THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Union Asia Enterprise Holdings Limited, you should at once hand this circular, together with the accompanying form of proxy to the purchaser or the transferee, or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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

The issuance of this circular does not necessarily mean that trading in the Shares will be resumed and/or listing of the Consideration Shares, the Capitalisation Shares, the Offer Shares and/or the Creditors Shares will be approved by the Stock Exchange. The Company will make separate announcement(s) in respect of the resumption of trading in the Shares.

UNION ASIA ENTERPRISE HOLDINGS LTD

萬亞企業控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 8173)

(1) PROPOSED RESTRUCTURING INVOLVING, INTER ALIA, PROPOSED CAPITAL REORGANISATION, PROPOSED SHARE OFFER, CREDITORS SCHEMES, ACQUISITION, PROVISION OF INVESTOR LOAN AND INVESTOR LOAN CAPITALISATION;

(2) VERY SUBSTANTIAL ACQUISITION, REVERSE TAKEOVER INVOLVING NEW LISTING APPLICATION, AND CONNECTED TRANSACTION, IN RELATION TO THE ACQUISITION UNDER THE PROPOSED RESTRUCTURING;

(3) VERY SUBSTANTIAL DISPOSAL IN RELATION TO THE DISPOSAL OF ALL ASSETS AND LIABILITIES OF THE COMPANY TO THE SCHEME SPC UNDER THE CREDITORS SCHEMES;

(4) APPLICATION FOR WHITEWASH WAIVER IN RELATION TO ISSUE OF CONSIDERATION SHARES UNDER THE ACQUISITION AGREEMENT AND CAPITALISATION SHARES UNDER THE INVESTOR LOAN AGREEMENT;

(5) SPECIAL DEAL IN RELATION TO THE REPAYMENT OF OUTSTANDING INDERTEENESS TO ONE OF THE CREDITORS UNDER THE CREDITORS SCHEMES;

(6) ISSUE OF OFFER SHARES, CREDITORS SHARES, CONSIDERATION SHARES AND CAPITALISATION SHARES UNDER A SPECIFIC MANDATE;

(7) PROPOSED APPOINTMENT OF DIRECTORS;

(8) PROPOSED ADOPTION OF THE AMENDED AND RESTATED MEMORANDUM AND ARTICLES OF ASSOCIATION;

AND

(9) NOTICE OF EGM

Sponsor to the deemed new listing application of the Company

MESSIS 大有融資

Financial Adviser to the Company

OPTIMA

Optima Capital Limited

Underwriter

KINGSTON SECURITIES

Financial Adviser to Mr. Norman Chan

VEDA CAPITAL

智略资本

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

Nuada Limited

Unless the context otherwise requires, all capitalised terms used on this cover have the meanings set out in the section headed "Definitions" in this circular.

A notice convening the EGM to be held at 11:30 a.m. on Monday, 24 June 2019 at Room 302, 3/F., Pico Tower, 66 Gloucester Road, Wanchai, Hong Kong or any adjournment thereof is set out on pages EGM-1 to EGM-7 of this circular. A proxy form for use in the EGM is enclosed. Whether or not you intend to attend the meeting, you are requested to complete the enclosed proxy form in accordance with the instructions printed thereon and return the same to the Company's share registrar and transfer office in Hong Kong, Union Registrars Limited at Suites 3301-04, 33/F, Two Chinachem Exchange Square, 338 King's Road, North Point, Hong Kong, as soon as possible and in any event not later than 48 hours before the time appointed for holding of the EGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

29 May 2019

CHARACTERISTICS OF GEM

GEM has been positioned as a market designed to accommodate small and mid-sized companies to which a higher investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration.

Given that the companies listed on GEM are generally small and mid-sized companies, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the main board of the Stock Exchange and no assurance is given that there will be a liquid market in the securities traded on GEM.

CONTENTS

Page

Expected timetable ... iv
Summary ... 1
Definitions ... 19
Forward-looking statements ... 33
Risk factors ... 35
Directors, senior management and parties involved ... 45
Corporate information of the Company ... 50
Letter from the Board ... 53
Letter from the Independent Board Committee ... 98
Letter from the Independent Financial Adviser ... 100
History and background of the Target Group ... 139
Business of the Target Group ... 147
Connected transactions ... 178
Directors and senior management of the Restructured Group ... 180
Relationship with the Controlling Shareholders ... 196
Waiver from strict compliance with the GEM Listing Rules ... 201
Financial information of the Target Group ... 203
Share capital ... 259

CONTENTS

Page

Substantial shareholders. 263
Appendix I - Industry overview I-1
Appendix II - Regulatory overview II-1
Appendix III - Accountants' Report on historical financial information of the Target Group III-1
Appendix IV - Financial information of the Group. IV-1
Appendix V - Unaudited pro forma financial information of the Restructured Group V-1
Appendix VI - Profit estimate of the Target Group. VI-1
Appendix VII - Summary of the constitution of the Company and Cayman Islands Company Law VII-1
Appendix VIII - Statutory and general information. VIII-1
Appendix IX - Documents available for inspection IX-1
Notice of EGM. EGM-1

EXPECTED TIMETABLE

The following expected timetable is indicative only and is subject to change. If necessary, further announcement in relation to the revised timetable will be published as and when appropriate.

Latest time for lodging transfer of Shares to qualify for attendance and voting at the EGM. 4:00 p.m. on Monday, 17 June 2019

Closure of register of members of the Company for attendance and voting at the EGM (both dates inclusive) Tuesday, 18 June 2019 to Monday, 24 June 2019

Latest time for lodging proxy forms for the EGM. 11:30 a.m. on Saturday, 22 June 2019

Record date for the EGM Monday, 24 June 2019

Expected time and date of the EGM 11:30 a.m. on Monday, 24 June 2019

Announcement of results of the EGM Monday, 24 June 2019

Hong Kong Court hearing of petition to sanction the Creditors Schemes. Wednesday, 18 September 2019

Grand Court hearing of petition to sanction the Creditors Schemes. Tuesday, 24 September 2019

Expected effective date of the Capital Reorganisation (1) Monday, 21 October 2019 (Cayman Islands time) Tuesday, 22 October 2019 (Hong Kong time)

First day of free exchange of existing share certificate for New Shares Tuesday, 22 October 2019

Last day of dealings in the New Shares on cum-entitlement basis. Tuesday, 22 October 2019

First day of dealings in the New Shares on ex-entitlement basis. Wednesday, 23 October 2019

Latest time for lodging transfer of the New Shares in order to be qualified for the Assured Entitlement. 4:00 p.m. on Thursday, 24 October 2019

Closure of register of members of the Company for determining the eligibility of the Assured Entitlement (both dates inclusive) Friday, 25 October 2019 to Friday, 1 November 2019

Assured Entitlement Record Date Friday, 1 November 2019

Prospectus Documents posting date Monday, 4 November 2019

Application Lists open 11:45 a.m. Thursday, 7 November 2019

Latest time to lodge the Application Forms. 12:00 noon on Thursday, 7 November 2019

EXPECTED TIMETABLE

Latest time to give electronic application instruction to HKSCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12:00 noon on Thursday, 7 November 2019
Latest time to complete payment of HK eIPO White Form application of effecting internet banking transfer(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12:00 noon on Thursday, 7 November 2019
Application Lists closes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12:00 noon on Thursday, 7 November 2019
Announcement of results of allocations in the Share Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 13 November 2019
Despatch/collection of Share certificates in respect of wholly or partially successful applications pursuant to the Public Offer and the Preferential Offering on or before . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 13 November 2019
Despatch/collection of refund cheques in respect of wholly or partially unsuccessful applications pursuant to the Public Offer and the Preferential Offering on or before . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 13 November 2019
Latest time for termination of the Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 13 November 2019
Announcement of completion of the Acquisition and the Share Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 13 November 2019
Expected effective date of the Creditors Schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9:00 a.m. on Thursday, 14 November 2019
Last day of free exchange of existing share certificate for New Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 22 November 2019

Notes:

(1) The effective date of the Capital Reorganisation is conditional on the results of the EGM and the availability of, and confirmation of the Capital Reduction from, the Grand Court and therefore the date is tentative.
(2) All reference to times and dates in this circular are references to Hong Kong times and dates, unless otherwise specified.

CONTINGENCY FOR THE SHARE OFFER

The Application Lists will not open if there is:

a tropical cyclone warning signal number 8 or above; or
a "black" rainstorm warning,

in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Thursday, 7 November 2019. Instead they will open between 11:45 a.m. and 12:00 noon on the next Business Day which does not have either of those warnings in Hong Kong in force at any time between 9:00 a.m. and 12:00 noon.

If the Application Lists do not open and close on Thursday, 7 November 2019 or if there is a tropical cyclone warning signal number 8 or above or a "black" rainstorm warning signal in force in Hong Kong that may affect the dates mentioned above in this "Expected timetable", an announcement will be made in such event.

Dates and times specified in this circular are indicative only. Any changes to the expected timetable will be published or notified to the Shareholders as and when appropriate.

SUMMARY

This summary aims to give you an overview of the information contained in this circular. As this is a summary, it does not contain all the information that may be important to you. You should read this circular in its entirety before making a decision as to how you would cast your votes at the EGM in relation to, inter alia, the Proposed Restructuring and the appropriate course of action for yourself.

There are risks associated with any business. You should read the section headed "Risk factors" in this circular carefully before making a decision on, inter alia, the Proposed Restructuring.

BACKGROUND

References are made to (i) the announcements of the Company dated 2 December 2016, 6 December 2016, and 20 March 2017, in relation to, among other things, the decision of the Stock Exchange to proceed with cancellation of the Company's listing status; (ii) the announcements of the Company dated 9 November 2017, 10 November 2017, 21 December 2017, 22 January 2018, 22 February 2018, 23 March 2018, 4 April 2018, 4 May 2018, 4 June 2018, 28 June 2018, 29 June 2018, 1 August 2018, 31 August 2018, 2 October 2018, 2 November 2018, 3 December 2018, 31 December 2018, 31 January 2019, 28 February 2019, 28 March 2019 and 29 April 2019 in relation to, among other things, the Resumption Proposal; and (iii) the announcement of the Company dated 16 May 2019, in relation to, among other things, the proposed Share Offer, and certain other amendments on the Restructuring Framework Agreement, the Acquisition Agreement, the Investor Loan Agreement and the Creditors Schemes.

On 17 March 2017, the Stock Exchange notified the Company that the GEM Listing Committee, having considered all the submissions (both written and oral) made by the Company and the Listing Department of the Stock Exchange, the GEM Listing Committee considered that the Company had failed to maintain sufficient operations or assets under Rule 17.26 of the GEM Listing Rules to warrant the continued listing of the Shares. The GEM Listing Committee therefore decided to uphold the decision to suspend trading in the Shares under Rules 9.04 of the GEM Listing Rules and commenced the procedures to cancel the Company's listing under Rules 9.14 to 9.16 of the GEM Listing Rules.

Accordingly, trading in the Shares has been suspended since 20 March 2017 and the Company was required to submit a resumption proposal to demonstrate that it has a sufficient level of operations or assets as required by Rule 17.26 of the GEM Listing Rules at least 10 Business Days before the expiry of a period of six months from the date of the decision of the GEM Listing Committee (i.e. 17 September 2017).

On 15 September 2017, the Company submitted the Resumption Proposal to the Stock Exchange and entered into the Restructuring Framework Agreement with the Investor to set out the terms of the Proposed Restructuring comprising (i) the Capital Reorganisation; (ii) the Open Offer; (iii) the Creditors Schemes; and (iv) the Acquisition.

On 30 October 2017, the Stock Exchange approved the Resumption Proposal and agreed to allow the Company to submit a new listing application relating to the Resumption Proposal on or before 8 January 2018. Subsequently, the Company had applied for, and the Stock Exchange had granted, extension of time to the Company to submit the new listing application relating to the Resumption Proposal on or before 29 June 2018. On 29 June 2018, the Company submitted the new listing application.

SUMMARY

The Restructuring Framework Agreement dated 15 September 2017 (as supplemented and amended on 9 November 2017 and 28 June 2018, respectively), the Acquisition Agreement dated 15 September 2017 (as supplemented and amended on 9 November 2017 and 28 June 2018, respectively), the Investor Loan Agreement dated 5 December 2017 and the underwriting agreement in respect of the Open Offer dated 28 June 2018 had been subsequently amended in various occasions in response to the changes in market conditions and the developments of the negotiations between the Company, the Investor and other parties to the Resumption Proposal with a view to addressing the concerns raised by the regulators during the vetting process of the draft circular.

(i) the Capital Reorganisation comprising the Share Premium Cancellation, the Share Consolidation, the Capital Reduction, the Unissued Share Capital Cancellation and the Authorised Share Capital Increase;

(ii) the Share Offer of a total of 227,679,850 Offer Shares for subscription at the Offer Price (i.e. HK$0.19 per Offer Share) which will be fully underwritten by the Underwriter pursuant to the Underwriting Agreement:

Public Offer: a total of 113,839,925 Offer Shares (i.e. the Public Offer Shares) for subscription by members of the public; and
Preferential Offering: a total of 113,839,925 Offer Shares (i.e. the Reserved Shares) for subscription by the Qualifying Shareholders on assured basis;

(iii) the Creditors Schemes: the Creditors with the Claims admitted under the Creditors Schemes would be entitled to receive the Creditors Schemes Consideration of approximately HK$13.4 million, which is to be satisfied by way of allotment and issue of 70,331,984 New Shares (i.e. the Creditors Shares) at the issue price of HK$0.19 each and such other sums as may be realised by the Scheme Administrators from the Creditors Schemes Assets;

(iv) the Acquisition: the Company will acquire the entire issued share capital of the Target Company (i.e. the Sale Shares) for the Consideration of approximately HK$144.4 million which will be satisfied by way of allotment and issue of 760,000,000 Consideration Shares (representing approximately 62.2% of the Enlarged Issued Share Capital) to the Investor at the Issue Price of HK$0.19 each; and

(v) the provision of the Investor Loan and Investor Loan Capitalisation: the Investor agreed to provide the Investor Loan up to HK$23 million while up to approximately HK$18 million of which shall be settled by the allotment and issue of the Capitalisation Shares of up to 94,736,842 New Shares (representing approximately 7.8% of the Enlarged Issued Share Capital) at the issue price of HK$0.19 each and the remaining HK$5 million and the interest of 5.5% per annum accrued on the amount of the Investor Loan in excess of approximately HK$18 million shall be settled in cash by proceeds from the Share Offer on the Repayment Date in the event that Completion takes place on the Repayment Date, but fully settled in cash in the event that Completion does not take place on the Repayment Date.

On 4 January 2019, the Company re-submitted a new listing application, and on 24 May 2019, the Stock Exchange has granted the approval-in-principle in relation to the new listing application.

As at the Latest Practicable Date, the Company had received the CB Undertakings from all of the holders of the Convertible Bonds undertaking not to convert the Convertible Bonds up to Completion and undertaking to procure the transferee(s) to provide similar undertaking if they transfer the Convertible Bonds.

This circular is to provide the Shareholders with further information in connection with the Proposed Restructuring including, among other things, (i) the Capital Reorganisation; (ii) the Share Offer; (iii) the Creditors Schemes; (iv) the Acquisition; (v) the Investor Loan Capitalisation; (vi) the Whitewash Waiver; (vii) the Special Deal; (viii) the appointment of the proposed Directors; (ix) the Adoption; (x) the recommendation of the Independent Board Committee to the Independent Shareholders; (xi) the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders; and (xii) a notice of the EGM. This circular also provides additional information on the Target Group as required under the GEM Listing Rules in connection with the new listing application.

SUMMARY

This circular is being provided to you solely for your consideration of the matters to be tabled at the EGM and is not intended to, and does not, constitute an offer to sell or an invitation to or a solicitation of an offer to subscribe or buy any Offer Shares in connection with the Share Offer or otherwise. Any such offer or solicitation will be made solely through a prospectus or offering circular in compliance with applicable laws and any decision to purchase or subscribe for the Offer Share in connection with the Share Offer or otherwise should be made solely on the basis of the information contained in the Prospectus. Other than in Hong Kong, no action has been or will be taken in any jurisdiction that would permit a public offering of the Offer Shares that may be offered in the Share Offer in any jurisdiction where action for that purpose is required.

Upon Completion, all existing assets of the Company will be transferred to the Scheme SPC and the sole asset of the Company will be the Target Group's business. According to the unaudited pro forma financial information of the Restructured Group as set out in the Appendix V to this circular, the unaudited pro forma adjusted consolidated revenue of the Restructured Group will be approximately HK$167.5 million, the unaudited pro forma adjusted consolidated profit before tax of the Restructured Group will be approximately HK$276.9 million and the unaudited pro forma adjusted consolidated assets of the Restructured Group will be approximately HK$101.3 million. The Board considers upon Completion, the Restructured Group will have a sufficient level of operations and assets for maintaining its listing status on the Stock Exchange. Dealing in the New Shares on the Stock Exchange is expected to resume on 14 November 2019.

The resumption of trading in the Shares on the Stock Exchange is on the condition that the Company is able to demonstrate sufficient level of operations and assets under the Rule 17.26 of the GEM Listing Rules. The Capital Reorganisation, the Share Offer, the Creditors Schemes, the Acquisition and the Investor Loan Capitalisation which form part and parcel of the Resumption Proposal, are inter-conditional upon each other.

INFORMATION ON THE TARGET GROUP

Principal business

The Target Group was established in 1995 and is principally engaged in provision of interior design services to premises including private residences, corporate offices, service apartments, hotels, residential clubhouses, show flats and sales galleries. As at the Latest Practicable Date, the Target Group was a well-established and renowned interior design firm in Hong Kong with a team of over 60 professional designers together with its senior management team who possess relevant experience ranging from 2 years to over 30 years. With over 20 years of experience in the interior design industry in Hong Kong, the Target Group has served over 50 customers including multinational companies and listed companies in Hong Kong.

The Target Group's interior design business is project-based. A typical interior design project covers (i) design stage; and (ii) project execution stage. The design stage can be further divided into (i) schematic design stage to formulate design proposal; (ii) design development stage to compose detail drawings with specifications; and (iii) tender stage to modify drawings and advise customers on selection of craftspeople and tender negotiations. After the design drawings are finalised, the Target Group will proceed to project execution stage where the Target Group will oversee the execution process of the project to ensure proper execution of the design in accordance with the drawings and specifications and meeting customer's requirement. Depending on the complexity of the project, the typical operation flow of the Target Group generally takes one to three year(s) to complete.

The table below sets forth the number of projects and revenue generated by types of projects during the Track Record Period:

Types of project	Average project duration (Note 2) (months)	2016			For the year ended 31 March 2017			2018			2017			For the eight months ended 30 November 2018
		Number of projects	Revenue recognised (HK$'000)	%	Number of projects	Revenue recognised (HK$'000)	%	Number of projects	Revenue recognised (HK$'000)	%	Number of projects	Revenue recognised (HK$'000) (unaudited)	%	Number of projects	Revenue recognised (HK$'000)	%

Residential (Note 1)	36	35	34,210	61	53	47,271	69	66	46,665	76	57	25,412	70	62	35,344	74
Commercial (Note 1)	20	11	8,687	16	16	10,115	15	17	8,925	14	17	6,311	17	13	5,592	12
Show flat, sales office/ gallery and others	8	40	12,770	23	30	10,706	16	26	6,250	10	22	4,639	13	22	6,501	14
Total		86	55,667	100	99	68,092	100	109	61,840	100	96	36,362	100	97	47,437	100

SUMMARY

Notes:
1. Residential projects were mainly interior design projects for private residences and residential clubhouses while commercial projects mainly represent interior design projects for hotels, offices, restaurants, bookstores and cinemas.
2. The average project duration takes into account both of (i) the actual project duration of completed projects during the Track Record Period; and (ii) the estimated average project duration of on-going projects based on the estimated completion dates of the projects.

History and development

The Target Group was founded in 1995 by Mr. Norman Chan, with the aim to provide modern architecture and contemporary design in Hong Kong. The philosophies of the Target Group are (i) to design with clarity and rigor, with understanding and sensitivity; (ii) to be intelligent, rational and authentic; and (iii) to be consistent from the germination of an idea through to the materialisation of the project. Under the mentioned philosophies, the leadership and effort of Mr. Norman Chan and other member of the management, the Target Group has developed, in a period of close to two decades, from a small studio to a team of over 60 design professionals. For further details on key milestones in the development of the Target Group, please refer to the paragraph headed "Business development and milestones" under the section headed "History and background of the Target Group" in this circular.

Management profile

The Target Group has management teams with experience in the interior design industry in Hong Kong. The Company believes that the Target Group's experienced and stable management team has contributed to the success of the Target Group and will further enhance the Target Group's execution capabilities.

With respect to pricing strategies, the contract price of projects is based on the Target Group's estimated project time cost plus a mark-up margin, which is in turn determined with reference to customers' acceptable range of service price based on past dealings and a number of other factors including the scale, complexity and specification of the project, the Target Group's capacity, project duration, the estimated project time cost, historical fee charged for similar project, the current fee level in the market and the competitive conditions.

Customers

Breakdown of revenue of the Target Group by contract size is as below:

	2016	For the year ended 31 March			2018	For the eight months ended 30 November
				2017				2017			2018
	Number of projects	Total contract sum (HK$'000)	Revenue recognised (HK$'000)	Number of projects	Total contract sum (HK$'000)	Revenue recognised (HK$'000)	Number of projects	Total contract sum (HK$'000)	Revenue recognised (HK$'000)	Number of projects	Total contract sum (HK$'000)	Revenue recognised (HK$'000)	Number of projects	Total contract sum (HK$'000)	Revenue recognised (HK$'000)
Less than HK$1 million	47	14,808	8,621	47	20,630	10,787	45	17,708	7,694	37	14,123	5,923	34	14,986	6,318
HK$1 million to HK$10 million	37	129,414	42,262	49	163,014	49,681	61	209,769	48,228	56	200,170	26,477	60	219,412	35,182
More than HK$10 million	2	23,030	4,784	3	34,530	7,624	3	34,530	5,918	3	34,530	3,962	3	34,530	5,937
	86	167,252	55,667	99	218,174	68,092	109	262,007	61,840	96	248,823	36,362	97	268,928	47,437

SUMMARY

Breakdowns of revenue by nature of the Target Group’s customers are as below:

Property developer vs. Non-property developer

Nature of customers	Number of customers with revenue contribution during Track Record Period	Number of projects carried out during Track Record Period	For the year ended 31 March					For the eight months ended 30 November
			2016		2017		2018	2017		2018
			HK$'000	%	HK$'000	%	HK$'000	%	HK$'000 (unaudited)	%	HK$'000
Property developer	32	165	50,672	91	57,194	84	55,921	90	32,336	89	44,050
Non-property developer	28	53	4,995	9	10,898	16	5,919	10	4,026	11	3,387
Total	60	218	55,667	100	68,092	100	61,840	100	36,362	100	47,437

Hong Kong/overseas listed company vs. Unlisted company/individual

Nature of customers	Number of customers with revenue contribution during Track Record Period	Number of projects carried out during Track Record Period	For the year ended 31 March					For the eight months ended 30 November
			2016		2017		2018	2017		2018
			HK$'000	%	HK$'000	%	HK$'000	%	HK$'000 (unaudited)	%	HK$'000
Hong Kong/overseas listed company	27	136	35,733	64	47,785	70	47,420	77	25,930	71	37,877
Unlisted company/individual	33	82	19,934	36	20,307	30	14,420	23	10,432	29	9,560
Total	60	218	55,667	100	68,092	100	61,840	100	36,362	100	47,437

SUMMARY

Corporate customer vs. Individual customer

Nature of customers	Number of customers with revenue contribution during Track Record Period	Number of projects carried out during Track Record Period	For the year ended 31 March			For the eight months ended 30 November
			2016 (HK$'000)	2017 %	2018 (HK$'000)	2017 %	2018 (unaudited)	%
Corporate customer	50	207	54,397	98	59,392	87	60,350	98
Individual customer (Note 1)	10	11	1,270	2	8,700	13	1,490	2
Total	60	218	55,667	100	68,092	100	61,840	100

Note:
1. Individual customers include natural persons and legal entities which engage the Target Group for interior design services for private residence.

Breakdown of revenue of the Target Group by geographical location of the properties is as below:

	2016			For the year ended 31 March			2017			2018
	Number of projects	Revenue recognised (HK$'000)	%	2017			2018			2017
				Number of projects	Revenue recognised (HK$'000)	%	Number of projects	Revenue recognised (HK$'000)	%	Number of projects	Revenue recognised (HK$'000)	%
Hong Kong	66	39,939	71.8	80	55,708	81.9	89	51,069	82.6	76	29,079	80.0
PRC and Macau	9	6,304	11.3	11	6,557	9.6	8	4,469	7.2	8	3,125	8.6
Others (Note 1)	11	9,424	16.9	8	5,827	8.5	12	6,302	10.2	12	4,158	11.4
Total	86	55,667	100.0	99	68,092	100.0	109	61,840	100.0	96	36,362	100.0

Note:
1. Others include Sri Lanka, Malaysia, the Philippines, Japan, Thailand and Singapore.

SUMMARY

The top five customers of the Target Group during the Track Record Period mainly include Hong Kong blue chip listed property developers, Hong Kong property developers and hotel operators, and generally have over five years of business relationship with the Target Group. The top five customers contributed approximately 59%, 58%, 51% and 56% of the Target Group's revenue for the three years ended 31 March 2016, 2017 and 2018 and the eight months ended 30 November 2018 respectively. The directors of the Target Company are of the view that such customer concentration is not uncommon for interior design firms that specialise in serving corporate clients in Hong Kong and the business model is sustainable after taking into consideration: (i) the property market in Hong Kong is dominated by a few renowned property developers; (ii) stable and well established business relationship with property developers; (iii) the Target Group has a solid customer base; and (iv) mutual and complementary reliance by customers of the Target Group.

Suppliers and subcontractors

The Target Group is principally engaged in provision of interior design services and does not have any raw material suppliers. The Target Group produced most of the design drawings by its own in-house professional designers during the Track Record Period. The subcontracting costs accounted for less than HK$1 million of the total cost of services of the Target Group for each of the three years ended 31 March 2018 and the eight months ended 30 November 2018.

COMPETITIVE LANDSCAPE OF THE TARGET GROUP

The interior design services market in Hong Kong is highly fragmented with over 1,000 market participants with no single market leader. Due to low barriers of entry, competition in the Hong Kong interior design services market is intense. For further information regarding the competitive landscape of the industry in which the Target Group operates, please refer to the section headed "Industry overview" in Appendix I to this circular.

COMPETITIVE STRENGTHS AND BUSINESS STRATEGIES OF THE TARGET GROUP

The directors of the Target Company believe that the success of the Target Group is attributable to, among other things, the following competitive strengths: (i) possessing a team of professional designers who can deliver quality works and a strong experienced management team; (ii) having a well established reputation in the interior design industry; (iii) maintaining stable and long term relationship with customers and craftspeople; and (iv) ability to monitor and coordinate contractors effectively and efficiently. Please refer to the paragraph headed "Competitive strengths" under the section headed "Business of the Target Group" in this circular for further details.

The Target Group's goals are to achieve sustainable growth and further strengthen its overall competitiveness and business growth in the interior design industry in Hong Kong, which is pursued by implementing the following strategies: (i) continue to strengthen and maintain the Target Group's market position in Hong Kong; (ii) enhance brand recognition and strengthen marketing effort; and (iii) continue to recruit talents and enhance internal training to support future growth. For further details, please refer to the paragraph headed "Business strategies" under the section headed "Business of the Target Group" in this circular.

SUMMARY

FINANCIAL INFORMATION OF THE TARGET GROUP

The table below sets forth selected information and analysis from the combined statements of profit or loss and other comprehensive income of the Target Group:

	For the year ended 31 March			For the eight months ended 30 November
	2016
HK$’000	2017
HK$’000	2018
HK$’000	2017
HK$’000
(unaudited)	2018
HK$’000
Revenue	55,667	68,092	61,840	36,362	47,437
Gross profit	34,301	41,715	35,243	19,195	28,170
Profit and total comprehensive income
for the year/period	15,681	21,161	16,475	8,325	11,745

During the Track Record Period, the Target Group mainly derived its revenue from the provision of interior design and execution services. Customers of the Target Group are mainly Hong Kong property developers and Hong Kong listed companies. For the three years ended 31 March 2018 and the eight months ended 30 November 2017 and 2018, the Target Group's revenue were approximately HK$55.7 million, HK$68.1 million, HK$61.8 million, HK$36.4 million and HK$47.4 million, respectively.

Revenue of the Target Group increased by approximately HK$12.4 million, from approximately HK$55.7 million for the year ended 31 March 2016 to approximately HK$68.1 million for the year ended 31 March 2017. Such increase was mainly attributable to the increase in number of interior design projects carried out by the Target Group, which increased from 86 for the year ended 31 March 2016 to 99 for the year ended 31 March 2017. Revenue decreased by approximately HK$6.3 million, from approximately HK$68.1 million for the year ended 31 March 2017 to approximately HK$61.8 million for the year ended 31 March 2018. The decrease was mainly as a result of decreased revenue contribution from two residential projects in Hong Kong for Customer A, which were both substantially complete during the year ended 31 March 2017. The two residential projects had contributed revenue of approximately HK$6.4 million during the year ended 31 March 2017, while only approximately HK$1.6 million of revenue was recognised from these two projects for the year ended 31 March 2018. For the eight months ended 30 November 2018, revenue increased from approximately HK$36.4 million for the eight months ended 30 November 2017 to approximately HK$47.4 million. The increase in revenue was mainly due to the increase in revenue from residential projects, which increased from approximately HK$25.4 million for the eight months ended 30 November 2017 to HK$35.3 million for the eight months ended 30 November 2018. Such increase was mainly attributable to higher revenue from Customer A, the largest customer of the Target Group, a Hong Kong listed property developer and Customer J. Residential revenue from Customer A had increased by approximately HK$3.8 million, mainly due to the progression of a large project with contract sum of approximately HK$10 million, which contributed an increase of approximately HK$1.9 million. The higher residential revenue from the aforesaid Hong Kong listed property developer and Customer J was contributed by a project with contract sum of over HK$5 million and a project with contract sum of approximately HK$2.8 million, respectively. The aforesaid two projects had aggregately contributed an increase in revenue of over HK$3.4 million.

SUMMARY

The gross profit of the Target Group amounted to approximately HK$34.3 million, HK$41.7 million, HK$35.2 million, HK$19.2 million and HK$28.2 million for the three years ended 31 March 2018 and the eight months ended 30 November 2017 and 2018, respectively. The gross profit margins were 61.6%, 61.3%, 57.0%, 52.8% and 59.4% for the three years ended 31 March 2018 and the eight months ended 30 November 2017 and 2018, respectively. The gross profit margins remained stable for the two years ended 31 March 2017. The decrease in gross profit margin for the year ended 31 March 2018 was mainly due to amendments to design plans for some of the interior design projects as requested by the customers, which had incurred additional staff hours, in particular a hotel interior design project with Customer A, which has a contract sum of approximately HK$11.5 million. During the year ended 31 March 2018, the aforementioned hotel interior design project with Customer A had an overall gross profit margin of approximately 21.1% only. The increase in the gross profit margin for the eight months ended 30 November 2018 was mainly due to during the eight months ended 30 November 2017, some of the customers had requested amendments to design plans, and additional staff hours were incurred for these projects. In particular, the Target Group had put in substantially higher staff costs for a hotel interior design project with a contract sum of approximately HK$11.5 million with Customer A. As a result, no gross profit was recognised for such project for the eight months ended 30 November 2017. For further details, please refer to the section headed "Financial information of the Target Group" in this circular.

Cost of services

	For the year ended 31 March						For the eight months ended 30 November
	2016		2017		2018		2017		2018
	HK$'000	%	HK$'000	%	HK$'000	%	HK$'000	%	HK$'000	%
							(unaudited)
Direct labour costs	21,055	98.5	26,067	98.8	25,805	97.0	16,570	96.5	18,513	96.1
Subcontracting costs	311	1.5	310	1.2	672	2.6	597	3.5	754	3.9
Others	-	-	-	-	120	0.4	-	-	-	-
	21,366	100.0	26,377	100.0	26,597	100.0	17,167	100.0	19,267	100.0

Cost of services of the Target Group primarily comprised direct staff costs, which were mainly the salaries of design professionals and subcontracting costs.

The table below sets forth selected information from the combined statements of financial position of the Target Group:

	As at 31 March			As at 30 November
	2016	2017	2018	2018
	HK$'000	HK$'000	HK$'000	HK$'000
Current assets	62,995	129,078	68,081	69,933
Current liabilities	(14,548)	(57,605)	(57,775)	(47,747)
Net current assets	48,447	71,473	10,306	22,186
Non-current assets	5,890	4,279	11,288	11,055
Non-current liabilities	(169)	(423)	(290)	(192)
Net assets	54,168	75,329	21,304	33,049

SUMMARY

Net assets increased from approximately HK$54.2 million as at 31 March 2016 to approximately HK$75.3 million as at 31 March 2017, mainly due to the net profit of approximately HK$21.2 million for the year ended 31 March 2017. Net assets decreased to approximately HK$21.3 million as at 31 March 2018, mainly due to the net effect of (i) net profit of approximately HK$16.5 million for the year ended 31 March 2018; and (ii) dividends paid of approximately HK$70.5 million during the year ended 31 March 2018. As at 30 November 2018, net assets increased to approximately HK$33.0 million, mainly due to net profit of approximately HK$11.7 million for the eight months ended 30 November 2018.

The table below sets forth selected information from the combined statements of cash flows of the Target Group:

	For the year ended 31 March			For the eight months ended 30 November
	2016
HK$’000	2017
HK$’000	2018
HK$’000	2017
HK$’000
(unaudited)	2018
HK$’000
Operating profit before working capital changes	20,927	28,015	18,934	8,451	15,433
Net cash generated from operating activities	25,169	8,845	15,410	16,482	31,035
Net cash used in investing activities	(20,538)	(43,769)	(34,287)	(9,891)	(574)
Net cash (used in)/generated from financing activities	(8,468)	41,143	12,128	(1,898)	(8,094)
Net (decrease)/increase in cash and cash equivalents	(3,837)	6,219	(6,749)	4,693	22,367
Cash and cash equivalents at the beginning of year/period	23,960	20,123	26,342	26,342	19,593
Cash and cash equivalents at the end of year/period	20,123	26,342	19,593	31,035	41,960

Operating activities

The Target Group derives its cash inflow from operating activities primarily from the receipt of payments from the Target Group’s interior design projects. Cash outflow from the Target Group’s operating activities primarily includes staff costs, subcontracting fees, and all other operating expenses such as office rental, utilities and office expenses.

For the three years ended 31 March 2018 and the eight months ended 30 November 2017 and 2018, the Target Group recorded net cash generated from operating activities of approximately HK$25.2 million, HK$8.8 million, HK$15.4 million, HK$16.5 million and HK$31.0 million, respectively.

SUMMARY

Key financial ratios

	As at/for the year ended 31 March			As at/for the eight months ended 30 November
	2016	2017	2018	2018
Gross profit margin	61.6%	61.3%	57.0%	59.4%
Net profit margin	28.2%	31.1%	26.6%	24.8%
Return on equity	28.9%	28.1%	77.3%	N/A (Note 1)
Return on total assets	22.8%	15.9%	20.8%	N/A (Note 1)
Current ratio	4.3	2.2	1.2	1.5
Gearing ratio (Note 2)	0.1	0.6	2.0	1.0

Notes:
1. Return on equity and total assets are not applicable for the eight months ended 30 November 2018 as it is not meaningful given the recorded net profit only represented amount for eight months ended 30 November 2018.
2. Gearing ratio is calculated based on the total borrowings (including amounts due to directors and Whistle Up, and bank loans) divided by the total equity at the respective reporting date.

Please refer to the paragraph headed "Key financial ratios" under the section headed "Financial information of the Target Group" in this circular for further details.

RISK FACTORS FACED BY THE TARGET GROUP

There are certain risks involved in the Target Group's operations, many of which are beyond the control of the Target Group. A detailed discussion of the risk factors that the directors of the Target Company believe are particularly relevant to the Target Group is set out in the section headed "Risk factors" in this circular. The following lists out the major risk factors faced by the Target Group:

the Target Group's revenue was generated from projects awarded by a limited number of customers and any significant decrease in the number and value of residential and commercial projects to be initiated by property developers in Hong Kong in the future may materially and adversely affect the Target Group's financial condition and operating results;
there is a limited pool of qualified and high-quality candidates and any failure to retain and recruit qualified professionals, as well as retaining key management personnel, may adversely affect its business and growth;
if the Target Group is unable to anticipate or respond effectively to its customers' preferences, its business prospects and financial performance could be adversely affected;
the Target Group operates in a competitive industry and failure to enhance its competitiveness may result in loss of customers and market share; and

SUMMARY

the Target Group is affected by the development in the Hong Kong property market and the outlook of the Hong Kong economy.

RECENT DEVELOPMENTS SUBSEQUENT TO 30 NOVEMBER 2018

Subsequent to the Track Record Period and up to the Latest Practicable Date, the Target Group’s business model and the revenue and cost structure have remained unchanged. As far as the directors of the Target Company are aware, the Target Group’s industry remained relatively stable subsequent to the Track Record Period, with no material adverse change in the general economic and market conditions in Hong Kong or the industry in which the Target Group operates that had affected or would affect the Target Group’s business operations or financial condition materially and adversely. Subsequent to the Track Record Period and up to the Latest Practicable Date, the Target Group had secured 25 new projects with aggregate contract sum of approximately HK$43.5 million, of which 12 new projects were residential projects and had a total contract sum of approximately HK$36.3 million. Notably, the Target Group had secured a residential project with contract sum of over HK$14 million with Customer A. Out of the 25 new projects, 7 projects were with Customer A, and the total contract sum of the 7 projects amounted to approximately HK$24.3 million. As at the Latest Practicable Date, the Target Group had a total of 100 on-going projects with total contract sum of approximately HK$301.9 million which were in progress or to be commenced. Approximately HK$22.7 million is expected to be recognised as revenue for the period from 1 December 2018 to 31 March 2019 and approximately HK$131.7 million is expected to be recognised as revenue after the year ended 31 March 2019 from the aforesaid on-going projects.

Backlog

The following table sets forth the revenue expected to be recognised for the year ended 31 March 2019 from the existing contracts as at 30 November 2018 (contracts that were obtained up to 30 November 2018) and the new contracts (contracts that were obtained subsequent to 30 November 2018 and up to the Latest Practicable Date) commenced or obtained but not yet commenced as at the Latest Practicable Date:

Types of project	Revenue expected to be recognised for the period from 1 December 2018 to 31 March 2019 from the existing contracts as at 30 November 2018 (HK$'000)	Revenue expected to be recognised for the period from 1 December 2018 to 31 March 2019 from the new contracts (HK$'000)	Revenue expected to be recognised after the year ended 31 March 2019 from the existing contracts as at 30 November 2018 (HK$'000)	Revenue expected to be recognised after the year ended 31 March 2019 from the new contracts (HK$'000)
Residential (Note)	16,597	2,799	80,964	33,509
Commercial (Note)	1,451	–	6,491	–
Show flat, sales office/ gallery and others	1,325	555	4,106	6,632
Total	19,373	3,354	91,561	40,141

Note: Residential projects were mainly interior design projects for private residences and residential clubhouses while commercial projects mainly represent interior design projects for hotels, offices, restaurants, bookstores and cinemas.

SUMMARY

SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE RESTRUCTURED GROUP

Below sets out the unaudited pro forma adjusted consolidated net tangible assets and unaudited pro forma adjusted consolidated net tangible assets per share of the Restructured Group as at 30 September 2018 as extracted from the section headed "Unaudited pro forma financial information of the Restructured Group" set out in Appendix V to this circular:

	Unaudited consolidated net tangible liabilities of the Group as at 30 September 2018 HK$'000	Unaudited consolidated net tangible liabilities of the Group per share as at 30 September 2018 HK$	Unaudited pro forma adjusted consolidated net tangible assets of the Restructured Group HK$'000	Unaudited pro forma adjusted consolidated net tangible assets of the Restructured Group per share HK$
Consolidated net tangible (liabilities)/assets attributable to owners of the Company	(467,646)	(0.137)	53,408	0.044

FINANCIAL EFFECTS OF THE PROPOSED RESTRUCTURING

Based on the unaudited pro forma financial information of the Restructured Group set out in Appendix V to this circular, if the Proposed Restructuring had been completed on 30 September 2018, the Restructured Group would have total assets of approximately HK$101.3 million, total liabilities of approximately HK$47.9 million and net assets of approximately HK$53.4 million. If the Proposed Restructuring had been completed on 1 April 2017, the Restructured Group would have profit for the year of approximately HK$275.7 million for the year ended 31 March 2018. The profit is mainly due to (i) gain on debt restructuring of the Group of approximately HK$435.5 million; (ii) deemed listing expenses of approximately HK$67.2 million; and (iii) estimated professional fees relating to the Proposed Restructuring of approximately HK$32.9 million to be additionally incurred by the Company, details of which are set out in notes 9(b), 10(a) and 4 to the unaudited pro forma financial statements of the Restructured Group as set out in Appendix V to this circular, respectively.

CONTROLLING SHAREHOLDERS AND CONNECTED TRANSACTION

Immediately after the Completion, the Investor will directly hold approximately 70.0% of the issued share capital of the Company. The Investor is held as to 96% by Mr. Norman Chan, 3% by Mr. Alex Lee and 1% by Ms. Susanna Kwok respectively. As such, each of the Investor and Mr. Norman Chan will become a Controlling Shareholder.

During the Track Record Period, the Target Group has entered into a tenancy agreement with Waldorf Holdings to rent offices and car parking spaces from Waldorf Holdings. Given that the entering into of tenancy agreement was one-off in nature and entered into prior to Completion, it will not be classified as connected transaction under Chapter 20 of the GEM Listing Rules. For more details, please refer to the section headed "Connected transactions" in this circular.

SUMMARY

DIVIDENDS

For the year ended 31 March 2016 and 2018, the Target Group had declared dividends of approximately HK$10.0 million and HK$70.5 million, respectively. In December 2018, the Target Group declared and paid dividends of approximately HK$18.0 million. Save for the above, the Target Group did not declare any dividends during the Track Record Period and up to the Latest Practicable Date. The Company and the Target Group currently do not have a fixed dividend policy. The Board has the discretion to determine whether to declare any dividend for any period and, if it decides to declare a dividend, the amount of dividend to be declared. Pursuant to the Restructuring Framework Agreement, the Investor (being the ultimate sole owner of the Target Group prior to Completion) and the Company agreed that the Investor may, prior to the Completion and subject to applicable laws and regulations, procure each of the Principal Subsidiaries to declare and pay dividends to the Target Company of an aggregate amount no greater than the amounts of its retained earnings as at 31 March 2018 and as at 31 March 2019 and after such declaration of dividends by the Principal Subsidiaries, procure the Target Company to declare and pay dividends to the Investor prior to the completion of Acquisition (the "Pre-Completion Dividends") of an aggregate amounts no greater than the aggregate amount of the dividends declared by the Principal Subsidiaries provided that after the declaration and distribution of the Pre-Completion Dividends and having taking into account the working capital loan of HK$14 million to be provided by the Company to the Target Group within ten (10) Business Days after Completion, the Target Group shall have sufficient working capital for its business operations for the period up to 30 June 2020. The directors of the Target Company are considering to declare and distribute all of the Target Group's retained earnings as at 31 March 2019 as dividends to the Investor. The directors of the Target Company confirmed that any dividend payable will be settled prior to the Completion and will be funded by internally generated cash flows and/or borrowings.

The Target Group currently does not have a dividend policy. Any amount of dividends to be declared and paid by the Restructured Group will be at the discretion of the Directors taking into consideration the Restructured Group's future operations and earnings, capital requirements and surplus, general financial condition and such other factors that the directors of the Target Company consider appropriate. The dividend distribution record in the past may not be used as a reference or basis to determine level of dividends that may be declared or paid in the future. However, there is no assurance that dividends will be declared or paid in such amount, or at all, for each or any year.

MATERIAL CHANGES OF THE GROUP

Save as disclosed below, as at the Latest Practicable Date, the Directors confirmed that there are no material changes in the financial or trading position or outlook of the Group since 31 March 2018, being the date to which the latest published audited consolidated financial statements of the Group were made up:

(a) the cessation of the Group's business regarding trading of beverages, household products and nephrite during the nine months ended 31 December 2018 due to their limited contribution to the Group so as to minimise losses, details of which are set out in the third quarterly report of the Company for the nine months ended 31 December 2018;

SUMMARY

(b) the disposal under the disposal agreement dated 6 December 2018 and entered into between Talent Zone Global Limited, a direct wholly-owned subsidiary of the Company, as vendor and Chen Yue Hong* (陳月紅), an Independent Third Party, as purchaser in relation to the disposal of the entire issued share capital of Brighton Asia Pacific Investment Holdings Limited at the consideration of HK$200,000, details of which are set out in the announcement of the Company dated 6 December 2018;

(c) the disposal under the disposal agreement dated 25 January 2019 and entered into between Ultra Treasure Limited, an indirect wholly-owned subsidiary of the Company, as vendor and Gamfortune Investment Limited, an Independent Third Party, as purchaser in relation to the disposal of a vessel at the consideration of HK$6,500,000, details of which are set out in the announcement of the Company dated 25 January 2019; and

(d) the Proposed Restructuring involving, among other things, the Capital Reorganisation, the Creditors Schemes, the Open Offer (amended to the Share Offer on 23 November 2018), the Acquisition and the Investor Loan Capitalisation (as amended and restated in the Restructuring Framework Agreement date 16 May 2019).

NO MATERIAL CHANGES OF THE TARGET GROUP

The board of directors of the Target Company confirms that, up to the date of this circular, there has been no material changes in the financial or trading position or outlook of the Target Group since 30 November 2018 (being the date to which the latest audited combined financial statements of the Target Group were prepared), and there is no event since 30 November 2018 which would materially affect the information shown in the Accountants' Report set out in Appendix III to this circular.

SPONSOR, FINANCIAL ADVISER TO THE COMPANY, FINANCIAL ADVISER TO MR. NORMAN CHAN AND INDEPENDENT FINANCIAL ADVISER

Messis Capital Limited has been appointed as the Sponsor to the deemed new listing application of the Company.

Optima Capital has been appointed as the Financial Adviser to the Company in connection with the Proposed Restructuring.

Veda Capital Limited has been appointed as the Financial Adviser to Mr. Norman Chan in connection with the Proposed Restructuring.

Nuada has been appointed as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in connection with the Proposed Restructuring.

CHANGE OF PRINCIPAL BUSINESS ACTIVITIES OF THE RESTRUCTURED GROUP AFTER RESUMPTION

The Investor does not intend to continue the existing businesses of the Group or continue the employment of any of the Company's existing employees. After completion of the Acquisition and the Disposal, the Restructured Group will be primarily engaged in provision of interior design services to premises, including but not limited to, private residences, corporate offices, service apartments, hotels, residential clubhouses, show flats and sales galleries. Other than the introduction of the business of the Target Group and the Disposal, the Investor does not intend to introduce any major change to the Restructured Group's business (including any re-deployment of the Restructured Group's fixed assets).

For identification purpose only

SUMMARY

In addition to the Acquisition and the Disposal, the Resumption Proposal also involves other things, including (i) the Capital Reorganisation; (ii) the Creditors Schemes; (iii) the Share Offer; (iv) the Investor Loan Capitalisation; (v) the Whitewash Waiver; and (vi) the Special Deal, further details of which can be found in the section headed "Letter from the Board" in this circular.

TOTAL EXPENSES

The aggregate fees, together with the Stock Exchange listing fee, legal and other professional fees, printing and other expenses relating to the Resumption Proposal and the transactions contemplated thereunder, are estimated to be approximately HK$41.6 million in aggregate, of which approximately HK$39.0 million and HK$2.6 million are payable by the Company and Mr. Norman Chan, respectively.

RECOMMENDATIONS AND THE EGM

The EGM will be held to consider and, if thought fit, pass the resolutions to approve, among other things: (i) the Capital Reorganisation; (ii) the Share Offer; (iii) the Creditors Schemes; (iv) the Acquisition; (v) the Investor Loan Capitalisation; (vi) the Special Deal; (vii) the appointment of the proposed Directors; (viii) the Whitewash Waiver; and (ix) the Adoption.

The Directors (excluding members of the Independent Board Committee whose views are set out in the "Letter from the Independent Board Committee" in this circular) consider that the terms of the proposed Capital Reorganisation, the Share Offer, the Creditors Schemes, the Acquisition and the Investor Loan Capitalisation contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement, the Special Deal and the Whitewash Waiver are fair and reasonable so far as the Independent Shareholders are concerned and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors (excluding members of the Independent Board Committee whose views are set out in the "Letter from the Independent Board Committee" in this circular) recommend the Shareholders to vote in favour of the ordinary resolutions and special resolutions (as the case may be) to be proposed at the EGM to approve the proposed Capital Reorganisation, the Share Offer, the Creditors Schemes, the Acquisition and the Investor Loan Capitalisation contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement and to approve the Special Deal and the Whitewash Waiver.

The Directors consider the Adoption is in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the special resolution to be proposed at the EGM to approve the Adoption.

IMPLICATIONS UNDER THE GEM LISTING RULES

The Acquisition

SUMMARY

approval requirements pursuant to the GEM Listing Rules and approval of the new listing application of the Company by the GEM Listing Committee.

The Creditors Schemes

Pursuant to the Creditors Schemes, the Scheme Companies will be transferred from the Group to the Scheme SPC. Accordingly, the Scheme Companies to be transferred under the Creditors Schemes are deemed to be disposed of by the Group. As one or more of the applicable percentage ratios calculated under the GEM Listing Rules in respect of the Disposal are more than 75%, the Disposal constitutes a very substantial disposal for the Company under Chapter 19 of the GEM Listing Rules and therefore subject to the reporting, announcement and Independent Shareholders’ approval requirements pursuant to the GEM Listing Rules.

The Share Offer

Pursuant to Rule 13.02(1) of the GEM Listing Rules, the Directors, their close associates, and a person who is an existing Shareholder, may only subscribe for or purchase any securities for which listing is sought which are being marketed by or on behalf of a new applicant, whether in their own names or through nominees, if two conditions are met. One of the conditions is that no securities are offered to them on a preferential basis and no preferential treatment is given to them in the allocation of the securities. As at the Latest Practicable Date, the Qualifying Shareholders who were entitled to participate in the Preferential Offering did not include the Directors or their close associates, but included the existing Shareholders. Accordingly, the condition under Rule 13.02(1)(a) cannot be met, and thus the Company has applied to the Stock Exchange a waiver from strict compliance with Rules 13.02(1) of the GEM Listing Rules for allowing the existing Shareholders to participate in the Preferential Offering.

Pursuant to Rule 10.44A of the GEM Listing Rules, the Company may not undertake a rights issue, open offer or specific mandate placing that would result in a theoretical dilution effect of 25% or more within 12 month period immediately preceding the announcement of the proposed issue, unless the Company can satisfy the Stock Exchange that there are exceptional circumstances. Despite that the Share Offer under a specific mandate will dilute the Qualifying Shareholders’ shareholding interests in the Company by 85.1% if they subscribe for the Offer Shares under the Preferential Offering in full or by a maximum of approximately 94.4% if they do not subscribe for the Offer Shares, the Company is exempt from the restrictions under Rule 10.44A of the GEM Listing Rules given the Share Offer forms part of the rescue proposal (i.e. the Resumption Proposal).

EGM

As at the Latest Practicable Date, the Company did not have any controlling shareholders. Therefore, the Directors (excluding the independent non-executive Directors) and the chief executive of the Company shall abstain from voting in favour of the resolution(s) to be proposed at the EGM to consider and, if thought fit, approve the Proposed Restructuring. No Shareholders are required to abstain from voting on the resolution to be proposed at the EGM to approve the Adoption. Save as disclosed above, none of the other Shareholders and their associates have to abstain from voting on any resolutions to be proposed at the EGM.

SUMMARY

Listing approval

The Company has applied to the Stock Exchange for the listing of and permission to deal in the New Shares, the Offer Shares, the Creditors Shares, the Consideration Shares and the Capitalisation Shares.

IMPLICATIONS UNDER THE TAKEOVERS CODE

Whitewash Waiver

As at the Latest Practicable Date, the Concert Group did not own or control any existing Shares or any convertible securities, warrants, options or derivatives in respect of the existing Shares. Upon Completion, the Concert Group will be interested in approximately 70.0% of the Enlarged Issued Share Capital. As such, the Concert Group would be required to make a mandatory general offer for all the issued shares of the Company (not already owned or agreed to be acquired by the Concert Group) under Rule 26.1 of the Takeovers Code, unless a waiver from strict compliance with Rule 26.1 of the Takeovers Code is granted by the Executive.

The Investor has made an application to the Executive for the granting of the Whitewash Waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code. The Whitewash Waiver, if granted by the Executive, would be subject to, among other things, the approval of the Independent Shareholders at the EGM by way of poll, in which parties of the Concert Group and those who are involved in or interested in the Proposed Restructuring, the Whitewash Waiver and/or the Special Deal will abstain from voting on the relevant resolution(s) at the EGM. If the Whitewash Waiver is granted by the Executive, the Concert Group will not be required to make a mandatory offer which would otherwise be required as a result of the allotment and issue of the Consideration Shares and the Capitalisation Shares. If the Whitewash Waiver is not granted by the Executive or not approved by the Independent Shareholders, the Restructuring Framework Agreement will terminate forthwith.

Special Deal

The proposed settlement of the indebtedness due to eForce (who held approximately 0.179% of the total issued share capital of the Company as at the Latest Practicable Date) under the Creditors Schemes, which is not extendable to all the other Shareholders, constitutes a special deal under Rule 25 of the Takeovers Code and therefore requires (i) consent by the Executive; (ii) the Independent Financial Adviser to publicly state that in its opinion the settlement and the terms thereunder are fair and reasonable; and (iii) approval by the Independent Shareholders at the EGM. As at the Latest Practicable Date, except eForce, there is no other Creditor who is a Shareholder. Parties to the Concert Group, eForce and his associates and parties acting in concert with any of them, and those who are interested in and involved in the Proposed Restructuring, the Whitewash Waiver and/or the Special Deal will be required to abstain from voting on the relevant resolution(s).

The Company has applied to the Executive for its consent to the Special Deal under Rule 25 of the Takeovers Code.

DEFINITIONS

In this circular, unless the context otherwise requires, the following terms shall have the meanings set out below.

“Accepted Offer Applications” the Offer Applications which have from time to time been accepted in whole or in part, pursuant to the Underwriting Agreement

“Accountants’ Report” the accountants’ report on the Target Group set out in Appendix III to this circular

“Acquisition” the sale by the Investor and the purchase by the Company of the Sale Shares pursuant to the Acquisition Agreement

“Acquisition Agreement” the formal sale and purchase agreement dated 15 September 2017 (as amended and supplemented on 9 November 2017 and 28 June 2018, amended and restated on 23 November 2018 and 16 May 2019 and from time to time) and entered into between the Company and the Investor in relation to the Acquisition

“acting in concert” has the meaning ascribed to it under the Takeovers Code

“Adjudicator” such person with experience in the adjudication of creditors’ claims as the Scheme Administrators, in their absolute discretion, shall appoint

“Admission” the grant or agreement to grant by the Listing Department of the listing of and permission to deal in the New Shares on the GEM (including any additional New Shares that may be allotted and issued pursuant to the exercise of any options that may be granted under the share option scheme adopted by the Shareholders at the annual general meeting of the Company held on 30 July 2012)

“Admitted Claims” all Claims (other than the secured portion of the Claims of a Secured Creditor or a Preferential Claim) against the Company which would be provable with reference to the relevant provisions in the Companies Law or the Companies (Winding Up and Miscellaneous Provisions) Ordinance on the Effective Date and which have been admitted by the Scheme Administrators or the Adjudicator (as the case may be) in accordance with the Creditors Schemes

“Adoption” adoption of the second amended and restated memorandum and articles of association of the Company, the details of which are set out in the section headed “Letter from the Board – XIII. Proposed Adoption of amended and restated memorandum and articles of association of the Company” in this circular

“Amended and Restated Agreements” the Restructuring Framework Agreement, the Acquisition Agreement and the Investor Loan Agreement amended and restated on 16 May 2019, respectively, and entered into between the Company and the Investor on the same date

DEFINITIONS

"Application Form(s)"
the WHITE and YELLOW application forms to be used in connection with the Public Offer, the BLUE application form to be used in connection with the Preferential Offering in the agreed forms

"Application Lists"
the application lists in respect of the Public Offer

"associates"
has the meaning ascribed to it under the GEM Listing Rules or the Takeovers Code, as appropriate

"Assured Entitlement"
the entitlement of the Qualifying Shareholders to apply for the Reserved Shares on an assured basis pursuant to the Preferential Offering determined on the basis of their respective shareholdings in the Company as of 4:30 p.m. on the Assured Entitlement Record Date

"Assured Entitlement Record Date"
1 November 2019, the date by reference to which entitlements under the Assured Entitlement on the Share Offer are to be determined

"Authorised Share Capital Increase"
the proposed increase of the authorised share capital of the Company to HK$10,000,000 divided into 100,000,000,000 New Shares of nominal value of HK$0.0001 each after the Share Consolidation, the Capital Reduction and the Unissued Share Capital Cancellation becoming effective

"Available Reserved Shares"
the Reserved Shares not taken up by the Qualifying Shareholders' Assured Entitlement

"Blue Form"
the Blue application form to be sent to the Qualifying Shareholders to virtue them to subscribe for the Reserved Shares under the Share Offer

"Board"
the board of Directors

"BTR Asia"
BTR (ASIA) LIMITED, a company incorporated in Hong Kong with limited liability and a member of the Target Group

"BTR HK"
BTR (HK) LIMITED, a company incorporated in Hong Kong with limited liability and a member of the Target Group

"BTR Intl"
BTR (INTL) LIMITED, a company incorporated in Hong Kong with limited liability and a member of the Target Group

"BTR Workshop"
BTR WORKSHOP LIMITED, a company incorporated in Hong Kong with limited liability and a member of the Target Group

DEFINITIONS

"Business Day(s)"	any day (other than a Saturday or a Sunday or a public holiday or a day on which a tropical cyclone warning signal no. 8 or above or a black rainstorm warning signal is hoisted in Hong Kong at any time between 9:00 a.m. and 5:00 p.m.) on which banks are generally open for business in Hong Kong
"BVI"	the British Virgin Islands
"CAGR"	compound annual growth rate
"Capital Reduction"	the proposed (i) cancellation of any fractions in the issued share capital of the Company arising from the Share Consolidation and (ii) reduction of the nominal value of the issued Shares (immediately upon the Share Consolidation becoming effective) from HK$4.0 to HK$0.0001 each by cancelling the paid-up capital to the extent of HK$3.9999 on each of the issued Consolidated Shares
"Capital Reorganisation"	the proposed reorganisation of the share capital of the Company comprising, inter alia, the Share Premium Cancellation, the Share Consolidation, the Capital Reduction, the Unissued Share Capital Cancellation and the Authorised Share Capital Increase, details of which has been set out in the Resumption Proposal Announcement
"Capitalisation Shares"	up to 94,736,842 New Shares to be allotted and issued to the Investor pursuant to the Investor Loan Capitalisation, which shall represent approximately 7.8% of the Enlarged Issued Share Capital upon Completion
"Cayman Scheme"	the proposed scheme of arrangement to be entered into between the Company and the Creditors pursuant to section 86 of the Companies Law with, or subject to the approval and any modification, addition or conditions approved or imposed by the Grand Court
"CB Undertaking"	the undertaking given by the holders of the Convertible Bonds under which they undertake not to exercise the conversion rights attaching to the Convertible Bonds up to Completion and undertake to procure the transferee(s) to provide similar undertaking if they transfer the Convertible Bonds
"CCASS"	the Central Clearing and Settlement System established and operated by HKSCC
"China", "Mainland China" or "PRC"	the People's Republic of China and for the purposes of this circular only, except where the context requires otherwise, references to China or the Mainland China or the PRC exclude Hong Kong, Taiwan and Macau
"Claim(s)"	the claim(s) of the Creditors against the Company as at the Effective Date of the Creditors Schemes

DEFINITIONS

“Companies Law”	the Companies Law (2018 Revision) of the Cayman Islands as amended, supplemented or otherwise modified from time to time
“Companies Ordinance”	the Companies Ordinance of Hong Kong (Chapter 622 of the laws of Hong Kong) as amended, supplemented or otherwise modified from time to time
“Companies (Winding Up and Miscellaneous Provisions) Ordinance”	the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong) as amended from time to time
“Company”	Union Asia Enterprise Holdings Limited (stock code: 8173), an exempted company incorporated in the Cayman Islands with limited liability, the issued Shares of which are listed on the GEM of the Stock Exchange
“Completion”	completion of the Acquisition, the Share Offer, the Investor Loan Capitalisation and the Creditors Schemes becoming effective, which will take place simultaneously
“Concert Group”	the Investor and parties acting in concert with it
“connected person(s)”	has the meaning ascribed to it under the GEM Listing Rules
“Consideration”	the amount of approximately HK$144,400,000, being the consideration for the Sale Shares
“Consideration Share(s)”	the 760,000,000 New Shares to be allotted and issued as fully paid by the Company to the Investor under the Acquisition Agreement and the Restructuring Framework Agreement
“Consolidated Share(s)”	the consolidated shares of HK$4.0 each in the capital of the Company upon the Share Consolidation becoming effective
“Controlling Shareholder(s)”	has the meaning ascribed to it under the GEM Listing Rules and unless the context requires otherwise, refers to the controlling shareholder(s) of the Company upon Completion namely the Investor and Mr. Norman Chan
“Convertible Bonds”	5-year convertible bonds in an aggregate principal amount of US$50,000,000 and interest at the rate of 2% per annum issued on 12 May 2015 which will expire on 12 May 2020
“Corporate Bonds”	8-year corporate bonds in an aggregate principal amount of HK$30,000,000 with an interest rate of 4.5% per annum which will mature in 2023

DEFINITIONS

“Creditors” the creditors of the Company whose claims arose out of or had their origin in any matter occurring before the Effective Date and whether known or unknown, whether present, future or contingent, whether sounding in equity, contract, tort or under statute and whether liquidated or yet to be ascertained or whose claims against the Company which would be provable in a winding up of the Company under either the Companies (Winding Up and Miscellaneous Provisions) Ordinance or the Companies Law if an order for the winding up of the Company were made on the Effective Date, including the Existing Convertibles but excluding any amount due under the Transaction Loan (if any), the Investor Loan and any liability or debt incurred in relation to the preparation of the Proposed Restructuring, and where the Company has Secured Creditors and/or Preferential Creditors, the balances, if any, of whose secured debts or Preferential Claim due or treated under the Creditors Schemes as due from the Company and remaining unsatisfied after realisation or valuation of the underlying Security Interest pursuant to the terms of the Creditors Schemes and falling to be treated thereunder as an unsecured Claim

“Creditors Schemes” the schemes of arrangement to be entered into between the Company and its Creditors pursuant to Sections 666 to 675 of the Companies Ordinance and Section 86 of the Companies Law with, or subject to, any modification, addition or conditions approved or imposed by the High Court and the Grand Court

“Creditors Schemes Assets” all the assets and entitlement to assets owned and enjoyed, directly or indirectly, by the Company immediately before the Creditors Schemes becoming effective including but not limited to all the equity interests held by the Company in the Scheme Companies but excluding any asset which is the subject of a Security Interest unless and until the Security Interest has been released pursuant to the Creditors Schemes

“Creditors Schemes Consideration” (i) the Creditors Shares with a value of approximately HK$13.4 million; and (ii) such other sums as may be realised by the Scheme Administrators from the Creditors Schemes Assets

“Creditors Shares” up to 70,331,984 New Shares, credited as fully paid up, to be allotted and issued by the Company to the Scheme SPC as part of the Creditors Schemes Consideration

“Director(s)” the directors of the Company

“Disposal” the Scheme Companies to be transferred from the Group to the Scheme SPC

DEFINITIONS

"Effective Date"
the registration date of the order sanctioning the Hong Kong Scheme granted by the High Court with the Companies Registry in Hong Kong and the registration date of the order sanctioning the Cayman Scheme granted by the Grand Court with the Registrar of Companies in the Cayman Islands, whichever is the later

"eForce"
eForce Holding Limited, being the holder of the Convertible Bonds in the outstanding principal amount of US$13 million with an annual coupon rate of 2% which will mature on 12 May 2020, and being a Shareholder holding approximately 0.179% of the total issued share capital of the Company

"EGM"
the extraordinary general meeting of the Company to be held to consider and, if thought fit, approve, among others, all the resolutions of the Company necessary or appropriate in relation to the Capital Reorganisation, the Share Offer, the Creditors Schemes (which also constitutes the Special Deal pursuant to Rule 25 of the Takeovers Code), the Acquisition, the Investor Loan Capitalisation, the Whitewash Waiver and any other matters as required by law, the GEM Listing Rules, the Takeovers Code, the Stock Exchange and/or the SFC, which are necessary to give effect to Resumption Proposal and the transactions contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement, appointment of proposed Directors, and the Adoption

"eIPO"
the application for Share Offer by submitting applications online through the designated website at www.hkeipo.hk

"Enlarged Issued Share Capital"
the issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares, the Creditors Shares, the Capitalisation Shares and the Consideration Shares

"Executive"
the Executive Director of the Corporate Finance Division of the SFC from time to time or any of his delegate(s)

"Existing Convertibles"
all the convertible bonds, options and all other securities issued by the Company prior to the Effective Date which are convertible into shares or confer on the holder thereof the rights to subscribe for any shares in the Company which remain valid and outstanding

"Existing Substantial Shareholder"
Mr. Yeung Wing Yee, who was interested in 846,760,000 Shares, representing approximately 24.8% of the issued share capital of the Company as at the Latest Practicable Date

"Financial Advisers"
Financial Adviser to the Company and Financial Adviser to Mr. Norman Chan

DEFINITIONS

“Financial Adviser to the Company” or “Optima Capital”	Optima Capital Limited, a corporation licensed under the SFO to engage in type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities, being the financial adviser to the Company in relation to the Proposed Restructuring
“Financial Adviser to Mr. Norman Chan”	Veda Capital Limited, a corporation licensed under the SFO to engage in type 6 (advising on corporate finance) regulated activities, being the financial adviser to Mr. Norman Chan in relation to the Proposed Restructuring
“First Twelve-Month Period”	the period from the date of the Completion and ending on the date which is twelve months from the date of Completion
“Frost & Sullivan”	Frost & Sullivan Limited, an independent global consulting firm engaged by the Company to prepare the Frost & Sullivan Report
“Frost & Sullivan Report”	an independent industry report prepared by Frost & Sullivan, an extract of which is set out in “Appendix I – Industry overview” to this circular
“GEM”	GEM operated by the Stock Exchange
“GEM Listing Committee”	the Listing Committee of GEM
“GEM Listing Rules”	the Rules Governing the Listing of Securities on GEM from time to time
“Grand Court”	the Grand Court of the Cayman Islands
“Group”	the Company and its subsidiaries
“Governmental Authority”	any public, regulatory or governmental agency or authority (including, without limitation, the Stock Exchange and the SFC), other authority and any court at the national, provincial, municipal or local level
“High Court”	the High Court of Hong Kong
“HK$”	Hong Kong dollar(s), the lawful currency of Hong Kong
“HKFRSs”	Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants
“HKSCC”	Hong Kong Securities Clearing Company Limited
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC

DEFINITIONS

“Hong Kong Scheme” the proposed scheme of arrangement for the Company to be entered into between the Company and the Creditors pursuant to Sections 670 and 673 of the Companies Ordinance with, or subject to the approval and any modification, addition or conditions approved or imposed by the High Court

“Independent Board Committee” a committee of the Board established with all the independent non-executive Directors, namely Dr. Wan Ho Yuen, Terrence, Mr. Li Kwok Chu and Mr. Lau Shu Yan, as members

“Independent Financial Adviser” or “Nuada” Nuada Limited, a corporation licensed to carry out type 6 (advising on corporate finance) regulated activity under the SFO, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the Proposed Restructuring

“Independent Shareholder(s)” the Shareholder(s), to the extent applicable in respect of each resolution, who are not members of the Concert Group and not involved or interested in (other than solely as a Shareholder) the transactions contemplated under the Restructuring Framework Agreement including the Capital Reorganisation, the Share Offer, the Creditors Schemes, the Acquisition, the Investor Loan Capitalisation, the Special Deal and the Whitewash Waiver and are not required to abstain from voting under the GEM Listing Rules and/or the Takeovers Code and therefore permitted to vote in respect of the resolution(s) to approve the Capital Reorganisation, the Share Offer, the Creditors Schemes, the Acquisition, the Investor Loan Capitalisation, the Special Deal and the Whitewash Waiver at the EGM

“Independent Third Party(ies)” a person(s) or company(ies) who or which is/are independent of and not connected (within the meaning of the GEM Listing Rules) with the Company and its connected persons

“Investor” or “Whistle Up” Whistle Up Limited, a company incorporated in the BVI with limited liability which is beneficially owned as to 96% by Mr. Norman Chan, 3% by Mr. Alex Lee and 1% by Ms. Susanna Kwok

“Investor Loan” an unsecured loan in the amount up to HK$23 million provided or to be provided by the Investor to the Company, among which, (i) as to HK$18 million for financing the professional fees and the work relating to the financial information of the Target Group and (ii) as to HK$5 million for the working capital for the business operations of the Group

“Investor Loan Agreement” the loan agreement dated 5 December 2017 (as amended and restated on 23 November 2018 and 16 May 2019 and from time to time) and entered into between the Company and the Investor in relation to the provision of the Investor Loan

DEFINITIONS

"Investor Loan Capitalisation"	the allotment and issue of the Capitalisation Shares by the Company to the Investor at the issue price of HK$0.19 each, the consideration of which shall be satisfied by setting off of up to approximately HK$18 million against the outstanding amount under the Investor Loan Agreement upon Completion
"Issue Price"	HK$0.19 per Consideration Share, the price at which the Consideration Shares are to be issued under the Acquisition Agreement
"Last Trading Day"	17 March 2017, being the last full trading day immediately before the suspension of trading in the Shares
"Latest Practicable Date"	24 May 2019
"Long Stop Date"	31 December 2019 or such other date as the parties to the Restructuring Framework Agreement and/or the Acquisition Agreement may agree
"Listing Date"	the first day on which the New Shares resume trading on the GEM
"Macau"	the Macau Special Administrative Region of the PRC
"Mr. Alex Lee"	Mr. Lee Alex Kam-fai, one of the proposed executive Directors
"Mr. Norman Chan"	Mr. Chan Norman Enrique, spouse of Ms. Susanna Kwok and one of the Controlling Shareholders and proposed executive Directors
"Mr. Yeung"	Mr. Yeung Sai Cheong
"Ms. Susanna Kwok"	Ms. Kwok Lai Yi, Susanna, spouse of Mr. Norman Chan
"New Public Shareholders"	the members of the public (for the avoidance of doubt, excluding the Concert Group, the Qualifying Shareholders, the Underwriter, its sub-underwriters and/or the subscribers procured by them)
"New Share(s)"	the ordinary share(s) of HK$0.0001 each in the capital of the Company immediately following the Capital Reorganisation becoming effective
"Non-Qualifying Shareholder(s)"	(i) Overseas Shareholder(s) to whom the Directors, based on advice provided by the legal advisers of the Company, are of the opinion that it would be necessary or expedient not to offer the Offer Shares on account either of the legal restrictions under the laws of the relevant place or any requirements of the relevant regulatory body or stock exchange in that place; (ii) the Shareholder(s) who is a Director and/or a chief executive of the Company or any of a close associate of any of them; and (iii) the Shareholder(s) who has the power to appoint a Director or any other special rights

DEFINITIONS

"Offer Applications"	applications for Offer Shares (either Reserved Shares or Public Offer Shares) made on the Application Forms and accompanied by cheques or banker's cashier orders for the full amount payable on application which are honoured on first presentation and otherwise in compliance with the terms of the Prospectus Documents
"Offer Shares"	New Shares to be allotted and issued under the Share Offer, being 227,679,850 New Shares (comprising the Reserved Shares and the Public Offer Shares)
"Offer Price"	HK$0.19 per Offer Share
"Open Offer"	the proposed issue of the offer shares on the basis of nineteen (19) offer shares for every one (1) New Share held by the Qualifying Shareholders on the record date at HK$0.19 per offer share under the Restructuring Framework Agreement dated 15 September 2017 (as supplemented and amended on 9 November 2017 and 28 June 2018), which was subsequently replaced by the Preferential Offering under the Share Offer
"Overseas Shareholder(s)"	Shareholder(s) whose name(s) appear(s) on the register of members of the Company on the Share Offer Record Date and whose address(es) as shown on such register is/are in a place(s) outside Hong Kong
"PHP"	Philippines peso, the lawful currency of the Philippines
"Predecessor Companies Ordinance"	the Companies Ordinance (Chapter 32 of the laws of Hong Kong) in force from time to time before 3 March 2014
"Preferential Claim(s)"	any Claim(s) of Creditors against the Company which would, if the Company had commenced to be wound up on the effective date of the Creditors Schemes, have been payable out of the assets of the Company pursuant to Section 265 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance and/or Section 141 of the Companies Law in priority to the Claims of the general unsecured Creditors of the Company
"Preferential Creditor(s)"	Creditors to the extent to which they have Preferential Claims against the Company
"Preferential Offering"	the assured offering to the Qualifying Shareholders of up to 113,839,925 Offer Shares at the Offer Price on and subject to the terms and conditions to be set out in the Prospectus Documents and in the Blue Form, being part of the Share Offer
"Principal Subsidiaries"	together, BTR Asia, BTR HK, BTR Intl and BTR Workshop
"Promissory Notes"	the unsecured promissory notes with principal amounts of HK$8,500,000 and HK$19,000,000, carrying 10% and 3% interest per annum and fall due on 10 June 2019 and 25 August 2018, respectively

DEFINITIONS

“Prospectus”	the prospectus to be issued by the Company in relation to the Share Offer
“Prospectus Documents”	the Prospectus and the Application Form(s)
“Proposed Restructuring”	the proposed restructuring of the Group, involving, among other things, the Capital Reorganisation, the Creditors Schemes, the Open Offer (amended to the Share Offer on 23 November 2018), the Acquisition and the Investor Loan Capitalisation (as amended and restated in the Restructuring Framework Agreement date 16 May 2019)
“Public Offer”	the offer of the Public Offer Shares at the Offer Price for subscription by members of the public, on and subject to the terms and conditions of the Prospectus Documents
“Public Offer Shares”	113,839,925 New Shares being offered by the Company for subscription by members of the public (excluding the Qualifying Shareholders) under the Public Offer, pursuant to the terms set forth in the Prospectus Documents
“Qualifying Shareholder(s)”	the Shareholder(s) whose name(s) appear on the register of members of the Company on the Assured Entitlement Record Date other than the Non-Qualifying Shareholders
“Repayment Date”	(i) the date of Completion; (ii) 2 January 2020; or (iii) the date of occurrence of an event of default under the Investor Loan Agreement, whichever is the earliest (or such later date as agreed by the Investor)
“Reorganisation”	the corporate reorganisation of the Target Group in preparation of the Acquisition, particulars of which are set out in the section headed “History and background of the Target Group” in this circular
“Reserved Shares”	113,839,925 New Shares proposed to be offered to the Qualifying Shareholders under the Preferential Offering
“Restructuring Framework Agreement”	the restructuring framework agreement dated 15 September 2017 (as supplemented and amended on 9 November 2017 and 28 June 2018, amended and restated on 23 November 2018 and 16 May 2019 and from time to time) entered into between the Company and the Investor in respect of the Proposed Restructuring
“Restructured Group”	the Group after completion of the Resumption Proposal
“Resumption Proposal”	the resumption proposal in relation to the Proposed Restructuring, submitted by the Company to the Stock Exchange

DEFINITIONS

“RMB”	Renminbi, the lawful currency of the PRC
“Sale Shares”	the entire issued share capital of the Target Company
“Scheme Administrators”	such persons who are appointed as the scheme administrators of their successors pursuant to the terms of the Creditors Schemes
“Scheme Companies”	all subsidiaries of the Company as at the date of this circular
“Scheme Creditor(s)”	all Creditors with Admitted Claims (for the avoidance of doubt, excluding the owner of Investor Loan and the owner of Transaction Loan if any)
“Scheme SPC”	a special purpose vehicle to be established and controlled by the Scheme Administrators to hold the Creditors Schemes Assets
“Second Twelve-Month Period”	the twelve month period immediately following the First Twelve-Month Period
“Secured Creditor(s)”	Creditors whose debts are secured upon any Security Interest over property or assets of the Company
“Security Interest”	any mortgage, pledge, lien, charge, assignment, hire-purchase, title retention, leasing, sale-and-repurchase or sale-and-leaseback arrangement, pledge, lien, hypothecation, encumbrance or security interest of whatsoever kind or any other agreement having the effect of conferring security provided by the Company, whether relating to existing or future assets and whether conditional or not
“SFC”	the Securities and Futures Commission of Hong Kong
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as amended, supplemented or otherwise modified from time to time
“Share(s)”	the existing shares of HK$0.08 each in the capital of the Company prior to the Capital Reorganisation becoming effective, or where the context so permits, the New Shares after the Capital Reorganisation becoming effective
“Shareholder(s)”	holder(s) of the issued Share(s)
“Share Consolidation”	the consolidation of every fifty (50) Shares into one (1) Consolidated Share of HK$4.0 each

DEFINITIONS

"Share Premium Cancellation"	the proposed cancellation of the entire amount in the sum of HK$3,661,406,000 standing to the credit of the share premium account of the Company to set off against part of the accumulated losses of the Company
"Share Offer"	the Public Offer and the Preferential Offering
"Special Deal"	the proposed settlement under the Creditors Schemes of the Convertible Bonds in the outstanding principal amount of US$13 million held by eForce
"Specified Event"	event occurring or matter arising on or after the date of the Underwriting Agreement and prior to 8:00 a.m. (Hong Kong time) on the date of Completion which if it had occurred or arisen before the date of the Underwriting Agreement would have rendered any of the warranties untrue or incorrect in any material respect
"Sponsor"	Messis Capital Limited, a corporation licensed under the SFO to engage in type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities, being the sponsor to the deemed new listing application of the Company
"Stock Exchange"	The Stock Exchange of Hong Kong Limited
"Taiwan"	Taiwan, the Republic of China
"Takeovers Code"	the Hong Kong Code on Takeovers and Mergers
"Target Company"	the special purpose vehicle incorporated in the BVI with limited liability, namely Absolute Surge Limited, to hold the entire equity interest in the Principal Subsidiaries upon completion of necessary reorganisation steps, which is wholly-owned by the Investor
"Target Group"	together, the Target Company and the Principal Subsidiaries
"Track Record Period"	the three financial years ended 31 March 2018 and the eight months ended 30 November 2018
"Transaction Loan"	a loan, if necessary, to be procured by the Company in a sufficient amount to finance all the professional fees and all costs and expenses in connection to the preparation of the Resumption Proposal and the transactions contemplated thereunder save for the Acquisition and the work relating to the financial information of the Target Company
"Underwriter"	Kingston Securities Limited, company incorporated in Hong Kong with limited liability and a licensed corporation to carry on Type 1 (dealing in securities) regulated activity under the SFO, being the underwriter for the Share Offer

DEFINITIONS

“Underwriting Agreement”	the underwriting agreement dated 22 November 2018 (as amended and restated on 16 May 2019) entered into among the Company, the Sponsor and the Underwriter in relation to the underwriting arrangement in respect of the Share Offer
“Underwritten Shares”	227,679,850 Offer Shares to be underwritten by the Underwriter pursuant to the terms and subject to the conditions set out in the Underwriting Agreement
“Unissued Share Capital Cancellation”	the proposed cancellation of the authorised but unissued share capital of the Company in its entirety immediately upon the Capital Reduction taking effect
“Untaken Shares”	the Underwritten Shares which have not been taken up by the Qualifying Shareholders under the Preferential Offering and/or by the members of the public under the Public Offer
“US$” or “USD”	United States dollars, the lawful currency of the United States
“U.S.” or “United States”	the United States of America, its territories, its possessions and all areas subject to its jurisdiction
“Waldorf Holdings”	Waldorf Holdings Limited, a company incorporated in Hong Kong with limited liability on 3 July 2012, which is wholly owned by Mr. Norman Chan and is a connected person of the Company upon completion of the Acquisition
“White Form”	the application form(s) for use by the public who require(s) such Offer Shares to be issued in the applicant’s/applicants’ own name
“Whitewash Waiver”	a whitewash waiver pursuant to Note 1 on Dispensations from Rule 26 of the Takeovers Code granted or to be granted by the Executive in respect of the obligations of the Investor to make a mandatory general offer for all the securities of the Company not already owned or agreed to be acquired by it which may arise as a result of the transaction(s) contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement
“Yellow Form”	the application form(s) for use by the public who require(s) such Offer Shares to be deposited directly into CCASS
“HK$”	Hong Kong dollar(s), the lawful currency of Hong Kong
“%”	per cent

FORWARD-LOOKING STATEMENTS

This circular contains forward-looking statements that state the intentions, beliefs, expectations or predictions of the Group, the Target Group and the Restructured Group for the future that are, by their nature, subject to significant risks and uncertainties, including the risk factors described in this circular. These forward-looking statements include all statements in this circular that are not historical facts, including, without limitation, statements relating to:

the Restructured Group’s operations and business prospects;
the Restructured Group’s strategies, plans, objectives and goals and its ability to implement such strategies and achieve its plans, objectives and goals;
the Restructured Group’s future capital needs and capital expectative plans;
the amount and nature of, and potential for, future development of the Restructured Group’s business;
the Restructured Group’s continual review of its operation and strategy;
prospective financial matters regarding the Restructured Group’s business, results of operations and financial condition;
the future developments, trends and conditions of the interior design industry in Hong Kong;
the regulatory environment relating to the interior design industry in Hong Kong; and
the general political and economic environment in Hong Kong.

When used in this circular, the words ‘aims’, ‘anticipate’, ‘believe’, ‘could’, ‘estimate’, ‘expect’, ‘going forward’, ‘intend’, ‘may’, ‘ought to’, ‘plan’, ‘project’, ‘seek’, ‘should’, ‘will’, ‘would’ and similar expressions, as they relate to the Group, the Target Group and/or the Restructured Group, are intended to identify forward-looking statements. However, all statements in this circular other than statements of historical fact are forward-looking statements. Such forward-looking statements reflect the views of the management of the Group, the Target Group and/or the Restructured Group (as the case may be) as at the date of this circular with respect to future events and are subject to certain risks, uncertainties and assumptions, including the risk factors described in this circular. Although the Directors believe that the expectations reflected in such forward-looking statements are reasonable, actual results and events may differ materially from information contained in the forward-looking statements as these statements are subject to uncertainties and assumptions, some of which are beyond the control of the Directors. Should one or more of these uncertainties materialise, or should the underlying assumptions prove to be incorrect, the results of operations and financial condition of the Group, the Target Group and/or the Restructured Group may be adversely affected and may vary materially from those described herein as anticipated, believed or expected. Accordingly, such statements are not a guarantee of future performance and you should not place undue reliance on such forward-looking information. Moreover, the inclusion of forward-looking statements should not be regarded as representations by the Company that its plans and objectives will be achieved or realised.

FORWARD-LOOKING STATEMENTS

The forward-looking statements in this circular reflect the views of the management of the Group as of the date of this circular and are subject to change in light of future developments. Subject to the requirements of the GEM Listing Rules and the Takeovers Code, the Company does not intend to update or otherwise review the forward-looking statements in this circular, whether as a result of new information, future events or otherwise.

RISK FACTORS

You should carefully consider the following risk factors together with all other information contained in this circular in considering the Proposed Restructuring. The occurrence of any of the following events or factors described below could materially and adversely affect the business, financial condition, results of operations and prospects of the Restructured Group. If these events occur, the trading price of the Shares could decline and you may lose all or part of your investment. The risks and uncertainties described below may not be the only ones that are faced by the Restructured Group. Additional risks and uncertainties that are not aware of or currently believed to be immaterial may also adversely affect the Restructured Group's business, financial condition, results of operations and prospects.

RISK RELATING TO THE PROPOSED RESTRUCTURING

Completion of the Proposed Restructuring is subject to the fulfillment of conditions precedent and there is no assurance that they can be fulfilled and/or the Proposed Restructuring will be completed as contemplated

A number of the conditions precedent to the Completion as set out in the section headed "Letter from the Board" in this circular involve the decisions of, and compliance with applicable laws and regulations by, third parties, including, among others, (i) the granting of approval by the GEM Listing Committee for the listing of and permission to deal in all of the New Shares, the Consideration Shares, the Capitalisation Shares, the Offer Shares and the Creditors Shares; (ii) the granting of approval by the GEM Listing Committee for the deemed new listing of the Company; (iii) the granting of consent by the Executive to the Special Deal; (iv) the Creditors Schemes becoming effective with a respective final sanction obtained from the Grand Court and the High Court on the Creditors Schemes; (v) an order confirming the Capital Reduction from the Grand Court; and (vi) the granting of approvals by the Independent Shareholders at the EGM. As fulfillment of these conditions precedent is not within the control of the parties involved in the Proposed Restructuring, there is no assurance that the Proposed Restructuring will be completed as contemplated, or at all.

The Restructured Group is expected to record a non-recurring gain on debt restructuring attributable to the discharge of Claims under the Creditors Schemes

The unaudited gain on debt restructuring is estimated to be approximately HK$435.5 million which is non-recurring in nature and may impose a positive one-off effect on the financial performance of the Restructured Group in the financial year when the Proposed Restructuring is completed. For further information, please refer to note 9(b) to the unaudited pro forma financial statements of the Restructured Group as set out in "Appendix V – Unaudited pro forma financial information of the Restructured Group" to this circular.

RISK FACTORS

The business to be acquired in the Acquisition is an interior design business which is entirely different from the existing businesses of the Group and the future direction of the Restructured Group will focus on interior design opportunities

The Group is currently principally engaged in trading of metals and securities. Upon Completion, the Restructured Group will no longer be engaged in the existing businesses which will be transferred under the Creditors Schemes along with the Scheme Companies. The Restructured Group will be principally engaged in the new business of provision of interior design services to premises, including private residences, corporate offices, service apartments, hotels, residential clubhouses, show flats and sales galleries. The interior design business differs entirely from the businesses of the Group at present. Existing Shareholders should take care to understand the new business of the Restructured Group, which may involve risks entirely different from those currently faced by the Group.

Control or significant influence by the Investor may limit the existing Shareholders' ability to affect the outcome of decisions requiring the approval of the Shareholders

Immediately after the Completion, the Investor will own approximately 70.0% of the total issued share capital of the Company and therefore become the Controlling Shareholder of the Company. Mr. Norman Chan who is one of the proposed executive Directors and the beneficial owner of 96% of the issued share capital of the Investor will have significant control over the Restructured Group's business, including matters relating to its management and policies and certain matters requiring the approval of the Shareholders, such as election of Directors, approval of significant corporate transactions including mergers, consolidations and the sale of all or substantially all of the Restructured Group's assets, and the timing on distribution of dividends. The Investor could potentially approve actions that require a majority vote at shareholder meetings which may not be in the best interests of other Shareholders. The concentration of ownership may discourage, delay or prevent a change in control of the Restructured Group, which could deprive the Shareholders of an opportunity to receive a premium for their Shares as part of a sale of the Restructured Group and might reduce the price of their Shares. In addition, unless the Restructured Group obtains the consent of the Investor, it could be prevented from entering into transactions that could be beneficial to it.

RISKS RELATING TO THE BUSINESS OF THE TARGET GROUP

The Target Group's revenue was generated from projects awarded by a limited number of customers and any significant decrease in the number and value of projects secured from the Target Group's major customers will materially and adversely affect the Target Group's financial condition and operating results

Interior design projects undertaken by the Target Group are generally non-recurring. There is no guarantee that the Target Group can continue to secure new contracts from its customers after the completion of the existing contracts. The Target Group may be required to go through a competitive quotation process to secure new contracts.

RISK FACTORS

During the Track Record Period, the Target Group’s revenue was mainly derived from a limited number of property developers in Hong Kong. For each of the three years ended 31 March 2016, 2017 and 2018 and the eight months ended 30 November 2018, revenue attributable to five largest customers accounted for approximately 58.9%, 57.7%, 51.1% and 55.7% of total revenue respectively. Given the fact that customers of the Target Group are mostly sizable property developers in Hong Kong, the directors of the Target Company expect that the Target Group’s major customers will continue to account for a relatively large percentage of total revenue in the coming years. Throughout the Track Record Period, the largest five customers have had a business relationship with the Target Group for over five years in general. There is no assurance that the Target Group will continue to obtain projects from its major customers in the future. If there is a significant decrease in the number and value of projects awarded by the Target Group’s major customers, the Target Group is unable to secure suitable projects of a comparable size and quantity as replacements from other customers, there is any deterioration of business relationships with its major customers, or there is any failure to expand its customer base continuously, the Target Group’s financial condition and operating results would be materially and adversely affected.

In addition, in the event that the Target Group’s major customers experience any liquidity problem, this may result in delay or default of payments to the Target Group, in which case the business, financial positions and prospects of the Target Group could be materially and adversely affected.

The Target Group’s past revenue and profit margin may not be indicative of the Target Group’s future revenue and profit margin, in particular, the Target Group’s revenue is mainly derived from the provision of interior design services to property projects in Hong Kong during the Track Record Period, any significant decrease in the number of residential and commercial projects to be initiated by property developers in Hong Kong in the future may materially and adversely affect the Target Group’s financial condition and operating results

For each of the three years ended 31 March 2016, 2017 and 2018 and the eight months ended 30 November 2018, the Target Group’s revenue amounted to approximately HK$55.7 million, HK$68.1 million, HK$61.8 million and HK$47.4 million, respectively, the Target Group’s gross profit amounted to approximately HK$34.3 million, HK$41.7 million, HK$35.2 million and HK$28.2 million, respectively (representing gross profit margin of approximately 61.6%, 61.3%, 57.0% and 59.4%, respectively), while the Target Group’s net profit amounted to approximately HK$15.7 million, HK$21.2 million, HK$16.5 million and HK$11.7 million, respectively (representing net profit margin of approximately 28.2%, 31.1%, 26.6% and 24.8%, respectively).

Over 70% of the Target Group’s revenue is derived from the provision of interior design and execution services to property projects located in Hong Kong during the Track Record Period. The performance of the interior design industry is cyclical and could be significantly affected by various factors, including the fluctuations in economic conditions, the number of residential and commercial projects in Hong Kong and the Government policy on property market. There is no assurance that the demand for interior design services derived from property projects in Hong Kong will not decrease in the future due to, for instance, downturn of property market that slows down the property development projects by developers, as a result of which the Target Group’s business, financial conditions and results of operations could be materially and adversely affected.

RISK FACTORS

There is a limited pool of qualified and high-quality candidates and any failure to recruit qualified professionals may adversely affect its business and growth

There is a limited pool of high-quality candidates who have the skills, know-how and experience required for the Target Group’s business. As the quality of the Target Group’s design is the key to its business, attracting talent is an important task of its business strategy and expansion. The Target Group may have to offer better incentive packages and training opportunities to attract sufficient skilled staff to maintain its business operation and growth, which may increase its costs and reduce its profit margin. The Target Group cannot assure that it will be able to recruit its designers to support its future operations and growth when necessary. Any failure to do so may adversely affect its business and growth.

The Target Group’s success is dependent on the retention of key management personnel, senior management and designers. Any failure in retaining key management personnel or hiring suitable talents may adversely affect the financial conditions and results of operations

The Target Group’s success and growth has largely been attributed to the contributions and experiences of its directors, senior management and designers, in particular, their familiarity with clients’ culture and business. Mr. Norman Chan, who is responsible for the overall business development, strategic planning and major decision making of the Target Group, possesses over 30 years of experience in the interior design industry. The key management personnel have had a long history of working with the clients and understand their needs and requirements. Moreover, the Target Group relies on its in-house designer team to deliver tailor-made interior designs that satisfy customers’ requirement, while also offering coordination and monitoring throughout the project execution stage to ensure the design delivered by the Target Group is materialised as conceived. As competition for such personnel is intense, any failure to recruit and retain the necessary management personnel at any time, any failure to replace them in a timely manner or the need to incur additional expenses to recruit, train and retain personnel, such circumstances could harm its business and prospects. Moreover, it would be detrimental to the Target Group if any of the key personnel or senior management joins the competitors of the Target Group or forms a company that competes with the business of the Target Group. Under the circumstances, the competitive position and business prospects may be materially and adversely affected.

Negative publicity or damage to the Target Group’s business reputation may have potential adverse impact on its business

The Target Group heavily relies on its reputation and the reputation of its team as contracts are generally obtained through customers who have experience and understanding in the quality of design and works of the Target Group. The directors of the Target Company believe that the Target Group has an established reputation in the interior design industry and is highly recognised for its capability to take up various type of projects and deliver quality designs that satisfy the customers’ requirement. Negative publicity associated with the Target Group and/or its team could result in the loss of customers or lead to increasing difficulty in securing new projects based on the Target Group’s reputation. If any customer who is not satisfied with works performed by the Target Group, raises any complaint regarding the Target Group which comes to the attention of the public, the Target Group’s existing or potential customers, the business, brand and reputation may be adversely affected, which will in turn, adversely affect the growth prospects and financial condition of the Target Group.

RISK FACTORS

Pricing for projects of the Target Group is based on estimated time and costs. Inaccurate estimation of time and costs or unexpected additional time and costs incurred in the actual performance of a project due to factors beyond the control of Target Group may affect its profitability

The Target Group has to estimate time and costs to undertake a potential project before making quotation / fee proposal / tender to customers. There is no assurance that the actual amount of time and costs would not exceed the budget. Factors beyond the control of the Target Group such as departure of key designers involved in the project, delay in services provided by drafting subcontractors and other unforeseen circumstances may incur additional time and costs in the performance of the projects. Any material inaccurate estimation in the time and costs may result in wrong pricing which adversely affect the Target Group's profit margin and results of operations.

If the Target Group is unable to anticipate or respond effectively to its customers' preferences, its business prospects and financial performance may be adversely affected

During the Track Record Period, the Target Group was responsible for developing interior design ideas for the projects. The customers generally compare design ideas and quotations of various interior design firms and select the designs which are most suitable for them. The Target Group believes that the continuing success depends on the capability to anticipate the preferences of the customers and develop interior design ideas which are suitable and preferred by its customers or potential customers. As customers' preferences for interior design are subjective in nature, the Target Group may fail to anticipate or respond effectively and timely to its customers' preferences. As a result, the business prospects and financial performance may be adversely affected.

The Target Group's business may suffer if it fails to provide quality services to its customers during defect liability period

The Target Group may be required by its customers to assist in coordinating rectification works performed by contractors during defect liability period in order to maintain strong and sustainable relationship with its customers. The Target Group believes that, by providing quality services, the Target Group will be able to attract and maintain recurring customers which are vital for its sustainable business growth. There is no guarantee that the Target Group can always provide decent quality services to its customers due to time constraint which may materially and adversely affect the Target Group's business, reputation and financial results.

The Target Group may be required to oversee the external contractors engaged by its clients in the project execution stage to ensure that the design plan is strictly adhered and meet customer's requirement

Upon providing the clients with the Target Group's design proposal, the Target Group will assist in monitoring the external suppliers and contractors engaged by clients in the project execution stage to ensure that fitting out works strictly adhere to the design plan and meet customer's requirement. Given that these suppliers and contractors are not engaged by the Target Group, there is no assurance that the Target Group will be able to monitor their performance directly and efficiently with its own staff. If the performance of the external suppliers or contractors does not conform with the design plan or meet its

RISK FACTORS

standards, the quality of the project may be affected, which could harm the Target Group's reputation. Additionally, if the external suppliers provide decoration materials of inferior quality to carry out the projects and if the defects in the materials are not discovered until after the completion of the projects, the Target Group may incur extra costs to maintain the service of monitoring rectification works. The clients of the Target Group may lose confidence in the quality of the services provided by the Target Group. As a result, the reputation, the financial performance and results of operation could be materially and adversely affected.

If the Target Group fails to meet the technical standards and design requirement of its clients, it may have to incur additional costs to amend the design plans which could harm its reputation and financial results

Target Group's clients are mostly renowned property developers which generally impose stringent requirement on technical standards (i.e. safety and functional requirements) and design (i.e. mood and concept). The Target Group may be required to amend design plans under the terms of quotations, which could incur significant additional costs. Failure to meet customers' requirement could harm the Target Group's reputation and hinder its ability to win future contracts. Technical defects in relation to safety could lead to personal injuries or property damages which could embroil the Target Group in potential litigation. In the above situations, the Target Group's business and financial performance could be materially and adversely affected.

There is no guarantee that the Target Group could receive project fee on time and in full. The Target Group's liquidity and financial position may be adversely affected if its customers default in, or delay, their payment obligations

During the Track Record Period, the Target Group generally received progress payment from its customers. The balance of contract assets amounted to approximately HK$18.9 million, HK$13.0 million, HK$13.3 million and HK$20.2 million while the trade receivables amounted to approximately HK$2.7 million, HK$26.4 million, HK$31.3 million and HK$4.1 million as at the year/period ended 31 March 2016, 2017 and 2018 and 30 November 2018, respectively. For details, please refer to the section headed "Financial information of the Target Group" in this circular. Progress payment should generally be made by the customer within 120 days upon issuance of invoice. During the Track Record Period, the Target Group's customers are mainly property developers and some of them are subject to financial risks of inaccurate budgeting in their projects, or the projects being delayed. As a result, the Target Group may encounter difficulties in collecting payments from those customers who are having financial difficulties or delayed projects. There is no assurance that the customers in the future will not subsequently default in, or delay, their payment obligations. In the event the Target Group's customers default in all or a substantial portion of their payment obligations to the Target Group, the Target Group's financial conditions may be materially and adversely affected.

The Target Group may not be able to implement business strategies effectively to drive its growth

In light of the competitive environment of the high-end interior design industry in Hong Kong, the key to continuous growth of Target Group's business lies on its ability to successfully implement the business strategies as set out in the section headed "Business of the Target Group - Business strategies" in this circular which include (i) maintaining and strengthening market position in Hong Kong; (ii) enhancing brand recognition and strengthening marketing efforts; and (iii) recruiting talents and enhancing internal training to support future growth.

RISK FACTORS

There is no assurance that the Target Group will be able to implement the aforesaid business strategies successfully within the reasonable time frame or budget. In the event that the Target Group fails to implement its business plans with reasonable budget in a timely manner if so required, the Target Group’s business operations, financial performance and results of operations could be adversely affected.

Any future natural disaster, health epidemics or terrorist attacks may adversely affect the operational results of the Target Group

The Target Group’s business is subject to general economic and social conditions in the regions it operates. Natural disasters, epidemics, terrorist attacks and other acts of God, which are beyond the Target Group’s control, may adversely affect the economy, infrastructure and livelihood of people in the regions where the Target Group operates. Any suspension of operations will affect the Target Group’s business and financial results.

The Target Group’s insurance may not fully cover all the potential losses arising from its business

During the Track Record Period, all of the Target Group’s revenue was derived from its provision of interior design services, and thus the Target Group’s employees who worked on a project were covered by the employees’ compensation insurance, and professional indemnity and liability insurance. For details, please refer to the section headed “Business of the Target Group – Insurance” in this circular. Nonetheless, there is no assurance that all potential losses and expenses incurred from damages or liabilities in relation to the Target Group’s business can be fully covered by insurance. In the event that the Target Group suffers from any losses, damages or liabilities in the course of its business operations which the Target Group’s insurance does not cover or is not adequately covered, it may not have sufficient funds to bear such losses, damages or liabilities. The resulting payment to cover such losses, damages or liabilities may have a material adverse effect on the business, results of operations and financial position of the Target Group.

The Target Group’s short-term results of operations may not be indicative of the long-term results of operations

The Target Group’s future revenues in a particular period may fluctuate as its revenues are recognised depending on the work progress, which may result in year-on-year fluctuations in revenues and profits. Accordingly, there can be no assurance that the Target Group’s short-term results of operations are indicative of its long-term results of operations.

Any recurrence of global financial crisis may have negative repercussions on the Target Group’s target customers

The global financial crisis caused substantial volatility in capital markets and a downturn in the global market. The Target Group’s major customers include Hong Kong property developers and Hong Kong listed companies. The recurrence of global financial crisis and any decline in the global economy may adversely affect the budgets or expansion plans of such customers, which may result in decrease in the demand for the Target Group’s services. Furthermore, if a number of its current customers terminate their contracts with the Target Group due to financial constraints, the Target Group’s operations and financial results may be adversely affected.

RISK FACTORS

The Target Group’s performance may be adversely affected by contractual dispute or litigation with its customers

The Target Group may be in dispute with our customers for various reasons. During the Track Record Period and up to the Latest Practicable Date, the Target Group did not have any dispute or litigation with its customers. Such disputes may arise in connection with late completion of work or delivery of substandard work. The handling of contractual disputes, litigation and other legal proceedings may sometimes involve a high degree of the Target Group’s management’s attention and input which on the other hand can be both costly and time-consuming, and may damage the Target Group’s reputation which may affect its financial performance.

RISK RELATING TO THE INDUSTRY OF THE TARGET GROUP

The Target Group operates in a competitive industry and failure to enhance its competitiveness may result in loss of customers and market share

The Target Group operates in a highly fragmented interior design industry in Hong Kong and it faces intense competition not only from other integrated interior design solution providers but also registered architects and other outsource design houses. If the Target Group fails to compete effectively or maintain its competitiveness in the market, its business, financial condition and results of operations will be materially and adversely affected.

The Target Group’s business may suffer if it does not respond effectively to changes in regulatory and industry standards

The Target Group’s success will depend, in part, on its ability to keep up with the pace of changing standards in the market the Target Group serves. If the Target Group does not respond successfully to changes in the regulatory, as well as evolving industry standards, its customers are likely to seek more qualified service providers who are able to respond more effectively to changes in the regulatory standards and better meet their demand. In such event, the Target Group’s business and results of operations may be materially and adversely affected.

The Target Group is affected by the development in the Hong Kong property market and the outlook of the Hong Kong economy

The Target Group offers interior design services to its customers by its in-house designers. The demand for the Target Group’s services is mainly driven by the need of stylish and well-designed residential homes, offices or other premises for its customers and the general economic environment in Hong Kong. Any sudden change in market expectation on the property industry may affect the buying or leasing decision of office space or residential properties by end users, and hence the demand for its services may be affected. Any concerns over the property market in Hong Kong due to the possibility for an increase in interest rate; and weaker economic momentum and outlook of the Hong Kong economy, may potentially affect property developers’ overall budget allocated for interior design of their new property projects. Accordingly, the Target Group’s results of operations and financial performance are affected by the market expectation on and prospects of the property industry.

RISK FACTORS

RISKS RELATING TO CONDUCTING BUSINESS IN HONG KONG

Recent measures of the Hong Kong Government may have material adverse effect on the demand of interior design services

The Hong Kong Government has introduced certain measures that may reduce transaction volume in the property market. The imposition of special stamp duty and buyer’s stamp duty has increased the transaction cost of purchases of residential properties and may deter potential property buyers and investors from acquiring residential properties. Efforts by the Hong Kong Government to slow down the pace of growth of the property market in Hong Kong may negatively affect the market and consequently impede the growth of the local property development industry. Measures that were introduced and those that may be introduced by the Hong Kong Government may lead to severe changes in market conditions and decreased demand for, properties in Hong Kong, and in turn affect the property development market. Any weakening in the Hong Kong property development sector could affect the demand for interior design services.

Economic, political and social considerations

The principal market and place of operation of the Target Group is Hong Kong. Hong Kong is a special administrative region of the PRC. It enjoys a high degree of autonomy under the principle of “one country, two systems” in accordance with the Basic Law of Hong Kong. However, the Target Group is not in any position to guarantee the same principle and the level of autonomy would be maintained as currently in place. Any change of Hong Kong’s existing political environment may affect the stability of the economy in Hong Kong, thereby affecting the results of operations and financial positions of the Target Group. Any political and social instability in Hong Kong, if significant and prolonged, could have a material adverse effect on the Target Group’s business, financial condition, results of operations and prospects.

RISKS RELATING TO THIS CIRCULAR

Statistics and industry information contained in this circular may not be accurate and should not be unduly relied upon

Certain facts, statistics, and data presented in “Appendix I – Industry overview” to this circular and elsewhere in this circular relating to the industry in which the Target Group operates have been derived, in part, from various publications and industry-related sources prepared by government officials or Independent Third Parties. The Company believes that the sources of the information are appropriate sources for such information, and the Sponsor and the Directors have taken reasonable care to extract and reproduce the publications and industry-related sources in this circular. In addition, the Company has no reason to believe that such information is false or misleading or that any fact that would render such information false or misleading has been omitted. However, neither the Company, the Directors, the Sponsor, nor any parties involved in the Proposed Restructuring, except Frost & Sullivan, have independently verified, or make any representation as to, the accuracy of such information and statistics. It cannot be assured that statistics derived from such sources will be prepared on a comparable basis or that such information and statistics will be stated or prepared at the same standard or level of accuracy as, or consistent with, those in other publications within or outside Hong Kong. Accordingly, such information and statistics may not be accurate and should not be unduly relied upon.

RISK FACTORS

The future results could differ materially from those expressed or implied by the forward-looking statements

Included in this circular are various forward-looking statements that are based on various assumptions. The future results could differ materially from those expressed or implied by such forward-looking statements. For details of these statements and the associated risks, please refer to the section headed "Forward-looking statements" in this circular.

Shareholders should read this entire circular carefully and should not place any reliance on any information (if any) contained in press articles or other media regarding the Target Group and the Proposed Restructuring including, in particular, any financial projections, valuations or other forward looking statement

Prior to the publication of this circular, there may be press or other media, which contains certain information referring to the Target Group and the Proposed Restructuring that is not set out in this circular. Neither the Company nor the Target Group, the Sponsor, the Financial Advisers, the Independent Financial Adviser, the Directors, officers, employees, advisers, agents or representatives of any of them, or any other parties (collectively, the "Professional Parties") involved in the Proposed Restructuring has authorised the disclosure of such information in any press or media, and neither the press reports, any future press reports nor any repetition, elaboration or derivative work were prepared by, sourced from, or authorised by the Company or any of the Professional Parties. Neither the Company nor any of the Professional Parties accept any responsibility for any such press or media coverage or the accuracy or completeness of any such information. The Company makes no representation as to the appropriateness, accuracy, completeness or reliability of any such information or publication. To the extent that any such information is not contained in this circular or is inconsistent or conflicts with the information contained in this circular, the Company disclaims any responsibility, liability whatsoever in connection therewith or resulting therefrom. Accordingly, Shareholders should not rely on any such information in making your decision as to how you would cast your votes at the EGM in relation to, inter alia, the Proposed Restructuring. You should rely only on the information contained in this circular.

DIRECTORS, SENIOR MANAGEMENT AND PARTIES INVOLVED

The following are the Directors and senior management as at the Latest Practicable Date and immediately following Completion:

EXISTING DIRECTORS (Note)

Name	Address	Nationality
Executive Directors
Ms. Yip Man Yi
(葉敏怡)	Flat C, 17/F, Tower 9
Parc Royale
Tai Wai, New Territories
Hong Kong	Chinese
Mr. Shiu Chi Tak, Titus
(邵志得)	Flat 3, 5/F, Tong Wu House
Yuk Po Court, Choi Yuen Road
Sheung Shui
Hong Kong	Chinese
Ms. Hung Wai Man
(孔慧敏)	Flat 6, Floor 3, Block C
Sun Lai Garden
2 King Tung Street
Kowloon
Hong Kong	Chinese
Independent non-executive Directors
Dr. Wan Ho Yuen, Terence
(溫浩源)	Flat E, 10/F, Block 2
Bamboo Mansion
3 Tak Hong Street
Kowloon
Hong Kong	Chinese
Mr. Li Kwok Chu
(李國柱)	Flat G, 12/F, Block 2
The Pinnacle
8 Wan Hang Road,
Tseung Kwan O, New Territories
Hong Kong	Chinese
Mr. Lau Shu Yan
(劉樹人)	Unit A, 5/F, Court B, Tower 2
Dragons Range, 33 Lai Ping Road
Shatin, New Territories
Hong Kong	Chinese

Note: All existing Directors will resign upon Completion.

DIRECTORS, SENIOR MANAGEMENT AND PARTIES INVOLVED

PROPOSED DIRECTORS AND SENIOR MANAGEMENT

The following are the Director and senior management immediately after Completion:

Name	Address	Nationality
Executive Directors
Mr. Chan Norman Enrique
(陳樂文)	No. 19 Braga Circuit
Ho Man Tin, Kowloon
Hong Kong	Chinese
Mr. Lee Alex Kam-fai
(李錦輝)	Flat D, 9/F, Block 6A
Lions Rise, 8 Muk Lun Street
Wong Tai Sin, Kowloon
Hong Kong	Canadian
Independent non-executive Directors
Mr. Kwong U Hoi Andrew
(鄺宇開)	Flat C, 8/F
Lung Cheung Court
15 Broadcast Drive
Kowloon Tong, Kowloon
Hong Kong	British
Mr. Wong Jonathan
(黃若鋒)	Room 1A
Cheerbond Court
156 Boundary Street
Kowloon Tong, Kowloon
Hong Kong	Canadian
Mr. Chi Chi Hung Kenneth
(季志雄)	Unit 180A, Lin Fa Tei
Kam Sheung Road
Yuen Long, New Territories
Hong Kong	Chinese
Senior management
Mr. Leung Shiu Fung, Kevini
(梁韶豐)	Flat B, 22/F
Block 5
Lake Silver
599 Sai Sha Road
Ma On Shan, New Territories
Hong Kong	Chinese
Mr. Yeung Sai Cheong
(楊世昌)	Flat 16, 5/F, Lung San House
Lung Poon Court
Diamond Hill, Kowloon
Hong Kong	Chinese
Mr. Cheung Chi Kin
(張智鍵)	Flat 1, 6/F, Block D
Yat Mei House
Yau Chui Court
Yau Tong, Kowloon
Hong Kong	Chinese

For further information on the background of the proposed Directors and senior management, please refer to the section headed "Directors and senior management of the Restructured Group" in this circular.

