IMPORTANT
If you are in any doubt about this prospectus, you should consult your stockbroker, bank manager, solicitor, accountant or other professional adviser.
INNOVIS HOLDINGS LIMITED 華智控股有限公司 (Incorporated in the Cayman Islands with limited liability) LISTING ON THE GROWTH ENTERPRISE MARKET OF THE STOCK EXCHANGE OF HONG KONG LIMITED BY WAY OF PLACING
Number of Placing Shares : 127,000,000 Shares, comprising 66,000,000 New Shares and 61,000,000 Sale Shares Placing Price : HK$0.25 per Placing Share Nominal value : HK$0.01 per Share GEM stock code : 8065
Sponsor
MasterLink Securities (Hong Kong) Corporation Limited
Joint-Lead Managers
MasterLink Securities (Hong Kong) Uni-Alpha Securities Limited Corporation Limited
Co-Lead Manager CAF Securities Company Limited Celestial Securities Limited Kaiser Securities Limited Yue Xiu Securities Company Limited
Co-Manager Core Pacific-Yamaichi International (H.K.) Limited Crosby Limited JS Cresvale Securities International Limited China Everbright Securities (HK) Limited Concord Capital Brokerage Limited Taiwan Securities (HK) Company Limited
The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this prospectus, 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 prospectus. A copy of this prospectus, together with the documents specified in the paragraph headed “Documents delivered to the Registrar of Companies” in Appendix VI to this prospectus, have been registered by the Registrar of Companies in Hong Kong as required by Section 342C of the Companies Ordinance of Hong Kong. The Securities and Futures Commission and the Registrar of Companies in Hong Kong take no responsibility as to the contents of this prospectus or any other documents referred to above. Prospective investors of the Placing Shares should note that either Joint-Lead Manager (on behalf of the Underwriters) may terminate the Underwriting Agreement by notice in writing to the Company upon the occurrence of any of the events set forth under the paragraph headed “Grounds for termination” in the section headed “Underwriting” in this prospectus at any time prior to 5:00 p.m. (Hong Kong time) on the day immediately preceding the Listing Date. Such events include, without limitation, acts of government, strikes, lock-outs, fire, explosion, flooding, civil commotion, escalation of hostility, acts of war, acts of God, accident or interruption or delay in transportation.
17th June, 2003 CHARACTERISTICS OF GEM
GEM has been established as a market designed to accommodate companies to which a high investment risk may be attached. In particular, companies may list on GEM with neither a track record of profitability nor any obligation to forecast future profitability. Furthermore, there may be risks arising out of the emerging nature of companies listed on GEM and the business sectors or countries in which the companies operate. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.
Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board of the Stock Exchange and no assurance is given that there will be a liquid market in the securities traded on GEM.
The principal means of information dissemination on GEM is publication on the Internet website operated by the Stock Exchange. Listed companies are not generally required to issue paid announcements in gazetted newspapers. Accordingly, prospective investors should note that they need to have access to the GEM Website at http://www.hkgem.com in order to obtain up-to-date information on GEM-listed issuers.
– i – EXPECTED TIMETABLE
2003
Allocation of Placing Shares to placees on ...... Friday, 20th June
Announcement of the indication of the level of interests in the Placing to be published on the GEM Website at http://www.hkgem.com on or before ...... 9:00 a.m. on Monday, 23rd June
Deposit of share certificates into CCASS on or before (Note 2) ...... Monday, 23rd June
Dealings in Shares on GEM to commence on ...... Wednesday, 25th June
Notes:
1. All times refer to Hong Kong local time.
2. Share certificates for the Placing Shares to be distributed through CCASS are expected to be issued in the name of HKSCC Nominees Limited and will be deposited directly into CCASS on or before Monday, 23rd June, 2003 for credit to the relevant CCASS participants’ stock accounts or investor participants’ stock accounts designated by the Underwriters, the placces or their agents (as the case may be). These share certificates will only become valid certificates of title at 5:00 p.m. (Hong Kong time) on 24th June, 2003, provided that (i) the Placing has become unconditional; and (ii) the right of termination of the Underwriting Agreement as described in the section headed “Underwriting” in this prospectus has not been exercised. No temporary documents of title will be issued.
3. Details of the structure of the Placing, including the conditions thereof, are set out in the section headed “Structure and conditions of the Placing” in this prospectus.
4. In the event of any change to the above expected timetable, an announcement will be made by the Company accordingly.
– ii – CONTENTS
You should rely only on the information contained in this prospectus to make your investment decision.
The Company has not authorised anyone to provide you with information that is different from what is contained in this prospectus.
Any information or representation not made in this prospectus must not be relied on by you as having been authorised by the Company, the Sponsor, the Underwriters, the directors or affiliates of any of them, or any other parties involved in the Placing.
Page
CHARACTERISTICS OF GEM ...... i
EXPECTED TIMETABLE ...... ii
SUMMARY OF THIS PROSPECTUS ...... 1
DEFINITIONS ...... 25
GLOSSARY ...... 32
RISK FACTORS ...... 34
INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING ...... 42
DIRECTORS AND PARTIES INVOLVED IN THE PLACING ...... 46
CORPORATE INFORMATION ...... 50
INDUSTRY OVERVIEW ...... 51
GENERAL OVERVIEW OF THE GROUP AND ITS BUSINESS History and development ...... 57 Shareholding and group structure ...... 61 Business of the Group ...... 61 Competitive strengths ...... 64 Services provided ...... 67 Licensing requirements ...... 70 Notable completed projects ...... 71 Notable projects in progress ...... 73 Operational process ...... 76 Revenue model ...... 77 Sales and marketing ...... 78 Competition ...... 78 Research and development ...... 78 Customers ...... 80 Credit policy ...... 81 Suppliers and subcontractors ...... 82 Strategic alliances ...... 84 Intellectual property rights ...... 87 Competing businesses of the Directors, Initial Management Shareholders and Substantial Shareholders ...... 87
– iii – CONTENTS
Page
ACTIVE BUSINESS PURSUITS Period I: For the year ended 31st December, 2000 ...... 89 Period II: For the year ended 31st December, 2001 ...... 90 Period III: For the year ended 31st December, 2002 ...... 91 Period IV: From 1st January, 2003 to the Latest Practicable Date ...... 94
STATEMENT OF BUSINESS OBJECTIVES ...... 95
DIRECTORS, SENIOR MANAGEMENT AND STAFF ...... 108
SUBSTANTIAL SHAREHOLDERS, INITIAL MANAGEMENT SHAREHOLDERS AND SIGNIFICANT SHAREHOLDER ...... 113
CONNECTED TRANSACTION ...... 116
SHARE CAPITAL ...... 117
FINANCIAL INFORMATION ...... 119
UNDERWRITING ...... 129
STRUCTURE AND CONDITIONS OF THE PLACING ...... 133
APPENDIX I – ACCOUNTANTS’ REPORT ...... 135
APPENDIX II – ADDITIONAL FINANCIAL INFORMATION ON THE GROUP ...... 163
APPENDIX III – PROPERTY VALUATION ...... 165
APPENDIX IV – SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW ...... 169
APPENDIX V – STATUTORY AND GENERAL INFORMATION ...... 191
APPENDIX VI – DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES AND DOCUMENTS AVAILABLE FOR INSPECTION ...... 220
– iv – SUMMARY OF THIS PROSPECTUS
This summary aims to give you an overview of the information contained in this prospectus. As it is a summary, it does not contain all the information that may be important to you. You should read the whole document before you decide to invest in the Placing Shares.
Any investment is associated with risk. There is a greater risk associated with investment in companies listed on GEM. All of the particular risks in investing in the Placing Shares are set out in the section headed “Risk factors” of this prospectus. You should read that section carefully before you decide to invest in the Placing Shares.
BUSINESS
Overview
The Group is an Intelligent Building System (IBS) solutions provider offering a wide range of services in relation to:–
i. IBS design, supply and installation – in providing such services the Group is responsible for preparation of total solution proposals, overall management and supervision of IBS projects and sourcing and supply of equipment, software and accessories used in such projects;
ii. IBS maintenance – upon completion of system installation, the Group will usually offer maintenance services to its customers for the IBS installed by the Group. These maintenance services are usually on an annual basis; and
iii. IBS consultancy – the Group is mainly responsible for providing recommendations and consultation regarding the customers’ IBS projects based on their specific requirements.
The turnover and gross profit of the Group categorised by its major lines of business are set out as follow:–
Year ended 31st December, 2000 2001 2002 HK$’000 % HK$’000 % HK$’000 % Turnover:
IBS design, supply and installation 18,393 94.8 19,576 98.3 32,461 89.5 IBS maintenance 1,003 5.2 344 1.7 449 1.3 IBS consultancy –– ––3,350 9.2
19,396 100.0 19,920 100.0 36,260 100.0 Gross profit:
IBS design, supply and installation and IBS maintenance 3,894 100.0 5,446 100.0 11,658 78.7 IBS consultancy –– ––3,163 21.3
3,894 100.0 5,446 100.0 14,821 100.0
– 1 – SUMMARY OF THIS PROSPECTUS
The Group’s services are characterised by its capabilities in advising, designing, supplying, integrating, installing and managing a whole array of extra low voltage (ELV) electronic devices to achieve the building of an efficient and automated building. The Group provides advisory services including providing advice on technical solutions in relation to system requirements, preliminary planning and design, implementation and testing of intelligent building projects. These advisory services are related to the design, supply and installation of IBS, and are particularly applicable to the PRC market where the Group currently does not possess the relevant licenses and permits to carry out the business of supply, installation and maintenance of IBS.
In providing IBS design, supply and installation services, the Group may subcontract an entire IBS project to a subcontractor. The Group started to subcontract IBS projects from 2001 and since such IBS projects were usually small-scale, the Group found it more cost effective to subcontract out these projects. For each of the two years ended 31st December, 2002, the Group obtained a total of 202 and 234 IBS projects out of which 22 and 21 IBS projects were subcontracted out respectively. The subcontracting fee paid in this respect amounted to approximately HK$0.9 million and HK$2.9 million, representing approximately 6.2% and 13.5% of the Group’s total costs of sales for each of the two years ended 31st December, 2002 respectively. The contract sums of the 22 and 21 subcontracted IBS projects represented approximately 7.8% and 12.6% respectively of the total contract sums of the IBS projects obtained for each of the two years ended 31st December, 2002.
While the Group has a project execution team of 30 staff as at the Latest Practicable Date, the Group engages a number of subcontractors, all of which are Independent Third Parties, to provide labour solely for system installation. In such cases, the Group is still responsible for managing and executing IBS projects and supervising the subcontracted labour. During the Track Record Period, the subcontracting fee paid relating to the provision of labour amounted to approximately HK$4.2 million, HK$5.1 million and HK$5.3 million, representing approximately 27.1%, 35.2% and 24.7% of the Group’s total costs of sales respectively.
For IBS maintenance and consultancy services, the Group does not engage any subcontractor to perform services for the Group.
IBS provided by the Group
IBS is a computer-based centralised automated system that integrates, controls and monitors different types of sub-systems such as electricity and power supply systems, security systems, ventilation and air conditioning systems, lighting systems, property management systems, communication systems and structural cabling systems with the ultimate purpose of achieving efficient use of resources, comfort and security of occupants and to reduce the maintenance costs of a building.
The different sub-systems that comprise an IBS usually involve the design and application of ELV electronic devices. ELV stands for “Extra Low Voltage” and it refers to any electrical or electronic equipment with a voltage of less than 50 volts. Traditionally, all the ELV electronic devices are installed and function separately as an individual unit or system. Each unit or system will only perform its respective designed purpose. However, with the application of IBS, such ELV electronic devices are linked together under the control of a centralised system to achieve an efficient and automated building.
– 2 – SUMMARY OF THIS PROSPECTUS
The Group’s IBS includes three main categories, namely, building management system, communication automation system and office automation system. The following are descriptions of the systems provided by the Group in its IBS design, supply and installation services:–
Category System Characteristics
Building management Image car park control A ticketing system used to system system monitor and control the car park entrance to a building. It can use either a remote control device or an advanced contact-free keycard on entry and exit.
Estate control system It is specifically designed for multi-unit estate properties and provides central control for other systems such as security and surveillance, fire alarm, electrical/mechanical equipment, power/gas/water and lift control.
Public address system A professional sound and audio system installed in venues such as theatres, concert arenas, discos, large-scale factories, shopping malls, public grounds and sporting facilities.
Professional video system Closed-circuit television systems for security and surveillance purposes.
CABD/SMATV system Reception for television entertainment programs for multi-unit estates, hotels, schools, hospitals and other multi-occupant facilities.
Emergency call alarm A security alarm system system providing personal panic alarms with coded sounds, audio/video entry intercoms, passive infrared and motion detectors, door/ window switches and break glass switches.
Security central and Large-scale and sophisticated remote management security and surveillance system systems with remote function that allows external security companies or police to monitor and mobilise for quick response. – 3 – SUMMARY OF THIS PROSPECTUS
Category System Characteristics
Access control system A microprocessor-based system that communicates through a card reader and also sends and receives coded signals via network ports to customised programs.
Smart home system A remote control system that is designed for air-conditioning, lights, security alarm, surveillance, door access and other household electrical appliances.
TV broadcasting system A digital broadcasting system for cable TV service providers.
Watchman tour system An electronic security system to facilitate the duties of watchman.
Building communication Nurse call system An inter-communication system system designed for hospitals.
Voice network A telecommunication system that processes incoming or outgoing calls through a programmable and computer interfaced PABX system.
Walkie-talkie system Portable 2-way communication system that is capable of covering a long range of approximately 3.2 kilometers.
Office automation Data network Including design, supply, system installation and maintenance of data network that supports LAN or WAN for database/intranet management.
Fibre optic system A cabling system that utilises fibre-optic cables for faster data and multi-media transmission purposes.
– 4 – SUMMARY OF THIS PROSPECTUS
Depending on the requirements of its customers, the Group provides a mixture of the above systems that create a more efficient and comfortable working or living environment. The Group’s IBS were applied in commercial buildings, residential buildings, hospitals, schools, hotels and shopping complexes.
Business development in Hong Kong
The Group was founded in February 1990 and was originally engaged in the supply and installation of various types of traditional ELV electronic systems for commercial and residential buildings in Hong Kong. Along with the rapid growth in Hong Kong’s construction industry during the mid-1990s, the Group expanded its services and products to provide a full range of ELV electronic systems such as CCTV systems, the public announcement systems, intercommunication systems, security alarm systems and CABD systems. In 1996, the Group was awarded the “Security Company License” by the Hong Kong Government and became one of its listed contractors of “Audio and Video Facilities”. In 1997, the Group was admitted to the Hong Kong Government’s list of approved contractors of “Television Reception and Broadcasting” and was also granted the quality accreditation of ISO9002 by the “Hong Kong Quality Assurance Agency”. With the emergence of the concept of IBS, the Group began to design and apply traditional ELV electronics systems, offering them to its clients as Intelligent Building Systems. Since 1998, the Group has been involved in providing IBS solutions to a number of high profile projects including “80 Robinson Road”, “Island Resort, Hong Kong” and “Cyberport phases 1 & 1C”. For each of the three years ended 31st December, 2002, the Group has obtained 260, 202 and 234 IBS contracts. Since some of these engagements were small scale and can be completed in one day, the Group’s project execution team is capable of completing such number of projects.
As at the Latest Practicable Date, the Group has further obtained 81 IBS contracts. On a pro rata basis, there was a decrease in the number of contracts obtained by approximately 16.9% compared with 2002. The Directors consider that the outbreak of atypical pneumonia in Hong Kong during the period from March to May 2003 has led to a delay in the award of certain contracts by the Group’s customers and therefore resulted in a decrease in the number of IBS contracts obtained by the Group. In addition, as the Group’s projects are generally obtained through a tendering process, it is anticipated that the Group may experience significant fluctuation in the number of contracts obtained.
Business development in the PRC
The Directors believe that the developing property market and increasing demand for intelligent buildings in the PRC, coupled with the PRC government’s policies in promoting the automation of buildings, provide the Group with an excellent opportunity to venture out into a potentially lucrative new market segment. Further details on the PRC government policies on intelligent buildings are set out in the section headed “Industry overview” in this prospectus.
Under the current PRC regulations, the Group cannot provide IBS design, supply and installation and IBS maintenance services in the PRC as the Group does not possess the relevant licenses and permits to perform electronic engineering installation works which cover the IBS. However, the Group began its incursion into the PRC intelligent building market by entering into the Master Consultancy Agreement with Shum Yip, an Independent Third Party, in January 2002 pursuant to which Wah Lam, a wholly-owned subsidiary of the Company, will be the exclusive provider of technological supporting advisory services for all IBS business developed by Shum Yip in the PRC. The services provided by the Group under the Master Consultancy Agreement include
– 5 – SUMMARY OF THIS PROSPECTUS advising on technical solutions in relation to system requirements, preliminary planning and design, implementation and testing of intelligent building projects. The Master Consultancy Agreement has an initial term of three years and the consideration for the services provided by Wah Lam will be determined on a case-by-case basis with reference to the duration and complexity of individual project. Further details on the agreement between the Group and Shum Yip are set out in the paragraph headed “Strategic alliances” in the section headed “General overview of the Group and its business” in this prospectus.
Based on the legal opinion issued by the PRC legal adviser of the Company, given that both Shum Yip and Wah Lam are Hong Kong companies and the location at which the IBS consultancy services provided by Wah Lam to Shum Yip is in Hong Kong and Wah Lam does not directly provide such services to the clients of Shum Yip in the PRC, the current cooperation with Shum Yip is not subject to any PRC regulations.
Pursuant to the Master Consultancy Agreement, the Group has provided IBS consultancy services to Shum Yip for two PRC property development projects currently being developed by prominent Hong Kong property developers. The projects involved are 深圳市福田區住宅發展第 二期及第三期 (Shenzhen Futian Residential Development Project Phase II and III) and 上海華爾 登廣場第二期及第三期 (Shanghai Walton Plaza Construction Project Phase II and III) and the consultancy periods were from May 2002 to April 2003 and from August 2002 to July 2003 respectively. Income derived from the provision of consultancy services to Shum Yip was recognised in the financial year ended 31st December, 2002 and amounted to approximately HK$3.4 million, representing approximately 9.2% of the Group’s total turnover for the relevant year. The gross profit derived from the above stated projects amounted to approximately HK$3.2 million and the gross profit margin was approximately 94.4%. The Directors consider that the relatively high gross profit margin for the Group’s IBS consultancy services was mainly due to the premium charged for the provision of consultancy services in relation to the two PRC property development projects to Shum Yip and the fact that the cost of providing such services were basically staff salaries amounting to approximately HK$0.2 million. These staff salaries were related to the allocated costs of the Group’s project execution team assigned to the provision of the IBS consultancy services. Since the Group’s project execution team was paid in monthly fixed salaries and the staff in the team also participated in other projects, the allocated costs in respect of the IBS consultancy services was able to be controlled at a substantially low level and therefore resulting in a higher gross profit margin.
As at the Latest Practicable Date, approximately HK$0.6 million of the consultancy fee due from Shum Yip was not yet settled. Given that Shum Yip is a strategic partner of the Group, a credit term of six months has been offered to Shum Yip and such amount would be settled in full by the end of June 2003.
In the foreseeable future, the Group plans to establish joint ventures in the PRC to provide all scopes of IBS services. The Directors estimate that the majority of the Group’s business in the PRC will derive from IBS design, supply and installation services but given the fact that there are certain consultants in the PRC providing IBS related advisory and management services, the Directors and the Sponsor are of the view that the Group will be able to participate in this market segment through its effort in promoting the IBS consultancy services. However, given that the Group’s IBS consultancy services only commenced in 2002 and the turnover in relation to which had been solely contributed by Shum Yip for the two PRC property development projects, there is a possibility that the Group would not be able to obtain further contracts in relation to IBS consultancy services in the future. In addition, the Directors and the Sponsor are of the view that
– 6 – SUMMARY OF THIS PROSPECTUS there is no guarantee that the high gross profit margin of the Group’s IBS consultancy services will be sustainable, in view of the limited track record on which an evaluation of the Group’s IBS consultancy business could be based.
Further information on the Group’s expansion plans into the PRC is set out in the section headed “Statement of business objectives” in this prospectus.
Research and development
The Directors consider that the Group’s capability in developing IBS solutions to meet the specific needs of its clients in a cost effective manner is critical to the success of the Group. To achieve this, the Group has engaged InnoTech, an Independent Third Party, to provide research and development services to the Group. The cooperation with InnoTech started in January 2000 when the Group engaged InnoTech to develop an intelligent building management system called “Emergency Call Alarm System”. For the two years ended 31st December, 2002, the fee paid to InnoTech in respect of research and development services accounted for approximately 35.7% and 34.2% respectively of the Group’s total research and development costs. In order to enhance the Group’s capability in developing its IBS solutions to meet specific clients needs in the future and to formalise the business relationship with InnoTech, Wah Lam, a wholly-owned subsidiary of the Company, entered into a master subcontracting agreement with InnoTech on 4th July, 2002 for an initial term of three years commencing from 1st May, 2002 to 30th April, 2005 and is extendible for a period of two years subject to mutual agreement by both parties. Pursuant to the agreement, InnoTech will provide, on an exclusive basis, research and development and project management services on ELV electronic engineering work to Wah Lam in relation to the development of new products and services which may be required by Wah Lam from time to time to satisfy the needs of the Group’s existing and potential clients. Such services and the consideration therefor shall be detailed on a project by project basis depending on the clients’ specific requirements. During the term of the agreement with InnoTech, the Group will be its only client and all rights, titles and interests in the research and development work performed by InnoTech for the Group will be vested in the Group.
In order to further enhance the research and development capability of the Group, Innovis China, a wholly-owned subsidiary of the Company, entered into a letter of intent with 華南理工大 學 (South China University of Technology), which is an Independent Third Party, on 19th December, 2002. Pursuant to the letter of intent, 華南理工大學(South China University of Technology) will undertake the research and development work for the Group in various IBS solutions and products according to the specifications set by the Group. 華南理工大學(South China University of Technology) will also offer to the Group consultancy and training services in relation to these solutions and products developed by the university. The cost of research and development work payable by the Group to 華南理工大學(South China University of Technology) will be determined in future negotiations between both parties with reference to the complexity and the estimated time involved in the development of particular IBS solution and project.
– 7 – SUMMARY OF THIS PROSPECTUS
Licensing requirements
The provision of IBS solutions involves supply and installation of various ELV electronic equipment. Currently, installation of certain ELV electronic equipment or other type of electronic equipment in Hong Kong requires licenses from relevant government authorities which include: –
• Satellite Master Antenna Television License issued by the Office of Telecommunication Authority (OFTA) under the Telecommunication Ordinance
– For the installation of satellite entertainment system
• Security Company License issued by the Security and Guarding Services Industry Authority under the Security and Guarding Services Ordinance
– For the installation of security alarm system and security central and remote management system
• Registered Electrical Contractor issued by the Electrical and Mechanical Services Department under the Electricity (Registration) Regulations
– For the installation of electronic equipment with a voltage of more than 50 volts
The license of registered electrical contractor is applicable to the installation of electronic equipment with a voltage of more than 50 volts. The Group’s ELV electronic equipment, however, utilise voltage of less than 50 volts and therefore the Group does not require this license in its business and operations.
For the walkie-talkie systems, license is required for the assignment of frequency and is attached to each handset. Such license is granted by the Office of Telecommunication Authority to the manufacturers or distributors of the walkie-talkie systems who will then provide the license to the ultimate users.
The Group is qualified to provide IBS design, supply and installation, IBS maintenance and IBS consultancy services in Hong Kong. The Group has been granted all relevant licenses as required by the government for all of its operations in Hong Kong and such licenses have never been revoked nor declared invalid. The Directors confirm that up to the Latest Practicable Date, the Group has never been involved in any lawsuit for violation of regulations in respect of its operations in Hong Kong.
In respect of the provision of IBS services in the PRC, relevant licenses and permits must be obtained from the related PRC government authority. The Group has not obtained such licenses and permits to carry out IBS installation work directly in the PRC. However, as an initial step for the Group to penetrate the PRC intelligent building market, the Group entered into the Master Consultancy Agreement with Shum Yip to provide IBS consultancy services.
– 8 – SUMMARY OF THIS PROSPECTUS
COMPETITIVE STRENGTHS
The Directors believe the following are the Group’s competitive strengths:–
Strong background of the management team
Mr. Derek Tsang and certain members of the Group’s management team including Mr. Siu Ngai Chuen, Mr. Ng Kong, Mr. Chang Chun Wa and Mr. Cheung Wah Cheuk, have extensive experience and expertise in the intelligent building sector. As a member of AIIB, Mr. Derek Tsang is dedicated to the continuous development of intelligent building standards in Hong Kong and has actively promoted the intelligent building concepts to major property developers in both Hong Kong and the PRC. Further, the Group’s management has accumulated in-depth knowledge in various IBS through their participation in about 696 engagements in Hong Kong during the Track Record Period. The Directors believe that the knowledge and experience of the Group’s management will enable the Group to take a proactive approach to its business development. Details of their experience are set out in the section headed “Directors, senior management and staff” of this prospectus.
Well-experienced project execution team
As at the Latest Practicable Date, the project execution team of the Group consists of 30 staff. The project manager, Mr. Cheung Wah Cheuk, has over six years of experience in the intelligent building sector. The Group’s project execution team has obtained about 696 IBS contracts in Hong Kong during the Track Record Period. Since some of these engagements were small scale and could be completed in one day, the Group’s project execution team is capable of completing such number of projects. With the team’s experience and expertise in project management and execution, the Group is able to implement intelligent building projects effectively and efficiently. Through in-house training and cooperation with strategic partners, the Group’s project execution team are kept abreast of the latest market trends and technological innovations. In addition, the team members are also encouraged to attend relevant technical seminars in relation to IBS.
Established reputation and market recognition
In line with industry practice, the Group’s IBS design, supply and installation work are usually subcontracted from the electrical subcontractors who are engaged by the main contractors. However, some of these electrical subcontractors are wholly-owned subsidiaries of construction companies and property developers and therefore, having served the building construction industry in Hong Kong for more than 10 years, Mr. Derek Tsang and the senior management of the Group have built up good business relationships with established property developers in Hong Kong such as Nan Fung Development Limited for which the Group has been involved in six property development projects since 1995. For each of the three years ended 31st December, 2002, the Group has obtained 260, 202 and 234 IBS contracts which include certain notable projects such as the “City Gate” shopping arcade and building, Bank of China building, “80 Robinson Road” and “Leighton Hill”. Such track record in the intelligent building sector and related fields reflects the Group’s good relationships with large construction companies and property developers and its strong market recognition which contribute to the success of the Group in bidding for intelligent building projects. The Directors believe that the Group’s recognition in Hong Kong will also facilitate the Group’s penetration into the PRC market.
– 9 – SUMMARY OF THIS PROSPECTUS
Well established relationship with suppliers
The Group’s IBS solutions involve the use of off-the-shelf hardware such as monitors and personal computers, licensed operation systems and the Group’s customised programmes which are integrated into a centralised system to inter-connect and control different types of ELV electronic devices. Over the years, the Group has maintained good business relationships with its suppliers. The Group’s top five suppliers, which in aggregate accounted for approximately 39.2%, 36.1% and 34.5% respectively of the Group’s cost of sales and services rendered during the Track Record Period, have established business relationships with the Group of an average of three years. As at 31st December, 2002, the Group sourced materials from over 10 local and overseas suppliers. The Directors are of the view that the Group’s close and stable business relationships with its major suppliers not only allow the Group to source equipments and accessories at competitive prices with favorable terms, but also facilitate the Group in gaining first-hand information on market trends and the latest product developments.
Strategic alliance for research and development
As at the Latest Practicable Date, the Group’s research and development team comprised of four engineers and technicians, all of them are professionally qualified engineers or university graduates in engineering-related disciplines. To further enhance its research and development capability, the Group entered into a master subcontracting agreement on 4th July, 2002 with InnoTech, an Independent Third Party, which specialises in research and development of ELV electronic engineering and IBS. The master subcontracting agreement has an initial term of three years commencing on 1st May, 2002. Further details on the contract are set out in the sub- paragraph headed “InnoTech” in the paragraph headed “Strategic alliances” under the section headed “General overview of the Group and its business” in this prospectus. The strategic alliance with InnoTech has proven to be successful as the various systems and solutions developed by InnoTech for the Group were applied to a number of intelligent building projects undertaken by the Group. This strategic alliance enhances the Group’s research and development capabilities and enables the Group to develop new and innovative building automation and management systems in a cost-effective way.
Value-added services to provide total intelligent building solutions
Apart from the design, supply and installation of IBS according to customers’ pre-designed specifications, the Group also offers a full range of value-added services including the design of cost-efficient building automation and management systems, and intelligent building advisory services. This total solution approach allows the Group to strengthen its market recognition and enable it to build and maintain close and long term business relationships with its customers.
A profitable track record
The Group has a proven record of maintaining a profitable business. This has enabled the Group to fund a substantial portion of its working capital requirements through internally generated funds, thereby reducing the financing cost of the Group. As a result of prudent financial management, the Group has only utilised minimal external financing facilities for its operations. For each of the three years ended 31st December, 2002, the Group recorded profit attributable to Shareholders of approximately HK$602,000, HK$1,032,000 and HK$7,619,000 respectively notwithstanding the unfavorable economic conditions in Hong Kong.
– 10 – SUMMARY OF THIS PROSPECTUS
First mover’s advantage
The market for intelligent buildings in Hong Kong and the PRC only emerged during the late 1990’s. The Group began supplying and installating ELV electronic systems for both residential and commercial buildings in 1990 and further expanded its services to other IBS projects during 1998. With its relatively long history in the intelligent building sector, the Directors believe that the Group has established its reputation and accumulated sufficient experience in the intelligent building sector in Hong Kong to allow it to expand its existing business and market coverage to the PRC.
NOTABLE PROJECTS COMPLETED AND IN PROGRESS
The following table lists out all the IBS projects obtained by the Group during the period from 1999 to the Latest Practicable Date with the contract sum exceeding HK$1 million together with their respective approximate completion/expected completion date. The aggregate contract sum of these projects amounted to approximately HK$71.8 million.
Approximate Approximate completion commencement date/expected Project name IBS work involved date completion date
Residential buildings 80 Robinson Road – CCTV system May 1999 December 2001 羅便臣道80號 – video door-phone system – CABD/SMATV system – image car park control system – facility booking system – access control system – panic alarm system – door-monitoring system
Island Resort – public address system July 1999 March 2002 Hong Kong – watchman tour system 藍灣半島 – security alarm system – CCTV system – satellite TV system – TV reception – door-phone system
No. 5-7 Blue – CABD/SMATV system November 1999 September 2001 Pool Road – CCTV system 藍塘道5-7號 – security alarm system – watchman tour system
Chelsea Height – CABD/SMATV system November 1999 January 2001 Phase II – doorphone system 卓爾居二期 – CCTV system – PA system – security alarm system
Seaview Crescent – CABD and SMATV system March 2000 January 2003 海堤灣畔 – CCTV system – intercom system – video doorphone and panic alarm system – walkie talkie system – security alarm and patrol tour system – public address system – video plug-in system – message broadcasting system – BMS system
– 11 – SUMMARY OF THIS PROSPECTUS
Approximate Approximate completion commencement date/expected Project name IBS work involved date completion date
The Pinnacle – doorphone system August 2000 November 2002 豪峰軒 – PA system – CCTV system – BMS system – security alarm system – CABD/SMATV system
Leighton Hill – screen touch type video February 2001 October 2002 禮頓山 door-phone system – public address system – security alarm system – CCTV system – satellite TV system – TV reception – screen touch type building monitoring system
Aqua Blue – doorphone system May 2001 July 2003 浪濤灣 – PA system – CCTV system – smartcard system – security alarm system – carpark system – CABD/SMATV system
Tseung Kwan O. Plaza – CCTV System June 2001 February 2004 Phase A, B and C – door monitoring system 將軍澳廣場A, B及 – doorphone & panic alarm system C期 – public address system – CABD and SMATV system – car park control system – smart card system – intercom system – induction loop system
Siena, Phase II – door-phone and panic July 2001 April 2003 愉景灣尚澄湖畔 alarm system （二期） – CCTV system
Park Island – CCTV system November 2001 August 2003 珀麗灣 – control console – door-phone system – door-monitoring system – public alarm system – public address system – intercom system
The Blue Yard – CABD/SMATV system January 2002 September 2003 海天豪苑 – doorphone system – CCTV system – security alarm system – PA system – carpark system
No. 9 College – CABD/SMATV system January 2002 July 2003 Road, Kowloon – security alarm system 書院道9號 – BMS system – smartcard system – intercom system – watchman system – carpark system
– 12 – SUMMARY OF THIS PROSPECTUS
Approximate Approximate completion commencement date/expected Project name IBS work involved date completion date
Hoi Fai Road – public address system February 2002 July 2004 Tai Kwok Tsui – security system 大角咀海輝路 – automatic carpark control system – patrol touring system – coaxial CABD & SMATV system
Liberte – CABD/SMATV system March 2002 July 2003 昇悅居 – CCTV system – public address system – security system – intercom system – induction loop system
Sorrento – SMATV/CABD system March 2002 August 2003 擎天半島 – 2-way intercom system – public address system – CCTV system – walkie talkie system – security system – break glass/panic alarm intercom system – 2-way radio communication system
Tien Chu Centre – doorphone system July 2002 March 2004 傲雲峰 – CCTV system – emergency call bell system – BMS system – security alarm system – CABD system
Bel-Air – public address system August 2002 April 2005 貝沙灣 – SMATV system – CCTV – intelligent building monitoring system
Residential – automatic carpark access control September 2002 April 2004 Development in system Tsuen Wan – doorphone system 荃灣住宅發展 – security alarm system – CCTV system – CABD and SMATV system – public address system – watchman tour system
Residential – CABD/SMATV system December 2002 October 2005 Development in – CCTV system King’s Park – security alarm system 京士柏住宅發展 – video doorphone system – card access control system – public address system – carpark system – BMS system
– 13 – SUMMARY OF THIS PROSPECTUS
Approximate Approximate completion commencement date/expected Project name IBS work involved date completion date
Commercial buildings City Gate (South) – walkie talkie system July 1998 April 2000 City Gate (North) – car park system October 1998 March 2001 東薈城 – public address system – watchman tour system – security alarm system – CCTV system – satellite TV system – TV reception
Grand Central Plaza – optical fibre system June 2000 December 2000 IFC, SHK Centre Millennium City and Central Plaza 新城市中央廣場 國際金融中心 新鴻基中心 創紀之城 中環廣場
Cyberport development – public address system November 2001 January 2003 數碼港發展 – emergency call bell system – CABD system – SMATV system
Commercial Building at – emergency call bell system May 2003 February 2004 Kai Shing Street in – PA System Kowloon Bay – CABD System 九龍灣啟勝街商業 – SMATV System 大廈發展
Hotels Horizon Suite Hotel – public address system December 2000 December 2002 海澄軒－海景酒店 – watchman tour system – CABD & SMATV system – panic alarm system – door-monitoring system – CCTV system – visual advisory system – emergency call bell system – induction loop system
Sheraton Hotel – SMATV system March 2002 July 2003 喜來登酒店 – public address system – door bell system – emergency call bell system
Churches Wing Kwong – BMS system August 2000 May 2001 Pentecostal Holiness – smartcard system 五筍節永光教堂 – security alarm system – CABD system – CCTV system – public address system
The Church of Jesus – audio/video system July 2001 January 2002 Christ of Latter Saints 何文田教堂
– 14 – SUMMARY OF THIS PROSPECTUS
Approximate Approximate completion commencement date/expected Project name IBS work involved date completion date
Infrastructure Ma Wan Toll Collection – vehicle detection system May 2002 July 2003 buildings System – toll collection system 馬灣收費系統
Tai Po APT – CCTV system January 2003 August 2003 大埔APT衛星站 – CABD system – public address system – security alarm system – smartcard system – autopaging system – BMS system
Government buildings Shek Pik Prison – Intrusion detection system August 1999 September 2002 石壁監獄 – CCTV system
Po Tat Estate – CABD System September 2000 November 2002 寶達擥 – CCTV System – alarm system – door-phone & panic alarm system – call bell system – security alarm system – carpark control system
BUSINESS OBJECTIVE
The business objective of the Group is to become one of the prominent IBS solutions providers in Hong Kong and the PRC.
THE GROUP’S STRATEGIES
The Directors believe that increasing demand for IBS due to improving living standards both in Hong Kong and the PRC has created opportunities for the expansion of the Group’s business. With the extensive experience and established reputation that the Group has built up over the years, the Directors believe that the Group is well positioned to capture the growing demand for the Group’s products and services, and will become one of the leading IBS solutions providers in Hong Kong and the PRC. As such, in order to strengthen the Group’s profitability and future development, the Group has adopted and intends to adopt the following strategies:
Business development in Hong Kong
At present, the Group provides IBS solutions services primarily in Hong Kong. To further increase its market share in Hong Kong, the Group plans to strengthen its involvement in public sector projects. The Group is currently an approved contractor for various types of installation works under the government approved list. In the future, the Group plans to form a special team for government projects by recruiting experienced chartered engineers with qualification granted by the Hong Kong government. The Group will increase tendering for government projects related to IBS such as fee-tolling roads and government buildings.
Apart from government projects, the Group will also expand its business by focusing on the re-engineering of old buildings. The Directors believe that there is growing demand for renovation of old buildings which will involve installation of IBS. The Group intends to increase tendering of such projects.
– 15 – SUMMARY OF THIS PROSPECTUS
In addition to tendering for government and old building re-engineering projects, the Group plans to cooperate with educational institutions in Hong Kong to develop and launch a standardised IBS product “Pervasive Secure Version 1.0”. Currently, the Group’s IBS solutions are customised to meet specific clients’ needs and the design and development of IBS solutions are on a project- by-project basis. In order to strengthen its recurring income, the Group plans to develop and launch a standardised IBS product with the capability for minor modification without incurring substantial costs. The Directors consider that it is beneficial for the Group to merchandise its own IBS products which can broaden the product range and revenue base. Details of the development plan of this product is set out in the sub-paragraph headed “Research and development” in the paragraph headed “The Group’s strategies” under the section headed “Statement of business objectives” in this prospectus.
Geographical expansion to the PRC
Under the current PRC regulations, the Group cannot provide IBS design, supply and installation and maintenance services in the PRC as the Group does not possess the relevant licenses and permits to perform electronic engineering installation works in the PRC. However, the Group has provided technological advisory services to Shum Yip in relation to two IBS projects in the PRC and has gained valuable experience in the PRC intelligent buildings market. Based on the legal opinion issued by the PRC legal adviser of the Company, given that both Shum Yip and Wah Lam are Hong Kong companies and the location at which the IBS consultancy services provided by Wah Lam to Shum Yip is in Hong Kong and Wah Lam does not directly provide such services to the clients of Shum Yip in the PRC, the current cooperation with Shum Yip is not subject to any PRC regulations.
Nevertheless, by building on its established reputation in Hong Kong, it is the Group’s strategy to expand its geographical coverage to the PRC. Under the present PRC regulations, the Group can either establish wholly-foreign owned enterprises or sino-foreign equity joint ventures for the application of the relevant licenses and permits to perform electronic engineering installation works in the PRC. Nevertheless, the Directors consider that it would be more efficient for the Group to identify PRC partners who already have such relevant licenses and permits and establish joint ventures with them so that the Group can capitalise on their experiences and business connections in the PRC. Currently, the Group intends to establish joint ventures with these PRC partners in Shenzhen, Shanghai and Dalian to provide IBS solutions services. According to 外商投 資建築業企業管理規定 (Provisions on Enterprise Administration of Foreign Investment in Construction Industry), the total capital contribution by the Group in such joint ventures should not be less than 25% but not more than 75% of their respective registered capital. At present, the Directors do not have specific intention as to the percentage of interest in these joint ventures the Group should take and will negotiate with the potential PRC partners on a case-by-case basis. The PRC legal adviser of the Company advised that the establishment of the joint ventures by the Group with the PRC partners who own licenses and permits to perform electronic engineering installation work in the PRC and the carrying on of business by these joint ventures are not subject to any restrictions and comply with the existing PRC laws and regulations. These joint ventures would be capable of providing IBS solution services after completion of the registration and approval procedures with the relevant government authorities under the existing PRC laws and regulations.
– 16 – SUMMARY OF THIS PROSPECTUS
Following the proposed establishment of PRC joint ventures, the Group’s expansion plan to the PRC market will be two-fold:–
• Tendering for IBS solutions projects in the PRC
The Directors believe that the developing property market and the increasing demand for intelligent buildings in the PRC, coupled with the PRC government’s policies in promoting the automation of buildings, provide the Group with an excellent opportunity to venture into a potentially lucrative new market. Currently, entities tendering for IBS projects in the PRC have to be registered and applications must be made through certain tender agents approved by the State Economic and Trade Commission (國家經濟貿易委員會). Such tender agents are classified into grade A and grade B depending on the contract sum allowable for each class. In future, the Group plans to register its PRC joint ventures as the approved contractors through these tender agents in order to tender for IBS solutions projects in the PRC.
• Launching standardised IBS products in the PRC
Apart from merchandising standardised IBS products in Hong Kong, the Group also plans to launch various types of IBS products in the PRC. Innovis China, a wholly-owned subsidiary of the Company, entered into a letter of intent with華南理工大學 (South China University of Technology) on 19th December, 2002. Pursuant to the letter of intent, 華南理 工大學(South China University of Technology) will undertake research and development for the Group in various IBS solutions and products according to the specifications set by the Group. The Directors consider that 華南理工大學(South China University of Technology) has sufficient expertise and knowledge in the PRC intelligent building market and the IBS solutions and products developed by them can better meet the market demand and the customers requirements in the PRC.
Details of the implementation plan of expansion to the PRC market are set out in the section headed “Statement of business objectives” in this prospectus.
Research and development
The Group aims at maintaining a competitive edge and incorporating innovative technologies in the Group’s services. The Directors believe that technological advancement will induce many innovative applications in IBS and the Group will constantly keep abreast of technological changes and incorporate them into the Group’s new designs. To achieve this objective, the Directors consider it more cost effective to form strategic alliances with reputable universities and institutions which are capable of providing the Group with technical support and consultancy services that will ultimately bolster the Group’s research and development capabilities. In addition to forming strategic alliances, the Group will also strengthen its research and development team by recruiting additional high calibre engineers and professionals as well as acquiring advanced equipment and software. Particulars of the Group’s future plans on research and development activities are set out in the sub-paragraph headed “Research and development” in the paragraph headed “The Group’s strategies” under the section headed “Statement of business objectives” in this prospectus.
– 17 – SUMMARY OF THIS PROSPECTUS
Sales and marketing
The Directors believe that, in addition to technical competence and service quality, a strong market presence and distinct corporate image are very important to the Group’s business growth. The Group plans to enhance its profile through various marketing programs including hosting of seminars and conferences relating to IBS and participating in relevant trade shows and exhibitions in Hong Kong and the PRC. The Group will also strengthen its sales and marketing team by recruiting experienced marketing professionals to promote the Group’s services to its potential clients.
USE OF PROCEEDS
The Directors estimate that the Company will receive net proceeds from the New Issue, after deducting related expenses, of approximately HK$12.9 million. The Directors intend to use the net proceeds as follows:–
From the Latest 6 months 6 months 6 months 6 months 6 months Practicable ending 31st ending ending 31st ending ending 31st Date to 30th December, 30th June, December, 30th June, December, June, 2003 2003 2004 2004 2005 2005 Total (HK$’000) (HK$’000) (HK$’000) (HK$’000) (HK$’000) (HK$’000) (HK$’000)
Business expansion in Hong Kong – Pursuit of public sector IBS projects and re-engineering projects 28 167 184 167 202 165 913 – Merchandising of IBS products – 60 105 90 108 90 453 Geographical expansion to PRC – Establishment of joint ventures 120 1,120 1,120 220 920 – 3,500 – Tendering for IBS projects 100 200 390 390 590 510 2,180 – Launching IBS products ––110 110 ––220 Research and development – Development of IBS products 75 225 225 225 165 – 915 – Forming strategic alliances ––120 180 60 – 360 – Expansion of in-house team 30 139 212 207 242 207 1,037 Sales and marketing 39 181 317 234 296 256 1,323 General working capital 714 558 403 206 91 – 1,972
Total 1,106 2,650 3,186 2,029 2,674 1,228 12,873
Pending the application of the net proceeds from the New Issue as described above, the net proceeds may be placed as short-term deposits with banks or financial institutions in Hong Kong, or added to the Group’s working capital.
The Directors believe that the estimated net proceeds from the New Issue will be sufficient to finance all of the Group’s activities up to the year ending 31st December, 2005. However, the Directors cannot rule out the possibility of raising additional funds from various sources including, but not limited to, the international and domestic capital markets, banks and internal resources or a combination of these sources if the need arises. The Directors believe that additional funds will generally be required if the Group were to undertake unexpectedly large projects.
– 18 – SUMMARY OF THIS PROSPECTUS
RISK FACTORS
The operations of the Group and investment in the Placing Shares involve certain risks as set out in the section headed “Risk factors” of this prospectus. These risks can be classified as: (i) risks relating to the Group; (ii) risks relating to the industry; (iii) risks relating to the PRC; (iv) risks relating to investment in the Shares; and (v) risks relating to statements made in this prospectus and are listed as follows:–
Risks relating to the Group
• Sustainability of revenue and profits
• Sustainability of the Group’s IBS consultancy services and its high gross profit margin
• Substantial amount of accounts receivable
• Credit risks
• Reliance on key personnel
• Reliance on third party to provide research and development services
• Reliance on subcontractors
• Reliance on major suppliers
• Intellectual property rights
Risks relating to the industry
• Dependence on the construction market
• Technological changes
• Competition
• Liquidated damages for sub-standard works
• Recent outbreak of atypical pneumonia in Hong Kong
Risks relating to the PRC
• Economy and legal framework of the PRC
Risks relating to investment in the Shares
• Dilution pursuant to the Pre-IPO Share Option Scheme
• Liquidity and possible price volatility of the Shares
– 19 – SUMMARY OF THIS PROSPECTUS
Risks relating to statements made in this prospectus
• Business objectives may not be achieved
• Forward-looking statements contained in this prospectus may not materialise
TRADING RECORD
The following is a summary of the combined results of the Group for each of the three years ended 31st December, 2002. This summary has been prepared on the basis that the existing structure of the Group had been in place throughout the Track Record Period and should be read in conjunction with the accountants’ report and the additional financial information on the Group set out in Appendix I and Appendix II respectively to this prospectus.
Year ended 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Turnover (Note 1) 19,396 19,920 36,260
Subcontracting charges (4,244) (5,958) (8,249)
Cost of sales and services rendered (11,258) (8,516) (13,190)
Gross profit 3,894 5,446 14,821
Other income 145 28 110
Administrative and other operating expenses (3,313) (4,230) (5,774)
Operating profit 726 1,244 9,157
Finance costs (20) (39) (93)
Profit before taxation 706 1,205 9,064
Taxation (104) (173) (1,445)
Profit attributable to Shareholders 602 1,032 7,619
Earnings per Share (Note 2) – Basic 0.2 cent 0.3 cent 2.5 cents
– Diluted 0.2 cent 0.3 cent 2.4 cents
– 20 – SUMMARY OF THIS PROSPECTUS
Notes:
1. Turnover represents revenue recognised from the provision of IBS solutions and sale of electronic equipment, maintenance services and consultancy services. All significant intra-group transactions have been eliminated on combination.
2. The calculation of basic earnings per Share is based on the Group’s combined profit attributable to Shareholders for the Track Record Period and the assumption that a total of 309,000,000 Shares had been in issue during the Track Record Period.
The calculation of diluted earnings per Share is based on the Group’s combined profit attributable to Shareholders for the Track Record Period and the assumption that 318,375,000 Shares had been in issue during the Track Record Period. The number of Shares used in the calculation comprised 309,000,000 Shares referred to above and 9,375,000 Shares assumed to have been issued.
PLACING STATISTICS
Approximately
Market capitalisation (Note 1) ...... HK$93.8 million
Combined profit after tax but before extraordinary items of the Group for the year ended 31st December, 2002 ...... HK$7.6 million
Historical earnings per Share (a) Basic (Note 2) ...... 2.5 cents (b) Fully diluted (Note 3) ...... 2.4 cents
Historical price/earnings multiple (Note 4) ...... 10 times
Adjusted net tangible asset value per Share (Note 5) ...... 6.5 cents
Notes:
1. The market capitalisation of the Shares is based on the Placing Price of HK$0.25 per Placing Share and a total of 375,000,000 Shares in issue or to be issued after completion of the Placing and takes no account of any Shares which may be allotted and issued upon the exercise of the options granted under the Pre-IPO Share Option Scheme and options that may be granted under the Share Option Scheme or of any Shares which may be allotted or issued or repurchased by the Company pursuant to the general mandates referred to in Appendix V to this prospectus.
2. The calculation of the historical basic earnings per Share is based on the profit after tax but before extraordinary items of the Group for the year ended 31st December, 2002 and on the assumption that a total of 309,000,000 Shares were in issue throughout the year, but takes no account of any Shares which may be allotted and issued pursuant to the exercise of the options granted under the Pre-IPO Share Option Scheme and options that may be granted under the Share Option Scheme.
3. The calculation of the historical earnings per Share on a fully diluted basis is based on the profit after tax but before extraordinary items of the Group for the year ended 31st December, 2002 and on the assumption that a total of 318,375,000 Shares were in issue throughout the year.
4. The historical price/earnings multiple is calculated based on the basic historical earnings per Share of 2.5 cents and the Placing Price of HK$0.25 per Placing Share.
5. The adjusted net tangible asset value per Share has been arrived at after the adjustments referred to in the paragraph headed “Adjusted net tangible assets” under the section headed “Financial information” of this prospectus and on the basis of a total of 375,000,000 Shares expected to be in issue after completion of the Placing at the Placing Price of HK$0.25 per Placing Share, but takes no account of any Shares which may be allotted and issued upon the exercise of the options granted under the Pre-IPO Share Option Scheme and options that may be granted under the Share Option Scheme or of any Shares which may be allotted or issued or repurchased by the Company pursuant to the general mandate referred to in Appendix V to this prospectus.
– 21 – SUMMARY OF THIS PROSPECTUS
PRE-IPO SHARE OPTION SCHEME
The Company has adopted the Pre-IPO Share Option Scheme, under which the Company has granted options to six employees of the Group to subscribe a total of 18,750,000 Shares at the exercise price of HK$0.125 each, representing 50% of the Placing Price. The discount of 50% of the Placing Price on the subscription price of the options granted under the Pre-IPO Share Option Scheme is given for the purpose of recognising the past contribution of the Eligible Persons (as defined in the Pre-IPO Share Option Scheme) and to provide incentives to them to retain their services and expertises for the long term success of the Group. All of the grantees under the Pre- IPO Share Option Scheme, who are currently the senior management of the Group, have been with the Group for over 2 years and have contributed to the success of the Group in the past. Details of the Pre-IPO Share Option Scheme are set out in the section headed “Pre-IPO Share Option Scheme” in Appendix V to this prospectus.
SHAREHOLDERS OF THE COMPANY FOLLOWING COMPLETION OF THE PLACING
The following table sets out the respective direct or indirect interests of the Shareholders upon completion of the Placing without taking into account any Shares to be issued pursuant to the exercise of the options granted under the Pre-IPO Share Option Scheme and options that may be granted under the Share Option Scheme:–
Approximate percentage of Approximate Moratorium Number of Shares shareholding Approximate total cost of period held immediately immediately cost of investment from the Name of Shareholders after the Placing after the Placing investment per Share Date of entry Listing Date HK$ HK$
Initial Management Shareholders: China Win (Note 1) 211,229,000 56.33% 1,018,566 0.007 20th August, 2002 12 months (Note 2) Other Shareholders: Delight Resources (Note 3) 18,725,400 4.99% Nil Nil 11th December, 2002 12 months (Note 5) China Enterprise (Note 4) 18,045,600 4.81% 3,157,980 0.175 6th December, 2002 12 months (Note 5) Public Shareholders under the Placing 127,000,000 33.87% N/A Placing Price N/A
Total 375,000,000 100%
Notes:
1. China Win is a limited liability company incorporated in the BVI and became a Shareholder on 20th August, 2002 pursuant to the Reorganisation. The issued share capital of China Win is beneficially owned by the following persons:
Approximate Number of percentage of Approximate Position shares held shareholding cost of Name of shareholders in the Company in China Win in China Win investment Date of entry HK$
Mr. Edmond Lam* Executive Director 4,645 46.45% 239,500 2nd February, 1990 Mr. Derek Tsang Executive Director 4,641 46.41% 622,966 2nd February, 1990 Mrs. Lam Non-executive Director 357 3.57% 49,000 8th September, 1993 Mr. Stanley Sung Executive Director 357 3.57% 107,100 6th August, 2002
10,000 100% 1,018,566
* Mr. Edmond Lam holds these shares through Emerging Purity which is wholly owned by him.
– 22 – SUMMARY OF THIS PROSPECTUS
Immediately following the completion of the Capitalisation Issue but before the Placing, China Win was interested in 272,229,000 Shares. Pursuant to the Placing, China Win is offering 61,000,000 Sale Shares for sale and its shareholding in the Company will then decrease to 211,229,000 Shares, representing approximately 56.33% of the issued share capital of the Company immediately after the Placing. Mr. Edmond Lam, Mr. Derek Tsang, Mrs. Lam and Mr. Stanley Sung, all being the shareholders of China Win, consider that their offer for sale of the Shares does not represent that they have no confidence in the future of the Group. Instead, issue of new shares by the Company together with offer for sale of old shares by the existing shareholders is not an uncommon practice in Hong Kong equity market that provides new funds to the Company and an opportunity for them to realise part of their investment in the Group.
Besides, the Directors have considered the future funding requirements of the Group that are in line with the business objectives. Excess funding maintained by the Group without proper investment opportunity will lower the return on equity ratio.
2. China Win, Emerging Purity, Mr. Edmond Lam, Mr. Derek Tsang, Mrs. Lam and Mr. Stanley Sung are Initial Management Shareholders and each of the Initial Management Shareholders has undertaken with the Company, the Joint-Lead Managers (for themselves and on behalf of the Underwriters) and the Stock Exchange that for a period of 12 months from the Listing Date:
(a) he/she/it will place (or procure to be placed) in escrow, with an escrow agent acceptable to the Stock Exchange, the Relevant Securities on terms acceptable to the Stock Exchange;
(b) he/she/it will not (or procure that he or it will not) dispose of (or enter into any agreement to dispose of) or permit the registered holder to dispose of (or enter into any agreement to dispose of) any of his/her/its direct or indirect interests in the Relevant Securities;
(c) in the event that he/she/it pledges or charges any direct or indirect interest in the Relevant Securities under Rule 13.18(1) of the GEM Listing Rules or pursuant to any right or waiver granted by the Stock Exchange pursuant to Rule 13.18(4) of the GEM Listing Rules, he/she/it must inform (or procure to inform) the Company immediately thereafter, disclosing the details as specified in the GEM Listing Rules; and
(d) having pledged or charged any of his or its interests in the Relevant Securities under sub-paragraph (c) above, any of them must inform (or procure to inform) the Company immediately in the event that he/she/it becomes aware that the pledgee or chargee has disposed of or intends to dispose of such interest and of the number of the Relevant Securities affected.
In addition, each of Emerging Purity, Mr. Derek Tsang, Mrs. Lam and Mr. Stanley Sung, all being the shareholders of China Win, has undertaken with the Company, the Joint-Lead Managers (for themselves and on behalf of the Underwriters) and the Stock Exchange that he/she/it will not dispose of (or enter into any agreement to dispose of) any of his/her/its interest in China Win from time to time for a period of 12 months from the Listing Date and he/she/it will place (or procure to be placed) in escrow, with an escrow agent acceptable to the Stock Exchange, the shares in China Win on terms acceptable to the Stock Exchange. Mr. Edmond Lam has also undertaken with the Company, the Joint-Lead Managers (for themselves and on behalf of the Underwriters) and the Stock Exchange that he will not dispose of (or enter into any agreement to dispose of) any of his interest in Emerging Purity from time to time for a period of 12 months from the Listing Date and he will place in escrow, with an escrow agent acceptable to the Stock Exchange, the shares in Emerging Purity on terms acceptable to the Stock Exchange.
3. Delight Resources is an investment holding company and is directly wholly owned by Cheung Kong Investment Company Limited which is a private company engaged in investment holding business and is wholly owned by Cheung Kong Holdings, all of which are, other than being interested directly or indirectly in approximately 4.99% of the issued share capital of the Company following the completion of the Placing, Independent Third Parties.
