Legendary Education Group Ltd. - M&A Activity 2016

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect about this Response Document or as to the action to be taken, you should consult your licensed securities dealer, registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in L & A International Holdings Limited, you should at once hand this Response Document to the purchaser(s) or the transferee(s) or to the bank, licensed securities dealer, registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or the transferee(s).

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this Response Document, make no representation as to their 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 Response Document.

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L & A International Holdings Limited 樂亞國際控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8195)

RESPONSE DOCUMENT

VOLUNTARY CONDITIONAL SHARE EXCHANGE OFFERS BY QPL INTERNATIONAL HOLDINGS LIMITED TO ACQUIRE ALL OF THE ISSUED SHARES OF L & A INTERNATIONAL HOLDINGS LIMITED (OTHER THAN THOSE ALREADY OWNED BY QPL INTERNATIONAL HOLDINGS LIMITED AND PARTIES ACTING IN CONCERT WITH IT) IN EXCHANGE FOR NEW SHARES TO BE ISSUED BY QPL INTERNATIONAL HOLDINGS LIMITED AND TO CANCEL ALL OF THE OUTSTANDING OPTIONS OF L & A INTERNATIONAL HOLDINGS LIMITED

Independent financial adviser to the Independent Board Committee

Capitalised terms used in this cover page shall have the same meanings as those defined in this Response Document.

A letter from the Board is set out on pages 6 to 17 of this Response Document. A letter from the Independent Board Committee to the Independent Shareholders and Optionholders containing its recommendation is set out on pages 18 to 19 of this Response Document. A letter from Gram Capital containing its advice to the Independent Board Committee in respect of the Offers is set out on pages 20 to 41 of this Response Document.

The Response Document will remain on the website of the Stock Exchange at http://www.hkexnews.hk and the website of the Company at http://www.lna.com.hk as long as the Offers remain open.

30 December 2016

CHARACTERISTICS OF GEM

GEM has been positioned as a market designed to accommodate companies to which a higher investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.

Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board and no assurance is given that there will be a liquid market in the securities traded on GEM.

– i –

CONTENTS

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . .	18
LETTER FROM GRAM CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
APPENDIX I — FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . . . .	I-1
APPENDIX II — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1

– ii –

DEFINITIONS

In this Response Document, unless the context otherwise requires, the following terms shall have the following meaning:

‘‘acting in concert’’ has the meaning ascribed to it under the Takeovers Code ‘‘associate(s)’’ has the meaning ascribed to it under the Takeovers Code
‘‘Board’’ the board of Directors
‘‘Business Day(s)’’ a day (other than a Saturday, Sunday, public holidays and days on which a tropical cyclone warning signal no. 8 or above or a black rainstorm warning signal is hosted in Hong Kong at any time between 9:00 a.m. and 5:00 p.m.) on which the Stock Exchange is open for transaction of business
‘‘BVI’’
the British Virgin Islands
‘‘Closing Date’’
13 January 2017, being the first closing date of the Offers or any subsequent date as may be announced by the Offeror and approved by the Executive in accordance with the Takeovers Code
‘‘Company’’ or ‘‘L & A’’ L & A International Holdings Limited, a company incorporated in the Cayman Islands with limited liability and the issued shares of which are listed on the Growth Enterprise Market of the Stock Exchange (stock code: 8195)
‘‘Conditions’’ the conditions precedent to the Offers as set out in the paragraph headed ‘‘Conditions of the Offers’’ in the letter from the Board in this Response Document
‘‘connected person(s)’’ has the meaning ascribed to it in the GEM Listing Rules
‘‘Director(s)’’ director(s) of the Company from time to time
‘‘Executive’’
the Executive Director of the Corporate Finance Division of the SFC or any of its delegate
‘‘FNL’’
Favourite Number Limited, a company incorporated in the BVI with limited liability

– 1 –

DEFINITIONS

‘‘FNL Possible Offers’’
‘‘Form(s) of Acceptance’’
‘‘GEM’’
‘‘GEM Listing Rules’’
‘‘Group’’ or ‘‘L & A Group’’
‘‘HK$’’
‘‘Hong Kong’’
‘‘Independent Board Committee’’
‘‘Independent Financial Adviser’’ or ‘‘Gram Capital’’
‘‘Independent Shareholders’’
‘‘Last Trading Day’’

the possible voluntary conditional securities exchange and cash offer intended to be made (subject to satisfaction of preconditions) by VBG Capital Limited on behalf of FNL to acquire all of the issued shares in the share capital of the Company (other than those already owned by FNL and parties acting in concert with it) and to cancel all outstanding Options in accordance with the terms and conditions set out in the joint announcements of FNL and WLS dated 18 August 2016 and 12 September 2016, which was withdrawn on 17 October 2016

the White form (s) of acceptance and transfer in respect of the Share Offer and the Yellow form(s) of acceptance in respect of the Option Offer which accompanied with the Offer Document and ‘‘Form of Acceptance’’ means either of them
the Growth Enterprise Market of the Stock Exchange
the Rules Governing the Listing of Securities on GEM
the Company and its subsidiaries
Hong Kong dollars, the lawful currency of Hong Kong
the Hong Kong Special Administrative Region of the PRC
the independent board committee of the Company comprising the non-executive Director, namely Mr. Wong Chiu Po and all the independent non-executive Directors, namely Mr. Kwong Lun Kei Victor, Mr. Ma Chi Ming and Mr. Chan Ming Sun Jonathan formed for the purpose of advising the Independent Shareholders and Optionholders in respect of the Offers
Gram Capital Limited, a corporation licensed to carry out type 6 (advising on corporate finance) regulated activity under the SFO and being the independent financial adviser appointed by the Company to advise the Independent Board Committee in respect of the Offers
Shareholders other than QPL and parties acting in concert with it
7 October 2016, being the last trading day of the Shares and QPL Shares immediately prior to the issue of the Offer Announcement

– 2 –

DEFINITIONS

‘‘Latest Practicable Date’’ 28 December 2016, being the latest practicable date prior to the printing of this Response Document for ascertaining certain information contained herein
‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock Exchange
‘‘Offer Announcement’’ the offer announcement made by the Offeror on 14 October 2016 in relation to, among other things, the Offers
‘‘Offer Document’’ the offer document dated 16 December 2016 despatched by the Offeror to the Independent Shareholders and the Optionholders in relation to, among other things, the Offers, together with the Form(s) of Acceptance
‘‘Offer Document LPD’’ 13 December 2016, being the latest practicable date prior to the printing of the Offer Document for the purpose of ascertaining certain information contained therein
‘‘Offer Period’’ commencing from 14 October 2016, being the date of the Offer Announcement and ending on the Closing Date
‘‘Offer Share(s)’’ all the Shares other than those already owned or agreed to be acquired by the Offeror and parties acting in concert with it
‘‘Offers’’ the Share Offer and the Option Offer
‘‘Option(s)’’
the outstanding share options granted by the Company pursuant to the Share Option Scheme
‘‘Optionholder(s)’’ holder(s) of the Options
‘‘Option Offer’’
the voluntary conditional share exchange offer being made by QPL in compliance with Rule 13 of the Takeovers Code to cancel all the outstanding Options in accordance with the terms and conditions set out in the Offer Document
‘‘PRC’’
the People’s Republic of China, for the purpose of this Response Document, excluding Hong Kong, Macau Special Administrative Region of the PRC and Taiwan
‘‘QPL’’ or ‘‘Offeror’’
QPL International Holdings Limited, an exempted company incorporated in Bermuda with limited liability whose shares are listed on the Main Board of the Stock Exchange (stock code: 243)

– 3 –

DEFINITIONS

‘‘QPL SGM’’ the special general meeting convened by QPL on 9 December 2016, approving, among other things, the QPL Major Transaction and the grant of the QPL Specific Mandate
‘‘QPL Group’’ QPL and its subsidiaries
‘‘QPL Major Transaction’’
the proposed acquisition of the Shares by QPL pursuant to the Offers which constitute a major transaction of QPL under Chapter 14 of the Listing Rules
‘‘QPL Share(s)’’
ordinary share(s) of HK$0.08 each in the share capital of QPL
‘‘QPL Shareholder(s)’’ holder(s) of the QPL Share(s)
‘‘QPL Specific Mandate’’
the specific mandate for the allotment and issue, credited as fully paid, of new QPL Shares in settlement of the consideration of the Offers to be issued to the Independent Shareholders and the Optionholders who accept the Offers, subject to the Offers becoming unconditional
‘‘Relevant Authority(ies)’’ any government, governmental, quasi-governmental, statutory or regulatory authority, body, agency, tribunal, court or institution
‘‘Relevant Period’’
the period from 14 April 2016, being the date falling six months prior to 14 October 2016 (being the date of announcement issued by the Offeror in relation to the Offers) and up to and including the Latest Practicable Date
‘‘Requisition’’
requisition for the convening of an extraordinary general meeting to consider and, if appropriate, to approve the proposed removal of certain Directors and the proposed appointment of new Directors as raised in the Requisition Notice
‘‘Requisition Notice’’ requisition notice dated 6 October 2016 containing the Requisition
‘‘Response Document’’
this response document dated 30 December 2016 in response to the Offers issued by the Company in accordance with the Takeovers Code
‘‘RMB’’ Renminbi, the lawful currency of the PRC
‘‘SFC’’
the Securities and Futures Commission of Hong Kong

– 4 –

DEFINITIONS

‘‘SFO’’

the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

‘‘Share(s)’’
ordinary share(s) of HK$0.002 each in the share capital of the Company
‘‘Share Offer’’ the voluntary conditional share exchange offer being made by QPL to acquire all of the issued shares in the share capital of the Company (other than those already owned or agreed to be acquired by QPL and parties acting in concert with it) in accordance with the terms and conditions set out in the Offer Document
‘‘Share Option Scheme’’
the share option scheme of the Company adopted by the Company pursuant to an ordinary resolution of the Shareholders passed on 25 September 2014
‘‘Shareholder(s)’’ holder(s) of the issued Share(s)
‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited
‘‘substantial shareholder(s)’’
has the meaning ascribed to it under the GEM Listing Rules
‘‘Takeovers Code’’
The Hong Kong Code on Takeovers and Mergers issued by the SFC
‘‘Unconditional Date’’
the date on which the Offers become or are declared unconditional in all respects
‘‘WLS’’
WLS Holdings Limited, a company incorporated with limited liability in the Cayman Islands and continued in Bermuda, the issued shares of which are listed on GEM (stock code: 8021)
‘‘%’’ per cent.

Unless the context otherwise requires, capitalised terms used in the information which are reproduced from the Offer Document and contained in this Response Document shall have the same meanings as defined in the Offer Document.

– 5 –

LETTER FROM THE BOARD

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L & A International Holdings Limited 樂亞國際控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8195)

Executive Director: Mr. Ng Ka Ho (Chairman) Non-executive Director: Mr. Wong Chiu Po

Independent non-executive Directors: Mr. Kwong Lun Kei Victor Mr. Ma Chi Ming Mr. Chan Ming Sun Jonathan

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

Principal place of business in Hong Kong: Flat 1, Block C, 11/F Hong Kong Spinner Industrial Building, Phase 5 762 Cheung Sha Wan Road Kowloon Hong Kong 30 December 2016

To the Independent Shareholders and Optionholders

Dear Sir or Madam,

VOLUNTARY CONDITIONAL SHARE EXCHANGE OFFERS BY QPL INTERNATIONAL HOLDINGS LIMITED TO ACQUIRE ALL OF THE ISSUED SHARES OF L & A INTERNATIONAL HOLDINGS LIMITED (OTHER THAN THOSE ALREADY OWNED

BY QPL INTERNATIONAL HOLDINGS LIMITED AND PARTIES ACTING IN CONCERT WITH IT) IN EXCHANGE FOR NEW SHARES TO BE ISSUED BY QPL INTERNATIONAL HOLDINGS LIMITED AND TO CANCEL ALL OF THE OUTSTANDING OPTIONS OF L & A INTERNATIONAL HOLDINGS LIMITED

– 6 –

LETTER FROM THE BOARD

INTRODUCTION

On 7 October 2016, QPL proposed to the Board that it would make the voluntary conditional share exchange offers to (i) acquire all of the issued shares in the share capital of the Company (other than those already owned by QPL and parties acting in concert with it); and (ii) cancel all of the outstanding Options.

On 14 October 2016, QPL published the Offer Announcement setting out details of the Offers, which is subject to fulfilment of certain conditions, on the basis of (i) one new QPL Share for every 25 existing Shares; and (ii) three new QPL Shares for cancellation of every 500 Options.

On 16 December 2016, QPL despatched the Offer Document, accompanied with the Forms of Acceptance.

The purpose of this Response Document is to provide you with, among other things, information regarding the Group and the Offers, the recommendation of the Independent Board Committee to the Independent Shareholders and Optionholders in respect of the Offers and the advice of Gram Capital to the Independent Board Committee in respect of the Offers.

You are advised to read this Response Document, the recommendation of the Independent Board Committee and the letter from Gram Capital in conjunction with the Offer Document carefully before taking any action in respect of the Offers.

Shareholders, Optionholders and potential investors of the Company should be aware that the Share Offer is subject to the satisfaction or waiver (where applicable) of the Conditions of the Offers, and the Option Offer is subject to and conditional upon the Share Offer becomes unconditional. Accordingly, the Offers may or may not become unconditional. Shareholders, Optionholders and potential investors should therefore exercise caution when dealing in the Shares, exercising the Options or other rights in respect of any of them. Persons who are in doubt as to the action they should take should consult their stockbroker, bank manager, solicitor or other professional advisers.

– 7 –

LETTER FROM THE BOARD

THE OFFERS

The terms of the Offers as set out below are based on the Offer Document. You are recommended to refer to the Offer Document and the Form(s) of Acceptance for further details.

The Share Offer

QPL is making the Share Offer in compliance with the Takeovers Code as follows:

For every 25 existing Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 new QPL Share

As at the Offer Document LPD, the relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company in issue comprise (i) 25,600,000,000 Shares; and (ii) 200,000,000 outstanding Options to subscribe for 200,000,000 Shares. Save as disclosed above, the Company has no other outstanding Shares, options, warrants, derivatives or other securities that are convertible or exchangeable into Shares or other types of securities in the Company as at the Offer Document LPD.

As disclosed in the Offer Document, as at the Offer Document LPD, save for the 13,800,000 Shares, representing approximately 0.054% of the total issued share capital of the Company, indirectly held by QPL through Enma Holdings Limited, a direct wholly-owned subsidiary of QPL, QPL and parties acting in concert with it did not hold any other Shares or relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company.

As disclosed in the Offer Document, the exchange ratio of 1 new QPL Share for every 25 Shares was determined by QPL based on the prevailing market prices of both the QPL Shares and the Shares taking into account the highest closing price of HK$0.03 per Share for the 5 trading days prior to and including the Last Trading Day.

Save for QPL’s indirect interest in the 13,800,000 Shares, neither QPL nor parties acting in concert with it holds or has control or discretion over any other Shares or holds any convertible securities, warrants or options in respect of any Shares as at the Offer Document LPD.

The Option Offer

As the exercise price for the outstanding Options is HK$0.0256, which is lower than the ascribed value of HK$0.03 per Share under the Share Offer, the see-through price of the Option Offer is HK$0.0044 for each outstanding Option, and the Option Offer will be made on the following basis:

For cancellation of every 500 Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 new QPL Shares

The Option Offer will be conditional upon the Share Offer becoming or being declared unconditional in all respects. Further information on the Option Offer are set out in the Offer Document. Following acceptance of the Option Offer, the relevant Options together with all rights attaching thereto will be entirely cancelled and renounced.

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LETTER FROM THE BOARD

As disclosed in the Offer Document, as at the Offer Document LPD, none of the Independent Shareholders or the Optionholders has undertaken or notified QPL of an intention to accept or reject the Offers. Save as disclosed above, the Company had no other outstanding Shares, options, warrants, derivatives or other securities that are convertible or exchangeable into Shares or other types of securities in the Company as at the Latest Practicable Date.

Value of the Offers

As at the Offer Document LPD, the relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company in issue comprised (i) 25,600,000,000 Shares; and (ii) 200,000,000 outstanding Options to subscribe for 200,000,000 Shares. As disclosed in the Offer Document, QPL and parties acting in concert with it held 13,800,000 Shares as at the Offer Document LPD.

Based on an exchange ratio of (i) 1 new QPL Share for every 25 Shares and 25,586,200,000 Shares subject to the Share Offer; and (ii) 3 new QPL Shares for cancellation of every 500 Options and the 200,000,000 Options in issue as at the Offer Document LPD, and assuming that there will be no change in the issued share capital of the Company since the Offer Document LPD and up to the Closing Date, and no Option will be exercised prior to the Closing Date, the maximum number of new QPL Shares that may fall to be issued in connection with the Share Offer and the Option Offer is 1,024,648,000 new QPL Shares. This represents approximately 45.41% of the 2,256,265,322 issued QPL Shares as at the Offer Document LPD, and approximately 31.23% of the issued share capital of QPL of 3,280,913,322 QPL Shares as enlarged only by the issue of the aforesaid number of new QPL Shares.

In the event that all outstanding Options are exercised before the Closing Date, the Company will have to issue 200,000,000 new additional Shares. Assuming that the Share Offer is accepted in full (including all new Shares issued and allotted as a result of the exercise of the Options), the maximum number of new QPL Shares that may fall to be issued in connection with the Share Offer is 1,031,448,000 new QPL Shares. This represents approximately 45.71% of the 2,256,265,322 issued QPL Shares as at the Offer Document LPD, and approximately 31.37% of the issued share capital of QPL of 3,287,713,322 QPL Shares as enlarged only by the issue of the aforesaid number of new QPL Shares.

On the basis of an ascribed value of HK$0.03 per existing Share under the Share Offer (based on the closing price of each QPL Share of HK$0.75, as quoted on the Stock Exchange on the Last Trading Day and the exchange ratio of 1 QPL Share for every 25 Shares) and the 25,586,200,000 Shares which are subject to the Share Offer, the Share Offer is valued at approximately HK$767,586,000. In addition, the amount required to satisfy the cancellation of all outstanding Options based on the see-through price of HK$0.0044 per outstanding Option is HK$880,000. In view of the above and assuming that no Options are exercised before the Closing Date, the Offers are valued at HK$768,466,000 in aggregate.

– 9 –

LETTER FROM THE BOARD

Conditions of the Offers

The Share Offer is conditional upon:

(i) the Offers, the grant of the QPL Specific Mandate to allot and issue new QPL Shares by QPL to the Independent Shareholders and Optionholders who accept the Offers and the QPL Major Transaction having been approved by the QPL Shareholders at the QPL SGM in accordance with the Listing Rules;
(ii) valid acceptances of the Share Offer having been received at or before 4:00 p.m. on the Closing Date in respect of the Shares which will result in QPL and parties acting in concert with it holding more than 50% of the Shares;
(iii) the Stock Exchange having granted its approval for the listing of, and permission to deal in, the new QPL Shares to be allotted and issued in consideration for the acquisition of the Shares and the cancellation of the Options pursuant to the terms of the Offers;
(iv) no event having occurred which would make the Offers or the acquisition of any of the Shares by QPL void, unenforceable, illegal or which would prohibit the implementation of the Offers;
(v) no Relevant Authority(ies) in any jurisdiction having taken or instituted any action, proceeding, act, investigation or enquiry, or enacted or made or proposed, and there not continuing to be outstanding, any statute, regulation, demand or order that would make the Offers void, unenforceable or illegal or prohibit the implementation of, or which would impose any material conditions or obligations with respect to the Offers or any part thereof or on the acquisition of any of the Shares;
(vi) save as publicly disclosed by the Company in any of its announcement and circular up to the date of the Offer Announcement, since the date of the last audited consolidated financial statements of the Group, there having been no change, effect, fact, event or circumstance which has had or would reasonably be expected to have a material adverse effect on, or to cause a material adverse change in, the general affairs, management, financial position, business prospects, conditions (whether financial, operational, legal or otherwise), earnings, solvency, current or future consolidated financial position, shareholders’ equity or results of operations of the Group as a whole, whether or not arising in the ordinary course of business; and

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LETTER FROM THE BOARD

(vii) the Shares remaining listed and traded on the Stock Exchange up to the Closing Date (or, if earlier, the Unconditional Date) save for any temporary suspension(s) of trading of the Shares as a result of or in connection with the Offers and no indication being received on or before the Closing Date (or, if earlier, the Unconditional Date) from the SFC and/or the Stock Exchange to the effect that the listing of the Shares on the Stock Exchange is or is likely to be withdrawn, other than as a result of either of the Offers or anything done or caused by or on behalf of QPL or parties acting in concert with it.

QPL reserves the right to waive all or any of the Conditions (except for the Conditions referred to in paragraphs (i), (ii), (iii), (iv) and (v) above) in whole or in part. As disclosed in the Offer Document, save for the Condition referred to in paragraph (i) above all other Conditions remain outstanding as at the Offer Document LPD.

The Option Offer will be conditional upon the Share Offer becoming or being declared unconditional in all respects.

In accordance with Rule 15.3 of the Takeovers Code, QPL must publish an announcement when the Share Offer becomes or is declared unconditional as to acceptances and when the Share Offer becomes or is declared unconditional in all respects. The Offers must also remain open for acceptance for at least fourteen (14) days after the Offers become unconditional.

Warning:

Further details of the Offers

Further details of the Offers including, among others, the expected timetable, the terms and procedures of acceptance of the Offers, are set out in the Offer Document and the Forms of Acceptance.

– 11 –

LETTER FROM THE BOARD

INFORMATION ON THE GROUP

The Company is incorporated in the Cayman Islands with limited liabilities and the Shares were listed on the GEM on 10 October 2014. The Group is principally engaged in the manufacturing, sales and retailing of garment products and money lending business.

The Group principally derives its revenue from manufacturing and selling pure cashmere apparel and other apparel products under its two business arms: (i) OEM business segment (the ‘‘OEM Business’’), which entails product design and development, raw materials sourcing and procurement, manufacturing and product quality control management and (ii) apparel retail business segment (the ‘‘Retail Business’’), which entails designing, procuring, manufacturing, marketing and retailing of pure cashmere apparel and other apparel products as well as accessories through an established retail network in Hong Kong under the Group’s proprietary trademarks, ‘‘Casimira’’ and ‘‘Les Ailes’’.

For OEM Business, the Company noted a tough retail environment globally and experienced an unexpected weakened consumer sentiment over the latest financial period. Shopping trends in the United States of America (‘‘US’’) have begun to shift from major branded apparels to large affordable fashion retailers, and spending patterns have begun to shift towards a higher willingness to spend on electronics products instead. This trend is particularly evident for mid-market brands which find it difficult to charge excessive premium for their products or lower their costs sufficiently to compete with the larger fashion retailers. As the Group’s products rely on the performance of these midmarket retailers in the US, their poor performance has negatively impacted the Group and is expected to continue throughout the rest of the year. For the Retail Business, the decline of revenue is mainly attributable to the weak consumer market prolonged by the sluggish economy, low level of consumer sentiment and the rather unpleasant shopping atmosphere in Hong Kong. These trigger the consequence of weak foot traffic and declining number of Mainland customers visiting Hong Kong, which in turn adversely affected the financial performance of the Group.

To diversify the Group’s business scope and broaden the Group’s sources of income, the Group has commenced money lending business in Hong Kong during the six months ended 30 September 2016. The Group targets customers who look for substantial loan amounts and can offer security for the relevant loans.

– 12 –

LETTER FROM THE BOARD

Financial information

Set out below is a summary of the audited consolidated results of the Group for each of the two financial years ended 31 March 2015 and 2016, and its unaudited consolidated results for the three months ended 30 June 2016 and for the six months ended 30 September 2016, as extracted from the annual report of the Company for the year ended 31 March 2016, the first quarterly report of the Company for the three months ended 30 June 2016 and the interim report of the Company for the six months ended 30 September 2016, respectively.

		For the	For the
	six months		three months
		ended	ended	For the	year
	30 September		30 June	ended 31	March
		2016	2016	2016	2015
		HK$’000	HK$’000	HK$’000	HK$’000
	(Unaudited)		(Unaudited)	(Audited)	(Audited)
Revenue		47,513	21,576	210,354	350,386
Loss before taxation		(83,431)	(14,371)	(26,107)	(16,435)
Loss for the period/year
attributable to owners
of the Company		(82,253)	(14,496)	(29,302)	(18,391)

The unaudited consolidated net assets of the Group attributable to Shareholders as at 30 September 2016 were approximately HK$623.4 million. The audited consolidated net assets of the Group attributable to Shareholders as at 31 March 2016 and 31 March 2015 were approximately HK$93.8 million and HK$128.6 million respectively.

Please refer to Appendix I to this Response Document for further details on the financial information of the Group.

Recent development of the Company

(i) The FNL Possible Offers

On 22 July 2016, the Board received a letter from FNL notifying the Board of its intention to make the FNL Possible Offers. On 18 August 2016, the FNL published an announcement setting out details of the revised terms of the FNL Possible Offers, which were subject to fulfilment of pre-conditions, including the passing of the resolution by the shareholders of WLS in a special general meeting in relation to the transactions contemplated under the FNL Possible Offers. On 17 October 2016, a special general meeting of WLS was held and the resolution in relation to the transactions contemplated under the FNL Possible Offers was not passed by the shareholders of WLS and therefore the FNL Possible Offers did not proceed. Details of which were set out in the joint announcement of FNL and WLS dated 17 October 2016 and the announcement of the Company dated 18 October 2016.

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LETTER FROM THE BOARD

(ii) Removal of a Director

On 28 October 2016, an annual general meeting was held and the resolution relating to the re-election of Mr. Yang Si Hang as an executive Director and the board of Directors be authorised to fix his Director’s remuneration was not passed. Accordingly, Mr. Yang Si Hang retired as a director of the Company at the annual general meeting.

(iii) The Requisition

On 15 November 2016, an extraordinary general meeting in relation to the Requisition was held and all resolutions relating to the Requisition (save for the invalid resolutions which were not put forward for consideration and approval by the Shareholders) were not passed, details of which were set out in the announcements of the Company dated 6 October 2016 and 15 November 2016 and circular of the Company dated 25 October 2016.

(iv) Litigations

As at the Latest Practicable Date, the Company was involved in certain legal proceedings and litigations. Details of which are summarised under the paragraph headed ‘‘6. Litigation’’ in Appendix II to this Response Document and were set out in the announcements of the Company dated 9 August 2016, 2 September 2016, 28 October 2016, 28 November 2016, 6 December 2016, 12 December 2016, 13 December 2016, 23 December 2016 and 28 December 2016.

SHAREHOLDING STRUCTURE OF THE COMPANY

As at the Latest Practicable Date, there were 25,600,000,000 Shares in issue which were fully paid-up and rank pari passu in all respects with each other, including in particular as to dividends, voting rights and return on capital.

Save for the 200,000,000 share options with exercise price of HK$0.0256 granted to and accepted by Mr. Chai Yee Choong on 22 July 2016 and 24 July 2016, respectively under the Share Option Scheme, as at the Latest Practicable Date, the Company did not have any outstanding options, warrants, derivatives or convertibles which may confer any rights to the holder(s) thereof to subscribe for, convert or exchange into Shares and has not entered into any agreement for the issue of such options, warrants, derivatives or convertibles.

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LETTER FROM THE BOARD

The shareholding structure of the Company as at the Latest Practicable Date is set out below:

Shareholders Wong Kwan Mo and Lau Lan Ying (Note 1) Ge Qingfu QPL and parties acting in concert with it (Note 2) Yang’s Holdings Capital Limited (Note 3) Other public Shareholders (Note 4) Total	Number of Shares 6,446,296,000 2,565,324,000 13,800,000 10,000,000 16,564,580,000 25,600,000,000	Approximate percentage of shareholding 25.18% 10.02% 0.05% 0.04% 64.71%
		100.00%

Notes:

Based on publicly available information, 5,993,880,000 Shares are held through Strong Light Investments Limited.
Based on the disclosure in the Offer Document.
The entire issued share capital of Yang’s Holdings Capital Limited is wholly-owned by YWH Investment Holding Limited, which in turn, is wholly-owned by Cantrust (Far East) Limited, the trustee of the Yang’s Family Trust, whereby Mr. Yang Si Hang, is one of the beneficiaries of the Yang’s Family Trust. As at the Latest Practicable Date, Mr. Yang Si Hang is the chief executive officer of the Company.
As disclosed in the announcement of the Company dated 12 May 2016, 840,000,000 Shares were enforced under a share charge executed by Yang’s Holdings Capital Limited and transferred to third party(ies) independent of the Company and its connected persons.

