THIS COMPOSITE DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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1 THIS COMPOSITE DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt as to any aspect about the Offer, this Composite Document, the Form(s) of Acceptance and Transfer or as to the action to be taken, you should consult a licensed securities dealer or registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares in Mastercraft International Holdings Limited, you should at once hand this Composite Document and the accompanying Form(s) of Acceptance and Transfer to the purchaser(s) or the transferee(s) or to the bank, licensed securities dealer or registered institution in securities, or other agent through whom the sale or transfer was effected for onward transmission to the purchaser(s) or the transferee(s). 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 Composite Document and the accompanying Form(s) of Acceptance and Transfer, make no representation as to their accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Composite Document and the accompanying Form(s) of Acceptance and Transfer. This Composite Document should be read in conjunction with the accompanying Form(s) of Acceptance and Transfer, the contents of which form part of the terms and conditions of the Offer. FUNG TENG ENTERPRISES LIMITED (Incorporated in the British Virgin Islands with limited liability) Mastercraft International Holdings Limited (Incorporated in the Cayman Islands with limited liability) (Stock code: 3966) COMPOSITE DOCUMENT RELATING TO MANDATORY UNCONDITIONAL CASH OFFER BY HUATAI FINANCIAL HOLDINGS (HONG KONG) LIMITED ON BEHALF OF FUNG TENG ENTERPRISES LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN THE ISSUED SHARE CAPITAL OF MASTERCRAFT INTERNATIONAL HOLDINGS LIMITED (OTHER THAN THOSE ALREADY OWNED AND/OR AGREED TO BE ACQUIRED BY FUNG TENG ENTERPRISES LIMITED AND/OR PARTIES ACTING IN CONCERT WITH IT) Financial adviser to the Offeror Financial adviser to the Company Independent Financial Adviser to the Independent Board Committee of Mastercraft International Holdings Limited Capitalized terms used on this cover page shall have the same meanings as those defined in this Composite Document. A letter from Huatai containing, among other things, the principal terms of the Offer is set out on pages 6 to 14 of this Composite Document. A letter from the Board is set out on pages 15 to 19 of this Composite Document. A letter from the Independent Board Committee to the Offer Shareholders containing its recommendation in respect of the Offer is set out on pages 20 and 21 of this Composite Document. A letter from Nuada containing its recommendation to the Independent Board Committee in respect of the Offer and the principal factors considered by it in arriving at its recommendation is set out on pages 22 to 40 of this Composite Document. The procedures for acceptance and other related information in respect of the Offer are set out in Appendix I to this Composite Document and the accompanying Form(s) of Acceptance and Transfer. Form(s) of Acceptance and Transfer should be received by the Registrar as soon as possible and in any event not later than 4:00 p.m. on Friday, 19 February 2016 (or such later time and/or date as the Offeror may determine and the Offeror and the Company may jointly announce, with the consent of the Executive, in accordance with the Takeovers Code). 29 January 2016

2 CONTENT Page EXPECTED TIMETABLE IMPORTANT NOTICE ii iii DEFINITIONS LETTER FROM HUATAI LETTER FROM THE BOARD LETTER FROM THE INDEPENDENT BOARD COMMITTEE LETTER FROM NUADA APPENDIX I FURTHER TERMS OF ACCEPTANCE OF THE OFFER APPENDIX II FINANCIAL INFORMATION OF THE GROUP APPENDIX III REPORTS ON THE PROFIT WARNING ANNOUNCEMENT APPENDIX IV GENERAL INFORMATION OF THE GROUP APPENDIX V GENERAL INFORMATION OF THE OFFEROR i

3 EXPECTED TIMETABLE The timetable set out below is indicative only and is subject to change. Any changes to the timetable will be jointly announced by the Offeror and the Company as and when appropriate. Despatch date of this Composite Document and Friday, 29 January 2016 the accompanying Form(s) of Acceptance and Transfer and commencement date of the Offer (Note 1) Latest time and date for acceptance of the Offer (Notes 2 and 4) :00 p.m. on Friday, 19 February 2016 Closing Date of the Offer (Notes 2 and 4) Friday, 19 February 2016 Announcement of the results of the Offer No later than 7:00 p.m. on Friday, (or its extension or revision, if any), 19 February 2016 to be posted on the website of the Stock Exchange (Note 2) Latest date for posting of remittances in respect Tuesday, 1 March 2016 of valid acceptances received under the Offer (Notes 3 and 4) Notes: 1. The Offer, which is unconditional, is made on the date of posting of this Composite Document, and is capable of acceptance on and from that date until the Closing Date. 2. The latest time and date for acceptance will be at 4:00 p.m. on Friday, 19 February 2016 unless the Offeror revises or extends the Offer in accordance with the Takeovers Code. The Offeror and the Company will jointly issue an announcement through the websites of the Stock Exchange and the Company no later than 7:00 p.m. on Friday, 19 February 2016 stating whether the Offer has been extended, revised or has expired. In the event that the Offeror decides to revise or extend the Offer, at least 14 days notice by way of an announcement will be given before the Offer is closed to those Offer Shareholders who have not accepted the Offer. 3. Remittances in respect of the cash consideration (after deducting the seller s Hong Kong ad valorem stamp duty) payable for the Offer Shares tendered under the Offer will be despatched to the Offer Shareholders accepting the Offer by ordinary post at their own risk as soon as possible, but in any event within 7 Business Days after the date of receipt by the Registrar of the duly completed Form(s) of Acceptance and Transfer and all relevant documents (receipt of which renders such acceptance complete and valid), in accordance with the Takeovers Code. Acceptance of the Offer shall be irrevocable and not capable of being withdrawn, except as permitted under the Takeovers Code. Please refer to paragraph 4 headed Right of withdrawal in Appendix I to this Composite Document for further information on the circumstances where acceptances may be withdrawn. 4. If there is a tropical cyclone warning signal number 8 or above, or a black rainstorm warning: (a) in force in Hong Kong at any local time before 12:00 noon but no longer in force after 12:00 noon on the latest date for acceptance of the Offer and the latest date for posting of remittances for the amounts due under the Offer in respect of valid acceptances, the latest time for acceptance of the Offer and the posting of remittances, as the case may be, will remain at 4:00 p.m. on the same Business Day; or (b) in force in Hong Kong at any local time between 12:00 noon and 4:00 p.m. on the latest date for acceptance of the Offer and the latest date for posting of remittances for the amounts due under the Offer in respect of valid acceptances, the latest time for acceptance of the Offer and the posting of remittances, as the case may be, will be rescheduled to 4:00 p.m. on the following Business Day which does not have either of those warnings in force at any time between 9:00 a.m. and 4:00 p.m. or such other day as the Executive may approve in accordance with the Takeovers Code. Unless otherwise specified, all references to dates and times contained in this Composite Document refer to Hong Kong dates and times. ii

4 IMPORTANT NOTICE NOTICE TO HOLDERS OUTSIDE HONG KONG The making of the Offer to persons with a registered address in jurisdictions outside Hong Kong may be prohibited or affected by the laws of the relevant jurisdictions. Overseas Shareholders who are citizens, residents or nationals of a jurisdiction outside Hong Kong should keep themselves informed about and observe any applicable legal or regulatory requirements. It is the responsibility of any such person who wishes to accept the Offer to satisfy himself/herself/itself as to the full observance of the laws and regulations of all the relevant jurisdiction in connection therewith, including without limitation the obtaining of any governmental, exchange control or other consent and any registration or filing which may be required, and the compliance with all other necessary formalities regulatory and/or legal requirements and the payment of any transfer or other taxes or other required payments due in respect of such jurisdictions. The Offeror, its beneficial owner and parties acting in concert, the Company, Huatai, Nuada, the Registrar or any of their respective directors, officers, advisers, associates, agents or any other persons involved in the Offer shall be entitled to be fully indemnified and held harmless by such person for any taxes as such person may be required to pay. Please see Overseas Shareholders in the Letter from Huatai in this Composite Document. iii

5 DEFINITIONS In this Composite Document, the following expressions have the meanings set out below unless the context requires otherwise. acting in concert Acquisition associate(s) Board Business Day CCASS Closing Date Company Completion has the meaning ascribed to it under the Takeovers Code the purchase of the Sale Shares by the Offeror from the Vendors in accordance with the terms and conditions of the Sale and Purchase Agreement has the meaning ascribed to it under the Listing Rules the board of Directors a day on which the Stock Exchange is open for the transaction of business The Central Clearing and Settlement System Friday, 19 February 2016, being the closing date of the Offer as stated in the section headed Expected Timetable in this Composite Document or any subsequent closing date as may be announced by the Offeror in accordance with the Takeovers Code Mastercraft International Holdings Limited, a company incorporated in the Cayman Islands with limited liability, the issued shares of which are listed on the Main Board of the Stock Exchange (stock code: 3966) completion of the Acquisition in accordance with the terms and conditions of the Sale and Purchase Agreement, which took place on the Completion Date Completion Date 8 January 2016 Composite Document connected person(s) controlling shareholder(s) Director(s) this composite offer and response document in respect of the Offer jointly issued and despatched by the Offeror and the Company in accordance with the Takeovers Code has the meaning ascribed to it under the Listing Rules has the meaning ascribed to it under the Listing Rules director(s) of the Company from time to time 1

6 DEFINITIONS Encumbrances Executive Facility any mortgage, pledge, charge, lien, rights of pre-emption, right of set-off, counter claim guarantee, trust arrangements, security interest of any kind or any other similar restriction on rights securing, or conferring any priority of payment in respect of, any obligation of any person, any proxy, power of attorney, representation right, voting trust agreement, or voting arrangement, any beneficial interest, option, claim, equity, adverse interests, third party interest or encumbrance, any right of first offer or refusal or other transfer restriction in favour of any person, or any type of preferential arrangement (including without limitation retention arrangement), or any adverse claim as to title, ownership possession or use the Executive Director of the Corporate Finance Division of the SFC or any of his delegates the loan facility, pursuant to a facility agreement dated 8 January 2016 and entered into among Bank of Shanghai (Hong Kong) Limited (as lender), the Offeror (as borrower), and Mr. Dang Yanbao (as guarantor of the borrower) of an amount of up to HK$185 million in respect of the financing of the Offer Form(s) of Acceptance and Transfer the form(s) of acceptance and transfer of the Offer Shares in respect of the Offer accompanying this Composite Document GEM Group Guarantor HKSCC Hong Kong Huatai Independent Board Committee Growth Enterprise Market of the Stock Exchange the Company and its subsidiaries Mr. Leung Yuen Ho Simon, the chairman and an executive Director Hong Kong Securities Clearing Company Limited, a whollyowned subsidiary of Hong Kong Exchanges and Clearing Limited the Hong Kong Special Administrative Region of the PRC Huatai Financial Holdings (Hong Kong) Limited, a licensed corporation to carry out Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO, being the financial adviser to the Offeror in respect of the Offer the independent board committee of the Board, comprising all independent non-executive Directors, formed for the purpose of advising the Offer Shareholders in respect of the Offer 2

7 DEFINITIONS Independent Financial Adviser or Nuada Limited, a licensed corporation to carry out Type 6 Nuada (advising on corporate finance) regulated activities under the SFO, being the independent financial adviser to the Independent Board Committee and the Offer Shareholders in respect of the Offer Joint Announcement Last Trading Day Latest Practicable Date Listing Rules MOU MOU Announcement Offer Offer Period Offer Share(s) Offer Shareholder(s) the announcement jointly published by the Offeror and the Company dated 11 January 2016 in relation to, among others, the Sale and Purchase Agreement and the Offer 7 January 2016, being the last trading day immediately prior to the suspension of trading in the Shares pending the release of the Joint Announcement 27 January 2016, being the latest practicable date prior to the printing of this Composite Document for ascertaining certain information contained herein the Rules Governing the Listing of Securities on the Stock Exchange the memorandum of understanding in relation to the possible sale and purchase of the Sale Shares entered into between the Vendors, the Guarantor and the Offeror dated 5 January 2016 the announcement published by the Company dated 6 January 2016 in relation to, among others, the MOU the mandatory unconditional cash offer made by Huatai, on behalf of the Offeror, to acquire all the issued Shares not already owned and/or agreed to be acquired by the Offeror and/or parties acting in concert with it subject to the conditions in this Composite Document, the Form(s) of Acceptance and Transfer, and in accordance with the Takeovers Code the period from 6 January 2016 (the date of the MOU Announcement) to 4:00 p.m. on the Closing Date, or such other time and/or date to which the Offeror may decide to extend or revise the Offer in accordance with the Takeovers Code any of the 120,000,000 Shares that are subject to the Offer Shareholder(s), other than the Offeror and parties acting in concert with it 3

8 DEFINITIONS Offeror Overseas Shareholders PRC Profit Warning Announcement Registrar Relevant Period Sale and Purchase Agreement Sale Shares SFC SFO Share(s) Shareholder(s) Stock Exchange Takeovers Code Fung Teng Enterprises Limited, a company incorporated in the British Virgin Islands with limited liability and is wholly-owned by Mr. Dang Yanbao Shareholder(s) whose address(es), as shown on the register of members of the Company, is/are outside Hong Kong the People s Republic of China, which for the purpose of this Composite Document and the Form(s) of Acceptance and Transfer, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan the profit warning announcement published by the Company dated 25 January 2016 in relation to the unaudited profit of the Group for the year ended 31 December 2015 Union Registrars Limited, the Hong Kong branch share registrar and transfer office of the Company, with its registered address at A18/F., Asia Orient Tower, Town Place, 33 Lockhart Road, Wanchai, Hong Kong the period commencing from 6 July 2015, being the date falling six months before 6 January 2016 (the date of the MOU Announcement), up to and including the Latest Practicable Date the sale and purchase agreement dated 8 January 2016 and entered into among the Vendors, the Guarantor and the Offeror in relation to the sale and purchase of the Sale Shares the 360,000,000 Shares, being such number of Shares in aggregate representing all the Shares that the Vendors held or were otherwise interested in the Company prior to Completion, and a Sale Share means any of them the Securities and Futures Commission of Hong Kong the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) ordinary share(s) of par value HK$0.01 each in the issued share capital of the Company holder(s) of Share(s) The Stock Exchange of Hong Kong Limited The Code on Takeovers and Mergers 4

9 DEFINITIONS Vendor I Vendor II Vendors HK$ SYH Investments Limited, a company incorporated in the British Virgin Islands with limited liability, and is wholly-owned by the Guarantor Jerry Denny Strickland Jr., an executive Director Vendor I and Vendor II Hong Kong dollars, the lawful currency of Hong Kong % per cent. * The English translation of the Chinese names of the PRC entities in this Composite Document, where indicated, is included for identification purpose only and is not the official English names for such PRC entities. 5

10 LETTER FROM HUATAI 29 January 2016 To the Offer Shareholders Dear Sirs or Madams, MANDATORY UNCONDITIONAL CASH OFFER BY HUATAI FINANCIAL HOLDINGS (HONG KONG) LIMITED ON BEHALF OF FUNG TENG ENTERPRISES LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN THE ISSUED SHARE CAPITAL OF MASTERCRAFT INTERNATIONAL HOLDINGS LIMITED (OTHER THAN THOSE ALREADY OWNED AND/OR AGREED TO BE ACQUIRED BY FUNG TENG ENTERPRISES LIMITED AND/OR PARTIES ACTING IN CONCERT WITH IT) INTRODUCTION On 8 January 2016, the Vendors, the Guarantor and the Offeror entered into the Sale and Purchase Agreement pursuant to which the Vendors agreed to sell and the Offeror agreed to purchase an aggregate of 360,000,000 Shares for a total cash consideration of HK$540,000,000 (being HK$1.50 per Share). There is no condition precedent to the Sale and Purchase Agreement. Completion took place on the same date as the Sale and Purchase Agreement. Immediately prior to Completion, none of the Offeror and parties acting in concert with it was interested in any Shares, convertible securities, options, warrants or derivatives in the Company. Immediately following Completion, the Offeror and parties acting in concert with it are interested in an aggregate of 360,000,000 Shares, representing 75.0% of the entire issued share capital of the Company. The Offeror is therefore upon Completion required under Rule 26.1 of the Takeovers Code to make a mandatory unconditional cash offer for all the issued Shares not already owned and/or agreed to be acquired by it and/or parties acting in concert with it. This letter sets out, among other things, the principal terms of the Offer, together with the information on the Offeror and the Offeror s intentions regarding the Group. Further details of the Offer are also set out in Appendix I to this Composite Document and the accompanying Form(s) of Acceptance and Transfer. Your attention is also drawn to the Letter from the Board, the Letter from the Independent Board Committee to the Offer Shareholders and the Letter from Nuada to the Independent Board Committee and the Offer Shareholders as contained in, and the appendices to, this Composite Document. 6

11 LETTER FROM HUATAI THE OFFER Principal terms of the Offer We are unconditionally making the Offer for and on behalf of the Offeror on the following basis: For each Offer Share HK$1.50 in cash The offer price of HK$1.50 for each Offer Share is the same as the purchase price paid for each Sale Share by the Offeror pursuant to the Sale and Purchase Agreement. As at the Latest Practicable Date, there were 480,000,000 Shares in issue and the Company did not have any outstanding options, warrants or derivatives or convertible rights affecting the Shares. Based on the offer price of HK$1.50 per Share, the entire issued share capital of the Company is valued at HK$720,000,000. The Offer will be made to the Offer Shareholders. As the Offeror and parties acting in concert with it hold in aggregate 360,000,000 Shares immediately after Completion, 120,000,000 Shares are subject to the Offer. Based on the offer price of HK$1.50 per Share, the total consideration of the Offer would be HK$180,000,000 (assuming full acceptance of the Offer). The procedures for acceptance and further details of the Offer are set out in Appendix I to this Composite Document and the accompanying Form(s) of Acceptance and Transfer. Offer price The offer price of HK$1.50 per Offer Share represents: (a) (b) (c) (d) (e) a premium of approximately 4.90% over the closing price of HK$1.43 per Share as quoted on the Stock Exchange on 4 January 2016, being the last Business Day prior to the trading halt of Shares before the Offer Period commenced on 6 January 2016; a discount of approximately 20.63% to the closing price of HK$1.89 per Share as quoted on the Stock Exchange on 7 January 2016, being the Last Trading Day; a discount of approximately 10.18% to the average closing price of HK$1.67 per Share as quoted on the Stock Exchange for the five consecutive trading days immediately prior to and up to the Last Trading Day; a discount of approximately 4.46% to the average closing price of HK$1.57 per Share as quoted on the Stock Exchange for the 10 consecutive trading days immediately prior to and up to the Last Trading Day; a premium of approximately 1.35% over the average closing price of HK$1.48 per Share as quoted on the Stock Exchange for the 30 consecutive trading days immediately prior to and up to the Last Trading Day; 7

12 LETTER FROM HUATAI (f) (g) (h) a discount of approximately 45.85% to the closing price of HK$2.77 per Share as quoted on the Stock Exchange on the Latest Practicable Date; a premium of approximately 7.4 times over the audited consolidated net assets per Share of approximately HK$0.1796, as at 31 December 2014, calculated based on the Group s audited consolidated net assets of approximately HK$86,230,000 as at 31 December 2014 and 480,000,000 Shares in issue as at the date of the Joint Announcement and the Latest Practicable Date; and a premium of approximately 8.1 times over the unaudited consolidated net assets per Share of approximately HK$ as at 30 June 2015, calculated based on the Group s unaudited consolidated net assets of approximately HK$79,575,000 as at 30 June 2015 and 480,000,000 Shares in issue as at the date of the Joint Announcement and the Latest Practicable Date. Highest and lowest Share prices During the Relevant Period, the lowest closing price of the Shares as quoted on the Stock Exchange was HK$0.74 per Share on 21 August 2015 and the highest closing price of the Shares as quoted on the Stock Exchange was HK$2.80 per Share on 20 January Confirmation of financial resources The Offeror will finance the Offer by the Facility. A facility agreement dated 8 January 2016 (the Facility Agreement ) was entered into among Bank of Shanghai (Hong Kong) Limited as lender (the Lender ), the Offeror as borrower (the Borrower ) and Mr. Dang Yanbao as guarantor, pursuant to which the Facility was provided to finance the Offer. Pursuant to the terms of the Facility Agreement, the payment of interest on, repayment of or security for any liability (contingent or otherwise) in respect of the Facility will depend, to a significant extent, on the business, operations, property and financial condition of the Company as follows: (a) (b) If at any time the ratio of (i) the aggregate outstanding amount in respect of the Facility to (ii) the aggregate amount of the closing share price of the Shares mortgaged to the Lender as security for the Facility (the Loan to Value Ratio ) exceeds a certain level, the Borrower is required to deliver additional collateral and/or prepay a certain amount to bring down the Loan to Value Ratio. If any of the representations and warranties about the authorisations required or desirable for the Company to carry on its business or about the Company s title to, or leases or licences of, and authorisations to use, the assets necessary to carry on its business, is or proves to have been incorrect or misleading, the Lender may accelerate the repayment of the Facility and enforce the security for the Facility. 8