The date of entry of Delight Resources as referred above, being 11th December, 2002, is the date of the Share Transfer Agreement (as supplemented by a supplemental agreement dated 9th June, 2003) pursuant to which China Win agreed to transfer 1,272,600 Shares to Delight Resources before the Placing which in return agreed and undertook to use its reasonable endeavours to introduce potential clients to the Company in respect of the business operated by the Group from time to time. The transfer of the aforesaid Shares by China Win to Delight Resources was effected on 9th June, 2003. Following the Capitalisation Issue and upon the listing of the Shares on GEM, Delight Resources will be interested in 18,725,400 Shares, representing approximately 4.99% of the issued share capital of the Company. Delight Resources and all of its associates do not and will not have any management role or any board representation in the Group.
– 23 – SUMMARY OF THIS PROSPECTUS
4. China Enterprise acquired these Shares pursuant to a share transfer agreement dated 6th December, 2002 (as supplemented by a deed of transfer dated 6th June, 2003) from China Win at a cash consideration of HK$3,157,980, representing HK$0.175 per Share. China Enterprise is an investment holding company beneficially equally owned by Mr. Wong Chi Lick and Mr. Tse Hung Hay who are, other than being interested indirectly in approximately 4.81% of the issued share capital of the Company following the completion of the Placing, Independent Third Parties. Mr. Wong Chi Lick is engaged in transportation business both in Hong Kong and the PRC and Mr. Tse Hung Hay is engaged in supply and installation of air-conditioning business. Both Mr. Wong and Mr. Tse knew Mr. Edmond Lam and Mr. Derek Tsang for 15 years and were interested in the Group’s business and therefore acquired the Shares from China Win. Since China Win believed that the experiences and relationships of Mr. Wong and Mr. Tse could assist the Group in developing business in the PRC, China Win introduced them as Shareholders and sold the Shares to China Enterprise. China Enterprise and all of its associates do not and will not have any management role or any board representation in the Group.
5. Each of Delight Resources and China Enterprise has voluntarily undertaken with the Company, MasterLink (on behalf of the Underwriters) and the Stock Exchange that for a period of 12 months from the Listing Date:
(a) it will not dispose of (or enter into any agreement to dispose of) any of their respective direct or indirect interests in the Company;
(b) it will place (or procure to be placed) in escrow, with an escrow agent acceptable to the Stock Exchange, the Relevant Securities on terms acceptable to the Stock Exchange;
(c) it will not (or procure that it will not), save as provided in Rule 13.18 of the GEM Listing Rules, dispose of (or enter into any agreement to dispose of) or permit the registered holder to dispose of (or enter into any agreement to dispose of) any of its direct or indirect interests in the Relevant Securities;
(d) in the event that it pledges or charges any direct or indirect interest in the Relevant Securities under Rule 13.18(1) of the GEM Listing Rules or pursuant to any right or waiver granted by the Stock Exchange pursuant to Rule 13.18(4) of the GEM Listing Rules, it must inform (or procure to inform) the Company immediately thereafter, disclosing the details as specified in the GEM Listing Rules; and
(e) having pledged or charged any of its interests in the Relevant Securities under sub-paragraph (d) above, any of them must inform (or procure to inform) the Company immediately in the event that it becomes aware that the pledgee or chargee has disposed of or intends to dispose of such interest and of the number of the Relevant Securities affected.
In addition, Cheung Kong Holdings has undertaken with the Company, MasterLink (on behalf of the Underwriters) and the Stock Exchange that it will not dispose of (or enter into any agreement to dispose of) any of its direct interest in Cheung Kong Investment Company Limited and each of Cheung Kong Holdings and Cheung Kong Investment Company Limited has undertaken with the Company, MasterLink (on behalf of the Underwriters) and the Stock Exchange that it will not dispose of (or enter into any agreement to dispose of) any of its indirect/direct interest in Delight Resources from time to time for a period of 12 months from the Listing Date, except in the event that a reorganisation is being carried out in the group of companies of Cheung Kong Holdings, then Cheung Kong Holdings may dispose of its direct interest in Cheung Kong Investment Company Limited and Cheung Kong Investment Company Limited may then dispose of its direct interest in Delight Resources to any other wholly-owned subsidiaries of Cheung Kong Holdings such that Delight Resources will remain a direct wholly-owned subsidiary of the potential immediate holding company and an indirect wholly-owned subsidiary of Cheung Kong Holdings and this potential immediate holding company of Delight Resources should be subject to the same or similar lock up arrangement as with Cheung Kong Holdings and Cheung Kong Investment Company Limited.
Each of Mr. Wong Chi Lick and Mr. Tse Hung Hay, all being the shareholders of China Enterprise, has also undertaken with the Company, MasterLink (on behalf of the Underwriters) and the Stock Exchange that they will not dispose of (or enter into any agreement to dispose of) any of their interest in China Enterprise from time to time for a period of 12 months from the Listing Date and each of them will place in escrow, with an escrow agent acceptable to the Stock Exchange, his respective shares in China Enterprise on terms acceptable to the Stock Exchange.
– 24 – DEFINITIONS
For the purpose of this prospectus, the following definitions have, where appropriate, the following meanings:–
“AIIB” Asian Institute of Intelligent Buildings, a non-profit making organisation established in Hong Kong in December 2000 with the objectives of developing unified standards for, and acting as an independent certification authority for, intelligent buildings in Asia
“associate” has the meaning ascribed thereto in the GEM Listing Rules
“BVI” the British Virgin Islands
“CCASS” the Central Clearing and Settlement System established and operated by HKSCC
“Capitalisation Issue” the issue of Shares to be made upon capitalisation of part of the share premium account of the Company referred to in the sub-paragraph headed “Written resolutions of all Shareholders dated 6th June, 2003” under the paragraph headed “Further information about the Company” in Appendix V to the prospectus
“Cheung Kong Holdings” Cheung Kong (Holdings) Limited, a property development and strategic investment company incorporated in Hong Kong with limited liability, the securities of which are listed on the Main Board
“China Win” China Win Holding International Ltd., an investment holding company incorporated in BVI with limited liability and which is the controlling shareholder of the Company
“China Enterprise” China Enterprise Holdings Limited, an investment holding company incorporated in Hong Kong with limited liability and the entire issued share capital of which is beneficially equally owned by Mr. Wong Chi Lick and Mr. Tse Hung Hay who are Independent Third Parties
“Companies Law” the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands
“Companies Ordinance” the Companies Ordinance (Chapter 32 of the Laws of Hong Kong)
“Company” Innovis Holdings Limited (華智控股有限公司), a company incorporated in the Cayman Islands with limited liability
– 25 – DEFINITIONS
“Deed of Indemnity” the deed of indemnity entered into between Mr. Derek Tsang and Mr. Edmond Lam and the Company dated 17th June 2003, particulars of which are summarised in the paragraph headed “Estate duty and tax indemnities” of the section headed “Other information” of Appendix V to this prospectus
“Delight Resources” Delight Resources Limited, a company incorporated in BVI with limited liability and the entire issued share capital of which is directly owned by Cheung Kong Investment Company Limited, a wholly-owned subsidiary of Cheung Kong Holdings
“Director(s)” the director(s) of the Company as at the date of this prospectus
“Emerging Purity” Emerging Purity Co., Ltd., a company incorporated in BVI with limited liability and which is wholly owned by Mr. Edmond Lam
“GEM” the Growth Enterprise Market of the Stock Exchange
“GEM Listing Committee” the listing committee of the board of directors of the Stock Exchange with responsibility for GEM
“GEM Listing Rules” the Rules Governing the Listing of Securities on GEM (as amended from time to time)
“GEM Website” www.hkgem.com, being the internet website operated by the Stock Exchange for the purposes of GEM
“Group” the Company and its subsidiaries or, where the context so requires in respect of the period before the Company became the holding company of its present subsidiaries, the companies which are the present subsidiaries of the Company or the companies/entities which carried on the existing business of the Group prior to the Reorganisation
“Han Yao” 廣州漢堯建築材料有限公司Guangzhou Han Yao Building Materials Limited, an enterprise established in Guangzhou, the PRC and principally engaged in the trading of building materials and its attributable interest is owned as to 36.6% by Mr. Niki Tsang, 31.7% by Mr. Edmond Lam, 29.5% by Mr. Derek Tsang and 2.2% by Mrs. Lam
“HKSCC” Hong Kong Securities Clearing Company Limited
– 26 – DEFINITIONS
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Hong Kong Government” the Government of Hong Kong
“Independent Third Party(ies)” person(s) or company(ies) who is/are independent of and not connected with the directors, chief executive, substantial shareholders or management shareholders of the Company or any of their respective associates and not involve in the management of the Group
“Initial Management Shareholder(s)” has the meaning ascribed to it in the GEM Listing Rules and in the case of the Company means China Win, Mr. Derek Tsang, Mr. Edmond Lam, Emerging Purity, Mrs. Lam and Mr. Stanley Sung and the term “Initial Management Shareholder” means any one of them
“InnoTech” Inno-Tech Engineering (H.K.) Limited, a private company incorporated in Hong Kong with limited liability and an Independent Third Party principally engaged in the business of providing technical support and research and development services in connection with ELV electronic engineering, IBS and related products
“Innovis China” Innovis China Limited, a company incorporated in BVI with limited liability and is wholly owned by the Company
“ISO” International Organisation for Standardisation, a worldwide federation of national standard bodies from some 130 countries, including Hong Kong and the PRC
“Joint-Lead Manager(s)” MasterLink and/or Uni-Alpha
“Latest Practicable Date” 12th June, 2003, being the latest practical date for the purposes of ascertaining certain information contained herein prior to the printing of this prospectus
“Listing Date” the date on which trading in the Shares commences on GEM
“Main Board” the stock market operated by the Stock Exchange prior to the establishment of GEM (excluding the options market) and which stock market continues to be operated by the Stock Exchange in parallel with GEM, for the avoidance of doubt, the Main Board excludes GEM
– 27 – DEFINITIONS
“Master Consultancy Agreement” a master consultancy agreement dated 4th January, 2002 entered into between Wah Lam and Shum Yip relating to the provision of technical advice by Wah Lam to Shum Yip, particulars of which are summarised in the paragraph headed “Strategic alliances” under the section headed “General overview of the Group and its business” in this prospectus
“MasterLink” or “Sponsor” MasterLink Securities (Hong Kong) Corporation Limited, a deemed licensed corporation for types 1, 4, 6 and 9 regulated activities under the Securities and Futures Ordinance and an approved sponsor for listing on GEM
“Mr. Derek Tsang” Mr. Tsang Hon Chung, an Initial Management Shareholder and an executive Director and the chairman of the Company
“Mr. Edmond Lam” Mr. Lam Yew Kai, an Initial Management Shareholder and an executive Director
“Mr. Eugene Fong” Mr. Fong Yick Jin, Eugene, an independent non-executive Director
“Mr. Liu” Mr. Liu Pui Ming, an independent non-executive Director
“Mr. Niki Tsang” Mr. Tsang Hon Ming, a non-executive Director and the younger brother of Mr. Derek Tsang
“Mr. Stanley Sung” Mr. Sung Fung Chin, Stanley, an Initial Management Shareholder and an executive Director
“Mrs. Lam” Ms. Wong Mau Fa, an Initial Management Shareholder and a non-executive Director and the wife of Mr. Edmond Lam
“New Issue” the issue of the New Shares by the Company under the Placing
“New Shares” the 66,000,000 new Shares being offered for subscription by the Company at the Placing Price under the Placing
“Other Shareholders” Delight Resources and China Enterprise
“Placing” the conditional placing of the Placing Shares for cash at the Placing Price on and subject to the terms and conditions stated in this prospectus
“Placing Price” HK$0.25 per Placing Share
“Placing Shares” the Sales Shares and the New Shares being offered under the Placing
– 28 – DEFINITIONS
“PRC” or “China” the People’s Republic of China which, for the purposes of this prospectus, excludes Hong Kong, Macau and Taiwan
“Pre-IPO Share Option Scheme” the share option scheme approved and adopted by the Company on 6th June, 2003, the principal terms of which are summarised in the section headed “Pre-IPO Share Option Scheme” in Appendix V to this prospectus
“Relevant Securities” has the meaning ascribed thereto under Rule 13.15 of the GEM Listing Rules
“Reorganisation” the reorganisation of the Group as described in the section headed “Reorganisation” in Appendix V to this prospectus
“Sale Shares” the 61,000,000 existing Shares being offered for sale by the Vendor at the Placing Price under the Placing
“Securities and Futures Ordinance” the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong
“SFC” The Securities and Futures Commission of Hong Kong
“Share(s)” ordinary share(s) of HK$0.01 each in the capital of the Company
“Shareholder(s)” holder(s) of the Share(s)
“Share Option Scheme” the share option scheme conditionally adopted by the Company on 6th June, 2003, the principal terms of which are summarised in the section headed “Share Option Scheme” in Appendix V to this prospectus
“Share Transfer Agreement” the agreement entered into on 11th December, 2002 (as supplemented by an agreement dated 9th June, 2003) between China Win, Delight Resources and the Company pursuant to which China Win agreed to transfer 1,272,600 Shares to Delight Resources before the Placing which, following the Capitalisation Issue and upon the listing of the Shares on GEM, will represent 4.99% of the issued share capital of the Company
“Shum Yip” Shum Yip Development Co., Ltd., a company incorporated in Hong Kong with limited liability and an Independent Third Party principally engaged in the business of supplying and installing elevators in the PRC and is wholly owned by Shenzhen Investment Limited, the securities of which are listed on the Main Board
“SME” Small and medium size enterprise
– 29 – DEFINITIONS
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“subsidiary(ies)” has the same meaning ascribed thereto under section 2 of the Companies Ordinance
“Substantial Shareholder(s)” has the same meaning ascribed to it in the GEM Listing Rules and in the case of the Company means China Win, Mr. Derek Tsang, Emerging Purity and Mr. Edmond Lam
“Track Record Period” the three years ended 31st December, 2002
“Underwriters” MasterLink, Uni-Alpha, Kaiser Securities Limited, CAF Securities Company Limited, Celestial Securities Limited, Yue Xiu Securities Company Limited, Crosby Limited, Core Pacific-Yamaichi International (H.K.) Limited, JS Cresvale Securities International Limited, China Everbright Securities (HK) Limited, Concord Capital Brokerage Limited and Taiwan Securities (HK) Company Limited
“Underwriting Agreement” the underwriting agreement dated 17th June, 2003 entered into between, among others, the Company, the Vendor, the executive Directors, the Initial Management Shareholders, the Joint-Lead Managers and the Underwriters relating to the Placing, particulars of which are summarised in the section headed “Underwriting” of this prospectus
“Uni-Alpha” Uni-Alpha Securities Limited, a deemed licensed corporation for types 1, 4, 6 and 9 regulated activities under the Securities and Futures Ordinance
“US” United States of America
“Vendor” China Win
“Vinco Capital” Vinco Capital Limited, a licensed corporation for type 6 regulated activity under the Securities and Futures Ordinance
“Wah Lam” Wah Lam (Electronic Engineering) Limited, a limited liability company incorporated in Hong Kong on 2nd February, 1990 and an indirect wholly-owned subsidiary of the Company
“WTO” World Trade Organisation
“%” per cent.
“HK$” and “cent(s)” Hong Kong dollars and cent(s) respectively, the lawful currency of Hong Kong
– 30 – DEFINITIONS
“RMB” Renminbi, the lawful currency of the PRC
“US$” United States dollars, the lawful currency of the US
Unless otherwise specified in this prospectus, amounts denominated in RMB have been converted, for the purpose of illustration only, into HK$ at the following rate:–
RMB1.06 = HK$1.0
US$1.00 = HK$7.8
– 31 – GLOSSARY
This glossary contains explanations of certain technical terms and abbreviations used in this prospectus that are in connection with the Group and/or its business. The terms and their assigned meanings may not, however, correspond to industrial standards or common meanings, as the case may be.
“BMS” acronym for building management system
“CABD” acronym for Communal Aerial Broadcast Distribution, a type of television and radio broadcasting system of which the transmission of the broadcast signal is in a form of radio or analog signal. The receiver of the broadcast signal is a common antenna for the whole building which can also distribute the received signal to the household TVs or radios
“CCTV” acronym for closed-circuit television
“CRT” acronym for cathode ray tube
“ELV” acronym for extra low voltage
“IC” acronym for integrated circuit
“intelligent building(s)” building(s) that apply advanced information and telecommunication technology as well as employing smart structure and modern management theories that allow for a more efficient use of resources, increase of the comfort and security of its occupants and bring down the maintenance costs
“Intelligent Building System(s)” system(s) that integrates, controls and monitors different or “IBS” types of ELV electronic systems comprising an intelligent building
“Internet” a decentralised global network connecting computers worldwide
“LAN” acronym for local area network
“LCD” acronym for liquid crystal display
“Octopus Card” the contactless smart card generally used for payment of public services in Hong Kong
“PABX” acronym for private automatic branch exchange
“PA system” public address system, a type of sound and audio system applying microprocessor controlled circuitry
“PC(s)” personal computer(s)
– 32 – GLOSSARY
“SMATV” satellite master antenna television
“TV” television
“WAN” acronym for wide area network
– 33 – RISK FACTORS
An investment in the Placing Shares involves a high degree of risk and is speculative. Potential investors should carefully consider all of the information set out in this prospectus and, in particular, should consider the following risks and special considerations associated with an investment in the Company before making any investment decision in relation to the Company.
RISKS RELATING TO THE GROUP
Sustainability of revenue and profits
The majority of the Group’s revenue is generated on a project-by-project basis with fixed contract prices and fixed completion dates. Under such operational conditions, the Group has, wherever possible, arranged back-to-back fixed-price and fixed-time purchase contracts with its suppliers. If the relevant project is not completed within both the budget and stipulated time frame, cost overruns, penalties and losses may occur and the profits of the Group could be adversely affected.
In addition, it is a standard practice in the construction industry to obtain projects through the tendering process. Accordingly, parties who have in the past or are currently engaging the Group are not obliged to continue working with the Group on future projects and the number of contracts obtained by the Group may experience significant fluctuation. For each of the three years ended 31st December, 2002, the Group has obtained 260, 202 and 234 IBS contracts. As at the Latest Practicable Date, the Group has further obtained 81 IBS contracts. On a pro rata basis, there was a decrease in the number of contracts obtained by approximately 16.9% compared with 2002. The Directors consider that the outbreak of atypical pneumonia in Hong Kong during the period from March to May 2003 has led to a delay in the award of certain contracts by the Group’s customers and therefore resulted in a decrease in the number of IBS contracts obtained by the Group. Nevertheless, in order to preserve and increase its revenues, the Group must secure the business of new clients as well as obtain new projects from existing clients. Failure to do so would adversely affect the financial performance of the Group.
Sustainability of the Group’s IBS consultancy services and its high gross profit margin
The Group commenced providing IBS consultancy services in 2002 pursuant to the Master Consultancy Agreement under which the Group provided consultancy services to Shum Yip in relation to two IBS projects in the PRC. The turnover from the IBS consultancy services amounted to approximately HK$3.4 million, representing approximately 9.2% of the Group’s total turnover for the year ended 31st December, 2002. The gross profit margin of the IBS consultancy services was approximately 94.4% while for each of the three years ended 31st December, 2002, the gross profit margin of the Group’s IBS design, supply and installation and IBS maintenance services was approximately 20.1%, 27.3% and 35.4% respectively. The Directors consider that the relatively high gross profit margin for the Group’s IBS consultancy services was mainly due to the premium charged for the provision of consultancy services in relation to the two PRC property development projects to Shum Yip and the fact that the cost of providing such services were basically staff salaries amounting to approximately HK$0.2 million. These staff salaries were related to the allocated costs of the Group’s project execution team assigned to the provision of the IBS consultancy services. Since the Group’s project execution team was paid in monthly fixed salaries and most of the staff in the team also participated in other projects, the allocated costs in respect of the IBS consultancy services was able to be controlled at a substantially low level and therefore resulted in higher profit margin.
– 34 – RISK FACTORS
Given that the Group’s consultancy services only commenced in the year 2002 and the turnover had been solely contributed by a particular customer, there is a limited track record on which an evaluation of the IBS consultancy business could be based. There is no assurance that the Group would be able to obtain contracts in relation to IBS consultancy services in the future and in such event, the Group’s financial performance may be adversely affected.
In addition, there is no guarantee that the high gross profit margin of the Group’s IBS consultancy services can be sustained in the future and this could adversely affected the profitability of the Group.
Substantial amount of accounts receivable
The Group has a substantial amount of accounts receivable. As at 31st December, 2000, 31st December, 2001 and 31st December, 2002, the Group’s trade debtors, after deducting the provision for doubtful debts of approximately HK$0.2 million and HK$0.9 million for each of the two years ended 31st December, 2002 respectively, amounted to approximately HK$7.2 million, HK$6.6 million and HK$13.9 million, representing approximately 72.0%, 57.9% and 65.0% of the total assets of the Group respectively. The provision for doubtful debts of approximately HK$0.2 million and HK$0.9 million respectively for each of the two years ended 31st December, 2002 were related to two clients of the Group who had financial difficulties but such amounts were subsequently collected by the Group. As at the Latest Practicable Date, subsequent settlement of the accounts receivable as at 31st December, 2002 amounted to approximately HK$10.9 million. As to the unsettled balance of approximately HK$3.0 million, approximately HK$0.6 million was related to the consultancy fee due from Shum Yip in respect of the Group’s IBS consultancy services. Given that Shum Yip is a strategic partner of the Group, a credit term of six months has been offered and such amount would be settled in full by the end of June 2003.
The remaining unsettled balance of approximately HK$2.4 million was mainly related to the final payments of certain IBS design, supply and installation projects which would only be settled upon presentation of the final completion reports of the respective projects to be agreed with the Group and its customers. As an industry practice, the finalisation of such completion reports would typically take six months to one year and therefore result in the delay of the final settlement. However, the Directors have reviewed the individual accounts in respect of the above unsettled trade debtors and given that throughout the Track Record Period the final payments of the Group’s IBS projects had taken six months to one year to settle and the Group had not experienced any bad debts in this respect, the Directors considered that the remaining outstanding amount would be settled in full. Nevertheless, given the substantial amount of accounts receivable and the long settlement period, should the credit worthiness of the Group’s customers deteriorate or the Group experience collection problems, the Group’s cash flow position and profitability would be adversely affected.
Credit risks
The contract amounts of building intelligence projects, like most engineering contracts, are billed on a progress claim basis. Credit terms are granted to customers based on their credit worthiness, financial strength and business relationship with the Group. The Group’s sales are made on an open account basis with credit terms ranging from 30 to 90 days. Should the credit worthiness of the major customers or their business relationships with the Group deteriorate, the Group may experience collection problems. This could adversely affect the financial performance of the Group.
– 35 – RISK FACTORS
For each of the three years ended 31st December, 2002, approximately HK$3.1 million, HK$2.3 million and HK$2.6 million due from trade debtors, representing approximately 43.2%, 35.6% and 18.8% of the total amount due from trade debtors after provision for doubtful debts respectively, remained outstanding beyond the 90 days credit policy adopted by the Group. Such outstanding balances for the Track Record Period mainly represented the final payments of certain IBS design, supply and installation projects. Compared with previous years, the Directors consider the amounts to be normal as it is the industry practice that the final payments of IBS projects would only be settled upon finalisation of the completion reports which typically takes six months to one year and therefore resulted in a portion of the trade debtors balances extending beyond 90 days. The relatively long settlement period for such final payments of IBS projects was not in line with the normal credit policy of the Group as disclosed in the paragraph headed “Credit policy” under the section headed “General overview of the Group and its business” in this prospectus as it was impractical from an administrative point of view to apply different credit terms for a single project. Since only the final payment of an IBS project would be subject to a longer settlement period ranging from six months to one year while the payments for earlier stages are collected according to the normal credit term, the Directors consider that the Group’s credit policy is operating effectively. Nevertheless, potential investors should be aware that the Group’s financial position may be adversely affected if there is any deterioration in the credit-worthiness of its customers.
In addition, it is the industry practice that the clients of the Group normally withhold 5% to 10% of the monthly progress payment as retention monies for large projects to the extent that such deductions from the monthly progress payments accumulate to 5% to 10% of the contract sum. Such retention monies will normally be retained by the customers for a period of 12 months following the completion of the relevant projects for quality assurance purposes which is known as the “defect liability period”. Upon expiry of the defect liability period, the customers will release the retention monies to the Group. As at 31st December, 2000, 31st December, 2001 and 31st December, 2002, the retention monies receivable represented approximately 13.2%, 14.3% and 14.3% of the total of the trade debtors and retention monies receivable of the Group respectively. As a result, if the credit worthiness of the major customers deteriorates during the defect liability period, the Group may not be able to recover these retention monies and this may adversely affect the financial performance of the Group.
Reliance on key personnel
The Group’s success is, to a significant extent, attributable to the visions and business acumen of Mr. Derek Tsang, a co-founder of the Group and the chairman of the Company. Mr. Derek Tsang is primarily responsible for the Group’s overall strategic planning, formulation of corporate policies and marketing management. He has entered into a service agreement with the Company for a fixed term of three years from the Listing Date and will continue thereafter until terminated by either party giving to the other not less than two months’ prior notice in writing (the details of which are set out in the section headed “Further information about directors and experts” in Appendix V to this prospectus). Although Mr. Derek Tsang’s service contract provides that he will not engage in or be engaged in the same industry or a competing business for a period of 12 months after termination of his service contract, and that he will not divulge confidential information of the Group, there will likely be a material adverse impact on the operations and profitability should the Group lose the services of Mr. Derek Tsang.
Reliance on third party to provide research and development services
The Group has engaged InnoTech, an Independent Third Party, to assist it in the development of IBS for the Group’s clients. The cooperation with InnoTech commenced at the end of 2000 and for the two years ended 31st December, 2002, InnoTech was engaged by the Group in about 15 IBS development projects and the fee paid to InnoTech in respect of research and development
– 36 – RISK FACTORS services accounted for approximately 35.7% and 34.2% respectively of the Group’s total research and development costs. Although the Directors do not foresee any difficulty in finding external parties to assist the Group in IBS research and development, there is possibility that the Group is unable to secure the research and development services of InnoTech or obtain the research and development services from other external parties and in such event, the Group’s ability to develop new products or new applications for existing products and services could be adversely affected. This could impact on the Group’s ability to achieve its growth strategy of increased market share and profitability through the development of new products and applications.
The Group has entered into an exclusive master subcontracting agreement with InnoTech securing their exclusive research and development services for an initial term of three years commencing on 1st May, 2002 and subject to mutual agreement on renewal for a period of two years. Details of the master subcontracting agreement entered into with InnoTech are set out in the paragraph headed “Strategic alliances” in the section headed “General overview of the Group and its business” in this prospectus.
Reliance on subcontractors
In providing IBS design, supply and installation services to its clients, the Group may subcontract an entire IBS project to a subcontractor. The Group started to subcontract IBS projects from 2001 and since such IBS projects were usually small-scale, the Group found it more cost effective to subcontract out these projects. For each of the two years ended 31st December, 2002, the Group obtained a total of 202 and 234 IBS projects out of which 22 and 21 IBS projects were subcontracted respectively. The subcontracting fee paid in this respect amounted to approximately HK$0.9 million and HK$2.9 million, representing approximately 6.2% and 13.5% of the Group’s total costs of sales for each of the two years ended 31st December, 2002 respectively. The contract sums of the 22 and 21 subcontracted IBS projects represented approximately 7.8% and 12.6% respectively of the total contract sums of the IBS projects obtained for each of the two years ended 31st December, 2002.
While the Group has a project execution team of 30 staff as at the Latest Practicable Date, the Group engages a number of subcontractors, all of which are Independent Third Parties, to provide labour solely for system installation. In such cases the Group is still responsible for managing and executing the IBS projects and supervising the subcontracted labour. During the Track Record Period, the subcontracting fee paid relating to the provision of labour amounted to approximately HK$4.2 million, HK$5.1 million and HK$5.3 million respectively, representing approximately 27.1%, 35.2% and 24.7% respectively of the Group’s total costs of sales.
The Group’s performance in the provision of IBS solutions to certain extent relies on the quality of the work performed by its subcontractors. Although the Directors consider that external sources are widely available for the Group to subcontract its services, there is still a possibility that the Group may not be able to source suitable subcontractors, or the subcontracting fee increases substantially, in such events the business and the profitability of the Group may be adversely affected.
In addition, although there is no material claim or lawsuit against the Group from its subcontractors, in the event that such claim or lawsuit arises in the future, the Group’s operations may be adversely affected.
Reliance on major suppliers
During the Track Record Period, the Group’s largest supplier accounted for approximately 20.5%, 11.3% and 11.0% respectively of the Group’s cost of sales and services rendered. For the same periods, the five largest suppliers of the Group accounted for approximately 39.2%, 36.1% – 37 – RISK FACTORS and 34.5% respectively of the Group’s cost of sales and services rendered. These five largest suppliers of the Group, who are Independent Third Parties, are principally providers of electronic devices and equipment. Although the Directors do not foresee any difficulty in sourcing other reliable suppliers, in the event the Group is not able to obtain materials from its current major suppliers for any reason, the business and profitability of the Group may be adversely affected.
Intellectual property rights
The Group does not hold any patent and has not filed any patent applications in respect of any of its products. The Group’s ability to protect its intellectual property rights in Hong Kong includes copyrights and confidentiality agreements which may have limited protection to the Group. There is no assurance that the precautions implemented by the Group and the protections in law will effectively prevent unauthorised use of the confidential information or technical know-how of the Group, which could have an adverse impact on the business of the Group.
In addition, applications have been made by the Group to register the service mark and trademark referred to in the paragraph headed “Intellectual property rights” in Appendix V to this prospectus. It is uncertain when the Group can obtain approvals on these applications and there is no guarantee that these applications will not be opposed by third parties who may claim to have the proprietary rights to such intellectual property. The Group’s business could be adversely affected if the proprietary rights to such service marks or trademarks are not obtained.
The relevant licenses and/or permits that are required by the Group in the course of providing services to its clients in relation to intellectual property rights are all related to software and the licensing fee is incorporated in the purchase price of such software. Although no claims have been made against the Group in relation to infringement of intellectual property rights up to the Latest Practicable Date, there is a risk that claims may be made against the Group for infringement of intellectual property rights. Given that it is not justified in terms of costs and benefits to purchase relevant insurance to protect infringement of intellectual property rights, the Group may be subject to imposition of liability that could have a material adverse effect on the Group’s operational and financial conditions.
RISKS RELATING TO THE INDUSTRY
Dependence on the construction market
The Group’s business is dependent to a significant extent on the performance of the construction industry in Hong Kong and the PRC. An increase in construction activities in Hong Kong and the PRC increase the opportunities for the Group to provide its products and services. However, the downturn of the property market in Hong Kong since late 1997 has led to a decrease in the number of completed new buildings and therefore affected the Group’s opportunities to further expand its business. The continuing sluggishness of the Hong Kong property market may adversely affect the Group’s future prospect and profitability.
Technological changes
The business of the Group is based on innovative technology such as the Internet, wireless control via mobile phones, web-based computers and personal digital assistants. However, these technologies are characterised by rapid technological advances, frequent new product introductions, enhancements to existing products and changing customer preferences.
– 38 – RISK FACTORS
Competitors of the Group may also offer similar products but with more advanced technologies. Therefore, the Group’s future success will depend on its ability to respond to these technological advances in a timely and cost-effective manner by continuously developing new products or applications and/or enhancement of its existing products. If the Group is unable to keep abreast of all the developments in the relevant technology and is unable to offer leading edge products and services to its customers, it may not be able to remain competitive and the Group’s performance could be adversely affected.
Competition
The requirement of advanced technologies and frequent technological changes effectively limit the number of players in the intelligent building market in Hong Kong and the PRC. However, as the demand for IBS continues to grow, more competitors may be attracted to the industry. In addition, given that each component of IBS may be provided by a number of suppliers, the Group may encounter cut-throat competition in tendering for projects from these competitors which may have better costing structure.
The Directors are aware that there are many competitors offering similar products and possibly at lower prices. If competition intensifies in the intelligent building arena, there is a risk that the Group may not be able to continue to tender for projects at the existing profit margin and could therefore adversely affect its financial performance.
Moreover, as the PRC has become a member of the WTO and is required to open its market to foreign competitors, the participation of foreign IBS solutions providers in the PRC market may affect the future expansion plan of the Group in the PRC. If the Group fails to maintain the competitive advantages over its competitors, the business of the Group may be adversely affected.
Liquidated damages for sub-standard works
For the IBS projects undertaken by the Group, it is common to include a clause for payment of damages for defective or sub-standard works in the contract made between the Group and the principal involved. Such a clause usually provides that any unsatisfactory works identified by the principal may have to be remedied or compensated by the Group.
Although there is no material claim or lawsuit against the Group for defective or sub- standard works performed by the Group, there is always a risk that the IBS projects undertaken by the Group may not fully satisfy the operational requirements of the principal. The Group is therefore subject to the risk of claims for liquidated damages or liable to incur extra costs in remedial works, thus affecting the profitability of the Group.
Recent outbreak of atypical pneumonia in Hong Kong
The business operations of the Group during the Track Record Period are based in Hong Kong. The outbreak of atypical pneumonia in Hong Kong during the period from March to May 2003 has adversely affected the Hong Kong economy. Postponement in purchasing and investment decisions, persistent weakness of business and consumer sentiment and a fall in sales and output levels in retail, manufacturing and construction sectors were widely reported. The Group’s business was also affected by the disease as the Directors noted that there was delay in the award of certain contracts by the Group’s customers, which resulted in a decrease in the annualised number of contracts obtained by the Group since 1st January, 2003 up to the Latest Practicable Date compared with 2002. In the event that such deferment in the award of projects continues in the future as a result of atypical pneumonia, it will have a negative impact on the Group’s operations and profitability.
– 39 – RISK FACTORS
RISKS RELATING TO THE PRC
Economy and legal framework of the PRC
The PRC has been in the process of transforming its economy from a planned economy into a socialist market economy. Despite such transformation, the economy of the PRC still differs from the economies of most developed countries in many aspects, including its structure, government involvement, level of development, growth rate, capital investment and allocation of resources. In recent years, the PRC Government has implemented economic reform measures emphasising decentralisation and the utilisation of market forces in the development of the PRC economy. Such economic reform measures may be inconsistent or ineffectual.
The Group’s operating results may be adversely affected by changes in the PRC’s political, economic and social conditions, the policies of the PRC Government and any changes in the laws and regulations of the PRC, or the interpretation of the laws and regulations by the courts of the PRC.
There are also major differences in the legal system and tax laws of the PRC and those of the western industrialised countries. As a consequence, the interpretation, implementation and enforcement of such laws and regulations within the PRC may be uncertain. One of the Group’s key strategies is to expand its operations into the PRC market, therefore changes to the PRC legal system, tax laws and other regulations may have an adverse impact on the Group’s operations and profitability.
RISKS RELATING TO INVESTMENT IN THE SHARES
Dilution pursuant to the Pre-IPO Share Option Scheme
The Group has in place the Pre-IPO Share Option Scheme and the total number of Shares which are liable to be issued thereunder is 18,750,000 Shares, representing approximately 14.8% of the Placing Shares and 5% of the issued share capital of the Company immediately following completion of the Placing. As at the Latest Practicable Date, options to subscribe for 18,750,000 Shares at a subscription price of HK$0.125 per Share, representing 50% of the Offer Price, have been conditionally granted under the Pre-IPO Share Option Scheme and no options have been granted under the Share Option Scheme. The discount of 50% of the Placing Price on the subscription price of the options granted under the Pre-IPO Share Option Scheme is given for the purpose of recognising the past contribution of the Eligible Persons (as defined in the Pre-IPO Share Option Scheme) and to provide incentives and a direct economic interest in attaining the long term business objectives of the Company. Details of the Pre-IPO Share Option Scheme and the Share Option Scheme are set out in the sections headed “Pre-IPO Share Option Scheme” and “Share Option Scheme” respectively in Appendix V to this prospectus.
Potential investors should note that the subscription price of HK$0.125 per Share of the options granted under the Pre-IPO Share Option Scheme represents a significant discount of 50% to the Placing Price.
Any exercise of options under the Pre-IPO Share Option Scheme and the Share Option Scheme would result in a reduction in the percentage ownership of the Shareholders and may result in a dilution in the earnings per Share. Should the options granted under the Pre-IPO Share Option Scheme be exercised in full, the shareholding interests of the Shareholders will be diluted
– 40 – RISK FACTORS by approximately 4.8% and the adjusted net tangible asset value per Share as stated in the paragraph headed “Adjusted net tangible assets” under the section headed “Financial information” in this prospectus will be changed from approximately 6.5 cents to 6.7 cents, representing an increase of approximately 3.1% on the adjusted net tangible asset value per Share.
Liquidity and possible price volatility of the Shares
An active trading market for the Shares may not develop and the trading price for the Shares may fluctuate significantly. Prior to the Placing, there has been no open market for any of the Shares. The Placing Price may not be indicative of the price at which the Shares will trade on the GEM Board following completion of the Placing. In addition, there is no assurance that an active trading market for the Shares will develop, or, if it does develop, that it will be sustained following completion of the Placing, or that the market price of the Shares will not decline below the Placing Price.
The trading price of the Shares could also be subject to significant volatility in response to, among other factors:
• investors’ perception of the Group and the Group’s business plans;
• variations in operating results of the Group;
• changes in the pricing policy made by the Group and its competitors;
• the dividend payout ratio of the Company; and
• general economic and other factors.
RISKS RELATING TO STATEMENTS MADE IN THIS PROSPECTUS
Business objectives may not be achieved
The business objectives of the Group are set out in the section headed “Statement of business objectives” in this prospectus. Investors should note that the business objectives of the Group are formulated by the Group based on various assumptions set out in the paragraph headed “Bases and assumptions” in that section. These assumptions are inherently subject to many uncertainties and unpredictable factors. This may result in any or all of the business objectives of the Group not being able to be achieved within the scheduled time or at all.
Forward-looking statements contained in this prospectus may not materialise
Included in the section headed “Statement of business objectives” in this prospectus are various forward-looking statements which can be identified by the use of forward-looking terminology such as “may”, “expect”, “anticipate”, “estimate”, “plan”, “continue”, “believe”, “likely” and other similar words. These statements are forward-looking and only reflect the current expectations of the Directors. Such forward-looking statements involve risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Group, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on a number of assumptions regarding the Group’s current and future business strategies and the environment in which the Group will operate in the future.
– 41 – INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING
DIRECTORS’ RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS
This prospectus, 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:–
(a) the information contained in this prospectus is accurate and complete in all material respects and not misleading;
(b) there are no other matters nor omissions of which would make any statement in this prospectus misleading; and
(c) all opinions expressed in this prospectus have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.
THE PLACING
The Company is offering 66,000,000 new Shares for subscription and the Vendor is offering 61,000,000 existing Shares for purchase under the Placing.
The Placing Shares will be conditionally placed with professional, institutional and other investors by the Underwriters or through selling agents appointed by them at the Placing Price. Details of the structure and conditions of the Placing are set out in the section headed “Structure of the Placing” in this prospectus.
UNDERWRITING
This prospectus is published in connection with the Placing which is sponsored by MasterLink. The Placing is fully underwritten by the Underwriters pursuant to the Underwriting Agreement. For further information relating to the underwriting arrangements, please refer to the section headed “Underwriting” in this prospectus.
ROLE OF VINCO CAPITAL
Vinco Capital is the adviser to the Company regarding the Placing. In conjunction with the advice provided by the Sponsor to the Company, Vinco Capital discussed with and advised the Company on the share offering structure, pricing, underwriting syndication and marketing strategy of the Company in relation to the Placing, and the effect of general market conditions on the timing of the Placing. In addition, Vinco Capital has also provided comments with respect to the prospectus layouts, prospectus content, presentation materials as well as roadshow arrangement to the Company in relation to the Placing.
Vinco Capital has never been involved in the drafting of this prospectus nor the preparation of any documentation submitted to the Stock Exchange in relation to the Placing. The Sponsor confirms that the services provided by Vinco Capital do not affect opinions or views given in this prospectus and has discharged its duty of sponsor as required under the GEM Listing Rules with no reference to the work done by Vinco Capital.
– 42 – INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING
PLACING SHARES ARE TO BE OFFERED IN HONG KONG ONLY
No action has been taken to permit the Placing or the distribution of this prospectus in any jurisdiction (in particular in the US) other than Hong Kong. Accordingly, this prospectus may not be used for the purpose of, and does not constitute, an offer or invitation in any other jurisdiction or in any circumstances in which such offer or invitation is not authorised or to any person to whom it is unlawful to make such an offer or invitation.
The Placing Shares are offered solely on the basis of the information contained and representations made in this prospectus. The Company has not authorised anyone to provide any information or to make any representation not contained in this prospectus, and any information or representation not contained herein must not be relied upon as having been authorised by the Company, the Sponsor, the other Underwriters, any of their respective directors, or any other person involved in the Placing.
United States
The Placing Share have not been and will not be registered under the US Securities Act of 1933 (as amended) (the “US Securities Act”) or any US state securities law, and may not be offered, sold or delivered within the US or to, or for the account or benefit or, US persons. The Placing Shares are being offered or sold outside the US to non-US persons in reliance on Regulations under the US Securities Act. The Placing Shares have not been approved or disapproved by the US Securities and Exchange Commission, any state securities commission in the US or any other US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the Placing Shares or the accuracy or adequacy of this prospectus. Any representations to the contrary is a criminal offence in the US.
United Kingdom
This prospectus has not been approved by an authorised person in the United Kingdom and has not been registered with the Registrar of Companies in the United Kingdom. The Placing Shares may not be offered or sold in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purpose of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995, as amended and where the applicable provisions of the Financial Services Act 1986 have been complied with. In addition, no person may issue or pass on to any person in the United Kingdom any document received by him in connection with the Placing unless that person is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 (as amended), or is a person to whom such document may otherwise lawfully be issued or passed on.
Singapore
This prospectus has not been and will not be registered as a prospectus with the Registrar of Companies and Businesses in Singapore. Accordingly, this prospectus and any other offering document or materials in connection with the Placing may not be issued, circulated or distributed in Singapore nor may any of the Placing Shares be offered for subscription or purchase or sold, directly or indirectly, nor may an invitation or offer to subscribe for or purchase any Placing Shares be made, directly or indirectly, to the public or any member of the public in Singapore
– 43 – INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING other than (a) pursuant to, and in accordance with the conditions of, exemption invoked under Division 5A of Part IV of the Companies Act (Cap. 50) of Singapore (“Singapore Companies Act”) and to persons to whom the Placing Shares may be offered or sold under such exemption; or (b) otherwise pursuant to, and in accordance with the conditions of any other provision of the Singapore Companies Act.
Japan
The Placing has not been and will not be registered under the Securities and Exchange Law of Japan (Law No. 25 of 1948, as amended) (the “Securities and Exchange Law”). The Placing Shares may not be offered or sold, directly or indirectly, in Japan, or to the account or for the benefit of any resident of Japan, except pursuant to an applicable exemption from the registration and prospectus delivery requirements of the Securities and Exchange Law and in compliance with any other applicable Japanese law.
Cayman Islands
No invitation may be made directly or indirectly by or on behalf of the Company to the public in the Cayman Islands to subscribe for or acquire any of the Placing Shares.
Each person acquiring Placing Shares in the Placing will be required to, or deemed by its acquisition of Placing Shares to, confirm that it is aware of the restrictions on offers and sales of the Placing Shares described in this prospectus.
APPLICATION FOR LISTING ON GEM
The Company has applied to the GEM Listing Committee for the listing of, and permission to deal in, the Shares in issue, the New Shares which are to be issued pursuant to the Placing and the Shares which may fall to be issued upon exercise of the options granted under the Pre-IPO Share Option Scheme and options that may be granted under the Share Option Scheme, on GEM.
No part of the share or loan capital of the Company is listed or dealt in on any other stock exchange and at present no such listing or permission to deal is being or proposed to be sought.
Pursuant to Rule 11.23 (1) of the GEM Listing Rules, at the time of listing and at all times thereafter, (i) the Company must maintain the “minimum prescribed percentage” of 25% of the issued share capital of the Company in the hands of the public; (ii) the minimum market capitalisation of the share capital of the Company in the hands of the public must be the higher of HK$30 million or 25% of the market capitalisation; and (iii) the share capital of the Company in the hands of the public should, as at the time of listing, be held among at least 100 public shareholders.
PROFESSIONAL TAX ADVICE RECOMMENDED
If you are unsure about the taxation implications of the subscription, purchase, holding or disposal of, dealing in, or the exercise of any rights in relation to the Placing Shares, you should consult an expert.
The Company, the Directors, the Sponsor, the Underwriters and any other person involved in the Placing do not accept responsibility for any tax effects on or liabilities resulting from the subscription for, or purchase, holding or disposal of, or dealing in or the exercise of any rights in relation to, the Placing Shares. – 44 – INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING
STAMP DUTY
Dealings in the Shares registered on the Company’s Hong Kong branch register of members will be subject to Hong Kong stamp duty. Only Shares registered on the Company’s Hong Kong branch register of members may be traded on GEM.
CONDITIONS OF PLACING
Particulars of the Placing, including conditions, are set out in the section headed “Structure and conditions of the Placing” of this prospectus.
SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS
If the Stock Exchange grants the listing of, and permission to deal in, the Shares on GEM and the Company complies with the stock admission requirements of HKSCC, the Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the date of commencement of dealings in the Shares on GEM or any other date HKSCC chooses. Settlement of transactions between participants of the Stock Exchange is required to take place in CCASS on the second business day after any trading day.
Prospective investors should seek the advice of their stockbrokers or other professional advisers for details of those settlement arrangements as such arrangements will affect their rights and interests.
All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.
All necessary arrangements have been made for the Shares to be admitted into CCASS.
COMMENCEMENT OF DEALINGS IN THE SHARES
Dealings in the Shares on GEM are expected to commence on Wednesday, 25th June, 2003. The Shares will be traded in board lots of 10,000 Shares each.
– 45 – DIRECTORS AND PARTIES INVOLVED IN THE PLACING
Executive Directors
Name Address Nationality
Tsang Hon Chung Flat D, 7th Floor Chinese Block 15, City One Shatin New Territories Hong Kong
Lam Yew Kai Flat B, 1st Floor Chinese 20 Broadway Mei Foo Sun Tsuen Kowloon Hong Kong
Sung Fung Chin, Stanley Flat D, 7th Floor Australian Block 15, City One Shatin New Territories Hong Kong
Non-Executive Directors
Wong Mau Fa Flat B, 1st Floor Chinese 20 Broadway Mei Foo Sun Tsuen Kowloon Hong Kong
Tsang Hon Ming Flat B, 27th Floor Chinese Block One Rhine Garden Sham Tseng New Territories Hong Kong
Independent non-executive Directors
Fong Yick Jin, Eugene Flat 27A, Tower 7 Australian The Waterfront 1 Austin Road West Tsimshatsui Kowloon Hong Kong
Liu Pui Ming 1B, 2nd Floor Chinese Nam Hang Village Tai Po New Territories Hong Kong
– 46 – DIRECTORS AND PARTIES INVOLVED IN THE PLACING
Sponsor MasterLink Securities (Hong Kong) Corporation Limited Unit 2603, 26th Floor The Center 99 Queen’s Road Central Hong Kong
Joint-Lead Managers MasterLink Securities (Hong Kong) Corporation Limited Unit 2603, 26th Floor The Center 99 Queen’s Road Central Hong Kong
Uni-Alpha Securities Limited Room 905, 9th Floor Shui On Centre 6-8 Harbour Road Wanchai Hong Kong
Underwriters MasterLink Securities (Hong Kong) Corporation Limited Unit 2603, 26th Floor The Center 99 Queen’s Road Central Central Hong Kong
Uni-Alpha Securities Limited Room 905, 9th Floor Shui On Centre 6-8 Harbour Road Wanchai Hong Kong
Kaiser Securities Limited Unit A3, 32nd Floor United Centre 95 Queensway Hong Kong
CAF Securities Company Limited 13th Floor Fairmont House 8 Cotton Tree Drive Central Hong Kong
– 47 – DIRECTORS AND PARTIES INVOLVED IN THE PLACING
Celestial Securities Limited 21st Floor, Low Block Grand Millennium Plaza 181 Queen’s Road Central Hong Kong
Yue Xiu Securities Company Limited 24th Floor Yue Xiu Building 160-174 Lockhart Road Wanchai Hong Kong
Crosby Limited Unit 2701-2703, 27th Floor Citibank Tower 3 Garden Road Central Hong Kong
Core Pacific-Yamaichi International (H.K.) Limited 36th Floor, Cosco Tower Grand Millennium Plaza 183 Queen’s Road Central Hong Kong
JS Cresvale Securities International Limited Suite 701-704A Asia Pacific Tower Citibank Plaza 3 Garden Road Central Hong Kong
China Everbright Securities (HK) Limited 36th Floor Far East Finance Centre 16 Harcourt Road Hong Kong
Concord Capital Brokerage Limited Room 4208-10, 42nd Floor COSCO Tower 183 Queen’s Road Central Hong Kong
Taiwan Securities (HK) Company Limited Room 4001-3, 40th Floor, Tower 2 Lippo Centre 89 Queensway Hong Kong
– 48 – DIRECTORS AND PARTIES INVOLVED IN THE PLACING
Legal advisers to the Company As to Hong Kong Law: Arculli and Associates 2012 Hutchison House 10 Harcourt Road Central Hong Kong
As to Cayman Islands Law: Conyers Dill & Pearman, Cayman Century Yard Cricket Square Hutchins Drive George Town Grand Cayman Cayman Islands British West Indies
As to PRC Law: Shu Jin & Co. 21st Floor Dong Feng Building Shennan Road Centre Shenzhen PRC
Legal advisers to the Sponsor Preston Gates & Ellis and the Underwriters 10th Floor, Hutchison House 10 Harcourt Road Central Hong Kong
Auditors and reporting accountants PKF Certified Public Accountants 26th Floor, Citicorp Centre 18 Whitfield Road Causeway Bay Hong Kong
Property valuer Vigers Hong Kong Limited 1607-12 Miramar Tower 132 Nathan Road Tsimshatsui Kowloon Hong Kong
– 49 – CORPORATE INFORMATION
Registered office Century Yard Cricket Square Hutchins Drive P.O. Box 2681GT George Town Grand Cayman Cayman Islands British West Indies
Head office and principal place 1st Floor, A2, Block 3 of business in Hong Kong Golden Dragon Industrial Centre Nos. 172-180 Tai Lin Pai Road Kwai Chung New Territories Hong Kong
Company website www.innovis.com.hk
Company secretary Mr. Wu Kwok, Karl CPA
Authorised representatives Mr. Tsang Hon Chung Mr. Lam Yew Kai Mr. Sung Fung Chin, Stanley
Authorised person to accept Mr. Tsang Hon Chung service of process and notices Mr. Lam Yew Kai
Compliance officer Mr. Tsang Hon Chung
Qualified accountant Ms. Wong Tik, Tikia AHKSA
Audit committee Mr. Sung Fung Chin, Stanley Mr. Fong Yick Jin, Eugene (Chairman) Mr. Liu Pui Ming
Principal bankers Hang Seng Bank Limited 83 Des Voeux Road Central Hong Kong
The Hongkong and Shanghai Banking Corporation Limited 1 Queen’s Road Central Hong Kong
Hong Kong branch share registrar Tengis Limited and transfer office Ground Floor Bank of East Asia Harbour View Centre 56 Gloucester Road Wanchai Hong Kong
– 50 – INDUSTRY OVERVIEW
The information presented in this section and identified as having been extracted from publicly available documents has not been prepared or independently verified by the Company, the Sponsor or any of their respective advisers or affiliates in connection with the Placing.
INTELLIGENT BUILDING
The world has become increasingly reliant on technology. The growing popularity of the Internet and mobile communications has led to the rapid discovery of how advanced technology can enhance our daily lives. With greater ownership of PCs and higher global living standards, there has been a vast increase in demand for such technologies as broadband Internet access, automation and remote control. To cope with this rising demand for higher living standards, the concept of intelligent buildings has emerged in building construction and architecture all over the world.
The intelligent building concept is a mixture of traditional architecture and advanced information and telecommunication technology aimed at allowing for a more efficient use of resources, increasing the comfort and security of its occupants and reducing the maintenance costs. It originated from the US at the end of the last century, with the first intelligent building completed in 1984. The intelligent building concept generally comprises four areas, namely, energy efficiency, life safety, telecommunication and workplace automation. The ultimate purpose in the design of an intelligent building is to integrate the above four areas into one single computerised system. Hardware comprising different types of electronic devices are integrated by a computer control system which is specifically designed to serve specific client requirements.
Typically, an IBS consists of three main systems: (i) building management system (“BMS”); (ii) building communication system (“BCS”); and (iii) office automation system (“OAS”).
Building management system. BMS integrates the basic elementary systems of a traditional building including electricity and power supply system, security system, ventilation and air conditioning system, lighting system, property management system, communication system and structural cabling system. The centralisation and integration of daily operation management is meant to allow the occupants a safe and comfortable living environment and provide reference and historical data of any requirements to enhance the operation efficiency and maintenance of the properties.
Building communication system. BCS is a sophisticated network system which enables all voices, data and other graphics to be efficiently interchanged within the building as well as with all other locations around the world. BCS involves design and installation of data networking systems and cabling systems. By incorporating the two communication systems into an IBS with the concept of “4C Technologies” (computer, communication and networking, control and IC cards), an intelligent building allows occupants to communicate and transfer data efficiently to any location around the world.
Office automation system. OAS is an important component of an IBS as it promotes work efficiency and quality. Via OAS, occupants are able to greatly increase efficiency on information management and guarantee accuracy during the transmission process. A complete OAS should comprise data generation and input, processing, storage and retrieval, copy and editing, transmission and interchange, and also safeguard such data and information. An OAS should be designed in accordance with the different purposes of buildings, such as hospitals, schools, banks and arcades.
– 51 – INDUSTRY OVERVIEW
With the application of the above systems, an IBS is expected to achieve faster response time, require less human interference and reduce human error and negligence while providing a secure, comfortable and efficient quality of services and framework for integrated control management.
Smart home concept
Smart home (the “Smart Home”) technology is a condensed form of an IBS. Under Smart Home technology, occupants can have their home heating system, air-conditioning, lighting control, lawn watering system or any real security automated and controlled from a remote location. A central microprocessor serves as the traffic cop for initiating and routing communication signals throughout the house as well as interfacing with the system by forwarding signals received from controlling devices such as keypads, touchscreens, panic buttons, TV screens, computers, telephones, hand-held remote or other portable devices to the automated appliances and systems in the house being controlled.
Smart card
A major facilitator of an intelligent system is the application of an IC card. The IC card is a memory chip set which enables cardholders to utilise various services and benefits such as electronic payments and identity verifications. Currently, an IC card has a large data storage capability which allows data storage, data transmission and processing through touch and non-touch based card readers. In addition, many government departments, public service organisations and private sectors have already accepted and are utilising the IC cards to process some part of their operations through the publicly wired hub.
With the IC card, card holders can process a variety of functions such as regular payments for public services including telephone, water, gas and utilities, identity verifications, attendance recordings and other occasional payments such as Internet purchases, public transportation fares, fees for public infrastructures, i.e., highway and bridge tolls. Moreover, IC cards are widely used to control access to restricted facilities, depending on user privileges and time restrictions. Examples of IC card use include campus identity cards for universities and residential cards for private estates.
INTELLIGENT BUILDING MARKET
The US market is the world’s largest single market for intelligent buildings. Based on a research report “Intelligent Controls in Buildings – The North American Market 2000-2005”, between 1998 and 2000, the US intelligent building market grew at more than 16% per annum and exceeded the 10% per annum growth achieved in 1998. The report concluded that new construction and expanding refurbishment business will play a key role in driving the intelligent building market in the future. However, factors such as increased demand for improved indoor air quality, optimising energy consumption and strong growth in integration and remote control of building services have also contributed to the growth and will help to sustain demand in the future.
Although the Directors are not aware of any statistical data in respect of IBS market in Hong Kong, based on US market statistics as mentioned above, the Directors believe that there is much potential for the development of the intelligent building market in Hong Kong. In fact, the concept of intelligent building technology has yet to become a familiar concept in Hong Kong. The Directors consider that only a limited percentage of newly constructed buildings in Hong Kong have installed IBS and therefore the intelligent building technology market is still in its initial
– 52 – INDUSTRY OVERVIEW stage of development and is expected to gain popularity in the near future. In addition, given the expanding economy of the PRC and hence increasing demand for better living standard, the Directors believe that further development of intelligent buildings in the PRC can be expected in the near future.
Factors contributing to development of IBS market in Hong Kong
Property market in Hong Kong
The economic depression and the resulting sluggishness in the property market in Hong Kong after 1997 have led to a decrease in the number of completed new buildings in recent years. However, it is generally accepted that the property market was one of the foundations of Hong Kong’s economy and was well-established. Despite the depressed property market, the number of newly completed buildings still recorded an impressive amount that laid down the foundation for development of IBS market.