INFORMATION ON THE OFFEROR AND INTENTIONS OF THE OFFEROR REGARDING THE GROUP

The information set out below is reproduced from the Offer Document:

‘‘QPL is a company incorporated in Bermuda with limited liability on 20 January 1989, whose issued shares are listed on the Main Board of the Stock Exchange under the stock code 243. QPL is an investment holding company, and QPL Group is principally engaged in the manufacturing and sales of integrated circuit leadframes, heatsinks and stiffeners, securities trading and investment holding. As at the Latest Practicable Date, QPL had no controlling shareholder.’’

‘‘QPL intends to nominate additional directors to the board of directors of L & A following completion of the Offers. Any changes to the board of directors of L & A will be made in compliance with the Takeovers Code, the Listing Rules and the constitutional documents of L & A. Further announcement(s) will be made upon the appointment of new directors of L & A accordingly.

– 15 –

LETTER FROM THE BOARD

As stated above, following the close of the Offers, QPL intends to continue the existing principal businesses of L & A Group in substantially its current state. QPL would conduct a review on the financial position and the operations of L & A Group and would formulate business plans and strategies of L & A Group, which would be appropriate to enhance the long-term growth potential of L & A Group. QPL has no plan to terminate the employment of the employees (save for the possible change in the composition of the board of directors of L&A) or to redeploy assets of L & A Group other than those in its ordinary and usual course of business.’’

The Board has noted the intentions of the Offeror in respect of the Company and its employees as stated above.

LISTING STATUS OF THE COMPANY

The information set out below is reproduced from the Offer Document:

‘‘The Stock Exchange has stated that if, at the close of the Offers, less than the minimum prescribed percentage applicable to the listed issuer, being 25% of the issued shares of L&A, are held by the public, or if the Stock Exchange believes that:

(i) a false market exists or may exist in the trading of the L&A Shares; or
(ii) there are insufficient L&A Shares in public hands to maintain an orderly market,

it will consider exercising its discretion to suspend dealings in the L&A Shares.

QPL intends L&A to remain listed on the Stock Exchange. Should the Offers become unconditional, the Directors and the new directors (if any) to be appointed to the board of directors of L&A will jointly and severally undertake to the Stock Exchange to take appropriate steps (including placing down of sufficient number of accepted L&A Shares by QPL) to ensure that sufficient public float exists in L&A Shares.

QPL does not intend to exercise any rights of compulsory acquisition under Rule 2.11 of the Takeovers Code if the Share Offer is accepted in respect of 90% of the L&A Shares or more.’’

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee comprising the non-executive Director, namely Mr. Wong Chiu Po and all the independent non-executive Directors, namely Mr. Kwong Lun Kei Victor, Mr. Ma Chi Ming and Mr. Chan Ming Sun Jonathan, has been formed to make a recommendation to the Independent Shareholders and the Optionholders as to whether the Offers are, or are not, fair and reasonable and as to their acceptance of the Offers.

– 16 –

LETTER FROM THE BOARD

As disclosed in the announcement of the Company dated 15 December 2016, Gram Capital has been appointed as the independent financial adviser to advise the Independent Board Committee in respect of the Offers. The appointment of Gram Capital has been approved by the Independent Board Committee. The letter of advice from Gram Capital addressed to the Independent Board Committee is set out on pages 20 to 41 of this Response Document.

RECOMMENDATION

Your attention is drawn to (i) the letter from the Independent Board Committee set out on pages 18 to 19 of this Response Document which contains its recommendation to the Independent Shareholders and the Optionholders as to whether the Offers are, or are not, fair and reasonable and as to their acceptance of the Offers; and (ii) the letter from Gram Capital set out on pages 20 to 41 of this Response Document which contains its advice to the Independent Board Committee in connection with the Offers and the principal factors considered by it in arriving at its advice. Independent Shareholders and Optionholders should read these letters in conjunction with the Offer Document carefully before taking any action in respect of the Offers.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this Response Document.

You are also recommended to read carefully further details in respect of the Offers as set out in the Offer Document and the Forms of Acceptance which contain details of the Offers before deciding whether or not to accept the Offers.

By Order of the Board L & A International Holdings Limited Ng Ka Ho Chairman and Executive Director

– 17 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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L & A International Holdings Limited 樂亞國際控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8195)

30 December 2016

To the Independent Shareholders and Optionholders

Dear Sir or Madam,

We refer to the Response Document dated 30 December 2016 issued by the Company in response to the Offers, in which this letter forms a part. Terms used in this letter shall have the meanings as those defined in the Response Document unless the context requires otherwise.

We have been appointed to form the Independent Board Committee to consider the terms of the Offers and to give recommendation to the Independent Shareholders and Optionholders as to whether, in our opinions, the terms of the Offers are fair and reasonable so far as they are concerned and as to acceptance of the Offers. Gram Capital has been appointed as the independent financial adviser to advise us in this respect. Details of its advice and the principal factors and reasons taken into consideration in arriving at its advice are set out in the letter from Gram Capital on pages 20 to 41 of the Response Document.

We also wish to draw your attention to the letter from the Board and the additional information set out in the appendices to the Response Document.

– 18 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

RECOMMENDATION

Having considered the terms of the Offers and the advice from Gram Capital, we consider that the terms of the Offers (including the Share Offer Price and the offer price per Option) are fair and reasonable. Accordingly, we recommend the Independent Shareholders and the Optionholders to accept the Offers.

Notwithstanding our recommendation, the Independent Shareholders and Optionholders should consider carefully the terms of the Offers and the ‘‘Letter from Gram Capital’’ in this Response Document.

Yours faithfully,

For and on behalf of the Independent Board Committee of

L & A International Holdings Limited Wong Chiu Po Kwong Lun Kei Ma Chi Ming Victor Non-executive Director Independent nonIndependent nonexecutive Director executive Director

Chan Ming Sun Jonathan

Independent nonexecutive Director

– 19 –

LETTER FROM GRAM CAPITAL

Set out below is the text of a letter received from Gram Capital, the Independent Financial Adviser to the Independent Board Committee in respect of the Offers for the purpose of inclusion in this Response Document.

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Room 1209, 12/F. Nan Fung Tower 88 Connaught Road Central/ 173 Des Voeux Road Central Hong Kong

30 December 2016

To: The independent board committee of L & A International Holdings Limited

Dear Sirs,

VOLUNTARY CONDITIONAL SHARE EXCHANGE OFFERS BY QPL INTERNATIONAL HOLDINGS LIMITED TO ACQUIRE ALL OF THE ISSUED SHARES OF L & A INTERNATIONAL HOLDINGS LIMITED (OTHER THAN THOSE ALREADY OWNED BY QPL INTERNATIONAL HOLDINGS LIMITED AND PARTIES ACTING IN CONCERT WITH IT) IN EXCHANGE FOR NEW SHARES TO BE ISSUED BY QPL INTERNATIONAL HOLDINGS LIMITED AND TO CANCEL ALL OF THE OUTSTANDING OPTIONS OF L & A INTERNATIONAL HOLDINGS LIMITED

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee in respect of the Offers, details of which are set out in the letter from the Board (the ‘‘Board Letter’’) contained in the Response Document dated 30 December 2016, of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Response Document unless the context requires otherwise.

– 20 –

LETTER FROM GRAM CAPITAL

On 16 December 2016, QPL despatched the Offer Document, accompanied with the Forms of Acceptance.

The Independent Board Committee comprising one non-executive Director, namely Mr. Wong Chiu Po; and all the independent non-executive Directors, namely Mr. Kwong Lun Kei Victor, Mr. Ma Chi Ming and Mr. Chan Ming Sun Jonathan has been formed to advise the Independent Shareholders and the Optionholders on whether the terms of the Offers are fair and reasonable and as to the acceptance of the Offers. We, Gram Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee in this respect, and our opinion herein is solely for the assistance of the Independent Board Committee in connection with its consideration of the Offers pursuant to Rule 2.1 of the Takeovers Code. The appointment of Gram Capital as the Independent Financial Adviser has been approved by the Independent Board Committee.

OUR INDEPENDENCE

During the past two years immediately preceding the Latest Practicable Date, Gram Capital had not provided any other service to the Company. As at the Latest Practicable Date, we were not aware of any relationships or interests between Gram Capital and the Company or any other parties that could be reasonably regarded as hindrance to Gram Capital’s independence to act as the Independent Financial Adviser to the Independent Board Committee.

Besides that, apart from the advisory fee and expenses payable to us in connection with our appointment as the Independent Financial Adviser to the Independent Board Committee, no arrangement exists whereby we shall receive any other fees or benefits from the Company.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee, we have relied on the statements, information, opinions and representations contained or referred to in the Response Document and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the Latest Practicable Date, and should there be any material changes to our opinion after the Latest Practicable Date, Shareholders would be notified as soon as possible. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Response Document 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 Response Document, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. Our opinion is based on the Directors’ representation and confirmation that there are no undisclosed private agreements/arrangements or implied understanding with anyone concerning the Offers. We consider that we 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 and Rule 2 of the Takeovers Code.

– 21 –

LETTER FROM GRAM CAPITAL

The Directors jointly and severally accept full responsibility for the accuracy of information contained in the Response Document (save for the information relating to QPL and parties acting in concert with it and the terms of the Offers) and confirm, having made all reasonable inquiries, that to the best of their knowledge, opinions expressed in the Response Document have been arrived at after due and careful consideration and there are no other facts not contained in the Response Document, the omission of which would make any statement in the Response Document misleading. We, as the Independent Financial Adviser, take no responsibility for the contents of any part of the Response Document, save and except for this letter of advice.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, the Offeror, or their respective subsidiaries or associates (if applicable), nor have we considered the taxation implication on the Group or the Shareholders/Optionholders as a result of the Offers. The Company has been separately advised by its own professional advisers with respect to the Offers and the preparation of the Response Document (other than this letter).

We have assumed that the Offers will be consummated in accordance with the terms and conditions set forth in the Offer Document without any waiver, amendment, addition or delay of any terms or conditions. We have assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents as required for the Offers, no delay, limitation, condition or restriction will be imposed that would have a material adverse effect on the contemplated benefits expected to be derived from the Offers. In addition, our opinion is necessarily based on the financial, market, economic, industry-specific and other conditions as they existed on, and the information made available to us as at the Latest Practicable Date. The Independent Shareholders/Optionholders will be notified of any material changes as soon as possible in accordance with Rule 9.1 of the Takeovers Code.

Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, it is the responsibility of Gram Capital to ensure that such information has been correctly and fairly extracted, reproduced or presented from the relevant sources while we are not obligated to conduct any independent in-depth investigation into the accuracy and completeness of those information.

– 22 –

LETTER FROM GRAM CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the Offers, we have taken into consideration the following principal factors and reasons:

(1) Background and terms of the Offers

According to the Board Letter, the Offers are made by QPL on the following basis:

The Share Offer

QPL is making the Share Offer in compliance with the Takeovers Code as follows:

For every 25 existing Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 new QPL Share

As disclosed in the Offer Document, as at the Offer Document LPD, save for the 13,800,000 Shares, representing approximately 0.054% of the total issued share capital of the Company, indirectly held by QPL through Enma Holdings Limited, a direct whollyowned subsidiary of QPL, QPL and parties acting in concert with it did not hold any other Shares or relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company.

As disclosed in the Offer Document, the exchange ratio of 1 new QPL Share for every 25 Shares (the ‘‘Exchange Ratio’’) was determined by QPL based on the prevailing market prices of both the QPL Shares and the Shares taking into account the highest closing price of HK$0.03 per Share for the 5 trading days prior to and including the Last Trading Day.

The Option Offer

For cancellation of every 500 Options. . . . . . . . . . . . . . . . . . . . . . . . 3 new QPL Shares

– 23 –

LETTER FROM GRAM CAPITAL

As disclosed in the Offer Document, none of the Independent Shareholders or the Optionholders has undertaken or notified QPL of an intention to accept or reject the Offers. Save as disclosed above, the Company had no other outstanding Shares, options, warrants, derivatives or other securities that are convertible or exchangeable into Shares or other types of securities in the Company as at the Latest Practicable Date.

(2) Information on the Group

According to the Board Letter, the Company is incorporated in the Cayman Islands with limited liabilities and the Shares were listed on the GEM on 10 October 2014. The Group is principally engaged in the manufacturing, sales and retailing of garment products and money lending business.

The Group principally derives its revenue from manufacturing and selling pure cashmere apparel and other apparel products under its two business arms: (i) the OEM Business, which entails product design and development, raw materials sourcing and procurement, manufacturing and product quality control management; and (ii) the Retail Business, which entails designing, procuring, manufacturing, marketing and retailing of pure cashmere apparel and other apparel products as well as accessories through an established retail network in Hong Kong under the Group’s proprietary trademarks, ‘‘Casimira’’ and ‘‘Les Ailes’’.

For OEM Business, the Company noted a tough retail environment globally and experienced an unexpected weakened consumer sentiment over the latest financial period. Shopping trends in the US have begun to shift from major branded apparels to large affordable fashion retailers, and spending patterns have begun to shift towards a higher willingness to spend on electronics products instead. This trend is particularly evident for mid-market brands which find it difficult to charge excessive premium for their products or lower their costs sufficiently to compete with the larger fashion retailers. As the Group’s products rely on the performance of these midmarket retailers in the US, their poor performance has negatively impacted the Group and is expected to continue throughout the rest of the year. For the Retail Business, the decline of revenue is mainly attributable to the weak consumer market prolonged by the sluggish economy, low level of consumer sentiment and the rather unpleasant shopping atmosphere in Hong Kong. These trigger the consequence of weak foot traffic and declining number of PRC customers visiting Hong Kong, which in turn adversely affected the financial performance of the Group.

The Group also commenced money lending business in Hong Kong during the six months ended 30 September 2016. The Group targets customers who look for substantial loan amounts and can offer security for the relevant loans.

– 24 –

LETTER FROM GRAM CAPITAL

Financial information

Set out below is a summary of the consolidated financial information on the Group for the six months ended 30 September 2016 (with comparative figures in previous year) and each of the two years ended 31 March 2016 as extracted from the interim report of the Company for the six months ended 30 September 2016 (the ‘‘2016 L & A Interim Report’’) and annual report of the Company for the year ended 31 March 2016 (the ‘‘2016 L & A Annual Report’’):

	For the year ended	For the year ended	Year on	For the six months ended	For the six months ended	Year on
	31 March	31 March	year	30 September	30 September	year
	2016	2015	change	2016	2015	change
	HK$’000	HK$’000	%	HK$’000	HK$’000	%
Revenue	210,354	350,386	(39.97)	47,513	119,240	(60.15)
OEM Business	184,161	318,812	(42.24)	42,812	111,270	(61.52)
Retail Business	26,193	31,574	(17.04)	3,746	7,970	(53.00)
Money lending business	—	—	—	955	—	N/A
Gross profit/(loss)	20,376	62,090	(67.18)	(5,994)	26,128	N/A
Loss for the year/period	(29,302)	(18,391)	59.33	(83,141)	(660)	12,497.12

As depicted from the above table, the Group recorded a decrease of approximately 39.97% in revenue for the year ended 31 March 2016 (‘‘L & A FY2016’’) as compared to that for the year ended 31 March 2015 (‘‘L & A FY2015’’). With reference to the 2016 L & A Annual Report, the decrease in the Group’s revenue in L & A FY2016 was mainly due to the decrease in its revenue of the OEM Business, which was impacted by the tough consumer market in the US. The Group also recorded a loss of approximately HK$29.30 million during L & A FY2016, representing an increase of approximately 59.33% as compared to that for L & A FY2015.

The Group further recorded (i) a substantial decrease of approximately 60.15% in revenue for the six months ended 30 September 2016 as compared to the corresponding period in previous year; (ii) gross loss for the six months ended 30 September 2016; and (iii) huge increase in loss for the six months ended 30 September 2016 as compared to the corresponding period in previous year. Such increase in loss was mainly attributable to (a) the gross loss incurred (due to substantial increase in the cost of sales as a percentage of the revenue and allowance made for inventories) for the six months ended 30 September 2016; (b) the substantial amount of administrative and other expenses incurred (including general administrative expenses, significant share option expenses and professional expenses incurred in relation to legal proceedings (regarding registration of Shares and share options of the Company, details of which are summarised under Appendix II to the Response Document) and the FNL Possible Offers) for the six months ended 30 September 2016.

– 25 –

LETTER FROM GRAM CAPITAL

As aforementioned, the Group also commenced money lending business in Hong Kong during the six months ended 30 September 2016. With reference to the 2016 L & A Interim Report, the Group will from time to time aims to focus on money lending business and seek business opportunities that can broaden the income base of the Group and create the maximum returns to the Shareholders.

In addition, as disclosed in the announcements of the Company dated 28 April 2016 and 20 June 2016, the Group completed the acquisition (the ‘‘Acquisition’’) of 47.63% of Red 5 Studios, Inc., a limited liability company incorporated in Delaware, US and its group companies (collectively known as the ‘‘Red Group’’), which are principally engaged in the development of innovative entertainment software and online games in US, Europe, the PRC and Southeast Asia. The Red Group has entered into license and distribution agreements with two distributors and will receive license fee and royalties for publishing and operating an online game for a five-year term in the PRC and for a sixyear term in the Southeast Asia respectively. On 11 May 2016, the Company, 上海亞洲電視藝術中心 (Shanghai Asia Television Art Center*) and Red 5 Studios, Inc. entered into a strategic cooperation framework agreement pursuant to which the parties agreed to have a long term strategic cooperation relationship in areas including but not limited to, (i) extension of the scope of applications of intellectual property in games; (ii) investments in movies and television series; (iii) exchanges on culture and arts; (iv) investments in operations of the games and movies production base; (v) augmented reality/virtual reality of games; and (vi) investments in advertising-media management.

Given (i) the deterioration in financial performance of the Group in L & A FY2016 and the six months ended 30 September 2016; (ii) that the money lending business (although recorded segment gain for the six months ended 30 September 2016) and the investment in Red Group are new to the Group, it is uncertain as to whether the loss making position of the Group can turnaround in foreseeable future.

Recent development of the Company

(i) The FNL Possible Offers

With reference to the Board Letter, on 22 July 2016, the Board received a letter from FNL notifying the Board of its intention to make the FNL Possible Offers. On 18 August 2016, FNL published an announcement setting out details of the revised terms of the FNL Possible Offers, which were subject to fulfilment of pre-conditions, including the passing of the resolution by the shareholders of WLS in a special general meeting in relation to the transactions contemplated under the FNL Possible Offers. On 17 October 2016, a special general meeting of WLS was held and the resolution in relation to the transactions contemplated under the FNL Possible Offers was not passed by the shareholders of WLS and therefore the FNL Possible Offers did not proceed. Details of the aforesaid were set out in the joint announcement of FNL and WLS dated 17 October 2016 and the announcement of the Company dated 18 October 2016.

– 26 –

LETTER FROM GRAM CAPITAL

(ii) Retirement of a Director

With reference to the Board Letter, on 28 October 2016, an annual general meeting was held and the resolution relating to the re-election of Mr. Yang Si Hang as an executive Director and the board of Directors be authorized to fix his Director’s remuneration was not passed. Accordingly, Mr. Yang Si Hang retired as a director of the Company at the annual general meeting. As confirmed by the Directors, Mr. Yang Si Hang remained as the chief executive officer of the Company after the said retirement and continue to oversee the production of the Group. As such, the Directors do not expect the retirement of Mr. Yang Si Hang as an executive Director to have material impact on the Group’s operation.

(iii) The Requisition

With reference to the Board Letter, on 15 November 2016, an extraordinary general meeting in relation to the Requisition (for the convening of an extraordinary general meeting to consider and, if appropriate, to approve the proposed removal of certain Directors and the proposed appointment of new Directors as raised in the Requisition Notice) was held and all resolutions relating to the Requisition (save for the invalid resolution which was not put forward for consideration and approval by the Shareholders) were not passed, details of which were set out in the announcement of the Company dated 15 November 2016 and circular of the Company dated 25 October 2016.

(iv) Litigations

With reference to the Board Letter, as at the Latest Practicable Date, the Company was involved in certain legal proceedings and litigations (the ‘‘Litigations’’). Such Litigations are related to, amongst other things, registration of shares, share options of the Company, stock price manipulation of the Shares and offences under section 25(1) of the organised and Serious Crime Ordinance. Details of which are summarised under the paragraph headed ‘‘6. LITIGATION’’ in Appendix II to the Response Document and were set out in the announcements of the Company dated 9 August 2016, 2 September 2016, 28 October 2016, 28 November 2016, 6 December 2016, 12 December 2016, 13 December 2016, 23 December 2016 and 28 December 2016. We cannot anticipate the results of the Litigations and their impact on the Group.

(3) Information on QPL

With reference to the Offer Document, QPL is a company incorporated in Bermuda with limited liability on 20 January 1989, whose issued shares are listed on the Main Board of the Stock Exchange under the stock code 243. QPL is an investment holding company, and the QPL Group is principally engaged in the manufacturing and sales of integrated circuit leadframes, heatsinks and stiffeners, securities trading and investment holding. As at the Offer Document LPD, QPL had no controlling shareholder.

– 27 –

LETTER FROM GRAM CAPITAL

Set out below is a summary of the consolidated financial information on QPL for the six months ended 31 October 2016 (with comparative figures in previous year) and each of the two years ended 30 April 2016 as extracted from the interim report of QPL for the six months ended 31 October 2016 (the ‘‘2016 QPL Interim Report’’) and annual report of QPL for the year ended 30 April 2016 (the ‘‘2016 QPL Annual Report’’):

				For the six months	For the six months	For the six months
	For the year ended		Year on	ended			Year on
	30 April	30 April	year	31 October	31	October	year
	2016	2015	change	2016		2015	change
	HK$’000	HK$’000	%	HK$’000		HK$’000	%
Turnover	287,021	262,303	9.42	150,669		152,498	(1.20)
Profit/(Loss) for
the year/period	(10,991)	(46,736)	(76.48)	1,819		55,344	(96.71)

As depicted from the above table, the QPL Group recorded an increase of approximately 9.42% in turnover for the year ended 30 April 2016 (‘‘QPL FY2016’’) as compared to that for the year ended 30 April 2015 (‘‘QPL FY2015’’). The QPL Group recorded substantial reduction in loss from approximately HK$46.74 million during QPL FY2015 to approximately HK$10.99 million during QPL FY2016, representing a reduction of approximately 76.48%. With reference to the 2016 QPL Annual Report, the aforesaid improvement was mainly attributable to the net fair value gain on investments held for trading.

There was no material change in QPL Group’s turnover for the six months ended 31 October 2016 as compared to the corresponding period in previous year. Nevertheless, we noted the following material changes of QPL Group which were disclosed in the Offer Document:

(i) the QPL Group recorded a net profit of approximately HK$1.8 million for the six months ended 31 October 2016 as compared to a net profit of approximately HK$55.3 million for the six months ended 31 October 2015. Such decrease in profit was mainly due to the decrease in the QPL Group’s net gain on fair value changes of investments held for trading from approximately HK$79.4 million for the six months ended 31 October 2015 to approximately HK$3.1 million for the six months ended 31 October 2016 and the corresponding decrease in the QPL Group’s deferred tax charge arising from the fair value change on investment held for trading from approximately HK$13.1 million for the six months ended 31 October 2015 to approximately HK$0.3 million for the six months ended 31 October 2016; and
(ii) the QPL Group’s cash position decreased from approximately HK$641.7 million as at 30 April 2016 to approximately HK$413.9 million as at 31 October 2016, mainly due to the use of (i) approximately HK$40.0 million for the available-for-sale financial investment; and (ii) approximately of HK$173.0 million for investments held for trading during the six months ended 31 October 2016.

– 28 –

LETTER FROM GRAM CAPITAL

With reference to the 2016 QPL Interim Report, the QPL Group will continuously strengthen its engineering and production departments in order to maintain its competitive edges of short lead times and high production planning flexibility. These competitive edges will enable the QPL Group to serve its customers better and may eventually expand the QPL Group’s market share. In order to improve the QPL Group’s operational performance, the QPL Group will continue to implement plans to increase its production efficiency and capacity. The QPL Group will keep deploying resources to upgrade and restructure existing plant and machinery to improve the QPL Group’s competitiveness and fulfill different production requirements. In addition, the QPL Group will continue to explore other business opportunities with a view to generate improved returns to the QPL Shareholders.

(4) Intention of the Offeror in relation to the Group

With reference to the Offer Document, following the close of the Offers, QPL intends to maintain the listing status of the Company on GEM. QPL does not intend to exercise any rights of compulsory acquisition under Rule 2.11 of the Takeovers Code if the Share Offer is accepted in respect of 90% of the Shares or more. QPL intends to continue the existing businesses of the Group in substantially its current state, and will conduct a review on the financial position and operations of the Group for the purpose of formulating business plans and strategies in order to enhance the long-term growth of the Group. As at the Offer Document LPD, QPL has no intention to scale down or terminate or dispose of the existing businesses of the Group and save for the possible change of the composition of the board of the Company, QPL does not have intention to terminate the employees of the Group. Although QPL does not have sufficient experience and expertise in the industry of the Group, both QPL Group and the Group are engaged in the manufacturing and sales businesses. QPL believes that the extensive experience of its directors in the manufacturing and sales sectors will be beneficial to the operation of the Group. In addition, QPL intends to nominate additional directors who may possess skill and knowledge of the relevant industry of the Group and/or be with financial background to the Board following the completion of the Offers, which will further enhance and be beneficial to the overall business efficacy and operation of the Group.

QPL intends to nominate additional directors to the Board following completion of the Offers. Any changes to the Board will be made in compliance with the Takeovers Code, the GEM Listing Rules and the constitutional documents of the Company.

As stated above, following the close of the Offers, QPL intends to continue the existing principal businesses of the Group in substantially its current state. QPL would conduct a review on the financial position and the operations of the Group and would formulate business plans and strategies of the Group, which would be appropriate to enhance the long term growth potential of the Group. QPL has no plan to terminate the employment of the employees (save for the possible change in the composition of the Board) or to redeploy assets of the Group other than those in its ordinary and usual course of business.

– 29 –

LETTER FROM GRAM CAPITAL

(5) Analysis of the Share Offer

Based on the closing price of HK$0.75 per QPL Share as quoted on the Stock Exchange on the Last Trading Day and the exchange ratio of 1 QPL Share for every 25 Shares, the ascribed value of the Share Offer would be HK$0.03 (the ‘‘Ascribed Value’’). The Ascribed Value of HK$0.03 per Share represents:

(i) a premium of approximately 172.73% over the closing price of the Share of HK$0.011, as quoted on the Stock Exchange on the Latest Practicable Date;
(ii) a premium of approximately 7.14% over the closing price of the Share of HK$0.0280, as quoted on the Stock Exchange on 7 October 2016, being the Last Trading Day;
(iii) a discount of approximately 89.73% to the average closing price of the Share of approximately HK$0.2922 during the Review Period; and
(iv) a premium of approximately 23.97% over the unaudited consolidated net assets per Share of approximately HK$0.0242 (the ‘‘NAV per Share’’) as at 30 September 2016, calculated based on the Group’s unaudited consolidated net assets attributable to its Shareholders of approximately HK$620,214,000 as at 30 September 2016 and 25,600,000,000 existing Shares in issue as at the Latest Practicable Date.

Based on the closing price of HK$0.028 per Share as quoted on the Stock Exchange on the Last Trading Day multiplied by 25 for each new QPL Share, the implied issue price of each of the new QPL Share under the Share Offer would be HK$0.70 (the ‘‘Implied Issue Price’’). The Implied Issue Price of HK$0.70 per new QPL Share represents:

(i) a premium of approximately 50.54% over the closing price of the QPL Share of HK$0.465, as quoted on the Stock Exchange on the Latest Practicable Date;
(ii) a discount of approximately 6.67% to the closing price of QPL Share of HK$0.7500, as quoted on the Stock Exchange on 7 October 2016, being the Last Trading Day;
(iii) a premium of approximately 21.42% over the average closing price of QPL Shares of approximately HK$0.5765 during the Review Period; and
(iv) a premium of approximately 109.39% over the unaudited consolidated net assets per QPL Share of approximately HK$0.3343 (the ‘‘NAV per QPL Share’’) as at 31 October 2016, calculated based on QPL Group’s unaudited consolidated net assets attributable to its shareholders of approximately HK$754,371,000 as at 31 October 2016 and 2,256,265,322 existing QPL Shares in issue as at the Offer Document LPD.