13 LETTER FROM HUATAI (c) The occurrence of events of default such as substantial change, suspension or cessation of business, suspension or cessation of the listing of the Shares, cross default, insolvency, insolvency proceedings, creditors process, government intervention of assets or material adverse change relating to the Company may also entitle the Lender to accelerate the repayment of the Facility and enforce the security for the Facility. Certain Shares acquired pursuant to the Sale and Purchase Agreement and any Shares to be acquired under the Offer have been or will be mortgaged to the Lender as security for the Facility. Any release of funds from the Facility will require the consent of both the Offeror and Huatai. Huatai has been appointed as the financial adviser to the Offeror in respect of the Offer. Huatai, as the financial adviser to the Offeror in respect of the Offer, is satisfied that sufficient financial resources are available to the Offeror to satisfy the consideration required for full acceptance of the Offer. INFORMATION ON THE OFFEROR The Offeror is an investment holding company incorporated in the British Virgin Islands with limited liability on 2 January 2015 and is wholly-owned by Mr. Dang Yanbao ( ). It has not carried on any substantive business since the date of its incorporation until the entering into of the Sale and Purchase Agreement. Mr. Dang Yanbao is the sole director and beneficial owner of the Offeror. He is an experienced businessman and is primarily engaged in the business of coal and energy in the PRC. Mr. Dang is currently the chairman and ultimate controlling shareholder of Ningxia Baofeng Energy Group Co., Ltd.* ( ), which manufactures, processes, and sells coal products and other related coal chemical products. INTENTIONS OF THE OFFEROR REGARDING THE GROUP Following the close of the Offer, the Offeror intends to continue the existing principal businesses of the Group. The Offeror also intends to identify suitable investments and business opportunities to diversify with a view to achieving better growth potential of the Group. In this aspect, the Offeror is looking at potential energy projects, both in the traditional and clean energy sectors. The Offeror is in the process of considering potential investment opportunities in the PRC in energy and energy-related deals, including but not limited to clean energy projects. In the course of the exploration and consideration of these potential investment opportunities, the Offeror may, through the Company, establish one or more investment holding subsidiaries to develop and prepare for the potential investments to be made. The Company will comply with the relevant disclosure and approval requirements if and when an actual transaction has materialised. Based on the unaudited financial statements of the Group as at 30 June 2015, the Group s total cash and bank balance were approximately HK$28.2 million. In view of the financial situation of the Group as well as the potential investment opportunities which might arise, the Offeror may procure the Company to conduct equity and/or debt financing following the close of the Offer. Should such corporate actions materialise, further announcement(s) will be made as and when appropriate in accordance with the Listing Rules. 9

14 LETTER FROM HUATAI All of the executive Directors will resign with effect from the earliest time permitted under the Takeovers Code. The Offeror intends to nominate new Directors to the Board at the earliest time as allowed under the Takeovers Code and any such appointment will be made in compliance with the Takeovers Code and the Listing Rules. Notwithstanding that the Offeror and the proposed Directors as set out in the paragraph headed Proposed Change of Board Composition below have no relevant experience in the existing principal business of the Group, each of the proposed Directors has extensive experience in business management as further detailed in the paragraph headed Proposed nomination for executive Directors below. Besides, Vendor II and the Guarantor (both being executive Directors prior to the Acquisition and as at the Latest Practicable Date) shall remain as directors of the existing subsidiaries of the Company and the proposed Directors will work closely with Vendor II and the Guarantor in order to ensure that there will be continuity in the management of the Group s existing business. Save as in connection with the Offeror s intention regarding the Group as set out above and the potential changes to the members of the Board as set out below, the Offeror has no intention to (i) discontinue the employment of any employees of the Group; or (ii) redeploy the fixed assets of the Company other than those in its ordinary and usual course of business. The Offeror intends to maintain the listing of the Shares on the Stock Exchange following the close of the Offer. PROPOSED CHANGE OF BOARD COMPOSITION The Board is currently made up of six Directors, comprising (i) three executive Directors, namely Messrs. Leung Yuen Ho, Simon and Jerry Denny Strickland Jr. and Ms. Wong Shuk Fong; and (ii) three independent non-executive Directors, namely Messrs. Hau Chi Hung, Lai Kin, Jerome and Tang Thomas Bong. All of the executive Directors will resign with effect from the earliest time permitted under the Takeovers Code. Such resignation will not take effect earlier than the date of the close of the Offer, subject to the requirements of the Takeovers Code. To ensure that there will be continuity in the management of the Group s business, Vendor II and the Guarantor will remain as directors of the existing subsidiaries of the Company. Proposed nomination for executive Directors The Offeror intends to nominate new Directors to the Board for appointment with effect from a date which is no earlier than such date as permitted under Rule 26.4 of the Takeovers Code: Mr. Dang Yanbao is the sole director and sole shareholder of the Offeror and is currently the chairman and ultimate controlling shareholder of Ningxia Baofeng Energy Group Co., Ltd.*. He is an experienced businessman in the PRC, who also manages a number of other companies engaged in the coal and energy sector, such as Inner Mongolia Zhongbao Energy Co., Ltd.*, Ningxia Baofeng Energy Catalytic Co., Ltd.* and Ningxia Baofeng Group Hongsi Coal Mining Co., Ltd.*. 10

15 LETTER FROM HUATAI Mr. Liu Yuanguan ( ) is currently the chief executive officer of Ningxia Baofeng Energy Group Co., Ltd.* ( ). He is a veteran in the coal mining, energy and chemical industry with more than 28 years of experience. Mr. Liu holds the title of Senior Engineer and has a Master s Degree from Xi an University of Science and Technology and a Bachelor s Degree from China University of Mining and Technology. Mr. Gao Jianjun is currently the vice president of Ningxia Baofeng Energy Group Co., Ltd.* and the legal representative of Ningxia Baofeng Energy Catalytic Co., Ltd.* ( ). Mr. Gao has 20 years of experience in the coal mining, crude oil and energy industry. Should there be any change to the composition of the Board, it will be made in compliance with the Takeovers Code and the Listing Rules. Further announcement(s) will be made by the Company upon any change of Directors. INFORMATION ON THE GROUP The Company was incorporated in the Cayman Islands with limited liability and its issued shares of which have been listed on GEM since 20 July 2012 and have been transferred from GEM to the Main Board of the Stock Exchange on 5 August The principal activity of the Company is investment holding. The Group is principally engaged in the design and supply chain of lighting and home furnishing products, the manufacture of which is outsourced to independent contract manufacturers in PRC. Please refer to the Letter from the Board and Appendices II, III and IV to this Composite Document for information of the Group. PUBLIC FLOAT AND MAINTAINING THE LISTING STATUS OF THE COMPANY The Stock Exchange has stated that if, at the close of the Offer, less than the minimum prescribed percentage applicable to the Company, being 25% of the issued Shares, are held by the public at all times, or if the Stock Exchange believes that: (a) (b) a false market exists or may exist in the trading of the Shares; or that there are insufficient Shares in public hands to maintain an orderly market, it will consider exercising its discretion to suspend dealings in the Shares. The Offeror has, and each of the proposed Directors (namely, Messrs. Dang Yanbao, Liu Yuanguan and Gao Jianjun) will, undertake to the Stock Exchange to take appropriate steps to ensure that sufficient public float exists in the Shares. The Offeror intends to maintain the listing of the Shares on the Stock Exchange following the close of the Offer. 11

16 LETTER FROM HUATAI PROCEDURES FOR ACCEPTANCE OF THE OFFER To accept the Offer, Offer Shareholders should complete the accompanying Form(s) of Acceptance and Transfer for the Shares in accordance with the instructions printed thereon. The Form(s) of Acceptance and Transfer form part of the terms of the Offer. The completed Form(s) of Acceptance and Transfer should then be forwarded, together with the share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) for not less than the number of the Shares in respect of which you intend to tender under the Offer, by post or by hand, to the Registrar at A18/F., Asia Orient Tower, Town Place, 33 Lockhart Road, Wanchai, Hong Kong in an envelope marked Mastercraft International Holdings Limited General Offer to be received by the Registrar as soon as possible after the receipt of this Composite Document but in any event no later than 4:00 p.m. on the Closing Date. No acknowledgement of receipt of any Form(s) of Acceptance and Transfer and the title documents will be given. Your attention is drawn to the section headed 1. General Procedures For Acceptance of the Offer as set out in Appendix I to this Composite Document and the accompanying Form(s) of Acceptance and Transfer. Settlement of the Offer Provided that the accompanying Form(s) of Acceptance and Transfer for the Shares, together with the share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) are valid, complete and in good order and have been received by the Registrar no later than 4:00 p.m. on the Closing Date, a cheque for the amount due to each of the accepting Offer Shareholder in respect of the Shares tendered under the Offer (less seller s Hong Kong ad valorem stamp duty payable by it) will be despatched to the accepting Offer Shareholder by ordinary post at his/her/its own risk as soon as possible but in any event within seven (7) Business Days after the date of receipt of all relevant documents (receipt of which renders such acceptance complete and valid) by the Registrar in accordance with the Takeovers Code. The consideration to which any accepting Offer Shareholder is entitled under the Offer will be paid by the Offeror in full in accordance with the terms of the Offer (save with respect to the payment of seller s Hong Kong ad valorem stamp duty) set out in this Composite Document (including Appendix I to this Composite Document) and the accompanying Form(s) of Acceptance and Transfer without regard to any Encumbrances or other analogous right, to which the Offeror may otherwise be, or claim to be, entitled against such accepting Offer Shareholder. Effect of accepting the Offer By accepting the Offer, the Offer Shareholders shall sell their Shares free from all Encumbrances and with all rights and benefits at any time accruing and attached to them, including the rights to receive all dividends and distributions declared, made or paid on or after the date on which the Offer is made. 12

17 LETTER FROM HUATAI Hong Kong stamp duty Seller s Hong Kong ad valorem stamp duty arising in connection with acceptance of the Offer amounting to HK$1.00 for every HK$1,000 or part thereof of the amount payable in respect of relevant acceptances by the Offer Shareholders, or (if higher) the value of the Shares as determined by the Collector of Stamp Revenue under the Stamp Duty Ordinance (Chapter 117 of the Laws of Hong Kong), will be deducted from the amount payable to the Offer Shareholders who accept the Offer. The Offeror will then pay the Hong Kong stamp duty so deducted to the Stamp Office of Hong Kong. The Offeror will bear buyer s Hong Kong ad valorem stamp duty. Overseas Shareholders As the Offer to persons not resident in Hong Kong may be affected by the laws of the relevant jurisdiction in which they are resident, Overseas Shareholders who are citizens, residents or nationals of a jurisdiction outside Hong Kong should keep informed themselves about observe any applicable legal or regulatory requirements and, where necessary, seek legal advice. It is the responsibility of Overseas Shareholders who wish to accept the Offer to satisfy themselves as to the full observance of the laws and regulations of all the relevant jurisdictions in connection with the acceptance of the Offer (including but not limited to the obtaining of any governmental, exchange control or other consent and any registration or filing which may be required, and the compliance with all other necessary formalities, regulatory and/ or legal requirements and the payment of any transfer or other taxes or other required payments due in respect of such jurisdictions). Tax implications Offer Shareholders are recommended to consult their own professional advisers if they are in any doubt as to the taxation implications of their acceptance of the Offer. It is emphasised that none of the Offeror, its ultimate beneficial owner and parties acting in concert with them, the Company, Huatai, Nuada, the Registrar or any of their respective directors, officers, advisers, associates, agents or any persons involved in the Offer is in a position to advise the Offer Shareholders on their individual tax implications, nor do they accept responsibility for any taxation effects on, or liabilities of, any person or persons as a result of their acceptance of the Offer. COMPULSORY ACQUISITION The Offeror does not intend to exercise any powers of compulsory acquisition of any Offer Shares outstanding and not acquired under the Offer after the close of the Offer. GENERAL To ensure equality of treatment of all Offer Shareholders, those Offer Shareholders who hold the Shares as nominee for more than one beneficial owner should, as far as practicable, treat the holding of each beneficial owner separately. In order for the beneficial owners of the Shares, whose investments are registered in nominee names, to accept the Offer, it is essential that they provide instructions to their nominees of their intentions with regard to the Offer. 13

18 LETTER FROM HUATAI All documents and remittances will be sent to the Offer Shareholders by ordinary post at their own risk. These documents and remittances will be sent to them at their respective addresses as they appear in the register of members, or, in case of joint holders to the Offer Shareholder whose name appears first in the said register of members, unless otherwise specified in the accompanying Form(s) of Acceptance and Transfer completed, returned and received by the Registrar. None of the Offeror, its ultimate beneficial owner and parties acting in concert with them, the Company, Huatai, Nuada, the Registrar or any of their respective directors, officers, advisers, associates, agents or any persons involved in the Offer will be responsible for any loss or delay in transmission of such documents and remittances or any other liabilities that may arise as a result thereof. ADDITIONAL INFORMATION Your attention is drawn to the additional information regarding the Offer, the Offeror and the Group set out in the appendices to this Composite Document and the accompanying Form(s) of Acceptance and Transfer, which form part of this Composite Document. In addition, your attention is drawn to the Letter from the Board, the Letter from the Independent Board Committee and the Letter from Nuada to the Independent Board Committee and the Offer Shareholders in respect of the Offer contained in this Composite Document. Yours faithfully, For and on behalf of Huatai Financial Holdings (Hong Kong) Limited Jimmy Chung Managing Director Corporate Finance 14

19 LETTER FROM THE BOARD Mastercraft International Holdings Limited (Incorporated in the Cayman Islands with limited liability) (Stock Code: 3966) Executive directors: Registered office: Mr. Leung Yuen Ho, Simon Cricket Square Mr. Jerry Denny Strickland Jr. Hutchins Drive Ms. Wong Shuk Fong P.O. Box 2681 Grand Cayman Independent non-executive directors: KY Mr. Hau Chi Hung Cayman Islands Mr. Lai Kin, Jerome Mr. Tang Thomas Bong Head office and principal place of business in Hong Kong: Unit 503, 5th Floor, Tower B Hunghom Commercial Centre 37 Ma Tau Wai Road Hunghom, Kowloon Hong Kong To the Offer Shareholders, Dear Sirs and Madam, January 2016 MANDATORY UNCONDITIONAL CASH OFFER BY HUATAI FINANCIAL HOLDINGS (HONG KONG) LIMITED ON BEHALF OF FUNG TENG ENTERPRISES LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN THE ISSUED SHARE CAPITAL OF MASTERCRAFT INTERNATIONAL HOLDINGS LIMITED (OTHER THAN THOSE ALREADY OWNED AND/OR AGREED TO BE ACQUIRED BY FUNG TENG ENTERPRISES LIMITED AND/OR PARTIES ACTING IN CONCERT WITH IT) INTRODUCTION Reference is made to the Joint Announcement. As announced in the Joint Announcement, on 8 January 2016, the Vendors, the Guarantor and the Offeror entered into the Sale and Purchase Agreement, pursuant to which the Vendors agreed to sell and the Offeror agreed to purchase an aggregate of 360,000,000 Shares, representing 75.0% of the entire issued share capital of the Company as at the date of the Joint Announcement, for a total consideration of HK$540,000,000 (being HK$1.50 per Share).

20 LETTER FROM THE BOARD There is no condition precedent to the Sale and Purchase Agreement. Completion took place on the same date as the Sale and Purchase Agreement. Immediately following Completion, the Offeror and parties acting in concert with it were interested in a total of 360,000,000 Shares, representing 75.0% of the entire issued share capital of the Company as at the Latest Practicable Date. Pursuant to Rule 26.1 of the Takeovers Code, the Offeror is required to make a mandatory unconditional cash offer for all the issued Shares (other than those already owned and/ or agreed to be acquired by the Offeror and/or parties acting in concert with it). The purpose of this Composite Document, of which this letter forms part, is to provide you with, among others, information relating to the Group and the Offer as well as setting out the letter from the Independent Board Committee containing its recommendation and advice to the Offer Shareholders in respect of the Offer and the letter from the Independent Financial Adviser containing its advice to the Independent Board Committee in respect of the Offer. THE OFFER The Letter from Huatai set out on pages 6 to 14 in this Composite Document contains the information in respect of the Offer including those set out below. According to the Letter from Huatai, Huatai, on behalf of the Offeror, is making the Offer to all the Offer Shareholders to acquire all the Offer Shares in compliance with the Takeovers Code on the terms set out in this Composite Document on the following basis: For each Offer Share HK$1.50 in cash As at the Latest Practicable Date, the Company had 480,000,000 ordinary Shares in issue and the Company had no outstanding warrants, options, derivatives in respect of the Shares or securities convertible into Shares. You are advised to refer to the letter from Huatai set out in this Composite Document for the further terms of the Offer and the procedures for acceptance and settlement of the Offer, as set out in Appendix I to this Composite Document and the accompanying Form(s) of Acceptance and Transfer. INFORMATION ON THE OFFEROR Your attention is drawn to the section headed Information on the Offeror in the Letter from Huatai set out in this Composite Document for the information of the Offeror. INFORMATION ON THE GROUP The Company was incorporated in the Cayman Islands with limited liability and its issued shares of which have been listed on GEM since 20 July 2012 and have been transferred from GEM to the Main Board of the Stock Exchange on 5 August The principal activity of the Company is investment holding. The Group is principally engaged in the design and supply chain of lighting and home furnishing products, the manufacture of which is outsourced to independent contract manufacturers in PRC. 16

21 LETTER FROM THE BOARD Your attention is drawn to Appendices II, III and IV to this Composite Document which contain further financial and general information of the Group. PROFIT WARNING ANNOUNCEMENT AND PROFIT FORECAST Reference is made to the Profit Warning Announcement whereby, among others, it was announced that after preliminary review of the unaudited consolidated management accounts of the Group for the year ended 31 December 2015 and the information currently available to the Company, the Group is expected to record a substantial decrease by not less than 30% in the profit for the year ended 31 December 2015 as compared with that for the year ended 31 December 2014 (the Profit Warning ). Such expected decrease in profit of the Group is mainly attributable to (i) the increase in total cost of sales of the Group as a result of the increase in purchase cost of lighting and home furnishing products from the independent contract manufacturers in the PRC; and (ii) the increase in administrative expenses arising from the non-recurring legal and professional fees incurred for the application of transfer of listing of the Company from the GEM to the Main Board of the Stock Exchange as disclosed in the announcement of the Company dated 23 July As disclosed in the Profit Warning Announcement, with the commencement of the Offer Period, pursuant to Rule 10 of the Takeovers Code, the Profit Warning constitutes a profit forecast and must be reported on by the Company s financial adviser and auditors in accordance with Rule 10.4 of the Takeovers Code. In this regard, the Profit Warning has been reported on by Donvex Capital Limited and Deloitte Touche Tohmatsu, the financial adviser and the auditors of the Company respectively. Deloitte Touche Tohmatsu is of the opinion that, so far as the accounting policies and calculations are concerned, the Profit Warning has been properly compiled in accordance with the bases adopted by the Directors as set out in the Profit Warning Announcement and is presented on a basis consistent in all material respects with the accounting policies normally adopted by the Group in the annual report of the Company for the year ended 31 December Donvex Capital Limited is satisfied that the statement in the Profit Warning Announcement have been made by the Directors with due care and consideration. Your attention is drawn to the reports issued by Deloitte Touche Tohmatsu and Donvex Capital Limited on the statement in the Profit Warning Announcement set out in Appendix III to this Composite Document respectively. SHAREHOLDING STRUCTURE OF THE COMPANY The following table sets out the shareholding structure of the Company (i) immediately prior to Completion; and (ii) immediately following Completion and as at the Latest Practicable Date: Immediately following Immediately prior to Completion and as at the Completion Latest Practicable Date Shares % Shares % The Offeror and parties acting in concert with it 360,000, Vendor I 180,000, Vendor II 180,000, Public Shareholders 120,000, ,000, Total 480,000, ,000,

22 LETTER FROM THE BOARD INTENTIONS OF THE OFFEROR REGARDING THE GROUP Your attention is drawn to the sections headed Intentions of the Offeror regarding the Group in the Letter from Huatai as set out in this Composite Document for the Offeror s intentions with respect to the Group and the proposed change of the composition of the Board. The Board is aware of the Offeror s intentions in respect of the Group and is willing to co-operate with the Offeror and act in the best interests of the Company and its Shareholders as a whole. MAINTAINING THE LISTING STATUS OF THE COMPANY The Board noted from the Letter from Huatai that the Offeror intends to maintain the listing of the Shares on the Main Board of the Stock Exchange after the close of the Offer. The sole director of the Offeror has undertaken, and each of the proposed Directors (namely, Messrs. Dang Yanbao, Liu Yuanguan and Gao Jianjun) who will be nominated by the Offeror and to be appointed as new Directors will undertake to the Stock Exchange that they will take appropriate steps to ensure that sufficient public float exists for the Shares if the public float of the Company falls below 25% following the close of the Offer. The Stock Exchange has stated that if, upon closing of the Offer, less than the minimum prescribed percentage applicable to the Company, being 25% of the issued Shares, are held by the public or if the Stock Exchange believes that (i) a false market exists or may exist in the trading of the Shares; or (ii) there are insufficient Shares in public hands to maintain an orderly market, it will consider exercising its discretion to suspend trading in the Shares until the prescribed level of public float is restored. INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER The Independent Board Committee comprising Mr. Hau Chi Hung, Mr. Lai Kin, Jerome and Mr. Tang Thomas Bong, the independent non-executive Directors, has been established to make a recommendation to the Offer Shareholders in respect of the Offer. Nuada has been appointed with the approval of the Independent Board Committee as the Independent Financial Adviser to advise the Independent Board Committee in respect of the Offer and, in particular, as to whether the Offer is fair and reasonable and as to the acceptance of the Offer. RECOMMENDATION Your attention is drawn to (i) the Letter from the Independent Board Committee on pages 20 to 21 of this Composite Document, which sets out the recommendations to the Offer Shareholders in respect of the Offer; and (ii) the Letter from Nuada on pages 22 to 40 of this Composite Document, which sets out its recommendation and advice to the Independent Board Committee as to the fairness and reasonableness of the Offer and as to acceptance of the Offer, and the principal factors and reasons it has considered before arriving at its advice. 18

