Millennium Pacific Group Holdings Limited — Proxy Solicitation & Information Statement 2019

Sep 25, 2019

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Millennium Pacific Group Holdings Limited (the ‘‘Company’’), you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the licensed securities dealer or registered institution in securities, the bank or other agent through whom the sale and transfer was effected for transmission to the purchaser or the transferee.

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

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

Millennium Pacific Group Holdings Limited 匯 思 太 平 洋 集 團 控 股 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8147)

MAJOR TRANSACTION

FURTHER ACQUISITION OF 35% OF THE ISSUED SHARE CAPITAL OF THE TARGET COMPANY INVOLVING ISSUE OF CONSIDERATION SHARES UNDER SPECIFIC MANDATE

AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

A notice convening the extraordinary general meeting of the shareholders of the Company to be held at 7th Floor, Nexxus Building, 77 Des Voeux Road Central, Hong Kong at 11:30 a.m. on Monday, 14 October 2019 is set out on pages EGM-1 of this circular and a form of proxy for use at the extraordinary general meeting is enclosed herein.

Whether or not you are able to attend the meeting, please complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch share registrar and transfer office in Hong Kong, Tricor Investor Services Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not later than 48 hours before the time appointed for the extraordinary general meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the extraordinary general meeting or any adjournment thereof should you so wish.

This circular will remain on the GEM website at www.hkgem.com on the ‘‘Latest Listed Company Information’’ page for at least 7 days from the date of posting and on the Company’s website at www.mpgroup.hk.

25 September 2019

CHARACTERISTICS OF GEM

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

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

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CONTENTS

		Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		4
Appendix I	— Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix IIA	— Accountants’ report of the Target Group . . . . . . . . . . . . . . . . . . .	IIA-1
Appendix IIB	— Accountants’ report of the Sky Dynasty Group . . . . . . . . . . . . .	IIB-1
Appendix IIIA	— Management Discussion and Analysis
	on the Target Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IIIA-1
Appendix IIIB	— Management Discussion and Analysis
	on the Sky Dynasty Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IIIB-1
Appendix IV	— Unaudited pro forma financial information
	of the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
Appendix V	— Valuation Report of Shenzhen Ampeg . . . . . . . . . . . . . . . . . . . . . .	V-1
Appendix VI	— General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VI-1
Notice of EGM	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

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DEFINITIONS

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

• ‘‘Acquisition’’ the acquisition of the Sale Shares by the Purchaser from the Vendor pursuant to the Sale and Purchase Agreement

• ‘‘associate(s)’’ has the same meaning as is defined in the GEM Listing Rules

• ‘‘Board’’ the board of Directors

• ‘‘Business Day(s)’’ a day (excluding Saturday and any day on which a tropical cyclone warning no. 8 or above or a ‘‘black’’ rainstorm warning is hoisted or remains hoisted between 9:00 a.m. and 12:00 noon and is not lowered or discontinued at or before 12:00 noon) on which licensed banks in Hong Kong are open for business

• ‘‘BVI’’ the British Virgin Islands

• ‘‘Company’’ Millennium Pacific Group Holdings Limited, a company incorporated in the Cayman Islands with limited liability and whose shares are listed on GEM (stock code: 8147)

• ‘‘Completion’’ completion of the Sale and Purchase Agreement

• ‘‘Completion Date’’ the third Business Day after the fulfillment (or, where applicable, waiver) of all the conditions set out in the Sale and Purchase Agreement or such other date as the Vendor and the Purchaser may agree in writing as the date on which Completion shall take place

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

• ‘‘Consideration’’ HK$27,500,000 as the purchase price of the Sale Shares (subject to adjustment)

• ‘‘Consideration Shares’’ a total of 122,767,857 Shares to be allotted and issued to the Vendor as settlement of the Consideration

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

• ‘‘EGM’’

the extraordinary general meeting of the Company to be convened on Monday, 14 October 2019 to approve, among others, if thought fit, approving, among others, (i) the Sale and Purchase Agreement, the Supplemental Agreement and the transaction contemplated thereunder; and (ii) the Specific Mandate

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DEFINITIONS

• ‘‘GEM’’

• GEM operated by the Stock Exchange

• ‘‘GEM Listing Rules’’

• the Rules Governing the Listing of Securities on GEM

• ‘‘Group’’

• collectively, the Company and its subsidiaries

• ‘‘HK Subsidiary’’

• Sky Dynasty Investments Limited, a company incorporated in Hong Kong with limited liability

• ‘‘Hong Kong’’ Hong Kong Special Administrative Region of the People’s Republic of China

• ‘‘Issue Price’’

• HK$0.224 per Consideration Share being the adjusted price upon the Share Consolidation having become effective

• ‘‘Latest Practicable Date’’

• 20 September 2019, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular

• ‘‘Long Stop Date’’

• 30 November 2019 or such later date as the Vendor and the Purchaser may from time to time agree in writing

• ‘‘PRC’’

• the People’s Republic of China, which for the purpose of this circular excludes Hong Kong, the Macau Special Administrative Region of the People’s Republic of China and Taiwan

• ‘‘Previous Acquisition’’

• the acquisition of 11% of the issued share capital of the Target Company by the Purchaser from the Vendor, further particulars of which are set out in the paragraph headed ‘‘Previous Acquisition’’ in the section headed ‘‘Letter from the Board’’ in this circular

• ‘‘Previous Announcements’’

• the announcements of the Company dated 4 September 2018 and 21 September 2018 relating to the Previous Acquisition

• ‘‘Purchaser’’

• Millennium Pacific International Group Limited, a company incorporated in the BVI with limited liability and a wholly owned subsidiary of the Company

• ‘‘Sale and Purchase Agreement’’ the sale and purchase agreement dated 24 May 2019 in respect of the Acquisition entered into between the Vendor and the Purchaser (as amended and supplemented from time to time, including by the Supplemental Agreement)

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DEFINITIONS

• ‘‘Sale Share(s)’’ 35 shares of nominal value of US$1.00 each in the share capital of the Target Company, representing 35% of the entire issued share capital of the Target Company and held by the Vendor immediately before Completion

• ‘‘SFO’’ the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• ‘‘Share(s)’’ ordinary share(s) of nominal value of HK$0.0016 each in the share capital of the Company

• ‘‘Share Consolidation’’ the consolidation of every eight (8) Shares into one (1) Share, which became effective on 29 May 2019

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

• ‘‘Shenzhen Ampeg’’ 深圳市艾普科技有限公司 (Shenzhen Ampeg Technology Company Limited), a wholly foreign-owned enterprise established in the PRC

• ‘‘Sky Dynasty Group’’ collectively, the HK Subsidiary and Shenzhen Ampeg

• ‘‘Specific Mandate’’ the specific mandate to be sought from the Shareholders (with the Vendor abstaining from voting) at the EGM to authorise the Directors to allot and issue the Consideration Shares

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

• ‘‘Supplemental Agreement’’ the supplemental agreement dated 29 August 2019 entered into between the Vendor and the Purchaser to amend and supplement the Sale and Purchase Agreement

• ‘‘Target Company’’ Celestial Rainbow Limited, a company incorporated in the BVI with limited liability

• ‘‘Target Group’’ the group of companies consisting of the Target Company, the HK Subsidiary and Shenzhen Ampeg

• ‘‘Vendor’’

Ma Xingjin, an individual

• ‘‘HK$’’ Hong Kong dollar(s), the lawful currency of Hong Kong

• ‘‘RMB’’

• Renminbi, the lawful currency of the PRC

• ‘‘US$’’

• United States dollar(s), the lawful currency of the United States of America

• ‘‘%’’

per cent.

• for identification purposes only

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LETTER FROM THE BOARD

Millennium Pacific Group Holdings Limited 匯 思 太 平 洋 集 團 控 股 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8147)

Executive Directors: Mr. Wang Li Mr. Wu Yong Fu Mr. Zhou Chuang Qiang

Non-executive Director: Mr. Chong Yu Keung

Registered office: Clifton House 75 Fort Street P.O. Box 1350 Grand Cayman KY1-1108 Cayman Islands

Independent Non-executive Directors:

Mr. Huang Jian Mr. Zheng Wan Zhang Mr. Wong Tik Tung

Principal place of business in Hong Kong: Unit 5, 4/F, Energy Plaza No. 92 Granville Road Tsim Sha Tsui East, Kowloon Hong Kong

25 September 2019

To the Shareholders:

Dear Sir or Madam,

MAJOR TRANSACTION FURTHER ACQUISITION OF 35% OF THE ISSUED SHARE CAPITAL OF THE TARGET COMPANY INVOLVING ISSUE OF CONSIDERATION SHARES UNDER SPECIFIC MANDATE

INTRODUCTION

References are made to the announcements of the Company dated 24 May 2019, 9 August 2019 and 29 August 2019 in relation to, among other things, the Acquisition.

The purpose of this circular is to provide you with, among other things, (i) further details of the Sale and Purchase Agreement and the Acquisition; (ii) financial information and other information of the Group; (iii) financial information and other information of the Target Group; (iv) the unaudited pro forma financial information of the Group; and (v) a notice convening the EGM.

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LETTER FROM THE BOARD

THE SALE AND PURCHASE AGREEMENT

The principal terms of the Sale and Purchase Agreement are summarised as follows:

Date: 24 May 2019 (after trading hours) Parties: the Vendor, an individual; and the Purchaser, a wholly-owned subsidiary of the Company.

As at the Latest Practicable Date, to the best of the Directors’ knowledge, information and belief, and having made all reasonable enquiries, the Vendor is a third party independent of the Company and its connected person(s), save that the Vendor is holding 1,113 Shares, being approximately 0.0001% of the issued share capital of the Company, and 89% of the issued share capital of the Target Company.

Assets to be acquired

Subject to the terms of the Sale and Purchase Agreement, the Vendor shall sell and the Purchaser shall purchase the Sale Shares with effect from Completion free from all encumbrances and with all rights attaching thereto on or after the Completion Date (including but not limited to the right to receive all dividends and distributions the record date of which falls on or after the Completion Date).

Consideration

The Consideration shall be HK$27,500,000, subject to adjustment as provided below, which shall be paid on the Completion Date by way of the Purchaser procuring the Company to issue the Consideration Shares to the Vendor (or its nominee). In the event that the net profit after taxation but before extraordinary items of Shenzhen Ampeg for the year ending 31 December 2019 (the ‘‘Net Profit’’) as shown in its audited financial statements for the above year is less than RMB6,701,545.90 (the ‘‘Benchmark Amount’’), then the Consideration shall be reduced by an amount in the following manner:

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where:

• ‘‘A’’ means the amount by which the Consideration shall be reduced (the ‘‘Reduction Amount’’) in HK$;

• ‘‘B’’ means the conversion rate of RMB0.88 to HK$1;

• ‘‘C’’ means a multiple of 10;

• ‘‘D’’ means the number of Sale Shares; and

• ‘‘E’’ means the total number of shares of the Target Company in issue as at the Completion Date.

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LETTER FROM THE BOARD

The Benchmark Amount is determined after arm’s length negotiations between the Purchaser and the Vendor with reference to, among others: (i) the profit of Shenzhen Ampeg for the year ended 31 December 2018; (ii) the Previous Acquisition; and (iii) the current market situation. The conversion rate is determined by the spot exchange rate of Renminbi to Hong Kong dollars on the day end of the date of the Sale and Purchase Agreement according to Bloomberg website.

On the above calculation, ‘‘C’’ represents a multiple of 10 (which is the same as the one applied in the Previous Acquisition) of the Reduction Amount, which was determined after arm’s length negotiations between the Purchaser and the Vendor and with reference to a reasonable discount level to the price to earnings ratios (the ‘‘P/E Ratio’’) of the comparable companies under the valuation of the Acquisition (being an average P/E Ratio of 16.6), having taken into account the trade war between the United States and the PRC which may temporarily affect the financial performance of Shenzhen Ampeg in the coming year. Reference is made to the Previous Announcements. The same calculation with the multiple of 10 was applied in calculating the reduction amount in the Previous Acquisition. The multiple of 10 in the Previous Acquisition was determined having taken into account the following factors: (i) reasonable discount and rounding down to the P/E Ratio of the comparable companies under the valuation of the Previous Acquisition (being an average P/E Ratio of around 13.8); and (ii) the then business development of Shenzhen Ampeg. Shenzhen Ampeg was able to meet the net profit of RMB6,192,488.29 as the benchmark amount in the Previous Acquisition. The Directors (including the independent non-executive Directors) consider that the method of calculating the adjustment of the Consideration is fair and reasonable and in the interest of the Company and the Shareholders as a whole. The audited financial statements of Shenzhen Ampeg for the year ending 31 December 2019 will be prepared in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants.

The Vendor shall pay to the Purchaser the Reduction Amount (without any reduction or deduction) in cash by depositing into a bank account to be designated by the Purchaser (or such other manner as the parties to the Sale and Purchase Agreement may agree) within five (5) Business Days from the date on which the Net Profit becomes available.

For the avoidance of doubt, in the event that the Net Profit is equal to or higher than the Benchmark Amount, the Consideration will not be adjusted, and the Consideration will not be adjusted in any event save as provided above. In the event that the Net Profit is nil, the maximum Reduction Amount will be approximately HK$26,653,876 according to the above adjustment. In the event that Shenzhen Ampeg incurs a net loss for the year ending 31 December 2019, the Reduction Amount shall be calculated as if the Net Profit is nil.

For the purpose of determining the Net Profit, the Net Profit as shown in Shenzhen Ampeg’s audited financial statements for the year ending 31 December 2019, as confirmed by the auditors of the Company for the time being, shall be binding and conclusive on the parties to the Sale and Purchase Agreement, save for manifest errors.

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LETTER FROM THE BOARD

The Consideration was determined after arm’s length negotiations between the Purchaser and the Vendor with reference to, among other things: (i) the Previous Acquisition; (ii) the preliminary appraised value of 35% of the equity interest in Shenzhen Ampeg as at 31 March 2019 as conducted by an independent valuer of RMB28.7 million with market approach which provides an indication of value by comparing the value of the Target Group with similar companies for which price information is available, and that in the valuation report P/E Ratio multiple method (which the average of the comparable companies being 16.6) was employed (the Consideration of HK$27.5 million represents a discount of approximately 4.18% to the appraised value of the same under the valuation); (iii) the historical financial performance and future business prospects of the Target Group; and (iv) the expected business synergy between the Group and the Target Group.

The P/E Ratio of the Target Group is approximately 10.04, which falls within the range of the above comparable companies under the valuation, ranging from 7.20 to 35.33. Given the Target Group is profit making and discount to the appraised value by the independent valuer, the Directors (including the independent non-executive Directors) are of the view that the Consideration is fair and reasonable and in the interest of the Company and the Shareholders as a whole.

Consideration Shares

A total of 122,767,857 Consideration Shares are to be allotted and issued to the Vendor as settlement of the Consideration. The Consideration Shares represent (i) approximately 15.96% of the issued share capital of the Company as at the Latest Practicable Date; and (ii) approximately 13.77% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares (assuming that there is no other change to the issued share capital of the Company from the Latest Practicable Date up to Completion). The Consideration Shares will be allotted and issued pursuant to the Specific Mandate.

The allotment and issue of the Consideration Shares will not result in a change of control of the Company.

The issue price of HK$0.224 per Consideration Share represents:

• (i) a discount of approximately 15.15% to the closing price of HK$0.264 per Share (as adjusted for the Share Consolidation) as quoted on the Stock Exchange on 24 May 2019, being the date of the Sale and Purchase Agreement;

• (ii) a discount of approximately 15.15% to the average closing price of HK$0.264 per Share (as adjusted for the Share Consolidation) as quoted on the Stock Exchange for the last five consecutive trading days up to and including the date of the Sale and Purchase Agreement;

• (iii) a discount of approximately 18.37% to the average of the closing price of HK$0.2744 per Share (as adjusted for the Share Consolidation) as quoted on the Stock Exchange for the ten consecutive trading days up to and including the date of the Sale and Purchase Agreement;

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LETTER FROM THE BOARD

• (iv) a discount of approximately 15.47% to the closing price of HK$0.265 per Share as quoted on the Stock Exchange on the Latest Practicable Date;

• (v) a premium of approximately 540% to the net asset value per Share of approximately HK$0.035 based on the unaudited net asset value of the Group as at 30 June 2019 and the total number of issued Shares as at the Latest Practicable Date; and

• (vi) a discount of approximately 82.39% to the issue price per consideration share of HK$1.272 for the Previous Acquisition (as adjusted for the Share Consolidation).

The Issue Price was determined after arm’s length negotiations between the Company and the Vendor with reference to (i) the Target Group being a profit-making company and/or revenue-generating business with reference to the Target Group’s P/E Ratio; (ii) similar discount rates of the Issue Price and the issue price of the Previous Acquisition compared to the then benchmarked prices; (iii) the prevailing market price of the Shares; and (iv) the Issue Price being at a premium to the net asset value per Share. In view of the above, the Directors are of the view that the Issue Price is fair and reasonable and in the interest of the Company and the Shareholders as a whole.

The Company has been closely monitoring the Share price of the Shares during the last twelve months. According to the website of the Stock Exchange, the daily closing prices of the Share have an overall downward trend and they represent premium to the Issue Price during the twelve months immediately prior to the date of the Sale and Purchase Agreement. The Share prices decreased by approximately 86.31% from 25 May 2018 to 24 May 2019 and had more than 7 times difference between the highest and lowest during the period. In addition to the Share price, the Company has also taken into account the liquidity of the Shares. According to the website of the Stock Exchange, for the three months immediately prior to the date of the Sale and Purchase Agreement, the average daily trading volume during the period as a percentage of the number of issued Shares on the date of the Sale and Purchase Agreement is approximately 0.07%, which is extremely thin. In view of the daily closing prices and the extremely thin trading volume in the Shares, the Directors (including the independent nonexecutive Directors) consider that the discount in Issue Price is fair and reasonable and in the interest of the Company and the Shareholders as a whole.

Ranking of the Consideration Shares

The Consideration Shares shall rank pari passu in all respects with the Shares in issue on the date of such allotment and issue including the right to all dividends, distributions and other payments made or to be made for which the record date falls on or after the date of such allotment and issue.

Specific Mandate

The Specific Mandate for the allotment and issue of the Consideration Shares will be obtained at the EGM from the Shareholders by way of ordinary resolution.

Any Shareholder who has a material interest in the Acquisition must abstain from voting at the EGM. As at the Latest Practicable Date, the Vendor was interested in 1,113 Shares, representing approximately 0.0001% of the issued share capital of the Company. Since the

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LETTER FROM THE BOARD

Vendor has a material interest in the Acquisition, he will abstain from voting at the EGM. To the best of the Directors’ knowledge, information and belief, save as disclosed above, no other Shareholders will be required to abstain from voting at the EGM.

Application for Listing of the Consideration Shares

An application will be made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares.

Conditions Precedent

Completion is subject to the following conditions being fulfilled and remaining satisfied as at Completion (or, where applicable, waived):

• (a) the Listing Committee of the Stock Exchange having granted or having agreed to grant the listing of, and permission to deal in, the Consideration Shares (whether with or without conditions);

• (b) the approval for the Sale and Purchase Agreement and all the transactions contemplated thereunder and the Specific Mandate having been obtained from the Shareholders by way of the passing of resolution(s) at the EGM;

• (c) the transactions contemplated under the Sale and Purchase Agreement not having constituted, and not having been considered or deemed by the Stock Exchange to constitute, a reverse takeover (within the meaning of Rule 19.06(6) of the GEM Listing Rules) of the Company;

• (d) (if required) all requisite waivers, consents and approvals from any relevant governments or regulatory authorities or other relevant third parties in connection with the transactions contemplated by the Sale and Purchase Agreement having been obtained;

• (e) the Purchaser being satisfied with the results of the due diligence exercise (whether legal, accounting, business, financial operational or other aspects that the Purchaser considers relevant) on the Target Group and their related business assets, liability, activities, operations, prospects and other status which the Purchaser, its agents or professional advisers think necessary and appropriate to conduct;

• (f) the Purchaser being satisfied, from the date of the Sale and Purchase Agreement and at any time before the Completion, that the representations, warranties and undertakings given by the Vendor under the Sale and Purchase Agreement remain true, accurate, not misleading or in breach in any material respect and that no events have suggested that there has been any breach of any warranties or other provisions of the Sale and Purchase Agreement by the Vendor;

• (g) the Purchaser being satisfied that, from the date of the Sale and Purchase Agreement to Completion, there has not been any material adverse change in respect of any member of the Target Group; and

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LETTER FROM THE BOARD

• (h) the Vendor not having received notice of any injunction or other order, directive or notice restraining or prohibiting the consummation of the transactions contemplated by the Sale and Purchase Agreement and there being no action seeking to restrain or prohibit the consummation thereof, or seeking damages in connection therewith, which is pending or any such injunction, other order or action which is threatened.

The Purchaser may at its absolute discretion at any time waive in writing any of the conditions (e) to (g) above (to the extent it is capable of waiving) and such waiver may be made subject to such terms and conditions as determined by the Purchaser. For the avoidance of doubt, none of the parties to the Sale and Purchase Agreement may waive any other conditions.

If the above conditions are not fulfilled (or, where applicable, waived) on or before the Long Stop Date, the Sale and Purchase Agreement shall lapse and be of no further effect except clauses relating to rescission, confidentiality, notice, governing law and other miscellaneous items, and no party to the Sale and Purchase Agreement shall have any claim against or liability to the other party, save in respect of any antecedent breaches of the Sale and Purchase Agreement, including any breaches of the conditions above.

As at the Latest Practicable Date, none of the above conditions had been fulfilled or waived, and the Company had no intention to waive any of the conditions (e) to (g) above.

Completion

Subject to satisfaction of all the conditions above in full (save for any condition the full compliance with or satisfaction of which has been waived by the Purchaser) and the Purchaser’s right under the Sale and Purchase Agreement, Completion shall take place on the Completion Date.

Financial effect of the Acquisition

Upon Completion, the Purchaser will hold 46% of the issued share capital of the Target Company. Therefore, the Target Company will be accounted for as an associated company of the Company.

PREVIOUS ACQUISITION

Reference is made to the Previous Announcements. The Purchaser acquired a total of 11% of the issued share capital of the Target Company at a consideration of HK$9,028,800 which was satisfied by the Company issuing consideration shares under general mandate. The Previous Acquisition constituted a discloseable transaction of the Company pursuant to Chapter 19 of the GEM Listing Rules. In this regard, the Company has complied with the relevant applicable GEM Listing Rules requirements in respect of the Previous Acquisition. Completion of such acquisition took place on 21 September 2018.

The Directors are pleased to inform the Shareholders that the net profit after taxation but before extraordinary items (less any government funding (政府撥款)) of Shenzhen Ampeg for the year ended 31 December 2018 as shown in its audited financial statements for the above

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LETTER FROM THE BOARD

year was not less than RMB6,192,488.29, which met the benchmark price as disclosed in the Previous Announcement. Therefore, no adjustment to the consideration under the sale and purchase agreement dated 4 September 2018 governing the Previous Acquisition is necessary.

INFORMATION ON THE TARGET GROUP

The Target Company is a company incorporated in the BVI with limited liability. As at the Latest Practicable Date, the Target Company was authorised to issue a maximum of 50,000 shares, 100 shares of which have been issued and fully paid. As at the Latest Practicable Date, the Vendor and the Purchaser were the legal and beneficial owner of 89 shares in issue and 11 shares in issue, respectively. The principal activities of the Target Company are that of a holding company.

The HK Subsidiary is a company incorporated in Hong Kong with limited liability. As at the Latest Practicable Date, the HK Subsidiary had one fully-paid share in issue. As at the Latest Practicable Date, the Target Company was the sole legal and beneficial owner of such share in issue. The principal activities of the HK Subsidiary are that of a holding company.

Shenzhen Ampeg is a wholly foreign-owned enterprise established in the PRC. As at the Latest Practicable Date, the HK subsidiary was the sole legal and beneficial owner of all the equity interests of Shenzhen Ampeg. The registered capital of Shenzhen Ampeg is RMB10,000,000, which has been contributed in full.

Business model

Shenzhen Ampeg is principally engaged in the manufacturing and sale of electronic products. Founded in 2005, Shenzhen Ampeg is a manufactory located in Shenzhen, the PRC. Shenzhen Ampeg is specialised in research and development, sales and processing, manufacturing and trading of electronic products such as smart watches, smart wristbands and other electronic products. As at the Latest Practicable Date, it owned a total of 17 patents of industrial design and software copyrights.

The business activities permitted under the business license of Shenzhen Ampeg are research and development, sales and manufacturing of multimedia players, internet TV players (ground receiving facility for satellite broadcasting excluded), tablets, laptops, mobile phones, smart home control appliances, smart wearable appliances, watches, electronic watches, electronic products, computer peripheral devices, games players, integrated circuits and chips; manufacturing of precious metals, gold products, metal crafts and other arts and crafts (business activities restricted or prohibited by PRC laws and regulations excluded); and import and export of goods and technology (distribution and commodities under monopoly control of PRC excluded).

OEM

Shenzhen Ampeg acts as an original equipment manufacturer (OEM) for its customers. The customers will provide their own designs with their own requirements and specifications to Shenzhen Ampeg. Shenzhen Ampeg is then responsible for manufacturing the products with the customers’ brand based on the customers’ specifications. Upon confirming samples/

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LETTER FROM THE BOARD

specifications of the products with the customers, the procurement department will procure raw materials from its own suppliers and the manufacturing department will manufacture the products. Shenzhen Ampeg’s quality control department will then conduct quality control tests on the finished products.

Once the products are finished and passed quality control tests, Shenzhen Ampeg will arrange for delivery to the customers in both Hong Kong and the PRC for the customers’ distribution.

ODM

Shenzhen Ampeg also acts as an original design manufacturer (ODM) for its customers. Based on Shenzhen Ampeg’s existing sample product portfolio, the customers will select the sample products they need in the portfolio and make further alternations or modifications on the sample products according to their needs, requirements and specifications of consumer electronic products, such as fitness bracelet, GPS personal navigation devices, mobile internet devices and TV set-top boxes. Shenzhen Ampeg will then review the sample products to make sure that they are made according to the customers’ requirements and with the customers’ brand. Upon confirming that the sample products comply with the product requirements and specifications, Shenzhen Ampeg will send the sample products to the customers for confirmation.

Upon obtaining approval and confirmation on the sample products from the customers, the sales department of Shenzhen Ampeg will handle the purchase orders. Upon the formal orders being placed by the customers, Shenzhen Ampeg will proceed with the production plans and schedules through the system. The procurement department will procure the raw materials from its own suppliers. Shenzhen Ampeg’s quality control department will then conduct quality control tests on the finished products.

Once the products are finished and passed quality control tests, Shenzhen Ampeg will arrange for delivery to the customers in both Hong Kong and the PRC for the customers’ distribution.

– 12 –

LETTER FROM THE BOARD

As at the Latest Practicable Date, Shenzhen Ampeg held 3 patents of industrial design in relation to smart watches and smart wristbands and 14 software copyrights, including but not limited to monitoring softwares, smart wristbands and smart watches related systems, that were legally registered with the China National Intellectual Property Administration. The details of the patents and software copyrights of Shenzhen Ampeg are set out below:

			Application
No.	Patent Version Patent	number	Date	Duration of right
1.	Health smart watch* F1 201630154598X		29-04-2016	10 years after the
	(健康腕錶)				application date
2.	Smart wristband* S10 2016300340713		29-01-2016	10 years after the
	(手環)				application date
3.	Smart wristband* S9 2016300340728		29-01-2016	10 years after the
	(手環)				application date
			Registration		Registration
No.	Software copyright	Version	Number		Date
1.	Ampeg wearable device health medical	V2	2014SR058411		12-05-2014
	monitoring software*
	(艾普可穿戴設備健康醫療監測軟件)
2.	Ampeg wearable device sports	V1	2014SR058040		20-02-2014
	monitoring and control software*
	(艾普可穿戴設備體育運動監測控制
	軟件)
3.	Ampeg wearable device blood oxygen	V1	2014SR177686		20-11-2014
	monitoring software*
	(艾普可穿戴設備血氧監測軟件)
4.	Ampeg wearable device ultraviolet	V1	2014SR177533		20-11-2014
	monitoring software* (艾普可穿戴
	設備紫外線監測軟件)
5.	Ampeg smart wristband system*	V1	2017SR085620		21-03-2017
	(艾普智能手環系統)
6.	Smart wristband S-GEAR-APP anti-	V1	2017SR084654		21-03-2017
	lost system* (智能手環S-GEAR-
	APP防丟系統)
7.	Smart wristband health Wannafit-APP	V1	2017SR087223		22-03-2017
	System* (智能手環健康Wannafit-
	APP系統)
8.	Ampeg smart pedometer heart rate	—	2017SR087124		22-03-2017
	wristband software* (艾普智能
	計步器心率手環軟件)
9.	Ampeg smart sports wristband	V1	2017SR087183		22-03-2017
	software* (艾普智能運動手環軟件)

– 13 –

LETTER FROM THE BOARD

			Registration	Registration
No.	Software copyright	Version	Number	Date
10.	Smart waterproof bluetooth sports	—	2018SR030334	12-01-2018
	watch software* (智能防水藍牙運動
	手錶軟件)
11.	Smart glasses control software*	—	2018SR031838	15-01-2018
	(智能眼鏡控制軟件)
12.	Smart health management wristband	—	2018SR030188	12-01-2018
	software*
	(智能健康管理手環軟件)
13.	Wearable device electrocardiogram	—	2018SR031433	15-01-2018
	monitoring and control system*
	(可穿戴設備心電監測控制系統)
14.	Based on smart wristband blood	—	2018SR030932	12-01-2018
	glucose health and safety monitoring
	software* (基於智能手環血糖健康
	安全監測軟件)

Manufacturing and trading of electronic products

Shenzhen Ampeg has set up a factory in Shenzhen for manufacturing the electronic products. Around 50 employees work at the factory and it is estimated that the factory can produce, including but not limited to, approximately 0.5 million of smart watches and 1.5 million of controllers within one year under normal circumstances. The sales volume of smart watches and controllers were, respectively, approximately 2,060 and 287,600 for the year ended 31 December 2018 and 2,812 and nil for the four months ended 30 April 2019.

According to the business license of Shenzhen Ampeg, the business activities permitted are research and development, sales and manufacturing of different types of electronic products. For details, please refer to page 11 of this circular for the section headed ‘‘Business model’’.

Shenzhen Ampeg has its own developed products and there are 3 patents of industrial design and 14 software copyrights that are registered throughout 2018. The main capabilities of its manufacturing business include (i) developing wearable electronic products; and (ii) different types of consumer electronic products, for example, GPS personal navigation devices, mobile internet devices and digital video recorders. Such capabilities enable Shenzhen Ampeg to manufacture consumer electronic products according to the needs of the customers. In 2017, Shenzhen Ampeg conducted manufacturing and trading of electronic products including smart watch, smart wristband and other electronic products. Shenzhen Ampeg from time to time adjusts its product portfolio within its manufacturing capability in order to meet market demand and competition and to meet its customers’ requirements. In 2018 in addition to manufacturing and trading of smart watches and smart wristbands, Shenzhen Ampeg also manufactured and traded, among others, room temperature acquisition controllers, smart phones, attitude stability controllers and speech recognitions systems. Shenzhen Ampeg thus has the capability to manufacture a wide range of electronic products according to customers’ requirements.

– 14 –

LETTER FROM THE BOARD

The Target Group focuses on the products with the advantages from the patents of industrial design and software copyrights that are mainly related to smart watch and smart wristband. It is also expected that the possible growth of the demand of other electronic products such as room temperature acquisitions controllers and attitude stability controllers will contribute further to the business development of the Target Group. The majority of the electronic products manufactured by the Target Group have gross profit margin of approximately 10% to 20%. The Target Group will manufacture different electronic products according to customers’ demand.

As at the Latest Practicable Date, the Target Group had no plans to change its business model involving the manufacture of different electronic products to adjust and to cater to the requirements of its customers and market demand and competition. As the frequent change in the product mix of the Target Group is in line with the business model of the Target Group, the Directors consider that the Acquisition is in the best interest of the Company and the Shareholders.

Shenzhen Ampeg has its own research and development department. Its team of software and hardware engineers are dedicated to the design and development of house branded electronic products. Shenzhen Ampeg’s engineers will do research and development on the product. Once the direction of the product design is identified, product development will start.

The newly designed products will then go through a review by different departments such as the sales and marketing department for approval. Upon approval being granted, the procurement department will purchase the necessary raw materials for the manufacture of the product. The products will then go through the quality control department when the products have been manufactured. When the finished products have passed the quality control tests, Shenzhen Ampeg will launch the products by different marketing methods in order to obtain orders. If orders are placed, the manufacturing process will start and finished goods will be delivered to the customers.

In view of the increasing demand for electronic products, Shenzhen Ampeg has diversified its manufacturing and sales business to room temperature acquisition controllers, smart phones, attitude stability controllers, speech recognition systems, selfie sticks and other related products.

To maintain the competitive edge, the Target Group also trades a wide range of electronic products. The Target Group sources electronic products which it considers to be profitable and marketable and then find customers. In addition, upon enquiries made by customers with specific type of product preferences and requirements, the Target Group will source similar electronic products samples according to their requirements for their review. Once the customers confirm and choose their product preferences from those samples and place order, the Target Group will then procure such electronic products from its suppliers or distributors and deliver them to the customers.

– 15 –

LETTER FROM THE BOARD

Revenue model and marketing strategies

The revenue of the Target Group is principally generated from manufacturing and trading of smart watches, smart wristbands, room temperature acquisition controllers, smart phones, attitude stability controllers, speech recognition systems and other electronic products.

The customer base of Shenzhen Ampeg is mainly derived from the connections of its senior management and by referral from existing or past clients. Further, the marketing department of Shenzhen Ampeg is responsible for exploring business opportunities and enlarging the customer base by way of promoting its products in various electronic fairs in Hong Kong, the PRC and Germany to explore potential business opportunities for the expansion of the business of Shenzhen Ampeg.

There are some overlapping customers and suppliers between Shenzhen Ampeg and the Group. In 2017, one of the Group’s suppliers was also a supplier of Shenzhen Ampeg which contributed approximately 11.08% and 28.93% to the purchase of the Group and Shenzhen Ampeg respectively. The supplier provided same products including smart watches and smart wristbands to both Shenzhen Ampeg and the Group. Also, one of the Group’s suppliers was one of Shenzhen Ampeg’s customers which contributed approximately 26.56% and 33.57% to the purchase of the Group and revenue of Shenzhen Ampeg respectively.

In 2018, one of the Group’s suppliers was also a customer of Shenzhen Ampeg which contributed approximately 31.71% and 19.26% to the purchase of the Group and revenue of Shenzhen Ampeg respectively.