The following table depicts the information relating to newly completed private buildings in Hong Kong from 1999 to November 2002:–
Year Number of blocks Usable floor area (’000 sq.m.)
1999 646 2,629.7 2000 611 1,514.9 2001 434 1,354.1 January to November 2002 982 1,653.2
Source: Hong Kong Monthly Digest of Statistics (February 2003)
The Directors consider that the intelligent buildings concept is regarded as a value-added component for enhancing sales of newly developed residential and commercial buildings. The Directors believe that the solid foundation of the Hong Kong property market with an average usable floor area of newly constructed private buildings of approximately 1,788,000 sq.m. during 1999 to November 2002 provides the Group with enormous market potential for developing IBS business in Hong Kong.
Demand for refurbishment of old buildings
According to the Housing Authority of Hong Kong, of the 42,000 private buildings in the territory, around 11,400 buildings ranging in age from 20 to 40 years old are more susceptable to lack of maintenance problems and which may require renovation work. A paper entitled “Urban Renewal in Hong Kong” published in 1996 by the Planning, Environment and Lands Branch of the Government of Hong Kong further revealed 80 hectares of approximately 47,000 residential units merit priority redevelopment. Given that application of IBS can enhance property management efficiency and therefore lower management costs, it is expected to have vast business opportunities for intelligent building design and implementation projects for refurbishment of old buildings.
– 53 – INDUSTRY OVERVIEW
Factors contributing to development of IBS market in the PRC
Government enforcement
The global trend and need of intelligent building technology has been recognised in the PRC since the 1980s. In early 1986, the State Development Planning Commission (國家發展計劃 委員會) approved and promoted the inclusion of the “National Focus Technology Project” as part of the “Seventh Five Years Plan” (七五計劃), entitled the 《智能化辦公大樓可行性研究》 (Intelligent Commercial Building Feasibility Study). The initiative established a foundation for the development of intelligent buildings in the PRC.
Following years of deliberation, the first seminar discussing the design of intelligent construction was held in Shanghai by the Office of Huadong Architecture & Design Institute (華東 建築設計院協辦) and the Survey Division (勘察部) of the Ministry of Construction (建設部) in January 1996. Later in October 1997, the Ministry of Construction announced the first regulatory document 《建築智能化系統工程設計管理暫行規定》(Interim Requirements on Design & Management of Intelligent Building Construction) symbolising the commencement of the nation’s intelligent building development. The document sets out the guidelines and regulatory requirements for the intelligent building industry including:
1. Definition of construction project(s) employing intelligent system(s);
2. Confirmation of the responsibilities of the Ministry of Construction on the management of IBS construction project(s);
3. Regulations on procedural requirements for approval of IBS construction project(s);
4. Establishment of professional qualifications of persons/bodies who may undertake the design of IBS construction projects and requirement for system integrators to carry out in-depth design of the system, system testing, training of property management personnel and technical support services in accordance with the specifications of such designing body of the IBS construction project;
5. Establishment of guidelines and regulations for designing IBS construction projects; and
6. Valuation and assessment of intelligent building construction project(s) after one year after commencement of operation and granting of “Outstanding design award for intelligent building construction” (建築智能化工程優秀設計獎) to project(s) with outstanding building intelligence design.
In 1998, aiming at enhancing the growth and quality standard of intelligent building development, a “Committee of Intelligent System Design & Engineering Construction of the Ministry of Construction” (建設部建築智能化系統工程設計專家工作委員會), which comprised of 59 professionals in IBS engineering and design, was founded in Beijing. During the same year, a document named《關於建立建築智能化系統工程設計和系統集成專項資質及開展試點工作 的通知》 stated in details the qualifications and professional requirements of qualified core systems and sub-systems designer and integrator. This document triggered further gradual progress in regulating rules and requirements for the industry.
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In order to implement the emphasis on intelligent home communities placed by the PRC government, the Ministry of Construction of the PRC issued the《全國住宅小區智能化技術示 範工程建設工作大綱》 (Working Principles in Demonstration Construction of National Intelligent Home Community) and the 《全國住宅小區智能化系統示範工程建設要點與技術導則》 (Highlights and Technology Guidelines in Demonstration Construction of National Intelligent Home Community) in April and December 1999 respectively. In addition, the Ministry of Construction of the PRC has also promulgated the standards for the grading of intelligent home communities in 《住宅小區智能化系統技術導則》 (Technology Guidelines for Intelligent Home Communities).
Property market in the PRC
The total gross floor space of buildings completed in the PRC has increased from approximately 1,290.9 million sq.m. in 1996 to approximately 1,787.6 million sq.m. in 2001, representing a compound annual growth rate of approximately 6.7%. The total national investment in construction development in the PRC has increased from approximately RMB453.0 billion in 1996 to approximately RMB646.2 billion in 2001, representing a compound annual growth rate of approximately 7.4%. The following charts show a rising trend in the total national investment in real estate development and the total floor space of residential buildings completed in the PRC.
National Investment in Floor Space of Real Estate Development Residential Buildings Completed 700 1800 1750 650 1700 1650 600 1600 1550 550 1500 Million sq.m. RMB billion 500 1450 1400 450 1350 1300 400 1250 1996 1997 1998 1999 2000 2001 1996 1997 1998 1999 2000 2001 Year Year
Source: The National Bureau of Statistics, the PRC
With the booming domestic economy of the PRC during the past ten years, increasing numbers of individuals and corporations are willing to invest into the property market. According to statistics from The National Bureau of Statistics for the period 1996 to 2001, approximately 43% growth has been recorded in the total national investment in construction development, indicating that population in the PRC is now investing in the property market. In Shanghai, for instance, statistics show that demand for residential flats is growing rapidly and that newly developed residential units in Shanghai would be well-equipped with IBS while existing unoccupied residential units will be upgraded with an “intelligent hub” so as to make them competitive with the newly built units.
The PRC is keen to attract foreign developers into the country’s real estate development market. Currently, foreign involvement in real estate development in the PRC has mostly focused on luxury office and apartment buildings, hotels and villas. With the commencement of the housing reform in July 1998 and the increasing guidance provided by the PRC government concerning the requirements and criteria for the design and institution of intelligent systems in the PRC, there has
– 55 – INDUSTRY OVERVIEW been a rapid increase in demand for affordable housing with value-added intelligent facilities for the public. While currently there is an increasing number of large scale construction projects in the region funded by Hong Kong investors, it is expected that Hong Kong’s construction professionals will have advantages over overseas competitors in securing projects in the PRC. More opportunities will generally be brought to Hong Kong developers, contractors and consultants participating in the PRC’s medium to high-end housing construction projects.
Summary of regulations for sino-foreign equity joint venture in providing IBS solutions services in the PRC
1. According to the “The Directory of Foreign Investment Enterprises” (外商投資產業指導目 錄) jointly announced by the State Development Planning Commission (國家發展計劃委 員會), the State Economic and Trade Commission (國家經濟貿易委員會) and the Ministry of Foreign Trade and Economic Cooperation (對外經濟貿易合作部) (the “MOFTEC”) on 21st March, 2003, the provision of IBS products and installation services in the PRC by any sino-foreign equity joint-venture (the “JV”) is not restricted or prohibited to foreign investors and is allowable for foreign investment.
2. According to No.113 “Provisions on Enterprise Administration of Foreign Investment in Construction Industry” (外商投資建築業企業管理規定”) jointly announced by the Ministry of Construction (建設部 ) and the MOFTEC, any JV engaging in the provision of IBS products and installation services is required to obtain a “Certificate for Foreign Investment Enterprise” (外商投資企業批準證書”) from the foreign trade and economic administrative authority and to register with the State Administration for Industry and Commerce (國家工 商行政管理總局) or its authorised local industry and commerce bureaus. Furthermore, such JV is required to obtain the relevant certificates of competency for the provision of IBS products and installation services from authorised construction departments.
Under paragraph 12 of No.113 “Provisions on Enterprise Administration of Foreign Investment in Construction Industry” (外商投資建築企業管理規定), the total contribution amount by the PRC party should not be less than 25% of the total registered capital of the JV.
3. According to paragraph 22 of No.113 “Provisions on Enterprise Administration of Foreign Investment in Construction Industry” (外商投資建築業企業管理規定), the application for the relevant types of certificates of competency by the JV engaging in the provision of IBS products and installation services is subject to verification in accordance with No. 87 “Provisions on Management of Competency for Construction Industry Enterprise” (建築業 企業資質管理規定) by authorised construction departments.
4. According to No. 87 “Provisions on Enterprise Administration of Foreign Investment in Construction Industry” (建築業企業資質管理規定), the certificates of competency are for three types of construction enterprises: i) main-contractors; ii) specialist contractors; and iii) labour subcontractors. The relevant certificates of competency that are required to be obtained by any JV engaging in the provision of IBS products and installation services are under the category of specialist contractors. The JV should register with the local industry and commerce bureaus and obtain the “Enterprise Legal Person Business License” (企業法 人營業執照) prior to the submission of the application for the relevant certificates of competency to the authorised construction departments.
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HISTORY AND DEVELOPMENT
The Group was founded in February 1990 when Wah Lam was established by Mr. Edmond Lam and Mr. Derek Tsang. The Group was originally engaged in the supply and installation of various types of traditional ELV electronic systems for commercial and residential buildings in Hong Kong. Mr. Edmond Lam and Mr. Derek Tsang held 70% and 30% respectively of the then issued shares of Wah Lam. Prior to the establishment of Wah Lam, Mr. Edmond Lam and Mr. Derek Tsang already had extensive experience in the electronic engineering industry. The ELV electronic system is the foundation of a building’s electronic infrastructure and the key support system for an intelligent building.
In 1991, as the Group continued to develop its ELV system business, the Group expanded its services to supply and installation of satellite television systems after being awarded a “Satellite Master Antenna Television License” issued by the Office of Telecommunication Authority in Hong Kong in July 1991. During the same year, the Group also organised a seminar on the application of satellite technology to promote the use of satellite technology in Hong Kong.
In November 1992, Mr. Derek Tsang subscribed for 46,666 new shares in Wah Lam at HK$46,666 following which Mr. Edmond Lam and Mr. Derek Tsang held 60% and 40% respectively of the then issued share capital of Wah Lam. In September 1993, Mrs. Lam (Ms. Wong Mau Fa, the wife of Mr. Edmond Lam) and Mr. Niki Tsang (the younger brother of Mr. Derek Tsang) joined the Group following the transfers by Mr. Edmond Lam and Mr. Derek Tsang of 49,000 shares and 32,666 shares in Wah Lam respectively at par value. Following such transfers, Mr. Edmond Lam, Mr. Derek Tsang, Mrs. Lam and Mr. Niki Tsang were interested in 45%, 30%, 15% and 10% of the then issued share capital of Wah Lam respectively. At that time Mrs. Lam was responsible for the daily administrative operations and Mr. Niki Tsang was responsible for the business development of the Group.
Along with the rapid growth in Hong Kong’s construction industry during the mid-1990s, the Group continued to expand its ELV system business. In July 1996, the Group was awarded a “Security Company License” by the Hong Kong Government and became one of its listed contractors of “Audio and Video Facilities”.
Capitalising on its experience in the construction industry, the Group broadened its services and product range further in 1997 to incorporate the supply and installation of television receivers following Wah Lam’s admission to the Hong Kong Government’s list of approved contractors of “Television Reception and Broadcasting”. With this accreditation, the Group was able to tender for Government contracts in television reception and broadcasting. During that year, the Group entered into its first contract with the Hong Kong Government as a contractor for television reception and broadcasting works on 24th April, 1997.
The Group was granted the quality accreditation of ISO9002 by the “Hong Kong Quality Assurance Agency” in 1997 for the Group’s outstanding achievement in quality management in the supply, installation and maintenance of ELV electronic systems.
Since its inception, the Group’s business had been carried out under subcontracting arrangements and was principally engaged in the provision of ELV electronic systems such as Satellite TV system, TV receivers and smart control systems. For each of these ELV electronic systems, various ELV electronic devices were applied. In light of the rapid developments in information technology in recent years, from 1998 the Group began to design and apply traditional ELV electronic systems and offered them to its clients as IBS.
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On 11th July, 1998, the Group successfully obtained its first contract to install a wide range of electronic and digital devices for an IBS project in 248 Queen’s Road East, Hong Kong and subsequently, the Group obtained an additional IBS contract on 16th July, 1998. During the Track Record Period, the Group obtained a total of 696 IBS contracts including “80 Robinson Road” and “Leighton Hill”. From 1st January, 2003 up to the Latest Practicable Date, the Group has obtained about 81 IBS projects.
In response to market demand for the introduction of a management system for intelligent buildings, the Group engaged InnoTech in September 2000 to develop an intelligent building management system called “Emergency Call Alarm System”. The “Emergency Call Alarm System” was developed during the year 2000 and the intellectual property rights of which are held by the Group. It was first used in a project for Hong Kong Baptist University and as at 31st December, 2002 the system has been contracted to be used in over five intelligent building projects.
The following two years represented a period of consolidation and growth for the Group’s business in IBS. In 2000, the Group was awarded the “Certificate of Merit For New SME Award” by the Hong Kong Productivity Council and successfully held a seminar introducing the smart control system concept in Hong Kong.
It is the Group’s strategy to further expand and diversify its business to include design and installation of the IBS in the PRC. Given the Group’s well-developed experience and expertise in the design and installation of a wide range of ELV electronic systems, the Group entered into the Master Consultancy Agreement with Shum Yip in January 2002 pursuant to which Wah Lam, a wholly-owned subsidiary of the Company, will be the exclusive provider of technological supporting advisory services for all IBS business developed by Shum Yip in the PRC. Under such arrangement, the Group has been involved in the provision of IBS consultancy services to Shum Yip in relation to two PRC property development projects, namely, 深圳市福田區住宅發展第二期及第三期 (Shenzhen Futian Residential Development Project Phase II and III) and上海華爾登廣場第二期 及第三期 (Shanghai Walton Plaza Construction Project Phase II and III). Further details of the engagement with Shum Yip are set out in the sub-paragraph headed “Shum Yip” under the paragraph headed “Strategic alliances” in this section.
In order to enhance the Group’s capability in developing its IBS solutions to meet specific clients’ needs in the future and to formalise the business relationship with InnoTech, Wah Lam entered into a master subcontracting agreement with InnoTech on 4th July, 2002 for an initial term of three years commencing on 1st May, 2002. Pursuant to the agreement, InnoTech, a private company principally engaged in the business of providing technical support and research and development services in connection with ELV electronic engineering, IBS and related products, will provide, on an exclusive basis, research and development and project management services on ELV electronic engineering work to Wah Lam in relation to the development of new products and services which may be required by Wah Lam from time to time to satisfy the needs of the Group’s existing and potential clients. The Group’s relationship with InnoTech started in January 2000 and the Group is the principal client of InnoTech. Under the agreement with InnoTech, all rights, titles and interests in the research and development works performed by InnoTech for the Group will be vested in the Group and InnoTech cannot apply such technologies to other clients without consent from the Group. The Directors believe that InnoTech’s expertise and experience in the field of research and development of IBS products will assist the Group in the enhancement of quality and effectiveness of the existing products and the development of new products. Further details of the engagement of InnoTech are set out in the sub-paragraph headed “InnoTech” under the paragraph headed “Strategic alliances” in this section.
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In August 2002, the Group commenced a corporate reorganisation in preparation for the listing of the Shares on GEM pursuant to which China Win became the sole beneficial shareholder of Wah Lam through Innovis (IB) Limited. In addition, Mr. Niki Tsang left the Group in order to concentrate on the business of Wah Lam Building Materials Limited and disposed of his entire 10% beneficial interest in Wah Lam to Mr. Derek Tsang at a consideration of HK$300,000. Mrs. Lam also disposed of her beneficial interest in Wah Lam as to 1.45% to Mr. Edmond Lam at HK$43,500, 6.41% to Mr. Derek Tsang at HK$192,300 and 3.57% to Mr. Stanley Sung at HK$107,100 to provide incentive to Mr. Derek Tsang and Mr. Stanley Sung for their continuing contribution to the Group’s business. Following the above disposals, Mr. Edmond Lam, Mr. Derek Tsang, Mrs. Lam and Mr. Stanley Sung were, through China Win, beneficially interested in 45.65%, 46.41%, 3.57% and 3.57% respectively of the issued share capital of Wah Lam.
In order to further enhance the research and development capabilities of the Group, Innovis China, a wholly-owned subsidiary of the Company, entered into a letter of intent with 華南理工大 學 (South China University of Technology) on 19th December, 2002. Pursuant to the letter of intent, 華南理工大學 (South China University of Technology) will undertake research and development work for the Group in various IBS solutions and products according to the specifications set by the Group. 華南理工大學 (South China University of Technology) will also offer consultancy and training services in relation to these solutions and products developed by the university. The cost of research and development work will be settled via future negotiations between both parties. The letter of intent as referred to above was entered into with the general purpose of setting out, in broad and general terms, the basic understanding and intention of the parties thereto and is not legally binding.
In December 2002, China Win entered into the Share Transfer Agreement (as supplemented by a supplemental agreement dated 9th June, 2003) with Delight Resources, an indirect wholly- owned subsidiary of Cheung Kong Holdings, pursuant to which China Win agreed to transfer such number of Shares representing approximately 4.99% of the issued share capital of the Company following completion of the Placing and the Capitalisation Issue to Delight Resources which in return agreed and undertook to use its reasonable endeavours to introduce potential clients to the Company in respect of the business operated by the Group from time to time. In addition, China Win entered into another share transfer agreement in December 2002 (as supplemented by a deed of transfer dated 6th June, 2003) with China Enterprise under which China Enterprise acquired such number of Shares representing approximately 4.81% of the issued share capital of the Company following completion of the Placing and the Capitalisation Issue from China Win at a cash consideration of HK$3,157,980. China Enterprise is an investment holding company beneficially equally owned by Mr. Wong Chi Lick and Mr. Tse Hung Hay who are, other than holding beneficial interest in the Company, Independent Third Parties. Mr. Wong Chi Lick is engaged in transportation business both in Hong Kong and the PRC and Mr. Tse Hung Hay is engaged in the business of supply and installation of air-conditioning equipment. Both Mr. Wong and Mr. Tse has known Mr. Edmond Lam and Mr. Derek Tsang for 15 years and were interested in the Group’s business and therefore acquired the Shares from China Win. Since China Win believed that the experiences and relationships of Mr. Wong and Mr. Tse could assist the Group in developing business in the PRC, China Win introduced them as Shareholders and sold the Shares to China Enterprise.
On 9th June, 2003, the Group completed the Reorganisation as a result of which the Company became the holding company of the Group. Immediately before the Reorganisation, Wah Lam directly held 60% equity interest in Wah Lam Building Materials Limited which in turn held 25% equity interest in Han Yao. Pursuant to the Reorganisation, Wah Lam transferred its entire equity interest in Wah Lam Building Materials Limited by way of a distribution in specie to its then shareholders on the ground that both Wah Lam Building Materials Limited and Han Yao are
– 59 – GENERAL OVERVIEW OF THE GROUP AND ITS BUSINESS principally engaged in the trading of building materials. However, Han Yao obtained two ELV engineering contracts in November 2001 relating to a PRC property development project named 深 圳市福田區住宅發展第二期及第三期 (Shenzhen Futian Residential Development Project Phase II and III). The reason for Han Yao entering into these ELV engineering contracts is that at that time certain management of Wah Lam, including Mr. Edmond Lam and Mr. Derek Tsang, had established business relationships with Hong Kong property developers which, through their PRC subsidiaries, have interests in certain property development projects in the PRC. The management of Wah Lam considered that it would be a good opportunity to establish business relationship with these Hong Kong property developers as a preliminary step to expand the Group’s business into the IBS market in the PRC. However, given that the main contractor of the aforesaid PRC property development project required that the ELV engineering contracts be entered into by a PRC entity and Han Yao was the only company in the Group before the Reorganisation that was established in the PRC, Han Yao was therefore arranged to enter into the ELV engineering contracts. In fact, Han Yao does not possess the relevant licenses and permits to perform IBS installation work in the PRC and the entering into of the ELV engineering contracts by Han Yao was one-off. Since the Group also does not have the relevant licenses and permits for performing IBS installation works in the PRC, Han Yao has not subcontracted the aforesaid ELV engineering contracts to the Group but to engage a PRC subcontractor which is an Independent Third Party to perform the whole project.
The aggregate contract sum of the two ELV engineering contracts entered into by Han Yao amounted to approximately RMB7.1 million (equivalent to approximately HK$6.7 million) and revenue from these contracts were recognised by Han Yao in the financial year 2002. Based on the management account of Han Yao, for the year ended 31st December, 2002, turnover and total costs of Han Yao in respect of the ELV engineering contracts amounted to approximately RMB2.8 million (equivalent to approximately HK$2.6 million) and approximately RMB2.9 million (equivalent to approximately HK$2.7 million) respectively while turnover from trading of building materials amounted to approximately RMB154,226 (equivalent to approximately HK$145,496). For the year ended 31st December, 2002, Han Yao recorded a loss of approximately RMB36,893 (equivalent to approximately HK$34,805) from the ELV engineering contracts and approximately RMB480,810 (equivalent to approximately HK$453,594) from trading of building materials.
Other than the aforesaid ELV engineering contracts, Han Yao has not engaged in any business that competes or may compete with the business of the Group. Since Han Yao’s principal business is trading of building materials in the PRC, it would be inappropriate to include Han Yao into the Group and therefore, Han Yao has been divested from the Group after the Reorganisation. The Group will, after the listing of the Shares on GEM, establish presence in the PRC and will engage in ELV and IBS projects in the PRC. Each of Han Yao, Wah Lam Building Materials Limited and their respective shareholders including Mr. Derek Tsang, Mr. Edmond Lam, Mrs. Lam and Mr. Niki Tsang has given a non-competition undertaking to the Company details of which are set out in the paragraph headed “Competing businesses of the Directors, Initial Management Shareholders and Substantial Shareholders” in this section. Upon completion of the Reorganisation, Wah Lam Building Materials Limited and Han Yao did not become members of the Group. Details of the corporate reorganisation are set out in the paragraph headed “Reorganisation” in Appendix V to this prospectus.
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SHAREHOLDING AND GROUP STRUCTURE
In connection with the proposed listing, the Company was incorporated on 8th July, 2002 to be the holding company of the Group to hold all the interest of Innovis (IB) Limited, which in turn holds the entire equity interest of Wah Lam pursuant to the Reorganisation as set out in the paragraph headed “Reorganisation” in Appendix V to this prospectus.
The corporate and shareholding structure of the Group immediately following the completion of the Placing (assuming the options granted under the Pre-IPO Share Option Scheme are not exercised) is set out below:–
Cheung Kong Holdings Mr. Edmond Lam (Hong Kong)
100% 100% Cheung Kong Emerging Purity Mrs. Lam Mr. Derek Tsang Mr. Stanley Sung Investment Mr. Wong Chi Lick Mr. Tse Hung Hay (BVI) Company Limited (BVI)
46.45% 3.57% 46.41% 3.57% 100% 50% 50%
Delight China China Win Other public Resources # Enterprise # (BVI) Shareholders # (BVI) (Hong Kong)
56.33% 33.87% 4.99% 4.81%
The Company (Cayman Islands) Investment holding
100%
Innovis (IB) Limited (BVI) Investment holding
100% 100% Wah Lam Innovis China Limited (Hong Kong) (BVI) Provision of IBS solutions Research and development
# Public Shareholders
BUSINESS OF THE GROUP
The Group is an Intelligent Building System (IBS) solutions provider offering a wide range of services in relation to i) IBS design, supply and installation services; ii) IBS maintenance services; and iii) IBS consultancy services. The Group’s services are characterised by its capabilities in advising, designing, supplying, integrating, installing and managing a whole array of extra low voltage (ELV) electronic devices to achieve an efficient and automated building. The Group’s IBS includes three main categories, namely, building management system, communication automation system and office automation system. Further details on the systems provided by the Group are set out in the section headed “Services provided” of this prospectus. The Group’s IBS were applied in commercial buildings, residential buildings, hospitals, schools, hotels and shopping complexes.
IBS is a computer-based centralised automated system that integrates, controls and monitors different types of sub-systems such as electricity and power supply systems, security systems, ventilation and air conditioning systems, lighting systems, property management systems, communication systems and structural cabling systems with the ultimate purpose of achieving efficient use of resources, comfort and security of occupants and to reduce the maintenance costs
– 61 – GENERAL OVERVIEW OF THE GROUP AND ITS BUSINESS of a building. With the installation of an IBS, less manpower is required to manage the full operation of facilities within a building. The key features of the IBS are its simple control design and user-friendly computer applications. Reliable and real-time data of the equipment parameters can also be stored, analysed through special featured graphic aids, reported and tasked. There has been much demand from high-tech industries, commercial and estate facilities to use the IBS for timely, energy efficient and cost effective operations. Even traditional or conventional control systems have adopted the IBS due to its significant return on cost of investment.
The different sub-systems that comprise an IBS usually involve the design and application of ELV electronic devices. ELV stands for “Extra Low Voltage” and it refers to any electrical or electronic equipment with a voltage of less than 50 volts. Traditionally, all ELV electronic devices are installed and function separately as an individual unit or system. Each unit or system will only perform its respective designed purpose. However, with the application of IBS, such ELV electronic devices are linked together under the control of a centralised system to achieve an efficient and automated building.
Building intelligence consists of the integration of traditional architecture and advanced information technology, to enable the automation of property management and enhance operational efficiency. The following diagram depicts a prototype of a typical Intelligent Building System:
The Group’s business can be categorised into three main areas, namely:
IBS design, supply and installation
The Group is engaged in the supply and installation of IBS which comprises of the building management system, communication automation system and office automation system, details of which was described in the paragraph headed “Services provided” in this section. For each of the three years ended 31st December, 2002, the turnover attributable to the supply and installation of the IBS represented approximately 94.8%, 98.3% and 89.5% respectively of the total turnover of the Group. – 62 – GENERAL OVERVIEW OF THE GROUP AND ITS BUSINESS
IBS maintenance
The Group also provides maintenance services for the IBS supplied and installed by it. Upon the completion of system installation, the Group usually offers maintenance services to its customers under separate contract on an annual basis. For each of the three years ended 31st December, 2002, the turnover attributable to the IBS maintenance services accounted for approximately 5.2%, 1.7% and 1.3% respectively of the Group’s total turnover.
IBS consultancy
Since 2002, the Group has been providing IBS consultancy services. The Group entered into the Master Consultancy Agreement with Shum Yip in January 2002 pursuant to which the Group will provide, on an exclusive basis, technological supporting advisory services for all IBS business developed by Shum Yip. The services provided by the Group under the Master Consultancy Agreement include advising on technical solutions in relation to system requirements, preliminary planning and design, implementation and testing of intelligent building projects. The Directors believe that the Group will benefit from this business partnership with Shum Yip which provides an opportunity for the Group to enter into the PRC intelligent building market in the future. As at the Latest Practicable Date, under the Master Consultancy Agreement, the Group has participated in two IBS projects in the PRC. For the year ended 31st December, 2002, the consultancy services fee amounted to approximately HK$3.4 million, representing approximately 9.2% of the Group’s total turnover of that year. The gross profit derived from the above stated projects amounted to approximately HK$3.2 million and the gross profit margin was approximately 94.4%. The Directors consider that the relatively high gross profit margin for the Group’s IBS consultancy services was mainly due to the premium charged for the provision of consultancy services in relation to the two PRC property development projects to Shum Yip and the fact that the cost of providing such services were basically staff salaries amounting to approximately HK$0.2 million. These staff salaries were related to the allocated costs of the Group’s project execution team assigned to the provision of the IBS consultancy services. Since the Group’s project execution team was paid in monthly fixed salaries and the staff in the team also participated in other projects, the allocated costs in respect of the IBS consultancy services was able to be controlled at a substantially low level and therefore result in higher profit margin.
As at the Latest Practicable Date, approximately HK$0.6 million of the consultancy fee due from Shum Yip was not yet settled. Given that Shum Yip is a strategic partner of the Group, a credit term of six months has been offered to Shum Yip and such amount would be settled in full by the end of June 2003.
In the foreseeable future, the Group plans to establish joint ventures in the PRC to provide all scopes of IBS services. The Directors estimate that the majority of the Group’s business in the PRC will derive from IBS design, supply and installation services but given the fact that there are certain consultants in the PRC providing IBS related advisory and management services, the Directors and the Sponsor are of the view that the Group will be able to participate in this market segment through its effort in promoting the IBS consultancy services. However, given that the Group’s IBS consultancy services only commenced in 2002 and the turnover in relation to which had been solely contributed by Shum Yip for the two PRC property development projects, there is a possibility that the Group would not be able to obtain further contracts in relation to IBS consultancy services in the future. In
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addition, the Directors and the Sponsor are of the view that there is no guarantee that the high gross profit margin of the Group’s IBS consultancy services can be sustained, in view of the limited track record on which an evaluation of the Group’s IBS consultancy business could be based.
The Directors believe that the business activities above are inter-related and represent comprehensive IBS solutions that include advising, designing, supplying, integrating, installing and managing a whole array of extra low voltage (ELV) electronic devices to achieve an efficient and automated building. The Group provides advisory services including advising on the technical solutions in relation to the system requirements, preliminary planning and design, implementation and testing of intelligent building projects. These advisory services are related to the supply and installation of IBS, and are particularly applied in the PRC market where the Group currently does not possess the relevant licenses and permits to carry out the business of supply, installation and maintenance of IBS.
For each of the three years ended 31st December, 2002, the Group’s turnover amounted to approximately HK$19.4 million, HK$19.9 million and HK$36.3 million respectively, and the Group’s gross profit (representing turnover less cost of materials and direct labour) amounted to approximately HK$3.9 million, HK$5.4 million and HK$14.8 million respectively.
COMPETITIVE STRENGTHS
The Directors believe the following are the Group’s competitive strengths:–
Strong background of the management team
Mr. Derek Tsang and certain members of the Group’s management team including Mr. Siu Ngai Chuen, Mr. Ng Kong, Mr. Chang Chun Wa and Mr. Cheung Wah Cheuk, have extensive experience and expertise in the intelligent building sector. As a member of AIIB, Mr. Derek Tsang is dedicated to the continuous development of intelligent building standards in Hong Kong and has actively promoted the intelligent building concepts to major property developers in both Hong Kong and the PRC. Further, the Group’s management has accumulated in-depth knowledge in various IBS through their participation in about 696 engagements in Hong Kong during the Track Record Period. The Directors believe that the knowledge and experience of the Group’s management will enable the Group to take a proactive approach to its business development. Details of their experience are set out in the section headed “Directors, senior management and staff” of this prospectus.
Well-experienced project execution team
As at the Latest Practicable Date, the project execution team of the Group consists of 30 staff. The project manager, Mr. Cheung Wah Cheuk, has over six years of experience in the intelligent building sector. The Group’s project execution team has obtained about 696 IBS contracts in Hong Kong during the Track Record Period. Since some of these engagements were small scale and could be completed in one day, the Group’s project execution team is capable of completing such number of projects. With the team’s experience and expertise in project management and execution, the Group is able to implement intelligent building projects effectively and efficiently. Through in-house training and cooperation with strategic partners, the Group’s project execution team is able to keep abreast of the latest market trends and technological innovations. In addition, the team members are also encouraged to attend relevant technical seminars in relation to IBS.
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Established reputation and market recognition
In line with industry practice, the Group’s IBS design, supply and installation works are usually subcontracted from the electrical subcontractors who are engaged by the main contractors. However, some of these electrical subcontractors are wholly-owned subsidiaries of construction companies and property developers and therefore, having served the building construction industry in Hong Kong for more than 10 years, Mr. Derek Tsang and the senior management of the Group have built up good business relationships with established property developers in Hong Kong such as Nan Fung Development Limited for which the Group has been involved in six property development projects since 1995. For each of the three years ended 31st December, 2002, the Group has obtained 260, 202 and 234 IBS contracts which include certain notable projects such as the “City Gate” shopping arcade and building, Bank of China building, “80 Robinson Road” and “Leighton Hill”. Such track record in the intelligent building sector and related fields reflects the Group’s good relationships with large construction companies and property developers and its strong market recognition which contribute to the success of the Group in bidding for intelligent building projects. The Directors believe that the Group’s recognition in Hong Kong will also facilitate the Group’s penetration into the PRC market.
Well established relationship with suppliers
The Group’s IBS solutions involve the use of off-the-shelf hardware such as monitors and personal computers, licensed operation systems and the Group’s customised programmes and their integration into a centralised system to inter-connect and control different types of ELV electronic devices. Over the years, the Group has maintained good business relationships with its suppliers. The Group’s top five suppliers, which in aggregate accounted for approximately 39.2%, 36.1% and 34.5% of the Group’s cost of sales and services rendered during the Track Record Period respectively, have established business relationships with the Group of an average of three years. As at 31st December, 2002, the Group sourced materials from over 10 local and overseas suppliers. The Directors are of the view that the Group’s close and stable business relationships with its major suppliers not only allow the Group to source equipment and accessories at competitive prices with favorable terms, but also facilitate the Group in gaining first-hand information on market trends and the latest product developments.
Strategic alliance for research and development
As at the Latest Practicable Date, the Group’s research and development team comprised of four engineers and technicians, all of them are professionally qualified engineers or university graduates in engineering-related disciplines. To further enhance its research and development capabilities, the Group entered into a master subcontracting agreement on 4th July, 2002 with InnoTech, an Independent Third Party, which specialises in research and development of ELV electronic engineering and IBS. The master subcontracting agreement has an initial term of three years commencing on 1st May, 2002. Further details on the contract are set out in the paragraph headed “Strategic alliances” in this section. The strategic alliance with InnoTech has proven to be successful as the various systems and solutions developed by InnoTech for the Group were applied to a number of intelligent building projects undertaken by the Group. This strategic alliance enhances the Group’s research and development capabilities and enables the Group to develop new and innovative building automation and management systems in a cost-effective way.
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Value-added services to provide total intelligent building solutions
Apart from the design, supply and installation of IBS according to customers’ pre-designed specifications, the Group also offers a full range of value-added services including the design of cost-efficient building automation and management systems, and intelligent building advisory services. This total solution approach allows the Group to strengthen its market recognition and enable it to build and maintain close and long term business relationships with its customers.
A profitable track record
The Group has a proven record of maintaining a profitable business. This has enabled the Group to fund a substantial portion of its working capital requirements through internally generated funds, thereby reducing the financing cost of the Group. As a result of prudent financial management, the Group has only utilised minimal external financing facilities for its operations. For each of the three years ended 31st December, 2002, the Group recorded profit attributable to Shareholders of approximately HK$602,000, HK$1,032,000 and HK$7,619,000 respectively notwithstanding the unfavorable economic conditions in Hong Kong.
First mover’s advantage
The market for intelligent buildings in Hong Kong and the PRC only emerged during the late 1990’s. The Group began supplying and installating ELV electronic systems for both residential and commercial buildings in 1990 and further expanded its services to other IBS projects during 1998. With its relatively long history in the intelligent building sector, the Directors believe that the Group has established its reputation and accumulated sufficient experience in the intelligent building sector in Hong Kong to allow it to expand its existing business and market coverage to the PRC.
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SERVICES PROVIDED
The IBS design, supply and installation services provided by the Group generally covers three main areas: (i) building management system; (ii) building communication system; and (iii) office automation system. The following diagram shows some of the typical devices and systems applied in each of the respective systems:
Intelligent Building System (“IBS”)
Building Building Office Automation Management Communication System System System (OAS) (BMS) (BCS) I Data network I I Image car park Nurse call system I Fibre optic control system I Voice network system I Estate control I Walkie-talkie system system I Public address system I Professional video system I CABD/SMATV system I Emergency call alarm system I Security central and remote management system I Smart home system
Extra Low Voltage Electronic System
The following are the descriptions of the systems provided by the Group in its IBS design, supply and installation services:–
Building management system
Image car park control system
This is an advanced system used to monitor and control the car park entrance to a building. The ticketing system applied can use either a remote control device or an advanced contact-free keycard on entry and exit. These systems have become market standards for car parking management, transportation and auto-toll gateways companies. With its innovative design, a plug-and-play capability for fast installation, data transparency and control precision, the Directors believe this is one of the most modern car parking systems available today.
The components that are associated with the carpark system are the barrier gates, entrance/exit terminals, hands-free communicator/tag, long-range readers, cashier terminals and more. The contact-free keycard is designed with a remote control device for added security.
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The software application provides both graphical and pictorial representations, and displays an overview for large-scale or multi-site carpark facilities. A permanently visible control console indicates the current status as well as any irregularities, should they occur.
Estate control system
Specifically designed for multi-unit estate properties, this system allows estate management to better manage the security and monitor the performance of the facilities of homeowners or tenants alike. The “Estate Control System” functions as the central control for systems such as security and surveillance, fire alarm, electrical/mechanical equipment, power/gas/water and lift control. Interfaced with a computer, actual faults and alarms can be monitored and recorded in real-time allowing for immediate correction. One of the unique components includes the entrance control using a touch-screen LCD, whereby visitors are prompted for a password before entering or are able to speak to the occupant through a built-in intercom before entering the premises.
Public address system
This is a professional sound and audio system installed in venues such as theatres, concert arenas, discos, large-scale factories, shopping malls, public grounds and sporting facilities. The Group seeks to provide the experience of dynamic of digital sounds in theatres, arenas and discos through the use of the latest microprocessor controlled circuitry.
Professional video system
Closed-circuit television systems commonly used for security and surveillance purposes have evolved to highly sophisticated video networks. To suit any applications, whether by channel count or transmission distance, video systems can be in single or multi-channel mode, or even in video networks to handle multiple channels in a single fibre optic cable. The video system can be integrated with the security alarm system and other electronically managed systems.
CABD/SMATV SYSTEM
The best quality reception for television entertainment programs can be achieved through a “Satellite Master Antenna Television System”. This system is suitable for multi- unit estates, hotels, schools, hospitals and other multi-occupant facilities. The Group provides head-end equipment, quality service and support.
Emergency call alarm system
Protecting valuable property and lives are increasing concerns in modern living. The Directors believe that the Group provides one of the most advanced technology for security alarm systems including personal panic alarms with coded sounds, audio/video entry intercoms, passive infrared and motion detectors, door/window switches and break glass switches. The security control systems features wireless technology, a false alarm immunity, and a LCD display.
Security central and remote management system
The “Security Central and Remote Management System” is designed for large-scale and sophisticated security and surveillance systems applications. Functioning as both a – 68 – GENERAL OVERVIEW OF THE GROUP AND ITS BUSINESS monitor and controller, it can even process digital events recorded through its computerised user-friendly application. The remote management system allows external security companies or police to monitor and mobilise for quick response.
Access control system
This microprocessor-based system communicates through a card reader and also sends and receives coded signals via network port to customised programs according to the specifications of the user. Other applications of the “Smart Card System” can be used as a company identification system, security access, car-park control or secured payment method.
Smart home system
The “Smart Home System” implements a convenient and user-friendly control system for air conditioning, lights, security alarm, surveillance, door access and other household electrical appliances. The system is designed to offer the householder the ability to customise the system in order to meet their specific needs.
TV broadcasting system
Cable TV broadcasting providers have been converting their traditional analog format to better quality digital format in making the realm of digital TV. Unlike SMATV systems that receive radio frequency signals through satellite dish antenna, TV broadcasting system is directly wired, using either coaxial cables or fibre-optic linking the cable TV service provider and the end-user.
Watchman tour system
Traditionally, watchman tour uses mechanical key-type clock recorder and keys are installed in different areas for the security personnel to routinely perform his tour-of-duty. The Group supplies a modern electronics technology that can monitor whether the security personnel is doing his job. The system also allows the users to track down the location of the watchman and ensure that he or she is at the right place and at the right time on his tour- of-duty. If the security personnel fails to report to the control station at a pre-set time, the officer at the control station will be alerted automatically by an associated walkie-talkie and will be prompted to check for the safety status of the duty officer.
Building communication system
Nurse call system
Design and installation of an effective communication system between the patients and the staff. The “Nurse Call System” is an inter-communication system with a master unit and a number of press-to-talk or handset sub units, associated with various types of functions including call switches and corridor lamps.
Voice network
Telecommunications systems nowadays are highly sophisticated with far more advanced features applicable to multiple direct and local lines. All calls are processed through the programmable and computer interfaced PABX system. A telephone master digital console is
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used to monitor and control, either automatically or manually, all incoming or outgoing calls of local lines at a faster response rate.
Walkie-talkie system
This is a portable 2-way communication system that is capable of covering a long range of approximately 3.2 kilometers.
Office automation system
Data network
Design, supply, installation and maintenance service of data networks. The Group provides sophisticated cabling systems, gigabit ethernet applications for high-end wiring closets and high-end routers. In addition, part of the data network system also includes cable network installation and setup of computer and peripherals on LAN or WAN for database/intranet management.
Fibre optic system
Intended for broadband network service providers, optical data is transmitted through fibre-optic cables for faster data and multi-media transmissions with a bandwidth of 10Mbps or higher, depending on the customers’ requirements. All equipment and optical cables are carefully tested and installed by experienced engineers.
LICENSING REQUIREMENTS
The provision of IBS solutions involves supply and installation of various ELV electronic equipment. Currently, installation of certain ELV electronic equipment or other types of electronic equipment in Hong Kong requires licenses from relevant government authorities which include: –
• Satellite Master Antenna Television License issued by the Office of Telecommunication Authority (OFTA) under the Telecommunication Ordinance
– For the installation of satellite entertainment system
• Security Company License issued by the Security and Guarding Services Industry Authority under the Security and Guarding Services Ordinance
– For the installation of security alarm systems and security central and remote management systems
• Registered Electrical Contractor issued by the Electrical and Mechanical Services Department under the Electricity (Registration) Regulations
– For the installation of electronic equipment with a voltage of more than 50 volts
The license of registered electrical contractor is applicable to the installation of electronic equipment with a voltage of more than 50 volts. The Group’s ELV electronic equipment, however, utilise voltage of less than 50 volts and therefore the Group does not require this license in its business and operations. – 70 – GENERAL OVERVIEW OF THE GROUP AND ITS BUSINESS
For the walkie-talkie systems, a license is required for the assignment of frequency and is attached to each handset. Such license is granted by the Office of Telecommunication Authority to the manufacturers or distributors of the walkie-talkie systems who will then provide the license to the ultimate users.
The Group is qualified to provide IBS design, supply and installation, IBS maintenance and IBS consultancy services in Hong Kong. The Group has been granted all relevant licenses as required by the government for all of its operations in Hong Kong and such licenses have never been revoked nor declared invalid. The Directors confirm that up to the Latest Practicable Date, Group has never been involved in any lawsuit for violation of regulations in respect of its operations in Hong Kong.
In respect of the provision of IBS services in the PRC, relevant licenses and permits must be obtained from the related PRC government authority. The Group has not obtained such licenses and permits to carry out IBS installation works directly in the PRC. However, as an initial step for the Group to penetrate the PRC intelligent building market, the Group entered into the Master Consultancy Agreement with Shum Yip to provide IBS consultancy services.
NOTABLE COMPLETED PROJECTS
The Group has been involved in a number of large building construction works in Hong Kong as an IBS solutions provider. From its inception, the Group has undertaken various intelligent building projects for both the public and the private sectors in Hong Kong. Set out below is the list of all completed IBS projects obtained by the Group during the period from 1999 to the Latest Practicable Date with the contract sum exceeding HK$1 million whereas the aggregate contract sum of which amounted to approximately HK$34.9 million:
Approximate commencement Approximate Project name IBS works involved date completion date
Residential buildings 80 Robinson Road – CCTV system May 1999 December 2001 羅便臣道80號 – video door-phone system – CABD/SMATV system – image car park control system – facility booking system – access control system – panic alarm system – door-monitoring system
Island Resort – public address system July 1999 March 2002 Hong Kong – watchman tour system 藍灣半島 – security alarm system – CCTV system – satellite TV system – TV reception – door-phone system
No. 5-7 Blue – CABD/SMATV system November 1999 September 2001 Pool Road – CCTV system 藍塘道5-7號 – security alarm system – watchman tour system
Chelsea Height – CABD/SMATV system November 1999 January 2001 Phase II – doorphone system 卓爾居二期 – CCTV system – public address system – security alarm system
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Approximate commencement Approximate Project name IBS works involved date completion date
Seaview Crescent – CABD and SMATV system March 2000 January 2003 海堤灣畔 – CCTV system – intercom system – video doorphone and panic alarm system – walkie talkie system – security alarm and patrol tour system – public address system – video plug-in system – message broadcasting system – BMS system
The Pinnacle – doorphone system August 2000 November 2002 豪峰軒 – public address system – CCTV system – BMS system – security alarm system – CABD/SMATV system
Leighton Hill – screen touch type video 禮頓山 door-phone system February 2001 October 2002 – public address system – security alarm system – CCTV system – satellite TV system – TV reception – screen touch type building monitoring system
Siena, Phase II – door-phone and panic alarm July 2001 April 2003 愉景灣尚澄湖畔 system （二期） – CCTV system
Commercial buildings City Gate (South) – walkie talkie system July 1998 April 2000 City Gate (North) – car park system October 1998 March 2001 東薈城 – public address system – watchman tour system – security alarm system – CCTV system – satellite TV system – TV reception
Grand Central Plaza – optical fibre system June 2000 December 2000 IFC, SHK Centre Millennium City and Central Plaza 新城市中央廣場 國際金融中心 新鴻基中心 創紀之城 中環廣場
Cyberport development – public address system November 2001 January 2003 數碼港發展 – emergency call bell system – CABD system – SMATV system
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Approximate commencement Approximate Project name IBS works involved date completion date
Hotel Horizon Suite Hotel – public address system December 2000 December 2002 海澄軒－海景酒店 – watchman tour system – CABD & SMATV system – panic alarm system – door-monitoring system – CCTV system – visual advisory system – emergency call bell system – induction loop system
Churches Wing Kwong – BMS system August 2000 May 2001 Pentecostal Holiness – smartcard system 五筍節永光教堂 – security alarm system – CABD system – CCTV system – public address system
The Church of Jesus – audio/video system July 2001 January 2002 Christ of Latter Saint 何文田教堂
Government buildings Shek Pik Prison – Intrusion detection system August 1999 September 2002 石壁監獄 – CCTV system
Po Tat Estate – CABD System September 2000 November 2002 Development – CCTV System 寶達擥 – alarm system – door-phone & panic alarm system – call bell system – security alarm system – carpark control system
NOTABLE PROJECTS IN PROGRESS
As at the Latest Practicable Date, the Group had about 127 outstanding contracts on hand with an aggregate contract sum of approximately HK$64.0 million and an estimated value of remaining work of approximately HK$40.7 million. The completion dates of these outstanding contracts are expected to be from 2003 to 2005. The following is all of the IBS projects obtained by the Group during the period from 1999 to the Latest Practicable Date with the contract sum exceeding HK$1 million and currently undertaken by the Group and not yet completed as at the Latest Practicable Date. The aggregate contract sum of these projects amounted to approximately HK$36.9 million.
Approximate Approximate commencement expected Project name IBS work involved date completion date
Residential buildings Agua Blue – doorphone system March 2001 July 2003 浪濤灣 – public address system – CCTV system – smartcard system – security alarm system – carpark system – CABD/SMATV system
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Approximate Approximate commencement expected Project name IBS works involved date completion date
TKO58 in Area 55(a) – CCTV system June 2001 February 2004 Tseung Kwan O, – door monitoring system Phase A, B and C, – doorphone & panic alarm system N.T. – public address system 將軍澳廣場A, B – CABD and SMATV system 及C期 – car park control system – smart card system – intercom system – induction loop system
Park Island – CCTV system November 2001 August 2003 珀麗灣 – control console – door-phone system – door-monitoring system – public alarm system – public address system – intercom system
The Blue Yard – CABD/SMATV system January 2002 September 2003 海天豪苑 – doorphone system – CCTV system – security alarm system – public address system – carpark system
No. 9 College – CABD/SMATV system January 2002 July 2003 Road, Kowloon – security alarm system 書院道9號 – BMS system – smartcard system – intercom system – watchman system – carpark system
Hoi Fai Road – public address system February 2002 July 2004 Tai Kwok Tsui – security system 大角咀海輝路 – automatic carpark control system – patrol touring system – coaxial CABD & SMATV system
Liberte – CABD/SMATV system March 2002 July 2003 昇悅居 – CCTV system – public address system – security system – intercom system – induction loop system
Sorrento – SMATV/CABD system March 2002 August 2003 擎天半島 – 2-way intercom system – public address system – CCTV system – walkie talkie system – security system – break glass/panic alarm intercom system – 2-way radio communication system
Sky Tower – doorphone system July 2002 March 2004 傲雲峰 – CCTV system – emergency call bell system – BMS system – security alarm system – CABD system
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Approximate Approximate commencement expected Project name IBS works involved date completion date
Bel-Air – public address system August 2002 April 2005 貝沙灣 – SMATV system – CCTV – intelligent building monitoring system
Proposed Residential – automatic carpark access control September 2002 April 2004 Development in system Tsuen Wan – doorphone system 荃灣住宅發展 – security alarm system – CCTV system – CABD and SMATV system – public address system – watchman tour system
Proposed Residential – CABD/SMATV system December 2002 October 2005 Development in – CCTV system King’s Park – security alarm system 京士柏住宅發展 – video doorphone system – card access control system – public address system – carpark system – BMS system
Commercial buildings Proposed Commercial – emergency call bell system May 2003 February 2004 Building at – public address system Kai Shing Street in – CABD System Kowloon Bay – SMATV System 九龍灣啟勝街 商業大廈發展
Hotel Sheraton Hotel – SMATV system March 2002 July 2003 喜來登酒店 – public address system – door bell system – emergency call bell system
Infrastructure Ma Wan – vehicle detection system May 2002 July 2003 buildings Toll Collection System – toll collection system 馬灣收費系統
Tai Po APT – CCTV system January 2003 August 2003 APT衛星站 – CABD system – public address system – security alarm system – smartcard system – autopaging system – BMS system
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OPERATIONAL PROCESS
Process flowchart
The following flowchart sets out the operational process of the Group from tendering to completion:
Proposed project development by main contractor or its electrical and mechanical subcontractor
Tendering
Proposal of cost-efficient system with high-tech design Terms negotiation with main contractor or its electrical and mechanical subcontractor Assessment of self-developed or outsourced research and development works
Contract awarded
Estimation of total project cost
Design of Intelligent (Designing various ELV electronic systems Building Systems comprising an IBS according to tender specification) Demonstration
(Issuing purchase order to suppliers for Sourcing of materials required materials according to specification in tender and system design)
Research and development (Jobs allocation to site supervisors and Operation proceed supporting team relevant parties)
(Communicate with site management for Site assessment work arrangement)
(Materials delivery to site; installation of Work commencement systems and electronic and data communication infrastructure)
Testing of system (Regular inspection by site supervisors)
Works completion (Final system walk-through at completion)
(One year of free maintenance service provided Retention period starts by the Group after the completion of work)
Warranty Period
As a general industry practice, the Group provides free maintenance services to its customers for a one-year warranty period to ensure that the IBS installed by the Group operate normally. During the one-year warranty period, the Group repairs any malfunctioning hardware. Although the service fees for such repair during the one-year warranty period are free, the customer remains responsible for the costs of any replacement parts and components. Following the one-year warranty period, the Group offers on-going maintenance services to its customers at a fixed fee for a specified period ranging from HK$5,000 to HK$50,000 per annum.
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The Directors confirm that, during the Track Record Period, the Group did not incur any material repair and maintenance costs for projects within the one-year warranty period.
REVENUE MODEL
Design, supply and installation
One of the Group’s principal revenue streams is derived from the design, supply and installation services of IBS. Revenue derived from this category of activities is on a contract basis in which a fixed total contract sum is determined for each individual contract when awarded by the main contractor. The Group typically bills the customers on a monthly progress payment basis in accordance with the level of completion which has to be mutually agreed between the Group and its customers. For the projects that can be completed within one month, the customers will be billed in full after the physical completion of the job. Credit term ranging from 30 to 90 days will be given to the Group’s clients upon presentation of invoices which is in line with industry practice.
As an industry practice, the customers normally withhold 5% to 10% of the monthly progress payment as retention monies for large projects to the extent that such deductions to the monthly progress payments accumulate to 5% to 10% of the contract sum. Such retention monies will normally be retained by the customers for a period of 12 months following the completion of the relevant projects for quality assurance purposes which is known as “defect liability period”. During the defect liability period, the Group is required to provide maintenance of its supplied and installed IBS free of charge. Upon expiry of the defect liability period, the customers will release the retention monies to the Group. As at 31st December, 2000, 31st December, 2001 and 31st December, 2002, the retention monies receivable represented approximately 13.2%, 14.3% and 14. 3% of the total of the trade debtors and retention monies receivable of the Group respectively.
Maintenance and consultancy
The Group also provides maintenance services for the IBS supplied and installed by the Group. Upon completion of system installation, the Group will usually offer maintenance services to its customers under separate contract on an annual basis.
In addition, since advisory services are generally provided by the Group as an integral part of its IBS design, supply and installation services, the Group combines its technical and advisory experiences and offers consultancy services in relation to IBS to its customers. The Directors recognise that there is demand for the Group’s advisory expertise in IBS and therefore offer IBS consultancy services which can broaden the Group’s income source.
Revenue derived from maintenance services and consultancy services is based on fixed monthly payment in accordance with the terms of the contracts which generally cover a period ranging from 6 months to 12 months. Credit terms ranging from 30 to 90 days will also be given on each monthly payment as industry practice.
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SALES AND MARKETING
With the development of the Intelligent Buildings market in the PRC, the Group will to a certain extent, continue to rely on its existing clientele for its initial projects. The Directors are of the view that the established relationship with the Group’s customers has been fundamental to the Group’s success. The Group has established a solid business relationship with a large number of major building construction companies and property developers in Hong Kong that have repeatedly engaged the services of the Group.
As at the Latest Practicable Date, the Group has two employees responsible for sales and marketing activities. Among the sales and marketing team of the Group, the manager has over two years of experience in the field of electronics engineering and building intelligence system installation. However, in addition to regular sales and marketing activities, the Group will also sponsor or organise exhibitions and host product seminars and conferences in order to attract potential customers and provide the latest information of the Group’s products and services to its existing customers.
COMPETITION
The intelligent building industry is subject to frequent technological changes. The requirement of knowledge and expertise in certain advanced technologies and in building construction acts as barriers to new entrants to the Group’s market. However, as the demand for IBS continues to grow and the PRC further opens its market to foreign competition following it’s accession to the WTO, the participation of foreign competitors who possess the technical know-how of IBS, will likely further intensify the competition.
The Directors are aware that there are many competitors offering similar products and services and possibly at lower prices. However, the Directors believe that the Group has gained extensive experience, skill and knowledge of the various kinds of IBS that will allow the Group to apply the latest technologies to its products and maintain its competitive edge. Based on the above considerations, the Directors believe that the Group is well positioned to compete with its competitors and take advantage of the enormous growth potential in the future.
RESEARCH AND DEVELOPMENT
In order to be successful in the intelligent building industry, the Directors believe that the Group must continue to be innovative in the design of its products and apply the latest technology to its products at a competitive price. The Group’s research and development team is therefore specialised in design and development of IBS solutions based on the latest technology. Since IBS is a concept that applies advanced information and telecommunication technology, the Directors consider that the Group’s business relies on ability to apply the latest information and telecommunication technology to design and develop IBS solutions instead of performing research and development of any new information and telecommunication technology. In addition, the research and development team of the Group will always seek to improve on the features and applications of the Group’s existing products and also develop new products that exceed customers’ requirements. Such practice is aimed at ensuring that the Group is able to retain its market share and always be a step ahead of its competitors. In addition to developing its IBS solutions in-house, the Group also subcontracted part of the research and development work to InnoTech during the Track Record Period. The cooperation with InnoTech started in January 2000 when the Group engaged InnoTech to develop an intelligent building management system called “Emergency Call Alarm System”. For each of the two years ended 31st December, 2002, the fee paid to InnoTech in respect of research and development services accounted for approximately 35.7% and 34.2%
– 78 – GENERAL OVERVIEW OF THE GROUP AND ITS BUSINESS respectively of the Group’s total research and development costs while the balance represented the costs incurred by the Group’s in-house research and development team. To formalise the business relationship with InnoTech, Wah Lam, a wholly-owned subsidiary of the Company, entered into a master subcontracting agreement with InnoTech on 4th July, 2002 for an initial term of three years commencing on 1st May, 2002. Pursuant to the agreement, InnoTech will provide, on an exclusive basis, research and development and project management services on ELV electronic engineering work to Wah Lam in relation to the development of new products and services which may be required by Wah Lam from time to time to satisfy the needs of the Group’s existing and potential clients. Such services and the consideration therefor shall be detailed on a project by project basis depending on the clients’ specific requirements. Further details on the cooperation between the Group and InnoTech is set out in the paragraph headed “Strategic alliances” in this section.
