Changyou International Group Limited - Proxy Solicitation & Information Statement 2014

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in See Corporation Limited, you should at once hand this circular together with the enclosed form of proxy to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, 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 circular.

This circular is for information purposes only and does not constitute or offer to acquire, purchase or subscribe for the securities of the Company.

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(Incorporated in Bermuda with limited liability)

(Stock Code: 491)

(1) VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE ACQUISITION OF 60% ISSUED SHARE CAPITAL OF LUCRATIVE SKILL HOLDINGS LIMITED;

(2) PROPOSED REFRESHMENT OF SCHEME MANDATE LIMIT UNDER SHARE

OPTION SCHEME; AND

(3) NOTICE OF SPECIAL GENERAL MEETING

Financial advisor to the Company

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A notice convening the special general meeting of the Company to be held at Plaza 3, Lower Lobby, Novotel Century Hong Kong. 238 Jaffe Road, Hong Kong on Friday, 16 January 2015 at 11:00 a.m. or any adjournment thereof, is set out on pages SGM–1 to SGM–3 of this circular. Whether or not you intend to attend such meeting, please complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the branch share registrar of the Company in Hong Kong, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding such meeting. Completion and return of the form of proxy will not preclude you from attending and voting in present at the meeting or any adjourned meeting if you so wish.

31 December 2014

* For identification purpose only

			Page
Definitions . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the	Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		5
Appendix I	–	Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II	–	Accountants’ Report of the Target Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
Appendix III	–	Management Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
Appendix IV	–	Unaudited Pro Forma Financial Information of the Enlarged Group . . . . . . . . . .	IV-1
Appendix V	–	Valuation Report on the Target Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-1
Appendix VI	–	General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VI-1
Notice of SGM. . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	SGM-1

– i –

DEFINITIONS

In this circular, the following expressions have the following meanings unless the context requires otherwise:

“Acquisition” the proposed acquisition of the Sale Shares by the Purchaser from the Vendor pursuant to the terms and conditions of the S&P Agreement “Announcement” the announcement of the Company dated 30 October 2014 in relation to, among other things, the Acquisition “Audited Completion Account” the audited Completion Account “Board” the board of Directors of the Company, from time to time “BVI” the British Virgin Islands “Choice Excel” Choice Excel Holdings Limited, a company incorporated in BVI with limited liability and wholly owned by the Target Company “Company” See Corporation Limited, a company incorporated under the laws of Bermuda with limited liability, the issued Shares of which are listed on the Main Board of the Stock Exchange “Completion” completion of the Acquisition in accordance with the terms and conditions of the S&P Agreement “Completion Account” unaudited consolidated statement of financial position of the Target Group as at the Completion Date and the unaudited consolidated statement of profit or loss and other comprehensive income of the Target Group for the period from 1 January 2014 to the Completion Date to be delivered to the Purchaser on Completion “Completion Date” on or before 5:00 p.m. (Hong Kong time) within 10 business days after satisfaction of the conditions set out in the S&P Agreement or such other date as the parties may agree in writing prior to Completion “connected person” has the meaning ascribed to it under the Listing Rules “Consideration” the consideration of HK$122,500,000 in respect of the Acquisition

– 1 –

DEFINITIONS

“Consideration Shares”	350,000,000 new Shares to be allotted and issued to the Vendor,
	credited as fully paid at an issue price of HK$0.35 per Share to the
	Vendor for the Acquisition
“Cosmos Glory”	Cosmos Glory Limited, a company incorporated in Hong Kong with
	limited liability and wholly owned by Choice Excel
“Director(s)”	the director(s) of the Company, from time to time
“EBITDA”	earnings before interest expense, taxation, depreciation and
	amortisation
“Enlarged Group”	the Group enlarged by the Acquisition
“Group”	the Company and its subsidiaries, from time to time
“HKD” or “HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Last Trading Day”	22 October 2014, being the last trading day of the Shares prior to
	the date of the Announcement
“Latest Practicable Date”	29 December 2014, being the latest practicable date prior to the
	printing of this circular for ascertaining contain information set out
	in this circular
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock Exchange
“Long Stop Date”	30 June 2015, or such other date as the parties to the S&P
	Agreement may agree
“Lucrative Skill”	Lucrative Skill Holdings Limited, a company incorporated in BVI
	with limited liability and wholly owned by the Vendor
“Mr. Tse” or “Vendor”	Mr. Nicolas Tse (謝霆鋒)
“PO (Beijing)”	文霆廣告制作(北京)有限公司, a company incorporated in the PRC
	with limited liability and wholly owned by PO (Hong Kong)
“PO Holding (Beijing)”	Post Production Office (Beijing) Holding Limited, a company
	incorporated in Hong Kong with limited liability and owned as to
	85% by PO (Hong Kong) and as to 15% by The Colorist Limited
“PO (Hong Kong)”	Post Production Office Limited, a company incorporated in Hong
	Kong with limited liability and wholly owned by Cosmos Glory
“PO (Shanghai)”	朝霆廣告制作(上海)有限公司, a company incorporated in the PRC
	with limited liability and wholly owned by PO (Hong Kong)

– 2 –

DEFINITIONS

“PRC”	the People’s Republic of China
“Purchaser”	Magic Well Holdings Limited, a company incorporated in BVI with
	limited liability and wholly owned by the Company
“Refreshed Mandate Limit”	the maximum number of Shares which may be issued pursuant to
	the exercise of share option granted under the Share Option Scheme
	which must not exceed 10% of the aggregate nominal amount of the
	issued Shares as at the date of passing the relevant resolution, i.e. 16
	January 2015
“RMB”	Renminbi, the lawful currency of the PRC
“S&P Agreement”	the sale and purchase agreement dated 22 October 2014 entered into
	by the Vendor and the Purchaser in respect of the sale and purchase
	of the Sale Shares
“Sale Shares”	60 issued shares of the Target Company held by the Vendor,
	representing 60% of the issued share capital of the Target Company
“Scheme Mandate Limit”	the maximum number of Shares which may be allotted and issued
	upon the exercise of all Share Options under the Share Option
	Scheme which shall not in aggregate exceed 10% of the Shares in
	issue as at the date of adoption of the Share Option Scheme and
	thereafter, if refreshed shall not exceed 10% of the Shares in issue
	as at the date of approval of the refreshed limit by the Shareholders
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“SGM”	the special general meeting of the Company to be convened to
	approve, among other things, (i) the S&P Agreement and the
	transactions contemplated thereunder; (ii) the granting of the Specific
	Mandate to allot and issue the Consideration Shares; and (iii) the
	proposed refreshment of Scheme Mandate Limit
“Share(s)”	ordinary share(s) of HK$0.01 each in the share capital of the
	Company
“Share Option Scheme”	the share option scheme adopted by the Company on 8 November
	2011
“Share Options”	share options granted and to be granted by the Company to eligible
	participants to subscribe for the Shares pursuant to the terms and
	conditions of the Share Option Scheme
“Shareholder(s)”	the shareholder(s) of the Company

– 3 –

DEFINITIONS

“Specific Mandate” a specific mandate to allot and issue the Consideration Shares to be sought from the Shareholders at the SGM “Stock Exchange” The Stock Exchange of Hong Kong Limited “Target Company” Lucrative Skill Holdings Limited, a company incorporated in BVI with limited liability and wholly owned by the Vendor “Target Group” the Target Company and its subsidiaries “%” per cent.

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LETTER FROM THE BOARD

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(Incorporated in Bermuda with limited liability)

(Stock Code: 491)

Executive Directors:

Mr. Direk Lim (Chairman) Mr. Wong Kui Shing, Danny (Managing Director) Mr. Hui Yuet Man

Independent Non-executive Directors: Mr. Li Fui Lung, Danny Mr. Ng Hoi Yue, Herman Mr. Heung Pik Lun Ms. Chan Sim Ling, Irene

Registered Office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Head office and principal place of business: Office D & E 20th Floor, EGL Tower No. 83 Hung To Road Kwun Tong, Kowloon Hong Kong

31 December 2014

To the Shareholders and for information only

Dear Sir or Madam,

(1) VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE ACQUISITION OF 60% ISSUED SHARE CAPITAL OF LUCRATIVE SKILL HOLDINGS LIMITED; (2) PROPOSED REFRESHMENT OF SCHEME MANDATE LIMIT UNDER SHARE OPTION SCHEME; AND (3) NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

Reference is made to the Announcement in relation to the acquisition of 60% issued share capital of Lucrative Skill Holdings Limited.

The purpose of this circular is to provide you with, among other things, (i) further details of the Acquisition; (ii) the financial information of the Target Group; (iii) the financial and other information of the Group; (iv) the unaudited pro forma financial information of the Group as enlarged by the Acquisition; (v) the valuation report prepared by an independent valuer on the Target Group; (vi) information regarding the refreshment of the Scheme Mandate Limit; (vii) the notice of the SGM; and (viii) other information as required under the Listing Rules.

* For identification purpose only

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LETTER FROM THE BOARD

VERY SUBSTANTIAL ACQUISITION

The Board announced that on 22 October 2014 (after trading hours), the Purchaser and the Vendor entered into the S&P Agreement pursuant to which the Purchaser has conditionally agreed to acquire and the Vendor has conditionally agreed to sell the Sale Shares at a consideration of HK$122,500,000. The Sale Shares represent 60% of the issued share capital of the Target Company and the Consideration will be satisfied by the allotment and issue of 350,000,000 Consideration Shares by the Company at an issue price of HK$0.35 each.

1. THE S&P AGREEMENT

Date

22 October 2014 (after trading hours)

Parties

Purchaser: Magic Well Holdings Limited, a BVI company indirectly wholly owned by the Company

Vendor: Mr. Nicholas Tse

To the best of the Directors’ knowledge, information and belief after having made all reasonable enquiries, the Vendor is an independent third party not connected with the Company or connected persons of the Company.

Assets to be acquired

The Sale Shares, representing 60% of the issued share capital of the Target Company as at the date of the S&P Agreement.

Consideration

The Consideration for the Acquisition shall be HK$122,500,000 and will be satisfied by the allotment and issue of 350,000,000 Consideration Shares by the Company at an issue price of HK$0.35 each.

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LETTER FROM THE BOARD

The Consideration was determined after arm’s length negotiation between the Purchaser and the Vendor with reference to (i) the preliminarily assessment on the valuation of the Target Group prepared by an independent valuer, valuing 100% equity interest of the Target Group at approximately HK$207 million as at 30 September 2014 conducted by market approach with reference to comparable companies in the business sector; and (ii) the unaudited consolidated management account of the Target Group as at 30 September 2014.

The comparable companies used for reference in the valuation mentioned in item (i) in the preceding paragraph are engaged in development and production of computer generated visual and audio effects for films and TV media.

For details of the finalized valuation report of the Target Group, including details of the assumptions, basis and methodology of the valuation, please refer to Appendix V to this circular.

The Company considers that the post production business is a capital intensive industry. The Consideration was determined taking into account the net book value of the property, plant and equipment of approximately HK$29 million which accounted for the largest component of the total assets and the depreciation charge of approximately HK$7.4 million based on the unaudited consolidated statement of financial position as at 30 September 2014 and unaudited consolidated statement of profit or loss and other comprehensive income for the period ended 30 September 2014 of the Target Group. With significant investment in the property, plant and equipment in the years 2012 and 2013 of approximately HK$28 million and HK$8 million respectively for expansion, high depreciation charge in subsequent financial years is resulted which reduces the net profit for the period afterwards. In addition, since some fully depreciated plant and machinery are still in use with good condition, the Company agrees with the independent valuer to perform the preliminary valuation assessment based on enterprise value to EBITDA multiple of comparable companies to avoid the distortion from depreciation. The Company considers it is fair for both parties to justify the Consideration based on the preliminary valuation assessment.

The Directors consider that the Consideration is fair and reasonable and the Acquisition is in the interests of the Company and the Shareholders as a whole.

Consideration adjustment

Pursuant to the S&P Agreement, the Vendor shall deliver to the Purchaser the Completion Account on Completion. If the net asset value under the Completion Account is less than the net asset value under the unaudited consolidated management account of the Target Group as at 30 September 2014 by HK$5 million or more, the Vendor shall pay to the Purchaser the difference in such net asset value in excess of HK$5 million in cash upon Completion.

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LETTER FROM THE BOARD

In addition, pursuant to the S&P Agreement, the Purchaser shall have the right to audit the Completion Account within 6 months from Completion. If the net asset value under the Audited Completion Account is (i) less than the net asset value under the unaudited consolidated management account of the Target Group as at 30 September 2014 by HK$5 million or more, and (ii) less than the net asset value under the Completion Account, the Vendor shall pay to the Purchaser the difference in such net asset value between the Audited Completion Account and the unaudited consolidated management account of the Target Group as at 30 September 2014 in excess of HK$5 million (after deducting the amount already paid for the difference of net asset value between the Completion Account and the unaudited consolidated management account of the Target Group as at 30 September 2014 upon Completion, if any) in cash within 7 days after the delivery of the Audited Completion Account from the Purchaser to the Vendor.

However, if the net asset value under the Audited Completion Account is (i) less than the net asset value under the unaudited consolidated management account of the Target Group as at 30 September 2014 by HK$5 million or more; and (ii) more than the net asset value under the Completion Account, the Purchaser shall refund to the Vendor the difference in such net asset value between the Audited Completion Account and the Completion Account in cash within 7 days after the delivery of the Audited Completion Account from the Purchaser to the Vendor. In any event, the amount to be refunded shall be limited to the amount received from the Vendor for the difference in such net asset value between the Completion Account and the unaudited consolidated management account of the Target Group as at 30 September 2014 as mentioned above, if any.

Taking into account that the business of the Target Group will continue to operate and that the net asset value of the Target Group is changing from time to time, the Purchaser considers that it is fair to provide certain buffer to allow changes in the net asset value of the Target Group from 30 September 2014 to the Completion Date within an acceptable range. The HK$5 million buffer for the Consideration adjustment is determined after arm’s length negotiation between the Purchaser and the Vendor taking into account (i) the historical consolidated financial results of Cosmos Glory for the two years ended 31 December 2013 and for the nine months ended 30 September 2014; and (ii) the considerable long length of time between 30 September 2014 and the Long Stop Date of the transaction.

The Consideration adjustment will be compensated by cash instead of the Consideration Shares since the Board considers the Share price of the Company may fluctuate from time to time. The Consideration adjustment should be settled by cash to avoid unexpected premium or discount for the Consideration Shares to be issued for adjustment when it is compared to the Share price at the latest practicable date prior to such issue after the Completion Date.

The Consideration Shares

Upon Completion, the Company will allot and issue, credited as fully paid, an aggregate of 350,000,000 Consideration Shares at an issue price of HK$0.35 per Consideration Share to the Vendor.

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LETTER FROM THE BOARD

The 350,000,000 Consideration Shares represent (i) approximately 23.42% of the existing issued shares of the Company as at the date of this circular; (ii) approximately 18.98% of the issued shares of the Company as enlarged by the issue of the Consideration Shares. Given the Vendor will own as to 18.98% the enlarged issued share capital of the Company upon Completion, there will be no change in control of the Company.

The issue price of HK$0.35 per Consideration Share was arrived at after arm’s length negotiation between the Company and the Vendor taking into account the recent prices of the Shares. The issue price of the Consideration Shares represents:

a discount of approximately 7.89% to the closing price of HK$0.38 per Share on the Last Trading Day;
a discount of approximately 2.78% to the average closing price of HK$0.36 per Share for the last 5 trading days up to and including the Last Trading Day; and
a discount of approximately 3.31% to the average closing price of HK$0.362 per Share for the last 10 trading days up to and including the Last Trading Day.

Application will be made to the listing committee of the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares. Details of the impact of the Consideration Shares on the shareholding structure of the Company are set out in the section headed “Shareholding structure as a result of the Acquisition” in this circular below.

Conditions precedent

Completion of the S&P Agreement is conditional upon:

(a) the approval of the S&P Agreement and the transactions contemplated hereunder by shareholders of the Purchaser and the Company permitted to vote on the relevant resolutions under the Listing Rules and such approval not having been proposed to be revoked;
(b) completion of the due diligence review of the business, affairs, operation, legal and financial position of the Target Group and the due incorporation of, the valid existence of and the power and capacity to carry on the business by the Target Group to the satisfaction of the Purchaser;
(c) the granting by the Stock Exchange of the listing of and permission to deal in the Consideration Shares;
(d) the Shareholders approving the Specific Mandate for the allotment and issue of Consideration Shares;

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LETTER FROM THE BOARD

(e) the obtaining of all necessary approvals, authorisations or consents in Hong Kong, BVI, Bermuda, PRC or elsewhere in relation to the transactions contemplated under the S&P Agreement (if necessary);
(f) all necessary consents being granted by third parties in relation to the transactions contemplated hereunder;
(g) the execution of the deed of indemnity by the Vendor in favour of the Purchaser and the Target Company;
(h) the financial position of the Target Group as at the date of the S&P Agreement is substantially the same as that shown in the unaudited consolidated management account of the Target Group as at 30 September 2014 and that there will not be any adverse change in the financial position of the Target Group from the date of the S&P Agreement up to the Completion Date;
(i) there being no matter affecting the Target Group which is inconsistent with the warranties or which would otherwise affect a bona fide purchase of Sale Shares of the Company and the prospects of the business continuing in the future at current levels;
(j) such other business as the Purchaser shall reasonably require for the purpose of duly performing the S&P Agreement;
(k) an independent professional valuation by an independent third party valuer acceptable to the Purchaser which confirms the value of 100% equity interest of the Target Group at no less than HK$200 million; and
(l) the warranties as stated in the S&P Agreement remaining true and accurate in all respects and not misleading in any respect as of the Completion Date by reference to the facts and circumstances subsisting as at the Completion Date.

The Purchaser may, in its absolute discretion, waive conditions (b) and (f) to (l) at any time before the Long Stop Date. If any of the above conditions not fulfilled or waived (as the case may be) on or before the Long Stop Date (or such later date as may be agreed among the parties to the S&P Agreement in writing), the S&P Agreement shall terminate and neither party to the S&P Agreement shall have any further obligations towards the other thereunder except for antecedent breaches (if any). As at the Latest Practicable Date, conditions (g) and (k) have been fulfilled.

Up to the Latest Practicable Date, other than the granting by the Stock Exchange of the listing of and permission to deal in the Consideration Shares, the Company did not aware of any approvals, authorisations or consents in relation to the transactions contemplated under the S&P Agreement which are necessary as mentioned in conditions (e) and (f) above.

In order to assess condition (h) above, the Company has access to the latest financial results of the Target Group and shall identify if there is any abnormal fluctuation or balance which may substantially affect the financial positions of the Target Group during the due diligence review as mentioned in (b) above.

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LETTER FROM THE BOARD

First right of refusal

Pursuant to the S&P Agreement, the Vendor unconditionally and irrevocably undertakes and agrees with the Purchaser to grant a first right of refusal upon Completion to the Purchaser, the Company and their subsidiaries/related parties to co-invest in all his investments in film and TV productions and other entertainment related productions in the event that he intends to invite coinvestor(s) for such investment and so long as the Target Company or any of the subsidiaries remain a subsidiary/subsidiaries of the Company.

The Company will comply with all the relevant Listing Rules requirements when it exercises the first right of refusal.

Completion

Completion will take place within 10 business days after all the conditions having been fulfilled or waived (as the case may be) (or any other date as may be agreed among the parties to the S&P Agreement in writing).

The Board intends to invite at least one of the management of the Target Group to join the Board as executive Director(s) to oversee this new business of the Company and to facilitate the reporting and business development of the Target Group after Completion. The appointment and nomination of the management of the Target Group as the executive Director(s) of the Company shall be at the sole discretion of the Board. As at the Latest Practicable Date, the Board has not yet identified and proposed any of the management of the Target Group to join the Board as executive Director.

Upon Completion, the Target Company shall become a non-wholly-owned subsidiary of the Company and the financial results of the Target Group will be consolidated into the Group. The Purchaser will be appointed as a corporate director of the Target Company upon Completion.

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LETTER FROM THE BOARD

2. INFORMATION OF TARGET GROUP

Set out below is the group structure, business and financial information of the Target Group based on the information provided by the Vendor.

Group structure

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----- Start of picture text -----

Vendor
100%
Lucrative Skill
100%
Choice Excel
100%
Cosmos Glory
100%
PO (Hong Kong) The Colorist Limited
15%
100% 100% 85%
PO (Beijing) PO (Shanghai) PO Holding (Beijing)
----- End of picture text -----

Business

The Target Company is an investment holding company incorporated in BVI with limited liability and owned as to 100% by the Vendor.

PO (Hong Kong) was incorporated in Hong Kong with limited liability and wholly owned by Cosmos Glory which is an investment holding company incorporated in Hong Kong with limited liability. Cosmos Glory is owned as to 100% by Choice Excel which is an investment holding company incorporated in BVI with limited liability. Choice Excel is owned as to 100% by the Target Company.

PO (Beijing) and PO (Shanghai) are companies established in the PRC with limited liability and wholly owned by PO (Hong Kong). PO Holding (Beijing) was incorporated in Hong Kong with limited liability and owned as to 85% by PO (Hong Kong) and as to 15% by The Colorist Limited, an independent third party to both the Company and Mr. Tse. The sole shareholder of The Colorist Limited who is also its sole director, also serves as a director of Cosmos Glory, PO (Hong Kong), PO (Beijing), PO (Shanghai) and PO Holding (Beijing). PO Holding (Beijing) is currently a dormant company and is in the process of deregistration. PO (Hong Kong), PO (Beijing) and PO (Shanghai) are the operating companies of the Target Group.

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LETTER FROM THE BOARD

The Target Group is a leading provider of post production services in Hong Kong, Shanghai and Beijing. It is principally engaged in conducting post production work on advertisements, featured films, TV programmes, music videos, internet and mobile applications content, visual matters on corporate events, etc. Post production services generally include video editing, sound editing, adding soundtrack, sound effect and music, colour and exposure correction, adding special effect and animation, adding graphic, video reformatting, 2D-3D conversion, etc.

The Target Group is reputable in serving clients from the advertisement segment. It works closely with leading multinational advertising agencies and, has served a large number of major global and domestic brands in various industries such as motor vehicle, cosmetic, fashion and accessories, food and beverages, electronic, etc. Currently, PO (Hong Kong) and PO (Shanghai) are dominant players in their respective advertisement markets. PO (Beijing), on the other hand, is strategically positioned to develop the China-featured film market which has experienced explosive growth in recent years.

Financial information

Set out below is the summary of the audited consolidated financial information of the Target Group for the two years ended 31 December 2013 and for the nine months ended 30 September 2014.

	For the nine	For the	For the
	months ended	year ended	year ended
	30 September 2014	31 December 2013	31 December 2012
	HK$’000	HK$’000	HK$’000
Revenue	77,846	84,986	52,789
EBITDA_(note 1&2)_	8,703	8,495	(5,189)
Loss before taxation	(1,858)	(6,655)	(14,198)
Loss after taxation_(note 1)_	(2,047)	(7,438)	(14,293)
	As at	As at	As at
	30 September 2014	31 December 2013	31 December 2012
	HK$’000	HK$’000	HK$’000
Net liabilities_(note 3)_	(15,659)	(40,231)	(33,755)

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LETTER FROM THE BOARD

Notes

The loss after taxation and EBITDA for the nine months ended 30 September 2014 as stated above included an one-off fair value adjustment on the prepayments for life insurance policies amounted to approximately HK$2,518,000.

The life insurance policies entered into with an insurance company are to insure Mr. Tse and one of the directors of the Target Group. Under the policies, PO (Hong Kong) is the beneficiary. On 23 September 2014, PO (Hong Kong) applied to terminate the policies and expected to receive cash redemption based on the cash value of the policies upon termination, which had been received before the reporting date. Therefore, the difference between the cash value and the carrying amount of the policies was recognised as one-off fair value adjustment on the prepayments for life insurance policies during the nine months ended 30 September 2014.

By excluding the financial effect of this one-off fair value adjustment, the Target Group has recorded profit after taxation and EBITDA for the nine months ended 30 September 2014 amounted to approximately HK$471,000 and HK$11,221,000 respectively.

EBITDA for the two years ended 31 December 2013 and for the nine months ended 30 September 2014 were calculated based on the audited consolidated financial information of the Target Group in Appendix II to this circular.
The consolidated net liabilities of the Target Group decreased from HK$40,231,000 as at 31 December 2013 to HK$15,659,000 as at 30 September 2014 was mainly due to the capitalisation of a shareholder’s loan from the Vendor, of which the book value of approximately HK$27,379,000 was debited to the liabilities during the nine months ended 30 September 2014.

Business prospects

The Target Group is prepared to gain from the fast growing multi-media advertisement and films making industries in the PRC through its brand recognition and established presence in Hong Kong, Shanghai and Beijing. The Target Group is among the few large domestic players in the PRC which are capable of meeting the high technical standard required by multinational customers. Management is confident that the Target Group will continue to achieve strong growth in its traditional markets of TV commercials and featured films, over the foreseeable future.

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LETTER FROM THE BOARD

The Target Group has about 180 staff, out of which more than 125 are technologists, The key technologists have over 15 years experience in providing post production services. With the sizable team of vastly experienced technologists, the Target Group is capable of handling the most technically demanding post production projects using cutting edge equipment in the industry. It strives to expand its business coverage along the industry chain of the transmedia production.

Apart from expanding the traditional markets, the Target Group plans to develop new businesses including post production work on mobile applications content, online games, corporate events, micro films and animation production. It also plans to provide video production and creative services related to post production technique to corporate customers. Meanwhile, the Target Group is in negotiation with various operators and partners to (1) provide onsite technical support and real time post production services in movie cities in the PRC; (2) provide visual effects with the application of Hologram 3D visual projection and other visual enhancement techniques in theme parks; and (3) form strategic partnership with universities or training institutions to offer training courses to younger generation. The negotiation with various operators and partners are at preliminary stage and no legally blinding contract has been entered into as at the Latest Practicable Date.

The Target Group is currently setting up a comprehensive visual special effect (“VFX”) and computer graphic (“CG”) production house in Beijing for large budget VFX-intensive movies. The necessary equipment was installed and the production house has started its operation since November 2014. In filmmaking, VFX and CG are the processes by which imagery is created and/or manipulated by animation and compositing software outside the context of a live action shot. VFX and CG involve the integration of live-action footage and generated imagery to create environments which look realistic, but would be dangerous, expensive, impractical, or simply impossible to capture on film. Apart from targeting domestic movies, the Target Group is currently in negotiation with overseas leading VFX operators to work on foreign projects (such as Hollywood movies) together. The Target Group is currently in negotiation with a well-known CG production company of Hollywood movies, aiming to explore the market opportunities as its strategic outsourcing production partner for Hollywood movies and also, separately negotiating with another studio targeting to build up strategic partnership to serve the production of Taiwanese movies. Both negotiations are at preliminary stage and further information will be announced according to the applicable Listing Rules where appropriate after Completion. The new VFX house is expected to become fully operational in early 2015.

The PRC advertisement market and film market are currently the top 3 largest market in the world and are expected to continue to grow substantially in the foreseeable future. With over 10 years of establishment and organization strengthening, the Target Group has built up a large customer base with over 450 customers in different industries, acquired product knowledge and market know-how, and established its brand image in the industry. The Target Group is in an advantageous position to consolidate its dominancy in the traditional markets and to achieve long lasting success in developing new businesses as the media market in the PRC continues to grow considerably.

3. FINANCIAL EFFECTS OF THE ACQUISITION

Upon Completion, the Target Group shall become non-wholly owned subsidiaries of the Company, and financial results, assets and liabilities of the Target Group will be consolidated into the accounts of the Group.

– 15 –

LETTER FROM THE BOARD

Appendix IV to this circular presents the unaudited pro forma financial information of the Enlarged Group and describes the basis of preparation thereof.

Assets and liabilities

As set out in Appendix IV to this circular, the unaudited pro forma consolidated statement of financial position of the Enlarged Group illustrates the effect of Completion on the Group, assuming that the Acquisitions had taken place on 30 June 2014. If the Acquisition had been completed on 30 June 2014, the total assets of the Enlarged Group as at 30 June 2014 would have been increased from approximately HK$529.6 million to approximately HK$704.7 million primarily attributable to the consolidation of the assets in the Target Group. The total liabilities of the Enlarged Group as at 30 June 2014 would have been increased from approximately HK$45.2 million to approximately HK$149.7 million primarily attributable to the consolidation of the liabilities in the Target Group. The Enlarged Group would have cash and bank balances of approximately HK$397.8 million. It is expected the Acquisition will not have any substantial adverse impact on the Group’s cash flow position or its business operations and the Acquisition will not add immediate financial burden to the Group.

Earnings

Following Completion, members of the Target Group will become non-wholly owned subsidiaries of the Company and the Group will be able to consolidate the results of the Target Group. The loss attributable to the owners of the Company for the year ended 30 June 2014 as extracted from the 2014 annual report of the Company was approximately HK$66.8 million. According to the unaudited proforma income statement of the Enlarged Group as if the Acquisition had been completed on 1 July 2013, the proforma loss attributable to the owners of the Company would have been approximately HK$77.7 million.

