China Digital Video Limited *

Transcription

1 The Stock Exchange of Hong Kong Limited and the Securities and Futures Commission take no responsibility for the contents of this Application Proof, 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 Application Proof. Application Proof of China Digital Video Limited * (incorporated in the Cayman Islands with limited liability) WARNING The publication of this Application Proof is required by The Stock Exchange of Hong Kong Limited (the Exchange )/ the Securities and Futures Commission (the Commission ) solely for the purpose of providing information to the public in Hong Kong. This Application Proof is in draft form. The information contained in it is incomplete and is subject to change which can be material. By viewing this document, you acknowledge, accept and agree with the Company, its sponsor, advisers or member of the underwriting syndicate that: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) this document is only for the purpose of providing information about the Company to the public in Hong Kong and not for any other purposes. No investment decision should be based on the information contained in this document; the publication of this document or supplemental, revised or replacement pages on the Exchange s website does not give rise to any obligation of the Company, its sponsor, advisers or members of the underwriting syndicate to proceed with an offering in Hong Kong or any other jurisdiction. There is no assurance that the Company will proceed with the offering; the contents of this document or supplemental, revised or replacement pages may or may not be replicated in full or in part in the actual final listing document; the Application Proof is not the final listing document and may be updated or revised by the Company from time to time in accordance with the Rules Governing the Listing of Securities on the Exchange; this document does not constitute a prospectus, offering circular, notice, circular, brochure or advertisement offering to sell any securities to the public in any jurisdiction, nor is it an invitation to the public to make offers to subscribe for or purchase any securities, nor is it calculated to invite offers by the public to subscribe for or purchase any securities; this document must not be regarded as an inducement to subscribe for or purchase any securities, and no such inducement is intended; neither the Company nor any of its affiliates, advisers or underwriters is offering, or is soliciting offers to buy, any securities in any jurisdiction through the publication of this document; no application for the securities mentioned in this document should be made by any person nor would such application be accepted; the Company has not and will not register the securities referred to in this document under the United States Securities Act of 1933, as amended, or any state securities laws of the United States; as there may be legal restrictions on the distribution of this document or dissemination of any information contained in this document, you agree to inform yourself about and observe any such restrictions applicable to you; and the application to which this document relates has not been approved for listing and the Exchange and the Commission may accept, return or reject the application for the subject public offering and/ or listing. If an offer or an invitation is made to the public in Hong Kong in due course, prospective investors are reminded to make their investment decisions solely based on the Company s prospectus registered with the Registrar of Companies in Hong Kong, copies of which will be distributed to the public during the offer period. * For identification purpose only.

2 IMPORTANT IMPORTANT: If you are in any doubt about any of the contents of this document, you should seek independent professional advice. China Digital Video Limited * (incorporated in the Cayman Islands with limited liability) [REDACTED] Number of [REDACTED] under the [REDACTED] : [REDACTED] Shares (subject to the Over-allotment Option) Number of Hong Kong [REDACTED] : [REDACTED] Shares (subject to reallocation) Number of International [REDACTED] : [REDACTED] Shares (subject to reallocation and the Over-allotment Option) Maximum [REDACTED] : HK$[REDACTED] per [REDACTED], plus brokerage of 1%, SFC transaction levy of % and Stock Exchange trading fee of 0.005% (payable in full on application in Hong Kong dollars and subject to refund) Nominal Value : US$ per Share Stock Code : [REDACTED] Sole Sponsor Sole Global Coordinator, Sole Bookrunner and Sole Lead Manager [REDACTED] Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this document, 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 document. A copy of this document, together with the documents specified under the section headed Appendix V Documents Delivered to the Registrar of Companies and Available for Inspection to this document, has been registered by the Registrar of Companies in Hong Kong as required by section 342C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws 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 document or any other documents referred to above. The [REDACTED] is expected to be determined by agreement between the Sole Bookrunner (on behalf of the [REDACTED]) and us on or around [REDACTED] and, in any event, not later than [REDACTED]. The [REDACTED] will be not more than HK$[REDACTED] per [REDACTED] and is currently expected to be not less than HK$[REDACTED] per [REDACTED], unless otherwise announced. Applicants for [REDACTED] are required to pay, upon application, the maximum [REDACTED] of HK$[REDACTED] per [REDACTED] for each [REDACTED] together with brokerage of l%, SFC transaction levy of % and Stock Exchange trading fee of 0.005%, subject to refund if the [REDACTED] as finally determined is less than HK$[REDACTED] per [REDACTED]. If, for any reason, the [REDACTED] is not agreed by [REDACTED] between the Sole Bookrunner (on behalf of the [REDACTED]) and us, the Global Offering will not proceed and will lapse. The Sole Bookrunner (on behalf of the [REDACTED]) may, where considered appropriate and with our consent, reduce the number of Hong Kong [REDACTED] and/or the indicative [REDACTED] range below that stated in this document (which is HK$[REDACTED] to HK$[REDACTED]) at any time prior to the morning of the last day for lodging applications under the [REDACTED]. In such a case, notices of the reduction in the number of Hong Kong [REDACTED] and/or the indicative [REDACTED] range will be published in the South China Morning Post (in English) and the Hong Kong Economic Times (in Chinese) as soon as practicable following the decision to make such reduction, and in any event not later than the morning of the day which is the last day for lodging applications under the [REDACTED]. Such notices will also be available on the website of the Stock Exchange at and on our website at Further details are set forth in the sections headed Structure of the [REDACTED] and [REDACTED] in this document. Prior to making an [REDACTED] decision, prospective investors should consider carefully all of the information set out in this document, including the risk factors set out in the section headed Risk Factors in this document. Prospective investors of the Hong Kong [REDACTED] should note that the obligations of the [REDACTED] under [REDACTED] to subscribe, and to procure subscribers to subscribe for, the Hong Kong [REDACTED], are subject to termination by the Sole Bookrunner (on behalf of the Hong Kong Underwriters) if certain grounds arise prior to 8:00a.m on the [REDACTED]. Such grounds are set out in the section headed Underwriting Underwriting Arrangements and Expenses [REDACTED] Grounds for Termination in this document. It is important that you refer to that section for further details. The [REDACTED] have not been and will not be registered under the U.S. Securities Act or any state securities law in the United States and may not be offered, sold, pledged or transferred within the United States, except that [REDACTED] may be offered, sold or delivered to QIBs in reliance on an exemption from registration under the U.S. Securities Act provided by, and in accordance with the restrictions of, Rule 144A or another exemption from the registration requirements of the U.S. Securities Act. The [REDACTED] may be offered, sold or delivered outside the United States in offshore transactions in accordance with Regulation S. * For identification purpose only. [November 23], 2015