In fact, not all systems used by the Group were developed by InnoTech. The Group’s in- house research and development team has been carrying out research and development work and designed 37 IBS solutions during the Track Record Period of which all have been applied, individually and in combinations, in the Group’s past or existing projects. These 37 IBS solutions developed by the Group’s in-house research and development team include public address systems, CABD/SMATV systems, security alarm systems, access control systems, watchman tour systems and walkie-talkie systems and details of which are set out in the paragraph headed “Services provided” in this section. The Directors consider that it is a common and normal commercial practice to subcontract part of the research and development work to experienced parties with expertise which have comparative advantage. By doing so, the Group’s research and development resources can be more efficiently utilised.
The Group’s research and development team often works in tandem with its customers to ensure that the design of the Group’s IBS solutions are fit for its intended purpose and meets the customers’ specifications. However, as the Group also purchases off-the-shelf components or accessories when designing its IBS solutions, the research and development team is also responsible for resolving any quality or technical issues with the Group’s suppliers.
Currently, there are 14 IBS solutions in development, all of which have already been earmarked to be applied in the Group’s projects. The following table shows these 14 IBS solutions currently being developed by the Group:-
IBS Category Solutions
Building Management System Automatic Toll Collection System Control Console Infra-red Remote for Air-conditioner Unit Remote type Carpark Management System Computerised Security alarm and Patrol Tour System Intelligent Building Monitoring System Vehicle Detection System Patrol Touring System for Podium
Building Communication System Computerised Break Glass/Panic Alarm Intercom System Two-way Intercom Computerised Matrix Public Address System License Plate Recognition System Message Broadcasting System
Office Automation System Coaxial CABD & SMATV System for Towers
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However, the Group does not hold any patent and has not filed for any patent application in respect of its designed IBS solutions. The Directors consider that since the Group’s IBS solutions are designed in accordance with the clients’ specifications and each client may have specific requirements, it is not necessary to register patents for the Group’s IBS solutions and the Group will not obtain or apply for patents for its products and services in the future.
The Group’s in-house research and development team consists of four staff. All members of the research and development team have received relevant tertiary education and have experience in electronic engineering and in the development of Intelligent Building Systems. During the Track Record Period, the amount spent on research and development represented not more than 3% of the total turnover of the Group respectively.
In order to further enhance the research and development capability of the Group, Innovis China, a wholly-owned subsidiary of the Company, entered into a letter of intent with 華南理工大 學 (South China University of Technology), which is an Independent Third Party, on 19th December, 2002. Pursuant to the letter of intent, 華南理工大學 (South China University of Technology) will undertake research and development work for the Group in various IBS solutions and products according to the specifications set by the Group. 華南理工大學 (South China University of Technology) will also offer to the Group consultancy and training services in relation to these solutions and products developed by the university. The Group will enter into specific agreements for each assignment or project to be agreed with 華南理工大學 (South China University of Technology) and the cost of research and development work payable by the Group to 華南理工大 學 (South China University of Technology) will be determined in future negotiations between both parties with reference to the complexity and the estimated time involved in the development of a particular IBS solution and project.
The letter of intent as referred above was entered into with the general purpose of setting out, in broad and general terms, the basic understanding and intention of the parties thereto and is not legally binding. As at the Latest Practical date, no specific agreement has been entered into between Innovis China and 華南理工大學 (South China University of Technology).
CUSTOMERS
For each of the three years ended 31st December, 2002, the largest customer of the Group accounted for approximately 18.8%, 19.5% and 17.1% respectively, and the five largest customers of the Group accounted for approximately 66.6%, 59.3% and 51.8% respectively of the Group’s total turnover. These five largest customers of the Group, who are Independent Third Parties, are principally electrical and mechanical subcontractors and subcontracted ELV engineering works relating to IBS to the Group during the Track Record Period. None of the Directors, their respective associates (as defined in the GEM Listing Rules) or shareholders who owned more than 5% of the issued share capital of the Group had any interest in any of these five customers during the Track Record Period and up to the Latest Practicable Date. The Directors confirm that save for the normal business relationships as disclosed in this prospectus, there is no other arrangement made between the Group and any of its top five customers during the Track Record Period.
The Group’s existing customers consist primarily of building construction companies, property developers and government entities in Hong Kong and the PRC. During the Track Record Period, the Group has contracted about 696 IBS contracts with its customers. The Group plans to broaden its customer base by securing contracts from large property developers and placing more effort in marketing in the PRC. Further details on the Group’s future plans and prospects are set out in the section headed “Future plans and prospects” of this prospectus.
– 80 – GENERAL OVERVIEW OF THE GROUP AND ITS BUSINESS
Apart from the design, supply and installation of IBS, the Group started to provide consultancy services to one of its strategic partners, Shum Yip, pursuant to the Master Consultancy Agreement entered into in January 2002. Under such agreement, Wah Lam will be the exclusive provider of technological support services for all IBS business developed by Shum Yip. The advisory services provided by the Group to Shum Yip include advising on technical solutions in relation to system requirements, preliminary planning and design, implementation and testing of intelligent building projects. Details of the cooperation with Shum Yip are set out in the paragraph headed “Strategic alliances” in this section. For the year ended 31st December, 2002, consultancy fee received from Sum Yip contributed approximately 9.2% to the Group’s total turnover.
CREDIT POLICY
The Group’s normal credit term ranges from 30 to 90 days which is in line with industry practice. However, the exact term of the credit period is dependent on a number of criteria such as the duration of the business relationship, past payment track record and the financial strength of the client before a credit term is decided or a contract is entered into. The responsible executive director reviews and approves the credit term before it is implemented. All of the payment received by the Group are in Hong Kong dollars.
For each of the three years ended 31st December, 2002, approximately HK$3.1 million, HK$2.3 million and HK$2.6 million due from trade debtors, representing approximately 43.2%, 35.6% and 18.8% of the total amount due from trade debtors after provision for doubtful debts respectively, remained outstanding beyond the 90 days credit policy adopted by the Group. Such outstanding balances for the Track Record Period mainly represented the final payments of certain IBS design, supply and installation projects. Compared with previous years, the Directors consider the amounts to be normal as it is the industry practice that the final payments of IBS projects would only be settled upon finalisation of the completion reports which typically takes six months to one year and therefore resulted in a portion of the trade debtors balances extending beyond 90 days. The relatively long settlement period for such final payments of IBS projects was not in line with the normal credit policy of the Group as disclosed above since it was impractical from an administrative point of view to apply different credit terms for a single project. Since only the final payment of an IBS project would be subject to a longer settlement period ranging from six months to one year while the payments for earlier stages are collected according to the normal credit term, the Directors consider that the Group’s credit policy is operating effectively.
The ageing status of debtors and the situation of outstanding receivables are reviewed and monitored by the finance department. The Group has assigned staff dedicated to manage trade debtors. The staff maintains regular contact with the customers to resolve any issues that could possibly delay their payments to the Group. With regards to resolving an outstanding account, the staff initially liaises with the responsible project manager to ascertain if there are any technical issues that may have caused the late payment. If no specific technical issue is identified, the staff will issue the customer with an appropriate demand for payment. Outstanding debts exceeding 90 days will be brought to the attention of the responsible executive Director for further action.
A debt will be considered doubtful if:
• It has been placed in the hands of a debt collector.
• The debt is subject to an administration e.g. voluntary liquidation, scheme of arrangement or receivership.
– 81 – GENERAL OVERVIEW OF THE GROUP AND ITS BUSINESS
• It is outstanding over 12 months and it is unlikely that the full amount will be recovered.
A debt will be considered bad if:
• It is the subject of an unsatisfied warrant of execution.
• A “Statement of Affairs” which reveals a shortfall is received from an administrator.
• The debtor is declared bankrupt.
The ageing analysis of the outstanding accounts receivable as at 31st December, 2002 after accounting for provisions and subsequent settlement up to the Latest Practicable Date is set out as follows: Subsequent Balance as at settlement up 31st December, to the Latest 2002 Practicable Date HK$’000 HK$’000
Within three months 11,274 9,045 Over three months but within six months 1,762 1,544 Over six months but within one year 335 43 Over one year 518 239
Total 13,889 10,871
As at the Latest Practicable Date, subsequent settlement of the accounts receivable as at 31st December, 2002 amounted to approximately HK$10.9 million. As to the unsettled balance of approximately HK$3.0 million, approximately HK$0.6 million was related to the consultancy fee due from Shum Yip in respect of the Group’s IBS consultancy services. Given that Shum Yip is a strategic partner of the Group, a credit term of six months has been offered and such amount would be settled in full by the end of June 2003.
The remaining unsettled balance of approximately HK$2.4 million mainly related to the final payments of certain IBS design, supply and installation projects which would only be settled upon presentation of the final completion reports of the respective projects to be agreed with the Group and its customers. As an industry practice, the finalisation of such completion reports would typically take six months to one year and therefore result in the delay of the final settlement. However, the Directors have reviewed the individual accounts in respect of the above unsettled trade debtors and given that throughout the Track Record Period the final payments of the Group’s IBS projects had taken six months to one year to settle and the Group had not experienced any bad debts in this respect, the Directors considered that the remaining outstanding amount would be settled in full.
As most of the Group’s customers are of good reputation and have maintained long-term business relationships with the Group, the Directors believe that the credit risk the Group faces is minimal. The Group did not encounter any significant bad debt during the Track Record Period.
– 82 – GENERAL OVERVIEW OF THE GROUP AND ITS BUSINESS
SUPPLIERS AND SUBCONTRACTORS
Suppliers
The Group has well-established working relationships with its suppliers. Currently, the Group has approximately 15 to 20 suppliers who provide public address system equipment cables, SMATV equipment, computers, CCTV equipment and various other electronic components. For each of the three years ended 31st December, 2002, the largest supplier of the Group accounted for approximately 20.5%, 11.3% and 11.0% respectively, and the five largest suppliers of the Group, in aggregate, accounted for approximately 39.2%, 36.1% and 34.5% respectively of the Group’s cost of sales and services rendered. These five largest suppliers of the Group, who are Independent Third Parties, are principally providers of electronic devices and equipment. The Group has established business relationships of an average of three years with its top five suppliers. These suppliers usually allow the Group a two to three months open account credit to settle the cost of purchases. The Directors consider that the credit terms offered by the Group’s suppliers are in line with industry practice. For each of the three years ended 31st December, 2002, over 95% of the total purchases were denominated in Hong Kong dollars.
Purchases are made on a job order basis. Upon finalisation of the contracts and the specifications, the Group will decide on the hardware and component parts required for the project and organise purchases based on customers’ requirements and specifications. Usually, products ordered for a particular project will be directly delivered to the site by the suppliers.
During the Track Record Period and up to the Latest Practicable Date, none of the Directors, their respective associates nor any Shareholders who owned more than 5% of the issued share capital of the Group had any interest in any of the Group’s five largest suppliers. The Directors confirm that save for the normal business relationships as disclosed in this prospectus, there is no other arrangement made between the Group and any of its top five suppliers during the Track Record Period.
Subcontractors
In providing IBS design, supply and installation services to its clients, the Group may subcontract an entire IBS project to a subcontractor. In addition, the Group also engages a number of subcontractors, all of which are Independent Third Parties, to provide labour for the installation work. During the Track Record Period, the subcontracting fee in relation to provision of labour for the installation work accounted for approximately 100.0%, 84.9% and 64.9% respectively of the Group’s total subcontracting fee while the balance related to subcontracting of the whole IBS projects.
The Group started to subcontract IBS projects from 2001 and since such IBS projects were usually small-scale, the Group found it more cost effective to subcontract out these projects. For each of the two years ended 31st December, 2002, the Group obtained a total of 202 and 234 IBS projects out of which 22 and 21 IBS projects were subcontracted respectively. The subcontracting fee paid in this respect amounted to approximately HK$0.9 million and HK$2.9 million, representing approximately 6.2% and 13.5% of the Group’s total costs of sales for each of the two years ended 31st December, 2002 respectively. The contract sums of the 22 and 21 subcontracted IBS projects represented approximately 7.8% and 12.6% respectively of the total contract sums of the IBS projects obtained for each of the two years ended 31st December, 2002.
While the Group has a project executive team of 30 staff as at the Latest Practicable Date, the Group engages a number of subcontractors who are Independent Third Parties to provide labour solely for system installation. In such cases the Group is still responsible for managing and executing the IBS projects and supervising the subcontracted labour. During the Track Record Period, the subcontracting fee paid relating to the provision of labour amounted to approximately HK$4.2 million, HK$5.1 million and HK$5.3 million respectively, representing approximately 27.1%, 35.2% and 24.7% respectively of the Group’s total costs of sales.
– 83 – GENERAL OVERVIEW OF THE GROUP AND ITS BUSINESS
For IBS maintenance and consultancy services, the Group does not engage any subcontractor to perform services for the Group.
For each of the three years ended 31st December, 2002, the largest subcontractor of the Group represented approximately 24.0%, 17.9% and 16.6% respectively of the Group’s total subcontracting fee while the five largest subcontractors of the Group accounted for approximately 67.9%, 68.9% and 58.2% of the Group’s total subcontracting fee respectively. The five largest subcontractors of the Group, who are Independent Third Parties, include InnoTech while the remaining are principally individuals providing labour for the Group. None of the Directors, their respective associates nor any Shareholders who own more than 5% of the issued share capital of the Company has any interest in any of the five largest subcontractors during the Track Record Period and up to the Latest Practicable Date. The Directors confirm that save for the normal business relationships as disclosed in this prospectus, there is no other arrangement made between the Group and any of its top five subcontractors during the Track Record Period.
Since the Group is fully responsible for the works performed by its subcontractors, subcontracting contracts clearly state description of works to be carried out by subcontractors, commencement and expected completion date of works with payment terms for the relevant subcontracting fee, in order to avoid non-performance or sub-standard work by the subcontractors. In addition, regular inspections will be performed by site supervisors, who are employees of the Group, to ensure that the overall quality and progress of the respective projects are in accordance with the work requirements and schedules. Subcontracting fee are paid to subcontractors by progress payment and is deemed by the Directors to encourage the subcontractors to work according to the work schedules. In cases of non-performance or sub-standard performance by subcontractors, the Group’s policy is to withhold payment and work closely with the subcontractors to rectify the non- performance.
Up to the Latest Practicable Date, the Directors are not aware of any claim against the Group for damages and liquidated damages in respect of delay or non-performance or sub-standard performance or non-completion of works. In addition, the Directors have also confirmed that there is no delay or non-completion of works and no liquidated damages have been claimed against the Group up to the Latest Practicable Date.
STRATEGIC ALLIANCES
In order to facilitate its business development, the Group continues to pursue strategic relationships with companies that have technology capability, resources, expertise and business connections that could assist the Group in becoming one of the leading solutions providers of IBS.
Cheung Kong Holdings
On 11th December, 2002, the Share Transfer Agreement (as supplemented by an agreement dated 9th June, 2003) was entered into between China Win, Delight Resources and the Company pursuant to which China Win agrees to transfer 1,272,600 Shares to Delight Resources before the Placing which in return agrees and undertakes to use its reasonable endeavours to introduce potential clients from time to time with no specified period to the Company in respect of the business operated by the Group. There is no minimum number of clients required to be introduced by Delight Resources and no introduction fee will be paid by the Group. Pursuant to the Capitalisation Issue and upon the listing of the Shares on GEM, Delight Resources will be interested in 18,725,400 Shares, representing 4.99% of the issued share capital of the Company.
– 84 – GENERAL OVERVIEW OF THE GROUP AND ITS BUSINESS
Delight Resources is a wholly owned subsidiary of Cheung Kong Investment Company Limited which is in turn wholly owned by Cheung Kong Holdings, the flagship of the Cheung Kong group of companies (together, the “Cheung Kong Group”). Cheung Kong Holdings is a property development and strategic investment company. It is one of the largest developers in Hong Kong for residential, commercial and industrial properties. Each of Delight Resources, Cheung Kong Investment Company Limited and Cheung Kong Holdings is, other than being interested directly or indirectly in approximately 4.99% of the issued share capital of the Company following the completion of the Placing, an Independent Third Party.
Wah Lam, an indirect wholly-owned subsidiary of the Company, has installed and is currently installing a number of ELV electronic systems for construction projects developed by the Cheung Kong Group, such as a hotel construction project in Ma On Shan. Wah Lam is also providing IBS consultancy services for two PRC property development projects currently being developed by an associated company of Cheung Kong Holdings, namely 深圳市福田區住宅發展(第二及第三期) (Shenzhen Futian Residential Development Project Phase II and Phase III) and 上海市徐匯區華 爾登廣場(第二及第三期) (Shanghai Walton Plaza Construction Project Phase II and III).
The Directors confirm that save as disclosed in this prospectus, there is no other arrangement between the Group and Cheung Kong Holdings.
Shum Yip
Shum Yip, a company incorporated in Hong Kong and an Independent Third Party, is engaged in the business of supplying and installing elevators in the PRC and has established relationships with a number of large property developers in the PRC. On 4th January, 2002, Wah Lam entered into the Master Consultancy Agreement with Shum Yip pursuant to which Wah Lam, a wholly-owned subsidiary of the Company, will be the exclusive provider of technological supporting advisory services for all IBS business developed by Shum Yip. The services provided by the Group under the Master Consultancy Agreement include advising on technical solutions in relation to system requirements, preliminary planning and design, implementation and testing of intelligent building projects.
The Master Consultancy Agreement has an initial term of three years commencing on 4th January, 2002. The consideration in respect of the consultancy services provided by Wah Lam will be based on the estimated costs of individual assignment plus a profit margin determined on a case-by-case basis with reference to a number of factors including but not limited to complexity, duration and scope of the projects for which the consultancy services are provided. Under such arrangement, the Group has provided IBS consultancy services to Shum Yip in relation to two PRC property development projects, namely, 深圳市福田區住宅發展第二期及第三期 (Shenzhen Futian Residential Development Project Phase II and III) and上海華爾登廣場第二期及第三期 (Shanghai Walton Plaza Construction Project Phase II and III) up to the Latest Practicable Date. The IBS consultancy services in relation to深圳市福田區住宅發展第二期及第三期 (Shenzhen Futian Residential Development Project Phase II and III) provided by Wah Lam has a fixed term of one year that commenced in May 2002 and the consultancy fee payable by Shum Yip to Wah Lam is HK$200,000 per month. For the property development project of上海華爾登廣場第二期及第三 期 (Shanghai Walton Plaza Construction Project Phase II and III), Wah Lam commenced providing IBS consultancy services to Shum Yip in August 2002 for a fixed term of one year and the consultancy fee of which is HK$350,000 per month.
The Master Consultancy Agreement does not contain any extension clause but the Directors believe that, based on the business relationship with Shum Yip and the IBS consultancy services that have been provided by the Group in the above two PRC property development projects, the cooperation between the Group and Shum Yip would be long term.
– 85 – GENERAL OVERVIEW OF THE GROUP AND ITS BUSINESS
Under the current PRC regulations, the Group cannot provide IBS installation and supply services and IBS maintenance services in the PRC since relevant licenses and permits have to be obtained in order to perform electronic engineering installation works which covers the IBS. Nevertheless, based on the legal opinion issued by the PRC legal adviser of the Company, given that both Shum Yip and Wah Lam are Hong Kong companies and the location at which the IBS consultancy services provided by Wah Lam to Shum Yip is in Hong Kong and Wah Lam does not directly provide such services to the clients of Shum Yip in the PRC, the current cooperation with Shum Yip is not subject to any PRC regulations.
The Directors believe Shum Yip, in association with its strategic partner who is licensed to perform installation works in the PRC, to be a well established company with prominent business connections in the PRC’s construction industry, and that the Group’s alliance with Shum Yip will facilitate expansion of the Group’s business into the PRC. The Directors confirm that save as disclosed in this prospectus, there is no other arrangement made between the Group and Shum Yip.
InnoTech
InnoTech is a private company incorporated with limited liability in Hong Kong and, including its shareholders, are Independent Third Parties. It is engaged in the business of providing technical support and research and development services in connection with ELV electronic engineering and IBS related products. The Group’s relationship with InnoTech started in January 2000 when the Group engaged InnoTech to develop an intelligent building management system named “Emergency Call Alarm System”. For the two years ended 31st December, 2002, InnoTech has been engaged by the Group in about 15 IBS development projects and the fee paid to InnoTech in respect of research and development services accounted for approximately 35.7% and 34.2% respectively of the Group’s total research and development costs. In order to enhance the Group’s capability in developing its IBS solutions to meet specific clients’ needs in the future and to formalise the business relationship with InnoTech, Wah Lam entered into a master subcontracting agreement with InnoTech on 4th July, 2002 for an initial term of three years commencing from 1st May, 2002 to 30th April, 2005 and which is extendible for a period of two years subject to mutual agreement by both parties. Pursuant to the master subcontracting agreement, InnoTech will provide, on an exclusive basis, research and development and project management services on ELV electronic engineering work to Wah Lam in relation to the development of new products and services which may be required by Wah Lam from time to time to satisfy the needs of the Group’s existing and potential clients. Such services and the consideration therefor shall be detailed on a project by project basis depending on different clients’ requirements. During the term of the agreement with InnoTech, the Group will be its only client and all rights, titles and interests in the research and development works performed by InnoTech for the Group will be vested in the Group.
Given that the development of IBS solutions/systems only involves design of system flowcharts and software programming in order to meet specific clients requirements, the facilities of InnoTech mainly include computers and licensed software for system design and programme development. InnoTech currently employs five employees who have an average of about three years’ experience in IBS and ELV engineering industries. The Directors consider that the expertise of InnoTech is suitable and sufficient to complement the Group’s business and the Directors believe that InnoTech’s expertise and experience in the field of research and development of IBS products will assist the Group in the enhancement of quality and effectiveness of existing product and the development of new products.
In addition to providing research and development services, InnoTech is engaged by the Group to perform certain ELV engineering projects. For the two years ended 31st December, 2002, the Group subcontracted about 38 ELV engineering projects to InnoTech and the subcontracting fee paid to InnoTech in this respect accounted for approximately 15.1% and 16.6% respectively of the Group’s total subcontracting charges. – 86 – GENERAL OVERVIEW OF THE GROUP AND ITS BUSINESS
The Directors confirm that save as disclosed in this prospectus, there is no other arrangement made between the Group and InnoTech.
INTELLECTUAL PROPERTY RIGHTS
As at the Latest Practicable Date, the Group has submitted two applications for the registration of its service mark and trade mark in Hong Kong, further details of which are set out in the paragraph headed “Intellectual property rights” in the section headed “Further information about the Group” in Appendix V to this prospectus. The Group has not applied for the registration of the names of the individual products or software as these names would be considered as indistinctive and descriptive by the Trade Marks Registry, and registration and enforcement of such trademark rights would be difficult. The Directors confirm that they are not aware of any infringement by the Group of registered trade marks of any third party. The trade marks under application by the Group are currently applied on services offered and products produced by the Group as the brand name.
The Group does not hold any patent and has not filed any patent application in respect of any of its products. The Group’s ability to protect its intellectual property rights in Hong Kong includes copyrights and confidentiality agreements which may have limited protection to the Group. Since the Group’s current business is the provision of IBS solutions services principally involving advising, designing, supplying, integrating, installing and managing ELV electronic devices, the Directors consider that patent applications for such activities would be difficult and not cost effective.
COMPETING BUSINESSES OF THE DIRECTORS, INITIAL MANAGEMENT SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS
As at the Latest Practicable Date, the Directors, Initial Management Shareholders and Substantial Shareholders have shareholding interests in the following companies:– Attributable Attributable shareholding shareholding interest in interest in Wah Lam Building Shareholder Position Han Yao Materials Limited (%) (%)
Mr. Derek Tsang Executive Director/ 29.5 18.0 Initial Management Shareholder
Mr. Edmond Lam Executive Director/ 31.7 27.0 Initial Management Shareholder
Mrs. Lam Non-executive Director/ 2.2 9.0 Initial Management Shareholder
Mr. Niki Tsang Non-executive Director 36.6 46.0
Total 100.0 100.0
Prior to the Reorganisation, Wah Lam directly held 60% equity interest in Wah Lam Buildings Materials Limited which in turn held 25% equity interest in Han Yao. Pursuant to the Reorganisation, Wah Lam transferred its entire equity interest in Wah Lam Building Materials Limited by way of distribution in specie to its then shareholders on the ground that both Han Yao and Wah Lam Building Materials Limited are principally engaged in the trading of building materials. However, Han Yao obtained two ELV engineering contracts with an aggregate contract sum of approximately
– 87 – GENERAL OVERVIEW OF THE GROUP AND ITS BUSINESS
RMB7.1 million (equivalent to approximately HK$6.7 million) in November 2001 relating to a PRC property development project named 深圳市福田區住宅發展第二期及第三期 (Shenzhen Futian Residential Development Project Phase II and III). Han Yao entered into these ELV engineering contracts as certain management of Wah Lam, including Mr. Edmond Lam and Mr. Derek Tsang, has established business relationship with certain Hong Kong property developers which, through their PRC subsidiaries, have interests in certain property development projects in the PRC. The management of Wah Lam considered that it would be a good opportunity to establish business relationships with these Hong Kong property developers as a preliminary step to expanding the Group’s business into the IBS market in the PRC. However, given that the main contractor of the aforesaid PRC property development project required that the ELV engineering contracts be entered into by a PRC entity and Han Yao was the only company in the Group before the Reorganisation that was established in the PRC, Han Yao was therefore arranged to enter into the ELV engineering contracts. In fact, Han Yao does not possess the relevant licenses and permits to perform IBS installation works in the PRC and the entering into of the ELV engineering contracts by Han Yao was one-off. Since the Group also does not have relevant license and permits for performing IBS installation works in the PRC, Han Yao has not subcontracted the aforesaid ELV engineering contracts to the Group but engaged a PRC subcontractor which is an Independent Third Party to perform the whole project.
Revenue from the ELV engineering contracts were recognised by Han Yao in the financial year 2002. Based on the management account of Han Yao, for the year ended 31st December, 2002, turnover and total costs of Han Yao in respect of the ELV engineering contracts amounted to approximately RMB2.8 million (equivalent to approximately HK$2.6 million) and approximately RMB2.9 million (equivalent to approximately HK$2.7 million) respectively while turnover from trading of building materials amounted to approximately RMB154,226 (equivalent to approximately HK$145,496). For the year ended 31st December, 2002, Han Yao recorded a loss of approximately RMB36,893 (equivalent to approximately HK$34,805) from the ELV engineering contracts and approximately RMB480,810 (equivalent to approximately HK$453,594) from trading of building materials.
Other than the aforesaid ELV engineering contracts, Han Yao has not engaged in any business that competes or may compete with the business of the Group. Since Han Yao’s principal business is trading of building materials in the PRC, it would be inappropriate to include Han Yao into the Group and therefore, Han Yao has been divested from the Group after the Reorganisation. The Group will, after the listing of the Shares on GEM, establish its presence in the PRC and will engage in ELV and IBS projects in the PRC. Each of Han Yao, Wah Lam Building Materials Limited, Mr. Derek Tsang, Mr. Edmond Lam, Mrs. Lam and Mr. Niki Tsang has undertaken to the Company that, upon the listing of the Shares on GEM, none of them will, and each of them will procure that he/she/it and his/her/its respective associates shall not, directly or indirectly, engage in any businesses involving the supply and installation, maintenance and consultancy services in relation to IBS solutions, nor in any businesses that will or may compete with the businesses engaged in by the Group in the present and in the future, except for the two ELV engineering contracts entered into by Han Yao before the listing of the Shares on GEM.
The above undertakings will cease to have effect on the date on which China Win, Mr. Derek Tsang, Mr. Edmond Lam and Mrs. Lam and/or his/her respective associates cease to be Shareholder(s) who is/are together entitled to exercise or control the exercise of 10% or more of the voting power at the general meeting of the Company.
Disclaimers
Both the Company and the Sponsor confirm that, save as disclosed above, none of the Directors, the chief executive, the management Shareholders (as defined under the GEM Listing Rules), the Substantial Shareholders and their respective associates has any business or interest that competes or may compete with the business of the Group as at the Latest Practicable Date.
– 88 – ACTIVE BUSINESS PURSUITS
The following is a review of the Group’s operations over each of the three years ended 31st December, 2002 and the period from 1st January, 2003 to the Latest Practicable Date:–
PERIOD I: For the year ended 31st December, 2000
Business development
The Group obtained 260 IBS contracts and the projects completed during the year mainly included supply and installation of ELV intelligent building systems for residential buildings, commercial building, hotels, schools and universities, hospitals, churches and governmental buildings. Almost all contracts entered by the Group were supply and installation work for buildings located in Hong Kong.
Product range provided
During this period, the Group expanded its product range to cover the following new products and systems:
– Computer-based CCTV system with digital matrix switches
– Optical fibre cables as the backbone for communication network
– Building management system, which integrates and controls the lifts, air-conditioning system, lightings and the security alarms, etc.
– Large scale public address system controlled by computer with digital matrix switches, which serves over 2,000 speakers
Key project engagements
Tung Chung Station This is a large project developed by a consortium of Development Site 3 five major developers in Hong Kong. Wah Lam was engaged to provide ELV systems to the four high-rise residential buildings and the commercial complex. The development incorporates a computer based network CCTV system with digital matrix switches.
Optical Fibre Network system This project involves the installation of fibre optic for Grand Central Plaza, network cabling in each of the five business centres of International Financial high-rise buildings by Wah Lam. The fibre optic cable Center, Sun Hung Kai serves as the backbone of the communication network, Center, Millennium City which provides faster and more efficient data and Central Plaza transmissions at gigabit speed for business establishments housed in these premises.
– 89 – ACTIVE BUSINESS PURSUITS
The Cyberport, Telegraph Bay This is a large scale information technology infrastructure project, located at Telegraph Bay on the southern part of Hong Kong Island. A large commercial complex with two towers of 14-storeys each are occupied by business offices. Wah Lam provided and installed a large scale public address system and induction loop system. 47 units of 120W high-end power amplifiers, 4 induction loop power amplifiers and around 2,000 speakers. The public address system is computer controlled with digital matrix switches that allows convenience and flexibility of operations.
5-7 Blue Pool Road, Hong Kong This is a 27-storey apartment with 3 podium levels and a basement. Wah Lam supplied and installed the ELV system of the building. A unique column mounted touch screen type LCD visitor panel was installed at the main entrance of the building.
Turnover and profits
For the year ended 31st December, 2000, the Group recorded total turnover of approximately HK$19.4 million and profit attributable to Shareholders of approximately HK$602,000. For details, please refer to the summary of combined results of the Group set out in paragraph headed “Trading record” under the section headed “Financial information” of this prospectus.
PERIOD II: For the year ended 31st December, 2001
Business development
The Group continued to gather strength in marketing and strategic partnership with a number of major developers in Hong Kong. Coupled with established reputation in local construction industry, the Group successfully obtained 202 IBS contracts notwithstanding the general downturn in construction activities in Hong Kong.
Product range provided
During this period, the Group expanded its product range to cover the following new products and systems:
– Smart card system which allows the use of a contact-free card reader to access the lifts, building entrance doors and car park facilities
– Car park controller with vehicle loop detection system, remote control device with ID-encrypted
–“Octopus Card” reader and its associated application for door access control
– Home automation system which allows remote operation of air-conditioner via the telephone
– BMS with LCD touch screen control for each building and a networked central control system for all buildings in the same estate
– 90 – ACTIVE BUSINESS PURSUITS
Key project engagements
80 Robinson Road This is a luxury residential property development. Wah Lam was engaged to supply and install a smart card system using a contact-free card reader to access the lifts and building entrance doors of the residential buildings. A remote control device with ID encrypted is applied in the car park controller equipped with vehicle loop detection system. Hardware and software programming were provided to the computerised access system.
Hang Kwai Street, Tuen Mun This is Wah Lam’s first project incorporating the use of the “Octopus Card” reader and its associated application for door access control. The PC-based booking system is complete with touch screen LCD terminal and a computer server.
1-21 Cheong Lok Street, This is a residential development. A unique control Kowloon function for home automation was provided for each unit, where air conditioners can remotely be operated through the telephone set. Smart card system was used to access the lift and access control of the premises. The project also provide LCD screen for information display in each lift.
Leighton Hill This is a luxury residential property development. The project comprised of eight blocks of 39-storey apartments with first class amenities and private club houses. Wah Lam supplied and installed an ELV system incorporating features such as the touch screen LCD visitor control panel and video phones for each unit, building management system with LCD touch screen control at the building management counter for each block and a central control through a network system for all buildings.
Turnover and profits
For the year ended 31st December, 2001, the Group recorded total turnover of approximately HK$19.9 million and profit attributable to Shareholders of approximately HK$1.0 million. For details, please refer to the summary of combined results of the Group set out in paragraph headed “Trading record” under the section headed “Financial information” of this prospectus.
PERIOD III: For the year ended 31st December, 2002
Business development
The Group further expanded its business by providing consultancy services on IBS. In January 2002, the Group entered into the Master Consultancy Agreement with Shum Yip to provide
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IBS consultancy services. Under such arrangement, the Group was involved in the provision of IBS consultancy services to Shum Yip in relation to two PRC property development projects, namely, 深圳市福田區住宅發展第二期及第三期 (Shenzhen Futian Residential Development Project Phase II and III) and上海華爾登廣場第二期及第三期 (Shanghai Walton Plaza Construction Project Phase II and III).
In order to establish the Group’s presence in all ELV aspects of the construction sectors, the Group successfully secured its first contract to provide intelligent systems for an infrastructure project namely “the Ma Wan toll collection system” which was completed during August, 2002. During the year, the Group obtained a total of 234 IBS contracts.
In order to further enhance the research and development capability of the Group, Innovis China, a wholly-owned subsidiary of the Company, entered into a letter of intent with 華南理工大 學 (South China University of Technology) on 19th December, 2002.
Product range provided
During this period, the Group expanded its product range to cover the following new products and systems:
– Automatic permit check and vehicle detection system
– Computerised automatic car park system that uses the smart card
– Computerised watchman tour system with wireless stations
– Computerised CCTV system to identify the exact location on the floor plan
Key project engagements
The Ma Wan Infrastructure This is Wah Lam’s first infrastructure project. Wah Lam Toll Collection System was engaged to design, install and program the manual toll collection system, automatic permit check system, vehicle detection system and CCTV system. The whole system is provided with a tolerant-fault server computer with “Redundant Array of Independent Disk” storage system and optical fibre network system to ensure an efficient and reliable operation of the toll collection system.
The Kowloon Station This project comprises of five blocks of 70 to 80-storey Development residential buildings (more than 2,800 units in total) and is currently the tallest residential buildings in Hong Kong. Wah Lam was engaged to supply and install the SMATV/CABD systems, public address system with power amplifiers of 660 watts total output for 140 speakers, 75 units of intercom system and a large number of equipment for the security system, including 125 watchman tour stations.
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Composite Development at This multi-unit residential estate project with eight Hoi Fai Road, Tai Kwok Tsui towers of 51-storey buildings including five levels of car parking facilities, will incorporate intelligent systems and sophisticated facilities such as the computerised automatic car park system that uses a smart card, computerised patrol tour system with wireless stations and traditional CCTV system using pan/tilt/zoom color cameras. Colour video door phones will be provided to about 2,750 residential flats.
The Cyberport Residential This is a large scale information technology Development infrastructure project, located at Telegraph Bay on the southern part of Hong Kong island. The project will comprise a luxury residential building and a large commercial complex and business offices. Wah Lam has been engaged to provide IBS for the residential development. The system will incorporate computerised and digital matrix control public address system and CABD/SMATV with fibre optic cable network as its backbone. Computerised security and smart card access control which includes carpark system and a sophisticated watchman tour system that is integrated to the walkie-talkie system, a computerised CCTV system and video door-phones will be installed in the residential building.
Kowloon Station Development This is the new commercial and transportation hub of Site B Hong Kong. Five residential buildings of various heights, the tallest of which is 81-stories high, contain about 2,200 units of quality apartments of various specifications. Wah Lam was engaged to supply and install the IBS which includes, two-way radio communications, security system and break glass/panic alarm system.
TKO58 in Area 55(a) Tsueng This is a residential and commercial mix project which Kwan O, Phase A, N.T. consists of eight 56-storey residential buildings. A clubhouse, a shopping arcade, multi-sports hall and car park facilities are located on the podium and on the lower levels of the building complex. The Tseung Kwan O development was divided into three phases namely A, B, and C. Phase A covers the commercial complex, clubhouse, multi-sports hall and the car park facilities. Wah Lam was engaged to supply and install a variety of IBS, and one of which is the smart card system with stored value in the smart card to be used in the car park, door access and facilities booking system.
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TKO58 in Area 55(a) Tsueng Phases B and C of this project are comprised of eight Kwan O, Phase B and C, N.T. buildings of 56-storey high residential apartments. There are eight apartments on each floor, totaling 376 units in each block. Wah Lam was engaged to supply and install typical IBS such as CCTV, door monitoring, doorphone and panic alarm system and SMATV/CABD.
Turnover and profits
For the year ended 31st December, 2002, the Group recorded total turnover of approximately HK$36.3 million and profit attributable to Shareholders of approximately HK$7.6 million. For details, please refer to the summary of combined results of the Group set out in paragraph headed “Trading record” under the section headed “Financial information” of this prospectus.
PERIOD IV: From 1st January, 2003 to the Latest Practicable Date
Business development
The Group won 81 IBS contracts with total contract sum of approximately HK$10.3 million during the period.
Product range provided
During this period, the Group’s product range remained the same as previous periods.
Key project engagements
SIP Project ALK 304 Wah Lam was engaged to supply and install CABD systems, emergency call bell systems, security systems and automatic lighting & exhaust fan system for five Government schools.
Proposed Central complex for Wah Lam was engaged to supply and install CCTV Shatin Racecourse camera and electronic door lock for lift machine room, Redevelopment Phase II & III plant rooms and carpark area.
Proposed Residential Wah Lam was engaged to supply and install CABD/ Development At Kowloon SMATV system, PA system, CCTV System, Smart Card Inland Lot No. 11118 King’s System, Video Phone System, BMS and Security System. Park
Proposed Residential Wah Lam was engaged to supply and install BMS Development at TKO Lot 57, system. Park Central
Turnover and profits
For the four months ended 30th April, 2003, the Group recorded total unaudited turnover of approximately HK$10.1 million and unaudited profit attributable to Shareholders of approximately HK$1.5 million.
– 94 – STATEMENT OF BUSINESS OBJECTIVES
BUSINESS OBJECTIVE
The business objective of the Group is to become one of the prominent IBS solutions providers in Hong Kong and the PRC.
THE GROUP’S STRATEGIES
The Directors believe that increasing demand for IBS due to improving living standards both in Hong Kong and the PRC has created opportunities for the expansion of the Group’s business. With the extensive experience and established reputation that the Group has built up over the years, the Directors believe that the Group is well positioned to capture the growing demand for the Group’s products and services, and will become one of the leading IBS solutions providers in Hong Kong and the PRC. As such, in order to strengthen the Group’s profitability and future development, the Group has adopted and intends to adopt the following strategies:
Business development in Hong Kong
At present, the Group provides IBS solutions services primarily in Hong Kong. To further increase its market share in Hong Kong, the Group plans to strengthen its involvement in public sector projects. The Group is currently an approved contractor for various types of installation works under the government approved list. In the future, the Group plans to form a special team for government projects by recruiting experienced chartered engineers with qualifications granted by the Hong Kong government. The Group will increase tendering for government projects related to IBS such as fee-tolling roads and government buildings.
Apart from government projects, the Group will also expand its business by focusing on the re-engineering of old buildings. The Directors believe that there is growing demand for renovation of old buildings which will involve installation of IBS. The Group intends to increase tendering for such projects.
In addition to tendering for government and old building re-engineering projects, the Group plans to cooperate with educational institutions in Hong Kong to develop and launch a standardised IBS product “Pervasive Secure Version 1.0”. Currently, the Group’s IBS solutions are customised to meet specific clients’ needs and the design and development of IBS solutions are on a project- by-project basis. In order to strengthen its recurring income, the Group plans to develop and launch a standardised IBS product with the capability for minor modification without incurring substantial costs. The Directors consider that it is beneficial for the Group to merchandise its own IBS products which can broaden the product range and revenue base. Details of the development plan of this product is set out in the sub-paragraph headed “Research and development” below.
Geographical expansion to the PRC
Under the current PRC regulations, the Group cannot provide IBS design, supply and installation and IBS maintenance services in the PRC as the Group does not possess the relevant licenses and permits to perform electronic engineering installation works in the PRC. However, the Group has provided technological advisory services to Shum Yip in relation to two IBS projects in the PRC and has gained valuable experience in the PRC intelligent buildings market. Based on the
– 95 – STATEMENT OF BUSINESS OBJECTIVES legal opinion issued by the PRC legal adviser of the Company, given that both Shum Yip and Wah Lam are Hong Kong companies and the location at which the IBS consultancy services provided by Wah Lam to Shum Yip is in Hong Kong and Wah Lam does not directly provide such services to the clients of Shum Yip in the PRC, the current cooperation with Shum Yip is not subject to any PRC regulations.
Nevertheless, by building on its established reputation in Hong Kong, it is the Group’s strategy to expand its geographical coverage to the PRC. Under the present PRC regulations, the Group can either establish wholly-foreign owned enterprises or sino-foreign equity joint ventures for the application of the relevant licenses and permits to perform electronic engineering installation works in the PRC. Nevertheless, the Directors consider that it would be more efficient for the Group to identify PRC partners who already have such relevant licenses and permits and establish joint ventures with them so that the Group can capitalise on their experiences and business connections in the PRC. Currently, the Group intends to establish joint ventures with these PRC partners in Shenzhen, Shanghai and Dalian to provide IBS solutions services. According to 外商投 資建築業企業管理規定 (Provisions on Enterprise Administration of Foreign Investment in Construction Industry), the total capital contribution by the Group in such joint ventures should not be less than 25% but not more than 75% of their respective registered capital. At present, the Directors do not have specific intention as to the percentage of interest in these joint ventures the Group should take and will negotiate with the potential PRC partners on a case-by-case basis. The PRC legal adviser of the Company advised that the establishment of the joint ventures by the Group with the PRC partners who own licenses and permits to perform electronic engineering installation work in the PRC and the carrying on of business by these joint ventures are not subject to any restrictions and comply with the existing PRC laws and regulations. These joint ventures would be capable of providing IBS solution services after completion of the registration and approval procedures with the relevant government authorities under the existing PRC laws and regulations.
Following the proposed establishment of PRC joint ventures, the Group’s expansion plan to the PRC market will be two-fold:–
• Tendering for IBS solutions projects in the PRC
The Directors believe that the developing property market and the increasing demand for intelligent buildings in the PRC, coupled with the PRC government’s policies in promoting the automation of buildings, provide the Group with an excellent opportunity to venture into a potentially lucrative new market. Currently, entities tendering for IBS projects in the PRC have to be registered and applications must be made through certain tender agents approved by the State Economic and Trade Commission (國家經濟貿易委員會). Such tender agents are classified into grade A and grade B depending on the contract sum allowable for each class. In future, the Group plans to register its PRC joint ventures as the approved contractors through these tender agents in order to tender for IBS solutions projects in the PRC.
• Launching standardised IBS products in the PRC
Apart from merchandising standardised IBS products in Hong Kong, the Group also plans to launch various types of IBS products in the PRC. Innovis China, a wholly-owned subsidiary of the Company, entered into a letter of intent with 華南理工大學 (South China University of Technology) on 19th December, 2002. Pursuant to the letter of intent, 華南理 工大學 (South China University of Technology) will undertake research and development
– 96 – STATEMENT OF BUSINESS OBJECTIVES
for the Group in various IBS solutions and products according to the specifications set by the Group. The Directors consider that 華南理工大學 (South China University of Technology) has sufficient expertise and knowledge in the PRC intelligent building market and the IBS solutions and products developed by them can better meet the market demand and the customers requirements in the PRC.
Research and development
The Group aims at maintaining a competitive edge and incorporating innovative technologies in the Group’s services. The Directors believe that technological advancement will induce many innovative applications in IBS and the Group will constantly keep abreast of technological changes and incorporate them into the Group’s new designs. To achieve this objective, the Directors consider it more cost effective to form strategic alliances with reputable universities and institutions which are capable of providing the Group with technical support and consultancy services that will ultimately bolster the Group’s research and development capabilities.
In order to strengthen the Group’s product range and revenue base, the Group plans to commercialise and launch various types of standardised IBS products in Hong Kong and the PRC. Currently, the Group’s IBS solutions involve the use of personal computers, licensed operating systems and the Group’s customised programmes and integrating them into a centralised system to inter-connect and control different types of ELV electronics devices. However, the current specification of personal computers and the licensed operating system are not designed to perform the full function of an IBS. Therefore, the Group plans to develop hardware and operating systems that are specifically designed for IBS applications. Such standardised IBS products, with built-in ability for simple modifications to meet clients’ specific needs, can be a cost effective alternative product.
The Group plans to cooperate with educational institutions in Hong Kong to develop a standardised IBS product “Pervasive Secure Version 1.0”. In addition, Innovis China, a wholly- owned subsidiary of the Company, entered into a letter of intent with華南理工大學 (South China University of Technology) on 19th December, 2002 pursuant to which 華南理工大學 (South China University of Technology) will undertake research and development for the Group in various IBS solutions and products according to the specifications set by the Group. In the future, the Group plans to launch various types of standardised IBS products in the PRC.
In addition to forming strategic alliances, the Group will also strengthen its research and development team by recruiting additional high calibre engineers and professionals as well as acquiring advanced equipment and software.
Sales and marketing
The Directors believe that, in addition to technical competence and service quality, a strong market presence and distinct corporate image are very important to the Group’s business growth. The Group plans to enhance its profile through various marketing programs including hosting of seminars and conferences relating to IBS and participating in relevant trade shows and exhibitions in Hong Kong and the PRC. The Group will also strengthen its sales and marketing team by recruiting experienced marketing professionals to promote the Group’s services to its potential clients.
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IMPLEMENTATION PLANS
The Directors have set the following milestones for the Group for the period from the Latest Practicable Date to 31st December, 2005. Investors should note that the following milestones and the completion of the respective events are formulated on the bases and assumptions referred to in the section headed “Bases and assumptions” of this prospectus. These bases and assumptions are inherently subject to many uncertainties. Investors should pay particular attention to risks as set out in the section headed “Risk factors” of this prospectus. The actual development of the Group’s business may vary from the business objectives of the Group as set out in this prospectus.
For the period from the Latest Practicable Date to 30th June, 2003
Business development in Hong Kong
– Establish contact and initiate preliminary discussions with reputable property developers and/or their electrical and mechanical subcontractors for old building re-engineering projects that involve the installation of IBS.
– Apply for registration as an approved contractor under the “Security Alarm Contractor” category maintained by Architectural Services Department of the Hong Kong government.
Geographic expansion to the PRC
– Carry out strategic business research to enhance the Group’s understanding in tendering for IBS projects and marketing IBS products in the PRC.
Research and development
– Identify appropriate software/hardware vendors to collaborate on the development of new IBS applications.
– Continue the cooperation with InnoTech for the development of new IBS solutions and enhancement of existing IBS solutions for on-going and/or future projects.
Sales and marketing
– Formulate marketing campaign to promote the benefit and convenience of IBS.
For the period from 1st July, 2003 to 31st December, 2003
Business development in Hong Kong
– Strengthen the project execution team by recruiting two chartered engineers who are experienced in the public sector and one chartered engineer who is experienced in re- engineering of old buildings.
– Establish specialised project execution team to formulate business plans for public sector IBS projects.
– Conduct market intelligence and tender for public sector IBS projects.
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– Continue to establish contact and seek business opportunities in old building re-engineering projects that involve the installation of IBS.
– Formulate detailed business plan to prepare for the launch of “Pervasive Secure Version 1.0” in Hong Kong.
Geographic expansion to the PRC
– Establish joint venture in Shenzhen with potential PRC partner which is capable of providing electronic engineering installation works.
– Identify and negotiate with potential PRC partner in Shanghai which is capable of providing electronic engineering installation works to set up joint venture.
– Formulate detailed business plan to tender for IBS projects in the PRC based on the strategic business research performed in the previous stage.
– Continue to perform market research to enhance the Group’s understanding in marketing IBS products in the PRC.
Research and development
– Identify and negotiate with appropriate educational institutions in Hong Kong and commence research and development of “Pervasive Secure Version 1.0”.
– Discuss detailed plan and identify specific IBS products to be launched in the PRC market with 華南理工大學 (South China University of Technology).
– Continue to identify appropriate software/hardware vendors to collaborate on the development of new IBS applications and the enhancement of current systems and enter into agreement if appropriate.
– Continue the cooperation with InnoTech for the development of new IBS solutions and enhancement of existing IBS solutions for on-going and/or future projects.
– Identify universities and institutions that are experienced in IBS solutions to establish new strategic alliances.
– Strengthen the in-house research and development team by recruiting four system engineers dedicated to the design and development of new IBS applications.
Sales and marketing
– Strengthen the sales and marketing team by recruiting experienced marketing professionals who are dedicated to tendering projects in the public sectors and the re-engineering of old buildings.
– Promote the benefit and convenience of the IBS through hosting of seminars and conferences in Hong Kong.
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– Participate in the exhibition named “第五屆中國(堔圳)國際住宅與建築科技展覽會” (The Fifth China (Shenzhen) International Residential and Construction Technology Exhibition) to promote the Group’s image.
– Formulate detailed marketing plan to prepare for the launch of “Pervasive Secure Version 1.0” in Hong Kong.
For the period from 1st January, 2004 to 30th June, 2004
Business development in Hong Kong
– Continue to seek out and tender for public sector IBS projects.
– Continue to establish contact and seek business opportunities in old building re-engineering projects that involve the installation of IBS.
– Formally launch the IBS product “Pervasive Secure Version 1.0” in Hong Kong.
Geographic expansion to the PRC
– Register the Shenzhen joint venture as an approved contractor of grade A and grade B tender agents approved by the State Economic and Trade Commission (國家經濟貿易委員 會) for the preparation of tendering IBS projects in the PRC.
– Establish joint venture in Shanghai with the PRC partner which is licenced and capable of providing electronic engineering installation works.
– Identify and negotiate with potential PRC partner in Dalian which is licenced and capable of providing electronic engineering installation works to set up joint venture.
– Formulate detailed business plan to prepare for the launch of IBS products in the PRC based on the strategic business research performed in the previous stage.
Research and development
– Commence the joint development of the IBS products to be launched in the PRC market with 華南理工大學 (South China University of Technology).
– Register intellectual property rights of the Group’s IBS product in the PRC when appropriate.
– Continue to identify appropriate software/hardware vendors to collaborate on the development of new IBS applications and the enhancement of current systems and enter into agreement if appropriate.
– Continue the cooperation with InnoTech for the development of new IBS solutions and enhancement of existing IBS solutions for on-going and/or future projects.
– Continue to identify and/or commence negotiation with universities and institutions that are experienced in IBS solutions to establish new strategic alliances.
– Identify any appropriate training course for the Group’s research and development staff to enhance their capabilities. – 100 – STATEMENT OF BUSINESS OBJECTIVES
– Acquire advanced and updated equipment and software for the design and development of IBS solutions.
Sales and marketing
– Commence marketing campaign to promote the Group’s IBS product “Pervasive Secure Version 1.0” in Hong Kong.
– Formulate detailed marketing plan to prepare for the launch of the IBS products in the PRC.
– Participate in the exhibition “IBEX: The 17th International Building Exposition” in Hong Kong to promote the Group’s image and the newly launched IBS product.
– Participate in the exhibition “第五屆國際城市與建築智能技術應用展覽會” (The Fifth International Cities and Building Intelligence Technology Application Exhibition) in Shanghai.
– Evaluate the effectiveness of the seminars and conferences hosted by the Group on the promotion of the Group’s image and fine tune the marketing strategy accordingly.
For the period from 1st July, 2004 to 31st December, 2004
Business development in Hong Kong
– Continue to seek out and tender for public sector IBS projects.
– Continue to establish contact and seek business opportunities in old building re-engineering projects that involve the installation of IBS.
– Identify and initiate discussions with reputable property developers for the application of the Group’s IBS product “Pervasive Secure Version 1.0” to their existing and upcoming property development projects.
Geographic expansion to the PRC
– Continue to register the Shenzhen and Shanghai joint ventures as approved contractors of grade A and grade B tender agents approved by the State Economic and Trade Commission (國家經濟貿易委員會) for the preparation of tendering IBS projects in the PRC.
– Establish contact and seek business opportunities in tendering for IBS projects in the PRC.
– Establish joint venture in Dalian with the PRC partner which is licenced and capable of providing electronic engineering installation works.
– Formally launch the Group’s IBS products in the PRC.
– Evaluate the performance of the Group’s business in the PRC.
– 101 – STATEMENT OF BUSINESS OBJECTIVES
Research and development
– Identify and negotiate with appropriate partners for the development of the upgraded version of the Group’s IBS product “Pervasive Secure Version 2.0”.
– Continue to identify appropriate software/hardware vendors to collaborate on the development of new IBS applications and the enhancement of current systems and enter into agreement if appropriate.
– Continue the cooperation with InnoTech for the development of new IBS solutions and enhancement of existing IBS solutions for on-going and/or future projects.
– Continue to identify and/or commence negotiation with universities and institutions that are experienced in IBS solutions to establish new strategic alliances.
Sales and marketing
– Continue to promote the benefit and convenience of IBS through hosting of seminars and conferences in Hong Kong and the PRC.
– Continue the marketing campaign to promote the Group’s IBS product “Pervasive Secure Version 1.0” in Hong Kong.
– Commence the marketing campaign to promote the Group’s IBS product in the PRC.
– Evaluate the result of the Group’s marketing campaign on the promotion of the Group’s IBS product and fine tune the marketing strategy accordingly.
For the period from 1st January, 2005 to 30th June, 2005
Business development in Hong Kong
– Continue to seek out and tender for public sector IBS projects.
– Continue to establish contact and seek business opportunities in old building re-engineering projects that involve the installation of IBS.
– Identify and initiate discussions with reputable property developers for the application of the Group’s IBS product “Pervasive Secure Version 1.0” to their existing and upcoming property development projects.
– Evaluate the performance of the Group’s business in Hong Kong.
Geographic expansion to the PRC
– Continue to register the Shenzhen, Shanghai and Dalian joint ventures as the approved contractors of grade A and grade B tender agents approved by the State Economic and Trade Commission (國家經濟貿易委員會) for tendering IBS projects in the PRC.
– Establish contact and seek business opportunities in tendering for IBS projects in the PRC.
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– Identify and initiate discussions with property developers in the PRC for the application of the Group’s IBS product to their existing and upcoming property development projects.
– Formulate the latest business plan for the development of business in the PRC based on the evaluation performed in the previous period.
Research and development
– Commence the development of the upgraded version of the Group’s IBS product “Pervasive Secure Version 2.0”.
– Identify new IBS solutions/products to be launched in the PRC market with 華南理工大學 (South China University of Technology).
– Continue the cooperation with InnoTech for the development of new IBS solutions and enhancement of existing IBS solutions for on-going and/or future projects.
– Continue to identify and/or commence negotiation with universities and institutions that are experienced in IBS solutions to establish new strategic alliances.
– Evaluate the performance of the Group’s in-house research and development capabilities to ensure its position in the market.
– Continue to identify appropriate software/hardware vendors to collaborate on the development of new IBS applications and the enhancement of current systems and enter into agreement if appropriate.
Sales and marketing
– Continue to promote the benefit and convenience of the IBS through hosting of seminars and conferences in Hong Kong and the PRC.
– Continue the marketing campaign to promote the Group’s IBS product “Pervasive Secure Version 1.0” in Hong Kong.
– Continue the marketing campaign to promote the Group’s IBS product in the PRC.
– Participate in the exhibition “大連國際智能樓宇材料設施及技術展覽會” (Dalian International Intelligent Building Materials and Technology Exhibition) in Dalian.
– Formulate detailed marketing plan to prepare for the launch of the Group’s upgraded IBS product “Pervasive Secure Version 2.0”.
For the period from 1st July, 2005 to 31st December, 2005
Business development in Hong Kong
– Continue to seek out and tender for public sector IBS projects.
– Continue to establish contact and seek business opportunities in old building re-engineering projects that involve the installation of IBS.
– 103 – STATEMENT OF BUSINESS OBJECTIVES
– Formally launch the Group’s upgraded IBS product “Pervasive Secure Version 2.0”.
– Formulate the latest business plan for the development of business in Hong Kong based on the evaluation performed in the previous period.
Geographic expansion to the PRC
– Continue to register the Shenzhen, Shanghai and Dalian joint ventures as approved contractors of grade A and grade B tender agents approved by the State Economic and Trade Commission (國家經濟貿易委員會) for tendering IBS projects in the PRC.