Gearing

The Group’s gearing ratio on the basis of a ratio of the Group’s total borrowings over total assets was approximately 0.02 as at 30 June 2014. According to the unaudited pro forma consolidated statement of financial position of the Enlarged Group as set out in Appendix IV to this circular, the unaudited pro forma gearing ratio of the Enlarged Group would have been increased to approximately 0.13 as if the Acquisition had been completed on 30 June 2014.

Financing of the Acquisition

The Consideration will be satisfied by the allotment and issue of 350,000,000 Consideration Shares by the Company at an issue price of HK$0.35 each.

4. INFORMATION OF VENDOR

Mr. Nicholas Tse (謝霆鋒), being the Vendor, is a well-known artiste in Hong Kong and the AsiaPacific Region. Mr. Tse has involved in the production of various kinds of music and movies for over 18 years, of which he spent 11 years in TV programmes production. Mr. Tse has been a successful actor and singer in PRC and Hong Kong for many years. With his extensive experiences in media production, he has established wide and resourceful contacts with upstream suppliers and downstream customers for the post production business.

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LETTER FROM THE BOARD

In 2003, Mr. Tse founded PO (Hong Kong), which is now one of the biggest post production companies in Hong Kong which provides services for transmedia products including movies, video games, and advertisements, etc.

5. REASONS FOR AND BENEFITS OF THE ACQUISITION

The Group is principally engaged in (i) film and TV programme production; (ii) event production; (iii) artiste and model management; (iv) music production; (v) investment in securities and (vi) investment in a pay TV operation. For the production of audio-visual productions, the Group has been more focused on the principal photography part of the whole process. In order to expand the income base and achieve stable growth in the future, the Group has implemented diverse business development strategies and decided to enter into the production markets of transmedia products and allow the Company to have a solid enhancement of the foundation by infusing product complexities into the existing business. The Acquisition provides an opportunity for the Group to acquire quality assets so as to complement its expansion strategy and to tap into the fast growing post production markets of transmedia products in different regions.

The motion pictures industry creates films, TV programmes, and other audio-visual products such as commercials and music videos for distribution through various channels including movie theatres, TV broadcasters, and retailers. Even though every audio-visual production is a different undertaking, each usually follows the same process: (1) pre-production, (2) principal photography, and (3) post production. Pre-production is the process of planning and preparing all of the details of the production while the cast performances are filmed during principal photography phase. Post production is commonly known as the process of editing and assembling all elements of the films, TV programmes, or other productions into the finished products.

The Company has been engaging in the film and TV programmes production business since 2005 and is actively looking for high quality acquirees to strengthen its competitive advantage in film and TV programmes production. In order to cope with the growing expectation from targeted audience to enjoy high-quality film and TV programmes, the Company considers that the Target Group probably brings some breakthroughs in the film and TV programmes production process that may enhance the quality and lower the production cost of each single shot of films and TV programmes. The Company considers that the Acquisition is beneficial to the growth of the Group by streamlining the operational flow, enhancing its profitability and maximizing its shareholder’s value.

As disclosed in the annual report of the Company for the year ended 30 June 2014, the Group has dedicated its efforts in strengthening and opening up distribution channels for its film and TV programmes production in the PRC. Given the continued opening and expansion of the film and TV programmes market as well as the continuous growth in the box office in the PRC, the Company believes that there is a great business potential for the distribution of the film and TV production in the PRC. The business nature of the Target Group provides a well-fitted solution for the Company to streamline the resources allocation of the core production stages of films and TV programmes and enable the Company to utilise the resources in distribution of transmedia products to broaden the downstream customers of them.

Benefit of the first right of refusal by the Vendor

During the negotiation of the Acquisition, the Company has successfully strived for a nonmonetary first right of refusal from the Vendor to which the Company considers that it would bring along with a series of potential benefits to the Group as discussed below.

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LETTER FROM THE BOARD

Under the S&P Agreement, when Mr. Tse intends to invite co-investor(s) to invest in production of films and TV programmes and other entertainment related productions, the first right of refusal granted by Mr. Tse to the Group allows the Group a privileged position to screen and select the feasible co-investment projects that the Company considers favorable to participate in.

As an established market participant, professional investor and experienced producer of movies and TV programmes in the PRC and Hong Kong, the Company understands that tremendous costs would have to be spent over the pre-investment filtering process. The Company believes that such arrangement allows the most feasible project coming with a lower cost. Also, it is believed that the first right of refusal could arouse interests from potential investment partners that could be a great benefit when the Company is going to negotiate business opportunities with potential production projects of motion pictures.

As the value of the benefit of the first right of refusal as mentioned above could not be measured reliably, the Purchaser and the Vendor have not taken into account the value of the first right of refusal when determining the Consideration of the Acquisition.

The Directors are of the view that the terms of the Acquisition including the abovementioned first right of refusal granted by the Vendor are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

6. SHAREHOLDING STRUCTURE AS A RESULT OF THE ACQUISITION

Set out below is the summary of the shareholding structure of the Company (i) as at the date of this circular; and (ii) upon Completion (assuming no further Shares will be issued or repurchased between the date of this circular and the Completion Date):

Vendor Public Shareholders Total	As at the date of this circular Number of Shares Approx.% – – 1,494,460,890 100.00% 1,494,460,890 100.00%	Upon Completion Number of Shares Approx.% 350,000,000 18.98% 1,494,460,890 81.02% 1,844,460,890 100.00%	Upon Completion Number of Shares Approx.% 350,000,000 18.98% 1,494,460,890 81.02% 1,844,460,890 100.00%
			100.00%

7. IMPLICATION OF THE LISTING RULES

As one or more of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) in respect of the Acquisition is more than 100%, the Acquisition constitutes a very substantial acquisition of the Company and is subject to reporting, announcement and shareholders’ approval requirements under Chapter 14 of the Listing Rules. The issue of the Consideration Shares under the S&P Agreement is subject to the Specific Mandate to be sought from the Shareholders at the SGM.

As Completion is subject to the fulfillment or waiver (as the case may be) of various conditions precedent as set out in the S&P Agreement, the Acquisition and the transactions contemplated thereunder may or may not proceed. Shareholders and potential investors should exercise caution when dealing in the Shares.

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LETTER FROM THE BOARD

PROPOSED REFRESHMENT OF THE SCHEME MANDATE LIMIT UNDER THE SHARE OPTION SCHEME

Under the Listing Rules, the maximum number of Shares which may be allotted and issued upon the exercise of all Share Options which initially shall not in aggregate exceed 10% of the Shares in issue as at the date of adoption of the Share Option Scheme and thereafter, if refreshed shall not exceed 10% of the Shares in issue as at the date of approval of the Refreshed Mandate Limit by the Shareholders.

1. EXISTING SHARE OPTION SCHEME

The Share Option Scheme was adopted by the Company on 8 November 2011 pursuant to a resolution passed by the Shareholders on 8 November 2011 (the “ Adoption Date ”). Apart from the Share Option Scheme, the Company has no other share option scheme currently in force. Since the Adoption Date, the Scheme Mandate Limit has not been refreshed.

Pursuant to the Share Option Scheme, the total number of Shares which may be allotted and issued upon exercise of all share options granted by the Company under the Share Option Scheme and any other share option schemes of the Company shall not in aggregate exceed 10% of the total number of Shares in issue as at the Adoption Date. As at the Latest Practicable Date, no Share Option was granted under the Share Option Scheme.

The existing Scheme Mandate Limit is 12,454,608 Shares. Under the Share Option Scheme, the Directors may at their discretion, grant options to employees, including any Directors of the Company, its subsidiaries or any entity in which any member of the Group holds an equity interest to subscribe for the Shares, subject to the terms and conditions stipulated therein. As at the Latest Practicable Date, the existing scheme mandate has never been utilized.

2. REFRESHMENT OF THE SCHEME MANDATE LIMIT

Pursuant to the Share Option Scheme and in compliance with Chapter 17 of the Listing Rules, the Company may refresh the Scheme Mandate Limit by ordinary resolution of the Shareholders at a general meeting provided that the maximum number of Shares which may be issued upon exercise of all Share Options to be granted under the Share Option Scheme and any other share option schemes of the Company shall not exceed 10% of the Shares in issue as at the date of approval of the refreshed limit. Any Share Options previously granted under the Share Option Scheme (if any) or any other share option schemes of the Company (including those outstanding, cancelled, lapsed or exercised in accordance with the terms of the Share Option Scheme or any other share option schemes of the Company) shall not be counted for the purpose of calculating the Scheme Mandate Limit as refreshed.

As the issued share capital of the Company has been enlarged substantially since the Adoption Date to 1,494,460,890 Shares as at the Latest Practicable Date as a result of the rights issue completed on 6 June 2014, the Board would like to seek approval of the Shareholders at the SGM for the refreshment of the Scheme Mandate Limit. The Directors consider that it is in the interests of the Company and the Shareholders as a whole to grant the refreshment of the Scheme Mandate Limit so as to provide the Company with greater flexibility in granting the Share Options to eligible participants under the Share Option Scheme as incentive or for their contribution to the Group.

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LETTER FROM THE BOARD

Notwithstanding the foregoing, pursuant to the Share Option Scheme and the Listing Rules, the maximum number of Shares which may be issued upon exercise of all outstanding share options granted and yet to be exercised under the Share Option Scheme and any other share option scheme(s) of the Company must not in aggregate exceed 30% of the total number of the Shares in issue from time to time. No share option shall be granted under any share option scheme(s) of the Company if this will result in the 30% limit being exceeded.

On the basis of 1,494,460,890 Shares being in issue as at the Latest Practicable Date and there being no change in the number of issued Shares before the SGM date, the maximum number of Shares which may be issued upon exercise of all share options that may be granted under the Refreshed Scheme Mandate Limit is 149,446,089 Shares, representing approximately 10% of such issued shares and does not exceed the 30% limit.

The refreshment of the Scheme Mandate Limit is conditional upon:

the passing of an ordinary resolution by the Shareholders at the SGM to approve the refreshment of the Scheme Mandate Limit; and
the Listing Committee of the Stock Exchange granting the approval of the listing of, and permission to deal in, the Shares that may be issued pursuant to the exercise of any Share Options that may be granted under the Share Option Scheme which number shall not exceed the Refreshed Mandate Limit.

Application will be made to the Stock Exchange for the listing of, and permission to deal in the Shares, representing 10% of the Shares in issue at the SGM, which may fall to be issued upon the exercise of the Share Options that may be granted under the Share Option Scheme subject to the Refreshed Mandate Limit.

The Directors consider that the refreshment of the Scheme Mandate Limit is in the best interests of the Company and the Shareholders as a whole because it enables the Company with greater flexibility in granting the Share Options to eligible participants under the Share Option Scheme as incentive or for their contribution to the Group. The renewal of the Scheme Mandate Limit is in line with the purpose of the Share Option Scheme.

3. LISTING RULES IMPLICATION

Pursuant to Rule 17.03(3) of the Listing Rules, the refreshment of the Scheme Mandate Limit shall be subject to the Shareholders’ approval requirements under the Listing Rules.

SGM

A notice convening the SGM to be held at Plaza 3, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Hong Kong on Friday, 16 January 2015 at 11:00 a.m. is set out on pages SGM-1 to SGM3 of this circular to consider and, if thought fit, to approve (i) the S&P Agreement and the transactions contemplated thereunder; (ii) the granting of the Specific Mandate to allot and issue the Consideration Shares; and (iii) the proposed refreshment of Scheme Mandate Limit. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, no Shareholder had a material interest in the S&P Agreement and the refreshment of Scheme Mandate Limit. Therefore, no Shareholder is required to abstain from voting at the SGM.

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LETTER FROM THE BOARD

A form of proxy for use at the SGM is enclosed with the circular. Whether or not you are able to attend the SGM, you are requested to complete and sign the accompanying form of proxy in accordance with the instructions printed thereon and deposit the same with the Company’s Hong Kong branch share registrar, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned thereof should you so wish. Voting on the proposed resolutions at the SGM will be taken by poll.

RECOMMENDATION

The Directors consider that the terms of the S&P Agreement and the transactions contemplated thereunder, are on normal commercial terms, fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the resolutions numbered 1, 2 and to be proposed at the SGM to approve those matters.

The Board also considers that the refreshment of the Scheme Mandate Limit is fair and reasonable and in the interests of the Company and the Shareholders as a whole and accordingly, the Directors also recommend the Shareholders to vote in favour of the resolution in respect of the refreshment of the Scheme Mandate Limit as set out in the notice of SGM.

ADDITIONAL INFORMATION

Your attention is also drawn to the information set out in the appendices to this circular.

Your faithfully, On behalf of the Board See Corporation Limited Direk Lim Chairman

– 21 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A. THREE-YEAR FINANCIAL INFORMATION

The consolidated financial statements of the Group (i) for the financial year ended 30 June 2014 is disclosed in the 2014 annual report of the Company from pages 47 to 131; (ii) for the financial year ended 30 June 2013 is disclosed in the 2013 annual report of the Company from pages 53 to 133; and (iii) for the financial year ended 30 June 2012 is disclosed in the 2012 annual report of the Company from pages 53 to 141, all of which have been published on the website of the Stock Exchange (www.hkex.com.hk) and the website of the Company (http://www.irasia.com/listco/hk/see/).

B. TREND OF BUSINESS AND FINANCIAL AND TRADING PROSPECTS

The Group’s annual results for the year ended 30 June 2014 is summarized below:

The Group’s total turnover during the year ended 30 June 2014 was approximately HK$54.4 million, representing an increase of approximately 133.5% from approximately HK$23.3 million for the year ended 30 June 2013. The Group’s gross profit for the year was approximately HK$12.1 million, representing an increase of approximately 28.7% from approximately HK$9.4 million in the previous year. The increase in turnover was mainly attributable to the increase in turnover from film and TV programme production generated by the Group during the year and the net gain from the sale of investment at fair value through profit or loss for the year of approximately HK$9.7 million. The Group did not record any gain from the sale of investment in the previous year.

Meanwhile, the Group recorded a loss from operations for the year of approximately HK$64.4 million, compared with approximately HK$54.1 million in the previous year. Such increase in the loss from operations was mainly attributable to the increase in the distribution costs from approximately HK$4.7 million in the fiscal year ended 30 June 2013 to approximately HK$13.7 million in the fiscal year ended 30 June 2014. The increase in distribution costs during the year was mainly attributable to the marketing and promotion expenses of the two collaborating movies released by the Group in Mainland China. The Group recorded a loss of approximately HK$65.1 million for the year as compared with loss of approximately HK$54.7 million in the fiscal year ended 30 June 2013.

Other operating expenses for the year increased to approximately HK$43.4 million from approximately HK$37.6 million in the previous year. Such increase was mainly contributed by the increase in impairment loss recognised in respect of film rights during the year.

The loss attributable to owners of the Company for the year was approximately HK$66.8 million, compared with a loss of approximately HK$52.8 million in previous year. The loss per share for the year ended 30 June 2014 was approximately HK$0.13 compared with the loss per share of approximately HK$0.13 for the year ended 30 June 2013.

Film and TV programme production remained the core operation of the Group and accounted for the largest percentage of the Group’s turnover and gross profit during the year ended 30 June 2014. The Directors expect this to remain the case for the foreseeable future.

The Group will continue to produce and invest in high quality films and TV programmes for the greater China region, especially for the PRC market. Given the continuous opening up and expansion of the film and TV production market as well as the continuous growth in the box office in the PRC, the Directors strongly believes that there is great potential for the distribution of our film and TV productions in the PRC.

I – 1

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Directors strongly believe that good stories and quality production are always well received by audience. The Group must therefore take the greatest care in choosing attractive stories and scripts for the film and TV programme production projects.

In addition, other than invest into the post production business by acquiring the Target Group, the Group is always on lookout for different entertainment related investment opportunities in the market which may increase the income of the Company or provide synergy to the existing business of the Company.

C. INDEBTEDNESS

Indebtedness of the Enlarged Group

As at the close of business on 31 October 2014, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Enlarged Group had outstanding borrowings and commitments of approximately HK$96,963,000 and approximately HK$122,376,000 respectively, details of which are as follows:

Borrowings

As at 31 October 2014, the Enlarged Group’s outstanding borrowings comprised of bank overdrafts of HK$15,124,000, bank borrowings of HK$69,565,000, other borrowing from an independent third party of HK$10,000,000, obligations under finance leases of HK$390,000 as well as amount due to a director of HK$1,884,000. Bank overdrafts are secured, interest bearing and repayable on demand, while bank borrowings are secured, carry interest at prevailing market rates and have fixed repayment terms but contain a repayment on demand clause. Obligations under finance leases are secured, interest bearing and have fixed repayment terms. Other borrowing is unsecured, interest bearing and repayable within one year from the first date of drawdown, while the amount due to a director is unsecured, interest-free and repayable on demand.

Contingent liabilities

The contingent liabilities of the Enlarged Group as at 31 October 2014 are as follows:

(i) As at 31 October 2014, the Company provided corporate guarantees amounting to approximately HK$24 million to a financial institution in respect of banking facilities granted to Welback International Investments Limited and its subsidiaries (the “WIIL Group”), approximately HK$5.5 million of which was utilised by members of the WIIL Group and such amount was claimed by the financial institution as disclosed in point (iii) below.
(ii) The Company and its ex-subsidiary, P.N. Electronic Ltd. (“PNE”) have been involved in arbitration proceeding with North American Foreign Trading Corporation (“NAFT”). In 1996, PNE shipped electronic goods to a former customer, NAFT. However, NAFT has filed a Statement of Claim with the American Arbitration Association, in which it alleged that the Group manufactured and sold defective goods to NAFT for which NAFT was entitled to refund. In addition, NAFT further claimed damages under the arbitration. The Company has upon legal advice, vigorously contested the alleged claims and has counterclaimed the said sum of HK$18 million as well as other damages. The Company has not received any documents in relation to the arbitration proceedings for a substantial period of time and insofar as the Company is aware, the proceedings remain dormant.

I – 2

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) On 13 October 2003, a Writ of Summons and Statement of Claim was issued by BII Finance Company Limited (“BII Finance”) against the Company under a guarantee allegedly given by the Company in favour of BII Finance in respect of certain liabilities of Welback Enterprises Limited, a former subsidiary of the Company. The claim is for a sum of approximately HK$3,583,000 and US$248,000 (approximately HK$1,936,000), together with interest.

The Company has issued Third Party Proceedings against Mr. Lee Chun Kwok and Mr. Fong Wing Seng, the former directors of the Company, seeking a contribution to the extent of 49% of BII Finance’s claim in the event that the Company is found liable to BII Finance (which is denied).

BII Finance has not taken any steps to progress with the action since June 2006. The Company is prepared and ready to continue to defend BII Finance’s claim, and will also continue to pursue the Third Party Proceedings against Mr. Lee Chun Kwok and Mr. Fong Wing Seng.

Commitments

As at 31 October 2014, the Enlarged Group had outstanding commitments in respect of property, plant and equipment and film investment of approximately HK$1,844,000 and HK$104,359,000 respectively. In addition, the Enlarged Group had outstanding commitments under non-cancellable operating leases of approximately HK$16,173,000.

Disclaimer

For the purpose of the above statement of indebtedness, foreign currency denominated amounts has been translated into Hong Kong dollar at the rates of exchange prevailing as at the close of business on 31 October 2014.

Save as aforesaid and apart from intra-group liabilities and normal trade payables, the Enlarged Group did not have: (a) any other debt securities issued and outstanding, and authorised or otherwise created but unissued; (b) any other term loans (whether guaranteed, unguaranteed, secured or unsecured); (c) any other borrowings or indebtedness in the nature of borrowings including bank overdrafts and liabilities under acceptances (other than normal trade bills) or acceptance credits or hire purchase commitments; (d) any other mortgages or charges; or (e) any other material guarantees or contingent liabilities as at 31 October 2014.

As at the Latest Practicable Date, the Directors confirmed that, there had been no material change in the indebtedness position of the Enlarged Group, except for those mentioned above and any contingent liabilities or any guarantees of the Enlarged Group.

I – 3

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

D. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 30 June 2014, the date to which the latest published audited financial statements of the Group were made up.

E. WORKING CAPITAL STATEMENT

The Directors, after due and carefully enquiry, are of the opinion that following Completion, after taking into account the financial resources available to the Enlarged Group, including internally generated funds and the available banking facilities, the Enlarged Group has sufficient working capital for its present requirements for at least the next 12 months from the date of this circular, in the absence of unforeseeable circumstances.

I – 4

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

The following is the text of a report, prepared for the purpose of inclusion in this circular, received from the independent reporting accountants, HLB Hodgson Impey Cheng Limited, Certified Public Accountants, Hong Kong.

==> picture [290 x 58] intentionally omitted <==

31/F Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong

31 December 2014

The Directors See Corporation Limited Office D&E, 20th Floor, EGL Tower, No.83 Hung To Road, Kwun Tong, Kowloon HONG KONG

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) of Lucrative Skill Holdings Limited (the “Target Company”) and its subsidiaries (collectively referred to as the “Target Group”) which comprises the consolidated statements of financial position of the Target Group at 31 December 2011, 2012 and 2013 and 30 September 2014, the consolidated statements of profit or loss and other comprehensive income, the consolidated statements of changes in equity and the consolidated statements of cash flows of the Target Group for each of the financial years/period then ended (the “Relevant Periods”), the comparable financial information for the nine months ended 30 September 2013 (the “Comparable Financial Information”) and a summary of significant accounting policies and other explanatory information. The Financial Information has been issued by the directors of See Corporation Limited (the “Company”) for inclusion in the circular of the Company dated 31 December 2014 (the “Circular”) in connection with the proposed acquisition of 60% issued share capital of the Target Company by a subsidiary of the Company (the “Acquisition”).

The Target Company was incorporated in the British Virgin Island on 11 July 2014 and engaged in the business of investment holding. Pursuant to a group reorganisation as described in note 2 of Section B headed “Reorganisation and changes in group structure” below, which was completed on 30 September 2014, the Target Company became the holding company of the subsidiaries now comprising the Target Group (the “Reorganisation”).

At the date of this report, the Target Company has direct and indirect interests in the subsidiaries as set out in note 2 of Section B below. All companies now comprising the Target Group have adopted 31 December as their financial year end date. The statutory financial statements of the companies now comprising the Target Group were prepared in accordance with the relevant accounting principles applicable to these companies in the countries in which they were incorporated and/or established. Detail of their statutory auditors during the Relevant Periods are set out in note 2 of Section B below.

II – 1

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

No audited financial statements have been prepared by the Target Company as it is newly incorporated and has not involved in any significant business transactions since its date of incorporation, other than the Reorganisation.

For the purpose of this report, the director of the Target Company has prepared the consolidated financial statements of the Target Group for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) (the “Underlying Financial Statements”). We have undertaken an independent audit on the Underlying Financial Statements in accordance with the Hong Kong Standards on Auditing and have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The Financial Information set out in this report has been prepared from the Underlying Financial Statements with no adjustments made thereon, and in accordance with the applicable disclosure provisions of the Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “Listing Rules”).

DIRECTOR’S RESPONSIBILITY FOR THE FINANCIAL INFORMATION

For the purpose of the preparation of this report, the director of the Target Company is responsible for the preparation and the true and fair presentation of the Financial Information for the Relevant Periods in accordance with accounting policies set out in note 3 of Section B which confirm with the HKFRSs issued by the HKICPA, the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provision of the Listing Rules, and for such internal control as the director of the Target Company determined is necessary to enable the preparation of the Financial Information that is free from material misstatement, whether due to fraud or error.

The director of the Target Company is responsible for the contents of the Financial Information contained in this report which is included in the Circular.

REPORTING ACCOUNTANT’S RESPONSIBILITY

Our responsibility is to express an opinion on the Financial Information and to report our opinion to you. We carried out our procedures in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

OPINION

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Target Group at 31 December 2011, 31 December 2012, 31 December 2013 and 30 September 2014 and of the results and cash flows of the Target Group for the Relevant Periods.

II – 2

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

MATERIAL UNCERTAINTY CONCERNING GOING CONCERN BASIS OF ACCOUNTING

Without qualifying our opinion, we draw attention to note 4(b) of Section B to the Financial Information which indicates that the Target Group incurred a net loss of approximately HK$11,735,000, HK$14,293,000, HK$7,438,000 and HK$2,047,000 during the years ended 31 December 2011, 2012 and 2013 and during the nine months ended 30 September 2014 respectively and, as of that dates, the Target Group’s current liabilities exceeded its current assets of approximately HK$46,753,000, HK$86,755,000, HK$89,838,000 and HK$58,060,000 respectively, and the Target Group’s total liabilities exceeded its total assets of approximately HK$19,088,000, HK$33,755,000, HK$40,231,000 and HK$15,659,000 respectively. These conditions, along with other matters as set out in note 4(b) of Section B to the Financial Information, indicate the existence of a material uncertainty which may cast significant doubt about the Target Group’s ability to continue as a going concern.

REVIEW OF COMPARABLE FINANCIAL INFORMATION

We have reviewed the Comparable Financial Information as set out in Sections A, B and C below included in Appendix II to the Circular which comprises the consolidated statement of profit or loss and other comprehensive income, the consolidated statements of changes in equity and the consolidated statements of cash flows of the Target Group for the nine months ended 30 September 2013 and a summary of significant accounting policies and other explanatory information.

The director of the Target Company is responsible for the preparation and the true and fair presentation of the Comparable Financial Information in accordance with accounting policies set out in note 4 of Section B below which confirm with the HKFRSs issued by the HKICPA.

The director of the Target Company is also responsible for the contents of the Comparable Financial Information contained in this report which is included in the Circular.

Our responsibility is to express a conclusion on the Comparable Financial Information based on our review. We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets and liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an opinion on the Comparable Financial Information.

Based on our review, nothing has come to our attention that causes us to believe that the Comparable Financial Information, for the purpose of this report, is not prepared, in all material respects, in accordance with the accounting policies set out in note 4 of Section B below.

II – 3

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

A. FINANCIAL INFORMATION OF THE TARGET GROUP

Consolidated statements of profit or loss and other comprehensive income

Notes Revenue 9 Costs of service Gross profit Other income 10 Administrative expenses Finance costs 11 Loss before taxation Taxation 13 Loss for the year/period 12 Other comprehensive income/(loss) for the year/period, net of tax Item that may be reclassified subsequently to profit or loss: Exchange differences arising on translation of foreign operations Total comprehensive loss for the year/period Loss for the year/period attributable to: Owner of the Target Company Non-controlling interests Total comprehensive loss attributable to: Owner of the Target Company Non-controlling interests	Year ended 31 December 2011 2012 2013 HK$’000 HK$’000 HK$’000 45,817 52,789 84,986 (18,658) (36,682) (45,956) 27,159 16,107 39,030 837 2,051 1,167 (40,980) (30,710) (43,907) (317) (1,646) (2,945) (13,301) (14,198) (6,655) 1,566 (95) (783) (11,735) (14,293) (7,438) 400 (389) 962 (11,335) (14,682) (6,476) (11,735) (14,292) (7,436) – (1) (2) (11,735) (14,293) (7,438) (11.335) (14,681) (6,474) – (1) (2) (11.335) (14,682) (6,476)	Nine months ended 30 September 2013 2014 HK$’000 HK$’000 (Unaudited) 51,254 77,846 (25,421) (43,804) 25,833 34,042 372 1,502 (39,267) (35,024) (2,397) (2,378) (15,459) (1,858) (12) (189) (15,471) (2,047) 87 (751) (15,384) (2,798) (15,469) (2,045) (2) (2) (15,471) (2,047) (15.382) (2,796) (2) (2) (15,384) (2,798)	Nine months ended 30 September 2013 2014 HK$’000 HK$’000 (Unaudited) 51,254 77,846 (25,421) (43,804) 25,833 34,042 372 1,502 (39,267) (35,024) (2,397) (2,378) (15,459) (1,858) (12) (189) (15,471) (2,047) 87 (751) (15,384) (2,798) (15,469) (2,045) (2) (2) (15,471) (2,047) (15.382) (2,796) (2) (2) (15,384) (2,798)
			34,042 1,502 (35,024) (2,378)
			(1,858) (189)
			(2,047)
			(751)
			(2,798)

			(2,045) (2)
			(2,047)

			(2,796) (2)
			(2,798)

The accompanying notes form an integral part of the Financial Information.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Consolidated statements of financial position

Notes Non-current assets Property, plant and equipment 17 Deposit and prepayments for life insurance policies 18 Deposits paid for acquisition of property, plant and equipment Deferred tax assets 19 Current assets Production work in progress Trade and other receivables 20 Cash and bank balances 21 Current liabilities Trade and other payables 22 Amount due to a director 23 Amounts due to related companies 23 Amount due to a shareholder 23 Tax payable Obligations under finance leases 24 Bank and other borrowings 25 Net current liabilities Total assets less current liabilities	2011 HK$’000 22,935 945 – 3,785 27,665 – 13,632 1,366 14,998 13,300 – 5,528 32,259 – – 10,664 61,751 (46,753) (19,088)	At 31 December 2012 2013 HK$’000 HK$’000 34,701 31,339 13,031 13,371 739 – 4,671 4,942 53,142 49,652 178 – 16,071 22,180 642 2,965 16,891 25,145 23,258 17,594 913 2,573 3,312 9,251 18,033 17,763 747 905 97 97 57,286 66,800 103,646 114,983 (86,755) (89,838) (33,613) (40,186)	At 30 September 2014 HK$’000 26,547 11,102 – 4,924 42,573 – 37,069 2,581 39,650 16,059 1,630 21 – 97 237 79,666 97,710 (58,060) (15,487)

II – 5

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Consolidated statements of financial position (continued)

Notes Capital and reserves Share capital 26 Reserves Non-controlling interests Total equity Non-current liability Obligations under finance leases 24	2011 HK$’000 10 (19,098) (19,088) – (19,088) – (19,088)	At 31 December 2012 2013 HK$’000 HK$’000 10 10 (33,779) (40,253) (33,769) (40,243) 14 12 (33,755) (40,231) 142 45 (33,613) (40,186)	At 30 September 2014 HK$’000 1 (15,660) (15,659) – (15,659) 172 (15,487)

The accompanying notes form an integral part of the Financial Information.