DIRECTORS, SENIOR MANAGEMENT AND PARTIES INVOLVED

PARTIES INVOLVED IN THE PROPOSED RESTRUCTURING

Sponsor to the Company

Messis Capital Limited
A licensed corporation to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO
Room 1606, 16th Floor, Tower 2
Admiralty Centre
18 Harcourt Road
Hong Kong

Financial Adviser to the Company

Optima Capital Limited
A licensed corporation to carry out type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO
Unit 1501, 15/F Jardine House
1 Connaught Place
Central
Hong Kong

Financial Adviser to Mr. Norman Chan

Veda Capital Limited
A licensed corporation to carry out type 6 (advising on corporate finance) regulated activity under the SFO
Room 1106, 11/F Wing On Centre
111 Connaught Road Central
Sheung Wan
Hong Kong

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

Nuada Limited
A licensed corporation to carry out type 6 (advising on corporate finance) regulated activity under the SFO
Unit 1606, 16/F OfficePlus @Sheung Wan
93-103 Wing Lok Street
Sheung Wan
Hong Kong

DIRECTORS, SENIOR MANAGEMENT AND PARTIES INVOLVED

Legal advisers to the Company

As to Hong Kong Law
Yuen & Partners
Solicitors, Hong Kong
10/F, Chiyu Bank Building
78 Des Voeux Road Central
Hong Kong

As to Hong Kong Law on the Share Offer and the reverse takeover
Michael Li & Co.
Solicitors, Hong Kong
19/F, Prosperity Tower
39 Queen's Road Central
Central, Hong Kong

As to Cayman Islands Law
Conyers Dill & Pearman
Cayman Islands attorneys-at-law
29th Floor
One Exchange Square
8 Connaught Place
Central
Hong Kong

Legal advisers to the Sponsor

As to Hong Kong Law on the new listing application
Fairbairn Catley Low & Kong
Solicitors, Hong Kong
23/F Shui On Centre
6-8 Harbour Road
Hong Kong

Auditor and reporting accountants in relation to the Target Group

RSM Hong Kong
Certified Public Accountants
29th Floor, Lee Garden Two
28 Yun Ping Road
Causeway Bay
Hong Kong

Auditor and reporting accountants in relation to the Group

Elite Partners CPA Limited
Certified Public Accountants
10th Floor, 8 Observatory Road
Tsimshatsui
Kowloon
Hong Kong

DIRECTORS, SENIOR MANAGEMENT AND PARTIES INVOLVED

Internal control consultant
Avista PRO-WIS Risk Advisory Limited
23rd Floor, Siu On Centre
No. 188 Lockhart Road
Wan Chai
Hong Kong

Compliance adviser
Messis Capital Limited
A licensed corporation to carry out type 1 (dealing
in securities) and type 6 (advising on corporate
finance) regulated activities under the SFO
Room 1606, 16th Floor, Tower 2
Admiralty Centre
18 Harcourt Road
Hong Kong

CORPORATE INFORMATION OF THE COMPANY

Registered office
P.O. Box 309
Ugland House
Grand Cayman
KYI-1104
Cayman Islands

Head office and principal place of business in Hong Kong
Unit A, 29/F
CKK Commercial Centre
289-295 Hennessy Road
Wanchai
Hong Kong

Company's website
http://www.unionasiahk.com
(Contents contained in this website do not form part of this circular)

Company secretary as at the Latest Practicable Date and after Completion
Ms. Hung Wai Man (HKICPA)
(孔慧敏)

Authorised representatives as at the Latest Practicable Date
Mr. Shiu Chi Tak, Titus
Flat 3, 5/F, Tong Wu House
Yuk Po Court, Choi Yuen Road
Sheung Shui, Hong Kong

Ms. Hung Wai Man
Flat 6, 3/F, Block C
Sun Lai Garden, 2 King Tung Street
Kowloon, Hong Kong

Authorised representatives after Completion
Mr. Chan Norman Enrique
No. 19 Braga Circuit
Ho Man Tin, Kowloon
Hong Kong

Mr. Lee Alex Kam-fai
Flat D, 9/F, Block 6A
Lion Rise, 8 Muk Lun Street
Wong Tai Sin, Kowloon
Hong Kong

Compliance officer as at the Latest Practicable Date
Ms. Yip Man Yi
Flat C, 17/F, Tower 9
Parc Royale
Tai Wai, New Territories
Hong Kong

CORPORATE INFORMATION OF THE COMPANY

Compliance officer after Completion
Mr. Chan Norman Enrique
No. 19 Braga Circuit
Ho Man Tin, Kowloon
Hong Kong

Audit committee as at the Latest Practicable Date
Dr. Wan Ho Yuen, Terence (Chairman)
Mr. Li Kwok Chu
Mr. Lau Shu Yan

Audit committee after Completion
Mr. Chi Chi Hung Kenneth (Chairman)
Mr. Kwong U Hoi Andrew
Mr. Wong Jonathan

Remuneration committee as at the Latest Practicable Date
Mr. Li Kwok Chu (Chairman)
Mr. Lau Shu Yan
Dr. Wan Ho Yuen, Terence

Remuneration committee after Completion
Mr. Kwong U Hoi Andrew (Chairman)
Mr. Wong Jonathan
Mr. Chi Chi Hung Kenneth

Nomination committee as at the Latest Practicable Date
Mr. Li Kwok Chu (Chairman)
Mr. Lau Shu Yan
Dr. Wan Ho Yuen, Terence

Nomination committee after Completion
Mr. Wong Jonathan (Chairman)
Mr. Kwong U Hoi Andrew
Mr. Chi Chi Hung Kenneth

Share registrar and transfer office in Hong Kong
Union Registrars Limited
Suites 3301-04, 33/F
Two Chinachem Exchange Square
338 King's Road
North Point
Hong Kong

Principal bankers of the Group
Bank of China (Hong Kong) Limited
24/F Bank of China Tower
1 Garden Road
Hong Kong

Bank of Communications Co., Ltd.
20 Pedder Street
Central
Hong Kong

CORPORATE INFORMATION OF THE COMPANY

Principal bankers of the Target Group

The Hong Kong and Shanghai Banking Corporation Limited
Level 10
HSBC Main Building
1 Queen's Road Central
Hong Kong

China Citic Bank International Limited
61-65 Des Voeux Road Central
Hong Kong

LETTER FROM THE BOARD

UNION ASIA ENTERPRISE HOLDINGS LTD

萬亞企業控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 8173)

Executive Directors:
Ms. Yip Man Yi
Mr. Shiu Chi Tak, Titus
Ms. Hung Wai Man

Independent non-executive Directors:
Dr. Wan Ho Yuen, Terence
Mr. Li Kwok Chu
Mr. Lau Shu Yan

Registered office:
P.O. Box 309
Ugland House
Grand Cayman
KY1-1104 Cayman Islands

Head office and principal place of
business in Hong Kong:
Unit A, 29/F.
CKK Commercial Centre
289-295 Hennessy Road
Wanchai, Hong Kong

29 May 2019

To the Shareholders

Dear Sirs,

(1) PROPOSED RESTRUCTURING INVOLVING, INTER ALIA, PROPOSED CAPITAL REORGANISATION, PROPOSED SHARE OFFER, CREDITORS SCHEMES, ACQUISITION, PROVISION OF INVESTOR LOAN AND INVESTOR LOAN CAPITALISATION;
(2) VERY SUBSTANTIAL ACQUISITION, REVERSE TAKEOVER INVOLVING NEW LISTING APPLICATION, AND CONNECTED TRANSACTION, IN RELATION TO THE ACQUISITION UNDER THE PROPOSED RESTRUCTURING;
(3) VERY SUBSTANTIAL DISPOSAL IN RELATION TO THE DISPOSAL OF ALL ASSETS AND LIABILITIES OF THE COMPANY TO THE SCHEME SPC UNDER THE CREDITORS SCHEMES;
(4) APPLICATION FOR WHITEWASH WAIVER IN RELATION TO ISSUE OF CONSIDERATION SHARES UNDER THE ACQUISITION AGREEMENT AND CAPITALISATION SHARES UNDER THE INVESTOR LOAN AGREEMENT;
(5) SPECIAL DEAL IN RELATION TO THE REPAYMENT OF OUTSTANDING INDEBTEDNESS TO ONE OF THE CREDITORS UNDER THE CREDITORS SCHEMES;
(6) ISSUE OF OFFER SHARES, CREDITORS SHARES, CONSIDERATION SHARES AND CAPITALISATION SHARES UNDER A SPECIFIC MANDATE;
(7) PROPOSED APPOINTMENT OF DIRECTORS;
(8) PROPOSED ADOPTION OF THE AMENDED AND RESTATED MEMORANDUM AND ARTICLES OF ASSOCIATION;

AND

(9) NOTICE OF EGM

LETTER FROM THE BOARD

I. INTRODUCTION

References are made to (i) the announcements of the Company dated 2 December 2016, 6 December 2016, and 20 March 2017, in relation to, among other things, the decision of the Stock Exchange to proceed with cancellation of the Company's listing status; (ii) the announcements of the Company dated 9 November 2017, 10 November 2017, 21 December 2017, 22 January 2018, 22 February 2018, 23 March 2018, 4 April 2018, 4 May 2018, 4 June 2018, 28 June 2018, 29 June 2018, 1 August 2018, 31 August 2018, 2 October 2018, 2 November 2018, 3 December 2018, 31 December 2018, 31 January 2019, 28 February 2019, 28 March 2019 and 29 April 2019 in relation to, among other things, the Resumption Proposal; and (iii) the announcement of the Company dated 16 May 2019, in relation to, among other things, the proposed Share Offer and certain other amendments on the Restructuring Framework Agreement, the Acquisition Agreement, the Investor Loan Agreement and the Creditors Schemes.

On 17 March 2017, the Stock Exchange notified the Company that the GEM Listing Committee, having considered all the submissions (both written and oral) made by the Company and the Listing Department of the Stock Exchange, considered that the Company had failed to maintain sufficient operations or assets under Rule 17.26 of the GEM Listing Rules to warrant the continued listing of the Shares. The GEM Listing Committee therefore decided to uphold the decision to suspend trading in the Shares under Rules 9.04 of the GEM Listing Rules and commenced the procedures to cancel the Company's listing under Rules 9.14 to 9.16 of the GEM Listing Rules.

On 30 October 2017, the Company received a letter from the Stock Exchange in which it stated that the Stock Exchange agreed to allow the Company to submit a new listing application relating to the Resumption Proposal on or before 8 January 2018. Subsequently, the Company applied for, and the Stock Exchange granted on 19 January 2018, extension of time to the Company to submit the new listing application relating to the Resumption Proposal on or before 29 June 2018, and the Company had submitted the new listing application on 29 June 2018.

LETTER FROM THE BOARD

On 23 November 2018, the Company further amended the Resumption Proposal, which was subsequently finalised on 16 May 2019 under the Amended and Restated Agreements entered into between the Company and the relevant parties. Pursuant to the Amended and Restated Agreements, the final Resumption Proposal involved among other things, the Capital Reorganisation, the Share Offer, the Creditors Schemes, the Acquisition, and the provision of the Investor Loan and Investor Loan Capitalisation.

On 4 January 2019, the Company re-submitted a new listing application, and on 24 May 2019, the Stock Exchange has granted the approval-in-principle in relation to the new listing application.

Upon Completion, all existing assets of the Company will be transferred to the Scheme SPC and the sole asset of the Company will be the Target Group's business. According to the unaudited pro forma financial information of the Restructured Group as set out in the Appendix V to this circular, the unaudited pro forma adjusted consolidated revenue of the Restructured Group will be approximately HK$167.5 million, the unaudited pro forma adjusted consolidated profit before tax of the Restructured Group will be approximately HK$276.9 million and the unaudited pro forma adjusted consolidated total assets of the Restructured Group will be approximately HK$101.3 million. The Board considers upon Completion, the Restructured Group will have a sufficient level of operations and assets for maintaining its listing status on the Stock Exchange. Dealing in the New Shares on the Stock Exchange is expected to resume on 14 November 2019.

LETTER FROM THE BOARD

The resumption of trading of the Shares on the Stock Exchange is on the condition that the Company is able to demonstrate sufficient level of operations and assets under the Rule 17.26 of the GEM Listing Rules. The Capital Reorganisation, the Share Offer, the Creditors Schemes, the Acquisition and the Investor Loan Capitalisation which form part and parcel of the Resumption Proposal, are inter-conditional upon each other.

II. RESTRUCTURING FRAMEWORK AGREEMENT

The Proposed Restructuring which involves (i) the Capital Reorganisation; (ii) the Share Offer; (iii) the Creditors Schemes; (iv) the Acquisition; and (v) the Investor Loan Capitalisation, was finalised on 16 May 2019 under the Amended and Restated Agreements entered into between the Company and the relevant parties. Details of the Proposed Restructuring are set out below.

CAPITAL REORGANISATION

Pursuant to the Restructuring Framework Agreement, the Company proposed to implement, subject to the approval by the Shareholders, the Capital Reorganisation as follows:

(i) the Share Premium Cancellation: the entire amount in the sum of HK$3,661,406,000 standing to the credit of the share premium account of the Company will be cancelled to set off against part of the total accumulated losses of the Company of approximately HK$4,525,374,000;

(ii) Share Consolidation: every fifty (50) issued Shares of HK$0.08 each will be consolidated into one (1) Consolidated Share of HK$4.0 each in the issued share capital of the Company, so there will be a total of 68,303,955 Consolidated Shares in issue upon Share Consolidation;

(iii) Capital Reduction: upon Share Consolidation taking effect, (i) any fractions of Shares arising out of the Share Consolidation will be cancelled; and (ii) the nominal value of the issued Consolidated Shares will be reduced from HK$4.0 to HK$0.0001 each (i.e. New Share) by cancelling the paid-up capital to the extent of HK$3.9999 each, and the total credit of approximately HK$273,208,990 arising therefrom will be applied to further set off the accumulated losses of the Company of approximately HK$4,525,374,000;

(iv) Unissued Share Capital Cancellation: upon the Capital Reduction taking effect, all the authorised but unissued share capital of the Company will be cancelled in their entirety; and

(v) Authorised Share Capital Increase: upon the Unissued Share Capital Cancellation taking effect, the authorised share capital of the Company will be increased to HK$10,000,000 divided into 100,000,000,000 New Shares.

Upon the Capital Reorganisation becoming effective, the accumulated losses of the Company will be reduced from approximately HK$4,525.4 million to approximately HK$590.8 million.

LETTER FROM THE BOARD

Fractional Consolidated Shares arising from the Capital Reorganisation will be disregarded and will not be issued to the Shareholders but all such fractional Consolidated Shares will be aggregated and, if possible, sold for the benefit of the Company.

Conditions precedent of the Capital Reorganisation

The Capital Reorganisation will become effective subject to the fulfilment of the following conditions:

(i) the passing of a special resolution by the Shareholders by way of poll at the EGM to approve the Capital Reorganisation;

(ii) the Grand Court granting an order confirming the Capital Reduction;

(iii) the registration by the Registrar of Companies in the Cayman Islands of a copy of the Grand Court order approving the Capital Reduction and the minutes containing the particulars required under the Companies Law;

(iv) compliance with any conditions imposed by the Grand Court; and

(v) the GEM Listing Committee granting the listing of, and permission to deal in, the New Shares in issue upon the Capital Reorganisation becoming effective.

Effects of the Capital Reorganisation

Other than the relevant expenses incurred, the implementation of the Capital Reorganisation will not, by itself, alter the underlying assets, liabilities, businesses, operations, management or financial position of the Company and the Group or the rights of the Shareholders.

The following table sets out the effect of the Capital Reorganisation on the share capital of the Company, before and after completion of the Capital Reorganisation:

	Immediately before the Capital Reorganisation becoming effective	Immediately after the Capital Reorganisation becoming effective
Nominal value	HK$0.08
per Share	HK$0.0001
per New Share
Number of authorised shares	31,250,000,000
Shares	100,000,000,000
New Shares
Authorised share capital (HK$)	2,500,000,000	10,000,000
Number of issued and paid-up shares	3,415,197,762
Shares	68,303,955
New Shares
Paid-up capital (HK$)	273,215,821	6,830

LETTER FROM THE BOARD

Status of the New Shares after the Capital Reorganisation

The New Shares will be identical and rank pari passu in all respects with each other.

Listing and dealings

The Company has applied to the Stock Exchange for the listing of, and the permission to deal in, the New Shares. Subject to the granting of the listing of, and the permission to deal in, the New Shares on the Stock Exchange, the New Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the New Shares on the Stock Exchange or such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

No part of the equity or debt securities of the Company is listed or dealt in on any other stock exchanges other than the Stock Exchange and no such listing or permission to deal in is being or is currently proposed to be sought from any other stock exchange.

Expected effective date of the Capital Reorganisation

The Capital Reorganisation will become effective immediately after the conditions mentioned in paragraph headed "Conditions precedent of the Capital Reorganisation" above are fulfilled. An application will be made to the Grand Court for the approval of the Capital Reorganisation. According to the expected timetable set out in this circular, the effective date of the Capital Reorganisation is expected to be Tuesday, 22 October 2019.

Reasons for the Capital Reorganisation

The Capital Reorganisation forms part and parcel of the Resumption Proposal and the Company considers that it will give greater flexibility to the Company to raise funds through the issue of New Shares in the future.

THE SHARE OFFER

The Board proposed to offer a total of 227,679,850 Offer Shares for subscription at the Offer Price (i.e. HK$0.19 per Offer Share). Of the 227,679,850 Offer Shares, 113,839,925 Offer Shares (i.e. Public Offer Shares) are available for subscription by the members of the public and another 113,839,925 Offer Shares (i.e. Reserved Shares) are available for subscription by the Qualifying Shareholders under the Preferential Offering as the Assured Entitlement.

The Share Offer will be fully underwritten by the Underwriter subject to the terms and conditions of the Underwriting Agreement. Applicants for the Offer Shares (including the Public Offer Shares and the Reserved Shares) are required on application to pay the Offer Price plus 1% brokerage, 0.0027% SFC transaction levy and 0.005% Stock Exchange trading fee.

LETTER FROM THE BOARD

The Share Offer is open to members of the public as well as to institutional and professional investors. The existing Shareholders whose names appear on the register of members of the Company on the Assured Entitlement Record Date other than the Non-Qualifying Shareholders (i.e. the Qualifying Shareholders) will be entitled to apply for a specified number of Offer Shares (i.e. the Reserved Shares) on an assured basis under the Preferential Offering.

Completion of the Share Offer is subject to the conditions set forth in paragraph headed "Conditions of the Share Offer" below.

Allocation of the Public Offer Shares

Allocation of the Public Offer Shares to investors under the Public Offer will be based solely on the level of valid applications received under the Public Offer. The basis of allocation may vary, depending on the number of Public Offer Shares validly applied for by applicants. Such allocation could, where appropriate, consist of balloting, which would mean that some applicants may receive a higher allocation than others who have applied for the same number of Public Offer Shares, and those applicants who are not successful in the ballot may not receive any Public Offer Shares.

For allocation purposes only, the total number of Public Offer Shares available under the Public Offer is to be divided equally (to the nearest board lot) into two pools for allocation purposes: Pool A and Pool B.

Pool A : The Public Offer Shares in Pool A will be allocated on a pro rata basis to each applicant who has applied for the Public Offer Shares with an aggregate subscription price of not more than HK$5 million (excluding the brokerage, the Stock Exchange trading fee and the SFC transaction levy payable).

Pool B : The Public Offer Shares in Pool B will be allocated on a pro rata basis to each applicant who has applied for the Public Offer Shares with an aggregate subscription price of more than HK$5 million (excluding the brokerage, the Stock Exchange trading fee and the SFC transaction levy payable) and up to the value of Pool B.

Investors should be aware that applications in Pool A and in Pool B may receive different allocation ratios. If Public Offer Shares in one (but not both) of the pools are under-subscribed, the surplus Public Offer Shares will be transferred to the other pool to satisfy demand in that other pool and be allocated accordingly. Applicants can only receive an allocation of Public Offer Shares from either Pool A or Pool B but not from both pools. Multiple or suspected multiple applications and any application for more than 50% of the Public Offer Shares will be rejected.

LETTER FROM THE BOARD

Basis of the Assured Entitlement under the Preferential Offering

In order to enable the Qualifying Shareholders to participate in the Share Offer on a preferential basis as to allocation only, subject to the Stock Exchange granting approval for the listing of, and permission to deal in, the Offer Shares on the Stock Exchange and the Share Offer becoming unconditional, the Qualifying Shareholders are invited to apply for up to 113,839,925 Reserved Shares under the Preferential Offering, representing 50% of the number of the Offer Shares.

The basis of the Qualifying Shareholders' Assured Entitlement is 10 Reserved Shares for every 6 New Shares held by the Qualifying Shareholders on the Assured Entitlement Record Date.

The Qualifying Shareholders' Assured Entitlement are not transferable and there will be no trading in nil-paid entitlements on the Stock Exchange.

The Qualifying Shareholders should note that their Assured Entitlement may not represent a number of a full board lot of 40,000 New Shares. Further, the Reserved Shares allocated to the Qualifying Shareholders will be rounded down to the closest whole number if required, and dealings in odd lots of the New Shares may be at a price below the prevailing market price for full board lots. The Company will appoint an agent to provide matching services, on a best efforts basis, to the Qualifying Shareholders to facilitate the trading of odd lots of New Shares which the Qualifying Shareholders may receive under the Preferential Offering. Details of the arrangement will be disclosed in the prospectus in respect of the Share Offer to be published under the GEM Listing Rules in due course.

The Qualifying Shareholders who hold less than 6 New Shares on the Assured Entitlement Record Date and therefore not entitled to any Assured Entitlement will still be entitled to participate in the Preferential Offering by applying for excess Reserved Shares as further described below.

Application for excess Reserved Shares

Qualifying Shareholders may apply for a number of Reserved Shares which is greater than, less than or equal to their Assured Entitlement or may only apply for excess Reserved Shares under the Preferential Offering. A valid application for a number of Reserved Shares which is less than or equal to a Qualifying Shareholder's Assured Entitlement under the Preferential Offering will be accepted in full subject to the terms and conditions of the Prospectus Documents and assuming the conditions of the Share Offer are satisfied.

Where a Qualifying Shareholder applies for a number of Reserved Shares which is greater than a Qualifying Shareholder's Assured Entitlement, the relevant Qualifying Shareholder's Assured Entitlement will be satisfied in full (subject to the terms and conditions of the Prospectus Documents) but the excess portion of such application will only be met to the extent that there are sufficient Available Reserved Shares by way of allocation by the Underwriter on a fair and pro rata basis by reference to the number of excess Reserved Shares applied for by all such Qualifying Shareholders.

LETTER FROM THE BOARD

To the extent that the excess applications for the Reserved Shares are:

(ii) equal to the Available Reserved Shares, the Available Reserved Shares will be allocated to satisfy such excess applications for the Reserved Shares in full; or

(iii) more than the Available Reserved Shares, the Available Reserved Shares will be allocated on a fair and pro rata basis by reference to the number of excess Reserved Shares applied for by all such Qualifying Shareholders.

If there is an odd lot number of Reserved Shares left after satisfying the excess applications, such number of odd lot Reserved Shares will be reallocated to the Public Offer. No preference will be given to any excess applications made to top up odd lot holdings to whole lot holdings of Reserved Shares.

For the avoidance of doubt, the Qualifying Shareholders are only entitled to apply for the Reserved Shares and not entitled to apply for the Public Offer Shares.

Shareholders with their Shares held by a nominee (or which are held in CCASS) should note that the Board will consider the nominee (including HKSCC Nominees Limited) as one single Shareholder according to the register of members of the Company. Accordingly, such Shareholders should note that the aforesaid arrangement in relation to the allocation of the excess Reserved Shares will not be extended to the relevant beneficial owners individually. Shareholders with their Shares held by a nominee (or which are held in CCASS) are advised to consider whether they would like to arrange for the registration of their relevant Shares under the names of the beneficial owners prior to the Assured Entitlement Record Date for the purpose of the Preferential Offering. Shareholders and investors should consult their professional advisers if they are in doubt as to their status.

In the event that the Board notes unusual patterns of excess Reserved Shares applications and has reason to believe that any application may have been made with the intention to abuse the above mechanism, such application(s) for excess Reserved Shares may be rejected at the sole discretion of the Board.

Rights of the Overseas Shareholders

The Prospectus Documents are not intended to be registered under the applicable securities legislation of any jurisdiction other than Hong Kong.

According to the register of members of the Company as at the Latest Practicable Date, no Shareholder had a registered address situated outside Hong Kong. If, as at the close of the business on the Assured Entitlement Record Date, a Shareholder's address as recorded on the register of members of the Company is in a place outside Hong Kong, the Board will make enquiries as to whether the issue of the Reserved Shares to the Overseas Shareholders, if any, may contravene the applicable securities legislation of the relevant overseas

LETTER FROM THE BOARD

jurisdictions or the requirements of any relevant regulatory body or stock exchange pursuant to Rule 17.41(1) of the GEM Listing Rules and result of the enquiries will be included in the Prospectus. If, after making such enquiry, the Board is of the opinion that it would be necessary or expedient, on account either of the legal restrictions under the laws of the relevant place or any requirement of the relevant regulatory body or stock exchange in that place, not to offer the Reserved Shares to such Overseas Shareholders, the Preferential Offering will not be available to the Non-Qualifying Shareholders.

Overseas Shareholders should note that they may or may not be entitled to participate in the Preferential Offering, subject to the results of enquiries made by the Board pursuant to Rule 17.41(1) of the GEM Listing Rules. Accordingly, the Overseas Shareholders should exercise caution when dealing in the Shares, and if they are in any doubt about their position, they should consult their professional advisers.

The Offer Shares

As at the Latest Practicable Date, the issued share capital of the Company was 3,415,197,762 Shares, and other than the Convertible Bonds, the Company did not have any options, warrants or convertible securities in issue. As at the Latest Practicable Date, the Company had received the CB Undertakings from all of the holders of the Convertible Bonds undertaking not to convert the Convertible Bonds up to Completion and undertaking to procure the transferee(s) to provide similar undertaking if they transfer the Convertible Bonds.

Assuming there is no change in the issued share capital of the Company (other than the issue of the Consolidated Shares and the New Shares pursuant to the Capital Reorganisation, the issue of the Consideration Shares, pursuant to the Acquisition Agreement, the issue of the Capitalisation Shares pursuant to the Investor Loan Agreement and assuming no exercise of the conversion rights attaching to the Convertible Bonds) from the Latest Practicable Date up to the Assured Entitlement Record Date, the 227,679,850 Offer Shares to be allotted and issued pursuant to the Share Offer represent:

(i) approximately 6.7% of the existing issued share capital of the Company;
(ii) approximately 333.3% of the issued shares of the Company upon the completion of the Capital Reorganisation;
(iii) approximately 76.9% of the issued shares of the Company upon the completion of the Capital Reorganisation and as enlarged by the allotment and issue of the Offer Shares; and
(iv) approximately 18.6% of the Enlarged Issued Share Capital upon Completion.

As at the Latest Practicable Date, the Company had not received any information from any Shareholder (including the Existing Substantial Shareholder) of its intention to take up the Offer Shares under the Share Offer.

LETTER FROM THE BOARD

The Offer Price

The Offer Price of HK$0.19 each represents a discount of approximately 85.9% to the theoretical quoted price of HK$1.35 per New Share (the quoted price of HK$0.027 per Share has been adjusted to reflect the effect of the Capital Reorganisation) on 17 March 2017, being the Last Trading Day.

The Offer Price was determined by the Company, after taking into account (i) the financial performance and financial position of the Group; (ii) the fact that trading in the Shares on the Stock Exchange has been suspended since 20 March 2017; and (iii) the aggregated funding needs for the payment of professional fees and expenses and working capital of the Company which amounted to approximately HK$43.2 million.

Conditions of the Share Offer

The Share Offer is conditional upon, among others, (i) the Underwriting Agreement becoming unconditional; (ii) the Underwriter not terminating the Underwriting Agreement in accordance with its terms; and (iii) the subscription level of the Public Offer Shares by the New Public Shareholders demonstrating sufficient public interest. The conditions of the Underwriting Agreement are set out under the paragraph headed "Conditions precedent to the Underwriting Agreement" below.

If the conditions of the Share Offer and the Underwriting Agreement are not fulfilled or waived (as the case may be), the Share Offer will not proceed.

Qualifying Shareholders

The Preferential Offering will only be available to the Qualifying Shareholders and will not be available to the Non-Qualifying Shareholders. The Company will send the Prospectus Documents to the Qualifying Shareholders only. For the Non-Qualifying Shareholders, the Company will send copies of the Prospectus to them for their information only and no Application Form will be sent to the Non-Qualifying Shareholders.

To qualify for the Preferential Offering, a Shareholder must, at the close of business on the Assured Entitlement Record Date:

(i) be registered as a member of the Company on the register of members of the Company; and
(ii) not be a Non-Qualifying Shareholder.

In order to be registered as members of the Company on the Assured Entitlement Record Date, all transfers of New Shares must be lodged (together with the relevant share certificate(s)) for registration with the Company's branch share registrar and transfer office in Hong Kong, Union Registrars Limited, at Suites 3301-04, 33/F., Two Chinachem Exchange Square, 338 King's Road, North Point, Hong Kong by 4:00 p.m. on Thursday, 24

LETTER FROM THE BOARD

October 2019. It is expected that the last day of dealing in the New Shares on a cum-entitlement basis is Tuesday, 22 October 2019 and the New Shares will be dealt with on an ex-entitlement basis from Wednesday, 23 October 2019.

Status of the Reserved Shares

The Reserved Shares, when allotted, issued and fully paid, will rank pari passu with the New Shares then in issue on the date of allotment of the Reserved Shares in all respects. Holders of such Reserved Shares will be entitled to receive all future dividends and distributions which are declared, made or paid after the date of allotment and issue of the Reserved Shares.

Reallocation

In the event of any Reserved Shares not taken up by the Qualifying Shareholders' Assured Entitlement and/or any odd lot number of the Reserved Shares left after satisfying the excess application, the Available Reserved Shares will be allocated to the Public Offer.

In the event of under-subscription under the Public Offer and over-subscription under the Preferential Offering, no reallocation of the Public Offer Shares to the Preferential Offering shall be made.

Application procedures

The procedures for application under the terms and conditions of the Share Offer will be set forth in the Prospectus Documents.

Closure of register of members

The register of members of the Company will be closed from Friday, 25 October 2019 to Friday, 1 November 2019, both dates inclusive, to determine the eligibility of the Shareholders to the Preferential Offering. No transfers of New Shares will be registered during this period.

Application for listing

The Company has applied to the Stock Exchange for the listing of, and permission to deal in, the Offer Shares. Dealings in the Offer Shares will be subject to the payment of stamp duty, Stock Exchange trading fee, SFC transaction levy and any other applicable fees and charges in Hong Kong. The Offer Shares are expected to have the same board lot size as the Shares, i.e. 40,000 Shares in one board lot.

LETTER FROM THE BOARD

Subject to the granting of the approval for the listing of, and permission to deal in, the Offer Shares on the Stock Exchange, the Offer Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the Offer Shares on the Stock Exchange or such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

Share certificates and refund cheques for the Offer Shares

Subject to the fulfillment of the conditions of the Share Offer, certificates for all fully-paid Offer Shares and refund cheques in respect of wholly or partially unsuccessful applications for excess Reserved Shares (if any) or if the Share Offer is terminated are expected to be posted to those entitled thereto on or before Wednesday, 13 November 2019 by ordinary post at their own risk.

Mandate to issue the Offer Shares

The Offer Shares will be issued pursuant to a specific mandate to be obtained upon approval by the Independent Shareholders at the EGM.

Underwriting Agreement

The Company, the Sponsor and the Underwriter entered into the Underwriting Agreement on 22 November 2018 (as amended and restated on 16 May 2019), pursuant to which the Underwriter conditionally agreed to fully underwrite the Offer Shares. Principal terms of the Underwriting Agreements are as follows:

Parties : the Sponsor; and the Company;

Kingston Securities Limited, a company incorporated in Hong Kong with limited liability and a licensed corporation to carry on Type 1 (dealing in securities) regulated activity under the SFO

Number of Underwritten Shares : 227,679,850 Offer Shares, representing approximately 18.6% of the Enlarged Issue Share Capital

LETTER FROM THE BOARD

Underwriting commission:

Pursuant to the Underwriting Agreement, the Company shall pay the Underwriter an underwriting commission of 4.5% of the aggregate Offer Price in respect of all of the Offer Shares, and the upfront payment (“Upfront Payment”) of HK$1 million before the entering into the Underwriting Agreement. The Upfront Payment shall be set off against any amount payable by the Company to the Underwriter pursuant to the Underwriting Agreement on a dollar to dollar basis and the amount payable by the Company to the Underwriter pursuant to the Underwriting Agreement shall be reduced accordingly. Based on the Offer Price of HK$0.19 per Offer Share, the Underwriter shall be entitled to an underwriting commission of approximately HK$1.9 million.

If the Share Offer is not completed for any reason other than any willful omission or default on the part of the Underwriter, the underwriting commission shall be payable within three Business Days after the date of occurrence of any of the following events:

(i) the conditions precedent to the Underwriting Agreement are not satisfied or waived in whole by (a) 8:00 a.m. (Hong Kong time) on the date of Completion or (b) 31 December 2019 (whichever is the earlier), or such other time and/or date as the Company and the Underwriter may agree in writing; or
(ii) the Underwriting Agreement is terminated or rescinded by the Underwriter; or
(iii) the Underwriting Agreement is terminated by the Company for any reason other than any willful omission or default on the part of the Underwriter; or
(iv) the Stock Exchange has decided to cancel the listing of the Shares; or
(v) the Share Offer is not completed on or before 31 December 2019 (or such other date as the Company and the Underwriter may agree in writing).

LETTER FROM THE BOARD

The commission rate was determined after arm's length negotiation between the Company and the Underwriter with reference to, among other things, the listing status of the Company, the size of the Share Offer and the current and expected market condition. The Directors (excluding the independent non-executive Directors) are of the view that the terms of the Underwriting Agreement (including the underwriting commission) are fair and reasonable so far as the Company and the Shareholders are concerned.

To the best of the Directors' knowledge, information and belief, having made all reasonable enquiries, the Underwriter and its ultimate beneficial owner(s) are the Independent Third Parties.

The Share Offer is fully underwritten by the Underwriter pursuant to the terms and conditions set out in the Underwriting Agreement.

Conditions precedent to the Underwriting Agreement

The Underwriting Agreement is conditional upon:

(i) the conditions precedent to the Acquisition having been fulfilled (save for the condition for the Share Offer to become unconditional);

(ii) the delivery to the Stock Exchange for authorisation, and the registration with the Registrar of Companies in Hong Kong, respectively, not later than the despatch date of the Prospectus, of one copy of the Prospectus Documents, duly signed by two Directors (or their agents duly authorised in writing) as having been approved by resolution of the Directors (and all other documents required to be attached to it) and otherwise in compliance with the GEM Listing Rules and the Companies (Winding Up and Miscellaneous Provisions) Ordinance;

(iii) the posting of the Prospectus Documents and, if required by or in compliance with the GEM Listing Rules, a copy of the Prospectus stamped “For Information Only” to the Non-Qualifying Shareholders on the despatch date of the Prospectus;

(iv) the approval of the Share Offer, the Underwriting Agreement and the transactions contemplated thereunder by the Independent Shareholders (other than those prohibited from voting on the resolutions at the EGM by the GEM Listing Rules and/or the Takeovers Code) at the EGM;

(v) the grant or the agreement to grant (subject to allotment) by the GEM Listing Committee, and not having withdrawn or revoked such grant, of the listing of and permission to deal in all the Offer Shares, either unconditionally or subject to such conditions as are accepted by the Company and the Underwriter;

LETTER FROM THE BOARD

(vi) the Stock Exchange having conditionally or unconditionally approved or decided to allow the Company to proceed with the resumption of the trading in the New Shares on the Stock Exchange and all the conditions attached to such approval or decision (if any) having been fulfilled (other than those conditions relating to or in connection with the restoration of public float) or waived by the Stock Exchange;

(vii) all other necessary waivers, consents and approval including but not limited to those from the Stock Exchange, the SFC and any other relevant government or regulatory authorities, which are required (if any) for the implementation of the Resumption Proposal and all transactions contemplated thereunder having been obtained;

(viii) the Capital Reorganisation having taken effect;

(ix) the compliance with and performance by the Company of all the undertakings and obligations under the terms of the Underwriting Agreement;

(x) the execution of the CB Undertakings, the compliance with and performance of all the undertakings and obligations of the holders of the Convertible Bonds and/or the transferee(s) under the CB Undertakings and/or similar undertakings provided by the transferee(s);

(xi) the Underwriter and the Sponsor's legal advisers receiving from the Company or the Company's solicitors documents listed in the schedule of the Underwriting Agreement in form and substance satisfactory to Underwriter and the Sponsor not later than 7:00 p.m. on the Business Day immediately preceding the despatch date of the Prospectus and documents listed in the schedule of the Underwriting Agreement not later than 7:00 p.m. on the Business Day immediately preceding the date of Completion;

(xii) all warranties and other statements of the Company in any documents delivered pursuant to the Underwriting Agreement being true, correct and not misleading in all material respect in the opinion of the Underwriter (acting reasonably) at and as of each of the dates specified in the Underwriting Agreement;

(xiii) the issue by the Stock Exchange of a certificate of authorisation of registration in respect of the Prospectus and the registration by the Registrar of Companies in Hong Kong of one copy of each of the Prospectus and the Application Forms (duly certified by two Directors (or by their attorneys duly authorised in writing)) and having attached thereto all necessary consents and documents required by section 342C (subject to any certificate of exemption granted pursuant to section 342A) of the Companies (Miscellaneous Provisions) Ordinance not later than 5:00 p.m. on the Business Day before the despatch date of the Prospectus;

LETTER FROM THE BOARD

(xiv) Admission having occurred and becoming effective (either unconditionally or subject only to allotment and issue of the Offer Shares, despatch or availability for collection of share certificates in respect of the Offer Shares and/or such other conditions as may be acceptable to the Underwriter on or before the Listing Date (or such later date as the Underwriter may agree with the Company in writing) and the Admission not subsequently having been withdrawn, revoked, withheld or subject to qualifications prior to 8:00 a.m. on the date of Completion;

(xv) the Company having complied with the Underwriting Agreement and satisfied all the obligations and conditions on its part under the Underwriting Agreement to be performed or satisfied on or prior to the respective times and dates by which such obligations must be performed or conditions met;

(xvi) the Underwriter not having terminated the Underwriting Agreement pursuant to the terms of the Underwriting Agreement;

(xvii) there are not less than 100 Accepted Offer Applications in respect of the Public Offer from the New Public Shareholders;

(xviii) not less than 50% of the number of the Public Offer Shares (for the avoidance of doubt, excluding such number of the Reserved Shares as may be automatically and mandatorily allocated and/or reallocated to the Public Offer) will be allotted and issued to the New Public Shareholders or his/her/its nominee(s) upon Completion; and

(xix) the number of the Offer Shares to be allotted and issued to the three largest New Public Shareholders upon Completion will not exceed 50% of the number of the Public Offer Shares (for the avoidance of doubt, excluding such number of the Reserved Shares as may be automatically and mandatorily allocated and/or reallocated to the Public Offer).

The Underwriter is entitled to waive or modify the conditions precedent set out in (ix), (xi), (xii) and (xv). For the avoidance of doubt, all other conditions precedent are not waivable. Upon compliance with or fulfilment (or waiver, if applicable) of all the conditions precedent set out in the Underwriting Agreement, completion of the transactions contemplated under the Underwriting Agreement shall take place simultaneously with Completion.

LETTER FROM THE BOARD

Termination of the Underwriting Agreement

If, prior to 8:00 a.m. (Hong Kong time) on the date of Completion:

(i) in the absolute opinion of the Underwriter, the success of the Share Offer would be materially and adversely affected by:

(a) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any nature whatsoever which may in the absolute opinion of the Underwriter materially and adversely affect the business or the financial or trading position or prospects of the Company and the Target Group as a whole or is materially adverse in the context of the Share Offer; or

(b) the occurrence of any local, national or international event or change (whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date of the Underwriting Agreement) of a political, military, financial, economic or other nature (whether or not ejusdem generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting local securities markets which may, in the absolute opinion of the Underwriter materially and adversely affect the business or the financial or trading position or prospects of the Company and the Target Group as a whole or materially and adversely prejudice the success of the Share Offer or otherwise makes it inexpedient or inadvisable to proceed with the Share Offer; or

(ii) any adverse change in market conditions (including without limitation, any change in fiscal or monetary policy, or foreign exchange or currency markets, suspension or material restriction or trading in securities) occurs which in the absolute opinion of the Underwriter is likely to materially or adversely affect the success of the Share Offer or otherwise makes it inexpedient or inadvisable to proceed with the Share Offer; or

(iii) any change in the circumstances of the Company or any member of the Target Group occurs which in the absolute opinion of the Underwriter shall adversely affect the prospects of the Company, including without limiting the generality of the foregoing, the presentation of a petition or the passing of a resolution for the liquidation or winding up or similar event occurring in respect of the Company or the members of the Target Group or the destruction of any material asset of the Target Group; or

(iv) any event of force majeure occurs, including without limiting the generality thereof, any act of God, war, riot, public disorder, civil commotion, fire, flood, explosion, epidemic, terrorism, strike or lock-out; or

(v) any other material adverse change in relation to the business or the financial or trading position or prospects of the Company and the Target Group as a whole occurs, whether or not ejusdem generis with any of the foregoing; or

(vi) any matter occurs which, had it arisen or been discovered immediately before the date of the Prospectus and not having been disclosed in the Prospectus, would have constituted, in the absolute opinion of the Underwriter, a material omission in the context of the Share Offer; or

LETTER FROM THE BOARD

(vii) any material change or development involving a prospective change, or a materialisation of, any of the risks set forth in the Prospectus; or

(viii) non-compliance of the Prospectus (or any other documents used in connection with the Share Offer) or any aspect of the Share Offer with the GEM Listing Rules, the second amended and restated memorandum and articles of association of the Company to be adopted at the EGM, the Companies Ordinance, the Companies (Winding Up and Miscellaneous Provisions) Ordinance, the SFO or any other applicable Laws by any of the Company; or

(ix) that any statement, considered by the Underwriter to be material in its absolute discretion, contained in any of the Prospectus Documents and any document in connection of the Share Offer was when the same was issued, or has become, untrue, incorrect or misleading in any material respect or that any forecast, expression of opinion, intention or expectation contained in any of such document is not true and honest and based on reasonable assumptions; or

(x) approval by the Listing Department of the listing of, and permission to deal in, the New Shares in issue and to be issued or sold under the Share Offer is refused or not granted, other than subject to customary conditions, on or before the Listing Date, or if granted, the approval is subsequently withdrawn, qualified (other than by customary conditions) or withheld; or

(xi) any person (other than the Underwriter) has withdrawn or sought to withdraw its consent to being named in any of the Prospectus Documents (and/or any other documents used in connection with the contemplated subscription of the Offer Shares) or to the issue of any of such documents; or

(xii) the Company withdraws any of the Prospectus Documents and/or any other documents used in connection with the contemplated subscription of the Offer Shares; or

(xiii) any prohibition on the Company by any Governmental Authority for whatever reasons from offering, allotting or issuing the New Shares pursuant to the terms of the Share Offer;

the Underwriter shall be entitled by notice in writing to the Company, served prior to 8:00 a.m. (Hong Kong time) on the date of Completion.

(i) any material breach of any of the representations, warranties or undertakings comes to the knowledge of the Underwriter; or

(ii) any Specified Event comes to the knowledge of the Underwriter.

LETTER FROM THE BOARD

Any such notice shall be served by the Underwriter prior to 8:00 a.m. (Hong Kong time) on the date of Completion.

Upon the termination of the Underwriting Agreement:

(i) each of the parties thereto shall cease to have any rights or obligations under the Underwriting Agreement and any rights or obligations which may have accrued under the Underwriting Agreement prior to such termination; and

(ii) subject to the terms in the Underwriting Agreement, the Company shall pay to the Sponsor and the Underwriter the commissions, fees, costs and expenses set forth in the Underwriting Agreement, and the Sponsor and/or the Underwriter may in accordance with the provisions therein, instruct the nominee of the Company to make such (or any part of such) payments out of the interest accrued on the money received in respect of the Share Offer, if any; and

(iii) with respect to the Share Offer, all payments made by the Underwriter and/or by the successful applicants under the Accepted Offer Applications shall be refunded to the relevant persons accordingly.

If the Underwriter exercises such right, the Underwriting Agreement will not become unconditional and the Share Offer will not proceed. Further announcement will be made if the Underwriting Agreement is terminated by the Underwriter.

Undertakings by the Company

The Company undertakes to each of the Sponsor, the Underwriter and the Stock Exchange that no further New Shares or securities convertible into equity securities of the Company (whether or not of a class already listed) may be issued by the Company or form the subject of any agreement to such an issue within six months from the Listing Date (whether or not such issue of Shares or securities will be completed within six months from the Listing Date), except in certain circumstances as prescribed under Rule 17.29 of the GEM Listing Rules.

Non-disposal undertakings by the Controlling Shareholders

The Company shall procure the Controlling Shareholders to sign an undertaking pursuant to which the Controlling Shareholders shall undertake to and covenant with each of the Company, the Sponsor, the Underwriter and the Stock Exchange that, unless in compliance with the GEM Listing Rules, he/she/it shall not, and shall procure that his/her/its associates or the relevant registered holder(s), nominee(s) or trustee(s) holding on trust for him/her/it or the companies controlled by him/her/it shall not, without the prior written consent of the Underwriter:

(a) in the First Twelve-Month Period, dispose of, or enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of, any of the New Shares allotted and issued to him/her/it pursuant to the Acquisition Agreement and the Investor Loan Agreement; and

LETTER FROM THE BOARD

(b) in the Second Twelve-Month Period, dispose of, or enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of, any of the New Shares or securities referred to in paragraph (a) above if, immediately following such disposal or upon the exercise or enforcement of such options, rights, interests or encumbrances, he/she/it would cease to be a controlling shareholder (as defined in the GEM Listing Rules) of the Company;

and in the event that any of them enters into any transaction specified in paragraph (b) during the Second Twelve-Month Period (whether or not such transaction will be completed in the aforesaid period), he/she/it will take all reasonable steps to ensure that any such transaction, agreement or, as the case may be, announcement will not create a disorderly or false market in the securities of the Company.

The undertakings shall continue in full force and effect notwithstanding the Share Offer becoming unconditional and having been completed.

Steps to ensure minimum public float of the Restructured Group

In order to ensure minimum public float of the Restructured Group, the Share Offer is subject to the conditions, that among others, (i) there are not less than 100 Accepted Offer Applications by the New Public Shareholders; (ii) not less than 50% of the number of the Public Offer Shares (for the avoidance of doubt, excluding such number of the Reserved Shares as may be automatically and mandatorily allocated and/or reallocated to the Public Offer) are allotted and issued to the New Public Shareholders upon Completion; and (iii) the three largest New Public Shareholders upon Completion will not hold more than 50% of the number of the Public Offer Shares (for the avoidance of doubt, excluding such number of the Reserved Shares as may be automatically and mandatorily allocated and/or reallocated to the Public Offer). Further, the Underwriter undertakes that neither it nor the sub-underwriter(s) will subscribe the Untaken Shares for its own account; and it will use its reasonable endeavor to procure that each of sub-underwriter(s) or the ultimate subscriber(s) procured by the Underwriter or the sub-underwriter(s) is not a Shareholder at the time of subscription and will be an Independent Third Party after subscription.

Waiver in respect of the allocation of the Offer Shares to the existing Shareholders in the Preferential Offering

Pursuant to Rule 13.02(1) of the GEM Listing Rules, Directors, their close associates, and a person who is an existing Shareholder, may only subscribe for or purchase any securities for which listing is sought which are being marketed by or on behalf of a new applicant, whether in their own names or through nominees, if two conditions are met. One of the conditions is that no securities are offered to them on a preferential basis and no preferential treatment is given to them in the allocation of the securities. As at the Latest Practicable Date, the Qualifying Shareholders who were entitled to participate in the Preferential Offering do not include the Directors or their close associates, but include the existing Shareholders. Accordingly, the condition under Rule 13.02(1)(a) cannot be met, and thus the Company has applied to the Stock Exchange for a waiver from strict compliance with Rules 13.02(1) of the GEM Listing Rules for allowing the Qualifying Shareholders to participate in the Preferential Offering, based on the facts that (i) save as the Preferential Offering, the Qualifying Shareholder will not participate or indicate any interest in the Share Offer; (ii) the allocation of the Reserved Shares will be on a pro rata basis amongst all the Qualifying Shareholders and no preferential treatment will be given to any of them; (iii) the minimum public float requirement under Rules 11.23(7) and 11.23(9) of the GEM Listing Rules will be met after completion of the Share Offer; (iv) each of the existing Shareholders is interested in less than 5% of the issued share capital of the Company upon Completion; (v) the each of existing Shareholders is not a core connected person or its close associate upon Completion; and (vi) each of the existing Shareholders does not have power to appoint Directors or any other special rights. Details of the allocation of the Share Offer will be disclosed in allotment results announcement.

LETTER FROM THE BOARD

Reasons for the Share Offer and the use of proceeds

The Share Offer forms part and parcel of the Resumption Proposal and will be fully underwritten by the Underwriter, which undertakes that neither it nor the sub-underwriter(s) will subscribe the Untaken Shares for its own account; and it will use its reasonable endeavour to procure each of sub-underwriter(s) or the ultimate subscriber(s) procured by the Underwriter or the sub-underwriter(s) is not a Shareholder at the time of subscription and will be an Independent Third Party after subscription to ensure compliance by the Company with the minimum public float requirements under Rule 11.23(7) of the GEM Listing Rules. In addition to the introduction of the Share Offer in lieu of the Open Offer with a view to demonstrating sufficient public interests in the business of the Target Group and ensuring an adequate market in the New Shares, the Share Offer is also conditional upon the subscription level of the Public Offer Shares by the New Public Shareholders to demonstrate sufficient public interests that there shall be (i) not less than 100 Accepted Offer Applications by the New Public Shareholders; (ii) not less than 50% of the number of the Public Offer Shares (for the avoidance of doubt, excluding such number of the Reserved Shares as may be automatically and mandatorily allocated and/or reallocated to the Public Offer) allotted and issued to the New Public Shareholders upon Completion; and (iii) not more than 50% of the number of the Public Offer Shares (for the avoidance of doubt, excluding such number of the Reserved Shares as may be automatically and mandatorily allocated and/or reallocated to the Public Offer) to be held by the three largest New Public Shareholders upon Completion.

The gross proceeds from the Share Offer are expected to be approximately HK$43.2 million, which will be applied as to (i) approximately HK$21.0 million for settlement of the professional fees and expenses including underwriting commission; and (ii) the balance of approximately HK$22.2 million as general working capital of the Company (including but not limited to the repayment of the outstanding amount of Investor Loan in excess of approximately HK$18 million (if necessary)). Pursuant to the terms of the Restructuring Framework Agreement, the Company shall provide a working capital loan of HK$14 million to the Target Group out of the net proceeds from the Share Offer within ten (10) Business Days after Completion.

The Company had considered other financing alternatives such as secured bank borrowing, straight bonds, rights issue and open offer, etc. After taking into account (i) the financial position of the Company; (ii) the Creditors Schemes; and (iii) the feasibility of such alternatives, the Company is of the view that the chance of obtaining external financing would be extremely remote. In order to demonstrate sufficient public interest in the business of the Target Group to ensure an adequate market in the shares of the Company for which a new listing applicant is sought, and given that the trading of Shares has been suspended since 20 March 2017, the Company decided that the Share Offer would be the most appropriate and timely fund raising method to meet the financial needs of the Group. The Company had previously negotiated with three securities firms (including the Underwriter) in respect of the Open Offer. The Underwriter was the only potential underwriter which indicated its interest in negotiating detailed terms of the underwriting agreement with the Company and thus the Company has no choice but to select the Underwriter for underwriting the Open Offer. Due to the Share Offer in lieu of the Open Offer, the Company then negotiated with the Underwriter for underwriting the Share Offer.

LETTER FROM THE BOARD

Warning of the risks of dealing in the New Shares

The Share Offer is conditional upon, inter alia, the fulfillment of the conditions set out under the paragraphs headed “Conditions of the Share Offer” and “Conditions precedent to the Underwriting Agreement” above. Therefore, the Share Offer may or may not proceed.

Any dealing in the Shares/New Shares from the Latest Practicable Date up to the date on which all the conditions of the Underwriting Agreement are fulfilled or waived (as the case may be) will accordingly bear the risk that the Share Offer may not become unconditional or may not proceed. Any Shareholders or other persons contemplating dealings in the Shares/New Shares are recommended to consult their own professional advisers. The Shareholders and potential investors of the Company should therefore exercise extreme caution when dealing in the Shares/New Shares.

Fund raising activities in the past twelve months from the Latest Practicable Date

The Company had not conducted any equity fund raising activities in the past twelve months immediately preceding the Latest Practicable Date.

THE CREDITORS SCHEMES AND THE VERY SUBSTANTIAL DISPOSAL

All the issued shares of the Scheme Companies will be transferred to a nominee of the Scheme Administrators upon the Creditors Schemes having become effective at the nominal value for the benefit of the Creditors and any guarantee or indemnity given by the Company in respect of the obligations or liabilities of each of the Scheme Companies shall be released and discharged in full upon such transfer.

Upon the Creditors Schemes becoming effective, the Scheme Administrators will take steps to adjudicate the indebtedness of the Company and to distribute the scheme assets in settlement of the adjudicated indebtedness. The Scheme Administrators will also take appropriate steps to realise and recover the assets of the Scheme Companies and ascertain and settle the liabilities of the Scheme Companies from assets recovered and proceeds from realisation of assets of the Scheme Companies. To save any extra cost and resources in pursuing any claims against the Scheme Companies, all of the rights, causes of action or claims of the Company against the Scheme Companies in respect of transactions or events incurred up to the date the Creditors Schemes becoming effective will also be assigned by and transferred and/or novated (as the case may be) from the Company to such nominee of the Scheme Administrators. The Company will receive payment out of the realisation and/or recovery of any assets of the Scheme Companies in settlement of any amounts due and/or claims against such Scheme Companies. Proceeds from realisation of assets of the Scheme Companies after settlement of liabilities of the Scheme Companies and any surplus assets of the Scheme Companies will be available to the Creditors under the Creditors Schemes and excess amount, if any, under the Creditors Schemes after payment of all costs and settlement of all liabilities due to the Creditors will be returned to the Company.

LETTER FROM THE BOARD

The Creditors Schemes Consideration was originally determined at approximately HK$89.1 million and would be settled by partially cash and the 361,990,991 Creditors Shares. Pursuant to the amended and restated restructuring framework agreement dated 16 May 2019, the Creditors Schemes Consideration was revised to approximately HK$13.4 million, which will be settled by allotment and issue of the 70,331,984 the Creditors Shares at the issue price of HK$0.19 each upon Completion. The revised Creditors Schemes Consideration was determined with reference to the prevailing market conditions, situation and financial position of the Company and an acceptable recovery rate which has been agreed by most of the creditors of the Company. Details for the change of the Creditors Schemes Consideration are set out in the announcement of the Company dated 16 May 2019.

As at the Latest Practicable Date, based on the available books and records of the Company or on Claims made by the Creditors, the Company had indebtedness of approximately HK$543.1 million. The figure is indicative only and will be subject to final determination by the Scheme Administrators after the effective date of the Creditors Schemes. The estimated total amount of Claims comprises (i) the Convertible Bonds with an aggregated principal amount of US$50.0 million (equivalent to approximately HK$390.0 million) and the outstanding interests accrued thereon which was in the amount of approximately US$3.0 million (equivalent to approximately HK$23.4 million); (ii) the Promissory Notes with an aggregated principal amount of HK$27.5 million and the outstanding interests accrued thereon which was in the amount of approximately HK$3.7 million; (iii) the Corporate Bonds with an aggregated principal amount of HK$30.0 million; (iv) loans from an Independent Third Party with an aggregated amount of approximately HK$82.1 million and the outstanding interest accrued thereon which was in the amount of approximately HK$15.7 million.

Upon the Creditors Schemes having become effective, all the Claims and other liabilities of the Company will be discharged and released in full, in return, under the Creditors Schemes, the Creditors with the Claims admitted under the Creditors Schemes would be entitled to receive the Creditors Schemes Consideration including the Creditors Shares with a value of approximately HK$13.4 million (after the costs in connection with the administration and implementation of the Creditors Schemes and subject to any reserve which the Scheme Administrators may make) proportionally on a pari passu basis based on their respective amount of the Claims admitted under the Creditors Schemes.

To the best of the Directors' knowledge, information and belief, having made all reasonable enquiries, all the existing Creditors are Independent Third Parties, and are not acting in concert with the Concert Group, save for eForce who held approximately 0.179% of the issued share capital of the Company.

Conditions precedent to the Creditors Schemes

The Creditors Schemes shall become effective subject to the fulfilment of the following conditions precedent:

(i) the approval for the Creditors Schemes having been obtained from the requisite majority in number representing not less than 75% in value of the Creditors who, either in person or by proxy, attend and vote at the scheme meetings to be convened with the leave of the relevant courts;

LETTER FROM THE BOARD

(ii) the sanction of the Hong Kong Scheme from the High Court and the Cayman Scheme from the Grand Court having been obtained;
(iii) the passing of the necessary resolution(s) by the Independent Shareholders (other than those Shareholders who are required to abstain from voting on all or any of the resolutions under the GEM Listing Rules or the Takeovers Code) by way of poll at the EGM to be convened and held to approve the Creditors Schemes (which also constitutes the Special Deal pursuant to Rule 25 of the Takeovers Code) as required under the GEM Listing Rules and the Takeovers Code;
(iv) the Company having obtained the necessary consent of the Executive for the Special Deal constituted by the Creditors Schemes pursuant to Rule 25 of the Takeovers Code;
(v) all conditions precedent to Completion (other than the conditions precedent to the implementation of the Creditors Schemes) having been fulfilled;
(vi) filing of the court orders with the relevant companies registries in Hong Kong and the Cayman Islands, respectively; and
(vii) the GEM Listing Committee granting the listing of, and permission to deal in, the Creditors Shares.

Implementation of the Creditors Schemes

Upon the Creditors Schemes becoming effective and subject to Completion, each of the Scheme Companies will cease to be a subsidiary of the Company.

Financial information of the Company

As all the existing assets of the Company are to be disposed of to the Scheme SPC under the Creditors Schemes and all the Claims will be discharged and released upon Completion, the audited financial information of the Company for the two financial years ended 31 March 2017 and 2018 is set out below for Shareholders' information:

	For the year ended 31 March
(HK$’000)	2017	2018
Profit/(loss) before tax	5,803	(78,038)
Profit/(loss) after tax from continuing operation	2,686	(76,092)

As at 31 March 2018, the audited net liabilities of the Company were approximately HK$410.0 million.

LETTER FROM THE BOARD

A full set of the audited financial information relating to the Group as prepared by Elite Partners CPA Limited (being the auditors of the Company) under Hong Kong Financial Reporting Standards and in full compliance with the requirements of the Takeovers Code, has been included in Appendix IV to this circular.

THE ACQUISITION AND THE INVESTOR LOAN CAPITALISATION

Under the Restructuring Framework Agreement, the Company will acquire from the Investor the Sale Shares for the Consideration of approximately HK$144.4 million, which will be satisfied by way of allotment and issue of 760,000,000 Consideration Shares at the Issue Price of HK$0.19 each. Set out below are the principal terms of the Acquisition Agreement.

Date

15 September 2017 (as supplemented and amended on 9 November 2017 and 28 June 2018, respectively, and amended and restated on 23 November 2018 and 16 May 2019, respectively)

Parties

(i) the Company, being the purchaser; and
(ii) Whistle Up Limited (i.e. the Investor), being the vendor.

To the best of the Directors' knowledge, information and belief, having made all reasonable enquiries, the Investor was an investment holding company incorporated in the BVI with limited liability and was owned as to 96% by Mr. Norman Chan, 3% by Mr. Alex Lee and 1% by Ms. Susanna Kwok as at the Latest Practicable Date. As Mr. Norman Chan and Mr. Alex Lee will be proposed as the Directors in compliance with the requirements under the Takeovers Code, the Investor and its ultimate beneficial owners are connected persons of the Company under the GEM Listing Rules. However, the Investor and their respective associates are not acting in concert with the Existing Substantial Shareholder.

Assets to be acquired

The Sale Shares represents the entire equity interest in the Target Company. Details of the Target Group are set out in the section headed "History and background of the Target Group", "Business of the Target Group", "Financial information of the Target Group" and other sections in this circular.

Consideration

As disclosed in the announcement of the Company dated 9 November 2017 and 28 June 2018, the Consideration was originally determined at approximately HK$423.5 million. Pursuant to the amended and restated restructuring framework agreement dated 16 May 2019, the Consideration was revised to approximately HK$144.4 million. Details for the change of the Consideration are set out in the announcement of the Company dated 16 May 2019.

LETTER FROM THE BOARD

The original Consideration of approximately HK$423.5 million was determined by the Company and the Investor after arm's length negotiations with reference to (i) the price-to-earnings ratio of approximately 18.4 as implied by the Consideration and the unaudited combined profit of the Target Group for the year ended 31 March 2017; and (ii) the price-to-earnings ratio of approximately 25.0 of the comparable company, Royal China International Holdings Limited (stock code: 1683), whose shares are listed on the Main Board of the Stock Exchange and is principally engaged in one stop integrated interior design solutions including design, fit out and decoration as well as overall project management which is similar to the Target Group's business. The Company also took into account the clientele of the Target Group which includes certain well-known local property developers in Hong Kong.

Pursuant to the Acquisition Agreement, the Consideration was revised to approximately HK$144.4 million. The revised Consideration was determined by the Company and the Investor after arm's length negotiations with reference to (i) the change in the macroeconomic environment since the date of the Acquisition and the prevailing market conditions; (ii) the price-to-earnings ratio of the Target Group implied by the Consideration and the audited profit of the Target Group for the year ended 31 March 2018 of approximately 8.8 times, which is slightly higher than the price-to-earnings ratio of the company engaged in similar business as that of the Target Group, namely K W Nelson Interior Design and Contracting Group Limited (stock code: 8411) based on its latest published financial results; (iii) the higher and relative stable gross profit margin compared to the comparable company; (iv) the stable and long term business relationships with the major customers; and (v) the upward trend of residential units supply illustrates a favourable prospect for the Target Group's interior design services.

The Issue Price of HK$0.19 per Consideration Share represents a discount of approximately 85.9% to the theoretical quoted price of HK$1.35 per New Share (the quoted price of HK$0.027 per Share adjusted with the effects of the Capital Reorganisation) on 17 March 2017, being the Last Trading Day.

The Issue Price was determined after arm's length negotiations, taking into account (i) the financial performance and financial position of the Group; (ii) the fact that trading in the Shares on the Stock Exchange has been suspended since 20 March 2017; (iii) the net assets of the Target Group as at 31 March 2017 which amounted to approximately HK$75.3 million and as at 31 March 2018 which amounted to approximately HK$21.3 million; (iv) the assets of the Target Group to be the only assets of the Company in substance upon Completion, as all equity interests in the subsidiaries of the Company will be held by the Scheme SPC; and (v) the absolute control obtained by the Investor upon completion of the Acquisition.

In view of the above, the Board considers that the Consideration is fair and reasonable with reference to the total benefit attributed to the Shareholders.

Conditions precedent to the Acquisition

Acquisition Completion is conditional on each of the following conditions precedent being satisfied on or before the Long Stop Date:

LETTER FROM THE BOARD

(i) the Company being satisfied in its reasonable discretion with the results of the financial, legal or other due diligence review of the assets, liabilities, operations and affairs of the Target Group as the Company may reasonable consider appropriate;

(ii) all necessary consents, licenses and approvals from the shareholders, bankers, financial institutions and regulators required to be obtained on the part of the Investor and the Target Company in respect of the Acquisition Agreement, the Investor Loan Capitalisation and the transactions contemplated respectively thereunder having been obtained and remain in full force and effect;

(iii) all necessary consents, licences and approvals from the Shareholders, bankers, financial institutions and regulators required to be obtained on the part of the Company in respect of the Acquisition Agreement, the Investor Loan Capitalisation and the transactions contemplated respectively thereunder having been obtained and remain in full force and effect;

(iv) all Investor's warranties remaining true and correct in all material respects and not misleading;

(v) all Company's warranties remaining true and correct in all material respects and not misleading;

(vi) the completion of the reorganisation of the Target Group so that each of the Principal Subsidiaries, namely BTR Asia, BTR HK, BTR Intl and BTR Workshop, being held as to 100% by the Target Company;

(vii) the passing of the necessary resolution(s) by the Independent Shareholders (other than those Shareholders who are required to abstain from voting on all or any of the resolutions under the GEM Listing Rules or the Takeovers Code) by way of poll at the EGM to be convened and held to approve (i) the Acquisition Agreement and the transactions contemplated thereunder (including but not limited to the allotment and issue of the Consideration Shares); (ii) the Investor Loan Capitalisation; (iii) the Capital Reorganisation; (iv) the Share Offer and the allotment and issue of the Offer Shares; (v) the Creditors Schemes (including but not limited to the allotment and issue of the Creditors Shares (which also constitutes the Special Deal pursuant to Rule 25 of the Takeovers Code)); (vi) the Restructuring Framework Agreement and the transactions contemplated thereunder; and (vii) the Whitewash Waiver;

(viii) the granting of the approval by the GEM Listing Committee for the listing of and permission to deal in all of (i) the New Shares in issue after the Capital Reorganisation becoming effective; (ii) the Capitalisation Shares; (iii) the Consideration Shares; (iv) the Offer Shares (either unconditionally or subject to conditions); and (v) the Creditors Shares, and such permission not having been subsequently revoked or withdrawn;

LETTER FROM THE BOARD

(ix) the Resumption Proposal of trading of the New Shares having been submitted to the Stock Exchange and the approval-in-principle having been received from the Stock Exchange and such approval not having been subsequently revoked or withdrawn;

(x) the deemed new listing application of the Company having been submitted to the Stock Exchange and the approval for the listing application having been granted by the GEM Listing Committee and such approval not having been subsequently revoked or withdrawn;

(xi) the meetings of the Creditors having been convened and the Creditors having approved the Creditors Schemes;

(xii) the final sanction from the High Court on the Hong Kong Scheme having been obtained;

(xiii) the final sanction from the Grand Court on the Cayman Scheme having been obtained;

(xiv) the Capital Reorganisation becoming effective and all conditions precedent to the implementation of the Creditors Schemes and completion of the Share Offer having been fulfilled or waived (as the case may be) (save for the condition for the Acquisition to become unconditional);

(xv) the Shares and the New Shares (as the case may be) remained listed on the GEM;

(xvi) the Executive granting the Whitewash Waiver (and such grant not being subsequently revoked or withdrawn) to the Investor and the satisfaction of all conditions (if any) attached to the Whitewash Waiver granted; and

(xvii) there has not been any material adverse change on the Target Group since the date of the Restructuring Framework Agreement.

None of the conditions above can be waived by any party to the Acquisition Agreement. As at the Latest Practicable Date, save for condition (vi) and (ix), none of the conditions above had been fulfilled.

Shareholders should note that the majority required for the passing of the resolution by the Independent Shareholders in respect of the Whitewash Waiver has recently been increased from 50% to 75% of the number of shares voted by the Independent Shareholders.

Reasons for the Acquisition

The Acquisition forms part and parcel of the Resumption Proposal seeking for the resumption of trading in the Shares. Upon Completion, the Group will have a sufficient level of operations and assets to maintain its listing status on the Stock Exchange.

LETTER FROM THE BOARD

The Directors consider that the terms and conditions of the Acquisition are on normal commercial terms and the Acquisition is fair and reasonable and in the interests of both the Company and its Shareholders as a whole.

From the perspective of the Investor, it was its intention to list the business of the Target Group on the Stock Exchange under the GEM Listing Rules by way of reverse takeover rather than initial public offering (the "Public Offering") given (i) it was advised by its financial adviser, Veda Capital Limited, that reverse takeover is one of the viable and legitimate routes to achieve the listing of its business under the GEM Listing Rules and there is no indication from the regulators at the outset that the reverse takeover may require to include a public offer so as to demonstrate sufficient public interests; and (ii) by proceeding with a reverse takeover rather than the Public Offering, the Investor is able to mitigate the risks arising from the uncertainties as to the market sentiments of the investors, which may lead to failure to secure an underwriter to fully underwrite the Public Offering or failure to secure a minimum number of shareholders as required under Rule 11.23(2)(b) of the GEM Listing Rules. However, in response to the concern of the regulators on the sufficiency of the public interest in the Target Group's business, the Investor agreed to introduce the Share Offer in lieu of the Open Offer such that the members of the public can participate in it, having considered that (i) substantial resources have been committed to the proposal; and (ii) the Underwriter is willing to fully underwrite the Share Offer at the same offer price under the Open Offer. In view of the above, the Investor considers that continuing the original proposal to list the Target Group's business by way of reverse takeover with introduction of the Share Offer in lieu of the Open Offer is commercially sensible and is in the best interests of the Investor and the business being injected into the Company.

The provision of the Investor Loan and Investor Loan Capitalisation

Pursuant to the Investor Loan Agreement, the Investor shall provide or shall procure a party to provide the Investor Loan to the Company in the amount up to HK$23 million among which (i) as to HK$18 million for financing the professional fees and all costs and expenses of the Company in connection with the Acquisition and the work relating to the financial information of the Target Group; and (ii) as to HK$5 million for the working capital for the business operations of the Group.

In case Completion takes place on the Repayment Date, the Investor Loan shall be settled in one lump sum on the Repayment Date by way of (a) the Investor Loan Capitalisation for the outstanding amount of the Investor Loan up to approximately HK$18 million and (b) in cash for the remaining outstanding amount of the Investor Loan after the Investor Loan Capitalisation and the interest of 5.5% per annum accrued on the amount of the Investor Loan in excess of approximately HK$18 million (the "First Repayment Scenario"). In the event that Completion does not take place on the Repayment Date, the Investor Loan shall be settled in cash in full and the interest of 5.5% per annum accrued on the amount of the Investor Loan in excess of approximately HK$18 million.

LETTER FROM THE BOARD

Under the First Payment Scenario, the Company shall allot and issue to the Investor such number of the Capitalisation Shares calculated in accordance with the following formula:

$$
\mathrm {N} = \mathrm {A} \div \mathrm {B}
$$

where $\mathrm{N} =$ the number of the Capitalisation Shares to be allotted and issued by the Company to the Investor pursuant to the Investor Loan Agreement (where $\mathrm{N}$ is not a whole number, it should be rounded down to the nearest whole number);

A = the outstanding amount of the Investor Loan of up to approximately HK$18 million as at the Repayment Date; and

$$
\mathrm {B} = \quad \mathrm {H K} \mathrm {S} 0. 1 9
$$

Pursuant to the Investor Loan Agreement, the maximum number of the Capitalisation Shares for the settlement of the Investor Loan in the outstanding amount of up to approximately HK$18 million is 94,736,842 New Shares, representing approximately 7.8% of the Enlarged Issued Share Capital upon Completion. Aggregating the Consideration Shares and the Capitalisation Shares, the Investor will then be interested in approximately 70.0% of the Enlarged Issued Share Capital upon Completion.

For the amount of the Investor Loan repaid out of the proceeds from the Share Offer, the Company will make an application to the High Court and the Grand Court seeking sanction to repay the relevant amount of the Investor Loan. As at the Latest Practicable Date, the outstanding amount of the Investor Loan owed by the Company to the Investor amounted to approximately HK$9.7 million.

The Consideration Shares and the Capitalisation Shares

The Consideration shall be satisfied by the issue and allotment of 760,000,000 Consideration Shares at the Issue Price of HK$0.19 each upon completion of the Acquisition and the outstanding amount of the Investor Loan of up to approximately HK$18 million shall be settled by the allotment and issue of up to 94,736,842 Capitalisation Shares at the issue price of HK$0.19 each upon Completion.

LETTER FROM THE BOARD

The aggregate New Shares of up to 854,736,842 New Shares held by the Investor (comprising 760,000,000 Consideration Shares and 94,736,842 Capitalisation Shares) to be allotted and issued represent:

(i) approximately 1,251.4% of the issued share capital of the Company upon the completion of the Capital Reorganisation;

(ii) approximately 233.3% of the issued share capital of the Company upon the completion of the Capital Reorganisation and as enlarged by the allotment and issue of the Offer Shares and the Creditors Shares; and

(iii) approximately 70.0% of the Enlarged Issued Share Capital upon Completion.

Application for listing of the Consideration Shares and the Capitalisation Shares and issue under a specific mandate

The Company has applied to the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares to be allotted and issued pursuant to the Acquisition Agreement and the Capitalisation Shares to be allotted and issued pursuant to the Investor Loan Agreement.

Subject to the granting of the listing of, and the permission to deal in, the Consideration Shares and the Capitalisation Shares on the Stock Exchange, the Consideration Shares and the Capitalisation Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the Consideration Shares and the Capitalisation Shares on the Stock Exchange or such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time. Shareholders should seek advice from their stock brokers or other professional advisers for details of those settlement arrangements and how such arrangements will affect their rights and interests.

The Consideration Shares and the Capitalisation Shares will be issued pursuant to a specific mandate to be obtained upon approval by the Independent Shareholders at the EGM.

Information on the Target Group

Details of the Target Group including, among others, its business, management profile, history development and financial information has been set out in other sections of this circular.

LETTER FROM THE BOARD

THE PRE-COMPLETION DIVIDENDS

Pursuant to the Restructuring Framework Agreement, the Investor (being the ultimate sole owner of the Target Group prior to Completion) and the Company agreed that the Investor may, prior to the completion of the Acquisition and subject to applicable laws and regulations, procure each of the Principal Subsidiaries to declare and pay dividends of an aggregate amount no greater than the amounts of its retained earnings as at 31 March 2018 and as at 31 March 2019. It also stipulated that after such declaration of dividends by the Principal Subsidiaries, the Investor shall procure the Target Company to declare and pay dividends (the “Pre-Completion Dividends”) to the Investor of an aggregate amount no greater than the aggregate amount of the dividends declared by the Principal Subsidiaries, provided that after the declaration and distribution of the Pre-Completion Dividends and having taking into account the working capital loan of HK$14 million to be provided by the Company to the Target Group within ten (10) Business Days after Completion, the Target Group shall have sufficient working capital of its business operations for the period up to 30 June 2020.

For the avoidance of doubt, the Company shall not be entitled to the Pre-Completion Dividends. There will be no adjustment to the Consideration, to the number of the Consideration Shares to be allotted and issued and the Issue Price for the declaration and payment of the Pre-Completion Dividends.

THE TRANSACTION LOAN

Pursuant to the Restructuring Framework Agreement, the Company agreed to procure the Transaction Loan in a sufficient amount on terms approved by the Investor for the purpose of financing the professional fees and all costs and expenses of the Company in connection with the preparation of the Resumption Proposal including all the transactions contemplated thereunder, except for the Acquisition and the work relating to the financial information of the Target Group. As at the Latest Practicable Date, the Company had yet to procure the Transaction Loan as the Company had utilised its internal resources to fulfil the purpose set out above.

Under the Restructuring Framework Agreement, the Company will make an application to the High Court and the Grand Court seeking sanction to repay the Transaction Loan (if necessary) in full out of the proceeds of the Share Offer.

III. PROPOSED APPOINTMENT OF DIRECTORS AND SENIOR MANAGEMENT

Upon completion of the Proposed Restructuring and due to the change of principal business activities of the Group as enlarged by the Target Group, the Company will reconstitute the Board, and all of the existing Directors will be replaced by new Directors with the necessary skills to manage the new business activities upon resumption. The new Directors are proposed to include the two proposed executive Directors, namely Mr. Norman Chan and Mr. Alex Lee and three proposed independent non-executive Directors, namely Mr. Kwong U Hoi Andrew, Mr. Wong Jonathan and Mr. Chi Chi Hung Kenneth immediately following Completion. It is also proposed that the management of the Company with the necessary skills to take responsibility for the day to day management of the Company will be Mr. Norman Chan and Mr. Alex Lee. The appointment and resignation of the Directors will take effect immediately after completion of the Proposed Restructuring and in compliance with the GEM Listing Rules and the Takeovers Code.

Biographical details of the proposed Directors have been set out in the section headed “Directors and senior management of the Restructured Group” in this circular.

LETTER FROM THE BOARD

IV. COMPLETION OF THE RESTRUCTURING FRAMEWORK AGREEMENT

Completion of the Acquisition and the Share Offer, and implementation of the Creditors Schemes and the issue and allotment for the Consideration Shares, Capitalisation Shares and Offer Shares will take place simultaneously on the date falling after ten (10) Business Days upon fulfilment of the conditions precedent to the Acquisition Agreement. Set out below are the organisation structure of the Group before and immediately upon Completion:

Prior to Completion

LETTER FROM THE BOARD

Upon Completion

| Union Asia Enterprise Holdings Limited
(Incorporated in the Cayman Islands)
(Stock code: 8173) | |
| --- | --- |
| | 100% |
| Target Group | |

V. INTENTION OF THE INVESTOR REGARDING THE GROUP UPON RESUMPTION

The Group is principally engaged in the trading of metals and securities.

Upon Completion, all the existing business including assets of the Company will be transferred to the Scheme SPC. Accordingly, upon Completion, the Group will primarily engage in the Target Group’s business, which is the provision of interior design services for commercial and residential properties, as well as sales galleries and show flats for local property developers in Hong Kong. The Investor does not intend to resume the existing businesses of the Group.

LETTER FROM THE BOARD

VI. CHANGE IN SHAREHOLDING STRUCTURE OF THE COMPANY

The tables below set out the shareholding structure of the Company (i) as at the Latest Practicable Date; (ii) immediately upon Capital Reorganisation having taken effect; and (iii) immediately upon Completion:

Scenario A: assuming all the Qualifying Shareholders take up their respective Reserved Shares and members of the public take up all the Public Offer Shares

Shareholders	As at the Latest Practicable Date		Immediately upon Capital Reorganisation having taken effect		Immediately upon Completion
	(Shares)	%	(Shares)	%	(Shares)	%
Concert Group
The Investor (Note 3)	-	-	-	-	854,736,842	70.0%
Public float
Existing Substantial Shareholder (Note 4)	846,760,000	24.8%	16,935,200	24.8%	45,160,533	3.7%
Scheme Creditors (Note 5)	-	-	-	-	70,331,984	5.8%
Independent subscriber(s) procured by the Underwriter (Note 6)	-	-	-	-	-	-
New Public Shareholders	-	-	-	-	113,839,925	9.3%
Other public shareholders	2,568,437,762	75.2%	51,368,755	75.2%	136,983,347	11.2%
Sub-total of public Shareholders	2,568,437,762	75.2%	51,368,755	75.2%	366,315,789	30.0%
Total	3,415,197,762	100.0%	68,303,955	100.0%	1,221,052,631	100.0%

LETTER FROM THE BOARD

Scenario B: assuming none of the Qualifying Shareholders take up their respective Reserved Shares and members of the public take up 50% of the number of the Public Offer Shares

Shareholders	As at the Latest Practicable Date (Shares)	%	Immediately upon Capital Reorganisation having taken effect (Shares)	%	Immediately upon Completion (Shares)	%
Concert Group
The Investor (Note 3)	–	–	–	–	854,736,842	70.0%
Public float
Existing Substantial Shareholder (Note 4)	846,760,000	24.8%	16,935,200	24.8%	16,935,200	1.4%
Scheme Creditors (Note 5)	–	–	–	–	70,331,984	5.8%
Independent subscriber(s) procured by the Underwriter (Note 6)	–	–	–	–	170,759,887	14.0%
New Public Shareholders	–	–	–	–	56,919,963	4.6%
Other public Shareholders	2,568,437,762	75.2%	51,368,755	75.2%	51,368,755	4.2%
Sub-total of public Shareholders	2,568,437,762	75.2%	51,368,755	75.2%	366,315,789	30.0%
Total	3,415,197,762	100.0%	68,303,955	100.0%	1,221,052,631	100.0%

Notes:
1. The above tables are for illustrative purpose only. The actual change in the shareholding structure of the Company is subject to the actual number of the Offer Shares to be subscribed by the Shareholders under the Share Offer.
2. Certain percentages figures included in the above table are subject to rounding adjustments.
3. Upon Completion, the Investor (being held as to 96% by Mr. Norman Chan, 3% by Mr. Alex Lee and 1% by Ms. Susanna Kwok) will be interested in 854,736,842 New Shares (including 760,000,000 Consideration Shares and 94,736,842 Capitalisation Shares), assuming the maximum number of the Capitalisation Shares of 94,736,842 New Shares are allotted and issued to the Investor pursuant to the Investor Loan Capitalisation.
4. As at the Latest Practicable Date and immediately upon Capital Reorganisation having taken effect, the shareholding of the Existing Substantial Shareholder will not constitute part of the public float of the Restructured Group.
5. The Company shall issue and allot the Creditors Shares of 70,331,984 New Shares to the Scheme SPC for the benefit of the Scheme Creditors after the completion of the Share Offer in consideration of the discharge of the Claims under the Creditors Schemes. As at the Latest Practicable Date, except eForce, the other Creditors are not Shareholders and are not acting in concert with the Concert Group. It is expected none of the Scheme Creditors will become a substantial Shareholder after distribution of the Creditors Shares from the Scheme SPC to the Scheme Creditors.

LETTER FROM THE BOARD

In order to ensure minimum public float of the Restructured Group, the Share Offer is subject to the conditions, that among others, (i) there are not less than 100 Accepted Offer Applications by the New Public Shareholders; (ii) not less than 50% of the number of the Public Offer Shares (for the avoidance of doubt, excluding such number of the Reserved Shares as may be automatically and mandatorily allocated and/or reallocated to the Public Offer) are allotted and issued to the New Public Shareholders upon Completion; and (iii) the three largest New Public Shareholders upon Completion will not hold more than 50% of the number of the Public Offer Shares (for the avoidance of doubt, excluding such number of the Reserved Shares as may be automatically and mandatorily allocated and/or reallocated to the Public Offer). Further, the Underwriter undertakes that neither it nor the sub-underwriter(s) will subscribe the Untaken Shares for its own account; and it will use its reasonable endeavor to procure that each of sub-underwriter(s) or the ultimate subscriber(s) procured by the Underwriter or the sub-underwriter(s) is not a Shareholder at the time of subscription and will be an Independent Third Party after subscription.

Immediately upon Completion, assuming none of the Qualifying Shareholders take up their respective Assured Entitlements and the members of the public take up 50% of the number of the Public Offer Shares, the maximum number of the Untaken Shares taken up by the Subscriber(s) procured by the Underwriters or its sub-underwriter(s) will be 170,759,887 New Shares.

For illustrative purpose, upon Completion, the public float (taking into account of the issued share capital to be held by independent subscriber(s) procured by the Underwriter or its sub-underwriter(s)) will be approximately 30% of the issued share capital of the Company under these scenarios. The Company will ensure that the public float requirements under Rule 11.23 of the GEM Listing Rules are complied with all times.

VII. POTENTIAL DILUTION EFFECT

The Preferential Offering will be conducted on the basis of ten (10) Reserved Shares for every six (6) New Shares held by the Shareholders on the Assured Entitlement Record Date. In addition, under the Restructuring Framework Agreement, the Consideration of approximately HK$144.4 million will be satisfied by the allotment and issue of 760,000,000 Consideration Shares at the Issue Price of HK$0.19 each upon completion of the Acquisition and the Capitalisation Shares of up to 94,736,842 New Shares will be allotted and issued to the Investor at the issue price of HK$0.19 each for the settlement of the outstanding amount of the Investor Loan of up to approximately HK$18 million upon Completion.

The Qualifying Shareholders who wish to subscribe for their respective entitlements to the Offer Shares under the Preferential Offering in full will have their shareholding interests in the Company diluted by approximately 85.1% upon Completion. Furthermore, Qualifying Shareholders who do not wish to subscribe for their respective entitlements to the Offer Shares under the Preferential Offering will have their shareholding interests in the Company being diluted by a maximum of approximately 94.4% upon Completion.

Despite the potential dilution effect resulting from the Preferential Offering, the Acquisition, the Investor Loan Capitalisation and the Creditors Schemes, having taken into account that:

(i) Independent Shareholders are given the chance to express their views on the terms of the proposed Capital Reorganisation, the Creditors Schemes, the Share Offer, the Acquisition and the Investor Loan Capitalisation contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement, the Whitewash Waiver and the Special Deal through their votes at the EGM;

(ii) the Preferential Offering is conducted on the basis that all Qualifying Shareholders have been offered the same opportunity to maintain their proportional interests in the Company;

(iii) the Qualifying Shareholders have their choice as to whether to accept the Preferential Offering or not;

(iv) the Offer Price was set at a deep discount as compared to the historical market prices of the Shares, which encourages the Qualifying Shareholders to participate in the Preferential Offering;

LETTER FROM THE BOARD

(v) the Qualifying Shareholders have a choice as to whether to subscribe for additional Reserved Shares through excess application;

(vi) as the Group has a net liabilities in the past few years, the Group would be able to settle its outstanding indebtedness in a discount amount in a formal and orderly manner;

(vii) the Acquisition would ensure the Group has a sufficient level of operations and assets for maintaining its listing status on the Stock Exchange;

(viii) if the Resumption Proposal fails to proceed, the Stock Exchange will proceed with the cancellation of listing of the Shares on the Stock Exchange; and

(ix) trading in the Shares on the Stock Exchange has been suspended since 20 March 2017 and therefore the Shareholders would have the right to make their decision as to whether to remain as Shareholders or to realise their investment after resumption of trading of Shares,

the Board considers the potential dilution effect on the shareholding interests of the Qualifying Shareholders to be acceptable and the benefits of the Acquisition would outweigh the adverse impact of the dilution impact. Having taken into account the terms of the Share Offer, the Acquisition, the Investor Loan Capitalisation and the Creditors Schemes, the Directors (other than the members of the Independent Board Committee whose view is set out in the Letter from the Independent Board Committee after reviewing and considering the advice from the Independent Financial Adviser) consider that the Share Offer, the Acquisition, the Investor Loan Capitalisation and the Creditors Schemes contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Furthermore, it also offers all the Qualifying Shareholders an equal opportunity to participate in the enlargement of the capital base of the Company and enables the Qualifying Shareholders to maintain their proportionate interests in the Company and to participate in the future development of the Company should they wish to do so. Those Qualifying Shareholders who do not take up the Reserved Shares to which they are entitled should note that their shareholdings in the Company will be diluted.

VIII. FINANCIAL EFFECTS OF THE PROPOSED RESTRUCTURING

Upon completion of the Proposed Restructuring, all the existing assets and liabilities of the Company will be transferred to the Scheme SPC and the sole assets of the Company will be the Target Group's business. Accordingly, the financial information of the Target Group will constitute the substance of the Group upon the Completion.

LETTER FROM THE BOARD

IX. IMPLICATIONS UNDER THE GEM LISTING RULES

The Acquisition

As more than one of the percentage ratios in respect of the Acquisition under Rule 19.07 of the GEM Listing Rules exceed 100% and the issue of the Consideration Shares results in change in control of the Company, the Acquisition constitutes a very substantial acquisition and a reverse takeover for the Company under Chapter 19 of the GEM Listing Rules. In addition, as Mr. Norman Chan, being one of the ultimate beneficial owners of the Target Company, will be proposed to be a Director, the Acquisition also constitutes a connected transaction for the Company under Chapter 20 of the GEM Listing Rules. Accordingly, the Acquisition is subject to the reporting, announcement and Independent Shareholders’ approval requirements pursuant to the GEM Listing Rules and approval of the new listing application of the Company by the GEM Listing Committee. Such new listing application is required to comply with all the requirements under the GEM Listing Rules, in particular the requirements under Chapters 11 and 12 of the GEM Listing Rules. The Company has submitted the new listing application to the Stock Exchange on 29 June 2018.

The Creditors Schemes

Pursuant to the Creditors Schemes, the Scheme Companies will be transferred from the Group to the Scheme SPC. Accordingly, the Scheme Companies to be transferred under the Creditors Schemes are deemed to be disposed of. As one or more of the applicable percentage ratios calculated under the GEM Listing Rules in respect of the Disposal are more than 75%, the Disposal constitutes a very substantial disposal for the Company under Chapter 19 of the GEM Listing Rules and therefore subject to the reporting, announcement and Independent Shareholders’ approval requirements pursuant to the GEM Listing Rules.

The Share Offer

Pursuant to Rule 13.02(1) of the GEM Listing Rules, the Directors, their close associates, and a person who is an existing Shareholder, may only subscribe for or purchase any securities for which listing is sought which are being marketed by or on behalf of a new applicant, whether in their own names or through nominees, if two conditions are met. One of the conditions is that no securities are offered to them on a preferential basis and no preferential treatment is given to them in the allocation of the securities. As at the Latest Practicable Date, the Qualifying Shareholders who were entitled to participate in the Preferential Offering do not include the Directors or their close associates, but include the existing Shareholders. Accordingly, the condition under Rule 13.02(1)(a) cannot be met, and thus the Company has applied to the Stock Exchange a waiver from strict compliance with Rules 13.02(1) of the GEM Listing Rules for allowing the existing Shareholders to participate in the Preferential Offering.

Pursuant to Rule 10.44A of the GEM Listing Rules, the Company may not undertake a rights issue, open offer or specific mandate placing that would result in a theoretical dilution effect of 25% or more within 12 month period immediately preceding the announcement of the proposed issue, unless the Company can satisfy the Stock Exchange that there are exceptional circumstances. Despite the Share Offer under a specific mandate will dilute the Qualifying Shareholders’ shareholding interests in the Company by 85.1% if they subscribe for the Offer Shares under the Preferential Offering in full or by a maximum of approximately 94.4% if they do not subscribe for the Offer Shares, the Company is exempt from the restrictions under Rule 10.44A of the GEM Listing Rules given the Share Offer forms part of the rescue proposal (i.e., the Resumption Proposal).

LETTER FROM THE BOARD

The EGM

As at Latest Practicable Date, the Company did not have any Controlling Shareholders. Therefore, the Directors (excluding the independent non-executive Directors) and the chief executive of the Company shall abstain from voting in favour of the resolution(s) to be proposed at the EGM to consider and, if thought fit, approve the Proposed Restructuring. No Shareholders are required to abstain from voting on the resolution to be proposed at the EGM to approve the Adoption. Save as disclosed above, none of the other Shareholders and its associates have to abstain from voting on any resolutions to be proposed at the EGM.

Listing approval

X. IMPLICATIONS UNDER THE TAKEOVERS CODE

Whitewash Waiver

LETTER FROM THE BOARD

Special Deal

The proposed settlement of the indebtedness due to eForce (which held approximately 0.179% of the total issued share capital of the Company as at the Latest Practicable Date) under the Creditors Schemes, which is not extended to all the other Shareholders, constitutes a special deal under Rule 25 of the Takeovers Code and therefore requires (i) consent by the Executive; (ii) the Independent Financial Adviser to publicly state that in its opinion the repayment and the terms thereunder are fair and reasonable; and (iii) approval by the Independent Shareholders at the EGM. As at the Latest Practicable Date, except eForce, there is no other Creditor who is a Shareholder. Parties to the Concert Group, eForce and its associates and parties acting in concert with any of them, and those who are interested in and involved in the Proposed Restructuring, the Whitewash Waiver and/or the Special Deal will be required to abstain from voting on the relevant resolution(s).

The Company has applied to the Executive for its consent to the Special Deal under Rule 25 of the Takeovers Code.

XI. INFORMATION REQUIRED UNDER THE TAKEOVERS CODE

As at the Latest Practicable Date, none of the Investor and other members of the Concert Group owned or had control or direction over any existing Shares, rights over Shares, convertible securities, warrants, options or derivatives in respect of the Shares. Other than the entering into of the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement, none of the Investor and other members of the Concert Group had acquired or disposed of or entered into any agreement or arrangement to acquire or dispose of any voting rights in the Company within the six months prior to the date of the Restructuring Framework Agreement and up to the Latest Practicable Date.

As at the Latest Practicable Date, save as disclosed in this circular,

(a) none of the Investor and other members of the Concert Group had received any irrevocable commitment in relation to voting of the resolutions in respect of transactions, including the Share Offer, the Whitewash Waiver, the Acquisition, the Investor Loan Capitalisation or any transactions contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement at the EGM;

(b) there was no outstanding derivative in respect of the securities of the Company which has been entered into by any Investor or other members of the Concert Group;

(c) there was no agreement or arrangement to which any Investor or other members of the Concert Group is a party which relates to circumstances in which it may or may not invoke or seek to invoke a precondition or a condition to the Share Offer, the Whitewash Waiver, the Acquisition, the Investor Loan Capitalisation or any transactions contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement, including any break fees being payable; and

(d) none of the Investor and other members of the Concert Group had borrowed or lent any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Company.

LETTER FROM THE BOARD

As at the Latest Practicable Date, the issued share capital of the Company comprised 3,415,197,762 Shares and, other than the Convertible Bonds, the Company did not have any options, warrants or convertible securities in issue.

XII. APPOINTMENT OF INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee, comprising all three independent non-executive Directors, namely Dr. Wan Ho Yuen, Terence, Mr. Li Kwok Chu and Mr. Lau Shu Yan, has been established to make recommendation to the Independent Shareholders as to whether the Capital Reorganisation, the Share Offer, the Creditors Schemes, the Acquisition and the Investor Loan Capitalisation contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement, the Special Deal and the Whitewash Waiver are on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned and the transactions contemplated thereunder are in the interests of the Company and the Independent Shareholders as a whole and to advise the Independent Shareholders on how to vote after taking into account the advice from the Independent Financial Adviser.

The Company has appointed Nuada as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in accordance with the requirements under the GEM Listing Rules and the Takeovers Code on such matters.

XIII. PROPOSED ADOPTION OF THE AMENDED AND RESTATED MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE COMPANY

The memorandum and articles of association of the Company were last amended on 29 August 2016. In order to modernise and update as well as to bring the existing memorandum and articles of association in line with the amendments to the GEM Listing Rules and the Code on Corporate Governance Practices contained in Appendix 15 to the GEM Listing Rules, the Board proposes to seek approval from the Shareholders by way of the special resolution to adopt the second amended and restated memorandum and articles of association in place of the existing memorandum and articles of association at the EGM.

The adoption of the second amended and restated memorandum and articles of association of the Company is subject to the passing of the special resolution by the Shareholders at the EGM.

A summary of the major provision in the second amended and restated memorandum and articles of association is set out in the Appendix VII to this circular.

LETTER FROM THE BOARD

XIV. EGM

The EGM will be held on 11:30 a.m. on Monday, 24 June 2019 for the purpose of considering and, if thought fit, approving the resolutions in respect of, inter alia, the Capital Reorganisation, the Share Offer (including the Underwriting Agreement), the Creditors Schemes, the Acquisition, the Investor Loan Capitalisation, the Whitewash Waiver, the Special Deal, the proposed appointment of proposed Directors and the Adoption. Voting on the resolutions at the EGM will be taken by poll.

It should be noted that the transactions contemplated are subject to a number of conditions, which may or may not be fulfilled. In addition, the approval of the new listing application, the Whitewash Waiver and the Special Deal may or may not be granted. Shareholders and potential investors should exercise caution when they deal or contemplate dealing in the Shares or other securities of the Company.

XV. RECOMMENDATION

The Directors (excluding members of the Independent Board Committee whose views are set out in the letter from the Independent Board Committee) consider that the terms of the proposed Capital Reorganisation, the Share Offer, the Creditors Schemes, the Acquisition and the Investor Loan Capitalisation contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement, the Special Deal and the Whitewash Waiver are fair and reasonable so far as the Independent Shareholders are concerned and the transaction contemplated thereunder are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors (excluding members of the Independent Board Committee whose views are formed and set out in the letter from the Independent Board Committee) recommend the Shareholders to vote in favour of the ordinary resolutions and special resolutions (as the case may be) to be proposed at the EGM to approve the proposed Capital Reorganisation, the Share Offer, the Creditors Schemes, the Acquisition and the Investor Loan Capitalisation contemplated under the Acquisition Agreement, the Investor Loan Agreement, the Restructuring Framework Agreement, Special Deal and the Whitewash Waiver.

XVI. ADDITIONAL INFORMATION

Your attention is drawn to the letter from the Independent Board Committee set out on pages 98 to 99 of this circular which contains its recommendation to the Independent Shareholders in relation to the proposed Capital Reorganisation, the Share Offer, the Creditors Schemes, the Acquisition and the Investor Loan Capitalisation contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement, the Special Deal and the Whitewash Waiver, and the letter from Independent Financial Adviser set out on pages 100 to 138 of this circular which contains its advice to the Independent Board Committee and the Independent Shareholders in this regard. Your attention is drawn to other sections of and appendices to this circular, which contain further information on the Target Group and other information required to be disclosed under the Takeovers Code and the GEM Listing Rules.

LETTER FROM THE BOARD

Shareholders and potential investors should note that the Share Offer, the Creditors Schemes, the Acquisition and the Whitewash Waiver are subject to various conditions which may or may not be fulfilled, in particular, whether the Stock Exchange will allow the Acquisition and accompanying transactions to proceed. There is therefore no assurance that any of these transactions will proceed. Shareholders and potential investors are reminded to exercise caution when dealing in the Shares.

The publication of this circular does not indicate any decision or conclusion from the Stock Exchange nor warrant any approval from the Stock Exchange on the resumption of trading in Shares. The Company will keep the public informed of the latest developments by making further announcements as and when appropriate.

By order of the Board

Union Asia Enterprise Holdings Limited

Yip Man Yi

Chairman

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of a letter of recommendation from the Independent Board Committee to the Independent Shareholders prepared for the purpose of inclusion in this circular.

UNION ASIA ENTERPRISE HOLDINGS LTD

萬亞企業控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 8173)

29 May 2019

To the Independent Shareholders

Dear Sir or Madam,

AND

(6) ISSUE OF OFFER SHARES, CREDITORS SHARES, CONSIDERATION SHARES AND CAPITALISATION SHARES UNDER A SPECIFIC MANDATE

INTRODUCTION

We refer to the circular of the Company dated 29 May 2019 (the "Circular"), of which this letter forms part. Terms used herein have the same meanings as those defined in the Circular unless otherwise specified.

We have been appointed by the Board to form the Independent Board Committee to advise the Independent Shareholders as to whether the terms the proposed Capital Reorganisation, the Share Offer, the Creditors Schemes, the Acquisition and the Investor Loan Capitalisation contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement, the Special Deal and the Whitewash Waiver are on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned and the transactions contemplated thereunder are in the interests of the Company and the Independent Shareholders as a whole and to advise the Independent Shareholders how to vote at the EGM. Nuada Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

RECOMMENDATION

Having considered the terms of the proposed Capital Reorganisation, the Share Offer, the Creditors Schemes, the Acquisition and the Investor Loan Capitalisation contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement, the Special Deal and the application for the Whitewash Waiver and the advice and recommendation of Nuada Limited as contained in its letter set out on pages 73 to 108 of the Circular, we consider that the terms of the proposed Capital Reorganisation, the Share Offer, the Creditors Schemes and the Acquisition and the Investor Loan Capitalisation contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement, the Special Deal and the Whitewash Waiver are on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned and the transactions contemplated thereunder are in the interests of the Company and the Independent Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM to approve the proposed Capital Reorganisation, the Share Offer, the Creditors Schemes, the Acquisition and the Investor Loan Capitalisation contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement, the Special Deal and the Whitewash Waiver.

Yours faithfully,

For and on behalf of the Independent Board Committee of

Union Asia Enterprise Holdings Limited

Mr. Li Kwok Chu

Dr. Wan Ho Yuen, Terence

Mr. Lau Shu Yan

Independent non-executive Directors

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the text of a letter received from Nuada Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the proposed Capital Reorganisation, the Share Offer, the Creditors Schemes, the Acquisition and the Investor Loan Capitalisation contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement, the Special Deal and the Whitewash Waiver, prepared for the purpose of inclusion in this circular.

Nuada Limited

Unit 1606, 16/F
OfficePlus @Sheung Wan
93-103 Wing Lok Street
Sheung Wan, Hong Kong
香港上環永樂街93-103號
協成行上環中心16樓1606室

29 May 2019

To the Independent Board Committee and
the Independent Shareholders of
Union Asia Enterprise Holdings Limited

Dear Sirs,

AND

(6) ISSUE OF OFFER SHARES, CREDITORS SHARES, CONSIDERATION SHARES AND CAPITALISATION SHARES UNDER A SPECIFIC MANDATE

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the proposed Capital Reorganisation, the Share Offer, the Creditors Schemes, the Acquisition and the Investor Loan Capitalisation contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement, the Special Deal and the Whitewash Waiver, the details of which are set out in the Letter from the Board (the "Board's Letter") in the circular issued by the Company to the Shareholders dated 29 May 2019 (the "Circular"), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

100

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Restructuring Framework Agreement dated 15 September 2017 (as supplemented and amended on 9 November 2017 and 28 June 2018, respectively), the Acquisition Agreement dated 15 September 2017 (as supplemented and amended on 9 November 2017 and 28 June 2018, respectively), the Investor Loan Agreement dated 5 December 2017 and the underwriting agreement dated 28 June 2018 in respect of the Open Offer had been subsequently amended in various occasions in response to the changes in market conditions and the developments of the negotiations between the Company, the Investor and other parties to the Resumption Proposal with a view to addressing the concerns raised by the regulators during the vetting process of the draft circular.

Public Offer: a total of 113,839,925 Offer Shares (i.e. the Public Offer Shares) for subscription by members of the public; and
Preferential Offering: a total of 113,839,925 Offer Shares (i.e. the Reserved Shares) for subscription by the Qualifying Shareholders on assured basis;

101

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iv) the Acquisition: the Company will acquire the entire issued shares of the Target Company (i.e. the Sale Shares) for the Consideration of approximately HK$144.4 million which will be satisfied by way of allotment and issue of 760,000,000 Consideration Shares (representing approximately 62.2% of the Enlarged Issued Share Capital) to the Investor at the Issue Price of HK$0.19 each; and

On 4 January 2019, the Company re-submitted a new listing application, and on 24 May 2019, the Stock Exchange has granted the approval-in-principle in relation to the new listing application.

The Acquisition

As more than one of the percentage ratios in respect of the Acquisition under Rule 19.07 of the GEM Listing Rules exceed 100% and the issue of the Consideration Shares results in change in control of the Company, the Acquisition constitutes a very substantial acquisition and a reverse takeover for the Company under Chapter 19 of the GEM Listing Rules. In addition, as Mr. Norman Chan, being one of the ultimate beneficial owners of the Target Company, will be proposed to be a Director, the Acquisition also constitutes a connected transaction for the Company under Chapter 20 of the GEM Listing Rules. Accordingly, the Acquisition is subject to the reporting, announcement and Independent Shareholders' approval requirements pursuant to the GEM Listing Rules and approval of the new listing application of the Company by the GEM Listing Committee. Such new listing application is required to comply with all the requirements under the GEM Listing Rules, in particular the requirements under Chapters 11 and 12 of the GEM Listing Rules. The Company has submitted the new listing application to the Stock Exchange on 29 June 2018.

The Whitewash Waiver

102

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Share Offer

Pursuant to Rule 13.02(1) of the GEM Listing Rules, the Directors, their close associates, and a person who is an existing Shareholder, may only subscribe for or purchase any securities for which listing is sought which are being marketed by or on behalf of a new applicant, whether in their own names or through nominees, if two conditions are met. One of the conditions is that no securities are offered to them on a preferential basis and no preferential treatment is given to them in the allocation of the securities. As at the Latest Practicable Date, the Qualifying Shareholders who are entitled to participate in the Preferential Offering do not include the Directors or their close associates, but include the existing Shareholders. Accordingly, the condition under Rule 13.02(1)(a) cannot be met, and thus the Company has applied to the Stock Exchange a waiver from strict compliance with Rules 13.02(1) of the GEM Listing Rules for allowing the existing Shareholders to participate in the Preferential Offering.

Pursuant to Rule 10.44A of the GEM Listing Rules, the Company may not undertake a rights issue, open offer or specific mandate placing that would result in a theoretical dilution effect of 25% or more within 12 month period immediately preceding the announcement of the proposed issue, unless the Company can satisfy the Stock Exchange that there are exceptional circumstances. Despite that the Share Offer under a specific mandate will dilute the Qualifying Shareholders' shareholding interests in the Company by 85.1% if they subscribe for the Offer Shares under the Preferential Offering in full or by a maximum of approximately 94.4% if they do not subscribe for the Offer Shares, the Company is exempt from the restrictions under Rule 10.44A of the GEM Listing Rules given the Share Offer forms part of the rescue proposal (i.e. the Resumption Proposal).

The Creditors Schemes and the Special Deal

Pursuant to the Creditors Schemes, the Scheme Companies will be transferred from the Group to the Scheme SPC. Accordingly, the Scheme Companies to be transferred under the Creditors Schemes are deemed to be disposed of by the Group. As one or more of the applicable percentage ratios calculated under the GEM Listing Rules in respect of the Disposal are more than 75%, the Disposal constitutes a very substantial disposal for the Company under Chapter 19 of the GEM Listing Rules and therefore subject to the reporting, announcement and Independent Shareholder's approval requirements pursuant to the GEM Listing Rules.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The proposed settlement of the indebtedness due to eForce (who held approximately 0.179% of the total issued share capital of the Company as at the Latest Practicable Date) under the Creditors Schemes, which is not extended to all the other Shareholders, constitutes a special deal under Rule 25 of the Takeovers Code and therefore requires (i) consent by the Executive; (ii) the Independent Financial Adviser to publicly state that in its opinion the repayment and the terms thereunder are fair and reasonable; and (iii) approval by the Independent Shareholders at the EGM. As at Latest Practicable Date, the other Creditors are the Independent Third Parties and are not acting in concert with the Concert Group. Parties to the Concert Group (i.e. the Investor and parties acting in concert with it), eForce and its associates and parties acting in concert with any of them, and those who are interested in and involved in the Proposed Restructuring, the Whitewash Waiver and/or the Special Deal will be required to abstain from voting on the relevant resolution(s).

The Company has applied to the Executive for its consent to the Special Deal under Rule 25 of the Takeovers Code.

The Independent Board Committee

The Independent Board Committee, comprising all three independent non-executive Directors, namely Dr. Wan Ho Yuen, Terence, Mr. Li Kwok Chu and Mr. Lau Shu Yan, has been established to make recommendations to the Independent Shareholders as to whether the terms of the proposed Capital Reorganisation, the Share Offer, the Creditors Schemes, the Investor Loan Capitalisation and the Acquisition contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement, the Special Deal and the Whitewash Waiver are on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned and the transactions contemplated thereunder are in the interests of the Company and the Independent Shareholders as a whole and to advise the Independent Shareholders on how to vote after taking into account the advice from the Independent Financial Adviser. We, Nuada Limited, with the approval of the Independent Board Committee, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in accordance with the requirements under the GEM Listing Rules and the Takeovers Code on such matters.

OUR INDEPENDENCE

We, Nuada Limited, did not act as financial adviser or independent financial adviser to the other transactions of the Company and the Investor in the last two years. We are independent from, and are not associated with the Company, the Investor, or any party acting, or presumed to be acting, in concert with any of the above, or any company controlled by any of them. Apart from normal professional fees payable to us in connection with this appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholder, no arrangement exists whereby we will receive any fees or benefits from the abovementioned parties or any party acting, or presumed to be acting, in concert with any of them, any of their respective associates, close associates or core connected persons or other parties that could be regarded as relevant to our independence. Accordingly, we are considered eligible to give independent advice in respect of the Capital Reorganisation, the Share Offer, the Creditors Schemes, the Special Deal, the Whitewash Waiver, the Investor Loan Capitalisation and the Acquisition contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement to the Independent Board Committee and the Independent Shareholders in accordance with Rule 2.6 of the Takeovers Code.

104

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the representations made to us by the Directors and the management of the Company. We have assumed that all statements, information and representations provided by the Directors and the management of the Company, for which they are solely responsible, are true and accurate at the time when they were provided and continue to be so as at the Latest Practicable Date and the Shareholders will be notified of any material changes to such statements, information, opinions and/or representations as soon as possible in accordance with Rule 9.1 of the Takeovers Code. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us.

The Directors jointly and severally accept full responsibility for the accuracy of the information (other than those in relation to the Investor and the Target Group) contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Circular (other than those expressed by the proposed Directors and the directors of the Investor) have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statement in the Circular misleading.

The proposed Directors, namely Mr. Norman Chan, Mr. Alex Lee, Mr. Kwong U Hoi Andrew, Mr. Wong Jonathan and Mr. Chi Chi Hung Kenneth, and the directors of the Investor, namely Mr. Norman Chan and Mr. Alex Lee, jointly and severally accept full responsibility for the accuracy of the information contained in the Circular in relation to the Target Group, the Investor and themselves and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Circular (other than those expressed by the Directors) have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statement in the Circular misleading.

We consider that we have been provided with sufficient information and have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 17.92 of the GEM Listing Rules. We have not, however, carried out any independent verification of the information provided, nor have we conducted any independent investigation into the business and affairs of the Group. We have not considered the taxation implication on the Group or the Shareholders as a result of the Capital Reorganisation, the Share Offer, the Creditors Schemes, the Special Deal, the Whitewash Waiver, the Investor Loan Capitalisation and the Acquisition contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Where information in this letter has been extracted from published or otherwise publicly available sources, the sole responsibility of us is to ensure that such information has been correctly and fairly extracted, reproduced or presented from the relevant stated sources and not be used out of context.

105

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion and recommendation with regard to the proposed Capital Reorganisation, the Share Offer, the Creditors Schemes, the Special Deal, the application for the Whitewash Waiver, the Investor Loan Capitalisation and the Acquisition contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement, we have taken into account the following principal factors and reasons:

1. Information of the Group

The Group is principally engaged in trading of metals and securities.

1.1 Suspension of trading in the Shares

On 2 December 2016, the Company has received a letter from the Stock Exchange, which served as a notice pursuant to Rule 9.15 of the GEM Listing Rules, that the Stock Exchange has decided to commence the procedures to cancel the Company’s listing under Rules 9.14 to 9.16 of the GEM Listing Rules. In arriving at such decision, the Stock Exchange has considered, among others, (i) after discontinuance of the Group’s metal trading business, the Group’s operation is insufficient to justify its continued listing; (ii) the new businesses of the Group which commenced since June 2016 have not demonstrated their viability and sustainability; and (iii) the Group’s assets could not generate sufficient revenue and profits to justify a listing.

On 6 December 2016, the Company through its lawyer submitted a written request to the GEM Listing Committee of the Stock Exchange pursuant to Chapter 4 of the GEM Listing Rules for reviewing of the decision of the Stock Exchange on 2 December 2016.

On 17 March 2017, the Stock Exchange notified the Company that the GEM Listing Committee, having considered all the submissions (both written and oral) made by the Company and the Listing Department of the Stock Exchange, considered that the Company had failed to maintain sufficient operations or assets under Rule 17.26 of the GEM Listing Rules to warrant the continued listing of the Shares. The GEM Listing Committee therefore decided to uphold the decision to suspend trading in the Shares under Rules 9.04 of the GEM Listing Rules and commence the procedures to cancel the Company’s listing under Rules 9.14 to 9.16 of the GEM Listing Rules.

On 15 September 2017, the Company submitted the Resumption Proposal to the Stock Exchange and entered into the Restructuring Framework Agreement on the same day with the Investor to set out the terms of the Proposed Restructuring comprising (i) the Capital Reorganisation; (ii) the Open Offer; (iii) the Creditors Schemes; and (iv) the Acquisition.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Restructuring Framework Agreement dated 15 September 2017 (as supplemented and amended on 9 November 2017 and 28 June 2018, respectively), the Acquisition Agreement dated 15 September 2017 (as supplemented and amended on 9 November 2017 and 28 June 2018, respectively), the Investor Loan Agreement dated 5 December 2017 and the underwriting agreement dated 28 June 2018 in respect of the Open Offer had been subsequently amended in various occasions in response to the changes in market conditions and the developments of the negotiations between the Company, the Investors and other parties to the Resumption Proposal with a view to addressing the concerns raised by the regulators during the vetting process of the draft circular.

On 23 November 2018, the Company further amended the Resumption Proposal which was subsequently finalised on 16 May 2019 under the Amended and Restated Agreements entered into between the Company and the relevant parties. Pursuant to the Amended and Restated Agreements, the final Resumption Proposal involved, among other things, the Capital Reorganisation, the Share Offer, the Creditors Schemes, the Acquisition and the Investor Loan Capitalisation.

On 4 January 2019, the Company re-submitted a new listing application, and on 24 May 2019, the Stock Exchange has granted the approval-in-principle in relation to the new listing application.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1.2 Financial information of the Group

Set out below is a summary of the Group’s operating results and financial position extracted from the Company’s annual reports for the years ended 31 March 2013 (the “Annual Report 2012/13”), 2014 (the “Annual Report 2013/14”), 2015 (the “Annual Report 2014/15”), 2016 (the “Annual Report 2015/16”), 2017 (the “Annual Report 2016/17”) and 2018 (the “Annual Report 2017/18”) and the interim report for the six months ended 30 September 2018 (the “Interim Report 2018/19”).