Revenue from trading of electronic products will be recognised in two stages. After the customers make enquiries for samples of electronic products, they will choose their product preferences from the samples provided by the Target Group. The first payment will be made by the customers as deposit for ordering the electronic products. The balance will be recognised when the control of the electronic products is transferred to the customers (generally on receipt of acknowledgment of acceptance from the customers). The retail price of the electronic products are determined after taking into consideration of, among others, the cost of the electronic products sourced from the suppliers and distributors and cost of sales.

Group structure and management

Shenzhen Ampeg has major departments including (i) the manufacturing department; (ii) the research and development department; (iii) the sales and marketing department; (iv) the procurement department; (v) the finance department; (vi) the administration department; and (vii) the quality control department.

Shenzhen Ampeg currently has a group of researchers, software engineers and hardware engineers comprising 14 members of staff to focus on the design and software related to smart watch/wrists and electronic products. There are 28 members of staff in the manufacturing department and there are around 50 employees in Shenzhen Ampeg.

– 16 –

LETTER FROM THE BOARD

Ma Xingjin (‘‘Mr. Ma’’), the director of Shenzhen Ampeg, the HK Subsidiary and the Target Company, is the key management of the Target Group. Mr. Ma has more than 20 years’ experience in international trade, international settlement, marketing and business management experience, and is familiar with customs, national inspection, taxation, logistics related business policies and with rich resources in related businesses.

Relationship with customers and uncertainties or risk in operation

For the year ended 31 March 2019, there were 15 customers of the Sky Dynasty Group. Revenue from the top five customers accounted for approximately 36.90%, 22.02%, 19.26%, 10.28%, and 7.84% of total revenue of Shenzhen Ampeg, respectively. Amongst these top five customers, Millennium Pacific Solutions Limited (匯思太平洋有限公司) (‘‘Millennium Pacific’’), a subsidiary of the Company, was the second largest and the other four customers are, to the best knowledge and belief of the Directors, independent and not connected with the Company and the Target Group. Millennium Pacific placed order through ODM in 2018.

For the year ended 31 March 2018, there were 7 customers of the Sky Dynasty Group. Revenue from the top five customers accounted for approximately 53.17%, 33.57%, 12.51%, 0.29%, and 0.1% of total revenue of Shenzhen Ampeg, respectively. Amongst these top five customers, Millennium Pacific was the largest and the other four customers are, to the best knowledge and belief of the Directors, independent and not connected with the Company and the Target Group. Millennium Pacific placed order through ODM in 2017.

For the year ended 31 March 2017, there were 7 customers of the Sky Dynasty Group. Revenue from the top five customers accounted for approximately 57.66%, 32.54%, 9.49%, 0.17% and 0.1% of total revenue of Shenzhen Ampeg, respectively. These top five customers are, to the best knowledge and belief of the Directors, independent and not connected with the Company and the Target Group.

The HK Subsidiary is the immediate holding company of Shenzhen Ampeg, and Shenzhen Ampeg is the operating company of the Target Group. Thus the top five customers above was calculated according to the figures of the Sky Dynasty Group.

There is no long term agreement in relation to sales and purchase with the major customers of the Target Group, and there is no commitment for the customers to purchase any product, ODM and OEM order. If (i) it fails to maintain the existing customer relationships; (ii) the customers cease to place any order or purchase of OEM and/or ODM; (iii) the customers reduce the volume of any transaction/order amount; or (iv) no new customers are obtained, the business and operation of the Target Group may be materially and adversely affected.

It is common for small-mid cap factories manufacturing electronic products like Shenzhen Ampeg to work with certain major customers. Shenzhen Ampeg from time to time explores its market share by, as an example, participating in various electronic fairs and referral by clients and its management. With a strong research and development team as well as increasing number of patents and copyrights, Shenzhen Ampeg will develop more varieties of electronic products in the future which is expected to increase the client base of the Target Group.

– 17 –

LETTER FROM THE BOARD

In order to reduce the Target Group’s reliance on its major customers and to further expand the Target Group’s manufacturing business, its marketing team will continue to explore new opportunities and markets through participating in various international/domestic electronics fairs. Shenzhen Ampeg is currently in preliminary discussions with several e- commerce customers and will continue to explore opportunities with the aim to expand its manufacturing business.

Moreover, in order to maintain and expand the market presence in different parts of the world, experienced specialist(s) may be engaged by the Target Group to execute the Target Group’s marketing strategies. The Target Group would also focus on the domestic market to maintain its market presence in the PRC.

After the Acquisition, it is expected that the Group and the Target Group would strengthen their business co-operation through their closer shareholding relationship. Also, it is expected that greater co-operation between Shenzhen Ampeg and the Group can lead to, among other things, increased information exchange and referrals which will increase the revenue and profit margin of the Group. In view of the large size and fragmentation of the electronic products market, the Directors are of the view that electronic products produced by the Target Group would not result in any direct competition with the Group.

Relationship with suppliers and raw materials

The suppliers of Shenzhen Ampeg are principally engaged in manufacture and sale of products including but not limited to electronic products, communication equipment, software and hardware, integrated circuit board and chips. They supply raw materials to Shenzhen Ampeg for manufacturing.

For the year ended 31 December 2018, the total purchase of raw materials from the top five suppliers of the Target Group amounted to approximately RMB22,855,603, RMB6,451,391, RMB2,504,222, RMB2,499,655 and RMB2,013,758, respectively. These represent approximately 29.33%, 8.28%, 3.21%, 3.21% and 2.58% of the total purchase of the Target Group for the year ended 31 December 2018 respectively.

For the year ended 31 December 2017, the total purchase of raw materials from the top five suppliers of the Target Group amounted to approximately RMB34,008,839, RMB16,563,129, RMB3,934,214, RMB1,075,216, and RMB633,013, respectively. These represent approximately 59.40%, 28.93%, 6.87%, 1.88% and 1.11% of the total purchase of the Target Group for the year ended 31 December 2017 respectively. For the year ended 31 December 2016, the total purchase of raw materials from the top five suppliers of the Target Group amounted to approximately RMB22,863,927, RMB6,137,009, RMB3,581,666, RMB3,461,410, and RMB2,645,299, respectively. These represent approximately 21.35%, 5.73%, 3.35%, 3.23% and 2.47% of the total purchase of the Target Group for the year ended 31 December 2016 respectively.

The top five suppliers for the years ended 31 December 2018, 2017 and 2016 are, to the best knowledge and belief of the Directors, all independent and not connected with the Company.

– 18 –

LETTER FROM THE BOARD

The ability to source quality raw materials at competitive prices will affect the production costs and time. If the suppliers of the Target Group fail to deliver the raw materials on the agreed schedule, the production schedule may be affected, resulting in loss of production volume or increment of delivery cost which may materially and adversely affect the ability to deliver products to customers in a timely manner.

The Target Group also works with subcontractors. After purchasing raw materials from the suppliers, those raw materials will then be sent to the subcontractors to manufacture models or cases of smart watches and smart wrist bands. The processed materials will be delivered to Shenzhen Ampeg for inspection and storage. The suppliers under the subcontracting are designated by Shenzhen Ampeg. There is no income sharing arrangement between the Target Group and its subcontractors and the subcontractors were paid a services fee by the Target Group. The gross profit of the subcontracted products is higher than the gross profit of those manufactured by the Target Group.

Stable business relationship with the top five suppliers/subcontractors have been established. However, there is no assurance that the key suppliers will continue to supply raw materials to the Target Group on commercially acceptable terms or the raw materials supplied can meet the standard as agreed or expected. If the existing suppliers of raw materials are interrupted for any reason, the senior management of the Target Group believes that, with the relationship of different suppliers and their experience in the industry, alternative sources of quality raw material can be obtained if necessary, at reasonable prices. If such suppliers of raw material cannot be identified, it may materially and adversely affect the business and operation of the Target Group.

Future plan

The Group is principally engaged in the research and development manufacture and sale of consumer electronic products, such as sport watches, GPS personal navigation devices, mobile internet devices and smart robots. Having considered that wearing electronics products is a new lifestyle trend and the market is continuously expanding, the Group intends to adjust its product mix to meet market demand by increasing its focus on the production of wearable electronic products which include not only smart watches and controllers but also other products such as GPS watches for kids and the elderly.

The Directors are of the view that the Acquisition would enable the Group to capture the advantages of investment gain from the Target Group. In addition, with the manufacturing capacity, the patents and trademarks of Shenzhen Ampeg, it will strengthen the business relationship between the Group and Shenzhen Ampeg so as to increase the stability of consumer electronic products supply for the downstream distribution business by way of expanding the sales of the Group’s products and penetrate into Shenzhen Ampeg’s customer base.

According to the terms of the Sale and Purchase Agreement, the Purchaser has the right to nominate one additional director in each member of the Target Group. The Group has identified a suitable candidate to be nominated as a director in the Target Group and upon Completion, the Purchaser will nominate such candidate for appointment as an additional director of the Target Company.

– 19 –

LETTER FROM THE BOARD

Mr. Li Guangjian (‘‘Mr. Li’’) (李廣建) is identified to be a suitable candidate. He graduated from Xuchang University (former Xuchang Teachers College (許昌師範高等專科 學校) with focus on National Economy Management and studied full-time in Peking University Economics Management Executive Development Programs (北京大學經濟管理高級研修班 (全日制)). Mr. Li is a Certified Tax Agent, Accountant (semi-senior) and securities analyst in the PRC and a Certified Management Accountant (CMA).

Mr. Li has taken part in audit works in Baker Tilly China Certified Public Accountants (Shenzhen) for around 6 years. He has been a senior project manager and director of Shifu Dingxin (Shenzhen) Management Consulting Co., Ltd (時富鼎鑫(深圳)管理顧問有限公司) from 2011 to 2016. Mr. Li has also served as a financial director of a fund house and tax consultancy firm in the PRC. Mr. Li’s solid experience in accounting, financial management, project investment management, auditing, tax consulting is regarded as a suitable candidate. Mr. Li is a third party independent of the Group and the Target Group.

As at the Latest Practicable Date, Shenzhen Ampeg was one of the suppliers of electronic products of the Group. The Group has had a business relationship with Shenzhen Ampeg for a number of years.

Mr. Ma is the key management of the Target Group. Millennium Pacific commenced a business relationship with Shenzhen Ampeg in 2017 and began to negotiate with Shenzhen Ampeg on the supply of wearable electronics products. Shenzhen Ampeg has contributed 29% and 5% to the total purchase of the Group for the years ended 31 December 2017 and 31 December 2018. The Group will benefit from the Acquisition through greater co-operation between Shenzhen Ampeg and the Group which could lead to, among other things, increased information sharing and cross-referrals which will positively affect the revenue of the Group and the profit margin of the Group’s electronic products. Upon Completion, Shenzhen Ampeg would be treated as an investment in an associate of the Group.

Save for the business relationship disclosed above and being a shareholder of the Target Company, the Vendor does not have any relationship with the Company and its connected persons.

– 20 –

LETTER FROM THE BOARD

FINANCIAL INFORMATION OF THE TARGET GROUP

Financial information of the Target Group

Set out below is a summary of financial information of the Target Group as extracted from its audited consolidated financial information for the period from 9 June 2017 (date of incorporation of the Target Company) to 31 December 2017 and for the year ended 31 December 2018 prepared in accordance with Hong Kong Financial Reporting Standards:

	For the period
	from 9 June 2017
	(date of	For the year
	incorporation) to	ended
	31 December	31 December
	2017	2018
	(Audited)	(Audited)
	RMB’000	RMB’000
	approximately	approximately
Revenue	34,967	90,724
Profit before taxation	33,183	7,599
Profit after taxation	32,805	6,689
Net assets	33,153	39,571

– 21 –

LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE OF THE TARGET GROUP

Set out below are the simplified shareholding structures of the Target Group (i) as at the date of the Sale and Purchase Agreement and (ii) immediately after Completion:

• (i) as at the date of the Sale and Purchase Agreement

==> picture [259 x 217] intentionally omitted <==

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

The Company
100%
The Purchaser The Vendor
11% 89%
Target Company
100%
HK Subsidiary
100%
Shenzhen Ampeg
----- End of picture text -----

• (ii) immediately after Completion

==> picture [259 x 217] intentionally omitted <==

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

The Company
100%
The Purchaser The Vendor
46% 54%
Target Company
100%
HK Subsidiary
100%
Shenzhen Ampeg
----- End of picture text -----

– 22 –

LETTER FROM THE BOARD

EFFECT ON THE SHAREHOLDING STRUCTURE OF THE COMPANY

The changes in the shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) immediately after Completion and allotment and issue of the Consideration Shares in full are set out as follows for illustration purpose only, assuming that there is no other change to the issued share capital of the Company from the Latest Practicable Date up to Completion:

Shareholders Martford Limited (Note 1) CPIT Investments Limited (Note 2) Vendor Public Shareholders Total	(i) As at the Latest Practicable Date Number of Shares approx. % of shareholding 367,565,250 47.7912% 4,487,500 0.5835% 1,113 0.0001% 397,053,250 51.6252% 769,107,113 100.0000%	(ii) Immediately after Completion and allotment and issue of the Consideration Shares in full Number of Shares approx. % of shareholding 367,565,250 41.2% 4,487,500 0.5% 122,768,970 13.8% 397,053,250 44.5% 891,874,970 100.0%	(ii) Immediately after Completion and allotment and issue of the Consideration Shares in full Number of Shares approx. % of shareholding 367,565,250 41.2% 4,487,500 0.5% 122,768,970 13.8% 397,053,250 44.5% 891,874,970 100.0%
			100.0%

Notes:

1. As at the Latest Practicable Date, Martford Limited was the controlling Shareholder of the Company and was wholly-owned by Mr. Wang Liang Hai.

2. These 4,487,500 Shares are held by CPIT Investments Limited which is beneficially owned as to 99% by Mr. Tang Wai Ting, Samson, who resigned as an executive Director on 25 March 2019, and 1% by his spouse.

REASONS FOR AND BENEFITS OF THE FURTHER ACQUISITION

The Group is principally engaged in the research and development, manufacture and sale of consumer electronic devices, such as fitness bracelets, GPS personal navigation devices, mobile internet devices and TV set-top boxes, and provision of application software development services. The Group provides one-stop services to the customers by offering design, prototyping/sampling, manufacturing, assembling and packaging of their products.

Upon completion of the Previous Acquisition, the Company became interested in 11% of the Target Company, which in turn was indirectly interested in 100% of Shenzhen Ampeg. In view of (i) the need for a continuous steady supply of consumer electronic products for the businesses of Group; (ii) the fine quality of such products provided by Shenzhen Ampeg and (iii) the historical financial performance of the Target Group, the Directors have decided to proceed with the Acquisition which will enable the Group to further capture the advantages of vertical integration, and also strengthen the existing business in the research and development, manufacture and sale of consumer electronic products.

– 23 –

LETTER FROM THE BOARD

The Directors believe that the Acquisition would benefit the Group’s business development by, among others, (i) enhancing research and development co-operation — the management regards there will be enhanced co-operation between the research and development team of the Group and Shenzhen Ampeg. As the electronic products industry is becoming increasingly competitive, it is necessary for the Group to upgrade its products from time to time: the Acquisition would result in the enhancement of cooperation of the research and development teams of the Group and Shenzhen Ampeg which would result in Shenzhen Ampeg’s research and development team providing and supplementing resources and technologies to the Group; (ii) gaining access to a larger portfolio of patents and copyrights — Shenzhen Ampeg owned a total of 17 patents of industrial design and software copyrights which would upgrade the quality of the Group’s electronic products; the Group might invent and develop more varieties of electronic products by improved access to the Target Group’s exclusive technologies, patents and software copyrights to meet the market demand; (iii) stabilising manufacturing capacity — the Acquisition would reinforce and stabilise the manufacturing capacity of the Group through manufacturing referrals to Shenzhen Ampeg’s factory; and (iv) expanding the client base — the sales and marketing platform of Shenzhen Ampeg would broaden the client base of the Group by way of cross-referrals which would allow the Group enhanced access to new market segments and expand the market presence in the PRC market.

Since 2018, the trade war between PRC and the United States had created risks and uncertainties in the global economy, especially on the economies of the PRC and the United States. The market sentiment was severely affected by worries over the trade war. For the four months ended 30 April 2019, the Target Group recorded revenue of approximately RMB4.4 million, representing an increase of approximately 159% compared with the corresponding period of the previous year. It follows that the financial performance of the Target Group in the first quarter of 2019 rose sharply. The gross and net loss of the Target Group for the four months ended 30 April 2019 were affected by increase in cost of sales. In view of the revenue stream being diversified to more electronic products and the positive effect brought by the cooperation between the Group and the Target Group, the Directors are confident that the financial performance of the Target Group for the year ended 31 December 2019 would similarly be further improved compared to the corresponding period in 2018.

Based on the reasons above, the Directors consider that the terms of the Sale and Purchase Agreement are on normal commercial terms and the Acquisition is fair and reasonable and in the best interest of the Company and the Shareholders as a whole.

IMPLICATIONS UNDER THE GEM LISTING RULES

The Purchaser’s existing 11% equity interest in the Target Company was acquired by the Purchaser under the Previous Acquisition. The Previous Acquisition constituted a discloseable transaction of the Company pursuant to Chapter 19 of the GEM Listing Rules. In this regard, the Company has complied with the relevant applicable GEM Listing Rules requirements in respect of the Previous Acquisition.

– 24 –

LETTER FROM THE BOARD

As the Acquisition and the Previous Acquisition are conducted within a 12-month period prior to and inclusive of the date of the Sale and Purchase Agreement, the Acquisition and the Previous Acquisition are aggregated as a series of transactions pursuant to Rule 19.22 of the GEM Listing Rules. As one or more of the applicable percentage ratio(s) (as defined under the GEM Listing Rules) in respect of the Acquisition as aggregated with the Previous Acquisition is more than 25% but all of them are less than 100%, the Acquisition (on an aggregated basis) constitutes a major transaction of the Company under the GEM Listing Rules and is subject to reporting, announcement and shareholders’ approval requirements of Chapter 19 of the GEM Listing Rules.

EGM

The EGM will be convened to consider and, if thought fit, approve, among other things, (i) the Sale and Purchase Agreement and the transaction contemplated thereunder; and (ii) the Specific Mandate.

A notice convening the EGM to be held at 7th Floor, Nexxus Building, 77 Des Voeux Road Central, Hong Kong on Monday, 14 October 2019 at 11:30 a.m. is set out on pages EGM-1 to EGM-2 of this circular.

A form of proxy for use at the EGM is enclosed with this circular and such form of proxy is also published on websites of Hong Kong Exchanges and Clearing Limited at www.hkexnews.hk. Whether or not you are able to attend the EGM in person, you are requested to complete and sign the form of proxy in accordance with the instructions printed thereon and return it, together with the power of attorney or other authority (if any) under which it is signed or a certified copy of the power of attorney or authority, to the Company’s branch share registrar and transfer office in Hong Kong, Tricor Investor Services Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjourned meeting thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting thereof (as the case may be) should you so wish.

RECOMMENDATION

The Directors are of the opinion that the Acquisition is in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Acquisition and the transaction contemplated thereunder including grant of the Specific Mandate.

– 25 –

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in Appendix I to Appendix VI to this circular.

By order of the Board Millennium Pacific Group Holdings Limited Zhou Chuang Qiang Executive Director

• For identification purpose only

– 26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

Details of the financial information of the Group for the years ended 31 December 2016, 31 December 2017 and 31 December 2018 have been set out in the following documents which have been published on the website of the Stock Exchange at www.hkexnews.hk and the Company’s website at www.mpgroup.hk:

• (i) for the year ended 31 December 2016, on pages 65 to 135 of the annual report of the Company for the year ended 31 December 2016 released on 29 March 2017 at http://www3.hkexnews.hk/listedco/listconews/GEM/2017/0329/GLN20170329083.pdf

• (ii) for the year ended 31 December 2017, on pages 59 to 127 of the annual report of the Company for the year ended 31 December 2017 released on 29 March 2018 at http://www3.hkexnews.hk/listedco/listconews/GEM/2018/0329/GLN20180329163.pdf

• (iii) for the year ended 31 December 2018, on pages 59 to 151 of the annual report of the Company for the year ended 31 December 2018 released on 28 March 2019 at http://www3.hkexnews.hk/listedco/listconews/GEM/2019/0328/GLN20190328521.pdf

• (iv) for the six months ended 30 June 2019, on pages 4 to 26 of the interim report of the Company for the six months ended 30 June 2019 released on 13 August 2019 at https://www1.hkexnews.hk/listedco/listconews/gem/2019/0813/gln20190813195.pdf

2. INDEBTEDNESS STATEMENT

As at the close of business on 31 July 2019, being the latest practicable date for the purpose of ascertaining the indebtedness of the Group prior to the printing of this circular, the Group had the following indebtedness:

Convertible bonds	As at 31 July 2019 HK$’000 20,305

Convertible bonds

Pursuant to a subscription agreement dated 5 March 2019, the Company issued convertible bonds in an aggregate principal amount of HK$20,000,000 with 4% interest per annum and two-year lifespan (the ‘‘Convertible Bonds’’) to Radiant Assets Management Limited on 15 March 2019 under the general mandate granted to the Directors by way of an ordinary resolution of the Shareholders passed at the annual general meeting of the Company held on 21 June 2018. Assuming full conversion of the Convertible Bonds at the initial conversion price of HK$0.045, the Convertible Bonds will be convertible into 444,444,444 conversion shares. As a result of the Share Consolidation of the Company becoming effective on 29 May 2019, the conversion price of the Convertible Bonds has been adjusted from HK$0.045 per old share to HK$0.36 per

– I-1 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

consolidated share and the number of the conversion shares to be issued upon conversion of the Convertible Bonds has been adjusted from 444,444,444 old shares to 55,555,555 consolidated shares. As at 31 July 2019, none of conversion shares were issued.

Contingent liabilities

As at 31 July 2019, being the latest practicable date for the purpose of ascertaining the indebtedness of the Group prior to the printing of this circular, the Group had no contingent liabilities.

Charges over assets of the Group

As at 31 July 2019, there is no charges over assets of the Group.

3. SUFFICIENCY OF WORKING CAPITAL

The Directors are of the opinion that, after taking into account the Acquisition, the present available financial resources and the other facilities presently available, the Group will have sufficient working capital for its business for the next twelve months from the date of this circular in the absence of unforeseeable circumstances.

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2018, 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.

5. FINANCIAL AND TRADING PROSPECT OF THE GROUP

The Group is principally engaged in the research and development, manufacture and sale of consumer electronic devices, such as fitness bracelets, GPS personal navigation devices, mobile internet devices and TV set-top boxes, and provision of application software development services. The Group provides one-stop services to the customers by offering design, prototyping/sampling, manufacturing, assembling and packaging of their products.

As disclosed in the interim report of the Company for the six months ended 30 June 2019, in order to diversify the Group’s income streams and counter balance the market trends, the Group will continue to further develop and expand its manufacturing business and the business of application software development.

Since the principal activities of the Target Group are investment holdings and manufacturing and sale of electronic products, the Acquisition is in line with the Group’s business strategy. Upon completion of the Acquisition, the Group will increase its interest in the Target Company to 46%, which is expected in the coming years, to continue to generate profit and positive cash flow for the Group as the Group can strengthen business cooperation with Shenzhen Ampeg and may materialise the benefit from this investment by receiving dividend income.

– I-2 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Looking ahead, the Group will continue to strive for business growth and seize opportunities in order to bring greater returns to the Shareholders.

6. EFFECT OF THE ACQUISITION ON THE EARNINGS AND ASSETS AND LIABILITIES OF THE GROUP

Following completion of the Previous Acquisition and the Acquisition, the Company will indirectly own 46% of equity interest in the Target Company. The Target Company will become an associate of the Company, and the financial results of the Target Group will be equity accounted for in the Group’s consolidated financial statements.

As referred to in ‘‘Appendix IV — Unaudited Pro Forma Financial Information on the Enlarged Group’’ to this circular, on the basis of the notes set out therein for the purposes of illustrating the effects of the Acquisition, the financial effects of the Acquisition on the Group if the Acquisition had taken place and had been completed on 31 December 2018 would be as follows:

• (a) the audited consolidated total assets of the Group would have increased by approximately HK$27.5 million, or approximately 57.19%, from approximately HK$48.087 million as at 31 December 2018 to approximately HK$75.587 million;

• (b) the audited consolidated total liabilities of the Group would have increased by approximately HK$1.86 million, or approximately 4.39%, from approximately HK$42.409 million as at 31 December 2018 to approximately HK$44.269 million; and

• (c) the audited consolidated total comprehensive loss of the Group would have decreased by approximately HK$2.952 million, or approximately 8.64%, from approximately HK$34.167 million for the year ended 31 December 2018 to approximately HK$31.215 million.

It is expected that, subject to audit, there will be no financial effect to the revenue of the Group after completion of the Acquisition as the income of the Target Group will not be consolidated into that of the Group.

– I-3 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

The following is the text of a report set out on pages IIA-1 to IIA-49, received from the Target Company’s reporting accountants, Asian Alliance (HK) CPA Limited, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF MILLENNIUM PACIFIC GROUP HOLDINGS LIMITED

INTRODUCTION

We report on the historical financial information of Celestial Rainbow Limited (‘‘Celestial Rainbow’’) and its subsidiaries (together, the ‘‘Celestial Rainbow Group’’) set out on pages IIA-4 to IIA-49, which comprises the consolidated statements of financial position as at 31 December 2017 and 2018 and 30 April 2019, and the consolidated statements of profit or loss and other comprehensive income, the consolidated statements of changes in equity and the consolidated statements of cash flows for the period from 9 June 2017 (date of incorporation) to 31 December 2017, the year ended 31 December 2018 and the four months ended 30 April 2019 (the ‘‘Relevant Periods’’) and a summary of significant accounting policies and other explanatory information (together, the ‘‘Historical Financial Information’’). The Historical Financial Information set out on pages IIA-4 to IIA-49 forms an integral part of this report, which has been prepared for inclusion in the circular of Millennium Pacific Group Holdings Limited (the ‘‘Company’’) dated 25 September 2019 (the ‘‘Circular’’) in connection with the proposed further acquisition of 35% of the issued share capital of Celestial Rainbow (the ‘‘Transaction’’).

DIRECTORS ’ RESPONSIBILITY FOR THE HISTORICAL FINANCIAL INFORMATION

The sole director of Celestial Rainbow is responsible for the preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information, and for such internal control as the sole director of Celestial Rainbow determines is necessary to enable the preparation of Historical Financial Information that is free from material misstatement, whether due to fraud or error.

The directors of the Company are responsible for the contents of the Circular in which the Historical Financial Information of Celestial Rainbow Group is included, and such information is prepared based on accounting policies materially consistent with those of the Company.

– IIA-1 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

Reporting Accountants’ responsibility

Our responsibility is to express an opinion on the Historical Financial Information and to report our opinion to you. We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200 ‘‘Accountants’ Reports on Historical Financial Information in Investment Circulars’’ issued by the Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’). This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information is free from material misstatement.

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants’ judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the sole director of Celestial Rainbow, as well as evaluating the overall presentation of the Historical Financial Information.

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

Opinion

In our opinion the Historical Financial Information gives, for the purposes of the accountants’ report, a true and fair view of the Celestial Rainbow Group’s financial position as at 31 December 2017 and 2018 and 30 April 2019, and of its financial performance and cash flows for the Relevant Periods in accordance with the basis of preparation and presentation as set out in Note 2 to the Historical Financial Information.

Review of stub period comparative financial information

We have reviewed the stub period comparative financial information of the Celestial Rainbow Group which comprises the unaudited consolidated statement of profit or loss and other comprehensive income, the unaudited consolidated statement of changes in equity and the unaudited consolidated statement of cash flows of the Celestial Rainbow Group for the four months ended 30 April 2018 and other explanatory information (the Celestial Rainbow ‘‘Stub Period Comparative Financial Information’’). The sole director of Celestial Rainbow is responsible for the preparation and presentation of the Stub Period Comparative Financial Information in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information. Our responsibility is to express a conclusion on the Stub Period Comparative Financial Information based on our review. We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410 ‘‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’’ issued by the

– IIA-2 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

HKICPA. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the Stub Period Comparative Financial Information, for the purpose of the accountants’ report, is not prepared, in all material respects, in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information.

Report on matters under the Rules Governing the Listing of Securities on GEM of The Stock Exchange of Hong Kong Limited and the Companies (Winding Up and Miscellaneous Provisions) Ordinance

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page IIA-4 have been made.

Dividends

We refer to Note 15 to the Historical Financial Information which states that no dividend was declared or paid by Celestial Rainbow in respect of the Relevant Periods.

No statutory financial statements for the Company

No statutory financial statements have been prepared for the Company since its date of incorporation.

Asian Alliance (HK) CPA Limited Certified Public Accountants (Practising) Chan Mei Mei Practising Certificate Number: P05256 Suites 313–316, 3/F Shui On Centre 6–8 Harbour Road Wan Chai Hong Kong 25 September 2019

– IIA-3 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

HISTORICAL FINANCIAL INFORMATION

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of this accountants’ report.

The consolidated financial statements of the Celestial Rainbow Group for the Relevant Periods, on which the Historical Financial Information is based, have been prepared in accordance with the accounting policies which conform with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) issued by the HKICPA and were audited by Asian Alliance (HK) CPA Limited in accordance with Hong Kong Standards of Auditing issued by the HKICPA (‘‘Underlying Financial Statements’’).

The Historical Financial Information is presented in Renminbi (‘‘RMB’’). Other than the subsidiary established in Hong Kong whose functional currency is Hong Kong dollars (‘‘HK$’’), the functional currency of Celestial Rainbow and its subsidiaries are RMB.

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Notes Revenue 8 Cost of sales Gross profit (loss) Other income 9 Impairment losses, net of reversal 10 Gain on bargain purchase 27 Selling and distribution expenses Administrative and operating expenses Finance cost 11 Profit (loss) before tax Income tax (expense) credit 12 Profit (loss) for the year/period 13 Other comprehensive income (expense) Items that may be reclassified subsequently to profit or loss: Exchange differences arising on translation of foreign operations Total comprehensive income (expense) for the year/period	For the period from 9 June 2017 (date of incorporation) to 31 December 2017 RMB’000 34,967 (26,494) 8,473 157 (137) 29,379 (237) (4,300) (152) 33,183 (378) 32,805 348 33,153	Year ended 31 December 2018 RMB’000 90,724 (80,569) 10,155 3,029 100 — (229) (5,241) (215) 7,599 (910) 6,689 (271) 6,418	Four months ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) 1,681 4,404 (1,548) (5,302 133 (898 1,519 1,101 — 175 — — (151) (20 (1,718) (1,391 (125) — (342) (1,033 95 243 (247) (790 (272) (59 (519) (849	Four months ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) 1,681 4,404 (1,548) (5,302 133 (898 1,519 1,101 — 175 — — (151) (20 (1,718) (1,391 (125) — (342) (1,033 95 243 (247) (790 (272) (59 (519) (849
				(898 1,101 175 — (20 (1,391 —
				(1,033 243
				(790
				(59
				(849

– IIA-4 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Notes NON-CURRENT ASSETS Plant and equipment 16 Intangible assets 17 CURRENT ASSETS Inventories 18 Trade and other receivables 19 Amount due from sole director 23 Tax recoverable Bank balances and cash 20 CURRENT LIABILITIES Trade and other payables 21 Contract liabilities 22 Amount due to sole director 23 Bank borrowing 24 Tax liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Deferred tax liabilities 25 NET ASSETS CAPITAL AND RESERVES Share capital 26 Reserves TOTAL EQUITY	At 31 December 2017 2018 RMB’000 RMB’000 3,198 2,899 10,478 10,478 13,676 13,377 19,883 18,674 49,973 38,478 — 20,723 228 — 25 12 70,109 77,887 26,381 49,094 — 25 18,704 — 3,000 — — 2 48,085 49,121 22,024 28,766 35,700 42,143 2,547 2,572 33,153 39,571 — — 33,153 39,571 33,153 39,571	At 30 April 2019 RMB’000 2,742 10,478 13,220 18,897 15,588 6,844 830 579 42,738 14,907 — — — — 14,907 27,831 41,051 2,329 38,722 —* 38,722 38,722

• Less than RMB1,000

– IIA-5 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

STATEMENTS OF FINANCIAL POSITION OF CELESTIAL RAINBOW

CURRENT ASSETS Cash NET ASSETS CAPITAL AND RESERVES Share capital TOTALEQUITY	At 31 December 2017 2018 RMB’000 RMB’000 — — — — — — — —	At 30 April 2019 RMB’000 — — — —

TOTAL EQUITY

• Less than RMB1,000

– IIA-6 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Issue of shares upon incorporation Profit for the period Other comprehensive income Item that may be reclassified subsequently to profit or loss: Exchange differences arising on translation of foreign operations Total comprehensive income for the period Transfer At 31 December 2017 Profit for the year Other comprehensive expense Item that may be reclassified subsequently to profit or loss: Exchange differences arising on translation of foreign operations Total comprehensive income for the year Transfer At 31 December 2018 Loss for the period Other comprehensive expense Item that may be reclassified subsequently to profit or loss: Exchange differences arising on translating foreign operations Total comprehensive expense for the period At 30 April 2019 For the four months ended 30 April 2018 (unaudited) At 31 December 2017 Loss for the period Other comprehensive expense Item that may be reclassified subsequently to profit or loss: Exchange differences arising on translating foreign operations Total comprehensive expense for the period At 30 April 2018	Share capital Statutory surplus reserve RMB’000 RMB’000 (Note) — — — — — — — — — 343 — 343 — — — — — — — 670 — 1,013 — — — — — — — 1,013 — 343 — — — — — — —* 343	Translation reserve RMB’000 — — 348 348 — 348 — (271) (271) — 77 — (59) (59) 18 348 — (272) (272) 76	Retained earnings RMB’000 — 32,805 — 32,805 (343) 32,462 6,689 — 6,689 (670) 38,481 (790) — (790) 37,691 32,462 (247) — (247) 32,215	Total RMB’000 — 32,805 348 33,153 — 33,153 6,689 (271) 6,418 — 39,571 (790) (59) (849) 38,722 33,153 (247) (272) (519) 32,634

• Less than RMB1,000

– IIA-7 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

Note:

Statutory surplus reserve

According to the Company Law of the People’s Republic of China (the ‘‘PRC’’), the company established in the PRC are required to transfer 10% of their after-tax profit, as determined in accordance with the PRC accounting standards and regulations, to the statutory surplus reserve until the balance of the reserve reaches 50% of their respective registered capital. The transfer to this reserve must be made before distribution of dividends to owners of these PRC subsidiaries. Statutory surplus reserve can be used to set-off previous years’ loss, if any, and may be converted into capital in proportion to existing equity owners’ equity percentage, provided that the balance after such issuance is not less than 25% of their registered capital.