3 CHARACTERISTICS OF GEM [REDACTED] i

4 EXPECTED TIMETABLE [REDACTED] ii

5 EXPECTED TIMETABLE [REDACTED] iii

6 EXPECTED TIMETABLE [REDACTED] iv

7 CONTENTS IMPORTANT NOTICE TO INVESTORS This document is issued by the Company solely in connection with the [REDACTED] and the [REDACTED] and does not constitute an offer to sell or a solicitation of an offer to buy any security other than the [REDACTED] by this document pursuant to the [REDACTED]. This document may not be used for the purpose of, and does not constitute, an offer or invitation in any other jurisdiction or in any other circumstances. No action has been taken to permit a [REDACTED] of the [REDACTED] in any jurisdiction other than Hong Kong and no action has been taken to permit the distribution of this document in any jurisdiction other than Hong Kong. The distribution of this document and the [REDACTED] of the [REDACTED] in other jurisdictions are subject to restrictions and may not be made except as permitted under the applicable securities laws of such jurisdictions pursuant to registration with or authorization by the relevant securities regulatory authorities or an exemption therefrom. You should rely only on the information contained in this document and the [REDACTED] to make your [REDACTED] decision. We, the Sole Sponsor, the Sole Global Coordinator, the Sole Bookrunner, the Sole Lead Manager, the Underwriters, any of their respective directors, advisers, officers, employees, agents or representatives or any other person or party involved in the [REDACTED] have not authorized anyone to provide you with information that is different from what is contained in this document. Any information or representation not made in this document must not be relied on by you as having been authorized by us, the Sole Sponsor, the Sole Global Coordinator, the Sole Bookrunner, the Sole Lead Manager, the Underwriters, any of their respective directors, advisers, officers, employees, agents or representatives or any other person or party involved in the [REDACTED]. The contents of our website at [REDACTED] do not form part of this document. CHARACTERISTICS OF GEM... i EXPECTED TIMETABLE... ii Page CONTENTS... v SUMMARY... 1 DEFINITIONS GLOSSARY OF TECHNICAL TERMS FORWARD-LOOKING STATEMENTS RISK FACTORS WAIVERS FROM COMPLIANCE WITH THE [REDACTED] AND THE COMPANIES (WINDING UP AND MISCELLANEOUS PROVISIONS) ORDINANCE INFORMATION ABOUT THIS DOCUMENT AND THE [REDACTED] DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED] v

8 CONTENTS Page CORPORATE INFORMATION INDUSTRY OVERVIEW REGULATIONS HISTORY, REORGANIZATION AND GROUP STRUCTURE BUSINESS DIRECTORS AND SENIOR MANAGEMENT RELATIONSHIP WITH CONTROLLING SHAREHOLDERS CONTINUING CONNECTED TRANSACTIONS SUBSTANTIAL SHAREHOLDERS SHARE CAPITAL FINANCIAL INFORMATION FUTURE PLANS AND USE OF PROCEEDS UNDERWRITING STRUCTURE OF THE [REDACTED] HOW TO APPLY FOR [REDACTED] APPENDIX I ACCOUNTANT S REPORT... I-1 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION... II-1 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW...III-1 APPENDIX IV STATUTORY AND GENERAL INFORMATION...IV-1 APPENDIX V DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES AND AVAILABLE FOR INSPECTION... V-1 vi