Operating results

	For the six months ended 30 September			For the year ended 31 March
	2018 HK$'000 (unaudited)	2017 HK$'000 (unaudited)	2018 HK$'000 (audited)	2017 HK$'000 (audited)	2016 HK$'000 (restated)	2015 HK$'000 (audited)	2014 HK$'000 (audited)	2013 HK$'000 (audited)
Revenue	17,329	20,051	105,665	84,730	14,195	42,490	408,784	274,489
Trading of household products	-	-	56,502	39,907	-	-	-	-
Securities Trading	-	-	-	-	-	-	-	-
Trading of nephrite	-	-	6,641	15,761	-	-	-	-
Vessel’s charter	-	-	1,680	1,011	-	-	-	-
Trading of stainless steel wires and scrap metals	17,329	20,051	40,791	26,140	12,728	31,052	16,456	13,796
Beverages	-	-	51	1,911	1,467	10,661	17,598	-
Mining	-	-	-	-	-	-	-	-
Trading of coals	-	-	-	-	-	777	234,259	167,165
Trading of vessel fuels	-	-	-	-	-	-	140,471	93,528
Total segment profit/(loss)	(5,022)	(4,784)	5,903	5,299	(217,605)	(1,180,432)	(139,488)	(111,718)
Trading of household products	-	-	206	327	-	-	-
Securities Trading	(4,650)	(3,489)	7,690	1,476	-	-	-
Trading of nephrite	-	-	(1,235)	287	-	-	-
Vessel’s charter	-	-	610	1,175	-	-	-
Trading of stainless steel wires and scrap metals	(372)	(1,295)	1,157	1,671	(21,608)	(7,582)	(4,599)	334
Beverages	-	-	(2,525)	363	(70,190)	(3,752)	4,868	-
Mining	-	-	-	-	593	(1,075,357)	(110,088)	(95,035)
Trading of coals	-	-	-	-	(126,400)	(89,954)	(14,630)	(17,290)
Trading of vessel fuels	-	-	-	-	-	(3,787)	(15,039)	273
Profit/(loss) for the period/year attributable to owners of the Company	(51,582)	(49,599)	(76,092)	2,686	(430,699)	(887,338)	(175,363)	(127,691)

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Financial position

	As at 30 September			As at 31 March
	2018	2018	2017	2016	2015	2014	2013
	HK$’000 (unaudited)	HK$’000 (audited)	HK$’000 (audited)	HK$’000 (restated)	HK$’000 (audited)	HK$’000 (audited)	HK$’000 (audited)
Non-current assets	18,925	55,308	62,777	64,027	233,383	1,217,535	1,129,989
Current assets	105,645	66,903	75,358	16,839	217,928	312,135	265,145
Current liabilities	240,896	186,555	90,867	258,525	216,416	386,605	210,376
Net current (liabilities)/assets	(135,251)	(119,652)	(15,509)	(241,686)	1,512	(74,470)	54,769
Non-current liabilities	341,183	345,687	396,045	383,521	859,918	738,503	619,157
Net (liabilities)/assets	(457,509)	(410,031)	(348,777)	(561,180)	(625,023)	404,562	565,601

Cashflow

	For the six months ended 30 September			For the year ended 31 March
	2018	2017	2018	2017	2016	2015	2014	2013
	HK$’000 (unaudited)	HK$’000 (unaudited)	HK$’000 (audited)	HK$’000 (audited)	HK$’000 (restated)	HK$’000 (audited)	HK$’000 (audited)	HK$’000 (audited)
Net cash generated from/(used in) operating activities	(9,281)	5,891	2,998	(90,258)	(64,120)	(173,859)	(143,631)	175,787
Net cash generated from/(used in) investing activities	500	-	19	19,386	(1,686)	(2,379)	(8,588)	(20,200)
Net cash generated from/(used in) financing activities	6,585	(6,102)	(2,656)	75,205	60,935	144,230	10,652	(26,580)
Net increase/(decrease) in cash and cash equivalents	(2,196)	(211)	361	4,333	(4,871)	(32,008)	(141,567)	129,007

For the year ended 31 March 2014 ("FY2013/14")

The Group was principally engaged in mining operations including exploration and exploitation of magnetic sand (the commercial operations of which have not yet been commenced during that year), trading of scrap metals, trading of coals and bunker fuels for the year ended 31 March 2013 ("FY2012/13"). During FY2013/14, the Group commenced the beverage business for trading of bottled spring water and tea products.

The Group's revenue for FY2013/14 amounted to approximately HK$408.8 million, increased by approximately 48.9% as compared to approximately HK$274.5 million for FY2012/13. According to the Annual Report 2013/14, the increase in revenue was mainly attributed to the turnover of coal and marine fuel businesses. Despite the increase in revenue, total segment loss of the Group increased from approximately HK$111.7 million for FY2012/13 to approximately HK$139.5 million for FY2013/14, representing a rise of approximately 24.9%. Such increase was mainly due to (i) the increase in the segment loss from mining of approximately HK$15.1 million for FY2013/14; and (ii) the segment loss of approximately HK$15.0 million from trading of vessel fuels for FY2013/14 (FY2012/13: profit of approximately HK$0.3 million).

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Loss for the year attributable to owners of the Company amounted to approximately HK$175.4 million for FY2013/14 as compared to loss of approximately HK$127.7 million for FY2012/13. We noted from the Annual Report 2013/14 that such increase in loss was mainly due to the increase in administrative expenses of approximately HK$35.7 million for FY2013/14.

As at 31 March 2014, the net current liabilities and net assets of the Group amounted to approximately HK$74.5 million and HK$404.6 million respectively, as compared to net current assets and net assets of approximately HK$54.8 million and HK$565.6 million respectively as at 31 March 2013.

For FY2013/14, net cash of approximately HK$143.6 million was used in operating activities, as compared with net cash generated of approximately HK$175.8 million for FY2012/13. Net decrease in cash and cash equivalents of approximately HK$141.6 million for FY2013/14 (FY2012/13: net increase of approximately HK$129.0 million) was mainly due to the net cash used in operations as mentioned above.

According to "Independent auditor's report" in the Annual Report 2013/14, if the application of the conversion of the exploration rights into a mineral production sharing agreement to the government of Philippines is unsuccessful, the Group might incur a significant amount of impairment loss on the corresponding exploration and evaluation assets, which might have a significant effect on the consolidated financial statements of the Group.

For the year ended 31 March 2015 ("FY2014/15")

The Group's revenue for FY2014/15 amounted to approximately HK$42.5 million, dropped significantly by approximately 89.6% as compared to approximately HK$408.8 million for FY2013/14. According to the Annual Report 2014/15, the decrease in revenue was mainly attributed to the temporary suspension of coal and bunker fuel business. Total segment loss of the Group increased drastically from approximately HK$139.5 million for FY2013/14 to approximately HK$1,180.4 million for FY2014/15, representing a surge of approximately 746.2%. Such increase was mainly due to (i) the increase in the segment loss from mining of approximately HK$965.3 million for FY2014/15; and (ii) the increase in segment loss from trading of coals of approximately HK$75.3 million for FY2014/15.

Loss for the year attributable to owners of the Company increased from approximately HK$175.4 million for FY2013/14 to approximately HK$887.3 million for FY2014/15, representing an increase of approximately 405.9%. We noted from the Annual Report 2014/15 that such increase in loss was mainly due to (i) the increase in other loses, which mainly comprised allowance for trade and other receivables, impairment loss on goodwill and impairment loss on intangible assets of approximately HK$59.6 million for FY2014/15; and (ii) the impairment loss on exploration and evaluation assets of approximately HK$945.5 million for FY2014/15 (FY2013/14: nil).

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As at 31 March 2015, the net current assets and net liabilities of the Group amounted to approximately HK$1.5 million and HK$625.0 million respectively, as compared to net current liabilities and net assets of approximately HK$74.5 million and HK$404.6 million respectively as at 31 March 2014.

For FY2014/15, net cash used in operating activities further increased to approximately HK$173.9 million, as compared with approximately HK$143.6 million for FY2013/14. Figures of net decrease in cash and cash equivalents dropped from approximately HK$141.6 million for FY2013/14 to approximately HK$32.0 million for FY2014/15. Such decrease was mainly due to the net cash of approximately HK$144.2 million generated from financing activities for FY2014/15 (FY2013/14: approximately HK$10.7 million).

According to "Independent auditor's report" in the Annual Report 2014/15, if the application of either (i) exploration permits to explore iron ore and other associated mineral in specified offshore area in Philippines; or (ii) the conversion of the exploration rights into a mineral production sharing agreement to the government of Philippines are not successful, the Group might incur a significant amount of impairment loss on the corresponding exploration and evaluation assets, which might have a significant effect on the consolidated financial statements of the Group.

For the year ended 31 March 2016 ("FY2015/16")

For FY2015/16, the Group was principally engaged in trading of bottled mineral water and tea products, and discontinued its operation in the exploration and exploitation of magnetic sand, trading of scrap metals, trading of coals and bunker fuels.

The Group's revenue (both continuing and discontinued operation) for FY2015/16 amounted to approximately HK$14.2 million, dropped by approximately 66.6% as compared to approximately HK$42.5 million for FY2014/15. According to the Annual Report for FY2015/16, the decrease in revenue was mainly attributed to both the decrease in revenue from the beverage business and the discontinued businesses. According to the restated figures of FY2015/16 from the Annual Report 2016/17 and the figures for FY2014/15 from the Annual Report 2014/15, total segment loss of the Group decreased from approximately HK$1,180.4 million for FY2014/15 to approximately HK$217.6 million for FY2015/16, representing a decline of approximately 81.6%. Such decrease was mainly due to the net effect of (i) the increase in the segment loss from beverage business of approximately HK$66.4 million for FY2015/16; and (ii) the segment gain of approximately HK$0.6 million from mining business for FY2015/16 (FY2014/15: loss of approximately HK$1,075.4 million).

Loss for the year attributable to owners of the Company declined from approximately HK$887.3 million for FY2014/15 to approximately HK$430.7 million for FY2015/16, representing a decrease of approximately 51.5%. We noted from the Annual Report 2015/16 that such decrease in loss was mainly due to the limited recording of an impairment of approximately HK$158.6 million of the fair value of the exploration and evaluation assets as at 31 March 2016 (FY2014/15: approximately HK$945.5 million).

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As at 31 March 2016, the net current liabilities and net liabilities of the Group amounted to approximately HK$241.7 million and HK$561.2 million respectively, as compared to net current assets and net liabilities of approximately HK$1.5 million and HK$625.0 million respectively as at 31 March 2015.

For FY2015/16, net cash used in operating activities decreased to approximately HK$64.1 million, as compared with approximately HK$173.9 million for FY2014/15. Figures of net decrease in cash and cash equivalents dropped from approximately HK$32.0 million for FY2014/15 to approximately HK$4.9 million for FY2015/16. Such decrease was mainly attributable to the combined effect of (i) the decrease in cash used in operating activities as mentioned above; and (ii) the decrease in net cash generated from financing activities of approximately HK$83.3 million for FY2015/16.

According to "Independent auditor's report" and Note 2 to the consolidated financial statements in the Annual Report 2015/16, the net current liabilities and net liabilities conditions of the Group indicate the existence of a material uncertainty that might cast significant doubt about the Group's ability to continue as a going concern and therefore the Group may be unable to realise its assets and discharge its liabilities in the normal course of business.

For the year ended 31 March 2017 ("FY2016/17")

According to the interim report of the Company for the six months ended 30 September 2016, in view of the unsatisfactory performance of the metal and beverage trading business, and to further broaden the source of income of the Group, the Group has commenced several new businesses, namely trading of stainless steel wires, skincare and household products, nephrite, bottled water, securities and chartering out of pleasure vessel.

The Group's revenue for FY2016/17 amounted to approximately HK$84.7 million, increased drastically by approximately 496.5% as compared to approximately HK$14.2 million for FY2015/16. According to the Annual Report 2016/17, the significant increase in revenue was mainly attributed to the aforementioned trading businesses commenced during FY2016/17. Total segment results of the Group recorded turnaround to profit of approximately HK$5.3 million for FY2016/17 as compared with a loss of approximately HK$217.6 million for FY2015/16. Such turnaround was mainly due to (i) the discontinuous of trading of coals business which recorded a segment loss of approximately HK$126.4 million for FY2015/16; (ii) the profit of approximately HK$0.4 million from beverages segment for FY2016/17 (FY2015/16: loss of approximately HK$70.2 million); and (iii) the profit of approximately HK$1.7 million from trading of stainless steel wires and scrap metals segment for FY2016/17 (FY2015/16: loss of approximately HK$21.6 million).

Profit for the year attributable to owners of the Company amounted to approximately HK$2.7 million for FY2016/17 as compared to loss of approximately HK$430.7 million for FY2015/16. The net profit margin of the Group for FY2016/17 amounted to approximately 3.2%. We noted from the Annual Report 2016/17 that such significant turnaround was mainly due to (i) the gross profit of approximately HK$16.1 million for FY2016/17 as compared to gross loss of approximately HK$1.6 million for FY2015/16; (ii) the decrease in administrative expenses of

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approximately HK$54.8 million for FY2016/17; (iii) the increase in reversal of allowances for trade and other receivables of approximately HK$75.1 million for FY2016/17; (iv) the decrease in allowance for trade and other receivables of approximately HK$125.9 million for FY2016/17; (v) the gain on redemption of convertible bonds liabilities of approximately HK$13.8 million for FY2016/17 (FY2015/16: nil); and (vi) the increase in fair value gain of investment properties of approximately HK$9.8 million for FY2016/17.

As at 31 March 2017, the net current liabilities and net liabilities of the Group amounted to approximately HK$15.5 million and HK$348.8 million respectively, as compared to that of approximately HK$241.7 million and HK$561.2 million respectively as at 31 March 2016.

For FY2016/17, net cash used in operating activities increased to approximately HK$90.3 million, as compared with approximately HK$64.1 million for FY2015/16. Net increase in cash and cash equivalents amounted to approximately HK$4.3 million for FY2016/17 (FY2015/16: net decrease of approximately HK$4.9 million). Such increase was primarily due to (i) the net cash of approximately HK$19.4 million generated from investing activities for FY2016/17 (FY2015/16: usage of approximately HK$1.7 million); and (ii) the increase in net cash generated from financing activities of approximately HK$14.3 million for FY2016/17.

According to "Independent auditor's report" and Note 2 to the consolidated financial statements in the Annual Report 2016/17, the net current liabilities and net liabilities conditions indicate the existence of a material uncertainty that might cast significant doubt about the Group's ability to continue as a going concern and therefore the Group may be unable to realise its assets and discharge its liabilities in the normal course of business.

For the year ended 31 March 2018 ("FY2017/18")

The Group's revenue for FY2017/18 amounted to approximately HK$105.7 million, increased by approximately 24.8% as compared to approximately HK$84.7 million for the FY2016/17. According to the Annual Report 2017/18, the increase in revenue was mainly attributed to the full-year effect of the businesses of stainless steel wires commenced during FY2016/17. Total segment profit increased by approximately 11.3% to approximately HK$5.9 million for FY2017/18 from approximately HK$5.3 million for FY2016/17. We noted from the Annual Report 2017/18 that such increase was mainly due to the net effect of (i) the increase in segment profit from securities trading of approximately HK$6.2 million for FY2017/18; and (ii) the segment loss of approximately HK$2.5 million from trading of beverages for FY2017/18 (FY2016/17: profit of approximately HK$0.4 million).

Loss for the period attributable to owners of the Company was approximately HK$76.1 million for FY2017/18 as compared to profit approximately HK$2.7 million for FY2016/17. We noted from the Annual Report 2017/18 that such loss was mainly attributable to the decrease in other gains of approximately HK$78.7 million for FY2017/18 due to the absence of reversal of allowance for trade and other receivables for FY2017/18 (FY2016/17: approximately HK$77.5 million).

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As at 31 March 2018, the net current liabilities and net liabilities of the Group amounted to approximately HK$119.7 million and HK$410.0 million respectively, as compared to that of approximately HK$15.5 million and HK$348.8 million respectively as at 31 March 2017.

For FY2017/18, net cash of approximately HK$3.0 million was generated from operating activities, as compared with net use of approximately HK$90.3 million for FY2016/17. Net increase in cash and cash equivalents amounted to approximately HK$0.4 million for FY2017/18 (FY2016/17: approximately HK$4.3 million). The increase in cash and cash equivalents for FY2017/18 was primarily due to the net cash of approximately HK$3.0 million generated from operating activities and net cash used in financing activities of approximately HK$2.7 million.

According to "Independent auditor's report" and Note 2 to the consolidated financial statements in the Annual Report 2017/18, the loss attributable to owners of the Company, net current liabilities and net liabilities conditions of the Group indicate the existence of a material uncertainty that might cast significant doubt about the Group's ability to continue as a going concern and therefore the Group may be unable to realise its assets and discharge its liabilities in the normal course of business.

For the six months ended 30 September 2018 ("Six Months 2018/19")

According to the Interim Report 2018/19, the Group ceases its businesses regarding trading of beverages, household products and nephrite due to their limited contribution to the Group so as to minimize losses during Six Months 2018/19. Also, the charterer agreement for chartering out of pleasure vessel has been ended in August 2018 and no renewal of the agreement has been made.

The Group's revenue for Six Months 2018/19 amounted to approximately HK$17.3 million, decreased by approximately 13.9% as compared to approximately HK$20.1 million for the six months ended 30 September 2017 ("Six Months 2017/18"). As advised by the management of the Company, the decrease in revenue was mainly attributable to the trade action between the PRC and the United States for Six Months 2018/2019. Total segment loss increased slightly by approximately 4.2% to approximately HK$5.0 million for Six Months 2018/19 from approximately HK$4.8 million for Six Months 2017/18. We noted from the Interim Report 2018/19 that such increase was mainly due to the net effect of (i) the increase in segment loss from securities trading of approximately HK$1.2 million for Six Months 2018/19; and (ii) the decrease in segment loss from trading of metals of approximately HK$0.9 million for Six Months 2018/19.

Loss for the period attributable to owners of the Company was approximately HK$51.6 million for Six Months 2018/19, representing an increase of approximately 4.0% as compared to that of approximately HK$49.6 million for Six Months 2017/18. We noted from the Interim Report 2018/19 that such increase was mainly attributable to the loss for the period from discontinued operations of approximately HK$8.9 million for Six Months 2018/19 (Six Months 2017/18: approximately HK$4.1 million).

As at 30 September 2018, the net current liabilities and net liabilities of the Group amounted to approximately HK$135.3 million and HK$457.5 million respectively, as compared to that of approximately HK$119.7 million and HK$410.0 million respectively as at 31 March 2018.

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As at 30 September 2018, the cash and cash equivalents of the Group amounted to approximately HK$0.6 million (as at 30 September 2017: approximately HK$2.1 million). For Six Months 2018/19, net cash of approximately HK$9.3 million was used in operating activities, as compared with net generation of approximately HK$5.9 million for Six Months 2017/18. Net decrease in cash and cash equivalents amounted to approximately HK$2.2 million for Six Months 2018/19 (Six Months 2017/18: approximately HK$0.2 million). The decrease in cash and cash equivalents for Six Months 2018/19 was primarily due to the combined effect of net cash of approximately HK$9.3 million used in operating activities and net cash generated from financing activities of approximately HK$6.6 million.

According to Note 2 to the condensed interim financial information in the Interim Report 2018/19, the net liabilities condition of the Group indicates the existence of a material uncertainty which may cast significant doubt on the Group's ability to continue as a going concern. Therefore, the Group may be unable to realise its assets and discharge its liabilities in the normal course of business.

Our view

Despite the Group's intention to improve the business of the Group by diversifying its business into different areas as stated above, the Group still recorded continuous loss making position from FY2012/13 to FY2015/16, FY2017/18 and Six Months 2018/19, we consider the operations of the Group as unsustainable. In view of (i) the unsustainable operations of the Group as discussed above; (ii) the cash position of the Group of approximately HK$0.6 million as at 30 September 2018 according to the Interim Report 2018/19; (iii) the indebtedness of the Group of approximately HK$543.1 million as at the Latest Practicable Date, which are all due to Independent Third Parties, details of which are discussed in the section headed "V. The Creditors Schemes and the very substantial disposal" in the Board's Letter and the section headed "8. Indebtedness statements" in "Appendix IV – Financial information of the Group" included in the Circular; and (iv) as advised by the management of the Company, the Company has considered other alternatives for tackling the indebtedness of the Group, including bank borrowings, straight bonds, rights issue, etc. However, having considered (a) the continuous loss making position and financial position of the Group as discussed above; (b) the Creditors Schemes; (c) the feasibility of such alternatives; and (d) the financing needs of the Group for tackling the indebtedness of approximately HK$543.1 million as at the Latest Practicable Date of which approximately HK$178.1 million will be due by the end of 2019, the Directors are of the view that the chance of obtaining external financing would be extremely remote, we consider that the Group has no ability to generate cashflow from its operations as well as obtaining external financing facilities, and thus unable to repay its existing indebtedness from both internal and external resources.

Information of the Investor

As stated in the Board's Letter, the Investor is an investment holding company incorporated in the BVI with limited liability and is owned as to 96% by Mr. Norman Chan, 3% by Mr. Alex Lee and 1% by Ms. Susanna Kwok as at the Latest Practicable Date.

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Mr. Norman Chan, aged 58, is proposed to be appointed as an executive Director of the Company, chairman of the Board and chief executive officer of the Company immediately following the Completion. Mr. Norman Chan is one of the founders of BTR Workshop and appointed as a director of BTR Workshop since June 1995. Mr. Norman Chan is the sole director of BTR Asia and BTR Intl, and is one of the directors of BTR HK, BTR Workshop and the Target Company. Mr. Norman Chan will be responsible for the overall management, strategic development, financial management and major decision making of the Restructured Group.

Mr. Norman Chan has over 30 years of experience in the interior design and architecture industry in Hong Kong. He joined Wong & Ouyang Architects & Engineers Limited as an architectural assistant from 1986 to 1988. He later served as an assistant architect at Taoho Design Architects Limited from 1988 to 1991. Thereafter, Mr. Norman Chan was employed as an architectural design executive at Anthony Ng Architects Limited from 1991 to 1992. He subsequently joined D. Heung & Associates, Architects & Engineers Limited from 1992 to 1995 as a design associate. He established BTR Workshop in June 1995, since which he has been a director of BTR Workshop. Mr. Norman Chan obtained a bachelor's degree of architecture from Rhode Island School of Design in the United States in June 1985.

Mr. Alex Lee, aged 54, is proposed to be appointed as an executive Director of the Company immediately following the Completion. Before joining the Target Group, Mr. Alex Lee was a design layout artist at Edmonton Chinese News from 1986 to 1989. He worked as an assistant at Barry John Architect, Brinsmead Ziola Architect & Associates from 1992 to 1993. Mr. Alex Lee worked as a drafting technician at Northern Alberta Institute of Technology from January 1994 to June 1994. Subsequently, he was employed as a draftsman at D. Heung & Associates, Architects & Engineers Limited from June 1994 to June 1995. Mr. Alex Lee is one of the founding staff of BTR Workshop in July 1995. Mr. Alex Lee is one of the directors of BTR HK. Mr. Alex Lee will be mainly responsible for the overall operation of the Restructured Group.

Mr. Alex Lee has over 20 years of experience in the interior design and decoration industry in Hong Kong. Mr. Alex Lee obtained a diploma in architectural technology from the Northern Alberta Institute of Technology in Canada on 22 April 1994.

Proposed appointment of Directors

Upon completion of the Proposed Restructuring and due to the change of principal business activities of the Group as enlarged by the Target Group, the Company will reconstitute the Board, and all of the existing Directors will be replaced by new Directors with the necessary skills to manage the new business activities upon resumption. The new Directors are proposed to include the two proposed executive Directors, namely Mr. Norman Chan and Mr. Alex Lee and three proposed independent non-executive Directors, namely Mr. Kwong U Hoi Andrew, Mr. Wong Jonathan and Mr. Chi Chi Hung Kenneth immediately following the Completion. It is also proposed that the management of the Company with the necessary skills to take responsibility for the day to day management of the Company will be Mr. Norman Chan and Mr. Alex Lee. The proposed independent non-executive Directors will be responsible for overseeing the management independently and providing independent judgment on the issues of strategy, performance, resources and standard of conduct of the Company. The appointment and resignation of the Directors will take effect immediately after the completion of the Proposed Restructuring and in compliance with the GEM Listing Rules and the Takeovers Code.

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We have reviewed the biographical information of the proposed Directors of the Restructured Group and noted that (i) the proposed executive Directors have at least 20 years of experience in interior design, and architecture industry or decoration industry in Hong Kong with relevant academic qualifications; and (ii) among the three proposed independent non-executive Directors, two of the proposed independent non-executive Directors possess over or around 20 years' experience in legal industry with relevant academic qualifications while the other proposed independent non-executive Director has over 20 years of experience in accounting, financial control and corporate governance with relevant professional qualifications.

Please refer to "Directors and senior management of the Restructured Group" in the Circular for details of the proposed Directors.

Intention of the Investor regarding the Group upon resumption

Taking into account (i) the principal activities of the Group upon the Completion, which are provision of interior design services for commercial and residential properties, as well as sales galleries and show flats and its track record and outlook which are discussed in the section headed "5.1 Information of the Target Group" and "5.2 Overview of interior design industry in Hong Kong" below respectively; (ii) the Investor does not intend to resume the existing businesses of the Group and the Group's financial performances as discussed in section headed "1.2 Financial information of the Group" above; (iii) the experiences of Mr. Norman Chan and Mr. Alex Lee, who will be the proposed executive Directors after the Completion, in the interior design and architecture industry or decoration industry as discussed in this section above; and (iv) the legal or accounting, financial control and corporate governance background of the proposed independent non-executive Directors who will be responsible for overseeing the management independently and providing independent judgment on the issues of strategy, performance, resources and standard of conduct of the Company, we consider that the reconstitute the Board and the intention of the Investor regarding the Group upon resumption is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

3. Reasons for the Proposed Restructuring

Trading in the Shares has been suspended since 20 March 2017 and the Company has submitted the Resumption Proposal to demonstrate that it has a sufficient level of operations or assets as required by Rule 17.26 of the GEM Listing Rules on 15 September 2017. For the implementation of the Resumption Proposal, on 15 September 2017, the Company entered into the Restructuring Framework Agreement (as supplemented and amended on 9 November 2017 and 28 June 2018, respectively and amended and restated on 23 November 2018 and 16 May 2019, respectively) with the Investor to set out the terms of the Proposed Restructuring which involved (i) the Capital Reorganisation; (ii) the Open Offer; (iii) the Creditors Schemes; and (iv) the Acquisition. On 23 November 2018, the Company further amended the Resumption Proposal which was subsequently finalised on 16 May 2019 under the Amended and Restated Agreements entered into between the Company and the relevant parties. Pursuant to the Amended and Restated Agreements, the final Resumption Proposal involved, among other things, the Capital Reorganisation, the Share Offer, the Creditors Schemes, the Acquisition and the Investor Loan Capitalisation.

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Pursuant to the Restructuring Framework Agreement, the Share Offer and the Acquisition are conditional upon the Capital Reorganisation having taken effect. The Capital Reorganisation is part and parcel of the Resumption Proposal and the Company considers that it will give greater flexibility to the Company to raise funds through the issue of New Shares in the future. With reference to the paragraph headed "Effects of the Capital Reorganisation" under the section headed "III. Capital Reorganisation" in the Board's Letter, immediately after the Capital Reorganisation becoming effective, the number of authorised shares of the Company will increase from 31,250,000,000 Shares to 100,000,000,000 New Shares, whilst the number of issued and paid-up shares will decrease from 3,415,197,762 Shares to 68,303,955 New Shares. Upon the Capital Reorganisation becoming effective, the total accumulated losses of the Company will also be reduced from approximately HK$4,525.4 million to approximately HK$590.8 million.

Pursuant to the Board's Letter, the completion of the Acquisition and the Share Offer, and implementation of the Creditors Schemes and the issue and allotment for the Consideration Shares, Capitalisation Shares and Offer Shares will take place simultaneously.

As part of the Proposed Restructuring, the Company proposed to transfer the Scheme Companies to the Scheme Administrators or a company to be incorporated and held and controlled by the Scheme Administrators. To the best of the Directors' knowledge, information and belief having made all reasonable enquiries, the Scheme Administrators are third parties independent of the Company and its connected persons. Upon the Creditors Schemes becoming effective and subject to the Completion, each of the Scheme Companies will cease to be a subsidiary of the Company. All the issued shares of the Scheme Companies will be transferred to a nominee of the Scheme Administrators upon the Creditors Schemes having become effective at the nominal value for the benefit of the Creditors and any guarantee or indemnity given by the Company in respect of the obligations or liabilities of each of the Scheme Companies shall be released and discharged in full upon such transfer.

As noted from the Board's Letter, the gross proceeds from the Share Offer are expected to be approximately HK$43.2 million, which will be applied as to (i) approximately HK$21.0 million for settlement of the professional fees and expenses including underwriting commission; and (ii) the balance of up to approximately HK$22.2 million as general working capital of the Company (including but not limited to the repayment of the outstanding amount of Investor Loan in excess of approximately HK$18 million (if necessary)).

Upon the Completion, all the existing business including assets of the Company will be transferred to the Scheme SPC. Accordingly, upon the Completion, the Group will primarily engage in the Target Group's business, which is the provision of interior design services for commercial and residential properties, as well as sales galleries and show flats for local property developers in Hong Kong. As noted from the Board's Letter, the Investor does not intend to resume the existing businesses of the Group. Given the financial performance and financial position of the Target Group, details of which are discussed in section headed "5.1 Information of the Target Group" below, the Group will have a sufficient level of operations and assets for maintaining its listing status on the Stock Exchange, and the financial performance and financial position of the Group will also be improved through the Proposed Restructuring, details of which are discussed in the section headed "9. Financial effects of the Proposed Restructuring" below.

According to the letter dated 30 October 2017 from the Stock Exchange to the Company, the Stock Exchange agreed to allow the Company to submit a new listing application relating to the Resumption Proposal on or before 8 January 2018. Subsequently, the Company applied for, and the Stock Exchange granted on 19 January 2018, extension of time to the Company to submit the new listing application relating to the Resumption Proposal on or before 29 June 2018, and the Company had submitted the new

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listing application on 29 June 2018. On 23 November 2018, the Company further amended the Resumption Proposal which was subsequently finalised on 16 May 2019 under the Amended and Restated Agreements entered into between the Company and the relevant parties. Pursuant to the Amended and Restated Agreements, the final Resumption Proposal involved, among other things, the Capital Reorganisation, the Share Offer, the Creditors Schemes, the Acquisition and the Investor Loan Capitalisation. If any of the resolutions to be proposed at the EGM to approve the transactions contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement is voted down by the Independent Shareholders, the Company may be required to submit another proposal for the resumption of trading in the Shares. However, there is no guarantee that such new proposal will be approved by the Stock Exchange. In order to maintain the listing status of the Company and protect the interest of the Shareholders, the transactions proposed in the Resumption Proposal is necessary to be completed.

Having considered the above, we are of the view that the entering into the Restructuring Framework Agreement and the Proposed Restructuring are in the interests of the Company and the Shareholders as a whole.

4. The Share Offer

The Board proposed to offer a total of 227,679,850 Offer Shares for subscription at the Offer Price (i.e. HK$0.19 per Offer Share). Of the 227,679,850 Offer Shares, 113,839,925 Offer Shares (i.e. Public Offer Shares) are available for subscription by the member of the public and another 113,839,925 Offer Shares (i.e. Reserved Shares) are available for subscription by the Qualifying Shareholders under the Preferential Offering as the Assured Entitlement. Please refer to the section headed "The Share Offer" in the Board's Letter for further details of the Share Offer.

4.1 Use of proceeds

As disclosed in the Board's Letter, the gross proceeds from the Share Offer are expected to be approximately HK$43.2 million, which will be applied as to (i) approximately HK$21.0 million for settlement of the professional fees and expenses including underwriting commission; and (ii) the balance of up to approximately HK$22.2 million as general working capital of the Company (including but not limited to the repayment of the outstanding amount of Investor Loan in excess of approximately HK$18 million (if necessary)).

4.2 Principal terms of the Share Offer

The Offer Price

The Offer Price was determined by the Company, after taking into account (i) the financial performance and financial position of the Group; (ii) the fact that trading in the Shares on the Stock Exchange has been suspended since 20 March 2017; and (iii) the aggregated funding needs for the payment of the professional fees and expenses and working capital of the Company which amounted to approximately HK$43.2 million.

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In order to assess the fairness and reasonableness of the Offer Price, we searched for all resumption proposals announced by companies listed on the Stock Exchange within the four-year period before the date of first entering into the Restructuring Framework Agreement (i.e. 15 September 2017) and up to the Latest Practicable Date i.e. from 16 September 2013 to 24 May 2019 with the criteria that (i) their shares had been suspended for trading for more than one year; (ii) the trading of shares of those companies had been resumed after implementation of their resumption proposals; and (iii) the resumption proposals of those companies constituted, among others, share offer and reverse takeover which involved issue of consideration shares. Before setting such criteria, we searched for resumption proposals of companies constituted, share offer, and reverse takeover which involved issue of consideration shares. However, no results were found. As such, we searched for resumption proposals of companies constituted open offer, instead of share offer, and reverse takeover which involved issue of consideration shares. We consider the Preferential Offering as contemplated under the Share Offer is similar to the structure of open offer and thus can form an appropriate reference. We identified an exhaustive list of 3 comparables under the aforesaid criteria (the "Proposal Comparable(s)").

In view that (i) for prolonged suspension companies, it is a common market practice to price the offer share of the open offer or rights issue at a discount to the market price of relevant shares in order to encourage subscription by their shareholders; and (ii) the market sentiment at the relevant time may also play an important role in the determination of the offer price, we believe that the Proposal Comparables may reflect the recent trend of open offers in the market for long suspended companies. Set out below are the details of the Proposal Comparables:

No.	Date of circular	Company	Stock code	Date of suspension of trading of relevant shares	Date of resumption of trading	Basis of entitlement	Discount of offer price to closing price on last trading day (Note 1) %	Discount of consideration price to closing price on last trading day (Note 3) %	Excess application	Underwriting commission %	Dilution impact (Note 2) %
1	30/06/2014	Proview International Holdings Limited	334	02/08/2010	25/06/2015	2 for 1	82.7	82.7	Y	3.0	79.0
2	29/02/2016	First Mobile Group Holdings Limited	865	27/11/2009	27/10/2016	2 for 1	92.3	88.1	N	3.0	86.0
3	09/05/2018	Daging Dairy Holdings Limited	1007	22/03/2012	06/07/2018	1 for 5	97.0	97.0	N	2.5	89.4
						Mean	98.7	89.3		2.8	84.8
						Minimum	82.7	82.7		2.5	79.0
						Maximum	97.0	97.0		3.0	89.4
		The Company	8173	20/03/2017		10 for 6	85.9	85.9	Y	4.5	81.1

Source: website of the Stock Exchange

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Notes:

Based on the figures disclosed in the initial circular of the Proposal Comparables.
It is the percentage represented by (a) to (b):

(a) the products of (i) discount represented by the issue price of each issue of shares to the closing price on the last trading day and (ii) respective number of new shares to be issued in each issue of shares as contemplated under the respective resumption proposal; and
(b) the total number of issued shares as enlarged by the issue of shares under the respective resumption proposal.

As depicted in the table above, the discount of the offer prices of the Proposal Comparables to their respective closing prices on last trading day ranges from approximately 82.7% to approximately 97.0%, with an average discount of approximately 90.7%. The discount of approximately 85.9% represented by the Offer Price to the closing price of the Shares on the Last Trading Day falls within the range of discounts and is below the aforementioned average discount of that of the Proposal Comparables.

Excess application

As noted from the Board's Letter, Qualifying Shareholders may apply for a number of Reserved Shares which is greater than, less than or equal to their Assured Entitlement or may only apply for excess Reserved Shares under Preferential Offering. A valid application for a number of Reserved Shares which is less than or equal to a Qualifying Shareholder's Assured Entitlement under the Preferential Offering will be accepted in full subject to the terms and conditions of the Prospectus Documents and assuming the conditions of the Share Offer are satisfied.

To the extent that the excess applications for the Reserved Shares are:

(i) less than the Available Reserved Shares, the Available Reserved Shares will first be allocated to satisfy such excess applications for the Reserved Shares in full and thereafter will be allocated to the Public Offer; or
(ii) equal to the Available Reserved Shares, the Available Reserved Shares will be allocated to satisfy such excess applications for the Reserved Shares in full; or
(iii) more than the Available Reserved Shares, the Available Reserved Shares will be allocated on a fair and pro rata basis by reference to the number of excess Reserved Shares applied for by all such Qualifying Shareholders.

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For the avoidance of doubt, the Qualifying Shareholders are only entitled to apply for the Reserved Shares and not entitled to apply for the Public Offer Shares.

In the event that the Board notes unusual patterns of excess Offer Shares applications and has reason to believe that any application may have been made with the intention to abuse the above mechanism, such application(s) for excess Reserved Shares may be rejected at the sole discretion of the Board.

Given that Qualifying Shareholders may be entitled to apply for a number of Reserved Shares which is greater than, less than or equal to their Assured Entitlement or may only apply for excess Reserved Shares under Preferential Offering (but are not assured of being allocated any Reserved Shares), we are of the opinion that the excess application arrangement is fair and reasonable so far as the Independent Shareholders are concerned.

4.3 The Underwriting Agreement

On 22 November 2018, the Company entered into the Underwriting Agreement with the Underwriter in relation to the underwriting and certain other arrangements in relation to the Share Offer. Detailed terms of the Underwriting Agreement are set out in the paragraph headed "Underwriting Agreement" under the section headed "The Share Offer" in the Board's Letter.

As advised by the management of the Company, the Company had previously negotiated with three securities firms (including the Underwriter) in respect of the Open Offer. As advised by the management of the Company, the Underwriter was the only potential underwriter which indicated its interest in negotiating detailed terms of the underwriting agreement with the Company and thus the Company has no choice but to select the Underwriter for underwriting the Open Offer. Due to the Share Offer in lieu of the Open Offer, the Company then negotiated with the Underwriter for underwriting the Share Offer.

As depicted in the table under the paragraph headed "The Offer Price" under the section headed "4.2 Principal terms of the Share Offer" above, the underwriting commissions of the Proposal Comparables range from 2.5% to 3.0%, with an average of approximately 2.8%. The 4.5% underwriting commission charging by the Underwriter is above the market range as shown above. Despite the above, we noted that as mentioned above, the Underwriter was the only potential underwriter which indicated its interest in negotiating detailed terms of the Underwriting Agreement with the Company and thus the Company has no choice but to select the Underwriter for underwriting the Share Offer. Based on the above, we consider the underwriting commission is fair and reasonable so far as the Independent Shareholders are concerned.

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4.4 Our View on the Share Offer

Although the 4.5% underwriting commission charging by the Underwriter is above the range of that of the Proposal Comparables, having considered that (i) the trading of the Shares has been suspended for a prolonged period of time; (ii) the Group has no ability to generate cashflow from its operations as well as obtaining external financing facilities, and thus unable to repay its existing indebtedness from both internal and external resources as discussed in section headed "1.2 Financial information of the Group" above; (iii) the Share Offer forms part and parcel of the Resumption Proposal seeking for the resumption of trading in the Shares; (iv) if the Share Offer is voted down by the Independent Shareholders, the Company may be required to submit another proposal for the resumption of trading in the Shares, and there is no guarantee that such new proposal will be approved by the Stock Exchange; (v) the net proceeds from the Share Offer will be applied for settlement of the professional fees and expenses including underwriting commission and as working capital of the Company respectively; (vi) equal opportunity is given to each of the Qualifying Shareholders to participate in the Company's future development by subscribing his/her assured entitlements under the Preferential Offering; (vii) the discount represented by the Offer Price to the closing price of the Shares on the Last Trading Day falls within the range of discounts and is below the average discount of that of the Proposal Comparables; (viii) Qualifying Shareholders will be entitled to apply for a number of Reserved Shares which is greater than, less than or equal to their Assured Entitlement or may only apply for excess Reserved Shares under Preferential Offering (but are not assured of being allocated any Reserved Shares); and (ix) the Underwriter was the only potential underwriter which indicated its interest in negotiating detailed terms of the underwriting agreement with the Company and thus the Company has no choice but to select the Underwriter for underwriting the Share Offer, we are of the view and concur with the view of the management of the Company that the terms of the Share Offer, including the Offer Price and the Underwriting Agreement, are fair and reasonable so far as the Independent Shareholders are concerned and the Share Offer is in the interests of the Company and the Independent Shareholders as a whole.

5. The Acquisition and the Investor Loan Capitalisation

5.1 Information of the Target Group

As disclosed in the Board's Letter, the Target Company is a company incorporated in the BVI. Through a reorganisation of the Target Group, the Target Company has become the holding company of the Principal Subsidiaries, namely BTR Workshop, BTR HK, BTR Asia and BTR Intl.

As stated in the Circular, based on the information provided by the Investor, the Target Group is principally engaged in provision of interior design services to premises, including but not limited to, private residences, corporate offices, service apartments, hotels, residential clubhouses, show flats and sales galleries.

Please refer to the section headed "History and background of the Target Group" and "Business of the Target Group" in the Circular for further details.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the historical combined financial information of the Target Group for the Track Record Period as extracted from “Appendix III – Accountants’ report on historical financial information of the Target Group” (the “Accountants’ Report”) to the Circular:

Operating results

	For the eight months ended 30 November		For the year ended 31 March
	2018	2017	2018	2017	2016
	HK$’000	HK$’000 (unaudited)	HK$’000	HK$’000	HK$’000
Revenue	47,437	36,362	61,840	68,092	55,667
Gross profit	28,170	19,195	35,243	41,715	34,301
Profit before tax	13,777	9,852	19,589	25,403	18,757
Profit and total comprehensive income for the period/year	11,745	8,325	16,475	21,161	15,681

Financial position

	As at
	30 November 2018	2018	2017	2016
	HK$’000	HK$’000	HK$’000	HK$’000
Non-current assets	11,055	11,288	4,279	5,890
Current assets	69,933	68,081	129,078	62,995
Current liabilities	47,747	57,775	57,605	14,548
Net current assets	22,186	10,306	71,473	48,447
Non-current liabilities	192	290	423	169
Net assets	33,049	21,304	75,329	54,168

For FY2016/17

As noted from the above, the Target Group’s revenue for FY2016/17 amounted to approximately HK$68.1 million, rose by approximately 22.3% as compared to approximately HK$55.7 million for FY2015/16. We noted from the Accountants’ Report that the majority of the revenue of the Target Group was generated from interior design and execution services, which represented approximately 98.7% and 99.5% of the total revenue for FY2015/16 and FY2016/17 respectively. The increase in revenue was mainly attributable to the increase in number of interior design projects undertaken by the Target Group, which increased from 86 for FY2015/16 to 99 for FY2016/17. In particular, the number of residential projects had increased by 18 from 35 for

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

FY2015/16 to 53 for FY2016/17 and revenue from residential projects had increased from approximately HK$34.2 million for FY2015/16 to approximately HK$47.3 million for FY2016/17, representing an increase of approximately HK$13.1 million.

Gross profit of the Target Group increased from approximately HK$34.3 million for FY2015/16 to approximately HK$41.7 million for FY2016/17, representing an increase of approximately 21.6%. The gross profit margin remained steady at approximately 61.6% and 61.3% for FY2015/16 and FY2016/17 respectively.

Profit and total comprehensive income of the Target Group amounted to approximately HK$21.2 million for FY2016/17, representing an increase of approximately 34.9% from approximately HK$15.7 million for FY2015/16. We noted from the Accountants' Report that such increase was mainly due to the increase in gross profit for FY2016/17 as discussed above. The net profit margin of the Target Group was approximately 28.2% and 31.1% for FY2015/16 and FY2016/17 respectively. The net profit margin increase for FY2016/17 was mainly due to the increase in revenue and gross profit, which was driven by the increase in the number of interior design projects undertook by the Target Group during the said period, while the administrative expenses remained stable for the two years ended 31 March 2017.

As at 31 March 2017, the net current assets and net assets of the Target Group amounted to approximately HK$71.5 million and HK$75.3 million respectively, as compared to that of approximately HK$48.4 million and HK$54.2 million respectively as at 31 March 2016. The increase was primarily due to the Target Group's profit of approximately HK$21.2 million for FY2016/17.

For FY2017/18

The Target Group's revenue for FY2017/18 amounted to approximately HK$61.8 million, decreased by approximately 9.2% as compared to approximately HK$68.1 million for FY2016/17. As noted from the Accountants' Report, the majority of the revenue of the Target Group was generated from interior design and execution services, which represented approximately 99.5% and 99.3% of the total revenue for FY2016/17 and FY2017/18 respectively. The decrease was mainly as a result of decreased revenue contribution from two residential projects in Hong Kong for a customer, which were both substantially completed during FY2016/17. The two residential projects had contributed revenue of approximately HK$6.4 million during FY2016/17, while only approximately HK$1.6 million of revenue was recognised from these two projects for the FY2017/18.

Gross profit of the Target Group declined from approximately HK$41.7 million for FY2016/17 to approximately HK$35.2 million for FY2017/18, representing a drop of approximately 15.5%. The gross profit margin decreased from approximately 61.3% for FY2016/17 to approximately 57.0% for FY2017/18. The decrease in the gross profit margin was mainly due to amendments to design plans for some of the interior design projects as requested by the customers. Such amendments had incurred additional staff hours for producing the required extra drawings and/or other deliverables, in particular a hotel interior design project with a customer, which has a

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contract sum of approximately HK$11.5 million. During FY2017/18, the aforementioned hotel interior project with the customer mentioned above had an overall gross profit margin of approximately 21.1% only.

Profit and total comprehensive income of the Target Group amounted to approximately HK$16.5 million for FY2017/18, representing a decrease of approximately 22.1% from approximately HK$21.2 million for FY2016/17. We noted from the Accountants' Report that such decrease was mainly due to the net effect of (i) the decrease in gross profit for FY2017/18 as discussed above; (ii) the gain on disposal of property, plant and equipment of approximately HK$3.2 million for FY2017/18 (FY2016/17: loss of approximately HK$0.5 million); and (iii) the increase in administrative expenses of approximately HK$2.9 million for FY2017/18. Excluding the one-off gain on disposal of property, plant and equipment of approximately HK$3.2 million for FY2017/18, net profit margin of the Target Group dropped from approximately 31.1% for FY2016/17 to approximately 21.5% for FY2017/18. As noted from "Financial Information of the Target Company" in the Circular, such drop was primarily attributable to the combined effects of (i) the gross profit margin decreased to approximately 57.0% while the gross profit margin for FY2016/17 was approximately 61.3%; and (ii) an increase in administrative expenses of approximately HK$2.9 million or 19.1% as compared with FY2016/17.

Despite the decrease in revenue and net profit for FY2017/18, as noted from the Circular, the number of projects undertaken by the Target Company as at 31 March 2017 amounted to 99 with contract sum of approximately HK$218.2 million, while that as at 31 March 2018 amounted to 109 with contract sum of approximately HK$262.0 million, which represented increase of approximately 10.1% and 20.1% respectively.

As at 31 March 2018, the net current assets and net assets of the Target Group amounted to approximately HK$10.3 million and HK$21.3 million respectively, as compared to that of approximately HK$71.5 million and HK$75.3 million respectively as at 31 March 2017. The decrease was primarily attributable to dividends of approximately HK$70.5 million declared during FY2017/18, partly netted by the profit of approximately HK$16.5 million for FY2017/18.

For the eight months ended 30 November 2018 ("Eight Months 2018/19")

The Target Group's revenue for Eight Months 2018/19 amounted to approximately HK$47.4 million, increased by approximately 30.2% as compared to the unaudited revenue for the same period of the previous year. As noted from the Accountants' Report, the majority of the revenue of the Target Group was generated from interior design and execution services, which represented approximately 98.8% of the total revenue for the eight months ended 30 November 2017 ("Eight Months 2017/18") and approximately 98.5% for Eight Months 2018/19 respectively.

As noted from the "Financial Information of the Target Company" in the Circular, though the number of projects with revenue contribution during the eight months ended 30 November 2017 and 2018 were relatively stable, which was 96 and 97, respectively, the number of residential projects with revenue contribution increased from 57 for Eight Months 2017/18 to 62 for Eight Months 2018/19. During the Track Record Period, residential projects were the Target Group's main source of income, which contributed over 60% of the Target Group's total revenue. For Eight

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Months 2017/18 and Eight Months 2018/19, revenue from residential projects was approximately HK$25.4 million and HK$35.3 million, respectively. Such increase in residential project revenue of approximately HK$9.9 million was mainly attributable to higher revenue from Customer A, the largest customer of the Target Group, a Hong Kong listed property developer and Customer J. Residential revenue from Customer A had increased by approximately HK$3.8 million, mainly due to the progression of a large project with contract sum of approximately HK$10 million, which contributed an increase of approximately HK$1.9 million. The higher residential revenue from the aforesaid Hong Kong listed property developer and Customer J was contributed by a project with contract sum of over HK$5 million and a project with contract sum of approximately HK$2.8 million, respectively. The aforesaid two projects had aggregately contributed an increase in revenue of over HK$3.4 million.

Gross profit of the Target Group rose from approximately HK$19.2 million for Eight Months 2017/18 to approximately HK$28.2 million for Eight Months 2018/19, representing an increase of approximately 46.9%. The gross profit margin increased from approximately 52.8% for Eight Months 2017/18 to approximately 59.4% for Eight Months 2018/19. The increase in the gross profit for Eight Months 2018/19 was mainly due to the increase in revenue from residential projects during Eight Months 2018/19, which increased by approximately HK$9.9 million. Gross profit margin increased from approximately 52.8% for Eight Months 2017/18 to approximately 59.4% for Eight Months 2018/19. The increase in the gross profit margin was mainly due to that during the Eight Months 2017/18, some of the customers had requested amendments to design plans, and additional staff hours were incurred for these projects. In particular, the Target Group had put in substantially higher staff costs for a hotel interior design project with a contract sum of approximately HK$11.5 million with Customer A. As a result, no gross profit was recognised for such project for Eight Months 2017/18.

Profit and total comprehensive income of the Target Group increased to approximately HK$11.7 million for Eight Months 2018/19 from approximately HK$8.3 million for Eight Months 2017/18. We noted from the Accountants' Report that such increase was mainly due to the increase in revenue and gross profit for Eight Months 2018/19 as discussed above.

As at 30 November 2018, the net current assets and net assets of the Target Group amounted to approximately HK$22.2 million and HK$33.0 million respectively, as compared to that of approximately HK$10.3 million and HK$21.3 million respectively as at 31 March 2018. The increase was due to the profit of approximately HK$11.7 million for Eight Months 2018/19.

Net current assets decreased to approximately HK$9.4 million as at 31 March 2019 from approximately HK$22.2 million as at 30 November 2018, mainly due to the Principal Subsidiaries declared and paid dividends of HK$18.0 million in December 2018.

As illustrated above, the Target Group has demonstrated a profitable track record.

5.2 Overview of interior design industry in Hong Kong

As discussed above, based on the information provided by the Investor, the Target Group is primarily engaged in provision of interior design services to premises, including but not limited to, private residences, corporate offices, service apartments, hotels, residential clubhouses, show flats and sales galleries. To understand the demand of interior design services offered by the Target Group, we studied the private domestic and office market in Hong Kong.

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As stated in “Industry overview” in Appendix I to the Circular, the number of newly completed residential building projects recorded an increase from 2013 to 2018, at a CAGR of 10.8%. The usable floor area of newly completed residential buildings also reached 640 thousand square meters (“sq. m.”) in 2018 at a CAGR of 13.0% from 2013 to 2018. The average household size dropped steadily from 2.82 person in 2013 to 2.73 person in 2018. In contrast, average living space per person recorded an increase from 13.0 sq. m. in 2013 to 13.3 sq. m. in 2018. The drop in average household size offsets the slight increase in average living space per person and continue to drive the trends in development of small-sized residential flats in Hong Kong. The average price indices for selected popular private domestic developments increased from approximately 208.6 in 2013 to approximately 320.0 in 2018, representing a CAGR of approximately 8.9%.

According to the statistics available on the website of Rating and Valuation Department of Hong Kong, the completions of (i) private domestic rose from 11,296 units in 2015 to 20,968 units in 2018, representing a CAGR of approximately 22.9%; and (ii) private offices climbed from 164,500 sq. m. in 2015 to 179,200 sq. m. in 2018, representing a CAGR of approximately 2.9%. We also noted from “Hong Kong Property Review 2019” published by Rating and Valuation Department of Hong Kong in April 2019 that the forecast figures of completions of private domestic and office amount to 20,415 units and 285,000 sq. m. in 2019 respectively. Based on the above, the new supply of domestic housing and offices performed progressively in recent years.

According to “Long Term Housing Strategy Annual Progress Report 2018” published by the Legislative Council of Hong Kong, the latest projection of total housing supply target for the ten-year period from 2019-20 to 2028-29 is 450,000 units, with public to private housing split of 70:30 for the supply of new housing units for the ten-year period from 2018-19 to 2027-28.

In summary, we noted (i) the recent encouraging trends in the new supply of domestic housing and offices which indicate demand of interior design services; and (ii) the projection of housing supply indicating steady supply of new housing for the coming ten years. As such, we consider the prospect of interior design industry in Hong Kong to be positive.

5.3 The Acquisition Agreement and the Investor Loan Capitalisation

As disclosed in the announcement of the Company dated 9 November 2017 and 28 June 2018 respectively, the Consideration was originally determined at approximately HK$423.5 million. Pursuant to the amended and restated restructuring framework agreement dated 16 May 2019, the Consideration was revised to approximately HK$144.4 million from HK$423.5 million. Details for the change of the Consideration are set out in the announcement of the Company dated 16 May 2019.

As discussed in the Board’s Letter, the original Consideration of approximately HK$423.5 million was determined by the Company and the Investor after arm’s length negotiations with reference to (i) the price-to-earnings ratio of approximately 18.4 times as implied by the Consideration and the unaudited combined profit of the Target Group for the year ended 31 March 2017; and (ii) the price-to-earnings ratio of approximately 25.0 times of the comparable company, Royal China International Holdings Limited (stock code: 1683), whose shares are listed on the Main Board of the Stock Exchange and is principally engaged in one stop integrated interior design solutions including design, fit out and decoration as well as overall project management which is similar to the Target Group’s business. The Company also took into account the clientele of the Target Group which includes certain well-known local property developers in Hong Kong.

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As stated in the Board's Letter, pursuant to the Acquisition Agreement, the Consideration was revised to approximately HK$144.4 million. According to the Board's Letter, the revised Consideration was determined by the Company and the Investor after arm's length negotiations with reference to (i) the change in the macroeconomic environment since the date of the Acquisition and the prevailing market conditions; (ii) the price-to-earnings ratios of the Target Group implied by the Consideration and the audited profit of the Target Group for the year ended 31 March 2018 of approximately 8.8 times, which is slightly higher than the price-to-earnings ratio of the company engaged in similar business as that of the Target Group, namely K W Nelson Interior Design and Contracting Group Limited (stock code: 8411) based on its latest published financial results; (iii) the higher and relatively stable gross profit margin compared to the comparable company; (iv) the stable and long term business relationships with the major customers; and (v) the upward trend of residential units supply illustrates a favourable prospect for the Target Group's interior design services.

In view of the above, the Board considers that the Consideration is fair and reasonable with reference to the total benefit attributed to the Shareholders.

Pursuant to the Investor Loan Agreement, the Investor shall provide or shall procure a party to provide the Investor Loan to the Company in the amount up to HK$23 million among which (i) as to approximately HK$18 million for financing the professional fees and all costs and expenses of the Company in connection with the Acquisition and the work relating to the financial information of the Target Group; and (ii) as to HK$5 million for the working capital for the business operations of the Group.

In case Completion take place on the Repayment Date, the Investor Loan shall be settled in one lump sum on the Repayment Date by way of (a) the Investor Loan Capitalisation for the outstanding amount of the Investor Loan up to approximately HK$18 million; and (b) in cash for the remaining outstanding amount of the Investor Loan after the Investor Loan Capitalisation and the interest of 5.5% per annum accrued on the amount of the Investor Loan in excess of approximately HK$18 million (the "First Repayment Scenario"). In the event that Completion does not take place on the Repayment Date, the Investor Loan shall be settled in cash in full and the interest of 5.5% per annum accrued on the amount of the Investor Loan in excess of approximately HK$18 million.

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Market comparable analysis

We have considered using price-to-earnings ratios ("P/E Ratio") and price-to-book ratios ("P/B Ratio") for comparison. Given the Target Group's business nature as relatively asset-light and profit generating, we are of the view that P/E Ratio is more applicable for reflecting the valuation of the Target Company as compared with P/B Ratio.

As discussed above, the Target Group is primarily engaged in provision of interior design services to premises. We attempted to search for companies listed on the Stock Exchange which are (i) with 50% or above of their revenues generated from provision of interior design services in Hong Kong according to their latest published audited financial statements; (ii) profit generating in the latest financial year; (iii) with revenue between HK$40 million and HK$80 million (revenue of the Target Group was approximately HK$68.1 million and HK$61.8 million for FY2016/17 and FY2017/18 respectively) according to their latest published audited financial statements; and (iv) with net asset value between HK$10 million and HK$90 million (net asset value of the Target Group was approximately HK$75.3 million and HK$21.3 million as at 31 March 2017 and 2018 respectively) according to their latest published audited financial statements before the date of the Acquisition Agreement and the Latest Practicable Date respectively. However, no companies fulfil the abovementioned criteria. Therefore, we relaxed the selection criteria and identified an exhaustive list of 2 companies (the "Comparable Companies") listed on the Stock Exchange which are (i) with 50% or above of their revenues generated from provision of interior design services in Hong Kong according to their latest published audited financial statements; and (ii) profit generating in the latest financial year according to their latest published audited financial statements before the date of the Acquisition Agreement and the Latest Practicable Date respectively.

Although the Comparable Companies are different with the Target Group in terms of business size and company scale, having considered that the Comparable Companies are (i) engaged in similar business as the Target Group, and therefore they are also subject to similar economic environment, market condition and customer behavior as the Target Group; and (ii) profit generating in the latest financial year, which means that their P/E Ratio can be computed to compare to that of the implied P/E Ratio of the Target Group, we consider the Comparable Companies are fair and representative samples in performing the analysis. The Comparable Companies set out in the table below are exhaustive based on the above selection criteria:

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| No. | Company | Stock code | Principal business | Market capitalisation as at the Latest Practicable Date (Note 1)
HK$' million | P/E Ratio (Note 2)
Times |
| --- | --- | --- | --- | --- | --- |
| 1 | K W Nelson Interior Design and Contracting Group Limited | 8411 | provision of interior designs, project management services and fitting-out works | 190.0 | 6.6 |
| 2 | Lai Group Holding Company Limited | 8455 | provision of interior design and fit-out services | 184.0 | 1,234.9 |
| The Target Group | Mean (Note 3) | 6.6 | | | |
| | | | | Minimum (Note 3) | 6.6 |
| | | | | Maximum (Note 3) | 6.6 |
| Notes: | | | | | 8.8 |
| (Note 4) | | | | | |

Based on the number of shares in issue as disclosed in the latest monthly returns of the Comparable Companies immediately proceeding the Latest Practicable Date and the closing price of the shares of the respective Comparable Companies as at the Latest Practicable Date.
The P/E Ratio is based on the market capitalisation as at the Latest Practicable Date and the latest published profit attributable to owners of the Comparable Company.
Given that Lai Group Holding Company Limited has a P/E Ratio of approximately 1,234.9 times, which is far higher than that of the other Comparable Companies, it is considered as outlier and thus is excluded from analysis.
The implied P/E Ratio is based on the Consideration of approximately HK$144.4 million and the profit attributable to owners of the Target Group for FY2017/18 of approximately HK$16,475,000.

As set out in the table above, after excluding the outlier, namely Lai Group Holding Company Limited (the “Lai Group”) with a P/E Ratio of approximately 1,234.9 times, the P/E Ratio of K W Nelson Interior Design and Contracting Group Limited (“K W Nelson”) as at the Latest Practicable Date was approximately 6.6 times. Despite the fact that the implied P/E Ratio of the Target Group (i.e. 8.8 times) is slightly higher than the P/E Ratio of K W Nelson (i.e. 6.6 times) as at the Latest Practicable Date excluding the outlier, having considered that (i) the gross profit margin of the Target Group for FY2017/18, FY2016/17 and FY2015/16 (i.e. approximately 57.0%, 61.3% and 61.6% respectively) have been stably higher than the gross profit margin of K W Nelson for the past three financial years (i.e. approximately 39.3%, 43.5% and 43.5% for the financial years ended 31 December 2016, 2017 and 2018 respectively) and the gross profit margin of Lai Group for the past three financial years (i.e. approximately 26.3%, 27.9% and 29.7% for FY2017/18, FY2016/17 and FY2015/16 respectively); and (ii) the positive outlook of the interior design industry in Hong Kong (details of our analysis please refer to the section headed “5.2 Overview of interior design industry in Hong Kong” above in this letter), we are of the view and concur with the view of the management of the Company that the revised Consideration is fair and reasonable.

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Consideration issue analysis

As illustrated in the table under the paragraph headed “The Offer Price” under the section headed “4.2 Principal terms of the Share Offer” above, discount of the perspective consideration price to the closing price per share on the last trading day of the Proposal Comparables range from approximately 82.7% to approximately 97.0%, with an average of approximately 89.3%. The discount of the Issue Price to the theoretical quoted price per New Share on the Last Trading Day is within the range of and below the average of that of the Proposal Comparables.

Despite the fact that the implied P/E Ratio of the Target Group (i.e. approximately 8.8 times) is slightly higher than the P/E Ratio of K W Nelson (i.e. approximately 6.6 times) as at the Latest Practicable Date excluding the outlier, in view of (i) the gross profit margin of the Target Group have been stably higher than the Comparable Companies in the past three financial years; (ii) the profitable track record of the Target Group as discussed in the section headed “5.1 Information of the Target Group” above; and (iii) the positive prospect of interior design industry in Hong Kong as discussed in the section headed “5.2 Overview of interior design industry in Hong Kong” above, we are of the view and concur with the view of the Directors that the Acquisition and the terms of the Acquisition Agreement (including the Consideration and Issue Price) are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

6. Effects on the shareholding structure of the Company

Reference is made to the section headed “VI. Change in shareholding structure of the Company” as set out in the Board’s Letter. We noted that the shareholding of the existing public Shareholder (excluding the Existing Substantial Shareholder) would reduce from approximately 75.2% as at the Latest Practicable Date to (i) approximately 11.2% immediately upon the Completion assuming all the Qualifying Shareholders take up their respective assured entitlements under the Share Offer; and (ii) approximately 4.2% immediately upon the Completion assuming none of the Qualifying Shareholders take up their respective Reserved Shares and members of the public take up 50% of the number of the Public Offer Shares.

As noted from the table under the paragraph headed “The Offer Price” under the section headed “4.2 Principal terms of the Share Offer” above, the dilution impacts as contemplated under the resumption proposals of the Proposal Comparables range between approximately 79.0% to 89.4%, with an average of approximately 84.8%. The dilution impact as contemplated under the Resumption Proposal of approximately 81.1% is below the aforesaid average and within the range of that of the Proposal Comparables.

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Despite the dilution effect of the issue of the Consideration Shares and the Offer Shares, having considered that (i) the Group has no ability to generate cashflow from its operations as well as obtaining external financing facilities, and thus unable to repay its existing indebtedness from both internal and external resources; (ii) the Capital Reorganisation, the Share Offer and the Acquisition are part and parcel of the Resumption Proposal seeking the resumption of trading in the Shares on the Stock Exchange; (iii) if the resolutions to be proposed at the EGM to approve the transactions contemplated under the Restructuring Framework Agreement is voted down by the Independent Shareholders, the Company may be required to submit another proposal for the resumption of trading in the Shares, and there is no guarantee that such new proposal will be approved by the Stock Exchange; (iv) the net proceeds from the Share Offer will be applied for settlement of the professional fees and expenses including underwriting commission and as working capital of the Company respectively; (v) the profitable track record of the Target Group will ensure the Group to have a sufficient level of operations for maintaining its listing status on the Stock Exchange, as well as improve the Group's operations and assets performance and financial position; (vi) the dilution impact as contemplated under the Resumption Proposal is below the average and within the range of that of the Proposal Comparables; and (vii) the terms of the Share Offer, the Underwriting Agreement and the Acquisition Agreement are fair and reasonable so far as the Independent Shareholders are concerned, we consider the potential dilution effect to the existing public Shareholders is acceptable.

7. The Whitewash Waiver

As at Latest Practicable Date, the Concert Group did not own or control any existing Shares or any convertible securities, warrants, options or derivatives in respect of the existing Shares. Upon the Completion, the Concert Group will be interested in approximately 70.0% of the Enlarged Issued Share Capital. As such, the Concert Group would be required to make a mandatory general offer for all the issued shares of the Company (not already owned or agreed to be acquired by the Concert Group) under Rule 26.1 of the Takeovers Code, unless a waiver from strict compliance with Rule 26.1 of the Takeovers Code is granted by the Executive.

Having taken into account that (i) the approval of the Whitewash Waiver by the Independent Shareholders and the granting of the Whitewash Waiver by the Executive is a non-waivable condition precedent to the Acquisition; (ii) the Whitewash Waiver would allow the Proposed Restructuring and the transactions contemplated thereunder to proceed and thus lead to resumption of trading in the Shares; (iii)

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

if the Whitewash Waiver is voted down by the Independent Shareholders, the Company may be required to submit another proposal for the resumption of trading in the Shares, and there is no guarantee that such new proposal will be approved by the Stock Exchange; (iv) the Acquisition will ensure the Group to have a sufficient level of operations and assets for maintaining its listing status on the Stock Exchange, as well as improve the Group’s financial performance and financial position; and (v) the terms of the Acquisition Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole as discussed in section headed “5. The Acquisition and the Investor Loan Capitalisation” above, we consider that the Whitewash Waiver is fair and reasonable and is in the interests of the Company and the Independent Shareholders as a whole.

8. The Creditors Schemes and the Special Deal

As part of the Proposed Restructuring, the Company proposed to transfer the Scheme Companies to the Scheme Administrators or a company to be incorporated and held and controlled by the Scheme Administrators. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, the Scheme Administrators are third parties independent of the Company and its connected persons. All the issued shares of the Scheme Companies will be transferred to a nominee of the Scheme Administrators upon the Creditors Schemes having become effective at the nominal value for the benefit of the Creditors and any guarantee or indemnity given by the Company in respect of the obligations or liabilities of each of the Scheme Companies shall be released and discharged in full upon such transfer.

The Creditors Schemes Consideration was originally determined at approximately HK$89.1 million and would be settled by partially cash and the 361,990,991 Creditors Shares. Pursuant to the amended and restated restructuring framework agreement dated 16 May 2019, the Creditors Schemes Consideration was revised to approximately HK$13.4 million, which will be settled by allotment and issue of the 70,331,984 Creditors Shares at the issue price of HK$0.19 each upon Completion. The revised Creditors Schemes Consideration was determined with reference to the prevailing market conditions, situation and financial position of the Company and an acceptable recovery rate which agreed by most of the creditors of the Company.

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Taking into account the total assets of the Group of approximately HK$124.6 million as at 30 September 2018 and the net proceeds to be raised from the Share Offer and/or Creditors Shares to be allotted and issued in aggregate of approximately HK$13.4 million which form part of the Creditors Schemes Consideration, it is estimated that approximately HK$138.0 million would be available for settlement of liabilities of the Scheme Companies.

As at the Latest Practicable Date, based on the available books and records of the Company or on Claims made by the Creditors, the Company has indebtedness of approximately HK$543.1 million. The figure is indicative only and will be subject to final determination by the Scheme Administrators. Please refer to the section headed "The Creditors Schemes and the very substantial disposal" in the Board's Letter for the detailed breakdown of the indebtedness of the Group. Upon the Creditors Schemes having become effective, all the Claims and other liabilities of the Company will be discharged and released in full, in return, under the Creditors Schemes, the Creditors with the Claims admitted under the Creditors Schemes would be entitled to receive the Creditors Schemes Consideration including the Creditors Shares with a value of approximately HK$13.4 million (after the costs in connection with the administration and implementation of the Creditors Schemes and subject to any reserve which the Scheme Administrators may make) proportionally on a pari passu basis based on their respective amount of the Claims admitted under the Creditors Schemes.

For further details of the Creditors Schemes, please refer to the section headed "The Creditors Schemes and the very substantial disposal" in the Board's Letter.

As advised by the management of the Company, the proposed settlement of the indebtedness due to eForce with principal of approximately HK$101.4 million as at the Latest Practicable Date (which held approximately 0.179% of the total issued share capital of the Company as at the Latest Practicable Date) under the Creditors Schemes, which is not extended to all the other Shareholders, constitutes a special deal under Rule 25 of the Takeovers Code and therefore requires (i) consent by the Executive; (ii) the Independent Financial Adviser to publicly state that in its opinion the repayment and the terms thereunder are fair and reasonable; and (iii) approval by the Independent Shareholders at the EGM. Parties to the Concert Group, eForce and its associates and parties acting in concert with any of them, and those who are interested in and involved in the Proposed Restructuring, the Whitewash Waiver and/or the Special Deal will be required to abstain from voting on the relevant resolution(s).

After considering that (i) the Group has no ability to generate cashflow from its operations as well as obtaining external financing facilities, and thus unable to repay its existing indebtedness from both internal and external resources; (ii) the estimated available resources of the Group for settlement of liabilities of the Scheme Companies of approximately HK$17.1 million is far below the indebtedness of the Company of approximately HK$543.1 million as at the Latest Practicable Date; (iii) if any of the resolutions to be proposed at the EGM to approve the transactions contemplated under the Restructuring Framework Agreement is voted down by the Independent Shareholders, the Company may be required to submit another proposal for the resumption of trading in the Shares, and there is no guarantee that such new proposal will be approved by the Stock Exchange; (iv) any guarantee or indemnity given by the Company in respect of the obligations or liabilities of each of the Scheme Companies shall be released and discharged in full upon such transfer upon the Creditors Schemes having become effective; (v) excess amount, if any, under the Creditors Schemes after payment of all costs and settlement of all liabilities due

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to the Creditors will be returned to the Company; (vi) the Creditors with the Claims admitted under the Creditors Schemes would be entitled to receive the Creditors Schemes Consideration (after the costs in connection with the administration and implementation of the Creditors Schemes and subject to any reserve which the Scheme Administrators may make) proportionally on a pari passu basis based on their respective amount of the Claims admitted under the Creditors Schemes; (vii) the approval of the Creditors Schemes by the Independent Shareholders is a non-waivable condition precedent to the Acquisition; (viii) the Creditors Schemes would allow the Proposed Restructuring and the transactions contemplated thereunder to proceed and thus lead to resumption of trading in the Shares; (ix) eForce and his associates and parties acting in concert with any of them, and those who are interested in and involved in the Proposed Restructuring, the Whitewash Waiver and/or the Special Deal will be required to abstain from voting on the relevant resolution(s); and (x) all Independent Shareholders are entitled to vote for or against the resolutions in respect of the Creditors Schemes and the Special Deal at the EGM, we are of the view that the terms of the Creditors Schemes and the Special Deal are fair and reasonable.

9. Financial effects of the Proposed Restructuring

Upon completion of the Proposed Restructuring, all the existing assets and liabilities of the Company will be transferred to the Scheme SPC and the sole assets of the Company will be the Target Company's business. Please refer to "Appendix V – Unaudited pro forma financial information of the Restructured Group" (the "Pro Forma Information") as included in the Circular for details.

Net assets

As at 30 September 2018, the Group had net liabilities of approximately HK$457.5 million. As stated in the Pro Forma Information, assuming the Proposed Restructuring had been completed on 30 September 2018, the Group's financial position would improve from net liabilities of approximately HK$457.5 million to net assets of approximately HK$53.4 million.

Earnings

As set out in the Pro Forma Information, assuming the Proposed Restructuring had been completed on 1 April 2017, the unaudited pro forma profit for the year would be approximately HK$275.7 million for as compared to loss of approximately HK$76.1 million for the year ended 31 March 2018 without taking into account the completion of the Proposed Restructuring. The profit is mainly due to (i) gain on debt restructuring of the Group of approximately HK$435.5 million; (ii) deemed listing expenses of approximately HK$67.2 million; and (iii) estimated professional fees relating to the Proposed Restructuring of approximately HK$32.9 million to be additionally incurred by the Company.

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Gearing

As at 30 September 2018, the Group had total assets of approximately HK$124.6 million and total liabilities of approximately HK$582.1 million. The debt to asset ratio of the Group was approximately 4.7 times, being the total liabilities divided by total assets. According to the Pro Forma Information, assuming the Proposed Restructuring had been completed on 30 September 2018, the Restructured Group would have total assets of approximately HK$101.3 million and total liabilities of approximately HK$47.9 million. Accordingly, the debt to asset ratio of the Restructured Group would be reduced to approximately 0.5 times.

Working capital

As at 30 September 2018, the Group had bank and cash balances (excluding which classified as held for sale) of approximately HK$516,000 and net current liabilities of approximately HK$135.3 million. With reference to the Pro Forma Information, assuming that the Proposed Restructuring took place on 30 September 2018, the Restructured Group would have bank and cash balances of approximately HK$62.3 million and net current assets of approximately HK$42.5 million.

Taking into consideration the above, we are of the opinion that the overall financial performance and profitability of the Group is expected to be improved upon Completion.

It should be noted that the above financial effects are for illustrative purpose only and do not purport to represent the financial position of the Restructured Group upon Completion. The actual financial effect of the Proposed Restructuring will only be ascertained upon Completion.

RECOMMENDATION

Despite the dilution effect of the Proposed Restructuring, having considered the principal factors and reasons discussed above, in particular,

(i) the Capital Reorganisation will significantly reduce the accumulated loss of the Company from approximately HK$4,525.4 million to HK$590.8 million;

(ii) the net proceeds from the Share Offer will be applied for settlement of the professional fees and expenses including underwriting commission and as working capital of the Company respectively;

(iii) each of the Qualifying Shareholders is given equal opportunity to participate in the Company's future development by subscribing his/her assured entitlements under the Share Offer;

(iv) the Group has no ability to generate cashflow from its operations as well as obtaining external financing facilities, and thus unable to repay its existing indebtedness from both internal and external resources and the Creditors Schemes, which constitutes the Special Deal, will enable the Group to settle its outstanding indebtedness in a formal and orderly manner;

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(v) any guarantee or indemnity given by the Company in respect of the obligations or liabilities of each of the Scheme Companies shall be released and discharged in full upon such transfer upon the Creditors Schemes having become effective;

(vi) the profitable track record of the Target Group will ensure the Group to have a sufficient level of operation for maintaining its listing status on the Stock Exchange as well as improve the Group’s financial performance and financial position;

(vii) if the transactions proposed in the Resumption Proposal fail to proceed with for any reasons, the Stock Exchange will proceed with the cancelation of listing of the Shares on the Stock Exchange; and

(viii) if any of the resolutions to be proposed at the EGM to approve the transactions contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement is voted down by the Independent Shareholders, the Company may be required to submit another proposal for the resumption of trading in the Shares. However, there is no guarantee that such new proposal will be approved by the Stock Exchange,

we consider the terms of the proposed Capital Reorganisation, the Share Offer, the Creditors Schemes, the Investor Loan Capitalisation and the Acquisition contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement, the Special Deal and the Whitewash Waiver are on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned and the transactions contemplated thereunder are in the interests of the Company and the Independent Shareholders as a whole. Accordingly, we recommend (i) the Independent Board Committee to advise the Independent Shareholders; and (ii) the Independent Shareholders to vote in favour of the relevant resolution(s) to be proposed at the EGM to approve the proposed Capital Reorganisation, the Share Offer, the Creditors Schemes, the Investor Loan Capitalisation and the Acquisition contemplated under the Acquisition Agreement, the Investor Loan Agreement and the Restructuring Framework Agreement, the Special Deal and the Whitewash Waiver.

Yours faithfully,

For and on behalf of

Nuada Limited

Kim Chan

Executive Director

Mr. Kim Chan is a person licensed to carry out type 6 (advising on corporate finance) regulated activity under the SFO and is a responsible officer of Nuada Limited who has over 16 years of experience in corporate finance industry.

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HISTORY AND BACKGROUND OF THE TARGET GROUP

HISTORY AND DEVELOPMENT

The history of the Target Group can be traced back to 1995 when Mr. Norman Chan and a former colleague of Mr. Norman Chan, incorporated BTR Workshop, with the aim to providing modern architectural and contemporary designs in Hong Kong. In 2000, the former colleague of Mr. Norman Chan sold all his shares in BTR Workshop to Mr. Norman Chan and Ms. Susanna Kwok at an aggregate consideration of HK$835,000 with reference to the then financial and business conditions of BTR Workshop and Mr. Norman Chan wished to continue to develop BTR Workshop business by himself. Upon completion of the above shares transfer, BTR Workshop was owned as to approximately 99.99% by Mr. Norman Chan and approximately 0.01% by Ms. Susanna Kwok. In the same year, the Target Group provided interior design services for an office development project for the first time.

Under the leadership and effort of Mr. Norman Chan, the Target Group has gradually developed its business in the interior design industry. In 2009, the Target Group first expanded its business to the overseas market and provided its interior design service for a residential property development project with a shopping complex in Manila, the Philippines.

In 2009, Mr. Norman Chan together with Mr. Alex Lee and Mr. Leung Shiu Fung, Kevini, an associate director of the Target Group, incorporated BTR HK, which principally engages in the provision of interior design services in Hong Kong. On 28 December 2011, Mr. Leung Shiu Fung, Kevini transferred all his shares in BTR HK to Mr. Norman Chan at a consideration of $50 with reference to the then par value of the shares of BTR HK. In 2013, Mr. Norman Chan incorporated BTR Asia and BTR Intl to expand the Target Group's interior design business. Over the years, the Target Group has established its relationship with the customers which enable the Target Group to secure more interior design projects and expand its design and project management team. The Target Group has developed, in a period of almost two decades, from a small studio to a team of over 60 design professionals as at the Latest Practicable Date.

BUSINESS DEVELOPMENT AND MILESTONES

The following is a summary of key milestones in the development of the Target Group:

Year	Major milestones
1995	Incorporation of BTR Workshop by Mr. Norman Chan and a former colleague of Mr. Norman Chan. The former colleague of Mr. Norman Chan subsequently sold all his shares in BTR Workshop to Mr. Norman Chan and Ms. Susanna Kwok in 2000
2000	First project of interior design service for an office development project
2004	First project of interior design service for a residential property project to a Hong Kong-based property developer

HISTORY AND BACKGROUND OF THE TARGET GROUP

Year	Major milestones
2005	First project of interior design service for a showflat located in Soho, Hong Kong
2007	First project of retail outlet project of interior design service for showroom
2009	First overseas project of interior design service for a residential property development project with a shopping complex located in Manila, the Philippines
2009	Incorporation of BTR HK by Mr. Norman Chan, Mr. Alex Lee and Mr. Leung Shiu Fung, Kevini. Mr. Leung Shiu Fung Kevini subsequently transferred 50 shares of BTR HK to Mr. Norman Chan
2011	First project of interior design service in the PRC for a showflat in Shenzhen, the PRC
2011	BTR Workshop as the interior designer of a residential project at the Peak, Hong Kong won The Hong Kong Institute of Architects Merit Award of Hong Kong
2013	Incorporation of BTR Asia by Mr. Norman Chan
2013	Incorporation of BTR Intl by Mr. Norman Chan
2013	First project of interior design service for a hotel renovation project located in Singapore to a Hong Kong-based multinational hospitality company
2014	The number of staff of the Principal Subsidiaries exceeded 50
2015	First project of food and beverage outlet interior design service to a leading food and beverage company in Hong Kong comprising Chinese, Asian and European restaurants
2016	BTR HK acted as the interior designer of a serviced apartment project at Happy Valley, Hong Kong won the Merit Award of the Quality Building Award 2016 under the Hong Kong Residential (Single Building) category

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HISTORY AND BACKGROUND OF THE TARGET GROUP

CORPORATE DEVELOPMENT

Target Company

The Target Company was incorporated in BVI on 2 August 2017 as a limited liability company with an authorised share capital of US$50,000 divided into 50,000 shares with a par value of US$1.00 each. It is an investment holding company. On 13 September 2017 (being the date of acquisition of the Target Company as a shelf company), one share of the Target Company was allotted and issued for cash at par to the Investor. The Target Company is wholly-owned by the Investor prior to the Completion.

On 15 September 2017 the Investor and the Company entered into the Acquisition Agreement, (as supplemented and amended on 9 November 2017 and 28 June 2018, respectively, and amended and restated on 23 November 2018 and 16 May 2019, respectively), pursuant to which the Company has conditionally agreed to acquire and the Investor has conditionally agreed to sell, the Sale Shares for the consideration of approximately HK$144.4 million. Upon Completion, the Target Company will be wholly-owned by the Company.

BTR Asia

BTR Asia was incorporated in Hong Kong on 18 December 2013 with limited liability. BTR Asia has an issued and paid up capital of HK$8,000 divided into 8,000 shares, which were allotted and issued for cash at par to Mr. Norman Chan on the date of incorporation. BTR Asia was wholly owned by Mr. Norman Chan as at 1 April 2017 and immediately prior to the Reorganisation. On 26 April 2019, as part of the Reorganisation, Mr. Norman Chan transferred 8,000 shares of BTR Asia to the Target Company and in return, the Target Company allotted and issued one share of the Target Company to the Investor under the instruction of Mr. Norman Chan on 26 April 2019. BTR Asia principally engages in the provision of interior design services. Upon completion of the above shares transfer, BTR Asia became a wholly-owned subsidiary of the Target Company.

BTR HK

BTR HK was incorporated in Hong Kong on 19 March 2009 with limited liability. BTR HK has an issued and paid up capital of HK$1,000 divided into 1,000 shares. On the date of incorporation, 900 shares, 50 shares and 50 shares of BTR HK were allotted and issued for cash at par to Mr. Norman Chan, Mr. Alex Lee and Mr. Leung Shiu Fung Kevini respectively. On 28 December 2011, Mr. Leung Shiu Fung Kevini, transferred 50 shares of BTR HK to Mr. Norman Chan at the consideration of HK$50 with reference to the then par value of the shares of BTR HK. 50 shares and 950 shares of BTR HK were held by Mr. Alex Lee and Mr. Norman Chan, respectively as at 1 April 2017 immediately prior to the Reorganisation. On 26 April 2019, as part of the Reorganisation, Mr. Norman Chan and Mr. Alex Lee respectively transferred 950 shares and 50 shares of BTR HK to the Target Company and in return, the Target Company allotted and issued two shares of the Target Company to the Investor under the instructions of Mr. Norman Chan and Mr. Alex Lee on 26 April 2019. BTR HK principally engages in the provision of interior design services. Upon completion of the above shares transfer, BTR HK became a wholly-owned subsidiary of the Target Company.

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HISTORY AND BACKGROUND OF THE TARGET GROUP

BTR Intl

BTR Intl was incorporated in Hong Kong on 18 January 2013 with limited liability. BTR Intl has an issued and paid up capital of HK$10,000 divided into 10,000 shares which were allotted and issued for cash at par to Mr. Norman Chan on the date of incorporation. BTR Intl was wholly owned by Mr. Norman Chan as at 1 April 2017 and immediately prior to the Reorganisation. On 26 April 2019, as part of the Reorganisation, Mr. Norman Chan transferred 10,000 shares of BTR Intl to the Target Company and in return, the Target Company allotted and issued one share of the Target Company to the Investor under the instruction of Mr. Norman Chan on 26 April 2019. BTR Intl principally engages in the provision of interior design services. Upon completion of the above shares transfer, BTR Intl became a wholly-owned subsidiary of the Target Company.

BTR Workshop

BTR Workshop was incorporated in Hong Kong with limited liability on 1 June 1995. BTR Workshop has an issued and paid up capital of HK$200,000 divided into 200,000 shares. On 1 June 1995, 100,000 shares and 100,000 shares of BTR Workshop were allotted and issued for cash at par to Mr. Norman Chan and a former colleague of Mr. Norman Chan, respectively. On 30 May 2000, the former colleague transferred 99,999 shares and one share of BTR Workshop to Mr. Norman Chan and Ms. Susanna Kwok, respectively at the consideration of HK$834,991.65 and HK$8.35 with reference to the then financial and business conditions of BTR Workshop. 199,999 shares and one share of BTR Workshop were held by Mr. Norman Chan and Ms. Susanna Kwok respectively as at 1 April 2017 and immediately prior to the Reorganisation. On 26 April 2019, as part of the Reorganisation, Mr. Norman Chan and Ms. Susanna Kwok respectively transferred 199,999 shares and one share of BTR Workshop to the Target Company and in return, the Target Company allotted and issued two shares of the Target Company to the Investor under the instructions of Mr. Norman Chan and Ms. Susanna Kwok on 26 April 2019. BTR Workshop principally engages in the provision of interior design services. Upon completion of the above shares transfer, BTR Workshop became a wholly-owned subsidiary of the Target Company.

REORGANISATION

In preparation for the Acquisition, the Target Group carried out the following restructuring steps:

(1) Acquisition of the Principal Subsidiaries by the Target Company

On 26 April 2019, Mr. Norman Chan transferred 8,000 shares of BTR Asia, representing the entire issued share capital of BTR Asia to the Target Company and in return, the Target Company allotted and issued one share of the Target Company credited as fully paid to the Investor under the instruction of Mr. Norman Chan on 26 April 2019. Upon completion of the above shares transfer, BTR Asia became a wholly-owned subsidiary of the Target Company.

On 26 April 2019, Mr. Norman Chan and Mr. Alex Lee respectively transferred 950 shares and 50 shares of BTR HK, representing the entire issued share capital of BTR HK to the Target Company and in return, the Target Company allotted and issued two shares of the Target Company credited as fully paid to the Investor under the instructions of Mr. Norman Chan and Mr. Alex Lee on 26 April 2019. Upon completion of the above shares transfer, BTR HK became a wholly-owned subsidiary of the Target Company.

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HISTORY AND BACKGROUND OF THE TARGET GROUP

On 26 April 2019, Mr. Norman Chan transferred 10,000 shares of BTR Intl, representing the entire issued share capital of BTR Intl to the Target Company and in return, the Target Company allotted and issued one share of the Target Company credited as fully paid to the Investor under the instruction of Mr. Norman Chan on 26 April 2019. Upon completion of the above shares transfer, BTR Intl became a wholly-owned subsidiary of the Target Company.

On 26 April 2019, Mr. Norman Chan and Ms. Susanna Kwok respectively transferred 199,999 shares and one share of BTR Workshop, representing the entire issued share capital of BTR Workshop to the Target Company and in return, the Target Company allotted and issued two shares of the Target Company credited as fully paid to the Investor under the instructions of Mr. Norman Chan and Ms. Susanna Kwok on 26 April 2019. Upon completion of the above shares transfer, BTR Workshop became a wholly-owned subsidiary of the Target Company.

(2) Acquisition of the Target Group by the Company

At Completion, the Company will: (i) transfer, among others, all the equity interests held by the Company in the Scheme Companies to the Scheme SPC for the benefit of the Scheme Creditors; and (ii) acquire seven shares in the Target Company, representing the entire issued share capital in the Target Company from the Investor at the consideration of HK$144,400,000, which will be satisfied by the Company by the allotment and issue of 760,000,000 New Shares credited as fully paid by the Company to the Investor or its nominee(s), which together with up to 94,736,842 Capitalisation Shares at the issue price of HK$0.19 each, represent approximately 70.0% of the Enlarged Issued Share Capital immediately after Completion.

The following chart sets out the corporate and shareholding structure of the Target Group immediately before the Reorganisation:

HISTORY AND BACKGROUND OF THE TARGET GROUP

The following chart sets out the corporate and shareholding structure of the Target Group immediately after completion of the Reorganisation:

HISTORY AND BACKGROUND OF THE TARGET GROUP

The following chart sets out the corporate and shareholding structure of the Restructured Group immediately after completion of the Proposed Restructuring assuming all the Qualifying Shareholders take up their entitlements in the Preferential Offering:

Note: Public Shareholders consist of Existing Substantial Shareholder, existing public Shareholders, the Scheme Creditors, the New Public Shareholders and/or the independent subscriber(s) procured by the Underwriter and/or its sub-underwriter(s). For details, please refer to the paragraph headed "Letter from the Board - Change in Shareholding Structure of the Company" in this circular.

HISTORY AND BACKGROUND OF THE TARGET GROUP

The following chart sets out the corporate and shareholding structure of the Restructured Group immediately after completion of the Proposed Restructuring assuming none of the Qualifying Shareholders take up their entitlements in the Preferential Offering:

BUSINESS OF THE TARGET GROUP

OVERVIEW

The Target Group was established in 1995 and principally engages in provision of interior design services to premises including private residences, corporate offices, service apartments, hotels, residential clubhouses, show flats and sales galleries. As at the Latest Practicable Date, the Target Group was a well-established and renowned interior design firm in Hong Kong with a team of over 60 professional designers together with its senior management team who possessed relevant experience ranging from 2 years to over 30 years. With over 20 years of experience in the interior design industry in Hong Kong, the Target Group has served over 50 customers including multinational companies and listed companies in Hong Kong. During the Track Record Period, the Target Group has carried out over 218 projects to provide interior design services to properties and premises of different function and style. As at the Latest Practicable Date, the Target Group had 100 projects in progress or to be commenced with a total contract sum of approximately HK$301.9 million.

According to Frost & Sullivan Report, the interior design industry is highly fragmented with over 1,000 market players of both local and international names. The Target Group is highly recognised for its bespoke and total interior design services in the property development process, covering the design stage and project execution stage. The Target Group generates revenue by providing tailor-made interior design proposals which include design concepts and plans based on the Target Group's clients' requirements, preparing colour and concept boards, and creating drawing work, layout plans and 3-dimensional rendering. The Target Group is also responsible for monitoring the execution progress of the projects and coordinating the fitting-out works to ensure its design is materialised as conceived. For details of the operation of the Target Group, please refer to the section headed "Business of the Target Group - Operation flow" in this circular.

During the Track Record Period, over 50% of the Target Group's revenue was generated from residential projects in Hong Kong. For each of the three years ended 31 March 2016, 2017 and 2018 and the eight months ended 30 November 2018, the total revenue generated by the Target Group amounted to approximately HK$55.7 million, HK$68.1 million, HK$61.8 million and HK$47.4 million while the gross profit amounted to approximately HK$34.3 million, HK$41.7 million, HK$35.2 million and HK$28.2 million respectively. The average contract size of the Target Group's projects with revenue contribution during the Track Record Period ranged from approximately HK$0.3 million to HK$11.5 million.

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BUSINESS OF THE TARGET GROUP

The table below sets forth the number of projects and revenue generated by types of projects during the Track Record Period:

Types of project	Average project duration (Note 2) (months)	2016			2017			2018			2017			2018
		Number of projects	Revenue recognised (HK$'000)	%	Number of projects	Revenue recognised (HK$'000)	%	Number of projects	Revenue recognised (HK$'000)	%	Number of projects	Revenue recognised (HK$'000) (unaudited)	%	Number of projects	Revenue recognised (HK$'000)	%

Residential (Note 1)	36	35	34,210	61	53	47,271	69	66	46,665	76	57	25,412	70	62	35,344	74
Commercial (Note 1)	20	11	8,687	16	16	10,115	15	17	8,925	14	17	6,311	17	13	5,592	12
Show flat, sales office/gallery and others	8	40	12,770	23	30	10,706	16	26	6,250	10	22	4,639	13	22	6,501	14
Total		86	55,667	100	99	68,092	100	109	61,840	100	96	36,362	100	97	47,437	100

BUSINESS OF THE TARGET GROUP

During the Track Record Period, the Target Group was mainly engaged by corporate clients for interior design services which contributed approximately 98%, 87%, 98% and 96% of the total revenue for each of the three years ended 31 March 2016, 2017 and 2018 and the eight months ended 30 November 2018 respectively. The remaining approximately 2%, 13%, 2% and 4% of the revenue was attributable to individual clients who occasionally engaged the Target Group for interior design services for private residence. Corporate clients of the Target Group are mostly Hong Kong property developers and Hong Kong listed companies. Breakdowns of revenue by nature of the Target Group's customers during the Track Record Period are shown as below:

Property developer vs. Non-property developer

Nature of customers	Number of customers with revenue contribution during Track Record Period	Number of projects carried out during Track Record Period	For the year ended 31 March					For the eight months ended 30 November
			2016		2017		2018	2017		2018
			HK$'000	%	HK$'000	%	HK$'000	%	HK$'000 (unrealized)	%	HK$'000
Property developer	32	165	50,672	91	57,194	84	55,921	90	32,336	89	44,050
Non-property developer	28	53	4,995	9	10,898	16	5,919	10	4,026	11	3,387
Total	60	218	55,667	100	68,092	100	61,840	100	36,362	100	47,437

BUSINESS OF THE TARGET GROUP

Hong Kong/overseas listed company vs. Unlisted company/individual

Nature of customers	Number of customers with revenue contribution during Track Record Period	Number of projects carried out during Track Record Period	For the year ended 31 March				For the eight months ended 30 November
			2016
HK$'000	2017
%	HK$'000	2018
%	2017
HK$'000
(unaudited)	2018
%	HK$'000	2018
%
Hong Kong/overseas listed company	27	136	35,733	64	47,785	70	47,420	77	25,930	71
Unlisted company/individual	33	82	19,934	36	20,307	30	14,420	23	10,432	29
Total	60	218	55,667	100	68,092	100	61,840	100	36,362	100

Corporate customer vs. Individual customer

Nature of customers	Number of customers with revenue contribution during Track Record Period	Number of projects carried out during Track Record Period	For the year ended 31 March				For the eight months ended 30 November
			2016
HK$'000	2017
%	HK$'000	2018
%	2017
HK$'000
(unaudited)	2018
%	HK$'000	2018
%
Corporate customer	50	207	54,397	98	59,392	87	60,350	98	35,902	99
Individual customer (Note 1)	10	11	1,270	2	8,700	13	1,490	2	460	1
Total	60	218	55,667	100	68,092	100	61,840	100	36,362	100

Note:
1. Individual customers include natural persons and legal entities which engage the Target Group for interior design services for private residence.

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BUSINESS OF THE TARGET GROUP

While most of the projects carried out by the Target Group during the Track Record Period are related to properties located in Hong Kong, some of the customers may engage the Target Group in projects located outside Hong Kong. The table below sets forth the number of projects and revenue generated by geographical location of the properties during the Track Record Period:

	2016	For the year ended 31 March 2017	2018	For the eight months ended 30 November
						2017			2018
	Number of projects	Revenue recognised (HK$'000)	%	Number of projects	Revenue recognised (HK$'000)	%	Number of projects	Revenue recognised (HK$'000)	%	Number of projects	Revenue recognised (HK$'000)	%	Number of projects	Revenue recognised (HK$'000)	%
Hong Kong	66	39,939	71.8	80	55,708	81.9	89	51,069	82.6	76	29,079	80.0	80	40,421	85.2
PRC and Macau	9	6,304	11.3	11	6,557	9.6	8	4,469	7.2	8	3,125	8.6	6	1,543	3.3
Others (Note 1)	11	9,424	16.9	8	5,827	8.5	12	6,302	10.2	12	4,158	11.4	11	5,473	11.5
Total	86	55,667	100.0	99	68,092	100.0	109	61,840	100.0	96	36,362	100.0	97	47,437	100.0

Note:
1. Others include Sri Lanka, Malaysia, the Philippines, Japan, Thailand and Singapore.

The directors of the Target Company are of the view that the Target Group's capability to understand customers' requirements and transform far-fetched concepts into visionary solutions that embrace functionality and aesthetics has gained trust and appreciation from customers and enabled the Target Group to be one of the reputable players in the interior design industry in Hong Kong. The directors of the Target Company believe that the key factors for the Target Group to remain competitive in the interior design industry include (i) the ability to retain and grow a team of professional designers who can consistently deliver innovative and creative solutions to clients; (ii) the Target Group's reputation in the interior design industry; (iii) the network to locate design products and customised materials from craftspeople who can produce and install the design that meet clients' standard; (iv) maintaining stable and long term customer relationship; (v) having an experienced management team with proven track record; and (vi) the ability to monitor and coordinate contractors engaged by customers to materialise the design plan in a timely manner. For details of the Target Group's competitive strengths, please refer to the section headed "Business of the Target Group - Competitive strengths" in this circular.

BUSINESS OF THE TARGET GROUP

As the business of the Target Group is project-based, the contract sum varies among projects. The following table sets forth the number of projects carried out by the Target Group in terms of contract sum during the Track Record Period:

	For the year ended 31 March
	2016		2017			2018			2017			2018
	Number of projects	Total contract sum (HK$'000)	Revenue recognised (HK$'000)	Number of projects	Total contract sum (HK$'000)	Revenue recognised (HK$'000)	Number of projects	Total contract sum (HK$'000)	Revenue recognised (HK$'000)	Number of projects	Total contract sum (HK$'000)	Revenue recognised (HK$'000)	Number of projects	Total contract sum (HK$'000)
Less than HK$1 million	47	14,808	8,621	47	20,650	10,787	45	17,708	7,694	37	14,123	5,923	34	14,986
HK$1 million to HK$10 million	37	129,414	42,262	49	163,014	49,681	61	209,769	48,228	56	200,170	26,477	60	219,412
More than HK$10 million	2	23,030	4,784	3	34,530	7,624	3	34,530	5,918	3	34,530	3,962	3	34,530
	86	167,252	55,667	99	218,174	68,092	109	262,007	61,840	96	248,823	36,362	97	260,928

THE BUSINESS

The Target Group is a bespoke and total interior design firm based in Hong Kong. With reference to the Hong Kong Interior Design Association, the interior design profession is principally engaged to (i) identify, research and creatively solve problems pertaining to the function and quality of the interior environment; (ii) perform services related to interior spaces including programming, design analysis, space planning, aesthetics, and inspection of work on site, using specialised knowledge of interior construction, building systems and components, building regulations, equipment, materials and furnishings; and (iii) prepare drawings and documents in relation to the design of interior space, in order to enhance the quality of life and protect the health, safety and welfare of the public. As a well-established interior design firm rooted in Hong Kong for over 20 years, the Target Group strives to deliver design solutions that synthesise human and ecologies and follows an approach to cultivate contemporary design that is long lasting and compelling.

The interior design services provided by the Target Group include conceptual design of interior environments that support the function, aesthetics and cultures of people using interior spaces. The designs are created by a combination of creativity, technical and material knowledge of the Target Group's designers, with an aim to deliver solutions that meet the requirement of customers and end-users of the interior spaces. The design drawings delivered by the Target Group can be formalised into a presentation to the customers, allowing them to gain a better understanding of the texture, colour of fabrics and materials proposed to be used in the design. Subject to the scope of works agreed in contracts, the Target Group may assist in locating craftspeople who produce design products and customised materials which serve the purpose of emanating vibe and being functional and practical at the same time. The Target Group may also be responsible for monitoring the execution progress of the projects to ensure the fitting-out works and materials supplied by contractors and craftspeople directly engaged by customers are up to standard and the design is materialised as conceived. For details of the operation of the Target Group, please refer to the section headed "Business of the Target Group - Operation flow" in this circular.

BUSINESS OF THE TARGET GROUP

The table below sets forth the movement of on-going and completed projects during the Track Record Period:

Number of on-going projects as at 1 April 2015 30
Net change of number of pending projects during the year (Note) -
Number of new projects carried out during the year 56
Number of on-going and completed projects as at 31 March 2016 86
Number of projects completed during the year (42)
Number of on-going projects as at 31 March 2016 44
Number of on-going projects as at 1 April 2016 44
Net change of number of pending projects during the year (Note) -
Number of new projects carried out during the year 55
Number of on-going and completed projects as at 31 March 2017 99
Number of projects completed during the year (35)
Number of on-going projects as at 31 March 2017 64
Number of on-going projects as at 1 April 2017 64
Net change of number of pending projects during the year (Note) (1)
Number of new projects carried out during the year 46
Number of on-going and completed projects as at 31 March 2018 109
Number of projects completed during the year (42)
Number of on-going projects as at 31 March 2018 67
Number of on-going projects as at 1 April 2018 67
Net change of number of pending projects during the period (Note) (1)
Number of new projects carried out during the period 31
Number of on-going and completed projects as at 30 November 2018 97
Number of projects completed during the period (24)
Number of on-going projects as at 30 November 2018 73

Note:

In order to demonstrate the number of projects that contributed to the total revenue of the Target Group for each of the year/period during the Track Record Period, projects not generating revenue during the year/period were regarded as pending projects which were excluded from on-going projects for the respective year/period. A pending project would resume on-going when revenue derived from the project is recognised during the respective year/period. Pending projects represented mostly projects of which the Target Group has provided design services while fitting-out works provided by contractors engaged by Target Group's customers were pending or put on hold.

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BUSINESS OF THE TARGET GROUP

Top projects during the Track Record Period

For the year ended 31 March 2016

Customer	Types of project	Location of property	Revenue recognised for the year end 31 March 2016 (HK$'000)	% of total revenue
1. Customer D	Residential	Hong Kong	4,500	8.1
2. Customer C	Residential	Sri Lanka	3,243	5.8
3. A Hong Kong listed company	Commercial	PRC	2,624	4.7
4. A multinational company	Commercial	Singapore	2,574	4.6
5. Customer A	Residential	Hong Kong	2,385	4.3

For the year ended 31 March 2017

Customer	Types of project	Location of property	Revenue recognised for the year end 31 March 2017 (HK$'000)	% of total revenue
1. Customer A	Residential	Hong Kong	3,648	5.4
2. Customer A	Commercial	Hong Kong	3,450	5.1
3. Customer F	Residential	Hong Kong	3,000	4.4
4. Customer A	Residential	Hong Kong	2,800	4.1
5. Customer C	Commercial	Malaysia	2,562	3.8

BUSINESS OF THE TARGET GROUP

For the year ended 31 March 2018

Customer	Types of Project	Location of property	Revenue recognised for the year end 31 March 2018 (HK$'000)	% of total revenue
1. Customer G	Residential	Hong Kong	3,267	5.3
2. Customer A	Residential	Hong Kong	2,520	4.1
3. Customer A	Commercial	Hong Kong	2,185	3.5
4. Customer A	Residential	Hong Kong	2,090	3.4
5. A Hong Kong listed company	Residential	Hong Kong	1,950	3.2

For the eight months ended 30 November 2018

Customer	Types of project	Location of property	Revenue recognised for the eight months ended 30 November 2018 (HK$'000)	% of total revenue
1. Customer A	Residential	Hong Kong	3,284	6.9
2. Customer A	Commercial	Hong Kong	2,875	6.1
3. Customer A	Residential	Hong Kong	2,400	5.1
4. A Hong Kong listed company	Residential	Hong Kong	1,893	4.0
5. Customer J	Residential	Hong Kong	1,596	3.4

BUSINESS OF THE TARGET GROUP

Backlog

Types of project	Revenue expected to be recognised for the period from 1 December 2018 to 31 March 2019 from the existing contracts as at 30 November 2018 (HK$'000)	Revenue expected to be recognised for the period from 1 December 2018 to 31 March 2019 from the new contracts (HK$'000)	Revenue expected to be recognised after the year ended 31 March 2019 from the existing contracts as at 30 November 2018 (HK$'000)	Revenue expected to be recognised after the year ended 31 March 2019 from the new contracts (HK$'000)
Residential (Note)	16,597	2,799	80,964	33,509
Commercial (Note)	1,451	-	6,491	-
Show flat, sales office/ gallery and others	1,325	555	4,106	6,632
Total	19,373	3,354	91,561	40,141

Note: Residential projects mainly represent interior design projects for private residences and residential clubhouses while commercial projects mainly represent interior design projects for hotels, offices, restaurants, bookstores and cinemas.

THE TARGET GROUP'S DESIGN PHILOSOPHY

The philosophy of the Target Group is to design with clarity and rigor, with understanding and sensitivity. The design of the Target Group has to be intelligent, rational and authentic and also to be consistent from the germination of an idea through to the materialisation of the project. The brand of the Target Group - BTR is named after the inspiration of "Back-To-Reality" which embraces a spirit to return to fundamental design of simplicity and clarity. The design of the Target Group does not compromise on instant and short-lived trend. Instead, the Target Group aspires to create long lasting and timeless masterpieces with sophistication and sensitivity that emanate an enduring vibe and atmosphere for the interior space which synthesise human and ecologies.

BUSINESS OF THE TARGET GROUP

COMPETITIVE STRENGTHS

The directors of the Target Company consider that the Target Group possesses the following competitive strengths:

A team of professional designers who can deliver quality works

During the Track Record Period, the Target Group maintained a team of 48, 53, 65 and 63 professional designers in addition to the Target Group’s senior management team as at 31 March 2016, 2017 and 2018 and 30 November 2018 respectively. The directors of the Target Company are of the view that the past success of the Target Group was attributable to the capability of its team of designers who consistently deliver innovative and creative solutions to clients. As at the Latest Practicable Date, designers of the Target Group had accumulated 2 years to over 30 years of experience in the interior design industry. Designers of the Target Group possess the knowledge and skills to deliver quality works in different types of projects undertaken by the Target Group, as well as throughout the entire interior design process covering the design stage and project execution stage.

Established reputation in the interior design industry

The Target Group has been providing interior design services in Hong Kong since 1995. During the Track Record Period, the Target Group has completed an aggregate of 143 projects with an aggregate contract sum of approximately HK$122.5 million. The Target Group believes that its proven track record and ability to satisfy customers’ requirements, as evidenced by the fact that over 50% of projects carried out by the Target Group during the Track Record Period were with customers with over five years of business relationship in general, contribute to establishing a good reputation for the Target Group in the interior design industry. The Target Group is highly recognised for its capability to take up various types of projects including residential, commercial, show flats, sales office and sales galleries and deliver quality designs that satisfy customers’ requirements. The directors of the Target Company believe that quality services consistently provided by the Target Group have gradually built up the Target Group’s reputation in the industry.

Strong and stable network with quality craftspeople

The Target Group has established strong relationships with craftspeople who supply various design products including furniture, decorative lighting, art pieces and other decorative items. Although the Target Group is generally not contracted to provide design products in its interior design engagements and the craftspeople are not suppliers to the Target Group, subject to the scope of works agreed in contracts, the Target Group may assist customers in locating design products and customised materials from craftspeople who can produce and install the design that meet the clients’ standard. The directors of the Target Company are of the view that it is of the utmost importance for the Target Group to maintain close relationships with craftspeople who produce quality products of desirable appearance, mood and function that fit in with the design plans originated by the Target Group.

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BUSINESS OF THE TARGET GROUP

Stable and long term customer relationships

The Target Group has established stable and long term business relationships with its major customers which are mainly Hong Kong property developers and Hong Kong listed companies. During the Track Record Period, projects undertaken by the Target Group were mainly awarded or referred by recurring customers. With the Target Group’s proven track record and reputation in the industry, the Target Group is able to stay informed of the customers’ upcoming projects and keep abreast of the latest market development and opportunities. During the Track Record Period, customers that have had a business relationship with the Target Group generally for over five years contributed to approximately 86%, 73%, 66% and 63% of total revenue for each of the three years ended 31 March 2016, 2017 and 2018 and the eight months ended 30 November 2018, respectively.

To deliver interior design solutions that are unique and tailor-made for customers, the directors of the Target Company are of the view that a close relationship with customers allows the Target Group to better understand the customers’ needs and preferences and deliver design solutions that harmonise with the theme of customers’ projects. Moreover, a stable relationship with sizeable property developers and companies in Hong Kong ensures a stable source of revenue to the Target Group.

A strong and experienced management team with proven track record

The Target Group is led by a management team with ample experience in the interior design industry. Mr. Norman Chan, the proposed executive Director, has accumulated over 30 years of experience in the interior design industry and participated in various sizable property projects in Hong Kong. The in-depth industry knowledge and extensive project management experience of the management team of the Target Group have enhanced the effectiveness and efficiency of project execution which allow the Target Group to build up reputation and trust among the customers and help secure numerous contracts over the years. The management team’s proven track record in delivering quality works also allow the Target Group to capture business opportunities and retain talents which are vital to the growth of the business. Details of the qualification and experience of the proposed Directors and senior management are set out in the section headed “Directors and senior management of the Restructured Group” in this circular.

Ability to monitor and coordinate contractors effectively and efficiently

During the Track Record Period, the Target Group was generally engaged to provide bespoke and total interior design services covering the design stage and project execution stage. In order to ensure that the design delivered by the Target Group is materialised as conceived, customers generally require the Target Group to monitor the execution progress of the projects and coordinate the fitting-out works with contractors. Although the contractors are not engaged by the Target Group and the Target Group is not responsible for the works performed by the contractors, progress payment made by customers to the Target Group may be affected by the performance of the contractors. Late completion and delivery by contractors may adversely delay the launching progress of property projects which negatively affects the reputation of the Target Group. In view of the negative impact of project delay, the Target Group endeavours to monitor and coordinate with contractors effectively and efficiently to ensure timely completion of projects in accordance with the customers’ timetable. During the Track Record Period, the

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BUSINESS OF THE TARGET GROUP

Target Group has taken into consideration the strict timelines given by customers and delivered suitable design which can be produced by contractors within designated schedules. The directors of the Target Company consider that the Target Group’s ability to deliver quality design works in a timely manner is highly appreciated by its customers.

BUSINESS STRATEGIES

The Target Group’s goals are to achieve sustainable growth and further strengthen its overall competitiveness and business growth in the interior design industry in Hong Kong. To achieve this, the directors of the Target Company plan to continue to capitalise on opportunities by leveraging the Target Group’s competitive strengths and implementing the following strategies:

Maintain and strengthen market position in Hong Kong

According to the Frost & Sullivan Report, the interior design services market in Hong Kong has been in expansion with a CAGR of 7.5% between 2013 and 2018, attributable to increasing residential supply, influx of Chinese corporations and rise of smart home. Furthermore, given the policies in speeding up residential development, the demand for interior design services in Hong Kong is expected to grow at a CAGR of 8.2% from 2019 to 2023. Particularly, the residential segment is forecasted to record a CAGR of 9.6% during 2019 to 2023, followed by 6.4% of commercial segment.

The Target Group will continue to strengthen its market position by improving the interior design services to meet the rising demands of customers. The Target Group will keep abreast of the latest market development and customers’ preference to give new inspiration to the Target Group’s design and improve its service quality. With reference to the Frost & Sullivan Report, as the interior design industry is highly fragmented with over 1,000 market players of both local and international names which implies scattered market shares, the Target Group will continue to leverage its experience in the interior design industry to further explore the market potentials in Hong Kong. The Target Group intends to strengthen its business development capability by expanding marketing efforts to enhance relationship with both existing and new customers. The Target Group plans to pay more visits to existing customers and target potential customers by contacting them through business referrals and other business network. The directors of the Target Company are of the view that frequent contacts with customers enable the Target Group to grasp market pulse and the ever-changing preference of customers which is crucial in maintaining and strengthening customer base.

Enhance brand recognition and strengthen marketing efforts

The Target Group intends to promote its brand of “BTR”. In addition to improving service quality, the directors of the Target Company believe that brand recognition can be further enhanced by (i) participating in industry exhibitions and conferences in relation to interior design; (ii) preparing company brochure and marketing materials; (iii) advertising through various marketing platforms and arranging for media exposure; and (iv) soliciting new customers. The directors of the Target Company believe that profile and public awareness of the Target Group can be gradually raised through enhancement of public relation and marketing efforts.

BUSINESS OF THE TARGET GROUP

Continue to recruit talents and enhance internal training to support future growth

The directors of the Target Company are of the view that the past success of the Target Group is attributable to the capability of its team of designers who consistently delivered innovative and creative solutions to clients. To keep up with the business expansion and pursue a higher work quality, the Target Group has been endeavouring to expand its team of professional designers. During the Track Record Period, the Target Group maintained a team of 48, 53, 65 and 63 professional designers as at 31 March 2016, 2017 and 2018 and 30 November 2018 respectively. The Target Group believes that high caliber designers and supporting staff are the key to the Target Group's success and future growth. The Target Group plans to retain talents in management, design, finance and project administration. For the expansion of design team, the Target Group plans to recruit additional professional designers to cater for its business expansion. Continuous internal trainings to staff in the areas of design skills, operational skills and supervisory skills are important to raise the firm standard and quality of services of the Target Group. The Target Group will organise internal trainings and seminars for staff and sponsor its staff to join design fair tour to achieve continuous improvement.

MARKET AND COMPETITION

During the Track Record Period, over 98% of the Target Group's revenue was generated from the provision of interior design and execution services. Having considered that these projects are mainly awarded by property developers in Hong Kong, the directors of the Target Company are of the view that demand for interior design services provided by the Target Group is generally in line with the property market in Hong Kong. As disclosed in the section headed "Industry overview" in Appendix I to this circular, the property market in Hong Kong is expected to grow in the coming years as a result of, among others, (i) favourable government policy to increase housing supply in both private and public sector; (ii) solid demand for housing; and (iii) continued urban renewal and redevelopment. The overall revenue of interior design services market in Hong Kong also increased at a CAGR of 7.5% from 2013 to 2018. The market trends to position properties as luxury residences further propels the demand for interior design services in Hong Kong.

For further information regarding the competitive landscape of the industry in which the Target Group operates, please refer to the section headed "Industry overview" in Appendix I to this circular.

THE INTERIOR DESIGN SERVICES

The Target Group is an interior design firm providing interior design services to premises including private residences, corporate offices, service apartments, hotels, residential clubhouses, show flats and sales galleries mostly located in Hong Kong. The entire design process covers (i) design stage; and (ii) project execution stage. The design stage can be further divided into (i) schematic design stage to formulate design proposal; (ii) design development stage to compose detail drawings with specifications; and (iii) tender stage to modify drawings and advise customers on selection of craftspeople and tender negotiations. After the design drawings are finalised, the Target Group will proceed to project execution stage where the Target Group will oversee the execution process of the project to ensure proper execution of the design in accordance with the drawings and specifications and meeting customers' requirements.

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BUSINESS OF THE TARGET GROUP

OPERATION FLOW

Depending on the complexity of the project, the typical operation flow of the Target Group which generally takes one to three year(s) to complete, is outlined as below:

BUSINESS OF THE TARGET GROUP

Initial stage

Identification of projects/Tender invitation

The Target Group basically identifies potential projects through customer referral, request for proposal from recurring customers or tender invitation. Potential projects or business opportunities could be communicated to the Target Group through verbal or written request received from customers. The Target Group also maintains a stable relationship and close contact with customers to keep abreast of the latest market development and opportunities.

Project evaluation and assessment

The management team of the Target Group would decide on which projects to pursue after taking into consideration principal factors including (i) relationship with customers; (ii) target users of the property; (iii) location of project; (iv) nature of project; (v) timeline and complexity of project; and (vi) resources availability of the Target Group. If the project is considered suitable for the Target Group, a formal quotation or tender will be made to customers.