– IIA-8 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

CONSOLIDATED STATEMENTS OF CASH FLOWS

OPERATING ACTIVITIES Profit (loss) before tax Adjustments for: Depreciation of plant and equipment Allowance for impairment losses on trade receivables, net Gain on bargain purchase Gain on disposal of plant and equipment Finance cost Interest income Operating cash flows before movements in working capital (Increase) decrease in inventories (Increase) decrease in trade and other receivables Increase (decrease) in trade and other payables Increase (decrease) in contract liabilities Cash (used in) generated from operations PRC Enterprise Income Tax paid NET CASH (USED IN) FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Purchase of plant and equipment Proceed from disposal of plant and equipment Repayment from (advance to) sole director Interest received Net cash inflow from acquisition of subsidiaries NET CASH FROM (USED IN) INVESTING ACTIVITIES	For the period from 9 June 2017 (date of incorporation) to 31 December 2017 RMB’000 33,183 185 137 (29,379) (35) 152 (23) 4,220 (5,233) (22,582) 987 — (22,608) (261) (22,869) — 100 3,861 23 10 3,994	Year ended 31 December 2018 RMB’000 7,599 463 (100) — — 215 (1) 8,176 1,209 11,595 25,710 25 46,715 (655) 46,060 (164) — (23,720) 1 — (23,883)	Four months ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) (342) (1,033) 150 157 — (175) — — — — 125 — (1) (1) (68) (1,052) (4,330) (223) 45,317 23,065 (7,249) (34,187) — (25) 33,670 (12,422) (655) (832) 33,015 (13,254) (164) — — — (13,753) 13,879 1 1 — — (13,916) 13,880

– IIA-9 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

FINANCING ACTIVITIES Advance from (repayment to) sole director New borrowings raised Repayments of borrowings Interest paid NET CASH FROM (USED IN) FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR/PERIOD Effect of foreign exchange rate changes CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR/PERIOD represented by bank balances and cash	For the period from 9 June 2017 (date of incorporation) to 31 December 2017 RMB’000 18,900 — — (152) 18,748 (127) — 152 25	Year ended 31 December 2018 RMB’000 (18,872) 6,000 (9,000) (215) (22,087) 90 25 (103) 12	Four months ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) (18,703) — — — — — (125) — (18,828) — 271 626 25 12 (272) (59) 24 579

– IIA-10 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1. GENERAL

Celestial Rainbow was incorporated in the British Virgin Islands (‘‘BVI’’) with limited liability on 9 June 2017. The address of the registered office and principal place of business of Celestial Rainbow are Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands and Flat B, 20/F., Sing Kong Building, 233–243 Lockhart Road, Wanchai, Hong Kong.

Celestial Rainbow acts as an investing holding company, Celestial Rainbow Group are principally engaged in manufacturing and trading of electronic products.

As at the end of the Relevant Periods and date of this report, Celestial Rainbow, had direct and indirect equity interests in the following subsidiaries, all of which are private companies, particulars of which are set out below:

	Place and		Percentage of equity interest	Percentage of equity interest	attributable	attributable	to Celestial
	the date of	Issued and fully		Rainbow
	incorporation/	paid capital/	31 December		30	April	Date of this
Name of subsidiaries	establishment	registered capital	2017	2018		2019	report	Principal activities
Sky Dynasty Investments	Hong Kong	HK$1	100%	100%		100%	100%	Investment holding
Limited (‘‘Sky Dynasty’’)	19 February 2008
(Note i)
深圳市艾普科技有限公司	PRC	RMB10,000,000	100%	100%		100%	100%	Manufacturing and trading
(transliterated as Shenzhen	19 December 2005							of electronic products
Ampeg Technology Co.,
Ltd) (‘‘Shenzhen Ampeg’’)
(Note ii)

Celestial Rainbow and Shenzhen Ampeg have adopted 31 December as their financial year end date. Sky Dynasty have adopted 31 March as their financial year end date.

Notes:

• (i) The statutory financial statements of Sky Dynasty for the years ended 31 March 2016, 2017, 2018 and 2019 were prepared in accordance with the Hong Kong Small and Medium-sized Entity Financial Reporting Standard issued by Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’) and were audited by Joe Chiu & Company, certified public accountants registered in Hong Kong. No audited financial statements have been prepared for the one month ended 30 April 2019.

• (ii) The statutory financial statements of Shenzhen Ampeg for the years ended 31 December 2017 and 2018 was prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises established in the PRC and were audited by 深圳民生會計師事務所(普通合夥) (transliterated as Shenzhen Minsheng Certified Public Accountants (Limited Liability Partnerships)*), certified public accountants registered in the PRC. No audited financial statements have been prepared for the four months ended 30 April 2019.

2. BASIS OF PREPARATION AND PRESENTATION OF HISTORICAL FINANCIAL INFORMATION

The Historical Financial Information has been prepared based on the accounting policies set out in Note 4 which conforms with HKFRSs issued by the HKICPA.

No statutory financial statements of Celestial Rainbow have been prepared since its date of incorporation as it is incorporated in the jurisdiction where there are no statutory audit requirements.

• For identification purposes only

– IIA-11 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

3. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the Historical Financial Information for the Track Record Period, the Group has consistently applied HKFRSs that are effective for the financial year beginning on 1 January 2019 throughout the Relevant Period, except that the Group adopted HKFRS 16 Leases since 1 January 2019 and HKAS 17 Leases for the period from 9 June 2017 (date of incorporation) to 31 December 2017, year ended 31 December 2018 and four months ended 30 April 2019.

Transition and summary of effects arising from initial application of HKFRS 16

The Group has applied HKFRS 16 for the first time from 1 January 2019. HKFRS 16 superseded HKAS 17 Leases (‘‘HKAS 17’’), and the related interpretations.

The Group applied accounting policies in accordance with the transition provisions of HKFRS 16.

Information about the Group’s accounting policies resulting from the application of HKFRS 16 is disclosed in Note 4.

Definition of a lease

The Group has elected the practical expedient to apply HKFRS 16 to contracts that were previously identified as leases applying HKAS 17 and HK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease and not apply this standards to contracts that were not previously identified as containing a lease. Therefore, the Group has not reassessed contracts which already existed prior to the date of initial application.

As a lessee

The Group has applied HKFRS 16 retrospectively with the cumulative effect recognised at the date of initial application, 1 January 2019. Any difference at the date of initial application is recognised in the opening accumulated profits and comparative information has not been restated.

When applying the modified retrospective approach under HKFRS 16 at transition, the Group elected not to recognise right-of-use assets and lease liabilities for leases with lease term ends within 12 months of the date of initial application.

Operating lease commitments disclosed as at 31 March 2019 Less: Recognition exemption — short-term leases Lease liabilities relating to operating leases recognised upon application of HKFRS 16	At 1 January 2019 RMB’000 102 (102) —

Based on the assessment, the adoption of HKFRS 16 did not have significant impact on the Group’s financial position nor on the financial performance. Accordingly, no adjustment has been made to the accumulated profits as at 1 January 2019.

No adjustments would be made on the consolidated financial statements of the Group for four months ended 30 April 2019 without the application of HKFRS 16.

For the purpose of preparing and presenting the Historical Financial Information for the Relevant Periods, the Celestial Rainbow Group has consistently adopted the HKFRSs issued by the HKICPA, including HKFRS 9 Financial Instruments and HKFRS 15 Revenue from Contracts with Customers, that are effective for the financial year beginning on 1 January 2018.

– IIA-12 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

New and amendments to HKFRSs in issue but not yet effective

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

HKFRS 17 Insurance Contracts[3] Amendments to HKFRS 3 Definition of Business[1] Amendments to HKFRS 10 and Sale or Contribution of Assets between an Investor and its HKAS 28 Associate or Joint Venture[4] Amendments to HKFRS 1 and Definition of Material[2] HKAS 8 Conceptual Framework For Revised Conceptual Framework for Financial Reporting[2] Financial Reporting

• 1 Effective for business combinations and asset acquisitions for which the acquisition is on or after the beginning of the first annual period beginning on or after 1 January 2020.

• 2 Effective for annual periods beginning on or after 1 January 2020. 3 Effective for annual periods beginning on or after 1 January 2021. 4 Effective for annual periods beginning on or after a date to be determined.

The sole director of Celestial Rainbow (the ‘‘Sole Director’’) anticipate that the application of all new and amendments to HKFRSs and interpretations will have no material impact on the Celestial Rainbow Group’s financial position and financial performance as well as disclosure in the future.

4. SIGNIFICANT ACCOUNTING POLICIES

The Historical Financial Information has been prepared based on the accounting policies set out below which conform with HKFRSs issued by the HKICPA. In addition, the Historical Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on GEM of the Stock Exchange (the ‘‘GEM Listing Rule’’).

The Historical Financial Information has been prepared on the historical cost basis.

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 Celestial Rainbow Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in the Historical Financial Information is determined on such basis, except for leasing transactions that are within the scope of HKAS 17 Leases/HKFRS 16 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.

For financial instruments which are transacted at fair value and a valuation technique that unobservable inputs is to be used to measure fair value in subsequent periods, the valuation technique is calibrated so that at initial recognition the results of the valuation technique equals the transaction price.

– IIA-13 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

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

• Level 1 inputs are quoted price (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 and liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below:

Basis of consolidation

The Historical Financial Information incorporates the financial statements of Celestial Rainbow and entities controlled by Celestial Rainbow and its subsidiaries. Control is achieved when Celestial Rainbow:

• has power over the investee;

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

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

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

Consolidation of a subsidiary begins when the Celestial Rainbow Group obtains control over the subsidiary and ceases when the Celestial Rainbow Group loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the period/year are included in the consolidated statements of profit or loss and other comprehensive income from the date the Celestial Rainbow Group gains control until the date when the Celestial Rainbow 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 Celestial Rainbow Group’s accounting policies.

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

Business combination

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

– IIA-14 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

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 Celestial Rainbow Group entered into to replace sharebased payment arrangements of the acquiree are measured in accordance with HKFRS 2 Sharebased Payment at the acquisition date; and

• . assets (or disposal groups) that are classified as held for sale in accordance with HKFRS 5 Noncurrent 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 noncontrolling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net amount of the identifiable assets acquired and the liabilities assumed as at acquisition date. If, after re-assessment, the net amount 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 relevant subsidiary’s net assets in the event of liquidation are initially measured at the noncontrolling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets or at fair value.

When the consideration transferred by the Celestial Rainbow Group in a business combination includes 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. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘‘measurement period’’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured to fair value at subsequent reporting dates, with the corresponding gain or loss being recognised in profit or loss.

Revenue from contracts with customers

Under HKFRS 15, the Celestial Rainbow Group 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.

A performance obligation represents a good or service (or a bundle of goods or services) that is distinct or a series of distinct goods or services that are substantially the same.

Control is transferred over time and revenue is recognised over time by reference to the progress towards complete satisfaction of the relevant performance obligation if one of the following criteria is met:

• . the customer simultaneously receives and consumes the benefits provided by the Celestial Rainbow Group’s performance as the Celestial Rainbow Group performs;

– IIA-15 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

• . the Celestial Rainbow Group’s performance creates and enhances an asset that the customer controls as the Celestial Rainbow Group performs; or

• . the Celestial Rainbow Group’s performance does not create an asset with an alternative use to the Celestial Rainbow Group and the Celestial Rainbow Group has an enforceable right to payment for performance completed to date.

Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinct good or service.

A contract asset represents the Celestial Rainbow Group’s right to consideration in exchange for goods or services that the Celestial Rainbow Group has transferred to a customer that is not yet unconditional. It is assessed for impairment in accordance with HKFRS 9. In contrast, a receivable represents the Celestial Rainbow Group’s unconditional right to consideration, i.e. only the passage of time is required before payment of that consideration is due.

A contract liability represents the Celestial Rainbow Group’s obligation to transfer goods or services to a customer for which the Celestial Rainbow Group has received consideration (or an amount of consideration is due) from the customer.

A contract asset and a contract liability relating to a contract are accounted for and presented on a net basis.

Principal versus agent

When another party is involved in providing goods or services to a customer, the Celestial Rainbow Group determines whether the nature of its promise is a performance obligation to provide the specified goods or services itself (i.e. the Celestial Rainbow Group is a principal) or to arrange for those goods or services to be provided by the other party (i.e. the Celestial Rainbow Group is an agent).

The Celestial Rainbow Group is a principal if it controls the specified good or service before that good or service is transferred to a customer.

The Celestial Rainbow Group is an agent if its performance obligation is to arrange for the provision of the specified good or service by another party. In this case, the Celestial Rainbow Group does not control the specified good or service provided by another party before that good or service is transferred to the customer. When the Celestial Rainbow Group acts as an agent, it recognises revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified goods or services to be provided by the other party.

Leases

Under HKAS 17

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 Celestial Rainbow Group as lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease term.

– IIA-16 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

Upon the adoption of HKFRS 16 on 1 January 2019

Definition of a lease

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

For contracts entered into or modified on or after the date of initial application, the Celestial Rainbow Group assesses whether a contract is or contains a lease based on the definition under HKFRS 16 at inception or modification date. Such contract will not be reassessed unless the terms and conditions of the contract are subsequently changed.

As a lessee

Short-term leases and leases of low-value assets

The Celestial Rainbow Group applies the short-term lease recognition exemption to leases of warehouse and office premises that have a lease term of 12 months or less from the commencement date and do not contain a purchase option.

Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight line basis over the lease term.

Right-of-use assets

Except for short-term leases and leases of low value assets, the Celestial Rainbow Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities.

The cost of right-of-use asset includes:

• . the amount of the initial measurement of the lease liability;

• . any lease payments made at or before the commencement date, less any lease incentives received;

• . any initial direct costs incurred by the Celestial Rainbow Group; and

• . an estimate of costs to be incurred by the Celestial Rainbow Group in dismantling and removing the underlying assets, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.

Right-of-use assets in which the Celestial Rainbow Group is reasonably certain to obtain ownership of the underlying leased assets at the end of the lease term is depreciated from commencement date to the end of the useful life. Otherwise, right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.

Refundable rental deposits

Refundable rental deposits paid are accounted under HKFRS 9 and initially measured at fair value. Adjustments to fair value at initial recognition are considered as additional lease payments and included in the cost of right-of-use assets.

– IIA-17 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

Lease liabilities

At the commencement date of a lease, the Celestial Rainbow Group recognises and measures the lease liability at the present value of lease payments that are unpaid at that date. In calculating the present value of lease payments, the Celestial Rainbow Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable.

The lease payments include:

• . fixed payments (including in-substance fixed payments) less any lease incentives receivable;

• . variable lease payments that depend on an index or a rate;

• . amounts expected to be paid under residual value guarantees;

• . the exercise price of a purchase option reasonably certain to be exercised by the Celestial Rainbow Group; and

• . payments of penalties for terminating a lease, if the lease term reflects the Celestial Rainbow Group exercising the option to terminate.

After the commencement date, lease liabilities are adjusted by interest accretion and lease payments.

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 carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in term of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Celestial Rainbow Group’s operations are translated into the presentation currency of the Celestial Rainbow Group (i.e. RMB) 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.

Borrowing costs

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

Government grants

Government grants are not recognised until there is reasonable assurance that the Celestial Rainbow Group will comply with the conditions attaching to them and that the grants will be received.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Celestial Rainbow Group with no future related costs are recognised in profit or loss in the period in which they become receivable.

– IIA-18 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

Retirement benefit costs

Payments to the government-managed retirement benefit schemes are recognised as an expense when employees have rendered service entitling them to the contributions.

Short-term employee benefits

Short-term employee benefits are recognised at the undiscounted amount of the benefits expected to be paid as and when employees rendered the services. All short-term employee benefits are recognised as an expense unless another HKFRS requires or permits the inclusion of the benefit in the cost of an asset.

A liability is recognised for benefits accruing to employees (such as wages and salaries) after deducting any amount already paid.

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 tax’’ because of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Celestial Rainbow 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 Historical Financial Information and the corresponding tax base 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 difference 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 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 Celestial Rainbow 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 liability is settled or the asset is realised, 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 liabilities and assets reflects the tax consequences that would follow from the manner in which the Celestial Rainbow Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Celestial Rainbow Group intends to settle its current tax assets and liabilities on a net basis.

– IIA-19 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

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

Plant and equipment

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

Depreciation is recognised so as to write off the cost of assets 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.

An item of 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 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.

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 reported at costs less accumulated amortisation and any accumulated impairment losses, being their fair value at the date of the revaluation less subsequent accumulated amortisation and any accumulated impairment losses, on the same basis as intangible assets that are acquired separately. Intangible assets acquired in a business combination with indefinite useful lives are carried at cost less any subsequent accumulated impairment losses.

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

Impairment losses on tangible and intangible assets other than goodwill

At the end of the reporting period, the Celestial Rainbow Group reviews the carrying amounts of its tangible and intangible assets with finite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the relevant asset is estimated in order to determine the extent of the impairment loss, if any. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that they may be impaired.

The recoverable amount of tangible and intangible assets are estimated individually, when it is not possible to estimate the recoverable amount individually, the Celestial Rainbow Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

– IIA-20 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

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 pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (or a cash-generating unit) for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. The carrying amount of an asset is not reduced below the highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero. The amount of the impairment loss that would otherwise have been allocated to the asset is allocated pro rata to the other assets of the unit. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating 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.

Inventories

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

Provisions

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

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

Financial instruments

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

Financial assets and financial liabilities are initially measured at fair value except for trade receivables arising from contracts with customers which are initially measured in accordance with HKFRS 15 since 9 June 2017. 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 (‘‘FVTPL’’)) 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 FVTPL are recognised immediately in profit or loss.

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

– IIA-21 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

Interest/dividend income which are derived from the Group’s ordinary of business are presented as revenue.

Financial assets

Classification and subsequent measurement of financial assets

Financial assets that meet the following conditions are subsequently measured at amortised cost:

• . the financial asset is held within a business model whose objective is to collect contractual cash flows; and

• . the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets that meet the following conditions are subsequently measured at fair value through other comprehensive income (‘‘FVTOCI’’):

• . the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling; and

• . the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

All other financial assets are subsequently measured at FVTPL, except that at the date of initial application/recognition of a financial asset the Celestial Rainbow Group may irrevocably elect to present subsequent changes in fair value of an equity investment in other comprehensive income if that equity investment is neither held for trading nor contingent consideration recognised by an acquirer in a business combination to which HKFRS 3 Business Combinations applies.

A financial asset is classified as held for trading if:

• . it has been acquired principally for the purpose of selling in the near term; or

• . on initial recognition it is a part of a portfolio of identified financial instruments that the Celestial Rainbow 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.

In addition, the Celestial Rainbow Group may irrevocably designate a financial asset that are required to be measured at the amortised cost or FVTOCI as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch.

Amortised cost and interest income

Interest income is recognised using effective interest method for financial assets measured subsequently at amortised cost. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for the financial assets that have subsequently become credit-impaired. For financial assets that have subsequently become credit-impaired, interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset from the next reporting period. If the credit risk on the credit-impaired financial instrument improves so that the financial asset is no longer creditimpaired, interest income is recognised by applying the effective interest rate to gross carrying amount of the financial asset from the beginning of the reporting period following the determination that the asset is no longer credit-impaired.

– IIA-22 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

Impairment of financial assets

The Celestial Rainbow Group recognises a loss allowance for expected credit loss (‘‘ECL’’) on financial assets which are subject to impairment under HKFRS 9 (including trade and other receivables, amount due from sole director and bank balances). The amount of ECL is updated at the end of each reporting period to reflect changes in credit risk since initial recognition.

Lifetime ECL represents the ECL that will result from all possible default events over the expected life of the relevant instrument. In contrast, 12-month ECL (‘‘12m ECL’’) represents the portion of lifetime ECL that is expected to result from default events that are possible within 12 months after the end of each reporting period. Assessments are done based on the Celestial Rainbow Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current conditions at the end of each reporting period as well as the forecast of future conditions.

The Celestial Rainbow Group always recognises lifetime ECL for trade receivables without significant financing component. The ECL on these assets are assessed individually.

For all other financial instruments, the Celestial Rainbow Group measures the loss allowance equal to 12m ECL, unless when there has been a significant increase in credit risk since initial recognition, the Celestial Rainbow Group recognises lifetime ECL. The assessment of whether lifetime ECL should be recognised is based on significant increases in the likelihood of risk of a default occurring since initial recognition.

Significant increase in credit risk

In assessing whether the credit risk has increased significantly since initial recognition, the Celestial Rainbow Group compares the risk of a default occurring on the financial instrument as at the end of each reporting period with the risk if a default occurring on the financial instrument as at the date of initial recognition. In making this assessment, the Celestial Rainbow Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.

In particular, the following information is taken into account when assessing whether credit risk has increased significantly:

• an actual or expected significant deterioration in the financial instrument’s external (if available) or internal credit rating;

• significant deterioration in external market indicators of credit risk, e.g. a significant increase in the credit spread, the credit default swap prices for the debtor;

• existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor’s ability to meet its debt obligations;

• an actual or expected significant deterioration in the operating results of the debtor;

• an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that results in a significant decrease in the debtor’s ability to meet its debt obligations.

Irrespective of the outcome of the above assessment, the Celestial Rainbow Group presumes that the credit risk has increased significantly since initial recognition when contractual payments are more than 30 days past due, unless the Celestial Rainbow Group has reasonable and supportable information that demonstrates otherwise.

– IIA-23 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

Despite the aforegoing, the Celestial Rainbow Group assumes that the credit risk on a debt instrument has not increased significantly since initial recognition if the debt instrument is determined to have low credit risk at the end of each reporting period. A debt instrument is determined to have low credit risk if (i) it has a low risk of default, (ii) the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and (iii) adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations. The Celestial Rainbow Group considers a debt instrument to have low credit risk when it has on internal or external credit rating of ‘‘investment grade’’ as per globally understood definitions.

The Celestial Rainbow Group regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes past due.

Definition of default

For internal credit risk management, the Celestial Rainbow Group considers an event of default occurs when information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Celestial Rainbow Group, in full (without taking into account any collaterals held by the Celestial Rainbow Group).

Irrespective of the above, the Celestial Rainbow Group considers that default has occurred when a financial asset is more than 90 days past due unless the Celestial Rainbow Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.

Credit-impaired financial assets

A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial assets have been occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events:

• significant financial difficulty of the issuer of the borrower;

• a breach of contract, such as a default or past due event;

• the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider;

• it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or

• the disappearance of an active market for that financial asset because of financial difficulties.

Write-off policy

The Celestial Rainbow Group writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, for example, when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of trade receivables, when the amounts are over two years past due, whichever occurs sooner. Financial assets written off may still be subject to enforcement activities under the Celestial Rainbow Group’s recovery procedures, taking into account legal advice where appropriate. A write-off constitutes a derecognition event. Any subsequent recoveries are recognised in profit or loss.

– IIA-24 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

Measurement and recognition of ECL

The measurement of ECL is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information. Estimation of ECL reflects an unbiased and probability-weighted amount that is determined with the respective risk of default occurring as the weights.

Generally, the ECL is the difference between all contractual cash flows that are due to the Celestial Rainbow Group in accordance with the contract and the cash flows that the Celestial Rainbow Group expects to receive, discounted at the effective interest rate determined at initial recognition.

Where ECL is measured on a collective basis to cater for cases where evidence at the individual instrument level may not yet be available, the financial instruments are grouped on the following basis:

• nature of financial instruments (i.e. the Celestial Rainbow Group’s trade receivables);

• past-due status;

• nature, size and industry of debtors; or

• external credit ratings where available.

The grouping is regularly reviewed by management to ensure the constituents of each group continue to share similar credit risk characteristics.

Interest income is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit-impaired, in which case interest income is calculated based on amortised cost of the financial asset.

Derecognition of financial assets

The Celestial Rainbow Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Celestial Rainbow Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Celestial Rainbow Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Celestial Rainbow Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Celestial Rainbow Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

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

Financial liabilities and equity

Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement 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 Celestial Rainbow Group are recognised at the proceeds received, net of direct issue costs.

– IIA-25 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

Financial liabilities at amortised cost

Financial liabilities including trade and other payables, amount due to sole director and bank borrowing, are subsequently measured at amortised cost using the effective interest method.

Derecognition of financial liabilities

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

5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Celestial Rainbow Group’s accounting policies, which are described in Note 4 to the Historical Financial Information, the Sole Director is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results 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.

Critical judgements in applying accounting policies

The Sole Director has not come across any significant areas where critical judgements are involved in applying the Celestial Rainbow Group’s accounting policies.

Key sources of estimation uncertainty

The following is the key assumption concerning the future, and other key sources of estimation uncertainty at the end of each of the reporting periods, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Provision of ECL for trade and other receivables and amount due from sole director

The Celestial Rainbow Group uses individual assessment to calculate ECL for the trade and other receivables and amount due from sole director. The provision rates are based on internal credit ratings. The individual assessment is based on the Celestial Rainbow Group’s historical default rates taking into consideration forward-looking information that is reasonable and supportable available without undue costs or effort. At every reporting date, the historical observed default rates are reassessed and changes in the forwardlooking information are considered.

The provision of ECL is sensitive to changes in estimates. The information about the ECL and the Celestial Rainbow Group’s trade receivables are disclosed in Notes 7(b) and 19 respectively.

6. CAPITAL RISK MANAGEMENT

The Celestial Rainbow Group manages its capital to ensure that the Celestial Rainbow Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Celestial Rainbow Group’s overall strategy remains unchanged throughout the Relevant Periods.

The capital structure of the Celestial Rainbow Group consists of net debts, which includes amount due to sole director and bank borrowing, net of cash and cash equivalents and equity attributable to owners of Celestial Rainbow, comprising issued share capital, retained profits and reserves.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

The Sole Director review the capital structure regularly. As part of this review, the Sole Director consider the cost of capital and the risk associates with each class of capital. Based on the recommendations of the Sole Director, the Celestial Rainbow Group will balance its overall capital structure through the payment of dividends, new share issues as well as the issue of new debts.

7. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

Financial assets Financial assets at amortised cost Financial liabilities Financial liabilities at amortised cost	At 31 December 2017 2018 RMB’000 RMB’000 46,563 45,547 48,085 49,026	At 30 April 2019 RMB’000 8,467
		14,907

• (b) Financial risk management objectives and policies

The Celestial Rainbow Group’s major financial instruments include trade and other receivables, bank balances and cash, trade and other payables, bank borrowing and amount due from (to) sole director. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments include market risk (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

Interest rate risk

The Celestial Rainbow Group is exposed to fair value interest rate risk in relation to fixed-rate bank borrowing (see Note 24 to the Historical Financial Information).

The Celestial Rainbow Group is also exposed to cash flow interest rate risk in relation to variable-rate bank balances. Management monitors interest rate exposure and will consider other necessary actions when significant interest rate exposure is anticipated.

The Sole Director consider that the Celestial Rainbow Group’s exposure to cash flow interest rate risk as a result of the change of market interest rate is insignificant, therefore, no sensitivity analysis is presented.

Credit risk and impairment assessment

Other than those financial assets whose carrying amounts best represent the maximum exposure to credit risk, the Celestial Rainbow Group’s credit risk is primarily attributable to trade and other receivables, amount due from sole director and bank balances as at 31 December 2017 and 2018 and 30 April 2019. The carrying amounts of financial assets at amortised cost stated in Note 7(a) represented the Celestial Rainbow Group’s maximum exposure to credit risk in relation to financial assets which will cause a financial loss to the Celestial Rainbow Group due to failure to discharge an obligation by the counterparties. The Celestial Rainbow Group does not hold any collateral or other credit enhancements to cover the credit risks associated with its financial assets.

The credit risks on bank balances are limited because the counterparties are bank with high credit rating assigned by international credit-rating agencies.

– IIA-27 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

As at 31 December 2017, the Celestial Rainbow Group has concentration of credit risk on trade receivables from the Celestial Rainbow Group’s largest customer amounting to approximately RMB24,176,000, representing approximately 52.25% of the total gross trade receivables. As at 31 December 2018 and 30 April 2019, the Celestial Rainbow Group has no concentration of credit risk on trade receivables from the Celestial Rainbow Group’s largest customer.

As at 31 December 2017 and 2018 and 30 April 2019, trade receivables from the five largest customers amounts to approximately RMB32,945,000, RMB20,790,000 and RMB961,000 representing approximately 71.20%, 83.75% and 100% of the total gross trade receivables, respectively.

The Celestial Rainbow Group’s concentration of credit risk by geographical location is in the PRC and in Hong Kong as 97.94% of total trade receivables are arisen in Hong Kong as at 31 December 2017 and 91.32% and 100% of total trade receivables are arisen in the PRC as at 31 December 2018 and 30 April 2019.

To manage risk arising from trade receivable, the Celestial Rainbow Group has policies in place to ensure that credit terms are made to counterparties with an appropriate credit history and the management performs ongoing credit evaluations of its counterparties. The credit period granted to the customers and the credit quality of these customers is assessed, which takes into account their financial position, past experience and other factors. Credit limits granted to customers are reviewed periodically. Other monitoring procedures are in place to ensure that follow-up action is taken to recover overdue debts. In addition, the Celestial Rainbow Group performs impairment assessment under ECL model on trade balances individually. In this regard, the Sole Director consider that the Celestial Rainbow Group’s credit risk is significantly reduced.

For all other instruments including other receivables and amount due from sole director, the Celestial Rainbow Group measures the loss allowance equal to 12m ECL, unless when there has been a significant increase in credit risk since initial recognition, the Celestial Rainbow Group recognises lifetime ECL. The assessment of whether lifetime ECL should be recognised based on significant increases in the likelihood or risk of a default occurring since initial recognition. The Celestial Rainbow Group have assessed and concluded that the risk of default rate for the other instruments are steady based on the Celestial Rainbow Group assessment of the financial health of the counterparties. Thus, the Sole Director considered that the ECL for the other instruments of the Celestial Rainbow Group is insignificant as at 31 December 2017 and 2018 and 30 April 2019.

The Celestial Rainbow Group’s internal credit risk grading assessment comprises the following categories:

Internal		Trade	Other financial
credit rating	Description	receivables	assets
Low risk	The counterparty has a low risk of	Lifetime ECL —	12m ECL
	default and does not have any past-	not credit-
	due amounts	impaired
Watch list	Debtor frequently repays after due	Lifetime ECL —	12m ECL
	dates but usually settle after due date	not credit-
		impaired
Doubtful	There have been significant increases	Lifetime ECL —	Lifetime ECL —
	in credit risk since initial recognition	not credit-	not credit-
	through information developed	impaired	impaired
	internally or external resources
Loss	There is evidence indicating the asset is	Lifetime ECL —	Lifetime ECL —
	credit-impaired	credit-impaired	credit-impaired
Write-off	There is evidence indicating that the	Amount is	Amount is
	debtor is in severe financial	written-off	written-off
	difficulty and the Group has no
	realistic prospect of recovery

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

The table below details the credit risk exposures of the Celestial Rainbow Group’s financial assets, which are subject to ECL assessment.

At 31 December 2017 Notes External credit rating Internal credit rating 12-month or lifetime ECL Financial assets at amortised costs Bank balances 20 AA+ N/A 12m ECL Other receivables and deposits paid 19 N/A (Note 1) 12m ECL Trade receivables 19 N/A (Note 2) Lifetime ECL (not credit- impaired) (Note 2) Lifetime ECL (credit- impaired) At 31 December 2018 Notes External credit rating Internal credit rating 12-month or lifetime ECL Financial assets at amortised costs Bank balances 20 AA+ N/A 12m ECL Other receivables and deposits paid 19 N/A (Note 1) 12m ECL Trade receivables 19 N/A (Note 2) Lifetime ECL (not credit- impaired) (Note 2) Lifetime ECL (credit- impaired) Amount due from sole director 23 N/A (Note 3) 12m ECL

Gross carrying amount RMB’000 RMB’000 25 540 37,745 8,528 46,273 Gross carrying amount RMB’000 RMB’000 12 162 22,632 2,193 24,825 20,723

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

At 30 April 2019 Notes External credit rating Internal credit rating 12-month or lifetime ECL Financial assets at amortised costs Bank balances 20 AA+ N/A 12m ECL Other receivables and deposits paid 19 N/A (Note 1) 12m ECL Trade receivables 19 N/A (Note 2) Lifetime ECL (not credit- impaired) (Note 2) Lifetime ECL (credit- impaired) Amount due from sole director 23 N/A (Note 3) 12m ECL	Gross carrying amount RMB’000 RMB’000 579 83 910 51 961 6,844

Notes:

• (1) Other receivables was mainly related to refundable rental deposit paid, the Sole Director assessed the expected loss rate of other receivables was immaterial.

• (2) For trade receivables, the Celestial Rainbow Group has applied the simplified approach in HKFRS 9 to measure the loss allowance at lifetime ECL. To measure the ECL, trade receivables have been assessed individually.

(3)

					31 December	30 April
					2018	2019
					No fixed	No fixed
					repayment terms	repayment terms
					RMB’000	RMB’000
Amount	due	from	sole	director	20,723	6,844

– IIA-30 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

The following tables shows the movement in lifetime ECL that has been recognised for trade receivables under simplified approach:

Acquisition of subsidiaries Changes due to financial instruments recognised from acquisition of subsidiaries: — Transfer to credit-impaired — Impairment losses reversed New financial assets originated or purchased As at 31 December 2017 Changes due to financial instruments recognised as at 31 December 2017: — Impairment losses reversed New financial assets originated or purchased As at 31 December 2018 Changes due to financial instruments recognised as at 31 December 2018: — Impairment losses reversed As at 30 April 2019	Lifetime ECL (not credit- impaired) RMB’000 57 (26) (31) 240 240 (240) 165 165 (165) —	Lifetime ECL (credit- impaired) RMB’000 81 26 (81) 9 35 (35) 10 10 (10) —	Total RMB’000 138 — (112) 249 275 (275) 175 175 (175) —

Changes in the loss allowance for trade receivables are mainly due to:

New financial assets originated or purchased Settlement in full of trade receivables New financial assets originated or purchased	For the period from 9 June 2017 (date of incorporation) to 31 December 2017 Increase Lifetime ECL (not credit- impaired) Lifetime ECL (credit- impaired) RMB’000 RMB’000 240 9 Year ended 31 December 2018 Increase (decrease) Lifetime ECL (not credit- impaired) Lifetime ECL (credit- impaired) RMB’000 RMB’000 (240) (35) 165 10

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

Settlement in full of trade receivables	Four months ended 30 April 2019 Decrease Lifetime ECL (not credit- impaired) Lifetime ECL (credit- impaired) RMB’000 RMB’000 (165) (10

Liquidity risk

In management of the liquidity risk, the Celestial Rainbow Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Celestial Rainbow Group’s operations and mitigate the effects of fluctuations in cash flows. The management also regularly monitors the operating cash flows of the Celestial Rainbow Group to meet its liquidity requirements in short and long term.