II – 6

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Consolidated statements of changes in equity

	Attributable to owners of the Target Company	Attributable to owners of the Target Company	Attributable to owners of the Target Company	Attributable to owners of the Target Company	Total HK$’000 (7,753) (11,735) 400
Share Capital HK$’000 10 – – – 10 – – – – – 10 – – – –	Statutory reserve HK$’000 – – – – – – – – – 298 298 – – – 298	Translation reserve HK$’000 – – 400 400 400 – (389) (389) – – 11 – 962 962 –	Other reserve HK$’000 – – – – – – – – – – – – – – –	Accumulated losses HK$’000 (7,763) (11,735) – (11,735) (19,498) (14,292) – (14,292) – (298) (34,088) (7,436) – (7,436) (298)
					(11,335)
					(19,088) (14,293) (389)
					(14,682)
					15 –
					(33,755) (7,438) 962
					(6,476)
					–

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Consolidated statements of changes in equity (continued)

	Attributable to o	Attributable to o	wners of the Target Company	wners of the Target Company		Total HK$’000 (40,231) (2,047) (751)
Share capital HK$’000 10 – – – – 27,379 (27,389) 1 – 1 10 – – – – 10	Statutory reserve HK$’000 596 – – – – – – – 1,003 1,599 298 – – – 17 315	Translation reserve HK$’000 973 – (751) (751) – – – – – 222 11 – 87 87 – 98	Other reserve HK$’000 (Note ) – – – – – – 27,389 – – 27,389 – – – – – –	Accumulated losses HK$’000 (41,822) (2,045) – (2,045) – – – – (1,003) (44,870) (34,088) (15,469) – (15,469) (17) (49,574)	Subtotal HK$’000 (40,243) (2,045) (751) (2,796) – 27,379 – 1 – (15,659) (33,769) (15,469) 87 (15,382) – (49,151)
						(2,798)
						(10) 27,379 – 1 –
						(15,659)

						(33,755) (15,471) 87
						(15,384)
						–
						(49,139)

Note: The other reserve of the Target Group at 30 September 2014 represents the difference between (i) the carrying amount of the share capital of Cosmos Glory Limited (“Cosmos Glory”); and (ii) the nominal value of the share issued by the Target Company in exchange for the entire issued share capital of Cosmos Glory under the Reorganisation completed on 30 September 2014 as described in note 2 of Section B below.

II – 8

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Consolidated statements of cash flows

Cash flows from operating activities Loss before taxation Adjustments for: Interest income Interest expenses Impairment loss recognised in respect of trade receivables Depreciation of property, plant and equipment Amortisation of premium and other expenses charged on life insurance policies Interest income on life insurance policies Gain on disposals of property, plant and equipment Impairment loss recognised in respect of prepayments for life insurance policies Operating cash flows before movements in working capital (Increase)/decrease in production work in progress Decrease/(increase) in trade and other receivables Increase/(decrease) in trade and other payables Increase/(decrease) in amounts due to related companies Cash generated/(used in) from operations Tax paid Net cash generated/(used in) from operating activities	Year ended 31 December 2011 2012 2013 HK$’000 HK$’000 HK$’000 (13,301) (14,198) (6,655) (2) (2) (2) 317 1,646 2,945 – – 46 8,802 7,363 12,205 – 152 155 – (479) (496) – (73) – – – – (4,184) (5,591) 8,198 – (178) 178 1,955 (2,420) (5,947) 4,433 9,568 (5,981) 5,390 (2,216) 5,929 7,594 (837) 2,377 (667) (244) (923) 6,927 (1,081) 1,454	Nine months ended 30 September 2013 2014 HK$’000 HK$’000 (Unaudited) (15,459) (1,858) – (4) 2,397 2,378 – – 7,927 8,183 117 118 (372) (367) – (381) – 2,518 (5,390) 10,587 178 – (2,864) (15,109) 1,266 (1,449) 3,502 (183) (3,308) (6,154) (96) (979) (3,404) (7,133)	Nine months ended 30 September 2013 2014 HK$’000 HK$’000 (Unaudited) (15,459) (1,858) – (4) 2,397 2,378 – – 7,927 8,183 117 118 (372) (367) – (381) – 2,518 (5,390) 10,587 178 – (2,864) (15,109) 1,266 (1,449) 3,502 (183) (3,308) (6,154) (96) (979) (3,404) (7,133)
			10,587 – (15,109) (1,449) (183)
			(6,154) (979)
			(7,133)

II – 9

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Consolidated statements of cash flows (continued)

Cash flows from investing activities Interest received Payment for life insurance policies (Payment)/release of deposit paid for acquisition of property, plant and equipment Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Bank and other borrowings raised Repayment of bank borrowings Obligations under finance lease raised Repayment of obligations under finance leases (Repayments to)/advances from a director (Repayments to)/advances from a shareholder Interest paid Net cash generated from financing activities Net (decrease)/increase in cash and cash equivalents Effect of foreign exchange rate changes Cash and cash equivalents at the beginning of the year/period Cash and cash equivalents at the end of the year/period Analysis of the balances of cash and cash equivalents Cash and bank balances Bank overdraft	Year ended 31 December 2011 2012 2013 HK$’000 HK$’000 HK$’000 2 2 2 – (11,759) – – (739) 739 (15,160) (27,635) (7,765) – 8,578 – (15,158) (31,553) (7,024) – 60,279 40,000 (176) (22,524) (19,268) – 300 – – (61) (97) (143) 1,312 1,618 5,280 (14,617) (278) (110) (1,646) (2,944) 4,851 23,043 19,031 (3,380) (9,591) 13,461 – – 81 1,340 (2,040) (11,631) (2,040) (11,631) 1,911 1,366 642 2,965 (3,406) (12,273) (1,054) (2,040) (11,631) 1,911	Nine months ended 30 September 2013 2014 HK$’000 HK$’000 (Unaudited) – 4 – – 739 – (7,765) (4,200) – 982 (7,026) (3,214) 36,000 7,481 (15,962) – – 380 (72) (114) 1,544 (774) – – (2,087) (21) 19,423 6,952 8,993 (3,395) 33 (19) (11,631) 1,911 (2,605) (1,503) 824 2,581 (3,429) (4,084) (2,605) (1,503)	Nine months ended 30 September 2013 2014 HK$’000 HK$’000 (Unaudited) – 4 – – 739 – (7,765) (4,200) – 982 (7,026) (3,214) 36,000 7,481 (15,962) – – 380 (72) (114) 1,544 (774) – – (2,087) (21) 19,423 6,952 8,993 (3,395) 33 (19) (11,631) 1,911 (2,605) (1,503) 824 2,581 (3,429) (4,084) (2,605) (1,503)
			(3,214)
			7,481 – 380 (114) (774) – (21)
			6,952
			(3,395) (19) 1,911
			(1,503)

			2,581 (4,084)
			(1,503)

II – 10

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

B. NOTES TO FINANCIAL INFORMATION

1. GENERAL INFORMATION

The Target Company was incorporated in the British Virgin Island (“BVI”) with limited liability. The address of the registered office of the Target Company is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, BVI and the principal place of business of the Target Company is 16-19/F, Cubus, No. 1 Hoi Ping Road, Causeway Bay, Hong Kong. The Target Company is an investment holding company and its subsidiaries are principally engaged in conducting post production work on advertisements, featured films, TV programmes, music videos, internet and mobile application content, visual matters on corporate events, etc (the “Business”), and wholly owned by Mr. Nicholas Tse (the “Controlling Shareholder”).

The Financial Information for the years ended 31 December 2011, 2012 and 2013 and for the nine months ended 30 September 2014 are presented in Hong Kong dollars, which is the same as the functional currency of the Target Company.

2. REORGANISATION AND CHANGES IN GROUP STRUCTURE

The Business were controlled by the Controlling Shareholder at the Relevant Periods, or since the date when the companies first came under the common control by the Controlling Shareholder, whichever is a shorter period.

The Target Company and its direct wholly-owned subsidiary, Choice Excel Holdings Limited (“Choice Excel”) were incorporated on 11 July 2014 and 29 July 2014 respectively and controlled by the Controlling Shareholder. On 30 September 2014, Choice Excel acquired the entire issued share capital of Cosmos Glory (“Reorganisation”). Upon completion of the Reorganisation, the Target Company became the ultimate holding company of Cosmos Glory.

Prior to the incorporation of the Target Company and Choice Excel and completion of the Reorganisation as described above, the Business was carried out by Cosmos Glory and its subsidiaries, now comprising the Target Group. Pursuant to the Reorganisation, the group companies which are engaged in the Business and controlled by the Controlling Shareholder are transferred to Choice Excel and ultimately held by the Target Company. The Target Company and Choice Excel have not been involved in any other business prior to the Reorganisation and hence do not meet the definition of a business. The Reorganisation is merely a reorganisation of the Business with no change in management of the Business and the Controlling Shareholder of the Business remains the same. Accordingly, for the purpose of this report, the Financial information has been prepared on a consolidated basis by applying the principles of merger accounting as if the Reorganisation has been completed at the beginning of the Relevant Periods, in accordance with Accounting Guideline 5 “Merger Accounting for Common Control Combination” issued by the HKICPA.

The consolidated statements of profit or loss and other comprehensive income, the consolidated statements of changes in equity and the consolidated statement of cash flows of the Target Group for the Relevant Periods include the results and cash flows of all companies now comprising the Target Group from the earliest date presented or since the date when the subsidiaries and/or businesses first came under the common control, whichever this is a shorter period.

The consolidated statements of financial position of the Target Group at 31 December 2011, 2012 and 2013 and 30 September 2014 have been prepared to present the assets and liabilities of the subsidiaries and/or businesses using the existing book values from the Controlling Shareholder’s perspective. No adjustments are made to reflect fair values, or recognise any new assets or liabilities as a result of the Reorganisation.

Equity interest in subsidiaries and/or businesses held by parties other than the Controlling Shareholder, and changes therein, prior to the Reorganisation are presented as non-controlling interests in equity in applying the principles of merger accounting.

II – 11

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Upon completion of the Reorganisation, the Target Company had direct or indirect interests in the following major subsidiaries at the date of this report:

	Place and date of	Issued and		Proportion of	Proportion of
	incorporation/	fully paid	equity interest held by
Name of	registration and	share capital/	the	Target	Company
subsidiaries	operation	registered capital	2011	2012	2013 2014		Principal activities	Notes
			%	%	%	%
Choice Excel	BVI	US$100	–	–	–	100	Investment holding	1
	29 July 2014
Cosmos Glory	Hong Kong	HK$100	100	100	100	100	Investment holding	2(i)
	15 January 2003							2(ii)
Post Production Office Limited	Hong Kong	HK$27,388,337	100	100	100	100	Provision of post	2(i)
(“PO (Hong Kong)”)	26 February 2003						production services	2(ii)
朝霆廣告製作(上海)有限公司	People’s Republic of	RMB6,000,000	100	100	100	100	Provision of post	2(iii)
(Post Production Office	China (the “PRC”)						production services	2(iv)
(Shanghai) Limited*)	9 October 2010							3
(“PO (Shanghai)”)
文霆廣告製作(北京)有限公司	The PRC	RMB3,000,000	–	100	100	100	Provision of post	2(iii)
(Post Production Office	31 August 2012						production services	2(iv)
(Beijing) Limited*)								3
(“PO (Beijing)”)

Choice Excel is directly held by the Target Company. All other subsidiaries are indirectly held by the Target Company.

Notes:

1) No audited financial statements were issued for the company as it is not subject to statutory audit requirements.

2) The statutory auditors of these companies for the Relevant Periods were as follows:
i) Deloitte Touche Tohmatsu for the year ended 31 December 2012. ii) Kelvin Chong & Partners Certified Public Accountants (Practising) for the years ended 31 December 2011 and 2013.
iii) 天健會計師事務所 (“Pan-China Certified Public Accountants”) for the years ended 31 December 2011 and 2012.
iv) 天職國際會計師事務所 (“Baker Tilly China Certified Public Accountants”) for the year ended 31 December 2013.
3) The registered capital of these companies had been fully paid up to 30 September 2014.
for identification purpose only

II – 12

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

3. APPLICATION OF NEW AND REVISED HKFRSs

For the purpose of preparing and presenting the Financial Information for the Relevant Periods, the Target Group has adopted all the new and revised HKFRSs, which are relevant to its operations and effective during the Relevant Periods.

The following new and revised HKFRSs that are potentially relevant to the Target Group’s Financial Information, have been issued but are not yet effective for the Relevant Periods and have not been early adopted.

HKAS 16 and HKAS 38 (Amendments) Clarification of Acceptable Methods of Depreciation and Amortisation [1] HKAS 16 and HKAS 41 (Amendments) Agriculture: Bearer Plants [1] HKAS 27 (Amendments) Equity Method in Separate Financial Statements [1] HKFRS 7 and HKFRS 9 (Amendments) Mandatory Effective Date of HKFRS 9 and Transition Disclosures [3] HKFRS 9 Financial Instruments [3] HKFRS 9, HKFRS 7 and HKAS 39 Hedge Accounting and amendments to HKFRS 9, HKFRS 7 (Amendments) and HKAS 39 [3] HKFRS 10 and HKAS 28 (Amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture [1] HKFRS 11 (Amendments) Accounting for Acquisition of Interests in Joint Operations [1] HKFRS 14 Regulatory Deferral Accounts [1] HKFRS 15 Revenue from Contracts with Customers [2] HKFRSs (Amendments) Annual Improvements to HKFRSs 2010-2012 Cycle [4] HKFRSs (Amendments) Annual Improvements to HKFRSs 2011-2013 Cycle [5] HKFRSs (Amendments) Annual Improvements to HKFRSs 2012-2014 Cycle [1]

1 Effective for annual periods beginning on or after 1 January 2016, with earlier application permitted.

2 Effective for annual periods beginning on or after 1 January 2017, with earlier application permitted.

3 Effective for annual periods beginning on or after 1 January 2018, with earlier application permitted.

4 Effective for annual periods beginning on or after 1 July 2014, with limited exceptions.
5 Effective for annual periods beginning on or after 1 July 2014.

The Target Group is in the process of making an assessment of the potential impact of these new and revised HKFRSs and the director of the Target Company so far concluded that the application of the new and revised HKFRSs issued but not yet effect will have no material impact on the Target Group’s Financial Information for the future and/or the disclosure as set out in the Financial Information of the Target Group.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of this Financial Information are set out below. These policies have been consistently applied to all the Relevant Periods presented, unless otherwise stated.

(a) Statement of compliance

The Financial Information have been prepared in accordance with all applicable HKFRSs, which is a collective term that includes all applicable individual HKFRSs, Hong Kong Accounting Standards (“HKASs”) and Interpretations (“Ints”) issued by the HKICPA and accounting principles generally accepted in Hong Kong. In addition, the Financial Information includes applicable disclosures required by the Listing Rules and by the disclosure requirements of the Hong Kong Companies Ordinance.

II – 13

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(b) Basis of preparation

The Financial Information has been prepared on the historical cost basis except for certain financial instruments which are carried at fair values.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Target Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date, fair value for measurement and/or disclosure purposes in these consolidated financial statements is determine on such a basis, except for share-based payment transactions that are within the scope of HKFRS 2, leasing transactions that are within the scope of HKAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in HKAS 2 or value in use in HKAS 36.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.

In preparing the Financial Information, the director of the Target Company has given careful consideration to the future liquidity of the Target Group in light of the Target Group incurred a net loss of approximately HK$11,735,000, HK$14,293,000, HK$7,438,000 and HK$2,047,000 during the years ended 31 December 2011, 2012 and 2013 and during the nine months ended 30 September 2014 respectively and, as of that dates, the Target Group’s current liabilities exceeded its current assets of approximately HK$46,753,000, HK$86,755,000, HK$89,838,000 and HK$58,060,000 respectively, and the Target Group’s total liabilities exceeded its total assets of approximately HK$19,088,000, HK$33,755,000, HK$40,231,000 and HK$15,659,000 respectively.

The Financial Information has been prepared on a going concern basis, because there is approximately HK$59,000,000 bank and other borrowings are revolving loans which the Target Company can drawdown/rollover before the loan expired, and the revolving loans are secured by the unlimited personal guarantees provided by the director of the Target Company, corporate guarantees and properties owned by the related companies in which the director of the Target Company has an equity interest. Further, the director of the Target Company has confirmed to provide continuing financial support to the Target Group to enable it to continue as a going concern and to settle its liabilities as and when they fall due for the foreseeable future. Accordingly, the Financial Information has been prepared on a going concern basis.

Upon completion of the Acquisition, the Company will provide continuing financial support and operation support to the Target Group to enable it to continue as going concern and to improve the operation.

(c) Basis of consolidation

The consolidated financial statements include the Financial Information of the Target Company and its subsidiaries now comprising the Target Group for the Relevant Periods. The Financial Information of the Target Company’s subsidiaries are prepared for the same reporting period as the Target Company, using consistent accounting policies. Except for the accounting of the Reorganisation as disclosed in note 2 above, the results of subsidiaries are consolidated from the date on which the Target Group obtains control, and continue to be consolidated until the date that such control ceases.

II – 14

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

The Financial Information incorporates the financial statements of the Target Company and entities (including structured entities) controlled by the Target Group. Control is achieved when the Target Company:

has power over the investee;
is exposed, or has rights, to variable returns from its involvement with the investee; and
has the ability to use its power to affect its returns.

The Target Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the Target Group has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Target Group considers all relevant facts and circumstances in assessing whether or not the Target Group’s voting rights in an investee are sufficient to give it power, including:

the size of the Target Group’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;
potential voting rights held by the Target Group, other vote holders or other parties;
rights arising from other contractual arrangements; and
any additional facts and circumstances that indicate that the Target Group has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous meetings of the shareholder of the Target Company.

Consolidation of a subsidiary begins when the Target Group obtains control over the subsidiary and ceases when the Target Group loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the Relevant Periods are included in the consolidated statement of profit or loss and other comprehensive income from the date the Target Group gains control until the date when the Target Group ceases to control the subsidiary.

Profit or loss and each item of other comprehensive income are attributed to the owner of the Target Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owner of the Target Company and to the non-controlling interests even if this results in the noncontrolling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Target Group’s accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Target Group are eliminated in full on consolidation.

Non-controlling interests in subsidiaries are presented separately from the Target Group’s equity therein.

(d) Business combination

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Target Group, liabilities incurred by the Target Group to the former owners of the acquiree and the equity interests issued by the Target Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred.

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APPENDIX II

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:

deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with HKAS 12 “Income Taxes” and HKAS 19 “Employee Benefits” respectively;
liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Target Group entered into to replace sharebased payment arrangements of the acquiree are measured in accordance with HKFRS 2 “Share-based Payment” at the acquisition date; and
assets (or disposal groups) that are classified as held for sale in accordance with HKFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” are measured in accordance with that standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at their fair value or, when applicable, on the basis specified in another HKFRS.

When the consideration transferred by the Target Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with the corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the “measurement period” (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with HKAS 39, or HKAS 37 “Provisions, Contingent Liabilities and Contingent Assets”, as appropriate, with the corresponding gain or loss being recognised in profit or loss.

When a business combination is achieved in stages, the Target Group’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Target Group obtains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.

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APPENDIX II

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Target Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period, and additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date.

Business combination under common control

Business combinations under common control refers to combinations where the combining entities are controlled by the same party or parties before and after the combination and that control is not transitory.

The acquirer measures both the consideration paid and the net assets obtained at their carrying amounts. The difference between the carrying amounts of the net assets obtained and the carrying amount of the consideration paid is recorded in other reserve. Any direct transaction cost attributable to the business combination is recorded in the consolidated statements of profit or loss and other comprehensive income in the current period. However, the handling fees, commissions and other expenses incurred for the issuance of equity instruments or bonds for the business combination are recorded in the initial measurement of the equity instruments and bonds respectively.

(e) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of discounts and sales related tax, if any.

(i) Provision of services

Revenue arising from post production work is recognised when the production is completed and released and the amount can be measured reliably.

(ii) Interest income

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

(iii) Rental of machineries

Rental of machineries is recognised over the periods of the respective leases on a straightline basis.

(f) Property, plant and equipment

Property, plant and equipment are stated in the consolidated statements of financial position at cost, less subsequent accumulated depreciation and subsequent accumulated impairment losses, if any.

Depreciation is recognised so as to write off the cost of property, plant and equipment less their residual values over their useful lives, using the straight-line method at the following rates per annum:

Leasehold improvement	Over lease terms
Plant and machinery	10% – 20%
Furniture and fixtures	20%
Office equipment	10% – 20%
Motor vehicles	20% – 30%

The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

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APPENDIX II

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

(g) Deposit and prepayments for life insurance policies

Prepaid life insurance premium component of the relevant contracts is amortised over the life insurance policies period on a straight-line basis. The remaining component of the contracts contained discretionary participation feature as well as a guaranteed element. Under the discretionary participation feature, the relevant insurers have full discretion to declare interest on top of the guaranteed interest on a monthly basis. Interest income is recognised upon monthly declaration of the interest by the insurers. Rights under life insurance policies are stated in the consolidated statements of financial position at cost plus accumulated interest earned and minus insurance costs and administrative charges.

(h) Production work in progress

Production work in progress is stated at the lower of cost and net realisable value. Costs include all direct cost associated with the post production services for movies or television commercials. Net realisable value represents the estimated service price for the post production services less all estimated cost of completion and costs necessary to make the sale. Costs are recognised in profit or loss upon completion.

At the end of each Relevant Periods, both internal and external market information are considered to assess whether there is any indication that production work in progress are impaired. If any such indication exists, the carrying amount of such asset is assessed and where relevant, an impairment loss is recognised to reduce the asset to its recoverable amount. Such impairment losses are recognised in the consolidated statements of profit or loss and other comprehensive income.

(i) Financial instruments

Financial assets and financial liabilities are recognised in the consolidated statements of financial position when a group entity becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets

The Target Group’s financial assets are loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted in respect of such category of financial assets are set out below:

Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Income is recognised on an effective interest basis for debt instruments.

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APPENDIX II

Loans and receivables

Loans and receivables (including deposit for life insurance policies, trade and other receivables (but excluding prepayments) and cash and bank balances) are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment.

Interest income is recognised by applying the effective interest rate, except for short-term receivables where the recognition of interest would be immaterial.

Impairment of financial assets

Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected.

For all financial assets, objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or
breach of contract, such as a default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial reorganisation; or
the disappearance of an active market for that financial asset because of financial difficulties.

For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Target Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period ranged 30 to 90 days and observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment loss recognised is as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial asset’s original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent 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.

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APPENDIX II

Financial liabilities and equity

Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its liabilities. Equity instruments issued by the Target Group are recognised at the proceeds received, net of direct issue costs.

Other financial liabilities

Other financial liabilities (including trade and other payables (but excluding receipts in advance), amount due to a director, amounts due to related companies, amount due to a shareholder, obligations under finance leases and bank and other borrowings) are subsequently measured at amortised cost using the effective interest method.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or where appropriate, a shorter period, to the net carrying amount on initial recognition.

Interest expense is recognised on an effective interest basis.

Derecognition

The Target Group derecognises a financial asset only when the contractual rights to receive cash flows from the assets expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Target Group neither transfer nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Target Group continues to recognise the asset to the extent of its continuing involvement and recognises an associated liability. If the Target Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Target Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

On derecognition of a financial asset in its entirely, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.

On derecognition of a financial asset other than in its entirety, the Target Group allocates the previous carrying amount of the financial asset between the part it continues to recognise, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in other comprehensive income is recognised in profit or loss. A cumulative gain or loss that had been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair values of those parts.

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APPENDIX II

The Target Group derecognises financial liabilities when, and only when, the Target Group’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

(j) Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the Relevant Periods. Taxable profit differs from “loss before taxation” as reported in the consolidated statements of profit or loss and other comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Target Group’s liability for current tax is calculated using tax rate that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries except where the Target Group is able to control the reversal of the temporary difference and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Target Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax for the Relevant Periods

Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

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APPENDIX II

(k) Retirement benefits costs

The Target Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance for all of its employees in Hong Kong. Contributions are made based on a percentage of the employees’ basic salaries and are charged to profit or loss as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Target Group in an independently administrated fund. The Target Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

The employees of the Target Company’s subsidiaries operating in the PRC are members of retirement benefits schemes (the “PRC RB Schemes”) managed by the local municipal governments. The PRC subsidiaries are required to contribute to the PRC RB Schemes to fund the retirement benefits. The local municipal government undertakes to assume the retirement benefit obligation of all existing and future retired employees of the PRC subsidiaries. The only obligation of the PRC subsidiaries with respect to the PRC RB Schemes is to meet the required contributions under the PRC RB Schemes. The contributions are charged to profit or loss as they become payable in accordance with the relevant laws and regulations of the PRC.

(l) Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchange prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. 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 retranslation of monetary items, are recognised in profit or loss in the period in which they arise.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Target Group’s foreign operations are translated into the presentation currency of the Target Group (i.e. Hong Kong dollar) using exchange rates prevailing at the end of the reporting period. Income and expenses are translated at the average exchange rates for the year/period, unless exchange rates fluctuate significantly during the year/period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under the heading of “Translation Reserve” and will be reclassified from equity to profit or loss on disposal of the foreign operation.

(m) Borrowing costs

Borrowing costs on non-qualifying assets are recognised in profit or loss in the period in which they are incurred.

(n) Impairment of tangible assets

At the end of each Relevant Periods, the Target Group reviews the carrying amounts of its tangible assets with finite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Target Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

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APPENDIX II

Recoverable amount is higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cashgenerating unit) is increased to the revised estimate of its recoverable amount, but so 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 (or a cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

(o) Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and deposits held at call with banks, and short term highly liquid investments that are readily convertible to 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, less bank overdrafts. Bank overdrafts are shown within bank and other borrowings in current liabilities on the consolidated statements of financial position.

(p) Provisions

Provisions are recognised when the Target Group has a present obligation (legal or constitutive) as a result of a past event, and it is probable that the Target Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows where the effect of the time value of money is material.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

(q) Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Target Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognised but is disclosed in the notes to Financial Information. When a change in the probability of an outflow occurs so that outflow is probable, they will then be recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Target Group. Contingent assets are not recognised but are disclosed in the notes to Financial Information when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

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APPENDIX II

(r) Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Target Group as lessee

Assets held under finance leases are initially recognised as assets of the Target Group at their fair values at the inception of the leases or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Target Group’s general policy on borrowing costs. Contingent rentals are recognised as expenses in the periods in which they are incurred.

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits form the leased asset are consumed.

(s) Segment reporting

Operating segments, and the amounts of each segment item reported in the consolidated financial statements, are identified from the financial information provided regularly to the Target Group’s chief operating decision maker for the purposes of allocating resources to, and assessing the performance of, the Target Group’s various lines of business and geographical locations.

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or to provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

(t) Related parties

A related party is a person or entity that is related to the Target Group that is preparing its consolidated financial statements as follows:

(a) A person, or a close member of that person’s family, is related to the Target Group if that person:
(i) has control or joint control over the Target Group;
(ii) has significant influence over the Target Group; or
(iii) is a member of the key management personnel of the Target Group or a parent of the Target Group.

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APPENDIX II

(b) An entity is related to the Target Group if any of the following conditions applies:
(i) the entity and the Target 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 employees of either the Target Group or an entity related to the Target Group. If the Target Group is itself such a plan, the sponsoring employers are also related to the Target Group;
(vi) the entity is controlled or jointly controlled by a person identified in (a); or
(vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

Close members 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.