9 SUMMARY This summary aims to give prospective investors an overview of the information contained in this document and should be read in conjunction with the full text of this document. As this is a summary, it does not contain all the information that may be important to prospective investors. Prospective investors should read the whole document before you decide to invest in the [REDACTED]. There are risks associated with any [REDACTED] in companies listed on GEM. Some of the particular risks relating to investing in the [REDACTED] are set out in the section headed Risk factors on pages 28 to 62 in this document. Prospective investors should read that particular section carefully before deciding to invest in the [REDACTED]. Various expressions used in this summary are defined in the sections headed Definitions and Glossary of technical terms on pages 13 to 25 in this document. OVERVIEW We are a leading digital video technology solution and service company in the TV broadcasting industry in China. We provide a wide range of solutions, services and products to TV broadcasters and other digital video content providers, focusing mainly on the post-production segment, a critical part of the PRC TV broadcasting market. We are the third largest company in the post-production segment in China with a 5.1% market share in terms of 2014 revenue, while no single market player had a market share greater than 10%, according to the Frost & Sullivan Report. According to the same source, we had leading market shares for virtual studio solutions, digital broadcast automation solutions, multi-camera recording and editing service and graphics creation systems in terms of 2014 revenue. We have been at the forefront of digital video technology innovation in China. Our emphasis on developing a demand-driven and highly responsive R&D is particularly critical for us because of our focus on the solutions and services businesses, where the customers demand customized services. According to the Frost & Sullivan Report, we own the largest intellectual property portfolio in the TV broadcasting industry in China in terms of intellectual property rights, which included 334 PRC-registered patents and 136 PRC-registered software copyrights as of June 30, During the Track Record Period, we served a large number of central-, provincial- and municipal-level TV broadcasters and operators in China, including CCTV, the largest broadcaster in China, Shanghai Media Group, 28 of the 31 provincial-level and numerous municipal-level TV broadcasters and operators in China. We have established business relationship with most of the central- and provincial-level TV stations in China and with some of the provincial-level TV broadcasters in China for over 20 years. We have also served alternative broadcasting platforms, such as cable network operators, Internet media content providers and IPTV and mobile TV operators. OUR BUSINESS We offer solutions, services and products to facilitate the processing, enhancement and management of digital video content at the post-production stage between the ingestion of raw content and the output of finished content. 1

10 SUMMARY Solutions. Our solutions business represents the majority of our business. We offer solutions that consist of multiple products customized and integrated with our proprietary software into cohesive systems that enable our customers to streamline the different workflows that take place at the post-production stage and upgrade to more advanced broadcasting standards. Our key solutions include (i) news workflow solutions, (ii) digital broadcast automation solutions, (iii) virtual studio solutions, (iv) program production solutions and (v) media asset management solutions. According to the Frost & Sullivan Report, our virtual studio solutions and digital broadcast automation solutions each had an industry-leading market share of 8.5% and 6.4%, respectively, in China in terms of 2014 revenue. Services. We offer specialized outsourcing services using solutions and products provided by us and other suppliers to our customers, including (i) multi-camera recording and editing, (ii) live sports broadcasting, (iii) graphics template design, (iv) digitization and cataloging of media assets, and (v) system maintenance. According to the Frost & Sullivan Report, in terms of 2014 revenue, our multi-camera recording and editing service, which is an emerging solution that we pioneered in 2013 and marketed under the brand CreaStudio, and our live sports broadcasting service ranked first and second with a market share of 7.5% and 19.9%, respectively, in China. Products. Our stand-alone products combine our proprietary software with third-party hardware to enable our customers to process and add value to their digital video content. Our key products include (i) video editing systems, (ii) graphics creation systems, and (iii) visual effects and video compositing systems. According to the Frost & Sullivan Report, our graphics creation systems had an industry-leading market share of 23.4% in China in terms of 2014 revenue. The following table sets forth a breakdown of our revenue derived from each business line, as an absolute amount and as a percentage of revenue, for the period indicated. For the year ended December 31, For the six months ended June 30, (unaudited) Amount % of total Amount % of total Amount % of total Amount % of total (RMB in thousands, except percentages) Solutions , , , , Services... 59, , , , Products... 58, , , , Total revenue , , , , In recent years, we have sought to leverage our core strengths in digital video technology to expand into emerging product areas to capitalize the growth potential of the consumer market. For instance, in October 2014, we launched Meicam ( ), a mobile application designed to streamline the creating and editing of high-quality customized videos on smart phones. As of June 30, 2015, 2

11 SUMMARY Meicam had approximately 1.9 million downloads with over 50,000 weekly active users. As of the Latest Practicable Date, Meicam has not generated any revenue. In 2014, we invested in three joint ventures, namely, Beijing Hermit, Beijing Yueying and Xin aote Cloud, to drive our future growth. OUR COMPETITIVE STRENGTHS We believe the following strengths differentiate us from other industry participants and have enabled us to compete effectively in our industry: leading market position with strong brand recognition and a distinguished history; highly responsive R&D supported by strong technology expertise and a large intellectual property portfolio; large, diverse and high-quality customer base with long-term relationships; new businesses leveraging our technical expertise to drive future growth; nationwide sales coverage with efficient and effective customer services; and professional and experienced management team. OUR BUSINESS STRATEGY Our long-term objective is to become a leading integrated digital video technology, service and media company in China. To that end, we intend to implement a business strategy with the following components: gain market share by offering solutions based on latest industry trends and expanding customer base; create recurring and high margin revenue streams by further strengthening and developing our service business; further develop and invest in innovative products and businesses; and selectively pursue strategic [REDACTED] and acquisitions. RESEARCH AND DEVELOPMENT We are highly committed to our research and development efforts and have allocated significant financial resources into building an industry-leading R&D team. As of June 30, 2015, our R&D team consisted of 157 employees, representing 18.7% of our total employees, of whom 72 have post-undergraduate degrees and 58 have more than five years of industry experience. Mr. Jichuan Sun, our chief technology officer, has more than 20 years of industry experience and led the development of the first generation of domestically developed Chinese character generators and video editing systems in China. 3