The following table details the Celestial Rainbow Group’s remaining contractual maturity for its non-derivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Celestial Rainbow Group can be required to pay. The maturity dates for other non-derivative financial liabilities are based on the agreed repayment dates.

The table includes both interest and principal cash flows.

Liquidity table

Weighted average interest rate At 31 December 2017 Trade and other payables N/A Amount due to sole director N/A Bank borrowing 12% At 31 December 2018 Trade and other payables N/A At 30 April 2019 Trade and other payables N/A	Undiscounted cash flows due within one year or on demand RMB’000 26,381 18,704 3,120 48,205 49,026 14,907	Carrying amounts RMB’000 26,381 18,704 3,000
		48,085
		49,026
		14,907

(c) Fair value measurement of the financial instruments

The Sole Director considers that the carrying amount of financial assets and financial liabilities recorded at amortised cost in the Historical Financial Information approximate their fair values at the end of each of the Relevant Periods.

– IIA-32 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

8. REVENUE AND OPERATING SEGMENT

• (i) Disaggregation of revenue from contracts with customers

Manufacturing and trading of electronic products: — Smart watch — Smart wristband — Room temperature acquisition controller — Smart phone — Attitude stability controller — Speech recognition system — Other Timing of revenue recognition At a point in time	For the period from 9 June 2017 (date of incorporation) to 31 December 2017 RMB’000 20,058 14,906 — — — — 3 34,967 For the period from 9 June 2017 (date of incorporation) to 31 December 2017 RMB’000 34,967	Year ended 31 December 2018 RMB’000 455 2,375 51,217 33,481 2,226 462 508 90,724 Year ended 31 December 2018 RMB’000 90,724	Four months ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) — 309 1,681 78 — — — — — — — 4,017 — — 1,681 4,404 Four months ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) 1,681 4,404

• (ii) Performance obligations for contracts with customers

Sales of electronic products

For sales of electronic products to the wholesale market, revenue is recognised when control of the goods has transferred, being when the goods have been shipped to the wholesaler’s specific location (delivery). Following delivery, the wholesaler has full discretion over the manner of distribution and price to sell the goods, has the primary responsibility when on selling the goods and bears the risks of obsolescence and loss in relation to the goods. The normal credit term is 30 days upon delivery.

(iii) Transaction price allocated to the remaining performance obligation for contracts with customers

All revenue contracts are for period of one year or less. As permitted by HKFRS 15, the transaction price allocated to these unsatisfied contracts is not disclosed.

(iv) Operating segment

Information reported to the Sole Director, being the chief operating decision maker (‘‘CODM’’), for the purposes of resource allocation and assessment of segment performance focuses on types of goods or services delivered or provided. No operating segments identified by the CODM have been aggregated in arriving at the reportable segments of the Celestial Rainbow Group.

– IIA-33 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

Specifically, the Celestial Rainbow Group’s reportable segments under HKFRS 8 are as follows:

• Manufacturing and trading of electronic products

Since this is the only operating and reportable segment of the Celestial Rainbow Group, no further analysis thereof is presented. All the revenue of the Celestial Rainbow Group is generated from manufacturing and trading of electronic products during the Relevant Periods.

Geographical information

The Celestial Rainbow Group’s operations are located in the PRC and Hong Kong.

All of the Celestial Rainbow Group’s non-current assets are located in the PRC. Information about the Celestial Rainbow Group’s revenue from customers is presented based on the location of customers.

Hong Kong The PRC	For the period from 9 June 2017 (date of incorporation) to 31 December 2017 RMB’000 32,162 2,805 34,967	Revenue from external customers Year ended 31 December Four months ended 30 April 2018 2018 2019 RMB’000 RMB’000 RMB’000 (Unaudited) 31,532 1,600 — 59,192 81 4,404 90,724 1,681 4,404	Revenue from external customers Year ended 31 December Four months ended 30 April 2018 2018 2019 RMB’000 RMB’000 RMB’000 (Unaudited) 31,532 1,600 — 59,192 81 4,404 90,724 1,681 4,404
			4,404

Information about major customers

Revenue from customers contributing over 10% of total revenue of the Celestial Rainbow Group during the Relevant Periods are as follows:

Customer A Customer B A subsidiary of the Company Customer C Customer D Customer E	For the period from 9 June 2017 (date of incorporation) to 31 December 2017 RMB’000 — 24,176 7,986 — — —	Year ended 31 December 2018 RMB’000 33,481 — 19,980 17,472 9,326 —	Four months ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) — — 1,600 — — — — — — — — 4,017

– IIA-34 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

9. OTHER INCOME

Interest income Government grant (Note (i)) Gain on disposal of plant and equipment License fee income (Note (ii))	For the period from 9 June 2017 (date of incorporation) to 31 December 2017 RMB’000 23 99 35 — 157	Year ended 31 December 2018 RMB’000 1 764 — 2,264 3,029	Four months ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) 1 1 764 346 — — 754 754 1,519 1,101	Four months ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) 1 1 764 346 — — 754 754 1,519 1,101
				1,101

Notes:

• (i) The government grant represents a subsidy from 深圳市科技創新委員會 (Shenzhen Science and Technology Innovation Committee*) during the Relevant Periods. There is no restrictions on the use of such government grant.

• (ii) During the year ended 31 December 2018, the Celestial Rainbow Group licensed certain trademarks of Shenzhen Ampeq to several licensees at a fixed amount for average terms of three years. Pursuant to the trademark license agreements, the licensees are entitled to apply trademarks of Shenzhen Ampeq, including ‘‘AAipud’’ and ‘‘ORACOM’’ to their electronic products in the PRC. The licensees cannot transfer the right of use to others unless it is agreed by the Celestial Rainbow Group. The license agreements will continue in force upon the completion of the Transaction.

10. IMPAIRMENT LOSSES, NET OF REVERSAL

Reversal of impairment losses on: Trade receivables Impairment losses on: Trade receivables	For the period from 9 June 2017 (date of incorporation) to 31 December 2017 RMB’000 (112) 249 137	Year ended 31 December 2018 RMB’000 (275) 175 (100)	Four months ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) — (175 — — — (175	Four months ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) — (175 — — — (175
				(175

Details of impairment assessment for the Relevant Periods are set out in Note 7(b) to the Historical Financial Information.

• For identification purposes only

– IIA-35 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

11. FINANCE COST

Interest expense on bank borrowing	For the period from 9 June 2017 (date of incorporation) to 31 December 2017 RMB’000 152	Year ended 31 December 2018 RMB’000 215	Four months ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) 125 —

12. INCOME TAX EXPENSE (CREDIT)

Current tax — PRC Enterprise Income Tax (‘‘PRC EIT’’) Deferred tax (Note 25)	For the period from 9 June 2017 (date of incorporation) to 31 December 2017 RMB’000 412 (34) 378	Year ended 31 December 2018 RMB’000 885 25 910	Four months ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) — — (95) (243 (95) (243	Four months ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) — — (95) (243 (95) (243
				(243

No provision for Hong Kong Profits Tax has been made since the Celestial Rainbow Group has no assessable profits arising in Hong Kong during the Relevant Periods.

Under the Law of the PRC on Enterprise Income Tax (the ‘‘EIT Law’’) and Implementation Regulation of the EIT Law, the tax rate of the PRC subsidiary is 25% during the Relevant Periods.

Shenzhen Ampeg has obtained the qualification of High and New Technology Enterprise from the relevant PRC government authorities and subject to a preferential rate of 15% from 2015 to 2021.

– IIA-36 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

The income tax expense for the Relevant Periods can be reconciled to the profit before tax per the consolidated statements of profit or loss and other comprehensive income as follows:

Profit before tax Tax at applicable domestic income tax rate of 25% (Note (i)) 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 jurisdiction Tax effect of preferential tax rate Tax effect of super deduction of research and development costs (Note (ii)) Income tax expense Notes:	For the period from 9 June 2017 (date of incorporation) to 31 December 2017 RMB’000 33,183 8,296 — (7,345) — (380) (193) 378	Year ended 31 December 2018 RMB’000 7,599 1,900 76 (23) 16 (778) (281) 910	Four months ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) (342) (1,034) (86) (259) 29 — — — 15 (9) 64 174 (117) (149) (95) (243)

• (i) The domestic tax rate (which is the PRC EIT rate) represents the tax rate used in the jurisdiction where the operation of the Celestial Rainbow Group is substantially based.

• (ii) On 2 May 2017, Ministry of Finance of the PRC, State Administration of Taxation of the PRC and Ministry of Science and Technology of the PRC jointly released Caishui (2017) No. 34, from 1 January 2017 to 31 December 2019, qualifying technology-based small and medium-sized enterprises are allowed to claim a super deduction of 75% on eligible research and development expenses actually incurred in the course of research and development activities. Alternatively, if research and development expenses incurred are capitalised as intangible assets, the qualifying technology-based small and medium-sized enterprises are allowed to amortise the intangible assets based on 175% of the actual cost incurred.

– IIA-37 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

13. PROFIT (LOSS) FOR THE YEAR/PERIOD

Profit (loss) for the Relevant Periods has been arrived at after charging: Sole Director and chief executive’s remuneration (Note 14) Salaries and other allowance Contributions to retirement benefits scheme Other staff costs: Salaries and other allowance Contributions to retirement benefits scheme Total staff costs Total depreciation of plant and equipment Less: Capitalised in inventories Auditor’s remuneration Research and development costs recognised as an expense (included in administrative and operating expenses) (Note) Cost of inventories recognised as expenses Operating lease rentals in respect of rented premises	For the period from 9 June 2017 (date of incorporation) to 31 December 2017 RMB’000 33 2 35 729 204 933 968 185 (145) 40 — 1,725 26,414 118	Year ended 31 December 2018 RMB’000 59 4 63 816 293 1,109 1,172 463 (410) 53 35 2,826 80,304 477	Four months ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) 20 29 2 2 22 31 373 435 104 129 477 564 499 595 150 157 (117) (137) 33 20 — — 625 797 1,350 4,991 87 213

Note: Included in research and development costs, approximately RMB228,000, RMB167,000, RMB56,000 and RMB175,000 represented the staff costs for the period from 9 June 2017 (date of incorporation) to 31 December 2017 and year ended 31 December 2018, four months ended 30 April 2018 and 2019, respectively.

– IIA-38 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

14. SOLE DIRECTOR AND CHIEF EXECUTIVE’S EMOLUMENTS

a. Sole Director’s and chief executive’s emoluments

The Sole Director’s remuneration for the Relevant Periods, disclosed pursuant to the GEM Listing Rules, are as follows:

For the period from 9 June 2017 (date of incorporation) to 31 December 2017 Ma Xingjin (Note (b)) For the year ended 31 December 2018 Ma Xingjin (Note (b)) For the four months ended 30 April 2018 (Unaudited) Ma Xingjin (Note (b)) For the four months ended 30 April 2019 Ma Xingjin (Note (b))	Fees RMB’000 — — — —	Salaries and other allowances RMB’000 33 59 20 29	Contributions to retirement benefits scheme RMB’000 2 4 2 2	Total RMB’000 35
				63
				22
				31

• (a) The Sole Director’s emoluments shown above were for his services in connection with the management of the affairs of Celestial Rainbow and the Celestial Rainbow Group.

• (b) Appointed on 30 June 2017.

• (c) No chief executive of Celestial Rainbow was appointed for the Relevant Periods.

• (d) No director waived or agreed to waive any emoluments during the Relevant Periods.

• (e) During the Relevant Periods, no emoluments were paid by the Celestial Rainbow Group to the Sole Director as an inducement to join or upon joining the Celestial Rainbow Group or as compensation for loss of office.

– IIA-39 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

b. Five highest paid employees

During the period from 9 June 2017 (date of incorporation) to 31 December 2017, year ended 31 December 2018 and four months ended 30 April 2018 and 2019, the five highest paid employees of the Celestial Rainbow Group included one, one, one and one director of Celestial Rainbow, respectively, details of whose remuneration are set out in Note (a) above. Details of the remuneration for the remaining four, four, four and four highest paid employees who are neither a director nor chief executive of the Celestial Rainbow during the period from 9 June 2017 (date of incorporation) to 31 December 2017, year ended 31 December 2018, respectively, are as follows:

Salaries and other allowance Contributions to retirement benefits scheme	For the period from 9 June 2017 (date of incorporation) to 31 December 2017 RMB’000 102 8 110	Year ended 31 December 2018 RMB’000 173 23 196	Four months ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) 57 64 9 13 66 77	Four months ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) 57 64 9 13 66 77
				77

The emoluments of the above highest paid employees were less than RMB1,000,000 each during the Relevant Periods.

During the Relevant Periods, no emoluments were paid by the Celestial Rainbow Group to any of the five highest paid individuals as an inducement to join or upon joining the Celestial Rainbow Group or as compensation for loss of office.

15. DIVIDENDS

No dividend was paid or proposed by the Celestial Rainbow during the Relevant Periods, nor has any dividend been proposed since the end of the Relevant Periods.

– IIA-40 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

16. PLANT AND EQUIPMENT

COST Acquisition of subsidiaries Disposals At 31 December 2017 Additions At 31 December 2018 and 30 April 2019 ACCUMULATED DEPRECIATION Acquisition of subsidiaries Provided for the period Eliminated on disposal At 31 December 2017 Provided for the year At 31 December 2018 Provided for the period At 30 April 2019 CARRYING VALUES At 31 December 2017 At 31 December 2018 At 30 April 2019	Furniture, fixtures and equipment RMB’000 642 (138) 504 164 668 530 19 (73) 476 25 501 11 512 28 167 156	Motor vehicles RMB’000 501 — 501 — 501 476 — — 476 — 476 — 476 25 25 25	Plant and machinery RMB’000 4,628 — 4,628 — 4,628 1,317 166 — 1,483 438 1,921 146 2,067 3,145 2,707 2,561	Total RMB’000 5,771 (138) 5,633 164 5,797 2,323 185 (73) 2,435 463 2,898 157 3,055 3,198 2,899 2,742

The above items of plant and equipment are depreciated on a straight-line basis at the following rates per annum:

Furniture, fixtures and equipment 20% Motor vehicles 20% Plant and machinery 10%

– IIA-41 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

17. INTANGIBLE ASSETS

Acquisition of subsidiaries (Note 27) At 31 December 2017, 2018 and 30 April 2019	Trademarks RMB’000 10,478
	10,478

The trademarks has a legal life of 10 years but is renewable every 10 years at minimal cost. The Sole Director is of the opinion that the Celestial Rainbow Group would renew the trademarks continuously and has the ability to do so. Various studies including product life cycle studies, market, competitive and environmental trends, and brand extension opportunities have been performed by management of the Celestial Rainbow Group, which supports that the trademarks has no foreseeable limit to the period over which the trademarked products are expected to generate net cash flows for the Celestial Rainbow Group.

As a result, the trademarks is considered by the management of the Celestial Rainbow Group as having an indefinite useful life because it is expected to contribute to net cash inflows indefinitely. The trademarks will not be amortised until its useful life is determined to be finite. Instead it will be tested for impairment annually and whenever there is an indication that it may be impaired.

Impairment tests for trademark

For the purposes of impairment testing, trademarks with indefinite useful lives have been allocated to one individual cash generating unit (CGU), comprising one subsidiary in the manufacturing and trading of electronic products segment. The carrying amounts of the trademarks (net of accumulated impairment losses) allocated to this unit is as follows:

Manufacturing and trading of electronic products segment	At 31 December 2017 2018 RMB’000 RMB’000 10,478 10,478	At 30 April 2019 RMB’000 10,478

Manufacturing and trading of electronic products segment

At 31 December 2017 and 2018, the Celestial Rainbow Group performed an impairment review for a CGU of manufacturing and trading of electronic products segment which was contributed by Shenzhen Ampeg with reference to a valuation carried out by an independent professional valuer. The recoverable amount of Shenzhen Ampeg has been determined based on a value-in-use calculation, which uses a cash flow projection based on financial forecast approved by management covering a 5-year period. The pre-tax discount rate applied to cash flow projection is 19.5% and 19.7% and cash flow beyond the 5-year period is extrapolated using a steady 3% and 3% per annum growth rate as at 31 December 2017 and 2018, respectively. The growth rate used does not exceed the long-term average growth rate for the business in which the CGU operates. The recoverable amount of Shenzhen Ampeg is higher than the carrying amount. The management believes that any reasonably possible change in any of these assumptions would not cause the aggregate carrying value of the Shenzhen Ampeg to exceed the recoverable amount. Therefore, no impairment loss on intangible assets in relating to the Celestial Rainbow Group’s manufacturing and trading of electronic products segment is recognised for the period/year ended 31 December 2017 and 2018.

Celestial Rainbow perform the impairment review annually as at their financial year end date (i.e. 31 December). No impairment review has been performed as at 30 April 2019 as there is no indication that the trademark may be impaired.

Management determined the budgeted sales and gross margins based on past performance, expectation for the market development and planned business strategy. The discount rate used is pre-tax and reflects specific risks relating to manufacturing and trading of electronic products segment.

– IIA-42 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

18. INVENTORIES

Raw materials Work in progress Finished goods	At 31 December 2017 2018 RMB’000 RMB’000 19,883 12,527 — 4,058 — 2,089 19,883 18,674	At 30 April 2019 RMB’000 16,669 2,228 —
		18,897

19. TRADE AND OTHER RECEIVABLES

Trade receivables Less: Allowance for credit losses Trade receivables, net of allowance for credit losses (Note a) Other receivables and deposit VAT recoverable Prepayments	At 31 December 2017 2018 RMB’000 RMB’000 46,273 24,825 (275) (175) 45,998 24,650 540 10,071 3,362 — 73 3,757 3,975 13,828 49,973 38,478	At 30 April 2019 RMB’000 961 —
		961
		9,992 11 4,624
		14,627
		15,588

Notes:

(a) The Celestial Rainbow Group allows credit period of 30 days to its customers. The following is an aged analysis of trade receivables presented based on the invoice date:

0–30 days 31–60 days 61–90 days 91–180 days 181–365 days	At 31 December 2017 2018 RMB’000 RMB’000 12,554 21,520 9,986 947 9,231 — 14,227 39 — 2,144 45,998 24,650	At 30 April 2019 RMB’000 910 — — 12 39
		961

Before accepting any new customers, the Celestial Rainbow Group will internally assess the potential customer’s credit quality and defines credit limits by customers. The Sole Director closely monitors the credit quality and follow up actions will be taken if overdue debts are noted. Credit limits attributed to customers and credit term granted to customers are reviewed on a regular basis. The majority of the trade receivables that are neither past due not impaired have no history of defaulting on repayments.

– IIA-43 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

As at 31 December 2017 and 2018 and 30 April 2019, included in the Celestial Rainbow Group’s trade receivables balance are debtors with aggregate carrying amount of approximately RMB33,444,000, RMB3,130,000 and RMB51,000 which are past due as at the reporting date, respectively. The Celestial Rainbow Group does not hold any collateral over these balances.

Details of impairment assessment of trade receivables for the Relevant Periods are set out in Note 7(b) to the Historical Financial Information.

20. BANK BALANCES AND CASH

The bank balances carry interest market rates as follows:

Range of interest rate per annum	At 31 December 2017 2018 0.01%–0.35% 0.01%–0.35%	At 30 April 2019 0.01%-0.35%

Included in the bank balances and cash are the following amounts which are subject to foreign exchange control regulations or note freely transferable:

Amounts denominated in RMB — bank balances and cash TRADE AND OTHER PAYABLES Trade payables (Note a) VAT payables Other payables and accruals	At 31 December 2017 2018 RMB’000 RMB’000 21 9 At 31 December 2017 2018 RMB’000 RMB’000 24,855 47,597 — 68 1,526 1,429 26,381 49,094	At 30 April 2019 RMB’000 579
		At 30 April 2019 RMB’000 13,446 — 1,461
		14,907

21. TRADE AND OTHER PAYABLES

Notes:

(a) The credit period of trade payables is 30–90 days.

The following is an aged analysis of trade payables presented based on invoice date:

0–30 days 31–60 days 61–90 days 91–180 days Over 180 days	At 31 December 2017 2018 RMB’000 RMB’000 18,156 25,110 — 4,796 3,304 1,571 — 87 3,395 16,033 24,855 47,597	At 30 April 2019 RMB’000 — — — 8,256 5,190
		13,446

– IIA-44 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

22. CONTRACT LIABILITIES

Current Sales of electronic products	At 31 December 2017 2018 RMB’000 RMB’000 — 25	At 30 April 2019 RMB’000 —

Contract liabilities, that are not expected to be settled within the Celestial Rainbow Group’s normal operating cycle, are classified as current and non-current based on the Celestial Rainbow Group’s earliest obligation to transfer goods or services to the customers.

Typical payment terms which impact on the amount of contract liabilities recognised are as follows:

Sales of electronic products

When the Celestial Rainbow Group receives a deposit before the production activity commences, this will give rise to contract liabilities at the start of a contract, until the revenue recognised on the relevant contract exceeds the amount of the deposit. The Celestial Rainbow Group typically receives a deposit ranged from 10% to 100% of the sales amount on acceptance of the engagements.

23. AMOUNT DUE FROM(TO) SOLE DIRECTOR

The amount due from (to) sole director was non-trade in nature, unsecured, interest free and has no fixed repayment terms. In addition, the sole director agrees to repay such amount prior to the completion of the Transaction.

24. BANK BORROWING

Bank borrowing, unsecured (Note)	At 31 December 2017 2018 RMB’000 RMB’000 3,000 —	At 30 April 2019 RMB’000 —

Carrying amount repayable (based on scheduled repayment dates set out in the loan agreements):

Within one year	At 31 December 2017 2018 RMB’000 RMB’000 3,000 —	At 30 April 2019 RMB’000 —

Note: At 31 December 2017, the bank borrowing of RMB3,000,000 is jointly guaranteed by Mr. Zhou Qinwu and Ms. Fang Shuying, the former shareholders of Shenzhen Ampeg. The bank borrowing represented a revolving loan, unsecured and carried fixed interest rate of 12% per annum.

– IIA-45 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

25. DEFERRED TAX LIABILITIES

Deferred tax liabilities	At 31 December 2017 2018 RMB’000 RMB’000 2,547 2,572	At 30 April 2019 RMB’000 2,329

The following are the deferred tax assets (liabilities) recognised and movements thereon during the Relevant Periods:

Acquisition of subsidiaries Credit to profit and loss (Note 12) At 31 December 2017 Credit to profit and loss (Note 12) At 31 December 2018 Credit to profit and loss (Note 12) At 30 April 2019	Tax loss RMB’000 — — — — — 287 287	Provision RMB’000 35 34 69 (25) 44 (44) —	Intangible assets RMB’000 (2,616) — (2,616) — (2,616) — (2,616)	Total RMB’000 (2,581) 34
				(2,547) (25)
				(2,572) 243
				(2,329)

Under the EIT Law of the PRC, withholding tax is also imposed on dividends declared in respect of profits earned by the PRC subsidiaries from 1 January 2008 onwards. No deferred tax liabilities have been provided for the undistributed earnings amounting to approximately RMB25,343,000, RMB25,343,000 and RMB30,645,000 as at 31 December 2017 and 2018 and 30 April 2019 respectively, as the Celestial Rainbow Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not be reversed in the foreseeable future.

26. SHARE CAPITAL

Authorised: 50,000 ordinary shares of US$1 each Issued and fully paid: 1 ordinary share of US$1 each Shown in the Historical Financial Information as	At 9 June 2017 (date of incorporation), 31 December 2017 and 2018 and 30 April 2019 US$50,000
	US$1
	—

• Less than RMB1,000

– IIA-46 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

27. ACQUISITION OF SUBSIDIARIES

On 1 August 2017, Celestial Rainbow completed the acquisition of the entire equity interest of Sky Dynasty from Ms. Jin Yanping. It is the Sole Director’s understanding that in order to set off a sum of money due from Ms. Jin Yanping and her family members to Mr. Ma Xingjin of approximately RMB8,980,000, Ms. Jin Yanping transferred all the issued shares of Sky Dynasty to Mr. Ma Xingjin using a nominal consideration of HK$1.

To the best knowledge of the directors of the Company, Ms. Jin Yanping has no relationship with the Company and its connected persons (including the controlling Shareholder).

This Acquisition has been accounted for using the acquisition method.

Sky Dynasty and its subsidiary (the ‘‘Sky Dynasty Group’’) is principally engaged in manufacturing and trading of electronic products. Celestial Rainbow has acquired Sky Dynasty Group so as to expand the business in manufacturing and trading of electronic products.

==> picture [37 x 8] intentionally omitted <==

Consideration transferred:

Cash

—*

The fair values of the identifiable assets and liabilities of Sky Dynasty Group recognised as at the date of acquisition based on the purchase price allocation prepared by Eidea Professional Services Company Limited, an independent professional valuer, were as follows:

Plant and equipment Intangible assets Inventories Trade and other receivables Amounts due from sole director Bank balances and cash Tax recoverable Trade and other payables Bank borrowing Deferred tax liabilities Net assets Gain on bargain purchases arising on Acquisition: Consideration transferred Less: net assets acquired Gain on bargain purchases arising on Acquisition Net cash inflow on Acquisition Cash consideration Less: Bank balances and cash acquired

Fair value recognised on acquisition RMB’000 3,448 10,478 14,650 27,528 3,861 10 379 (25,394) (3,000) (2,581) 29,379 RMB’000 — (29,379) (29,379) RMB’000 — 10 10

• Less than RMB1,000

– IIA-47 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

Included in the profit for the period from 9 June 2017 (date of incorporation) to 31 December 2017 was profit of approximately RMB3,630,000 attributable to the additional business generated by Sky Dynasty Group. Revenue for the year includes approximately RMB34,967,000 generated from Sky Dynasty Group.

Had the Acquisition been completed on 9 June 2017, total revenue of the Celestial Rainbow Group for the period from 9 June 2017 (date of incorporation) to 31 December 2017 would have been approximately RMB46,623,000, and profit for the period from 9 June 2017 (date of incorporation) to 31 December 2017 would have been approximately RMB4,840,000. The pro forma information is for illustrative purposes only and is not necessarily an indication of revenue and results of operations of the Celestial Rainbow Group that actually would have been achieved had the Acquisition been completed on 9 June 2017, nor is it intended to be a projection of future results.

28. OPERATING LEASE COMMITMENTS

At the end of each reporting periods, the Celestial Rainbow 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	At 31 December 2017 2018 RMB’000 RMB’000 102 102	At 30 April 2019 RMB’000 102

Operating lease payments represent rentals payable by the Celestial Rainbow Group for its office premises. Leases are negotiated for original terms of 5 years with early termination option, as appropriate.

29. RETIREMENT BENEFITS SCHEME

The employees of the Celestial Rainbow Group’s subsidiary in the PRC are members of the state-managed retirement benefits scheme operated by the government of PRC. The subsidiary in the PRC are required to contribute a certain percentage of the payroll cost to the retirement benefits scheme to fund the benefits. The only obligation of the Celestial Rainbow Group with respect to the retirement benefits scheme is to make the required contributions under the scheme.

For the period from 9 June 2017 (date of incorporation) to 31 December 2017, year ended 31 December 2018 and four months ended 30 April 2018 and 2019, the amounts of contributions recognised by the Celestial Rainbow Group are approximately RMB206,000, RMB297,000, RMB106,000 and RMB131,000 respectively.

30. RELATED PARTY TRANSACTIONS

(a) Balances

Save as disclosed in elsewhere of the Historical Financial Information, the Celestial Rainbow Group did not have any material related parties transaction during the Relevant Periods.

(b) Compensation of key management personnel

Compensation of key management personnel, being the remuneration of the Sole Director during the Relevant Periods has been disclosed in Note 14 to the Historical Financial Information.

– IIA-48 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

31. MAJOR NON-CASH TRANSACTION

For the year ended 31 December 2018

On 31 July 2018, Sky Dynasty and Shenzhen Ampeg, both being wholly-owned subsidiaries of Celestial Rainbow, Mr. Ma Xingjin, the sole director of Celestial Rainbow, Ms. Jin Yanping, a former shareholder of Sky Dynasty and Mr. Zhou Qinwu, a former shareholder of Shenzhen Ampeg (collectively referred to as the ‘‘Parties’’) agreed to conduct a loan restructuring in order to clean up all outstanding balances of the former shareholders with Sky Dynasty and Shenzhen Ampeg. Therefore, the Parties entered into several set-off agreements, pursuant to which the Parties agreed to offset the amounts due from/to each others. After the offset arrangements, the Celestial Rainbow Group’s certain other payables of approximately RMB2,997,000 was set-off against with the amount due from the sole director.

32. RECONCILIATION OF LIABILITIES FROM FINANCING ACTIVITIES

The table below details the change in the Celestial Rainbow Group’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those from which cash flows were, or future cash flows will be, classified in the Celestial Rainbow Group’s consolidated statements of cash flows as cash flows from financing activities.

At 9 June 2017 (date of incorporation) Changes from cash flows: Advance from sole director Interest paid Non-cash changes: Acquisition of subsidiaries Finance costs recognised Foreign exchange translation At 31 December 2017 Changes from cash flows: Repayment to sole director Bank borrowings raised Repayment of bank borrowings Interest paid Non-cash changes: Finance costs recognised Foreign exchange translation At 31 December 2018 and 30 April 2019	Amount due to sole director (Note 23) RMB’000 — 18,900 — — — (196) 18,704 (18,872) — — — — 168 —	Bank borrowing (Note 24) RMB’000 — — (152) 3,000 152 — 3,000 — 6,000 (9,000) (215) 215 — —	Total RMB’000 — 18,900 (152) 3,000 152 (196) 21,704 (18,872) 6,000 (9,000) (215) 215 168 —

33. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Celestial Rainbow Group have been prepared in respect of any period subsequent to 30 April 2019.

– IIA-49 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

The following is the text of a report set out on pages IIB-1 to IIB-50, received from the Target Company’s reporting accountants, Asian Alliance (HK) CPA Limited, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF MILLENNIUM PACIFIC GROUP HOLDINGS LIMITED

INTRODUCTION

We report on the historical financial information of Sky Dynasty Investments Limited (‘‘Sky Dynasty’’) and its subsidiary (together, the ‘‘Sky Dynasty Group’’) set out on pages IIB4 to IIB-50, which comprises the consolidated statements of financial position as at 31 March 2017, 2018 and 2019 and 30 April 2019, and the consolidated statements of profit or loss and other comprehensive income, the consolidated statements of changes in equity and the consolidated statements of cash flows for the the years ended 31 March 2017, 2018 and 2019 and the one month ended 30 April 2019 (the ‘‘Relevant Periods’’) and a summary of significant accounting policies and other explanatory information (together, the ‘‘Historical Financial Information’’). The Historical Financial Information set out on pages IIB-4 to IIB-50 forms an integral part of this report, which has been prepared for inclusion in the circular of Millennium Pacific Group Holdings Limited (the ‘‘Company’’) dated 25 September 2019 (the ‘‘Circular’’) in connection with the proposed further acquisition of 35% of the issued share capital of Celestial Rainbow Limited (the ‘‘Transaction’’).

DIRECTORS ’ RESPONSIBILITY FOR THE HISTORICAL FINANCIAL INFORMATION

The sole director of Sky Dynasty is responsible for the preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information, and for such internal control as the sole director of Sky Dynasty determines is necessary to enable the preparation of Historical Financial Information that is free from material misstatement, whether due to fraud or error.

The directors of the Company are responsible for the contents of the Circular in which the Historical Financial Information of Sky Dynasty Group is included, and such information is prepared based on accounting policies materially consistent with those of the Company.

– IIB-1 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

Reporting Accountants’ responsibility

Our responsibility is to express an opinion on the Historical Financial Information and to report our opinion to you. We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200 ‘‘Accountants’ Reports on Historical Financial Information in Investment Circulars’’ issued by the Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’). This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information is free from material misstatement.

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants’ judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the sole director of Sky Dynasty, as well as evaluating the overall presentation of the Historical Financial Information.

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

Opinion

In our opinion the Historical Financial Information gives, for the purposes of the accountants’ report, a true and fair view of the Sky Dynasty Group’s financial position as at 31 March 2017, 2018 and 2019 and 30 April 2019, and of its financial performance and cash flows for the Relevant Periods in accordance with the basis of preparation and presentation as set out in Note 2 to the Historical Financial Information.

Review of stub period comparative financial information

We have reviewed the stub period comparative financial information of the Sky Dynasty Group which comprises the unaudited consolidated statements of profit or loss and other comprehensive income, the unaudited consolidated statements of changes in equity and the unaudited consolidated statements of cash flows of the Sky Dynasty Group for the one month ended 30 April 2018 and other explanatory information (the ‘‘Stub Period Comparative Financial Information’’). The sole director of Sky Dynasty is responsible for the preparation and presentation of the Stub Period Comparative Financial Information in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information. Our responsibility is to express a conclusion on the Stub Period Comparative Financial Information based on our review. We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410 ‘‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’’ issued by the HKICPA. A review consists of making

– IIB-2 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the Stub Period Comparative Financial Information, for the purpose of the accountants’ report, is not prepared, in all material respects, in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information.

Report on matters under the Rules Governing the Listing of Securities on GEM of The Stock Exchange of Hong Kong Limited and the Companies (Winding Up and Miscellaneous Provisions) Ordinance

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page IIB-4 have been made.

Dividends

We refer to Note 15 to the Historical Financial Information which states that no dividend was declared or paid by Sky Dynasty in respect of the Relevant Periods.

Asian Alliance (HK) CPA Limited Certified Public Accountants (Practising) Chan Mei Mei Practising Certificate Number: P05256 Suites 313–316, 3/F Shui On Centre 6–8 Harbour Road Wan Chai Hong Kong 25 September 2019

– IIB-3 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

HISTORICAL FINANCIAL INFORMATION

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of this accountants’ report.

The consolidated financial statements of the Sky Dynasty Group for the Relevant Periods, on which the Historical Financial Information is based, have been prepared in accordance with the accounting policies which conform with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) issued by the HKICPA and were audited by Asian Alliance (HK) CPA Limited in accordance with Hong Kong Standards of Auditing issued by the HKICPA (‘‘Underlying Financial Statements’’).

The Historical Financial Information is presented in Renminbi (‘‘RMB’’) after considered that most of the Sky Dynasty Group’s transactions are denominated and settled in RMB, the functional currency of Sky Dynasty is Hong Kong dollars (‘‘HK$’’) and the functional currency of its subsidiary is RMB.