– Establish contact and seek business opportunities in tendering for IBS projects in the PRC.
– Identify and initiate discussions with property developers in the PRC for the application of the Group’s IBS product to their existing and upcoming property development projects.
Research and development
– Register intellectual property rights for the “Pervasive Secure Version 2.0” in Hong Kong.
– Identify and commence development of new IBS solutions/products to be launched in the PRC market with 華南理工大學 (South China University of Technology).
– Continue the cooperation with InnoTech for the development of new IBS solutions and enhancement of existing IBS solutions for on-going and/or future projects.
– Continue to identify and/or commence negotiation with universities and institutions that are experienced in IBS solutions to establish new strategic alliances.
– Formulate the Group’s latest research and development strategy based on the evaluation performed in previous period.
– Continue to identify appropriate software/hardware vendors to collaborate on the development of new IBS applications and the enhancement of current systems and enter into agreement if appropriate.
Sales and marketing
– Continue to promote the benefit and convenience of the IBS through hosting of seminars and conferences in Hong Kong and the PRC.
– Commence the marketing campaign to promote the Group’s IBS product “Pervasive Secure Version 2.0” in Hong Kong.
– Continue the marketing campaign to promote the Group’s IBS product in the PRC.
– Evaluate the overall result of the Group’s marketing strategy on the promotion of the Group’s image and IBS solutions/products in Hong Kong and the PRC.
– 104 – STATEMENT OF BUSINESS OBJECTIVES
BASES AND ASSUMPTIONS
The Directors have formulated the Group’s business objectives and development strategies to achieve its business objectives set out above on the basis of past industry trends and experiences and the anticipated future growth and demand of the market. The Directors have set the implementation plans described in this section on the following bases and assumptions:
– there shall be no material change in the existing laws (whether in the PRC, Hong Kong or any parts of the world), policies or industries or regulatory treatment relating to the Company, or in the political, economic or market conditions in which the Company operates and in particular the Group would be able to expand into the PRC market as set out in the paragraph headed “Implementation plans” in this section;
– inflation, interest rates and exchange rates will not differ materially from those prevailing as at the date of this prospectus;
– there shall be no material change in the bases or rates of taxation applicable to the Company;
– suitable personnel can be recruited and retained by the Company;
– there shall be no material changes in the funding requirement for each of the development objectives and strategies described herein from the amount as currently estimated by the management of the Company;
– external financing will be readily available to the Company; and
– there shall be no disasters, natural, political or otherwise, which would materially disrupt the business or operations of the Company or cause substantial losses, damages or destruction to its property or facilities.
The aforesaid plans are based on the existing plans and intentions of the Group which are either in a conceptual or preliminary stage. Furthermore, such intentions and plans are based on assumptions of future events, which by their nature are subject to uncertainty. Accordingly, the Group’s actual course of action may therefore vary from the intentions and plans set out above. Although the Directors will endeavour to execute such plans in accordance with the aforesaid terms and timeframe, there can be no assurance that the plans of the Group will materialise, result in the conclusion of any agreement or be executed in accordance with the aforesaid timeframe or that, the objectives of the Group will be fully accomplished or accomplished at all.
– 105 – STATEMENT OF BUSINESS OBJECTIVES
USE OF PROCEEDS
The Directors estimate that the Company will receive net proceeds from the New Issue, after deducting related expenses, of approximately HK$12.9 million. The Directors intend to use the net proceeds as follows:–
From the Latest 6 months 6 months 6 months 6 months 6 months Practicable ending 31st ending ending 31st ending ending 31st Date to 30th December, 30th June, December, 30th June, December, June, 2003 2003 2004 2004 2005 2005 Total (HK$’000) (HK$’000) (HK$’000) (HK$’000) (HK$’000) (HK$’000) (HK$’000)
Business expansion in Hong Kong – Pursuit of public sector IBS projects and re-engineering projects 28 167 184 167 202 165 913 – Merchandising of IBS products – 60 105 90 108 90 453 Geographical expansion to PRC – Establishment of joint ventures 120 1,120 1,120 220 920 – 3,500 – Tendering for IBS projects 100 200 390 390 590 510 2,180 – Launching IBS products ––110 110 ––220 Research and development – Development of IBS products 75 225 225 225 165 – 915 – Forming strategic alliances ––120 180 60 – 360 – Expansion of in-house team 30 139 212 207 242 207 1,037 Sales and marketing 39 181 317 234 296 256 1,323 General working capital 714 558 403 206 91 – 1,972
Total 1,106 2,650 3,186 2,029 2,674 1,228 12,873
Pending the application of the net proceeds from the New Issue as described above, the net proceeds may be placed as short-term deposits with banks or financial institutions in Hong Kong, or added to the Group’s working capital.
The Directors believe that the estimated net proceeds from the New Issue will be sufficient to finance all of the Group’s activities up to the year ending 31st December, 2005. However, the Directors cannot rule out the possibility of raising additional funds from various sources including, but not limited to, the international and domestic capital markets, banks and internal resources or a combination of these sources if the need arises. The Directors believe that additional funds will generally be required if the Group were to undertake unexpectedly large projects.
– 106 – STATEMENT OF BUSINESS OBJECTIVES
DEPLOYMENT OF HUMAN RESOURCES
As at the Latest Practicable Date, the Group employed a total work force of 47 full time employees not including the Directors. Following the completion of the Placing and the implementation of the business objectives and development strategies, the Group’s expected number of employees in each functional departments for the periods from the Latest Practicable Date to 31st December, 2003 and the two years ending 31st December, 2005 are as follows:–
As at As at As at As at As at As at As at Latest 30th 31st 30th 31st 30th 31st Practicable June, December, June, December, June, December, Date 2003 2003 2004 2004 2005 2005
Finance and administration 6 5 8 11 11 14 14 Quality control and management 2 2 3 4 4 5 5 Sales, marketing and supply chain 5 5 10 17 17 21 21 Research and development and intellectual property 4 4 8 10 10 12 12 Project execution 30 33 39 44 49 54 59
47 49 68 86 91 106 115
– 107 – DIRECTORS, SENIOR MANAGEMENT AND STAFF
DIRECTORS
The Company’s board of Directors is responsible for its day-to-day management. The Company’s articles of association provide that the board of Directors will consist of not less than one Director.
Executive Directors
Mr. Tsang Hon Chung, aged 42, is an executive Director, the chairman of the Company and a co-founder of the Group. Mr. Derek Tsang co-founded the Group in February 1990 and is responsible for the overall management, strategic planning and development of the Group. He has over 23 years of experience in the industry of electronics systems, including five years of experience in system design, planning and project management of building intelligence. Mr. Derek Tsang is the Convenor of the China Development and Co-operation Advisory Committee of the Hong Kong Information Technology Industry Council of the Federation of Hong Kong Industries. He is also the Founding Member and Chartered Vice-President of the SMATV Association of Hong Kong Limited and has been active in negotiating for the set-up of the standard of the “In Building Coaxial Cable Distribution System” for Hong Kong to the association. Concurrently Mr. Derek Tsang has served as the President of the Hong Kong Mainland Lions Club since year 2000, is an associate member of Intelligence Building Index of the Asian Institute of Intelligent Buildings and the President of the Dragon Junior Chamber of Commerce in Hong Kong from 1999 to 2000. In the PRC, Mr. Derek Tsang is also a committee member of the Political Consultative Committee Conference (P.C.C.C.) of Yunan in Guangdong Province and Xingan in Guangxi Province. Mr. Derek Tsang holds a higher certificate in electronic engineering, a certificate in satellite communications – technology and applications from the Hong Kong Polytechnic University and a diploma in e-Management for executives from the Hong Kong Productivity Council. In addition, Mr. Derek Tsang also holds certificates issued by the Hong Kong Education Department and the Vocational Training Council for successfully completing training courses on application and guide to the 15th edition of IEE wiring regulations, radio mechanics, television mechanics, electronics, trading with China. Mr. Derek Tsang has also completed the following units: operations management, information technology and the legal environment leading to the joint diploma in management studies sponsored by The Hong Kong Management Association and The Hong Kong Polytechnic University.
Mr. Lam Yew Kai, aged 57, is an executive Director and one of the co-founders of the Group. He has over 20 years of experience in the area of electronics engineering and has been actively involved in the overall management, strategic planning, and training aspect of the Group since its establishment. From 1979 to 1983, Mr. Edmond Lam served as a director of a radio service company which specialised in the provision of the design and installation of professional sound systems. In 1984, Mr. Edmond Lam started his own business in design and installation of professional sound systems which subsequently switched its focus to extra-low voltage systems in late 1980s and shaped a cornerstone for the establishment of the Group’s business. He holds a bachelor’s degree in business administration from the International University of State of Missouri and is a member of the electrical division of Architectural Association of Guangdong, China.
Mr. Sung Fung Chin, Stanley, aged 52, is an executive Director and is responsible for the overall financial planning and management of the Group. Mr. Stanley Sung joined the Group in February 2002 and is a fellow of the Society of Certified Practising Accountants in Australia (FCPA). He has over 28 years of experience in various aspects of accounting and finance in a large multi-national company in Australia and his accounting expertise covers costing, financial and management accounting, providing financial/managerial advisory services to all levels of management as well as re-engineering of business processes.
– 108 – DIRECTORS, SENIOR MANAGEMENT AND STAFF
Non executive Directors
Ms. Wong Mau Fa, aged 46, is a non-executive Director. Ms. Wong is the wife of Mr. Lam Yew Kai, an executive Director. She joined the Group in 1993 and has participated in the Group’s management and are responsible for human resources management and public relations of the Group since then. Ms. Wong was appointed as a non-executive Director in August 2002.
Mr. Tsang Hon Ming, aged 39, is a non-executive Director. Mr. Tsang is the younger brother of Mr. Tsang Hon Chung, an executive Director. He joined the Group in 1993. Mr. Tsang has more than 10 years of working experience in building materials trading and construction business. He holds a bachelor of arts degree in Chinese Language and Literature from Hong Kong Baptist University. From 1993 to 1997 Mr. Tsang was a director of a building materials trading company in Hong Kong and was a co-founder of Wah Lam Building Materials Limited which was incorporated in 1997. He was appointed as a non-executive Director in August 2002.
Independent non-executive Directors
Mr. Fong Yick Jin, Eugene, aged 31, is an independent non-executive Director. He is a member of the Certified Practising Accountants Australia and the Securities Institute of Australia. Mr. Fong holds a master degree in commerce and a bachelor degree in law Mr. Fong is currently a director and deputy general manager of Junefair Engineering Co. Ltd., an Independent Third Party and a private company engaged in buildings’ electrical services in Hong Kong. He serves as a committee member of the Hong Kong Federation of Electrical and Mechanical Contractors and the Hong Kong Electrical Contractors’ Association. Mr. Fong is also a Community Service Director of Rotary Club of Kowloon West. Prior to his existing employment in Hong Kong, Mr. Fong worked as a financial systems accountant in the head office of a listed company in Australia engaging in various businesses ranging from steel, mining to energy. Mr. Fong joined the Group in August 2002.
Mr. Liu Pui Ming, aged 28, is an independent non-executive Director. Mr. Liu holds a bachelor degree in building services engineering from the Hong Kong Polytechnic University. He is currently a director of Epee Company Limited, a private company which is an Independent Third Party engaged in trading of sport equipment. Mr. Liu has more than six years of project management experience in the building services, electrical service and ELV electronic engineering service. Mr Liu joined the Group in February 2003.
SENIOR MANAGEMENT
Mr. Wu Kwok, Karl, aged 39, is the chief financial officer and the company secretary of the Company. He joined the Group in February 2003 and is responsible for the day-to-day financial management and corporate administration of the Group. Mr. Wu holds a bachelor of arts degree in business administration from the University of Washington and is a Certified Public Accountant (USA). He has over 16 years of international working experience in accounting, financial planning and control, business development, logistic, project management and contract administration in various industries. Prior to joining the Group, Mr. Wu was a project director of a privately-owned engineering and construction company in Hong Kong and served there for seven years. Prior to that he worked for a privately-owned trading company, an international architectural and interior consultancy firm and a manufacturing company for a total of nine years principally responsible for financial controlling and business development.
– 109 – DIRECTORS, SENIOR MANAGEMENT AND STAFF
Ms. Wong Tik, Tikia, aged 31, is the qualified accountant of the Company. Ms. Wong is an associate member of the Hong Kong Society of Accountants and a member of the Association of International Accountants (UK). She has over six years of experience in auditing and accounting. She is responsible for assisting Mr. Karl Kwok Wu in the financial management of the Group and the Group’s financial control and treasury functions. Immediately prior to joining the Company in February 2002, Ms. Wong was an audit supervisor in an international auditing firm, PKF, Certified Public Accountants.
Mr. Siu Ngai Chuen, aged 25, is the research and development manager of the Company and is responsible for managing the research and development team. Mr. Siu joined the Group in September 1998. He graduated from the Hong Kong Polytechnic University with a higher diploma in Electronic Engineering. Mr. Siu has also acquired qualifications such as Krone – Master Installer Certificate, 5-S Lead Auditor training, ISO9000 Internal Auditor training and Microsoft Certified System Engineer and is a member of AIIB.
Mr. Ng Kong, aged 27, is the system designer of the research and development team and is responsible for data network design and management. Prior to joining the Group in September 2000, Mr. Ng was a project engineer responsible for system integration in an information technology company in Hong Kong. He graduated from the Hong Kong Polytechnic University with a higher diploma in electronic engineering. Mr. Ng has also gained the qualification of Cisco Certified Network Associate.
Ms. Sung Sau Fan, aged 42, is the human resources and administration manager of the Group and is responsible for overseeing the Group’s personnel, payroll and the administrative management functions. Ms. Sung is also responsible for the follow up and collection of trade debtors. She is the wife of Mr. Derek Tsang and the sister of Mr. Stanley Sung, both are executive Directors. Ms. Sung does not have any shareholding in the Company as at the Latest Practicable Date but is interested in options granted under the Pre-IPO Share Option Scheme to subscribe for 5,625,000 Shares, representing 1.5% of the issued share capital of the Company as at the Listing Date. Such options are only exercisable following 12 months after the date of grant on 7th June, 2003. Details of the exercisable period of options granted under the Pre-IPO Share Option Scheme are set out in the section headed “Pre-IPO Share Option Scheme” in Appendix V to this prospectus. Prior to joining the Group in September 1997, Ms. Sung worked in a privately-owned engineering consultancy firm, Consolidated Consulting Engineers Limited which is an Independent Third Party.
Mr. Tang Wing Lun, aged 24, is the sales and marketing manager of the Group and is responsible for the marketing, sales, and tendering processes of the Group. He joined the Group in December 1999. Mr. Tang graduated from Tuen Mun Technical Institute with a diploma in electrical engineering.
Ms. Yeung Wai Ching, aged 24, is the purchasing manager of the Group and is responsible for the sourcing and purchasing of all electronic components, cables and stores for the Group. Ms. Yeung joined the Group in September 2000.
Mr. Chang Chun Wa, aged 25, is the software engineer in the research and development team and is responsible for product development and innovation for the Group. Mr. Chang joined the Group in June 2002. Mr. Chang received a bachelor degree in engineering from The Hong Kong University of Science and Technology with an emphasis in computer science and information engineering – multimedia computing.
Mr. Ronilo P. Aguilar, aged 39, is a project manager of the Group and is responsible for quality control and management. Mr. Aguilar also prepares documents and literatures of the
– 110 – DIRECTORS, SENIOR MANAGEMENT AND STAFF
Company’s products and services. Mr. Aguilar joined the Group in July 2002. Prior to joining the Group, Mr. Aguilar was a facilities senior engineer of a semiconductors manufacturing company in Hong Kong. Mr. Aguilar graduated with a diploma in electrical technology from the Technological University of the Philippines.
Mr. Cheung Wah Cheuk, aged 24, is a project manager of the Group. Mr. Cheung is responsible for supervising and co-ordinating projects at a number of sites. Mr. Cheung also acts as a liaison officer between the Group and the sub contractors in all technical aspects in executing a project. Prior to joining the Group in September 1996, Mr. Cheung was a full time student at the Vocational Training Council and graduated with a higher certificate in electronic engineering. In 2000, Mr. Cheung participated in the Hong Kong Youth Skill Competition and Mr. Cheung achieved an impressive result of winning the second place in electronic engineering.
AUDIT COMMITTEE
The Company established an audit committee on 6th June, 2003 with written terms of reference in compliance with Rules 5.23, 5.24 and 5.25 of the GEM Listing Rules. The primary duties of the audit committee are to review and supervise the financial reporting process and internal control system of the Group. The audit committee will report its findings and make recommendation to the board of Directors.
The audit committee has three members comprising the two independent non-executive Directors and Mr. Stanley Sung, an executive Director. The chairman of the audit committee is Mr. Fong Yick Jin, Eugene.
STAFF
As at the Latest Practicable Date, the Group had three executive Directors, two non-executive Directors and a workforce of 47 members of staff. The corporate structure of the Group and a breakdown of the Group’s workforce by operational function is as follow:–
Board of Directors
Research and Group finance Quality control and Sales and Supply chain Project development and and administration management marketing management execution intellectual property
As at the Latest As at 31st December, Practicable 2000 2001 2002 Date
Group finance and administration 6656 Quality control and management ––22 Sales, marketing and supply chain management 2355 Research and development and intellectual property 1134 Project execution 9 11 23 30
Total 18 21 38 47
– 111 – DIRECTORS, SENIOR MANAGEMENT AND STAFF
COMPANY’S RELATIONSHIP WITH ITS STAFF
The Group has not experienced any significant problems with its employees or any disruptions to its operations due to labour disputes nor has it experienced any difficulties in the recruitment and retention of experienced staff in the past. The Directors consider that the Group has good relationships with its employees.
PRE-IPO SHARE OPTION SCHEME AND SHARE OPTION SCHEME
Under the Pre-IPO Share Option Scheme, certain full-time employees of the Group have been granted options to acquire certain Shares subject to the terms of the Pre-IPO Share Option Scheme. The Company has also conditionally adopted the Share Option Scheme whereby employees and directors of and consultants and advisers to the Group may be granted options to acquire Shares. The Directors believe that the adoption of the Pre-IPO Share Option Scheme and the Share Option Scheme will assist in the recruitment and retention of high calibre executives and employees. The principal terms of the Pre-IPO Share Option Scheme and the Share Option Scheme are summarised in the section headed “Pre-IPO Share Option Scheme” and “Share Option Scheme” in Appendix V to this prospectus.
PENSION AND BONUS SCHEMES
The Group provides its staff with a provident fund scheme in compliance with the Mandatory Provident Fund Scheme Ordinance (Chapter 485, Laws of Hong Kong) and provides medical reimbursement to its full-time employees in Hong Kong.
Staff may be entitled to discretionary performance bonuses which are correlated to meeting individual business targets.
DIRECTORS’ REMUNERATION
Save as disclosed in the accountants’ report set out in Appendix I to this prospectus, no emoluments were paid to any of the Directors for the financial years ended 31st December, 2000 and 31st December, 2001 and 31st December, 2002.
Save as disclosed in the accountants’ report set out in Appendix I to this prospectus, there was no amount paid to or receivable by the Directors for the financial years ended 31st December, 2000 and 31st December, 2001 and 31st December, 2002 as an inducement to join or upon joining the Group or upon termination of employment.
– 112 – SUBSTANTIAL SHAREHOLDERS, INITIAL MANAGEMENT SHAREHOLDERS AND SIGNIFICANT SHAREHOLDER
SUBSTANTIAL SHAREHOLDERS
So far as the Directors are aware, immediately following completion of the Placing (assuming the options granted under the Pre-IPO Share Option Scheme and options that may be granted under the Share Option Scheme are not exercised), the following persons will be directly or indirectly interested in 10% or more of the Shares then in issue:–
Approximate Name of the Number of Nature of percentage of Substantial Shareholders Shares interests interests
China Win (Note 1) 211,229,000 Corporate 56.33% Mr. Edmond Lam (Note 2) 211,229,000 Corporate 56.33% Emerging Purity (Note 2) 211,229,000 Corporate 56.33% Mr. Derek Tsang (Note 3) 211,229,000 Corporate 56.33%
Notes:
1. China Win is a company incorporated in the BVI and is beneficially owned by Emerging Purity, Mr. Derek Tsang, Mrs. Lam and Mr. Stanley Sung as to 46.45%, 46.41%, 3.57% and 3.57% respectively. Emerging Purity is then 100% beneficially owned by Mr. Edmond Lam. Under the GEM Listing Rules, each of Emerging Purity, Mr. Edmond Lam and Mr. Derek Tsang is a Substantial Shareholder.
2. Since Mr. Edmond Lam is the 100% registered and beneficial owner of Emerging Purity and Emerging Purity is the beneficial owner of 46.45% interest in China Win, both Mr. Edmond Lam and Emerging Purity are taken to be interested in the Shares held by China Win pursuant to Part XV of the Securities and Futures Ordinance.
3. Since Mr. Derek Tsang is the beneficial owner of 46.41% interest in China Win, he is taken to be interested in the Shares held by China Win pursuant to Part XV of the Securities and Futures Ordinance.
INITIAL MANAGEMENT SHAREHOLDERS
So far as the Directors are aware, immediately following completion of the Placing (assuming the options granted under the Pre-IPO Share Option Scheme and options that may be granted under the Share Option Scheme are not exercised), the following persons are the Initial Management Shareholders:–
Number of Shares Approximate Name of the or attributable number percentage of Initial Management Shareholders of Shares held shareholding
China Win (Note 1) 211,229,000 56.33% Emerging Purity (Notes 1 and 2) 98,115,871 26.17% Mr. Edmond Lam (Note 2) 98,115,871 26.17% Mr. Derek Tsang (Note 1) 98,031,379 26.14% Ms. Wong Mau Fa (Note 1) 7,540,875 2.01% Mr. Stanley Sung (Note 1) 7,540,875 2.01%
Notes:
1. China Win is beneficially owned by Mr. Derek Tsang, Ms. Wong Mau Fa, Mr. Stanley Sung and Emerging Purity as to 46.41%, 3.57%, 3.57% and 46.45% respectively.
2. Emerging Purity is 100% beneficially owned by Mr. Edmond Lam.
– 113 – SUBSTANTIAL SHAREHOLDERS, INITIAL MANAGEMENT SHAREHOLDERS AND SIGNIFICANT SHAREHOLDER
SIGNIFICANT SHAREHOLDER
So far as the Directors are aware, immediately following completion of the Placing (assuming the options granted under the Pre-IPO Share Option Scheme and options that may be granted under the Share Option Scheme are not exercised), apart from the Substantial Shareholders and the Initial Management Shareholders disclosed above, there is no other person who will be directly or indirectly interested in 5% or more of the voting power at general meetings of the Company.
NON-DISPOSAL UNDERTAKINGS AND ESCROW ARRANGEMENT
Each of the Initial Management Shareholders has undertaken with the Company, the Joint- Lead Managers (for themselves and on behalf of the Underwriters) and the Stock Exchange that for a period of 12 months from the Listing Date:
(a) he/she/it will place (or procure to be placed) in escrow, with an escrow agent acceptable to the Stock Exchange, the Relevant Securities on terms acceptable to the Stock Exchange;
(b) he/she/it will not (or procure that he or it will not) dispose of (or enter into any agreement to dispose of) or permit the registered holder to dispose of (or enter into any agreement to dispose of) any of his/her/its direct or indirect interests in the Relevant Securities;
(c) in the event that he/she/it pledges or charges any direct or indirect interest in the Relevant Securities under Rule 13.18(1) of the GEM Listing Rules or pursuant to any right or waiver granted by the Stock Exchange pursuant to Rule 13.18(4) of the GEM Listing Rules, he/she/it must inform (or procure to inform) the Company immediately thereafter, disclosing the details as specified in the GEM Listing Rules; and
(d) having pledged or charged any of his or its interests in the Relevant Securities under sub-paragraph (c) above, any of them must inform (or procure to inform) the Company immediately in the event that he/she/it becomes aware that the pledgee or chargee has disposed of or intends to dispose of such interest and of the number of the Relevant Securities affected.
In addition, each of Emerging Purity, Mr. Derek Tsang, Mrs. Lam and Mr. Stanley Sung, all being the shareholders of China Win, has undertaken with the Company, the Joint-Lead Managers (for themselves and on behalf of the Underwriters) and the Stock Exchange that he/she/it will not dispose of (or enter into any agreement to dispose of) any of his/her/its interest in China Win from time to time for a period of 12 months from the Listing Date and he/she/it will place (or procure to be placed) in escrow, with an escrow agent acceptable to the Stock Exchange, the Relevant Securities on terms acceptable to the Stock Exchange. Mr. Edmond Lam has also undertaken with the Company, the Joint-Lead Managers (for themselves and on behalf of the Underwriters) and the Stock Exchange that he will not dispose of (or enter into any agreement to dispose of) any of his interest in Emerging Purity from time to time for a period of 12 months from the Listing Date and he will place in escrow, with an escrow agent acceptable to the Stock Exchange, the shares in Emerging Purity on terms acceptable to the Stock Exchange.
– 114 – SUBSTANTIAL SHAREHOLDERS, INITIAL MANAGEMENT SHAREHOLDERS AND SIGNIFICANT SHAREHOLDER
Each of the Other Shareholders has voluntarily undertaken with the Company, MasterLink (on behalf of the Underwriters) and the Stock Exchange that for a period of 12 months from the Listing Date:
(a) it will not dispose of (or enter into any agreement to dispose of) any of their respective direct or indirect interests in the Company;
(b) it will place (or procure to be placed) in escrow, with an escrow agent acceptable to the Stock Exchange, the Relevant Securities on terms acceptable to the Stock Exchange;
(c) it will not (or procure that it will not), save as provided in Rule 13.18 of the GEM Listing Rules, dispose of (or enter into any agreement to dispose of) or permit the registered holder to dispose of (or enter into any agreement to dispose of) any of its direct or indirect interests in the Relevant Securities;
(d) in the event that it pledges or charges any direct or indirect interest in the Relevant Securities under Rule 13.18(1) of the GEM Listing Rules or pursuant to any right or waiver granted by the Stock Exchange pursuant to Rule 13.18(4) of the GEM Listing Rules, it must inform (or procure to inform) the Company immediately thereafter, disclosing the details as specified in the GEM Listing Rules; and
(e) having pledged or charged any of its interests in the Relevant Securities under sub- paragraph (d) above, any of them must inform (or procure to inform) the Company immediately in the event that it becomes aware that the pledgee or chargee has disposed of or intends to dispose of such interest and of the number of the Relevant Securities affected.
In addition, Cheung Kong Holdings has undertaken with the Company, MasterLink (on behalf of the Underwriters) and the Stock Exchange that it will not dispose of (or enter into any agreement to dispose of) any of its direct interest in Cheung Kong Investment Company Limited and each of Cheung Kong Holdings and Cheung Kong Investment Company Limited has undertaken with the Company, MasterLink (on behalf of the Underwriters) and the Stock Exchange that it will not dispose of (or enter into any agreement to dispose of) any of its indirect/direct interest in Delight Resources from time to time for a period of 12 months from the Listing Date, except in the event that a reorganisation is being carried out in the group of companies of Cheung Kong Holdings, then Cheung Kong Holdings may dispose of its direct interest in Cheung Kong Investment Company Limited and Cheung Kong Investment Company Limited may then dispose of its direct interest in Delight Resources to any other wholly-owned subsidiaries of Cheung Kong Holdings such that Delight Resources will remain a direct wholly-owned subsidiary of the potential immediate holding company and an indirect wholly-owned subsidiary of Cheung Kong Holdings and this potential immediate holding company of Delight Resources should be subject to the same or similar lock up arrangement as with Cheung Kong Holdings and Cheung Kong Investment Company Limited.
Each of Mr. Wong Chi Lick and Mr. Tse Hung Hay, being all the shareholders of China Enterprise, has also undertaken with the Company, MasterLink (on behalf of the Underwriters) and the Stock Exchange that they will not dispose of (or enter into any agreement to dispose of) any of their interest in China Enterprise from time to time for a period of 12 months from the Listing Date and each of them will place in escrow, with an escrow agent acceptable to the Stock Exchange, his respective shares in China Enterprise on terms acceptable to the Stock Exchange.
– 115 – CONNECTED TRANSACTION
Upon listing of the Shares on GEM, the following transaction constitutes a connected transaction under the GEM Listing Rules:
EXEMPT CONTINUING CONNECTED TRANSACTION
Sharing of Expenses Agreement
Wah Lam Building Materials Limited (“WLBM”) is beneficially owned as to 18% and 27% by Mr. Derek Tsang and Mr. Edmond Lam respectively, both are executive Directors and Initial Management Shareholders, and as to 46% and 9% by Mr. Niki Tsang and Mrs. Lam respectively, both are non-executive Directors. WLBM is principally engaged in the trading of building materials while Wah Lam is principally engaged in the provision of IBS solutions services. Both companies shared the same office in the past and will continue in the future. Pursuant to a sharing of expenses agreement dated 25th September, 2002 (the “Sharing of Expenses Agreement”) made between Wah Lam and WLBM, Wah Lam has agreed to allow WLBM to use, on a non-exclusive basis, (i) about 50% of the total area of the office premises located at Factory A2, 1st Floor, Block 3, Golden Dragon Industrial Centre, 172-180 Tai Lin Pai Road, Kwai Chung, New Territories, Hong Kong, (ii) such utilities as electricity, water and the telephone system in the office premises; and (iii) certain administrative support services which include receptionist and administrative assistance. In return, WLBM shall pay to Wah Lam 50% of the aggregate of the rental expenses, rates, management fee, utilities charges, the salary and all benefits payments to the receptionist and administrative assistant and any other charges and payments for goods and services for administration purpose which are paid by Wah Lam for the joint enjoyment and benefit of both Wah Lam and WLBM.
The Sharing of Expenses Agreement commenced on 1st August, 2002 and shall continue until terminated by either party giving to the other not less than one month’s notice in writing of their intention to terminate.
For each of the three years ended 31st December, 2002, the rental expenses including management fee and rates, office utilities and other administrative support services paid by WLBM to the Group for sharing of the office premises amounted to approximately HK$127,000, HK$317,000 and HK$317,000 respectively. The Directors are of the view that the costs of the above services are ascertainable and will be made on a fair and reasonable basis and expect that such costs shall not exceed HK$1,000,000 for the financial year ending 31st December, 2003. The Directors consider that the entering into of the Sharing of Expenses Agreement is on normal commercial terms and in the interest of the Group and the Shareholders.
The entering into of the Sharing of Expenses Agreement constitutes a connected transaction for the Company under the GEM Listing Rules given that WLBM is owned as to 46% by Mr. Niki Tsang, a non-executive Director, 27% by Mr. Edmond Lam, an executive Director, 18% by Mr. Derek Tsang, an executive Director and 9% by Mrs. Lam, a non-executive Director. Given the aggregate amount of the fee payable by WLBM to Wah Lam for each financial year is expected to be less than HK$1,000,000, the transaction under the Sharing of Expenses Agreement is exempted from the reporting, announcement and shareholders approval requirements under the GEM Listing Rules.
In the event that the aggregate amount of fee payable by WLBM to Wah Lam under the Sharing of Expenses Agreement for any financial year exceeds HK$1,000,000, the Company will comply with the relevant requirements under the provision of Chapter 20 of the GEM Listing Rules.
– 116 – SHARE CAPITAL
HK$
Authorised share capital:–
10,000,000,000 Shares 100,000,000
Shares issued and to be issued, fully paid or credited as fully paid:–
21,000,000 Shares in issue 210,000 288,000,000 Shares to be issued pursuant 2,880,000 to the Capitalisation Issue 66,000,000 Shares to be issued under the Placing 660,000
375,000,000 Shares 3,750,000
The minimum level of public float to be maintained by the Company at all times after listing under the GEM Listing Rules is 25% of its share capital in issue from time to time.
Assumptions
The table above assumes that the Placing becomes unconditional and takes no account of any Shares which may be allotted and issued upon the exercise of the options granted under the Pre-IPO Share Option Scheme and the Share Option Scheme or which may be allotted and issued or repurchased by the Company under the general mandates referred to below.
Ranking
The Placing Shares will rank equally with all of the Shares now in issue, and will qualify for all dividends or other distributions declared, made or paid on the Shares after the date of this prospectus.
Share Option Schemes
The Company has conditionally adopted the Pre-IPO Share Option Scheme and the Share Option Scheme. A summary of the main terms of the schemes are set out in the section headed “Pre-IPO Share Option Scheme” and “Share Option Scheme” in Appendix V to this prospectus.
Under the Share Option Scheme, full-time employees of the Group may be granted options which entitle them to subscribe for Shares representing up to a maximum of, when aggregated with any securities subject to any other share option scheme(s) of the Company, 30% of the issued share capital of the Company from time to time (excluding the aggregate number of Shares which have been duly allotted and issued under the Share Option Scheme).
General mandate to issue Shares
The Directors have been granted a general mandate to allot, issue and deal with unissued Shares with an aggregate nominal value of not more than:–
(1) 20% of the aggregate nominal amount of the share capital of the Company in issue immediately following completion of the Placing and the Capitalisation Issue; and
– 117 – SHARE CAPITAL
(2) the aggregate nominal amount of the share capital of the Company repurchased by the Company under the authority referred to in the paragraph headed “General mandate to repurchase Shares” below.
This mandate will expire:–
• at the conclusion of the Company’s next annual general meeting; or
• at the end of the period within which the Company is required by the Companies Law or any other applicable laws of the Cayman Islands or its articles of association to hold its next annual general meeting; or
• when varied or revoked by an ordinary resolution of the Shareholders in a general meeting;
whichever is the earliest.
For further details of this mandate, please see the paragraph headed “Changes in share capital” under the section headed “Further information about the Company” in Appendix V to this prospectus.
General mandate to repurchase Shares
The Directors have been granted a general unconditional mandate to exercise all the powers of the Company to repurchase Shares (including to determine the manner of repurchase) with a total nominal value of not more than 10% of the total nominal amount of the Shares in issue immediately following completion of the Placing.
This mandate only relates to repurchases made on GEM, or on any other stock exchange on which the Shares are listed (and which is recognised by the Securities and Futures Commission and the Stock Exchange for this purpose), and which are in accordance with the GEM Listing Rules. A summary of the relevant GEM Listing Rules is set out in the section headed “Repurchase by the Company of its own securities” in Appendix V to this prospectus.
This mandate will expire:–
• at the conclusion of the Company’s next annual general meeting; or
• at the end of the period within which the Company is required by the Companies Law or any other applicable laws of the Cayman Islands or its articles of association to hold its next annual general meeting; or
• when varied or revoked by an ordinary resolution of the Shareholders in a general meeting;
whichever is the earliest.
For further details of this mandate, please see the paragraph headed “Changes in share capital” in the section headed “Further information about the Company” in Appendix V to this prospectus.
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INDEBTEDNESS
Borrowings
As at the close of business on 30th April, 2003, being the latest practicable date for the purpose of this indebtedness statement, the Group had unsecured bills payable of approximately HK$286,000.
In addition, as at the close of business on 30th April, 2003, the Group had obligation under finance lease of approximately HK$162,000.
Capital commitments
As at 30th April, 2003, the Group had no outstanding capital commitments in respect of acquisition of property, plant and equipment.
Contingent liabilities
As at 30th April, 2003, the Group had no contingent liabilities.
Securities and guarantees
As at 30th April, 2003, the Group’s total available credit facilities from banks of approximately HK$3.6 million were secured by the following :
(i) Legal charges over the properties of Mr. Edmond Lam, an executive Director;
(ii) Time deposits of Mr. Edmond Lam and Mr. Derek Tsang, both are executive Directors;
(iii) Personal guarantees given by Mr. Edmond Lam, Mr. Derek Tsang, both are executive Directors and Mr. Niki Tsang, a non-executive Director; and
(iv) Time deposits of the Group.
The relevant banks have agreed in principle that the securities and personal guarantees as referred to in items (i) to (iii) above will be released and replaced by a corporate guarantee to be given by the Company immediately upon the listing of the Shares on GEM.
Disclaimers
Save as aforesaid or otherwise disclosed in this prospectus, and apart from intra-group liabilities, the Group did not have any outstanding mortgages, charges, debentures or other loan capital issued or outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, or hire purchase contracts or any guarantees or other material contingent liabilities outstanding at the close of business on 30th April, 2003.
The Directors have confirmed that save as disclosed above, there has not been any material change in the indebtedness and contingent liabilities of the companies comprising the Group since 30th April, 2003.
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LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE
Net current assets
As at 30th April, 2003, the Group had net current assets of approximately HK$13,050,000. Current assets comprised of inventories of approximately HK$366,000, amount due from related companies of approximately HK$40,000, debtors, deposits and prepayments of approximately HK$17,085,000, pledged time deposit of approximately HK$130,000 and cash and bank balances of approximately HK$1,646,000. Current liabilities comprised of unsecured bills payable of approximately HK$286,000, creditors and accruals of approximately HK$4,415,000, obligation under finance lease of approximately HK$54,000 and tax payable of approximately HK$1,462,000.
Capital expenditure commitments
The Group had no capital expenditure commitments as at 30th April, 2003.
Financial resources
The Group generally finances its operations and meets its debt servicing with cash generated from its business operations and banking facilities provided by its principal bankers and other third parties.
As at 30th April, 2003, the Group had aggregate banking facilities of approximately HK$3.6 million. As at the Latest Practicable Date, approximately HK$286,000 had been utilised.
As at 30th April, 2003, the Group had cash and bank balances of approximately HK$1,646,000.
Working capital
Taking into account of the financial resources available to the Group, including the internally generated funds, the available banking facilities and the estimated net proceeds of the New Issue, the Directors are of the opinion that the Group has sufficient working capital for the present requirements.
RULES 17.15 TO 17.21 OF THE GEM LISTING RULES
As at the Latest Practicable Date, the Company had not advanced any money to any entity or provided any financial assistance and guarantees to affiliated companies which exceeded 25% of the Company’s audited combined net tangible assets nor had the Company entered into any loan agreements imposing specific performance obligations on the controlling shareholder of the Company, nor had the controlling shareholder of the Company pledged its interests in the Shares to secure debts, guarantees or support of other obligations of the Company. The Directors confirmed that as at the Latest Practicable Date, they were not aware of any circumstances which gave rise to a disclosure requirement under Rules 17.15 to 17.21 of the GEM Listing Rules.
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TRADING RECORD
Summary of combined results of the Group
The following is a summary of the combined results of the Group for each of the three years ended 31st December, 2002. This summary has been prepared on the basis that the existing structure of the Group had been in place throughout the Track Record Period and should be read in conjunction with the accountants’ report and the additional financial information on the Group set out in Appendix I and Appendix II respectively to this prospectus.
Year ended 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Turnover (Note 1) 19,396 19,920 36,260
Subcontracting charges (4,244) (5,958) (8,249)
Cost of sales and services rendered (11,258) (8,516) (13,190)
Gross profit 3,894 5,446 14,821
Other income 145 28 110
Administrative and other operating expenses (3,313) (4,230) (5,774)
Operating profit 726 1,244 9,157
Finance costs (20) (39) (93)
Profit before taxation 706 1,205 9,064
Taxation (104) (173) (1,445)
Profit attributable to Shareholders 602 1,032 7,619
Earnings per Share (Note 2) – Basic 0.2 cent 0.3 cent 2.5 cents
– Diluted 0.2 cent 0.3 cent 2.4 cents
Notes:
1. Turnover represents revenue recognised from the provision of IBS solutions and sale of electronic equipment, maintenance services and consultancy services. All significant intra-group transactions have been eliminated on combination.
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2. The calculation of basic earnings per Share is based on the Group’s combined profit attributable to Shareholders for the Track Record Period and the assumption that a total of 309,000,000 Shares had been in issue during the Track Record Period.
The calculation of diluted earnings per Share is based on the Group’s combined profit attributable to Shareholders for the Track Record Period and the assumption that 318,375,000 Shares had been in issue during the Track Record Period. The number of Shares used in the calculation comprised 309,000,000 Shares referred to above and 9,375,000 Shares assumed to have been issued at no consideration on the deemed exercise of the Pre-IPO Share Option Scheme as set out in Appendix V to the prospectus.
The following table analyses the combined turnover and gross profit of the Group by major line of business during the Track Record Period and is prepared on the same basis on which the above summary is prepared:–
Year ended 31st December, 2000 2001 2002 HK$’000 % HK$’000 % HK$’000 % Turnover:
IBS design, supply and installation 18,393 94.8 19,576 98.3 32,461 89.5 IBS maintenance 1,003 5.2 344 1.7 449 1.3 IBS consultancy –– ––3,350 9.2
19,396 100.0 19,920 100.0 36,260 100.0
Gross profit:
IBS design, supply and installation and IBS maintenance 3,894 100.0 5,446 100.0 11,658 78.7 IBS consultancy –– ––3,163 21.3
3,894 100.0 5,446 100.0 14,821 100.0
Management’s discussion and analysis
General information
Turnover of the Group was principally derived in Hong Kong from the provision of services relating to IBS including advising, designing, supplying, integrating, installing and maintaining a whole array of ELV electronic devices in residential, commercial and utility buildings. During the Track Record Period, the Group provided IBS design, supply and installation and IBS maintenance services principally for projects in Hong Kong. In 2002, the Group commenced to provide IBS consultancy services relating to two PRC property development projects which contributed turnover of approximately HK$3.4 million, representing approximately 9.2% of the total turnover of the Group for the year ended 31st December, 2002. The IBS consultancy services were provided in accordance with the Master Consultancy Agreement entered into between the Group and Shum Yip. Since the location at which the IBS consultancy services provided by the Group was in Hong Kong, the revenue from the Master Consultancy Agreement was considered to be derived from Hong Kong.
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Given the insignificant amount of turnover attributable to IBS maintenance services and the fact that the costs of providing IBS maintenance services were principally labour costs which were not allocated by the Group to individual projects, gross profit of IBS design, supply and installation and IBS maintenance services was presented as one segment for analysis purpose. During the Track Record Period, the gross profit margin of IBS design, supply and installation and IBS maintenance services were approximately 20.1%, 27.3% and 35.4% respectively while the gross profit margin of IBS consultancy services for the year ended 31st December, 2002 was approximately 94.4%. The increase in the gross profit margin of IBS design, supply and installation and IBS maintenance services during the Track Record Period was principally due to the continuing growth in the Group’s turnover with effective cost control and general decrease in the price of electronic devices which reduced the purchasing costs of materials of the Group.
Financial year ended 31st December, 2001 compared with financial year ended 31st December, 2000
Turnover
Despite the general downturn in the construction activities in Hong Kong, the Group experienced a small growth in turnover as a result of its continuing efforts in marketing, pursuing strategic partnership with a number of major property developers in Hong Kong and competitive tendering in IBS projects. The Group’s total turnover increased from approximately HK$19.4 million for the year ended 31st December, 2000 to approximately HK$19.9 million for the year ended 31st December, 2001, representing an increase of approximately 2.6%. Compared with the two years ended 31st December, 2001, turnover attributable to IBS design, supply and installation services increased by approximately 6.4% while turnover attributable to IBS maintenance services decreased by approximately 65.7%. Given that the turnover from provision of IBS design, supply and installation services accounted for approximately 94.8% and 98.3 respectively of the Group’s total turnover for the two years ended 31st December, 2001, the decrease in the turnover from IBS maintenance services during that period had insignificant impact on the overall turnover of the Group.
Gross profit
As a result of sound management control, the Group recorded a gross profit for the financial year ended 31st December, 2001 of approximately HK$5.4 million. This represented an overall gross profit margin of approximately 27.3%. As compared with the same period for the year 2000, the gross profit increased by approximately 39.9% and the gross profit margin increased by approximately 35.8%. The significant increase in the gross profit reflected the management’s continuing effort in controlling the materials costs especially the costs of various electronic devices that are applied in IBS including CCTV, computers, card reader units, door phone units, alarm control units, car park control units from several major suppliers.
Administrative and other operating expenses
Administrative and other operating expenses of the Group for the financial year ended 31st December, 2001 was approximately HK$4.2 million which mainly comprised directors’ remuneration of approximately HK$0.8 million, provision for doubtful debts of approximately HK$0.8 million, staff expenses of approximately HK$0.7 million, entertainment expenses of approximately HK$0.3 million, research and development expenses of approximately HK$0.3 million and depreciation charges of approximately HK$0.2 million. The total amount represented an increase of approximately 27.7% as compared with the year 2000 of approximately HK$3.3 million. The increase was due to a specific provision for doubtful debts of approximately HK$0.8 million in 2001 while there was no corresponding provision made in year 2000.
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The specific provision for doubtful debts of approximately HK$0.8 million, representing approximately 4.1% of the turnover of the Group for the year ended 31st December, 2001, was related to receivables from three clients being considered uncollectable. Two of these customers, however, subsequently settled the outstanding amount of approximately HK$0.3 million in full. The Group also agreed with the remaining customer on the settlement of the outstanding balance. The Directors considered that such provision for doubtful debts was made due to specific circumstances relating to particular clients and would not usually be incurred. As a matter of its credit policy, the Group reviews its outstanding trade debtors and assesses the recoverability on an individual and ongoing basis, and therefore does not provide for any general provision for doubtful debts.
The staff expenses for the year 2001 of approximately HK$0.7 million comprised salaries and allowances of approximately HK$0.5 million and mandatory provident fund contribution and staff welfare of approximately HK$0.2 million. The staff expenses for the year 2000 amounted to approximately HK$0.8 million which was slightly higher than that for the year 2001.
Finance costs
Finance costs of the Group for the year ended 31st December, 2000 mainly included interests on bills and bank overdrafts which accounted for approximately 62.3% and 27.6% of the total finance costs respectively while such costs for the year ended 31st December, 2001 was approximately HK$39,000 in which approximately 62.0% was attributable to bank charges associated with letters of credit. The balance was for bills interest, overdraft interest and finance lease interest. Compared with financial year ended 31st December, 2000, there was a significant increase in finance costs of nearly 93.8% principally due to an increase in payments to overseas suppliers which resulted in an increase in bank charges associated with the issuance of letters of credits to these suppliers.
Taxation
Taxation was calculated on the estimated assessable profits arising or derived in Hong Kong at the rate of 16%.
For the year ended 31st December, 2000, the effective tax rate of the Group was about 14.7%. The taxable profit of the Group was lower than the accounting profit as interest income of approximately HK$90,000 was non-taxable and certain fixed assets of approximately HK$66,000 acquired during the year were fully deductible for taxation purposes.
For the year ended 31st December, 2001, the effective tax rate of the Group was about 14.3%. The taxable profit of the Group was lower than the accounting profit by only approximately HK$7,000 after adjusting for the non-taxable and tax allowable items for taxation purposes. The difference between the effective tax rate and the actual tax rate of 16% was mainly due to over- provision of profits tax of HK$18,609 in previous year.
Profit attributable to Shareholders
Profit attributable to Shareholders for the year ended 31st December, 2001 was approximately HK$1.0 million, which represented an increase of approximately 71.4% as compared with the previous year. Such increase was mainly due to significant improvement in gross profit margin through sound control in materials costs especially in the supply chain management.
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Financial year ended 31st December, 2002 compared with financial year ended 31st December, 2001
Turnover
Turnover of the Group for the year ended 31st December, 2002 was approximately HK$36.3 million, representing an increase in approximately 82.0% of the annual turnover of the previous year. Turnover attributable to IBS design, supply and installation services increased by approximately 65.8% to approximately HK$32.5 million. The significant increase was due to the fact that the Group obtained and commenced to implement certain large infrastructure and residential IBS projects such as “Kowloon Station Development” project, “Cyberport Residential Development” project and “Ma Wan Toll Collection System“ project. Turnover attributable to IBS maintenance services also increased by approximately 30.5%. In addition, the Group entered into the Master Consultancy Agreement on 4th January, 2002 with Shum Yip and started to provide IBS consultancy services. A consultancy fee income of approximately HK$3.4 million, representing approximately 9.2% of the Group’s total turnover for the period, was recorded for the year ended 31st December, 2002.
Gross profit
For the year ended 31st December, 2002, the gross profit of IBS design, supply and installation and IBS maintenance services amounted to approximately HK$11.7 million, represented a gross profit margin of approximately 35.4%. Compared with the same period for the year 2001, the gross profit margin increased by approximately 29.7% for the year ended 31st December, 2002 which was the result of the significant and continuous drop in the costs of direct materials during the year.
The gross profit margin of IBS consultancy services for the year ended 31st December, 2002 was approximately 94.4%. The Directors consider that the relatively high gross profit margin for the Group’s IBS consultancy services was mainly due to the premium charged for the provision of consultancy services in relation to the two PRC property development projects to Shum Yip and the fact that the cost of providing such services were basically staff salaries amounting to approximately HK$0.2 million.
Administrative and other operating expenses
Administrative and other operating expenses of the Group for the year ended 31st December, 2002 amounted to approximately HK$5.8 million, which represented an increase in approximately 36.5% as compared with the last financial year. Such increase was mainly due to the rise in staff expenses and overseas travelling expenses which amounted to approximately HK$1.3 million and HK$0.2 million respectively for the year ended 31st December, 2002.
The staff expenses, including salaries and allowances, mandatory provident fund contribution and staff welfare and messing expenses, of approximately HK$1.3 million represented approximately 22.4% of the total administrative expenses for the year 2002. Compared with the same period for the year 2001, the staff expenses increased by approximately 85.7% which was due to the increase in number of staff from about 21 employees to 38 employees during the year 2002.
The overseas travelling expenses for the year ended 31st December, 2002 were approximately HK$0.2 million and was increased by approximately 45.1% compared with the same period last
– 125 – FINANCIAL INFORMATION year. Such increase was mainly due to more travelling to Shenzhen and Shanghai by the Group’s staff for site inspection and collection of relevant information in relation to the IBS consultancy services provided to Shum Yip under the Master Consultancy Agreement. The PRC legal adviser of the Company advised that the sending of the Group’s staff to the PRC for the above purposes, subject to the permission by the main contractor and the project manager of the related projects, is allowable under the existing PRC laws and regulations.
Other factors contributing to the increase in administrative and other operating expenses for the year 2002 included the rise in i) research and development expenses by approximately HK$0.2 million to approximately HK$0.4 million; ii) provision for doubtful debts by approximately HK$0.2 million to approximately HK$1.0 million; iii) directors’ remuneration by approximately HK$0.1 million to approximately HK$0.9 million; and iv) depreciation charges by approximately HK$0.1 million to approximately HK$0.3 million. The general increase in these expenses was in line with the increase in turnover of the Group for the year 2002 by approximately 82.0%.
Finance costs
The finance costs for the year ended 31st December, 2002 increased to approximately HK$93,000, which represented approximately 238% of the finance costs of the last financial year. The increase in finance costs was mainly due to the increase in bills handling charges and interests for the year ended 31st December, 2002.
Taxation
Taxation was calculated on the estimated assessable profits arising in or derived from Hong Kong at the rate of 16%.
The taxation charges increased from approximately HK$0.2 million in 2001 to approximately HK$1.4 million in 2002. It was due to the fact that the profit before taxation of the Group increased to approximately HK$9.1 million for the year ended 31st December, 2002 compared with the previous year of approximately HK$1.2 million as a result of the increase in the Group’s turnover by approximately 82.0%.
For the year ended 31st December, 2002, the effective tax rate of the Group was about 15.9%. Increase in effective tax rate of the Group from 14.3% in 2001 to 15.9% in 2002 was mainly due to the fact that the tax charged for the year ended 31st December, 2001 included a write back of over-provision of profits tax for the previous years of HK$18,609 which resulted in the effective tax rate in 2001 being significantly lower than the actual tax rate of 16%. For the year ended 31st December, 2002, there was no significant difference between the taxable profit and the accounting profit of the Group after adjusting for the non-taxable and tax allowable items.
Profit attributable to Shareholders
The profit attributable to Shareholders for the year ended 31st December, 2002 amounted to approximately HK$7.6 million. This profit represented about seven times of the net profit for the year of 2001. This significant profit increase was due to a number of factors such as the increase in the turnover of the Group, the improvement of the profit margin due to lower input costs and the consultancy fee from overseas projects.
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PROPERTY INTERESTS
Property interests rented and occupied by the Group in Hong Kong
The Group has leased two properties in Hong Kong from independent third parties as a workshop and its ancillary office as well as warehouse respectively. Details of the leased properties are set out in Appendix III to this prospectus. The leased ancillary office of the Group is situated at Factory A2 (being a portion of Factory A), 1st Floor, Block 3, Golden Dragon Industrial Centre, Nos. 172-180 Tai Lin Pai Road, Kwai Chung, New Territories, Hong Kong. The two leased properties have a total saleable floor area of approximately 4,539 sq. ft..
Property valuation
The property interests of the Group have been valued by Vigers Hong Kong Limited, an independent property valuer, at no commercial value as at 30th April, 2003. The text of its letter, a summary of valuation and valuation certificate are set out in Appendix III to this prospectus.
DIVIDENDS POLICY
Save for the dividend paid out pursuant to the Reorganisation and a special dividend of HK$2 million declared in May 2003 which will be paid before the Listing Date, no dividend has been paid or declared by the Company since the date of its incorporation. The special dividend was paid by Wah Lam to its then shareholders and represented returns to them for their investments made in prior years. The payment of the special dividend was financed by internal resources of the Group and the Directors consider that it has no significant impact on the financial position of the Group. There is no assurance that dividends payments will be made in the future and the past dividend payments referred to above should not be used as a reference or basis to determine the amount of dividend payable in the future.
The Directors are of the view that the amount of any dividends to be declared in the future will depend on, among other things, the Company’s results of operations, cash flow and financial condition, operating and capital requirements, the amount of distributable profits based on the generally accepted accounting principles in Hong Kong and the PRC, the applicable laws and regulations and all other relevant factors. The Directors expect the interim and final dividends to be paid in around October and April of each year, and that the interim dividend will normally represent approximately one-third of the expected total dividends for the full year.
DISTRIBUTABLE RESERVES
The reserves available for distribution to the shareholders of the Company as at 31st December, 2002, being the date to which the latest audited financial statements of the Group were made up, amounted to approximately HK$8,411,000 as set out in note 21(b)(ii) of the accountants’ report in Appendix I to this prospectus.
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ADJUSTED NET TANGIBLE ASSETS
The following statement of adjusted net tangible assets of the Group is based on the combined net assets of the Group as at 31st December, 2002, as shown in the accountants’ report set forth in Appendix I to this prospectus, adjusted as described below:–
Notes HK$’000
Audited combined net tangible assets of the Group as at 31st December, 2002 11,780
Unaudited combined profit attributable to the Shareholders for the four months ended 30th April, 2003 1,542
Special dividend declared on 30th May, 2003 (1) (2,000)
Estimated net proceeds of the New Issue 12,900
Adjusted net tangible assets 24,222
Adjusted net tangible asset value per Share (2) 6.5 cents
Notes:
1. On 30th May, 2003, Wah Lam declared a special dividend in an amount of HK$2 million to its then shareholders which will be paid before the Listing Date. Such special dividend represented returns to the existing Shareholders for their investments made in prior years and the payment was financed by internal resources of the Group. The Directors consider that it has no significant impact on the financial position of the Group as a result of the payment of the special dividend.
2. The adjusted net tangible asset value per Share has been arrived at after the adjustments referred to in the paragraph headed “Adjusted net tangible assets” under the section headed “Financial information” of this prospectus and on the basis of a total of 375,000,000 Shares expected to be in issue after completion of the Placing at the Placing Price, but takes no account of any Shares which may fall to be issued upon the exercise of the options granted under the Pre-IPO Share Option Scheme and options that may be granted under the Share Option Scheme or of any Shares which may be allotted or issued or repurchased by the Company pursuant to the general mandates referred to in Appendix V to this prospectus.
NO MATERIAL ADVERSE CHANGE
Save as disclosed in this Prospectus, the Directors confirm that there has been no material adverse change in the financial or trading position of the Group since the year ended 31st December, 2002 being the date of which the latest audited combined financial statements of the Group were made up.
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UNDERWRITERS
MasterLink Securities (Hong Kong) Corporation Limited Uni-Alpha Securities Limited Kaiser Securities Limited CAF Securities Company Limited Celestial Securities Limited Yue Xiu Securities Company Limited Crosby Limited Core Pacific-Yamaichi International (H.K.) Limited JS Cresvale Securities International Limited China Everbright Securities (HK) Limited Concord Capital Brokerage Limited Taiwan Securities (HK) Company Limited
UNDERWRITING ARRANGEMENTS AND EXPENSES
Underwriting Agreement
Pursuant to the Underwriting Agreement, the Company is offering the New Shares for subscription and the Vendor is offering the Sale Shares for purchase, under the Placing. Subject to the GEM Listing Committee granting listing of, and permission to deal in the Shares not later than 17th July, 2003 and to certain other conditions set out in the Underwriting Agreement, the Underwriters have severally agreed to subscribe or purchase or procure subscribers or purchasers for the Placing Shares on and subject to the terms and conditions set out in the Underwriting Agreement.