5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Target Group’s accounting policies, which are described in note 4, the director of the Target Company 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 underlying assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Critical judgements in applying accounting policies

The followings are the critical judgements, apart from those involving estimations, that the director of the Target Company has made in the process of applying the Target Group’s accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements.

Estimated impairment of trade and other receivables

Where there is objective evidence of impairment loss, the Target Group takes into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not be incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). Where the actual future cash flows are less than expected, a material impairment loss may arise. The aggregate carrying amounts of trade and other receivables at 31 December 2011, 2012 and 2013 and at 30 September 2014 were approximately HK$13,632,000, HK$16,071,000, HK$22,180,000 and HK$37,069,000 respectively.

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APPENDIX II

Key sources of estimation uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the Relevant Periods that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Useful lives of property, plant and equipment

In accordance with HKAS 16, the Target Group estimates the useful lives of property, plant and equipment in order to determine the amount of depreciation expenses to be recorded. The useful lives are estimated at the time the asset is acquired based on historical experience, the expected usage, wear and tear of the assets, as well as technical obsolescence arising from changes in the market demands or service output of the assets. The Target Group also perform annual reviews on whether the assumptions made on useful lives continue to be valid.

Income tax

Deferred tax assets at 31 December 2011, 2012 and 2013 and at 30 September 2014 were approximately HK$3,785,000, HK$4,671,000, HK$4,942,000 and HK$4,924,000 respectively in relation to unused tax losses has been recognised in the consolidated statements of financial position. The realisability of the deferred tax assets mainly depends on whether sufficient future profits or taxable temporary differences will be available in the future. In cases where the actual future profits generated are less than expected, a material reversal of deferred tax assets may arise, which would be recognised in profit or loss for the period in which such a reversal taken places.

6. CAPITAL MANAGEMENT

The Target Group manages its capital to ensure that entities in the Target Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Target Group’s overall strategy remains unchanged from prior year/period.

The capital structure of the Target Group consists of net debts (which include amount due to a director, amount due to a shareholder, bank and other borrowings, and obligations under finance leases) and equity attributable to owners of the Target Company (comprising share capital and reserves).

The director of the Target Company reviews the capital structure on annual basis. As part of this review, the director considers the cost of capital and the risks associated with each class of capital. Based on the recommendations of the director, the Target Group will balance its overall capital structure through, issue of new shares and repurchase of shares as well as issue of new debts or redemption of existing debts.

7. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

Financial assets Loans and receivables (including cash and bank balances) Financial liabilities Amortised cost	2011 HK$’000 14,998 60,353	At 31 December 2012 2013 HK$’000 HK$’000 28,992 37,773 98,443 112,325	At 30 September 2014 HK$’000 50,020

			92,209

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(b) Fair values of financial instruments

The fair values of financial assets and financial liabilities are determined as follows:

the fair values of financial assets and financial liabilities with standard terms and conditions and traded in active markets are determined with reference to quoted market bid prices and ask prices respectively;
the fair values of derivative instruments are calculated using quoted prices. When such prices are not available, a discounted cash flow analysis is performed using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives; and
the fair values of other financial assets and financial liabilities (excluding those described above) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

The director of the Target Company considers that the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial statements approximate their fair values.

(c) Financial risk management objectives and policies

The Target Group’s major financial instruments include deposit for life insurance policies, trade and other receivables (but excluding prepayments), cash and bank balances, trade and other payables (but excluding receipts in advance), amount due to a director, amounts due to related companies, amount due to a shareholder, obligations under finance leases and bank and other borrowings. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

There has been no change to the Target Group’s risk exposure in respect of financial instruments or the manner in which it manages and measures the risks.

Credit risk management

At the end of the Relevant Periods, the Target Group’s maximum exposure to credit risk which will cause a financial loss to the Target Group due to failure to discharge an obligation by the counterparties and financial guarantees provided by the Target Group is arising from the carrying amount of the respective recognised financial assets as stated in the consolidated statements of financial position.

In order to minimise the credit risk, the management of the Target Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Target Group reviews the recoverable amount of each individual trade debt at the end of the Relevant Periods to ensure that adequate impairment losses are made for irrecoverable amounts. In this regards, the director of the Target Company considers that the Target Group’s credit risk is significantly reduced.

The Target Group deposited its bank balances with approved and reputable banks. Bankruptcy or insolvency of the banks may cause the Target Group’s right with respect to cash and cash equivalents held to be delayed or limited. Management of the Target Company monitors the credit rating of these banks on an ongoing basis, and considers that the Target Group’s exposure to credit risk at the Relevant Periods were minimal.

Other than concentration of credit risk on liquid funds which are deposited with several banks, the Target Group does not have any other significant concentration of credit risk. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Liquidity risk management

Individual operating entities within the Target Group are responsible for their own cash management, including the short term investment of cash surpluses and the raising of loan to cover expected cash demands, subject to approval by the board of the Target Company when the borrowings exceed certain predetermined levels of authority. The Target Group’s policy is to regular monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and readily realisable marketable securities and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term.

The following tables detail the remaining contractual maturity at the end of the Relevant Periods of the Target Group’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payment computed using contractual rates) and the earliest date the Target Group can be required to pay:

Weighted average effective interest rate % At 31 December 2011 Non-derivative instruments Trade and other payables – Amounts due to related companies – Amount due to a shareholder – Bank borrowings 4.25 At 31 December 2012 Non-derivative instruments Trade and other payables – Amount due to a director – Amounts due to related companies – Amount due to a shareholder – Obligations under finance leases 4 Bank borrowings 2.25	On demand or less than 1 year HK$’000 11,902 5,528 32,259 11,498 61,187 18,660 913 3,312 18,033 112 62,001 103,031	Within 2 to 5 years HK$’000 – – – – – – – – – 149 – 149	Total contractual Over undiscounted 5 years cash flows HK$’000 HK$’000 – 11,902 – 5,528 – 32,259 – 11,498 – 61,187 – 18,660 – 913 – 3,312 – 18,033 – 261 – 62,001 – 103,180	Total carrying amounts HK$’000 11,902 5,528 32,259 10,664
				60,353

				18,660 913 3,312 18,033 239 57,286
				98,443

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Weighted average effective interest rate % At 31 December 2013 Non-derivative instruments Trade and other payables – Amount due to a director – Amounts due to related companies – Amount due to a shareholder – Obligations under finance leases 4 Bank borrowings 2.25 At 30 September 2014 Non-derivative instruments Trade and other payables – Amount due to a director – Amounts due to related companies – Obligations under finance leases 1 Bank and other borrowings 2.43	On demand or less than 1 year HK$’000 15,796 2,573 9,251 17,763 112 80,084 125,579 10,483 1,630 21 269 90,043 102,446	Within 2 to 5 years HK$’000 – – – – 37 – 37 – – – 179 – 179	Total contractual Over undiscounted 5 years cash flows HK$’000 HK$’000 – 15,796 – 2,573 – 9,251 – 17,763 – 149 – 80,084 – 125,616 – 10,483 – 1,630 – 21 – 448 – 90,043 – 102,625	Total carrying amounts HK$’000 15,796 2,573 9,251 17,763 142 66,800
				112,325

				10,483 1,630 21 409 79,666
				92,209

Foreign currency risk

The Target Group is exposed to currency risk primarily through sales and purchases which give rise to receivables, payables and cash and bank balances that are denominated in a foreign currency, i.e. a currency other than the functional currency of the operations to which the transaction related. The Target Group also has deposit and prepayments for life insurance policies denominated in a foreign currency. The currencies giving rise to this risk are primarily Hong Kong dollar (“HK$”), Renminbi (“RMB”) and United States Dollar (“USD”).

Certain cash and bank balances are denominated in RMB and USD. The conversion of RMB into other currencies is subject to the rules and regulations of foreign exchange control promulgated by the PRC government. The Target Group is exposed to foreign exchange risk in respect of exchange fluctuation of HK$ against RMB and USD. The Target Group currently does not have a foreign currency hedging policy in respect of foreign currency assets and liabilities. The Target Group will monitor its foreign currency exposure closely and will consider hedging significant foreign currency exposure should the need arise.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Sensitivity analysis

The carrying amounts of the Target Group’s foreign currency denominated monetary assets at the end of the Relevant Periods are as follows:

		Assets					Liabilities	Liabilities
				At 30					At 30
		At 31 December		September		At	31 December		September
	2011	2012	2013	2014	2011		2012	2013	2014
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000
RMB	647	359	1,726	1,695	–		–	–	–
USD	945	13,031	13,371	–	–		–	–	–

The following table details the Target Group’s sensitivity to a 5% increase and decrease in the HK$ against the relevant foreign currencies. As HK$ are pegged to USD, it is assumed that there would be no material currency risk exposure between these two currencies and therefore is excluded from the analysis below. 5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes outstanding foreign currency denominated monetary items, and adjusts their translation at the end of the Relevant Periods for a 5% change in foreign currency rates. A positive number below indicates an decrease in loss where the relevant currencies strengthen 5% against HK$. For a 5% weakening of the relevant currencies against HK$, there would be an equal and opposite impact on the loss and the balances below would be negative.

				Nine months
				ended 30
	Year	ended 31 December		September
	2011	2012	2013	2014
	HK$’000	HK$’000	HK$’000	HK$’000
Impact of RMB	32	18	86	85

The Target Group’s sensitivity to foreign currency has increased during the Relevant Periods mainly due to the increase in non-functional currency denominated monetary net assets.

Interest rate risk

The Target Group is exposed to interest rate risk relates primarily to variable rate bank and other borrowings (see note 25 to Financial Information for the details of bank and other borrowings). The Target Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Target Group currently does not have an interest rate hedging policy. However, the management of the Target Company monitors interest rate exposure and will consider hedging significant interest rate exposure should the need arise.

Sensitivity analysis

The sensitivity analysis below have been determined based on the exposure to interest rates for non-derivative instruments at the end of each Relevant Periods. The analysis is prepared assuming the financial instruments outstanding at the end of the Relevant Periods were outstanding for the whole year. A 50 basis points increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Target Group’s pre-tax loss for the years ended 31 December 2011, 2012 and 2013 and for the nine months ended 30 September 2014 would increase/decrease by approximately HK$53,000, HK$286,000, HK$334,000 and HK$398,000 respectively. This is mainly attributable to the Target Group’s exposure to interest rates on its variable rate of bank and other borrowings.

8. SEGMENT INFORMATION

As per HKFRS 8 “Operating Segments”, no business analysis and segment reporting information such as segment revenue, results, assets, liabilities and other information are shown substantially as the Target Group only engages in post production services in Hong Kong and the PRC.

9. TURNOVER

Service income Rental of machineries OTHER INCOME Bank interest income Gain on disposals of property, plant and equipment Interest income on life insurance policies Sundry income	Year ended 31 December 2011 2012 2013 HK$’000 HK$’000 HK$’000 45,151 52,438 84,752 666 351 234 45,817 52,789 84,986 Year ended 31 December 2011 2012 2013 HK$’000 HK$’000 HK$’000 2 2 2 – 73 – – 479 496 835 1,497 669 837 2,051 1,167	Nine months ended 30 September 2013 2014 HK$’000 HK$’000 (Unaudited) 51,254 77,846 – – 51,254 77,846 Nine months ended 30 September 2013 2014 HK$’000 HK$’000 (Unaudited) – 4 – 381 372 367 – 750 372 1,502	Nine months ended 30 September 2013 2014 HK$’000 HK$’000 (Unaudited) 51,254 77,846 – – 51,254 77,846 Nine months ended 30 September 2013 2014 HK$’000 HK$’000 (Unaudited) – 4 – 381 372 367 – 750 372 1,502
			1,502

10. OTHER INCOME

11. FINANCE COSTS

Interest on finance leases Interest on bank borrowings	Year ended 31 December 2011 2012 2013 HK$’000 HK$’000 HK$’000 – 14 15 317 1,632 2,930 317 1,646 2,945	Nine months ended 30 September 2013 2014 HK$’000 HK$’000 (Unaudited) 11 21 2,386 2,357 2,397 2,378	Nine months ended 30 September 2013 2014 HK$’000 HK$’000 (Unaudited) 11 21 2,386 2,357 2,397 2,378
			2,378

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

12. LOSS FOR THE YEAR/PERIOD

Loss for the year/period has been arrived at after charging/ (crediting): Total staff costs including director’s remuneration – Salaries and other benefits – Retirement benefits scheme contributions Total staff costs Auditors’ remuneration Depreciation of property, plant and equipment Gain on disposals of property, plant and equipment Exchange difference, net Impairment loss recognised in respect of trade receivables Impairment loss recognised in respect of prepayments for life insurance policies Operating lease rentals in respect of rented premises	Year ended 31 December 2011 2012 2013 HK$’000 HK$’000 HK$’000 23,960 32,629 39,917 1,342 1,126 2,642 25,302 33,755 42,559 191 748 477 8,802 7,363 12,205 – (73) – 3 (13) 18 – – 46 – – – 5,469 8,446 11,536	Nine months ended 30 September 2013 2014 HK$’000 HK$’000 (Unaudited) 28,660 31,472 2,639 2,802 31,299 34,274 123 180 7,927 8,183 – (381) – (10) – – – 2,518 6,732 6,621

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

13. TAXATION

Current tax: Hong Kong Profits Tax The PRC Enterprise Income Tax Deferred tax:(note 19) – Current year/period Taxation (credit)/charge for the year/period	Year ended 31 December 2011 2012 2013 HK$’000 HK$’000 HK$’000 – – – 166 981 1,054 166 981 1,054 (1,732) (886) (271) (1,566) 95 783	Nine months ended 30 September 2013 2014 HK$’000 HK$’000 (Unaudited) – – 12 171 12 171 – 18 12 189	Nine months ended 30 September 2013 2014 HK$’000 HK$’000 (Unaudited) – – 12 171 12 171 – 18 12 189
			171
			18
			189

Hong Kong Profits Tax is calculated at 16.5% on the estimated assessable profit for the Relevant Periods. No provision for Hong Kong Profits Tax has been made as the Target Group has no assessable profits arising in Hong Kong or taxable profits were wholly absorbed by estimated tax losses brought forward.

Under the Law of the PRC on Enterprise Income Tax (the “EIT Law”) and Implementation Regulation of the EIT Law, the tax rate of the PRC subsidiaries is 25% from 1 January 2008 onwards. Entities in the Target Group which were established in the PRC are subject to the PRC Enterprise Income Tax, which has been provided based on either the statutory enterprise income tax rate, or preferential enterprise income tax rate of the assessable income of each company for the Relevant Periods, as determined in accordance with the relevant PRC income tax rules and regulations.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

A reconciliation of the taxation expense applicable to the loss before taxation at the statutory rates for the countries in which the Target Group are domiciled to the taxation expense at the effective tax rates, and a reconciliation of the applicable rates (i.e., the statutory tax rates) to the effective tax rates, are as follows:

Loss before taxation Notional tax on loss before taxation, calculated at the rates applicable to profit in the tax jurisdictions concerned Tax effect of income not taxable for tax purpose Tax effect of expense not deductible for tax purpose Tax effect of temporary differences not recognised Tax effect of unrecognised tax loss Taxation (credit)/charge for the year/period	Year ended 31 December 2011 2012 2013 HK$’000 HK$’000 HK$’000 (13,301) (14,198) (6,655) (2,175) (2,452) (1,496) (127) (12) (11) 594 117 1,598 (470) (740) (50) 612 3,182 742 (1,566) 95 783	Nine months ended 30 September 2013 2014 HK$’000 HK$’000 (Unaudited) (15,459) (1,858) (3,386) 250 (7,870) (3,135) 10,413 2,387 (203) (57) 1,058 744 12 189

14. DIVIDENDS

The director of the Target Company does not recommend the payment of any dividend for the Relevant Periods.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

15. DIRECTORS’, SENIOR MANAGEMENT’S AND EMPLOYEES’ EMOLUMENTS

(a) Directors’ emoluments

Prior to the Reorganisation, the remuneration paid or payable to the directors of Cosmos Glory during the years ended 31 December 2011, 2012 and 2013 and the nine months ended 30 September 2013 was as follows:

For the year ended 31 December 2011: Techearn Nominees Limited Mr. Yeung Man Kit, Dennis For the year ended 31 December 2012: Techearn Nominees Limited Mr. Yeung Man Kit, Dennis For the year ended 31 December 2013: Techearn Nominees Limited Mr. Yeung Man Kit, Dennis For the nine months ended 30 September 2013: (Unaudited) Techearn Nominees Limited Mr. Yeung Man Kit, Dennis	Fees HK$’000 – – – – – – – – – – – –	Retirement Salaries benefits and other scheme benefits contributions HK$’000 HK$’000 – – 1,226 15 1,226 15 – – 1,440 14 1,440 14 – – 1,260 15 1,260 15 – – 945 11 945 11	Share-based payment expenses HK$’000 – – – – – – – – – – – –	Total HK$’000 – 1,241
				1,241

				– 1,454
				1,454

				– 1,275
				1,275

				– 956
				956

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Upon completion of the Reorganisation, the remuneration paid or payable to the director of the Target Company was as follows:

			Retirement
		Salaries	benefits	Share-based
		and other	scheme	payment
	Fees	benefits	contributions	expenses	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
For the nine months
ended 30 September
2014:
Mr. Nicolas Tse	–	–	–	–	–

During the Relevant Periods, no emoluments were paid by the Target Group to the directors or chief executive officer as an inducement to join or upon joining the Target Group or as compensation for loss of office. None of the directors or chief executive officer has waived or has agreed to waive any emoluments for the Relevant Periods.

(b) Senior management’s emoluments and five highest paid employees

During the years ended 31 December 2011, 2012, 2013 and the nine months ended 30 September 2013, one of the five highest paid individuals was a director of Cosmos Glory. During the nine months ended 30 September 2014, none of the five highest paid individuals was the director of the Target Company.

The aggregate amounts of emoluments of the remaining four highest paid individuals for the years ended 31 December 2011, 2012 and 2013 and the nine months ended 30 September 2013 as well as the total emoluments of the five highest paid individuals for the nine months ended 30 September 2014 are as follows:

Year ended 31 December 2011 2012 2013 HK$’000 HK$’000 HK$’000 Salaries and other allowances 2,858 3,125 3,454 Retirement benefits scheme contributions 60 60 45 2,918 3,185 3,499 Their emoluments were within the following bands: Year ended 31 December 2011 2012 2013 Nil to HK$1,000,000 4 4 4	Nine months ended 30 September 2013 2014 HK$’000 HK$’000 (Unaudited) 2,386 2,569 44 46 2,430 2,615 Nine months ended 30 September 2013 2014 (Unaudited) 4 5

None of the senior management or the five highest paid individuals has waived or has agreed to waive any emoluments for the Relevant Periods.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

16. LOSS PER SHARE

No loss per share information is presented as it is not considered as meaningful for the purpose of this report.

17. PROPERTY, PLANT AND EQUIPMENT

Leasehold improvements HK$’000 Costs: At 1 January 2011 – Additions 7,327 At 31 December 2011 and 1 January 2012 7,327 Additions 6,652 Disposals – At 31 December 2012 and 1 January 2013 13,979 Additions 3,351 Exchange realignment 338 At 31 December 2013 and 1 January 2014 17,668 Additions – Disposals – Exchange realignment (81) At 30 September 2014 17,587 Accumulated depreciation: At 1 January 2011 – Charge for the year 5,754 At 31 December 2011 and 1 January 2012 5,754 Charge for the year 1,870 Eliminated upon disposals – At 31 December 2012 and 1 January 2013 7,624 Charge for the year 4,024 Exchange realignment 97 At 31 December 2013 and 1 January 2014 11,745 Charge for the period 2,412 Eliminated upon disposals – Exchange realignment (35)	Plant and machinery HK$’000 35,912 6,633 42,545 15,045 (15,009) 42,581 1,038 822 44,441 2,579 (648) (166) 46,206 21,462 2,405 23,867 4,082 (6,638) 21,311 5,920 183 27,414 3,914 (246) (53)	Furniture and fixtures HK$’000 81 494 575 707 (10) 1,272 47 29 1,348 38 – (4) 1,382 61 61 122 154 (9) 267 271 5 543 192 – –	Office equipment HK$’000 2,136 1,106 3,242 4,718 (121) 7,839 2,388 183 10,410 1,583 (9) (43) 11,941 686 526 1,212 1,069 (25) 2,256 1,745 30 4,031 1,506 (9) (6)	Motor vehicle HK$’000 287 – 287 512 (84) 715 940 28 1,683 – (498) (8) 1,177 30 56 86 188 (47) 227 245 6 478 159 (299) –	Total HK$’000 38,416 15,560
					53,976 27,634 (15,224)
					66,386 7,764 1,400
					75,550 4,200 (1,155) (302)
					78,293
					22,239 8,802
					31,041 7,363 (6,719)
					31,685 12,205 321
					44,211 8,183 (554) (94)

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Leasehold improvements HK$’000 At 30 September 2014 14,122 Carrying amounts: At 31 December 2011 1,573 At 31 December 2012 6,355 At 31 December 2013 5,923 At 30 September 2014 3,465	Plant and machinery HK$’000 31,029 18,678 21,270 17,027 15,177	Furniture and fixtures HK$’000 735 453 1,005 805 647	Office equipment HK$’000 5,522 2,030 5,583 6,379 6,419	Motor vehicle HK$’000 338 201 488 1,205 839	Total HK$’000 51,746
					22,935

					34,701

					31,339

					26,547

At 31 December 2012 and 2013, the Target Group had motor vehicle with carrying amounts of approximately HK$349,000 and HK$199,000 respectively in respect of assets held under finance leases. At 30 September 2014, the Target Group had office equipment with carrying amount of approximately HK$450,000 in respect of assets held under finance leases.

18. DEPOSIT AND PREPAYMENTS FOR LIFE INSURANCE POLICIES

During the year ended 31 December 2011, the Target Group entered into several life insurance policies with an insurance company to insure the Vendor and a director of the Target Group. Under the policies, the Target Group is the beneficiary and policy holder and the total insured sum is US$10,000,000 (equivalent to approximately HK$77,600,000).

The Target Group is required to pay an upfront deposit including a premium charge at inception of the policies. The Target Group can terminate the policies at any time and receive cash back based on the cash value of the policies at the date of withdrawal which is determined by the upfront payment of US$1,714,000 plus accumulated interest earned and minus the accumulated insurance charge and policy expense charge (“Cash Value”). In addition, if the withdrawal is made between the first to the eighteenth policy year, there is a specified amount of surrender charge. The insurance company will pay the Target Group an interest at a rate ranging from 4.2% to 5.2% per annum on the outstanding Cash Value of the policies for the first year.

Included in the deposit and prepayments for life insurance policies at 31 December 2011, 2012 and 2013 and at 30 September 2014 with the amounts of approximately HK$662,000, HK$9,122,000, HK$9,360,000 and HK$9,534,000 respectively were pledged to a bank to secure general banking facilities granted to the Target Group.

Subsequent to 30 September 2014, the Target Group applied to terminate the policies and received the Cash Value before the reporting date.

The deposit and prepayments for life insurance policies are denominated in USD, a currency other than the functional currency of the Target Group.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

19. DEFERRED TAX ASSETS

The followings are the deferred tax assets recognised and movements thereon during the Relevant Periods.

At 1 January 2011 Credit to profit or loss_(note 13) At 31 December 2011 and 1 January 2012 Credit to profit or loss(note 13) At 31 December 2012 and 1 January 2013 Credit to profit or loss(note 13) At 31 December 2013 and 1 January 2014 Charge to profit or loss(note 13)_ At 30 September 2014	Accelerated tax depreciation HK$’000 (371) 522 151 36 187 188 375 (18) 357	Tax losses HK$’000 2,424 1,210 3,634 850 4,484 83 4,567 – 4,567	Total HK$’000 2,053 1,732 3,785 886 4,671 271 4,942 (18) 4,924

The Target Group had unused tax losses at 31 December 2011, 2012 and 2013 and at 30 September 2014 amounting to approximately HK$7,278,000, HK$26,563,000, HK$31,059,000 and HK$35,568,000 respectively. Tax losses can be carried forward indefinitely.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

20. TRADE AND OTHER RECEIVABLES

Trade receivables Deposits and prepayments	2011 HK$’000 11,603 2,029 13,632	At 31 December 2012 2013 HK$’000 HK$’000 12,926 18,376 3,145 3,804 16,071 22,180	At 30 September 2014 HK$’000 27,365 9,704
			37,069

The Target Group generally allows an average credit period ranging from 30 to 90 days for the Relevant Periods to its trade customers. An ageing analysis of the Target Group’s trade receivables, net of allowance for doubtful debts, based on the invoice due date, at the end of the Relevant Periods is set out below:

0-30 days 31-60 days 61-90 days 90-180 days Over 180 days	2011 HK$’000 3,288 3,203 2,538 2,574 – 11,603	At 31 December 2012 2013 HK$’000 HK$’000 5,382 8,455 2,708 2,458 2,668 3,044 2,154 4,318 14 101 12,926 18,376	At 30 September 2014 HK$’000 10,671 5,810 3,799 5,521 1,564
			27,365

The following is an ageing analysis of trade receivables which were past due but not impaired based on the due date:

90-180 days Over 180 days	2011 HK$’000 2,574 – 2,574	At 31 December 2012 2013 HK$’000 HK$’000 2,154 4,318 14 101 2,168 4,419	At 30 September 2014 HK$’000 5,521 1,564
			7,085

Trade receivables that were past due but not impaired relate to the credits available to a number of independent customers that have a good track record with the Target Group. Based on the past experience, the director of the Target Company is 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.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

21. CASH AND BANK BALANCES

At 31 December 2011, 2012 and 2013 and at 30 September 2014, cash and bank balances of the Target Group mainly denominated in HK$ and RMB. RMB is not freely convertible into other currencies, however, under the PRC Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Target Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

Cash and bank balances comprise cash held by the Target Group and bank deposits with an original maturity of 3 months or less, and carry interests at floating rates based on daily bank deposit rates.

22. TRADE AND OTHER PAYABLES

Trade payables Other payables Accruals Receipts in advances	2011 HK$’000 2,065 7,674 2,163 1,398 13,300	At 31 December 2012 2013 HK$’000 HK$’000 2,849 6,357 10,485 4,327 5,326 5,112 4,598 1,798 23,258 17,594	At 30 September 2014 HK$’000 3,790 3,667 3,026 5,576
			16,059

An ageing analysis of trade payables based on the invoice date at the end of the Relevant Periods is set out below:

0 to 90 days 91 to 180 days 181 to 365 days Over 365 days	2011 HK$’000 1,267 798 – – 2,065	At 31 December 2012 2013 HK$’000 HK$’000 688 1,142 2,161 2,743 – 1,495 – 977 2,849 6,357	At 30 September 2014 HK$’000 1,458 1,850 – 482
			3,790

23. AMOUNT(S) DUE TO A DIRECTOR/RELATED COMPANIES/A SHAREHOLDER

The amount(s) due to a director/related companies/a shareholder were unsecured, interest-free and repayable on demand.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

24. OBLIGATIONS UNDER FINANCE LEASES

The Target Group leased motor vehicle and office equipment under finance leases of which the lease term is 3 years. The finance leases carry fixed interest rates at respective contract dates ranging from 1% to 4% per annum for the Relevant Periods. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

Amounts payable under finance leases: Within one year In the second to fifth years Less: Future finance charges Present value of lease obligations Less: Amounts due within 1 year (shown under current liabilities) Amount due after 1 year (shown under non-current liabilities)	Minimum lease payments At 31 December At 30 September 2011 2012 2013 2014 HK$’000 HK$’000 HK$’000 HK$’000 – 112 112 269 – 149 37 179 – 261 149 448 – (22) (7) (39) – 239 142 409	Present value of minimum lease payments At 31 December At 30 September 2011 2012 2013 2014 HK$’000 HK$’000 HK$’000 HK$’000 – 97 97 237 – 142 45 172 – 239 142 409 – – – – – 239 142 409 – (97) (97) (237) – 142 45 172	Present value of minimum lease payments At 31 December At 30 September 2011 2012 2013 2014 HK$’000 HK$’000 HK$’000 HK$’000 – 97 97 237 – 142 45 172 – 239 142 409 – – – – – 239 142 409 – (97) (97) (237) – 142 45 172
			409 –
			409 (237)
			172

The Target Group’s obligations under finance leases are secured by the lessor’s charge over the leased assets with the carrying amounts of motor vehicle at 31 December 2012 and 2013 of approximately HK$349,000 and HK$199,000 respectively and the carrying amount of office equipment at 30 September 2014 of approximately HK$450,000.

