Comtec Solar Systems Group Limited - Interim / Quarterly Report 2017

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(Incorporated in the Cayman Islands with limited liability) Stock code: 712

2017 Interim Report

Contents
Corporate Information	02
Financial Summary	04
Chairman Statement	05
Business Review	09
Financial Review	12
Corporate Governance and Other Information	23
Report on Review of Condensed Consolidated Financial Statements	34
Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income	35
Condensed Consolidated Statement of Financial Position	36
Condensed Consolidated Statement of Changes in Equity	38
Condensed Consolidated Statement of Cash Flows	39
Notes to the Condensed Consolidated Financial Statements	41
Definitions	79

Corporate Information

DIRECTORS

Executive Directors

Mr. John Yi Zhang Mr. Zhang Zhen Mr. Chau Kwok Keung

CORPORATE GOVERNANCE COMMITTEE

Mr. John Yi Zhang (Chairman) Mr. Chau Kwok Keung Mr. Leung Ming Shu

SIGNIFICANT PAYMENTS COMMITTEE

Non-executive Director

Mr. Wang Yixin

Independent non-executive Directors

Mr. Kang Sun Mr. Leung Ming Shu Mr. Xu Erming

COMPANY SECRETARY

Mr. John Yi Zhang (Chairman) Mr. Chau Kwok Keung

REGISTERED OFFICE

Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Mr. Chau Kwok Keung (HKICPA, ACCA, CFA)

HEADQUARTER

AUTHORISED REPRESENTATIVES

Mr. John Yi Zhang Mr. Chau Kwok Keung

16 Yuan Di Road Nanhui Industrial Zone Shanghai 201314 PRC

AUDIT COMMITTEE

Mr. Leung Ming Shu (Chairman) Mr. Kang Sun Mr. Xu Erming

NOMINATION COMMITTEE

Mr. John Yi Zhang (Chairman) Mr. Kang Sun Mr. Leung Ming Shu Mr. Xu Erming

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

Suite 33 35/F Central Plaza 18 Harbour Road Wanchai Hong Kong

COMPANY’S WEBSITE

www.comtecsolar.com

REMUNERATION COMMITTEE

Mr. Leung Ming Shu (Chairman) Mr. John Yi Zhang Mr. Kang Sun Mr. Xu Erming

AUDITOR

Deloitte Touche Tohmatsu

02 Comtec Solar Systems Group Limited

Corporate Information

LEGAL ADVISERS AS TO HONG KONG LAW

Luk & Partners In Association with Morgan, Lewis & Bockius

PRINCIPAL BANKS

Agricultural Bank of China The Hongkong and Shanghai Banking Corporation Limited Hang Seng Bank Limited

CAYMAN ISLANDS PRINCIPAL SHARE

REGISTRAR AND TRANSFER OFFICE

Royal Bank of Canada Trust Company (Cayman) Limited 4th Floor, Royal Bank House 24 Shedden Road, George Town Grand Cayman KY1-1110 Cayman Islands

HONG KONG SHARE REGISTRAR

Computershare Hong Kong Investor Services Limited Shops 1712–1716, 17th Floor Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong

Interim Report 2017 03

Financial Summary

RESULTS

Turnover (Loss) Profit before interest expenses and taxation Interest expense (Loss) Profit before taxation Taxation Profit (loss) and total comprehensive income (expense) for the period Profit (loss) and total comprehensive income (expense) for the period attributable to Owners of the Company Non-controlling interests	2017	2016 2015 2014 2013
	RMB’000	RMB’000 RMB’000 RMB’000 RMB’000
	314,193	491,149 566,031 520,449 471,000
	28,034 (8,278)	(1,655) (196,998) 12,913 (2,621) (5,045) (7,455) (9,798) (9,476)
	19,756 (11,632)	(6,700) (204,453) 3,115 (12,097) 295 408 (125) (25)
	8,124	(6,405) (204,045) 2,990 (12,122)
	8,783 (659)	(6,405) (204,045) 2,990 (12,122) – – – –
	8,124	(6,405) (204,045) 2,990 (12,122)

ASSETS AND LIABILITIES

Total assets Total liabilities Net assets	2017	2016 2015 2014 2013
	RMB’000	RMB’000 RMB’000 RMB’000 RMB’000
	1,057,787 (764,215)	2,006,918 2,125,319 2,484,678 2,608,545 (874,885) (988,407) (970,163) (1,083,732)
	293,572	1,132,033 1,136,912 1,514,515 1,524,813

04 Comtec Solar Systems Group Limited

Chairman Statement

During the Period, the Company achieved remarkable progress in downsizing the scale of manufacturing businesses and expanding to the more profitable downstream solar business which specifically focuses on rooftop distributed generation projects on industrial and commercial buildings. We achieved net profit attributable to the owners of the Company of approximately RMB8.8 million for the Period, representing a turnaround from the net loss of approximately RMB6.4 million for the corresponding period in 2016 and the net loss of approximately RMB1,007.1 million for the year ended 31 December 2016. The Group also achieved earnings before interest expenses, taxation expenses, depreciation expenses and amortization expense of approximately RMB49.0 million during the Period, representing an increase of approximately 67.8% from approximately RMB29.2 million for the corresponding period in 2016.

DISPOSAL OF ASSETS IN MALAYSIA

On 30 December 2016 (after trading hours of the Stock Exchange), the Company, Comtec Solar International (M) Sdn. Bhd. (“Comtec Malaysia”) and Longi (Kuching) Sdn. Bhd (“Longi”) entered into an asset transfer agreement, pursuant to which Comtec Malaysia agreed to sell and Longi agreed to purchase the assets of Comtec Malaysia at a total consideration of RMB200.0 million.

Such asset disposal was approved by the Shareholders of the Company at the extraordinary general meeting held on 20 April 2017 and completed in June 2017. For details, please refer to the announcements of the Company dated 3 January 2017, 21 March 2017 and 20 April 2017 and the circular of the Company dated 31 March 2017.

On the other hand, we have made good progress on the downstream businesses.

COOPERATION WITH LUOYANG TOURISM DEVELOPMENT

On 10 January, 2017, the Group entered into a strategic agreement with Luoyang Tourism Development Group Limited in relation to the exclusive cooperation in the investment, establishment, development and operation of the smart energy charging facilities project in Luoyang.

COOPERATION WITH ADMINISTRATIVE COMMITTEE OF WUXI HUISHAN ECONOMIC DEVELOPMENT ZONE

On 12 January, 2017, the Group entered into a strategic framework cooperation agreement with Administrative Committee of Wuxi Huishan Economic Development Zone in relation to the proposed cooperation in the distributed solar power generation projects and the intelligent energy charging facilities projects. Pursuant to the agreement, both parties agreed to cooperate exclusively with each other in connection with solar projects in Huishan Economic Development Zone.

Interim Report 2017 05

Chairman Statement

ACQUISITION OF FORUM (ASIA)

In March 2017, the Group has completed the acquisition of Forum (Asia) Limited (“Forum Asia”). This acquisition represents an attractive opportunity for the Group to expand into the business of rooftop solar project with individual scale less than 1MW.

COOPERATION WITH FUZHOU SWIRE COCA COLA

On 8 May 2017, the Company successfully completed the construction of a solar power rooftop distributed generation station in Fuzhou (the “Solar Power Generation Station”). Pursuant to an electricity supply agreement entered into by, amongst others, Fuzhou Comtec Solar Electricity Co., Ltd. (福州卡姆丹克太陽能電力有限責任公司) (“Fuzhou Comtec”), a wholly-owned subsidiary of the Company, and Fuzhou Swire Coca Cola Beverage Co., Ltd. (福州太古可口可樂飲料有限公司) (“Fuzhou Swire Coca Cola”), the Solar Power Generation Station was constructed by Fuzhou Comtec to supply Fuzhou Swire Coca Cola with solar power electricity for a term of 25 years. The Solar Power Generation Station was constructed on a rooftop covering an area of approximately 30,000 square meters and its scale is approximately 2 Megawatts.

COOPERATION WITH ISDN HOLDINGS

On 25 May 2017, the Company entered into a strategic cooperation framework agreement with ISDN Holdings Limited (“ISDN Holdings”), a company listed on the Main Board of The Stock Exchange of Hong Kong Limited (stock code: 1656) and the Stock Exchange of Singapore (stock code: I07.SI), in relation to the strategic cooperation in the energy industry. After arm’s length negotiation, the parties incorporated an investment holding company in the British Virgin Islands (the “JV Holdco”) in August 2017. The JV Holdco is named C&I Renewable Limited and owned as to 70% by our Company and 30% by ISDN Holdings. The board of directors of the JV Holdco comprises three members, namely Mr. Zhang Zhen and Mr. Chau Kwok Keung, each being an executive Director of our Company, and Mr. Teo Cher Koon, being the managing director and president of ISDN Holdings. After incorporation of the JV Holdco, it will further establish subsidiaries in Hong Kong and the PRC. It is expected that the PRC subsidiary will set up and operate a distributed generation solar power station with an estimated scale of approximately 1 Megawatt on the roof of a property owned by ISDN Holdings located in Suzhou, the PRC. It is also expected that, upon commencement of operation of the distributed generation solar power station, ISDN Holdings and/or its subsidiary(ies) will purchase generated power from such power station at the then relevant fair market price for a term of 20 years. The total investment amount to the JV Holdco and its subsidiaries would be no more than RMB8 million.

06 Comtec Solar Systems Group Limited

Chairman Statement

ACQUISITION OF KEXIN

On 25 May 2017 (after trading hours of the Stock Exchange), Comtec Renewable Energy (Jiangsu) Limited (“Comtec Renewable (Jiangsu)”), Zhejiang Kexin Power System Design and Research Company Limited (“Kexin”) and the vendors of Kexin entered into an equity transfer agreement, pursuant to which Comtec Renewable (Jiangsu) agreed to acquire 70% equity interest of Kexin from the vendors at a cash consideration of RMB14.0 million. Kexin is principally engaged in the research and development, design, integration and sales of lithium battery management systems and lithium battery systems for electric vehicles (including electric cars, electric motors and electric bicycles) to electric vehicle manufacturers and for power storage systems to lithium battery manufacturers and to power storage companies. The acquisition represents an attractive opportunity for the Group to expand into the business of the research and development, design, integration and sales of lithium battery management systems and lithium battery systems for electric vehicles (including electric cars, electric motors and electric bicycles) to electric vehicle manufacturers and for power storage systems to lithium battery manufacturers and to power storage companies, which marks the Group’s continuous efforts in diversifying its business. It is expected that the acquisition of Kexin will be closed in October 2017.

The above progresses marked the Group’s continuous efforts to develop and expand downstream solar business with a view to creating synergy through integration of the downstream solar business with the Group’s remaining upstream solar business. It would also enhance our profit amounts and profitabilities.

On 13 July 2017, the Company entered into a subscription agreement with Rich Reach Holdings Limited (富達控股有限公司), an independent third party, pursuant to which the Company has conditionally agreed to allot and issue 118,389,897 subscription Shares at a subscription price of HK$0.2534 per Share. The subscription has been completed on 20 July 2017 with the 118,389,897 subscriptions Shares allotted and issued to Rich Reach Holdings Limited (富達控股有限公司), generating the net proceeds of approximately HK$29.2 million, representing a net subscription price of HK$0.247 per subscription Share. The net proceeds were expected to be used as general working capital of the Group. As at the date of this report, the net proceeds have not been used yet and are expected to be used as working capital of the Group. Please refer to the announcements of the Company dated 13 July 2017 and 20 July 2017 for further details.

On 21 July 2017, the Company entered into another subscription agreement with Advanced Gain Limited, an independent third party, pursuant to which the Company has conditionally agreed to allot and issue 190,912,714 subscription Shares at a subscription price of HK$0.25 per Share. The net proceeds from the subscription are expected to be approximately HK$46.9 million, representing a net subscription price of HK$0.246 per subscription Share and are expected to be used as general working capital of the Group. Please refer to the announcement of the Company dated 21 July 2017 for further details.

Interim Report 2017 07

Chairman Statement

Given the current industry environment, it is clear that strict financial discipline is essential to success. Our financial position was and will be further strengthened after completion of the above subscriptions. In addition, we implemented and will continue to implement a balanced financing plan to support our business operation.

The Group intends to maintain its remaining scale of manufacturing businesses on highly efficient monocrystalline solar wafers. During the Period, we have been free from the impact of long term purchase agreements for polysilicon which led to substantial amount of losses of the Group in the last few years. It would give the Group more flexibility in managing its supply chain to adapt to the market situations and benefit from the decreasing spot prices of raw materials. And we intend to continuously improve the cost competitiveness of our existing upstream solar business to make it a solid foundation to support the development of our downstream businesses.

On behalf of the Board, I would like to express my sincere gratitude to our Shareholders and business partners for their support to and trust in us, and also to our management and employees for their hard work. We look forward to creating greater value and return for our Shareholders.

John Yi Zhang

Chairman

Shanghai, the People’s Republic of China, 30 August 2017

08 Comtec Solar Systems Group Limited

Business Review

DISPOSAL OF ASSETS IN MALAYSIA

On 30 December 2016 (after trading hours of the Stock Exchange), the Company, Comtec Malaysia and Longi entered into an asset transfer agreement, pursuant to which Comtec Malaysia agreed to sell and Longi agreed to purchase the assets of Comtec Malaysia at a total consideration of RMB200.0 million.

On the other hand, we have made good progress on the downstream businesses.

COOPERATION WITH LUOYANG TOURISM DEVELOPMENT

COOPERATION WITH ADMINISTRATIVE COMMITTEE OF WUXI HUISHAN ECONOMIC DEVELOPMENT ZONE

ACQUISITION OF FORUM (ASIA)

In March 2017, the Group has completed the acquisition of Forum (Asia). This acquisition represents an attractive opportunity for the Group to expand into the business of rooftop solar project with individual scale less than 1MW.

Interim Report 2017 09

Business Review

COOPERATION WITH FUZHOU SWIRE COCA COLA

On 8 May 2017, the Company successfully completed the construction of a Solar Power Generation Station. Pursuant to an electricity supply agreement entered into by, amongst others, Fuzhou Comtec and Fuzhou Swire Coca Cola, the Solar Power Generation Station was constructed by Fuzhou Comtec to supply Fuzhou Swire Coca Cola with solar power electricity for a term of 25 years. The Solar Power Generation Station was constructed on a rooftop covering an area of approximately 30,000 square meters and its scale is approximately 2 Megawatts.

COOPERATION WITH ISDN HOLDINGS

On 25 May 2017, the Company entered into a strategic cooperation framework agreement with ISDN Holdings, in relation to the strategic cooperation in the energy industry. After arm’s length negotiation, the parties incorporated the JV Holdco in the British Virgin Islands in August 2017. The JV Holdco is named C&I Renewable Limited and owned as to 70% by our Company and 30% by ISDN Holdings. The board of directors of the JV Holdco comprises three members, namely Mr. Zhang Zhen and Mr. Chau Kwok Keung, each being an executive Director of our Company, and Mr. Teo Cher Koon, being the managing director and president of ISDN Holdings. After incorporation of the JV Holdco, it will further establish subsidiaries in Hong Kong and the PRC. It is expected that the PRC subsidiary will set up and operate a distributed generation solar power station with an estimated scale of approximately 1 Megawatt on the roof of a property owned by ISDN Holdings located in Suzhou, the PRC. It is also expected that, upon commencement of operation of the distributed generation solar power station, ISDN Holdings and/or its subsidiary(ies) will purchase generated power from such power station at the then relevant fair market price for a term of 20 years. The total investment amount to the JV Holdco and its subsidiaries would be no more than RMB8 million.