Prepare quotation/tender proposal

The Target Group is generally given the background information of the potential project including (i) target users of the property; (ii) market positioning; (iii) design theme; (iv) nature and scale; and (v) timeline. The Target Group may also be invited to attend kick off meeting of new project to present previous work collection to potential customers. Quotation/tender proposal prepared by the Target Group normally sets out breakdown description of works to be carried out, contract price, payment terms and other standard terms and conditions. Quotations are generally formulated based on estimated project time cost plus a mark-up margin after taking into consideration historical pricing of similar projects undertaken by the Target Group. For details of the Target Group's pricing strategies, please refer to the section headed "Business of the Target Group – Pricing strategies" in this circular.

The quotation/tender proposal prepared by the Target Group would either be accepted or rejected by customers. During the Track Record Period, the tender success rates of the Target Group were 59%, 55%, 45% and 39% for each of the three years ended 31 March 2016, 2017 and 2018 and the eight months ended 30 November 2018 respectively. The directors of the Target Company consider that the tender success rates attained by the Target Group during the Track Record Period were satisfactory given that the management has carefully assessed each potential project before deciding on which projects to pursue. The directors of the Target Company are of the view that an effective project evaluation and assessment could ensure the Target Group pursuing suitable projects that match with the firm's style and capability. It is believed that undertaking suitable projects could uplift performance of the design team in projects, thereby achieving higher customer satisfaction.

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BUSINESS OF THE TARGET GROUP

Schematic design stage

Develop tailor-made design plans and present design plans to client

Once the project is awarded by customer, the Target Group will assign a design team which generally consists of (i) two interior designers responsible for design plans and drawings; (ii) two 3-dimensional animators responsible for 3-dimensional rendering; (iii) one librarian responsible for sourcing materials and fabrics; and (iv) one team leader to supervise and manage the project. A floor plan is normally provided to the Target Group which lays down the interior space within which a design plan is to be developed. The design team in charge of the project will participate in meetings and site visits with customer to collaborate and build design inspiration that goes with the theme of the property, aesthetic and customer preference. Conceptual ideas are constructed from other similar projects or even images/pictures that evoke an emotion. Close communication with customer throughout the design process is required to come up with a mutually agreed direction that evolves into a detail design in the later stage. The design team of the Target Group will present to customers a schematic design proposal, normally in the form of 2-dimensional and/or 3-dimensional drawings, layout plans and elevation. The Target Group will design on interior finishings, colour scheme and concept of the aesthetics of the space. The presentation will normally contain preliminary design, visual image and samples of materials such as types of stone, metal, wood, marble and fabric proposed to be used.

The Target Group is responsible for providing interior design services to customers and is not involved in any works in relation to the structural elements of the premises which shall be carried out by responsible authorised persons/registered professionals under the Buildings Ordinance. Accordingly, the Target Group is not required to register under any buildings laws and regulations in Hong Kong for the provision of interior design services or be subject to any legal obligation arising thereof. For details of rules and regulations that are material to the Target Group's business, please refer to the section headed "Regulatory overview" in Appendix II to this circular.

Design development stage

Finalise design plans with detail drawings

After back and forth discussion with customer followed by amendments and refinement of schematic design, the parties will agree a design concept and move on to detail drawings. The Target Group will locate craftspeople who provide items including furniture, light fittings, decorative items, miscellaneous accessories and artworks that match with the theme and concept of the design. The Target Group will prepare detail drawings which set out the dimension lines to show placement of walls and partitions, measured layout of furniture and other key items to fit in the interior space with specifications of the use of materials and fabrics for tender and construction.

During the Track Record Period, the Target Group produced most of the design drawings by its own in-house professional designers. Subcontracting costs only accounted for an insignificant portion of $1.5\%$, $1.2\%$, $2.6\%$ and $3.9\%$ of cost of services for each of the three years ended 31 March 2016, 2017 and 2018 and the eight months ended 30 November 2018 respectively.

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BUSINESS OF THE TARGET GROUP

Tender stage

Prepare tender drawing/documents for clients

Depending on the scope of work specified in the contract, the Target Group may assist in gathering quotations from craftspeople which set out the price, delivery time and quantity of the design products and custom materials for customers' consideration. Customers will normally make use of the design plan prepared by the Target Group in the design development stage for tendering of contractors. Amendments to the design plan and specifications may be made by the Target Group upon request by customers for tender negotiation purpose. The Target Group will be involved in assisting and advising customers on the selection of craftspeople who produce and install the design that meets clients' standard.

Project management/construction stage

Monitor contractors and work schedule and project handover

Although the contractors and craftspeople are directly engaged by customers, the Target Group may be involved in overseeing the entire execution process to ensure that the fitting-out works strictly adhere to the design plan and are completed in a quality and timely manner that meets customers' requirements. The Target Group will perform on-site inspection to ensure proper execution of design in accordance with the drawings and specifications. The Target Group will also attend site coordination meetings as necessary to discuss the issues encountered during the actualisation of the design. While the design has been accepted by customers, the design process is a continually evolving process throughout which numerous comments on the design will be received from customers and the Target Group will refine any of the design aspects to their satisfaction.

Upon completion of the construction, the Target Group and customer will conduct a final walkthrough inspection. In the event that any defects are detected, a defects list will be prepared for contractors to fix the relevant defects and the Target Group is responsible for monitoring contractors' rectification of defects. Upon satisfaction by customers, the Target Group will obtain a customer acceptance and confirmation of services, after which the project is practically completed and the premises is handed over to customers.

Defect liability period

Some customers may include a protective clause of defect liability period in the contracts and require the Target Group to co-ordinate and provide necessary drawings and information to contractors for rectification of defects during the defect liability period. The Target Group may also be required to monitor the relevant rectification works and assist customers in inspecting the works. During the Track Record Period, the defect liability period of projects undertaken by the Target Group generally ranged from approximately 6 to 12 months.

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BUSINESS OF THE TARGET GROUP

CUSTOMERS

Characteristics of the Target Group's customers

During the Track Record Period, customers of the Target Group were primarily property developers and listed companies in Hong Kong which engaged the Target Group to provide interior design services to premises including private residences, corporate offices, service apartments, hotels, residential clubhouses, show flats and sales galleries. The Target Group served a total of 29, 39, 34 and 32 customers for each of the three years ended 31 March 2016, 2017 and 2018 and the eight months ended 30 November 2018 respectively. The directors of the Target Company believe that customers may choose the interior design services provided by the Target Group for its capability to provide quality design that sublimates the interior space of the premises.

Top customers

For each of the three years ended 31 March 2016, 2017 and 2018 and the eight months ended 30 November 2018, the percentage of the total revenue attributable to the largest customer amounted to approximately 19%, 31%, 24% and 31% of the total revenue of the Target Group respectively, while the percentage of the total revenue attributable to the five largest customers combined amounted to approximately 59%, 58%, 51% and 56% of the total revenue of the Target Group respectively.

Set out below is a breakdown of the Target Group's revenue by major customers:

For the year ended 31 March 2016:

| Rank | Customer | Revenue
HK$'000 | As % of
total revenue
% |
| --- | --- | --- | --- |
| 1 | Customer A | 10,436 | 19 |
| 2 | Customer B | 6,837 | 12 |
| 3 | Customer C | 6,514 | 12 |
| 4 | Customer D | 5,851 | 11 |
| 5 | Customer E | 3,140 | 5 |
| | Five largest customers combined | 32,778 | 59 |
| | All other customers | 22,889 | 41 |
| | Total revenue | 55,667 | 100 |

BUSINESS OF THE TARGET GROUP

For the year ended 31 March 2017:

| Rank | Customer | Revenue
HK$'000 | As % of
total revenue
% |
| --- | --- | --- | --- |
| 1 | Customer A | 21,265 | 31 |
| 2 | Customer C | 7,203 | 12 |
| 3 | Customer B | 4,813 | 7 |
| 4 | Customer D | 3,006 | 4 |
| 5 | Customer F | 3,000 | 4 |
| | Five largest customers combined | 39,287 | 58 |
| | All other customers | 28,805 | 42 |
| | Total revenue | 68,092 | 100 |

For the year ended 31 March 2018:

| Rank | Customer | Revenue
HK$'000 | As % of
total revenue
% |
| --- | --- | --- | --- |
| 1 | Customer A | 14,746 | 24 |
| 2 | Customer G | 4,810 | 8 |
| 3 | Customer C | 4,532 | 7 |
| 4 | Customer B | 4,021 | 6 |
| 5 | Customer E | 3,488 | 6 |
| | Five largest customers combined | 31,597 | 51 |
| | All other customers | 30,243 | 49 |
| | Total revenue | 61,840 | 100 |

For the eight months ended 30 November 2018:

| Rank | Customer | Revenue
HK$'000 | As % of
total revenue
% |
| --- | --- | --- | --- |
| 1 | Customer A | 14,902 | 31 |
| 2 | Customer H | 3,286 | 7 |
| 3 | Customer E | 3,055 | 7 |
| 4 | Customer J | 2,886 | 6 |
| 5 | Customer C | 2,282 | 5 |
| | Five largest customers combined | 26,411 | 56 |
| | All other customers | 21,026 | 44 |
| | Total revenue | 47,437 | 100 |

BUSINESS OF THE TARGET GROUP

The table below sets forth the background information of the Target Group's top customers mentioned in the above table:

Customer	Services provided by the Target Group	Principal business of the customer	Location of properties served by the Target Group	Years of business relationship	Payment and credit terms
Customer A	Interior design services	Property development	Hong Kong	12	By cheque, due immediately upon receipt of invoice to 30 days credit period
Customer B	Interior design services	Property development	Hong Kong	5	By cheque, 30-45 days credit period
Customer C	Interior design services	Property development	Hong Kong, the PRC, Sri Lanka, the Philippines and Malaysia	11	By bank transfer/cheque, due immediately upon receipt of invoice to 45 days credit period
Customer D	Interior design services	Property development	Hong Kong	6	By bank transfer/cheque, 30-45 days credit period
Customer E	Interior design services	Hotel operation	Philippines	8	By bank transfer, due immediately upon receipt of invoice to 30 days credit period
Customer F	Interior design services	Individual	Hong Kong	2	By cheque, due immediately upon receipt of invoice to 30 days credit period
Customer G	Interior design services	Property development	Hong Kong	7	By cheque, due immediately upon receipt of invoice to 60 days credit period
Customer H	Interior design services	Property development	Hong Kong	8	By cheque, 30-60 days credit period
Customer J	Interior design services	Property development	Hong Kong	2	By cheque, 30-45 days credit period

None of the Directors, the proposed Directors, their associates, any Shareholders who owned more than $5\%$ of the Shares or any of the Target Company's shareholders holding more than $5\%$ of its shares as at the Latest Practicable Date had any interest in any of the five largest customers of the Target Group during the Track Record Period.

BUSINESS OF THE TARGET GROUP

Profile of top customers

Customer A is a blue chip company listed on the main board of the Stock Exchange. Customer A is a conglomerate mainly engaged in property development while having businesses across different sectors including telecommunications, hotel operation, transport infrastructure and logistics. As at the Latest Practicable Date, Customer A has a market capitalisation of over HK$320 billion.

Customer B is a company listed on the main board of the Stock Exchange. Customer B is a conglomerate mainly engaged in property development while having businesses across different sectors including hotel operation, logistics and communications and media and entertainment. As at the Latest Practicable Date, Customer B has a market capitalisation of over HK$90 billion.

Customer C is an indirect holding company of a company listed on the main board of the Stock Exchange. The aforementioned listed subsidiary of Customer C is a conglomerate mainly engaged in property development while having businesses across different sectors including hotel operation and integrated logistics and international freight forwarding, and has a market capitalisation of over HK$30 billion as at the Latest Practicable Date.

Customer D is a holding company of a group companies in Hong Kong principally engaged in property development. Customer D is a conglomerate with around 60 years of business history in Hong Kong and actively participates in property construction, property finance, hotel operation and shipping businesses.

Customer E is a company listed on The Philippine Stock Exchange, Inc.. The core businesses of Customer E are office and retail leasing and residential development. Customer E is an associate of Customer C. As at the Latest Practicable Date, Customer E has a market capitalisation of around PHP15 billion (equivalent to around HK$2 billion).

Customer F is an individual.

Customer G is a blue chip company listed on the main board of the Stock Exchange. Customer G is a conglomerate mainly engaged in property development while having businesses across different sectors including department stores, operation of roads, commercial aircraft leasing, container handling and telecommunication and media businesses. As at the Latest Practicable Date, Customer G has a market capitalisation of over HK$100 billion.

Customer H is a blue chip company listed on the main board of the Stock Exchange. Customer H is a conglomerate mainly engaged in property development and investment while having businesses in hotel operation, department store operation and financial services. As at the Latest Practicable Date, Customer H has a market capitalisation of over HK$170 billion.

Customer J is a company listed on the main board of the Stock Exchange and principally engages in property development and hospitality and property investment and management. As at the Latest Practicable Date, Customer J has a market capitalisation of over HK$7 billion.

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BUSINESS OF THE TARGET GROUP

Customer concentration

For each of the three years ended 31 March 2016, 2017 and 2018 and the eight months ended 30 November 2018, revenue generated from the five largest customers of the Target Group amounted to approximately 59%, 58%, 51% and 56% of the total revenue respectively. Except for Customer F which is an individual client, all other top customers during the Track Record Period are either property developers or hotel owner. The directors of the Target Company are of the view that such customer concentration is not uncommon for interior design firms that specialise in serving corporate clients in Hong Kong and the business model is sustainable after taking into consideration the following:

1. The property market in Hong Kong is dominated by a few renowned property developers

The Target Group mainly engages in the corporate sector of the interior design industry and provides services to properties and premises mostly located in Hong Kong. As a result, business of the Target Group would be largely affected by the Hong Kong property market which is dominated by a few renowned property developers, including those top customers of the Target Group.

2. Stable and well established business relationship with property developers

The Target Group has a proven track record of over 20 years in the interior design industry. The directors of the Target Company consider that the Target Group has built up its brand name and reputation by consistently providing quality design services that meet customers' requirement. As at the Latest Practicable Date, the Target Group had over five years of business relationship with most of its top customers which are property developers or hotel owner and such long standing relationship is expected to continue in the future.

3. The Target Group has a solid customer base

Despite the fact that over 50% of total revenue of the Target Group was generated from the five largest customers during the Track Record Period, the remaining revenue was contributed by 24, 34, 29 and 27 customers for each of the year ended 31 March 2016, 2017 and 2018 and the eight months ended 30 November 2018 respectively which include multinational companies and listed companies in Hong Kong. The directors of the Target Company are of the view that the Target Group possesses the expertise to undertake interior design projects pertaining to a wide variety of properties and premises and stay competitive in the industry.

4. Mutual and complementary reliance by customers of the Target Group

Notwithstanding that the interior design market is highly fragmented and under keen competition, it is not easy for customers to find perfect replacement of interior design firm for a particular project given that interior design services provided by each firm are subjective in nature and unique to its customers. According to the Frost & Sullivan Report, major entry barriers of the interior design industry are (i) industry experience; (ii) relationship with industry players; and (iii) reputation and credibility, all of which require time and persistent efforts to develop and once established would create trust and reliance with customer which are not easily replaceable. The Target Group is highly recognised by some of its major customers for its contemporary designs which are tailor made for each project, and thereby create an exclusive bonding between the Target Group and its customers.

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BUSINESS OF THE TARGET GROUP

Salient terms of quotation and/or contract

The Target Group will generally commence its services after a quotation and/or a separate contract, setting out details including breakdown description of works to be carried out, contract price, payment terms and other standard terms and conditions are duly signed by both the customer and the Target Group. A summary of the salient terms of a typical quotation and/or contract is set out below:

(i) Nature, scope and location of work

Nature and the scope of work to be carried out on specified premises and properties which typically cover design stage and project execution stage. Scope of work during design stage generally includes fitting out design, space planning, furniture layouts, furnishing proposals, concept direction, coordinate artworks, accessories and artifacts selection, assist in tendering and co-ordination in relation to interior design works. Scope of work during project execution stage generally includes periodic site supervision and inspection to monitor the fitting-out works and attendance of coordination meetings. The quotations and/or contracts also set out in detail the required deliverable for each of the design stages.

(ii) Fees and payment terms

The fees chargeable to customers are based on project progress. An agreed percentage of the fees are payable upon completion of specific works according to the payment schedules as set out in the quotations and/or contracts. During the Track Record Period, the credit period generally range from nil to 120 days from the date of receipt of invoice by the customers.

Some projects may also include the following terms:

(iii) Designation of the design team

Some of the customers may specify key personnel of the Target Group to be members of the design team to take charge of the projects. Changes to the key personnel of the design team require prior approval with the CV and/or other supporting documents of the new member submitted to the customer for approval.

(iv) Defect liability period

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BUSINESS OF THE TARGET GROUP

Credit policy

The Target Group’s credit term with its customers is, in general, nil to 120 days. The Target Group seeks to maintain control over its outstanding receivables. Overdue balances are reviewed by the senior management of the Target Group and evaluated on a case-by-case basis with respect to the appropriate follow-up actions to be taken, taking into consideration the customer’s normal payment practice and payment history, the Target Group’s relationship with the customer and the general economic environment.

For each of the three years ended 31 March 2016, 2017 and 2018 and the eight months ended 30 November 2018, the average trade receivable turnover days were approximately 33.2 days, 78.0 days, 170.4 days and 90.9 days respectively.

Seasonality

The directors of the Target Company believe that the industry in which the Target Group operates does not exhibit any significant seasonality.

SALES AND MARKETING

The Target Group adopts direct marketing strategies through contact with existing customer base and business referrals. Contracts are sourced principally through the business network and business contacts established by Mr. Norman Chan over the years as well as from referrals by recurring customers. The Target Group has primarily focused on serving corporate clients in premises including private residences, corporate offices, service apartments, hotels, residential clubhouse, show flats and sales galleries mostly located in Hong Kong. The directors of the Target Company believe that the reputation established by the Target Group over the years and the proven track record of quality services provided to customers have gained trust and appreciation from customers that foster continuous growth of the business of the Target Group.

Pricing strategies

The contract price of projects is based on the Target Group’s estimated project time cost plus a mark-up margin. When determining the appropriate mark-up, the Target Group takes into account customers’ acceptable range of service price based on past dealings with the customer and a number of other factors including the scale, complexity and specification of the project, the Target Group’s capacity, project duration, the estimated project time cost, historical fee charged for similar project, the current fee level in the market and the competitive conditions. The directors of the Target Company will strike a balance between profit margin and competitive pricing to win contracts when preparing quotation/tender proposal with an aim to achieve sustainable growth of the business. During the Track Record Period, the Target Group did not have any material loss-making projects.

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BUSINESS OF THE TARGET GROUP

SUPPLIERS AND SUBCONTRACTORS

Due to the nature of the business, the Target Group does not have any suppliers of materials. During the Track Record Period, the cost of services of the Target Group mainly consisted of staff costs directly attributable to projects. The Target Group produced most of the design drawings by its own in-house professional designers. Subcontracting costs only accounted for approximately 1.5%, 1.2%, 2.6% and 3.9% of cost of services of the Target Group for each of the three years ended 31 March 2016, 2017 and 2018 and the eight months ended 30 November 2018, respectively. Drafting subcontractors may be engaged by the Target Group for its project depending on the specific project progress and the manpower available to the Target Group. The Target Group has established a long business relationship with most of its selected drafting subcontractors of over 3 years.

QUALITY CONTROL

The directors of the Target Company believe that management on the quality of services is essential to the Target Group's operations. To ensure the quality of interior design services, the Target Group has implemented the following procedures:

Design: the design is the core deliverable of the Target Group. To ensure the quality of design, the Target Group's design team will maintain close communication with customers to ensure the detailed design adheres to customers' specifications and expectations. The design team for a typical project would consist of five team members, led by a team leader who regularly reviews and comments on the design plan throughout the design process.
Project management: the Target Group is responsible for monitoring and coordinating contractors to materialise the design plan in a timely manner. The design team contacts customers regularly to ensure that they have full knowledge and understanding of the progress of the project. On-site inspection will be conducted to ensure that all works are in accordance with the customers' approved designs and requirements of customers. Any issues that may arise are immediately brought to the attention of management of the Target Group.
Design products and customised materials: the Target Group may assist in locating craftspeople who provide quality design products and customised materials. To ensure the quality of the decorative items and fit out materials to be used in the design, the Target Group conducts an inspection of all decorations and fit out materials upon delivery. Decorations and fit out materials that are substandard will be rejected.

ENVIRONMENTAL MATTERS

The interior design industry may have an inevitable impact on the environment as the services may indirectly generate waste as a result of the need to alter existing building materials so that the fit out and decoration services can be implemented. This may involve the disposal of construction waste which must be disposed at a designated waste disposal facility.

The directors of the Target Company confirm that during the Track Record Period and up to the Latest Practicable Date, the Target Group has not been the subject of any environmental non-compliance in Hong Kong.

BUSINESS OF THE TARGET GROUP

Please refer to the section headed "Regulatory overview" in Appendix II to this circular for further information about environmental laws and regulations.

HEALTH AND SAFETY

The Target Group is committed to providing a safe and healthy working environment to its staff and others who may be affected by the Target Group's projects. Employees of the Target Group are not engaged in the provision of any construction works and the principal exposure of employees to any work safety occurs when they conduct on-site inspection of projects. The Target Group emphasises to its employees that strict compliance with safety requirements is vital to ensuring that there are no accidents to themselves or others who work on the projects.

During the Track Record Period, no prosecution has been laid against the Target Group by any relevant authorities in respect of violation of applicable laws or regulations of health and safety. No material injury and fatal accidents were recorded on the sites for which the Target Group was responsible during the Track Record Period. The directors of the Target Company are of the view that the Target Group has maintained sufficient third party liability insurance as and when necessary.

INSURANCE

The Target Group maintained employees' compensation insurance for its employees in accordance with the laws and regulations in Hong Kong. The Target Group also maintained professional indemnity insurance protecting against any civil liability, claims and losses arising from the performance of interior design services. The amount of insurance paid by the Target Group for each of the three years ended 31 March 2016, 2017 and 2018 and the eight months ended 30 November 2018 was approximately HK$0.9 million, HK$0.5 million, HK$0.6 million and HK$0.4 million, respectively. The directors of the Target Company confirm that the above insurance coverage is adequate for the operation of the business and is in line with the industry norm.

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BUSINESS OF THE TARGET GROUP

EMPLOYEES

Number of employees by function

As at 31 March 2016, 2017 and 2018, 30 November 2018 and as at the Latest Practicable Date, the Target Group had a total of 56, 64, 79, 79 and 78 employees respectively. All of the employees of the Target Group are stationed in Hong Kong.

Set out below is the number of employees by function:

	As at 31 March			As at 30 November 2018	As at the Latest Practicable Date
	2016	2017	2018
Management	3	3	3	5	5
Design	48	53	65	63	61
Accounting and finance, human resources, administration, information technology and others	4	7	9	8	9
Project administration	1	1	2	3	3
Total	56	64	79	79	78

Relationship with employees

The directors of the Target Company consider that the Target Group has maintained good relationship with its employees. The directors of the Target Company confirm that the Target Group has complied with all applicable labour laws and regulations in Hong Kong.

The directors of the Target Company confirm that the Target Group has not experienced any significant problems with its employees or disruption to its operations due to labour disputes nor has the Target Group experienced any difficulties in the retention of experienced staff or skilled personnel during the Track Record Period. During the Track Record Period and up to the Latest Practicable Date, there was no labour union established by employees.

Training and recruitment policies

The Target Group intends to use its best effort to attract and retain appropriate and suitable personnel to serve the Target Group. The Target Group recruits employees primarily from the open market and internal reference and/or advertise openings through advertisement in newspapers and/or online websites. The Target Group assesses the available human resources on a continuous basis and will determine whether additional personnel are required to cope with the Target Group's business development. Internal trainings, seminars and design fair tours are organised by the Target Group from time to time to enhance designers' knowledge and professionalism.

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BUSINESS OF THE TARGET GROUP

Remuneration policy

The Target Group entered into separate employment contracts with each of the Target Group’s employees in accordance with the applicable employment laws in Hong Kong.

The Target Group offers attractive remuneration package to its employees, the remuneration package includes basic salary, bonuses and other cash allowances or subsidies. The Target Group determines the salary of its employees mainly based on each employee’s qualifications, relevant experience, position and seniority. The Target Group conducts annual review on salary raises, bonuses and promotions based on the performance of each employee.

PROPERTIES

As at the Latest Practicable Date, the Target Group did not own any property and leased the following material properties in Hong Kong for its business operations and its details are set out below:

| Location | Gross floor area
(in approximate sq. ft.) (Note) | Key terms of the tenancy | Usage |
| --- | --- | --- | --- |
| Offices A, B, C, D, E, F and G, 15/F, Montery Plaza, No. 15 Chong Yip Street, Kowloon, Hong Kong and Private Parking Spaces nos. P9, P10 and P11, 3/F, Montery Plaza, No. 15 Chong Yip Street, Kowloon, Hong Kong | 11,905 | From 1 January 2018 to 31 December 2019
(both days inclusive)
at a monthly rent of HK$348,000 | Office and Carpark |
| Office F, 19/F, Montery Plaza, No. 15 Chong Yip Street, Kowloon, Hong Kong | 2,199 | From 1 August 2017 to 31 July 2020
(both days inclusive)
at a monthly rent of HK$65,900 | Office |

Note: The gross floor area was provided by the real estate agent.

During the Track Record Period, the Target Group did not experience any difficulty in renewing the leases. Please refer to the section headed “Connected transactions” in this circular for details.

BUSINESS OF THE TARGET GROUP

INTELLECTUAL PROPERTY RIGHTS

Trademark

As at the Latest Practicable Date, the Target Group registered five trademarks in Hong Kong and one trademark in the PRC. Details of such trademarks are set out in the paragraph headed “Intellectual property rights of the Target Group” in Appendix VIII to this circular.

Domain name

As at the Latest Practicable Date, the Target Group registered two domain names, being btrworkshop.com and btr.com.hk in Hong Kong. Details of such domain names are set out in the paragraph headed “Intellectual property rights of the Target Group” in Appendix VIII to this circular.

LICENSE AND PERMIT

There is no specific licensing requirement for conducting the Target Group’s business in Hong Kong in addition to what is generally required for carrying on businesses in Hong Kong. As at the Latest Practicable Date, the Target Group had obtained all material licenses, permits and certificates which are necessary for its operations in Hong Kong. During the Track Record Period, the Target Group has undertaken some projects where the properties are located in the PRC, Macau, Sri Lanka, Malaysia, the Philippines, Japan, Singapore and Thailand. As confirmed by the directors of the Target Company, there is no specific licensing/permit requirement for undertaking projects for overseas properties. Since the Target Group did not create any overseas permanent establishment in these jurisdictions, the Target Group is not subject to overseas income taxes in relation to these projects.

NON-COMPLIANCE

The directors of the Target Company confirm that the Target Group had no material non-compliance with all applicable laws and regulations in Hong Kong which would have a material effect on the Target Group’s operation and financial position during the Track Record Period and up to the Latest Practicable Date.

RESEARCH AND DEVELOPMENT

During the Track Record Period and up to the Latest Practicable Date, the Target Group did not engage in any research and development activity.

LITIGATIONS AND CLAIMS

During the Track Record Period and up to the Latest Practicable Date, no member of the Target Group was engaged in any litigation, arbitration or claim of material importance against third parties, nor were the Target Group aware of any litigation, arbitration or claim which was pending or threatened by third parties against any member of the Target Group that would have a material adverse effect on the Target Group’s results of operations or financial condition.

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BUSINESS OF THE TARGET GROUP

RISK MANAGEMENT AND INTERNAL CONTROL

Hedging

As at the Latest Practicable Date, the Target Group did not employ any hedging strategies or policies. During the Track Record Period, while certain sales of the Target Group were settled in RMB and Japanese Yen (“JPY”), the amount of sales of the Target Group that were settled in RMB and JPY is insignificant.

The Target Group currently does not have a foreign currency hedging policy in respect of foreign currency transactions, assets and liabilities. The Target Group monitors its foreign currency exposure closely and will consider hedging significant foreign currency exposure should the need arise.

Internal control review

The Target Group has engaged an independent internal control adviser which has been previously engaged in internal control review projects for a number of companies listed on the Stock Exchange with engagement team comprising members of the Hong Kong Institute of Certified Public Accountants, The Institute of Internal Auditors and Information Systems Audit and Control Association, to perform a detailed evaluation of the adequacy and effectiveness of the Target Group’s internal control system including the areas of financial, operation, compliance and risk management with an aim to, among other matters, improving the Target Group’s corporate governance.

The risk management and internal control system and procedures of the Target Group are designed to meet its specific business needs as well as to minimise risk exposure. The Target Group has adopted different internal guidelines, along with written policies and procedures to monitor and reduce the impact of risks which are relevant to its business, control its daily business operations, improve corporate governance and ensure compliance with the applicable laws and regulations. The proposed Directors and senior management of the Target Group are responsible for identifying and analysing the risks associated with the Target Group’s operations, preparing risk mitigation plans, assessing and reporting the respective effectiveness. For the purpose of ensuring the sound and proper implementation of risk management and internal control policies, the Target Group has also adopted various measures, including but not limited to the following:

improve the existing internal control framework by adopting a set of internal control manual and policies, which cover corporate governance, risk management, operations and legal matters;
Messis Capital Limited will be appointed as the compliance adviser of the Company upon Completion, further information on which is set forth in the section headed “Directors and senior management of the Restructured Group – Compliance Adviser” in this circular;
the proposed Directors have received trainings conducted by the legal adviser to the Company as to Hong Kong law on the reverse takeover on the continuing obligations, duties and responsibilities of directors of publicly listed companies under the applicable laws of Hong Kong;
the Target Group will assess and monitor the implementation of the internal control manual and policies regularly; and
the Target Group will provide necessary internal training to its staff with respect to the internal control and corporate governance procedures.

In June 2018, the independent internal control adviser performed follow up review. The independent internal control adviser was not aware of any significant deficiencies in the Target Group’s internal control design.

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CONNECTED TRANSACTIONS

ONE-OFF TRANSACTION WITH WALDORF HOLDINGS

The Target Group has entered into the following transaction with a person who will, upon Completion, become a connected person of the Company (as defined under Chapter 20 of the GEM Listing Rules). Given that the transaction was one-off in nature and entered into prior to Completion, it will not be classified as connected transaction under Chapter 20 of the GEM Listing Rules. The Company will, however, comply at all times with the other applicable provisions under Chapter 20 of the GEM Listing Rules in respect of such connected transactions entered into after Completion.

Office and Car Park Lease

As at the Latest Practicable Date, Waldorf Holdings was wholly and beneficially owned by Mr. Norman Chan, who would become a Controlling Shareholder and an executive Director of the Company upon Completion. Accordingly, Waldorf Holdings will be an associate of Mr. Norman Chan under Rule 20.10(1)(c) of the GEM Listing Rules and hence a connected person of the Company under Rule 20.07(4) of the GEM Listing Rules upon Completion.

The tenancy agreement

Waldorf Holdings is the sole registered and beneficial owner of offices A, B, C, D, E, F and G on 15th Floor and private parking space Nos. P9, P10 and P11 on 3rd Floor of Montery Plaza at No. 15 Chong Yip Street in Kowloon (the "Property").

The Target Group has entered into the following tenancy agreement (the "Tenancy Agreement") with Waldorf Holdings which will continue after Completion:

Date of agreement : 22 February 2018

Tenant : BTR HK

Landlord : Waldorf Holdings

Term : 1 January 2018 to 31 December 2019

Monthly rent payable : HK$348,000 (inclusive of all government rent and rates and management fee) payable in advance without any deduction on the first day of each and every calendar month

Deposit : HK$696,000 (being two months rent)

Use of property : Principal place of business in Hong Kong and parking space for the Target Group

Renewal option : The Target Group has an option to renew the tenancy for a period of one year with a monthly rent of HK$348,000 (inclusive of all government rent and rates and management fee)

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CONNECTED TRANSACTIONS

Prior to the leasing of the Property, the Target Group had leased other premises with an aggregate gross floor area of approximately 10,137 sq.ft. for office use from an independent third party. Due to business expansion, the Target Group, started to lease the Property as its principal place of business in September 2016, with a monthly rental of HK$348,000. The amount of rent paid by the Target Group to Waldorf Holdings amounted to nil, approximately HK$2,274,000, HK$4,176,000 and HK$2,784,000 for each of the year ended 31 March 2016, 2017 and 2018 and the eight months ended 30 November 2018 respectively.

Directors' view on the Tenancy Agreement

The terms of the Tenancy Agreement were agreed between BTR HK and Waldorf Holdings with reference to the prevailing market rent at relevant time. The Directors and the directors of the Target Company consider that the Tenancy Agreement was entered into on normal commercial terms and in the ordinary and usual course of business of BTR HK, which are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

GEM Listing Rules implication

Pursuant to HKFRS 16 which is effective for accounting periods beginning on or after 1 January 2019, the Target Group as the lessee has to recognize a right-of-use asset representing its right to use the Property and a lease liability representing its obligation to make rental payments. Therefore, the entering into of the Tenancy Agreement will be regarded as an acquisition of asset by the Target Group. Given that the Tenancy Agreement was entered into prior to Completion, it will not be classified as connected transaction under Chapter 20 of the GEM Listing Rules.

Following Completion, the Target Group may renew and/or enter into new tenancy agreement with Waldorf Holdings from time to time. In such event, the Company shall also comply with Chapter 20 of the GEM Listing Rules as and when appropriate.

DIRECTORS AND SENIOR MANAGEMENT OF THE RESTRUCTURED GROUP

PROPOSED DIRECTORS

All the existing Directors will resign as Directors which shall take effect immediately following Completion.

The proposed Directors of the Restructured Group immediately following Completion consist of five Directors, of whom two are executive Directors and three are independent non-executive Directors. The Board is responsible and has general powers for the management and conduct of the Restructured Group's business.

The table below sets out the information in respect of members of the Board immediately following the Completion:

Name	Age	Position	Roles and responsibilities	Date of joining the Restructured Group	Date of appointment as Director	Relationship with other Directors and members of senior management
Mr. Chan Norman Enrique (陳樂文)	58	Executive Director, chairman of the Board and chief executive officer	Overall management, strategic development, financial management and major decision-making of the Restructured Group	12 June 1995	Date of Completion	Nil
Mr. Lee Alex Kam-fai (李龍輝)	54	Executive Director	Overall operation of the Restructured Group	July 1995	Date of Completion	Nil
Mr. Kwong U Hoi Andrew (羅宇翔)	53	Independent non-executive Director	Overseeing the management independently and providing independent judgment on the issues of strategy, performance, resources and standard of conduct of the Company	Date of Completion	Date of Completion	Nil
Mr. Wong Jonathan (黃若鋒)	50	Independent non-executive Director	Overseeing the management independently and providing independent judgment on the issues of strategy, performance, resources and standard of conduct of the Company	Date of Completion	Date of Completion	Nil
Mr. Chi Chi Hung Kenneth (季忠雅)	50	Independent non-executive Director	Overseeing the management independently and providing independent judgment on the issues of strategy, performance, resources and standard of conduct of the Company	Date of Completion	Date of Completion	Nil

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Executive Directors

Mr. Chan Norman Enrique (陳樂文), aged 58, is proposed to be appointed as an executive Director, chairman of the Board and chief executive officer of the Company immediately following Completion. Mr. Norman Chan is one of the founders of BTR Workshop and appointed as a director of BTR Workshop since June 1995. Mr. Norman Chan is the sole director of BTR Asia and BTR Intl, and is one of the directors of BTR HK, BTR Workshop and the Target Company. Mr. Norman Chan will be responsible for the overall management, strategic development, financial management and major decision-making of the Restructured Group.

Mr. Norman Chan has over 30 years of experience in the interior design and architecture industry in Hong Kong. He joined Wong & Ouyang Architects & Engineers Limited as an architectural assistant from 1986 to 1988. He later served as an assistant architect at Taoho Design Architects Limited from 1988 to 1991. Thereafter, Mr. Norman Chan was employed as an architectural design executive at Anthony Ng Architects Limited from 1991 to 1992. He subsequently joined D. Heung & Associates, Architects & Engineers Limited from 1992 to 1995 as a design associate. He established BTR Workshop in June 1995, since when he has been a director of BTR Workshop. Mr. Norman Chan obtained a bachelor's degree of architecture from Rhode Island School of Design in the United States in June 1985.

Mr. Norman Chan is one of the ultimate beneficial owners of Whistle Up. He owns 96% of the issued share capital of Whistle Up which will hold approximately 70% of the Enlarged Issued Share Capital upon Completion. Thus, Mr. Norman Chan will be one of the Controlling Shareholders upon Completion.

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Mr. Norman Chan was a director of the following company which was incorporated in Hong Kong prior to its dissolution:

Name of company	Principal business activity prior to its dissolution	Date of dissolution	Means of dissolution	Reason for dissolution
Man Shing Building Materials Limited	Sales of plywood	15 July 2005	Dissolved by deregistration pursuant to Section 291AA of the Predecessor Companies Ordinance (Note)	Cessation of business

Note:

Under section 291AA of the Predecessor Companies Ordinance, an application for deregistration can only be made by the company, a director of the company or a member of the company if (a) all the members of such company agreed to such deregistration; (b) such company has never commenced business or operation, or has ceased to carry on business or ceased operation for more than three months immediately before the application; and (c) such company has no outstanding liabilities.

Mr. Norman Chan confirmed that there was no wrongful act on his part leading to the above dissolution of the company and he is not aware of any actual or potential claim which has been or will be made against him as a result of the dissolution of this company.

Mr. Norman Chan did not hold any directorship in any other public companies, the securities of which are or have been listed on any securities market in Hong Kong or overseas in the past three years.

Code provision A.2.1 of the Corporate Governance Code (the "CG Code") as set out in Appendix 15 of the GEM Listing Rules provides that the roles of chairman and chief executive officer should be separate and should not be performed by the same individual. Mr. Norman Chan will act as the chairman and the chief executive officer upon Completion. In view of Mr. Norman Chan being one of the founders of BTR Workshop, and his responsibilities in overall management and major decision-making, the Board believes that it is in the interests of both the Restructured Group and the Shareholders to have Mr. Norman Chan taking up both roles for effective management and business development. Therefore, the Directors consider the deviation from Code Provision A.2.1 of the CG Code to be appropriate in such circumstance. The Board will continue to review the effectiveness of the corporate governance structure of the Restructured Group in order to assess whether separation of the roles of the chairman and chief executive officer is necessary.

Mr. Lee Alex Kam-fai (李錦輝), aged 54, is proposed to be appointed as an executive Director of the Company immediately following Completion. Before joining the Target Group, Mr. Alex Lee was a design layout artist at Edmonton Chinese News from 1986 to 1989. He worked as an assistant at Barry John Architect, Brinsmead Ziola Architect & Associates from 1992 to 1993. Mr. Alex Lee worked as a drafting technician at Northern Alberta Institute of Technology from January 1994 to June 1994. Subsequently, he was employed as a draftsman at D. Heung & Associates, Architects & Engineers Limited from June 1994 to June 1995. Mr. Alex Lee is one of the founding staff of the BTR Workshop in July 1995. Mr. Alex Lee is one of the directors of BTR HK and the Target Company. Mr. Alex Lee will be mainly responsible for the overall operation of the Restructured Group.

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Mr. Alex Lee is one of the ultimate beneficial owners of Whistle Up, and owns 3% of the issued share capital of Whistle Up which will hold approximately 70% of the Enlarged Issued Share Capital upon Completion.

Mr. Alex Lee did not hold any directorship in any other public companies, the securities of which are or have been listed on any securities market in Hong Kong or overseas in the past three years.

Independent non-executive Directors

Mr. Kwong U Hoi Andrew (鄭宇開) (“Mr. Kwong”), aged 53, is proposed to be appointed as an independent non-executive Director of the Company immediately following Completion. He will be mainly responsible for overseeing the management independently and providing independent judgment on the issues of strategy, performance, resources and standard of conduct of the Company.

Mr. Kwong obtained a bachelor of law from the University of Liverpool in the United Kingdom in July 1989. He has been admitted as a solicitor of the Supreme Court of England and Wales since November 1992 and a member of the Law Society of Hong Kong since May 1993. In October 2010, Mr. Kwong completed the advanced management program at Harvard Business School in the United States.

Mr. Kwong has over 23 years of work experience in the legal profession. During the period from 1990 to 1999, he worked at various international law firms in both the United Kingdom and Hong Kong including Barlow Lyde & Gilbert (now known as Clyde & Co), Simmons & Simmons, Denton Hall (now known as Dentons) and Linklaters & Paines (now known as Linklaters). During the period from 2000 to 2002, Mr. Kwong worked as a senior investment manager of Hantak Limited, a subsidiary of Hang Lung Group Limited, a company listed on the Stock Exchange (stock code: 0010). Mr. Kwong later returned to the legal profession and from December 2002 to March 2013, he worked at various multinational corporations, including DHL Express, a division of DHL, an international logistics company, as legal counsel for the Asia Pacific regional office and Cigna Corporation, a company listed on the New York Stock Exchange (stock code: NYSE: CI), as general counsel for the Asia Pacific region, which covered multiple individual markets in the Asia Pacific region and handled regional and cross-border matters. From 2013 to 2015, Mr. Kwong worked as the chief counsel, Asia at AECOM, an American corporation listed on the New York Stock Exchange (stock code: NYSE: ACM). Since November 2016, Mr. Kwong became a director and remains as a director of Brizan Investment Limited which is an investment company primarily focusing on robotics ecosystem investments, incorporated in the Seychelles.

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Mr. Kwong was a director of the following companies which were incorporated in Hong Kong prior to their dissolutions:

Name of company	Principal business activity prior to its dissolution	Date of dissolution	Means of dissolution	Reason(s) for dissolution
BTR Company Limited (formerly known as: Lermontov Limited) (Note 1)	Garment trading business	14 August 2009	Dissolved by deregistration pursuant to Section 291AA of the Predecessor Companies Ordinance (Note 2)	Cessation of business
Prometrix Limited	Lighting business	30 March 2007	Dissolved by deregistration pursuant to Section 291AA of the Predecessor Companies Ordinance (Note 2)	Cessation of business
Steelahead Limited	Investment holding	15 September 2017	Dissolved by deregistration pursuant to Section 750 of the Companies Ordinance (Note 2)	Cessation of business

Notes:

As confirmed by Mr. Kwong, BTR Company Limited was neither an associate (as defined on the GEM Listing Rules) nor related company of the Target Group and the above companies were solvent at the time being dissolved.
Under section 291AA of the Predecessor Companies Ordinance/section 750 of the Companies Ordinance, an application for deregistration can only be made by the company, a director of the company or a member of the company if (a) all the members of such company agreed to such deregistration; (b) such company has never commenced business or operation, or has ceased to carry on business or ceased operation for more than three months immediately before the application; and (c) such company has no outstanding liabilities.

Mr. Kwong confirmed that there was no wrongful act on his part leading to the above dissolution of each of the companies and he is not aware of any actual or potential claim which has been or will be made against him as a result of the dissolution of these companies.

Mr. Kwong did not hold any directorship in any other public companies, the securities of which are or have been listed on any securities market in Hong Kong or overseas in the past three years.

Mr. Wong Jonathan (黃若鋒) (“Mr. Wong”), aged 50, is proposed to be appointed as an independent non-executive Director of the Company immediately following Completion. He will be mainly responsible for overseeing the management independently and providing independent judgment on the issues of strategy, performance, resources and standard of conduct of the Company.

Mr. Wong obtained a bachelor’s degree of business administration from the University of Western Ontario in Canada in June 1991. He then completed Common Professional Examination, a postgraduate law course, offered by Manchester Metropolitan University in the United Kingdom through long distance learning at School of Continuing Education of the University of Hong Kong in July 1996. He was called to the Bar in Hong Kong in 1998 and by Inner Temple in the United Kingdom in July 1998. He has been

DIRECTORS AND SENIOR MANAGEMENT OF THE RESTRUCTURED GROUP

qualified as a fellow of Hong Kong Institute of Arbitrators since July 2011. From January 2017 to January 2018, he was a council member of the Hong Kong Bar Association, a position which he previously served from January 2009 to January 2011.

Mr. Wong has more than 20 years of experience in legal industry. He was called to the Bar in 1998 and is now practicing as a barrister at Parkside Chambers in Hong Kong. He has handled cases involving civil litigation, in particular, commercial disputes. Mr. Wong also involved in arbitration proceeding, mostly construction-related disputes and mediation. Mr. Wong also sat as deputy judge at the District Court during December 2010 to January 2011.

Mr. Wong was a director of the following company which was incorporated in Hong Kong prior to its dissolution:

Name of company	Principal business activity prior to its dissolution	Date of dissolution	Means of dissolution	Reason for dissolution
Western Business School Society Limited	Alumni association	15 March 2002	Dissolved by striking off by the Registrar of Companies of Hong Kong pursuant to Section 291 of the Predecessor Companies Ordinance (Note)	Cessation of business

Note:

Under section 291 of the Predecessor Companies Ordinance, where Registrar of Companies in Hong Kong has reasonable cause to believe that a company is not carrying on business or in operation, the Registrar of Companies in Hong Kong may strike the name of the company off the register after the expiration of a specified period.

Mr. Wong confirmed that there was no wrongful act on his part leading to the above dissolution of the company and he is not aware of any actual or potential claim which has been or will be made against him as a result of the dissolution of this company.

Mr. Wong did not hold any directorship in any other public companies, the securities of which are or have been listed on any securities market in Hong Kong or overseas in the past three years.

Mr. Chi Chi Hung Kenneth (季志雄) (“Mr. Chi”), aged 50, is proposed to be appointed as an independent non-executive Director of the Company immediately following Completion. He will be mainly responsible for overseeing the management independently and providing independent judgment on the issues of strategy, performance, resources and standard of conduct of the Company.

Mr. Chi obtained a bachelor of arts in accountancy from The Hong Kong Polytechnic (now known as The Hong Kong Polytechnic University) in November 1991. He was admitted as an associate member under The Chartered Association of Certified Accountants in the United Kingdom in November 1994 and has maintained his fellowship status since November 1999. Mr. Chi has been an associate member under The Institute of Chartered Secretaries and Administrators in the United Kingdom since November 1994, an associate member of the Hong Kong Institute of Chartered Secretary in November 1994, and an associate member under The Hong Kong Institute of Certified Public Accountants since April 1996.

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Mr. Chi has over 20 years of experience in accounting, financial control and corporate governance. Mr. Chi held/is holding directorship in the following public listed companies in the past three years:

Position	Name of company (stock code)	Duration
Executive director	Hua Yi Copper Holdings Limited (0559)
(Now known as DeTai New Energy Group Limited)	January 2010 – Present
Independent non-executive director	Sam Woo Holdings Limited (2322)
(Now known as Noble Century Investment Holdings Limited)	April 2011 – Present
Independent non-executive director	Perfect Shape (PRC) Holdings Limited (1830)
(Now known as Perfect Shape Medical Limited)	December 2011 – Present
Independent non-executive director	Goodtop Tin International Holdings Limited (0195)
(Now known as Greentech Technology International Limited)	October 2012 – Present
Executive director	Ceneric (Holdings) Limited (0542)
(Now known as TFG International Group Limited)	October 2010 – June 2017

DIRECTORS AND SENIOR MANAGEMENT OF THE RESTRUCTURED GROUP

Mr. Chi was a director of the following companies which were incorporated in Hong Kong prior to their dissolution:

Name of company	Principal business activity prior to its dissolution	Date of dissolution	Means of dissolution	Reason for dissolution
Ceneric Plaza Limited	Property management service	9 May 2014	Dissolved by deregistration pursuant to Section 750 of the Companies Ordinance (Note 1)	Cessation of business
Ceneric Property Consultants Limited	Property consultation services	25 July 2014	Dissolved by deregistration pursuant to Section 750 of the Companies Ordinance (Note 1)	Cessation of business
Ceneric Securities Nominees Limited	Nominee services	10 October 2014	Dissolved by deregistration pursuant to Section 750 of the Companies Ordinance (Note 1)	Cessation of business
Ceneric Villa Limited	Property management	9 May 2014	Dissolved by deregistration pursuant to Section 750 of the Companies Ordinance (Note 1)	Cessation of business
Consing Investment Limited	Investment holding	20 January 2017	Dissolved by deregistration pursuant to Section 750 of the Companies Ordinance (Note 1)	Cessation of business
Gain Wealth Trading Limited	Investment holding	25 April 2003	Dissolved by striking off by the Registrar of Companies of Hong Kong pursuant to Section 291 of the Predecessor Companies Ordinance (Note 2)	Cessation of business
Grace Bright Trading Limited	Never carried on business	19 June 2015	Dissolved by deregistration pursuant to Section 750 of the Companies Ordinance (Note 1)	Cessation of business
Grand Creation International Trading Limited	Never carried on business	19 June 2015	Dissolved by deregistration pursuant to Section 750 of the Companies Ordinance (Note 1)	Cessation of business
HKVN Limited	Travel business	15 November 2014	Dissolved by members’ voluntary winding up pursuant to the Companies (Winding Up and Miscellaneous) Ordinance	Cessation of business

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Name of company	Principal business activity prior to its dissolution	Date of dissolution	Means of dissolution	Reason for dissolution
Joint China Trading Limited	Trading of garment	16 December 2005	Dissolved by deregistration pursuant to Section 291AA of the Predecessor Companies Ordinance (Note 1)	Cessation of business
M.S. Finance Limited	Investment holding	20 June 2005	Dissolved by deregistration pursuant to Section 291AA of the Predecessor Companies Ordinance (Note 1)	Cessation of business
Medtech (H.K.) Company Limited	Investment holding	17 March 2016	Dissolved by deregistration pursuant to Section 750 of the Companies Ordinance (Note 1)	Cessation of business
Medtech International Trading Company Limited	Trading of watches and watches components	10 February 2016	Dissolved by deregistration pursuant to Section 750 of the Companies Ordinance (Note 1)	Cessation of business
Mui Hong Kong Limited	Investment holding	9 May 2014	Dissolved by deregistration pursuant to Section 750 of the Companies Ordinance (Note 1)	Cessation of business
Pool Heng Nominees Limited	Nominee services	20 June 2014	Dissolved by deregistration pursuant to Section 750 of the Companies Ordinance (Note 1)	Cessation of business
Rokenan Enterprises Limited	Investment holding	30 July 2004	Dissolved by deregistration pursuant to Section 291AA of the Predecessor Companies Ordinance (Note 1)	Cessation of business
Topwide International Trading Limited	Never carried on business	3 February 2017	Dissolved by deregistration pursuant to Section 750 of the Companies Ordinance (Note 1)	Cessation of business
Way Bright Investment Limited	Investment holding	31 March 2014	Dissolved by members’ voluntary winding up pursuant to the Companies (Winding Up and Miscellaneous) Ordinance	Cessation of business

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Name of company	Principal business activity prior to its dissolution	Date of dissolution	Means of dissolution	Reason for dissolution
Win Smarter Limited	Investment holding	4 July 2008	Dissolved by deregistration pursuant to Section 291AA of the Predecessor Companies Ordinance (Note 1)	Cessation of business

Notes:

Under section 291AA of the Predecessor Companies Ordinance/section 750 of the Companies Ordinance, an application for deregistration can only be made by the company, a director of the company or a member of the company if (a) all the members of such company agreed to such deregistration; (b) such company has never commenced business or operation, or has ceased to carry on business or ceased operation for more than three months immediately before the application; and (c) such company has no outstanding liabilities.
Under section 291 of the Predecessor Companies Ordinance, where Registrar of Companies in Hong Kong has reasonable cause to believe that a company is not carrying on business or in operation, the Registrar of Companies in Hong Kong may strike the name of the company off the register after the expiration of a specified period.

Mr. Chi confirmed that there was no wrongful act on his part leading to the above dissolution of each of the companies and he is not aware of any actual or potential claim which has been or will be made against him as a result of the dissolution of these companies.

Save as disclosed above, Mr. Chi has not held any directorship in any other public companies, the securities of which are or have been listed on any securities market in Hong Kong or overseas in the past three years.

Each of the proposed Directors will enter into a service contract or letter of appointment with the Company for an initial term of three years commencing from the date of Completion and to continue thereafter unless terminated by either party giving not less than three months' notice in writing.

Each of the proposed Directors will be entitled to the amount of annual emolument for acting as the director of, committee member of and/or holding other position with the Company or other members of the Restructured Group to be determined by the Remuneration Committee. In addition, each of the proposed Directors may be entitled to, if so recommended by the Remuneration Committee and approved by the Board at its absolute discretion, a discretionary bonus, the amount of which is determined with reference to the operating results of the Restructured Group and the performance of the proposed Directors, provided that the relevant proposed Director shall abstain from voting and not be counted in the quorum in respect of any resolution of the Board approving the amount of annual salary, discretionary bonus and other benefits payable to him.

Disclosure required under Rule 17.50(2) of the GEM Listing Rules

Save as disclosed above, each of the proposed Directors confirms that he (i) did not hold any directorships in the last three years prior to the Latest Practicable Date in public companies the securities of which are listed on any securities market in Hong Kong or overseas; (ii) does not hold any other positions with any member of the Restructured Group; (iii) does not, nor the Controlling Shareholders, nor their respective close associates, have an interest in any business which competes or may compete, directly or indirectly, with the Restructured Group, which is required to the disclosed under the GEM

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Listing Rules; and (iv) does not have any relationships with any directors, senior management or substantial or controlling shareholders of the Company or the Target Company nor any interests in the Shares within the meaning of Part XV of the SFO.

Save as disclosed above, each of the proposed Directors is not aware of any other matters that need to be brought to the attention of the holders of securities of the Company nor is there any information to be disclosed by the Company pursuant to any of the requirements under Rule 17.50(2) of the GEM Listing Rules.

SENIOR MANAGEMENT

The Target Group has experienced management teams of relevant experience in interior design and decoration. The following table sets out certain information concerning the senior management of the Target Group who will remain following Completion. The Company believes that the Target Group's experienced management team has contributed to the success of the Target Group and will further enhance the Target Group's execution capabilities.

Name	Age	Position	Roles and responsibilities	Date of joining the Target Group	Relationship with other Directors and members of senior management
Mr. Chan Norman Enrique (陳樂文)	58	Executive Director, chairman of the Board and chief executive officer	Overall management, strategic development, financial management and major decision-making of the Restructured Group	12 June 1995	Nil
Mr. Lee Alex Kam-fai (李錦輝)	54	Executive Director	Overall operation of the Restructured Group	July 1995	Nil
Mr. Leung Shiu Fung Kevini (梁韶豐)	46	Associate director	Overall project execution, design strategy and client relations development	23 March 2015	Nil
Mr. Yeung Sai Cheong (楊世昌)	39	Financial controller	Financial planning, internal control and financial reporting of the Restructured Group	12 April 2018	Nil
Mr. Cheung Chi Kin (張智鍵)	41	Chief operation officer	Overseeing the administration, human resources, operation and business development of the Restructured Group	7 August 2018	Nil

Mr. Norman Chan is proposed to be an executive Director, the chairman of the Board and the chief executive officer of the Company immediately following the Completion. For his biographical information, please refer to the section headed "Directors and senior management of the Restructured Group - Proposed Directors - Executive Directors" above.

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Mr. Alex Lee is proposed to be an executive Director immediately following the Completion. For his biographical information, please refer to the section headed “Directors and senior management of the Restructured Group – Proposed Directors – Executive Directors” above.

Mr. Leung Shiu Fung Kevini (梁韶豐) (“Mr. Leung”), aged 46, joined the Target Group in March 2015 and is currently an associate director of the Target Group. Mr. Leung is mainly responsible for the overall project execution, design strategy and client relations development of the Target Group.

Mr. Leung has over 19 years of experience in interior design. He was first employed by BTR Workshop in 1999. In 2009, Mr. Leung established BTR HK together with Mr. Norman Chan and Mr. Alex Lee, and on 28 December 2011, Mr. Leung transferred all his shares in BTR HK to Mr. Norman Chan before leaving the Target Group. For further details, please refer to the section headed “History and background of the Target Group” in this circular. During the period from January 2012 to March 2015, Mr. Leung worked at other interior design companies, including AB Concept Limited where he worked as a senior project designer. He later returned to the Target Group in March 2015 and has been working there as an associate director.

Mr. Leung obtained a bachelor of arts in interior design from The Hong Kong Polytechnic University in December 1999.

Mr. Leung has not held any directorship in any other public companies, the securities of which are or have been listed on any securities market in Hong Kong or overseas in the past three years.

Mr. Yeung Sai Cheong (楊世昌) (“Mr. Yeung”), aged 39, is proposed to be appointed as the financial controller of the Company immediately following Completion. Mr. Yeung is primarily responsible for overseeing the overall financial management of the Target Group.

Mr. Yeung obtained a bachelor of arts in accounting and finance from Leeds Metropolitan University (now known as Leeds Beckett University) in the United Kingdom in July 2004. He was admitted as a member and as a fellow in February 2009 and February 2014 respectively of the Association of Chartered Certified Accountants in the United Kingdom.

Mr. Yeung has more than 13 years of audit experience. Prior to joining the Company, Mr. Yeung worked for David T.W. Fong & Co in the audit division from August 2004 to June 2007. From July 2007 to November 2013, he then worked at Nexia Charles Mar Fan & Co with his last position as an audit supervisor. From November 2013 to April 2018, he worked at Lo and Kwong C.P.A. Company Limited/ Asian Alliance (HK) CPA Limited (formerly known as Zhonglei (HK) CPA Company Limited) as an audit manager. In April 2018, he joined BTR HK as the financial controller.

Mr. Yeung has not held any directorship in any other public companies, the securities of which are or have been listed on any securities market in Hong Kong or overseas in the past three years.

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Mr. Cheung Chi Kin (張智健) ("Mr. Cheung"), aged 41, is appointed as chief operation officer of the Target Group on 7 August 2018. He is responsible for overseeing the administration, human resources, operation and business development of the Target Group.

He is a charterholder of the CFA Institute as a chartered financial analyst since September 2010. He received his bachelor of engineering degree in civil and structural engineering from The Hong Kong University of Science and Technology in November 2000 and obtained a graduate diploma in finance from The Chinese University of Hong Kong in October 2003.

Mr. Cheung worked at Atkins China Limited, an international engineering consultancy firm, from October 2000 to February 2005. His last position was an assistant traffic engineer. Subsequently, Mr. Cheung joined Koffman Investment Limited from June 2005 to October 2008 as a project consultant. He then joined Koffman Financial Group Limited from November 2008 to February 2009 as project consultant. Immediately prior to joining the Target Group, Mr. Cheung was a project consultant at Koffman Corporate Service Limited from March 2009 to August 2018, a company that is principally engaged in the provision of business solutions and consultancy services, during the period with Koffman Corporate Service Limited, he was also appointed as a supervisor for a residential property project by Henrich Development Limited from April 2011 to July 2013.

Mr. Cheung has not held any directorship in any other public companies, the securities of which are or have been listed on any securities market in Hong Kong or overseas in the past three years.

COMPANY SECRETARY

Ms. Hung Wai Man (孔慧敏) ("Ms. Hung"), aged 34, is the current company secretary and an executive Director of the Company. It is confirmed by the Investor that Ms. Hung will only continue to be the company secretary of the Company following Completion. Ms. Hung is primarily responsible for overseeing the overall company secretarial matters of the Company.

Ms. Hung obtained a bachelor's degree in business administration from The Hong Kong University of Science and Technology in November 2007. She is a member of Hong Kong Institute of Certified Public Accountants and has practical experience in auditing and accounting practice and handling corporate governance matters for listed companies.

Save as disclosed above, Ms. Hung has not held any directorship in any other public companies, the securities of which are or have been listed on any securities market in Hong Kong or overseas in the past three years.

COMPLIANCE OFFICER

Mr. Norman Chan will be appointed as the compliance officer of the Company immediately following Completion.

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COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE

The Company will comply with the requirements under the CG Code as set out in Appendix 15 to the GEM Listing Rules.

The proposed Directors will review the Company’s corporate governance policies and compliance with the CG Code each financial year and comply with the “comply or explain” principle in Company’s corporate governance report which will be included in the Company’s annual reports.

The Company has adopted a board diversity policy which sets out the approach to achieve and maintain an appropriate balance of diversity perspectives of the Board that are relevant to the Company’s business growth. Pursuant to the board diversity policy, selection of Board candidates will be based on a range of diversity perspectives, including but not limited to gender, age, cultural and educational background, professional qualifications, skills, knowledge, and industry experience. The ultimate decision will be based on merit and contribution that the selected candidates will bring to the Board.

The proposed Directors have a balanced mix of experiences and industry background, including but not limited to experiences in interior design and architecture, legal and financial industries. The proposed Directors also have a diverse education background including architecture, law, business administration and accountancy. The proposed independent non-executive Directors include solicitor, barrister and certified accountant. The three proposed independent non-executive Directors who have different industry backgrounds and professional qualifications, represent more than one third of the Board members. Taking into account the Company’s business model and specific needs upon Completion as well as the different backgrounds and abilities of the proposed Directors, the composition of the Board satisfies the board diversity policy, despite the lack of gender diversity. The Company will continue to take steps to promote gender diversity at all levels of the Company, including but without limitation at the Board and senior management levels. While the Company recognises that gender diversity at the Board level can be enhanced given its current composition of all-male proposed Directors, the Company is committed to provide career development opportunities for female staff and seek to shortlist at least one suitable female candidate for all future appointments to the Board. Nevertheless, the Company will continue to apply the principle of appointments based on merits with reference to the board diversity policy as a whole.

The nomination committee is responsible for ensuring the diversity of the Board. The nomination committee will review the composition of the Board with reference to the board diversity policy on an annual basis and give suggestion(s) to the Company to address any diversity issue(s) in respect to the composition of the Board if necessary. The nomination committee will review the board diversity policy from time to time to ensure its continued effectiveness and the Company will disclose the implementation of the board diversity policy in the corporate governance report on an annual basis.

BOARD COMMITTEES

Audit Committee

The Company has established an audit committee of the Company (the “Audit Committee”) with its written terms of reference in compliance with the GEM Listing Rules and the CG Code as set out in Appendix 15 to the GEM Listing Rules. The primary duties of the Audit Committee are to review and supervise the Company’s financial reporting process and internal control system, nominate and monitor external auditors and to provide advice and comments to the Board on matters related to corporate governance. The Audit Committee will comprise three proposed independent non-executive Directors, namely Mr. Kwong U Hoi Andrew, Mr. Wong Jonathan and Mr. Chi Chi Hung Kenneth and will be chaired by Mr. Chi Chi Hung Kenneth upon Completion.

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DIRECTORS AND SENIOR MANAGEMENT OF THE RESTRUCTURED GROUP

Remuneration Committee

The Company has established a remuneration committee of the Company (the “Remuneration Committee”) with its written terms of reference in compliance with the GEM Listing Rules and the CG Code. The primary duties of the Remuneration Committee are to make recommendations on the remuneration of the Company’s executive Directors and senior management and to recommend the Board on the remuneration of non-executive Directors. The Remuneration Committee will comprise three proposed independent non-executive Directors, namely Mr. Kwong U Hoi Andrew, Mr. Wong Jonathan and Mr. Chi Chi Hung Kenneth and will be chaired by Mr. Kwong U Hoi Andrew upon Completion.

Nomination Committee

The Company has established a nomination committee of the Company (the “Nomination Committee”) with its written terms in compliance with the CG code. The primary duties of the Nomination Committee are to make recommendations to the Board regarding candidates to fill vacancies on the Board and/or in senior management. The Nomination Committee will comprise three proposed independent non-executive Directors, namely Mr. Kwong U Hoi Andrew, Mr. Wong Jonathan and Mr. Chi Chi Hung Kenneth and will be chaired by Mr. Wong Jonathan upon Completion.

REMUNERATION POLICY

The Directors and senior management receive compensation in the form of salaries and discretionary bonuses with reference to salaries paid by comparable companies, time commitment and the performance of the Restructured Group. The Restructured Group regularly reviews and determines the remuneration and compensation package of the Directors and senior management, by reference to, among other things, market level of salaries paid by comparable companies, the respective responsibilities of the Directors and senior management and the performance of the Restructured Group.

The Remuneration Committee will review and determine the remuneration and compensation packages of the Directors with reference to their responsibilities, workload, the time devoted to the Restructured Group and the performance of the Restructured Group.

REMUNERATION OF DIRECTORS AND SENIOR MANAGEMENT

For each of the three years ended 31 March 2018 and the eight months ended 30 November 2018, the aggregate remuneration, including fees, salaries, other allowances, other benefits in kind, discretionary bonuses and retirement benefit scheme contributions, paid to the proposed Directors by the Target Group were approximately HK$2.2 million, HK$2.3 million, HK$2.6 million and HK$1.7 million, respectively.

The five highest paid individuals in the Target Group for the years ended 31 March 2016, 2017 and 2018 and the eight months ended 30 November 2018 included the proposed Directors. The aggregate emoluments of the remaining three highest paid individuals during the years ended 31 March 2016, 2017 and 2018 and the eight months ended 30 November 2018 were approximately HK$2.4 million, HK$2.7 million, HK$2.5 million and HK$1.7 million, respectively.

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During the Track Record Period, no emoluments were paid by the Target Group to the proposed Directors or the above highest paid individuals as an inducement to join or upon joining the Target Group or as compensation for loss of office as a director or management of any members of the Target Group. Save as disclosed above, no other payments have been made or are payable in respect of each of the three years ended 31 March 2018 and the eight months ended 30 November 2018 by the Target Group to the proposed Directors.

Under the arrangements currently proposed, conditional upon Completion, the aggregate annual remuneration (including fees, salaries, other allowances, other benefits in kind, discretionary bonuses and retirement benefit scheme contribution) payable by the Target Group to the proposed Directors for the year ending 31 March 2020 is estimated to be approximately HK$2.7 million.

COMPLIANCE ADVISER

In accordance to Rule 6A.19 of the GEM Listing Rules, the Company will appoint Messis Capital Limited as its compliance adviser. Pursuant to Rule 6A.23 of the GEM Listing Rules, the Company must consult with and, if necessary, seek advice from the compliance adviser on a timely basis in the following circumstances:

(i) before the publication of any regulatory announcement, circular or financial report;

(ii) where a transaction, which might be a notifiable or connected transaction, is contemplated including share issues and share repurchases;

(iii) where the Company proposes to use the proceeds of the Share Offer in a manner different from that detailed in this circular or where the business activities, developments or results of the Company deviate from any forecast, estimate or other information in this circular; and

(iv) where the Stock Exchange makes an inquiry of the listed issuer under Rule 17.11 of the GEM Listing Rules.

The term of appointment of the compliance adviser shall commence upon Completion and end on the date on which the Company complies with Rule 18.03 of the GEM Listing Rules in respect of the financial results for the second full financial year commencing after Completion and such appointment shall be subject to extension by mutual agreement.

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RELATIONSHIP WITH THE CONTROLLING SHAREHOLDERS

CONTROLLING SHAREHOLDERS

Immediately after the Completion, the Investor will directly hold approximately 70% of the issued share capital of the Company. The Investor is held as to 96% by Mr. Norman Chan, 3% by Mr. Alex Lee and 1% by Ms. Susanna Kwok respectively. As such, each of the Investor and Mr. Norman Chan will become a Controlling Shareholder.

INDEPENDENCE FROM CONTROLLING SHAREHOLDERS

Save for the lease of certain properties from a close associate of a Controlling Shareholder as disclosed in the section headed “Connected transactions” in this circular, the Directors and the proposed Directors do not expect there to be any significant transactions between the Restructured Group and the Controlling Shareholders and their respective associates upon Completion. The Directors and the proposed Directors believe that the Restructured Group is capable of carrying on the Restructured Group’s business independently from the Controlling Shareholders and their respective associates after the Completion, having taken into consideration of the following factors:

(i) Management independence

Upon Completion, the Board will comprise two executive Directors and three independent non-executive Directors, details of whom are set out in the section headed “Directors and senior management of the Restructured Group” in this circular.

Upon Completion, no proposed executive Director will have overlapping roles or responsibilities in any business other than the Restructured Group’s business nor has any business which competes or is likely to compete, either directly or indirectly, with the Restructured Group’s business.

Each of the Directors is aware of his/her fiduciary duties as a director which require, among other things, that he acts for the benefit and in the best interests of the Company and does not allow any conflict between his/her duties as a Director and his/her interest to exist. In the event that there is a potential conflict of interest arising out of any transaction to be entered into between the Restructured Group and the Directors or their respective associates, the interested Director(s) shall abstain from voting at the relevant meeting of the Board in respect of such transaction and shall not be counted in the quorum.

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RELATIONSHIP WITH THE CONTROLLING SHAREHOLDERS

(ii) Operational independence

The business of the Restructured Group is independent of and not connected with the Controlling Shareholders. Having considered that (i) the Restructured Group established its own organisational structure comprising individual departments, each with specific areas of responsibilities; (ii) the Restructured Group has not shared operational resources, such as customers, marketing, sale and general administration resources with the Controlling Shareholders and/or their associates; (iii) the Restructured Group has also established a set of internal controls to facilitate the effective operation of its business; (iv) as at the Latest Practicable Date, the Controlling Shareholders had no interest in any of the customer, supplier or other business partners of the Restructured Group, the Directors and the proposed Directors consider that the Restructured Group can operate independently from the Controlling Shareholders from the operational perspective; and (v) as at the Latest Practicable Date, the Restructured Group had independent access to its suppliers or customers.

(iii) Administrative independence

The Restructured Group has its own capabilities and personnel to perform all essential administrative functions, including internal control and auditor monitor, financial and accounting management, invoicing and billing, human resources and information technology.

(iv) Financial independence

The Restructured Group is financially independent of the Controlling Shareholders and their respective close associates. It has sufficient capital and banking facilities to operate its business independently, and has adequate resources to support its daily operations. In addition, the Restructured Group will make financial decisions according to its own business needs.

During the Track Record Period, each of Waldorf Holdings and Mr. Norman Chan has provided guarantees in favour of a licensed bank in Hong Kong for the repayment obligations of BTR HK under (i) revolving loans and an instalment loan in an aggregate amount of approximately HK$25 million; and (ii) a term loan in an amount of approximately HK$12 million under and subject to the SME Financing Guarantee Scheme of The Hong Kong Mortgage Corporation Limited granted by the bank. The bank had granted in-principle consents to release the guarantee given by each of Waldorf Holdings and Mr. Norman Chan in favour of the bank and replace such guarantees by corporate guarantee(s) to be provided by the Company upon the Completion. The directors of the Target Company confirm that the term loan banking facility under and subject to the SME Financing Guarantee Scheme of The Hong Kong Mortgage Corporation Limited will be fully repaid prior to the Completion. The directors of the Target Company confirm that the Target Group's aggregate amount due from/to the directors of the Target Company, Controlling Shareholders and their respective close associates will be fully repaid before the Completion.

The Directors and the proposed Directors are therefore of the view that the Restructured Group is not financially dependent on the Controlling Shareholders or their respective close associates in the Restructured Group's business operations and the Restructured Group is able to obtain external financing on market terms and conditions for our business operations as and when required.

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RELATIONSHIP WITH THE CONTROLLING SHAREHOLDERS

DEED OF NON-COMPETITION

The Controlling Shareholders have entered into the Deed of Non-competition in favour of the Company (for itself and as trustee of its subsidiaries), pursuant to which each of them had jointly and severally, irrevocably and unconditionally undertaken to and covenanted with the Company (for itself and as trustee of its subsidiaries) that during the continuation of the Deed of Non-competition it or he/it shall not, and shall procure that any of its/his close associates (other than any member of the Restructured Group) not to during the restricted period set out below, either on its/his own account or in conjunction with or on behalf of any person, firm or company, and whether directly or indirectly, carry on a business which is, or be interested or involved or engaged in or acquire or hold any rights or interest or otherwise (in each case whether as a shareholder, partner, principal, agent, director, employee or otherwise and whether for profit, reward or otherwise) any business which competes or is likely to compete directly or indirectly with the business currently and from time to time engaged by the Restructured Group (including the provision of interior design services to premises including private residences, corporate offices, service apartments, hotels, residential clubhouse, show flats and sales galleries and business ancillary to any of the foregoing, in each case, to be more particularly described or contemplated in this circular), in Hong Kong and any other country or jurisdiction to which the Restructured Group provides such services and/or in which any member of the Restructured Group carries on such business from time to time (the "Restricted Business"). Such non-competition undertaking does not apply to:

(i) any interests in the shares of any member of the Restructured Group; or
(ii) interests in the shares of a company other than the Company whose shares are listed on a recognised stock exchange provided that:

(a) any Restricted Business conducted or engaged in by such company (and assets relating thereto) accounts for less than 5% of that company's consolidated turnover or consolidated assets, as shown in that company's latest audited accounts; or
(b) the total number of the shares held by the Controlling Shareholders and/or their respective close associates in aggregate does not exceed 5% of the issued shares of that class of the company in question and such Controlling Shareholders and/or their respective close associates are not entitled to appoint a majority of the directors of that company and at any time there should exist at least another shareholder of that company whose shareholdings in that company should be more than the total number of shares held by the Controlling Shareholders and their respective close associates in aggregate; or
(c) the Controlling Shareholders and/or their respective close associates do not have the control over the board of such company.

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RELATIONSHIP WITH THE CONTROLLING SHAREHOLDERS

The Deed of Non-competition shall take effect upon Completion and shall expire on the earlier of:

(a) the day on which the Shares cease to be listed and traded on GEM or other recognised stock exchange; or
(b) the day on which the Controlling Shareholders and their respective close associates, individually or taken as a whole, cease to own, in aggregate, 30% or more of the then issued share capital of the Company directly or indirectly or cease to be deemed as the Controlling Shareholders and do not have power to control the Board or there is at least one other independent shareholder other than the Controlling Shareholders and their respective close associates holding more shares than the Controlling Shareholders and their respective close associates taken together.

The Controlling Shareholders and/or their close associates may take up new business opportunities which compete with the Company only if they comply with their obligations under the Deed of Non-competition in doing so.

Pursuant to the Deed of Non-competition, each of the Controlling Shareholders has undertaken that if any of the Controlling Shareholders and/or any of his/its close associates is offered or becomes aware of any project or new business opportunity (the "New Business Opportunity(ies)") that relates to the Restricted Business, whether directly or indirectly, he/it shall (i) promptly within ten (10) Business Days notify the Company in writing of such opportunity and provide such information as is reasonably required by the Company in order to enable the Company to come to an informed assessment of such New Business Opportunity; and (ii) use his/its best endeavours to procure that such opportunity is offered to the Company on terms no less favourable than the terms on which such New Business Opportunity is offered to him/it and/or his/its close associates.

All of the Directors (excluding those who is/are interested in the New Business Opportunity and has/have conflict of interests with the Company) will review the New Business Opportunity and decide whether to invest in the New Business Opportunity. If the Company has not given written notice of its desire to invest in such New Business Opportunity or has given written notice denying the New Business Opportunity within thirty (30) Business Days (the "30-day Offering Period") of receipt of notice from the Controlling Shareholders, the Controlling Shareholders and/or his/its close associates shall be permitted to invest in or participate in the New Business Opportunity on his/its own accord. With respect to the 30-day Offering Period, the Directors consider that such period is adequate for the Company to assess any New Business Opportunity. In the event that the Company requires additional time to assess the New Business Opportunity, the Company may give a written notice to the Controlling Shareholders within the 30-day Offering Period and the Controlling Shareholders agree to extend the period to a maximum of sixty (60) Business Days. In the event the Company decides not to take up any New Business Opportunities after Completion, the Company will disclose in our annual report details of such New Business Opportunities, and the Company's reason for not taking up such New Business Opportunities. The Company and the Controlling Shareholders confirm, and the Controlling Shareholders undertake to the Company that any New Business Opportunities will be handled in compliance with the Deed of Non-competition provided by the Controlling Shareholders.

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RELATIONSHIP WITH THE CONTROLLING SHAREHOLDERS

CORPORATE GOVERNANCE MEASURES

The Company will adopt the following measures to manage the conflict of interests arising from competing business and to safeguard the interests of the Shareholders:

the independent non-executive Directors will review, on an annual basis, the compliance with the non-competition undertaking by the Controlling Shareholders under the Deed of Non-competition;
the Controlling Shareholders undertake to provide all information requested by the Company which is necessary for the annual review by the independent non-executive Directors and the enforcement of the Deed of Non-competition;
the Company will disclose decisions on matters reviewed by the independent non-executive Directors relating to compliance and enforcement of the Deed of Non-competition in the annual report of the Company;
the Controlling Shareholders will make confirmation on compliance with their undertaking under the Deed of Non-competition in the annual report of the Company; and
the independent non-executive Directors may appoint independent financial adviser and other professional advisers as they consider appropriate to advise them on any matter relating to the Deed of Non-competition or connected transaction(s) at the cost of the Company.

200

WAIVER FROM STRICT COMPLIANCE WITH THE GEM LISTING RULES

RULES 7.03(1) AND 11.10 OF THE GEM LISTING RULES

According to Rules 7.03(1) and 11.10 of the GEM Listing Rules, the Accountants' Report as set out in Appendix III to this circular must include the combined results of the Target Group in respect of the two financial years immediately preceding the issue of this circular or such shorter period as may be acceptable to the Stock Exchange.

Pursuant to the Guidance Letter HKEx-GL25-11 issued by the Stock Exchange, where a listing applicant issues its listing document within two months after the latest year end, the relevant conditions for granting a waiver from strict compliance with Rules 7.03(1) and 11.10 of the GEM Listing Rules are, inter alia, as follows:

(i) a profit estimate for the latest financial year (which must comply with Rules 14.29 to 14.31 of the GEM Listing Rules) must be included in the listing document or the listing applicant must provide justification why a profit estimate cannot be included in the listing document; and

(ii) there must be a directors' statement in the listing document that there is no material adverse change to its financial and trading positions or prospect with specific reference to the trading results from the end of the stub period to the latest financial year end.

The Company has applied for a waiver from the Stock Exchange from strict compliance with Rules 7.03(1) and 11.10 of the GEM Listing Rules in relation to the inclusion of the Accountants' Report for the full financial year ended 31 March 2019 in this circular, on the following grounds:

(i) a prospectus in relation to the Share Offer with updated financial information including the financial year ended 31 March 2019 and a stub period will be despatched to the Shareholders in November 2019 based on the expected timetable. Accordingly, the Directors consider that the interests of the Shareholders will not be jeopardized upon the grant of the waiver;

(ii) the Directors consider that there has not been any material adverse change in the financial position or prospects of the Target Group since 30 November 2018, being the latest period to be reported on by the reporting accountants of the Target Group;

(iii) the case at issue involves a resumption proposal which comprises complicated and time-consuming court procedures relating to the Creditors Schemes. The date of the Hong Kong Court hearing and the Grand Court hearing of petition to sanction the Creditors Schemes can only be determined after the Resumption Proposal has been approved at the EGM, which normally takes three to four months to be held. It is not feasible that the resumption and dealing in the New Shares on the Stock Exchange to commence within two months after the latest financial year end;

(iv) an estimate of the combined profit attributable to owners of the Target Company for the year ended 31 March 2019 has been included in this circular. Shareholders and the investing public would be given guidance as to the Target Group's financial performance for the year ended 31 March 2019; and

(v) the Directors and the Sponsor consider that after performing sufficient due diligence work, there has been no material adverse change in the financial and trading positions or prospect of the Target Group since 30 November 2018 up to the date of this circular and that there is no event which would materially affect the information contained in the Accountants' Report and the profit estimate of the Target Group in this circular. The Directors and the Sponsor consider that the inclusion of financials for the three financial years ended 31 March 2018 and the eight months ended 30 November 2018 in this circular includes all

201

WAIVER FROM STRICT COMPLIANCE WITH THE GEM LISTING RULES

information as may be reasonably necessary to enable Shareholders and the potential investors to make an informed assessment of the activities, assets and liabilities and financial position of the Target Group and the exemption from strict compliance with the relevant requirements of Rules 7.03(1) and 11.10 of the GEM Listing Rules would not prejudice the interests of the investing public.

The Stock Exchange has granted the Company a waiver from strict compliance with Rules 7.03(1) and 11.10 of the GEM Listing Rules, on the conditions that this circular (i) be issued by 31 May 2019; (ii) the prospectus to be issued by the Company in relation to the Share Offer to include updated financial information including the financial year ended 31 March 2019 and an appropriate stub period; and (iii) includes a profit estimate of the Target Group for the year ended 31 March 2019 which complies with Rules 14.29 to 14.31 of the GEM Listing Rules and a Directors' statement that there is no material adverse change to the financial and trading positions or prospect of the Target Group since 30 November 2018 up to the date of this circular.

RULE 13.02(1) OF THE GEM LISTING RULES

As at the Latest Practicable Date, the Qualifying Shareholders who were entitled to participate in the Preferential Offering do not include the Directors or their close associates, but include the existing Shareholders. Accordingly, the condition under Rule 13.02(1)(a) of the GEM Listing Rules cannot be met. The Company has applied to the Stock Exchange for, and the Stock Exchange has granted, a waiver from strict compliance with Rule 13.02(1) of the GEM Listing Rules for allowing the Qualifying Shareholders to participate in the Preferential Offering subject to the following conditions:

(i) none of the existing Shareholders would be in a position to exert influence over the Company to obtain actual or preferential treatment in the allocation process in the Preferential Offering;

(ii) the allocation will be handled by the Company's share registrar in Hong Kong, Union Registrars Limited, based on the level of the valid applications received for the Reserved Shares;

(iii) the minimum public float requirement under Rules 11.23(7) and 11.23(9) of the GEM Listing Rules will be met after completion of the Share Offer;

(iv) each of the existing Shareholders is interested in less than 5% of the issued share capital of the Company upon Completion;

(v) each of the existing Shareholders is not a core connected person or its close associate upon Completion and will not become a core connected person as a result of the Reserved Shares allocation; and

(vi) each of the existing Shareholders does not have power to appoint Directors or any other special rights.

Save as the Preferential Offering, the Qualifying Shareholders will not participate or indicate any interest in the Share Offer and the allocation of the Reserved Shares will be on a pro rata basis amongst all the Qualifying Shareholders and no preferential treatment will be given to any of them. Details of the allocation of the Share Offer will be disclosed in the allotment results announcement.

202

FINANCIAL INFORMATION OF THE TARGET GROUP

You should read this section in conjunction with the Target Group’s audited combined financial information, including the notes thereto, as set forth in the Accountants’ Report in Appendix III to this circular. For an illustration of the financial information of the Restructured Group as a result of the Completion, please refer to the “Unaudited pro forma financial information of the Restructured Group” set out in Appendix V to this circular. The Target Group’s combined financial information has been prepared in accordance with HKFRSs. You should read the entire Accountants’ Report and not merely rely on the information contained in this section.

The following discussion and analysis contain certain forward-looking statements that reflect the current views with respect to future events and financial performance. These statements are based on assumptions and analyses made by the Target Group in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors the Target Group believes are appropriate under the circumstances. However, whether actual outcomes and developments will meet the Target Group’s expectations and projections depends on a number of risks and uncertainties over which the Target Group does not have control. For further information, please refer to the section headed “Risk factors” to this circular.

OVERVIEW

The Target Group was established in 1995 and is principally engaged in the provision of interior design services to premises including private residences, corporate offices, service apartments, hotels, residential clubhouses, show flats and sales galleries. As at the Latest Practicable Date, the Target Group is a well-established and renowned interior design firm in Hong Kong with a team of over 60 professional designers together with its senior management team who possess relevant experience ranging from 2 years to 30 years. With over 20 years of experience in the interior design industry in Hong Kong, the Target Group has served over 50 customers including multinational companies and listed companies in Hong Kong. During the Track Record Period, the Target Group has carried out over 218 projects to provide interior design services to properties and premises of different functions and styles. As at the Latest Practicable Date, the Target Group had 100 projects in progress or to be commenced with a total contract sum of approximately HK$301.9 million.

BASIS OF PRESENTATION

The Target Company was incorporated in the BVI with limited liability on 2 August 2017. Pursuant to the Reorganisation as further explained in the section headed “History and background of the Target Group – Reorganisation” to this circular, the Target Company has become the holding company of the companies now comprising the Target Group. Immediately prior to and after the completion of the Reorganisation, the business of the Target Group is carried out by the Principal Subsidiaries now comprising the Target Group. The Principal Subsidiaries were collectively controlled by Mr. Norman Chan throughout the Track Record Period.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Pursuant to the Reorganisation, the Principal Subsidiaries together with the business of the Principal Subsidiaries are transferred to and held by the Target Company. The Target Company has not been involved in any business prior to the Reorganisation and does not meet the definition of a business. The Reorganisation of the Target Group is merely a reorganisation of the business with no change in management of such business and the ultimate controlling owner of the business remains the same. Accordingly, the combined financial information of the companies now comprising the Target Group is presented using the carrying values of the business for all periods presented.

The historical financial information has been prepared in accordance with all applicable HKFRSs. HKFRSs comprise Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ("HKAS"), and interpretations.

KEY FACTORS AFFECTING THE TARGET GROUP'S RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS

The Target Group's financial conditions and results of operations have been and will continue to be affected by a number of factors, including those set out below and in the section headed "Risk factors" in this circular:

Market demand for interior design

The Target Group offers interior design services to its customers by its in-house designers. The demand for the Target Group's services is mainly driven by the need of stylish and well-designed residential homes, offices or other premises for its customers and the general economic environment in Hong Kong. During the Track Record Period, the Target Group's revenue from interior design and execution services in relation to projects located in Hong Kong accounted for approximately 70.6%, 81.3%, 81.8% and 83.7% of the Target Group's total revenue, respectively. Any changes in the Hong Kong property market, such as fluctuations in economic conditions, the number of residential projects in Hong Kong, the Government policy on property market etc., may affect the demand for residential homes, offices or other premises, and may cause a direct impact to Hong Kong property developers, which are the Target Group's main customers. This, in turn, may affect the demand for the Target Group's interior design services.

Relationship with the Target Group's customers

The Target Group's revenue was mainly derived from a limited number of property developers in Hong Kong. During the Track Record Period, revenue attributable to the largest five customers, which are mainly Hong Kong property developers, accounted for approximately 58.9%, 57.7%, 51.1% and 55.7% of the Target Group's total revenue, respectively. Customers which are property developers accounted for approximately 91%, 84%, 90% and 93% of the Target Group's total revenue during the Track Record Period, respectively. As the interior design projects undertaken by the Target Group are non-recurring in nature, in the case that the Target Group is not able to maintain its business relationship with its customers and continue to secure new projects from them, the business performance of the Target Group may be adversely affected.

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FINANCIAL INFORMATION OF THE TARGET GROUP

The ability to retain and recruit high-quality candidates

The Target Group is mainly engaged in the provision of interior design services. The business performance of the Target Group is largely dependent on the experience and skills of its talents. The key management personnel and designers had largely contributed to the growth of the Target Group through the demonstration of their expertise and skills to understand the needs of the customers. Moreover, some customers of the Target Group may specify the criteria in selecting design team members. As the quality of the Target Group’s design is the key to its business, attracting and retaining talent is an important task of its business strategy and expansion. Failure to retain its existing designers to support its future operations and growth may adversely affect its business and growth.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of the Target Group’s financial position and results of operations as included in this circular is based on the combined financial statements prepared using the significant accounting policies set forth in note 3 of the Accountants’ Report as set out in Appendix III to this circular, which conform with the HKFRSs.

In the application of the Target Group’s accounting policies which conform with the HKFRSs, the use of certain critical accounting estimates is required. It also requires the directors of the Target Company to exercise their judgement in the process of applying the Target Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Target Group’s financial information are disclosed in note 4 of the Accountants’ Report set out in Appendix III to this circular.

All HKFRSs effective for accounting period commencing from 1 April 2018 together with the relevant transitional provisions, have been consistently applied by the Target Group in preparation of the Target Group’s financial information throughout the Track Record Period, except that the Target Group has adopted HKFRS 9 “Financial Instruments” retrospectively to items that existed at 1 April 2018 in accordance with the transition requirements and applied HKAS 39 “Financial Instruments: Recognition and Measurement” for the three years ended 31 March 2018, without restating the comparative information.

Adoption of HKFRS 9 and HKFRS 15

HKFRS 9 “Financial Instruments” and HKFRS 15 “Revenue from Contracts with Customers” are both effective for financial periods beginning on or after 1 January 2018. The effects of HKFRS 9 and HKFRS 15 on the Target Group’s historical financial information are summarised below:

HKFRS 9

The Target Group has adopted HKFRS 9 retrospectively to items that existed at 1 April 2018 in accordance with the transition requirements and applied HKAS 39 “Financial Instruments: Recognition and Measurement” for the three years ended 31 March 2018. HKFRS 9 introduces new requirements for classification and measurement of financial assets, new rules for hedge accounting and a new impairment model for financial assets. The classification and measurement effects of HKFRS 9 are set forth in note 1(a) of the Accountants’ Report.

FINANCIAL INFORMATION OF THE TARGET GROUP

HKFRS 9 requires the Target Group to recognise and measure either a 12-month expected credit loss or lifetime expected credit loss, which mainly affects the Target Group’s trade receivables, other receivables and contract assets. The Target Group has not recognised loss allowance upon the initial recognition of HKFRS 9 as the amount involved is insignificant.

Based on the assessment by the directors of the Target Company, the adoption of HKFRS 9 did not have any material impact on the Target Group’s financial position and performance when compared to that of HKAS 39.

HKFRS 15

The Target Group has adopted HKFRS 15 “Revenue from Contracts with Customers”, which has been applied retrospectively throughout the Track Record Period. Under this standard, revenue is measured based on the consideration specified in a contract with a customer, excluding amounts collected on behalf of third parties. The Target Group recognises revenue when it transfers part or all of the work-in-progress of a contract to a customer, such as upon presentation of design plans.

Revenue from a fixed-price interior design contract is generally recognised over time based on the contract costs incurred to date, which is mainly the time cost of the design professionals, as a percentage of total budgeted time costs. The Target Group recognises revenue over time only if it can reasonably measure the progress of satisfying a performance obligation (i.e. each service promised to be provided to the customer) arising from a contract. If the Target Group cannot reasonably measure the outcome (for example, in the early stages of a contract) but expects to recover the costs incurred in satisfying the performance obligation, then it recognised revenue to the extent of the costs incurred. If a performance obligation is not satisfied over time, the Target Group recognises revenue at a point in time (when a performance obligation becomes satisfied).

Estimates of revenues, costs or extent of progress towards completion of a performance obligation are revised if circumstances change. Any resulting increases or decreases in estimated revenues or costs are reflected in profit or loss in the period in which the circumstances that give rise to the revision become known by the management.

When the cumulative revenue from an interior design contract exceeds progress billings, a contract asset is recognised. When progress billings exceed cumulative revenue from an interior design contract, a contract liability is recognised.

Contract assets represent the Target Group’s right to consideration in exchange for services that the Target Group has transferred to customers when that right is conditional on something other than the passage of time. Any unconditional rights to consideration other than the passage of time are presented separately as trade receivables.

Contract liabilities represent the Target Group’s obligations to transfer services to customers for which the Target Group has received consideration from the customers.

The directors of the Target Company confirmed that the impact of the adoption of HKFRS 15 will not affect the ability of the Target Group to meet the minimum cash flows requirements under Rule

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FINANCIAL INFORMATION OF THE TARGET GROUP

11.12A of the GEM Listing Rules. The Target Group would still be able to meet the aforesaid requirements if the Target Group applied HKAS 11 “Construction Contracts” and HKAS 18 “Revenue”, which are superseded by HKFRS 15. The directors of the Target Company consider that the application of HKFRS 15 did not have material impact on the Target Group’s financial position and performance compared to the requirements of HKAS 11 and HKAS 18.

HKFRS 16

HKFRS 16 “Leases” replaces HKAS 17 “Leases” and related interpretations. The new standard introduces a single accounting model for lessees. For lessees the distinction between operating and finance leases is removed and lessees will recognise right-of-use assets and lease liabilities for all leases (with optional exemptions for short-term leases and leases of low value assets). HKFRS 16 carries forward the accounting requirements for lessors in HKAS 17 substantially unchanged. Lessors will therefore continue to classify leases as operating or financing leases.

Based on a preliminary assessment, the standard will affect primarily the accounting for the Target Group’s operating leases. The Target Group’s leases for office premises, director’s quarter and office equipment are currently classified as operating leases and the lease payments are recognised as an expense on a straight-line basis over the lease term. Under HKFRS 16, the Target Group may need to recognise and measure a liability at the present value of the future minimum lease payments and recognise a corresponding right-of-use asset for these leases. The interest expense on the lease liability and depreciation on the right-of-use asset will be recognised in profit or loss. The Target Group’s assets and liabilities will increase and the timing of expense recognition will also be impacted as a result.

As disclosed in note 33 to the Accountants’ Report, the Target Group’s future minimum lease payments under non-cancellable operating leases amounted to approximately HK$7.6 million as at 30 November 2018. These leases are expected to be recognised as lease liabilities, with corresponding right-of-use assets, once HKFRS 16 is adopted. The amounts will be adjusted for the effects of discounting and the transition reliefs available to the Target Group.

The directors of the Target Company do not anticipate that the application of HKFRS 16 in the future will have a material impact in the Target Group’s future financial position and performance.

Critical judgements and key estimates

Methods for measuring progress towards complete satisfaction of a performance obligation

As detailed above, revenue from interior design and execution services is recognised over time based on the contract costs incurred to date as a percentage of total forecast costs to depict the transfer of services to customers. In determining the appropriate method for measuring progress towards complete satisfaction of a performance obligation, the Target Group considered the nature of interior design and execution services that the Target Group promised to transfer to its customers and selected the method of

FINANCIAL INFORMATION OF THE TARGET GROUP

measuring the progress that best depicts the transfer of products or services to its customers. In the absence of surveys of performance completed to date or appraisals of results achieved, output methods would not faithfully depict the Target Group's performance in satisfying a performance obligation when the Target Group has performed work-in-progress or finished goods controlled by customers that are not included in the measurement of the output.

Fulfillment costs for anticipated contracts

Determining whether fulfillment costs qualify for capitalisation requires judgment. In making this judgement, if the costs incurred are not within the scope of another HKFRS or HKAS, the Target Group considered if the costs relate directly to an anticipated contract that the Target Group can specifically identify, if the costs generate or enhance resources of the Target Group that will be used in satisfying performance obligations in the future, and if the costs are expected to be recovered.

Revenue and profit recognition

Apart from certain service contracts in which the Target Group bills a fixed amount for each duration of services provided (revenue recognised in the amount to which the Target Group has a right to invoice), revenue and profit recognition on the provision of interior design and execution services is dependent on the estimation of the progress of the satisfaction of performance obligation of an interior design contract over time. Based on the Target Group's past experience and the nature of the contract activities undertaken by the Target Group, the Target Group estimates the point at which it considers the work is sufficiently advanced such that the costs to complete and the revenue can be reliably estimated. Actual outcome in terms of total forecast costs and/or revenue may be higher or lower than those estimated at the end of the reporting period, which would affect the revenue and profit recognised in future years.

Impairment loss for bad and doubtful debts

Prior to the adoption of HKFRS 9, the Target Group determines impairment loss for bad and doubtful debts based on assessments of the recoverability of the trade and other receivables, including the current creditworthiness and the past collection history of each customer or debtor. Impairments arise where events or changes in circumstances indicate that the balances may not be collectible. The identification of bad and doubtful debts, in particular of a loss event, requires the use of judgement and estimates. Where the actual result is different from the original estimate, such difference will impact the carrying value of the trade and other receivables and doubtful debt expenses in the year in which such estimate has been changed. No receivables were considered to be doubtful by the management for the three years ended 31 March 2018.

Upon the application of HKFRS 9, the Target Group estimates the amount of loss allowance for expected credit losses on items subject to expected credit losses (including trade receivables, other receivables and contract assets) based on the credit of the respective items. The loss allowance amount is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows after taking into consideration of expected future credit loss of the item. The assessment of the credit risk of the items subject to expected credit losses involves high degree of estimation and uncertainty. When the actual future cash flows are different from expected, a material impairment loss or

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FINANCIAL INFORMATION OF THE TARGET GROUP

a material reversal of impairment loss may arise, accordingly. As at 30 November 2018, the Target Group has not recognised loss allowance for its trade receivables, other receivables and contract assets.

Fair value measurements of financial assets

During the year ended 31 March 2018, the Target Group entered into a life insurance policy with an insurance company for Mr. Norman Chan. Under such key management insurance policy, the Target Group is the beneficiary and policy holder. The Target Group paid a single premium of US$1,025,000 for the policy. The Target Group may request a surrender of this policy at any time and receive cash based on the cash value of the policy at the date of withdrawal, which is determined by the insurance company by reference to the premium paid, plus accumulated interest earned and minus accumulated insurance policy expenses charged and any surrender charge. The amount of surrender charge decreases over time and will not be required from the 10th year of contract conclusion onwards. The Target Group is entitled to interest at a rate of 4% per annum applied on the balance of the cash value for two years from the date of the payment of the premium. Commencing from the third year, the interest rate is 1.25% per annum plus a premium determined by the insurance company on an annual basis. After the first ten policy years, no guaranteed minimum interest rate is applied on the cash value.

Prior to 1 April 2018, the key management insurance policy, classified as loans and receivables under HKAS 39 "Financial Instruments: Recognition and Measurement", is recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, based on the expected life of the contract, less impairment. On 1 April 2018, the Target Group adopted HKFRS 9 "Financial Instruments", and the key management insurance policy is then classified as financial assets at fair value through profit or loss under HKFRS 9 and measured at fair value through profit or loss. Changes in the fair value of the key management insurance policy (including interest) are recognised in profit or loss. The fair value of key management insurance policy as at 30 November 2018 amounted to approximately HK$8,184,000.

The Target Group's financial controller is responsible for the assessment and evaluation of the fair value of the key management insurance policy for financial reporting purposes. The fair value of key management insurance policy is determined using the discounted cash flow model. The duration of the cash flows and the specific timing of inflows and outflows are determined by conditions in accordance with the terms of the insurance contract. The periodic cash flow is estimated as gross redemption value and interest income less surrender charges. The series of periodic net income for the contracting period is then discounted. Management estimates and assumptions are reviewed periodically and are adjusted if necessary. Should any of the estimates and assumptions changes, it may lead to a change in the fair value of the key management insurance policy.

In relation to the valuation of the financial assets at fair value through profit or loss, the directors of the Target Company, based on the advice of the Target Group's financial controller, performed the following procedures: (i) reviewed the terms of the key management insurance policy; and (ii) carefully considered all information especially those unobservable inputs, such as the discount rate and interest rate used in the discounted cash flow model. Based on the above procedures, the directors of the Target Company are of the view that the valuation of the Target Group's financial assets at fair value through profit or loss is fair and reasonable.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Details of the fair value measurement of the key management insurance policy, particularly the level in fair value hierarchy, reconciliation of the key management insurance policy measured at fair value, valuation technique, significant unobservable inputs and relationship of significant unobservable inputs to fair value are disclosed in note 5(c) to the Accountants' Report issued by the reporting accountants of the Target Group in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200 Accountants' Reports on Historical Financial Information in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants in Appendix III to this circular. The reporting accountants' opinion on the financial information of the Target Group for the Track Record Period as a whole is set out on III-2 of Appendix III to this circular.

In relation to the valuation analysis performed by the financial controller of the Target Group on financial assets at fair value through profit or loss, the Sponsor had conducted the following due diligence work, including but not limited to (i) reviewed the relevant notes in the Accountants' Report including the accounting policies and fair value measurements; and (ii) discussed with the management of the Target Group and the reporting accountants of the Target Group about the key basis and assumptions for the valuation of the financial assets at fair value through profit or loss.

Having considered the work performed by the directors of the Target Company and reporting accountants of the Target Group and the relevant due diligence work as stated above, nothing has come to the Sponsor's attention that would cause the Sponsor to question the valuation analysis performed by the financial controller of the Target Group on the financial assets at fair value through profit or loss.

Other critical accounting policies and estimates

Please refer to "Notes to the historical financial information – 3. Significant accounting policies and 4. Critical judgements and key estimates" of the Accountants' Report in Appendix III to this circular for other critical accounting policies and estimates applied in the preparation of the combined financial statements.

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FINANCIAL INFORMATION OF THE TARGET GROUP

SUMMARY OF RESULTS OF OPERATIONS

The Target Group’s combined statements of profit or loss and other comprehensive income during the Track Record Period are summarised below, which have been extracted from the Accountants’ Report set out in Appendix III to this circular. As such, the following sections should be read in conjunction with the Accountants’ Report.

	Year ended 31 March			Eight months ended 30 November
	2016	2017	2018	2017	2018
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Revenue	55,667	68,092	61,840	36,362	47,437
Cost of services	(21,366)	(26,377)	(26,597)	(17,167)	(19,267)
Gross profit	34,301	41,715	35,243	19,195	28,170
Other income	128	325	202	22	5
Other (losses)/gains	(1)	(555)	3,312	3,164	128
Administrative expenses	(15,325)	(15,366)	(18,295)	(11,921)	(13,677)
Other expenses	(346)	(400)	-	-	-
Profit from operations	18,757	25,719	20,462	10,460	14,626
Finance costs	-	(316)	(873)	(608)	(849)
Profit before tax	18,757	25,403	19,589	9,852	13,777
Income tax	(3,076)	(4,242)	(3,114)	(1,527)	(2,032)
Profit and total comprehensive income for the year/period	15,681	21,161	16,475	8,325	11,745

FINANCIAL INFORMATION OF THE TARGET GROUP

PRINCIPAL COMPONENTS OF RESULTS OF OPERATIONS

Revenue

	Year ended 31 March					Eight months ended 30 November
	2016		2017		2018	2017		2018
	HK$'000	%	HK$'000	%	HK$'000	%	HK$'000	%	HK$'000
						(unaudited)
Interior design and execution services	54,954	98.7	67,737	99.5	61,384	99.3	35,916	98.8	46,727
Colour-rendering services	523	0.9	198	0.3	454	0.7	444	1.2	360
Handling services	190	0.4	157	0.2	2	-	2	-	350
	55,667	100.0	68,092	100.0	61,840	100.0	36,362	100.0	47,437

During the Track Record Period, a major portion of the revenue with over 98% was generated from interior design and execution services. The rest of the revenue was derived from colour-rendering services and handling services. Revenue from handling services consists of income from the procurement of furniture, art pieces and other decorative items for customers.

The following table sets forth the revenue generated by types of projects during the Track Record Period:

	Year ended 31 March					Eight months ended 30 November
	2016		2017		2018	2017		2018
	HK$'000	%	HK$'000	%	HK$'000	%	HK$'000	%	HK$'000
						(unaudited)
Residential	34,210	61.5	47,271	69.4	46,665	75.5	25,412	69.9	35,344
Commercial	8,687	15.6	10,115	14.9	8,925	14.4	6,311	17.4	5,592
Show flat, sales office/gallery and others	12,770	22.9	10,706	15.7	6,250	10.1	4,639	12.7	6,501
	55,667	100.0	68,092	100.0	61,840	100.0	36,362	100.0	47,437

FINANCIAL INFORMATION OF THE TARGET GROUP

More than half of the Target Group’s revenue was derived from residential projects, which accounted for 61.5%, 69.4%, 75.5%, 69.9% and 74.5% of the Target Group’s total revenue for the three years ended 31 March 2018 and the eight months ended 30 November 2017 and 2018, respectively. Residential projects were mainly interior design projects for private residences and residential clubhouses. Commercial projects mainly represent interior design projects for hotels, offices, restaurants, bookstores and cinemas. During the three years ended 31 March 2018 and the eight months ended 30 November 2017 and 2018, commercial projects accounted for 15.6%, 14.9%, 14.4%, 17.4% and 11.8% of the Target Group’s total revenue, respectively. Show flat, sales office/gallery and others were mainly interior design projects for show houses, show flats, show suites and sale offices for customers’ property development projects. For the three years ended 31 March 2018 and the eight months ended 30 November 2017 and 2018, revenue from show flat, sales office/gallery and others amounted to 22.9%, 15.7%, 10.1%, 12.7% and 13.7% of the Target Group’s total revenue, respectively.

While most of the projects undertaken by the Target Group during the Track Record Period are related to properties located in Hong Kong, some customers may engage the Target Group for projects located outside Hong Kong. The table below sets forth the revenue generated by geographical location of the properties during the Track Record Period:

	Year ended 31 March					Eight months ended 30 November
	2016		2017		2018	2017		2018
	HK$'000	%	HK$'000	%	HK$'000	%	HK$'000	%	HK$'000
						(unaudited)
Hong Kong	39,939	71.8	55,708	81.9	51,069	82.6	29,079	80.0	40,421
Japan	-	-	-	-	-	-	-	-	1,518
Macau	1,772	3.2	3,415	5.0	989	1.6	539	1.5	675
Mainland China	4,532	8.1	3,142	4.6	3,480	5.6	2,586	7.1	868
Malaysia	-	-	2,733	4.0	544	0.9	523	1.4	73
Philippines	3,522	6.3	2,005	2.9	3,488	5.6	1,978	5.4	3,055
Sri Lanka	3,327	6.0	1,089	1.6	2,270	3.7	1,657	4.6	435
Singapore	2,575	4.6	-	-	-	-	-	-	-
Thailand	-	-	-	-	-	-	-	-	392
	55,667	100.0	68,092	100.0	61,840	100.0	36,362	100.0	47,437

The Target Group’s customers are mostly Hong Kong property developers and Hong Kong listed companies. Given the scale of the Target Group’s customers, their operations are often not restricted to Hong Kong only. Such customers may require interior design services from the Target Group for their overseas property development projects. During the Track Record Period, over 70% of the Target Group’s revenue was derived from projects located in Hong Kong with the rest mainly located in Japan, Macau, Mainland China, Malaysia, the Philippines, Sri Lanka, Singapore and Thailand.

FINANCIAL INFORMATION OF THE TARGET GROUP

Cost of services

	Year ended 31 March					Eight months ended 30 November
	2016		2017		2018	2017		2018
	HK$'000	%	HK$'000	%	HK$'000	%	HK$'000	%	HK$'000
						(unaudited)
Direct labour costs	21,055	98.5	26,067	98.8	25,805	97.0	16,570	96.5	18,513
Subcontracting costs	311	1.5	310	1.2	672	2.6	597	3.5	754
Others	-	-	-	-	120	0.4	-	-	-
	21,366	100.0	26,377	100.0	26,597	100.0	17,167	100.0	19,267

Cost of services of the Target Group primarily comprised direct staff costs, which were mainly the salaries of design professionals, and subcontracting costs. Excluding the senior management of the Target Group, the number of design professionals as at 31 March 2016, 2017 and 2018 and 30 November 2018 were 48, 53, 65 and 63, respectively. The Target Group considers that retaining talents is vital to the growth of the business and the Target Group offers attractive remuneration package to its employees.

The following sensitivity analysis illustrates the impact of hypothetical fluctuations in the Target Group's total cost of services on its profits during the Track Record Period. The hypothetical fluctuation rates are set at 10% with reference to the fluctuation in the average salaries of interior designers in the interior design industry in Hong Kong from 2013 to 2018 as shown in the section headed "Industry overview" in this circular:

	Year ended 31 March			Eight months ended 30 November
	2016	2017	2018	2018
	HK$'000	HK$'000	HK$'000	HK$'000
If the total cost of services had been 10% lower/higher
Changes in profit before tax	+/-2,137	+/-2,638	+/-2,660	+/-1,927
Changes in profit after tax (Note)	+/-1,784	+/-2,202	+/-2,221	+/-1,609
If the gross profit margin had been 10% higher/lower
Changes in profit before tax	+/-5,567	+/-6,809	+/-6,184	+/-4,744
Changes in profit after tax (Note)	+/-4,648	+/-5,686	+/-5,164	+/-3,961

Note: The Hong Kong profits tax rate of 16.5% is applied for the illustration of increase or decrease in profit after tax.

FINANCIAL INFORMATION OF THE TARGET GROUP

Gross profit and gross profit margin

Other income

Other income mainly comprised of bank interest income, interest income on key management insurance policy and sundry income. For the three years ended 31 March 2018 and the eight months ended 30 November 2017 and 2018, other income of the Target Group amounted to approximately HK$128,000, HK$325,000, HK$202,000, HK$22,000 and HK$5,000, respectively.

Other (losses)/gains

For the three years ended 31 March 2018 and the eight months ended 30 November 2017 and 2018, other (losses)/gains of the Target Group amounted to approximately HK$(1,000), HK$(555,000), HK$3.3 million, HK$3.2 million and HK$128,000, respectively. Other (losses)/gains mainly consisted of exchange gains or losses, gains or losses on disposals of property, plant and equipment and fair value gain on financial assets.

Administrative expenses

The following table sets out the administrative expenses by nature during the Track Record Period:

	Year ended 31 March					Eight months ended 30 November
	2016		2017		2018	2017		2018
	HK$'000	%	HK$'000	%	HK$'000	%	HK$'000	%	HK$'000	%
							(unaudited)
Staff costs and welfare	4,117	26.9	5,643	36.7	6,898	37.7	4,522	37.9	5,728	41.9
Rental expenses	1,734	11.3	3,349	21.8	4,682	25.6	3,037	25.5	3,290	24.1
Depreciation	1,888	12.3	1,872	12.2	1,652	9.0	1,177	9.9	950	6.9
Auditor's remuneration	190	1.2	947	6.2	1,340	7.3	840	7.0	1,094	8.0
Computer expenses	751	4.9	813	5.3	673	3.7	438	3.7	466	3.4
Travelling expenses	2,139	14.0	528	3.4	524	2.9	280	2.3	403	2.9
Entertainment	1,004	6.6	56	0.4	19	0.1	18	0.2	-	-
Others	3,502	22.8	2,158	14.0	2,507	13.7	1,609	13.5	1,746	12.8
	15,325	100.0	15,366	100.0	18,295	100.0	11,921	100.0	13,677	100.0

FINANCIAL INFORMATION OF THE TARGET GROUP

Staff costs mainly represent salaries, bonuses and allowances, retirement benefit scheme contributions and other benefits for the directors of the Target Company and administrative staff of the Target Group.

Depreciation represents the depreciation charges on the Target Group’s leasehold improvements, furniture and fixtures, office equipment and motor vehicles.

Others mainly include insurance, printing, office supplies and utilities.

Other expenses

Other expenses for the two years ended 31 March 2017 comprise wholly the tax penalty provision made for tax undercharge arising from accounting errors in relation to the recognition of contract revenue and associated direct costs in the statutory financial statements of the Principal Subsidiaries for the two years ended 31 March 2016. For further details, please refer to the paragraph headed “Discussion on selected components of the Target Group’s financial position during the Track Record Period – Tax liabilities” in this section.

Finance costs

The finance costs of the Target Group represent interest on bank loans. For the three years ended 31 March 2018 and the eight months ended 30 November 2017 and 2018, finance costs of the Target Group amounted to nil, approximately HK$316,000, HK$873,000, HK$608,000 and HK$849,000, respectively.

Income tax

During the Track Record Period, the Target Group’s revenue was derived in Hong Kong and the Target Group was subject to profits tax in Hong Kong. Hong Kong profits tax has been provided at a rate of 16.5% on the estimated assessable profits arising in Hong Kong for the Track Record Period. For further details, please refer to note 11 to the Accountants’ Report set out in Appendix III to this circular.

Pursuant to the rules and regulations of the BVI, the Target Group is not subject to any income tax in the BVI during the Track Record Period.

The Target Group’s effective tax rates for each of the three years ended 31 March 2018 and the eight months ended 30 November 2017 and 2018 were approximately 16.4%, 16.7%, 15.9%, 15.5% and 14.7%, respectively.

216

FINANCIAL INFORMATION OF THE TARGET GROUP

COMPARISON OF RESULTS OF OPERATIONS

The year ended 31 March 2017 compared with the year ended 31 March 2016

Revenue

Revenue of the Target Group increased by approximately HK$12.4 million, or approximately 22.3%, from approximately HK$55.7 million for the year ended 31 March 2016 to approximately HK$68.1 million for the year ended 31 March 2017. Such an increase was mainly attributable to the increase in number of interior design projects carried out by the Target Group, which increased from 86 for the year ended 31 March 2016 to 99 for the year ended 31 March 2017. In particular, the number of residential projects increased by 18 from 35 to 53 and the revenue from residential projects increased from approximately HK$34.2 million to HK$47.3 million, representing an increase of approximately HK$13.1 million.

Revenue from the Target Group’s largest customer during the Track Record Period, being Customer A, a blue chip listed property developer in Hong Kong, increased from approximately HK$10.4 million for the year ended 31 March 2016 to approximately HK$21.3 million for the year ended 31 March 2017. Such increase was mainly as a result of increased revenue from residential projects from Customer A. In particular, two newly commenced interior design projects for residential flats and clubhouses in Hong Kong aggregately contributed approximately HK$6.4 million revenue for the year ended 31 March 2017.