12 SUMMARY We have pioneered a series of industry-leading innovations in China, including, among others, (i) in 1994, the first windows-based Chinese character generator in China; (ii) in 1997, the first video editing system in China; (iii) in 2001, the first domestically developed 3D virtual studio solutions recognized by SARFT; (iv) in 2005, the first HD video editing system in China; (v) in 2010, the first domestically developed visual effects and video compositing system; and (vi) in 2013, the cutting-edge multi-camera recording and editing system, which we launched under the brand CreaStudio. As of June 30, 2015, we had 334 patents registered with and 601 patent applications pending approval by the PRC State Intellectual Property Office. Out of the 334 PRC-registered patents, approximately 87% are inventions with the remaining being utility models. On average, we have filed more than 40 patent applications each year since As of June 30, 2015, we had 136 software copyrights registered with the PRC Copyright Protection Center. We own the largest intellectual property portfolio in the TV broadcasting industry in China in terms of intellectual property rights according to the Frost & Sullivan Report. CUSTOMERS In 2013 and 2014 and the six months ended June 30, 2015, we served 302, 298 and 174 customers, respectively, including CCTV, the largest broadcaster in China, Shanghai Media Group, 28 of the 31 provincial-level and numerous municipal-level TV broadcasters and operators in China, including, without limitation, Beijing TV, Tianjin TV, Zhejiang TV, Jiangsu TV and Dalian TV. During the Track Record Period, CCTV had been one of our five largest customers. We have also established business relationship with most of the central- and provincial-level TV stations in China and with some of the provincial-level TV broadcasters in China for over 20 years. In addition, we have expanded our business to serve alternative broadcasting platforms, such as new media solutions to certain traditional customers such as cable network operators, Internet media content providers and IPTV and mobile TV operators. In 2013 and 2014 and the six months ended June 30, 2015, our single largest customer represented 10.8%, 8.1% and 11.7%, respectively, of our total revenue. For the same periods, our five largest customers collectively represented 31.2%, 24.3% and 36.2%, respectively, of our total revenue. SALES AND MARKETING We have established a nationwide sales coverage through our in-house sales team and distributors, which provides us with the depth needed to serve the large broadcaster customers and the breadth to help us to reach the smaller local broadcasters. Our in-house direct sales mainly focus on serving provincial-level broadcasters and larger broadcaster customers. Since February 2014, to complement our direct sales, we introduced distribution sales which mainly focus on TV broadcasters below the provincial-level as well as other media operators including governmental agencies, schools and state-owned and private enterprises with needs for our solutions and products. 4

13 SUMMARY SUPPLIERS Based on our customers needs, we design the hardware specifications of the servers and workstations for our solutions, services and products and perform most of the system integration in-house. We procure standard and readily available hardware components such as servers, workstations, memory modules and network equipments and third-party software tailored to meet certain customers specific needs from third-party suppliers. We negotiate the terms of such purchase contracts directly with the original hardware manufacturers. We typically place orders for hardware components and workstations from our suppliers after we have obtained and confirmed orders from customers. This allows us to maintain effective and efficient inventory control and minimizes obsolescence risk and storage costs for hardware components and workstations. In January 2015, we entered into framework agreements on an annual basis with several of our major suppliers, pursuant to which we made prepayments to such suppliers in exchange for discounts when procuring hardware components from them. In 2013 and 2014 and the six months ended June 2015, purchases from our single largest supplier accounted for 18.6%, 9.4% and 10.2%, respectively, of our total purchase. In the same periods, purchases from our five largest suppliers collectively accounted for 59.6%, 35.7% and 39.5%, respectively, of our total purchase. SUMMARY FINANCIAL INFORMATION Selected Line Items of Consolidated Statement of Comprehensive Income For the year ended December 31, For the six months ended June 30, (unaudited) (RMB in thousands) Revenue , , , ,970 Gross profit , ,006 36,440 98,908 Operating profit/(loss) (1)... 19,012 (33,740) (37,204) 49,883 (Loss)/profit before income tax... (10,357) (76,506) (39,886) 33,515 (Loss)/profit for the year/period... (12,190) (69,400) (33,824) 27,044 Non-IFRS Measures: Adjusted net profit/(loss) (unaudited) (2)... 16,696 (25,711) (29,860) 40,289 Adjusted EBITDA (unaudited) (2)... 43,162 (3,423) (21,173) 62,059 Notes: (1) Operating profit/(loss) is defined as gross profit and other income less interest income, selling and marketing expenses, administrative expenses, share-based compensation expense and research and development expenses. (2) See Financial Information Non-IFRS Financial Measures for a reconciliation of our (loss)/profit for the year/period under IFRS to the definitions of adjusted net profit/(loss) and adjusted EBITDA. 5