Grounds for termination
The respective obligations of the Underwriters to subscribe or purchase or procure subscribers or purchasers for the Placing Shares are subject to termination by notice in writing from either Joint-Lead Manager (on behalf of the Underwriters) if any of the following events occur at any time prior to 5:00 p.m. (Hong Kong time) on the day immediately preceding the Listing Date:–
1. if it has come to the notice of either Joint-Lead Manager:
(a) that any statement, which such Joint-Lead Manager (for itself and on behalf of the Underwriters) in its reasonable discretion considers to be material, contained in the documents relating to the Placing was when such documents were issued, or has become, untrue, incorrect or misleading in any material respect; or
(b) that any matter has arisen or has been discovered which would, had it arisen or been discovered immediately before the date of the documents relating to the Placing, constitute an omission therefrom which such Joint-Lead Manager (for itself and on behalf of the Underwriters) in its reasonable discretion considers to be material; or
(c) any breach of the representations and warranties contained in the Underwriting Agreement by any party to the Underwriting Agreement other than the Joint-Lead Managers or any of the Underwriters, which such Joint-Lead Manager (for itself and on behalf of the Underwriters) in its reasonable opinion considers to be material; or
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(d) any event, act or omission which gives or is likely to give rise to any liability of the Company, the Vendor, the Executive Directors or the Initial Management Shareholders pursuant to the indemnities contained in the Underwriting Agreement which such Joint-Lead Manager (for itself and on behalf of the Underwriters) in its reasonable discretion considers to be material; or
(e) any breach of any of the obligations imposed upon any party to the Underwriting Agreement (other than on any of the Underwriters, or the Joint-Lead Managers) in its reasonable discretion considers to be material; or
(f) any adverse change in the business or in the financial or trading position or prospects of any member of the Group which such Joint-Lead Manager (for itself and on behalf of the Underwriters) in its reasonable discretion considers to be material in the context of the Placing; or
(g) any of the obligations or undertakings expressed to be assumed by or imposed on any of the Company, the Vendor, the Executive Directors or the Initial Management Shareholders under the Underwriting Agreement has not been complied with or observed by any of them in any respect which such Joint-Lead Manager (on behalf of the Underwriters) in its reasonable opinion considers to be material; or
2. if there develops, occurs or comes into effect:-
(a) any event, or series of events, beyond the reasonable control of the Underwriters (including, without limitation, acts of government, strikes, lock-outs, fire, explosion, acts of terrorism, flooding, civil commotion, acts of war, acts of God, public disorder or economic sanctions accident or interruption or delay in transportation); or
(b) any change (whether or not forming part of a series of changes occurring or continuing before, on and/or after the date of the Underwriting Agreement and including an event or change in relation to or a development of an existing state of affairs) in local, national, international, financial, economic, political, military, industrial, fiscal, regulatory or market conditions and matters or currency exchange rates or exchange controls and/or the occurrence of any disasters; or
(c) any new law or regulation or change in existing laws or regulations or any change in the interpretation or application thereof by any court or other competent authority in Hong Kong, the Cayman Islands, the British Virgin Islands or any other jurisdictions relevant to the Company and its subsidiaries; or
(d) the imposition of economic sanctions, in whatever form, directly or indirectly, by, or for the United States of America or by the European Union (or any member thereof) or the PRC; or
(e) a change or development occurs involving a prospective change in taxation or exchange control (or the implementation of any exchange control) in Hong Kong, the Cayman Islands, the British Virgin Islands or any other jurisdictions relevant to the Company and its subsidiaries; or
(f) any litigation or claim of material importance of any third party being threatened or instigated against any member of the Group; or
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(g) any change in conditions of the local, national or international securities or commodities markets (or in conditions affecting a sector only of such market) including, for the avoidance of doubt, any significant adverse change in the index level or volume of turnover of any such markets; or
(h) the imposition of any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange occurring due to exceptional financial circumstances or otherwise;
which, in the reasonable opinion of such Joint-Lead Manager (on behalf of itself and the other Underwriters):
(1) is or will or is likely to be materially adverse to the business, financial or other condition or prospects of the Group or to any present or prospective shareholders of the Company in his capacity as such; or
(2) has or will have or is likely to have a material adverse effect on the success of Placing or the level of the Placing Shares being applied for or accepted or the distribution of the Placing Shares; or
(3) makes it inadvisable or inexpedient to proceed with the Placing or the delivery of the Placing shares on the terms and in the manner contemplated by the preliminary document for the Placing and this prospectus.
Commission and expenses
The Underwriters will receive a commission of 3.75% on the Placing Price per Placing Share, out of which they will, as the case may be, pay any sub-underwriting commissions. The Sponsor will, in addition, receive a documentation fee. The underwriting commission, documentation and financial advisory fee, the Stock Exchange listing fee and transactions levy, trading fee, legal and other professional fees together with applicable printing and other expenses relating to the Placing are estimated to be approximately HK$7.0 million in total. Such expenses relating to the Placing will be borne as to approximately 52% by the Company and as to 48% by the Vendor.
Undertakings
The Initial Management Shareholders have given non-disposal undertakings, details of which are described in the paragraph headed “Non-disposal undertakings and escrow arrangement” under the section headed “Substantial Shareholders, Initial Management Shareholders and Significant Shareholders” in this prospectus.
The Company has undertaken to the Joint-Lead Managers and the Underwriters in the Underwriting Agreement that it will not without the prior written consent of the Joint-Lead Managers (for themselves and on behalf of the Underwriters) and unless in compliance with the requirements of the GEM Listing Rules, at any time after the date of the Underwriting Agreement up to and including the date falling six months after the Listing Date, allot or issue or agree to allot or issue any Shares or other securities of the Company (including warrants or other convertible securities) or grant or agree to grant any options or rights over any Shares or other securities of the Company, except pursuant to the Placing, the Capitalisation Issue or otherwise approved by the Stock Exchange.
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Underwriters’ interest in the Company
Save for their obligations under the Underwriting Agreement and the Sponsor’s interests as disclosed below, none of the Underwriters has any shareholding interest in the Group or the right (whether legally enforceable or not) to subscribe for or purchase or to nominate persons to subscribe for or purchase securities in any member of the Group.
Sponsor’s interest in the Company
Save for its interests and obligations under the Underwriting Agreement and as disclosed in the paragraph headed “Further information about directors and experts” in Appendix V to this prospectus, neither the Sponsor nor any of its associates is interested beneficially or non-beneficially in any shares in any member of the Group nor has any right (whether legally enforceable or not) or option to subscribe for or purchase or to nominate persons to subscribe for or purchase any share in any member of the Group.
On 13th June, 2003, the Sponsor and the Company entered into a sponsor’s agreement pursuant to which the Sponsor will fulfill its continuing obligations as sponsor under Rules 6.50 to 6.58 of the GEM Listing Rules, including acting as the channel of communications with the Stock Exchange on behalf of the Company and, so far as practicable, deal with all matters arising in relation to the Company which are raised by the Stock Exchange for a period from the Listing Date to 31st December, 2005, subject to terms and conditions contained therein.
– 132 – STRUCTURE AND CONDITIONS OF THE PLACING
PLACING PRICE
The Placing Price is HK$0.25 per Placing Share. Applicants under the Placing should pay, on application, the price of HK$0.25 per Placing Share in cash plus 1% brokerage and a 0.007% transactions levy and a 0.005% trading fee thereon amounting to a total of HK$2,525.3 per board lot of 10,000 Shares.
CONDITIONS OF THE PLACING
Acceptance of all applications for the Placing will be conditional upon:–
(i) the listing of, and permission to deal in, the Shares in issue and to be issued as described in this prospectus having been granted by the Stock Exchange; and
(ii) the obligations of the Underwriters under the Underwriting Agreement becoming unconditional (including, if relevant, the waiver of any condition(s) by the Joint-Lead Managers, on behalf of the Underwriters) and not being terminated in accordance with the terms of that agreement or otherwise, in each case, on or before the dates and times specified in the Underwriting Agreement (unless and to the extent such conditions are validly waived on or before such dates and times) and in any event not later than 17th July, 2003, being the date which is 30 days after the date of this prospectus.
If such conditions have not been fulfilled or waived prior to the date specified, the Placing will lapse and the Stock Exchange will be notified immediately. Notice of the lapse of the Placing will be caused to be published by the Company on the GEM Website on the next day following such lapse.
THE PLACING
The Company is initially offering 66,000,000 New Shares and the Vendor is offering 61,000,000 Sale Shares, for subscription and purchase under the Placing. The Placing is fully underwritten by the Underwriters subject to the terms and conditions of the Underwriting Agreement.
The Underwriters are soliciting from professional and institutional investors indications of interest in acquiring the Placing Shares in the Placing. Professional investors generally include brokers, dealers and companies (including fund managers) whose ordinary business involves dealing in shares and other securities and entities which regularly invest in shares and other securities. Prospective professional and institutional investors will be required to specify the number of Placing Shares they would be prepared to acquire either at different prices or at a particular price. This process is known as “book building”. Save as disclosed herein, the Placing Shares will not be allocated to individual retail investors.
Allocation of the Placing Shares pursuant to the Placing is based on a number of factors, including the level and timing of demand and whether or not it is expected that the relevant investor is likely to buy further and/or hold or sell its Shares after the listing of the Shares on GEM. Such allocation is generally intended to result in a distribution of the Placing Shares on a basis which would lead to the establishment of a broad shareholder base to the benefit of the Company and the Shareholders as a whole.
– 133 – STRUCTURE AND CONDITIONS OF THE PLACING
TRANSFER OF SALE SHARES
All transfers of the Sale Shares will be effected in the Cayman Islands. Completion of the acknowledgement form in a placing letter shall constitute an irrevocable instruction by the placee(s) that the registration of all the Sale Shares in respect of which the relevant application is accepted shall be removed to the Company’s Hong Kong branch register of members prior to the despatch of share certificates to successful applicants under the Placing.
COMMENCEMENT OF DEALINGS IN THE SHARES
Dealings in the Shares on GEM are expected to commence on Wednesday, 25th June, 2003.
The Shares will be traded in board lots of 10,000 each.
SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS
If the GEM Listing Committee grants the listing of and permission to deal in the Shares and the Company complies with the stock admission requirements of HKSCC, the Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the date of commencement of dealings in the Shares on GEM or any other date HKSCC chooses. Settlement of transactions between participants of the Stock Exchange is required to take place in CCASS on the second business day after any trading day.
All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.
All the necessary arrangements have been made for the Shares to be admitted into CCASS.
In respect of dealings in the Shares which may be settled through CCASS, investors should seek the advice of their stockbrokers or other professional advisers for details of those settlement arrangements and how such arrangements will affect their rights and interests.
– 134 – APPENDIX I ACCOUNTANTS’ REPORT
The following is the text of a report prepared for the purpose of inclusion in this prospectus, received from the auditors and reporting accountants of the Company, PKF, Certified Public Accountants, Hong Kong.
梁學濂會計師事務所
26th Floor, Citicorp Centre 18 Whitfield Road Causeway Bay, Hong Kong
17th June, 2003
The Directors Innovis Holdings Limited MasterLink Securities (Hong Kong) Corporation Limited
Dear Sirs,
We set out below our report on the financial information relating to Innovis Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for each of the three years ended 31st December, 2002 (the “Relevant Period”) for inclusion in the prospectus of the Company dated 17th June, 2003 (the “Prospectus”).
The Company was incorporated in the Cayman Islands on 8th July, 2002. Pursuant to a group reorganisation (the “Reorganisation”) described in Appendix V to the Prospectus which was completed on 30th August, 2002, the Company became the holding company of the subsidiaries, all of which are private companies (or, if incorporated/established outside Hong Kong, have substantially similar characteristics to a private company incorporated in Hong Kong), the particulars of which are set out below:–
Attributable Place and date equity interest % Name of company of incorporation Direct Indirect Issued capital Principal activities
Innovis (IB) Limited British Virgin Islands 100 – US$100 Investment holding (formerly known as 2nd July, 2002 Dynamic Power Resources International Limited)
Wah Lam (Electronic Hong Kong – 100 HK$326,666 Provision of Intelligent Engineering) Limited 2nd February, 1990 Building System (“IBS”) solutions and sales of electronic equipment
Innovis China Limited British Virgin Islands – 100 US$100 Dormant (formerly known as 3rd July, 2001 Weather Zone Company Limited)
– 135 – APPENDIX I ACCOUNTANTS’ REPORT
Immediately before the Reorganisation, Wah Lam (Electronic Engineering) Limited (“WLEE”) had the following subsidiary and associate which did not become a member of the Group upon completion of the Reorganisation:–
Attributable Place and date equity interest % Issued/ of incorporation/ held by WLEE registered Name of company establishment Direct Indirect capital Principal activities
Wah Lam Building Hong Kong 60 – HK$200,000 Supply and installation of Materials Limited 26th March, 1997 toilet cubicle and solid (Note a) surfacing and sales of building materials
Guangzhou Han Yao People’s Republic – 15 RMB500,000 Sales of building materials Building Materials of China (“PRC”) Limited (Notes a and b) 1st November, 1999
Notes:
(a) The entire shareholdings in Wah Lam Building Materials Limited and Guangzhou Han Yao Building Materials Limited were disposed of on 30th June, 2002 by way of distribution-in-specie by WLEE.
(b) Guangzhou Han Yao Building Materials Limited was acquired by Wah Lam Building Materials Limited on its date of establishment.
WLEE and its subsidiaries are hereinafter collectively referred to as the “WLEE Group”. Wah Lam Building Materials Limited and Guangzhou Han Yao Building Materials Limited are hereinafter collectively referred to as the “Excluded Entities”.
At the date of this report, no audited financial statements have been prepared for Innovis (IB) Limited and Innovis China Limited since the dates of their incorporation. Innovis (IB) Limited has not been involved in any business transactions since incorporation other than the acquisition to effect the Reorganisation referred to herein. Innovis China Limited has not been involved in any business transactions since incorporation. We have, however, reviewed all relevant transactions of these companies since their respective dates of incorporation to 31st December, 2002 for the purpose of this report.
We have acted as auditors of the companies comprising the WLEE Group for the Relevant Period except the following:–
Name of company From To Auditors
WLEE 1st January, 2000 31st December, 2000 Liu Kin Chung & Company
Wah Lam Building Materials 1st January, 2000 31st December, 2000 Liu Kin Chung & Company Limited
Guangzhou Han Yao Building 1st January, 2000 30th June, 2002 廣州市新粵會計師事務所 Materials Limited (date of disposal) 有限公司
The statutory financial statements of Guangzhou Han Yao Building Materials Limited were prepared in accordance with applicable accounting rules and regulations in Mainland China. For
– 136 – APPENDIX I ACCOUNTANTS’ REPORT the purpose of this report and our statutory audit report on the consolidated financial statements of WLEE Group for the Relevant Period, we have carried out an independent audit of the statutory accounts of Guangzhou Han Yao Building Materials Limited and have carried out such additional procedures as we considered to be necessary.
For the purpose of this report, we have examined the audited financial statements or, where appropriate, management accounts of all companies now comprising the Group and the Excluded Entities for the Relevant Period, or from the respective dates of their incorporation or establishment where this is a shorter period, in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” issued by the Hong Kong Society of Accountants.
The combined balance sheets of the Group as at 31st December, 2000, 2001 and 2002 and the related combined income statements, cash flow statements and statements of changes in equity of the Group for the Relevant Period (the “Financial Information”) set out in this report have been prepared from the audited financial statements of WLEE Group after making such adjustment as we consider appropriate for the purpose of preparing our report for inclusion in the Prospectus or, where appropriate, management accounts of the companies now comprising the Group and the Excluded Entities and are presented on the basis set out in Note 1 below.
The directors of the respective companies now comprising the Group and the Excluded Entities are responsible for preparing financial statements of the respective companies which give a true and fair view. In preparing these financial statements, it is fundamental that appropriate accounting policies are selected and applied consistently. The directors of the Company are also responsible for the Financial Information. It is our responsibility to form an independent opinion on the Financial Information.
In our opinion, on the basis of presentation set out in Note 1 below, the Financial Information together with the notes thereon, give, for the purpose of this report, a true and fair view of the state of affairs of the Group as at 31st December, 2000, 2001 and 2002 and of the Company as at 31st December, 2002 and of the combined results and cash flows of the Group for the Relevant Period.
– 137 – APPENDIX I ACCOUNTANTS’ REPORT
A. FINANCIAL INFORMATION
Combined income statements Year ended 31st December, 2000 2001 2002 Note HK$’000 HK$’000 HK$’000
Turnover – Continuing operations 19,396 19,920 36,260 – Discontinuing operation 3 25,961 56,215 37,549
4 45,357 76,135 73,809 ------Cost of sales and services rendered – Continuing operations (15,502) (14,474) (21,439) – Discontinuing operation 3 (22,583) (49,957) (33,546)
(38,085) (64,431) (54,985) ------Gross profit – Continuing operations 3,894 5,446 14,821 – Discontinuing operation 3 3,378 6,258 4,003
7,272 11,704 18,824
Other income 368 100 134
Administrative and other operating expenses (6,601) (9,032) (10,244)
Operating profit/(loss) – Continuing operations 726 1,244 9,157 – Discontinuing operation 3 313 1,528 (443)
1,039 2,772 8,714
Finance costs (43) (120) (98)
Share of loss of an associate – discontinuing operation 3 (28) (17) (16)
Profit before taxation 5 968 2,635 8,600
Taxation 7(a) (117) (404) (1,445)
Profit after taxation 851 2,231 7,155
Minority interests (100) (479) 175
Profit attributable to shareholders 751 1,752 7,330
Dividend 8 ––873
Earnings per share 9 – Basic 0.24 cent 0.57 cent 2.37 cents
– Diluted 0.24 cent 0.55 cent 2.30 cents
– 138 – APPENDIX I ACCOUNTANTS’ REPORT
Combined balance sheets At 31st December, 2000 2001 2002 Note HK$’000 HK$’000 HK$’000
NON-CURRENT ASSETS Fixed assets 10 419 555 463 Interest in an associate 12 88 71 – Retention money receivable 368 127 1,767
875 753 2,230
CURRENT ASSETS Inventories 13 271 – 1,231 Amount due from ultimate holding company 14 ––5 Amount due from a related company 14 417 – 52 Amount due from an associate 15 217 –– Amount due from a director 16 399 354 – Debtors, deposits and prepayments 17 11,663 21,843 17,263 Pledged time deposits 29 2,200 2,257 131 Cash and bank balances 2,031 5,982 533
17,198 30,436 19,215 ------DEDUCT:
CURRENT LIABILITIES Secured bank overdrafts – 754 – Unsecured bank overdrafts ––1,023 Unsecured bank loan 41 66 – Bills payable, secured 480 3,317 – Bills payable, unsecured ––463 Creditors and accruals 18 12,912 19,720 6,883 Obligation under finance lease 23 – 59 60 Amounts due to directors 16 261 255 – Tax payable 7(b) 173 457 1,111
13,867 24,628 9,540 ------
NET CURRENT ASSETS 3,331 5,808 9,675
4,206 6,561 11,905
REPRESENTING:–
SHARE CAPITAL 20 327 327 210
RESERVES 21 3,244 4,996 11,570
SHAREHOLDERS’ FUNDS 3,571 5,323 11,780
MINORITY INTERESTS 277 756 –
NON-CURRENT LIABILITIES Unsecured bank loan 22 358 288 – Obligation under finance lease 23 – 194 125
358 482 125
4,206 6,561 11,905
– 139 – APPENDIX I ACCOUNTANTS’ REPORT
Balance sheet
At 31st December, 2002 Note HK$’000
NON-CURRENT ASSET Interests in subsidiaries 11 8,677 ------
CURRENT ASSET Prepayment 12
DEDUCT:
CURRENT LIABILITY Amount due to a subsidiary 19 68
NET CURRENT LIABILITY (56) ------
8,621
REPRESENTING:–
SHARE CAPITAL 20 210
RESERVES 21 8,411
SHAREHOLDERS’ FUNDS 8,621
– 140 – APPENDIX I ACCOUNTANTS’ REPORT
Combined cash flow statements
Year ended 31st December, 2000 2001 2002 Note HK$’000 HK$’000 HK$’000
CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation 968 2,635 8,600 Adjustments for:– Bank deposits pledged for banking facilities (129) (57) (9) Share of loss of an associate 28 17 16 Interest expenses 43 95 64 Interest income (327) (98) (18) Depreciation 166 273 328 Loss on disposal of fixed assets 36 11 – Bad debts written off ––31 Provision for doubtful debts – 822 3,374 Inventories written off – 146 –
Operating profit before working capital changes 785 3,844 12,386 (Increase)/decrease in amount due from an associate (217) 217 (155) (Increase)/decrease in inventories (17) 125 (1,231) Increase in debtors, deposits and prepayments (3,430) (10,761) (16,873) Decrease in amount due from a director 1,892 –– Decrease in amount due from a related company – 417 13 Increase in amount due from ultimate holding company ––(5) (Decrease)/increase in creditors and accruals (1,473) 6,808 10,855
Net cash (used in)/from operations (2,460) 650 4,990 Hong Kong profits tax paid (156) (120) (574) Interest received 327 98 18 Interest paid (43) (95) (64)
NET CASH (USED IN)/FROM OPERATING ACTIVITIES (2,332) 533 4,370 ------
CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of fixed assets – 28 – Payments to acquire fixed assets (167) (178) (498) Disposal of a subsidiary 24 ––(9,127)
NET CASH USED IN INVESTING ACTIVITIES (167) (150) (9,625) ------
– 141 – APPENDIX I ACCOUNTANTS’ REPORT
Year ended 31st December, 2000 2001 2002 Note HK$’000 HK$’000 HK$’000
CASH FLOWS FROM FINANCING ACTIVITIES Repayment of capital element of finance lease (5) (17) (68) Increase/(decrease) in bills payable, secured 286 2,837 (830) Increase in bills payable, unsecured ––463 Decrease in amounts due to directors (304) (6) (28)
NET CASH (USED IN)/FROM FINANCING ACTIVITIES (23) 2,814 (463) ------
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (2,522) 3,197 (5,718)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 4,553 2,031 5,228
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 2,031 5,228 (490)
ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 2,031 5,982 533 Secured bank overdrafts – (754) – Unsecured bank overdrafts ––(1,023)
2,031 5,228 (490)
– 142 – APPENDIX I ACCOUNTANTS’ REPORT
Combined statement of changes in equity
Note HK$’000
Total shareholders’ equity at 1st January, 2000 2,820
Profit for the year 21 751
Total shareholders’ equity at 31st December, 2000 3,571
Profit for the year 21 1,752
Total shareholders’ equity at 31st December, 2001 5,323
Profit for the year 21 7,330
Dividend 8 (873)
Total shareholders’ equity at 31st December, 2002 11,780
– 143 – APPENDIX I ACCOUNTANTS’ REPORT
Notes:
1. Basis of presentation of Financial Information
The combined income statements and combined cash flow statements of the companies now comprising the Group have been prepared as if the current group structure had been in existence throughout the Relevant Period, or since their respective dates of incorporation/establishment or acquisition where this is a shorter period except for the distribution-in-specie of WLEE’s entire shareholdings in Wah Lam Building Materials Limited on 30th June, 2002 pursuant to the Reorganisation as detailed in Note 3 below which was accounted for by the acquisition method of accounting. The combined balance sheets of the Group as at 31st December, 2000, 2001 and 2002 have been prepared to present the assets and liabilities of the companies now comprising the Group as at the respective dates as if the current group structure had been in existence as at those dates except for the aforementioned transaction which was accounted for by the acquisition method of accounting.
2. Significant accounting policies
The Financial Information have been prepared in accordance with the accounting policies set out below and comply with the disclosure requirements of the Listing Rules of the Growth Enterprise Market (“GEM”) as applicable to accountants’ report for inclusion in Listing Documents. These accounting policies conform with all applicable Statements of Standard Accounting Practice (“SSAPs”) and Interpretations issued by the Hong Kong Society of Accountants and accounting principles generally accepted in Hong Kong.
(a) Basis of preparation
The Financial Information of the Group have been prepared under the historical cost convention.
(b) Basis of combination
The combined financial statements include the consolidated financial statements of the WLEE Group for the Relevant Period, after making such adjustments as we consider appropriate for the purpose of preparing our report for inclusion in the Prospectus. The results of subsidiaries acquired or disposed of during the Relevant Period are dealt with in the consolidated income statement of the WLEE Group from the effective date of acquisition or up to the date of disposal respectively. All significant intra-group transactions and balances have been eliminated on combination.
(c) Discontinuing operation
Discontinuing operation is a component of an enterprise that the enterprise, pursuant to a single plan, is disposing of substantially in its entirety, or disposing of piecemeal, or terminating through abandonment, and that represents a separate major line of business or geographical area of operations and that can be distinguished operationally and for financial reporting purposes.
The information of the discontinuing operation is presented in Note 3.
(d) Revenue recognition
(i) Revenue from provision of IBS solutions and building contracting services
The Group enters into contracts with customers whereby the values of the sale of the electronic equipment/building materials and the provision of IBS solutions/building contracting services are bundled together in one contract. Revenue from such contracts is recognised when the services are rendered.
(ii) Sale of goods
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have been transferred to the buyer.
(iii) Consultancy fee income
Consultancy fee income is recognised when the services are rendered.
(iv) Maintenance service income
Income from maintenance services is recognised on a straight-line basis over the terms of the respective contracts.
– 144 – APPENDIX I ACCOUNTANTS’ REPORT
(v) Interest income
Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable.
(e) Research and development costs
Research and development costs comprise all costs which are directly attributable to research and development activities or which can be allocated on a reasonable basis to such activities. As no research and development costs satisfy the criteria for the recognition of such costs as an asset during the Relevant Period, such costs are therefore recognised as an expense in the period in which they are incurred.
(f) Fixed assets and depreciation
Fixed assets are stated at cost less aggregate depreciation and impairment loss. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Expenditure incurred after the assets have been put into operation, such as repairs and maintenance, is charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalised as an additional cost of the asset.
The carrying amounts of fixed assets are reviewed regularly to assess whether their recoverable amounts have declined below their carrying amounts. When such a decline has occurred, their carrying amounts are reduced to their recoverable amounts. In determining the recoverable amounts of assets, expected future cash flows are discounted to their present values.
Depreciation is calculated to write off the costs of fixed assets over their estimated useful lives on a straight-line basis at the following annual rates:–
Computers 30% Furniture and equipment 20% Leasehold improvements 20% Motor vehicles 30%
Assets held under finance leases are depreciated over their expected useful lives on the same basis as own assets or where shorter, the terms of the relevant leases.
Gain or loss arising from the retirement or disposal of an asset is determined as the difference between the net sale proceeds and the carrying amount of the asset and is recognised in the income statement at the date of retirement or disposal.
(g) Leases
Leases are classified as finance leases whenever the terms of the leases transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are capitalised at their fair value at the date of acquisition or, if lower, the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as obligations under finance leases. Finance charges, which represent the difference between the total leasing commitments and the recorded value of the assets acquired, are charged to the income statement over the terms of the relevant leases so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period.
Rentals payable under operating leases are charged to the income statement on a straight-line basis over the periods of the relevant leases.
(h) Subsidiaries
A subsidiary is an enterprise over which the Company has control either directly or indirectly. Control is the power to govern the financial and operating policies of a company so as to obtain benefits from its activities.
Investments in subsidiaries are stated in the Company’s balance sheet at cost less any identified impairment loss. Income from subsidiaries is recognised in the Company’s financial statements when the Company’s right to receive the dividends is established.
– 145 – APPENDIX I ACCOUNTANTS’ REPORT
(i) Associate
An associate is one in which the Company is in a position to exercise significant influence including participation in financial and operating policy decisions.
Interest in an associate is stated in the combined balance sheet at the Group’s share of the net assets other than goodwill as recorded in the financial statements of the associate less any identified impairment loss. The results of associate are taken into account to the extent of post-acquisition profits less losses attributable to the Group.
(j) Impairment
The carrying amounts of the Group’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement.
(k) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined on a weighted average basis and includes all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.
(l) Provisions and contingent liabilities
Provisions are recognised for liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.
Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow is remote.
(m) Employee benefits
Employee benefits are all forms of consideration given by the Group in exchange for service rendered by employees.
Obligations for contributions to defined contribution retirement plans, including contributions payable under the Hong Kong Mandatory Provident Fund Schemes Ordinance, are recognised as an expense in the income statement as incurred.
Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.
(n) Translation of foreign currencies
Foreign currency transactions during the Relevant Period are translated into Hong Kong dollars at the exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into Hong Kong dollars at the market exchange rates ruling at the balance sheet date. Differences on foreign currency translation are dealt with in the income statement.
The balance sheet of an associate denominated in Renminbi is translated into Hong Kong dollars at the market exchange rate ruling at the balance sheet date while the income statement is translated into Hong Kong dollars at the average exchange rates during the relevant year. Exchange difference arising on such translation is dealt with in the exchange reserve.
– 146 – APPENDIX I ACCOUNTANTS’ REPORT
(o) Related parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.
(p) Deferred taxation
Deferred taxation is calculated under the liability method in respect of the taxation effect arising from all timing differences which are expected with reasonable probability to crystallise in the foreseeable future. A deferred tax asset is not recognised until its realisation is assured beyond reasonable doubt.
(q) Cash equivalents
Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
(r) Segment reporting
A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.
Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. Segment revenue, expenses, assets and liabilities are determined before inter-segment balances and inter-segment transactions are eliminated as part of the consolidation.
Segment capital expenditure is the total cost incurred during the Relevant Period to acquire segment assets (both tangible and intangible) that are expected to be used for more than one period.
Unallocated items mainly comprise interest-bearing loan, obligation under finance lease, tax payable, other revenue and financing expenses.
3. Discontinuing operation
On 30th June, 2002, an interim dividend of HK$873,166 was declared by WLEE with respect to the year ended 31st December, 2002. On the same date, such dividend was satisfied by the distribution-in-specie of WLEE’s entire shareholdings in Wah Lam Building Materials Limited (“WLBM”) to the shareholders of WLEE in proportion to their respective shareholdings. WLBM was engaged in the building contracting operation and held an equity interest of 25% in Guangzhou Han Yao Building Materials Limited.
– 147 – APPENDIX I ACCOUNTANTS’ REPORT
The results of WLBM for the Relevant Period, which have been included in the combined income statements, were as follows:–
Year ended 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Turnover 25,961 56,215 37,549 Cost of sales and services rendered (22,583) (49,957) (33,546)
Gross profit 3,378 6,258 4,003 Other income 223 72 24 Administrative and other operating expenses (3,288) (4,802) (4,470)
Operating profit/(loss) 313 1,528 (443) Finance costs (23) (81) (5) Share of loss of an associate (28) (17) (16)
Profit/(loss) before taxation 262 1,430 (464) Taxation (13) (231) –
Profit/(loss) after taxation 249 1,199 (464) Minority interests (100) (479) 175
Profit/(loss) attributable to shareholders 149 720 (289)
The carrying amounts of the assets and liabilities of WLBM as at 31st December, 2000 and 2001 and 30th June, 2002 were as follows:–
At 31st December, At 30th June, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Total assets 8,333 19,976 28,467 Total liabilities (7,641) (18,084) (27,012)
Net assets 692 1,892 1,455
The net cash flows attributable to WLBM for the Relevant Period were as follows:–
Year ended 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Operating activities (304) (1,196) 7,603 Investing activities (100) (72) (150) Financing activities 329 2,758 (812)
Net cash (outflow)/inflow (75) 1,490 6,641
– 148 – APPENDIX I ACCOUNTANTS’ REPORT
4. Turnover
The Group is principally engaged in the provision of IBS solutions, building contracting and consultancy services and the sales of electronic equipment and building materials. Turnover represents revenue recognised in respect of IBS solutions, building contracting and consultancy services rendered and the net invoiced value of goods sold during the Relevant Period. An analysis of the turnover and other major revenue during the Relevant Period is set out below:–
Year ended 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
IBS solutions, building contracting services and sales of goods 45,357 76,135 70,459 Consultancy fee income ––3,350
Turnover 45,357 76,135 73,809 Interest income 327 98 18
Total revenue 45,684 76,233 73,827
5. Profit before taxation
Year ended 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Profit before taxation is arrived at after charging/(crediting):–
Auditors’ remuneration 34 60 50 Cost of materials used 20,340 32,821 32,654 Inventories written off – 146 – Depreciation – own assets 166 183 238 – asset held under finance lease – 90 90 Directors’ remuneration – Note 6 928 1,053 1,102 Other staff costs 3,835 4,770 4,304 Research and development costs 190 280 444 Interest on bank overdraft and bills wholly repayable within five years 41 92 51 Sales proceeds – (28) – Less: Net book value 36 39 – Loss on disposal of fixed assets 36 11 – Minimum lease payments under operating leases 264 276 230 Bad debts written off ––31 Provision for doubtful debts – 822 3,374* Finance lease interest 2 3 13 Recovery of debts previously written off ––(106)
* It included an amount of approximately HK$2,401,000 for WLBM which did not become a member of the Group upon completion of the Reorganisation.
6. Remuneration of directors and employees
(a) Details of directors’ remuneration are as follows:–
Year ended 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Fees ––– Basic salaries, allowances and benefits in kind 928 1,024 1,067 Pension scheme contributions – 29 35
928 1,053 1,102
– 149 – APPENDIX I ACCOUNTANTS’ REPORT
The number of directors whose remuneration fell within the following band is as follows:–
Year ended 31st December, 2000 2001 2002
HK$Nil – HK$1,000,000 4 4 7
Two executive directors received individual emoluments of approximately HK$284,000 and HK$286,000 and two non-executive directors received individual emoluments of approximately HK$105,000 and HK$253,000 for the year ended 31st December, 2000. Two executive directors received individual emoluments of approximately HK$376,000 and HK$304,000 and two non-executive directors received individual emoluments of approximately HK$113,000 and HK$260,000 for the year ended 31st December, 2001. Three executive directors received individual emoluments of approximately HK$376,000, HK$370,000 and HK$117,000, two non-executive directors received individual emoluments of approximately HK$113,000 and HK$126,000 and two independent non-executive directors received no emoluments for the year ended 31st December, 2002.
(b) The remuneration of employees who were not directors during the Relevant Period and who were amongst the five highest paid individuals of the Group is as follows:–
Year ended 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Basic salaries, allowances and benefits in kind 511 471 551 Pension scheme contributions – 22 20
511 493 571#
# It included remuneration received by an employee from 1st January, 2002 to 8th August, 2002. The employee was appointed as an executive director of the Company on 9th August, 2002 and the remuneration received thereafter was included in directors’ remuneration.
The number of employees whose remuneration fell within the following band is as follows:–
Year ended 31st December, 2000 2001 2002
HK$Nil – HK$1,000,000 2 2 3
(c) During the Relevant Period, no directors have waived any emoluments and no emoluments have been paid by the Group to the directors or the five highest paid individuals as an inducement to join the Group or as compensation for loss of office.
7. Taxation
(a) Taxation in the combined income statements represents:–
Year ended 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Provision for Hong Kong profits tax at 16% on the estimated assessable profits for the year 117 422 1,445 Over-provision in respect of previous year – (18) –
117 404 1,445
– 150 – APPENDIX I ACCOUNTANTS’ REPORT
(b) Taxation in the combined balance sheets represents:–
At 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Provision for the year 117 422 1,445 Payable in respect of previous year 134 143 – Provisional profits tax paid (78) (108) (334)
Tax payable 173 457 1,111
(c) No provision for deferred taxation has been made in these financial statements as the taxation effect of all timing differences which are probable to crystallise in the foreseeable future is immaterial.
8. Dividend
No dividend has been paid or declared by the Company since the date of incorporation.
The dividend paid by a subsidiary of the Company to its then shareholders during the Relevant Period was as follows:–
Year ended 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
WLEE ––873
The above-mentioned dividend declared by WLEE for the year ended 31st December, 2002 was settled by distribution-in-specie of the equity interests in WLBM held by WLEE.
The rate of dividend and number of shares ranking for dividend are not presented as such information is not meaningful for the purpose of this report.
9. Earnings per share
The calculation of basic earnings per share is based on the Group’s combined profit attributable to shareholders for the Relevant Period and the assumption that a total of 309,000,000 shares had been in issue during the Relevant Period.
Diluted earnings per share is based on the Group’s combined profit attributable to shareholders for the Relevant Period and the assumption that a total of 318,375,000 shares had been in issue during the Relevant Period. The number of shares used in the calculation comprised 309,000,000 shares referred to above and 9,375,000 shares assumed to have been issued at no consideration on the deemed exercise of the Pre-IPO Share Option Scheme as set out in Appendix V to the Prospectus.
– 151 – APPENDIX I ACCOUNTANTS’ REPORT
10. Fixed assets
Furniture and Leasehold Motor Computers equipment improvements vehicles Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Cost:–
At 1.1.2000 76 141 332 230 779 Additions 100 12 – 55 167 Disposal –––(90) (90)
At 31.12.2000 and 1.1.2001 176 153 332 195 856 Additions 120 28 – 300 448 Disposal –––(195) (195)
At 31.12.2001 and 1.1.2002 296 181 332 300 1,109 Additions 251 130 93 24 498 Disposal of a subsidiary (252) (129) (149) – (530)
At 31.12.2002 295 182 276 324 1,077 ------
Aggregate depreciation:–
At 1.1.2000 35 30 66 194 325 Charge for the year 53 31 66 16 166 Written back on disposal –––(54) (54)
At 31.12.2000 and 1.1.2001 88 61 132 156 437 Charge for the year 80 36 67 90 273 Written back on disposal –––(156) (156)
At 31.12.2001 and 1.1.2002 168 97 199 90 554 Charge for the year 111 50 70 97 328 Disposal of a subsidiary (112) (52) (104) – (268)
At 31.12.2002 167 95 165 187 614 ------
Net book value:–
At 31.12.2000 88 92 200 39 419
At 31.12.2001 128 84 133 210 555
At 31.12.2002 128 87 111 137 463
Note: The net book value of motor vehicle held under finance lease amounted to HK$Nil, HK$210,000 and HK$120,000 as at 31st December, 2000, 2001 and 2002 respectively.
– 152 – APPENDIX I ACCOUNTANTS’ REPORT
11. Interests in subsidiaries
At 31st December, 2002 HK$’000
Unlisted shares, at cost 8,677
Details of the subsidiaries as at 31st December, 2002 are as follows:–
Place of Attributable incorporation equity interest % Name of subsidiary and operation Direct Indirect Principal activities
Innovis (IB) Limited (formerly British Virgin 100 – Investment holding known as Dynamic Power Islands Resources International Limited)
Wah Lam (Electronic Hong Kong – 100 Provision of IBS Engineering) Limited solutions and sales of electronic equipment
Innovis China Limited British Virgin – 100 Dormant (formerly known as Islands Weather Zone Company Limited)
12. Interest in an associate
At 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Share of net assets 88 71 55 Disposal during the year ––(55)
88 71 –
Notes:
(a) The equity interest in the associate, which was held directly by WLBM, was disposed of under the dividend arrangement as detailed in Note 3.
(b) Details of the associate are as follows:–
Indirect attributable Place of equity interest % Business establishment At 31st December, Principal Name of company structure and operation 2000 2001 2002 activities
Guangzhou Han Yao Corporate People’s Republic 15 15 – Sales of Building Materials of China building Limited materials
13. Inventories
At 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Toilet cubicles 271 –– Flat screen videophones ––1,231
271 – 1,231
All inventories were stated at cost. – 153 – APPENDIX I ACCOUNTANTS’ REPORT
14. Amounts due from ultimate holding company/a related company
The amounts are interest-free, unsecured and repayable on demand.
15. Amount due from an associate
As at 31st December, 2000, the entire amount due from Guangzhou Han Yao Building Materials Limited is interest-free, unsecured and has been fully repaid during the year ended 31st December, 2001.
16. Amounts due from/to directors
(a) The amounts are interest-free, unsecured and repayable on demand.
(b) Details disclosed pursuant to Section 161B of the Companies Ordinance in relation to amount due from a director are as follows:–
Maximum amount outstanding during the Relevant Period Year ended 31st December, Name of director 2000 2001 2002 HK$’000 HK$’000 HK$’000
Tsang Hon Ming 399 354 354
The balance as at 31st December, 2001 has been fully repaid during the year ended 31st December, 2002.
17. Debtors, deposits and prepayments
Debtors, deposits and prepayments comprise:–
At 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Trade debtors 10,886 20,483 13,889 Retention money receivable 727 973 557 Other debtors, deposits and prepayments 50 240 1,452 Prepaid listing expenses – 147 1,365
11,663 21,843 17,263
The Group allows its customers credit period of 30 days to 90 days depending on their credit worthiness. The following is an aging analysis of trade debtors:–
At 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Within 3 months 6,498 15,961 11,274 Over 3 months but within 6 months 2,063 1,845 1,762 Over 6 months but within 1 year 1,450 1,481 1,276 Over 1 year 875 1,358 518
10,886 20,645 14,830 Less: Provision for doubtful debts – 162 941
10,886 20,483 13,889
– 154 – APPENDIX I ACCOUNTANTS’ REPORT
18. Creditors and accruals
Creditors and accruals comprise:–
At 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Trade creditors 11,640 17,533 5,912 Other creditors, accruals and provisions 1,272 2,187 971
12,912 19,720 6,883
The following is an aging analysis of trade creditors:–
At 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Within 3 months 4,571 10,072 3,670 Over 3 months but within 6 months 1,435 1,220 626 Over 6 months but within 1 year 1,920 677 38 Over 1 year 3,714 5,564 1,578
11,640 17,533 5,912
19. Amount due to a subsidiary
The amount is interest-free, unsecured and repayable on demand.
20. Share capital
At 31st December, 2000 and 31st December, 2001 At 31st December, 2002 No. of Nominal No. of Nominal shares value Amount shares value Amount HK$’000 HK$’000
Authorised: Ordinary shares 326,666 HK$1 327 38,000,000 HK$0.01 380
Issued and fully paid: Ordinary shares 326,666 HK$1 327 21,000,000 HK$0.01 210
Notes:
(a) The issued share capital as at 31st December, 2000 and 2001 represented the issued share capital of WLEE which was the then holding company of the operating subsidiaries of the Group.
(b) The issued share capital as at 31st December, 2002 represented the issued share capital of the Company.
– 155 – APPENDIX I ACCOUNTANTS’ REPORT
21. RESERVES
Share Special Revenue premium reserve reserve Total HK$’000 HK$’000 HK$’000 HK$’000
(a) The Group
At 1.1.2000 ––2,493 2,493 Profit for the year ––751 751
At 31.12.2000 and 1.1.2001 ––3,244 3,244 Profit for the year ––1,752 1,752
At 31.12.2001 and 1.1.2002 ––4,996 4,996 Special reserve arising on the Reorganisation – 117 – 117 Profit for the year ––7,330 7,330 Dividend – Note 8 ––(873) (873)
At 31.12.2002 – 117 11,453 11,570
The special reserve represents the difference between the nominal value of the ordinary shares issued by the Company and the share capital of WLEE acquired pursuant to the Reorganisation.
Share Special Revenue premium reserve reserve Total HK$’000 HK$’000 HK$’000 HK$’000
(b) The Company
Surplus arising on the Reorganisation – Note 21b(i) 8,467 ––8,467 Loss for the year ––(56) (56)
At 31.12.2002 8,467 – (56) 8,411
(i) The share premium of the Company represents the difference between the nominal value of the ordinary shares issued by the Company and the net asset values of the subsidiaries at the date they were acquired through an exchange of shares pursuant to the Reorganisation. Under the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands, the share premium is distributable to the shareholders of the Company provided that immediately following the date on which the distribution or dividend is proposed to be paid, the Company will be able to pay its debts as they fall due in the ordinary course of business.
(ii) As at 31st December, 2002, in the opinion of the directors, the reserves of the Company available for distribution to shareholders amounted to HK$8,411,000 subject to the restrictions as stated in Note 21b(i).
22. Unsecured bank loan
At 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Amounts repayable by monthly instalments:–
After one year but within two years 45 65 – After two years but within five years 171 223 – After five years 142 ––
358 288 –
– 156 – APPENDIX I ACCOUNTANTS’ REPORT
23. Obligation under finance lease
Present value of minimum Minimum lease payments lease payments At 31st December, At 31st December, 2000 2001 2002 2000 2001 2002 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Amounts payable under finance lease:–
Within one year – 81 81 – 59 60 After one year but within two years – 81 81 – 64 68 After two years but within five years – 142 61 – 130 57
– 304 223 – 253 185
Less:
Future finance charges – 51 38 –––
Present value of lease obligation – 253 185 – 253 185
Less:
Amounts due for settlement within twelve months (shown under current liabilities) – 59 60
Amounts due for settlement after twelve months (shown under non-current liabilities) – 194 125
The term of the lease is four years and the lease is on a fixed repayment basis.
– 157 – APPENDIX I ACCOUNTANTS’ REPORT
24. Disposal of a subsidiary
Year ended 31st December, 2002 HK$’000
Net assets disposed of:–
Fixed assets 262 Interest in an associate 55 Amount due from an associate 155 Amount due from a director 323 Debtors, deposits and prepayments 16,410 Pledged time deposit 2,135 Cash and bank balances 9,127 Unsecured bank loan (324) Bills payable, secured (2,487) Creditors, accruals and deposits received (23,692) Amount due to a director (227) Amount due to a related company (65) Tax payable (217) Minority interests (582)
The Group’s share of net assets 873
Satisfied by:–
Distribution-in-specie of shares in the subsidiary 873
Net cash outflow in respect of the disposal is analysed as follows:–
Cash and bank balances disposed of (9,127)
25. Major non-cash transactions
(a) On 30th June, 2002, WLEE disposed of its entire shareholdings of 60% direct interests in WLBM and 15% indirect interests in Guangzhou Han Yao Building Materials Limited by way of dividend arrangement as detailed in Note 3.
(b) On 30th August, 2002, pursuant to the Reorganisation, 20,999,999 shares of HK$0.01 each were allotted and issued, credited as fully paid, as consideration for the acquisition by the Company of the entire issued share capital in WLEE.
26. Capital commitments
As at 31st December, 2000, 2001 and 2002, the Group had no capital commitments.
27. Contingent liabilities
As at 31st December, 2001 and 2002, the Group had contingent liabilities in respect of guarantees given by WLEE for the due performance of a former associate, Guangzhou Han Yao Building Materials Limited, under an engineering services agreement. The contract sum of the agreement amounted to approximately HK$7,000,000. The guarantees had been released in January 2003. The Group had no contingent liability as at 31st December, 2000.
– 158 – APPENDIX I ACCOUNTANTS’ REPORT
28. Operating lease arrangements
The Group had outstanding commitments under non-cancellable operating leases, which fall due as follows:–
At 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Within one year 212 17 236 In the second to fifth years inclusive 17 ––
229 17 236
Operating lease payments represent rentals payable by the Group for its office premises. Leases are negotiated for an average term of two years with fixed monthly rentals.
29. Banking facilities
The Group had banking facilities to the extent of approximately HK$9,599,000 and HK$9,554,000 as at 31st December, 2000 and 2001 respectively. The facilities were secured by:–
(i) Legal charges over the properties of Mr. Edmond Lam and a family member of Mr. Derek Tsang and Mr. Niki Tsang;
(ii) Time deposits of Mr. Edmond Lam and Mr. Derek Tsang;
(iii) Personal guarantees given by Mr. Edmond Lam, Mr. Derek Tsang and Mr. Niki Tsang; and
(iv) Time deposits of the Group.
The Group had banking facilities to the extent of approximately HK$3,600,000 as at 31st December, 2002. The facilities were secured by:–
(i) Legal charges over the properties of Mr. Edmond Lam;
(ii) Time deposits of Mr. Edmond Lam and Mr. Derek Tsang;
(iii) Personal guarantees given by Mr. Edmond Lam, Mr. Derek Tsang and Mr. Niki Tsang; and
(iv) Time deposits of the Group.
The relevant banks have agreed in principle that the securities and personal guarantees referred to in (i) to (iii) above will be replaced by a corporate guarantee to be given by the Company immediately upon the listing of the Company’s shares on GEM.
30. Related party transactions
Apart from the transactions as disclosed in Notes 14, 15, 16, 19, 27 and 29 above, the Group had the following material transactions with its related parties during the Relevant Period:–
Year ended 31st December, 2000 2001 2002 Notes HK$’000 HK$’000 HK$’000
Rentals paid by WLBM to two of the directors of the Company (i) 60 72 36 Reimbursement of office rentals, utilities and certain administrative expenses from WLBM (ii) ––128
– 159 – APPENDIX I ACCOUNTANTS’ REPORT
Notes:
(i) The rentals were pre-determined by both parties and discontinued on 30th June, 2002 upon disposal of WLBM by way of distribution-in-specie by WLEE.
(ii) Pursuant to a sharing of expenses agreement dated 25th September, 2002 between WLEE and WLBM, WLEE agreed to allow WLBM to use about 50% of the total area of the office premises, utilities in the office premises and certain administrative support services with effect from 1st August, 2002. In return, WLBM agreed to pay 50% of the aggregate of the rental expenses, rates, management fee, utilities charges, the salaries and all benefits payments to the receptionist and administrative assistant and any other charges and payments for goods and services for administrative purpose which were paid by WLEE for the joint enjoyment and benefits for both WLEE and WLBM.
31. Retirement benefit scheme
Prior to 1st December, 2000, the Group did not operate any retirement benefit scheme for its directors and employees in Hong Kong. With effect from 1st December, 2000, the Group has joined a Mandatory Provident Fund Scheme (“MPF Scheme”) for all employees in Hong Kong. The MPF Scheme is registered with the Mandatory Provident Fund Scheme Authority under the Mandatory Provident Fund Schemes Ordinance. The assets of the MPF Scheme are held separately from those of the Group in funds under the control of an independent trustee. Under the rules of the MPF Scheme, the employer and its employees are each required to make contributions to the scheme at rate specified in the rules. The only obligation of the Group with respect to the MPF Scheme is to make the required contributions under the scheme. No forfeited contribution is available to reduce the contribution payable in the future years. The Group’s contributions to the MPF Scheme for the three years ended 31st December, 2002 amounted to approximately HK$Nil, HK$95,000 and HK$168,000 respectively.
32. Segment information
The Group’s operating businesses are structured and managed separately, according to the products and services they provide. Each of the Group’s business segments represents a strategic business unit that offers products and services which are subject to risks and returns that are different from those of other business segments. Summary details of the business segments are as follows:–
(a) The IBS segment engages in the provision of IBS solutions and sales of electronic equipment;
(b) The building contracting segment engages in the provision of building contracting services and sales of building materials;
(c) The consultancy service segment engages in the provision of consultancy services; and
(d) Other segment represents the operating segment engaging in the investment holding activities and which does not meet the quantitative threshold for determining reportable segment.
– 160 – APPENDIX I ACCOUNTANTS’ REPORT
An analysis of the Group’s turnover, contribution to operating profit, assets and liabilities by business segments is as follows:– Year ended 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Segment turnover – from external customers IBS 19,396 19,920 32,910 Building contracting 25,961 56,215 37,549 Consultancy service ––3,350
Combined 45,357 76,135 73,809
Segment results IBS 581 1,216 5,937 Building contracting 90 1,456 (467) Consultancy service ––3,163 Others ––(53)
671 2,672 8,580 Interest income 327 98 18 Unallocated income 41 2 116
Operating profit 1,039 2,772 8,714 Finance costs (43) (120) (98) Share of loss of an associate – Building contracting (28) (17) (16) Taxation (117) (404) (1,445) Minority interests (100) (479) 175
Profit attributable to shareholders 751 1,752 7,330
Segment assets IBS 9,832 11,088 18,661 Building contracting 8,246 19,905 – Consultancy service ––1,500 Others ––11 Inter-segment elimination (93) (22) (92)
17,985 30,971 20,080 Interest in an associate – Building contracting 88 71 – Unallocated assets – 147 1,365
Total assets 18,073 31,189 21,445
Segment liabilities IBS 6,510 6,555 8,369 Building contracting 7,236 17,513 – Others ––92 Inter-segment elimination (93) (22) (92)
13,653 24,046 8,369 Unallocated liabilities 572 1,064 1,296
Total liabilities 14,225 25,110 9,665
Depreciation IBS 87 181 264 Building contracting 79 92 64
Combined 166 273 328
Provision for doubtful debts IBS – 822 973 Building contracting ––2,401
Combined – 822 3,374
Capital expenditure incurred during the year IBS 67 348 348 Building contracting 100 100 150
Combined 167 448 498
– 161 – APPENDIX I ACCOUNTANTS’ REPORT
The Group operates within one geographical segment because over 90% of its revenue are generated from customers located in Hong Kong. Accordingly, no segment information in respect of the Group’s geographical segments is presented.
33. Ultimate holding company
The directors consider the ultimate holding company to be China Win Holding International Ltd., a company incorporated in the British Virgin Islands.
B. DIRECTORS’ REMUNERATION
Save as disclosed in this report, no remuneration was paid or is payable to the Company’s directors by the Company or any of its subsidiaries in respect of the Relevant Period.
Under the present arrangements, the estimated amount of directors’ fees and other emoluments paid or payable for the year ending 31st December, 2003 is approximately HK$1.6 million, excluding performance related bonuses payable under directors’ service contracts, the terms of which are set out in the paragraph headed “Particulars of service contracts” in Appendix V to the Prospectus.
C. SUBSEQUENT EVENTS
The following significant events took place subsequent to 31st December, 2002:–
(a) On 20th January, 2003, the Group obtained release of the guarantees given by WLEE for the due performance of a former associate under an engineering services agreement with the contract sum of approximately HK$7,000,000.
(b) Pursuant to a board resolution passed on 30th May, 2003, a special dividend for the year ending 31st December, 2003 in the amount of HK$2 million was declared and will be paid to the shareholders of the Company before the listing date.
(c) Written resolutions of the Company were passed on 6th June, 2003 to effect the transactions set out in the subsection headed “Written resolutions of all Shareholders dated 6th June, 2003” in Appendix V to the Prospectus.
D. SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements of the Group, the Company or any of its subsidiaries have been prepared in respect of any period subsequent to 31st December, 2002.
Yours faithfully, PKF Certified Public Accountants Hong Kong
– 162 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION ON THE GROUP
The information set out below does not form part of the accountants’ report prepared by PKF, the auditors and reporting accountants of the Company, set out in Appendix I to this prospectus and is included for information purposes only. Terms used in this section have the same meaning as used in the accountants’ report.
PRO FORMA COMBINED RESULTS
The following is a summary of the pro forma combined results of the Company and its existing subsidiaries for the Relevant Period prepared on the basis set out in Note 1 below:–
Year ended 31st December, 2000 2001 2002 Note HK$’000 HK$’000 HK$’000
Turnover 3 19,396 19,920 36,260
Subcontracting charges (4,244) (5,958) (8,249)
Cost of sales and services rendered (11,258) (8,516) (13,190)
Gross profit 3,894 5,446 14,821
Other income 145 28 110
Administrative and other operating expenses (3,313) (4,230) (5,774)
Operating profit 726 1,244 9,157
Finance costs (20) (39) (93)
Profit before taxation 4 706 1,205 9,064
Taxation (104) (173) (1,445)
Profit attributable to Shareholders 602 1,032 7,619
Earnings per Share (Note 5) – Basic 0.2 cent 0.3 cent 2.5 cents
– Diluted 0.2 cent 0.3 cent 2.4 cents
Notes:
1. Basis of preparation
The results for each of the three years ended 31st December, 2002 presented above include the results of the companies currently comprising the Group upon completion of the Reorganisation with effect from 1st December, 2000 or since their respective dates of incorporation, where this is a shorter period, on the basis that the current group structure had been in existence throughout the said period. All significant intra-group transactions have been eliminated on combination.
– 163 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION ON THE GROUP
2. Principal accounting policies
The principal accounting policies as set out in Notes 2(c) to 2(r) of the accountants’ report have been adopted in preparing the above financial information.
3. Turnover
Turnover represents revenue recognised from the provision of IBS solutions and sales of electronic equipment, maintenance services and consultancy services.
4. Profit before taxation
Year ended 31st December, 2000 2001 2002 HK$’000 HK$’000 HK$’000
Profit before taxation is arrived at after charging/(crediting):–
Auditors’ remuneration 17 30 30 Cost of materials used 10,038 7,700 10,799 Depreciation – own assets 87 92 173 – asset held under finance lease – 90 90 Directors’ remuneration 675 793 976 Other staff costs 1,692 1,357 3,004 Research and development costs 190 280 444 Interest on bank overdraft and bills wholly repayable within five years 18 11 46 Sales proceeds ––– Less: Net book value 36 –– Loss on disposal of fixed assets 36 –– Minimum lease payments under operating leases 109 102 143 Bad debts written off ––31 Provision for doubtful debts – 822 973 Finance lease interest 2 3 13 Recovery of debts previously written off ––(106)
5. The calculation of earnings per Share is based on the Group’s pro forma combined profit attributable to Shareholders for the Relevant Period and the assumption that a total of 309,000,000 Shares had been in issue during the Relevant Period.