Cost of services

The cost of services of the Target Group increased from approximately HK$21.4 million for the year ended 31 March 2016 to approximately HK$26.4 million for the year ended 31 March 2017, representing an increase of around 23.5%. Such an increase was primarily due to the increase in the number of direct staff and direct staff costs, which was in line with the increase in revenue.

Gross profit and gross profit margin

The Target Group’s gross profit increased by approximately HK$7.4 million, or approximately 21.6%, from approximately HK$34.3 million for the year ended 31 March 2016 to approximately HK$41.7 million for the year ended 31 March 2017, which was in line with the increase in revenue of the Target Group for the year ended 31 March 2017.

The gross profit margin of the Target Group remained stable at approximately 61.6% for the year ended 31 March 2016 and approximately 61.3% for the year ended 31 March 2017.

Other income

Other income increased from approximately HK$128,000 for the year ended 31 March 2016 to approximately HK$325,000 for the year ended 31 March 2017. The increase was mainly due to the interest income on the key management insurance policy for Mr. Norman Chan, at approximately HK$135,000 for the year ended 31 March 2017, as compared to nil for the year ended 31 March 2016.

217

FINANCIAL INFORMATION OF THE TARGET GROUP

Other losses

Other losses increased to approximately HK$555,000 for the year ended 31 March 2017 from approximately HK$1,000 for the year ended 31 March 2016. Such increase was mainly caused by the loss on disposal of leasehold improvements, furniture and fixtures and office equipment of approximately HK$538,000 of the old office during the reallocation of office in the year ended 31 March 2017.

Administrative expenses

Overall, administrative expenses of the Target Group remained stable at approximately HK$15.3 million and HK$15.4 million for the two years ended 31 March 2017, respectively, which was mainly due to the increase in staff costs and rental expenses, netted off by the decrease in travelling expenses and entertainment.

Staff costs increased from approximately HK$4.1 million for the year ended 31 March 2016 to approximately HK$5.6 million for the year ended 31 March 2017, representing an increase of approximately HK$1.5 million. Such an increase was due to the increase in head counts, general pay rise and bonuses paid. Rental expenses increased by approximately HK$1.6 million during the year ended 31 March 2017, which was mainly caused by the higher rental of the new office premises.

Other expenses

Other expenses for the two years ended 31 March 2017 comprise wholly the tax penalty provision made for the tax undercharge arising from accounting errors in relation to the recognition of contract revenue and associated direct costs in the statutory financial statements of the Principal Subsidiaries for the two years ended 31 March 2016. For further details, please refer to the paragraph headed "Discussion on selected components of the Target Group's financial position during the Track Record Period - Tax liabilities" in this section.

Finance costs

Finance costs wholly represent interest on bank loans and amounted to approximately HK$316,000 for the year ended 31 March 2017, in contrast to nil for the year ended 31 March 2016. Such interest was from the bank loans drawn in the financial year ended 31 March 2017 amounting to approximately HK$46.4 million as at 31 March 2017.

Income tax

Income tax of the Target Group increased by approximately HK$1.1 million, or approximately 37.9%, from approximately HK$3.1 million for the year ended 31 March 2016 to approximately HK$4.2 million for the year ended 31 March 2017. Such increase was primarily due to the increase in the Target Group's profit before tax from approximately HK$18.8 million for the year ended 31 March 2016 to approximately HK$25.4 million for the year ended 31 March 2017, representing an increase of approximately 35.4%.

For the years ended 31 March 2016 and 2017, the effective tax rates of the Target Group were approximately 16.4% and 16.7%, respectively, which approximate to the Hong Kong profits tax rate of 16.5%.

218

FINANCIAL INFORMATION OF THE TARGET GROUP

Profit and total comprehensive income for the year

Profit and total comprehensive income for the year increased by approximately HK$5.5 million, or approximately 34.9%, from approximately HK$15.7 million for the year ended 31 March 2016 to approximately HK$21.2 million for the year ended 31 March 2017. Such increase was mainly attributable to the combined effect of the aforementioned items.

The year ended 31 March 2018 compared with the year ended 31 March 2017

Revenue

Revenue of the Target Group decreased by approximately HK$6.3 million, or approximately 9.2%, from approximately HK$68.1 million for the year ended 31 March 2017 to approximately HK$61.8 million for the year ended 31 March 2018. During the year ended 31 March 2018, revenue from Customer A, the Target Group’s largest customer, had decreased by approximately HK$6.6 million, from approximately HK$21.3 million for the year ended 31 March 2017 to approximately HK$14.7 million for the year ended 31 March 2018. Such decrease was mainly as a result of decreased revenue contribution from two residential projects in Hong Kong, which were both substantially complete during the year ended 31 March 2017. The two residential projects had contributed revenue of approximately HK$6.4 million during the year ended 31 March 2017, while only approximately HK$1.6 million of revenue was recognised from these two projects for the year ended 31 March 2018.

Cost of services

The cost of services increased slightly from approximately HK$26.4 million for the year ended 31 March 2017 to approximately HK$26.6 million for the year ended 31 March 2018. The increase was mainly due to the increase in direct staff costs, which was in line with the increase in the number of designers.

Gross profit and gross profit margin

The Target Group’s gross profit decreased by approximately HK$6.5 million, or approximately 15.5%, from approximately HK$41.7 million for the year ended 31 March 2017 to approximately HK$35.2 million for the year ended 31 March 2018, which was mainly due to the decrease in revenue for the year ended 31 March 2018 and the decrease in gross profit margin, which decreased to approximately 57.0% for the year ended 31 March 2018 from approximately 61.3% for the year ended 31 March 2017. The decrease in the gross profit margin was mainly due to amendments to design plans for some of the interior design projects as requested by the customers. Such amendments had incurred additional staff hours, in particular a hotel interior design project with Customer A, which has a contract sum of approximately HK$11.5 million. During the year ended 31 March 2018, the aforementioned hotel interior design project with Customer A had an overall gross profit margin of approximately 21.1% only. The directors of the Target Company consider that it is inevitable for customers to make back and forth comments that result in amendments and refinement of the design plan throughout the design process. The Target Group generally handles customers’ amendment requests at no additional charge. However, the directors of the Target Company are of the view that close and effective communication with

219

FINANCIAL INFORMATION OF THE TARGET GROUP

customers to collaborate ideas and directions in each of the design stages could avoid unnecessary amendments to design plans arising from misunderstanding and thereby minimise potential impact and losses on staff hours and resources. If the scope of work has changed significantly from the scope initially agreed, the Target Group may consider to renegotiate fees of the project.

Other income

Other income decreased from approximately HK$325,000 for the year ended 31 March 2017 to approximately HK$202,000 for the year ended 31 March 2018. This was mainly caused by the decrease in interest income from the key management insurance policy for Mr. Norman Chan, which was entered into by BTR HK in 2011 and disposed of on 21 September 2017. Subsequently, in March 2018, the Target Group entered into another life insurance policy with an insurance company to insure for Mr. Norman Chan. Due to the aforementioned new life insurance policy was entered into near the end of the year ended 31 March 2018, the interest income generated from such insurance policy was minimal.

Other (losses)/gains

Other gains amounted to approximately HK$3.3 million for the year ended 31 March 2018, as compared with losses of approximately HK$0.6 million for the year ended 31 March 2017. Such gain was mainly due to the Target Group disposed of its motor vehicles with carrying amount of approximately HK$1.4 million at a consideration of approximately HK$4.6 million to Waldorf Holdings, which is a related company controlled by Mr. Norman Chan and resulted in a gain on disposal of approximately HK$3.2 million.

Administrative expenses

Administrative expenses increased from approximately HK$15.4 million for the year ended 31 March 2017 to approximately HK$18.3 million for the year ended 31 March 2018, representing an increase of approximately HK$2.9 million. Such increase was primarily attributable to the increase in staff costs and rental expenses, which both increased by approximately HK$1.3 million. The increase in staff costs was due to more staff was hired during the year ended 31 March 2018, and the increase in rental expenses was because the Target Group had rented an additional premise for office use during the year ended 31 March 2018.

Other expenses

Other expenses for the two years ended 31 March 2017 are wholly the tax penalty provision made in relation to the tax undercharge arising from the accounting errors in relation to the recognition of contract revenue and associated direct costs in the statutory financial statements of the Principal Subsidiaries for the two years ended 31 March 2016. For further details, please refer to the paragraph headed "Discussion on selected components of the Target Group's financial position during the Track Record Period - Tax liabilities" in this section.

220

FINANCIAL INFORMATION OF THE TARGET GROUP

Finance costs

Finance costs increased to approximately HK$0.9 million for the year ended 31 March 2018 from approximately HK$0.3 million for the year ended 31 March 2017. The increase in finance costs was due to the loan of approximately HK$46.4 million as at 31 March 2017 was drawn in late 2016, and was repaid in February 2018. While the loans of approximately HK$25.0 million as at 31 March 2018 were drawn in March 2018 with minimal interest expenses incurred during the year ended 31 March 2018.

Income tax

Income tax of the Target Group decreased by approximately HK$1.1 million, or approximately 26.6%, from approximately HK$4.2 million for the year ended 31 March 2017 to approximately HK$3.1 million for the year ended 31 March 2018. The decrease is consistent with the decrease in the Target Group's profit before tax, which decreased from approximately HK$25.4 million for the year ended 31 March 2017 to approximately HK$19.6 million for the year ended 31 March 2018, representing a decrease of approximately 22.9%.

For the years ended 31 March 2017 and 2018, the effective tax rates of the Target Group were approximately 16.7% and 15.9%, respectively. The slight decrease in effective tax rate was mainly due to the decrease in non-tax deductible expenses.

Profit and total comprehensive income for the year

Profit and total comprehensive income for the year decreased by approximately HK$4.7 million, or approximately 22.1%, from approximately HK$21.2 million for the year ended 31 March 2017 to approximately HK$16.5 million for the year ended 31 March 2018. Such decrease was mainly attributable to the combined effect of the aforementioned items.

The eight months ended 30 November 2018 compared with the eight months ended 30 November 2017

Revenue

For the eight months ended 30 November 2018, revenue increased from approximately HK$36.4 million for the eight months ended 30 November 2017 to approximately HK$47.4 million, representing an increase of approximately HK$11.0 million or 30.5%. Though the number of projects with revenue contribution during the eight months ended 30 November 2017 and 2018 were relatively stable, which was 96 and 97, respectively, the number of residential projects with revenue contribution increased from 57 for the eight months ended 30 November 2017 to 62 for the eight months ended 30 November 2018. During the Track Record Period, residential projects were the Target Group's main source of income, which contributed over 60% of the Target Group's total revenue. For the eight months ended 30 November 2017 and 2018, revenue from residential projects was approximately HK$25.4 million and HK$35.3 million, respectively. Such increase in residential project revenue of approximately HK$9.9 million was mainly attributable to higher revenue from Customer A, the largest customer of the Target Group, a Hong Kong listed property developer and Customer J. Residential revenue from Customer A had increased by approximately HK$3.8 million, mainly due to the progression of a large project with contract sum of approximately HK$10 million, which contributed an increase of approximately HK$1.9 million. The higher residential revenue from the aforesaid Hong Kong listed property developer and Customer J was contributed by a project with contract sum of over HK$5 million and a project with contract sum of approximately HK$2.8 million, respectively. The aforesaid two projects had aggregately contributed an increase in revenue of over HK$3.4 million.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Cost of services

The cost of services of the Target Group increased from approximately HK$17.2 million for the eight months ended 30 November 2017 to approximately HK$19.3 million for the eight months ended 30 November 2018, representing an increase of around 12.2%. Such increase was primarily due to the increase in direct staff costs, which was in line with the increase in revenue.

Gross profit and gross profit margin

For the eight months ended 30 November 2018, gross profit amounted to approximately HK$28.2 million, which increased by approximately HK$9.0 million or 46.8% from approximately HK$19.2 million for the eight months ended 30 November 2017. The increase in gross profit was mainly due to the increase in revenue from residential projects during the eight months ended 30 November 2018, which increased by approximately HK$9.9 million. Gross profit margin increased from approximately 52.8% for the eight months ended 30 November 2017 to approximately 59.4% for the eight months ended 30 November 2018. The increase in the gross profit margin was mainly due to that during the eight months ended 30 November 2017, some of the customers had requested amendments to design plans, and additional staff hours were incurred for these projects. In particular, the Target Group had put in substantially higher staff costs for a hotel interior design project with a contract sum of approximately HK$11.5 million with Customer A. As a result, no gross profit was recognised for such project for the eight months ended 30 November 2017. The directors of the Target Company consider that it is inevitable for customers to make back and forth comments that result in amendments in design plans and generally handles customers' requests at no additional charge. Nevertheless, the directors of the Target Company are of the view that close and effective communication with customers to collaborate ideas and directions in each of the design stages could avoid unnecessary amendments to design plans arising from misunderstanding and thereby minimise potential impact and losses on staff hours and resources.

Other income

Other income amounted to approximately HK$22,000 and HK$5,000 for the eight months ended 30 November 2017 and 2018, respectively, and mainly represented interest from key management insurance policy and bank deposits.

Other gains

For the eight months ended 30 November 2017, the Target Group recorded other gains of approximately HK$3.2 million, while only approximately HK$128,000 was recorded for the eight months ended 30 November 2018. The significant decrease in other gains was mainly due to the one-off gain on disposal of motor vehicles of approximately HK$3.2 million for the eight months ended 30 November 2017.

Administrative expenses

Administrative expenses increased from approximately HK$11.9 million for the eight months ended 30 November 2017 to approximately HK$13.7 million for the eight months ended 30 November 2018, representing an increase of approximately HK$1.8 million or 14.7%. Such increase was primarily attributable to the increase in staff cost, which increased by approximately HK$1.2 million. The increase in staff costs was due to more administrative staff was hired during the eight months ended 30 November 2018 as compared with the same period last year.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Finance costs

Finance costs increased to approximately HK$0.8 million for the eight months ended 30 November 2018 from approximately HK$0.6 million for the eight months ended 30 November 2017. The increase in finance costs was due to the bank loans as at 30 November 2018 carried higher interest rates.

Income tax

Income tax of the Target Group increased by approximately HK$0.5 million, or approximately 33.1%, from approximately HK$1.5 million for the eight months ended 30 November 2017 to approximately HK$2.0 million for the eight months ended 30 November 2018. The increase in income tax is consistent with the increase in profit before tax, which increased from approximately HK$9.9 million for the eight months ended 30 November 2017 to approximately HK$13.8 million eight months ended 30 November 2018, representing an increase of approximately 39.8%.

The effective tax rates for the eight months ended 30 November 2017 and 2018 were approximately 15.5% and 14.7%, respectively. The lower than the Hong Kong Profits Tax rate of 16.5% for the eight months ended 30 November 2017 was mainly due to the Target Group's aggregate tax concession of approximately HK$105,000 for the year of assessment 2017/18. While the lower effective tax rate for the eight months ended 30 November 2018 was due to the introduction of two-tiered profit tax rates, where the first HK$2 million of assessable profit is subject to a lower tax rate of 8.25%, effective from the year of assessment 2018/19.

Profit and total comprehensive income for the period

Profit and total comprehensive income for the period increased by approximately HK$3.4 million, from approximately HK$8.3 million for the eight months ended 30 November 2017 to approximately HK$11.7 million for the eight months ended 30 November 2018. Such increase was mainly attributable to the combined effect of the aforementioned items.

LIQUIDITY AND CAPITAL RESOURCES

Overview

During the Track Record Period, the Target Group financed its operations through a combination of internally generated cash flows and bank loans. After the Completion, the directors of the Target Company expect that the Restructured Group will be funded by internally generated cash flows and bank loans.

FINANCIAL INFORMATION OF THE TARGET GROUP

Cash flows

The following table sets forth a condensed summary of the Target Group's combined statements of cash flows for the periods indicated:

	Year ended 31 March			Eight months ended 30 November
	2016	2017	2018	2017	2018
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Net cash generated from operating activities	25,169	8,845	15,410	16,482	31,035
Net cash used in investing activities	(20,538)	(43,769)	(34,287)	(9,891)	(574)
Net cash (used in)/generated from financing activities	(8,468)	41,143	12,128	(1,898)	(8,094)
Net (decrease)/increase in cash and cash equivalents	(3,837)	6,219	(6,749)	4,693	22,367
Cash and cash equivalents at the beginning of the year/period	23,960	20,123	26,342	26,342	19,593
Cash and cash equivalents at the end of the year/period	20,123	26,342	19,593	31,035	41,960

Operating activities

The Target Group derives its cash inflow from operating activities primarily from the receipt of payments from the Target Group's interior design projects. Cash outflow from the Target Group's operating activities primarily includes staff costs, subcontracting fees, and all other operating expenses such as office rental, utilities and office expenses.

Year ended 31 March 2016

For the year ended 31 March 2016, the Target Group recorded net cash generated from operating activities of approximately HK$25.2 million, primarily attributable to profit before tax of approximately HK$18.8 million, as adjusted to reflect mainly (i) depreciation of property, plant and equipment of approximately HK$1.9 million; (ii) insurance expenses of approximately HK$0.3 million; (iii) a decrease in contract cost assets of approximately HK$0.7 million; (iv) an increase in contract assets of approximately HK$2.7 million; (v) a decrease in trade and other receivables of approximately HK$4.6 million; (vi) an increase in contract liabilities of approximately HK$0.4 million; (vii) an increase in trade and other payables of approximately HK$0.6 million; and (viii) income tax refund of approximately HK$0.7 million.

FINANCIAL INFORMATION OF THE TARGET GROUP

Year ended 31 March 2017

For the year ended 31 March 2017, the Target Group recorded net cash generated from operating activities of approximately HK$8.8 million, primarily attributable to profit before tax of approximately HK$25.4 million, as adjusted to reflect mainly (i) depreciation of property, plant and equipment of approximately HK$1.9 million; (ii) loss on disposal of property, plant and equipment of approximately HK$0.5 million; (iii) interest expense of approximately HK$0.3 million; (iv) a decrease in contract cost assets of approximately HK$1.6 million; (v) a decrease in contract assets of approximately HK$5.9 million; (vi) an increase in trade and other receivables of approximately HK$23.5 million, which was driven by the large trade receivables billed near the end of the year ended 31 March 2017, where approximately HK$20.5 million of the trade receivables as at 31 March 2017 were aged within 60 days by invoice date; (vii) an increase in contract liabilities of approximately HK$1.9 million; (viii) an increase in trade and other payables of approximately HK$1.1 million; and (ix) income tax paid of approximately HK$6.2 million.

Year ended 31 March 2018

For the year ended 31 March 2018, the Target Group recorded net cash generated from operating activities of approximately HK$15.4 million, primarily attributable to profit before tax of approximately HK$19.6 million, as adjusted to reflect mainly (i) gain on disposal of property, plant and equipment of approximately HK$3.2 million; (ii) depreciation of property, plant and equipment of approximately HK$1.7 million; (iii) interest expense of approximately HK$0.9 million; (iv) a decrease in contract cost assets of approximately HK$0.4 million; (v) an increase in contract assets of approximately HK$0.3 million; (vi) an increase in trade and other receivables of approximately HK$5.8 million, which was mainly driven by the increase of approximately HK$9.1 million in trade receivables that were billed within 60 days, partly netted off by the decrease of approximately HK$4.8 million in trade receivables aged 61 to 90 days as compared with the balance as at 31 March 2017; (vii) an increase in contract liabilities of approximately HK$5.1 million, which was mainly due to the advance payments made by customers for two projects with contract sums of approximately HK$10.0 million and HK$11.0 million, respectively; (viii) an increase in trade and other payables of approximately HK$1.8 million; and (ix) income tax paid of approximately HK$4.7 million.

Eight months ended 30 November 2017

For the eight months ended 30 November 2017, the Target Group recorded net cash generated from operating activities of approximately HK$16.5 million, primarily attributable to profit before tax of approximately HK$9.9 million, as adjusted to reflect mainly (i) gain on disposal of property, plant and equipment of approximately HK$3.2 million; (ii) depreciation of property, plant and equipment of approximately HK$1.2 million; (iii) interest expense of approximately HK$0.6 million; (iv) a decrease in contract cost assets of approximately HK$0.2 million; (v) an increase in contract assets of approximately HK$8.6 million; (vi) a decrease in trade and other receivables of approximately HK$13.3 million; (vii) a decrease in contract liabilities of approximately HK$0.9 million; and (viii) an increase in trade and other payables of approximately HK$4.1 million.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Eight months ended 30 November 2018

For the eight months ended 30 November 2018, the Target Group recorded net cash generated from operating activities of approximately HK$31.0 million, primarily attributable to profit before tax of approximately HK$13.8 million, as adjusted to reflect mainly (i) depreciation of property, plant and equipment of approximately HK$1.0 million; (ii) interest expense of approximately HK$0.8 million; (iii) a decrease in contract cost assets of approximately HK$0.4 million; (iv) an increase in contract assets of approximately HK$6.9 million; (v) a decrease in trade and other receivables of approximately HK$26.8 million; (vi) a decrease in contract liabilities of approximately HK$4.7 million; (vii) an increase in trade and other payables of approximately HK$0.7 million; and (viii) income tax paid of approximately HK$0.7 million.

Investing activities

During the Track Record Period, the Target Group’s cash outflow from investing activities primarily consisted of purchase of property, plant and equipment, payment of key management insurance policy, advances to a director and to a related company.

Year ended 31 March 2016

For the year ended 31 March 2016, the Target Group recorded net cash used in investing activities of approximately HK$20.5 million which was mainly due to (i) purchases of property, plant and equipment of approximately HK$4.3 million; (ii) advance to a related company of approximately HK$16.0 million; and (iii) payment of key management insurance policy of approximately HK$0.3 million.

Year ended 31 March 2017

For the year ended 31 March 2017, the Target Group recorded net cash used in investing activities of approximately HK$43.8 million which was mainly due to (i) purchases of property, plant and equipment of approximately HK$2.4 million; (ii) advances to a director and a related company, which totalled to approximately HK$41.1 million; and (iii) payment of key management insurance policy of approximately HK$0.3 million.

Year ended 31 March 2018

For the year ended 31 March 2018, the Target Group recorded net cash used in investing activities of approximately HK$34.3 million which was mainly due to (i) purchases of property, plant and equipment of approximately HK$2.1 million; (ii) advances to a director and a related company, which totalled to approximately HK$24.2 million; and (iii) payment of key management insurance policy of approximately HK$8.1 million.

Eight months ended 30 November 2017

For the eight months ended 30 November 2017, the Target Group recorded net cash used in investing activities of approximately HK$9.9 million which was mainly due to (i) purchases of property, plant and equipment of approximately HK$1.9 million; and (ii) advance to a director of approximately HK$8.0 million.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Eight months ended 30 November 2018

For the eight months ended 30 November 2018, the Target Group did not have any material cash flows used in investing activities.

Financing activities

During the Track Record Period, the Target Group’s cash outflow from financing activities primarily consisted of dividend paid, bank loan interest payments and repayments to directors and bank loans. The cash inflow from investing activities primarily consisted of advances from directors and a related company and proceeds from bank loans.

Year ended 31 March 2016

For the year ended 31 March 2016, the Target Group recorded net cash used in financing activities of approximately HK$8.5 million which was mainly due to dividend paid of approximately HK$10.0 million partly netted off by the advance from directors of approximately HK$1.5 million.

Year ended 31 March 2017

For the year ended 31 March 2017, the Target Group recorded net cash from financing activities of approximately HK$41.1 million which was mainly due to the repayment to directors of approximately HK$5.0 million, advance from a related company of approximately HK$0.1 million, new bank loans raised of approximately HK$47.0 million, partly netted off by the repayment of bank loans and interest payments totalling to approximately HK$1.0 million.

Year ended 31 March 2018

For the year ended 31 March 2018, the Target Group recorded net cash from financing activities of approximately HK$12.1 million which was mainly due to dividend paid of approximately HK$10.5 million, new bank loans raised of approximately HK$25.0 million, partly netted off by the repayment of bank loans and interest payments totalling to approximately HK$2.4 million.

Eight months ended 30 November 2017

For the eight months ended 30 November 2017, the Target Group recorded net cash used in financing activities of approximately HK$1.9 million which was mainly due to repayment of bank loans and interest payments totalling to approximately HK$1.9 million.

Eight months ended 30 November 2018

For the eight months ended 30 November 2018, the Target Group recorded net cash used in financing activities of approximately HK$8.1 million which was mainly due to repayment to directors of approximately HK$16.7 million, repayment of bank loans, upfront fee paid for bank loan and interest payments totalling to approximately HK$3.4 million partly netted off by new bank loans raised of approximately HK$12.0 million.

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FINANCIAL INFORMATION OF THE TARGET GROUP

WORKING CAPITAL

The directors of the Target Company are of the opinion that, taking into consideration the internally generated funds and the bank loans presently available, the Target Group, in the absence of unforeseen circumstances, has sufficient working capital for present requirements for at least the next 12 months commencing on the date of this circular. The Sponsor concurs with the view of the directors of the Target Company.

NET CURRENT ASSETS

The following table sets forth the Target Group’s current assets and liabilities as at the dates indicated:

	As at 31 March			As at 30 November	As at 31 March
	2016
HK$’000	2017
HK$’000	2018
HK$’000	2018
HK$’000	2019
HK$’000
(unaudited)
Current assets
Contract cost assets	2,500	890	518	101	12
Contract assets	18,943	13,029	13,284	20,169	16,491
Trade and other receivables	3,815	27,273	33,089	6,297	17,287
Key management insurance policy	–	1,883	–	–	–
Amount due from a director	–	57,402	–	–	–
Amount due from a related company	16,567	–	–	–	–
Current tax assets	1,047	2,259	1,597	1,406	1,628
Bank and cash balances	20,123	26,342	19,593	41,960	20,258
	62,995	129,078	68,081	69,933	55,676
Current liabilities
Contract liabilities	1,090	3,017	8,107	3,369	5,850
Trade and other payables	892	1,988	3,753	4,451	3,579
Amounts due to directors	5,040	–	16,774	39	43
Amount due to a related company	171	–	–	–	–
Amount due to Whistle Up	–	–	–	50	50
Current tax liabilities	7,355	6,240	4,141	5,398	3,632
Bank loans	–	46,360	25,000	34,440	33,076
	14,548	57,605	57,775	47,747	46,230
Net current assets	48,447	71,473	10,306	22,186	9,446

FINANCIAL INFORMATION OF THE TARGET GROUP

The Target Group's net current assets increased by approximately HK$23.1 million to approximately HK$71.5 million as at 31 March 2017 as compared with that of approximately HK$48.4 million as at 31 March 2016. Such increase was primarily due to the Target Group's profit of approximately HK$21.2 million for the year ended 31 March 2017.

The Target Group's net current assets decreased by approximately HK$61.2 million to approximately HK$10.3 million as at 31 March 2018 as compared with that of approximately HK$71.5 million as at 31 March 2017. The decrease was primarily attributable to dividends of approximately HK$70.5 million declared during the year ended 31 March 2018, partly netted by the profit of approximately HK$16.5 million for the year ended 31 March 2018.

The Target Group's net current assets increased by approximately HK$11.9 million to approximately HK$22.2 million as at 30 November 2018 as compared with that of approximately HK$10.3 million as at 31 March 2018. The increase was due to the profit of approximately HK$11.7 million for the eight months ended 30 November 2018.

DISCUSSION ON SELECTED COMPONENTS OF THE TARGET GROUP'S FINANCIAL POSITION DURING THE TRACK RECORD PERIOD

Property, plant and equipment

The Target Group's property, plant and equipment mainly consist of leasehold improvements, furniture and fixtures, office equipment and motor vehicles. As at 31 March 2016, 2017 and 2018 and 30 November 2018, the carrying amount of property, plant and equipment amounted to approximately HK$4.3 million, HK$4.3 million, HK$3.2 million and HK$2.9 million, respectively. The balance decreased as at 31 March 2018 mainly due to the disposal of motor vehicles with carrying amount of approximately HK$1.4 million to Waldorf Holdings, a related company controlled by Mr. Norman Chan at a consideration of approximately HK$4.6 million. The balance further decreased as at 30 November 2018, mainly due to depreciation charge of approximately HK$1.0 million for the eight months ended 30 November 2018, partly netted off by additions of office equipment, furniture and fixtures and leasehold improvements of approximately HK$0.6 million.

Key management insurance policy

As at 31 March 2016, 2017 and 2018, the carrying amount of key management insurance policy amounted to approximately HK$1.5 million, HK$1.9 million and HK$8.0 million, respectively. As at 31 March 2016 and 2017, the insurance policy represented a life insurance policy for Mr. Norman Chan, and the beneficiary and policy holder being BTR HK. The premium payments were payable for 15 years and amounted to US$32,505 per annum.

Before its disposal in September 2017 as discussed below, the Target Group may request a surrender of the policy at any time and receive cash based on the cash value of the policy at the date of withdrawal, which is determined by the insurance company by reference to the accumulated gross premium paid, plus accumulated interest earned and minus accumulated insurance policy expenses charged and any surrender charge. The interest rate is determined by the insurance company on an annual basis.

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FINANCIAL INFORMATION OF THE TARGET GROUP

On 21 September 2017, the Target Group disposed of the key management insurance policy to Mr. Norman Chan at a consideration of approximately HK$1.9 million. Accordingly, as at 31 March 2017, the key management insurance policy was classified under current assets. Following the disposal, BTR HK is no longer the policy holder and the beneficiary of the key management insurance policy.

During the year ended 31 March 2018, BTR HK entered into another life insurance policy with an insurance company to insure for Mr. Norman Chan. A single premium of US$1,025,000 was paid for the policy. The Target Group may request a surrender of this policy at any time and receive cash based on the cash value of the policy at the date of withdrawal, which is determined by the insurance company by reference to the premium paid, plus accumulated interest earned and minus accumulated insurance policy expenses charged and any surrender charge. As at 31 March 2018, the Target Group’s bank loans are secured by the key management insurance policy.

As at 30 November 2018, due to the adoption of HKFRS 9, the key management insurance policy was reclassified as financial assets at fair value through profit or loss and amounted to approximately HK$8.2 million. As at 30 November 2018, the Target Group’s bank loans are secured by such key management insurance policy.

Contract cost assets/contract assets/contract liabilities

The Target Group’s revenue from interior design services is generally recognised over time by measuring the progress towards completed satisfaction of a performance obligation. The contract assets represent the Target Group’s rights to consideration for work completed but not billed at the respective reporting dates. The contract liabilities primarily represent the advanced consideration received from customers for which revenue is recognised based on the progress towards complete satisfaction of the related services (i.e. when progress billings exceed cumulative revenue from an interior design contract).

Contract cost assets represent fulfillment costs incurred prior to the contract establishment date for specifically anticipated contracts. In general, contract cost assets are the direct costs incurred to fulfil an anticipated contract (i.e. direct costs that arise from a particular contract that is expected to be entered into) which are expected to be recovered. Contract cost assets include direct labour costs, subcontracting costs and other direct costs. In principle, the Target Group will only commence working on interior design projects when formal contracts with customers are entered into. However, in some occasions when the major terms and conditions have been agreed with a customer, and only pending the finalisation of the formal contract, the Target Group may commence the design work of such anticipated contract upon customer request, after considering the relationship and track record with the customer. Any direct fulfillment costs arising before the entering into of a formal contract are recognised as contract cost assets.

As the business of the Target Group is project-based, the contract cost assets, contract assets and contract liabilities balances are affected by the number and scale of projects undertook and/or the timing of billing near the end of each reporting period.

230

FINANCIAL INFORMATION OF THE TARGET GROUP

As at 31 March 2016, 2017 and 2018 and 30 November 2018, contract assets amounted to approximately HK$18.9 million, HK$13.0 million, HK$13.3 million and HK$20.2 million, respectively. The top five customers by revenue contribution for each of the financial year/period during the Track Record Period contributed approximately 67.7%, 57.6%, 42.4% and 50.2% of the contract assets balance as at 31 March 2016, 2017 and 2018 and 30 November 2018, respectively. Contract liabilities as at 31 March 2016, 2017 and 2018 and 30 November 2018 were approximately HK$1.1 million, HK$3.0 million, HK$8.1 million and HK$3.4 million, respectively. The top five customers by revenue contribution for each of three years ended 31 March 2018 and the eight months ended 30 November 2018 contributed approximately 63.6%, 31.0%, 41.4% and 18.0% of the contract liabilities balance as at 31 March 2016, 2017 and 2018 and 30 November 2018, respectively.

Contract cost assets

The following tables set out the details of the top projects by contract cost assets balance as at 31 March 2016, 2017 and 2018 and 30 November 2018:

As at 31 March 2016

	Customer	Types of project	Contract cost assets balance as at 31 March 2016 HK$'000	% of total contract cost assets %
1.	Customer A	Residential	875	35.0
2.	Customer A	Residential	485	19.4
3.	Customer C	Commercial	359	14.4
4.	Customer A	Commercial	279	11.2
5.	Customer F	Residential	181	7.2
			2,179	87.2
Others			321	12.8
			2,500	100.0

As at 31 March 2016, there were a total of 13 anticipated contracts that contributed to the contract cost assets balance as at 31 March 2016. During the year ended 31 March 2017, 12 of the 13 anticipated contracts were subsequently entered into and had revenue contribution. The remaining anticipated contract was entered into during the year ended 31 March 2018 and had revenue contribution during the same period. During the year ended 31 March 2017, contract cost assets balance as at 31 March 2016 of approximately HK$2.5 million was recognised as cost of services, and the corresponding revenue generated amounted to approximately HK$8.7 million.

FINANCIAL INFORMATION OF THE TARGET GROUP

As at 31 March 2017

	Customer	Types of project	Contract cost assets balance as at 31 March 2017 HK$’000	% of total contract cost assets %
1.	Customer H	Show flat, sales office/ gallery and others	252	28.3
2.	Customer A	Residential	231	26.0
3.	A property developer	Residential	163	18.3
4.	Customer B	Residential	116	13.0
5.	Customer C	Residential	71	8.0
			833	93.6
Others			57	6.4
			890	100.0

As at 31 March 2017, there were a total of 9 anticipated contracts that contributed to the contract cost assets balance as at 31 March 2017. During the year ended 31 March 2018, all of the 9 anticipated contracts were subsequently entered into and had revenue contribution. During the year ended 31 March 2018, the contract cost assets balance as at 31 March 2017 of approximately HK$0.9 million was wholly recognised as cost of services, and the corresponding revenue generated amounted to approximately HK$2.5 million.

As at 31 March 2018

	Customer	Types of project	Contract cost assets balance as at 31 March 2018 HK$’000	% of total contract cost assets %
1.	A property developer	Residential	275	53.1
2.	A property developer	Residential	150	29.0
3.	Customer J	Residential	81	15.6
4.	Customer J	Residential	12	2.3
			518	100.0

FINANCIAL INFORMATION OF THE TARGET GROUP

As at 31 March 2018, there were a total of 4 anticipated contracts that contributed to the contract cost assets balance as at 31 March 2018. During the eight months ended 30 November 2018, all of the 4 anticipated contracts were subsequently entered into and had revenue contribution. During the eight months ended 30 November 2018, the contract cost assets balance as at 31 March 2018 of approximately HK$0.5 million was wholly recognised as cost of services, and the corresponding revenue generated amounted to approximately HK$1.0 million.

As at 30 November 2018

	Customer	Types of project	Contract cost assets balance as at 30 November 2018 HK$’000	% of total contract cost assets %
1	Customer A	Residential	81	80.2
2	Customer J	Residential	15	14.9
3	Customer J	Residential	3	2.9
4	Customer J	Residential	2	2.0
			101	100.0

As at 30 November 2018, there were a total of 4 anticipated contracts that contributed to the contract cost assets balance as at 30 November 2018. Up to the Latest Practicable Date, 2 of the 4 anticipated contracts were subsequently entered into and had revenue contribution. Up to 31 March 2019, approximately HK$96,000 of the contract cost assets balance as at 30 November 2018 was recognised as cost of services, and the corresponding revenue generated amounted to approximately HK$349,000.

The following table sets forth an ageing analysis of the contract cost assets as at the end of each reporting period:

	As at 31 March			As at 30 November
	2016 HK$’000	2017 HK$’000	2018 HK$’000	2018 HK$’000
Contract cost assets
- Within one year	1,765	852	518	101
- More than one year	735	38	-	-
	2,500	890	518	101

FINANCIAL INFORMATION OF THE TARGET GROUP

Subsequent to 30 November 2018 and up to 31 March 2019, approximately HK$96,000 or 95.0% of the contract cost assets balance as at 30 November 2018 had been recognised as cost of services.

Contract assets

Contract assets represent the Target Group’s rights to consideration for project work completed but not billed at the respective reporting dates. The following tables set out the details of the top projects by contract assets balance as at 31 March 2016, 2017 and 2018 and 30 November 2018:

As at 31 March 2016

	Customer	Types of project	Contract Sum HK$ million	Commencement date	Completion date	Contract assets balance as at 31 March 2016 HK$’000	% of total contract assets balance %
1.	Customer D	Residential	6.0	July 2015	February 2018	2,525	13.3
2.	Customer B	Residential	6.5	May 2015	On-going	2,210	11.7
3.	Customer A	Residential	4.6	December 2015	On-going	1,935	10.2
4.	An individual	Residential	1.5	July 2015	November 2016	1,155	6.1
5.	Customer E	Residential	1.8	May 2015	March 2018	1,138	6.0
6.	Customer C	Residential	8.0	March 2013	On-going	640	3.4
7.	A property developer	Residential	4.6	September 2011	January 2018	634	3.3
8.	Customer A	Residential	12.0	April 2015	On-going	625	3.3
9.	Customer E	Commercial	2.0	July 2011	June 2016	600	3.2
10.	Customer E	Residential	7.3	October 2013	On-going	565	3.0
						12,027	63.5
Others						6,916	36.5
						18,943	100.0

FINANCIAL INFORMATION OF THE TARGET GROUP

As at 31 March 2017

| | Customer | Types of project | Contract Sum
HK$ million | Commencement date | Completion date | Contract assets balance as at 31 March 2017
HK$'000 | % of total contract assets balance
% |
| --- | --- | --- | --- | --- | --- | --- | --- |
| 1. | Customer A | Residential | 12.0 | April 2015 | On-going | 1,775 | 13.6 |
| 2. | A property developer | Commercial | 11.0 | March 2014 | On-going | 1,650 | 12.7 |
| 3. | Customer B | Residential | 6.5 | May 2015 | On-going | 1,495 | 11.5 |
| 4. | A property developer | Residential | 6.0 | June 2016 | On-going | 1,283 | 9.8 |
| 5. | Customer D | Residential | 6.0 | July 2015 | February 2018 | 990 | 7.6 |
| 6. | Customer C | Residential | 8.0 | March 2013 | On-going | 700 | 5.4 |
| 7. | A Property developer | Residential | 3.8 | November 2014 | On-going | 646 | 5.0 |
| 8. | Customer C | Residential | 6.5 | August 2014 | On-going | 590 | 4.5 |
| 9. | Customer E | Residential | 7.3 | October 2013 | On-going | 560 | 4.3 |
| 10. | Customer D | Residential | 2.3 | April 2016 | On-going | 428 | 3.3 |
| | | | | | | 10,117 | 77.7 |
| | | | | | | 2,912 | 22.3 |
| | | | | | | 13,029 | 100.0 |

FINANCIAL INFORMATION OF THE TARGET GROUP

As at 31 March 2018

	Customer	Types of project	Contract Sum HK$ million	Commencement date	Completion date	Contract assets balance as at 31 March 2018 HK$’000	% of total contract assets balance %
1.	A property developer	Residential	4.7	July 2017	On-going	1,410	10.6
2.	Customer C	Residential	8.0	March 2013	On-going	900	6.8
3.	A property developer	Residential	6.0	June 2016	On-going	817	6.2
4.	Customer C	Residential	6.5	August 2014	On-going	743	5.6
5.	An individual	Residential	5.0	October 2016	On-going	650	4.9
6.	A property developer	Residential	4.5	September 2013	On-going	630	4.7
7.	A non-property developer	Commercial	1.3	June 2017	On-going	550	4.1
8.	Customer A	Residential	12.0	April 2015	On-going	535	4.0
9.	Customer A	Residential	4.8	May 2016	On-going	480	3.6
10.	A property developer	Residential	2.0	May 2017	On-going	440	3.3
						7,155	53.8
Others						6,129	46.2
						13,284	100.0

FINANCIAL INFORMATION OF THE TARGET GROUP

As at 30 November 2018

| | Customer | Types of project | Contract Sum
HK$ million | Commencement date | Completion date | Contract assets
balance as at 30 November 2018
HK$’000 | % of total contract assets
balance
% |
| --- | --- | --- | --- | --- | --- | --- | --- |
| 1. | A property developer | Residential | 4.5 | September 2013 | On-going | 1,305 | 6.5 |
| 2. | Customer E | Residential | 7.3 | October 2013 | On-going | 1,267 | 6.3 |
| 3. | Customer A | Residential | 10.0 | September 2016 | On-going | 1,039 | 5.1 |
| 4. | Customer A | Residential | 8.5 | September 2015 | On-going | 980 | 4.9 |
| 5. | Customer D | Residential | 4.8 | February 2014 | On-going | 912 | 4.5 |
| 6. | Customer A | Residential | 12.0 | April 2015 | On-going | 865 | 4.3 |
| 7. | Customer A | Residential | 5.0 | February 2015 | On-going | 836 | 4.1 |
| 8. | An individual | Residential | 5.0 | October 2016 | On-going | 750 | 3.7 |
| 9. | Customer C | Residential | 6.5 | August 2014 | On-going | 651 | 3.2 |
| 10. | Customer G | Residential | 7.3 | February 2017 | On-going | 581 | 2.9 |
| | | | | | | 9,186 | 45.5 |
| Others | | | | | | 10,983 | 54.5 |
| | | | | | | 20,169 | 100.0 |

The following table sets forth an ageing analysis of the contract assets as at the end of each reporting period:

	As at 31 March			As at 30 November 2018
	2016
HK$’000	2017
HK$’000	2018
HK$’000	HK$’000
Contract assets
- Within one year	17,191	12,865	12,949	19,062
- More than one year	1,752	164	335	1,107
	18,943	13,029	13,284	20,169

FINANCIAL INFORMATION OF THE TARGET GROUP

Over 90% of the contract assets balance as at 31 March 2016 and 30 November 2018 was aged within one year and over 95% of the contract assets balance as at 31 March 2017 and 2018 were aged within one year. Subsequent to 30 November 2018 and up to the Latest Practicable Date, approximately HK$14.5 million or 71.9% of the contract assets balance as at 30 November 2018 had been billed and recognised as trade receivables. Of the aforementioned balance of approximately HK$14.5 million subsequently billed and recognised as trade receivables, approximately HK$12.3 million was settled by the customers.

Contract liabilities

Contract liabilities primarily represent the advanced consideration received from customers, which is resulted when progress billings exceed cumulative revenue from an interior design contract. The top projects by contract liabilities balance as at 31 March 2016, 2017 and 2018 and 30 November 2018 were as below:

As at 31 March 2016

	Customer	Types of project	Contract Sum HK$ million	Commencement date	Completion date	Contract liabilities balance as at 31 March 2016 HK$'000	% of total contract liabilities balance %
1.	Customer A	Residential	8.5	September 2015	On-going	471	43.2
2.	A non-property developer	Residential	2.5	January 2016	On-going	250	22.9
3.	A property developer	Show flat, sales office/gallery and others	0.1	October 2016	October 2016	110	10.1
4.	Customer C	Residential	6.5	August 2014	On-going	102	9.4
5.	Customer D	Residential	4.8	February 2014	On-going	96	8.8
						1,029	94.4
Others						61	5.6
						1,090	100.0

FINANCIAL INFORMATION OF THE TARGET GROUP

As at 31 March 2017

	Customer	Types of project	Contract Sum HK$ million	Commencement date	Completion date	Contract liabilities balance as at 31 March 2017 HK$’000	% of total contract liabilities balance %
1.	A non-property developer	Residential	2.5	January 2016	On-going	699	23.2
2.	Customer E	Residential	4.0	June 2016	On-going	590	19.6
3.	Customer B	Residential	1.9	August 2015	On-going	342	11.3
4.	Customer A	Residential	4.8	May 2016	On-going	192	6.4
5.	A property developer	Residential	4.5	September 2013	On-going	180	6.0
						2,003	66.5
Others						1,014	33.5
						3,017	100.0

FINANCIAL INFORMATION OF THE TARGET GROUP

As at 31 March 2018

	Customer	Types of project	Contract Sum HK$ million	Commencement date	Completion date	Contract liabilities balance as at 31 March 2018 HK$’000	% of total contract liabilities balance %
1.	A property developer	Commercial	11.0	March 2014	On-going	1,849	22.8
2.	Customer A	Residential	10.0	June 2016	On-going	1,774	21.9
3.	Customer F	Residential	2.0	March 2018	On-going	920	11.3
4.	Customer A	Commercial	11.5	December 2016	On-going	690	8.5
5.	A property developer	Residential	4.0	February 2017	On-going	560	6.9
						5,793	71.4
Others						2,314	28.6
						8,107	100.0

As at 30 November 2018

	Customer	Types of project	Contract Sum HK$ million	Commencement date	Completion date	Contract liabilities balance as at 30 November 2018 HK$’000	% of total contract liabilities balance %
1.	A property developer	Commercial	11.0	March 2014	On-going	1,187	35.2
2.	Customer J	Residential	2.8	January 2018	On-going	364	10.8
3.	Customer B	Residential	3.0	January 2019	On-going	300	8.9
4.	Customer J	Residential	4.8	February 2018	On-going	235	7.0
5.	Customer D	Residential	2.3	April 2016	On-going	203	6.0
						2,289	67.9
Others						1,080	32.1
						3,369	100.0

FINANCIAL INFORMATION OF THE TARGET GROUP

The following table sets forth an ageing analysis of the contract liabilities as at the end of each reporting period:

	As at 30 November
	2016	2017	2018
	HK$'000	HK$'000	HK$'000
Contract liabilities
- Within one year	1,090	2,818	7,777
- More than one year	-	199	330
	1,090	3,017	8,107

Subsequent to 30 November 2018 and up to 31 March 2019, approximately HK$1.9 million or 57.8% of the contract liabilities balance as at 30 November 2018 was recognised as revenue.

Trade and other receivables

The following table sets forth a breakdown of the Target Group's trade and other receivables as at the end of each reporting period:

	As at 30 November
	2016	2017	2018
	HK$'000	HK$'000	HK$'000
Trade receivables	2,654	26,442	31,304
Prepayments, deposits
and other receivables	1,161	831	1,785
	3,815	27,273	33,089

FINANCIAL INFORMATION OF THE TARGET GROUP

Trade receivables

The Target Group's trade receivables mainly represent the progress billings receivable from its customers for the Target Group's interior design services provided. As the Target Group's business is project-based, the trade receivables balance depends on the progress, number of projects and progress billing as at the reporting date. Trade receivables increased from approximately HK$2.7 million as at 31 March 2016 to approximately HK$26.4 million as at 31 March 2017, representing an increase of approximately HK$23.7 million. Such increase was mainly due to the recognition of substantial progress billings of interior design projects with approximately HK$20.5 million billed within 60 days before the year end date of 31 March 2017. The progress billings made two months immediately before the end of the year ended 31 March 2017 were mainly for projects with the Target Group's major customers, which were mainly property developers. Trade receivables balance which were aged within 60 days with the top five customers as at 31 March 2017 amounted to approximately HK$11.6 million. Trade receivables increased from approximately HK$26.4 million as at 31 March 2017 to approximately HK$31.3 million as at 31 March 2018, primarily as a result of substantial progress billings of interior design projects made within 60 days before the year end date of 31 March 2018. The trade receivables aged within 60 days as at 31 March 2018 amounted to approximately HK$29.7 million, where the top five customers accounted for approximately HK$15.6 million or 52.7% of such balance.

As at 30 November 2018, trade receivables amounted to approximately HK$4.1 million, which represented a decrease of approximately HK$27.2 million or 87.0% as compared with the balance of approximately HK$31.3 million as at 31 March 2018. The balance decreased mainly due to substantial progress billings made within two months immediately before the end of the year ended 31 March 2018. As at 31 March 2018, trade receivables ageing within 60 days amounted to approximately HK$29.7 million, while as at 30 November 2018, only approximately HK$2.9 million of trade receivables were billed within two months before the period end date.

During the Track Record Period, the credit period granted by the Target Group to its trade debtors ranged from 0 to 120 days. The following table sets forth an ageing analysis of the trade receivables, based on invoice date, as at the end of each reporting period:

	As at 31 March			As at 30 November
	2016	2017	2018	2018
	HK$'000	HK$'000	HK$'000	HK$'000
Within 30 days	1,326	15,166	21,850	1,426
31 – 60 days	–	5,352	7,804	1,520
61 – 90 days	392	4,804	–	293
91 – 180 days	926	1,120	1,110	120
181 – 365 days	–	–	540	699
Over 365 days	10	–	–	–
	2,654	26,442	31,304	4,058

FINANCIAL INFORMATION OF THE TARGET GROUP

The following table sets forth an ageing analysis of trade receivables which are past due but not impaired:

	As at 31 March			As at 30 November
	2016	2017	2018	2018
	HK$'000	HK$'000	HK$'000	HK$'000
1 – 30 days	342	13,111	8,204	1,352
31 – 60 days	–	5,172	–	18
61 – 90 days	392	4,554	1,005	–
91 – 180 days	926	1,120	105	819
181 – 365 days	–	–	540	–
Over 365 days	10	–	–	–
	1,670	23,957	9,854	2,189

As at 31 March 2016, 2017 and 2018 and 30 November 2018, included in the Target Group's trade receivable balances were receivables with aggregate carrying amount of approximately HK$1.7 million, HK$24.0 million, HK$9.9 million and HK$2.2 million, respectively, which were past due at the end of each reporting period for which the Target Group had not provided for impairment loss. As confirmed by the directors of the Target Company, the balances which are past due but not impaired relate to certain customers that have a good track record with the Target Group. Based on the scale and reputation of these customers and past experience, the directors of the Target Company are of the opinion that no allowance for impairment has to be made.

The following table sets forth the Target Group's trade receivables turnover days during the Track Record Period:

	Year ended 31 March			Eight months ended 30 November
	2016	2017	2018	2018
Trade receivables turnover days	33.2	78.0	170.4	90.9

Note: Trade receivables turnover days is calculated based on the average of the beginning and ending balance of trade receivables divided by revenue for the year/period, then multiplied by the number of days of the year/period (i.e. 366 days for the year ended 31 March 2016, 365 days for each of the year ended 31 March 2017 and 2018 and 244 days for the eight months ended 30 November 2018).

243

FINANCIAL INFORMATION OF THE TARGET GROUP

Trade receivables turnover days were approximately 33.2 days, 78.0 days and 170.4 days for each of the three years ended 31 March 2018, respectively, which were generally in line with the credit period of 0 to 120 days granted by the Target Group to its customers, except for the year ended 31 March 2018. Trade receivables turnover days increased to approximately 78.0 days for the year ended 31 March 2017 from approximately 33.2 days for the year ended 31 March 2016 was mainly due to the substantial progress billings made near the end of the year ended 31 March 2017. As at 31 March 2017, approximately HK$20.5 million trade receivables were aged within 60 days. The progress billings of such trade receivables were mainly for projects with the Target Group's major customers. The trade receivables turnover days further increased to approximately 170.4 days for the year ended 31 March 2018. As the Target Group's business is project-based, the timing of the billing of trade receivables highly depends on the project progress and the milestones achieved as set out in the payment schedules in contracts. The trade receivable balance therefore, depends on the number of projects and their respective progress billing near and as at the reporting date. The significant increase was primarily due to the substantial progress billings of interior design projects made within 60 days before the year end date of 31 March 2018. As at 31 March 2018, approximately HK$29.7 million trade receivables were aged within 60 days. Such progress billings were mainly attributable to projects with the major customers, which are mostly Hong Kong listed property developers, and were made when the Target Group had satisfied the performance obligations as stated in the payment schedules in the contracts entered with the customers. Moreover, of the trade receivables which are past due but not impaired as at 31 March 2018, a majority of approximately HK$8.2 million or 83.3% were aged within 30 days, and only approximately HK$0.6 million or 6.5% were past due and aged over 90 days. For the eight months ended 30 November 2018, trade receivable turnover days were approximately 90.9 days, which was within the credit period range granted by the Target Group to its customers and lower than the turnover days of 170.4 days for the year ended 31 March 2018. The higher turnover days for the year ended 31 March 2018 was due to the trade receivable balance as at 31 March 2018 was relatively higher, which amounted to approximately HK$31.3 million and increased the average trade receivable balance for the purpose of calculating the trade receivable turnover days. As mentioned earlier, the relatively large trade receivable balance as at 31 March 2018 was primarily due to the substantial progress billings of approximately HK$29.7 million made within 60 days before the year end date of 31 March 2018. As at 30 November 2018, only approximately HK$2.9 million of trade receivables were billed within 60 days before the period end date.

The following table sets forth the subsequent settlement of the trade receivables balance as at 30 November 2018 up to the Latest Practicable Date:

	Trade receivables as at 30 November 2018 HK$’000	Subsequent settlement up to the Latest Practicable Date
		HK$’000	%
Within 30 days	1,426	1,426	100.0
31–60 days	1,520	1,520	100.0
61–90 days	293	293	100.0
91–180 days	120	120	100.0
181–365 days	699	245	35.1
	4,058	3,604	88.8

FINANCIAL INFORMATION OF THE TARGET GROUP

As at the Latest Practicable Date, approximately HK$3.6 million or 88.8% of the Target Group’s trade receivables as at 30 November 2018 has been settled.

Trade and other payables

The following table sets forth a breakdown of the Target Group’s trade and other payables as at the end of each reporting period:

	As at 31 March			As at 30 November
	2016	2017	2018	2018
	HK$’000	HK$’000	HK$’000	HK$’000
Trade payables	–	24	–	–
Accruals and other payables	892	1,964	3,753	4,451
	892	1,988	3,753	4,451

Trade payables

Trade payables as at 31 March 2016, 2017 and 2018 and 30 November 2018 amounted to nil, approximately HK$24,000, nil and nil, and represented payables to subcontractors for their services provided. During the Track Record Period, the Target Group produced most of the design drawings by its own in-house professional designers. Projects involving subcontractors only accounted for an insignificant portion of 1.5%, 1.2%, 2.6% and 3.9% of total cost of services for the three years ended 31 March 2018 and the eight months ended 30 November 2018 respectively.

During the Track Record Period, credit terms of 0 to 30 days were granted by the Target Group’s subcontractors. The following table sets forth an ageing analysis of the trade payables, based on invoice date, as at the end of each reporting period:

	As at 31 March			As at 30 November
	2016	2017	2018	2018
Within 30 days	HK$’000	HK$’000	HK$’000	HK$’000
	–	24	–	–

FINANCIAL INFORMATION OF THE TARGET GROUP

The following table sets forth the Target Group’s trade payables turnover days during the Track Record Period:

	Year ended 31 March			Eight months ended 30 November
	2016	2017	2018	2018
Trade payables turnover days	-	0.2	0.2	-

Note: Trade payables turnover days is calculated based on the average of the beginning and ending balance of trade payables divided by cost of services for the year/period, then multiplied by the number of days of the year/period (i.e. 366 days for the year ended 31 March 2016, 365 days for each of the year ended 31 March 2017 and 2018 and 244 days for the eight months ended 30 November 2018).

Trade payables turnover days were approximately nil, 0.2 day, 0.2 day and nil for each of the three years ended 31 March 2018 and the eight months ended 30 November 2018. The Target Group had relatively low trade payables turnover days during the Track Record Period, as the Target Group produced most of the design drawings by its own in-house professional designers, and the Target Group only incurred minimal subcontracting costs for drafting services.

Accruals and other payables

Accruals and other payables mainly consisted of accrued expenses such as audit fees, office renovation fees, staff travelling reimbursements etc.

Tax liabilities

The Target Group’s assessable profits for the years ended 31 March 2015 and 2016 were based on the Hong Kong profits tax returns filed for the years ended 31 March 2015 and 2016. The tax returns were prepared by the Target Group in accordance with the statutory financial statements of the Target Group’s subsidiaries for the years ended 31 March 2015 and 2016, which were audited by the Target Group’s predecessor auditor and assessed by the Inland Revenue Department of Hong Kong (“IRD”).

In preparation of the financial information of the Target Group for the Track Record Period, the management of the Target Company had identified errors, being mainly accounting errors in relation to the recognition of the contract revenue and the associated direct costs, in the statutory financial statements of the Principal Subsidiaries for the years prior to and the year ended 31 March 2016. Such errors were resulted from the contract revenue of the Target Group was not recognised according to the actual stage of completion of projects, which was not fully in line with the applicable financial reporting standards. As a result, there was a timing difference in the recognition of contract revenue and the associated direct costs, leading to differences in the assessable profits and hence the tax undercharge for the Principal Subsidiaries for the two years ended 31 March 2016. Other than that, the Target Group had adopted HKFRS 15 “Revenue from Contracts with Customers”, and such adoption has been applied to the Track Record Period retrospectively and the effect of HKFRS 15 was included in the restated financial statements of the Principal Subsidiaries for the years ended 31 March 2015 and 2016.

246

FINANCIAL INFORMATION OF THE TARGET GROUP

As a result of the foregoing and taking into account of materiality, the aggregate amount of tax undercharged of the Principal Subsidiaries for the years ended 31 March 2015 and 2016 of approximately HK$4.3 million and HK$0.3 million, respectively, have been restated in the Principal Subsidiaries' statements of profit or loss for the years ended 31 March 2015 and 2016, respectively. Such amount of tax undercharged is subject to final assessment of the IRD.

In this connection, the Target Group has appointed an independent tax adviser, to issue an independent Hong Kong tax opinion as to the potential tax penalty resulting from the foregoing for the year ended 31 March 2016 and prior periods. According to the independent tax adviser, given that the filing to the IRD for tax reassessment is on voluntary basis, the IRD should categorise the case as voluntary disclosure. It is further opined in the tax opinion that the IRD is not likely to assess the case as "intentional disregard to the law" thus according to the Penalty Policy from the IRD website, the potential tax penalty shall be at 5% to 10% of the aggregated tax undercharged of approximately HK$4.6 million plus interest. Based on the tax opinion, prepared by the Target Group's independent tax advisor, the potential tax penalty is unlikely to reach the maximum amount and the potential tax penalty is expected to be approximately HK$0.7 million, being approximately 8% (compound annually) of the aggregated tax undercharged, plus interest. As such, potential tax penalty including interests of approximately HK$0.7 million was provided and recognised as other expenses in the Target Group's combined statements of profit or loss during the Track Record Period.

The Target Group has adopted the following internal control enhancement to prevent the recurrence of the abovementioned accounting errors and the associated tax issues: (i) employed a financial controller in April 2018, who is a member of the Association of Chartered Certified Accountants in the United Kingdom, to monitor financial reporting procedures to ensure the adoption of proper accounting policies; and (ii) the financial controller will also be responsible for reviewing the tax returns filed with the IRD, and if necessary, tax adviser will be consulted to ensure tax related laws and requirements are complied with.

The Target Group had made filings to the IRD for tax reassessment for the relevant years of assessment upon the issue of the Principal Subsidiaries' statutory financial statements in January 2018, and had settled the tax liabilities according to the tax assessment for the year ended 31 March 2017. The Target Group will duly settle the reassessed income tax balance in accordance with the requirement of the IRD upon request.

It was noted that the tax undercharged as identified were primarily due to timing difference of revenue recognition and was resulting from the lack of professional accounting knowledge and experience of the Target Group's accounting personnel. For the years prior to and the year ended 31 March 2016, the Target Group had outsourced most of the works relating to book-keeping and preparation of management accounts to an independent accounting service provider, while the Target Group only maintained a relatively simple accounting function. Given (i) the tax undercharged were primarily due to timing difference of revenue recognition; (ii) the Target Group had outsourced most of the works relating to book-keeping and preparation of management accounts and only maintained a relatively simple accounting function; (iii) the Target Group had made voluntary tax reassessment filings for the relevant years to the IRD; (iv) the Target Group had actively adopted the internal control enhancements to rectify and prevent the accounting errors and the associated tax issues as discussed above, including the employment of Mr. Yeung Sai Cheong as financial controller of the Target Group, who is a fellow member of the Association of Chartered Certified Accountants in the United Kingdom; and (v) the

247

FINANCIAL INFORMATION OF THE TARGET GROUP

independent tax adviser opined that the IRD is not likely to assess the case as “intentional disregard to the law”, the directors of the Target Company are of the view, and the Sponsor concurs with their view, that the tax undercharged is not a material non-compliance, and will not affect the suitability of the directors of the Target Company to act as directors of the Company under Rules 5.01 and 5.02 of the GEM Listing Rules.

Amount(s) due from/to director(s) and a related company

The following table sets forth the amount(s) due from/to related parties:

	As at 31 March			As at 30 November
	2016	2017	2018	2018
	HK$'000	HK$'000	HK$'000	HK$'000
Amount due from a director	–	57,402	–	–
Amount due from a related company	16,567	–	–	–
Amounts due to directors	5,040	–	16,774	39
Amount due to a related company	171	–	–	–
Amount due to Whistle Up	–	–	–	50

Amount due from a director

The amount due from a director mainly represented the advances made to Mr. Norman Chan which was non-trade in nature, unsecured, non-interest bearing and repayable on demand. The amount due from a director was nil, approximately HK$57.4 million, nil and nil as at 31 March 2016, 2017 and 2018 and 30 November 2018, respectively. The amount increased to approximately HK$57.4 million as at 31 March 2017 from nil as at 31 March 2016 was mainly due to that (i) an amount of approximately HK$40.3 million was advanced to Mr. Norman Chan; (ii) an amount of approximately HK$17.5 million due from Waldorf Holdings were transferred to Mr. Norman Chan through debt reassignment during the year ended 31 March 2017; and (iii) approximately HK$0.3 million due to Room Limited was transferred to Mr. Norman Chan through debt reassignment and netted off with the balance with amount due from Mr. Norman Chan. The balance decreased to nil as at 31 March 2018 as a result of the dividends declared by the Target Group during the year ended 31 March 2018 which were partly settled through offsetting the balance with amount due from Mr. Norman Chan.

Amount due from a related company

The amount due from a related company amounted to approximately HK$16.6 million, nil, nil and nil as at 31 March 2016, 2017 and 2018 and 30 November 2018, respectively. The amount due from a related company represented the amount due from Waldorf Holdings, a company controlled by Mr. Norman Chan. Apart from the rental expenses charged by Waldorf Holdings and sales proceeds from the disposal of property, plant and equipment to Waldorf Holdings, the amount was non-trade in nature, unsecured, non-interest bearing and repayable on demand. The balance decreased to nil as at 31 March 2017 from approximately HK$16.6 million as at 31 March 2016, because the amount due from Waldorf Holdings was fully transferred to Mr. Norman Chan as at 31 March 2017 through a debt reassignment, where Mr. Norman Chan assumed all the obligations and liabilities of Waldorf Holdings.

248

FINANCIAL INFORMATION OF THE TARGET GROUP

Amounts due to directors

As at 31 March 2016, the amounts due to directors comprised of (i) amount due to Mr. Norman Chan of approximately HK$5.0 million; and (ii) amount due to Mr. Alex Lee of approximately HK$3,000. The amounts were non-trade in nature, unsecured, non-interest bearing and repayable on demand. As at 31 March 2018, the amounts due to directors represented (i) amount due to Mr. Norman Chan of approximately HK$14.7 million; and (ii) amount due to Mr. Alex Lee of approximately HK$2.1 million. The amounts were non-trade in nature, unsecured, non-interest bearing and repayable on demand. As confirmed by the directors of the Target Company, the amounts due to directors will be settled before the Completion. Amounts due to directors decreased to nil as at 31 March 2017 from approximately HK$5.0 million as at 31 March 2016 was due to the Target Group had repaid the HK$5.0 million due to Mr. Norman Chan during the year ended 31 March 2017. The balance increased to approximately HK$16.8 million as at 31 March 2018, mainly due to (i) the net amount due to Waldorf Holdings of approximately HK$26.3 million was transferred to Mr. Norman Chan and such amount was payable to Mr. Norman Chan accordingly; (ii) an amount of approximately HK$10.2 million was advanced to Mr. Norman Chan during the year ended 31 March 2018; (iii) the Target Group disposed of its key management insurance policy at a consideration of approximately HK$1.9 million to Mr. Norman Chan during the year ended 31 March 2018, and was settled through netting off the same amount with amount due to Mr. Norman Chan; and (iv) dividend declared of approximately HK$2.1 million to Mr. Alex Lee was unsettled as at 31 March 2018.

As at 30 November 2018, the amounts due to directors comprised (i) amount due to Mr. Norman Chan of approximately HK$26,000; and (ii) amount due to Mr. Alex Lee of approximately HK$13,000. The amounts were non-trade in nature, unsecured, non-interest bearing and repayable on demand. The balance decreased from approximately HK$16.8 million as at 31 March 2018 to approximately HK$39,000 as at 30 November 2018, mainly due to the repayment to directors of approximately HK$16.7 million during the eight months ended 30 November 2018.

Amount due to a related company

As at 31 March 2016, the amount due to a related company represented amount due to Room Limited, a company controlled by Mr. Norman Chan. The amount was trade in nature, unsecured, non-interest bearing and repayable on demand. The amount due to Room Limited was fully transferred to Mr. Norman Chan as at 31 March 2017 through a debt reassignment.

Amount due to Whistle Up

The amount due to Whistle Up was non-trade in nature, unsecured, non-interest bearing and repayable on demand.

RELATED PARTY TRANSACTIONS

Please refer to the section headed "Related party transactions" in note 34 of the Accountants' Report set out in Appendix III to this circular.

The directors of the Target Company are of the view that the related party transactions were conducted at arm's length and on normal commercial terms, and would not distort the Target Group's results of operations over the Track Record Period or make the Target Group's historical results over the Track Record Period not reflective of the Target Group's expectations for the Target Group's future performance.

249

FINANCIAL INFORMATION OF THE TARGET GROUP

INDEBTEDNESS

The following table sets out the Target Group's indebtedness as at the dates indicated:

	As at 31 March			As at 30 November	As at 31 March
	2016	2017	2018	2018	2019
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
					(unaudited)
Current liabilities
Amounts due to directors	5,040	-	16,774	39	43
Amount due to Whistle Up	-	-	-	50	50
Bank loans – secured and guaranteed	-	46,360	25,000	23,774	23,149
Bank loans – unsecured and guaranteed	-	-	-	10,666	9,927
	5,040	46,360	41,774	34,529	33,169

As at 31 March 2016, amounts due to directors comprised (i) amount due to Mr. Norman Chan of approximately HK$5.0 million; and (ii) amount due to Mr. Alex Lee of approximately HK$3,000. As at 31 March 2018, the amounts due to directors represented (i) amount due to Mr. Norman Chan of approximately HK$14.7 million; and (ii) amount due to Mr. Alex Lee of approximately HK$2.1 million. Amounts due to directors as at 30 November 2018 represented (i) amount due to Mr. Norman Chan of approximately HK$26,000; and (ii) amount due to Mr. Alex Lee of approximately HK$13,000. As at 31 March 2019, amounts due to directors consisted of (i) amount due to Mr. Norman Chan of approximately HK$26,000; and (ii) amount due to Mr. Alex Lee of approximately HK$17,000. The amounts due to directors/Whistle Up are non-trade in nature, unsecured, non-interest bearing and repayable on demand.

250

FINANCIAL INFORMATION OF THE TARGET GROUP

As at 31 March 2016, 2017 and 2018, 30 November 2018 and 31 March 2019, the Target Group had outstanding bank loans of nil, approximately HK$46.4 million, HK$25.0 million, HK$34.4 million and HK$33.1 million, respectively. As at 31 March 2019, the Target Group did not have unutilised banking facilities. As at 31 March 2019, bank loans of the Target Group consisted of (i) revolving loans and an instalment loan totalling to approximately HK$23.2 million; and (ii) a term loan of approximately HK$9.9 million under and subject to the SME Financing Guarantee Scheme of The Hong Kong Mortgage Corporation Limited (the "HKMC"). All of the bank loans of the Target Group contain a repayment on demand clause. Accordingly, all bank loans are classified as current liabilities in the combined statements of financial position. The following table sets out the Target Group's bank loans due for repayment based on scheduled repayment dates set out in the banking facilities letters:

	As at 31 March			As at 30 November	As at 31 March
	2016 HK$’000	2017 HK$’000	2018 HK$’000	2018 HK$’000	2019 HK$’000 (unaudited)
Within one year	-	1,960	16,853	19,141	19,195
More than one year but not more than two years	-	1,998	1,923	4,310	4,370
More than two years but not more than five years	-	42,402	6,224	10,989	9,511
	-	46,360	25,000	34,440	33,076

The following table sets out the effective interest rates of the Target Group's bank loans as at the dates indicated:

	As at 31 March			As at 30 November	As at 31 March
	2016	2017	2018	2018	2019 (unaudited)
Variable-rate loans
Effective interest rates per annum	N/A	1.94%	1.85% – 3.75%	1.98% – 4.21%	1.98% – 4.21%

The Target Group is subject to the maintenance of a specified ratio of its liabilities under the banking facilities granted to the Target Group during the year ended 31 March 2017 to the market value of the charged properties at or below 80%. If such percentage is exceeded at any time, the bank shall demand, at the option of the bank, for partial repayment of the outstanding loan amount in order to restore the required ratio. During the period from the inception of the loans and up to the date of full repayment of the loans, the Target Group complied with the aforesaid requirement.

FINANCIAL INFORMATION OF THE TARGET GROUP

The Target Group’s banking facilities as at 31 March 2019 are secured and/or guaranteed by:

(i) an assignment of the Target Group’s key management insurance policy;
(ii) a corporate guarantee executed by Waldorf Holdings;
(iii) a personal guarantee from Mr. Norman Chan; and
(iv) a financing guarantee from the HKMC.

As at the Latest Practicable Date, the bank which had provided the revolving and instalment loans banking facilities to the Target Group had granted in-principle consents to release the corporate and personal guarantees provided by Waldorf Holdings and Mr. Norman Chan, respectively, and replace such corporate and personal guarantees by corporate guarantee given by the Company upon the Completion. As confirmed by the directors of the Target Company, the term loan banking facility under and subject to the SME Financing Guarantee Scheme of the HKMC will be fully repaid prior to the Completion.

Save as disclosed above, the Target Group did not have, at the close of business on 31 March 2019, any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loan or other similar indebtedness, liabilities under acceptances or acceptance credit, debentures, hire purchase commitments, mortgages, charges, material contingent liabilities or guarantees outstanding. The directors of the Target Company confirm that there has not been any default on repayments or other obligations in any material respects under the loan agreements.

CAPITAL EXPENDITURE

During the Track Record Period, capital expenditures incurred by the Target Group were mainly for the purchase of property, plant and equipment, including leasehold improvements, furniture and fixtures, office equipment and motor vehicles, and amounted to approximately HK$4.8 million, HK$2.4 million, HK$2.1 million and HK$0.6 million, respectively.

CONTINGENT LIABILITIES

As at the Latest Practicable Date, the Target Group did not have any contingent liabilities that would have a material adverse impact on the Target Group’s financial position, liquidity or result of operation.

FINANCIAL INFORMATION OF THE TARGET GROUP

COMMITMENTS

The Target Group does not have material commitments other than operating lease commitments. Below sets forth the total future minimum lease payments under non-cancellable operating leases of the Target Group at the dates indicated:

	As at 31 March			As at 30 November
	2016	2017	2018	2018
	HK$'000	HK$'000	HK$'000	HK$'000
Within one year	1,515	219	5,587	5,431
In the second to fifth years inclusive	458	269	5,442	2,190
	1,973	488	11,029	7,621

Operating lease payments represent rentals payable by the Target Group for its office premises, director's quarter and office equipment. Leases typically run for a period of two to five years. Rentals are fixed over the lease terms and do not include contingent rentals.

OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS

As at the Latest Practicable Date, the Target Group did not have any material off-balance sheet arrangements.

DIVIDENDS, DIVIDEND POLICY AND DISTRIBUTABLE RESERVES

During the year ended 31 March 2016, BTR HK and BTR Workshop paid dividends to its then owners for the amount of approximately HK$4.5 million and HK$5.5 million, respectively.

During the year ended 31 March 2018, BTR Asia, BTR Intl, BTR HK and BTR Workshop declared an interim dividend of approximately HK$1.0 million, HK$10.0 million, HK$41.0 million and HK$18.5 million, respectively to their owners.

In December 2018, BTR Asia, BTR HK, BTR Intl and BTR Workshop declared and paid an interim dividend of approximately HK$0.6 million, HK$7.0 million, HK$4.0 million and HK$6.4 million, respectively to their owners.

Save for the above, the Target Group did not declare any dividend during the Track Record Period and up to the Latest Practicable Date.

Pursuant to the Restructuring Framework Agreement, the Investor and the Company agreed that the Investor may, prior to the Completion and subject to applicable laws and regulations, procure each of the Principal Subsidiaries to declare and pay dividends to the Target Company of an aggregate amount no greater than the amounts of its retained earnings as at 31 March 2018 and as at 31 March 2019 and after such declaration of dividends by the Principal Subsidiaries, procure the Target Company to declare and pay dividends to the Investor prior to the completion of Acquisition of an aggregate amounts no greater than the aggregate amount of the dividends declared by the Principal Subsidiaries provided that after the declaration and distribution of the Pre-Completion Dividends and having taking into account the working

FINANCIAL INFORMATION OF THE TARGET GROUP

capital loan of HK$14 million to be provided by the Company to the Target Group within ten (10) Business Days after Completion, the Target Group shall have sufficient working capital for its business operations for the period up to 30 June 2020. The directors of the Target Company are considering to declare and distribute all of the Target Group’s retained earnings as at 31 March 2019 as dividends to the Investor. The directors of the Target Company confirmed that any dividend payable will be settled prior to the Completion and will be funded by internally generated cash flows and/or borrowings.

The Target Group currently does not have a dividend policy. Any amount of dividends to be declared and paid by the Target Group will be at the discretion of the directors of the Target Company taking into consideration the Target Group’s future operations and earnings, capital requirements and surplus, general financial condition and such other factors that the directors of the Target Company consider appropriate. The dividend distribution record in the past may not be used as a reference or basis to determine level of dividends that may be declared or paid in the future. However, there is no assurance that dividends will be declared or paid in such amount, or at all, for each or any year.

Any distributable profits that are not distributed in any given year will be retained and available for distribution in subsequent years. To the extent profits are distributed as dividends, such portion of profits will not be available to be reinvested in operation.

As at 30 November 2018, the Target Company did not have any distributable reserve.

SUBSEQUENT EVENTS

For significant events that took place subsequent to 30 November 2018, please refer to note 35 to the Accountants’ Report.

KEY FINANCIAL RATIOS

Profitability ratios	Notes	Year ended/as at 31 March			Eight months ended/as at 30 November
		2016%	2017%	2018%	2018%
Gross profit margin	1	61.6	61.3	57.0	59.4
Net profit margin	2	28.2	31.1	26.6	24.8
Return on equity	3	28.9	28.1	77.3	N/A
Return on total assets	4	22.8	15.9	20.8	N/A
		As at 31 March			As at 30 November
	Notes	2016 times	2017 times	2018 times	2018 times
Liquidity ratios
Current ratio	5	4.3	2.2	1.2	1.5
Capital adequacy ratio
Gearing ratio	6	0.1	0.6	2.0	1.0

Notes:
1. The calculation of gross profit margin is based on the gross profit divided by the revenue for the respective year/period.
2. Net profit margin is calculated by the profit and total comprehensive income for the respective year/period divided by the revenue for the respective year/period.

FINANCIAL INFORMATION OF THE TARGET GROUP

Return on equity is calculated based on the profit and total comprehensive income for the respective year, divided by the total equity at the respective reporting date. Return on equity is not applicable for the eight months ended 30 November 2018 as it is not meaningful given the recorded net profit only represented amount for eight months ended 30 November 2018.
The return on total assets is calculated by dividing the profit and total comprehensive income for the respective year divided by the total assets at the respective reporting date. Return on total assets is not applicable for the eight months ended 30 November 2018 as it is not meaningful given the recorded net profit only represented amount for eight months ended 30 November 2018.
Current ratio is calculated based on the total current assets divided by the total current liabilities at the respective reporting date.
Gearing ratio is calculated based on the total borrowings (including amounts due to directors and Whistle Up and bank loans) divided by the total equity at the respective reporting date.

Gross profit margin

The Target Group’s gross profit margin were approximately 61.6%, 61.3%, 57.0% and 59.4% during the Track Record Period, respectively. For further information in relation to the Target Group’s gross profit margin, please refer to the paragraph headed “Principal components of results of operations – Gross profit and gross profit margin” in this section.

Net profit margin

During the Track Record Period, the net profit margin of the Target Group was approximately 28.2%, 31.1%, 26.6% and 24.8%, respectively. The net profit margin increased for the year ended 31 March 2017 mainly due to the increase in revenue and gross profit, which was driven by the increase in the number of interior design projects undertook by the Target Group during the said period, while the administrative expenses remained stable for the two years ended 31 March 2017. The net profit margin decreased to approximately 26.6% for the year ended 31 March 2018, primarily attributable to the combined effects of (i) the gross profit margin decreased to approximately 57.0% while the gross profit margin for the year ended 31 March 2017 was approximately 61.3%; (ii) an increase in administrative expenses of approximately HK$2.9 million or 19.1% as compared with the year ended 31 March 2017; and (iii) the one-off nature gain on disposal of property, plant and equipment of approximately HK$3.2 million recorded in other gains during the year ended 31 March 2018. For the eight months ended 30 November 2018, the net profit margin decreased to approximately 24.8%, mainly due to during the year ended 31 March 2018, the Target Group recorded an one-off nature gain on disposal of property, plant and equipment of approximately HK$3.2 million while there was no such gain for the eight months ended 30 November 2018.

Return on equity

Return on equity for each of the three years ended 31 March 2018 of the Target Group was approximately 28.9%, 28.1% and 77.3%, respectively. The return on equity remained stable for the two years ended 31 March 2017. The return on equity increased to approximately 77.3% for the year ended 31 March 2018, mainly due to the Principal Subsidiaries had aggregately declared dividends of approximately HK$70.5 million during the year, which led to a decrease in total equity. As at 31 March 2017 and 2018, total equity were approximately HK$75.3 million and HK$21.3 million, respectively.

255

FINANCIAL INFORMATION OF THE TARGET GROUP

Return on total assets

The Target Group’s return on total assets was approximately 22.8%, 15.9% and 20.8%, respectively during each of the three years ended 31 March 2018. The decrease for the year ended 31 March 2017 was mainly due to the net effect of an increase in amount due from a director of approximately HK$57.4 million, partly offset by the decrease in amount due from a related company of approximately HK$16.6 million. The return on total assets increased to approximately 20.8% for the year ended 31 March 2018 from approximately 15.9% for the year ended 31 March 2017, primarily attributable to the amount due from a director balance decreased by approximately HK$57.4 million as compared with the balance as at 31 March 2017, leading to a decrease in total assets.

Current ratio

The current ratio was approximately 4.3 times, 2.2 times, 1.2 times and 1.5 times as at 31 March 2016, 2017 and 2018 and 30 November 2018, respectively. Such ratio decreased from approximately 4.3 times as at 31 March 2016 to approximately 2.2 times as at 31 March 2017, primarily due to the bank loans of approximately HK$46.4 million as at 31 March 2017, where there was no bank loans as at 31 March 2016. The current ratio further decreased to approximately 1.2 times as at 31 March 2018, mainly because amount due from a director decreased by approximately HK$57.4 million as compared with as at 31 March 2017, leading to a significant decrease in current assets. As at 30 November 2018, the current ratio was approximately 1.5 times, which was not materially different from a current ratio of approximately 1.2 times as at 31 March 2018.

Gearing ratio

The Target Group’s gearing ratio as at 31 March 2016, 2017 and 2018 and 30 November 2018 was approximately 0.1 times, 0.6 times, 2.0 times and 1.0 times, respectively. The Target Group recorded a relatively low level of gearing ratio of approximately 0.1 times as at 31 March 2016. Such ratio increased to approximately 0.6 times as at 31 March 2017, mainly due to the Target Group had bank borrowing of approximately HK$46.4 million as at 31 March 2017, where total borrowings as at 31 March 2016 as represented by amounts due to directors amounted to approximately HK$5.0 million only with no bank loans. The gearing ratio further increased to approximately 2.0 times as at 31 March 2018 from approximately 0.6 times as at 31 March 2017, primarily due to the Principal Subsidiaries had aggregately declared dividends of approximately HK$70.5 million during the year ended 31 March 2018, which led to a decrease in total equity. As at 30 November 2018, the gearing ratio was approximately 1.0 times as compared with approximately 2.0 times as at 31 March 2018. The decrease was mainly due to the net effect of (i) a decrease in amounts due to directors of approximately HK$16.7 million; and (ii) an increase in bank loans of approximately HK$9.4 million.

CAPITAL MANAGEMENT AND FINANCIAL RISK MANAGEMENT

Capital management

The Target Group actively and regularly reviews and manages its capital structure in order to maintain a balance between the higher shareholders returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions. The Target Group monitors its capital structure by maintaining an adequate debt and equity level.

FINANCIAL INFORMATION OF THE TARGET GROUP

Financial risk management

The Target Group is exposed to foreign currency risk, credit risk, liquidity risk and interest rate risk in the normal course of business. The following sets out the details of each of the risk:

(i) Foreign currency risk

The Target Group is mainly exposed to the foreign exchange risk of US$, RMB and JPY. Under the pegged exchange rate system, the financial impact on exchange difference between HK$ and US$ will be immaterial as all US$ denominated monetary assets and liabilities are held by group entities having HK$ as their functional currency. For RMB and JPY, as the amount involved is insignificant, the foreign currency risk arising from RMB and JPY is immaterial.

(ii) Credit risk

The Target Group’s credit risk is primarily attributable to its key management insurance policy, trade and other receivables, contract assets, amount due from a related company, amount due from a director and bank balances.

The Target Group’s credit risk on key management insurance policy held and bank balances is limited since the counterparties are top-tier financial service providers with good reputation and banks with high credit-ratings.

In respect of trade receivables and contract assets, individual credit evaluations are performed on all customers, which focus on the customer’s reputation and past history of making payments. In addition, the directors of the Target Company review the recoverable amount of each individual trade debt regularly to ensure that adequate impairment losses are recognised for irrecoverable debts. In this regard, the directors of the Target Company consider that the Target Group’s credit risk is significantly reduced.

The management of the Target Company assesses the credit risk exposure on the amounts due from a director and a related company to be low as the counterparties were with a strong financial position during the respective reporting periods.

(iii) Liquidity risk

The Target Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term.

(iv) Interest rate risk

The Target Group’s exposure to interest-rate risk arises primarily from its bank loans. These bank loans bear interests at variable rates varied with the then prevailing market condition.

For further details on the Target Group’s financial risk management policies and practices, please refer to note 5 in the Accountants’ Report.

FINANCIAL INFORMATION OF THE TARGET GROUP

TOTAL EXPENSES

UNAUDITED PRO FORMA ADJUSTED NET TANGIBLE ASSETS OF THE RESTRUCTURED GROUP

Please refer to the section headed "Unaudited pro forma financial information of the Restructured Group" set forth in Appendix V in this circular for details.

PROFIT ESTIMATE OF THE TARGET GROUP FOR THE YEAR ENDED 31 MARCH 2019

On the bases set out in Appendix VI to this circular, the directors of the Target Company estimate that the unaudited combined profit attributable to owners of the Target Company is as follows:

Estimated combined profit attributable to
owners of the Target Company for the year ended
31 March 2019 (Note) . not less than HK$16 million

Note:

The bases on which the above profit estimate has been prepared are summarised in Appendix VI to this circular. The directors of the Target Company have prepared the estimated profit attributable to owners of the Target Company for the year ended 31 March 2019 based on (i) the audited combined results for the eight months ended 30 November 2018; and (ii) the unaudited combined results of the Target Group for the four months ended 31 March 2019.

DISCLOSURE REQUIRED UNDER THE GEM LISTING RULES

The directors of the Target Company have confirmed that as at the Latest Practicable Date, they were not aware of any circumstances which would give rise to a disclosure requirement under Rules 17.15 to 17.21 of the GEM Listing Rules.

NO MATERIAL CHANGES

SHARE CAPITAL

The authorised and issued share capital of the Company immediately following (i) the Capital Reorganisation becoming effective; (ii) the Share Offer; (iii) the issue of the Creditors Shares; (iv) the issue of the Consideration Shares; and (v) the issue of the Capitalisation Shares will be as follows:

(i) As at the Latest Practicable Date

HK$

Authorised share capital:

31,250,000,000 Shares of HK$0.08 each 2,500,000,000.00

Issued and paid-up share capital:

3,415,197,762 Shares of HK$0.08 each 273,215,820.96

(ii) Immediately following (i) the Capital Reorganisation becoming effective; (ii) the Share Offer; (iii) the issue of the Creditors Shares; (iv) the issue of the Consideration Shares; and (v) the issue of the Capitalisation Shares

HK$

(Note)

Authorised share capital:

New Shares

100,000,000,000 New Shares of HK$0.0001 each 10,000,000.00

Issued and paid up share capital:

68,303,955 New Shares of HK$0.0001 each immediately upon the Capital Reorganisation becoming effective 6,830.40

298,011,834 New Shares to be allotted and issued under the Share Offer and Creditors Shares to be allotted and issued to the Scheme SPC 29,801.18

854,736,842 New Shares to be allotted and issued to the Investor under the Acquisition Agreement and the Investor Loan Agreement 85,473.68

1,221,052,631 122,105.26

Note: The figures are rounded to the nearest 2 decimal places.

SHARE CAPITAL

Since 31 March 2018, the date to which the latest audited financial statements of the Company were made up, and up to the Latest Practicable Date, no Shares have been allotted and issued by the Company or bought-back by the Company. The Company did not buy back any Share during the 12 months period immediately preceding the Latest Practicable Date. No part of the equity or debt securities of the Company is listed or dealt in, nor is listing or permission to deal in the Shares or loan capital of the Company being, or proposed to be, sought on any other stock exchange.

RANKING

When fully paid and allotted, the Offer Shares, the Creditors Shares, the Consideration Shares and the Capitalisation Shares will rank pari passu in all respects among themselves, including all rights to dividend and distributions which may be declared, made or paid by the Company, voting and interest in capital, with the New Shares in issue (after the Capital Reorganisation becoming effective) as at the respective date of allotment and issue thereof.

MINIMUM PUBLIC FLOAT

Pursuant to Rule 11.23(7) of the GEM Listing Rules, upon Completion and at all times thereafter, the Company must maintain the "minimum prescribed percentage" of 25% of the total number of issued Shares of the Company in the hands of the public (as defined in the GEM Listing Rules).

SPECIFIC MANDATE

Resolutions will be proposed at the EGM for the Shareholders, or Independent Shareholders, as the case may be, to approve the grant of a specific mandate to issue the Offer Shares, the Creditors Shares, the Consideration Shares and the Capitalisation Shares.

SHARE OPTION SCHEME

A summary of the principal terms of the Share Option Scheme is set out in the section headed "Statutory and general information – H. Share Option Scheme" in Appendix VIII to this circular.

OUTSTANDING OPTIONS, WARRANTS OR OTHER SECURITIES

As at the Latest Practicable Date, there were outstanding Convertible Bonds in the principal amount of US$50,000,000 with a conversion price of HK$1.73 per Share, the conversion period of which will expire on 12 May 2020. The Convertible Bonds were issued on 12 May 2015 by the Company in satisfaction and cancellation of the redemption amount of USD140,000,000 for the old convertible bonds issued by the Company on 18 December 2008.

Other than the Convertible Bonds, there were no other outstanding options, warrants or other conversion rights over any part of the Company's share capital as at the Latest Practicable Date. The conversion rights attaching to the Convertible Bonds will be extinguished upon the Creditors Schemes having becoming effective.

260

SHARE CAPITAL

GENERAL MANDATES

By the resolutions of the Shareholders passed at the annual general meeting of the Company held on 8 June 2017, the Directors have been granted general and unconditional mandates to exercise the powers of the Company to:

(i) allot, issue and deal with unissued Shares up to a maximum of 20% of the issued Shares as at the date of passing of the relevant resolution (the “Issue Mandate”);

(ii) repurchase, on the Stock Exchange, or on any other stock exchange on which the Shares may be listed, the Shares up to a maximum of 10% of the issued share capital of the Company as at the date of passing of the relevant resolution (the “Repurchase Mandate”); and

(iii) extend the Issue Mandate by an addition of an amount representing the total number of Shares repurchased by the Company under the Repurchase Mandate (the “Extension Mandate”).

The Repurchase Mandate, the Issue Mandate and the Extension Mandate will expire at the earliest of: (a) the conclusion of the next annual general meeting of the Company; or (b) the expiration of the period within which the next annual general meeting of the Company is required by the articles of association of the Company or any applicable laws of the Cayman Islands to be held; or (c) the date on which the authority given under such resolution is revoked, varied, or renewed by an ordinary resolution of the Shareholders in a general meeting.

UNDERTAKINGS BY THE CONTROLLING SHAREHOLDERS

Pursuant to Rule 13.16A(1) of the GEM Listing Rules, each of the Controlling Shareholders has undertaken to the Stock Exchange and the Company that, he/she/it shall not and shall procure that the relevant registered shareholder(s) shall not:

(i) in the period commencing from the date of Completion and ending on the date which is 12 months from the Completion (the “First 12-month Period”), dispose of, or enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of, any of the New Shares allotted and issued to him/her/it pursuant to the Acquisition Agreement and the Investor Loan Agreement; and

(ii) in the period of 12 months commencing from the date on which the First 12-month Period expires (the “Second 12-month Period”), dispose of, or enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of, any of the Shares or securities referred to in paragraph (i) above if, immediately following such disposal or upon the exercise or enforcement of such options, rights, interests or encumbrances, he/she/it would cease to be a controlling shareholder (as defined in the GEM Listing Rules) of the Company.

261

SHARE CAPITAL

Pursuant to Rule 13.19 of the GEM Listing Rules, each of the Controlling Shareholders has further undertaken to the Stock Exchange and the Company that he/she/it will comply with the following requirements:

(i) in the event that he/she/it pledges or charges any direct or indirect interest in Shares or securities of the Company in favour of an authorised institution (as defined in the Banking Ordinance (Chapter 155 of the Laws of Hong Kong)), as security for a bona fide commercial loan under Rule 13.18(1) of the GEM Listing Rules or pursuant to any right or waiver granted by the Stock Exchange pursuant to Rule 13.18(4) of the GEM Listing Rules, at any time during the First 12-month Period and the Second 12-month Period, he/she/it must inform the Company immediately thereafter, disclosing the details specified in Rule 17.43(1) to (4) of the GEM Listing Rules; and

(ii) having pledged or charged any interest in the Shares or securities under paragraph (i) above, he/she/it must inform the Company immediately in the event that he/it becomes aware that the pledgee or chargee has disposed of or intends to dispose of such interest and of the number of Shares or securities affected.

Pursuant to Rule 13.20 of the GEM Listing Rules, if the Company has been informed of any matter under Rule 13.19 of the GEM Listing Rules, it shall forthwith publish an announcement giving details of the same in accordance with the requirements of Rule 17.43 of the GEM Listing Rules.

CIRCUMSTANCES UNDER WHICH GENERAL MEETING AND CLASS MEETING ARE REQUIRED

As a matter of the Companies Law, an exempted company is not required by law to hold any general meetings or class meetings. The holding of general meeting or class meeting is prescribed for under the articles of association of a company. Accordingly, the Company will hold general meetings as prescribed for under the second amended and restated articles of association if adopted, a summary of which is set out in "Summary of the constitution of the Company and Cayman Islands Company Law" set out in Appendix VII to this circular.

262

SUBSTANTIAL SHAREHOLDERS

So far as the Directors are aware, as at the Latest Practicable Date, the following persons (not being Directors and chief executive of the Company) had an interest (or long position) or short position in the Shares or underlying Shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the issued voting shares of the Company:

Name of interested party	Capacity/Nature of interest	Number of Shares interested (Note 1)	Approximate % of the Company’s issued share capital
Yeung Wing Yee (Note 2)	Beneficial owner	846,760,000 (L)	24.8%
The Underwriter (Note 3)	underwriter	227,679,850 (L)	18.6%

Notes:

The letter “L” denotes long position of the Shares.
Yeung Wing Yee is interested in 846,760,000 existing shares of HK$0.08 each in the capital of the Company prior to the Capital Reorganisation becoming effective. The percentage figure is calculated based on a total of 3,415,197,762 Shares in issue prior to the Capital Reorganisation becoming effective.
The Underwriter is interested 227,679,850 New Shares pursuant to the Underwriting Agreement. The percentage figure is calculated based on a total of 1,221,052,631 New Shares in issue after the Capital Reorganisation becoming effective and is for illustration purpose.

In order to ensure minimum public float of the Restructured Group, the Share Offer is subject to the conditions, that among others, (i) there are not less than 100 Accepted Offer Applications by the New Public Shareholders; (ii) not less than 50% of the number of the Public Offer Shares (for the avoidance at doubt, excluding such number of the Reserved Shares as may be automatically and mandatorily allocated and/or reallocated to the Public Offer) are allotted and issued to the New Public Shareholders upon Completion; and (iii) the three largest New Public Shareholders upon Completion will not hold more than 50% of the number of the Public Offer Shares (for the avoidance at doubt, excluding such number of the Reserved Shares as may be automatically and mandatorily allocated and/or reallocated to the Public Offer). Further, the Underwriter undertakes that neither it nor the sub-underwriter(s) will subscribe the Untaken Shares for its own account; and it will use its reasonable endeavor to procure that each of sub-underwriter(s) or the ultimate subscriber(s) procured by the Underwriter or the sub-underwriter(s) is not a Shareholder at the time of subscription and will be an Independent Third Party after subscription.

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SUBSTANTIAL SHAREHOLDERS

So far as the Directors are aware, immediately upon completion of the Restructuring, the following persons will have interests and/or short positions in the Shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange pursuant to the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who will be, directly or indirectly, interested in 10% or more of the issued voting shares of the Company:

Name of interested party	Capacity/Nature of interest	Number of Shares interested (Note 1)	Approximate % of the Company's issued share capital
The Investor	Beneficial owner (Note 2)	854,736,842 (L)	70.0%
Mr. Norman Chan	Interest of controlled corporation (Note 2)	854,736,842 (L)	70.0%
Ms. Susanna Kwok	Interest of spouse (Note 3)	854,736,842 (L)	70.0%

Notes:
1. The letter "L" denotes long position of the Shares.
2. The Investor is beneficially owned as to 96% by Mr. Norman Chan, 3% by Mr. Alex Lee and 1% by Ms. Susanna Kwok. Under the SFO, Mr. Norman Chan is deemed to be interested in the Shares held by the Investor. Mr. Norman Chan will be a Controlling Shareholder and an executive Director upon Completion. The percentage figure is calculated based on a total of 1,221,052,631 New Shares in issue after the Capital Reorganisation becoming effective and Completion and assuming the maximum number of the Capitalisation Shares of 94,736,842 New Shares are allotted and issued to the Investor pursuant to the Investor Loan Capitalisation.
3. Ms. Susanna Kwok is the spouse of Mr. Norman Chan. Ms. Susanna Kwok is deemed to be interested in all the Shares in which Mr. Norman Chan is interested in for the purpose of the SFO.

Save as disclosed above, the Directors of the Company are not aware, as at the Latest Practicable Date, of any other persons who will have interests or short positions in the Shares or underlying Shares which would be required to be disclosed to the Company and the Stock Exchange pursuant to the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who will be, directly or indirectly, interested in 10% or more of the issued voting shares of any other member of the Restructured Group.

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APPENDIX I

INDUSTRY OVERVIEW

The information that appears in this section has been prepared by Frost & Sullivan, an independent global consulting firm and reflects estimates of market conditions in which the Target Group operates. The Directors believe that the sources of information contained in this section are appropriate sources for such information and have taken reasonable care in reproducing such information. The Directors have no reason to believe that such information is false or misleading or that any material fact has been omitted that would render such information false or misleading. The information prepared by Frost & Sullivan and set out in this section has not been independently verified by the Company, the Target Group, the Sponsor or any other party involved in the Acquisition and the new listing application of the Company, except Frost & Sullivan, and neither they give any representations as to its accuracy and the information should not be relied upon in making, or refraining from making, any investment decision.

SOURCES OF INFORMATION

The Group commissioned Frost & Sullivan, an independent global consulting firm, to provide an analysis on the interior design industry in Hong Kong at a fee of HK$810,000. The Directors consider that the payment of the commission fee does not affect the fairness of conclusion drawn in the Frost & Sullivan Report and are satisfied that the disclosure of future projection and industry data included in this section is reliable and not misleading. The Directors, after taking reasonable care, are of the view that there has been no adverse change in the market information since the date of the Frost & Sullivan Report which may qualify, contradict or have an impact on the information in this section.

Frost & Sullivan is an independent global consulting firm founded in 1961. It offers industry research, market strategies and provides growth consulting and corporate training. The Frost & Sullivan Report includes information on Hong Kong's macro economy, Hong Kong's interior design services market, and competitive landscape of it.

Frost & Sullivan's methodologies involved:

detailed primary research which involved discussing the status of the industry with leading industry participants and industry experts;
secondary research which involved reviewing company reports, independent research reports and data based on its own research database; and
obtained the figures for the estimated total market size from historical data analysis plotted against macroeconomic data as well as considered certain industry key drivers.

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APPENDIX I

INDUSTRY OVERVIEW

The bases and assumptions for the projections in the Frost & Sullivan Report include the following: (i) Hong Kong's economy is likely to maintain steady growth in the next decade; (ii) Hong Kong's social, economic, and political environment is likely to remain stable in the forecast period; and (iii) market drivers like rising residential supply, influx of Chinese corporations and rise of smart home will drive the interior design services market in Hong Kong.

Aside from local interior design companies, overseas interior designers, architecture companies, fit out companies and property developers are capable of offering interior design services. Due to the complexity of the industry dynamics in Hong Kong and the business model of the Target Company, the market size and analysis are based solely on the activities from interior design companies in Hong Kong, i.e. revenues of overseas interior designers, architecture companies, fit out companies and even property developers are not included.

Due to the lack of useful information to determine the revenues of the top five interior design companies in Hong Kong, the ranking and shares are not provided in the industry report.

MACROECONOMIC ENVIRONMENT IN HONG KONG

Hong Kong's macroeconomic conditions followed an upward trend in the past several years. According to the International Monetary Fund ("IMF") the nominal GDP in Hong Kong grew steadily from approximately HK$2,138.3 billion in 2013 to HK$2,845.3 billion in 2018, representing a CAGR of 5.9%. According to the IMF, the nominal GDP in Hong Kong is expected to reach approximately HK$3,652.1 billion in 2023, representing a CAGR of 5.1% from 2019 to 2023.

Per capita gross national income in Hong Kong has shown continuous growth from 2013 to 2018, reaching approximately HK$400.6 thousand in 2018 from HK$303.5 thousand in 2013. Since a large portion of income earned by Hong Kong residents is spent on housing, the property market in Hong Kong is sustaining its moderate developments. The increasing income level, coupled with the heightening living standard in Hong Kong have resulted in higher requirement and demand for quality interior design for new properties.

Per Capital Gross National Income

Source: Census and Statistics Department of Hong Kong; Frost & Sullivan

APPENDIX I

INDUSTRY OVERVIEW

Population growth

Population (Hong Kong), 2013 – 2023E

Source: International Monetary Fund ("IMF"), Frost & Sullivan

The population in Hong Kong grew steadily at a CAGR of 0.8% from 7.2 million in 2013 to 7.5 million in 2018. In the next five years, population growth is expected to be moderate which will continue to drive the demand for residential spaces and the growth in newly established housing will continue to benefit the interior design industry.

Real Estate Market of Hong Kong

Development in residential property market

Number of Newly Completed Residential Building Projects, (Hong Kong), 2013-2018E

Source: Census and Statistics Department of Hong Kong; Frost & Sullivan

Usable Floor Area of Newly Completed Residential Buildings, (Hong Kong), 2013-2018E

As a result of the increasing demand for residential spaces, the number of newly completed residential building projects recorded an increase from 2013 to 2018, at a CAGR of 10.8%. The usable floor area of newly completed residential buildings also reached 640 thousand square meters in 2018, demonstrating a CAGR of 13.0% from 2013 to 2018. The residential property market in Hong Kong is experiencing a healthy development, which would benefit the interior design industry which plays an important role in the property development process.

The average household size dropped steadily from 2.82 person in 2013 to 2.73 person in 2018. In contrast, average living space per person recorded an increase from 13.0 square metres in 2013 to 13.3 square metres in 2018. The drop in average household size offsets the slight increase in average living space per person and continue to drive the trends in development of small-sized residential flats in Hong Kong.

APPENDIX I

INDUSTRY OVERVIEW

Value of private domestic properties

Price Indices for Selected Popular Private Domestic Developments (Hong Kong), 2013 – 2018

Source: Census and Statistics Department of Hong Kong; Frost & Sullivan

The limited supply of land and spaces continued propel Hong Kong's housing market. As one of the most active property markets worldwide, Hong Kong's limited supply of private domestic properties and strong demand from foreign investors have driven up private domestic property prices in Hong Kong. It is expected that the value of interior design services as a percentage of total property value will increase accordingly for newly established private domestic properties.

INTERIOR DESIGN SERVICES MARKET IN HONG KONG

Overview

Interior design is the process of planning the experience of interior space, through the manipulation of spatial volume and surface treatment, as well as the advice on the furnishing and functional space through the use of fixture, furniture and accessories. The typical process of interior design is as below:

APPENDIX I
INDUSTRY OVERVIEW

The competition of interior design services market in Hong Kong is keen as the market is highly fragmented with many players of both local and international names. Property developers choose interior designers based mainly on price, style, reputation and creativity.

In the corporate sector of interior design industry, property developers will invite renowned interior design firms to submit proposals for the development of interior space of show flats, sales offices and property development projects.

Designs and service offerings have become more varied and sophisticated over the recent years. Due to the low entry barriers, a myriad of companies, varying in size and type of services, are competing to provide interior design services to property developers and corporates.

Segments

1. Residential projects

Residential projects refer to the decoration design and renovation of residential buildings units. Feasibility, creativity and innovation are used in optimising the entire environment, ceiling designs, flooring, window and door installation, lighting, appliances, etc. This category includes the bulk design request from property developers and specific design request for individual residential units.

2. Show flats, clubhouses and other facilities

The interior design of ancillary facilities in residential projects is a more niche segment in the interior design space, projects are basically undertaken by renowned interior designers who have recurring collaborations with leading property developers over the years to design show flats, sales offices, clubhouses and lobbies for property projects.

3. Hotel, restaurant and shopping centers

The interior design of hotels, restaurants and shopping centres are based on the requirement of property owners who try to create a distinctive vibe to lure customers and/or nurture business by delivering services in a convenient and quality environment. The increase of demand for hotels, restaurants, entertainment centres and retail shopping malls are promoted by the growth of overnight tourists and business visitors to Hong Kong.

4. Office

The objectives of interior design of office are in threefold. The first one is beauty, which satisfy people's physical and psychological requirements, creating a sound working environment. The second one is economy and practicability, which could meet the actual needs, bringing convenience to the office staff. The third one is the uniqueness, reflecting the culture of enterprise. According to the figures of Census and Statistics department of Hong Kong, the number of regional headquarters from other places in Hong Kong amount to 1,401, among which the regional offices of Mainland China recorded the greatest growth, from 97 in 2010 to 133 in 2015. The Chinese companies are playing a more important role in the office market of Hong Kong.

APPENDIX I

INDUSTRY OVERVIEW

Market Performance and Forecast

Source: Census and Statistics Department of Hong Kong; Frost & Sullivan

The revenue of interior design services market in Hong Kong increased from approximately HK$2,720.2 million in 2013 to HK$3,896.2 million in 2018, representing a CAGR of 7.5%. The rise was attributed to increasing residential supply, influx of Chinese corporations and rise of smart home. With the increasing housing supply and the expediting of land planning and development process, the pace of construction of new buildings increase and the number of newly developed real estate projects are expected to grow continuously, which in turn lead to an increase in demand for interior design services.

According to the 2017 Policy Address, in the short to medium term, the government will provide more than 380,000 residential units by changing land use and increasing development intensity. In the medium to long term, a variety of new development areas and new town extensions would provide close to 200,000 residential units and over 8.6 million square metres of industrial and commercial floor area. Given the policies in speeding up residential development, the demand for interior design services in Hong Kong is expected to grow, reaching approximately HK$5,698.3 million in 2023, at the CAGR of 8.2% from 2019 to 2023. The demand for interior design services in residential segment is forecasted to record a CAGR of 9.6% during 2019 to 2023, followed by 6.4% of commercial segment and 1.8% of others.

Revenue of Residential Interior Design Services Market Breakdown by Segment (Hong Kong), 2013 - 2023E

Source: Frost & Sullivan

APPENDIX I

INDUSTRY OVERVIEW

More property developments in Hong Kong are likely to be positioned as luxury residences and this will result in property developers investing more in show flats to elevate the market position of their residential development. In addition, the newly completed residential buildings each year propel the demand for interior design services for both overall residential and show flat. The private residential interior design services increased from approximately HK$1,147.6 million in 2013 to HK$1,624.5 million in 2018, representing a CAGR of 7.2%.

Cost Analysis

Salary of interior designers is the key cost for the interior design industry. Based on the nature of interior design job, the design team could be generally divided into three levels, namely junior designers, senior designers and design directors. Junior interior designers are mainly responsible for drawing and documentation, as well as handling the ad hoc tasks assigned by senior interior designers. Senior designers perform the tasks of preparing and developing drawings, models, images and other documents relating to the interior design. Design directors manage the project and oversee the overall operation of design team. Staff cost are the major cost item for interior design companies.

Average Monthly Salary of Interior Designers (Hong Kong), 2013-2018

Source: Census and Statistics Department of Hong Kong; Frost & Sullivan

From 2013 to 2018, the average monthly salary of interior designers recorded a stable growth, which is due to the growing demand for interior design services in Hong Kong.

Competitive landscape

The competition of the interior design services market in Hong Kong is keen while the market itself is highly fragmented with over 1,000 players and no single market leader dominating the market. This indicates that the competition will remain fierce. Market players tend to differentiate themselves based on price, style and reputation in order to obtain more business opportunities. During the year ended 31 March 2018, the Target Group recorded revenue of approximately HK$51.1 million from projects in Hong Kong, accounting for approximately 1.3% of the market share in Hong Kong.

APPENDIX I
INDUSTRY OVERVIEW

Market trends, drivers and entry barriers

Market Trends

Challenges

Rising demand for customised and integrated solutions

In Hong Kong, the interior design industry is encountering a trend of higher requirement and expectation from clients, which may include more customised design services and higher quality of materials for decoration and renovation, as well as tighter deadline for planning and execution. Therefore, it would lead to the rise in complexity of interior design services from sourcing of specific materials, coordination of specialised contractors to realisation of conceptual designs. It is foreseeable that the major clients, such as property developer, would shift their preference to those interior design firms which have more customised and integrated solutions.

Rising salaries of interior designers

Salaries of interior designers have been increasing in Hong Kong during 2013 to 2018. Interior designers are critical to the interior design industry and the shortage of interior designers in Hong Kong is causing the salary to increase continuously. Therefore, the increased cost for interior design may reflect onto the customers in the project fees. Driven by the rising land supply and continued urban renewal, the salary of interior designers in Hong Kong is expected to maintain stable growth.

The interior design industry is relatively small and heavily reliant on the property market in Hong Kong. The industry is driven by the major real estate development and government policies in housing supply and land planning. If there is any change in related policies or property developer's expectation over the market, the demand for interior design services would be affected directly. For example, the expediting of urban renewal would drive up the investment of property developers in the region. Given the huge opportunities created, the demand for the interior design services would be increased accordingly. Conversely, if the policy is changed and lead to slow down in the urban renewal process, the impact on the interior design industry would be opposite.

Opportunities

Sustained development of the property market

The completion of private real estate properties will stimulate the interior design services market in Hong Kong. With the government announcing that over 94,000 private real estate unit will be available within the next three to four years, creating more needs for interior design for the new buildings completed. The interior design services market in Hong Kong would benefit from the rising residential supply. Along with the surge in value of property price in Hong Kong, the value of interior design as a percentage of total property value will increase accordingly for newly established private domestic properties.

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APPENDIX I

INDUSTRY OVERVIEW

2. Enhanced show flat market

According to trade sources, this rising trend of property prices has spurred property developers to invest more money in show flat designs in order to arouse the interest of potential home buyers with the residences' identities and the target market's aspirations. It is expected that the value spent on per show flat interior design project will increase over the next three years, as more and more property developments are positioned to be luxury residences, hence the usage of more premium materials will be expected, thereby increasing the amount spent on show flat design and decoration.

3. Influx of Chinese Corporation

Benefited by the unique position of Hong Kong being an international financial hub and the gateway to China, the financial market has attracted the influx of Chinese companies into Hong Kong. In the past, the multi-national corporations are the key players in Hong Kong office property market. The number of Chinese companies in Hong Kong is on the rise and these Chinese companies play a more important role in the office property market. According to the Census and Statistics Department of Hong Kong, the number of regional offices whose parent company located in the mainland of China increased from 114 in 2013 to 197 in 2018, at a CAGR of 11.6%. The impact is two-fold, reshaping the market landscape of the office property market and providing more opportunities for the interior design companies in Hong Kong.

4. Adaptation to agile office space

Increasing number of companies is now embracing the concept of agile working to create a flexible workspace that increases the work productivity of the staffs. Unlike the traditional offices with formal layout of working desks and meeting rooms, agile working creates a flexible and productive environment by creating different working areas within the office where the staffs have complete freedom and flexibility to work. The adoption of agile office is gaining popularity in both start-ups and multi-national companies. On the other hand, it is a rising trend for companies, especially start-ups and small corporates, to set up offices in co-working places, where the working environment is more dynamic and rents could be shared. The rising trend of agile offices and co-working spaces would reshape the layout of offices.

Drivers

1. Increasing residential supply

In the 2017 Budget Speech, the government projected that about a total of 188,000 residential units will be made available within the next five years in Hong Kong. About 50% of residential units will be provided through the private sector and the rest will be provided from the public sector. The increase of housing supplies will stimulate demand in interior design services market to customise the living space for comfort and maximise the space usage through the designs in the newly built residential units. It is expected that increasing residential supply would drive up the interior design services market in Hong Kong.

APPENDIX I

INDUSTRY OVERVIEW

2. Rising requirements

With the stable economic growth and rising disposable income, the requirements for the quality of works are on the rise. To cater to the needs of buyers, the property developers are implementing new design concepts for the newly built residential units, thereby increasing project complexity and creating the stringent requirement for interior design services.

3. Continued urban renewal and redevelopment

Faced with the imbalance between demand and supply of housing market in Hong Kong, the government has been launching policies to simplify and speed up the process of land use planning and development. The renovation and redevelopment projects will certainly require the interior design services. Continued urban renewal and redevelopment drive up the interior design services market of Hong Kong.

Entry barriers

1. Industry experience

Despite the entry barrier to enter the interior design services market is relatively low in Hong Kong, new entrants with relevant experience, such as provision of interior design solutions to high-end residential flats and commercial premises, would be at the better position to win contracts from customers. Consumers will be more comfortable to acquire service from experienced and renowned interior design firms with professional designers and relevant track record. Without such experience, new entrants may find it difficult to interest consumers.

2. Relationship with industry players

Interior design services providers usually work within strict budget and specific timeline. Without well-developed relationships with suppliers and other specialised contractors, new entrants may not be able to advise on the use of building materials, fixtures and furniture. Moreover, the lack of connection may act as a barrier to coordination with other parties and overall project management, who are critical to the delivery capability and quality of works.

3. Reputation and Creditability

Word of mouth, advertisements, and awards are the key selection criterion of interior design services. Credible track record for quality of works and timely delivery within budget control is the critical metrics for the interior design companies. New entrants without sound reputation built on the past experience in delivering interior design works would compromise a company's overall competitiveness in the market.

All of the above requires time and persistent efforts to develop and once established would create trust and reliance with customer which are not easily replaceable. The Target Group is led by a strong management team with over 20 years of experience in the interior design industry. Capability to take up various types of projects, including residential, commercial, show flats, sales office and sales galleries, and quality of services are the core competence of the Target Group. With the track record in various sizable property projects in Hong Kong, the Target Group has gained the recognition of clients through timely delivery and satisfactory project execution. Please refer to the section headed "Competitive Strengths" in the circular for details.

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APPENDIX II
REGULATORY OVERVIEW

The Target Group is an interior design services provider based in Hong Kong. As at the Latest Practicable Date, there was no statutory or mandatory licensing and qualification system governing the provision of interior design services in Hong Kong.