In order to assess the fairness and reasonableness of the Ascribed Value and the Implied Issue Price, we have conducted the following analysis:

– 30 –

LETTER FROM GRAM CAPITAL

(a) Share price performance

Share price performance of QPL

Set out below is a chart showing the movement of the closing prices of the QPL Shares during the period from 4 January 2016, being approximate one-year up to and including the Latest Practicable Date (the ‘‘Review Period’’), to illustrate the general trend and level of movement of the closing prices of the QPL Shares.

Historical daily closing price per QPL Share

==> picture [398 x 214] intentionally omitted <==

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

HK$
0.900
0.800
0.700
0.600
0.500
0.400
0.300
0.200
0.100
0.000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016
Closing price Implied Issue Price
----- End of picture text -----

Source: website of the Stock Exchange (www.hkex.com.hk)

Notes:

The closing prices of the QPL Shares from 4 January 2016 to 29 February 2016 had been adjusted for the effect of (i) the share consolidation which became effective from 29 February 2016 onwards, on the basis that every four existing issued shares were consolidated into one consolidated share; and (ii) the open offer on the basis of five offer shares for every one new share in issued held on the record date, as announced by QPL on 7 January 2016.
Trading in QPL Shares was halted from 9:00 a.m. on 11 October 2016 to 1:00 p.m. on 14 October 2016.

During the Review Period, the lowest and highest closing prices of the QPL Shares as quoted on the Stock Exchange were HK$0.332 recorded on 29 February 2016 and HK$0.830 recorded on 4 January 2016, respectively. The Implied Issue Price of HK$0.7 is within the range of the lowest and highest closing prices of the QPL Shares as quoted on the Stock Exchange during the Review Period.

– 31 –

LETTER FROM GRAM CAPITAL

The closing prices of the QPL Shares plummeted from HK$0.830 on 4 January 2016 to HK$0.344 on 20 January 2016 and rebounded to HK$0.378 on 21 January 2016. Thereafter, the closing prices of the QPL Shares were relatively stable until it rebounded substantially in the second half of March 2016 and reached HK$0.630 on 1 April 2016.

The closing prices of the QPL Shares then dropped to HK$0.375 on 6 April 2016 and surged to HK$0.750 on 27 May 2016. Since then, the closing prices of QPL Shares were fluctuated. The closing prices of the QPL Shares dropped to HK$0.560 on 8 July 2016 and rebounded back to HK$0.800 on 3 August 2016. We are not aware of any affirmative reason for the aforesaid movements in the closing prices of the QPL Shares.

After 14 October 2016, being the date of the Offer Announcement, the closing prices of the QPL Shares formed a general downward trend.

Share price performance of the Company

Set out below is a chart showing the movement of the closing prices of the Shares during the Review Period to illustrate the general trend and level of movement of the closing prices of the Shares:

Historical daily closing price per Share

==> picture [399 x 208] intentionally omitted <==

Source: website of the Stock Exchange (www.hkex.com.hk)

Notes:

The closing prices of the Shares from 4 January 2016 to 22 June 2016 had been adjusted for the effect of the share subdivision which became effective from 23 June 2016 onwards, on the basis that every one then existing issued and unissued share was subdivided into five subdivided shares.

– 32 –

LETTER FROM GRAM CAPITAL

Trading in Shares was halted (i) from 1:14 p.m. on 22 July 2016 to 28 July 2016; (ii) from 19 August 2016 to 23 August 2016; and (iii) from 9:11 a.m. on 11 October 2016 to 18 October 2016.

During the Review Period, the lowest and highest closing prices of the Shares as quoted on the Stock Exchange were HK$0.010 recorded on 24 November 2016 and HK$0.788 recorded on 6 April 2016, respectively. The Ascribed Value of HK$0.03 is within the range of the lowest and highest closing prices of the Shares as quoted on the Stock Exchange during the Review Period.

As depicted from the above chart, the closing price of the Shares rose from HK$0.510 on 4 January 2016 to its peak of HK$0.788 on 6 April 2016. We are not aware of any affirmative reason for the aforesaid surge in the closing prices of the Shares. Thereafter, the closing price of the Shares dropped to HK$0.360 on 13 June 2016 and rebounded to HK$0.480 on 29 June 2016. Subsequently, the closing price slumped sharply to HK$0.032 on 6 July 2016, which may be led by sale of substantial volume of Shares in the market on the same date.

The closing price of the Shares remained at a relatively low level from 6 July 2016 up to the Latest Practicable Date.

Comparison between the daily ascribed value and the closing price per Share

Set out below is a chart showing the comparison between (i) the daily ascribed value per Share, which is derived from the daily closing price per QPL Share and the Exchange Ratio (the ‘‘Daily Ascribed Value’’); and (ii) the daily closing price per Share, during the Review Period:

Premium/(discount) compared between the Daily Ascribed Value over/to the closing price per Share

==> picture [412 x 224] intentionally omitted <==

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

150%
100%
50%
0%
(50)%
(100)%
(150)%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016
----- End of picture text -----

– 33 –

LETTER FROM GRAM CAPITAL

Source: website of the Stock Exchange (www.hkex.com.hk)

Notes:

Trading in QPL Shares was halted from 9:00 a.m. on 11 October 2016 to 1:00 p.m. on 14 October 2016.
Trading in Shares was halted (i) from 1:14 p.m. on 22 July 2016 to 28 July 2016; (ii) from 19 August 2016 to 23 August 2016; and (iii) from 9:11 a.m. on 11 October 2016 to 18 October 2016.

As depicted from the above table, during the Review Period before publication of the Offer Announcement, the Daily Ascribed Value represented premium over the closing price per Share only in a few days. Since 25 October 2016 and up to the Latest Practicable Date, the Daily Ascribed Value represented premium over the closing price per Share.

(b) Liquidity

Based on the daily trading volume of the QPL Shares during the Review Period as extracted from the Stock Exchange website, we noticed that the daily trading volume of the QPL Shares represented, in average, approximately 0.43% of the number of QPL Shares held in public hands as at the Offer Document LPD as disclosed under the Offer Document.

On the other hand, based on the daily trading volume of the Shares during the Review Period as extracted from the Stock Exchange website, we noticed that the daily trading volume of the Shares represented, in average, approximately 1.76% of the number of Shares held in public hands (other than those held by QPL and parties acting in concert with it) as at the Latest Practicable Date.

Accordingly, the average daily trading liquidity of QPL Shares is lower than that of the Shares during the Review Period, both of which are considered to be low liquidity.

(c) Comparison with other comparable companies

We noted that the trading multiples analysis, such as price to earnings ratio (‘‘PER’’) and price to book ratio (‘‘PBR’’), is a commonly adopted valuation method in the market. Given that the Group had been loss making for L & A FY2016, we consider the PER analysis to be inapplicable. For this reason, to assess the fairness and reasonableness of the Share Offer, we have performed the PBR analysis.

We have researched for Hong Kong listed companies which are engaged in similar line of businesses as the Group’s major business (the ‘‘Market Comparable(s)’’), being manufacturing, sales and retailing of garment products and generated over 70% of their revenue from such business during their latest financial year. To the best of our knowledge and endeavour and based on the aforesaid selection criteria, the Market Comparables are exhaustive. We have not subjectively carved out any Market Comparables which met the aforesaid selection criteria. Accordingly, we consider the Market Comparables to be fair and representative samples.

– 34 –

LETTER FROM GRAM CAPITAL

We have attempted to search for share exchange offers proceeded by Hong Kong listed companies in 2015 and 2016 which involve Hong Kong listed companies engaging in similar line of businesses as the Group. Nevertheless, we could not identify any of the aforesaid case. As such, we could not perform an appropriate comparable analysis with other share exchange offers.

The following table sets out the PBR of the Market Comparables based on their closing price as at the Latest Practicable Date and their latest published financial information, and the implied PBR of the Company based on the Ascribed Value and its latest published financial information:

Company name
(Stock code)	Principal business	Year-end date	PBR
Crocodile Garments	Manufacture and sale of	31 July 2016	0.59
Limited (122)	garments; property
	investment and letting.
	Revenue from the sales of
	garments represented
	majority of the group’s
	revenue for the year ended
	31 July 2016.
Evergreen	Manufacturing and trading of	31 December 2015	0.62
International	clothing and clothing
Holdings Limited	accessories.
(238)
Yangtzekiang	Manufacture and sale of	31 March 2016	0.52
Garment Limited	garments and textiles, the
(294)	provision of processing
	services and the rental of
	properties. Revenue from
	manufacture and sale of
	garments represented
	majority of the group’s
	revenue for the year ended
	31 March 2016.

– 35 –

LETTER FROM GRAM CAPITAL

Company name
(Stock code)	Principal business	Year-end date	PBR
YGM Trading	Garment manufacturing,	31 March 2016	1.03
Limited (375)	wholesaling and retailing,
	trademark ownership and
	licensing, property
	investment and provision of
	security printing, general
	business printing and
	trading of printing products.
	Revenue from sale of
	garments represented
	majority of the group’s
	revenue for the year ended
	31 March 2016.
Glorious Sun	Retailing, export and	31 December 2015	0.60
Enterprises	production of casual wear.
Limited (393)
Tristate Holdings	Garment manufacturing;	31 December 2015	0.36
Limited (458)	branded product
	distribution, retail and
	trading. Revenue from
	garment manufacturing
	represented majority of the
	group’s revenue for the year
	ended 31 December 2015.
Tungtex (Holdings)	Manufacture & sale of	31 March 2016	0.78
Company Limited	garments.
(518)

– 36 –

LETTER FROM GRAM CAPITAL

Company name
(Stock code)	Principal business	Year-end date	PBR
Goldlion Holdings	Distribution and	31 December 2015	0.81
Limited (533)	manufacturing of garments,
	leather goods and
	accessories and licensing of
	brand name; and
	investments in and
	development of properties.
	Turnover from distribution
	and manufacturing of
	apparel represented
	majority of the group’s
	revenue for the year ended
	31 December 2015.
High Fashion	Manufacture, trading and	31 December 2015	0.26
International	retailing of garments.
Limited (608)
Carry Wealth	Garment manufacturing and	31 December 2015	3.35
Holdings Limited	trading, securities
(643)	investment. Revenue from
	garment manufacturing and
	trading represented majority
	of the group’s revenue for
	the year ended 31
	December 2015.
China Lilang	Manufacturing and	31 December 2015	1.60
Limited (1234)	wholesaling of branded
	menswear and related
	accessories in the PRC.
Runway Global	Designing, manufacturing and	31 December 2015	5.71
Holdings Co.	trading of apparels.
Limited (1520)
Nameson Holdings	Manufacturing of knitwear	31 March 2016	2.25
Limited (1982)	products.
Shenzhou	Manufacturing and sale of	31 December 2015	4.49
International	knitwear products.
Group Holdings
Limited (2313)

– 37 –

LETTER FROM GRAM CAPITAL

Company name
(Stock code)	Principal business	Year-end date	PBR
Eagle Nice	Manufacture and trading of	31 March 2016	0.93
(International)	sportswear and garments.
Holdings Limited
(2368)
China Fordoo	Manufacturing and	31 December 2015	2.52
Holdings Limited	wholesaling of menswear in
(2399)	the mainland China.
Pak Tak	Manufacture of and trading in	31 March 2016	6.67
International	knit-to-shape garments.
Limited (2668)
Win Hanverky	Manufacturing and selling of	31 December 2015	0.70
Holdings Limited	garment products, including
(3322)	sportswear, golf and high-
	end fashion apparel, and
	related accessories.
China Ting Group	Manufacturing and sale of	31 December 2015	0.42
Holdings Limited	garments.
(3398)
Maximum			6.67
Minimum			0.26
Average			1.80
Median			0.81
The Share Offer			1.24
			(Note 2)

Notes:

The PBRs of the Comparables were calculated based on their respective closing price per share as at the Latest Practicable Date, their respective number of issued shares as at the Latest Practicable Date and their latest net assets value attributable to shareholders as per their respective latest published annual results, quarterly results or interim results (as the case may be).
The implied PBR of the Share Offer was calculated based on the Ascribed Value and the NAV per Share as at 30 September 2016.

As depicted from the above table, the PBRs of the Market Comparables ranged from approximately 0.26 times to 6.67 times, with an average of approximately 1.80 times. Given that the PBR of the Share Offer is approximately 1.24 times, the PBR of the Share Offer is (a) within the range of the PBRs of the Market Comparables; (b) lower than the average but higher than the median of the PBRs of the Market Comparables; and (c) higher than the PBRs of 12 out of 19 Market Comparables.

– 38 –

LETTER FROM GRAM CAPITAL

Having considered,

(i) the Implied Issue Price of HK$0.7 is within the range of the lowest and highest closing prices of the QPL Shares as quoted on the Stock Exchange during the Review Period;
(ii) the Ascribed Value of HK$0.03 is within the range of the lowest and highest closing prices of the Shares as quoted on the Stock Exchange during the Review Period;
(iii) since 25 October 2016 and up to the Latest Practicable Date, the Daily Ascribed Value represented premium to the closing price per Share; and
(iv) the PBR of the Share Offer is (a) within the range of the PBRs of the Market Comparables; (b) lower than the average but higher than the median of the PBRs of the Market Comparables; and (c) higher than the PBRs of 12 out of 19 Market Comparables,

we consider that the Exchange Ratio is fair and reasonable.

(6) The Option Offer

As the exercise price for the outstanding Options is HK$0.0256, which is lower than the Ascribed Value of HK$0.03 per Share under the Share Offer, the see-through price of the Option Offer is HK$0.0044 for each outstanding Option, and the Option Offer will be made on the following basis:

For cancellation of every 500 Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 new QPL Shares

Based on the above cancellation ratio and the closing price per QPL Share as at the Last Trading Day, the ascribed value per Option is HK$0.0045, which is approximate to the seethrough price of the Option Offer. We consider that the consideration offered on a ‘‘seethrough’’ basis under the Option Offer is fair and reasonable.

– 39 –

LETTER FROM GRAM CAPITAL

RECOMMENDATION

We noted that,

(i) the average daily trading liquidity of QPL Shares was lower than that of the Shares during the Review Period;
(ii) the Ascribed Value of HK$0.03 per Share represents a discount of approximately 89.73% to the average closing price of the Share of approximately HK$0.2922 during the Review Period;
(iii) the Implied Issue Price of HK$0.70 per new QPL Share represents a premium of approximately 21.42% over the average closing price of QPL Shares of approximately HK$0.5765 during the Review Period; and
(iv) the NAV per QPL Share as at 31 October 2016 (i.e. approximately HK$0.3343) divided by 25 (taken into account the Exchange Ratio) was approximately HK$0.0133, which was lower than the NAV per Share as at 30 September 2016.

Nevertheless, having considered the principal factors and reasons as discussed above, in particular:

(a) given (i) the deterioration in financial performance of the Group in L & A FY2016 and the six months ended 30 September 2016; and (ii) that the money lending business (although recorded segment gain for the six months ended 30 September 2016) and the investment in Red Group are new to the Group, it is uncertain as to whether the loss making position of the Group can turnaround in foreseeable future;
(b) the Implied Issue Price of HK$0.7 is within the range of the lowest and highest closing prices of the QPL Shares as quoted on the Stock Exchange during the Review Period;
(c) the Ascribed Value of HK$0.03 is within the range of the lowest and highest closing prices of the Shares as quoted on the Stock Exchange during the Review Period;
(d) since 25 October 2016 and up to the Latest Practicable Date, the Daily Ascribed Value represented premium to the closing price per Share;
(e) the PBR of the Share Offer is (i) within the range of the PBRs of the Market Comparables; (ii) lower than the average but higher than the median of the PBRs of the Market Comparables; and (iii) higher than the PBRs of 12 out of 19 Market Comparables; and
(f) the consideration offered on a ‘‘see-through’’ basis under the Option Offer is fair and reasonable,

we consider that the terms of the Offers are fair and reasonable. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders and the Optionholders to accept the Offers.

– 40 –

LETTER FROM GRAM CAPITAL

The Independent Shareholders should note that:

(i) the average daily trading liquidity of QPL Shares was lower than that of the Shares during the Review Period;
(ii) the Ascribed Value of HK$0.03 per Share represents a discount of approximately 89.73% to the average closing price of the Share of approximately HK$0.2922 during the Review Period;
(iii) the Implied Issue Price of HK$0.70 per new QPL Share represents a premium of approximately 21.42% over the average closing price of QPL Shares of approximately HK$0.5765 during the Review Period; and
(iv) the NAV per QPL Share as at 31 October 2016 (i.e. approximately HK$0.3343) divided by 25 (taken into account the Exchange Ratio) was approximately HK$0.0133, which was lower than the NAV per Share as at 30 September 2016.

Those Independent Shareholders who considered the facts set out above and are optimistic about the future financial performance of the Group may, having regard to their own circumstances, consider retaining all or any part of their Shares.

The Independent Shareholders should also note the Share Offer is a share exchange offer which does not involve cash. The ascribed value of the Shares under the Share Offer will change from time to time according to the fluctuations in the price of QPL Shares during the Offer Period, and it is uncertain whether the market prices of the Shares and/ or the QPL Shares would rise or not and whether the ascribed value of Shares under the Share Offer would represent discount or premium to its market prices during and after the Share Offer (whether the Share Offer becomes unconditional or not). The Independent Shareholders, in particular those who intend to hold their interest as short-term investment, should monitor closely the trading of the Shares and QPL Shares during the Offer Period.

As different Independent Shareholders/Optionholders would have different investment criteria, objectives and/or circumstances, we would recommend any Independent Shareholders/Optionholders who may require advice in relation to any aspect of the Offer Document and the Response Document, or as to the action to be taken, to consult a licensed securities dealer, bank manager, solicitor, professional accountant, tax adviser or other professional adviser.

Yours faithfully, For and on behalf of Gram Capital Limited Graham Lam Managing Director

Note: Mr. Graham Lam is a licensed person registered with the Securities and Futures Commission and a responsible officer of Gram Capital Limited to carry out Type 6 (advising on corporate finance) regulated activity under the SFO. He has over 20 years of experience in investment banking industry.

– 41 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

The following is a summary of (i) the audited financial results of the Group for each of the three financial years ended 31 March 2014, 2015 and 2016 as extracted from the annual reports of the Company for the financial years ended 31 March 2015 and 31 March 2016; and (ii) the unaudited financial results of the Group for the six months ended 30 September 2016 as extracted from the interim report of the Company for the six months ended 30 September 2016.

There were no qualifications in the auditors’ report on the consolidated financial statements for each of the three financial years ended 31 March 2014, 2015 and 2016 as contained in the annual reports for these respective years.

Revenue (Loss)/Profit before taxation Income tax credit (expenses) (Loss)/Profit after taxation (Loss)/Profit for the period/ year attributable to — Owners of the Company — Non-controlling interest Dividend Dividend per Share Basic and diluted Loss per share (HK cents) Non-Current Assets Current assets Current liabilities Net current assets Non current liabilities Net assets Capital and reserves Share Capital Reserves Total Equity	For the six months ended 30 September 2016 HK$’000 (unaudited) 47,513 (83,431) 290 (83,141) (82,253) (888) — — (0.378) As at 30 September 2016 540,946 105,827 20,574 85,253 2,823 623,376 51,200 569,014 623,376	For the year ended 31 March 2016 2015 2014 HK$’000 HK$’000 HK$’000 (audited) (audited) (audited) 210,354 350,386 380,445 (26,107) (16,435) 11,472 (3,195) (1,956) (4,419) (29,302) (18,391) 7,053 (29,302) (18,391) 7,053 — — — — — — — — — (0.15) (0.11) 0.24 As at 31 March 2016 2015 2014 24,166 54,173 71,804 125,966 136,162 155,214 56,347 61,483 118,170 69,619 74,679 37,044 23 235 517 93,762 128,617 108,331 40,000 40,000 110 53,762 88,617 108,221 93,762 128,617 108,331

– I-1 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Save for the listing expenses of approximately HK$12.4 million recorded for the year ended 31 March 2015, there were no exceptional items because of their size, nature or incidences recognised in the above accounts for each of the three financial years ended 31 March 2014, 2015 and 2016 and the six months ended 30 September 2016.

2. AUDITED CONSOLIDATED FINANCIAL INFORMATION OF THE GROUP

The following is the full text of the audited financial statements of the Group for the year ended 31 March 2016 as extracted from the annual report of the Company for the year ended 31 March 2016. Capitalised terms used in this section shall have the same meanings as those defined in such annual report.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

(For the year ended 31 March 2016)

Notes Revenue 5 Cost of sales 10 Gross profit Other income 6 Other gains and losses 7 Selling and distribution expenses Administrative expenses Listing expenses Finance costs 8 Fair value change in pledged structured bank deposit Gain on disposal of a subsidiary 25 Loss before tax Income tax expense 9 Loss for the year attributable to owners of the Company 10 Other comprehensive expense Item that may be reclassified subsequently to profit or loss Exchange differences arising on translation of foreign operations Release of translation reserve arising on disposal of a subsidiary Other comprehensive expense for the year Total comprehensive expense for the year Loss per share Basic (HK cents) 13	2016 HK$’000 210,354 (189,978) 20,376 6,142 2,916 (11,498) (44,899) — (2,425) (23) 3,304 (26,107) (3,195) (29,302) (2,305) (3,248) (5,553) (34,855) (0.15)	2015 HK$’000 350,386 (288,296) 62,090 6,147 596 (18,004) (50,768) (12,371) (4,135) 10 — (16,435) (1,956) (18,391) (429) — (429) (18,820) (0.11)

– I-2 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(At 31 March 2016)

Notes NON-CURRENT ASSETS Property, plant and equipment 14 Investment property 15 Prepaid lease payments 16 Rental deposits Deferred tax assets 23 CURRENT ASSETS Inventories 17 Trade and other receivables 18 Prepaid lease payments 16 Tax recoverable Pledged structured bank deposit 19 Pledged bank deposits 19 Bank balances and cash 19 CURRENT LIABILITIES Trade payables 20 Others payables and accrued expenses 20 Tax payables Obligations under finance leases 21 Bank borrowings 22 NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES	2016 HK$’000 17,367 3,033 3,549 200 17 24,166 51,948 42,566 96 — — 14,418 16,938 125,966 14,105 10,113 3,092 — 29,037 56,347 69,619 93,785	2015 HK$’000 45,232 3,240 4,253 820 628
		54,173
		84,482 20,347 112 959 8,399 6,055 15,808
		136,162
		6,463 14,798 1,505 82 38,635
		61,483
		74,679
		128,852

– I-3 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes NON-CURRENT LIABILITIES Obligations under finance leases — due after one year 21 Deferred tax liabilities 23 NET ASSETS CAPITAL AND RESERVES Share capital 24 Reserves TOTAL EQUITY	2016 HK$’000 — 23 23 93,762 40,000 53,762 93,762	2015 HK$’000 126 109
		235
		128,617
		40,000 88,617
		128,617

– I-4 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(For the year ended 31 March 2016)

At 1 April 2014 Exchange differences arising on the translation of foreign operations Loss for the year Total comprehensive expense for the year Dividend declared (Note 12) Transfer upon a group reorganisation Issue of ordinary shares of the Company pursuant to a reorganisation Placing of shares (Note 24(v)) Capitalisation issue (Note 24(vi)) Transaction costs attributable to issue of shares At 31 March 2015 Loss for the year Exchange differences arising on the translation of foreign operations Release of translation reserve arising on disposal of a subsidiary (note 25) Total comprehensive expense for the year At 31 March 2016	Share capital HK$’000 110 — — — — (110) 10,000 10,000 20,000 — 40,000 — — — — 40,000	Share premium HK$’000 (Note (i)) 38,321 — — — — (38,321) — 50,000 (20,000) (6,177) 23,823 — — — — 23,823	Translation reserve HK$’000 9,356 (429) — (429) — — — — — — 8,927 — (2,305) (3,248) (5,553) 3,374	Special reserve HK$’000 (Note (ii)) — — — — — 38,431 (10,000) — — — 28,431 — — — — 28,431	Other reserve HK$’000 (Note (iii)) 4,327 — — — — — — — — — 4,327 — — — — 4,327	Retained profits (accumulated losses) HK$’000 56,217 — (18,391) (18,391) (14,717) — — — — — 23,109 (29,302) — — (29,302) (6,193)	Total HK$’000 108,331
							(429 (18,391
							(18,820 (14,717 — — 60,000 — (6,177
							128,617
							(29,302 (2,305 (3,248
							(34,855
							93,762

Notes:

(i) Share premium as at 1 April 2014 represented the share premium of L & A Interholdings Inc..
(ii) Special reserve represented the difference between the nominal amount of the share capital and share premium of L & A Interholdings Inc. and the nominal amount of the share capital issued by the Company pursuant to a group reorganisation, details of which are set out in note 24(iv).
(iii) Other reserve arose from the waiver of loan from a controlling shareholder of the Company in previous years.

– I-5 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CASH FLOWS

(For the year ended 31 March 2016)

Note OPERATING ACTIVITIES Loss before tax Adjustments for: Depreciation of property, plant and equipment Depreciation of investment property Amortisation of prepaid lease payments Finance costs Bank interest income Gain on disposal of a subsidiary Gain on disposal of property, plant and equipment Loss (gain) on fair value changes in pledged structured bank deposit Gain on fair value changes of investments held for trading Allowance for inventories Allowance for doubtful debts Operating cash flows before movements in working capital Decrease (increase) in inventories (Increase) decrease in trade and other receivables Decrease in investments held for trading Increase in trade payables Decrease in other payables and accrued expenses Decrease in rental deposits Cash generated from (used in) operations Income tax refund Income tax paid NET CASH FROM (USED IN) OPERATING ACTIVITIES	2016 HK$’000 (26,107) 5,208 79 109 2,425 (6) (3,304) (2,925) 23 — 14,946 257 (9,295) 17,588 (8,330) — 7,642 (4,636) 620 3,589 — (935) 2,654	2015 HK$’000 (16,435) 9,121 81 113 4,135 (6) — (525) (10) (60) 425 — (3,161) (1,899) 3,109 425 127 (3,639) 602 (4,436) 3,121 (3,147) (4,462)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note INVESTING ACTIVITIES Proceeds from disposal of property, plant and equipment Interest received Disposal of a subsidiary 25 Purchase of property, plant and equipment Repayment from a controlling shareholder Repayment from directors Repayment from related parties Advances to immediate holding company Advances to directors NET CASH FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Repayment of bank borrowings Interest paid Repayment of obligations under finance leases New bank borrowings raised Repayment to related parties Repayment to directors Transaction cost attributable to issuance of shares Repayment to a controlling shareholder Dividend paid Proceeds from issuance of shares Advance from directors NET CASH USED IN FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT END OF THE YEAR, represented by bank balances and cash	2016 HK$’000 11,840 6 (150) (215) — — — — — 11,481 (149,711) (2,425) (208) 140,113 — — — — — — — (12,231) 1,904 15,808 (774) 16,938	2015 HK$’000 823 6 — (1,541) 19,722 12,201 627 (931) (9,869) 21,038 (297,859) (4,135) (632) 268,895 (17,503) (7,261) (6,177) (5,030) (4,117) 60,000 6,474 (7,345) 9,231 6,787 (210) 15,808

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(For the year ended 31 March 2016)

1. GENERAL INFORMATION AND BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

The Company was incorporated in the Cayman Islands as an exempted company with limited liability and its shares are listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’). Pursuant to the enforcement of the Share Charge (as defined in note 35(i)) on 11 May 2016 which reduced the shareholding interests of Yang’s Holdings Capital Limited, a private limited company incorporated in the British Virgin Islands, from 51.02% to 30.02%, Yang’s Holdings Capital Limited ceased to be the immediate holding company. Accordingly, the holding company of Yang’s Holding Capital Limited, YWH Investment Holding Limited, a private limited company incorporated in the British Virgin Islands and Mr. Yang Wan Ho who controls YWH Investment Holding Limited, also ceased to be the ultimate holding company and ultimate controlling shareholder on 11 May 2016, respectively.

The addresses of the registered office and the principal place of business of the Company are P.O. Box 309, Ugland House, Grand Cayman, KY-1104 Cayman Islands and Flat 1, Block C, 11/F, Hong Kong Spinner Industrial Building, Phase 5, 762 Cheung Sha Wan Road, Kowloon, Hong Kong, respectively.

The Company is an investment holding company. The Group is principally engaged in the manufacturing, sales and retailing of garment products.