ACQUISITION OF KEXIN

On 25 May 2017 (after trading hours of the Stock Exchange), Comtec Renewable (Jiangsu), Kexin and the vendors of Kexin entered into an equity transfer agreement, pursuant to which Comtec Renewable (Jiangsu) agreed to acquire 70% equity interest of Kexin from the Vendors at a cash consideration of RMB14.0 million. Kexin is principally engaged in the research and development, design, integration and sales of lithium battery management systems and lithium battery systems for electric vehicles (including electric cars, electric motors and electric bicycles) to electric vehicle manufacturers and for power storage systems to lithium battery manufacturers and to power storage companies. The acquisition represents an attractive opportunity for the Group to expand into the business of the research and development, design, integration and sales of lithium battery management systems and lithium battery systems for electric vehicles (including electric cars, electric motors and electric bicycles) to electric vehicle manufacturers and for power storage systems to lithium battery manufacturers and to power storage companies, which marks the Group’s continuous efforts in diversifying its business. It is expected that the acquisition of Kexin will be closed in October 2017.

10 Comtec Solar Systems Group Limited

Business Review

On 13 July 2017, the Company entered into a subscription agreement with Rich Reach Holdings Limited (富達控股有限公司), an independent third party, pursuant to which the Company has conditionally agreed to allot and issue 118,389,897 subscription Shares at a subscription price of HK$0.2534 per Share. The subscription has been completed on 20 July 2017 with the 118,389,897 subscriptions Shares allotted and issued to Rich Reach Holdings Limited (富達控股有限公司), generating the net proceeds of approximately HK$29.2 million, representing a net subscription price of HK$0.247 per subscription Share. The net proceeds were expected to be used as general working capital of the Group. As at the date of this report, the net proceeds have not been used yet and is expected to be used as working capital of the Group. Please refer to the announcements of the Company dated 13 July 2017 and 20 July 2017 for further details.

Our top five customers in the Period contributed approximately 47.1% to our total revenue, compared to approximately 59.2% in the corresponding period last year. The sales of highly efficient monocrystalline wafers to the largest customer in the PRC accounted for approximately 15.8% of our total revenues in the Period, as compared to approximately 36.0% in the corresponding period in 2016. We continued to diversify and expand our customer bases.

During the Period, we have been free from the impact of long term purchase agreements for polysilicon which led to substantial amount of losses of the Group in the last few years. It would give the Group more flexibility in managing its supply chain to adapt to the market situations and benefit from the decreasing spot prices of raw materials. And we would continuously improve the cost competitiveness of our existing upstream solar business to make it a solid foundation to support the development of our downstream businesses. We intend to explore opportunities to further expand into downstream solar business to integrate with our existing upstream solar business. To leverage on our advanced technological capabilities, high quality product offerings, premium customer bases and the strategic partnership with reputable institutional investors, we are confident to capture enormous opportunities in the solar industry and to drive continued and healthy growth for the Group in the future.

Interim Report 2017 11

Financial Review

REVENUE

Revenue decreased by RMB176.9 million, or 36.0%, from RMB491.1 million for the corresponding period in 2016 to RMB314.2 million for the Period, primarily as a result of the decrease in revenue from sale of excess inventory of polysilicon and 125 mm x 125 mm monocrystalline wafers, which was partially mitigated by the increase in revenue from sales of 156 mm x 156 mm monocrystalline wafers, monocrystalline ingots and other solar materials and the increase in project development service income.

Sales of 125 mm by 125 mm monocrystalline solar wafers

Revenue from sales of 125 mm by 125 mm monocrystalline solar wafers decreased by RMB138.5 million, or 78.2%, from RMB177.2 million for the corresponding period in 2016 to RMB38.7 million for the Period, primarily due to the decrease in our sales volume by 54.0% from 125.0MW for the corresponding period in 2016 to 57.5MW for the Period, as well as by the decrease in average selling price of approximately 50.0% from RMB1.4 per watt in the corresponding period in 2016 to RMB0.7 per watt for the Period.

The decrease in sale volume was mainly due to our strategy to diversify our sales from an oversea customer who mainly demands for 125 mm by 125 mm monocrystalline solar wafers and has highly specified product specification requirements and we try to accommodate the increasing demands from the fast expanding PRC-based customers who mainly demand for 156 mm by 156 mm monocrystalline solar wafers. And the average selling price decreased materially because we tried to sell out the existing inventory of the highly specified product specifications for the overseas customers as they plan to change their product specifications soon.

Sales of 156 mm by 156 mm monocrystalline solar wafers

Revenue from sales of 156 mm by 156 mm monocrystalline solar wafers increased by RMB44.8 million, or 87.4%, from RMB51.2 million for the corresponding period in 2016 to RMB96.0 million for the Period, primarily as a result of the increase of sales volume by 176.8% from 35.2MW for the corresponding period in 2016 to 97.4MW for the Period. The increase in sales volume was mainly due to our strategies to focus on the fast expanding PRC strategic customers who mainly demand for 156 mm by 156 mm monocrystalline solar wafers and are willing to commit advance payments to us.

However, such increase in sales volume was partially mitigated by the decrease in average selling price of approximately 33.3% from RMB1.5 per watt in the corresponding period in 2016 to RMB1.0 per watt for the Period due to the competitive market environments.

12 Comtec Solar Systems Group Limited

Financial Review

Project development service income

We have recorded project development service income of approximately RMB39.5 million during the Period as we started the downstream business to provide project development services to our customers which include but are not limited to application for the required permits for the projects from various regulatory departments, arrangement of public filings for the project documents, provision of advice on the engineering, purchase and construction works of the projects and coordination on the training for the staffs of customers in relation to the project development and subsequent operation of the projects, etc. We would charge them for a fee according to the scale of the projects. There was no such revenue for the corresponding period in 2016.

Processing services income

There was no revenue from processing fees on monocrystalline solar ingots and wafers during the Period, as compared to approximately RMB1.9 million for the corresponding period in 2016, primarily due to our change of strategy and we ceased to provide such services during the Period.

Others

Other revenue mainly included the revenue from sales of excess inventory of polysilicon, sales of ingots and sales of other solar products. The revenue from the sales of excess inventory of polysilicon purchased under the long-term agreements with our major polysilicon suppliers decreased by RMB192.4 million or 74.7%, from RMB257.7 million for the corresponding period in 2016 to RMB65.3 million for the Period. It was because certain long-term purchase agreements expired by the end of 2016 and the suppliers of remaining long-term purchase agreements waived the take-or-pay clauses in the respective agreements. Thus, we were substantially free from the impacts of such longterm purchase agreements during the Period. The sales volume reduced substantially from approximately 2,446.3 tons for the corresponding period in 2016 to 544.9 tons for the Period.

Such decrease was partially mitigated by the increase in revenue from sales of monocrystalline solar ingots from RMB0.3 million for the corresponding period in 2016 to RMB33.7 million during the Period due to the increase in demand for monocrystalline solar ingots in the market. The sales volume increases from approximately 1.1 tons for the corresponding period in 2016 to 156.1 tons for the Period.

The revenue from sales of other solar products also increased materially from RMB2.9 million for the corresponding period in 2016 to RMB41.1 million during the Period. It was mainly because we started to sell solar cells to our downstream business customers as value added services to them during the Period.

Interim Report 2017 13

Financial Review

REVENUE BY GEOGRAPHICAL MARKET

In relation to the geographical analysis of our revenue, approximately 84.8% (2016: 55.2%) of total revenue for the Period was generated from our sales in China. The remaining portion was mainly generated from our sales to the Philippines, Japan, Korea and Malaysia-based customers.

COST OF SALES AND SERVICES

Cost of sales and services decreased by RMB181.8 million, or 39.5%, from RMB460.1 million for the corresponding period in 2016 to RMB278.3 million for the Period, which was in line with the decrease of revenue for the Period. The decrease in cost of sales and services was primarily as a result of the decrease in sales volume of excess inventory of polysilicon which also resulted in decrease in such revenue of approximately RMB192.4 million from the corresponding period in 2016. It was mainly due to the reason that certain long-term purchase agreements expired by the end of 2016 and the suppliers of remaining long-term purchase agreements waived the take-or-pay clauses in the respective agreements. It enabled us to reduce the purchase volume and excess inventory to resale during the Period. The sales volume of excess inventory of polysilicon reduced substantially from approximately 2,446.3 tons for the corresponding period in 2016 to 544.9 tons for the Period.

The decrease in revenue from the sales of 125 mm by 125 mm wafers was substantially mitigated by the increase in revenue from sales of 156 mm by 156 mm wafer, project development services income as well as sales of ingots and other solar materials. Thus, there were no material net impacts to the cost of sales and services.

As we were restructuring the business focus form the lower profit margin manufacturing business to higher profit margin downstream project development business, for the Period, we were able to achieve the decrease in costs of sales and services for 39.5% from the corresponding period while our revenue only decreased by 36.0% for the Period.

GROSS PROFIT

Gross profit increased by RMB4.8 million, or 15.4%, from RMB31.1 million for the corresponding period in 2016 to RMB35.9 million for the Period, primarily due to the fact that the Group changed its business focus to the higher profit margin downstream project development business.

OTHER INCOME

Other income increased by RMB22.3 million, or 743.3%, from RMB3.0 million for the corresponding period in 2016 to RMB25.3 million for the Period, which was mainly due to the government subsidy incomes of approximately RMB24.8 million received during the Period.

14 Comtec Solar Systems Group Limited

Financial Review

OTHER GAINS AND LOSSES

Other gains were approximately RMB12.4 million during the Period, representing a turnaround from other losses of RMB3.1 million for the corresponding period in 2016. Such gains were mainly due to the fair value changes of contingent consideration payables for the acquisitions made, which was partially offset by the net foreign exchange losses incurred during the Period.

DISTRIBUTION AND SELLING EXPENSES

Distribution and selling expenses decreased by RMB2.5 million, or 27.5%, from RMB9.1 million for the corresponding period in 2016 to RMB6.6 million during the Period, primarily due to the decrease in export sales volume during the Period.

ADMINISTRATIVE AND GENERAL EXPENSES

Administrative and general expenses increased by RMB15.6 million, or 66.7%, from RMB23.4 million for the corresponding period in 2016 to RMB39.0 million for the Period, which was mainly due to the non-cash accounting amortization expenses of approximately RMB9.3 million incurred for the two acquisitions closed during or before the Period and the administrative expenses incurred for the development of the Group’s downstream business during the Period.

INTEREST EXPENSES

Interest expenses increased by RMB3.3 million from RMB5.0 million for the corresponding period in 2016 to RMB8.3 million for the Period. It was mainly due to an amount of RMB5.4 million was capitalized for the new additions of construction in progress for the corresponding period in 2016 while the amount of interest expenses capitalized during the Period was immaterial due to no material addition to construction in progress balances.

PROFIT (LOSS) BEFORE TAXATION

Profit before taxation was approximately RMB19.8 million for the Period, representing a turnaround from the loss before taxation of RMB6.7 million for the corresponding period in 2016, due to the aforementioned factors.

TAXATION

The Group incurred taxation expenses of approximately RMB11.6 million during the Period mainly because the entities of the Group generated assessable profits during the Period while the Group did not incur significant tax expenses in the corresponding period in 2016 since no material assessable profits were derived or tax losses were incurred from the Group entities.

Interim Report 2017 15

Financial Review

PROFIT (LOSS) FOR THE PERIOD

The Group recorded net profit of attributable to the owners of the Company of RMB8.8 million during the Period, representing a turnaround from the net loss of approximately RMB6.4 million for the corresponding period in 2016, primarily attributable to the increase in gross profit during the Period due to the fact that the Group changed its business focus to the higher profit margin project development business as well as the increase in subsidy income and gain from fair value changes of contingent consideration payables. Accordingly, the Group recorded net profit margin of 2.8% for the Period, representing a turnaround from net loss margin of 1.3% for the corresponding period in 2016.

INTERIM DIVIDEND

The Board resolved not to declare an interim dividend for the Period (six months ended 30 June 2016: nil).

INVENTORY TURNOVER DAYS

There was a decrease in inventory balance of 62.1% from RMB191.1 million as at 31 December 2016 to RMB72.4 million as at 30 June 2017, which was mainly due to the decrease of operating scales of our manufacturing businesses. The inventory turnover days as at 30 June 2017 totaled 47 days (31 December 2016: 72 days).

TRADE RECEIVABLE TURNOVER DAYS

The trade receivable turnover days as at 30 June 2017 totaled 63 days (31 December 2016: 41 days). The credit period for our customers are generally not more than 180 days. The average receivable turnover days were approximately 63 days which was within the credit periods of the Group granted to its customers.

TRADE PAYABLE TURNOVER DAYS

The trade payable turnover days as at 30 June 2017 totaled 113 days (31 December 2016: 97 days). The Group has obtained continuous supports from our long-term and strategic suppliers.

LIQUIDITY AND FINANCIAL RESOURCES

The Group’s principal sources of working capital included cash flow from operating activities, bank borrowings and the proceeds from share placements. As at 30 June 2017, the Group’s current ratio (current assets divided by current liabilities) was 0.9 (31 December 2016: 1.0) and it was in a net debt position of approximately RMB164.0 million (31 December 2016: approximately RMB168.8 million). The Group had a working capital deficit (total consolidated current liabilities exceeded total consolidated current assets) of RMB47.0 million as of 30 June 2017 (31 December 2016: approximately RMB28.8 million). However, the Group still maintained net assets of approximately RMB293.6 million as of 30 June 2017 (31 December 2016: approximately RMB210.1 million) and has entered into two shares subscription agreements with two independent investors in July 2017 which are expected to generate net proceeds of approximately HK$76.1 million in aggregate. Furthermore, although there is no assurance that the Group will be able to refinance its short-term bank loans when they become due, historically, the Group has rolled over or obtained replacement borrowings from existing credit for most of its short-term bank loans upon the maturity date of the loans. The Group has assumed it will continue to be able to do so for the foreseeable future. The Group has also adopted strict control of operating and investing activities.

16 Comtec Solar Systems Group Limited

Financial Review

On 21 July 2017, the Company entered into another subscription agreement with Advanced Gain Limited, an independent third party, pursuant to which the Company has conditionally agreed to allot and issue 190,912,714 subscription Shares at a subscription price of HK$0.25 per share. The net proceeds from the subscription are expected to be approximately HK$46.9 million, representing a net subscription price of HK$0.246 per subscription Share and are expected to be used as general working capital of the Group. Please refer to the announcement of the Company dated 21 July 2017 for further details.

The Group would implement a balanced financing plan to support the operation of our business.

CAPITAL COMMITMENTS

As at 30 June 2017, the Group does not have any current plan to increase the production capacity of manufacturing businesses. In additions, the Group has yet to make any capital commitments for its downstream solar business which would depend on and be subject to market conditions and opportunities (31 December 2016: nil).

CONTINGENT LIABILITIES

As at 30 June 2017, there was no material contingent liability (31 December 2016: nil).

RELATED PARTY TRANSACTIONS

On 25 May 2017 (after trading hours of the Stock Exchange), Comtec Renewable (Jiangsu), Kexin and the vendors of Kexin entered into an equity transfer agreement, pursuant to which Comtec Renewable (Jiangsu) agreed to acquire 70% equity interest of Kexin from the vendors at a cash consideration of RMB14 million. Kexin is principally engaged in the research and development, design, integration and sales of lithium battery management systems and lithium battery systems for electric vehicles (including electric cars, electric motors and electric bicycles) to electric vehicle manufacturers and for power storage systems to lithium battery manufacturers and to power storage companies. The acquisition represents an attractive opportunity for the Group to expand into the business of the research and development, design, integration and sales of lithium battery management systems and lithium battery systems for electric vehicles (including electric cars, electric motors and electric bicycles) to electric vehicle manufacturers and for power storage systems to lithium battery manufacturers and to power storage companies, which marks the Group’s continuous efforts in diversifying its business.

Interim Report 2017 17

Financial Review

The consideration payable by Comtec Renewable (Jiangsu) for the acquisition was RMB14.0 million and determined after arm’s length negotiation between the parties by reference to, among others, (i) the potential prospects of Kexin and its expected synergy with the Company, and (ii) the valuation of Kexin as at 12 May 2017, which indicated that the market value of Kexin was reasonably stated by the range of RMB15.0 million to RMB21.0 million as at 12 May 2017.

Please refer to the announcements of the Company dated 25 May 2017 for further details.

Save from above and other than the remuneration that the Group paid to the Directors and key management, the Group did not have any related party transactions during the Period.