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Notes Revenue 8 Cost of sales Gross profit (loss) Other income 9 Impairment losses, net of reversal 10 Selling and distribution expenses Administrative and operating expenses Finance cost 11 Profit (loss) before tax Income tax expense 12 Profit (loss) for the year/period 13	Year 2017 RMB’000 108,163 (88,330) 19,833 555 — (817) (8,673) (278) 10,620 (1,017) 9,603	ended 31 March 2018 2019 RMB’000 RMB’000 72,020 90,724 (58,288) (80,569) 13,732 10,155 1,149 3,029 (170) 100 (576) (229) (7,710) (5,241) (225) (215) 6,200 7,599 (370) (910) 5,830 6,689	One month ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) 80 4,017 (84) (4,646) (4) (629) 953 189 — 95 (43) (17) (443) (786) (40) — 423 (1,148) — 172 423 (976)

– IIB-4 –

ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

APPENDIX IIB

Notes Other comprehensive income (expenses) Items that may be reclassified subsequently to profit or loss: Exchange differences arising on translation of foreign operations Total comprehensive income (expenses) for the year/period Profit (loss) for the year attributable to: — Owners of Sky Dynasty — Non-controlling interests Total comprehensive income (expenses) for the year/period attributable to: — Owners of Sky Dynasty — Non-controlling interests	Year 2017 RMB’000 (65) 9,538 7,771 1,832 9,603 7,706 1,832 9,538	ended 31 March 2018 2019 RMB’000 RMB’000 385 (108) 6,215 6,581 5,667 6,689 163 — 5,830 6,689 6,052 6,581 163 — 6,215 6,581	One month ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) (1) 85 422 (891) 423 (976) — — 423 (976) 422 (891) — — 422 (891)

– IIB-5 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Notes NON-CURRENT ASSETS Plant and equipment 16 Deferred tax assets 24 CURRENT ASSETS Inventories 17 Trade and other receivables 18 Amount due from sole director 22 Tax recoverable Bank balances and cash 19 CURRENT LIABILITIES Trade and other payables 20 Contract liabilities 21 Amount due to sole director 22 Bank borrowing 23 Tax liabilities NET CURRENT ASSETS NET ASSETS CAPITAL AND RESERVES Share capital 25 Reserves Equity attributable to owners of Sky Dynasty Non-controlling interests TOTAL EQUITY	2017 RMB’000 3,720 26 3,746 20,473 20,609 — — 622 41,704 8,630 — 14,849 1,000 65 24,544 17,160 20,906 —* 15,138 15,138 5,768 20,906	At 31 March 2018 RMB’000 3,198 69 3,267 19,883 49,973 — 228 23 70,107 26,457 — 18,704 3,000 — 48,161 21,946 25,213 —* 25,213 25,213 — 25,213	2019 RMB’000 2,899 44 2,943 18,674 38,480 20,723 — 10 77,887 49,009 25 — — 2 49,036 28,851 31,794 —* 31,794 31,794 — 31,794	At 30 April 2019 RMB’000 2,860 216 3,076 18,993 28,526 17,106 682 333 65,640 37,788 25 — — — 37,813 27,827 30,903 —* 30,903 30,903 — 30,903

• Less than RMB1,000

– IIB-6 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

STATEMENTS OF FINANCIAL POSITION OF SKY DYNASTY

NON-CURRENT ASSET Investment in subsidiary CURRENT ASSETS Other receivables and prepayments Bank balances and cash CURRENT LIABILITIES Trade and other payables Amount due to a director Amount due to a subsidiary NET CURRENT LIABILITIES NET LIABILITIES CAPITAL AND RESERVES Share capital Reserves Equity attributable to owners of Sky Dynasty Non-controlling interests TOTAL EQUITY	2017 RMB’000 10,081 20 3 23 14 11,241 — 11,255 (11,232) (1,151) —* (1,151) (1,151) — (1,151)	At 31 March 2018 RMB’000 9,107 18 2 20 90 14 10,236 10,340 (10,320) (1,213) —* (1,213) (1,213) — (1,213)	2019 RMB’000 9,750 105 — 105 14 15 10,959 10,988 (10,883) (1,133) —* (1,133) — — (1,133)	At 30 April 2019 RMB’000 9,739 105 — 105 14 15 10,947 10,976 (10,871) (1,132) —* (1,132) — — (1,132)

• Less than RMB1,000

– IIB-7 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

At 1 April 2016 Profit for the year Other comprehensive income Item that may be reclassified subsequently to profit or loss: Exchange differences arising on translation of foreign operations Total comprehensive income for the year Transfer At 31 March 2017 Profit for the year Other comprehensive income Item that may be reclassified subsequently to profit or loss: Exchange differences arising on translation of foreign operations Total comprehensive income for the year Acquisition of non-controlling interests (Note 26) Transfer At 31 March 2018	Share capital RMB’000 — — — — — — — — — — — —*	Statutory surplus reserve RMB’000 (Note) 850 — — — 777 1,627 — — — — 566 2,193	Attributable to owne Translation reserve Other reserve RMB’000 RMB’000 — — — — (65) — (65) — — — (65) — — — 385 — 385 — — 4,023 — — 320 4,023	rs of the Company Retained earnings Total RMB’000 RMB’000 6,582 7,432 7,771 7,771 — (65) 7,771 7,706 (777) — 13,576 15,138 5,667 5,667 — 385 5,667 6,052 — 4,023 (566) — 18,677 25,213	Non- controlling interests RMB’000 3,936 1,832 — 1,832 — 5,768 163 — 163 (5,931) — —	Total RMB’000 11,368
						9,603 (65
						9,538
						—
						20,906
						5,830 385
						6,215
						(1,908 —
						25,213

– IIB-8 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

At 31 March 2018 Profit for the year Other comprehensive expense Item that may be reclassified subsequently to profit or loss: Exchange differences arising on translation of foreign operations Total comprehensive income for the year Transfer At 31 March 2019 Loss for the period Other comprehensive income Item that may be reclassified subsequently to profit or loss: Exchange differences arising on translation of foreign operations Total comprehensive income for the period Transfer At 30 April 2019 For the one month ended 30 April 2018 (unaudited) At 31 March 2018 Profit for the period Other comprehensive expenses Item that may be reclassified subsequently to profit or loss: Exchange differences arising on translation of foreign operations Total comprehensive income for the period Transfer At 30 April 2018	Share capital RMB’000 — — — — — — — — — — — — — — — — —*	Statutory surplus reserve RMB’000 (Note) 2,193 — — — 670 2,863 — — — — 2,863 2,193 — — — 42 2,235	Attributable to owne Translation reserve Other reserve RMB’000 RMB’000 320 4,023 — — (108) — (108) — — — 212 4,023 — — 85 — 85 — — — 297 4,023 320 4,023 — — (1) — (1) — — — 319 4,023	rs of the Company Retained earnings Total RMB’000 RMB’000 18,677 25,213 6,689 6,689 — (108) 6,689 6,581 (670) — 24,696 31,794 (976) (976) — 85 (976) (891) — — 23,720 30,903 18,677 25,213 423 423 — (1) 423 422 (42) — 19,058 25,635	Non- controlling interests RMB’000 — — — — — — — — — — — — — — — — —	Total RMB’000 25,213
						6,689 (108
						6,581
						—
						31,794
						(976 85
						(891
						—
						30,903
						25,213
						423 (1
						422
						—
						25,635

• Less than RMB1,000

– IIB-9 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

Note:

Statutory surplus reserve

According to the Company Law of the People’s Republic of China (the ‘‘PRC’’), the company established in the PRC are required to transfer 10% of their after-tax profit, as determined in accordance with the PRC accounting standards and regulations, to the statutory surplus reserve until the balance of the reserve reaches 50% of their respective registered capital. The transfer to this reserve must be made before distribution of dividends to owners of these PRC subsidiaries. Statutory surplus reserve can be used to set-off previous years’ loss, if any, and may be converted into capital in proportion to existing equity owners’ equity percentage, provided that the balance after such issuance is not less than 25% of their registered capital.

– IIB-10 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

CONSOLIDATED STATEMENTS OF CASH FLOWS

OPERATING ACTIVITIES Profit (loss) before tax Adjustments for: Depreciation of plant and equipment Impairment losses on trade receivables Reversal of impairment losses on trade receivables Gain on disposal of plant and equipment Finance cost Interest income Operating cash flows before movements in working capital (Increase) decrease in inventories (Increase) decrease in trade and other receivables (Decrease) increase in trade and other payables Increase (decrease) in contract liabilities Cash (used in) generated from operations PRC Enterprise Income Tax paid NET CASH (USED IN) FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Purchase of plant and equipment Proceed from disposal of plant and equipment Advance (to) from sole director Interest received Acquisition of non-controlling interest NET CASH (USED IN) FROM INVESTING ACTIVITIES	Year 2017 RMB’000 10,620 214 105 (105) — 278 (70) 11,042 (16,565) (1,879) (4,942) — (12,344) (1,737) (14,081) (3,148) — — 70 — (3,078)	ended 31 March 2018 2019 RMB’000 RMB’000 6,200 7,599 457 463 275 127 (105) (228) (35) — 225 215 (73) (1) 6,944 8,175 590 1,209 (29,534) 11,594 17,827 25,549 — 25 (4,173) 46,552 (706) (655) (4,879) 45,897 — (164) 100 — — (23,720) 73 1 (1,908) — (1,735) (23,883)	One month ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) 423 (1,148) 36 39 — 21 — (116) — — 40 — — — 499 (1,204) (368) (319) 3,090 10,049 (10,425) (11,221) — — (7,204) (2,695) (644) (684) (7,848) (3,379) — — — — — 3,617 — — — — — 3,617

– IIB-11 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

FINANCING ACTIVITIES Advance from (repayment to) sole director New borrowings raised Repayments of borrowings Interest paid NET CASH FROM (USED IN) FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR Effect of foreign exchange rate changes CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR represented by bank balances and cash	Year 2017 RMB’000 5,616 7,000 (9,090) (278) 3,248 (13,911) 14,598 (65) 622	ended 31 March 2018 2019 RMB’000 RMB’000 3,855 (18,872) 9,000 6,000 (7,000) (9,000) (225) (215) 5,630 (22,087) (984) (73) 622 23 385 60 23 10	One month ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) 7,917 — — — — — (40) — 7,877 — 29 238 23 10 (1) 85 51 333	One month ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) 7,917 — — — — — (40) — 7,877 — 29 238 23 10 (1) 85 51 333
				—
				238 10 85
				333

– IIB-12 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1. GENERAL

Sky Dynasty was incorporated in Hong Kong with limited liability on 19 February 2008. The address of the registered office and principal place of business of Sky Dynasty are Flat B, 20/F., Sing Kong Building, 233–243 Lockhart Road, Wanchai, Hong Kong.

Sky Dynasty acts as an investing holding company. Sky Dynasty Group are principally engaged in manufacturing and trading of electronic products.

As at the end of the Relevant Periods and date of this report, Sky Dynasty, had direct equity interests in the following subsidiary, which is a private company, particulars of which are set out below:

	Place and			Percentage	of equity interest
	the date of	Paid up		attributable to Sky Dynasty
	incorporation/	registered		31 March	30 April	Date of	Principal
Name of subsidiary	establishment	capital	2017	2018	2019 2019	this report	activities
深圳市艾普科技有限公司(transliterated	PRC	RMB10,000,000	80.92%	100%	100% 100%	100%	Manufacturing and
as Shenzhen Ampeg Technology Co.,	19 December						trading of
Ltd) (‘‘Shenzhen Ampeg’’) (Note)	2005						electronic
							products

Shenzhen Ampeg have adopted 31 December as their financial year end date.

Note: The statutory financial statements of Shenzhen Ampeg for the years ended 31 December 2016, 2017 and 2018 was prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises established in the PRC and were audited by 深圳民生會計師事務所(普通合夥) (transliterated as Shenzhen Minsheng Certified Public Accountants (Limited Liability Partnerships)*), certified public accountants registered in the PRC. No audited financial statements have been prepared for the four months ended 30 April 2019.

2. BASIS OF PREPARATION AND PRESENTATION OF HISTORICAL FINANCIAL INFORMATION

The Historical Financial Information has been prepared based on the accounting policies set out in Note 4 which conforms with HKFRSs issued by the HKICPA.

The statutory financial statements of Sky Dynasty for the years ended 31 March 2017, 2018 and 2019 were prepared in accordance with the Hong Kong Small and Medium-sized Entity Financial Reporting Standard issued by Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’) and were audited by Joe Chiu & Company, certified public accountants registered in Hong Kong. No audited financial statements have been prepared for the one month ended 30 April 2019.

• For identification purposes only

– IIB-13 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

3. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the Historical Financial Information for the Track Record Period, the Group has consistently applied HKFRSs that are effective for the financial year beginning on 1 April 2019 throughout the Relevant Period, except that the Group adopted HKFRS 16 Leases since 1 April 2019 and HKAS 17 Leases for the years ended 31 March 2017, 2018 and 2019.

Transition and summary of effects arising from initial application of HKFRS 16

The Group has applied HKFRS 16 for the first time from 1 April 2019. HKFRS 16 superseded HKAS 17 Leases (‘‘HKAS 17’’), and the related interpretations.

The Group applied accounting policies in accordance with the transition provisions of HKFRS 16.

Information about the Group’s accounting policies resulting from the application of HKFRS 16 is disclosed in Note 4.

Definition of a lease

The Group has elected the practical expedient to apply HKFRS 16 to contracts that were previously identified as leases applying HKAS 17 and HK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease and not apply this standards to contracts that were not previously identified as containing a lease. Therefore, the Group has not reassessed contracts which already existed prior to the date of initial application.

As a lessee

The Group has applied HKFRS 16 retrospectively with the cumulative effect recognised at the date of initial application, 1 April 2019. Any difference at the date of initial application is recognised in the opening accumulated profits and comparative information has not been restated.

When applying the modified retrospective approach under HKFRS 16 at transition, the Group elected not to recognise right-of-use assets and lease liabilities for leases with lease term ends within 12 months of the date of initial application.

Operating lease commitments disclosed as at 31 March 2019 Less: Recognition exemption — short-term leases Lease liabilities relating to operating leases recognised upon application of HKFRS 16	At 1 April 2019 RMB’000 102 (102) —

Based on the assessment, the adoption of HKFRS 16 did not have significant impact on the Group’s financial position nor on the financial performance. Accordingly, no adjustment has been made to the accumulated profits as at 1 April 2019.

No adjustments would be made on the consolidated financial statements of the Group for one month ended 30 April 2019 without the application of HKFRS 16.

For the purpose of preparing and presenting the Historical Financial Information for the Relevant Periods, the Sky Dynasty Group has consistently adopted the HKFRSs issued by the HKICPA, including HKFRS 9 Financial Instruments and HKFRS 15 Revenue from Contracts with Customers, that are effective for the financial year beginning on 1 January 2018.

– IIB-14 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

New and amendments to HKFRSs in issue but not yet effective

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

HKFRS 17 Insurance Contracts[3] Amendments to HKFRS 3 Definition of Business[1] Amendments to HKFRS 10 and Sale or Contribution of Assets between an Investor and HKAS 28 its Associate or Joint Venture[4] Amendments to HKFRS 1 and Definition of Material[2] HKAS 8 Conceptual Framework for Financial Revised Conceptual Framework for Financial Reporting[2] Reporting

• 1 Effective for business combinations and asset acquisitions for which the acquisition is on or after the beginning of the first annual period beginning on or after 1 January 2020.

• 2 Effective for annual periods beginning on or after 1 January 2020. 3 Effective for annual periods beginning on or after 1 January 2021. 4 Effective for annual periods beginning on or after a date to be determined.

The sole director of Sky Dynasty (the ‘‘Sole Director’’) anticipate that the application of all other new and amendments to HKFRSs and interpretations will have no material impact on the Sky Dynasty Group’s financial position and financial performance as well as disclosure in the future.

4. SIGNIFICANT ACCOUNTING POLICIES

The Historical Financial Information has been prepared based on the accounting policies set out below which conform with HKFRSs issued by the HKICPA. In addition, the Historical Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on GEM of the Stock Exchange (the ‘‘GEM Listing Rule’’).

The Historical Financial Information has been prepared on the historical cost basis.

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 Sky Dynasty Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in the Historical Financial Information is determined on such basis, except for leasing transactions that are within the scope of HKAS 17 Leases/HKFRS 16 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.

For financial instruments which are transacted at fair value and a valuation technique that unobservable inputs is to be used to measure fair value in subsequent periods, the valuation technique is calibrated so that at initial recognition the results of the valuation technique equals the transaction price.

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

• Level 1 inputs are quoted price (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

– IIB-15 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset and liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below:

Basis of consolidation

The Historical Financial Information incorporates the financial statements of Sky Dynasty and entities controlled by Sky Dynasty and its subsidiaries. Control is achieved when Sky Dynasty:

• has power over the investee;

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

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

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

Consolidation of a subsidiary begins when the Sky Dynasty Group obtains control over the subsidiary and ceases when the Sky Dynasty 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 statements of profit or loss and other comprehensive income from the date the Sky Dynasty Group gains control until the date when the Sky Dynasty 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 Sky Dynasty Group’s accounting policies.

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

Non-controlling interests in subsidiaries are presented separately from the Sky Dynasty Group’s equity therein, which represent present ownership interests entitling their holders to a proportionate share of net assets of the relevant subsidiaries upon liquidation.

Changes in the Sky Dynasty’s interests in existing subsidiaries

Changes in the Sky Dynasty’s interests in subsidiaries that do not result in the Sky Dynasty losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s relevant components of equity and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries, including re-attribution of relevant reserves between the Sky Dynasty and the non- controlling interests according to the Sky Dynasty’s and the non-controlling interests’ proportionate interests.

Any difference between the amount by which the non-controlling interests are adjusted, and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of Sky Dynasty.

Revenue from contracts with customers

Under HKFRS 15, the Sky Dynasty Group 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.

A performance obligation represents a good or service (or a bundle of goods or services) that is distinct or a series of distinct goods or services that are substantially the same.

– IIB-16 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

Control is transferred over time and revenue is recognised over time by reference to the progress towards complete satisfaction of the relevant performance obligation if one of the following criteria is met:

• . the customer simultaneously receives and consumes the benefits provided by the Sky Dynasty Group’s performance as the Sky Dynasty Group performs;

• . the Sky Dynasty Group’s performance creates and enhances an asset that the customer controls as the Sky Dynasty Group performs; or

• . the Sky Dynasty Group’s performance does not create an asset with an alternative use to the Sky Dynasty Group and the Sky Dynasty Group has an enforceable right to payment for performance completed to date.

Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinct good or service.

A contract asset represents the Sky Dynasty Group’s right to consideration in exchange for goods or services that the Sky Dynasty Group has transferred to a customer that is not yet unconditional. It is assessed for impairment in accordance with HKFRS 9. In contrast, a receivable represents the Sky Dynasty Group’s unconditional right to consideration, i.e. only the passage of time is required before payment of that consideration is due.

A contract liability represents the Sky Dynasty Group’s obligation to transfer goods or services to a customer for which the Sky Dynasty Group has received consideration (or an amount of consideration is due) from the customer.

A contract asset and a contract liability relating to a contract are accounted for and presented on a net basis.

Principal versus agent

When another party is involved in providing goods or services to a customer, the Sky Dynasty Group determines whether the nature of its promise is a performance obligation to provide the specified goods or services itself (i.e. the Sky Dynasty Group is a principal) or to arrange for those goods or services to be provided by the other party (i.e. the Sky Dynasty Group is an agent).

The Sky Dynasty Group is a principal if it controls the specified good or service before that good or service is transferred to a customer.

The Sky Dynasty Group is an agent if its performance obligation is to arrange for the provision of the specified good or service by another party. In this case, the Sky Dynasty Group does not control the specified good or service provided by another party before that good or service is transferred to the customer. When the Sky Dynasty Group acts as an agent, it recognises revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified goods or services to be provided by the other party.

Leases

Under HKAS

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 Sky Dynasty Group as lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease term.

– IIB-17 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

Upon the adoption of HKFRS 16 on 1 April 2019

Definition of a lease

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

For contracts entered into or modified on or after the date of initial application, the Group assesses whether a contract is or contains a lease based on the definition under HKFRS 16 at inception or modification date. Such contract will not be reassessed unless the terms and conditions of the contract are subsequently changed.

As a lessee

Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to leases of warehouse and office premises that have a lease term of 12 months or less from the commencement date and do not contain a purchase option.

Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight line basis over the lease term.

Right-of-use assets

Except for short-term leases and leases of low value assets, the Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities.

The cost of right-of-use asset includes:

• . the amount of the initial measurement of the lease liability;

• . any lease payments made at or before the commencement date, less any lease incentives received;

• . any initial direct costs incurred by the Group; and

• . an estimate of costs to be incurred by the Group in dismantling and removing the underlying assets, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.

Right-of-use assets in which the Group is reasonably certain to obtain ownership of the underlying leased assets at the end of the lease term is depreciated from commencement date to the end of the useful life. Otherwise, right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.

Refundable rental deposits

Refundable rental deposits paid are accounted under HKFRS 9 and initially measured at fair value. Adjustments to fair value at initial recognition are considered as additional lease payments and included in the cost of right-of-use assets.

– IIB-18 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

Lease liabilities

At the commencement date of a lease, the Group recognises and measures the lease liability at the present value of lease payments that are unpaid at that date. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable.

The lease payments include:

• . fixed payments (including in-substance fixed payments) less any lease incentives receivable;

• . variable lease payments that depend on an index or a rate;

• . amounts expected to be paid under residual value guarantees;

• . the exercise price of a purchase option reasonably certain to be exercised by the Group; and

• . payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate.

After the commencement date, lease liabilities are adjusted by interest accretion and lease payments.

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 carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in term of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Sky Dynasty Group’s operations are translated into the presentation currency of the Sky Dynasty Group (i.e. RMB) 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.

Borrowing costs

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

Government grants

Government grants are not recognised until there is reasonable assurance that the Sky Dynasty Group will comply with the conditions attaching to them and that the grants will be received.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Sky Dynasty Group with no future related costs are recognised in profit or loss in the period in which they become receivable.

Retirement benefit costs

Payments to the government-managed retirement benefit schemes are recognised as an expense when employees have rendered service entitling them to the contributions.

– IIB-19 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

Short-term employee benefits

Short-term employee benefits are recognised at the undiscounted amount of the benefits expected to be paid as and when employees rendered the services. All short-term employee benefits are recognised as an expense unless another HKFRS requires or permits the inclusion of the benefit in the cost of an asset.

A liability is recognised for benefits accruing to employees (such as wages and salaries) after deducting any amount already paid.

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 tax’’ because of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Sky Dynasty 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 Historical Financial Information and the corresponding tax base 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 difference 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 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 Sky Dynasty 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 liability is settled or the asset is realised, 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 liabilities and assets reflects the tax consequences that would follow from the manner in which the Sky Dynasty Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Sky Dynasty Group intends to settle its current tax assets and liabilities on a net basis.

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

– IIB-20 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

Plant and equipment

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

Depreciation is recognised so as to write off the cost of assets 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.

An item of 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 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.

Impairment losses on tangible assets

At the end of the reporting period, the Sky Dynasty Group reviews the carrying amounts of its tangible 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 relevant asset is estimated in order to determine the extent of the impairment loss, if any.

The recoverable amount of tangible assets are estimated individually, when it is not possible to estimate the recoverable amount individually, the Sky Dynasty Group estimates the recoverable amount of the cashgenerating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

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 pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (or a cash-generating unit) for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. The carrying amount of an asset is not reduced below the highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero. The amount of the impairment loss that would otherwise have been allocated to the asset is allocated pro rata to the other assets of the unit. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating 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.

Inventories

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

Provisions

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

– IIB-21 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

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

Financial instruments

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

Financial assets and financial liabilities are initially measured at fair value except for trade receivables arising from contracts with customers which are initially measured in accordance with HKFRS 15 since 1 April 2016. 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 (‘‘FVTPL’’)) 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 FVTPL are recognised immediately in profit or loss.

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

Interest/dividend income which are derived from the Group’s ordinary of business are presented as revenue.

Financial assets

Classification and subsequent measurement of financial assets

Financial assets that meet the following conditions are subsequently measured at amortised cost:

• . the financial asset is held within a business model whose objective is to collect contractual cash flows; and

• . the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets that meet the following conditions are subsequently measured at fair value through other comprehensive income (‘‘FVTOCI’’):

• . the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling; and

• . the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

All other financial assets are subsequently measured at FVTPL, except that at the date of initial application/recognition of a financial asset the Sky Dynasty Group may irrevocably elect to present subsequent changes in fair value of an equity investment in other comprehensive income if that equity investment is neither held for trading nor contingent consideration recognised by an acquirer in a business combination to which HKFRS 3 Business Combinations applies.

– IIB-22 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

A financial asset is classified as held for trading if:

• . it has been acquired principally for the purpose of selling in the near term; or

• . on initial recognition it is a part of a portfolio of identified financial instruments that the Sky Dynasty 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.

In addition, the Sky Dynasty Group may irrevocably designate a financial asset that are required to be measured at the amortised cost or FVTOCI as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch.

Amortised cost and interest income

Interest income is recognised using effective interest method for financial assets measured subsequently at amortised cost. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for the financial assets that have subsequently become credit-impaired. For financial assets that have subsequently become credit-impaired, interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset from the next reporting period. If the credit risk on the credit-impaired financial instrument improves so that the financial asset is no longer creditimpaired, interest income is recognised by applying the effective interest rate to gross carrying amount of the financial asset from the beginning of the reporting period following the determination that the asset is no longer credit-impaired.

Impairment of financial assets

The Sky Dynasty Group recognises a loss allowance for expected credit loss (‘‘ECL’’) on financial assets which are subject to impairment under HKFRS 9 (including trade and other receivables, amount due from sole director and bank balances). The amount of ECL is updated at the end of each reporting period to reflect changes in credit risk since initial recognition.

Lifetime ECL represents the ECL that will result from all possible default events over the expected life of the relevant instrument. In contrast, 12-month ECL (‘‘12m ECL’’) represents the portion of lifetime ECL that is expected to result from default events that are possible within 12 months after the end of each reporting period. Assessments are done based on the Sky Dynasty Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current conditions at the end of each reporting period as well as the forecast of future conditions.

The Sky Dynasty Group always recognises lifetime ECL for trade receivables without significant financing component. The ECL on these assets are assessed individually.

For all other financial instruments, the Sky Dynasty Group measures the loss allowance equal to 12m ECL, unless when there has been a significant increase in credit risk since initial recognition, the Sky Dynasty Group recognises lifetime ECL. The assessment of whether lifetime ECL should be recognised is based on significant increases in the likelihood of risk of a default occurring since initial recognition.

Significant increase in credit risk

In assessing whether the credit risk has increased significantly since initial recognition, the Sky Dynasty Group compares the risk of a default occurring on the financial instrument as at the end of each reporting period with the risk if a default occurring on the financial instrument as at the date of initial recognition. In making this assessment, the Sky Dynasty Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.

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APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

In particular, the following information is taken into account when assessing whether credit risk has increased significantly:

• an actual or expected significant deterioration in the financial instrument’s external (if available) or internal credit rating;

• significant deterioration in external market indicators of credit risk, e.g. a significant increase in the credit spread, the credit default swap prices for the debtor;

• existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor’s ability to meet its debt obligations;

• an actual or expected significant deterioration in the operating results of the debtor;

• an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that results in a significant decrease in the debtor’s ability to meet its debt obligations.

Irrespective of the outcome of the above assessment, the Sky Dynasty Group presumes that the credit risk has increased significantly since initial recognition when contractual payments are more than 30 days past due, unless the Sky Dynasty Group has reasonable and supportable information that demonstrates otherwise.

Despite the aforegoing, the Sky Dynasty Group assumes that the credit risk on a debt instrument has not increased significantly since initial recognition if the debt instrument is determined to have low credit risk at the end of each reporting period. A debt instrument is determined to have low credit risk if (i) it has a low risk of default, (ii) the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and (iii) adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations. The Sky Dynasty Group considers a debt instrument to have low credit risk when it has on internal or external credit rating of ‘‘investment grade’’ as per globally understood definitions.

The Sky Dynasty Group regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes past due.

Definition of default

For internal credit risk management, the Sky Dynasty Group considers an event of default occurs when information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Sky Dynasty Group, in full (without taking into account any collaterals held by the Sky Dynasty Group).

Irrespective of the above, the Sky Dynasty Group considers that default has occurred when a financial asset is more than 90 days past due unless the Sky Dynasty Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.

Credit-impaired financial assets

A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial assets have been occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events:

• significant financial difficulty of the issuer of the borrower;

• a breach of contract, such as a default or past due event;

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APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

• the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider;

• it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or

• the disappearance of an active market for that financial asset because of financial difficulties.

Write-off policy

The Sky Dynasty Group writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, for example, when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of trade receivables, when the amounts are over two years past due, whichever occurs sooner. Financial assets written off may still be subject to enforcement activities under the Sky Dynasty Group’s recovery procedures, taking into account legal advice where appropriate. A write-off constitutes a derecognition event. Any subsequent recoveries are recognised in profit or loss.

Measurement and recognition of ECL

The measurement of ECL is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information. Estimation of ECL reflects an unbiased and probability-weighted amount that is determined with the respective risk of default occurring as the weights.

Generally, the ECL is the difference between all contractual cash flows that are due to the Sky Dynasty Group in accordance with the contract and the cash flows that the Sky Dynasty Group expects to receive, discounted at the effective interest rate determined at initial recognition.

Where ECL is measured on a collective basis to cater for cases where evidence at the individual instrument level may not yet be available, the financial instruments are grouped on the following basis:

• nature of financial instruments (i.e. the Sky Dynasty Group’s trade receivables);

• past-due status;

• nature, size and industry of debtors; or

• external credit ratings where available.

The grouping is regularly reviewed by management to ensure the constituents of each group continue to share similar credit risk characteristics.

Interest income is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit-impaired, in which case interest income is calculated based on amortised cost of the financial asset.

Derecognition of financial assets

The Sky Dynasty Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Sky Dynasty Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Sky Dynasty Group recognises its retained interest in the asset and an associated liability for amounts it may have

– IIB-25 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

to pay. If the Sky Dynasty Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Sky Dynasty Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

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

Financial liabilities and equity

Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement 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 Sky Dynasty Group are recognised at the proceeds received, net of direct issue costs.

Financial liabilities at amortised cost

Financial liabilities including trade and other payables, amount due to sole director and bank borrowing, are subsequently measured at amortised cost using the effective interest method.

Derecognition of financial liabilities

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

5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Sky Dynasty Group’s accounting policies, which are described in Note 4 to the Historical Financial Information, the Sole Director is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results 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.

Critical judgements in applying accounting policies

The Sole Director has not come across any significant areas where critical judgements are involved in applying the Sky Dynasty Group’s accounting policies.

Key sources of estimation uncertainty

The following is the key assumption concerning the future, and other key sources of estimation uncertainty at the end of each of the reporting periods, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

– IIB-26 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

Provision of ECL for trade receivables

The Sky Dynasty Group uses individual assessment to calculate ECL for the trade receivables. The provision rates are based on internal credit ratings. The individual assessment is based on the Sky Dynasty Group’s historical default rates taking into consideration forward-looking information that is reasonable and supportable available without undue costs or effort. At every reporting date, the historical observed default rates are reassessed and changes in the forward-looking information are considered.

The provision of ECL is sensitive to changes in estimates. The information about the ECL and the Sky Dynasty Group’s trade receivables are disclosed in Notes 7(b) and 18 respectively.

6. CAPITAL RISK MANAGEMENT

The Sky Dynasty Group manages its capital to ensure that the Sky Dynasty Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Sky Dynasty Group’s overall strategy remains unchanged throughout the Relevant Periods.

The capital structure of the Sky Dynasty Group consists of net debts, which includes amount due to sole director and bank borrowing, net of cash and cash equivalents and equity attributable to owners of Sky Dynasty, comprising issued share capital, retained profits and reserves.

The Sole Director review the capital structure regularly. As part of this review, the Sole Director consider the cost of capital and the risk associates with each class of capital. Based on the recommendations of the Sole Director, the Sky Dynasty Group will balance its overall capital structure through the payment of dividends, new share issues as well as the issue of new debts.

7. FINANCIAL INSTRUMENTS

• (a) Categories of financial instruments

Financial assets Financial assets at amortised cost Financial liabilities Financial liabilities at amortised cost	2017 RMB’000 18,839 24,479	At 31 March 2018 RMB’000 46,561 48,161	2019 RMB’000 45,548 49,009	At 30 April 2019 RMB’000 32,226
				37,788

(b) Financial risk management objectives and policies

The Sky Dynasty Group’s major financial instruments include trade and other receivables, bank balances and cash, trade and other payables, bank borrowing and amount due from (to) sole director. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments include market risk (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.

– IIB-27 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

Market risk

Interest rate risk

The Sky Dynasty Group is exposed to fair value interest rate risk in relation to fixed-rate bank borrowing (see Note 23 to the Historical Financial Information).

The Sky Dynasty Group is also exposed to cash flow interest rate risk in relation to variable-rate bank balances. Management monitors interest rate exposure and will consider other necessary actions when significant interest rate exposure is anticipated.

The Sole Director consider that the Sky Dynasty Group’s exposure to cash flow interest rate risk as a result of the change of market interest rate is insignificant, therefore, no sensitivity analysis is presented.

Credit risk and impairment assessment

Other than those financial assets whose carrying amounts best represent the maximum exposure to credit risk, the Sky Dynasty Group’s credit risk is primarily attributable to trade and other receivables, amount due from sole director and bank balances as at 31 March 2017, 2018 and 2019 and 30 April 2019. The carrying amounts of financial assets at amortised cost stated in Note 7(a) represented the Sky Dynasty Group’s maximum exposure to credit risk in relation to financial assets which will cause a financial loss to the Sky Dynasty Group due to failure to discharge an obligation by the counterparties. The Sky Dynasty Group does not hold any collateral or other credit enhancements to cover the credit risks associated with its financial assets.

The credit risks on bank balances are limited because the counterparties are bank with high credit rating assigned by international credit-rating agencies.

As at 31 March 2017 and 2018, the Sky Dynasty Group has concentration of credit risk on trade receivables from the Sky Dynasty Group’s largest customer amounting to approximately RMB6,175,000 and RMB24,176,000, representing approximately 33.82% and 52.25% of the total gross trade receivables. As at 31 March 2019 and 30 April 2019, the Sky Dynasty Group has no concentration of credit risk on trade receivables from the Sky Dynasty Group’s largest customer.

As at 31 March 2017, 2018 and 2019 and 30 April 2019, trade receivables from the five largest customers amounts to approximately RMB18,261,000, RMB32,945,000, RMB20,790,000 and RMB9,408,000 representing approximately 100%, 71.20%, 83.75% and 83.75% of the total gross trade receivables, respectively.

The Sky Dynasty Group’s concentration of credit risk by geographical location is in the PRC and in Hong Kong as 97.94% of total trade receivables are arisen in Hong Kong as at 31 March 2017 and 86.70% and 100% of total trade receivables are arisen in the PRC as at 31 March 2018 and 2019, and 30 April 2019, respectively.

