Directors, we

have made financial provisions for the outstanding sum.

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Save as disclosed above, no member of our Group or any of our Directors was engaged or

involved in any claim, litigation, arbitration, bankruptcy or receivership proceedings which is of

material importance to our Group during the Track Record Period and up to the Latest Practicable

Date. Save for those potential claims set out above, no member of our Group or any of ourDirectors is threatened by any potential claim, litigation, arbitration, bankruptcy or receivership

proceeding, which is of material importance, during the Track Record Period and as at the Latest

Practicable Date.

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THE CONTROLLING SHAREHOLDERS

Immediately following completion of the [REDACTED] and the Capitalisation Issue

(assuming that no Share is issued pursuant to the exercise of any option which may be granted

under the Share Option Scheme), by virtue of the Concert Parties Confirmatory Deed, First Global

(being wholly-owned by Mr. YW Zhao), Star Eagle (being wholly-owned by Mr. Lin) and Bigfair

Enterprises (being wholly-owned by Mr. KS Chiu) will be together interested in approximately

[REDACTED]% of the issued share capital of our Company, with (i) First Global (wholly-owned

by Mr. YW Zhao) holding [REDACTED]% of the total issued share capital of our Company on a

standalone basis; (ii) Star Eagle (wholly-owned by Mr. Lin) holding approximately [REDACTED]%

of the total issued share capital of our Company and a standalone basis; and Bigfair Enterprises

(wholly-owned by Mr. KS Chiu) holding approximately [REDACTED]% of the total issued share

capital of our Company on a standalone basis. On 8 June 2016, Mr. YW Zhao, Mr. Lin and Mr. KS

Chiu entered into the Concert Parties Confirmatory Deed to acknowledge and confirm, among other

things, that they are parties acting in concert of each of the members of our Group throughout the

Track Record Period and continue as of and after the date of the Concert Parties Confirmatory

Deed, details of the Concert Parties Confirmatory Deed are set out in the section headed ‘‘History,

Reorganisation and Corporate Structure — Parties acting in concert’’ in this [REDACTED]. As Mr.

YW Zhao, Mr. Lin, Mr. KS Chiu, First Global, Star Eagle and Bigfair Enterprises will collectively

continue to control more than 30% of the issued share capital of our Company, each of them will

be the Controlling Shareholder within the meaning of the GEM Listing Rules.

Save as disclosed above, there is no other person who will, immediately following completion

of the [REDACTED] (without taking into account any Shares which may be issued upon the

exercise of any options which may be granted under the Share Option Scheme), be directly or

indirectly interested in 30% or more of the Shares then in issue or have a direct or indirect equity

interest in any member of our Group representing 30% or more of the equity in such entity.

RELATIONSHIP WITH THE CONTROLLING SHAREHOLDERS

– 131 –


RULE 11.04 OF THE GEM LISTING RULES

Each of the Controlling Shareholders, our Directors, the substantial Shareholders and their

respective close associates do not have any interest in a business apart from our Group’s business

which competes or is likely to compete, directly or indirectly, with our Group’s business, which

would require disclosure pursuant to Rule 11.04 of the GEM Listing Rules.

INDEPENDENCE FROM THE CONTROLLING SHAREHOLDERS

Our Directors do not expect that there will be any other significant transactions between our

Group, its Controlling Shareholders and their respective close associates upon or shortly after the

[REDACTED]. Our Directors consider that our Group is capable of carrying on its business

independent of and without undue reliance on the Controlling Shareholders and their respective

close associates after the [REDACTED] based on the following reasons:

Management independence

Our Company aims to establish and maintain a competent and independent Board to

supervise our Group’s business. The main functions of the Board include (i) approving the

overall business plans and strategies of our Group; (ii) monitoring the implementation of the

aforesaid policies and strategies; and (iii) managing our Group. Our Group has an independent

management team, which is led by a team of experienced senior management with expertise in

the business of our Group, to implement our Group’s policies and strategies.

The Board consists of seven Directors, comprised of three executive Directors, one non-

executive Director and three independent non-executive Directors. Each of Mr. YW Zhao and

Mr. Lin is an executive Director and Mr. KS Chiu is a non-executive Director.

Each of our Directors is aware of his fiduciary duties as a Director which require, among

other things, that he acts for the benefit and in the best interests of our Company and does not

allow any conflict between his duties as a Director and his personal interest to exist. In the

event that there is a potential conflict of interest arising out of any transaction to be entered

into between our Group and our Directors or their respective associates, the interested

Director(s) shall abstain from voting at the relevant Board meeting in respect of such

transaction and shall not be counted in the quorum.

Operational independence

Our Group has established our own organisational structure comprising of individual

departments, each with specific areas of responsibilities. Our Group has not shared our

operational resources and general administration resources with the Controlling Shareholders

and/or their respective close associates.


– 132 –


Financial independence

Our Group has our own financial management and accounting systems and functions,

independent treasury functions for cash receipt and payment and the ability to operate

independently from the Controlling Shareholders from a financial perspective. Our Group

makes financial decision according to our own business needs.

Our Directors confirm that amounts due to the Controlling Shareholders and their

associates will be settled and/or capitalised before the [REDACTED], and the bank borrowings

guaranteed by the Controlling Shareholders and their associates will be settled in full by the

combination of net proceeds of the [REDACTED] and our internal resources.

Having considered the above factors, our Directors consider that our Group is able to

maintain financial independence from the Controlling Shareholders and their respective close

associates after [REDACTED].

NON-COMPETITION UNDERTAKINGS

The Controlling Shareholders as covenantors (each of them, a ‘‘Covenantor’’ and collectively,

the ‘‘Covenantors’’) executed the Deed of Non-Competition in favour of our Company (for itself

and as trustee for and on behalf of its subsidiaries).

In accordance with the Deed of Non-Competition, each Covenantor undertakes that, from the

[REDACTED] and ending on the occurrence of the earliest of (i) the date on which the Shares

cease to be [REDACTED] on GEM; or (ii) the date on which the Covenantors cease to be a

Controlling Shareholder:

1. Non-competition

He/it will not, and will use his/its best endeavours to procure any Covenantor, his/its

close associates (collectively, the ‘‘Controlled Persons’’) and any company directly or

indirectly controlled by the Covenantor (the ‘‘Controlled Company’’) not to, either on his/its

own or in conjunction with or on behalf of any person, firm or any body corporate,

partnership, joint venture or other contractual agreement, whether directly or indirectly, among

other things, carry on, participate or be interested in, hold any right or interest (in each case

whether as an investor, a shareholder, principal, partner, director, employee, consultant,

urgent, or otherwise and whether for profit, reward, interest or otherwise), 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 business which is or may be in competition, whether directly or

indirectly, with the business carried on or contemplated to be carried on by our Company or

any of our subsidiaries in Hong Kong, the PRC and such other places as our Company or any

of our subsidiaries may conduct or carry on business from time to time, including but not

limited to the design, development, manufacturing and sales of LED beads, LED lighting

products and/or related products (the ‘‘Restricted Business’’).


– 133 –


The Deed of Non-Competition does not apply if the Controlled Persons and Controlled

Company in aggregate own any interest not exceeding five per cent. of the issued shares in

any company conducting any Restricted Business (the ‘‘Relevant Company’’), and the

Relevant Company is listed in any recognised stock exchange (as defined under the SFO),

notwithstanding that the business conducted by the Relevant Company constitutes or might

constitute competition with the business of our Company or any of our subsidiaries, provided

that (i) the shareholding of any one holder (and his close associate, if applicable) in the

Relevant Company is more than that of the Controlled Persons and the Controlled Company in

aggregate at any time; and (ii) the total number of the relevant Covenantors’ representatives

on the board of directors of the Relevant Company is not disproportionate with respect to his

shareholding in the Relevant Company.

2. New business opportunity

If any Covenantor and/or any Controlled Company or their respective close associates is

offered or becomes aware of any business opportunity directly or indirectly to engage in or

own a Restricted Business (the ‘‘New Business Opportunity’’):

(a) he/it shall within 10 days notify our Company of such New Business Opportunity in

writing and refer the same to our Company for consideration, and shall provide the

relevant information to our Company in order to enable us to make an informed

assessment of such opportunity; and

(b) he/it shall not, and shall procure that his Controlled Persons or Controlled

Companies not to, invest or participate in any project and New Business

Opportunity, unless such project and New Business Opportunity shall have been

rejected by our Company and the principal terms of which the Covenantor or his/its

Controlled Persons or Controlled Companies invest or participate in are no more

favourable than those made available to our Company.

A Covenantor may only engage in the New Business Opportunity if (i) a notice is

received by the Covenantor from our Company confirming that the New Business Opportunity

is not accepted and/or does not constitute competition with the Restricted Business (the ‘‘Non-

acceptance Notice’’); or (ii) the Non-acceptance Notice is not received by the Covenantor

within 30 days after the proposal of the New Business Opportunity is received by our

Company.

Any Director who has an actual or potential material interest in the New Business

Opportunity shall abstain from attending (unless their attendance is specifically requested by

the remaining non-interested Directors) and voting at, and shall not count towards the quorum

for, any meeting or part of a meeting convened to consider such New Business Opportunity.

The independent non-executive Directors will be responsible for reviewing and

considering whether or not to take up a New Business Opportunity referred by a Covenantor

or Controlled Company or whether or not the New Business Opportunity constitutes


– 134 –


competition with the Restricted Business and such decisions will be made by the independent

non-executive Directors. The factors that will be taken into consideration in making the

decision include whether it is in line with the overall interests of the Shareholders.

3. Corporate governance measures

Our Company will adopt the following corporate governance measures to manage any

potential conflicts of interest arising from competing business and to safeguard the interests of

the Shareholders:

(a) the Controlling Shareholders will promptly provide to our Company such

information as our Company may from time to time reasonably request to ascertain

compliance by the Controlling Shareholders of his/its obligations under this Deed of

Non-Competition including, without limitation, a written confirmation in respect of

compliance by him/it with the terms of the Deed of Non-Competition;

(b) the independent non-executive Directors will review, at least on an annual basis, the

compliance with the Deed of Non-Competition by the Covenantor, the options, pre-

emptive rights or first rights of refusals (if any) provided by the Covenantor on his/

its existing or future competing businesses;

(c) the Controlling Shareholders undertake to provide all information necessary for the

annual review by the independent non-executive Directors and the enforcement of

the Deed of Non-Competition;

(d) our Company will disclose to the public either in the annual report of our Company

or by way of announcements in relation to decisions on matters reviewed by the

independent non-executive Directors relating to the compliance of the terms of the

Deed of Non-Competition and the enforcement of it;

(e) the Controlling Shareholders will procure that the Board shall operate in accordance

with the 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

(f) that during the period when the Deed of Non-Competition is in force, the

Controlling Shareholders will fully and effectually indemnify our Company against

any costs and expenses incurred as a result of any breach on the part of the

Controlling Shareholders of any statement, warrant or undertaking made under the

Deed of Non-Competition.


– 135 –


The Deed of Non-Competition and the rights and obligations thereunder are conditional

upon (a) the Listing Division granting the [REDACTED] of, and the permission to

[REDACTED] in, the Shares, as described in this [REDACTED], and (b) the [REDACTED]

and [REDACTED] in the Shares on GEM taking place.

As the Controlling Shareholders have given non-competition undertakings in favour of

our Company, and none of them have interests in other businesses that compete or are likely

to compete with the business of our Group, our Directors are of the view that they are capable

of carrying on our Group’s business independently of the Controlling Shareholders following

the [REDACTED].


– 136 –


DIRECTORS AND SENIOR MANAGEMENT

The following table sets forth certain information regarding our Directors and senior

management of our Group:

Name AgePresent position(s)in our Company

Date ofappointmentas Director/seniormanagement

Date ofjoiningour Group Roles and responsibilities

Relationship withother Directors/senior management

Executive Directors

Mr. Zhao Yi Wen

(趙奕文)

46 Executive Director,

chief executive

officer of our

Company and the

chairman of the

Board

27 May 2015 16 April 2010 Responsible for

formulating overall

corporate strategies and

handling day-to-day

management of our

Group

Not applicable

Mr. Lin Qi Jian

(林啟建)

37 Executive Director 13 May 2016 10 May 2010 Responsible for

formulating sales

strategies, market and

customer services of

our Group

Not applicable

Mr. Chan Wing Kin

(陳永健)

35 Executive Director

and the company

secretary of our

Company

27 May 2015 9 February

2015

Responsible for

supervising the

financial management

of our Group

Not applicable

Non-executive Directors

Mr. Chiu Kwai San

(趙桂生)

53 Non-executive

Director

13 May 2016 16 April 2010 Responsible for monitoring

the executive activities

and providing strategic

advice to our Group

Not applicable

Independent Non-executive Directors

Professor Chow Wai

Shing, Tommy

(周偉誠)

57 Independent non-

executive Director

[.] 2016 [.] 2016 Responsible for providing

independent advice to

the Board

Not applicable

Dr. Wu Wing Kuen,

B.B.S. (胡永權)

59 Independent non-

executive Director



the Board

Not applicable

Mr. Chan Chung

Kik, Lewis

(陳仲戟)

43 Independent non-

executive Director



the Board

Not applicable

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

– 137 –


Name AgePresent position(s)in our Company

Date ofappointmentas Director/seniormanagement

Date ofjoiningour Group Roles and responsibilities

Relationship withother Directors/senior management

Senior Management

Ms. Qi Xiang Ling

(綦香玲)

45 Financial controller of

Zhuhai HongGuang

2 August 2010 2 August 2010 Responsible for

supervising financial

reporting, corporate

finance, treasury, tax

and other financial

related matters of our

Group

Not applicable

Mr. Xu Jian Hui

(許建輝)

59 General manager and

director of Zhuhai

HongGuang

24 March

2011

24 March

2011

Responsible for the daily

operation,

administration and

production management

of Zhuhai HongGuang

Not applicable

Board of Directors

The Board currently consists of seven Directors, comprising three executive Directors, one

non-executive Director and three independent non-executive Directors.

Executive Directors

Mr. Zhao Yi Wen, aged 46, was appointed as Director on 27 May 2015 and was

subsequently re-designated as executive Director on 13 May 2016. He is one of the founders of our

Group and is primarily responsible for formulating overall corporate strategies and handling day to

day management of our Group. Mr. YW Zhao is also the chief executive officer of our Company,

the chairman of the Board, a director of each of HongGuang Lighting and HongGuang International

and the chairman and legal representative of Zhuhai HongGuang.

Prior to establishing our Group in May 2010, Mr. YW Zhao had years of management

experience of electronic parts business. During the period between January 2004 and May 2010,

Mr. YW Zhao was employed by Zhuhai Kedie Digital Technology Co., Ltd. (珠海市科碟數碼科技

有限公司) which is principally engaged in the manufacture and sale of compact disks in the PRC,

as a general manager and was responsible for the overall management of its business operation.

Since 2012, Mr. YW Zhao has been a director of Zhuhai Ridong Weiye Technology Company

Limited* (珠海日東偉業科技有限公司), a limited liability company incorporated in the PRC which

is principally engaged in manufacturing and trading of Indium Tin Oxide films, where Mr. YW

Zhao is responsible for the overall management of the company. Mr. YW Zhao attended secondary

school education up to year 3 in the PRC.


– 138 –


Mr. YW Zhao was a shareholder, the executive director and the legal representative of Zhuhai

City Senxia Shiye Limited* (珠海市森夏實業有限公司) (‘‘Zhuhai Senxia’’), a limited liability

company which was established in the PRC. The business license of Zhuhai Senxia was revoked by

the Zhuhai City State Administration For Industry and Commerce on 11 February 2002.

Mr. YW Zhao was a shareholder, the chairman and the legal representative of Zhuhai

Yingwang Limited* (珠海盈網有限公司) (‘‘Zhuhai Yingwang’’), a limited liability company which

was established in the PRC. The business license of Zhuhai Yingwang was revoked by the Zhuhai

City State Administration For Industry and Commerce on 29 September 2003.

As advised by the PRC Legal Advisers, pursuant to article 76 of the Regulations of the PRC

on the Administration of Company Registration (the ‘‘Company Registration Regulations’’), a PRC

company which fails to undergo annual inspection will be (i) subject to a penalty ranging from

RMB10,000 and up to RMB100,000 and (ii) required to undergo the annual inspection within a

prescribed time frame. Failure to adhere to (ii) will lead to the revocation of the businessregistration of the PRC company. It is confirmed by Mr. YW Zhao that the business license of

Zhuhai Yingwang and Zhuhai Senxia were revoked by the Zhuhai City State Administration For

Industry and Commerce after Zhuhai Yingwang and Zhuhai Senxia had respectively failed to

undergo the requisite annual inspection within the prescribed time frame.

As advised by the PRC Legal Advisers, Mr. YW Zhao, (i) being a shareholder, the chairmanand the legal representative of Zhuhai Yingwang; and (ii) being a shareholder, the executive

director and the legal representative of Zhuhai Senxia, will not be subject to any administrative

penalty or any personal liability against him as a result of the non-compliance of article 76 of the

Company Registration Regulations by Zhuhai Senxia and Zhuhai Yingwang. It was further advised

by the PRC Legal Advisers that the revocation of business licence of Zhuhai Senxia and ZhuhaiYingwang will not adversely affect the legality and validity of Mr. YW Zhao’s directorship in and

his positions as the chairman and the legal representative of Zhuhai HongGuang.

Mr. YW Zhao was a director of the following company, which was incorporated in Hong

Kong, prior to its dissolution:

Name of company Date of dissolution Mean of dissolution

Welford International

Limited

18 March 2011 Dissolved by striking off pursuant to

section 291 of the Predecessor

Companies Ordinance (Note)

Note:

Pursuant to section 291 of the Predecessor Companies Ordinance, where the Registrar of Companies in Hong

Kong has reasonable cause to believe that a company is not carrying on business or in operation, the Registrar of

Companies in Hong Kong may strike the name of the company off the register after the expiration of a specified

period.

Mr. YW Zhao confirmed that the said company was solvent and it had not carried out any substantial business

at the time of it being struck off.


– 139 –


Our Company’s corporate governance practices are based on principles and code provisions as

set out in the Corporate Governance Code (the ‘‘CG Code’’) in Appendix 15 to the GEM Listing

Rules. Except for the deviation from CG Code provision A.2.1, our Company’s corporate

governance practices have complied with the Code on Corporate Governance Practices.

CG Code provision A.2.1 stipulates that the role of chairman and chief executive should be

separate and should not be performed by the same individual. Mr. YW Zhao is the chairman of the

Board and the chief executive officer of our Company. In view of Mr. YW Zhao being one of the

founders of our Group and has been operating and managing Zhuhai HongGuang, the operating

subsidiary of our Company, since 2010, our Board believes that it is in the best interest of our

Group to have Mr. YW Zhao taking up both roles for effective management and business

development. Therefore our Directors consider that the deviation from the CG Code provision A.2.1

is appropriate in such circumstance.

Mr. Lin Qi Jian (林啟建), aged 37, was appointed as executive Director on 13 May 2016. He

is one of the founders of our Group and is primarily responsible for overseeing the overall business

operation of our Group. Mr. Lin is also the supervisor and general sales manager of Zhuhai

HongGuang.

Mr. Lin has over 15 years of experience in production of electronics components. Since 1999,

Mr. Lin has been chairman of Zhuhai Lijia, a limited liability company incorporated in the PRC

which is principally engaged in manufacturing and sales of photosensitive resistors where Mr. Lin

is responsible for formulating sales strategies, marketing and customer services. From 2004 to

2015, Mr. Lin was appointed as supervisor of Zhuhai Kedie Digital Technology Co., Ltd. (珠海市

科碟數碼科技有限公司), a private company in the PRC, where he was responsible for monitoring

the operation of the company. Mr. Lin attended secondary school education up to year 2 in the

PRC.

Mr. Chan Wing Kin (陳永健), aged 35, was appointed as Director on 27 May 2015 and

subsequently redesignated as an executive Director on 13 May 2016. He is also the company

secretary and the compliance officer of our Company and the director of HongGuang Lighting and

HongGuang Hong Kong. Mr. Chan is primarily responsible for the financial management of our

Group.

Mr. Chan obtained a bachelor degree of economics and finance with first class honours from

The University of Hong Kong in December 2003 and a master’s degree of economics from The

University of Hong Kong in December 2004. Mr. Chan is a member of the Hong Kong Institute of

Certified Public Accountants since January 2012, a certified internal auditor of the Institute of

Internal Auditors since March 2012, and a certified fraud examiner of the Association of Certified

Fraud Examiners since March 2014.

Mr. Chan has over eleven years of experience in electronics industrial sector and accounting

and internal controls sector. Prior to joining our Group, Mr. Chan was a purchasing supervisor in

Jetcrown Industrial (Dongguan) Limited from September 2004 to April 2008 and was responsible

for monitoring the daily purchasing operations and the staff recruitment of the company. From July


– 140 –


2008 to April 2010, Mr. Chan was an accountant in KPMG, where he had assisted in a number of

audit assignments for a number of major corporate clients of KPMG. In April 2010, Mr. Chan

joined Deloitte Touche Tohmatsu as an analyst of the Enterprise Risk Services Department. He was

subsequently promoted to the position of manager before his resignation in February 2015. During

his term of employment in Deloitte Touche Tohmatsu, Mr. Chan participated in internal controls,

risk management and corporate governance advisory projects.

Non-executive Director

Mr. Chiu Kwai San (趙桂生), aged 53, was appointed as non-executive Director on 13 May

2016. He is primarily responsible for monitoring the executive activities and providing strategic

advice to our Group. Mr. KS Chiu is also a director of each of HongGuang Lighting and

HongGuang Hong Kong and the vice chief director of Zhuhai HongGuang.

Mr. KS Chiu has over 15 years of experience in trading, sales and management. Since 2000,

Mr KS Chiu has been a director of Success Royal Limited, a private company incorporated in Hong

Kong which is principally engaged in the manufacturing of ink and glue, etc., where Mr. KS Chiu

is responsible for managing the operation of the company. Mr. KS Chiu attended secondary school

education up to year 3 in the PRC.

Independent non-executive Directors

Professor Chow Wai Shing, Tommy (周偉誠), aged 57, was appointed as independent non-

executive Director on [.] 2016 and is responsible for providing independent advice to the Board.

Prof. Chow is also a member of each of the Audit Committee, Remuneration Committee and

Nomination Committee.

Prof. Chow obtained his bachelor degree of science in electrical and electronic engineering

with first class honour from Sunderland Polytechnic (currently known as the University of

Sunderland) in the United Kingdom in June 1984 and a doctoral degree of philosophy for his

research in the electrical engineering field from the same university in April 1988. Prof. Chow is

currently the professor of the Department of Electronic Engineering of the City University of Hong

Kong.

Prof. Chow had served over the years as (i) the chairman and member of a number of

committees of Hong Kong Institution of Engineers (‘‘HKIE’’); (ii) as a member of the CAI

discipline advisory panel of HKIE; and (iii) as a professional assessment assessor for HKIE. During

the period between 1998 and 2004, Prof. Chow served as a member of the Electronics &

Communication Industry Safety & Health Committee of the Occupational Safety & Health Council.

Prof. Chow is currently also a member of the Public Affairs Forum of the Hong Kong Government.

Dr. Wu Wing Kuen, B.B.S. (胡永權), aged 59, was appointed independent non-executive

Director on [.] 2016 and is responsible for providing independent advice to the Board. Dr. Wu is

also a member of each of the Audit Committee, Remuneration Committee and Nomination

Committee.


– 141 –


Dr. Wu obtained a doctoral degree of business administration (Honoris Causa) from the

Clayton University in the US in June 1989. Dr. Wu has over 23 years of experience in real estate

investment. He has been the director of Jet View Investment Limited since December 1991 and the

director of Jade Mind Investment Limited since October 2004. Both companies are principally

engaged in real estate investment.

Dr. Wu was awarded a Bronze Bauhinia Star from the HKSAR Government in July 2012. He

is currently a member of the Chinese People’s Political Consultative Conference of Harbin city and

a member of the Chinese People’s Political Consultative Conference of Nanshan District in

Shenzhen. Dr. Wu is also currently a voting member of the Hong Kong Jockey Club and the

chairman of the Sha Tin District Community Fund. Dr. Wu had also served the community under

various other positions in the past. He was a member of the Sha Tin District Fight Crime

Committee, a member of the Appeal Tribunals Panel of the Planning and Lands Branch of the

Development Bureau of the Hong Kong Government and a member of the Board of Trustees of The

Hong Kong Jockey Club Music and Dance Fund.

Mr. Chan Chung Kik, Lewis (陳仲戟), aged 43, was appointed as independent non-executive

Director on [.] 2016 and is responsible for providing independent advice to the Board. Mr. Chan is

also the chairman of each of the Audit Committee, Remuneration Committee and Nomination

Committee.

Mr. Chan obtained a bachelor degree of commerce in accounting from the University of

Canberra in Australia in September 1997. He is currently a fellow of the Hong Kong Institute of

Certified Public Accountants and a member of CPA Australia.

Mr. Chan has more than 17 years of experience in auditing, accounting and corporate finance.

From May 1997 to February 2001, Mr. Chan held various positions in Grant Thornton, an

accounting firm, where he last served as audit supervising senior and was primarily responsible for

providing auditing services. From February 2001 to February 2005, he held various positions at

Ernst & Young, an accounting firm, where he last served as manager and was primarily responsible

for audit of listed and non-listed companies in Hong Kong and China. From March 2005 to March

2006, he served as a group finance manager of Tianjin Development Holdings Limited, a company

which is listed on the Main Board (Stock Code: 882) and engaged in (i) utilities including supply

of electricity, water and heat and thermal power; (ii) hotel; (iii) electrical and mechanical including

the manufacture and sale of presses, mechanical and hydroelectric equipment and large scale pump

units; and (iv) strategic and other investments including investments in associates and whose shares

are listed on the Stock Exchange. From August 2006 to May 2007, Mr. Chan served as the

financial controller and company secretary of Tianjin Lishen Battery Joint-Stock Co., Ltd. (天津力

神電池股份有限公司). From July 2007 and February 2015, Mr. Chan served as the chief financial

officer of Xingye Copper International Group Limited, a company listed on the Main Board (Stock

Code: 505) and engaged in the manufacturing and sales of high precision copper plates and trips,

trading of raw materials, provision of processing services and management of a portfolio of

investment, where he was responsible for the overall financial management functions of the group.

From July 2007 to May 2008 and from June 2009 to May 2015, Mr. Chan also served as the


– 142 –


company secretary of the same company. Since March 2015, Mr. Chan has served as the chief

financial officer and the joint company secretaries of Denox Environmental & Technology Holdings

Limited, a company listed on the Main Board (Stock Code: 1452) and engaged in the design and

development, manufacturing, sales and marketing of plate-type DeNOx catalysts.

Mr. Chan has also been the independent non-executive director of (i) Kwan On Holdings

Limited, a company listed on the GEM (Stock Code: 8305) and engaged as a main contractor in the

provision of (a) waterworks engineering services; (b) road works and drainage services; (c) landslip

preventive and mitigation works to slopes and retaining walls services; and (d) building works in

Hong Kong, since March 2015; and (ii) Shangong Xinhua Pharmaceutical Company Limited, a

company listed on the Main Board (Stock Code: 719) and the Shenzhen Stock Exchange (Stock

Code: 000756) and engaged in the business of development, manufacture and sale of bulk

pharmaceuticals, preparations and chemical products, since May 2014.

Disclosure pursuant to Rule 17.50(2) of the GEM Listing Rules

Please refer to the paragraph headed ‘‘C. Further information about Directors, management

and staff’’ in Appendix IV to this [REDACTED] for information regarding particulars of our

Directors’ service agreements and emoluments and information regarding their respective interests

(if any) in the Shares of our Company within the meaning of Part XV of the SFO.

Save as disclosed above, each of our Directors confirms that (i) each of them has not held any

directorships in the last three years in any public companies the securities of which are listed on

any securities market in Hong Kong or overseas; (ii) each of them does not have any relationship

with any other Directors, senior management or substantial or Controlling Shareholders of our

Company; (iii) each of them does not have any interests in the Shares within the meaning of Part

XV of the SFO; (iv) there are no other matters concerning all our Directors’ appointment that need

to be brought to the attention of our Shareholders and the Stock Exchange; and (v) there are no

other matters which shall be disclosed pursuant to Rule 17.50(2)(h) to 17.50(2)(v) of the GEM

Listing Rules.

SENIOR MANAGEMENT

Ms. Qi Xiang Ling (綦香玲), aged 45, is the financial controller of Zhuhai HongGuang. Ms.

Qi joined our Group in August 2010. She is mainly responsible for supervising financial reporting,

corporate finance, treasury, tax and other financial related matters of our Group. Ms. Qi graduated

from Guangdong Province Intermediate Vocational School* (廣東省中等專業學校) majoring in

financial accounting in July 1997. Ms. Qi obtained the elementary level qualification in accounting

conferred by the Ministry of Finance of the PRC in May 2001.

Prior to joining the Group, Ms. Qi worked as an accountant at Zhuhai Yuntian Dianqi Co.,

Ltd.* (珠海雲田電器有限公司) from January 2005 to December 2005. From June 2006 to August

2010, she worked as the finance manager of Zhuhai City Jiajule Zhuangshi Cailiao Company

Limited* (珠海市家居樂裝飾材料有限公司).


– 143 –


Mr. Xu Jian Hui (許建輝), aged 59, is the director of Zhuhai HongGuang. Mr. Xu joined our

Group as a general manager of Zhuhai HongGuang in March 2011 and was subsequently appointed

as director of the same company in November 2014. Mr. Xu is primarily responsible for daily

operation, administrative and productions management of Zhuhai HongGuang. Mr. Xu obtained a

professional certificate in computer application from Shantou City Zhigong Yeyu University* (汕頭

市職工業餘大學) in July 1997 and obtained an assistant engineer practising certificate from the

Engineering Technology Professional Title Committee of Shantou Electronic Industry Corporation*

(汕頭市電子工業總公司工程技術初級職務評審委員會) in December 1995.

Prior to joining our Group, during the period between May 1987 and June 1997, Mr. Xu was

the business plan coordinator at Shantou Metallic Material Corporation* (汕頭市金屬材料總公司),

where he was responsible for the resources coordination and management in the company. From

June 1997 to July 2002, he worked as a clerk at Shantou Kexin Development Corporation* (汕頭市

科信發展總公司), where he was responsible for the daily administration of the company. From

June 2003 to July 2008, Mr. Xu worked as the deputy general manager at Jieyang Dong Huang

Culture Development Limited* (揭陽東煌文化發展有限公司), where he was primarily responsible

for the administration and production management of the company. From October 2008 to April

2010, he worked as the deputy general manager at Zhuhai Special Economic Zone Hai Na Laser

Manufacture Limited* (珠海經濟特區海納激光制作有限公司), where he was primarily responsible

for the production management of the company.

COMPANY SECRETARY

Mr. Chan Wing Kin is the company secretary of our Company.

AUTHORISED REPRESENTATIVES

Mr. Chan Wing Kin and Mr. Zhao Yi Wen have been appointed as the authorised

representatives of our Company under Rule 5.24 of the GEM Listing Rules.

COMPLIANCE OFFICER

Mr. Chan Wing Kin has been appointed as the compliance officer of our Company on 13 May

2016. Please refer to the paragraph headed ‘‘Executive Directors’’ in this section for his profile.

CORPORATE GOVERNANCE

Our Directors are committed to achieving high standards of corporate governance with a view

to safeguarding the interests of the Shareholders. To accomplish this, save for the deviation from

the CG Code provision A.2.1, our Group will comply with the Corporate Governance Code as set

out in Appendix 15 to the GEM Listing Rules and the associated GEM Listing Rules.


– 144 –


COMPLIANCE ADVISER

Our Company has appointed Lego Corporate Finance as the compliance adviser of our

Company pursuant to Rule 6A.19 of the GEM Listing Rules. Pursuant to Rule 6A.23 of the GEM

Listing Rules, our Group must consult with, and if necessary, seek advice from the compliance

adviser on a timely basis in the following circumstances:

(i) before the publication of any regulatory announcement, circular or financial report;

(ii) where a transaction, which might be a notifiable or connected transaction under the GEM

Listing Rules, is contemplated by our Group, including share issues and share

repurchases;

(iii) where our Group proposes to use the proceeds of the [REDACTED] in a manner

different from that detailed in this [REDACTED] or where our Group’s business

activities, developments or results of operation deviate from any forecast, estimate or

other information in this [REDACTED]; and

(iv) where the Stock Exchange makes an inquiry of our Company regarding unusual

movements in the price or trading volume of the Shares or any other matters under Rule

17.11 of the GEM Listing Rules.

The terms of appointment shall commence on the [REDACTED] and end on the date on which

our Group complies with Rule 18.03 of the GEM Listing Rules in respect of the financial results

for the second full financial year after the [REDACTED], or until the agreement is terminated,

whichever is the earlier.

BOARD COMMITTEES

Audit committee

Our Company established the Audit Committee on [.] 2016 with written terms of reference in

compliance with the GEM Listing Rules. The Audit Committee consists of all the independent non-

executive Directors, namely, Mr. Chan Chung Kik Lewis, Dr. Wu Wing Kuen and Professor Chow

Wai Shing, Tommy. Mr. Chan Chung Kik Lewis is the chairman of the audit committee. The

primary duties of the Audit Committee are, among other things, to review and supervise the

financial reporting process and the internal control systems of our Group.


– 145 –


Remuneration committee

Our Company established the Remuneration Committee on [.] 2016 with written terms of

reference in compliance with the GEM Listing Rules. The Remuneration Committee consists of

three members, namely, Mr. Chan Chung Kik Lewis, Dr. Wu Wing Kuen and Professor Chow Wai

Shing, Tommy. Mr. Chan Chung Kik Lewis is the chairman of the Remuneration Committee. The

primary duties of the remuneration committee are to make recommendations to the Board on the

remuneration of our Directors and senior management of our Company, determine on behalf of the

Board specific remuneration packages and conditions of employment for our Directors and senior

management of our Company, and to assess the performance of our Directors and senior

management of our Company.

Nomination Committee

Our Company established the Nomination Committee on [.] 2016 with written terms of

reference in compliance with the GEM Listing Rules. The nomination committee consists of three

members, namely, Mr. Chan Chung Kik Lewis, Dr. Wu Wing Kuen and Professor Chow Wai

Shing, Tommy. Mr. Chan Chung Kik Lewis is the chairman of the nomination Committee. The

primary duties of the Nomination Committee are to make recommendations to the Board regarding

candidates to fill vacancies on the Board.

REMUNERATION OF DIRECTORS AND SENIOR MANAGEMENT

The aggregate amount of compensation paid by us for each of the financial year ended 31

December 2014 and 31 December 2015 to our Directors was approximately RMB58,000 and

RMB624,000 respectively.

Save as disclosed above, no other fees, salaries, housing allowances, discretionary bonuses,

other allowances and benefits in kind and contributions to pension scheme were paid by our Group

to our Directors during the Track Record Period. Our Directors had not waived any emoluments

during the Track Record Period.


– 146 –


One and two of our Directors were our Group’s five highest paid individuals for the years

ended 11 December 2014 and 2015 respectively. The emoluments paid by us to the five highest

paid individuals of our Group excluding our Directors during the Track Record Period are as

follows:


2014 2015

RMB’000 RMB’000

Salaries, allowances and benefits in kind 112 407

Performance related bonuses 78 37

Contribution to defined contribution pension plans 21 22

211 466

During the Track Record Period, no remuneration has been paid to our Directors or the five

highest paid individuals as an inducement to join or upon joining our Group or as compensation for

the loss of office as a director of any member of our Group or of any other office in connection

with the management of the affairs of any member of our Group.

The expected annual Directors’ fees and other emoluments to be paid by our Group for the

financial year ending 31 December 2016 will be approximately RMB1.0 million.

REMUNERATION POLICY

The Director’s fee for each of our Directors is subject to the Board’s review from time to time

in its discretion after taking into account the recommendation of our Remuneration Committee. The

remuneration package of each of our Directors is determined by reference to market terms,

seniority, experiences, duties and responsibilities of that Director within our Group. Our Directors

are entitled to statutory benefits as required by law from time to time such as pension.

Prior to the [REDACTED], the remuneration policy of our Group to reward its employees and

executives is based on their performance, qualifications, competence displayed and market

comparable. Remuneration package typically comprises salary, contribution to pension schemes and

discretionary bonuses relating to the profit of the relevant company. Upon and after the

[REDACTED], the remuneration package of our Director and the senior management will, in

addition to the above factors, be linked to the return to the Shareholders. The Remuneration

Committee will review annually the remuneration of all our Directors to ensure that it is attractive

enough to attract and retain a competent team of executive members.

DIRECTORS’ COMPETING INTERESTS

None of our Directors and their respective close associates are interested in any business

which competes or is likely to compete with that of our Group.