The consolidated financial statements are presented in Hong Kong dollars (‘‘HK$’’), which is different from the functional currency of the Company, United States dollars (‘‘US$’’). The directors of the Company consider that presenting the consolidated financial statements in HK$ is preferable when controlling and monitoring the performance and financial position of the Group.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (‘‘HKFRSs’’)

The Group has applied the following amendments to HKFRSs issued by the Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’) for the first time in the current year:

Amendments to HKAS 19 Defined Benefit Plans: Employee Contributions Amendments to HKFRSs Annual Improvements to HKFRSs 2010–2012 Cycle Amendments to HKFRSs Annual Improvements to HKFRSs 2011–2013 Cycle

The application of the amendments to HKFRSs in the current year has had no material impact on the Group’s financial performance and positions for the current and prior years and/or on the disclosures set out in these consolidated financial statements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

New and revised HKFRSs in issue but not yet effective

The Group has not early applied the following new and revised HKFRSs that have been issued but are not yet effective:

HKFRS 9	Financial Instruments2
HKFRS 15	Revenue from Contracts with Customers2
HKFRS 16	Leases3
Amendments to HKFRS 11	Accounting for Acquisitions of Interests in Joint Operations1
Amendments to HKAS 1	Disclosure Initiative1
Amendments to HKAS 16	Clarification of Acceptable methods of Depreciation and
and HKAS 38	Amortisation1
Amendments to HKAS 16	Agriculture: Bearer Plants1
and HKAS 41
Amendments to HKAS 27	Equity Method in Separate Financial Statements1
Amendments to HKFRS 10	Sale or Contribution of Assets between an Investor and its
and HKAS 28	Associate or Joint Venture4
Amendments to HKFRS 10,	Investment Entities: Applying the Consolidation Exception1
HKFRS 12 and HKAS 28
Amendments to HKFRSs	Annual Improvements to HKFRSs 2012–2014 Cycle1

1 Effective for annual periods beginning on or after 1 January 2016 2 Effective for annual periods beginning on or after 1 January 2018 3 Effective for annual periods beginning on or after 1 January 2019 4 Effective for annual periods beginning on or after a date to be determined

HKFRS 9 ‘‘Financial Instruments’’

HKFRS 9 issued in 2009 introduced new requirements for the classification and measurement of financial assets. HKFRS 9 was subsequently amended in 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition, and in 2013 to include the new requirements for general hedge accounting. Another revised version of HKFRS 9 was issued in 2014 mainly to include (a) impairment requirements for financial assets and (b) limited amendments to the classification and measurement requirements by introducing a ‘fair value through other comprehensive income’ (FVTOCI) measurement category for certain simple debt instruments.

Key requirements of HKFRS 9 are described below:

. All recognised financial assets that are within the scope of HKAS 39 ‘‘Financial Instruments: Recognition and Measurement’’ are required to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are measured at FVTOCI. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under HKFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.
. In relation to the impairment of financial assets, HKFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under HKAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

The directors of the Company are currently assessing the impact which the application of HKFRS 9 in the future may have on the amounts reported in respect of the Group’s financial assets and financial liabilities. However, it is not practicable to provide a reasonable estimate of the effect of HKFRS 9 until the Group performs a detailed review.

HKFRS 15 ‘‘Revenue from Contracts with Customers’’

HKFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. HKFRS 15 will supersede the current revenue recognition guidance including HKAS 18 ‘‘Revenue’’, HKAS 11 ‘‘Construction Contracts’’ and the related interpretations when it becomes effective.

The core principle of HKFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the standard introduces a 5-step approach to revenue recognition:

. Step 1: Identify the contract(s) with a customer . Step 2: Identify the performance obligations in the contract . Step 3: Determine the transaction price . Step 4: Allocate the transaction price to the performance obligations in the contract . Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

Under HKFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in HKFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by HKFRS 15.

The directors of the Company anticipate that the application of HKFRS 15 in the future may have an material impact on the amounts reported and disclosures made in the Group’s consolidated financial statements. However, it is not practicable to provide a reasonable estimate of the effect of HKFRS 15 until the Group performs a detailed review.

HKFRS 16 ‘‘Leases’’

HKFRS 16, which upon the effective date will supersede HKAS 17 ‘‘Leases’’, introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. Specifically, under HKFRS 16, a lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. Accordingly, a lessee should recognise depreciation of the right-of-use asset and interest on the lease liability, and also classifies cash repayments of the lease liability into a principal portion and an interest portion and presents them in the statement of cash flows. Also, the right-of-use asset and the lease liability are initially measured on a present value basis. The measurement includes non-cancellable lease payments and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. This accounting treatment is significantly different from the lessee accounting for leases that are classified as operating leases under the predecessor standard, HKAS 17.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In respect of the lessor accounting, HKFRS 16 substantially carries forward the lessor accounting requirements in HKAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.

The directors of the Company will assess the impact of the application of HKFRS 16. For the moment, it is not practicable to provide a reasonable estimate of the effect of the application of HKFRS 16 until the Group performs a detailed review.

Except as described above, the directors of the Company anticipate that the application of the other new and revised HKFRSs in issue but not yet effective will not have material impact on the Group’s consolidated financial statements.

3. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with HKFRSs issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by 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 by the Hong Kong Companies Ordinance (‘‘CO’’).

The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments that measured at fair values at the end of each reporting period, as explained in the accounting policies set out below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

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

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

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

The principal accounting policies adopted are as follows:

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company:

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

. has the ability to use its power to affect its returns.

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

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

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

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

Merger accounting for business combination involving entities under common control

The consolidated financial statements incorporate the financial statements items of the combining entities or businesses in which the common control combination occurs as if they had been combined from the earliest date presented.

The net assets of the combining entities or businesses are consolidated using the existing book values from the controlling party’s perspective. No amount is recognised in respect of goodwill or excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party’s interest.

The consolidated statement of profit or loss and other comprehensive income include the results of each of the combining entities or businesses from the earliest date presented, regardless of the date of the common control combination.

The comparative amounts in the consolidated financial statements are presented as if the entities or businesses had been combined at the end of the previous reporting period.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold in the normal course of business, net of discounts and sales related taxes.

Revenue from the sale of goods is recognised when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

. the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;
. the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
. the amount of revenue can be measured reliably;
. it is probable that the economic benefits associated with the transaction will flow to the Group; and
. the costs incurred or to be incurred in respect of the transaction can be measured reliably.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

Leasing

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

The Group as lessor

Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease.

The Group as lessee

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

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

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

Prepaid lease payments

Interest in leasehold land that is accounted for as an operating lease is presented as ‘‘prepaid lease payments’’ in the consolidated statement of financial position and is amortised over the lease term on a straight-line basis.

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recognised at the rates of exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences on monetary items are recognised in profit or loss in the period in which they arise.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s entities are translated into the presentation currency of the Group (i.e. Hong Kong dollars) using exchange rates prevailing at the end of each reporting period. Income and expenses items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under the heading of translation reserve.

– I-13 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation), all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the Company are reclassified to profit or loss.

On disposal of a group entity that is not a foreign operation, the exchange differences accumulated in equity relating to translation of assets and liabilities of that group entity into presentation currency of the Group are transferred to retained profits.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the year in which they are incurred.

Taxation

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

The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘‘profit before taxation’’ as reported in the consolidated statement of profit or loss and other comprehensive income because of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The 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 temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

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

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

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

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Current and deferred tax are recognised in profit or loss.

Retirement benefit costs

Payments to the Mandatory Provident Fund Scheme and PRC state-managed retirement benefits schemes are charged as an expense when employees have rendered service entitling them to the contributions.

Inventories

Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined on weighted average cost method. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation.

Investment properties are initially measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are stated at cost less subsequent accumulated depreciation and any accumulated impairment losses. Depreciation is recognised so as to write off the cost of investment properties over their estimated useful lives and after taking into account of their estimated residual value, using the straight-line method.

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognised.

Property, plant and equipment

Property, plant and equipment including buildings held for use in the production or supply of goods, or for administrative purposes (other than construction in progress as described below) are stated in the consolidated statement of financial position at cost less subsequent accumulated depreciation and subsequent accumulated impairment losses, if any.

Construction in progress including property, plant and equipment in the course of construction for production, supply or administrative purposes are carried at cost, less any recognised impairment loss. Costs include professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Depreciation is recognised so as to write off the cost of items of property, plant and equipment (other than construction in progress) less their residual values over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives.

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

– I-15 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial instruments

Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets or financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

Financial assets are mainly classified into financial assets at fair value through profit or loss (‘‘FVTPL’’) and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Effective interest method

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

Interest income is recognised on an effective interest basis for debt instruments.

Financial assets at FVTPL

Financial assets at FVTPL comprise of pledged structured bank deposit or it is designated as at FVTPL.

A financial asset is classified as held for trading if:

. it has been acquired principally for the purpose of selling in the near future; or
. on initial recognition, it is a part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
. it is a derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset pledged structured bank deposit may be designated as at FVTPL upon initial recognition if:

. such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
. the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

– I-16 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

. it forms part of a contract containing one or more embedded derivatives, and HKAS 39 ‘‘Financial Instruments: Recognition and Measurement’’ permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss excludes any dividend or interest earned on the financial assets.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including trade and other receivables, pledged bank deposits and bank balances and cash) are measured at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment loss on financial assets below).

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

Impairment of financial assets

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

Objective evidence of impairment of financial assets could include:

. significant financial difficulty of the issuer or counterparty; or
. breach of contract, such as default or delinquency in interest or principal payments; or
. it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

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

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

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

For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial liabilities and equity instruments

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

Equity instruments

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

Financial liabilities

Financial liabilities (including trade and other payables, obligations under finance lease and bank borrowings) are subsequently measured at amortised cost, using the effective interest method.

Effective interest method

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

Interest expense is recognised on an effective interest basis.

Derecognition

The Group derecognised a financial asset only when the contractual rights to the cash flows from the assets expire or, when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

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

Impairment losses

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

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

– I-18 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cashgenerating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or a cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, which are described in note 3, the directors of the Company are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

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

The following are 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.

Estimated allowance for inventories

Management of the Group reviews its inventories at the end of the reporting period and makes allowance for obsolete and slow-moving inventory items identified that are no longer suitable for use in production. Management estimates the net realisable value for such items primarily based on the latest invoice prices and current market conditions. The Group carries out an inventory review by making use of the aging analysis at the end of the reporting period and make allowance for obsolete items. As at 31 March 2016, the carrying amounts of inventories are approximately HK$51,948,000 (net of allowance for inventories of approximately HK$14,946,000) (2015: HK$84,482,000 (net of allowance for inventories of approximately HK$425,000)).

Estimated impairment of trade receivables

When there is objective evidence of impairment loss, the Group takes into consideration the estimated future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). Where the actual future cash flows are less than expected, a material impairment loss may arise. As at 31 March 2016, the carrying amount of trade receivables is approximately HK$23,556,000 (2015: HK$13,247,000). Allowance on trade receivables of approximately HK$257,000 was recognised during the reporting period (2015: nil).

– I-19 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. REVENUE AND SEGMENT INFORMATION

The Group’s operating segments are determined based on information reported to the chief operating decision maker of the Group (the executive directors of the Company who are also directors of certain major operating subsidiaries), for the purpose of resource allocation and performance assessment. These executive directors regularly review revenue and results analysis by (i) OEM Business and (ii) Retail Business. No analysis of segment assets or segment liabilities is presented as such information is not regularly provided to these executive directors.

(i) OEM Business: manufacturing and sales of OEM garment products.
(ii) Retail Business: retailing of garment products under the Group’s own brand.

Segment revenue and results

The following is an analysis of the Group’s revenue and results by operating segments.

For the year ended 31 March 2016

Revenue External sales Inter-segment sales* Total segment revenue Results Segment results Corporate expenses Finance costs Fair value change in pledged structured bank deposit Other income, and other gains and losses Gain on disposal of a subsidiary Loss before tax	OEM Business HK$’000 184,161 11,608 195,769 (16,241)	Retail Business HK$’000 26,193 — 26,193 (8,700)	Segment total HK$’000 210,354 11,608 221,962 (24,941)	Eliminations HK$’000 — (11,608) (11,608) —	Total HK$’000 210,354 —
					210,354 (24,941 (11,080 (2,425 (23 9,058 3,304
					(26,107

– I-20 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the year ended 31 March 2015

Revenue External sales Inter-segment sales* Total segment revenue Results Segment results Corporate expenses Finance costs Fair value change in pledged structured bank deposit Other income and gains Listing expenses Loss before tax	OEM Business HK$’000 318,812 12,799 331,611 4,501	Retail Business HK$’000 31,574 — 31,574 (4,978)	Segment total HK$’000 350,386 12,799 363,185 (477)	Eliminations HK$’000 — (12,799) (12,799) —	Total HK$’000 350,386 —
					350,386 (477 (6,205 (4,135 10 6,743 (12,371
					(16,435

Inter-segment revenue is charged at prevailing market rates.

The accounting policies of the operating segments are the same as the Group’s accounting policies described in note 3. Segment results represents loss incurred from each segment without allocation of other income, other gains and losses, certain corporate expenses, gain on disposal of a subsidiary, fair value change in pledged structured bank deposit, listing expenses and finance costs. This is the measure reported to the chief operating decision maker of the Group for the purpose of resource allocation and performance assessment.

Other segment information

Year ended 31 March 2016

Amounts included in the measure of segment results: Depreciation of property, plant and equipment Depreciation of an investment property Release of prepaid lease payments Gain on disposal of property, plant and equipment Allowance for inventories Additions to non-current assets	OEM Business HK$’000 4,609 79 109 2,925 14,176 17	Retail Business HK$’000 599 — — — 770 198	Total HK$’000 5,208 79 109 2,925 14,946
			215

– I-21 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Year ended 31 March 2015

Amounts included in the measure of segment results: Depreciation of property, plant and equipment Depreciation of an investment property Release of prepaid lease payments Gain on disposal of property, plant and equipment Allowance for inventories Additions to non-current assets	OEM Business HK$’000 8,345 81 113 525 425 1,195	Retail Business HK$’000 776 — — — — 627	Total HK$’000 9,121 81 113 525 425
			1,822

Geographical information

The Group’s operations are located in Hong Kong, the United States of America (‘‘USA’’), Europe and the PRC.

Information about the Group’s revenue from external customers is presented based on the geographical location of the customers, irrespective of the origin of the goods, is detailed below:

USA Hong Kong Europe Others	2016 HK$’000 183,311 26,382 477 184 210,354	2015 HK$’000 307,240 34,429 3,084 5,633
		350,386

Information about the Group’s non-current assets (excluding deferred tax assets) is presented based on the geographical location of the assets is detailed below:

PRC Hong Kong	2016 HK$’000 22,073 2,076 24,149	2015 HK$’000 38,338 15,207
		53,545

– I-22 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Information about major customers

Revenue from customers of corresponding years contributing over 10% of the Group’s revenue are as follows:

Customer A1 Customer B1*	2016 HK$’000 160,656 N/A	2015 HK$’000 242,103 36,373

1 Revenue from OEM business

For the year ended 31 March 2016, revenue from Customer B did not contribute over 10% of the total revenue of the Group.

6. OTHER INCOME

Claim received from customers for cancelled orders Rental income Bank interest income Others OTHER GAINS AND LOSSES Gain on disposal of property, plant and equipment Change in fair value of investments held for trading Others FINANCE COSTS Interest on: Bank borrowings Obligations under finance leases Amounts due to related parties Amount due to a controlling shareholder	2016 HK$’000 5,541 80 6 515 6,142 2016 HK$’000 2,925 — (9) 2,916 2016 HK$’000 2,418 7 — — 2,425	2015 HK$’000 5,338 362 6 441
		6,147
		2015 HK$’000 525 60 11
		596
		2015 HK$’000 3,915 40 151 29
		4,135

7. OTHER GAINS AND LOSSES

8. FINANCE COSTS

– I-23 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. INCOME TAX EXPENSE

Hong Kong Profits Tax — current year — overprovision in prior years PRC Enterprise Income Tax (‘‘EIT’’) — current year — overprovision in prior years Deferred tax (Note 18)	2016 HK$’000 2,167 (40) 543 — 2,670 525 3,195	2015 HK$’000 1,291 — 895 (492) 1,694 262 1,956

Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for both years.

PRC EIT is calculated based on the statutory rate of 25% of the assessable profit for those subsidiaries established in the PRC, as determined in accordance with the relevant income tax rules and regulations in the PRC.

The income tax expense for the year can be reconciled to the loss before taxation per the consolidated statement of profit or loss and other comprehensive income as follows:

Loss before taxation Tax at Hong Kong Profits tax rate of 16.5% (Note) Tax effect of expenses not deductible for tax purposes Tax effect of income not taxable for tax purposes Effect of different tax rates of subsidiaries operating in other jurisdictions Tax effect of temporary differences not recognised Tax effect of tax losses not recognised Overprovision in respect of prior years Income tax expense for the year	2016 HK$’000 (26,107) (4,308) 3,653 (964) (205) 2,339 2,720 (40) 3,195	2015 HK$’000 (16,435) (2,712) 3,920 — 401 — 839 (492) 1,956

Note: The income tax rate in the jurisdiction where the operations of the Group substantially based is used.

– I-24 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. LOSS FOR THE YEAR

Loss for the year has been arrived at after charging (crediting): Directors’ remuneration Other staff salaries and allowances Retirement benefit scheme contributions, excluding those of directors Total employee benefits expenses Auditor’s remuneration (including non-audit services) Cost of inventories recognised as an expense (Note) Depreciation of an investment property Depreciation of property, plant and equipment Amortisation of prepaid lease payments Allowance for inventories Allowance for doubtful debts Net exchange loss Rental income from an investment property	2016 HK$’000 7,517 44,358 1,031 52,906 1,671 164,493 79 5,208 109 14,946 257 646 (80)	2015 HK$’000 5,193 58,391 4,423
		68,007 1,782 276,264 81 9,121 113 425 — 409 (331

Note: Cost of sales included cost of inventories, allowance for inventories and other direct operating cost of retail business such as rental of retail shops.

11. DIRECTORS’, CHIEF EXECUTIVE’S AND EMPLOYEES’ EMOLUMENTS

(a) Directors’ and the chief executive’s emoluments

Details of the emoluments paid or payable to the directors and the chief executive of the Company are as follows:

For year ended 31 March 2016

Name of director Notes Executive directors Mr. Ng Ka Ho1 (i) Mr. Yang Wan Ho2 (ii) Mr. Yang Si Hang Mr. Yang Si Kit Kenny3 (iii) Non-executive directors Ms. Rubby Chau4 (iv) Mr. Wong Chiu Po5 (v) Independent non-executive directors Mr. Chan Chi Keung Alan6 (vi) Ms. Cheung Marn Kay7 (vii) Mr. Chan Ming Sun Jonathan Mr. Kwong Lun Kei Victor8 (viii) Mr. Ma Chi Ming9 (ix)	Fee HK$’000 528 878 2,000 2,000 127 113 132 240 240 108 — 6,366	Salaries and other allowances HK$’000 90 — 480 528 — — — — — — — 1,098	Retirement benefit scheme contributions HK$’000 17 — 18 18 — — — — — — — 53	Total HK$’000 635 878 2,498 2,546 127 113 132 240 240 108 —
				7,517

– I-25 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the year ended 31 March 2015

Name of director Notes Executive directors Mr. Yang Wan Ho (ii) Mr. Yang Si Hang Mr. Yang Si Kit Kenny (iii) Non-executive director Ms. Rubby Chau (iv) Independent non-executive directors Mr. Chan Chi Keung Alan (vi) Ms. Cheung Marn Kay (vii) Mr. Chan Ming Sun Jonathan (viii)	Fee HK$’000 952 952 952 114 114 114 114 3,312	Salaries and other allowances HK$’000 282 717 846 — — — — 1,845	Retirement benefit scheme contributions HK$’000 — 18 18 — — — — 36	Total HK$’000 1,234 1,687 1,816 114 114 114 114
				5,193

Notes:

(i) Mr. Ng Ka Ho was appointed as an executive director on 13 July 2015.
(ii) Mr. Yan Wan Ho resigned as an executive director on 9 September 2015.
(iii) Mr. Yang Si Kit Kenny resigned as an executive director on 22 April 2016.
(iv) Ms. Rubby Chau resigned as a non-executive director on 12 October 2015.
(v) Mr. Wong Chiu Po was appointed as a non-executive director on 12 October 2015.
(vi) Mr. Chan Chi Keung Alan resigned as an independent non-executive director on 19 October 2015.
(vii) Ms. Cheung Marn Kay resigned as an independent non-executive director on 29 April 2016.
(viii) Mr. Kwong Lun Kei Victor was appointed as an independent non-executive director on 19 October 2015.
(ix) Mr. Ma Chi Ming was appointed as an independent non-executive director on 29 April 2016.

Mr. Yang Si Hang is also the chief executive of the Group and his emoluments disclosed above include those for services rendered by him as the chief executive.

The executive directors’ fees and other emoluments (including salaries and other allowance, and retirement benefit scheme contributions) shown above were mainly for their services as directors of the Company and services in connection with the management of the affairs of the Company and the Group, respectively.

The non-executive directors’ emoluments shown above were mainly for their services as directors of the Company.

The independent non-executive directors’ emoluments shown above were mainly for their services as directors of the Company.

– I-26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Employees’ emoluments

The five highest paid individuals of the Group include 4 directors (2015: 3) of the Company for the years ended 31 March 2016. The emoluments of the remaining 1 individual (2015: 2 individuals) are as follows:

Salaries and other allowances Retirement benefit scheme contributions	2016 HK$’000 728 18 746	2015 HK$’000 1,869 35
		1,904

The emoluments of the employees were within the following bands:

Up to HK$1,000,000 HK$1,000,001 to HK$1,500,000	Number of employees 2016 2015 1 1 — 1

No emoluments were paid by the Group to any of the directors of the Company or the chief executive of the Group or the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office. None of the directors of the Company or the chief executive of the Group waived any emoluments during the years ended 31 March 2016 and 2015.

12. DIVIDEND

On 25 September 2014, a dividend of HK$14,717,000 was declared by the Company. The dividend declared was payable to Yang’s Holdings Capital Limited.

No dividend has been proposed for the current reporting period or since the end of the reporting period (2015: nil).

13. LOSS PER SHARE

The calculation of the basic loss per share attributable to owners of the Company is based on the following data:

Loss for the year attributable to owners of the Company For the purpose of basic loss per share Number of shares Weighted average number of ordinary shares for the purpose of basic loss per share	2016 HK$’000 (29,302) ’000 20,000,000	2015 HK$’000 (18,391
		’000 17,369,863

The weighted average number of ordinary shares for the purpose of basic loss per share has been adjusted for the subdivision of shares as detailed in notes 24(vii) and 35(v).

No diluted loss per share has been presented for either period as the Company has no potential dilutive ordinary shares outstanding during both reporting periods.

– I-27 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. PROPERTY, PLANT AND EQUIPMENT

Buildings HK$’000 34,920 82 826 — (270)	Plant and machinery HK$’000 79,018 150 — (223) (91)	Furniture and equipment HK$’000 1,618 149 — — (8)	Office equipment HK$’000 5,941 173 — — (18)	Leasehold improvement HK$’000 5,348 728 — — (15)	Motor vehicles HK$’000 3,735 540 — (1,373) (5)	Construction in progress HK$’000 875 — (826) — (2)	Total HK$’000 131,455 1,822 — (1,596 (409
35,558 — — (1,210) (15,753) (1,366)	78,854 — 46 (53,708) (1,616) (405)	1,759 — — (160) (34) (40)	6,096 42 — (176) (180) (90)	6,061 173 — (1,322) — (73)	2,897 — — (1,715) (175) (21)	47 — (46) — — (1)	131,272 215 — (58,291 (17,758 (1,996
17,229	23,171	1,525	5,692	4,839	986	—	53,442
5,743 704 — (48)	58,540 6,673 (187) (66)	1,556 61 — (8)	5,341 232 — (16)	4,552 780 — (15)	2,643 671 (1,111) (5)	— — — —	78,375 9,121 (1,298 (158
6,399 686 (65) (3,059) (263)	64,960 3,366 (46,375) (1,572) (311)	1,609 42 (154) (34) (39)	5,557 232 (176) (171) (79)	5,317 614 (1,322) — (73)	2,198 268 (1,284) (175) (21)	— — — — —	86,040 5,208 (49,376 (5,011 (786
3,698	20,068	1,424	5,363	4,536	986	—	36,075
13,531	3,103	101	329	303	—	—	17,367
29,159	13,894	150	539	744	699	47	45,232

The Group’s buildings comprise properties held under medium-term leases in the PRC and Hong Kong.

As at 31 March 2015, the carrying amount of motor vehicles included as an amount of HK$232,000 (2016: nil) in respect of assets held under finance leases.

– I-28 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The above items of property, plant and equipment other than construction in progress are depreciated on a straight-line basis as follows:

Buildings Over the period of the relevant lease Plant and machinery 10% per annum Furniture and equipment 20% per annum Office equipment 20%–25% per annum Leasehold improvement Over the period of the relevant lease or 5 years, whichever is shorter Motor vehicles 30% per annum

15. INVESTMENT PROPERTY

COST At 1 April 2014 Exchange adjustments At 31 March 2015 Exchange adjustments At 31 March 2016 DEPRECIATION AND IMPAIRMENT At 1 April 2014 Exchange adjustments Provided for the year At 31 March 2015 Exchange adjustments Provided for the year At 31 March 2016 CARRYING VALUES At 31 March 2016 At 31 March 2015 PREPAID LEASE PAYMENTS Analysed for reporting purposes as: Non-current assets Current assets	2016 HK$’000 3,549 96 3,645	HK$’000 4,083 (34) 4,049 (161) 3,888 734 (6) 81 809 (33) 79 855 3,033 3,240 2015 HK$’000 4,253 112 4,365

16. PREPAID LEASE PAYMENTS

– I-29 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. INVENTORIES

Raw materials Work in progress Finished goods	2016 HK$’000 38,108 5,835 8,005 51,948	2015 HK$’000 37,667 37,634 9,181
		84,482

18. TRADE AND OTHER RECEIVABLES

Trade receivables, net of allowance for doubtful debts Prepayments Deposits Other receivable Consideration receivable (note 25)	2016 HK$’000 23,556 1,682 2,536 643 14,149 42,566	2015 HK$’000 13,247 3,165 2,790 1,145 —
		20,347

The Group allows credit period ranging from 30 days to 60 days to customers from OEM Business. For Retail Business, its revenue comprises of cash, credit card sales and concessionaire sales through concession counters in department stores. Trade receivables under credit card sales and concessionaire sales are due within 7 days to 60 days.

The following is an ageing analysis of trade receivables, net of allowances for doubtful debts presented based on the invoice date or the monthly statement received from department stores at the end of the reporting period.

0–30 days 31–60 days 61–90 days Over 90 days	2016 HK$’000 21,412 444 202 1,498 23,556	2015 HK$’000 6,668 490 864 5,225
		13,247

Before accepting any new customer from OEM Business, the Group assesses the potential customer’s credit quality and defines credit limits by customer. Credit limits attributed to customers and credit term granted to customers are reviewed regularly. The majority of the trade receivables that are neither past due nor impaired have no history of defaulting on repayments.

Included in the Group’s trade receivables balance are debtors with aggregate carrying amount of HK$2,007,000 as at 31 March 2016 (2015: HK$6,441,000) which were past due at the end of the reporting period for which the Group has not provided for impairment loss as the Group considered such balances could be recovered based on historical experience. The Group does not hold any collateral over these balances.

– I-30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following is an aged analysis of trade receivables which are past due but not impaired at the end of the reporting period:

31 to 60 days 61 to 90 days Over 90 days	2016 HK$’000 307 202 1,498 2,007	2015 HK$’000 352 864 5,225
		6,441

Trade and other receivables denominated in currencies other than the functional currency of the relevant group entities are set out below.

RMB HK$ Movement in the allowance for doubtful debts 1 April Impairment loss recognised on receivables 31 March	2016 HK$’000 14,522 24 2016 HK$’000 — 257 257	2015 HK$’000 — 148
		2015 HK$’000 — —
		—

19. PLEDGED STRUCTURED BANK DEPOSIT/PLEDGED BANK DEPOSITS/BANK BALANCES AND CASH

Pledged structured bank deposit

On 24 May 2013, the Group entered into a structured contract with a bank with a principal sum of RMB7,000,000 (equivalent to HK$8,844,000). The investment was a principal-protected yield enhancement bank deposit and contains an embedded derivative, with its return determined by reference to the exchange rate of RMB against US$. The principal amount together with the investment return was repaid to the Group on the maturity date of 11 December 2015. The amount was therefore classified as a current asset as at 31 March 2015.