All obligations under finance leases at 31 December 2011, 2012 and 2013 were denominated in HK$ while at 30 September 2014, the obligations under finance leases was denominated in RMB.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

25. BANK AND OTHER BORROWINGS

Secured bank borrowings Secured bank overdraft Other borrowing Carrying amounts repayable: – Within one year – Not repayable within one year but contain a repayment on demand clause (shown under current liabilities)	2011 HK$’000 7,258 3,406 – 10,664 2011 HK$’000 3,406 7,258 10,664	At 31 December 2012 2013 HK$’000 HK$’000 45,013 65,746 12,273 1,054 – – 57,286 66,800 At 31 December 2012 2013 HK$’000 HK$’000 12,273 1,054 45,013 65,746 57,286 66,800	At 30 September 2014 HK$’000 68,582 4,084 7,000
			79,666

			At 30 September 2014 HK$’000 11,084 68,582
			79,666

At the end of the Relevant Periods, the bank borrowings and bank overdraft were secured by i) unlimited personal guarantees from a director of Cosmos Glory and the director of the Target Company; ii) corporate guarantees provided by certain related companies; iii) properties owned by the related companies in which the director of the Target Company has an equity interest; and iv) certain of the life insurance policies with an aggregate carrying values of approximately HK$662,000, HK$9,122,000, HK$9,360,000 and HK$9,534,000 at the end of the Relevant Periods respectively. The secured bank borrowings carried interest at 4.5% per annum.

At 30 September 2014, the other borrowing was unsecured and repayable within one year from the date of first drawdown, and carried interest at 8% per annum.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

26. SHARE CAPITAL

For the purpose of the Financial Information, share capital at 1 January 2011, 31 December 2011, 31 December 2012 and 31 December 2013 represented the share capital of Cosmos Glory.

Upon completion of the Reorganisation, the share capital at 30 September 2014 represented the share capital of the Target Company, details of which are shown as follows:

The Target Company Authorised: 50,000 ordinary shares of US$1 each_(note (i)) Issued and fully paid: Balance at 11 July 2014 (date of incorporation) 100 ordinary shares of US$1 each allotted and issued upon incorporation(note (ii)) Balance at 30 September 2014 _Notes:	Number of ordinary shares ’000 50 – 1 1	Nominal value of ordinary share US$’000 50 – 1 1	Equivalent nominal value of ordinary share HK$’000 390

			– 1
			1

i) The Target Company was incorporated in the BVI on 11 July 2014 with an authorised capital of US$50,000 divided into 50,000 shares with a nominal value of US$1 each. Since the Target Company had not been legally incorporated at 31 December 2011, 2012 and 2013, there was no share capital presented at 31 December 2011, 2012 and 2013.
ii) Upon the incorporation of the Target Company, 100 ordinary shares of a nominal value of US$1 each were issued and allotted for cash totalling US$100 (equivalent to approximately HK$780).

27. OPERATING LEASE COMMITMENTS

The Target Group as lessee

At the end of the Relevant Periods, the Target Group had commitments for future minimum lease payments under non-cancellable operating leases in respect of rented premises which fall due as follows:

Within one year In the second to fifth year inclusive	2011 HK$’000 4,995 5,752 10,747	At 31 December 2012 2013 HK$’000 HK$’000 10,243 6,329 10,262 5,318 20,505 11,647	At 30 September 2014 HK$’000 9,828 6,717
			16,545

Operating lease payments represent rentals payable by the Target Group for its office properties and car park with lease terms between 2 to 3 years, with an option to extend. The Target Group does not have an option to purchase the leased premises at the expiry of the lease period.

II – 44

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

28. CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES

The Target Group had the following outstanding commitments at the end of the Relevant Periods:

				At 30
		At 31 December		September
	2011	2012	2013	2014
	HK$’000	HK$’000	HK$’000	HK$’000
Authorised and contracted, but not provided
for:
– Acquisition of property, plant and
equipment	–	–	–	3,250

The Target Group did not have any material contingent liabilities at the end of Relevant Periods.

29. RETIREMENT BENEFITS SCHEMES

The retirement benefits schemes contributions for the Relevant Periods have been disclosed in note 12. There was no forfeited contribution included in the retirement benefits schemes contributions during the Relevant Periods and there was no outstanding contribution by the Target Group at the end of the Relevant Periods.

30. MATERIAL RELATED PARTY TRANSACTIONS

Save as disclosed elsewhere in the Financial Information, the Target Group has entered into the following material transactions with related parties, which in the opinion of the director of Target Company, was conducted under commercial terms and in the normal course of the Target Group’s business.

i) During the Relevant Periods, the Target Group entered into the following transactions with its related parties:

Nature of transactions Production fee received from related companies Rental for machinery received from related company	Year ended 31 December Nine months ended 30 September 2011 2012 2013 2014 HK$’000 HK$’000 HK$’000 HK$’000 337 352 408 – 477 351 253 – 814 703 661 –	Year ended 31 December Nine months ended 30 September 2011 2012 2013 2014 HK$’000 HK$’000 HK$’000 HK$’000 337 352 408 – 477 351 253 – 814 703 661 –
		–

ii) Details of the balances with a director, related companies and a shareholder at the end of the Relevant Periods are set out in note 23 to the Financial Information.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

iii) Compensation for key management personnel paid during the Relevant Periods is as follow:

Salaries and other allowances Retirement benefits scheme contributions	Year ended 31 December Nine months ended 30 September 2011 2012 2013 2014 HK$’000 HK$’000 HK$’000 HK$’000 1,226 1,440 1,260 720 15 14 15 17 1,241 1,454 1,275 737	Year ended 31 December Nine months ended 30 September 2011 2012 2013 2014 HK$’000 HK$’000 HK$’000 HK$’000 1,226 1,440 1,260 720 15 14 15 17 1,241 1,454 1,275 737
		737

The remuneration of director and key management is determined by the remuneration committee having regard to the performance of individual and market trends.

iv) On 23 December 2011, banking facilities with total of HK$56,075,020 granted by a bank to the Target Group were secured by i) first property security provided by Billion Winner International Limited, a related company with common shareholder; ii) second property security and unlimited joint and several guarantee provided by a family member of the director of the Target Group; iii) unlimited guarantee from Xena Post Company Limited and Nic Music Production Ltd (“Nic Music”), both are related companies with common shareholder.

Upon renewal of the banking facilities on 18 October 2013, the securities provided by related parties remain unchanged.

On 31 October 2014, the bank loan facility of HK$6,200,000 and the bank overdraft facility of HK$800,000 of Nic Music were transferred to the Target Group. Upon such transfer and renewal of the banking facilities of the Target Group, the shareholder of the Target Company provided an additional personal guarantee of HK$59,030,000 and a director of the Target Group also provided an unlimited personal guarantee to the bank as security for these banking facilities.

31. EVENTS AFTER THE REPORTING PERIOD

i) On 23 September 2014, the Target Group applied to terminate the life insurance policies (please refer to note 18 for details) and has received the Cash Value of the policies before the reporting date.
ii) On 31 October 2014, the bank loan facility of HK$6,200,000 and the bank overdraft facility of HK$800,000 of Nic Music were transferred to the Target Group. Upon such transfer and renewal of the banking facilities of the Target Group, the shareholder of the Target Company provided an additional personal guarantee of HK$59,030,000 and a director of the Target Group also provided an unlimited personal guarantee to the bank as security for these banking facilities.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared for the Target Group in respect of any period subsequent to 30 September 2014 and no dividends or other distributions have been declared by the Target Company in respect of any period subsequent to 30 September 2014.

Yours faithfully

HLB Hodgson Impey Cheng Limited Certified Public Accountants Yu Chi Fat Practising Certificate Number: P05467 Hong Kong

II – 46

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX III

Set out below are the management discussion and analysis of the Group as extracted from the annual reports of the Company for each of the three financial years ended 30 June 2014 (the “ Management Discussion and Analysis ”). Terms used below shall have the same meanings as those defined in the Management Discussion and Analysis. Furthermore, all pages/sections/appendices mentioned in the below text are referred to in those of the Management Discussion and Analysis.

(a) For the year ended 30 June 2012

REVIEW OF OPERATIONS

The Group was principally engaged in the entertainment and media business. Our activities can be categorized as (i) film and TV programme production; (ii) event production; (iii) artiste and model management; (iv) music production; (v) investment in securities; and (vi) investment in a pay TV operation.

Film and TV programme production

The Group generated turnover of approximately HK$23.7 million from film and TV programme production activities for the year ended 30 June 2012, representing an increase of approximately 34.7% from approximately HK$17.6 million in the previous year. The gross profit derived from these activities was approximately HK$8.8 million, compared with approximately HK$6.5 million in the fiscal year ended 30 June 2011. Turnover of this segment for the year was mainly contributed by four films and two TV programmes released by the Group, namely “Love Is The Only Answer”, “Marriage With A Liar”, “MicroSex Office” and “All About Love”, respectively for films, and “Rough Justice” and “The Dragon Gate” for TV programmes.

As of 30 June 2012, the total net book value of the Group’s film rights stood at approximately HK$14.1 million. The impairment loss recognised in respect of film rights during the year amounted to approximately HK$7.8 million. The Group’s total film and TV programme production in progress as of 30 June 2012 amounted to approximately HK$227.2 million.

Event production

The Group organised a number of promotional events during the year. Turnover from the event production for the year was approximately HK$0.4 million compared with approximately HK$0.7 million in the previous year.

Artiste and model management

The Group continued to manage a group of popular artistes and models including 謝婷婷 (Jennifer Tse), JJ 賈曉晨 (JJ Jia Xiao Chen), 莊思敏 (Jacquelin Ch’ng), 童菲 (Kimmy Tong), 伍允龍 (Philip Ng), 蔚雨芯 (Rainky Wai), EO2 and 狄易達 (Det Dik*).

Turnover and gross profit of the artiste and model management operation for the year were approximately HK$10.0 million and HK$2.9 million respectively, compared with approximately HK$11.2 million and HK$3.7 million, respectively, in the previous year.

* For identification purpose only

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MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX III

Music production

The turnover of the Group’s music album production business during the year was approximately HK$0.1 million, compared with approximately HK$0.5 million in the fiscal year ended 30 June 2011.

Although music production only accounts for a small portion of the Group’s total earnings, the Group will continue to produce music albums for our artistes to boost the popularity of our artistes as well as the Group’s image.

Investment in securities

No turnover has been recorded in the investment in securities operation during the year and in the previous year. The carrying value of the total segment assets of the investment in securities operation as of 30 June 2012 and 30 June 2011 were approximately HK$2.8 million and HK$5.7 million, respectively. The decrease in the carrying value mainly represented the loss in change in fair value of financial assets at fair value through profit or loss during the year.

Investment in a pay TV operation

On 20 March 2012, Enjoy Profits Limited, a wholly-owned subsidiary of the Company, entered into a conditional agreement to dispose of 13% entire issued ordinary share capital of TVB Pay Vision Holdings Limited (the “TVBP”), (the “Disposal”) at a cash consideration of approximately HK$89.2 million. The Disposal was completed during the year and recorded a gain on the Disposal of approximately HK$68.6 million in the consolidated statement of comprehensive income. Details of the Disposal were set out in the Company’s announcement and circular dated 22 March 2012 and 20 April 2012, respectively. Upon completion of the Disposal, the Group is entitled to 5% equity interest in TVBP and TVB Pay Vision Limited (the “TVBPV”). The directors of the Company consider that the Group has retained significant influence over TVBP and TVBPV by the representation of the Group on the board of directors of TVBP and TVBPV despite the interest held by the Group is below 20% and the Group has continuously accounted for TVBP and TVBPV as its associates for the year ended 30 June 2012.

GEOGRAPHICAL REVIEW

During the year under review, the Group continued to focus on the Hong Kong and Mainland China markets. The revenue derived from Hong Kong and Mainland China amounted to approximately HK$24.8 million and HK$7.4 million, respectively, representing approximately 72.7% and 21.7% of the total turnover of the Group, respectively.

FINANCIAL REVIEW AND LIQUIDITY

As at 30 June 2012, the Group’s net assets amounted to approximately HK$295.2 million, compared with approximately HK$265.6 million as at 30 June 2011. The current ratio, representing current assets divided by current liabilities was 4.12.

At the end of the reporting period, the Group had a short-term bank overdraft of approximately HK$9.9 million which bears interest at the lending bank’s prime rate per annum or 1% per annum over Hong Kong Inter-bank Offer Rate (“HIBOR”), whichever is higher, and is repayable on demand. The cash and bank balances of the Group amounted to approximately HK$87.6 million. The gearing ratio, as a ratio of total borrowings over total assets, was 0.03.

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MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX III

The Group had contingent liabilities of approximately HK$24.0 million at the end of the reporting period, mainly as a result of a corporate guarantee provided to a financial institution in respect of banking facilities granted to former subsidiaries. Approximately HK$5.5 million of the banking facilities were utilised by those former subsidiaries and this amount was subject to a claim by the financial institution concerned.

During the year, the Group funded its working capital requirement and capital expenditure mainly through its own operational cash flow and bank borrowings.

The Group did not have foreign currency net investments being hedged by foreign currency borrowings and other hedging instruments.

EXPOSURE TO FLUCTUATION IN EXCHANGE RATES AND RELATED HEDGES

During the year, the revenue and cost for film and TV programme production, music album production, event production, artiste and model management and investment in securities were mainly dominated in Renminbi and Hong Kong dollars. Borrowings in terms of bank overdraft was denominated in Hong Kong dollars.

As the exchange rates of Hong Kong dollars against Renminbi were relatively stable during the year, the Group’s exposure to fluctuations in exchange rates was minimal.

The Group will closely monitor the foreign currency exposure and to arrange for hedging facilities when necessary.

EMPLOYEE SCHEMES

As at 30 June 2012, the Group had 38 employees (All based in Hong Kong). The remuneration policy and package of the Group’s employees are periodically reviewed and approved by the executive directors. Apart from provident fund scheme and in-house training programmes, medical insurance scheme, discretionary bonuses and share options may also be awarded to employees according to the assessment of individual performances.

PLEDGE OF ASSETS

As at 30 June 2012, the Group’s leasehold land in Hong Kong under long term lease with the carrying amount of approximately HK$14.2 million (2011: HK$14.2 million) and buildings with the carrying amount of approximately HK$6.2 million (2011: HK$6,3 million) were pledged to secure banking facilities granted to the Company.

MATERIAL DISPOSAL

On 22 March 2012, the Group entered into the sale and purchase agreement with an independent third party in relation to the disposal of 13% equity interest in the entire issued share capital of TVB Pay Vision Holdings Limited (“TVBP”). The TVBP Group is principally engaged in pay-television business in Hong Kong and the Teleport Business. The aforementioned sale and purchase agreement was completed during the year ended 30 June 2012. For details of the disposal, please refer to the announcement and the circular of the Company dated 22 March 2012 and 20 April 2012.

III – 3

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX III

(b) For the year ended 30 June 2013

REVIEW OF OPERATIONS

Film and TV programme production

The Group generated turnover of approximately HK$17.2 million from film and TV programme production activities for the year ended 30 June 2013, representing a decrease of approximately 27.4% from approximately HK$23.7 million in the previous year. The gross profit derived from these activities was approximately HK$7.4 million, compared with approximately HK$8.8 million in the fiscal year ended 30 June 2012. Turnover of this segment for the year was mainly contributed by two films released by the Group during the year, namely “Naked Soldier” and “Princess and Seven Kung Fu Masters”.

As of 30 June 2013, the total net book value of the Group’s film rights stood at approximately HK$122.7 million. The impairment loss recognised in respect of film rights during the year amounted to approximately HK$31.6 million. The Group’s total film and TV programme production in progress as of 30 June 2013 amounted to approximately HK$100.0 million.

Event production

The Group organised a number of promotional events during the year. Turnover from the event production for the year was approximately HK$0.6 million compared with approximately HK$0.4 million in the previous year.

Artiste and model management

The Group continued to manage a group of popular artistes and models including 童菲 (Kimmy Tong), 伍允龍 (Philip Ng), 蔚雨芯 (Rainky Wai), 楊焉 (Carol Yeung), EO2 and 狄易達 (Det Dik*).

Turnover and gross profit of the artiste and model management operation for the year were approximately HK$5.2 million and HK$1.8 million respectively, compared with approximately HK$10.0 million and HK$2.9 million respectively, in the previous year.

Music production

The turnover of the Group’s music album production business during the year was approximately HK$0.2 million, compared with approximately HK$0.1 million in the fiscal year ended 30 June 2012.

Although music production only accounts for a small portion of the Group’s total earnings, the Group will continue to produce music albums for our artistes to enhance the popularity of our artistes as well as the Group’s image.

* For identification purpose only

III – 4

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX III

Investment in securities

No turnover has been recorded in the investment in securities operation during the year and in the previous year. The carrying value of the total segment assets of the investment in securities operation as of 30 June 2013 and 30 June 2012 were approximately HK$4.6 million and HK$2.8 million respectively. The increase in the carrying value mainly represented the gain in change in fair value of financial assets at fair value through profit or loss during the year.

Investment in a pay TV operation

The Group’s 5% interest in TVB Pay Vision Holdings Limited (“TVBP”) and TVB Network Vision Limited, (formerly known as TVB Pay Vision Limited) (the “TVBNV”) has been continuously accounted for as associates of the Group. The Directors of the Company consider that the Group has retained significant influence over TVBP and TVBNV by the representation of the Group on the Board of Directors of TVBP and TVBNV despite that the interest held by the Group is below 20%.

GEOGRAPHICAL REVIEW

During the year under review, the Group continued to focus on the Hong Kong and Mainland China markets. The revenue derived from Hong Kong and Mainland China amounted to approximately HK$15.3 million and HK$3.2 million respectively, representing approximately 65.7% and 13.7% of the total turnover of the Group respectively.

FINANCIAL REVIEW AND LIQUIDITY

As at 30 June 2013, the Group’s net assets amounted to approximately HK$240.5 million, compared with approximately HK$295.2 million as at 30 June 2012. The current ratio, representing current assets divided by current liabilities was 4.16.

At the end of the reporting period, the Group had a short-term bank overdraft of approximately HK$10.0 million which bears interest at the lending bank’s prime rate per annum or 1% per annum over Hong Kong Inter-bank Offer Rate (“HIBOR”), whichever is higher, and is repayable on demand. The cash and bank balances of the Group amounted to approximately HK$33.2 million. The gearing ratio, as a ratio of total borrowings over total assets, was 0.03.

During the year, the Group funded its working capital requirement and capital expenditure mainly through its own operational cash flow and bank borrowings.

The Group did not have foreign currency net investments being hedged by foreign currency borrowings and other hedging instruments.

In the event that the Group requires additional funds for further development of the Group’s existing business or for new investments when suitable opportunities arise or for repayment of its financial obligations, the Board will consider carrying out equity fund raising activities and/or dispose of the Group’s existing assets.

III – 5

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX III

EXPOSURE TO FLUCTUATION IN EXCHANGE RATES AND RELATED HEDGES

As the exchange rates of Hong Kong dollars against Renminbi were relatively stable during the year, the Group’s exposure to fluctuations in exchange rates was minimal.

The Group will closely monitor the foreign currency exposure and to arrange for hedging facilities when necessary.

EMPLOYEE SCHEMES

As at 30 June 2013, the Group had 35 employees (all based in Hong Kong). The remuneration policy and package of the Group’s employees are periodically reviewed and approved by the Executive Directors. Apart from the Mandatory Provident Fund scheme and in-house training programmes, medical insurance scheme, discretionary bonuses and share options may also be awarded to employees according to the assessment of individual performances.

PLEDGE OF ASSETS

As at 30 June 2013, the Group’s leasehold land in Hong Kong under long term lease with the carrying amount of approximately HK$14.1 million (2012: HK$14.2 million) and buildings with the carrying amount of approximately HK$6.0 million (2012: HK$6.2 million) were pledged to secure banking facilities granted to the Company.

(c) For the year ended 30 June 2014

REVIEW OF OPERATIONS

Film and TV programme production

The Group generated turnover of approximately HK$41.0 million from film and TV programme production activities for the year ended 30 June 2014, representing an increase of approximately 138.4% from approximately HK$17.2 million in the previous year. The gross profit derived from these activities was approximately HK$1.5 million, compared with approximately HK$7.4 million in the fiscal year ended 30 June 2013. Turnover of this segment for the year was mainly contributed by two collaborating films released by the Group, namely “Princess and Seven Kung Fu Masters” and “Once Upon A Time in Shanghai”.

As of 30 June 2014, the total net book value of the Group’s film rights stood at approximately HK$64.3 million. The impairment loss recognised in respect of film rights during the year amounted to approximately HK$41.6 million. The Group’s total film and TV programme production in progress as of 30 June 2014 amounted to approximately HK$18.5 million.

III – 6

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX III

Event production

The Group organised a number of promotional events during the year. Turnover from the event production for the year was approximately HK$0.8 million compared with approximately HK$0.6 million in the previous year.

Artiste and model management

The Group continued to manage a group of artistes and models during the year.

Turnover and gross profit of the artiste and model management operation for the year were approximately HK$3.0 million and HK$0.8 million respectively, compared with approximately HK$5.2 million and HK$1.8 million respectively in the previous year.

Music production

The turnover of the Group’s music album production business during the year was approximately HK$0.04 million, compared with approximately HK$0.2 million in the fiscal year ended 30 June 2013.

Although music production only accounts for a small portion of the Group’s total earnings, the production of music albums for our artistes will enhance the popularity of our artistes as well as the Group’s image.

Investment in securities

The carrying value of the financial assets at fair value through profit or loss as of 30 June 2014 and 30 June 2013 were nil and approximately HK$4.6 million respectively. The decrease in the carrying value of the financial assets at fair value through profit or loss represented mainly the cost of investment in securities disposed during the year. The change in fair value gain in financial assets at fair value through profit or loss during the years ended 30 June 2014 and 30 June 2013 amounted to nil and approximately HK$1.8 million respectively.

Investment in a pay TV operation

The Group’s 5% interest in TVB Pay Vision Holdings Limited (“TVBP”) and TVB Network Vision Limited (“TVBNV”) has been continuously accounted for as associates of the Group. The Directors of the Company consider that the Group has retained significant influence over TVBP and TVBNV by the representation of the Group on the board of directors of TVBP and TVBNV despite that the interest held by the Group is below 20%.

GEOGRAPHICAL REVIEW

During the year under review, the Group continued to focus on the Hong Kong and Mainland China markets. The revenue derived from Hong Kong and Mainland China amounted to approximately HK$20.6 million and HK$26.4 million respectively, representing approximately 37.9% and 48.5% of the total turnover of the Group respectively.

III – 7

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX III

FUTURE BUSINESS PROSPECTS AND PLANS

The Group has dedicated its efforts in strengthening and opening up distribution channels for its film and TV production in Mainland China. Given the continued opening and expansion of the film and TV production market as well as the continuous growth in the box office in Mainland China, we strongly believe that there is a great potential for the distribution of our film and TV productions in Mainland China.

We are facing a challenging year ahead with the uncertain recovery trends in the world’s major economies. We are cautiously optimistic in respect of the prospects of the film and TV production industry in Hong Kong. The Group will be cautious in the selection of stories and scripts for the production of our films and TV programmes. Stringent measures will be adopted in the cost control and risk management for the Group’s film and TV projects.

In addition, the Group is always on the lookout for different entertainment related investment opportunities in the market.

CAPITAL REORGANISATION

Pursuant to a special resolution passed by the shareholders of the Company at a special general meeting held on 7 May 2014, every 10 issued shares of HK$0.01 each were consolidated into one consolidated share of HK$0.10 each and the nominal value of each consolidated share was reduced from HK$0.10 to HK$0.01 by cancelling the Company’s paid up capital to the extent of HK$0.09 on each consolidated share. The share consolidation and capital reduction took effect on 8 May 2014.

FINANCIAL REVIEW AND LIQUIDITY

As at 30 June 2014, the Group’s net assets amounted to approximately HK$484.4 million, compared with approximately HK$240.5 million as at 30 June 2013. The current ratio, representing current assets divided by current liabilities was 11.10.

During the year, the Company raised approximately HK$15.2 million before expenses by way of placing of new shares pursuant to a general mandate granted by way of an ordinary resolution passed by the shareholders of the Company at the annual general meeting held on 22 October 2012, issuing 249,000,000 ordinary shares at the subscription price of HK$0.061 per ordinary share. The net proceeds from the placing of new shares of approximately HK$14.6 million were fully utilised as the general working capital of the Group during the year.

The Company also raised approximately HK$306.7 million before expenses by way of the Rights Issue during the year, issuing 1,345,014,801 ordinary shares at the subscription price of HK$0.228 per rights share on the basis of nine rights shares for every one ordinary share held on 14 May, 2014, being the record date of which entitlements to the Rights Issue are determined. The net proceeds from the Rights Issue were approximately HK$294.5 million which was planned to be retained at the bank and be used for operation of its existing business which includes the film and TV programme production or if different expansion opportunities in the entertainment business are identified, for expansion of its business to entertainment related investments.

III – 8

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX III

At the end of the reporting period, the Group had a short-term bank overdraft of approximately HK$10.0 million which bears interest at the lending bank’s prime rate per annum or 1% per annum over Hong Kong Inter-bank Offer Rate (“HIBOR”), whichever is higher, and is repayable on demand. The cash and bank balances of the Group amounted to approximately HK$398.2 million. The gearing ratio, as a ratio of total borrowings over total assets, was 0.02.

During the year, the Group funded its working capital requirement and capital expenditure mainly through its own operational cash flow and bank borrowings.

The Group did not have foreign currency net investments being hedged by foreign currency borrowings and other hedging instruments.

EXPOSURE TO FLUCTUATION IN EXCHANGE RATES AND RELATED HEDGES

As the exchange rates of Hong Kong dollars against Renminbi were relatively stable during the year, the Group’s exposure to fluctuations in exchange rates was minimal.

The Group will closely monitor the foreign currency exposure and to arrange for hedging facilities when necessary.

EMPLOYEE SCHEMES

As at 30 June 2014, the Group had 27 employees (all based in Hong Kong). The remuneration policy and package of the Group’s employees are periodically reviewed and approved by the Executive Directors. Apart from the Mandatory Provident Fund scheme and in-house training programmes, medical insurance scheme, discretionary bonuses and share options may also be awarded to employees according to the assessment of individual performances.

PLEDGE OF ASSETS

As at 30 June 2014, the Group’s leasehold land in Hong Kong under long term lease with a carrying amount of approximately HK$14.1 million (2013: HK$14.1 million) and building with a carrying amount of approximately HK$5.8 million (2013: HK$6.0 million) were pledged to secure banking facilities granted to the Company.

III – 9

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX III

MATERIAL DISPOSAL SUBSEQUENT TO THE YEAR ENDED 30 JUNE 2014

On 22 October 2014, the Company entered into the sale and purchase agreement with an independent third party in relation to the disposal of the entire issued share capital of Snazz Entertainment Group Limited and a sale loan at a consideration of HK$750,000. Snazz Entertainment Group Limited was the subsidiary of the Company and its principal business is investment holding. It holds 100% of the issued share capital of Snazz Artistes Limited which is principally engaged in artiste management, and Snazz Music Limited which is principally engaged in music production and distribution, and 50% of the issued share capital of SSA Amusement Limited which is principally engaged in entertainment promotion services. The aforementioned sale and purchase agreement was completed on 22 October 2014. For details of the disposal, please refer to the announcement of the Company dated 22 October 2014.

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

Set out below is the management discussion and analysis of the Target Group for each of the three financial years ended 31 December 2013 and nine months ended 30 September 2014:

For the year ended 31 December 2011

Financial review of operations

During the year ended 31 December 2011, the Target Group achieved a turnover of approximately HK$45.8 million, a gross profit of approximately HK$27.2 million and a net loss of approximately HK$11.7 million. Approximate 98.5% of the Target Group’s turnover was contributed by the post-production revenue while 1.5% of the turnover was generated by rental of machines.

Material acquisitions and disposals

The Target Group did not have any material acquisition and disposal during the year.

Liquidity and financial resources

As at 31 December 2011, the Target Group’s net liabilities amounted to approximately HK$19.1 million. The current ratio, representing current assets divided by current liabilities was 0.24.

Total borrowings of the Target Group as at 31 December 2011 were approximately HK$42.9 million which consisted of amount due to a shareholder of HK$32.2 million, a secured bank overdraft of approximately HK$3.4 million and secured bank borrowings of approximately HK$7.3 million. The amount due to a shareholder was unsecured, interest-free and repayable on demand. The secured bank overdraft was interest bearing and repayable on demand while the secured bank borrowings carried interest at prevailing market rates and had fixed repayment terms but contained a repayment on demand clause. The cash and bank balances of the Target Group amounted to approximately HK$1.4 million. The gearing ratio, as a ratio of total borrowings over total assets, was 1.01.

During the year, the Target Group funded its working capital requirement and capital expenditure mainly through its own operational cash flow, advances from the shareholder and bank borrowings.

III – 10

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX III

Charges of assets

As of 31 December 2011, none of the Target Group’s assets was pledged.

Contingent liabilities

The Target Group did not have any material contingent liability as at 31 December 2011.