The calculation of diluted earnings per Share is based on the Group’s pro forma combined profit attributable to Shareholders for the Relevant Period and the assumption that a total of 318,375,000 Shares had been in issue during the Relevant Period. The number of Shares used in the calculation comprised 309,000,000 Shares referred to above and 9,375,000 Shares assumed to have been issued at no consideration on the deemed exercise of the Pre-IPO Share Option Scheme as set out in Appendix V to the Prospectus.
– 164 – APPENDIX III PROPERTY VALUATION
The following is the text of a letter, a summary of valuation, and a valuation certificate, prepared for the purpose of incorporation in the prospectus dated 17th June, 2003 issued by the Company, received from Vigers Hong Kong Limited, an independent property valuer, in connection with its valuation as at 30th April, 2003.
Vigers Hong Kong Limited International Property Consultants
Suites 1607-12 Miramar Tower 132 Nathan Road Tsimshatsui Kowloon Hong Kong
17th June, 2003
The Directors Innovis Holdings Limited Factory A2, 1st Floor, Block 3 Golden Dragon Industrial Centre Nos. 172-180 Tai Lin Pai Road Kwai Chung New Territories Hong Kong
Dear Sirs,
In accordance with your instructions for us to value the property interests of Innovis Holdings Limited (the “Company”) and its subsidiaries (together referred to as the “Group”) in Hong Kong, we confirm that we have carried out inspection, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the open market value of such property interests as at 30th April, 2003 (“the date of valuation”).
Our valuation of the interests in property is our opinion of the open market value which we would define as intended to mean – “the best price at which the sale of an interest in property would have been completed unconditionally for cash consideration on the date of valuation assuming:–
(a) a willing seller;
(b) that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of price and terms and for the completion of the sale;
(c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;
(d) that no account is taken of any additional bid by a prospective purchaser with a special interest; and
(e) that both parties to the transactions had acted knowledgeably, prudently and without compulsion.”
– 165 – APPENDIX III PROPERTY VALUATION
For the properties, which are leased by the Group in Hong Kong, have no commercial value due to prohibition against assignment or sub-letting or otherwise due to lack of substantial profit rents.
In valuing properties situated in Hong Kong and held under the government leases which have been expired before 30th June, 2047, we have taken account of the statement contained in the Annex III of the joint Declaration of the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People’s Republic of China on the question of Hong Kong and the New Territories Leases (Extension) Ordinance 1988 that most of such leases would have been extended without premium until 30th June, 2047 and that an annual rent of three percent of the rateable value would be charged from the date of extension.
For all properties in Hong Kong, we have caused searches to be made at the Tsuen Wan New Territories Land Registry and in some instances we have been provided with extracts from title documents relating to those properties. We have not, however, searched the original documents to verify ownership or to verify the title to the properties or the existence of any amendments which do not appear on the copies handed to us. All documents and leases have been used for reference only. All dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us by the Group and therefore only approximations.
We have inspected the exterior and, where possible, the interior of the properties. However, we have not carried out a structural survey. We are therefore unable to report whether any such parts of the property interests are free from decay, damage by insects or any other structural defects. However, in the course of our inspection, we have not discovered any serious defects.
We have relied to a very considerable extent on the information provided by the Group and have accepted advice given to us on such matters as planning approvals, statutory notices, easements, tenure, particulars of occupancy, lettings, rental income and revenue, joint venture agreements, development plans, construction costs estimates, site and floor areas, the identification of those properties in which the Group has valid interests and all other relevant matters.
We have had no reason to doubt the truth and accuracy of the information provided to us by the Group. We were also advised by the Group that no material factors have been omitted from the information supplied. We consider that we have been provided with sufficient information to reach an informed view, and have no reason to suspect that any material information has been withheld.
No allowance has been made in our valuation for any charges, mortgages or amounts owing on the property nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property interests are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values.
We enclose herewith our valuation certificate.
Yours faithfully, For and on behalf of VIGERS HONG KONG LTD. Raymond Kai Kwong Ho MRICS, MHKIS Registered Professional Surveyor Director Head of Valuation Department
Note: Mr. Raymond K. K. Ho is a Chartered Surveyor and Registered Professional Surveyor who has over 15 years experience in valuation of properties in Hong Kong.
– 166 – APPENDIX III PROPERTY VALUATION
SUMMARY OF VALUATION
Properties leased and occupied by the Group in Hong Kong
Capital value in existing state as at Property 30th April, 2003
1. Factory A2 (being a portion of Factory A) on No commercial value 1st Floor of Block 3 of Golden Dragon Industrial Centre, Nos. 172-180 Tai Lin Pai Road, Kwai Chung, New Territories, Hong Kong
2. Factory E on 15th Floor of Block 4 No commercial value of Golden Dragon Industrial Centre, Nos. 182-190 Tai Lin Pai Road, Kwai Chung, New Territories, Hong Kong
Total: No commercial value
– 167 – APPENDIX III PROPERTY VALUATION
VALUATION CERTIFICATE
Properties leased and occupied by the Group in Hong Kong
Capital value in existing state as at Property Description Particulars of occupancy 30th April, 2003
1. Factory A2 (being a The property comprises The property is leased by No commercial value portion of Factory A) portion of Factory A on 1st an independent third party on 1st Floor Floor in a 26-storey to the Group for a term of of Block 3 of industrial building 2 years from 15th January, Golden Dragon completed in or about 1978. 2002 to 14th January, Industrial Centre, 2004 at a monthly rent of Nos. 172-180 The property has a saleable HK$17,000, exclusive of Tai Lin Pai Road, floor area of approximately rates, Government rent, Kwai Chung, 3,530 sq. ft.. management fees and New Territories, other miscellaneous Hong Kong expenses with an option to renew for a term of further two years from 15th January, 2004 to 14th January, 2006.
The property is occupied by the Group as workshop and its ancillary office.
2. Factory E on 15th Floor The property comprises The property is leased by No commercial value of Block 4 of Factory E on 15th Floor in an independent third party Golden Dragon a 26-storey industrial to the Group for a term Industrial Centre, building completed in or from 1st July, 2002 to 30th Nos. 182-190 about 1978. June, 2003 at a monthly Tai Lin Pai Road, rent of HK$5,300, Kwai Chung, The property has a saleable inclusive of rates, New Territories, floor area of approximately Government rent, property Hong Kong 1,009 sq. ft.. tax and management fees with an option to renew for a term of further one year from 1st July, 2003 to 30th June, 2004.
The property is occupied by the Group as warehouse.
– 168 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
Set out below is a summary of certain provisions of the Memorandum and Articles of Association of the Company and of certain aspects of Cayman company law.
The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 8th July, 2002 under the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands (the “Companies Law”). The Memorandum of Association (the “Memorandum”) and the Articles of Association (the “Articles”) comprise its constitution.
1. MEMORANDUM OF ASSOCIATION
(a) The Memorandum states, inter alia, that the liability of members of the Company is limited to the amount, if any, for the time being unpaid on the Shares respectively held by them and that the objects for which the Company is established are unrestricted (including acting as an investment company), and that the Company shall have and be capable of exercising any and all of the powers at any time or from time to time exercisable by a natural person or body corporate, irrespective of any question of corporate benefit, as provided in section 27(2) of the Companies Law and in view of the fact that the Company is an exempted company that the Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands.
(b) The Company may by special resolution alter its Memorandum with respect to any objects, powers or other matters specified therein.
2. ARTICLES OF ASSOCIATION
The Articles were adopted on 6th June, 2003. The following is a summary of certain provisions of the Articles:
(a) Directors
(i) Power to allot and issue shares and warrants
Subject to the provisions of the Companies Law and the Memorandum and Articles and to any special rights conferred on the holders of any shares or class of shares, any share may be issued with or have attached thereto such rights, or such restrictions, whether with regard to dividend, voting, return of capital, or otherwise, as the Company may by ordinary resolution determine (or, in the absence of any such determination or so far as the same may not make specific provision, as the board may determine). Subject to the Companies Law, the rules of any Designated Stock Exchange (as defined in the Articles) and the Memorandum and Articles, any share may be issued on terms that, at the option of the Company or the holder thereof, they are liable to be redeemed.
The board may issue warrants conferring the right upon the holders thereof to subscribe for any class of shares or securities in the capital of the Company on such terms as it may from time to time determine.
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Subject to the provisions of the Companies Law and the Articles and, where applicable, the rules of any Designated Stock Exchange (as defined in the Articles) and without prejudice to any special rights or restrictions for the time being attached to any shares or any class of shares, all unissued shares in the Company shall be at the disposal of the board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times, for such consideration and on such terms and conditions as it in its absolute discretion thinks fit, but so that no shares shall be issued at a discount.
Neither the Company nor the board shall be obliged, when making or granting any allotment of, offer of, option over or disposal of shares, to make, or make available, any such allotment, offer, option or shares to members or others with registered addresses in any particular territory or territories being a territory or territories where, in the absence of a registration statement or other special formalities, this would or might, in the opinion of the board, be unlawful or impracticable. Members affected as a result of the foregoing sentence shall not be, or be deemed to be, a separate class of members for any purpose whatsoever.
(ii) Power to dispose of the assets of the Company or any subsidiary
There are no specific provisions in the Articles relating to the disposal of the assets of the Company or any of its subsidiaries. The Directors may, however, exercise all powers and do all acts and things which may be exercised or done or approved by the Company and which are not required by the Articles or the Companies Law to be exercised or done by the Company in general meeting.
(iii) Compensation or payments for loss of office
Pursuant to the Articles, payments to any Director or past Director of any sum by way of compensation for loss of office or as consideration for or in connection with his retirement from office (not being a payment to which the Director is contractually entitled) must be approved by the Company in general meeting.
(iv) Loans and provision of security for loans to Directors
There are provisions in the Articles prohibiting the making of loans to Directors.
(v) Disclosure of interests in contracts with the Company or any of its subsidiaries.
A Director may hold any other office or place of profit with the Company (except that of the auditor of the Company) in conjunction with his office of Director for such period and, subject to the Articles, upon such terms as the board may determine, and may be paid such extra remuneration therefor (whether by way of salary, commission, participation in profits or otherwise) in addition to any remuneration provided for by or pursuant to any other Articles. A Director may be or become a director or other officer of, or otherwise interested in, any company promoted by the Company or any other company in which the Company may be interested, and shall not be liable to account to the Company or the members for any remuneration, profits or other benefits received by him as a director, officer or member of, or from
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his interest in, such other company. Subject as otherwise provided by the Articles, the board may also cause the voting power conferred by the shares in any other company held or owned by the Company to be exercised in such manner in all respects as it thinks fit, including the exercise thereof in favour of any resolution appointing the Directors or any of them to be directors or officers of such other company, or voting or providing for the payment of remuneration to the directors or officers of such other company.
Subject to the Companies Law and the Articles, no Director or proposed or intended Director shall be disqualified by his office from contracting with the Company, either with regard to his tenure of any office or place of profit or as vendor, purchaser or in any other manner whatsoever, nor shall any such contract or any other contract or arrangement in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company or the members for any remuneration, profit or other benefits realised by any such contract or arrangement by reason of such Director holding that office or the fiduciary relationship thereby established. A Director who to his knowledge is in any way, whether directly or indirectly, interested in a contract or arrangement or proposed contract or arrangement with the Company shall declare the nature of his interest at the meeting of the board at which the question of entering into the contract or arrangement is first taken into consideration, if he knows his interest then exists, or in any other case, at the first meeting of the board after he knows that he is or has become so interested.
A Director shall not vote (nor be counted in the quorum) on any resolution of the board in respect of any contract or arrangement or other proposal in which he is to his knowledge materially interested but this prohibition shall not apply to any of the following matters, namely:
(aa) any contract or arrangement for giving of any security or indemnity to the Director in respect of money lent or obligations incurred or undertaken by him at the request of or for the benefit of the Company or any of its subsidiaries;
(bb) any contract or arrangement for the giving by the Company of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director has himself assumed responsibility in whole or in part whether alone or jointly under a guarantee or indemnity or by the giving of security;
(cc) any contract or arrangement concerning an offer of shares or debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase, where the Director is or is to be interested as a participant in the underwriting or sub-underwriting of the offer;
(dd) any contract or arrangement in which the Director is interested in the same manner as other holders of shares or debentures or other securities of the Company or any of its subsidiaries by virtue only of his interest in shares or debentures or other securities of the Company;
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(ee) any contract or arrangement concerning any other company in which he is interested only, whether directly or indirectly, as an officer or executive or a shareholder other than a company in which the Director together with any of his associates (as defined by the rules, where applicable, of any Designated Stock Exchange (as defined in the Articles)) is beneficially interested in 5% or more of the issued shares or of the voting rights of any class of shares of such company (or of any third company through which his interest is derived); or
(ff) any proposal concerning the adoption, modification or operation of a share option scheme, a pension fund or retirement, death, or disability benefits scheme or other arrangement which relates both to Directors and employees of the Company or of any of its subsidiaries and does not provide in respect of any Director as such any privilege or advantage not accorded to the employees to which such scheme or fund relates.
(vi) Remuneration
The ordinary remuneration of the Directors shall from time to time be determined by the Company in general meeting, such sum (unless otherwise directed by the resolution by which it is voted) to be divided amongst the Directors in such proportions and in such manner as the board may agree or, failing agreement, equally, except that any Director holding office for part only of the period in respect of which the remuneration is payable shall only rank in such division in proportion to the time during such period for which he held office. The Directors shall also be entitled to be prepaid or repaid all travelling, hotel and incidental expenses reasonably expected to be incurred or incurred by them in attending any board meetings, committee meetings or general meetings or separate meetings of any class of shares or of debentures of the Company or otherwise in connection with the discharge of their duties as Directors.
Any Director who, by request, goes or resides abroad for any purpose of the Company or who performs services which in the opinion of the board go beyond the ordinary duties of a Director may be paid such extra remuneration (whether by way of salary, commission, participation in profits or otherwise) as the board may determine and such extra remuneration shall be in addition to or in substitution for any ordinary remuneration as a Director. An executive Director appointed to be a managing director, joint managing director, deputy managing director or other executive officer shall receive such remuneration (whether by way of salary, commission or participation in profits or otherwise or by all or any of those modes) and such other benefits (including pension and/or gratuity and/or other benefits on retirement) and allowances as the board may from time to time decide. Such remuneration may be either in addition to or in lieu of his remuneration as a Director.
The board may establish or concur or join with other companies (being subsidiary companies of the Company or companies with which it is associated in business) in establishing and making contributions out of the Company’s monies to any schemes or funds for providing pensions, sickness or compassionate allowances, life assurance or other benefits for employees (which expression as used in this and the following paragraph shall include any Director or ex-Director who may hold or
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have held any executive office or any office of profit with the Company or any of its subsidiaries) and ex-employees of the Company and their dependents or any class or classes of such persons.
The board may pay, enter into agreements to pay or make grants of revocable or irrevocable, and either subject or not subject to any terms or conditions, pensions or other benefits to employees and ex-employees and their dependents, or to any of such persons, including pensions or benefits additional to those, if any, to which such employees or ex-employees or their dependents are or may become entitled under any such scheme or fund as is mentioned in the previous paragraph. Any such pension or benefit may, as the board considers desirable, be granted to an employee either before and in anticipation of, or upon or at any time after, his actual retirement.
(vii) Retirement, appointment and removal
At each annual general meeting, one third of the Directors for the time being (or if their number is not a multiple of three, then the number nearest to but not greater than one third) will retire from office by rotation provided that no Director holding office as chairman and/or managing director shall be subject to retirement by rotation, or be taken into account in determining the number of Directors to retire. The Directors to retire in every year will be those who have been longest in office since their last re-election or appointment but as between persons who became or were last re-elected Directors on the same day those to retire will (unless they otherwise agree among themselves) be determined by lot. There are no provisions relating to retirement of Directors upon reaching any age limit.
The Directors shall have the power from time to time and at any time to appoint any person as a Director either to fill a casual vacancy on the board or as an addition to the existing board. Any Director so appointed shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election. Neither a Director nor an alternate Director is required to hold any shares in the Company by way of qualification.
A Director may be removed by a special resolution of the Company before the expiration of his period of office (but without prejudice to any claim which such Director may have for damages for any breach of any contract between him and the Company) and may by ordinary resolution appoint another in his place. Unless otherwise determined by the Company in general meeting, the number of Directors shall not be less than two. There is no maximum number of Directors.
The office or director shall be vacated:
(aa) if he resigns his office by notice in writing delivered to the Company at the registered office of the Company for the time being or tendered at a meeting of the Board whereupon the Board resolves to accept such resignation;
(bb) becomes of unsound mind or dies;
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(cc) if, without special leave, he is absent from meetings of the board (unless an alternate director appointed by him attends) for six (6) consecutive months, and the board resolves that his office is vacated;
(dd) if he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors;
(ee) if he is prohibited from being a director by law;
(ff) if he ceases to be a director by virtue of any provision of law or is removed from office pursuant to the Articles.
The board may from time to time appoint one or more of its body to be managing director, joint managing director, or deputy managing director or to hold any other employment or executive office with the Company for such period and upon such terms as the board may determine and the board may revoke or terminate any of such appointments. The board may delegate any of its powers, authorities and discretions to committees consisting of such Director or Directors and other persons as the board thinks fit, and it may from time to time revoke such delegation or revoke the appointment of and discharge any such committees either wholly or in part, and either as to persons or purposes, but every committee so formed shall, in the exercise of the powers, authorities and discretions so delegated, conform to any regulations that may from time to time be imposed upon it by the board.
(viii) Borrowing powers
The board may exercise all the powers of the Company to raise or borrow money, to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and, subject to the Companies Law, to issue debentures, bonds and other securities of the Company, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.
Note: These provisions, in common will the Articles in general, can be varied with the passing of a special resolution of the Company.
(ix) Proceedings of the Board
The board may meet for the despatch of business, adjourn and otherwise regulate their meetings as they think fit. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have an additional or casting vote.
(x) Register of Directors and Officers
The Companies Law and the Articles provide that the Company is required to maintain at its registered office a register of directors and officers which is not available for inspection by the public. A copy of such register must be filed with the Registrar of Companies in the Cayman Islands and any change must be notified to the Registrar within thirty (30) days of any change in such directors or officers.
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(b) Alterations to constitutional documents
The Articles may be rescinded, altered or amended by the Company in general meeting by special resolution. The Articles state that a special resolution shall be required to alter the provisions of the Memorandum, to amend the Articles or to change the name of the Company.
(c) Alteration of capital
The Company may from time to time by ordinary resolution in accordance with the relevant provisions of the Companies Law:
(i) increase its capital by such sum, to be divided into shares of such amounts as the resolution shall prescribe;
(ii) consolidate and divide all or any of its capital into shares of larger amount than its existing shares;
(iii) divide its shares into several classes and without prejudice to any special rights previously conferred on the holders of existing shares as the directors may determine;
(iv) sub-divide its shares or any of them into shares of smaller amount than is fixed by the Memorandum, subject nevertheless to the provisions of the Companies Law, and so that the resolution whereby any share is sub-divided may determine that, as between the holders of the shares resulting from such sub-division, one or more of the shares may have any such preferred or other special rights, over, or may have such deferred rights or be subject to any such restrictions as compared with the others as the Company has power to attach to unissued or new shares;
(v) cancel any shares which, at the date of passing of the resolution, have not been taken, or agreed to be taken, by any person, and diminish the amount of its capital by the amount of the shares so cancelled.
The Company may subject to the provisions of the Companies Law reduce its share capital or any capital redemption reserve or other undistributable reserve in any way by special resolution.
(d) Variation of rights of existing shares or classes of shares
Subject to the Companies Law, all or any of the special rights attached to the shares or any class of shares may (unless otherwise provided for by the terms of issue of that class) be varied, modified or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. To every such separate general meeting the provisions of the Articles relating to general meetings will mutatis mutandis apply, but so that the necessary quorum (other than at an adjourned meeting) shall be two persons holding or representing by proxy not less
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than one-third in nominal value of the issued shares of that class and at any adjourned meeting two holders present in person or by proxy whatever the number of shares held by them shall be a quorum. Every holder of shares of the class shall be entitled on a poll to one vote for every such share held by him, and any holder of shares of the class present in person or by proxy may demand a poll.
The special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise expressly provided in the rights attaching to the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.
(e) Special resolution-majority required
Pursuant to the Articles, a special resolution of the Company must be passed by a majority of not less than three-fourths of the votes cast by such members as, being entitled so to do, vote in person or, in the case of such members as are corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which not less than twenty-one (21) clear days’ notice, specifying the intention to propose the resolution as a special resolution, has been duly given. Provided that, except in the case of an annual general meeting, if it is so agreed by a majority in number of the members having a right to attend and vote at such meeting, being a majority together holding not less than ninety-five (95)% in nominal value of the shares giving that right and, in the case of an annual general meeting, if so agreed by all Members entitled to attend and vote thereat, a resolution may be proposed and passed as a special resolution at a meeting of which less than twenty-one (21) clear days’ notice has been given.
A copy of any special resolution must be forwarded to the Registrar of Companies in the Cayman Islands within fifteen (15) days of being passed.
An ordinary resolution is defined in the Articles to mean a resolution passed by a simple majority of the votes of such members of the Company as, being entitled to do so, vote in person or, in the case of corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting held in accordance with the Articles.
(f) Voting rights (generally and on a poll) and right to demand a poll
Subject to any special rights or restrictions as to voting for the time being attached to any shares by or in accordance with the Articles, at any general meeting on a show of hands, every member who is present in person or by proxy or being a corporation, is present by its duly authorised representative shall have one vote and on a poll every member present in person or by proxy or, in the case of a member being a corporation, by its duly authorised representative shall have one vote for every fully paid share of which he is the holder but so that no amount paid up or credited as paid up on a share in advance of calls or installments is treated for the foregoing purposes as paid up on the share. Notwithstanding anything contained in the Articles, where more than one proxy is appointed by a member which is a clearing house (or its nominee(s)), each such proxy shall have one vote on a show of hands. On a poll, a member entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.
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At any general meeting a resolution put to the vote of the meeting is to be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded by (i) the chairman of the meeting or (ii) at least three members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy for the time being entitled to vote at the meeting or (iii) any member or members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting or (iv) a member or members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.
If a recognised clearing house (or its nominee(s)) is a member of the Company it may authorise such person or persons as it thinks fit to act as its representative(s) at any meeting of the Company or at any meeting of any class of members of the Company provided that, if more than one person is so authorised, the authorisation shall specify the number and class of shares in respect of which each such person is so authorised. A person authorised pursuant to this provision shall be entitled to exercise the same powers on behalf of the recognised clearing house (or its nominee(s)) as if such person was the registered holder of the shares of the Company held by that clearing house (or its nominee(s)) including the right to vote individually on a show of hands.
(g) Requirements for annual general meetings
An annual general meeting of the Company must be held in each year, other than the year of incorporation (within a period of not more than 15 months after the holding of the last preceding annual general meeting or a period of 18 months from the date of incorporation, unless a longer period would not infringe the rules of any Designated Stock Exchange (as defined in the Articles)) at such time and place as may be determined by the board.
(h) Accounts and audit
The board shall cause true accounts to be kept of the sums of money received and expended by the Company, and the matters in respect of which such receipt and expenditure take place, and of the property, assets, credits and liabilities of the Company and of all other matters required by the Companies Law or necessary to give a true and fair view of the Company’s affairs and to explain its transactions.
The accounting records shall be kept at the registered office or at such other place or places as the board decides and shall always be open to inspection by any Director. No member (other than a Director) shall have any right to inspect any accounting record or book or document of the Company except as conferred by law or authorised by the board or the Company in general meeting.
A copy of every balance sheet and profit and loss account (including every document required by law to be annexed thereto) which is to be laid before the Company at its general meeting, together with a printed copy of the Directors’ report and a copy of the auditors’
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report, shall not less than twenty-one (21) days before the date of the meeting be sent to every person entitled to receive notices of general meetings of the Company under the provisions the Articles. Subject to due compliance with the Companies Law and the rules of the Stock Exchange, and to obtaining all necessary consents, if any, required thereunder, such requirements shall be deemed satisfied in relation to any person by sending to the person in any manner not prohibited by the Companies Law and instead of such copies, a summary financial statement derived from the Company’s annual financial statements and the directors’s report thereon, which shall be in the form and containing the information required by applicable laws and regulation, provided that any person who is otherwise entitled to the annual financial statements of the Company and the directors’ report thereon may, if he so requires by notice in writing served on the Company, demand that the Company sends to him, in addition to a summary financial statement, a complete printed copy of the Company’s annual financial statement and the directors’ report thereon.
Auditors shall be appointed and the terms and tenure of such appointment and their duties at all times regulated in accordance with the provisions of the Articles. The remuneration of the auditors shall be fixed by the Company in general meeting or in such manner as the members may determine.
The financial statements of the Company shall be audited by the auditor in accordance with generally accepted auditing standards. The auditor shall make a written report thereon in accordance with generally accepted auditing standards and the report of the auditor shall be submitted to the members in general meeting. The generally accepted auditing standards referred to herein may be those of a country or jurisdiction other than the Cayman Islands. If so, the financial statements and the report of the auditor should disclose this fact and name such country or jurisdiction.
(i) Notices of meetings and business to be conducted thereat
An annual general meeting and any extraordinary general meeting at which it is proposed to pass a special resolution shall (save as set out in sub-paragraph (e) above) be called by at least twenty-one (21) clear days’ notice in writing, and any other extraordinary general meeting shall be called by at least fourteen (14) clear days’ notice (in each case exclusive of the day on which the notice is served or deemed to be served and of the day for which it is given). The notice must specify the time and place of the meeting and, in the case of special business, the general nature of that business. In addition notice of every general meeting shall be given to all members of the Company other than such as, under the provisions of the Articles or the terms of issue of the shares they hold, are not entitled to receive such notices from the Company, and also to the auditors for the time being of the Company.
Notwithstanding that a meeting of the Company is called by shorter notice than that mentioned above, it shall be deemed to have been duly called if it is so agreed:
(i) in the case of a meeting called as an annual general meeting, by all members of the Company entitled to attend and vote thereat; and
(ii) in the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority together holding not less than ninety-five (95)% in nominal value of the issued shares giving that right. – 178 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
All business shall be deemed special that is transacted at an extraordinary general meeting and also all business shall be deemed special that is transacted at an annual general meeting with the exception of the following, which shall be deemed ordinary business:
(aa) the declaration and sanctioning of dividends;
(bb) the consideration and adoption of the accounts and balance sheet and the reports of the directors and the auditors;
(cc) the election of directors in place of those retiring;
(dd) the appointment of auditors and other officers;
(ee) the fixing of the remuneration of the directors and of the auditors; and
(ff) the granting of any mandate or authority to the directors to offer, allot, grant options over or otherwise dispose of the unissued shares of the Company representing not more than twenty (20)% in nominal value of its existing issued share capital.
(j) Transfer of shares
All transfers of shares may be effected by an instrument of transfer in the usual or common form or in a form prescribed by the Designated Stock Exchange (as defined in the Articles) or in such other form as the board may approve and which may be under hand or, if the transferor or transferee is a clearing house or its nominee(s), by hand or by machine imprinted signature or by such other manner of execution as the board may approve from time to time. The instrument of transfer shall be executed by or on behalf of the transferor and the transferee provided that the board may dispense with the execution of the instrument of transfer by the transferee in any case in which it thinks fit, in its discretion, to do so and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the register of members in respect thereof. The board may also resolve either generally or in any particular case, upon request by either the transferor or the transferee, to accept mechanically executed transfers.
The board in so far as permitted by any applicable law may, in its absolute discretion, at any time and from time to time transfer any share upon the principal register to any branch register or any share on any branch register to the principal register or any other branch register.
Unless the board otherwise agrees, no shares on the principal register shall be transferred to any branch register nor may shares on any branch register be transferred to the principal register or any other branch register. All transfers and other documents of title shall be lodged for registration and registered, in the case of shares on a branch register, at the relevant registration office and, in the case of shares on the principal register, at the registered office in the Cayman Islands or such other place at which the principal register is kept in accordance with the Companies Law.
– 179 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
The board may, in its absolute discretion, and without assigning any reason, refuse to register a transfer of any share (not being a fully paid up share) to a person of whom it does not approve or any share issued under any share incentive scheme for employees upon which a restriction on transfer imposed thereby still subsists, and it may also refuse to register any transfer of any share to more than four joint holders or any transfer of any share (not being a fully paid up share) on which the Company has a lien.
The board may decline to recognise any instrument of transfer unless a fee of such maximum sum as any Designated Stock Exchange (as defined in the Articles) may determine to be payable or such lesser sum as the Directors may from time to time require is paid to the Company in respect thereof, the instrument of transfer, if applicable, is properly stamped, is in respect of only one class of share and is lodged at the relevant registration office or registered office or such other place at which the principal register is kept accompanied by the relevant share certificate(s) and such other evidence as the board may reasonably require to show the right of the transferor to make the transfer (and if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do).
The registration of transfers may be suspended and the register closed on giving notice by advertisement in a relevant newspaper and, where applicable, any other newspapers in accordance with the requirements of any Designated Stock Exchange (as defined in the Articles), at such times and for such periods as the board may determine and either generally or in respect of any class of shares. The register of members shall not be closed for periods exceeding in the whole thirty (30) days in any year.
(k) Power for the Company to purchase its own shares
The Company is empowered by the Companies Law and the Articles to purchase its own Shares subject to certain restrictions and the Board may only exercise this power on behalf of the Company subject to any applicable requirements imposed from time to time by any Designated Stock Exchange.
(l) Power for any subsidiary of the Company to own shares in the Company
There are no provisions in the Articles relating to ownership of shares in the Company by a subsidiary.
(m) Dividends and other methods of distribution
Subject to the Companies Law, the Company in general meeting may declare dividends in any currency to be paid to the members but no dividend shall be declared in excess of the amount recommended by the board.
The Articles provide dividends may be declared and paid out of the profits of the Company, realised or unrealised, or from any reserve set aside from profits which the directors determine is no longer needed. With the sanction of an ordinary resolution dividends may also be declared and paid out of share premium account or any other fund or account which can be authorised for this purpose in accordance with the Companies Law.
– 180 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise provide, (i) all dividends shall be declared and paid according to the amounts paid up on the shares in respect whereof the dividend is paid but no amount paid up on a share in advance of calls shall for this purpose be treated as paid up on the share and (ii) all dividends shall be apportioned and paid pro rata according to the amount paid up on the shares during any portion or portions of the period in respect of which the dividend is paid. The Directors may deduct from any dividend or other monies payable to any member or in respect of any shares all sums of money (if any) presently payable by him to the Company on account of calls or otherwise.
Whenever the board or the Company in general meeting has resolved that a dividend be paid or declared on the share capital of the Company, the board may further resolve either (a) that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up, provided that the shareholders entitled thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment, or (b) that shareholders entitled to such dividend will be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or such part of the dividend as the board may think fit. The Company may also upon the recommendation of the board by an ordinary resolution resolve in respect of any one particular dividend of the Company that it may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to shareholders to elect to receive such dividend in cash in lieu of such allotment.
Any dividend, interest or other sum payable in cash to the holder of shares may be paid by cheque or warrant sent through the post addressed to the holder at his registered address, or in the case of joint holders, addressed to the holder whose name stands first in the register of the Company in respect of the shares at his address as appearing in the register or addressed to such person and at such addresses as the holder or joint holders may in writing direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the register in respect of such shares, and shall be sent at his or their risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. Any one of two or more joint holders may give effectual receipts for any dividends or other moneys payable or property distributable in respect of the shares held by such joint holders.
Whenever the board or the Company in general meeting has resolved that a dividend be paid or declared the board may further resolve that such dividend be satisfied wholly or in part by the distribution of specific assets of any kind.
All dividends or bonuses unclaimed for one year after having been declared may be invested or otherwise made use of by the board for the benefit of the Company until claimed and the Company shall not be constituted a trustee in respect thereof. All dividends or bonuses unclaimed for six years after having been declared may be forfeited by the board and shall revert to the Company.
No dividend or other monies payable by the Company on or in respect of any share shall bear interest against the Company.
– 181 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
(n) Proxies
Any member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member of the Company and shall be entitled to exercise the same powers on behalf of a member who is an individual and for whom he acts as proxy as such member could exercise. In addition, a proxy shall be entitled to exercise the same powers on behalf of a member which is a corporation and for which he acts as proxy as such member could exercise if it were an individual member. On a poll or on a show of hands, votes may be given either personally (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy.
(o) Call on shares and forfeiture of shares
Subject to the Articles and to the terms of allotment, the board may from time to time make such calls upon the members in respect of any monies unpaid on the shares held by them respectively (whether on account of the nominal value of the shares or by way of premium). A call may be made payable either in one lump sum or by installments. If the sum payable in respect of any call or instalment is not paid on or before the day appointed for payment thereof, the person or persons from whom the sum is due shall pay interest on the same at such rate not exceeding twenty (20)% per annum as the board may agree to accept from the day appointed for the payment thereof to the time of actual payment, but the board may waive payment of such interest wholly or in part. The board may, if it thinks fit, receive from any member willing to advance the same, either in money or money’s worth, all or any part of the monies uncalled and unpaid or installments payable upon any shares held by him, and upon all or any of the monies so advanced the Company may pay interest at such rate (if any) as the board may decide.
If a member fails to pay any call on the day appointed for payment thereof, the board may serve not less than fourteen (14) clear days’ notice on him requiring payment of so much of the call as is unpaid, together with any interest which may have accrued and which may still accrue up to the date of actual payment and stating that, in the event of non- payment at or before the time appointed, the shares in respect of which the call was made will be liable to be forfeited.
If the requirements of any such notice are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the board to that effect. Such forfeiture will include all dividends and bonuses declared in respect of the forfeited share and not actually paid before the forfeiture.
A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall, notwithstanding, remain liable to pay to the Company all monies which, at the date of forfeiture, were payable by him to the Company in respect of the shares, together with (if the board shall in its discretion so require) interest thereon from the date of forfeiture until the date of actual payment at such rate not exceeding twenty (20)% per annum as the board determines.
– 182 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
(p) Inspection of register of members
Pursuant to the Articles the register and branch register of members shall be open to inspection for at least two (2) hours on every business day by members without charge, or by any other person upon a maximum payment of HK$2.50, at the registered office or such other place in the Cayman Islands at which the register is kept in accordance with the Companies Law or, upon a maximum payment of HK$1.00 or such lesser sum specified by the board, at the Registration Office (as defined in the Articles), unless the register is closed in accordance with the Articles.
(q) Quorum for meetings and separate class meetings
No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, but the absence of a quorum shall not preclude the appointment of a chairman.
Save as otherwise provided by the Articles the quorum for a general meeting shall be two members present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy and entitled to vote. In respect of a separate class meeting (other than an adjourned meeting) convened to sanction the modification of class rights the necessary quorum shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class.
A corporation being a member shall be deemed for the purpose of the Articles to be present in person if represented by its duly authorised representative being the person appointed by resolution of the directors or other governing body of such corporation to act as its representative at the relevant general meeting of the Company or at any relevant general meeting of any class of members of the Company.
(r) Rights of the minorities in relation to fraud or oppression
There are no provisions in the Articles relating to rights of minority shareholders in relation to fraud or oppression. However, certain remedies are available to shareholders of the Company under Cayman law, as summarised in paragraph 4(e) of this Appendix.
(s) Procedures on liquidation
A resolution that the Company be wound up by the court or be wound up voluntarily shall be a special resolution.
Subject to any special rights, privileges or restrictions as to the distribution of available surplus assets on liquidation for the time being attached to any class or classes of shares (i) if the Company shall be wound up and the assets available for distribution amongst the members of the Company shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed pari passu amongst such members in proportion to the amount paid up on the shares held by them respectively and (ii) if the Company shall be wound up and the assets available for distribution amongst the members as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up on the shares held by them respectively. – 183 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
If the Company shall be wound up (whether the liquidation is voluntary or by the court) the liquidator may, with the authority of a special resolution and any other sanction required by the Companies Law divide among the members in specie or kind the whole or any part of the assets of the Company whether the assets shall consist of property of one kind or shall consist of properties of different kinds and the liquidator may, for such purpose, set such value as he deems fair upon any one or more class or classes of property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members. The liquidator may, with the like authority, vest any part of the assets in trustees upon such trusts for the benefit of members as the liquidator, with the like authority, shall think fit, but so that no contributory shall be compelled to accept any shares or other property in respect of which there is a liability.
(t) Untraceable members
Pursuant to the Articles, the Company may sell any of the shares of a member who is untraceable if (i) all cheques or warrants (being not less than three in total number) for any sum payable in cash to the holder of such shares have remained uncashed for a period of 12 years; (ii) upon the expiry of the 12 year period, the Company has not during that time received any indication of the existence of the member; and (iii) the Company has caused an advertisement to be published in accordance with the rules of the Designated Stock Exchange (as defined in the Articles) giving notice of its intention to sell such shares and a period of three months, or such shorter period as may be permitted by the Designated Stock Exchange (as defined in the Articles), has elapsed since such advertisement and the Designated Stock Exchange (as defined in the Articles) has been notified of such intention. The net proceeds of any such sale shall belong to the Company and upon receipt by the Company of such net proceeds, it shall become indebted to the former member of the Company for an amount equal to such net proceeds.
(u) Subscription rights reserve
The Articles provide that to the extent that it is not prohibited by and is in compliance with the Companies Law, if warrants to subscribe for shares have been issued by the Company and the Company does any act or engages in any transactions which would result in the subscription price of such warrants being reduced below the par value of a share, a subscription rights reserve shall be established and applied in paying up the difference between the subscription price and the par value of a share on any exercise of the warrants.
3. CAYMAN ISLANDS COMPANY LAW
The Company is incorporated in the Cayman Islands subject to the Companies Law and, therefore, operates subject to Cayman law. Set out below is a summary of certain provisions of Cayman company law, although this does not purport to contain all applicable qualifications and exceptions or to be a complete review of all matters of Cayman company law and taxation, which may differ from equivalent provisions in jurisdictions with which interested parties may be more familiar:
– 184 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
(a) Operations
As an exempted company, the Company’s operations must be conducted mainly outside the Cayman Islands. The Company is required to file an annual return each year with the Registrar of Companies of the Cayman Islands and pay a fee which is based on the amount of its authorised share capital.
(b) Share capital
The Companies Law provides that where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called the “share premium account”. At the option of a company, these provisions may not apply to premiums or shares of that company allotted pursuant to any arrangement in consideration of the acquisition or cancellation of shares in any other company and issued at a premium. The Companies Law provides that the share premium account may be applied by the company subject to the provisions, if any, of its memorandum and articles of association in (a) paying distributions or dividends to members; (b) paying up unissued shares of the company to be issued to members as fully paid bonus shares; (c) in the redemption and repurchase of shares (subject to the provisions of section 37 of the Companies Law); (d) writing-off the preliminary expenses of the company; (e) writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; and (f) providing for the premium payable on redemption or purchase of any shares or debentures of the company.
No distribution or dividend may be paid to members out of the share premium account unless immediately following the date on which the distribution or dividend is proposed to be paid the company will be able to pay its debts as they fall due in the ordinary course business.
The Companies Law provides that, subject to confirmation by the court, a company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, by special resolution reduce its share capital in any way.
The Articles includes certain protections for holders of special classes of shares, requiring their consent to be obtained before their rights may be varied. The consent of the specified proportions of the holders of the issued shares of that class or the sanction of a resolution passed at a separate meeting of the holders of those shares is required.
(c) Financial assistance to purchase shares of a company or its holding company
Subject to all applicable laws, the Company may give financial assistance to Directors and employees of the Company, its subsidiaries, its holding company or any subsidiary of such holding company in order that they may buy Shares in the Company or shares in any subsidiary or holding company. Further, subject to all applicable laws, the Company may give financial assistance to a trustee for the acquisition of Shares in the Company or shares in any such subsidiary or holding company to be held for the benefit of employees of the Company, its subsidiaries, any holding company of the Company or any subsidiary of any such holding company (including salaried Directors).
– 185 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
There is no statutory restriction in the Cayman Islands on the provision of financial assistance by a company to another person for the purchase of, or subscription for, its own or its holding company’s shares. Accordingly, a company may provide financial assistance if the directors of the company consider, in discharging their duties of care and acting in good faith, for a proper purpose and in the interests of the company, that such assistance can properly be given. Such assistance should be on an arm’s-length basis.
(d) Purchase of shares and warrants by a company and its subsidiaries
Subject to the provisions of the Companies Law, a company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, issue shares which are to be redeemed or are liable to be redeemed at the option of the company or a shareholder. In addition, such a company may, if authorised to do so by its articles of association, purchase its own shares, including any redeemable shares. However, if the articles of association do not authorise the manner or purchase, a company cannot purchase any of its own shares unless the manner of purchase has first been authorised by an ordinary resolution of the company. At no time may a company redeem or purchase its shares unless they are fully paid. A company may not redeem or purchase any of its shares if, as a result of the redemption or purchase, there would no longer be any member of the company holding shares. A payment out of capital by a company for the redemption or purchase of its own shares is not lawful unless immediately following the date on which the payment is proposed to be made, the company shall be able to pay its debts as they fall due in the ordinary course of business.
A company is not prohibited from purchasing and may purchase its own warrants subject to and in accordance with the terms and conditions of the relevant warrant instrument or certificate. There is no requirement under Cayman Islands law that a company’s memorandum or articles of association contain a specific provision enabling such purchases and the directors of a company may rely upon the general power contained in its memorandum of association to buy and sell and deal in personal property of all kinds.
Under Cayman Islands law, a subsidiary may hold shares in its holding company and, in certain circumstances, may acquire such shares.
(e) Dividends and distributions
With the exception of section 34 of the Companies Law, there are no statutory provisions relating to the payment of dividends. Based upon English case law which is likely to be persuasive in the Cayman Islands, dividends may be paid only out of profits. In addition, section 34 of the Companies Law permits, subject to a solvency test and the provisions, if any, of the company’s memorandum and articles of association, the payment of dividends and distributions out of the share premium account (see paragraph 2(m), above for further details).
(f) Protection of minorities
The Cayman Islands courts ordinarily would be expected to follow English case law precedents which permit a minority shareholder to commence a class action against or derivative actions in the name of the company to challenge (a) an act which is ultra vires the company or illegal, (b) an act which constitutes a fraud against the minority and the
– 186 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
wrongdoers are themselves in control of the company, and (c) an irregularity in the passing of a resolution which requires a qualified (or special) majority.
In the case of a company (not being a bank) having a share capital divided into shares, the court may, on the application of members holding not less than one fifth of the shares of the company in issue, appoint an inspector to examine into the affairs of the company and to report thereon in such manner as the court shall direct.
Any shareholder of a company may petition the court which may make a winding up order if the court is of the opinion that it is just and equitable that the company should be wound up.
Generally claims against a company by its shareholders must be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by the Company’s memorandum and articles of association.
(g) Management
The Companies Law contains no specific restrictions on the power of directors to dispose of assets of a company, although it specifically requires that every officer of a company, which includes a director, managing director and secretary, in exercising his powers and discharging his duties must do so honestly and in good faith with a view to the best interests of the company and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
(h) Accounting and auditing requirements
A company shall cause proper records of accounts to be kept with respect to (i) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place; (ii) all sales and purchases of goods by the company; and (iii) the assets and liabilities of the company.
Proper books of account shall not be deemed to be kept if there are not kept such books as are necessary to give a true and fair view of the state of the Company’s affairs and to explain its transactions.
(i) Exchange control
There are no exchange control regulations or currency restrictions in the Cayman Islands.
(j) Taxation
Pursuant to section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, the Company has obtained an undertaking from the Governor-in-Council:
(1) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to the Company or its operations; and
– 187 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
(2) that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on the shares, debentures or other obligations of the Company.
The undertaking for the Company is for a period of twenty years from 16th July, 2002.
The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands save certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are not party to any double tax treaties.
(k) Stamp duty on transfers
No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands.
(l) Loans to directors
There is no express provision in the Companies Law prohibiting the making of loans by a company to any of its directors.
(m) Inspection of corporate records
Members of the Company will have no general right under the Companies Law to inspect or obtain copies of the register of members or corporate records of the Company. They will, however, have such rights as may be set out in the Company’s Articles.
An exempted company may, subject to the provisions of its articles of association, maintain its principal register of members and any branch registers at such locations, whether within or without the Cayman Islands, as the directors may, from time to time, think fit. There is no requirement under the Companies Law for an exempted company to make any returns of members to the Registrar of Companies in the Cayman Islands. The names and addresses of the members are, accordingly, not a matter of public record and are not available for public inspection.
(n) Winding up
A company may be wound up by either an order of the court or by a special resolution of its members. The court also has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable that such company be wound up.
A company may be wound up voluntarily when the members so resolve in general meeting by special resolution, or, in the case of a limited duration company, when the period fixed for the duration of the company by its memorandum expires, or the event occurs on the occurrence of which the memorandum provides that the company is to be
– 188 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
dissolved. In the case of a voluntary winding up, such company is obliged to cease to carry on its business from the time of passing the resolution for voluntary winding up or upon the expiry of the period or the occurrence of the event referred to above. Upon the appointment of a liquidator, the responsibility for the company’s affairs rests entirely in his hands and no future executive action may be carried out without his approval.
A company is placed in liquidation either by an order of the court or by a special resolution of its members. A liquidator is appointed whose duties are to collect the assets of the company (including the amount (if any) due from the contributories), settle the list of creditors and discharge the company’s liability to them, rateably if insufficient assets exist to discharge the liabilities in full, and to settle the list of contributories (shareholders) and divide the surplus assets (if any) amongst them in accordance with the rights attaching to the shares.
In the case of a members’ voluntary winding up of a company, the company in general meeting must appoint one or more liquidators for the purpose of winding up the affairs of the company and distributing its assets.
As soon as the affairs of the company are fully wound up, the liquidator must make up an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of, and thereupon call a general meeting of the company for the purposes of laying before it the account and giving an explanation thereof. This final general meeting shall be called by Public Notice or otherwise as the Registrar of Companies may direct.
For the purpose of conducting the proceedings in winding up a company and assisting the Court, there may be appointed one or more than one person to be called an official liquidator or official liquidator; and the Court may appoint to such office such person or persons, either provisionally or otherwise, as it thinks fit, and if more persons than one are appointed to such office, the Court shall declare whether any act hereby required or authorised to be done by the official liquidator is to be done by all or any one or more of given by an official liquidator on his appointment; if no official liquidator is appointed, or during any vacancy in such office, all the property of the company shall be in the custody of the Court.
(o) Reconstructions
There are statutory provisions which facilitate reconstructions and amalgamations approved by a majority in number representing seventy-five (75)% in value of shareholders or creditors, depending on the circumstances, as are present at a meeting called for such purpose and thereafter sanctioned by the Courts. Whilst a dissenting shareholder would have the right to express to the Court his view that the transactions for which approval is sought would not provide the shareholders with a fair value for their shares, the Courts are unlikely to disapprove the transactions on that ground alone in the absence of evidence of fraud or bad faith on behalf of management and if the transactions were approved and consummated the dissenting shareholder would have no rights comparable to the appraisal rights (i.e. the right to receive payment in cash for the judicially determined value of their shares) ordinarily available, for example, to dissenting shareholders of a United States corporation.
– 189 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
(p) Take-overs
Where an offer is made by a company for the shares of another company and, within four months of the offer, the holders of not less than ninety (90)% of the shares which are the subject of the offer accept, the offeror may at any time within two months after the expiration of the said four months, by notice require the dissenting shareholders to transfer their shares on the terms of the offer. A dissenting shareholder may apply to the Court of the Cayman Island within one month of the notice objecting to the transfer. The burden is on the dissenting shareholder to show that the Court should exercise its discretion, which it will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority shareholders.
(q) Indemnification
Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the court to be contrary to public policy (e.g. for purporting to provide indemnification against the consequences of committing a crime).
4. GENERAL
Conyers Dill & Pearman, Cayman, the Company’s special legal counsel on Cayman Islands law, have sent to the Company a letter of advice summarising certain aspects of Cayman Islands company law. This letter, together with a copy of the Companies Law (Revised), is available for inspection as referred to in the paragraph headed “Documents available for inspection” in Appendix VI to this prospectus. Any person wishing to have a detailed summary of Cayman Islands company law or advice on the differences between it and the laws of any jurisdiction with which he is more familiar is recommended to seek independent legal advice.
– 190 – APPENDIX V STATUTORY AND GENERAL INFORMATION
1. FURTHER INFORMATION ABOUT THE COMPANY
Incorporation
The Company was incorporated in the Cayman Islands under the Companies Law as an exempted company on 8th July, 2002. The Company has established a place of business in Hong Kong at Factory, A2, 1st Floor, Block 3, Golden Dragon Industrial Centre, 172-180 Tai Lin Pai Road, Kwai Chung, New Territories, Hong Kong and was registered on 8th August, 2002 as an oversea company in Hong Kong under Part XI of the Companies Ordinance. Such application contains a notice of appointment of Mr. Derek Tsang of Flat D, 7th Floor, Block 15, City One, Shatin, New Territories, Hong Kong and Mr. Edmond Lam of Flat B, 1st Floor, 20 Broadway, Mei Foo Sun Chuen, Kowloon, Hong Kong as the agents of the Company for the acceptance of service of process in Hong Kong. As the Company is incorporated in the Cayman Islands, its operations are subject to the Companies Law. A summary of certain parts of the constitution of the Company and certain aspects of the Companies Law are set out in Appendix IV to this prospectus.
Changes in Share Capital of the Company
As at the date of incorporation of the Company, its initial authorised share capital was HK$380,000 divided into 38,000,000 shares of par value HK$0.01 each, of which 1 subscriber share was issued fully paid to Codan Trust Company (Cayman) Limited and was transferred to Mr. Derek Tsang on 17th July, 2002.
Pursuant to a share exchange agreement dated 30th August, 2002 entered into by (i) China Win, as transferor; (ii) the Company as transferee; and (iii) Emerging Purity, Mr. Derek Tsang, Mr. Edmond Lam, Mrs. Lam and Mr. Stanley Sung as warrantors, in consideration of China Win transferring the entire issued share capital in Innovis (IB) Limited to the Company, the Company allotted and issued, credited as fully paid, 20,999,999 Shares to China Win. The one Share held by Mr. Derek Tsang was transferred to China Win on the same day.
On 6th June, 2003, the authorised share capital of the Company was increased from HK$380,000 to HK$100,000,000 divided into 10,000,000,000 shares of HK$0.01 each.
Immediately following completion of the Placing and the Capitalisation Issue, the authorised share capital of the Company will be HK$100,000,000 divided into 10,000,000,000 Shares of which 375,000,000 Shares will be allotted and issued fully paid or credited as fully paid, and 9,625,000,000 Shares will remain unissued. Other than pursuant to the exercise of any options granted under the Pre-IPO Share Option Scheme and may be granted under the Share Option Scheme, there is no present intention by the Company to issue any of the authorised but unissued share capital of the Company, and, without the prior approval of the members in general meeting no issue of Shares will be made after the completion of the Placing and the Capitalisation Issue which would effectively alter the control of the Company.
Save as disclosed herein, there has been no alteration in the share capital of the Company since its incorporation.
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Changes in share capital of the subsidiaries of the Company
The subsidiaries of the Company are listed in the accountants’ report set out in Appendix I to this prospectus.
The following alterations in the share capital of the Company’s subsidiaries have taken place within the two years preceding the date of this prospectus:
(a) On 2nd July, 2002, Innovis (IB) Limited (formerly known as Dynamic Power Resources International Ltd.) was incorporated in BVI with an authorised share capital of US$50,000 divided into 50,000 shares of US$1.00 each. On 25th July, 2002, one share was allotted and issued to Mr. Derek Tsang at par.
(b) On 3rd July, 2001, Innovis China Limited (formerly known as Weather Zone Co., Ltd.) was incorporated in BVI with limited liability with an authorised share capital of US$50,000 divided into 50,000 shares of US$1.00 each. On 3rd January, 2002, 100 shares were allotted and issued fully paid at par to Wah Lam.
(c) On 31st July, 2002, 29 shares, 10 shares, 45 shares and 15 shares in Innovis (IB) Limited were allotted and issued, credited as fully paid, to Mr. Derek Tsang, Mr. Niki Tsang, Mr. Edmond Lam and Wong Mau Fa respectively in consideration of the transfers by Mr. Derek Tsang, Mr. Niki Tsang, Mr. Edmond Lam and Wong Mau Fa of 98,000 shares, 32,666 shares, 147,000 shares and 49,000 shares respectively in Wah Lam to Innovis (IB) Limited.
Save as disclosed herein, there has been no alteration in the share capital of the subsidiaries of the Company in the two years preceding the date of this prospectus.
Written resolutions of all Shareholders dated 6th June, 2003
Pursuant to the written resolutions of all Shareholders dated 6th June, 2003:
(a) the authorised share capital of the Company was increased from HK$380,000 to HK$100,000,000 by the creation of additional 9,962,000,000 Shares;
(b) the Company approved and adopted the new memorandum of association and articles of association; and
(c) conditional on the GEM Listing Committee granting the listing of, and permission to deal in, the Shares in issue and the Shares to be issued (including any Shares which may be issued pursuant to the exercise of any options granted under the Pre-IPO Share Option Scheme or the Share Option Scheme), and the obligations of the Underwriters under the Underwriting and Placing Agreement becoming unconditional (including, if relevant, as a result of the waiver of any
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condition(s) by Masterlink (on its behalf and on behalf of the Underwriters)), and not being terminated in accordance with the terms thereof or otherwise:
(i) the Placing upon the terms set out in this prospectus was approved subject to such modification as may be decided by the Directors or any committee thereof duly appointed for such purpose and the Directors or any such committee were authorised to allot and issue Shares under the Placing pursuant thereto;
(ii) the rules of Pre-IPO Share Option Scheme were approved and adopted and the Directors were authorised to allot, issue and deal with the Shares pursuant to the exercise of options granted under the Pre-IPO Share Option Scheme and to take all such steps as they considered necessary or desirable to implement the Pre-IPO Share Option Scheme;
(iii) the rules of the Share Option Scheme were approved and adopted and the Directors were authorised to grant options to subscribe for Shares thereunder, and to allot, issue and deal wit the Shares pursuant to the exercise of any options which may be granted under the Share Option Scheme and to take all such steps as they considered necessary or desirable to implement the Share Option Scheme;
(iv) conditional on the share premium account of the Company being credited as a result of the Placing, HK$2,880,000 standing to the credit of the share premium account of the Company was directed to be capitalised and applied in paying up in full at par 288,000,000 Shares for allotment and issue to holders of Shares on the register of members at the close of business on 12th June, 2003 (or as they may direct) in proportion as nearly as may be to their then existing holding;
(v) the Directors were authorised to exercise during the Relevant Period (as defined under sub-paragraph (C) below) all the powers to allot, issue and deal with Shares or securities convertible into such Shares in the unissued share capital of the Company including all powers of the Company to establish any agreements or grant any options to do any of the foregoing, otherwise than by way of rights issue or any scrip dividend schemes or other similar arrangements providing for the allotment and issue of Shares in accordance with the articles of association or pursuant to the exercise of any subscription or conversion rights attaching to any warrants or any securities which are convertible into Shares in issue prior to the date of this resolution or pursuant to the exercise of any options granted or which may be granted under the Pre-IPO Share Option Scheme or the Share Option Scheme or any other option scheme, Shares with an aggregate nominal value not exceeding 20% of the total nominal value of the share capital of the Company in issue immediately after completion of the Placing and the Capitalisation Issue, such mandate to remain in effect until whichever is the earliest of:
(A) the conclusion of the next annual general meeting of the Company;
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(B) the expiration of the period within which the next annual general meeting of the Company is required by the articles of association of the Company or any applicable laws of the Cayman Islands to be held; or
(C) the passing of an ordinary resolution of the Shareholders in general meeting revoking or varying such mandate (the “Relevant Period”);
(vi) the Directors were authorised to exercise during the Relevant Period all powers of the Company to repurchase on GEM or on any other stock exchange on which the securities of the Company may be listed and which is recognised by the SFC and the Stock Exchange, subject to and in accordance with all applicable laws and/or requirements of the GEM Listing Rules or of any other stock exchange on which the securities of the Company may be listed as amended from time to time and which is recognised by the SFC and the Stock Exchange for this purpose, the aggregate nominal amount of Shares to be purchased by the Company not exceeding 10% of the total nominal amount of the share capital of the Company in issue immediately after completion of the Placing and the Capitalisation Issue; and
(vii) the general unconditional mandate mentioned in paragraph (vi) above was extended by the addition thereto of the aggregate nominal value of the share capital of the Company which may be allotted and issued or agreed conditionally or unconditionally to be allotted and issued by the Directors pursuant to such general mandate of an amount representing the aggregate nominal value of the share capital of the Company repurchased by the Company pursuant to the mandate to repurchase Shares referred to in paragraph (vii) above provided that such extended amount shall not exceed 10% of the total nominal value of the share capital of the Company in issue immediately after completion of the Placing and the Capitalisation Issue.