23 LETTER FROM THE BOARD ADDITIONAL INFORMATION You are recommended to read this Composite Document and the accompanying Form(s) of Acceptance and Transfer for information relating to the terms of the Offer and the procedures for acceptance of the Offer. Your attention is also drawn to the additional information set out in the appendices to this Composite Document. Yours faithfully, By order of the Board of Mastercraft International Holdings Limited Leung Yuen Ho Simon Chairman and Executive Director 19

24 LETTER FROM THE INDEPENDENT BOARD COMMITTEE Mastercraft International Holdings Limited (Incorporated in the Cayman Islands with limited liability) (Stock Code: 3966) 29 January 2016 To the Offer Shareholders Dear Sirs and Madam, MANDATORY UNCONDITIONAL CASH OFFER BY HUATAI FINANCIAL HOLDINGS (HONG KONG) LIMITED ON BEHALF OF FUNG TENG ENTERPRISES LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN THE ISSUED SHARE CAPITAL OF MASTERCRAFT INTERNATIONAL HOLDINGS LIMITED (OTHER THAN THOSE ALREADY OWNED AND/OR AGREED TO BE ACQUIRED BY FUNG TENG ENTERPRISES LIMITED AND/OR PARTIES ACTING IN CONCERT WITH IT) We refer to the Composite Document dated 29 January 2016 jointly issued by the Offeror and the Company, of which this letter forms part. Unless specified otherwise, capitalised terms used herein shall have the same meanings as those defined in the Composite Document. We have been appointed as the members of the Independent Board Committee to advise the Offer Shareholders as to whether, in our opinion, the terms of the Offer are fair and reasonable so far as the Offer Shareholders are concerned and to make a recommendation as to acceptance of the Offer. Nuada has been appointed as the Independent Financial Adviser to advise us in these regard. We wish to draw your attention to the Letter from Huatai, the Letter from the Board, the Letter from Nuada as set out in the Composite Document as well as the additional information set out in the appendices to the Composite Document. RECOMMENDATION Having considered the terms of the Offer, the information contained in the Composite Document and the principal factors and reasons considered by and the advice of Nuada as set out in its letter of advice, we consider that the terms of the Offer are fair and reasonable so far as the Offer Shareholders are concerned. Accordingly, we recommend the Offer Shareholders to accept the Offer. 20

25 LETTER FROM THE INDEPENDENT BOARD COMMITTEE Notwithstanding our recommendation, the Offer Shareholders should consider carefully the terms of the Offer and then decide whether to accept or not to accept the Offer. Yours faithfully, Independent Board Committee Mr. Hau Chi Hung Mr. Lai Kin, Jerome Mr. Tang Thomas Bong Independent Independent Independent non-executive director non-executive director non-executive director 21

26 LETTER FROM NUADA The following is the text of a letter of advice from Nuada Limited to the Independent Board Committee in respect of the Offer which has been prepared for the purpose of inclusion in this document. Unit , 18/F Wan Wing Lok Street Sheung Wan, Hong Kong January 2016 To the Independent Board Committee of Mastercraft International Holdings Limited Dear Sirs, INTRODUCTION MANDATORY UNCONDITIONAL CASH OFFER BY HUATAI FINANCIAL HOLDINGS (HONG KONG) LIMITED ON BEHALF OF FUNG TENG ENTERPRISES LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN THE ISSUED SHARE CAPITAL OF MASTERCRAFT INTERNATIONAL HOLDINGS LIMITED (OTHER THAN THOSE ALREADY OWNED AND/OR AGREED TO BE ACQUIRED BY FUNG TENG ENTERPRISES LIMITED AND/OR PARTIES ACTING IN CONCERT WITH IT) We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee in respect of the terms of the Offer, details of which are set out in the Composite Document dated 29 January 2016 jointly issued by the Company and the Offeror to the Offer Shareholders, of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Composite Document unless the context requires otherwise. Reference is made to the Joint Announcement, the Company was notified by the Vendor that on 8 January 2016, the Vendors, the Guarantor and the Offeror entered into the Sale and Purchase Agreement, pursuant to which the Vendors agreed to sell and the Offeror agreed to purchase an aggregate of 360,000,000 Shares, representing 75.0% of the entire issued share capital of the Company as at the date of the Joint Announcement, for a total cash consideration of HK$540,000,000 (being HK$1.50 per Share). As there is no condition precedent to the Sale and Purchase Agreement. Completion took place on the same date as the Sale and Purchase Agreement. 22

27 LETTER FROM NUADA Immediately prior to Completion, none of the Offeror and parties acting in concert with it is interested in any Shares, convertible securities, options, warrants or derivatives in the Company. Immediately after Completion, the Offeror and parties acting in concert with it are interested in an aggregate of 360,000,000 Shares, representing 75.0% of the entire issued share capital of the Company. The Offeror is therefore upon Completion required under Rule 26.1 of the Takeover Code to make a mandatory unconditional cash offer for all the issued Shares not already owned and/or agreed to be acquired by it and/or parties acting in concert with it. Huatai, on behalf of the Offeror, are making the Offer on the following basis: For each Offer Share HK$1.50 in cash The offer price of HK$1.50 for each Offer Share (the Offer Price ) is the same as the purchase price paid for each Sale Share by the Offeror pursuant to the Sale and Purchase Agreement. As at the Latest Practicable Date, there are 480,000,000 Shares in issue and the Company does not have any outstanding options, warrants or derivatives or convertible rights affecting the Shares. Based on the Offer Price of HK$1.50 per Share, the entire issued share capital of the Company is valued at HK$720,000,000. The Offer will be made to the Offer Shareholders. As the Offeror and parties acting in concert with it hold in aggregate 360,000,000 Shares immediately after Completion, 120,000,000 Shares will be subject to the Offer. Based on the Offer Price of HK$1.50 per Offer Share, the total consideration of the Offer would be HK$180,000,000 (assuming full acceptance of the Offer). The Independent Board Committee comprising Mr. Hau Chi Hung, Mr. Lai Kin, Jerome and Mr. Tang Thomas Bong, the independent non-executive directors of the Company, has been established by the Company to make a recommendation to the Offer Shareholders in respect of the Offer. We, Nuada Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee as to (i) whether the Offer is on normal commercial terms and is fair and reasonable so far as the Offer Shareholders are concerned; and (ii) whether the Offer should be accepted, and our opinion herein is solely for the assistance of the Independent Board Committee in connection with its consideration of the Offer pursuant to Rule 2.1 of the Takeovers Code. Our appointment as the Independent Financial Adviser has been approved by the Independent Board Committee. As at the Latest Practicable Date, we are not associated or connected with the Company, the Vendors or the Offeror, their respective controlling shareholders or any party acting, or presumed to be acting, in concert with any of them and accordingly, are considered eligible to give independent advice on the Offer. Apart from normal professional fees payable to us in connection with this appointment, no arrangement exists whereby we will receive any fees or benefits from the Company, the Vendors or the Offeror, their respective controlling shareholders or any party acting, or presumed to be acting, in concert with any of them. 23

28 LETTER FROM NUADA BASIS OF OUR OPINION In formulating our opinion to the Independent Board Committee, we have relied on the statements, information, opinions and representations contained or referred to in the Composite Document and the representations made to us by the Directors and the senior management of the Company. We have assumed that all statements, information and representations provided by the Directors and the management of the Company, for which they are solely responsible, are true and accurate at the time when they were provided and continue to be so as at the Latest Practicable Date and the Offer Shareholders will be notified of any material changes to such statements, information, opinions and/or representations as soon as possible in accordance with Rule 9.1 of the Takeovers Code. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Composite Document were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Composite Document, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Composite Document (other than information relating to the Offeror and parties acting in concert with it, the terms of the Offer and the intention of the Offeror in relation to the Group) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Composite Document have been arrived at after due and careful consideration and there are no other facts not contained in the Composite Document, the omission of which would make any statement contained in the Composite Document, including this letter, incorrect or misleading. The sole director of the Offeror accepts full responsibility for the accuracy of the information contained in the Composite Document (other than that relating to the Vendors, the Guarantor, the Group or its respective director(s)), and confirms, having made all reasonable inquiries, that to the best of his knowledge, opinions expressed in the Composite Document (other than that expressed by the Vendors, the Guarantor, the Group or its respective director(s)) have been arrived at after due and careful consideration and there are no other facts not contained in the Composite Document, the omission of which would make any statements in the Composite Document misleading. We consider that we have been provided with sufficient information and have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule of the Listing Rules. We have not, however, carried out any independent verification of the information provided, nor have we conducted any independent investigation into the business and affairs of the Group. We have not considered the taxation implication on the Group or the Offer Shareholders as a result of the Offer. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Where information in this letter has been extracted from published or otherwise publicly available sources, the sole responsibility of us is to ensure that such information has been correctly and fairly extracted, reproduced or presented from the relevant stated sources and not be used out of context. 24

29 LETTER FROM NUADA PRINCIPAL FACTORS AND REASONS CONSIDERED In formulating our opinion and recommendation with regards to the Offer, we have taken into account the following principal factors and reasons: 1. Financial Information of the Group and outlook (a) Financial information of the Group According to the management of the Company and the interim report of the Company for the six months ended 30 June 2015 (the Interim Report 2015 ), the principal activities of the Group are design and supply chain of lighting and home furnishing products. Set out below is an extract of (i) consolidated income statement of the Group for the four years ended 31 December 2014 and for the six months ended 30 June 2014 and 2015; and (ii) consolidated statement of financial position of the Group for the two years ended 31 December 2014 and for the six months ended 30 June 2015, respectively: Table 1: Consolidated income statement of the Group For the six months ended 30 June For the year ended 31 December (unaudited) (unaudited) (audited) (audited) (audited) (audited) Revenue () 181, , , , , ,482 Growth rate 12.10% 1.04% 5.69% 6.55% 25.28% 33.23% Gross profit () 36,468 35,403 82,977 76,297 68,478 48,041 Growth rate 3.01% 8.10% 8.76% 11.42% 42.54% 24.65% Profit for the period/year () 9,137 9,443 23,632 21,237 14,304 9,609 Growth rate 3.24% 22.27% 11.28% 48.47% 48.86% 31.87% 25

30 LETTER FROM NUADA Table 2: Consolidated statement of financial position of the Group As at 30 June As at ended 31 December (unaudited) (audited) (audited) Non-current assets 7,268 7,419 7,237 Current assets 125, , ,742 Current Liabilities 52,821 47,319 58,865 Net current assets 72,370 78,894 69,877 Net assets 79,575 86,230 76,998 For the year ended 31 December 2014 According to the annual report of the Company for the year ended 31 December 2014 (the Annual Report 2014 ), the principal source of revenue of the Group are the sale of (i) portable lighting, i.e. table lamps, floor lamps, accent lamps, buffet lamps etc; (ii) shades, i.e. frame that typically fit on the top of a lamp and cover the lighting source; (ii) and furniture set and other home accessory products, which respectively contributed to approximately 77.94%, 15.81% and 6.25% of the total revenue of the Group for the year ended 31 December 2014 ( FY2014 ). As set out in the Table 1 above, the revenue of the Group increased from approximately HK$ million for the year ended 31 December 2013 ( FY2013 ) to approximately HK$ million for FY2014, representing an increase of approximately 5.69%. The profit for the year of the Group also increased from approximately HK$21.24 million for FY2013 to approximately HK$23.63 million for FY2014, representing an increase of approximately 11.25%. According to the management of the Company, the increase in the profit for FY2014 was mainly due to the increase of the revenue and the gross profit. As set out in the Table 2 above, as at 31 December 2014, the Group recorded net current assets and net assets of approximately HK$78.89 million and HK$86.23 million respectively. For the six months ended 30 June 2015 As set out in the Table 1 above, the revenue of the Group increased from approximately HK$ million for the six months ended 30 June 2014 to approximately HK$ million for the six months ended 30 June 2015, representing an increase of approximately 12.10%. The profit for the period of the Group however decrease from approximately HK$9.44 million for the six months ended 30 June 2014 to approximately HK$9.14 million for the six months ended 30 June 2015, representing a decrease of approximately 3.28%. According to the management of the Company, the decrease in the profit for the period was mainly due to the increase of the selling expense and the administration expenses from approximately HK$21.0 million for the six months ended 30 June 2014 to approximately HK$22.3 million for the six months ended 30 June

31 LETTER FROM NUADA As set out in the Table 2 above, as at 30 June 2015, the Group recorded net current assets and net assets of approximately HK$72.37 million and HK$79.58 million respectively. We also noted that while the revenue, gross profit and profit of the Group have been increasing, the growth trend of each of them was declining. In particular, the annual growth rate of profit of the Group for the year ended 31 December 2012 was approximately 48.86%, which decreased slightly to approximately 48.47% for the year ended 31 December 2013 and further decrease to approximately 11.28% for the year ended 31 December In addition, the profit of the Group for the six months ended 30 June 2015 represented a negative growth of approximately 3.24% as compared with that in the corresponding period in With reference to the announcement of the Company dated 25 January 2016, we note that after preliminary review of the unaudited consolidated management accounts of the Group for the year ended 31 December 2015 ( FY2015 ) and the information currently available to the Company, the Group is expected to record a substantial decrease by not less than 30% in the profit for FY2015 as compared with that for FY2014 (the Profit Warning ). Such expected decrease in profit of the Group is mainly attributable to (i) the increase in total cost of sales of the Group as a result of the increase in purchase cost of lighting and home furnishing products from the independent contract manufacturers in the PRC; and (ii) the increase in administrative expenses arising from the non-recurring legal and professional fees incurred for the application of transfer of listing of the Company from the GEM to the Main Board of the Stock Exchange as disclosed in the announcement of the Company dated 23 July In view of the above, we are of the view that whether there will be an ongoing growth in terms of financial results is uncertain. (b) Outlook We note from the Annual Report 2014 that (i) the revenue of the Group was generate substantially from the sales of portable lighting and lamp shades, which together contributed to approximately 93.8% of the revenue of the Group for the FY2014; (ii) the customers of the Group were mainly from the United States of America ( USA ), which accounted for approximately 97.0% of the revenue of the Group for the FY2014. In order to understand the market of the Group s products, we study the import of furniture, and in particular lamps and lighting fittings, of the USA from the PRC. 27

32 LETTER FROM NUADA Table 3: Statistics on the USA s Furniture Import from the PRC Furniture (including lamps and lighting fittings) Import dollar value (billion US$) Yearly growth rate 28.09% 9.18% 17.36% 13.42% 4.98% Lamps and lighting fittings Import dollar value (billion US$) Yearly growth rate 24.55% 2.69% 9.51% 7.53% 5.73% Source: International Trade Administration, Department of Commerce of the USA ( As shown in Table 3 above, the import dollar value of furniture from the PRC to the USA was approximately US$25.52 billion in year We noticed that the import of furniture (including lamps and lightings fittings) has been increasing in the years 2010 to However, the growth rate has been slowing in recent years, as the yearly growth rate drops from approximately 17.36% in 2012 to approximately 13.42% in 2013 and further drops to approximately 4.98% in Similarly, we noticed that yearly growth rate of import dollar value of lamps and lighting fittings also decelerated, from approximately 9.51% in 2012 to approximately 7.53% in 2013 and further drops to approximately 5.73% in The decelerated growth in the import of furniture, specifically lamps and lighting fittings, coincided with declining growth trend of the profit of the Group in recent years. Based on (i) the decelerated growth in revenue and profit of the Group as stated above; (ii) the profit of the Group for the six months ended 30 June 2015 represented a decrease as compared with previous period as well as the Profit Warning; and (iii) the decreasing growth trend of the furniture in the USA as stated above, we are cautious about the outlook of the Group s business. 2. Information on the Offeror and the Offeror s intention regarding the Group (a) Information on the Offeror As disclosed in the Letter from Huatai in the Composite Document, the Offeror is an investment holding company incorporated in the British Virgin Islands with limited liability on 2 January 2015 and is wholly-owned by Mr. Dang Yanbao ( ). It has not carried on any substantive business since the date of its incorporation until the entering into of the Sale and Purchase Agreement. Mr. Dang Yanbao is the sole director and beneficial owner of the Offeror. Mr. Dang is currently the chairman and ultimate controlling shareholder of Ningxia Baofeng Energy Group Co., Ltd.* ( ), which manufactures, processes, and sells coal products and other related coal chemical products. 28

33 LETTER FROM NUADA (b) Business As stated in the Letter from Huatai in the Composite Document, following the close of the Offer, the Offeror intends to continue the existing principal businesses of the Group. The Offeror also intends to identify suitable investments and business opportunities to diversify with a view to achieving better growth potential of the Group. In this aspect, the Offeror is looking at potential energy projects, both in the traditional and clean energy sectors. The Offeror is in the process of considering potential investment opportunities in the PRC in energy and energy-related deals, including but not limited to clean energy projects. In the course of the exploration and consideration of these potential investment opportunities, the Offeror may, through the Company, establish one or more investment holding subsidiaries to develop and prepare for the potential investments to be made. The Company will comply with the relevant disclosure and approval requirements if and when an actual transaction has materialised. Based on the unaudited financial statements of the Group as at 30 June 2015, the Group s total cash and bank balance were approximately HK$28.2 million. In view of the financial situation of the Group as well as the potential investment opportunities which might arise, the Offeror may procure the Company to conduct equity and/or debt financing following the close of the Offer. Should such corporate actions materialise, further announcement(s) will be made as and when appropriate in accordance with the Listing Rules. The Offeror has no intention to (i) discontinue the employment of any employees of the Group; or (ii) redeploy the fixed assets of the Company other than those in its ordinary and usual course of business. (c) Proposed change of board composition As stated in the Letter from Huatai in the Composite Document, the Board is currently made up of six Directors, comprising three executive Directors, namely the Guarantor, Vendor II and Ms. Wong Shuk Fong; and three independent non-executive Directors, namely Mr. Hau Chi Hung, Mr. Lai Kin, Jerome and Mr. Tang Thomas Bong. It is intended that all of the executive directors of the Company will resign with effect from the earliest time permitted under the Takeovers Code. Such resignation will not take effect earlier than the date of the close of the Offer, subject to the requirements of the Takeovers Code. To ensure that there will be continuity in the management of the Group s business, Vendor II and the Guarantor shall remain as directors of the existing subsidiaries of the Company. The Offeror intends to nominate new Directors to the Board for appointment with effect from a date which is no earlier than such date as permitted under Rule 26.4 of the Takeovers Code: Proposed nomination of executive Directors Mr. Dang Yanbao ( ) is the sole director and sole shareholder of the Offer, and is currently the chairman and ultimate controlling shareholder of Ningxia Baofeng Energy Group Co., Ltd.* ( ). He is an experienced businessman in the PRC, who also manages a number of other companies engaged in the coal and energy sector, such as Inner Mongolia Zhongbao 29

34 LETTER FROM NUADA Energy Co., Ltd.* ( ), Ningxia Baofeng Energy Catalytic Co., Ltd.* ( ) and Ningxia Baofeng Group Hongsi Coal Mining Co., Ltd.* ( ). Mr. Liu Yuanguan ( ) is currently the chief executive officer of Ningxia Baofeng Energy Group Co., Ltd.* ( ). He is a veteran in the coal mining, energy and chemical industry with more than 28 years of experience. Mr. Liu holds the title of Senior Engineer and has a Master s Degree from Xi an University of Science and Technology and a Bachelor s Degree from China University of Mining and Technology. Mr. Gao Jianjun ( ) is currently the vice president of Ningxia Baofeng Energy Group Co., Ltd.* ( ) and the legal representative of Ningxia Baofeng Energy Catalytic Co., Ltd.* ( ). Mr. Gao has 20 years of experience in the coal mining, crude oil and energy industry. Should there be any change to the composition of the Board, it will be made in compliance with the Takeovers Code and the Listing Rules. Further announcement(s) will be made by the Company upon any change of Directors. (d) Maintaining the listing status of the Company As stated in the Letter from Huatai in the Composite Document, the Offeror intends to maintain the listing of the Shares on the Stock Exchange following the close of the Offer. The Stock Exchange has stated that if, at the close of the Offer, less than the minimum prescribed percentage applicable to the Company, being 25% of the issued Shares, are held by the public at all times, or if the Stock Exchange believes that: (i) (ii) a false market exists or may exist in the trading of the Shares; or that there are insufficient Shares in public hands to maintain an orderly market, it will consider exercising its discretion to suspend dealings in the Shares. Each of the Offeror and the proposed Directors (namely, Messrs. Dang Yanbao, Liu Yuangguan and Gao Jianjun) will undertake to the Stock Exchange to take appropriate steps to ensure that sufficient public float exists in the Shares. 30