CHARGES ON GROUP ASSETS

As at 30 June 2017, other than the restricted cash of approximately RMB21.6 million (31 December 2016: RMB126.6 million), the Group pledged its buildings and prepaid lease payments with net book values of approximately RMB133.4 million (31 December 2016: RMB137.8 million) and approximately RMB22.8 million (31 December 2016: RMB23.1 million), respectively, to banks to secure banking facilities granted to the Group. Save as disclosed above, as at 30 June 2017, no other assets of the Group were charged.

ACQUISITION OF SUBSIDIARIES

Reference is made to the announcement of the Company dated 14 November 2016. On 14 November 2016 (after trading hours of the Stock Exchange), the Company, Forum (Asia), and its original shareholders entered into a sale and purchase agreement, pursuant to which the Company agreed to acquire 51% of the entire issued share capital of Forum (Asia) at a total maximum consideration of RMB52.02 million from its original shareholders. The consideration is to be satisfied by the Company by allotting and issuing new shares to the original shareholders of Forum (Asia) under the specific mandate sought from the Shareholders (unless the Company opted to pay in cash with the consent of its original shareholders). In March 2017, the Group has completed the acquisition of Forum (Asia), upon which Forum (Asia) has become a subsidiary of the Company. This acquisition represents an attractive opportunity for the Group to expand into the business of rooftop solar project with individual scale less than 1MW.

On 25 May 2017 (after trading hours of the Stock Exchange), Comtec Renewable (Jiangsu), Kexin and the vendors of Kexin entered into an equity transfer agreement, pursuant to which Comtec Renewable (Jiangsu) agreed to acquire 70% equity interest of Kexin from the vendors at a cash consideration of RMB14 million. Kexin is principally engaged in the research and development, design, integration and sales of lithium battery management systems and lithium battery systems for electric vehicles (including electric cars, electric motors and electric bicycles) to electric vehicle manufacturers and for power storage systems to lithium battery manufacturers and to power storage companies. The acquisition represents an attractive opportunity for the Group to expand into the business of the research and development, design, integration and sales of lithium battery management systems and lithium battery systems for electric vehicles (including electric cars, electric motors and electric bicycles) to electric vehicle manufacturers and for power storage systems to lithium battery manufacturers and to power storage companies, which marks the Group’s continuous efforts in diversifying its business. It is expected that the acquisition of Kexin will be closed in October 2017, upon which Kexin will become a subsidiary of the Company.

18 Comtec Solar Systems Group Limited

Financial Review

DISPOSAL OF ASSETS OF A SUBSIDIARY

Reference is made to the announcements of the Company dated 3 January 2017, 21 March 2017 and 20 April 2017 and the circular of the Company dated 31 March 2017. On 30 December 2016 (after trading hours of the Stock Exchange), the Company, Comtec Malaysia and Longi entered into an asset transfer agreement, pursuant to which Comtec Malaysia agreed to sell and Longi agreed to purchase the assets of Comtec Malaysia at a total consideration of RMB200.0 million.

Comtec Malaysia was established in 2013 by the Company to expand the Group’s production capacity in its solargrade monocrystalline silicon business. Due to the unfavorable global macro-economic environment, the relatively small scale of operations, the lower production efficiency at the early stage of its operations and that it took time to train the local production team, Comtec Malaysia has been loss making and has recorded cumulative operating loss of approximately RMB178.5 million since 2013. Although the Group has been striving to improve its operating efficiency and reduce its production cost per unit, Comtec Malaysia has not been able to generate operating profit in 2016. At the same time, the industry landscape for the monocrystalline silicon business deteriorated in the second half of 2016, with certain major players who use monocrystalline silicon wafers, such as those produced by Comtec Malaysia, scaling back or even shutting down their production. In such circumstances, the Board considers that it will be in the interest of the Company to exit its investment in the production facilities in Malaysia so that the Group can provide more resources on expanding its downstream distributed solar system business, as it is expected that the business prospects of the downstream distributed solar system business is better than that of the upstream ingot and wafer manufacturing business. Also, given the unfavorable market conditions, the Board believes there is a risk that the prices of the assets of Comtec Malaysia may fall even lower later.

An extraordinary general meeting was held on 20 April 2017 and the Shareholders approved the asset transfer agreement. The disposal was completed in June 2017.

USE OF PROCEEDS

Interim Report 2017 19

Financial Review

Save as disclosed herein, the Company has not conducted any equity fund raising activities in the past 12 months preceding the date of this report.

HUMAN RESOURCES

As at 30 June 2017, the Group had 349 (31 December 2016: 482) employees. The remuneration of the existing employee includes basic salaries, discretionary bonuses and social security contributions. Payment levels of the employees are commensurate with their responsibilities, performance and contribution.

DETAILS OF THE FUTURE INVESTMENT PLANS FOR MATERIAL INVESTMENT

The Group is planning to further expand to the downstream business. Due to the rapid changing market environment, the Group prefers to maintain flexibilities throughout the expansion process and avoid fixing a capacity target under a pre-determined timeline. The Group has yet to make any capital commitments for its downstream solar business which would depend on and be subject to the market conditions and opportunities. We believe this strategy would enable the Group to maximize its advantages from the industry consolidation process.

EXPOSURE TO FLUCTUATIONS IN EXCHANGE RATES AND ANY RELATED HEDGES

The Group recognised net exchange losses of approximately RMB4.6 million, which mainly arose from monetary assets and liabilities of the Group entities denominated in foreign currencies. The Group currently does not have a foreign currency hedging policy but the management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arises.

IMPORTANT EVENTS AFTER THE PERIOD

Share Subscriptions

20 Comtec Solar Systems Group Limited

Financial Review

Issue of Consideration Shares

Reference is made to the announcements of the Company dated 7 July 2016 and 15 September 2016 and the circular of the Company (the “Joy Boy Circular”) dated 9 August 2016 in relation to the acquisition of Comtec Renewable Energy Group Limited (formerly known as Joy Boy HK Limited) (“Joy Boy”).

As disclosed in the Joy Boy Circular, pursuant to the sale and purchase agreement entered into by and among the Company, Joy Boy and the vendors and ultimate holders of Joy Boy dated 7 July 2016 (the “Joy Boy Sale and Purchase Agreement”), the actual amount of the First Instalment (as defined in the Joy Boy Circular) payable by the Company is to be determined by reference to the profit before taxation of Joy Boy for the twelve months ended 30 June 2017. Please refer to the Joy Boy Circular for details.

On 29 August 2017, the Board announced that based on the management accounts of Joy Boy for the twelve months ended 30 June 2017 and in accordance with the terms of the Joy Boy Sale and Purchase Agreement, it was determined that a total of 241,567,690 Shares would be allotted and issued to the Vendors (as defined in the Joy Boy Circular) as payment of the First Instalment (as defined in the Joy Boy Circular). Such consideration shares were allotted and issued on 31 August 2017.

Reference is made to the announcements of the Company dated 14 November 2016 and 29 December 2016 and 1 March 2017 and the circular of the Company (the “Forum (Asia) Circular”) dated 12 December 2016 in relation to the acquisition of 51% of the total issued share capital of Forum (Asia).

As disclosed in the Forum (Asia) Circular, pursuant to the sale and purchase agreement entered into by and among the Company, Forum (Asia) and the vendors and ultimate holders of Forum (Asia) dated 14 November 2016 (the “Forum (Asia) Sale and Purchase Agreement”), the actual amount of the First Instalment (as defined in the Forum (Asia) Circular) payable by the Company is to be determined by reference to the profit before taxation of Forum (Asia) for the six months ended 30 June 2017. Please refer to the Forum (Asia) Circular for details.

On 29 August 2017, the Board announced that based on the management accounts of Forum (Asia) for the six months ended 30 June 2017 and in accordance with the terms of the Forum (Asia) Sale and Purchase Agreement, it was determined that a total of 320,223 Shares would be allotted and issued to the Vendors (as defined in the Forum (Asia) Circular) as payment of the First Instalment (as defined in the Forum (Asia) Circular). Such consideration shares were allotted and issued on 31 August 2017.

Interim Report 2017 21

Financial Review

Cooperation with ISDN Holdings

In August 2017, the Company and ISDN Holdings incorporated the JV Holdco in the British Virgin Islands. The JV Holdco is named C&I Renewable Limited and owned as to 70% by our Company and 30% by ISDN Holdings. The board of directors of the JV Holdco comprises three members, namely Mr. Zhang Zhen and Mr. Chau Kwok Keung, each being an executive Director of our Company, and Mr. Teo Cher Koon, being the managing director and president of ISDN Holdings. After incorporation of the JV Holdco, it will further establish subsidiaries in Hong Kong and the PRC. It is expected that the PRC subsidiary will set up and operate a distributed generation solar power station with an estimated scale of approximately 1 Megawatt on the roof of a property owned by ISDN Holdings located in Suzhou, the PRC. It is also expected that, upon commencement of operation of the distributed generation solar power station, ISDN Holdings and/or its subsidiary(ies) will purchase generated power from such power station at the then relevant fair market price for a term of 20 years. The total investment amount to the JV Holdco and its subsidiaries would be no more than RMB8 million.

22 Comtec Solar Systems Group Limited

Corporate Governance and Other Information

CORPORATE GOVERNANCE CODE

The Company is committed to maintaining high standards of corporate governance in the interests of the Shareholders. Except for the deviation from code provision A.2.1 as disclosed below, during the Period, the Company had complied with the code provisions of the Corporate Governance Code as set out in Appendix 14 to the Listing Rules.

Under provision A.2.1 of the Corporate Governance Code, the roles of the chairman and chief executive officer should be separate and should not be performed by the same individual. Before 19 April 2017, Mr. John Yi Zhang was the chairman and chief executive officer of the Group. He has extensive experience in solar wafer industry and is responsible for the overall corporate strategies, planning and business management of the Group. The Board considered that vesting the roles of chairman and chief executive officer in the same individual was beneficial to the business prospects and management of the Group. With effect from 19 April 2017, in order to promote the good corporate governance of the Group to differentiate the roles between the chief executive officer and the chairman of the Board under the Listing Rule, Mr. John Yi Zhang resigned and Mr. Zhang Zhen was appointed as the chief executive officer of the Company. Following the resignation of Mr. John Yi Zhang and the appointment of Mr. Zhang Zhen as the chief executive officer of the Company, the Company is able to comply with paragraph A.2.1 of the Corporate Governance Code, which requires that the roles of chairman and the chief executive should be separate and not be performed by the same individual. The balance of power and authorities is also ensured by the operation of the Board and the senior management, which comprise experienced and high caliber individuals. The Board currently comprises three executive Directors, one non-executive Director and three independent non-executive Directors and has a strong independence element in its composition.

CHANGES IN INFORMATION OF DIRECTORS AND CHIEF EXECUTIVE

To the best knowledge of the Board, there is no change in any of the information of the Directors or the chief executive of the Company which are required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules.

MODEL CODE

The Company has also adopted the Model Code set out in Appendix 10 of the Listing Rules as its code of conduct regarding securities transactions by the Directors. Having made specific enquiry with all Directors of the Company, all Directors confirmed that they have complied with the required standard set out in the Model Code and its code of conduct regarding directors’ securities transactions throughout the Period.

Interim Report 2017 23

Corporate Governance and Other Information

REVIEW OF INTERIM FINANCIAL STATEMENTS

The external auditor has reviewed the interim financial information for the Period in accordance with International Standard on Review engagement 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”.

Disclosure of financial information in this report complies with Appendix 16 of the Listing Rules. The audit committee of the Company has held meetings to discuss the internal controls and financial reporting matters of the Company, including the review of the unaudited interim results and the unaudited condensed consolidated interim financial statements for the Period.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

During the Period, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company’s listed securities.

SUFFICIENCY OF PUBLIC FLOAT

Based on the information that is publicly available to the Company and within the knowledge of the Directors, as at the date of this report, the Company has maintained the prescribed public float of not less than 25% of the Company’s issued shares as required under the Listing Rules for the Period.

DISCLOSURE OF INTEREST

Directors’ and Chief Executive’s Interests and Short Positions in Shares, Underlying Shares and Debentures

As at 30 June 2017, the Directors and the chief executive of the Company and their respective associates had the following interests or short positions in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which have been notified to the Company and the Hong Kong Stock Exchange pursuant to Division 7 and 8 of Part XV of the SFO, including interests and short positions which the Directors and the chief executive of the Company are taken and deemed to have under such provisions of the SFO, or which are required to be and are recorded in the register required to be kept under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code:

24 Comtec Solar Systems Group Limited

Corporate Governance and Other Information

Long Positions in the Company

			Approximate
			percentage of
			interest in
		Number of	the issued
		shares	share capital of
Name of Director	Nature of interest	interested	the Company
Mr. John Yi Zhang1	Beneficial owner, beneficiary of a trust,	629,283,550	40.69%
	interest in a controlled corporation,
	interest of children under 18
Mr. Zhang Zhen2	Interest in a controlled corporation/	165,559,384	10.71%
	Beneficial owner
Mr. Chau Kwok Keung3	Beneficial owner	14,728,000	0.95%
Mr. Wang Yixin4	Beneficial owner	200,000	0.01%
Mr. Kang Sun5	Beneficial owner	749,574	0.05%
Mr. Daniel DeWitt Martin6	Beneficial owner	499,659	0.03%
Mr. Leung Ming Shu7	Beneficial owner	562,787	0.04%
Mr. Xu Erming8	Beneficial owner	200,000	0.01%

Notes:

(1) Fonty, which is 100% beneficially owned by Mr. Zhang, held 576,453,844 Shares. For the purposes of the SFO, Mr. Zhang is also deemed to be interested in 47,829,706 Shares which are beneficially owned by Mr. Alan Zhang, Mr. Zhang’s child under the age of 18, as beneficiary of Zhang Trusts For Descendants, which is an irrevocable trust set up by Mr. Zhang for the benefit of his descendants and of which J.P. Morgan Trust Company of Delaware is the trustee. For the purpose of the SFO, Mr. Zhang is also deemed to be interested in 5,000,000 underlying Shares by virtue of share options granted to him to subscribe for 5,000,000 Shares under the Company’s Share Option Scheme on 28 June 2012.
(2) The 165,559,384 Shares in which Mr. Zhang Zhen is deemed to be interested represent (a) a maximum of 164,059,384 consideration Shares which may be issued to him or a company designated by him, assuming the maximum consideration will be paid and satisfied by the allotment and issue of such consideration Shares pursuant to a sale and purchase agreement entered into by, amongst others, the Company and Mr. Zhang Zhen, dated 7 July 2016. Please refer to the announcement of the Company dated 7 July 2016 for further details; and (b) the 1,500,000 Shares which may be issued to him upon the exercise of the Share Options (as defined below) granted to him on 2 May 2017 under the Share Option Scheme (as defined below).
(3) The Shares in which Mr. Chau Kwok Keung is deemed to be interested represent 14,728,000 Shares which may be issued to him upon the exercise of the Share Options (as defined below) granted to him on 28 June 2012, 31 March 2014 and 2 May 2017 under the Share Option Scheme (as defined below).

Interim Report 2017 25

Corporate Governance and Other Information

(4) The 200,000 Shares in which Mr. Wang Yixin is deemed to be interested represent 200,000 Shares which may be issued to him upon the exercise of the Share Options (as defined below) granted to him on 2 May 2017 under the Share Option Scheme (as defined below).
(5) The 749,574 Shares in which Mr. Kang Sun is deemed to be interested represent 749,574 Shares which may be issued to him upon the exercise of the Pre-IPO Share Options (as defined below) granted to him on 3 August 2009 and 2 October 2009 under the Pre-IPO Share Option Scheme and the Share Options (as defined below) granted to him on 27 December 2012 and 2 May 2017 under the Share Option Scheme (as defined below).
(6) The 499,659 Shares in which Mr. Daniel DeWitt Martin is deemed to be interested represent 499,659 Shares which may be issued to him upon the exercise of the Pre-IPO Share Options (as defined below) granted to him on 3 August 2009 and 2 October 2009 under the Pre-IPO Share Option Scheme and the Share Options (as defined below) granted to him on 27 December 2012 under the Share Option Scheme (as defined below). Mr. Daniel Dewitt Martin resigned as an independent non-executive Director of the Company on 19 April 2017.
(7) The 562,787 Shares in which Mr. Leung Ming Shu is deemed to be interested represent 562,787 Shares which may be issued to him upon the exercise of the Pre-IPO Share Options (as defined below) granted to him on 3 August 2009 and 2 October 2009 under the Pre-IPO Share Option Scheme and the Share Options (as defined below) granted to him on 27 December 2012 and 2 May 2017 under the Share Option Scheme (as defined below).
(8) The 200,000 Shares in which Mr. Xu Erming is deemed to be interested represent 200,000 Shares which may be issued to him upon the exercise of the Share Options (as defined below) granted to him on 2 May 2017 under the Share Option Scheme (as defined below).