14 SUMMARY Selected Line Items of Consolidated Statement of Financial Position As of December 31, As of June 30, 2015 (RMB in thousands) Non-current assets , , ,581 Current assets , , ,198 Current liabilities... (877,131) (918,529) (894,816) Redeemable convertible preferred shares... (563,829) (633,255) (630,786) Net current liabilities... (308,909) (368,657) (322,618) Total assets less current liabilities... (128,870) (205,493) (156,037) Non-current liabilities... (12,971) (6,476) (23,399) Capital deficiency and net liabilities... (141,841) (211,969) (179,436) As of July 31, 2015, redeemable convertible preferred shares of RMB653.4 million was classified as non-current liabilities upon the extension of redemption period to March 31, 2017 granted by the respective preferred shareholder in July As a result of such extension, we recognized a net current asset position as of July 31, Furthermore, we have communicated with our Pre-[REDACTED] Investors, and they have verbally confirmed to us that they would deem this [REDACTED] as a Qualified [REDACTED]. As a result, upon completion of a Qualified [REDACTED], all redeemable convertible preferred shares will have been converted to Shares. Accordingly, upon conversion of the redeemable convertible preferred shares into Shares, the liabilities for the redeemable convertible preferred shares will be derecognized, and the fair value of the Shares issued for the conversion of the redeemable convertible preferred shares, which is equal to the carrying amount of the redeemable convertible preferred shares immediately before the conversion, will be accounted for as an increase in share capital and reserves. Accordingly, we expect to have a net asset position immediately after the [REDACTED] (assuming other relevant amounts remain constant). Selected Line Items of Consolidated Statement of Cash Flows For the year ended December 31, For the six months ended June 30, (unaudited) (RMB in thousands) Net cash from/(used in) operating activities... 74,007 (71,929) (78,710) (85,122) Net cash (used in)/from investing activities... (141,985) 18,680 41,530 (19,478) Net cash (used in)/from financing activities... (56,825) 59,926 1,342 32,737 Net (decrease)/increase in cash and cash equivalents... (124,803) 6,677 (35,838) (71,863) Cash and cash equivalents at the beginning of the year/period ,741 90,557 90,557 97,372 Cash and cash equivalents at the end of the year/period... 90,557 97,372 54,875 25,515 6

15 SUMMARY KEY FINANCIAL RATIOS The following table sets forth certain key financial ratios as of the date or for the period indicated. As of and for the year ended December 31, As of and for the six months ended June 30, (unaudited) (RMB in thousands) Gross profit margin % 29.3% 27.9% 35.3% Net profit margin... NM NM NM 9.7% Current ratio (1) Quick ratio (2) Interest coverage ratio (3)... NM NM NM Non-IFRS financial ratio Adjusted net profit/(loss) margin (4) % NM NM 14.4% Adjusted EBITDA margin (5) % NM NM 22.2% Notes: (1) Current ratio is derived by dividing our current assets by our current liabilities at the end of each financial period. (2) Quick ratio is our current assets less inventories dividing by current liabilities at the end of each financial period. (3) Interest coverage ratio is calculated by dividing our profit from operations for the period, which is profit before finance costs and income tax expenses, by finance costs for each of the financial period. (4) Adjusted net profit/(loss) margin is calculated by dividing our adjusted net profit/(loss) for the year/period by revenue for each of the financial period. For reconciliation of adjusted net profit/(loss), a non-ifrs measure, to our (loss)/profit for the year/period, see Non-IFRS Financial Measures. (5) Adjusted EBITDA margin is calculated by dividing our adjusted EBITDA for the year/period by revenue for each of the financial period. For reconciliation of adjusted EBITDA a non-ifrs measure, to our (loss)/profit for the year/period, see Non-IFRS Financial Measures. NM means not meaningful. RECENT DEVELOPMENTS As of July 31, 2015, we had settled RMB33.0 million, or 10.0%, of our trade and bills receivables as of June 30, As of July 31, 2015, we had bank and other borrowings of RMB66.7 million and total banking facilities of RMB77.0 million, of which RMB48.7 million was unutilized. On August 6, 2015, we obtained an additional borrowing from a financial institution with a principal amount of US$5.0 million. See Financial Information Indebtedness Bank Borrowings on page 242 in this document. For developments with respect to our pre-[redacted] [REDACTED] after June 30, 2015, see History, Reorganization and Corporate Structure Pre-[REDACTED] [REDACTED] on page 111 in this document. 7

16 SUMMARY Our Directors have confirmed that, except as otherwise disclosed in this document, up to the date of this document, there has been no material adverse change in our financial, operational or trading position since June 30, [REDACTED] We incurred [REDACTED] of RMB2.7 million during the Track Record Period recorded under administrative expenses under the relevant accounting standards. Based on our current estimate, we expect to incur further [REDACTED] (excluding underwriting commissions) amounting to [REDACTED] in 2015, of which [REDACTED] is directly attributable to the issue of new [REDACTED] to the public and to be accounted for as a deduction from equity, and of which [REDACTED] is expected to be reflected in our consolidated statements of comprehensive income. The [REDACTED] above are the latest practicable estimates and are provided for reference only and actual amounts may differ. Our Directors do not expect such expenses to have a material adverse impact on our financial results for the year ending December 31, [REDACTED] [REDACTED] : Initially [REDACTED], representing approximately [REDACTED]% of the enlarged issued share capital of the Company [REDACTED] structure : [REDACTED], representing approximately [REDACTED] for Hong Kong [REDACTED] (subject to reallocation) and [REDACTED] Shares, representing approximately [REDACTED] for [REDACTED] (subject to reallocation and the Over-allotment Option) Over-allotment Option : Up to [REDACTED] Shares, representing approximately 15.0% of the number of [REDACTED] initially available under the [REDACTED] [REDACTED] Per Shares : HK$[REDACTED] to HK$[REDACTED] per [REDACTED] Based on [REDACTED] per Share of [REDACTED] Based on [REDACTED] per Share of [REDACTED] Market capitalization of our Shares (1)... [REDACTED] [REDACTED] Unaudited pro forma adjusted net tangible asset value per Share (2)... [REDACTED] [REDACTED] Unaudited pro forma adjusted net tangible asset value per Share upon conversion of the redeemable convertible preferred shares (3)... [REDACTED] [REDACTED] 8