Employees

The Target Group had 100 employees as at 31 December 2011. Apart from Mandatory Provident Fund, the Target Group provides management personnel and employees with on-the-job education, training and other opportunities to improve their skills and knowledge. In general, the Target Group determines employee compensation based on each employee’s performance, qualifications, position and seniority.

Foreign currency exposure

During the year, the revenue and cost for post-production service were mainly dominated in Renminbi and Hong Kong dollars. Amount due to a shareholder, bank borrowings and bank overdraft were all denominated in Hong Kong dollars.

As the exchange rates of Hong Kong dollars against Renminbi were relatively stable during the year, the Target Group’s exposure to fluctuations in exchange rates was minimal. The Target Group will closely monitor the foreign currency exposure and to arrange for hedging facilities when necessary.

Significant investments

During the year, the Target Group did not have any significant investment.

For the year ended December 2012

Financial review of operations

The Target Group generated turnover of approximately HK$52.8 million for the year ended 31 December 2012, representing an increase of approximately 15.2% from HK$45.8 million in the previous year. Approximately 99.3% of the Target Group’s turnover was contributed by the post-production revenue while 0.7% of the turnover was generated by rental of machines. The gross profit of approximately HK$16.1 million and a net loss of approximately HK$14.3 million were recorded for the year ended 31 December 2012.

Material acquisitions and disposals

The Target Group did not have any material acquisition and disposal during the year.

III – 11

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX III

Liquidity and financial resources

As at 31 December 2012, the Target Group’s net liabilities amounted to approximately HK$33.8 million. The current ratio, representing current assets divided by current liabilities was 0.16.

Total borrowings of the Target Group as at 31 December 2012 were approximately HK$76.5 million which consisted of amount due to a director of HK$0.9 million, amount due to a shareholder of HK$18.0 million, obligations under finance leases of HK$0.3 million, a secured bank overdraft of approximately HK$12.3 million and secured bank borrowings of approximately HK$45.0 million. The amounts due to a director and a shareholder were unsecured, interest-free and repayable on demand while the obligations under finance leases were secured, interest bearing and had fixed repayment terms. The secured bank overdraft was interest bearing and repayable on demand while the secured bank borrowings carried interest at prevailing market rates and had fixed repayment terms but contained a repayment on demand clause. The cash and bank balances of the Target Group amounted to approximately HK$0.6 million. The gearing ratio, as a ratio of total borrowings over total assets, was 1.09.

During the year, the Target Group funded its working capital requirement and capital expenditure mainly through its own operational cash flow, advances from a director and a shareholder as well as bank borrowings.

Charges of assets

As of 31 December 2012, motor vehicle of the Target Group with carrying amounts of HK$0.3 million was pledged to secure for the finance leases granted by the lessor.

Contingent liabilities

The Target Group did not have any material contingent liability as at 31 December 2012.

Employees

The Target Group had 136 employees as at 31 December 2012. Apart from Mandatory Provident Fund, the Target Group provides management personnel and employees with on-the-job education, training and other opportunities to improve their skills and knowledge. In general, the Target Group determines employee compensation based on each employee’s performance, qualifications, position and seniority.

Foreign currency exposure

During the year, the revenue and cost for post-production service were mainly dominated in Renminbi and Hong Kong dollars. Amounts due to a director and a shareholder, obligations under finance leases, bank borrowings and bank overdrafts were all denominated in Hong Kong dollars.

Significant investments

During the year, the Target Group did not have any significant investment.

III – 12

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX III

For the year ended December 2013

Financial review of operations

The Target Group generated turnover of approximately HK$85.0 million for the year ended 31 December 2013, representing an increase of approximately 61.0% from HK$52.8 million in the previous year. Approximately 99.7% of the Target Group’s turnover was contributed by the post-production revenue while 0.3% of the turnover was generated by rental of machines. The gross profit of approximately HK$39.0 million and a net loss of approximately HK$7.4 million were recorded for the year ended 31 December 2013.

Material acquisitions and disposals

The Target Group did not have any material acquisition and disposal during the year.

Liquidity and financial resources

As at 31 December 2013, the Target Group’s net liabilities amounted to approximately HK$40.2 million. The current ratio, representing current assets divided by current liabilities was 0.22.

Total borrowings of the Target Group as at 31 December 2013 were approximately HK$87.3 million which consisted of amount due to a director of HK$2.6 million, amount due to a shareholder of HK$17.8 million, obligations under finance leases of HK$0.1 million, a secured bank overdraft of approximately HK$1.1 million and secured bank borrowings of approximately HK$65.7 million. The amounts due to a director and a shareholder were unsecured, interest-free and repayable on demand while the obligations under finance leases were secured, interest bearing and had fixed repayment terms. The secured bank overdraft was interest bearing and repayable on demand while the secured bank borrowings carried interest at prevailing market rates and had fixed repayment terms but contained a repayment on demand clause. The cash and bank balances of the Target Group amounted to approximately HK$3.0 million. The gearing ratio, as a ratio of total borrowings over total assets, was 1.17.

Charges of assets

As of 31 December 2013, the motor vehicle of the Target Group with carrying amounts of HK$0.2 million was pledged to secure for the finance leases granted by the lessor.

Contingent liabilities

The Target Group did not have any material contingent liability as at 31 December 2013.

Employees

The Target Group had 176 employees as at 31 December 2013. Apart from Mandatory Provident Fund, the Target Group provides management personnel and employees with on-the-job education, training and other opportunities to improve their skills and knowledge. In general, the Target Group determines employee compensation based on each employee’s performance, qualifications, position and seniority.

III – 13

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX III

Foreign currency exposure

Significant investments

During the year, the Target Group did not have any significant investment.

For the nine months ended 30 September 2014

Financial review of operations

The Target Group generated turnover of approximately HK$77.8 million for the nine months ended 30 September 2014, representing an increase of approximately 51.9% from HK$51.3 million in the previous period. During the period, the Target Group’s turnover was wholly contributed by the post-production revenue. The gross profit of approximately HK$34.0 million and a net loss of approximately HK$2.0 million were recorded for the nine months ended 30 September 2014.

Material acquisitions and disposals

The Target Group did not have any material acquisition and disposal during the period.

Liquidity and financial resources

As at 30 September 2014, the Target Group’s net liabilities amounted to approximately HK$15.7 million. The current ratio, representing current assets divided by current liabilities was 0.41.

Total borrowings of the Target Group as at 30 September 2014 were approximately HK$81.7 million which consisted of amount due to a director of HK$1.6 million, obligations under finance leases of HK$0.4 million, a secured bank overdraft of approximately HK$4.1 million, secured bank borrowings of approximately HK$68.6 million and other borrowing of approximately HK$7.0 million. The amounts due to a director was unsecured, interest-free and repayable on demand while the obligations under finance leases were secured, interest bearing and had fixed repayment terms. The secured bank overdraft was interest bearing and repayable on demand while the secured bank borrowings carried interest at prevailing market rates and had fixed repayment terms but contained a repayment on demand clause. The other borrowing was unsecured, interest bearing and repayable within one year. The cash and bank balances of the Target Group amounted to approximately HK$2.6 million. The gearing ratio, as a ratio of total borrowings over total assets, was 0.99. The gearing ratio decreased from 1.17 in the preceding financial year to 0.99 mainly due to capitalization of the shareholder’s advances of approximately HK$27.4 million.

During the period, the Target Group funded its working capital requirement and capital expenditure mainly through its own operational cash flow, amount due to a director as well as bank and other borrowings.

III – 14

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX III

Charges of assets

As of 30 September 2014, office equipment of the Target Group with carrying amounts of HK$0.5 million was pledged to secure for the finance leases granted by the lessor.

Contingent liabilities

The Target Group did not have any material contingent liability as at 30 September 2014.

Employees

The Target Group had 176 employees as at 30 September 2014. Apart from Mandatory Provident Fund, the Target Group provides management personnel and employees with on-the-job education, training and other opportunities to improve their skills and knowledge. In general, the Target Group determines employee compensation based on each employee’s performance, qualifications, position and seniority.

Foreign currency exposure

During the period, the revenue and cost for post-production service were mainly dominated in Renminbi and Hong Kong dollars. Amount due to a director, bank overdraft, bank borrowings and other borrowing were all denominated in Hong Kong dollars while obligations under finance leases were denominated in Renminbi.

As the exchange rates of Hong Kong dollars against Renminbi were relatively stable during the period, the Target Group’s exposure to fluctuations in exchange rates was minimal. The Target Group will closely monitor the foreign currency exposure and to arrange for hedging facilities when necessary.

Significant investments

During the period, the Target Group did not have any significant investment.

III – 15

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(A) UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is an illustrative and unaudited pro forma consolidated statement of financial position, unaudited pro forma consolidated statement of profit or loss and other comprehensive income and unaudited pro forma consolidated statement of cash flows of See Corporation Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) (the “Unaudited Pro Forma Financial Information”), which have been prepared on the basis of the notes set out below and in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities (the “Listing Rules”) on the Stock Exchange of Hong Kong Limited for the purpose of illustrating the effects of the proposed acquisition of the 60% equity interest in Lucrative Skill Holdings Limited (together with its subsidiaries collectively referred to as the “Target Group”) (the “Acquisition”) might have affected the financial information of the Group, assuming that the Acquisition had been completed on 30 June 2014 for the unaudited pro forma consolidated statement of financial position, and on 1 July 2013 for the unaudited pro forma consolidated statement of profit or loss and other comprehensive income and the unaudited pro forma consolidated statement of cash flows. The Group immediately after completion of the Acquisition is referred to as the “Enlarged Group”.

The Unaudited Pro Forma Financial Information has been prepared using accounting policies consistent with that of the Group, as set out in the published annual report of the Group for the year ended 30 June 2014.

The Unaudited Pro Forma Financial Information of the Enlarged Group should be read in conjunction with the financial information contained in this circular and the Accountant’s Report on the Target Group as set out in Appendix II to this circular.

The Unaudited Pro Forma Financial Information has been prepared by the directors of the Company for illustrative purposes only and is based on a number of assumptions, estimates, uncertainties and currently available information. Because of its hypothetical nature, the Unaudited Pro Forma Financial Information may not reflect the true picture of the consolidated financial position, consolidated financial results and consolidated cash flows of the Enlarged Group had the Acquisition been completed as at 30 June 2014 or at any future date.

IV – 1

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(B) UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

I. Unaudited pro forma consolidated statement of financial position of the Enlarged Group as at 30 June 2014

Non-current assets Intangible assets Goodwill Property, plant and equipment Deferred tax assets Interests in associates Deposit and prepayments for life insurance policies Current assets Film rights Film production in progress Music production in progress Trade and other receivables, deposits and prepayments Loan receivable Cash and bank balances Current liabilities Trade and other payables Amount due to a director Amounts due to related companies Tax payable Obligations under finance leases Bank and other borrowings Bank overdraft – secured Net current assets/(liabilities)	Audited Audited consolidated consolidated statement statement of financial of financial position of position of the Target the Group Group as at as at 30 30 September June 2014 2014 HK$’000 HK$’000 (Note 1) (Note 2) – – – – 20,348 26,547 – 4,924 7,384 – – 11,102 27,732 42,573 64,349 – 18,538 – 455 – 10,348 37,069 10,000 – 398,175 2,581 501,865 39,650 35,219 16,059 – 1,630 – 21 – 97 – 237 – 79,666 9,961 – 45,180 97,710 456,685 (58,060)	Pro forma Sub-total adjustment HK$’000 HK$’000 Notes – 40,488 4 – 55,388 4 46,895 4,924 7,384 11,102 70,305 64,349 18,538 455 47,417 10,000 400,756 (3,000) 9 541,515 51,278 1,630 21 97 237 79,666 9,961 142,890 398,625	The Enlarged Group HK$’000 40,488 55,388 46,895 4,924 7,384 11,102
			166,181
			64,349 18,538 455 47,417 10,000 397,756
			538,515
			51,278 1,630 21 97 237 79,666 9,961
			142,890
			395,625

IV – 2

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Total assets less current liabilities Non-current liabilities Obligations under finance leases Deferred tax liabilities Net assets/(liabilities) Equity Capital and reserves attributable to the owners of the Company Share capital Reserves Non-controlling interests	Audited Audited consolidated consolidated statement statement of financial of financial position of position of the Target the Group Group as at as at 30 30 September June 2014 2014 HK$’000 HK$’000 (Note 1) (Note 2) 484,417 (15,487) – 172 – – – 172 484,417 (15,659) 14,945 1 485,780 (15,660) 500,725 (15,659) (16,308) – 484,417 (15,659)	Pro forma Sub-total adjustment HK$’000 HK$’000 Notes 468,930 172 – 6,681 4 172 468,758 3,500 3 14,946 (1) 4 76,300 3 15,660 4 470,120 (3,000) 9 485,066 (16,308) (6,264) 4 468,758	The Enlarged Group HK$’000 561,806
			172 6,681
			6,853
			554,953

			18,445 559,080
			577,525 (22,572)
			554,953

IV – 3

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

II. Unaudited pro forma consolidated statement of profit or loss and other comprehensive income of the Enlarged Group for the year ended 30 June 2014

Audited Audited consolidated consolidated statement of statement of profit or loss profit or loss and other and other comprehensive comprehensive income of the income of the Target Group Group for the for the year ended year ended 30 June 2014 31 December 2013 HK$’000 HK$’000 (Note 1) (Note 2) Turnover 54,437 84,986 Cost of sales/service (42,364) (45,956) Gross profit 12,073 39,030 Other revenue 3,379 1,167 Distribution costs (13,650) – Administrative expenses (22,871) (43,907) Other operating expenses (43,357) – Loss from operations (64,426) (3,710) Finance costs (625) (2,945) Loss before taxation (65,051) (6,655) Taxation – (783) Loss for the year (65,051) (7,438) Other comprehensive income for the year, net of tax: Item that may be reclassified subsequently to profit or loss: Exchange differences arising on translation of foreign operations – 962 Total comprehensive loss for the year (65,051) (6,476)	Sub-total Pro forma adjustment HK$’000 HK$’000 Notes 139,423 (88,320) 51,103 4,546 (13,650) (66,778) (3,000) 9 (43,357) (4,049) 5 (68,136) (3,570) (71,706) (783) 668 6 (72,489) 962 (71,527)	The Enlarged Group HK$’000 139,423 (88,320)
		51,103 4,546 (13,650) (69,778) (47,406)
		(75,185) (3,570)
		(78,755) (115)
		(78,870)
		962
		(77,908)

IV – 4

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Audited Audited consolidated consolidated statement of statement of profit or loss profit or loss and other and other comprehensive comprehensive income of the income of the Target Group Group for the for the year ended year ended 30 June 2014 31 December 2013 HK$’000 HK$’000 (Note 1) (Note 2) Loss for the year attributable to: Owners of the Company (66,832) (7,436) Non-controlling interests 1,781 (2) (65,051) (7,438) Total comprehensive loss attributable to: Owners of the Company (66,832) (6,474) Non-controlling interests 1,781 (2) (65,051) (6,476)	Sub-total Pro forma adjustment HK$’000 HK$’000 Notes (4,049) 5 668 6 2,974 7 (74,268) (3,000) 9 1,779 (2,974) 7 (72,489) (4,049) 5 668 6 2,590 8 (73,306) (3,000) 9 1,779 (2,590) 8 (71,527)	The Enlarged Group HK$’000 (77,675) (1,195)
		(78,870)

		(77,097) (811)
		(77,908)

IV – 5

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

III. Unaudited pro forma consolidated statement of cash flows of the Enlarged Group for the year ended 30 June 2014

Audited Audited consolidated consolidated statement of statement of cash flows cash flows of the of the Target Group Group for the for the year year ended ended 30 June 2014 31 December 2013 HK$’000 HK$’000 (Note 1) (Note 2) Cash flows from operating activities Loss before taxation (65,051) (6,655) Adjustments for: Impairment loss recognised in respect of: – trade and other receivables, deposits and prepayments 1,721 46 – film rights 41,636 – Interest income (167) (2) Interest expenses 625 2,945 Depreciation of property, plant and equipment 563 12,205 Amortisation of film rights 39,424 – Amortisation of intangible asset Amortisation of premium and other expenses charged on life insurance policies – 155 Interest income on life insurance policies – (496) Reversal of impairment loss in respect of trade and other receivables (3,014) – Reversal of write down in respect of inventories (120) – Loss on disposal of property, plant and equipment 335 – Operating cash flows before movements in working capital 15,952 8,198	Sub-total Pro forma adjustment HK$’000 HK$’000 Notes (4,049) 5 (71,706) (3,000) 9 1,767 41,636 (169) 3,570 12,768 39,424 4,049 5 155 (496) (3,014) (120) 335 24,150	The Enlarged Group HK$’000 {(78,755)} 1,767 41,636 (169) 3,570 12,768 39,424 4,049 155 (496) (3,014) (120) 335 21,150

IV – 6

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Audited Audited consolidated consolidated statement of statement of cash flows cash flows of the of the Target Group Group for the for the year year ended ended 30 June 2014 31 December 2013 HK$’000 HK$’000 (Note 1) (Note 2) Decrease in film production in progress 58,734 – Decrease in production work in progress – 178 Decrease in music production in progress 204 – Decrease in inventories 120 – Increase in trade and other receivables, deposits and prepayments (4,091) (5,209) Increase in amounts due to related companies – 5,929 Decrease in financial assets at fair value through profit or loss 4,615 – Decrease in trade and other payables (18,746) (5,981) Cash generated from operations 56,788 3,115 Income tax paid – (923) Net cash generated from operating activities 56,788 2,192 Cash flows from investing activities Interest income received 52 2 Purchase of property, plant and equipment (140) (7,764) Net cash used in investing activities (88) (7,762)	Sub-total Pro forma adjustment HK$’000 HK$’000 Notes 58,734 178 204 120 (9,300) 5,929 4,615 (24,727) 59,903 (923) 58,980 54 (7,904) (7,850)	The Enlarged Group HK$’000 58,734 178 204 120 (9,300) 5,929 4,615 (24,727)
		56,903 (923)
		55,980
		54 (7,904)
		(7,850)

IV – 7

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Audited Audited consolidated consolidated statement of statement of cash flows cash flows of the of the Target Group Group for the for the year year ended ended 30 June 2014 31 December 2013 HK$’000 HK$’000 (Note 1) (Note 2) Cash flows from financing activities Bank loans raised – 40,000 Repayment of bank loans – (19,268) Repayment of obligations under finance leases – (97) Net proceeds from right issue 294,432 – Net proceeds from placing of shares 14,551 – Advances from a director – 1,618 Repayments to a shareholder – (278) Interest expense paid (625) (2,944) Net cash generated from financing activities 308,358 19,031 Net increase in cash and cash equivalents 365,058 13,461 Effect of foreign exchange rate changes – 81 Cash and cash equivalents at the beginning of the year 23,156 (11,631) Cash and cash equivalents at the end of the year 388,214 1,911 Analysis of the balances of cash and cash equivalents Cash and bank balances 398,175 2,965 Bank overdraft (9,961) (1,054) 388,214 1,911	Sub-total Pro forma adjustment HK$’000 HK$’000 Notes 40,000 (19,268) (97) 294,432 14,551 1,618 (278) (3,569) 327,389 378,519 81 11,525 390,125 401,140 (3,000) 9 (11,015) 390,125	The Enlarged Group HK$’000 40,000 (19,268) (97) 294,432 14,551 1,618 (278) (3,569)
		327,389
		375,519 81 11,525
		387,125

		398,140 (11,015)
		387,125

IV – 8

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(C) NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The amounts are extracted from the audited consolidated statement of financial position of the Group as at 30 June 2014, the audited consolidated statement of profit or loss and other comprehensive income and the audited consolidated statement of cash flows of the Group for the year ended 30 June 2014 as set out in the Company’s published annual report for the year ended 30 June 2014.
The audited consolidated statement of financial position of the Target Group as at 30 September 2014, the audited consolidated statement of profit or loss and other comprehensive income and the audited consolidated statement of cash flows for the year ended 31 December 2013 are extracted from the Accountants’ Report on the Target Group as set out in Appendix II to this circular.
Pursuant to the sale and purchases agreement, the consideration for the Acquisition was satisfied by allotment and issue of 350,000,000 consideration shares (“Consideration Shares”) of the Company with par value of HK$0.01 each and at an issue price of HK$0.35 each. For the purpose of the Unaudited Pro Forma Financial Information of the Enlarged Group, assuming the Acquisition was completed on 30 June 2014, the fair value of the Consideration Shares is HK$79,800,000, which is based on the closing share price of the Company of HK$0.228 each as at 30 June 2014. On the date of completion of the Acquisition (the “Completion Date”), the fair value of the Company’s shares at the Completion Date may be substantially different from the assumed closing share price used in the preparation of the Unaudited Pro Forma Financial Information of the Enlarged Group. The final amounts of the fair value of the Consideration Shares to be recognised at the Completion Date could be different from the estimated amount stated herein.
Upon completion of the Acquisition, the identifiable assets and liabilities of the Target Group will be accounted for the unaudited pro forma consolidated statement of financial position of the Enlarged Group at their fair values as required by the acquisition method in accordance with HKFRS 3 (Revised) “Business Combinations” (“HKFRS 3 (Revised)”).

For the purpose of the Unaudited Pro Forma Financial Information and for illustrative purpose only, the Target Group has carried out an illustrative consideration allocation exercise in accordance with the requirements of HKFRS 3 (Revised). Details of the identifiable assets and liabilities of the Target Group to be accounted for the unaudited pro forma statement of financial position of the Enlarged Group and the calculations are as follows:

IV – 9

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Intangible assets Property, plant and equipment Deferred tax assets Deposit and prepayments for life insurance policies Trade and other receivables, deposits, and prepayments Cash and bank balances Trade and other payables Amount due to a director Amounts due to related companies Tax payable Obligations under finance leases Bank and other borrowings Deferred tax liabilities Net identifiable (liabilities) assets Total consideration (i.e. 350,000,000 Consideration Shares x HK$0.228 each) Less: Fair value of net identifiable assets Less: Non-controlling interests Goodwill arising from the Acquisition	Carrying amount HK$’000 – 26,547 4,924 11,102 37,069 2,581 (16,059) (1,630) (21) (97) (409) (79,666) – (15,659)	Fair value adjustment HK$’000 40,488 – – – – – – – – – – – (6,681) 33,807	Fair value HK$’000 40,488 26,547 4,924 11,102 37,069 2,581 (16,059) (1,630) (21) (97) (409) (79,666) (6,681) 18,148 HK$’000 79,800 (18,148) (6,264) 55,388

The assumed fair values of intangible asset related to customer relationship owned by the Target Group was taken to be approximately HK$40,488,000 based on the directors of the Company’s estimation of their fair values with reference to a valuation report issued by Greater China Appraisal Limited. The valuation of customer relationship was based on the income approach, multi-period excess earnings method. Goodwill of approximately HK$55,388,000 is attributable to the Target Group’s management expertise and workforce.

IV – 10

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

In preparation of the Unaudited Pro Forma Financial Information of the Enlarged Group, the directors of the Company had performed an impairment assessment of the goodwill and intangible assets in accordance with HKAS 36 “Impairment of Assets” (“HKAS 36”) issued by Hong Kong Institute of Certified Public Accountants and the Group’s accounting policy. Based on the impairment test, the recoverable amount of the cash-generating unit in which the Target Group was assigned exceeds its carrying amount and accordingly, no impairment should be recognised in respect of goodwill and intangible assets in the Unaudited Pro Forma Financial Information for the Enlarged Group. Such assessment assumed that (i) there are no material adverse changes in the fair values of the assets and liabilities; and (ii) the identifiable assets and liabilities can be realised at their carrying amounts. However, should there be any adverse changes to the business of the Target Group, including but not limited to, any subsequent adverse changes in the operation, impairment may be required to be recognised against goodwill and intangible assets in accordance with HKAS 36 and the Group’s accounting policy.

The reporting accountants have conducted their engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 “Assurance Engagements to Report on the Compilation of Unaudited Pro Forma Financial Information Included in a Prospectus” and considered that the impairment test of the goodwill and intangible asset performed by the directors of the Company is consistent with the Company’s applicable financial reporting framework and its accounting policies under that framework. However, the reporting accountants did not perform an audit or review of the financial information used in the preparation of the impairment test of the goodwill and intangible asset prepared by the directors of the Company.

The directors of the Company confirmed that they will apply consistent accounting policies, principal assumptions and valuation method to assess impairment of the goodwill and intangible asset in subsequent reporting periods in accordance with the requirement of HKAS 36. The Company also confirmed with its auditors that they will audit and opine on the consolidated financial statements of the Company in accordance with Hong Kong Standards on Auditing.

Since the fair values and the carrying amounts of the identifiable assets and liabilities of the Target Group at the Completion Date may be materially different from the values used in the preparation of the Unaudited Pro Forma Financial Information, the actual amounts of the assets, liabilities and goodwill to be recorded in the consolidated statements of financial position of the Enlarged Group upon Completion may be materially different from the estimated amounts shown in this Appendix.

5, The pro forma adjustment represents the amortisation of intangible asset with the amount of approximately HK$4,049,000, as if the Acquisition has been completed on 1 July 2013. The adjustment is expected to have a continuing financial effect on the Enlarged Group.
The pro forma adjustment represents the deferred tax credit arising from the amortisation of intangible asset with the amount of approximately HK$668,000, as if the Acquisition has been completed on 1 July 2013. The adjustment is expected to have a continuing financial effect on the Enlarged Group.

IV – 11

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The pro forma adjustment represents the allocation of 40% loss attributable to the owners of the Target Group for the year ended 31 December 2013 to the non-controlling interests of the Enlarged Group, as if the Acquisition has been completed on 1 July 2013. The adjustment is expected to have a continuing financial effect on the Enlarged Group.
The pro forma adjustment represents the allocation of 40% total comprehensive loss attributable to the owners of the Target Group for the year ended 31 December 2013 to the non-controlling interests of the Enlarged Group, as if the Acquisition has been completed on 1 July 2013. The adjustment is expected to have a continuing financial effect on the Enlarged Group.
The pro forma adjustment represents the estimated legal and professional fees and other expenses attributable to the Acquisition amounting to approximately HK$3,000,000, which will be settled at the Completion Date by the Company.
On 22 October 2014, the Company entered into a sale and purchase agreement with a purchaser, under which the Company sold the entire issued share capital of Snazz Entertainment Group Limited, a wholly owned subsidiary of the Company, and its subsidiaries together with its 50% equity interest in SSA Amusement Limited at a total consideration of HK$750,000. This subsequent event has not been reflected in the Unaudited Pro Forma Financial Information of the Enlarged Group.
Apart from the above, no other adjustments have been made to reflect any trading result or other transactions of the Group and the Target Group entered into subsequent to 30 June 2014. Unless otherwise stated, the adjustments above are not expected to have a continuing effect on the Enlarged Group.

IV – 12

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of a report received from the reporting accountants of the Company, HLB Hodgson Impey Cheng Limited, Certified Public Accountants, Hong Kong, in respect of the Group’s unaudited pro forma financial information for the purpose of incorporation in this Circular.

==> picture [290 x 59] intentionally omitted <==

31st Floor Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong

31 December 2014

The Directors See Corporation Limited Office D & E, 20th Floor, EGL Tower No. 83 Hung To Road Kwun Tong, Kowloon Hong Kong

INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

TO THE DIRECTORS OF SEE CORPORATION LIMITED

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of See Corporation Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), and Lucrative Skill Holdings Limited (the “Target Company”) and its subsidiaries (collectively the “Enlarged Group”) by the directors of the Company for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated statement of financial position as at 30 June 2014, and the unaudited pro forma consolidated statement of profit or loss and other comprehensive income and the unaudited pro forma consolidated statement of cash flows for the year ended 30 June 2014 and related notes (the “Unaudited Pro Forma Financial Information”) as set out on pages IV-1 to IV-15 of the Company’s circular dated 31 December 2014 (the “Circular”), in connection with the proposed acquisition of 60% issued share capital of the Target Company. The applicable criteria on the basis of which the directors of the Company have complied the Unaudited Pro Forma Financial Information are set out in Appendix IV of the Circular.

The Unaudited Pro Forma Financial Information has been complied by the directors of the Company to illustrate the impact of the Acquisition on the Group’s consolidated statement of financial position as at 30 June 2014, and the unaudited pro forma consolidated statement of profit or loss and other comprehensive income and the unaudited pro forma consolidated statement of cash flows for the year ended 30 June 2014. As part of this process, information about the Group’s consolidated statement of financial position, consolidated statement of profit or loss and other comprehensive income and consolidated statement of cash flow has been extracted by the directors of the Company from the Group’s annual financial information for the year ended 30 June 2014, on which audit report has been issued by us.

IV – 13

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Directors’ Responsibility for the Unaudited Pro Forma Financial Information

The directors of the Company are responsible for compiling the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” (“AG 7”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

Reporting Accountant’s Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owned to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 “Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus”, issued by HKICPA. This standard requires that the reporting accountant complies with ethical requirements and plans and performs procedures to obtain reasonable assurance about whether the directors of the Company have compiled the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

For the purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the Unaudited Pro Forma Financial Information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Unaudited Pro Forma Financial Information.