Save as disclosed above, as at 30 June 2017, none of the Directors or the chief executive of the Company had or was deemed to have any interests or short position in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO), which had been recorded in the register maintained by the Company pursuant to section 352 of the SFO or which had been notified to the Company and the Stock Exchange pursuant to the Model Code.

At no time was the Company, its holding company, or any of its subsidiaries a party to any arrangements to enable the Directors and the chief executive of the Company (including their spouse and children under 18 years of age) to hold any interest or short positions in the shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO).

26 Comtec Solar Systems Group Limited

Corporate Governance and Other Information

Substantial Shareholders’ Interests and Short Positions in Shares and Underlying Shares

So far as is known to any Director or chief executive of the Company, as at 30 June 2017, the persons or corporations (other than Director or chief executive of the Company) who had interest or short positions in the shares and underlying shares of the Company which were required to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept under section 336 of the SFO were as follows:

			Approximate
			percentage of
			interest in
		Number of	the issued
		shares	share capital of
Name of Shareholders	Nature of interest	interested	the Company
Fonty Holdings Limited	Beneficial owner	576,453,844	37.27%
Ms. Carrie Wang1	Interest of spouse	629,283,550	40.69%
Harmony Gold Ventures Corp2	Beneficial owner	154,651,306	10.00%
Shanghai Hengqu Internet	Interest in a controlled corporation	154,651,306	10.00%
Technology Co., Ltd.*2
Jiangyin Jinqu Capital	Interest in a controlled corporation	154,651,306	10.00%
Management Co., Ltd.*2
Mr. Wang Yixin (王藝新)2	Interest in a controlled corporation	154,651,306	10.00%

Notes:

(1) Ms. Carrie Wang is the spouse of Mr. John Yi Zhang and therefore, pursuant to the SFO, she is deemed to be interested in all the Shares in which Mr. John Yi Zhang is interested.
(2) Harmony Gold Ventures Corp is a wholly-owned subsidiary of Shanghai Hengqu Internet Technology Co., Ltd. (上海恒渠互聯網科技有限公司), which is wholly-owned by Jiangyin Jinqu Capital Management Co., Ltd. (江陰市金渠資本管理有限公司), which is in turn owned as to 99% by Mr. Wang Yixin (王藝新). Therefore, each of Shanghai Hengqu Internet Technology Co., Ltd. (上海恒渠互聯網科技有限公司), by Jiangyin Jinqu Capital Management Co., Ltd. (江陰市金渠資本管理有限公司) and Mr. Wang Yixin (王藝新) is deemed to be interested in the 154,651,306 Shares held by Harmony Gold Ventures Corp.

Save as disclosed above, as at 30 June 2017, the Directors and the chief executive of the Company are not aware of any other person or corporation having an interest or short position in the shares and underlying shares of the Company which would require to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO.

Interim Report 2017 27

Corporate Governance and Other Information

SHARE OPTION SCHEMES

Pre-IPO Share Option Scheme

The Company has adopted a share option scheme on 2 June 2008 (the “Pre-IPO Share Option Scheme”) for the purpose of giving its employees an opportunity to have a personal stake in the Company and helping motivate its employees to optimize their performance and efficiency, and retaining its employees whose contributions are important to the long-term growth and profitability of the Group. Options to subscribe for an aggregate of 574,020 Shares (the “Underlying Shares”) were granted to three independent non-executive Directors on 3 August 2009 and 2 October 2009, in respect of 230,000 Underlying Shares and 344,020 Underlying Shares, respectively. The exercise price per Share is HK$2.51, which is at a 19.5% premium to the final offer price of the Company’s Shares in the initial public offering of the Company. No further options would be granted under the Pre-IPO Share Option Scheme on or after 30 October 2009 (the “Listing Date”), being the date on which dealings in the Shares first commenced on the Stock Exchange.

All options granted under the Pre-IPO Share Option Scheme (the “Pre-IPO Share Options”) can only be exercised in the following manner: (a) Shares representing 1/12th of the Shares which may be issued upon the exercise of options granted under the Pre-IPO Share Option Scheme shall vest on 1 November 2009; (b) from 1 November 2009 onwards, the remaining 11/12th of the Underlying Shares shall vest in equal quarterly instalments of 1/12th of the Underlying Shares at the end of each three-month period subject to continued employment with the Company during that period and all other terms and conditions as described in the Pre-IPO Share Option Scheme; and (c) all outstanding Pre-IPO Share Options shall lapse on the date falling 10 years from the offer date of the Pre-IPO Share Options.

Details of the exercise of the share options granted under the Pre-IPO Share Option Scheme as at 30 June 2017 are as follows:

Grantee Date of Grant Exercise price per Share Director Kang Sun 3 August 2009 HK$2.51 Daniel DeWitt Martin1 3 August 2009 HK$2.51 Leung Ming Shu 3 August 2009 HK$2.51 Total	Balance as at 1 January 2017 Exercised during the Period Balance as at 30 June 2017 249,574 – 249,574 199,659 – 199,659 62,787 – 62,787
	512,020 – 512,020

Note:

(1) Mr. Daniel Dewitt Martin resigned as an independent non-executive Director of the Company on 19 April 2017.

Save as disclosed above, there was no exercise, lapse or cancellation of any Pre-IPO Share Options for the six months ended 30 June 2017.

28 Comtec Solar Systems Group Limited

Corporate Governance and Other Information

Share Option Scheme

The Company has adopted the share option scheme (the “Share Option Scheme”) on 2 October 2009 for the purpose of motivating eligible persons to optimize their future contributions to the Group and/or reward them for their past contributions, attracting and retaining or otherwise maintaining on-going relationships with such eligible persons who are significant to and/or whose contributions are or will be beneficial to the performance, growth or success of the Group.

Upon adoption, the maximum number of Shares which may be issued upon exercise of all options to be granted under the Share Option Scheme and any other schemes of the Group shall not in aggregate exceed 10% of the Shares in issued as at the Listing Date, that is, 100,000,000 Shares.

On 24 December 2015, the scheme mandate limit under the Share Option Scheme was refreshed with a maximum number of 139,186,175 Shares, being 10% of the Shares in issue as at 24 December 2015. As at the date of this report, the maximum number of Shares which may be issued upon exercise of all options to be granted under the Share Option Scheme and other share option schemes of the Company is 139,186,175 Shares representing 9% of the issued share capital of the Company as at the date of this report.

No option may be granted to any participant of the Share Option Scheme such that the total number of Shares issued and to be issued upon exercise of the options granted and to be granted to that person in any 12-month period up to the date of the latest grant exceeds 1% of the Company’s issued share capital from time to time.

An option may be exercised in accordance with the terms of the Share Option Scheme at any time during a period as determined by the Board and not exceeding 10 years from the date of the grant. There is no minimum period for which an option must be held before it can be exercised. Participants of the Share Option Scheme are required to pay the Company HK$1.0 upon acceptance of the grant on or before the 28 days after the offer date. The exercise price of the options is determined by the Board in its absolute discretion and shall not be less than whichever is the highest of:

(a) the nominal value of a Share;
(b) the closing price of a Share as stated in the Stock Exchange’s daily quotations sheets on the offer date; and
(c) the average closing price of a Share as stated in the Stock Exchange’s daily quotation sheets for the five Business Days immediately preceding the offer date.

The Share Option Scheme shall be valid and effective for a period of 10 years from the Listing Date, after which no further options will be granted or offered.

During the Period, no share options (the “Share Options”) to subscribe for the ordinary Shares each in the share capital of the Company were granted, lapsed, or cancelled under the Share Option Scheme.

Interim Report 2017 29

Corporate Governance and Other Information

Details of the movement of the Share Options under the Share Option Scheme during the Period are as follows:

Grantee Date of grant Exercise price per Share Director Mr. Zhang Zhen 2 May 2017 HK$0.335 Mr. Chau Kwok Keung 2 May 2017 HK$0.335 Mr. Wang Yixin 2 May 2017 HK$0.335 Mr. Leung Ming Shu 2 May 2017 HK$0.335 Mr. Kang Sun 2 May 2017 HK$0.335 Mr. Xu Erming 2 May 2017 HK$0.335 Other participants in aggregate 2 May 2017 HK$0.335 Other participants in aggregate 9 September 2016 HK$0.560 Other participants in aggregate 25 November 2015 HK$0.736 Other participants in aggregate 26 June 2015 HK$1.500 Other participants in aggregate 11 May 2015 HK$1.390 Director Mr. Chau Kwok Keung 31 March 2014 HK$1.386 Other participants in aggregate 31 March 2014 HK$1.386 Other participants in aggregate 30 September 2013 HK$1.870 Director Mr. Kang Sun 27 December 2012 HK$1.262 Mr. Daniel DeWitt Martin11 27 December 2012 HK$1.262 Mr. Leung Ming Shu 27 December 2012 HK$1.262 Other participants in aggregate 27 December 2012 HK$1.262 Director Mr. John Yi Zhang 28 June 2012 HK$0.980 Mr. Chau Kwok Keung 28 June 2012 HK$0.980 Other participants in aggregate 28 June 2012 HK$0.980 Other participants in aggregate 24 May 2010 HK$1.490	Balance as at 1 January 2017 Share options granted during the Period Exercised during the Period Lapsed during the Period Balance as at 30 June 2017 – 1,500,000 – – 1,500,000 – 1,500,000 – – 1,500,000 – 200,000 – – 200,000 – 200,000 – – 200,000 – 200,000 – – 200,000 – 200,000 – – 200,000 – 24,400,000 – – 24,400,000 89,000,000 – – – 89,000,000 59,000,000 – – – 59,000,000 20,000,000 – – – 20,000,000 59,800,000 – – – 59,800,000 13,000,000 – – – 13,000,000 22,650,000 – – – 22,650,000 4,020,000 – – – 4,020,000 300,000 – – – 300,000 300,000 – – – 300,000 300,000 – – – 300,000 6,638,000 – – – 6,638,000 5,000,000 – – – 5,000,000 228,000 – – – 228,000 3,556,000 – – – 3,556,000 2,240,000 – – – 2,240,000
	286,032,000 28,200,000 – – 314,232,000

Grantee
Date of grant
Exercise price
per Share
Director
Mr. Zhang Zhen
2 May 2017
HK$0.335
Mr. Chau Kwok Keung
2 May 2017
HK$0.335
Mr. Wang Yixin
2 May 2017
HK$0.335
Mr. Leung Ming Shu
2 May 2017
HK$0.335
Mr. Kang Sun
2 May 2017
HK$0.335
Mr. Xu Erming
2 May 2017
HK$0.335
Other participants in aggregate
2 May 2017
HK$0.335
Other participants in aggregate
9 September 2016
HK$0.560
Other participants in aggregate
25 November 2015
HK$0.736
Other participants in aggregate
26 June 2015
HK$1.500
Other participants in aggregate
11 May 2015
HK$1.390
Director
Mr. Chau Kwok Keung
31 March 2014
HK$1.386
Other participants in aggregate
31 March 2014
HK$1.386
Other participants in aggregate
30 September 2013
HK$1.870
Director
Mr. Kang Sun
27 December 2012
HK$1.262
Mr. Daniel DeWitt Martin11
27 December 2012
HK$1.262
Mr. Leung Ming Shu
27 December 2012
HK$1.262
Other participants in aggregate
27 December 2012
HK$1.262
Director
Mr. John Yi Zhang
28 June 2012
HK$0.980
Mr. Chau Kwok Keung
28 June 2012
HK$0.980
Other participants in aggregate
28 June 2012
HK$0.980
Other participants in aggregate
24 May 2010
HK$1.490

Balance as at
1 January 2017
Share options
granted during
the Period
Exercised
during
the Period
Lapsed
during
the Period
Balance as at
30 June 2017
–
1,500,000
–
–
1,500,000
–
1,500,000
–
–
1,500,000
–
200,000
–
–
200,000
–
200,000
–
–
200,000
–
200,000
–
–
200,000
–
200,000
–
–
200,000
–
24,400,000
–
–
24,400,000
89,000,000
–
–
–
89,000,000
59,000,000
–
–
–
59,000,000
20,000,000
–
–
–
20,000,000
59,800,000
–
–
–
59,800,000
13,000,000
–
–
–
13,000,000
22,650,000
–
–
–
22,650,000
4,020,000
–
–
–
4,020,000
300,000
–
–
–
300,000
300,000
–
–
–
300,000
300,000
–
–
–
300,000
6,638,000
–
–
–
6,638,000
5,000,000
–
–
–
5,000,000
228,000
–
–
–
228,000
3,556,000
–
–
–
3,556,000
2,240,000
–
–
–
2,240,000

286,032,000
28,200,000
–
–
314,232,000

Notes:

(1) Share options granted under the Share Option Scheme on 24 May 2010 shall vest in the relevant grantee in accordance with the timetable below with a 10-year exercise period (for the purpose, the date or each such date on which the share options are to vest being hereinafter referred to as a “Vesting Date”):

Vesting Date

Percentage of Share Options to vest

24 May 2010 30 June 2011

50% of the total number of Share Options granted 50% of the total number of Share Options granted

30 Comtec Solar Systems Group Limited

Corporate Governance and Other Information

(2) Share options granted under the Share Option Scheme on 28 June 2012 shall vest in the grantees in accordance with the timetable below with a 10-year exercise period (for the purpose, the date or each such date on which the share options are to vest being hereinafter referred to as a “Vesting Date”):

Vesting Date	Percentage of Share Options to vest
28 June 2012	50% of the total number of Share Options granted
28 September 2012	12.5% of the total number of Share Options granted
28 December 2012	12.5% of the total number of Share Options granted
28 March 2013	12.5% of the total number of Share Options granted
28 June 2013	12.5% of the total number of Share Options granted

(3) Share options granted under the Share Option Scheme on 27 December 2012 shall vest in the grantees in accordance with the timetable below with a 10-year exercise period (for this purpose, the date or each such date on which the share options are to vest being hereinafter referred to as a “Vesting Date”):

Vesting Date	Percentage of Share Options to vest
27 December 2012	50% of the total number of Share Options granted
27 March 2013	12.5% of the total number of Share Options granted
27 June 2013	12.5% of the total number of Share Options granted
27 September 2013	12.5% of the total number of Share Options granted
27 December 2013	12.5% of the total number of Share Options granted

(4) Share options granted under the Share Option Scheme on 30 September 2013 shall vest in the grantees in accordance with the timetable below with a 10-year exercise period (for this purpose, the date or each such date on which the share options are to vest being hereinafter referred to as a “Vesting Date”):

Vesting Date	Percentage of Share Options to vest
30 September 2013	50% of the total number of Share Options granted
30 December 2013	12.5% of the total number of Share Options granted
30 March 2014	12.5% of the total number of Share Options granted
30 June 2014	12.5% of the total number of Share Options granted
30 September 2014	12.5% of the total number of Share Options granted

(5) Share options granted under the Share Option Scheme on 31 March 2014 vest in the relevant grantee in accordance with the timetable below with a 10-year exercise period (for the purpose, the date or each such date on which the Share Options are to vest being hereinafter referred to as a “Vesting Date”):

The 30,800,000 share options (including the Share Option granted to Mr. Chau Kwok Keung) shall be subject to a vesting period as followings:

Vesting Date	Percentage of Share Options to vest
31 March 2014	50% of the total number of Share Options granted
30 June 2014	12.5% of the total number of Share Options granted
30 September 2014	12.5% of the total number of Share Options granted
31 December 2014	12.5% of the total number of Share Options granted
31 March 2015	12.5% of the total number of Share Options granted