– 147 –


SUBSTANTIAL SHAREHOLDERS

So far as our Directors are aware, the following persons will, immediately following

completion of the Capitalisation Issue and the [REDACTED] (without taking into account any

Shares which may be issued upon the exercise of any option(s) 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 our Company 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 nominal value of any class of share capital carrying rights to vote in all circumstances at

general meetings of any other member of our Group:

Name Capacity/Nature of interest

Number of Sharesheld immediatelyafter completion

of the[REDACTED]

and theCapitalisation

Issue

Approximatepercentage of

interests in ourCompany

immediately aftercompletion of the

[REDACTED] andthe Capitalisation

Issue

Mr. Chiu (Notes 1, 2) Interest in a controlledcorporation; interest heldjointly with anotherperson

[REDACTED] [REDACTED]%

Bigfair Enterprises(Notes 1, 2)

Beneficial owner; interestheld jointly with anotherperson


Mr. Lin (Notes 1, 3) Interest in a controlledcorporation; Interest heldjointly with anotherperson


Star Eagle (Notes 1, 3) Beneficial owner; interestheld jointly with anotherperson


Mr. Zhao (Notes 1, 4) Interest in a controlledcorporation; interest heldjointly with anotherperson


First Global (Notes 1, 4) Beneficial owner; interestheld jointly with anotherperson



– 148 –


Notes:

1. On 8 June 2016, Mr. Lin, Mr. Zhao and Mr. Chiu entered into the Concert Parties Confirmatory Deed to

acknowledge and confirm, among other things, that they are parties acting in concert with each of the

members of our Group during the Track Record Period and will continue the same as at and after the date of

the Concert Parties Confirmatory Deed, details of which are set out in the section headed ‘‘History,

Reorganisation and Corporate Structure — Parties acting in concert’’ in this [REDACTED].

2. The aggregate [REDACTED] Shares in which Mr. Chiu is interested consist of (i) [REDACTED] Shares held

by Bigfair Enterprises, a company wholly owned by Mr. Chiu, in which Mr. Chiu is deemed to be interested

under the SFO; and (ii) [REDACTED] Shares in which Mr. Lin is deemed to be interested as a result of being

a party acting-in-concert with Mr. Lin and Mr. Zhao.

3. The aggregate [REDACTED] Shares in which Mr. Lin is interested consist of (i) [REDACTED] Shares held

by Star Eagle, a company wholly owned by Mr. Lin, in which Mr. Lin is deemed to be interested under the

SFO; and (ii) [REDACTED] Shares in which Mr. Lin is deemed to be interested as a result of being a party

acting-in-concert with Mr. Zhao and Mr. Chiu.

4. The aggregate [REDACTED] Shares in which Mr. Zhao is interested consist of (i) [REDACTED] Shares held

by First Global, a company wholly owned by Mr. Zhao, in which Mr. Zhao is deemed to be interested under

the SFO; and (ii) [REDACTED] Shares in which Mr. Zhao is deemed to be interested as a result of being a

party acting-in-concert with Mr. Lin and Mr. Chiu.

Save as disclosed herein, our Directors are not aware of any person who will, immediately

following the completion of the [REDACTED] and Capitalisation Issue (without taking account of

the Shares which may be issued pursuant to the exercise of any options which may be granted

under the Share Option Scheme), have an interest or short position in the Shares or underlying

Shares which fall to be disclosed to our Company and the Stock Exchange under the provisions of

Divisions 2 and 3 of Part XV of the SFO, or, directly or indirectly, be interested in 10% or more of

the nominal value of any class of share capital carrying rights to vote in all circumstances at

general meetings of any member of our Group.

UNDERTAKINGS

Each of our Controlling Shareholders has given certain undertakings in respect of the Shares

held by them to our Company, the Sole Sponsor, the [REDACTED] (for itself and on behalf of the

Underwriters) and the Stock Exchange. Our Controlling Shareholders have also given undertakings

to our Company and the Stock Exchange as required by Rule 13.19 of the GEM Listing Rules and

are bound by the non-disposal restrictions as imposed by Rule 13.19 of the GEM Listing Rules.

Further details of such undertakings are set out under the section headed ‘‘Underwriting —

Undertakings’’ in this [REDACTED].


– 149 –


The following is a description of the share capital of our Company in issue and to be issued as

fully paid or credited as fully paid immediately following the Capitalisation Issue and the

[REDACTED], without taking into account any Shares which may be allotted and issued pursuant

to the exercise of the options that may be granted under the Share Option Scheme:

HK$

Authorised share capital

10,000,000,000 Shares of HK$0.01 each 100,000,000

Issued and to be issued, fully paid or credited as fully paid

1,000 Shares in issue as at the date of this [REDACTED] 10

[REDACTED] Shares to be issued pursuant to the Capitalisation Issue [REDACTED]

[REDACTED] Shares to be issued pursuant to the [REDACTED] [REDACTED]

[REDACTED]

Total Shares issued and to be issued upon completion of the

Capitalisation Issue and the [REDACTED] [REDACTED]

ASSUMPTIONS

The above table assumes that the Capitalisation Issue and the [REDACTED] become

unconditional and the issue of Shares pursuant thereto are made as described herein. It takes no

account of Shares which may be allotted and issued upon the exercise of the options which 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 mandates for the allotment and issue or

repurchase of Shares granted to our Directors as referred to below or otherwise.

MINIMUM PUBLIC FLOAT

Pursuant to Rule 11.23(7) of the GEM Listing Rules, at the time of [REDACTED] and at all

times thereafter, our Company must maintain the ‘‘minimum prescribed percentage’’ of 25% of the

total issued share capital of our Company in the hands of the public (as defined in GEM Listing

Rules).

RANKING

The [REDACTED] will rank equally in all respects with all other Shares now in issue or to be

issued as mentioned in this [REDACTED], and will rank in full for all dividends and other

distributions hereafter declared, paid or made on the Shares in respect of a record date which falls

after the date of this [REDACTED] save for any entitlement under the Capitalisation Issue.

SHARE CAPITAL

– 150 –


No share or loan capital of our Company or any of the subsidiaries is under any option or is

agreed conditionally or unconditionally to be put under any option.

SHARE OPTION SCHEME

Our Company has conditionally adopted the Share Option Scheme on [.] 2016. The principal

terms of the Share Option Scheme are summarised in the paragraph headed ‘‘D. Share Option

Scheme’’ in Appendix IV to this [REDACTED]. As at the Latest Practicable Date, no option had

been granted under the Share Option Scheme.

CAPITALISATION ISSUE

Pursuant to the written resolutions of the Shareholders passed on [.] 2016, subject to the share

premium account of our Company being credited as a result of the issue [REDACTED] pursuant to

the [REDACTED], our Directors were authorised to allot and issue a total of [REDACTED] Shares

credited as fully paid at par to the holders of shares on the register of members of our Company at

the close of business on [.] 2016 (or as they may direct) in proportion to their respective

shareholdings (save that no Shareholder shall be entitled to be allotted or issued any fraction of a

Share) by way of Capitalisation of the sum of HK$[REDACTED] standing to the credit of the share

premium account of our Company, and the Shares to be allotted and issued pursuant to this

resolution shall rank pari passu in all respects with the existing issued Shares (other than the right

to participate in the Capitalisation Issue).

GENERAL MANDATE TO ISSUE SHARES

Subject to the [REDACTED] becoming unconditional, our Directors have been granted a

general unconditional mandate to exercise all powers of our Company to allot, issue and deal with

unissued Shares with an aggregate nominal value of not exceeding 20% of the aggregate nominal

amount of the share capital of our Company in issue as enlarged by the [REDACTED] and the

Capitalisation Issue (without taking into account any Shares which may be issued upon the exercise

of any option which may be granted under the Share Option Scheme) and the aggregate nominal

value of the share capital of our Company repurchased by our Company (if any) pursuant to the

general mandate to repurchase Shares as described below.

Our Directors may, in addition to the Shares which they are authorised to issue under the

mandate, allot, issue and deal in the Shares pursuant to a rights issue, an issue of Shares pursuant

to the exercise of subscription rights attaching to any warrants or convertible securities of our

Company, scrip dividends or similar arrangements or the exercise of options granted under the

Share Option Schemes or any other option scheme or similar arrangement for the time being

adopted.

This mandate shall remain in effect until whichever is the earliest of:

(i) the conclusion of the next annual general meeting of our Company;

SHARE CAPITAL

– 151 –


(ii) the expiration of the period within which the next annual general meeting of our

Company is required to be held by the Articles of Association or any other applicable

laws of the Cayman Islands; or

(iii) the passing of an ordinary resolution of the Shareholders in general meeting revoking,

varying or renewing such mandate;

For further details of the general mandate for the allotment and issue of Shares, please refer to

the paragraph headed ‘‘A. Further information about our Company — 3. Written resolutions of the

Shareholders’’ in Appendix IV to this [REDACTED].

GENERAL MANDATE TO REPURCHASE SHARES

Subject to the [REDACTED] becoming unconditional, our Directors have been granted a

general unconditional mandate to exercise all the powers of our Company to repurchase Shares with

an aggregate nominal value of not more than 10% of the aggregate nominal amount of the share

capital of our Company in issue, as enlarged by the [REDACTED] and the Capitalisation Issue

(without taking into account any Shares which may be issued upon the exercise of any options that

may be granted under the Share Option Scheme).

This mandate relates only to repurchases made on the Stock Exchange 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 made in accordance with all applicable laws and the

GEM Listing Rules. A summary of the relevant GEM Listing Rules is set out in the paragraph

headed ‘‘A. Further information about our Company — 6. Repurchase by our Company of its own

securities’’ in Appendix IV to this [REDACTED].

This mandate shall remain in effect until whichever is the earliest of:

(i) the conclusion of the next annual general meeting of our Company;

(ii) the expiration of the period within which the next annual general meeting of our

Company is required to be held by the Articles of Association or any other applicable

laws of the Cayman Islands; or

(iii) the passing of an ordinary resolution of the Shareholders in general meeting revoking,

varying or renewing such mandate.

SHARE CAPITAL

– 152 –


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 ‘‘2. Articles of Association — (c)

Alteration of capital’’ in Appendix III to this [REDACTED]. 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 ‘‘2. Articles of Association — (d) Variation of rights of

existing shares or classes of shares’’ in Appendix III to this [REDACTED].

SHARE CAPITAL

– 153 –


You should read this section in conjunction with our Group’s audited consolidated financial

statements, set out the notes thereto, included in the Accountant’s Report included in the

Appendix I to this [REDACTED]. Our Group’s audited consolidated financial statements have

been prepared in accordance with HKFRSs. You should read the entire Accountant’s Report and

not merely reply on the information contained in this section.

The discussions and analysis in this section of the [REDACTED] contain forward-looking

statements that involve risks and uncertainties. These statements are based on assumptions and

analysis made by us in light of our Group’s 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 the sections headed ‘‘Forward-looking Statements’’, ‘‘Risk Factors’’ and

‘‘Business’’ as well as those discussed elsewhere in this [REDACTED].

Unless the context otherwise requires, financial information described in this section is

described on a consolidated basis.

OVERVIEW

We principally engage in the design, development, manufacture and sale of LED beads and

are based in the Guangdong Province of the PRC since 2010. Our LED beads of different

specifications are used for production of backlight LED products which are generally applied as the

light emitting source of the displays in smartphones and LCD panels in tablet computers. Since late

2013, we have also started developing and selling LED lighting products on ODM basis with our

LED beads.

Our LED beads of different specifications are mainly sold to manufacturers of backlight LED

products, LCD panels modules and electronic products and a trading company in the PRC. On the

other hand, our Group’s LED lighting products are sold to a customer in Australia and the same

trading company in the PRC.

For the two years ended 31 December 2014 and 2015, our Group recorded revenue of

approximately RMB110.0 million and RMB118.7 million respectively, and profit for the year of

approximately RMB5.4 million and RMB7.7 million, respectively.

BASIS OF PRESENTATION

Prior to the incorporation of our Company and the completion of the Reorganisation, the

business of our Group (the ‘‘[REDACTED] Business’’), being the design, development,

manufacture and sales of LED beads and LED lighting products in the PRC, was carried on by

Zhuhai HongGuang.

FINANCIAL INFORMATION

– 154 –


Pursuant to the Reorganisation as detailed in the section headed ‘‘History, Reorganisation and

Corporate Structure — Reorganisation’’ in this [REDACTED], the Company became the holding

company of Zhuhai HongGuang now comprising our Group on 5 October 2015 by way of share

swaps with the existing Controlling Shareholders.

Immediately prior to and after the Reorganisation, the [REDACTED] Business is held by

Zhuhai HongGuang. Pursuant to the Reorganisation, Zhuhai HongGuang together with the

[REDACTED] Business are transferred to and held by the Company. The share swaps have no

substance and do not form a business combination, and accordingly, the financial information of the

Company was consolidated with that of the operating subsidiaries using the predecessor carrying

amounts. The Reorganisation is therefore merely a reorganisation of the [REDACTED] Business

and does not constitute a business combination, as if the group structure under the Reorganisation

had been in existence throughout the Track Record Period or since the respective dates of

incorporation of the entities now comprising the Group, whichever is the shorter period.

For the purpose of the Accountant’s Report, the consolidated statements of comprehensive

income, the consolidated statements of changes in equity and the consolidated statements of cash

flows of our Group for the Track Record Period have been prepared using the financial information

of the entities now comprising our Group, as if the current group structure had been in existence

throughout the Track Record Period, or since the respective dates of incorporation of the relevant

entities now comprising our Group where this is a shorter period. The consolidated statements of

financial position of our Group as at 31 December 2014 and 2015 have been prepared to present the

assets and liabilities of the entities now comprising the Group which were in existence at those

dates, as if the current group structure had been in existence as at the respective dates. The net

assets and results of our Group were consolidated using the carrying value from the perspective of

the Controlling Shareholders. All significant intra-group transactions and balances have been

eliminated on consolidation.

MAJOR FACTORS AFFECTING THE GROUP’S RESULTS OF OPERATIONS

Our Group’s financial condition and results of operations have been and will continue to be

affected by a number of factors, including those discussed below, some of which are beyond the

management control.

Fluctuations in the price of production materials

Our production of LED beads and LED lighting products, to a large extent, depends on a

reliable supply of a wide variety of key production materials from our suppliers in the PRC at

competitive prices. Our key materials primarily include LED chips, brackets and gold wires. If there

is any fluctuation in the price of our production materials and we are unable to respond to it in a

timely manner or pass the increase in price of production materials to our customers, our products

may lose their competitiveness and our profitability, financial condition and results of operations

may be materially and adversely affected.


– 155 –


Market conditions and trends in the PRC consumer electronics and LED lighting industry

Our LED beads are typically used for onward production of small-sized or medium-sized

backlight LED products, which would in turn, be applied in end-use applications such as the

displays in smartphones, portable electronic devices, panels of tablet computers. As such, our

results of operations and financial performance are dependent upon the prospects of these

downstream industries. Our business relies on the PRC consumer electronics and LED lighting

industry as our customers are predominantly backlight LED product manufacturers of small-sized

and medium-sized backlight products for the displays in smartphones, portable electronic devices

and panels of tablet computers. The demand from our customers is therefore depending on the

demand and supply dynamics of the consumer electronic market and the LED lighting industry. As

such, the demand for our LED beads may fluctuate according to the cycles of the consumer

electronic market and the PRC consumer electronics and LED lighting industry.

Intense competition

The market players in LED lighting industry exist not only in the PRC but also in other

countries or regions, such as Japan, Korea and Taiwan. We face fierce competition with such

market players in terms of technologies and product prices. Our ability to compete also depends on

a number of factors which may be beyond our control, including the price of comparable products

offered by our competitors in the market and the responsiveness to changes of customers’ needs.

Due to the intense competition in the LED beads and LED lighting products industry in which we

operate, we cannot assure that the selling prices of our certain products are free from downward

pressure. In the event that our competitors lower their products’ prices, we might follow their act in

order to maintain our market shares, competitiveness, or to lower our inventory level. As new

competitors enter into the industry, we may not be able to maintain or expand our sales of LED

lighting products or to continue to compete effectively against current and future competitors. If our

attempts to remain competitive fail and our market share shrinks, our overall performance may be

adversely affected.

Timely settlement by our customers

As at 31 December 2014 and 2015, our total trade and bills receivables was approximately

RMB77.1 million and RMB58.4 million respectively, of which approximately RMB27.9 million and

RMB34.9 million was due from our top five customers respectively over the corresponding period.

There is no assurance that we are able to secure the payments from our customers on a timely

manner. If we are unable to collect payments from our customers before the expiry of the respective

credit period or our customers default on settlement of outstanding balance, there could be a

material effect on the results of our operation and financial condition.

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. The preparation of the financial information in conformity


– 156 –


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 approach that we use in determining these items is based on the Group’s experience,

the nature of the Group’s 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 the operational results as reported in the consolidated financial

statements of the Group included elsewhere in this [REDACTED]. Below is a summary of the

accounting policies in accordance with HKFRSs that the Group believes are important to the

presentation of the financial results and involve the need to make estimates and judgments about

the effect of matters that are inherently uncertain. The Group also has other policies, judgments,

estimates and assumptions that our Group considers as significant, which are set out in detail in

notes 5 and 6 to the Accountant’s Report.

Revenue recognition

Our Group derived revenue principally from the (i) sale of LED beads, which is a kind of core

component for backlight LED products; and (ii) sale of LED lighting products for commercial or

consumer use. Revenue is recognised when it is probable that the economic benefits will flow to

the Group and when the revenue can be measured reliably, on the following bases:

(a) from sale of the goods to the customers of the Group, when the products have been

delivered to the customers, and collectability of the related receivable is reasonably

assured; and

(b) for interest income, it is recognised on an accrual basis on the principal outstanding at

the applicable interest rate.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any

impairment losses, if any. The cost of property, plant and equipment includes its purchase price and

the cost directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset,

as appropriate, only when it is probable that future economic benefits associated with the item will

flow to our Group and the cost of the item can be measured reliably. The carrying amount of the

replaced part is derecognised. All other repairs and maintenance are recognised as an expense in

profit or loss during the financial period in which they are incurred.


– 157 –


Property, plant and equipment are depreciated so as to write off their cost or valuation net of

expected residual value over their estimated useful lives on a straight-line basis. The useful lives,

residual value and depreciation method are reviewed, and adjusted if appropriate, at the end of each

reporting period. The useful lives are as follows:

Machinery and equipment 3 to 10 years

Motor vehicles 5 years

Furniture, fixtures and office equipment 2 to 5 years

Leasehold improvement

Over the shorter of lease term

or useful life

An asset is written down immediately to its recoverable amount if its carrying amount is

higher than the asset’s estimated recoverable amount.

The gain or loss on disposal of an item of property, plant and equipment is the difference

between the net sale proceeds and its carrying amount, and is recognised in profit or loss on

disposal.

Inventories

The inventories of our Group comprised (i) raw materials used for production; and (ii)

finished goods manufactured by the Group as at 31 December 2014 and 2015. Inventories are

initially recognised at cost, and subsequently valued at the lower of cost and net realisable value.

Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the

inventories to their present location and condition. Cost is calculated using the weighted average

method. Net realisable value is the estimated selling price in the ordinary course of business, less

estimated costs of completion and estimated costs necessary to make the sale.

Loans and receivables

An impairment loss is recognised in profit or loss when there is objective evidence that the

asset is impaired, and is measured as the difference between the asset’s carrying amount and the

present value of the estimated future cash flows discounted at the original effective interest rate.

The carrying amount of financial asset is reduced through the use of an allowance account. When

any part of financial asset is determined as uncollectible, it is written off against the allowance

account for the relevant financial asset.

Impairment loss on financial assets

Our Group assesses, at the end of each reporting period, whether there is any objective

evidence that financial asset is impaired. Financial asset is impaired if there is objective evidence of

impairment as a result of one or more events that has occurred after the initial recognition of the

asset and that event has an impact on the estimated future cash flows of the financial asset that can

be reliably estimated. Evidence of impairment may include: (a) significant financial difficulty of the


– 158 –


debtor; (b) a breach of contract, such as a default or delinquency in interest or principal payments;

(c) granting concession to a debtor because of debtor’s financial difficulty; or (d) it becoming

probable that the debtor will enter bankruptcy or other financial reorganisation.

SUMMARY OF RESULTS OF OPERATIONS

The following table sets forth a summary of the audited consolidated statements of

comprehensive income for the Track Record Period which has been extracted from the

Accountant’s Report as set out in Appendix I to this [REDACTED].


2014 2015

RMB’000 RMB’000

Revenue 110,038 118,706

Cost of sales (91,802) (90,781)


Other income and gains 231 82



Finance costs (1,319) (1,439)


Income tax expense (2,456) (4,581)


DESCRIPTION AND ANALYSIS OF PRINCIPAL ITEMS IN THE CONSOLIDATED

INCOME STATEMENTS

Revenue

During the Track Record Period, we derived our revenue from the (i) sale of LED beads,

which is a core component for backlight LED products; and (ii) sale of LED lighting products for

commercial and consumer use. Our LED beads of different specifications are mainly sold to

manufacturers of small-sized and medium-sized backlight LED modules/panels and LCD panels

modules, manufacturers of electronics products and a trading company in the PRC. On the other

hand, our Group’s LED lighting products are sold mainly to a customer in Australia and a trading

company in the PRC.


– 159 –


The following table sets forth a breakdown of our Group’s revenue in respect of our product

category during the Track Record Period:


2014 2015

RMB’000

% of total

revenue RMB’000

% of total

revenue

LED beads 99,870 90.8 114,989 96.9


Total 110,038 100.0 118,706 100.0


2014 2015

Sales volumeAverage

selling price Sales volumeAverage

selling price

(‘000 units) (RMB) (‘000 units) (RMB)

LED beads 677,629 0.147 858,396 0.134

LED lighting products (Note) 193 23.7 to

375.2

38 14.0 to

189.7

Note: During the Track Record Period, our Group’s LED lighting products were sold to our customers in a total of

six different product types, in which the average selling unit price varied from approximately RMB23.7 to

RMB375.2 for the year ended 31 December 2014 and from approximately RMB14.0 to RMB189.7 for the

year ended 31 December 2015. For details of the product type of our LED lighting products, please refer to

section headed ‘‘Business — Our Group’s products — LED lighting products’’ in this [REDACTED].

Our Group’s revenue is mainly affected by (i) the selling price of each type of our products;

and (ii) demand from our customers on different types of our products. Our Group’s revenue is also

subject to seasonality. During the Track Record Period, our Group typically experienced lower sales

demand and recorded lower sales in first quarter of a calendar year. Our Directors believe that it

was mainly due to the long holiday period during the Chinese New Year holidays in the PRC,

which typically resulted in a decrease in customer orders.


– 160 –


The revenue of our Group increased by approximately 7.9% from approximately RMB110.0

million for the year ended 31 December 2014 to approximately RMB118.7 million for the year

ended 31 December 2015. Such increase in the revenue was mainly due to the increase in revenue

from the sales of LED beads from approximately RMB99.9 million for the year ended 31 December

2014 to approximately RMB115.0 million for the year ended 31 December 2015, and the effect of

which was partially offset by the decrease in revenue from the sales of LED lighting products from

approximately RMB10.1 million for the year ended 31 December 2014 to approximately RMB3.7

million for the year ended 31 December 2015. The reasons for the above fluctuations are further

discussed as follows:

LED beads

We generated a substantial portion of our revenue from selling our LED beads during the

Track Record Period. For the two years ended 31 December 2014 and 2015, sale of our LED beads

were approximately RMB99.9 million and RMB115.0 million, which accounted for approximately

90.8% and 96.9% of its total revenue, respectively. The revenue from selling LED beads increased

by approximately RMB15.1 million or 15.1% from approximately RMB99.9 million for the year

ended 31 December 2014 to approximately RMB115.0 million for the year ended 31 December

2015. The increase was mainly due to the increase in the sales volume of LED beads from

approximately 677.6 million unit in 2014 to approximately 858.4 million unit in 2015

notwithstanding the decrease in average selling price per unit of LED beads primarily driven by

the decrease in costs of the key production materials used. The significant increase in sales volume

of LED beads was primarily attributable to the increase in sales orders placed by two of our top 10

customers during the year ended 31 December 2015, of which one is a manufacturer of LED

modules/panels and the other is a trading company based in the PRC, as a result of their increase in

demand for our LED beads products. The sales orders placed by these two major customers to us

increased by approximately 231.4 million units and 129.0 million units for the year ended 31

December 2015 as compared with the same period in 2014 respectively. The total revenue derived

from these two major customers increased by approximately RMB33.0 million and RMB17.0

million for the year ended 31 December 2015 as compared to their respective sales for the year

ended 31 December 2014, respectively.


For the two years ended 31 December 2014 and 2015, the sales of our LED lighting products

amounted to approximately RMB10.1 million and RMB3.7 million respectively, which represented

approximately 9.2% and 3.1% of our total revenue for the same periods. Revenue from sales of

LED lighting products decreased from approximately RMB10.1 million for the year ended 31

December 2014 to approximately RMB3.7 million for the year ended 31 December 2015. Such

decrease was mainly attributable to the decrease in sales of our LED lighting products from

approximately 193,000 units for the year ended 31 December 2014 to approximately 38,000 unit for

the year ended 31 December 2015 because (i) our LED lighting business was still at the

development stage in 2015 and hence our revenue generated from the sales of LED lighting

products were yet to be stable in 2014 and 2015 and we had not expand our customer base by that


– 161 –


time; and (ii) there were substantial decrease in sales orders placed by one of the two customers

during the year ended 31 December 2015. The sales orders we received from such customer

amounted to approximately RMB4.8 million for the year ended 31 December 2014, representing

approximately 47.5% of the total revenue in LED lighting products, while no sales orders were

placed by such customer during the year ended 31 December 2015. To the best knowledge and

belief of our Directors, such customer did not require LED lighting products for its business in

2015. Nevertheless, such customer resumed to place sales orders of our LED lighting products in

the first quarter of 2016.

Cost of sales

During the Track Record Period, our cost of sales primarily consisted of cost of material used,

direct labour and production overheads. The following table sets forth the breakdown of our cost of

sales and their corresponding percentage during the Track Record Period:


2014 2015

RMB’000 % RMB’000 %

Cost of material used 82,675 90.1 81,934 90.3

Direct labour 3,503 3.8 2,756 3.0

Production overheads 5,624 6.1 6,091 6.7

Total 91,802 100.0 90,781 100.0

For the two years ended 31 December 2014 and 2015, we recorded cost of sales of

approximately RMB91.8 million and RMB90.8 million, respectively, representing approximately

83.4% and 76.5% of our total revenue for the corresponding year. Notwithstanding the increase in

our revenue by approximately 7.9% for the Track Record Period, our cost of sales slightly

decreased by approximately 1.1% for the year ended 31 December 2015, which led to an increase

in our gross margin increased by approximately 6.9 percentage point from approximately 16.6% for

the year ended 31 December 2014 to 23.5% for the year ended 31 December 2015.


– 162 –


Cost of material used

During the Track Record Period, our cost of material used, which represented the purchase

costs of our production materials for the manufacturing of our Group’s products, was the largest

component of our Group’s cost of sales, which amounted to approximately RMB82.7 million and

RMB81.9 million, representing approximately 90.1% and 90.3% of our total cost of sales for the

two years ended 31 December 2014 and 2015, respectively. The table below sets out a breakdown

of our Group’s cost of material used during the Track Record Period:


2014 2015

RMB’000 % RMB’000 %

LED chips 56,419 68.2 66,248 80.9

Gold wires 2,382 2.9 1,014 1.2

Brackets 13,991 16.9 11,852 14.5

Other production materials 9,883 12.0 2,820 3.4

Total 82,675 100.0 81,934 100.0

Note: Other production materials mainly include plastic tapes, phosphors, glue and packaging materials.

During the Track Record Period, our cost of LED chips formed the largest part of our cost ofmaterial used, amounted to approximately RMB56.4 million and RMB66.2 million, representingapproximately 68.2% and 80.9% of our total cost of material used, for the two years ended 31December 2014 and 2015, respectively. According to the CIC Report, LED chips contributed to thehighest percentage of manufacturing cost of LED beads, in which the average price of LED chipsdemonstrated a downward trend with a CAGR of negative 13.2% over the period from 2010 to2015. In this connection, our average unit cost of LED chips decreased by approximately 5.9% forthe year ended 31 December 2015 as compared to the corresponding period in 2014. Despite suchdrop in the average unit price, our cost of LED chips increased by approximately 17.4% fromapproximately RMB56.4 million for the year ended 31 December 2014 to approximately RMB66.2million for the year ended 31 December 2015, as a result of the increase in the number of salesvolume of LED beads for the year ended 31 December 2015 by approximately 26.7% as comparedto the same for the year ended 31 December 2014.

For the year ended 31 December 2014 and 2015, our cost for the gold wires and brackets usedin aggregate amounted to approximately RMB16.4 million and RMB12.9 million, representingapproximately 19.8% and 15.7% of our total cost of material used, respectively. According to theCIC Report, the average prices for gold wires and brackets had been decreasing with a CAGR ofnegative 1.0% and 14.0% respectively over the period from 2010 to 2015. For the gold wire andbrackets we used for production during the year ended 31 December 2015, the respective averageunit price also decreased by approximately 21.7% and 27.4% as compared to the same in 2014,which in turn, led to a decrease in our cost of gold wires and brackets by approximately 21.4%.


– 163 –


Our other production materials mainly include plastic tapes, phosphors, glue and packagingmaterials, which can be used for production of our LED beads and LED lighting products. Duringthe Track Record Period, our cost of other production materials used amounted to approximatelyRMB9.9 million and RMB2.8 million, representing approximately 12.0% and 3.4% of our total costof material used, for the two years ended 31 December 2014 and 2015, respectively. The cost ofother production materials used for the production of our LED beads decreased by approximately66.0% from approximately RMB4.7 million for the year ended 31 December 2014 to approximatelyRMB1.6 million for the year ended 31 December 2015. Such decrease was mainly attributable tothe decrease in weighted average unit price of the other production materials of approximately43.9% in 2015. On the other hand, the cost of other production materials used for production of ourLED lighting products decreased by approximately 76.9% from approximately RMB5.2 million forthe year ended 31 December 2014 to approximately RMB1.2 million for the year ended 31December 2015 which is in line with the decrease in our revenue of our LED lighting products byapproximately 63.4%.

Direct labour

Direct labour costs mainly represented the salaries, wages and other benefits of our employeesdirectly engaged in the production of both LED beads and LED lighting products. Cost of ourdirect labour as a percentage of our cost of sales was approximately 3.8% and 3.0% for the twoyears ended 31 December 2014 and 2015, respectively. Our direct labour costs decreased byapproximately 21.3% from approximately RMB3.5 million for the year ended 31 December 2014 toapproximately RMB2.8 million for the year ended 31 December 2015. Such decrease was as aresult of our cost saving measures to streamline the manpower for our production process for LEDbeads and LED lighting products. The decrease in headcount in general for the production of ourLED beads and LED lighting products reduced our direct labour cost. For details of the productionprocess of LED beads and LED lighting products, please see the section headed ‘‘Business —

Production process of LED beads and LED lighting products’’ in this [REDACTED].

Production overheads

Production overheads mainly included (i) depreciation recognised for the plant andmachineries in relation to our production; (ii) rental expenses for our Zhuhai HongGuangProduction Plant; (iii) utilities costs for the electricity and water used in our production process;and (iv) other miscellaneous production costs. Our production overheads remained relatively stableand represented approximately 6.1% and 6.7% of our total cost of sales for the two years ended 31December 2014 and 2015, respectively.


– 164 –


Gross profit and gross profit margin

For the two years ended 31 December 2014 and 2015, our Group’s gross profit amounted toapproximately RMB18.2 million and RMB27.9 million, respectively, and gross profit margin wasapproximately 16.6% and 23.5%, respectively. The following table sets out the breakdown of thegross profit and gross profit margin by product category during the Track Record Period:


2014 2015

Gross profitGross profit

margin Gross profitGross profit

margin

RMB’000 % RMB’000 %

LED beads 13,552 13.6 25,621 22.3


Total 18,236 16.6 27,925 23.5

Our overall gross profit increased by approximately RMB9.7 million, or approximately 53.1%,

from approximately RMB18.2 million for the year ended 31 December 2014 to approximately

RMB27.9 million for the year ended 31 December 2015, and our gross profit margin also increased

from approximately 16.6% for the year ended 31 December 2014 to approximately 23.5% for the

year ended 31 December 2015.

The gross profit margin of LED beads increased from approximately 13.6% for the year ended

31 December 2014 to approximately 22.3% for the year ended 31 December 2015, which was

mainly due to (i) the decrease in average unit price of LED chips, gold wires and brackets, being

the key production material used for our production of LED beads, in the year ended 31 December

2015 of approximately 21.3% outweighed the decrease in average selling price of LED beads for

the year ended 31 December 2015 of approximately 8.8%; (ii) the average selling price of LED

beads we offered to our customers were generally less responsive to the decrease in price of our

key production material used charged by our suppliers.

The gross profit margin of LED lighting products was higher than LED beads in general

during the Track Record Period, which was mainly attributable to the fact that we use our self-

developed LED beads as the key raw material for the onward production of our LED lighting

products, which lowered our average costs of materials. The gross profit margin of LED lighting

products increased from approximately 46.1% for the year ended 31 December 2014 to

approximately 62.0% for the year ended 31 December 2015, which was primarily attributable to

the increased sales of our LED lighting product models with a higher gross margin for the year

ended 31 December 2015.


– 165 –


Other income and gains

Other income and gains of our Group amounted to approximately RMB0.2 million and

RMB82,000 for the two years ended 31 December 2014 and 2015, respectively, which was mainly

derived from the bank interest income, government grants and others. The following table sets forth

the breakdown of our Group’s other income and gains during the Track Record Period:


2014 2015

RMB’000 % RMB’000 %

Bank interest income 5 2.2 5 6.1

Government grants 63 27.3 41 50.0

Others 163 70.5 36 43.9

Total 231 100.0 82 100.0

The government grants represented the subsidies received from the local government authority

to encourage our Group to develop overseas market by attending lighting exhibition during the

Track Record Period. For the two years ended 31 December 2014 and 2015, government grants

amounted to approximately RMB63,000 and RMB41,000, respectively. Others mainly represented

the sale proceeds of scrap material.

Selling and distribution expenses

During the Track Record Period, our selling and distribution expenses amounted to

approximately RMB2.1 million and RMB1.6 million for the two years ended 31 December 2014

and 2015, respectively, representing approximately 1.9% and 1.3% of our total revenue for the

corresponding years. Our selling and distribution expenses mainly included staff costs, traveling

expenses, entertainment expenses and exhibition expenses.


– 166 –


The following table sets forth the breakdown of our selling and distribution expenses during

the Track Record Period:


2014 2015

RMB’000 % RMB’000 %

Courier 157 7.4 89 5.7

Entertainment 304 14.4 132 8.5

Exhibition expenses 224 10.7 22 1.5

Staff costs 557 26.4 645 41.5

Travelling expenses 528 25.0 503 32.4

Others 339 16.1 162 10.4

Total 2,109 100.0 1,553 100.0

Staff costs mainly represented the salaries, allowances and employee benefits and retirement

benefit costs for our sales and marketing staff.

Travelling expenses mainly comprised of our travelling and other public transportation costs.

Entertainment expenses mainly comprised expenditure for business development.

Exhibition expenses mainly represented the cost of local and overseas exhibitions that our

Group participated in for LED-related products exhibitions.

Our selling and distribution expenses decreased by approximately RMB0.5 million from

approximately RMB2.1 million for the year ended 31 December 2014 to approximately RMB1.6

million for the year ended 31 December 2015, primarily as a result of (i) the decrease in exhibition

expenses in 2015 due to the fact that we participated in two overseas exhibitions in 2014 while we

participated in one local exhibition for the year ended 31 December 2015; and (ii) the decrease in

entertainment expenses due to our tighter cost control measures on entertainment expenses. For the

two years ended 31 December 2014 and 2015, our selling and distribution expenses represented

approximately 1.9% and 1.3% of our revenue for the same periods, respectively.


– 167 –


Administrative expenses

During the Track Record Period, we recorded administrative expenses of approximately

RMB7.2 million and RMB12.7 million for the two years ended 31 December 2014 and 2015,

respectively. Our Group’s administrative expenses mainly included staff costs, legal and

professional fees, [REDACTED] expenses, impairment loss on trade receivables and travelling

expenses.

The following table sets forth the breakdown of the administrative expenses of our Group

during the Track Record Period:


2014 2015

RMB’000 % RMB’000 %

Auditors’ remuneration 31 0.4 97 0.8

Legal and professional fees 142 2.0 334 2.6

[REDACTED] expenses [REDACTED] [REDACTED] [REDACTED] [REDACTED]

Office supplies 191 2.7 131 1.0

Impairment loss on trade

receivables 1,365 19.0 1,696 13.4

Other provisions 364 5.1 617 4.9

Research and development 326 4.5 852 6.7

Staff costs 2,592 36.1 3,588 28.3

Trademark 4 0.1 247 1.9

Travelling expenses 256 3.6 438 3.4

Write off of inventories 1,282 17.8 — —

Other expenses 627 8.7 893 7.0

Total 7,180 100.0 12,698 100.0

Our administrative expenses increased by approximately RMB5.5 million from approximately

RMB7.2 million for the year ended 31 December 2014 to approximately RMB12.7 million for the

year ended 31 December 2015. The increase was primarily attributable to (i) the [REDACTED]

expenses of approximately RMB[REDACTED] which incurred during the year ended 31 December

2015; (ii) the increase in other provisions to approximately RMB0.6 million mainly due to the

provision we made in relation to the estimated compensation of approximately RMB0.5 million for

the litigation proceeding with a supplier of brackets during the year ended 31 December 2015 (for

details about this litigation proceeding, please see the section headed ‘‘Business — Litigations’’ in

this [REDACTED]); and (iii) the increase in administrative staff costs of approximately RMB1.0

million as a result of the increase in number of staff, including Mr. Chan Wing Kin, our executive

Director who joined our Group during the year ended 31 December 2015.