17 SUMMARY Notes: (1) The calculation of market capitalization is based on [REDACTED] expected to be issued under the [REDACTED], and assuming that [REDACTED] are issued and outstanding immediately following the completion of the [REDACTED]. (2) The unaudited pro forma adjusted consolidated net tangible asset per Share is calculated after making the adjustments referred to in Appendix II Unaudited Pro Forma Financial Information. (3) The unaudited pro forma adjusted consolidated net tangible asset per Share upon conversion of the redeemable convertible preferred shares is calculated (i) assuming that all redeemable convertible preferred shares will have been converted to Shares after the completion of a Qualified [REDACTED] and (ii) after making the other adjustments referred to in Appendix II Unaudited Pro Forma Financial Information. DIVIDEND POLICY We did not declare any dividends during the Track Record Period and up to the Latest Practicable Date. In the future, we expect to distribute up to 30% of our annual distributable profit as dividends. However, there is no assurance that we will be able to distribute dividends of such amount or any amount each year or in any year. Our future dividend policy will be determined by our Board of Directors based on our results of operations, cash flows, financial position, cash dividends we receive from our subsidiaries, future business prospects, statutory and regulatory restrictions on the payment of dividends by us, and other factors that our Board of Directors may consider relevant. PRE-[REDACTED] SHARE OPTION SCHEME We have adopted the Pre-[REDACTED] Share Option Scheme on December 20, The principal terms of the Pre-[REDACTED] Share Option Scheme are set out in the paragraph headed Pre-[REDACTED] Share Option Scheme in Appendix IV on page IV-32 in this document. As of the Latest Practicable Date, options to subscribe for an aggregate of [REDACTED] Shares have been granted under the Pre-[REDACTED] Share Option Scheme, and remained outstanding as of the Latest Practicable Date. The exercise price for the options granted under the Pre-[REDACTED] Share Option Scheme is equivalent to the fair market value of the ordinary shares of the Company as of December 31, 2010 as appraised by an independent valuer, being US$[REDACTED] per ordinary share of our Company. We plan to grant additional options to subscribe for an aggregate of [REDACTED] Shares under the Pre-[REDACTED] Share Option Scheme prior to the [REDACTED] and further adjust, pursuant to the authority granted to our Board under the Pre-[REDACTED] Share Option Scheme, the total number of Shares subject to the options granted under the Pre-[REDACTED] Share Option Scheme to [REDACTED] as a result of the [REDACTED]. The Shares subject to the options granted under the Pre-[REDACTED] Share Option Scheme after adjustment, being an aggregate of [REDACTED], represent (i) approximately [REDACTED]% of our issued share capital immediately upon completion of the [REDACTED] (excluding all Shares which may be allotted and issued upon the exercise of the Over-allotment Option or any option granted under the Pre-[REDACTED] Share Option Scheme); and (ii) approximately [REDACTED]% of our issued share capital immediately upon completion of the [REDACTED] (assuming all options granted under the Pre-[REDACTED] Share Option Scheme are exercised, but without taking into account any Share which may be allotted and issued upon the exercise of the Over-allotment Option). 9

18 SUMMARY Assuming our Company had been [REDACTED] on the Stock Exchange since January 1, 2015 with [REDACTED] Shares in issue, the diluted earnings per Share for profit attributable to ordinary equity holder of our Company for the six months ended June 30, 2015 would be approximately RMB[REDACTED]. Based on the same assumption and further assuming all the options granted under the Pre-[REDACTED] Share Option Scheme in respect of [REDACTED] Shares were exercised in full on January 1, 2015, the diluted earnings per Share for profit attributable to ordinary equity holder of our Company for the six months ended June 30, 2015 would be approximately RMB[REDACTED]. OUR SHAREHOLDERS Controlling Shareholder Immediately following the completion of the [REDACTED] (assuming no exercise of the Over-allotment Option and any option granted under the Pre-[REDACTED] Share Option Scheme), Wing Success will own approximately [REDACTED] of the post [REDACTED] enlarged issued share capital of our Company. Mr. Zheng has the power to exercise all the voting rights attached to the shares of Wing Success and he will continue to be our ultimate Controlling Shareholder. For further details, see Relationship with Controlling Shareholders on page 173 of this document. Pre-[REDACTED] Investors From March 2008 to October 2014, IFC, Intel Capital, Vertex Tech, Federal HK, Carvillo, Founder Hong Kong and Hong Kong Aoxin acquired for a total of 87,634,786 preferred shares in our Company, representing approximately 48.32% of the issued share capital of our Company, for an aggregate consideration of approximately US$81.1 million (approximately RMB521.4 million). The total consideration for the pre-[redacted] [REDACTED] was fully settled by December 31, Except for Carvillo which is a substantial shareholder of us who will hold [REDACTED]% of our Shares immediately following the completion of the [REDACTED], each of the Pre-[REDACTED] Investors is an independent third party. Our Directors are of the view that our Company will benefit from the investors commitment to our Company and their [REDACTED] demonstrate their confidence in our operation and serve as an endorsement of our performance, strength and prospects. See History, Reorganization and Corporate Structure Pre-[REDACTED] [REDACTED] on page 111 of this document for further details. FUTURE PLANS AND USE OF PROCEEDS Assuming the Over-allotment Option is not exercised and assuming an [REDACTED] of HK$[REDACTED] per [REDACTED], being the midpoint of the stated [REDACTED] range of HK$[REDACTED] to HK$[REDACTED] per [REDACTED], the net proceeds of the [REDACTED] (after deduction of underwriting fees and estimated expenses paid and payable by us in relation to the [REDACTED]) would be approximately HK$[REDACTED] which we presently plan to use as follows: Approximately [REDACTED]%, or HK$[REDACTED], is expected to be used primarily for business expansion and development; 10