35 LETTER FROM NUADA (e) Our view Having taken into consideration: (i) (ii) the beneficial owner of the Offeror has experience in the business of coal and energy in PRC but does not have direct experience in the design and sale of lighting and other furniture, in which the Group is principally engaged currently; and while the Offeror intends to identify suitable investments and business opportunities, in particular potential energy projects both in the traditional and clean energy sectors, to diversify with a view to achieving better growth potential of the Group, the Offeror had yet to formulate any concrete business plans and strategies for the future business development of the Group; we are of the view that there remains uncertainty on the future performance of the Group under the control of the Offeror. 3. Analysis of the Offer Price (a) Comparison of the market prices of the Shares As stated in the Letter from Huatai in the Composite Document, the Offer Price of HK$1.50 per Offer Share represents: (i) (ii) (iii) (iv) (v) a premium of approximately 4.90% over the closing price of HK$1.43 per Share as quoted on the Stock Exchange on 4 January 2016, being the last Business Day prior to the trading halt of Shares before the Offer Period commenced on 6 January 2016; a discount of approximately 20.63% to the closing price of HK$1.89 per Share as quoted on the Stock Exchange on 7 January 2016, being the Last Trading Day; a discount of approximately 10.18% to the average closing price of approximately HK$1.67 per Share as quoted on the Stock Exchange for the five consecutive trading days immediately prior to and including the Last Trading Day; a discount of approximately 4.46% to the average closing price of approximately HK$1.57 per Share as quoted on the Stock Exchange for the 10 consecutive trading days immediately prior to and including the Last Trading Day; a premium of approximately 1.35% over the average closing price of approximately HK$1.48 per Share as quoted on the Stock Exchange for the 30 consecutive trading days immediately prior to and including the Last Trading Day; 31

36 LETTER FROM NUADA (vi) a discount of approximately 45.85% to the closing prices of HK$2.77 per Share as quoted on the Stock Exchange on the Latest Practicable Date; (vii) a premium of approximately 7.4 times over the audited consolidated net assets per Share of approximately HK$0.1796, as at 31 December 2014, calculated based on the Group s audited consolidated net assets of approximately HK$86,230,000 as at 31 December 2014 and 480,000,000 Shares in issue as at the Latest Practicable Date; and (viii) a premium of approximately 8.1 times over the unaudited consolidated net assets per Share of approximately HK$ as at 30 June 2015, calculated based on the Group s unaudited consolidated net assets of approximately HK$79,575,000 as at 30 June 2015 and 480,000,000 Shares in issue as at the Latest Practicable Date. As disclosed above, the Offer Price represents (i) a discount to the relevant closing price of the Share; (ii) a premium over the unaudited consolidated net asset per Share as at 30 June 2015; and (iii) discount to the closing price of the Shares as at the Latest Practicable Date. (b) Historical price performance of the Shares The following chart sets out the closing prices of the Shares as quoted on the Stock Exchange during the period from 7 January 2015, being the date which is 12 months prior to the Last Trading Day, i.e. 7 January 2016, up to and including the Latest Practicable Date (the Review Period ): 3.0 Comparison of the Offer Price to Market Prices /1/2015 7/2/2015 7/3/2015 7/4/2015 7/5/2015 Source: Website of the Stock Exchange ( Note: 7/6/2015 7/7/2015 7/8/2015 7/9/2015 7/10/2015 7/11/2015 7/12/2015 7/1/2016 Suspension Closing Price Offer Price During the Review Period, Trading in the Shares was suspended on 15 May 2015, 5 January 2016 and 8 January 2016 respectively. 32

37 LETTER FROM NUADA We consider that the length of the Review Period to be reasonably long enough to illustrate the relationship between the recent trend of the closing price of the Shares and the Offer Price. As illustrated by the above chart, at the beginning of the Review Period, the closing prices of the Shares were in a general upward trend from HK$0.51 per Share on 8 January 2015 to a peak at HK$1.6 per Share on 14 May 2015, followed by an downward trend since then to as low as HK$0.8 per Share on 8 July 2015, representing a decrease of approximately 50% for this period. We note that Hang Seng Index also experience similar downward trend from mid-may to early July, from 27, on 14 May 2015 to 23, on 8 July 2015, representing a decrease of approximately 13.82% for this period. The closing price of the Shares then experienced a short-term reversal with a peak of HK$1.41 on 24 July 2015, then fell back to HK$0.74 on 21 August Such short-term reversal is in line with that of Hang Seng Index, which reached a peak at 25, from the trough of 23, on 8 July 2015, and continued to drop subsequently. The closing price of the Shares then fluctuated in a close range of HK$0.75 to HK$0.9, with a subsequent growth since early November After the publication of the MOU Announcement dated 6 January 2016 in relation to the MOU, as well as the Joint Announcement dated 11 January 2016 in relation to the Sale and Purchase Agreement and the Offer, the closing price of the Shares increased from approximately HK$1.43 on 4 January 2016 to as high as HK$2.8 on 20 January We are of the view that such surge of the closing price of the Share after the publication of the MOU Announcement as well as the Joint Announcement was likely attributable to the market speculation in view of a possible takeover (which then materialised as the Offer). During the Review Period, the highest and lowest closing price of the Shares during the Review Period were HK$2.8 per Share recorded on 20 January 2016 ( Highest Price ) and HK$0.74 per Share recorded on 21 August 2015 ( Lowest Price ) respectively, with an average closing price of the Review Period of approximately HK$1.07 ( Average Closing Price ). The Offer Price represents (i) a discount of approximately 46.4% to the Highest Price; (ii) a premium of approximately 102.7% to the Lowest Price; and (iii) a premium of approximately 40.2% to the Average Closing Price. We also noted that the closing prices of the Shares were mostly below the Offer Price on 237 out of 259 trading days of the Shares during the Review Period. Offer Shareholders should note that the information set out above is not an indicator of the future performance of the Shares and that the price of the Shares, may increase or decrease from its closing price as at the Last Practicable Date. In view of the fluctuation in the trading price of the Shares as stated in above, Offer Shareholders who wish to realize their investment in the Group are reminded that they should carefully and closely monitor the market price of the Group during the Offer Period and consider selling their Shares in the open market during the Offer Period, rather than accepting the Offer, if the net proceeds from the sale of such Shares in the open market would exceed the net amount receivable under the Offer. 33

38 LETTER FROM NUADA (c) Historical trading liquidity of the Shares Set out in the table below are figures during the Review Period regarding (i) number of trading days of the Shares in each month; (ii) the total trading volume of the Shares for each month; (iii) the average daily trading volume of the Shares; and (iv) the percentage of average daily trading volume of the Shares to total number of issued Shares: Percentage of average daily trading volume Total of the Shares monthly Average to the total trading daily trading number of Number of volume volume issued Shares Month trading days of the Shares of the Shares (Note) 2015 January (from 7 January 2015) 18 1,770,000 98, % February 18 4,098, , % March 22 9,180, , % April 19 13,079, , % May 18 20,766,000 1,153, % June 22 7,596, , % July 22 7,434, , % August 21 6,672, , % September 20 1,026,000 51, % October ,000 32, % November 21 15,411, , % December 22 8,826, , % 2016 January (up to and including the Latest Practicable Date) ,336,750 8,521, % Review Period ,836, , % Source: Website of the Stock Exchange ( Note: Based on number of issued Shares as at the Latest Practicable Date, which remained the same throughout the whole Review Period. 34

39 LETTER FROM NUADA As illustrated in the table above, the average daily trading volume of the Shares during the Review Period recorded the lowest of approximately 32,100 Shares in October 2015 and highest of approximately 8,521,047 Shares in January 2016, representing approximately 0.01% and 1.78% respectively of the total number of issued Shares as at the end of the relevant month. The average of the daily trading volume of the Shares during the Review Period was 898,984 Shares, representing approximately 0.19% of the total number of issued Shares as at the Latest Practicable Date. Having consider that (i) all of the monthly/period average daily trading volume of the Shares during the Review Period (except January 2016 when the announcement of the Company regarding the MOU and the Offer was published and we are of the view that the sudden increase in the trading volume of the Shares was the effect of the publication of the MOU Announcement and the Joint Announcement); and (ii) the average daily trading volume of the Shares throughout the Review Period are all below 0.3%, we consider that the trading volume of the Shares is relatively low during the Review Period. Accordingly, although the Offer Price present a discount to the closing price of the Shares as stated in the paragraph headed (a) Comparison of the market prices of the Shares above, we are of the view that given (i) the Offer Price represents a premium of approximately 102.7% to the Lowest Price as stated in the paragraph headed (b) Historical prices performance of the Shares above; (ii) the Offer Price represents a premium of approximately 40.2% to the Average Closing Price as stated in the paragraph headed (b) Historical prices performance of the Shares above; (iii) the Offer Price represents a premium over the unaudited consolidated net asset per Share as at 30 June 2015 as stated in the paragraph headed (b) Historical prices performance of the Shares above; and (iv) the closing prices of the Shares were mostly below the Offer Price on 237 out of 259 trading days of the Shares during the Review Period as stated in the paragraph headed (b) Historical prices performance of the Shares above, we are of the view that the Offer Price is fair and reasonable. Given the thin historical trading volume of the Shares as stated above, it is uncertain as to whether there would be sufficient liquidity in the Shares for the Offer Shareholders to dispose of a significant number of Shares in the open market without causing an adverse impact on the market price level of the Shares. Accordingly, the market trading price of the Shares may not necessary reflect the proceeds that the Offer Shareholders can receive by the disposal of their Shares in the open market. The Offer, therefore, represents an assured opportunity for the Offer Shareholders, particular for those who hold a large number of the Shares, to dispose of some or all of them at the Offer Price if they so wish, without creating a significant downside pressure on the trading price of the Shares. 35

40 LETTER FROM NUADA (d) Comparable analysis The principal activities of the Group are design and supply chain of lighting and home furnishing products, the manufacture of which is outsourced to independent contract manufacturers in PRC. In assessing the fairness and reasonableness of the Offer Price, we attempted to compare the price-toearnings ratio ( P/E Ratio ) and price-to-book ratio ( P/B Ratio ), which are the most commonly used benchmarks in valuing a company, to other listed companies on the Stock Exchange. We identified a complete and an exhaustive list of three companies (the Comparable Companies ) which (i) are principally engaged in the manufacture or sale of lighting products (e.g. portable lighting and shades) in their respective latest financial year; and (ii) have their shares listed on the Stock Exchange. Having considered the business nature of the Company, P/E Ratio analysis is commonly used in valuing the Company. However, given that all the Comparable Companies were loss making in their respective latest financial year, it is impracticable to use P/E Ratio to value such Comparable Companies. Therefore, we adopted the P/B Ratio in our analysis, which is a ratio used to compare a stock s value to its book value. The higher the P/B Ratio, the higher the value of the stock. The following table sets out the details of the Comparable Companies: 36

41 LETTER FROM NUADA Company name Stock code Principal business Closing price as at the Latest Practicable Date (HK$) Market capitalisation as at the Latest Practicable Date (HK$ million) Net asset attributable to the shareholders of the respective company (HK$ million) P/B Ratio (times) (Note 2) Neo-Neon Holdings Limited (Note 3) NVC Lighting Holding Limited (Note 3) E Lighting Group Holdings Limited 1868 Manufacturing and distribution products of LED decorative lighting products, LED general illumination lighting products, incandescent decorative lighting products, entertainment lighting; and distribution of lighting product accessories Design, develop, produce, market and sell a variety of lighting products with a strong focus on energy-saving products through the luminate products, lamp products and lighting electronics products Retail chain business in lighting, designer label furniture and household products in Hong Kong and wholesale of tableware and giftware worldwide , , , , Offer Price (HK$) Market Value represented by the Offer Price (HK$) Average 1.55 Maximum 2.57 Minimum 0.61 The Offer ,000, (Note 4) 37

42 LETTER FROM NUADA Notes: 1. The figures are based on (i) the latest annual reports of the Comparable Companies; (ii) the closing prices of the respective Comparable Companies as at the Latest Practicable Date; and (iii) the numbers of issued shares of the respective Comparable Companies as at the Latest Practicable Date. 2. The P/B Ratios of the Comparable Companies are calculated based on (i) the market capitalisation of the respective Comparable Companies as at the Latest Practicable Date divided by (ii) the consolidated net assets attributable to the shareholders of the Comparable Companies as extracted from the respective Comparable Companies latest published financial reports. 3. The figures disclosed in the respective latest published financial reports are presented in Renminbi ( RMB ) and, for illustration purposes, are converted based on the currency exchange rate at approximately RMB1.00 = HK$ The implied P/B Ratio represented by the Offer Price (the Implied P/B Ratio ) is calculated based on the Offer Price multiply by the number of Shares as at the Latest Practicable Date, then divided by the unaudited consolidated net assets of the Group as at 30 June 2015 of approximately HK$79.6 million, i.e ,000,000 79,600,000 = 9.05 approximately. As shown in the above table, the P/B Ratio of the Comparable Companies ranged from approximately 0.61 times to approximately 2.57 times, with an average of approximately 1.55 times. The Implied P/B Ratio is approximately 9.05 times, which is higher than (i) the average P/B Ratio of the Comparable Companies of approximately 1.55 times; and (ii) the P/B Ratios of all Comparable Companies. However, the Offer Shareholders should be aware of the limitations of P/B Ratio including, among others, the different scale of operations, marketplace, financial performance and asset base of the Comparable Companies and the Company as well as the various circumstances and factors affecting the respective share price performance of the Comparable Companies from time to time. The above analysis give an additional information for the Offer Shareholders to consider whether to accept the Offer or not. (e) Our view Although the Offer Price represents discounts to the recent closing price of the Share as stated in the paragraph headed (b) Historical price performance of the Shares above, having considered that: (i) (ii) (iii) (iv) the decelerating growth of the Group in terms of revenue and profit in recent years, and in particular the decrease in profit of the Group for the six months ended 30 June 2015 as compared with the corresponding period in 2014 as well as the Profit Warning; on 237 out of 259 trading days of the Shares during the Review Period, the closing prices of the Shares were below the Offer Price; the Offer Price represent a premium of approximately 8.1 times over the unaudited consolidated net asset value as at 30 June 2015 per Share of approximately HK$0.1658; and the Implied P/B Ratio represented by the Offer Price is well above the average P/B Ratio as well as all of the P/B Ratios of the Comparable Companies, 38

43 LETTER FROM NUADA we are of the view that the Offer Price is fair and reasonable. Furthermore, we would like to remind the Offer Shareholders that although the Offer Price is below the recent closing prices of the Shares on the Stock Exchange, there is no guarantee that the recent trading prices of the Shares on the Stock Exchange will sustain and be higher than the Offer Price during and after the Offer Period. The Offer Shareholders, in particular those who may wish to realise their investments in the Shares, are thus reminded to closely monitor the market price of the Shares during the Offer Period. RECOMMENDATION Taking into consideration the above-mentioned principal factors and reasons, in particular: (i) (ii) (iii) (iv) (v) (vi) the decelerating growth of the Group in terms of revenue and profit in recent years, and in particular the decrease in profit of the Group for the six months ended 30 June 2015 as compared with the corresponding period in 2014 as well as the Profit Warning; the uncertain future prospects of the Group in view of the diminishing growth rate of the profit of the Group and the decrease in profit of the Group for the six months ended 30 June 2015, and the decelerated growth of the import of furniture from the PRC to the USA; to ensure that there will be continuity in the management of the Group s business, Vendor II and the Guarantor shall remain as directors of the existing Group s subsidiaries; the closing price of the Shares were below the Offer Price during most of the times of the Review Period; the Offer Price represent a premium of approximately 8.1 times over the unaudited consolidated net asset value as at 30 June 2015 per Share of approximately HK$0.1658; the Implied P/B Ratio represented by the Offer Price is well above the average P/B Ratio as well as all the P/B Ratios of the Comparable Companies; and (vii) the average daily trading volume of the Shares has been thin, where the Offer Shareholders may find it difficult to dispose of a significant number of Shares in the open market in a short period of time without causing an adverse impact on the market price level of the Shares. Therefore, the Offer represents an assured opportunity for the Offer Shareholders, particular for those who hold a large number of Shares, to dispose of some or all of them at the Offer Price if they so wish, without creating a significant downside pressure on the trading price of the Shares, 39

44 LETTER FROM NUADA we are of the opinion that the terms of the Offer are fair and reasonable so far as the Offer Shareholders are concerned and we recommend the Independent Board Committee to advise the Offer Shareholders to, and we recommend the Offer Shareholders to, accept the Offer. We would also like to remind the Independent Board Committee to remind the Offer Shareholders to closely monitor the market price and liquidity of the Shares during the Offer Period, especially that the disposal of large blocks of Shares held by the Offer Shareholders in the open market may trigger price slump of the Shares as a result of the thin trading of the Shares. For those Offer Shareholders who intend to realise their investment in the Company should consider selling their Shares in the open market, where possible, instead of accepting the Offer, if the net proceeds from such sales exceed the net amount receivable under the Offer. We would also like to remind the Independent Board Committee to remind the Offer Shareholders that their decisions to dispose of or hold their investment in the Shares are subject to their individual circumstances and investment objectives and the Offer Shareholders should read carefully the procedures for accepting the Offer as detailed in the Composite Document, the appendices to the Composite Document and the Form of Acceptance and Transfer, if they wish to accept the Offer. Yours faithfully, For and on behalf of Nuada Limited Kim Chan Director Kevin Wong Vice President Mr. Kim Chan is a person licensed to carry out type 6 (advising on corporate finance) regulated activity under the SFO and is a responsible officer of Nuada Limited who has over 16 years of experience in corporate finance industry. Mr. Kevin Wong is a person licensed to carry out type 6 (advising on corporate finance) regulated activity under the SFO and is a responsible officer of Nuada Limited who has over 13 years of experience in corporate finance industry. * The English translation of the Chinese names of the PRC entities in this letter, where indicated, is included for identification purpose only and is not the official English names for such PRC entities. 40

45 APPENDIX I FURTHER TERMS OF ACCEPTANCE OF THE OFFER 1. GENERAL PROCEDURES FOR ACCEPTANCE OF THE OFFER To accept the Offer, you should complete and sign the accompanying Form(s) of Acceptance and Transfer in accordance with the instructions printed thereon, which instructions form part of the terms of the Offer. (a) (b) If the share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/ or any satisfactory indemnity or indemnities required in respect thereof) in respect of your Share(s) is/are in your name, and you wish to accept the Offer, you must send the duly completed Form(s) of Acceptance and Transfer together with the relevant share certificate(s) and/or transfer receipt(s) and/or other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof), by post or by hand, to the Registrar at A18/F., Asia Orient Tower, Town Place, 33 Lockhart Road, Wanchai, Hong Kong in an envelope marked Mastercraft International Holdings Limited General Offer to be received by the Registrar no later than 4:00 p.m. on the Closing Date or such later time and/or date as the Offeror may determine and the Offeror and the Company may jointly announce with the consent of the Executive in accordance with the Takeovers Code. If the share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/ or any satisfactory indemnity or indemnities required in respect thereof) in respect of your Shares is/are in the name of a nominee company or a name other than your own, and you wish to accept the Offer in respect of your Shares, you must either: (i) (ii) (iii) lodge your share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) with the nominee company, or other nominee, with instructions authorising it to accept the Offer on your behalf and requesting it to deliver the duly completed Form(s) of Acceptance and Transfer together with the relevant share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) to the Registrar; or arrange for the Shares to be registered in your name by the Company through the Registrar, and send the duly completed Form(s) of Acceptance and Transfer together with the relevant share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) to the Registrar; or if your Shares have been lodged with your licensed securities dealer/registered institution in securities/custodian bank through CCASS, instruct your licensed securities dealer/registered institution in securities/custodian bank to authorise HKSCC Nominees Limited to accept the Offer on your behalf on or before the deadline set by HKSCC Nominees Limited (which is normally one Business Day before the latest date on which acceptances of the Offer must be received by the Registrar). In order to meet the deadline set by HKSCC Nominees Limited, you should check with your licensed securities dealer/registered institution in securities/ custodian bank for the timing on processing of your instruction, and submit your 41