– 168 –


Finance costs

Our Group’s finance costs mainly comprised interest expenses on bank borrowings repayable

within five years and discounted bills receivable during the Track Record Period. The following

table sets forth the breakdown of our finance cost during the Track Record Period:


2014 2015

RMB’000 RMB’000

Interest on bank borrowings repayable within five years 1,319 935

Interest on discounted bills receivable — 504

1,319 1,439

Our finance costs remained relatively stable at approximately RMB1.3 million and RMB1.4

million for the two years ended 31 December 2014 and 2015, respectively.

Income tax expense

We are subject to the enterprise income tax of the PRC, being our principal place of business.

The PRC enterprise income tax is calculated based on a statutory tax rate of 25% of the estimated

assessable profits as determined in accordance with the relevant income tax law in the PRC.

For the two years ended 31 December 2014 and 2015, we recorded income tax expenses of

approximately RMB2.5 million and RMB4.6 million, respectively. Such increase was primarily

attributable to the [REDACTED] expenses incurred, which are non-deductible, for the year ended

31 December 2015. Excluding the effect of [REDACTED] expenses which are non-deductible, our

effective tax was approximately 31.3% and 28.4% for the two years ended 31 December 2014 and

2015, respectively.

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.

Profit for the year

As of the cumulative effect of the foregoing, our profit for the year increased by

approximately RMB2.3 million or approximately 43.2% from approximately RMB5.4 million for

the year ended 31 December 2014 to approximately RMB7.7 million for the year ended 31

December 2015. Our net profit margin slightly increased from approximately 4.9% for the year

ended 31 December 2014 to approximately 6.5% for the year ended 31 December 2015, mainly

attributable to the increase in our gross profit margin.


– 169 –


[REDACTED] EXPENSES

Our Directors are of the view that the financial results of our Group for the year ending 31

December 2016 is expected to be adversely affected by, among others, the [REDACTED] expenses

in relation to the [REDACTED], the nature of which is non-recurring. The total [REDACTED]

expenses in relation to the [REDACTED], primarily consisting of fees paid or payable to

professional parties and underwriting fees and commission, are estimated to be approximately

RMB[REDACTED] (based on HK$[REDACTED], being the mid-point of our indicative

[REDACTED] range of HK$[REDACTED] per [REDACTED] to HK$[REDACTED] per

[REDACTED] and [REDACTED] [REDACTED]). Among the estimated total [REDACTED]

expenses, (i) approximately RMB[REDACTED] is expected to be accounted for as a deduction

from equity upon [REDACTED]; and (ii) approximately RMB[REDACTED] is expected to be

recognised as expenses in our consolidated statements of comprehensive income, of which

approximately RMB[REDACTED] had been recognised as expenses for the year ended 31

December 2015 and the remaining of approximately RMB[REDACTED] is expected to be

recognised as expenses for the year ending 31 December 2016.

Our Directors would like to emphasise that the amount of the [REDACTED] expenses is a

current estimate for reference only and the final amount to be recognised in the consolidated

financial statements of our Group for the year ending 31 December 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 December 2016 is expected to be adversely affected by the estimated non-recurring

[REDACTED] expenses mentioned above, and may or may not be comparable to the financial

performance of our Group in the past. Please also refer to the section headed ‘‘Risk Factors —

Risks relating to our business — Our financial performance is expected to be affected by our

[REDACTED] expenses’’ in this [REDACTED].

LIQUIDITY AND CAPITAL RESOURCES

Cash flows

Our Group’s primary uses of cash are to satisfy the working capital needs and capital

expenditure requirements of our Group. Historically, the working capital needs and capital

expenditure requirements have been principally financed through a combination of shareholders’

equity, amount due to shareholders, cash generated from operations and bank borrowings. Going

forward, we expect to fund our working capital, capital expenditures and other capital requirements

with a combination of various sources, including but not limited to cash generated from our

operations, borrowings and the net proceeds from the [REDACTED] as well as other external

equity and debt financing when the needs come.


– 170 –


The following table sets out a condensed summary of our Group’s consolidated statements of

cash flows for the Track Record Period. Such summary of the consolidated statements of cash flows

is extracted from the Accountant’s Report contained in Appendix I to this [REDACTED] and

should be read in conjunction with the entire financial information included therein, including the

notes thereto.


2014 2015

RMB’000 RMB’000

Operating profit before working capital change 14,290 17,925

Net cash flows (used in)/generated from operating activities (15,372) 18,934

Net cash flows (used in)/generated from investing activities (1,188) 826

Net cash flows generated from/(used in) financing activities 23,727 (20,115)

Net increase/(decrease) in cash and cash equivalents 7,167 (355)

Cash and cash equivalents at beginning of the year 797 7,986

Cash and cash equivalents at end of the year 7,986 7,670

Operating activities

During the Track Record Period, the cash generated from operating activities is principally

from the receipt of payments for the sale of our Group’s products. The cash used in operating

activities is principally for payments of purchases of raw materials from suppliers, staff costs, rental

expenses and utility expenses.

During the Track Record Period, we recorded net cash outflows from operating activities of

approximately RMB15.4 million for the year ended 31 December 2014 and net cash inflows of

approximately RMB18.9 million for the year ended 31 December 2015, which were the combined

results of (i) operating profit before working capital change of approximately RMB14.3 million and

RMB17.9 million; (ii) the net increase/(decrease) in working capitals of approximately RMB26.9

million and RMB(10.0) million, respectively; and (iii) the income tax payment of approximately

RMB2.7 million and RMB9.0 million, for the corresponding year, respectively.

The net increase in working capitals of approximately RMB26.9 million for the year ended 31

December 2014 was mainly attributable to (i) the increase in inventories of approximately RMB7.3

million; (ii) the increase in trade and bills receivables of approximately RMB10.5 million as a

result of the delays of settlement by certain customers; and (iii) the decrease in trade and other

payables of approximately RMB8.5 million.


– 171 –


On the other hand, the net decrease in working capitals of approximately RMB10.0 million for

the year ended 31 December 2015 was mainly attributable to the decrease in trade and bills

receivables of approximately RMB17.1 million as a result of our improvement of control in respect

of the credit period to our customers and the decrease in inventories of approximately RMB0.9

million, the effect of which was partially offset by the increase in prepayments and other

receivables of approximately RMB5.3 million and the decrease in trade and other payables of

approximately RMB2.7 million.

Investing activities

During the Track Record Period, our cash flows in investing activities was primarily for (i)

purchases of property, plant and equipment; (ii) interest received; and (iii) advance to/repayment

from a shareholder.

For the year ended 31 December 2014, we recorded net cash used in investing activities of

approximately RMB1.2 million mainly due to the advance to a Shareholder of RMB1.0 million; and

(ii) the purchase of property, plant and equipment of approximately RMB0.2 million.

For the year ended 31 December 2015, we recorded net cash generated from investing

activities of approximately RMB0.8 million mainly due to the repayment from a shareholder of

RMB1.0 million; and purchase of property, plant and equipment of approximately RMB0.2 million.

Financing activities

During the Track Record Period, our Group’s cash flows in financing activities mainly

included (i) advance from/repayment to Shareholders; (ii) payment of interest expenses; and (iii)

proceeds from repayment of bank borrowings.

The cash inflows in financing activities of approximately RMB23.7 million for the year ended

31 December 2014 was primarily attributable to the proceeds from bank borrowings of

approximately RMB27.0 million and the advance from Shareholders of approximately RMB12.5

million, which was partially offset by (i) repayments of bank borrowings of approximately

RMB18.0 million; and (ii) interest payment of approximately RMB1.3 million.

The cash outflows from financing activities of approximately RMB20.1 million for the year

ended 31 December 2015 was mainly attributable to the repayment of bank borrowings of

approximately RMB17.0 million and the repayment to Shareholders of approximately RMB8.4

million, which was partially offset by the proceeds from new bank borrowings of approximately

RMB8.0 million.


– 172 –


NET CURRENT ASSETS

The table below sets forth the current assets, current liabilities and net current assets of our

Group for the dates indicated. As at 31 December 2014, 31 December 2015 and 30 April 2016, we

had net current assets of approximately RMB22.7 million, RMB36.3 million and RMB45.4 million,

respectively. Details of the components are set out as follows:

As at 31 December As at 30 April

2014 2015 2016

RMB’000 RMB’000 RMB’000

(unaudited)

Currents assets

Inventories 21,993 21,046 12,367

Trade and bills receivables 77,137 58,365 68,545

Prepayments and other receivables 2,680 6,991 22,940

Cash and cash equivalents 7,986 7,670 5,421

Total current assets 109,796 94,072 109,273

Current liabilities

Trade payables 29,335 27,661 24,835

Other payables and accruals 34,421 20,555 23,219

Borrowings 17,000 8,000 14,700

Current tax liabilities 6,319 1,517 1,146

Total current liabilities 87,075 57,733 63,900

Net current assets 22,721 36,339 45,373

Our current assets as at 31 December 2014, 31 December 2015 and 30 April 2016 amounted

to approximately RMB109.8 million, RMB94.1 million and RMB109.3 million, respectively, with

inventories, trade and bills receivables, prepayments and other receivables and cash and cash

equivalents being the major components. Our current liabilities as at 31 December 2014, 31

December 2015 and 30 April 2016 amounted to approximately RMB87.1 million, RMB57.7 million

and RMB63.9 million, respectively, with trade payables, other payables and accruals, borrowings

and current tax liabilities being the major components.

We recorded net current assets of approximately RMB22.7 million as at 31 December 2014

and recorded net current assets of approximately RMB36.3 million as at 31 December 2015,

representing an increase of approximately 59.9%. Such increase was mainly due to (i) the decrease

in other payables and accruals by approximately RMB13.9 million; (ii) the decrease in bank


– 173 –


borrowings by approximately RMB9.0 million; (iii) the decrease in current tax liabilities by

approximately RMB4.8 million; mitigated by the decrease in trade and bills receivables by

approximately RMB18.8 million.

We recorded net current assets of approximately RMB45.4 million as at 30 April 2016 as

compared to net current assets of approximately RMB36.3 million as at 31 December 2015,

representing an increase of approximately 24.9%. Such increase was mainly due to the combined

effect of (i) the increase in trade and bills receivables by approximately RMB10.2 million mainly

due to more sales order received from our customers; and (ii) the increase in prepayments and other

receivables by approximately RMB15.9 million mainly attributable to the purchase of LED chips

from one of our major suppliers for the first four months of 2016 to secure our purchase order in

order to meet the increasing demand of our LED beads, partially offset by (i) the decrease in

inventories by approximately RMB8.7 million; (ii) the decrease in cash and cash equivalents by

approximately RMB2.2 million; and (iii) the increase in bank borrowings by RMB6.7 million.

For details regarding the major items affecting our net current assets during the Track Record

Period, see the paragraph headed ‘‘Description and analysis of principal items in the consolidated

statements of financial position’’ in this section.

DESCRIPTION AND ANALYSIS OF PRINCIPAL ITEMS IN THE CONSOLIDATED

STATEMENTS OF FINANCIAL POSITION

Inventories

During the Track Record Period, inventories were one of the principal components of our

current assets. The value of the inventories amounted to approximately RMB22.0 million and

RMB21.0 million as at 31 December 2014 and 31 December 2015, respectively, which accounted

for approximately 20.0% and 22.4%, respectively, of our total current assets as at 31 December

2014 and 31 December 2015.

Our inventories as at 31 December 2014 and 2015 comprised raw materials and finished

goods. The raw materials used by our Group for production are stored in our warehouses. The

following table sets out the breakdown of the inventory balance as at 31 December 2014 and 31

December 2015 and the inventory turnover days for the Track Record Period:

As at 31 December

2014 2015

RMB’000 RMB’000

Raw materials 4,509 4,596

Finished goods 17,484 16,450

Total 21,993 21,046


– 174 –



2014 2015

Inventory turnover days (Note) 76.6 86.5

Note: Inventory turnover days are calculated by dividing the average inventory balance by cost of sales multiplied

by the number of days during the year (i.e. 365 days for each of the two years ended 31 December 2014 and

2015). Average inventory balance is the average of the beginning and ending inventory balances for the

relevant year.

Raw materials principally represented our production materials of LED chips, gold wires andbrackets. Finished goods represented our finished LED beads and LED lighting products.

The balances of the raw materials increased slightly from approximately RMB4.5 million as at31 December 2014 to approximately RMB4.6 million as at 31 December 2015. Generally, thebalance of raw materials was maintained at similar level as at 31 December 2014 and 2015 as wegenerally maintain 30 to 45 working days of our inventory of major production materials for theproduction of our LED beads for use to ensure that we can meet our major customers’requirements.

The balance of finished goods decreased slightly from approximately RMB17.5 million as at31 December 2014 to approximately RMB16.5 million as at 31 December 2015. Such decrease wasprimarily due to increase in the sales of LED beads in the fourth quarter of 2015 as compared tothat of 2014.

Our inventory turnover days were approximately 76.6 days and 86.5 days, respectively, for thetwo years ended 31 December 2014 and 2015. The longer inventory turnover days for the yearended 31 December 2015 as compared to the year ended 31 December 2014 was mainly due to therelatively low inventory balance as at 31 December 2013, which led to a relatively low averageinventory balance for the year ended 31 December 2014.

As at 30 April 2016, approximately 95.2% of our inventories as at 31 December 2015 weresubsequently utilised or sold.

Set out below is the ageing analysis of our inventory balance as at 31 December 2014 and 31December 2015:

As at 31 December

2014 2015

RMB’000 RMB’000

0 to 30 days 5,500 13,37631 to 90 days 11,236 6,90291 to 365 days 5,257 766Over 1 year — 2

Total 21,993 21,046


– 175 –


The adequacy of our inventories is reviewed by the management from time to time. Our policy

on obsolete or damaged inventories is to write off such inventories when the management considers

the obsolete or damaged inventories to have no residual value.

In addition, impairment of inventories would be made should the management decide that the

current level of provision is inadequate. We had written off approximately RMB1.3 million of

inventory for the year ended 31 December 2014 due to the fact that we had produced a batch of

LED beads in early 2014 which were originally used for onward production of backlight LED

products. However, the brightness/color temperature of such LED beads when assembled into the

LED lighting products was not satisfied by our management, and therefore such batch of LED

beads, where the size and specification were different from what we normally produced, had been

written off. There was no inventory being written off for the year ended 31 December 2015 as we

had not experienced any significant damage or loss in respect of the inventories throughout the

year.

Trade and bills receivables

As at 31 December 2014 and 31 December 2015, our trade and bills receivables of our Group

amounted to approximately RMB77.1 million and RMB58.4 million, respectively. The following

table sets out the breakdown of our trade and bills receivables as at 31 December 2014 and 31

December 2015 and trade receivable turnover days for the Track Record Period:

As at 31 December

2014 2015

RMB’000 RMB’000

Trade receivables 70,501 52,791

Bills receivable 6,636 5,574

Total 77,137 58,365


2014 2015

Days Days

Trade receivable turnover days (Note) 242.2 208.3

Note: Trade receivable turnover days are calculated by dividing the average trade and bills receivable balance by

revenue for the relevant year multiplied by the number of days during the year (i.e. 365 days for each of the

two years ended 31 December 2014 and 2015). Average trade and bills receivable balance is the average of

the beginning and ending trade and bills receivable balances for the relevant year.


– 176 –


The following is an ageing analysis of our trade and bills receivables, based on the invoice

date, as at 31 December 2014 and 31 December 2015:

As at 31 December

2014 2015

RMB’000 RMB’000

0 to 30 days 21,803 20,539

31 to 60 days 8,699 15,299

61 to 90 days 11,637 7,475

91 to 120 days 5,637 3,730

121 to 365 days 7,026 11,234

Over 1 year 24,592 2,585

79,394 60,862

Less: Impairment of trade receivables (2,257) (2,497)

Total 77,137 58,365

As at 31 December 2014 and 31 December 2015, our trade and bills receivables of

approximately RMB35.0 million and RMB16.1 million were past due but not impaired, of which

approximately RMB23.1 million and RMB10.0 million or approximately 66.0% and 62.2% were

past due more than 120 days, respectively.

The ageing analysis of our past due trade and bills receivables based on past due date is set

out as follows:

As at 31 December

2014 2015

RMB’000 RMB’000

Past due for less than 30 days 7,142 4,422

Past due for more than 30 days but less than 60 days 3,862 1,247

Past due for more than 60 days but less than 90 days 893 413

Past due for more than 90 days but less than 120 days — —

Past due for more than 120 days 23,079 10,013

Total 34,976 16,095

During the Track Record Period, the general payment terms offered to our major customers

ranged from 30 to 90 days. We generally allow our customers to settle our payment by bank

acceptance bills with maturties of no more than six months. For payment terms with our five largest

customers, please refer to the section headed ‘‘Business — Sales and Customers — Top five

customers’’ in this [REDACTED].


– 177 –


The balance of our trade and bills receivables decreased from approximately RMB77.1 million

as at 31 December 2014 to approximately RMB58.4 million as at 31 December 2015. Our trade

receivable turnover days also decreased from approximately 242.2 days for the year ended 31

December 2014 to approximately 208.3 days for the year ended 31 December 2015. Despite our

credit terms generally ranged from 30 to 90 day, due to the delays by certain customers in settling

our trade receivables during the Track Record Period as evidenced by the amount of past due trade

receivables as at 31 December 2014 and 31 December 2015, our trade receivable turnover days for

the Track Record Period were longer than the general credit terms offered to our customers.

Nevertheless, we recorded decreases in the balance and turnover days of trade and bills

receivables which were mainly due to improvement of our credit control management of trade and

bill receivables which we believe to be achieved by more progressive liaison and follow up by our

staff on overdue balances, so that collections of the amount of trade and bills receivables due from

our customers and the turnover day were improved.

The provision for impairment of trade receivables related to trade receivables which we

considered to be impaired based on the low likelihood of collectability from our customers. As at

31 December 2014 and 2015, approximately RMB2.3 million and RMB2.5 million, representing

approximately 2.8% and 4.1% of our gross trade and bills receivables, respectively, were provided

for impairment. These were mainly due to two on-going legal proceedings with our Group which

are related to contractual disputes instituted by Zhuhai HongGuang whereby (i) Zhuhai HongGuang

as plaintiff instituted legal proceedings to claim against one existing customer and one former

customer as defendants for the repayment of an outstanding sum of approximately RMB0.8 million

in May 2015; and (ii) Zhuhai HongGuang as plaintiff instituted legal proceedings to claim against a

customer as defendant for the repayment of an outstanding sum of approximately RMB0.6 million

with interests for the lighting products supplied to such customer. The remaining amounts are

considered irrecoverable by our management after consideration on the credit quality of those

customers, their ongoing relationships with our Group and the aging of these receivables. For

details, please refer to the section headed ‘‘Business — litigations — on-going legal proceedings’’

in this [REDACTED]. As at 31 May 2016, approximately 83.9% of our Group’s trade and bills

receivables as at 31 December 2015 were subsequently settled.


– 178 –


Prepayments and other receivables

As at 31 December 2014 and 31 December 2015, we had advance to a Shareholder, other

receivables and prepayments of approximately RMB2.7 million and RMB7.0 million, respectively.

The following table sets out a breakdown of our prepayments and other receivables as at 31

December 2014 and 31 December 2015:

As at 31 December

2014 2015

RMB’000 RMB’000

Advance to a Shareholder 1,000 —

Other receivables 125 155

Prepayments 1,555 6,836

Total 2,680 6,991

As at 31 December 2014 and 31 December 2015, our prepayments mainly represented

prepayment to suppliers for the purchase of raw materials and prepayment for [REDACTED]

expenses. The balance increased from approximately RMB1.6 million as at 31 December 2014 to

approximately RMB6.8 million as at 31 December 2015, which was mainly attributable to (i) the

prepayment of [REDACTED] expenses of approximately RMB[REDACTED] as at 31 December

2015 for deduction from equity upon [REDACTED]; and (ii) the increase in the prepayment to one

of our major suppliers for the purchase of LED chips by approximately RMB5.7 million at the year

end of 2015 so as to secure our purchase order in order to meet the increasing demand of our LED

beads.

Trade payables

Our trade payables amounted to approximately RMB29.3 million and RMB27.7 million as at

31 December 2014 and 31 December 2015, respectively. The following tables set out our trade

payables as at 31 December 2014 and 31 December 2015 and trade payable turnover days for the

Track Record Period:

As at 31 December

2014 2015

RMB’000 RMB’000

Trade payables 29,335 27,661


2014 2015

Trade payables turnover days (Note) 134.9 114.6


– 179 –


Note: Trade payables turnover days are calculated by dividing the average trade payables balance by cost of sales

for the relevant year multiplied by the number of days during the year (i.e. 365 days for each of the two

years ended 31 December 2014 and 2015). Average trade payables balance is the average of the beginning

and ending trade payables balances for the relevant year.

During the Track Record Period, our Group is generally required to pay the purchase price for

the production materials within 30 to 120 days to our suppliers. Payment of purchase price for the

production materials is generally made by bank transfers or bank acceptance bills issued by or

endorsed to us by our customers and settled in RMB. For details of the typical payment term with

our five largest suppliers during the Track Record Period, see the section headed ‘‘Business — Our

Group’s top five suppliers’’ in this [REDACTED].

Our balance of trade payables slightly decreased from approximately RMB29.3 million as at

31 December 2014 to approximately RMB27.7 million as at 31 December 2015. Such decrease was

mainly due to the substantial amount of settlement we made due to our suppliers before the year

end of 2015 and hence lower our trade payable balance as at 31 December 2015.

On the other hand, trade payables turnover days were relatively stable and only decreased

from approximately 134.9 days for the year ended 31 December 2014 to approximately 114.6 days

for the year ended 31 December 2015, which was mainly due to the reasons mentioned above in

respect of the decrease in our trade payable balance as at 31 December 2015 as compared to the

corresponding period in 2014.

The following table sets out an ageing analysis of our trade payables as at 31 December 2014

and 31 December 2015 based on invoice date:

As at 31 December

2014 2015

RMB’000 RMB’000

0 to 30 days 3,675 5,751

31 to 60 days 11,138 2,667

61 to 90 days 6,540 3,696

91 to 120 days 4,068 4,603

121 to 365 days 564 7,307

Over 1 year 3,350 3,637

Total 29,335 27,661

As at 31 May 2016, approximately 48.3% of our Group’s trade payables as at 31 December

2015 were subsequently settled.


– 180 –


Other payables and accruals

As at 31 December 2014 and 31 December 2015, we had other payables and accruals of

approximately RMB34.4 million and RMB20.6 million, respectively. The following table sets out a

breakdown of the balance as at 31 December 2014 and 31 December 2015:

As at 31 December

2014 2015

RMB’000 RMB’000

Accrued payroll 511 644

Amount due to a related company 1,300 —

Amount due to Shareholders 24,334 12,840

Deposits received 623 1,703

Other payables and accruals 2,800 3,834

Other tax payables 4,853 1,534

Total 34,421 20,555

The amount due to a related company represented the advance from Zhuhai Wenjian, the then

shareholder of Zhuhai HongGuang and it was fully settled in 2015. The amount due to the

Shareholders was mainly originated from the non-interest bearing advances provided by our

Shareholders to our Group in meeting our working capital requirements during the Track Record

Period. These aforesaid amounts were unsecured, interest free and repayable on demand.

All the outstanding amounts due from and to shareholders will be fully settled or capitalised

prior to [REDACTED].

Other payables and accruals mainly comprised of provisions for social insurance and penalty

and the rent and utility payables to Zhuhai Lijia. The increase from approximately RMB2.8 million

as at 31 December 2014 to approximately RMB3.8 million was mainly due to (i) the increase in the

provision we made for social insurance and penalty of approximately RMB0.4 million for the year

ended 31 December 2015 and (ii) the increase in rent and utility payable of approximately RMB0.2

million for the year ended 31 December 2015.

Other tax payables mainly comprised of value-added tax (‘‘VAT’’) payable, which decreased

from approximately RMB4.9 million as at 31 December 2014 to approximately RMB1.5 million as

at 31 December 2015. The amount of VAT payable was affected by the amounts of sales and

purchases invoiced near the end of each reporting period and the decrease in VAT payable as at 31

December 2015 was primarily due to the increase in purchases near the year end of 2015 as

compared to the same period in 2014.


– 181 –


INDEBTEDNESS

During the Track Record Period, our Group’s indebtedness mainly included (i) secured bank

borrowings; and (ii) amount due to the Controlling Shareholders/related companies.

Bank borrowings

The following table sets forth our bank borrowings as at the dates indicated:


2014 2015 2016

RMB’000 RMB’000 RMB’000

Secured bank borrowings 17,000 8,000 14,700

As at 31 December 2014, 31 December 2015 and 30 April 2016, our bank borrowings were

denominated in RMB, which are repayable on demand or within one year. They bear interest at a

floating interest rate with reference to the benchmark lending rate as determined by the People’s

Bank of China. For the years ended 31 December 2014 and 2015, their effective interest rate was

approximately 6.44% and 5.05% per annum, respectively.

Our Group’s bank borrowings are secured by (i) the leasehold land and building held by

Zhuhai Lijia, a related party of our Group; (ii) corporate guarantee from Zhuhai Lijia; and (iii)

personal guarantees from the Mr. YW Zhao and Mr. Lin, the Controlling Shareholders and

executive Directors.

As at 30 April 2016, our total amount of banking facilities was approximately RMB14.7

million and we had no un-utilised banking facilities.

All of the banking facilities are subject to the fulfillment of covenants commonly found in

lending arrangements with financial institutions. If we breach the covenants, the borrowing would

become repayable on demand. We regularly monitor our compliance with these covenants. As at 31

December 2014 and 31 December 2015, none of the covenants related to drawn down facilities had

been breached.

Our Directors confirm that there had not been any delay or default in repayment of borrowings

or material breach with the covenants or requirements contained in our facility agreements that

would affect the renewal of such agreements throughout the Track Record Period and up to the

Latest Practicable Date.

Our Directors further confirm that there was no material delay or default in payment of bank

borrowings and there was no material difficulties in obtaining banking facilities with terms that are

commercially acceptable to us during the Track Record Period and up to the Latest Practicable

Date.


– 182 –


Amount due to Controlling Shareholders/related parties

The following table sets out the balance of the amount due to shareholders/related parties as at

the dates indicated:


2014 2015 2016

RMB’000 RMB’000 RMB’000

Amount due to Controlling

Shareholders 24,334 12,840 14,086

Amount due to related parties 1,617 551 405

The above balances were unsecured, interest-free and repayable on demand, and will be settled

or capitalised prior to [REDACTED].

Contingent liabilities

As at 31 December 2014, 31 December 2015 and 30 April 2016, we did not have any material

contingent liabilities or guarantees.

Disclaimer

Save as disclosed above, and apart from intra-group liabilities, our Group did not have

outstanding indebtedness or any loan capital issued and outstanding or agreed to be issued, bank

overdrafts, loans or other similar indebtedness, liabilities under acceptances (other than normal

trade bills) or acceptable credits, debentures, mortgages, charges, finance leases or hire purchases

commitments, guarantees, material covenants, foreign exchange liabilities or other material

contingent liabilities as at 30 April 2016.

Material indebtedness change

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 April

2016. Our Group plans to repay all of its bank borrowings with the net proceeds from the

[REDACTED]. For details, please refer to the section headed ‘‘Future Plans and Use of Proceeds’’

in this [REDACTED].


– 183 –


WORKING CAPITAL

During the Track Record Period, the Group met its capital requirement principally with cash

generated from its operations and short-term bank borrowings. After taking into account the cash

flows from the operating activities and the existing financial resources available to the Group as

follows:

— the amount of cash flows generated from operating activities of our Group during the

Track Record Period;

— cash and cash equivalents of approximately RMB8.0 million and RMB7.7 million as at

31 December 2014 and 2015, respectively; and

— the estimated net proceeds of approximately HK$[REDACTED] to be received by the

Group from the [REDACTED] (assuming a [REDACTED] of HK$[REDACTED] per

[REDACTED], being the mid-point of our indicative [REDACTED] range of

[REDACTED] to [REDACTED] per [REDACTED]),

our Directors are of the opinion that the Group has sufficient working capital for its present

requirements for at least the next twelve months from the date of this [REDACTED].

RELATED PARTY TRANSACTIONS

During the Track Record Period, our Group’s had entered into certain related party

transactions, details of which are set out in note 29 to the Accountant’s Report. Our Directors

confirm that these transactions were conducted on arm’s length basis, normal commercial terms and

were no less favourable than terms available from Independent Third Parties which are considered

fair and reasonable.

Having considered that the amounts of these related party transactions are immaterial, our

Directors are of the view that the aforesaid related party transactions did not distort our Group’s

financial results during the Track Record Period or cause the financial results to be unreflective of

our Group’s future performance.

OFF-BALANCE SHEET TRANSACTIONS

We have not entered into any material off-balance sheet transactions or arrangements during

the Track Record Period.


– 184 –


ANALYSIS OF KEY FINANCIAL RATIOS


2014 2015

Net profit margin before interest and tax (%) (Note 1) 8.3 11.6

Net profit margin (%) (Note 2) 4.9 6.5

Return on equity (%) (Note 3) 12.8 14.5

Return on assets (%) (Note 4) 4.2 7.0

Interest coverage (times) (Note 5) 7.0 9.6

Current ratio (Note 6) 1.3 1.6

Quick ratio (Note 7) 1.0 1.3

Gearing ratio (%) (Note 8) 100.8 39.2

Net debt to equity ratio (%) (Note 9) 82.0 24.8

Notes:

(1) Net profit margin before interest and tax is calculated based on the net profit netting off the interest and tax

expense for the period divided by total revenue for the period 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) Return on equity for the years ended 31 December 2014 and 2015 was calculated based on our net profit for

the respective year divided by the total equity of the respective year and multiplied by 100%.

(4) Return on assets for the years ended 31 December 2014 and 2015 was calculated based on our net profit for

the respective year divided by our total assets of the respective year and multiplied by 100%.

(5) Interest coverage ratio for the years ended 31 December 2014 and 2015 was calculated based on our profit

before interest and tax for the respective year divided by our finance costs for the respective year.

(6) Current ratio as at 31 December 2014 and 2015 were calculated based on our current assets of the respective

date divided by our current liabilities of the respective date.

(7) Quick ratio as at 31 December 2014 and 2015 were calculated based on our current assets minus inventories

as at the respective date divided by our current liabilities as at the respective date.

(8) Gearing ratio is calculated based on total debt at the end of the period divided by total equity at the end of the

period and multiplied by 100%.

(9) Net debt to equity ratio as at 31 December 2014 and 2015 were calculated based on our net debts (being total

debts net of cash and cash equivalents and restricted bank deposits) as at the respective date divided by total

equity as at the respective year and multiplied by 100%.


– 185 –


Net profit margin before interest and tax and net profit margin

Net profit margin before interest and tax increased from approximately 8.3% for the year

ended 31 December 2014 to approximately 11.6% for the year ended 31 December 2015, mainly

due to the increase in revenue and gross profit margin for the year ended 31 December 2015 as

compared to that for the year ended 31 December 2014, the effect of which was mitigated by the

[REDACTED] expenses of approximately RMB[REDACTED] recognised for the year ended 31

December 2015. Excluding the [REDACTED] expenses, our Group’s net profit margin before

interest and tax would have improved to approximately 14.8% for the year ended 31 December 2015.

Net profit margin increased from approximately 4.9% for the year ended 31 December 2014 to

approximately 6.5% for the year ended 31 December 2015. The relatively lesser increase in net

profit margin as compared to the net profit margin before interest and tax was mainly due to (i) the

increase in effective tax rate for the year ended 31 December 2015 as a result of the non-deductible

[REDACTED] expenses; and (ii) the slight increase in finance cost for bank borrowings. Excluding

the [REDACTED] expenses, our Group would have recorded net profit margin of approximately

9.7% for the year ended 31 December 2015, reflecting the increases in revenue and gross profit

margin.

Return on equity

Return on equity increased from approximately 12.8% for the year ended 31 December 2014

to approximately 14.5% for the year ended 31 December 2015. Such increase was mainly

attributable to (i) the increase in our net profit as a result of the increase in revenue and gross profit

margin for the year ended 31 December 2015 as compared to that for the year ended 31 December

2014; and (ii) the increase in net profit of approximately 43.2% prevailed over the increase in total

equity of approximately 25.8% from 31 December 2014 to 31 December 2015 and thus resulting in

the increase in the return on equity from the year ended 31 December 2014 to the year ended 31

December 2015.

Return on total assets

Return on total assets increased from approximately 4.2% for the year ended 31 December

2014 to approximately 7.0% for the year ended 31 December 2015. Such increase was mainly due

to (i) the decrease in total assets as a result of the decreases in trade and bill receivables, property,

plant and equipment and deferred tax assets; and (ii) the increase in our net profit as a result of the

increase in revenue and gross profit margin for the year ended 31 December 2015 as compared to

that for the year ended 31 December 2014.

Current ratio and quick ratio

Current ratio and quick ratio increased from approximately 1.3 and 1.0 as at 31 December

2014 to approximately 1.6 and 1.3 as at 31 December 2015, respectively, primarily due to decrease

in current liabilities of approximately 33.7% from the year ended 31 December 2014 to the year

ended 31 December 2015 outweighed the decrease in current assets of approximately 14.3% from


– 186 –


31 December 2014 to 31 December 2015 (taking into account our inventories balances remained

stable as at the respective years end) and thus resulting in the increase in the current ratio and quick

ratio from the year ended 31 December 2014 to the year ended 31 December 2015.

Gearing ratio and net debt to equity ratio

Gearing ratio decreased from approximately 100.8% as at 31 December 2014 to approximately

39.2% as at 31 December 2015 due to (i) the decrease in bank borrowings of approximately

RMB9.0 million from 31 December 2014 to 31 December 2015; and (ii) the decrease in amount due

to the Controlling Shareholders of approximately RMB11.5 million from the year ended 31

December 2014 to the year ended 31 December 2015.

Debt to equity ratio decreased from approximately 82.0% as at 31 December 2014 to

approximately 24.8% as at 31 December 2015. The debt to equity ratio decreased at a larger extent

than gearing ratio mainly due to (i) the decrease in bank borrowings of approximately 52.9%; and

(ii) the decrease in amount due to the Controlling Shareholders of approximately 47.2% from the

year ended 31 December 2014 to the year ended 31 December 2015 outweighed the decrease in

cash and cash equivalents of approximately 4.0% from 31 December 2014 to 31 December 2015

and thus resulting in the decrease in the debt to equity ratio from the year ended 31 December 2014

to the year ended 31 December 2015.

Interest coverage

Interest coverage increased from approximately 7.0 times for the year ended 31 December

2014 to approximately 9.6 times for the year ended 31 December 2015. Such increase was mainly

due to the increase in net profit before interest and tax, while the finance costs remained stable for

the years ended 31 December 2014 and 2015.


– 187 –


SENSITIVITY AND BREAKEVEN ANALYSIS

Sensitivity analysis

Our cost of sales mainly comprised the cost of material used, which represented the purchase

costs of materials used for the manufacturing of our Group’s products, which amounted to

approximately RMB82.7 million and RMB81.9 million for the two years ended 31 December 2015,

respectively, representing approximately 90.1% and 90.3% of the total cost of sales respectively.

Any material fluctuation in our cost of material used which we cannot reflect in the prices offered

to our customers may affect the result of our operations. A hypothetical sensitivity analysis on the

approximate impact of 5%, 10% and 15% changes in cost of material used with all other variables

remain constant, on our profit for each year during the Track Record Period is illustrated below:

Increase/(decrease) in net profit


2014 2015

RMB’000 RMB’000

Increase 5% (2,842) (2,573)

Decrease 5% 2,842 2,573

Increase 10% (5,684) (5,146)

Decrease 10% 5,684 5,146

Increase 15% (8,526) (7,719)

Decrease 15% 8,526 7,719

Breakeven analysis

For the year ended 31 December 2014, it is estimated that, holding all other variables

constant, with an increase in cost of material used of approximately 9.5%, our Group would achieve

breakeven.

For the year ended 31 December 2015, it is estimated that, holding all other variables

constant, with an increase in cost of material used of approximately 15.0%, our Group would

achieve breakeven.

PROPERTY INTERESTS

Our Group leased one property in the PRC as use for office and factory as at the Latest

Practicable Date, please refer to the section headed ‘‘Business — Property’’ in this [REDACTED].


– 188 –


CAPITAL EXPENDITURE

Historical capital expenditures

During the Track Record Period, our Group’s capital expenditure primarily comprised (i)

purchase of property, plant and equipment of approximately RMB0.2 million and RMB0.2 million

for the two years ended 31 December 2015, respectively. Our Group principally funded its capital

expenditures through internal resources.