Interim Report 2017 31

Corporate Governance and Other Information

The remaining 4,850,000 share options shall be subject to a vesting period as followings:

Vesting Date Percentage of Share Options to vest 31 March 2014 1/3 of the total number of options granted 30 June 2014 1/12 of the total number of options granted 30 September 2014 1/12 of the total number of options granted 31 December 2014 1/12 of the total number of options granted 31 March 2015 1/12 of the total number of options granted 30 June 2015 1/12 of the total number of options granted 30 September 2015 1/12 of the total number of options granted 31 December 2015 1/12 of the total number of options granted 31 March 2016 1/12 of the total number of options granted

(6) Share options granted under the Share Option Scheme on 11 May 2015 shall vest in the grantees in accordance with the timetable below with a 10-year exercise period (for this purpose, the date or each such date on which the share options are to vest being hereinafter referred to as a “Vesting Date”):

Vesting Date Percentage of Share Options to vest 11 May 2015 50% of the total number of Share Options granted 11 August 2015 12.5% of the total number of Share Options granted 11 November 2015 12.5% of the total number of Share Options granted 11 February 2016 12.5% of the total number of Share Options granted 11 May 2016 12.5% of the total number of Share Options granted

(7) Share options granted under the Share Option Scheme on 26 June 2015 shall vest in the grantees in accordance with the timetable below with a 10-year exercise period (for this purpose, the date or each such date on which the share options are to vest being hereinafter referred to as a “Vesting Date”):

Vesting Date Percentage of Share Options to vest 26 June 2015 50% of the total number of Share Options granted 26 September 2015 12.5% of the total number of Share Options granted 26 December 2015 12.5% of the total number of Share Options granted 26 March 2016 12.5% of the total number of Share Options granted 26 June 2016 12.5% of the total number of Share Options granted

(8) Share options granted under the Share Option Scheme on 25 November 2015 shall vest in the grantees in accordance with the timetable below with a 10-year exercise period (for this purpose, the date or each such date on which the share options are to vest being hereinafter referred to as a “Vesting Date”):

Vesting Date Percentage of Share Options to vest 25 November 2015 50% of the total number of Share Options granted 25 February 2016 12.5% of the total number of Share Options granted 25 May 2016 12.5% of the total number of Share Options granted 25 August 2016 12.5% of the total number of Share Options granted 25 November 2016 12.5% of the total number of Share Options granted

32 Comtec Solar Systems Group Limited

Corporate Governance and Other Information

(9) Share options granted under the Share Option Scheme on 9 September 2016 shall vest in the grantees in accordance with the timetable below with a 10-year exercise period (for this purpose, the date or each such date on which the share options are to vest being hereinafter referred to as a “Vesting Date”):

Vesting Date	Percentage of Share Options to vest
9 September 2016	50% of the total number of Share Options granted
9 December 2016	12.5% of the total number of Share Options granted
9 March 2017	12.5% of the total number of Share Options granted
9 June 2017	12.5% of the total number of Share Options granted
9 September 2017	12.5% of the total number of Share Options granted

(10) Share options granted under the Share Option Scheme on 2 May 2017 shall vest in the grantees in accordance with the timetable below with a 10-year exercise period (for this purpose, the date or each such date on which the share options are to vest being hereinafter referred to as a “Vesting Date”):

The 17,800,000 Share Options (including the Share Options granted to the Directors) shall be subject to a vesting period as followings:

Vesting Date	Percentage of Share Options to vest
2 August 2017	12.5% of the total number of Share Options granted
2 November 2017	12.5% of the total number of Share Options granted
2 February 2018	12.5% of the total number of Share Options granted
2 May 2018	12.5% of the total number of Share Options granted
2 August 2018	12.5% of the total number of Share Options granted
2 November 2018	12.5% of the total number of Share Options granted
2 February 2019	12.5% of the total number of Share Options granted
2 May 2019	12.5% of the total number of Share Options granted

The remaining 10,400,000 Share Options shall be subject to a vesting period as followings:

Vesting Date	Percentage of Share Options to vest
2 May 2017	50% of the total number of Share Options granted
2 August 2017	12.5% of the total number of Share Options granted
2 November 2017	12.5% of the total number of Share Options granted
2 February 2018	12.5% of the total number of Share Options granted
2 May 2018	12.5% of the total number of Share Options granted

(11) Mr. Daniel DeWitt Martin resigned as an independent non-executive Director on 19 April 2017.

Further details of the Pre-IPO Share Option Scheme and the Share Option Scheme are set out in note 24 to the financial statements.

Interim Report 2017 33

Report on Review of Condensed Consolidated Financial Statements

TO THE MEMBERS OF COMTEC SOLAR SYSTEMS GROUP LIMITED

(Incorporated in the Cayman Islands with limited liability)

INTRODUCTION

We have reviewed the condensed consolidated financial statements of Comtec Solar Systems Group Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 35 to 78, which comprise the condensed consolidated statement of financial position as of 30 June 2017 and the related condensed consolidated statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the six-month period then ended, and certain explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and International Accounting Standard 34 “Interim Financial Reporting” (“IAS 34”) issued by the International accounting Standards Board. The directors of the Company are responsible for the preparation and presentation of these condensed consolidated financial statements in accordance with IAS 34. Our responsibility is to express a conclusion on these condensed consolidated financial statements based on our review, and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

SCOPE OF REVIEW

We conducted our review in accordance with International Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the International accounting Standards Board. A review of these condensed consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly we do not express an audit opinion.

CONCLUSION

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34.

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong 30 August 2017

34 Comtec Solar Systems Group Limited

Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income

for the six months ended 30 June 2017

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

Six months ended 30 June
2017 2016
NOTES RMB’000 RMB’000
(Unaudited) (Unaudited)
Revenue 5 314,193 491,149
Cost of sales and services (278,323) (460,086)
Gross profit 35,870 31,063
Other income 6 25,281 2,917
Other gains and losses 7 12,397 (3,118)
Distribution and selling expenses (6,560) (9,091)
Administrative expenses (38,954) (23,426)
Finance costs 8 (8,278) (5,045)
Profit (loss) before taxation 9 19,756 (6,700)
Taxation 10 (11,632) 295
Profit (loss) and total comprehensive income (expense) for the period 8,124 (6,405)
Profit (loss) and total comprehensive income (expense) for the
period attributable to
Owners of the Company 8,783 (6,405)
–
Non-controlling interests (659)
8,124 (6,405)
RMB cents RMB cents
Profit (loss) per share
— Basic 12 0.57 (0.46)
— Diluted 12 0.49 (0.46)
----- End of picture text -----

Interim Report 2017 35

Condensed Consolidated Statement of Financial Position

at 30 June 2017

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

30 June 31 December
2017 2016
NOTES RMB’000 RMB’000
(Unaudited) (Audited)
Non-current assets
Property, plant and equipment 13 216,224 208,314
Prepaid lease payments-non-current 22,234 22,510
Goodwill 14 99,281 60,256
Intangible assets 15 71,774 63,050
Deposits paid for acquisition of property, plant and equipment 13 1,546 1,106
411,059 355,236
Current assets
Inventories 72,449 191,082
Trade and other receivables 16 222,797 151,585
Bills receivable 16 6,161 10,826
Advance to suppliers 17 117,473 117,131
Prepaid lease payments-current 551 551
Prepaid assignment fee 18 166,190 166,190
Short-term bank deposits 21,580 126,637
Bank balances and cash 39,527 82,130
646,728 846,132
Assets classified as held for sale 19 – 160,638
646,728 1,006,770
Current liabilities
Trade and other payables 20 213,496 408,892
Customers’ deposits received 18 225,638 237,668
Short-term bank loans 21 231,283 388,364
Tax liabilities 13,190 309
Deferred revenue-current 287 287
Contingent consideration payables-current 22 9,884 –
693,778 1,035,520
Net current liabilities (47,050) (28,750)
Total assets less current liabilities 364,009 326,486
----- End of picture text -----

36 Comtec Solar Systems Group Limited

Condensed Consolidated Statement of Financial Position

at 30 June 2017

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

30 June 31 December
2017 2016
NOTES RMB’000 RMB’000
(Unaudited) (Audited)
Capital and reserves
Share capital 23 1,333 1,333
Reserves 284,076 208,738
Non-controlling interests 8,163 –
Total equity 293,572 210,071
Non-current liabilities
Deferred tax liabilities 19,444 18,283
Deferred revenue-non-current 4,154 4,297
Contingent consideration payables-non-current 22 46,839 93,835
70,437 116,415
364,009 326,486
----- End of picture text -----

Interim Report 2017 37

Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 June 2017

At 1 January 2016 (Audited) Loss and total comprehensive expense for the period Recognition of equity-settled share- based payments At 30 June 2016 (Unaudited) At 1 January 2017 (Audited) Profit (loss) and total comprehensive income (expense) for the period Recognition of equity-settled share- based payments Effect on finalization of earn-out arrangements , to be settled in future by way of issuance of equity (Note 22) Capital contribution from non-controlling interests At 30 June 2017 (Unaudited)	Share Capital Share Premium Share Options Reserve Special Reserve Surplus Reserve Other Reserve Retained Earnings Sub-Total Non- Controlling Interests Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 1,205 1,317,003 86,217 11,012 84,583 – (363,108) 1,136,912 – 1,136,912 – – – – – – (6,405) (6,405) – (6,405) – – 1,526 – – – – 1,526 – 1,526
	1,205 1,317,003 87,743 11,012 84,583 – (369,513) 1,132,033 – 1,132,033

	1,333 1,374,735 108,586 11,012 84,583 – (1,370,178) 210,071 – 210,071
	– – – – – – 8,783 8,783 (659) 8,124
	– – 1,475 – – – – 1,475 – 1,475
	– – – – – 65,080 – 65,080 – 65,080
	– – – – – – – – 8,822 8,822

	1,333 1,374,735 110,061 11,012 84,583 65,080 (1,361,395) 285,409 8,163 293,572

38 Comtec Solar Systems Group Limited

Condensed Consolidated Statement of Cash Flows

for the six months ended 30 June 2017

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

Six months ended 30 June
2017 2016
RMB’000 RMB’000
(Unaudited) (Unaudited)
Operating activities
Profit (loss) before taxation 19,756 (6,700)
Adjustments for:
Interest income (174) (1,609)
Interest expense 8,278 5,045
Depreciation of property, plant and equipment 10,719 30,433
(Gain) loss on disposal of property, plant and equipment (2,185) 13
(Gain) loss on disposal of assets held for sale 2,445 (81)
–
Amortization of intangible assets 9,296
–
Gain on fair value change of contingent consideration payables (17,282)
Release of deferred revenue (143) (143)
Share-based payment expenses 1,475 1,526
Release of prepaid lease payments 275 415
Utilization of allowance for advance to suppliers (1,369) (45,409)
Operating cash flows before movements in working capital 31,091 (16,510)
Decrease (increase) in inventories 118,633 (19,826)
(Increase) decrease in trade and other receivables (6,657) 59,328
Decrease (increase) in bills receivable 4,665 (5,483)
Decrease in advance to suppliers 1,027 44,617
–
Decrease in prepaid assignment fee 9,356
Decrease in trade and other payables (184,347) (5,206)
Decrease in customers’ deposits received (12,030) (2,854)
Cash (used in) generated from operations (47,618) 63,422
Tax paid (563) (125)
Net cash (used in) generated from operating activities (48,181) 63,297
----- End of picture text -----

Interim Report 2017 39

Condensed Consolidated Statement of Cash Flows

for the six months ended 30 June 2017

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

Six months ended 30 June
2017 2016
RMB’000 RMB’000
(Unaudited) (Unaudited)
Investing activities
Withdrawal of pledged bank deposits 105,089 171,084
–
Proceeds from disposal of assets held for sale 93,638
–
Additions of prepaid lease payments (5,228)
Interest received 174 1,609
Additions to and deposits paid for acquisition of property,
plant and equipment (27,932) (18,987)
Placement of pledged bank deposits (32) (117,377)
Net cash generated from investing activities 170,937 31,101
Financing activities
Bank loans raised 120,404 275,846
Interest paid (8,278) (5,045)
Repayment of bank loans (277,485) (353,750)
Net cash used in financing activities (165,359) (82,949)
(Decrease) increase in cash and cash equivalents (42,603) 11,449
Cash and cash equivalents at beginning of the period 82,130 49,715
Cash and cash equivalents at end of the period,
represented by bank balances and cash 39,527 61,164
----- End of picture text -----

40 Comtec Solar Systems Group Limited

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

1. GENERAL

The Company is a public limited company incorporated in the Cayman Islands and its shares were listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) on 30 October 2009. Its parent company and ultimate holding company is Fonty Holdings Limited, a company incorporated in the British Virgin Islands with limited liability. Its ultimate controlling party is Mr. John Yi Zhang (“Mr. Zhang”).

The Company and its subsidiaries are principally engaged in research, production and sales of efficient monocrystalline products and the provision of consulting services for investment, development, construction and operation of solar photovoltaic power stations.

2. BASIS OF PREPARATION

The condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting” issued by the International Accounting Standards Board as well as with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The Group had a working capital deficit (total consolidated current liabilities exceeded total consolidated current assets) of RMB47 million although a net assets of RMB294 million are maintained as of 30 June 2017. These factors initially raised doubt as to the Group’s ability to continue as a going concern. However, the Group has developed and implemented the following liquidity plans:

While there can be no assurance that the Group will be able to refinance its short-term bank loans as they become due, historically, the Group has been able to roll over or obtain replacement borrowings from existing credit for most of its short-term bank loans upon the maturity of the loans. The Group has assumed it will continue to be able to do so for the foreseeable future.
In late July 2017, the Company had secured approximately HK$76.1 million of additional capital by way of issuing 309 million of new shares in the Company to new investors.
The Group is continually adopting strict control of operating and investing activities.

Based on the business forecast, secured additional capital, refinanced short-term bank loans and the liquidity plan, the accompanying condensed consolidated financial statements have been prepared assuming the Group will continue as a going concern.

Interim Report 2017 41

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

3. PRINCIPAL ACCOUNTING POLICIES

The accounting policies and methods of computation used in the condensed consolidated financial statements for the six months ended 30 June 2017 are the same as those followed in the preparation of the Group’s annual financial statements for the year ended 31 December 2016.

In the current interim period, the Group has applied, for the first time, certain amendments to International Financial Reporting Standards (“IFRSs”) that are mandatorily effective for the current interim period.

The application of the amendments to IFRSs in the current interim period has had no material effect on the amounts reported in these condensed consolidated financial statements and/or disclosures set out in these condensed consolidated financial statements.

4. SEGMENT INFORMATION

Information reported to the Group’s Chief Executive, being the Group’s chief operating decision maker, for the purpose of making decisions about allocating resources and assessing performance, focuses on the products and services delivered or provided.

The Group’s reportable and operating segments are as follows:

i. Upstream — Production and sales of efficient mono-crystalline products, trading of solar products and provision of processing services for solar products.
ii. Downstream — Provision of consulting services for investment, development, construction and operation of solar photovoltaic power stations.

42 Comtec Solar Systems Group Limited

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

4. SEGMENT INFORMATION (continued)

Segment revenues and results

	Upstream Downstream	Total
	RMB’000 RMB’000	RMB’000
	(Unaudited) (Unaudited)	(Unaudited)
For the six months ended 30 June 2017: Revenue Cost of sales and services Segment profit Other income Other gains and losses Distribution and selling expenses Administrative expenses Finance costs Profit before taxation

	274,737 39,456	314,193
	(277,652) (671)	(278,323)

	(2,915) 38,785	35,870

		25,281
		12,397
		(6,560)
		(38,954)
		(8,278)

		19,756

	Upstream Downstream	Total
	RMB’000 RMB’000	RMB’000
	(Unaudited) (Unaudited)	(Unaudited)
For the six months ended 30 June 2016: Revenue Cost of sales and services Segment profit Other income Other gains and losses Distribution and selling expenses Administrative expenses Finance costs Loss before taxation	491,149 – (460,086) –	491,149 (460,086)
	31,063 –	31,063
		2,917 (3,118) (9,091) (23,426) (5,045)
		(6,700)

Interim Report 2017 43

for the six months ended 30 June 2017

Notes to the Condensed Consolidated Financial Statements

4. SEGMENT INFORMATION (continued)

Segment revenues and results (continued)

The accounting policies of the operating segments are similar to those of the Group’s accounting policies. Segment profit represents the profit earned by each segment without allocation of other income, other gains and losses, distribution and selling expenses, administrative expenses and finance costs. This is the measure reported to the Group’s chief operating decision maker for the purposes of resource allocation and performance assessment.