46 APPENDIX I FURTHER TERMS OF ACCEPTANCE OF THE OFFER instruction to your licensed securities dealer/registered institution in securities/ custodian bank as required by them; or (iv) if your Shares have been lodged with your investor participant s account maintained with CCASS, authorise your instruction via the CCASS Phone System or CCASS Internet System on or before the deadline set by HKSCC Nominees Limited (which is normally one Business Day before the latest date on which acceptances of the Offer must be received by the Registrar). (c) (d) (e) If the share certificate(s) and/or transfer receipt(s) and/or other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) in respect of your Shares is/are not readily available and/or is/are lost and you wish to accept the Offer in respect of your Shares, the Form(s) of Acceptance and Transfer should nevertheless be completed and delivered to the Registrar together with a letter stating that you have lost one or more of your share certificate(s) and/or transfer receipt(s) and/or other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) or that it/ they is/are not readily available. If you find such document(s) or if it/they become(s) available, the relevant share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) should be forwarded to the Registrar as soon as possible thereafter. If you have lost your share certificate(s), you should also write to the Registrar for a letter of indemnity which, when completed in accordance with the instructions given, should be returned to the Registrar. If you have lodged transfer(s) of any of your Shares for registration in your name and have not yet received your share certificate(s), and you wish to accept the Offer in respect of your Shares, you should nevertheless complete the Form(s) of Acceptance and Transfer and deliver it to the Registrar together with the transfer receipt(s) duly signed by yourself. Such action will be deemed to be an irrevocable authority to Huatai and/or the Offeror or their respective agent(s) to collect from the Registrar on your behalf the relevant share certificate(s) when issued and to deliver such certificate(s) to the Registrar as if it was/they were delivered to the Registrar with the Form(s) of Acceptance and Transfer. Acceptance of the Offer will be treated as valid only if the completed Form(s) of Acceptance and Transfer is received by the Registrar no later than 4:00 p.m. on the Closing Date or such later time and/or date as the Offeror may determine and announce with the consent of the Executive in accordance to the Takeovers Code and the Registrar has recorded that the acceptance and the relevant documents as required under this paragraph have been so received, and is: (i) accompanied by the relevant share certificate(s) and/or transfer receipt(s) and/or other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) and, if the share certificate(s) is/are not in your name, such other documents in order to establish your right to become the registered holder of the relevant Shares; or 42

47 APPENDIX I FURTHER TERMS OF ACCEPTANCE OF THE OFFER (ii) (iii) from a registered Shareholder or his personal representative (but only up to the amount of the registered holding and only to the extent that the acceptance relates to Shares which are not taken into account under another sub-paragraph of this paragraph (e)); or certified by the Registrar or the Stock Exchange. (f) (g) (h) If the Form(s) of Acceptance and Transfer is executed by a person other than the registered Shareholder, appropriate documentary evidence of authority to the satisfaction of the Registrar must be produced. Seller s Hong Kong ad valorem stamp duty arising in connection with acceptance of the Offer amounting to HK$1.00 for every HK$1,000 or part thereof of the amount payable in respect of relevant acceptances by the Offer Shareholders, or (if higher) the value of the Shares as determined by the Collector of Stamp Revenue under the Stamp Duty Ordinance (Chapter 117 of the Laws of Hong Kong), will be deducted from the amount payable to the Offer Shareholders who accept the Offer. The Offeror will then pay the Hong Kong stamp duty so deducted to the Stamp Office. The Offeror will bear buyer s Hong Kong ad valorem stamp duty. No acknowledgement of receipt of any Form(s) of Acceptance and Transfer, share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) will be given. 2. ACCEPTANCE PERIOD AND REVISIONS (a) (b) (c) (d) Unless the Offer has previously been revised or extended, with the consent of the Executive, in accordance with the Takeovers Code, the Form(s) of Acceptance and Transfer must be received by 4:00 p.m. on the Closing Date in accordance with the instructions printed on the relevant Form(s) of Acceptance and Transfer, and the Offer will be closed on the Closing Date. The Offeror and the Company will jointly issue an announcement through the websites of the Stock Exchange and the Company no later than 7:00 p.m. on the Closing Date stating whether the Offer has been extended, revised or has expired. In the event that the Offeror decides to extend the Offer, at least 14 days notice by way of announcement will be given, before the latest time and date for acceptance of the Offer, to those Offer Shareholders who have not accepted the Offer. If the Offeror revises the terms of the Offer, all Offer Shareholders, whether or not they have already accepted the Offer will be entitled to the revised terms. The revised Offer must be kept open for at least 14 days following the date on which the revised offer document is posted. 43

48 APPENDIX I FURTHER TERMS OF ACCEPTANCE OF THE OFFER (e) If the Closing Date of the Offer is extended, any reference in this Composite Document and in the Form(s) of Acceptance and Transfer to the Closing Date shall, except where the context otherwise requires, be deemed to refer to the Closing Date of the Offer so extended. 3. ANNOUNCEMENT (a) As required under Rule 19 of the Takeovers Code, by 6:00 p.m. on the Closing Date (or such later time and/or date as the Executive may in exceptional circumstances permit), the Offeror must inform the Executive and the Stock Exchange of its decision in relation to the revision, extension or expiry of the Offer. The Offeror must publish an announcement in accordance with the requirements of the Listing Rules no later than 7:00 p.m. on the Closing Date stating whether the Offer has been extended, revised or has expired. Such announcement must state the following: (i) (ii) (iii) (iv) (v) the total number of Shares and rights over Shares for which acceptances of the Offer have been received; the total number of Shares and rights over Shares held, controlled or directed by the Offeror and parties acting in concert with any of them before the Offer Period; the total number of Shares and rights over Shares acquired or agreed to be acquired by the Offeror and parties acting in concert with any of them during the Offer Period; details of any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Company which the Offeror and parties acting in concert with any of them has borrowed or lent, save for any borrowed securities which have been either on-lent or sold; and the percentages of the relevant classes of issued share capital of the Company and the percentages of voting rights of the Company represented by these numbers. (b) (c) In computing the total number of Shares represented by acceptances, only valid acceptances in complete and good order and which have been received by the Registrar no later than 4:00 p.m. on the Closing Date, being the latest time and date for acceptance of the Offer, shall be included. As required under the Takeovers Code and the Listing Rules, any announcement in relation to the Offer, in respect of which the Executive has confirmed that it has no further comments, will be published on the website of the Stock Exchange ( and the website of the Company ( 44

49 APPENDIX I FURTHER TERMS OF ACCEPTANCE OF THE OFFER 4. RIGHT OF WITHDRAWAL (a) (b) Acceptance of the Offer tendered by the Offer Shareholders shall be irrevocable and cannot be withdrawn, except in the circumstances set out in subparagraph (b) below. If the Offeror is unable to comply with the requirements set out in paragraph 3 of this Appendix I headed Announcement above, the Executive may require pursuant to Rule 19.2 of the Takeovers Code that the Offer Shareholders who have tendered acceptance to the Offer be granted a right of withdrawal on terms that are acceptable to the Executive until the requirement of Rule 19 of the Takeovers Code can be met. In such case, when the Offer Shareholders withdraw their acceptance(s), the Offeror shall, as soon as possible but in any event within 10 days thereof, return by ordinary post the share certificate(s) and/or transfer receipt(s) and/or other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) lodged with the Form(s) of Acceptance and Transfer to the relevant Offer Shareholder(s). 5. SETTLEMENT OF THE OFFER Provided that the accompanying Form(s) of Acceptance and Transfer for the Shares, together with the share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) are valid, complete and in good order and have been received by the Registrar no later than 4:00 p.m. on the Closing Date, a cheque for the amount due to each of the accepting Offer Shareholder in respect of the Shares tendered under the Offer (less seller s Hong Kong ad valorem stamp duty payable by him) will be despatched to the accepting Offer Shareholder by ordinary post at his own risk as soon as possible but in any event within 7 Business Days after the date of receipt of all relevant documents to render such acceptance complete and valid by the Registrar in accordance with the Takeovers Code. Settlement of the consideration to which any accepting Offer Shareholder is entitled under the Offer will be paid by the Offeror in full in accordance with the terms of the Offer (save with respect of the payment of seller s Hong Kong ad valorem stamp duty) set out in this Composite Document (including this Appendix I) and the accompanying Form(s) of Acceptance and Transfer, without regard to any Encumbrances or other analogous right, to which the Offeror may otherwise be, or claim to be, entitled against such accepting Offer Shareholder. 45

50 APPENDIX I FURTHER TERMS OF ACCEPTANCE OF THE OFFER 6. OVERSEAS SHAREHOLDERS The making of the Offer to the Overseas Shareholders may be prohibited or affected by the laws of the relevant jurisdictions in which they are resident. Overseas Shareholders should obtain appropriate legal advice regarding the implications of the Offer in the relevant jurisdictions or keep themselves informed about and observe any applicable legal or regulatory requirements. It is the responsibility of Overseas Shareholders who wish to accept the Offer to satisfy themselves as to the full observance of the laws and regulations of all relevant jurisdictions in connection with the acceptance of the Offer (including but not limited to the obtaining of any governmental, exchange control or other consents and any registration or filing which may be required and the compliance with all other necessary formalities, regulatory and/or legal requirements and the payment of any transfer or other taxes or other required payments). The Offeror, its ultimate beneficial owner and parties acting in concert with them, the Company, Huatai, Nuada, the Registrar or any of their respective directors, officers, advisers, associates, agents or any persons involved in the Offer shall be entitled to be fully indemnified and held harmless by the Overseas Shareholders for any taxes they may be required to pay. Acceptance of the Offer by any Overseas Shareholder will be deemed to constitute a warranty by such person that such person is permitted under all applicable laws and regulations to receive and accept the Offer, and any revision thereof, and such acceptance shall be valid and binding in accordance with all applicable laws and regulations. Any such person is recommended to seek professional advice on deciding whether or not to accept the Offer. 7. TAX IMPLICATIONS Offer Shareholders are recommended to consult their own professional advisers if they are in any doubt as to the taxation implications of their acceptance of the Offer. It is emphasised that none of the Offeror, its ultimate beneficial owner and parties acting in concert with them, the Company, Huatai, Nuada, the Registrar or any of their respective directors, officers, advisers, associates, agents or any persons involved in the Offer is in a position to advise the Offer Shareholders on their individual tax implications, nor do they accept responsibility for any taxation effects on, or liabilities of, any person or persons as a result of their acceptance of the Offer. 8. GENERAL (a) All communications, notices, Form(s) of Acceptance and Transfer, certificates, transfer receipts and other documents of title and/or of indemnity and/or of any other nature to be delivered by or sent to or from the Offer Shareholders will be delivered by or sent to or from them, or their designated agents, by ordinary post at their own risk, and none of the Offeror and its ultimate beneficial owner and parties acting in concert with them, the Company, Huatai, Nuada, the Registrar or any of their respective directors, officers, advisers, associates, agents or any persons involved in the Offer accepts any liability for any loss or any other liabilities whatsoever which may arise as a result thereof. 46

51 APPENDIX I FURTHER TERMS OF ACCEPTANCE OF THE OFFER (b) (c) (d) (e) (f) (g) (h) (i) (j) Acceptance of the Offer by any person or persons will be deemed to constitute a warranty by such person or persons to the Offeror and Huatai that the Shares tendered under the Offer (together with all rights accruing or attaching to them as at the date of this Composite Document or subsequently being attached to them, including, without limitation, the rights to receive all future dividends and other distributions, declared, made or paid, if any, by the Company on or after the date on which the Offer is made, i.e., the date of this Composite Document are sold by such person or persons free from all Encumbrances or other analogous right. Acceptance of the Offer by any nominee will be deemed to constitute a warranty by such nominee to the Offeror that the number of Shares in respect of which it is indicated in the Form(s) of Acceptance and Transfer is the aggregate number of Shares held by such nominee for such beneficial owners who accept the Offer. The provisions set out in the accompanying Form(s) of Acceptance and Transfer form part of the terms of the Offer. The accidental omission to despatch this Composite Document and/or the accompanying Form(s) of Acceptance and Transfer or either of them to any person to whom the Offer is made shall not invalidate the Offer in any way. The Offer and all acceptances will be governed by and construed in accordance with the laws of Hong Kong. Due execution of Form(s) of Acceptance and Transfer will constitute an authority to the Offeror and/or Huatai and/or such person or persons as any of them may direct to complete and execute on behalf of the person accepting the Offer, and to do any other act that may be necessary or expedient for the purpose of vesting in the Offeror, or such person or persons as it may direct the Shares in respect of which such person has accepted the Offer. The Offer is made in accordance with the Takeovers Code. References to the Offer in this Composite Document and in the Form(s) of the Acceptance and Transfer shall include any extension and/or revision thereof. The English text of this Composite Document and the accompanying Form(s) of Acceptance and Transfer shall prevail over the Chinese text in case of inconsistency. 47

52 APPENDIX II FINANCIAL INFORMATION OF THE GROUP 1. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP The following is a summary of the financial information of the Group for the six months ended 30 June 2015 and each of the three financial years ended 31 December 2014, 2013 and 2012 as extracted from the interim report of the Company for the six months ended 30 June 2015 and the annual reports of the Company for the year ended 31 December 2014, 2013 and 2012 respectively: For the six months ended 30 June For the year ended 31 December Revenue 181, , , ,338 Profit before tax 11,372 30,130 27,558 18,362 Income tax expenses (2,235) (6,498) (6,321) (4,058) Profit for the period/year 9,137 23,632 21,237 14,304 Attributable to: Owners of the Company 9,137 23,632 21,237 14,304 Dividend 15,840 14,400 9,600 Earnings per Share HK cents Basic 1.90 cents 4.92 cents 4.42 cents 3.45 cents Dividend per Share HK cents 3.30 cents 3.00 cents 2.00 cents The audited consolidated financial statements of the Group for each of three years ended 31 December 2014, 2013 and 2012 did not contain any qualified opinion. There were no extraordinary items which were exceptional because of size, nature or incidence recorded on the financial statements of the Company during each of the three years ended 31 December 2014, 2013 and 2012, and during the six months ended 30 June

53 APPENDIX II FINANCIAL INFORMATION OF THE GROUP 2. AUDITED CONSOLIDATED FINANCIAL INFORMATION OF THE GROUP The following is the full text of the audited consolidated financial statements of the Group for the financial year ended 31 December 2014 extracted from the annual report of the Company for the year ended 31 December CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 31 December NOTES Revenue 7 373, ,057 Cost of sales (290,185) (276,760) Gross profit 82,977 76,297 Other income Selling expenses (23,006) (18,714) Administrative expenses (23,741) (23,760) Research and development expenses (6,383) (6,378) Finance costs 8 (1) (2) Profit before taxation 9 30,130 27,558 Income tax expense 12 (6,498) (6,321) Profit for the year 23,632 21,237 Other comprehensive expense for the year Exchange differences arising on translating foreign operation (66) Total comprehensive income for the year 23,632 21,171 Earnings per share HK cents Basic cents 4.42 cents 49

54 APPENDIX II FINANCIAL INFORMATION OF THE GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION At 31 December NOTES Non-current Assets Property, plant and equipment 14 5,373 5,278 Deferred tax assets 15 1,193 1,009 Intangible asset ,419 7,237 Current Assets Inventories 17 30,218 22,724 Trade and other receivables 18 74,237 80,218 Tax recoverable 402 Bank balances and cash 19 21,758 25, , ,742 Current Liabilities Trade and other payables 20 38,921 52,358 Provision 21 5,290 4,624 Amount due to a related company 27(a) Tax payable 2,948 1,664 47,319 58,865 Net Current Assets 78,894 69,877 Total Assets less Current Liabilities 86,313 77,114 Non-current Liability Deferred tax liabilities Net assets 86,230 76,998 Capital and Reserves Share capital 22 4,800 4,800 Reserves 81,430 72,198 Total Equity 86,230 76,998 50

55 APPENDIX II FINANCIAL INFORMATION OF THE GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2014 Share Share Special Translation Retained capital premium reserve reserve profits Total At 1 January ,800 32,523 (1) (66) 28,171 65,427 Profit for the year 21,237 21,237 Other comprehensive expense for the year (66) (66) Total comprehensive (expense) income for the year (66) 21,237 21, final dividend paid (note 10) (9,600) (9,600) At 31 December 2013 and 1 January ,800 32,523 (1) (132) 39,808 76,998 Profit and total comprehensive income for the year 23,632 23, final dividend paid (note 10) (14,400) (14,400) At 31 December ,800 32,523 (1) (132) 49,040 86,230 51

56 APPENDIX II FINANCIAL INFORMATION OF THE GROUP CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December OPERATING ACTIVITIES Profit before taxation 30,130 27,558 Adjustments for: Depreciation of property, plant and equipment 1, Loss on disposal of property, plant and equipment 33 Allowance for obsolete and slow-moving inventories 433 Amortisation of intangible asset Interest expenses 1 2 Interest income (77) (85) Operating cash flows before movements in working capital 32,049 28,513 (Increase) decrease in inventories (7,927) 6,893 Decrease in trade and other receivables 5,981 2,497 Decrease in trade and other payables (13,437) (8,505) Increase (decrease) in provision 666 (3,405) Decrease in amount due to a related company (59) (434) Cash generated from operations 17,273 25,559 Income tax paid in Hong Kong (5,028) (4,641) Income tax paid in other jurisdictions (1) (2,068) NET CASH FROM OPERATING ACTIVITIES 12,244 18,850 INVESTING ACTIVITIES Purchase of property, plant and equipment (1,560) (3,464) Interest received Purchase of intangible asset (966) NET CASH USED IN INVESTING ACTIVITIES (1,483) (4,345) FINANCING ACTIVITIES Dividend paid to shareholders (14,400) (9,600) Interest paid (1) (2) NET CASH USED IN FINANCING ACTIVITIES (14,401) (9,602) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,640) 4,903 CASH AND CASH EQUIVALENTS AT 1 JANUARY 25,398 20,599 EFFECT OF FOREIGN EXCHANGE RATE CHANGES (104) CASH AND CASH EQUIVALENTS AT 31 DECEMBER 21,758 25,398 52

57 APPENDIX II FINANCIAL INFORMATION OF THE GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December GENERAL The Company was incorporated in the Cayman Islands on 3 August 2011 and its shares are listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the Stock Exchange ) since 20 July The address of the registered office of the Company is Cricket Square, Hutchins Drive, P. O. Box 2681, Grand Cayman, KY1-1111, Caymans Islands, and the address of the principal place of business is Unit 503, 5th floor, Tower B, Hunghom Commercial Centre, 37 Ma Tau Wai Road, Hunghom, Kowloon, Hong Kong. The Company is an investment holding company. The principal activities of the Group are design and supply chain of lightings and home furnishing products. Particulars of the subsidiaries of the Company are set out in note 28. The consolidated financial statements are presented in Hong Kong dollars ( HK$ ), which is different from the functional currency of the Company, United States dollars ( US$ ), as the directors of the Company consider that HK$ is more appropriate as the Company s shares are listed in Hong Kong. 2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs ) The Group has applied for the first time in the current reporting period the following amendments to HKFRSs and a new Interpretation. Amendments to HKFRS 10, HKFRS 12 and HKAS 27 Amendments to HKAS 32 Amendments to HKAS 36 Amendments to HKAS 39 HK(IFRIC) INT 21 Investment entities Offsetting financial assets and financial liabilities Recoverable amount disclosures for non-financial assets Novation of derivatives and continuation of hedge accounting Levies The application of these amendments and Interpretation has had no material impact on the Group s financial performance and positions for the current reporting period and prior years and/or on the disclosures set out in the consolidated financial statements. The Group has not early applied the following new and revised HKFRSs that have been issued but are not yet effective: HKFRS 9 Financial instruments 1 HKFRS 14 Regulatory deferral accounts 2 HKFRS 15 Revenue from contracts with customers 3 Amendments to HKFRS 11 Accounting for acquisitions of interests in joint operations 5 Amendments to HKAS 1 Disclosure initiative 5 Amendments to HKAS 16 Clarification of acceptable methods of depreciation and and HKAS 38 amortisation 5 Amendments to HKAS 16 Agriculture: Bearer plants 5 and HKAS 41 Amendments to HKAS 19 Defined benefit plans: Employee contributions 4 Amendments to HKAS 27 Equity method in separate financial statements 5 Amendments to HKFRS 10 Sale or contribution of assets between an investor and its and HKAS 28 associate or joint venture 5 Amendments to HKFRS 10, HKFRS 12 Investment entities: Applying the consolidated exception 5 and HKAS 28 Amendments to HKFRSs Annual improvements to HKFRSs cycle 4 Amendments to HKFRSs Annual improvements to HKFRSs cycle 4 Amendments to HKFRSs Annual improvements to HKFRSs cycle 5 53

58 APPENDIX II FINANCIAL INFORMATION OF THE GROUP 1 Effective for annual periods beginning on or after 1 January Effective for first annual HKFRS financial statements beginning on or after 1 January Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 July Effective for annual periods beginning on or after 1 January The directors of the Company anticipate that the application of the new and revised HKFRSs will have no material impact on the consolidated financial statements. 3. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared in accordance with HKFRSs issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange and by the Hong Kong Companies Ordinance. The consolidated financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of HKFRS 2 Share-based payment, leasing transactions that are within the scope of HKAS 17 Leases, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in HKAS 2 Inventories or value in use in HKAS 36 Impairment of assets. The principal accounting policies are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company: has power over the investee; is exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power to affect its returns. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date of acquisition and up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. 54