Planned capital expenditures

Save for the planned usage of the net proceeds from the [REDACTED] as disclosed in

‘‘Future Plans and Use of Proceeds’’ and the additions of property, plant and equipment 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

Operating lease commitments

During the Track Record Period, we leased certain of our office premises under operating

lease arrangement. The leases for the aforesaid properties are negotiated for terms ranging from

three to ten years. As at 31 December 2014 and 31 December 2015, our Group had the following

future minimum rental payable under operating leases:

As at 31 December

2014 2015

RMB’000 RMB’000

Not later than 1 year — 390

Later than 1 year but no later than 5 years — 1,559

Later than 5 years — 1,656

Total — 3,605

The operating lease commitments increased from nil as at 31 December 2014 to approximately

RMB3.6 million as at 31 December 2015, which was mainly due to our Group (as leasee) entered a

tenancy agreement with Zhuhai Lijia (as landlord) during the year ended 31 December 2015,

pursuant to which our Group leased a property (comprising office and factory) and shall pay a

monthly rental fee of RMB32,475 to Zhuhai Lijia.


– 189 –


Capital commitments

As at 31 December 2014 and 31 December 2015, our Group had the following capital

commitments:

As at 31 December

2014 2015

RMB’000 RMB’000

Commitments for the acquisition of property,

plant and equipment:

— Contracted for but not provided — 260

Capital commitments in respect of acquisition of machineries which were contracted for but

not provided for as at 31 December 2015 mainly represented the remaining instalment of

machineries ordered which shall be paid upon the delivery of the machineries.

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 the Articles of Association, provided that, in the case

of dividends to be paid out of our share premium account, 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 27 May 2015 and there

was no distributable reserve as at 31 December 2015.

DIVIDEND

During the Track Record Period and up to the Latest Practicable Date, we had not distributed

any dividends to the then equity holders of our Group. Our Company had no plan to pay or declare

any dividends prior to the [REDACTED]. We do not intend to determine any expected dividend

payout ratio at this time since our priority is to use the earnings for business development and expansion

of our production capability and customer base in the interests of our Shareholders as a whole.

Pursuant to Companies Law and the Articles, our Company, through a general meeting,

declare the payment and any amount of dividends recommended by the Board. The payment and the

amount of any dividends will depend upon future business operations and earnings, capital

requirements, general financial condition, contractual restrictions and other factors. After

completion of the [REDACTED], the Shareholders will be entitled to receive dividends that our

Company declared.

Future dividend payments will also depend upon the availability of dividends our Company

will receive from our operating subsidiary in the PRC. PRC laws require that dividends be paid

only out of the net profit calculated according to PRC accounting principles, which differ in many

aspects from the generally accepted accounting principles in other jurisdictions, including HKFRSs.

PRC laws also require foreign investment enterprises to set aside part of their net profit as statutory


– 190 –


reserves, which are not available for distribution as cash dividends. Distributions from our PRC

subsidiary may also be subject to any restrictive covenants in bank credit facilities or loan

agreements, convertible bond instruments or other agreements that our Group or they may enter into

in the future.

DISCLOSURE UNDER CHAPTER 17 OF THE GEM LISTING RULES

Save as disclosed in this [REDACTED], 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 17.15 to 17.21 of the GEM Listing Rules.

EVENTS AFTER THE REPORTING PERIOD

For details of the events after 31 December 2015, being the date to which the latest audited

financial information was prepared, see note 36 of the Accountant’s Report contained in Appendix I

to this [REDACTED].

UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS

The following is an illustrative and unaudited pro forma statement of adjusted consolidated net

tangible assets of the Group, prepared on the basis of the notes set out below, for the purpose of

illustrating the effect of the [REDACTED] on the consolidated net tangible assets of the Group

attributable to the owners of the Company as at 31 December 2015 as if the [REDACTED] had taken

place on 31 December 2015. This unaudited pro forma statement of adjusted consolidated net tangible

assets has been prepared for illustrative purpose only and, because of its hypothetical nature, it may

not give a true picture of the consolidated financial position of the Group attributable to the owners

of the Company had the [REDACTED] been completed on 31 December 2015 or at any future dates.

Auditedconsolidatednet tangible

assets ofthe Group

attributable toowners of the

Company as at31 December

2015

Estimated netproceeds from

the[REDACTED]

Unauditedpro formaadjusted

consolidatednet tangibleassets as at

31 December2015


consolidatednet tangibleassets per

Shareattributable to

owners ofthe Company





RMB’000 RMB’000 RMB’000 RMB HK$(Note 1) (Note 2) (Note 3) (Note 5)

Based on the[REDACTED] ofHK$[REDACTED] per[REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]

Based on the[REDACTED] ofHK$[REDACTED] per[REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]


– 191 –


Notes:

(1) The audited consolidated net tangible assets of the Group attributable to owners of the Company as at 31

December 2015 is complied based on the Accountant’s Report set out in Appendix I to the [REDACTED],

which is based on the audited consolidated net assets of the Group attributable to owners of the Company of

RMB53,172,000 as at 31 December 2015.

(2) The estimated net proceeds from the [REDACTED] are based on the indicative [REDACTED] of

HK$[REDACTED] or HK$[REDACTED] per [REDACTED], being the high-end and low-end, respectively,

of the stated [REDACTED] range per [REDACTED] [REDACTED], after deduction of underwriting fees and

commissions and other [REDACTED] related expenses paid or payable by the Company as at 31 December

2015. Without taking into account of any Shares which may be allotted or issued upon the exercise of any

options that may be granted under the Share Option Scheme or any Shares which may be allotted and issued

or repurchase by the Company pursuant to the general mandates for the allotment and issue or repurchase of

Shares.

(3) The unaudited pro forma adjusted consolidated net tangible assets per Share attributable to owners of the

Company is calculated based on [REDACTED] Shares in issue assuming the [REDACTED] had been

completed on 31 December 2015 without taking into account of any Shares which may be allotted or issued

upon the exercise of any option that may be granted under the Share Option Scheme or any Shares which may

be allotted and issued or repurchase by the Company pursuant to the general mandates for the allotment and

issue or repurchase of Shares.

(4) No adjustment has been made to the unaudited pro forma adjusted consolidated net tangible assets to reflect

any trading results or other transactions of the Group entered into subsequent to 31 December 2015.

(5) For the purpose of this unaudited pro forma adjusted consolidated net tangible assets, the amounts stated in

Renminbi are converted into Hong Kong dollars at a rate of HK$1.00 to RMB0.833. No representation is

made that the amounts in RMB have been, could have been or could be converted into Hong Kong dollars, or

vice versa, at that rate or at any other rates or at all.

FINANCIAL RISK MANAGEMENT

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument

will fluctuate because of changes in market interest rates.

Our Group is exposed to interest rate risk in relation to variable-rate bank balances and bank

borrowings. Interests charged on our Group’s borrowings are at variable rates. Our Group currently

does not have a policy on cash flow hedges of interest rate risk. However, the management

monitors interest rate exposure and will consider hedging significant interest rate risk should the

need arise.

Our Group is also exposed to fair value interest rate risk in relation to the short-term bank

deposits. However, management considers the interest rate risk on the deposits is insignificant as

they are relatively short-term. The management monitors interest rate exposure and will consider

hedging significant interest rate exposure should the need arise.


– 192 –


Credit risk

Our Group trades mainly with recognised and creditworthy third parties. It is our Group’s

policy that all customers who wish to trade on credit terms are subject to credit verification

procedures. Our Group’s exposure to credit risk is influenced mainly by the individual

characteristics of each customer. The default risk of the industry in which customers operate also

has an influence on credit risk but to a lesser extent. At the end of 31 December 2014 and 2015,

our Group has a certain concentration of credit risk as 36% and 60% of the total trade receivables

were due from the five largest customers respectively. In order to minimise the credit risk, our

Group has delegated a team responsible for determination of monitory procedures to ensure that

follow-up action is taken to recover overdue debts. In addition, our Group reviews the recoverable

amount of each individual transaction and other receivables regularly to ensure that adequate

impairment losses are made for irrecoverable amounts. In this regard, our Directors consider that

our Group’s credit risk is significantly reduced.

The credit risk of our Group’s other financial assets, which comprise cash and cash

equivalents, other receivables and advance to a shareholder, arises from default of the counterparty,

with a maximum exposure equal to the carrying amount of these instruments. Since our Group

trades only with recognised and creditworthy third parties, there is no requirement for collateral.

Liquidity risk

Our Group’s objective is to maintain a balance between continuity of funding and flexibility

through the use of borrowings. Our Group regularly reviews our major funding positions to ensure

that we have adequate financial resources in meeting our financial obligations. The maturity profile

of our Group’s financial liabilities as at each of the years ended 31 December 2014 and 2015, based

on the contractual undiscounted payments, as less than one year. The discounting impact of our

Group’s financial liabilities is insignificant. Taking into account the cash inflow from operations of

our Group, our Directors believe that our Group has sufficient resources to meet our debt

obligations with banks and working capital needs.

RECENT DEVELOPMENTS AND MATERIAL ADVERSE CHANGE

As far as we are aware, the growth of backlight LED bead market in the PRC remained steady

after the Track Record Period and there was no material adverse change in our market share in

terms of sales value up to the Latest Practicable Date.

Based on the unaudited financial information of our Group, our revenue for the four months

ended 30 April 2016 had increased moderately as compared to that of the correspondence period in

2015, which was mainly due to the facts that (i) we have continued to focus on production of LED

beads for small-sized and medium-sized backlight LED products with different specifications; and

(ii) there were no significant changes to the general business model of our Group and economic

environment save for the renovation works in our Zhuhai HongGuang Production Plant for

expansion of our production capacities as described in the section headed ‘‘Business — Business

Strategies’’ in this [REDACTED], which had been approved by the Environmental Protection


– 193 –


Bureau of Xiangzhou. On the other hand, the average purchase price of LED chips had increased

slightly for the four months ended 30 April 2016. In this connection, our prepayments relating to

the purchase of LED chips from our major suppliers have been increased during the 1st quarter of

2016 as compared to the 4th quarter of 2015 to secure our purchase order in order to meet the

increasing demand of our LED beads.

Save as disclosed above, our Directors confirm that, up to the Latest Practicable Date, there

had been no material adverse change in our financial or trading position since 31 December 2015

which would materially affect the information shown in the Accountant’s Report in Appendix I to

this [REDACTED].


– 194 –


BUSINESS OBJECTIVE

Our goal is to maintain our position as a leading manufacturer of LED beads in the PRC and

on the other hand, continue to penetrate into the downstream of the value chain in LED lighting

industry in the PRC by developing and selling LED lighting products with our LED beads. Our

Group will endeavor to achieve these business objectives by implementing the business strategies as

described in the section headed ‘‘Business — Business strategies’’ in this [REDACTED].

OUR BUSINESS STRATEGIES

In pursuance of our business objective set out above, by implementing the following business

strategies in accordance with the schedule set out in the paragraph headed ‘‘Implementation plan’’

in this section. The respective scheduled completion times are based on certain bases and

assumptions as set out in the paragraph headed ‘‘Bases and assumptions’’ in this section. These

bases and assumptions are inherently subject to many uncertainties and unpredictable factors, in

particular the risk factors set forth in the section headed ‘‘Risk Factors’’ of this [REDACTED].

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.

BASES AND ASSUMPTIONS

Our Directors have adopted the following principal assumptions in the preparation of the

implementation plan up to 31 December 2018:

(a) there will be no material changes in the existing legislation or regulations political, legal,

fiscal or economic conditions in Hong Kong, the PRC and any other places in which any

member of our Group carries on or will carry on our business;

(b) there will be no material changes in the bases or rates of taxation in Hong Kong or the

PRC in any other places in which any member of our Group operates or will operate or

is incorporated;

(c) the [REDACTED] will be completed in accordance with and as described in the section

headed ‘‘Structure and Conditions of the [REDACTED]’’ in this [REDACTED];

(d) there will be no significant changes in our business relationship with our major

customers and suppliers;

(e) our Group will be able to retain key staff in the management and the main operational

departments;

(f) our Group will not be materially affected by any risk factors set out in the section headed

‘‘Risk Factors’’ in this [REDACTED];

FUTURE PLANS AND USE OF PROCEEDS

– 195 –


(g) there will be no material changes in the funding required for each of the scheduled

achievements as outlined in ‘‘ Implementation plan’’ in this section; and

(h) our Group will be able to continue its operations in substantially the same manner as our

Group has been operating during the Track Record Period and our Group will be able to

carry out the development plans without disruptions adversely affecting its operations or

business objectives in any way.

IMPLEMENTATION PLAN

The implementation plan of our Group is set out below from the Latest Practicable Date to 31

December 2018. The respective scheduled completion time for these plans are based on certain

bases and assumptions as set out in the paragraph headed ‘‘Bases and assumptions’’ in this section.

1. For the period from the Latest Practicable Date to 31 December 2016

Business strategies Implementation activities

Amount to beapplied from

the netproceeds of the[REDACTED]

HK$’000

Expanding our

production capacity

Placing purchase orders for additional

machineries and equipment for LED bead

encapsulation

[REDACTED]

Recruiting 14 additional production workers for

first phase LED bead encapsulation and six

additional production workers for LED lighting

product assembly lines

[REDACTED]

Developing our

Group’s sales

channels

Hiring three sales and marketing staff with

experienced professionals to develop overseas

markets

[REDACTED]

Reduction of our

gearing ratio

Partial repayment of bank loans [REDACTED]

Total: [REDACTED]


– 196 –


2. For the six months ending 30 June 2017




HK$’000

Expanding our

production capacity

Receipt and installing additional machineries and

equipment for LED bead encapsulation

[REDACTED]

Payment of wages for additional production

workers for LED bead encapsulation and LED

lighting products assembly lines and

commencement of first phase commercial

production of the seven additional LED bead

encapsulation machineries and equipment

[REDACTED]

Developing our

Group’s sales

channels

Payment of wages for the additional sales and

marketing staff to develop overseas markets

[REDACTED]

Hiring two additional sales and marketing staff

with experienced professionals to develop PRC

markets

[REDACTED]

Attending the various trade fairs in the PRC and/

or other countries

[REDACTED]

Total: [REDACTED]


– 197 –


3. For the six months ending 31 December 2017




HK$’000

Expanding our

production capacity



lighting products assembly lines

[REDACTED]

Developing our

Group’s sales

channels



[REDACTED]


marketing staff to develop PRC markets

[REDACTED]


or other countries

[REDACTED]

Total: [REDACTED]


– 198 –


4. For the six months ending 30 June 2018




HK$’000

Expanding our

production capacity



lighting products assembly lines and

commencement of second phase commercial

production of the three additional LED bead

encapsulation machineries and equipment

[REDACTED]

Recruiting four additional production workers for

second phase LED bead encapsulation

[REDACTED]

Developing our

Group’s sales

channels



[REDACTED]



[REDACTED]


or other countries

[REDACTED]

Total: [REDACTED]


– 199 –


5. For the six months ending 31 December 2018




HK$’000

Expanding our

production capacity



lighting products assembly lines

[REDACTED]

Developing our

Group’s sales

channels



[REDACTED]



[REDACTED]


or other countries

[REDACTED]

Total: [REDACTED]

REASONS FOR THE [REDACTED]

Our Directors believe that the [REDACTED] of the Shares on GEM will enhance our Group’s

profile and the net proceeds from the [REDACTED] will strengthen our financial position and will

enable our Group to implement our business strategies set out in the sections headed ‘‘Business —

Business Strategies’’ and ‘‘Future Plans and Use of Proceeds’’ in this [REDACTED]. Furthermore, a

public [REDACTED] status on the Stock Exchange can (i) strengthen our Group’s reputation,

credibility and competitiveness to facilitate the expansion of geographical coverage in the PRC and

the overseas market; and (ii) enhance the capability in both debt and equity financing for future

expansion of our business.

USE OF PROCEEDS

Based on the [REDACTED] of HK$[REDACTED] per [REDACTED], being the mid-point of

the indicative [REDACTED] range of HK$[REDACTED] per [REDACTED] to HK$[REDACTED]

per [REDACTED], we will receive a gross proceeds of approximately HK$60.0 million. The net


– 200 –


proceeds from the [REDACTED] are estimated to be approximately HK$[REDACTED], after

deducting the underwriting commission and other estimated expenses payable by our Company in

relation to the [REDACTED]. We intend to apply such net proceeds from the [REDACTED] as

follows:

. approximately HK$[REDACTED], representing approximately [REDACTED]% of thenet proceeds from the [REDACTED], will be used for expansion of our Group’sproduction capacity;

. approximately HK$[REDACTED], representing approximately [REDACTED]% of thenet proceeds from the [REDACTED], will be used for developing our Group’s saleschannels;

. approximately HK$[REDACTED], representing approximately [REDACTED]% of thenet proceeds from the [REDACTED], will be used for the repayment of bank loans. Forfurther details, see the section headed ‘‘Financial Information — Indebtedness — Bankborrowings’’; and

. approximately HK$[REDACTED], representing approximately [REDACTED]% of thenet proceeds from the [REDACTED], will be used as general working capital of ourGroup.

The above allocation of the net proceeds from the [REDACTED] will be adjusted on a prorata basis in the event that the [REDACTED] is fixed at a higher level or a lower level compared tothe mid-point of the indicative [REDACTED] range.

If the final [REDACTED] is set at the highest or lowest point of the indicative [REDACTED]range, the net proceeds to be received by us from the [REDACTED] will increase or decrease byapproximately HK$[REDACTED], respectively. In such event, save for the repayment of bankloans, the net proceeds will be used in the same proportions as disclosed above irrespective ofwhether the [REDACTED] is determined at the highest or lowest of the indicative [REDACTED]range.

To the extent that the net proceeds from the [REDACTED] are not immediately required forthe above purposes, it is the present intention of our Directors that such net proceeds will be placedas short-term deposits with authorised banks and/or financial institutions in Hong Kong. OurDirectors consider that the net proceeds from the [REDACTED] together with the internal resourcesof our Group will be sufficient to finance the implementation of our Group’s business plans as setout in the paragraph headed ‘‘Implementation plan’’ in this section.

Investors should be aware that any part of the business plans of our Group may or may notproceed according to the timeframe as described under the paragraph headed ‘‘Implementationplan’’ in this section due to various factors such as changes in customers’ demand and changes inmarket conditions. Under such circumstances, our Directors will evaluate carefully the situationsand will hold the funds as short-term deposits in authorised banks and/or financial institutions inHong Kong until the relevant business plan materialises.

Our Company will issue an appropriate announcement if there is any material change in theabovementioned use of proceeds.


– 201 –


UNDERWRITERS

[REDACTED]

[.]

UNDERWRITING ARRANGEMENTS

[REDACTED]

UNDERWRITING

– 202 –


[REDACTED]

UNDERWRITING

– 203 –


[REDACTED]

UNDERWRITING

– 204 –


[REDACTED]

UNDERWRITING

– 205 –


[REDACTED]

UNDERWRITING

– 206 –


[REDACTED]

UNDERWRITING

– 207 –


[REDACTED]

Commission and expenses

The Underwriters will receive an underwriting commission of [REDACTED]% on the

aggregate [REDACTED] of all [REDACTED], out of which they will pay any sub-underwriting

commission and will be reimbursed for its out-of-pocket expenses incurred in relation to the

[REDACTED]. Our Company will bear the underwriting commission, SFC transaction levy and

Stock Exchange trading fee payable by us in connection with the issue of the [REDACTED]

together with any applicable fees relating to the [REDACTED] on a pro rata basis. The total

commission and expenses relating to the [REDACTED] and [REDACTED] (including the

[REDACTED] fees, legal and other professional fees and printing fees) are estimated to be

approximately HK$[REDACTED], assuming a [REDACTED] of HK$[REDACTED], being the mid-

point of the indicative [REDACTED] range, which will be payable by our Company.

INDEMNITY

We and each of our Controlling Shareholders have agreed to indemnify the Sole Sponsor and

the [REDACTED] for certain losses which they may suffer, including, among other things, losses

arising from the performance of their obligations under the Underwriting Agreement and any breach

by us of the provisions of the Underwriting Agreement.

UNDERWRITERS’ INTEREST IN OUR COMPANY

The [REDACTED] and the other Underwriters will receive an underwriting commission.

Particulars of these underwriting commission and expenses are set forth under the paragraph headed

‘‘Underwriting arrangements — Commission and expenses’’ above. None of the Underwriters has

any shareholding interests in any member of our Group nor has any right (whether legally

enforceable or not) to subscribe for or nominate persons to subscribe for any Shares.

SPONSOR AND ITS INDEPENDENCE

Lego Corporate Finance as the Sole Sponsor satisfies the independence criteria applicable to

the Sole Sponsor as set out in Rule 6A.07 of the GEM Listing Rules. The Sole Sponsor made an

application on our behalf to the Stock Exchange for [REDACTED] of, and permission to

[REDACTED], the Shares in issue and to be issued as mentioned herein.

UNDERWRITING

– 208 –


SPONSOR’S INTERESTS IN OUR COMPANY

The Sole Sponsor, being our Company’s compliance adviser pursuant to Rule 6A.19 of the

GEM Listing Rules, will also receive a financial advisory fee from our Company during the term of

its appointment as the compliance adviser of our Company.

Save for (i) the advisory and documentation fees to be paid to Lego Corporate Finance as the

sponsor to the [REDACTED]; and (ii) the fee to be paid to Lego Corporate Finance as our

Company’s compliance adviser pursuant to the requirements under Rules 6A.19 of the GEM Listing

Rules, neither Lego Corporate Finance nor any of its directors or their close associates has or may

have any interest in any class of securities in any members of our Group or any right or option

(whether legally enforceable or not) to subscribe for or purchase or to nominate persons to

subscribe for or purchase securities in any members of our Group nor any interest in the

[REDACTED].

No director or employee of Lego Corporate Finance who is involved in providing advice to

our Company has or may have, as a result of the [REDACTED], any interest in any class of

securities of our Company or any of our subsidiaries (including options or rights to subscribe for

such securities that may be subscribed for or purchased by any such director or employee pursuant

to the [REDACTED]).

No director or employee of Lego Corporate Finance has a directorship or substantial

shareholding (as defined under the GEM Listing Rules) in our Company or any of our subsidiaries.

Undertaking pursuant to the Underwriting Agreement

Undertakings by our Company

[REDACTED]

UNDERWRITING

– 209 –


[REDACTED]

Undertakings by our Controlling Shareholders

[REDACTED]

UNDERWRITING

– 210 –


[REDACTED]

UNDERWRITING

– 211 –


[REDACTED]

STRUCTURE AND CONDITIONS OF THE [REDACTED]

– 212 –


[REDACTED]


– 213 –


[REDACTED]


– 214 –


[REDACTED]


– 215 –


The following is the text of a report, prepared for the sole purpose of inclusion in this

[REDACTED], from the Company’s reporting accountant, BDO Limited, Certified Public

Accountants, Hong Kong.

[.] June 2016

The Directors

HongGuang Lighting Holdings Company Limited

Lego Corporate Finance Limited

Dear Sirs,

We set out below our report on the financial information regarding HongGuang Lighting

Holdings Company Limited (the ‘‘Company’’) and its subsidiaries (hereinafter collectively referred

to as the ‘‘Group’’), including the consolidated statements of comprehensive income, the

consolidated statements of changes in equity and the consolidated statements of cash flows of the

Group for each of the year ended 31 December 2014 and 2015 (the ‘‘Relevant Periods’’), and the

consolidated statements of financial position of the Group as at 31 December 2014 and 2015,

together with the notes thereto (collectively the ‘‘Financial Information’’), prepared on the basis of

presentation and preparation set forth in Note 2 and Note 3 of Section II below, for inclusion in the

[REDACTED] of the Company dated [.] (the ‘‘[REDACTED]’’) in connection with the initial

[REDACTED] of the shares of the Company on the Growth Enterprise Market (‘‘GEM’’) of The

Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’).

The Company was incorporated in the Cayman Islands on 27 May 2015 as an exempted

company with limited liability under the Companies Law, Cap.22 (Law 3 of 1961, as combined and

revised) of the Cayman Islands. Pursuant to a group reorganisation as detailed in the subsection

headed ‘‘Reorganisation’’ in the section headed ‘‘History, Reorganisation and Corporate Structure’’

in the [REDACTED] (the ‘‘Reorganisation’’), the Company became the holding company of the

subsidiaries now comprising the Group on 5 October 2015. The Group is principally engaged in the

design, development, manufacture and sales of LED beads and LED lighting products in the

People’s Republic of China (the ‘‘PRC’’). The Company and its subsidiaries have adopted 31

December as their financial year end date. Particulars of the subsidiaries comprising the Group are

set out in Note 1 of Section II below. The Company has not carried on any business since the date

of incorporation, saved for the transactions relating to the Reorganisation.

No audited financial statements have been prepared for the Company since its date of

incorporation as it is newly incorporated and it has not carried on any business, other than the

Reorganisation as referred to above. The audited financial statements of the other companies now

APPENDIX I ACCOUNTANT’S REPORT

– I-1 –


comprising the Group as at the date of this report for which there are statutory audit requirements

have been prepared in accordance with the relevant accounting principles generally accepted in

their respective places of incorporation. The details of the statutory auditors of these companies are

set out in Note 1 of Section II below.

For the purpose of this report, the directors of the Company (the ‘‘Directors’’) have preparedthe consolidated financial statements of the Group for the Relevant Periods (the ‘‘Underlying

Financial Statements’’), in accordance with the basis of presentation and preparation set out in Note

2 and 3 of Section II below and the accounting policies set out in Note 5 of Section II below which

conform with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) issued by the Hong Kong

Institute of Certified Public Accountants (the ‘‘HKICPA’’).

The Financial Information has been prepared by the Directors based on the Underlying

Financial Statements, on the basis of presentation and preparation set out in Note 2 and 3 of

Section II below. No statement of adjustments as defined under Rule 7.18 of the Rules Governing

the Listing of Securities on the GEM of the Stock Exchange (the ‘‘GEM Listing Rules’’) is

considered necessary.

Respective responsibilities of Directors and reporting accountant in respect of FinancialInformation

The Directors are responsible for the contents of the [REDACTED] including the preparation

of the Financial Information that gives a true and fair view in accordance with the basis ofpresentation and preparation set out in Note 2 and 3 of Section II below and the accounting policies

set out in Note 5 of Section II below, applicable disclosure provisions of the GEM Listing Rules,

and for such internal control as the Directors determine is necessary to enable the preparation of the

Financial Information that is free from material misstatement, whether due to fraud or error.

The Directors are responsible for the Financial Information presented in this report and thecontents of the [REDACTED] in which this report is included.

For the purpose of the Financial Information, our responsibility is to form an independent

opinion on the Financial Information based on our procedures performed on the Financial

Information and to report our opinion to you.

Procedures performed in respect of the Underlying Financial Statements and the FinancialInformation

For the purpose of this report, we have carried out audit procedures in respect of the

Underlying Financial Statements in accordance with Hong Kong Standards on Auditing (the‘‘HKSAs’’) issued by the HKICPA and have examined the Financial Information of the Group and

carried out appropriate procedures as we considered necessary in accordance with the Auditing

Guideline 3.340 ‘‘Prospectuses and the Reporting Accountant’’ issued by the HKICPA.


– I-2 –


Opinion in respect of the Financial Information

In our opinion, the Financial Information, for the purpose of this report, prepared on the basis

of presentation and preparation set out in Note 2 and 3 of Section II below and in accordance withthe accounting policies in Note 5 of Section II below, gives a true and fair view of the financial

position of the Company as at 31 December 2015 and the consolidated financial position of the

Group as at 31 December 2014 and 2015 and of the consolidated financial performance and

consolidated cash flows of the Group for each of the Relevant Periods then ended.

I. FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


2014 2015

Notes RMB’000 RMB’000

Revenue 8 110,038 118,706

Cost of sales (91,802) (90,781)


Other income and gains 8 231 82



Finance costs 10 (1,319) (1,439)

Profit before income tax expense 9 7,859 12,317

Income tax expense 13 (2,456) (4,581)


Other comprehensive income

Item that may be reclassified to

profit or loss:

Exchange differences on translating

foreign operations 22 (1,382)

Total comprehensive income for the year 5,425 6,354


– I-3 –


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As at 31 December

2014 2015


Non-current assets

Property, plant and equipment 16 18,536 16,237

Deferred tax assets 26 1,022 596

Total non-current assets 19,558 16,833

Current assets

Inventories 18 21,993 21,046

Trade and bills receivables 19 77,137 58,365

Prepayments and other receivables 20 2,680 6,991

Cash and cash equivalents 21 7,986 7,670

Total current assets 109,796 94,072

Current liabilities

Trade payables 22 29,335 27,661

Other payables and accruals 23 34,421 20,555

Borrowings 24 17,000 8,000

Current tax liabilities 6,319 1,517

Total current liabilities 87,075 57,733

Net current assets 22,721 36,339

Net assets 42,279 53,172

Equity

Share capital 27 — —

Reserves 28 42,279 53,172

Total equity 42,279 53,172


– I-4 –


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Sharecapital

Statutoryreserve

Capitalreserve

Exchangereserve

Retainedearnings Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2014 — 1,469 20,007 — 11,511 32,987

Profit for the year — — — — 5,403 5,403

Exchange differences on

translating foreign operations — — — 22 — 22

Total comprehensive income

for the year — — — 22 5,403 5,425

Transfer to statutory reserve — 659 — — (659) —

Arising from the reorganisation — — 3,867 — — 3,867

At 31 December 2014 and

1 January 2015 — 2,128 23,874 22 16,255 42,279

Profit for the year — — — — 7,736 7,736


translating foreign operations — — — (1,382) — (1,382)


for the year — — — (1,382) 7,736 6,354

Transfer to statutory reserve — 1,320 — — (1,320) —

Issue of ordinary shares

(Note 27) — — — — — —

Arising from the reorganisation — — 4,539 — — 4,539

At 31 December 2015 — 3,448 28,413 (1,360) 22,671 53,172


– I-5 –


CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended 31 December2014 2015


Cash flows from operating activitiesProfit before income tax expense 7,859 12,317Adjustments for:Depreciation of property,plant and equipment 2,470 2,478

Interest income (5) (5)Finance costs 1,319 1,439Impairment loss on trade receivables 1,365 1,696Write off of inventories 1,282 —

Operating profit before working capitalchange 14,290 17,925

(Increase)/decrease in inventories (7,310) 947(Increase)/decrease in trade andbills receivables (10,494) 17,076

Increase in prepayments and other receivables (574) (5,311)Decrease in trade and other payables (8,545) (2,746)

Cash (used in)/generated from operations (12,633) 27,891Income tax paid (2,739) (8,957)

Net cash flows (used in)/generated fromoperating activities (15,372) 18,934

Cash flows from investing activitiesPurchases of property, plant and equipment (193) (179)(Advance to)/repayment from a shareholder (1,000) 1,000Interest received 5 5

Net cash flows (used in)/generated frominvesting activities (1,188) 826

Cash flows from financing activitiesAdvance from/(repayment to)a then shareholder 3,500 (1,300)

Advance from/(repayment to) shareholders 12,546 (8,376)Interest paid (1,319) (1,439)Repayment of bank borrowings (18,020) (17,000)Proceeds from bank borrowings 27,020 8,000

Net cash flows generated from/(used in)financing activities 23,727 (20,115)

Net increase/(decrease) in cash and cashequivalents 7,167 (355)

Effect of exchange rate changes oncash and cash equivalents 22 39

Cash and cash equivalents atbeginning of year 797 7,986

Cash and cash equivalents at end of year 21 7,986 7,670


– I-6 –


STATEMENTS OF FINANCIAL POSITION

As at31 December

2015

Notes RMB’000

Non-current asset

Investment in subsidiaries 17 7

Current liabilities

Amount due to a subsidiary 25 192

Other payables 23 7

199

Net liabilities 192

Equity

Share capital 27 —

Reserves 28 192

Total deficit 192


– I-7 –


II. NOTES TO FINANCIAL INFORMATION

1. CORPORATE INFORMATION

HongGuang Lighting Holdings Company Limited (the ‘‘Company’’) was incorporated in the Cayman Islands

as an exempted company with limited liability under the Companies Law, Cap. 22 of the Cayman Islands on 27 May

2015. The registered office of the Company is located at P.O. Box 1350, Clifton House, 75 Fort Street, Grand

Cayman KY1-1108, Cayman Islands and its principal place of business in the People’s Republic of China (the

‘‘PRC’’) is the North Side, 2nd Floor, No.8 Pinggong Er Road, Nanping Technology Industrial Park, Zhuhai, the

PRC.

The Company’s principal activity is investment holding. The Group is principally engaged in the design,

development, manufacture and sales of LED beads and LED lighting products in the PRC (the ‘‘[REDACTED]

Business’’). The Company has not carried on any business since the date of incorporation, saved for the transactions

relating to the Reorganisation.

As at the date of this report, the Company had direct and indirect interests in the following subsidiaries, all of

which are private limited liability companies, the particulars of which are set out below:

Name

Place and date ofincorporation/registrationand operation

Issued shares/paid-up capital

Percentage of equityinterest attributable to

the Company Principal activities

Direct % Indirect %

HongGuang Lighting Group

Company Limited1British Virgin Islands

(‘‘BVI’’)

8 June 2015

1 ordinary share of

United State Dollar

(‘‘US$’’) 1 each

100 — Investment holding

HongGuang Lighting

(International) Limited1

(formerly known as

Day Harvest

International Limited)

BVI 16 April 2010 1,000 ordinary shares of

US$1 each

100 — Investment holding

HongGuang Lighting (Hong

Kong) Holdings Limited

(formerly known as

HongGuang Lighting

(Hong Kong) Limited)2

Hong Kong

31 October 2014

Ordinary shares of

HK$ 1,000

— 100 Investment holding

珠海宏光照明器材有限公司3 The PRC

10 May 2010

Renminbi (‘‘RMB’’))

20,010,000

— 100 Design, development,

manufacture and

sales of LED beads

and LED lighting

products

As at the date of this report, no statutory audited financial statements have been prepared for the Company

since the date of its incorporation as the Company has not been involved in any significant business transactions

other than the Reorganisation described in the section headed ‘‘History, Reorganisation and Corporate Structure’’ in

the [REDACTED].


– I-8 –


Notes:

1. No statutory audited financial statements have been prepared for these subsidiaries since the date of its

incorporation as there are no statutory requirements and the subsidiaries have not yet been involved in

any significant business transactions.

2. No statutory audited financial statements have been prepared as the subsidiary was incorporated on 31

October 2014.

3. The statutory financial statements for the year ended 31 December 2014 and 2015 were audited by

珠海安德信會計師事務所(普通合夥), certified public accountants registered in the PRC. These

statutory financial statements were prepared in accordance with the relevant accounting rules and

financial regulations applicable to the enterprise registered in the PRC.

2. BASIS OF PRESENTATION

Prior to the incorporation of the Company and the completion of the Reorganisation, the [REDACTED]

Business was carried on by companies now comprising the Group (hereinafter collectively referred to as the

‘‘Operating Companies’’).

Pursuant to a group reorganisation as more fully explained in the subsection headed ‘‘Reorganisation’’ in the

section headed ‘‘History, Reorganisation and Corporate Structure’’ to the [REDACTED] (the ‘‘Reorganisation’’), the

Company became the holding company of the companies now comprising the Group on 5 October 2015 by way of

share swaps with the existing ultimate controlling shareholders (i.e. Mr. Zhao Yi Wen, Mr. Lin Qi Jian and Mr. Chiu

Kwai San).

Immediately prior to and after the Reorganisation, the [REDACTED] Business is held by the Operating

Companies. Pursuant to the Reorganisation, the Operating Companies together with the [REDACTED] Business are

transferred to and held by the Company. The share swaps have no substance and do not form a business

combination, and accordingly, the Financial Information of the Company was consolidated with that of the operating

subsidiaries using the predecessor carrying amounts. The Reorganisation is therefore merely a reorganisation of the

[REDACTED] Business and does not constitute a business combination, as if the group structure under the

Reorganisation had been in existence throughout the Relevant Periods or since the respective dates of incorporation

of the entities now comprising the Group, whichever is the shorter period.

The consolidated statements of comprehensive income, consolidated statements of changes in equity and

consolidated statements of cash flows of the Group for the Relevant Periods have been prepared using the financial

information of the entities now comprising the Group, as if the current group structure had been in existence

throughout the Relevant Periods, or since the respective dates of incorporation of the relevant entities now

comprising the Group where this is a shorter period. The consolidated statements of financial position of the Group

as at 31 December 2014 and 2015 have been prepared to present the assets and liabilities of the entities now

comprising the Group which were in existence at those dates, as if the current group structure had been in existence

as at the respective dates. The net assets and results of the Group were consolidated using the carrying value from

the perspective of the ultimate controlling shareholders. All significant intra-group transactions and balances have

been eliminated on consolidation.

3. BASIS OF PREPARATION

The Financial Information has been prepared in accordance with the basis of presentation set out in Note 2 of

Section II and the accounting policies set out below, which conform to HKFRSs (which collective term includes all

applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and

Interpretations) issued by the HKICPA and applicable disclosure provisions of the GEM Listing Rules throughout

the Relevant Periods. All HKFRSs effective for accounting period commencing from 1 January 2015 together with

the relevant transitional provisions have been early adopted by the Group in the preparation of the Financial

Information throughout the Relevant Periods.