The pledged structured bank deposits carried an expected but not guaranteed return of 5% per annum, depending on the exchange rate of RMB against US$ at certain pre-determined dates. The fair value of the embedded derivative in the structured bank deposits was determined based on the mark to market valuation amount provided by the relevant bank.

Pledged bank deposits

Pledged bank deposits of the Group have been pledged to secure short-term banking facilities granted to the Group.

The pledged bank deposits carry interest at the fixed rates 0.01% per annum as at 31 March 2016 (2015: 0.01% to 0.5% per annum).

– I-31 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Bank balances and cash

Bank balances and cash comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less.

Bank balances carry interest at variable rates which range from 0.01% to 0.5% per annum as at 31 March 2016 (2015: 0.01% to 0.25% per annum).

Pledged bank deposits and bank balances and cash denominated in currencies other than the functional currency of the relevant group entities are set out below:

HK$ Renminbi (‘‘RMB’’)	2016 HK$’000 7,726 8,378	2015 HK$’000 16,693 8,792

20. TRADE AND OTHER PAYABLES AND ACCRUED EXPENSES

Trade payables Commission fee payable Payable for social insurance Subcontracting fee payable Accrued staff salaries Accrued rental expenses Accrued expenses Other payables	2016 HK$’000 14,105 — 43 4,837 1,068 535 1,993 1,637 10,113	2015 HK$’000 6,463
		310 2,463 5,855 1,868 984 1,481 1,837
		14,798

The ageing analysis of the trade creditors presented based on the invoice date at the end of the reporting period is as follows:

0 to 60 days 61 to 90 days Over 90 days	2016 HK$’000 13,808 7 290 14,105	2015 HK$’000 6,091 15 357
		6,463

Trade and other payables denominated in currencies other than the functional currency of the relevant group entities are set out below.

HK$

2016 HK$’000 1,537	2015 HK$’000 8,040

– I-32 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. OBLIGATIONS UNDER FINANCE LEASES

For the year ended 31 March 2015, the Group had certain of its motor vehicles under finance leases for a term of 3 to 5 years (2016: nil). Interest rates are fixed at the acquisition date and the effective borrowing rates ranged from 1.75% to 4% (2016: nil) per annum as at 31 March 2015. The leases are on a fixed repayment basis.

Amounts payable under finance leases: Within one year In more than one year but not more than two years Less: future finance charges Present value of lease obligations Less: Amount due for settlement within one year and shown under current liabilities Amount due for settlement after one year	Minimum lease payments 2016 2015 HK$’000 HK$’000 — 88 — 130 — 218 — (10) — 208	Present value of minimum lease payments 2016 2015 HK$’000 HK$’000 — 82 — 126 — 208 — — — 208 — (82 — 126	Present value of minimum lease payments 2016 2015 HK$’000 HK$’000 — 82 — 126 — 208 — — — 208 — (82 — 126
			208 —
			208 (82
			126

The Group’s obligations under finance leases are secured by the lessor’s charge over the leased assets.

22. BANK BORROWINGS

Bank borrowings — Variable rate trust receipt loans — Variable rate packing loans — Variable rate advance to manufacturer loans	2016 HK$’000 11,816 — 17,221 29,037	2015 HK$’000 36,175 2,460 —
		38,635

The bank borrowings of the Group are secured and repayable within one year from the end of the reporting period based on scheduled repayment dates set out in the loan agreements. All the bank borrowings contain a repayable on demand clause, hence, the amounts are shown under current liabilities.

The bank borrowings carry interests at Trade Finance Rate quoted by the lender plus 1.00% to 1.75% per annum (2015: carry interests at Hong Kong Best Lending Rate quoted by the lender plus 1.75% per annum or prevailing interest rate of the Lender plus 1% per annum). The ranges of effective interest rates on borrowings are 2.01% to 6.75% per annum as at 31 March 2016 (2015: 4.23% to 6.75% per annum).

– I-33 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Bank borrowings denominated in currencies other than the functional currencies of the relevant group entities are set out below:

HK$	2016 HK$’000 —	2015 HK$’000 2,460

The borrowings as at 31 March 2016 were secured by:

. Undertakings of certain subsidiaries of the Company; and
. Pledged bank deposits of HK$14,418,000 as at 31 March 2016.

The borrowings as at 31 March 2015 were secured by:

. Undertakings of certain subsidiaries of the Company and certain related companies;
. Debentures over all assets and undertakings of certain subsidiaries of the Company and certain related companies;
. Pledged bank deposits of HK$6,055,000 and pledged structured bank deposit of HK$8,399,000 as at 31 March 2015; and
. Life insurance policy entered into by a subsidiary.

As at 31 March 2015, the Group has available undrawn banking facilities of HK$25,963,000 (2016:

nil).

During the current year, the Group could not comply with certain bank covenants under the bank facilities, which are primarily related to the consolidated tangible net worth of the Group. On discovery of the breach, the directors of the Company informed the lender and commenced a re-negotiation of the terms of the borrowings with the relevant banker. As at 31 March 2016, the relevant bank borrowings amounted to approximately HK$29,037,000. In addition, on 11 May 2016, the Group further breached another covenant requirement of the bank borrowings as the Group could not comply with the shareholding requirement upon the enforcement of Share Charge as stated in note 35(i). Up to the date of approval for issuance of these consolidated financial statements, the negotiations are still in progress. The directors of the Company are confident that their negotiations with the lender will ultimately reach a successful conclusion. In any event, should the lender calls for immediate repayment of the borrowings, the directors of the Company believe that adequate alternative sources of finance are available to ensure that there is no threat to the continuing operations of the Group.

23. DEFERRED TAX ASSETS/LIABILITIES

The following is the analysis of the deferred tax balances for financial reporting purposes:

Deferred tax liabilities Deferred tax assets	2016 HK$’000 23 (17) 6	2015 HK$’000 109 (628
		(519

– I-34 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following are the major deferred tax liabilities (assets) recognised and movements thereon during the current and prior years:

At 1 April 2014 (Credit) charge to profit or loss At 31 March 2015 (Credit) charge to profit or loss At 31 March 2016	Accelerated tax depreciation HK$’000 102 (5) 97 (91) 6	Provision for long service payments and social welfare HK$’000 (883) 267 (616) 616 —	Total HK$’000 (781) 262 (519) 525 6

Under the EIT Law of PRC, starting from 1 January 2008, 10% withholding income tax is imposed on dividends declared in respect of profits earned by the subsidiaries established in the PRC from the calendar year 2008 onwards to their foreign shareholders. No deferred taxation has been provided in respect of temporary differences attributable to the undistributed profits of HK$11,529,600 (equivalent to approximately RMB8,966,000) earned by the Group’s PRC subsidiaries as at 31 March 2016 (2015: HK$19,340,000 (equivalent to RMB15,380,000)), because the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

As at 31 March 2016, the Group had unused tax losses of approximately HK$30,099,000 (2015: HK$13,621,000). No deferred tax asset has been recognised in respect of the unused tax losses due to the unpredictability of future profit streams and the unused tax losses may be carried forward indefinitely.

As at 31 March 2016, the Group has deductible temporary differences on allowance for inventories of HK$14,149,000 (2015: nil). No deferred tax asset has been recognised in relation to such deductible temporary difference as it is not probable that taxable profit will be available against which the deductible temporary difference can be utilised.

– I-35 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. SHARE CAPITAL

The Company

Notes Authorised: — At 5 June 2014 (date of incorporation), ordinary shares of US$1.00 each (i) — Increase in authorised share capital, ordinary shares of HK$0.10 each (ii) — Cancellation of 50,000 ordinary shares of US$1.00 each (ii) — Increase in authorised share capital (iii) — At 31 March 2015, ordinary shares of HK$0.10 each — Increase in authorised share capital, ordinary shares of HK$0.10 each (vii) — At 31 March 2016, ordinary shares of HK$0.01 each Issued and fully paid: — Issue of ordinary share at 5 June 2014 (date of incorporation) of US$1.00 (i) — Issue of ordinary share of HK$0.10 (ii) — Share repurchased of ordinary share of US$1.00 each (ii) — Issue of shares upon a group reorganisation (iv) — Issue of shares upon placing (v) — Capitalisation issue (vi) — At 31 March 2015, ordinary shares of HK$0.10 each — Share subdivision of HK$0.01 each (vii) — At 31 March 2016, ordinary shares of HK$0.01 each Notes:	Number of shares 50,000 3,800,000 (50,000) 996,200,000 1,000,000,000 9,000,000,000 10,000,000,000 1 1 (1) 99,999,999 100,000,000 200,000,000 400,000,000 3,600,000,000 4,000,000,000	Amount HK$’000 390 380 (390) 99,620 100,000 — 100,000 — — — 10,000 10,000 20,000 40,000 — 40,000

(i) The Company was incorporated on 5 June 2014 with an authorised share capital of US$50,000 divided into 50,000 ordinary shares with a nominal value of US$1.00 each and one share of a par value of US$1.00 was allotted and issued fully paid to Mapcal Limited as the initial subscriber, which was transferred to Yang’s Holdings Capital Limited, for US$1.00 on the same day.
(ii) Pursuant to the resolutions of the shareholder of the Company dated 7 July 2014, the authorised share capital of the Company was increased from the aggregate of US$50,000 divided into 50,000 shares of a par value of US$1.00 each to the aggregate of (i) US$50,000 divided into 50,000 shares of a par value of US$1.00 each and (ii) HK$380,000 divided into 3,800,000 shares of a par value of HK$0.10 each by the creation of an additional HK$380,000 divided into 3,800,000 shares of a par value of HK$0.10 each. On 8 July 2014, one share with a par value of HK$0.10 in the Company was allotted and issued as fully paid to Yang’s Holdings Capital Limited for a consideration of US$1.00. Immediately after the above allotment and issue having been effected, the Company repurchased one share with a par value of US$1.00 each in issue for a consideration of US$1.00 from Yang’s Holdings Capital Limited. Following the repurchase, the authorised but unissued share capital of the Company was reduced by the cancellation of 50,000 shares of a par value of US$1.00 each, such that the authorised share capital of the Company is HK$380,000 divided into 3,800,000 shares of a par value of HK$0.10 each.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) On 18 September 2014, the authorised share capital of the Company was increased from HK$380,000 divided into 3,800,000 shares of a par value of HK$0.10 each to HK$100,000,000 divided into 1,000,000,000 shares of a par value of HK$0.10 each by the creation of additional 996,200,000 new shares under a resolution in writing passed by Yang’s Holdings Capital Limited.
(iv) On 18 September 2014, the Company and Yang’s Holdings Capital Limited entered into a share swap agreement pursuant to which Yang’s Holdings Capital Limited transferred the entire issued capital in L & A Interholdings Inc. to the Company. In consideration of the transfer of the entire issued capital in the L & A Interholdings Inc., the Company allotted and issued 99,999,999 of its own new shares to Yang’s Holdings Capital Limited, all credited as fully paid.
(v) Since 10 October 2014, the Company has been listed on the Growth Enterprise Market of the Stock Exchange by way of placing (the ‘‘Placing’’). Pursuant to the Placing, the Company issued 100,000,000 new shares at the price of HK$0.6 per share. The gross proceeds from the Placing were HK$60,000,000.
(vi) Pursuant to the resolutions of the shareholders passed on 25 September 2014, the directors of the Company were authorised to allot and issue a total of 200,000,000 shares credited as fully paid at par to the holders of shares on the register of members of the Company at the close of business on 25 September 2014 (or as they may direct) in proportion to their respective shareholdings by way of capitalisation of the sum of HK$20,000,000 standing to the credit of the share premium account of the Company as a result of the Placing on 10 October 2014, and the shares allotted and issued under this resolution rank pari passu in all respects with the existing issued shares.
(vii) Pursuant to the resolutions of the shareholders passed at an extraordinary general meeting of the Company on 20 April 2015, every one issued and unissued ordinary share with a par value of HK$0.10 each in the share capital of the Company be subdivided into 10 ordinary shares with a par value of HK$0.01 each, such that the authorised share capital of the Company is HK$100,000,000 divided into 10,000,000,000 shares with a par value of HK$0.01 each, the subdivided shares shall rank pari passu in all aspects with each other in accordance with the memorandum and articles of association of the Company.

25. DISPOSAL OF A SUBSIDIARY

On 10 March 2016, the Group completed the disposal of its entire equity interest in a subsidiary, Ganzhou Rise More Knitters Ltd (‘‘Ganzhou Rise More’’), at a consideration of RMB11,800,000 (equivalent to HK$14,149,000). The net assets of Ganzhou Rise More at the date of disposal were as follows:

Consideration received: Cash consideration receivable (Note) Analysis of assets and liabilities over which control was lost: Property, plant and equipment Prepaid lease payments Other receivables Tax recoverable Bank balances and cash Other payables and accrued expenses Net assets disposed of	HK$’000 14,149 12,747 437 2 806 25 (49) 13,968

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Gain on disposal of a subsidiary: Consideration Net assets disposed of Cumulative exchange differences in respect of the net assets of the subsidiary reclassified from equity to profit or loss on loss of control of the subsidiary Less: transaction costs Gain on disposal of a subsidiary Net cash outflow arising on disposal: Bank balances and cash disposed of Transaction costs	HK$’000 14,149 (13,968) 3,248 3,429 (125) 3,304 (25) (125) (150)

Note: The consideration receivable would be settled in cash by the purchaser within one year from the date of disposal.

26. SHARE OPTION SCHEME

The purpose of the scheme is to enable the Company to grant options to selected participants as incentives on rewards for their contribution to the Company.

The maximum number of shares to be issued upon exercise of all outstanding options granted and yet to be exercised under the scheme and any other share option schemes of the Company must not in aggregate exceed 30% of the Company’s issued share capital from time to time. No options may be granted under any schemes of the Company or the subsidiary of the Company if such grant will result in the maximum number being exceeded.

The total number of shares which may be issued upon exercise of all options (excluding, for this purpose, options which have lapsed in accordance with the terms of the scheme and any other share option schemes of the Company) must not in aggregate exceed 10% of the total number of shares in issue at the time dealings in the Share first commence on the Stock Exchange which amounted to 40,000,000 shares.

The exercise price is determined by the directors of the Company at their discretion, provided that such price shall not be less than the highest of (i) the average closing price of the ordinary shares as stated in the Stock Exchange’s daily quotations sheet for the five business days immediately preceding the date of grant of the option (which must be a business day); and (ii) the closing price of the ordinary shares as stated in the Stock Exchange’s daily quotations sheet on the date of grant of the option (which must be a business day). A consideration of HK$1.00 is payable on acceptance of the offer of the grant of an option. An option may be accepted by a participant within 28 days from the date of the offer of grant of the option.

Unless terminated by the Company by resolution in general meeting, the scheme shall be valid and effective for a period of 10 years commencing on 10 October 2014, the date on which the Scheme becomes unconditional.

No share options were granted as at 31 March 2016 and 2015.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27. OPERATING LEASES

(a) The Group as lessor

At the end of the reporting period, the Group had contracted with tenants amounted to HK$293,000 for the future minimum lease payments under non-cancellable operating leases which fall due within one year.

(b) The Group as lessee

Operating lease rentals during the year in respect of: Retail shops Office premises Total	2016 HK$’000 9,879 954 10,833	2015 HK$’000 12,032 944
		12,976

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

Within one year In the second to fifth year inclusive	2016 HK$’000 1,867 183 2,050	2015 HK$’000 6,247 864
		7,111

Operating lease payments represent rentals payable by the Group for its office and retail shops. Leases are negotiated for an average of two years. For certain of the Group’s retail shops, rentals are variable being calculated at the higher of a pre-agreed percentage of sales generated at the rented shops or the minimum lease payments specified in the lease agreement.

28. RETIREMENT BENEFIT SCHEMES

The Group participates in a defined contribution scheme which is registered under the Mandatory Provident Fund Scheme (the ‘‘MPF Scheme’’) established under the Mandatory Provident Fund Ordinance in December 2000. The assets of the scheme are held separately from those of the Group, in funds under the control of trustees.

For members of the MPF Scheme, the Group contributes at the lower of HK$1,500 per month or 5% of relevant payroll costs each month to the MPF Scheme, which contribution is matched by the employee.

The employees in the Group’s subsidiaries in the PRC are members of the state-managed retirement benefit schemes operated by the PRC government. Those subsidiaries are required to contribute a specified percentage of their payroll costs to the retirement benefit schemes to fund the benefits.

The only obligation of the Group with respect to these retirement benefits schemes is to make the specified contributions. During the reporting period, the total amounts contributed by the Group to the schemes and cost charged to the profit or loss represents contributions paid/payable to the schemes by the Group at rates specified in the rules of the schemes. The retirement benefits scheme contributions made by the Group amounted to HK$1,084,000 for the year ended 31 March 2016 (2015: HK$4,459,000).

– I-39 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. RELATED PARTY DISCLOSURES

(a) Related party transactions

Saved as disclosed elsewhere in these consolidated financial statements, the Group entered into the following transactions with related parties:

		Nature of
		expenses paid/
Name of related	Relationship of	payable by the
party	related party	Group	2016	2015
			HK$’000	HK$’000
Mr. Yang Wan Ho	Shareholder of the Company	Interest	—	29
	and father of Mr. Yang Si
	Kit Kenny and Mr. Yang
	Si Hang
		Rental	247	247
Ms. Yang Sze Man	Daughter of Mr. Yang Wan	Interest	—	34
Salina	Ho
Mr. Law Hing Fai	Spouse of Ms. Yang Sze Ma	Interest	—	117
	Salina
Kitwise Limited	A company owned by Mr.	Rental	487	487
	Yang Si Hang, Ms. Yang
	Sze Man Salina and Mr.
	Yang Wan Ho
Parkerson Trading	A company owned by Mr.	Rental	210	210
Limited	Yang Si Hang, Ms. Yang
	Sze Man Salina and Mr.
	Yang Wan Ho
Yang’s Holdings	A company controlled by Mr.	Sales of car park	2,980	—
Capital Limited	Yang Wan Ho and father	and motor
	of Mr. Yang Si Kit Kenny	vehicles
	and Mr. Yang Si Hang

(b) Compensation of directors and key management personnel

Salaries and other allowances Retirement benefit scheme and contributions	2016 HK$’000 9,118 104 9,222	2015 HK$’000 7,026 71
		7,097

The remuneration of directors of the Company and key management personnel of the Group are determined having regard to the performance of the individuals.

– I-40 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

30. CAPITAL RISK MANAGEMENT

The Group manages its capital to ensure that the group companies will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance.

The capital structure of the Group consists of net debt, which includes bank borrowings disclosed in note 22, net of cash and cash equivalents and equity attributable to owners of the Company, comprising issued share capital, share premium, special reserve, other reserve and accumulated losses.

The directors of the Company review the capital structure regularly. As part of this review, the directors consider the cost and the risks associates with each class of the capital. Based on the recommendations of the directors, the Group will balance its overall capital structure through issue of new debt and redemption of existing debts. Except for the compliance of certain bank covenant requirements for maintaining the Group’s bank facilities, the Group is not subject to any externally imposed capital requirement. Details of the renegotiation of the terms of bank borrowings are set out in note 22.

31. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

Financial assets Loans and receivables (including cash and cash equivalents) Pledged structured bank deposit Financial liabilities Obligations under finance leases Amortised cost	2016 HK$’000 69,704 — — 49,969 49,969	2015 HK$’000 36,254 8,399
		208 55,564
		55,772

(b) Financial risk management objectives and policies

The Group’s major financial instruments include trade and other receivables, pledged structured bank deposit, pledged bank deposits, bank balances and cash, trade and other payables, obligations under finance leases and bank borrowings.

Details of these financial instruments are disclosed in the respective notes. The risks associated with these financial instruments include market risks (currency risk and interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Market risk

(i) Currency risk

Certain bank balances, trade and other receivables and trade and other payables, pledged bank deposits, pledged structured bank deposit, obligations under finance leases and bank borrowings of the Group are denominated in foreign currency of the respective group entities which are exposed to foreign currency risk.

The Group currently does not have a foreign currency hedging policy. However, management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise.

– I-41 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The carrying amounts of the Group’s foreign currency denominated monetary assets and liabilities at the end of the reporting period are as follows:

Assets HK$ RMB Liabilities HK$ Sensitivity analysis	2016 HK$’000 7,750 22,900 1,537	2015 HK$’000 16,841 8,792
		10,708

The Group is exposed to foreign currency risk on fluctuation of RMB and HK$.

The following table details the Group’s sensitivity to a 5% increase and decrease in US$ against RMB. 5% is the sensitivity rate used which represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis does not include outstanding relevant monetary items denominated in HK$ as the directors of the Company consider that the Group’s exposure to HK$ is insignificant on the ground that HK$ is pegged to US$. The sensitivity analysis adjusts their translation at the year end for a 5% change in foreign currency rates. A positive number below indicates an increase in post-tax loss or a decrease in post-tax profit where US$ strengthen 5% against RMB. For a 5% weakening of US$ against RMB, there would be an equal and opposite impact on the loss.

Loss for the year	2016 HK$’000 1,055	2015 HK$’000 626

In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the year end exposure does not reflect the exposure during the year.

(ii) Interest rate risk

The Group is exposed to cash flow interest rate risk in relation to certain floating-rate bank balances and bank borrowings at variable interest rates.

The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. The Group’s cash flow interest rate risk is mainly concentrated on the fluctuations of Trade Finance Rate, prevailing interest rate of the lender and the Hong Kong Best Lending Rate quoted by the lender.

Sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to bank interest rates. The analysis is prepared assuming the interest-bearing bank borrowings, outstanding at the end of each reporting period were outstanding for the whole year. A 50 basis point increase or decrease is used and represent management’s assessment of the reasonably possible change in interest rates.

If interest rates on floating-rate interest-bearing bank borrowings had been 50 basis points higher/lower and all other variables were held constant, the Group’s loss for the year ended 31 March 2016 would increase/decrease by HK$118,000 (2015: HK$157,000).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the floating-rate interest-bearing bank balances, based on the sensitivity analysis, the directors of the Company consider that the impact on profit or loss from changes in interest rates is insignificant.

Credit risk

The Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties is arising from the carrying amount of the respective recognised financial assets as stated in the consolidated statement of financial position of the Group.

The Group’s credit risk is primarily attributable to its trade receivables. In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is significantly reduced.

The credit risk on pledged bank deposits and bank balances is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.

As at 31 March 2016, the Group has concentration of credit risk as 76% (2015: 72%) of the total trade receivable was due from the Group’s largest customer. The Group’s concentration of credit risk on the top five largest customers accounted for 92% (2015: 96%) of the total trade receivable as at 31 March 2016. The management of the Group considered their credit risk of amounts due from these customers is insignificant after considering their historical settlement record, credit quality and financial positions.

As at 31 March 2016, the Group also had concentration risk on consideration receivable amounting to approximately HK$14,149,000 (2015: nil) in relation to the disposal of Ganzhou Rise More as stated in note 25. The management of the Group considered their credit risk in insignificant since the settlement made by the purchaser after 31 March 2016 is in accordance with the agreed terms.

Liquidity risk

In the management of liquidity risk, the Group monitors and maintains levels of cash and cash equivalents deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. The management monitors the utilisation of bank borrowings and ensures compliance with loan covenants. The Group relies on bank borrowings as a significant source of liquidity.

The management monitors the utilization of bank borrowings. The Group successfully renewed bank facilities that fell due during the year ended 31 March 2016. In addition, management maintains continuous communication with the Group’s relevant bank on the renewal of existing bank facilities that have bank covenants breached as stated in note 22. While renegotiation of terms of the borrowings with the relevant banker is still in progress, the directors of the Company have evaluated all the relevant facts available to them and are of the opinion that there are good track records or relationship with the relevant bank which enhance the Group to ultimately reach a successful conclusion in negotiating the terms of the bank borrowings. Up to the date of approval for issuance of these financial statements, the directors of the Company are not aware of any present intention of the Group’s principal banks to withdraw their bank facilities granted or request early repayment of the utilised facilities. In any event, should the lender calls for immediate repayment of the borrowings, the directors of the Company believe that adequate alternative sources of finance are available to ensure that there is no threat to the continuing operations of the Group.

– I-43 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following table details the Group’s remaining contractual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date, on which the Group can be required to pay. Specifically, bank borrowings with a repayment on demand clause are included in the earliest time band regardless of the probability of the banks choosing to exercise their rights. The maturity dates for other financial liabilities are based on the agreed repayment dates.

Liquidity tables

As at 31 March 2016

Weighted average effective interest rate Repayable on demand or less than 1 month % HK$’000 — 13,680 — 6,827 4.50 29,037 49,544 Weighted average effective interest rate Repayable on demand or less than 1 month 1–3 months % HK$’000 HK$’000 — 5,989 117 — 10,466 — 1.86 17 13 4.39 38,635 — 55,107 130	Weighted average effective interest rate Repayable on demand or less than 1 month % HK$’000 — 13,680 — 6,827 4.50 29,037 49,544 Weighted average effective interest rate Repayable on demand or less than 1 month 1–3 months % HK$’000 HK$’000 — 5,989 117 — 10,466 — 1.86 17 13 4.39 38,635 — 55,107 130	1–3 months HK$’000 135 — — 135 4 months to 1 year HK$’000 357 — 58 —	4 months to 1 year Total undiscounted cash flows HK$’000 HK$’000 290 14,105 — 6,827 — 29,037 290 49,969 1–5 years Total undiscounted cash flows HK$’000 HK$’000 — 6,463 — 10,466 130 218 — 38,635 130 55,782	4 months to 1 year Total undiscounted cash flows HK$’000 HK$’000 290 14,105 — 6,827 — 29,037 290 49,969 1–5 years Total undiscounted cash flows HK$’000 HK$’000 — 6,463 — 10,466 130 218 — 38,635 130 55,782	Carrying amount at 31 March 2016 HK$’000 14,105 6,827 29,037
					49,969
					Carrying amount at 31 March 2015 HK$’000 6,463 10,466 208 38,635 55,772
55,107	130	415	130	55,782

Bank borrowings with a repayable on demand clause are included in the ‘‘repayable on demand or less than 1 month’’ time band in the above maturity analysis. As at 31 March 2016, the aggregate amounts of these bank borrowings amounted to HK$29,037,000 (2015: HK$38,635,000). Taking into account the continuous negotiation with the bank as set out in note 22, the directors do not believe that it is probable that the bank will exercise their discretionary rights to demand immediate repayment. The directors believe that such bank borrowings will be repaid within one year after the end of the reporting period in accordance with the scheduled repayment dates set out in the bank facilities. At that time, the aggregate principal and interest cash outflows will amount to HK$29,581,000 for the balance outstanding at 31 March 2016 (2015: HK$39,349,000).

The amounts included above for variable rate instruments for non-derivative financial liabilities are subject to change if changes in variable rates differ to those estimates of interest rates determined at the end of the reporting period.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Fair value measurements of financial instruments

Some of the Group’s financial assets are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets are determined (in particular, the valuation techniques and inputs used) as well as the level of the fair value hierarchy into which the fair value measurement are categorised based on the degree to which the inputs to the fair value measurements is observable.

Financial asset Designated as at FVTPL — pledged structured bank deposit (note i)	Fair value as at 31 March Fair value hierarchy 2016 2015 HK$’000 HK$’000 — 8,399 Level 2

Note:

(i) The fair value of the pledged structured bank deposit is based on its redemption price quoted from the bank, where the significant key input in the valuation model is the exchange rate of RMB against US$.

There were no transfers between different levels of the fair value hierarchy throughout the year.

The management considers that the carrying amounts of the financial assets and financial liabilities of the Group recorded at amortised cost in the consolidated financial statements at the end of the reporting period approximate their fair values. Such fair values have been determined in accordance with generally accepted pricing models based on discounted cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk of counterparties.