Below sets out a summary of certain aspects of the Hong Kong laws and regulations which are relevant to the Target Group’s operations and business:

MANDATORY PROVIDENT FUND SCHEMES ORDINANCE (CHAPTER 485 OF THE LAWS OF HONG KONG)

The Mandatory Provident Fund Scheme is a defined contribution retirement scheme managed by authorised independent trustees. The Mandatory Provident Fund Schemes Ordinance provides that an employer shall participate in the Mandatory Provident Fund Scheme and make contributions for its employees aged between 18 and 65. Under the Mandatory Provident Fund Scheme, an employer and its employee are both required to contribute 5% of the employee’s monthly relevant income as mandatory contribution for and in respect of the employee, subject to the minimum and maximum relevant income levels for contribution purposes. The maximum level of relevant income for contribution purposes is currently HK$30,000 per month or HK$360,000 per year.

EMPLOYMENT ORDINANCE (CHAPTER 57 OF THE LAWS OF HONG KONG)

All employees under contracts of employment are covered by the Employment Ordinance and as employers we are obliged to adhere to the Employment Ordinance. Under the Employment Ordinance, our Group as employer is required to make payment in lieu of notice in terminating an employment contract (section 7), pay end of year payment in accordance with contractual provisions (section 11C), grant paid maternity leave (section 14), prohibit assignment of heavy hazardous or harmful work for a pregnant employee (section 15AA), grant rest days, paid holidays and paid annual leave (section 17, section 39 and section 41AA), pay wages within 7 days upon the expiry of the last day of the wage period (section 23), grant severance and long service payment (section 31B and section 31R), deduct wages only under the prescribed circumstances (section 32), grant paid sickness day (section 33) and keep wages and employment records of each employee covering the period of his/her employment during the preceding 12 months’ period (section 49A).

MINIMUM WAGE ORDINANCE (CHAPTER 608 OF THE LAWS OF HONG KONG)

The Minimum Wage Ordinance establishes a statutory minimum wage regime to provide for a minimum wage at an hourly rate for employees employed under a contract of employment under the Employment Ordinance (Chapter 57 of the Laws of Hong Kong), save for stipulated exceptions. Statutory minimum wage became effective on 1 May 2019, the minimum wage rate is currently set at HK$37.5 per hour. Any provision of the employment contract which purports to extinguish or reduce the right, benefit or protection conferred on the employee by this Ordinance is void. The Minimum Wage Commission must report on any recommended changes in statutory minimum wage at least once in every 2 years to the Chief Executive in Hong Kong, and the Chief Executive may adjust the statutory minimum wage having regard to such recommendation.

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APPENDIX II
REGULATORY OVERVIEW

EMPLOYEES' COMPENSATION ORDINANCE (CHAPTER 282 OF THE LAWS OF HONG KONG)

The Employees' Compensation Ordinance establishes a no-fault and non-contributory employee compensation system for work injuries and lays down the rights and obligations of employers and employees in respect of injuries or death caused by accidents arising out of and in the course of employment, or by prescribed occupational diseases. The Ordinance in general applies to all full-time and part-time employees who are employed under a contract of service or apprenticeship in any employment.

Under Section 40 of the Employees' Compensation Ordinance, all employers are required to take out insurance policies to cover their liabilities both under the Employees' Compensation Ordinance and at common law for injuries at work in respect of all their employees. An employer who fails to comply with the Employees' Compensation Ordinance to secure an insurance cover is liable on conviction to a fine of HK$100,000 and imprisonment for two years.

The Employees' Compensation Ordinance provides for payment of compensation to employees who are injured in the course of employment. An employer is liable to pay compensation in respect of personal injuries sustained by his employees by accident rising out of and in the course of employment; or in respect of total or partial incapacity or death of employee results from occupational diseases and is due to the nature of any employment in which the employee was employed at any time within the prescribed period immediately preceding such incapacity or death.

According to Section 48 of the Employees' Compensation Ordinance, an employer shall not, without the consent of the Commissioner for Labour, terminate, or give notice to terminate, the contract of service of an employee (who has suffered incapacity or temporary incapacity in circumstances which entitle him to compensation under the Employees' Compensation Ordinance) before occurrence of certain events. Any person who commits breach of this provision is liable on conviction to a maximum fine of HK$100,000.

OCCUPIERS LIABILITY ORDINANCE (CHAPTER 314 OF THE LAWS OF HONG KONG)

The Occupiers Liability Ordinance regulates the obligations of a person occupying or having control of premises on injury resulting to persons or damage caused to goods or other property lawfully on the land.

The Occupiers Liability Ordinance imposes a common duty of care on an occupier of a premise to take reasonable care of the premise in all circumstances so as to ensure that his visitor will be reasonably safe in using the premises for the purposes for which he is invited or permitted by the occupier to be there.

OCCUPATIONAL SAFETY AND HEALTH ORDINANCE (CHAPTER 509 OF THE LAWS OF HONG KONG)

The Occupational Safety and Health Ordinance provides for the safety and health protection to employees in workplaces, both industrial and non-industrial.

APPENDIX II
REGULATORY OVERVIEW

Employers must as far as reasonably practicable ensure the safety and health in their workplaces by:

(a) providing and maintaining plant and work systems that are safe and without risks to health;
(b) making arrangement for ensuring safety and absence of risks to health in connection with the use, handling, storage or transport of plant or substances;
(c) providing all necessary information, instruction, training, and supervision for ensuring safety and health;
(d) as regards any workplace under the employer's control, maintaining the workplace in a condition that is safe and without risks to health and providing and maintaining means of access to and egress from the workplace that are safe and without risks to health; and
(e) providing and maintaining a working environment that is safe and without risks to health.

Failure to comply with the above provisions constitutes an offence and the employer is liable on conviction to a fine of HK$200,000. An employer who fails to do so intentionally knowingly or recklessly commits an offence and is liable on conviction to a fine of HK$200,000 and to imprisonment for six months.

The Commissioner for Labour may also issue improvement notices against non-compliance of the Occupational Safety and Health Ordinance or the Factories and Industrial Undertakings Ordinance (Chapter 59 of the laws of Hong Kong), or suspension notices against activity of workplace which may create imminent hazard to the employees. Failure to comply with such notices constitutes an offence punishable by a fine of HK$200,000 and HK$500,000 respectively and imprisonment of up to one year.

COPYRIGHT ORDINANCE (CHAPTER 528 OF THE LAWS OF HONG KONG)

The Copyright Ordinance currently in force in Hong Kong came into effect on 27 June 1997. The Copyright Ordinance as reviewed and revised from time to time provides comprehensive protection for recognised categories of literary, dramatic, musical and artistic works, as well as for sound recordings, films, television broadcasts and cable programmes.

In the course of preparing interior design proposals, the Target Group may create original artistic works (such as drawings) or literary work (such as text) or video that qualifies for copyright protection without registration. Infringement of copyright is civilly actionable.

TRADE DESCRIPTIONS ORDINANCE (CHAPTER 362 OF THE LAWS OF HONG KONG)

The Trade Descriptions Ordinance aims to protect customers against unfair trade practices by regulating businesses to sell products and services in a truthful manner. It prohibits false trade descriptions in respect of services supplied in the course of trade.

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APPENDIX II
REGULATORY OVERVIEW

Section 2 of the Trade Descriptions Ordinance provides, inter alia, that “trade description” in relation to services means an indication, direct or indirect, and by whatever means given, with respect to the service or any part of the service including an indication of any of the matters — nature, scope, quantity (including the number of occasions on which, and the length of time for which, the service is supplied or to be supplied), standard, quality, value or grade; fitness for purpose, strength, performance, effectiveness, benefits or risks; method and procedure by which, manner in which, and location at which, the service is supplied or to be supplied; availability; testing by any person and the results of the testing; approval by any person or conformity with a type approved by any person; a person by whom it has been acquired, or who has agreed to acquire it; the person by whom the service is supplied or to be supplied; after-sale service assistance concerning the service; price, how price is calculated or the existence of any price advantage or discount.

Section 7 of the Trade Descriptions Ordinance provides that no person shall in the course of trade or business apply a false trade description to any goods or sell or offer for sale any goods with false trade descriptions applied thereto.

Section 7A of the Trade Descriptions Ordinance provides that a trader who applies a false trade description to a service supplied or offered to be supplied to a consumer, or supplies or offers to supply to a consumer a service to which a false trade description is applied, commits an offence.

Sections 13E, 13F, 13G, 13H and 13I of the Trade Descriptions Ordinance provide that a trader who engages in relation to a consumer in a commercial practice that (a) is a misleading omission; or (b) is aggressive; (c) constitutes bait advertising; (d) constitutes a bait and switch; or (e) constitutes wrongly accepting payment for a product, commits an offence.

A person who commits an offence under sections 7, 7A, 13E, 13F, 13G, 13H or 13I shall be subject, on conviction on indictment, to a fine of HK$500,000 and to imprisonment for five years, and on summary conviction, to a fine at HK$100,000 and to imprisonment for two years.

INLAND REVENUE ORDINANCE (CHAPTER 112 OF THE LAWS OF HONG KONG)

The Inland Revenue Ordinance is an ordinance enacted for the purposes of imposing taxes on property, earnings and profits in Hong Kong. The Inland Revenue Ordinance provides, among other things, that profits tax shall be charged on every person carrying on a trade, profession or business in Hong Kong in respect of his or her assessable profits arising in or derived from Hong Kong at the standard rate, which stood as at the Latest Practicable Date at $16.5\%$ for corporate taxpayers. The Inland Revenue Ordinance also contains detailed provisions relating to, among other things, permissible deductions for outgoings and expenses, set-offs for losses and allowances for depreciations of capital assets.

II-4

APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

The following is the text of a report set out on pages III-1 to III-3, received from the Target Company's reporting accountants, RSM Hong Kong, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this investment circular.

RSM Hong Kong
29th Floor, Lee Garden Two, 28 Yun Ping Road,
Causeway Bay, Hong Kong
T + 852 2598 5123
F + 852 2598 7230
www.rsmhk.com

羅申美會計師事務所
香港銅鑼灣恩平道二十八號
利園二期二十九字樓
電話 + 852 2598 5123
傳真 + 852 2598 7230
www.rsmhk.com

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP TO THE DIRECTORS OF UNION ASIA ENTERPRISE HOLDINGS LIMITED

Introduction

We report on the historical financial information of Absolute Surge Limited (the "Target Company") and its subsidiaries (hereinafter collectively referred to as the "Target Group") set out on pages III-4 to III-55, which comprises the combined statements of financial position of the Target Group as at 31 March 2016, 2017 and 2018 and 30 November 2018, the statements of financial position of the Target Company as at 31 March 2018 and 30 November 2018, and the combined statements of profit or loss and other comprehensive income, the combined statements of changes in equity and the combined statements of cash flows for each of the periods then ended (the "Track Record Period") and a summary of significant accounting policies and other explanatory information (together, the "Historical Financial Information"). The Historical Financial Information set out on pages III-4 to III-55 forms an integral part of this report, which has been prepared for inclusion in the investment circular of Union Asia Enterprise Holdings Limited (the "Company") dated 29 May 2019 (the "Investment Circular") in connection with the proposed very substantial acquisition of the entire equity interest in the Target Company.

Directors' responsibility for the Historical Financial Information

The directors of the Company are responsible for the preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information, and for such internal control as the directors determine is necessary to enable the preparation of Historical Financial Information that is free from material misstatement, whether due to fraud or error.

III-1

APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

Reporting accountants' responsibility

Our responsibility is to express an opinion on the Historical Financial Information and to report our opinion to you. We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200 Accountants' Reports on Historical Financial Information in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants (the "HKICPA"). This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information is free from material misstatement.

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants' judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity's preparation of Historical Financial Information that give a true and fair view in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors of the Company, as well as evaluating the overall presentation of the Historical Financial Information.

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

Opinion

In our opinion, the Historical Financial Information gives, for the purposes of the accountants' report, a true and fair view of the Target Company's financial position as at 31 March 2018 and 30 November 2018 and the Target Group's financial position as at 31 March 2016, 2017 and 2018 and 30 November 2018 and of the Target Group's financial performance and cash flows for the Track Record Period in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information.

III-2

APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

Review of stub period comparative financial information

We have reviewed the stub period comparative financial information of the Target Group which comprises the combined statements of profit or loss and other comprehensive income, changes in equity and cash flows for the eight months ended 30 November 2017 and other explanatory information (the "Stub Period Comparative Financial Information"). The directors of the Company are responsible for the preparation and presentation of the Stub Period Comparative Financial Information in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information. Our responsibility is to express a conclusion on the Stub Period Comparative Financial Information based on our review. We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the HKICPA. A review consists 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 Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the Stub Period Comparative Financial Information, for the purposes of the accountants' report, is not prepared, in all material respects, in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information.

Report on matters under the Rules Governing the Listing of Securities on GEM of The Stock Exchange of Hong Kong Limited and the Companies (Winding Up and Miscellaneous Provisions) Ordinance

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page III-4 have been made.

Dividends

We refer to Note 15 to the Historical Financial Information which states that no dividends have been paid by the Target Company in respect of the Track Record Period.

No statutory financial statements for the Target Company

No statutory financial statements have been prepared for the Target Company since its date of incorporation.

RSM Hong Kong
Certified Public Accountants
Hong Kong
29 May 2019

III-3

APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of this accountants' report.

The financial statements of the Target Group for the Track Record Period, on which the Historical Financial Information is based, were audited by RSM Hong Kong in accordance with Hong Kong Standards on Auditing issued by the HKICPA ("Underlying Financial Statements").

The Historical Financial Information is presented in Hong Kong dollars ("HK$") and all values are rounded to the nearest thousand (HK$'000) except when otherwise indicated.

III-4

APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

COMBINED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

	Note	Year ended 31 March			Eight months ended 30 November
		2016
HK$’000	2017
HK$’000	2018
HK$’000	2017
HK$’000
(unaudited)	2018
HK$’000
Revenue	6	55,667	68,092	61,840	36,362	47,437
Cost of services		(21,366)	(26,377)	(26,597)	(17,167)	(19,267)
Gross profit		34,301	41,715	35,243	19,195	28,170
Other income	7	128	325	202	22	5
Other (losses)/gains	8	(1)	(555)	3,312	3,164	128
Administrative expenses		(15,325)	(15,366)	(18,295)	(11,921)	(13,677)
Other expenses		(346)	(400)	-	-	-
Profit from operations		18,757	25,719	20,462	10,460	14,626
Finance costs	10	-	(316)	(873)	(608)	(849)
Profit before tax		18,757	25,403	19,589	9,852	13,777
Income tax	11	(3,076)	(4,242)	(3,114)	(1,527)	(2,032)
Profit and total comprehensive income for the year/period	12	15,681	21,161	16,475	8,325	11,745
Earnings per share
Basic and diluted	16	N/A	N/A	N/A	N/A	N/A

APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

COMBINED STATEMENTS OF FINANCIAL POSITION

	Note	As at 31 March			As at 30 November
		2016	2017	2018	2018
		HK$'000	HK$'000	HK$'000	HK$'000
Non-current assets
Property, plant and equipment	17	4,297	4,275	3,242	2,871
Key management insurance policy	18	1,517	-	8,046	-
Financial assets at fair value through profit or loss	18(b)	-	-	-	8,184
Deferred tax assets	29	76	4	-	-
		5,890	4,279	11,288	11,055
Current assets
Contract cost assets	19	2,500	890	518	101
Contract assets	20	18,943	13,029	13,284	20,169
Trade and other receivables	21	3,815	27,273	33,089	6,297
Key management insurance policy	18	-	1,883	-	-
Amount due from a director	22	-	57,402	-	-
Amount due from a related company	23	16,567	-	-	-
Current tax assets		1,047	2,259	1,597	1,406
Bank and cash balances	24	20,123	26,342	19,593	41,960
		62,995	129,078	68,081	69,933
Current liabilities
Contract liabilities	20	1,090	3,017	8,107	3,369
Trade and other payables	25	892	1,988	3,753	4,451
Amounts due to directors	26	5,040	-	16,774	39
Amount due to a related company	27	171	-	-	-
Amount due to the holding company	27	-	-	-	50
Current tax liabilities		7,355	6,240	4,141	5,398
Bank loans	28	-	46,360	25,000	34,440
		14,548	57,605	57,775	47,747
Net current assets		48,447	71,473	10,306	22,186

APPENDIX III ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

	Note	As at 31 March			As at 30 November
		2016
HK$’000	2017
HK$’000	2018
HK$’000	2018
HK$’000
Total assets less current liabilities		54,337	75,752	21,594	33,241
Non-current liabilities
Deferred tax liabilities	29	169	423	290	192
NET ASSETS		54,168	75,329	21,304	33,049
Capital and reserves
Share capital	30	219	219	219	219
Retained profits		53,949	75,110	21,085	32,830
TOTAL EQUITY		54,168	75,329	21,304	33,049

III-7

APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

STATEMENTS OF FINANCIAL POSITION OF THE TARGET COMPANY

	Note	As at 31 March 2018	As at 30 November 2018
		HK$'000	HK$'000
Current assets
Bank balances		-	58
Prepayments		-	6
		-	64
Current liabilities
Amount due to a director	26	6	26
Amount due to the holding company	27	-	50
		6	76
NET LIABILITIES		(6)	(12)
Deficiency in assets
Share capital	30	-	-
Accumulated losses		(6)	(12)
TOTAL DEFICIT ON EQUITY		(6)	(12)

III-8

APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

COMBINED STATEMENTS OF CHANGES IN EQUITY

| | Share capital
HK$'000 | Retained profits
HK$'000 | Total equity
HK$'000 |
| --- | --- | --- | --- |
| As at 1 April 2015 | 219 | 48,268 | 48,487 |
| Total comprehensive income for the year | – | 15,681 | 15,681 |
| Dividends (Note 15) | – | (10,000) | (10,000) |
| As at 31 March 2016 and 1 April 2016 | 219 | 53,949 | 54,168 |
| Total comprehensive income for the year | – | 21,161 | 21,161 |
| As at 31 March 2017 and 1 April 2017 | 219 | 75,110 | 75,329 |
| Total comprehensive income for the year | – | 16,475 | 16,475 |
| Dividends (Note 15) | – | (70,500) | (70,500) |
| As at 31 March 2018 and 1 April 2018 | 219 | 21,085 | 21,304 |
| Total comprehensive income for the period | – | 11,745 | 11,745 |
| As at 30 November 2018 | 219 | 32,830 | 33,049 |
| As at 31 March 2017 and 1 April 2017 | 219 | 75,110 | 75,329 |
| Total comprehensive income for the period | – | 8,325 | 8,325 |
| As at 30 November 2017 (unaudited) | 219 | 83,435 | 83,654 |

III-9

APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

COMBINED STATEMENTS OF CASH FLOWS

	Year ended 31 March			Eight months ended 30 November
	2016	2017	2018	2017	2018
	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000
				(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax	18,757	25,403	19,589	9,852	13,777
Adjustments for:
Interest income	(4)	(136)	(31)	(22)	(5)
Interest expenses	-	316	873	608	849
Insurance expenses	286	21	9	2	-
Fair value gain on financial assets at fair value through profit or loss	-	-	-	-	(138)
Loss/(Gain) on disposal of property, plant and equipment	-	538	(3,157)	(3,157)	-
Depreciation	1,888	1,872	1,652	1,177	950
Exchange loss/(gain)	-	1	(1)	(9)	-
Operating profit before working capital changes	20,927	28,015	18,934	8,451	15,433
Decrease in contract cost assets	715	1,610	372	199	417
(Increase)/Decrease in contract assets	(2,668)	5,914	(255)	(8,641)	(6,885)
Decrease/(Increase) in trade and other receivables	4,567	(23,474)	(5,816)	13,320	26,792
Increase/(Decrease) in contract liabilities	385	1,927	5,090	(928)	(4,738)
Increase in trade and other payables	567	1,096	1,765	4,081	698
Cash generated from operations	24,493	15,088	20,090	16,482	31,717
Income tax refund/(paid)	676	(6,243)	(4,680)	-	(682)
Net cash generated from operating activities	25,169	8,845	15,410	16,482	31,035

III-10

APPENDIX III ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

	Year ended 31 March			Eight months ended 30 November
	2016	2017	2018	2017	2018
	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000
				(unaudited)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received	4	1	2	1	5
Deposits paid for property, plant and equipment	(16)	-	-	-	-
Purchases of property, plant and equipment	(4,273)	(2,372)	(2,062)	(1,871)	(579)
Advance to a director	-	(40,264)	(10,223)	(8,021)	-
Advance to a related company	(16,000)	(881)	(13,951)	-	-
Key management insurance policy payment	(253)	(253)	(8,053)	-	-
Net cash used in investing activities	(20,538)	(43,769)	(34,287)	(9,891)	(574)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend paid	(10,000)	-	(10,500)	-	-
Interest paid	-	(316)	(804)	(608)	(791)
Upfront fee paid for bank loan	-	-	-	-	(106)
Advance from directors	1,532	-	28	-	-
Repayment to directors	-	(5,040)	-	-	(16,735)
Advance from the holding company	-	-	-	-	50
Advance from a related company	-	139	-	-	-
Proceeds from bank loans	-	47,000	25,000	-	12,000
Repayment of bank loans	-	(640)	(1,596)	(1,290)	(2,512)
Net cash (used in)/generated from financing activities	(8,468)	41,143	12,128	(1,898)	(8,094)
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS	(3,837)	6,219	(6,749)	4,693	22,367
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR/PERIOD	23,960	20,123	26,342	26,342	19,593
CASH AND CASH EQUIVALENTS AT THE END OF YEAR/PERIOD	20,123	26,342	19,593	31,035	41,960
ANALYSIS OF CASH AND CASH EQUIVALENTS
Bank and cash balances	20,123	26,342	19,593	31,035	41,960

III-11

APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1. REORGANISATION OF THE TARGET GROUP AND BASIS OF PREPARATION AND PRESENTATION

The Target Company was incorporated in the British Virgin Islands (“BVI”) on 2 August 2017 with limited liability. The address of its registered office is Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, BVI. In the opinion of the directors of the Target Company, its immediate and ultimate holding company is Whistle Up Limited, a company incorporated in the BVI with limited liability which is beneficially owned as to 96% by Mr. Chan Norman Enrique (“Mr. Norman Chan”), 3% by Mr. Lee Alex Kam-fai (“Mr. Alex Lee”) and 1% by Ms. Kwok Lai Yi Susanna.

The Target Company is an investment holding company. The principal activities of its subsidiaries are the provision of interior design and execution services (the “Business”).

Pursuant to the reorganisation as more fully explained in the section headed “History and background of the Target Group – Reorganisation” to the Investment Circular, the Target Company completed the reorganisation of the Target Group and became the holding company of the companies now comprising the Target Group on 26 April 2019. Prior to the incorporation of the Target Company and the completion of the reorganisation of the Target Group as described above, the Business was carried out by companies now comprising the Target Group (collectively the “Operating Companies”). The Operating Companies were collectively controlled by Mr. Norman Chan throughout the Track Record Period.

Upon completion of the reorganisation of the Target Group and as at the date of this report, the Target Company has direct interests in the following subsidiaries:

Name	Place of incorporation/ operation and date of incorporation	Principal activities	Type of legal status	Issued and paid up capital	Effective interest held as at 30
					2016	31 March 2017	2018	30 November 2018	date of report
BTR (ASIA) LIMITED (“BTR Asia”)	Hong Kong, 18 December 2013	Provision of interior design and execution services	Limited liability company	HK$8,000	N/A	N/A	N/A	N/A	100%
BTR (HK) LIMITED (“BTR HK”)	Hong Kong, 19 March 2009	Provision of interior design and execution services	Limited liability company	HK$1,000	N/A	N/A	N/A	N/A	100%
BTR (INTL) LIMITED (“BTR Intl”)	Hong Kong, 18 January 2013	Provision of interior design and execution services	Limited liability company	HK$10,000	N/A	N/A	N/A	N/A	100%
BTR WORKSHOP LIMITED (“BTR Workshop”)	Hong Kong, 1 June 1995	Provision of interior design and execution services	Limited liability company	HK$200,000	N/A	N/A	N/A	N/A	100%

III-12

APPENDIX III ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

No audited statutory financial statements have been issued for the Target Company since its date of incorporation as there is no statutory audit requirement from its place of incorporation and the Target Company has not carried on any business other than those transactions relating to the reorganisation of the Target Group.

The statutory financial statements of the subsidiaries for the year ended 31 March 2016 were audited by Dave Kwok & Co., Certified Public Accountants, Hong Kong. The statutory financial statements of the subsidiaries for the years ended 31 March 2017 and 2018 were audited by RSM Hong Kong, Certified Public Accountants, Hong Kong.

Immediately prior to and after the reorganisation of the Target Group, the Business is held by the Operating Companies. Pursuant to the reorganisation of the Target Group, the Operating Companies together with the Business are transferred to and held by the Target Company. The Target Company has not been involved in any business prior to the reorganisation of the Target Group and does not meet the definition of a business. The reorganisation of the Target Group is merely a reorganisation of the Business with no change in management of such business and the ultimate controlling owner of the Business remain the same. Accordingly, the combined financial information of the companies now comprising the Target Group is presented using the carrying values of the Business for all periods presented. For the purpose of this report, the Historical Financial Information has been prepared on a basis in accordance with the principles of the Hong Kong Standard on Investment Circular Reporting Engagements 200 Accountants' Reports on Historical Financial Information in Investment Circulars issued by the HKICPA. Intercompany transactions and balances have been eliminated on combination.

This Historical Financial Information complies with the applicable disclosure provisions of the Rules Governing the Listing of Securities on GEM of The Stock Exchange of Hong Kong Limited.

The Historical Financial Information has been prepared in accordance with all applicable Hong Kong Financial Reporting Standards ("HKFRSs") which comprise Hong Kong Financial Reporting Standards ("HKFRS"); Hong Kong Accounting Standards ("HKAS"); and interpretations, issued by the HKICPA. All HKFRSs effective for accounting period commencing from 1 April 2018 including HKFRS 15 Revenue from Contracts with Customers ("HKFRS 15") together with the relevant transitional provisions, have been consistently applied by the Target Group in preparation of the Historical Financial Information throughout the Track Record Period, except that the Target Group has adopted HKFRS 9 Financial Instruments ("HKFRS 9") retrospectively to items that existed at 1 April 2018 in accordance with the transition requirements and applied HKAS 39 Financial Instruments: Recognition of Measurement ("HKAS 39") for the three years ended 31 March 2018. Comparative information is not restated. Accordingly, certain comparative information is not comparable. Significant accounting policies adopted by the Target Group are set out in Note 3 below.

HKFRS 9 replaces HKAS 39. HKFRS 9 introduces new requirements for classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.

HKFRS 9 is effective for annual periods beginning on or after 1 January 2018 on a retrospective basis. The Target Group has adopted this new standard on 1 April 2018.

III-13

APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

(a) Classification and measurement

The table below illustrates the classification and measurement of financial assets and financial liabilities under HKFRS 9 and HKAS 39 at the date of initial application, 1 April 2018.

	Note	Original measurement category under HKAS 39	New measurement category under HKFRS 9	Original carrying amount under HKAS 39 HKS'000	New carrying amount under HKFRS 9 HKS'000
The Target Group
Financial assets
Key management insurance policy	18(b)	Loans and receivables	Financial assets at fair value through profit or loss	8,046	8,046
Trade receivables	21	Loans and receivables	Financial assets at amortised cost	31,304	31,304
Deposits and other receivables		Loans and receivables	Financial assets at amortised cost	1,190	1,190
Bank and cash balances	24	Loans and receivables	Financial assets at amortised cost	19,593	19,593
Financial liabilities
Accruals and other payables (at amortised cost)		Financial liabilities at amortised cost	Financial liabilities at amortised cost	2,530	2,530
Amounts due to directors	26	Financial liabilities at amortised cost	Financial liabilities at amortised cost	16,774	16,774
Bank loans	28	Financial liabilities at amortised cost	Financial liabilities at amortised cost	25,000	25,000

Under HKAS 39, the key management insurance policy was classified as loans and receivables. The key management insurance policy is classified as financial assets at fair value through profit or loss under HKFRS 9 as at 1 April 2018 since its contractual cash flows are not solely payments of principal and interest.

	Note	Original measurement category under HKAS 39	New measurement category under HKFRS 9	Original carrying amount under HKAS 39 HKS'000	New carrying amount under HKFRS 9 HKS'000
The Target Company
Financial liabilities
Amount due to a director	26	Financial liabilities at amortised cost	Financial liabilities at amortised cost	6	6

(b) Impairment

HKFRS 9 requires the Target Group to recognise and measure either a 12-month expected credit loss or lifetime expected credit loss, depending on the asset and the facts and circumstances. The Target Group has not recognised loss allowance upon the initial recognition of HKFRS 9 as the amount involved is insignificant.

APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

2. NEW AND REVISED HKFRSs IN ISSUE BUT NOT YET EFFECTIVE

The Target Group has not early applied certain new and revised HKFRSs that have been issued but are not yet effective during the Track Record Period. These new and revised HKFRSs include the following which may be relevant to the Target Group.

	Effective for accounting periods beginning on or after
HKFRS 16 Leases	1 January 2019
HKFRS 17 Insurance Contracts	1 January 2021
Amendments to HKFRS 3 Business Combinations (Annual Improvements to HKFRSs 2015-2017 Cycle)	1 January 2019
Amendments to HKFRS 11 Joint Arrangements (Annual Improvements to HKFRSs 2015-2017 Cycle)	1 January 2019
Amendments to HKFRS 12 Income Taxes (Annual Improvements to HKFRSs 2015-2017 Cycle)	1 January 2019
Amendments to HKFRS 23 Borrowing Costs (Annual Improvements to HKFRSs 2015-2017 Cycle)	1 January 2019
Amendments to HKFRS 3 Business Combinations: Definition of a Business	a
Amendments to HKFRS 9 Financial Instruments: Prepayments Features with Negative Compensation	1 January 2019
Amendments to HKFRS 10 Consolidated Financial Statements and HKAS 28 Investments in Associates and Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture	To be determined
Amendments to HKAS 1 Presentation of Financial Statements and HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Material	1 January 2020
Amendments to HKAS 19 Employee Benefits: Plan Amendment, Curtailment or Settlement	1 January 2019
Amendments to HKAS 28 Investments in Associates and Joint Ventures: Long-term Interests in Associates and Joint Ventures	1 January 2019
HK(IFRIC)-Int 23 Uncertainty over Income Tax Treatments	1 January 2019

a Effective for business combinations and asset acquisitions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2020.

The Target Group is in the process of making an assessment of what the impact of the above amendments and new standards is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have significant impact on the Target Group's results of operation and financial position, except for the following:

HKFRS 16 Leases

HKFRS 16 Leases ("HKFRS 16") replaces HKAS 17 Leases ("HKAS 17") and related interpretations. The new standard introduces a single accounting model for lessees. For lessees the distinction between operating and finance leases is removed and lessees will recognise right-of-use assets and lease liabilities for all leases (with optional exemptions for short-term leases and leases of low value assets). HKFRS 16 carries forward the accounting requirements for lessors in HKAS 17 substantially unchanged. Lessors will therefore continue to classify leases as operating or financing leases.

HKFRS 16 is effective for accounting periods beginning on or after 1 January 2019. The Target Group intends to adopt this new standard on the required effective date and to apply the simplified transition approach and will not restate comparative information, under which the cumulative effect of initial application will be recognised in retained earnings at 1 April 2019.

The Target Group plans to use the following practical expedients at the date of transition to HKFRS 16:

Not to recognise right-of-use assets and lease liabilities for leases with less than 12 months as of the date of initial application.
To apply a single discount rate to a portfolio of leases with reasonably similar characteristics.

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APPENDIX III ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

To exclude initial direct costs from measuring the right-of-use asset at the date of initial application.
To use hindsight in determining the lease term if the contract contains options to extend or terminate the lease.

As disclosed in Note 33 to the Historical Financial Information, the Target Group’s future minimum lease payments under non-cancellable operating leases for its office premises, director’s quarter and office equipment amounted to approximately HK$7,621,000 as at 30 November 2018. These leases are expected to be recognised as lease liabilities, with corresponding right-of-use assets, once HKFRS 16 is adopted. The amounts will be adjusted for the effects of discounting and the transition reliefs available to the Target Group. The directors of the Target Company anticipated that the adoption of HKFRS 16 would not have significant impact on the net financial position and the financial performance of the Target Group based on the assessment so far.

3. SIGNIFICANT ACCOUNTING POLICIES

This Historical Financial Information has been prepared under the historical cost convention, unless mentioned otherwise in the accounting policies below (e.g. financial assets at fair value through profit or loss that are measured at fair value).

The preparation of Historical Financial Information in conformity with HKFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgements in the process of applying the Target Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Historical Financial Information are disclosed in Note 4 to the Historical Financial Information.

The significant accounting policies applied in the preparation of the Historical Financial Information are set out below.

(a) Subsidiaries

Subsidiaries are entities over which the Target Group has control. The Target Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Target Group has power over an entity when the Target Group has existing rights that give it the current ability to direct the relevant activities, i.e. activities that significantly affect the entity’s returns.

(b) Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of each of the Target Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The Historical Financial Information is presented in HK$, which is the Target Company’s functional and presentation currency.

(ii) Transactions and balances in each entity’s financial statements

Transactions in foreign currencies are translated into the functional currency on initial recognition using the exchange rates prevailing on the transaction dates. Monetary assets and liabilities in foreign currencies are translated at the exchange rates at the end of each reporting period. Gains and losses resulting from this translation policy are recognised in profit or loss.

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ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

Property, plant and equipment, held for use in supply of services or for administrative purposes, are stated in the combined statements of financial position at cost, less subsequent accumulated depreciation and subsequent accumulated impairment losses, if any.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Target Group and the cost of the item can be measured reliably. All other repairs and maintenance are recognised in profit or loss during the period in which they are incurred.

Depreciation of property, plant and equipment is calculated at rates sufficient to write off their costs less their residual values over the estimated useful lives on a straight-line basis. The principal annual rates are as follows:

Leasehold improvements	Over the unexpired period of lease term or 20%, whichever is shorter
Furniture and fixtures	20%
Office equipment	20% to 33%
Motor vehicles	30%

The residual values, useful lives and depreciation method are reviewed and adjusted, if appropriate, at the end of each reporting period.

The gain or loss on disposal of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in profit or loss.

(d) Operating leases

Leases that do not substantially transfer to the Target Group all the risks and rewards of ownership of assets are accounted for as operating leases. Lease payments are recognised as an expense on a straight-line basis over the lease term.

(e) Interior design contracts

The Target Group provides interior design and execution services. For certain service contracts in which the Target Group bills a fixed amount that corresponds directly with the value to the customers of the Target Group's performance completed to date, the Target Group recognises revenue in the amount to which the Target Group has a right to invoice. Apart from the aforesaid service contracts, revenue from a fixed-price contract is recognised over time based on the contract costs incurred to date as a percentage of total forecast costs to depict the transfer of control of services to the customer. The Target Group recognises revenue over time only if it can reasonably measure its progress toward complete satisfaction of the performance obligation. If the Target Group cannot reasonably measure the outcome (for example, in the early stages of a contract) but expects to recover the costs incurred in satisfying the performance obligation, then it recognised revenue to the extent of the costs incurred.

If a performance obligation is not satisfied over time, the Target Group recognised revenue from interior design and execution services at a point in time.

Estimates of revenues, costs or extent of progress towards completion are revised if circumstances change. Any resulting increases or decreases in estimated revenues or costs are reflected in profit or loss in the period in which the circumstances that give rise to the revision become known by management.

If the costs incurred in fulfilling a contract with a customer are not within the scope of another HKFRS or HKAS, the Target Group recognises contract cost assets from the costs incurred to fulfil an anticipated contract only if the costs relate directly to an anticipated contract that the Target Group can specifically identify; the costs generate or enhance resources of the Target Group that will be used in satisfying performance obligations in the future; and the costs are expected to be recovered. Contract cost assets include direct labour, subcontracting charges and other direct costs.

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APPENDIX III ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

Subsequent to capitalisation, contract cost assets that relate to services that will transfer to the customer at the contract establishment date would be expensed immediately. If the performance obligations are satisfied over time, revenue will be recognised on a cumulative catch-up basis at the contract establishment date reflecting the performance obligations that are partially or fully satisfied at that time.

The Target Group shall recognise an impairment loss in profit or loss to the extent that the carrying amount of a contract cost asset exceeds the remaining amount of consideration that the Target Group expects to receive in exchange for the services to which the contract cost asset relates; less the costs that relate directly to providing those services and that have not been recognised as expenses.

When cumulative revenue from an interior design contract exceeds progress billings, a contract asset is recognised. When progress billings exceed cumulative revenue from an interior design contract, a contract liability is recognised.

Contract liabilities are the Target Group’s obligations to transfer services to customers for which the Target Group has received consideration from the customers.

(f) Recognition and derecognition of financial instruments

Financial assets and financial liabilities are recognised in the combined statements of financial position when the Target Group becomes a party to the contractual provisions of the instruments.

Financial assets are derecognised when the contractual rights to receive cash flows from the assets expire; the Target Group transfers substantially all the risks and rewards of ownership of the assets; or the Target Group neither transfers nor retains substantially all the risks and rewards of ownership of the assets but has not retained control on the assets. On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration received is recognised in profit or loss.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid is recognised in profit or loss.

(g) Financial assets

Applied prior to 1 April 2018

The Target Group classifies its financial assets as loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These assets are carried at amortised cost using the effective interest method (except for short-term receivables where interest is immaterial) minus any reduction for impairment or uncollectibility. The Target Group’s key management insurance policy, trade receivables, other receivables, amount due from a director, amount due from a related company, bank and cash balances are classified in this category.

Key management insurance policy is recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, based on the expected life of the contract, less impairment.

Trade receivables are amounts due from customers for services performed in the ordinary course of business. If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

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Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment.

Applied from 1 April 2018

Non-equity investments held by the Target Group are classified into one of the following measurement categories:

(i) amortised cost, if the investment is held for the collection of contractual cash flows which represent solely payments of principal and interest. Interest income from the investment is calculated using the effective interest method. The Target Group’s trade receivables, other receivables, bank and cash balances are classified in this category.

(ii) fair value at profit or loss if the investment does not meet the criteria for being measured at amortised cost or fair value through other comprehensive income (recycling). Changes in the fair value of the investment (including interest) are recognised in profit or loss. The Target Group’s key management insurance policy is classified in this category.

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment.

The effective interest method is a method of calculating the amortised cost of financial assets and of allocating interest income over the relevant periods.

The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding expected credit losses, through the expected life of the financial assets, or where appropriate, a shorter period, to the gross carrying amount of the financial assets on initial recognition.

The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. On the other hand, the gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance.

Interest income is recognised using the effective interest method for financial assets measured subsequently at amortised cost. For financial assets other than purchased or originated credit-impaired financial assets, interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit-impaired. For financial assets that have subsequently become credit-impaired, interest income is recognised by applying the effective interest rate to the amortised cost of the financial assets. If, in subsequent reporting periods, the credit risk on the credit-impaired financial assets improves so that the financial asset is no longer credit-impaired, interest income is recognised by applying the effective interest rate to the gross carrying amount of the financial asset.

Interest income is recognised in profit or loss using the effective interest method and is included in the “other income” line item.

(h) Cash and cash equivalents

For the purpose of the combined statement of cash flows, cash and cash equivalents represent cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term highly liquid investments which are readily convertible into known amounts of cash and subject to an insignificant risk of change in value.

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(i) Financial liabilities and equity instruments

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument under HKFRSs. An equity instrument is any contract that evidences a residual interest in the assets of the Target Group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below.

(j) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred, and subsequently measured at amortised cost using the effective interest method.

Borrowings are classified as current liabilities unless the Target Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

(k) Trade and other payables

Trade and other payables are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost.

(l) Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

(m) Revenue recognition

Revenue is measured based on the consideration specified in a contract with a customer, excluding amounts collected on behalf of third parties. The Target Group recognises revenue when it transfers control over a service to a customer. Control refers to customer's ability to direct the use of and obtain substantially all the remaining benefits from an asset.

Revenue from interior design and execution services is recognised over time by measuring the progress towards complete satisfaction of a performance obligation as detailed in Note 3(e) above.

Revenue from colour-rendering and handling services is recognised when the related services are rendered.

Interest income is recognised on a time-proportion basis using the effective interest method.

(n) Employee benefits

(i) Employee leave entitlements

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the end of the reporting period.

Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

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(ii) Retirement benefit scheme

The Target Group operates a mandatory provident fund scheme (the "MPF Scheme") under the Hong Kong Mandatory Provident Fund Schemes Ordinance (the "Ordinance") which is a defined contribution plan for all qualifying employees in Hong Kong. The Target Group's contributions to the MPF Scheme are calculated at 5% of the employees' salaries subject to a monthly maximum amount specified in the Ordinance per employee and vest fully with employees when contributed into the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Target Group in an independently administered fund.

The retirement benefit contributions charged to profit or loss represent contributions payable by the Target Group to the MPF Scheme.

(iii) Long service payments

In Hong Kong, employees who have completed a required number of years of service to the Target Group are eligible for long service payments under the Hong Kong Employment Ordinance in the event of the termination of their employment, provided that such terminations meet the circumstances specified in the Hong Kong Employment Ordinance.

(iv) Termination benefits

Termination benefits are recognised at the earlier of the dates when the Target Group can no longer withdraw the offer of those benefits, and when the Target Group recognises restructuring costs and involves the payment of termination benefits.

(o) Borrowing costs

All borrowing costs are recognised in profit or loss in the period in which they are incurred.

(p) Taxation

Income tax represents the sum of the current tax and deferred tax.

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from profit recognised in profit or loss because of items of income or expense that are taxable or deductible in other years/ periods and items that are never taxable or deductible. The Target Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

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

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

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is recognised in profit or loss, except when it relates to items recognised in other comprehensive income or directly in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity.

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APPENDIX III ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

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

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Target Group intends to settle its current tax assets and liabilities on a net basis.

(q) Impairment of non-financial assets

The carrying amounts of non-financial assets are reviewed at each reporting date for indications of impairment and where an asset is impaired, it is written down as an expense to profit or loss to its estimated recoverable amount. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If this is the case, recoverable amount is determined for the cash-generating unit to which the asset belongs. Recoverable amount is the higher of value in use and the fair value less costs of disposal of the individual asset or the cash-generating unit.

Value in use is the present value of the estimated future cash flows of the asset/cash-generating unit. Present values are computed using pre-tax discount rates that reflect the time value of money and the risks specific to the asset/cash-generating unit whose impairment is being measured.

Subsequent increases in the recoverable amount caused by changes in estimates are credited to profit or loss to the extent that they reverse the impairment.

(r) Impairment of financial assets

Applied prior to 1 April 2018

At the end of each reporting period, the Target Group assesses whether its financial assets are impaired, based on objective evidence that, as a result of one or more events that occurred after the initial recognition, the estimated future cash flows of the financial assets have been affected.

For trade receivables that are assessed not to be impaired individually, the Target Group assesses them collectively for impairment, based on the Target Group's past experience of collecting payments, an increase in the delayed payments in the portfolio, observable changes in economic conditions that correlate with default on receivables, etc.

Only for trade receivables, the carrying amount is reduced through the use of an allowance account and the loss is recognised in profit or loss. If in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

For all other financial assets, the carrying amount is directly reduced by the impairment loss.

For financial assets measured at amortised cost, if the amount of the impairment loss decreases in a subsequent period and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed (either directly or by adjusting the allowance account for trade receivables) through profit or loss. However, the reversal must not result in a carrying amount that exceeds what the amortised cost of the financial asset would have been had the impairment not been recognised at the date the impairment is reversed.

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APPENDIX III ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

Applied from 1 April 2018

The Target Group assesses on a forward looking basis the expected credit losses associated with its assets carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. Note 5(b)(ii) to the Historical Financial Information details how the Target Group determines whether there has been a significant increase in credit risk.

Expected credit loss is a function of the exposure at default, the probability of default and loss given default (i.e. the magnitude of the loss if there is a default). As for the exposure at default for financial assets, this is represented by the assets' gross carrying amount at the reporting date. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking estimates.

For trade receivables and contract assets, the Target Group applies the simplified approach permitted by HKFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the assets. The expected credit losses on these assets are assessed individually for debtors based on the Target Group's internal credit rating, historical observed default rates, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate.

Impairment on other receivables from third parties and related parties are measured as either 12-month expected credit losses or lifetime expected credit losses, depending on whether there has been a significant increase in credit risk since initial recognition. If a significant increase in credit risk of a receivable has occurred since initial recognition, then impairment is measured as lifetime expected credit losses.

The Target Group recognises an impairment gain or loss in profit or loss for all financial assets at amortised cost and contract assets with a corresponding adjustment to their carrying amounts through an allowance account.

The Target Group writes off a financial asset when there is information indicating that there is no realistic prospect of recovery, e.g. the counterparty has been placed under liquidation or has been entered into bankruptcy proceedings. Financial assets written off may still be subject to enforcement activities under the Target Group's recovery procedures. Any recoveries made are recognised in profit or loss.

(s) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Target Group has a present legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow is remote.

(t) Events after the reporting period

Events after the reporting period that provide additional information about the Target Group's position at the end of the reporting period are adjusting events and are reflected in the Historical Financial Information. Events after the reporting period that are not adjusting events are disclosed in the notes to the Historical Financial Information when material.

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ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

4. CRITICAL JUDGEMENTS AND KEY ESTIMATES

Critical judgements in applying accounting policies

In the process of applying the accounting policies, management has made the following judgements that have the most significant effect on the amounts recognised in the Historical Financial Information (apart from those involving estimations, which are dealt with below).

(a) Methods for measuring progress towards complete satisfaction of a performance obligation

As detailed in Note 3(m) to the Historical Financial Information, revenue from interior design and execution services is recognised over time based on the contract costs incurred to date as a percentage of total forecast costs to depict the transfer of control of services to customers. In determining the appropriate method for measuring progress towards complete satisfaction of a performance obligation, the Target Group considered the nature of interior design and execution services that the Target Group promised to transfer to its customers and selected the method of measuring progress that best depicts the transfer of products or services to its customers. In the absence of surveys of performance completed to date or appraisals of results achieved, output methods would not faithfully depict the Target Group's performance in satisfying a performance obligation when the Target Group has performed work in progress or finished goods controlled by customers that are not included in the measurement of the output.

(b) Fulfillment costs for anticipated contracts

Determining whether fulfillment costs qualify for capitalisation requires judgement. In making this judgement, if the costs incurred are not within the scope of another HKFRS or HKAS, the Target Group considered if the costs relate directly to an anticipated contract that the Target Group can specifically identify; the costs generate or enhance resources of the Target Group that will be used in satisfying performance obligations in the future; and the costs are expected to be recovered.

Key sources of estimation uncertainty

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

(a) Property, plant and equipment and depreciation

The Target Group determines the estimated useful lives, residual values and related depreciation charges for the Target Group's property, plant and equipment. This estimate is based on the historical experience of the actual useful lives and residual values of property, plant and equipment of similar nature and functions. The Target Group will revise the depreciation charge where useful lives and residual values are different to those previously estimated, or it will write-off or write-down technically obsolete that have been abandoned.

The carrying amount of property, plant and equipment as at 31 March 2016, 2017 and 2018 and 30 November 2018 was approximately HK$4,297,000, HK$4,275,000, HK$3,242,000 and HK$2,871,000 respectively.

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APPENDIX III ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

(b) Revenue and profit recognition

Apart from certain service contracts in which the Target Group bills a fixed amount for each duration of services provided (revenue recognised in the amount to which the Target Group has a right to invoice), revenue and profit recognition on the provision of interior design and execution services is dependent on the estimation of the progress of the satisfaction of performance obligation of an interior design contract over time. Based on the Target Group's past experience and the nature of the contract activities undertaken by the Target Group, the Target Group makes estimates of the point at which it considers the work is sufficiently advanced such that the costs to complete and the revenue can be reliably estimated. Actual outcome in terms of total forecast costs and/or revenue may be higher or lower than those estimated at the end of the reporting period, which would affect the revenue and profit recognised in future years. During the years ended 31 March 2016, 2017 and 2018 and eight months ended 30 November 2017 and 2018, approximately HK$51,899,000, HK$64,987,000, HK$60,234,000, HK$34,977,000 (unaudited) and HK$45,647,000 of revenue from interior design contracts was recognised respectively.

The Target Group is subject to income taxes in Hong Kong. Significant estimates are required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. During the years ended 31 March 2016, 2017 and 2018 and eight months ended 30 November 2017 and 2018, income tax of approximately HK$3,076,000, HK$4,242,000, HK$3,114,000, HK$1,527,000 (unaudited) and HK$2,032,000 was charged to profit or loss respectively based on the estimated profit from operations.

(d) Impairment loss for bad and doubtful debts

Prior to the adoption of HKFRS 9, the Target Group determines impairment loss for bad and doubtful debts based on assessments of the recoverability of the trade and other receivables, including the current creditworthiness and the past collection history of each customer or debtor. Impairments arise where events or changes in circumstances indicate that the balances may not be collectible. The identification of bad and doubtful debts, in particular of a loss event, requires the use of judgement and estimates. Where the actual result is different from the original estimate, such difference will impact the carrying value of the trade and other receivables and doubtful debt expenses in the year/period in which such estimate has been changed. No receivables were considered to be doubtful by management for the three years ended 31 March 2018.

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ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

5. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

	As at 31 March			As at 30 November
	2016
HK$'000	2017
HK$'000	2018
HK$'000	2018
HK$'000
Financial assets:
Loans and receivables (including bank and cash balances)	41,745	112,323	60,133	-
Financial assets at amortised cost	-	-	-	47,059
Financial assets at fair value through profit or loss	-	-	-	8,184
Financial liabilities:
Financial liabilities at amortised cost	5,758	47,072	44,304	37,611

(b) Financial risk management

The Target Group's activities expose it to a variety of financial risks: foreign currency risk, credit risk, liquidity risk and interest rate risk. The Target Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Target Group's financial performance.

(i) Foreign currency risk

The Target Group is mainly exposed to the foreign exchange risk of United States dollars ("US$"), Renminbi ("RMB") and Japanese yen ("JPY"). Under the pegged exchange rate system, the financial impact on exchange difference between HK$ and US$ will be immaterial as all US$ denominated monetary assets and liabilities are held by group entities having HK$ as their functional currency, and therefore no sensitivity analysis has been prepared. For RMB and JPY, no sensitivity analysis has been prepared as the amount involved is insignificant. The Target Group currently does not have a foreign currency hedging policy in respect of foreign currency transactions, assets and liabilities. The Target Group monitors its foreign currency exposure closely and will consider hedging significant foreign currency exposure should the need arise.

(ii) Credit risk

The Target Group's credit risk is primarily attributable to its key management insurance policy, trade and other receivables, contract assets, amount due from a director, amount due from a related company and bank balances.

The Target Group's credit risk on key management insurance policy held is limited since the counterparties are top-tier financial service providers with good reputation.

In respect of trade receivables and contract assets, individual credit evaluations are performed on all customers. These evaluations focus on the customer's reputation and past history of making payments. Monitoring procedures have been implemented to ensure that follow-up action is taken to recover overdue debts. In addition, management reviews the recoverable amount of each individual trade debt and contract assets regularly to ensure that adequate impairment losses are recognised for irrecoverable debts. In this regard, the Target Group's credit risk is significantly reduced.

For other receivables, management makes periodic individual assessment and collective assessments on the recoverability of other receivables based on historical settlement records and past experience. Management considers that there is no material credit risk inherent in the Target Group's outstanding balances of other receivables.

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ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

The credit risk on bank balances is limited since the counterparties are banks with high credit-ratings.

The Target Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer, therefore significant concentrations of credit risk primarily arise when the Target Group has significant exposure to individual customers. As at 31 March 2016, 2017 and 2018 and 30 November 2018, the Target Group had concentration of credit risk on trade receivables as 94%, 48%, 51% and 32% of its trade receivables were due from five, two, three and one customers which individually contributed over 10% of the Target Group’s trade receivables respectively. As at 31 March 2016, 2017 and 2018 and 30 November 2018, the Target Group had concentration of credit risk on contract assets as 60%, 70%, 43% and 28% of its contract assets were due from four, five, three and one customers which individually contributed over 10% of the Target Group’s contract assets respectively. Management is of the view that these customers are certain reputable companies with high credit-ratings in the market, hence, the credit risk is limited in this regard.

As at 31 March 2016, the Target Group had concentration of credit risk on the amount due from a related company as 26% of the Target Group’s current assets.

As at 31 March 2017, the Target Group had concentration of credit risk on the amount due from a director as 44% of the Target Group’s current assets.

Management assesses the credit risk exposure on the amounts due from a director and a related company to be low as the counterparties were with a strong financial position during the respective reporting periods.

Since the adoption of HKFRS 9 on 1 April 2018, the Target Group applies the simplified approach permitted by HKFRS 9, which permits the use of expected lifetime loss to be recognised from initial recognition of trade receivables and contract assets.

The Target Group considers the probability of default upon initial recognition of asset and whether there has been a significant increase in credit risk on an ongoing basis throughout each reporting period. To assess whether there is a significant increase in credit risk the Target Group compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition. It considers available reasonable and supportive forwarding-looking information. Especially the following indicators are incorporated:

internal credit rating or external credit rating (if available);
actual or expected significant adverse changes in business, financial or economic conditions that are expected to cause a significant change to the counterparty’s ability to meet its obligations;
actual or expected significant changes in the operating results of the counterparty;
significant changes in the expected behavior of the counterparty, including changes in the payment status; and
an actual or expected significant adverse change in the regulatory, economic, or technological environment of the counterparty that results in a significant decrease in the counterparty’s ability to meet its obligations.

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APPENDIX III ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

Irrespective of the outcome of the above assessment, the Target Group presumes that the credit risk has increased significantly since initial recognition when contractual payments are more than 30 days past due, unless the Target Group has reasonable and supportable information that demonstrates otherwise.

Notwithstanding the above, the Target Group assumes that the credit risk on a financial asset has not increased significantly since initial recognition if the financial asset is determined to have low credit risk at the reporting date. A financial asset is determined to have low credit risk if the financial asset has a low risk of default, the counterparty has a strong capacity to meet its contractual cash flow obligations in the short term and adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the counterparty to fulfil its contractual cash flow obligations. The Target Group considers a financial asset to have low credit risk when it has an internal or external credit rating of "investment grade" as per globally understood definitions.

The Target Group considers the following as constituting an event of default for internal credit risk management purposes as historical experience indicates that receivables that meet either of the following criteria are generally not recoverable:

when there is a breach of financial covenants by the counterparty; or
information developed internally or obtained from external sources indicates that the counterparty is unlikely to pay the Target Group, in full (without considering any collaterals held by the Target Group).

Irrespective of the above, the Target Group considers that default has occurred when a financial asset is more than 90 days past due unless the Target Group has reasonable and supportable information that demonstrates otherwise.

A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events:

significant financial difficulty of the counterparty;
a breach of contract, such as a default or past due event; or
it is becoming probable that the counterparty will enter bankruptcy or other financial reorganisation.

As at 30 November 2018, management assessed the expected loss on trade receivables and contract assets individually. Based on past experience of the Target Group, these trade receivables and contract assets are generally recoverable due to the credit ratings, long term/on-going relationship and good repayment record of the customers. As at 30 November 2018, the expected credit loss rates for trade receivables and contract assets are assessed to be 0.6% and 0.3%, respectively. The loss allowance for trade receivables and contract assets was insignificant. In addition, management is of the opinion that no event of default occurred for trade receivables aged over 90 days and the balances are still considered fully recoverable due to the credit ratings, long-term/on-going relationship and good repayment record from these customers.

As at 30 November 2018, the internal credit ratings of other receivables were performing. The Target Group has assessed that the expected credit losses for these receivables are not significant under the 12-month expected loss method. Thus no loss allowance was recognised.

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ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

(iii) Liquidity risk

The Target Group's policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term.

The maturity analysis based on contractual undiscounted cash flows of the Target Group's non-derivative financial liabilities is as follows:

| | On demand or less than one year
HK$'000 |
| --- | --- |
| As at 31 March 2016 | |
| Trade and other payables | 547 |
| Amounts due to directors | 5,040 |
| Amount due to a related company | 171 |
| | 5,758 |
| As at 31 March 2017 | |
| Trade and other payables | 712 |
| Bank loans | 46,360 |
| | 47,072 |
| As at 31 March 2018 | |
| Trade and other payables | 2,530 |
| Amounts due to directors | 16,774 |
| Bank loans | 25,000 |
| | 44,304 |
| As at 30 November 2018 | |
| Trade and other payables | 3,082 |
| Amounts due to directors | 39 |
| Amount due to the holding company | 50 |
| Bank loans | 34,440 |
| | 37,611 |

Specifically, for bank loans contain a repayment on demand clause which can be exercised at the banks' sole discretion, the aforesaid analysis explains the cash outflows based on the earliest period in which the Target Group can be required to pay, that is if the lenders were to invoke the unconditional rights to call the loans with immediate effect.

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ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

The table below summarizes the Target Group’s remaining contractual maturity for its financial liabilities based on agreed schedule repayments.

	On demand or less than one year HK$’000	Between one to two years HK$’000	Between two to five years HK$’000	Total undiscounted cash flow HK$’000
As at 31 March 2016
Trade and other payables	547	–	–	547
Amounts due to directors	5,040	–	–	5,040
Amount due to a related company	171	–	–	171
	5,758	–	–	5,758
As at 31 March 2017
Trade and other payables	712	–	–	712
Bank loans	2,832	2,832	42,941	48,605
	3,544	2,832	42,941	49,317
As at 31 March 2018
Trade and other payables	2,530	–	–	2,530
Amounts due to directors	16,774	–	–	16,774
Bank loans	17,236	2,197	6,591	26,024
	36,540	2,197	6,591	45,328
As at 30 November 2018
Trade and other payables	3,082	–	–	3,082
Amounts due to directors	39	–	–	39
Amount due to the holding company	50	–	–	50
Bank loans	19,885	4,846	11,528	36,259
	23,056	4,846	11,528	39,430

(iv) Interest rate risk

The Target Group’s exposure to interest rate risk arises primarily from its bank loans. Bank loans obtained at variable rates expose the Target Group to cash flow interest rate risk.

As at 31 March 2017 and 2018 and 30 November 2018, if interest rates on bank loans had been 50 basis points higher/lower with all other variables held constant, the Target Group’s profit after tax and retained profits would have been approximately HK$194,000, HK$104,000 and HK$144,000 lower/higher, respectively mainly as a result of the Target Group’s exposure to interest rates on its floating rate bank loans.

(v) Fair value

The carrying amounts of the financial assets and financial liabilities as shown in Note 5(a) above approximate their respective fair values.

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APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following disclosures of fair value measurements use a fair value hierarchy that categorises into three levels the inputs to valuation techniques used to measure fair value:

Level 1 inputs: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Target Group can access at the measurement date.

Level 2 inputs: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 inputs: unobservable inputs for the asset or liability.

The Target Group's policy is to recognise transfers into and transfers out of any of the three levels as of the date of the event or change in circumstances that caused the transfer.

(i) Disclosures of level in fair value hierarchy as at 30 November 2018:

Description	Fair value measurement using level 3 HK$'000
Recurring fair value measurements:
Financial assets at fair value through profit or loss
Key management insurance policy	8,184

(ii) Reconciliation of assets measured at fair value based on level 3:

Description	Financial assets at fair value through profit or loss HK$'000
Reclassified from loans and receivables upon initial application of HKFRS 9	8,046
Total gain recognised in profit or loss (8)	138
As at 30 November 2018	8,184
(8) Include gain for assets held as at 30 November 2018	138

Total gain recognised in profit or loss is presented in the line item "Other (losses)/gains" on the face of the combined statements of profit or loss and other comprehensive income.

(iii) Disclosure of valuation process used by the Target Group and valuation techniques and inputs used in fair value measurements as at 30 November 2018:

The Target Group's financial controller is responsible for the fair value measurements of assets and liabilities required for financial reporting purposes, including level 3 fair value measurements. The financial controller reports directly to the directors of the Target Company for these fair value measurements. Discussions of valuation processes and results are held between the financial controller and directors of the Target Company at each reporting date.

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ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

Level 3 fair value measurements:

Description	Valuation technique	Unobservable inputs	Range	Fair value HK$’000
Key management insurance policy	Discounted cash flow model	Discount rate	3.47%	8,184
		Interest rate	4.00% to 4.20%

The fair value of key management insurance policy is determined using the discounted cash flow model. The duration of the cash flows and the specific timing of inflows and outflows are determined by conditions in accordance with the terms of the insurance contract. The periodic cash flow is estimated as gross redemption value and interest income less surrender charges. The series of periodic net income for the contracting period is then discounted.

The fair value measurement is negatively correlated to the discount rate. As at 30 November 2018, it is estimated that with all other variables held constant, a decrease/increase in discount rate by 1% would have increased/decreased the Target Group's profit after tax by approximately HK$849,000/HK$761,000 respectively.

The fair value measurement is positively correlated to the interest rate. As at 30 November 2018, it is estimated that with all other variables held constant, a decrease/increase in interest rate by 1% would have decreased/increased the Target Group's profit after tax by approximately HK$670,000/HK$723,000 respectively.

6. REVENUE

An analysis of the Target Group’s revenue (net of value-added tax, if any) for the year/period is as follows:

	Year ended 31 March			Eight months ended 30 November
	2016 HK$’000	2017 HK$’000	2018 HK$’000	2017 HK$’000 (unaudited)	2018 HK$’000
Interior design and execution services	54,954	67,737	61,384	35,916	46,727
Colour-rendering services	523	198	454	444	360
Handling services	190	157	2	2	350
	55,667	68,092	61,840	36,362	47,437

The amount of revenue from interior design and execution services recognised in the year ended 31 March 2018, from performance obligations satisfied or partially satisfied in previous periods due to changes in transaction price is approximately HK$526,000 (years ended 31 March 2016 and 2017 and eight months ended 30 November 2017 and 2018: nil).

Handling services income represents income from the procurement of furniture or art pieces and other decorative items for customers which is recognised at a point in time.

Disaggregation of revenue from contracts with customers

In the following tables, revenue is disaggregated by geographical regions and timing of revenue recognition.

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ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

	Interior design and execution services HK$’000	Other HK$’000	Total HK$’000
Year ended 31 March 2016
Geographical regions
Hong Kong	39,316	623	39,939
Macau	1,772	-	1,772
Mainland China	4,532	-	4,532
Philippines	3,517	5	3,522
Sri Lanka	3,243	84	3,327
Singapore	2,574	1	2,575
	54,954	713	55,667
Timing of revenue recognition
Over time	54,809	-	54,809
At a point in time	145	713	858
	54,954	713	55,667
Year ended 31 March 2017
Geographical regions
Hong Kong	55,353	355	55,708
Macau	3,415	-	3,415
Mainland China	3,142	-	3,142
Malaysia	2,733	-	2,733
Philippines	2,005	-	2,005
Sri Lanka	1,089	-	1,089
	67,737	355	68,092
Timing of revenue recognition
Over time	67,627	-	67,627
At a point in time	110	355	465
	67,737	355	68,092
Year ended 31 March 2018
Geographical regions
Hong Kong	50,613	456	51,069
Macau	989	-	989
Mainland China	3,480	-	3,480
Malaysia	544	-	544
Philippines	3,488	-	3,488
Sri Lanka	2,270	-	2,270
	61,384	456	61,840

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ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

	Interior design and execution services HK$’000	Other HK$’000	Total HK$’000
Year ended 31 March 2018
Timing of revenue recognition
Over time	61,284	–	61,284
At a point in time	100	456	556
	61,384	456	61,840
Eight months ended 30 November 2017 (unaudited)
Geographical regions
Hong Kong	28,633	446	29,079
Macau	539	–	539
Mainland China	2,586	–	2,586
Malaysia	523	–	523
Philippines	1,978	–	1,978
Sri Lanka	1,657	–	1,657
	35,916	446	36,362
Timing of revenue recognition
Over time	35,916	–	35,916
At a point in time	–	446	446
	35,916	446	36,362
Eight months ended 30 November 2018
Geographical regions
Hong Kong	39,711	710	40,421
Japan	1,518	–	1,518
Macau	675	–	675
Mainland China	868	–	868
Malaysia	73	–	73
Philippines	3,055	–	3,055
Sri Lanka	435	–	435
Thailand	392	–	392
	46,727	710	47,437
Timing of revenue recognition
Over time	46,727	–	46,727
At a point in time	–	710	710
	46,727	710	47,437

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APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

Transaction price allocated to the remaining performance obligations

The following table includes revenue expected to be recognised in the future relating to performance obligations that are unsatisfied (or partially unsatisfied) as at 30 November 2018:

	Year ended 31 March		Year ending 31 March		Total
	2019 HK$’000	2020 HK$’000	2020 HK$’000	2020 HK$’000
Interior design and execution services	16,314	53,369	38,689	108,372

The Target Group applies the practical expedient in paragraph 121(a) of the HKFRS 15 and does not disclose the information about remaining performance obligations that have original expected durations of one year or less.

The Target Group applies the practical expedient in paragraph C5(d) of HKFRS 15 and does not disclose the information about the amount of the transaction price allocated to the remaining performance obligations as of 31 March 2016, 2017 and 2018 and an explanation of when the Target Group expects to recognise that amount as revenue.

The Target Group applies the practical expedient in paragraph 63 of the HKFRS 15 and does not adjust the promised amount of consideration for the effects of a significant financing component if the Target Group expects, at contract inception, that the period between when the Target Group transfers a promised service to a customer and when the customer pays for that service will be one year or less.

OTHER INCOME

	Year ended 31 March			Eight months ended 30 November
	2016 HK$’000	2017 HK$’000	2018 HK$’000	2017 HK$’000 (unaudited)	2018 HK$’000
Interest income on bank deposits	4	1	2	1	5
Interest income on key management insurance policy	-	135	29	21	-
Sundry income	124	189	171	-	-
	128	325	202	22	5

OTHER (LOSSES)/GAINS

	Year ended 31 March			Eight months ended 30 November
	2016 HK$’000	2017 HK$’000	2018 HK$’000	2017 HK$’000 (unaudited)	2018 HK$’000
Exchange (loss)/gain	(1)	(17)	155	7	(10)
Fair value gain on financial assets at fair value through profit or loss	-	-	-	-	138
(Loss)/Gain on disposal of property, plant and equipment	-	(538)	3,157	3,157	-
	(1)	(555)	3,312	3,164	128

APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

9. SEGMENT INFORMATION

The Target Group's operating activities are attributable to a single operating segment focusing on interior design and execution services. This operating segment has been identified on the basis of internal reports, prepared in accordance with accounting policies which conform with HKFRSs, that are regularly reviewed by the chief operating decision maker ("CODM"), the directors of the Target Company. The CODM is responsible for making decision about resources allocation. The information provided to the CODM is the same as those disclosed in this Historical Financial Information. Accordingly, no reportable segment information is presented.

Geographical information:

Information about the Target Group's revenue from external customers is presented based on the location of the projects:

	Year ended 31 March			Eight months ended 30 November
	2016
HK$’000	2017
HK$’000	2018
HK$’000	2017
HK$’000
(unaudited)	2018
HK$’000
Hong Kong	39,939	55,708	51,069	29,079	40,421
Japan	-	-	-	-	1,518
Macau	1,772	3,415	989	539	675
Mainland China	4,532	3,142	3,480	2,586	868
Malaysia	-	2,733	544	523	73
Philippines	3,522	2,005	3,488	1,978	3,055
Sri Lanka	3,327	1,089	2,270	1,657	435
Singapore	2,575	-	-	-	-
Thailand	-	-	-	-	392
	55,667	68,092	61,840	36,362	47,437

All the Target Group's non-current assets are located in Hong Kong.

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APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

Information about major customers:

Revenue from transactions with external customers amounting to 10% or more of the Target Group's revenue are as follows:

	Year ended 31 March			Eight months ended 30 November
	2016
HK$’000	2017
HK$’000	2018
HK$’000	2017
HK$’000
(unaudited)	2018
HK$’000
Customer a	10,436	21,265	14,746	10,097	14,902
Customer b	6,837	4,813	4,021	2,338	2,131
Customer c	6,514	7,203	4,532	3,522	2,282
Customer d	5,851	3,006	3,280	2,479	2,136

Revenue was derived from services provided to the above respective customers including services provided to a group of entities which are known to be under common control with the above respective customers.

FINANCE COSTS

	Year ended 31 March			Eight months ended 30 November
	2016
HK$’000	2017
HK$’000	2018
HK$’000	2017
HK$’000
(unaudited)	2018
HK$’000
Interest on bank loans	-	316	873	608	849

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ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

11. INCOME TAX

Income tax has been recognised in profit or loss as follows:

	Year ended 31 March			Eight months ended 30 November
	2016 HK$’000	2017 HK$’000	2018 HK$’000	2017 HK$’000 (unaudited)	2018 HK$’000
Current tax
Hong Kong Profits Tax	2,766	3,916	3,243	1,615	2,130
Deferred tax (Note 29)
Origination and reversal of temporary differences	310	326	(129)	(88)	(86)
Impact of change in tax rate	-	-	-	-	(12)
	3,076	4,242	3,114	1,527	2,032

Hong Kong Profits Tax has been provided at a rate of 16.5% on the estimated assessable profits arising in Hong Kong for the Track Record Period.

On 29 March 2018, the Inland Revenue (Amendment) (No. 3) Ordinance 2018 was enacted. The Amendment Ordinance has introduced two-tiered profits tax rates for corporations by lowering the tax rate to 8.25% for the first HK$2 million of assessable profits with effect from the year of assessment 2018/19. Profits above that amount will continue to be subject to the tax rate of 16.5%. The two-tiered profits tax rates are applicable to the Target Group for the eight months ended 30 November 2018.

The reconciliation between the income tax and the product of profit before tax multiplied by Hong Kong Profits Tax rate is as follows:

	Year ended 31 March			Eight months ended 30 November
	2016 HK$’000	2017 HK$’000	2018 HK$’000	2017 HK$’000 (unaudited)	2018 HK$’000
Profit before tax	18,757	25,403	19,589	9,852	13,777
Tax at Hong Kong Profits Tax rate of 16.5%	3,095	4,191	3,232	1,626	2,273
Tax effect of income that is not taxable	(1)	-	(26)	(2)	(23)
Tax effect of expenses that are not deductible	62	131	13	8	13
Tax effect of tax losses not recognised	-	-	-	-	6
Effect of different tax rate	-	-	-	-	(165)
Remeasurement of deferred tax – change in tax rate	-	-	-	-	(12)
Tax concession	(80)	(80)	(105)	(105)	(60)
Income tax	3,076	4,242	3,114	1,527	2,032

12. PROFIT FOR THE YEAR/PERIOD

The Target Group's profit for the year/period is stated after charging the following:

	Year ended 31 March			Eight months ended 30 November
	2016 HK$’000	2017 HK$’000	2018 HK$’000	2017 HK$’000 (unaudited)	2018 HK$’000
Auditor’s remuneration
- Audit service	190	890	1,200	800	1,000
- Non-audit service	-	57	140	40	94
Contract cost assets recognised as expenses	2,480	2,462	890	774	518
Depreciation	1,888	1,872	1,652	1,177	950
Operating lease charges
- Land and buildings (including director’s quarter)	2,045	3,691	5,026	3,265	3,522
- Office equipment	190	190	274	155	246

APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

13. EMPLOYEE BENEFIT EXPENSE

	Year ended 31 March			Eight months ended 30 November
	2016
HK$’000	2017
HK$’000	2018
HK$’000	2017
HK$’000
(unaudited)	2018
HK$’000
Employee benefit expense
(including directors’ emoluments (Note 14)):
Salaries, bonuses and allowances	22,870	28,224	30,464	19,752	22,531
Other benefits (represent rent paid)	324	348	344	228	232
Retirement benefit scheme contributions	885	1,064	1,130	712	833
	24,079	29,636	31,938	20,692	23,596

During the years ended 31 March 2016, 2017 and 2018 and eight months ended 30 November 2017 and 2018, employee benefit expense to fulfill contracts capitalised as contract cost assets amounted to approximately HK$1,755,000, HK$792,000, HK$518,000, HK$515,000 (unaudited) and HK$96,000 respectively.

Retirement benefit scheme contributions totalling approximately HK$156,000, HK$184,000, HK$195,000 and HK$216,000 were payable to the fund as at 31 March 2016, 2017 and 2018 and 30 November 2018 respectively.

Five highest paid individuals

The five highest paid individuals in the Target Group for the years ended 31 March 2016, 2017 and 2018 and eight months ended 30 November 2017 and 2018 included two directors whose emoluments are reflected in the analysis presented in Note 14 to the Historical Financial Information. The emoluments of the remaining three highest paid individuals during the years ended 31 March 2016, 2017 and 2018 and eight months ended 30 November 2017 and 2018 are as follows:

	Year ended 31 March			Eight months ended 30 November
	2016
HK$’000	2017
HK$’000	2018
HK$’000	2017
HK$’000
(unaudited)	2018
HK$’000
Salaries, allowances and benefits	2,194	2,397	2,435	1,637	1,632
Discretionary bonuses	153	183	-	-	-
Retirement benefit scheme contributions	69	89	54	36	36
	2,416	2,669	2,489	1,673	1,668

The emoluments of the remaining three highest paid individuals fell within the following band:

	Year ended 31 March			Eight months ended 30 November
	2016	2017	2018	2017
(unaudited)	2018
Emolument band (in HK$)
Nil to HK$1,000,000	3	3	3	3	3

No incentive payment for joining the Target Group or compensation for loss of office was paid or payable to any of the five highest paid individuals during the years ended 31 March 2016, 2017 and 2018 and eight months ended 30 November 2017 and 2018.

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ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

14. BENEFITS AND INTERESTS OF DIRECTORS

(a) Directors' emoluments

	FeesHK$'000	Salaries and allowancesHK$'000	Discretionary bonusesHK$'000	Estimated money value of other benefits (Note (i))HK$'000	Employer's contribution to a retirement benefit schemeHK$'000	TotalHK$'000
Year ended 31 March 2016
Mr. Norman Chan	-	835	64	-	30	929
Mr. Alex Lee	-	843	64	324	40	1,271
	-	1,678	128	324	70	2,200
Year ended 31 March 2017
Mr. Norman Chan	-	855	65	-	36	956
Mr. Alex Lee	-	860	65	348	41	1,314
	-	1,715	130	348	77	2,270
Year ended 31 March 2018
Mr. Norman Chan	-	1,300	-	-	18	1,318
Mr. Alex Lee	-	887	-	344	18	1,249
	-	2,187	-	344	36	2,567
Eight months ended30 November 2017(unaudited)
Mr. Norman Chan	-	867	-	-	12	879
Mr. Alex Lee	-	591	-	228	12	831
	-	1,458	-	228	24	1,710
Eight months ended30 November 2018
Mr. Norman Chan	-	868	-	-	12	880
Mr. Alex Lee	-	592	-	232	12	836
	-	1,460	-	232	24	1,716

Mr. Norman Chan and Mr. Alex Lee were appointed as directors of the Target Company on 13 September 2017. The emoluments shown above represent emoluments received from the Target Group by these directors in their capacity as directors and/or employees of the companies comprising the Target Group during the years ended 31 March 2016, 2017 and 2018 and eight months ended 30 November 2017 and 2018.

During the years ended 31 March 2016, 2017 and 2018 and eight months ended 30 November 2017 and 2018, no directors waived or agreed to waive any emoluments.

Note:

(i) Estimated money value of other benefits represents rent paid.

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ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

(b) Directors' material interests in transactions, arrangements or contracts

No significant transactions, arrangements or contracts in relation to the Target Group's business to which the Target Company was a party and in which a director of the Target Company and the director's connected party had a material interest, whether directly or indirectly, subsisted at the end of the Track Record Period or at any time during the Track Record Period.

DIVIDENDS

	Year ended 31 March			Eight months ended 30 November
	2016
HK$'000	2017
HK$'000	2018
HK$'000	2017
HK$'000
(unaudited)	2018
HK$'000
Interim dividend – BTR Asia to its then owner	–	–	1,000	–	–
Interim dividend – BTR Intl to its then owner	–	–	10,000	–	–
Interim dividend – BTR HK to its then owners	4,500	–	41,000	–	–
Interim dividend – BTR Workshop to its then owners	5,500	–	18,500	–	–
	10,000	–	70,500	–	–

No dividends have been paid or declared by the Target Company since its incorporation.

The rates of dividend and the number of shares ranking for dividend are not presented as such information is not meaningful having regard to the purpose of this report.

EARNINGS PER SHARE

Earnings per share information is not presented as its inclusion, for the purpose of the Historical Financial Information, is not considered meaningful due to the reorganisation of the Target Group and the results of the Target Group for each of the years ended 31 March 2016, 2017 and 2018 and eight months ended 30 November 2017 and 2018 on a combined basis as explained in Note 1 to the Historical Financial Information.

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ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

PROPERTY, PLANT AND EQUIPMENT

	Leasehold improvements HK$'000	Furniture and fixtures HK$'000	Office equipment HK$'000	Motor vehicles HK$'000	Total HK$'000
Cost
At 1 April 2015	2,672	1,678	1,838	2,433	8,621
Additions	–	38	331	4,404	4,773
At 31 March 2016	2,672	1,716	2,169	6,837	13,394
Additions	–	1,262	1,126	–	2,388
Disposals	(2,672)	(1,316)	(1,811)	–	(5,799)
At 31 March 2017	–	1,662	1,484	6,837	9,983
Additions	828	319	915	–	2,062
Disposals	–	(15)	–	(6,560)	(6,575)
At 31 March 2018	828	1,966	2,399	277	5,470
Additions	290	177	112	–	579
Disposals	–	(6)	–	–	(6)
At 30 November 2018	1,118	2,137	2,511	277	6,043
Accumulated depreciation
At 1 April 2015	1,768	1,436	1,767	2,238	7,209
Charge for the year	287	93	103	1,405	1,888
At 31 March 2016	2,055	1,529	1,870	3,643	9,097
Charge for the year	150	215	282	1,225	1,872
Disposals	(2,205)	(1,274)	(1,782)	–	(5,261)
At 31 March 2017	–	470	370	4,868	5,708
Charge for the year	171	318	639	524	1,652
Disposals	–	(3)	–	(5,129)	(5,132)
At 31 March 2018	171	785	1,009	263	2,228
Charge for the period	214	238	484	14	950
Disposals	–	(6)	–	–	(6)
At 30 November 2018	385	1,017	1,493	277	3,172
Carrying amount
At 31 March 2016	617	187	299	3,194	4,297
At 31 March 2017	–	1,192	1,114	1,969	4,275
At 31 March 2018	657	1,181	1,390	14	3,242
At 30 November 2018	733	1,120	1,018	–	2,871

During the year ended 31 March 2018, the Target Group disposed of its motor vehicles with carrying amount of approximately HK$1,431,000 at a consideration of approximately HK$4,600,000 to Waldorf Holdings Limited ("Waldorf Holdings") which is a related company controlled by Mr. Norman Chan.

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ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

18. KEY MANAGEMENT INSURANCE POLICY

(a) The Target Group entered into a life insurance policy with an insurance company to insure for Mr. Norman Chan in 2011. This policy is denominated in US$. Under the policy, the Target Group is the beneficiary and policy holder. There is a US$32,505 annual premium payable for 15 years, after which the policy is paid up.

On 21 September 2017, the Target Group disposed of this life insurance policy to Mr. Norman Chan at a consideration of approximately HK$1,911,000. Accordingly, as at 31 March 2017, the policy was classified under current assets.

(b) During the year ended 31 March 2018, the Target Group entered into another life insurance policy with an insurance company to insure for Mr. Norman Chan. This policy is denominated in US$. Under the policy, the Target Group is the beneficiary and policy holder. The Target Group paid a single premium of US$1,025,000 for the policy.

The Target Group may request a surrender of this policy at any time and receive cash based on the cash value of the policy at the date of withdrawal, which is determined by the insurance company by reference to the premium paid, plus accumulated interest earned and minus accumulated insurance policy expenses charged and any surrender charge. The amount of surrender charge decreases over time and is no longer required from the 10th year of contract conclusion onwards. The Target Group is entitled to interest at a rate of 4% per annum applied on the balance of the cash value for two years from the date of the payment of the premium. Commencing from the third year, the interest rate is 1.25% per annum plus a premium determined by the insurance company on an annual basis. After the first ten policy years, no guaranteed minimum interest rate is applied on the cash value.

On 1 April 2018, the Target Group adopted HKFRS 9, thus the key management insurance policy held by the Target Group was subsequently measured at fair value through profit or loss. The fair value of key management insurance policy as at 1 April 2018 and 30 November 2018 amounted to approximately HK$8,046,000 and HK$8,184,000 respectively.

As at 31 March 2018 and 30 November 2018, the Target Group's bank loans are secured by the key management insurance policy with carrying amount of approximately HK$8,046,000 and HK$8,184,000 respectively as disclosed in Note 28 to the Historical Financial Information.

19. CONTRACT COST ASSETS

Contract cost assets represent fulfillment costs incurred prior to the contract establishment date for specifically anticipated contracts.

20. CONTRACT ASSETS/LIABILITIES

	As at 31 March			As at 30 November
	2016 HK$'000	2017 HK$'000	2018 HK$'000	2018 HK$'000
Contract assets	18,943	13,029	13,284	20,169
Contract liabilities	1,090	3,017	8,107	3,369

The contract assets represent the Target Group's rights to consideration for work completed but not billed at the respective reporting dates. The contract assets are transferred to trade receivables when the rights become unconditional other than the passage of time.

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APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

The contract liabilities primarily represent the advanced consideration received from customers for which revenue is recognised based on the progress towards complete satisfaction of the related services.

Significant changes in the contract assets and contract liabilities during the Track Record Period are as follows:

	Year ended 31 March						Eight months ended 30 November
	2016		2017		2018		2018
	Contract assets HK$’000	Contract liabilities HK$’000	Contract assets HK$’000	Contract liabilities HK$’000	Contract assets HK$’000	Contract liabilities HK$’000	Contract assets HK$’000	Contracts liabilities HK$’000
Revenue recognised that was included in the contract liability balance at the beginning of the year/period		705		891		2,687		6,661
Transfer from contract assets recognised at the beginning of the year/period to trade receivables	(14,523)		(18,779)		(12,694)		(10,445)

During the years ended 31 March 2016, 2017 and 2018 and eight months ended 30 November 2018, the cumulative catch-up adjustments to revenue affecting the corresponding contract asset or contract liability amounted to approximately HK$8,939,000, HK$9,369,000, HK$4,317,000 and HK$2,536,000 respectively.

As at 31 March 2016, 2017 and 2018 and 30 November 2018, the balances of contract assets amounting to approximately HK$164,000, HK$335,000, HK$697,000 and HK$1,661,000 respectively which are expected to be settled after one year.

21. TRADE AND OTHER RECEIVABLES

	As at 31 March			As at 30 November
	2016	2017	2018	2018
	HK$’000	HK$’000	HK$’000	HK$’000
Trade receivables	2,654	26,442	31,304	4,058
Prepayments, deposits and other receivables	1,161	831	1,785	2,239
	3,815	27,273	33,089	6,297

The Target Group has recognised the following trade receivables:

	As at 31 March			As at 30 November
	2016	2017	2018	2018
	HK$’000	HK$’000	HK$’000	HK$’000
Arising from interior design and execution with customers	2,654	26,182	31,287	3,545
Arising from other sources of revenue	-	260	17	513
	2,654	26,442	31,304	4,058

APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

The aging analysis of trade receivables based on invoice date is as follows:

	As at 31 March			As at 30 November
	2016	2017	2018	2018
	HK$'000	HK$'000	HK$'000	HK$'000
Within 30 days	1,326	15,166	21,850	1,426
31 – 60 days	–	5,352	7,804	1,520
61 – 90 days	392	4,804	–	293
91 – 180 days	926	1,120	1,110	120
181 – 365 days	–	–	540	699
Over 365 days	10	–	–	–
	2,654	26,442	31,304	4,058

The carrying amounts of trade receivables are denominated in the following currencies:

	As at 31 March			As at 30 November
	2016	2017	2018	2018
	HK$'000	HK$'000	HK$'000	HK$'000
HK$	2,654	26,194	31,304	4,058
US$	–	248	–	–
	2,654	26,442	31,304	4,058

Trade receivables as at 30 November 2018 are either subsequently settled or there has not been a significant change in credit quality.

Trade receivables are due within 0 to 120 days from the date of billing. Trade receivables are non-interest bearing. The Target Group does not hold any collateral over these balances. As of 31 March 2016, 2017 and 2018 and 30 November 2018, trade receivables of approximately HK$1,670,000, HK$23,957,000, HK$9,854,000 and HK$2,189,000 respectively were past due but not impaired. These relate to certain customers that have a good track record with the Target Group. Management is of the opinion that the balances are considered fully recoverable.

	As at 31 March			As at 30 November
	2016	2017	2018	2018
	HK$'000	HK$'000	HK$'000	HK$'000
1 – 30 days	342	13,111	8,204	1,352
31 – 60 days	–	5,172	–	18
61 – 90 days	392	4,554	1,005	–
91 – 180 days	926	1,120	105	819
181 – 365 days	–	–	540	–
Over 365 days	10	–	–	–
	1,670	23,957	9,854	2,189

APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

22. AMOUNT DUE FROM A DIRECTOR

Name	As at 31 March			As at 30 November	Maximum amount outstanding during the year/period ended
	2016	2017	2018		2016	31 March	November
	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000
Mr. Norman Chan	-	57,402	-	-	-	57,402	69,472

The amount due from a director, denominated in HK$, is non-trade in nature, unsecured, interest-free and repayable on demand.

23. AMOUNT DUE FROM A RELATED COMPANY

Name	As at 31 March			As at 30 November	Maximum amount outstanding during the year/period ended
	2016	2017	2018		2016	31 March	November
	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000
Waldorf Holdings	16,567	-	-	-	16,567	19,721	4,818

The above related company is controlled by Mr. Norman Chan.

The amount due from a related company, denominated in HK$, is unsecured, interest-free and repayable on demand. Apart from office rental expense charged by Waldorf Holdings and sales proceeds from the disposal of property, plant and equipment to Waldorf Holdings (Note 34(a) to the Historical Financial Information), the balance with Waldorf Holdings is non-trade in nature.

Pursuant to four deeds of novation dated 31 March 2017, the Target Group released and discharged Waldorf Holdings from all its obligations and liabilities to the Target Group in respect of the debt due from Waldorf Holdings of approximately HK$17,448,000 (the "Debt") and accepted Mr. Norman Chan to assume all obligations and liabilities in respect of the Debt; whereas Mr. Norman Chan undertook to the Target Group and Waldorf Holdings to assume all the obligations and liabilities of Waldorf Holdings and to satisfy all claims and demands whatever arising out of or in respect of the Debt.

24. BANK AND CASH BALANCES

The carrying amounts of bank and cash balances are denominated in the following currencies:

	As at 31 March			As at 30 November
	2016	2017	2018	2018
	HK$'000	HK$'000	HK$'000	HK$'000
HK$	16,538	21,823	17,682	39,856
US$	3,585	3,832	1,908	1,901
RMB	-	687	3	3
JPY	-	-	-	200
	20,123	26,342	19,593	41,960

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ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

25. TRADE AND OTHER PAYABLES

	As at 31 March			As at 30 November
	2016	2017	2018	2018
	HK$'000	HK$'000	HK$'000	HK$'000
Trade payables	–	24	–	–
Accruals and other payables	892	1,964	3,753	4,451
	892	1,988	3,753	4,451

The carrying amounts of trade payables are denominated in HK$. Trade payable are due within 0 to 30 days from the date of billing.

The aging analysis of trade payables based on invoice date is as follows:

	As at 31 March			As at 30 November
	2016	2017	2018	2018
	HK$'000	HK$'000	HK$'000	HK$'000
Within 30 days	–	24	–	–

26. AMOUNTS DUE TO DIRECTORS/AMOUNT DUE TO A DIRECTOR

The Target Group

	As at 31 March			As at 30 November
	2016	2017	2018	2018
	HK$'000	HK$'000	HK$'000	HK$'000
Mr. Norman Chan	5,037	–	14,696	26
Mr. Alex Lee	3	–	2,078	13
	5,040	–	16,774	39

The amounts due to directors, denominated in HK$, are non-trade in nature, unsecured, interest-free and repayable on demand.

The Target Company

As at 31 March 2018 and 30 November 2018, the amount due to a director, Mr. Norman Chan, denominated in HK$, is non-trade in nature, unsecured, interest-free and repayable on demand.

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APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

27. AMOUNT DUE TO A RELATED COMPANY/THE HOLDING COMPANY

Amount due to a related company

	As at 31 March			As at 30 November
	2016
HK$'000	2017
HK$'000	2018
HK$'000	2018
HK$'000
Room Limited (“Room”)	171	-	-	-

The above related company is controlled by Mr. Norman Chan.

The amount due to a related company, denominated in HK$, is trade in nature, unsecured, interest-free and repayable on demand.

Pursuant to two deeds of novation and two deeds of assignment dated 31 March 2017 respectively, Room and the Target Group agreed to transfer all the amounts due from/to Room to Mr. Norman Chan. As such, all the obligations and liabilities of the net sum of approximately HK$310,000 due by the Target Group were assumed by Mr. Norman Chan accordingly.

Amount due to the holding company - the Target Group and the Target Company

	As at 31 March			As at 30 November
	2016
HK$'000	2017
HK$'000	2018
HK$'000	2018
HK$'000
Whistle Up Limited	-	-	-	50

The amount due to the holding company, denominated in HK$, is non-trade in nature, unsecured, interest-free and repayable on demand.

28. BANK LOANS

	As at 31 March			As at 30 November
	2016
HK$'000	2017
HK$'000	2018
HK$'000	2018
HK$'000
Secured	-	46,360	25,000	23,774
Unsecured	-	-	-	10,666
	-	46,360	25,000	34,440

The bank loans are repayable as follows:

	As at 31 March			As at 30 November
	2016
HK$'000	2017
HK$'000	2018
HK$'000	2018
HK$'000
Portion due for repayment within one year	-	1,960	16,853	19,141
Portion due for repayment after one year but contains a repayment on demand clause	-	44,400	8,147	15,299
Within one year or on demand (shown under current liabilities)	-	46,360	25,000	34,440

APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

Bank loans due for repayment after one year which contain a repayment on demand clause are classified as current liabilities.

Bank loans due for repayment, based on the scheduled repayment dates set out in the banking facilities letters without taking into account the effect of any repayment on demand clause, are as follows:

	As at 31 March			As at 30 November
	2016 HK$'000	2017 HK$'000	2018 HK$'000	2018 HK$'000
Within one year	-	1,960	16,853	19,141
More than one year, but not more than two years	-	1,998	1,923	4,310
More than two years, but not more than five years	-	42,402	6,224	10,989
	-	46,360	25,000	34,440

The bank loans as at 31 March 2017 are secured by:

(a) a charge over properties owned by Waldorf Holdings;
(b) a corporate guarantee executed by Waldorf Holdings; and
(c) a personal guarantee from Mr. Norman Chan.

The Target Group is subject to the maintenance of a specified ratio of its liabilities under the banking facilities granted to the Target Group during the year ended 31 March 2017 to the market value of the charged properties at or below 80%. If such percentage is exceeded at any time, the bank shall on demand, at the option of the bank, for partial repayment of the outstanding loan amount in order to restore the required ratio. During the period from the inception of the loans and up to the date of full repayment of the loans, the Target Group complied with the aforesaid requirement.

The bank loans as at 31 March 2018 are secured by:

(a) an assignment of the Target Group's key management insurance policy (Note 18);
(b) a corporate guarantee executed by Waldorf Holdings; and
(c) a personal guarantee from Mr. Norman Chan.

The bank loans of approximately HK$23,774,000 as at 30 November 2018 are secured by:

(a) an assignment of the Target Group's key management insurance policy (Note 18);
(b) a corporate guarantee executed by Waldorf Holdings; and
(c) a personal guarantee from Mr. Norman Chan.

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ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

The bank loans of approximately HK$10,666,000 as at 30 November 2018 are guaranteed under:

(a) a personal guarantee from Mr. Norman Chan; and
(b) a financing guarantee from The Hong Kong Mortgage Corporation Limited.

The bank loans denominated in HK$, are arranged at variable interest rates, thus exposing the Target Group to cash flow interest rate risk. The effective interest rates as at the respective reporting dates are as follows:

	As at 31 March			As at 30 November
	2016	2017	2018	2018
Variable-rate loans
Effective interest rates per annum	N/A	1.94%	1.85% – 3.75%	1.98% - 4.21%

The directors of the Target Company estimate that the carrying amounts of the Target Group's bank loans are not materially different from their fair values as at 31 March 2017 and 2018 and 30 November 2018.

29. DEFERRED TAX

The following are the deferred tax liabilities/(assets) recognised by the Target Group during the Track Record Period:

	Accelerated tax depreciation HK$’000	Deductible tax depreciation HK$’000
As at 1 April 2015	21	(238)
Charge to profit or loss (Note 11)	148	162
As at 31 March and 1 April 2016	169	(76)
Charge to profit or loss (Note 11)	254	72
As at 31 March and 1 April 2017	423	(4)
(Credit)/Charge to profit or loss (Note 11)	(133)	4
As at 31 March and 1 April 2018	290	–
Credit to profit or loss (Note 11)	(98)	–
As at 30 November 2018	192	–

As at 30 November 2018, the Target Group has unused tax losses of approximately HK$38,000 available for offset against future profits. No deferred tax asset has been recognised in respect of the unused tax losses due to the unpredictability of future profit streams. The unused tax losses will be carried forward indefinitely.

30. SHARE CAPITAL

The Target Company was incorporated in the BVI on 2 August 2017 as a limited liability company with an authorised share capital of US$50,000 divided into 50,000 shares with a par value of US$1 each. On 13 September 2017, one share of the Target Company was allotted and issued at par.

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APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

As at the respective reporting dates, the share capital in the combined statements of financial position represents the aggregate paid up share capital of the below companies attributable to the Target Group prior to the reorganisation of the Target Group.

	As at 31 March			As at 30 November
	2016 HK$'000	2017 HK$'000	2018 HK$'000	2018 HK$'000
Target Company	-	-	-	-
BTR Asia	8	8	8	8
BTR HK	1	1	1	1
BTR Intl	10	10	10	10
BTR Workshop	200	200	200	200
	219	219	219	219

Capital management

The Target Group's objectives when managing capital are to safeguard the Target Group's ability to continue as a going concern in order to provide returns for owners and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Target Group may adjust the amount of dividends to owners, issue new shares or sell assets.

The Target Group monitors capital on the basis of gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as "equity" as shown in the combined statements of financial position, plus net debt, where applicable.

The gearing ratios are as follows:

	As at 31 March			As at 30 November
	2016 HK$'000	2017 HK$'000	2018 HK$'000	2018 HK$'000
Total borrowings	5,040	46,360	41,774	34,529
Less: cash and cash equivalents	(20,123)	(26,342)	(19,593)	(41,960)
Net (cash)/debt	(15,083)	20,018	22,181	(7,431)
Equity	54,168	75,329	21,304	33,049
Total capital	39,085	95,347	43,485	25,618
Gearing ratio	N/A	21%	51%	N/A

The Target Group is subject to the maintenance of a specified ratio under the banking facilities granted to the Target Group during the year ended 31 March 2017. Details of which are set out in Note 28 to the Historical Financial Information.

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ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

31. RESERVES

The amount of the Target Group’s reserves and movements therein are presented in the combined statements of profit or loss and other comprehensive income and combined statements of changes in equity.

32. NOTES TO THE COMBINED STATEMENTS OF CASH FLOWS

(a) Major non-cash transactions

Year ended 31 March 2017

As detailed in Note 23 to the Historical Financial Information, on 31 March 2017, the Target Group released and discharged Waldorf Holdings from all its obligations and liabilities in respect of the debt due from Waldorf Holdings of approximately HK$17,448,000 and accepted Mr. Norman Chan to assume all obligations and liabilities in the same amount.

As detailed in Note 27 to the Historical Financial Information, on 31 March 2017, Room transferred all its rights and interests in the amount due by the Target Group of approximately HK$310,000 to Mr. Norman Chan.

Year ended 31 March 2018

In July 2017, the Target Group disposed of its property, plant and equipment with carrying amount of approximately HK$1,431,000 to Waldorf Holdings at a consideration of approximately HK$4,600,000. The consideration was satisfied by setting off against the same amount from the amount due to Waldorf Holdings.

During the year ended 31 March 2018, the Target Group disposed of its key management insurance policy with carrying amount of approximately HK$1,911,000 to Mr. Norman Chan at a consideration of approximately HK$1,911,000. The consideration was satisfied by setting off against the same amount from the amount due to Mr. Norman Chan.

During the year ended 31 March 2018, the repayment of the Target Group’s bank loans of approximately HK$44,764,000 and interest thereon of approximately HK$69,000 were settled by Waldorf Holdings on behalf of the Target Group.

On 30 January 2018, BTR HK, BTR Intl and BTR Workshop declared an interim dividend of HK$41,000,000, HK$4,000,000 and HK$15,000,000 respectively to their owners. The dividend declared of approximately HK$57,950,000 was settled through offsetting the same amount due from Mr. Norman Chan. The remaining dividend declared of approximately HK$2,050,000 was unsettled as at 31 March 2018 and recorded in the Target Group’s amount due to Mr. Alex Lee. During the eight months ended 30 November 2018, such amount due to Mr. Alex Lee was settled.

Pursuant to a deed of novation and a deed of assignment dated 31 March 2018 respectively, Waldorf Holdings and the Target Group agreed to transfer all the amounts due from/to Waldorf Holdings to Mr. Norman Chan. As such, all the obligations and liabilities of the net sum of approximately HK$26,282,000 due by the Target Group were assumed by Mr. Norman Chan accordingly.

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ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

(b) Reconciliation of liabilities from financing activities

	Amounts due to directors HK$’000	Amount due to a related company HK$’000	Amount due to the holding company HK$’000	Bank loans HK$’000
As at 1 April 2015	3,508	171	–	–
Cash flows	1,532	–	–	–
As at 31 March 2016 and 1 April 2016	5,040	171	–	–
Cash flows	(5,040)	139	–	46,360
Non-cash changes	–	(310)	–	–
As at 31 March 2017 and 1 April 2017	–	–	–	46,360
Cash flows	28	–	–	23,404
Non-cash changes	16,746	–	–	(44,764)
As at 31 March 2018 and 1 April 2018	16,774	–	–	25,000
Cash flows	(16,735)	–	50	8,591
Interest expenses	–	–	–	849
As at 30 November 2018	39	–	50	34,440
As at 31 March 2017 and 1 April 2017	–	–	–	46,360
Cash flows	–	–	–	(1,290)
As at 30 November 2017 (unaudited)	–	–	–	45,070

LEASE COMMITMENTS

At the end of each of the reporting periods, the total future minimum lease payments under non-cancellable operating leases are payable as follows:

	As at 31 March			As at 30 November
	2016	2017	2018	2018
	HK$’000	HK$’000	HK$’000	HK$’000
Within one year	1,515	219	5,587	5,431
In the second to fifth years inclusive	458	269	5,442	2,190
	1,973	488	11,029	7,621

Operating lease payments represent rentals payable by the Target Group for its office premises, director's quarter and office equipment. Leases typically run for a period of 2 to 5 years. Rentals are fixed over the lease terms and do not include contingent rentals.

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ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL

INFORMATION OF THE TARGET GROUP

34. RELATED PARTY TRANSACTIONS

The directors of the Target Company are of the view that during the Track Record Period, transactions with the following parties are considered as related party transactions:

Name of related party	Relationship with the Target Group
Room	Controlled by Mr. Norman Chan
Waldorf Holdings	Controlled by Mr. Norman Chan
Chip Mi Engineering Limited	Mr. Norman Chan has significant influence
H. S. Chan Company Limited	Controlled by a close family member of Mr. Norman Chan

In addition to those related party transactions and balances disclosed in Notes 14, 17, 18, 22, 23, 26, 27, 28 and 32 to the Historical Financial Information, the Target Group's related party transactions during the Track Record Period are as follows:

(a) Transactions and balances with related parties

	Note	Year ended 31 March			Eight months ended 30 November
		2016 HK$'000	2017 HK$'000	2018 HK$'000	2017 HK$'000 (unaudited)	2018 HK$'000
Office rental expense to Waldorf Holdings		-	2,274	4,176	2,784	2,784
Cleaning expense to H. S. Chan Company Limited		13	15	17	11	14
Maintenance cost of air conditioners to Chip Mi Engineering Limited		52	-	-	-	-
Sales proceeds from the disposal of property, plant and equipment (motor vehicles) to Waldorf Holdings	(i)	-	-	4,600	4,600	-
Sales proceeds from the disposal of key management insurance policy to Mr. Norman Chan	(ii)	-	-	1,911	1,911	-
			As at 31 March		As at 30 November
		2016 HK$'000	2017 HK$'000	2018 HK$'000	2018 HK$'000	2018 HK$'000
Rental deposit to Waldorf Holdings		-	-	696	696	696

All the above transactions and balances were conducted on terms and conditions mutually agreed with the related parties.

Note:

(i) A gain on disposal of property, plant and equipment of approximately HK$3,169,000 was resulted from the disposal.

(ii) The Target Group disposed of its key management insurance policy with carrying amount of approximately HK$1,911,000 to Mr. Norman Chan at a consideration of approximately HK$1,911,000.

III-54

APPENDIX III

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

(b) Key management personnel compensation

Directors are the key management personnel of the Target Group whose emoluments are disclosed in Note 14 to the Historical Financial Information.

The emoluments of directors and other key management personnel are as follows:

	Year ended 31 March			Eight months ended 30 November
	2016
HK$’000	2017
HK$’000	2018
HK$’000	2017
HK$’000
(unaudited)	2018
HK$’000
Salaries and allowances	2,508	2,570	3,091	2,050	2,052
Discretionary bonuses	179	195	–	–	–
Other benefits (represent rent paid)	324	348	344	228	232
Retirement benefit scheme contributions	88	113	54	36	36
	3,099	3,226	3,489	2,314	2,320

The emoluments of key management personnel is determined by the directors of the Target Company having regard to the respective responsibilities of the individuals, the performance of the Target Group and market trends.

Business card credit facilities available to the Target Group were guaranteed by Mr. Norman Chan as at 31 March 2016, 2017 and 2018. Since 27 June 2018, the Target Group had no business card credit facilities in place. Accordingly, the personal guarantee from Mr. Norman Chan was released during the eight months ended 30 November 2018.

EVENTS AFTER THE REPORTING PERIOD

Save as disclosed elsewhere in this report, the following significant events took place subsequent to 30 November 2018:

In December 2018, BTR Asia, BTR HK, BTR Intl and BTR Workshop declared and paid an interim dividend of HK$600,000, HK$7,000,000, HK$4,000,000 and HK$6,400,000 respectively to their owners.

SUBSEQUENT FINANCIAL STATEMENTS AND DIVIDENDS

No audited financial statements have been prepared by the Target Company or any of the companies comprising the Target Group in respect of any period subsequent to 30 November 2018 and up to the date of this report. Save as disclosed in this report, no dividend or distribution has been declared or paid by the Target Company or any of the companies now comprising the Target Group in respect of any period subsequent to 30 November 2018.

III-55

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

1. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

A summary of the results and the assets and liabilities of the Group as extracted from the relevant annual audited reports of the Company for the years ended 31 March 2016, 2017 and 2018 and the unaudited third quarterly report of the Company for the nine months ended 31 December 2018 is set out below:

Results

	For the nine months ended 31 December		For the year ended 31 March
	2018 HK$’000 (unaudited)	2018 HK$’000 (audited)	2017 HK$’000 (audited)	2016 HK$’000 (audited)
Continuing operations
Revenue	28,764	105,665	84,730	14,195
Profit/(Loss) from operations	5,891	(23,640)	56,383	(256,620)
Finance costs	(45,496)	(54,398)	(50,580)	(74,670)
(Loss)/profit before tax	(39,605)	(78,038)	5,803	(331,290)
Income tax (expenses)/credit	(14)	1,946	(3,117)	1,963
(Loss)/profit for the year	(39,619)	(76,092)	2,686	(329,327)
Loss for the year from discontinued operations	(9,643)	-	-	(159,903)
Other comprehensive income/(expenses) for the year, net of tax	4,267	5,049	(869)	(6,501)
Total comprehensive (expenses)/income for the year	(44,995)	(71,043)	1,817	(495,731)
(Loss)/profit for the year attributable to:
Owners of the Company	(49,262)	(76,092)	2,686	(430,699)
Non-controlling interests	-	-	-	(58,531)
	(49,262)	(76,092)	2,686	(489,230)
Total comprehensive (expenses)/income for the year attributable to:
Owners of the Company	(44,995)	(71,043)	1,819	(437,200)
Non-controlling interests	-	-	(2)	(58,531)
	(44,995)	(71,043)	1,817	(495,731)

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Assets, liabilities and non-controlling interests

	As at 31 March
	2018
HK$’000
(audited)	2017
HK$’000
(audited)	2016
HK$’000
(audited)
Total assets	122,211	138,135	80,866
Total liabilities	(532,242)	(486,912)	(642,046)
Non-controlling interests	653	10,442	10,440
Total equity	(409,378)	(338,335)	(550,740)

Notes:
(i) The Group has not declared any dividends during the three years ended 31 March 2016, 2017 and 2018 and the nine months ended 31 December 2018.
(ii) For each of the year ended 31 March 2017 and 2018, a disclaimer of opinion was issued by Elite Partners CPA Limited ("Elite Partners"), the auditors of the Company, on the financial statements of the Company, while for the year ended 31 March 2016, a disclaimer of opinion was issued by RSM Hong Kong ("RSM Hong Kong") on the financial statements of the Company. Details of the disclaimer of opinion were set out in the Company's annual reports for each of the year ended 31 March 2016, 2017 and 2018 which were extracted and included in this Appendix IV.

IV-2

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

2. MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR'S REPORTS

Set out below is the reproduction of the qualified opinion issued by Elite Partners or RSM Hong Kong on the consolidated financial statements of the Company for the three years ended 31 March 2016, 2017 and 2018, respectively, which are contained in the annual reports of the Company for each of the year ended 31 March 2016, 2017 and 2018, respectively.

(i) In respect of the consolidated financial statements of the Company for the year ended 31 March 2018

Disclaimer of opinion

We were engaged to audit the consolidated financial statements of Union Asia Enterprise Holdings Limited (the "Company") and its subsidiaries (collectively referred to as the "Group") set out on pages 74 to 194 of the annual report of the Company for the year ended 31 March 2018, which comprise the consolidated statement of financial position as at 31 March 2018, and the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

We do not express an opinion on the consolidated financial statements of the Group. Because of the significance of the matters described in the Basis for Disclaimer of Opinion section of our audited report, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these consolidated financial statements. In all other respects, in our opinion, the consolidated financial statements have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

Basis for disclaimer of opinion

a) Misuse of Company funds from disposal of leasehold property

During the year ended 31 March 2017, Evotech (Asia) Pte. Limited ("Evotech"), an indirect wholly owned subsidiary of the Company entered into an agreement with Jurong Town Corporation ("JTC") of the Singapore government, without the knowledge, consent or approval by the Board of Directors of the Company, to surrender a leasehold property to JTC at the consideration of Singapore dollar ("S$") 5,620,000 (equivalent of approximately HK$32,232,000) excluding goods and services tax in Singapore ("Transaction"). To the best knowledge of the Directors, the net proceeds received from the Transaction ("Proceeds") were used for (i) settlement of bank borrowing of Evotech of approximately S$1,362,000 (equivalent to approximately HK$7,700,000); (ii) fund transfer to Kesterion Investment Limited, a former substantial shareholder of the Company of approximately US$570,000 and S$1,600,000 (equivalent to approximately HK$13,399,000); (iii) fund transfers to Koh Tat Lee, a former director of the Company and two independent third parties namely Yao Jun and Yew Eng Piow, of approximately US$500,000 and S$685,000 (equivalent to approximately HK$7,677,000) ((ii) to (iii) referred to as the "Fund Transfers") and the remaining balance of the Proceeds were used as working capital of the Group.

IV-3

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

In the opinion of the Board of Directors of the Company, the Proceeds were misused. Under this circumstance, the directors of the Company considered that the Company has the right to recover the Fund Transfer together with the interest and consequentially, the amounts of approximately HK$23,758,000 and HK$21,076,000 has been accounted for as other receivables in the consolidated statement of financial position as at 31 March 2018 and 31 March 2017.

Due to the irregular nature of the Transaction, we were unable to obtain sufficient appropriate audit evidence of the Transaction and the usage of the Proceeds, including but not limited to (i) the Company's board resolution of approval for the Transaction; (ii) the Company's board resolution of approval for the usage of the corresponding Proceeds; and (iii) direct confirmation from each of the recipient of the Fund Transfers to confirm the nature of the Fund Transfers and the outstanding balances of each recipient Fund Transfers as at 31 March 2018. Accordingly, we were unable to verify the validity, classification and nature of these balances.

Given the circumstances described above, the scope of our audit work was limited and there was no other alternative audit procedures that we could perform to obtain sufficient appropriate audit evidence to satisfy ourselves as to (i) the Transaction and the usage of corresponding Proceeds were properly authorised and approved by the Board of Directors; and (ii) the validity, classification, nature and recoverability for the balances of other receivables of approximately HK$23,758,000 due from the recipient of the Fund Transfers as at 31 March 2018 were free from material misstatement. Any adjustments that might have been found necessary will have an effect on the consolidated statement of financial position as at 31 March 2018, and consequently financial performance and cash flows of the Group for the year ended 31 March 2018 and the related disclosures thereof in the consolidated financial statements.

In our audit of the consolidated financial statements of the Group for the year ended 31 March 2017, we experienced the same limitation as mentioned above. Our audit opinion on the consolidated financial statements of the Group for the year ended 31 March 2017 was disclaimed accordingly. These limitations were unresolved this year. As the auditor's report on the consolidated financial statements of the Group for the year ended 31 March 2017 formed the basis for the corresponding figures presented in the current year's consolidated financial statements, any adjustments found to be necessary in respect of the carrying amount of the other receivables would have a significant effect on the opening balances on the consolidated financial position of the Group as at 31 March 2018 and the related disclosures thereof in the consolidated financial statements of the Group for the year ended 31 March 2018.

b) Deconsolidation of subsidiaries

During the year ended 31 March 2017, the Group was unable to locate complete set of books and records of two of its subsidiaries, i.e. 寰亞宏華商貿(北京)有限責任公司 and 宏華加業商貿(上海)有限公司("Deconsolidated Subsidiaries"). In the opinion of the Board of Directors of the Company, the controls over the Deconsolidated Subsidiaries were lost. Accordingly, the financial performance and the assets and liabilities of the Deconsolidated Subsidiaries had been de-consolidated from the consolidated financial statements of the Group with effective from 31 March 2017 and a loss on deconsolidation of Deconsolidated Subsidiaries of approximately HK$6,151,000 was recorded in the consolidated statement of profit or loss and other comprehensive income for the year ended 31 March 2017. During the year ended 31 March 2018, the Group was still unable to locate the complete set of books and records of Deconsolidated Subsidiaries.

IV-4

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Given the circumstances described above, the scope of our audit work was limited and there was no other alternative audit procedures that we could perform to obtain sufficient appropriate audit evidence to satisfy ourselves to (i) the timing and whether it was appropriate to deconsolidate the assets and liabilities of the Deconsolidated Subsidiaries; (ii) the transaction of the Deconsolidated Subsidiaries during the years ended 31 March 2017 and 2018 and the balances of assets and liabilities of the Deconsolidated Subsidiaries as at the date of deconsolidation were properly recorded and free from material misstatements; and (iii) any contingent liabilities, commitments, related party transactions and significant subsequent events relating to the Deconsolidated Subsidiaries and the related disclosure thereof. Any adjustments that might have been found necessary will have an effect on the consolidated statement of financial position as at 31 March 2018, and consequently financial performance and cash flows of the Group for the year ended 31 March 2018 and the related disclosures thereof in the consolidated financial statements.

c) Material uncertainty in relation to going concern basis

We draw attention to note 2 in the consolidated financial statements of the Group which indicates that the Group incurred a loss for the year of approximately HK$76,092,000 during the year ended 31 March 2018. As at the same date, the Group incurred net current liabilities and net liabilities of approximately HK$119,652,000 and approximately HK$410,031,000 respectively. These conditions indicate the existence of a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern.

In forming our opinion, we have considered the disclosures made in note 2 to the consolidated financial statements which explains that a proposal for resumption of trading in the Company's shares and the restructuring of the Group has been submitted to The Stock Exchange of Hong Kong Limited to pursue a restructuring of the Company. The consolidated financial statements have been prepared on a going concern basis on the assumption that the proposed restructuring of the Group will be successfully completed, and that, following the restructuring, the Group will continue to meet in full its financial obligations as they fall due in the foreseeable future. The consolidated financial statements do not include any adjustments that would result from a failure to complete the restructuring. In view of the extent of the uncertainty relating to the completion of the restructuring, we disclaim our opinion in respect of the material uncertainty relating to the going concern basis.