59 APPENDIX II FINANCIAL INFORMATION OF THE GROUP Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold in the normal course of business, net of allowance for sales return and trade discounts. The adjustments on estimation of sales return made by customers and the sales discounts on goods sold by the management based on past experience and other relevant factors, are recognised against the revenue. Revenue from the sale of goods is recognised when all the following conditions are satisfied: the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the Group; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Specifically, revenue from sale of goods is recognised when the goods are delivered and title has passed. Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset s net carrying amount on initial recognition. Property, plant and equipment Property, plant and equipment including leasehold land (classified as finance leases) and buildings held for use in the production or supply of goods or services, or for administrative purpose are stated in the consolidated statement of financial position at cost less subsequent accumulated depreciation and accumulated impairment losses, if any. Depreciation is recognised so as to write off the cost of items of property, plant and equipment less their residual values over their estimated useful lives, using the straight-line method. The estimated useful lives and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. Intangible assets Intangible assets with finite useful lives that are acquired separately are carried at costs less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains and losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised. 55

60 APPENDIX II FINANCIAL INFORMATION OF THE GROUP Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The Group as lessee Operating lease payments are recognised as an expense on a straight-line basis over the lease term. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis. Leasehold land and building When a lease includes both land and building elements, the Group assesses the classification of each element as a finance or an operating lease separately based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the Group, unless it is clear that both elements are operating leases in which case the entire lease is classified as operating lease. Specifically, the minimum lease payments (including any lump-sum upfront payments) are allocated between the land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element of the lease at the inception of the lease. Foreign currencies In preparing the financial statements of the each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e. the current of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise. For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group s operations are translated into the presentation currency of the Group (i.e. Hong Kong dollars) using exchange rates prevailing at the end of each reporting period. Income and expenses items are translated at the average exchange rates for the year. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under the heading of translation reserve. Retirement benefit costs Payments to defined contribution retirement benefits plans, state-managed retirement benefits scheme and the Mandatory Provident Fund Scheme are recognised as an expense when employees have rendered service entitling them to the contributions. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before taxation as reported in the consolidated statement of profit or loss and other comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. 56

61 APPENDIX II FINANCIAL INFORMATION OF THE GROUP Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax base used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary difference to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Current and deferred tax are recognised in profit or loss. Research and development expenditure Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated intangible asset arising from development activities (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated: the technical feasibility of completing the intangible asset so that it will be available for use or sale; the intention to complete the intangible asset and use or sell it; the ability to use or sell the intangible asset; how the intangible asset will generate probable future economic benefits; the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and the ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially recognised for internally-generated intangible asset is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internallygenerated intangible asset can be recognised, development expenditure is charged to profit or loss in the period in which it is incurred. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out method. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. 57

62 APPENDIX II FINANCIAL INFORMATION OF THE GROUP Impairment losses on tangible assets At the end of the reporting period, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately. Financial instruments Financial assets and financial liabilities are recognised in the consolidated statement of financial position when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Financial assets The Group s financial assets are classified as loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premium or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition. Interest income is recognised on an effective interest basis for debt instruments. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including trade and other receivables and bank balances and cash) are measured at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment of financial assets below). Impairment of financial assets Financial assets are assessed for indicators of impairment at the end of the reporting period. Financial assets are considered to be impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected. Objective evidence of impairment could include: significant financial difficulty of the issuer or counterparty; or breach of contract, such as default or delinquency in interest and principal payments; or it becoming probable that the borrower will enter bankruptcy or financial re-organisation. For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group s past experience of collecting payments, an increase in the number of delayed payments in the portfolio, and observable changes in national or local economic conditions that correlate with default on receivables. 58

63 APPENDIX II FINANCIAL INFORMATION OF THE GROUP For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset s carrying amount and the present value of the estimated future cash flows discounted at the financial asset s original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss. For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. Financial liabilities and equity instruments Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity according to the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. Financial liabilities Financial liabilities including trade and other payables and amount due to a related company are subsequently measured at amortised cost, using the effective interest method. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Interest expense is recognised on an effective interest basis. Derecognition The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. On derecognition of a financial asset in its entirety, the difference between the asset s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss. The Group derecognises financial liabilities when, and only when, the Group s obligations are discharged, cancelled or expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss. Provision Provision is recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that the Group will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation. Provision is measured at the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of time value of money is material). 59

64 APPENDIX II FINANCIAL INFORMATION OF THE GROUP 4. KEY SOURCE OF ESTIMATION UNCERTAINTY In the application of the Group s accounting policies, which are described in note 3, the management of the Group is required to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The followings are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Estimated impairment of trade receivables Where there is objective evidence of impairment loss, the Group takes into consideration the estimation of future cash inflows from the outstanding trade receivables. The amount of impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate (i.e. the effective interest rate computed at initial recognition). Where the actual future cash flows are less than expected, a material impairment loss may arise. As at 31 December 2014, the carrying amount of trade receivables of the Group is HK$69,401,000 (2013: HK$76,258,000). Useful lives and impairment assessment of property, plant, and equipment The management determines the estimated useful lives, the residual value, and the depreciation method in determining the related depreciation charges for its property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. In addition, management assesses impairment whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable. Management will increase the depreciation charge where useful lives are expected to be shorter than expected, or will write off or write-down obsolete or non-strategic assets that have been abandoned or sold. As at 31 December 2014, the carrying amount of property, plant and equipment is HK$5,373,000 (2013: HK$5,278,000). Estimated provision of sales discount and defective claims For the provision of sales discounts and defective claims, there are no fixed terms of sale discounts and defective claims entered with customers. The amount is based on the management s estimation by reference to the historical experience on sales discounts and defective claims from customers. Management s estimates and assumptions are reviewed periodically and are adjusted if necessary. Should any of the estimates and assumptions change, it may lead to a change in the provision of sales discounts and defective claims. As at 31 December 2014, the carrying amount of provision of sales discounts and defective claims is HK$5,290,000 (2013: HK$4,624,000). 5. CAPITAL RISK MANAGEMENT The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Group s overall strategy remains unchanged from prior years. The capital structure of the Group consists of cash and cash equivalents and equity attributable to owners of the Group, comprising issued share capital and reserves. The management of the Group reviews the capital structure regularly, taking into account of the cost and risk associated with the capital. Based on recommendations of the management of the Group, the Group will balance its overall capital structure through the payment of dividends and issue of shares. 60

65 APPENDIX II FINANCIAL INFORMATION OF THE GROUP 6. FINANCIAL INSTRUMENTS 6a. Categories of financial instruments Financial assets Loans and receivables (including bank balances and cash) 91, ,296 Financial liabilities Amortised cost 33,592 47,617 6b. Financial risk management objectives and policies The Group s major financial instruments include trade and other receivables, bank balances and cash, trade and other payables and amount due to a related company. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments include market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner. Market risk (i) Currency risk The carrying amounts of the Group s foreign currency denominated monetary assets at the end of the reporting date are as follows: Assets Liabilities Hong Kong Dollar ( HK$ ) 1, Renminbi ( RMB ) Sensitivity analysis Assets denominated in HK$ mainly represented bank balances placed with banks held by a group entity with US$ as functional currency. As HK$ is pegged to US$, the exposure to fluctuations in exchange rate of HK$ against US$ is considered insignificant, and thus the management of the Group is of the opinion that the Group s exposure to such foreign exchange risk is minimal. No sensitivity analysis on the US$ against RMB is prepared as the directors of the Company consider the impact of such foreign currency risk is insignificant. (ii) Interest rate risk The Group s cash flow interest rate risk is primarily related to interest bearing bank balances. However, the cash flow interest rate risk on the interest bearing bank balances is insignificant as they are all short term. Credit risk As at 31 December 2014, the Group s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties is arising from the carrying amount of the respective recognised financial assets as stated in the consolidated statement of financial position. In order to minimise the credit risk, the management of the Group reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group s credit risk is significantly reduced. 61

66 APPENDIX II FINANCIAL INFORMATION OF THE GROUP The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings. The Group has significant concentration of credit risk. At 31 December 2014, 37% (2013: 37%) of the total trade receivables was due from the Group s largest customer, while 88% (2013: 86%) of the total trade receivables was due from the Group s five largest customers at 31 December The top five customers represent over 85% (2013: 86%) of the revenue for the year ended 31 December The top five customers are mass market retailers, home furnishing stores or speciality stores located in the United States of America ( USA ). Liquidity risk In the management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group s operations and mitigate the effects of fluctuations in cash flows. The following tables detail the Group s remaining contractual maturity for its non-derivative financial liabilities based on the agreed repayment terms. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest dates on which the Group can be required to pay. The table includes both undiscounted cash flows and principal cash flows. Liquidity tables Weighted average Total Total effective Repayable Within undiscounted carrying interest rate on demand 3 months cash flows amount % At 31 December 2014 Trade and other payables 33,432 33,432 33,432 Amount due to a related company ,432 33,592 33,592 Weighted average Total Total effective Repayable Within undiscounted carrying interest rate on demand 3 months cash flows amount % At 31 December 2013 Trade and other payables 47,398 47,398 47,398 Amount due to a related company ,398 47,617 47,617 6c. Fair value The fair values of financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis. The directors of the Company consider that the carrying amounts of all financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximate their fair values. 62

67 APPENDIX II FINANCIAL INFORMATION OF THE GROUP 7. REVENUE AND SEGMENT INFORMATION Revenue represents the amounts received and receivable for goods sold to outside customers, less returns and discount, if any, during the year. Information reported to the executive directors of the Company, being the chief operating decision maker, for the purposes of resource allocation and assessment of segment performance focuses on the revenues and gross profit from different types of goods delivered. No operating segments identified by chief operating decision maker have been aggregated in arriving at the reportable segments of the Group. Information relating to assets and liabilities in each segment is not included in the internal report regularly reviewed by the executive directors of the Company. Specifically, the Group s operating and reportable segments under HKFRS 8 are as follows: (i) (ii) (iii) Portable lighting represents a selection of portable lighting products, e.g. table lamps, floor lamps, accent lamps, buffet lamps etc., ( Portable lighting ). Shades represent a selection of shades for the lamps sold by the Group. Shades are complementary goods and a frame that typically fit on the top of a lamp and cover the lighting source ( Shades ). Furniture set and other home accessory products represent the knockdown furniture and ready-to-assemble furniture sets that are sold unassembled, and be put together by the end-customers etc. ( Furniture set and other home accessory products ). Segment revenue and results The following is an analysis of the Group s revenue and results by operating segment. For the year ended 31 December 2014 Furniture set and other home Portable accessory lighting Shades products Total SEGMENT REVENUE External sales 290,839 59,004 23, ,162 Segment profit 61,129 16,030 5,818 82,977 Unallocated income 284 Unallocated expenses Selling expenses (23,006) Administration expenses (23,741) Research and development expenses (6,383) Finance costs (1) Profit before taxation 30,130 63

68 APPENDIX II FINANCIAL INFORMATION OF THE GROUP For the year ended 31 December 2013 Furniture set and other home Portable accessory lighting Shades products Total SEGMENT REVENUE External sales 252,848 72,472 27, ,057 Segment profit 48,799 19,448 8,050 76,297 Unallocated income 115 Unallocated expenses Selling expenses (18,714) Administration expenses (23,760) Research and development expenses (6,378) Finance costs (2) Profit before taxation 27,558 The accounting policies of the operating segments are the same as the Group s accounting policies described in note 3. Segment profit represents the profit earned by each segment without allocation of certain income and expenses (including other income, selling expenses, administration expenses, research and development expenses and finance costs). This is the measure reported to the chief operating decision maker, the executive directors of the Company, for the purposes of resources allocation and assessment of segment performance. Geographical information The Group s operations are located in Hong Kong, the People s Republic of China (excluding Hong Kong) ( PRC ) and North America. Information about the Group s revenue from external customers based on the location of goods physically delivered to and information about its non-current assets based on geographical location of the assets: Non-current Revenue from assets (other than external customers deferred tax assets) Hong Kong 1,786 2,088 PRC 2,537 3,030 USA 361, ,546 1,903 1,110 Canada 11,089 17,956 Others Total revenue/non-current assets 373, ,057 6,226 6,228 64

69 APPENDIX II FINANCIAL INFORMATION OF THE GROUP Information about major customers Revenue from customers of the corresponding year contributing over 10% of the total revenue of the Group are as follows: Customer A (Note) 116,950 95,587 Customer B (Note) 143, ,027 Note: The revenue from Customers A and B involved portable lighting, shades and furniture sets and other home accessory products segments. 8. FINANCE COSTS Interest expenses on bank overdraft PROFIT BEFORE TAXATION Profit before taxation has been arrived at after charging: Staff costs, including directors remuneration (note 11) Salaries, wages and other benefits 30,898 25,989 Retirement benefits scheme contributions ,709 26,774 Less: Amount included in research and development expenses (3,336) (3,438) 28,373 23,336 Allowance for obsolete and slow-moving inventories 433 Amortisation of intangible asset Auditor s remuneration Cost of inventories recognised as expenses 283, ,268 Depreciation of property, plant and equipment 1, Loss on disposal of property, plant and equipment 33 Net foreign exchange loss and after crediting: Interest income DIVIDEND A final dividend for the year ended 31 December 2013 of HK3 cents (2012: HK2 cents) per ordinary share, equivalent to HK$14,400,000 (2012: HK$9,600,000), was approved by the shareholders in the annual general meeting on 9 May 2014 and paid. Subsequent to the end of the reporting period, the Board of Directors of the Company proposed a final dividend of HK3.3 cents per ordinary share in respect of the year ended 31 December 2014, which is subject to approval at the forthcoming annual general meeting of the Company to be held on 15 May

70 APPENDIX II FINANCIAL INFORMATION OF THE GROUP 11. DIRECTORS, CHIEF EXECUTIVE S AND EMPLOYEES EMOLUMENTS Details of the emoluments paid/payable to the directors of the Company are as follow: Directors fee Other emoluments salaries and other benefits 3,147 3,145 retirement benefits scheme contributions ,582 3,581 For the year ended 31 December 2014 Retirement Salaries benefits and other scheme Fees benefits contributions Total Executive directors: Mr. Leung Yuen Ho, Simon 1, ,577 Mr. Jerry Strickland 1, ,645 Independent non-executive directors: Mr. Hau Chi Hung Mr. Lai Kin, Jerome Mr. Tang Thomas Bong , ,582 For the year ended 31 December 2013 Retirement Salaries benefits and other scheme Fees benefits contributions Total Executive directors: Mr. Leung Yuen Ho, Simon 1, ,575 Mr. Jerry Strickland 1, ,646 Independent non-executive directors: Mr. Hau Chi Hung Mr. Lai Kin, Jerome Mr. Tang Thomas Bong , ,581 Mr. Leung Yuen Ho, Simon is also the chief executive of the Company and his emoluments disclosed above included those for services rendered by him as the chief executive. 66

71 APPENDIX II FINANCIAL INFORMATION OF THE GROUP The five highest paid individuals of the Group included 2 (2013: 2) directors for the year. The details of their emoluments are set out above. The remunerations of the remaining 3 (2013: 3) highest paid individuals are as follows: Employees salaries and other benefits 2,722 2,780 discretionary bonus (Note) retirement benefits scheme contributions ,182 3,171 Note: The discretionary bonus is determined by the Board of Directors of the Company based on the Group s performance for the relevant year. The emoluments of these remaining 3 highest paid individuals (2013: 3) in the Group for the year were within the following bands: No. of No. of Employees Employees Nil HK$1,000,000 1 HK$1,000,001 HK$1,500, During both years, no emoluments were paid by the Group to the five highest paid individuals (including directors and employees) as an inducement to join or upon joining the Group or as compensation for loss of office. No directors waived any emoluments in both years. 12. INCOME TAX EXPENSE Current taxation: Hong Kong Profits Tax 5,282 4,720 Overseas taxation 1, ,273 5,187 (Over)under provision in prior years: Hong Kong Profits Tax (603) 7 Overseas taxation (558) 950 Deferred taxation (note 15) (217) 184 Total 6,498 6,321 The Company and the subsidiaries operating in Hong Kong are subject to Hong Kong Profits Tax at a tax rate of 16.5% (2013: 16.5%) on assessable profits earned in Hong Kong. Taxation on overseas profits has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the relevant jurisdictions. 67

72 APPENDIX II FINANCIAL INFORMATION OF THE GROUP The tax charge for the year can be reconciled to the consolidated profit before taxation as follows: Profit before taxation 30,130 27,558 Tax at Hong Kong Profits Tax rate at 16.5% (2013: 16.5%) 4,971 4,547 Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose (20) (168) Tax effect of tax losses not recognised Utilisation of tax losses previously not recognised (141) Tax effect of different tax rate of subsidiaries in other jurisdictions 1, (Over)under provision in prior years (558) 950 Others (16) (92) Income tax expense for the year 6,498 6, EARNINGS PER SHARE The calculation of the basic earnings per share is based on the profit for the year attributable to owners of the Company and the number of 480,000,000 ordinary shares (2013: 480,000,000) of the Company. No diluted earnings per share is presented as there were no potential ordinary shares in issue during the years ended 31 December 2014 and PROPERTY, PLANT AND EQUIPMENT Furniture, Land and Leasehold fixtures and Motor buildings improvements equipment vehicles Total COST At 1 January , ,000 4,100 10,258 Exchange adjustment Additions 2,169 1,295 3,464 Disposal (88) (953) (1,041) At 31 December 2013 and 1 January ,910 2,357 4,358 4,100 12,725 Additions 99 1,461 1,560 At 31 December ,910 2,456 5,819 4,100 14,285 ACCUMULATED DEPRECIATION At 1 January ,458 3,159 7,460 Exchange adjustment Provided for the year Eliminated on disposal (69) (939) (1,008) At 31 December 2013 and 1 January ,900 3,503 7,447 Provided for the year ,465 At 31 December ,457 3,847 8,912 CARRYING VALUES At 31 December ,762 2, ,373 At 31 December ,072 2,151 1, ,278 68

73 APPENDIX II FINANCIAL INFORMATION OF THE GROUP The above items of property, plant and equipment are depreciated on a straight-line basis at the following rates per annum: Land and buildings 4% Leasehold improvements 20% or over the lease term of rented properties, whichever is shorter Furniture, fixtures and equipment 20% Motor vehicles 20% The carrying value of land and buildings comprises: Land and buildings situated in Hong Kong under medium-term leases 996 1,072 As at 31 December 2014, the Group had pledged its land and buildings with carrying value of HK$996,000 (2013: HK$1,072,000), to secure general banking facilities granted to the Group. 15. DEFERRED TAXATION The followings are the major deferred tax (liabilities) assets recognised and movements thereon during current and prior years: Temporary difference on unrealised Accelerated profits on tax Tax intra-group depreciation losses transactions Total At 1 January 2013 (181) 1 1,257 1,077 Credit (charge) to profit or loss 65 (1) (248) (184) At 31 December 2013 and 1 January 2014 (116) 1, Credit to profit or loss At 31 December 2014 (83) 1,193 1,110 The following is the analysis of the deferred tax balances for financial reporting purposes: Deferred tax assets 1,193 1,009 Deferred tax liabilities (83) (116) 1, At the end of the reporting period, the Group had unused tax losses of HK$8,851,000 (2013: HK$6,275,000) available for offset against future profits. No deferred tax asset has been recognised in respect of the tax losses due to the unpredictability of future profits streams of these subsidiaries. Included in unrecognised tax losses are losses of HK$6,498,000 (2013: HK$6,003,000) that will expire within 5 years and losses of HK$935,000 (2013: HK$186,000) that will expire within 20 years, other tax losses may carried forward indefinitely. 69

74 APPENDIX II FINANCIAL INFORMATION OF THE GROUP 16. INTANGIBLE ASSET Brand name COST At 1 January 2013 Addition 966 At December 2013 and 31 December AMORTISATION At 1 January 2013 Charge for the year 16 At 31 December 2013 and 1 January Charge for the year 97 At 31 December CARRYING VALUE At 31 December At 31 December On 18 November 2013, the Group acquired a brand name from a third party in an amount of US$124,000 (equivalent to HK$966,000). The brand name is amortised on a straight-line basis over 10 years. 17. INVENTORIES Finished goods 30,218 22, TRADE AND OTHER RECEIVABLES Trade receivables 69,401 76,258 Bill receivables 2,640 69,401 78,898 Other receivables and prepayment 4,836 1,320 74,237 80,218 Trade receivables and bill receivables are mainly arisen from sales of portable lighting, shades and home furnishing products. No interest is charged on the trade receivables. The Group allows credit period with a range from 30 to 90 days to its trade customers. The following is an aged analysis of trade receivables and bill receivables presented based on the invoice date at the end of the reporting period, which approximated the respective revenue recognition dates. 70