No analysis of segment assets and liabilities are presented as it is not regularly reviewed by the Group’s chief operating decision maker.

5. REVENUE

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

Six months ended 30 June
2017 2016
RMB’000 RMB’000
(Unaudited) (Unaudited)
Manufacturing and sales of solar products:
Monocrystalline solar wafers 134,622 228,394
Monocrystalline solar ingots 33,681 290
168,303 228,684
Trading of solar products:
Monocrystalline silicon 65,295 257,668
–
Monocrystalline silicon solar cells 34,138
Others 7,001 3,008
106,434 260,676
Provision of services:
–
Processing services for solar products 1,789
Consulting services for investment, development, construction of
–
operation of solar photovoltaic power stations 39,456
39,456 1,789
Total revenue 314,193 491,149
----- End of picture text -----

44 Comtec Solar Systems Group Limited

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

6. OTHER INCOME

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

Six months ended 30 June
2017 2016
RMB’000 RMB’000
(Unaudited) (Unaudited)
Government grants (Note) 24,813 1,308
Interest income 174 1,609
Others 294 –
25,281 2,917
----- End of picture text -----

Note: The amounts mainly represent the local government grants to encourage activities carried out by the Group in business of solar photovoltaic power station and high-technology advancement. No specific conditions were attached to the grants.

7. OTHER GAINS AND LOSSES

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

Six months ended 30 June
2017 2016
RMB’000 RMB’000
(Unaudited) (Unaudited)
Net foreign exchange losses (4,625) (4,095)
Bad debt recovered – 909
Gain (loss) on disposal of property, plant and equipment 2,185 (13)
(Loss) gain on disposal of assets held for sale (2,445) 81
Gain on fair value changes of contingent
–
consideration payables (Note 22) 17,282
12,397 (3,118)
----- End of picture text -----

Interim Report 2017 45

for the six months ended 30 June 2017

Notes to the Condensed Consolidated Financial Statements

8. FINANCE COSTS

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

Six months ended 30 June
2017 2016
RMB’000 RMB’000
(Unaudited) (Unaudited)
Interest expense in relation to bank loans
wholly repayable within five years 8,521 10,430
Less: amounts capitalized in the cost of qualifying assets (243) (5,385)
8,278 5,045
----- End of picture text -----

9. PROFIT (LOSS) BEFORE TAXATION

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

Six months ended 30 June
2017 2016
RMB’000 RMB’000
(Unaudited) (Unaudited)
Profit (loss) before taxation has been arrived at after charging:
Cost of inventories recognized as expense 277,652 460,086
Depreciation of property, plant and equipment 10,719 30,433
Release of prepaid lease payments 275 415
–
Amortization of intangible assets 9,296
Research and development expenses
(included in administrative expenses) 2,297 3,713
Operating lease rentals in respect of rented premises 1,729 1,116
----- End of picture text -----

46 Comtec Solar Systems Group Limited

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

10. TAXATION

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

Six months ended 30 June
2017 2016
RMB’000 RMB’000
(Unaudited) (Unaudited)
People’s Republic of China (the “PRC”) Enterprise Income Tax
— Tax (expense) credit for the current period (11,632) 295
----- End of picture text -----

Taxation arising in the PRC is recognised based on management’s best estimate of the average annual income tax rate expected for the full financial year. The estimated average annual tax rate used is 25% for the six months ended 30 June 2017 and 30 June 2016. There is no provision for Hong Kong Profits Tax since the Group entities incorporated in Hong Kong incurred tax losses for both periods. Withholding tax has been provided for based on the anticipated dividends to be distributed by PRC entities to non-PRC residents, if any.

11. DIVIDENDS

No dividends were paid, declared or proposed during the six months ended 30 June 2017 and 2016.

Interim Report 2017 47

for the six months ended 30 June 2017

Notes to the Condensed Consolidated Financial Statements

12. PROFIT (LOSS) PER SHARE

The calculation of basic and diluted profit (loss) per share attributable to the owners of the Company is based on the following data:

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

Six months ended 30 June
2017 2016
RMB’000 RMB’000
(Unaudited) (Unaudited)
Profit (Loss)
Profit (loss) for the period attributable to owners of the Company
for the purpose of basic loss per share 8,783 (6,405)
Number of shares
Weighted average number of ordinary shares for the purpose of
basic earnings per share 1,546,513,056 1,391,861,750
Effect of dilutive potential ordinary shares
Dilution effect on potential ordinary shares resulting from
–
earn-out arrangements 241,781,172
Weighted average number of ordinary shares for the purpose of
diluted earnings per share 1,788,294,228 1,391,861,750
----- End of picture text -----

Certain outstanding share options of the Company have not been included in the computation of diluted earnings per share as they did not have a dilutive effect on the Company’s profit (loss) per share for the six months ended 30 June 2017 and 30 June 2016 since their exercise prices were higher than the average market prices of the Company or they will increase the profit or decrease the loss per share of the Company.

13. DEPOSITS PAID FOR AND PURCHASES OF PROPERTY, PLANT AND EQUIPMENT

During the period, the Group spent approximately RMB27,932,000 (six months ended 30 June 2016: RMB18,987,000) on deposits paid for and purchases of property, plant and equipment.

48 Comtec Solar Systems Group Limited

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

14. GOODWILL

The movement of goodwill is as follows:

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

30 June 31 December
2017 2016
RMB’000 RMB’000
(Unaudited) (Audited)
COST
–
At the beginning of the period/year 60,256
Arising on acquisition of subsidiaries (Note 27) 39,025 60,256
At the end of the period/year 99,281 60,256
----- End of picture text -----

The carrying amounts of goodwill as at 30 June 2017 and 31 December 2016 are as follows:

==> picture [447 x 162] intentionally omitted <==

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

30 June 31 December
2017 2016
RMB’000 RMB’000
(Unaudited) (Audited)
–
Forum (Asia) Limited 39,025
Comtec Renewable Energy Group Limited
(Formerly known as Joy Boy HK Limited) 60,256 60,256
99,281 60,256
----- End of picture text -----

For the purposes of impairment testing, the net carrying amount of the goodwill, which arose from the acquisitions of subsidiaries, has been allocated to the cash generating unit relating to downstream solar service business.

The recoverable amount of the cash-generating units was determined based on the value in use calculations separately covering respectively a 5.5 years and 6.5 years financial budget plan and the estimated terminal value at the end of the relative financial budget period as prepared by the Group’s management. There are a number of key assumptions and estimates involved in the preparation of the cash flow projection for the period covered by the Group’s management prepared financial budget plans and the estimated terminal values, as follows:

Interim Report 2017 49

for the six months ended 30 June 2017

Notes to the Condensed Consolidated Financial Statements

14. GOODWILL (continued)

Revenue — The basis used to determine the value assigned to the budgeted revenue is based on contracts which have been concluded or under negotiation and are expected to be finalized in the coming year, and adopted compound annual growth rate of revenue around 15–26% in the forecasted revenues in its budget plans from 2017 to 2022 and from 2017 to 2023 for each of the business acquisitions.

Budgeted gross margins — The basis used to determine the value assigned to the budgeted gross margins is based on analysis of the related industries. The budgeted gross margin keeps from 28% to 70% in budget plans from 2017 to 2022 and from 2017 to 2023 for each of the business acquisitions.

Discount rate — The discount rate used is before tax and reflects specific risks relating to the relevant industry.

Based on the impairment testing conducted, the directors of the Company are of the view that no impairment loss against the goodwill was considered necessary as at 30 June 2017.

15. INTANGIBLE ASSETS

==> picture [447 x 51] intentionally omitted <==

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

Cooperative Non-compete Franchise
agreement agreement relationship Backlog Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
----- End of picture text -----

COST At 1 January 2017 Additions At 30 June 2017 AMORTIZATION At 1 January 2017 Provided for the period At 30 June 2017 CARRYING VALUES At 30 June 2017 At 1 December 2016	51,500 11,550 – – 63,050 – 11,150 5,899 971 18,020
	51,500 22,700 5,899 971 81,070
	– – – – – 6,438 1,736 819 303 9,296
	6,438 1,736 819 303 9,296
	45,062 20,964 5,080 668 71,774
	51,500 11,550 – – 63,050

50 Comtec Solar Systems Group Limited

for the six months ended 30 June 2017

Notes to the Condensed Consolidated Financial Statements

16. TRADE AND OTHER RECEIVABLES/BILLS RECEIVABLE

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

30 June 31 December
2017 2016
RMB’000 RMB’000
(Unaudited) (Audited)
Trade receivables 93,061 100,679
Write off of allowance (6,060) (4,260)
Less: allowance for doubtful debts – (5,151)
87,001 91,268
Unbilled revenue (note) 22,000 –
Utility deposits 2,164 3,798
Value-added-tax recoverable 39,244 43,242
Other receivables and prepayments 7,833 13,277
Other receivables in relation to disposal of
assets classified as held for sale 64,555 –
222,797 151,585
Bills receivable 6,161 10,826
----- End of picture text -----

Note: The Group primarily earns services revenue by providing consulting services for investment, development, construction and operation of solar photovoltaic power stations. The duration of the consulting contracts normally range from a few months to a year. The Group recognizes such revenue upon finalization and acceptance of the services from its customers. The excess of amount of revenue recognized over the amount billed on a particular contract is included in trade and other receivables as unbilled revenue.

Interim Report 2017 51

for the six months ended 30 June 2017

Notes to the Condensed Consolidated Financial Statements

16. TRADE AND OTHER RECEIVABLES/BILLS RECEIVABLE (continued)

The Group requests prepayment from customers before delivery of goods and/or services and allows a credit period of 7 to 180 days on a case-by-case basis. The following is an aging analysis of trade receivables net of allowance for doubtful debts, presented based on invoice date (excluding the unbilled revenue) at the end of the reporting period, which approximated the respective revenue recognition dates:

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

30 June 31 December
2017 2016
RMB’000 RMB’000
(Unaudited) (Audited)
Age
0 to 30 days 18,942 21,872
31 to 60 days 17,345 3,189
61 to 90 days 3,247 810
91 to 180 days 1,530 2,556
Over 180 days 45,937 62,841
87,001 91,268
----- End of picture text -----

The following is an aging analysis of bills receivable presented based on invoice date at the end of the reporting period:

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

30 June 31 December
2017 2016
RMB’000 RMB’000
(Unaudited) (Audited)
Age
0 to 30 days 700 2,126
31 to 60 days 5,411 4,250
–
61 to 90 days 3,450
91 to 180 days 50 1,000
6,161 10,826
----- End of picture text -----

52 Comtec Solar Systems Group Limited

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

17. ADVANCE TO SUPPLIERS/PROVISION FOR ONEROUS CONTRACTS

In prior years, in order to secure a stable supply of raw materials, the Group has entered into several noncancellable purchase agreements with two major suppliers, independent parties not related to the Group, whereby the Group committed a “take or pay” obligation to purchase the minimum annual quantity of raw materials, mainly polysilicon virgins (to be used in the manufacture of its products) at pre-determined prices over the contractual periods up to 2018 (can be extended to 2021 with prior written notice to the supplier). According to the terms of these agreements, the Group were required to made upfront advances to these suppliers. The advances are unsecured, interest-free and non-refundable but could be utilised to reduce the invoice amount of purchases up to those agreed minimum annual quantities. Therefore, at the end of each reporting period, the directors of the Company estimate the amount of advances that is expected to be settled by the offset of the purchases of the agreed contract quantity in the next twelve months and classify it as current asset at the end of each reporting period. The remaining balance is classified as non-current asset in the condensed consolidated statement of financial position. In early 2016, the Group has reached into agreements with the two major suppliers, of which one has unconditionally agreed to waive the term relating to minimum annual quantity and pre-determined purchase price and the other has unconditionally agreed to reduce the pre-determined purchase price for the forthcoming purchases. As the remaining supplier contract containing pre-determined purchase price has duly expired at the beginning of 2017, the Group no longer maintained any supplier contracts with onerous contract provision as at the end of the current reporting period.

Interim Report 2017 53

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

17. ADVANCE TO SUPPLIERS/PROVISION FOR ONEROUS CONTRACTS (continued)

The Group has periodically performed an analysis of the sufficiency of impairment recognised in respect of advance to suppliers and provision for onerous contracts, due to volatility of the solar industry which the Group is engaged in. The analysis has made reference to the Group’s budgeted annualised production capacity, the Group’s product mix, recent market demand for the Group’s products, updated forecasted selling prices of the products that reflected current market assessments; and the Group’s committed delivery of solar products including terms governed the take or pay supply agreements referred above, etc. Based on such analysis, the Group recognised impairment provision/onerous contracts provision, which represented expected losses to be suffered or future payments that the Group is presently obliged to make under the above-mentioned noncancellable take or pay agreements, after taking into account the revenue expected to be earned and costs to be incurred in production over the contractual periods, and the movement of which are as follow:

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

Provision for
impairment on Provision for
advance to onerous
suppliers contracts Total
RMB’000 RMB’000 RMB’000
----- End of picture text -----

At 1 January 2016 Utilise At 30 June 2016 Utilise Provision At 31 December 2016 Utilise* At 30 June 2017	95,690 – 95,690 (45,049) – (45,049)
	50,641 – 50,641 (50,641) – (50,641) 1,369 – 1,369
	1,369 – 1,369 (1,369) – (1,369)
	– – –

the provision was utilised as a reduction of cost of sales on disposal of the excessive polysilicon virgins which were purchased from the above suppliers and in turn resold to the free market.

54 Comtec Solar Systems Group Limited

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

17. ADVANCE TO SUPPLIERS/PROVISION FOR ONEROUS CONTRACTS (continued)

The balance of advance to suppliers are analysed as follows:

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

30 June 31 December
2017 2016
RMB’000 RMB’000
(Unaudited) (Audited)
Gross amounts 117,473 118,500
Provision – (1,369)
117,473 117,131
Less: Amounts recoverable within one year
shown under current assets (117,473) (117,131)
Amounts shown under non-current assets – –
----- End of picture text -----

18. PREPAID ASSIGNMENT FEE/CUSTOMERS’ DEPOSITS RECEIVED

On 27 December 2013, a wholly-owned subsidiary of the Company, namely Comtec Solar (Hong Kong) Limited (“Comtec Solar HK”), entered into a wafer supply agreement (the “Wafer Supply Agreement”) with Mission Solar Energy LLC, a Delaware limited liability company (“Mission”) which is an independent third party, pursuant to which Comtec Solar HK will supply solar wafers with capacity of approximately 500MW to Mission from June 2014 to July 2017 at pre-determined delivery schedule and supply price.

In addition, Mission paid non-refundable deposits of USD35 million (equivalent to approximately RMB213,391,000) to Comtec Solar HK which will be used to offset the related consideration payable from June 2014 to July 2017 upon delivery of the solar wafers under the Wafer Supply Agreement. As a result, the Group recognised such deposits as customers’ deposits received in the condensed consolidated statement of financial position. At each reporting date, the directors of the Company estimate the amount of advances that is expected to be settled by the offset of the sales of the agreed contract quantity in the next twelve months and classify it as current liability. The remaining balance is classified as non-current liability in the condensed consolidated statement of financial position. In early 2016, Comtec Solar HK has reached into an agreement with Mission under which neither parties under the Wafer Supply Agreement shall be bounded by the predetermined delivery schedule and supply price terms for the forthcoming supply/purchase. As the revised delivery schedule has not been reached as to the date of this financial statements, the full amount of the deposit received from Mission is classified as current liabilities as of 30 June 2017 and 31 December 2016.