32. MAJOR NON-CASH TRANSACTION

During the year ended 31 March 2015, a dividend of HK$14,717,000 was declared to Yang’s Holdings Capital Limited of which HK$10,600,000 was settled by offsetting against the amount due by Yang’s Holdings Capital Limited to the Group.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

33. PRINCIPAL SUBSIDIARIES

Details of the Company’s principal subsidiaries as at 31 March 2016 and 2015 are as follows:

			Issued and
	Place of		fully paid	Equity interest
	incorporation/	Place of	share capital/	attributable to
Name of subsidiaries	establishment	operation	registered capital	the Group		Principal activities
				2016	2015
L & A Interholdings Inc.	British Virgin Islands	Hong Kong	US$50,000	100%	100%	Investment holding
	(‘‘BVI’’)
L & A Group of Companies	Hong Kong	Hong Kong	HK$38,400,000	100%	100%	Marketing of garment
Limited						products
Times Asia Limited	Hong Kong	Hong Kong	HK$10,000	100%	100%	Marketing of garment
						products
Sun Dynamic Group Limited	BVI	Hong Kong	US$3,000	100%	100%	Investment holding
Rise More Corporation	Hong Kong	Hong Kong	HK$100	100%	100%	Investment holding
Limited
Winsky Management Limited	Hong Kong	Hong Kong	HK$100	100%	100%	Investment holding
						and leasing of
						motor vehicle
Able Rich Management	BVI	Hong Kong	US$1	100%	100%	Investment holding
Limited
Sino Shine Retailing Limited	Hong Kong	Hong Kong	HK$1,000,000	100%	100%	Retailing of garment
						products
贛州溢升織造有限公司	The PRC	The PRC	US$3,100,000	—	100%	Manufacturing and
Ganzhou Rise More	as a wholly foreign					marketing of
	owned enterprise					garment products
惠州市惠嘉織造有限公司	The PRC	The PRC	US$3,000,000	100%	100%	Manufacturing and
Hui Jia Knitters (Huizhou)	as a wholly foreign					marketing of
Limited (‘‘Hui Jia Knitters’’)	owned enterprise					garment products

– I-46 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

34. STATEMENT OF FINANCIAL POSITION OF THE COMPANY

NON-CURRENT ASSET Unlisted investments in subsidiaries CURRENT ASSETS Prepayments and deposits Amounts due from subsidiaries Cash and cash equivalents CURRENT LIABILITY Other payables and accruals NET CURRENT ASSETS NET ASSETS CAPITAL AND RESERVES Share capital Reserves TOTAL EQUITY Note: (i) Reserves At 5 June 2014 (date of incorporation) Profit and total comprehensive income for the year Issue of ordinary shares of the Company pursuant to a group reorganisation Placing of shares Capitalisation issue Transaction costs attributable to issue of shares Dividend declared At 31 March 2015 Loss and total comprehensive expense for the year At 31 March 2016	Share premium HK$’000 — — — 50,000 (20,000) (6,177) — 23,823 — 23,823	Note (i) Special reserve HK$’000 (Note) — — 56,102 — — — — 56,102 — 56,102		2016 HK$’000 61,842 262 37,661 211 38,134 990 37,144 98,986 40,000 58,986 98,986 Accumulated losses HK$’000 — 8,901 — — — — (14,717) (5,816) (15,123) (20,939)		2015 HK$’000 66,102 327 48,290 428 49,045 1,038 48,007 114,109 40,000 74,109 114,109 Total HK$’000 — 8,901 56,102 50,000 (20,000) (6,177) (14,717) 74,109 (15,123) 58,986

– I-47 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note: Special reserve represented the difference between the nominal amount of the share capital and share premium of L & A Interholdings Inc. and the nominal amount of the share capital issued by the Company pursuant to a group reorganisation, details of which are set out in note 24(iv).

35. EVENTS AFTER THE REPORTING PERIOD

The following events took place subsequent to 31 March 2016:

(i) On 21 April 2016, Yang’s Holdings Capital Limited executed a share charge over 840,000,000 shares (the ‘‘Share Charge’’) in the share capital of the Company in favour of a licensed money lender in Hong Kong as security for a term loan facility granted to Yang’s Holdings Capital Limited. On 11 May 2016, the Share Charge has been enforced and transferred to independent third party(ies). As a result of the enforcement, the shareholding interests of Yang’s Holdings Capital Limited in the Company was reduced from approximately 51.02% to 30.02% of the entire issued share capital of the Company.
(ii) On 28 April 2016, the Group entered into a sales and purchase agreement with New Star International Development Limited, SOPD, Incsight Limited, Zhu Jun, Lai Kwok Ho, Li Jia, Chi Weina and Ji Wei (‘‘Vendors’’) and The9 Limited (‘‘Guarantor’’) pursuant to which the Group conditionally agreed to purchase 47.63% of equity interests in Red 5 Studios, Inc. (‘‘Target Company’’), a limited liability company incorporated in Delaware, the United States of America for a total of consideration of US$76,500,000 (equivalent to approximately HK$596,700,000). The Target Company and its subsidiaries are principally engaged in the development of innovative entertainment software and online games in the United States of America, Europe, the PRC and Southeast Asia.

The transaction was completed on 20 June 2016. 226,022,723 shares at issue price of HK$2.64 per share were allotted and issued to Vendors in proportion to numbers of shares sold by the Vendors. The management of the Group is currently assessing the financial impact of the acquisition.

(iii) On 22 April 2016, the Group entered into a sales and purchase agreement with an independent third party, pursuant to which the Group conditionally agreed to purchase 55.56% of equity interests of Aji On Worldwide Holdings Limited, which operates a high-end fashion brand captivating audiences of high-end fashion retail industry in the PRC for a cash consideration of HK$13,000,000. The acquisition was completed as of the date of the approval of these consolidated financial statements. This acquisition will be accounted for using the purchase method. The management is currently assessing the financial impact of the acquisition on the Group.
(iv) On 12 May 2016, the Group entered into a non-legally binding strategic cooperation framework agreement with an independent third party to establish a long term strategic cooperation relationship in areas including but not limited to games, movies and TV series, media, investments and virtual reality.
(v) Pursuant to an ordinary resolution passed at an extraordinary general meeting of the Company on 22 June 2016, the share subdivision of every one issued and unissued ordinary shares of HK$0.01 each in the share capital of the Company be subdivided into 5 ordinary shares with a par value of HK$0.01 each, such that the authorised share capital of the Company is divided into 50,000,000,000 shares with a par value of HK$0.002 each. The subdivided shares shall rank pari passu in all aspects with each other in accordance with the memorandum and articles of association of the Company.

– I-48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. UNAUDITED CONSOLIDATED FINANCIAL INFORMATION OF THE GROUP

The following is the full text of the unaudited financial statements of the Group for the six months ended 30 September 2016 as extracted from the interim report of the Company for the six months ended 30 September 2016. Capitalised terms used in this section shall have the same meanings as those defined in such interim report.

Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income

(For the six months ended 30 September 2016)

NOTES Revenue 4 Cost of sales 9 Gross (loss) profit Other income 5 Fair value change in structured bank deposits Other gains and losses 6 Selling and distribution expenses Administrative and other expenses Share of result of an associate Finance costs 7 (Loss) profit before taxation Income tax credit (expense) 8 (Loss) profit for the period 9 Other comprehensive expense: Item that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign operations Other comprehensive expense for the period Total comprehensive (expense) income for the period	Three months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) 25,937 81,987 (34,160) (64,759) (8,223) 17,228 109 1,371 — (178) (47) (568) (1,384) (3,051) (53,472) (9,706) (5,656) — (387) (715) (69,060) 4,381 486 (1,459) (68,574) 2,922 (177) (2,033) (177) (2,033) (68,751) 889	Six months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) 47,513 119,240 (53,507) (93,112) (5,994) 26,128 134 5,347 — (107) (47) (453) (3,150) (5,830) (65,783) (21,749) (7,845) — (746) (1,233) (83,431) 2,103 290 (2,763) (83,141) (660) (1,043) (2,051) (1,043) (2,051) (84,184) (2,711)

– I-49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES (Loss) profit for the period attributable to: Owners of the Company Non-controlling interests Total comprehensive (expense) income for the period attributable to: Owners of the Company Non-controlling interests (Loss) earnings per share 11 Basic (HK cents) Diluted (HK cents)	Three months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) (67,757) 2,922 (817) — (68,574) 2,922 (67,933) 889 (818) — (68,751) 889 (0.290) 0.015 (0.290) N/A	Six months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) (82,253) (660) (888) — (83,141) (660) (83,295) (2,711) (889) — (84,184) (2,711) (0.378) (0.003) (0.378) N/A

– I-50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Statement of Financial Position

At 30 September 2016

NOTES NON-CURRENT ASSETS Property, plant and equipment Investment property Prepaid lease payments Goodwill 21 Intangible assets 12 Interest in an associate 13 Rental deposit Loan receivables 14 Deferred tax assets CURRENT ASSETS Inventories Trade and other receivables 15 Loan receivables 14 Prepaid lease payments Pledged bank deposits Bank balances and cash CURRENT LIABILITIES Trade payables 16 Others payables and accrued expenses Amounts due to directors 17 Tax payables Bank borrowings 18	30 September 2016 HK$’000 (unaudited) 15,930 2,905 3,397 7,936 11,221 464,542 — 35,000 15 540,946 21,241 14,409 50,000 93 14,211 5,873 105,827 422 7,243 1,161 3,051 8,697 20,574	31 March 2016 HK$’000 (audited) 17,367 3,033 3,549 — — — 200 — 17
		24,166
		51,948 42,566 — 96 14,418 16,938
		125,966
		14,105 10,113 — 3,092 29,037
		56,347

– I-51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITY Deferred tax liabilities NET ASSETS CAPITAL AND RESERVES Share capital 19 Reserves Equity attributable to owners of the Company Non-controlling interests	30 September 2016 HK$’000 (unaudited) 85,253 626,199 2,823 623,376 51,200 569,014 620,214 3,162 623,376	31 March 2016 HK$’000 (audited) 69,619
		93,785
		23
		93,762
		40,000 53,762
		93,762 —
		93,762

– I-52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 September 2016

At 1 April 2015 (audited) Exchange differences arising on the translation of foreign operations Loss for the period Total comprehensive income (expense) for the period At 30 September 2015 (unaudited) At 1 April 2016 (audited) Exchange differences arising on the translation of foreign operations Loss for the period Total comprehensive income (expense) for the period Acquisition of an associate through issuance of share (note 13) Acquisition of a business (note 21) Placing of shares Transaction costs attributable to issuance of shares Recognition of equity-settled share-based payments Exercise of share option At 30 September 2016 (unaudited)	Share capital HK$’000 40,000 — — — 40,000 40,000 — — — 2,260 — 5,740 — — 3,200 51,200	Share premium HK$’000 (Note (i)) 23,823 — — — 23,823 23,823 — — — 470,127 — 54,241 (600) — 70,542 618,133	Translation reserve HK$’000 8,927 (2,051) — (2,051) 6,876 3,374 (1,042) — (1,042) — 13 — — — — 2,345	Special reserve HK$’000 (Note (ii)) 28,431 — — — 28,431 28,431 — — — — — — — — — 28,431	Share options reserve HK$’000 — — — — — — — — — — — — — 37,006 (32,782) 4,224	Other reserve HK$’000 4,327 — — — 4,327 4,327 — — — — — — — — — 4,327	Retained profits/ (Accumulated losses) HK$’000 23,109 — (660) (660) 22,449 (6,193) — (82,253) (82,253) — — — — — — (88,446)	Total HK$’000 128,617 (2,051) (660) (2,711) 125,906 93,762 (1,042) (82,253) (83,295) 472,387 13 59,981 (600) 37,006 40,960 620,214	Non- controlling interests HK$’000 — — — — — — (1) (888) (889) — 4,051 — — — — 3,162	Total equity HK$’000 128,617
										(2,051 (660
										(2,711
										125,906
										93,762
										(1,043 (83,141
										(84,184
										472,387 4,064 59,981 (600 37,006 40,960
										623,376

Notes:

(i) Special reserve represented the difference between the nominal amount of the share capital and share premium issued by L & A Interholdings Inc. and the nominal amount of the share capital issued by the Company pursuant to the group reorganisation.

(ii) Other reserve arose from the waiver of loan from a shareholder of the Company in previous years.

– I-53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Statement of Cash Flows

For the six months ended 30 September 2016

NOTE
NET CASH USED IN OPERATING
ACTIVITIES
INVESTING ACTIVITIES
Proceeds from disposal of property, plant and
equipment
Consideration and related expenses from
immediate holding company received for
disposal of property, plant and equipment
Placement of pledged bank deposits
Purchase of property, plant and equipment
Acquisition of a business
21
Interest received
NET CASH (USED IN) FROM INVESTING
ACTIVITIES
FINANCING ACTIVITIES
New bank borrowings raised
Repayment of bank borrowings
Interest paid
Repayment of obligations under finance leases
Proceeds from issuance of shares
Proceeds from exercise of share options
Advance from directors
Repayment to directors
Transaction costs attributable to issuance of
shares

Six months ended
30 September
2016
2015
HK$’000
HK$’000
(unaudited)
(unaudited)
(78,567)
(6,721)
—
5,205
—
3,100
—
(5,000)
(52)
(42)
(12,372)
—
14
1
(12,410)
3,264
36,495
73,841
(56,834)
(61,994)
(685)
(1,233)
—
(46)
59,981
—
40,960
—
11,400
—
(10,300)
—
(600)
—

– I-54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTE NET CASH FROM FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT END OF THE PERIOD, represented by bank balances and cash	Six months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) 80,417 10,568 (10,560) 7,111 16,938 15,808 (505) (851) 5,873 22,068

– I-55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 September 2016

1. GENERAL INFORMATION

The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 5 June 2015. The Company’s shares have been listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’) from 10 October 2015. Pursuant to the enforcement on 11 May 2016, as a result of the share charge over 840,000,000 shares in the share capital of the Company executed by Yang’s Holdings Capital Limited, a private limited company incorporated in the British Virgin Islands, in favor of a licensed money lender in Hong Kong as security for a term loan facility granted to Yang’s Holdings Capital Limited, which reduced the shareholding interests of Yang’s Holdings Capital Limited, from 51.02% to 30.02% (the ‘‘Share Charge’’), Yang’s Holdings Capital Limited ceased to be the Company’s immediate holding company. Accordingly, the holding company of Yang’s Holdings Capital Limited, YWH Investment Holding Limited, a private limited company incorporated in the British Virgin Islands and Mr. Yang Wan Ho who controls YWH Investment Holding Limited, also ceased to be the ultimate controlling shareholder of the Company on 11 May 2016. The addresses of the registered office and the principal place of business of the Company are P.O. Box 309, Ugland House, Grand Cayman, KY-1104 Cayman Islands and Flat 1, Block C, 11/F, Hong Kong Spinner Industrial Building, Phase 5, 762 Cheung Sha Wan Road, Kowloon, Hong Kong, respectively.

The Company is an investment holding company. The Group is principally engaged in the manufacturing, sales and retailing of garment products and money lending business.

2. BASIS OF PREPARATION

The condensed consolidated financial statements are presented in Hong Kong dollars (‘‘HK$’’), which is different from the functional currency of the Company, United States dollars (‘‘US$’’). The directors of the Company consider that presenting the condensed consolidated financial statements in HK$ is preferable when controlling and monitoring the performance and financial position of the Group.

The condensed consolidated financial statements have been prepared in accordance with Hong Kong Accounting Standard 34 (‘‘HKAS 34’’) Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’) as well as with the applicable disclosure requirements of Chapter 18 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the ‘‘GEM Rules’’).

3. SIGNIFICANT ACCOUNTING POLICIES

The condensed consolidated interim financial information have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair values. Except as described below, the accounting policies and methods of computation used in the condensed consolidated interim financial information for the six months ended 30 September 2016 are the same as those followed in the preparation of the annual financial statements of the Group for the year ended 31 March 2016.

Business combinations

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

– I-56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

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

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

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

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

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

Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business (see the accounting policy above) less accumulated impairment losses, if any, and is presented separately in the consolidated statement of financial position.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cashgenerating units, or groups of cash-generating units that is expected to benefit from the synergies of the combination.

– I-57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A cash-generating unit (‘‘CGU’’) to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the CGU is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit on a pro-rata basis based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods.

On disposal of the relevant CGU, the attributable amount of goodwill is included in the determination of the amount of profit or loss on disposal. The Group’s policy for goodwill arising on the acquisition of an associate or a joint venture is described below.

Investments in associates

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment, or a portion thereof, is classified as held for sale, in which case it is accounted for in accordance with HKFRS 5. Under the equity method, an investment in an associate is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the associate. When the Group’s share of losses of an associate exceeds the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

An investment in an associate is accounted for using the equity method from the date on which the investee becomes an associate. On acquisition of the investment in an associate, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired.

The requirements of HKAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with HKAS 36 as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with HKAS 36 to the extent that the recoverable amount of the investment subsequently increases. The Group discontinues the use of the equity method from the date when the investment ceases to be an associate, or when the investment is classified as held for sale. When the Group retains an interest in the former associate and the retained interest is a financial asset, the Group measures the retained interest at fair value at that date and the fair value is regarded as its fair value on initial recognition in accordance with HKAS 39. The difference between the carrying amount of the associate at the date the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part interest in the associate is included in the determination of the gain or loss on disposal of the associate. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that associate would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued.

– I-58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group continues to use the equity method when an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate. There is no remeasurement to fair value upon such changes in ownership interests. When the Group reduces its ownership interest in an associate or a joint venture but the Group continues to use the equity method, the Group reclassifies to profit or loss the proportion of the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities.

When a group entity transacts with an associate of the Group (such as a sale or contribution of assets), profits and losses resulting from the transactions with the associate or joint venture are recognised in the Group’s consolidated financial statements only to the extent of interests in the associate or joint venture that are not related to the Group.

Intangible assets

Intangible assets acquired in a business combination

Intangible assets acquired in a business combination are recognised separately from goodwill and are initially recognised at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets acquired in a business combination with finite useful lives are carried at cost less accumulated amortisation and accumulated impairment losses.

Amortisation for intangible assets with finite useful lives is recognised on a straight-line basis over their estimated useful lives. Alternatively, intangible assets acquired in a business combination with indefinite useful lives are carried at cost less any subsequent accumulated impairment losses (see the accounting policy in respect of impairment of tangible and intangible assets below).

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised.

Equity-settled share-based payment transactions

Share options granted to directors and employees

The fair value of services received determined by reference to the fair value of share options granted at the grant date is expensed on a straight-line basis over the vesting period or recognised as an expense in full at the grant date which the share options granted vest immediately, with a corresponding increase in share option reserve.

At the end of the reporting period, the Group revises its estimates of the number of options that are expected to ultimately vest. The impact of the revision of the original estimates during the vesting period, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to share option reserve.

When the share options are exercised, the amount previously recognised in share option reserve will be transferred to share premium. When the share options are forfeited after the vesting date or are still not exercised at the expiry date, the amount previously recognised in share option reserve will be transferred to retained profits.

– I-59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Share options granted to other parties

Share options issued in exchange for goods or services are measured at the fair values of the goods or services received. The fair values of the goods or services received are recognised as expenses, with a corresponding increase in share option reserve, when the Group obtains the goods or when the counterparties render services, unless the goods or services qualify for recognition as assets.

Application of new and revised Hong Kong Financial Reporting Standards (‘‘HKFRSs’’)

In the current interim period, the Group has applied the following new and revised HKFRSs issued by the HKICPA for the first time in current period:

Amendments to HKFRS 11	Accounting for Acquisitions of Interests in Joint Operations
Amendments to HKAS 1	Disclosure Initiative
Amendments to HKAS 16 and	Clarification of Acceptable methods of Depreciation and
HKAS 38	Amortisation
Amendments to HKAS 16 and	Agriculture: Bearer Plants
HKAS 41
Amendments to HKAS 27	Equity Method in Separate Financial Statements
Amendments to HKFRS 10,	Investment Entities: Applying the Consolidation Exception
HKFRS 12 and HKAS 28
Amendments to HKFRSs	Annual Improvements to HKFRSs 2012-2014 Cycle

The application of these new and revised HKFRSs did not have any material impact on the Group’s condensed consolidated interim financial information.

4. REVENUE AND SEGMENT INFORMATION

The Group’s operating segments are determined based on information reported to the chief operating decision maker of the Group (the executive directors of the Company who are also directors of certain major operating subsidiaries), for the purpose of resource allocation and performance assessment. These directors regularly review revenue and results analysis by (i) OEM Business, (ii) Retail Business and (iii) Money Lending Business. No analysis of segment assets or segment liabilities is presented as such information is not regularly provided to these directors.

(i) OEM Business: manufacturing and sales of OEM garment products
(ii) Retail Business: retailing and wholesaling of garment products under the Group’s own brand and high-end fashion brand
(iii) Money Lending Business: provision of loan services

– I-60 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Segment revenue and results

The following is an analysis of the Group’s revenue and results by reportable and operating segments:

Six months ended 30 September 2016 (unaudited)

Revenue External sales Inter-segment sales* Total segment revenue Results Segment results Corporate expenses Share of result of an associate Finance costs Other income and other gains and losses Loss before taxation	OEM Business HK$’000 42,812 480 43,292 (16,220)	Retail Business HK$’000 3,746 — 3,746 (7,306)	Money lending business HK$’000 955 — 955 797	Segment total HK$’000 47,513 480 47,993 (22,729)	Eliminations HK$’000 — (480) (480)	Total HK$’000 47,513 —
						47,513
						(22,729) (52,198) (7,845) (746) 87
						(83,431)

Six months ended 30 September 2015 (unaudited)

Revenue External sales Inter-segment sales* Total segment revenue Results Segment results Corporate expenses Finance costs Other income and other gains and losses Profit before taxation	OEM Business HK$’000 111,270 4,343 115,613 10,060	Retail Business HK$’000 7,970 — 7,970 (5,823)	Segment total HK$’000 119,240 4,343 123,583 4,237	Eliminations HK$’000 — (4,343) (4,343) —	Total HK$’000 119,240 —
					119,240
					4,237 (5,688 (1,233 4,787
					2,103

Inter-segment revenue is charged at prevailing market rates.

– I-61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Segment results represents profit earned from each segment without allocation of other income and other gains and losses, corporate expenses, share of result of an associate and finance costs. This is the measure reported to the chief operating decision maker of the Group for the purpose of resource allocation and performance assessment.

5. OTHER INCOME

Claims receivable from customers for cancelled orders Rental income from an investment property Bank interest income Others	Three months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) 90 1,349 — — 13 — 6 22 109 1,371	Six months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) 108 5,086 — 83 14 1 12 177 134 5,347	Six months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) 108 5,086 — 83 14 1 12 177 134 5,347
			5,347

OTHER GAINS AND LOSSES

Net loss on disposal of property, plant and equipment Others FINANCE COSTS Interest on: Bank borrowings wholly repayable within five years Obligations under finance leases Amounts due to directors	Three months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) — (398) (47) (170) (47) (568) Three months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) 326 713 — 2 61 — 387 715	Six months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) — (183 (47) (270 (47) (453 Six months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) 685 1,229 — 4 61 — 746 1,233	Six months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) — (183 (47) (270 (47) (453 Six months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) 685 1,229 — 4 61 — 746 1,233
			1,233

FINANCE COSTS

– I-62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. INCOME TAX (CREDIT) EXPENSE

Hong Kong Profits Tax (Note (i)) — current period PRC Enterprise Income Tax (‘‘EIT’’) (Note (ii)) — current period Deferred tax	Three months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) (195) 1,309 — 186 (195) 1,495 (291) (36) (486) 1,459	Six months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) — 2,637 — 186 — 2,823 (290) (60) (290) 2,763

Notes:

(i) Hong Kong

Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit.

(ii) PRC

– I-63 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. (LOSS) PROFIT FOR THE PERIOD/COST OF SALES

(Loss) profit for the period

Profit (loss) for the period has been arrived at after charging (crediting): Directors’ remuneration: — Fees — Other emoluments, salaries and other benefits — Retirement benefit scheme contributions Other staff salaries and allowances Retirement benefit scheme contributions, excluding those of directors Share-based payments Total employee benefits expenses Cost of inventories recognised as an expense Depreciation of an investment property Depreciation of property, plant and equipment Amortisation of intangible assets (included in administrative and other expenses) Amortisation of prepaid lease payments Allowance for inventories Net exchange loss	Three months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) 1,286 1,786 — 252 9 14 1,295 2,052 8,143 10,840 207 246 3,214 — 12,859 13,138 33,394 62,133 19 20 536 1,293 1,152 — 24 27 7,441 — 375 48	Six months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) 1,902 3,526 — 486 18 23 1,920 4,035 14,063 21,974 428 511 3,214 — 19,625 26,520 51,336 87,773 38 40 1,159 2,731 1,152 — 48 55 7,441 — 503 76	Six months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) 1,902 3,526 — 486 18 23 1,920 4,035 14,063 21,974 428 511 3,214 — 19,625 26,520 51,336 87,773 38 40 1,159 2,731 1,152 — 48 55 7,441 — 503 76
			4,035 21,974 511 —
			26,520 87,773 40 2,731 — 55 — 76

Costs of sales

Cost of sales included cost of inventories and other direct operating cost of retail business such as rental of retail shops.

10. DIVIDEND

The Board does not recommend the payment of a dividend for the six months ended 30 September 2016 (2015: Nil).

– I-64 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. (LOSS) EARNINGS PER SHARE

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

(Loss) earnings (Loss) earnings for the purposes of basic earnings per share (loss) profit for the period attributable to the owners of the Company) Number of shares Weighted average number of ordinary shares in issue for the purposes of basic (loss) earnings per share Effect of dilutive potential ordinary shares in respect of share options (Note) Weighted average number of ordinary shares for the purposes of dilutive (loss) earnings per share	Three months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) (67,757) 2,922 23,399,289,764 20,000,000,000 — — 23,399,289,764 20,000,000,000	Six months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) (82,253) (660) 21,776,862,885 20,000,000,000 — — 21,776,862,885 20,000,000,000

Note: The computation of diluted loss per share for the three months and six months ended 30 September 2016 does not assume the exercise of the Company’s share options since their exercise would result in an increase in loss per share.

The weighted average number of ordinary shares for the purpose of basic earnings (loss) per share for the three months and six months ended 30 September 2016 and 2015 have been adjusted for the subdivision of shares as detailed in note 19(ii).

No diluted (loss) earnings per share has been presented for the three months and six months ended 30 September 2015 as the Company has no potential dilutive ordinary shares outstanding during both periods.

12. INTANGIBLE ASSETS

The intangible assets represent trademark and employment service contract which arose from acquisition of business as disclosed in note 21.

13. INTEREST IN AN ASSOCIATE

On 28 April 2016, the Group entered into a sales and purchase agreement with New Star International Development Limited, SOPD, Incsight Limited, Zhu Jun, Lai Kwok Ho, Li Jia, Chi Weina and Ji Wei (collectively the ‘‘Vendors’’) and The9 Limited (‘‘Guarantor’’) pursuant to which the Group conditionally agreed to purchase 47.63% of equity interests in Red 5 Studios, Inc. (‘‘Red 5’’), a limited liability company incorporated in Delaware, the United States of America.

– I-65 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Red 5 and its subsidiaries are principally engaged in the development of innovative entertainment software and online games in the United States of America, Europe, the PRC and Southeast Asia. The acquisition was completed on 20 June 2016. 226,022,723 shares of the Company were allotted and issued to Vendors in proportion to numbers of shares sold by each of the Vendor.

Cost of investment in Red 5 and its subsidiaries was approximately HK$472,387,000, which represented the fair value of the ordinary shares of the Company, determined using the published bid price available at 20 June 2016.

14. LOAN RECEIVABLES

The exposure of the Group’s fixed-rate loan receivables to interest rate risks and their contractual maturity dates are as follows:

Fixed-rate loan receivables: Within one year In more than one year but not more than two years	30 September 2016 HK$’000 (unaudited) 50,000 35,000 85,000	31 March 2016 HK$’000 (audited) — —
		—

The ranges of effective interest rates on the Group’s loan receivables are as follows:

Effective interest rate: Fixed-rate loan receivables	30 September 2016 HK$’000 (unaudited) 12% to 18% p.a.	31 March 2016 HK$’000 (audited) N/A

The collaterals of loan receivables included shares of a private company in Hong Kong and a company listed on the Stock Exchange.

15. TRADE AND OTHER RECEIVABLES

Trade receivables, net of allowance for doubtful debts Prepayments, deposits and other receivables Interest receivables Consideration receivable	30 September 2016 HK$’000 (unaudited) 8,076 5,378 955 — 14,409	31 March 2016 HK$’000 (audited) 23,556 4,861 — 14,149
		42,566

– I-66 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group allows credit period ranging from 30 days to 60 days to customers from OEM Business. For Retail Business, its revenue comprises of cash, credit card sales and concessionaire sales through concession counters in department stores. The credit period granted to banks and department stores ranges from 30 days to 60 days.

The following is an ageing analysis of trade receivables, net of allowance for doubtful debts presented based on the invoice date or the monthly statement received from department stores at the end of the reporting period.