75 APPENDIX II FINANCIAL INFORMATION OF THE GROUP to 30 days 32,199 28, to 60 days 34,957 30, to 90 days 1,643 15,016 Over 90 days 602 4,726 69,401 78,898 Before accepting any new customer, the Group has assessed the credit quality of each potential customer and defines credit rating and limit for each customer. In addition, the Group has reviewed the repayment history of receivables by each customer with reference to the payment terms stated in contracts to determine the recoverability of a trade receivable. Included in the Group s trade receivable balance are debtors with aggregate carrying amount of HK$11,549,000 (2013: HK$31,164,000), which are past due for which the Group has not provided for impairment loss. The Group does not hold any collateral over these balances. Aging of trade receivables which are past due but not impaired: Overdue by: 1 to 30 days 9,698 24, to 60 days 1,220 4, to 90 days Over 90 days ,549 31, BANK BALANCES AND CASH Bank balances carry interest at market rates which range from 0.01% to 0.81% per annum as at 31 December 2014 (2013: 0.01% to 0.10% per annum). 20. TRADE AND OTHER PAYABLES Trade payables 29,970 44,794 Accrued sales commission Other payables and accruals 8,758 6,586 38,921 52,358 The credit period granted by suppliers to the Group ranged from 30 to 60 days. The following is an aged analysis of trade payables presented based on the invoice date at the end of the reporting period: to 30 days 23,712 22, to 60 days 4,677 20, to 90 days 972 2,102 Over 90 days ,970 44,794

76 APPENDIX II FINANCIAL INFORMATION OF THE GROUP 21. PROVISION The balance represents the provision of sales discounts and defective claims, and the movements of provision are as follow: At 1 January ,029 Charge to profit or loss 11,537 Write-off of provision (3,221) Utilisation of provision (11,721) At 31 December 2013 and 1 January ,624 Charge to profit or loss 7,839 Utilisation of provision (7,173) At 31 December ,290 There are no fixed terms of provision of sales discounts and defective claims stated in the sales agreements entered with customers. The amount of provision is based on the management s estimation by reference to the historical experience. The Group accrued liability for potential sales discounts and defective claims at the time of sale to cover potential liabilities that could arise under these sales transactions. 22. SHARE CAPITAL Number of shares Share capital Authorised: Ordinary shares of HK$0.01 each at 1 January 2013, 31 December 2013 and 31 December ,000,000 8,000 Issued and fully paid: Ordinary shares of HK$0.01 each at 1 January 2013, 31 December 2013 and 31 December ,000,000 4, OPERATING LEASES The Group as lessee Minimum lease payments paid under operating leases in respect of rented premises during the year 4,850 4,092 At the end of the reporting period, the Group had commitments for future minimum lease payments under noncancellable operating leases which fall due as follows: Within one year 3,761 3,488 In the second to fifth years inclusive 5,282 8, ,043 11,767

77 APPENDIX II FINANCIAL INFORMATION OF THE GROUP Operating lease payments represents rentals payable by the Group for certain of its staff quarters and office premises. Leases are negotiated and rental are fixed for an average lease terms of four years (2013: five years). 24. RETIREMENT BENEFITS SCHEME The Group operates a Mandatory Provident Fund Scheme for all qualifying employees in Hong Kong. The assets of the scheme are held separately from those of the Group, in funds under the control of trustees. The Group contributes 5% of relevant payroll costs with the maximum monthly amount of HK$1,250 to the scheme, which contribution is matched by employees. The employees of the Group s subsidiaries in the PRC are members of a state-managed retirement benefits scheme operated by the PRC government. The subsidiaries are required to contribute 10% of payroll costs to the retirement benefits scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefits scheme is to make the specified contributions. The Group s subsidiaries in USA operate defined contribution schemes. Contributions to the defined contribution schemes are made at a certain percentage of the employee s payroll. The total expense recognised in profit or loss of HK$811,000 (2013: HK$785,000) for the year ended 31 December 2014 represents contributions payable to these schemes. 25. BANK FACILITIES At 31 December 2014, the Group had general banking facilities of HK$5,000,000 (2013: HK$5,000,000). The banking facilities are secured by the Group s land and buildings, having carrying value of HK$996,000 (2013: HK$1,072,000). 26. CAPITAL COMMITMENTS Capital expenditure in respect of the acquisition of property, plant and equipment contracted but not provided for RELATED PARTY DISCLOSURES (a) Amount due to a related company Amount due to a related company is as follows: Todd Miller Inc. (Note) Note: The amount represents the commission expense due to Todd Miller Inc. Todd Miller Inc. is controlled by Mr. Todd Miller, who is a relative of Mr. Jerry Strickland, a director of the Company. 73

78 APPENDIX II FINANCIAL INFORMATION OF THE GROUP The following is an aged analysis of amount due to a related company presented based on the invoice date at the end of the reporting period: to 30 days to 60 day to 90 days 8 Over 90 days The balance is unsecured, interest free and repayable on demand. (b) Transactions with related companies Save as disclosed elsewhere in the consolidated financial statements, the Group had also entered into the following transactions with related parties: Name of related parties Nature of transactions Todd Miller Inc. Commission expenses (Note 1) 1,683 1,863 MCP Investment, LLC ( MCP ) Rental expenses (Note 2) 2,451 2,451 Notes: (1) The commission expenses paid to Todd Miller Inc. are for the provision of handling services to customers of the Group. The amount is calculated based on the percentage range up to 13% (2013: 13%) of sales, depending on the kind of products being sold to the customers. (2) During the year ended 31 December 2011, Mastercraft Distribution USA Inc. entered into a lease agreement with MCP for a period from 1 October 2011 to 31 December 2013 with monthly rental of US$26,250 (equivalent to approximately HK$204,000). MCP is a related company controlled by Mr. Jerry Strickland, a director of the Company. The lease agreement was renewed during the year to extend the lease period from 1 January 2014 to 31 December (c) Compensation of key management personnel The directors of the Company and the five highest paid employees are identified as key management members of the Group, their compensation during the year is set out in note

79 APPENDIX II FINANCIAL INFORMATION OF THE GROUP 28. PARTICULARS OF SUBSIDIARIES OF THE COMPANY Place of Principle Equity interest Issued and fully incorporation/ place of attributable paid share/ Name of subsidiary establishment operation to the Group registered capital Principal activities As at 31 December Directly owned Mastercraft Worldwide Limited The British BVI 100% 100% US$6 Investment holding Virgins Island ordinary shares ( BVI ) Indirectly owned Mastercraft International Limited Hong Kong HK 100% 100% HK$348,900 Design and supply ( HK ) ordinary shares chain business of lightings and home furnishing products Mastercraft China Limited HK HK 100% 100% HK$2 Production of ordinary shares prototypes of lightings and home furnishing products Mastercraft Home Furnishing PRC PRC 100% HK$500,000 Production of Development (Shenzhen) registered capital prototypes of lightings Limited and home furnishing products # Mastercraft Home Furnishing PRC PRC 100% 100% HK$3,000,000 Production of Development (Dongguan) registered capital prototypes of lightings Limited and home furnishing products ^ Mastercraft Overseas Limited BVI BVI 100% 100% US$1 Investment holding ordinary shares Mastercraft Distribution USA USA 100% 100% US$1 Wholesale distribution USA Inc. common stock of lightings and home furnishing products Couture Lamps, Inc. USA USA 100% 100% US$1 Wholesale distribution common stock of lightings and home furnishing products ^ Foreign investment enterprise established in the PRC. # Foreign investment enterprise established in the PRC. The subsidiary was deregistered at 14 March None of the subsidiaries had issued any debt securities at the end of both years. 75

80 APPENDIX II FINANCIAL INFORMATION OF THE GROUP 29. SUMMARY OF FINANCIAL INFORMATION OF THE COMPANY Non-current Assets Investment in a subsidiary 16,735 16,735 Amounts due from subsidiaries 29,956 16,552 46,691 33,287 Current Assets Other receivables Bank balances and cash 2,940 16,565 3,126 16,715 Current Liabilities Other payable Tax payable Net current assets 2,716 15,949 Net Assets 49,407 49,236 Capital and Reserves Share capital 4,800 4,800 Reserves (Note) 44,607 44,436 Total Equity 49,407 49,236 Note: Reserves Share Special Accumulated premium reserve losses Total (Note a) At 1 January ,523 16,385 (4,674) 44,234 Profit and total comprehensive income for the year 9,802 9, final dividend paid (note 10) (9,600) (9,600) At 31 December 2013 and 1 January ,523 16,385 (4,472) 44,436 Profit and total comprehensive income for the year 14,571 14, final dividend paid (note 10) (14,400) (14,400) At 31 December ,523 16,385 (4,301) 44,607 Note a: Special reserve represents the difference between the equity of subsidiary recognised and the nominal amount of the Company s shares issued in exchange thereof pursuant to the group reorganisation in

81 APPENDIX II FINANCIAL INFORMATION OF THE GROUP 3. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF THE GROUP Set out below are the unaudited consolidated financial results of the Group for the six months ended 30 June 2015 with the relevant comparative figures, as extracted from the interim report of the Company for the six months ended 30 June 2015 (the Interim Report ). Capitalised terms used in this section have the same meanings as defined in the Interim Report. CONDENSED CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the six months ended 30 June 2015 Six months ended 30 June Note (unaudited) (unaudited) Revenue 4 181, ,025 Cost of sales (145,170) (126,622) Gross profit 36,468 35,403 Other income Selling expenses (10,688) (10,042) Administrative expenses (11,594) (10,953) Research and development expenses (2,850) (2,645) Profit before tax 5 11,372 11,815 Income tax expenses 6 (2,235) (2,372) Profit for the period 9,137 9,443 Other comprehensive income/(expense): Exchange differences arising on translating foreign operation 48 (43) Total comprehensive income for the period 9,185 9,400 Earnings per share HK cents Basic

82 APPENDIX II FINANCIAL INFORMATION OF THE GROUP CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION As at 30 June June 31 December Note (unaudited) (audited) Non-current assets Property, plant and equipment 9 5,218 5,373 Deferred tax assets 1,245 1,193 Intangible asset ,268 7,419 Current assets Inventories 34,607 30,218 Trade and other receivables 10 62,362 74,237 Cash and bank balances 28,222 21, , ,213 Current liabilities Trade and other payables 11 45,153 38,921 Provision 4,556 5,290 Amount due to a related company Tax payables 2,872 2,948 52,821 47,319 Net current assets 72,370 78,894 Total assets less current liabilities 79,638 86,313 Non-current liabilities Deferred tax liabilities Net assets 79,575 86,230 Capital and reserves Share capital 12 4,800 4,800 Reserves 74,775 81,430 79,575 86,230 78

83 APPENDIX II FINANCIAL INFORMATION OF THE GROUP CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six months ended 30 June 2015 Share Share Translation Special Retained capital premium reserve reserve earnings Total At 1 January 2014 (audited) 4,800 32,523 (132) (1) 39,808 76,998 Profit for the period 9,443 9,443 Other comprehensive expense for the period (43) (43) Total comprehensive (expense) income for the period (43) 9,443 9,400 Dividend recognised as distribution (14,400) (14,400) At 30 June 2014 (unaudited) 4,800 32,523 (175) (1) 34,851 71,998 At 1 January 2015 (audited) 4,800 32,523 (132) (1) 49,040 86,230 Profit for the period 9,137 9,137 Other comprehensive income for the period Total comprehensive income for the period 48 9,137 9,185 Dividend recognised as distribution (15,840) (15,840) At 30 June 2015 (unaudited) 4,800 32,523 (84) (1) 42,337 79,575 79

84 APPENDIX II FINANCIAL INFORMATION OF THE GROUP CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the six months ended 30 June 2015 Six months ended 30 June (unaudited) (unaudited) Net cash generated from operating activities 22,849 6,048 Net cash used in investing activities (552) (370) Net cash used in finance activities (15,840) (14,400) Net increase/(decrease) in cash and cash equivalents 6,457 (8,722) Cash and cash equivalents at beginning of the period 21,758 25,398 Effect of exchange rate changes 7 (39) Cash and cash equivalents at end of the period, represented by bank balances and cash 28,222 16,637 80

85 APPENDIX II FINANCIAL INFORMATION OF THE GROUP NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June CORPORATE INFORMATION Mastercraft International Holdings Limited (the Company ) is incorporated and domiciled in the Cayman Islands as an exempted company with limited liability on 3 August The Company has established a principal place of business in Hong Kong at Unit 503, 5th Floor, Tower B, Hunghom Commercial Centre, 37 Ma Tau Wai Road, Hunghom, Kowloon, Hong Kong and has been registered as a non-hong Kong company under part XI of the Hong Kong Companies Ordinance on 12 October Its issued shares have been listed on the Growth Enterprise Market of the Stock Exchange of Hong Kong Limited (the Stock Exchange ) since 20 July 2012 and have been transferred from GEM to Main Board of the Stock Exchange on 5 August The Company is an investment holding company. The principal activities of the Group are design and supply chain of lighting and home furnishing products. The condensed consolidated financial statements are presented in Hong Kong dollars ( HK$ ), which is different from the functional currency of the Company, United States dollars ( US$ ), as the directors of the Company consider that HK$ is more appropriate as the Company s shares are listed in Hong Kong. The condensed consolidated financial statements have not been reviewed nor audited by the Company s auditors, but have been reviewed by the Company s audit committee. 2. BASIS OF PREPARATION The condensed consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards ( HKFRSs ), which collective terms include all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ( HKASs ), interpretations issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ) and the disclosure requirements of the Rules Governing the Listing of Securities of the Stock Exchange (the Listing Rules ) and by the Hong Kong Companies Ordinance. The condensed consolidated financial statements have been prepared under the historical cost convention. The preparation of condensed consolidated financial statements in conformity with the HKFRSs requires the use of certain critical accounting estimates. It also requires management to exercise their judgments in the process of applying the Group s accounting policies. 3. ACCOUNTING POLICIES Except as described below, the accounting policies adopted in preparing the condensed consolidated financial statements were consistent with those applied for the financial statements of the Group for the year ended 31 December The following amendments to standards are mandatory for the first time for the financial year beginning on or after 1 July 2014 and are relevant to the Group: Amendments to HKFRSs Amendments to HKFRSs Amendments to HKAS 19 Annual improvements to HKFRSs cycle Annual improvements to HKFRSs cycle Defined benefit plans: Employee contributions The application of these amendments has had no material impact on the Group s financial performance and positions for the current reporting period and prior years and/or on the disclosures set out in the condensed consolidated financial statements. The Group has not early applied any new and revised HKFRSs that have been issued but are not yet effective. 81

86 APPENDIX II FINANCIAL INFORMATION OF THE GROUP 4. SEGMENT INFORMATION Revenue represents the amounts received and receivable for goods sold to outside customers, less returns and discount, if any, during the year. Information reported to the executive directors of the Company, being the chief operating decision maker, for the purposes of resource allocation and assessment of segment performance focuses on the revenues and gross profit from different types of goods delivered. No operating segments identified by chief operating decision maker have been aggregated in arriving at the reportable segments of the Group. Information relating to assets and liabilities in each segment is not included in the internal report regularly reviewed by the executive directors of the Company. Specifically, the Group s operating and reportable segments under HKFRS 8 are as follows: (i) (ii) (iii) Portable lighting represents a selection of portable lighting products, e.g. table lamps, floor lamps, accent lamps, buffet lamps etc., ( Portable lighting ). Shades represent a selection of shades for the lamps sold by the Group. Shades are complementary goods and a frame that typically fit on the top of a lamp and cover the lighting source ( Shades ). Furniture set and other home accessory products represent the knockdown furniture and ready-to-assemble furniture sets that are sold unassembled, and be put together by the end-customers etc. ( Furniture set and other home accessory products ). Segment revenue and results The following is an analysis of the Group s revenue and results by operating segments: For the six months ended 30 June 2015 (unaudited) Furniture sets and other home Portable accessory lighting Shades products Total SEGMENT REVENUE External sales 133,275 36,744 11, ,638 Segment profit 23,462 9,948 3,058 36,468 Unallocated income 36 Unallocated expenses Selling expenses (10,688) Administration expenses (11,594) Research and development expenses (2,850) Profit before tax 11,372 82

87 APPENDIX II FINANCIAL INFORMATION OF THE GROUP For the six months ended 30 June 2014 (unaudited) Furniture sets and other home Portable accessory lighting Shades products Total SEGMENT REVENUE External sales 122,166 28,146 11, ,025 Segment profit 24,719 7,825 2,859 35,403 Unallocated income 52 Unallocated expenses Selling expenses (10,042) Administration expenses (10,953) Research and development expenses (2,645) Profit before tax 11,815 Segment profit represents the profit earned by each segment without allocation of certain income and expenses (including other income, selling expenses, administration expenses and research and development expenses). This is the measure reported to the chief operating decision maker, the executive directors of the Company, for the purposes of resources allocation and assessment of segment performance. Geographical Information The Group s operations are located in Hong Kong, the People s Republic of China (excluding Hong Kong) ( PRC ) and North America. Information about the Group s revenue from external customers based on the location of goods physically delivered to and information about its non-current assets based on geographical location of the assets: Revenue from Non-current assets external customers (other than deferred tax assets) Six months ended As at As at 30 June 30 June 31 December (unaudited) (unaudited) (unaudited) (audited) Hong Kong 1,518 1,786 PRC 2,269 2,537 North America 181, ,025 2,236 1,903 Total revenue/non-current assets 181, ,025 6,023 6,226 83

88 APPENDIX II FINANCIAL INFORMATION OF THE GROUP Information about major customers Revenues from customers of the corresponding period contributing over 10% of the total revenue of the Group are as follows: Six months ended 30 June (unaudited) (unaudited) Customer A (Note) 75,202 70,225 Customer B (Note) 49,716 43,173 Note: The revenue from Customers A and B involved in portable lighting, shades and furniture set and other home accessory products segments. 5. PROFIT BEFORE TAX Six months ended 30 June (unaudited) (unaudited) Profit before tax has been arrived at after charging (crediting): Cost of inventories recognised as expenses 142, ,180 Amortisation of intangible asset Depreciation of property, plant and equipment Net foreign exchange loss Staff costs, including directors remuneration: Salaries, wages and other benefits 14,968 13,629 Retirement benefits scheme contributions ,408 14,009 Less: amount included in research and development expenses (1,278) (1,453) 14,130 12,556 Interest income (28) (52) 6. INCOME TAX EXPENSES Six months ended 30 June (unaudited) (unaudited) Current taxation 2,299 2,759 Deferred tax (64) (387) 2,235 2,372 The Company is tax exempt under the laws of the Cayman Islands. The subsidiaries operating in Hong Kong are subject to Hong Kong Profits Tax at a tax rate of 16.5% on profits earned in Hong Kong. 84

89 APPENDIX II FINANCIAL INFORMATION OF THE GROUP Taxation on overseas profits has been calculated on the estimated assessable profits for the period at the rates of taxation prevailing in the relevant jurisdiction. 7. DIVIDEND The Directors do not recommend payment of any dividend for the six months ended 30 June 2015 (for the six months ended 30 June 2014: Nil). A final dividend for the year ended 31 December of 2014 of HK$0.033 per ordinary share has been paid during the six months ended 30 June EARNINGS PER SHARE The calculation of the basic earnings per share is based on the profit for the period attributable to owners of the Company and the weighted average of 480,000,000 ordinary shares in issue during the six months period. 9. PROPERTY, PLANT AND EQUIPMENT During the six months ended 30 June 2015, the Group acquired property, plant and equipment with a cost of approximately HK$621,000 (during the six months ended 30 June 2014: HK$422,000). 10. TRADE AND OTHER RECEIVABLES As at As at 30 June 31 December (unaudited) (audited) Trade receivables 60,518 69,401 Other receivables and prepayments 1,844 4,836 62,362 74,237 Trade receivables are mainly arisen from sales of portable lighting and home furnishing products. No interest is charged on the trade receivables. The Group allows credit period with a range from 30 to 90 days to its trade customers. The following is an aged analysis of trade receivables and bill receivables presented based on the invoice date at the end of the reporting period, which approximated the respective revenue recognition dates. As at As at 30 June 31 December (unaudited) (audited) 1 to 30 days 24,491 32, to 60 days 21,391 34, to 90 days 9,011 1,643 Over 90 days 5, ,518 69,401 85

90 APPENDIX II FINANCIAL INFORMATION OF THE GROUP 11. TRADE AND OTHER PAYABLES As at As at 30 June 31 December (unaudited) (audited) Trade payables 40,634 29,970 Accrued sales commission Other payables and accruals 4,374 8,758 45,153 38,921 The credit period granted by suppliers to the Group ranged from 30 to 60 days. The following is an aged analysis of trade payables presented based on the invoice date at the end of each reporting period: As at As at 30 June 31 December (unaudited) (audited) 1 to 30 days 23,311 23, to 60 days 12,092 4, to 90 days 1, Over 90 days 3, ,634 29, SHARE CAPITAL Number of Shares Share capital Authorised: As at 1 January 2014, 31 December 2014 and 30 June ,000,000 8,000 Issued and fully paid: As at 1 January 2014, 31 December 2014 and 30 June ,000,000 4, INDEBTEDNESS STATEMENT (i) Bank borrowings As at 31 December 2015, the Group had no outstanding bank borrowings. (ii) Debt securities As at 31 December 2015, the Group had no outstanding debt securities. 86