– I-9 –


At the date of this report, HKICPA has issued certain new or amended HKFRSs that have been issued but are

not yet effective and have not been adopted early by the Group. Details of which are set out in Note 4.

The Financial Information has been prepared under the historical cost basis. Item included in the Financial

Information of each of the Group’s companies are measured using the currency of the primary economic

environment in which the entities operate. The functional currency and presentation currency of the Group are RMB,

which the directors considered is more beneficial to the users of the Financial Information.

It should be noted that accounting estimates and assumptions are used in the preparation of the Financial

Information. Although these estimates are based on management’s best knowledge and judgment of current events

and actions, actual results may ultimately different from those estimates. The areas involving higher degree of

judgment or complexity, or areas where assumptions and estimates are significant to the Financial Information are

disclosed in Note 6.

4. NEW/REVISED HKFRSs ISSUED BUT NOT YET EFFECTIVE

The Group has not early adopted the following new/revised HKFRSs, which have been issued potentially

relevant to the Group, but are not yet effective, in the preparation of the Financial Information.

Amendments to HKAS 16

and HKAS 38

Clarification of Acceptable Methods of Depreciation and Amortisation1

HKFRS 9 (2014) Financial Instruments2

HKFRS 15 Revenue from Contracts with Customers2

HKFRS 16 Leases3

1 Effective for annual periods beginning on or after 1 January 20162 Effective for annual periods beginning on or after 1 January 20183 Effective for annual periods beginning on or after 1 January 2019

Amendments to HKAS 16 and HKAS 38 — Clarification of Acceptable Methods of Depreciation andAmortisation

The amendments to HKAS 16 prohibit the use of a revenue-based depreciation method for items of

property, plant and equipment. The amendments to HKAS 38 introduce a rebuttable presumption that

amortisation based on revenue is not appropriate for intangible assets. This presumption can be rebutted if

either the intangible asset is expressed as a measure of revenue or revenue and the consumption of the

economic benefits of the intangible asset are highly correlated.

HKFRS 9 (2014) — Financial Instruments

The HKFRS 9 introduces new requirements for the classification and measurement of financial assets.

Debt instruments that are held within a business model whose objective is to hold assets in order to collect

contractual cash flows (the business model test) and that have contractual terms that give rise to cash flows

that are solely payments of principal and interest on the principal amount outstanding (the contractual cash

flow characteristics test) are generally measured at amortised cost. Debt instruments that meet the contractual

cash flow characteristics test are measured at fair value through other comprehensive income (‘‘FVTOCI’’) if

the objective of the entity’s business model is both to hold and collect the contractual cash flows and to sell

the financial assets. Entities may make an irrevocable election at initial recognition to measure equity

instruments that are not held for trading at FVTOCI. All other debt and equity instruments are measured at

fair value through profit or loss (‘‘FVTPL’’).

HKFRS 9 includes a new expected loss impairment model for all financial assets not measured at

FVTPL replacing the incurred loss model in HKAS 39 and new general hedge accounting requirements to

allow entities to better reflect their risk management activities in financial statements.


– I-10 –


HKFRS 15 — Revenue from Contracts with Customers

The new standard establishes a single revenue recognition framework. The core principle of the

framework is that an entity should recognise revenue to depict the transfer of promised goods or services to

customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange

for those goods and services. HKFRS 15 supersedes existing revenue recognition guidance including HKAS

18 Revenue, HKAS 11 Construction Contracts and related interpretations.

HKFRS 15 requires the application of a 5 steps approach to revenue recognition:

. Step 1: Identify the contract(s) with a customer

. Step 2: Identify the performance obligations in the contract

. Step 3: Determine the transaction price

. Step 4: Allocate the transaction price to each performance obligation

. Step 5: Recognise revenue when each performance obligation is satisfied

HKFRS 15 includes specific guidance on particular revenue related topics that may change the current

approach taken under HKFRS. The standard also significantly enhances the qualitative and quantitative

disclosures related to revenue.

HKFRS 16 — Leases

HKFRS 16 requires lessees to recognise assets and liabilities for most leases. Under the new standard, a

lease is a contract, or part of a contract, that conveys the right to use an identified asset for a period of time

in exchange for consideration. A contract conveys the right to control the use of an identified asset if,

throughout the period of use, the customer has the right to obtain substantially all of the economic benefits

from the use of the identified asset and direct the use of the identified asset. Lessees are required to initially

recognise a lease liability for the obligation to make lease payment and a right-of-use for the right to use the

identified asset for the lease term. Subsequently, lessees accrete the lease liability to reflect interest and

reduce the liability to reflect lease payments made. The related right-of-use asset is depreciated in accordance

with the depreciation requirement s of HKAS 16 ‘‘Property, plant and Equipment’’. For lessors, there is a little

change to the existing accounting in HKAS17 ‘‘Leases’’.

The Group has already commenced an assessment of the impact of adopting the above standards and

amendments to existing standards to the Group. The Group is not yet in a position to state whether these new

pronouncements will result in substantial changes to the Group’s accounting policies and financial

performance of the Group.

5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Subsidiaries

A subsidiary is an investee over which the Company is able to exercise control. The Company controls

an investee if all three of the following elements are present: power over the investee, exposure, or rights, to

variable returns from the investee, and the ability to use its power to affect those variable returns. Control is

reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of

control.

In the Company’s statement of financial position, investment in subsidiaries is stated at cost less

impairment loss, if any. The results of subsidiaries are accounted for by the Company on the basis of dividend

received and receivable.


– I-11 –


(b) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any impairment

losses. The cost of property, plant and equipment includes its purchase price and the cost directly attributable

to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as

appropriate, only when it is probable that future economic benefits associated with the item will flow to the

Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is

derecognised. All other repairs and maintenance are recognised as an expense in profit or loss during the

financial period in which they are incurred.

Property, plant and equipment are depreciated so as to write off their cost or valuation net of expected

residual value over their estimated useful lives on a straight-line basis. The useful lives, residual value and

depreciation method are reviewed, and adjusted if appropriate, at the end of each reporting period. The useful

lives are as follows:

Machinery and equipment 3–10 years

Motor vehicles 5 years

Furniture, fixtures and office equipment 2–5 years

Leasehold improvement Over the shorter of lease term or useful life

An asset is written down immediately to its recoverable amount if its carrying amount is higher than

the asset’s estimated recoverable amount.

The gain or loss on disposal of an item of property, plant and equipment is the difference between the

net sale proceeds and its carrying amount, and is recognised in profit or loss on disposal.

(c) Financial instruments

(i) Financial assets

The Group’s financial assets are classified as loans and receivables. The classification depends on

the nature and purpose of the financial assets and is determined at the time of initial recognition. The

financial assets are initially measured at fair value plus transaction costs that are directly attributable to

the acquisition of the financial assets. Regular way purchases or sales of financial assets are recognised

and derecognised on a trade date basis. A regular way purchase or sale is a purchase or sale of a

financial asset under a contract whose terms require delivery of the asset within the time frame

established generally by regulation or convention in the marketplace concerned.


Loans and receivables are non-derivative financial assets with fixed or determinable

payments that are not quoted in an active market. They arise principally through the provision of

goods and services to customers (trade receivables), and also incorporate other types of

contractual monetary asset. Subsequent to initial recognition, they are carried at amortised cost

using the effective interest method, less any identified impairment losses.


– I-12 –


(ii) Impairment loss on financial assets

The Group assesses, at the end of each reporting period, whether there is any objective evidence

that financial asset is impaired. Financial asset is impaired if there is objective evidence of impairment

as a result of one or more events that has occurred after the initial recognition of the asset and that

event has an impact on the estimated future cash flows of the financial asset that can be reliably

estimated. Evidence of impairment may include:

. significant financial difficulty of the debtor;

. a breach of contract, such as a default or delinquency in interest or principal payments;

. granting concession to a debtor because of debtor’s financial difficulty; or

. it becoming probable that the debtor will enter bankruptcy or other financial

reorganisation.


An impairment loss is recognised in profit or loss when there is objective evidence that the

asset is impaired, and is measured as the difference between the asset’s carrying amount and the

present value of the estimated future cash flows discounted at the original effective interest rate.

The carrying amount of financial asset is reduced through the use of an allowance account. When

any part of financial asset is determined as uncollectible, it is written off against the allowance

account for the relevant financial asset.

Impairment losses are reversed in subsequent periods when an increase in the asset’s

recoverable amount can be related objectively to an event occurring after the impairment was

recognised, subject to a restriction that the carrying amount of the asset at the date the

impairment is reversed does not exceed what the amortised cost would have been had the

impairment not been recognised.

(iii) Financial liabilities

The Group classifies its financial liabilities, depending on the purpose for which the liabilities

were incurred.

The Group’s financial liabilities at amortised cost including trade and other payables, borrowings

and other monetary liabilities, are initially recognised at fair value, net of directly attributable

transaction cost incurred, and are subsequently measured at amortised cost, using the effective interest

method. The related interest expense is recognised in profit or loss.

Gain or losses are recognised in profit or loss when the liabilities are derecognised as well as

through the amortisation process.

(iv) Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset or

financial liability and of allocating interest income or interest expenses over the relevant periods. The

effective interest rate is the rate that exactly discounts estimated future cash receipts or payments

through the expected life of the financial asset or liability, or where appropriate, a shorter period.


– I-13 –


(v) Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct

issue costs.

(vi) Derecognition

The Group derecognises a financial asset when the contractual rights to the future cash flows in

relation to the financial asset expire or when the financial asset has been transferred and the transfer

meets the criteria for derecognition in accordance with HKAS 39.

Financial liabilities are derecognised when the obligation specified in the relevant contract is

discharged, cancelled or expires.

(d) Inventories

Inventories are initially recognised at cost, and subsequently valued at the lower of cost and net

realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing

the inventories to their present location and condition. Cost is calculated using the weighted average method.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of

completion and estimated costs necessary to make the sale.

(e) Borrowing costs

Borrowing costs attributable directly to the acquisition, construction or production of qualifying assets

which require a substantial period of time to be ready for their intended use or sale, are capitalised as part of

the cost of those assets. Income earned on temporary investments of specific borrowings pending their

expenditure on those assets is deducted from borrowing costs capitalised. All other borrowing costs are

recognised in profit or loss in the period in which they are incurred.

(f) Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks

and rewards of ownership to lessee. All other leases are classified as operating leases.

The Group as lessee

The total rentals payable under the operating leases are recognised in profit or loss on a straight

line basis over the lease term. Lease incentives received are recognised as an integrated part of the total

rental expense, over the term of the lease.

(g) Impairment of assets (other than financial assets)

At the end of each reporting period, the Group reviews the carrying amounts of the following assets to

determine whether there is any indication that those assets have suffered an impairment loss or an impairment

loss previously recognised no longer exists or may have decreased:

. property, plant and equipment; and

. investment in subsidiaries

If the recoverable amount (i.e. the greater of the fair value less costs of disposal and value in use) of an

asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its

recoverable amount. An impairment loss is recognised as an expense immediately.


– I-14 –


Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the

revised estimate of its recoverable amount, to the extent that the increased carrying amount does not exceed

the carrying amount that would have been determined had no impairment loss been recognised for the asset in

prior years. A reversal of an impairment loss is recognised as income immediately.

Value in use is based on the estimated future cash flows expected to be derived from the asset or cash

generating unit, 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 or cash generating unit.

(h) Foreign currency

Transactions entered into by group entities in currencies other than the currency of the primary

economic environment in which they operate (the ‘‘functional currency’’) are recorded at the rates ruling when

the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the

end of each reporting period. Non-monetary items carried at fair value that are denominated in foreign

currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-

monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary

items, are recognised in profit or loss in the period in which they arise. Exchange differences arising on the

retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for

differences arising on the retranslation of non-monetary items in respect of which gains and losses are

recognised in other comprehensive income, in which case, the exchange differences are also recognised in

other comprehensive income.

On consolidation, income and expense items of foreign operations are translated into the presentation

currency of the Group (i.e. RMB) at the average exchange rates for the relevant period, unless exchange rates

fluctuate significantly during the period, in which case, the rates approximating to those ruling when the

transactions took place are used. All assets and liabilities of foreign operations are translated at the rate ruling

at the end of each reporting period. Exchange differences arising, if any, are recognised in other

comprehensive income and accumulated in equity as exchange reserve (attributed to minority interests as

appropriate). Exchange differences recognised in profit or loss of group entities’ separate financial statements

on the translation of long-term monetary items forming part of the Group’s net investment in the foreign

operation concerned are reclassified to other comprehensive income and accumulated in equity as exchange

reserve.

On disposal of a foreign operation, the cumulative exchange differences recognised in the exchange

reserve relating to that operation up to the date of disposal are reclassified to profit or loss as part of the

profit or loss on disposal.

(i) Government grants

Government grants are recognised at their fair value where there is reasonable assurance that the grant

will be received and that the Group will comply with the conditions attaching to them. Grants that compensate

the Group for expenses incurred are recognised as revenue in profit or loss on a systematic basis in the same

periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are

deducted from the carrying amount of the asset and consequently are effectively recognised in profit or loss

over the useful life of the asset by way of reduced depreciation expense.

(j) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and deposits held at call with banks and other short-

term highly liquid investments that are readily convertible into known amounts of cash, are subject to an

insignificant risk of changes in value, and have a short maturity of generally within three months when

acquired, which are repayable on demand and form an integral part of the Group’s cash management.


– I-15 –


(k) Income tax expense

Income taxes for the year comprise current tax and deferred tax.

Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-

assessable or disallowable for income tax purposes and is calculated using tax rates that have been enacted or

substantively enacted at the end of reporting period.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets

and liabilities for financial reporting purposes and the corresponding amounts used for tax purposes. Except

for goodwill and recognised assets and liabilities that affect neither accounting nor taxable profits, deferred

tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the

extent that it is probable that taxable profits will be available against which deductible temporary differences

can be utilised. Deferred tax is measured at the tax rates appropriate to the expected manner in which the

carrying amount of the asset or liability is realised or settled and that have been enacted or substantively

enacted at the end of reporting period.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in

subsidiaries except where the Group is able to control the reversal of the temporary difference and it is

probable that the temporary difference will not reverse in the foreseeable future.

Income taxes are recognised in profit or loss except when they relate to items recognised in other

comprehensive income in which case the taxes are also recognised in other comprehensive income or when

they related to items recognised directly in equity in which case the taxes are also recognised directly in

equity.

(l) Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when

the revenue can be measured reliably, on the following bases:

(a) from the sale of goods, when the significant risks and rewards of ownership have been

transferred to the buyer, provided that the Group maintains neither managerial involvement to the

degree usually associated with ownership, nor effective control over the goods sold; and

(b) interest income, on an accrual basis on the principal outstanding at the applicable interest rate.

(m) Employee benefits

(i) Pension scheme

The subsidiaries established and operating in PRC are required to provide certain staff pension

benefits to their employees under existing regulations of the PRC. Pension scheme contributions are

provided at rates stipulated by PRC regulations and are made to a pension fund managed by

government agencies, which are responsible for administering the contributions for the subsidiaries’

employees. The contributions are charged to profit or loss as they become payable in accordance with

the rules of the central pension scheme.

(ii) Short term employee benefits

Short term employee benefits are employee benefits (other than termination benefits) that are

expected to be settled wholly before twelve months after the end of the annual reporting period in

which the employees render the related service. Short term employee benefits are recognised in the year

when the employees render the related service.


– I-16 –


(iii) Termination benefits

Termination benefits are recognised on the earlier of when the Group can no longer withdraw the

offer of those benefits and when the Group recognises restructuring costs involving the payment of

termination benefits.

(n) 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, which it is probable will result in an outflow of

economic benefits that can be reasonably estimated.

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, the existence of which 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.

(o) Related parties

(a) A person or a close member of that person’s family is related to the Group if that person:

(i) has control or joint control over the Group;

(ii) has significant influence over the Group; or

(iii) is a member of the key management personnel of the Group or the Company’s parent.

(b) An entity is related to the Group if any of the following conditions apply:

(i) 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);

(ii) 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);

(iii) Both entities are joint ventures of the same third party;

(iv) One entity is a joint venture of a third entity and the other entity is an associate of the

third entity;

(v) The entity is a post-employment benefit plan for the benefit of the employees of the Group

or an entity related to the Group;

(vi) The entity is controlled or jointly controlled by a person identified in (a);

(vii) A person identified in (a)(i) has significant influence over the entity or is a member of key

management personnel of the entity (or of a parent of the entity); or

(viii) The entity, or any member of a group of which it is a part, provides key management

personnel services to the Group or to the Group’s parent.


– I-17 –


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 and include:

(i) that person’s children and spouse or domestic partner;

(ii) children of that person’s spouse or domestic partner; and

(iii) dependents of that person or that person’s spouse or domestic partner.

6. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, the directors are required to make judgements, estimates

and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.

The estimates and associated assumptions are based on historical experience and other factors that are considered to

be relevant. Actual results 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.

(i) Net realisable value of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business, less

estimated costs of completion and selling expenses. These estimates are based on the current market condition

and the historical experience of selling products of similar nature. It could change significantly as a result of

competitor actions in response to severe industry cycles. Inventory value is reduced when the decision to

markdown below cost is made.

(ii) Impairment of trade and other receivables

Impairment of trade and other receivables is made based on an assessment of the recoverability of trade

and other receivables. The identification of impairment requires management’s judgements and estimates.

Where the actual outcome is different from the original estimate, such differences will impact on the carrying

values of the trade and other receivables and impairment loss over the period in which such estimate has been

changed. If the financial conditions of customers of the Group were to deteriorate, resulting in an impairment

of their ability to make payments, additional provision for impairment may be required.

7. SEGMENT INFORMATION

The chief operating decision makers are identified as executive directors of the Company. The Group has

identified its operating segment based on the regular internal financial information reported to the Company’s

executive directors for their decisions about resources allocation and review of performance. For the Relevant

Periods, the executive directors have considered the only operating segment of the Group is design, development,

manufacture and sales of LED beads and LED lighting products.

No geographical information is presented as most of the Group’s operations are located in the PRC.


– I-18 –


The following customers with transactions have exceeded 10% of the Group’s revenue. During each of the

years ended 31 December 2014 and 2015, revenue derived from these customers is as follows:

As at 31 December

2014 2015

RMB’000 RMB’000

Client A 15,089 n/a

Client B 12,007 n/a

Client C 11,138 28,100

Client D n/a 40,353

n/a: Transactions during the year did not exceed 10% of the Group’s revenue

8. REVENUE, OTHER INCOME AND GAINS

Revenue, which is also the Group’s turnover, represents the net invoiced value of goods sold, less discounts,

returns, value added tax and other applicable local taxes during the Relevant Periods.

An analysis of the Group’s revenue, other income and gains is as follows:


2014 2015

RMB’000 RMB’000

Revenue

Sales of LED beads 99,870 114,989

Sales of LED lighting products 10,168 3,717

110,038 118,706

Other income and gains

Bank interest income 5 5

Government grants (Note) 63 41

Others 163 36

231 82

Note: The amount represents the government subsidy for the Group attending the lighting exhibition in the

Relevant Periods.


– I-19 –


9. PROFIT BEFORE INCOME TAX EXPENSE

The Group’s profit before income tax expense is arrived at after charging(crediting):


2014 2015

RMB’000 RMB’000

Cost of inventories sold 91,802 90,781

Depreciation of property, plant and equipment 2,470 2,478

Write off of inventories 1,282 —

Impairment loss on trade receivables 1,365 1,696

Auditors’ remuneration 31 97

Operating lease rental in respect of building 491 386

Research and development costs 326 852

Employee costs (including directors’ remuneration) (Note 11)

— Wages, salaries and other benefits 5,760 6,138

— Contribution to defined contribution pension plans 1,218 1,122

[REDACTED] expenses — 3,805

Exchange (gain)/loss, net (24) (49)

10. FINANCE COSTS


2014 2015

RMB’000 RMB’000

Interest on bank borrowings repayable within five years 1,319 935

Interest on discounted bills receivable — 504

1,319 1,439


– I-20 –


11. DIRECTORS’ REMUNERATION

Details of the remuneration paid or payable to the directors during the Relevant Periods are as follows:

Fees

Salaries,allowances

and benefitsin kind

Contributionsto defined

contributionpension plans Total

RMB’000 RMB’000 RMB’000 RMB’000

Year ended 31 December 2014Executive directors:

Mr. Zhao Yi Wen — 51 7 58

Mr. Lin Qi Jian — — — —

— 51 7 58

Year ended 31 December 2015Executive directors:

Mr. Zhao Yi Wen — 53 6 59

Mr. Lin Qi Jian — 41 3 44

Mr. Chan Wing Kin — 508 13 521

Total — 602 22 624

During the Relevant Periods, Mr. Zhao Yi Wen and Mr. Chan Wing Kin were appointed as directors on 27

May 2015 and subsequently redesignated as the executive directors on 13 May 2016, Mr. Lin Qi Jian who was

appointed as the executive director on 13 May 2016, Mr. Chiu Kwai San who was appointed as the non-executive

director on 13 May 2016, Professor Chow Wai Shing, Tommy, Dr. Wu Wing Kuen, B.B.S. and Mr. Chan Chung

Kik, Lewis who were appointed as the independence non-executive directors on [.], did not receive any

remuneration.

12. FIVE HIGHEST PAID INDIVIDUALS

The five highest paid individuals of the Group for each of the two years ended 31 December 2014 and 2015

included one and two directors respectively whose emoluments are reflected in the disclosures in Note 11 above.

The emoluments of the remaining four and three individuals for each of the two years ended 31 December 2014 and

2015 respectively are as follows:


2014 2015

RMB’000 RMB’000

Salaries, allowances and benefits in kind 112 407

Performance related bonuses 78 37

Contribution to defined contribution pension plans 21 22

211 466


– I-21 –


Their remuneration fell within the following bands:

Number of employees


2014 2015

Nil to HKD1,000,000 4 3

During the Relevant Periods, no director or any of the highest-paid individuals waived or agreed to waive any

emoluments. No emoluments were paid by the Group to the directors or any of the highest paid individuals of the

Group as an inducement to join or upon joining the Group or as compensation for loss of office.

13. INCOME TAX EXPENSE

The Group is subject to income tax on an entity basis on profit arising in or derived from the jurisdictions in

which members of the Group are domiciled and operate.

Pursuant to the rules and regulations of the Cayman Islands and the BVI, the Group is not subject to any

income tax in the Cayman Islands and the BVI.

The subsidiary incorporated in Hong Kong is subject to income tax at the rate of 16.5% on the estimated

assessable profits arising in Hong Kong during the Relevant Periods.

Provision for the enterprise income tax (‘‘EIT’’) in the PRC is calculated based on a statutory tax rate of 25%

of the estimated assessable profits of certain PRC subsidiaries of the Group as determined in accordance with the

relevant income tax law in the PRC.


2014 2015

RMB’000 RMB’000

Current income tax — PRC EIT

— tax for the year 3,113 4,155

Deferred tax (Note 26) (657) 426

2,456 4,581


– I-22 –


A reconciliation of the income tax expense applicable to profit before income tax expense using the statutory

enterprise income tax rate in the PRC to the tax expense at the effective tax rates is as follows:


2014 2015

RMB’000 RMB’000


At the PRC’s statutory enterprise income tax rate of 25% 1,965 3,079

Effect of different tax rates of subsidiaries operating

in other jurisdiction 101 464

Effect of non-deductible expenses 390 1,038

Income tax expense 2,456 4,581

14. DIVIDEND

No dividend has been paid or declared by the Company since the date of its incorporation, or by any of the

companies now comprising the Group during the Relevant Periods.

15. EARNINGS PER SHARE

No earnings per share information is presented as its inclusion, for the purpose of this report, is not

considered meaningful due to the Reorganisation and the presentation of the results for the Relevant Periods as

described in Note 2 above.


– I-23 –


16. PROPERTY, PLANT AND EQUIPMENT

Machineryand equipment

Motorvehicles

Furniture,fixtures

and officeequipment

Leaseholdimprovement Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

CostAt 1 January 2014 26,690 — 67 — 26,757

Additions 45 148 — — 193

At 31 December 2014 26,735 148 67 — 26,950

Additions 48 — 6 125 179

At 31 December 2015 26,783 148 73 125 27,129

Accumulated depreciationAt 1 January 2014 5,911 — 33 — 5,944

Depreciation charge

for the year 2,435 16 19 — 2,470

At 31 December 2014 8,346 16 52 — 8,414

Depreciation charge

for the year 2,435 27 10 6 2,478

At 31 December 2015 10,781 43 62 6 10,892

Net book valueAt 31 December 2014 18,389 132 15 — 18,536

At 31 December 2015 16,002 105 11 119 16,237

17. INVESTMENT IN SUBSIDIARIES

Company

As at31 December 2015

RMB’000

Unlisted shares, at cost 7


– I-24 –


18. INVENTORIES

As at 31 December

2014 2015

RMB’000 RMB’000

Raw materials 4,509 4,596

Finished goods 17,484 16,450

21,993 21,046

19. TRADE AND BILLS RECEIVABLES

As at 31 December

2014 2015

RMB’000 RMB’000

Trade receivables 70,501 52,791

Bills receivable 6,636 5,574

77,137 58,365

The Group’s trading terms with its customers are mainly on credit. The credit period is generally 30 days,

extending up to 90 days for major customers. The Group seeks to maintain strict control over its outstanding

receivables and overdue balances are reviewed regularly by senior management. There is a certain concentration of

credit risk.

The aging analysis of the trade and bills receivables as at the end of each of the Relevant Periods, based on

the invoice dates, is as follows:

As at 31 December

2014 2015

RMB’000 RMB’000

0 to 30 days 21,803 20,539

31 to 60 days 8,699 15,299

61 to 90 days 11,637 7,475

91 to 120 days 5,637 3,730

121 to 365 days 7,026 11,234

Over 1 year 24,592 2,585

79,394 60,862

Less: Impairment of trade receivables (2,257) (2,497)

77,137 58,365


– I-25 –


The aging analysis of the trade and bills receivables which were past due but not impaired is as follows:

As at 31 December

2014 2015

RMB’000 RMB’000

Past due for less than 30 days 7,142 4,422

Past due for more than 30 days but less than 60 days 3,862 1,247

Past due for more than 60 days but less than 90 days 893 413

Past due for more than 90 days but less than 120 days — —

Past due for more than 120 days 23,079 10,013

34,976 16,095

Trade receivables that were neither past due nor impaired relate to a large number of diversified customers for

whom there was no recent history of default.

Trade receivables that were past due but not impaired relate to a number of independent customers that have a

good track record with the Group. Based on past experience, the directors of the Group are of the opinion that no

provision for impairment is necessary in respect of these balances as there has not been a significant change in credit

quality and the balances are still considered fully recoverable. The Group does not hold any collateral or other credit

enhancements over these balances.

The below table reconciled the impairment loss of trade receivables as at the end of each of the Relevant

Periods:

As at 31 December

2014 2015

RMB’000 RMB’000

At 1 January 892 2,257

Impairment loss recognised 1,365 1,696

Bad debts written off — (1,456)

At 31 December 2,257 2,497

The Group recognised impairment loss based on the accounting policy stated in Note 5c(ii).

20. PREPAYMENTS AND OTHER RECEIVABLES

As at 31 December

2014 2015

RMB’000 RMB’000

Advance to a shareholder (note) 1,000 —

Other receivables 125 155

Prepayments 1,555 6,836

2,680 6,991

Note: The advance is non-trading in nature, unsecured, interest free and repayable on demand. The balance

has been fully settled in 2015.


– I-26 –


Particulars of advance to a shareholder are disclosed as follows:

ShareholderAs at

1 January 2014

Maximumoutstanding

during the year2014


RMB’000 RMB’000 RMB’000

Mr. Lin Qi Jian — 1,000 1,000

ShareholderAs at

1 January 2015

Maximumoutstanding

during the year2015


RMB’000 RMB’000 RMB’000

Mr. Lin Qi Jian 1,000 1,000 —

21. CASH AND CASH EQUIVALENTS

As at 31 December

2014 2015

RMB’000 RMB’000

Cash and bank balances 4,986 6,370

Restricted bank balances — 1,300

Short-term deposits 3,000 —

Cash and cash equivalents 7,986 7,670

Denominated in RMB 6,738 6,934

Denominated in HK$ 1,248 736

Cash and cash equivalents 7,986 7,670

Short-term deposits are made for varying periods of between one to three months. The bank balances and

short-term deposits are deposited with creditworthy banks with no recent history of default. The carrying amounts of

the cash and cash equivalents approximated their fair values as at the end of each of the Relevant periods. The cash

and cash equivalents that denominated in RMB is not freely convertible and the remittance of such funds out of the

PRC is subject to exchange restrictions imposed by the PRC Government.

The restricted bank balances is related to the litigation. Details please refer to Note 32.


– I-27 –


22. TRADE PAYABLES

As at 31 December

2014 2015

RMB’000 RMB’000


The credit period granted from suppliers are normally ranged from 30 to 120 days. The aging analysis of the

trade payables as at the end of each of the Relevant Periods, based on the invoice date, is as follows:

As at 31 December

2014 2015

RMB’000 RMB’000

0 to 30 days 3,675 5,751

31 to 60 days 11,138 2,667

61 to 90 days 6,540 3,696

91 to 120 days 4,068 4,603

121 to 365 days 564 7,307

Over 1 year 3,350 3,637

29,335 27,661

23. OTHER PAYABLES AND ACCRUALS

Group

As at 31 December

2014 2015

RMB’000 RMB’000

Accrued payroll 511 644

Amount due to a related company (Note (i)) 1,300 —

Amounts due to shareholders (Note (ii)) 24,334 12,840

Deposits received 623 1,703

Other payables and accruals (Note (iii)) 2,800 3,834

Other tax payables 4,853 1,534

34,421 20,555

As at31 December

Company 2015

RMB’000

Amounts due to shareholders (Note (ii)) 7

7


– I-28 –


Notes:

(i) The amount was unsecured, interest free and repayable on demand. The amount was fully settled in

2015.

(ii) The amount(s) due to (a) shareholder(s) were unsecured, interest free and repayable on demand.

(iii) The amount included approximately RMB317,000 and RMB551,000 as at 31 December 2014 and 2015

rent and utility payables to 珠海經濟區利佳電子發展有限公司, a related party of the Group which is

beneficially owned by the shareholder of the Company, Mr. Lin Qi Jian, who is also a director of the

Company.

24. BORROWINGS

As at 31 December

2014 2015

RMB’000 RMB’000

Secured interest-bearing bank borrowings:

— Repayable on demand or within one year 17,000 8,000

The Group’s bank borrowings are secured by leasehold land and building held by a related company,

corporate guarantee from a related company, personal guarantees from the Company’s shareholders, Mr. Zhao Yi

Wen and Mr. Lin Qi Jian, who are also the directors of the Company.

The effective interest rates on the Group’s bank borrowings for each of the years ended 31 December 2014

and 2015 were 6.44% and 5.05%.

All of the banking facilities are subject to the fulfillment of covenants commonly found in lending

arrangements with financial institutions. If the Group was to breach the covenants, the borrowings would become

repayable on demand. The Group regularly monitors its compliance with these covenants. As at the end of each of

the Relevant Periods, none of the covenants related to drawn down facilities had been breached.

25. AMOUNT DUE TO A SUBSIDIARY

The amount is unsecured, interest-free and repayable on demand.


– I-29 –


26. DEFERRED TAX ASSETS

Details of the deferred tax recognised and movements during the Relevant Periods are as follows:

Deferred tax assets Deferred taxliabilities —

Accelerated taxdepreciation Total

Impairmentof trade

receivablesWrite off

of inventories Sub- Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2014 223 142 365 — 365

Credited/(charged) to

profit or loss (Note 13) 341 320 661 (4) 657

At 31 December 2014

and 1 January 2015 564 462 1,026 (4) 1,022

Credited/(charged) to

profit or loss (Note 13) 60 (458) (398) (28) (426)

At 31 December 2015 624 4 628 (32) 596

Certain deferred tax assets and liabilities have been offset for the purpose of presentation. An analysis of the

deferred tax balances at the end of each of the Relevant Periods is as follows:

As at 31 December

2014 2015

RMB’000 RMB’000

Deferred tax assets 1,026 628

Deferred tax liabilities (4) (32)

1,022 596

Pursuant to the PRC Tax Law, a 10% withholding tax is levied on dividends declared to foreign investors

from the foreign investment enterprises established in the PRC. A lower withholding tax rate may be applied if there

is a tax treaty between the PRC and the jurisdiction of the foreign investors.

As at 31 December 2014 and 2015, no deferred tax has been recognised for withholding taxes that would be

payable on the unremitted earnings of the Group’s subsidiary established in the PRC. It is because in the opinion of

the Directors, it is not probable that the subsidiary will distribute its earnings accrued from the date of operation to

31 December 2015 in the foreseeable future. Accordingly, no deferred tax liabilities have been recognised as at 31

December 2014 and 2015.


– I-30 –


27. SHARE CAPITAL

The Company was incorporated on 27 May 2015 in the Cayman Islands with an authorised share capital of

HK$100,000,000 divided into 10,000,000,000 shares of HK$0.01 each of which 1,000 shares were allotted and

issued at par value. On the same date, 1,000 ordinary shares of HK$0.01 was issued.

28. RESERVES

Group

Details of the movements on the Group’s reserves are set out in the consolidated statements of changes

in equity.

(a) Statutory Reserve

In accordance with the relevant laws and regulations in the PRC and Articles of Association of

the PRC subsidiary/(ies), it is required to appropriate 10% of the annual net profits of the PRC

subsidiaries, after offsetting any prior years’ losses as determined under the relevant PRC accounting

standards, to their respective statutory reserves before distributing any net profit. When the balances of

the statutory reserves reach 50% of their respective registered capital, any further appropriation is at the

discretion of shareholders. Subject to certain restrictions set out in the Company Law of the PRC, part

of the statutory reserves may be converted to increase share capital, provided that the remaining

balance after the capitalisation is not less than 25% of the registered capital.

(b) Capital Reserve

Capital reserve represents the difference between the fair value of the consideration paid and the

carrying value of the subsidiaries acquired and was recorded in the equity.

(c) Exchange Reserve

Exchange reserve of the Group represents gains/losses arising on retranslating the net assets of

foreign operations into presentation currency.

The Company

Exchangereserve

Accumulatedlosses Total

RMB’000 RMB’000 RMB’000

At date of incorporation, 27 May 2015 — — —

Loss for the period — (182) (182)


translating foreign operations (10) — (10)


for the period (10) (182) (192)

At 31 December 2015 (10) (182) (192)


– I-31 –


29. RELATED PARTY TRANSACTIONS

Save as disclosed elsewhere in the Financial Information, the Group had the following material transactions

with related parties during the Relevant Periods:

a. Related party transactions


Name of related party Nature of transactions 2014 2015

RMB’000 RMB’000

珠海經濟區利佳電子發展有限公司 Utility expense 1,765 1,670

珠海經濟區利佳電子發展有限公司 Rental expense 338 386

2,103 2,056

Note: The related party is beneficially owned by the shareholder of the Company, Mr. Lin Qi Jian,

who is also a director of the Company.

b. Compensation of key management personnel

Remuneration for key management personnel of the Group, including amounts paid to the directors as

disclosed in Note 11, is as follows:


2014 2015

RMB’000 RMB’000

Short-term employee benefits 51 602

Pension scheme contributions 7 22

58 624


– I-32 –


30. OPERATING LEASE COMMITMENT

The Group leased the office premises under operating lease arrangement with third party landlords and a

related party during the Relevant Periods. Leases for these properties are negotiated for terms ranging from three to

ten years. The lease commitment only includes commitment for basic rental and the lease does not include any

contingent rental.

Future minimum lease payments in respect of a rent premise are as follows:

As at 31 December

2014 2015

RMB’000 RMB’000

Not later than one year — 390

Later than one year and not later than five years — 1,559

Later than five years — 1,656

— 3,605

31. CAPITAL COMMITMENTS

As at 31 December

2014 2015

RMB’000 RMB’000

Commitments for the acquisition of property, plant and equipment:

— contracted for but not provided — 260

32. LITIGATIONS

In January 2015, a supplier of Zhuhai HongGuang as plaintiff instituted legal proceedings in the People’s

Court of Hengqin New Area, Zhuhai in the PRC against Zhuhai HongGuang as defendant, for the repayment of an

aggregate outstanding sum of approximately RMB1,300,000 for the payment of supplies supplied to Zhuhai

HongGuang and the relevant interest. By an order of the court dated 28 January 2015, the bank balances of Zhuhai

HongGuang amounting to approximately RMB1,300,000 was restricted for use until the case is being settled. In

April 2015, Zhuhai HongGuang filed a counterclaim against the plaintiff for damages in the sum of approximately

RMB1,510,000, on the ground that there were material defects on the supplies provided by the plaintiff.

In October 2015, the court ruled in favour of the plaintiff and dismissed the counterclaim made by Zhuhai

HongGuang. Zhuhai HongGuang disagreed with the judgement and filed a notice of appeal to the Zhuhai City

Intermediate People’s Court on 27 August 2015. On 26 May 2016, the parties reached a settlement, pursuant to

which Zhuhai Hongguang shall pay to the plaintiff a sum of approximately USD220,000 for the outstanding balance

and interest and approximately RMB28,000 for other disbursements incurred by the plaintiff during the litigation.