19 SUMMARY Approximately [REDACTED]%, or HK$[REDACTED], is expected to be used primarily for potential strategic [REDACTED] and acquisition to increase our portfolio of solutions, services and products. As of the Latest Practicable Date, our Directors confirm that, except as disclosed, we did not identify any target company for acquisition for our use of net proceeds from the [REDACTED]; Approximately [REDACTED]%, or HK$[REDACTED], is expected to be used primarily for further enhancing our R&D capabilities; Approximately [REDACTED]%, or HK$[REDACTED], is expected to be used to repay certain of our existing bank borrowings. The bank borrowings include a one-year term loan of US$5.0 million (approximately HK$40.0 million) bearing an interest rate of 2.63% per annum payable in August 2016; Approximately [REDACTED]%, or HK$[REDACTED], is expected to be used primarily for promotion and marketing, such as advertising through traditional media such as TV and Internet and attending internal or domestic exhibitions; and The remaining up to approximately [REDACTED]%, or HK$[REDACTED], is expected to be used for our working capital and other general corporate purposes. For details of our future plans and use of proceeds, see the section headed Future Plans and Use of Proceeds on page 256 in this document. SUMMARY OF PROMINENT RISK FACTORS There are certain risks relating to [REDACTED] in the [REDACTED]. Some of the particular risks in investing in the [REDACTED] are further described in the section entitled Risk Factors beginning on page 28 of this document. You should read that section carefully before you decide to invest in the [REDACTED]. We believe some of the more significant risk factors include: (i) our revenue declined in 2014 and may continue to fluctuate in the future; (ii) if the digital video technology solution and services industry in China fails to grow as expected, our future growth and results of operations would be materially and adversely affected; (iii) our mobile application business is relatively new with an evolving business model. If our new business fails to generate and increase its revenue at the expected level and pace, our overall growth and profitability would be adversely affected; (iv) our success depends on our ability to keep pace with the rapid changes in digital video technology and to provide innovative solutions, services and products in response to rapidly evolving market demand. Our failure to do so may have a materially adverse effect on our business, financial condition and result of operations; and (v) if we fail to protect our intellectual property rights, our business and competitive position would be severely harmed. DISCLOSURE UNDER CHAPTER 17 OF THE [REDACTED] Our Directors confirm that, expect as otherwise disclosed in this document, as of the latest Practicable Date, there was no circumstance that would give rise to a disclosure requirement under Rules to of the [REDACTED]. 11

20 SUMMARY DIRECTORS CONFIRMATION ON NO MATERIAL ADVERSE CHANGE As of the date of this document, our Directors confirm that there has been no material adverse change in the financial or trading positions or prospects of our Company since June 30, 2015, the date of the latest audited consolidated financial statements of our Company. Our Directors confirm that they have performed sufficient due diligence on our Company to ensure that, up to the date of this document, there has been no material adverse change in our financial or trading position or prospects since June 30, 2015, and there have been no events since June 30, 2015 which would materially affect the information shown in the Accountant s Report set out in Appendix I to this document. 12

21 DEFINITIONS In this document, unless the context otherwise requires, the following terms shall have the meanings set out below. [REDACTED] Articles or Articles of Association associate(s) Audit Committee Beijing Hermit Beijing Meicam Beijing Yueying Beijing Zhengqi the articles of association of the Company to be adopted, which will become effective upon the [REDACTED], as amended from time to time, a summary of which is set out in Appendix III to this document has the meaning ascribed thereto under the GEM Listing Rules the audit committee of the Board Beijing Hermit Culture & Media Co., Ltd. ( ), a company incorporated in the PRC on September 17, 2014 as a limited liability company which is held as to 40% equity interest by CDV WFOE. Details of the shareholding of the remaining 60% equity interest are set out in History, Reorganization and Group Structure Subsequent Acquisition and Disposals Beijing Meicam Network Technology Co., Ltd. ( ), initially known as Beijing Meicam Network Co., Ltd. ( ), is a company incorporated in the PRC on October 23, 2014 which is held as to 40% equity interest by CDV WFOE. It is deemed as a subsidiary of our Company pursuant to a voting rights proxy agreement. Details of the shareholding of the remaining 60% equity interest are set out in History, Reorganization and Group Structure Subsequent Acquisition and Disposals Beijing Yue Ying Technology Co., Ltd. ( ), a company incorporated in the PRC on December 9, 2014 as a limited liability company which is held as to 40% equity interest by CDV WFOE. Details of the shareholding of the remaining 60% equity interest are set out in History, Reorganization and Corporate Structure Subsequent Acquisition and Disposals Zhengqi (Beijing) Video Technology Co., Ltd. ( ), a company incorporated in the PRC on October 23, 2012 and is a wholly-owned subsidiary of CDV WFOE 13