To manage risk arising from trade receivable, the Sky Dynasty Group has policies in place to ensure that credit terms are made to counterparties with an appropriate credit history and the management performs ongoing credit evaluations of its counterparties. The credit period granted to the customers and the credit quality of these customers is assessed, which takes into account their financial position, past experience and other factors. Credit limits granted to customers are reviewed periodically. Other monitoring procedures are in place to ensure that follow-up action is taken to recover overdue debts. In addition, the Sky Dynasty Group performs impairment assessment under ECL model on trade balances individually. In this regard, the Sole Director consider that the Sky Dynasty Group’s credit risk is significantly reduced.

For all other instruments including other receivables and amount due from sole director, the Sky Dynasty Group measures the loss allowance equal to 12m ECL, unless when there has been a significant increase in credit risk since initial recognition, the Sky Dynasty Group recognises lifetime

– IIB-28 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

ECL. The assessment of whether lifetime ECL should be recognised based on significant increases in the likelihood or risk of a default occurring since initial recognition. The Sky Dynasty Group have assessed and concluded that the risk of default rate for the other instruments are steady based on the Sky Dynasty Group assessment of the financial health of the counterparties. Thus, the Sole Director considered that the ECL for the other instruments of the Sky Dynasty Group is insignificant as at 31 March 2017, 2018 and 2019 and 30 April 2019.

The Sky Dynasty Group’s internal credit risk grading assessment comprises the following categories:

Internal		Trade	Other financial
credit rating	Description	receivables	assets
Low risk	The counterparty has a low risk of	Lifetime ECL —	12m ECL
	default and does not have any past-	not credit-
	due amounts	impaired
Watch list	Debtor frequently repays after due	Lifetime ECL —	12m ECL
	dates but usually settle after due date	not credit-
		impaired
Doubtful	There have been significant increases	Lifetime ECL —	Lifetime ECL —
	in credit risk since initial recognition	not credit-	not credit-
	through information developed	impaired	impaired
	internally or external resources
Loss	There is evidence indicating the asset is	Lifetime ECL —	Lifetime ECL —
	credit-impaired	credit-impaired	credit-impaired
Write-off	There is evidence indicating that the	Amount is	Amount is
	debtor is in severe financial	written-off	written-off
	difficulty and the Group has no
	realistic prospect of recovery

The table below details the credit risk exposures of the Sky Dynasty Group’s financial assets, which are subject to ECL assessment.

At 31 March 2017 Notes External credit rating Internal credit rating 12-month or lifetime ECL Financial assets at amortised costs Bank balances 19 AA+ N/A 12-m ECL Other receivables and deposits paid 18 N/A (Note 1) 12-m ECL Trade receivables 18 N/A (Note 2) Lifetime ECL (not credit- impaired)	Gross carrying amount RMB’000 622 61 18,261

– IIB-29 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

At 31 March 2018 Notes External credit rating Internal credit rating 12-month or lifetime ECL Financial assets at amortised costs Bank balances 19 AA+ N/A 12m ECL Other receivables and deposits paid 18 N/A (Note 1) 12m ECL Trade receivables 18 N/A (Note 2) Lifetime ECL (not credit- impaired) (Note 2) Lifetime ECL (credit- impaired) At 31 March 2019 Notes External credit rating Internal credit rating 12m or lifetime ECL Financial assets at amortised costs Bank balances 19 AA+ N/A 12m ECL Other receivables and deposits paid 18 N/A (Note 1) 12m ECL Trade receivables 18 N/A (Note 2) Lifetime ECL (not credit- impaired) (Note 2) Lifetime ECL (credit- impaired) Amount due from sole director 22 N/A (Note 3) 12m ECL At 30 April 2019 Notes External credit rating Internal credit rating 12m or lifetime ECL Financial assets at amortised costs Bank balances 19 AA+ N/A 12m ECL Other receivables and deposits paid 18 N/A (Note 1) 12m ECL Trade receivables 18 N/A (Note 2) Lifetime ECL (not credit- impaired) (Note 2) Lifetime ECL (credit- impaired) Amount due from sole director 22 N/A (Note 3) 12-m ECL

Gross carrying amount RMB’000 23 540 37,745 8,528 46,273 Gross carrying amount RMB’000 10 165 22,632 2,193 24,825 20,723 Gross carrying amount RMB’000 333 165 12,509 2,193 14,702 17,106

– IIB-30 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

Notes:

• (1) Other receivables was mainly related to refundable rental deposit paid, the Sole Director assessed the expected loss rate of other receivables was immaterial.

• (2) For trade receivables, the Sky Dynasty Group has applied the simplified approach in HKFRS 9 to measure the loss allowance at lifetime ECL. To measure the ECL, trade receivables have been assessed individually.

• (3)

At 31 March At 30 April No fixed repayment terms RMB’000 RMB’000 Amount due from sole director 20,723 17,106

The following tables shows the movement in lifetime ECL that has been recognised for trade receivables under simplified approach:

As at 1 April 2016 Changes due to financial instruments recognised as at 1 April 2016: — Impairment losses reversed New financial assets originated or purchased As at 31 March 2017 Changes due to financial instruments recognised as at 31 March 2017: — Impairment losses reversed New financial assets originated or purchased As at 31 March 2018 Changes due to financial instruments recognised as at 31 March 2018: — Impairment losses reversed New financial assets originated or purchased As at 31 March 2019 Changes due to financial instruments recognised as at 31 March 2019: — Impairment losses reversed New financial assets originated or purchased As at 31 April 2019	Lifetime ECL (not credit- impaired) RMB’000 105 (105) 105 105 (105) 240 240 (240) 165 165 (116) 21 70	Lifetime ECL (credit- impaired) RMB’000 — — — — — 35 35 (35) 10 10 — — 10	Total RMB’000 105 (105) 105 105 (105) 275 275 (275) 175 175 (116) 21 80

– IIB-31 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

Changes in the loss allowance for trade receivables are mainly due to:

New financial assets originated or purchased Settlement in full of trade receivables New financial assets originated or purchased Settlement in full of trade receivables New financial assets originated or purchased Settlement in full of trade receivables

Year ended 31 March 2017 Increase Lifetime ECL (not credit- impaired) Lifetime ECL (credit- impaired) RMB’000 RMB’000 105 — Year ended 31 March 2018 Increase Lifetime ECL (not credit- impaired) Lifetime ECL (credit- impaired) RMB’000 RMB’000 (105) — 240 35 Year ended 31 March 2019 Increase (Decrease) Lifetime ECL (not credit- impaired) Lifetime ECL (credit- impaired) RMB’000 RMB’000 (240) (35) 165 10 One month ended 30 April 2019 Decrease Lifetime ECL (not credit- impaired) Lifetime ECL (credit-impaired) RMB’000 RMB’000 (116) —

Liquidity risk

In management of the liquidity risk, the Sky Dynasty Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Sky Dynasty Group’s operations and mitigate the effects of fluctuations in cash flows. The management also regularly monitors the operating cash flows of the Sky Dynasty Group to meet its liquidity requirements in short and long term.

The following table details the Sky Dynasty Group’s remaining contractual maturity for its nonderivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Sky Dynasty Group can be required to pay. The maturity dates for other non-derivative financial liabilities are based on the agreed repayment dates.

The table includes both interest and principal cash flows.

– IIB-32 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

Liquidity table

Weighted average interest rate At 31 March 2017 Trade and other payables N/A Amount due to sole director N/A Bank borrowing 7.5% At 31 March 2018 Trade and other payables N/A Amount due to sole director N/A Bank borrowing 12% At 31 March 2019 Trade and other payables N/A As 30 April 2019 Trade and other payables N/A	Undiscounted cash flows due within one year or on demand RMB’000 8,630 14,849 1,006 24,485 26,457 18,704 3,030 48,191 49,009 37,788	Carrying amounts RMB’000 8,630 14,849 1,000
		24,479
		26,457 18,704 3,000
		48,161
		49,009
		37,788

• (c) Fair value measurement of the financial instruments

The Sole Director considers that the carrying amount of financial assets and financial liabilities recorded at amortised cost in the Historical Financial Information approximate their fair values at the end of each of the Relevant Periods.

8. REVENUE AND OPERATING SEGMENT

• (i) Disaggregation of revenue from contracts with customers

Manufacturing and trading of electronic products: — Smart watch — Smart wristband — Room temperature acquisition controller — Smart phone — Attitude stability controller — Speech recognition system — Selfie stick — Other	Year ended 31 March 2017 2018 2019 RMB’000 RMB’000 RMB’000 75,378 42,227 455 25,956 29,711 2,375 — — 51,217 — — 33,481 — — 2,226 — — 462 5,122 — — 1,707 82 508 108,163 72,020 90,724	One month ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) — — 80 — — — — — — — — 4,017 — — — — 80 4,017	One month ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) — — 80 — — — — — — — — 4,017 — — — — 80 4,017
			4,017

– IIB-33 –

ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

APPENDIX IIB

Timing of revenue recognition At a point in time	Year ended 31 March 2017 2018 2019 RMB’000 RMB’000 RMB’000 108,163 72,020 90,724	One month ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) 80 4,017

(ii) Performance obligations for contracts with customers

Sales of electronic products

For sales of electronic products to the wholesale market, revenue is recognised when control of the goods has transferred, being when the goods have been shipped to the wholesaler’s specific location (delivery). Following delivery, the wholesaler has full discretion over the manner of distribution and price to sell the goods, has the primary responsibility when on selling the goods and bears the risks of obsolescence and loss in relation to the goods. The normal credit term is 30 days upon delivery.

(iii) Transaction price allocated to the remaining performance obligation for contracts with customers

All revenue contracts are for period of one year or less. As permitted by HKFRS 15, the transaction price allocated to these unsatisfied contracts is not disclosed.

(iv) Operating segment

Information reported to the Sole Director, being the chief operating decision maker (‘‘CODM’’), for the purposes of resource allocation and assessment of segment performance focuses on types of goods or services delivered or provided. No operating segments identified by the CODM have been aggregated in arriving at the reportable segments of the Sky Dynasty Group.

Specifically, the Sky Dynasty Group’s reportable segments under HKFRS 8 are as follows:

• Manufacturing and trading of electronic products

Since this is the only operating and reportable segment of the Sky Dynasty Group, no further analysis thereof is presented. All the revenue of the Sky Dynasty Group is generated from manufacturing of electronic products during the Relevant Periods.

Geographical information

The Sky Dynasty Group’s operations are located in the PRC and Hong Kong.

All of the Sky Dynasty Group’s non-current assets are located in the PRC. Information about the Sky Dynasty Group’s revenue from customers is presented based on the location of customers.

Hong Kong The PRC	Revenue from external customers Year ended 31 March One month ended 30 April 2017 2018 2019 2018 2019 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 10,259 71,478 31,532 — — 97,904 542 59,192 80 4,017 108,163 72,020 90,724 80 4,017	Revenue from external customers Year ended 31 March One month ended 30 April 2017 2018 2019 2018 2019 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 10,259 71,478 31,532 — — 97,904 542 59,192 80 4,017 108,163 72,020 90,724 80 4,017
		4,017

– IIB-34 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

Information about major customers

Revenue from customers contributing over 10% of total revenue of the Sky Dynasty Group during the Relevant Periods are as follows:

				One month	ended
	Year	ended 31 March		30 April
	2017	2018	2019	2018	2019
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Unaudited)
Customer A	62,365	—	—	—	—
A subsidiary of the Company	—	38,296	19,980	—	—
Customer B	—	—	33,481	—	—
Customer C	—	24,176	—	—	—
Customer D	35,196	—	—	—	—
Customer E	—	—	17,472	—	—
Customer F	N/A*	9,007	—	—	—
Customer G	—	—	9,326	—	—
Customer H	—	—	—	—	4,017
Customer I	—	—	—	80	—

• The corresponding revenue did not contribute over 10% of total revenue of the Sky Dynasty Group.

9. OTHER INCOME

Interest income Government grant (Note (i)) Gain on disposal of plant and equipment License fee income (Note (ii))	Year ended 31 March 2017 2018 2019 RMB’000 RMB’000 RMB’000 70 73 1 485 1,041 764 — 35 — — — 2,264 555 1,149 3,029	One month ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) — — 764 — — — 189 189 953 189	One month ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) — — 764 — — — 189 189 953 189
			189

• For identification purpose only

Notes:

• (i) The government grant represents a subsidy from 深圳市科技創新委員會 (transliterated as Shenzhen Science and Technology Innovation Committee*) during the Relevant Periods. There is no restrictions on the use of such government grant.

• (ii) During the year ended 31 March 2019, the Sky Dynasty Group licensed certain trademarks of Shenzhen Ampeq to several licensees at a fixed amount for average terms of three years. Pursuant to the trademark license agreements, the licensees are entitled to apply trademarks of Shenzhen Ampeq, including ‘‘AAipud’’ and ‘‘ORACOM’’ to their electronic products in the PRC. The licensees cannot transfer the right of use to others unless it is agreed by the Sky Dynasty Group. The license agreements will continue in force upon the completion of the Transaction.

• For identification purposes only

– IIB-35 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

10. IMPAIRMENT LOSSES, NET OF REVERSAL

Reversal of impairment losses on: Trade receivables Impairment losses on: Trade receivables	Year ended 31 March 2017 2018 2019 RMB’000 RMB’000 RMB’000 (105) (105) (275) 105 275 175 — 170 100	One month ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) — (116) — 21 — (95)

Details of impairment assessment for the Relevant Periods are set out in Note 7(b) to the Historical Financial Information.

11. FINANCE COST

Interest expense on bank borrowing INCOME TAX EXPENSE (CREDIT) Current tax — PRC Enterprise Income Tax (‘‘PRC EIT’’) Deferred tax (Note 24)	Year ended 31 March 2017 2018 2019 RMB’000 RMB’000 RMB’000 278 225 215 Year ended 31 March 2017 2018 2019 RMB’000 RMB’000 RMB’000 1,017 413 885 — (43) 25 1,017 370 910	One month ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) 40 — One month ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) — — — (172) — (172)

12. INCOME TAX EXPENSE (CREDIT)

No provision for Hong Kong Profits Tax has been made since the Sky Dynasty Group has no assessable profits arising in Hong Kong during the Relevant Periods.

Under the Law of the PRC on Enterprise Income Tax (the ‘‘EIT Law’’) and Implementation Regulation of the EIT Law, the tax rate of the PRC subsidiary is 25% during the Relevant Periods.

Shenzhen Ampeg has obtained the qualification of High and New Technology Enterprise from the relevant PRC government authorities and subject to a preferential rate of 15% from 2015 to 2021.

– IIB-36 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

The income tax expense for the Relevant Periods can be reconciled to the profit before tax per the consolidated statements of profit or loss and other comprehensive income as follows:

Profit before tax Tax at applicable domestic income tax rate of 25% (Note (i)) Tax effect of expenses not deductible for tax purposes Effect of different tax rates of subsidiaries operating in other jurisdiction Tax effect of preferential tax rate Tax effect of super deduction of research and development costs (Note (ii)) Income tax expense (credit)	Year ended 31 March 2017 2018 2019 RMB’000 RMB’000 RMB’000 10,620 6,200 7,599 2,655 1,550 1,900 — — 30 2 2 16 (1,064) (622) (755) (576) (560) (281) 1,017 370 910	One month ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) 423 (1,148) 106 (287) — — — — (7) 165 (99) (50) — (172)

Notes:

• (i) The domestic tax rate (which is the PRC EIT rate) represents the tax rate used in the jurisdiction where the operation of the Sky Dynasty Group is substantially based.

• (ii) On 2 November 2015, Ministry of Finance of the PRC, State Administration of Taxation of the PRC and Ministry of Science and Technology of the PRC jointly released Caishui (2015) No. 119, from 1 January 2016, qualifying technology-based small and medium-sized enterprises are allowed to claim a super deduction of 50% on eligible research and development expenses actually incurred in the course of research and development activities. Alternatively, if research and development expenses incurred are capitalised as intangible assets, the qualifying technology-based small and medium-sized enterprises are allowed to amortise the intangible assets based on 150% of the actual cost incurred.

• (iii) On 2 May 2017, Ministry of Finance of the PRC, State Administration of Taxation of the PRC and Ministry of Science and Technology of the PRC jointly released Caishui (2017) No. 34, from 1 January 2017 to 31 March 2019, qualifying technology-based small and medium-sized enterprises are allowed to claim a super deduction of 75% on eligible research and development expenses actually incurred in the course of research and development activities. Alternatively, if research and development expenses incurred are capitalised as intangible assets, the qualifying technology-based small and medium-sized enterprises are allowed to amortise the intangible assets based on 175% of the actual cost incurred.

– IIB-37 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

13. PROFIT (LOSS) FOR THE YEAR/PERIOD

			One month	ended
Year	ended 31 March		30 April
2017	2018	2019	2018	2019
RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
			(Unaudited)

Profit for the Relevant Periods has been arrived at after charging: Directors and chief executive’s remuneration (Note 14) Salaries and other allowance Contributions to retirement benefits scheme Other staff costs: Salaries and other allowance Contributions to retirement benefits scheme Total staff costs Total depreciation of plant and equipment Less: Capitalised in inventories Auditor’s remuneration Research and development costs recognised as an expense (included in administrative and operating expenses) (Note) Cost of inventories recognised as expenses Operating lease rentals in respect of rented premises	— — — 1,735 156 1,891 1,891 214 (172) 42 6 7,703 88,082 390	56 4 60 1,877 272 2,149 2,209 457 (410) 47 41 4,392 58,180 284	59 4 63 816 293 1,109 1,172 463 (410) 53 35 2,826 80,304 477	7 1 8 135 30 165 173 36 (29) 7 — 204 79 17	7 1
					8
					136 32
					168
					176
					39 (37
					2
					— 668 4,391 53

Note: Included in research and development costs, approximately RMB983,000, RMB561,000, RMB104,000, RMB14,000 and RMB58,000 represented the staff costs for the years ended 31 March 2017, 2018 and 2019 and one month ended 30 April 2018 and 2019, respectively.

– IIB-38 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

14. DIRECTORS AND CHIEF EXECUTIVE’S EMOLUMENTS

a. Directors and chief executive’s emoluments

The Directors’ remuneration for the Relevant Periods, disclosed pursuant to the GEM Listing Rules, are as follows:

For the year ended 31 March 2017 Jin Yanping (Note (b)) For the year ended 31 March 2018 Jin Yanping (Note (b)) Ma Xingjin (Note (c)) For the year ended 31 March 2019 Ma Xingjin (Note (c)) For the one month ended 30 April 2018 (Unaudited) Jin Yanping (Note (b)) Ma Xingjin (Note (c)) For the one month ended 30 April 2019 Ma Xingjin (Note (c))	Fees RMB’000 — — — — — — — — —	Salaries and other allowances RMB’000 — — 56 56 59 — 7 7 7	Contributions to retirement benefits scheme RMB’000 — — 4 4 4 — 1 1 1	Total RMB’000 —
				— 60
				60
				63
				— 8
				8
				8

– IIB-39 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

• (a) The Directors’ emoluments shown above were for their services in connection with the management of the affairs of Sky Dynasty and the Sky Dynasty Group.

• (b) Resigned on 28 February 2018.

• (c) Appointed on 28 February 2018.

• (d) No chief executive of Sky Dynasty was appointed for the Relevant Periods.

• (e) No director waived or agreed to waive any emoluments during the Relevant Periods.

• (f) During the Relevant Periods, no emoluments were paid by the Sky Dynasty Group to the Directors as an inducement to join or upon joining the Sky Dynasty Group or as compensation for loss of office.

b. Five highest paid employees

During the years ended 31 March 2017, 2018, 2019 and one month ended 30 April 2018, 2019, the five highest paid employees of the Sky Dynasty Group included one, one, one, one and one director of Sky Dynasty, respectively, details of whose remuneration are set out in Note (a) above. Details of the remuneration for the remaining four, four, four, four and four highest paid employees who are neither a director nor chief executive of the Sky Dynasty during the years ended 31 March 2017, 2018, 2019 and one month ended 30 April 2018 and 2019, respectively, are as follows:

Salaries and other allowance Contributions to retirement benefits scheme	Year ended 31 March 2017 2018 2019 RMB’000 RMB’000 RMB’000 346 245 173 9 20 23 355 265 196	One month ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) 19 21 2 3 21 24	One month ended 30 April 2018 2019 RMB’000 RMB’000 (Unaudited) 19 21 2 3 21 24
			24

The emoluments of the above highest paid employees were less than RMB1,000,000 each during the Relevant Periods.

During the Relevant Periods, no emoluments were paid by the Sky Dynasty Group to any of the five highest paid individuals as an inducement to join or upon joining the Sky Dynasty Group or as compensation for loss of office.

15. DIVIDENDS

No dividend was paid or proposed by the Sky Dynasty during the Relevant Periods, nor has any dividend been proposed since the end of the Relevant Periods.

– IIB-40 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

16. PLANT AND EQUIPMENT

COST At 1 April 2016 Additions At 31 March 2017 Disposals At 31 March 2018 Additions At 31 March 2019 and 30 April 2019 ACCUMULATED DEPRECIATION At 1 April 2016 Provided for the year At 31 March 2017 Provided for the year Eliminated on disposal At 31 March 2018 Provided for the year At 31 March 2019 Provided for the period At 30 April 2019 CARRYING VALUES At 31 March 2017 At 31 March 2018 At 31 March 2019 At 30 April 2019	Furniture, fixtures and equipment RMB’000 639 3 642 (138) 504 164 668 500 30 530 19 (73) 476 25 501 2 503 112 28 167 165	Motor vehicles RMB’000 501 — 501 — 501 — 501 476 — 476 — — 476 — 476 — 476 25 25 25 25	Plant and machinery RMB’000 1,483 3,145 4,628 — 4,628 — 4,628 861 184 1,045 438 — 1,483 438 1,921 37 1,958 3,583 3,145 2,707 2,670	Total RMB’000 2,623 3,148 5,771 (138) 5,633 164 5,797 1,837 214 2,051 457 (73) 2,435 463 2,898 39 2,937 3,720 3,198 2,899 2,860

The above items of plant and equipment are depreciated on a straight-line basis at the following rates per annum:

Furniture, fixtures and equipment 20% Motor vehicles 20% Plant and machinery 10%

– IIB-41 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

17. INVENTORIES

Raw materials Work in progress Finished goods	At 31 March 2017 2018 RMB’000 RMB’000 18,395 19,883 — — 2,078 — 20,473 19,883	2019 RMB’000 12,527 2,089 4,058 18,674	At 30 April 2019 RMB’000 16,787 2,089 117
			18,993

18. TRADE AND OTHER RECEIVABLES

Trade receivables Less: Allowance for credit losses Trade receivables, net of allowance for credit losses (Note a) Other receivables and deposit VAT recoverable Prepayments	At 31 March 2017 2018 RMB’000 RMB’000 18,261 46,273 (105) (275) 18,156 45,998 61 540 1,247 3,362 1,145 73 2,453 3,975 20,609 49,973	2019 RMB’000 24,825 (175) 24,650 10,073 — 3,757 13,830 38,480	At 30 April 2019 RMB’000 14,702 (80
			14,622
			10,073 — 3,831
			13,904
			28,526

Notes:

(a) The Sky Dynasty Group allows credit period of 30 days to its customers. The following is an aged analysis of trade receivables presented based on the invoice date:

0–30 days 31–60 days 61–90 days 91–180 days 181–365 days	At 31 March 2017 2018 RMB’000 RMB’000 — 12,554 7,770 9,986 4,230 9,231 6,156 14,227 — — 18,156 45,998	2019 RMB’000 21,520 947 — 39 2,144 24,650	At 30 April 2019 RMB’000 4,838 6,654 947 39 2,144
			14,622

– IIB-42 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

Before accepting any new customers, the Sky Dynasty Group will internally assess the potential customer’s credit quality and defines credit limits by customers. The former director and the Sole Director closely monitors the credit quality and follow up actions will be taken if overdue debts are noted. Credit limits attributed to customers and credit term granted to customers are reviewed on a regular basis. The majority of the trade receivables that are neither past due not impaired have no history of defaulting on repayments.

As at 31 March 2017, 2018 and 2019 and 30 April 2019, included in the Sky Dynasty Group’s trade receivables balance are debtors with aggregate carrying amount of approximately RMB18,156,000, RMB33,444,000, RMB3,130,000 and RMB9,784,000 which are past due as at the reporting date, respectively. The Sky Dynasty Group does not hold any collateral over these balances.

Details of impairment assessment of trade receivables for the Relevant Periods are set out in Note 7(b) to the Historical Financial Information.

19. BANK BALANCES AND CASH

The bank balances carry interest market rates as follows:

Range of interest rate per annum	At 31 March 2017 2018 0.01%– 0.35% 0.01%– 0.35%	2019 0.01%– 0.35%	At 30 April 2019 0.01%– 0.35%

Included in the bank balances and cash are the following amounts which are subject to foreign exchange control regulations or note freely transferable:

Amounts denominated in RMB — bank balances and cash TRADE AND OTHER PAYABLES Trade payables (Note a) VAT payables Other payables and accruals	At 31 March 2017 2018 RMB’000 RMB’000 619 21 At 31 March 2017 2018 RMB’000 RMB’000 6,814 24,855 — — 1,816 1,602 8,630 26,457	2019 RMB’000 10 2019 RMB’000 47,597 68 1,344 49,009	At 30 April 2019 RMB’000 333
			At 30 April 2019 RMB’000 36,784 — 1,004
			37,788

20. TRADE AND OTHER PAYABLES

– IIB-43 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

Notes:

• (a) The credit period of trade payables is 30–90 days.

The following is an aged analysis of trade payables presented based on invoice date:

0–30 days 31–60 days 61–90 days 91–180 days Over 180 days	At 31 March 2017 2018 RMB’000 RMB’000 3,538 18,156 4 — — 3,304 592 — 2,680 3,395 6,814 24,855	2019 RMB’000 25,110 4,796 1,571 87 16,033 47,597	At 30 April 2019 RMB’000 4,932 21,515 1,196 1,658 7,483
			36,784

21. CONTRACT LIABILITIES

Current Sales of electronic products	At 31 March 2017 2018 RMB’000 RMB’000 — —	2019 RMB’000 25	At 30 April 2019 RMB’000 25

Contract liabilities, that are not expected to be settled within the Sky Dynasty Group’s normal operating cycle, are classified as current and non-current based on the Sky Dynasty Group’s earliest obligation to transfer goods or services to the customers.

Typical payment terms which impact on the amount of contract liabilities recognised are as follows:

Sales of electronic products

When the Sky Dynasty Group receives a deposit before the production activity commences, this will give rise to contract liabilities at the start of a contract, until the revenue recognised on the relevant contract exceeds the amount of the deposit. The Sky Dynasty Group receives a deposit ranged from 10% to 100% of the sales amount on acceptance of the engagements from certain customers.

22. AMOUNT DUE FROM(TO) SOLE DIRECTOR

The amount due from (to) sole director was non-trade in nature, unsecured, interest free and repayable on demand. In addition, the sole director agrees to repay such amount prior to the completion of the Transaction.

23. BANK BORROWING

Bank borrowing, unsecured (Notes)	At 31 March 2017 2018 RMB’000 RMB’000 1,000 3,000	2019 RMB’000 —	At 30 April 2019 RMB’000 —

– IIB-44 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

Carrying amount repayable (based on scheduled repayment dates set out in the loan agreements):

Within one year	At 31 March 2017 2018 RMB’000 RMB’000 1,000 3,000	2019 RMB’000 —

Notes:

• (i) At 31 March 2017, the bank borrowing of RMB1,000,000 is jointly guaranteed by Mr. Zhou Qinwu and Ms. Fang Shuying, the former shareholders of Shenzhen Ampeg. The bank borrowing represented a revolving loan, unsecured and carried fixed interest rate of 7.5% per annum.

• (ii) At 31 March 2018, the bank borrowing of RMB3,000,000 is jointly guaranteed by Mr. Zhou Qinwu and Ms. Fang Shuying, the former shareholders of Shenzhen Ampeg. The bank borrowing represented a revolving loan, unsecured and carried fixed interest rate of 12% per annum.

24. DEFERRED TAX ASSETS

				At	31 March		At 30 April
			2017		2018	2019	2019
			RMB’000		RMB’000	RMB’000	RMB’000
Deferred	tax	assets	26		69	44	307

The following are the deferred tax assets recognised and movements thereon during the Relevant Periods:

At 1 April 2016 Credit to profit and loss (Note 12) At 31 March 2017 Credit to profit and loss (Note 12) At 31 March 2018 Credit to profit and loss (Note 12) At 31 March 2019 Credit to profit and loss (Note 12) At 30 April 2019	Tax loss RMB’000 — — — — — — — 195 195	Provision RMB’000 26 — 26 43 69 (25) 44 (23) 21	Total RMB’000 26 —
			26 43
			69 (25
			44
			172
			216

Under the EIT Law of the PRC, withholding tax is also imposed on dividends declared in respect of profits earned by the PRC subsidiaries from 1 January 2008 onwards. No deferred tax liabilities have been provided for the undistributed earnings amounting to approximately RMB18,208,000, RMB25,343,000, RMB31,549,000 and RMB30,645,000 as at 31 March 2017, 2018 and 2019 and 30 April 2019 respectively, as the Sky Dynasty Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not be reversed in the foreseeable future.

– IIB-45 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

25. SHARE CAPITAL

Issued and fully paid: At 31 March 2017, 2018, 2019 and at 30 April 2019	Number of ordinary share 1	Amount HK$ 1	Shown in the Historical Financial Information as RMB’000 —

• Less than RMB1,000

26. ACQUISITION OF NON-CONTROLLING INTERESTS

For the year ended 31 March 2018

On 7 June 2017, Sky Dynasty acquired further 19.08% equity interests in Shenzhen Ampeg from Mr. Zhou Qinwu, increasing its equity interests in Shenzhen Ampeq from 80.92% to 100%, by acquiring the additional 19.08% interests at a cash consideration of RMB1,908,000. The difference of approximately RMB4,023,000 between the proportionate share of the carrying amount of its net assets and the consideration paid for the additional interests have been debited to other reserve.

To the best knowledge of the directors of the Company, Mr. Zhou Qinwu has no relationship with the Company and its connected persons (including the controlling Shareholder).

The transactions have been accounted for as equity transactions with the non-controlling interests as follows:

Consideration paid for 19.08% equity interest of Shenzhen Ampeg Less:Net assets attributable to 19.08% equity interest of Shenzhen Ampeg Increase in equity attributable to owners of Sky Dynasty	RMB’000 1,908 (5,931)
	(4,023)

27. OPERATING LEASE COMMITMENTS

At the end of each reporting periods, the Sky Dynasty 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	At 31 March 2017 2018 RMB’000 RMB’000 46 102	2019 RMB’000 102	At 30 April 2019 RMB’000 102

Operating lease payments represent rentals payable by the Sky Dynasty Group for its office premises. Leases are negotiated for original terms of 5 years with early termination option, as appropriate.

– IIB-46 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

28. RETIREMENT BENEFITS SCHEME

The employees of the Sky Dynasty Group’s subsidiary in the PRC are members of the state-managed retirement benefits scheme operated by the government of PRC. The subsidiary in the PRC are required to contribute a certain percentage of the payroll cost to the retirement benefits scheme to fund the benefits. The only obligation of the Sky Dynasty Group with respect to the retirement benefits scheme is to make the required contributions under the scheme.

For the year ended 31 March 2017, 2018 and 2019 and one month ended 30 April 2018 and 2019, the amounts of contributions recognised by the Sky Dynasty Group are approximately RMB156,000, RMB276,000, RMB297,000 RMB31,000 and RMB33,000, respectively.

29. RELATED PARTY TRANSACTIONS

(a) Balances

Save as disclosed in elsewhere of the Historical Financial Information, the Sky Dynasty Group did not have any material related parties transaction during the Relevant Periods.

(b) Compensation of key management personnel

Compensation of key management personnel, being the remuneration of the Sole Director during the Relevant Periods has been disclosed in Note 14 to the Historical Financial Information.

30. MAJOR NON-CASH TRANSACTION

For the year ended 31 March 2019

On 31 July 2018, Shenzhen Ampeg, a wholly-owned subsidiary of Sky Dynasty, and Sky Dynasty, a wholly owned subsidiary of Celestial Rainbow, Mr. Ma Xingjin, the sole director of Sky Dynasty, Ms. Jin Yanping, a former shareholder of Sky Dynasty and Mr. Zhou Qinwu, a former shareholder of Shenzhen Ampeg (collectively referred to as the ‘‘Parties’’) agreed to conduct a loan restructuring in order to clean up all outstanding balances of the former shareholders with Sky Dynasty and Shenzhen Ampeg. Therefore, the Parties entered into several set-off agreements, pursuant to which the Parties agreed to offset the amounts due from/to each others. After the offset arrangements, the Sky Dynasty Group’s certain other payables of approximately RMB2,997,000 was set-off against with the amount due from the sole director.

– IIB-47 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

31. RECONCILIATION OF LIABILITIES FROM FINANCING ACTIVITIES

The table below details the change in the Sky Dynasty Group’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those from which cash flows were, or future cash flows will be, classified in the Sky Dynasty Group’s consolidated statements of cash flows as cash flows from financing activities.

At 1 April 2016 Changes from cash flows: Advance from sole director New borrowings raised Repayment of bank borrowings Interest paid Non-cash changes: Finance costs recognised Foreign exchange translation At 31 March 2017 Changes from cash flows: Advance from sole director New borrowings raised Repayment of bank borrowings Interest paid Non-cash changes: Finance costs recognised At 31 March 2018 Changes from cash flows: Repayment to sole director New borrowings raised Repayment of bank borrowings Interest paid Non-cash changes: Finance costs recognised Foreign exchange translation At 31 March 2019 and at 30 April 2019	Amount due to sole director (Note 22) RMB’000 8,669 5,616 — — — — 564 14,849 3,855 — — — — 18,704 (18,872) — — — — 168 —	Bank Borrowing (Note 23) RMB’000 3,090 — 7,000 (9,090) (278) 278 — 1,000 — 9,000 (7,000) (225) 225 3,000 — 6,000 (9,000) (215) 215 — —	Total RMB’000 11,759 5,616 7,000 (9,090) (278) 278 564 15,849 3,855 9,000 (7,000) (225) 225 21,704 (18,872) 6,000 (9,000) (215) 215 168 —

– IIB-48 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

32. NON-CONTROLLING INTERESTS

Details of non-wholly owned subsidiaries that have material non-controlling interests

The table below shows details of the non-wholly-owned subsidiary of the Sky Dynasty Group that have material non-controlling interests:

Name of subsidiary Place of incorporation and principal place of business Shenzhen Ampeg PRC	Proportion of ownership interests and voting rights held by non-controlling interests At 31 March 2017 2018 19.08% (Note)	Profit allocated to non-controlling interests Year ended 31 March Period from 1 April 2017 to 7 June 2017 2017 RMB’000 RMB’000 1,832 163	Accumulated non-controlling interests At 31 March 2017 2018 5,768 (Note)

Note: On 7 June 2017, Sky Dynasty acquired the 19.08% non-controlling interests in Shenzhen Ampeg. Details of the acquisition of non-controlling interests are set out in Note 26 to the Historical Financial Information.