The purpose of the Unaudited Pro Forma Financial Information included in the Circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the entity as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the Acquisition as at 30 June 2014 would have been as presented.

A reasonable assurance engagement to report on whether the Unaudited Pro Forma Financial Information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the directors of the Company in the compilation of the Unaudited Pro Forma Financial Information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

the related pro forma adjustments give appropriate effect to those criteria; and
the Unaudited Pro Forma Financial Information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountant’s judgement, having regard to the reporting accountant’s understanding of the nature of the Company, the event or transaction in respect of which the Unaudited Pro Forma Financial Information has been compiled, and other relevant engagement circumstances.

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APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The engagement also involves evaluating the overall presentation of the Unaudited Pro Forma Financial Information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information on the Enlarged Group has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the pro forma adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information on the Enlarged Group as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully

HLB Hodgson Impey Cheng Limited Certified Public Accountants Yu Chi Fat Practising Certificate Number: P05467 Hong Kong

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APPENDIX V

The following is the text of a valuation report as at 30 September 2014 received from Greater China Appraisal Limited, an independent valuer, for the purpose of incorporation in this circular.

Room 2703, 27/F, Shui On Centre, 6-8 Harbour Road, Wanchai, Hong Kong

Board of Directors

See Corporation Limited

Office D&E, 20th Floor, EGL Tower, No.83 Hung To Road, Kwun Tong, Kowloon, Hong Kong

Dear Sir/Madam,

Valuation of 100% Equity Interest in Lucrative Skill Holdings Limited and its Subsidiaries

In accordance with the instructions from See Corporation Limited (the “Company”), we were engaged to assist you in the analysis pertaining to the fair value of 100% equity interest (the “Equity Interest”) in Lucrative Skill Holdings Limited (the “Target Company”) and its subsidiaries (collectively refer to as the “Target Group”) as at 30 September 2014 (the “Valuation Date”).

It is our understanding that our analysis will be used by the management of the Company for in their determination of the fair value of the Equity Interest solely for transaction reference only and form part of the circular of the Company dated 31 December 2014. Our analysis was conducted for the above purpose only and this report should be used for no other purpose without our express written consent. Our work was performed subject to the limiting conditions and general service conditions described in this report. The standard of value is fair value; whilst the premise of value is going concern.

The approaches and methodologies used in our work did not comprise an examination in accordance with generally accepted accounting principles, the objective of which is an expression of an opinion regarding the fair presentation of financial statements or other financial information, whether historical or prospective, presented in accordance with generally accepted accounting principles.

We express no opinion and accept no responsibility for the accuracy and completeness of the financial information or other data provided to us by others. We assume that the financial and other information provided to us is accurate and complete, and we have relied upon this information in performing our valuation.

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APPENDIX V

I. PURPOSE OF ENGAGEMENT

The purpose of this particular engagement is for transaction reference only.

II. SCOPE OF SERVICES

We were engaged by the management of the Company to assist in their determination of the fair value of the Equity Interest in the Target Group as at the Valuation Date.

III. BASIS OF VALUATION

We have performed the valuation on the basis of fair value which is defined as “the estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties” .

Our valuation has been prepared in accordance with the International Valuation Standards (2013 Edition) on business valuation published by International Valuation Standards Council. This standard contains guideline on the basis and valuation approaches used in business valuation.

IV. PREMISE OF VALUE

Premise of value relates to the concept of valuing a subject in the manner in which it would generate the greatest return to the owner of the property, taking account of what is physically possible, financially feasible, and legally permissible. Premise of value includes the following:

Going concern: appropriate when a business is expected to continue operating without the intention or threat of liquidation in the foreseeable future;
Orderly liquidation: appropriate for a business that is clearly going to cease operations in the near future and is allowed sufficient time to sell its assets in the open market;
Forced liquidation: appropriate when time or other constraints do not allow an orderly liquidation;
Assembled group of assets: appropriate when all assets of a business are sold in the market piecemeal instead of selling the entire business.

This valuation is prepared on a going concern basis.

V. LEVEL OF VALUE

Current valuation theories suggest that there are at least three basic “levels” of value applicable to a business or business interest. The levels of value are respectively:

Controlling interest: the value of the controlling interest, always evaluate an enterprise as a whole;
As if freely tradable minority interest: the value of a minority interest, lacking control, but enjoying the benefit of market liquidity; and

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Non-marketable minority interest: the value of a minority interest, lacking both control and market liquidity.

This valuation is prepared on a controlling interest basis.

VI. SOURCES OF INFORMATION

Our analysis and conclusion of opinion of value were based on our discussions with the management of the Company, as well as reviews of key documents and records, including but not limited to:

Management accounts of the Target Company for the period ended 30 September 2014;
Audited Financial Statement of Cosmo Glory Limited for the years ended 31 December 2011, 31 December 2012 and 31 December 2013;
The organization structure of the Target Group as at 30 September 2014; and
The Target Group’s company introduction presentation.

We also relied upon publicly available information from sources on capital markets, including industry reports, and various databases of publicly traded companies and the news.

VII. ECONOMIC OVERVIEW

In conjunction with the preparation of this valuation, we have reviewed and analysed the current economic conditions of China and Hong Kong where the profit of the Target Group is derived, and how the valuation may be impacted.

China

7.1. Economic Growth in China

Having opened the economy and joining the World Trade Organization (the “WTO”), the gross domestic product (“GDP”) has grown dramatically; its annual growth rate peaked at 14.16% in 2007. However, as a result of the financial crisis in 2009, the rapid growth of China’s economy has slowed down and its GDP growth rates stabilised at above 7% in recent years. Premier Li Ke Qiang stressed in Hamburg Summit that China’s economy, which has maintained a rapid development over the past 30 years, still boasts abundant power source and has the capability to maintain a medium-to-high speed growth and march towards a medium-to-high level in a certain period in the future.

Table 7 – 1 Real GDP Annual Growth Rate and Inflation of China from 2010 to 2014

	2010	2011	2012	2013	2014E
Real GDP Annual Growth
Rate (%)	10.41	9.30	7.65	7.70	7.38
Inflation (%)	4.60	4.10	2.50	2.50	2.30

Source: World Economic Outlook Database (October 2014), the International Monetary Fund

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APPENDIX V

According to the International Monetary Fund (the “IMF”), the nation recorded an annual GDP of RMB56,885 billion in 2013, representing an annual growth rate of around 7.7%. According to the World Economic Outlook published by the IMF in October 2014, China is now the second largest economy in the world after the U.S.

Table 7 – 2 Worldwide GDP

	Country		GDP –	Billions of	the United States Dollar	the United States Dollar	the United States Dollar	(“USD”)
		2012A	2013A	2014F	2015F	2016F	2017F	2018F	2019F
1	China	8,387	9,469	10,355	11,285	12,235	13,263	14,353	15,519
2	United States	16,163	16,768	17,416	18,287	19,197	20,169	21,158	22,148
3	Japan	5,938	4,899	4,770	4,882	5,001	5,155	5,295	5,433
4	Germany	3,428	3,636	3,820	3,909	4,063	4,233	4,394	4,556
5	France	2,688	2,807	2,902	2,935	3,027	3,142	3,263	3,393
6	Brazil	2,248	2,246	2,244	2,357	2,469	2,598	2,739	2,892

Source: World Economic Outlook Database (October 2014), the International Monetary Fund

According to the Analysis and Forecast of China’s Economy – Autumn 2014 published by Chinese Academy of Social Science, the China’s economy is forecasted to grow at around 7.3% in 2014. China’s economy in 2015 will continue to be challenging. There are many negative factors that might affect the development of the China’s economy. These factors include:

1) the global economy is weak and the external demand is difficult to significantly improve;
2) the domestic consumption is just stable in general;
3) investments encounter the problem of overcapacity and lack of innovation;
4) more unsold inventories in property market; and
5) capital constraints on infrastructure development projects which limited the investment driven economic growth.

Under this background, the report projected the economic growth would be only around 7.0% in

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The following diagram shows the GDP annual growth rate by quarter from 2008 Q4 to 2014

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Q2:
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Figure 7 – 1 GDP Annual Growth Rate in China

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----- Start of picture text -----

14%
13%
12%
11%
10%
9%
8%
7%
6%
5%
China Real GDP Growth rate
2008Q42009Q12009Q22009Q32009Q42010Q12010Q22010Q32010Q42011Q12011Q22011Q32011Q42012Q12012Q22012Q32012Q42013Q12013Q22013Q32013Q42014Q12014Q2
----- End of picture text -----

Source: National Bureau of Statistics of China

The disposable income level has grown significantly over the past few years. According to the National Bureau of Statistics of China, annual disposable income per capita of urban households in China has increased from RMB15,781 in 2008 to RMB26,955 in the 2013, representing a compound annual growth rate (“CAGR”) of approximately 11.3%; annual disposable income per capita of rural households has increased from RMB4,761 in 2008 to RMB8,896 in 2013, representing a CAGR approximate to 13.32%.

The following diagram shows the GDP per capita, annual urban and rural disposal income per capita from 2008 to 2013:

Figure 7 – 3 GDP per Capita of China

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RMB45,000
RMB40,000
RMB35,000
RMB30,000
RMB25,000
RMB20,000
RMB15,000
RMB10,000
RMB5,000
RMB0
2008 2009 2010 2011 2012 2013
GDP Per Capita Urban Disposable Income Per Capita Rural Disposable Income Per Capita
----- End of picture text -----

Source: National Bureau of Statistics of China

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7.2. Population in China

The population of China accounts for almost one fifth of the world’s population. According to the National Bureau of Statistics of China, in the past decade, the population has grown from 1.29 billion in 2003 to 1.36 billion in 2013, representing a CAGR of approximately 0.53%.

The proportion of urban population in China increased from 40.53% in 2003 to 51.24% in 2013, representing a CAGR of approximately 2.37%. The following diagram shows the population growth and corresponding urban population growth in China from 2003 to 2013:

Figure 7 – 4 Population and Portion of Urban Population in China

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1,380,000 60%
1,360,000 50%
1,340,000
40%
1,320,000
30%
1,300,000
20%
1,280,000
1,260,000 10%
1,240,000 0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Population (Thousand) Proportion of Urban Population
(1000’s persons)
----- End of picture text -----

Source: National Bureau of Statistics of China; World Economic Outlook Database (October 2014), the International Monetary Fund

Population growth is expected to be steady in this decade. According to the projection from the IMF and CEIC, China’s population will grow from 1.37 billion in 2014 to 1.40 billion in 2019, representing a CAGR of approximately 0.43%. Besides, population growth along with increasing urbanization and expansion of the middle class are particularly important to support the future growth of the domestic demand on affordable luxury goods, such as vehicles, luxury watches, etc. Steadily growth in population together with improving living standard continuously derives a strong demand on housing and transportation.

Table 7 – 3 Population Forecast

Population (Million)	2015F	2016F	2017F	2018F	2019F
China	1,374.31	1,381.13	1,387.99	1,394.88	1,401.81

Source: World Economic Outlook Database (October 2014), the International Monetary Fund; CEIC

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7.3. Inflation in China

Managing inflation risk has been one of the key missions for the China’s government since 2010. The latest economic data released by National Bureau of Statistics of China indicated that the inflation rate was reported at 2.3% in July 2014 on year-over-year basis, as compared with that of 2.7% in July 2013. China is expected to continue a prudent monetary policy, keep money supply and total social financing growing at a reasonable pace, and optimize financing and credit structures in the future.

Factor determining future monetary policy could possibly be the property price. In 2013, property price in major cities continued to rise fast. Shenzhen and Guangzhou posted increases of 20% from a year earlier, while prices climbed 18% in Shanghai and 16% in Beijing, data from the National Bureau of Statistics showed on 18 December 2013. However, another important factor determining monetary policy, CPI Food Index, remained stable at an acceptable level of 103.6 in July 2014. According to the China Economic Outlook published by the IMF in October 2014, the inflation in China is expected to be 2.3% in 2014 and will goes up a little bit to 2.5% in 2015. Inflation is expected to keep at 3% after 2015.

Table 7 – 4 Inflation Forecasts of China

		Inflation, Average	Inflation, Average	Consumer	Prices	(%)
	2013A	2014F	2015F	2016F	2017F	2018F	2019F
China	2.50	2.30	2.50	3.00	3.00	3.00	3.00

Source: World Economic Outlook Database (October 2014), the International Monetary Fund

7.4. Government Policy in China

China will maintain stable economic policies and a prudent monetary policy, and targeted the GDP growth at an achievable rate of 7.5%, said by Premier Li.

To implement the stable economic policies in 2014, the government will increase the deficit and government debt in combination with tax reform and structural tax cuts, as well as optimizing government spending and improving management over local government borrowing. To maintain the prudent monetary policy, the government will improve its policy framework to implement its macroeconomic controls and use monetary policy as a counter-cyclical tool.

In the Central Economic Work Conference held in Beijing at the end of the last year, the top leaders of the Communist Party of China emphasised that the main tasks in 2014 were as follows:

1) Ensuring food safety;
2) Industrial restructuring;
3) Controlling debt risks;
4) Promoting newly-emerging industries;

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APPENDIX V

5) Improving people’s livelihood; and
6) Deepening reform and opening-up.

Hong Kong

7.5. Economic Growth in Hong Kong

As of 2013, Hong Kong is the world’s freest economy and the world’s most services-oriented economy, with services sectors accounting for more than 90% of GDP. It is the second largest recipient of foreign direct investment (“FDI”) in Asia, after China as well as the third largest source of FDI in Asia, after Japan and China.

Hong Kong’s overall economic performance improved in 2013. According to the World Economic Outlook published by the IMF as of October 2014, the real GDP of Hong Kong increased by 1.6% and 2.9% in 2012 and in 2013 respectively after the gradual recovery from the global financial tsunami in 2008 and the European sovereign debt crisis in recent years. In 2014, the economy is predicted to grow by 3%. Local consumption and tourist spending in Hong Kong remain robust, while the global trade environment is expected to become more favourable in 2014.

Figure 7 – 5 Summary of Real GDP Growth Rate (%) in Hong Kong from 2009 to 2019 (2014 – 2019 Forecast figures)

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----- Start of picture text -----

8.00%
6.00%
4.00%
2.00%
0.00%
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E
-2.00%
-4.00%
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Source: World Economic Outlook Database (October 2014), the International Monetary Fund

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APPENDIX V

7.6. Population in Hong Kong

The population in Hong Kong has been increasing steadily from 6.99 million in 2009 to 7.22 million in 2013, while unemployment rate has dropped from 5.2% in 2009 to 3.1% in 2013. The population is estimated to reach 7.4 million in 2019 and the unemployment rate in the long run would stay at around 3% to 3.2%.

Figure 7 – 6 Summary of Population and Unemployment Rate in Hong Kong from 2009 to 2019 (2014 – 2019 Forecast figures)

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6.00% 7,600,000
7,500,000
5.00%
7,400,000
4.00% 7,300,000
7,200,000
3.00%
7,100,000
2.00% 7,000,000
6,900,000
1.00%
6,800,000
0.00% 6,700,000
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E
Population Unemployment Rate
----- End of picture text -----

Source: World Economic Outlook Database (October 2014), the International Monetary Fund

7.7. Inflation in Hong Kong

The inflation rate in Hong Kong was recorded at 4.3% at the end of 2013 followed by 6.6% in September of 2014. Inflation rate in 2014 is expected to reach 4.0% and the government targets to reach 3.5% in the medium run.

The following graph and table illustrate the inflation rate from 2004 to 2013 and the inflation rate forecast in Hong Kong respectively:

Figure 7 – 7 Summary of Inflation Rate in Hong Kong (Annual rate of change on CPI)

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6.0%
5.3%
5.0%
4.3% 4.3%
4.0%
4.1%
3.0%
2.4%
2.0% 2.0%
2.0%
1.0%
1.0%
0.5%
0.0% 0.4%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
-1.0%
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Source: Census and Statistics Department, the Hong Kong Special Administrative Region

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Table 7 – 5 Forecast of Inflation Rate (%) Forecast in Hong Kong from 2014 to 2019

	2014	2015	2016	2017	2018	2019
Inflation	3.90%	3.75%	3.50%	3.50%	3.50%	3.50%

Source: World Economic Outlook Database (October 2014), the International Monetary Fund

There are signs of pick up in production and export activities in many Asia countries. Hong Kong, as a highly externally-oriented economy, has been benefitted from these developments. The total volume of exports in 2013 increased 6.7% compared to 1.82% in 2012. The growth of exports is expected to reach 8.4% in 2014.

The following figure illustrates the growth in the volume of exports in Hong Kong from 2009 to 2013:

Figure 7 – 8 Summary of Exports Growth (%) in Hong Kong from 2009 to 2013

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20%
17.33%
15%
10%
6.68%
5% 3.45%
1.82%
0%
2009 2010 2011 2012 2013
-5%
-10%
-12.55%
Volume of exports of goods (% change)
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Source: World Economic Outlook Database (October 2014), the International Monetary Fund

Major exports markets of Hong Kong are China, the European Union, the United States, ASEAN and Japan, which account for approximately 54%, 9%, 9%, 7% and 4% of total exports in first three months of 2014, respectively. According to the Trade and Industry Department, Hong Kong was ranked the 8th in the world’s largest trading economy and the 10th in the world’s largest exporter of commercial services.

7.8. Government Policy in Hong Kong

There are four well developed industries in Hong Kong which are trading and logistics, tourism, financial services, and professional services, which in total account for approximately over 60% of the GDP. According to the 2013 Policy Address, in order to broaden the long term economic development and develop a more balanced Hong Kong economic structure in the long run, the Hong Kong Government has been offering more incentives to develop six new industries, namely: 1) education, 2) medical services, 3) testing and certification services, 4) environmental industry, 5) cultural and creative industries, and 6) innovation and technology industry.

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The 2014-15 Budget laid out strategies to enhance Hong Kong’s competitiveness and strengthen its position as an international business hub. The government aims at 1) raising the efficiency in the flows of people, goods, capital and information, providing a favourable environment for innovation and technology industries to grow; 2) consolidating the core competence of the four pillar industries; 3) helping small and medium-sized enterprises (“SMEs”) in coping with various challenges and 4) outlining and providing measures to overcome the constraints of manpower, land supply and an aging population to Hong Kong’s future development.

The 2014 Policy Address also stated that the Hong Kong Government will strengthen the Hong Kong economy by:

1) Examine and follow up on proposals from the Financial Services Development Council in respect of Renminbi business, asset and wealth management, and real estate investment trusts to promote the development of the financial services industry;
2) Consider increasing the number of Economic and Trade Offices in Asia, strengthen the liaison work and tap new markers, as well as set up more offices in China;
3) Commence formal negotiation for a Hong Kong-ASEAN Free Trade Agreement;
4) Re-initiate the setting up of an Innovation and Technology Bureau; and
5) Propose setting up a new statutory maritime body to develop high value-added maritime services.

The government will also strengthen communication with SMEs and provide timely support for them as well as support Hong Kong business associations in establishing sales and promotion venues in the China for building the Hong Kong’s brand.

VIII. INDUSTRY OVERVIEW

Post production industry

8.1. Introduction on the Post Production Industry

The post production industry provides production-support services from animations to format conversion. This service is mainly required for 1) film making, 2) advertising and 3) TV production. Film production and advertising project usually account for most of the revenue in the industry.

With the development of 3D movies in 2010, demand for the post production service boomed as many film producers following the trend. However, this demand dropped significantly in the following years and resulted in a 0.3% decline in revenue in 2012, as studios continue their expansion on inhouse post production capabilities for cost saving purpose.

This industry is highly correlated with the economic cycle. During the financial crisis, consumer spends less money and correspondingly the advertiser would cut their budgets and resulted in fewer produced commercial advertisement. The credit crunch hurts the funding source and resulted in less investment in new movies and productions. Many producers developed their in-house production process, which drastically reduced the demand for the post production services in the past several years. Yet, in the light of the current improving economic status, post production industry has been gradually improving.

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8.2. Post Production Industry in China and Hong Kong

8.2.1. The film Production Industry

Hong Kong has one of the largest and most dynamic film entertainment industries in the world and it has captured a fair share of the markets of Taiwan and Southern Asia in the film and television industries. By September 2013, the total number of establishment of motion pictures and other entertainment services has reached 2,327 with employment of 16,163. 42 local films and 268 foreign films were released with total box office receipts of more than $200 million.

The China’s film industry has been rapidly expanding in recent years. Over a thousand of productions completed annually and hence boosted the demand for post-production service in China.

The following figure illustrates the expected spending in China box office from 2014 to 2018[1] :

Figure 8 – 1 China Box Office Spending Forecast from 2014 to 2018:

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----- Start of picture text -----

6
5
4
3
2
1
0
2014 2015 2016 2017 2018
USD Billion
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Source: http://www.marketing-interactive.com/

Innovations and smart ideas are always crucial to this industry as it brings out differences among competitors across the industry. Achieving the high level of quality of the creative ideas always requires high-tech equipment and professional staff, which explains the huge capital required in large post production firms and hence creating high barriers to entry for new entrants.

1 The amounts of expected spending in China box office from 2014 to 2018 together with the graph Figure 8-1 are directly extracted from the article titled “Weakening mainland tourist market unlikely to impact ad spend” published by Marketing in June 2014.

Marketing magazine was launched in 2002. It is an advertising, marketing and media intelligence with editions in Singapore, Hong Kong and Malaysia.

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In recent years, some internationally renowned film producers such as Disney, Fox, Sony Pictures, the MPAA and Blockbuster etc., have established new family division and ramped up their production of animated and PG-rated family productions. The following table shows the recent most top grossing animated films in China for Q1 2014:

Table 8 – 1 Top Grossing Animated Films in China, Q1 2014

				Country of
Title	Release Date	Box Office		Origin
		USD Million
Despicable Me 2	9 Jan		$52.8	USA
Frozen	5 Feb		$48.7	USA
The Boonie Bears	17 Jan		$40.3	China
Pleasant Goat: Meet the Pegasus	16 Jan		$14.1	China
Free Birds	7 Mar		$8.6	USA/France

Source: http://chinafilmbiz.com/

These productions have consistently accounted for the studios’ highest grossing and most profitable films. Yet, this type of films currently captures a smaller share of the market in the China than they do in North America. Animation is expected to be the fastest growing segment of the China’s film business over the next 3-5 years and it is believed that it will capture more market share in the film industry as Chinese audience broadens into the third and fourth tier cities in China and to families with children. Marketing strategy has been enhanced to capture these groups of target audiences.

The following graph illustrates the animation’s share of territorial box office in North America and China from 2009 – 2013:

Figure 8 – 2 Animation’s Share of Territorial Box Office in North America and China from 2009 to 2013:

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----- Start of picture text -----

16%
14%
12%
10%
N.America
8%
China
6%
4%
2%
0%
2009 2010 2011 2012 2013 5-year Avg
----- End of picture text -----

Source: Pacific Bridge Pictures research

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The rise in animation industry will significantly benefit the post production industry, as it requires a lot of post-production editing and other services to complete the film. It does not like traditional films with major focus on the actors. On the other hand, the box office in both Hong Kong and China are expected to continuously grow. This rising trend is expected to boost the post production industry and maintain an advantageous business environment for the market player of the industry in both Hong Kong and China.

8.2.2. Advertisements Production Industry

Other than the film production industry, advertising industry is another key customer to the post production services. Advertisements are closely linked with post-production houses on commercial projects. Big brands in the personal care products segment including Loreal, SKII, P&G etc. always work closely with post production house for the after effect and colour editing services.

Hong Kong is the hub of marketing services in Asia. The advertising spending in Hong Kong continued to increase in 2013. Its exports of marketing services grew 12.6% in 2011 to HK$5.7 billion.

According to the Census and Statistics Department, the number of establishments in the advertising industry reached 3,614 in September 2013 with 14,226 people engaged in the industry. TV commercials and newspaper were Hong Kong’s most important advertising media in 2013 with a 30% market share each. The positive prospect in the TV advertising industry in Hong Kong creates advantageous business opportunities for the post-production houses in Hong Kong.

On the other hand, China is widely regarded as having the best growth potential for advertising services. According to the CTR Market Research[2] , China’s steady economic growth has effectively provided supports to the confidence of advertisers. Total spending on advertisements in China in 2014 is forecasted to increase by 9.8% compared to 2013 and reach RMB473 billion. According to a report published by GroupM[3] namely “This Year, Next Year: China Media Forecasts”, TV still holds a dominate place amongst all forms of media in the advertising industry. An estimate of RMB211 billion in 2014 which represents a 47% share of all advertising expenditure were spent on TV commercials in China. This has maintained a potential profitable market for the post-production industry.

2 CTR market research Articles published by CTR Market Research Co. Ltd. in 2014.

CTR Market Research Co. Ltd provides market information and insight to brand and media owners, and advertising agencies in China.

3 GroupM

The report called “This Year, Next Year” published by GroupM in August 2014.

“This Year, Next Year” provides forecasts on global media spending particularly in Asia, Latin America, Middle East and Africa.

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APPENDIX V

8.3. Barriers of Entry in the Post Production Industry

Due to the development and improvement in modern technology, anyone who owns a computer and some copies of professional editing software can work on their own editing at home or in office. Advancements in user interfaces enabled movie and TV production companies to internally handle production tasks, reducing the demand for post-production services. In this case, without established brands or large networks of relationships, new market entrants can adopt a low pricing strategy to win projects. There might be a trade-off in terms of quality in most cases, but in areas like corporate video production, event or web video production, some clients seems to be willing to make the trade-off.

The low-cost providers, when compared to traditional post production firms with large infrastructures, will benefit from the fact that they can get started with a minimal to no infrastructure investment in their business. Once they have cash flow coming in, they can keep up their business in that form and become more competitive to certain player in the industry in long run. Although not all of them will be as successful as the traditional providers, there will be a steady trend of new entrants willing to step in the industry and replace those who exit.

With this industry trend, the increasing competition will continue to put downward pressure on prices that post production service can charge across the industry.

8.4. Competitive Landscape

According to IBISWorld[4] , the three related industries are expected to continue growing over the next five years, however, movie and TV production studios will move to internalize the post production process. The industry will rely on increasing advertisement budgets to support the overall demand. Such a trend will post threat to small industry players which do not maintain a portfolio of clients of advertising companies. New technologies and entry of new talents will boost the efficiency in the industry. We expect industry players will mainly compete on cost efficiency and technological knowhow to survive and achieve growth.

IX. COMPANY OVERVIEW

9.1. See Corporation Limited (the “Company”)

The Company is an investment holding company engaged in the entertainment and media business primarily in Hong Kong, the PRC and Malaysia.

9.2. Lucrative Skill Holdings Limited (the “Target Company” and together with its subsidiaries collectively refer to as the “Target Group”)

The Target Company is an investment holding company incorporated in BVI with limited liability. The Target Group is principally engaged in provision of post production services in Hong Kong, Shanghai and Beijing. The post production work of the Target Group covers advertisements, featured films, TV programmes, music videos, internet and mobile applications content, visual matters on corporate events, etc.

4 IBISWorld

Articles published by IBISWorld.

IBISWorld was formed in 1971 as IBIS Research Services. It is a market research organization specializing in forecasting of industries and the business environment.

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APPENDIX V

X. VALUATION METHODOLOGY

The valuation of any asset can be broadly classified into one of three approaches, namely the asset approach, the market approach and the income approach. In any valuation analysis, all three approaches must be considered, and the approach or approaches deemed most relevant will then be selected for use in the fair value analysis of that asset.

10.1. Asset Approach

This is a general way of determining a fair value indication of a business, business ownership interest, security, or intangible asset by using one or more methods based on the value of the assets net of liabilities.

Value is established based on the cost of reproducing or replacing the property, less depreciation from physical deterioration and functional and economic obsolescence, if present and measurable.

10.2. Income Approach

This is a general way of determining a fair value indication of a business, business ownership interest, security, or intangible asset by using one or more methods that convert anticipated benefits into a present value amount.

In the income approach, an economic benefit stream of the asset under analysis is selected, usually based on historical and/or forecasted cash flow. The focus is to determine a benefit stream that is reasonably reflective of the asset’s most likely future benefit stream. This selected benefit stream is then discounted to present value with an appropriate risk-adjusted discount rate. Discount rate factors often include general market rates of return at the valuation date, business risks associated with the industry in which the company operates, and other risks specific to the asset being valued.

10.3. Market Approach

This is a general way of determining a fair value indication of a business, business ownership interest, security, or intangible asset by using one or more methods that compare the subject to similar businesses, business ownership interests, securities, or intangible assets that have been sold.

Value is established based on the principle of competition. This simply means that if one thing is similar to another and could be used for the other, then they must be equal. Furthermore, the price of two alike and similar items should be approximate to one another.