On the same day, the Zhuhai City Intermediate People’s Court issued a verdict confirming the same.


– I-33 –


33. SUMMARY OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

The carrying amounts presented in the consolidated statements of financial position relate to the following

categories of financial assets and financial liabilities.

As at 31 December

2014 2015

RMB’000 RMB’000

Financial assets

Loans and receivables 86,248 66,190

Financial liabilities

Measured at amortised cost 80,756 56,216

The fair value of all these financial assets and financial liabilities are not materially different from their

carrying amounts.

34. FINANCIAL RISK MANAGEMENT

The Group’s activities expose itself to variety of financial risks: interest rate risk, foreign currency risk, credit

risk and liquidity risk. The board of directors regularly reviews and agrees policies for managing each of these risks

and they are summarised below.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will

fluctuate because of changes in market interest rates.

The Group is exposed to interest rate risk in relation to variable-rate bank balances and bank

borrowings. Interests charged on the Group’s borrowings are at variable rates. The Group currently does not

have a policy on cash flow hedges of interest rate risk. However, the management monitors interest rate

exposure and will consider hedging significant interest rate risk should the need arise.

The Group is also exposed to fair value interest rate risk in relation to the short-term bank deposits.

However, management considers the interest rate risk on the deposits is insignificant as they are relatively

short-term. The management monitors interest rate exposure and will consider hedging significant interest rate

exposure should the need arise.

After performed the sensitivity analysis, management considered that the potential effect on the Group’s

post-tax profit at the end of each of the Relevant Periods would be minimal, if interest rates had been 100

basis points higher/lower and all other variables were held constant. In management’s opinion, the sensitivity

analysis is unrepresentative of the inherent interest rate risk as the exposures at the end of each of the

Relevant Periods do not reflect the exposures during the Relevant Periods.

Foreign currency risk

Substantially all the transactions of the Group’s subsidiaries in the PRC are carried out in RMB, which

is the functional currency of the Group. Therefore, the risk on foreign currency risk is minimal.


– I-34 –


Credit risk

The Group trades mainly with recognised and creditworthy third parties. It is the Group’s policy that all

customers who wish to trade on credit terms are subject to credit verification procedures. In addition,

receivable balances are monitored on an on-going basis.

The credit risk of the Group’s other financial assets, which comprise cash and cash equivalents, other

receivables and advance to a shareholder, arises from default of the counterparty, with a maximum exposure

equal to the carrying amount of these instruments. Since the Group trades only with recognised and

creditworthy third parties, there is no requirement for collateral. Concentrations of credit risk are managed by

customer/counterparty.

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each

customer. The default risk of the industry in which customers operate also has an influence on credit risk but

to a lesser extent. At the end of 31 December 2014 and 2015, the Group has a certain concentration of credit

risk as 36% and 60% of the total trade receivables were due from the five largest customers respectively.

Liquidity risk

The Group objective is to maintain a balance between continuity of funding and flexibility through the

use of borrowings. The Group regular reviews its major funding positions to ensure that it has adequate

financial resources in meeting its financial obligations. The maturity profile of the Group’s financial liabilities

as at each of the years ended 31 December 2014 and 2015, based on the contractual undiscounted payments,

is less than one year. The discounting impact of the Group’s financial liabilities is insignificant.

35. CAPITAL MANAGEMENT

The Group’s capital management objectives are to ensure the Group’s ability to continue as a going concern

and to provide an adequate return to shareholders by pricing the products commensurately with the level of risk.

The Group actively and regularly reviews its capital structure and makes adjustments in light of changes in

economic conditions. The Group monitors its capital structure on the basis of the net debt to equity ratio. Net debt

includes trade payables, other payables and accruals and borrowings less cash and cash equivalents. The net debt-to-

equity ratio as at the end of each of the Relevant Periods is as follows:

As at 31 December

2014 2015

RMB’000 RMB’000


Other payables and accruals 34,421 20,555

Borrowings 17,000 8,000

Less: Cash and cash equivalents (7,986) (7,670)

Net debt 72,770 48,546

Equity 42,279 53,172

Net debt-to-equity ratio 172% 91%

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.


– I-35 –


36. EVENTS AFTER THE REPORTING PERIOD

Subsequent to 31 December 2015 and up to the date of this report, the following significant events have taken

place:

(a) On 5 February 2016, the registered capital of 珠海宏光照明有限公司, a subsidiary of the Company,

was increased by RMB 10,000 to RMB 20,010,000.

(b) On 27 April 2016, a non-exclusive sublicense agreement was entered by a subsidiary of the Company

with an independent third party on sublicensing certain patents and patent applications.

37. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company or any of the companies comprising the

Group in respect of any period subsequent to 31 December 2015.

Yours faithfully,

BDO LimitedCertified Public Accountants

[.]Practising Certificate no. [.]

Hong Kong


– I-36 –


The information set forth in this appendix does not form part of the Accountant’s Report from

BDO Limited, Certified Public Accountants, Hong Kong, the reporting accountant of the Company,

as set forth in Appendix I to this [REDACTED], 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 [REDACTED] and the ‘‘Accountant’s Report’’ set forth in Appendix

I to this [REDACTED].

The unaudited pro forma financial information prepared in accordance with paragraph 31 of

Chapter 7 of the GEM Listing Rules is set forth below to provide the prospective investors with

further information on how the [REDACTED] might have affected the consolidated net tangible

assets of the Group attributable to the owners of the Company after the completion of the

[REDACTED].

(A) UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS

The following is an illustrative and unaudited pro forma statement of adjusted consolidated net

tangible assets of the Group, prepared on the basis of the notes set out below, for the purpose of

illustrating the effect of the [REDACTED] on the consolidated net tangible assets of the Group

attributable to the owners of the Company as at 31 December 2015 as if the [REDACTED] had

taken place on 31 December 2015. This unaudited pro forma statement of adjusted consolidated net

tangible assets has been prepared for illustrative purpose only and, because of its hypothetical

nature, it may not give a true picture of the consolidated financial position of the Group attributable

to the owners of the Company had the [REDACTED] been completed on 31 December 2015 or at

any future dates.

Auditedconsolidatednet tangible

assets ofthe Group

attributable toowners of the

Company as at31 December

2015

Estimated netproceeds from

the[REDACTED]


consolidatednet tangibleassets as at

31 December2015









RMB’000 RMB’000 RMB’000 RMB HK$

(Note 1) (Note 2) (Note 3) (Note 5)

Based on the

[REDACTED] of

HK$[REDACTED] per

[REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]

Based on the

[REDACTED] of

HK$[REDACTED] per

[REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION

– II-1 –


Notes:

(1) The audited consolidated net tangible assets of the Group attributable to owners of the Company as at 31

December 2015 is complied based on the Accountant’s Report set out in Appendix I to the [REDACTED],

which is based on the audited consolidated net assets of the Group attributable to owners of the Company of

RMB53,172,000 as at 31 December 2015.

(2) The estimated net proceeds from the [REDACTED] are based on the indicative [REDACTED] of

HK$[REDACTED] or HK$[REDACTED] per [REDACTED], being the high-end and low-end, respectively,

of the stated [REDACTED] range per [REDACTED] [REDACTED], after deduction of underwriting fees and

commissions and other [REDACTED] related expenses paid or payable by the Company as at 31 December

2015 without taking into account of any Shares which may be allotted or issued upon the exercise of any

options that may be granted under the Share Option Scheme or any Shares which may be allotted and issued

or repurchase by the Company pursuant to the general mandates for the allotment and issue or repurchase of

Shares.

(3) The unaudited pro forma adjusted consolidated net tangible assets per Share attributable to owners of the

Company is calculated based on [REDACTED] Shares in issue assuming the [REDACTED] had been

completed on 31 December 2015 without taking into account of any Shares which may be allotted or issued

upon the exercise of any option that may be granted under the Share Option Scheme or any Shares which may

be allotted and issued or repurchase by the Company pursuant to the general mandates for the allotment and

issue or repurchase of Shares.

(4) No adjustment has been made to the unaudited pro forma adjusted consolidated net tangible assets to reflect

any trading results or other transactions of the Group entered into subsequent to 31 December 2015.

(5) For the purpose of this unaudited pro forma adjusted consolidated net tangible assets, the amounts stated in

Renminbi are converted into Hong Kong dollars at a rate of HK$1.00 to RMB0.833. No representation is

made that the amounts in RMB have been, could have been or could be converted into Hong Kong dollars, or

vice versa, at that rate or at any other rates or at all.


– II-2 –


(B) INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE

COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION

[REDACTED]


– II-3 –


[REDACTED]


– II-4 –


[REDACTED]


– II-5 –


Set out below is a summary of certain provisions of the Memorandum and Articles of

Association of the Company and of certain aspects of Cayman Islands company law.

The Company was incorporated in the Cayman Islands as an exempted company with limited

liability on 27 May 2015 under the Cayman Companies Law. The Company’s constitutional

documents consist of its Amended and Restated Memorandum of Association (Memorandum) and

its Amended and Restated Articles of Association (Articles).

1. MEMORANDUM OF ASSOCIATION

(a) The Memorandum provides, inter alia, that the liability of members of the Company is

limited and that the objects for which the Company is established are unrestricted (and

therefore include acting as an investment company), and that the Company shall have

and be capable of exercising any and all of the powers at any time or from time to time

exercisable by a natural person or body corporate whether as principal, agent, contractor

or otherwise and, since 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.

(b) By special resolution the Company may alter the Memorandum with respect to any

objects, powers or other matters specified in it.

2. ARTICLES OF ASSOCIATION

The Articles were adopted on [date]. A summary of certain provisions of the Articles is set out

below.

(a) Shares

(i) Classes of shares

The share capital of the Company consists of ordinary shares.

(ii) Variation of rights of existing shares or classes of shares

Subject to Subject to the Cayman Companies Law, if at any time the share capital

of the Company is divided into different classes of shares, all or any of the special rights

attached to any class of shares may (unless otherwise provided for by the terms of issue

of the shares 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. The provisions of the Articles relating

to general meetings shall mutatis mutandis apply to every such separate general meeting,

but so that the necessary quorum (other than at an adjourned meeting) shall be not less

than two persons together holding (or, in the case of a shareholder being a corporation,

APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANYAND CAYMAN ISLANDS COMPANY LAW

– III-1 –


by its duly authorized representative) or representing by proxy not less than one-third in

nominal value of the issued shares of that class. Every holder of shares of the class shall

be entitled on a poll to one vote for every such share held by him, and any holder of

shares of the class present in person or by proxy may demand a poll.

Any 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) Alteration of capital

The Company may, by an ordinary resolution of its members: (a) increase its share

capital by the creation of new shares of such amount as it thinks expedient; (b)

consolidate or divide all or any of its share capital into shares of larger or smaller

amount than its existing shares; (c) divide its unissued shares into several classes and

attach to such shares any preferential, deferred, qualified or special rights, privileges or

conditions; (d) subdivide its shares or any of them into shares of an amount smaller than

that fixed by the Memorandum; (e) cancel any shares which, at the date of the resolution,

have not been taken or agreed to be taken by any person and diminish the amount of its

share capital by the amount of the shares so cancelled; (f) make provision for the

allotment and issue of shares which do not carry any voting rights; (g) change the

currency of denomination of its share capital; and (h) reduce its share premium account

in any manner authorised and subject to any conditions prescribed by law.

(iv) Transfer of shares

Subject to the Cayman Companies Law and the requirements of the Stock

Exchange, all transfers of shares shall be effected by an instrument of transfer in the

usual or common form or in such other form as the Board may approve and may be

under hand or, if the transferor or transferee is a Clearing House or its nominee(s), under

hand or by machine imprinted signature, or by such other manner of execution as the

Board may approve from time to time.

Execution of the instrument of transfer shall be by or on behalf of the transferor

and the transferee, provided that the Board may dispense with the execution of the

instrument of transfer by the transferor or transferee or accept mechanically executed

transfers. The transferor shall be deemed to remain the holder of a share until the name

of the transferee is entered in the register of members of the Company in respect of that

share.

The Board may, in its absolute discretion, at any time and from time to time remove

any share on 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


– III-2 –


agrees, no shares on the principal register shall be removed to any branch register nor

shall shares on any branch register be removed to the principal register or any other

branch register. All removals and other documents of title shall be lodged for registration

and registered, in the case of shares on any branch register, at the relevant registration

office and, in the case of shares on the principal register, at the place at which the

principal register is located.

The Board may, in its absolute discretion, decline to register a transfer of any share

(not being a fully paid up share) to a person of whom it does not approve or on which

the Company has a lien. It may also decline to register a transfer of any share issued

under any share option scheme upon which a restriction on transfer subsists or a transfer

of any share to more than four joint holders.

The Board may decline to recognise any instrument of transfer unless a certain fee,

up to such maximum sum as the Stock Exchange may determine to be payable, is paid to

the Company, the instrument of transfer is properly stamped (if applicable), is in respect

of only one class of share and is lodged at the relevant registration office or the place at

which the principal register is located accompanied by the relevant share certificate(s)

and such other evidence as the Board may reasonably require is provided 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 register of members may, subject to the Listing Rules, be closed at such time

or for such period not exceeding in the whole 30 days in each year as the Board may

determine.

Fully paid shares shall be free from any restriction on transfer (except when

permitted by the Stock Exchange) and shall also be free from all liens.

(v) Power of the Company to purchase its own shares

The Company may 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

requirement imposed from time to time by the Articles or any, code, rules or regulations

issued from time to time by the Stock Exchange and/or the Securities and Futures

Commission of Hong Kong.

Where the Company purchases for redemption a redeemable Share, purchases not

made through the market or by tender shall be limited to a maximum price and, if

purchases are by tender, tenders shall be available to all members alike.


– III-3 –


(vi) Power of any subsidiary of the Company to own shares in the Company

There are no provisions in the Articles relating to the ownership of shares in the

Company by a subsidiary.

(vii) Calls on shares and forfeiture of shares

The Board may, from time to time, make such calls as it thinks fit 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) and not

by the conditions of allotment of such shares made payable at fixed times. A call may be

made payable either in one sum or by instalments. 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 20% per annum as the Board shall fix from the day appointed for payment

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 money uncalled and

unpaid or instalments payable upon any shares held by him, and in respect of all or any

of the monies so advanced the Company may pay interest at such rate (if any) not

exceeding 20% per annum as the Board may decide.

If a member fails to pay any call or instalment of a call on the day appointed for

payment, the Board may, for so long as any part of the call or instalment remains unpaid,

serve not less than 14 days’ notice on the member requiring payment of so much of the

call or instalment as is unpaid, together with any interest which may have accrued and

which may still accrue up to the date of actual payment. The notice shall name a further

day (not earlier than the expiration of 14 days from the date of the notice) on or before

which the payment required by the notice is to be made, and shall also name the place

where payment is to be made. The notice shall also state that, in the event of non-

payment at or before the appointed time, 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, nevertheless, remain liable to pay to the Company all

monies which, at the date of forfeiture, were payable by him to the Company in respect


– III-4 –


of the shares together with (if the Board shall in its discretion so require) interest thereon

from the date of forfeiture until payment at such rate not exceeding 20% per annum as

the Board may prescribe.

(b) Directors

(i) Appointment, retirement and removal

At any time or from time to time, the Board shall have the power to appoint any

person as a Director either to fill a casual vacancy on the Board or as an additional

Director to the existing Board subject to any maximum number of Directors, if any, as

may be determined by the members in general meeting. Any Director so appointed to fill

a casual vacancy shall hold office only until the first general meeting of the Company

after his appointment and be subject to re-election at such meeting. Any Director so

appointed as an addition to the existing Board shall hold office only until the first annual

general meeting of the Company after his appointment and be eligible for re-election at

such meeting. Any Director so appointed by the Board shall not be taken into account in

determining the Directors or the number of Directors who are to retire by rotation at an

annual general meeting.

At each annual general meeting, one third of the Directors for the time being shall

retire from office by rotation. However, if the number of Directors is not a multiple of

three, then the number nearest to but not less than one third shall be the number of

retiring Directors. The Directors to retire in each year shall be those who have been in

office longest 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 shall (unless

they otherwise agree among themselves) be determined by lot.

No person, other than a retiring Director, shall, unless recommended by the Board

for election, be eligible for election to the office of Director at any general meeting,

unless notice in writing of the intention to propose that person for election as a Director

and notice in writing by that person of his willingness to be elected has been lodged at

the head office or at the registration office of the Company. The period for lodgment of

such notices shall commence no earlier than the day after despatch of the notice of the

relevant meeting and end no later than seven days before the date of such meeting and

the minimum length of the period during which such notices may be lodged must be at

least seven days.

A Director is not required to hold any shares in the Company by way of

qualification nor is there any specified upper or lower age limit for Directors either for

accession to or retirement from the Board.


– III-5 –


A Director may be removed by an ordinary resolution of the Company before the

expiration of his term 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 Company may by ordinary resolution appoint another in his place. Any Director

so appointed shall be subject to the ‘‘retirement by rotation’’ provisions. The number of

Directors shall not be less than two.

The office of a Director shall be vacated if he:

(aa) resign;

(bb) dies;

(cc) is declared to be of unsound mind and the Board resolves that his office be

vacated;

(dd) becomes bankrupt or has a receiving order made against him or suspends

payment or compounds with his creditors generally;

(ee) he is prohibited from being or ceases to be a director by operation of law;

(ff) without special leave, is absent from meetings of the Board for six consecutive

months, and the Board resolves that his office is vacated;

(gg) has been required by the stock exchange of the Relevant Territory (as defined

in the Articles) to cease to be a Director; or

(hh) is removed from office by the requisite majority of the Directors or otherwise

pursuant to the Articles.

From time to time the Board may 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 also delegate any of its powers to committees consisting

of such Director(s) or other person(s) as the Board thinks fit, and from time to time it

may also 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 so delegated, conform to any

regulations that may from time to time be imposed upon it by the Board.


– III-6 –


(ii) Power to allot and issue shares and warrants

Subject to the provisions of the Cayman Companies Law, the Memorandum and

Articles and without prejudice to any special rights conferred on the holders of any

shares or class of shares, any share may be issued with or have attached to it 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). Any share may be issued on terms that, upon the happening of a

specified event or upon a given date and either at the option of the Company or the

holder of the share, it is liable to be redeemed.

The Board may issue warrants to subscribe for any class of shares or other

securities of the Company on such terms as it may from time to time determine.

Where warrants are issued to bearer, no certificate in respect of such warrants shall

be issued to replace one that has been lost unless the Board is satisfied beyond

reasonable doubt that the original certificate has been destroyed and the Company has

received an indemnity in such form as the Board thinks fit with regard to the issue of

any such replacement certificate.

Subject to the provisions of the Cayman Companies Law, the Articles and, where

applicable, the rules of any stock exchange of the Relevant Territory (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 whose registered addresses

are in any particular territory or territories where, in the absence of a registration

statement or other special formalities, this is or may, in the opinion of the Board, be

unlawful or impracticable. However, no member affected as a result of the foregoing

shall be, or be deemed to be, a separate class of members for any purpose whatsoever.


– III-7 –


(iii) Power to dispose of the assets of the Company or any of its subsidiaries

While there are no specific provisions in the Articles relating to the disposal of the

assets of the Company or any of its subsidiaries, the Board may 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 Cayman Companies Law to be exercised or

done by the Company in general meeting, but if such power or act is regulated by the

Company in general meeting, such regulation shall not invalidate any prior act of the

Board which would have been valid if such regulation had not been made.

(iv) 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 uncalled capital of

the Company and, subject to the Cayman Companies Law, to issue debentures, debenture

stock, 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.

(v) Remuneration

The Directors shall be entitled to receive, as ordinary remuneration for their

services, such sums as shall from time to time be determined by the Board or the

Company in general meeting, as the case may be, such sum (unless otherwise directed by

the resolution by which it is determined) to be divided among the Directors in such

proportions and in such manner as they may agree or, failing agreement, either equally

or, in the case of any Director holding office for only a portion of the period in respect

of which the remuneration is payable, pro rata. The Directors shall also be entitled to be

repaid all expenses reasonably incurred by them in attending any Board meetings,

committee meetings or general meetings or otherwise in connection with the discharge of

their duties as Directors. Such remuneration shall be in addition to any other

remuneration to which a Director who holds any salaried employment or office in the

Company may be entitled by reason of such employment or office.

Any Director who, at the request of the Company, performs services which in the

opinion of the Board go beyond the ordinary duties of a Director may be paid such

special or extra remuneration as the Board may determine, 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 and such other benefits and allowances

as the Board may from time to time decide. Such remuneration shall be in addition to his

ordinary remuneration as a Director.


– III-8 –


The Board may establish, either on its own or jointly in concurrence or agreement

with subsidiaries of the Company or companies with which the Company is associated in

business, or may make 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 former Director who may hold or have held any

executive office or any office of profit with the Company or any of its subsidiaries) and

former employees of the Company and their dependents or any class or classes of such

persons.

The Board may also pay, enter into agreements to pay or make grants of revocable

or irrevocable, whether or not subject to any terms or conditions, pensions or other

benefits to employees and former employees and their dependents, or to any of such

persons, including pensions or benefits additional to those, if any, to which such

employees or former employees or their dependents are or may become entitled under

any such scheme or fund as mentioned above. Such pension or benefit may, if deemed

desirable by the Board, be granted to an employee either before and in anticipation of, or

upon or at any time after, his actual retirement.

(vi) Compensation or payments for loss of office

Payments to any present 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 or

statutorily entitled) must be approved by the Company in general meeting.

(vii) Loans and provision of security for loans to Directors

The Company shall not directly or indirectly make a loan to a Director or a director

of any holding company of the Company or any of their respective close associates, enter

into any guarantee or provide any security in connection with a loan made by any person

to a Director or a director of any holding company of the Company or any of their

respective close associates, or, if any one or more of the Directors hold(s) (jointly or

severally or directly or indirectly) a controlling interest in another company, make a loan

to that other company or enter into any guarantee or provide any security in connection

with a loan made by any person to that other company.

(viii)Disclosure of interest in contracts with the Company or any of its subsidiaries

With the exception of the office of auditor of the Company, a Director may hold

any other office or place of profit with the Company in conjunction with his office of

Director for such period and upon such terms as the Board may determine, and may be

paid such extra remuneration for that other office or place of profit, in whatever form, in

addition to any remuneration provided for by or pursuant to any other Articles. A


– III-9 –


Director may be or become a director, officer or member of 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 or other benefits received by him as a director, officer or

member of such other company. 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 in favour of any

resolution appointing the Directors or any of them to be directors or officers of such

other company.

No Director or intended Director shall be disqualified by his office from contracting

with the Company, 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 for

any profit realised by any such contract or arrangement by reason only of such Director

holding that office or the fiduciary relationship established by it. A Director who is, in

any way, materially interested in a contract or arrangement or proposed contract or

arrangement with the Company shall declare the nature of his interest at the earliest

meeting of the Board at which he may practically do so.

There is no power to freeze or otherwise impair any of the rights attaching to any

share by reason that the person or persons who are interested directly or indirectly in that

share have failed to disclose their interests to the Company.

A Director shall not vote or be counted in the quorum on any resolution of the

Board in respect of any contract or arrangement or proposal in which he or any of his

close associate(s) has/have a material interest, and if he shall do so his vote shall not be

counted nor shall he be counted in the quorum for that resolution, but this prohibition

shall not apply to any of the following matters:

(aa) the giving of any security or indemnity to the Director or his close associate(s)

in respect of money lent or obligations incurred or undertaken by him or any

of them at the request of or for the benefit of the Company or any of its

subsidiaries;

(bb) 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/have himself/themselves assumed responsibility in

whole or in part whether alone or jointly under a guarantee or indemnity or by

the giving of security;


– III-10 –


(cc) any proposal concerning an offer of shares, 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 proposal or arrangement concerning the benefit of employees of the

Company or any of its subsidiaries, including the adoption, modification or

operation of either: (i) any employees’ share scheme or any share incentive or

share option scheme under which the Director or his close associate(s) may

benefit; or (ii) any of a pension fund or retirement, death or disability benefits

scheme which relates to Directors, their close associates and employees of the

Company or any of its subsidiaries and does not provide in respect of any

Director or his close associate(s) any privilege or advantage not generally

accorded to the class of persons to which such scheme or fund relates; and

(ee) 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, debentures or

other securities of the Company by virtue only of his/their interest in those

shares, debentures or other securities.

(c) Proceedings of the Board

The Board may meet anywhere in the world for the despatch of business and may

adjourn and otherwise regulate its meetings as it thinks fit. 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 a second or casting vote.

(d) Alterations to the constitutional documents and the Company’s name

To the extent that the same is permissible under Cayman Islands law and subject to the

Articles, the Memorandum and Articles of the Company may only be altered or amended, and

the name of the Company may only be changed, with the sanction of a special resolution of

the Company.

(e) Meetings of member

(i) Special and ordinary resolutions

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 by proxy or, in the case of members which are corporations, by their duly


– III-11 –


authorised representatives or, where proxies are allowed, by proxy at a general meeting

of which notice specifying the intention to propose the resolution as a special resolution

has been duly given.

Under Cayman Companies Law, a copy of any special resolution must be forwarded

to the Registrar of Companies in the Cayman Islands within 15 days of being passed.

An ‘‘ordinary resolution’’, by contrast, is 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 members which 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.

A resolution in writing signed by or on behalf of all members shall be treated as an

ordinary resolution duly passed at a general meeting of the Company duly convened and

held, and where relevant as a special resolution so passed.

(ii) Voting rights and right to demand a poll

Subject to any special rights, restrictions or privileges as to voting for the time

being attached to any class or classes of shares at any general meeting: (a) 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 share

which is fully paid or credited as fully paid registered in his name in the register of

members of the Company but so that no amount paid up or credited as paid up on a

share in advance of calls or instalments is treated for this purpose as paid up on the

share; and (b) on a show of hands every member who is present in person (or, in the case

of a member being a corporation, by its duly authorised representative) or by proxy shall

have one vote. Where more than one proxy is appointed by a member which is a

Clearing House (as defined in the Articles) or its nominee(s), each such proxy shall have

one vote on a show of hands. On a poll, a member entitled to more than one vote need

not use all his votes or cast all the votes he does use in the same way.

At any general meeting a resolution put to the vote of the meeting is to be decided

by poll save that the chairman of the meeting may, pursuant to the Listing Rules, allow a

resolution to be voted on by a show of hands. Where a show of hands is allowed, before

or on the declaration of the result of the show of hands, a poll may be demanded by (in

each case by members present in person or by proxy or by a duly authorised corporate

representative):

(A) at least two members;

(B) any member or members representing not less than one-tenth of the total

voting rights of all the members having the right to vote at the meeting; or


– III-12 –


(C) a member or members holding shares in the Company conferring a right to

vote at the meeting on which an aggregate sum has been paid equal to not less

than one-tenth of the total sum paid up on all the shares conferring that right.

Should a Clearing House or its nominee(s) be a member of the Company, such

person or persons may be authorised 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 in accordance with this provision shall be deemed to have been duly

authorised without further evidence of the facts and be entitled to exercise the same

rights and powers on behalf of the Clearing House or its nominee(s) as if such person

were an individual member including the right to vote individually on a show of hands.

Where the Company has knowledge that any member is, under the Listing Rules,

required to abstain from voting on any particular resolution or restricted to voting only

for or only against any particular resolution, any votes cast by or on behalf of such

member in contravention of such requirement or restriction shall not be counted.

(iii) Annual general meetings

The Company must hold an annual general meeting each year. Such meeting must

be held not more than 15 months after the holding of the last preceding annual general

meeting, or such longer period as may be authorised by the Stock Exchange at such time

and place as may be determined by the Board.

(iv) Notices of meetings and business to be conducted

An annual general meeting of the Company shall be called by at least 21 days’

notice in writing, and any other general meeting of the Company shall be called by at

least 14 days’ notice in writing. The notice shall be exclusive of the day on which it is

served or deemed to be served and of the day for which it is given, and must specify the

time, place and agenda of the meeting and particulars of the resolution(s) to be

considered at that meeting and, in the case of special business, the general nature of that

business.

Except where otherwise expressly stated, any notice or document (including a share

certificate) to be given or issued under the Articles shall be in writing, and may be

served by the Company on any member personally, by post to such member’s registered

address or (in the case of a notice) by advertisement in the newspapers. Any member

whose registered address is outside Hong Kong may notify the Company in writing of an

address in Hong Kong which shall be deemed to be his registered address for this


– III-13 –


purpose. Subject to the Cayman Companies Law and the Listing Rules, a notice or

document may also be served or delivered by the Company to any member by electronic

means.

Although a meeting of the Company may be called by shorter notice than as

specified above, such meeting may be deemed to have been duly called if it is so agreed:

(i) in the case of an annual general meeting, by all members of the Company

entitled to attend and vote thereat; and

(ii) 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 holding not less than 95% of

the total voting rights in the Company.

All business transacted at an extraordinary general meeting shall be deemed special

business. All business shall also be deemed special business where it is transacted at an

annual general meeting, with the exception of certain routine matters which shall be

deemed ordinary business.

(v) 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, and continues to be present until the conclusion

of the meeting.

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.

(vi) 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 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


– III-14 –


acts as proxy as such member could exercise if it were an individual member. On a poll

or on a show of hands, votes may be given either personally (or, in the case of a member

being a corporation, by its duly authorized representative) or by proxy.

The instrument appointing a proxy shall be in writing under the hand of the

appointor or of his attorney duly authorised in writing, or if the appointor is a

corporation, either under seal or under the hand of a duly authorised officer or attorney.

Every instrument of proxy, whether for a specified meeting or otherwise, shall be in such

form as the Board may from time to time approve, provided that it shall not preclude the

use of the two-way form. Any form issued to a member for appointing a proxy to attend

and vote at an extraordinary general meeting or at an annual general meeting at which

any business is to be transacted shall be such as to enable the member, according to his

intentions, to instruct the proxy to vote in favour of or against (or, in default of

instructions, to exercise his discretion in respect of) each resolution dealing with any

such business.

(f) Accounts and audit

The Board shall cause proper books of account to be kept of the sums of money received

and expended by the Company, and of the assets and liabilities of the Company and of all

other matters required by the Cayman Companies Law (which include all sales and purchases

of goods by the company) necessary to give a true and fair view of the state of the Company’s

affairs and to show and explain its transactions.

The books of accounts of the Company shall be kept at the head office of the Company

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

account, book or document of the Company except as conferred by the Cayman Companies

Law or ordered by a court of competent jurisdiction or authorised by the Board or the

Company in general meeting.

The Board shall from time to time cause to be prepared and laid before the Company at

its annual general meeting balance sheets and profit and loss accounts (including every

document required by law to be annexed thereto), together with a copy of the Directors’ report

and a copy of the auditors’ report, not less than 21 days before the date of the annual general

meeting. Copies of these documents shall be sent to every person entitled to receive notices of

general meetings of the Company under the provisions of the Articles together with the notice

of annual general meeting, not less than 21 days before the date of the meeting.

Subject to the rules of the stock exchange of the Relevant Territory (as defined in the

Articles), the Company may send summarized financial statements to shareholders who have,

in accordance with the rules of the stock exchange of the Relevant Territory, consented and

elected to receive summarized financial statements instead of the full financial statements. The

summarized financial statements must be accompanied by any other documents as may be


– III-15 –


required under the rules of the stock exchange of the Relevant Territory, and must be sent to

those shareholders that have consented and elected to receive the summarised financial

statements not less than 21 days before the general meeting.

The Company shall appoint auditor(s) to hold office until the conclusion of the next

annual general meeting on such terms and with such duties as may be agreed with the Board.

The auditors’ remuneration shall be fixed by the Company in general meeting or by the Board

if authority is so delegated by the members.

The auditors shall audit the financial statements of the Company in accordance with

generally accepted accounting principles of Hong Kong, the International Accounting

Standards or such other standards as may be permitted by the Stock Exchange.

(g) Dividends and other methods of distribution

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.

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 of which the dividend is paid, although no amount paid up on a

share in advance of calls shall for this purpose be treated as paid up on the share;

(ii) all dividends shall be apportioned and paid pro rata in accordance with the amount

paid up on the shares during any portion(s) of the period in respect of which the

dividend is paid; and

(iii) the Board may deduct from any dividend or other monies payable to any member

all sums of money (if any) presently payable by him to the Company on account of

calls, instalments or otherwise.

Where the Board or the Company in general meeting has resolved that a dividend should

be paid or declared, the Board may resolve:

(aa) that such dividend be satisfied wholly or in part in the form of an allotment of

shares credited as fully paid up, provided that the members entitled to such

dividend will be entitled to elect to receive such dividend (or part thereof) in cash

in lieu of such allotment; or

(bb) that the members 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.


– III-16 –


Upon the recommendation of the Board, the Company may by ordinary resolution in

respect of any one particular dividend of the Company determine that it may be satisfied

wholly in the form of an allotment of shares credited as fully paid up without offering any

right to members to elect to receive such dividend in cash in lieu of such allotment.

Any dividend, bonus or other sum payable in cash to the holder of shares may be paid by

cheque or warrant sent through the post. Every such cheque or warrant shall be made payable

to the order of the person to whom it is sent and shall be sent at the holder’s or joint holders’

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 monies 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.

The Board may, if it thinks fit, receive from any member willing to advance the same,

and either in money or money’s worth, all or any part of the money uncalled and unpaid or

instalments payable upon any shares held by him, and in respect of all or any of the monies so

advanced may pay interest at such rate (if any) not exceeding 20% per annum, as the Board

may decide, but a payment in advance of a call shall not entitle the member to receive any

dividend or to exercise any other rights or privileges as a member in respect of the share or

the due portion of the shares upon which payment has been advanced by such member before

it is called up.

All dividends, bonuses or other distributions unclaimed for one year after having been

declared may be invested or otherwise used 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,

bonuses or other distributions unclaimed for six years after having been declared may be

forfeited by the Board and, upon such forfeiture, 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.

The Company may exercise the power to cease sending cheques for dividend entitlements

or dividend warrants by post if such cheques or warrants remain uncashed on two consecutive

occasions or after the first occasion on which such a cheque or warrant is returned

undelivered.


– III-17 –


(g) Inspection of corporate records

For so long as any part of the share capital of the Company is listed on the Stock

Exchange, any member may inspect any register of members of the Company maintained in

Hong Kong (except when the register of members is closed) without charge and require the

provision to him of copies or extracts of such register in all respects as if the Company were

incorporated under and were subject to the Hong Kong Companies Ordinance.

(h) Rights of minorities in relation to fraud or oppression

There are no provisions in the Articles concerning the rights of minority members in

relation to fraud or oppression. However, certain remedies may be available to members of the

Company under Cayman Islands law, as summarized in paragraph 3(f) of this Appendix.

(i) 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 is wound up and the assets available for distribution among the

members of the Company are more than sufficient to repay the whole of the capital

paid up at the commencement of the winding up, then the excess shall be

distributed pari passu among such members in proportion to the amount paid up on

the shares held by them respectively; and

(ii) if the Company is wound up and the assets available for distribution among the

members as such are 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 on the shares held by them,

respectively.

If the Company is wound up (whether the liquidation is voluntary or compelled by the

court), the liquidator may, with the sanction of a special resolution and any other sanction

required by the Cayman Companies Law, divide among the members in specie or kind the

whole or any part of the assets of the Company, whether the assets consist of property of one

kind or 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 so divided and may determine

how such division shall be carried out as between the members or different classes of

members and the members within each class. The liquidator may, with the like sanction, vest


– III-18 –


any part of the assets in trustees upon such trusts for the benefit of members as the liquidator

thinks fit, but so that no member shall be compelled to accept any shares or other property

upon which there is a liability.

(j) Subscription rights reserve

Provided that it is not prohibited by and is otherwise in compliance with the Cayman

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 the shares to be issued on the

exercise of such warrants, a subscription rights reserve shall be established and applied in

paying up the difference between the subscription price and the par value of such shares.

3. CAYMAN ISLANDS COMPANY LAW

The Company was incorporated in the Cayman Islands as an exempted company on 27 May

2015 subject to the Cayman Companies Law. Certain provisions of Cayman Islands company law

are set out below but this section does not purport to contain all applicable qualifications and

exceptions or to be a complete review of all matters of the Cayman Companies Law and taxation,

which may differ from equivalent provisions in jurisdictions with which interested parties may be

more familiar.

(a) Company operations

An exempted company such as the Company must conduct its operations mainly outside

the Cayman Islands. An exempted company is also 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.


– III-19 –


(b) Share capital

Under Cayman Companies Law, a Cayman Islands company may issue ordinary,

preference or redeemable shares or any combination thereof. Where a company issues shares

at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or 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 arrangements in consideration of the

acquisition or cancellation of shares in any other company and issued at a premium. The share

premium account may be applied by the company subject to the provisions, if any, of its

memorandum and articles of association, in such manner as the company may from time to

time determine including, but without limitation, the following:

(i) paying distributions or dividends to members;

(ii) paying up unissued shares of the company to be issued to members as fully paid

bonus shares;

(iii) any manner provided in section 37 of the Cayman Companies Law;

(iv) writing-off the preliminary expenses of the company; and

(v) writing-off the expenses of, or the commission paid or discount allowed on, any

issue of shares or debentures of the company.

Notwithstanding the foregoing, 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 of business.