2. REORGANISATION
The companies comprising the Group underwent a reorganisation in preparation for the listing of the Shares on GEM as a result of which, the Company became the holding company of the Group. The reorganisation involved the following:–
(a) On 18th July, 2002, pursuant to a distribution (in specie), Wah Lam transferred a total of 120,000 shares held by it in Wah Lam Building Materials Limited, representing 60% of its issued share capital, to its then shareholders as to 54,000 shares, 36,000 shares, 18,000 shares and 12,000 shares to Mr. Edmond Lam, Mr. Derek Tsang, Mrs. Lam and Mr. Niki Tsang respectively.
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(b) On 31st July, 2002, Mr. Derek Tsang transferred 98,000 shares, Mr. Edmond Lam transferred 147,000 shares, Mr. Niki Tsang transferred 32,666 shares and Mrs. Lam transferred 49,000 shares of HK$1.00 each in Wah Lam to Innovis (IB) Limited, such shares representing 100% of the entire issued share capital of Wah Lam. In consideration of the above transfers, Innovis (IB) Limited allotted and issued, credited as fully paid, 29 shares to Mr. Derek Tsang, 45 shares to Mr. Edmond Lam, 10 shares to Mr. Niki Tsang and 15 shares to Mrs. Lam.
(c) By an instrument of transfer effective on 31st July, 2002, Innovis (IB) Limited transferred one share of HK$1.00 each in Wah Lam to Mr. Derek Tsang at nil consideration which one share was held by Mr. Derek Tsang on trust for Innovis (IB) Limited.
(d) On 5th August, 2002, in consideration of HK$300,000, Mr. Niki Tsang transferred 10 shares in Innovis (IB) Limited to Mr. Derek Tsang.
(e) On 6th August, 2002, in consideration of China Win allotting and issuing 4,000 shares to Mr. Derek Tsang, 4,500 shares to Mr. Edmond Lam and 1,500 shares to Ms. Wong Mau Fa in the capital of China Win, all credited as fully paid, Mr. Derek Tsang transferred 40 shares, Mr. Edmond Lam transferred 45 shares and Ms. Wong Mau Fa transferred 15 shares in Innovis (IB) Limited, which represented the entire issued share capital in Innovis (IB) Limited, to China Win.
(f) On 6th August, 2002, in consideration of HK$192,300, Mrs. Lam transferred 641 shares in China Win to Mr. Derek Tsang.
(g) On 6th August, 2002, in consideration of HK$43,500, Mrs. Lam transferred 145 shares in China Win to Mr. Edmond Lam.
(h) On 6th August, 2002, in consideration of HK$107,100, Mrs. Lam transferred 357 shares in China Win to Mr. Stanley Sung.
(i) On 30th August, 2002, pursuant to a share exchange agreement, in consideration of China Win transferring 100 shares, being the entire issued share capital in Innovis (IB) Limited, the Company allotted and issued, credited as fully paid, 20,999,999 Shares to China Win. Mr. Derek Tsang transferred the one Share held by him to China Win at par on the same day.
(j) On 6th December 2002, in consideration of HK$2,639,728, China Win transferred 1,346,800 Shares to China Enterprise.
(k) On 19th December, 2002, in consideration of US$100, Wah Lam transferred 100 shares, representing 100% of the entire issued share capital in Innovis China Limited to Innovis (IB) Limited.
(l) On 6th June, 2003, pursuant to a supplemental deed made between China Win and China Enterprise, China Enterprise transferred 120,400 Shares and paid HK$518,252 to China Win, such that after completion of the Placing and the Capitalisation Issue, China Enterprise will be interested in approximately 4.81% of the issued share capital of the Company.
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(m) On 9th June, 2003, pursuant to the Share Transfer Agreement (as supplemented by a supplemental agreement dated 9th June, 2003), in consideration for Delight Resources agreeing to use its reasonable endeavours to introduce potential clients to the Company, China Win transferred 1,272,600 Shares to Delight Resources.
3. REPURCHASE BY THE COMPANY OF ITS OWN SECURITIES
This section includes information required by the Stock Exchange to be included in this prospectus concerning the repurchase by the Company of its own securities.
(a) The GEM Listing Rules
The GEM Listing Rules permit companies listed on GEM to repurchase in cash their securities on GEM subject to certain restrictions, the most important of which are summarised below:–
(i) Shareholders’ approval
All repurchases on GEM by a company with a listing on GEM must be approved in advance by an ordinary resolution of the Shareholders, either by way of general mandate or by specific approval in relation to a particular transactions, which may be by way of general mandate, or by special resolution in relation to specific transactions.
Note: By a written resolution of all Shareholders dated 6th June, 2003 a general unconditional mandate (the “repurchase mandate”) was given to the Directors authorising the Directors to exercise all powers of the Company (including the power to determine the manner of repurchase) to repurchase on GEM or any other stock exchange recognised by the Securities and Futures Commission and the Stock Exchange for this purpose, such number of securities as will represent up to 10% of the aggregate nominal amount of the share capital of the Company in issue immediately following completion of the Placing at any time until the next annual general meeting of the Company or until such mandate is revoked or varied earlier by an ordinary resolution of the Shareholders in a general meeting of the Company or at the time when the next annual general meeting of the Company is required by the applicable law or the articles of association of the Company to be held, whichever is the earliest.
(ii) Sources of funds
Repurchases must be funded out of funds legally available for such purpose in accordance with the articles of association of the Company and the laws of the Cayman Islands. A listed company is prohibited from repurchasing its own securities on GEM for a consideration other than cash or for settlement otherwise than in accordance with the trading rules of GEM from time to time.
(iii) Trading restrictions
The total number of securities which the Company is authorised to repurchase on the Stock Exchange are securities representing up to a maximum of 10% of the issued share capital in the Company in issue immediately following completion of the Placing and the Capitalisation Issue. The Company may not issue or announce an issue of new securities for a period of 30 days immediately following a securities repurchase (except pursuant to the exercise of warrants, share options or similar instruments requiring the Company to issue securities which are outstanding prior to such repurchase) without the approval of the Stock Exchange. The GEM Listing
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Rules prohibit a company from repurchasing its securities on GEM if the repurchase would result in the number of listed securities which are in the hands of the public falling below the relevant prescribed minimum percentage as required by the Stock Exchange from time to time.
(iv) Status of repurchased shares
The GEM Listing Rules provide that the listing of all repurchased securities is automatically cancelled upon the repurchase and the certificates for those securities must be cancelled and destroyed as soon as reasonably practicable. Under the Cayman Islands law, all repurchased shares will remain part of the authorised but unissued share capital of the Company.
(v) Suspension of repurchase
The GEM Listing Rules prohibit any repurchase of securities after a price- sensitive development has occurred or has been the subject of a decision until the price sensitive information has been publicly announced. In particular, during the period of one month immediately preceding either the preliminary announcement of the Company’s annual results or the publication of the Company’s half-year report or quarterly report, the Company may not repurchase securities on GEM, unless the circumstances are exceptional. In addition, the Stock Exchange reserves the right to prohibit repurchases of securities on GEM if the Company has breached the GEM Listing Rules.
(vi) Reporting Requirements
Under the GEM Listing Rules, repurchases of securities on GEM or otherwise must be reported to the Stock Exchange not later than 30 minutes before the earlier of the commencement of the morning trading session or any pre-opening session on the following business day. In addition, the Company is required to disclose in its annual report details regarding repurchases of securities made during the year, including the number of securities repurchased and the aggregate prices paid. The Company shall procure that any broker appointed by it to effect the repurchases of securities shall disclose to the Stock Exchange such information with respect to repurchases made on behalf of the Company as the Stock Exchange may request.
(vii) Connected parties
A company is prohibited from knowingly repurchasing securities of the Company on GEM from a “connected person”, that is, a director, a chief executive, a substantial shareholder or a management shareholder of the Company or any of its subsidiaries or their respective associates (as defined in the GEM Listing Rules). A connected person is prohibited from knowingly selling his securities to the Company.
(b) Exercise of the repurchase mandate
Exercise in full of the repurchase mandate, on the basis of 375,000,000 Shares in issue immediately following the listing of Shares could accordingly result in up to 37,500,000 Shares being repurchased by the Company during the period from the passing of such resolution up to: (i) the next annual general meeting of the Company; or (ii) the expiration of the period within which the next annual general meeting of the Company is – 197 – APPENDIX V STATUTORY AND GENERAL INFORMATION
required, by the Companies Law or the articles of association of the Company, to be held; or (iii) when revoked or varied by an ordinary resolution of the Shareholders in a general meeting of the Company, whichever is the earliest.
(c) Reasons for repurchases
The Directors believe that it is in the best interests of the Company and the Shareholders for the Directors to have a general authority from the Shareholders to enable the Directors to repurchase Shares on GEM. Repurchases of Shares will only be made if the Directors believe that such repurchases will benefit the Company and the Shareholders. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net value of the Company and its assets and/or its earnings per Share.
(d) Funding of repurchases
In repurchasing securities, the Company may only apply funds legally available for such purpose in accordance with its memorandum and articles of association, the GEM Listing Rules and the applicable laws of the Cayman Islands.
There might be a material adverse impact on the working capital or gearing position of the Company (as compared with the position to be disclosed in this prospectus) in the event that the repurchase mandate is exercised in full. However, the Directors do not propose to exercise the repurchase mandate to such an extent as would, in the circumstances, have a material adverse effect on the working capital requirements of the Company or the gearing levels which in the opinion of the Directors are from time to time appropriate for the Company.
(e) General
None of the Directors nor, to the best of their knowledge having made all reasonable enquiries, any of their associates has any present intention to sell Shares to the Company or its subsidiaries if the repurchase mandate is exercised.
The Directors have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the repurchase mandate in accordance with the articles of association of the Company, the GEM Listing Rules and the applicable laws of the Cayman Islands.
No connected person (as defined in the GEM Listing Rules) has notified the Company that he has a present intention to sell Shares to the Company, or has undertaken not to do so, in the event that the repurchase mandate is exercised.
If, as a result of a repurchase of Shares, a Shareholder’s proportionate interest in the voting rights of the Company increases, such increase will be treated as an acquisition for the purposes of the Hong Kong Code on Takeovers and Mergers (the “Takeovers Code”). As a result, a Shareholder or group of Shareholders acting in concert, depending on the level of increase in the Shareholder’s interests, could obtain or consolidate control of the Company and may become obliged to make a mandatory offer in accordance with Rule 26 of the Takeovers Code. Save as aforesaid, the Directors are not aware of any consequences that would arise under the Takeovers Code as a result of any repurchases pursuant to the repurchase mandate. Such an increase would however mean that the total amount of the share capital of
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the Company in public hands would be reduced to less than the relevant prescribed minimum percentage for the Company and this would only be permitted if the Stock Exchange agrees to waive the dealing restriction regarding the percentage of public shareholding referred to under paragraph (a)(iii) above. It is believed that a waiver of this provision would not normally be given other than in exceptional circumstances.
No repurchases of Shares have been made by the Company during the last six months (whether on GEM or otherwise) immediately prior to the date of this prospectus.
4. FURTHER INFORMATION ABOUT THE BUSINESS
Summary of material contracts
The following contracts (not being contracts in the ordinary course of business) have been entered into by the Company or its subsidiaries within the two years immediately preceding the date of this prospectus and are or may be material:–
(i) an instrument of transfer and bought and sold notes all dated 18th July, 2002 made between Wah Lam and Mr. Derek Tsang regarding the transfer of 36,000 shares in Wah Lam Building Materials Limited from Wah Lam to Mr. Derek Tsang pursuant to the distribution (in specie) of the shares by Wah Lam in Wah Lam Building Materials Limited;
(ii) an instrument of transfer and bought and sold notes all dated 18th July, 2002 made between Wah Lam and Mr. Edmond Lam regarding the transfer of 54,000 shares in Wah Lam Building Materials Limited from Wah Lam to Mr. Edmond Lam pursuant to the distribution (in specie) of the shares by Wah Lam in Wah Lam Building Materials Limited;
(iii) an instrument of transfer and bought and sold notes all dated 18th July, 2002 made between Wah Lam and Mr. Niki Tsang regarding the transfer of 12,000 shares in Wah Lam Building Materials Limited from Wah Lam to Mr. Niki Tsang pursuant to the distribution (in specie) of the shares by Wah Lam in Wah Lam Building Materials Limited;
(iv) an instrument of transfer and bought and sold notes all dated 18th July, 2002 made between Wah Lam and Mrs. Lam regarding the transfer of 18,000 shares in Wah Lam Building Materials Limited from Wah Lam to Mrs. Lam pursuant to the distribution (in specie) of the shares by Wah Lam in Wah Lam Building Materials Limited;
(v) an instrument of transfer and bought and sold notes all dated 31st July, 2002 made between Mr. Derek Tsang and Dynamic Power Resources International Ltd. (presently known as Innovis (IB) Limited) (“Innovis (IB)”) whereby in consideration of the allotment and issue of 29 shares of US$1.00 each in Innovis IB, credited as fully paid by Innovis IB to Mr. Derek Tsang, Mr. Derek Tsang transferred 98,000 shares held by him in Wah Lam to Innovis (IB);
(vi) an instrument of transfer and bought and sold notes all dated 31st July, 2002 made between Mr. Edmond Lam and Innovis (IB) whereby in consideration of the allotment and issue of 45 shares of US$1.00 each in Innovis IB, credited as fully paid by Innovis IB to Mr. Edmond Lam, Mr. Edmond Lam transferred 147,000 shares held by him in Wah Lam to Innovis (IB);
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(vii) an instrument of transfer and bought and sold notes all dated 31st July, 2002 made between Mr. Niki Tsang and Innovis (IB) whereby in consideration of the allotment and issue of 10 shares of US$1.00 each in Innovis IB, credited as fully paid by Innovis IB to Mr. Niki Tsang, Mr. Niki Tsang transferred 32,666 shares held by him in Wah Lam to Innovis (IB);
(viii) an instrument of transfer and bought and sold notes all dated 31st July, 2002 made between Mrs. Lam and Innovis (IB) whereby in consideration of the allotment and issue of 15 shares of US$1.00 each in Innovis IB, credited as fully paid by Innovis IB to Mrs. Lam, Mrs. Lam transferred 49,000 shares held by her in Wah Lam to Innovis (IB);
(ix) an instrument of transfer which is deemed to be dated 31st July, 2002 made between Innovis (IB) Limited and Mr. Derek Tsang pursuant to which in nil consideration Innovis (IB) Limited transferred one share held by it in Wah Lam to Mr. Derek Tsang (Mr. Derek Tsang is holding the one share on trust for Innovis (IB) Limited);
(x) a share exchange agreement dated 30th August, 2002 entered into by (a) China Win as transferor (b) the Company as transferee and (c) Emerging Purity, Mr. Derek Tsang, Mr. Edmond Lam, Mrs. Lam and Mr. Stanley Sung as warrantors pursuant to which, in consideration of China Win transferring 100 shares of US$1.00 each, being the entire issued share capital in Innovis (IB) Limited to the Company, the Company will allot and issue credited as fully paid 20,999,999 Shares to China Win;
(xi) an instrument of transfer dated 30th August, 2002 made between China Win and the Company effecting the transfer of 100 shares, being the entire issued share capital in Innovis (IB) from China Win to the Company pursuant to the share exchange agreement mentioned in paragraph (x) above;
(xii) a share transfer agreement dated 11th December 2002 entered into by (1) China Win as transferor; (2) Delight Resources as transferee; and (3) the Company pursuant to which in consideration of Delight Resources agreeing to use its reasonable endeavours to introduce potential clients to the Company, China Win agrees to transfer 1,397,200 Shares to Delight Resources and the Company agrees to allot and issue 12,574,800 Shares to Delight Resources credited as fully paid pursuant to the Capitalisation Issue;
(xiii) a supplemental agreement dated 9th June, 2003 entered into by (1) China Win; (2) Delight Resources; and (3) the Company pursuant to which the number of Shares to be transferred by China Win to Delight Resources have been reduced from 1,397,200 to 1,272,600 due to the change of structure of the Placing;
(xiv) a deed of non-competition dated 13th June, 2003 made between Han Yao, Wah Lam Building Materials Limited, Mr. Derek Tsang, Mr. Edmond Lam, Mrs. Lam, Mr. Niki Tsang and the Company, brief particulars of which are set out in the paragraph headed “Competing businesses of the Directors, Initial Management Shareholders and Substantial Shareholders” under the section headed “General Overview of the Group and its Business” in this prospectus;
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(xv) the Deed of Indemnity;
(xvi) the sponsor’s agreement dated 13th June, 2003 entered into between the Company and MasterLink; and
(xvii) the Underwriting Agreement.
Intellectual property rights
The Group has applied for registration of the following trademarks in Hong Kong:
Trademark Class Application No. Date of Application
42 (Note 1) 2002 09300 20th June, 2002 9 (Note 2) 2002 09301 20th June, 2002
Notes:
1. The services covered under this application in Class 42 are industrial design; material testing; surveying; computer programming; mechanical research; calibration (measuring); computer software design; quality control; research and development (for others); styling (industrial design); design services.
2. The goods covered under this application in Class 9 are scientific, surveying, electric, photographic, cinematographic, optical, weighing, measuring, signalling, checking (supervision) and teaching apparatus and instruments; apparatus and instruments for recording, receiving, transmitting and/ or reproducing data, information, pictures, images and/or sound; apparatus and instruments for displaying and/or printing out data, information, pictures and/or images; magnetic data carriers, recording discs; automatic vending machines.
The Group has registered the following domain name:
Domain Name Registration Date Expiry Date
www.innovis.com.hk 22nd May, 2002 22nd May, 2004
5. FURTHER INFORMATION ABOUT DIRECTORS AND EXPERTS
Interests or short positions of the Directors in the shares, underlying shares and debentures of the Company or any associated corporations immediately following completion of the Placing and the Capitalisation Issue
Immediately following completion of the Placing and the Capitalisation Issue (assuming the options granted under the Pre-IPO Share Option Scheme and the options that may be granted under the Share Option Scheme are not exercised) the beneficial interests of the Directors in the Shares, underlying shares or debentures of the Company or any associated corporation (within the meaning of Part XV of the Securities and Futures Ordinance) which will have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and
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8 of Part XV of the Securities and Futures Ordinance (including interests and short positions which they are taken or deemed to have taken under such provisions of Part XV of the Securities and Futures Ordinance once the Shares are listed on GEM, or will be required, pursuant to Section 352 of the Securities and Futures Ordinance, to be entered in the register referred to therein, once the Shares are listed on GEM, or will be required pursuant to Rules 5.40 to 5.58 of the GEM Listing Rules relating to securities transactions by the Directors to be notified to the Company and the Stock Exchange once the Shares are listed on GEM, will be as follows:–
(a) Long positions in Shares and in underlying Shares of equity derivatives
Approximate Type of Number of percentage of Name of Directors interests Securities interests
Mr. Edmond Lam Corporate 211,229,000 Shares 56.33% (Note 1) Mr. Derek Tsang Corporate 211,229,000 Shares 56.33% (Note, 1) Family Option to subscribe for 1.50% 5,625,000 Shares (Note 2) Mrs. Lam Corporate and 211,229,000 Shares 56.33% family (Note 3) Mr. Stanley Sung Corporate 7,540,875 Shares 2.01% (Note 4)
Notes:
1. These Shares are legally owned by China Win, which is ultimately beneficially owned by Emerging Purity, Mr. Derek Tsang, Mrs. Lam and Mr. Stanley Sung as to 46.45%, 46.41%, 3.57% and 3.57% respectively. Emerging Purity is then 100% beneficially owned by Mr. Edmond Lam.
Since each of Mr. Edmond Lam and Mr. Derek Tsang is interested more than one-third of the voting rights of China Win, each of them is taken to be interested in all the Shares held by China Win pursuant to Part XV of the Securities and Futures Ordinance.
2. Such Shares are subject to an option granted under the Pre-IPO Share Option Scheme held by Ms. Sung Sau Fan, the spouse of Mr. Derek Tsang. Accordingly, Mr. Derek Tsang is taken to be interested in these Shares pursuant to Part XV of the Securities and Futures Ordinance.
3. Mrs. Lam is the spouse of Mr. Edmond Lam and she is taken to be interested in these Shares pursuant to Part XV of the Securities and Futures Ordinance.
4. These Shares represent attributable number of Shares held by Mr. Stanley Sung through his 3.57% equity interest in China Win.
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(b) Short positions in Shares and underlying Shares of equity derivatives
None of the Directors has short positions in Shares or underlying Shares of equity derivatives immediately following completion of the Placing and the Capitalisation Issue.
Persons who have an interest or a short position which is discloseable under Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance and Substantial Shareholding
Immediately following completion of the Placing and the Capitalisation Issue (assuming the options granted under the Pre-IPO Share Option Scheme and options that may be granted under the Share Option Scheme are not exercised, or any Shares which may fall to be allotted or issued or repurchased by the Company pursuant to the mandates referred to in the section headed “Further information about the Company” in this Appendix), so far as is known to the Directors, the following persons will have an interest or short position in the Shares or underlying Shares which would fall to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance or be interested in, directly or indirectly, 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group:–
(a) Long positions in Shares
Approximate Number of Nature of percentage of Name Shares interests interests
China Win (Note 1) 211,229,000 Corporate 56.33% Mr. Edmond Lam (Note 2) 211,229,000 Corporate 56.33% Emerging Purity (Note 2) 211,229,000 Corporate 56.33% Mr. Derek Tsang (Note 3) 211,229,000 Corporate 56.33% Mrs. Lam (Note 4) 211,229,000 Family and 56.33% Corporate Ms. Sung Sau Fan (Note 5) 211,229,000 Family and 56.33% Corporate
Notes:
1. China Win is a company incorporated in the BVI and is beneficially owned by Emerging Purity, Mr. Derek Tsang, Mrs. Lam and Mr. Stanley Sung as to 46.45%, 46.41%, 3.57% and 3.57% respectively. Emerging Purity is then 100% beneficially owned by Mr. Edmond Lam. Under the GEM Listing Rules, each of Emerging Purity, Mr. Edmond Lam and Mr. Derek Tsang is a Substantial Shareholder.
2. Since Mr. Edmond Lam is the 100% registered and beneficial owner of Emerging Purity and Emerging Purity is beneficial owner of 46.45% interest in China Win, both Mr. Edmond Lam and Emerging Purity are taken to be interested in the Shares held by China Win pursuant to Part XV of the Securities and Futures Ordinance.
3. Since Mr. Derek Tsang is beneficial owner of 46.41% interest in China Win, he is taken to be interested in the Shares held by China Win pursuant to Part XV of the Securities and Futures Ordinance.
4. Mrs. Lam is the wife of Mr. Edmond Lam and she is taken to be interested in the Shares held by Mr. Edmond Lam pursuant to Part XV of the Securities and Futures Ordinance.
5. Ms. Sung Sau Fan is the wife of Mr. Derek Tsang and she is taken to be interested in the Shares held by Mr. Derek Tsang pursuant to Part XV of the Securities and Futures Ordinance.
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(b) Long positions in underlying Shares of equity derivatives
Number and Number of Nature of description of Underlying Name Interest equity derivatives Shares
Mr. Derek Tsang Family (Note) Share option to subscribe 5,625,000 for 5,625,000 Shares pursuant to the Pre-IPO Share Option Scheme
Sung Sau Fan Personal Share option to subscribe 5,625,000 for 5,625,000 Shares pursuant to the Pre-IPO Share Option Scheme
Note: Since Mr. Derek Tsang is the husband of Sung Sau Fan, he is taken to be interested in the share option pursuant to Part XV of the Securities and Futures Ordinance.
(c) Short positions in Shares and underlying Shares and equity derivatives
So far as the Directors are aware, no persons have short positions in Shares or underlying Shares of equity derivatives.
Particulars of service contracts
Each of the executive Directors has entered into a service agreement (the “Service Agreement”) with the Company for a fixed term of three years from the date of the listing of the Shares on the Stock Exchange, and will continue thereafter until terminated by either party giving to the other not less than two months’ prior notice in writing, or otherwise in accordance with its terms.
Pursuant to the Service Agreements, the executive Directors together are entitled to a total monthly salary of HK$76,000. Each of the executive Directors in respect of each calendar year of service is entitled to a fixed sum bonus equal to one month’s salary plus a discretionary bonus in respect of each financial year to be determined by the board of Directors in its absolute discretion provided that the aggregate amount of discretionary bonuses payable to all the Directors in respect of any financial year shall not exceed 8% of the consolidated net profits of the Company after taxation and minority interests but before extraordinary items of the relevant financial year.
Pursuant to his service agreement, Mr. Derek Tsang is entitled to special allowance of not more than HK$30,000 per month. Each executive Director is entitled to reimbursement of all reasonable out of pocket expenses and all the benefits under any employee benefit plan adopted or to be adopted by the Company or its subsidiaries.
The Company shall be responsible for the income tax payable by Mr. Stanley Sung in respect of his income earned under his service agreement.
– 204 – APPENDIX V STATUTORY AND GENERAL INFORMATION
Directors’ remuneration
During the financial year ended 31st December, 2002, the aggregate of the remuneration paid and benefits in kind granted to the Directors by the Group including pension scheme contributions were approximately HK$1,102,000.
Under the present arrangement, the aggregate of the fees and remuneration paid or payable to, and benefits in kind received or receivable by, the executive Directors, non- executive Directors and independent non-executive Directors for the year ending 31st December, 2003 are estimated to be approximately HK$1,568,000, HK$57,000 and HK$76,000 respectively.
Save as disclosed herein, none of the Directors has entered into any service contract with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation other than statutory compensation).
Policy concerning Directors’ remuneration
The Company’s policies concerning remuneration of the executive Directors are as follows:
(a) the amount of remuneration shall be determined in accordance with the relevant experience of the executive Director, his contribution and responsibilities in the Group;
(b) non-cash benefits may be provided to the executive Directors under their remuneration package; and
(c) the executive Directors may be entitled to share options under the Share Option Scheme.
Agency fees or commissions received
The Underwriters will receive an underwriting commission. The Sponsor will receive a financial advisory fee and a documentation fee as mentioned in the paragraph headed “Underwriting arrangement and expenses” in the section headed “Underwriting” of this prospectus.
Save as disclosed herein, no commissions, discounts, brokerages or other special terms have been granted within the two-year period immediately preceding the date of this prospectus in connection with the issue or sale of any capital of any member of the Group.
Sponsor’s agreement
The Sponsor has entered into a sponsor’s agreement (which is a material contract as referred to in the paragraph headed “Material contracts” under the section headed “Summary of material contracts” in this Appendix) with the Company in compliance with the requirements of the GEM Listing Rules and will charge a normal sponsor’s fee for its services provided thereunder.
– 205 – APPENDIX V STATUTORY AND GENERAL INFORMATION
Disclaimers
Save as disclosed in this prospectus:
(a) none of the Directors or chief executive of the Company has any interest or short position in the shares, underlying shares or debentures of the Company or any associated corporation (within the meaning of the Securities and Futures Ordinance) which will have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the Securities and Futures Ordinance or which will be required, pursuant to section 352 of the Securities and Futures Ordinance, to be entered in the register referred to therein or which will be required, pursuant to Rules 5.40 to 5.58 of the GEM Listing Rules relating to securities transactions by Directors, to be notified to the Company and the Stock Exchange once the Shares are listed;
(b) save as disclosed in the paragraph headed “Particulars of service contracts” above, there are no existing or proposed service contracts (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)) between the Directors and any member of the Group;
(c) none of the Directors or the experts named in the paragraph headed “Qualifications of experts” under the section headed “Other information” in this Appendix has any direct or indirect interest in the promotion of, or in any assets which have been, within the two years immediately preceding the date of this prospectus, acquired or disposed of by or leased to, any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group;
(d) none of the Directors is materially interested in any contract or arrangement subsisting as at the date of this prospectus which is significant in relation to the business of the Group taken as a whole;
(e) taking no account of Shares which may be taken up under the Placing, none of the Directors knows of any person (not being a Director or chief executive of the Company) who will, immediately following completion of the Placing and the Capitalisation Issue, have an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance or be interested, directly or indirectly, in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group; and
(f) none of the experts named in the paragraph headed “Qualifications of experts” under the section headed “Other information” in this Appendix has any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group or is an officer or servant, or in the employment of an officer or servant of the Group.
– 206 – APPENDIX V STATUTORY AND GENERAL INFORMATION
6. PRE-IPO SHARE OPTION SCHEME
The purpose of the Pre-IPO Share Option Scheme is to recognise the past contribution of certain employees of the Group and to provide incentives to them to retain their services and expertise for the long term success of Group. All of the grantees under the Pre-IPO Share Option Scheme, who are currently the senior management of the Group, have been with the Group for over 2 years and have contributed to the success of the Group in the past. The principal terms of the Pre-IPO Share Option Scheme, conditionally approved by the written resolutions of all Shareholders (which is still subject to certain conditions similar to those referred to under the Share Option Scheme) are substantially the same as the terms of the Share Option Scheme, except that:
(a) the exercise price of HK$0.125 for each Share represents 50% of the Placing Price;
(b) upon full exercise of the options granted under the Pre-IPO Share Option Scheme, the total number of Shares to be issued is 18,750,000, representing 5% of the issued share capital of the Company immediately after completion of the Placing, but taking no account of any Shares which may fall to be allotted and issued pursuant to the exercise of the option that may be granted under the Share Option Scheme, or any Shares which may be allotted and issued or repurchased by the Company pursuant to the general mandates for the allotment and issue or repurchase of Shares; and
(c) save for the options which have been granted under the Pre-IPO Share Option Scheme in respect of 18,750,000 Shares (as set out below), no further options will be offered or granted under the Pre-IPO Share Option Scheme (including cancelled options which cannot be re-granted), as the right to do so has been terminated on the day on which the bulk print of this prospectus had taken place.
Particulars of the grantees under the Pre-IPO Share Option Scheme are as follows:
Number of Shares subject Approximate to options percentage of granted under issued share the Pre-IPO capital of the Name of Position of Years of Share Option Company as at Grantee Grantee service Address Scheme the Listing Date
Cheung Wah Project 7 years Room 3706, 1,875,000 0.5% Cheuk Manager Hiu Fai Home, Hiu Fai Court, Kowloon, Hong Kong.
Siu Ngai Chuen Research and 5 years Flat F, 5th Floor, 3,750,000 1.0% Development Block 4, Manager Cascades, 93 Chung Hau Street, Homantin, Kowloon, Hong Kong.
– 207 – APPENDIX V STATUTORY AND GENERAL INFORMATION
Number of Shares subject Approximate to options percentage of granted under issued share the Pre-IPO capital of the Name of Position of Years of Share Option Company as at Grantee Grantee service Address Scheme the Listing Date
* Sung Sau Fan Human 9 years Flat D, 7th Floor, 5,625,000 1.50% Resources and Block 15, Administration City One Shatin, Manager New Territories, Hong Kong.
Tang Wing Lun Sales and 3.5 years Room 311, 1,875,000 0.5% Marketing Shing Yuk House, Manager Tin Shing Court, Tin Shui Wai, New Territories, Hong Kong.
Yeung Wai Purchasing 2.5 years Room 2903, 1,875,000 0.5% Ching Manager Shing Yuk House, Tin Shing Court, Tin Shui Wai, New Territories.
Ng Kong System 3 years Room 3417, 3,750,000 1.0% Designer Tung Lam Court, 63 Yiu Hing Road, Sai Wan Ho, Hong Kong.
Total: 18,750,000 5.0%
* Note: Ms. Sung Sau Fan is the wife of Mr. Derek Tsang.
The above options granted under the Pre-IPO Share Option Scheme will, in respect of not more than 30% thereof, be exercisable 12 months after the date of grant on 7th June, 2003, in respect of a further 30% thereof, be exercisable 24 months after the date of grant, and in respect of the remaining 40% thereof, be exercisable 36 months after the date of grant. No options may be exercisable on or after the 10th anniversary of the date of grant.
Each of the grantees is granted the share options under the Pre-IPO Share Option Scheme in recognition of his/her past contributions to the Group.
Save as disclosed above, no options have been granted or agreed to be granted by the Company under the Pre-IPO Share Option Scheme.
– 208 – APPENDIX V STATUTORY AND GENERAL INFORMATION
7. SHARE OPTION SCHEME
The following is a summary of the principal terms of the Share Option Scheme:
Purpose of the Share Option Scheme
The purpose of the Share Option Scheme is to advance the interests of the Company and the Shareholders by providing to Eligible Persons (as defined below) a performance incentive for continued and improved services with the Group with a view to increasing the Group’s profits and by encouraging capital contribution and share ownership.
Who may join
The Board or a duly authorised committee of the Board, including the two independent non-executive Directors (the “Committee”) may, at its discretion, invite any of the Eligible Persons (as defined below) to take up options to subscribe for Shares under the Share Option Scheme:
For the purpose of this section, Eligible persons shall mean:
(a) any full time employee or director of any member of the Group;
(b) any part time employee of any member of the Group who has spent not less than 10 hours per week in providing services to such member of the Group, determined by averaging our the total number of hours so spent in a period of four weeks immediately preceding the week in which a grant of an option is offered to such part time employee; or
(c) any consultant or adviser of or to any member of the Group who has provided technical know-how and/or professional services and/or consultancy services to such member of the Group in accordance with the terms of a contractual relationship entered into between the consultant or adviser with such member of the Group.
Upon acceptance of the option, the grantee of an option must pay HK$1.00 to the Company by way of consideration for the grant thereof.
Grant of Option
The Committee shall, during the life of the Share Option Scheme, at the absolute discretion and on and subject to such terms and conditions as it may think fit to offer to grant on one or more occasions to any Eligible Person as the Committee may in its absolute discretion think fit. No option shall be granted to any Eligible Person after a price sensitive development has occurred or a price sensitive matter has been the subject of a decision, in particular (i) within the period of one month preceding the date of publication of the interim results or quarterly results or (ii) within the period of one month preceding the date of the preliminary announcement of the final results of the Group for any financial year or (iii) during a general offer or an imminent general offer, until such price sensitive information has been announced pursuant to the requirements of the GEM Listing Rules.
– 209 – APPENDIX V STATUTORY AND GENERAL INFORMATION
Any grant of an option to a Connected Person (as defined in the GEM Listing Rules) or its associates shall be approved by the independent non-executive Directors (excluding any independent non-executive Director who is the grantee of such options). Where options are proposed to be granted to a Connected Person of the Company who is also a substantial shareholder (as defined in the GEM Listing Rules) or an independent non-executive Director or any of their respective associates and the proposed grant of options, when aggregated with the options (whether exercised, cancelled, outstanding or granted (whether or not cancelled) under the Share Option Schemes) already granted to that Connected Person in the preceding 12-month period, would entitle them to receive more than 0.1 percent of the total issued Shares for the time being and the value of which by reference to the closing price of Shares at the date of such grant is in excess of HK$5 million, then the proposed grant must be subject to the approval of the Shareholders taken on a poll in general meeting. For the purpose of the general meeting, all Connected Persons of the Company must abstain from voting in such general meeting, except where any Connected Person intends to vote against the proposed grant and his intention to do so has been stated in the circular to be dispatched to Shareholders. For this purpose, the circular containing the following shall be prepared by the Company and dispatched to the Shareholders no later than the date on which the Company gives notice of the general meeting to approve the proposed grant of options;
(i) details of the number and terms of the option (including the option price) to be granted to each grantee;
(ii) a recommendation from the independent non-executive Directors (excluding one who is the grantee of the relevant options) on whether or not to vote in favour of the proposed grant; and
(iii) any other information as may be required under the GEM Listing Rules.
Any change in the terms of the options granted to an Eligible Person who is a Director, chief executive, substantial shareholder or a management shareholder of the Company or their respective associates shall be approved by the Shareholders in such manner as set out above.
Exercise price
The exercise price per Share subject to the option under the Share Option Scheme will be determined by the Committee and notified to each grantee and will be no less than the highest of:
(i) the closing price of a Share as stated in the Stock Exchange’s daily quotations sheet on the date of offer to grant an option (“Date of Grant”) the option;
(ii) the average closing price of a Share as stated in the Stock Exchange’s daily quotations sheets on each of the five trading days immediately preceding the Date of Grant of such option (subject to adjustments); and
(iii) the nominal value of a Share.
– 210 – APPENDIX V STATUTORY AND GENERAL INFORMATION
Maximum number of Shares
The overall limit on the number of Shares, which may be issued upon exercise of all outstanding options, granted and yet to be exercised under the Share Option Scheme and any other share option schemes must not exceed 30 per cent. of the Shares in issue from time to time (the “Scheme Limit”).
The total number of Shares which may be issued upon exercise of all options (excluding, for this purpose, options which have lapsed in accordance with terms of the Share Option Scheme and any other share option scheme of the Group) to be granted under the Share Option Scheme and any other option scheme of the Group must not in aggregate exceed 37,500,000 Shares, being 10% of the Shares in issue upon completion of the Placing (the “Scheme Mandate Limit”), unless the Company obtains a fresh approval from its Shareholders. Options lapsed in accordance with the terms of the Share Option Scheme and any other share option- schemes shall not be counted for the purpose of calculating the Scheme Mandate Limit.
The Scheme Mandate Limit may be renewed at any time subject to the Shareholders’ approval. The Scheme Mandate Limit as renewed must not exceed 10% of the total number of Shares in issue at the date of the Shareholders’ approval of the Scheme Mandate Limit. Options previously granted under the Share Option Scheme and any other share option schemes of the Company (including those outstanding, cancelled, lapsed in accordance with the Share Option Scheme or exercised options) will not be counted for the purpose of calculating the Scheme Mandate Limit as renewed. A circular for the purpose of seeking the Shareholders’ approval on the renewal of the Scheme Mandate Limit shall be sent to the Shareholders.
The total number of the Shares issued and to be issued upon exercise of the option granted (including those granted (whether of not cancelled) under the Share Option Scheme) and to be granted to any Eligible Persons (including both exercised and outstanding Options) in any 12-month period up to the date of the grant to such Eligible Person shall not exceed 1 per cent. of the issued Shares from item to time (the “1 percent Limit”). Any further grant of options in excess of this 1 percent Limit must be subject to (i) the Shareholders’ approval with the Eligible Persons and his associates abstaining from voting and (ii) the issue of a circular. The circular must disclose the identity of the participants, the number and the terms of the options granted and to be granted. The number and terms of options to be granted to such participants must be fixed before the Shareholders’ approval and the date of the meeting of the Board of proposing such further grant should be taken as the date of grant for the purpose of calculating the exercise price.
The Company may also seek separate Shareholders’ approval for granting options beyond the Scheme Mandate Limit to Eligible Persons specifically identified by the Company before such approval is sought and subject to the Shareholders’ approval and the issue of a circular to all the Shareholders. The circular must contain a generic description of the identified participants, the number and terms of the options to be granted, the purpose of granting options to the identified participants, an explanation as to how the terms of such options serve the intended purpose and such other information as the Shareholders consider applicable.
– 211 – APPENDIX V STATUTORY AND GENERAL INFORMATION
The Company shall make additional disclosures in the annual and interim reports of the Company including details of the options granted (in the manner as required under the GEM Listing Rules) to:
– each Connected Person;
– each participant with options granted in excess of the individual limit;
– other participants in aggregate.
Time of exercise of options
An option may be exercised in accordance with the terms of the Share Option Scheme at any time during a period (the “Option Period”) as specified by the Committee in relation to each such option in its terms of grant provided that the period within which the option must be exercised (that is, the final expiration date) shall not be more than 10 years from its date of grant (subject to earlier termination in accordance with the rules of the Share Option Scheme). The Board may provide restrictions on how and when an option during the period an option may be exercised, including, if appropriate, a minimum period for which an option must be held or a performance target which must be achieved before an option can be exercised. The Share Option Scheme has not specified any performance target that must be achieved before an option can be exercised.
Terms of the Share Option Scheme shall remain valid for a period of 10 years commencing on its date of adoption, all options to be granted pursuant to the Share Option Scheme must be within this term.
Rights of Exercise
If an option holder ceases to be an Eligible Person during the relevant option period:
(a) by reason of death (evidenced to the satisfaction of the Board), then any outstanding offer of an option to him shall lapse and his personal representative(s) may exercise all his options (to the extent not already exercised) within a period of 3 months from the date of such death (or for such a longer period as the Board may determine), failing which such options shall lapse and determine at the end of the relevant period;
(b) by reason of ill-health, injury or disability (all evidenced to the satisfaction of the Board), or because his employing company ceases to be a member of the Group, then any outstanding offer of an option to him shall lapse and he may exercise all his options (to the extract not already exercised) within a period of 3 months of such ill-health, injury, disability or cessation, failing which they shall lapse and determine at the end of the relevant period;
(c) by reason of voluntary resignation, retirement in accordance with his contract of employment or upon expiration of his employment contract or termination of employment on grounds other than those set out in paragraphs (a) to (d) under the heading of “Rights of Exercise” contained herein or otherwise agree with the Company, then any outstanding offer of an option to him shall lapse
– 212 – APPENDIX V STATUTORY AND GENERAL INFORMATION
and he may exercise all his options within 3 months of such resignation, retirement, expiration or termination, failing which they shall lapse and determine at the end of the relevant period; and
(d) due to any other reasons whatsoever, including termination of his employment for serious misconduct or in accordance with the termination provisions of his contract of employment by his employing company otherwise than by reason of redundancy or on the ground that the option holder commits an act of bankruptcy or has made any arrangement or composition with his creditors generally, or has been convicted of any criminal offence involving his integrity or honesty (and for such purpose, a resolution of the Board to the effect that the employment of such a person has or has not been terminated on one or more of the grounds specified above shall be conclusive and binding on the relevant options holder), then any outstanding offer of an option to him shall lapse and all his options shall lapse and determine on the date of the such cessation or termination.
Lapse of option
An option shall lapse automatically and not be exercisable (to the extent not already exercised) on the earliest of:
(i) the expiry of the option period;
(ii) the expiry of the periods referred to in the sub-section headed “Rights of Exercise” respectively;
(iii) subject to the scheme or amalgamation becoming effective, the expiry of the period referred to in the sub-section headed “Rights on a compromise or arrangement”;
(iv) the date on which the grantee of an option ceases to be a Participant by reason of the termination of his or her employment, directorship, office or appointment on grounds (otherwise than by reason of redundancy) including, but not limited to, misconduct, bankruptcy, insolvency and conviction of any criminal offence involving his integrity or honesty;
(v) the close of the two business days prior to the general meeting of the Company held for the purpose of approving the voluntary winding-up of the Company or the date of the commencement of the winding-up of the Company; or
(vi) the date on which the option is cancelled as provided in the sub-section headed “Provision for cancellation of options granted but not exercised”.
Effects of alterations to capital
In the event of an alteration in the capital structure of the Company whilst any option remains exercisable by way of capitalisation issue, rights issue, sub-division or consolidation of Shares, or reduction of the share capital of the Company in accordance with legal requirements and requirements of the Stock Exchange (excluding any alteration in the capital structure of the Company as a result of an issue of Shares as consideration in respect of a
– 213 – APPENDIX V STATUTORY AND GENERAL INFORMATION
transaction to which the Company is a party), such corresponding alterations (if any) certified by the auditors for the time being of the Company as fair and reasonable will be made in the subject matter of the option so far as unexercised the exercise price and/or the method of the exercise of the option, provided that no such alteration shall be made so that a Share would be issued at less than its nominal value or which would give a grantee a different proportion of the issued share capital of the Company as that to which he or she was previously entitled and no alteration shall be made if any alteration in the capital structure of the Company is the result of an issue of Shares in the capital of the Company as consideration in a transaction.
Assignment and ranking of options
An option is personal to the grantee and shall not be transferred or assigned by the grantee.
The Shares to be allotted upon the exercise of an option will be subject to the Company’s articles of association for the time being in force and will rank pari-passu with the fully paid Shares in issue on the date of exercise of the option.
Rights on take-over
If an offer is made to the holders of Shares or otherwise, the Committee shall as soon as practicable thereafter notify every option holder accordingly and the Directors shall within 14 days thereafter notify every option holder as to which of the following provision shall apply provided always that in the case of any adjustment proposed to be made to the number of Shares or amount of the exercise price, the relevant requirements in the Share Option Scheme on adjustments to the number of Shares or amount of exercise price subject to options already granted shall be complied with:
(i) each option holder shall entitled at any time to exercise all or any of his options in whole or in part; or
(ii) the Directors may grant a cash bonus award to the option holder for an amount equal to the exercise price in consideration of such option holder surrendering the relevant options for cancellation; or
(iii) the Director may grant a cash sum equal to the difference between (a) the exercise price and (b) the greater of the offer price for the Shares or the fair market value of the Shares, as determined by the Directors, in consideration of such option holders surrendering the relevant options for cancellation; or
(iv) the Directors may determine that any or all outstanding options will not vest or become exercisable immediately in the event of a tender offer or exchange offer to acquire the Shares if provision is made to substitute new options that are, in the Directors’ opinion, equivalent to the outstanding options.
Rights on a compromise or arrangement
If a compromise or arrangement between the Company and its members or creditors is proposed for the purposes of or in connection with a scheme for the reconstruction of the Company or its amalgamation with any other company or companies, the Company shall give notice thereof to all option holder (together with a notice of the existence of the provisions of this sub-paragraph) on the same date as it dispatches to each member or – 214 – APPENDIX V STATUTORY AND GENERAL INFORMATION
creditor of the Company a notice summoning the meeting to consider such a compromise or arrangement, and thereupon and subject to the Directors having complied with relevant requirements in the Share Option Scheme on adjustments to the number of Shares or amount of exercise price subject to options already granted, each option holder shall be entitled to exercise all or any of his option in whole or in any part or any time prior to 12 noon on the business day immediately preceding the date of the meeting directed to be convened by the Court for the purposes of considering such compromise or arrangement. With effect from the date of such meeting, the rights of all option holders to exercise their respective options shall forthwith be suspended. Upon such compromise or arrangement becoming effective all options shall to the extent that they have not been exercised thereupon lapse and determine.
Provision for cancellation of options granted but not exercised
Any cancellation of options granted but not exercised or termination of the Share Option Scheme before its term must be approved by shareholders of the Company in general meeting, with any participants in the Share Option Scheme and their associates abstaining from voting. Any vote taken at the meeting to approve such cancellation must be taken by poll.
Alteration to the Share Option Scheme
The Share Option Scheme may be altered in any respect by resolution of the Board except that the provisions of the Share Option Scheme relating to matters contained in Rule 23.03 of the GEM Listing Rules shall not be altered relating to matters as to the advantage of grantees or prospective grantees except with the prior approval of the shareholders in general meting (with participants and their Associates abstaining from voting). No such alteration shall operate to affect adversely the terms of issue of any option granted or agreed to be granted prior to such alteration except with the consent or sanction of such number of grantees of options as shall together hold options in respect of not less than three-fourths in nominal value of all Shares then subject to options granted under the Share Option Scheme.
Any alteration to the terms and conditions of Share Option Scheme must comply with Chapter 23 of the GEM Listing Rules, and any change to the terms of the options granted, must be approved by the shareholders, except where the alterations take effect automatically under the existing terms of the Share Option Scheme. Any change to the authority of the Directors in relation to any alteration to the terms of the Share Option Scheme must be approved by the Shareholders in general meeting.
The Company may by ordinary resolution in general meeting at any time terminate the operation of the Share Option Scheme and in such event no further option shall be offered but the provisions of the Share Option Scheme shall remain in all other respects in full force and effect in respect of any options granted prior thereto but not yet exercised at the time of termination. Options complying with the provisions of Chapter 23 of the GEM Listing Rules which are granted during the life of the Share Option Scheme and remain unexpired immediately prior to the termination of the operation of the Share Option Scheme shall continue to be exercisable in accordance with their terms of issue within one month after the termination of the operation of the Share Option Scheme. In the event of such termination of the Share Option Scheme, details of the options granted, including options exercised or outstanding, under the Share Option Scheme, and (if applicable) options that become void or non-exercisable as a result of the termination of the Share Option Scheme, shall be disclosed in the circular to the Shareholders seeking approval of the first new scheme established thereafter. – 215 – APPENDIX V STATUTORY AND GENERAL INFORMATION
Conditions of the Share Option Scheme
The Share Option Scheme is conditional upon (i) the GEM Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, any Shares to be issued pursuant to the exercise of options under the Share Option Scheme; and (ii) the commencement of dealing in the Shares on GEM.
As at the Latest Practicable Date, no option has been granted or agreed to be granted by the Company under the Share Option Scheme. Application has been made to the Stock Exchange for the granting of the listing of, and permission to deal in, the Shares that fall to be issued pursuant to the exercise of options granted under the Share Option Scheme.
8. OTHER INFORMATION
Estate duty and tax indemnities
Mr. Derek Tsang and Mr. Edmond Lam have entered into the Deed of Indemnity with the Company to jointly and severally provide indemnities in favour of the Group in respect of, among other matters, any liability for Hong Kong estate duty which might be incurred by any member of the Group by reason of any transfer of property (within the meaning of section 35 of the Estate Duty Ordinance (Chapter 111 of the Laws of Hong Kong) to any member of the Group on or before the date on which the Placing becomes unconditional. The Directors have been advised that no material liability for estate duty is likely to fall on the Company or any of its subsidiaries in the Cayman Islands or BVI.
Under the Deed of Indemnity, each of Mr. Derek Tsang and Mr. Edmond Lam has also given indemnities to the Group in relation to taxation (including all costs, interests, penalties, fee charges and expenses incidental or relating thereto) which might be payable by any member of the Group in respect of any income, profits or gains earned, accrued or received, or any event, omission or transactions occurring or deemed to occur, on or before the date on which the Placing becomes unconditional.
Mr. Derek Tsang and Mr. Edmond Lam shall not be liable under the Deed of Indemnity in respect of any taxation:
(a) to the extent that provision or reserve in respect thereof has been made in the consolidated audited accounts of the Group for each of the financial years ended on 31st December, 2000, 31st December, 2001 and 31st December, 2002 (the “Accounts”);
(b) to the extent of any provision or reserve made for taxation in the Accounts which is finally established to be an over-provision or an excessive reserve provided that, in which case, Mr. Derek Tsang’s or Mr. Edmond Lam’s liability in respect of taxation shall be reduced by an amount not exceeding such provision or reserve. Provided that the amount of any such provision or reserve applied to reserve the liability in respect of taxation shall not be available in respect of any such liability arising thereafter;
(c) which the Company or any member of the Group is or may become primarily liable as a result of transactions in the ordinary course of their businesses after 31st December, 2002;
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(d) to the extent that such taxation or liability would not have arisen but for any act or omission by any member of the Group voluntarily effected otherwise than in the ordinary course of business after 31st December, 2002; and
(e) to the extent that such taxation claim arises or is incurred as a consequence of any retrospective change in the law or the interpretation or practice thereof by the Hong Kong Inland Revenue Department or any other relevant authority (whether in Hong Kong, the Cayman Islands, the British Virgin Islands or any other part of the world) coming into force after the date on which the Placing becomes unconditional or to the extent such claim arises or is increased by an increase in rates of taxation after such date with retrospective effect.
Litigation
No member of the Group is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against any member of the Group.
Sponsor
The Sponsor has made an application on behalf of the Company to the GEM Listing Committee for listing of and permission to deal in the Shares in issue and to be issued as mentioned herein and any Shares which may fall to be issued pursuant to the exercise of the options granted under the Pre-IPO Share Option Scheme and options that may be granted under the Share Option Scheme.
Preliminary expenses
The preliminary expenses of the Company are estimated to be approximately US$2,650 (approximately HK$20,670) and are payable by the Company.
Promoter
The promoter of the Company is Mr. Derek Tsang. Save as disclosed in this prospectus, within the two years immediately preceding the date of this prospectus, no cash, securities or other benefit has been paid, allotted or given nor are any proposed to be paid, allotted or given to the promoter in connection with the Placing and the related transactions described in this prospectus.
Qualifications of experts
The qualifications of the experts which have given opinions or whose names are referred to in this prospectus are as follows:–
Name Qualifications
MasterLink Registered investment adviser and securities dealer
PKF Certified Public Accountants
Vigers Hong Kong Limited Professional valuers and surveyors
Conyers Dill & Pearman, Cayman Cayman Islands attorneys-at-law
Shu Jin & Co. PRC legal adviser
– 217 – APPENDIX V STATUTORY AND GENERAL INFORMATION
Consents of experts
Each of MasterLink, PKF, Vigers Hong Kong Limited, Conyers Dill & Pearman, Cayman and Shu Jin & Co. has given and has not withdrawn its written consent to the issue of this prospectus with the inclusion of its report and/or letter and/or valuation certificate and/or opinion and summary of opinion (as the case may be) and/or the references to its name in the form and context in which they are respectively included.
Binding effect
This prospectus shall have the effect, if an application is made in pursuance hereof, of rendering all persons concerned bound by all the provisions (other than the penal provisions) of sections 44A and 44B of the Companies Ordinance so far as applicable.
Miscellaneous
(a) Save as disclosed in this prospectus, within the two years immediately preceding the date of this prospectus:–
(i) no share or loan capital of the Company or any of its subsidiaries has been allotted and issued or agreed to be allotted and issued or is proposed to be allotted and issued fully or partly paid either for cash or a consideration other than cash;
(ii) no share or loan capital of the Company or any of its subsidiaries is under any option or is agreed conditionally or unconditionally to be put under any option;
(iii) no commissions, discounts, brokerages or other special terms have been granted in connection with the issue or sale of any share or loan capital of the Company or any of its subsidiaries.
(b) The Directors have confirmed that, save as disclosed herein, there has been no material adverse change in the financial position or prospects of the Group since 31st December, 2002 (being the date to which the audited combined financial statements of the Group were made up).
(c) There are no founder, management or deferred shares in the capital of the Company.
(d) No securities of the Group are listed or proposed to be listed on any stock exchange other than the Stock Exchange.
(e) All necessary arrangements have been made to enable the Shares to be admitted into CCASS.
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(f) The particulars of the Vendor are as follows:–
Name of the Vendor Address Number of Sale Shares
China Win Beaufort House P.O. 61,000,000 (Note 1) Box 438, Road Town Tortola, British Virgin Islands
Notes:
1. China Win is a limited liability incorporated in the BVI and the issued share capital of which is beneficially owned as follows:
Approximate percentage of Number of shares shareholding in Name of shareholders held in China Win China Win
Emerging Purity (Note 2) 4,645 46.45% Mr. Derek Tsang 4,641 46.41% Mrs. Lam 357 3.57% Mr. Stanley Sung 357 3.57%
10,000 100%
2. Emerging Purity is beneficially wholly owned by Mr. Edmond Lam.
– 219 – APPENDIX VI DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES AND DOCUMENTS AVAILABLE FOR INSPECTION
1. DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES
The documents attached to the copy of this prospectus delivered to the Registrar of Companies in Hong Kong for registration were the written consents referred to in the paragraph headed “Consents of experts” in Appendix V to this prospectus, a statement of adjustment prepared by the auditors and reporting accountants of the Company, PKF, for the purposes of the accountant’s report, and copies of the material contracts referred to in the paragraph headed “Summary of material contracts” in Appendix V to this prospectus and a list of the name, address and description of the Vendor.
2. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection at the offices of Arculli and Associates 2012, Hutchison House, Central, Hong Kong, during normal business hours up to and including 2nd July, 2003:–
(a) the memorandum and articles of association of the Company;
(b) the accountants’ report prepared by the auditors and reporting accountants of the Company, PKF, the text of which is set out in Appendix I to this prospectus and the related statement of adjustments prepared by PKF;
(c) the rules of the Share Option Scheme and the rules of the Pre-IPO Share Option Scheme;
(d) the material contracts referred to in the paragraph headed “Summary of material contracts” in Appendix V to this prospectus;
(e) the written consents referred to in the paragraph headed “Consents of experts” in Appendix V to this prospectus;
(f) the Companies Law;
(g) the letter of advice prepared by Conyers Dill & Pearman, Cayman referred to in Appendix IV to this prospectus;
(h) the service agreements referred to in the paragraph headed “Particulars of service contracts” in Appendix V to this prospectus;
(i) the letter, summary of valuation and valuation certificate relating to the property interests prepared by Vigers Hong Kong Limited referred to in Appendix III to this prospectus;
(j) the audited financial statements which have been prepared for each of the companies comprising the Group (other than Innovis (IB) Limited and Innovis China Limited) for the three years ended 31st December, 2002 or for the period since their respective dates of incorporation, where this is a shorter period;
(k) a list of all grantees who have been granted share options under the Pre-IPO Share Option Scheme; and
(l) the list of the name, address and description of the Vendor.
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