Summarised financial information in respect of the Sky Dynasty Group’s subsidiary that has material non-controlling interests is set out below. The summarised financial information below represents amounts before intragroup eliminations.

Shenzhen Ampeg Current assets Non-current assets Current liabilities Equity attributable to owners of Shenzhen Ampeg Non-controlling interests of Shenzhen Ampeg	At 31 March 2017 RMB’000 41,680
	3,746
	(15,195
	24,464
	5,768

– IIB-49 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP

Total revenue Total expenses Profit for the year Profit and total comprehensive income attributable to owners of Shenzhen Ampeg Profit and total comprehensive income attributable to non-controlling interests of Shenzhen Ampeg Dividends paid to non-controlling interests of Shenzhen Ampeg Net cash outflow from operating activities Net cash outflow from investing activities Net cash inflow from financing activities Net cash outflow Total revenue Total expenses Profit for the period Profit and total comprehensive income attributable to owners of Shenzhen Ampeg Profit and total comprehensive income attributable to non-controlling interests of Shenzhen Ampeg

Year ended 31 March 2017 RMB’000 108,718 (99,115) 9,603 7,771 1,832 — (14,047) (3,078) 3,148 (13,977) Period from 1 April 2017 to 7 June 2017 RMB’000 21,907 (21,055) 852 689 163

33. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Sky Dynasty Group have been prepared in respect of any period subsequent to 30 April 2019.

– IIB-50 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

APPENDIX IIIA

Set out below is the management discussion and analysis on the Target Group for the period from 9 June 2017 (date of incorporation of the Target Company) (the ‘‘Date of Incorporation’’) to year ended 31 December 2018 and for the four months ended 30 April 2018 and 2019.

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

Business overview of the Target Group

The Target Company is a company incorporated in the BVI with limited liability. The Target Company wholly owns the entire issued share capital of the HK Subsidiary and the HK Subsidiary holds Shenzhen Ampeg. The principal activities of the Target Company are that of a holding company.

The HK Subsidiary is a company incorporated in Hong Kong with limited liability. The principal activities of the HK Subsidiary are that of a holding company.

Shenzhen Ampeg is a wholly foreign-owned enterprise established in the PRC. The principal business of Shenzhen Ampeg is manufacturing and sale of electronic products. Founded in 2005, Shenzhen Ampeg is a manufactory located in Shenzhen, the PRC. Shenzhen Ampeg is specialised in research and development, sales and processing, manufacturing and trading of electronic products such as smart watches, smart wristbands and other electronic products. As at the Latest Practicable Date, it owns a total of 17 patents of industrial design and software copyrights.

The following financial information is based on the audited financial information of the Target Group as set out in Appendix IIA to this circular.

Revenue

The Target Group recorded revenue for the period from the Date of Incorporation to 31 December 2017 of approximately RMB35.0 million and for the year ended 31 December 2018 of approximately RMB90.7 million. The revenue increased by approximately RMB55.7 million or approximately 159% as a result of the full year operation for the year ended 31 December 2018 compared to the half year result for the period ended 31 December 2017. The increase in revenue of the Target Group during the track record period was due to the revenue stream being diversified to more electronic products including, but not limited to, room temperature acquisition controllers and smart phones.

Although the trade war between PRC and the United States had created risks and uncertainties in the global economy since 2018, especially on the economies of the PRC and the United States, and also the market sentiment was severely affected by worries over the trade war, the revenue of the Target Group for the four months ended 30 April 2019 still improved substantially. The total revenue of the Target Group for the four months ended 30 April 2018 and 2019 was approximately RMB1.7 million and approximately RMB4.4 million

– IIIA-1 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

APPENDIX IIIA

respectively, representing an increase of approximately 159%. The increase was mainly attributable to the reason that the management team of the Target Group took active measures to improve the financial results.

Gross profit

The gross profit of the Target Group amounted to approximately RMB8.5 million and RMB10.2 million for the period from the Date of Incorporation to 31 December 2017 and for the year ended 31 December 2018 respectively. The gross profit increased by approximately 20% from the Date of Incorporation to 31 December 2017 to the year ended 31 December 2018, due to the increase in revenue by approximately 159% in 2018.

For the four months ended 30 April 2018 and 2019, the Target Group generated gross profit of approximately RMB0.1 million and gross loss of approximately RMB0.9 million respectively. The change in gross profit to gross loss was due to increase in cost of sales which was caused by damages in raw materials during the production cycle for the four months ended 30 April 2019.

Selling and distribution expenses

The selling and distribution expenses of the Target Group slightly decreased by approximately 4.17% from approximately RMB0.24 million for the period from the Date of Incorporation to 31 December 2017 to approximately RMB0.23 million for the year ended 31 December 2018. The decrease in selling and distribution expenses was mainly due to decrease of travelling expenses in 2018.

The selling and distribution expenses of the Target Group for the four months ended 30 April 2018 and 2019 was approximately RMB0.15 million and approximately RMB0.02 million respectively. The decrease in selling and distribution expense was mainly due to a decrease in transportation expenses and staff costs.

Administrative and operating expenses

The administrative and operating expenses mainly comprised of research and development expenses, staff costs, impairment loss and general office expenses. The administrative and operating expenses of the Target Group increased by approximately 20.9% from approximately RMB4.3 million for the period from the Date of Incorporation to 31 December 2017 to approximately RMB5.2 million for the year ended 31 December 2018. Such increase was mainly due to an increase in research and development expenses, staff costs and office maintenances as a result of the full year operation for the year ended 31 December 2018.

For the four months ended 30 April 2018 and 2019, the Target Group recorded administrative and operating expenses of approximately RMB1.7 million and approximately RMB1.4 million respectively. Such decrease was mainly due to decrease in office maintenances.

– IIIA-2 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

APPENDIX IIIA

Profit for the period/year

The Target Group recorded operating profit for the period from the Date of Incorporation to 31 December 2017 of approximately RMB32.8 million and for the year ended 31 December 2018 of approximately RMB6.7 million which is mainly due to the gain on bargain purchase in 2017. The gain on bargain purchase for the period from the Date of Incorporation to 31 December 2017 is a one-off gain, thus the profit for this period was substantially different from the profit for the year ended 31 December 2018.

The Target Group recorded operating loss for the four months ended 30 April 2018 and 2019 of approximately RMB0.2 million and RMB0.8 million respectively due to the decrease in gross profit to gross loss. In view of the revenue stream being diversified to more electronic products and the positive effect brought by the co-operation between the Group and the Target Group, the Directors are of the view that the financial performance of the Target Group for the year ended 31 December 2019 will be improved.

Capital structure, liquidity and financial resources

As at 31 December 2017, 31 December 2018 and 30 April 2019, the reserves of Target Group amounted to approximately RMB33.2 million, RMB39.6 million and RMB38.7 million respectively.

Total assets of Target Group of approximately RMB83.8 million, RMB91.3 million and RMB56.0 million as at 31 December 2017, 31 December 2018 and 30 April 2019 respectively which comprised of plant and equipment, intangible assets, inventories, trade and other receivables, amount due from sole director, tax recoverable and bank balances and cash. The current assets increased from approximately RMB70.1 million as at 31 December 2017 to approximately RMB77.9 million as at 31 December 2018 was primarily attributable to the increase in amount due from sole director and trade and other receivables, and decreased to approximately RMB42.7 million as at 30 April 2019. The non-current assets are approximately RMB13.7 million, RMB13.4 million and RMB13.2 million as at 31 December 2017, 31 December 2018 and 30 April 2019 respectively.

Total liabilities of the Target Group of approximately RMB50.6 million, RMB51.7 million and RMB17.2 million as at 31 December 2017, 31 December 2018 and 30 April 2019 respectively which comprised of trade and other payables, contract liabilities, amount due to sole director, bank borrowing, tax liabilities and deferred tax liabilities. The increase in current liabilities from approximately RMB48.1 million as at 31 December 2017 to approximately RMB49.1 million as at 31 December 2018 was primarily due to the increase in trade and other payables and contract liabilities, and decreased to approximately RMB14.9 million as at 30 April 2019. The non-current liabilities amounted to approximately RMB2.55 million as at 31 December 2017, approximately RMB2.57 million as at 31 December 2018 and approximately RMB2.33 million as at 30 April 2019.

– IIIA-3 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

APPENDIX IIIA

The Target Group had net assets of approximately RMB33.2 million, RMB39.6 million and RMB38.7 million as at 31 December 2017, 31 December 2018 and 30 April 2019 respectively. The current ratio of Target Group as at 31 December 2017, 31 December 2018 and 30 April 2019 are approximately 1.46, 1.59 and 2.87 respectively.

Treasury and funding policies

During the reported period/year, Target Group financed its working capital through internal funds. To manage liquidity risk, the management of Target Group closely monitored its liquidity position to ensure that the liquidity structure of Target Group’s assets and liabilities can meet its funding requirements.

Bank borrowings and Gearing Ratio

The Target Group had bank borrowing of RMB3 million as at 31 December 2017 and nil as at 31 December 2018 and 30 April 2019, which represent gearing ratio of 9.05% as at 31 December 2017 and nil as at 31 December 2018 and 30 April 2019 respectively.

Capital commitments

As at 31 December 2017, 31 December 2018 and 30 April 2019, Target Group did not have any material capital commitment.

Contingent liabilities

As at 31 December 2017, 31 December 2018 and 30 April 2019, Target Group did not have any material contingent liabilities.

Pledge of assets

No assets of Target Group were pledged as at 31 December 2017, 31 December 2018 and 30 April 2019.

Foreign exchange exposure

The majority of the Target Group’s revenue and expenditures are denominated in RMB, the functional currency of the Target Company, except that certain expenditures of the HK Subsidiary are denominated in HK$.

The Target Group currently does not have a foreign currency hedging policy but the management of the Target Group monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise. The management of the Target Group considers the risk of movements in exchange rate between the RMB and HK$ to be insignificant due to insignificant expenditures of the HK Subsidiary.

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MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

APPENDIX IIIA

Employment and remuneration policies

As at 31 December 2017, 31 December 2018 and 30 April 2019, the Target Group have employed 88, 58 and 53 permanent staff in the PRC respectively. The decrease in number of staff was mainly due to increasing outsource of manufacturing process in replace of certain manufacturing stages as well as retained expert and better skilled employees. Staff costs for the period from the Date of Incorporation to 31 December 2017, for the year ended 31 December 2018 and for the four months ended 30 April 2018 and 2019 excluding directors’ remuneration were approximately RMB0.9 million, RMB1.1 million, RMB0.5 million and RMB0.6 million respectively. The increase in staff costs was due to the increase in average salary of the Target Group’s staff. The Target Group reviews staff remuneration once a year, or as its management consider appropriate. Employee remuneration was determined by reference to market terms and the performance, qualification and experience of individual employee.

Material acquisitions and disposals of subsidiaries and associated companies

Save as disclosed in the accountants’ report of the Target Group in Appendix IIA to this circular, for the years ended 31 December 2017, 31 December 2018 and for the four months ended 30 April 2018 and 2019, the Target Group did not have any other significant investment, any other material acquisitions or disposals of subsidiaries and associated companies, nor any future plans for material investments or capital assets.

Prospects

The Target Group will continue to implement quality focused strategy in its business operation, which is a competitive advantage in electronic products industry.

In view of high expectations of electronic products quality, the Target Group will keep focusing on its client’s needs and introducing famous-brand products and reliable suppliers to provide high-quality products so that the after-sale cost can be minimised and the business reputation of Target Group can be maintained.

Due to the growing market in smart phone gadgets such as smart watches and smart wristbands in 2017 and 2018, many competitors were attracted and as a result the business in such market became increasingly competitive. It is believed that the revenue of the Target Group generated from manufacturing and trading of electronic products is sustainable. As such, the Target Group has decided to diversify into the development, manufacture and sale of other electronic products such as room temperature acquisition controller, manufacturing and trading of smart phone, attitude stability controller, speech recognition system, among others.

Looking forward, the Target Group will continue to optimise and diversify its existing products mix with an ambition to explore more different kind of customers. Upon the Completion, the Target Group will become an associate of the Company. The Target Group will leverage on the Group’s market knowledge, experience and resources so as to achieve business co-operation in terms of operation effectiveness and branding.

– IIIA-5 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE SKY DYNASTY GROUP

APPENDIX IIIB

Set out below is the management discussion and analysis on the Sky Dynasty Group for the three years ended 31 March 2019 (the ‘‘Track Period’’), and for the one month ended 30 April 2018 and 2019.

MANAGEMENT DISCUSSION AND ANALYSIS ON THE SKY DYNASTY GROUP

Business overview of the Sky Dynasty Group

The HK Subsidiary is a company incorporated in Hong Kong with limited liability. The HK Subsidiary wholly owns the entire issued share capital of Shenzhen Ampeg. The principal activities of the HK Subsidiary are that of a holding company.

Shenzhen Ampeg is a wholly foreign-owned enterprise established in the PRC. The principal business of Shenzhen Ampeg is manufacturing and sale of electronic products. Founded in 2005, Shenzhen Ampeg is a manufactory located in Shenzhen, the PRC. Shenzhen Ampeg is specialised in research and development, sales and processing, manufacturing and trading of electronic products, such as smart watches, smart wristbands and other electronic products. As at the Latest Practicable Date, it owned a total of 17 patents of industrial design and software copyrights.

The HK Subsidiary started to acquire the equity interests of Shenzhen Ampeg in 2008. On 18 June 2008, the HK Subsidiary acquired 52% equity interest in Shenzhen Ampeg at a consideration of RMB416,000 from its former shareholder, Ms. Fang Shuying (方淑英). To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, Ms. Fang Shuying is a third party independent of the Company and its connected person(s). Upon completion of the acquisition, the directors of Shenzhen Ampeg decided to increase the registered capital of Shenzhen Ampeg to RMB8 million on 18 July 2008 by the HK Subsidiary investing RMB7.2 million in Shenzhen Ampeg, increasing its equity interest in Shenzhen Ampeg to 95.2%. In October 2014, Shenzhen Ampeg further increased its registered capital, and the equity interest of the HK Subsidiary was consequently diluted from 95.2% to 80.92%. On 7 June 2017, the HK Subsidiary acquired a further 19.08% equity interest in Shenzhen Ampeg from its former shareholder, Mr. Zhou Qinwu (周欽武), which increased its equity interest from 80.92% to 100%, at a cash consideration of RMB1,908,000. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, Mr. Zhou Qinwu is a third party independent of the Company and its connected person(s). As at the Latest Practicable Date, there have been no further increase in share capital of Shenzhen Ampeg through allotting to independent third parties thereafter.

The following financial information is based on the audited financial information of the Sky Dynasty Group as set out in Appendix IIB to this circular.

Revenue

The revenue of the Sky Dynasty Group is mainly derived from manufacturing and trading of electronic products. Sky Dynasty Group recorded revenue for the period from the year ended 31 March 2017 of approximately RMB108.2 million and for the year ended 31 March 2018 of approximately RMB72 million. The decrease of revenue in 2018 compared to previous

– IIIB-1 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE SKY DYNASTY GROUP

APPENDIX IIIB

year was due to the decrease in manufacturing and trading of electronic products since the demand in smart watches decreased in 2018 compared to 2017. For the year ended 31 March 2019, the revenue of the Sky Dynasty Group has increased by approximately 26% compared to the same period in 2018 to approximately RMB90.7 million. The increase in revenue of the Sky Dynasty Group for the year ended 31 March 2019 compared to the previous year was due to the revenue stream being diversified to more electronic products including, but not limited to, room temperature acquisition controllers and smart phones.

Although the trade war between PRC and the United States had created risks and uncertainties in the global economy since 2018, especially on the economies of the PRC and the United States, and also the market sentiment was severely affected by worries over the trade war, the revenue for the one month ended 30 April 2019 still improved compared to that of the corresponding period of the previous year. For the one month ended 30 April 2018 and 2019, the Sky Dynasty Group recorded increase in revenue of approximately RMB0.08 million to RMB4 million due to the revenue stream being diversified to more electronic products.

Gross profit

For the financial years ended 31 March 2017, 2018 and 2019, the Sky Dynasty Group generated gross profit of approximately RMB19.8 million, RMB13.7 million and RMB10.2 million respectively. The gross profit decreased in the Track Period which was mainly due to the increase of cost of selling the electronic products.

For the one month ended 30 April 2018 and 2019, the Sky Dynasty Group recorded gross loss of approximately RMB0.004 million and RMB0.63 million respectively. The increase in gross loss was due to increase in cost of sales which caused by damages in raw materials during the production cycle for the one month ended 30 April 2019.

Selling and distribution expenses

The selling and distribution expenses of the Sky Dynasty Group improved by approximately 72% from approximately RMB0.82 million to approximately RMB0.23 million during the Track Period. It was mainly due to decrease of travelling expenses, transportation expenses and staff costs in 2018 and 2019.

For the one month ended 30 April 2018 and 2019, the Sky Dynasty Group recorded selling and distribution expenses of approximately RMB0.04 million and RMB0.02 million respectively. It was mainly due to decrease of transportation expenses.

Administrative and operating expenses

For the financial years ended 31 March 2017, 2018 and 2019, the Sky Dynasty Group has administrative and operating expenses of approximately RMB8.7 million, RMB7.7 million and RMB5.2 million respectively. Such expenses decreased during the Track Period were mainly due to a decrease in research and development expenses and staff costs during the Track Period. It was mainly due to increase in research and development expenses.

– IIIB-2 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE SKY DYNASTY GROUP

APPENDIX IIIB

For the one month ended 30 April 2018 and 2019, the Sky Dynasty Group recorded administrative and operating expenses of approximately RMB0.4 million and RMB0.8 million respectively.

Profit for the year

The Sky Dynasty Group recorded profit for three years ended 31 March 2017, 2018 and 2019 are approximately RMB9.6 million, RMB5.8 million and RMB6.7 million respectively. The profit decreased by approximately 39.6% from the year ended 31 March 2017 to 31 March 2018 was mainly due to decrease in turnover of the Sky Dynasty Group. The profit increased by approximately 15.5% from the year ended 31 March 2018 to 31 March 2019 as the Sky Dynasty Group licensed certain trademarks of Shenzhen Ampeg to several licencees, but the decrease in gross profit during this period was due to the profit margin of room temperature acquisition controllers for the year ended 31 March 2019 being smaller compared to that of smart wristbands for the year ended 31 March 2018.

For the one month ended 30 April 2018, the Sky Dynasty Group recorded operating profit of approximately RMB0.4 million. For the one month ended 30 April 2019, the Sky Dynasty Group recorded operating loss of approximately RMB1.0 million. The change was due to the increase in gross loss.

Capital structure, liquidity and financial resources

For the financial years ended 31 March 2017, 2018, 2019 and as at 30 April 2019, the Sky Dynasty Group recorded reserves of approximately RMB15.1 million, RMB25.2 million, RMB31.8 million and RMB31.0 million respectively.

The non-current assets of Sky Dynasty Group decreased from approximately RMB3.7 million as at 31 March 2017 to approximately RMB3.3 million as at 31 March 2018, and further decreased to approximately RMB3 million as at 31 March 2019. Until 30 April 2019, the non-current assets of Sky Dynasty Group amounted to approximately RMB3.1 million. The reason behind was due to the depreciation of plant and equipment in 2018 and 2019.

The current assets of Sky Dynasty Group increased from approximately RMB41.7 million as at 31 March 2017 to approximately RMB70.1 million as at 31 March 2018, and further increased to approximately RMB77.9 million as at 31 March 2019. Until 30 April 2019, the current assets of Sky Dynasty Group amounted to approximately RMB65.6 million. The reason behind was primarily attributable to the increase in trade and other receivables and amount due from sole director.

The current liabilities of Sky Dynasty Group increased from approximately RMB24.5 million as at 31 March 2017 to approximately RMB48.2 million as at 31 March 2018, and further increased to approximately RMB49.0 million as at 31 March 2019. Until 30 April 2019, the current liabilities of Sky Dynasty Group amounted to approximately RMB37.8 million. The reason behind was due to decrease in trade and other payables and contract liabilities in 2019.

– IIIB-3 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE SKY DYNASTY GROUP

APPENDIX IIIB

Treasury and funding policies

During the reported period/years, the Sky Dynasty Group financed its working capital through internal funds. To manage liquidity risk, the management of the Sky Dynasty Group closely monitored its liquidity position to ensure that the liquidity structure of Sky Dynasty Group’s assets and liabilities can meet its funding requirements.

Bank borrowings and Gearing Ratio

The Sky Dynasty Group had bank borrowing of RMB1 million as at 31 March 2017, RMB3 million as at 31 March 2018 and nil as at 31 March 2019 and 30 April 2019, which represent gearing ratio of approximately 4.78% as at 31 March 2017, 11.90% as at 31 March 2018 and nil as at 31 March 2019 and 30 April 2019. It was mainly due to the bank borrowings guaranteed by the former shareholders of Shenzhen Ampeg in 2017 and 2018.

Capital commitments

As at 31 March 2017, 31 March 2018, 31 March 2019 and 30 April 2019, the Sky Dynasty Group did not have any material capital commitment.

Contingent liabilities

As at 31 March 2017, 31 March 2018, 31 March 2019 and 30 April 2019, the Sky Dynasty Group did not have any material contingent liabilities.

Pledge of assets

No assets of Sky Dynasty Group were pledged as at 31 March 2017, 31 March 2018, 31 March 2019 and 30 April 2019.

Foreign exchange exposure

The functional currency of the HK Subsidiary in in HK$, and the functional currency of Shenzhen Ampeg is in RMB. Since the majority of the Sky Dynasty Group’s revenue and expenditures are denominated in RMB, there is foreign exchange exposure for the Sky Dynasty Group.

The Sky Dynasty Group currently does not have a foreign currency hedging policy but the management of the Sky Dynasty Group monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise. The management of the Sky Dynasty Group considers the risk of movements in exchange rate between the RMB and HK$ to be insignificant due to insignificant expenditures of the HK Subsidiary.

Employment and remuneration policies

As at 31 March 2017, 31 March 2018, 31 March 2019 and 30 April 2019, the Sky Dynasty Group have employed 106, 64, 56 and 55 permanent staff in the PRC respectively. The decrease in number of staff was mainly due to increasing outsource of manufacturing

– IIIB-4 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE SKY DYNASTY GROUP

APPENDIX IIIB

process in replace of certain manufacturing stages as well as retained expert and better skilled employees. Staff costs for the three years ended 31 March 2017, 2018 and 2019 and for the one month ended 30 April 2018 and 2019 excluding directors’ remuneration were approximately RMB1.9 million, RMB2.1 million, RMB1.1 million, RMB0.2 million and RMB0.2 million respectively. Sky Dynasty Group reviews staff remuneration once a year, or as its management consider appropriate. Employee remuneration was determined by reference to market terms and the performance, qualification and experience of individual employee.

Material acquisitions and disposals of subsidiaries and associated companies

Save as disclosed in the ‘‘ACCOUNTANTS’ REPORT OF THE SKY DYNASTY GROUP’’ in Appendix IIB to this circular during the Track Period and for the one month ended 30 April 2018 and 2019, the Sky Dynasty Group did not have any other significant investment, any other material acquisitions or disposals of subsidiaries and associated companies, nor any future plans for material investments or capital assets.

Prospects

The Sky Dynasty Group will continue to implement quality focused strategy in business operation, which is a competitive advantage in electronic products industry.

In view of high expectations of electronic products quality, the Sky Dynasty Group will keep focusing on its client’s needs and introducing famous-brand products and reliable suppliers to provide high-quality products so that the after-sale cost can be minimised and the business reputation of Sky Dynasty Group can be maintained.

Due to the growing market in smart phone gadgets such as smart watches and smart wristbands in 2017 and 2018, many competitors were attracted and as a result the business in such market is became increasingly competitive. It is believed that the revenue of the Target Group generated from manufacturing and trading of electronic products is sustainable. As such, the Target Group has decided to diversify into the development, manufacture and sale of other electronic products such as room temperature acquisition controller, manufacturing and trading of smart phone, attitude stability controller, speech recognition system, among others.

Looking forward, the Sky Dynasty Group will continue to optimise and diversify its existing products mix with an ambition to explore more different kind of customers. Upon the Completion, the Sky Dynasty Group will become an associate of the Company. The Sky Dynasty Group will leverage on the Group’s market knowledge, experience and resources so as to achieve business co-operation in terms of operation effectiveness and branding.

– IIIB-5 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

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

The following is the text of the independent reporting accountants’ assurance report received from Asian Alliance (HK) CPA Limited, Certified Public Accountants, Hong Kong, the reporting accountants of Celestial Rainbow in respect of the unaudited pro forma financial information of the Enlarged Group prepared for the purpose of incorporation in this circular.

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

TO THE DIRECTORS OF MILLENNIUM PACIFIC GROUP HOLDINGS LIMITED

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of Millennium Pacific Group Holdings Limited (the ‘‘Company’’) and its subsidiaries (collectively the ‘‘Group’’) by the directors of the Company (the ‘‘Directors’’) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated statement of financial position as at 31 December 2018 and related notes of the Group and Celestial Rainbow Limited (‘‘Celestial Rainbow’’) and its subsidiaries (collectively the ‘‘Celestial Rainbow Group’’, and together with the Group collectively referred the ‘‘Enlarged Group’’) (the ‘‘Unaudited Pro Forma Financial Information’’) as set out on pages 6 to 7 of Appendix IV to the circular dated 25 September 2019 (the ‘‘Circular’’) issued by the Company in connection with the proposed further acquisition of 35% of the issued share capital of Celestial Rainbow (the ‘‘Transaction’’). The applicable criteria on the basis of which the Directors have compiled the Unaudited Pro Forma Financial Information are described on pages 8 to 9 of Appendix IV to the Circular.

The Unaudited Pro Forma Financial Information has been compiled by the Directors to illustrate the impact of the Transaction on the Group’s financial position as at 31 December 2018. As part of this process, information about the Group’s financial position as at 31 December 2018 has been extracted by the Directors from the Group’s audited consolidated financial statements for the year ended 31 December 2018, on which an audit report dated 26 March 2019 have been published.

– IV-1 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

DIRECTORS’ RESPONSIBILITIES FOR THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

The Directors are responsible for compiling the Unaudited Pro Forma Financial Information in accordance with paragraph 31 of Chapter 7 of the Rules Governing the Listing of Securities on the GEM of The Stock Exchange of Hong Kong Limited (the ‘‘GEM Listing Rules’’) and with reference to Accounting Guideline 7 ‘‘Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars’’ (‘‘AG 7’’) issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’).

OUR INDEPENDENCE AND QUALITY CONTROL

We have complied with the independence and other ethical requirement of the ‘‘Code of Ethics for Professional Accountants’’ issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentially and professional behavior.

Our firm applies Hong Kong Standard on Quality Control 1 ‘‘Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements’’ issued by HKICPA and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

REPORTING ACCOUNTANTS’ RESPONSIBILITIES

Our responsibility is to express an opinion, as required by paragraph 31(7) of Chapter 7 of the GEM Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements (‘‘HKSAE’’) 3420 ‘‘Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus’’ issued by the HKICPA. This standard requires that the reporting accountant plans and performs procedures to obtain reasonable assurance about whether the Directors have compiled the Unaudited Pro Forma Financial Information in accordance with paragraph 31 of Chapter 7 of the GEM Listing Rules and with reference to AG 7 issued by the HKICPA.

– IV-2 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

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

The purpose of the Unaudited Pro Forma Financial Information included in the Circular is solely to illustrate the impact of a significant event or the transaction on unadjusted financial information of the Enlarged Group as if the event had occurred or the transaction have been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the event or transaction at 31 December 2018 would have been as presented.

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

• . the related pro forma adjustments give appropriate effect to those criteria; and

• . the Unaudited Pro Forma Financial Information reflects the proper application of those adjustments to the unadjusted financial information.

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

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

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

– IV-3 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

OPINION

In our opinion:

• (a) the Unaudited Pro Forma Financial Information has been properly compiled by the Directors on the basis stated;

• (b) such basis is consistent with the accounting policies of the Group; and

• (c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 31(1) of Chapter 7 of the GEM Listing Rules.

Yours faithfully,

Asian Alliance (HK) CPA Limited

Certified Public Accountants (Practising) Chan Mei Mei

Practising Certificate Number: P05256

Suites 313–316

3/F., Shui On Centre

6–8 Harbour Road Wanchai Hong Kong

25 September 2019

– IV-4 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

B. INTRODUCTION TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is an illustrative unaudited pro forma consolidated statement of financial position of Millennium Pacific Group Holdings Limited (the ‘‘Company’’) and its subsidiaries (collectively the ‘‘Group’’), as if the proposed further acquisition of 35% of the equity interest of Celestial Rainbow Limited (‘‘Celestial Rainbow’’) and its subsidiaries (collectively the ‘‘Celestial Rainbow Group’’) (together with the Company referred to as the ‘‘Enlarged Group’’) (the ‘‘Transaction’’) (the ‘‘Unaudited Pro Forma Financial Information’’) had been completed on 31 December 2018.

The Unaudited Pro Forma Financial Information has been prepared by the directors of the Company (the ‘‘Directors’’) in accordance with paragraph 31 of Chapter 7 of the Rules Governing the Listing of Securities on the GEM of The Stock Exchange of Hong Kong Limited (the ‘‘GEM Listing Rules’’), for the purpose of illustrating the effect of the Transaction pursuant to the terms of the sale and purchase agreement dated 24 May 2019 entered into among the Group and Mr. Ma Xingjin (the ‘‘Vendor’’), the Group conditionally agreed to purchase and the Vendor agreed to sell 35% of the issued share capital of Celestial Rainbow held by the Vendor (the ‘‘Sale and Purchase Agreement’’).

The Unaudited Pro Forma Financial Information of the Enlarged Group is prepared based on the consolidated statement of financial position of the Group as at 31 December 2018, which has been extracted from the Company’s annual report for the year ended 31 December 2018 dated 26 March 2019, and adjusted on a pro forma basis to reflect the effect of the Transaction. A narrative description on these pro forma adjustments that are (i) directly attributable to the Transaction and not relating to future events and decisions; and (ii) factually supportable based on the terms of the Sale and Purchase Agreement.

The Unaudited Pro Forma Financial Information has been prepared using accounting policies consistent with that of the Group. The Unaudited Pro Forma Financial Information is based on a number of assumptions, estimates and uncertainties. The Unaudited Pro Forma Financial Information does not purport to describe the actual financial position of the Enlarged Group that would have been attained had the Transaction been completed on 31 December 2018 nor purport to predict the future financial position of the Enlarged Group.

The Unaudited Pro Forma Financial Information should be read in conjunction with i) the audited consolidated financial statements of the Group for the year ended 31 December 2018 as disclosed in an annual report of the Company dated 26 March 2019, and (ii) other financial information included elsewhere in this Circular.

– IV-5 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF FINANCIAL POSITION OF THE ENLARGED GROUP

NON-CURRENT ASSETS Property, plant and equipment Investment in associates Intangible assets Financial assets at fair value through other comprehensive income CURRENT ASSETS Inventories Trade receivables Other receivables, prepayments and deposit Bank and cash balances	The Group as at 31 December 2018 HK$’000 (Audited) Note (a) 1,350 1,362 — 8,688 11,400 366 23,518 10,778 2,025 36,687	Pro Forma Adjustments HK$’000 HK$’000 Notes (b&c) Note (e) — — 36,188 — — — (8,688) — 27,500 — — — — — — — — — — —	Enlarged Group as at 31 December 2018 HK$’000 (Unaudited) 1,350 37,550 — —
			38,900
			366 23,518 10,778 2,025
			36,687

– IV-6 –

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

CURRENT LIABILITIES Trade payables Other payables, deposits received and accrued expenses Amounts due to directors Current tax liabilities NET CURRENT LIABILITIES NET ASSETS CAPITAL AND RESERVES Share capital Reserves Non-controlling interest TOTAL DEFICITS	The Group as at 31 December 2018 HK$’000 (Audited) Note (a) 17,596 9,029 15,019 765 42,409 (5,722) 5,678 1,111 3,416 4,527 1,151 5,678	Pro Forma Adjustments HK$’000 HK$’000 Notes (b&c) Note (e) — — — 1,860 — — — — — 1,860 — (1,860) 27,500 (1,860) 196 — 27,304 (1,860) 27,500 (1,860) — — 27,500 (1,860)	Enlarged Group as at 31 December 2018 HK$’000 (Unaudited) 17,596 10,889 15,019 765 44,269 (7,582) 31,318 1,307 28,860 30,167 1,151 31,318

– IV-7 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

• (a) The amounts are extracted from the audited consolidated financial statements of the Group as set out in the published annual report for the year ended 31 December 2018 (‘‘Annual Report 2018’’) dated 26 March 2019.

• (b) The adjustments are to reflect the Transaction which include the consideration of HK$27,500,000 (the ‘‘Consideration’’), which will be settled by the allotment and issue of approximately 122,767,857 consideration shares (the ‘‘Consideration Shares’’) by the Company to the Vendor at an issue price of HK$0.224 per Consideration Share.

For the purpose of the Unaudited Pro Forma Financial Information, the fair value of the Consideration Shares is calculated based on the price of HK$0.224 per share of the Company. Approximately 122,767,857 Consideration Shares of the Company will be issued at HK$0.224 with a total share consideration of HK$27,500,000, of which approximately HK$196,000 (par value of HK$0.0016 each) will be credited to share capital and the balance of approximately HK$27,304,000 will be credited to the share premium account.

The Consideration is subject to the deduction by the shortfall amount in respect to the profit guarantee for the year ending 31 December 2019 of approximately RMB6,702,000 (the ‘‘Contingent Consideration Receivables’’) as defined in the Sale and Purchase Agreement, on completion. The Contingent Consideration Receivables should be measured at fair value at each reporting date, with changes in fair value recognised in profit and loss. Based on the Directors’ best estimation, the probability of meeting the profit guarantee by the Celestial Rainbow Group is high and therefore it assumes that the fair value of the Contingent Consideration Receivables at 31 December 2018 is HK$Nil.