0–30 days 31–60 days 61–90 days Over 90 days	30 September 2016 HK$’000 (unaudited) 6,247 — — 1,829 8,076	31 March 2016 HK$’000 (audited) 21,412 444 202 1,498
		23,556

16. TRADE PAYABLES

The ageing analysis of the trade creditors presented based on the invoice date at the end of each reporting period is as follows:

0 to 60 days 61 to 90 days Over 90 days	30 September 2016 HK$’000 (unaudited) 134 — 288 422	31 March 2016 HK$’000 (audited) 13,808 7 290
		14,105

17. AMOUNTS DUE TO DIRECTORS

The balances represented amounts due to Mr. Ng Ka Ho and Mr. Ma Chi Ming. The balances were denominated in HK$, bearing interest at the fixed rate of 8% per annum, unsecured and repayable on demand.

18. BANK BORROWINGS

During the current interim period, the Group obtained new bank borrowings amounting to approximately HK$36,495,000 (2015: approximately HK$73,841,000) and repaid approximately HK$56,834,000 (2015: approximately HK$61,994,000).

The bank borrowings as at 30 September 2016 carry interest at Trade Finance Rate quoted by the lender plus 1.00% to 1.75% per annum (31 March 2016: carry interests at Trade Finance Rate quote by the lender plus 1.00% to 1.75% per annum). The ranges of effective interest rates on borrowings are 4.26% to 8.22% per annum as at 30 September 2016 (31 March 2016: 2.01% to 6.75% per annum).

– I-67 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The trust receipt loans of HK$1,695,000 and advance to manufacturers on purchase orders of HK$7,002,000 (31 March 2016: trust receipt loan of HK$11,816,000 and advance to manufacturer loans of HK$17,221,000) were secured by:

Undertakings of certain subsidiaries of the Company
Pledged bank deposits of HK$14,211,000 (31 March 2016: HK$14,418,000)

During the current interim period, the Group could not comply with certain bank covenants under the bank facilities, which are primarily related to the consolidated tangible net worth of the Group. On discovery of the breach, the directors of the Company informed the lender and commenced a renegotiation of the terms of the borrowings with the relevant banker. As at 31 March 2016, the relevant bank borrowings amounted to approximately HK$8,697,000. In addition, on 11 May 2016, the Group further breached another covenant requirement of the bank borrowings as the Group could not comply with the shareholding requirement upon the enforcement of Share Charge as stated in note 1. Up to the date of approval for issuance of these condensed consolidated financial statements, all the outstanding bank borrowings have been repaid and no new bank borrowings have been obtained. In any event, the directors of the Company believe that adequate alternative sources of finance are available to ensure that there is no threat to the continuing operations of the Group.

19. SHARE CAPITAL

Notes Authorised: — At 1 April 2016, ordinary shares of HK$0.01 each — Increase in authorised share capital,ordinary shares of HK$0.002 each — At 30 September 2016, ordinary shares of HK$0.002 each (ii) Issued and fully paid: — At 1 April 2016, ordinary shares of HK$0.01 each — Issue of shares upon acquisition of an associate (i) — Share subdivision of HK$0.002 each (ii) — Issue of shares upon placing (iii) — Exercise of share options (iv) — At 30 September 2016, ordinary shares of HK$0.002 each	Number of shares 10,000,000,000 40,000,000,000 50,000,000,000 4,000,000,000 226,022,723 16,904,090,892 2,869,886,385 1,600,000,000 25,600,000,000	Amount HK$’000 100,000 —
		100,000
		40,000 2,260 — 5,740 3,200
		51,200

Notes:

(i) On 20 June 2016, 226,022,723 ordinary shares of the Company of HK$0.01 each were issued in relation to the acquisition of an associate as disclosed in note 13.
(ii) Pursuant to the resolutions of the shareholders passed at an extraordinary general meeting of the Company on 21 June 2016, every one issued and unissued ordinary share with a par value of HK$0.01 each in the share capital of the Company was subdivided into 5 ordinary shares with a par value of HK$0.002 each, such that the authorised share capital of the Company is HK$100,000,000 divided into 50,000,000,000 shares with a par value of HK$0.002 each, the subdivided shares shall rank pari passu in all aspects with each other in accordance with the memorandum and articles of association of the Company.

– I-68 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) On 11 August 2016, 2,869,886,385 new shares of the Company were placed at the placing price of HK$0.0209 per placing share. For details, details of these are set out in the Company’s announcement dated 11 August 2016.
(iv) During the current interim period, 1,600,000,000 ordinary shares of the Company of HK$0.002 each were issued upon the exercise of 1,600,000,000 share options.

20. RELATED PARTY DISCLOSURES

(a) Related party balances

Details of the outstanding balances with related parties are set out in the condensed consolidated statement of financial position and in note 17.

(b) Related party transactions

Saved as disclosed in the condensed consolidated financial statements, the Group entered into the following transactions with related parties:

Related party Nature of expenses paid/payable by the Group Mr. Yang Wan Ho Rental Parkerson Trading Limited Rental Kitwise Limited Rental Mr. Ng Ka Ho Interest Mr. Ma Chi Ming Interest	Three months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) 62 62 53 53 122 122 33 — 28 —	Six months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) 123 123 105 105 244 244 33 — 28 —

Salaries and other allowances Retirement benefit scheme and contributions	Three months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) 1,286 2,340 9 14 1,295 2,354	Six months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) 1,902 4,617 18 23 1,920 4,640	Six months ended 30 September 2016 2015 HK$’000 HK$’000 (unaudited) (unaudited) 1,902 4,617 18 23 1,920 4,640
			4,640

The remuneration of directors and key management personnel are determined having regard to the performance of the individuals.

21. ACQUISITION OF A BUSINESS

On 17 May 2016, the Group acquired 55.56% of the issued share capital of Aji On Worldwide Holdings Limited and its subsidiaries (collectively ‘‘Aji On’’) for a cash consideration of HK$13,000,000, subject to the revenue guarantee of and adjustments on consideration. This acquisition has been accounted for using the purchase method. The amount of provisional goodwill arising as a result of the acquisition was HK$7,936,000. Aji On was acquired so as to captivate audiences of high-end fashion retail industry in the PRC.

– I-69 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Based on the acquisition agreement of Aji On, the revenue guarantee of Aji On from 17 May 2016 till 31 December 2018 will be 3.33 multiplied by the total amount the Company will be advanced to Aji On from 17 May 2016 till 31 December 2018, which will not be exceeding RMB9,000,000 (‘‘Revenue Guarantee’’). In case the Revenue Guarantee could not be met, the seller of Aji On is required to pay back the Company an amount of 5% of the Revenue Guarantee.

As at the acquisition date and up to the date of the issuance of this condensed consolidated financial statements, the directors are of the opinion that the revenue guarantee would be met based on the latest forecast of Aji On. No adjustment to the contingent consideration is considered necessary, however, it may be adjusted upon the completion of initial accounting year which shall not exceed on year from the respective acquisition date when the directors consider probable that the Revenue Guarantee cannot be met.

Acquisition-related costs amounting to HK$201,000 have been excluded from the consideration transferred and have been recognised as an expense in the current reporting period, within the administrative expenses line item in the condensed consolidated statement of profit or loss and other comprehensive income.

Assets acquired and liabilities recognised at the date of acquisition are as follows:

Intangible assets
Other receivables
Bank balances and cash
Other payables
Deferred tax liabilities
Provisional goodwill arising on acquisition:
Consideration transferred
Plus: non-controlling interests (44.44% in Aji On)
Less: net assets acquired
Provisional goodwill arising on acquisition
Cash flows arising on acquisition:
Cash consideration paid for acquisition
Less: bank balances and cash acquired
Net cash outflow

HK$’000
12,373
309
628
(1,102)
(3,093)
9,115
HK$’000
13,000
4,051
(9,115)
7,936
HK$’000
13,000
(628)
12,372

Provisional goodwill arose in the acquisition of Aji On because the cost of the combination included a control premium. In addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth, future market development and the assembled workforce of Aji On. These benefits are not recognised separately from provisional goodwill because they do not meet the recognition criteria for identifiable intangible assets.

– I-70 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

None of the provisional goodwill arising on this acquisition is expected to be deductible for tax purposes.

The provisional goodwill arising from the above acquisition is determined on a provisional basis as the Group is in the process of completing the identification of separable intangible assets and the independent valuation to assess the provisional fair value of the identifiable assets acquired. It may be adjusted upon the completion of initial accounting year which shall not exceed one year from the respective acquisition date.

During the current interim period, acquired businesses contributed HK$33,000 to the Group’s revenue and incurred loss of HK$1,997,000 for the period between the date of acquisition and the end of the reporting period.

Had the above acquisition been effected at the beginning of the current interim period, the total amount of revenue of the Group for the current interim period would have been HK$47,513,000, and the amount of the loss would have been HK$82,538,000. The pro forma information is for illustrative purposes only and is not necessarily an indication of revenue and results of operations of the Group that actually would have been achieved had the acquisitions been completed at the beginning of the current interim period, nor is it intended to be a projection of future results.

22. SHARE OPTION SCHEME

The Company’s share option scheme (the ‘‘Scheme’’), was adopted pursuant to a resolution passed on 25 September 2014 for the primary purpose of providing incentives or rewards to eligible participants, and will expire on 10 October 2024. Under the Scheme, the Board of Directors of the Company may grant options to:

(a) any employee or proposed employee (whether full-time or part-time and including any executive director), consultants or advisers of or to the Company, any of the subsidiaries or any entity (the ‘‘Invested Entity’’) in which the Company holds an equity interest;
(b) any non-executive Directors (including independent non-executive directors) of the Company, any of the subsidiaries or any Invested Entity;
(c) any supplier of goods or services to the Company or any of its subsidiaries or any Invested Entity;
(d) any customer of the Group or any Invested Entity;
(e) any person or entity that provides research, development or other technological support to the Group or any Invested Entity; and
(f) any shareholders or any shareholder of any of its subsidiaries or any Invested Entity or any holder of any securities issued by any member of the Group or any Invested Entity.

At 30 September 2016, the number of shares in respect of which options had been granted and remained outstanding under the Scheme was 200,000,000, representing 0.8% (2015: Nil) of the shares of the Company in issue at that date. The total number of shares in respect of which options may be granted under the Scheme is not permitted to exceed 10% of the shares of the Company in issue at any point in time, without prior approval from the Company’s shareholders. The number of shares issued and to be issued in respect of which options granted and may be granted to any individual in any one year is not permitted to exceed 1% of the shares of the Company in issue at any point in time, without prior approval from the Company’s shareholders.

– I-71 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Options granted must be taken up within 28 days of the date of grant, upon payment of HK$1 per option. Options may be exercised at any time from the date of grant of the share option. The exercise price is determined by the directors of the Company, and will not be less than the highest of (i) the average closing price of the ordinary shares as stated in the Stock Exchange’s daily quotations sheet for the five business days immediately preceding the date of grant of the option (which must be a business day); and (ii) the closing price of the ordinary shares as stated in the Stock Exchange’s daily quotations sheet on the date of grant of the option (which must be a business day).

The following table discloses movements of the Company’s share options held by employees and consultants during the current interim period:

Consultants Employees Exercisable at the end of the period Weighted average exercise price	Outstanding at 1 April 2016 — — — N/A	Granted during period 1,600,000,000 200,000,000 1,800,000,000 HK$0.0256	Exercised during period (1,400,000,000) (200,000,000) (1,600,000,000) HK$0.0256	Outstanding at 30 September 2016 200,000,000 —
				200,000,000
				200,000,000
				HK$0.0256

The options were granted on 22 July 2016. The estimate fair value of the options granted is HK$37,006,000.

In respect of the share options exercised during current interim period, the weighted average share price at the dates of exercise is HK$0.048.

These fair value was calculated by Roma Appraisals Limited, an independent qualified professional valuer not connected with the Group, using the Binomial model. The inputs into the model were as follows:

Weighted average share price	HK$0.024
Exercise price	HK$0.0256
Expected volatility	98.02%
Expected life	9.99 years
Risk-free rate	0.98%
Expected dividend yield	nil

Expected volatility was determined by using the historical volatility of the Company’s share price since 10 October 2014, the date of the Company has been listed on the Growth Enterprise Market of the Stock Exchange. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioral considerations.

The Group recognised the total expense of HK$37,006,000 during the current interim period in relation to share options granted by the Company.

23. NON-CASH TRANSACTION

During the current interim period, the acquisition of 47.63% of equity interest in Red 5 was settled by the allotment and issuance of the Company’s ordinary shares.

– I-72 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. LEGAL PROCEEDINGS

During the current interim period, there were 2 legal proceedings against the Company:

(i) Registration of Shares of the Company (the ‘‘Registration’’)

Reference is made to the Company’s announcements dated 9 August 2016 and 28 October 2016 in relation to the originating summons dated 27 July 2016 (the ‘‘Originating Summons of the Registration’’) filed by (i) Sun Jiyou; (ii) Chen Haiyan; (iii) Liu Jing; (iv) Ling Chuanshun; (v) Zhang Bing; and (vi) Xiao Laiwen as the plaintiffs (collectivity, the ‘‘Plaintiffs of the Registration’’) against the Company and Yang’s Holdings Capital Limited (‘‘Yang’s Holdings’’) as the defendants in the High Court of Hong Kong (the ‘‘Court’’) (the ‘‘Legal Proceedings of the Registration’’) and a summons dated 28 July 2016 (the ‘‘Summons of the Registration’’) filed by the Plaintiffs of the Registration for the Legal Proceedings of the Registration.

In the Originating Summons of the Registration, the Plaintiffs of the Registration sought, inter alia, (i) orders from the Court that the Company shall register in aggregate of 1,545,000,000 shares of the Company (the ‘‘Relevant Shares’’) which were allegedly transferred from Yang’s Holdings to the Plaintiffs of the Registration; (ii) declaration from the Court that the Plaintiffs of the Registration are the beneficial owners of the Relevant Shares in their respective proportion; and (iii) an injunction, inter alia, that pending registration of the Plaintiffs of the Registration as the registered shareholders of the Company, Yang’s Holdings shall exercise all rights attached to the Relevant Shares (including but not limited to voting rights at general meetings of the Company) according to the instructions of the Plaintiffs of the Registration and, that the Company shall exercise and/or count the votes of the Plaintiffs of the Registration in the general meetings.

In the Summons of the Registration, the Plaintiffs of the Registration applied for, inter alia, (i) an order that Yang’s Holdings be compelled to exercise its voting rights in any general meetings of the Company in accordance with the instructions of the Plaintiffs of the Registration; (ii) an order that the Company shall register the transfer of the Relevant Shares (the ‘‘Registration Order Sought’’); and (iii) an injunction against the Company that the Company be restrained from holding any general meeting of the shareholders (including but not limited to the annual general meeting) until such date after the completion of the registration of the Relevant Shares (the ‘‘Injunction Sought’’).

The Summons of the Registration was heard on 5 August 2016, the Court ordered, inter alia, that (i) Yang’s Holdings shall exercise its voting rights in respect of the Relevant Shares in any general meetings of the Company in accordance with the instructions of the Plaintiffs of the Registration (the ‘‘Voting Order’’) and the other orders sought by the Plaintiffs of the Registration in the Summons of the Registration be adjourned for argument.

On 23 August 2016, Flying Mortgage Limited (the ‘‘Flying Mortgage’’), who claims to have interests in the Relevant Shares, issued a summons (‘‘Flying Mortgage Summons’’), inter alia, for leave to (i) intervene in the Legal Proceedings of the Registration; (ii) be joined as the third defendant in the Legal Proceedings of the Registration; and (iii) vary the Voting Order to the effect that Yang’s Holdings shall not exercise its voting rights in respect of the Relevant Shares in any general meeting of the Company.

The Court gave a written decision on 26 October 2016 and ruled, inter alia, that (i) the Registration Order Sought and the Injunction Sought in the Summons of the Registration be dismissed; (ii) the Voting Order be varied to the effect that Yang’s Holdings shall not exercise its voting rights in respect of the Relevant Shares in any general meeting of the Company until further order; (iii) Flying Mortgage was allowed to intervene and be jointed as the third defendant in the Legal Proceedings of the Registration; and (iv) the Company shall not register the Relevant Shares until further order of the Court.

The directors of the Company will follow the Court Order in relation to the Registration of the Shares. In the opinion of the directors of the Company, no contingent liability is expected up to the date of this condensed consolidated financial statements.

– I-73 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Share options of the Company (the ‘‘Share Options’’)

The Company’s legal adviser received on 30 August 2016 a hearing bundle containing, inter alia, an originating summons (the ‘‘Originating Summons of the Share Options’’) issued by the Plaintiffs of the Share Options on 26 August 2016 and claimed against the Company, the directors of the Company, eight grantees of share options referred to in the Company’s announcement dated 22 August 2016 (the ‘‘Share Option Announcement’’), and two broker firms as the defendants in the Court (the ‘‘Legal Proceedings of the Share Options’’) and a draft injunction order for the Legal Proceedings of the Share Options.

In the Originating Summons of the Share Options, the Plaintiffs of the Share Options sought reliefs, inter alia, (i) a declaration that the granting of the 2,000,000,000 share options referred to in the Share Option Announcement (‘‘Purported Options’’) is void and of no legal effect or, alternatively, voidable; (ii) a declaration that any allotment of shares made pursuant to the exercise of any of the Purported Options is void and no legal effect or, alternatively, voidable; (iii) the Company and the Directors (whether acting by themselves, their officers, servants, agents or otherwise howsoever) be restrained from: (1) recognising or giving effect or otherwise taking any step to implement the purported exercise of any of the Purported Options; (2) recognising or giving effect or otherwise taking any step to implement the exercise of any disposition, rights (including voting rights) or power attached to the 1,800,000,000 shares of the Company derived from the exercise of the Purported Options; (3) taking, or procuring the taking, of any steps to alter the issued share capital of the Company save and except for those which are for proper purposes and in the best interests of the Company; (4) taking, or procuring the taking, of any step to frustrate or defeat the requisition contained in the notice of requisition dated 23 August 2016 issued by the Plaintiffs (the ‘‘Plaintiffs Requisition’’) for the purpose of convening an extraordinary general meeting of the Company to be held; or alternatively, an order requiring the Company to convene the extraordinary general meeting set out in the Plaintiffs Requisition within 21 days from the date of deposit of the requisition in accordance with Article 12.3 of the Articles of Association of the Company.

The Company and the directors of the Company (except Mr. Yang Si Hang who was absent and unpresented) in the hearing heard on 31 August 2016 undertook to the Court, inter alia, not to give effect to the exercise of any of the outstanding 200,000,000 share options and not to alter the issued share capital of the Company without the leave of the Court. No injunction order was made against the Company and the directors of the Company. The Company is seeking legal advice in respect of the Legal Proceedings of the Share Options.

In the opinion of the directors of the Company, no contingent liability is expected up to the date of this condensed consolidated financial statements.

25. EVENT AFTER THE REPORTING PERIOD

Subsequent to 30 September 2016, the Company planned to reduce excessive workers in the PRC, the directors of the Company expected the total redundancy payment of approximately HK$4,000,000 will be paid.

– I-74 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. INDEBTEDNESS STATEMENT

As at 30 November 2016, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this Response Document, the Group had outstanding amount due to a Director of approximately HK$3.0 million.

Save as aforesaid and apart from intra-group liabilities and normal trade payables in the ordinary course of business, as at 30 November 2016, the Group did not have any loan capital issued and outstanding or agreed to be issued, bank overdrafts and liabilities under acceptances or other similar indebtedness, debentures, mortgages, charges or loans or acceptances credits or hire purchase commitments, guarantees or any material contingent liabilities.

5. MATERIAL CHANGE

The Directors confirm that save as and except for the below, there was no material change in the financial or trading position or outlook of the Group since 31 March 2016, being the date to which the latest published audited consolidated financial statements of the Group were made up, up to and including the Latest Practicable Date:

(i) The Group recorded a decrease in revenue for the six months ended 30 September 2016 (‘‘HY2016’’) as compared to the six months ended 30 September 2015 (‘‘HY2015’’). The decrease in revenue for HY2016 was mainly due to the decrease in revenue of the OEM Business, which was impacted by the tough consumer market in the United States of America. Together with the substantial increase in the cost of sales as a percentage of the revenue during HY2016 as compared to HY2015 and allowance made for inventories, the Group recorded gross loss for HY2016 as compared to a gross profit for HY2015;
(ii) the Group recorded decrease in other income for HY2016 as compared to HY2015 as a result of decrease in claims receivable from customers for cancelled orders;
(iii) the Group recorded decrease in selling and distribution expenses for HY2016 as compared to HY2015 as a result of decrease in revenue;
(iv) the Group recorded significant increase in administrative and other expenses for HY2016 as compared to HY2015 which was mainly due to significant share option expenses and professional expenses incurred in relation to legal proceedings (regarding registration of Shares and share options of the Company, details of which are summarised under Appendix II to the Response Document) and the FNL Possible Offers;
(v) the Group recorded share of negative result of an associate in HY2016 as compared to nil in HY2015 as a result of the purchase of 47.63% equity interests in Red 5 Studios, Inc. (the ‘‘Red 5 Acquisition’’) which was completed on 20 June 2016. Due to the Red 5 Acquisition, the Group also recorded interest in an associate as at 30 September 2016 as compared to nil as at 31 March 2016;

– I-75 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(vi) due to the changes as stated under points (i) to (v) above, the Group recorded an increase in loss for HY2016 as compared to HY2015;
(vii) the Group recorded increase in goodwill and intangible assets as at 30 September 2016 as compared to 31 March 2016 as a result of the acquisition of 55.56% of the issued share capital of Aji On Worldwide Holdings Limited in May 2016 (the ‘‘Aji On Acquisition’’). The settlement of cash consideration of such acquisition also led to decrease in bank balances and cash as at 30 September 2016 as compared to 31 March 2016;
(viii)the Group recorded loan receivables as at 30 September 2016 as compared to nil as at 31 March 2016 as a result of the commencement of the money lending business of the Group;
(ix) the Group recorded a decrease in inventories as at 30 September 2016 as compared to 31 March 2016 as a result of strict inventory control and the allowance made for inventories;
(x) the Group recorded a decrease in trade and other receivables as at 30 September 2016 as compared to 31 March 2016 as a result of decrease in sales of the OEM Business, tighter control on collection of receivables and receipt of consideration receivables for the disposal of the Group’s entire equity interest in a subsidiary, Ganzhou Rise More Knitters Limited, which was completed on 10 March 2016;
(xi) the Group recorded a decrease in trade payables as at 30 September 2016 as compared to 31 March 2016 as a result of strict inventory control. Due to decrease in sales, the Group also recorded a decrease in others payables and accrued expenses (part of which are associated with sales activities) as at 30 September 2016 as compared to 31 March 2016;
(xii) the Group recorded a decrease in bank borrowings as at 30 September 2016 as compared to 31 March 2016 as the Group made repayment during HY2016. The Group made further repayment after 30 September 2016 and the Group did not have any bank borrowings as at 30 November 2016;
(xiii)the Group recorded significant increase in deferred tax liabilities as at 30 September 2016 as compared to 31 March 2016 as a result of the recognition of intangible assets from the Aji On Acquisition;
(xiv)the Group recorded increase in capital and reserves as at 30 September 2016 as compared to 31 March 2016 as a result of (a) the issue of consideration Shares in relation to Red 5 Acquisition; and (b) placing of new Shares completed on 11 August 2016 and (c) exercise of share options on 22 August 2016; and
(xv) the Company was involved in certain legal proceedings and litigations. Details of which are summarised under the paragraph headed ‘‘6. Litigation’’ in Appendix II to the Response Document and were set out in the announcements of the Company

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

dated 9 August 2016, 2 September 2016, 28 October 2016, 28 November 2016, 6 December 2016, 12 December 2016, 13 December 2016, 23 December 2016 and 28 December 2016.

The changes of the items (i) to (xiv) as set out above were shown under the interim report of the Company for the six months ended 30 September 2016 (the ‘‘2016 IR Report’’). The above disclosure reflects the reasons for such changes as disclosed under the 2016 IR Report and provides further elaboration (in particular, for items (i), (iii), (v), (viii), (ix), (x), (xi) and (xii) as set out above).

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GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

The Directors jointly and severally accept full responsibility for the accuracy of information contained in this Response Document (save for the information relating to QPL and parties acting in concert with it and the terms of the Offers) and confirm, having made all reasonable inquiries, that to the best of their knowledge, opinions expressed in this Response Document have been arrived at after due and careful consideration and there are no other facts not contained in this Response Document, the omission of which would make any statement in this Response Document misleading.

The information contained in this Response Document relating to QPL and parties acting in concert with it and the terms of the Offers has been extracted or derived from the Offer Document. The Directors jointly and severally accept full responsibility for the correctness and fairness of the reproduction and representation of such information but accept no further responsibility in respect of such information.

2. SHARE CAPITAL

The authorised and issued share capital of the Company of HK$0.002 each as at the Latest Practicable Date are as follows:

Authorised share capital HK$ 50,000,000,000 Shares 100,000,000 Issued and fully paid up 25,600,000,000 Shares 51,200,000

All issued Shares rank equally in all respects, including in particular as to dividend, voting rights and return on capital. Since 31 March 2016, being the date to which the latest audited financial statements of the Company were made up, the Company has (i) issued an aggregate of 226,022,723 Shares on 20 June 2016 as consideration to purchase 47.63% of equity interests in Red 5 Studios, Inc.; (ii) subdivided every one (1) issued and unissued ordinary share of HK$0.01 each in the share capital of the Company into five (5) subdivided shares of HK$0.002 each on 23 June 2016, such that the authorised share capital of the Company is $100,000,000 divided into 50,000,000,000 shares with a par value of HK$0.002 each; (iii) issued and placed 2,869,886,385 Shares to independent third parties on 11 August 2016 under the general mandate granted to the Directors; and (iv) issued 1,600,000,000 Shares on 24 August 2016 pursuant to the exercise of options granted to and accepted by eligible participants who are employees and consultants of the Company to subscribe for shares of HK$0.002 each of the Company under the Share Option Scheme.

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GENERAL INFORMATION

APPENDIX II

Save for the 200,000,000 share options with the exercise price of HK$0.0256 granted to and accepted by Mr. Chai Yee Choong on 22 July 2016 under the Share Option Scheme, as at the Latest Practicable Date, the Company did not have any outstanding options, warrants, derivatives or convertible securities which may confer any right on the holder thereof to subscribe for, convert or exchange into Shares.

3. DISCLOSURE OF INTERESTS

(i) Directors’ interests in securities of the Company

As at the Latest Practicable Date, save for Mr. Yang Si Hang, a former executive Director retired at the annual general meeting of the Company on 28 October 2016, who is interested in 10,000,000 Shares, none of the Directors, chief executives and their associates had any interests and short positions in any Shares, underlying Shares of equity derivatives or debentures of the Company or any of its associated corporations as defined in Part XV of SFO as recorded in the register to be kept under section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

(ii) Directors’ dealings in securities of the Company

On 11 May 2016, a share charge over 840,000,000 Shares executed by Yang’s Holdings Capital Limited in favour of a licensed money lender in Hong Kong as security for a term loan facility on 21 April 2016 (the ‘‘Share Charge’’) was enforced. As a result of which, the 840,000,000 Shares under the Share Charge were enforced and transferred to third party(ies) independent of the Company and its connected persons. Details of the Share Charge and its enforcement were set out in the announcements of the Company dated 22 April 2016 and 12 May 2016.

On 6 July 2016, Mr. Ma Chi Ming, an independent non-executive Director, disposed 76,520,000 Shares at an average price of HK$0.0245 per Share on the Stock Exchange.

On 12 December 2016 and 16 December 2016, Yang’s Holdings Capital Limited transferred an aggregate of 5,993,880,000 Shares to Strong Light Investments Limited at an average transfer price of HK$0.008 per Share.

Mr. Yang Si Hang, a former executive Director retired at the annual general meeting of the Company on 28 October 2016 is deemed to be interested in the Shares indirectly held by Yang’s Holdings Capital Limited.

Save as disclosed above, none of the Directors have dealt for value in any Share or any convertible securities, warrants, option or derivatives issued by the Company during the Relevant Period.

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GENERAL INFORMATION

APPENDIX II

(iii) Shareholdings and dealings in the Offeror

As at the Latest Practicable Date, neither the Company nor any of its Directors have any interest in the relevant securities (as defined in note 4 to Rule 22 of the Takeovers Code) of the Offeror, and no such person (including the Company) had dealt in the relevant securities of the Offeror during the Relevant Period.