IV-5

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

(ii) In respect of the consolidated financial statements of the Company for the year ended 31 March 2017

Disclaimer of opinion

We were engaged to audit the consolidated financial statements of Union Asia Enterprise Holdings Limited (the "Company") and its subsidiaries (collectively referred to as the "Group") set out on pages 72 to 226, which comprise the consolidated statement of financial position as at 31 March 2017, and the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

Basis for disclaimer of opinion

a) Misuse of Company funds from disposal of leasehold property

As disclosed in note 44(1), on 6 April 2016, Evotech (Asia) Pte. Limited ("Evotech"), an indirect wholly owned subsidiary of the Company entered into an agreement with Jurong Town Corporation ("JTC") of the Singapore government, without the knowledge, consent or approval by the Company, to surrender a leasehold property to JTC at the consideration of Singapore dollar ("S$") 5,620,000 (equivalent of approximately HK$32,232,000) excluding goods and services tax in Singapore ("Transaction"). To the best knowledge of the Directors, the net proceeds received from the Transaction ("Proceeds") were used for (i) settlement of bank borrowing of Evotech of approximately S$1,362,000 (equivalent to approximately HK$7,700,000); (ii) fund transfer to Kesterion Investment Limited, a former substantial shareholder of the Company of approximately US$570,000 and S$1,600,000 (equivalent to approximately HK$13,399,000); (iii) fund transfers to Koh Tat Lee, a former director of the Company and two independent third parties namely Yao Jun and Yew Eng Piow, of approximately US$500,000 and S$685,000 (equivalent to approximately HK$7,677,000) ((ii) to (iii) referred to as the "Fund Transfers") and the remaining balance of the Proceeds were used as working capital of the Group.

In the opinion of the directors of the Company, the Proceeds were misused. Under this circumstance, the directors of the Company considered that the Company has the right to recover the Fund Transfer and consequentially, the amounts of approximately HK$21,076,000 has been accounted for as other receivables in the consolidated statement of financial position as at 31 March 2017.

IV-6

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Due to the irregular nature of the Transaction, we were unable to obtain sufficient appropriate audit evidence of the Transaction and the usage of the Proceeds, including but not limited to (i) the Company's board resolution of approval for the Transaction; (ii) the Company's board resolution of approval for the usage of the corresponding Proceeds; and (iii) direct confirmation from each of the recipient of the Fund Transfers to confirm the nature of the Fund Transfers and the outstanding balances of each recipient Fund Transfers as at 31 March 2017. Accordingly, we were unable to verify the validity, classification and nature of such balances (i.e. whether the Fund Transfers were correctly accounted for as other receivables or should be deduction of liabilities).

Given the circumstances described above, the scope of our audit work was limited and there was no alternative audit procedures that we could perform to obtain sufficient appropriate audit evidence to satisfy ourselves as to (i) the Transaction and the usage of corresponding Proceeds were properly authorised and approved by the Board of Directors; and (ii) the validity, classification, nature and recoverability for the balances of other receivables of approximately HK$21,076,000 due from the recipient of the Fund Transfers as at 31 March 2017 were free from material misstatement. Any adjustments that might have been found necessary will have an effect on the consolidated statement of financial position as at 31 March 2017, and consequently financial performance and cash flows of the Group for the year ended 31 March 2017 and the related disclosures thereof in the consolidated financial statements.

b) Deconsolidation of subsidiaries

The Group were unable to locate complete set of books and records of the 寰亞宏華商貿(北京)有限責任公司 and 宏華加業商貿(上海)有限公司 ("Deconsolidated Subsidiaries"). In the opinion of the directors of the Company, the controls over the Deconsolidated Subsidiaries were lost. Accordingly, the financial results, assets and liabilities of the Deconsolidated Subsidiaries have been de-consolidated from the consolidated financial statements as at 31 March 2017 and recorded a loss on deconsolidation of Deconsolidated Subsidiaries of approximately HK$6,151,000.

Given the circumstances described above, the scope of our audit work was limited and there was no alternative audit procedures that we could perform to obtain sufficient appropriate audit evidence to satisfy ourselves to (i) the timing and whether it was appropriate to deconsolidate the assets and liabilities of the Deconsolidated Subsidiaries; (ii) the transaction of the Deconsolidated Subsidiaries during the year ended 31 March 2017 and the balances of assets and liabilities of the Deconsolidated Subsidiaries as at the date of deconsolidation and the net loss of de-consolidation of Deconsolidated Subsidiaries as disclosed in Note 52 to the consolidated financial statements were properly recorded and free from material misstatements; and (iii) any contingent liabilities, commitments, related party transactions and significant subsequent events relating to the Deconsolidated Subsidiaries and the related disclosure thereof.

IV-7

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Material uncertainty in relation to going concern basis

We draw attention to note 2 in the consolidated financial statements which indicates that the Group had net current liabilities and net liabilities of HK$15.5 million and HK$348.8 million respectively. These conditions, along with other matters as set forth in note 2 to the consolidated financial statements, indicate the existence of a material uncertainty that may cast significant doubt on the Group’s ability to continue as a going concern. Our opinion is not disclaimed on this matter.

(iii) In respect of the consolidated financial statements of the Company for the year ended 31 March 2016

Basis for disclaimer of opinion

As disclosed in note 2 to the consolidated financial statements, the Group incurred a loss of approximately HK$290,842,000 (2015: HK$1,223,479,000) for the year ended 31 March 2016 and as at 31 March 2016 the Group had net current liabilities of approximately HK$205,310,000 (2015: net current assets HK$1,512,000) and net liabilities of approximately HK$645,242,000 (2015: HK$625,023,000). These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Company’s ability to continue as a going concern.

The consolidated financial statements have been prepared on a going concern basis, the validity of which depends upon the Group’s ability to (i) obtaining extension for the repayment of the loan from a former substantial shareholder amounting to HK$92,831,000 as at 31 March 2016; and (ii) obtaining additional debt financing from two directors of the Group. The financial statements do not include any adjustments that would result from the failure to obtain this financial support.

Up to the date of this report, the Group was not entered into any agreements with the former substantial shareholders or the two directors with regards to the loan extension and debt financing respectively. We were unable to obtain confirmations from these parties that they would extend the repayment date of the loan and provide debt financing. In addition, we were not provided with the financial information of the two directors to support their capability to advance the necessary funds. Therefore, we were unable to obtain sufficient appropriate audit evidence that the Group will obtain this financial support. There were no other satisfactory procedures that we could adopt in this regard.

Accordingly, we are unable to determine whether the directors’ use of going concern assumption in preparing the consolidated financial statements is appropriate in the circumstances. Shall the Group be unable to continue as a going concern, adjustments would have to make to the consolidate financial statements to write down the value of the Group’s assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets and liabilities as current assets and liabilities, respectively.

IV-8

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Disclaimer of opinion

Because of the significance of the matters described in the basis for disclaimer of opinion paragraphs, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the financial statements. In all other respects, in our opinion, the financial statements have been properly prepared in compliance with the Hong Kong Companies Ordinance.

3. AUDITED AND UNAUDITED FINANCIAL STATEMENTS

The following audited financial statements of the Company for the three years ended 31 March 2016, 2017 and 2018 are contained in the annual reports of the Company for the year ended 31 March 2016 (the "2016 Annual Report"), 2017 (the "2017 Annual Report") and 2018 (the "2018 Annual Report"), and the unaudited financial statements of the Company for the nine months ended 31 December 2018 (the "Third Quarterly Report"), which have been published on the website of the Stock Exchange (www.hkex.com) and the website of the Company (http://www.unionasiahk.com):

THE THIRD QUARTERLY REPORT

(a) Condensed consolidated statement of profit or loss and other comprehensive income for the nine months ended 31 December 2018

Please refer to pages 11 to 13 of the Third Quarterly Report.

(b) Significant accounting policies and notes to the condensed quarterly financial information for the nine months ended 31 December 2018

Please refer to pages 14 to 19 of the Third Quarterly Report.

THE 2018 ANNUAL REPORT

(a) Consolidated statement of financial position as at 31 March 2018

Please refer to pages 77 to 78 of the 2018 Annual Report.

(b) Consolidated statement of cash flows for the year ended 31 March 2018

Please refer to pages 80 to 81 of the 2018 Annual Report.

(i) Consolidated statement of profit or loss and other comprehensive income for the year ended 31 March 2018

Please refer to pages 74 to 76 of the 2018 Annual Report.

(ii) Consolidated statement of change in equity for the year ended 31 March 2018

Please refer to page 79 of the 2018 Annual Report.

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

(d) Significant accounting policies and notes to the audited consolidated financial statements for the year ended 31 March 2018

Please refer to pages 82 to 194 of the 2018 Annual Report.

THE 2017 ANNUAL REPORT

(a) Consolidated statement of financial position as at 31 March 2017

Please refer to pages 76 to 78 of the 2017 Annual Report.

(b) Consolidated statement of cash flows for the year ended 31 March 2017

Please refer to pages 80 to 81 of the 2017 Annual Report.

(i) Consolidated statement of profit or loss and other comprehensive income for the year ended 31 March 2017

Please refer to pages 72 to 75 of the 2017 Annual Report.

(ii) Consolidated statement of change in equity for the year ended 31 March 2017

Please refer to page 79 of the 2017 Annual Report.

(d) Significant accounting policies and notes to the audited consolidated financial statements for the year ended 31 March 2017

Please refer to pages 82 to 226 of the 2017 Annual Report.

THE 2016 ANNUAL REPORT

(a) Consolidated statement of financial position as at 31 March 2016

Please refer to pages 40 to 41 of the 2016 Annual Report.

(b) Consolidated statement of cash flows for the year ended 31 March 2016

Please refer to pages 43 to 44 of the 2016 Annual Report.

APPENDIX IV
FINANCIAL INFORMATION OF THE GROUP

(i) Consolidated statement of profit or loss and other comprehensive income for the year ended 31 March 2016

Please refer to pages 38 to 39 of the 2016 Annual Report.

(ii) Consolidated statement of change in equity for the year ended 31 March 2016

Please refer to page 42 of the 2016 Annual Report.

(d) Significant accounting policies and notes to the audited consolidated financial statements for the year ended 31 March 2016

Please refer to pages 45 to 126 of the 2016 Annual Report.

IV-11

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

4. MANAGEMENT DISCUSSION AND ANALYSIS OF HISTORICAL RESULTS OF THE GROUP

Set out below are the management discussion and analysis of the Group’s results of operations for each of the three years ended 31 March 2016, 2017 and 2018 extracted from the annual reports of the Company for each of the years ended 31 March 2016, 2017 and 2018 and the unaudited third quarterly report of the Company for the nine months ended 31 December 2018.

(i) For the nine months ended 31 December 2018

MANAGEMENT DISCUSSIONS AND ANALYSIS

MATERIAL ACQUISITIONS AND DISPOSALS

Following is the major disposal during the nine months ended 31 December 2018 (the “Period”), while there is no major acquisition during the Period and no major acquisition or disposal during the nine months ended 31 December 2017.

Disposal of subsidiaries

On 6 December 2018, a direct wholly-owned subsidiary of the Company, Talent Zone Global Limited, entered into a disposal agreement with an independent third party in relation to the disposal of the entire issued share capital of Brighton Asia Pacific Investment Holdings Limited, an indirectly wholly-owned subsidiary of the Company, and its subsidiaries (together with its subsidiaries as the “Disposal Group”), in which the Disposal Group was originally engaged in trading of bottled water in the People’s Republic of China (the “PRC”) but this has been ceased in September 2018, and the principal assets of the Disposal Group were four blocks of a villa located in the PRC as investment properties. The total consideration was HK$200,000.

For details, please refer to the announcements of the Company dated 6 December 2018.

BUSINESS AND FINANCIAL REVIEW

The Group’s revenue for the Period amounted to approximately HK$26,532,000 (2017: approximately HK$30,519,000), decreased by approximately HK$3,987,000 as compared to the same period in 2017. The decrease in revenue was mainly attributable to the US-China Trade War incurred during the Period.

During the Period, the Group has incurred a gross gain of approximately HK$845,000 while it was a gross gain of approximately HK$879,000 for the same period last year. Other income, net amounted to approximately HK$24,867,000 (2017: loss of approximately HK$1,329,000). Loss for the Period amounted to approximately HK$49,262,000 (2017: approximately HK$59,202,000) of which approximately HK$32,451,000 was attributable to the gain on disposal of subsidiaries during the Period.

IV-12

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

CAPITAL STRUCTURE AND LIQUIDITY

Proposed capital reorganization

The Company has terminated the capital reorganization originally proposed on 4 July 2016 and has proposed to implement, subject to the approval by the shareholders, the new capital reorganization (the "New Capital Reorganization") on 9 November 2017 as follows:

(i) Share Premium Cancellation: the entire amount standing to the credit of the share premium account of the Company will be cancelled to set off against part of total accumulated loss of the Company;

(ii) Share Consolidation: every fifty issued shares of HK$0.08 each ("Share") will be consolidated into one consolidated share of HK$4.0 each ("Consolidated Share") in the issued share capital of the Company;

(iii) Capital Reduction: upon Share Consolidation taking effect, the nominal value of the issued Consolidated Shares will be reduced from HK$4.0 to HK$0.0001 each (i.e. New Share) by cancelling the paid-up capital to the extent of HK$3.9999 each, and the total credit arising therefrom will be applied to further set off the accumulated loss of the Company;

(iv) Unissued Share Capital Cancellation: upon the Capital Reduction taking effect, all the authorised but unissued share capital of the Company will be cancelled in their entirety; and

The New Capital Reorganization, being part of the resumption proposal ("Resumption Proposal") in relation to the proposed restructuring submitted by the Company to the Stock Exchange on 15 September 2017, will be subject to the passing of a special resolution by the shareholders by way of poll at the extraordinary general meeting, and the approval from the Grand Court of the Cayman Islands and the Listing Committee of the GEM Board. For details, please refer to the announcement of the Company dated 9 November 2017 and 14 November 2017.

Proposed open offer

On 9 November 2017, the Company proposed an open offer ("Open Offer") on the basis of nineteen offer shares ("Offer Shares") for every one New Share/Consolidated Share held by the qualifying shareholders on the Open Offer Record Date ("Qualifying Shareholders"). On 28 June 2018, the Company entered into an underwriting agreement with the underwriter (the "Underwriter") in relation to such. A total of 1,297,775,150 Offer Shares will be allotted and issued by the Company to the Qualifying Shareholders and/or the Underwriter at the offer price of HK$0.19 for each Offer Share.

IV-13

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Completion of the Open Offer, being part of the Resumption Proposal, is conditional upon the New Capital Reorganization becoming effective and the completion of an acquisition ("Acquisition") of a target company ("Target") which is principally engaged in provision of interior design services for commercial and residential properties, as well as galleries and show flats for local property developers in Hong Kong. For details, please refer to the announcement of the Company dated 9 November 2017 and 28 June 2018.

LITIGATION

(1) On 4 September 2016 the Company announced, amongst other things, that (i) Evotech (Asia) Pte. Limited ("Evotech"), an indirect wholly-owned subsidiary of the Company had entered into a Surrender Agreement with Jurong Town Corporation ("JTC") on 6 April 2016 pursuant to which Evotech agreed to surrender its leasehold interest in the real property located at 42 Gul Circle, Singapore 629577 to JTC at the consideration of S$5,620,000 and such transaction was completed on 27 June 2016 without the approval and authorization of the Board (the "Unauthorized Transaction"), and (ii) the Company was investigating into the circumstances leading to the entering into the Unauthorized Transaction and the payments made by Evotech from the proceeds of the Unauthorized Transaction.

Upon completion of the said investigation and with the benefit of legal advice, Evotech has on 23 November 2016 commenced legal proceedings at the High Court of The Republic of Singapore (Case no. HC/S 1242/2016) against Mr. Koh Tat Lee ("Mr. Koh") for breaches of his duties as director and employee of Evotech and against Ms. Lily Bey Lay Lay ("Lily Bey"), another ex-director of Evotech, for breaches of her duties as director of Evotech and, for recovery of damages in the sums of S$2,285,000 and US$1,070,000 (the "Singapore Legal Action").

In the Singapore Legal Action, Mr. Koh and Lily Bey filed their Defence and Counterclaim to contest Singapore Legal Action and also commenced third-party proceedings ("Third-Party Proceedings") against the Company and Ms. Yip Man Yi, the Chairman of the Company (the "Singapore Third Parties").

In the Third-party Proceedings, Mr. Koh and Lily Bey sought indemnities and/or contributions against the Singapore Third Parties for authorizing and approving all the monetary transactions claimed by Evotech in the Singapore Legal Action to set off of the sums as may be applicable between all parties in the legal action, if any.

On 17 January 2017, the High Court of The Republic of Singapore granted leave for service of the Singapore Third Party Proceedings on the Singapore Third Parties out of the jurisdiction of the Republic of Singapore and the Singapore Third Parties have duly instructed their attorneys in the Republic of Singapore to enter appearance and contest the proceedings.

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APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

The hearing commenced on 28 February 2018. At the commencement of the hearing, Mr. Koh and Lily Bey, through their attorney, withdrew the Third-Party Proceedings against the Singapore Third Parties. However, Mr. Koh and Lily Bey did not agree to the amount of legal costs payable to the Singapore Third Parties for the withdrawal of the Third-Party Proceedings. In this regard, the legal costs to be paid by Mr. Koh and Lily Bey to the Singapore Third Parties shall be determined by the High Court of The Republic of Singapore at a taxation hearing. The Company's attorney filed a bill of costs related to the amount of legal costs payable to the Singapore Third Parties for the withdrawal of the Third-Party Proceedings on 23 May 2018. On 19 June 2018, Mr. Koh and Lily Bey have been ordered by the High Court of The Republic of Singapore to pay legal costs for the sum of $99,000 to the Singapore Third Parties. Formal demand for the payment has been issued to Mr. Koh and Lily Bey. Yet, on 3 July 2018, Mr. Koh and Lily Bey have filed a summons for review of the taxation order. On 11 July 2018 and 16 July 2018, statutory demands were served on Lily Bey and Mr. Koh respectively, demanding payment of the legal costs as awarded. On 23 July 2018, Lily Bey fully settled the said legal cost of $99,000.

On 8 October 2018, an oral judgment was handed down by the trial judge who ruled in favour of Evotech against Mr. Koh and Lily Bey jointly and severally in the total sum claimed by Evotech with interests running on each of these sums, while the formal judgment was released on 16 October 2018.

On 7 November 2018, Mr. Koh and Lily Bey filed a notice of appeal to the Court of Appeal of Singapore to appeal against the judgment. Evotech is continuing to seek legal advice in relation to the enforcement of the judgment against Mr. Koh and Lily Bey and in the process of implementing such.

For details, please refer to the announcements of the Company dated 4 September 2016, 23 November 2016, 10 February 2017, 2 March 2018 and 10 October 2018.

(2) On 2 November 2017, the Company received a demand letter from Kesterion Investments Limited ("Kesterion"). On 17 November 2017, the Company received a Writ of Summons issued by Kesterion in the High Court of the Hong Kong Special Administrative Region under Action Number 2631 of 2017 against CAAL Capital Company Limited ("CAAL") as the 1st Defendant and the Company as the 2nd Defendant.

On 20 and 21 November 2017, the Company and its authorised representatives respectively received another Writ of Summons issued by Kesterion in the High Court of the Hong Kong Special Administrative Region under Action Number 2662 of 2017 against the Company (collectively "the Writs").

The Writs are in relation to the repayment of a loan facility originally advanced by Kesterion to the Company. On 4 November 2016, the Company was notified by CAAL that CAAL and Kesterion had entered into a deed of assignment on 31 October 2016 pursuant to which all loan facility originally advanced by Kesterion were assigned to CAAL.

IV-15

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

The Company filed its defence for both actions on 25 January 2018. Kesterion filed its reply for both actions on 22 February 2018.

On 5 March 2018, by consent, the Court ordered that these two actions be consolidated, and that under the consolidated action, Kesterion is the Plaintiff while CAAL and the Company are the 1st Defendant and the 2nd Defendant, respectively. On 28 June 2018, CAAL filed its defence for the consolidated action.

As the claim under the Writs is related to the assignment between Kesterion and CAAL and the Company has already recorded the corresponding loan in the condensed consolidated financial statements, the Board considered that the claim under the Writs shall have no adverse impact upon the financial position of the Group.

For details, please refer to the announcement of the Company dated 28 November 2017.

(3) On 2 July 2018, Evotech received a Writ of Summons issued by Kesterion in the High Court of the Republic of Singapore under Case Number HC/S 653 of 2018 (the "Writ") in relation to the repayment of a loan provided by Kesterion to Evotech in the sum of S$400,000. As stated in the Writ, the loan was interest free and repayable on demand and were for the purposes of settling the obligations owed to the Singapore authorities, specifically, the Goods and Services Tax payments owed to the Inland Revenue Authority of Singapore, as a result of the surrender of leasehold property as mentioned in the Company's announcement dated 4 September 2016 and for general working capital of Evotech.

Evotech has engaged a Singapore law firm to contest the proceedings. The memorandum of appearance was filed by the Singapore law firm on behalf of Evotech on 9 July 2018. On 24 July 2018, Evotech has filed a defence denying the claim and counterclaiming S$500,000 being the loans made by Evotech to Kesterion in May 2016.

The Board has obtained legal opinion and expects that the Writ will have no significant effects on the overall financial and/or operational conditions of the Group.

For details, please refer to the announcement of the Company dated 4 July 2018.

Save as disclosed in the above section, during the Period, no member of the Group is engaged in any litigation or arbitration or claim of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against any member of the Group.

IV-16

APPENDIX IV
FINANCIAL INFORMATION OF THE GROUP

LISTING STATUS

The Company has received a letter dated 2 December 2016 from the Stock Exchange considered that the Company has failed to maintain sufficient operations or assets under Rule 17.26 of the GEM Listing Rules to warrant the continued listing of its shares. The Stock Exchange has therefore decided to suspend trading in the Company's shares under Rule 9.04 of the GEM Listing Rules and commence the procedures to cancel the Company's listing under Rules 9.14 to 9.16 of the GEM Listing Rules (the "Decision"). The Letter serves as a notice to the Company under Rule 9.15 of the GEM Listing Rules.

After considering legal advice, the Company through its lawyer submitted a written request to the GEM Listing Committee of the Stock Exchange (the "Committee") pursuant to Chapter 4 of the GEM Listing Rules for reviewing of the Decision on 6 December 2016. On 14 December 2016, it was confirmed by the Stock Exchange that the review hearing of the Committee has been scheduled on 7 March 2017.

On 17 March 2017, the Stock Exchange notified the Company that the Committee, having considered all the submissions (both written and oral) made by the Company to the Listing Department of the Stock Exchange, the Committee considered that the Company had failed to maintain sufficient operations or assets under Rule 17.26 of the GEM Listing Rules to warrant the continued listing of the Company's shares. The Committee therefore decided to uphold the Decision to suspend trading in the Company's shares under Rule 9.04 of the GEM Listing Rules and commence the procedures to cancel the Company's listing under Rules 9.14 to 9.16 of the GEM Listing Rules.

After considering legal advice, the Board has decided not to appeal against the decision of the Committee to the Listing Appeals Committee.

At the request of the Company, trading in shares of the Company has been suspended with effect from 9:00 a.m. on 20 March 2017.

On 15 September 2017, the Company submitted the Resumption Proposal to the Stock Exchange and entered into a restructuring framework agreement with an investor to set out the terms of the proposed restructuring comprising (i) the Capital Reorganisation; (ii) the Open Offer; (iii) the Creditors Schemes; and (iv) the Acquisition.

IV-17

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

On 19 January 2018, the Stock Exchange granted an extension of time to the Company to submit the new listing application relating to the Resumption Proposal on or before 29 March 2018 and despatch the circular in accordance with the requirements under the Listing Rules and the Takeovers Code on or before 19 June 2018. On 29 March 2018, the Stock Exchange granted a further extension of time to the Company to submit the new listing application relating to the Resumption Proposal on or before 29 June 2018 and despatch the circular in accordance with the requirements under the Listing Rules and the Takeovers Code on or before 12 September 2018.

On 28 June 2018, the Company and the Investor entered into the second supplemental restructuring framework agreement pursuant to which, the restructuring framework agreement (as amended and supplemented by the first supplemental restructuring framework agreement dated 9 November 2017) were further amended and supplemented to give effect to certain terms of the proposed restructuring.

On 29 June 2018, the Company has submitted the Listing Application to the Stock Exchange and the Securities and Futures Commission for vetting. With the view that the Company is in the process of preparing the financial information of the Target Group for the stub period ended 31 July 2018 for the Listing Application, on 6 September 2018, the Executive had granted an extension of time for the despatch of the circular in accordance with the requirements under the Listing Rules and the Takeovers Code on or before 31 December 2018.

On 23 November 2018, the Company and the Investor entered into two agreements to amend and restate certain terms of the Restructuring Framework Agreement and the Acquisition Agreement respectively.

On 3 January 2019, as additional time is required for the vetting process of the Circular in view of the resubmission of the Listing Application (as detailed below), the Executive had granted an extension of time for the despatch of the circular in accordance with the requirements under the Listing Rules and the Takeovers Code on or before 31 January 2019.

Rule 12.07 of the GEM Listing Rules stipulates that if the listing of a new applicant remains outstanding for more than 6 months after the date of the application form, a new application form together with a further listing fee in the prescribed amount must be submitted to the Stock Exchange. Therefore, as the Company had submitted the Listing Application to the Stock Exchange on 29 June 2018 and the listing of the Target Group is expected to remain outstanding for more than 6 months after the date of submission of the Listing Application and as a result of which has lapsed on 29 December 2018, on 4 January 2019, the Company re-submitted a new listing application with a view to continue the application for listing of the Target Group's business.

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APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

For details of all the above, please refer to the announcements of the Company dated 2 December 2016, 6 December 2016, 20 March 2017, 9 November 2017, 10 November 2017, 21 December 2017, 22 January 2018, 22 February 2018, 23 March 2018, 4 April 2018, 4 May 2018, 4 June 2018, 28 June 2018, 29 June 2018, 1 August 2018, 31 August 2018, 2 October 2018, 2 November 2018, 3 December 2018 and 31 December 2018.

(ii) For the year ended 31 March 2018

BUSINESS REVIEW

Stainless steel wires are widely applied in the manufacturing of electric appliances, mobile communication equipment and high precision surgical instruments, with the continuous growth of the smartphone market, rapid development of the mobile communication and rising demand for advanced medical equipment in Hong Kong and the PRC, demand of stainless steel wires from mobile communication and medical industries as raw materials and thus the trading of stainless steel wires kept at a steady level throughout the current year.

The Group also imports household products from Korea and Japan and sell them on a wholesale basis to distributors in Hong Kong and the PRC. The Group considers that the performance of this business segment is acceptable taking into account the current economic climate and the time required for the development of the business. This applies to the nephrite business too.

Chartering of vessel continues to be a regular income stream of the Group.

FINANCIAL REVIEW

The Group's revenue for the year amounted to approximately HK$105,665,000 (2017: approximately HK$84,730,000), increased by approximately HK$20,935,000 as compared to the year in 2017. The significant increase in revenue was mainly attributed to the full-year effect of the businesses of stainless steel wires.

The Group has incurred a gross profit of approximately HK$5,748,000 (2017: approximately HK$16,113,000). Other gains and losses amounted to approximately HK$1,555,000 (2017: approximately HK$80,296,000). Loss for the year increased to approximately HK$76,092,000 as compared to profit approximately HK$2,686,000 in last year.

The significant increase in loss for the year was mainly attributable to the fair value loss on investment properties and the legal and professional fee incurred for the year ended 31 March 2018, while there was an one-off reversal of allowances for trade and other receivables made for the year ended 31 March 2017.

IV-19

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

CAPITAL STRUCTURE AND LIQUIDITY

Proposed capital reorganization

The Company has terminated the capital reorganization (the “Old Capital Reorganization”) originally proposed on 4 July 2016 and has proposed to implement, subject to the approval by the shareholders, the new capital reorganization (the “New Capital Reorganization”) on 9 November 2017 as follows:

(ii) Share Consolidation: every fifty issued shares of HK$0.08 each (“Share”) will be consolidated into one consolidated share of HK$4.0 each (“Consolidated Share”) in the issued share capital of the Company;

(iv) Unissued Share Capital Cancellation: upon the Capital Reduction taking effect, all the authorized but unissued share capital of the Company will be cancelled in their entirety; and

The New Capital Reorganization, being part of the resumption proposal (“Resumption Proposal”) in relation to the proposed restructuring submitted by the Company to the Stock Exchange on 15 September 2017, will be subject to the passing of a special resolution by the shareholders by way of poll at the extraordinary general meeting, and the approval from the Grand Court of the Cayman Islands and the Listing Committee of the GEM Board. For details, please refer to the announcement of the Company dated 9 November 2017 and 14 November 2017.

Proposed open offer

On 9 November 2017, the Company proposed an Open Offer on the basis of nineteen Offer Shares for every one New Share held by the Qualifying Shareholders on the Open Offer Record Date. A total of 1,297,775,145 Offer Shares will be allotted and issued by the Company to the Qualifying Shareholders and/or the Underwriter at the offer price of HK$0.19 for each Offer Share. The Open Offer will be fully underwritten by the Underwriter.

IV-20

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Completion of the Open Offer, being part of the Resumption Proposal, is conditional upon the New Capital Reorganization becoming effective and the completion of the Acquisition of a Target Company which is principally engaged in provision of interior design services for commercial and residential properties, as well as galleries and show flats for local property developers in Hong Kong. For details, please refer to the announcement of the Company dated 9 November 2017 and 14 November 2017.

As at 31 March 2018, the Group has a current ratio of approximately 0.36 times (31 March 2017: approximately 0.83 times). Gearing ratio, calculated based on non-current liabilities of approximately HK$345,687,000 (31 March 2017: approximately HK$396,045,000) against total deficit of approximately HK$410,031,000 (31 March 2017: approximately HK$348,777,000) increased from -113.55% for 2017 to -84.31% for 2018.

As at 31 March 2018, the Group did not have any material contingent liability (31 March 2017: Nil).

As at 31 March 2018, the Group did not have any material capital commitment (31 March 2017: Nil).

MATERIAL ACQUISITIONS AND DISPOSALS

The Group had no material acquisition or disposal of subsidiaries and associated companies during the year.

LITIGATION

(a) On 4 September 2016 the Company announced, amongst other things, that (i) Evotech (Asia) Pte. Limited (“Evotech”) had entered into a Surrender Agreement with Jurong Town Corporation (“JTC”) on 6 April 2016 pursuant to which Evotech agreed to surrender its leasehold interest in the real property located at 42 Gul Circle, Singapore 629577 to JTC at the consideration of S$5,620,000 and such transaction was completed on 27 June 2016 without the approval and authorization of the Board (“the Unauthorized Transaction”), and (ii) the Company was investigating into the circumstances leading to the entering into the Unauthorized Transaction and the payments made by Evotech from the proceeds of the Unauthorized Transaction.

Upon completion of the said investigation and with the benefit of legal advice, Evotech has on 23 November 2016 commenced legal proceedings at the High Court of The Republic of Singapore (Case no. HC/S 1242/2016) against Mr. Koh Ta Lee (“Mr. Koh”) for breaches of his duties as director and employee of Evotech and against Ms. Lily Bey Lay Lay (“Lily Bey”), another ex-director of Evotech, for breaches of her duties as director of Evotech and, for recovery of damages in the sums of S$2,285,000 and US$1,070,000 (the “Singapore Legal Action”).

In the Singapore Legal Action, Mr. Koh and Lily Bey filed their Defence and Counterclaim to contest Singapore Legal Action and also commenced Third Party Proceedings (“Third Party Proceedings”) against the Company and Ms. Yip Man Yi, the Chairman of the Company (the “Singapore Third Parties”).

IV-21

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

In the Third Party Proceedings, Mr. Koh and Lily Bey sought indemnities and/or contributions against the Singapore Third Parties for authorizing and approving all the monetary transactions claimed by Evotech in the Singapore Legal Action to set off of sums as may be applicable between all parties in the legal action, if any.

The hearing commenced on 28 February 2018. At the commencement of the hearing, Mr. Koh and Lily Bey, through their attorney, withdrew the Third Party Proceedings against the Singapore Third Parties. However, Mr. Koh and Lily Bey did not agree to the amount of legal costs payable to the Company and other for the withdrawal of the Third Party Proceedings. In this regard, the legal costs to be paid by Mr. Koh and Lily Bey to the Singapore Third Parties shall be determined by the High Court of The Republic of Singapore at a taxation hearing.

The Board has obtained legal opinion that both Evotech and the Company have meritorious claim and defence in the Singapore Legal Action and the Third Party Proceedings and such proceedings shall have no adverse impact upon the financial position of the Group. Therefore, no provision in respect of the Singapore Legal Action and the Third Party Proceedings was made in the consolidated financial statements.

The Company's attorney in The Republic of Singapore is in the process of finalising the taxation application and will update the status in due course.

(b) On 2 November 2017, the Company received a demand letter from Kesterion. On 17 November 2017, the Company received a Writ of Summons issued by Kesterion in the High Court of the Hong Kong Special Administrative Region under Action Number 2631 of 2017 against CAAL as the 1st Defendant and the Company as the 2nd Defendant. On 20 November 2017 and 21 November 2017, the Company and its authorised representatives respectively received another Writ of Summons issued by Kesterion in the High Court of the Hong Kong Special Administrative Region under Action Number 2662 of 2017 against the Company (collectively "the Writs").

IV-22

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

The Writs are in relation to the repayment of a loan originally advanced by Kesterion to the Company. On 4 November 2016, the Company was notified by CAAL that CAAL and Kesterion had entered into a deed of assignment on 31 October 2016 pursuant to which Kesterion has assigned all its rights, title and interest in all the debts and liabilities owed by the Company to Kesterion to CAAL.

The Company filed its defence for both actions on 25 January 2018. Kesterion filed its reply for both actions on 22 February 2018.

As the claim under the Writs is related to the assignment between Kesterion and CAAL and the Company has already recorded the corresponding loan in the consolidated financial statements, the Board considered that the claim under the Writs shall have no adverse impact upon the financial position of the Group except that the corresponding loan has been reclassified from non-current liabilities to current liabilities based on the original terms of the loan facility.

Save as discussed in the above section, during the year ended 31 March 2018, no member of the Group is engaged in any litigation or arbitration or claim of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against any member of the Group.

IV-23

APPENDIX IV
FINANCIAL INFORMATION OF THE GROUP

LISTING STATUS

The Company has received a letter dated 2 December 2016 from the Stock Exchange considered that the Company has failed to maintain sufficient operations or assets under Rule 17.26 of the GEM Listing Rules to warrant the continued listing of its shares. The Stock Exchange has therefore decided to suspend trading in the Company's shares under Rule 9.04 of the GEM Listing Rules and commence the procedures to cancel the Company's listing under Rules 9.14 to 9.16 of the GEM Listing Rules (the "Decision"). The letter serves as a notice to the Company under Rule 9.15 of the GEM Listing Rules.

On 17 March 2017, the Stock Exchange notified the Company that the Committee, having considered all the submissions (both written and oral) made by the Company to the Listing Department of the Stock Exchange, the Committee considered that the Company had failed to maintain sufficient operations or assets under Rule 17.26 of the GEM Listing Rules to warrant the continued listing of the Company's shares. The Committee therefore decided to uphold the Decision to suspend trading in the Company's shares under Rule 9.04 of the GEM Listing Rules and commenced the procedures to cancel the Company's listing under Rules 9.14 to 9.16 of the GEM Listing Rules.

After considering legal advice, the Board has decided not to appeal against the decision of the Committee to the Listing Appeals Committee.

At the request of the Company, trading in the shares of the Company has been suspended with effect from 9:00 a.m. on 20 March 2017.

On 19 January 2018, the Stock Exchange granted an extension of time to the Company to submit the new listing application relating to the Resumption Proposal on or before 29 March 2018 and (ii) despatch the circular in accordance with the requirements under the GEM Listing Rules and the Takeovers Code on or before 19 June 2018. On 29 March 2018, the Stock Exchange granted a further extension of time to the Company to submit the new listing application relating to the Resumption Proposal on or before 29 June 2018 and (ii) despatch the circular in accordance with the requirements under the GEM Listing Rules and the Takeovers Code on or before 12

IV-24

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

September 2018. If the Company fails to submit a new listing application by 29 June 2018, or the transactions proposed in the Resumption Proposal fail to proceed with for any reasons, the Stock Exchange will proceed with the cancellation of listing of the Shares on the Stock Exchange.

For details, please refer to the announcements of the Company dated 2 December 2016, 6 December 2016, 20 March 2017, 9 November 2017, 10 November 2017, 21 December 2017, 22 January 2018, 22 February 2018, 23 March 2018, 4 April 2018 and 4 May 2018.

EMPLOYEES AND REMUNERATION POLICIES

As at 31 March 2018, the Group has 20 full time employees (31 March 2017: 27) in Hong Kong and the PRC. During the year ended 31 March 2018, the Group incurred staff costs (including Directors' emoluments) of approximately HK$5,016,000 (2017: approximately HK$7,432,000).

Employees are remunerated with reference to market terms and according to their individual work performance, qualification and experience. Remuneration includes monthly basic salaries, retirement benefits under the Mandatory Provident Fund Scheme (the "Scheme"), medical schemes and performance-linked discretionary bonuses.

All qualifying employees of the Group in Hong Kong participate in the Scheme. The assets of the Scheme are held separately from those of the Group in funds under the control of trustees. Contributions by the Group were grossly matched by employee contributions.

The emoluments of the executive Directors are recommended by the remuneration committee, and approved by the Board as authorized by the shareholders of the Company in the annual general meeting of the Company, having regard to the respective Directors' experience, responsibility, workload and time devoted to the Group; and the executive Directors may be granted options pursuant to the Share Option Scheme as defined in note 34 to the consolidated financial statements and/or any other such schemes of the Company as part of their remuneration packages.

BORROWING FACILITIES

As at 31 March 2018, the Group has obtained credit facilities from various banks, financial institutions and independent third parties up to a maximum amount of approximately HK$20,513,000 (2017: approximately HK$14,870,000) and approximately HK$20,513,000 (2017: approximately HK$13,870,000) of the credit facilities has been utilized.

PLEDGE OF ASSETS

At 31 March 2018, investment properties located in the PRC at carrying values of approximately RMB18,123,000 (equivalent to approximately HK$22,674,000) (2017: RMB25,180,000 (equivalent to approximately HK$28,406,000)) were pledged to secure general banking facilities granted to the Group.

IV-25

APPENDIX IV
FINANCIAL INFORMATION OF THE GROUP

TREASURY POLICIES

The transactions of the Company and its subsidiaries are mainly denominated in United States Dollar and the majority of the Group’s tangible assets are denominated in Hong Kong Dollar. The outstanding convertible bonds are denominated in United States Dollar and are redeemable or convertible using an agreed fixed rate of HK$7.8 to US$1.0. As a result, the convertible bonds have no exposure to exchange rate fluctuations. The Group has no other material exposure to exchange rate risk and has not made any arrangement to hedge against expenses, assets and liabilities for exchange rate fluctuation.

The Group adopts a conservative approach towards its treasury policies. The Group strives to reduce exposure to credit risk by all effective means. To manage liquidity risk, the Board closely monitors the Group’s liquidity position to ensure that the liquidity structure of the Group’s assets, liabilities and commitments can meet its funding requirements.

(iii) For the year ended 31 March 2017

BUSINESS REVIEW

Trading of Stainless Steel Wires

The Group has acquired this business segment in the first quarter of the current financial year. Since the stainless steel wires are widely applied in the manufacturing of electric appliances, mobile communication equipment and high precision surgical instruments, with the continuous growth of the smartphone market, rapid development of the mobile communication and rising demand for advanced medical equipment in Hong Kong and the PRC, demand of stainless steel wires from mobile communication and medical industries as raw materials thus increased steadily throughout the current year.

Stainless steel wires are also used as raw material of glass frame and zipper. In view of the change of trend of fashion recently in the PRC and the Asian markets, design for both industries is expected to incline to metal. Thus the Group anticipates the business of trading of stainless steel wires will continue to grow in the coming year.

Trading of Skincare and Household Products

To further broaden the source of income of the Group, the Group has commenced the trading of cosmetic and household products in June 2016. The Group primarily imports the products from Korea and Japan and sell the products on a wholesale basis to distributors in Hong Kong and the PRC. The Group considers that the performance of this business segment is acceptable taking into account the current economic climate and the time required for the development of the business.

IV-26

APPENDIX IV
FINANCIAL INFORMATION OF THE GROUP

And to in line with the corporate strategy for further fostering the Group’s revenue and diversifying the Group’s revenue base, the sales for this business segment will continue to seek for various opportunities to expand the product lines and the Group is optimistic about this expected increasing trend of revenue.

OTHERS

Nephrite business has shown a steady trend of revenue for the Group. The Group will continue to explore opportunity to increase income and raise the market reputation of the Group.

Performance of water trading was marginal in the current financial year. However, the Group believes that the market of clean and worry-free drinking water in PRC will still be a large potential market in view of the arising awareness of healthy lifestyle. The Group will grasp this chance to expand the existing market share.

Chartering of vessel constitute part of strategic investments of the Group to diversify its business segments and for the Group to capitalize new opportunities to achieve new and regular income stream and financial growth.

FINANCIAL REVIEW

The Group’s revenue for the year amounted to approximately HK$84,730,000 (2016: approximately HK$14,195,000 (as restated)), increased by approximately HK$70,535,000 as compared to the Year in 2016. The significant increase in revenue was mainly attributed to the prospected trading businesses commenced during the year.

The Group has incurred a gross profit of approximately HK$16,113,000 (2016: a gross loss of approximately HK$1,646,000 (as restated)). Other gains amounted to approximately HK$80,296,000 (2016: other loss of approximately HK$160,268,000 (as restated)). Profit for the year increased to approximately HK$2,686,000 as compared to loss approximately HK$498,230,000 in last year.

The significant decrease in loss for the year was mainly attributable to the reversal of trade and other receivables made in prior years, gain on redemption of convertible bonds liabilities and fair value gain of investment properties.

With reference to the announcement of the Company dated 11 November 2016, it was made known to the Company by its legal advisor on 9 September 2016 that the government of the PRC has imposed a fine on 20 May 2016 to Aquaterra China Trading (Shanghai) Company Limited, a direct wholly-owned subsidiary of Pan Asia Mining (Beijing) Company Limited (“PAM (BJ)”), a company incorporated in the PRC and is an indirect wholly owned subsidiary of the Company, in the amount of approximately RMB7,116,000 (equivalent to approximately HK$8,415,000) regarding the tampered production and expiry dates by supplier of certain bottled mineral water in its inventory. Accordingly, the relevant inventory has been fully impaired amounting to approximately RMB2,842,000 (equivalent to approximately HK$3,212,000). The financial impact has been reflected this year.

IV-27

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

CAPITAL STRUCTURE AND LIQUIDITY

Completion of Rights Issue and Early Redemption of Convertible Bonds

On 18 May 2016, the Company completed the Rights Issue. A total number of 2,529,776,120 ordinary shares of HK$0.08 each were issued with net proceeds of approximately HK$270,000,000. The Company used HK$229,300,000 of the net proceeds to early redeem the outstanding convertible bonds issued on 12 May 2015 with the principal amounts of US$30,000,000.

As a result of the completion of Rights Issue and early redemption of convertible bonds with the outstanding principal amount of US$30,000,000 on 18 May 2016, the conversion price of the convertible bonds with the outstanding principal amount of US$50,000,000 (equivalent to approximately HK$390 million), due for full redemption on 12 May 2020, has been adjusted from HK$4.0 per Share to HK$1.73 per Share and the number of outstanding converted Shares has been adjusted from 97,500,000 Shares to 225,433,526 Shares.

Proposed Capital Reorganization

On 4 July 2016, the Company proposed to implement the capital reorganization which involved:

(a) the proposed share consolidation whereby every ten issued Shares will be consolidated into one Consolidated Share;

(b) the proposed Capital Reduction of the issued share capital through a cancellation of the paid up capital to the extent of HK$0.7999 on each of the Consolidated Share such that the nominal value of each issued Consolidated Share will be reduced from HK$0.80 to HK$0.0001;

(c) the credit arising from the Capital Reduction shall be applied towards offsetting the accumulated deficit of the Company as at the effective date of the Capital Reduction, thereby reducing the accumulated deficit of the Company. The balance of credit (if any) will be transferred to a distributable reserve account of the Company and be applied for such purposes as permitted by all applicable laws and the memorandum and articles of association of the Company and as the Board considers appropriate; and

(d) immediately following the Capital Reduction, the proposed Share Subdivision whereby each of the authorized but unissued Consolidated Shares of HK$0.80 be sub-divided into eight thousand new Shares of HK$0.0001 each. The aforesaid capital reorganization was approved by the Shareholders as special resolution at the extraordinary general meeting of the Company held on 11 August 2016. As at the date of this report, the capital reorganization has not become effective.

IV-28

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

On 14 November 2017, the Company announced that the Old Capital Reorganisation has been terminated.

Completion of Placing of New Shares Under General Mandate

On 12 August 2016, completion of the placing took place. 569,199,627 placing shares (the "Placing Shares") have been placed by the placing agent (the "Placing Agent") at the placing price of HK$0.08 to not less than six places. The Placing Shares represent 20% of the issued share capital of the Company of 2,845,998,135 Shares as at 28 July 2016 and approximately 16.67% of the issued share capital of the Company of 3,415,197,762 Shares as enlarged by the placing. The net proceeds from the placing, after deducting the placing commission and other relevant expenses, amounted to approximately HK$44.0 million and have been used as general working capital of the Group.

Assignment of Loan

On 4 November 2016, the Company received a notice from the solicitors of CAAL Capital Company Limited ("CAAL") that, by a deed of assignment dated 31 October 2016, Kesterion Investments Limited ("Kesterion") (in which Kesterion is a company incorporated in the British Virgin Islands and is wholly-owned by Ms. Wong) has assigned all its rights, title and interest in all the debts and liabilities owed by the Company to Kesterion to CAAL. As such, Kesterion has ceased to be a creditor of the Company.

As at 31 March 2017, the Group has a current ratio of approximately 0.83 times (31 March 2016: approximately 0.07 times). Gearing ratio, calculated based on non-current liabilities of approximately HK$396,045,000 (31 March 2016: approximately HK$383,521,000) against total deficit of approximately HK$348,777,000 (31 March 2016: total deficit of approximately HK$561,180,000) decreased from -68.34% for 2016 to -113.55% for 2017.

As at 31 March 2017, the Group did not have any material contingent liability (31 March 2016: Nil).

As at 31 March 2017, the Group did not have any material capital commitment (31 March 2016: Nil).

MATERIAL ACQUISITIONS AND DISPOSALS

The Group had the following major acquisitions and disposals during the year.

Acquisition of Subsidiaries

On 19 April 2016, a wholly owned subsidiary of the Company, Allied Power Global Limited, entered into a memorandum of understanding ("MOU") in relation to a proposed acquisition with a vendor in which the target company will be principally engaged in the operation and management of a solar power plant. However, the MOU was terminated on 19 July 2016 upon expiry of the exclusive period.

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APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

On 10 June 2016, a wholly owned subsidiary of the Company, Zhanhui Limited, entered into an agreement with another vendor to acquire 100% of the issued share capital of FuHang at the consideration of HK$12,500,000 which has been satisfied by (i) HK$4,000,000 in cash and (ii) HK$8,500,000 by the issuance of the promissory note to the vendor. FuHang is engaged in trading of stainless steel wires in Hong Kong and the PRC.

On the other hand, on 25 August 2016, a wholly owned subsidiary of the Company, Diamond Year Limited, entered into an agreement with another vendor to acquire the entire issued share capital of Ultra Treasure and the entire outstanding unsecured interest free shareholder's loan owed by Ultra Treasure at the consideration of HK$19,000,000 by issuance of a promissory note to the vendor. Ultra Treasure owes a vessel that has been registered in Hong Kong.

For details of the above, please refer to the announcements of the Company dated 19 April 2016, 10 June 2016, 19 July 2016 and 25 August 2016.

Termination of Disposals of Two Subsidiaries

On 17 June 2016, a wholly-owned subsidiary of the Company, BSE, has entered into a sales and purchase agreements with an independent third party to sell all issued shares of PAM (BJ), which is principally engaged in trading of bottled mineral water and tea products in the PRC. The total consideration is HK$80,000, which shall be satisfied by cash within 10 days after completion of the transaction, which was subject to obtaining relevant approval from relevant PRC governmental authorities.

On the same day, BSE has entered into another sales and purchase agreement with Ms. Wong, the spouse of Mr. Koh who was an ex-executive director of the Company, to sell all issued shares of Black Sand International (Singapore) Pte. Limited, a company incorporated in Singapore and is an indirect wholly-owned subsidiary of the Company, which is principally engaged in trading of scrap metals in Singapore. The total consideration is HK$5,000,000, which shall be satisfied by setting off against part of the loan provided by Kesterion before upon completion of the transaction, which was subject to obtaining relevant approval from relevant governmental authorities, the Board and the independent shareholders at the extraordinary general meeting of the Company.

Nevertheless, on 1 September 2016, parties to the sale and purchase agreement in relation to the Discloseable Disposal mutually agreed not to proceed with the Discloseable Disposal and entered into a termination agreement to terminate such. Also, the Company intended to terminate the Major Disposal and thus kept continuing to negotiate with Ms Wong, in which the Major Disposal was subsequently terminated legally on the Long Stop Date on 30 October 2016. For details, please refer to the announcements of the Company dated 17 June 2016, 7 August 2016 and 1 September 2016.

IV-30

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Surrender of Leasehold Property

On 6 April 2016, an indirect wholly-owned subsidiary of the Company, Evotech and JTC had entered into the Surrender Agreement pursuant to which Evotech agreed to surrender a leasehold property to JTC at the consideration of S$5,620,000 excluding goods and services tax in Singapore. Completion had taken place on 27 June 2016. The Surrender Agreement and the Transaction were only made known to the Company after trading hours on 2 September 2016 by the independent internal control advisor and have not been approved and authorized by the Company.

The Company's Singapore legal advisors have completed their investigation(s) into the circumstances relating to and leading to the Transaction and have concluded that:

(i) the directors of Evotech have breached Section 160 of the Companies Act (Cap 50) Singapore (the "Act") in failing to obtain approval for the Transaction in general meeting of Evotech which constituted an offence under the Act; and
(ii) there were misuse of Company funds by Evotech from the proceeds of the Transaction.

Upon the advice of the Company's Singapore legal advisors, Evotech has on 23 November 2016 commenced legal proceedings at the High Court of The Republic of Singapore against Mr. Koh for breaches of his duties as director and employee of Evotech and against Lily Bey Lay Lay ("Lily Bey") for breaches of her duties as director of Evotech, for S$2,285,000 and US$1,070,000.

For details, please refer to the announcements of the Company dated 4 September 2016 and 23 November 2016.

LITIGATION

(i) On 4 September 2016 the Company announced, amongst other things, that (i) Evotech had entered into a Surrender Agreement with JTC on 6 April 2016 pursuant to which Evotech agreed to surrender its leasehold interest in the real property located at 42 Gul Circle, Singapore 629577 to JTC at the consideration of S$5,620,000 and such Unauthorized Transaction was completed on 27 June 2016 without the approval and authorization of the Board, and (ii) the Company was investigating into the circumstances leading to the entering into the Unauthorized Transaction and the payments made by Evotech from the proceeds of the Unauthorized Transaction.

Upon completion of the said investigation and with the benefit of legal advice, Evotech has on 23 November 2016 commenced legal proceedings at the High Court of The Republic of Singapore against Mr. Koh for breaches of his duties as director and employee of Evotech and against Lily Bey, another ex-director of Evotech, for breaches of her duties as director of Evotech and, for recovery of damages in the sums of S$2,285,000 and US$1,070,000.

IV-31

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

In the Singapore Legal Action, Mr. Koh and Lily Bey filed their Defence and Counterclaim to contest the claims by Evotech and commenced Singapore Third Party Proceedings against the Company and others alleging that as the ultimate holding company of Evotech the Company had authorized all the monetary transactions claimed by Evotech in the Singapore Legal Action and that Mr. Koh and Lily Bey are entitled to set off so much of the benefit received by the Company in those monetary transactions against the claims by Evotech in the Singapore Legal Action.

On 17 January 2017 the High Court of The Republic of Singapore granted leave for service of the Singapore Third Party Proceedings on the Company and other third parties involved out of the jurisdiction of the Republic of Singapore and the Company has duly instructed its attorney in The Republic of Singapore to enter appearance in the Singapore Third Party Proceedings denying the alleged authorization of those monetary transactions claimed by Evotech in the Singapore Legal Action and contesting the relief so claimed by Mr. Koh and Lily Bey.

The Board has obtained proper legal advice from its attorney in Singapore and formed the view that both Evotech and the Company have meritorious claim and defence in the Singapore Legal Action and the Singapore Third Party Proceedings and such proceedings shall have no adverse impact upon the financial position of the Group. Therefore, no provision in respect of the Singapore Legal Action and the Singapore Third Party Proceedings was made in the consolidated financial statements.

(ii) On 12 December 2016 Team Kingdom Limited (“Team Kingdom”), a wholly-owned subsidiary of the Company, commenced legal proceedings entitled DCCJ 5968/2016 (“DCCJ Action 5968/2016”) at the District Court of the Hong Kong S.A.R. against Mr. Koh for the recovery of a sum of HK$500,000 together with interest due under an Acknowledgment of Indebtedness dated 6 June 2016 and BSE, a wholly-owned subsidiary of the Company, also commenced legal proceedings entitled DCCJ 5967/2016 (“DCCJ Action 5967/2016”) at the District Court of the Hong Kong S.A.R against Mr. Koh for the recovery of a sum of HK$100,000 for unlawful conversion of the property of BSE to his own use.

Mr. Koh has filed his Defence and Counterclaim in DCCJ Action 5968/2016 and DCCJ 5967/2016 contesting the respective claims by Team Kingdom and BSE.

The Board has obtained proper legal advice from its legal representative and formed the view that both Team Kingdom and BSE do have meritorious claims against Mr. Koh and both DCCJ Action 5968/2016 and DCCJ Action 5967/2016 shall have no adverse impact upon the financial position of the Group. Therefore, no provision in respect of DCCJ Action 5968/2016 and DCCJ Action 5967/2016 was made in the consolidated financial statements.

IV-32

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Having considered the costs to be incurred in both DCCJ Action 5968/2016 and DCCJ Action 5967/2016 and the amount at stake, the parties to DCCJ Action 5968/2016 and DCCJ Action 5967/2016 have amicably settled the matters, whereby they respectively withdrew their claims and counterclaims in both Actions with payment of a nominal sum as costs by the Company to the defendants involved.

Save as discussed in the above sections, during the year ended 31 March 2017, no member of the Group is engaged in any litigation or arbitration or claim of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against any member of the Group.

LISTING STATUS

The Company has received a letter dated 2 December 2016 from the Stock Exchange considered that the Company has failed to maintain sufficient operations or assets under Rule 17.26 of the GEM Listing Rules to warrant the continued listing of its shares. The Stock Exchange has therefore decided to suspend trading in the Company's shares under Rule 9.04 of the GEM Listing Rules and commence the procedures to cancel the Company's listing under Rules 9.14 to 9.16 of the GEM Listing Rules. The Letter serves as a notice to the Company under Rule 9.15 of the GEM Listing Rules.

After considering legal advice, the Company through its lawyer submitted a written request to the Committee pursuant to Chapter 4 of the GEM Listing Rules for reviewing of the Decision on 6 December 2016. On 14 December 2016, it was confirmed by Stock Exchange that the review hearing of the GEM Listing Committee has been scheduled on 7 March 2017.

On 17 March 2017, the Stock Exchange notified the Company that the Committee having considered all the submissions (both written and oral) made by the Company to the Listing Department of the Stock Exchange, the Committee considered that the Company had failed to maintain sufficient operations or assets under GEM Listing Rule 17.26 to warrant the continued listing of the Company's shares. The Committee therefore decided to uphold the Decision to suspend trading in the Company's shares under GEM Listing Rules 9.04 and commence the procedures to cancel the Company's listing under GEM Listing Rules 9.14 to 9.16.

After considering legal advice, the Board has decided not to appeal against the decision of the Committee to the Listing Appeals Committee. Accordingly, trading in the shares of the Company is required to be suspended and the Company is required to submit a resumption proposal to demonstrate that it has a sufficient level of operations or assets as required by Rule 17.26 of the GEM Listing Rules at least 10 business days before the expiry of a period of six months from the date of the decision of the Committee (i.e. 17 September 2017). If the Company fails to submit a viable resumption proposal by the aforesaid deadline, the Stock Exchange will proceed with cancellation of the Company's listing.

IV-33

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

At the request of the Company, trading in the shares of the Company has been suspended with effect from 9:00 a.m. on 20 March 2017.

For details, please refer to the announcements of the Company dated 2 December 2016, 6 December 2016 and 20 March 2017.

EMPLOYEES AND REMUNERATION POLICIES

As at 31 March 2017, the Group has 27 full time employees (31 March 2016: 61) in Hong Kong, Singapore, Indonesia and the PRC. During the year ended 31 March 2017, the Group incurred staff costs (including Directors' emoluments) of approximately HK$7,432,000 (2016: approximately HK$26,509,000).

The emoluments of the executive Directors are recommended by the remuneration committee, and approved by the Board as authorized by the shareholders of the Company in the annual general meeting of the Company, having regard to the respective Directors' experience, responsibility, workload and time devoted to the Group; and the executive Directors may be granted options pursuant to the Share Option Scheme as defined in note 41 to the consolidated financial statements and/or any other such schemes of the Company as part of their remuneration packages.

BORROWING FACILITIES

As at 31 March 2017, the Group has obtained credit facilities from various banks, financial institutions and independent third parties up to a maximum amount of approximately HK$14,870,000 (2016: approximately HK$12,647,000) and approximately HK$13,870,000 (2016: approximately HK$11,919,000) of the credit facilities has been utilized.

PLEDGE OF ASSETS

At 31 March 2017, investment properties located in the PRC at carrying values of approximately RMB25,180,000 (equivalent to approximately HK$28,406,000) (31 March 2016: a warehouse property located in Singapore at carrying value of $7,000,000 (equivalent to approximately HK$40,219,000) and investment properties located in the PRC at carrying values of approximately RMB13,599,000 (equivalent to approximately HK$16,290,000)) were pledged to secure general banking facilities granted to the Group.

IV-34

APPENDIX IV
FINANCIAL INFORMATION OF THE GROUP

TREASURY POLICIES

The transactions of the Company and its subsidiaries are mainly denominated in United States Dollar and the majority of the Group's tangible assets are denominated in Hong Kong Dollar. The outstanding convertible bonds are denominated in United States Dollar and are redeemable or convertible using an agreed fixed rate of HK$7.8 to US$1.0. As a result, the convertible bonds have no exposure to exchange rate fluctuations. The Group has no other material exposure to exchange rate risk and has not made any arrangement to hedge against expenses, assets and liabilities for exchange rate fluctuation. The Group adopts a conservative approach towards its treasury policies. The Group strives to reduce exposure to credit risk by all effective means. To manage liquidity risk, the Board closely monitors the Group's liquidity position to ensure that the liquidity structure of the Group's assets, liabilities and commitments can meet its funding requirements.

(iv) For the year ended 31 March 2016

BUSINESS REVIEW

MINERALS EXPLORATION AND EXPLOITATION

During the year ended 31 March 2016, the renewal of exploration permits and application of mineral production sharing agreement for the exploration and exploitation activities in the Leyte Gulf, Philippines were still being processed by the local government. On 24 June 2016, the exploration permits will expire and it will automatically be terminated.

With the view of the management that it will now actively seeking new areas of growth, full impairment was made on the fair value of the exploration and evaluation assets in The Philippines, which amounted to HK$158,568,000 for the year ended 31 March 2016.

BEVERAGE

Distribution results of bottled spring water in the PRC was disappointing. There was only minimal sales throughout the year. On the other hand, discussions in respect of the potential acquisition of the Canada bottled water manufacturer has been effectively suspended as there are still major differences in views between the negotiation parties. This results in the management to actively seek for new areas of growth.

METAL TRADING

Scrap metal trading became the major revenue-contributor during the year. However, due to the stringent environmental protection requirements in Singapore, the gross profit margin of the scrap metal processing is low. Given the deteriorating financial results and unsatisfactory performance of the business over the past two years, the management intends to realize the investment in the business rather than devoting further resources to the business which is loss making.

IV-35

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

FINANCIAL REVIEW

The Group’s revenue of beverages in 2016 amounted to approximately HK$1,467,000 (2015: approximately HK$10,661,000), decreased by approximately HK$9,194,000 as compared to the same period in 2015.

The Group has incurred a gross loss of approximately HK$244,000 (2015: a gross profit of approximately HK$1,765,000). Other operating loss, net amounted to approximately HK$5,101,000 (2015: other operating income of approximately HK$3,183,000). Loss for the year decreased to approximately HK$284,341,000 as compared to approximately HK$1,228,220,000 in last year.

The significant decrease in loss for the year was mainly attributable to the limited recording of an impairment of HK$158,568,000 of the fair value of the exploration and evaluation assets as at 31 March 2016 (2015: HK$945,462,000). Full details of the impairment are reported in note 23 to the consolidated financial statements.

CAPITAL STRUCTURE AND LIQUIDITY

Redemption of Convertible Bonds and Issuance of New Bonds

The restructuring of convertible bonds was completed on 12 May 2015. The outstanding convertible bonds in principal amount of US$201,474,359 (equivalent to approximately HK$1,571,500,000) due for repayment in 2018 (“Old Bonds”) were fully redeemed by issuance of convertible bonds in principal amount of US$140,000,000 (equivalent to approximately HK$1,092,000,000) due in 2020 (“New Bonds”). A one-off fair value gain on redemption of the convertible bonds liabilities of approximately HK$251,146,000 (2015: Nil) was recorded (further details in note 38 to the condensed financial information).

During the year, the New Bonds in principal amount of US$60,000,000 (equivalent to approximately HK$468,000,000) were converted at HK$0.50 per share into 936,000,000 issued shares of the Company according to terms of the deed of New Bonds.

As at 31 March 2016, the Company has outstanding 2% convertible bonds with a carrying value of approximately HK$624,000,000 (31 March 2015: zero coupon rate convertible bonds with a carrying value of approximately HK$857,287,000) convertible into 248,000,000 ordinary shares (31 March 2015: 68,955,682 ordinary shares) of the Company of HK$0.50 each. The convertible bonds with outstanding principal amount totalling US$80,000,000 (equivalent to approximately HK$624,000,000) are due for full redemption on 12 May 2020. On 12 February 2016, a holder of the convertible bonds has agreed with the Company to have the partial early redemption of the convertible bonds with principal amount of US$30,000,000 (equivalent to approximately HK$234,000,000). This was completed on 18 May 2016.

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APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Capital reduction of issued shares and sub-division of unissued shares

On 19 June 2015, the Company proposed to implement a reduction of the issued share capital by reducing the par value of each issued share of the Company ("Old Share") from HK$0.50 to HK$0.25 by cancelling the paid up share capital to the extent of HK$0.25 per issued Old Share ("Original Capital Reduction") so that following such reduction, each issued Old Share with a par value of HK$0.50 in the share capital of the Company shall become one (1) new share with par value of HK$0.25 each ("Original New Share"). Immediately following the Original Capital Reduction, each of the authorised but unissued Old Shares with par value of HK$0.50 be subdivided into two (2) Original New Shares with par value of HK$0.25 each ("Original Sub-division").

On 20 August 2015, the Company proposed to extend the Original Capital Reduction and the Original Sub-division. The Company therefore proposed a reduction of the issued share capital by reducing the par value of each issued Old Shares from HK$0.50 to HK$0.01 by cancelling the paid up share capital to the extent of HK$0.49 per issued Old Share ("2015 Capital Reduction") so that following such reduction, each issued Old Share with a par value of HK$0.50 in the share capital of the Company shall become one (1) new share with par value of HK$0.01 ("New Share"). Immediately following the 2015 Capital Reduction, each of the authorised but unissued Old Shares with par value of HK$0.50 shall be subdivided into fifty (50) New Shares with par value of HK$0.01 each ("Sub-division").

The 2015 Capital Reduction and the Sub-division were approved by the Shareholders by way of special resolution at the extraordinary general meeting of the Company on 24 September 2015 and the 2015 Capital Reduction and the Sub-division were effective on 23 December 2015.

The credit arising from the 2015 Capital Reduction approximately HK$1,239,590,000 has been applied towards offsetting the accumulated deficit of the Company as at the effective date of the 2015 Capital Reduction, thereby reducing the accumulated deficit of the Company.

As at 31 March 2016, the Group has a current ratio of approximately 0.21 time (31 March 2015: approximately 1.01 times). Gearing ratio, calculated based on non-current liabilities of approximately HK$447,752,000 (31 March 2015: approximately HK$859,918,000) against total deficit of approximately HK$645,242,000 (31 March 2015: total deficit of approximately HK$625,023,000) decreased from -137.58% for 2015 to -72.46% for 2016.

As at 31 March 2016, the Group did not have any material contingent liability (31 March 2015: Nil).

As at 31 March 2016, the Group did not have any material capital commitment (31 March 2015: Nil).

IV-37

APPENDIX IV
FINANCIAL INFORMATION OF THE GROUP

Completion of the Rights Issue

On 18 May 2016, the Company completed the Rights Issue. A total number of 2,529,776,120 ordinary shares of HK$0.01 each were issued with net proceeds of approximately HK$270,000,000. The Company applies the net proceeds from the Rights Issue as to (i) approximately HK$229,300,000 for early partial redemption of the outstanding convertible bonds at the end of the reporting period; (ii) approximately HK$5,500,000 for repayment of the loan at the end of the reporting period and payment of interest accrued thereon; and (iii) the remaining balance of approximately HK$35,300,000 million as general working capital for existing businesses of the Group.

MATERIAL ACQUISITIONS AND DISPOSALS

The Group had no material acquisitions or disposals of subsidiaries and associated companies during the year.

Subsequent to the year end, on 10 June 2016, a wholly owned subsidiary of the Company, Zhanhui Limited, completed the acquisition from Link Long Limited, a company incorporated in the British Virgin Islands and it is an independent third party, of all issued share of FuHang. Total purchase consideration was HK$12,500,000 which has been satisfied as to HK$4,000,000 in cash and HK$8,500,000 by the issue of the promissory notes. The management considers that it is beneficial for the Group to seek suitable investment opportunities from time to time to diversify its existing business portfolio into new line of business with growth potential and to broaden its source of income. In this connection, the management considers that this acquisition as an opportunity for the Group to expand its business in an industry with growth potential.

Disposals of two subordinates subsequent to the year-end date

On 17 June 2016, a wholly owned subsidiary of the Company, Black Sand Enterprises Limited, has entered into a sales and purchase agreements with Mr. Nick Chua Chee Ming, who is an independent third party, to sell all issued share of Pan Asia Mining (Beijing) Company Limited, a company incorporated in the PRC and is an indirect wholly-owned subsidiary of the Company before the disposal, which is principally engaged in trading of bottled mineral water and tea products in the PRC. The total consideration is HK$80,000, which shall be satisfied by cash within 10 days after completion of the transaction, which was subject to obtaining relevant approval from relevant PRC governmental authorities. Given the negative operating results of the business in recent years, the management intends to realize the investment in the business rather than devoting further resources to the business which is loss making. It is expected that the net proceeds from the disposal will be used for general working capital of the Group.

On the same day, a wholly owned subsidiary of the Company, Black Sand Enterprises Limited, has entered into a sales and purchase agreements with Ms. Wong, the spouse of Mr. Koh Tat Lee who was an ex-executive director of the Group, to sell all issued share of Black Sand International (Singapore) Pte. Limited, a company incorporated in Singapore and is an indirect wholly-owned subsidiary of the Company before the disposal, which is principally engaged in trading of scrap metals in Singapore. The total consideration is HK$5,000,000, which shall be

IV-38

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

satisfied by setting off against part of the loan provided by Kesterion before (in which Kesterion is a company incorporated in the British Virgin Islands and is wholly-owned by Ms. Eva Wong) at completion of the transaction, which was subject to obtaining relevant approval from relevant governmental authorities, the Board and the independent shareholders at the extraordinary general meeting of the Company. Given the deteriorating financial results and unsatisfactory performance of the business in recent years, the management intends to realize the investment in the business rather than devoting further resources to the business which is loss making. The set-off of the consideration against part of the loan provided by Kesterion will enable the Group to save future interests and improve the gearing level of the Group without cash outlay.

EMPLOYEES AND REMUNERATION POLICIES

As at 31 March 2016, the Group has 61 full time employees (31 March 2015: 91) in Hong Kong, Singapore, Indonesia and the Mainland China. During the year ended 31 March 2016, the Group incurred staff costs (including Directors' emoluments) of approximately HK$26,509,000 (2015: approximately HK$24,755,000).

Employees are remunerated with reference to market terms and according to their individual work performance, qualification and experience. Remuneration includes monthly basic salaries, retirement benefits under the Scheme, medical schemes and performance-lined discretionary bonuses.

The emoluments of the executive Directors are recommended by the remuneration committee, and approved by the Board as authorized by the shareholders of the Company in the annual general meeting of the Company, having regard to the respective Directors' experience, responsibility, workload and time devoted to the Group; and the executive Directors may be granted options pursuant to the Share Option Scheme as defined in note 40 to the consolidated financial statements and/or any other such schemes of the Company as part of their remuneration packages.

BORROWING FACILITIES

As at 31 March 2016, the Group has obtained credit facilities from various banks, financial institutions and a former substantial shareholder up to a maximum amount of approximately HK$12,647,000 (2015: approximately HK$150,410,000) and approximately HK$11,919,000 (2015: approximately HK$24,959,000) of the credit facilities has been utilized.

PLEDGE OF ASSETS

At 31 March 2016, a warehouse property located in Singapore at carrying value of $7,000,000 (equivalent to approximately HK$40,219,000) (31 March 2015: $7,600,000 (equivalent to approximately HK$43,305,000)) and investment properties located in the PRC at

IV-39

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

carrying values of approximately RMB13,599,000 (equivalent to approximately HK$16,290,000) (31 March 2015: approximately RMB14,759,000 (equivalent to approximately HK$18,614,000)) were pledged to secure general banking facilities granted to the Group.

TREASURY POLICIES

The Group adopts a conservative approach towards its treasury policies. The Group strives to reduce exposure to credit risk by all effective means. To manage liquidity risk, the Board closely monitors the Group's liquidity position to ensure that the liquidity structure of the Group's assets, liabilities and commitments can meet its funding requirements.

5. PROSPECTS

The Acquisition forms part and parcel of the Resumption Proposal seeking for the resumption of trading in the Shares. Upon completion of the Resumption Proposal, the Group will primarily engage in the Target Group's business. All the existing businesses including assets and liabilities of the Company will be transferred to the Scheme SPC. The Board will closely work with professional parties on the new listing application for the Resumption in the near future and strive for the best return to the Shareholders.

6. MATERIAL CHANGES

For identification purpose only

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

7. WORKING CAPITAL

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

8. INDEBTEDNESS STATEMENTS

As at 31 March 2019, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the indebtedness of the Group and the Restructured Group is analysed as follows:

The Group

HK$'000

Unsecured and unguaranteed:

Other borrowings	119,084
Convertible bonds	336,245
Promissory notes	30,316
Corporate bonds	23,262
	508,907

APPENDIX IV
FINANCIAL INFORMATION OF THE GROUP

The Restructured Group

HK$'000

Unsecured and unguaranteed:

Amounts due to directors	43
Amounts due to Whistle Up	50
Other borrowings	119,084
Convertible bonds	336,245
Promissory notes	30,316
Corporate bonds	23,262

509,000

Unsecured and guaranteed:

Bank borrowings 9,927

Secured and guaranteed:

Bank borrowings 23,149

Total 542,076

IV-42

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE RESTRUCTURED GROUP

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE RESTRUCTURED GROUP

The accompanying unaudited pro forma financial information has been prepared to illustrate the effect of the “Proposed Restructuring” which comprises (i) the Capital Reorganisation, (ii) the Creditors Schemes, (iii) the Share Offer and (iv) the Acquisition of the entire equity interest in Absolute Surge Limited (the “Target Company”) and its subsidiaries (hereinafter collectively referred to as the “Target Group”), which might have affected the financial information of Union Asia Enterprise Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”). The Group immediately after the completion of the Proposed Restructuring is referred to as the “Restructured Group”. In accordance with Hong Kong Financial Reporting Standard 3 “Business Combinations” (“HKFRS 3”), the Target Company is accounted for as the accounting acquirer and the Company as the accounting acquiree of the Acquisition.

The unaudited pro forma consolidated statement of financial position of the Restructured Group and the unaudited pro forma adjusted consolidated net tangible assets of the Restructured Group as at 30 September 2018 have been prepared based on (1) unaudited condensed consolidated statement of financial position of the Group as at 30 September 2018, as extracted from the interim report of the Company for the six months ended 30 September 2018 and (2) the audited combined statement of financial position of the Target Group as at 30 November 2018, as extracted from the accountants’ report of the Target Group as set out in Appendix III to this Circular, and adjusted in accordance with the pro forma adjustments described in the notes thereto, as if the Proposed Restructuring had been completed on 30 September 2018.

The unaudited pro forma consolidated statement of profit or loss and other comprehensive income and unaudited pro forma consolidated statement of cash flows of the Restructured Group have been prepared based on (1) the audited consolidated statement of profit or loss and other comprehensive income and consolidated statement of cash flows of the Group for the year ended 31 March 2018, as extracted from the annual report of the Company for the year ended 31 March 2018 and (2) the audited combined statement of profit or loss and other comprehensive income and combined statement of cash flows of the Target Group for the year ended 31 March 2018, as extracted from the accountants’ report of the Target Group as set out in Appendix III to this Circular, and adjusted in accordance with the pro forma adjustments described in the notes thereto, as if the Proposed Restructuring had been completed on 1 April 2017.

The unaudited pro forma financial information has been prepared based on a number of assumptions, estimates, uncertainties and currently available information, and is provided for illustrative purposes only. Accordingly, as a result of the nature of the unaudited pro forma financial information of the Restructured Group, it may not give a true picture of the actual financial position, results of operation or cash flows of the Restructured Group that would have been attained had the Proposed Restructuring actually occurred on the dates indicated herein.

V-1

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION

OF THE RESTRUCTURED GROUP

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF THE RESTRUCTURED GROUP

	Consolidated statement of financial position of the Group as at 30 September 2018										Consolidated statement of financial position of the Group as at 30 November 2018		Consolidated statement of financial position of the Target Group as at 30 November 2018		Pro forma adjustments
	BKV 000 (Note 1)	BKV 000 (Note 4)	BKV 000 (Note 5)	BKV 000 (Note 7)	BKV 000 (Note 8)	BKV 000 (Note 9a)	BKV 000 (Note 9b)	BKV 000 (Note 9c)	BKV 000 (Note 9d)	BKV 000 (Note 3)	BKV 000 (Note 3a)	BKV 000 (Note 3b)	BKV 000 (Note 3a)	BKV 000 (Note 3b)	BKV 000 (Note 3a)
Non-current assets
Property, plant and equipment	8,788					(8,788)					-	2,871			2,871
Goodwill	10,137					(10,137)					-	-			-
Financial assets at fair value through profit or loss	-										-	8,184			8,184
	18,925										-	11,055			11,055
Current assets
Inventories	2,968					(2,968)					-	-			-
Trade and other receivables	46,793					(46,793)					-	6,297			6,297
Financial assets at fair value through profit or loss	15,381					(15,381)					-	-			-
Contract cost assets	-										-	101			101
Contract assets	-										-	20,169			20,169
Current tax assets	-										-	1,406			1,406
Cash and bank balances	516				43,259	(516)			(22,900)		20,359	41,960			62,319
	65,658										20,359	69,933			90,292
Assets classified as held for sale	39,987					(39,987)					-	-			-
Current liabilities
Trade and other payables	57,499	22,900				(57,499)			(22,900)		-	4,451			4,451
Contract liabilities	-										-	3,369			3,369
Bank and other borrowings	123,036	10,000				(115,036)		(18,000)			-	34,440			34,440
Promissory note	9,995					(9,995)					-	-			-
Current tax liabilities	596					(596)					-	5,398			5,398
Amounts due to directors	-										-	39			39
Amount due to holding company	-										-	50			50
	191,126										-	47,747			47,747
Liabilities directly associated with assets classified as held for scale	49,770					(49,770)					-	-			-

APPENDIX V
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF THE RESTRUCTURED GROUP

	Consolidated statement of financial position of the Group as at 30 September 2018								Consolidated statement of financial position of the Group as at 30 September 2018		Consolidated statement of financial position of the Target Group as at 30 November 2018		Consolidated statement of financial position of the Restructured Group
	BREV 000 (Note 1)	BREV 000 (Note 4)	BREV 000 (Note 5)	BREV 000 (Note 7)	BREV 000 (Note 8)	BREV 000 (Note 9a)	BREV 000 (Note 9b)	BREV 000 (Note 9c)	BREV 000 (Note 9d)	BREV 000 (Note 5)	BREV 000 (Note 5a)	BREV 000 (Note 5b)	BREV 000 (Note 5a)	BREV 000 (Note 5b)
Net current (liabilities)/assets	(135,251)									20,359	22,186			42,545
Non-current liabilities
Convertible bonds	313,996				(313,996)					-	-			-
Corporate bonds	22,624				(22,624)					-	-			-
Deferred tax liabilities	4,563				(4,563)					-	192			192
	341,183									-	192			192
Net (liabilities)/assets	(457,509)									20,359	33,049			53,408
Capital and reserves
Share capital	273,216			(273,209)	23		7	9		46	219	(46)	(97)	122
Share premium	3,661,406		(3,661,406)		43,236		13,356	17,991		74,583	-	(74,583)		-
Reserves	(4,391,478)	(32,900)	3,661,406	273,209		448,856	(448,856)			(54,270)	32,830	(12,971)	97	53,286
							435,493					87,600
Non-controlling interests	(653)					653				-	-			-
Total equity	(457,509)									20,359	33,049			53,408

V-3

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION

OF THE RESTRUCTURED GROUP

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME OF THE RESTRUCTURED GROUP

	Consolidated statement of profit or loss and other comprehensive income of the Group for the year ended 31 March 2018 HKS'000 (Note 2)	Combined statement of profit or loss and other comprehensive income of the Target Group for the year ended 31 March 2018 HKS'000 (Note 3)	Sub-total HKS'000	Pro forma adjustments			Unaudited pro forma consolidated statement of profit or loss and other comprehensive income of the Restructured Group HKS'000
				HKS'000 (Note 4)	HKS'000 (Note 9b)	HKS'000 (Note 10a)
Revenue	105,665	61,840	167,505				167,505
Cost of sales	(99,917)	(26,597)	(126,514)				(126,514)
Gross Profit	5,748	35,243	40,991				40,991
Administrative expenses	(31,072)	(18,295)	(49,367)	(32,900)			(82,267)
Other income	129	202	331				331
Other gains	1,555	3,312	4,867				4,867
(Loss)/profit from operations	(23,640)	20,462	(3,178)				(36,078)
Gain on debt restructuring of the Group	-	-	-		435,493		435,493
Deemed listing expenses	-	-	-			(67,241)	(67,241)
Finance costs	(54,398)	(873)	(55,271)				(55,271)
(Loss)/profit before tax	(78,038)	19,589	(58,449)				276,903
Income tax	1,946	(3,114)	(1,168)				(1,168)
(Loss)/profit for the year	(76,092)	16,475	(59,617)				275,735
Other comprehensive income after tax Item that may be reclassified subsequently to profit or loss:
Exchange differences arising from translation of foreign operations	5,049	-	5,049				5,049
Other comprehensive income for the year, net of tax	5,049	-	5,049				5,049
Total comprehensive (expenses)/income for the year	(71,043)	16,475	(54,568)				280,784
Total comprehensive (expenses)/income for the year attributable to:
Owners of the Company	(71,043)	16,475	(54,568)	(32,900)	435,493	(67,241)	280,784
Non-controlling interests	-	-	-				-
	(71,043)	16,475	(54,568)				280,784

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION

OF THE RESTRUCTURED GROUP

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS OF THE RESTRUCTURED GROUP

	Consolidated statement of cash flows of the Group for the year ended 31 March 2018	Combined statement of cash flows of the Target Group for the year ended 31 March 2018	Sub-total	Pro forma adjustments						Unaudited pro forma consolidated statement of cash flows of the Restructured Group
				HRS'000 (Note 2)	HRS'000 (Note 3)	HRS'000 (Note 4)	HRS'000 (Note 5)	HRS'000 (Note 6)	HRS'000 (Note 7)
Cash flows from operating activities (Loss)/Profit before tax	(78,038)	19,589	(58,449)	(32,900)			435,493		(67,241)	276,903
Adjustments for:
Financial costs	54,398	873	55,271							55,271
Interest income	(19)	(31)	(50)							(50)
Insurance expenses	-	9	9							9
Depreciation	1,710	1,652	3,362							3,362
Allowance for obsolete inventory	2,190	-	2,190							2,190
Gain on disposal of property, plant and equipment	-	(3,157)	(3,157)							(3,157)
Fair value gain on finance assets at fair value through profit or loss	(12,502)	-	(12,502)							(12,502)
Loss on disposal of financial assets at fair value through profit or loss	4,805	-	4,805							4,805
Fair value loss on investment properties	8,320	-	8,320							8,320
Deregistration of subsidiaries	9,789	-	9,789							9,789
Exchange gain	-	(1)	(1)							(1)
Written off of property, plant and equipment	1,172	-	1,172							1,172
Gain on debt restructuring of the Group	-	-	-				(435,493)			(435,493)
Deemed listing expenses	-	-	-						67,241	67,241
Operating (loss)/profit before working capital changes	(8,175)	18,934	10,759							(22,141)
Changes in inventories	(1,202)	-	(1,202)							(1,202)
Changes in trade and other receivables	59	(5,816)	(5,757)							(5,757)
Changes in trade and other payables	(2,908)	1,765	(1,143)	22,900						21,757
Changes in contract cost assets	-	372	372							372
Changes in contract assets	-	(255)	(255)							(255)
Changes in contract liabilities	-	5,090	5,090							5,090
Cash (used in)/generated from operations	(12,226)	20,090	7,864							(2,136)
Net proceeds from disposal of financial assets at fair value through profit or loss	16,638	-	16,638							16,638
Purchase of financial assets at fair value through profit or loss	(1,046)	-	(1,046)							(1,046)
Income tax paid	(368)	(4,680)	(5,048)							(5,048)
Net cash generated from operating activities	2,998	15,410	18,408							8,408
Cash flows from investing activities
Interest received	19	2	21							21
Purchase of property, plant and equipment	-	(2,062)	(2,062)							(2,062)
Advance to a director	-	(10,223)	(10,223)							(10,223)
Advance to a related company	-	(13,951)	(13,951)							(13,951)
Key management insurance policy payment	-	(8,053)	(8,053)							(8,053)
Net cash generated from (used in) investing activities	19	(34,287)	(34,268)							(34,268)
Cash flow financing activities
Net proceeds from bank loan and other borrowings	5,175	25,000	30,175	10,000						40,175
Interest paid	(7,831)	(804)	(8,635)							(8,635)
Repayment of bank loan	-	(1,596)	(1,596)							(1,596)
Dividend paid	-	(10,500)	(10,500)							(10,500)
Advance from directors	-	28	28							28
Net cash (used in)/generated from financing activities	(2,656)	12,128	9,472							19,472

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION

OF THE RESTRUCTURED GROUP

	Consolidated statement of cash flows of the Group for the year ended 31 March 2018 (Note 2)	Combined statement of cash flows of the Target Group for the year ended 31 March 2018 (Note 3)	Sub-total (Note 4)	Pro forma adjustments				Unaudited pro forma consolidated statement of cash flows of the Restructured Group (BK$'000)
				BK$'000 (Note 6)	BK$'000 (Note 7)	BK$'000 (Note 8)	BK$'000 (Note 9)
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS	361	(6,749)	(6,388)					(6,388)
Effect of foreign exchange rate changes	186	-	186					186
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR	2,309	26,342	28,651	43,259	(20,300)		(22,900)	28,710
CASH AND CASH EQUIVALENTS AT THE END OF YEAR	2,856	19,593	22,449					22,508
ANALYSIS OF CASH AND CASH EQUIVALENTS
Bank and cash balances	2,920	19,593	22,513	43,259	(20,300)		(22,900)	22,572
Bank overdrafts	(64)	-	(64)					(64)
	2,856	19,593	22,449					22,508

V-6

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION

OF THE RESTRUCTURED GROUP

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE RESTRUCTURED GROUP

Notes:

The amounts are extracted from the interim report of the Company for the six months ended 30 September 2018.
The amounts are extracted from the annual report of the Company for the year ended 31 March 2018.
The amounts are extracted from the accountants' reports of the Target Group as set out in Appendix III to this Circular.

Taking into the consideration of the pertinent facts and circumstances including the composition of the senior management and relative size (assets and revenue) under HKFRS 3 “Business Combination” paragraph B13 to B18 for Identifying the acquirer, the Directors consider, the Target Company is the acquirer for the accounting purpose and the Company is the acquiree for the accounting purpose. Accordingly, the Directors determine to apply the principles of reverse acquisition in HKFRS 3 by analogy to the unaudited pro forma financial information. The consolidated financial statements prepared following a reverse acquisition represent a continuation of the financial statements of the legal subsidiary (accounting acquirer – the Target Group), the assets and liabilities of which are recognised and measured at their pre-combination carrying amounts. Therefore, there is no adjustment in connection with the fair value of identifiable assets and liabilities of the Target Group included in the unaudited pro forma financial information.

The adjustment represents the estimated professional fees and expenses of approximately HK$32,900,000 to be additionally incurred by the Company relating to the “Proposed Restructuring” as if it had been taken place on 30 September 2018 and 1 April 2017.

This adjustment is not expected to have continuing effect on the Restructured Group’s consolidated statement of profit or loss and other comprehensive income and consolidated statement of cash flows.

The adjustment represents the effect of the proposed Share Premium Cancellation in which the entire amount in the sum of approximately HK$3,661,406,000 standing to the credit of the share premium account of the Company will be cancelled to set off against part of total accumulated loss of the Company.
The proposed Share Consolidation in which every fifty issued Shares of HK$0.08 each will be consolidated into one Consolidated Share of HK$4.0 each in the issued share capital of the Company, so there will be a total of 68,303,955 Consolidated Shares in issue upon Share Consolidation.

V-7

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE RESTRUCTURED GROUP

The adjustment represents the effect of the proposed Capital Reduction where the nominal value of each Consolidated Share will be reduced from HK$4.0 to HK$0.0001 each and the issued share capital of the Company will be cancelled to the extent of HK$3.9999 of each, and total credit of approximately HK$273,209,000 arising therefrom will be applied to further set off the accumulated loss of the Company.
(a) The adjustment represents a Share Offer of 227,679,850 New Shares comprising a Public Offer of 113,839,925 Offer Shares for subscription by members of the public in Hong Kong and a Preferential Offering of 113,839,925 Offer Shares for subscription by the Qualifying Shareholders at the price of HK$0.19 per Offer Share, the gross proceeds from the Share Offer will be approximately HK$43,259,000.

(b) The gross proceeds of approximately HK$43,259,000 from the proposed Share Offer had been included in the cash and cash equivalents at beginning of year of the Restructured Group as if the Share Offer had completed on 1 April 2017.

(a) Based on the Creditors Schemes, the entire interests in the Scheme Companies will be transferred to the Scheme Administrators or a company incorporated and held by the Scheme Administrators, which will be independent third parties. The adjustment reflects the exclusion of the assets and liabilities of the Scheme Companies and compromise of certain indebtedness of the Company in accordance with the Creditors Schemes, assuming that the Proposed Restructuring had been taken place on 30 September 2018.

HK$'000

Net assets of Scheme Companies transferred and compromise of certain indebtedness of the Company

448,856

V-8

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE RESTRUCTURED GROUP

(b) The Company shall issue and allot the Creditors Shares of 70,331,984 New Shares to the Scheme SPC for the benefit of the Scheme Creditors after the completion of the Share Offer in consideration of the discharge of the Claims under the Creditors Schemes. Assume the Creditors Share is at the price of HK$0.19 per share, total amount will be approximately HK$13,363,000. The information below shows the related financial impact as if the above transfer had been taken place on 30 September 2018:

HK$'000

Net assets of Scheme Companies transferred and compromise of certain indebtedness of the Company 448,856
Amounts in settlement of debt restructuring through Creditors Share (13,363)
Estimated unaudited gain on debt restructuring 435,493

This adjustment is not expected to have continuing effect on the Restructured Group's consolidated statement of profit or loss and other comprehensive income and consolidated statement of cash flows.

(c) The Company and the Investor agreed that the Investor Loan in the amount up to HK$18,000,000 shall be settled by capitalisation. A total of up to 94,736,842 capitalisation shares (the "Capitalisation Shares") will be issued and allotted to the Investor at the same issue price of HK$0.19 each for the settlement of the maximum amount of the Investor Loan of HK$18,000,000 upon Completion.

(d) Out of gross proceeds from Share Offer, approximately HK$22,900,000 will be made available for settlement of the professional fees and expenses including underwriting expenses. The adjustment represents the settlement of the professional fees and expenses by part of the gross proceeds from Share Offer.

The adjustments represent the followings:

(a) As if the Acquisition had been taken place on 30 September 2018, the Company shall acquire the entire equity interest in the Target Company at the consideration of approximately HK$144,400,000, which will be satisfied by way of issue and allotment of 760,000,000 consideration shares to the investor at the Issue Price of HK$0.19 per consideration share.

V-9

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE RESTRUCTURED GROUP

In this case, the investor is to obtain the listing status of the Company which is a non-operating public shell company for the purpose of the Acquisition. According to HKFRS 3 “Business Combinations”, it clarifies that this transaction is not considered a business combination, because the Company, in itself as a shell accounting acquiree, does not meet the definition of a business. Instead, this should be accounted for in the Restructured Group’s financial statements as a continuation of the financial statements of the Target Group (legal acquiree), together with a deemed issue of equity, equivalent to the shares held by former shareholders of the Company, and a re-capitalisation of the equity of the Target Group.

This deemed issue of equity is, in effect, an equity-settled share-based payment transaction whereby the Target Group has received the net assets/liabilities of the Company, together with its listing status. Under Hong Kong Financial Reporting Standard 2 “Share-based Payment”, the Target Group should measure the equity-settled share-based payments indirectly by reference to the fair value of the equity instruments issued as there is no goods or services received by the Target Group from this transaction. The increase in equity by the Target Group should be measured by reference to the fair value of the equity that are deemed to have been issued, i.e. 461,052,631 shares (Note 10b) of the Company multiplied by HK$0.19, equivalent to approximately HK$87,600,000 in exchange for the net liabilities and listing status of the Group.

However, as the listing status does not qualify for recognition as an intangible asset, it is expensed in consolidated profit or loss as deemed listing expenses (“Deemed listing expenses”). The net accounting for the deemed share-based payment transaction and elimination of net liabilities of the Group is:

Assuming that the Acquisition had been taken place on 30 September 2018

	HK$’000
Deemed issued equity	87,600
Net assets of the Group	(20,359)
Deemed listing expenses charged to profit or loss	67,241
Elimination of the Group’s reserves after Pro forma Adjustments	(54,270)
Pro forma adjustment subtotal of reserve	12,971

V-10

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION

OF THE RESTRUCTURED GROUP

(b) According to the paragraph B21 of HKFRS 3, the issued share capital is adjusted to reflect the legal capital of the accounting acquiree (legal parent – the Company). It is represented by the movements in the pro forma issued share capital of the Restructured Group as follows:

| | Number of Ordinary shares issued | Nominal value
HK$'000 |
| --- | --- | --- |
| At 30 September 2018 | 3,415,197,762 | 273,216 |
| Share Consolidation and Capital Reduction (note (4)) | (3,346,893,807) | (273,209) |
| Issuance of shares upon Share Offer (note 8) | 227,679,850 | 23 |
| Issuance of Creditors Share (note 9(b)) | 70,331,984 | 7 |
| Issuance of Capitalisation Shares (note 9(c)) | 94,736,842 | 9 |
| (note 10a) | 461,052,631 | 46 |
| Issuance and allotment of Consideration Shares | 760,000,000 | 76 |
| The pro forma issued share capital of the Restructured Group | 1,221,052,631 | 122 |

Reconciliation of the pro forma issued share capital of the Restructured Group resulted from the issuance and allotment of Consideration Shares:

| | Nominal value
HK$'000 |
| --- | --- |
| Per above | 122 |
| Elimination of share capital of the Target Group | (219) |
| Pro forma adjustment | (97) |

No adjustment has been made to the unaudited pro forma consolidated statement of financial position, the unaudited pro forma consolidated statement of profit or loss and other comprehensive income and the unaudited pro forma consolidated statement of cash flows of the Restructured Group to reflect the Pre-Completion Dividends to be declared and paid by the Target Group to the Investor subsequent to 30 November 2018. For further details, please refer to the section headed "Financial information of the Target Group – Dividend and distributable reserves" in this circular.

V-11

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION

OF THE RESTRUCTURED GROUP

UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE RESTRUCTURED GROUP

| | Unaudited consolidated net tangible liabilities of the Group as at 30 September 2018
HK$’000
Note 1 | Unaudited consolidated net tangible liabilities of the Group per share as at 30 September 2018
HK$
Note 2 | Unaudited pro forma adjusted consolidated net tangible assets of the Restructured Group
HK$’000
Note 3 | Unaudited pro forma adjusted consolidated net tangible assets of the Restructured Group per share
HK$
Note 4 |
| --- | --- | --- | --- | --- |
| Consolidated net tangible (liabilities)/ assets attributable to owners of the Company | (467,646) | (0.137) | 53,408 | 0.044 |

Notes:

(1) The unaudited consolidated net tangible liabilities of the Group as at 30 September 2018 is based on the amount of unaudited consolidated net tangible liabilities attributable to the owners of the Company as at 30 September 2018, which is extracted from the interim report of the Company for the six months ended 30 September 2018.

(2) The number of shares used for the calculation of unaudited consolidated net tangible liabilities of the Group per share is 3,415,197,762 being the number of shares in issue as at 30 September 2018.

(3) The unaudited pro forma adjusted consolidated net tangible assets of the Restructured Group is based on the amount of the unaudited pro forma adjusted consolidated net tangible assets attributable to the owners of the Company, which is extracted from the unaudited pro forma consolidated statement of financial position of the Restructured Group of approximately HK$53,408,000.

(4) The number of shares used for the calculation of the unaudited pro forma adjusted consolidated net tangible assets of the Restructured Group per share is 1,221,052,631 after completion of the Proposed Restructuring as described in the note 10(b).

(5) Apart from the above, no adjustments have been made to the unaudited pro forma statements of adjusted consolidated net tangible assets to reflect any trading results or other transactions of the Restructured Group.

V-12

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE RESTRUCTURED GROUP

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the reporting accountants of the Company, Elite Partners CPA Limited, Certified Public Accountants, Hong Kong.

elite partners

CERTIFIED PUBLIC ACCOUNTANTS

10th Floor,
8 Observatory Road,
Tsim Sha Tsui,
Kowloon, Hong Kong

29 May 2019

The Board of Directors
Union Asia Enterprise Holdings Ltd.,
Unit A, 29/F,
CKK Commercial Centre,
289-295 Hennessy Road,
Wanchai, Hong Kong

Dear Sirs,

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of Union Asia Enterprise Holdings Limited (the "Company") by the directors of the Company (the "Directors") for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated statement of financial position as at 30 September 2018, the unaudited pro forma consolidated statement of profit or loss and other comprehensive income and the unaudited pro forma consolidated statement of cash flows for the year ended 31 March 2018, and related notes as set out on pages V-1 to V-12 of the circular issued by the Company dated 29 May 2019 (the "Circular"). The applicable criteria on the basis of which the Directors have compiled the unaudited pro forma financial information are described on pages V-1 of the Circular.

The unaudited pro forma financial information has been compiled by the Directors to illustrate the impact of the Proposed Restructuring which comprises (i) the Capital Reorganisation, (ii) the Creditors Schemes, (iii) the Share Offer and (iv) the Acquisition (as defined in the section headed "Definitions" of the Circular) on the Company's financial position as at 30 September 2018 and the Company's financial performance and cash flows for the year ended 31 March 2018 as if the Proposed Restructuring had taken place on 30 September 2018 and 1 April 2017, respectively. As part of this process, information about the Company's financial position as at 30 September 2018 has been extracted by the Directors from the interim report of the Company for the six months ended 30 September 2018. Information about the Company's financial performance and cash flows for the year ended 31 March 2018 has been extracted by the Directors from the Company's annual report for the year ended 31 March 2018, on which an audit report issued by us has been published.

V-13

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE RESTRUCTURED GROUP

Directors' Responsibilities for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the Unaudited Pro Forma Financial Information in accordance with paragraph 7.31 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange of Hong Kong Limited (the "GEM Listing Rules") and with reference to Accounting Guideline 7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars ("AG 7") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA").

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.

Our firm applies Hong Kong Standard on Quality Control 1 "Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements", issued by the HKICPA and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Reporting Accountants' Responsibilities

Our responsibility is to express an opinion, as required by paragraph 7.31(7) of the GEM Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 "Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus" issued by the HKICPA. This standard requires that the reporting accountant comply with ethical requirements and plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the Unaudited Pro Forma Financial Information in accordance with paragraph 7.31 of the GEM Listing Rules and with reference to AG 7 issued by the HKICPA.

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

V-14

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE RESTRUCTURED GROUP

The purpose of Unaudited Pro Forma Financial Information included in the Circular is solely to illustrate the impact of the Proposed Restructuring on unadjusted financial information of the Group as if the Proposed Restructuring had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the Proposed Restructuring would have been as presented.

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

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

The procedures selected depend on the reporting accountants' judgment, having regard to the reporting accountants' understanding of the nature of the Group, the transactions in respect of which the Unaudited Pro Forma Financial Information has been compiled, and other relevant engagement circumstances.

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

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

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 7.31(1) of the GEM Listing Rules.

Yours faithfully,

Elite Partners CPA Limited

Certified Public Accountants

Hong Kong

V-15

APPENDIX VI

PROFIT ESTIMATE OF THE TARGET GROUP

The estimate of the combined profit attributable to the owners of the Target Company for the year ended 31 March 2019 is set out in the section headed "Financial Information of the Target Group – Profit Estimate of the Target Group for the year ended 31 March 2019" in this circular.

A. PROFIT ESTIMATE FOR THE YEAR ENDED 31 MARCH 2019

The estimate profit attributable to the owners of the Target Company for the year ended 31 March 2019 is prepared by the directors of the Target Company on the basis of the accounting policies consistent in all material respects with those currently adopted by the Target Group as summarised in Appendix III to this circular, and has been prepared based on (i) the audited combined results of the Target Group for the eight months ended 30 November 2018 as set out in Appendix III to this circular; and (ii) the unaudited combined results based on the management accounts of the Target Group for the four months ended 31 March 2019.

VI-1

APPENDIX VI

PROFIT ESTIMATE OF THE TARGET GROUP

B. LETTER FROM RSM HONG KONG

The following is the text of a letter, prepared for inclusion in this circular, received by the Directors and the Sponsor from the Target Company’s reporting accountants, RSM Hong Kong, Certified Public Accountants, Hong Kong, in connection with the estimate of the combined profit attributable to owners of the Target Company for the year ended 31 March 2019.

RSM Hong Kong
29th Floor, Lee Garden Two, 28 Yun Ping Road,
Causeway Bay, Hong Kong
T + 852 2598 5123
F + 852 2598 7230
www.rsmhk.com

羅申美會計師事務所
香港銅鑼灣恩平道二十八號
利園二期二十九字樓
電話 + 852 2598 5123
傳真 + 852 2598 7230
www.rsmhk.com

29 May 2019

The Board of Directors
Union Asia Enterprise Holdings Limited
Messis Capital Limited
Dear Sirs,

Profit Estimate for Year Ended 31 March 2019

We refer to the estimate of the combined profit attributable to owners of Absolute Surge Limited, together with its subsidiaries (hereinafter collectively referred to as the “Target Group”), for the year ended 31 March 2019 (the “Profit Estimate”) set forth in the section headed Financial Information of the Target Group in the circular of Union Asia Enterprise Holdings Limited (the “Company”) dated 29 May 2019 (the “Circular”).

Directors’ Responsibilities

The Profit Estimate has been prepared by the directors of the Company (the “Directors”) based on the audited combined results of the Target Group for the eight months ended 30 November 2018 and the unaudited combined results based on the management accounts of the Target Group for the four months ended 31 March 2019.

The Directors are solely responsible for the Profit Estimate.

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APPENDIX VI

PROFIT ESTIMATE OF THE TARGET GROUP

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the Hong Kong Institute of Certified Public Accountants (the "HKICPA"), which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.

Our firm applies Hong Kong Standard on Quality Control 1 and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Reporting Accountants' Responsibilities

Our responsibility is to express an opinion on the accounting policies and calculations of the Profit Estimate based on our procedures.

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 500 "Reporting on Profit Forecasts, Statements of Sufficiency of Working Capital and Statements of Indebtedness" and with reference to Hong Kong Standard on Assurance Engagements 3000 (Revised) "Assurance Engagements Other Than Audits or Reviews of Historical Financial Information" issued by the HKICPA. Those standards require that we plan and perform our work to obtain reasonable assurance as to whether, so far as the accounting policies and calculations are concerned, the Directors have properly compiled the Profit Estimate in accordance with the bases made by the Directors and as to whether the Profit Estimate is presented on a basis consistent in all material respects with the accounting policies normally adopted by the Target Group. Our work is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing issued by the HKICPA. Accordingly, we do not express an audit opinion.

Opinion

In our opinion, so far as the accounting policies and calculations are concerned, the Profit Estimate has been properly compiled in accordance with the bases adopted by the Directors as set out in Appendix VI of the Circular and is presented on a basis consistent in all material respects with the accounting policies normally adopted by the Target Group as set out in our Accountants' Report dated 29 May 2019, the text of which is set out in Appendix III of the Circular.

Yours faithfully,

RSM Hong Kong

Certified Public Accountants

Hong Kong

APPENDIX VI

PROFIT ESTIMATE OF THE TARGET GROUP

C. LETTER FROM THE SPONSOR

The following is the text of letter, prepared for inclusion in this circular by the Sponsor, in connection with the estimate of the combined profit attributable to owners of the Target Company for the year ended 31 March 2019.

MESSIS 大有融資

Room 1606, 16th Floor
Tower 2, Admiralty Centre
18 Harcourt Road
Admiralty
Hong Kong

29 May 2019

The Board of Directors
Union Asia Enterprise Holdings Limited

Dear Sirs,

We refer to the estimated combined profit attributable to owners of Absolute Surge Limited (the "Target Company", together with its subsidiaries, hereinafter collectively referred to as the "Target Group") for the year ended 31 March 2019 (the "Profit Estimate") as set out in the circular issued by Union Asia Enterprise Holdings Limited (the "Company") dated 29 May 2019 (the "Circular"). The Profit Estimate, for which the directors of the Company and the Target Company are responsible, has been prepared by the directors of the Company and the Target Company, based on (i) the audited combined results of the Target Group for the eight months ended 30 November 2018; and (ii) the unaudited combined results of the Target Group based on the management accounts for the four months ended 31 March 2019.

We have discussed with the directors of the Company and the Target Company the bases upon which the Profit Estimate has been made. We have also considered the letter dated 29 May 2019 addressed to you and us from RSM Hong Kong regarding the accounting policies and calculations upon which the Profit Estimate has been made.

On the basis of the information comprising the Profit Estimate and on the basis of the accounting policies and calculations adopted by the directors of the Target Group and reviewed by RSM Hong Kong, we are of the opinion that the Profit Estimate, for which the directors of the Company and the Target Company are responsible, has been made after due care and consideration.

Yours faithfully,
For and on behalf of
Messis Capital Limited
Wallace Cheung
Director

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APPENDIX VII

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

Set out below is a summary of certain provisions of the Memorandum and Articles of Association of the Company and of certain aspects of Cayman company law.

The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 17 October 2001 under the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands (the "Companies Law"). The Company's constitutional documents will consist of its Second Amended and Restated Memorandum of Association (the "Memorandum") and its Second Amended and Restated Articles of Association (the "Articles").

1. MEMORANDUM OF ASSOCIATION

(a) The Memorandum states, inter alia, that the liability of members of the Company is limited to the amount, if any, for the time being unpaid on the shares respectively held by them and that the objects for which the Company is established are unrestricted (including acting as an investment company), and that the Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit, as provided in section 27(2) of the Companies Law and in view of the fact that the Company is an exempted company that the Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands.

(b) The Company may by special resolution alter its Memorandum with respect to any objects, powers or other matters specified therein.

2. ARTICLES OF ASSOCIATION

The Articles will be adopted on 24 June 2019. The following is a summary of certain provisions of the Articles:

(a) Shares

(i) Classes of shares

The share capital of the Company consists of ordinary shares.

(ii) Variation of rights of existing shares or classes of shares

Subject to the Companies Law, if at any time the share capital of the Company is divided into different classes of shares, all or any of the special rights attached to the shares or any class of shares may (unless otherwise provided for by the terms of issue of that class) be varied, modified or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. To every such separate general meeting the provisions of the Articles relating to general meetings will mutatis mutandis apply, but so that the necessary quorum (other than

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

at an adjourned meeting) shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class and at any adjourned meeting two holders present in person or by proxy (whatever the number of shares held by them) shall be a quorum. Every holder of shares of the class shall be entitled to one vote for every such share held by him.

Any special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise expressly provided in the rights attaching to the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

(iii) Alteration of capital

The Company may by ordinary resolution of its members:

(i) increase its share capital by the creation of new shares;

(ii) consolidate all or any of its capital into shares of larger amount than its existing shares;

(iii) divide its shares into several classes and attach to such shares any preferential, deferred, qualified or special rights, privileges, conditions or restrictions as the Company in general meeting or as the directors may determine;

(iv) subdivide its shares or any of them into shares of smaller amount than is fixed by the Memorandum; or

(v) cancel any shares which, at the date of passing of the resolution, have not been taken and diminish the amount of its capital by the amount of the shares so cancelled.

The Company may reduce its share capital or any capital redemption reserve or other undistributable reserve in any way by special resolution.

(iv) Transfer of shares

All transfers of shares may be effected by an instrument of transfer in the usual or common form or in a form prescribed by The Stock Exchange of Hong Kong Limited (the "Stock Exchange") or in such other form as the board may approve and which may be under hand or, if the transferor or transferee is a clearing house or its nominee(s), by hand or by machine imprinted signature or by such other manner of execution as the board may approve from time to time.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

Notwithstanding the foregoing, for so long as any shares are listed on the Stock Exchange, titles to such listed shares may be evidenced and transferred in accordance with the laws applicable to and the rules and regulations of the Stock Exchange that are or shall be applicable to such listed shares. The register of members in respect of its listed shares (whether the principal register or a branch register) may be kept by recording the particulars required by Section 40 of the Companies Law in a form otherwise than legible if such recording otherwise complies with the laws applicable to and the rules and regulations of the Stock Exchange that are or shall be applicable to such listed shares.

The instrument of transfer shall be executed by or on behalf of the transferor and the transferee provided that the board may dispense with the execution of the instrument of transfer by the transferee. The transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the register of members in respect of that share.

The board may, in its absolute discretion, at any time transfer any share upon the principal register to any branch register or any share on any branch register to the principal register or any other branch register.

The board may decline to recognise any instrument of transfer unless a fee (not exceeding the maximum sum as the Stock Exchange may determine to be payable) determined by the Directors is paid to the Company, the instrument of transfer is properly stamped (if applicable), it is in respect of only one class of share and is lodged at the relevant registration office or registered office or such other place at which the principal register is kept accompanied by the relevant share certificate(s) and such other evidence as the board may reasonably require to show the right of the transferor to make the transfer (and if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do).

The registration of transfers may be suspended and the register closed on giving notice by advertisement in any newspaper or by any other means in accordance with the requirements of the Stock Exchange, at such times and for such periods as the board may determine. The register of members must not be closed for periods exceeding in the whole thirty (30) days in any year.

Subject to the above, fully paid shares are free from any restriction on transfer and free of all liens in favour of the Company.

(v) Power of the Company to purchase its own shares

The Company is empowered by the Companies Law and the Articles to purchase its own shares subject to certain restrictions and the board may only exercise this power on behalf of the Company subject to any applicable requirements imposed from time to time by the Stock Exchange.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

Where the Company purchases for redemption a redeemable share, purchases not made through the market or by tender must be limited to a maximum price determined by the Company in general meeting. If purchases are by tender, tenders must be made available to all members alike.

The board may accept the surrender for no consideration of any fully paid share.

(vi) Power of any subsidiary of the Company to own shares in the Company

There are no provisions in the Articles relating to ownership of shares in the Company by a subsidiary.

(vii) Calls on shares and forfeiture of shares

The board may from time to time make such calls upon the members in respect of any monies unpaid on the shares held by them respectively (whether on account of the nominal value of the shares or by way of premium). A call may be made payable either in one lump sum or by installments. If the sum payable in respect of any call or instalment is not paid on or before the day appointed for payment thereof, the person or persons from whom the sum is due shall pay interest on the same at such rate not exceeding twenty per cent. (20%) per annum as the board may agree to accept from the day appointed for the payment thereof to the time of actual payment, but the board may waive payment of such interest wholly or in part. The board may, if it thinks fit, receive from any member willing to advance the same, either in money or money's worth, all or any part of the monies uncalled and unpaid or installments payable upon any shares held by him, and upon all or any of the monies so advanced the Company may pay interest at such rate (if any) as the board may decide.

If a member fails to pay any call on the day appointed for payment thereof, the board may serve not less than fourteen (14) clear days' notice on him requiring payment of so much of the call as is unpaid, together with any interest which may have accrued and which may still accrue up to the date of actual payment and stating that, in the event of non-payment at or before the time appointed, the shares in respect of which the call was made will be liable to be forfeited.

If the requirements of any such notice are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the board to that effect. Such forfeiture will include all dividends and bonuses declared in respect of the forfeited share and not actually paid before the forfeiture.

A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall, notwithstanding, remain liable to pay to the Company all monies which, at the date of forfeiture, were payable by him to the Company in respect of the shares, together with (if the board shall in its discretion so require) interest thereon from the date of forfeiture until the date of actual payment at such rate not exceeding twenty per cent. (20%) per annum as the board determines.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(b) Directors

(i) Appointment, retirement and removal

At each annual general meeting, one third of the Directors for the time being (or if their number is not a multiple of three, then the number nearest to but not less than one third) shall retire from office by rotation provided that every Director shall be subject to retirement at an annual general meeting at least once every three years. The Directors to retire by rotation shall include any Director who wishes to retire and not offer himself for re-election. Any further Directors so to retire shall be those who have been longest in office since their last re-election or appointment but as between persons who became or were last re-elected Directors on the same day those to retire will (unless they otherwise agree among themselves) be determined by lot.

Neither a Director nor an alternate Director is required to hold any shares in the Company by way of qualification. Further, there are no provisions in the Articles relating to retirement of Directors upon reaching any age limit.

The Directors have the power to appoint any person as a Director either to fill a casual vacancy on the board or as an addition to the existing board. Any Director appointed to fill a casual vacancy shall hold office until the first general meeting of members after his appointment and be subject to re-election at such meeting and any Director appointed as an addition to the existing board shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election.

A Director may be removed by an ordinary resolution of the Company before the expiration of his period of office (but without prejudice to any claim which such Director may have for damages for any breach of any contract between him and the Company) and members of the Company may by ordinary resolution appoint another in his place. Unless otherwise determined by the Company in general meeting, the number of Directors shall not be less than two. There is no maximum number of Directors.

The office of director shall be vacated if:

(aa) he resigns by notice in writing delivered to the Company;

(bb) he becomes of unsound mind or dies;

(cc) without special leave, he is absent from meetings of the board for six (6) consecutive months, and the board resolves that his office is vacated;

(dd) he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors;

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(ee) he is prohibited from being a director by law; or
(ff) he ceases to be a director by virtue of any provision of law or is removed from office pursuant to the Articles.

The board may appoint one or more of its body to be managing director, joint managing director, or deputy managing director or to hold any other employment or executive office with the Company for such period and upon such terms as the board may determine and the board may revoke or terminate any of such appointments. The board may delegate any of its powers, authorities and discretions to committees consisting of such Director or Directors and other persons as the board thinks fit, and it may from time to time revoke such delegation or revoke the appointment of and discharge any such committees either wholly or in part, and either as to persons or purposes, but every committee so formed must, in the exercise of the powers, authorities and discretions so delegated, conform to any regulations that may from time to time be imposed upon it by the board.