The Transaction together with the 11% equity interest of the Celestial Rainbow Group acquired on 21 September 2018, the Group would effectively hold 46% equity interest of the Celestial Rainbow Group and will have significant influence over the Celestial Rainbow Group upon completion of the Transaction. The investment of the Celestial Rainbow Group will be reclassified from financial assets at fair value through other comprehensive income (‘‘FVTOCI’’) to investment in associates and the Transaction is accounted for as an acquisition of additional interest in accordance with Hong Kong Accounting Standard 28 — Investments in Associates and Joint Ventures (‘‘HKAS 28’’).

• (c) The difference between (i) the Consideration Shares payable for the Transaction and the costs directly attributable to the Transaction; (ii) the fair value of 11% equity interest of the Celestial Rainbow Group previously acquired as at 31 December 2018 and (iii) the fair value of 46% equity interest of the Celestial Rainbow Group as at 31 December 2018, will be accounted for as goodwill and included in the carrying amount of the Group’s investment in associates. Such goodwill is calculated as below:

Consideration for the Transaction (being Consideration Shares approximately 122,767,857 x HK$0.224) (Note i) Fair value of 11% equity interest previously acquired as at 31 December 2018 extracted from the Annual Report 2018 (Note ii) Total consideration Less: Fair value of 46% equity interest of the Celestial Rainbow Group as at 30 April 2019 extracted from the accountants’ report as set out in Appendix IIA (Note iii) Goodwill arising on the Transaction

Equivalent to HK$’000 27,500 8,688 36,188 (20,306) 15,882

– IV-8 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Notes:

• (i) As the fair value of the Consideration Shares at the date of completion of the Transaction may be substantially different from the issued price of HK$0.224 per Consideration Share, the actual fair value of the Consideration and in turn, the amount of goodwill may be different from those presented in the Unaudited Pro Forma Financial Information.

• (ii) On 21 September 2018, the Group completed the acquisition of 11% equity interest of the Celestial Rainbow Group and was designated as financial assets at FVTOCI and denominated in RMB.

• (iii) The fair value of 46% equity interest of the Celestial Rainbow Group are subject to change upon the completion of the valuation of the fair value of 46% equity interest of the Celestial Rainbow Group on the date of completion of the Transaction. Consequently, the carrying amount of the investment in associates will likely result in different amounts than those stated in this Unaudited Pro Forma Financial Information. As at 30 April 2019, the fair value of 46% equity interest of the Celestial Rainbow Group is approximately RMB17,812,000 (equivalent to approximately HK$20,306,000, translated at an exchange rate of RMB1=HK$1.14) extracted from the accountants’ report as set out in Appendix IIA (approximately RMB38,722,000 x 46%).

• (d) According to HKAS 28 and Hong Kong Accounting Standard 36 — Impairment of Assets (‘‘HKAS 36’’), after initial recognition, the entire carrying amount of the investment in associates is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount, whenever there is indicator that the investment in an associate may be impaired.

Based on the existing business model of the Enlarged Group, the Directors have performed the necessary assessment on impairment in accordance with the requirements under HKAS 28 and HKAS 36.

The recoverable amount of the investment in associates has been determined by using Price-to-Earnings (‘‘P/E’’) multiple method under market approach. P/E multiple method compares the market price per share of the comparables to their earnings per share with 20% discount on lack of marketability.

The amounts of the investment in associates and the related impairment assessment are subject to change on the completion date due to the fair value assessment of 46% equity interest of the Celestial Rainbow Group, which may differ materially from the amounts disclosed above.

• (e) The adjustment represent the acquisition-related costs (including fees to legal advisors, reporting accountants, valuers, and other expenses) which are estimated to be approximately HK$1,860,000.

• (f) No adjustments have been made to the Unaudited Pro Forma Financial Information to reflect any trading results or other transactions of the Group or the Celestial Rainbow Group subsequent to 31 December 2018 where applicable.

• (g) All pro forma adjustments are not expected to have a continuing effect on the Group or the Celestial Rainbow Group.

– IV-9 –

VALUATION REPORT OF SHENZHEN AMPEG

APPENDIX V

The Directors

Millennium Pacific Group Holdings Ltd. Unit 5, 4/F, Energy Plaza, No. 92 Granville Road, Tsim Sha Tsui East, Kowloon, Hong Kong

==> picture [83 x 28] intentionally omitted <==

Eidea Professional Services Company Limited Suite 1001, 10th Floor Great Eagle Centre 23 Harbour Road Wanchai Hong Kong

Tel: (852) 2528 3808 Fax: (852) 2529 3808

Dear Sir/Madam,

RE: VALUATION OF 35% EQUITY INTEREST OF SHENZHEN AMPEG TECHNOLOGY COMPANY LIMITED (‘‘SHENZHEN AMPEG’’)

1. INSTRUCTIONS

With reference to recent instructions from Millennium Pacific Group Holdings Ltd. (the ‘‘Company’’), Eidea Professional Services Company Limited (‘‘Eidea’’) has undertaken to conduct the valuation of 35% equity interest in Shenzhen Ampeg (the ‘‘Equity Interest’’) as at 31 March 2019 (the ‘‘Valuation Date’’).

This report outlines the factors considered, methodology and assumptions employed in formulating our opinions and conclusions. Any opinions are subject to the assumptions and limiting conditions contained therein.

2. PURPOSE OF VALUATION

Eidea has conducted independent valuation exercises on the Equity Interest. This valuation report is prepared to the Company for the incorporation of the Company’s public documentation and will be included in a public circular.

We assume no responsibility whatsoever to any person other than the Company in respect of, or arising out of, the contents of this report. If others chose to rely in any way on the contents of this report, they do so entirely on their own risk.

3. OVERVIEW OF SHENZHEN AMPEG

Shenzhen Ampeg is a wholly foreign-owned enterprise established in the PRC whose principal activities is manufacturing and sale of electronic products. Founded in 2005, Shenzhen Ampeg is a manufactory located in Shenzhen, the PRC. Shenzhen Ampeg is specialized in research and development, sales and processing, manufacturing and marketing of smart watch and fitness tracker. It owns more than 15 patents of industrial design and software copyrights.

– V-1 –

VALUATION REPORT OF SHENZHEN AMPEG

APPENDIX V

4. BASIS OF VALUATION

The valuation has been conducted on a Fair Value basis. Fair Value is defined as 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.

5. SOURCES OF INFORMATION

In preparing our opinion, we have considered and reviewed the following information from the management of the Company:

• . The nature, background and general description of Shenzhen Ampeg

• . Financial statements of Shenzhen Ampeg for the year ended 31 December 2018

• . Management accounts of Shenzhen Ampeg as at 31 March 2019

• . Discussions with the management of the Company

• . All other information and representations provided by the Company

In addition, we have relied upon other market information including:

• . Bloomberg database

• . Researches on Discounts for Lack of Marketability

6. VALUATION METHODOLOGY

Generally, there are three approaches in determining the fair value of an enterprise, including Income Approach, Asset-based approach and Market Approach.

Income Approach

The Income Approach focuses on the economic benefits generated by the income producing capability of a business entity. The underlying theory of this approach is that the value of a business entity can be measured by the present worth of the economic benefits to be received over the useful life of the business entity. Based on this valuation principle, the Income Approach estimates the future economic benefits and discounts these benefits to its present value using a discount rate appropriate for the risks associated with realizing those benefits.

– V-2 –

VALUATION REPORT OF SHENZHEN AMPEG

APPENDIX V

Asset-based Approach

The Asset-based Approach measures the value of a business or asset by the cost to reconstruct or replace it with another of like utility. To the extent that the assets being valued provide less utility than new assets, the reproduction or replacement cost new would be adjusted to reflect appropriate physical deterioration, functional obsolescence, and economic obsolescence. The Asset-based Approach recognizes that a prudent investor would not ordinarily pay more for property or an asset than the cost to replace them new.

Market Approach

The Market Approach measures the value of a business or asset through an analysis of recent sales or offerings of comparable businesses or assets. Adjustments are made to account for differences between the subject business or asset being valued and the comparable businesses or assets used in the analysis. It is employed in the valuation of the asset for which there is a known used market. Under the premise of continued use assuming adequate earnings, consideration is given to the cost to acquire similar items in the second-hand market; an allowance then is made to reflect the costs for freight and installation.

Selected Approach

Considered about the business nature and background of Shenzhen Ampeg, we believe that the Market Approach would be appropriate and reasonable in this valuation. The Income Approach is not practical as cash flow forecast is not available. The Assetbased Approach is not appropriate as it ignores the future economic benefits of the business as a whole.

We have therefore relied on the Market Approach in determining opinion of value. Under the Market Approach, we have adopted the Guideline Public Company Method, which entails a comparison of the subject company to publicly traded companies. The comparison is generally based on published data regarding the public companies’ stock price and financial performance, which is expressed as multiples. As long as the guideline public companies are sufficiently similar to the subject company to permit a meaningful comparison, the valuation multiples calculated from these companies provide an indication for how much an investor in the market would be willing to pay for a similar situated company.

Price-to-Earnings Multiple Method

Price-to-Earnings (‘‘P/E’’) multiple method compares the market price per share of the comparables to their earnings per share. It is the most widely used market multiple ratio. When buying a stock, it is common for an investor to look at the price paid as a multiple of the earnings per share generated by the company. The multiple will be affected by growth potential, risk of the business, and the industry that the company is in. In this valuation, the fair value is calculated based on the profit of Shenzhen Ampeg multiply by the P/E multiple, followed by an adjustment on discount for lack of marketability.

– V-3 –

VALUATION REPORT OF SHENZHEN AMPEG

APPENDIX V

In order to comprise a representative set of comparable companies to derive the valuation result, we have identified nine comparable companies with reference to data as extracted from Bloomberg and latest financial statements on the following basis:

• (a) listed in Hong Kong

• (b) have sufficient operating history

• (c) derive most of their revenue from producing and selling consumer electronic devices in the latest financial year

• (d) the financial information of the comparable companies is available to the public

• (e) principal business activities, location of operation, scale of operation, future prospect as well as size of firms

The nine comparable companies have been selected and are comparable to Shenzhen Ampeg as their principal business activities are similar. As such, they are influenced by the same economic and industry factors, risk and rewards.

The details of each of such comparable company is set out below:

		Closing	Earnings
		Price as at	per share to
		31 March	the prior	P/E
Company	Scope of business	2019	Fiscal Year	Multiple
Nimble Holdings	holding and licensing of brands	HK$1.06	HK$0.03	35.33
Company Limited.	and trademarks, distribution
(00186.HK)	of household appliances and
	audio products
Fujikon Industrial	design, manufacture, marketing	HK$1.39	HK$0.073	19.04
Holdings Ltd.	and trading of electro-
(00927.HK)	acoustic products, accessories
	and other electronic products
Tonly Electronics	manufacture and sale of audio-	HK$6.28	HK$0.8724	7.20
Holdings Ltd.	visual products and the
(01249.HK)	rendering of research and
	development services
IDT International	engaging in investment	HK$0.086	-HK$0.0829	N/A
Ltd. (00167.HK)	holdings, design,
	development, manufacture,
	and sales and marketing of
	various consumer electronic
	products

– V-4 –

VALUATION REPORT OF SHENZHEN AMPEG

APPENDIX V

		Closing	Earnings
		Price as at	per share to
		31 March	the prior	P/E
Company	Scope of business	2019	Fiscal Year	Multiple
Alco Holdings Ltd.	principally engaged in	HK$0.79	-HK$0.148	N/A
(00328.HK)	designing, manufacturing and
	selling of consumer
	electronic products
Sandmartin	manufacturing and trading of	HK$0.08	-HK$0.057	N/A
International	satellite TV equipment
Holdings Ltd.	products and other electronic
(00482.HK)	goods and satellite TV
	broadcasting
Ten Pao Group	engaging in developing,	HK$0.94	HK$0.055	17.09
Holdings Limited	manufacturing and sales of
(01979.HK)	electric charging products
Alltronics Holdings	manufacturing and trading of	HK$1.12	HK$0.1102	10.16
Ltd. (00833.HK)	electronic products, plastic
	moulds, plastic and other
	components for electronic
	products, the trading of
	biodiesel products, the
	provision of energy saving
	business solutions and
	operation of investment
	properties
Cowell e Holdings	manufacturing and sale of	HK$1.43	US$0.017	10.78
Inc. (01415.HK)	camera module and optical
	components

Base on the above, the comparative comparable has a highest P/E multiple of 35.33, a lowest P/E multiple of 7.20 and an average P/E multiple of 16.60.

We have based on our analysis on the market information, adopted a 20% discount for lack of marketability on the P/E multiple of the above comparable companies which have profit. The fair value of the Equity Interest is then calculated based on the Net Profit of Shenzhen Ampeg (RMB6,164,000 after deduction of government grant) multiplied by the average adjusted P/E multiple of the aforesaid companies, as well as multiplied by 35% equity interest.

– V-5 –

VALUATION REPORT OF SHENZHEN AMPEG

APPENDIX V

7. MAJOR VALUATION ASSUMPTIONS

Certain key assumptions used in our valuation exercise include, but not limited to the following:

General

• . The valuation reflects the reasonable conditions existing as at the Valuation Date. Subsequent events and uncertainties are beyond the control of the Company and Eidea;

• . Financial statements provided by the Company give true and fair view and are in accordance with the applicable accounting standards;

• . There will be no material changes in the interest rates and exchange rates in the regions which Shenzhen Ampeg has operations;

• . There will be no material changes in the political, legal, technological, economic or other conditions which would adversely affect the industry and the profitability of Shenzhen Ampeg;

• . We have not verified or confirmed information provided to us and have assumed that all information is accurate and complete and is not subject to material error or omission;

• . Any deviation from the key assumptions may significantly vary the indicative valuation. Our valuation is largely based on information provided by the Company and the Company is solely responsible for their contents/accuracy.

8. OPINION OF VALUE

For purposes stated herein and subject to the limitations and assumptions set out in this report, based on our analysis and investigation and on the valuation methodology employed, we are of the opinion that the Fair Value of the Equity Interest as at the Valuation Date was RMB28,700,000 (RENMINBI TWENTY EIGHT MILLION AND SEVEN HUNDRED THOUSAND)

Yours faithfully, For and on behalf of Eidea Professional Services Company Limited

– V-6 –

GENERAL INFORMATION

APPENDIX VI

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL, CONVERTIBLE BONDS AND SHARE OPTIONS

(a) Share capital

The authorised and issued share capital of the Company as at the Latest Practicable Date and immediately upon the Completion (assuming there is no change to the issued share capital of the Company on or before the Completion) were as follows:

Authorised: 6,250,000,000 Shares of HK$0.0016 each	HK$ Approximately 10,000,000

Assuming (a) the Acquisition shall have proceeded to completion; and (b) there is no change to the issued share capital of the Company and none of the outstanding share options of the Company are being exercised and none of the outstanding convertible bonds of the Company are being converted between the date of the Sale and Purchase Agreement and the allotment and issue of the Consideration Shares:

Shares in issue and to be issued: 769,107,113 Shares in issue as at the Latest Practicable Date 122,767,857 Consideration Shares to be issued 891,874,970 Shares in issue and fully paid immediately upon the Completion	HK$ Approximately 1,230,571 196,429
	1,427,000

All the Shares in issue are listed on the Stock Exchange and rank pari passu in all respects with each other including rights to dividends, voting and return of capital. The Vendor will be entitled to receive all dividends and distributions which may be declared, made or paid on or after the date of issue of the Consideration Shares.

– VI-1 –

GENERAL INFORMATION

APPENDIX VI

(b) Convertible bonds

As at the Latest Practicable Date, the Company had outstanding convertible bonds in an aggregate principle amount of HK$20,000,000 which are convertible into 55,555,555 Shares (being adjusted upon the Share Consolidation having become effective) upon the exercise of conversion right attached to the convertible bonds.

(c) Share options

As at the Latest Practicable Date, the Company had 61,964,000 outstanding share options (having been adjusted upon the Share Consolidation having become effective) granted by the Company on 4 June 2019 under the share option scheme adopted by the Company on 20 June 2014.

Save as disclosed in the section headed ‘‘SHARE CAPITAL, CONVERTIBLE BONDS AND SHARE OPTIONS’’ in this appendix and as at the Latest Practicable Date, the Company had no other derivatives, outstanding convertible securities, options or warrants in issue which confer any right to subscribe for, convert or exchange into Shares.

3. DISCLOSURE OF INTERESTS

(i) Directors and chief executives

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the Shares, underlying Shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (b) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules, to be notified to the Company and the Stock Exchange, were as follows:

Long positions in the Shares and underlying Shares of the Company

			Percentage of the
	Capacity and Nature		Company’s issued
Name	of interest	Number of Shares	share capital
Mr. Wu Yong Fu	Beneficial owner	6,756,000	0.88%
		(Note)
Mr. Chong Yu	Beneficial owner	6,756,000	0.88%
Keung		(Note)

Note: These represented the interests in underlying shares in respect of share options granted by the Company on 4 June 2019 under the share option scheme adopted by the Company on 20 June 2014.

– VI-2 –

GENERAL INFORMATION

APPENDIX VI

Saved as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had, or was deemed to have, any interests or short positions in any shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (b) pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to Rule 5.46 to Rule 5.67 of the GEM Listing Rules, to be notified to the Company and the Stock Exchange.

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

(ii) Substantial Shareholders

As at the Latest Practicable Date, the following persons (other than a Director or chief executive of the Company) had interests or short positions in the shares and underlying shares of the Company as recorded in the register required to be kept under section 336 of the SFO:

Long positions in the Shares

			Percentage of the
	Capacity and Nature of		Company’s issued
Name	interest	Number of Shares	share capital
		(Note 4)
Martford Limited	Beneficial owner	367,565,250	47.79%
(Note 1)
The Vendor	Beneficial owner	122,768,970 (Note 5)	15.96%
CITIC Group Corporation	Interest of controlled	55,555,555 (Note 3)	7.22%
(Note 2)	corporation
CITIC Polaris Limited	Interest of controlled	55,555,555 (Note 3)	7.22%
(Note 2)	corporation
CITIC Glory Limited	Interest of controlled	55,555,555 (Note 3)	7.22%
(Note 2)	corporation
CITIC Limited (Note 2)	Interest of controlled	55,555,555 (Note 3)	7.22%
	corporation
CITIC Corporation Limited	Interest of controlled	55,555,555 (Note 3)	7.22%
(Note 2)	corporation
China CITIC Bank	Interest of controlled	55,555,555 (Note 3)	7.22%
Corporation Limited	corporation
(Note 2)
CITIC New Horizon	Interest of controlled	55,555,555 (Note 3)	7.22%
Limited (Note 2)	corporation

– VI-3 –

GENERAL INFORMATION

APPENDIX VI

			Percentage of the
	Capacity and Nature of		Company’s issued
Name	interest	Number of Shares	share capital
		(Note 4)
Extra Yield International	Interest of controlled	55,555,555 (Note 3)	7.22%
Limited (Note 2)	corporation
Metal Link Limited	Interest of controlled	55,555,555 (Note 3)	7.22%
(Note 2)	corporation
CITIC International	Interest of controlled	55,555,555 (Note 3)	7.22%
Financial Holdings	corporation
Limited (Note 2)
CITIC International Assets	Interest of controlled	55,555,555 (Note 3)	7.22%
Management Limited	corporation
(Note 2)
CITIC Merchant Co.,	Interest of controlled	55,555,555 (Note 3)	7.22%
Limited (Note 2)	corporation
Radiant Assets	Beneficial owner	55,555,555 (Note 3)	7.22%
Management Limited
(Note 2)

Notes:

1. The 367,565,250 Shares were held by Martford Limited which is wholly and beneficially owned by Mr. Wang Lianghai.

2. The entire issued share capital of Radiant Assets Management Limited is owned by CITIC Merchant Co., Limited, which is in turn owned as to 51% by CITIC International Assets Management Limited (‘‘CITIC Asset Management’’). CITIC Asset Management is owned as to 46% by CITIC International Financial Holdings Limited (‘‘CITIC Financial Holdings’’), which is in turn wholly owned by China CITIC Bank Corporation (‘‘China CITIC Bank’’). China CITIC Bank is owned as to 65.37%, 0.02% and 0.58% by CITIC Corporation Limited, Extra Yield International Limited (‘‘Extra Yield’’) and Metal Link Limited respectively. Extra Yield is owned as to 100% by CITIC New Horizon Limited, which is wholly owned by CITIC Corporation Limited (‘‘CITIC Corporation’’). CITIC Corporation is wholly owned by CITIC Limited which owns 100% of CITIC Corporation and 100% of Metal Link Limited. CITIC Limited is owned as to 25.60% and 32.53% by CITIC Glory Limited and CITIC Polaris Limited respectively. CITIC Glory Limited and CITIC Polaris Limited are wholly owned by CITIC Group Corporation.

3. These represented the interests in underlying shares in respect of convertible bonds issued by the Company on 15 March 2019.

4. As adjusted for the Share Consolidation.

5. Subsequent to the Share Consolidation and upon the Completion, the Vendor deemed interest became 122,768,970 Shares with nominal value of HK$0.0016 each which represented 15.96% of the issued Shares as at the Latest Practicable Date.

Save as disclosed above, as at the Latest Practicable Date, no other interests or short positions in the shares or underlying shares of the Company were recorded in the register required to be kept by the Company under section 336 of the SFO.

– VI-4 –

GENERAL INFORMATION

APPENDIX VI

4. DISCLOSURE OF OTHER INTERESTS OF THE DIRECTORS

(a) Competing interests

As at the Latest Practicable Date, none of the controlling Shareholders or Directors and their respective close associates (as defined in the GEM Listing Rules) was interested in any business apart from the business operated by the Group which competed or was likely to compete, directly or indirectly, with the business of the Group.

(b) Interests in assets

As at the Latest Practicable Date, none of the Directors had any interests, directly or indirectly, in any asset which had been acquired, disposed of by or leased to any member of the Group, or was proposed to be acquired, disposed of by or leased to any member of the Group, since 31 December 2018, being the date to which the latest published audited consolidated financial statements of the Company were made up.

(c) Interests in contracts or arrangements

As at the Latest Practicable Date, none of the Directors had a material interest, whether directly or indirectly in any transactions, arrangements and contracts of significance in relation to the Group’s business to which the Company’s subsidiaries was a party which was subsisting as at the Latest Practicable Date.

(d) Service contracts

As at the Latest Practicable Date, no Director has entered into a service contract which is not determinable by the Group within one year without payment of compensation, other than statutory compensation.

5. LITIGATION

As at the Latest Practicable Date, the Group was not engaged in any litigation or claims of material importance known to the Directors to be pending or threatened against the Group.

– VI-5 –

GENERAL INFORMATION

APPENDIX VI

6. EXPERT AND CONSENT

The qualification of the experts who have given opinions and advice in this circular are as follows:

Qualification

Name Qualification Asian Alliance (HK) CPA Limited Certified Public Accountants World Link CPA Limited Certified Public Accountants Eidea Professional Services Company Independent Valuer Limited

As at the Latest Practicable Date, each of the above experts had given, and had not withdrawn, its written consent to the issue of this circular with the inclusion herein of its letter, report and/or advice and the references to its name in the form and context in which they respectively appear.

As at the Latest Practicable Date, each of the above experts did not have any direct or indirect shareholding in any member of the Group, or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group, or any interests, directly or indirectly, in any asset which had been acquired, disposed of by or leased to any member of the Group, or was proposed to be acquired, disposed of by or leased to any member of the Group, since 31 December 2018, being the date to which the latest published audited consolidated financial statements of the Company were made up.

7. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business of the Group) had been entered into by members of the Group within the two years immediately preceding the date of this circular and are or may be material:

• (a) a placing agreement (the ‘‘Placing Agreement’’) dated 17 August 2017 (as amended and supplemented by the supplemental agreement dated 31 August 2017 to extend the deadline for fulfilment of the conditions of the Placing Agreement) entered into between the Company as issuer and Aristo Securities Limited as placing agent to place in aggregate up to 270,000,000 placing shares with placing price of HK$0.09 per placing share which has completed on 14 September 2017;

• (b) the sale and purchase agreement dated 24 May 2018 entered into by Futaihua Industry (Shenzhen) Company Limited (富泰華工業(深圳)有限公司) as vendor and Shidai Jiufang (Shenzhen) Healthcare Technology Holdings Limited (時代九方(深 圳)健康科技控股有限公司), an indirect wholly-owned subsidiary of the Company as purchaser, at a consideration of RMB1,600,000;

• (c) the sale and purchase agreement dated 4 September 2018 entered into between the Vendor and the Purchaser in relation to the Previous Acquisition;

– VI-6 –

GENERAL INFORMATION

APPENDIX VI

• (d) a subscription agreement dated 5 March 2019 entered into between the Company as issuer and Radiant Assets Management Limited as the subscriber to subscribe the convertible bonds issued by the Company in an aggregate principal amount of HK$20,000,000 at an initial conversion price of HK$0.045 per conversion share which has completed on 15 March 2019; and

• (e) the Sale and Purchase Agreement.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the registered office of the Company in Hong Kong at Unit 5, 4/F, Energy Plaza, No. 92 Granville Road, Tsim Sha Tsui East, Kowloon, Hong Kong during normal business hours on any Business Day from date of this circular up to and including the date of the EGM (and any adjournment thereof):

• (a) the memorandum and articles of association of the Company;

• (b) the annual reports of the Company for the two years ended 31 December 2017 and 2018 and the interim report of the Company for the six months ended 30 June 2019;

• (c) the accountants’ reports of the Target Group and Sky Dynasty Group, the text of which is set out in Appendix IIA and IIB to this circular;

• (d) the report on the unaudited pro forma financial information of the Group illustrating the effect of the Previous Acquisition and the Acquisition, the text of which is set out in Appendix IV to this circular;

• (e) the valuation report of Shenzhen Ampeg, the text of which is set out in Appendix V to this circular;

• (f) the written consents referred to in the section headed ‘‘Expert and Consent’’ in this Appendix;

• (g) the material contracts referred to in the section headed ‘‘Material Contracts’’ in this Appendix; and

• (h) this circular.

9. GENERAL INFORMATION

• (a) The registered office of the Company is located at Clifton House, 75 Fort Street, P.O. Box 1350, Grand Cayman, KY1-1108, Cayman Islands.

• (b) The principal place of business of the Company in Hong Kong is located at Unit 5, 4/F, Energy Plaza, No. 92 Granville Road, Tsim Sha Tsui East, Kowloon, Hong Kong.

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GENERAL INFORMATION

APPENDIX VI

• (c) the headquarters of the Company in the PRC is located at 4/F., Building C, 101 Kongwei Guangchang, No. 52, Gongye Nang Road, Xinhe Community, Fuhai Street, Baoan District, Shenzhen, Guangdong Province, PRC.

• (d) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Investor Services Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

• (e) The principal share registrar and transfer office of the Company in the Cayman Islands is Estera Trust (Cayman) Ltd.

• (f) The company secretary of the Company is Ms. Ngan Wai Kam, Sharon, who is a practising solicitor in Hong Kong.

• (g) The compliance officer of the Company is Zhou Chuang Qiang.

• (h) The audit committee of the Company (‘‘Audit Committee’’) comprises three independent non-executive Directors, namely, Mr. Huang Jian (committee chairman), Mr. Zheng Wan Zhang and Mr. Wong Tik Tung. The primary duties of the Audit Committee are to review and supervise the financial reporting process and internal control systems of the Group. The biography of the members of Audit Committee are set out below:

• (i) Mr. Huang Jian (‘‘Mr. Huang’’), aged 45, has been an independent nonexecutive Director since 17 July 2017. He is the chairman of the audit committee, a member of the nomination committee and compliance committee of the Company. Mr. Huang obtained a Bachelor’s degree in Audit from Sun Yat-sen University (中山大學) in 1996. He received a Master’s degree in International Accounting from the City University of Hong Kong in 2005. He is also a Certified Public Accountant in China. He is a partner of Beijing Yongtuo Certified Public Accountants LLP (北京永拓會計師事務所). He has business consulting and accounting audit experience. Currently, he is an executive director of Momentum Financial Holdings Limited (stock code: 1152HK), an independent director of Guangdong Kingman Group Co. Limited (廣東金曼集 團股份有限公司) (stock code: 400012CH) and an investment director of J.Q. Pictures Holdings Limited. From 2003 to 2006 he has worked in Topsearch Printed Circuits (Shenzhen) Limited (至卓飛高線路板(深圳)有限公司) which was a subsidiary of China HKBridge Holdings Ltd (formerly ‘‘Topsearch International (Holdings) Limited’’ (stock code: 2323HK) as financial manager. From 2007 to 2015 he worked at a number of subsidiaries of Auto Italia Holdings Limited (formerly ‘‘Wo Kee Hong (Holdings) Limited’’) (stock code: 0720HK), as assistant financial controller and director. Mr. Huang has also been appointed as the chairman of the Audit Committee and a member of each of the Nomination Committee and the Compliance Committee with effect from 17 July 2017.

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GENERAL INFORMATION

APPENDIX VI

  - (ii) Mr. Zheng Wan Zhang (‘‘Mr. Zheng’’), aged 48, has been an independent nonexecutive Director since 17 July 2017. He has also been a member of the audit committee and remuneration committee of the Company since 31 July 2018. Mr. Zheng graduated from Jinan University, is qualified as building construction management engineer. He has strong leadership and management experience in the construction, real estate investment, asset management fields. From 2003 to 2006, he was appointed as the vice president of Guangzhou Yidun Investment Co., Ltd. (廣州億敦投資有限公司), being responsible for the company’s real estate development and management, investment and financing business; In 2006, he set up Guangzhou Tianzhi Market Operation Management Company Limited* (廣州天智市場經營管理有限公司) and has acted as deputy general manager of the company which is engaged in real estate development, asset management and other aspects.

  - (iii) Mr. Wong Tik Tung (‘‘Mr. Wong’’), aged 62, has been an independent nonexecutive Director since 17 July 2017. He is the chairman of the remuneration committee and compliance committee of the Company. He is also a member of the nomination committee and audit committee of the Company. Mr. Wong, FCCA, CPA (Practising), ATIHK, has over thirty years’ experience in the fields of accounting, auditing and financial management. Being a practising accountant in Hong Kong, he is also a fellow member of the Association of Chartered Certified Accountants (ACCA) and an associate member of the Hong Kong Institute of Certified Public Accountants. Over the past years, Mr. Wong had taken directorships in the capacity of (i) an executive director of Auto Italia Holdings Limited (the shares of which are listed on the Stock Exchange (stock code: 720)), (ii) an independent non-executive director of Chi Cheung Investment Company Limited (the shares of which are listed on the Stock Exchange (stock code: 112)) and (iii) a non-executive director of Glory Flame Holdings Limited (the shares of which are listed on the Stock Exchange (stock code: 8059)). Mr. Wong has also been appointed as the chairman of each of the Remuneration Committee and the Compliance Committee and a member of each of the Audit Committee and the Nomination Committee with effect from 17 July 2017.

• (h) The English text of this circular shall prevail over the Chinese text in case of any inconsistency.

• For illustration purpose only

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NOTICE OF EGM

Millennium Pacific Group Holdings Limited 匯 思 太 平 洋 集 團 控 股 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8147)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the ‘‘EGM’’) of Millennium Pacific Group Holdings Limited (the ‘‘Company’’) will be held at 7th Floor, Nexxus Building, 77 Des Voeux Road Central, Hong Kong on Monday, 14 October 2019 at 11:30 a.m. for the purposes of considering and, if thought fit, passing, with or without modifications, the following resolution as ordinary resolution:

ORDINARY RESOLUTION

‘‘THAT

• (a) the Sale and Purchase Agreement (as defined in the circular (the ‘‘Circular’’) dated 25 September 2019 despatched to the shareholders of the Company) and the Supplemental Agreement (as defined in the Circular), a copy of which has been produced to the EGM marked ‘‘A’’ and initialed by the chairman of this meeting for the purpose of identification, and the transaction contemplated thereunder be and are hereby approved, confirmed and ratified;

• (b) conditional upon the fulfillment of the conditions precedent in the Sale and Purchase Agreement including but not limited to the Stock Exchange granting the listing of and permission to deal in the Consideration Shares (as defined in the Circular), the Directors be and are hereby granted the Specific Mandate (as defined in the Circular) to the allotment and issue of the Consideration Shares to the Vendor (as defined in the Circular) or its nominee pursuant to the Sale and Purchase Agreement, provided that the Specific Mandate shall be in addition to and shall not prejudice nor revoke such other general or specific mandate(s) which may from time to time be granted to the Directors prior to or after the passing of this resolution; and

• (c) the directors of the Company be and are hereby generally authorised to do all such acts, deeds and things and execute all such documents, including under the seal of the Company, where applicable, as they may consider necessary or expedient to complete, implement and give effect to the foregoing arrangements in connection with the Sale and Purchase Agreement, the Supplemental Agreement and the transaction contemplated thereunder.’’

By order of the Board

Millennium Pacific Group Holdings Limited Zhou Chuang Qiang

Executive Director

Hong Kong, 25 September 2019

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NOTICE OF EGM

Notes:

1. A member entitled to attend and vote at the EGM is entitled to appoint another person as his proxy to attend and vote instead of him. A shareholder of the Company who is the holder of 2 or more shares of the Company may appoint more than one proxy to represent him and vote on his behalf at the EGM. A proxy need not be a member of the Company.

2. Whether or not you intend to attend the EGM in person, you are encouraged to complete and return the enclosed form of proxy in accordance with the instructions printed thereon. Completion and return of a form of proxy will not preclude a member from attending and voting in person at the EGM and, in such event, the instrument appointing a proxy shall be deemed to be revoked.

3. In order to be valid, the form of proxy, together with a power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of such power or authority must be deposited at the Company’s Hong Kong branch share registrar, Tricor Investor Services Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof.

4. In the case of joint holders of shares of the Company, any one of such joint holders may vote at the EGM, either in person or by proxy, in respect of such share as if he/she/it was solely entitled thereto, but if more than one of such joint holders are present at the EGM personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such shares shall alone be entitled to vote in respect thereof.

5. The register of members of the Company will be closed from Wednesday, 9 October 2019 to Monday, 14 October 2019 (both days inclusive) during which period no transfer of shares of the Company will be registered. In order to be entitled to attend and vote at the EGM, all transfers accompanied by the relevant share certificates must be lodged for registration with Tricor Investor Services Limited at the above address not later than 4:30 p.m. on Tuesday, 8 October 2019.

6. The resolution set out in this notice shall be decided by way of poll.

As at the date of this notice, the executive Directors are Mr. Wang Li, Mr. Wu Yong Fu and Mr. Zhou Chuang Qiang; the non-executive Director is Mr. Chong Yu Keung; and the independent non-executive Directors are Mr. Huang Jian, Mr. Zheng Wan Zhang and Mr. Wong Tik Tung.

This notice will remain on the ‘‘Latest Listed Company Information’’ page of the GEM website (www.hkgem.com) for at least seven days from the date of its posting and on the Company’s website (www.mpgroup.hk).

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