Subject to confirmation by the court, a company limited by shares or a company limited

by guarantee and having a share capital may, if authorised to do so by its articles of

association, by special resolution reduce its share capital in any way.

(c) Financial assistance to purchase shares of a company or its holding company

There are no statutory prohibitions in the Cayman Islands on the granting of financial

assistance by a company to another person for the purchase of, or subscription for, its own, its

holding company’s or a subsidiary’s shares. Therefore, a company may provide financial

assistance provided the directors of the company, when proposing to grant such financial

assistance, discharge their duties of care and act in good faith, for a proper purpose and in the

interests of the company. Such assistance should be on an arm’s-length basis.


– III-20 –


(d) Purchase of shares and warrants by a company and its subsidiaries

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 member and, for the

avoidance of doubt, 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; an ordinary resolution of the company approving the manner and terms of

the purchase will be required if the articles of association do not authorise the manner and

terms of such purchase. A company may not redeem or purchase its shares unless they are

fully paid. Furthermore, 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 treasury shares. In addition, 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 that have been purchased or redeemed by a company or surrendered to the

company shall not be treated as cancelled but shall be classified as treasury shares if held in

compliance with the requirements of Section 37A(1) of the Cayman Companies Law. Any

such shares shall continue to be classified as treasury shares until such shares are either

cancelled or transferred pursuant to the Cayman Companies Law.

A Cayman Islands company may be able to purchase its own warrants subject to and in

accordance with the terms and conditions of the relevant warrant instrument or certificate.

Thus there is no requirement under Cayman Islands law that a company’s memorandum or

articles of association contain a specific provision enabling such purchases. The directors of a

company may under the general power contained in its memorandum of association be able to

buy, sell and deal in personal property of all kinds.

A subsidiary may hold shares in its holding company and, in certain circumstances, may

acquire such shares.

(e) Dividends and distributions

Subject to a solvency test, as prescribed in the Cayman Companies Law, and the

provisions, if any, of the company’s memorandum and articles of association, a company may

pay dividends and distributions out of its share premium account. In addition, based upon

English case law which is likely to be persuasive in the Cayman Islands, dividends may be

paid out of profits.


– III-21 –


For so long as a company holds treasury shares, 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, in respect of a treasury

share.

(f) Protection of minorities and shareholders’ suits

It can be expected that the Cayman Islands courts will ordinarily follow English case law

precedents (particularly the rule in the case of Foss v. Harbottle and the exceptions to that

rule) which permit a minority member to commence a representative action against or

derivative actions in the name of the company to challenge acts which are ultra vires, illegal,

fraudulent (and performed by those in control of the Company) against the minority, or

represent an irregularity in the passing of a resolution which requires a qualified (or special)

majority which has not been obtained.

Where a company (not being a bank) is one which has 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 the affairs of the company

and, at the direction of the court, to report on such affairs. In addition, any member 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.

In general, claims against a company by its members must be based on the general laws

of contract or tort applicable in the Cayman Islands or be based on potential violation of their

individual rights as members as established by a company’s memorandum and articles of

association.

(g) Disposal of assets

There are no specific restrictions on the power of directors to dispose of assets of a

company, however, the directors are expected to exercise certain duties of care, diligence and

skill to the standard that a reasonably prudent person would exercise in comparable

circumstances, in addition to fiduciary duties to act in good faith, for proper purpose and in

the best interests of the company under English common law (which the Cayman Islands

courts will ordinarily follow).

(h) Accounting and auditing requirements

A company must cause proper records of accounts to be kept with respect to: (i) all sums

of money received and expended by it; (ii) all sales and purchases of goods by it and (iii) its

assets and liabilities.


– III-22 –


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.

If a company keeps its books of account at any place other than at its registered office or

any other place within the Cayman Islands, it shall, upon service of an order or notice by the

Tax Information Authority pursuant to the Tax Information Authority Law (2013 Revision) of

the Cayman Islands, make available, in electronic form or any other medium, at its registered

office copies of its books of account, or any part or parts thereof, as are specified in such

order or notice.

(i) Exchange control

There are no exchange control regulations or currency restrictions in effect 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 that:

(i) no law which is enacted in the Cayman Islands imposing any tax to be levied on

profits or income or gains or appreciation shall apply to the Company or its

operations; and

(ii) no tax be levied on profits, income gains or appreciations or which is in the nature

of estate duty or inheritance tax shall be payable by the Company:

(aa) on or in respect of the shares, debentures or other obligations of the Company;

or

(bb) by way of withholding in whole or in part of any relevant payment as defined

in section 6(3) of the Tax Concessions Law (2011 Revision).

The undertaking for the Company is for a period of 20 years from 16 June 2015.

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 for certain stamp duties which may be applicable,

from time to time, on certain instruments.


– III-23 –


(k) Stamp duty on transfers

No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman

Islands companies save for those which hold interests in land in the Cayman Islands.

(l) Loans to directors

There is no express provision prohibiting the making of loans by a company to any of its

directors. However, the company’s articles of association may provide for the prohibition of

such loans under specific circumstances.

(m) Inspection of corporate records

The members of a company have no general right 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 of association.

(n) Register of members

A Cayman Islands exempted company may maintain its principal register of members

and any branch registers in any country or territory, whether within or outside the Cayman

Islands, as the company may determine from time to time. There is no requirement for an

exempted company to make any returns of members to the Registrar of Companies in 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 member, 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 (2013 Revision) of the Cayman Islands.

(o) Register of Directors and officers

Pursuant to the Cayman Companies Law, the Company is required to maintain at its

registered office a register of directors, alternate 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 60

days of any change in such directors or officers, including a change of the name of such

directors or officers.

(p) Winding up

A Cayman Islands company may be wound up by: (i) an order of the court; (ii)

voluntarily by its members; or (iii) under the supervision of the court.


– III-24 –


The court has authority to order winding up in a number of specified circumstances

including where, in the opinion of the court, it is just and equitable that such company be so

wound up.

A voluntary winding up of a company (other than a limited duration company, for which

specific rules apply) occurs where the company resolves by special resolution that it be wound

up voluntarily or where the company in general meeting resolves that it be wound up

voluntarily because it is unable to pay its debt as they fall due. In the case of a voluntary

winding up, the company is obliged to cease to carry on its business from the commencement

of its winding up except so far as it may be beneficial for its winding up. Upon appointment

of a voluntary liquidator, all the powers of the directors cease, except so far as the company in

general meeting or the liquidator sanctions their continuance.

In the case of a members’ voluntary winding up of a company, one or more liquidators

are appointed for the purpose of winding up the affairs of the company and distributing its

assets.

As soon as the affairs of a company are fully wound up, the liquidator must make a

report and an account of the winding up, showing how the winding up has been conducted and

the property of the company disposed of, and call a general meeting of the company for the

purposes of laying before it the account and giving an explanation of that account.

When a resolution has been passed by a company to wind up voluntarily, the liquidator

or any contributory or creditor may apply to the court for an order for the continuation of the

winding up under the supervision of the court, on the grounds that: (i) the company is or is

likely to become insolvent; or (ii) the supervision of the court will facilitate a more effective,

economic or expeditious liquidation of the company in the interests of the contributories and

creditors. A supervision order takes effect for all purposes as if it was an order that the

company be wound up by the court except that a commenced voluntary winding up and the

prior actions of the voluntary liquidator shall be valid and binding upon the company and its

official liquidator.

For the purpose of conducting the proceedings in winding up a company and assisting

the court, one or more persons may be appointed to be called an official liquidator(s).The

court may appoint to such office such person or persons, either provisionally or otherwise, as

it thinks fit, and if more than one person is appointed to such office, the court shall declare

whether any act required or authorized to be done by the official liquidator is to be done by

all or 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.


– III-25 –


(q) Reconstructions

Reconstructions and amalgamations may be approved by a majority in number

representing 75% in value of the members or creditors, depending on the circumstances, as

are present at a meeting called for such purpose and thereafter sanctioned by the courts.

Whilst a dissenting member has the right to express to the court his view that the transaction

for which approval is being sought would not provide the members with a fair value for their

shares, the courts are unlikely to disapprove the transaction on that ground alone in the

absence of evidence of fraud or bad faith on behalf of management, and if the transaction

were approved and consummated the dissenting member would have no rights comparable to

the appraisal rights (i.e. the right to receive payment in cash for the judicially determined

value of their shares) ordinarily available, for example, to dissenting members of a United

States corporation.

(r) Take-overs

Where an offer is made by a company for the shares of another company and, within

four months of the offer, the holders of not less than 90% of the shares which are the subject

of the offer accept, the offeror may, at any time within two months after the expiration of that

four-month period, by notice require the dissenting members to transfer their shares on the

terms of the offer. A dissenting member may apply to the Cayman Islands courts within one

month of the notice objecting to the transfer. The burden is on the dissenting member 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 members.

(s) 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, save to the extent any

such provision may be held by the court to be contrary to public policy, for example, where a

provision purports to provide indemnification against the consequences of committing a crime.

4. GENERAL

Appleby, the Company’s legal adviser on Cayman Islands law, has sent to the Company a

letter of advice which summarises certain aspects of the Companies Law. This letter, together with

a copy of the Companies Law, is available for inspection as referred to in the paragraph headed

‘‘Documents Available for Inspection’’ in Appendix V to this [REDACTED]. Any person wishing

to have a detailed summary of Companies Law or advice on the differences between it and the laws

of any jurisdiction with which he/she is more familiar is recommended to seek independent legal

advice.


– III-26 –


A. FURTHER INFORMATION ABOUT OUR COMPANY

1. Incorporation

Our Company was incorporated in the Cayman Islands under the Companies Law as an

exempted company with limited liability on 27 May 2015. Our Company has established a

principal place of business in Hong Kong at Rooms 2401–02, 24th Floor, Jubilee Centre, 46

Gloucester Road, Wanchai, Hong Kong and was registered as a non-Hong Kong company in

Hong Kong under Part 16 of the Companies Ordinance on 31 July 2015. Chan Wing Kin, of

8th Floor, Wah On Court, 292 Ma Tau Wai Road, To Kwa Wan, Kowloon, Hong Kong has

been appointed as an authorised representative of our Company for the acceptance of service

of process and notices on behalf of our Company in Hong Kong.

As our Company is incorporated in the Cayman Islands, it is subject to the Companies

Law and its constitution documents comprise the Memorandum of Association and the Articles

of Association. A summary of various parts of the constitution documents and relevant aspects

of the Companies Law is set out in Appendix III to this [REDACTED].

2. Changes in share capital of our Company

(a) Our Company was incorporated in the Cayman Islands under the Companies Law as

an exempted company with limited liability on 27 May 2015 with an authorised

share capital of HK$100,000,000 divided into 10,000,000,000 Shares of HK$0.01

each. As at the date of incorporation, one subscriber Share was allotted and issued

as fully paid to an initial subscriber, which was transferred to Bigfair Enterprises on

the same date. On 27 May 2015, our Company further allotted and issued as fully

paid 329 Shares to Bigfair Enterprises, 335 Shares to First Global and 335 Shares

to Star Eagle.

(b) Immediately following completion of the [REDACTED] and the Capitalisation Issue

(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), the

authorised share capital of our Company will be HK$100,000,000 divided into

10,000,000,000 Shares and the issued share capital of our Company will be

HK$[REDACTED] divided into [REDACTED] Shares, all fully paid or credited as

fully paid, with [REDACTED] Shares remaining unissued. Other than the Shares

issuable pursuant to the exercise of any options which may fall to be granted under

the Share Option Scheme, or the exercise of the general mandate referred to in the

paragraph headed ‘‘A. Further information about our Company — 3. Written

resolutions of the Shareholders’’ in this Appendix, our Directors have no present

intention to issue any part of the authorised but unissued 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.

APPENDIX IV STATUTORY AND GENERAL INFORMATION

– IV-1 –


(c) Save as disclosed above, there has been no alteration in the share capital of our

Company since the date of its incorporation.

3. Written resolutions of the Shareholders

Pursuant to the written resolutions passed by all Shareholders on [.] 2016, inter alia:

(a) conditional on (i) the Listing Committee granting the [REDACTED] of, and

permission to [REDACTED] in, the Shares in issue and to be issued as mentioned

in this [REDACTED] including any Shares which may be issued pursuant to the

exercise of any options which may be granted under the Share Option Scheme and

any Shares to be issued under the Capitalisation Issue; and (ii) the obligations of

the Underwriters under the Underwriting Agreements becoming unconditional

(including the waiver of any condition(s) by the Sole Sponsor and the

[REDACTED] (for themselves and on behalf of the Underwriters)) and the

Underwriting Agreements not being terminated in accordance with its terms or

otherwise prior to 8:00 a.m. (Hong Kong time) on the [REDACTED] ((i) and (ii)

shall collectively be referred to as the ‘‘Conditions’’):

(i) the [REDACTED] was approved and our Directors or any committee of the

Board were authorised to (aa) allot and issue the [REDACTED] pursuant to

the [REDACTED] to rank pari passu with the then existing Shares in all

respects; (bb) implement the [REDACTED] and the [REDACTED] of Shares

on GEM; and (cc) do all things and execute all documents in connection with

or incidental to the [REDACTED] and the [REDACTED] with such

amendments or modifications (if any) as our Directors may consider necessary

or appropriate;

(ii) conditional on the share premium account of our Company being credited as a

result of the allotment and issue of the [REDACTED] pursuant to the

[REDACTED], our Directors were authorised to capitalise a maximum amount

of HK$[REDACTED] standing to the credit of the share premium account of

our Company and to apply such amount in paying up in full at par an

aggregate of [REDACTED] Shares for allotment and issue, credited as fully

paid at par and rank pari passu in all respects with each other and the existing

issued Shares (except entitlement to the Capitalisation Issue), to Bigfair

Enterprises, First Global and Star Eagle, and our Directors were authorised to

give effect to such capitalisation and distribution;

(iii) the rules of the Share Option Scheme, the principal terms of which are set out

in the paragraph headed ‘‘D. Share Option Scheme — 1. Share Option

Scheme’’ in this Appendix, were approved and adopted and our Directors or

any committee of the Board were authorised, subject to the terms and

conditions of the Share Option Scheme, to implement the Share Option

Scheme, to grant options to subscribe for Shares thereunder and to allot, issue


– IV-2 –


and deal with the Shares pursuant to the exercise of options that may be

granted under the Share Option Scheme and to take all such steps as may be

necessary, desirable or expedient to implement the Share Option Scheme;

(b) conditional upon fulfilment of the Conditions:

(i) a general unconditional mandate was given to our Directors to exercise all the

powers of our Company to allot, issue and deal with, otherwise than by way of

rights issues or an issue of Shares upon the exercise of any subscription rights

attached to any warrants of our Company or pursuant to the exercise of any

options which may be granted under the Share Option Scheme or under any

other option scheme or similar arrangement for the time being adopted for the

grant or issue to officers and/or employees of our Company and/or any of the

subsidiaries of shares or rights to acquire shares or any scrip dividend schemes

or similar arrangements providing for the allotment and issue of shares of our

Company in lieu of the whole or part of a dividend on Shares in accordance

with the Articles of Association or a specific authority granted by the

Shareholders in general meeting, Shares with a total nominal value not

exceeding (aa) 20% of the aggregate of the total nominal value of the share

capital of our Company in issue immediately following completion of the

Capitalisation Issue and the [REDACTED] (without taking into account any

Shares falling to be issued pursuant to the exercise of any options which may

be granted under the Share Option Scheme); and (bb) the aggregate nominal

value of shares repurchased under the Repurchase Mandate as defined in

paragraph (ii) below. Such mandate shall remain in effect until whichever is

the earliest of:

(1) the conclusion of the next annual general meeting of our Company;

(2) the expiration of the period within which the next annual general meeting

of our Company is required to be held by the Articles of Association or

any other applicable laws of the Cayman Islands; or

(3) the passing of an ordinary resolution of the Shareholders in general

meeting revoking, varying or renewing such mandate;


– IV-3 –


(ii) a general unconditional mandate (the ‘‘Repurchase Mandate’’) was given to

our Directors to exercise all powers of our Company to repurchase on the

Stock Exchange or on any other stock exchange on which the securities of our

Company may be listed and which is recognised by the SFC and the Stock

Exchange for this purpose, such number of Shares as will represent up to 10%

of the aggregate of the total nominal value of the share capital of our

Company in issue immediately following the completion of the Capitalisation

Issue and the [REDACTED] (without taking into account any Shares falling to

be issued pursuant to the exercise of any options which may be granted under

the Share Option Scheme), such mandate shall remain in effect until whichever

is the earliest of:

(1) the conclusion of the next annual general meeting of our Company;

(2) the expiration of the period within which the next annual general meeting

of our Company is required to be held by the Articles of Association or

any other applicable laws of the Cayman Islands; or

(3) the passing of an ordinary resolution of the Shareholders in general

meeting revoking, varying or renewing such mandate;

(iii) the general unconditional mandate mentioned in paragraph (i) above was

extended by the addition to the aggregate nominal value of the share capital of

our Company which may be allotted or agreed conditionally or unconditionally

to be allotted, issued or dealt with by our Directors pursuant to such general

mandate of an amount representing the aggregate nominal value of the share

capital of our Company repurchased by our Company pursuant to the

Repurchase Mandate referred to in paragraph (ii) above provided that such

extended amount shall not exceed 10% of the total nominal value of the share

capital of our Company in issue immediately following the completion of the

[REDACTED] and the Capitalisation Issue (excluding any Shares which may

be issued upon exercise of any options that may be granted under the Share

Option Scheme); and

(iv) our Company approved and adopted the Memorandum of Association and

Articles of Association, the terms of which are summarised in Appendix III to

this [REDACTED], with effect upon the [REDACTED].

4. Reorganisation

The companies comprising our Group underwent a Reorganisation in preparation for the

[REDACTED], details of which are set out in the section headed ‘‘History, Reorganisation and

Corporate Structure — Reorganisation’’ in this [REDACTED]. Following the Reorganisation,

our Company became the holding company of our Group.


– IV-4 –


Diagrams showing our Group’s structure after the Reorganisation and immediately upon

completion of the Capitalisation Issue and the [REDACTED] (assuming that no Share has

been issued pursuant to the exercise of any option which may be granted under the Share

Option Scheme) are set out in the section headed ‘‘History, Reorganisation and Corporate

Structure — Reorganisation’’ in this [REDACTED].

5. Changes in share capital of subsidiaries

Our Company’s subsidiaries are referred to in the accountant’s report, the text of which is

set out in Appendix I to this [REDACTED].

Save as mentioned in the paragraph headed ‘‘History, Reorganisation and Corporate

Structure — Establishment and development of our Company and its major subsidiaries’’,

there was no change in the share capital of the major subsidiaries of our Company during the

two years preceding the date of this [REDACTED]. Save for the subsidiaries mentioned in

Appendix I to this [REDACTED], our Company has no other subsidiaries.

6. Repurchase by our Company of its own securities

This paragraph contains information required by the Stock Exchange to be included in

this [REDACTED] concerning the repurchase by our Company of its own securities.

(a) Provisions of the GEM Listing Rules

The GEM Listing Rules permit companies with a primary listing on the Stock

Exchange to repurchase their securities on the Stock Exchange subject to certain

restrictions, the most important of which are summarised below:

(i) Shareholders’ approval

All proposed repurchases of securities (which must be fully paid up in the case

of shares) by a company listed on the Stock Exchange must be approved in advance

by an ordinary resolution of the shareholders in a general meeting, either by way of

general mandate or by specific approval of a particular transaction.

Note: Pursuant to the written resolutions passed by the Shareholders on [.] 2016, the

Repurchase Mandate was given to our Directors authorising our Directors to exercise all

powers of our Company to purchase the Shares as described above in the paragraph

headed ‘‘3. Written resolutions of the Shareholders’’ in this Appendix.


– IV-5 –


(ii) Source of funds

Repurchases must be funded out of funds legally available for the purpose in

accordance with the Memorandum and Articles and the GEM Listing Rules and the

applicable laws and regulations of the Cayman Islands. A listed company may not

repurchase its own shares 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.

Any repurchases by our Company may be made out of profits of our Company

or out of the proceeds of a fresh issue of share made for the purpose of the

repurchase or, if authorised by the Articles of Association and subject to the

Companies Law, out of capital and, in case of any premium payable on the

repurchase, out of profits of our Company or from sums standing to the credit of

the share premium accounts of our Company, or if authorised by the Articles of

Association and subject to the Companies Law, out of capital.

(iii) Trading restrictions

A company is authorised to repurchase on the Stock Exchange or on any other

stock exchange recognised by the SFC in Hong Kong and the Stock Exchange the

total number of shares which represent up to a maximum of 10% of the aggregate

nominal value of the existing issued share capital of that company or warrants to

subscribe for shares in that company representing up to 10% of the amount of

warrants then outstanding at the date of the passing of the relevant resolution

granting the repurchase mandate. A company may not issue or announce an issue of

new securities of the type that have been repurchased for a period of 30 days

immediately following a repurchase of securities whether on the Stock Exchange or

otherwise e (other than an issue of securities pursuant to the exercise of warrants,

share options or similar instruments requiring our company to issue securities,

which were outstanding prior to such repurchase) without the prior approval of the

Stock Exchange. A company is also prohibited from making securities repurchase

on the Stock Exchange if the result of the repurchases would be that the number of

the listed securities in hands of the public would be below the relevant prescribed

minimum percentage for that company as required and determined by the Stock

Exchange. A company shall not purchase its shares on the Stock Exchange if the

purchase price is higher by 5% or more than the average closing market price for

the five preceding trading days on which its shares were traded on the Stock

Exchange.


– IV-6 –


(iv) Status of repurchased securities

The listing of all repurchased securities (whether on the Stock Exchange or

otherwise) is automatically cancelled upon the repurchase and the relevant

certificates must be cancelled and destroyed. Under the Cayman Islands law, a

company’s repurchased shares if not held by our company as treasury shares, may

be treated as cancelled and, if so cancelled, the amount of that company’s issued

share capital shall be reduced by the aggregate nominal value of the repurchased

shares accordingly although the authorised share capital of our company will not be

reduced.

(v) Suspension of repurchase

A listed company shall not make any repurchase of securities at any time after

inside information has come to its knowledge until the information is made publicly

available. In particular, during the period of one month immediately preceding the

earlier of: (aa) the date of the board meeting (as such date is first notified to the

Stock Exchange in accordance with the GEM Listing Rules) for the approval of a

listed company’s results for any year, half-year, quarterly or any other interim

period (whether or not required under the GEM Listing Rules) and (bb) the deadline

for publication of an announcement of a listed company’s results for any year or

half-year under the GEM Listing Rules, or quarterly or any other interim period

(whether or not required under the GEM Listing Rules) and ending on the date of

the results announcement, the listed company may not repurchase its shares on the

Stock Exchange other than in exceptional circumstances and provided that a waiver

on all or any of the restrictions under the GEM Listing Rules has been granted by

the Stock Exchange. In addition, the Stock Exchange may prohibit repurchases of

securities on the GEM if a company has breached the GEM Listing Rules.

(vi) Reporting requirements

Repurchases of securities on the Stock Exchange or otherwise must be

reported to the Stock Exchange not later than 30 minutes before the earlier of the

commencement of the morning trading session or any pre-opening session on the

following trading day. In addition, a company’s annual report and accounts are

required to include a monthly breakdown of securities repurchases made during the

financial year under review, showing the number of securities repurchased each

month (whether on the Stock Exchange or otherwise), the purchase price per share

or the highest and lowest prices paid for all such repurchases and the total prices

paid. The directors’ report is also required to contain reference to the purchases

made during the year and the directors’ reasons for making such purchases. Our

company shall make arrangements with its broker who effects the purchase to

provide our company in a timely fashion the necessary information in relation to the

purchase made on behalf of our company to enable our company to report to the

Stock Exchange.


– IV-7 –


(vii) Core connected persons

A listed company is prohibited from knowingly repurchase shares from a core

connected person (as defined in the GEM Listing Rules) and a core connected

person shall not knowingly sell his shares to our Company.

(b) Exercise of the Repurchase Mandate

Exercise in full of the Repurchase Mandate, on the basis of [REDACTED] Shares

in issue immediately after [REDACTED], could accordingly result in up to

[REDACTED] Shares being repurchased by our Company during the period in which the

Repurchase Mandate remains in force.

(c) Reasons for repurchases

Our Directors believe that the ability to repurchase Shares is in the interests of our

Company and the Shareholders. Repurchases may, depending on the market conditions

and funding arrangements, result in an increase in the net assets and/or earning per

Share. Our Directors have sought the grant of a general mandate to repurchase Shares to

give our Company the flexibility to do so if and when appropriate. The number of Shares

to be repurchased on any occasion and the price and other terms upon which the same

are repurchased will be decided by our Directors at the relevant time having regard to the

circumstances then pertaining.

(d) Funding of repurchases

In repurchasing Shares, our Company may only apply funds legally available for

such purpose in accordance with the Memorandum of Association and Articles of

Association and the applicable laws and regulations of the Cayman Islands.

On the basis of the current financial position of our Group as disclosed in this

[REDACTED] and taking into account the current working capital position of our Group,

our Directors consider that, if the Repurchase Mandate was to be exercised in full, it

might have a material adverse effect on the working capital and/or the gearing position

of our Group as compared with the position disclosed in this [REDACTED]. 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 the working capital

requirements of our Group or the gearing levels which in the opinion of our Directors are

from time to time appropriate for our Group.

(e) 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.


– IV-8 –


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, the Memorandum and Articles and the applicable laws of the Cayman

Islands.

No core connected person of our Company has notified our Company that he or she

has a present intention to sell Shares to our Company, or has undertaken not to do so, in

the event that the Repurchase Mandate is exercised.

If as a result of a repurchase of Shares, 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. As a result, a Shareholder, or a group of

Shareholders acting in concert, depending on the level of increase in the Shareholder’s

interest, could obtain or consolidate control of our Company and become(s) 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 consequence which would arise under the

Takeovers Code due to any repurchase made pursuant to the Repurchase Mandate

immediately after the [REDACTED].

B. FURTHER INFORMATION ABOUT THE BUSINESS OF OUR GROUP

1. Summary of material contracts

The following contracts (not being contracts entered into the ordinary course of business

of our Group) have been entered into by members of our Group within the two years

immediately preceding the date of this [REDACTED] that are or may be material:

(a) an equity transfer agreement dated 18 November 2014 entered into between Zhuhai

Wenjian and HongGuang Hong Kong pursuant to which Zhuhai Wenjian agreed to

transfer 67.0% equity interest in Zhuhai HongGuang at the consideration of

RMB13,011,200;

(b) an equity transfer agreement dated 18 November 2014 entered into between Mr.

Chow and HongGuang Hong Kong pursuant to which Mr. Chow agreed to transfer

33.0% equity interest in Zhuhai HongGuang at the consideration of RMB6,408,500;

(c) an equity transfer agreement dated 28 March 2016 entered into between Zhuhai

HongGuang and an Independent Third Party pursuant to which Zhuhai HongGuang

agreed to transfer the entire equity interest in Zhuhai Henggin at nil consideration;

(d) the Deed of Indemnity;

(e) the Deed of Non-Competition; and

(f) the Underwriting Agreement.


– IV-9 –


2. Intellectual property rights of our Group

(a) Trademarks

As at the Latest Practicable Date, our Group had registered the following

trademarks in Hong Kong:

TrademarkRegistration

number Name of registered ownerClass(Note) Expiry date

303269142 HongGuang Hong

Kong

11, 38 14 January 2025

Notes:

Class 11 — Apparatus for lighting, heating purposes.

Class 38 — Telecommunications.

As at the Latest Practicable Date, our Group had registered the following trademark

in the PRC:

TrademarkRegistration

number Name of registered ownerClass(Note) Expiry date

12743040 Zhuhai HongGuang 11 27 October 2024

Note:

Class 11: Apparatus for lighting, heating, steam generating, cooking, refrigerating, drying, ventilating

water supply and sanitary purposes.


– IV-10 –


As at the Latest Practicable Date, our Group had applied for registration of the

following trademarks in PRC:

TrademarkApplication

number Name of applicantClass

(Note 1) Date of application

(Note 2)11943616 Zhuhai HongGuang 11 30 June 2015

16417099 Zhuhai HongGuang 11 27 February 2015

Notes:

1. Class 11: Apparatus for lighting, heating, steam generating, cooking, refrigerating, drying,

ventilating water supply and sanitary purposes.

2. The trademark was registered in the name of France Pecker Wood Stock Limited, an Independent

Third Party. Pursuant to a trademark transfer agreement dated 12 December 2014, Zhuhai

HongGuang engaged an agent to handle the transfer of the ownership of the trademark to Zhuhai

HongGuang. Such transfer is subject to the registration procedure with the Trademark Office of

the State Administration for Industry and Commerce under the PRC laws and regulations and

such registration has not been completed as of the Latest Practicable Date.

(b) Domain name

As at the Latest Practicable Date, our Group had registered the following domain

name:

Domain name Registrant Commencement date Expiry date

lighting-hg.com Zhuhai HongGuang 16 April 2010 16 April 2020

(c) Patents

As at the Latest Practicable Date, our Group is the registered proprietor of the

following patents in the PRC:

Patent Type Patent number Application date Expiration date Patent holder

A LED light

(一種LED燈)

Utility Patent ZL201420767921.6 9 December 2014 8 December 2024 Zhuhai

HongGuang

A LED spotlight (一種

LED射燈)


HongGuang

A LED candlelight (一

種LED蠟燭燈)


HongGuang


– IV-11 –


Patent Type Patent number Application date Expiration date Patent holder

A LED surface-mounted

downlights

(一種LED明裝

筒燈)


HongGuang

A LED bulb with heat

radiating fins

installed (一種散熱翅

內置LED球泡燈)


HongGuang

A LED light (一種LED

燈)


HongGuang

A LED lamp fixture (一

種LED燈頭治具)


HongGuang

A LED lamp fixture (一

種LED燈具治具)


HongGuang

Heat radiating and water

resisting LED

package

(散熱防水式LED封

裝) (Note 1)

Utility Patent 201320715320.6 9 November 2013 8 November 2023 Zhuhai

HongGuang

A surface-mounted-

device LED structure

一種LED貼片結構

(Note 2)

Utility Patent 201420123646.4 18 March 2014 17 March 2024 Zhuhai

HongGuang

A device for inspection

of the LED solid

crystal wire (一種用

於LED固晶焊線檢驗

的裝置)

Utility Patent ZL201520624550.0 18 August 2015 17 August 2025 Zhuhai

HongGuang

A device for cleaning

plastic seat screw

dispensing needle (一

種點膠針頭清洗裝

置)


HongGuang

A cleaning stand (一種

清洗支架)


HongGuang

LED packaging

structure 發光二極管

封裝結構

(Note 3)

Invention 201110179310.0 29 June 2011 28 June 2031 Zhuhai

HongGuang

A plastic dispensing

syringe (一種點膠針

筒)


HongGuang


– IV-12 –


Notes:

1. The patent was registered in the name of Mr. Liang Wenhui, an Independent Third Party.

Pursuant to a patent transfer agreement dated 27 July 2015, Guangzhou Bo’ao Zongheng

Network Technology Co., Ltd., an agent of Mr. Liang Wenhui transferred the ownership of the

patent to Zhuhai HongGuang. The patent has been officially recorded with the State Intellectual

Property Office to have been assigned to Zhuhai HongGuang on 20 August 2015.

2. The patent was registered in the name of Ms. Feng Hongmei, an Independent Third Party.

Pursuant to a patent transfer agreement dated 27 July 2015, Guangzhou Bo’ao Zongheng

Network Technology Co., Ltd., an agent of Ms. Feng Hongmei transferred the ownership of the

patent to Zhuhai HongGuang. The patent has been officially recorded with the State Intellectual

Property Office to have been assigned to Zhuhai HongGuang on 24 August 2015.

3. The patent was registered in the name of ScienBiziP Consulting (Shen Zhen) Co., Ltd, an

Independent Third Party. Pursuant to a patent transfer agreement dated 27 July 2015, Guangzhou

Bo’ao Zongheng Network Technology Co., Ltd., an agent of ScienBiziP Consulting (Shen Zhen)

Co., Ltd transferred the ownership of the patent to Zhuhai HongGuang. The patent has been

officially recorded with the State Intellectual Property Office to have been assigned to Zhuhai

HongGuang on 14 September 2015.

As at the Latest Practicable Date, our Group had applied for registration of the

following patents in the PRC:

Patent TypeApplicationnumber Applicant

Date ofapplication

A plastic dispensing

syringe 一種點膠針

筒

Invention 201510511070.8 Zhuhai

HongGuang

18 August 2015

Save as disclosed herein, there are no other trade or service marks, patents,

copyrights, other intellectual or industrial property rights which are or may be material to

the business of our Group.


– IV-13 –


C. FURTHER INFORMATION ABOUT DIRECTORS, MANAGEMENT AND STAFF

1. Directors

(a) Disclosure of interests of Directors

So far as our Directors are aware, immediately following completion of the

Capitalisation Issue and the [REDACTED] and, without taking into account the Shares

which may be issued pursuant to the exercise of any option which may be granted under

the Share Option Scheme, the interests and short positions of our Directors and chief

executive of our Company in the Shares, underlying shares and debentures of our

Company or any associated corporation (within the meaning of Part XV of the SFO)

which will have to be notified to our Company and the Stock Exchange pursuant to

Divisions 7 and 8 of Part XV of the SFO (including interests and short positions in

which they are taken or deemed to have taken under such provisions), or which will be

required, pursuant to section 352 of the SFO, to be entered in the register referred to

therein or which will be required to be notified to our Company and the Stock Exchange

pursuant to Rules 5.46 and 5.67 of the GEM Listing Rules, will be as follows:

(i) Long position in the Shares

Name of Director CapacityNumber and class

of securitiesPercentage ofshareholding

Mr. KS Chiu

(Notes 1, 2)

Interest in a controlled

corporation; interest

held jointly with

another person

[REDACTED]

ordinary Shares

[REDACTED]%

Mr. Lin

(Notes 1, 3)



held jointly with

another person

[REDACTED]

ordinary Shares

[REDACTED]%

Mr. YW Zhao

(Notes 1, 4)



held jointly with

another person

[REDACTED]

ordinary Shares

[REDACTED]%

Notes:

1. On 8 June 2016, Mr. Lin, and Mr. YW Zhao and Mr. KS Chiu entered into the Concert

Parties Confirmatory Deed to acknowledge and confirm, among other things, that they are

parties acting in concert with each of the members of our Group during the Track Record

Period and will continue the same as at and after the date of the Concert Parties

Confirmatory Deed, details of which are set out in the section headed ‘‘History,

Reorganisation and Corporate Structure — Parties acting in concert’’ in this

[REDACTED].


– IV-14 –


2. The aggregate [REDACTED] Shares in which Mr. KS Chiu is interested consist of (i)

[REDACTED] Shares held by Bigfair Enterprises, a company wholly owned by Mr. KS

Chiu, in which Mr. KS Chiu is deemed to be interested under the SFO; and (ii)

[REDACTED] Shares in which Mr. Lin is deemed to be interested as a result of being a

party acting-in-concert with Mr. Lin and Mr. YW Zhao.

3. The aggregate [REDACTED] Shares in which Mr. Lin is interested consist of (i)

[REDACTED] Shares held by Star Eagle, a company wholly owned by Mr. Lin, in which

Mr. Lin is deemed to be interested under the SFO; and (ii) [REDACTED] Shares in which

Mr. Lin is deemed to be interested as a result of being a party acting-in-concert with Mr.

YW Zhao and Mr. KS Chiu.

4. The aggregate [REDACTED] Shares in which Mr. YW Zhao is interested consist of (i)

[REDACTED] Shares held by First Global, a company wholly owned by Mr. YW Zhao, in

which Mr. YW Zhao is deemed to be interested under the SFO; and (ii) [REDACTED]

Shares in which Mr. YW Zhao is deemed to be interested as a result of being a party

acting-in-concert with Mr. Lin and Mr. KS Chiu.

(ii) Long position in the ordinary shares of associated corporations

Name of DirectorName of associatedcorporation

Capacity/Nature

No. ofshare(s)

heldPercentageof interest

Mr. KS Chiu Bigfair Enterprises Beneficial

owner

1 100%

Mr. Lin Star Eagle Beneficial

owner

1 100%

Mr. YW Zhao First Global Beneficial

owner

1 100%

(b) Particulars of service contracts

Each of Mr. Chan, Mr. Lin and Mr. YW Zhao, being the executive Director, has

entered into a service contract with our Company for an initial fixed term of three years

commencing from the [REDACTED] until terminated by not less than three months’

notice in writing served by either party. Commencing from the [REDACTED], each of

the executive Directors is entitled to an annual remuneration set out below, such

remuneration to be reviewed annually by the Board and the Remuneration Committee.