Interim Report 2017 55

for the six months ended 30 June 2017

Notes to the Condensed Consolidated Financial Statements

18. PREPAID ASSIGNMENT FEE/CUSTOMERS’ DEPOSITS RECEIVED (continued)

Carrying amounts of customers’ deposits represent:

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

30 June 31 December
2017 2016
RMB’000 RMB’000
(Unaudited) (Audited)
Mission 166,190 166,190
Others 59,448 71,478
225,638 237,668
----- End of picture text -----

Immediately before the conclusion of the Wafer Supply Agreement between Comtec Solar (HK) and Mission, Comtec Solar (HK) entered into an agreement with an independent third party (the “Assignor” or the former seller of Mission) and paid an amount of USD35 million (equivalent to approximately RMB213,391,000) to the Assignor as an assignment fee that Comtec Solar (HK) assumed obligations as seller and the Assignor assigned its rights to Comtec Solar (HK) under the Wafer Supply Agreement over the relevant contractual period.

The Group recognised such prepaid assignment fee in the condensed consolidated statement of financial position. At 30 June 2017 and 31 December 2016, the directors of the Company estimate that the full amount of prepaid assignment fee can be utilized in the next twelve months from the reporting date so the entire prepaid assignment fee is classified as current asset.

19. ASSETS CLASSIFIED AS HELD FOR SALE

On 30 December 2016, the Group entered into an agreement (the “Asset Transfer Agreement”) with an independent third party, pursuant to which certain assets of the Group maintained in Malaysia comprising property, plant and equipment and prepaid lease payments with a total net book value of approximately RMB499,955,000 will be disposed of for a cash consideration of approximately RMB200,000,000. The directors of the Company estimate the cost of disposal of such assets is approximately RMB39,362,000 and therefore the Group provides a total impairment of RMB339,317,000 against the assets classified as held for sales as at 31 December 2016. The disposal was duly completed on 8 June 2017.

56 Comtec Solar Systems Group Limited

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

20. TRADE AND OTHER PAYABLES

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

30 June 31 December
2017 2016
RMB’000 RMB’000
(Unaudited) (Audited)
Trade payables 173,685 255,509
Payables for acquisition of property, plant and equipment 20,880 31,927
Provision for termination costs for termination of
–
Malaysian plant under construction (note) 88,269
Other payables and accrued charges 18,931 33,187
213,496 408,892
----- End of picture text -----

Note: In relation to the disposal of Malaysia plant under construction as disclosed in note 19, a provision of approximately RMB88,269,000 in respect of retrenchment expenses to lay off Malaysian staffing and compensations to two utility suppliers is made in relation to the termination of the Malaysian plant under construction.

The following is an aging analysis of trade payables presented based on the invoice date at the end of each reporting period.

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

30 June 31 December
2017 2016
RMB’000 RMB’000
(Unaudited) (Audited)
Age
0 to 30 days 39,438 63,548
31 to 60 days 9,419 28,767
61 to 90 days 10,133 14,752
91 to 180 days 9,353 16,910
Over 180 days 105,342 131,532
173,685 255,509
----- End of picture text -----

The average credit period on purchases of goods is 30 days to 90 days and certain suppliers grant a longer credit period on a case-by-case basis.

Interim Report 2017 57

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

21. BANK LOANS

==> picture [447 x 258] intentionally omitted <==

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

30 June 31 December
2017 2016
RMB’000 RMB’000
(Unaudited) (Audited)
Bank loans
— secured 231,283 335,976
— unsecured – 52,388
231,283 388,364
Carrying amounts repayable:
Within one year 231,283 388,364
Less: Amounts due within one year shown under current liabilities (231,283) (388,364)
Amounts shown under non-current liabilities – –
----- End of picture text -----

The loans carry interest at variable market rates ranging from 1.75% to 4.79% (six months ended 30 June 2016: 1.69% to 5.67%) per annum.

58 Comtec Solar Systems Group Limited

for the six months ended 30 June 2017

Notes to the Condensed Consolidated Financial Statements

22. CONTINGENT CONSIDERATION PAYABLES

The movement of the contingent consideration payables is analysed as:

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

30 June 31 December
2017 2016
RMB’000 RMB’000
(Unaudited) (Audited)
–
At the beginning of the period/year 93,835
Recognized from business acquisitions 45,250 93,835
–
Change in fair value (17,282)
At the end of the period/year 121,803 93,835
–
Reclassified to equity (65,080)
56,723 93,835
Analyzed as:
–
Current portion 9,884
Non-current portion 46,839 93,835
56,723 93,835
----- End of picture text -----

The contingent consideration arose from the issue of ordinary shares of the Company on earn-out basis in relation to the business acquisitions. The contingent consideration is classified as a financial instrument (financial liability at fair value through profit or loss) and recognized in the condensed consolidated statement of financial position at fair value. The fair value of the contingent consideration at the date of initial recognition and as at 30 June 2017 are based on the valuation performed by the change of the price of share and the exchange rate of HKD/RMB.

As of 30 June 2017, the contingent consideration payables in which earn-out has been met is reclassified to equity as the number of the Company’s shares to be issued within 60 business days after 30 June 2017 to satisfy the first installment of acquisitions of Comtec Renewable Energy Group Limited (formerly known as Joy Boy HK Limited) and Forum (Asia) Limited is fixed to be 241,887,913.

Interim Report 2017 59

for the six months ended 30 June 2017

Notes to the Condensed Consolidated Financial Statements

23. SHARE CAPITAL

The share capital of the Group represented the issued and fully paid share capital of the Company.

==> picture [447 x 412] intentionally omitted <==

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

Number of
Authorised: shares Amount
HKD’000
Ordinary shares
Ordinary shares of HKD0.001 each at 1 January 2016,
31 December 2016 and 30 June 2017 7,600,000,000 7,600
Number of
Issued and fully paid: shares Amount
HKD’000
Ordinary shares
Ordinary shares at 1 January 2016 1,391,861,750 1,393
Issue of shares (note 1) 154,651,306 154
Ordinary shares at 31 December 2016 and 30 June 2017 1,546,513,056 1,547
30 June 31 December
2017 2016
RMB’000 RMB’000
(Unaudited) (Audited)
Presented as RMB:
Ordinary shares 1,333 1,333
----- End of picture text -----

Note:

(1) On 8 August 2016, the Company allotted 154,651,306 ordinary shares of HK$0.001 each for a cash consideration of HK$0.45 per share to independent third parties not related to the Group.

All the shares issued by the Company ranked pari passu with the existing shares in all respects.

60 Comtec Solar Systems Group Limited

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

24. SHARE-BASED COMPENSATION

(A) Pre-IPO Share Option Scheme

Set out below are the details of movements of the outstanding options granted under the Pre-IPO Share Option Scheme during the six months ended 30 June 2017 and 30 June 2016:

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

Number of options
Outstanding
as at
1 January 2016,
30 June 2016 Exercised Forfeited Outstanding
and during during Lapsed as at
1 January 2017 the period the period in the period 30 June 2017
Directors:
– – –
Mr. Leung Ming Shu (“Mr. Leung”) 62,787 62,787
– – –
Mr. Daniel Dewitt Martin (note) 199,659 199,659
– – –
Mr. Kang Sun (“Mr. Kang”) 249,574 249,574
– – –
512,020 512,020
Exercisable at the end of the period 512,020 512,020
Weighted average exercise price (HK$) 2.510 2.510
----- End of picture text -----

The number of share options under the Pre-IPO Share Option Scheme exercisable at HKD2.51 per share as at 1 January 2016, 30 June 2016, 1 January 2017 and 30 June 2017 were 512,020.

Note: Mr. Daniel Dewitt Martin resigned as a director of the Company during the current reporting period.

At 30 June 2017, the number of shares in respect of which options under the Pre-IPO Share Option Scheme remained outstanding was 512,020 (30 June 2016: 512,020), representing 0.03% (30 June 2016: 0.04%) of the shares of the Company in issue at that date. The Company did not recognise any expense in relation to the share options under the Pre-IPO Share Option Scheme during the six months ended 30 June 2017 and 30 June 2016 since the share options were fully vested in the prior period.

Interim Report 2017 61

for the six months ended 30 June 2017

Notes to the Condensed Consolidated Financial Statements

24. SHARE-BASED COMPENSATION (continued)

(B) Share Option Scheme

Set out below are the details of movements of the outstanding options granted under the Share Option Scheme during the six months ended 30 June 2017 and 30 June 2016:

Granted on 24 May 2010

==> picture [424 x 274] intentionally omitted <==

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

Number of options
Outstanding
as at
1 January 2016,
30 June 2016 Exercised Forfeited Outstanding
and during during Lapsed in as at
1 January 2017 the period the period the period 30 June 2017
Director:
Mr. Shi (note) 300,000 300,000
– – –
Employees 1,940,000 1,940,000
– – –
2,240,000 2,240,000
Exercisable at the end of the period 2,240,000 2,240,000
Weighted average exercise price (HK$) 1.490 1.490
----- End of picture text -----

At 30 June 2017, the number of shares in respect of which options granted on 24 May 2010 under the Share Option Scheme remained outstanding was 2,240,000 (30 June 2016: 2,240,000), representing 0.14% (30 June 2016: 0.16%) of the shares of the Company in issue at that date.

Note: Mr. Shi Chen Qi (“Mr. Shi”) retired as a director of the Company on 23 May 2016.

62 Comtec Solar Systems Group Limited

for the six months ended 30 June 2017

Notes to the Condensed Consolidated Financial Statements

24. SHARE-BASED COMPENSATION (continued)

(B) Share Option Scheme (continued)

Granted on 28 June 2012

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

Number of options
Outstanding
as at
1 January 2016,
30 June 2016 Exercised Forfeited Outstanding
and during during Lapsed in as at
1 January 2017 the period the period the period 30 June 2017
Director:
– – –
Mr. Zhang 5,000,000 5,000,000
Mr. Chau Kwok Keung
– – –
(“Mr. Chau”) 228,000 228,000
– – –
Employees 3,506,000 3,506,000
Consultants 50,000 – – – 50,000
– – –
8,784,000 8,784,000
Exercisable at the end of
the period 8,784,000 8,784,000
Weighted average exercise
price (HK$) 0.980 0.980
----- End of picture text -----

At 30 June 2017, the number of shares in respect of which options granted on 28 June 2012 under the Share Option Scheme remained outstanding was 8,784,000 (30 June 2016: 8,784,000), representing 0.57% (30 June 2016: 0.63%) of the shares of the Company in issue at that date.

Interim Report 2017 63

for the six months ended 30 June 2017

Notes to the Condensed Consolidated Financial Statements

24. SHARE-BASED COMPENSATION (continued)

(B) Share Option Scheme (continued)

Granted on 27 December 2012

==> picture [424 x 349] intentionally omitted <==

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

Number of options
Outstanding
as at
1 January 2016,
30 June 2016 Exercised Forfeited Outstanding
and during during Lapsed in as at
1 January 2017 the period the period the period 30 June 2017
Director:
– – –
Mr. Leung 300,000 300,000
Mr. Daniel Dewitt Martin 300,000 – – – 300,000
– – –
Mr. Kang 300,000 300,000
– – –
Employees 600,000 600,000
Consultants 6,038,000 – – – 6,038,000
– – –
7,538,000 7,538,000
Exercisable at the end of
the period 7,538,000 7,538,000
Weighted average exercise
price (HK$) 1.262 1.262
----- End of picture text -----

At 30 June 2017, the number of shares in respect of which options granted on 27 December 2012 under the Share Option Scheme remained outstanding was 7,538,000 (30 June 2016: 7,538,000), representing 0.49% (30 June 2016: 0.54%) of the shares of the Company in issue at that date.

64 Comtec Solar Systems Group Limited

for the six months ended 30 June 2017

Notes to the Condensed Consolidated Financial Statements

24. SHARE-BASED COMPENSATION (continued)

(B) Share Option Scheme (continued)

Granted on 30 September 2013

==> picture [424 x 210] intentionally omitted <==

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

Number of options
Outstanding
as at
1 January 2016,
30 June 2016 Issue Exercised Forfeited Outstanding
and during during during as at
1 January 2017 the period in the period the period 30 June 2017
Consultants 4,020,000 – – – 4,020,000
Exercisable at the end of the period 4,020,000 4,020,000
Weighted average exercise price (HK$) 1.870 1.870
----- End of picture text -----

At 30 June 2017, the number of shares in respect of which options granted on 30 September 2013 under the Share Option Scheme remained outstanding was 4,020,000 (30 June 2016: 4,020,000), representing 0.26% (30 June 2016: 0.29%) of the shares of the Company in issue at that date.

Interim Report 2017 65

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

24. SHARE-BASED COMPENSATION (continued)

(B) Share Option Scheme (continued)

Granted on 31 March 2014

For the six months ended 30 June 2017

==> picture [424 x 244] intentionally omitted <==

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

Number of options
Outstanding Exercised Forfeited Outstanding
as at during during Lapsed as at
1 January 2017 the period the period in the period 30 June 2017
Director:
Mr. Chau 13,000,000 – – – 13,000,000
– – –
Employees 4,850,000 4,850,000
Consultants 17,800,000 – – – 17,800,000
– – –
35,650,000 35,650,000
Exercisable at the end of the period 35,650,000 35,650,000
Weighted average exercise price (HK$) 1.386 1.386
----- End of picture text -----

66 Comtec Solar Systems Group Limited

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

24. SHARE-BASED COMPENSATION (continued)

(B) Share Option Scheme (continued)

Granted on 31 March 2014 (continued)

For the six months ended 30 June 2016

==> picture [424 x 66] intentionally omitted <==

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

Number of options
Outstanding Exercised Forfeited Outstanding
as at during during Lapsed as at
1 January 2016 the period the period in the period 30 June 2016
----- End of picture text -----

Director: Mr. Chau Employees Consultants Exercisable at the end of the period Weighted average exercise price (HK$)	13,000,000 – – – 4,850,000 – – – 17,800,000 – – –	13,000,000 4,850,000 17,800,000
	35,650,000 – – –	35,650,000
	34,787,500 1.386	35,650,000
		1.386

At 30 June 2017, the number of shares in respect of which options granted on 31 March 2014 under the Share Option Scheme remained outstanding was 35,650,000 (30 June 2016: 35,650,000), representing 2.31% (30 June 2016: 2.56%) of the shares of the Company in issue at that date.

Interim Report 2017 67

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

24. SHARE-BASED COMPENSATION (continued)

(B) Share Option Scheme (continued)

Granted on 11 May 2015

For the six months ended 30 June 2017

==> picture [424 x 244] intentionally omitted <==

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

Number of options
Outstanding Issue Exercised Forfeited Outstanding
as at during during during as at
1 January 2017 the period the period the period 30 June 2017
Director:
Mr. Shi 600,000 – – – 600,000
– – –
Employees 10,200,000 10,200,000
Consultants 49,000,000 – – – 49,000,000
– – –
59,800,000 59,800,000
Exercisable at the end of the period 59,800,000 59,800,000
Weighted average exercise price (HK$) 1.390 1.390
----- End of picture text -----

68 Comtec Solar Systems Group Limited

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

24. SHARE-BASED COMPENSATION (continued)

(B) Share Option Scheme (continued)

Granted on 11 May 2015 (continued)

For the six months ended 30 June 2016

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

Number of options
Outstanding Issue Exercised Forfeited Outstanding
as at during during during as at
1 January 2016 the period the period the period 30 June 2016
----- End of picture text -----

Director: Mr. Shi Employees Consultants Exercisable at the end of the period Weighted average exercise price (HK$)	600,000 – – – 10,200,000 – – – 49,000,000 – – –	600,000 10,200,000 49,000,000
	59,800,000 – – –	59,800,000
	47,341,666 1.390	59,800,000
		1.390

At 30 June 2017, the number of shares in respect of which options granted on 11 May 2015 under the Share Option Scheme remained outstanding was 59,800,000 (30 June 2016: 59,800,000), representing 3.87% (30 June 2016: 4.30%) of the shares of the Company in issue at that date.