The business of the Target Group has been operated for several years and the ordinary business of the Target Group is related to provision of post production services mainly through its technical know-how and the technological machinery & equipment. Future economic benefits will be generated by the Target Group by utilizing the technological machinery & equipment. So it is reasonable to conclude that the value of the Target Group is higher than the cost of its assets. Under the asset approach, the equity interest in the Target Group is determined based on the replacement cost or reproduction cost rather than the ability to generate streams of benefits in the future. If the asset approach is used, the future economic benefits from the Target Group cannot be reflected in the equity interest in the Target Group. Additionally, its operation is losing money in recent years. Thus, financial projection might not be easily justified. Comparatively, there are sufficient numbers of guideline public companies (“Guideline Public Company”), which are operating in the same industry as the Target Group. Therefore, we considered and applied the market approach for this valuation.

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APPENDIX V

XI. GENERAL ASSUMPTIONS

A number of general assumptions have to be established in order to sufficiently support our conclusion of fair value. The general assumptions adopted in this valuation are:

There will be no material change in the existing political, legal, fiscal, foreign trade and economic conditions in the countries where the Target Group is carrying on its businesses;
There will be no significant deviation in the industry trends and market conditions from the current market expectation;
There will be no material change in interest rates or foreign currency exchange rates from those currently prevailing;
There will be no major change in the current taxation law in the countries where the Target Group is carrying, and countries of origin of the our comparable companies;
All relevant legal approvals, business certificates or licenses for the normal course of operation are formally obtained, in good standing and that no additional costs or fees are needed to procure such during the application;
Future revenue growth for the Target Group will conform to those forecasted by the management of the Company; and
The Target Group will retain competent management, key personnel, and technical staff to support the ongoing business operations.

XII. MARKET APPROACH

12.1. Guideline Public Company Method

The premises behind the Guideline Public Company Method is that prices of publicly traded stocks in the same or a similar industry provide objective evidence on the values at which investors are willing to buy and sell interest of companies in that industry.

In applying the Guideline Public Company Method, we compute a valuation multiple for various benefit streams for each of the Guideline Public Companies. The appropriate valuation multiple is determined and adjusted for the unique aspects of the Target Group being valued. This multiple is then applied to the Target Group being valued to arrive at an estimate of value for the appropriate ownership interest.

For this particular case, the valuation multiples selected is based on the enterprise value (“EV”).

Once we have selected numbers of the Guideline Public Companies and made the necessary adjustments to their financial information, the next step is to determine and compute the appropriate valuation multiple, and the calculation method is the same for all selected the Guideline Public Companies. The process of computing the valuation multiple in this case consists of the following procedures:

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1. Determination of the EV for each of the Guideline Public Companies as at the Valuation Date

Firstly, the EV for each of the Guideline Public Companies is calculated by multiplying their share prices to the number of shares outstanding as at the Valuation Date in order to obtain the market capitalization of the Guideline Public Companies. Secondly, adding back company’s outstanding debt, minority interest and preferred equity interest. Finally, subtract cash and cash equivalent items of each Guideline Public Companies to obtain the EV.

2. Determination of the measure of operating results, which represent the denominators of the multiple.

The application of this method depends on the selection of the Guideline Public Companies that are similar enough to the underlying business of the subject companies so as to provide a meaningful comparison. We exercised due care in the selection of the Guideline Public Companies by using reasonable criteria in deciding whether or not a particular Guideline Public Companies is relevant.

For this valuation, we have selected EV/EBITDA as the valuation multiple. The EV/ EBITDA measures the amount of EV can be created by a unit of EBITDA. EBITDA measures the operating performance of a company and excludes depreciation, amortization, financing and tax expenses, so EBITDA provides a closer view of company’s earning ability related to its direct operation of the subject companies.

12.2. Selection of Guideline Public Companies

In choosing the Guideline Public Companies in this case, we focus on the primary business activities. That is, we select those Guideline Public Companies with similar business activities as that of the Target Group, which is related to provision of post production services or application of computer graphic (CG) technology in their major business.

In this case, we have put the focus on the business activities in selecting the Guideline Public Companies. Ideally, we would consider those companies with similar business activities and located in the same business location as the Target Group. However, there are limited numbers of listed companies engaged in post production services or CG in Hong Kong or China. In order to draw conclusion from a reasonable amount of reference companies, we have broadened our scope to include comparable companies overseas. Based on our available resources and given the selection criteria as set below, on a best effort and unbiased basis and to the best of our knowledge, these samples are full and exhaustive.

The following is a list of the Guideline Public Companies that we have reviewed in connection with the valuation of the Target Group:

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APPENDIX V

Table 12 – 1 Guideline Public Companies

Guideline Public Companies Ticker Business Activities
1. DreamWorks DWA US * Develops and produces computer generated Animation SKG Inc animated feature films for a broad movie-going audience.
1. Pinewood Shepperton PWS LN * Provides studio and film related services to the PLC worldwide film industry. * Provides facilities to media related businesses.
1. Prime Focus Ltd PRIF IN * Offers motion picture post production and visual effects.
- Offers visual effects, digital film lab, telecine, editing, and motion control to high-definition production services.
1. Global Digital 8271 HK * Creates, produces, and distributes digital Creatio3ns Holdings contents in order to meet two developing global Ltd trend of strong continuing growth in demand for digital contents, particularly computer graphic imaging, and a paradigm shift from a chemical film based medium to an electronic, digital medium in the cinema industry.

Detail of the valuation multiples of the Guideline Public Companies is listed as follows:

Table 12 – 2 Summary of Valuation Multiple of Guideline Public Companies

Ticker	EV/EBITDA
DWA US	29.23x
PWS LN	28.77x
PRIF IN	11.50x
8271 HK	65.96x

Considered that the EV/EBITDA of 8271 HK significantly deviates from other comparable companies, it is regarded as outlier and is not adopted in the valuation. We made reference to the median of the adopted valuation multiple for the valuation of the Equity Interest.

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Table 12 – 3 Selected Multiple

Selected Multiple

EV/EBITDA (rounded)		28.8x
Table 12 – 4 Determination of Value
		EV/EBITDA
Selected Multiple		28.8x
Subject financial performance -
EBITDA for the period ended (derived from the
actual figures from January to September 2014 and the
3-month pro-rata result of 2013	HKD	13,288,313
Estimated Result	HKD	382,330,440
Less: Total Debt	HKD	(81,700,542)
Less: Minority Interest	HKD	(12,914)
Add: Cash and Cash Equivalent	HKD	2,584,230
Implied Equity Value before DLOM	HKD	303,201,214
Add: Control Premium	5%	15,160,061
Less: DLOM	35%	(111,426,446)
Implied Equity Value after DLOC and DLOM		206,934,828
Effective Equity Interest in the Target Group (rounded)	HKD	206,935,000

* Sum of individual figures may not equal the total amount due to rounding

XIII. CONTROL PREMIUM

Premium for control is generally regarded as the amount in excess of the current traded market price that a buyer is willing to pay to acquire the control of a publicly traded company. A buyer is willing to pay a premium for control when obtaining the controlling advantages they would not receive if only a minority interest was purchased.

Estimating the value of premium for control is necessary when valuing large blocks of shares. The size of the premium for control varies from industry to industry, with the size of the company. In our valuation analysis, the equity interest in the subject companies is at controlling, so it is reasonable to apply a premium for control to reflect this advantage. With reference to the Mergerstat Review 2013[5] , the control premium of companies in the similar business as the subject company is 5%. Therefore, we believe a premium for control of 5% is fair and reasonable for the valuation of the Equity Interest.

5 Mergerstat Review 2013

“Annual statistical research published by FactSet Mergerstat in 2013”.

FactSet Mergerstat is one of the world’s major providers of financial information and analytic data for investment professionals.

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APPENDIX V

XIV. DISCOUNT FOR LACK OF MARKETABILITY (“DLOM”)

DLOM is the valuation adjustment with the single largest monetary impact on the final determination of value. Marketability is defined as the ability to convert an investment into cash quickly at a known price and with minimal transaction costs. DLOM is a downward adjustment to the value of an investment to reflect its reduced level of marketability.

In selecting the appropriate DLOM, we considered the length of time and effort required by management in order to sell an Equity Interest. This typically would take at least three to nine months if a transaction could be consummated at all. Lastly, we considered the expenses that are typically incurred to sell a business which are substantial such as legal fees, accounting fees and intermediary fees.

Considered that the case involves the controlling interest, the DLOM applied for the controlling interest is usually lower than those for the minority interest. However, as in this case, the Target Group involves significant assets in form of intangible which usually harder to evaluate and justify. Therefore, we considered to apply a higher DLOM to reflect the risk involved in the business evaluation and the discount that a rational investor would demand to compensate for the risk. Finally, we concluded to apply 35% of DLOM in the valuation.

The DLOM has been applied based on our judgment considering the nature of the business, the asset involved and the corresponding costs involved in selling the business. Nevertheless, we have made reference to the database of FMV Restricted Stocks Study. We searched for the transactions in the last 15 years, coming up with mean DLOM of 32% and median of 31% which is in line with our conclusion of 35%.

XV. SYNTHESIS AND RECONCILIATION

The following comparative data summarizes the methods we have accepted or considered and rejected, along with their respective final values. Each method is rated relative to the applicability of the method relative to the facts and circumstances of the Target Group. The strengths/weaknesses of each method are discussed with reference to the Mergerstat Review 2013.

Asset Approach Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rejected Income Approach Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rejected

Market Approach

Guideline Public Company Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HKD206,935,000. Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accepted

As the market approach is the only applied methodology, we concluded that the fair value of the Equity Interest as at the Valuation Date should be HKD206,935,000.

XVI. LIMITING CONDITIONS

We have made no investigation of and assumed no responsibility for the title to or any liabilities against the Company and the Target Group.

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APPENDIX V

The opinions expressed in this report have been based on the information supplied to us by the Company and their staff, as well as from various institutes and government bureaus without verification. All information and advice related to this valuation are provided by the management of the Company. Readers of this report may perform due diligence themselves. We have exercised all due care in reviewing the supplied information. Although we have compared key supplied data with expected values, the accuracy of the results and conclusions from the review are reliant on the accuracy of the supplied data. We have relied on this information and have no reason to believe that any material facts have been withheld, or that a more detailed analysis may reveal additional information. We do not accept responsibility for any errors or omissions in the supplied information and do not accept any consequential liability arising from commercial decision or actions resulting from them.

This valuation reflects facts and conditions existing at the Valuation Date. Subsequent events have not been considered, and we have no obligation to update our report for such events and conditions.

XVII. CONCLUSION OF VALUE

In conclusion, based on the analysis stated above and the valuation methods employed, it is our opinion that the fair values of the 100% equity interest in Lucrative Skill Holdings Limited as at 30 September 2014 is as follows:

Fair Value

100% Equity Interest in Lucrative Skill Holdings Limited HKD206,935,000.

The opinion of value was based on generally accepted valuation procedures and practices that rely extensively on the use of numerous assumptions and consideration of many uncertainties, not all of which can be easily quantified or ascertained.

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APPENDIX V

We hereby certify that we have neither present nor prospective interests in the subject under valuation. Moreover, we have neither personal interests nor bias with respect to the parties involved.

This valuation report is issued subject to our general service conditions.

Yours faithfully, For and on behalf of GREATER CHINA APPRAISAL LIMITED

Ferry S.F. Choy, CFA, ICVS Director

Analysed and Reported by: Max K.P. Tsang, CPA, CFA, FRM Director

Elaine Y.T. Leung Manager, Business Advisory

Eugenie H.S. Wong Analyst, Business Advisory

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APPENDIX V

INVOLVED STAFF BIOGRAPHY

Ferry S.F. Choy, CFA, ICVS Director

Mr. Choy is experienced in performing valuation for financial reporting and IPO purposes. Most of his clients are listed companies or large private companies looking for going public. His experience covers a wide range of industries including food and beverage, manufacturing and information technology.

Max K.P. Tsang, CPA, CFA, FRM

Director

Mr. Tsang is experienced in performing valuation for financial reporting and purposes of merger and acquisition. Most of his clients are listed companies or large private companies looking for going public. His experience covers a wide range of industries including infrastructure, telecommunications and information technology

Elaine Y. T. Leung, CPA

Manager, Business Advisory

Ms Leung has experience in valuation of business and intangible assets for private and public companies including real estate, manufacturing, food & beverage, mining and information technology industries.

Eugenie H.S. Wong Analyst, Business Advisory

Ms. Wong has experiences in valuation of business and intangible assets for different industries including food & beverage, retail, manufacturing and public utility industries

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APPENDIX V

GENERAL SERVICE CONDITIONS

The service(s) provided by Greater China Appraisal Limited will be performed in accordance with professional appraisal standard. Our compensation is not contingent in any way upon our conclusions of value. We assume, without independent verification, the accuracy of all data provided to us. We will act as an independent contractor and reserve the right to use subcontractors. All files, working papers or documents developed by us during the course of the engagement will be our property. We will retain this data for at least seven years after completion of the engagement.

Our report is to be used only for the specific purpose stated herein and any other use is invalid. No reliance may be made by any third party without our prior written consent. You may show our report in its entirety to those third parties who need to review the information contained herein. No one should rely on our report as a substitute for their own due diligence. No reference to our name or our report, in whole or in part, in any document you prepare and/or distribute to third parties may be made without our written consent.

You agree to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses, or liabilities, including reasonable attorneys’ fees, to which we may become subject in connection with this engagement. You will not be liable for our negligence. Your obligation for indemnification and reimbursement shall extend to any controlling person of Greater China Appraisal Limited, including any director, officer, employee, subcontractor, affiliate or agent. In the event we are subject to any liability in connection with this engagement, regardless of legal theory advanced, such liability will be limited to the amount of fees we received for this engagement.

We reserve the right to include your company/firm name in our client list, but we will maintain the confidentiality of all conversations, documents provided to us, and the contents of our reports, subject to legal or administrative process or proceedings. These conditions can only be modified by written documents executed by both parties.

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APPENDIX VI

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other mailers the omission of which would make any statement in this circular misleading.

2. DISCLOSURE OF INTERESTS

(a) Directors’ interests in the securities of the Company and its associated corporation

As at the Latest Practicable Date, none of the Directors and chief executives of the Company had any interests and short positions in the shares, underlying shares and debentures of the Company or any of its associated corporation(s) (within the meaning of Part XV of the SFO) which were required (i) pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he was taken or deemed to have under such provisions or the SFO) to be notified to the Company and the Stock Exchange; or (ii) pursuant to Section 352 of the SFO to be entered in the register referred to therein; or (iii) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules (“Model Code”) to be notified to the Company and the Stock Exchange.

As at the Latest Practicable Date, none of the Directors was a director or an employee of a company which had an interest or short position in the Shares and underlying Shares of the Company would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

(b) Directors’ interests in service contracts

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with the Company or any member of the Group other than contracts expiring or determinable by the Company or the relevant member of the Group within one year without payment of compensation (other than statutory compensation).

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(c) Substantial Shareholders’ interests

As at the Latest Practicable Date, so far as is known to any Director or chief executive of the Company, the following persons (other than a Director or chief executive of the Company) had, or were deemed or taken to have interests or short positions in the Shares or underlying Shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO:

				Number of
			Number of	underlying
	Long position/		Shares held/	Shares held/	Approximate
Name of Shareholder	Short Position	Capacity	involved	involved	percentage
Mr. Tse	Long Position	Beneficial Owner	350,000,000	–	18.98%
					(note)

Note:

The percentage of shareholding in the Company is calculated with reference to the number of Shares to be issued immediately after Completion assuming no issue of new Shares on or before the Completion Date.

Save as disclosed above, as at the Latest Practicable Date and so far as is known to the Directors or chief executives of the Company, no other person (not being a Director or chief executive of the Company) had any interests or short positions in Shares or underlying Shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, 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 the Company or any other member of the Group.

4. DIRECTORS’ INTERESTS IN CONTRACTS

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement subsisting and which was significant in relation to the business of the Group.

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5. DIRECTORS’ INTERESTS IN ASSETS

As at the Latest Practicable Date, none of the Directors had any interest, either directly or indirectly, in any asset which had been acquired or disposed of by or leased to any member of the Enlarged Group or were proposed to be acquired or disposed of by or leased to any member of the Enlarged Group since 30 June 2014, the date to which the latest published audited consolidated financial statements of the Company were made up.

6. DIRECTORS’ INTERESTS IN COMPETING BUSINESSES

As at the Latest Practicable Date, so far as is known to the Directors, none of the Directors or their associates had any business or interest in any business which competes or is likely to compete, either directly or indirectly, with the business of the Enlarged Group.

7. MATERIAL CONTRACTS

Set out below are the material contracts (not being contracts entered into in the ordinary course of business) entered into by any member of the Enlarged Group within the two years immediately preceding the Latest Practicable Date:

(a) the placing agreement dated 15 October 2013 entered into between the Company and Emperor Securities Limited in relation to the placing of a maximum of 249,000,000 Shares at a placing price of HK$0.061 per Share;
(b) the underwriting agreement dated 3 January 2014 in relation to the rights issue at a price of HK$0.228 per rights Share on the basis of nine rights shares for every one Share held on 14 May 2014;
(c) the sale and purchase agreement dated 22 October 2014 in relation to the disposal of the entire share capital of Snazz Entertainment Group Limited and a sale loan at a consideration of HK$750,000; and
(d) the S&P Agreement.

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APPENDIX VI

8. LITIGATION

The Company and its ex-subsidiary, P.N. Electronics Ltd. (“PNE”), have been involved in arbitration proceedings with North American Foreign Trading Corporation (“NAFT”) in respect of a gross receivable of HK$18 million and related damages from various parties for goods shipped by PNE and NAFT in 1996. The arbitration proceedings were initiated by NAFT against the Company and PNE claiming for alleged damages in New York, USA. The Company has upon legal advice, vigorously contested the alleged claims and has counterclaimed the said sum of HK$18 million as well as other damages. The Company has not received any documents in relation to the arbitration proceedings for a substantial period of time and insofar as the Company is aware, the proceedings remain dormant.

On 13 October 2003, a Writ of Summons and Statement of Claim was issued by BII Finance Company Limited (“BII Finance”) against the Company under a guarantee allegedly given by the Company in favour of BII Finance in respect of certain liabilities of Welback Enterprises Limited, a former subsidiary of the Company. The claim is for a sum of approximately HK$3,583,000 and US$248,000 (approximately HK$1,936,000), together with interest.

The Company has issued Third Party Proceedings against Mr. Lee Chun Kwok and Mr. Fong Wing Seng, former directors of the Company, seeking a contribution to the extent of 49% of BII Finance’s claim in the event that the Company is found liable to BII Finance (which is denied).

Save as disclosed above, as at the Latest Practicable Date, no member of the Group was engaged in any litigation or claims of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against any member of the Group.

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9. EXPERT’S QUALIFICATION AND CONSENT

The following are the qualification of the expert who have been named in this circular or have given their opinion or advice which are contained in this circular:

Name

Qualification

HLB Hodgson Impey Cheng Limited (“HLB”)

Greater China Appraisal Limited (“Greater China”)

Certified Public Accountants Independent valuer

HLB and Greater China have given and have not withdrawn their written consent to the issue of this circular with the inclusion herein of their letter and report (as the case may be) and references to their name, in the form and context in which they appear.

As at the Latest Practicable Date, HLB and Greater China:

(i) were not beneficially interested in the share capital of any member of the Enlarged Group;
(ii) did not have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group; and
(iii) did not have any interest, either directly or indirectly, in any asset which had been acquired or disposed of by or leased to any member of the Enlarged Group or which were proposed to be acquired or disposed of by or leased to any member of the Enlarged Group since 30 June 2014 (being the date to which the latest published audited consolidated financial statements of the Company were made up).

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10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the head office and principal place of business of the Company at Office D & E, 20th Floor, EGL Tower, No. 83 Hung To Road, Kwun Tong, Kowloon, Hong Kong up to and including the date of the SGM:

(a) the memorandum of association and bye-laws of the Company;
(b) the annual reports of the Company for each of the two financial years ended 30 June 2013 and 2014;
(c) the accountants’ report issued by HLB on the Target Group, the text of which is set out in appendix II of this circular;
(d) the accountants’ report issued by HLB in connection with the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in appendix IV to this circular;
(e) the consent letters issued by HLB and Greater China referred to in the paragraph headed “Expert’s qualification and consent” in this appendix; and
(f) a copy of each of the material contracts referred to in the paragraph headed “Material contracts” in this appendix.

11. MISCELLANEOUS

(a) The company secretary of the Company is Mr. Chow Chun Man, Jimmy, who is a qualified accountant in Hong Kong since 16 April 1996.
(b) The registered office of the Company is situated at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda and the head office and principal place of business of the Company in Hong Kong is situated at Office D & E, 20th Floor, EGL Tower, No. 83 Hung To Road, Kwun Tong, Kowloon, Hong Kong.
(c) The Company’s branch share registrar in Hong Kong is Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong,
(d) In the event of inconsistency, the English text of this circular and the accompanying form of proxy shall prevail over the Chinese text thereof.

VI – 6

NOTICE OF SGM

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(Incorporated in Bermuda with limited liability)

(Stock Code: 491)

NOTICE IS HEREBY GIVEN that a special general meeting of See Corporation Limited (“Company”) will be held at Plaza 3, Lower Lobby, Novotel Century Hong Kong. 238 Jaffe Road, Hong Kong on Friday, 16 January 2015 at 11:00 a.m. for the purpose of considering and, if thought fit, passing the following resolutions as ordinary resolutions (with or without amendments) of the Company:

ORDINARY RESOLUTIONS

(1) “ THAT :
(a) the sale and purchase agreement dated 22 October 2014 (the “ S&P Agreement ”) (a copy of which has been produced at this meeting and marked “A” and initialed by the chairman of this Meeting for the purpose of identification) entered into between Magic Well Holdings Limited, a wholly owned subsidiary of the Company, as purchaser and Mr. Nicholas Tse as vendor in relation to, the acquisition of 60% issued share capital of Lucrative Skill Holdings Limited (the “ Acquisition ”) at a consideration of HK$122,500,000 which will be satisfied in full by the Company’s issue and allotment of the Consideration Shares (as defined in the Agreement) upon Completion of the S&P Agreement and the transactions contemplated thereunder or incidental to the S&P Agreement be and are hereby approved, confirmed and ratified;
(b) conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited granting the listing of, and permission to deal in the Consideration Shares (as defined in the S&P Agreement), the directors of the Company (the “ Directors ”) be and are hereby authorised to allot and issue the Consideration Shares at HK$0.35 per Consideration Share in accordance with the terms and conditions of the S&P Agreement, and that the Consideration Shares shall, when allotted and issued, be credited as fully paid and rank pari passu in all respects with all other shares of the Company in issue on the date of such allotments and issues; and
(c) the Directors are hereby authorised to do all such further acts and execute such further documents which in their opinion may be necessary or expedient to give effect to the terms of the S&P Agreement and the issue and allotment of the Consideration Shares or any of the transactions contemplated under the S&P Agreement.”

* For identification purpose only

SGM – 1

NOTICE OF SGM

(2) “ THAT subject to and conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited granting approval of the listing of, and permission to issue shares of HK$0.01 each in the capital of the Company (“ Shares ”) on exercise of share options that may be granted under the share option scheme adopted by the Company on 8 November 2011 (“ Share Option Scheme ”) subject the refreshed scheme mandate limit (“ Refreshed Mandate Limit ”) in the manner as set out in paragraph (a) of this resolution below:
(a) the refreshment of the Scheme Mandate Limit be and is hereby approved provided that the total number of Shares which may be allotted and issued upon exercise of all share options granted under the Share Option Scheme and any share option scheme(s) of the Company shall not exceed 10% of the Shares of the Company in issue as at the date of passing of this resolution (share options previously granted, including those outstanding, cancelled, lapsed or exercised under the Share Option Scheme shall not be counted for the purpose of calculating the Refreshed Mandate Limit); and
(b) the Directors be and are hereby authorised to grant share options under the Share Option Scheme up to the Refreshed Mandate Limit, to exercise all powers of the Company to allot, issue and deal with the Shares pursuant to the exercise of such share options and to do all such acts and things and execute all such documents, including under seal where applicable, as they consider necessary or expedient for such purpose.”

By Order of the Board See Corporation Limited Direk Lim Chairman

Hong Kong, 31 December 2014

Head office and principal place of business in Hong Kong:

Office D & E 20th Floor, EGL Tower No. 83 Hung To Road Kwun Tong, Kowloon Hong Kong

Notes:

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 its seal or under the hand of an officer, attorney or other person authorised to sign the same.
Any member, whether an individual or a corporation, entitled to attend and vote at a meeting of the Company or a meeting of the holders of any class of shares in the Company shall be 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 attend and vote on the same occasion provided that, if more than one proxy is so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is so appointed. A proxy need not be a member. In addition, each proxy appointed shall be entitled to exercise the same powers as if such proxy was the registered holder of the Shares held by the member appointing him, including, but not limited to, the right to vote individually on a show of hands.

SGM – 2

NOTICE OF SGM

The instrument appointing a proxy and (if required by the Board) the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power or authority, shall be delivered to the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not less than 48 hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote.
In the case of joint holders of a Share, if more than one of such joint holders be present at any meeting, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members in respect of the joint holding.
Any corporation which is a member of the Company may by resolution of its directors or other governing body authorise such person as it thinks fit to act as its representative at any meeting of the Company or of any class of members of the Company. The person so authorised shall be entitled to exercise the same powers on behalf of such corporation as the corporation could exercise as if it were an individual member of the Company and such corporation shall for the purposes of the bye-laws of the Company be deemed to be present in person at any such meeting if a person so authorised is present thereat.

SGM – 3

AI assistant

Changyou International Group Limited — Proxy Solicitation & Information Statement 2014

49641_rns_2014-12-30_c3e51551-a8bc-4545-8a1b-526444318864.pdf

(1) VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE ACQUISITION OF 60% ISSUED SHARE CAPITAL OF LUCRATIVE SKILL HOLDINGS LIMITED;

(2) PROPOSED REFRESHMENT OF SCHEME MANDATE LIMIT UNDER SHARE

OPTION SCHEME; AND

(3) NOTICE OF SPECIAL GENERAL MEETING

Financial advisor to the Company

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

Executive Directors:

(1) VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE ACQUISITION OF 60% ISSUED SHARE CAPITAL OF LUCRATIVE SKILL HOLDINGS LIMITED; (2) PROPOSED REFRESHMENT OF SCHEME MANDATE LIMIT UNDER SHARE OPTION SCHEME; AND (3) NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

VERY SUBSTANTIAL ACQUISITION

1. THE S&P AGREEMENT

Date

Parties

Assets to be acquired

Consideration

Consideration adjustment

The Consideration Shares

Conditions precedent

LETTER FROM THE BOARD

First right of refusal

Completion

2. INFORMATION OF TARGET GROUP

Group structure

Business

Financial information

Business prospects

3. FINANCIAL EFFECTS OF THE ACQUISITION

Assets and liabilities

Earnings

Gearing

Financing of the Acquisition

4. INFORMATION OF VENDOR

5. REASONS FOR AND BENEFITS OF THE ACQUISITION

Benefit of the first right of refusal by the Vendor

6. SHAREHOLDING STRUCTURE AS A RESULT OF THE ACQUISITION

7. IMPLICATION OF THE LISTING RULES

PROPOSED REFRESHMENT OF THE SCHEME MANDATE LIMIT UNDER THE SHARE OPTION SCHEME

1. EXISTING SHARE OPTION SCHEME

2. REFRESHMENT OF THE SCHEME MANDATE LIMIT

3. LISTING RULES IMPLICATION

SGM

LETTER FROM THE BOARD

RECOMMENDATION

ADDITIONAL INFORMATION

A. THREE-YEAR FINANCIAL INFORMATION

B. TREND OF BUSINESS AND FINANCIAL AND TRADING PROSPECTS

C. INDEBTEDNESS

Indebtedness of the Enlarged Group

Borrowings

Contingent liabilities

Commitments

Disclaimer

D. MATERIAL ADVERSE CHANGE

E. WORKING CAPITAL STATEMENT

DIRECTOR’S RESPONSIBILITY FOR THE FINANCIAL INFORMATION

REPORTING ACCOUNTANT’S RESPONSIBILITY

OPINION

MATERIAL UNCERTAINTY CONCERNING GOING CONCERN BASIS OF ACCOUNTING

REVIEW OF COMPARABLE FINANCIAL INFORMATION

A. FINANCIAL INFORMATION OF THE TARGET GROUP

Consolidated statements of profit or loss and other comprehensive income

Consolidated statements of financial position

Consolidated statements of changes in equity

Consolidated statements of cash flows

Consolidated statements of cash flows (continued)

B. NOTES TO FINANCIAL INFORMATION

1. GENERAL INFORMATION

2. REORGANISATION AND CHANGES IN GROUP STRUCTURE

APPENDIX II

3. APPLICATION OF NEW AND REVISED HKFRSs

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

Changyou International Group Limited Proxy Solicitation & Information Statement 2014