In addition, each of the executive Directors is entitled to a discretionary bonus by

reference to our Group’s audited net profit after taxation but before extraordinary items

of our Group for the relevant year as the Board and the Remuneration Committee may

approve, provided that the relevant executive Director shall abstain from voting and not


– IV-15 –


be counted in the quorum in respect of any resolution of the Board approving the amount

of annual salary, discretionary bonus and other benefits payable to him/her. The current

basic annual remuneration of each of the executive Directors is as follows:

Name Amount

(Approximate HK$)

Mr. Chan 738,000

Mr. Lin 311,000

Mr. YW Zhao 439,000

[Each of Mr. KS Chiu, being the non-executive Director, and each of Mr. Chan

Chung Kik, Lewis, Dr. Wu Wing Kuen, B.B.S. and Professor Chow Wai Shing, Tommy,

being the independent non-executive Directors, has entered into a letter of appointment

with our Company on [.] 2016 for an initial term of two years unless terminated by

either party giving not less than one month’s prior notice in writing. The annual

remuneration payable to the non-executive Director and the independent non-executive

Directors under each of the letters of appointment is as follows:

Name Amount

(HK$)

Mr. KS Chiu 120,000

Mr. Chan Chung Kik, Lewis 120,000

Dr. Wu Wing Kuen, B.B.S. 120,000

Professor Chow Wai Shing, Tommy 120,000

Save as disclosed above, none of our Directors has or is proposed to enter into a

service contract or letter of appointment with our Company or any of its subsidiaries

(other than contracts expiring or determinable by our Group within one year without the

payment of compensation (other than statutory compensation)).

(c) Directors’ remuneration

Our Company’s policies concerning remuneration of Directors are set out below:

(i) the amount of remuneration payable to the Directors will be determined on a

case by case basis depending on the experience, responsibility, workload and

the time devoted to our Group by the relevant Director;

(ii) non-cash benefits may be provided to our Directors under their remuneration

package; and

(iii) the Directors may be granted, at the discretion of the Board, share options of

our Company, as part of the remuneration package.


– IV-16 –


An aggregate sum of approximately RMB58,000 and RMB624,000 was paid to our

Directors as remuneration and benefits in kind by our Group for the two years ended 31

December 2014 and 2015 respectively. Further information in respect of our Directors’

remuneration is set out in note 11 to the accountant’s report in Appendix I to this

[REDACTED].

An aggregate sum of approximately RMB$1.0 million will be paid to our Directors

as remuneration and benefits in kind by our Group for the year ending 31 December

2016 under the arrangements in force at the date of this [REDACTED] excluding

management bonus.

2. Substantial shareholders

So far as our Directors are aware, immediately following the completion of the

Capitalisation Issue and the [REDACTED] and taking no account of any Shares which may be

taken up under the [REDACTED] or any Shares which may be allotted and issued upon the

exercise of any option which may be granted under the Share Option Scheme, the following

persons/entities (not being our Directors or chief executive of our Company) will have an

interest or a short position in the Shares or the underlying Shares which would fall to be

disclosed to our Company under the provisions of Divisions 2 and 3 of Part XV of the SFO,

or which would be recorded in the register of our Company required to be kept under section

336 of the SFO, or who will be, directly or indirectly, to be interested in 10% or more of the

nominal value of any class of share capital carrying rights to vote in all circumstances at

general meetings of our Company or any other members of our Group:

Name CapacityNumber and class of

securitiesPercentage ofshareholding

Bigfair Enterprises Beneficial owner;

interest held jointly

with another person

[REDACTED]

ordinary Shares

[REDACTED]%

First Global (Note) Beneficial owner;


with another person

[REDACTED]

ordinary Shares

[REDACTED]%

Star Eagle (Note) Beneficial owner;


with another person

[REDACTED]

ordinary Shares

[REDACTED]%


– IV-17 –


Note: On 8 June 2016, Mr. KS Chiu, Mr. Lin, and Mr. YW Zhao entered into the Concert Parties

Confirmatory Deed to acknowledge and confirm, among other things, that they are parties acting in

concert with each of the members of our Group during and since the Track Record Period and

continue as at and after the date of the Concert Parties Confirmatory Deed, details of which are set out

in the section headed ‘‘History, Reorganisation and Corporate Structure — Parties acting in concert’’

in this [REDACTED]. As such, pursuant to the parties acting in concert arrangement, each of the

Controlling Shareholders, i.e. First Global (being wholly owned by Mr. YW Zhao), Mr. YW Zhao,

Star Eagle (being wholly owned by Mr. Lin), Mr. Lin, Bigfair Enterprise (being wholly owned by Mr.

KS Chiu) and Mr. KS Chiu is deemed to be interested in 75% of the issued share capital of our

Company.

3. Related party transactions

Our Group entered into the related party transactions within the two years immediately

preceding the date of this [REDACTED] as mentioned in note 29 of the accountant’s report set

out in Appendix I to this [REDACTED].

4. Disclaimers

Save as disclosed in this Appendix and the section headed ‘‘Substantial Shareholders’’ in

this [REDACTED]:

(a) taking no account of any Shares which may be allotted and issued upon the exercise

of any options which may be granted under the Share Option Scheme, our Directors

are not aware of any person, not being a Director, who will, immediately following

completion of the Capitalisation Issue and the [REDACTED], have an interest or

short position in the Shares and underlying Shares which would fall to be disclosed

to our Company under the provisions of Divisions 2 and 3 of Part XV of the SFO

or who is, either directly or indirectly, interested in 10% or more of the nominal

value of any class of share capital carrying rights to vote in all circumstances at the

general meetings of our Company or any other members of our Group;

(b) so far as our Directors are aware, none of our Directors and chief executive of our

Company has for the purposes of Divisions 7 and 8 of Part XV of the SFO or the

GEM Listing Rules, nor is any of them taken to or deemed to have under Divisions

7 and 8 of Part XV of the SFO, an interest or short position in the shares,

underlying shares and debentures of our Company or any associated corporations

(within the meaning of the SFO) or any interests which will have to be entered in

the register to be kept by our Company pursuant to section 352 of the SFO or

which will be required to be notified to our Company and the Stock Exchange

pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules once the Shares are

[REDACTED] on the Stock Exchange;

(c) none of our Directors nor the experts named in ‘‘E. Other information — 7.

Qualifications of experts’’ in this Appendix has any direct or indirect interest in the

promotion of, or in any assets which have been, within the two years immediately


– IV-18 –


preceding the issue of this [REDACTED], acquired or disposed of by or leased to,

any member of our Group, or are proposed to be acquired or disposed of by or

leased to any member of our Group;

(d) none of our Directors is materially interested in any contract or arrangement

subsisting at the date of this [REDACTED] which is significant in relation to the

business of our Group; and

(e) none of the experts named in ‘‘E. Other information — 7. Qualifications of experts’’

in this Appendix has any shareholding in any member of our Group or the right

(whether legally enforceable or not) to subscribe for or to nominate persons to

subscribe for securities in any member of our Group.

D. SHARE OPTION SCHEME

1. Share Option Scheme

The following is a summary of the principal terms of the Share Option Scheme

conditionally approved by all Shareholders on [.] 2016.

For the purpose of this section, unless the context otherwise requires:

‘‘Board’’ means the board of Directors from time to time or a duly

authorised committee thereof;

‘‘Eligible Person’’ means, among others, any full-time or part-time employee of our

Company or any member of our Group, including any executive,

non-executive directors and independent non-executive directors,

advisers, consultants of our Company or any of its subsidiaries;

‘‘Option’’ means an option to subscribe for Shares granted pursuant to the

Share Option Scheme;

‘‘Option Period’’ means in respect of any particular Option, the period to be

determined and notified by the Board to each Participant but

which shall not exceed ten years from the date of grant of such

option;

‘‘Other Schemes’’ means any other share option schemes adopted by our Group

from time to time pursuant to which options to subscribe for

Shares may be granted;


– IV-19 –


‘‘Participant’’ means any Eligible Person who accepts or is deemed to have

accepted the offer of any Option in accordance with the terms of

the Share Option Scheme or (where the context so permits) a

person entitled to any such Option in consequence of the death of

the original Participant;

‘‘Shareholders’’ means shareholders of our Company from time to time;

‘‘Subsidiary’’ means a company which is for the time being and from time to

time a subsidiary (within the meaning of the GEM Listing Rules)

of our Company, whether incorporated in Hong Kong or

elsewhere; and

‘‘Trading Day’’ means a day on which trading of Shares take place on the Stock

Exchange.

(a) Purpose of the Share Option Scheme

The Share Option Scheme enables our Company to grant Options to Eligible

Persons as incentives or rewards for their contributions to our Group.

(b) Who may join

The Board may, at its discretion, invite any Eligible Persons to take up Options at a

price calculated in accordance with sub-paragraph (d) below. Upon acceptance of the

Option, the Eligible Person shall pay HK$1.00 to our Company by way of consideration

for the grant. The Option will be offered for acceptance for a period of not less than 5

Trading Days from the date on which the Option is granted.

(c) Grant of Option

Any grant of Options must not be made after inside information has come to the

knowledge of our Company or a price sensitive matter has been the subject of a decision,

until such price sensitive matter has been announced pursuant to the relevant

requirements of the GEM Listing Rules. In particular, during the period commencing

one month immediately preceding the earlier of (a) the date of the Board meeting (as

such date is first notified to the Stock Exchange in accordance with the GEM Listing

Rules) for the approval of our Company’s results for any year, half-year, quarter-year

period or any other interim period (whether or not required under the GEM Listing

Rules), and (b) the deadline for our Company to publish an announcement of its results

for any year, half-year, quarter-year period or any interim period (whether or not required

under the GEM Listing Rules), and ending on the date of the results announcement, no

Option may be granted. The period during which no Option may be granted will cover

any period of delay in the publication of results announcement. Our Directors may not


– IV-20 –


grant any Option to an Eligible Person during the periods or times in which our Directors

are prohibited from dealing in shares pursuant to Rules 5.48 to 5.67 prescribed by the

GEM Listing Rules or any corresponding code or securities dealing restrictions adopted

by our Company.

The total number of Shares issued and to be issued upon exercise of the Options

granted to a Participant under the Share Option Scheme and Other Schemes (including

both exercised and outstanding Options) in any 12-month period must not exceed 1% of

the Shares in issue from time to time, and provided that if approved by Shareholders in

general meeting with such Participant and his close associates (or his associates if the

participant is a connected person) abstaining from voting, our Company may make a

further grant of Options to such Participant (the ‘‘Further Grant’’) notwithstanding that

the Further Grant would result in the Shares issued and to be issued upon exercise of all

Options granted and to be granted under the Share Option Scheme and Other Schemes to

such Participant (including exercised, cancelled and outstanding Options) in the 12-

month period up to and including the date of the Further Grant representing in aggregate

over 1% of the Shares in issue from time to time. In relation to the Further Grant, our

Company must send a circular to the Shareholders, which discloses the identity of the

relevant Participant, the number and the terms of the Options to be granted (and Options

previously granted to such Participant under the Share Option Scheme and Other

Schemes) and the information required under the GEM Listing Rules. The number and

terms (including the exercise price) of Options which is the subject of the Further Grant

shall be fixed before the relevant Shareholders’ meeting and the date of meeting of the

Board for proposing the Further Grant should be taken as the date of grant for the

purpose of calculating the relevant subscription price.

(d) Price of Shares

The subscription price for the Shares subject to Options will be a price determined

by the Board and notified to each Participant and shall be the highest of (i) the closing

price of the Shares as stated in the Stock Exchange’s daily quotations sheet on the date

of grant of the Options, which must be a Trading Day; (ii) the average closing price of

the Shares as stated in the Stock Exchange’s daily quotations sheets for the five Trading

Days immediately preceding the date of grant of the Options; and (iii) the nominal value

of a Share.

For the purpose of calculating the subscription price, in the event that on the date of

grant, our Company has been listed for less than five Trading Days, the [REDACTED]

shall be used as the closing price for any Trading Day falling within the period before

the [REDACTED].


– IV-21 –


(e) Maximum number of Shares

(i) The total number of Shares which may be issued upon the exercise of all

Options to be granted under the Share Option Scheme and Other Schemes

must not, in aggregate, exceed 10% of the Shares in issue as at the

[REDACTED] (the ‘‘Scheme Mandate Limit’’) provided that Options lapsed in

accordance with the terms of the Shares Option Scheme or Other Scheme will

not be counted for the purpose of calculating the Scheme Mandate Limit. On

the basis of [REDACTED] Shares in issue on the [REDACTED], the Scheme

Mandate Limit will be equivalent to [REDACTED] Shares, representing 10%

of the Shares in issue as at the [REDACTED].

(ii) Subject to the approval of Shareholders in general meeting, our Company may

renew the Scheme Mandate Limit to the extent that the total number of Shares

which may be issued upon exercise of all Options to be granted under the

Share Option Scheme and Other Schemes under the Scheme Mandate Limit as

renewed must not exceed 10% of the Shares in issue as at the date of such

Shareholders’ approval provided that Options previously granted under the

Share Option Scheme and Other Schemes (including those outstanding,

cancelled, exercised or lapsed in accordance with the terms thereof) will not

be counted for the purpose of calculating the Scheme Mandate Limit as

renewed. In relation to the Shareholders’ approval referred to in this paragraph

(ii), our Company shall send a circular to the Shareholders containing the

information required by the GEM Listing Rules.

(iii) Subject to the approval of Shareholders in general meeting, our Company may

also grant Options beyond the Scheme Mandate Limit provided that Options in

excess of the Scheme Mandate Limit are granted only to Eligible Persons

specifically identified by our Company before such Shareholders’ approval is

sought. In relation to the Shareholders’ approval referred to in this paragraph

(iii), our Company shall send a circular to the Shareholders containing a

generic description of the identified Eligible Persons, the number and terms of

the Options to be granted, the purpose of granting Options to the identified

Eligible Persons, an explanation as to how the terms of such Options serve the

intended purpose and such other information required by the GEM Listing

Rules.

(iv) Notwithstanding the foregoing, our Company may not grant any Options if the

number of Shares which may be issued upon exercise of all outstanding

Options granted and yet to be exercised under the Share Option Scheme and

Other Schemes exceeds 30% of the Shares in issue from time to time.


– IV-22 –


(f) Time of exercise of Option

An Option may be exercised in accordance with the terms of the Share Option

Scheme at any time during a period to be determined and notified by the Board to each

Participant provided that the period within which the Option must be exercised shall not

be more than 10 years from the date of the grant of Option. The exercise of an Option

may be subject to the achievement of performance target and/or any other conditions to

be notified by the Board to each Participant, which the Board may in its absolute

discretion determine.

(g) Rights are personal to grantee

An Option shall be personal to the Participant and shall not be assignable or

transferable and no Participant shall in any way sell, transfer, charge, mortgage,

encumber or create any interest whether legal or beneficial in favour of any third party

over or in relation to any Option.

(h) Rights on death

If a Participant dies before exercising the Options in full, his or her personal

representative(s) may exercise the Options up to the Participant’s entitlement (to the

extent that it has become exercisable on the date of death and not already exercised)

within a period of 12 months from the date of death, failing which such Options will

lapse.

(i) Changes in capital structure

In the event of any alteration in the capital structure of our Company while an

Option remains exercisable, and such event arises from a capitalisation of profits or

reserves, rights issue, consolidation, reclassification, subdivision or reduction of capital

of our Company, such corresponding alterations (if any) shall be made in the number or

nominal amount of Shares subject to the Options so far as unexercised, and/or the

exercise price, and/or the method of exercise of the Options, and/or the maximum

number of Shares subject to the Share Option Scheme.

Any adjustments required under this paragraph must give a Participant the same

proportion of the equity capital as that to which that Participant was previously entitled

and shall be made on the basis that the aggregate exercise price payable by a Participant

on the full exercise of any Option shall remain as nearly as possible the same (but shall

not be greater than) as it was before such event, but no such adjustments may be made to

the extent that Shares would be issued at less than nominal value and, unless with the

prior approval of the Shareholders in general meeting, no such adjustments may be made

to the advantage of the Participant. For the avoidance of doubt, the issue of securities as

consideration in a transaction may not be regarded as a circumstance requiring

adjustment. In respect of any such adjustments, other than any made on a capitalisation


– IV-23 –


issue, an independent financial adviser of our Company or the auditors of our Company

must confirm to our Directors in writing that the adjustments satisfy the requirements of

the relevant provisions of the GEM Listing Rules and the supplementary guidance set out

in the letter issued by the Stock Exchange dated 5 September 2005 and any further

guidance/interpretation of the GEM Listing Rules issued by the Stock Exchange from

time to time.

(j) Rights on take-over

If a general offer (whether by way of takeover offer as defined in the Takeovers

Code or scheme of arrangement or otherwise in like manner) has been made to all the

Shareholders (other than the offeror and/or any persons acting in concert with the

offeror), to acquire all or part of the issued Shares, and such offer, having been approved

in accordance with applicable laws and regulatory requirements, becomes or is declared

unconditional, the Participant shall be entitled to exercise his or her outstanding Option

in full or any part thereof within 14 days after the date on which such offer becomes or

is declared unconditional. For the purposes of this sub-paragraph, ‘‘acting in concert’’

shall have the meaning ascribed to it under the Takeovers Code as amended from time to

time.

(k) Rights on a compromise or arrangement

(i) In the event of a notice is given by our Company to the Shareholders to

convene a Shareholders’ meeting for the purpose of considering and approving

a resolution to voluntarily wind up our Company, our Company shall forthwith

give notice thereof to the Participants and the Participants may, by notice in

writing to our Company accompanied by the remittance for the total exercise

price payable in respect of the exercise of the relevant Options (such notice to

be received by our Company not later than two business days prior to the

proposed meeting) exercise the outstanding Option either in full or in part and

our Company shall, as soon as possible and in any event no later than the

business day immediately prior to the date of the proposed Shareholders’

meeting, allot and issue such number of Shares to the Participants which falls

to be issued on such exercise.

(ii) In the event of a compromise or arrangement between our Company and its

members or creditors being proposed in connection with a scheme for the

reconstruction or amalgamation of our Company (other than any relocation

schemes as contemplated in Rule 10.18(3) of the GEM Listing Rules), our

Company shall give notice thereof to all Participants on the same date as it

gives notice of the meeting to its members or creditors to consider such a

scheme of arrangement, and thereupon the Participants may, by notice in

writing to our Company accompanied by the remittance for the total exercise

price payable in respect of the exercise of the relevant Options (such notice to

be received by our Company not later than two Trading Days prior to the


– IV-24 –


proposed meeting) exercise the outstanding Option either in full or in part and

our Company shall, as soon as possible and in any event no later than the

Trading Day (excluding any period(s) of closure of our Company’s share

registers) immediately prior to the date of the proposed meeting, allot and

issue such number of Shares to the Participants which falls to be issued on

such exercise credited as fully paid and registered the Participants as holders

thereof.

(l) Lapse of Option

An Option shall lapse forthwith and not exercisable (to the extent not already

exercised) on the earliest of:

(i) the date of expiry of the Option as may be determined by the Board and under

the Share Option Scheme;

(ii) subject to paragraphs (f) and (p), the expiry of the Option Period of the

Option;

(iii) subject to paragraph (k)(i), the date of commencement of the winding-up of

our Company;

(iv) the date when the proposed compromise or arrangement becomes effective in

respect of the situation contemplated in paragraph (k)(ii);

(v) in the event that the Participant was an employee or director of any member of

our Group on the date of grant of Option to him or her, the date on which

such member of our Group terminates the Participant’s employment or

removes the Participant from his or her office on the ground that the

Participant has been guilty of misconduct, has committed an act of bankruptcy

or has become insolvent or has made any arrangements or composition with

his or her creditors generally, or has been convicted of any criminal offence

involving his or her integrity or honesty. A resolution of the Board or the

board of directors of the relevant member of our Group to the effect that such

employment or office has or has not been terminated or removed on one or

more grounds specified in this sub-paragraph shall be conclusive;

(vi) the happening of any of the following events, unless otherwise waived by the

Board:

(1) any liquidator, provisional liquidator, receiver or any person carrying out

any similar function has been appointed anywhere in the world in respect

of the whole or any part of the asset or undertaking of the Participant

(being a corporation); or


– IV-25 –


(2) the Participant (being a corporation) has ceased or suspended payment of

its debts, become unable to pay its debts or otherwise become insolvent;

or

(3) there is unsatisfied judgment, order or award outstanding against the

Participant or our Company has reason to believe that the Participant is

unable to pay or has no reasonable prospect of being able to pay his/her/

its debts; or

(4) there are circumstances which entitle any person to take any action,

appoint any person, commence proceedings or obtain any order of type

mentioned in sub-paragraphs (1), (2) and (3) above; or

(5) a bankruptcy order has been made against the Participant or any director

of the Participant (being a corporation) in any jurisdiction; or

(6) a petition for bankruptcy has been presented against the Participant or

any director of the Participant (being a corporation) in any jurisdiction;

(vii) the date the Participant commits any breach of any terms or conditions

attached to the grant of the Option, unless otherwise resolved to the contrary

by the Board; or

(viii) the date on which the Board resolves that the Participant has failed or

otherwise is or has been unable to meet the continuing eligibility criteria.

(m) Ranking of Shares

Shares allotted and issued upon the exercise of an Option will be subject to the

Articles of Association as amended from time to time and will rank pari passu in all

respects with the fully paid or credited as fully paid Shares in issue on the date of such

allotment or issue and accordingly will entitle the holders to participate in all dividends

or other distributions paid or made on or after the date of allotment and issue other than

any dividend or other distribution previously declared or recommended or resolved to be

paid or made if the record date therefor shall be before the date of allotment or issue.

Any Share allotted upon the exercise of the Option shall not carry voting rights until the

name of the Grantee has been duly entered on the register of members of our Company

as the holder thereof.

(n) Cancellation of Options granted

Any cancellation of Options granted in accordance with the Share Option Scheme

but not exercised must be approved by the grantee concerned in writing.


– IV-26 –


In the event that the Board elects to cancel any Options and issue new ones to the

same grantee, the issue of such new Options may only be made with available unissued

Options (excluding the cancelled Options) within the Scheme Mandate Limit.

(o) Period of Share Option Scheme

The Share Option Scheme will be valid and effective for a period of ten years

commencing on the [REDACTED], after which period no further Options may be granted

but the provisions of the Share Option Scheme shall remain in full force and effect in all

other respects and Options granted during the life of the Share Option Scheme may

continue to be exercisable in accordance with their terms of issue.

(p) Alteration to and termination of Share Option Scheme

The Share Option Scheme may be altered in any respect by resolution of the Board,

except that the provisions of the Share Option Scheme relating to matters set out in Rule

23.03 of the GEM Listing Rules shall not be altered to the advantage of the Participant

or the prospective Participants without the prior approval of the Shareholders in general

meeting (with the Eligible Persons, the Participants and their respective close associates

abstaining from voting). No such alteration shall operate to affect adversely the terms of

issue of any Option granted or agreed to be granted prior to such alteration except with

the consent or sanction of such majority of the Participants as would be required by the

Shareholders under the Articles of Association (as amended from time to time) for a

variation of the rights attached to the Shares.

Any alterations to the terms and conditions of the Share Option Scheme, which are

of a material nature, shall first be approved by the Shareholders in general meeting,

except where such alterations take effect automatically under the existing terms of the

Share Option Scheme.

Our Company may, by ordinary resolution in general meeting, at any time terminate

the operation of the Share Option Scheme before the end of its life and in such event no

further Options will be offered but the provisions of the Share Option Scheme shall

remain in all other respects in full force and effect in respect of Options granted prior

thereto but not yet exercised at the time of termination, which shall continue to be

exercisable in accordance with their terms of grant. Details of the Options granted,

including Options exercised or outstanding, under the Share Option Scheme, and (if

applicable) Options that become void or non-exercisable as a result of termination must

be disclosed in the circular to the Shareholders seeking approval for the first new scheme

to be established after such termination.


– IV-27 –


(q) Granting of Options to a director, chief executive or substantial shareholder of

our Company or any of their respective associates

Where Options are proposed to be granted to a director, chief executive or

substantial shareholder of our Company or any of their respective associates, the

proposed grant must be approved by all independent non-executive Directors (excluding

any independent non-executive Director who is the grantee of the Options).

If a grant of Options to a substantial shareholder of our Company or an independent

non-executive Director, or any of their respective associates will result in the total

number of the Shares issued and to be issued upon exercise of the Options already

granted and to be granted (including Options exercised, cancelled and outstanding) to

such person under the Share Option Scheme or Other Schemes in any 12-month period

up to and including the date of the grant (i) representing in aggregate over 0.1% (or such

other percentage as may from time to time specified by the Stock Exchange) of the

Shares in issue from time to time, and (ii) having an aggregate value, based on the

closing price of the Shares at the date of the grant, in excess of HK$5 million, then the

proposed grant of Options must be approved by the Shareholders. The grantee, his

associates and all core connected persons of our Company must abstain from voting at

such general meeting, except that any connected person may vote against the resolution

provided that his or her intention to do so has been stated in the circular. The circular

must contain the information required under the GEM Listing Rules.

In addition, Shareholders’ approval as described above will also be required for any

change in terms of the Options granted to an Eligible Person who is a substantial

shareholder of our Company, an independent non-executive Director or their respective

associates.

The circular must contain the following:

(i) details of the number and terms of the Options (including the subscription

price relating thereto) to be granted to each Eligible Person, which must be

fixed before the relevant Shareholders’ meeting, and the date of Board meeting

for proposing such further grant is to be taken as the date of grant for the

purpose of calculating the subscription price;

(ii) a recommendation from the independent non-executive Directors (excluding

any independent non-executive Director who is a proposed grantee of the

Options in question) to independent Shareholders, as to voting; and

(iii) all other information as required by the GEM Listing Rules.


– IV-28 –


For the avoidance of doubt, the requirements for the granting of Options to a

Director or chief executive (as defined in the GEM Listing Rules) of our Company set

out in this paragraph (q) do not apply where the Eligible Person is only a proposed

Director or proposed chief executive of our Company.

(r) Conditions of Share Option Scheme

The Share Option Scheme is conditional on (i) the passing of a resolution to adopt

the Share Option Scheme by the Shareholders in general meeting; and (ii) the Stock

Exchange granting approval for the [REDACTED] of and permission to [REDACTED] in

the Share which may be issued pursuant to the exercise of Options.

Application has been made to the Listing Division for the [REDACTED] of and

permission to [REDACTED] in the Shares which fall to be issued pursuant to the

exercise of Options that may be granted under Share Option Scheme.

(s) Present status of the Share Option Scheme

As at the Latest Practicable Date, no options had been granted or agreed to be

granted by our Company under the Share Option Scheme.

The terms of the Share Option Scheme are in compliance with Chapter 23 of the

GEM Listing Rules.

E. OTHER INFORMATION

1. Tax and other indemnities

The Controlling Shareholders (the ‘‘indemnifiers’’) have, entered into the Deed of

Indemnity with and in favour of our Company (for itself and as trustee for each member of

our Group) pursuant to which the Indemnifiers have agreed to jointly and severally indemnify

each of the members of our Group against, inter alia, the following:

(a) the amount of any and all taxation which might fall on any of the members of our

Group resulting from or by reference to any income, profits, gains, transactions,

events, matters or things earned, accrued, received, entered into on or before the

date on which the [REDACTED] becomes unconditional; and

(b) any actions, claims, losses, payments, charges, settlement payments, costs,

penalties, damages or expenses incurred or suffered by the members of our Group

or any of them arising from or in connection with any litigation, proceeding, claim,

investigation, inquiry, enforcement proceeding or process by any governmental,

administrative or regulatory body:

on or before the [REDACTED].


– IV-29 –


The Indemnifiers will, however, not be liable under the Deed of Indemnity to the extent

that, among others:

(a) provision, reserve or allowance has been made for such taxation liability in the

audited accounts of our Company or any member of our Group for each of the two

years ended 31 December 2015; or

(b) the taxation or liability falling on any member of our Group on or after the

[REDACTED] except liability or claim for such taxation which would not have

arisen but for any act or omission of, or transaction voluntarily effected by our

Company or any member of our Group (whether alone or in conjunction with some

other act, omission or transaction, whenever occurring) without the prior written

consent or agreement of the Indemnifiers other than any such act, omission or

transaction:

(i) carried out or in the ordinary course of business or in the ordinary course of

acquiring and disposing of capital assets on or before the [REDACTED]; or

(ii) carried out, made or entered into pursuant to a legally binding commitment

created on or before the [REDACTED]; or

(iii) consisting of any of the members of our Group ceasing, or being deemed to

cease, to be a member of our Group for the purposes of any matter of taxation

on or before the [REDACTED]; or

(c) any provisions or reserve made for taxation, taxation claim or liability in the

audited accounts of our Company or any member of our Group for each of the two

years ended 31 December 2015 which is finally established to be an over-provision

or an excessive reserve, then the indemnifiers’ liability (if any) in respect of such

taxation, taxation claim or liability shall be reduced by an amount not exceeding

such over-provision or excessive reserve; or

(d) the taxation liability arises in the ordinary course of business of our Group after the

[REDACTED]; or

(e) the taxation liability arises or is incurred as a result of the imposition of taxation as

a consequence of any retrospective change in law or practice coming into force

after the date of this Deed of Indemnity or any retrospective increase in tax rates

coming into force after the date of this Deed of Indemnity.

Our Directors have been advised that no material liability for estate duty is likely to fall

on our Company or any of its subsidiaries.


– IV-30 –


2. Litigation

As at the Latest Practicable Date, save as disclosed in this [REDACTED], to the best of

our Directors’ knowledge, there is no current litigation or any pending or threatened litigation

or arbitration proceedings against any member of our Group that could have a material adverse

effect on our Group’s financial condition or results of operation.

3. Application for [REDACTED] of Shares

The Sole Sponsor has made an application on behalf of our Company to the Stock

Exchange for [REDACTED] of, and permission to [REDACTED] in, the Shares in issue and

to be issued as mentioned herein and any Shares which may fall to be allotted and issued

pursuant to the exercise of any options which may be granted under the Share Option Scheme

on the Stock Exchange.

4. Compliance adviser

In accordance with the requirements of the GEM Listing Rules, our Company has

appointed Lego Corporate Finance Limited as the compliance adviser to provide advisory

services to our Company to ensure compliance with the GEM Listing Rules for a period

commencing on the [REDACTED] and ending on the date on which our Company complies

with Rule 18.03 of the GEM Listing Rules in respect of its financial results for the second full

financial year commencing after the [REDACTED] or until the agreement is terminated,

whichever is the earlier.

5. Preliminary expenses

The preliminary expenses relating to the incorporation of our Company are

approximately HK$85,000 and are payable by our Company.

There is no annual cost of compliance with applicable rules and regulations during the

Track Record Period.

6. Promotor

Our Company has no promoter for the purpose of the GEM Listing Rules.


– IV-31 –


7. Qualification of experts

The following are the respective qualifications of the experts who have given their

opinion or advice which is contained in this [REDACTED]:

Name Qualification

Lego Corporate Finance

Limited

Licensed corporation under the SFO and permitted to

carry out Type 6 (advising on corporate finance)

regulated activity

BDO Limited Certified Public Accountants

Deheng Law Offices

(Shenzhen)

Legal advisers to our Company as to PRC laws

Appleby Legal advisers to our Company as to Cayman Islands

laws

China Insights Consultancy

Limited

Independent industry consultant

8. Consents of experts

Each of the experts referred to above has given and has not withdrawn its written consent

to the issue of this [REDACTED] with the inclusion of its reports, letters, opinions or

summaries thereof (as the case may be) and the references to its name included in this

[REDACTED] in the form and context in which it respectively appears.

9. Sponsor’s fees

Our Company agreed to pay the Sole Sponsor a fee of HK$[REDACTED] to act as

sponsor to our Company in connection with the [REDACTED].

10. Binding effect

This [REDACTED] shall have the effect, if an application is made in pursuance hereof,

of rendering all persons concerned bound by all of the provisions (other than the penalty

provisions) of sections 44A and 44B of the Companies (Winding Up and Miscellaneous

Provisions) Ordinance so far as applicable.


– IV-32 –


11. Miscellaneous

Save as disclosed in this [REDACTED]:

(a) within the two years immediately preceding the date of this [REDACTED]:

(i) no share or loan capital of our Company or any of its subsidiaries has been

issued, agree to be issued or is proposed to be issued fully or partly paid either

for cash or for a consideration other than cash;

(ii) no share or loan capital of our Company or any of its subsidiaries is under

option or is agreed conditionally or unconditionally to be put under option;

(iii) no commission has been paid or payable (except to sub-underwriter) for

subscribing or agreeing to subscribe, or procuring or agreeing to procure

subscriptions, for any Shares; and

(iv) no founders, management or deferred shares of our Company or any of its

subsidiaries have been issued or agreed to be issued.

(b) no share, warrant or loan capital of our Company or any of its subsidiaries is under

option or is agreed conditionally or unconditionally to be put under option.

(c) all necessary arrangements have been made enabling the Shares to be admitted into

CCASS.

(d) Our Directors confirm that, up to the date of this [REDACTED], there has been no

material adverse change in the financial or trading position or prospects of our

Group since 31 December 2015 (being the date to which the latest audited

combined financial statements of our Group were made up), and there has been no

event since 31 December 2015 which would materially affect the information as

shown in the accountant’s report.

(e) There has not been any interruption in the business of our Group which has had a

material adverse effect on the financial position of our Group in the 24 months

preceding the date of this [REDACTED].

(f) Save in connection with the Underwriting Agreement, none of the parties listed in

the paragraph headed ‘‘E. Other information — 7. Qualifications of experts’’ in this

Appendix:

(i) is interested legally or beneficially in any securities of our Group or any of

any subsidiaries; or


– IV-33 –


(ii) has any right or option (whether legally enforceable or not) to subscribe for or

to nominate persons to subscribe for securities of our Group or any of its

subsidiaries.

(g) No company within our Group is presently listed on any stock exchange or traded

on any trading system and no part of the shares or loan capital of our Company is

listed, traded or dealt in on any other stock exchange. At present, our Company is

not seeking or proposing to seek listing of, or permission to deal in, any part of its

shares or loan capital on any other stock exchange.

(h) Our Company has no outstanding convertible debt securities.

(i) All necessary arrangements have been made to enable the Shares to be admitted

into CCASS for clearing and settlement.

(j) There are no arrangements under which future dividends are waived or agreed to be

waived.

12. Bilingual [REDACTED]

The English language and the Chinese language versions of this [REDACTED] are being

published separately, in reliance upon the exemption provided by section 4 of the Companies

(Exemption of Companies and Prospectuses from Compliance with Provisions) Notice

(Chapter 32L of the Laws of Hong Kong).

13. Taxation of holders of Shares

(a) Hong Kong

Dealings in Shares registered on our Company’s Hong Kong branch register of

members will be subject to Hong Kong stamp duty.

Profits from dealings in Shares arising in or derived from Hong Kong may also be

subject to Hong Kong profits tax.


– IV-34 –


(b) Cayman Islands

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.

(c) Consultation with professional advisers

Intending holders of the Shares are recommended to consult their professional

advisers if they are in doubt as to the taxation implications of subscribing for,

purchasing, holding or disposing of or dealing in the Shares. It is emphasised that none

of our Company, our Directors or other parties involved in the [REDACTED] accepts

responsibility for any tax effect on, or liabilities of holders of Shares resulting from their

subscription for, purchase, holding or disposal of or dealing in Shares.


– IV-35 –


1. DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES IN HONG KONG

The documents attached to a copy of this [REDACTED] and delivered to the Registrar of

Companies in Hong Kong for registration were the written consents referred to under the paragraph

headed ‘‘E. Other information — 8. Consents of experts’’ in Appendix IV to this [REDACTED],

and certified copies of the material contracts referred to under the paragraph headed ‘‘B. Further

information about the business of our Group — 1. Summary of material contracts’’ in Appendix IV

to this [REDACTED].

2. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office of TC & Co.

at Units 2201–03, 22nd Floor, Tai Tung Building, 8 Fleming Road, Wanchai, Hong Kong, during

normal business hours up to and including the date which is 14 days from the date of this

[REDACTED]:

(a) the Memorandum of Association and the Articles of Association;

(b) the accountant’s report prepared by BDO, in respect of the historical financial

information for the years ended 31 December 2014 and 2015, the text of which is set

out in Appendix I to this [REDACTED];

(c) the audited financial statements of our Group for each of the two years ended 31

December 2014 and 2015;

(d) the report from BDO on the unaudited pro forma financial information, the text of which

is set out in Appendix II to this [REDACTED];

(e) the Companies Law;

(f) the legal opinion prepared by Deheng Law Offices (Shenzhen), the legal advisers to our

Company as to PRC law, in respect of certain aspects of our Group;

(g) the letter of advice prepared by Appleby summarising certain aspects of the Cayman

Islands Company Law referred to in Appendix III to this [REDACTED];

(h) the material contracts referred to in the paragraph headed ‘‘B. Further information about

the business of our Group — 1. Summary of material contracts’’ in Appendix IV to this

[REDACTED];

(i) the written consents referred to in the paragraph headed ‘‘E. Other information — 8.

Consents of experts’’ in Appendix IV to this [REDACTED];

(j) the rules of the Share Option Scheme;

APPENDIX V DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIESAND AVAILABLE FOR PUBLIC INSPECTION IN HONG KONG

– V-1 –


(k) the service agreements of our Directors referred to in the paragraph headed ‘‘C. Further

information about directors, management and staff — 1. Directors — (b) Particulars of

service contracts’’ in Appendix IV to this [REDACTED]; and

(l) the CIC Report.

APPENDIX V DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIESAND AVAILABLE FOR PUBLIC INSPECTION IN HONG KONG

– V-2 –