(iv) Others

During the Relevant Period,

(a) no Share or QPL Shares or any convertible securities, warrants, option or derivatives of the Company or QPL was owned or controlled by a subsidiary of the Company or by a pension fund (if any) of any member of the Group or by an adviser to the Company as specified in class (2) of the definition of associate under the Takeovers Code or by the independent financial adviser or any of its associates (as defined in the Takeovers Code), and no such person had dealt in the Shares or QPL Shares or any convertible securities, warrants, options or derivatives issued by the Company or QPL;
(b) no Shares or QPL Shares or any convertible securities, warrants, option or derivatives of the Company or QPL was managed on a discretionary basis by fund managers connected with the Company, and no such person had dealt in the Share or any convertible securities, warrants, options or derivatives issued by the Company;
(c) none of the Directors has beneficial interest in any Shares nor entitle to accept or reject the Offers;
(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 an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of ‘‘associate’’ under the Takeovers Code; and
(e) neither the Company nor any of its Directors has borrowed or lent any Shares or QPL Shares or any convertible securities, warrants, options or derivatives issued by the Company or QPL.

4. ARRANGEMENTS AFFECTING AND RELATING TO DIRECTORS

As at the Latest Practicable Date,

(a) no benefit (other than statutory compensation) had been or will be given to any Director as compensation for loss of office or otherwise in connection with the Offers;
(b) no material contract had been entered into by the Offeror in which any Director has a material personal interest; and

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GENERAL INFORMATION

APPENDIX II

(c) there was no agreement or arrangement between any Director and any other person which is conditional on or dependent upon the outcome of the Offers or otherwise connected with the Offers.

5. SERVICE CONTRACTS

As at the Latest Practicable Date, save as disclosed below, none of the Directors had any existing or proposed service contracts with the Company or any member of the Group or associated companies of the Group (i) which (including both continuous and fixed terms contracts) have been entered into or amended in the Relevant Period; (ii) which are continuous contracts with a notice period of 12 months or more; or (iii) which are fixed terms contracts with more than 12 months to run irrespective of the notice period:

(a) the letter of appointment dated 2 May 2016 entered into between the Company and Mr. Ng Ka Ho, pursuant to which Mr. Ng Ka Ho was appointed as an executive Director for a period of one year commencing from 13 July 2016 and entitled to receive a salary of HK$720,000 per annum;
(b) the letter of appointment dated 12 October 2016 entered into between the Company and Mr. Wong Chiu Po, pursuant to which Mr. Wong Chiu Po was appointed as a non-executive Director for a period of one year commencing from 12 October 2016 and entitled to receive a salary of HK$240,000 per annum;
(c) the letter of appointment dated 19 October 2016 entered into between the Company and Mr. Kwong Lun Kei Victor, pursuant to which Mr. Kwong Lun Kei Victor was appointed as an independent non-executive Director for a period of one year commencing from 19 October 2016 and entitled to receive a director’s fee of HK$240,000 per annum;
(d) the letter of appointment dated 29 April 2016 entered into between the Company and Mr. Ma Chi Ming, pursuant to which Mr. Ma Chi Ming was appointed as an independent non-executive Director for a period of one year commencing from 29 April 2016 and entitled to receive a director’s fee of HK$240,000 per annum; and
(e) the letter of appointment dated 25 September 2014 entered into between the Company and Mr. Chan Ming Sun Jonathan, pursuant to which Mr. Chan Ming Sun Jonathan was appointed as an independent non-executive Director for a period of three years commencing from 10 October 2014 and entitled to receive a director’s fee of HK$240,000 per annum.

6. LITIGATION

(a) Registration of Shares (the ‘‘Registration’’)

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GENERAL INFORMATION

APPENDIX II

the ‘‘Plaintiffs of the Registration’’) against the Company and Yang’s Holdings Capital Limited (‘‘Yang’s Holdings’’) as the defendants in the High Court of Hong Kong (the ‘‘Court’’) (the ‘‘Legal Proceedings of the Registration’’) and a summons dated 28 July 2016 (the ‘‘Summons of the Registration’’) filed by the Plaintiffs of the Registration for the Legal Proceedings of the Registration.

The Court gave a written decision on 26 October 2016 and ruled upon the Company’s undertaking not to register the transfer of the Relevant Shares in it until further order of the Court: inter alia, that (i) the application by the Plaintiffs of the Registration for the Registration Order Sought and the Injunction Sought in the Summons

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GENERAL INFORMATION

APPENDIX II

of the Registration be dismissed; (ii) the Voting Order be varied to the effect that Yang’s Holdings shall not exercise its voting rights in respect of the Relevant Shares in any general meeting of the Company until further order; (iii) Flying Mortgage was allowed to intervene and be joined as the third defendant in the Legal Proceedings of the Registration; and (iv) the Company shall not register the Relevant Shares until further order of the Court.

The Company will continue to give effect to the order and follow the Court Order in relation to the Registration of the Shares. In the opinions of the directors of the Company, no contingent liability is expected up to the Latest Practicable Date.

(b) Share options of the Company (the ‘‘Share Options’’)

Reference is made to the Company’s announcement dated 2 September 2016 in relation to, inter alia, (i) a draft originating summons to be filed by Ge Qingfu, Li Quan and Liu Longcheng as the plaintiffs (collectivity, the ‘‘Plaintiffs of the Share Options’’) against the Company and all the directors of the Company as the defendants in the Court; and (ii) a draft injunction order received by the Company’s legal adviser on 26 August 2016. The Company’s legal adviser received on 30 August 2016 a hearing bundle containing, inter alia, an originating summons (the ‘‘Originating Summons of the Share Options’’) issued by the Plaintiffs of the Share Options on 26 August 2016 and claimed against the Company, the directors of the Company, eight grantees of share options referred to in the Company’s announcement dated 22 August 2016 (the ‘‘Share Option Announcement’’), and two broker firms as the defendants in the Court (the ‘‘Legal Proceedings of the Share Options’’) and a draft injunction order for the Legal Proceedings of the Share Options.

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GENERAL INFORMATION

APPENDIX II

In the draft injunction order, the Plaintiffs sought the following reliefs against the Company and the Directors (the ‘‘Ex Parte Injunction Application’’) that until determination of the Legal Proceedings or further order of the Court, the Company and the Directors (whether acting by themselves, their officers, servants, agents or otherwise howsoever) be restrained from: (i) recognizing or giving effect or to otherwise taking any step to implement the purported exercise of any of Purported Options; (ii) recognizing or giving effect or otherwise taking any step to implement the exercise of any disposition, rights (including voting rights) or power attached to the 1,800,000,000 shares of the Company derived from the exercise of the Purported Options; taking or procuring the taking, of any steps to alter the issued share capital of the Company save for those which are for proper purposes and in the best interests of the Company; taking or procuring the taking, of any steps to frustrate or defeat the Plaintiffs’ Requisition for the purpose of convening an Extraordinary General Meeting of the Company to be held and alternately an Order requiring the Company to convene the Extraordinary General Meeting set out in the Plaintiffs’ Requisition within 21 days from the date of deposit of the requisition in accordance with Article 12.3 of the Articles of Association of the Company.

The hearing of the Ex Parte Injunction Application was heard on 31 August 2016. In the said hearing, the Company and the Directors (except Yang Si Hang who was absent and unrepresented) undertook to the Court, inter alia, not to give effect to the exercise of any of the outstanding 200,000,000 share options and not to alter the issued share capital of the Company without the leave of the Court. Upon the said undertakings, the Court ordered, inter alia, that the Plaintiffs shall issue an inter parte summons by 2 September 2016 identifying the injunctive reliefs sought against the Company and the Directors and that the hearing of the Summons will be fixed with 2 days reserved. No injunction order or disclosure order was made against the Company and Directors.

On 2 September 2016, the Plaintiffs filed an Inter Parte Summons (‘‘the Inter Parte Summons’’) seeking the following reliefs against, inter alia, the Company and the Directors of the Company that until further order of the Court, the Company and the Directors (whether acting by themselves, their officers, servants, agents or otherwise howsoever) be restrained from: (i) recognizing or giving effect or to otherwise taking any step to implement the Purported Options in relation to the exercise of any of the 200,000,000 share options out of the Purported Options, which was described by the Company as having been accepted by the grantee(s) and for which no share has been issued and the excise of any of the 200,000,000 share options out of the Purported Options which the Company described as not having been accepted by the grantee(s) and have lapsed; (ii) recognizing or giving effect or otherwise taking into account the 1,600,000,000 shares in the Company (‘‘the Impugned Shares’’) issued to and registered in the names of the grantees on 23 August 2016 pursuant to the Purported Options for the following purposes: (a) determining the Plaintiffs’ shareholding in the Company as at 23 August 2016, the date of the Plaintiffs’ Requisition; (b) challenging or otherwise disputing the Plaintiffs’ right to convene an extraordinary general meeting of the Company for the purpose of considering the proposed resolutions contained in the Plaintiffs’ Requisition in the event that the Board does not within 21 days of the deposit of the Plaintiff’s Requisition proceed to convene an extraordinary general meeting; (c) challenging or otherwise disputing the validity of the ‘‘pre-conditional voluntary conditional securities

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GENERAL INFORMATION

APPENDIX II

exchange and cash offer’’ contained in the Joint Announcement made by Favourite Number Limited and WLS Holdings Limited on 18 August 2016; (iii) taking or procuring the taking, of any steps to alter the issued share capital of the Company except with the approval of the Court; (iv) taking or procuring the taking, of any steps to frustrate or defeat the Plaintiffs’ Requisition and, alternatively, the Company and the Directors do convene an Extraordinary General Meeting of the Company to be held for the purpose of considering, inter alia, the proposed resolutions contained in the Plaintiffs’ Requisition within the next 3 days of the order to be made by the Court, or alternatively, the Directors do within the next 14 days acquire 1,600,000,000 shares in the Company and return them to the Company for cancellation, whereupon the Company shall within the next 7 days cancel those shares and pay the amount received by the Company from the issue of 1,600,000,000 shares in the Company pursuant to the Purported Options to the Directors.

The Inter Parte Summons was heard on 1 and 2 November 2016. Upon the Company and the Directors’ undertaking to (i) restrain from recognizing, giving effect or otherwise taking any step to implement the Purported Options in relation to the exercise of any of the 200,000,000 share options out of Purported Options, which was described by the Company as having been accepted by the grantee(s) and for which no share has been issued and the exercise of any of the 200,000,000 share options out of the Purported Options, which the Company described as not having been accepted by the grantee(s) and have lapsed; and (ii) restrain from taking or procuring the taking, of any steps to alter the issued share capital of the Company unless and until the Company has given the Plaintiffs 5 working days prior written notice of their intention to do so, the Court has, inter alia, ordered on 2 November 2016 that there be a speedy trial of this proceedings on dates to be fixed.

No injunction order was made against the Company and the directors of the Company. The Company is seeking legal advice in respect of the Legal Proceedings of the Share Options. In the opinion of the directors of the Company, no contingent liability is expected up to the Latest Practicable Date.

(c) Legal proceedings

Reference is made to the Company’s announcement dated 28 November 2016. The Company has on 26 November 2016 received a writ of summons (‘‘Mr. Kim’s First Writ’’) filed by Mr. Kim Sungho (‘‘Mr. Kim’’) as the plaintiff against (i) Mr. Ng Ka Ho, an executive director of the Company (‘‘Mr. Ng’’); (ii) Mr. Wong Chiu Po, a nonexecutive director of the Company (‘‘Mr. Wong’’); (iii) Mr. Kwong Lung Kei Victor, an independent non-executive director of the Company (‘‘Mr. Kwong’’); (iv) Mr. Ma Chi Ming, an independent non-executive director of the Company (‘‘Mr. Ma’’); (v) Mr. Chan Ming Sun Jonathan, an independent non-executive director of the Company (‘‘Mr. Chan’’); and (vi) the Company as the defendants under a legal proceeding (the ‘‘Kim’s First Legal Proceeding’’) in the High Court of Hong Kong (the ‘‘Court’’).

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GENERAL INFORMATION

APPENDIX II

Pursuant to claims generally indorsed on Mr. Kim’s First Writ, Mr. Kim claimed, inter alia, for a declaration that Mr. Ng, Mr. Wong, Mr. Kwong, Mr. Ma, Mr. Chan and the Company have committed offences under section 351 of Part XV of SFO which requires directors, chief executives and substantial shareholders to disclose their interest in the shares and debentures of the Company.

On 26 November 2016, the Company has also received a writ of summons (‘‘Mr. Lim’s First Writ’’) filed by Mr. Lim Hang Young (‘‘Mr. Lim’’) as the plaintiff against (i) Mr. Ng; (ii) Mr. Wong; (iii) Mr. Kwong; (iv) Mr. Ma; (v) Mr. Chan; and (vi) the Company as the defendants under a legal proceeding (the ‘‘Lim’s First Legal Proceeding’’) in the Court.

Pursuant to claims generally indorsed on Mr. Lim’s First Writ, Mr. Lim claimed, among other things, for (i) a declaration that Mr. Ng, Mr. Wong, Mr. Kwong, Mr. Ma, Mr. Chan and the Company have committed offences under section 351 of Part XV of SFO and for violation of disclosure of interests rules; and (ii) an order for the Company to exert its power under section 329 of SFO to investigate the holders of interests in its shares and debentures.

The Company has on 26 November 2016 further received a writ of summons (‘‘Mr. Joung’s First Writ’’) filed by Mr. Joung Jong Hyun (‘‘Mr. Joung’’) as the plaintiff against (i) Mr. Ng; (ii) Mr. Wong; (iii) Mr. Kwong; (iv) Mr. Ma; (v) Mr. Chan; and (vi) the Company as the defendants under a legal proceeding (the ‘‘Joung’s First Legal Proceeding’’) in the Court. Based on claims generally indorsed on Mr. Joung’s First Writ, Mr. Joung requested, among other things, for (i) a declaration that Mr. Ng, Mr. Wong, Mr. Kwong, Mr. Ma, Mr. Chan and the Company have committed offences under section 25(1) of the Organized and Serious Crime Ordinance.

Reference is made to the Company’s announcement dated 6 December 2016. The Company has on 5 December 2016 received a writ of summons (‘‘Mr. Kim’s Second Writ’’) filed on 1 December 2016 by Mr. Kim as the plaintiff against (i) Mr. Ng; (ii) Mr. Wong; (iii) Mr. Kwong; (iv) Mr. Ma; (v) Mr. Chan; (vi) the Company; and (vii) Deloitte Touche Tohmatsu, an auditor of the Company (‘‘Deloitte’’) as the defendants under a legal proceeding (the ‘‘Kim’s Second Legal Proceeding’’) in the High Court of Hong Kong.

Pursuant to claims generally indorsed on Mr. Kim’s Second Writ, Mr. Kim claimed against Mr. Ng, Mr. Wong, Mr. Kwong, Mr. Ma and Mr. Chan for (i) a declaration that the Directors conspired and directed various accounting irregularity practices by the Company and its subsidiaries; (ii) an order to pay compensation to the Company for damages. Mr. Kim further claimed against Deloitte for (i) a declaration that Mr. Kwong conducted the negligent accounting review for the Company; and (ii) an order to pay compensation to the Company for damages. The Company is enjoined in the Kim’s Second Legal Proceeding to execute any orders by the Court.

On 5 December 2016, the Company has received another writ of summons (‘‘Mr. Kim’s Third Writ’’) filed on 2 December 2016 by Mr. Kim as the plaintiff against (i) Yang’s Holdings Capital Limited, a substantial shareholder of the Company (‘‘Yang’s Holdings’’); and (ii) the Company as the defendants under another legal proceeding (the

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GENERAL INFORMATION

APPENDIX II

‘‘Kim’s Third Legal Proceeding’’) in the Court. Pursuant to claims generally indorsed on Mr. Kim’s Third Writ, Mr. Kim claimed for (i) a declaration that Yang’s Holdings beneficially holds and/or controls more than 30% of the outstanding shares in the Company and is subject to the mandatory general offer obligation; and (ii) an order that Yang’s Holdings launches obligatory mandatory general offer.

The Company has on 5 December 2016 further received a writ of summons (‘‘Mr. Joung’s Second Writ’’) filed on 3 December 2016 by Mr. Joung as the plaintiff against (i) Mr. Ng; (ii) Mr. Wong; (iii) Mr. Kwong; (iv) Mr. Ma; (v) Mr. Chan; (vi) the Company; and (vii) Yang’s Holdings as the defendants under a legal proceeding (the ‘‘Joung’s Second Legal Proceeding’’) in the Court. Based on claims generally indorsed on Mr. Joung’s Second Writ, Mr. Joung claimed, among other things, for (i) a declaration that the Directors, the Company and Yang’s Holdings have conspired for stock price manipulation, using the multi-layer marketing methods, and caused enormous loss to independent shareholders of the Company; and (ii) an order that the Directors, the Company and Yang’s Holdings to pay HK$500,000,000 to the independent shareholders of the Company.

The Company has on 8 December 2016 further received a writ of summons (‘‘Mr. Lee’s Writ’’) dated 5 December 2016 filed by Mr. Lee Moonkyu (‘‘Mr. Lee’’) as the plaintiff against (i) Mr. Ng; (ii) Mr. Wong; (iii) Mr. Kwong; (iv) Mr. Ma; (v) Mr. Chan; (vi) the Company; and (vii) Mr. Yang Sit Hang as the defendants (collectively, the ‘‘Defendants in Lee’s Legal Proceeding’’) under a legal proceeding (the ‘‘Lee’s Legal Proceeding’’) in the High Court of Hong Kong.

Pursuant to claims generally indorsed on Mr. Lee’s Writ, Mr. Lee claimed, inter alia, for (i) a declaration that the Defendants in Lee’s Legal Proceeding have committed offences under Section 25(1) of the Organized and Serious Crime Ordinance; and (ii) a declaration that the Defendants in Lee’s Legal Proceeding have conspired for stock price manipulation, using the multi-layer marketing methods, and caused enormous loss to independent shareholders of the Company.

The Company has on 12 December 2016 received a writ of summons (‘‘Mr. Lim’s Second Writ’’) dated 6 December 2016 filed by Mr. Lim as the plaintiff against (i) Mr. Ng; (ii) Mr. Wong; (iii) Mr. Kwong; (iv) Mr. Ma; (v) Mr. Chan; (vi) the Company; (vii) Yang Wan Ho, a substantial shareholder of the Company; and (viii) Mr. Ge Qingfu, a substantial shareholder of the Company as the defendants (collectively, the ‘‘Defendants in Lim’s Second Legal Proceeding’’) under a legal proceeding (the ‘‘Lim’s Second Legal Proceeding’’) in the High Court of Hong Kong.

Pursuant to claims generally indorsed on Mr. Lim’s Second Writ, Mr. Lim claimed, inter alia, for (i) a declaration that the Defendants in Lim’s Second Legal Proceeding have committed offences under Part XV of SFO and for false disclosure of interest; and (ii) a declaration that the Defendants in Lim’s Second Legal Proceeding have engaged in the multi-layer marketing scheme to improperly boost the stock price of the Company to 85 times the current level (in the past 52 weeks), to market capitalisation of over HK$20 billion, only drop back to the current level.

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GENERAL INFORMATION

APPENDIX II

Reference is made to the Company’s announcement dated 23 December 2016. The Company has on 23 December 2016 received a writ of summons (‘‘Mr. Lim’s Third Writ’’) dated 16 December 2016 filed by Mr. Lim as the plaintiff against (i) the Stock Exchange; (ii) Yu Ming Investment Management Limited (‘‘Yu Ming’’); and (iii) the Company as the defendants under a legal proceeding (‘‘Lim’s Third Legal Proceeding’’) in the High Court of Hong Kong.

Pursuant to the claims generally indorsed on Mr. Lim’s Third Writ, Mr. Lim sought, inter alia, for (i) a declaration against Stock Exchange that the Stock Exchange has acted in bad faith in the vetting of the share subscription during the general offer period; (ii) an order against Stock Exchange to rescind all listing approvals; (iii) a declaration against Yu Ming that Yu Ming purposefully ill advised the Company to break various Listing Rules, including assisting the Company in its multi-layer marketing scheme; and (iv) an order against the Company to apply for self-delisting.

Reference is made to the Company’s announcement dated 28 December 2016. The Company has on 28 December 2016 received a writ of summons (‘‘Mr. Kim’s Fourth Writ’’) dated 20 December 2016 filed by Mr. Kim as the plaintiff against (i) Gram Capital; (ii) Mr. Wong; (iii) Mr. Mai Chi Ming; (iv) Mr. Chan; and (v) the Company as the defendants (collectively, the ‘‘Defendants in Kim’s Fourth Legal Proceeding’’) under a legal proceeding (‘‘Kim’s Fourth Legal Proceeding’’) in the High Court of Hong Kong.

Pursuant to the claims generally indorsed on Mr. Kim’s Fourth Writ, Mr. Kim sought, inter alia, for (i) a declaration against the Defendants in Kim’s Fourth Legal Proceeding that the Defendants in Kim’s Fourth Legal Proceeding have conspired to assist the owners of the Company to commit offences under Section 25(1) of the Organised and Serious Crime Ordinance, i.e. they knew, or had reasonable grounds to believe, that on multifarious and repetitive occasions, and through complex ‘‘layering’’ vehicles mostly related to the Company, were dealing with the proceeds of an indictable offence; and (ii) an order against Gram Capital that Gram Capital to immediately resign as independent financial adviser to the Company.

The Company will contest the above legal proceedings and is seeking legal advice in respect of Kim’s First, Second, Third and Fourth Legal Proceeding, Lim’s First, Second and Third Legal Proceeding, Joung’s First and Second Legal Proceeding and Lee’s Legal Proceeding (collectively, the ‘‘Legal Proceedings’’) and will make further announcement(s) to keep its shareholders and investors informed of any significant development of the Legal Proceedings as and when appropriate.

Save as disclosed above, as at the Latest Practicable Date, neither the Company nor any member of the Group was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance was known to the Directors to be pending or threatened by or against the Company or any member of the Group.

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APPENDIX II

7. MATERIAL CONTRACTS

As at the Latest Practicable Date, the following contracts (not being contracts entered into in the ordinary course of business) have been entered into by the Company within the two years preceding the Offer Announcement dated 14 October 2016 and ending on the Latest Practicable Date and are or maybe material in relation to the business of the Company as a whole:

(a) the placing agreement dated 21 July 2016 (as supplemented by a supplemental agreement dated 4 August 2016) entered into between FP Sino-Rich Securities & Futures Limited and the Company, pursuant to which the Company has conditionally agreed to place, on a best efforts basis, up to 2,869,886,385 Shares to independent third parties;
(b) the strategic cooperation framework agreement dated 11 May 2016 entered into between Shanghai Asia Television Art Center* (上海亞洲電視藝術中心), Red 5 Studios, Inc. and the Company in relation to long term strategic cooperation relationship in different areas;
(c) the sale and purchase agreement dated 28 April 2016 entered into among New Star International Development Limited, SOPD, Incsight Limited, Zhu Jun, Lai Kwok Ho, Li Jia, Chi Weina, Ji Wei, The9 Limited and the Company in relation to the acquisition of approximately 47.63% equity interest of Red 5 Studios, Inc.;
(d) the acquisition agreement dated 22 April 2016 with an independent third party, pursuant to which the Company conditionally agreed to purchase 55.56% equity interests of Aji On Worldwide Holdings Limited; and
(e) the conditional sale and purchase agreement on 25 January 2016 entered into between Ganzhou Zhanggong Economic Zone Development and Construction Limited (贛州章貢經濟開發區開發建設有限公司) and Rise More Corporation Limited, being an indirect wholly-owned subsidiary of the Company, in connection with the sale and purchase of 100% equity interest in the Ganzhou Rise More Knitters Limited (贛州溢升織造有限公司).

8. EXPERT AND CONSENT

The following are the qualification of the expert contained in this Response Document:

Name Qualification

Gram Capital Limited

a licensed corporation to carry out type 6 (advising on corporate finance) regulated activity under the SFO

For identification purpose only

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GENERAL INFORMATION

APPENDIX II

Gram Capital has given and has not withdrawn its written consent to the issue of this Response Document with the inclusion of the text of its letter and/or report and/or the reference to its name in the form and context in which they appear herein.

As at the Latest Practicable Date, Gram Capital did not have any shareholding in any member of the Group and did not have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, Gram Capital did not have any direct or indirect interest in any assets which have been, since 31 March 2016 (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 Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

9. MISCELLANEOUS

The English text of this Response Document shall prevail over their respective Chinese text in case of inconsistency.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection (i) on the website of the Company (http://www.lna.com.hk/) and the website of the SFC (http://www.sfc.hk); and (ii) at the principal office and place of business of the Company in Hong Kong at Flat 1, Block C, 11/F, Phase 5, HK Spinner Industrial Building, 762 Cheung Sha Wan Road, Kowloon, Hong Kong during normal business hours on any Business Day from 30 December 2016, being the date of this Response Document up to and including the Closing Date:

(a) the memorandum and articles of association of the Company;
(b) the annual reports of the Company for the years ended 31 March 2015 and 2016;
(c) the interim report of the Company for six months ended 30 September 2016;
(d) the first quarterly report of the Company for the three months ended 30 June 2016;
(e) the letter from the Board, the text of which is set out on pages 6 to 17 of this Response Document;
(f) the letter from the Independent Board Committee to the Independent Shareholders and Optionholders, the text of which is set out on pages 18 to 19 of this Response Document;
(g) the letter from Gram Capital to the Independent Board Committee, the text of which is set out on pages 20 to 41 of this Response Document;
(h) the service contracts referred to in the paragraph headed ‘‘5. Service contracts’’ of this Appendix II;

– II-13 –

GENERAL INFORMATION

APPENDIX II

(i) the material contracts referred to in the paragraph headed ‘‘7. Material contracts’’ of this Appendix II;
(j) the written consent from Gram Capital referred to in the paragraph headed ‘‘8. Expert and consent’’ of this Appendix II; and
(k) this Response Document.

– II-14 –

AI assistant

Legendary Education Group Ltd. — M&A Activity 2016

51321_rns_2016-12-29_f39d4daf-635a-4033-a0b1-22a35624b352.pdf

L & A International Holdings Limited 樂 亞 國 際 控 股 有 限 公 司

RESPONSE DOCUMENT

DEFINITIONS

DEFINITIONS

L & A International Holdings Limited 樂 亞 國 際 控 股 有 限 公 司

INTRODUCTION

THE OFFERS

The Share Offer

For every 25 existing Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 new QPL Share

The Option Offer

For cancellation of every 500 Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 new QPL Shares

LETTER FROM THE BOARD

Value of the Offers

Conditions of the Offers

Warning:

Further details of the Offers

INFORMATION ON THE GROUP

Financial information

Recent development of the Company

(i) The FNL Possible Offers

(ii) Removal of a Director

(iii) The Requisition

(iv) Litigations

SHAREHOLDING STRUCTURE OF THE COMPANY

INFORMATION ON THE OFFEROR AND INTENTIONS OF THE OFFEROR REGARDING THE GROUP

LETTER FROM THE BOARD

LISTING STATUS OF THE COMPANY

it will consider exercising its discretion to suspend dealings in the L&A Shares.

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

ADDITIONAL INFORMATION

L & A International Holdings Limited 樂 亞 國 際 控 股 有 限 公 司

RECOMMENDATION

Yours faithfully,

INTRODUCTION

OUR INDEPENDENCE

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

The Share Offer

The Option Offer

(2) Information on the Group

Financial information

Recent development of the Company

(i) The FNL Possible Offers

(ii) Retirement of a Director

(iii) The Requisition

(iv) Litigations

(3) Information on QPL

(4) Intention of the Offeror in relation to the Group

(5) Analysis of the Share Offer

(a) Share price performance

Historical daily closing price per QPL Share

Share price performance of the Company

Historical daily closing price per Share

Premium/(discount) compared between the Daily Ascribed Value over/to the closing price per Share

(b) Liquidity

(c) Comparison with other comparable companies

(6) The Option Offer

For cancellation of every 500 Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 new QPL Shares

RECOMMENDATION

1. FINANCIAL SUMMARY

2. AUDITED CONSOLIDATED FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL INFORMATION AND BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (‘‘HKFRSs’’)

New and revised HKFRSs in issue but not yet effective

HKFRS 9 ‘‘Financial Instruments’’

HKFRS 15 ‘‘Revenue from Contracts with Customers’’

HKFRS 16 ‘‘Leases’’

3. SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

Merger accounting for business combination involving entities under common control

Revenue recognition

Legendary Education Group Ltd. M&A Activity 2016

L & A International Holdings Limited 樂亞國際控股有限公司

L & A International Holdings Limited 樂亞國際控股有限公司

L & A International Holdings Limited 樂亞國際控股有限公司