(ii) Power to allot and issue shares and warrants

Subject to the provisions of the Companies Law and the Memorandum and Articles and to any special rights conferred on the holders of any shares or class of shares, any share may be issued (a) with or have attached thereto such rights, or such restrictions, whether with regard to dividend, voting, return of capital, or otherwise, as the Directors may determine, or (b) on terms that, at the option of the Company or the holder thereof, it is liable to be redeemed.

The board may issue warrants or convertible securities or securities of similar nature conferring the right upon the holders thereof to subscribe for any class of shares or securities in the capital of the Company on such terms as it may determine.

Subject to the provisions of the Companies Law and the Articles and, where applicable, the rules of the Stock Exchange and without prejudice to any special rights or restrictions for the time being attached to any shares or any class of shares, all unissued shares in the Company are at the disposal of the board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times, for such consideration and on such terms and conditions as it in its absolute discretion thinks fit, but so that no shares shall be issued at a discount to their nominal value.

Neither the Company nor the board is obliged, when making or granting any allotment of, offer of, option over or disposal of shares, to make, or make available, any such allotment, offer, option or shares to members or others with registered addresses in any particular territory or territories being a territory or territories where, in the absence of a registration statement or other special formalities, this would or might, in the opinion of the board, be unlawful or impracticable. Members affected as a result of the foregoing sentence shall not be, or be deemed to be, a separate class of members for any purpose whatsoever.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(iii) Power to dispose of the assets of the Company or any of its subsidiaries

There are no specific provisions in the Articles relating to the disposal of the assets of the Company or any of its subsidiaries. The Directors may, however, exercise all powers and do all acts and things which may be exercised or done or approved by the Company and which are not required by the Articles or the Companies Law to be exercised or done by the Company in general meeting.

(iv) Borrowing powers

The board may exercise all the powers of the Company to raise or borrow money, to mortgage or charge all or any part of the undertaking, property and assets and uncalled capital of the Company and, subject to the Companies Law, to issue debentures, bonds and other securities of the Company, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.

(v) Remuneration

The ordinary remuneration of the Directors is to be determined by the Company in general meeting, such sum (unless otherwise directed by the resolution by which it is voted) to be divided amongst the Directors in such proportions and in such manner as the board may agree or, failing agreement, equally, except that any Director holding office for part only of the period in respect of which the remuneration is payable shall only rank in such division in proportion to the time during such period for which he held office. The Directors are also entitled to be prepaid or repaid all travelling, hotel and incidental expenses reasonably expected to be incurred or incurred by them in attending any board meetings, committee meetings or general meetings or separate meetings of any class of shares or of debentures of the Company or otherwise in connection with the discharge of their duties as Directors.

Any Director who, by request, goes or resides abroad for any purpose of the Company or who performs services which in the opinion of the board go beyond the ordinary duties of a Director may be paid such extra remuneration as the board may determine and such extra remuneration shall be in addition to or in substitution for any ordinary remuneration as a Director. An executive Director appointed to be a managing director, joint managing director, deputy managing director or other executive officer shall receive such remuneration and such other benefits and allowances as the board may from time to time decide. Such remuneration may be either in addition to or in lieu of his remuneration as a Director.

The board may establish or concur or join with other companies (being subsidiary companies of the Company or companies with which it is associated in business) in establishing and making contributions out of the Company's monies to any schemes or funds for providing pensions, sickness or compassionate allowances, life assurance or other benefits for employees (which expression as used in this and the following paragraph shall include any Director or past Director who may hold or have held any executive office or any office of profit with the Company or any of its subsidiaries) and ex employees of the Company and their dependents or any class or classes of such persons.

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APPENDIX VII

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

The board may pay, enter into agreements to pay or make grants of revocable or irrevocable, and either subject or not subject to any terms or conditions, pensions or other benefits to employees and ex employees and their dependents, or to any of such persons, including pensions or benefits additional to those, if any, to which such employees or ex employees or their dependents are or may become entitled under any such scheme or fund as is mentioned in the previous paragraph. Any such pension or benefit may, as the board considers desirable, be granted to an employee either before and in anticipation of, or upon or at any time after, his actual retirement.

The board may resolve to capitalise all or any part of any amount for the time being standing to the credit of any reserve or fund (including a share premium account and the profit and loss account) whether or not the same is available for distribution by applying such sum in paying up unissued shares to be allotted to (i) employees (including directors) of the Company and/or its affiliates (meaning any individual, corporation, partnership, association, joint-stock company, trust, unincorporated association or other entity (other than the Company) that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, the Company) upon exercise or vesting of any options or awards granted under any share incentive scheme or employee benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the members in general meeting, or (ii) any trustee of any trust to whom shares are to be allotted and issued by the Company in connection with the operation of any share incentive scheme or employee benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the members in general meeting.

(vi) Compensation or payments for loss of office

Pursuant to the Articles, payments to any Director or past Director of any sum by way of compensation for loss of office or as consideration for or in connection with his retirement from office (not being a payment to which the Director is contractually entitled) must be approved by the Company in general meeting.

(vii) Loans and provision of security for loans to Directors

The Company must not make any loan, directly or indirectly, to a Director or his close associate(s) if and to the extent it would be prohibited by the Companies Ordinance (Chapter 622 of the laws of Hong Kong) as if the Company were a company incorporated in Hong Kong.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(viii) Disclosure of interests in contracts with the Company or any of its subsidiaries

A Director may hold any other office or place of profit with the Company (except that of the auditor of the Company) in conjunction with his office of Director for such period and upon such terms as the board may determine, and may be paid such extra remuneration therefor in addition to any remuneration provided for by or pursuant to the Articles. A Director may be or become a director or other officer of, or otherwise interested in, any company promoted by the Company or any other company in which the Company may be interested, and shall not be liable to account to the Company or the members for any remuneration, profits or other benefits received by him as a director, officer or member of, or from his interest in, such other company. The board may also cause the voting power conferred by the shares in any other company held or owned by the Company to be exercised in such manner in all respects as it thinks fit, including the exercise thereof in favour of any resolution appointing the Directors or any of them to be directors or officers of such other company, or voting or providing for the payment of remuneration to the directors or officers of such other company.

No Director or proposed or intended Director shall be disqualified by his office from contracting with the Company, either with regard to his tenure of any office or place of profit or as vendor, purchaser or in any other manner whatsoever, nor shall any such contract or any other contract or arrangement in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company or the members for any remuneration, profit or other benefits realised by any such contract or arrangement by reason of such Director holding that office or the fiduciary relationship thereby established. A Director who to his knowledge is in any way, whether directly or indirectly, interested in a contract or arrangement or proposed contract or arrangement with the Company must declare the nature of his interest at the meeting of the board at which the question of entering into the contract or arrangement is first taken into consideration, if he knows his interest then exists, or in any other case, at the first meeting of the board after he knows that he is or has become so interested.

A Director shall not vote (nor be counted in the quorum) on any resolution of the board approving any contract or arrangement or other proposal in which he or any of his close associates is materially interested, but this prohibition does not apply to any of the following matters, namely:

(aa) any contract or arrangement for giving to such Director or his close associate(s) any security or indemnity in respect of money lent by him or any of his close associates or obligations incurred or undertaken by him or any of his close associates at the request of or for the benefit of the Company or any of its subsidiaries;

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(bb) any contract or arrangement for the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director or his close associate(s) has himself/ themselves assumed responsibility in whole or in part whether alone or jointly under a guarantee or indemnity or by the giving of security;

(cc) any contract or arrangement concerning an offer of shares or debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase, where the Director or his close associate(s) is/are or is/are to be interested as a participant in the underwriting or sub underwriting of the offer;

(dd) any contract or arrangement in which the Director or his close associate(s) is/ are interested in the same manner as other holders of shares or debentures or other securities of the Company by virtue only of his/their interest in shares or debentures or other securities of the Company; or

(ee) any proposal or arrangement concerning the adoption, modification or operation of a share option scheme, a pension fund or retirement, death, or disability benefits scheme or other arrangement which relates both to Directors, his close associates and employees of the Company or of any of its subsidiaries and does not provide in respect of any Director, or his close associate(s), as such any privilege or advantage not accorded generally to the class of persons to which such scheme or fund relates.

The board may meet for the despatch of business, adjourn and otherwise regulate its meetings as it considers appropriate. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have an additional or casting vote.

(d) Alterations to constitutional documents and the Company's name

The Articles may be rescinded, altered or amended by the Company in general meeting by special resolution. The Articles state that a special resolution shall be required to alter the provisions of the Memorandum, to amend the Articles or to change the name of the Company.

(e) Meetings of members

(i) Special and ordinary resolutions

A special resolution of the Company must be passed by a majority of not less than three fourths of the votes cast by such members as, being entitled so to do, vote in person or, in the case of such members as are corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which notice has been duly given in accordance with the Articles.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

Under the Companies Law, a copy of any special resolution must be forwarded to the Registrar of Companies in the Cayman Islands within fifteen (15) days of being passed.

An ordinary resolution is defined in the Articles to mean a resolution passed by a simple majority of the votes of such members of the Company as, being entitled to do so, vote in person or, in the case of corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which notice has been duly given in accordance with the Articles.

(ii) Voting rights and right to demand a poll

Subject to any special rights or restrictions as to voting for the time being attached to any shares, at any general meeting on a poll every member present in person or by proxy or, in the case of a member being a corporation, by its duly authorised representative shall have one vote for every fully paid share of which he is the holder but so that no amount paid up or credited as paid up on a share in advance of calls or installments is treated for the foregoing purposes as paid up on the share. A member entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.

At any general meeting a resolution put to the vote of the meeting is to be decided by way of a poll save that the chairman of the meeting may in good faith, allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands in which case every member present in person (or being a corporation, is present by a duly authorized representative), or by proxy(ies) shall have one vote provided that where more than one proxy is appointed by a member which is a clearing house (or its nominee(s)), each such proxy shall have one vote on a show of hands.

If a recognised clearing house (or its nominee(s)) is a member of the Company it may authorise such person or persons as it thinks fit to act as its representative(s) at any meeting of the Company or at any meeting of any class of members of the Company provided that, if more than one person is so authorised, the authorisation shall specify the number and class of shares in respect of which each such person is so authorised. A person authorised pursuant to this provision shall be deemed to have been duly authorised without further evidence of the facts and be entitled to exercise the same powers on behalf of the recognised clearing house (or its nominee(s)) as if such person was the registered holder of the shares of the Company held by that clearing house (or its nominee(s)) including, where a show of hands is allowed, the right to vote individually on a show of hands.

Where the Company has any knowledge that any shareholder is, under the rules of the Stock Exchange, required to abstain from voting on any particular resolution of the Company or restricted to voting only for or only against any particular resolution of the Company, any votes cast by or on behalf of such shareholder in contravention of such requirement or restriction shall not be counted.

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(iii) Annual general meetings and extraordinary general meetings

The Company must hold an annual general meeting of the Company every year within a period of not more than fifteen (15) months after the holding of the last preceding annual general meeting or a period of not more than eighteen (18) months from the date of adoption of the Articles, unless a longer period would not infringe the rules of the Stock Exchange.

Extraordinary general meetings may be convened on the requisition of one or more shareholders holding, at the date of deposit of the requisition, not less than one-tenth of the paid up capital of the Company having the right of voting at general meetings. Such requisition shall be made in writing to the board or the secretary for the purpose of requiring an extraordinary general meeting to be called by the board for the transaction of any business specified in such requisition. Such meeting shall be held within 2 months after the deposit of such requisition. If within 21 days of such deposit, the board fails to proceed to convene such meeting, the requisitionist(s) himself/herself (themselves) may do so in the same manner, and all reasonable expenses incurred by the requisitionist(s) as a result of the failure of the board shall be reimbursed to the requisitionist(s) by the Company.

(iv) Notices of meetings and business to be conducted

An annual general meeting must be called by notice of not less than twenty-one (21) clear days and not less than twenty (20) clear business days. All other general meetings must be called by notice of at least fourteen (14) clear days and not less than ten (10) clear business days. The notice is exclusive of the day on which it is served or deemed to be served and of the day for which it is given, and must specify the time and place of the meeting and particulars of resolutions to be considered at the meeting and, in the case of special business, the general nature of that business.

In addition, notice of every general meeting must be given to all members of the Company other than to such members as, under the provisions of the Articles or the terms of issue of the shares they hold, are not entitled to receive such notices from the Company, and also to, among others, the auditors for the time being of the Company.

Any notice to be given to or by any person pursuant to the Articles may be served on or delivered to any member of the Company personally, by post to such member’s registered address or by advertisement in newspapers in accordance with the requirements of the Stock Exchange. Subject to compliance with Cayman Islands law and the rules of the Stock Exchange, notice may also be served or delivered by the Company to any member by electronic means.

All business that is transacted at an extraordinary general meeting and at an annual general meeting is deemed special, save that in the case of an annual general meeting, each of the following business is deemed an ordinary business:

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(aa) the declaration and sanctioning of dividends;

(bb) the consideration and adoption of the accounts and balance sheet and the reports of the directors and the auditors;

(cc) the election of directors in place of those retiring;

(dd) the appointment of auditors and other officers; and

(ee) the fixing of the remuneration of the directors and of the auditors.

(v) Quorum for meetings and separate class meetings

No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, but the absence of a quorum shall not preclude the appointment of a chairman.

The quorum for a general meeting shall be two members present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy and entitled to vote. In respect of a separate class meeting (other than an adjourned meeting) convened to sanction the modification of class rights the necessary quorum shall be two persons holding or representing by proxy not less than one third in nominal value of the issued shares of that class.

(vi) Proxies

Any member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member of the Company and is entitled to exercise the same powers on behalf of a member who is an individual and for whom he acts as proxy as such member could exercise. In addition, a proxy is entitled to exercise the same powers on behalf of a member which is a corporation and for which he acts as proxy as such member could exercise as if it were an individual member. Votes may be given either personally (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy.

(f) Accounts and audit

The board shall cause true accounts to be kept of the sums of money received and expended by the Company, and the matters in respect of which such receipt and expenditure take place, and of the property, assets, credits and liabilities of the Company and of all other matters required by the Companies Law or necessary to give a true and fair view of the Company's affairs and to explain its transactions.

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The accounting records must be kept at the registered office or at such other place or places as the board decides and shall always be open to inspection by any Director. No member (other than a Director) shall have any right to inspect any accounting record or book or document of the Company except as conferred by law or authorised by the board or the Company in general meeting. However, an exempted company must make available at its registered office in electronic form or any other medium, copies of its books of account or parts thereof as may be required of it upon service of an order or notice by the Tax Information Authority pursuant to the Tax Information Authority Law of the Cayman Islands.

A copy of every balance sheet and profit and loss account (including every document required by law to be annexed thereto) which is to be laid before the Company at its general meeting, together with a printed copy of the Directors' report and a copy of the auditors' report, shall not less than twenty-one (21) days before the date of the meeting and at the same time as the notice of annual general meeting be sent to every person entitled to receive notices of general meetings of the Company under the provisions of the Articles; however, subject to compliance with all applicable laws, including the rules of the Stock Exchange, the Company may send to such persons summarised financial statements derived from the Company's annual accounts and the directors' report instead provided that any such person may by notice in writing served on the Company, demand that the Company sends to him, in addition to summarised financial statements, a complete printed copy of the Company's annual financial statement and the directors' report thereon.

At the annual general meeting or at a subsequent extraordinary general meeting in each year, the members shall appoint an auditor to audit the accounts of the Company and such auditor shall hold office until the next annual general meeting. Moreover, the members may, at any general meeting, by special resolution remove the auditors at any time before the expiration of his terms of office and shall by ordinary resolution at that meeting appoint another auditor for the remainder of his term. The remuneration of the auditors shall be fixed by the Company in general meeting or in such manner as the members may determine.

The financial statements of the Company shall be audited by the auditor in accordance with generally accepted auditing standards which may be those of a country or jurisdiction other than the Cayman Islands. The auditor shall make a written report thereon in accordance with generally accepted auditing standards and the report of the auditor must be submitted to the members in general meeting.

(g) Dividends and other methods of distribution

The Company in general meeting may declare dividends in any currency to be paid to the members but no dividend shall be declared in excess of the amount recommended by the board.

The Articles provide dividends may be declared and paid out of the profits of the Company, realised or unrealised, or from any reserve set aside from profits which the directors determine is no longer needed. With the sanction of an ordinary resolution dividends may also be declared and paid out of share premium account or any other fund or account which can be authorised for this purpose in accordance with the Companies Law.

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Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise provide, (i) all dividends shall be declared and paid according to the amounts paid up on the shares in respect whereof the dividend is paid but no amount paid up on a share in advance of calls shall for this purpose be treated as paid up on the share and (ii) all dividends shall be apportioned and paid pro rata according to the amount paid up on the shares during any portion or portions of the period in respect of which the dividend is paid. The Directors may deduct from any dividend or other monies payable to any member or in respect of any shares all sums of money (if any) presently payable by him to the Company on account of calls or otherwise.

Whenever the board or the Company in general meeting has resolved that a dividend be paid or declared on the share capital of the Company, the board may further resolve either (a) that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up, provided that the shareholders entitled thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment, or (b) that shareholders entitled to such dividend will be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or such part of the dividend as the board may think fit.

The Company may also upon the recommendation of the board by an ordinary resolution resolve in respect of any one particular dividend of the Company that it may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to shareholders to elect to receive such dividend in cash in lieu of such allotment.

Any dividend, interest or other sum payable in cash to the holder of shares may be paid by cheque or warrant sent through the post addressed to the holder at his registered address, or in the case of joint holders, addressed to the holder whose name stands first in the register of the Company in respect of the shares at his address as appearing in the register or addressed to such person and at such addresses as the holder or joint holders may in writing direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the register in respect of such shares, and shall be sent at his or their risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. Any one of two or more joint holders may give effectual receipts for any dividends or other moneys payable or property distributable in respect of the shares held by such joint holders.

Whenever the board or the Company in general meeting has resolved that a dividend be paid or declared the board may further resolve that such dividend be satisfied wholly or in part by the distribution of specific assets of any kind.

All dividends or bonuses unclaimed for one year after having been declared may be invested or otherwise made use of by the board for the benefit of the Company until claimed and the Company shall not be constituted a trustee in respect thereof. All dividends or bonuses unclaimed for six years after having been declared may be forfeited by the board and shall revert to the Company.

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No dividend or other monies payable by the Company on or in respect of any share shall bear interest against the Company.

(h) Inspection of corporate records

Pursuant to the Articles, the register and branch register of members shall be open to inspection for at least two (2) hours during business hours by members without charge, or by any other person upon a maximum payment of HK$2.50 or such lesser sum specified by the board, at the registered office or such other place at which the register is kept in accordance with the Companies Law or, upon a maximum payment of HK$1.00 or such lesser sum specified by the board, at the office where the branch register of members is kept, unless the register is closed in accordance with the Articles.

(i) Rights of minorities in relation to fraud or oppression

There are no provisions in the Articles relating to rights of minority shareholders in relation to fraud or oppression. However, certain remedies are available to shareholders of the Company under Cayman Islands law, as summarised in paragraph 3(f) of this Appendix.

(j) Procedures on liquidation

A resolution that the Company be wound up by the court or be wound up voluntarily shall be a special resolution.

Subject to any special rights, privileges or restrictions as to the distribution of available surplus assets on liquidation for the time being attached to any class or classes of shares:

(i) if the Company is wound up and the assets available for distribution amongst the members of the Company shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed pari passu amongst such members in proportion to the amount paid up on the shares held by them respectively; and

(ii) if the Company is wound up and the assets available for distribution amongst the members as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up on the shares held by them respectively.

If the Company is wound up (whether the liquidation is voluntary or by the court) the liquidator may, with the authority of a special resolution and any other sanction required by the Companies Law divide among the members in specie or kind the whole or any part of the assets of the Company whether the assets shall consist of property of one kind or shall consist of properties of different kinds and the liquidator may, for such purpose, set such value as he deems fair upon any one or more class or classes of property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members. The liquidator may, with the like authority, vest any part of the assets in trustees upon such trusts for

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the benefit of members as the liquidator, with the like authority, shall think fit, but so that no contributory shall be compelled to accept any shares or other property in respect of which there is a liability.

(k) Subscription rights reserve

The Articles provide that to the extent that it is not prohibited by and is in compliance with the Companies Law, if warrants to subscribe for shares have been issued by the Company and the Company does any act or engages in any transaction which would result in the subscription price of such warrants being reduced below the par value of a share, a subscription rights reserve shall be established and applied in paying up the difference between the subscription price and the par value of a share on any exercise of the warrants.

CAYMAN ISLANDS COMPANY LAW

The Company is incorporated in the Cayman Islands subject to the Companies Law and, therefore, operates subject to Cayman Islands law. Set out below is a summary of certain provisions of Cayman company law, although this does not purport to contain all applicable qualifications and exceptions or to be a complete review of all matters of Cayman company law and taxation, which may differ from equivalent provisions in jurisdictions with which interested parties may be more familiar:

(a) Company operations

As an exempted company, the Company's operations must be conducted mainly outside the Cayman Islands. The Company is required to file an annual return each year with the Registrar of Companies of the Cayman Islands and pay a fee which is based on the amount of its authorised share capital.

(b) Share capital

The Companies Law provides that where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the value of the premiums on those shares shall be transferred to an account, to be called the "share premium account". At the option of a company, these provisions may not apply to premiums on shares of that company allotted pursuant to any arrangement in consideration of the acquisition or cancellation of shares in any other company and issued at a premium.

The Companies Law provides that the share premium account may be applied by the company subject to the provisions, if any, of its memorandum and articles of association in (a) paying distributions or dividends to members; (b) paying up unissued shares of the company to be issued to members as fully paid bonus shares; (c) the redemption and repurchase of shares (subject to the provisions of section 37 of the Companies Law); (d) writing-off the preliminary expenses of the company; and (e) writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

No distribution or dividend may be paid to members out of the share premium account unless immediately following the date on which the distribution or dividend is proposed to be paid, the company will be able to pay its debts as they fall due in the ordinary course of business.

The Companies Law provides that, subject to confirmation by the Grand Court of the Cayman Islands (the "Court"), a company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, by special resolution reduce its share capital in any way.

There is no statutory restriction in the Cayman Islands on the provision of financial assistance by a company to another person for the purchase of, or subscription for, its own or its holding company's shares. Accordingly, a company may provide financial assistance if the directors of the company consider, in discharging their duties of care and acting in good faith, for a proper purpose and in the interests of the company, that such assistance can properly be given. Such assistance should be on an arm's-length basis.

(d) Purchase of shares and warrants by a company and its subsidiaries

A company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, issue shares which are to be redeemed or are liable to be redeemed at the option of the company or a shareholder and the Companies Law expressly provides that it shall be lawful for the rights attaching to any shares to be varied, subject to the provisions of the company's articles of association, so as to provide that such shares are to be or are liable to be so redeemed. In addition, such a company may, if authorised to do so by its articles of association, purchase its own shares, including any redeemable shares. However, if the articles of association do not authorise the manner and terms of purchase, a company cannot purchase any of its own shares unless the manner and terms of purchase have first been authorised by an ordinary resolution of the company. At no time may a company redeem or purchase its shares unless they are fully paid. A company may not redeem or purchase any of its shares if, as a result of the redemption or purchase, there would no longer be any issued shares of the company other than shares held as treasury shares. A payment out of capital by a company for the redemption or purchase of its own shares is not lawful unless immediately following the date on which the payment is proposed to be made, the company shall be able to pay its debts as they fall due in the ordinary course of business.

Shares purchased by a company is to be treated as cancelled unless, subject to the memorandum and articles of association of the company, the directors of the company resolve to hold such shares in the name of the company as treasury shares prior to the purchase. Where shares of a company are held as treasury shares, the company shall be entered in the register of members as holding those shares, however, notwithstanding the foregoing, the company is not be treated as a member for any purpose and must not exercise any right in respect of the treasury shares, and any purported exercise of such a right shall be void, and a treasury share must not be voted, directly or indirectly, at any meeting of the company and must not be counted in determining the

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total number of issued shares at any given time, whether for the purposes of the company’s articles of association or the Companies Law.

A company is not prohibited from purchasing and may purchase its own warrants subject to and in accordance with the terms and conditions of the relevant warrant instrument or certificate. There is no requirement under Cayman Islands law that a company’s memorandum or articles of association contain a specific provision enabling such purchases and the directors of a company may rely upon the general power contained in its memorandum of association to buy and sell and deal in personal property of all kinds.

Under Cayman Islands law, a subsidiary may hold shares in its holding company and, in certain circumstances, may acquire such shares.

(e) Dividends and distributions

The Companies Law permits, subject to a solvency test and the provisions, if any, of the company’s memorandum and articles of association, the payment of dividends and distributions out of the share premium account. With the exception of the foregoing, there are no statutory provisions relating to the payment of dividends. Based upon English case law, which is regarded as persuasive in the Cayman Islands, dividends may be paid only out of profits.

No dividend may be declared or paid, and no other distribution (whether in cash or otherwise) of the company’s assets (including any distribution of assets to members on a winding up) may be made to the company, in respect of a treasury share.

(f) Protection of minorities and shareholders’ suits

The Courts ordinarily would be expected to follow English case law precedents which permit a minority shareholder to commence a representative action against or derivative actions in the name of the company to challenge (a) an act which is ultra vires the company or illegal, (b) an act which constitutes a fraud against the minority and the wrongdoers are themselves in control of the company, and (c) an irregularity in the passing of a resolution which requires a qualified (or special) majority.

In the case of a company (not being a bank) having a share capital divided into shares, the Court may, on the application of members holding not less than one fifth of the shares of the company in issue, appoint an inspector to examine into the affairs of the company and to report thereon in such manner as the Court shall direct.

Any shareholder of a company may petition the Court which may make a winding up order if the Court is of the opinion that it is just and equitable that the company should be wound up or, as an alternative to a winding up order, (a) an order regulating the conduct of the company’s affairs in the future, (b) an order requiring the company to refrain from doing or continuing an act complained of by the shareholder petitioner or to do an act which the shareholder petitioner has complained it has omitted to do, (c) an order authorising civil proceedings to be brought in the

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name and on behalf of the company by the shareholder petitioner on such terms as the Court may direct, or (d) an order providing for the purchase of the shares of any shareholders of the company by other shareholders or by the company itself and, in the case of a purchase by the company itself, a reduction of the company's capital accordingly.

Generally claims against a company by its shareholders must be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by the company's memorandum and articles of association.

(g) Disposal of assets

The Companies Law contains no specific restrictions on the power of directors to dispose of assets of a company. However, as a matter of general law, every officer of a company, which includes a director, managing director and secretary, in exercising his powers and discharging his duties must do so honestly and in good faith with a view to the best interests of the company and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

(h) Accounting and auditing requirements

A company must cause proper books of account to be kept with respect to (i) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place; (ii) all sales and purchases of goods by the company; and (iii) the assets and liabilities of the company.

Proper books of account shall not be deemed to be kept if there are not kept such books as are necessary to give a true and fair view of the state of the company's affairs and to explain its transactions.

An exempted company must make available at its registered office in electronic form or any other medium, copies of its books of account or parts thereof as may be required of it upon service of an order or notice by the Tax Information Authority pursuant to the Tax Information Authority Law of the Cayman Islands.

(i) Exchange control

There are no exchange control regulations or currency restrictions in the Cayman Islands.

(j) Taxation

Pursuant to the Tax Concessions Law of the Cayman Islands, the Company has obtained an undertaking:

(1) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciation shall apply to the Company or its operations; and

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(2) that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on or in respect of the shares, debentures or other obligations of the Company.

The undertaking for the Company is for a period of twenty years from 13 November 2001.

The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands save for certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are a party to a double tax treaty entered into with the United Kingdom in 2010 but otherwise is not party to any double tax treaties.

(k) Stamp duty on transfers

No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands.

(l) Loans to directors

There is no express provision in the Companies Law prohibiting the making of loans by a company to any of its directors.

(m) Inspection of corporate records

Members of the Company have no general right under the Companies Law to inspect or obtain copies of the register of members or corporate records of the Company. They will, however, have such rights as may be set out in the Company's Articles.

(n) Register of members

An exempted company may maintain its principal register of members and any branch registers at such locations, whether within or without the Cayman Islands, as the directors may, from time to time, think fit. A branch register must be kept in the same manner in which a principal register is by the Companies Law required or permitted to be kept. The company shall cause to be kept at the place where the company's principal register is kept a duplicate of any branch register duly entered up from time to time.

There is no requirement under the Companies Law for an exempted company to make any returns of members to the Registrar of Companies of the Cayman Islands. The names and addresses of the members are, accordingly, not a matter of public record and are not available for public inspection. However, an exempted company shall make available at its registered office, in electronic form or any other medium, such register of members, including any branch register of members, as may be required of it upon service of an order or notice by the Tax Information Authority pursuant to the Tax Information Authority Law of the Cayman Islands.

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(o) Register of Directors and Officers

The Company is required to maintain at its registered office a register of directors and officers which is not available for inspection by the public. A copy of such register must be filed with the Registrar of Companies in the Cayman Islands and any change must be notified to the Registrar within sixty (60) days of any change in such directors or officers.

(p) Beneficial Ownership Register

An exempted company is required to maintain a beneficial ownership register at its registered office that records details of the persons who ultimately own or control, directly or indirectly, more than 25% of the equity interests or voting rights of the company or have rights to appoint or remove a majority of the directors of the company. The beneficial ownership register is not a public document and is only accessible by a designated competent authority of the Cayman Islands. Such requirement does not, however, apply to an exempted company with its shares listed on an approved stock exchange, which includes the Stock Exchange. Accordingly, for so long as the shares of the Company are listed on the Stock Exchange, the Company is not required to maintain a beneficial ownership register.

(q) Winding up

A company may be wound up (a) compulsorily by order of the Court, (b) voluntarily, or (c) under the supervision of the Court.

The Court has authority to order winding up in a number of specified circumstances including where the members of the company have passed a special resolution requiring the company to be wound up by the Court, or where the company is unable to pay its debts, or where it is, in the opinion of the Court, just and equitable to do so. Where a petition is presented by members of the company as contributories on the ground that it is just and equitable that the company should be wound up, the Court has the jurisdiction to make certain other orders as an alternative to a winding-up order, such as making an order regulating the conduct of the company's affairs in the future, making an order authorising civil proceedings to be brought in the name and on behalf of the company by the petitioner on such terms as the Court may direct, or making an order providing for the purchase of the shares of any of the members of the company by other members or by the company itself.

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A company (save with respect to a limited duration company) may be wound up voluntarily when the company so resolves by special resolution or when the company in general meeting resolves by ordinary resolution that it be wound up voluntarily because it is unable to pay its debts as they fall due. In the case of a voluntary winding up, such company is obliged to cease to carry on its business (except so far as it may be beneficial for its winding up) from the time of passing the resolution for voluntary winding up or upon the expiry of the period or the occurrence of the event referred to above.

For the purpose of conducting the proceedings in winding up a company and assisting the Court therein, there may be appointed an official liquidator or official liquidators; and the court may appoint to such office such person, either provisionally or otherwise, as it thinks fit, and if more persons than one are appointed to such office, the Court must declare whether any act required or authorised to be done by the official liquidator is to be done by all or any one or more of such persons. The Court may also determine whether any and what security is to be given by an official liquidator on his appointment; if no official liquidator is appointed, or during any vacancy in such office, all the property of the company shall be in the custody of the Court.

As soon as the affairs of the company are fully wound up, the liquidator must make a report and an account of the winding up, showing how the winding up has been conducted and how the property of the company has been disposed of, and thereupon call a general meeting of the company for the purposes of laying before it the account and giving an explanation thereof. This final general meeting must be called by at least 21 days' notice to each contributory in any manner authorised by the company's articles of association and published in the Gazette.

(r) Reconstructions

There are statutory provisions which facilitate reconstructions and amalgamations approved by a majority in number representing seventy-five per cent. (75%) in value of shareholders or class of shareholders or creditors, as the case may be, as are present at a meeting called for such purpose and thereafter sanctioned by the Court. Whilst a dissenting shareholder would have the right to express to the Court his view that the transaction for which approval is sought would not provide the shareholders with a fair value for their shares, the Court is unlikely to disapprove the transaction on that ground alone in the absence of evidence of fraud or bad faith on behalf of management.

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(s) Take-overs

Where an offer is made by a company for the shares of another company and, within four (4) months of the offer, the holders of not less than ninety per cent. (90%) of the shares which are the subject of the offer accept, the offeror may at any time within two (2) months after the expiration of the said four (4) months, by notice in the prescribed manner require the dissenting shareholders to transfer their shares on the terms of the offer. A dissenting shareholder may apply to the Court within one (1) month of the notice objecting to the transfer. The burden is on the dissenting shareholder to show that the Court should exercise its discretion, which it will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority shareholders.

(t) Indemnification

Cayman Islands law does not limit the extent to which a company's articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Court to be contrary to public policy (e.g. for purporting to provide indemnification against the consequences of committing a crime).

(u) Economic Substance Requirements

Pursuant to the International Tax Cooperation (Economic Substance) Law, 2018 of the Cayman Islands ("ES Law") that came into force on 1 January 2019, a "relevant entity" is required to satisfy the economic substance test set out in the ES Law. A "relevant entity" includes an exempted company incorporated in the Cayman Islands as is the Company; however, it does not include an entity that is tax resident outside the Cayman Islands. Accordingly, for so long as the Company is a tax resident outside the Cayman Islands, including in Hong Kong, it is not required to satisfy the economic substance test set out in the ES Law.

GENERAL

Conyers Dill & Pearman, the Company's special legal counsel on Cayman Islands law, have sent to the Company a letter of advice summarising certain aspects of Cayman Islands company law. This letter, together with a copy of the Companies Law, is available for inspection as referred to in the paragraph headed "Documents available for inspection" in Appendix IX to this prospectus. Any person wishing to have a detailed summary of Cayman Islands company law or advice on the differences between it and the laws of any jurisdiction with which he is more familiar is recommended to seek independent legal advice.

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APPENDIX VIII
STATUTORY AND GENERAL INFORMATION

A. RESPONSIBILITY STATEMENTS

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

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

This circular also includes particulars given in compliance with the Takeovers Code for the purpose of giving information with regard to the Restructured Group.

The Directors jointly and severally accept full responsibility for the accuracy of the information (other than those in relation to the Investor and the Target Group) contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this circular (other than those expressed by the proposed Directors and the directors of the Investor) have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

The proposed Directors, namely Mr. Norman Chan, Mr. Alex Lee, Mr. Kwong U Hoi Andrew, Mr. Wong Jonathan and Mr. Chi Chi Hung Kenneth and the directors of the Investor, namely Mr. Norman Chan and Mr. Alex Lee, jointly and severally accept full responsibility for the accuracy of the information contained in this circular in relation to the Target Group, the Investor and themselves and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this circular (other than those expressed by the Directors) have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

B. FURTHER INFORMATION ABOUT THE RESTRUCTURED GROUP

1. Incorporation of the Company

The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 17 October 2001. As at the Latest Practicable Date, the Company had an authorised share capital of HK$2,500,000,000 divided into shares of HK$0.08 each. The Company was registered in Hong Kong under Part XI of the Predecessor Companies Ordinance on 13 December 2001.

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As at the Latest Practicable Date, the Company’s place of business in Hong Kong is Unit A, 29/F., CKK Commercial Centre, 289-295 Hennessy Road, Wanchai, Hong Kong. Upon Completion, Mr. Norman Chan and Mr. Alex Lee will be appointed as the authorised representatives of the Company for the acceptance of service of process and notices on behalf of the Company at the address of the Company’s principal place of business in Hong Kong.

As the Company was incorporated in the Cayman Islands, it operates in accordance with the Companies Law and its constitutional documents comprising the memorandum of association and articles of association. A summary of certain relevant provisions of its constitutional documents and certain relevant aspects of the Companies Law are set out in Appendix VII to this circular.

2. Changes in share capital of members of the Restructured Group

(a) the Company

There has been no alteration in the share capital of the Company within the two years immediately preceding the date of this circular.

(b) other members of the Group

As the Scheme Companies, being all existing subsidiaries of the Company, will be transferred to the Scheme SPC, no information is included in this circular regarding the change, if any, in the share capital of the Scheme Companies.

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3. Repurchase of Shares of the Company

This section includes information relating to the repurchase of securities required by the GEM Listing Rules which is set out as follows:

(a) Relevant legal and regulatory requirements

The GEM Listing Rules permit the Shareholders to grant the Directors a general mandate to repurchase Shares that are listed on GEM subject to certain restrictions, details of which are summarised below:

(i) Shareholders’ approval

All proposed repurchase of Shares (which must be fully paid up) by the Company must be approved in advance by an ordinary resolution of the Shareholders in a general meeting, either by way of general mandate or by specific approval of a particular transaction.

The repurchase mandate was granted to the Directors by the Shareholders at the annual general meeting of the Company held on 13 July 2018 (the “Repurchase Mandate”) to exercise all powers of the Company to repurchase Shares not exceeding 10% of the aggregate number of Shares in issue as at the date of passing of that resolution from the date of passing of that resolution until the conclusion of the next annual general meeting of the Company, or the date by which the next annual general meeting of the Company is required by the articles of association of the Company or any laws applicable to the Company to be held, or the passing of an ordinary resolution by the Shareholders in general meeting revoking or varying the authority given to the Directors, whichever is the earliest.

(ii) Source of funds

Repurchase of Shares must be funded out of funds legally available for the purpose in accordance with the memorandum and articles of association of the Company, the GEM Listing Rules and the applicable laws of the Cayman Islands. A listed company may not repurchase its own securities on the Stock Exchange for a consideration other than cash or for settlement otherwise than in accordance with the GEM Listing Rules. Under the Companies Law, the Company may make repurchases out of profit or share premium or out of the proceeds of a fresh issue of the Shares for the purpose of the repurchase. Any amount of premium payable on the purchase over the par value of the Shares to be repurchased must be paid out of profits of the Company or out of the share premium account of the Company. Subject to satisfaction of the solvency test prescribed by the Companies Law, a repurchase may also be made out of capital.

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(iii) Trading restrictions

The Company may repurchase up to 10% of the aggregate number of Shares in issue pursuant to the Repurchase Mandate but excluding any Shares which may be allotted and issued upon exercise of any options under the Share Option Scheme. The Company may not issue or announce a proposed issue of Shares for a period of 30 days immediately following a repurchase of Shares without the prior approval of the Stock Exchange. The Company is also prohibited from repurchasing Shares on GEM if the repurchase would result in the number of listed Shares which are in the hands of the public falling below the minimum percentage required by the Stock Exchange. The broker appointed by the Company to effect a repurchase of the Shares is required to disclose to the Stock Exchange any information with respect to a Share repurchase as the Stock Exchange may require.

In addition, a listed company is prohibited from repurchasing its shares on GEM if the purchase price is higher by 5% or more than the average closing market price for the five preceding trading days on which its shares were traded on GEM.

(iv) Status of Shares repurchased

All Shares repurchased (whether on GEM or otherwise) will be cancelled and the certificates for those Shares must be cancelled and destroyed. Under the Cayman Islands law, a company's shares repurchased may be treated as cancelled and the amount of the company's issued share capital shall be reduced by the aggregate par value of the shares repurchased accordingly although the authorised share capital of the company will not be reduced.

(v) Suspension of repurchase

Repurchase of Shares are prohibited after inside information has come to the Company's knowledge, or development which may constitute inside information has occurred or has been the subject of a decision until such time as the inside information has been made publicly available. In particular, during the period of one month immediately preceding the earlier of (aa) the date of the Board meeting (as such date is first notified to the Stock Exchange in accordance with the GEM Listing Rules) for the approval of the results of the Company for any year, half-year or quarter-year period or any other interim period (whether or not required under the GEM Listing Rules); and (bb) the deadline for the Company to announce its results for any year, half-year or quarter-year period under the GEM Listing Rules or any other interim period (whether or not required under the GEM Listing Rules) and ending on the date of the results announcement, the Company may not repurchase the Shares on GEM unless the circumstances are exceptional. In addition, the Stock Exchange reserves the right to prohibit repurchase of Shares on GEM if the Company has breached the GEM Listing Rules.

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(vi) Reporting requirements

Certain information relating to repurchase of securities on GEM or otherwise must be reported to the Stock Exchange no later than 30 minutes before the earlier of the commencement of the morning trading session or any pre-opening session on the Business Day following any day on which the Company makes a purchase of Shares. In addition, the Company's annual report and accounts are required to disclose details regarding repurchases of Shares made during the financial year under review, including the number of Shares repurchased each month (whether on GEM or otherwise) and the purchase price per Share or the highest and lowest prices paid for all such repurchase, where relevant, and the aggregate price paid. The Directors' report is also required to contain reference to the repurchase(s) made during the year and the Directors' reasons for making such repurchase(s).

(vii) Core connected persons

According to the GEM Listing Rules, a company is prohibited from knowingly repurchasing securities on GEM from a "core connected person", that is, a director, chief executive or substantial shareholder of such company or any of its subsidiaries or any of their respective close associates and a core connected person shall not knowingly sell his/her/its securities to the Company on GEM.

(b) Reasons for repurchase

The Directors and the proposed Directors believe that it is in the best interests of the Company and the Shareholders for the Directors to have a general authority from the Shareholders to enable the Company to repurchase Shares in the market. Such repurchase may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net asset value of the Company and/or earnings per Share and will only be made when the Directors or the proposed Directors believe that such repurchases will benefit the Company and the Shareholders.

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In repurchasing Shares, the Company may only apply funds legally available for such purpose in accordance with the memorandum and articles of association of the Company, the GEM Listing Rules and the applicable laws of the Cayman Islands.

On the basis of the current financial position of the Restructured Group as disclosed in this circular and taking into account the current working capital position of the Restructured Group, the Directors and the proposed Directors consider that, if the Repurchase Mandate were to be exercised in full, it might have a material adverse effect on the working capital and/or the gearing position of the Restructured Group as compared with the position disclosed in this circular. The Directors and the proposed Directors do not propose to exercise the Repurchase Mandate to such an extent as would, in the circumstances, have a material adverse effect on the working capital requirements of the Restructured Group or the gearing levels which in the opinion of the Directors or the proposed Directors are from time to time appropriate for the Restructured Group.

Changes in share capital of members of the Target Group

There has not been any change to the share capital of any members of the Target Group within the two years immediately preceding the date of this circular save as provided in the section headed "History and background of the Target Group – Reorganisation" of this circular.

Corporate reorganisation

The Target Group underwent reorganisation to rationalise the Target Group's structure in preparation for the new listing application. For more details regarding the reorganisation of the Target Group, please refer to the section headed "History and background of the Target Group – Reorganisation" in this circular.

Intellectual property rights of the Restructured Group

As at the Latest Practicable Date, the Restructured Group had the following intellectual property rights which are material in relation to the business of the Restructured Group.

(a) Intellectual property rights of the Company

Trademarks of the Company

As at the Latest Practicable Date, the Company did not have any registered trademark.

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Domain name owned by the Company

As at the Latest Practicable Date, the Company had registered the following domain name which is material in relation to the business of the Group:

Domain Name
Registrant
Expiry Date

unionasiahk.com
Union Asia Enterprise Holdings Limited
22 April 2020

(b) Intellectual property rights of the Target Group

Trademarks of the Target Group

As at the Latest Practicable Date, the Target Group had registered the following trademarks which are material in relation to the business of the Target Group:

Trademark	Registered owner	Place and class of registration	Registration number	Date of registration	Expiry date
BTR (ASIA) LIMITED	BTR Asia	Hong Kong, 37 and 42	302858202	7 January 2014	6 January 2024
BTR (HK) LIMITED	BTR HK	Hong Kong, 37 and 42	302858239	7 January 2014	6 January 2024
BTR (INTL) LIMITED	BTR Intl	Hong Kong, 37 and 42	302858220	7 January 2014	6 January 2024
BTR WORKSHOP LIMITED	BTR Workshop	Hong Kong, 37 and 42	302858194	7 January 2014	6 January 2024
BTR	BTR HK	Hong Kong, 37 and 42	302858211	7 January 2014	6 January 2024
BTR (INTL) LIMITED	BTR Intl	PRC	16030375	14 March 2016	13 March 2026

Domain names owned by the Target Group

Domain Name	Registrant	Expiry Date
btrworkshop.com	BTR Workshop	31 January 2028
btr.com.hk	BTR HK	4 June 2028

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C. FURTHER INFORMATION RELATING TO THE COMPANY AND THE WHITEWASH WAIVER

1. The Company

As at the Latest Practicable Date:

(a) save for the Acquisition, the Company did not have any interests in any securities, shares, options, warrants, derivatives or convertible securities of the Concert Group;

(b) none of the Directors had any interests in the securities, shares, options, warrants, derivatives or convertible securities of the Company or of the Concert Group;

(c) neither of the subsidiaries of the Company, nor pension funds of the Company or of a subsidiary of the Company, or by a person who is presumed to be acting in concert with the Company by virtue of class (5) of the definition of acting in concert or who is an associate of the Company by virtue of class (2) of the definition of associate under the Takeovers Code (but excluding exempt principal traders and exempt fund managers) owned or controlled any securities, shares, options, warrants, derivatives or convertible securities of the Company or of the Concert Group;

(d) no person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or with any person who is presumed to be acting in concert with the Company by virtue of classes (1), (2), (3) and (5) of the definition of acting in concert or who is an associate of the Company by virtue of classes (2), (3) and (4) of the definition of associate under the Takeover Code;

(e) there were no shareholdings in the Company which were managed on a discretionary basis by fund managers (other than exempt fund managers) connected with the Company;

(f) none of the Directors and the Company had borrowed or lent any shares, warrants, options, convertible securities or derivatives of the Company or the Concert Group;

(g) no benefit (other than statutory compensation) was or would be given to any Director as compensation for loss of office or otherwise in connection with the Proposed Restructuring, the Special Deal and/or the Whitewash Waiver;

(h) there was no agreement or arrangement between any Director and any other person which was conditional on or dependent upon the outcome of the Proposed Restructuring, the Special Deal and/or the Whitewash Waiver or otherwise connected with the Proposed Restructuring, the Special Deal and/or the Whitewash Waiver; and

(i) no material contracts had been entered into by the Concert Group in which any Director had a material personal interest.

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2. Sponsor

The Sponsor has made the new listing application on behalf of the Company to the Listing Department of the Stock Exchange for the listing of and permission to deal in the Consideration Shares to be issued and allotted pursuant to the Acquisition Agreement and the Restructuring Framework Agreement, the Offer Shares pursuant to the Share Offer, the Creditors Shares pursuant to the Creditors Schemes and the New Shares upon completion of the Capital Reorganisation. For the purpose of the new listing application, the Sponsor is considered as an independent sponsor pursuant to Rule 6A.07 of the GEM Listing Rules. The Sponsor will receive HK$5.8 million as its sponsor's fee.

As at the Latest Practicable Date,

(a) neither the Sponsor, nor any persons controlling, controlled by or under the same control as the Sponsor owned or controlled any securities, shares, options, warrants, derivatives or convertible securities of the Company;

(b) neither the Sponsor, nor any persons controlling, controlled by or under the same control as the Sponsor had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code (which arrangement includes any indemnity or option arrangement, or any agreement or understanding, formal or informal, by whatever nature, relating to shares or other securities in the Company which may be an inducement to deal or refrain from dealing) with any persons; and

(c) there was no agreement, arrangement or understanding between the Sponsor or persons controlling, controlled by or under the same control as the Sponsor on the one part and any of the Directors or Shareholders on the other part, which was conditional on or dependent upon the outcome of, or otherwise in connection with the Capital Reorganisation, the Creditors Schemes, the Share Offer, the Acquisition, the Investor Loan Capitalisation, the Special Deal and the Whitewash Waiver.

3. Dealings in securities

Save for the Acquisition Agreement, the Restructuring Framework Agreement and the Investor Loan Agreement, none of the Directors or the Company had dealt in any securities, shares, options, warrants, derivatives or convertible securities of the Concert Group and of the Company during the period between 15 March 2017, being the date six months prior to 15 September 2017, which is the date of the Acquisition Agreement and the Restructuring Framework Agreement, and up to and including the Latest Practicable Date.

None of the persons referred to in paragraphs 1(c), (d), (e) and (f) above in this sub-section C had dealt for value in the Shares or any other securities, shares, options, warrants, derivatives or convertible securities of the Company during the period between 15 March 2017, being the date six months prior to 15 September 2017, which is the date of the Acquisition Agreement and the Restructuring Framework Agreement, and up to and including the Latest Practicable Date.

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D. FURTHER INFORMATION RELATING TO THE CONCERT GROUP AND THE WHITEWASH WAIVER

1. Principal members of the Concert Group

Set out below are details of the principal members of the Concert Group and their respective directors:

	Address	Directors
The Investor	Vistra Corporate Services Centre	Mr. Norman Chan
	Wickhams Cay II	Mr. Alex Lee
	Road Town, Tortola
	VG1110, British Virgin Islands
Mr. Norman Chan	19 Braga Circuit	N/A
	Kowloon, Hong Kong
Mr. Alex Lee	Flat D, 9/F, Block 6A	N/A
	Lions Rise
	8 Muk Lun Street
	Wong Tai Sin
	Kowloon, Hong Kong
Ms. Susanna Kwok	19 Braga Circuit	N/A
	Kowloon, Hong Kong

2. Negative statement

As at the Latest Practicable Date:

(a) save as disclosed in the paragraph headed "E. Disclosure of interests" in this appendix, none of the members of the Concert Group and any person acting in concert with any of them (including respective directors) owned or controlled any shares or convertible securities, warrants, options or derivatives of the Company;

(b) none of the members of the Concert Group and any person acting in concert with any of them had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code (which arrangement includes any indemnity or option arrangement, or any agreement or understanding, formal or informal, by whatever nature, relating to shares or other securities of the Company which may be an inducement to deal or refrain from dealing) with any person;

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(c) there was no agreement, arrangement or understanding (including any compensation arrangement) between any member of the Concert Group or any person acting in concert with any of them, and any of the directors, recent directors, shareholders or recent shareholders of the Company having any connection with or dependence upon the Capital Reorganisation, the Creditors Schemes, the Share Offer, the Acquisition, the Investor Loan Capitalisation, the Special Deal and the Whitewash Waiver;

(d) none of the members of the Concert Group borrowed or lent, nor had borrowed or lent, any shares, warrants, options, convertible securities or derivatives of the Company and members of the Concert Group during the period between 15 March 2017, being the date falling six months prior to 15 September 2017, which is the date of the Acquisition Agreement and the Restructuring Framework Agreement, and up to and including the Latest Practicable Date;

(e) none of the members of the Concert Group and any person acting in concert with any of them (including their respective directors) had dealt for value in any shares or convertible securities, warrants, options or derivatives of the Company during the period between 15 March 2017, being the date falling six months prior to 15 September 2017, which is the date of the Acquisition Agreement and the Restructuring Framework Agreement, and up to and including the Latest Practicable Date; and

(f) there was no agreement, arrangement or understanding entered into by any member of the Concert Group or any person acting in concert with any of them for the transfer, charge or pledge of the Shares, the Consideration Shares, the Capitalisation Shares, the Offer Shares, the Creditors Shares or the New Shares to any other persons.

E. DISCLOSURE OF INTERESTS

Interests and/or short positions of Directors in the shares, underlying shares or debentures of the Company and its associated corporations

As at the Latest Practicable Date, none of the Directors and chief executive of the Company had any interest or short position in the Shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which is (i) required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and/or short positions which they were taken or deemed to have under such provisions of the SFO); (ii) required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code"), to be notified to the Company and the Stock Exchange.

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2. Interests and/or short positions of substantial shareholders in the shares and underlying shares of the Company

As at the Latest Practicable Date, the following persons (not being Directors and chief executive of the Company) had an interest (or long position) or short position in the Shares or underlying Shares as recorded in the register required to be kept under section 336 of the SFO which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the issued voting shares of the Company:

Name of interested party	Capacity/Nature of interest	Number of Shares interested (Note 1)	Approximate % of the Company's issued share capital
Yeung Wing Yee (Note 2)	Beneficial owner	846,760,000 (L)	24.8%
The Underwriter (Note 3)	underwriter	227,679,850 (L)	18.6%

Notes:

The letter "L" denotes long position of the Shares.
Yeung Wing Yee is interested in 846,760,000 existing shares of HK$0.08 each in the capital of the Company prior to the Capital Reorganisation becoming effective. The percentage figure is calculated based on a total of 3,415,197,762 Shares in issue prior to the Capital Reorganisation becoming effective.
The Underwriter is interested 227,679,850 New Shares pursuant to the Underwriting Agreement. The percentage figure is calculated based on a total of 1,221,052,631 New Shares in issue after the Capital Reorganisation becoming effective and Completion and is for illustration purpose. Pursuant to the Underwriting Agreement, the Underwriter undertakes that it will not subscribe for in its own account such number of the Untaken Shares which exceed 10% of the Enlarged Issued Share Capital and will procure subscribers which are Independent Third Parties to take up such number of Untaken Shares as necessary to ensure compliance by the Company of the minimum public float requirements set out under Rule 11.23(7) of the GEM Listing Rules.

Save as disclosed above, the Directors and chief executive of the Company are not aware, as at the Latest Practicable Date, of any person (who are not Directors and chief executive of the Company) who had an interest (or long position) or short position in the shares or underlying shares of the Company as recorded in the register required to be kept under section 336 of the SFO which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company.

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Name of interested party	Capacity/Nature of interest	Number of Shares interested (Note 1)	Approximate % of the Company's issued share capital
The Investor	Beneficial owner (Note 2)	854,736,842 (L)	70.0%
Mr. Norman Chan	Interest of controlled corporation (Note 2)	854,736,842 (L)	70.0%
Ms. Susanna Kwok	Interest of spouse (Note 3)	854,736,842 (L)	70.0%

Notes:

The letter "L" denotes long position of the Shares.
The Investor is beneficially owned as to 96% by Mr. Norman Chan, 3% by Mr. Alex Lee and 1% by Ms. Susanna Kwok. Under the SFO, Mr. Norman Chan is deemed to be interested in the Shares held by the Investor. Mr. Norman Chan will be a Controlling Shareholder and an executive Director upon Completion. The percentage figure is calculated based on a total of 1,221,052,631 New Shares in issue after the Capital Reorganisation becoming effective and Completion and assuming the maximum number of the Capitalisation Shares of 94,736,842 New Shares are allotted and issued to the Investor pursuant to the Investor Loan Capitalisation.
Ms. Susanna Kwok is the spouse of Mr. Norman Chan. Ms. Susanna Kwok is deemed to be interested in all the Shares in which Mr. Norman Chan is interested in for the purpose of the SFO.

3. Interests in assets, contract or arrangement

Save as disclosed in the section headed "Connected transactions" in this circular, as at the Latest Practicable Date:

(i) none of the Directors and the Proposed Directors had any interest, direct or indirect, in any assets which have been, since 31 March 2018 (being the date to which the latest published audited consolidated financial statements of the Group were made up), acquired or disposed of by or leased to any member of the Restructured Group, or are proposed to be acquired or disposed of by or leased to any member of the Restructured Group; and
(ii) none of the Directors and the proposed Directors was materially interested in any contract or arrangement entered into with any member of the Restructured Group subsisting as at the Latest Practicable Date which was significant in relation to the business of the Restructured Group.

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4. Particulars of service contracts

As at the Latest Practicable Date, none of the Directors had entered into any service contract or letter of appointment with the Company, or any of its subsidiaries or associated companies which (i) (including both continuous and fixed term contracts) have been entered into or amended within 6 months before the date of the Acquisition Agreement and the Restructuring Framework Agreement, and up to and including the Latest Practicable Date; (ii) was a continuous contract with a notice period of 12 months or more; (iii) was a fixed term contracts with more than 12 months to run irrespective of the notice period; or (iv) was not determinable by the employer within one year without payment of compensation (other than statutory compensation).

Save as disclosed in the section headed “Directors and senior management of the Restructured Group” in this circular, as at the Latest Practicable Date, none of the proposed Directors has or is proposed to enter into any service contract or letter of appointment with the Company, or any of its subsidiaries or associated companies.

5. Directors’ remunerations

The remunerations (including fees, salaries, allowances and benefits in kind and retirement benefit scheme contributions) paid to the Directors in aggregate for the four financial years ended 31 March 2016, 2017, 2018 and 2019 were approximately HK$4,334,000, HK$1,883,000 and HK$1,449,000 and HK$1,727,000, respectively.

Save as disclosed above, no emoluments have been paid for the four financial years ended 31 March 2016, 2017, 2018 and 2019, by the Group to the Directors as an inducement to join or upon joining the Group, or as compensation for loss of office.

Under the current arrangements and on the assumption that the proposed Directors will be appointed upon Completion, the aggregate remunerations (including fees, salaries, allowances and benefits in kind and retirement benefit scheme contributions) estimated to be payable to the Directors for the year ending 31 March 2020 are approximately HK$2,422,000.

There was no other arrangement under which a Director waived or agreed to waive any emoluments and no remuneration was paid by the Restructured Group to the Directors as an inducement to join or upon joining the Restructured Group or as compensation for loss of office.

6. Employee retirement benefits

The Group participates in the Mandatory Provident Fund Scheme (the “MPF Scheme”) for those employees in Hong Kong. The assets of the MPF Scheme are held separately from those of the Remaining Group, in funds under the control of trustees. The Group contributes 5% of the employee’s relevant income to the MPF Scheme subject to a cap of monthly relevant income of HK$30,000, which contribution is matched by employees.

The Group has no other obligation for the payment of post-retirement benefits beyond the contributions described above.

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7. Competing interests

Save as disclosed in the section headed “Relationship with the controlling shareholders” in this circular, none of the Directors and the proposed Directors and their respective close associates was interested in any business apart from the business of the Restructured Group, which competes or is likely to compete, either directly or indirectly, with the business of the Restructured Group.

8. Arrangements affecting the Directors

None of the existing Directors will be given any benefit as compensation for loss of office or otherwise in connection with the Capital Reorganisation, the Creditors Schemes, the Share Offer, the Acquisition, the Special Deal and the Whitewash Waiver and there is no agreement or arrangement between any of the Directors and any other person which is conditional on or dependent upon the outcome of, or otherwise connected with the Capital Reorganisation, the Creditors Schemes, the Share Offer, the Acquisition, the Special Deal and the Whitewash Waiver.

F. MARKET PRICES

The Takeovers Code requires information on the closing prices of the Shares as recorded on the Stock Exchange on (i) the last day on which dealings took place in each of the six months immediately preceding the date of the Acquisition Agreement and the Restructuring Framework Agreement and ending on the Latest Practicable Date; (ii) the Last Trading Date; and (iii) the Latest Practicable Date. Trading in the Shares has been suspended since 20 March 2017 and therefore no closing prices of the Shares were recorded during the period under (i) and for (iii) above. The closing price of the Shares on the Last Trading Date was HK$0.027.

G. DISCLAIMERS

Save as disclosed in this circular:

(a) none of the Directors and the proposed Directors nor any of the persons whose names are listed in the paragraph headed “Qualifications and consents of experts” in this appendix is interested in the promotion of the Company or in any assets which have within the two years immediately preceding the issue of this circular been acquired or disposed of by or leased to any member of the Restructured Group, or are proposed to be acquired or disposed of by or leased to any member of the Restructured Group;

(b) none of the Directors and the proposed Directors nor any of the persons whose names are listed in the paragraph headed “Qualifications and consents of experts” in this appendix is materially interested in any contract or arrangement subsisting at the date of this circular and at the Latest Practicable Date which is significant in relation to the business of the Restructured Group;

(c) no cash, securities or other benefit has been paid, allotted or given within the two years preceding the date of this circular to any promoter of the Company nor is any such cash, securities or benefit intended to be paid, allotted or given on the basis of the introduction or related transaction as mentioned in this circular; and

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(d) To the best knowledge of the Directors and the proposed Directors, none of the Directors, their respective associates or Shareholders who are interested in 5% or more of the issued share capital of the Company have any interests in the five largest customers or the five largest suppliers of the Restructured Group.

H. SHARE OPTION SCHEME

The following is a summary of the principal terms of the share option scheme adopted by the Shareholders at the annual general meeting of the Company held on 30 July 2012 (the "Share Option Scheme").

For the purpose of this section only, unless the context otherwise requires, the following terms shall have the meanings set out below.

"Adoption Date" 30 July 2012

"Employee" any employee (whether or not full time and including directors and executives) of any member of the Group

"Exercise Price" in respect of any Option granted under the Share Option Scheme, the subscription price for each Share payable by the Grantee on exercise of the Option as determined by the Board and notified to Grantee in accordance with the Rules

"Grantee" any Participant who has been offered and has accepted an Offer in accordance with the terms of the Share Option Scheme, or (where the context so permits) any person who is entitled to any such Option in consequence of the death of the original Grantee

"Offer" the offer of the grant of an Option made in accordance with the Share Option Scheme

"Offer Date" in relation to an Option, the date (which must be a Business Day) on which a Participant is offered such Option

"Option(s)" in relation to the Share Option Scheme, a right granted under the Share Option Scheme to subscribe for Shares in accordance with the Share Option Scheme

"Option Period" in relation to an Option, the period, which is notified by the Board when making an offer to a Participant, during which the Option may be exercised, such period must not exceed the period of 10 years from the Offer Date of such Option

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"Participant(s)"

(i) all full-time employees, directors (including independent non-executive Directors) and part-time employees with weekly working hours of 10 hours and above, of the Group; (ii) substantial shareholders of each member of the Group; (iii) associates of the directors and substantial shareholders of any member of the Group; (iv) trustee of any trust pre-approved by the Board; and (v) any advisor (professional or otherwise), consultant, distributor, supplier, agent, customer, joint venture partner, service provider to the Group, whom the Board considers, in its sole discretion, has contributed or contributes to the Group

"Rules"

the rules of the Share Option Scheme

PURPOSE

The purpose of the Share Option Scheme is to provide the Company with a flexible and effective means of incentivising, rewarding, remunerating, compensating and/or providing benefits to the Participants.

WHO MAY JOIN, GRANT AND ACCEPTANCE OF OPTIONS

The Board may, at its absolute discretion, offer to any Participants options to subscribe for such number of new Shares as the Board may determine at the Option price to be determined in accordance with paragraph (3) below.

An offer of the grant of an Option shall be made to Participants in writing (and unless so made shall be invalid) in such form as the Board may from time to time determine and shall remain open for acceptance by the Participant concerned for a period of 3 Business Days from the date upon which it is made provided that no such offer shall be open for acceptance after the earlier of the 10th anniversary of the Adoption Date or the termination of the Share Option Scheme or the Participant to whom such offer is made has ceased to be a Participant.

A non-refundable nominal consideration of HK$1.00 is payable by the grantee upon acceptance of an Option. An Option shall be deemed to have been accepted when the duplicate letter comprising acceptance of the Option duly signed by the Participant together with the said consideration of HK$1.00 is received by the Company.

Any offer of the grant of an Option may be accepted in respect of less than the number of Shares in respect of which it is offered provided that it is accepted in such number of Shares as represents a board lot for the time being for the purpose of trading on GEM or an integral multiple thereof.

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3. EXERCISE PRICE FOR SHARES

The Exercise Price under the Share Option Scheme will be determined by the Board in its absolute discretion and notified to each Grantee and will be no less than the higher of:

(i) the closing price of the Shares as stated in the daily quotations sheet issued by the Stock Exchange on the Offer Date;

(ii) the average closing price of the Shares as stated in the daily quotation sheets by the Stock Exchange for the five Business Days immediately preceding the Offer Date; and

(iii) the nominal value of a Share at the time of exercise of an Option.

4. MAXIMUM NUMBER OF SHARES

(i) Subject to the GEM Listing Rules, the overall limit on the number of Shares which may be issued upon the exercise of all outstanding Options granted and yet to be exercised under the Share Option Scheme and any other share option schemes of the Company must not, in aggregate, exceed 30% of the relevant class of Shares in issue from time to time. No Options may be granted under the Share Option Scheme or any other share option schemes of the Company if this will result in this limit being exceeded.

(ii) Subject to the limit mentioned in paragraph (4)(i) above, the total number of Shares which may be issued upon exercise of all Options to be granted under the Share Option Scheme and any other share option schemes of the Company adopted by the Group must not, in aggregate, exceed 10% of the Shares in issue as at the date of the approval of the Share Option Scheme (the "Scheme Limit") (being 91,218,408 Shares, unless Shareholders' approval has been obtained pursuant to sub-paragraphs (iii) and (iv) below. Options lapsed in accordance with the terms of the Share Option Scheme will not be counted for the purpose of calculating the Scheme Limit.

(iii) Subject to the limit mentioned in paragraph (4)(i) above, the Company may refresh the Scheme Limit at any time subject to approval of the Shareholders in general meeting, provided that the Scheme Limit as refreshed must not exceed 10% of the Shares in issue as at the Adoption Date. Options previously granted under the Share Option Scheme and any other share option schemes of the Company (including those outstanding, cancelled, lapsed in accordance with such schemes or exercised Options) will not be counted for the purpose of calculating this limit. The Company must send a circular to the Shareholders containing such information as required under the GEM Listing Rules.

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(iv) Subject to the limit mentioned in paragraph (4)(i) above, the Company may also seek separate approval of the Shareholders in general meeting for granting Options beyond the Scheme Limit provided that the Options in excess of the Scheme Limit are granted only to Participants specifically identified by the Company before such approval is sought. The Company must send a circular to the Shareholders containing a generic description of the specified Participants, the number and terms of Options to be granted, the purpose of granting Options to the specified Participants with an explanation as to how the terms of the Options serve such purpose and such other information as required under the GEM Listing Rules.

5. MAXIMUM ENTITLEMENT OF EACH PARTICIPANT

(i) The total number of Shares issued and to be issued upon exercise of the Options granted to each Participant or Grantee (including exercised and outstanding Options) in any twelve (12)-month period up to the date of grant shall not exceed 1% of the Shares in issue. Where it is proposed that any offer is to be made to a Participant (or where appropriate, an existing Grantee) which would result in the Shares issued and to be issued upon exercise of all Options granted and to be granted to such person (including exercised, cancelled and outstanding Options) in the twelve (12)-month period up to and including the relevant date of grant to exceed such limit, such offer and any acceptance thereof must be conditional upon Shareholders' approval in general meeting with such Participant (or where appropriate, an existing Grantee) and his, her or its associates abstaining from voting. The Company must send a circular to the Shareholders disclosing the identity of the Participant or Grantee, the number and terms of Options to be granted (and Options previously granted) to such Participant, the information required under the GEM Listing Rules. The number and terms (including the subscription price) of Options to be granted to such Participant must be fixed before the date on which Shareholders' approval is sought and the date of the Board meeting for proposing such further grant should be taken as the date of grant for the purpose of calculating the subscription price.

6. GRANT OF OPTIONS

Any grant of Options must not be made after a price sensitive event has occurred or a price sensitive matter has been the subject of a decision, until such price sensitive information has been announced according to the requirements of Chapter 16 of the GEM Listing Rules. In particular, during the period commencing one month immediately preceding the earlier of:

(i) the date of the board meeting (as such date is first notified to the Stock Exchange in accordance with the GEM Listing Rules) for the approval of the Company's results for any year, half-year or quarterly or any other interim period (whether or not required under the GEM Listing Rules); and

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(ii) the deadline for the Company to publish an announcement of its results for any year or half-year under the GEM Listing Rules, or quarterly or any interim period (whether or not required under the GEM Listing Rules);

and ending on the date of the results announcement, no Option may be granted.

7. GRANT OF OPTIONS TO CONNECTED PERSON (AS DEFINED IN THE GEM LISTING RULES)

The grant of Options to a Director, chief executive or substantial shareholder of the Company or any of their respective associates requires the approval of the independent non-executive Directors (excluding an independent non-executive Director who is the Grantee of the Options). Where any grant of Options to a substantial shareholder (as defined in the GEM Listing Rules) or an independent non-executive Director or any of their respective associates will result in the Shares issued and to be issued upon exercise of all Options already granted and to be granted (including Options exercised, cancelled and outstanding) to such person in the 12-month period up to and including the date of the grant:-

(i) representing in aggregate over 0.1% of the Shares in issue; and
(ii) having an aggregate value, based on the closing price of the Shares at the date of each grant, in excess of HK$5 million,

such grant of Options must be subject to approval by the holders of Shares taken on a poll. All connected persons (as defined in the GEM Listing Rules) of the Company must abstain from voting in favour at such general meeting.

A circular must be prepared by the Company explaining the proposed grant, disclosing (i) the number and terms of the Options to be granted; (ii) containing a recommendation from the independent non-executive Directors (excluding any independent non-executive Director who is a Grantee) on whether or not to vote in favour of the proposed grant; and (iii) any other information as required under the GEM Listing Rules.

Any change in the terms of Options granted to substantial shareholders of the Company or independent non-executive Directors or any of their respective associates must be approved by the Shareholders in general meeting.

8. TERMS AND CONDITIONS OF OPTIONS

An Option may be exercised in accordance with the terms of the Share Option Scheme at any time during the Option Period but may not be exercised after the expiry of ten years from the date of grant. The Exercise Price will be determined by the Board in its absolute discretion. Unless prescribed in the Offer, there is no specific requirement that an Option must be held for any

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minimum period before it can be exercised and there is no specific performance target which must be achieved before Options can be exercised stipulated under the terms of the Share Option Scheme. The Directors consider that this will provide the Board with more flexibility in setting the terms and conditions for each grant and encourage Participants to acquire proprietary interests in the Company.

The Board is currently unable to determine such restrictions on the exercise of the Option, but the Board may impose restrictions on the exercise of an Option during the Option Period including, if appropriate:-

(i) the minimum period for which all or part of an Option may be exercised;
(ii) performance targets which must be achieved before the Options can be exercised.

9. TIME OF EXERCISE OF OPTIONS

Subject to the terms of the Share Option Scheme, an Option may be exercised in whole or in part by the Grantee (or his or her legal personal representatives) at any time during the period to be determined and identified by the Board to each grantee at the time of making an offer for the grant of an Option, but in any event no later than 10 years from the Offer Date. The exercise of Options may also be subject to any conditions imposed by the Board at the time of offer.

10. RIGHTS ARE PERSONAL TO GRANTEE

An Option shall be personal to the Grantee and shall not be assignable or transferable and no Grantee shall in any way sell, transfer, charge, mortgage, encumber or create any interest, whether legal or beneficial, in favour of any third person over or in relation to any Option or enter into any agreement so to do. Any breach of the foregoing by a Grantee shall entitle the Company to cancel any Option or part thereof granted to such Grantee to the extent not already exercised.

11. RIGHTS ON CESSATION OF EMPLOYMENT BY DISMISSAL

If the Grantee of an Option is an Employee and ceases to be an employee on one or more of the grounds that he or she has been guilty of persistent or serious misconduct, or appears either to be unable to pay or to have no reasonable prospect of being able to pay his or her debts or has become bankrupt or has made any arrangement or composition with his or her creditors generally, or has been convicted of any criminal offence involving his or her integrity or honesty or on any other ground on which an employer would be entitled to terminate his or her employment summarily pursuant to any applicable law, his or her Option (to the extent not already exercised) will lapse on the date of cessation of his or her employment.

12. RIGHTS ON CEASING EMPLOYMENT FOR OTHER REASONS

If the Grantee who is an Employee ceases to be an Employee for any reason other than his or her death or the termination of his or her employment on one or more of the grounds specified in paragraph 11 above, the Grantee may exercise the Option within three months following the date

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of cessation up to the Grantee’s entitlement at the date of cessation (to the extent not already exercised). The date of cessation of employment shall be the last actual working day with the relevant company in the Group whether salary is paid in lieu of notice or not.

13. RIGHTS ON DEATH

In the event the Grantee who is an Employee dies before exercising the Option in full and none of certain events which would be a ground for termination of his or her employment under paragraph 12 above arises, the personal representative(s) of the Grantee shall be entitled within a period of 12 months from the date of death to exercise the Option up to the entitlement of the Grantee as at the date of death (to the extent not already exercised).

14. RIGHTS ON GENERAL OFFER

In the event of a general offer (whether by way of takeover offer as defined in the Takeovers Code or scheme of arrangement or otherwise in like manner) is made to all the Shareholders (or all such holders other than the offeror and/or any person controlled by the offeror and/or any person acting in concert (as defined in the Takeovers Code) with the offeror) and such offer becomes or is declared unconditional (within the meaning of the Takeovers Code) during the Option Period of the relevant Option, the Grantee (or his personal representative(s)) shall be entitled to exercise the Option (to the extent exercisable as at the date on which the general offer becomes or is declared unconditional and not exercised) in full or in part at any time within 1 month after the date on which the offer becomes or is declared unconditional (within the meaning of the Takeovers Code).

15. RIGHTS ON A COMPROMISE OR ARRANGEMENT

In the event of a compromise or arrangement between the Company and its members or creditors being proposed in connection with the scheme for the reconstruction or amalgamation of the Company, the Company shall give notice thereof to all Grantees on the same day as it gives notice of the meeting to its members or creditors to consider such a compromise or arrangement and the Grantee (or his personal representatives) may by notice in writing to the Company accompanied by the remittance for the exercise price in respect of the relevant Option (such notice to be received by the Company not later than four business days prior to the proposed meeting) exercise the Option (to the extent not already exercised) either to its full extent or to the extent specified in such notice, and the Company shall as soon as possible and in any event no later than the business day immediately prior to the date of the proposed meeting, allot and issue such number of Shares to the Grantee which falls to be issued on such exercise credited as fully paid and register the Grantee as holder thereof. Upon such compromise or arrangement becoming effective, all Options shall lapse except insofar as previously exercised under the Share Option Scheme.

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16. RIGHTS ON WINDING UP

In the event a notice is given by the Company to its shareholders to convene a shareholders’ meeting for the purpose of considering and, if though fit, approving a resolution to voluntarily wind up the Company, the Company shall forthwith give notice thereof to the Grantee and the Grantee (or his or her legal personal representatives) may by notice in writing to the Company accompanied by a remittance for the full amount of the aggregate Exercise Price in respect of the relevant Option (such notice to be received by the Company not later than four business days prior to the proposed shareholders’ meeting) exercise the Option (to the extent not already exercised) either to its full extent or to the extent specified in such notice and the Company shall as soon as possible and in any event no later than the business day immediately prior to the date of the proposed shareholders’ meeting, allot and issue such number of Shares to the Grantee which falls to be issued on such exercise.

17. REORGANISATION OF CAPITAL STRUCTURE

In the event of a capitalisation of profits or reserves, further rights issues of Shares, consolidation or subdivision of Shares, or reduction of the share capital of the Company in accordance with applicable laws and regulatory requirements (other than an issue of any share capital as consideration in respect of a transaction), such corresponding adjustments (if any) shall be made to:

(i) the number of Shares, the subject matter of the Option (insofar as it is unexercised); and/or
(ii) the price at which the Options are exercisable.

Any such adjustment shall be made on the basis that:

(i) the proportion of the issued share capital of the Company to which a Grantee is entitled after such adjustment shall remain the same as that to which he was entitled before such adjustment;
(ii) it will not enable any Share to be issued at less than its nominal value, or to increase the proportion of the issued share capital of the Company for which any Grantee would have been entitled to subscribe had he exercised all the Options held by him immediately prior to such adjustments; and
(iii) the auditors or independent financial adviser selected by the Board (as appropriate) must confirm to the Board in writing that the adjustment satisfies the requirements of the note to Rule 23.03(13) of the GEM Listing Rules, except where such adjustment is made on a capitalisation issue.

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18. LAPSE OF OPTION

An Option shall lapse automatically and not be exercisable (to the extent not already exercised) on the earliest of:

(i) the expiry of the Option Period;
(ii) the expiry of any of the periods referred to in paragraphs (11) to (16);
(iii) the date of the commencement of the winding-up of the Company;
(iv) the date on which the Grantee commits a breach of paragraph 10 above; or
(v) the occurrence of such event or expiry of such period as may have been specifically provided for in the Offer (if any), unless otherwise resolved to the contrary by the Board.

19. RANKING OF SHARES

The Options do not carry any right to vote in general meeting of the Company, or any right to dividend, or any other rights whether or not arising on the liquidation of the Company. The Shares to be allotted and issued upon the exercise of an Option will be subject to the Memorandum and Articles of Association and will rank pari passu with the fully paid Shares in issue on the date of exercise of the Option and in particular will rank in full for all dividends or other distributions declared paid or made on or after the date of exercise of the Option other than any dividend or other distribution previously declared or recommended or resolved to be paid or made if the record date therefor is before the date of exercise of the Option.

20. CANCELLATION OF OPTIONS GRANTED

The Board may at any time cancel any Options granted but not exercised if the Grantee so agrees and new Options may be granted to the Grantee in compliance with the terms of the Share Option Scheme and provided that where an Option is cancelled and a new Option is proposed to be issued to the same Grantee, the issue of such new Option may only be made with available unissued Options (excluding for this purpose all cancelled Options) within the Scheme Limit (as refreshed from time to time).

21. LIFE OF SHARE OPTION SCHEME

The Share Option Scheme will remain valid for a period of 10 years commencing on the Adoption Date (save that the Company, by ordinary resolution in general meeting or the Board may at any time terminate the operation of the Share Option Scheme), which is expected to be the date of the AGM, and expiring at the close of business on the tenth anniversary thereof. After such period or termination, no further Options will be granted but the provisions of the Share Option Scheme shall in all other respects remain in full force and effect and Options which are granted during the life of the Share Option Scheme may continue to be exercisable in accordance with their terms of issue.

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22. ALTERATION TO SHARE OPTION SCHEME

Subject to the provision of this paragraph 22, the Share Option Scheme may be altered in any respect by a resolution of the Board, save that the provisions of the Share Option Scheme relating to matters contained in Rule 23.03 of the GEM Listing Rules shall not be altered to the advantage of Participants or Grantees except with the prior approval of Shareholders in general meeting with Grantees and their associates abstaining from voting.

Any alteration to the terms and conditions of the Share Option Scheme, which is of a material nature, or any change to the terms of Options granted must be approved by the Shareholders, save where such alteration takes effect automatically under the existing terms of the Share Option Scheme.

Any change to the authority of the Directors in relation to any alteration to the terms of the Share Option Scheme must be approved by the Shareholders in general meeting.

The amended terms of the Share Option Scheme or the Options must still comply with the relevant requirements of Chapter 23 of the GEM Listing Rules.

23. TERMINATION

The Company by ordinary resolution in general meeting or the Board may at any time terminate the operation of the Share Option Scheme and in such event no further Options will be offered or granted but in all other respects the provisions of the Share Option Scheme shall remain in force to the extent necessary to give effect to the exercise of any Options granted prior to such termination. Options complying with the provisions of Chapter 23 of the GEM Listing Rules which are granted during the life of the Share Option Scheme and remain unexpired immediately prior to the termination of the operation of the Share Option Scheme shall continue to be exercisable in accordance with their terms of issue after the termination of the Share Option Scheme. Details of the Options granted, including Options exercised or outstanding, under the Share Option Scheme shall be disclosed in the circular to Shareholders seeking approval of any subsequent share option scheme to be established after such termination.

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24. RESTRICTIONS ON THE TIME OF GRANT OF OPTIONS

A grant of Options may not be made after a price sensitive event has occurred or a price sensitive matter has been the subject of a decision until such price sensitive information has been announced according to the requirements of Chapter 16 of the GEM Listing Rules. In particular, no Option may be granted during the period commencing one month immediately preceding the earlier of:

(i) the date of the Board meeting for the approval of the Company’s interim or annual results; and
(ii) the deadline for the Company to publish its interim or annual results announcement, and ending on the date of the results announcement.

The period during which no Option may be granted will cover any period of delay in the publication of a results announcement.

25. ADMINISTRATION

The Share Option Scheme is subject to the administration by the Board, and the decision of the Board shall be final and binding on all parties. The Board, subject to the GEM Listing Rules, shall have the right (i) to interpret and construe the provisions of the Share Option Scheme, (ii) to determine the eligibility of the persons who will be awarded Options under the Share Option Scheme, and the number and subscription price of Options awarded thereto, (iii) to make such appropriate and equitable adjustments to the terms of Options granted under the Share Option Scheme as it deems necessary, and (iv) to make such other decisions or determinations as it shall deem appropriate in the administration of the Share Option Scheme.

26. PRESENT STATUS OF THE SHARE OPTION SCHEME

As at the Latest Practicable Date, there were no outstanding Options under the Share Option Scheme entitling the holders thereof to subscribe for any Shares.

I. SUMMARY OF MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) were entered into by members of the Restructured Group within two years preceding the date of this circular and are or may be material:

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(a) the Acquisition Agreement;

(b) the first supplemental agreement to the Acquisition Agreement dated 9 November 2017 and entered into between the Company and the Investor;

(c) the second supplemental agreement to the Acquisition Agreement dated 28 June 2018 and entered into between the Company and the Investor;

(d) the amended and restated Acquisition Agreement dated 23 November 2018 and entered into between the Company and the Investor;

(e) the second amended and restated Acquisition Agreement dated 16 May 2019 and entered into between the Company and the Investor;

(f) the Restructuring Framework Agreement;

(g) the first supplemental agreement to the Restructuring Framework Agreement dated 9 November 2017 and entered into between the Company and the Investor;

(h) the second supplemental agreement to the Restructuring Framework Agreement dated 28 June 2018 and entered into between the Company and the Investor;

(i) the amended and restated Restructuring Framework Agreement dated 23 November 2018 and entered into between the Company and the Investor;

(j) the second amended and restated Restructuring Framework Agreement dated 16 May 2019 and entered into between the Company and the Investor;

(k) the Investor Loan Agreement;

(l) the amended and restated investor loan agreement dated 23 November 2018 and entered into between the Company and the Investor;

(m) the second amended and restated investor loan agreement dated 16 May 2019 and entered into between the Company and the Investor;

(n) the Underwriting Agreement;

(o) the amended and restated Underwriting Agreement dated 16 May 2019 and entered into among the Company, the Sponsor and the Underwriter;

(p) the Deed of Non-competition;

(q) the agreement dated 6 December 2018 and entered into between Chen Yue Hong as purchaser and Talent Zone Global Limited, a direct wholly-owned subsidiary of the Company as vendor in relation to the disposal of the entire issued share capital of Brighton Asia Pacific Investment Holdings Limited at a consideration of HK$200,000; and

(r) the agreement dated 25 January 2019 entered into between Gamfortune Investment Limited as purchaser and Ultra Treasure Limited, an indirect wholly-owned subsidiary of the Company as vendor in relation of the disposal of a cruiser with brand “Accelera 92” registered in Hong Kong for a consideration of HK$6,500,000.

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J. LEGAL PROCEEDINGS OF THE RESTRUCTURED GROUP

(a) as to the Group

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

On 4 September 2016 the Company announced, amongst other things, that (i) Evotech (Asia) Pte. Limited (“Evotech”) had entered into a Surrender Agreement with Jurong Town Corporation (“JTC”) on 6 April 2016 pursuant to which Evotech agreed to surrender its leasehold interest in the real property located at 42 Gul Circle, Singapore 629577 to JTC at the consideration of S$5,620,000 and such transaction was completed on 27 June 2016 without the approval and authorization of the Board (“the Unauthorized Transaction”); and (ii) the Company was investigating into the circumstances leading to the entering into the Unauthorized Transaction and the payments made by Evotech from the proceeds of the Unauthorized Transaction.

Upon completion of the said investigation and with the benefit of legal advice, Evotech has on 23 November 2016 commenced legal proceedings at the High Court of The Republic of Singapore (Case no. HC/S 1242/2016) against Mr. Koh Ta Lee (“Mr. Koh”) for breaches of his duties as director and employee of Evotech and against Ms. Lily Bey Lay Lay (“Lily Bey”), another ex-director of Evotech, for breaches of her duties as director of Evotech and, for recovery of damages in the sums of S$2,285,000 and US$1,070,000 (the “Singapore Legal Action”).

In the Singapore Legal Action, Mr. Koh and Lily Bey filed their Defence and Counterclaim to contest Singapore Legal Action and also commenced Third Party Proceedings (“Third-Party Proceedings”) against the Company and Ms. Yip Man Yi, the Chairman of the Company (the “Singapore Third Parties”).

In the Third-Party Proceedings, Mr. Koh and Lily Bey sought indemnities and/or contributions against the Singapore Third Parties for authorizing and approving all the monetary transactions claimed by Evotech in the Singapore Legal Action to set off of sums as may be applicable between all parties in the legal action, if any.

On 17 January 2017, the High Court of The Republic of Singapore granted leave for service of the Singapore Third-Party Proceedings on the Singapore Third Parties out of the jurisdiction of the Republic of Singapore and the Singapore Third Parties have duly instructed their attorneys in the Republic of Singapore to enter appearance and contest the proceedings.

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The Company's attorney filed a bill of costs related to the amount of legal costs payable to the Singapore Third Parties for the withdrawal of the Third-Party Proceedings on 23 May 2018. On 19 June 2018, Mr. Koh and Lily Bey have been ordered by the High Court of The Republic of Singapore to pay legal costs for the sum of $99,000 to the Singapore Third Parties. Formal demand for the payment has been issued to Mr. Koh and Lily Bey. Yet, on 3 July 2018, Mr. Koh and Lily Bey filed a summons for review of the taxation order. On 11 July 2018 and 16 July 2018, statutory demands were served on Lily Bey and Mr. Koh respectively, demanding payment of the legal costs as awarded. On 23 July 2018, Lily Bey fully settled the said legal cost of $99,000.

On 8 October 2018, an oral judgment was handed down by the trial judge who ruled in favour of Evotech against Mr. Koh and Lily Bey jointly and severally in the total sum claimed by Evotech with interests running on each of these sums ("Judgment Sum"), while the formal judgment was released on 16 October 2018.

On 7 November 2018, Mr. Koh and Lily Bey filed a notice of appeal ("Appeal") to the Court of Appeal of Singapore to appeal against the judgment. The Appeal is presently scheduled to be heard between 5 August 2019 to 23 August 2019.

On 2 May 2019, the Company recovered the Judgment Sum in the amount of $198,000 by performing the writ of seizure and sale of Lily Bey's property. Evotech is continuing to seek legal advice in relation to the enforcement of the judgment against Mr. Koh and Lily Bey and in the process of implementing such.

The Board has obtained legal opinion that both Evotech and the Company have meritorious claim and defence in the Singapore Legal Action and the Appeal and such proceedings shall have no adverse impact upon the financial position of the Group. Therefore, no provision in respect of the Singapore Legal Action and the Appeal was made in the financial statements.

(2) On 2 November 2017, the Company received a demand letter from Kesterion Investments Limited ("Kesterion") requesting repayment of a loan amounting to approximately HK$93 million.

On 17 November 2017, the Company received a Writ of Summons issued by Kesterion in the High Court of the Hong Kong Special Administrative Region under Action Number 2631 of 2017 against CAAL Capital Company Limited ("CAAL") as the 1st Defendant and the Company as the 2nd Defendant. On 20 and 21 November 2017, the Company and its authorised representatives respectively received another Writ of Summons issued by Kesterion in the High Court of the Hong Kong Special Administrative Region under Action Number 2662 of 2017 against the Company (collectively "the Hong Kong Writs").

The Hong Kong Writs are in relation to the repayment of a loan facility originally advanced by Kesterion to the Company. On 4 November 2016, the Company was notified by CAAL that CAAL and Kesterion had entered into a deed of assignment on 31 October 2016 pursuant to which all loan facility originally advanced by Kesterion were assigned to CAAL.

The Company filed its defence for both actions on 25 January 2018. Kesterion filed its reply for both actions on 22 February 2018.

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As the claim under the Hong Kong Writs is related to the assignment between Kesterion and CAAL and the Company has already recorded the corresponding loan in the condensed consolidated financial statements, the Board considered that the claim under the Hong Kong Writs shall have no adverse impact upon the financial position of the Group.

(3) On 2 July 2018, Evotech received a Writ of Summons issued by Kesterion in the High Court of the Republic of Singapore under Case Number HC/S 653 of 2018 (the "Singapore Writ") in relation to the repayment of a loan provided by Kesterion to Evotech in the sum of S$400,000. As stated in the Singapore Writ, the loan was interest free and repayable on demand and were for the purposes of settling the obligations owed to the Singapore authorities, specifically, the Goods and Services Tax payments owed to the Inland Revenue Authority of Singapore, as a result of the surrender of leasehold property as mentioned in the Company's announcement dated 4 September 2016 and for general working capital of Evotech.

The Board has obtained legal opinion and expects that the Singapore Writ will have no significant effects on the overall financial and/or operational conditions of the Group.

(b) as to the Target Group

As at the Latest Practicable Date, no member of the Target Group was engaged in any litigation or arbitration of material importance and no litigation, arbitration or claim of material importance was known to the Investor to be pending or threatened against any member of the Target Group.

VIII-30

APPENDIX VIII

STATUTORY AND GENERAL INFORMATION

K. QUALIFICATIONS AND CONSENTS OF EXPERTS

Name	Qualification
Messis Capital Limited	a corporation licensed to conduct type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO
Conyers Dill & Pearman	Cayman Islands attorneys-at-law
Nuada Limited	a corporation licensed to conduct type 6 (advising on corporate finance) regulated activity under the SFO
Elite Partners CPA Limited	Certified public accountants
RSM Hong Kong	Certified public accountants
Avista PRO-WIS Risk Advisory Limited	Internal control adviser
Frost & Sullivan	Industry consultant

Each of the abovementioned experts has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its report(s) and/or letter(s) and/or opinion(s) and the references to their names included herein in the form and context in which it is respectively included.

As at the Latest Practicable Date, none of the abovementioned experts:

(a) was interested beneficially or otherwise in any ordinary Shares or shares of any member of the Restructured Group or had any right or option (whether legally enforceable or not) to subscribe for or nominate persons to subscribe for any shares or securities in any member of the Restructured Group;

(b) was interested in the promotion of the Company or in any assets which had within the two years immediately preceding the issue of this circular been acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group; and

(c) was materially interested in any contract or arrangement subsisting at the date of this circular which was significant in relation to the business of the Group.

L. TOTAL EXPENSES

VIII-31

APPENDIX VIII
STATUTORY AND GENERAL INFORMATION

M. PROMOTER

The Company has no promoter for the purpose of the GEM Listing Rules.

N. MISCELLANEOUS

Except as disclosed in this circular:

(a) within the two years immediately preceding the date of this circular:

(i) no share or loan capital of the Company or any of its subsidiaries or the Target Group had been issued or agreed to be issued fully or partly paid either for cash or for a consideration other than cash;

(ii) no commissions, discounts, brokerages or other special terms had been granted in connection with the issue or sale of any capital of the Company or any of its subsidiaries or the Target Group; and

(iii) no share or loan capital of the Company or any of its subsidiaries or the Target Group was under option or was agreed conditionally or unconditionally to be put under option;

(b) as at the Latest Practicable Date, there had not been any interruption in the business of the Restructured Group which may have had a significant effect on the financial position of the Restructured Group in the 12 months preceding the date of this circular;

(d) neither the Company nor any of its subsidiaries nor the Target Group had issued or agreed to issue any founder shares, management shares, deferred shares or any debentures;

(e) all necessary arrangements had been made with HKSCC for the Shares, Consideration Shares, the Offer Shares, the Creditors Shares and the New Shares to continue to be accepted as eligible securities of CCASS;

(f) the Directors and the proposed Directors were not aware of any person who is directly or indirectly, interested in 10% or more of the nominal value of any class of share capital (including options in respect of such capital) carrying rights to vote in all circumstances at general meetings of the members of the Restructured Group; and

(g) other than the Shares listed on the Stock Exchange, none of the Company's equity or debt securities is currently listed on or dealt in on any other stock exchange or trading system, and no such listing or permission to list on any other stock exchange is currently being or proposed to be sought.

The English text of this circular and the accompanying form of proxy shall prevail over the respective Chinese texts of the same.

VIII-32

APPENDIX IX

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection on the Company's website at www.unionasiahk.com and on the SFC's website at http://www.sfc.hk. The documents are also available at the Company's head office and principal place of business in Hong Kong at Unit A, 29/F., CKK Commercial Centre, 289-295 Hennessy Road, Wanchai, Hong Kong during 9:30 a.m. to 5:30 p.m., Monday to Friday (other than public holidays) from the date of this circular up to and including the date of the EGM:

(a) the memorandum of association and articles of association of the Company and the amended and restated memorandum and articles of association of the Company upon Adoption;

(b) the memorandum and articles of association of the Target Company;

(c) the letter from the Board, the text of which is set out in the section headed "Letter from the Board" in this circular;

(d) the letter of recommendation from the Independent Board Committee to the Independent Shareholders dated 29 May 2019, the text of which is set out in the section headed "Letter from the Independent Board Committee" in this circular;

(e) the letter of advice from Nuada to the Independent Board Committee and the Independent Shareholders dated 29 May 2019, the text of which is set out in the section headed "Letter from the Independent Financial Adviser" in this circular;

(f) the annual reports of the Company for each of the three financial years ended 31 March 2018;

(g) the third quarterly report of the Company for the nine months ended 31 December 2018;

(h) the accountants' report from RSM Hong Kong in respect of the historical financial information of the Target Group for the three financial years ended 31 March 2018 and the stub period for the eight months ended 30 November 2018, the text of which is set out in Appendix III to this circular;

(i) the audited combined financial statements of the Target Group for the three financial years ended 31 March 2018 and the stub period for the eight months ended 30 November 2018;

(j) the audited financial statements of the Group as extracted from the annual reports of the Company for the three financial years ended 31 March 2018 and the unaudited financial statements of the Group as extracted from the third quarterly report of the Company for the nine months ended 31 December 2018;

(k) the report on the unaudited pro forma financial information of the Restructured Group from Elite Partners CPA Limited, the text of which is set out in Appendix V to this circular;

(l) the letters relating to profit estimate issued by RSM Hong Kong and the Sponsor, respectively, the text of which are set out in Appendix VI to this circular;

IX-1

APPENDIX IX
DOCUMENTS AVAILABLE FOR INSPECTION

(m) the Frost & Sullivan Report

(n) the letter of advice summarising certain aspects of Cayman Islands company law prepared by Conyers Dill & Pearman referred to in Appendix VII to this circular;

(o) the Companies Law

(p) the material contracts referred to in the paragraph headed “Statutory and general information – I. Summary of Material Contracts” in Appendix VIII to this circular;

(q) the written consents referred to in the paragraph headed “Statutory and general information – K. Qualifications and Consents of Experts” in Appendix VIII to this circular; and

(r) copy of this circular.

IX-2

NOTICE OF EGM

UNION ASIA ENTERPRISE HOLDINGS LTD

萬亞企業控股有限公司

(Incorporated in the Cayman Islands with limited liability) (Stock code: 8173)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “EGM”) of Union Asia Enterprise Holdings Limited (the “Company”) will be held at 11:30 a.m. on Monday, 24 June 2019 at Room 302, 3/F., Pico Tower, 66 Gloucester Road, Wanchai, Hong Kong for the purpose of considering and, if thought fit, passing the following resolutions with or without amendments as ordinary resolutions or special resolutions (as the case may be). Capitalised terms defined in the circular dated 29 May 2019 issued by the Company (the “Circular”) shall have the same meaning when used in this Notice unless otherwise specified.

AS A SPECIAL RESOLUTION

1. “CAPITAL REORGANISATION

THAT subject to and conditional upon: (i) the Grand Court of the Cayman Islands (the “Grand Court”) granting an order confirming the Capital Reduction (as defined below); (ii) the registration by the Registrar of Companies in the Cayman Islands of a copy of the Grand Court order approving the Capital Reduction and the minute containing the particulars required under the Companies Law of the Cayman Islands; (iii) compliance with any conditions imposed by the Grand Court; and (iv) the GEM Listing Committee granting the listing of, and permission to deal in, the New Shares in issue upon the Capital Reorganisation (as defined below) becoming effective, with effect from the date on which the aforesaid conditions are fulfilled (the “Effective Date”),

(a) the entire amount standing to the credit of the share premium account of the Company as at the Effective Date be cancelled to set off against part of total accumulated losses of the Company (the “Share Premium Cancellation”);

(b) every fifty (50) issued Shares of HK$0.08 each will be consolidated into one (1) share of HK$4.0 each (“Consolidated Share”) in the issued share capital of the Company (the “Share Consolidation”);

(c) all fractional Consolidated Shares resulting from Share Consolidation will be disregarded and will not be issued to holders of the same but all such fractional Consolidated Shares will be aggregated and if possible, sold for the benefit of the Company in such manner and on such terms as the directors of the Company (the “Directors”) may think fit;

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NOTICE OF EGM

(d) upon the Share Consolidation taking effect, (i) the total number of the Consolidated Shares in the issued share capital of the Company immediately following the Share Consolidation be rounded down to a whole number by cancelling any fraction in the issued share capital of the Company arising from the Share Consolidation; and (ii) the nominal value of the issued Consolidated Shares be reduced from HK$4.0 to HK$0.0001 each (“New Share”) by cancelling the paid-up capital to the extent of HK$3.9999 each (the “Capital Reduction”) and the total credit of approximately HK$273,208,990 arising therefrom be applied to further set-off the accumulated losses of the Company;

(e) upon the Capital Reduction taking effect, all the authorised but unissued share capital of the Company be cancelled in their entirety (the “Unissued Share Capital Cancellation”);

(f) upon the Unissued Share Capital Cancellation taking effect, the authorised share capital of the Company be increased to HK$10,000,000 divided into 100,000,000,000 New Shares (the “Authorised Share Capital Increase”, collectively with the Unissued Share Capital Cancellation, the Capital Reduction, the Share Consolidation and the Share Premium Cancellation, the “Capital Reorganisation”);

(g) the credit arising from the Capital Reduction be applied towards offsetting the accumulated losses of the Company as at the Effective Date, thereby reducing the accumulated losses of the Company, and the balance (if any) be transferred to a distributable reserve account of the Company which may be applied for such purposes as permitted under the memorandum and articles of association of the Company, all applicable laws and the GEM Listing Rules; and

(h) any one or more of the Director(s) be and is/are hereby authorised to do all such acts and things, to sign and execute all such further documents or agreements or deeds on behalf of the Company (including the affixation of the common seal of the Company where execution under seal is required) and to do such acts and things, to sign and execute all such further documents and to take such steps as he/she/they may consider necessary, appropriate, desirable or expedient to give effect to or in connection with the implementation of and giving effect to any matter relating to the Capital Reorganisation and the transactions contemplated thereunder.”

AS ORDINARY RESOLUTIONS

“THE SHARE OFFER

THAT:

(a) the Underwriting Agreement and the transactions contemplated thereunder be and are hereby approved, ratified and confirmed;

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NOTICE OF EGM

(b) subject to the fulfillment of the conditions in the Underwriting Agreement and conditional upon the GEM Listing Committee approving the listing of, and granting permission to deal in the Offer Shares, the Director(s) be and are hereby granted a specific mandate (“the Offer Shares Specific Mandate”) to allot and issue, credited as fully paid, the Offer Shares comprising a public offer and a preferential offering at the price of HK$0.19 per Offer Share on the terms set out in the Circular provided that the Offer Shares Specific Mandate shall be in addition to and shall not prejudice nor revoke such other general or specific mandate(s) which may from time to time be granted to the Director(s) prior to or after the passing of this resolution;

(c) the entering into of the Underwriting Agreement by the Company be and is hereby approved, confirmed and ratified and the performance of the transactions contemplated thereunder by the Company (including but not limited to the arrangements for taking up of the underwritten Offer Shares, if any, by the Underwriter) be and hereby approved; and

(d) any one or more of the Director(s) be and is/are hereby authorised to do all such acts and things, to sign and execute all such further documents or agreements or deeds on behalf of the Company (including the affixation of the common seal of the Company where execution under seal is required) and to do such acts and things, to sign and execute all such further documents and to take such steps as he/she/they may consider necessary, appropriate, desirable or expedient to give effect to or in connection with the implementation of and giving effect to any matter relating to the Underwriting Agreement and the transactions contemplated thereunder.”

“THE CREDITORS SCHEMES

THAT conditional upon: (i) the requisite majority in number representing not less than 75% in value of the Creditors granting the approval; (ii) the sanction from the High Court and the Grand Court having been obtained; (iii) the passing of the necessary resolution(s) by the Independent Shareholders as required under the GEM Listing Rules and the Takeovers Code; (iv) the Company having obtained the necessary consent of the Executive for the Special Deal constituted by the Creditors Schemes pursuant to Rule 25 of the Takeovers Code; (v) all conditions precedent to the Completion (other than the conditions precedent to the implementation of the Creditors Schemes) having been fulfilled; (vi) the filing of the court orders with the relevant companies registries in Hong Kong and the Cayman Islands, respectively; (vii) the GEM Listing Committee granting the listing of, and permission to deal in, the Creditors Shares,

(a) the Creditors Schemes and the transactions contemplated thereunder be and are hereby approved, ratified and confirmed;

(b) the Director(s) be and are hereby granted a specific mandate (the “Creditors Shares Specific Mandate”) to allot and issue, credited as fully paid, the Creditors Shares to the Scheme SPC pursuant to the Creditors Schemes provided that the Creditors Shares Specific Mandate shall be in addition to and shall not prejudice nor revoke such other general or specific mandate(s) which may from time to time be granted to the Director(s) prior to or after the passing or this resolution; and

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NOTICE OF EGM

(c) any one or more of the Director(s) be and is/are hereby authorised to do all such acts and things, to sign and execute all such further documents or agreements or deeds on behalf of the Company (including the affixation of the common seal of the Company where execution under seal is required) and to do such acts and things, to sign and execute all such further documents and to take such steps as he/she/they may consider necessary, appropriate, desirable or expedient to give effect to or in connection with the implementation of and giving effect to any matter relating to the Creditors Schemes and the transactions contemplated thereunder (including but not limited to the allotment and issue of the Creditors Shares to the Scheme SPC)."

"THE ACQUISITION

THAT:

(a) the Acquisition Agreement, the Restructuring Framework Agreement and the transactions contemplated respectively thereunder be and are hereby approved, ratified and confirmed;

(b) subject to the fulfillment of the conditions in the Acquisition Agreement and the Restructuring Framework Agreement and conditional upon the GEM Listing Committee approving the listing of and granting permission to deal in the Consideration Shares, the Director(s) be and are hereby granted a specific mandate (the "Consideration Shares Specific Mandate") to allot and issue, credited as fully paid, the Consideration Shares to the Investor pursuant to the Acquisition Agreement provided that the Consideration Shares Specific Mandate shall be in addition to and shall not prejudice nor revoke such other general or specific mandate(s) which may from time to time be granted to the Director(s) prior to or after the passing of this resolution; and

(c) any one or more of the Director(s) be and is/are hereby authorised to do all such acts and things, to sign and execute all such further documents or agreements or deeds on behalf of the Company (including the affixation of the common seal of the Company where execution under seal is required) and to do such acts and things, to sign and execute all such further documents and to take such steps as he/she/they may consider necessary, appropriate, desirable or expedient to give effect to or in connection with the implementation of and giving effect to any matter relating to the Acquisition Agreement, the Restructuring Framework Agreement and the transactions contemplated thereunder."

"THE INVESTOR LOAN CAPITALISATION

THAT:

(a) subject to the fulfilling of the conditions in the Restructuring Framework Agreement and conditional upon the GEM Listing Committee approving the listing of and granting permission to deal in the Capitalisation Shares, the Director(s) be and are hereby granted a specific mandate (the "Capitalisation Shares Specific Mandate") to allot and issue, credited as fully paid, the Capitalisation Shares to the Investor as a result of the Investor Loan Capitalisation provided that the Capitalisation Shares Specific Mandate shall be in addition to and shall not prejudice nor revoke such other general or specific mandate(s) which may from time to time be granted to the Director(s) prior to or after the passing of this resolution; and

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NOTICE OF EGM

(b) any one or more of the Director(s) be and is/are hereby authorised to do all such acts and things, to sign and execute all such further documents or agreements to deeds on behalf of the Company (including the affixation of the common seal of the Company where execution under seal is required) and to do such acts and things, to sign and execute all such further documents and to take such steps as he/she/they may consist necessary, appropriate, desirable or expedient to give effect to or in connection with the implementation of and giving effect to any matter relation to the Investor Loan Capitalisation and the transactions contemplated thereunder."

"THE SPECIAL DEAL

THAT, subject to the consent of the Executive (or any delegate of the Executive) pursuant to Rule 25 of the Takeovers Code with respect to the Special Deal and any conditions that may be imposed thereon:

(a) the Special Deal and the transactions contemplated thereunder be and are hereby approved, ratified and confirmed; and

(b) any one or more of the Director(s) be and is/are hereby authorised to do all such acts and things, to sign and execute all such further documents or agreements or deeds on behalf of the Company (including the affixation of the common seal of the Company where execution under seal is required) and to do such acts and things, to sign and execute all such further documents and to take such steps as he/she/they may consider necessary, appropriate, desirable or expedient to give effect to or in connection with the implementation of and giving effect to any matter relating to the Special Deal and the transactions contemplated thereunder."

"APPOINTMENT OF PROPOSED DIRECTORS

THAT:

(a) the following persons be appointed as Director(s) with effect from Completion:

(i) Mr. Chan Norman Enrique as an executive Director;

(ii) Mr. Lee Alex Kam-fai as an executive Director;

(iii) Mr. Kwong U Hoi Andrew as an independent non-executive Director;

(iv) Mr. Wong Jonathan as an independent non-executive Director; and

(v) Mr. Chi Chi Hung Kenneth as an independent non-executive Director.

(b) the Board be and is hereby authorised to fix their remuneration.

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NOTICE OF EGM

AS SPECIAL RESOLUTIONS

“THE WHITEWASH WAIVER

THAT:

(a) subject to the Executive granting the Investor the Whitewash Waiver and the satisfaction of any condition(s) attached to the Whitewash Waiver imposed by the Executive, the waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code, waiving any obligation of the Investor and parties acting in concert with it to make a mandatory general offer to other Shareholders in respect of the New Shares as a result of the acquisition of the Consideration Shares and the Capitalisation Shares be and is hereby approved; and

“ADOPTION OF SECOND AMENDED AND RESTATED MEMORANDUM AND ARTICLES OF ASSOCIATION

THAT the second amended and restated memorandum and articles of association of the Company in the form produced to the EGM be and are hereby adopted as the memorandum and articles of association of the Company in substitution for and to the exclusion of all existing memorandum and articles of association of the Company.”

By Order of the Board
Union Asia Enterprise Holdings Limited
Yip Man Yi
Chairman

Hong Kong, 29 May 2019

Principal place of business in Hong Kong:
Unit A, 29/F.
CKK Commercial Centre
289-295 Hennessy Road
Wanchai
Hong Kong

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NOTICE OF EGM

Notes:

Any Shareholder entitled to attend and vote at the EGM shall be entitled to appoint a person or persons as his proxy or proxies to attend and vote instead of him and a proxy so appointed shall have the same right as the Shareholder to speak at the EGM. A proxy need not be a Shareholder.
To be valid, a form of proxy, together with any power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power of attorney or authority, must be delivered to the Company's share registrar in Hong Kong, Union Registrars Limited, at Suites 3301-3304, 33/F., Two Chinachem Exchange Square, 338 King's Road, North Point, Hong Kong not less than 48 hours before the time appointed for holding the EGM or any adjourned meeting, and in default thereof the form of proxy shall not be treated as valid. No instrument appointing a proxy shall be valid after the expiry of 12 months from the date of its execution.
Completion and deposit of the form of proxy shall not preclude a Shareholder from attending and voting in person at the EGM if the Shareholder so desires and in such event, the instrument appointing a proxy shall be deemed to be revoked.
In the case of joint registered holders of any share of the Company, any one of such joint registered holders may vote at the meeting, either in person or by proxy, in respect of such share as if they were solely entitled thereto, but if more than one of such joint registered holders be present at the meeting either personally or by proxy, the vote of the senior who tenders a vote shall be accepted to the exclusion of the votes of the other joint registered holders and, for this purpose, seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.
In order to qualify for attending and voting at the EGM, all transfer of shares accompanied by the relevant share certificates must be lodged with the Company's share registrar and transfer office in Hong Kong, Union Registrars Limited, at Suites 3301-3304, 33/F., Two Chinachem Exchange Square, 338 King's Road, North Point, Hong Kong for registration not later than 4:30 pm on Monday, 17 June 2019.
If Typhoon Signal No.8 or above, or a "black" rainstorm warning is in effect any time after 7:00 a.m. on the date of the EGM, the chairman of the EGM will seek the consent of the Shareholders present at the meeting to adjourn the EGM. If no quorum is present at the EGM within 15 minutes of the time appointed for the EGM, the EGM will be adjourned to the same day in the next week and at such time and place as shall be decided by the board of directors of the Company. The Company will post an announcement on the website of Company at www.unionasiahk.com and on the "Latest Company Announcement" page of the GEM website at www.hkgem.com to notify Shareholders of the date, time and place of the adjourned EGM.

As at the date of this notice, the Board comprises three executive Directors, Ms. Yip Man Yi, Mr. Shiu Chi Tak, Titus and Ms. Hung Wai Man and three independent non-executive Directors, Dr. Wan Ho Yuen, Terence, Mr. Li Kwok Chu and Mr. Lau Shu Yan.

This notice, for which the directors of the Company (the "Director") collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on GEM of The Stock Exchange of Hong Kong Limited for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this notice is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this notice misleading.

This notice will remain on the page of "Latest Company Announcement" on the GEM website for at least 7 days from the date of its posting and on the website of the Company www.unionasiahk.com.

EGM-7

AI assistant

Hephaestus Holdings Limited — Proxy Solicitation & Information Statement 2019

51310_rns_2019-05-28_f7d20877-f51d-4377-8db1-9f5f456dae21.pdf

UNION ASIA ENTERPRISE HOLDINGS LTD

萬亞企業控股有限公司

CONTINGENCY FOR THE SHARE OFFER

BACKGROUND

INFORMATION ON THE TARGET GROUP

Principal business

Property developer vs. Non-property developer

Hong Kong/overseas listed company vs. Unlisted company/individual

Corporate customer vs. Individual customer

Suppliers and subcontractors

COMPETITIVE LANDSCAPE OF THE TARGET GROUP

COMPETITIVE STRENGTHS AND BUSINESS STRATEGIES OF THE TARGET GROUP

FINANCIAL INFORMATION OF THE TARGET GROUP

Cost of services

Operating activities

Key financial ratios

RISK FACTORS FACED BY THE TARGET GROUP

RECENT DEVELOPMENTS SUBSEQUENT TO 30 NOVEMBER 2018

Backlog

SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE RESTRUCTURED GROUP

FINANCIAL EFFECTS OF THE PROPOSED RESTRUCTURING

CONTROLLING SHAREHOLDERS AND CONNECTED TRANSACTION

DIVIDENDS

MATERIAL CHANGES OF THE GROUP

NO MATERIAL CHANGES OF THE TARGET GROUP

SPONSOR, FINANCIAL ADVISER TO THE COMPANY, FINANCIAL ADVISER TO MR. NORMAN CHAN AND INDEPENDENT FINANCIAL ADVISER

CHANGE OF PRINCIPAL BUSINESS ACTIVITIES OF THE RESTRUCTURED GROUP AFTER RESUMPTION

TOTAL EXPENSES

RECOMMENDATIONS AND THE EGM

IMPLICATIONS UNDER THE GEM LISTING RULES

The Acquisition

The Creditors Schemes

The Share Offer

EGM

Listing approval

IMPLICATIONS UNDER THE TAKEOVERS CODE

Whitewash Waiver

Special Deal

RISK RELATING TO THE PROPOSED RESTRUCTURING

Any future natural disaster, health epidemics or terrorist attacks may adversely affect the operational results of the Target Group

The Target Group’s insurance may not fully cover all the potential losses arising from its business

The Target Group’s short-term results of operations may not be indicative of the long-term results of operations

Any recurrence of global financial crisis may have negative repercussions on the Target Group’s target customers

RISKS RELATING TO CONDUCTING BUSINESS IN HONG KONG

Economic, political and social considerations

RISKS RELATING TO THIS CIRCULAR

PROPOSED DIRECTORS AND SENIOR MANAGEMENT

PARTIES INVOLVED IN THE PROPOSED RESTRUCTURING

Sponsor to the Company

Financial Adviser to the Company

Financial Adviser to Mr. Norman Chan

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

UNION ASIA ENTERPRISE HOLDINGS LTD

萬亞企業控股有限公司

I. INTRODUCTION

II. RESTRUCTURING FRAMEWORK AGREEMENT

CAPITAL REORGANISATION

Conditions precedent of the Capital Reorganisation

Effects of the Capital Reorganisation

Status of the New Shares after the Capital Reorganisation

Listing and dealings

Expected effective date of the Capital Reorganisation

Reasons for the Capital Reorganisation

THE SHARE OFFER

Allocation of the Public Offer Shares

Basis of the Assured Entitlement under the Preferential Offering

Application for excess Reserved Shares

The Offer Shares

The Offer Price

Conditions of the Share Offer

Qualifying Shareholders

Status of the Reserved Shares

Reallocation

Application procedures

Closure of register of members

Application for listing

Share certificates and refund cheques for the Offer Shares

Hephaestus Holdings Limited Proxy Solicitation & Information Statement 2019