Interim Report 2017 69

for the six months ended 30 June 2017

Notes to the Condensed Consolidated Financial Statements

24. SHARE-BASED COMPENSATION (continued)

(B) Share Option Scheme (continued)

Granted on 26 June 2015

For the six months ended 30 June 2017

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

Number of options
Outstanding Issue Exercised Forfeited Outstanding
as at during during during as at
1 January 2017 the period the period the period 30 June 2017
Consultants 20,000,000 – – – 20,000,000
Exercisable at the end of the period 20,000,000 20,000,000
Weighted average exercise price (HK$) 1.500 1.500
----- End of picture text -----

For the six months ended 30 June 2016

	Number of options
	Outstanding Issue Exercised Forfeited	Outstanding
	as at during during during	as at
	1 January 2016 the period the period the period	30 June 2016
Consultants Exercisable at the end of the period Weighted average exercise price (HK$)	20,000,000 – – –	20,000,000
	15,000,000 1.500	20,000,000
		1.500

At 30 June 2017, the number of shares in respect of which options granted on 26 June 2015 under the Share Option Scheme remained outstanding was 20,000,000 (30 June 2016: 20,000,000), representing 1.29% (30 June 2016: 1.44%) of the shares of the Company in issue at that date.

70 Comtec Solar Systems Group Limited

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

24. SHARE-BASED COMPENSATION (continued)

(B) Share Option Scheme (continued)

Granted on 25 November 2015

For the six months ended 30 June 2017

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

Number of options
Outstanding Issue Exercised Forfeited Outstanding
as at during during during as at
1 January 2017 the period the period the period 30 June 2017
Consultants 59,000,000 – – – 59,000,000
Exercisable at the end of the period 59,000,000 59,000,000
Weighted average exercise price (HK$) 0.736 0.736
----- End of picture text -----

For the six months ended 30 June 2016

	Number of options
	Outstanding Issue Exercised Forfeited	Outstanding
	as at during during during	as at
	1 January 2016 the period the period the period	30 June 2016
Consultants Exercisable at the end of the period Weighted average exercise price (HK$)	59,000,000 – – –	59,000,000
	31,958,333 0.736	41,791,667
		0.736

At 30 June 2017, the number of shares in respect of which options granted on 25 November 2015 under the Share Option Scheme remained outstanding was 59,000,000 (30 June 2016: 59,000,000), representing 3.82% (30 June 2016: 4.24%) of the shares of the Company in issue at that date.

Interim Report 2017 71

for the six months ended 30 June 2017

Notes to the Condensed Consolidated Financial Statements

24. SHARE-BASED COMPENSATION (continued)

(B) Share Option Scheme (continued)

Granted on 9 September 2016

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

Number of options
Outstanding Issue Exercised Forfeited Outstanding
as at during during during as at
1 January 2017 the year the year the year 30 June 2017
Consultants 89,000,000 – – – 89,000,000
Exercisable at the end of the period 55,625,000 77,875,000
Weighted average exercise price (HK$) 0.560 0.560
----- End of picture text -----

At 30 June 2017, the number of shares in respect of which options granted on 9 September 2016 under the Share Option Scheme remained outstanding were 89,000,000, representing 5.75% of the shares of the Company in issue at that date.

Granted on 2 May 2017

Pursuant to a board resolution passed on 2 May 2017, the Company granted 28,200,000 share options of the Company, which respectively represent 1.82% of the shares of the Company in issue at the grant date, to directors, employees and consultants of the Company under the Share Option Scheme. Set out below are details of the outstanding options granted under the Share Option Scheme on 2 May 2017:

The options granted are at an exercise price of HK$0.335 per share and might only be exercised in the following manner:

(i) Half of the share options for consultants vested and exercisable on date of grant; and
(ii) The remaining share options for consultants and options for employees and directors will have oneeighth to be vested every three months since the date of grant.

72 Comtec Solar Systems Group Limited

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

24. SHARE-BASED COMPENSATION (continued)

(B) Share Option Scheme (continued)

Granted on 2 May 2017 (continued)

Set out below are details of movements of the outstanding options granted under the Share Option Scheme on 2 May 2017 during the six months ended 30 June 2017:

For the six months ended 30 June 2017

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

Number of options
Outstanding Issue Exercised Forfeited Outstanding
as at during during during as at
1 January 2017 the period the period the period 30 June 2017
Director:
– – –
Mr. Zhang Zhen 1,500,000 1,500,000
– – –
Chau Kwok Keung 1,500,000 1,500,000
– – –
Leung Ming Shu 200,000 200,000
– – –
Kang Sun 200,000 200,000
– – –
Xu Er Ming 200,000 200,000
– – –
Wang Yi Xing 200,000 200,000
– – –
Employees 14,000,000 14,000,000
Consultants – 10,400,000 – – 10,400,000
– – –
28,200,000 28,200,000
–
Exercisable at the end of the period 5,200,000
Weighted average exercise price (HK$) – 0.335 0.335
----- End of picture text -----

At 30 June 2017, the number of shares in respect of which options granted on 2 May 2017 under the Share Option Scheme remained outstanding were 28,200,000, representing 1.82% of the shares of the Company in issue at that date.

Interim Report 2017 73

for the six months ended 30 June 2017

Notes to the Condensed Consolidated Financial Statements

24. SHARE-BASED COMPENSATION (continued)

(B) Share Option Scheme (continued)

Granted on 2 May 2017 (continued)

As of the grant date, the fair value of the share options granted on 2 May 2017 was HKD3,497,000 (HKD0.16 per share) and HKD1,703,000 (HKD0.16 per share) for employees/directors and consultants respectively.

==> picture [423 x 36] intentionally omitted <==

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

Employees/
Directors Consultants
----- End of picture text -----

Share price	HK$0.335	HK$0.335
Exercise price	HK$0.335	HK$0.335
Expected volatility	60.00%	60.00%
Expected life	2.0	1.0
Risk-free interest rate	1.45%	1.45%
Turnover Rate	5%	0%

The risk-free interest rate was based on the interpolated market yield of Hong Kong government bonds with maturities 24 February 2027 and 27 August 2027 as of the option grant date. Expected volatility was determined by using the historical volatility of the Company’s share prices. The suboptimal exercise multiple used in the model represents the estimated ratio of future share price over the exercise price when the grantees will exercise the options and has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioral considerations. Changes in variables and assumptions may result in changes in the fair values of the share options.

The Group recognized an expense of approximately RMB1,475,000 (2016: RMB1,526,000) for the period ended 30 June 2017 in relation to the share options granted by the Company under the Share Option Scheme.

74 Comtec Solar Systems Group Limited

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

25. PLEDGE OF ASSETS

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

30 June 31 December
2017 2016
RMB’000 RMB’000
(Unaudited) (Audited)
Prepaid lease payments 22,785 23,061
Property, plant and equipment 133,361 137,817
Pledged bank deposits 21,580 125,972
177,726 286,850
----- End of picture text -----

26. RELATED PARTY TRANSACTIONS

The remuneration of directors and other members of key management personnel during the period were as follows:

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

Six months ended 30 June
2017 2016
RMB’000 RMB’000
(Unaudited) (Unaudited)
Basic salaries and allowances 3,597 2,762
Retirement benefit scheme contributions 94 75
Share-based payments – 608
3,691 3,445
----- End of picture text -----

The remuneration of directors and key management personnel is determined by the remuneration committee of the Company having regard to the performance of the individuals and market trends.

Interim Report 2017 75

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

27. BUSINESS COMBINATIONS

On 14 November 2016, the Company entered into a sale and purchase agreement with independent third parties not related to the Group, pursuant to which the Company agreed to acquire 51% of the issued share capital of Forum (Asia) Limited at a total maximum consideration of RMB52.02 million. The maximum consideration payable by the Company shall be calculated by reference to the targeted consolidated profit before taxation of Forum (Asia) Limited and its subsidiaries. The consideration is to be satisfied by the Company by allotting and issuing new shares to the vendors as follows:

First Instalment Maximum Consideration × (Profit Before Tax for the six-month period ending 30 June 2017) ÷ RMB58,000,000
Second Instalment Maximum Consideration × (Profit Before Tax for the twelve-month period ending 31 December 2017) ÷ RMB58,000,000 – the First Instalment
Third Instalment Maximum Consideration × (Profit Before Tax for the eighteen-month period ending 30 June 2018) ÷ RMB58,000,000 – the First Instalment – the Second Instalment
Fourth Instalment Maximum Consideration × (Profit Before Tax for the twenty-four month period ending 31 December 2018) ÷ RMB58,000,000 – the First Instalment – the Second Instalment – the Third Instalment
Fifth Instalment Maximum Consideration × (Profit Before Tax for the thirty-month period ending 30 June 2019) ÷ RMB58,000,000 – the First Instalment – the Second Instalment – the Third Instalment – the Fourth Instalment
Sixth Instalment Maximum Consideration × (Profit Before Tax for the thirty-six month period ending 31 December 2019) ÷ RMB58,000,000 – the First Instalment – the Second Instalment – the Third Instalment – the Fourth Instalment – the Fifth Instalment

The total numbers of the Company’s shares to be issued to satisfy the maximum consideration is 166,479,449, which is determined HK$0.355 per share.

The acquisition was completed on 1 March 2017. Full details of this acquisition is disclosed in a circular of the Company dated 1 March 2017.

76 Comtec Solar Systems Group Limited

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

27. BUSINESS COMBINATIONS (continued)

The provisional fair values of the identifiable assets and liabilities of Forum (Asia) Limited as at the date of acquisition were as follows:

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

RMB’000
----- End of picture text -----

Cash Franchise relationship Backlog Non-compete agreement Deferred tax liability Total identifiable assets and liabilities Less: non-controlling interests Goodwill Satisfied by: Contingent consideration payables, represents issue of ordinary shares of the Company on earn-out basis Cash paid	1,000 5,899 971 11,150 (2,974)
	16,046 (8,821) 39,025
	46,250
	45,250 1,000
	46,250

Goodwill arose in the acquisition of Forum (Asia) Limited because the consideration for the combination effectively included amounts in relation to the future business growth of Forum (Asia) Limited. These benefits are not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the goodwill arising on the above acquisition is expected to be deductible for the tax purposes.

Interim Report 2017 77

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2017

28. SUBSEQUENT EVENTS

On 13 July 2017, the Company entered into a subscription agreement with an independent third party (“Subscriber A”) pursuant to which Subscriber A has conditionally agreed to subscribe for 118,389,897 new shares of the Company at a subscription price of HK$0.2534 per share. On 20 July 217, all the subscription shares have been allotted and issued to the Subscriber A. The net proceeds from the subscription (after deducting related professional fees and related expenses) are approximately HK$29.2 million.

On 21 July 2017, the Company entered into another subscription agreement with another independent third party (“Subscriber B”) pursuant to which Subscriber B has conditionally agreed to subscribe for 190,912,714 new shares of the Company at a subscription price of HK$0.25 per share. The net proceeds from the subscription (after deducting related professional fees and related expenses) are expected to be approximately HK$46.9 million. Such share subscription has yet been completed as of the date of issuance of the condensed consolidated financial statements.

78 Comtec Solar Systems Group Limited

Definitions

In this report, unless the context otherwise requires, the following terms shall have the following meanings:

“Board” or “Board of Directors”	the board of Directors
“Company”	Comtec Solar Systems Group Limited
“Corporate Governance Code”	Code on corporate governance practices contained in Appendix 14 to the
	Listing Rules
“Directors(s)”	the director(s) of the Company
“Euro”	the lawful currency of the eurozone
“Fonty”	Fonty Holdings Limited
“Group”	the Company and its subsidiaries
“HKD” or “HK$” and “HK cent(s)”	Hong Kong dollars and cents respectively, the lawful currency of Hong
	Kong
“Hong Kong”	The Hong Kong Special Administrative Region of the PRC
“Listing Date”	the date on which dealing in the Shares first commences on the main
	board of the Stock Exchange
“Listing Rules”	The Rules Governing the Listing of Securities on the Hong Kong Stock
	Exchange
“Model Code”	Model code for Securities Transactions by Directors of Listed Issuers
	contained in Appendix 10 to the Listing Rules
“MW”	megawatt, which equals 106Watt
“Period”	the six months ended 30 June 2017
“Photovoltaic” or “PV”	the field of technology and research related to the application of solar
	cells for energy by converting solar energy (sunlight, including ultra violet
	radiation) directly into electricity (solar electricity)
“PRC” or “China”	The People’s Republic of China

Interim Report 2017 79

Definitions

“RMB”	Renminbi, the lawful currency of the PRC
“Share(s)”	Ordinary share(s) of HK$0.001 each in the share capital of the Company
“Shareholder(s)”	Shareholder(s) of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“USD”	United States dollars, the lawful currency of the United States of America
“%”	per cent

80 Comtec Solar Systems Group Limited

AI assistant

Comtec Solar Systems Group Limited — Interim / Quarterly Report 2017

49415_rns_2017-09-20_023473ef-4f83-4287-9f65-7000f15416e6.pdf

Contents

Corporate Information

DIRECTORS

Executive Directors

CORPORATE GOVERNANCE COMMITTEE

SIGNIFICANT PAYMENTS COMMITTEE

Non-executive Director

Independent non-executive Directors

COMPANY SECRETARY

REGISTERED OFFICE

HEADQUARTER

AUTHORISED REPRESENTATIVES

AUDIT COMMITTEE

NOMINATION COMMITTEE

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

COMPANY’S WEBSITE

REMUNERATION COMMITTEE

AUDITOR

LEGAL ADVISERS AS TO HONG KONG LAW

PRINCIPAL BANKS

CAYMAN ISLANDS PRINCIPAL SHARE

REGISTRAR AND TRANSFER OFFICE

HONG KONG SHARE REGISTRAR

RESULTS

ASSETS AND LIABILITIES

DISPOSAL OF ASSETS IN MALAYSIA

COOPERATION WITH LUOYANG TOURISM DEVELOPMENT

COOPERATION WITH ADMINISTRATIVE COMMITTEE OF WUXI HUISHAN ECONOMIC DEVELOPMENT ZONE

ACQUISITION OF FORUM (ASIA)

COOPERATION WITH FUZHOU SWIRE COCA COLA

COOPERATION WITH ISDN HOLDINGS

ACQUISITION OF KEXIN

John Yi Zhang

Chairman

DISPOSAL OF ASSETS IN MALAYSIA

COOPERATION WITH LUOYANG TOURISM DEVELOPMENT

COOPERATION WITH ADMINISTRATIVE COMMITTEE OF WUXI HUISHAN ECONOMIC DEVELOPMENT ZONE

ACQUISITION OF FORUM (ASIA)

COOPERATION WITH FUZHOU SWIRE COCA COLA

COOPERATION WITH ISDN HOLDINGS

ACQUISITION OF KEXIN

REVENUE

Sales of 125 mm by 125 mm monocrystalline solar wafers

Sales of 156 mm by 156 mm monocrystalline solar wafers

Project development service income

Processing services income

Others

REVENUE BY GEOGRAPHICAL MARKET

COST OF SALES AND SERVICES

GROSS PROFIT

OTHER INCOME

OTHER GAINS AND LOSSES

DISTRIBUTION AND SELLING EXPENSES

ADMINISTRATIVE AND GENERAL EXPENSES

INTEREST EXPENSES

PROFIT (LOSS) BEFORE TAXATION

TAXATION

PROFIT (LOSS) FOR THE PERIOD

INTERIM DIVIDEND

INVENTORY TURNOVER DAYS

TRADE RECEIVABLE TURNOVER DAYS

TRADE PAYABLE TURNOVER DAYS

LIQUIDITY AND FINANCIAL RESOURCES

CAPITAL COMMITMENTS

CONTINGENT LIABILITIES

RELATED PARTY TRANSACTIONS

CHARGES ON GROUP ASSETS

ACQUISITION OF SUBSIDIARIES

DISPOSAL OF ASSETS OF A SUBSIDIARY

USE OF PROCEEDS

HUMAN RESOURCES

DETAILS OF THE FUTURE INVESTMENT PLANS FOR MATERIAL INVESTMENT

EXPOSURE TO FLUCTUATIONS IN EXCHANGE RATES AND ANY RELATED HEDGES

IMPORTANT EVENTS AFTER THE PERIOD

Share Subscriptions

Issue of Consideration Shares

Cooperation with ISDN Holdings

Comtec Solar Systems Group Limited Interim / Quarterly Report 2017