91 APPENDIX II FINANCIAL INFORMATION OF THE GROUP (iii) Contingent liabilities As at 31 December 2015, the Group had no contingent liabilities. (iv) Disclaimers Apart from intra-group liabilities and normal trade payables in the ordinary course of business, as at 31 December 2015, the Group did not have any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptance credits, debentures, mortgages, charges, hire purchases commitments, guarantees or other material contingent liabilities. 5. MATERIAL CHANGE As disclosed in the Profit Warning Announcement, based on the preliminary review of the unaudited consolidated management accounts of the Group for the year ended 31 December 2015 and the information currently available to the Company, the Group is expected to record a substantial decrease by not less than 30% in the profit for the year ended 31 December 2015 as compared with that for the year ended 31 December Such expected decrease in profit of the Group is mainly attributable to (i) the increase in total cost of sales of the Group as a result of the increase in purchase cost of lighting and home furnishing products from the independent contract manufacturers in the PRC; and (ii) the increase in administrative expenses arising from the non-recurring legal and professional fees incurred for the application of transfer of listing of the Company from the GEM to the Main Board of the Stock Exchange as disclosed in the announcement of the Company dated 23 July The Directors confirm that save as disclosed above, there has been no material change in the financial or trading position or outlook of the Group since 31 December 2014, being the date to which the latest published audited consolidated financial statements of the Group were made up, up to and including the Latest Practicable Date. 87

92 APPENDIX III REPORTS ON THE PROFIT WARNING ANNOUNCEMENT 1. REPORT FROM DELOITTE TOUCHE TOHMATSU The following is the full text of the report prepared for the purpose of incorporation in this Composite Document, received from Deloitte Touche Tohmatsu, the auditors of the Company. 29 January 2016 The Board of Directors Mastercraft International Holdings Limited Unit 503, 5th Floor, Tower B Hunghom Commercial Centre 37 Ma Tau Wai Road Hunghom Kowloon Dear Sirs, Mastercraft International Holdings Limited ( the Company ) Profit estimate for year ended 31 December 2015 We refer to the estimate of the consolidated net profit of the Group for the year ended 31 December 2015 ( the Profit Estimate ). The Profit Estimate has been prepared to enable the directors of the Company to make the following statement in the Company s profit warning announcement dated 25 January 2016 (the Profit Warning Announcement ). After preliminary review of the unaudited consolidated management accounts of the Group for the year ended 31 December 2015 and the information currently available to the Company, the Group is expected to record a substantial decrease by not less than 30% in the profit for the year ended 31 December 2015 as compared with that for the year ended 31 December Directors Responsibilities The Profit Estimate has been prepared by the directors of the Company based on the unaudited consolidated management accounts of the Company and its subsidiaries (collectively referred to as the Group ) for the year ended 31 December The Company s directors are solely responsible for the Profit Estimate. 88

93 APPENDIX III REPORTS ON THE PROFIT WARNING ANNOUNCEMENT Our Independence and Quality Control We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the Hong Kong Institute of Certified Public Accountants (the HKICPA ), which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. Our firm applies Hong Kong Standard on Quality Control 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements issued by the HKICPA and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. Reporting Accountants Responsibilities Our responsibility is to express an opinion on the accounting policies and calculations of the Profit Estimate based on our procedures. We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 500 Reporting on Profit Forecasts, Statements of Sufficiency of Working Capital and Statements of Indebtedness and with reference to Hong Kong Standard on Assurance Engagements 3000 (Revised) Assurance Engagements Other Than Audits or Reviews of Historical Financial Information issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ). Those standards require that we plan and perform our work to obtain reasonable assurance as to whether, so far as the accounting policies and calculations are concerned, the Company s directors have properly compiled the Profit Estimate in accordance with the bases and assumptions made by the directors and as to whether the Profit Estimate is presented on a basis consistent in all material respects with the accounting policies normally adopted by the Group. Our work is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing issued by the HKICPA. Accordingly, we do not express an audit opinion. Opinion In our opinion, so far as the accounting policies and calculations are concerned, the Profit Estimate has been properly compiled in accordance with the bases adopted by the directors as set out in the Profit Warning Announcement and is presented on a basis consistent in all material respects with the accounting policies normally adopted by the Group as set out in the annual report of the Company for the year ended 31 December Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong 89

94 APPENDIX III REPORTS ON THE PROFIT WARNING ANNOUNCEMENT 2. REPORT FROM DONVEX CAPITAL LIMITED The following is the full text of the report prepared for the purpose of incorporation in this Composite Document, received from Donvex Capital Limited, the financial adviser of the Company. Unit 1305, 13th Floor, Carpo Commercial Building Lyndhurst Terrace Central Hong Kong The Board of Directors Mastercraft International Holdings Limited Unit 503, 5th Floor, Tower B Hunghom Commercial Centre 37 Ma Tau Wai Road Hunghom, Kowloon Hong Kong 29 January 2016 Dear Sirs, Mastercraft International Holdings Limited (the Company ) Re: Profit Warning We refer to the statement (the Statement ) made by the directors of the Company (the Directors ) in the announcement of the Company dated 25 January 2016 (the Profit Warning Announcement ) that after preliminary review of the unaudited consolidated management accounts of the Group for the year ended 31 December 2015 and the information currently available to the Company, the Group is expected to record a substantial decrease by not less than 30% in the profit for the year ended 31 December 2015 as compared with that for the year ended 31 December 2014 (the Profit Warning ). Capitalised terms used in this letter shall have the same meanings as defined in the Profit Warning Announcement unless otherwise specified. The Profit Warning constitutes a profit forecast under Rule 10 of the Takeovers Code and must be reported on by both the Company s financial adviser and its accountants or auditors. This letter is issued in compliance with the requirement under Rule 10.4 of the Takeovers Code. 90

95 APPENDIX III REPORTS ON THE PROFIT WARNING ANNOUNCEMENT We have discussed with the Directors the bases and assumptions underlying the Statement. We have also considered the result of the review of the Profit Warning by Deloitte Touche Tohmatsu, the auditors of the Company. Deloitte Touche Tohmatsu is of the opinion that, so far as the accounting policies and calculations are concerned, the Profit Warning has been properly compiled in accordance with the bases adopted by the Directors as set out in the Profit Warning Announcement and is presented on a basis consistent in all material respects with the accounting policies normally adopted by the Group as set out in the annual report of the Company for the year ended 31 December The review carried out by us as described above is primarily based on the information and materials supplied to us by or on behalf of the Company, and the opinions expressed by, and the representations of, the employees and/or the senior management of the Company. We have relied upon the accuracy and completeness of all of such information and materials that were made available to us or were discussed with or reviewed by us and have assumed such accuracy and completeness for the purpose of providing this opinion. We have also relied on the assurances of the management of the Company that they are not aware of any facts or circumstances that would make any information necessary for us to provide this opinion inaccurate or misleading and that the management have not omitted to provide us with any information which may be relevant to the delivery of this opinion. On the basis of the foregoing, we are of the opinion that the Statement, for which the Directors are solely responsible, has been made with due care and consideration. Yours faithfully, For and on behalf of Donvex Capital Limited Doris Sy Director 91

96 APPENDIX IV GENERAL INFORMATION OF THE GROUP 1. RESPONSIBILITY STATEMENT The Directors jointly and severally accept full responsibility for the accuracy of information contained in this Composite Document (other than those relating to the Offeror and parties acting in concert with it) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this Composite Document (other than those expressed by the Offeror and parties acting in concert with it) have been arrived at after due and careful consideration and there are no other facts not contained in this Composite Document, the omission of which would make any statement in this Composite Document misleading. 2. SHARE CAPITAL The authorised and issued share capital of the Company of HK$0.01 each as at the Latest Practicable Date were as follows: Authorised: HK$ 800,000,000 Shares 8,000,000 Issued: 480,000,000 Shares 4,800,000 All the existing issued Shares are fully paid and rank pari passu in all respects including all rights as to capital, dividends and voting. The Company had not issued any new Shares since 31 December 2015, being the end of the last financial year of the Company. As at the Latest Practicable Date, there were no outstanding options, warrants, derivatives or other securities which are convertible or exchangeable into Shares. 3. SHAREHOLDINGS AND DEALINGS None of the Company and its Directors owned or controlled or was interested in any relevant securities (as defined under Note 4 to Rule 22 of the Takeovers Code (the Relevant Securities ) of the Offeror as at the Latest Practicable Date, nor had any of them dealt for value in any Relevant Securities of the Offeror during the Relevant Period. As at the Latest Practicable Date, none of the Directors owned or controlled or was interested in any Relevant Securities of the Company. Save for the sale of 360,000,000 Shares by the Vendors to the Offeror pursuant to the Sales and Purchase Agreement, no director of the Company had dealt for value in any Relevant Securities of the Company during the Relevant Period. 92

97 APPENDIX IV GENERAL INFORMATION OF THE GROUP None of the subsidiaries of the Company, pension fund of the Company or of any subsidiaries of the Company and any adviser to the Company as specified in class (2) of the definition of associate under the Takeovers Code owned or controlled any Relevant Securities of the Company as at the Latest Practicable Date and none of them had dealt in any Relevant Securities of the Company since the commencement of the Offer Period and up to and including the Latest Practicable Date. As at the Latest Practicable Date, no person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or any person who is an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of associate under the Takeovers Code. There were no Relevant Securities of the Company which were managed on a discretionary basis by fund managers connected with the Company as at the Latest Practicable Date and there were no fund managers connected with the Company had dealt in any Relevant Securities of the Company since the commencement of the Offer Period and up to and including the Latest Practicable Date. As at the Latest Practicable Date, neither the Company nor any of the Directors had borrowed or lent any Shares, convertible securities, warrants, options or derivatives of the Company. 4. MATERIAL LITIGATION As at the Latest Practicable Date, no member of the Group was engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance was known to the Directors to be pending or threatened by or against any member of the Group. 5. MATERIAL CONTRACTS The Group did not enter into any contract (not being contracts entered into in the ordinary course of business carried on or intended to be carried on by the Company or any of its subsidiaries) within the two years immediately preceding commencement of the Offer Period and up to and including the Latest Practicable Date which were, or might be material. 6. ARRANGEMENTS AFFECTING DIRECTORS As at the Latest Practicable Date, (a) (b) no benefit (other than statutory compensation) had been and would be given to any director of the Company as compensation for loss of office or otherwise in connection with the Offer; save and except for the Sale and Purchase Agreement, no material contracts had been entered into by the Offeror in which any director of the Company has a material personal interest; and 93

98 APPENDIX IV GENERAL INFORMATION OF THE GROUP (c) there was no agreement or arrangement between any director of the Company and any other person which is conditional on or dependent upon the outcome of the Offer or otherwise connected with the Offer. 7. DIRECTORS SERVICE CONTRACTS Ms. Wong Shuk Fong was appointed as an executive Director with effect from 22 July Ms. Wong had entered into a service agreement dated 2 July 2015 with the Company for an initial term of 3 years with effect from 22 July 2015 at a monthly salary of HK$78,828.00, and if any, a discretionary bonus which have been determined with reference to her duties and responsibility within the Group. All of the executive Directors will resign with effect from the earliest time permitted under the Takeovers Code. The existing service agreements between the Company and the three executive Directors will be terminated upon their resignation. Each of Vendor II and the Guarantor, being the executive Directors had entered into the following services agreement with a subsidiary of the Company: (a) (b) a service agreement dated 8 January 2016 entered into between Mastercraft International Limited, an indirect wholly owned subsidiary of the Company, and Vendor II for an initial term of 3 years commencing from the day immediately after the resignation of Vendor II as a director of the Company takes effect at an annual salary of US$200,000; and a service agreement dated 8 January 2016 entered into between Mastercraft International Limited and the Guarantor for an initial of 3 years commencing from the day immediately after the resignation of the Guarantor as a director of the Company takes effect at an annual salary of US$200,000. Each of Vendor II and the Guarantor is entitled to a discretionary bonus, the amount of which is determined with reference to the operating results of the subsidiaries of the Company and the performance of them. As at the Latest Practicable Date, save as disclosed above, none of the Directors had any existing service contracts with any member of the Group or any associated company of the Group: (a) (b) (c) which (including both continuous and fixed term contracts) have been entered into or amended within 6 months prior to commencement of the Offer Period; which are continuous contracts with a notice period of 12 months or more; or which are fixed term contracts with more than 12 months to run irrespective of the notice period. 94

99 APPENDIX IV GENERAL INFORMATION OF THE GROUP 8. EXPERTS AND CONSENTS The following is the qualifications of the experts who have given opinion or advice which is contained in this Composite Document: Name Deloitte Touche Tohmatsu Donvex Capital Limited Nuada Qualifications certified public accountant a licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity under the SFO a licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity under the SFO Each of the above experts has given and has not withdrawn its written consent to the issue of this Composite Document with the inclusion of its letter, advice or report as the case may be and references to its name in the form and context in which it appears. 9. DOCUMENTS AVAILABLE FOR INSPECTION Copies of the following documents will be available for inspection on the websites of the SFC ( and the Company ( during the period from the date of despatch of this Composite Document up to and including the Closing Date: (a) (b) the memorandum and articles of association of the Company; the annual reports of the Company for each of the two financial years ended 31 December 2014; (c) the interim report of the Company for the six months ended 30 June 2015; (d) (e) (f) (g) (h) the letter from the Board, the text of which is set out on pages 15 to 19 of this Composite Document; the letter from the Independent Board Committee, the text of which is set out on pages 20 to 21 of this Composite Document; the letter from Nuada, the text of which is set out on pages 22 to 40 of this Composite Document; the reports issued by Deloitte Touche Tohmatsu and Donvex Capital Limited on the Profit Warning Announcement set out in Appendix III to this Composite Document; the material contracts referred to in the section headed Material Contracts in this appendix; 95

100 APPENDIX IV GENERAL INFORMATION OF THE GROUP (i) (j) the service agreements as referred to in the section headed Directors Service Contracts in this appendix; and the written consents as referred to in the section headed Experts and Consents in this appendix. 96

101 APPENDIX V GENERAL INFORMATION OF THE OFFEROR 1. RESPONSIBILITY STATEMENT The sole director of the Offeror accepts full responsibility for the accuracy of the information contained in this Composite Document (other than that relating to the Vendors, the Guarantor, the Group or its respective director(s)), and confirms, having made all reasonable inquiries, that to the best of his knowledge, opinions expressed in this Composite Document (other than that expressed by the Vendors, the Guarantor, the Group or its respective director(s)) have been arrived at after due and careful consideration and there are no other facts not contained in this Composite Document, the omission of which would make any statements in this Composite Document misleading. 2. DISCLOSURE OF INTERESTS As at the Latest Practicable Date, details of interests in the Shares, underlying Shares, debentures or other relevant securities (as defined under Note 4 to Rule 22 of the Takeovers Code) of the Company held or controlled by the Offeror, its sole director and parties acting in concert with it were as follows: Name of Offeror/parties Number of Shares acting in concert with it Capacity held/interested % of interest The Offeror Beneficial owner 360,000, % Dang Yanbao Interest of controlled 360,000, % corporation (Note 1) Note: 1. The Offeror is wholly-owned by Mr. Dang Yanbao. Mr. Dang Yanbao is the sole director of the Offeror. As such, Mr. Dang Yanbao is deemed to be interested in all the Shares in which the Offeror is interested by virtue of the SFO. Save as disclosed above, as at the Latest Practicable Date, none of the Offeror, the sole director of the Offeror and parties acting in concert with them had any interest in the relevant securities (as defined under Note 4 to Rule 22 of the Takeovers Code) of the Company. 3. ADDITIONAL DISCLOSURE OF INTERESTS AND DEALINGS (a) Save as disclosed in the section headed Disclosure of Interests in this Appendix V, and save for the acquisition of the Sale Shares pursuant to the Sale and Purchase Agreement (which was completed on 8 January 2016) by the Offeror and the share mortgage made by the Offeror dated 8 January 2016 in favour of Bank of Shanghai (Hong Kong) Limited in respect of certain Sale Shares and such number of Offer Shares tendered for acceptance under the Offer ( Share Mortgage ), none of the Offeror, its sole director and ultimate 97

102 APPENDIX V GENERAL INFORMATION OF THE OFFEROR beneficial owner, or any persons acting in concert with any of them (i) owned or controlled any Shares, convertible securities, warrants, options of the Company or any derivatives in respect of such securities as at the Latest Practicable Date; or (ii) had dealt for value in any Shares, convertible securities, warrants, options of the Company or any derivatives in respect of such securities during the Relevant Period; (b) (c) (d) (e) (f) (g) (h) Save for the Share Mortgage, the Offeror had no intention to transfer, charge or pledge the Shares acquired in pursuance with the Offer to any other persons nor had the Offeror entered into any such agreement, arrangement or understanding as at the Latest Practicable Date; No person had irrevocably committed himself to accept or reject the Offer as at the Latest Practicable Date; None of the Offeror, the ultimate beneficial owner of the Offeror or any persons acting in concert with any of them, had entered into any arrangement (whether by way of option, indemnity or otherwise) of any kind referred to in Note 8 to Rule 22 of the Takeovers Code with any other persons in relation to the Shares during the Relevant Period; None of the Offeror, the ultimate beneficial owner of the Offeror or any persons acting in concert with any of them, had borrowed or lent any Shares or any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Company during the Relevant Period; Save for the Sale and Purchase Agreement, there was no agreement, arrangement or understanding (including any compensation arrangement) exist between the Offeror, the ultimate beneficial owner of the Offeror or any persons acting in concert with any of them and any Directors of the Company, recent Directors of the Company, Shareholders or recent Shareholders having any connection with or was dependent upon the Offer as at the Latest Practicable Date; There is no agreement or arrangement to which the Offeror, the ultimate beneficial owner of the Offeror or any person acting in concert with any of them, is a party which relates to circumstances in which the Offeror may or may not seek to invoke a pre-condition or a condition to the Offer as at the Latest Practicable Date; No benefit was or will be given to any Director of the Company as compensation for loss of office in any members of the Group or otherwise in connection with the Offer as at the Latest Practicable Date. 98

103 APPENDIX V GENERAL INFORMATION OF THE OFFEROR 4. MARKET PRICES The table below sets out the closing prices of the Shares on the Stock Exchange on (i) the last Business Day of each of the calendar months during the Relevant Period; (ii) the Last Trading Day; and (iii) the Latest Practicable Date: Closing price (HK$) 31 July August September October November December January 2016 (being the Last Trading Day) January 2016 (being the Latest Practicable Date) 2.77 During the Relevant Period, the lowest closing price of the Shares as quoted on the Stock Exchange was HK$0.74 per Share on 21 August 2015 and the highest closing price of the Shares as quoted on the Stock Exchange was HK$2.80 per Share on 20 January EXPERT AND CONSENT The following are the qualifications of Huatai, the financial adviser to the Offeror whose letter, opinions or advice are contained or referred to in this Composite Document: Name Qualification Huatai a licensed corporation to carry out Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO Huatai has given and has not withdrawn its written consent to the issue of this Composite Document with the inclusion of the text of its letter and the references to its name in the form and context in which they appears herein. 99

104 APPENDIX V GENERAL INFORMATION OF THE OFFEROR 6. DOCUMENTS AVAILABLE FOR INSPECTION Copies of the following documents are available for inspection on the website of the Company ( and on the website of the SFC ( from the date of this Composite Document up to and including the Closing Date or the date on which the Offer lapses or is withdrawn (whichever is earlier): (a) (b) (c) (d) (e) (f) (g) the memorandum and articles of association of the Offeror; the letter from Huatai, the text of which is set out on pages 6 to 14 of this Composite Document; the written consent referred to under the paragraph headed Expert and Consent in this Appendix V; the Sale and Purchase Agreement, in Chinese and in English; the Facility Agreement as described in the section headed Confirmation of financial resources in the Letter from Huatai of this Composite Document; the Debenture dated 8 January 2016 entered into between the Offeror as the chargor and Bank of Shanghai (Hong Kong) Limited as the chargee referred to in the Facility Agreement; and the Share Mortgage dated 8 January 2016 entered into between the Offeror as the mortgagor and Bank of Shanghai (Hong Kong) Limited as the lender referred to in the Facility Agreement. 7. MISCELLANEOUS (a) Set out below are details of the Offeror and its sole director: Registered Address Akara Bldg., 24 De Castro Street, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands Director Mr. Dang Yanbao Correspondence Address Room , 21/F, Shui On Centre, 6-8 Harbour Road, Wanchai, Hong Kong The Offeror is an investment holding company incorporated in the British Virgin Islands with limited liability, and is wholly-owned by Mr. Dang Yanbao. 100

105 APPENDIX V GENERAL INFORMATION OF THE OFFEROR (b) (c) (d) The branch share registrar and transfer agent of the Company in Hong Kong is Union Registrars Limited, which is located at A18/F., Asia Orient Tower, Town Place, 33 Lockhart Road, Wanchai, Hong Kong. The registered office of Huatai is situated at Room , 58/F, The Center, 99 Queen s Road Central, Hong Kong. The English text of this Composite Document and the accompanying Form(s) of Acceptance and Transfer shall prevail over their respective Chinese text in case of inconsistency. 101