22 DEFINITIONS Board or Board of Directors Business Day or business day BVI CAGR our board of Directors a day on which commercial banks in Hong Kong are generally open for normal banking business to the public and which is not a Saturday, Sunday or public holiday in Hong Kong the British Virgin Islands compound annual growth rate Carvillo or Series B Investor Carvillo Success Limited, a limited liability company incorporated under the laws of Cayman Islands on November 29, 2010 and a Pre-[REDACTED] Investor Capitalization Issue Cayman Companies Law or Companies Law CCASS CCASS Clearing Participant CCASS Custodian Participant CCASS Investor Participant the issue of Shares to be made upon capitalization of certain sums standing to the credit of the share premium account of our Company, details of which are set out in the section headed Appendix IV Statutory and General Information Further Information about Our Directors and Substantial Shareholders Resolutions in Writing of the Shareholders of our Company to be Passed in this document the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands, as amended or supplemented or otherwise modified from time to time the Central Clearing and Settlement System established and operated by HKSCC a person admitted to participate in CCASS as a direct clearing participant or general clearing participant a person admitted to participate in CCASS as a custodian participant a person admitted to participate in CCASS as an investor participant who may be an individual, joint individuals or a corporation CCASS Participant a CCASS Clearing Participant, a CCASS Custodian Participant or a CCASS Investor Participant CDV Cloud China Digital Video Cloud (Beijing) Technology Co., Ltd ( ), a company incorporated in the PRC on April 25, 2014 and a subsidiary of our Company prior to May 2015, a connected person 14

23 DEFINITIONS CDV WFOE China or PRC close associate(s) Companies Ordinance Companies (Winding Up and Miscellaneous Provisions) Ordinance Company, our Company, we, CDV, or us connected person Controlling Shareholders CSRC Director(s) EIT EIT Law EIT Regulations Federal HK China Digital Video (Beijing) Limited ( ( ) ), a limited liability company incorporated in the PRC on June 21, 2007 and a wholly-owned subsidiary of the Company the People s Republic of China, but for the purpose of this document and for geographical reference only and except where the context requires, references in this document to China and the PRC do not include Hong Kong, Macau and Taiwan has the meaning ascribed thereto under the GEM Listing Rules the Companies Ordinance (Chapter 622 of the Laws of Hong Kong), as amended or supplemented or otherwise modified from time to time the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong), as amended or supplemented or otherwise modified from time to time China Digital Video Limited ( ), a company incorporated in the Cayman Islands on January 8, 2007 as an exempted limited liability company has the meaning ascribed thereto in the GEM Listing Rules has the meaning ascribed thereto in the GEM Listing Rules and for the purpose of this document, unless the context otherwise requires, refers to, collectively, Mr. Zheng and Wing Success the China Securities Regulatory Commission ( ) our director(s) the PRC enterprise income tax the PRC Enterprise Income Tax Law the Regulation on the Implementation of the EIT Law Federal Hong Kong Investment Limited, a limited liability company incorporated in Hong Kong on November 23, 2006 and a Pre-[REDACTED] Investor 15

24 DEFINITIONS Founder Easiprint Founder Electronics Founder Hong Kong or Series C Investor Frost & Sullivan Frost & Sullivan Report Beijing Founder Easiprint Co., Ltd ( ), a limited liability company incorporated in the PRC and an independent third party Beijing Founder Electronics Co., Ltd. ( ), a company incorporated in the PRC on November 6, 1995, an independent third party Founder Group (Hong Kong) Limited, a company incorporated in Hong Kong as an exempted limited liability company and a Pre-[REDACTED] Investor Frost & Sullivan (Beijing) Inc., Shanghai Branch Co., our industry consultant, an independent third party the report we commissioned from Frost & Sullivan in respect of the broadcast and TV industry in China Future Success Trust an irrevocable discretionary trust settled by Mr. Zheng Fushuang as the settlor pursuant to a trust arrangement dated June 17, 2011 GEM GEM Listing Rules the Growth Enterprise Market of the Stock Exchange the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited [REDACTED] Group or our Group HK$ or Hong Kong dollars or HK dollars or cents we and our subsidiaries or, where the context so requires, in respect of the period prior to us becoming the holding company of our present subsidiaries, such subsidiaries as if they were our subsidiaries at that time Hong Kong dollars and cents respectively, the lawful currency of Hong Kong HKSCC Hong Kong Securities Clearing Company Limited, a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited HKSCC Nominees HKSCC Nominees Limited, a wholly-owned subsidiary of HKSCC 16